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3 Benefits of Cloud-Based Law Firms

Any law firm that’s evaluating practice management software has seen “cloud-based” options. Cloud technology has been around for a while, but some law firms are hesitant to switch to the cloud due to security concerns, lack of control, or downtime. The cloud has numerous benefits for a law firm, however. Instead of relying on filing cabinets and in-office servers, law firms can embrace the cloud and maximize their time and profits.

Why Should My Firm Use Cloud-Based Software?

Traditionally, law firms have relied on in-office software that is installed on a local computer or server within the office space. These servers are only accessible from computers in the same space but limit any remote access or capability. This setup quickly became an issue for law firms looking to sustain business continuity during the pandemic.

A cloud-based solution isn’t installed locally on the office server but is fully hosted on the internet. It uses a remote server maintained by the software provider, and access occurs through the internet. More recently, cloud-based legal practice management software has become the gold standard for law firms to manage and operate their business from anywhere. LPMs have slowly started to replace traditional servers and become the backbone for law firms to handle client management, calendaring, tasks, billing, and document storage.

Even post-pandemic, law firms are still learning to embrace legal technology and leverage the advantages of shifting their practice to the cloud. When done correctly and with the right resources, cloud-based law firms can improve aspects of their business from accessibility, security, client support, and even hiring and retention.

If you’re still on the fence about moving your firm to the cloud, here are 5 benefits that may change your mind:

1. Improved Security

Legal technology has come a long way in recent years with a strong emphasis on compliance and security. Law firms may be concerned about security, but some are realizing the cloud is more secure and cost-efficient than an on-premise solution. This is mostly because on-premise solutions typically require specialized support staff to perform lucrative updates to the system. These updates can cause severe downtime and even cost money calling in support.

With a cloud-based legal practice management software like PracticePanther, the all-in-one platform automatically updates and comes with the security and support your firm needs. The platform comes equipped with ABA and IOLTA compliant features and 256-bit military-grade encryption to ensure confidential information is safeguarded. It also offers two-factor authentication and customized security settings, which allow law firms to limit access to certain aspects of the software for some staff members.

2. Supports Remote and Hybrid Work

Though many law firms are still working out the kinks — remote and hybrid working environments are a mainstay in the legal industry. Many lawyers are enjoying the productivity benefits and work-life balance of remote or hybrid schedules, allowing them to put in the hours they need for casework while also balancing their responsibilities at home.

On-premise legal software limits lawyers with remote work in many ways. Cloud-based legal software enables law firms to work securely within a centralized platform from anywhere. This allows staff to continue their responsibilities without risking accessibility or tasks falling through the cracks when staff are in different locations. For example, PracticePanther can create workflows with triggered tasks for staff to complete a new client onboarding, send documents for electronic signature, and even process payments. This process can be done from anywhere and lives in one system where the appropriate staff can easily access the case or client matter.

3. Streamlined Billing and Online Payments

Clients’ expectations have shifted and they want more convenient processes, especially with legal billing and how they conduct business with law firms. These clients are already using online services for virtually everything, from grocery shopping to accessing medical bills, and they want the same digital experience from their lawyers.

Cloud-based software makes this simple, especially when billing and online payments are built natively. This means firms can track time, create invoices, and send them for payment with easy-to-use payment links embedded. Platforms like PracticePanther also include exclusive reporting functions so firms can gain better insight into where and how their cash flow is generated to make more informed business decisions.

Outlook on Cloud-Based Firms

Cloud-based software offers law firms a unique opportunity to manage their practice and staff while growing their business from virtually anywhere. This structure has proved sustainable for many law firms and will continue to be the standard in the legal industry for firms that want to remain competitive and most importantly, profitable.

Article By Nina Lee of PracticePanther

For more legal marketing and technology news, click here to visit the National Law Review.

Privacy Tip #335 – Health Care Sector Continues to Be Hit with Ransomware

According to the 2022 State of Ransomware Report issued recently by Sophos, it surveyed 5,600 IT professionals from 31 countries, including professionals in the health care sector. Those professionals in the health care sector shared that 66 percent of them had experienced a ransomware attack in 2021, which was an increase of 69 percent over 2020. This was the largest increase of all sectors surveyed.

If you look at the Office for Civil Rights data breach portal, you will see that a vast majority of breaches reported by health care providers and business associates are related to “Hacking/IT incident.” This confirms that the health care sector continues to be attacked by threat actors seeking to steal protected health information of patients.

If you are a patient who receives a breach notification letter from a health care provider or business associate, the letter will provide guidance on how to protect yourself following a data breach and may offer some protection guidance, including credit monitoring or fraud resolution. Such a letter has been sent to patients to comply with the breach notification requirements of HIPAA and state law. Part of those requirements includes that the patients be provided mitigation steps following the breach to protect themselves from fraud. Avail yourself of these protections in the event your information is compromised. Take the time to sign up for the mitigation offered. It is clear that these attacks will not subside any time soon.

Article By Linn F. Freedman of Robinson & Cole LLP

For more cybersecurity and media legal news, click here to visit the National Law Review.

