Control Freaks and Bond Villains

The hippy ethos that birthed early management of the internet is beginning to look quaint. Even as a military project, the core internet concept was a decentralized network of unlimited nodes that could reroute itself around danger and destruction. No one could control it because no one could truly manage it. And that was the primary feature, not a bug.

Well, not anymore.

I suppose it shouldn’t surprise us that the forces insisting on dominating their societies are generally opposed to an open internet where all information can be free. Dictators gonna dictate.

Beginning July 17, 2019, the government of Kazakhstan began intercepting all HTTPS internet traffic inside its borders. Local Kazakh ISPs must force their users to install a government-issued certificate into all devices to allow local government agents to decrypt users’ HTTPS traffic, examine its content, re-encrypt with a government certificate and send it on to its intended destination. This is the electronic equivalent of opening every envelope, photocopying the material inside, stuffing that material in a government envelope and (sometimes) sending it to the expected recipient. Except with web sites.

According to ZDNet, the Kazakh government, unsurprisingly, said the measure was “aimed at enhancing the protection of citizens, government bodies and private companies from hacker attacks, Internet fraudsters and other types of cyber threats.” As Robin Hood could have told you, the Sheriff’s actions taken to protect travelers and control brigands can easily result in government control of all traffic and information, especially when that was the plan all along. Security Boulevard reports that “Since Wednesday, all internet users in Kazakhstan have been redirected to a page instructing users to download and install the new certificate.

This is not the first time that Kazakhstan has attempted to force its citizens to install root certificate, and in 2015 the Kazakhs even applied with Mozilla to have Kazakh root certificate included in Firefox (Mozilla politely declined).

Despite creative technical solutions, we all know that Kazakhstan is not alone in restricting the internet access of its citizens. For one (gargantuan) example, China’s population of 800 million has deeply restricted internet access, and, according to the Washington Post, the Chinese citizenry can’t access Google, Facebook, YouTube or the New York Times, among many, many, many others. The Great Firewall of China, which involves legislation, government monitoring action, technology limitations and cooperation from internet and telecommunications companies. China recently clamped down on WhatsApp and VPNs, which had returned a modicum of control and privacy to the people. And China has taken these efforts two steps beyond nearly anyone else in the world by building a culture of investigation and shame, where its citizens could find their pictures on local billboard for boorish traffic or internet behavior, or in jail for questioning the ruling party on the internet. All this is well documented.

23 countries in Asia and 7 in Africa restrict torrents, pornography, political media and social media. The only two European nations that have the same restrictions are Turkey and Belarus. Politicians in the U.S. and Europe had hoped that the internet would serve as a force for freedom, knowledge and unlimited communications. Countries like Russia, Cuba and Nigeria also see the internet’s potential, but they prefer to throttle the net to choke off this potential threat to their one-party rule governments.

For these countries, there is no such thing as private. They think of privacy in context – you may keep thoughts or actions private from companies, but not the government. On the micro level, it reminds me of family dynamics –When your teenagers talk about privacy, they mean keeping information private from the adults in their lives, not friends, strangers, or even companies. Controlling governments sing the song of privacy, as long as information is not kept from them, it can be hidden from others.

The promise of Internet freedom is slipping further away from more people each year as dictators and real life versions of movie villains figure out how to use the technology for surveillance of everyday people and how to limit access to “dangerous” ideas of liberty. ICANN, the internet control organization set up by the U.S. two decades ago, has proven itself bloated and ineffective to protect the interests of private internet users.  In fact, it would be surprising if the current leaders of ICANN even felt that such protections were within its purview.

The internet is truly a global phenomenon, but it is managed at local levels, leaving certain populations vulnerable to spying and manipulation by their own governments. Those running the system seem to have resigned themselves to allowing national governments to greatly restrict the human rights of their own citizens.

A tool can be used in many different ways.  A hammer can help build a beautiful home or can be the implement of torture and murder. The internet can be a tool for freedom of thought and expression, where everyone has a publishing and communication platform.  Or it can be a tool for repression. We have come to accept more of the latter than I believed possible.

