Legal Research, Issues and Practice in Cyberspace

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Transcript Legal Research, Issues and Practice in Cyberspace

Legal Research, Issues, and
Practice in Cyberspace
Advertising, Jurisdiction,
& International Issues
Todd Krieger & Cyrus Daftary
March 18th, 2013
Administrative Discussion
Questions & Answers
Introduction to Internet and
Technology Advertising
In Game Advertising and In Game
 A new way to reach a captive audience
Internet Advertising
 $9.26B Q3 in 2012 online ads –
a record setting quarter.
 Online advertising is often
coupled with advertising
across other channels:
– Increases brand awareness;
– Increase awareness of brand attributes; and
– Influence purchase intent.
 Advertisers now pay to appear
on social networks, blogs,
mobile phones, and PDA
Your Search Results Can Follow
You Across Websites
Search results on
Advertisement on
Advertisement on
Online Advertising Legal Issues
 46% of all fraud complaints with the FTC were
internet related.
 Courts will often consider commercial
websites as advertising.
 Internet ads are subject to the same
standards as other media.
 A local online advertisement may attract
global attention.
 Local, state, federal, and foreign agencies are
actively patrolling the web.
 Intrusive advertising, such as unsolicited
bulk e-mail (SPAM), invites legal trouble.
Types of Advertising Claims
 Explicit
– Our product helps you lose weight.
 Implicit
– Our product reduces the cravings that cause weight gain.
 Reviewing an ad that includes identifying
Basic Guidelines from the Federal
Trade Commission (FTC)
Truth In Advertising Rules (under the
Federal Trade Commission Act):
Key Issues
 Advertising must be truthful and
 Advertisers must have evidence to
back up their claims; and
 Advertisements cannot be unfair.
States also have consumer protection laws.
Put Yourself in the Mind of the
 What is the literal meaning of the ad?
 What is the message your client is trying
to convey and how could it be
 A deceptive advertisement
contains (or omits) information
likely to mislead reasonable
consumers and is material to
the consumer’s decision to
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Example of ‘Deceptive Advertising’
 Virgin Atlantic Airways advertised an
inexpensive transatlantic flight online.
 They neglected to mention a $38.50 tax.
 The FTC fined Virgin Atlantic Airways $14,000.
 Ads must disclose the full details of the offer.
Claim Substantiation
 Advertiser must have a reasonable basis
(objective evidence) to support its claims
‘Puffery’ that consumers would not believe communicates any
claim does not require substantiation.
 Magnetic Therapeutic Technologies settled
with the FTC for claims that wearing magnets
could cure cancer.
* * * In the treatment of chronic conditions such as some forms of arthritis, degenerative joint conditions,
diabetes ulcers and cancer, magnetic field therapy has shown dramatic results in aiding the reduction
or reversal of the condition.
** *Some researchers, such as Nordenstrom and Wollin, have reported using super-magnet and electrical
therapies to successfully treat lung and breast cancers.
 Advertisement is unfair if it
causes or is likely to cause
substantial consumer injury,
which a consumer could not
reasonably avoid (and is not
outweighed by the benefit).
 Get rich quick schemes
 Work at home
 Multi-level marketing
Advertising Landmines
 Use of superlatives (“the best,” “only from,” etc.)
– Can be softened into opinions/puffery
 Always include necessary disclosures:
– Promotion start and end dates
– All relevant terms and conditions
 Multiple meanings for the same sentence:
– “The best computer system…from our company.”
– “Two items for the price of one.”
Put yourself into the mind of the consumer
Certain products may be regulated (state or federal)
Geographic scope and international rules
Capacity to ship as promised (mail order rule)
Liability for typos
E-mail Marketing Requires Legal
 Federal anti-spam law superseded dozens
of states’ broad anti-spam laws.
 Spammers are still flooding e-mail inboxes.
 Use of third party e-mail data is risky:
– Check the reputation of the provider.
– How data were gathered (where and when)?
– What type of ‘opt-in’ was obtained?
Third Party E-mail Considerations
 Who is sending the e-mail?
 What is the return address?
– Is it the same as the site that collected the names?
 What kind of site collected the names?
 Can the address provider include opt-in data?
– Domain where the name was collected
– Date and time
– IP address of the submitter
 Obtain broad and enforceable warranties and
Attorney Advertising
Sample Law Firm Sites
Finding a Lawyer
 ABA -
 Findlaw -
 MH – Lawyers –
 –
 Martindale Hubble -
Benefits of Online
Attorney Advertising
 Create awareness of a firm
 Save money from yellow pages
 Highlight a firm’s areas of practice/newsletters
 Provide visitors with biographies & resumes
 Communicate with current and potential clients
 Create a resource - subject matter expertise
– Ongoing blogs
Attorney Advertising
& State Bar Associations
 States allow attorneys to advertise through public
media provided the advertisements do not contain
deceptive statements or claims.