Protection for Voice Actors is Artificial in Today’s Artificial Intelligence World

As we all know, social media has taken the world by storm. Unsurprisingly, it’s had an impact on trademark and copyright law, as the related right of publicity. A recent case involving an actor’s voice being used on the popular app TikTok is emblematic of the time. The actor, Bev Standing, sued TikTok for using her voice, simulated via artificial intelligence (AI) without her permission, to serve as “the female computer-generated voice of TikTok.” The case, which was settled last year, illustrates how the law is being adapted to protect artists’ rights in the face of exploitation through AI, as well as the limits of current law in protecting AI-created works.

Standing explained that she thinks of her voice “as a business,” and she is looking to protect her “product.” Apps like TikTok are taking these “products” and feeding them into an algorithm without the original speaker’s permission, thus impairing creative professionals’ ability to profit in an age of widespread use of the Internet and social media platforms.

Someone’s voice (and aspects of their persona such as their photo, image, or other likeness) can be protected by what’s called the “right of publicity.” That right prevents others from appropriation of one’s persona – but only when appropriation is for commercial purposes. In the TikTok case, there was commercial use, as TikTok was benefiting from use of Standing’s voice to “narrate” its users’ videos (with some user videos apparently involving “foul and offensive language”). In her Complaint, Standing alleged TikTok had violated her right of publicity in using her voice to create the AI voice used by TikTok, and relied upon two other claims: false designation of origin under the Lanham Act and copyright infringement, as well as related state law claims. The false designation of origin claim turned on whether Standing’s voice was so recognizable that another party’s misappropriation of it could confuse consumers as to whether Standing authorized the Tik Tok use. The copyright infringement claim was possible because Standing created the original voice files for a company that hired her to record Chinese language translations. TikTok subsequently acquired the files but failed to get a license from Standing to use them, as TikTok was legally obligated to do because Standing was the original creator (and therefore copyright owner) of the voice files.

As with other historical technological innovations (one of the earliest being the printing press), the law often plays catch-up, but has proven surprisingly adaptable to new technology. Here, Standing was able to plead three legal theories (six if you count the state statutory and common law unfair competition claims), so it seems artists are well-protected by existing law, at least if they are alleging AI was used to copy their work or persona.

On the other hand, the case for protecting creative expression produced in whole or in part by AI is much more difficult. Some believe AI deserves its own form of copyright, since innovative technology has increasingly made its own music and sounds. Currently, protection for these sounds is limited, since only humans can be identified as authors for the purposes of copyright. Ryan Abott, a professor of law and health science at the University of Surrey in Britain, is attempting to bring a legal case against the U.S. Copyright Office to register a digital artwork made by a computer with AI as its author. The fear, says Abott, is that without rights over these sounds, innovation will be stifled — individuals will not have incentive to create AI works if they cannot protect them from unauthorized exploitation.

Article By Jeanne Hamburg of Norris McLaughlin P.A.

For more communications, media, and internet news, click here to visit the National Law Review.

Trade Mark Infringement – Muslim Dating App Meets its Match [.com]

A recent Intellectual Property Enterprise Court Decision (IPEC) on 20 April 2022 has decided that ‘Muzmatch’, an online matchmaking service to the Muslim Community has infringed Match.com’s registered trade marks.

The decision by Nicholas Caddick Q.C was that Muzmatch’s use of signs and its name amounted to trade mark infringement and/or passing off of Match.com’s trade marks. This case follows successful oppositions by Match.com to Muzmatch’s registration of its marks in 2018, and unsuccessful attempts by Match.com to purchase Muzmatch between 2017 and 2019.

Match.com is one of the largest and most recognisable dating platforms in the UK. It first registered a word mark ‘MATCH.COM’ in 1996 and also owns other dating-related brands including Tinder and Hinge with other marks including the word mark ‘TINDER’. Match.com used a 2012 TNS report to illustrate its goodwill and reputation and 70% of people surveyed would be able to recall Match.com if prompted, 44% unprompted and 31% of people would name Match.com as the first dating brand off the ‘top of their head.’

Muzmatch is a comparatively niche but growing dating platform, which aims to provide a halal (i.e. in compliance with Islamic law) way for single Muslim men and women to meet a partner. Muzmatch is comparatively much smaller and was founded in 2011 by Mr Shahzad Younas and now has had around 666,069 sign-ups in the UK alone.

The Court considered that the marks ‘Muzmatch’ and ‘MATCH.COM’ and each company’s graphical marks, had a high degree of similarity in the services provided. The marks were also similar in nature orally and conceptually and the addition of the prefix ‘Muz’ did not distinguish the two marks, nor could the lack of the suffix ‘.com’ or stylistic fonts/devices.

The key issue of the case relates to the idea of the term ‘Match’ which is used by both marks to describe the nature of the business: match[ing]. Muzmatch argued that as both marks share this descriptive common element, so it is difficult to conclude that there is a likelihood of confusion between the two marks as the term just describes what each business does.