Post Script —

Also, after a harrowing last 2-5 years where freedom to speak on the internet (and social media) has exploded into horrible real-life consequences, large and small, even the most libertarian and laissez faire of First World residents is slapping the screen to find some way to moderate the flow of ignorance, evil, insanity, inanity and stupidity. This is the other side of the story and fodder for a different post.

And it is also probably time to run an updated discussion of ICANN and its role in internet management.  We heard a great deal about internet leadership in 2016, but not so much lately. Stay Tuned.

Copyright © 2019 Womble Bond Dickinson (US) LLP All Rights Reserved.
For more global & domestic internet developments, see the National Law Review Communications, Medis & Intenet law page.

Not Just For Jilted Ex-Lovers: The Criminalisation of the Non-Consensual Distribution of Intimate Images in Western Australia

This week marked the conclusion of the first prosecution under the Criminal Law Amendment (Intimate Images) Act 2018 (WA). Mitchell Joseph Brindley, 24 years old, pleaded guilty to posting ten intimate images of the woman he dated. The images were taken with the woman’s consent whilst they were in a relationship. When it ended, Mr Brindley created fake Instagram accounts under her name and posted the images without her consent.

Non-consensual intimate image dissemination is colloquially known as ‘revenge porn’. A study in 2017 found that 20% of Australians between the ages of 16-49 years had a picture or video of themselves shared without their consent.

A global movement has emerged to counter the surge of ‘revenge porn’.

All Australian states and territories (except Tasmania) have implemented intimate image legislation. The WA Act amends the WA Criminal Code by creating a new offence relating to the non-consensual distribution of intimate images, empowering courts to make an order requiring a person to remove the images, and ensuring that existing threat offences apply.

Mr Brindley was this week given a 12-month intensive supervision order. The Magistrate found that the case fell in the least severe of the four categories of image-based abuse, being relationship retribution. More severe cases involve “sextortion”, “voyeurism” and “sexploitation”. The Magistrate said that if Mr Brindley’s crime had been motivated by sexual gratification or to obtain money, he would have received a jail term.

In April, videos emerged of NRL players engaging in sexual acts with women. Although the case involving player Tyrone May is ongoing, it will be interesting to see the outcome of any sentence, particularly if a jail term is sought.

Copyright 2019 K & L Gates
Article by Cathryn Palfrey of K&L Gates.

Continued Efforts to Bolster Wireless Infrastructure as California Officials Brace for Wildfire Season

California has been plagued by devastating wildfires over the past two summers, with the 2018 Camp Fire the deadliest and most destructive on record. Now that summer has officially started in 2019, officials are bracing for a possible string of new fires, with Governor Gavin Newsom telling officials to “prepare for the worst” in a recent meeting with emergency managers. In a discussion of what to expect for future California wildfire seasons, Chris Field, the Perry L. McCarty Director of the Stanford Woods Institute for the Environment, stated:

The combination of climate change, increasing development in the wildland-urban interface, and fuel accumulation from decades of fire suppression dramatically increases the risk of fires that are large and catastrophic. Former California Governor Jerry Brown described the situation as a “new abnormal.” We need to recognize that, in California, we face the real risk that every fire season will be among the most destructive, or even the most destructive, on record.

Federal, state, and local officials, utilities, and residents, among many others, are now grappling with how to best prepare for this “new abnormal.” Efforts range from the U.S. Forest Service and the California Department of Forestry and Fire Protection’s fast-tracked forest management projects to Governor Newsom’s June 2019 proposal to create a $21 billion fund to compensate future wildfire victims. One big piece of the puzzle is strengthening wireless infrastructure to ensure that residents are connected to loved ones and vital services in the event of a disaster, particularly as the number of households without landlines continues to grow.

