Category: Communication Media & Internet

The Legality of Loot Boxes: A Primer

What is a Loot Box?

Loot boxes are virtual items that may be redeemed to receive a randomized selection of additional virtual items. In some instances, they are free. In others, loot boxes can be a lucrative monetization mechanic. These random sets of virtual items can range from aesthetic items, which make something in the game look good (e.g., a visual customization for a player’s avatar or weapons), to functional items that improve in-game performance (e.g., weapons, power-ups, powers, etc.). Loot boxes can be “accessed” in a variety of ways, such as by earning access via game play or purchasing a “key” using virtual currency or real money to unlock the loot box.

Legal Considerations with Loot Boxes

With the proliferation of loot boxes over the past 15 years, the use of them in games has received increased attention from legislators, regulators and the plaintiffs’ bar. The primary legal issue is whether a loot box mechanic constitutes gambling. Other issues include whether the age rating of games with loot box mechanics should be impacted based on the inclusion of the game mechanic, and whether consumer protection laws require disclosure of the odds of obtaining certain virtual items through loot boxes. Some of these key issues are discussed below.

Gambling. There is a great debate about whether loot boxes constitute gambling. The gambling laws vary by country, and in the United States, by state as well. In the US, few if any laws specifically address gambling based on virtual items. At a high-level, an overly simplified definition of gambling involves: staking something of value (consideration) for a chance to win something of value (a prize). If all three elements are present in an activity (prize, chance, and consideration), it may be gambling.

Impact on Children. Content ratings typically indicate the appropriate age group for and type of content included in a video game. Some advocate that even if loot box mechanics are not gambling, they have an addictive effect and therefore this should be reflected in the games rating. Some commenters have suggested modifying the ESRB rating for games with loot boxes, for example by rating all such games as Mature or Adult Only, or by creating a new rating.

Disclosure Considerations

• Disclosure of Loot Box Odds. Currently, Apple and Google require all mobile apps that have loot boxes to disclose odds. By the end of 2020, Nintendo and similar companies manufacturing consoles are supposed to require disclosure of loot box odds for new games and existing games that add new loot box features. Many major game publishers have also committed to disclosing loot box odds by the end of 2020. Disclosure of loot box odds must be accurate and non-misleading to avoid a FTC Act Section 5 violation.

• In-Game Purchase Disclosures. In April 2020, the ESRB announced a new “Interactive Element”—used to describe disclosures for video games that highlight a game’s interactive or online features that may be of interest but do not influence a game’s rating. The “In-Game Purchases (Includes Random Items)” disclosure sits just below a game’s content rating assigned to any game that contains in-game offers to purchase digital goods or premiums with real world currency (or with virtual coins or other forms of in-game currency that can be purchased with real world currency) for which the player doesn’t know prior to purchase the specific digital goods or premiums they will be receiving (e.g., loot boxes, item packs, mystery awards).

• Content Creator Disclosures. With the rise of avid video game players livestreaming gameplay to followers, these players are reminded of the need to follow FTC Endorsement Guidelines. These guidelines require, among other things, disclosure of any material connections between the players and the products they are touting, such as compensation agreements.

Increasing Litigation from Consumers

The legality of loot boxes may be challenged through a variety of paths. For example, state attorneys general may bring criminal or civil actions, or aggrieved consumers may bring challenges directly under most states’ anti-gambling laws. Even if loot boxes are presumptively legal and do not constitute gambling under applicable law, consumers may bring lawsuits based on consumer protection or false advertising laws if they believe that the loot boxes are promoted in an arguably misleading way.

Several class action lawsuits have been brought recently in California against game developers, game publishers, and distributors of games. While some of the lawsuits have alleged violations of unfair competition laws by engaging in an “unlawful” business under the states’ gambling law, other cases claimed that the defendant misrepresented its marketing and selling of the loot box. We discussed one of those lawsuits in this post.

Regulatory Attention

Various federal, state, and foreign officials, have proposed regulating loot boxes. In 2018, state legislatures in at least four states (California, Hawaii, Minnesota, and Washington) introduced bills aimed at regulating loot box sales. All failed to pass. At the federal level, the most notable effort to restrict loot boxes was “The Protecting Children from Abusive Games Act,” a 2019 bill introduced by Sen. Josh Hawley aimed at prohibiting loot boxes in any game played by minors (which we covered here). In August 2020, the FTC released a staff perspective paper in response to the workshop held a year prior in 2019 about loot boxes and microtransactions. The FTC paper summarizes key concerns from panelists and commenters about how loot boxes function, as well as recommendations to address the concerns.

There is no consistent approach internationally either, although many EU member states have released position papers within the last few years.

