Intellectual Property Technology Law

Your friendly Indianapolis attorney at Alerding Castor Hewitt LLP here with a history lesson and tie in to business law.  Most of you have probably heard the term “gerrymander” and know that it refers to a process of dividing a territory into districts in order to give one political party an advantage over another by concentrating the voting strength of that party in as many districts as possible.  Fewer of you probably know the origin of the term, and I imagine that  even fewer know much about the man whose name spawned the term.

 

The term first originated in 1812 to describe a rather bizarre looking district boundary in Essex County, Massachusetts attributable to then-Governor of that state, Elbridge Gerry.  Gerry had signed a bill passed by the state’s legislature to redraw districts that favored his party, the Democratic-Republicans, over the Federalists (whose influence was on the decline).  Gerry would go on to be elected Vice President later that year and served under President James Madison; however, he died a couple of years later in office at the age of 70, thereby becoming the  first Vice President who did not go on to become President.

 

Despite the notorious practice that has been associated with his name, Gerry was a Founding Father who made several contributions to the country:  For example, he was a signer of both the Declaration of Independence and of the Articles of Confederation.  He was also among the dissenting voices that refused to sign the Constitution because it did not contain a bill of rights.  As those historians among you know, it was an agreement to create the Bill of Rights (the first ten amendments to the Constitution) that helped to secure ratification of the Constitution.

 

Your friendly neighborhood technology counsel here:  A couple of recent state court decisions are going to start personal injury attorneys frothing at the mouth, and might render some sleepless nights for defense attorneys.  Both Ohio and Florida recently issued opinions in which they applied their state's respective long-arm statutes to garner personal jurisdiction over an out-of-state resident for tortious conduct that transpired over the Internet. 

First, you need to know what a long-arm statute is.  Essentially, it is a mechanism by which a state can obtain jurisdiction over an out-of-state resident for activities or actions undertaken that are related to an in-state resident or citizen.  Without boring you with the legal details, they stem from the concepts of full faith and credit and due process and require a minimum amount of contact within the state to trigger.  And, they have posed a pickle in Internet litigation because the Web allows access from out-of-state residents without actual presence or contact.  At least that was the case until recently.  

In Internet Solutions Corporation v. Marshall, the Florida Supreme Court, addressing a certified question from the Eleventh Circuit, determined that exercising jurisdiction over an out-of-state resident under Florida's long-arm statute did not violate due process.  The basic facts are that Marshall ran a website based out of Washington, where she is a resident.  She had no contact with Florida other than a short business related trip several years ago.  However, she wrote a blog about a Florida based company and then she and some other posters trashed them online in the comment section.  The Florida-based company sued for defamation in federal court under a diversity action (action between two citizens of different states).  The district court found no personal jurisdiction and the Eleventh Circuit certified the question to the Florida Supreme Court.  The Florida Supreme Court looked at two main analysis points:  (1) whether the complaint alleged sufficient jurisdictional facts to being the action within the ambit of the statute, and (2) whether sufficient minimum contacts are demonstrated to satisfy due process requirements.  The Court determined that both were satisfied.  An interesting analysis point is that the Court reasoned that the long-arm statute had been applied to telephonic, electronic or written communications in the past and that the Internet is an extension of those rulings.  Overall, it is a well-reasoned opinion applying a standard long-arm statute to the Internet.

Similarly, in Kauffman Racing Equipment, LLC v. Roberts, the Ohio Court of Appeals reached a similar conclusion when determining if an out-of-state residents comments over an Internet blog about an in-state plaintiff can be grounds for jurisdiction over the out-of-state resident in a defamation action.  The Court utilized the same general analysis as in Marshall.  

The obvious implications to Internet litigation of these opinions are pretty substantial.   Until now, suing for tortious actions done over the Internet has been difficult because of those pesky due process minimum contacts, but that is slowly changing.  These cases are a framework for an enterprising personal injury lawyer to sue someone that has never set foot in their state for tortious activities on the Web.  And, right now we are only talking about defamation, but why wouldn't it extend to other torts.  What about tortious interference with a business relationship, intentional infliction of emotion distress, and assault, to name a few.  This is going to change the face of Internet litigation.  We are going to see more lawsuits based on this.  And, further, you, as a business owner, will need to be aware of what you are putting out on the cyberspace.  You may be inadvertently exposing yourself. 

And think of the other areas of technology litigation that this can be tied into.  Two of the most predominant to me are privacy litigation and cloud computing law.  Imagine that I have posted private information about you on the Internet in contravention to the law.  We've never met and I've never been in your state, but the Internet has.  Under these holdings, I can be hauled into the courtroom to address my actions.  Or I've placed something into the cloud that doesn't belong.  I've now exposed myself to multiple jurisdictions depending on to whom I have shown the material.

The ramifications are mind-numbing, but we'll see what other states start jumping on board.  As I've always said, technology litigation and Internet litigation is in its infancy and we are going to see wide-spread changes from court's making decisions at the federal and state court level.  It should be fun.

I'm going to cheat a little on this.  I read a great blog post by Jeff Ready over at the McStartup blog (www.mcstartup.com).  The blog post is all about the importance of radical innovation.  I have a place in my heart for radical innovation because I believe that in the legal community, we are the radical innovators.  ACH strives after its goal to be an information technology law firm, a venture capital law firm and a business law firm, but we go about it in a way that is radical to many other attorneys, because we are business-minded first and we are looking at the areas of business that others are overlooking.  So, rather than re-capsulate Jeff's thoughts, here they are in full quoted glory:

The Art of Radical Innovation

Following up on my post about Tom Mason and Rose-Hulman, I wanted to touch on something that Tom is a big believer in and used as the focus of his retirement speech:  radical innovation.Radically innovation refers to that type of innovation so powerful and different that it can completely change the profession, institution, industry, business, or person in one fell swoop.  Thinking about how radical innovations come about and how they impact the world around us is a favorite subject of Tom.

I bring it up here, because I believe that radical innovation is the key to success in whatever you do – and not just radical innovation, but, as Tom puts it, “continuous radical innovation” – the constant search for those things that will turn your world on its head.

It is true that most businesses are looking to innovate, but to think about radical innovation really changes the way you view things.  It’s very different from thinking about “constant innovation” or “continuous improvement” which is the mantra of many businesses today.  As Tom quipped during his speech, “General Motors followed the mantra of continuous improvement all the way into bankruptcy.”