 Attorneys may need to submit to local bar copies of
website materials and updates.
 Advertisements must be noted and retained for a
statutory period.
– Recent NY law required ‘attorney advertising’ label on websites.
 Attorneys must avoid e-mail solicitations and
contacting people from listservs, news groups, or chat
 Choice of law issues.
 Avoid the unauthorized practice of law.
Risk of Online
Attorney Advertising
 Lawyers’ advertising or solicitations may lead
to ethical violations and disciplinary actions.
 Revised rules in Massachusetts removed the
requirement of labeling solicitations
‘advertising’ since it is not required of other
 Rule 7.2 outlines online advertising restrictions:
Additional Risks
 Poorly executed site may reflect poorly on the
 Jurisdictional exposure.
 Disclaim attorney client relationship.
 Non-compliance with ethical rules.
 Unreasonable expectations.
 Do not use chat rooms to find clients.
 Be cautious with blogs.
 A court’s power to adjudicate a controversy.
 Defined by ‘long-arm’ statute and due
process clause of constitution.
Jurisdiction - History
 1945 - International Shoe vs Washington:
defendant must maintain ‘minimum
contacts’ with forum state – if it doesn’t
offend the traditional notions of fair play and
substantial justice.
 Due process requires fairness and justice.
 Example: Out of state salesperson who
does business in California.
 Gave courts some discretion.
Jurisdiction - History
 1980 - World Wide Volkswagen vs Woodson:
Plaintiff buys car in New York and is injured
in Oklahoma. The court finds conduct must
be directed towards forum state not merely
placing a product in the stream of commerce.
Specific v. General Jurisdiction
 General jurisdiction: (Helicopteros Nacioinales de
Colombia, S.A. vs Hall) Continuous
and systematic
contacts with the forum state. Controversy
need not arise out of the defendant's activities
in the state.
 Specific jurisdiction: (Burger King vs Rudzewics) Cause
of action arises directly from defendant’s
contact with the forum state.
Evolution of Online Jurisdiction
 Early websites were informational, online
 Early on, disputes were independent of the
 Plaintiffs tried to use the websites to assert
jurisdiction, usually with little success; they
needed to show something more.
 Lawyers and judges were still learning about
the technology.
Early Conflicting Cases – Sporadic
Internet Activities
 Website and toll free number
– (Graphic Controls Corp. vs Utah Med. Prods. Inc.)
– (Inset Sys. vs Instruction Set, Inc.)
 Soliciting and maintaining a website for
future business with knowledge of in-state
– (Hearst Corp. vs Goldberger)
– (State by Humphrey vs Granite Gate Resorts)
Source: Todd D. Leitstein - A Solution for Personal Jurisdiction on the Internet, 59 La. L. Rev. 565, 1999
First Rational Framework
 Zippo vs :
– Lighter Company vs Online E-mail/Content provider.
– 3,000 customers in PA; 7 agreements with PA based ISPs.
Sliding scale of jurisdiction
Doing Business/Interactivity
Zippo Three Prong Test
 (1) The defendant must have sufficient
minimum contacts with the forum state.
 (2) The claim asserted against the
defendant must arise out of those contacts.
 (3) The exercise of jurisdiction must be
 Courts in the 5th, 9th, and 10th Circuits have
used the Zippo sliding scale consistently,
but some courts have attempted to refine
the test.
Expanding Zippo
 Court in Cybersell, Inc. vs Cybersell, Inc. stated
while the level of interactivity was a crucial factor
for jurisdiction, interactivity alone did not provide
grounds for jurisdiction, but instead required
something more to establish minimum contacts.
– “Something more” consisted of ‘targeting’ or intentional Internet
activity expressly aimed at the forum state.
 S. Morantz, Inc. vs Hang, using Zippo and
targeting approach found an interactive website
that did not allow for online sales and was not
directed at PA residents did not provide minimum
contacts with PA over a NY defendant.
Case Discussions
 Aitkin Case:
– Spam + Jurisdiction + Unionizing.
 Pervasive Software vs Lexware
– International customer + Software + Jurisdiction + Texas.
The “Effects” Test
 An alternative to the Zippo sliding scale test is
the effects-based approach.
 Courts focus their analysis on the actual effects
a website had in a particular jurisdiction and do
not focus on the technology used.
 The effects test originated in Calder vs Shirley
Jones, in which a CA entertainer sued a FL
publisher for libel.