Loot Box Jurisdictions

Considerations to Help Mitigate Risk

  • Take steps to avoid creating a wager, chance or win/loss structure required for a finding of gambling
  • Accurately and transparently disclose probably for winning
  • Consider substantial parental controls on loot box purchases made by minors
  • Ensure that there are minimal “fine print” terms or fees that consumers plausibly could contend are hidden or obscured
  • Develop and implement strategies for enforcement against unauthorized secondary markets that improperly sell your virtual items
Copyright © 2020, Sheppard Mullin Richter & Hampton LLP.
ARTICLE BY Julia K. Kadish and James G. Gatto of Sheppard, Mullin, Richter & Hampton LLP

Happy Thanksgiving TCPAworld!: Here Are the Top 10 TCPA Stories to be Grateful For This Time of Year

I know that many of you have the sense that its all-bad-news-all-the-time around here and feel like there are simply no silver linings to be found– but there is ALWAYS something to be thankful for in life, and TCPAWorld is no exception.

And I know, I know, you’re all very thankful the Czar– and I’m thankful for you too. But this isn’t a hugathon folks, its a learn-all-about-it-athon. So without further adieu, here are the top 10 TCPA stories you should be thankful for this year:

No. 10: There’s a Great Book Out About the TCPA and It is Really Quite Funny

I know most of you spend those long winter nights catching up on old Unprecedented episodes with the family and perusing TCPAWorld stories you may have missed throughout there year, but you can add another festive activity to your eggnog-laden December evenings: reading Dennis Brown’s self-published TCPA masterpiece “Telephone Terrorism– The Story of Robocalls and the TCPA.”

Great book. Great subject matter. Really funny. The only downside is that its too quick of a read– I blew through it in a single afternoon and I was left wanting more.

Maybe 2021 will see the Czar writing his own TCPA novel? We’ll see if holiday wishes really do come true.

No. 9: At Least One Court Has Found that Knowledge of TCPA Violations Alone is not Enough to Hold a Corporate Officer Personally Liable for the TCPA

I’ve said it before and I’ll say it again– the rule holding corporate officers and employees personally liable for TCPA violations by the company is amongst the most unfair rules in the entire legal world. It makes no sense that folks trying to help companies comply with the TCPA might be held personally liable for accidental violations. Gross.

The Seventh Circuit Court of Appeals has pushed back a bit against this rule, however, and determined that mere knowledge of a TCPA violation alone does not trigger personal liability.

Give how disastrous personal liability can be for employees working for companies facing TCPA risk, any ruling ameliorating tis profoundly unfair rule is truly something to be thankful for.

No. 8: Courts Are (Slowly) Catching on to the Idea that Responses to Consumer Requests for Information About a Product or Service Are Not Marketing Messages

The line between marketing and informational messages can sometime be extremely blurry. And when you consider that courts are supposed to apply “common sense” in assessing whether a neutral message might yet have been sent with a “dual purpose” to market, or as a “pretext,” it starts to feel like determining if a message might be marketing is a bit of a crap shoot.

Still the law is slowly trending toward a workable framework in which responses to consumer requests for information are not treated as marketing (requiring WRITTEN consent)– but rather as informational calls (requiring the consumer to have merely supplied their phone number in requesting information.) This is a huge deal for direct mailers or advertisers that field massive numbers of inbound calls from consumers seeking information and then have to return those phone calls–often without express written consent. Its also important for folks whose disclosures don’t quite live up to the letter of the law for marketing purposes. Either way its nice to see “common sense” is slowly starting to be applied with a little common sense.

No. 7: The FCC Clarifies that P2P Texting Does not Violate the TCPA– Sort Of

I remember reading the Marks ruling for the first time and getting extremely excited at the beginning of the ruling– when the Ninth Circuit held that the FCC’s earlier braod TCPA rulings had been set aide by ACA Int’l–only to have my excitement turn to shock and ultimately agony as I read the rest of the opinion.

Reading the FCC’s recent P2P rulings was a similar experience, only a bit watered down. The ruling was seemingly great for businesses and candidates using P2P text solutions, but somehow the language didn’t quite match what the ruling seemed to be saying– if you know what I mean. Read one way the ruling is a huge win authorizing P2P texts across the broad. Read another way the ruling simply confirmed that texts launched by the manual entry of an entire phone number and an entire message didn’t violate the TCPA so long as the system didn’t otherwise have the capacity to act as an ATDS–which is not really very helpful at all.

While courts are struggling with what, exactly, the ruling means– we should all be thankful that the FCC certainly seems to have blessed P2P texting platforms, even if the language of the ruling is somewhat open to interpretation.

No. 6: Some Manufactured TCPA Lawsuits Are Getting the Boot

Ever since my huge win back in Stoops, manufactured TCPA lawsuits should be subject to dismissal. Unfortunately, TCPA defendants have–by and large–not leveraged the case properly, resulting in an avalanche of decisions distinguishing Stoops and allowing repeat TCPA litigators to continue to thrive in the courtroom.

