The Business Technology Law Blog

Clickwrap Agreements: One Thing Could Lead to Another

bgross@becker-poliakoff.com (Bradley Gross) — Tue, 09 Mar 2010 02:29:00 GMT

The next time you casually click that "I Accept" button online, you may be biting off more legal liability than you ever thought you'd have to chew. Such was the case for Flowbee, the maker of the famous vacuum haircutting device, when its lawsuit against Google got bounced out of court because of four seemingly innocuous words tucked neatly into a forum selection provision in a Google adword contract.

Now, we've seen (and discussed) lots of forum selection cases before. But what makes the Flowbee case so special is the fact that the issues in Flowbee's lawsuit had nothing to do with the Google adword agreement! Instead, it was four simple words, stashed in the middle of a forum selection clause, that caused the court to apply the terms of the adword contract to other (unrelated!) matters between the parties. Read on....

Flowbee, maker of the famous vacuum haircutting device, had a problem: Google was allowing Flowbee’s competitors to purchase the word “Flowbee” as a Google adword. This meant that when a person performed a Google search for the word “Flowbee”, Flowbee’s competitors’ sites would appear on the screen. Not a good thing—if you’re Flowbee.

Then, two important things occurred…now follow me here because it gets confusing. First, Flowbee demanded that Google stop allowing others to purchase the word “Flowbee” as a Google adword—a request that was flatly refused by Google. Second, Flowbee entered into its own adword program agreement with Google (presumably under the theory of “if you can’t beat ‘em, join ‘em").

Ok, here’s where it gets riveting (at least it does for me): the adword agreement between Flowbee and Google had a forum selection clause that said, “All claims arising out of or relating to this agreement or the Google Program(s) shall be litigated exclusively in . . . California.”

Why is that riveting? Hang on….

Flowbee then sued Google in Texas for trademark infringement, based on Google’s sale of the adword “Flowbee” to Flowbee's competitors. Google asked the court to dismiss the case, and the court pleadings went something like this:

Google: “Hey Judge, Flowbee has to come to California because that’s what the forum selection clause says in the adword agreement. See, it says right here, 'All claims must be settled in California.' ”

Flowbee: "Judge, the forum selection clause has nothing to do with this dispute. We are suing over trademark infringement for things that pre-date the adword agreement. Google's act of selling the word 'Flowbee' to our competitors is unrelated to our side advertising deal with Google."

The court's ruling went something like this:

Court: "Google wins. Even though the forum selection clause was in the Google adword agreement, it specifically says that it applies to the adword agreement AND any other dispute that Flowbee has with Google."

Hold the phone!! Can that be true? Can a provision in an agreement bind the parties on issues that are unrelated to that agreement? Answer: YES!

Now let’s take a closer look at that forum selection clause. Remember it said, "All claims arising out of or relating to this agreement or the Google Program(s) shall be litigated exclusively in . . . California." See the words in bold print (which, of course, were not in bold print when Flowbee inked its deal with Google)?

In plain English, the words in bold print cause the entire provision to mean, "If you want to sue Google over this agreement or any other issue that concerns Google, you need to come to California to do it."

Sneaky draftsmanship? Perhaps. But enforceable nonetheless.

So what's lesson of the Flowbee case? It is simply this: be careful of the "fine print" in boilerplate-type provisions such as forum selection clauses. If a contract provision refers to another unrelated document or issue, then ask questions before signing (or clicking, as the case may be) on the dotted line.

Document Destruction Revisited

bgross@becker-poliakoff.com (Bradley Gross) — Mon, 01 Mar 2010 20:04:00 GMT

Six years ago, a series of decisions, called the "Zubulake decisions" were handed down by Judge Scheindlin of the Federal Court for the Southern District of New York. These decisions were, and remain, vitally important to any company that produces or stores electronic records.

How important are they?

Well, let me put it this way: in my opinion, no decisions have ever been more important and relevant to what companies can and can not do with electronic documents (in the context of litigation) than the Zubulake decisions.

That is, until now.

Question: What could be more important, more hard-hitting, and more insightful than the Zubulake decisions?

Answer: Another opinion, issued this past January, entitled, "Zubulake Revisited: Six Years Later". (The full case name is Pension Committee of the University of Montreal Pension Plan v. Banc of America Securities, LLC, and it was authored by Judge Scheindlin, the same judge who write the original Zubulake decisions.)

You can read the case HERE. While you're downloading the case, let's review some tips about what you should and should NOT do with your company's electronic documents.

Quick disclaimer: The following tips are based on the Zubulake and Pension decisions, but they are not a substitute for legal advice.

Tip 1: To destroy or not to destroy? (I say destroy, but only if....)

I subscribe to the school of thought that says, "if you don't need it, throw it out." There are many good reasons why a company would (and should) destroy their documents from time to time. But such destruction should only be done pursuant to a written and strictly enforced document destruction policy. You read more about that HERE. Also, if you're involved (or likely to be involved) in litigation, then STOP THE DESTRUCTION and read Tips 2, 3 and 4 below.

Tip 2: When litigation comes a knockin', stop the destruction and issue a "litigation hold".

If you remember only one thing from this blog entry, remember this: if you are going to be involved in litigation, either as a plaintiff or defendant, then immediately stop destroying your documents, and preserve everything until your attorney tells you otherwise. This is referred to as a "litigation hold", and it is a crucial first step in the litigation process. Failure to timely issue a litigation hold could result in severe penalties (such as monetary fines or judgments) against you.

Tip 3: Assess your documents and key players, and write everything down.

You can avoid problems later on by figuring out (i) what documents exist, (ii) where they reside, and (iii) who is in the best position to speak about them. Remember, documents can exist in many places, including flash drives, PDAs, mobile phones and offsite email accounts. For that reason, your assessment team must include counsel who (hopefully) is well-versed in discovery issues. Make sure you keep a log of your assessment efforts, just in case anyone down the road tries to accuse you of ignoring your discovery obligations.

Tip 4: Trust your attorney with the good, the bad and the ugly. And the mistakes.

Everyone makes mistakes. If you discover any issues or problems with your e-document preservation or assessment activities, then tell your attorney immediately. Mistakes can be dealt with, often without hype, fanfare or penalty from the court. Trust your attorneys with the good, bad and ugly points of your document review and preservation activities. After all, that's what you're paying them for.

If you have questions about e-discovery or whether your company's document retention / destruction plan adequately protects your company's interests, email me and I'd be happy to send you a copy of my white paper, "Document Destruction Policies: A Primer."

No Fault Found - An Update.

bgross@becker-poliakoff.com (Bradley Gross) — Mon, 01 Mar 2010 03:23:00 GMT

If you've been keeping up with the No Fault Found Syndrome that I've written about many times in the past, then there's a video out there you should see....more on that in a moment.

(If you haven't read my prior blog entries about No Fault Found, feel free to read them HERE.)

Briefly, No Fault Found ("NFF") occurs when (according to Wikipedia) "an originally reported mode of failure can't be duplicated by the evaluating technician and therefore the potential defect can't be fixed."

I like to define it this way: an electronic device signals a malfunction, but when the device is tested in the lab, the lab techs can't find anything wrong with it. Strange, but true. Happens all the time, and costs us (the consuming public) a huge amount of money. Why? Read my blog....

I host a think tank on LinkedIn (appropriately named, the "No Fault Found Think Tank") in which we discuss this issue and try to figure out ways to fix it. One of the participants, Copernicus Technology Ltd., is at the cutting edge of this issue and has proprietary equipment that can address NFF.

Check out the Copernicus Technology video HERE. If you're in the aviation or consumer electronics industries, pay attention to these guys. They might just save you (and me) some money.

Websites & Jurisdiction: You Make the Call !!

bgross@becker-poliakoff.com (Bradley Gross) — Wed, 24 Feb 2010 02:47:00 GMT

Ever wonder if you can get pulled into court in a foreign state or locale based on something that occurs through your company's website?