 Put another way, and to borrow from the world of academia, continuous improvement gets college campuses wired, installs the latest lab environments in the buildings, and creates a campus environment more rewarding for the students.  Radical innovation moves the entire university experience online and does away with the campus altogether.
Continuous improvement puts shocks on your carriage.  Radical innovation replaces the horse with an engine.  Continuous improvement accelerates the reload speed and accuracy of your rifle.  Radical innovation gives you a machine gun.   You get the idea.

The challenge is to continuously seek the radical innovations in your business – to look for and to go after the very technologies that, if developed elsewhere, would bring a swift and painful end to your business.  In the mean time, of course you need to look for ways to improve your business, your products, and your practices.  However, time and resources need to be spent going after the radical, not just the better.

This probably sounds a lot easier than it is.  Radically innovation is an unpredictable, expensive, and messy business.  With limited resources, the temptation will always be to direct those resources toward the projects that will have the most immediate and predictable impact.  Just as you would imagine the mad scientist to find himself surrounded by doubters (right up until the invention actually works), you’ll find that investors, employees, partners, and competitors will view resources directed to these “rogue projects” as wasteful, silly, and distracting. 

Thus is the challenge of going after radical innovation within an ongoing enterprise.  The near term benefit sits squarely on the opposite, and in a world of business that’s often driven by quarterly numbers, high rates of employee turnover and movement, and a desire for immediate satisfaction, it can be extremely difficult to manage the balance of resources between what is today’s reality, and what might change that reality. 

The pressure will be on improving today’s reality.  But if you’re not careful, you’ll have the world’s greatest carriage company – right up until Henry Ford hands you your lunch – just ask GM.  

Your Indianapolis Attorney at Alerding Castor Hewitt here with another litigation post for the business and technology world, this time regarding preliminary injunctions.  What is a preliminary injunction?  In simple terms, it is an equitable remedy that you can seek asking a court to order someone else to stop doing something or cease threatening to do something that is causing or is likely to cause you irreparable harm.  It is another weapon in the litigation arsenal, one to restore the status quo between you and another entity until a court can resolve your dispute.

A request for a preliminary injunction can arise in any number of situations.  I won’t try to name all of those that I have encountered, but one example involves claims of infringement of intellectual property (trademark, copyright or patent).  Another example is interference with a contract.  And of course, a recent example is the decision by the U.S. District Court for the Southern District of Indiana in Workman v. Greenwood Community School Corp., cause no. 1:10-cv-0293-SEB-TAB (S.D. Ind. Apr. 30, 2010), enjoining a school from permitting a school-endorsed prayer at a high school graduation.

The difficulty in obtaining a preliminary injunction should not be underestimated.  This is in part due to the hefty applicable standard for this remedy, which includes a showing of a reasonable likelihood of success on the merits.  And sometimes just finding time on a court’s calendar on short notice to hear your arguments can be a challenge.  But if you can convince a court to issue a preliminary injunction, it is not unusual for a settlement to follow on the heels of the court’s order, in part due to the fact that the court will have concluded at that point that you will likely succeed on the merits of your claim.

Another possible result, though rare, is a decision by the court to consolidate a preliminary injunction hearing with a trial on the merits.  This happened recently on a case handled by Brian Hewitt and Angela Hopper (a contract attorney who has provided assistance on a number of occasions).  Brian and Angela were seeking to obtain a preliminary injunction in a probate litigation matter involving the appointment of a guardian to oversee the health care of an elderly lady.  Their clients’ claim boiled down to a request that a settlement agreement be enforced.  Not only were they successful, but the court took the interesting step of consolidating the hearing on their motion with a trial on the merits and entered judgment outright on their clients’ claims.     

Brian and Angela’s case reveals an exciting aspect of litigation:  sometimes the outcome of a hearing can be a surprise (and better than anticipated).  In any event, deciding whether to seek a preliminary injunction is no light undertaking.  As with any litigation matter, you should consult with your counsel to weigh the pros and cons before making a decision on whether a request for a preliminary injunction will advance your interests.  

Your friendly neighborhood technology counsel here:  So, Mexico recently passed a new data protection law.  On April 27, 2010, Mexico passed the Federal Law for the Protection of Personal data, which is likely to be signed into law by the President in the near future.  This law not only allows for a mind-boggling $1.5 million penalty for violation, but it also applies to the private sector. Private and public entities will need to protect themselves from privacy litigation. 

This law is much akin to the EU's data privacy laws.  Meaning, among other things, that scope of the law is extremely broad.  Additionally, all data is included, but certain types of data are given greater protection.  This Sensitive Personal Data includes: "In particular, consider those that may reveal sensitive issues such as racial or ethnic origin, health status, present and future, genetic information, religious, philosophical and moral, union membership, political views, sexual preference." (translated from the Bill).  The dissemination of any information that contains this sensitive data will require written consent from the owner of the data, the individual. 

Now the $1.5 million question:  What does this mean for my business?  The simple answer is: Potentially alot.  In the world of e-discovery and privacy litigation,this issue has already begun to rear its head in the context of the EU's data privacy law.  With the number of American manufacturers and companies with a presence and facilities in Mexico, this type of broad legislation could result in the expenditure of millions of compliance dollars to craft protocols and document retention issues.  Think of the billions of e-mails that must run through a Fortune 500 company.  Now think about how many of those e-mails contain some amount of information that fits within the category I described above.  To disseminate that information, each individual has to be contacted and give written consent.  Like I said, mind-boggling.  

Obviously, society is walking a thin line between protection of information and the availability of information for legitimate purposes.  Privacy litigation both here and abroad is going to shape the breadth and direction of that line.  And then, when we think we have a handle on it all, we'll start talking about what we are going to do under cloud computing law for that data that is stuck firmly in the cloud. 

Working in the area of Indiana entrepreneurial law, I see dozens of business plans that are incorporated into the equity raise documents of budding new companies.

With those business plans are financial projections that are based on newly formed companies with limited operating histories, unproven track records, and often times plans for entry into a mature and highly competitive marketplace.

Needless to say, it can be daunting as an entrepreneur to come up with a compelling reason why investors should look twice at you and your idea.