 The effects test has been applied in Blumenthal
vs Drudge and Pavolich vs DVD Copy Control
Doing Business Overseas: One Size
Does Not Fit All
 Standard agreement might be fine
overseas…until there is a dispute.
 How would a local court interpret the rights
of the parties?
– Are any clauses incompatible with local laws?
 Can your clients enforce their rights?
The U.S. has an Unusual Legal Climate
 Contingency fee plaintiff’s counsel
 Punitive and multiple damages
 Discovery
 Class action law suits
 Common law system
 Some companies actively avoid the U.S. as
a forum
 Plaintiffs may be less likely to find the same
windfall in other countries
Intellectual Property Rights Vary by
 Copyright: U.S. participates multiple
copyright treaties, but copyright definition
and enforcement varies by countries and
treaties are not universal.
 Patent: U.S. patents do not give the patent
holder rights overseas.
 Trade Secrets: trade secret rights vary by
country. NAFTA & GATT provide some
The EU takes a different view of
software licensing than the U.S.
 UsedSoft GmbH vs Oracle International Corp
 “With the payment for services you receive,
exclusively for your internal business purposes, for an
unlimited period a non-exclusive non-transferable user right free of
charge for everything that Oracle develops and makes
available to you on the basis of this agreement”
 Court ruled downloaded perpetual license was a sale.
 Consider finite term for licenses and technological
measures to limit transfers.
 Limit transferability of maintenance contracts.
 Compare with Vernor case.
Distribution Chain
 How many layers are there between the
end user and the seller?
 The rights of the parties may vary if there
are other parties between them.
 Statutory risks in appointing distributors
and agents overseas:
– Penalties for termination
– FCPA compliance
– Control of brand / trademarks
– Export control
 Who will perform support services?
Work With Local Counsel
 Local subject matter expertise
 Realistic risk assessment
 Language skills (where applicable)
 Cultural awareness
 Able to assist with negotiations
 Can help navigate through a dispute.
Language Considerations
 Contractual obligations can be diluted in
– Double check key clauses with local counsel or other trusted
native speaker.
– Even automated translations can give a hint at a problem.
– Have side by side English translation with English prevailing,
where permitted.
 Consider local language requirements.
Automated Translations Are Not
Always Accurate
Negotiations Overseas
 Local contract negotiation styles will differ:
– Focus on building a relationship
– Turnaround time can vary by regions
– Be sensitive to local time zones and holidays.
 For important issues video conference,
telephone, or face to face discussions can
be more efficient than e-mail.
 Leverage business team to assist in working
with the other party.
Get Accounting Insight
 Shift tax burden to the other party.
 Tax rates vary by country and depend on
categorization of goods:
– Rate may be different if technology is delivered digitally or on a
tangible medium
– Support service rate may vary from tech license
– Creating a local nexus can have profound tax consequences
– Who will provide local services?
 Be aware of currency exchange issues.
 Can payment be sent directly to the U.S.?
Select a Predictable Forum for
 Local entities may prefer their local court and
choice of law.
 Foreign forum and choice of law clause may
not be enforceable.
 Arbitration offers a reasonable alternative.
– Define rules and forum
– Reserve the right to obtain injunctive relief
 What resources are needed if there is a
 Maintaining confidentiality during the dispute
 Local dispute may be a leap of faith.
Standard Clauses May Not Be
 Validity of warranty exclusions, disclaimers,
and limitations on liability vary by region:
– Reverse engineering exclusion in the EU
– Statutory warranty remedies
– No limitations for death or personal injury in the UK.
 Other standard clauses may be illegal:
– Interest for late payment under Sharia law.
Business to Consumer Sales Overseas
Require Additional Caution
 The European Union has enacted consumer
protection directives that set the minimum
standard in the member states.
 Typical U.S. style disclaimers may invite
local scrutiny (OFT – UK) :
– sellers cannot restrict consumers’ rights to reject faulty goods
– warranties must be reasonable
– contracts must be clear and easy to understand without hidden
Consumer Protection Directives
 Data Protection Directive 95/46/EC
 Distance Selling Directive 97/7/EC
 Unfair Terms in Consumer Contracts
Directive 93/13/EEC
 Electronic Commerce Directive 2000/31/EC
Export Control
 U.S. Department of Commerce Bureau of
Industry responsible for most export regulations
– Export Administration Regulations (EAR)
 Applies to all U.S. companies:
 Software transfer can be considered an export:
Provision of source code subject to EAR to foreign national in the U.S.
Export Administration Regulations
 Restrictions and requirements depend upon:
What is exported?
Where is the recipient?
Who is the recipient?
How will the item be used?
