Articles Posted in Business Law

Published on: | by

According to its website, the Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. LifeLock has used the massive security breaches of companies like Anthem and Target to increase its membership. On July 21, 2015, the Federal Trade Commission (FTC) claimed that LifeLock—an identity theft protection company—has violated a 2010 Settlement it had made with the agency and thirty-five state attorneys general. This assertion was made due to LifeLock’s alleged misrepresentation of its security capabilities and failing to take steps to protect consumers’ information.

What is the Federal Trade Commission’s responsibility?

The FTC was created to prevent anti-competition business practices and protect consumers against deceptive or unfair business dealings. The Federal Trade Commission Act (which incorporates the U.S. Safe Web Act amendments of 2006) sets the parameters for how the agency can prosecute companies, which it believes are misleading consumers through false or deceptive advertising.  In fact, sections 45 and 52 of the statute indicate that, when a company commits an unfair act or deceptive practice, “and if it shall appear to the Commission that a proceeding … would be to the interest of the public, it shall issue and serve … a complaint stating its charges …”   In addition, section 52 addresses the illegality of false advertisements, which would be likely to induce consumers to purchase a product.  Although, LifeLock was not advertising a product, it was falsely advertising services, so consumers were induced to buying memberships.  Therefore, the FTC is utilizing its ability to prosecute companies for violating the law.

Continue Reading ›

Published on: | by

As of March 25, 2015, the Securities and Exchange Commission (“SEC”) adopted new rules to update and expand Regulation A. Regulation A+ will allow companies to gain access to funds through crowdfunding. These new rules are mandated by Title IV of the Jumpstart Our Business Startups (JOBS) Act.

What will the new rules do?

The update and expansion of Regulation A to Regulation A+ will allow smaller companies to sell up to $50 million of securities in a 12-month period.  These exemptions, however, are subject to eligibility, disclosure, and reporting requirements. The new rules have created a more effective way to raise capital while attracting and protecting investors. Non-accredited investors will be allowed to annually invest up to ten percent of their income or net worth, depending on which amount is greater. Before the new rules came out, only accredited investors were able to invest in startups through equity crowdfunding. The final rules are referred to as Regulation A+ and are provided in two tiers of offerings based on amount of security offerings over a 12-month period. Both are subject to the same basic requirements and eligibility limits, but differ in registration and qualification offerings.

Continue Reading ›

Published on: | by

The modern day business model is shifting towards cloud computing and Software-as-a-Service (“SaaS”) agreements. This new trend allows customers to treat licensing costs as expenses that can be paid over time. SaaS also provides a solution to bug fixes, glitches, and the updating of licenses simultaneously. With the shift to cloud computing, developers are no longer required to provide a platform on which their own application runs.  However, confusion exists about the differences between software licensing and SaaS agreements.

What is the difference between software licensing and SaaS?

A software-licensing model involves the software company to offer a software program in the form of an electronic download or CD-Rom. This software then must be downloaded, installed, run, and operated on hardware before being used by one or more users. This software may be installed on hardware.  It often offers services like training, maintenance, and technical support. On the contrary, in the SaaS model, the company does not make a physical product. It only makes the product accessible through “the cloud” which acts as a hosting platform. One or more users can still access the product, but it must be done through cloud computing services.  As such, external services are not provided because they are expected to be included as part of the hosting platform’s service and support experience. As a result, SaaS acts as a service subscription model and not a physical product.

Continue Reading ›

Published on: | by

Many startups, entrepreneurs, and business owners will consider registering a corporation instead of remaining a partnership or a limited liability company. To become incorporated, an incorporator must file the company’s articles of incorporation with the state of choice, which provides information including the company’s official name. However, the status of being a corporation under California is not guaranteed to last indefinitely unless all the requirements are met. The lack of compliance may lead to the corporation being suspended or forfeited.

What is a suspended corporation?