In my experience guiding clients through this area of federal securities regulations and Indiana entrepreneurial law, I agree that there is an art to financial projections.  Take it from Guy Kawasaki, the author of the Art of the Start, who wrote a chapter in his book Reality Check: The Art of Financial Projections.  He suggests the following ten pointers:

1. Underpromise and overdeliver
2. Forecast from the bottom up
3. Don't go beyond 12 to 18 months
4. Reforecast every three months
5. Don't let costs get in front of revenue
6. Collaborate with your investors
7. Think in terms of per-unit profitability
8. Plan for marketing costs
9. Create a one-page report and stick to it
10. Never miss a cost projection

These bullet points are great to consider and some of the factors I keep in mind as I work with clients and their equity raises under Indiana entrepreneurial law.  If you haven't read a book by Guy Kawasaki, you might want to consider it if you're an entrepreneur and seeking some guidance as a start-up company.

Your friendly neighborhood technology counsel here:  The Indiana Supreme Court recently discussed the ability of a lay witness to provide "expert" opinions in Sibbing v. Cave,  922 N.E.2d 594 (Ind. 2010).  In that case, counsel asked the plaintiff what she believed caused her pain.  She responded something to the effect of "the bulging disc in my lower back", and the opposing party objected based on a lack of expert foundation.  The basic argument to the trial court was that this lay person cannot provide a medical diagnosis of what caused her pain because she wasn't an expert.  The Supreme Court, upholding the trial court, found that a recitation of one's personal belief regarding a fact (in this case, the source of her pain) was within the scope of Indiana Evidence Rule 701. 

I can read your minds at this point of my blog.  You are thinking, "What in the heck does this have to do with technology litigation, SaaS litigation, software litigation, or any of the stuff that you normally discuss?"  The important point of this case is that it can be used to get to "expert" type opinions from a lay person.  This is important in tech lit because most of our technology clients have some knowledge as to the x's and o's of what is happening behind the scenes of a given situation or product, but they don't necessarily have enough expertise to survive a full-blown Daubert challenge to their status as an expert.  Using Sibbing, a tech litigator (i.e. me) can now ask the straight forward question of "why do you think the widget broke" or "how do you think this SaaS agreement harms your company" or "what do you think your damages are" and allow our clients to spout their opinions, and in the face of a challenge, cite this precedential case.  As you can imagine, the potential of this ruling is huge. 

Additionally, for those really interested in law-dorking out [yes, I made up that word, so what], there is also a good analysis in Sibbing of the use of the medical diagnosis exception to the hearsay rule found in IRE 803(4) that distinguishes the previously held standard set forth in Coffey v. Coffey, 649 N.E.2d 1074.  Not overly important in tech lit, but a good read for any litigator. 

 

How many times have you signed up for a service on-line, scrolled past all the legal jargon, and clicked "I Accept" or "I Agree" without taking the time to actually read the terms and conditions you're agreeing to? 

Admit it.  We all do it.  

But, just as a warning to be careful the next time you're purchasing that new mp3, or more importantly signing your company up for something on-line... those shrink-wrap and click-wrap agreements have been held by the courts to be binding.

Contracting in cloud computing law doesn't necessarily require a signature these days.  An affirmative acceptance of the provisions of a software service level agreement by an authorized agent can be given with a click of a button.

Take the recent trademark infringement case of Appliance Zone, LLC v. Nextag, Inc. for instance.  Although this case was dismissed on grounds of jurisdiction (which, incidentally, was a term of the shrink-wrap agreement that was held by the court to be an effective document) the court discussed some important software litigation surrounding click-through agreements within it.

In essence, if the facts support a claim that a person (a) is authorized to enter into such a contract, and (b) had the intent to enter into it, then they will be held to terms of service they signed up for, including basic contracting terms such as jurisdiction, venue, etc, etc.

The court in this case cited Gallent Ins. Co. v. Isaac in ruling that there was authorized conduct that clearly demonstrated the acceptance of a valid contract by the 19 year old website manager of Appliance Zone who registered the company as a merchant on Nextag's website and clicked "I accept the Nextag Terms of Service" as part of the process.

While the enforceability of a contract can be destroyed with factors that make it unconscionable (such as inequality of bargaining power, or unreasonable or unknown terms) the court did not find those arguments sustainable in this case for a number of reasons, including the fact that clickable acceptance has become commonplace for on-line retail, and the registration process could not have been completed without the click-through acceptance.

The court in this Indiana technology litigation case fell back on Paper Exp., Ltd., Micrometl Corp. v. TranzAct Technologies, Inc. with the "fundamental principle of contract law that a person who signs a contract is presumed to know its terms and consents to be bound by them." 

Next time, before you click "I Accept" make sure you really do.

Something crossed my screen today that piqued my interest.  That concept is competitive keyword advertising litigation.  The case that sparked my curiosity is Fair Isaac Corp v. Experian Information Solutions, Inc., 2009 WL 4263699 (D. Minn. 11/25/2009) (www.jurisnote.com/Cases/fair6411.pdf).  For a good analysis of the ruling see Eric Goldman's blog (blog.ericgoldman.org/archives/2009/12/competitive_key.htm).  Interestingly, the case law to date on this issue has found for the defendants in most cases, but it makes me wonder about the legal theory, specifically  why this isn't more widely explored and if the average entrepreneur is even thinking about this.

The concept, boiled down to very brass tacks, is that the owner of a valid, distinct trademark whose mark is being used by another party for use in competitive keyword advertising that cause confusion to the consumer may have an equitable remedy.  This stems from the Lanham Act.  There is some question of whether actual confusion is necessary, but it is obviously going to help if one can show actual confusion.  Thus, the elements are (1) ownership of a valid, distinct mark; (2) use of that mark by another party; (3) in a manner that is likely to lead to consumer confusion as to the source, sponsorship or affiliation with the mark.  Now take those elements and apply them to competitive keyword advertising.  So, if I use a mark as a keyword in order to increase my on-line exposure, but do so in such a manner that it creates confusion, I can be liable to the holder of the mark and the remedy is an injunction against my use.   

Now, to date, courts have found in favor of the defense, but I can see on the horizon a court that does find confusion.  In the Fair Isaacs case, the court discredited the plaintiff's expert (I'd love to know what he said that the court determined lacked credibility and if Fair Isaac's is going to ask for their money back in light of the court's ruling).  But, how far away are we from a case in which the Court is persuaded.  I think it will only take one or two court rulings before this becomes a more readily available and pursued cause of action.  As companies increase their on-line presence and efforts to obtain competitive advantage through mechanisms like keyword search terms, the chances of confusions increase.  As those chances increase, the possible success of this type of litigation increases.