Senate Bill 670

As discussed in this blog previously, cellular service has a number of vulnerabilities that can cause it to falter during an emergency. During wildfires, one of the key risks for wireless infrastructure is physical damage and burning of underground and pole-mounted fiber lines. Gaps in cellular service can prevent residents from being able to reach 911 or receive crucial emergency notifications. This disruption of service is particularly dangerous in the face of a rapidly moving wildfire. Legislation aiming to address part of the problem is currently winding its waythrough the California legislature: Senate Bill 670, authored by State Senator Mike McGuire (D-Healdsburg).

The proposed legislation would require telecommunications companies to report outages impacting customers’ ability to access 911 or receive emergency notifications to the California Office of Emergency Services (Cal OES) within 60 minutes of discovering the outage. Cal OES would then forward this information to local first responders so that they can identify any residents cut off from service. In 2018, certain Butte County residents received no official warning of the coming Camp Fire due to damaged cellular towers, with Sonoma County residents facing similar problems in 2017. The gap in communications was compounded by ineffectual use of wireless alert systems at the local level. Senator McGuire also authored Senate Bill 833, establishing statewide emergency alert protocols and regulations, which former Governor Jerry Brown signed in September 2018.

Concerns Regarding Power Supplies for Wireless Infrastructure

In May 2019, the Public Advocates Office (formerly the Office of Ratepayer Advocates), an independent organization within the California Public Utilities Commission (CPUC) that advocates on behalf of utility ratepayers, filed a legal motion urging the agency to act immediately to ensure that communication systems work during emergencies. As stated in a press release accompanying the motion:

[T]he Public Advocates Office seeks to better protect Californians during emergency situations by asserting that communication providers need to (1) ensure that calls and data be transmitted, without delay, during times of emergencies, (2) install backup generators or battery power at wireless facilities in high fire threat areas to reduce outages, (3) develop plans for alternative methods needed to support 9-1-1 call centers; (4) and take steps to improve their emergency alert and warning systems.

The Wireless Infrastructure Association has responded, pointing to regulatory hurdles inhibiting the expansion of cell sites to accommodate additional power sources and network redundancy. It has asked the Federal Communications Commission (FCC) to collaborate with local governments to prioritize and streamline the approval process.

FCC’s Examination of Disaster Response and Recovery

Meanwhile, the FCC, on June 13, 2019, held the first meeting for the recently re-chartered Broadband Deployment Advisory Committee (BDAC), which will examine, in part, ways to boost wireless infrastructure during disasters and other emergencies. The committee will study how to accelerate the deployment of high-speed broadband access, focused on the following three areas:

  • Disaster Response and Recovery Working Group. Measures to improve resiliency of broadband infrastructure before a disaster occurs, and strategies that can be used during and after the response to a disaster to minimize broadband network downtime.
  • Increasing Broadband Investment in Low-Income Communities Working Group. New ways to encourage the deployment of high-speed broadband infrastructure and services to low-income communities.
  • Broadband Infrastructure Deployment Job Skills and Training Opportunities Working Group. Ways to make more widely available and improve job skills training and development opportunities for the broadband infrastructure deployment workforce.

Working in tandem with the BDAC, the FCC, in November 2018, launched a re-examination of the Wireless Resiliency Cooperative Framework, a voluntary commitment by mobile carriers focused on restoring communications during disasters and other emergencies, originally approved in 2016. The move was a response to major disruptions in wireless service following Hurricane Michael in the Florida Panhandle, but it is intended as a broader examination of wireless services in the event of a disaster.

 

© 2010-2019 Allen Matkins Leck Gamble Mallory & Natsis LLP
For more on mobile & wireless infrastructure, please see the Communications, Media & Internet page on the National Law Review.

Court Compels Arbitration Based on Text Message Agreement

A district court has granted a motion to compel arbitration based on an arbitration clause in an agreement sent via text message and agreed to via a reply text.

Lexington Law Firm, a debt collection company, was sued in a putative class action under the Electronic Funds Transfer Act after purportedly deducting funds without consent.