But as two recent court decisions prove, leveraging Stoops properly can lead to big wins– such as where a Plaintiff engages in conduct designed specifically to attract more TCPA violations, or uses a business number specifically to set a trap for marketers. 

No. 5: TCPA Filings are Flat Year Over Year–And Declining

TCPA filings are up a meager 4% year to date over last year. But there were a huge number of early-year filings but they have mostly dwindled as the year has run on.

Indeed the last couple of months have seen a sharp decline in TCPA filings as Plaintiff’s lawyers keep their powder dry and await the big SCOTUS ATDS ruling. In fact, I have talked to a number of TCPA plaintiffs lawyers who openly admit they are holding on to TCPA suits that will be filed, if at all, only after the Supreme Court hands down its big Facebook ATDS ruling (more on that below).

Even if the low TCPA count this year might be a bit of a mirage–and TCPAWorld might be facing a huge surge next year–the brief respite is still something to be thankful for.

No. 4: The Eleventh Circuit Court of Appeals

One of the things callers should be MOST thankful for this year is that the entire Eleventh Circuit Court of Appeal woke up some sleepy Tuesday in September, went to its toolshed, found a flamethrower, and decided to torch TCPA class actions in the jurisdiction.

For about a year now the Eleventh Circuit has systematically dismantled the TCPA machine that had built up in Florida. It was a remarkable turn of events–worthy of its own TCPA novel– as the once-friendliest jurisdiction for TCPA suits flipped on a dime and became the ultimate Defense paradise.  

No. 3: Facebook Looks Like a Heavy Favorite to Win Its SCOTUS ATDS Appeal

Hopefully I didn’t just jinx them, but Facebook is really looking strong headed into oral argument on December 8, 2020. With Justice Barrett–the former Seventh Circuit Court of Appeals judge that wrote the defense-friendly Gadelhak decision— installed at the Supreme Court, Facebook is playing with a stacked deck. But the incredibly persuasive work by the U.S. Government (i.e. the Solicitor General’s office) is the real ace in the hole here.

The TCPAWorld.com probability dial–which once showed Duguid as a slight favorite following the AAPC ruling–is now suggesting an 85% chance of victory for Facebook. That’s a big swing in our analytic simulation model, which doesn’t actually exist.

And remember, if Facebook pulls it off it was all thanks to TCPAWorld.com convincing the Supremes to take the appeal in the first place. That’s how I remember it anyway.

No. 2: All Robocalling Sins Have Been Wiped Away for a Long Four Years –According to Some Courts Anyway 

Undoubtedly the biggest TCPA story of 2020 is the Supreme Court’s big ruling in AAPC and the profound impact it (may have) had on liability for calls made prior to July 6, 2020. 

Like so much else in TCPAWorld, the impact of AAPC turns on your point of view. From one perspective the Supreme Court ruling was a ho-hum decision isolating a single exemption for First Amendment review and severing it when things didn’t line up for it. From another perspective–mine–it was a free-speech-killing first-of-its-kind ruling that turned the First Amendment into an ironing board. But from another–critical–perspective it was a ruling in which the U.S. Supreme Court determined the entire TCPA was unconstitutional and had to save the enactment by severing a content-specific exemption.

This later perspective is what animates two huge district court rulings that have determined that all calls made between November, 2015 and July, 2020 are simply not actionable. This is so because the TCPA was unconsttutional during that entire timeframe. This remarkable ruling means that the vast majority of calls made during the height of the Robocall epidemic of the 20teens are simply beyond the reach of plaintiff’s lawyers.

As I have suggested previously, by wiping out TRILLIONS in TCPA exposure the rule of Creasy and Lindenbaum amount to one of the largest wealth transfers (or at least, risk write downs) in human history. These are remarkable rulings, that are truly worth giving thanks for.

No 1: TCPAWorld.com Keeps Cranking out the Must-Read Content– and the VIDEOS

Rather obviously the thing TCPAWorld denizens should be most thankful for this year-and every year–is the hard working team here at Squire Patton Boggs and TCPAWorld.com. Not only do we deliver great first-in-the-nation wins, we break down every TCPA story as it happens, virtually in real time. And we’re not going to stop any time soon.

Plus, when COVID hit we moved to VIDEO podcasts to better engage with you folks and have been pumping out free webinars and learning sessions to make sure that YOU are armed with the information you need to protect yourself in the turbulent TCPA world.

And of course, we do it all for free. With no barriers to content. No unnecessary sign ups. No advertising. No pop up adds. No data sales. No nothing.

So when you raise your glass of cider over that delectable Thanksgiving feast on Thursday, you’ll be forgiven if TCPAWorld.com enters into the discussion of the list of things you’re most thankful for this year.

And we, of course, are endlessly thankful for each of you as well.