A suspended or forfeited corporation does not stop being an association, but it loses all the rights and privileges of a corporation and cannot legally act as a corporation while suspended. The Secretary of State’s office or the Franchise Tax Board, which have the authority to suspend a corporation, use this power to sanction a company. Suspension occurs when the company fails to file its tax return under Revenue & Taxation Code § 23301, fails to pay taxes, or fails to file its “Statement by Domestic Nonprofit Corporation” or “Statement by Common Interest Association.”   The inconveniences of filing these documents or paying taxes are greatly outweighed by the consequences of not filing or paying what is required.

Continue Reading ›

Published on: | by

Crowdfunding involves a large number of people contributing small amounts of money to finance a business venture, typically an early-stage startup company. Over the past several years, online crowdfunding platforms have become a popular tool for new businesses and entrepreneurs to market inventions, generate revenue, and increase customer base. While improving accessibility to funding offers a significant economic advantage, crowdfunders should be careful not to release too much information before legally protecting an original idea.

What Are the Legal Risks in Crowdfunding?

The major legal risks in crowdfunding stem from crowdfunders launching campaigns before adequately identifying and protecting intellectual property (IP). This inadequate IP protection may allow ideas and inventions to be copied or stolen without legal repercussions. The risk of unprotected IP is magnified by various public disclosure requirements mandated by online crowdfunding platforms. Specifically, popular crowdfunding websites like Kickstarter require detailed disclosures of how a particular invention or product works—beyond a simple prototype—before a campaign is posted. Moreover, sophisticated predators are constantly searching crowdfunding websites for unprotected ideas.

Continue Reading ›

Published on: | by

Pay-per-click (“PPC”) advertising is a profitable online service that search engines, such as Google, Yahoo, or Microsoft, provide their customers. Now recently, PPC fraud has developed and caused loss of revenues for businesses and advertisers.   PPC fraud occurs when someone or a program clicks on a company’s advertisement without intending to view the website or buy anything.

Many companies have filed lawsuits against search engines, claiming that they have breached the terms and conditions of their contracts. These companies have alleged that the search engines, acting as the intermediaries, that published their online advertisements improperly charged them for fraudulent clicks. Two questions can be raised by these implications. First, how should a chargeable click be defined within the advertising contract? Second, does a search engine have any duty to protect advertisers from fraudulent clicks?

What is PPC Advertising?

Continue Reading ›

Published on: | by

In general, the interested parties in litigation engage in some sort of “alternative dispute resolution,” or ADR, in order to resolve disputes. In fact, ADR may be used to settle cases that are still pending in court. Both the judicial and legislative branches of government have established new programs in order to promote judicial economy. There are both general and specific applications of the alternative dispute resolution. For example, the United States District Court for the Central District of California offers three options. First, a settlement conference with the district judge or magistrate who is assigned to the case. Second, a mediation with a neutral selected from the Court Mediation Panel. Third, a private mediation.

The courts can use various sanctions to urge the interested parties to engage in ADR. For example, sanctions may include imposing court costs, awarding legal fees, contempt, denial of trial de novo (amounting to confirmation of an arbitrator’s award), and dismissal of the pending litigation. However, they can only use these methods in limited circumstances and pursuant to applicable guidelines.

The trial courts have been allowed to use sanctions to force participation in alternative dispute resolution (e.g., arbitration or mediation). The sanctions that were used, included, contempt, denial of trial de novo, striking of pleadings, and dismissal. Yet, sanctions for failure to attend mediation cannot be imposed without notice and hearing. For example, in Rizk v Millard, 810 S.W. 2d 318 (Tex. App. Houston, 14th Dist., 1991), the Court of Appeals held that a trial court judge’s order striking the pleadings of a defendant, after a hearing in which it was determined that defendant violated a compromise agreement, when there was no pending motion to strike, no notice to defendant, and no hearing, violated due process. Although, it is rare, but in some case, the court may consider the argument that opposing counsel should be sanctioned for the failure to attend mediation or arbitration.  The dismissal of a case is rare as the court has the option to impose additional costs and attorney’s fees on the recalcitrant party or his/her attorney for their failure to participate in such proceedings.