Short answer: you can....sometimes.

But now I'm going to give you, my faithful readers, the opportunity to "make the call" on this issue. What follows are real facts, from a real case that was just handed down by a federal court.

You be the judge, and let me know (by commenting to this blog entry) whether, under the facts provided below, you would pull the "offending" website into a foreign court. I'll reveal the actual ruling in a few days.... (UPDATE: Feb. 26, 2010: Answer revealed below)....

And now, the facts....

Eagle Coffee Company, a Maryland company, owns the trademark "EAGLE COFFEE", and has been using the trademark with regard to coffee products since 1921.

Along comes Eagle Coffee International, a coffee company located in New York, which (in 1983) starts using the mark, "EAGLE COFFEE". Eagle (NY) also creates a website to market and sell its products at www.eaglecoffee.net.

Eagle (Maryland) discovers what's going on, and demands that Eagle (NY) stop using the mark.

Eagle (NY) says "no way".

Eagle (Maryland) sues Eagle (NY) for trademark infringement, but launches the case in Maryland, not in New York.

Eagle (NY) says, "hey--you can't sue us in Maryland", and claims that it has no significant connections to Maryland.

Eagle (Maryland) says, "not true--you made seven Internet-based sales to customers in Maryland. You also used the phrase 'please come again' in confirmatory emails following each Maryland-based purchase, implying that you want Maryland customers to visit your website."

You're the judge: how do you rule? Does the NY company have to travel to Maryland, or do you dismiss the case?

ANSWER: Eagle NY stays in NY; the case in Maryland is dismissed.

Why? Because fairness still rules the day.

Let's take a closer look at what Eagle (Maryland) was arguing. They claimed that Eagle (NY) made seven sales to Maryland customers since 1983, which justified forcing Eagle (NY) to defend itself in Maryland. Think hard about that: 7 sales in 27 years!! Do the math.

Does anyone really think that that Eagle (NY) should have been pulled into Maryland because the company made approximately 3.8 sales to Maryland customers every 7 years?? Lawyers would say, "such a notion fails to comport with traditional notions of fairness and justice. "

I say, it's just plain ol' crazy talk.

The court got it exactly right, and put it this way: "This Court is not satisfied that Eagle [NY] has established sufficient minimum contacts with Maryland such that [Eagle (Maryland)] would reasonably anticipate being haled into court here."

Hooray. Fairness and justice triumphed over crazy talk. Yes folks, sometimes that actually happens.

Enforcing Click-Wrap Agreements? Remember: Pigs Get Fed and Hogs Get Slaughtered.

bgross@becker-poliakoff.com (Bradley Gross) — Thu, 18 Feb 2010 14:17:00 GMT

Two cases involving click-wrap agreements were decided in the past few weeks--with very different outcomes. Both cases involved Web-based purchases in which consumers agreed to certain online "terms and conditions." In both cases, the online terms of sale contained forum selection provisions (a/k/a "if you sue us, you need to sue us in our state and you must do it our way" clauses).

But in one case, a court refused to enforce the forum selection clause; in the other, a court fully enforced the forum selection clause.

Why the different results? Answer: it's a classic case of pigs vs. hogs. When it comes to clickwrap agreements, tough contract language (i.e., pigs) generally will be enforced, while provisions that require too much of consumers--often to the point of unabashed overreaching (i.e., hogs)--will be rejected.

In the first case, Fee v. Expedia Inc., the plaintiff, Zachary Fee, sued Expedia (which operates the travel website Hotels.com) for deceptive trade practices, alleging that Hotels.com unilaterally switched the plaintiff's paid reservation from a four-star hotel to a three-and-one-half star hotel. Fee brought the lawsuit in Kansas, despite the fact that he clicked the "I Agree" button on Hotels.com's clickwrap agreement, which required Fee to bring all disputes against Expedia in Texas. The Kansas court dismissed Fee's lawsuit, and held that the clickwrap agreement required Fee's lawsuit to be brought in Texas, not Kansas.

In the second case, Omstead v. Dell, plaintiff Michael Omstead brought a class action lawsuit in California against Dell, Inc., the famous Texas-based computer company. In his complaint, Omstead asserted that Dell designed, manufactured and sold defective notebook computers in violation of California law.

But Dell's website required purchasers (including Omstead) to accept a clickwrap agreement that contained a quirky forum selection clause. Not only did the clause require all lawsuits against Dell to be filed in Texas, but it required consumers to forgo their right to bring a class action suit against Dell for any reason whatsoever.

The result? Dell lost, and the California court refused to enforce Dell's forum selection clause in its clickwrap agreement.

So what gives? Why did the court in the Expedia case enforce the forum selection clause, while the court in the Dell case refused to do so?

The answer lies in the language used by each company in its clickwrap agreement. In the Expedia case, the clickwrap agreement simply said, in sum, "if you want to sue us, you need to come to Texas to do it." That's easy enough, right? Consumers might not like the venue restriction, but there are probably worse things than having to go to Texas to bring a lawsuit....

But in the Dell case, Dell not only required consumers to come to Texas for litigation, but the company's clickwrap agreement also required consumers to give up their right to band together to bring a class action lawsuit against the company. Dell fell victim to classic case of contractual overreaching.

Quick (related) side note: How do you know when a contract "overreaches"? Here's my rule of thumb, which is not a formal rule per se, but it's remarkably accurate: if the contract makes you say, "I'm not sure I like that," then it's probably not overreaching. But if the contract makes you say, "You're kidding right? You think I'd ever agree to that?", then it's probably overreaching.

Sometime overreaching in contracts is both justifiable and enforceable. But in contracts of "adhesion" (i.e., "take or leave it" contracts that a consumer cannot negotiate), courts will look very carefully (and negatively) at provisions that require consumers to waive their rights, especially their right to sue.

So what have we learned? Here are the take-aways from the Expedia and Dell cases:

1. If you're drafting a clickwrap agreement, include those provisions that (i) you really need and (ii) can be justified from a legal and business perspective.
2. Just because a provision would benefit your company (such as requiring consumers to waive their rights to bring a class action case) doesn't mean that the provision is "justifiable."
3. When drafting clickwrap agreements, stick to governing law and venue restrictions, and don't restrict too many other "fundamental" consumer rights, such as a consumer's right to sue.
4. Keep in mind the adage, "Pigs get fed, hogs get slaughtered."

When it comes to clickwrap agreements, be a pig. Not a hog.

Privacy in Text Messages? The U.S. Supreme Court Needs to Reverse the Ninth Circuit...

bgross@becker-poliakoff.com (Bradley Gross) — Mon, 25 Jan 2010 04:33:00 GMT

For the first time, the Supreme Court of the United States will consider how much Constitutional protection text messages are entitled to receive. And thank goodness for that, since the Ninth Circuit just handed down a ruling that is not only wrong, but calls into question 25 years of case law. The case is City of Ontario v. Quon, and you can read the Ninth Circuit's ~~mess~~ decision HERE.

These are the facts: SWAT team members of the City of Ontario Police Department in California were given pagers that through which text messages could be sent and received. The Department had in place a general "Computer Usage , Internet and E-Mail Policy", but the policy did not expressly cover the pagers or text messaging. Instead, the policy generally provided that personal messages were subject to "access and disclosure."

It was generally known that some SWAT members used the pagers for personal texts on occasion. Officers that went over their allotted monthly character limits were asked to pay the overage charges.

One officer, Officer Quon, exceeded the monthly limit three or four times. Each time Quon was asked to pay the overage charges, and on each occasion he did so. The City did not review any of Quon's messages on those occasions.

One day, the Department decided to order the transcripts of the text messages sent by Officer Quon. Why? We'll get to that in a moment...

The Department received the transcripts and discovered (surprise, surprise!) that many of Quon's messages were personal in nature and often sexually explicit. Quon sued the Department alleging that he had a reasonable expectation of privacy in his text messages, especially in light of the Department's historical reluctance to review text messages from officers that exceeded their monthly character allotment.