I guess this was a hugathon after all.

Stay grateful TCPAWorld.

© Copyright 2020 Squire Patton Boggs (US) LLP

Privacy Tip #261 – Online Shopping Tips for the Holidays

I have done more online shopping this year than ever before, and I know that I am not alone. With the holidays approaching, this will only increase because of the pandemic, and hackers and fraudsters know it. 

A recent report by GBG entitled “GBG State of Digital Identity: 2020,” states that 47 percent of individuals have open up a new online shopping account, 31 percent have opened a new social media account and 35 percent a new online bank account in 2020. In addition, one third of consumers 75 years or older have opened a new online account in 2020.

Additional depressing statistics from that report states that one in five individuals have been affected by identity fraud this year and were informed that their personal information has been exposed following the data breach. Therefore, one third of consumers have become more aware of and consumed about fraud and believe their personal information is exposed on the dark web.

GBG estimates that during the upcoming holidays, each online retailer will have to combat an average of 20,000 fraud attempts. 

With these statistics in mind, a recap of tips to think about to protect yourself while online shopping during this holiday season may be helpful: 

  • Be wary of emails with unbelievable sales that ask you to click on embedded links or attachments
  • When shopping online, visit the retailer’s actual website instead of a link that has been provided to you through an email
  • Use a credit card and not your debit card for all ongoing shopping
  • Use a dedicated credit card for all online shopping so if there is a compromise of that credit card it is limited to that one credit card
  • When asked if you want the online shopping site to save your credit card number, click “no thanks”
  • Be wary of gift card promotions or requests
  • Watch your credit card account statements closely
  • Check your credit report frequently

During this holiday season, support your local retailers, shop safely and have a happy, safe and healthy and Thanksgiving.

Copyright © 2020 Robinson & Cole LLP. All rights reserved.

Election Results: New Data Privacy and Security Laws

Although the Presidential race is unconfirmed at the time of this writing, there are several data privacy and security laws to put on your radar following the election this week.

Here is a brief list of laws that passed that we are aware of so far. We will provide more information as news breaks, but in this ever-changing area, we want to alert you to some important changes in the state law landscape following the election.

California’s Prop 24

 This proposition updates California’s CCPA, now referred to as California Privacy Rights Act (CPRA). In addition to other provisions (link Deb’s blogs from today and last week here), from a compliance perspective, it establishes a first-of-its-kind enforcement agency, the California Privacy Protection Agency, which will oversee enforcement of CPRA, and further establishes fines and penalties for violation of the law. The law goes into effect on January 1, 2023, for all data that are collected starting on January 1, 2022. Keep this one on your compliance radar and we will update you further.

Maine Approves Referendum on Limiting Use of Facial Recognition Technology 

Maine voters approved Referendum Question B, which strengthens the ban on the use of facial recognition surveillance technology by police and public officials. 

Massachusetts Votes in Favor of Ballot Question 1 

Massachusetts voted in favor of Ballot Question 1, which would require car manufacturers to equip vehicles using telematic systems with an open-access data platform starting with the model year 2022.

A detailed analysis of Ballot Question 1 is here.

Michigan Amends Constitution to Require Warrant for Access to Electronic Data

In Michigan, it appears that voters have approved an amendment to the state constitution to require search warrants for law enforcement to access electronic data and communications. The measure amends that part of the constitution that provides for the protection against unreasonable search and seizure.

Staying abreast of new state laws and regulations is a complex process for those charged with compliance adherence. We will continue to update you on the most significant changes to assist you in your compliance efforts.

Copyright © 2020 Robinson & Cole LLP. All rights reserved.
For more articles on privacy, visit the National Law Review Communications, Media & Internet section.

Driven To The Edge: Saga Of Uber And Lyft Litigation Continues As Court Of Appeal Affirms Order Forcing Driver Reclassification

On Thursday, October 22, 2020, the California Court of Appeal denied Uber and Lyft’s request to overturn a recent California Superior Court’s preliminary injunction ordering the companies to reclassify their drivers as employees, rather than independent contractors. With the appeal garnering Amicus Curiae briefs from more than 50 different organizations—ranging from the U.S. Chamber of Commerce to Mothers Against Drunk Driving—the decision marks the most recent entry in the highly watched ongoing litigation against the companies over their compliance with A.B. 5. With California’s upcoming vote on Proposition 22, however, many are left wondering what, if any, impact the denial might have on Uber, Lyft, or the gig economy as a whole.

The litigation involves a recent complaint filed by the California Labor Commissioner alleging, in relevant part, that Uber and Lyft violated California’s recently enacted legislation, A.B. 5, by classifying their app-based drivers as independent contractors, rather than employees. Under A.B. 5, companies are required to classify their workers as employees unless the companies can show:

  • The workers are generally free from the company’s direction and control over how they perform their work;
  • The workers are not engaged in the type of work the company usually engages in in its regular course of business; and
  • The workers are engaged in an established trade or professions separate and apart from the company itself.