Lexington moved to compel arbitration. It had sent the named plaintiff a text message agreement that contained an arbitration clause requiring him “to arbitrate all disputes and claims between [him] and Lexington on an individual basis only.” The plaintiff responded with a text that said: “Agree.” The plaintiff opposed Lexington’s motion. He claimed, inter alia, that there was no mutual assent and that the arbitration clause was unconscionable because it was a contract of adhesion and because it was so broadly worded. The district court disagreed.

The plaintiff had been given the agreement and had agreed to it. The court distinguished, among other things, cases involving “browsewrap” agreements in which a website user “agreed” to terms and conditions merely by using a website. Although the court found the agreement minimally procedurally unconscionable because it was a contract of adhesion, that did not render the agreement unconscionable as a whole. The agreement was not substantively unconscionable merely because it was broadly worded, at least where, as here, the plaintiff’s claims were related to the agreement he signed. The court therefore dismissed the putative class action.

Starace v. Lexington Law Firm, No. 1:18-cv-01596 (E.D. Cal. June 27, 2019).

 

©2011-2019 Carlton Fields, P.A.

No Means No

Researchers from the International Computer Science Institute found up to 1,325 Android applications (apps) gathering data from devices despite being explicitly denied permission.

The study looked at more than 88,000 apps from the Google Play store, and tracked data transfers post denial of permission. The 1,325 apps used tools, embedded within their code, that take personal data from Wi-Fi connections and metadata stored in photos.

Consent presents itself in different ways in the world of privacy. The GDPR is clear in defining consent as it pertains to user content. Recital 32 notes that “Consent should be given by a clear affirmative act establishing a freely given, specific, informed and unambiguous indication of the data subject’s agreement to the processing of personal data…” Consumers pursuant to the CCPA can opt-out of having their personal data sold.

The specificity of consent has always been a tricky subject.  For decades, companies have offered customers the right to either opt in or out of “marketing,” often in exchange for direct payments. Yet, the promises have been slickly unspecific, so that a consumer never really knows what particular choices are being selected.

Does the option include data collection, if so how much? Does it include email, text, phone, postal contacts for every campaign or just some? The GDPR’s specificity provision is supposed to address this problem. But companies are choosing to not offer these options or ignore the consumer’s choice altogether.

Earlier this decade, General Motors caused a media dust-up by admitting it would continue collecting information about specific drivers and vehicles even if those drivers refused the Onstar system or turned it off. Now that policy is built into the Onstar terms of service. GM owners are left without a choice on privacy, and are bystanders to their driving and geolocation data being collected and used.

Apps can monitor people’s movements, finances, and health information. Because of these privacy risks, app platforms like Google and Apple make strict demands of developers including safe storage and processing of data. Seven years ago, Apple, whose app store has almost 1.8 million apps, issued a statement claiming that “Apps that collect or transmit a user’s contact data without their prior permission are in violation of our guidelines.”

Studies like this remind us mere data subjects that some rules were made to be broken. And even engaging with devices that have become a necessity to us in our daily lives may cause us to share personal information. Even more, simply saying no to data collection does not seem to suffice.

It will be interesting to see over the next couple of years whether tighter option laws like the GDPR and the CCPA can not only cajole app developers to provide specific choices to their customers, and actually honor those choices.

 

Copyright © 2019 Womble Bond Dickinson (US) LLP All Rights Reserved.
For more on internet and data privacy concerns, see the National Law Review Communications, Media & Internet page.

DNA Information of Thousands of Individuals Exposed Online for Years

It is being reported that Vitagene, a company that provides DNA testing to provide customers with specific wellness plans through personalized diet and exercise plans based on their biological traits, left more than 3,000 user files publicly accessible on Amazon Web Services servers that were not configured properly.

The information that was involved included customers’ names, dates of birth and genetic information (such as the likelihood of developing medical conditions), as well as contact information and work email addresses. Almost 300 files contained raw genotype DNA that was accessible to the public.

Vitagene has been providing services since 2014 and the records exposed dated between 2015 and 2017. Vitagene was notified of the accessibility of the information on July 1, 2019, and fixed the vulnerability.

Copyright © 2019 Robinson & Cole LLP. All rights reserved.
This article was written by Linn F. Freedman of  Robinson & Cole LLP.