The implication to the entrepreneur is that the knowledge of this principle can be useful in an offensive and defensive posture.  Offensively, if you have a mark, you need to be vigilant in your oversight of how that mark is being used and if you determine that it is being used by other parties in keyword usage that will confuse consumers, you need to make sure you have your evidence and move quickly for injunctive relief.  Defensively, as your business develops its marketing strategy and using keywords you need to be cognizant of the fact that, if you are using a trademarked item, you are doing so in such a way that confusion will not ensue. 

Overall, I think that this another example of the potentials in Internet litigation.  This is a  cause of action that arises, in my humble opinion, only in the technology age.  Because search engines allow for large keyword grabs, this type of confusion can (and likely will) arise, and in doing so, infringement and litigation has (and will) also ensue. 

I am speaking this afternoon at the MBO Conference on the Legal Landscape of Corporate Blogging.  It was an honor to be invited to participate in this year's conference, and I am truly looking forward to the time.

As an Indiana technology lawyer I monitor areas of law that impact my clients' business worlds.  My colleagues and I monitor Internet laws, privacy laws, ASP law, SaaS law, cloud computing law, and various other areas of business law to best advise our clients on how to navigate the legal landscape of emerging technology fields.  Blogging law is the topic for today's talk.

We will be covering areas such as copyright infringement, defamation claims, privacy laws and Section 230 protections.  We will also address the recent FTC Guidelines on endorsements by bloggers. 

This should be an interesting discussion. 

WIth the FTC guideline debate firing up the information technology law debates, Eric Goldman had an interesting post on Monday about the possiblity of 47 U.S.C. 230 preempting at least a portion of the guidelines.  Here is the text of his post (found at his Technology & Marketing Law blog): 

"Last week’s release of the FTC's new Endorsement and Testimonial Guidelines has generated a significant amount of angst online. The resulting commentary has been strongly and almost uniformly negative. Frankly, none of the sources I read have praised the guidelines, but perhaps I'm locked in an echo chamber. Declan has a useful recap/linkwrap.

In this environment of heightened negativity, people have been searching for angles to prove the FTC can't do what it's doing. This has led folks to my post from last week arguing that certain facets of the guidelines violate 47 USC 230.

Despite the general popularity of the post, privately it has attracted some skepticism. Several smart law professors/lawyers disagreed with my post in Facebook profile page comments, and I've gotten some private emails to the same effect. What’s caught my attention is that these disagreements are coming from folks who normally agree with my expansive 230 interpretations. This clearly indicated to me that 230’s application to the FTC’s scenario was not nearly as self-evident as I thought it was.

As a result, in this post, I'm going to describe my analysis in more detail than my previous post. I'm not sure I'll convince the doubters, but they deserve more detail than I initially provided.

The FTC's Example

There are many facets to the new guidelines, but I am focusing solely on Example #5 to §255.1, which reads:

Example 5: A skin care products advertiser participates in a blog advertising service. The service matches up advertisers with bloggers who will promote the advertiser’s products on their personal blogs. The advertiser requests that a blogger try a new body lotion and write a review of the product on her blog. Although the advertiser does not make any specific claims about the lotion’s ability to cure skin conditions and the blogger does not ask the advertiser whether there is substantiation for the claim, in her review the blogger writes that the lotion cures eczema and recommends the product to her blog readers who suffer from this condition. The advertiser is subject to liability for misleading or unsubstantiated representations made through the blogger’s endorsement. [my emphasis]

The blogger also is subject to liability for misleading or unsubstantiated representations made in the course of her endorsement. The blogger is also liable if she fails to disclose clearly and conspicuously that she is being paid for her services. [See § 255.5.]

In order to limit its potential liability, the advertiser should ensure that the advertising service provides guidance and training to its bloggers concerning the need to ensure that statements they make are truthful and substantiated. The advertiser should also monitor bloggers who are being paid to promote its products and take steps necessary to halt the continued publication of deceptive representations when they are discovered.

The FTC doesn't define what qualifies as a "blog advertising service," but it's fairly clear the FTC is targeting PayPerPost/Izea and its competition. So the example could be restated as:

* advertiser contracts with PayPerPost to get bloggers to write about its product
* PayPerPost makes a match with a blogger. There is no employment or agency relationship between the advertiser or the blogger; this is an ordinary customer-vendor relationship, mediated by PayPerPost
* without any pre-review or kibitzing by the advertiser, the blogger makes a truthful statement about the blogger's experience about the product, but the statement would be impermissible marketing if made by the advertiser
* the FTC treats the advertiser as having made the blogger's statement

Prima Facie Elements of a 47 USC 230 Defense

47 USC 230(c)(1) reads:

No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.

A successful 230(c)(1) defense breaks down into three prima facie elements:

1) the defendant must be a "provider or user of an interactive computer service"
2) the content generating the alleged liability must be "information provided by another information content provider"
3) the legal claim has to treat the defendant as the "publisher or speaker" of the third party content

230 has a number of statutory exclusions, but I don't think any of them are relevant to Example 5.

Application of 47 USC 230 to Example #5

With this in mind, the FTC's Example #5 satisfies the prima facie elements of a successful 230 defense as follows: the advertiser is the user of an interactive computer service, the blog post is content provided by another information content provider, and the FTC's theory that the advertiser adopts or endorses the blog post treats the advertiser as the publisher or speaker of the third party blogger's blog post.

I received significant skepticism about my characterization of the advertiser as the "user" of an interactive computer service. I can reach this conclusion in two ways. First, PayPerPost provides an interactive computer service, and the advertiser uses PayPerPost. Second, the advertiser is a "user" of some Internet connectivity provider just by getting online.

Admittedly, explanation #2 is expansive, perhaps disconcertingly so. By this reasoning, anyone online automatically qualifies as a "user" of an interactive computer service by definition, thus seemingly expanding the 230 immunization eligibility to everyone without restriction. While this may sound wrong, it’s entirely consistent with how courts have interpreted the term “user.” The leading case on the topic, the California Supreme Court opinion in Barrett v. Rosenthal, never provides a single crisp definition of "user" but seemed to contemplate that merely being online qualified. Some minor cases possibly read "user" more narrowly, but I think the dominant line of cases gives “user” an expansive definition.