Whether or not Uber and Lyft’s app-based drivers satisfy this test has been a hotly debated point of dispute. For Uber and Lyft, however, the consequences of being found to not pass this test are potentially dire, as an adverse decision on this point would force the companies to restructure their entire business model by changing the classification of their app-based drivers from independent contractors to employees.

The appeal was motivated by a California Superior Court’s recent decision to issue a preliminary injunction that ordered Uber and Lyft to begin this reclassification process, even prior to the suit’s resolution—a decision signaling that the Superior Court believed the companies to be fighting an uphill battle they would ultimately loose. In light of the order, Uber and Lyft promptly appealed the decision, citing in relevant part, the grave harm that the order would cause by necessitating “substantial changes to…organizational structure, hiring processes, software tools and management systems, and company culture.” To adapt to these forced changes, the companies explained that they would likely need to “reduce the number of drivers” allowed to use the platform, “control the drivers’ time…by having them work scheduled shifts,” and “prohibit drivers…from unilaterally rejecting or cancelling rides.” Unfortunately, Uber and Lyft’s arguments ultimately fell on deaf ears, as the Court of Appeal affirmed the lower court’s ruling forcing the companies to reclassify their app-based drivers—although the order isn’t set to take effect for at least 30 days.

Proposition 22 could save Uber and Lyft from this fate long before those 30 or so days are up. Currently set for the November 3rd ballot, Proposition 22, would exempt certain gig-economy companies, like Uber and Lyft, from the strictures of A.B. 5 while simultaneously allowing for a new middle ground between independent contractor and employee classification. The ballot initiative would do this: (a) allowing app-based drivers to maintain their traditional independent contractor status; while also (b) providing them with new and added benefits not previously available to independent contractors—a compromise that could inhere to the benefit of both parties.

If successful, Proposition 22 could stop the California Labor Commissioner’s suit in its tracks. As a result, only time will tell if the recent Court of Appeal ruling will ultimately have any impact on Lyft, Uber, or the gig economy generally.

©2020 Greenberg Traurig, LLP. All rights reserved.
For more articles on Uber & Lyft, visit the National Law Review Corporate & Business Organizations section.

Spooktacular Severability Ruling Raises Barr From The Dead, Buries TCPA Claims Arising Between November 2015 and July 2020

A few weeks ago, the Eastern District of Louisiana held that courts cannot impose liability under Sections 227(b)(1)(A) or (b)(1)(B) of the TCPA for calls that were made before the Supreme Court cured those provisions’ unconstitutionality by severing their debt collection exemptions.  The first-of-its-kind decision reasoned that courts cannot enforce unconstitutional laws, and severing the statute applied prospectively, not retroactively. Plaintiffs privately panicked but publicly proclaimed that the Creasy decision was “odd” and would not be followed.

So much for that. Yesterday, the Chief Judge of the Northern District of Ohio followed Creasy and dismissed another putative class action.  The new case—Lindenbaum v. Realgy—arose from two prerecorded calls, one to a cellphone and another to a landline. The defendant moved to dismiss, arguing that “severance can only be applied prospectively,” that Sections 227(b)(1)(A) and (b)(1)(B) were unconstitutional when the calls were made, and that courts lack jurisdiction to enforce unconstitutional statutes. The plaintiff opposed the motion, arguing, among other things, that a footnote in Justice Kavanaugh’s plurality opinion in Barr v. AAPC suggests “that severance of the government-debt exception applies retroactively to all currently pending cases.”

The court sided with the defendant. It began by agreeing with Creasy that this issue “was not before the Supreme Court,” and the lone footnote in Justice Kavanaugh’s plurality opinion is “passing Supreme Court dicta of no precedential force.” It then surveyed the law and found “little, if any, support for the conclusion that severance of the government-debt exception should be applied retroactively so as to erase the existence of the exception.” It reasoned that, while judicial interpretations of laws are “given full retroactive effect in all cases still open on direct review and as to all events,” severance is different because it is “a forward-looking judicial fix” rather than a backward-looking judicial “remedy.” In short, severance renders statutes “void,” not “void ab initio.”

Defendants are now two-for-two in seeking dismissal of claims based on the now-undeniable unconstitutionality of the debt-collection exceptions in Section 227(b)(1)(A) or (b)(1)(B). With more such motions pending in courts across the country, this may become a powerful weapon against whatever claims remain after the Supreme Court’s decision in Facebook v. Duguid.

© 2020 Faegre Drinker Biddle & Reath LLP. All Rights Reserved.
For more articles on the TCPA, visit the National Law Review Litigation / Trial Practice section.