Why Correctly Understanding Antitrust Risk is Crucial to Properly Addressing Brand Dilution in the E-Commerce Age

“Run a Google search for the phrase ‘minimum advertised price policy’ and you will find hundreds of policies, posted on a variety of manufacturers’ websites.  Interest in minimum advertised price (‘MAP’) policies has skyrocketed in recent years.”  That is what one of my colleagues wrote in a prescient article in 2013.[i]  Since 2013, the interest in MAP policies has exploded.  But much of the online guidance regarding MAP policies is misguided and clearly has not been crafted or vetted by antitrust counsel.  Manufacturers should proceed with caution and consult with antitrust counsel before adopting a MAP policy.

  1. What is a MAP Policy?

MAP policies impose restrictions on the price at which a product or service may be advertised without restricting the actual sales price.  In the context of print advertising, MAP policies usually concern only off-site advertising, such as in flyers or brochures.  They do not restrict the in-store advertising or sales price offered at the retailer’s “brick and mortar” locations.  In the context of internet advertising, MAP policies often concern pricing advertised by an internet retailer on its website.  But with internet advertising, the distinction between an advertised price and a sales price is often blurry and requires special attention.

  1. What has been driving all the recent interest in MAP?

The e-commerce boom has been one key driver.  Although e-commerce has been a financial boon for some by allowing products to reach broader audiences and conveniently connecting consumers to highly discounted and diversified products, other manufacturers are concerned that they are losing control over their brands and the advertising of their products.  Once premium branded products might be discounted to the point of being considered cheap.  As margins are squeezed, service may suffer and consumers ultimately lose out.

This phenomenon, and how to address it, has attracted massive recent attention, including from the popular press.  In 2017, the Wall Street Journal published an article headlined, Brands Strike Back:  Seven Strategies to Loosen Amazon’s Grip, reporting that a growing number of brands are pushing back on large online retailers by adopting MAP policies.[ii]  The article reported that instituting MAP policies can be effective in decreasing online discounting.  A recent Forbes article similarly recommended that manufacturers adopt MAP policies in response to the emergence of e-commerce sites.[iii]

  1. Popular Misconceptions About MAP.

Public interest in MAP has been great for drawing attention to the usefulness of MAP policies in addressing brand dilution.  But much of the popular discourse about MAP fails to account for the critical legal considerations attendant to adopting and enforcing a MAP policy, and would steer the unwary into legally risky territory.  For example, a sampling of articles online—which will go unattributed—offer the following characterizations in promoting MAP policies:

  • A “MAP policy is an agreement between manufacturers and distributors or retailers”;
  • In a MAP policy, “authorized sellers agree to the policy and in return, the brand agrees to enforce their pricing”;
  • To prevent “margin erosion,” “manufacturers and retailers work together to set a minimum advertised price”;
  • MAP should be “enforced by both” the manufacturer and reseller; and
  • Brands should “control sellers” through “enforceable agreements.”

These suggestions to implement MAP through an “agreement” or in “cooperation” with resellers, and to use MAP to enforce product pricing, may have intuitive appeal.  And in fact, several MAP templates available online are styled as “agreements” between the manufacturer and reseller.  But be warned—these suggestions, if carried out, could pose significant antitrust risk that could subject companies to serious and expensive liability.  The next section explains why.

  1. Quick Antitrust Legal Guide to MAP.

When most people think of illegal antitrust conspiracies, they think of agreements among competitors to fix prices or restrict competition, which are per se illegal.  But in general, manufacturers also may not require their resellers—either distributors or retailers—to resell at (or above) a set price.  This is known as minimum resale price maintenance (“RPM”) and it is also per seillegal under antitrust laws in several states.