From a doctrinal standpoint, I think the broad reading of 230's application makes a lot of sense. The cases over the past 13+ years have taught us that 230(c)(1) can be distilled into a simple syllogism: unless the plaintiff’s claim fits into one of the statutory exclusions (IP, federal crimes, ECPA), A isn't liable for third party B's online content or actions. Period.

In the FTC’s Example #5, A is the advertiser and B is the blogger. Applying the same syllogism as above, the advertiser can’t liable for the blogger's online content or actions. Period.

The fact that the advertiser paid the blogger to write the content doesn't change my analysis one bit. For example, in the 1998 Blumenthal v. Drudge case, AOL got a 230 defense for Matthew Drudge's allegedly defamatory content, even though AOL paid $3,000 a month for Drudge's columns and retained editorial control over the content. I'm pretty sure 230 has applied in other cases where the defendant paid for the content. If you can think of others, I’d appreciate the reminder.

Further, the payment doesn't create a respondeat superior relationship between the advertiser and blogger. There is no credible argument that the blogger is the advertiser’s employee. I don’t think the example indicates an agency relationship because the advertiser lacks the requisite control over the blogger. PayPerPost’s mediation of the advertiser-blogger relationship further reinforces the lack of agency; indeed, the advertiser may not even be communicating directly with the blogger. And even if the blogger were the advertiser’s employee or agent, 230 still might apply for the blogger’s statements that exceed the advertiser’s authorization. See Delfino v. Agilent and the Higher Balance case.

If you don't like the broad reading of "users" (even though I think it is defensible under the case law), then go back to my first explanation that both the advertiser and blogger are "users" of the interactive computer service provided by the blog advertising service provider (e.g., PayPerPost). This argument works just fine too.

Applicable 230 Precedent

Unfortunately, I can’t point to many 230 cases applying the immunization to circumstances where the defendant did not host or republish the allegedly tortious content. Most 230 cases involve a provider's liability for its user's content or actions (the “paradigmatic” 230 case).

In contrast, we don't see many cases interpreting the user defense, but then again, those lawsuits may be so tenuous anyway that they are rarely brought. For example, I could not find any specific cases applying 230 to the linking situation I critiqued in my SEC comments.

Even without any obvious precedent, I think the statute on its face leads easily to the conclusion that advertisers can't be liable for bloggers' independent posts. As I indicated in my initial post, I don't even see that as a close case under 230.

One reasonably close precedent, the Subway v. Quiznos case, hasn’t reached a solid 230 ruling yet. In that case, Quiznos reposted some user-created advertising videos, and Subway contended that the videos constituted false advertising. The court rejected Quiznos' 230 defense solely on the grounds that it was raised in a 12(b)(6) motion to dismiss, which the court said was too early. (This same issue arose in Barnes v. Yahoo, where the Ninth Circuit initially agreed with this court and then withdrew that portion of its opinion). Although 230 didn’t apply at the 12(b)(6) stage, could Quiznos claim 230 for the videos at a later stage of the proceeding? I think it can, even if it "adopted" the user-generated videos by republishing them, unless it actually authored the statements that are deemed false advertising. For examples where a republisher can claim 230 for content is putatively “endorses” through its republication, see, e.g., the Barrett case, the Batzel case, the Tefft case (one of the minor cases narrowly interpreting “user”), the D’Alonzo case and the Furber case. I’m sure I could find others.

I think the FTC's Example #5 is an even easier 230 case than Quiznos’ situation. Unlike Quiznos, the advertiser in Example #5 never republished the blog post or even signaled any adoption of or agreement with the post. With such a tenuous relationship between the advertiser and the blogger, the FTC’s overreaching—and the role 230 plays in preventing that overreaching—is even clearer.

Conclusion

As the old expression goes, when you’re a hammer, everything looks like a nail. So perhaps I’m just such a 230 enthusiast that I’m finding it in places it doesn’t belong.

However, having read many dozen 230 cases over the past 13 years, I’ve formed the strong opinion that courts treat 230 as saying A isn’t liable for third party B’s online content. If you accept that proposition (and resist the temptation to manufacture provisos and qualifications that don’t actually exist in the cases), then it should be clear why 230 preempts Example #5—because that’s exactly what the FTC is trying to do."

My Comments

If this interpretation is correct, which I think it is, the implications for business law and the technology lawyers is that an other level of insulation will protect entrepeneurs who are interested in using word of mouth blogging campaigns.  Protection from liabliity under 47 USC 230 is one of the biggest protections afforded to litigants.  The obvious question that I think this poses is:  If the FTC is trying to get around 47 USC 230, and is likely going to be unsucessful, how long will the protection of 230 be available before Congress removes it?  Of course, these types of questions are why I love being a technology lawyer.

One aspect of any litigation, be it internet litigation, software litigation, any any other type, is the production of documents in discovery.  Accompanying this necessary procedure is the fear and stomach-wrenching possiblity of the inadvertent production of privileged materials.  Nothing will make an attorney or a client go pale faster than realzing that they've produced to opposinig counsel a correspondence between client and attorney.  The proliferation of electronically stored information (ESI) and e-mail communications between attorney and client makes this an even greater risk.  Additionally, if you have an attorney in house that fills the role of both counsel and business person, the possiblity of an indavertent production of privileged material increases.  

Luckily, FRCP 502(b) protects against this likelihood.  The reality is that these types of production are going to happen, especially when dealing with electronic discovery.  502(b) provide that the disclosure of privileged communication will not operate as a waiver if it is inadverent, the holder of the privilege took reasonable steps to prevent disclosure, and the holder promptly took reasonable steps to rectify the error when production occurs.  

"Reasonable steps" is one of those greatly amorphous legal terms that lawmakers love to put in statutes or rules.  What is going to constitute a "reasonable step" is going to be in the eye of the beholder (most likely your judge).   But there are some things that may help you.  Keep some of the following in mind: 

• limit the number of receipients on communications to counsel to only those that are necessary for the communication
• If you have an in-house counsel who wears more than one hat, make sure that all e-mail to him in his legal counsel capacity are specifically identifed as such.
• Only put "privileged" on those e-mails that are truly privileged.  Don't include it on all regular e-mails.
• Clearly identify e-mails and subject lines to assist in future searches. 
• Keep a list of attorneys and legal professionals that are utilzedby your company to assist with future searches. 