The Court found that finding that there is a likelihood of confusion for a common descriptive element is not impossible, as the descriptive element can be used distinctively. The average consumer would conclude that the portion ‘Match’ is the badge of origin for Match.com due to its reputation as a brand and the very substantial degree of distinctiveness in the dating industry. An average consumer would have seen the word ‘Match’ as the dominant element in the Match.com trade marks and Match.com is often referred to as just ‘Match’ in advertisements.

Aside from its marks, Muzmatch utilised a Search Engine Optimisation strategy from January 2012 whereby it utilised a list of around 5000 keywords which would take a user to a landing page on the its website. In the list of the keywords used, Muzmatch used the words ‘muslim-tinder’, ‘tinder’ and ‘halal-tinder’ which were accepted by Muzmatch during the litigation to have infringed Match’s trade marks of the Tinder brand including the word mark ‘TINDER’. Muzmatch’s SEO use was also found to cause confusion based on some of its keywords including ‘UK Muslim Match’, which again uses the term Match distinctively, therefore a consumer may confuse a link to ‘UK Muslim Match’ with ‘Match.com’.

Therefore, the Court found that there was likely to be confusion between Muzmatch and Match.com because of the distinctive nature of the term ‘Match’ in the world of dating platforms. An average consumer would conclude that Muzmatch was connected in a material way with the Match.com marks, as if it was targeted at Muslim users as a sub-brand, so this confusion would be trade mark infringement under S10(2) of the Trade Marks Act 1994.

The Court also considered that Muzmatch had taken unfair advantage of Match.com’s trade marks and had therefore infringed those marks under S10(3) of the Trade Marks Act 1994. This was due to the reputation of Match.com’s trade marks and because a consumer would believe that Muzmatch was a sub-brand of Match.com.

The Court rejected Muzmatch’s defence of honest concurrent use and found that Match.com would also have an alternative claim in the tort of passing off.

Key Points:

The Court found that a common descriptive element can acquire distinctiveness in an area, solely because of a company’s reputation and influence in that market.

The use of Search Engine Optimisation strategies can also constitute a trade mark infringement.

The lack of the suffix ‘.com’ in a mark is not sufficient to distinguish use from a household brand such as Match.com, so care should be taken with brands such as ‘Match.com’, ‘Booking.com’[1]

Source:

[1] Match Group, LLC, Meetic SAS, Match.Com International Limited v Muzmatch Limited, Shahzad Younas [2022] EWHC 941 (IPEC)

[1] Note- Blog Post of July 6 2020 Relating to Booking.com- https://www.iptechblog.com/2020/07/us-supreme-court-opens-doors-to-generic-com-trademarks/

Article By Connor Sargeant and the Intellectual Property and Technology Practice Group at Squire Patton Boggs (US) LLP .

For more intellectual property legal news, click here to visit the National Law Review.

The Metaverse: A Legal Primer for the Hospitality Industry

The metaverse, regarded by many as the next frontier in digital commerce, does not, on its surface, appear to offer many benefits to an industry with a core mission of providing a physical space for guests to use and occupy. However, there are many opportunities that the metaverse may offer to owners, operators, licensors, managers, and other participants in the hospitality industry that should not be ignored.

What is the Metaverse?

The metaverse is a term used to describe a digital space that allows social interactions, frequently through use of a digital avatar by the user. Built largely using decentralized, blockchain technology instead of centralized servers, the metaverse consists of immersive, three-dimensional experiences, persistent and traceable digital assets, and a strong social component. The metaverse is still in its infancy, so many of the uses for the metaverse remain aspirational; however, metaverse platforms have already seen a great deal of activity and commerce. Meanwhile, technology companies are working to produce the next-generation consumer electronics that they hope will make the metaverse a more common location for commerce.

The Business Case for the Hospitality Industry

The hospitality industry may find the metaverse useful in enhancing marketing and guest experiences.

Immersive virtual tours of hotel properties and the surrounding area may allow potential customers to explore all aspects of the property and its surroundings before booking. Operators may also add additional booking options or promotions within the virtual tour to increase exposure to customers.

Creating hybrid, in-person and remote events, such as conferences, weddings, or other celebrations, is also possible through the metaverse. This would allow guests on-site to interact with those who are not physically present at the property for an integrated experience and possible additional revenue streams.

Significantly, numerous outlets have identified the metaverse as one of the top emerging trends in technology. As its popularity grows, the metaverse will become an important location for the hospitality industry to interact with and market to its customer base.