Grin and Barrett– Judge that Wrote Ruling Narrowly Interpreting TCPA’s ATDS Definition Sworn In to SCOTUS Ahead of Big Facebook TCPA Challenge

Well, its official

Former Judge Amy Coney Barrett– previously of the Seventh Circuit Court of Appeals– is now Justice Amy Coney Barrett of the US Supreme Court.

Whatever you may think of the GOP moving forward with this nomination in the shadow of the election, this is a great day for callers and advocates of a narrow TCPA read.

You already know the headline: in her previous role on the Seventh Circuit Court of Appeals, then-Judge Barrett had written a critical opinion addressing the TCPA’s ATDS definition and determined that the TCPA only applies to random or sequential number dialers, thus legalizing the vast majority of so-called “robocalls” in the Seventh Circuit footprint and freeing callers from one of the worst-written statute in American history.

Now as a Supreme Court Justice, one of Barrett’s first challenges will be to decipher the precise same portion of the precise same statute as part of Facebook’s huge SCOTUS appeal of the TCPA’s ATDS definition.

At issue, of course, is whether the TCPA applies to any call made “automatically” from a list of stored numbers or only those dialers that have the capacity to dial randomly or sequentially.  As I have explained recently, this is a classic “pathos vs logos” situation-– the statute plainly seems to require random or sequential number generation, yet the near universal disdain for robocalls might lead to a results-based analysis (of the sort the Supremes just engaged in to save this same statute a mere three months ago)

In our latest episode of the insanely popular Unprecedented [VIDEO] Podcast I had the opportunity to ask Plaintiff’s lead counsel- Sergei Lemberg–how he felt about arguing this critical issue back to the exact same Judge who ruled on this very issue in Gadelhak.  You’ll get to hear his answer TOMORROW right here.

The ascension of Justice Barrett is just the latest in a string of seesaw developments in the TCPA ATDS saga, with momentum swinging wildly in favor of one side or the other these last three months. The latest big development was the arrival of Bryan Garner– co-author with Justice Scalia (Justice Barrett’s mentor) of Reading Law, one of the most persuasive works on statutory interpretation– onto the consumer lawyer’s team urging an expansive read of the TCPA. And, of course, just last week nearly 40 state AGs likewise joined the fray in favor of an expansive TCPA read.

But with Justice Barrett arriving on the bench is Facebook now playing with a stacked deck? Certainly Justice Barrett–having already spoken on this issue–has a clear and obvious lean. Yet the trendy Beltway mistrust for “Big Tech” coupled with the fact that the Conservative wing of the Court (now its majority) previously split on whether to keep the TCPA on the books, suggest that this result might not yet be baked.

It all adds up to high drama in the high stakes TCPAWorld ATDS battle.

© Copyright 2020 Squire Patton Boggs (US) LLP
For more articles on the TCPA, visit the National Law Review Communications, Media & Internet section.

Zooming In: How Using Zoom Improperly Can Destroy Trade Secret Protections

In April, our editor, Joe Lavigne, explained how employers can ensure trade secret protections while allowing employees to work from home during the pandemic. The article advised employers to restrict the transmission of trade secrets through social media platforms like Zoom. A recent decision out of Delaware confirmed that the failure to use Zoom privacy and security settings may result in the loss of trade secret protections.

In Smash Franchise Partners, LLC v. Kanda Holdings, Inc., a Delaware Court of Chancery ruled that a trade secret plaintiff did not take reasonable steps to protect its trade secrets when it failed to incorporate Zoom privacy and security features and disclosed its confidential and proprietary business strategies on an open Zoom call.

Smash Franchise Partners is a franchisor of mobile trash compactors that allows customers to save on waste management and disposal by compacting trash on site. Smash sells its compactors and business model to franchisees. However, prospective franchisees are required to sign a non-disclosure agreement (NDA) before being introduced to the product and business model.

In December 2019, the defendants signed an NDA and participated in several open Zoom calls regarding the cost of doing business, business strategies, and targeted customers. The defendants subsequently decided to open their own mobile trash compacting business in direct competition with Smash.

Smash immediately filed suit against the new competitor claiming the defendants misappropriated its trade secrets, and Smash sought an injunction to prohibit the defendants from operating their competing business. To obtain a preliminary injunction, Smash was required to show a reasonable likelihood of success on their trade secret claim.

The Delaware court determined that Smash could not show a likelihood of success on the merits of its trade secret claim because it did not take reasonable steps to protect the trade secrets. The court reached this conclusion after emphasizing that any trade secrets defendants allegedly misappropriated were disclosed during open Zoom calls. Notably, Zoom offers security features to ensure confidentiality is maintained, i.e. Zoom hosts can hold private meetings that require passwords to prevent unauthorized participants from joining. Smash did not use this feature or follow its own procedure, which required roll be called before any prospective franchisee presentation and the removal of unauthorized participants.