Keep in mind your reasonableness in determining what steps to take in dealing with electronic discovery.  Whether you are writing your litigation attorney, your securities attorney, your probate attorney, or any other legal counsel, the steps you take now will protect your confidential material in the future.

For anyone involved in blogging or interested in information technology law or Internet privacy law, there is a strange case with some important lessons which was handed down by the District Court Western District of Kentucky last week.  The case is Yoder v. University of Louisville, 2009 WL 2406235 (W.D. Ky. Aug. 3, 2009).

The opinion is summarized well by Eric Goldman on the Technology & Marketing Blog.

Further…


The district court found that University of Louisville incorrectly interpreted the two contracts and reversed the school’s expulsion, ordering Yoder be reinstated into it’s School of Nursing.

Precision in Contract Drafting

Regarding the honor code, the court based its opinion heavily on the school’s lack of precision in the contract.   The court noted that the school failed to provide a definition for the standard of “professionalism” in the contract (also, apparently the dean of the school could not provide a definition during a deposition).  The court ultimately determined that the blog post was not unprofessional, but rather purely non-professional and, therefore, not governed by the contract. 

I think the court’s decision here is poor.  I suspect the School of Nursing intended for it’s professionalism standard in the honor code to extend beyond the borders of university grounds.  The fact is that a full time nursing student is writing about experiences from her profession.  When she wrote it should have no bearing.  What she is writing about should be determinative. 

This is a good note for anyone drafting or negotiating contracts.  Lack of precision in use of contract terms can come back to haunt you.  The school should blame themselves for the poor drafting.

Personally Identifiable Information

Regarding the confidentiality agreement, the more interesting determination by the court (in my opinion) is related to the personally identifiable information of the patient.  The court found that Yoder did not disclose any personally identifiable information of the patient in her blog post.  As stated by Goldman:


Disclosure of personally identifiable information is a HUGE issue in Internet law, information technology law and intellectual property technology law.  While certain foreign governmental entities, like all members of the European Union, treat all personally identifiable information as belonging to the individual, and thereby protected, the U.S. treats such information as commercial and only protects certain sensitive types of information under regulation (e.g., online information about Children; medical information; certain financial information).

Here the court was presented with medical information – meaning the patient’s personally identifiable information is protected.  Yoder signed a confidentiality agreement agreeing with the school to not disclose such information to others.  The court’s determination that her disclosure was not a breach of this agreement draws an extremely narrow view of what constitutes personally identifiable information.  A lot of questions are left open.  If the information is enough to infer identity, is that enough (this Court seemed to take a view that it had to expressly disclose identity)?  If the information is enough to package with other investigated information, is that enough (e.g., could a reporter find out identity by tying together the broad information that was disclosed in the post with other information that was found in a reasonable search of other hospital records)? 

In the business law and technology law world, companies often agree to security standards to protect personally identifiable data.  This has been pushed over the last decade by the stringent EU regulations.  Clarifying the line of what constitutes personally identifiable information is an area of business that is becoming more important and an area of law that will see more and more attention in U.S. courts.  Again, the Court here took a very narrow view – but it probably is not wise to base your security models on this decision. 

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Note: For Indiana entities, this case law is neither binding in Indiana state courts or it's federal district courts.  However, it is considered persuasive precedent should a court in Indiana be presented with similar issues.

As an entrepreneurial law attorney working with emerging and mid-market technology and SaaS businesses I am often involved in intellectual property strategies with my clients.  I am not a patent attorney (although my firm has patent attorneys within our network of partners that we routinely work with).  I do, however, live and breath technology licensing and my firm handles copyright and trademark matters for our business law clients.

There is a good article on today's New York Times on-line edition entitled Small Business Guide to Intellectual Property.  The article addresses some high level questions often asked by owners and officers of emerging companies.

In particular, the article addresses common IP fallacies held by emerging business owners.  Here are five fallacies:



If you believe any of the above statements, take a look at the article.  Having a solid IP strategy is highly important for any business - whether a professional service business that needs to protect its brand identity or a technology company seeking to protect its proprietary methods. 


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Alerding Castor Hewitt, LLP is an Indianapolis law firm focusing on business law, information technology law (including SaaS law and legal technology consulting), private equity consulting, probate and business litigation.

As an entrepreneurial law firm we partner with our clients at a unique level (at least unique as compared to most business law firms).  The attorneys at Alerding Castor Hewitt seek to partner with our business clients providing more than mere legal services, but serving as full service general counsel.  This means assisting in areas of business such as capital structuring and private equity, development of business strategy, and general business operational consulting.  We also have created our Partners in Success program which is a group of professional services providers that we routinely work with to better serve our clients in all of their business needs.

I had the privilege today of meeting with Brent Tilson of Tilson HR, Inc.  The following is a summary of Tilson HR from its website:

Your people are your most valuable resource.

And in today's competitive business world, your challenge is to optimize the balance between employee performance and cost containment.

At Tilson HR, we understand this delicate balance, and we have the human resources knowledge, processes, and technology to help you reach your specific business objectives.

To enhance the value of small to mid-size companies, we offer human resources services that:

·         Increase company profitability.

·         Improve workforce productivity.

·         Reduce administrative time.

·         Mitigate employment-related risk.

·         Decrease overall labor-related costs.

Tilson HR strategically focuses on privately held companies in early to mid-growth phases.  I was impressed with how they treat HR as the value of people rather than the mere management of policies - with overall company profitability in mind.  Many clients of Alerding Castor Hewitt could benefit from Tilson HR’s services.  Check them out.

 

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Alerding Castor Hewitt is an Indianapolis law firm focusing on business law, information technology law (including SaaS law and legal technology consulting), private equity consulting, probate and business litigation.

First, let me give a big "shout out" to my new colleagues Brian Hewitt and Dave Leske.  Brian Hewitt recently became a name partner with Alerding Castor LLP.  The new firm of Alerding Castor Hewitt LLP exploded into being on June 28, 2009.  Brian is a litigator of the highest caliber with years of experience in commercial, banking, and probate litigation.  Additionally, he is an outstanding mediator.  Dave, who also joined the firm on June 28, 2009, is a transactional attorney with a background in finance.  He'll be working in the areas of real estate, probate, and general transactional work.  I can't wait to work with both of them and am very excited for the future that is on the horizon for ACH.  