Legal Issues to Consider

Select the right platform for you. There are multiple metaverse platforms, and they all have tradeoffs. Some, including Roblox and Fortnite, offer access to more consumers but generally give businesses less control over content within the programs. Others, such as Decentraland and the Sandbox, provide businesses with greater control but smaller audiences and higher barriers to entry. Each business should consider who its target audience is, what platform will be best to reach that audience, and its long term metaverse strategy before committing to a particular platform.
Register your IP. Businesses should consider filing trademark applications covering core metaverse goods or services and securing any available blockchain domains, which can be used to facilitate metaverse payments and to direct users to blockchain content, such as websites and decentralized applications. Given the accelerating adoption of blockchain domains along with limited dispute resolution recourse available, we strongly encourage businesses to consider securing intellectual property rights now.
Establish a dedicated legal entity. Businesses may want to consider setting up a new subsidiary or affiliate to hold digital assets, shield other parts of their business from metaverse-related liability, and isolate the potential tax consequences.
Take custody of digital assets. Because of their digital character, digital assets such as cryptocurrency, which may be the primary method of payment in the metaverse, are uniquely vulnerable to loss and theft. Before acquiring cryptocurrency, businesses will need to set up a secure blockchain wallet and adopt appropriate access and security controls.
Protect and enforce your IP. The decentralized nature of the metaverse poses a significant challenge to businesses and intellectual property owners. Avenues for enforcing intellectual property rights in the metaverse are constantly evolving and may require multiple tools to stop third-party infringements.
Reserve metaverse rights. Each Business that licenses its IP, particularly those that do so on a geographic or territorial basis, should review existing license agreements to determine what rights, if any, its licensees have for metaverse-related uses. Moving forward, each brand owner is encouraged to expressly reserve rights for metaverse-related uses and exercise caution before authorizing any third party to deploy IP to the metaverse on a business’ behalf.
Tax matters. Attention needs to be paid to how the tax law applies to metaverse transactions, despite the current tax law not fully addressing the metaverse. This is particularly the case for state and local sales and use, communications, and hotel taxes.

Ready to Enter?

As we move into the future, the metaverse appears poised to provide a tremendous opportunity for the hospitality industry to connect directly with consumers in an interactive way that was until recently considered science fiction. But like every new frontier, technological or otherwise, there are legal and regulatory hurdles to consider and overcome.

Article By Charles B. Ferguson, Jr. and Kimberly A. Wachen of ArentFox Schiff LLP

For more technology legal news, click here to visit the National Law Review.

Alabama Enacts New Telemedicine Law

Alabama Governor Kay Ivey recently signed SB 272 into law, setting forth telemedicine practice standards and abolishing Alabama’s previous “special purpose license” that allowed physicians licensed in other states to practice across state lines into Alabama. The law is effective July 11, 2022.

The law creates a new article in the Code of Alabama (Sections 34-24-701 through 34-24-707 of Chapter 24, Title 34). The statutory language is lengthy, but the key provisions are summarized below.

Medical License

Unless the physician meets an exception to licensure (e.g., peer-to-peer consultations, irregular or infrequent services), a physician must obtain either a full Alabama medical license or a license via the Interstate Medical Licensure Compact in order to provide “telehealth medical services” to a patient located in Alabama.

Telehealth medical services means “[d]igital health, telehealth, telemedicine, and the applicable technologies and devices used in the delivery of telehealth. The term does not include incidental communications between a patient and a physician.
The term “irregular or infrequent” services refers to “telehealth medical services” occurring less than 10 days in a calendar year or involving fewer than 10 patients in a calendar year.

Defined Terms and Allowable Modalities

Telehealth is defined as “[t]he use of electronic and telecommunications technologies, including devices used for digital health, asynchronous and synchronous communications, or other methods, to support a range of medical care and public health services.”
Telemedicine is defined as “[a] form of telehealth referring to the provision of medical services by a physician at a distant site to a patient at an originating site via asynchronous or synchronous communications, or other devices that may adequately facilitate and support the appropriate delivery of care.” The term includes digital health, but does not include incidental communications between a patient and a physician.
Digital Health is defined as “[t]he delivery of health care services, patient education communications, or public health information via software applications, consumer devices, or other digital media.”
Asynchronous is defined as “[t]he electronic exchange of health care documents, images, and information that does not occur in real time, including, but not limited to, the collection and transmission of medical records, clinical data, or laboratory results.”
Synchronous is defined as “[t]he real-time exchange of medical information or provision of care between a patient and a physician via audio/visual technologies, audio only technologies, or other means.”

Physician-Patient Relationship

A physician-patient relationship may be formed via telehealth without a prior in-person exam.

Telemedicine Prescribing of Medications and Controlled Substances

A practitioner may prescribe a legend drug, medical supplies, or a controlled substance to a patient via telehealth. However, a prescription for a controlled substance may only be issued if:

The telehealth visit includes synchronous audio or audio-visual communication using HIPAA compliant equipment;
The practitioner has had at least one in-person encounter with the patient within the preceding 12 months; and
The practitioner has established a legitimate medical purpose for issuing the prescription within the preceding 12 months.

In-Person Visit for Unresolved Medical Condition

If a physician or practice group provides telehealth medical services more than 4 times in a 12-month period to the same patient for the same medical condition without resolution, the physician must either see the patient in-person within 12 months or refer the patient to a physician who can provide the in-person care within 12 months. This in-person visit requirement does not apply to the provision of mental health services.

The Alabama Board of Medical Examiners and the Alabama Medical Licensure Commission are currently developing administrative rules in accordance with the new law.