The Department argued that they had the right to inspect the messages because the Department wanted to know (i) if personal messages were being sent during work hours (which would clearly violate Department policy), and (ii) if officers were being asked to pay overage charges that were really business-related charges (in other words, the Department wanted to avoid having officers pay overage charges for texts that were work-related.)

The Ninth Circuit agreed with Quon, and found that the Department's informal policy that the text messages would not be audited if the overage charges were paid, rendered Quon's expectation of privacy in the messages "reasonable."

My opinion: The Ninth Circuit got it wrong. Way wrong. So wrong that I can't believe it. I haven't seen a decision this bad since Brett Favre decided to throw a desperate pass up the middle of the field--which was intercepted--in the final moments of the fourth quarter of the Saints/Viking playoff game. (I just finished watching the game, so my analogy, at the time of writing, is quite timely).

Under current federal case law (specifically, O'Connor v. Ortega as well as the Electronic Communications Privacy Act), employers (even government employers) have the right to intercept and review communications between their employees and third parties when the equipment used for communicating (such as the telephone, or email server, or pager) is provided by the employer, and where the interception is for legitimate work-related, non-investigatory purposes.

And what, is exactly, is a "legitimate work-related, non-investigatory purpose." Hmmmm...how about making sure that employees are generally doing their jobs instead of using office-supplied equipment to goof off. How about making sure that employees generally are not using office-supplied equipment to conduct illegal activities? Folks, this has been the law for over 25 years--this isn't new stuff.

But the Ninth Circuit seems to have forgotten the past 25 years, and wants us to believe that an employer must go through a Constitutional analysis every time the employer wants to know what his employees are doing on company time while using company equipment.

The dissenting opinion in the case is exactly right, and so I will quote it (below). Remember this quoted section of the opinion, because I guarantee you that in a year or two the Supreme Court of the United States will reverse the Ninth Circuit and say the EXACT same thing:

         This case is, at its core, a workplace privacy case. The panel turns its back on
         “the common-sense realization that government offices could not function
          if every employment decision became a constitutional matter.” O'Connor, 480
          U.S. at 722, 107 S.Ct. 1492 (quoting Connick v. Myers, 461 U.S. 138, 143,
          103 S.Ct. 1684, 75 L.Ed.2d 708 (1983)). By holding that a SWAT team
          member has a reasonable expectation of privacy in the messages sent to and
          from his SWAT pager, despite an employer's express warnings to the contrary
          and “operational realities of the workplace” that suggest otherwise, and by
          requiring a government employer to demonstrate that there are no more less
          intrusive means available to determine whether its wireless contract was
          sufficient to meet its needs, the panel's decision is contrary to “the dictates of
          reason and common sense” as well as the dictates of the Supreme Court. The
          panel's decision undercuts the Supreme Court's consistent and explicit
          prohibition on reading a less intrusive means requirement into the Fourth
          Amendment's prohibition on unreasonable searches. It also undermines the
          reasoning and logic of O'Connor v. Ortega.

Comcast Settles P2P Litigation and Promises Not To Do It Again. Seriously.

bgross@becker-poliakoff.com (Bradley Gross) — Tue, 19 Jan 2010 04:29:00 GMT

Comcast has agreed to pay $16 million to settle a peer-to-peer "throttling" lawsuit. The lawsuit was one of seven suits filed against Comcast, all of which alleged that Comcast slowed or impeded peer-to-peer (a/k/a "P2P") transmissions sent using Comcast's broadband high-speed Internet service without telling its subscribers--despite the fact that Comcast advertised "unfettered" access to P2P networks. You can read the text of the proposed settlement HERE.

According to the proposed settlement, which was preliminarily approved by a federal court in Pennsylvania last month, Comcast will put $16 million into a settlement fund, and certain people impacted by Comcast's actions will be able to apply for a one-time credit of up to $16, payable from the fund.

Who, you may ask, are the "certain people" entitled to a $16 refund? According to the proposed settlement, the settlement class consists of:
            "all persons with accounts for Internet service from affiliates and subsidiaries
             of Comcast Corporation in any U.S. state or territory in which Comcast offers
             high-speed Internet service and who either:
                    (a)     used or attempted to use the Comcast service in order to use the
                              Ares, BitTorrent, eDonkey, FastTrack or Gnutella P2P protocols at
                              any time from April 1, 2006 to December 31, 2008; or
                    (b)     used or attempted to use the Comcast service in order to use Lotus
                              Notes to send emails at any time from March 26, 2007 to
                              October 3, 2007."

A final determination of whether the proposed settlement is fair and reasonable will take place on April 15, 2010.

And what will stop Comcast from doing this type of thing again? It's simple: Comcast said it won't. (I'm serious--you can't make that kind of thing up).

Once Comcast was caught in the act and stopped its improper activity, the FCC conducted its own investigation. During that investigation, Comcast claimed that it stopped its improper behavior and said that it wouldn't do it again. Largely on that basis, the Court refrained from issuing an Order enjoining Comcast from violating Net Neutrality directives from the FCC, as well as state law and (believe it or not) Comcast's own terms of service.

I think the Court's unwillingness to issue an injunction is, in a word, inexcusable. Wait, I have another word: inexplicable. So let me get this straight: Comcast sold a service which used hidden computer codes to interrupt subscribers' ability to enjoy P2P networks. Comcast purposely didn't tell its subscribers of this situation. When confronted, Comcast initially (and publicly) denied that it was interfering with P2P networks over its broadband lines. Only after the issue was brought to light by the Associated Press and the Electronic Frontier Foundation did Comcast admit to its wrongdoing.

And despite all that, the court wasn't moved to issue (or require) an injunction as part of the settlement?

Somebody tell me what I'm missing here....

Lucasfilm Can't En-FORCE Its Copyright in England

bgross@becker-poliakoff.com (Bradley Gross) — Wed, 13 Jan 2010 14:29:00 GMT

Under the category of "protect your stuff overseas or else it might not be yours for long", we turn now to a recent case involving Lucasfilm, Star Wars and England's IP laws.

Star Wars is one of the most recognizable and profitable franchises in the world. Just tell someone to "use the Force" or make a passing remark about someone acting like "Darth Vader," and people will instantly correlate your reference to the Star Wars trilogy of movies, or to the Star Wars cartoon, or to Star Wars merchandise...you get the point, I'm sure.

So when Lucasfilm found out that a company in England was selling Star Wars-related merchandise without permission, it did what any responsible copyright holder should do: it filed a lawsuit to stop the copyright infringement from continuing. But as Lucasfilm learned, sometimes not even the Force can overcome issues of international law....

The first lawsuit was filed in California (home of Lucasfilm Ltd.), and alleged that Shepperton Design Studios (located in England) and its owner, Andrew Ainsworth, were creating and selling unauthorized replicas of the helmets worn by Stormtroopers in the Star Wars movie trilogy.

Neither Shepperton nor Ainsworth showed up to the California fight, and Lucasfilm received a default against both for $20 million. (More on that amount in a moment...)

Next, Lucasfilm was off to England where it sought to enforce its default judgment against Shepperton and Ainsworth.

In England, Ainsworth admitted that he was selling Stormtrooper helmets through his Shepperton Design Studios website, but claimed he had the right to do so because his company was the original maker of the designs of the merchandise he was selling. (Not a bad argument, but one which likely could have be overcome by an unambiguous, written agreement addressing both the ownership issue and the conflict of international law issue. If one existed here, it certainly wasn't mentioned in the High Court's decision--and that's a problem. Read on.....

The case made its way to the High Court of Justice in England, which ruled that Lucasfilm could NOT enforce its default judgment in England. Why? Because under English copyright law, the Stormtrooper helmets created by Ainsworth were "sculptures", and Ainsworth held copyright rights in the sculptures that he created.