 EAR apply no matter whether the software
originated in the U.S. or elsewhere.
 Certain exports could be prohibited or
require a license.
Some Exports have Additional
Defense services and munitions
– Department of State, Directorate of Defense Trade Controls (DTC)
Defense-related goods, services, and technologies
– Defense Technology Security Administration
Nuclear materials and equipment
– Nuclear Regulatory Commission, Office of International Programs
Nuclear technology and technical data for nuclear power and special nuclear materials
– Department of Energy, Office of Arms Controls and Nonproliferation, Export Control
Licenses for natural gas and electric power
– Department of Energy, Office of Fuels Programs
Export of wildlife and endangered and threatened species
– Department of the Interior, U.S. Fish and Wildlife Service
Controlled substances and the import-export of listed chemicals used in the production
of control substances under the Controlled Substances Act
Drug Enforcement Administration, Office of Diversion Control, Import-Export Unit
Drugs and medical devices
– Food and Drug Administration, Office of Compliance, Food and Drug Administration,
Hazardous waste exports
– Environmental Protection Agency, Office of Solid Waste, International and
Transportation Branch
Export Restrictions Depend on
Classification of the Software
 Export Control Classification Number (ECCN)
determines the licensing requirements under the EAR.
 Items are categorized into 10 categories, each further
delineated into five product groups:
0 = Nuclear Materials, Facilities, and Equipment
(and Miscellaneous Items)
1 = Materials, Chemicals, Microorganisms and
2 = Materials Processing
3 = Electronics
4 = Computers
5 = Telecommunications and Information Security
6 = Sensors and Lasers
7 = Navigation and Avionics
8 = Marine
9 = Propulsion Systems, Space Vehicles, and
Related Equipment
Most goods are not
classified (EAR99).
Product Groups
A. Systems, Equipment
and Components
B. Test, Inspection and
Production Equipment
C. Material
D. Software
E. Technology
Export Restrictions Vary by Country
 Cross reference ECCN with the Commerce
Country Chart
Embargoed Countries Have
Additional Restrictions
 Restricted Countries:
North Korea
Northern Sudan
 Restrictions vary by country
 The list is subject to change
 Export licenses are still permitted for some
categories, but very restricted.
Restrictions Vary by Recipient
 Individuals and organizations may be prohibited from
receiving any goods from the U.S. or require a license.
 EAR99 goods or other goods not requiring a license are
 Restricted Entity List (EAR Part 744 Supplement 4).
 Treasury Department Specially Designated Nationals
and Blocked Persons List.
 Unverified / Red Flag List.
 Denied Persons List.
Exports are Restricted by Use
 EAR99 items and other categories are
restricted by use:
– Items used by parties involved in WMD are prohibited without a
– Nuclear uses.
– Rocket propulsion systems.
– Maritime nuclear propulsion.
– Chemical & biological weapons.
– Certain foreign vessels or aircraft.
Substantial Penalties for NonCompliance
Criminal sanctions >$1 million
Criminal penalties
Revocation of export privileges
Foreign Corrupt Practice Act
 Prohibits illicit payments by U.S. companies to foreign
 Prohibited Payments: It is unlawful to pay or offer
to pay “anything of value” to a “foreign official” to
influence official action or to secure any improper
business advantage in order to obtain or retain
 5 elements:
Applies to any employee or agent of client in any location
Unlawful to offer, pay, or promise to give “anything of value”
The payment must be intended to induce misuse of an official position
To any foreign official or political party
To influence official action or to secure any improper advantage in order to
“obtain or retain business”
Prohibited Payments
 Prohibited Payments: cannot offer, pay, or
promise to give “anything of value”
Payment of Travel Expenses
Excessive Entertainment Expenses
Lavish Gifts
Favorable Loans
Charitable Contributions
 Payment Lawful Under Foreign Law
– Must be in the written law or regulations of the foreign country
– Traditional, customary, or not enforced restrictions do not qualify
 Reasonable Business Expenditure
– To promote a business or product
– Includes trip expenses, tours of company facilities, product
demonstrations and training
– Must be reasonable and bona fide
FCPA Enforcement
 Penalties may include substantial fines,
debarment, disgorgement of profits, and
 Recent enforcement actions:
– Siemens (Iraq, Argentina, Bangladesh, Venezuela, Iraq, Israel,
Nigeria, Vietnam, China, Russia, Mexico) $800 million
– Aibel (Nigeria) $4.2 million
– AGA Medical Corp. (China) /$2 million
– Con-Way Inc. (Philippines) $300,000
– Faro Technologies (China) $2.95 million
– Willbros Group (Bolivia, Ecuador, Nigeria) $32.3 million
Questions & Answers