Now on to the actual topic for today: Minutia.  I've recently been working with another of our litigators, Gregg Gordon, on some matters and one of the things that struck me was his attention to detail.  I know that Gregg has been touted as the "King of Minutia" before, so I was not shocked at the attention to detail, but it impressed upon me the significance of minutia in today's world, particularly in the arena of e-discovery. 

In today's litigation forum, e-discovery is the emerging field that is both a quagmire and a goldmine.  E-discovery is the component of litigation that is now focused on the collection of electronic data.  The Federal Rules of Civil Procedure allow for the detection and collection of electronic data, and many state court rules are following suit.  Thus, electronic data is now fair game in all types of litigation.  From the multi-billion dollar patent suit against the Fortune 100 company to the smallest of state court collection matters. 

In my experience, the factor that will keep one safely in the gold mine area and away from the quagmire is the litigator's attention to detail.  Imagine that you are a young, "junkyard dog" type litigator trying to piece together an accurate picture of your opponent and the factual basis behind your case.  It doesn't really matter what the type of litigation is.  What matters is your ability to think outside the box about the minute details of the other person's life.  Do they have an e-mail account?  Do they have documents on their hard drive?  Have they ever moved documents or files to their iPod? etc., etc.  The ultimate question that litigators have to focus on is where can I find what I need.  In order to answer that question, it is necessary to become your own "King of Minutia" 

Of course, this attention to detail is equally applicable to today's business owner.  As you go about your daily activities, be cognizant of your electronic footprint and of the details that are out there waiting to be learned about you or your business.  By being aware of the dangers, you will be better suited to protect your interest.   

Section 230 of the Communications Decency Act (47 USC 230), entitled “Protection for private blocking and screening of offensive material”, is an important federal statute for any interactive computer service provider.  As a technology lawyer, my law practice largely focuses on SaaS law, software licensing law and Internet based businesses, this statute impacts several of my clients.

The statute essentially provides protection for providers of interactive computer services against information published by third parties on their site, provided that “a  provider of interactive computer service shall, at the time of entering an agreement with a customer for the provision of interactive computer service and in a manner deemed appropriate by the provider, notify such customer that parental control protections… are commercially available that may assist the customer in limiting access to material that is harmful to minors. Such notice shall identify, or provide the customer with access to information identifying, current providers of such protections.”

Where the notification requirement is met, Section 230 provides certain protections from liability when users encounter objectionable material through the Internet service.  230 essentially divides online content into first party content and third party content and says that online parties cannot be liable for third party content unless (1) it is covered by the Electronic Communications and Privacy Act (protection of individual’s communications via technology by government officers without court order), (2) federal criminal enforcement, or (3) intellectual property claims.

I often read the Technology & Marketing Law Blog by Eric Goldman.  In a recent post, Professor Goldman summarizes liabilities under Section 230.  Here is an excerpt:

As a final point, with the global nature of many ISPs, it is worth noting that many other countries do not afford the protections that the US provides under Section 230 (e.g., certain first world countries have found ISPs liable for negligence where they have failed to investigate material or user published content).  For Internet based companies doing business globally, it is worth considering the application of Internet laws of those countries.


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Alerding Castor is an Indianapolis law firm focusing on business law, information technology law (including SaaS law and legal technology consulting), private equity consulting, probate and business litigation.

This ticks me off.  I understand that in a struggling economy the State needs to make budget cuts, but instead of cutting spending in areas that ultimately do not lead to economic improvement, our State representatives are considering cutting spending in an area that have been the lifeblood of the State for the last quarter century – technology.

This may have a huge impact on my clients as my law practice centers on Indiana technology businesses – helping technology businesses get innovations to market and meet strategic business growth needs.  In particular, I work with a number of SaaS and software licensing businesses (as well as many biomedical and biotech firms).  My entreprenurial law / funding law firm provides counsel on private equity and venture capital, intellectual property and licensing, and general legal technology consulting. 

I believe at least a part of the problem that led to the proposed cut is that past technology funding has not proved itself to the State as creating jobs and causing a respectable ROI / economic increase for the State.  The State has sunk an overwhelming proportion of funded dollars into biomedical businesses (e.g., the 21st Century Fund has sponsored some 10 companies in the last 4 years that have products in development for cancer treatment). 

Don't get me wrong, those businesses are great and need to be supported, but the process of getting innovative concept to market for biotech and biomed companies is long and expensive.  Further, until the product is successful at market, significant numbers of jobs are not created.  So, funding ROI decreases (at least for the short term).  The overall funded portfolio should be diversified with other technology investments that will result in more jobs and more tax dollars back to the State quicker.

Investments in Internet and SaaS companies could be that answer.  For $500k to $1M, most SaaS companies can get product to market and begin generating revenue.  Job creation and the ROI on invest dollars is proven quickly.  Innovation is encouraged, businesses are built, jobs are created.  This all leads to fast economic impact.

I believe Indiana’s past approach on technology funding was flawed, and I think that is shown in the distrust of the State legislature to invest further dollars in technology.

That said, some recent conversations I have had with State leaders involved with technology funding gives me some hope.  These particular unnamed individuals appear to be looking for more solid investments that will quickly lead to jobs.  They are also not only looking at investments in companies that have connections to political dollars (another problem with certiain past State investments).  They also seem to be thinking a bit more broadly about what defines “innovation”.

For those readers of this blog in Indiana, contact your State representative and ask them to continue to fund technology. 

For my first foray into the world of blogging, I think the important first step is to answer the standard journalism questions necessary for any good story, namely, the who, what, when, where, and why.  Sorry for the length. I promise that future blogs will be shorter.  Without further adieu, here we go . . . .