You can read the High Court's ruling HERE. In my opinion, the best part of the decision appears on page 2, where the English Court commented that "Lucasfilm has obtained a default judgment for trade mark and copyright infringement in California against [Ainsworth] in the sum of US$20m. That sum sounds strange to English ears given that [Ainsworth] only sold about $US14,500 worth." Strange indeed. Or perhaps the Court simply doesn't understand good ole American math as calculated by attorneys. (I know that last statement will upset my litigator friends. So be it.)

But what of the U.S. default judgment? Won't a court in England enforce a U.S. judgment? Answer: maybe not. The High Court pointed out that an EU member state would have no problem enforcing judgments from other EU-member states. However, the High Court was reluctant (indeed, refused) to enforce a judgment from a non-EU member state (i.e., the United States) where (i) the defendant was a resident of England, and (ii) none of the infringing activity took place outside of England.

My opinion: the High Court was CORRECT. We should not assume that a foreign court will (or should)automatically enforce a U.S. judgment anymore than we would assume that a U.S. court would automatically enforce judgments from overseas. (Could you imagine if American courts had to enforce everything that was handed down by a foreign court? Think about how scary that would be.)

Bottom line: when it comes to intellectual property, the law is territorial. Put another way, unless you take steps to actively protect your intellectual property in every geographic area in which your company does business, your company could lose control of its intellectual property outside of the United States.

If you're doing business overseas, you need to think seriously about this issue. Protect your stuff overseas, or it may not be yours for long.

And may the Force be with us all.

The FTC's New Advertising Guidelines Go Into Effect In Less Than Ten Days... Be Prepared!

bgross@becker-poliakoff.com (Bradley Gross) — Mon, 23 Nov 2009 23:03:00 GMT

The FTC recently revised the guidelines it uses to determine the legality of advertisements containing endorsements or testimonials. If your company uses endorsements or testimonials as part of its marketing strategy, you need to be aware of the changes to the guidelines, or you may be putting your company, yourself and the people endorsing your company’s products or services at risk of violating federal law. The new guidelines go into effect on December 1, 2009, so if you haven’t adjusted your marketing strategy yet, now is the time to do so.

Consider the following examples of common advertising strategies, and think about whether they apply to your current marketing paradigm. If they do, then you need to act quickly to bring your marketing strategy into compliance with the law.

“It worked for me, it can work for you!”

These advertisements usually depict “before and after” photos, and imply that if you use a particular product or service, you will transform from the “before” person to the “after” person. Most often the fine print to these advertisements states, “Results not typical. Actual results may vary.” Under the old FTC guidelines, this type of disclaimer was usually acceptable--it isn't anymore.

Under the FTC's new guidelines, simply stating that a user might not have “similar results” is insufficient, because the disclaimer doesn’t disclose what the average user of the product or service will experience. Instead, the advertisement must specifically state what the typical user will experience, or what most people will experience if they use the advertised product or service.

“I’m not just the president of the company, I’m a customer too!”

Advertisements that present endorsements by people that claim to be “actual customers” of a product or service must, in fact, be actual customers. If the endorser is not an actual customer, then that fact needs to be clearly and conspicuously stated in the advertisement.

“I’m not a doctor, but I play one on t.v.”

If an advertisement represents, directly or by implication, that the endorser is an expert with respect to the endorsement message, then the endorser must be an expert in the area in which he or she is speaking. (In other words, if a car engineer is boasting about a particular car part, the engineer must be a car mechanic—not a chemist.) Moreover, the expert must have examined the advertised product or service in order to support the endorser's conclusions in the endorsement.

“Independent research shows conclusively that our product is superior.”

If an advertiser pays a research company to do research, that fact must be disclosed in the advertisement.

“I’m a paid spokesperson—but I’d do this even if I wasn’t being paid!”

Whenever there is a connection between the endorser and the seller of the advertised product or service that might significantly affect the credibility of the endorsement, that connection must be disclosed. For example, if a spokesperson is being paid to endorse a product, that fact must be disclosed. Similarly, if a blog accepts free samples of a product from a manufacturer and subsequently promotes the product on the blog, that fact must be disclosed clearly and conspicuously.

If you have any questions about whether your company's marketing strategy needs to be updated or brought into compliance with the FTC's new guidelines, or if you have any questions about the guidelines themselves, please contact me by email or directly at (954) 364-6044.

"No Fault Found" Think Tank - What's Your Opinion?

bgross@becker-poliakoff.com (Bradley Gross) — Fri, 20 Nov 2009 02:49:00 GMT

Recently, I posed the following issue / question to my LinkedIn "No Fault Found" Think Tank:

In 2008, retailers saw an almost 35% return rate on certain consumer electronics. Most of the returned products were deemed "no fault found" by their manufacturers. Question: Why so many returns?

For those of you who don't know what "no fault found" is, click HERE to read my prior posts on the topic.

My friend and esteemed colleague, Scott Storm (owner of Storm Computer) had some great thoughts on the issue. He offered the following:
---------------------------------------
"There could be several reasons. The obvious are:

1. The product could not perform the tasks that it was being asked but passed manufacturer qc..
2. Price drop on product not being handled by the retailer.
3. How many times have we gone to return something and they say just go get another one.
4. Product improvement by manufacturer. Dvd vs dvd with Blueray.
5. Inept triage from technical service.
6. Customer ignorance of the product.
7. It is easier for a retailer to "defect" a unit than to handle it as a regular return. The retailer will get 100% credit on a defect whereas he will get a percentage if he resells it as customer return. There is less labor cost for a defect than there is in a return.
8. 'The customer is always right' comes to mind. Then see number 7.
9. Loose return policies."
---------------------------------------

Scott was 100% right in everything he said. But the debate continues.

CLICK HERE AND JOIN US as we continue to tackle the issue....

Requests For Proposals - Do It Right Already! (Part I)

bgross@becker-poliakoff.com (Bradley Gross) — Thu, 01 Oct 2009 05:26:00 GMT

Most companies have no idea how to draft a RFP. On the flip side, most vendors have no idea how to respond to a RFP. When a poorly written RFP meets an inadequate response, we end up with the perfect (legal) storm of litigation. (If you like litigation, then stop reading and call your therapist.)

Enough already. Let me teach you some things that will save you hundreds of thousands of dollars. Maybe more.

Caveat: this topic is too big to tackle in a single blog entry, so I'm going to summarize the main points and break them up over two or three entries. But if you want the whole thing (plus more relevant info) in one fell swoop, drop me an email and I'll send you my whitepaper, The RFP Process: What My Clients Know That You Don't. (Catchy title, I know. But believe me, my clients currently know things about the RFP process that you don't.)

For illustrative purposes, I'll use a typical sourcing / managed services project to show how companies routinely fall short in the RFP process.

The Planning Stage

In their zeal to find a suitable vendor, companies often rush through the planning stage of the RFP process. Big mistake. Sometimes, a fatal mistake. In doing so, companies overlook the nuances of the sourcing relationship that are crucial for a successful venture.

Remember this equation: Planning = Participation + Clarity + Humility.
(This equation is officially known as The Gross Principle of Planning. Remember: it's my blog, it's my equation, and so I get to name it.) Now let's break down the equation....

Participation refers to the need for all levels of management to participate in the planning stages of the RFP. "C" level managers (i.e., CEO, CFO, CTO, etc.) need to be actively involved in the planning stage, since the result of the process will likely have a serious impact on the company's fiscal position and corporate structure.

Other people, such as division directors, field / service managers, and those involved in day-to-day operations may need to be included in the planning stage, since those are the folks who know what makes your company tick at a foundational (i.e., "street") level.