Although RPM may be per se illegal under certain state laws, MAP policies are generally analyzed under a more lenient legal framework called the “rule of reason.”  But a MAP policy must be crafted with care to avoid being treated as RPM.  For example, agreements with resellers concerning the minimum advertised price may be viewed, depending on the circumstances, as actually having the effect of setting the minimum sales price, converting the MAP policy into RPM.  A MAP policy also must be adopted free from any agreement with a manufacturer’s horizontal competitors, which could be found to be an unlawful horizontal conspiracy.  In one prominent example, the Federal Trade Commission (“FTC”) brought an enforcement action against five major competing compact disk (“CD”) distributors challenging their MAP policies as violating federal antitrust laws.[iv]  All five major CD distributors had adopted MAP policies around the same time, allegedly at the urging of retailers, and the policies each prohibited all advertising below a certain price, including in-store advertising.  The FTC viewed the policies under those circumstances as horizontal agreements among the distributors, and thus per se illegal.

  1. Practical Antitrust Pointers for MAP.

Several guiding principles can help minimize antitrust risk in adopting a MAP policy:

  • Advertising Only.  A retailer should remain free to sell a product at any price, so that the restriction on advertising is deemed to be a non-price restraint.  In the context of online sales, adhering to this principle can require special care, as some might try to argue that there is little distinction between an advertised price and a sales price.  MAP policies that concern internet advertising thus often include provisions that allow internet retailers to communicate an actual sales price in a different manner—such as “Call for Pricing” or “Add to Cart to See Price.”
  • No Agreement.  A MAP policy should be drafted as a unilateral policy—i.e., a policy that the manufacturer creates on its own (in consultation with antitrust counsel), without input from or agreement with its own competitors or with its downstream resellers.  The policy should expressly state that it is a unilateral policy that does not constitute an agreement.
  • Broad Application.  Policies that apply to all off-site advertising, no matter the form, are more likely to be upheld than policies that are specifically directed at internet retailers.
  • Clarity.  A MAP policy should be user-friendly and easy to understand.  One best practice is to include a Frequently Asked Questions guide to clarify how the policy works.

Antitrust risk must be kept in mind not just when a MAP policy is created, but throughout its implementation and enforcement.  The manner in which a MAP policy is enforced could risk converting the unilateral policy into conduct that could be viewed as a tacit agreement, even if no written agreement is ever signed.  For example, enlisting or “working with” resellers to enforce the policy, as suggested by articles online, could be viewed as evidence that a manufacturer is coordinating with resellers as part of an overall agreement.  Working with competitors to coordinate strategies for MAP enforcement would also pose significant legal risk.  For that reason, manufacturers that are adopting MAP policies should resist communications with resellers or competitors about MAP and continue to work with antitrust counsel through implementation and enforcement.

To be sure, some may believe that coordination, for example, between manufacturers and retailers, is helpful in stamping out e-commerce discounting.  But even if such coordination between manufacturers and retailers could be effective in addressing such discounting, it carries significant legal risks.  And potentially risky agreements with resellers are not a manufacturer’s only option in addressing how its products are advertised in e-commerce.  Other tools are also available and can be adopted in conjunction with MAP and other policies.  As just one example, a unilateral distribution policy, in which a manufacturer unilaterally suspends resellers that sell through unauthorized e-commerce sites, can be a powerful complement to a MAP policy.  It also may present a more direct way to address the e-commerce channels through which goods are (or are not) sold.  Because such policies do not involve prices, if appropriately created and implemented, U.S. courts are likely to also assess them under the lenient “rule of reason.”  It is therefore unsurprising that such policies are gaining in popularity.  One recent study surveying over 1,000 European retailers found that policies precluding or limiting e-commerce sales are widely in place with approximately 18% of respondents reporting that manufacturers limit their ability to sell through online marketplaces or platforms and 11% reporting that manufacturers restrict their online sales to their own website.[v]

Ultimately, addressing brand dilution is critical in the e-commerce age.  It is also highly fact specific and typically requires custom solutions tailored to a company’s commercial and legal objectives.  Adopting an “off the rack” MAP policy and simply hoping for the best is unwise and could lead to expensive litigation or, worse yet, liability and costly penalties.  But antitrust lawyers are here to help companies navigate the legal landscape to come up with commonsense solutions that work while minimizing legal risk.