Article By Kristen A. Murphy and Jacqueline N. Acosta of Foley & Lardner LLP

For more health law legal news, click here to visit the National Law Review.

ARPA-E: Biden’s Proposed FY 2023 Budget Boosts Investment in Clean Energy Technologies

On March 28, 2022, the Biden-Harris Administration sent the President’s Budget for Fiscal Year (FY) 2023 to the United States Congress (“Congress”). The President’s proposed $5.8 trillion budget for FY 2023 allocates billions of dollars toward combating climate change and boosting clean energy development. Biden’s budget requests $48.2 billion for the Department of Energy (“DOE”), with $700 million of those funds allocated to the DOE’s Advanced Research Projects Agency-Energy program (“ARPA-E”).[1] With these increased funds, the Biden administration plans for ARPA-E to expand its scope beyond energy technology–focused projects to include climate adaptation and resilience innovations.[2]

What Is ARPA-E?

ARPA-E is a United States federal government agency under the purview of the Department of Energy that funds and promotes the research and development of advanced energy technologies. ARPA-E was recommended to Congress in the 2005 National Academies report Rising Above the Gathering Storm: Energizing and Employing America for a Bright Economic Future, which published recommendations for federal government actions to maintain and expand U.S. competitiveness.[3] In 2007, ARPA-E was officially created after Congress implemented a number of the report’s recommendations by enacting the America COMPETES Act.[4] The 2007 Act was superseded by the America COMPETES Reauthorization Act of 2010, which incorporated much of the original language of the 2007 Act but made some modifications to ARPA-E structure.[5] In 2009, ARPA-E officially commenced operations after receiving its first appropriated funds through the American Recovery and Reinvestment Act of 2009 —$400 million to fund the establishment of ARPA-E.[6]

ARPA-E’s mission is statutorily defined as overcoming “the long-term and high-risk technology barriers in the development of energy technologies.”[7] This involves the development of energy technologies that will achieve various goals, including the reduction of fossil fuel imports, the reduction of energy-related emissions, improvements in energy efficiency, and increased resilience and security of energy infrastructure.[8] The statute directs ARPA-E to pursue these objectives through particular means:

Identifying and promoting revolutionary advances in fundamental and applied sciences;
Translating scientific discoveries and cutting-edge inventions into technological innovations; and
Accelerating transformational technological advances in areas industry is unlikely to undertake because of technical and financial uncertainty.[9]

The Impact of ARPA-E

Since 2009, ARPA-E has provided approximately $3 billion in R&D funding for over 1,294 potentially transformational energy technology projects.[10] Publishing annual reports to analyze and catalog its influence, the agency tracks commercial impact with key early indicators, including private-sector follow-on funding, new company formation, partnership with other government agencies, publications, inventions, and patents.[11]

Many ARPA-E project teams have continued to advance their technologies: 129 new companies have been formed, 285 licenses have been issued, 268 teams have partnered with another government agency, and 185 teams have together raised over $9.87 billion in private-sector follow-on funding.[12] In addition, ARPA-E projects fostered technological innovation and advanced scientific knowledge, as evidenced by the 5,497 peer-reviewed journal articles and 829 patents issued by the U.S. Patent and Trademark Office that sprung from the ARPA-E program.[13] ARPA-E recently announced that it is starting to count exits through public listings, mergers, and acquisitions. As of January 2022, ARPA-E has 20 exits with a total reported value of $21.6 billion.[14]

How Does Biden’s FY 2023 Budget Affect ARPA-E?

Biden has requested a 56% increase for ARPA-E, to $700 million.[15] The budget also proposes expansions of ARPA-E’s purview to more fully address innovation gaps around adaptation, mitigation, and resilience to the impacts of climate change.[16] This investment in research and development of high-potential and high-impact technologies aims to help remove technological barriers to advance energy and environmental missions.[17]

The request provides that ARPA-E shall also expand its scope “to invest in climate-related innovations necessary to achieve net zero climate-inducing emissions by 2050.”[18] Given the increasing bipartisan support for alternative energy funding and ARPA-E’s continuing and rising commercial impact, it is likely that ARPA-E’s funding and support of the research and development of early-stage energy technologies will continue to pave the way for the commercialization of advanced energy technologies.

Endnotes

https://www.law360.com/articles/1478133/biden-budget-provides-billions-for-clean-energy
https://www.energy.gov/articles/statement-energy-secretary-granholm-president-bidens-doe-fiscal-year-2023-budget
https://doi.org/10.17226/24778
Id. at 22
Id.
Id.
42 U.S.C. § 16538(b)
42 U.S.C. § 16538(c)(1)(A)
42 U.S.C. § 16538(c)(2)
https://arpa-e.energy.gov/about/our-impact
Id.
Id.
Id.
Id.
https://www.science.org/content/article/biden-s-2023-budget-request-science-aims-high-again
https://www.whitehouse.gov/wp-content/uploads/2022/03/budget_fy2023.pdf
Id.
https://www.science.org/content/article/biden-s-2023-budget-request-science-aims-high-again

Article By Kaoru C. Suzuki of Mintz

For more environmental legal news, click here to visit the National Law Review.