Crucial point: Some of the planning participants may have personal agendas that run contrary to your company's RFP process. Why? Because the end result of the RFP may be to eliminate part or all of those participants' job functions. If you find yourself in that scenario, don't automatically assume that you need to exclude such people from the planning collective. It may turn out that the participants won't be let go from the company; instead, they might serve the company in a different but equally important role after the sourcing process is completed. If that's the case, let the affected people know that from the outset, then get back to working on your RFP....

Participation may include the use of an outside consultant that can help you guide your company toward the right solution for your company's particular situation. Check out TPI. Or Auxis. Consider the possibility that the best person to help you manage your company through the RFP process may be someone other than yourself--that's called humility. More on that later....

Include counsel. No exceptions. Why? Because (competent) counsel can think of things to ask in an RFP that you wouldn't think of. Here's one: how about requiring vendors to propose remedies, in their RFP response, for non-performance?

Oh--you say you already thought of that? Of course you did. That's RFP Drafting 101.

But how about this: how about requiring vendors to propose ways in which they can earn-back credits they may have lost due to non-performance? How about challenging them, through the RFP, to propose procedures by which they could earn rewards or incentives, such as bonuses or comp time, for a job that exceeds expectations? In other words, how about requiring vendors to come up with their own incentives? Think about it: you could actually gauge a vendor's motivation and confidence by comparing the vendor's proposed incentive plan against other plans proposed by competing vendors.

Now I KNOW you didn't think of that before. But I have.

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Stay tuned for the next installment of "Requests For Proposals - Do It Right Already!".

Public Information = Trade Secret? Yes, Says the Tenth Circuit.

bgross@becker-poliakoff.com (Bradley Gross) — Thu, 17 Sep 2009 22:40:00 GMT

Trade secrets are your company’s most valuable assets. But what if your company’s secrets include public domain information? Does the inclusion of public domain information destroy the secret?

Let’s say, for example, your company uses a process that consists of nine steps. Assume that eight of the nine steps are either in the public domain, or have been disclosed to people outside of your company.

Despite the fact that most of the elements of your company’s process are floating around in the general public, you still want to protect your company’s process as a trade secret.

So, can it be done? Can you protect a process that consists of components that are, for the most part, in the public domain?

The Tenth Circuit just said yes. And I agree.

The case of Hertz v. Luzenac Group, handed down by the Tenth Circuit last month, illustrates the circumstances under which information in the public domain can become a protectable trade secret.

In the Hertz case, the Luzenac Group sued two of its former employees for (among other things) revealing Luzenac’s trade secrets relating to Luzenac’s production and marketing of a certain type of talc. The defendants claimed that the information they revealed was not a trade secret because virtually all of the information was in the public domain.

The defendants initially found a friend in the trial court. The court held that out of the nine elements purportedly comprising Luzenac’s ‘trade secret’, “one of the elements was not part of the process at all, four were obtained from the public domain, two were publicly disclosed, and two were both obtained from and disclosed to individuals outside of Luzenac.” Based on that summary, the trial court found that the information was not a trade secret.

Enter the Tenth Circuit Court of Appeals.

The Tenth Circuit reversed the case. In doing so, the appellate court pointed out that a trade secret “can exist in a combination of characteristics and components each of which, by itself, is in the public domain, but the unified process, design and operation of which, in unique combination, affords a competitive advantage and is a protectable secret.”

Does the Hertz case mean that any combination of public facts or components can be protected as a trade secret? No. Not remotely. But it reminds us that a company’s processes or procedures may very well be protectable trade secrets, despite the fact that those processes or procedures are comprised of information in the public domain.

Remember, your company’s trade secrets are undoubtedly its most valuable assets. (If you don’t understand why or how, call me right away, and I’ll explain it to you). Don’t lose those secrets to your competitors or give them away to unscrupulous employees. It behooves you to call an attorney to determine how you can best protect your company’s trade secrets. And don’t be dismayed by the fact that your company’s secrets may rely on, or use, public domain information—they still may be protectable under trade secret law.

Ambiguity: When Good Contracts Go Bad

bgross@becker-poliakoff.com (Bradley Gross) — Thu, 10 Sep 2009 00:52:00 GMT

Ambiguity is the number one reason why good contracts go bad. Ambiguity is the gasoline that powers the commercial litigation engine. It is the coal that’s shoveled into the furnaces that keep litigators warm and cozy at night. I know that litigation is sometimes a necessary evil—but when litigation arises from ambiguity in a contract, it is not necessary. It is sad.

Case in point: the matter of The SCO Group, Inc. v. Novell, Inc. The lengthy decision, handed down by the Tenth Circuit Court of Appeals on August 24, illustrates the (expensive) perils that your company faces if it uses ambiguous agreements.

Here are the four facts you need to know about the case in order to follow along:

    1. Novell sold the rights to certain software (called Unix and UnixWare) to a company called Santa Cruz. (Ok, so far so good…..)

    2. The parties entered into a written asset purchase agreement (or, “APA” for short) describing the terms of the sale. (Ok, you with me so far? Good.)

    3. One section of the APA stated that Santa Cruz would purchase from Novell “all rights and ownership of UNIX and UnixWare”. (Ok, so everything goes to Santa Cruz. Got it? Good, so do I.)

    4. One year after the deal closed, the parties amended the APA to say that “all copyrights and trademarks, except for the copyrights and trademarks owned by Novell as of the date of the Agreement required for [Santa Cruz] to exercise its rights with respect to the acquisition of UNIX and UnixWare technologies” were excluded from the deal. (Hang on…I'm lost. Where's the aspirin?)

You follow that? Of course you didn’t. Ok, read #5 again. Get it the second time? Of course not! In fact, you can read that quote from the case several times and still not know exactly what was being sold by Novell.

I haven’t seen that level of ambiguity since I went to an exhibit of modern art at the Guggenheim Museum in '84.

Even the court described the case as involving "a complicated, multi-million dollar business transaction involving ambiguous language about which the parties offer dramatically different explanations."

News flash: one thing you never want to hear is someone describing your multi-million dollar business transaction as involving "ambiguous language" that is subject to "dramatically different explanations."

A contract should be a beautiful thing, like art.  But contract drafting is not Impressionism. It is Realism. You shouldn't look at your contract and be able to say, "I don't know--what do you think it says?" If your contract means different things to different people, then you have a big (and potentially expensive) problem. Fix it before it becomes even bigger.

Avoid this situation by following these rules:

1. If a person who is reasonably knowledgeable about your industry cannot understand your contract, then your contract stinks.

2. If your contract stinks, stop using it and get a competent attorney to re-write it.

3. If your contract involves technology or intellectual property, then call an attorney who is experienced in those areas. Do NOT assume that an attorney is competent to draft a contract because he speaks well, or because she is adept at email. Similarly, don't assume that every attorney labeled with the moniker "corporate lawyer" or "business lawyer" or "IP lawyer" or (my personal favorite), "new and emerging media lawyer" knows what he or she is doing.

4. Say what you mean. If something is a license, then say, "This is a license, not a sale of software." If it is a sale, then say, "This is a sale, not a license." If you don't know the difference, then call me or email me and I'll explain the difference between the two .

5. Confucius says, "If you hire a litigator to draft your agreement for you, then you will end up in litigation." (Ok, he didn't really say that--but trust me, that's what will happen.) Use the right person for the job. Again, if you don't know who the right person would be, then drop me a line. I'll tell you what kind of attorney you need to get the job done right.

A final thought: Professor Ronald Silverman, my Property Law professor at Hofstra Law School (the most outstanding law professor I ever had), once told me, "If you can't explain it, then you don't understand it." So here's the deal: before your lawyer puts pen to paper, ask him to describe your deal to you.  If it sounds ambiguous coming out of his mouth, what do you think it will look like on paper?

Plan Ahead If You Want to Arbitrate Your Outsourcing Agreement

bgross@becker-poliakoff.com (Bradley Gross) — Sat, 29 Aug 2009 03:32:00 GMT

A few years ago I was asked to present a paper I wrote at the Practising Law Institute's "Outsourcing Revolution 2004" symposium, entitled "International Arbitration as a Method for Dispute Resolution in International Outsourcing Agreements." (Hey, stop yawning...this is important stuff if your company uses outsourcing to any significant degree....)

