Articles Posted in Business Law

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The Internet of Things is a relatively new development that has changed the world. However, the laws were either non-existent or archaic. Now, it’s important to inform our readers that Jerry Brown has signed a cybersecurity law covering “smart” devices. The bill, SB-327, was introduced last year and states in relevant part that:

Existing law requires a business to take all reasonable steps to dispose of customer records within its custody or control containing personal information when the records are no longer to be retained by the business by shredding, erasing, or otherwise modifying the personal information in those records to make it unreadable or undecipherable. Existing law also requires a business that owns, licenses, or maintains personal information about a California resident to implement and maintain reasonable security procedures and practices appropriate to the nature of the information, to protect the personal information from unauthorized access, destruction, use, modification, or disclosure. Existing law authorizes a customer injured by a violation of these provisions to institute a civil action to recover damages.

This bill, beginning on January 1, 2020, would require a manufacturer of a connected device, as those terms are defined, to equip the device with a reasonable security feature or features that are appropriate to the nature and function of the device, appropriate to the information it may collect, contain, or transmit, and designed to protect the device and any information contained therein from unauthorized access, destruction, use, modification, or disclosure, as specified.

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For this week’s blog post, we will continue with the topic of recent Supreme Court decisions that are affecting the business, e-commerce, and internet world.  Specifically, we will discuss Ohio v. American Express, a case involving the Sherman Antitrust Act and major credit card companies.

In the United States, credit card use is composed mainly of four cards: Visa (45%), American Express (26.4%), MasterCard (23.3%), and Discover (5.3%).  In 2010, the government and 17 states sued American Express, Visa, and Mastercard, alleging that the credit card companies were unreasonably restraining trade and therefore violating the Sherman Antitrust Act.  The government claimed that the credit card companies’ “anti-steering provisions” suppressed competition from rival credit card networks. These anti-steering provisions were between the credit card companies and merchants, and prohibited merchants from “steering” cardholders at the point-of-sale to use cards with lower merchant transaction fees.  Notably, American Express charged the highest transaction fee for merchants.

In fact, both Visa and MasterCard settled with the government in a consent decree in 2011 to change their anti-steering provisions.  American Express, however, continued to litigate up until the Supreme Court case was decided on June 25, 2018. American Express’s business model is different than most credit card companies, which generate revenue mainly from the credit portion of the transactions.  It instead focuses on offering better rewards to consumers than other credit cards, typically attracting a higher-spending for the wealthier consumer.  It then generates the majority of its revenue from merchant fees, arguing that higher merchant fees are justified by the higher spending clientele that it brings to merchants (AmEx also has a higher minimum spending amount for cardholders than other credit cards).

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This is a current update on the principle of net neutrality that is worthy of a discussion. So, how or why is an update necessary?  The answer is that net neutrality rules may be changing soon, and various organizations are currently lobbying for their positions.  Why does net neutrality matter to businesses or consumers?  Is there a way or reason for removing net neutrality? What may you need to consider as a business or consumer after the demise of net neutrality?

Historical Background

For those that have not been following the idea of net neutrality, the idea is simple. No one packet of data can be favored or disfavored by a company that provides internet access. Previous rules would forbid this, and allow entities to sue if there was an intentional slowdown of their service. Indeed, this has allegedly occurred in the past as described in a lawsuit between Time Warner Cable (now Spectrum) and the State of New York.  Essentially, Spectrum was intentionally slowing down service, and only improving the service after payment was received by it.  Under the Open Internet Rules, this process was prohibited.

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In general, internet commerce transpires on the national and international levels. Naturally, data protection is an important concern for private and public agencies.  The European Union’s remaining members are currently in the process of another process to protect data with the “General Data Protection Regulation” (GDPR) set to take effect next year. This differs from the previous Privacy Shield in some respects, as it is broader, and expands beyond the European Union and deals with any individual that may have a shred of a connection to the European Union. So, what is GDPR? What does it require? Also, what are the consequences for non-compliance?

What is the GDPR?

The GDPR grants the following as rights to a data subject (i.e., a user): breach notification; right to access a copy of personal data free of charge in electronic format; right to be forgotten; data portability, allowing transmission to another provider; privacy by design for systems; and data protection officers in cases where constant monitoring of data subjects on a large scale may occur, or for special categories of data regarding criminal convictions.

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Now, by closing out this month and a deep dive into the future of copyright law comes a slightly more obscure reference to a recent change we’ve covered previously. Namely, what is, and what is not, protected under copyright when it comes to clothing? We now know that cheerleading uniforms are protected. However, what about bananas? An odd question, but one that the courts will be looking at as a recent case has been filed regarding the design and sale of banana costumes and has prompted questions in a Post-Star Athletica world. Is this the limit to Star Athletica? Has Justice Sotomayor’s comment about killing knockoffs come true already? Is it possible that the follow-up question to Star Athletica may be a banana battle?