The lesson. Work from home is here to stay. Zoom and other social media applications like it have become critical to the seamless and immediate transfer of ideas and business information in the remote workplace era. Employers must takes steps to ensure that the use of Zoom and other tools does not result in the loss of trade secret protections. When using Zoom to hold meetings where proprietary business information is disclosed, companies must use security features that permit password-protected meeting links, and they should also implement other procedures like taking a roll call and removing unauthorized participants.

© 2020 Jones Walker LLP

ARTICLE BY Jason Culotta  of Jones Walker LLP
For more articles on intellectual property litigation, visit the National Law Review Litigation / Trial Practice section.

U.S., 11 States Sue to End Google’s Reign as “Monopoly Gatekeeper for the Internet”

Suit says company improperly uses market power to achieve exclusivity.

The U.S. Department of Justice and 11 states have sued Google LLC in federal court in Washington, D.C. for unlawfully maintaining its position as “monopoly gatekeeper for the internet” by blocking competitors in Internet search and search advertising markets. “For many years, Google has used anticompetitive tactics to maintain and extend its monopolies in the markets for general search services, search advertising, and general search text advertising — the cornerstone of its empire,” the government suit alleges. Google immediately responded via web post, calling the suit “dubious” and “deeply flawed.”

Download the complaint.

The complaint pays special attention to internet searches on mobile devices, an activity that has by far overtaken searches initiated by consumers on desktop computers. Mobile searches are now “the most important avenue for search distribution in the United States.” Mobile and desktop devices that default to the Google search engine gives the company “de facto exclusivity,” according to the complaint.

Google is alleged to maintain its dominance in general search by entering into “exclusionary agreements, including tying arrangements” to “lock up distribution channels and block rivals.” Google uses its considerable resources and revenue to help make this happen. “Google pays billions of dollars a year to distributors … to secure default status for its general search engine …” The company even prohibits device makers and distributors from dealing with Google’s competitors. Deals have been struck with Apple, LG, Motorola, Samsung, AT&T, T-Mobile, Verizon, Mozilla, Opera, and UCWeb, the suit alleges. And some agreements require distributors to take and feature “a bundle of Google apps” to make sure Google is a consumer’s first click for popular services.

These exclusionary agreements are alleged to cover just under 60 percent of all search queries, while almost half of the remaining queries go through Chrome, also a Google product. “Between its exclusionary contracts and owned-and-operated properties,” the suit says, “Google effectively owns or controls search distribution channels accounting for roughly 80 percent of the general search queries in the United States. Largely as a result of Google’s exclusionary agreements and anticompetitive conduct, Google in recent years has accounted for nearly 90 percent of all general-search-engine queries in the United States, and almost 95 percent of queries on mobile devices.”

“Google has thus foreclosed competition for internet search,” the government says.

Moreover, “Google monetizes this search monopoly in the markets for search advertising and general search text advertising, both of which Google has also monopolized for many years,” the complaint says. Google generates $40 billion a year from advertisers, part of which it uses to get distributors to favor Google’s search engine. These payments discourage distributors from switching and create a barrier to entry for rival search engines, especially small, innovative players.

“Google’s anticompetitive practices are especially pernicious because they deny rivals scale to compete effectively,” the DOJ and the states explain. Google’s products run on complex algorithms that “learn” which ads to present to which users. The “volume, variety, and velocity of data,” which Google has more of than anyone, “accelerates the automated learning of search and search advertising algorithms.” The scale of the data it feeds into these algorithms is something Google has acknowledged is the key to its success.

The complaint adds that Google’s grip on distribution “thwarts potential innovation.” The government plaintiffs noted two rivals — one that is using a subscription model and DuckDuckGo, which has strict privacy protection policies – “are denied the tools to become true rivals: effective paths to market and access, at scale, to consumers, advertisers, or data.”

The government notes that the once scrappy Google claimed Microsoft’s practices were anticompetitive. “Almost 20 years ago, the D.C. Circuit in United States v. Microsoft recognized that anticompetitive agreements by a high-tech monopolist shut off effective distribution channels for rivals, such as by requiring preset default status (as Google does) and making software undeletable (as Google also does), were exclusionary and unlawful under Section 2 of the Sherman Act.”

Google’s exclusionary strategy is being applied more harshly in newer technologies, such as voice assistants and the “internet of things,” such as smart speakers, home appliances, and autonomous cars. Without a court order, the government says, “Google will continue executing its anticompetitive strategy, crippling the competitive process, reducing consumer choice, and stifling competition.”

The suit asks the court to declare that Google has acted unlawfully to maintain monopolies in the search services, search advertising, and search text advertising markets. It seeks unspecified structural relief and an order prohibiting future exclusionary practices.