I've referred back to the document from time to time, and it can be found on Westlaw and Lexis as well. The information in the document is still as valid today as it was in 2004.

And now, for those of you who are drafting international outsourcing agreements for your clients or your companies, I'm providing my paper to you right here....

Actually, if you're not an attorney and you're drafting an international outsourcing agreement yourself, then call or email me so I can give you at least 12 reasons why you shouldn't be doing that...

Enjoy.

Click to read the document.

A Message from Florida Condo Associations to their Cable Companies: "You're Outta Here!"

bgross@becker-poliakoff.com (Bradley Gross) — Fri, 28 Aug 2009 12:07:00 GMT

If you live in a condominium in Florida, then a recent appellate court decision may have just made you a happier person. Why? Because on Wednesday, August 26, a Florida appellate court made it easier for you to end cumbersome bulk cable agreements.

The Comcast v. L'Ambiance Beach Condominium Association, Inc. decision, which was handed down this week (and was anxiously awaited by those of us who handle telecommunications and cable deals), will have a HUGE impact on (i) a condo association's ability to terminate cumbersome bulk cable tv agreements, and (ii) the way cable operators negotiate bulk cable agreements with Florida developers.

To understand the ruling, you need to know three things (which you probably already know if you're a Floridian, but not everyone who is reading this is from Florida....)

1. When a developer is building a condominium, it's not unusual for the developer to enter into certain contracts, such as bulk cable agreements, with outside vendors. This allows the developer to get the building's services in order prior to any residents moving in.

2. At some point, after enough residents move into the condominium, the ddeveloper turns over control of the condominium to the condominium association, which is run by residents of the condominium. (We will call this moment, "Turn Over").

3. Florida has a unique law-- Florida Statutes Section 718.302 -- which says that immediately after Turn Over, the residents of the condominium can cancel any contract that the developer entered into pre-Turn Over. The catch, however, is that (i) at least 75% of the residents have to vote to cancel the contract, and (ii) the contract must relate to the "operation, maintenance or management" of the condominium property.

In the L'Ambiance case, the residents of a condominium association canceled their bulk cable agreement with Comcast immediately after Turn Over occurred, claiming that Section 718.302 allowed them to do so.

Comcast said, "Hey, you can't do that. Bulk cable services are NOT related to the 'operation, maintenance, or management' of condominium property, so Section 718.302 does not apply."

The residents argued, "Of course we can. Bulk cable television has become a necessary part of the operations of any planned community, so 718.302 does apply."

The Court agreed with the residents. In sum, the Court held that because the parties' agreement required Comcast (i) to provide cable tv to the entire condominium and (ii) to service and maintain the cable television system used by the condominium, the agreement clearly related to the "operation, maintenance or management" of the condominium property.

What does this mean? A lot. Here are three of the impacts the decision will make, as well as a description of who "wins" and who "loses".

1. Cable companies will think twice before installing cable tv wiring in a building pre-Turn Over, since they may not see a return on their investment if the residents cancel their bulk agreement post-Turn Over.
Winner: Condo residents.
Loser: Condo developer.
Why? Because in the Pre-Turn Over period, condo developers often permit cable vendors to install all of the wiring in the condominium in exchange for (i) locking residents into long term and obnoxiously expensive bulk cable agreements, and (ii) payments (a/k/a "door fees") to the developer.   This is a problem on two levels: one, the residents don't own the wiring in their building (which is a HUGE problem), and two, the residents get stuck with a bad cable deal. The L'Ambiance decision will cut down on this type of thing.

2.  Cable companies will have to offer more competitive rates, since residents won't be automatically locked into expensive cable deals that were agreed upon by the Developer Pre-Turn Over.
WInner: Condo residents.
Loser: Cable companies.
Why?  Competition = lower rates and more selection.  Need I say more?

Want to know more? Email or call me--and look for a CALL alert being issued by Becker & Poliakoff, which will discuss the case and its impact. If you don't subscribe to CALL, let me know and I'll get you on the CALL subscriber list.

No Room at the USPTO Inn for Hotels.com

bgross@becker-poliakoff.com (Bradley Gross) — Tue, 25 Aug 2009 22:58:00 GMT

Hotels.com cannot obtain a federal trademark registration in its name, says a federal court in California. The court's decision, which was issued last month, is a great lesson about what words can and, more importantly, cannot be registered as a federal trademark.

Most people think that virtually any word or phrase can be registered as a trademark, so long as the word or phrase is used in conjunction with a business. Those people are wrong. There are rules to be followed in the trademark process, and I'm about to describe some of the more important rules to you now. At the same time, I'll show you why Hotels.com lost its bid to get its name registered as a federal trademark.

This may save you a great deal of heartache (and money), so pay attention if you're trying to come up with a new name for your product or service....

It's All About the Categories

First, you need to understand that trademarks fall into one of four categories: Generic, Descriptive, Suggestive, and Arbitrary/Fanciful. Your odds of obtaining a federal trademark registration in a proposed word or phrase change dramatically depending on the category in which your word or phrase falls.

Generic marks can not be registered. Period. No exceptions. Game over. (Get the point?) A generic mark is usually identified as consisting of the common names of the goods or services being offered. Examples would be "Cars" for the sale or repair of automobiles, or "Trees" for the production, maintenance or sale of trees.

Descriptive marks can not be registered unless they acquire "secondary meaning". (Yes, I will define "secondary meaning" for you in a moment....be patient). Descriptive marks are marks that describe the goods or services being offered. Examples would be "All Bran" for a cereal containing bran, or "Best Computer Services" for a company that offered computer programming or consulting services, or "Tasty" for a food or drink product.

Descriptive marks may be registered if the public comes to recognize the mark as belonging to a particular producer or company.  This recognition (called "secondary meaning") can be used as a basis to register a descriptive mark. Want a good example? Try this: "There are some things money can't buy. For everything else, there's....." (Do I even need to finish the sentence??) A New York federal court, back in 2004, held that MasterCard held trademark rights in that phrase because the phrase acquired secondary meaning.

Suggestive marks may be registered. These marks suggest, but don't describe, a company's goods or services.  A good example of a suggestive mark? Microsoft. Microsoft makes software for microcomputers (thus the "micro" and "soft" combination).. But the word "Microsoft" doesn't really describe the company's goods or services....it merely suggests a connection.

Arbitrary / fanciful marks are the best kind of marks to have, and are easily capable of being registered.  These marks usually consist of words or phrases that have no apparent connection with the particular products or services being offered.   Examples are abundant: Kodak (for film). Exxon (for gas). Xerox (for duplication equipment). Clorox (for bleach).

Ok, Enough Law.  How Come Hotels.com Lost?

The US Patent and Trademark Office ("USPTO") held that "Hotels.com" was a generic mark (and NOW you know what that means).

Relying on dictionary definitions and website searches, the USPTO argued that the word "hotel" meant "temporary lodging", and that the website "Hotels.com" was merely a portal for those seeking temporary lodging in various cities worldwide. (Essentially, the USPTO's argument was that "Hotels.com is generic 'cause that's what the dictionary says.")

Hotels.com, on the other hand, argued that the ".com" suffix sufficiently negated the generic nature of the word "hotel." Hotels.com also argued that its trademark was not generic since the general public recognizes the phrase "Hotels.com" as being associated with its famous website, www.hotels.com. (This was essentially a "secondary meaning" argument--and now you know what THAT means too.)

The US Trademark Trial and Appeals Board ("TTAB"), which is the group that decides disputes between the USPTO and frustrated applicants, agreed with the USPTO.  The federal court agreed with the TTAB. And, as they say, that was that.

What Could Hotels.com Have Done Differently?