Cryptocurrency As Compensation: Beware Of The Risks

A small but growing number of employees are asking for cryptocurrency as a form of compensation. Whether a substitute for wages or as part of an incentive package, offering cryptocurrency as compensation has become a way for some companies to differentiate themselves from others. In a competitive labor market, this desire to provide innovative forms of compensation is understandable. But any company thinking about cryptocurrency needs to be aware of the risks involved, including regulatory uncertainties and market volatility.

Form of Payment – Cash or Negotiable Instrument

The federal Fair Labor Standards Act requires employers to pay minimum and overtime wages in “cash or negotiable instrument payable at par.” This has long been interpreted to include only fiat currencies—monies backed by a governmental authority. As non-fiat currencies, cryptocurrencies therefore fall outside the FLSA’s definition of “cash or negotiable instrument.” As a result, an employer who chooses to pay minimum and/or overtime wages in cryptocurrency may violate the FLSA by failing to pay workers with an accepted form of compensation.

In addition, various state laws make the form of wage payment question even more difficult. For example, Maryland requires payment in United States currency or by check that “on demand is convertible at face value into United States currency.” Pennsylvania requires that wages shall be made in “lawful money of the United States or check.” And California prohibits compensation that is made through “coupon, cards or other thing[s] redeemable…otherwise than in money.” It is largely unclear whether payment in cryptocurrency runs afoul of these state requirements.

Of note, the U.S. Department of Labor (“DOL”) allows employers to satisfy FLSA minimum wage and overtime regulations with foreign currencies as long as the conversion to U.S. dollars meets the required wage thresholds. But neither the DOL nor courts have weighed in on whether certain cryptocurrencies (e.g., Bitcoin) are the equivalent, for FLSA purposes, of a foreign currency.

Volatility Concerns

When compared to the rather stable value of the U.S. dollar, the value of cryptocurrencies is subject to large fluctuations. Bitcoin, for example, lost nearly 83% of its value in May 2013, approximately 50% of its value in March 2020, and recently lost and then gained 16% of its value in the span of approximately 15 minutes one day in February 2021.

Such volatility can give payroll vendors a nightmare and can, in some instances, lead to the under-payment of wages or violation of minimum wage or overtime requirements under the FLSA.

Tax and Benefits Considerations

Aside from wage and hour issues, the payment of cryptocurrency implicates a host of tax and benefits-related issues. The IRS considers virtual currencies to be “property,” subject to capital gains tax rates. It has also confirmed in guidance materials that any payment to employees in a virtual currency must be reported on a W-2 based upon the value of the currency in U.S. dollars at the time it was delivered to the employee. This means that cryptocurrency wage payments are subject to Federal income tax withholding, Federal Insurance Contributions Act (FICA) tax, and Federal Unemployment Tax Act (FUTA) tax.

For 401k plan fiduciaries, the Department of Labor recently issued guidance that should serve as a stern warning to any fiduciary looking to invest 401k funds into cryptocurrencies. Specifically, the DOL wrote: “[a]t this early stage in the history of cryptocurrencies, the Department has serious concerns about the prudence of a fiduciary’s decision to expose a 401(k) plan’s participants to direct investments in cryptocurrencies, or other products whose value is tied to cryptocurrencies.” Given the risks inherent in cryptocurrency speculation, the DOL stated that any fiduciary allowing such investment options “should expect to be questioned [by the DOL] about how they can square their actions with their duties of prudence and loyalty in light of the risks.”

Considerations for Employers

Given the combination of uncertain and untested legal risks, employers should consider limiting cryptocurrency compensation models to payments that do not implicate the FLSA or applicable state wage and hour laws. For example, an employer might provide an exempt employee’s base salary in U.S. dollars and any annual discretionary bonus in cryptocurrency.

Whether investing in cryptocurrencies themselves to pay employees or utilizing a third-party to convert US dollars into cryptocurrency, employers should also stay abreast of the evolving tax and benefits guidance in this area.

Ultimately, the only thing that is clear about cryptocurrency compensation is that any decision to provide such compensation to employees should be made with a careful eye towards the unique wage, tax, and benefits-related issues implicated by these transactions.

Article By Daniel J. Butler and Kevin J. White of Hunton Andrews Kurth

For more cryptocurrency and finance legal news, click here to visit the National Law Review.

Apple Smartwatch Antitrust Case Survives, Showing ‘Freedom of Design’ is Not Absolute

Judge Cites ‘Associated’ Anticompetitive Conduct Claims

It’s a case that challenges the limits of the “freedom of design” usually enjoyed by companies accused of product design changes alleged to harm competition. Ordinarily, a design change is not the kind of conduct that runs afoul of the antitrust laws, but on March 21, U.S. Judge Jeffrey S. White from the Northern District of California denied Apple Inc.’s motion to dismiss an antitrust case brought against it by AliveCor Inc. The suit alleges that Apple unlawfully maintained its monopoly in the market for heart rate analysis apps by updating WatchOS, the Apple Watch operating system on which AliveCor’s heart rate analysis app runs. (AliveCor, Inc. v. Apple Inc., No. 21-cv-03958-JSW, N.D. Calif.).