[i] Erika L. Amarante, A Roadmap to Minimum Advertised Price Policies, 16 The Franchise Lawyer 4 (2013), https://www.wiggin.com/erika-l-amarante/publications/a-roadmap-to-minimum-advertised-price-policies/.

[ii] Ruth Simon, Brands Strike Back:  Seven Strategies to Loosen Amazon’s Grip, Wall St. J., (Aug. 7, 2017),  https://www.wsj.com/articles/brands-strike-back-seven-strategies-to-loosen-amazons-grip-1502103602.

[iii] Danae Vara Borrell, Why Manufacturers Can’t Afford to Ignore Minimum Advertised Price Policies, Forbes Tech. Council (Oct. 17, 2018), https://www.forbes.com/sites/forbestechcouncil/2018/10/17/why-manufacturers-cant-afford-to-ignore-minimum-advertised-price-policies/#167f8d5417ec.

[iv] See In re Sony Entertainment, Inc., No. C-3971, 2000 WL 1257796 (F.T.C. Aug. 30, 2000).

[v] See European Commission, Final Report on the Ecommerce Sector Inquiry, staff working document paragraph 461, http://ec.europa.eu/competition/antitrust/sector_inquiry_swd_en.pdf.

© 1998-2019 Wiggin and Dana LLP

Ericsson Offers FRAND – District Court Endorses Comparable Licenses, Rejects SSPPU Royalty Rate

On May 23, 2019, the court issued a declaratory judgment in the case of HTC v. EricssonNo. 18-cv-00243, pending in the United States District Court for the Eastern District of Texas (Judge Gilstrap). That judgment confirmed that Ericsson’s 4G standard-essential patents (“SEPs”) convey significant value to mobile handsets and held that Ericsson made an offer to HTC that complied with Ericsson’s obligations to license on fair, reasonable, and non-discriminatory (“FRAND”) terms. The decision, published on the heels of Judge Koh’s recent opinion in FTC v. Qualcomm, provides much-needed clarity to SEP owners by definitively rejecting the smallest-saleable patent practicing unit (“SSPPU”) royalty theory in favor of a real-world, market-based approach.

The Dispute

Ericsson owns a large portfolio of cellular patents essential to the 2G, 3G, and 4G standards that it licenses to handset makers worldwide. As a member of the ETSI standard setting organization, Ericsson agreed to license these patents on FRAND terms. Ericsson offered a license to HTC at a rate of $2.50 per 4G device, or 1% of the net device price with a $1 floor and $4 cap. HTC countered with a rate of $0.10 per 4G device. HTC sued Ericsson, claiming that Ericsson’s offered royalty rate was too high, and that Ericsson breached its FRAND commitment.

A jury trial was held in February 2019. HTC argued that a royalty base must be calculated based on the profit margin of the baseband processor (which HTC argued was the SSPPU) rather than the price of the device as a whole. Ericsson argued that HTC’s SSPPU approach dramatically undervalued 4G cellular technology and that Ericsson’s patents in particular were worth far more. After a five-day trial, the jury found that Ericsson’s offers did not breach Ericsson’s commitment to license on FRAND terms and conditions.

The Decision

Following the verdict, the district court also issued its findings of fact and conclusions of law in connection with ruling on Ericsson’s request for a declaratory judgment that it had complied with FRAND. This declaration reaffirmed the jury’s findings, while also addressing more fully some key questions.

First, the court stated unequivocally that the ETSI FRAND commitment does not require a company to license its SEPs based on the profit or cost of the baseband processor or SSPPU.The district court’s decision is consistent with Federal Circuit precedent, such as Ericsson v. D-Link, which holds that “courts must consider the facts of record when instructing the jury and should avoid rote reference to any particular damages formula.”