Nothing.  Or perhaps something. Well, let me put it this way: Hotels.com is wildly successful, and has grown into a huge company that (deservedly) enjoys a great deal of fame. It should not, and with all certainty will not, change its name merely because the USPTO, TTAB and federal court all said that it can't obtain a federal trademark registration in its name.

But I think the ruling could have gone the other way if Hotels.com modified its strategy just slightly. You see, Hotels.com tried to prove that its name was not generic by introducing the results of a public survey in which people were asked whether or not the name "Hotels.com" was perceived as being a "brand name." (The argument, I assume, was that if a sufficient number of people considered the mark to be a "brand name" instead of a generic description, then the mark could not properly be labeled "generic.")

But here's the catch: they failed to ask survey participants whether or not the name "Hotels.com" was actually connected to the famous website of the same name.    (In other words, they asked people whether the name "Hotels.com" could be a brand name, instead of asking whether they recognize it as actually being connected to the website.) In short, I think the survey missed the mark--and the court felt the same way.

So How Does That Help My Company?

Here are the lessons that you can glean from the Hotels.com case (and the information I've imparted above):

1. Avoid generic marks. If your company's mark consists of one or more generic words that match your company's goods or services, you won't be able to acquire trademark rights in the mark.

2. Generally, if your company's mark merely describes your company's goods or services, you won't be able to acquire trademark rights in the mark. Perhaps you can argue "secondary meaning", but that's a tough--and expensive--road to travel.

Generic or descriptive marks may sound cool and enticing, but they often can't be protected or enforced.

3.  Use suggestive or arbitrary/fanciful marks. They're the strongest kinds of marks you can have.

4. Don't assume that because your mark is well-known that you can avoid falling into the "generic trademark" trap. After all, if Hotels.com wasn't able to successfully navigate out of the "generic trademark" arena, what are the odds that your company will be able to do so?

A final word of caution: I strongly recommend that you consult with an attorney before your company chooses or uses a new trademark. Marks that look suggestive may very well be descriptive. Marks that appear to be novel may very well be in use by another company. These issues, and others, are very complex and usually can't be resolved without legal counsel.

What's In An IP Address? Not Personal Information, Says The Court.

bgross@becker-poliakoff.com (Bradley Gross) — Mon, 17 Aug 2009 03:15:00 GMT

What’s in an IP address? Apparently, not everything---or so says a federal judge in Seattle.

In my opinion, the recent decision in Johnson et al. v. Microsoft Corp. (No. 06-CV-0900-RAJ, W.D. Wash. Seattle Div. June 23, 2009) is right on target—IP addresses are NOT personally identifiable information. But the case reminds us that the lines between privacy and information technology are getting blurrier.

The Johnson case involved a class action lawsuit against Microsoft in which it was alleged that an update to Windows XP violated Microsoft’s user agreement because the update collected and sent users’ IP addresses to Microsoft. Microsoft’s user agreement specifically stated that no “personal information” was collected in the course of the updates, so the question was whether the collection of IP addresses amounted to the collection of “personal information".

The plaintiffs argued that IP addresses are unique, and could be used as a basis to subpoena information from Internet service providers, which in turn could lead to the discovery of a user’s personal information. (That, by the way, is an entirely correct argument. IP address collection, coupled with subpoena power, is the number one way that investigative agencies and would-be plaintiffs acquire personal information about online users.)

Microsoft argued that IP addresses don’t identify users because the addresses don't include people's names or physical (i.e., postal) addresses. (Also a correct argument). Microsoft also claimed that it didn’t combine or cross-reference the collected IP addresses with other information that could be used to identify users.

Of course, it didn’t help Microsoft’s case that back in 2002, Microsoft published a security glossary that defined “personally identifiable information” as “any information relating to an identified or identifiable individual”, and specifically included a user’s IP address under that definition. We lawyers call that an “oy vey” moment…

Nonetheless, the Court found in favor of Microsoft and held that IP addresses were not “personally identifiable information.” “In order for ‘personally identifiable information’ to be personally identifiable, it must identify a person,” the judge wrote in his ruling. “But an IP address identifies a computer, and can do that only after matching the IP address to a list of a particular Internet service provider's subscribers. Thus, because an IP address is not personally identifiable, Microsoft did not breach the [end-user license agreement] when it collected IP addresses.”

The Court got it right—IP addresses simply aren’t “personally identifiable information.” No doubt, they can be used to obtain personal information—but IP addresses, standing alone, don’t identify you to the outside world.

Yes, I know, some people out there will say, "Hey--the court's decision is not consistent with EU law." (Well, my European clients will certainly say that.) The EU Directive that covers data privacy for EU member countries (specifically, EU Directive 95/46/EC ) includes IP addresses under its definition of “personal data.”

So here's the situation: European laws are different than U.S. laws--nothing new there. But if you're collecting IP addresses from your European customers, you need to comply with the EU Directive with regard to those customers' information--email me for more information on that issue.

A final thought: the nexus between IP addresses and personally identifiable information is simply too thin to support any holding other than the one the Court came to. Disagree with me? I'd like to hear from you.....

Privacy & Cloud Computing: It's a Creature of Contract (Part II)

bgross@becker-poliakoff.com (Bradley Gross) — Mon, 03 Aug 2009 02:42:00 GMT

Let's talk a little more about privacy, security and cloud computing.

I began my last blog entry by announcing that cloud computing is not a threat to privacy or security. (Nothing has changed in the past few weeks--it's still not a threat to privacy or security). I also argued that issues of privacy and security in the cloud computing arena (i) are directly connected to the quality of the contracts that govern the cloud-based transaction, and (2) will not necessarily be impacted by the size of the company hosting the data.

Let's talk about a few more attacks that have been launched against cloud computing's ability to provide a secure and private environment for your data--and how those attacks are (mostly) baseless.

Attack #3 (a/k/a the "I Don't Know Who's Looking At My Stuff" attack). You part with your data when you send it through, or store it in, the cloud. Once you divest yourself of your data, how do you know that it's free from prying eyes?

Defense: You don't. But then again, when you give your credit card to a waiter, or you hand a personal check over to a vendor, or you order something online, how do you know your privacy is protected? (Answer: again, you don't). Use reputable companies. Make sure your data is encrypted. Read your cloud vendor’s privacy policy and service agreement, and make sure that your vendor offers you adequate privacy and security policies. And then get on with the business of doing business.

Want to see a pretty good explanation of how one cloud vendor keeps hosted data safe? Check out Google’s privacy policy HERE.

Attack #4 (a/k/a the “I Can’t Get My Data Back If I Stop Paying” attack). Some cloud vendors say that if you fall behind in your payments, they will cut off your access to your data until you bring your account up to date.

Defense: If you signed an agreement that says that a delinquency in payment terminates your access to your own data, then follow this simple plan: (1) Log in to your cloud account; (2) Download all of your data onto a secure local drive or server; (3) Terminate your contract with your cloud vendor, and be sure to tell them that their payment policy stinks; (4) Call me and I’ll find you a vendor that has reasonable, rational terms of service.

Attack #5 (a/k/a the “You Never Know What Law Applies” attack). If you’re located in Fort Lauderdale, Florida, but your cloud vendor is in Las Vegas, Nevada, and stores your data in Colorado Springs, Colorado, then what data protection and privacy laws apply? And if you don’t know what laws apply, how can you trust the cloud vendor’s assurances of security and privacy?

Defense: Read your agreement. Every state in the U.S. enforces “governing law and venue” clauses in contracts. If your vendor has decent legal counsel, then its service agreement will specifically state which laws apply. If the agreement says something like, “The parties agree that any and all claims or causes of action arising from or related to this Agreement shall be governed under [FILL IN YOUR FAVORITE STATE HERE] law,” then that’s the law that applies. Bear in mind, certain state or federal laws may apply regardless of what your contract says---email me for details on that issue.