Heart rate analysis apps analyze the user’s heart rate in real time using a sensor close to the user’s wrist and determine whether the user’s heart rate is normal or irregular. The app runs constantly while the device is worn and alerts the user when a situation arises requiring an ECG recording and medical analysis. AliveCor also sells an electrocardiogram-capable wrist band for the Apple Watch and related WatchOS software that analyzes reading from the band. AliveCor claims that its products—the ECG-wristband hardware and software and its heart rate analysis app—“helped change the perception of the Apple Watch from an accessory to a personal health monitoring tool.”

AliveCor calls its heart rate monitoring app “SmartRhythm.” According to AliveCor, when sales of SmartRhythm took off Apple was inspired to announce an update to WatchOS with its own heart monitoring app designed to exclude AliveCor from the U.S. market for WatchOS heart rate analysis apps.

SmartRhythm works by using data from the Apple Watch’s heart rate algorithm. According to the complaint, Apple’s update to WatchOS altered the heart rate algorithm in a way that prevents third-party developers from being able to detect heart rate fluctuations and irregularities. As a result of these changes, SmartRhythm could not provide accurate heart rate analysis, and AliveCor removed it from the market.

Consequently, Apple is a monopolist in the WatchOS heart rate analysis app market, which AliveCor claims Apple is maintaining with exclusionary design changes to WatchOS, in violation of Section 2 of the Sherman Act, California’s Unfair Competition Law, and Section 17200 of California Business and Professions Code.

The court denied Apple’s motion to dismiss AliveCor’s monopolization claim in what it characterized as the “[single brand] aftermarket for WatchOS apps.” Applying the factors enumerated by the court in Newcal Indus., Inc. v. Ikon Office Sol., 513 F.3d 1038, 1044 (9th Cir. 2008), the court found that the WatchOS app aftermarket was wholly derivative from the primary smartwatch market, the alleged restraint applied only to the aftermarket, Apple’s aftermarket power was not obtained through contract terms reached in the primary market, and that competition in the smartwatch market does not discipline anticompetitive practices in the WatchOS app aftermarket. Accordingly, the court ruled that AliveCor’s market definition met the Newcal standards for a “single product” relevant market.

Apple argued that a company that improves a product to the benefit of consumers does not violate antitrust laws “absent some associated anticompetitive conduct,” citing the leading “freedom of design” case of Allied Orthopedic Appliances Inc. v. Tyco Health Care Group LP, 592 F.3d 991, 998-99 (9th Cir. 2010). The court quoted the holding of Allied: “If a monopolist’s design change is an improvement, it is necessarily tolerated by the antitrust laws, unless the monopolist abuses or leverages its monopoly power in some other way when introducing the product.”

Apple argued that its update to WatchOS was purely a design change that benefitted users, with no associated anticompetitive conduct. It observed that AliveCor hadn’t established that consumers use Apple’s app instead of some third-party app, or that Apple rejected any third-party apps, or that no other third-party heart apps are available to Apple Watch users. But the court rejected those arguments, noting that Apple failed to provide any legal authority that would require such allegations.

Apple ignored AliveCor’s allegations that Apple abused or leveraged its monopoly power “in some other way” by changing its heart rate algorithm to make it effectively impossible for third parties to inform a user when to take an ECG. AliveCor contended that Apple’s updated heart rate algorithm, which was pushed out to all earlier Apple Watch models, did not improve user experience. Its purpose was to prevent third parties from identifying irregular heart rates and offering competing apps based on that data. “These allegations present the type of ‘associated conduct’ that makes product design changes cognizable under antitrust law. Plaintiff’s allegations plausibly establish that Apple’s conduct was anticompetitive,” Judge White held. A case management conference set for May 20.

Commentary

It is truly difficult to see how some separate, “associated” conduct by Apple other than its design change to WatchOS violates Section 2. It seems more straightforward to consider the design change itself to be a cognizable anticompetitive act. It may be time to drop the fiction maintained in Allied v. Tyco that design changes are “never” antitrust violations unless accompanied by some “other” conduct. Here, Apple has created the market itself in the form of an OS platform used by millions of consumers who depend on it to access all manner of competing complementary products. Under those circumstances, it should be uncontroversial to hold a platform operator liable under the antitrust laws for design changes that exclude competitors or foreclose participants from the market, without indulging in the fiction of “associated” conduct.

Article By Jonathan Rubin of MoginRubin

For more antitrust legal news, click here to visit the National Law Review.