Google: It’s a “Dubious Complaint”

Kent Walker, VP of Global Affairs for Google, apparently saw the suit coming. In a well-illustrated response, he wrote: “Today’s lawsuit by the Department of Justice is deeply flawed. People use Google because they choose to, not because they’re forced to, or because they can’t find alternatives.”

“This lawsuit would do nothing to help consumers. To the contrary, it would artificially prop up lower-quality search alternatives, raise phone prices, and make it harder for people to get the search services they want to use,” Walker said.

“Our agreements with Apple and other device makers and carriers are no different from the agreements that many other companies have traditionally used to distribute software,” the response continues. “Other search engines, including Microsoft’s Bing, compete with us for these agreements. And our agreements have passed repeated antitrust reviews.

Read Google’s full response.

Edited by Tom Hagy for MoginRubin LLP.

© MoginRubin LLP
ARTICLE BY Jonathan Rubin  of MoginRubin
For more articles on antitrust suits, visit the National Law Review Antitrust & Trade Regulation section.

A Social Contract – Terms to Consider for Influencer Advertising Agreements

Whether you’re paying big bucks for a Kardashian or providing discount coupons to a local star, hiring “influencers” to promote your company, products or services has become commonplace. But it’s not yet common to contract with influencers for their services. And that’s a mistake! If you’re hiring an influencer, you should strongly consider a written agreement.

But first, what is an influencer?

An “Influencer” is: An individual who has the power to affect purchase decisions of others because of his/her authority, knowledge, position or relationship with his/her audience. For legal purposes, an influencer is anybody your company is compensating to post, print, or otherwise disseminate information for a commercial purpose.

Ok, so you’re hiring an influencer and you’re going to use a contract. Here are some of the terms to consider including in your influencer agreement:

1. Define Performance and Content Ownership

Provide as much detail as possible relating to the content the influencer is going to create and include who ultimately owns the content. Include how many posts are expected and specifically on what accounts and platforms the posts need to be made. Most influencers have more than one social media account. If their public Twitter account has 1.5 million followers but their private Instagram account only has 500, you will probably want to make sure the posts are primarily made on the public Twitter account. Depending on which party owns the content, a license may be needed for the non-owning party to use the content. It is also smart to include a payment schedule (Hint: don’t pay the influencer all up front).

2. Morals Clause

Determine the sort of content with which your brand can and cannot be associated. If you’re selling children’s toys, you likely don’t want posts of your product to include vulgarity, drugs and alcohol. This clause should be broad, and it may be wise to have it apply to the influencer and their family. Including family members may seem odd, but there have been several instances this year where family members of popular influencers participated in criminal and otherwise unsavory activity that could reflect poorly on your brand.

3. Fraudulent Follower Trigger

A big part of what you’re paying for is the reach of the influencer. If it’s ultimately determined that a portion of the influencer’s followers are fake, you’re losing the impact of the influencer’s network and paying to reach people that don’t exist. This is a big problem. A study released by the University of Baltimore determined that fake followers in influencer marketing will cost brands $1.3 billion this year. Think about asking the influencer to include a clause that allows you out of the agreement and a return of payment in the event it is determined the influencer’s followers are not genuine. Services including Social Audit Pro, IG Audit, Hypr and Famoid can help you determine the authenticity of followers prior to engaging.

4. Non-Disparagement Clause

Your brand is paying influencers because they have the ability to influence consumers—that influence can go both ways. Think about including a non-disparagement clause.

5. Right to Approve/Remove Content

This is one of the most important clauses to consider—giving yourself the right to approve content and have content removed. Many companies don’t like dealing with the burden of pre-approving content, so instead they include a clause that allows for absolute authority over the removal or revision of content. Be sure to define the amount of time the influencer has to remove content after a request is made (e.g., within 6 hours of a request).

6. Compliance with FTC Guidelines

The FTC has been paying attention to influencer advertising and has released easy-to-read guides on how to comply with the law. Including a clause requiring compliance with all FTC guidelines is often a good idea.

7. Exclusivity

It’s common for successful influencers to work with more than one brand at a time. If you want an exclusive partnership with a content creator, that needs to be included in your agreement. Many successful influencers won’t agree to broad exclusivity terms, so you may need to narrow the exclusivity to the category (e.g., only one beer brand) and apply time limits (e.g., no competing brands for at least three months).

Finally, authenticity matters! Pick an influencer that actually likes your brand/products. Just because a person has reach doesn’t mean they’re the right pick for your brand. The reason consumers respond to influencer advertising is because it feels more authentic than traditional advertising. While this is not an exhaustive list of terms, hopefully you can use it as a checklist of key terms to include in your written agreement when negotiating with all of your influencers moving forward. Did I mention it’s usually a good idea to have a written agreement for your influencers?

© 2020 Faegre Drinker Biddle & Reath LLP. All Rights Reserved.
For more articles on influencers, visit the National Law Review Communications, Media & Internet section.