Ok, I'm done defending cloud computing. In truth, the cloud doesn't need me to defend it. The future lies in the cloud, and you can either accept that fact and work with it, or ignore it and it will happen anyway.

(Disclaimer: I represent some of the largest cloud computing vendors in the industry--but you don't need to be a cloud computing advocate to see the logic of my arguments.)

Stay tuned for the first Business Technology Law Blog video coming up shortly.....The video will discuss three provisions that MUST be in your cloud computing service agreement.

Privacy & Cloud Computing: It's a Creature of Contract (Part I)

bgross@becker-poliakoff.com (Bradley Gross) — Sat, 18 Jul 2009 05:40:00 GMT

Let's talk about privacy and cloud computing. Lots of pundits believe that cloud computing spells the end of consumer privacy. Many critics say that with cloud computing, your data can never truly be safe.

I won't say those pundits are wrong----oh, wait. I will.

They're wrong. They're really wrong. And I'm going to tell you why, in detail.

Before I do, let me give you a working definition of what cloud computing is, and what it isn't.

Simply put, cloud computing is the ability to access services over the Internet without having to own or host those services on your own computer. Too complicated for you? Let me boil out the techno-lingo and put it this way: if you access it using the Internet but you never loaded it into your computer, then it's likely a cloud computing application.

Examples of cloud computing applications: Google Apps. Snapfish. Yahoo mail. Hotmail. (Have I hit one that you're familiar with yet? No? Really? Ok, let me keep going....)  Twitter. Facebook. Photoshop Express. Mozy.com. BitTorrent. iContact.com.

Cloud computing is NOT a thing, or a technology, or a particular piece of hardware or software. It's a concept, an idea.  It's a way of doing things--and it's the way you'll be doing things in the not-too-distant future.

Now let's get back to privacy.

Some people say that if it isn't on your local computer, you can never be sure (i) who will see it, (ii) who can take it, (iii) who can use it, and (iv) who can alter it.  This argument, which I call the "Local Is Always Better" argument, can be found in virtually every attack on cloud computing's ability to keep private things private.

I've perused the Web and found some specific attacks against privacy and cloud computing--let's see how the "Local Is Always Better" argument rears its (very ugly) head in these attacks, and how your hero--that would be me--defends cloud computing against these attacks.

Attack 1 (a/k/a the "I Hate A Tough Contract" attack): Cloud computing relies on private agreements between users and cloud computing service providers. Consequently, service providers could change their terms of service with little or no notice to users of the service. Also, there may be inadequate or unenforceable remedies against providers who suffer a data breach or who misuse data in their possession.

Defense: Cloud computing is, indeed, a creature of contract. So here's what you need to do: READ YOUR CONTRACT. (Leave it to an attorney to come up with a revolutionary idea like actually reading something before you agree to it...) If you don't like the terms, then don't use the provider.   For example, if the contract says, "Provider can change the terms of this Agreement without prior notice to customer," then run for the hills.

If the provider doesn't require you to accept a contract, then that's no good either. Remember: any company whose motto is, "The rules are, there ain't no rules", doesn't deserve your business.

If you don't understand the terms, then call your attorney.  But you say, "I don't have an attorney."  You also say, "What should I look for to know if the cloud computing contract is any good?" Great question (glad I asked it). Contact me and I'll send you my white paper, "Cloud Computing Agreements: A Primer for Consumers."

Attack 2 (a/k/a the "It's a Superstore" attack). Cloud computing applications will become monopolized and centralized in the hands of a few powerful providers, decreasing competition and attracting hackers to "high value" targets.

Defense: Cloud computing has been around for decades, and it has yet to become monopolized by any single company or group of companies. Why? Because one company can't be all things to all people. The services demanded by consumers are so varied, that any company that tried to tackle all of those services (or even most of them) would be committing suicide, and would be highly vulnerable to smaller, nimble niche players.

The argument that cloud providers would attract hackers is utter nonsense. Does Walmart attract more burglars because there's more stuff inside to steal? As long as technology abounds, hackers will be unwelcome but ever-present guests. Hackers hack; that's what they do. You don't run from hackers; you build a bigger and stronger wall around your stuff. (Hmmm, here's a thought: do you think that security solution providers have started building apps that are cloud-specific? Might the cloud virtually eliminate the need for security software on your local computer? Something to think about....)

Yes, I know that certain cloud computing applications have been hacked recently. But if you think about the number of people who use those applications, and the number of attacks that have been launched unsuccessfully against those applications, you'll soon realize that cloud computing is probably the safest way to travel along the (cliché alert!) Internet superhighway.

Ok, that's it for now. Part II of this entry is coming up in a few days, at which time we'll explore some other attacks on cloud computing's ability to keep things private.....

Text + Send = Call? Absolutely!

bgross@becker-poliakoff.com (Bradley Gross) — Fri, 10 Jul 2009 04:23:00 GMT

Fact: There's a federal law that says that you can't make a call to a cell phone number (unless it's an emergency call or the recipient gave his permission to receive the call) using any automatic telephone dialing system or an artificial or prerecorded voice. (Let's call this law the "Telephone Consumer Protection Act", or "TCPA" for short).

Fact: Lots of companies send text messages--not "calls" per se, but messages--to cell phones across the country, and think they can avoid liability under the TCPA.

Why?

Because a text message isn't a "call", it's an SMS (or "short message service"). And that's not a "call", is it?

Well is it?

For the answer, we go to the Court of Appeals for the Ninth Circuit, which just handed down its decision in the case--dare I say, battle royale--of Satterfield v. Simon & Schuster, Inc.

The ruling is important, but even more interesting when read using a Howard Cosell voice. (Hey, it's my blog, and I'm being creative here. Work with me. When I ask you to use your best Cosell voice, please do so. If you need to remember what he sounded like, go HERE.)

Now on to the case....

In one corner we have Satterfield, who received a text message from Simon & Schuster which, she claimed, she did not consent to receive. (Cosell: Horrors abounded for Ms. Satterfield.)

In the other corner we have the famous publishing house Simon & Schuster, which was responsible for sending the text message to Satterfield through a somewhat convoluted affiliate relationship it had with other marketing companies. (Cosell: The tenacity shown by this powerhouse publishing company was nothing short of incredible.)

Let's go to the videotape. Here's a blow-by-blow account of the fight....(you have my permission to read all of this as Cosell).

In the opening round, it's Satterfield--receiving a powerful, hard-hitting text message squarely on her cell phone. It's a promotional message for a new book by Stephen King. Satterfield was totally not expecting that.

Satterfield counters with a litigation uppercut--a federal lawsuit against Simon & Schuster alleging that the publisher violated the TCPA by sending her the unsolicited text message using an automatic dialing system. Simon & Schuster is momentarily stunned by the courage of young Satterfield.

Simon & Schuster counters, arguing that the TCPA only prohibits "calls" and a text message is not a "call". Satterfield is literally being pounded with legal ambiguity. Blinded by legal loopholes, she can barely see the shimmering glimmer of her cell phone nestled in its leather case.

The referee looks to the TCPA for a ruling...but there's no definition for the word "call" under the TCPA. What to do?? It appears that Satterfield is doomed, the victim of a legal rope-a-dope the likes of which have not been seen since Ali sued his former manager back in 1999.

But wait--the Court of Appeals for the Ninth Circuit just jumped into the ring--and brought the FCC with it! Examining the legislative history behind the TCPA, the Court rules that the FCC intended to include "text messages" when it used the term "call" under the TCPA.

It's a victory for Satterfield!

The bottom line: the law can't keep up with the changes in technology, so you have to expect that courts will expand the meaning of older laws to include newer technologies.

The (really bottom) bottom line: if your company is using text messaging to promote its products or services, you need to speak with an attorney about how to do it legally. A year ago I wrote a white paper on how to incorporate text messaging into your marketing plan without violating the law, contact me if you want a copy.

I hope you enjoyed this broadcast.