WW International to Pay $1.5 Million Civil Penalty for Alleged COPPA Violations

In 2014, with childhood obesity on the rise in the United States, tech company Kurbo, Ltd. (Kurbo) marketed a free app for kids that, according to the company, was “designed to help kids and teens ages 8-17 reach a healthier weight.” When WW International (WW) (formerly Weight Watchers) acquired Kurbo in 2018, the app was rebranded “Kurbo by WW,” and WW continued to market the app to children as young as eight. But according to the Federal Trade Commission (FTC), Kurbo’s privacy practices were not exactly child-friendly, even if its app was. The FTC’s complaint, filed by the Department of Justice (DOJ) last month, claims that WW’s notice, data collection, and data retention practices violated the Children’s Online Privacy Protection Act Rule (COPPA Rule). WW and Kurbo, under a stipulated order, agreed to pay a $1.5 million civil penalty in addition to complying with a range of injunctive provisions. These provisions include, but are not limited to, deleting all personal information of children whose parents did not provide verifiable parental consent in a specified timeframe, and deleting “Affected Work Product” (defined in the order to include any models or algorithms developed in whole or in part using children’s personal information collected through the Kurbo Program).

Complaint Background

The COPPA Rule applies to any operator of a commercial website or online service directed to children that collects, uses, and/or discloses personal information from children and to any operator of a commercial website or online service that has actual knowledge that it collects, uses, and/or discloses personal information from children. Operators must notify parents and obtain their consent before collecting, using, or disclosing personal information from children under 13.

The complaint states that children enrolled in the Kurbo app by signing up through the app or having a parent do it on their behalf. Once on Kurbo, users could enter personal information such as height, weight, and age, and the app then tracked their weight, food consumption, and exercise. However, the FTC alleges that Kurbo’s age gate was porous, requiring no verification process to establish that children who affirmed they were over 13 were the age they claimed to be or that users asserting they were parents were indeed parents. In fact, the complaint alleges that the registration area featured a “tip-off” screen that gave visitors just two choices for registration: the “I’m a parent” option or the “I’m at least 13” option. Visitors saw the legend, “Per U.S. law, a child under 13 must sign up through a parent” on the registration page featuring these choices. In fact, thousands of users who indicated that they were at least 13 were younger and were able to change their information and falsify their real age. Users who lied about their age or who falsely claimed to be parents were able to continue to use the app. In 2020, after a warning from the FTC, Kurbo implemented a registration screen that removed the legend and the “at least 13” option. However, the new process failed to provide verification measures to establish that users claiming to be parents were indeed parents.

Kurbo’s notice of data collection and data retention practices also fell short. The COPPA Rule requires an operator to “post a prominent and clearly labeled link to an online notice of its information practices with regard to children on the home or landing page or screen of its Web site or online service, and, at each area of the Web site or online service where personal information is collected from children.” But beginning in November 2019, Kurbo’s notice at registration was buried in a list of hyperlinks that parents were not required to click through, and the notice failed to list all the categories of information the app collected from children. Further, Kurbo did not comply with the COPPA Rule’s mandate to keep children’s personal information only as long as reasonably necessary for the purpose it was collected and then to delete it. Instead, the company held on to personal information indefinitely unless parents specifically requested its removal.

Stipulated Order

In addition to imposing a $1.5 million civil penalty, the order, which was approved by the court on March 3, 2022, requires WW and Kurbo to:

Refrain from disclosing, using, or benefitting from children’s personal information collected in violation of the COPPA Rule;
Delete all personal information Kurbo collected in violation of the COPPA Rule within 30 days;
Provide a written statement to the FTC that details Kurbo’s process for providing notice and seeking verifiable parental consent;
Destroy all affected work product derived from improperly collecting children’s personal information and confirm to the FTC that deletion has been carried out;
Delete all children’s personal information collected within one year of the user’s last activity on the app; and
Create and follow a retention schedule that states the purpose for which children’s personal information is collected, the specific business need for retaining such information, and criteria for deletion, including a set timeframe no longer than one year.

Implications of the Order

Following the U.S. Supreme Court’s decision in AMG Capital Management, LLC v. Federal Trade Commission, which halted the FTC’s ability to use its Section 13(b) authority to seek monetary penalties for violations of the FTC Act, the FTC has been pushing Congress to grant it greater enforcement powers. In the meantime, the FTC has used other enforcement tools, including the recent resurrection of the agency’s long-dormant Penalty Offense Authority under Section 5(m)(1)(B) of the FTC Act and a renewed willingness to use algorithmic disgorgement (which the FTC first applied in the 2019 Cambridge Analytica case).

Algorithmic disgorgement involves “requir[ing] violators to disgorge not only the ill-gotten data, but also the benefits—here, the algorithms—generated from that data,” as then-Acting FTC Chair Rebecca Kelly Slaughter stated in a speech last year. This order appears to be the first time algorithmic disgorgement was applied by the Commission in an enforcement action under COPPA.

Children’s privacy issues continue to attract the attention of the FTC and lawmakers at both federal and state levels. Companies that collect children’s personal information should be careful to ensure that their privacy policies and practices fully conform to the COPPA Rule.

Article By Sheila A. Millar and Tracy P. Marshall of Keller and Heckman LLP

For more privacy and cybersecurity legal news, click here to visit the National Law Review.

Tag: Technology