The Now-Settled Case

The now-settled case was between Rasta Imposta, and Kmart, which is a subsidiary of Sears. Rasta Imposta had sold a banana costume and had good business relations with Kmart until Kmart notified Rasta Imposta that it would not be purchasing its costumes any longer.

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In general, parody is a well-tested defense to copyright infringement claims. For example, legal cases involving Barbie Girls and Pretty Women have hammered in the points quite definitively, though the question of what exactly is parody has persisted throughout the years.  Generally, it would be seen as something that ridicules the original work.  So, using the comical characters from the Game of Thrones to ridicule the current state of politics is probably fair use.

Recently, the question has popped up with a new and stranger answer that makes the situation complex. What is this potential new parody standard? How has it changed with time? Does this new standard go where it has never gone before?

The lawsuit

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Following in the theme of “advances in copyright law,” there is an additional snag that seems to occur every now and then. Who owns a picture of you? Naturally, a person may say: “Well, that is a picture of me, and if someone is selling it, or making money from it, then I own it and should be profiting as well.” We can extend this abstraction even further. A tattoo artist creates a design for a famous person, and with that person’s appearance on a film, or a video game, the tattoo artist demands payment. The famous person may say: “But it was a tattoo on my body. Why should I be forced to pay?” Ultimately, it comes to a two-fold situation: First, who is the author? Second, was there a license granted to make it acceptable?

What is authorship?

The first item to determine is authorship. In copyright, one does not necessarily have to be the one who “creates” the work to own the copyright. There are contracts known as “works-for-hire” agreements that can infuse ownership and authorship towards a legal entity. This would mean the legal entity (e.g., corporation, LLC) would be the author and able to file suit under the Copyright Act.

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In general, copyright lawsuits can be expensive. They require a lawyer who is well-versed with the copyright laws and federal court system. Yet, any creator or owner of copyright knows that the real scourge tends to happen with piracy. In some instances, no alterations, no messy facts, and no major damages can make it easier to recoup litigation costs. However, Hakeem Jeffries, who is the Representative for New York’s 8th Congressional District, has acknowledged the issue, prompting another round to get legislation passed starting this year. So, what is in the law? What is the possible effect? Why would this be more beneficial to a copyright holder?

What is a Small Copyright Claim?

The idea is simple and has been thrown around since 2013.  It is an expedited and limited system for copyright claims, akin to small claims courts that exist in state courts. This system would allow copyright holders to affordably pursue claims of up to $30,000, seek declarations of non-infringement, or DMCA claims under 17 U.S.C. 512(f). Also, the officers in this system would be different from federal judges and would be required to have experience in copyright laws and alternative dispute resolution.

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Now, aside from Bitcoin and other digital currencies spawning from video games and consumer-oriented companies, it’s important to be aware that there are other types of digital currencies or so-called “cryptocurrencies.” These operate more similarly to Bitcoin in how they generally lack a centralized system that assigns value (compared to other digital currencies like virtual item trading where the items are managed by a company) and has a similar mining protocol allowing individuals to mine the currency.  Indeed, even Bitcoin had a “split” changing from one cryptocurrency to two. Why are there even alternatives? What features does one cryptocurrency have on the other? How should one evaluate the choice to enter a cryptocurrency market?

Bitcoin’s Split

In order to make Bitcoin more accessible, the system administrators for Bitcoin and other individuals prominent in the community underwent a “split” of the currency, as well as other changes to increase the speed of transaction verification. Due to the limits put in place to make Bitcoins scarce and limit the supply, the effective limit had placed a curb on growth. In response, some users chose to take a split after starting in August of this year to create a new cryptocurrency working mainly on the same system as Bitcoin, but with the ability to convert it to “bitcoin cash” and a faster mining and verification process. This would mean that Bitcoin cash would have a lower face value than Bitcoins, as they would be more plentiful. However, this would also make it potentially less secure as the blocks would grow in maximum size, and it would have a shorter history compared to Bitcoin.

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The legality of certain virtual currencies can be murky.  While some currencies, like Bitcoin, can be readily traded for goods and services, however, other virtual currencies remain where regulation is more questionable. To that point, the curators of digital economies have hired economists to better model the value of these digital commodities, creating a sort of virtual currency by accident.  However, the ecosystem behind these virtual currencies has exploded and led to new questions regarding their use and potentially illicit activities. So, what are these virtual commodities? How did they gain value? What is being done to curtail the murkier aspects?

What are these virtual currencies?

A good example of these virtual currencies comes courtesy of Valve, a company that both creates and distributes video games. For the purpose of creating more income for some of their “free-to-play” games, random prizes are given out, and can be earned in-game, and later resold via its platform. These items generally have no in-game function, and merely provide an aesthetic value. For a select few Valve games, these items can then be exchanged between players, or for currency in Valve’s store. In essence, the items can function much like tickets in an arcade, or more concerning, poker chips in a casino. Other games have similarly created digital currencies that can be shifted easily from a “real” currency to something that can be used (though not necessarily benefit) the person in game.

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