 

Who:  This one is easy because I know a lot about me.  My name is Chris Stephen and I consider myself first and foremost a litigator.  Some people in my field like to classify themselves first as attorneys and then focus into their specialty, but I start with what I love.  I enjoy the law and I immensely enjoy helping people, which are both great aspects of being an attorney, but my passion is litigation.  The constant strategy that is trial and appellate litigation is intoxicating and addictive, and I seek it out.  Secondly, I consider myself a technophile.  I enjoy learning about the new and emerging technologies and the implications that they have for our world (and more specifically for the microcosm that is the legal world).  But for more about me, please feel free to check out my bio at http://www.alerdingcastor.com/professionals/cstephen.html      

 

What:  This question is slightly more difficult to answer.  What is “technology litigation”?  To me, it is the emerging areas of litigation that focus on the interplay of technology and our world.  Globally, we are becoming evermore connected and technology is advancing at an outstanding rate.  And, as with all areas of society, as innovation advances, the legal world is left to catch up.  As the legal world transitioned from the radio to the television and from the telephone to the Internet, new laws and new legal interpretations are constantly evolving.  This evolution has been evident for some time in the transactional side of the law as newly emerging companies seize new ideas and seek to make businesses out of them. But the litigation side is still burgeoning.  This is a natural consequence of the legal framework.  You often don’t have litigation first and transactions second. The transactions come first and then we litigators argue about where the transaction falls apart, and in doing so, law is created.  But too often in the law, people are trying to use 20^th (or sometimes 19^th) century laws to deal with 21^st century problems.  So my goal with this blog is to bring to light the new and emerging areas of law (and potential litigation minefields) that surround the interplay of technology in our world.  This encompasses information technology, e-commerce, privacy, data ownership, cyberlaw, e-discovery, website ownership, some trademark and just about anything else that I (or you) can think of.  Of course, I’m also likely to include general litigation points or developments that strike my fancy.

 

When:  I make no promises, but the when is going to be as often as I can.

 

Where:  While the scope of the issues I plan to address are global, my location is Indianapolis, Indiana, which is a beautiful mecca of the Midwest.  Be it ever so humble there is no place like home.  More specifically, the “where” is Alerding Castor LLP (or as I’m likely to affectionately refer to it “AC”).  Alerding Castor is a quickly emerging law firm in Indianapolis that focuses on virtually all areas of business and corporate law, general and complex litigation and trials, probate litigation, real estate, private venture capital, and technology law.  One of the name partners, David Castor is an outstanding transactional law who has established himself as a guru of SaaS law and transactions.  The other name partner Michael Alerding is one of the best litigators I’ve ever met.  Together they make a great team, and have brought together a great team.  Obviously, I’m somewhat biased because they sign my paychecks, but, I think they both deserve a “shout out” for what they are doing and what they are building. 

To learn more about AC, check out http://www.alerdingcastor.com/index.html .  To learn more about David, check out his blog at http://blog.alerdingcastor.com/blog/alerding-castor.   

 

Why:  “What work I have done I have done because it has been play. If it had been work I shouldn't have done it. Who was it who said, ‘Blessed is the man who has found his work’? Whoever it was he had the right idea in his mind. Mark you, he says his work--not somebody else's work. The work that is really a man's own work is play and not work at all. Cursed is the man who has found some other man's work and cannot lose it. When we talk about the great workers of the world we really mean the great players of the world. The fellows who groan and sweat under the weary load of toil that they bear never can hope to do anything great. How can they when their souls are in a ferment of revolt against the employment of their hands and brains? The product of slavery, intellectual or physical, can never be great.”  -Mark Twain

Let's face it - most contract terms are boring.  SaaS licensors and their customers want to close deals.  They want to hammer out the business terms and key legal terms and get the contract done.  I don't blame them.  Nobody in their right mind wakes up in the morning and says "I want to negotiate a contract today."

After weeks (or even months) of negotiations over key business and legal terms, the parties often are left with a few miscellaneous "legal" terms that seem more of a burden than important to the ultimate goals of the transaction.  One common term that reaches these final stages is the forum selection clause (i.e., if a lawsuit arises based on the contract, where will it be brought?). 

An Indiana technology company obviously wants all actions to take place in Indiana courts.  The out of state (or out of country) customer wants their home forum. 

So the key question is: Is this clause really important enough to delay closing the transaction? 

My favorite attorney answer: It depends.

As a business law attorney, answers are not always so clear.  For instance, a SaaS client of mine once asked me regarding a large scale SaaS licensing agreement valued at hundreds of thousands of dollars in which we were negotiating a choice of law clause, "What is the difference between choosing Indiana law or Illinois law to govern this contract?"  There are two potential answers.  The first answer engages the standard large business law firm approach - have an associate draft a massive memorandum comparing statutory and case  laws of each state on each and every clause of the contract and then outlining each and every difference to the client.  Spend: 40 legal hours @ $250/hr = $10,000.  

The second answer is approached from a business risk standpoint.  This is usually more what the client is looking for.  The attorney answers that there will be some differences but anticipates the differences will be fairly minor as both are seventh circuit states and have approached business law in very similar manners.  That said, this does not mean there are not differences in law, and we can look into specific issues further if there are key issues you want addressed.  Spend: 0.3 Hour @ $250/hr = $75.

The second answer provides a platform of risk assessment for the client to make an informed decision.  Do they want more information or are they willing to take on the risk of not knowing all of the answers in order to get the transaction done.

That example is for choice of law.  With forum selection clauses you are taking on the risk of a lawsuit arising from this contract and the need to bring an action on this contract.  The attorney can either do a detailed analysis of the differences in procedure and history of case law in SaaS transactions in the other state or provide the client with the opportunity to weigh the risk.

An out of state (or country) forum selection clause will greatly increase the costs of an action on the SaaS licensor.  So, there are several factors to consider when weighing the risk.  

• Is the SaaS licensor collecting a subscription fee over time or payment upfront?  A foreign forum selection will make small collection actions more difficult to obtain.
• Does the contract provide for attorney's fees and collection costs to be recovered by the SaaS business?
• Does the foreign selection clause put the SaaS business' customer on their home turf (there is a such thing as home court advantage in law) or is it a neutral site?
• What is the estimated cost for securing counsel in the forum (e.g., If you have London or New York forum, the SaaS business will pay double or triple on legal rates than Midwest rates).

Moral of the story - consult with an attorney who truly wants to get business deals done and weighs risks with you based on particular transactions.  Be aware of attorneys that want to provide over analysis on all provisions or ignore the particulars of a transaction.  Finally, don't overlook what sometimes are considered miscellaneous, general or "boilerplate" terms.  There are often "hidden" costs down the road in these clauses.


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Alerding Castor is an Indianapolis law firm focusing on business law, information technology law (including SaaS law and legal technology consulting), private equity consulting, probate and business litigation.