Continue Reading ›

Published on: | by

The purchase of commercial general liability and umbrella insurance policies are ways to protect your business from liability. However, these types of policies have not adapted to protect policyholders from certain types of cyber liability.  This issue was recently exposed in a case against Urban Outfitters, Inc., and its subsidiary, Anthropologie, Inc. (collectively “Urban Outfitters”). Urban Outfitters found itself with no suitable insurance coverage when facing several lawsuits for privacy infringement that resulted from credit card transactions. Many businesses collect customer data and infringements of customer privacy may not be covered by traditional insurance policies. Do you run a business that collects consumer data? Are you unsure how far your insurance coverage extends in protecting against consumer data breaches? If so, then you may contact us to speak to an attorney about whether you should obtain cyber liability insurance.

What Was the Issue in the Urban Outfitters Case?

In OneBeacon America Insurance Company v. Urban Outfitters, et al., Urban Outfitters was sued in three different states for consumer privacy breaches. Urban Outfitters was sued because of its practice of collecting consumer zip code information when processing credit card transactions. This practice violated multiple consumer privacy laws. Urban Outfitters then looked to its insurance company to defend the multiple lawsuits. However, the insurance company claimed that its general liability policy did not cover that kind of privacy breach. The federal court in Pennsylvania agreed, and held that the insurance company was not obligated to defend Urban Outfitters in any of the lawsuits. The general liability policy only covered “oral or written publication of material that violates a person’s right of privacy,” and even though Urban Outfitters violated consumer privacy, it never published that material.

Continue Reading ›

Published on: | by

In recent times, a significant amount of business is conducted online.  The Internet connects a business to customers anywhere in the world. What happens when a dispute arises between a business in one state and a customer in another? If the customer wants to bring legal action against the business because of a transaction that occurred online, where does the customer file the action? The answer may depend on the type of website. The courts have created the distinction between active and passive websites. When a transaction occurs through an interactive website, the business may be subject to the jurisdiction of the state where the customer accessed it. Is your business developing a website? Did you know that an interactive website may subject you to the jurisdiction of any state? If so, then you must understand the difference between active and passive websites, and how they may affect your legal rights.

What Is the Active and Passive Distinction?

An interactive or active website is one where business transactions can occur through the website or information can be exchanged to solicit business. On the other hand, a passive website is one that is used to post information for potential customers, but it does not allow for interaction. A passive website is similar to an advertisement. The distinction is crucial because courts will confer personal jurisdiction over companies that maintain active websites in the state where the consumer is located. Active websites include sites that foster online sales, sites that take measures to solicit business in a particular forum, and the use of a third-party site to sell an item. Not every website fits neatly into these two categories, and issues arise when the website falls between the two.

Continue Reading ›

Published on: | by

Since the 1930s, the act of publicly raising money for a startup business has been outlawed. Now, with the implementation of the Jumpstart Our Business Startups Act (“JOBS Act”), in 2012, public crowdfunding is legal and encouraged. Startup companies are no longer confined in the resources and opportunities available to raise capital. Private companies can now publicly advertise that they are raising capital and collect investment funds through online crowdfunding services. The JOBS Act allows for two different ways in which a company can utilize this new crowdfunding opportunity. Is your startup looking for an infusion of capital? Are you considering crowdfunding as an option? If so, then you must understand how Title II and Title III of the JOBS Act apply to your startup.

What is Title II?

Title II of the JOBS Act now allows a private company to solicit and advertise investment opportunities to the general public. But, Congress left it up to the Securities and Exchange Commission (“SEC”) to regulate the rules. The SEC has changed Rule 506 of the Securities Act of 1933 to allow for this new public advertising provided that, “the issuer takes reasonable steps to verify that the investors are accredited investors.” Rule 501 defines accredited investor in three different ways: (1) an individual whose net worth or joint net worth with a spouse exceeds $1 million; (2) an individual with an annual income more than $200,000; or (3) a joint annual income with a spouse over $300,000. In addition, issuers must previously file with the SEC that they are claiming this new public solicitation exemption. The penalty for not following these requirements is being banned from fundraising for a year.

Continue Reading ›