Second, the order went further to conclude that Ericsson’s 4G portfolio is worth significantly more than a royalty rate based on the profit margin or cost of the baseband processor in HTC’s phones (HTC’s “SSPPU”). Looking to industry-wide evidence, the court held that the value of cellular technology far exceeded a valuation based on the price or profit of a baseband processor. The court found that “Ericsson established, and HTC’s own experts conceded, that there are no examples in the industry of licenses that have been negotiated based on the profit margin, or even the cost, of a baseband processor” and that credible evidence supported a finding that “the profit margin, or even the cost, of the baseband processor is not reflective of the value conferred by Ericsson cellular essential patents.”

Third, the court determined that both of Ericsson’s offers to HTC—(1) $2.50 per 4G device or (2) 1% with a $1 floor and $4 cap—were fair, reasonable, and non-discriminatory. The court found that Ericsson’s “comparable licenses provide the best market-based evidence of the value of Ericsson’s SEPs and that Ericsson’s reliance on comparable licenses is a reliable method of establishing fair and reasonable royalty rates that is consistent with its FRAND commitment.” At trial, evidence was presented regarding Ericsson’s licenses with Apple, BLU, Coolpad, Doro, Fujitsu, Huawei, Kyocera, LG, Panasonic, Samsung, Sharp, Sony, and ZTE. The court noted that several of Ericsson’s licenses contained express terms that were “similar or substantially similar” to Ericsson’s offers to HTC and rejected the argument that Ericsson’s offers to HTC were discriminatory.

Why It Matters

Judge Gilstrap’s declaration represents an important development in FRAND case law that looks to industry practice and market evidence rather than untested licensing theories. It affirms that basing a rate on comparable licenses is an acceptable FRAND methodology.

The decision also rejects the SSPPU royalty theory. Some have read the recent FTC v. Qualcommopinion to suggest that a FRAND royalty must be structured as a percentage rate on a baseband processor. Judge Gilstrap’s declaration demonstrates why such a reading is incorrect.  First, the declaration explains that the ETSI FRAND commitment simply does not require a SSPPU royalty base. Second, even if one were to indulge the SSPPU approach, the SSPPU for many standard-essential patents is not limited to a baseband processor. Third, a wealth of market evidence shows that Ericsson’s patents (and standard-essential patents generally) are far more valuable than a baseband processor-based royalty would reflect.

© McKool Smith
This article was written by Nicholas Mathews from McKool Smith.

The Tor Browser Afforded CDA Immunity for Dark Web Transactions

The District of Utah ruled in late May that Section 230 of the Communications Decency Act, 47 U.S.C. §230 (“CDA”) shields The Tor Project, Inc. (“Tor”), the organization responsible for maintaining the Tor Browser, from claims for strict product liability, negligence, abnormally dangerous activity, and civil conspiracy.

The claims were asserted against Tor following an incident where a minor died after taking illegal narcotics purchased from a site on the “dark web” on the Tor Network. (Seaver v. Estate of Cazes, No. 18-00712 (D. Utah May 20, 2019)). The parents of the child sued, among others, Tor as the service provider through which the teenager was able to order the drug on the dark web. Tor argued that the claims against it should be barred by CDA immunity and the district court agreed.

The Onion Router, or “Tor” Network, was originally created by the U.S. Naval Research Laboratory for secure communications and is now freely available for anyone to download from the Tor website.  The Tor Network allows users to access the internet anonymously and allows some websites to operate only within the Tor network. Thus, the Tor Network attempts to provide anonymity protections both to operators of a hidden service and to visitors of a hidden service. The Tor browser masks a user’s true IP address by bouncing user communications around a distributed network of relay computers, called “nodes,” which are run by volunteers around the world. Many people and organizations use the Tor Network for legal purposes, such as for anonymous browsing by privacy-minded users, journalists, human rights organizations and dissidents living under repressive regimes. However, the Tor Network is also used as a forum and online bazaar for illicit activities and hidden services (known as the “dark web”). The defendant Tor Project is a Massachusetts non-profit organization responsible for maintaining the software underlying the Tor browser.

To qualify for immunity under the CDA, a defendant must show that 1) it is an “interactive computer service”; 2) its actions as a “publisher or speaker” form the basis for liability; and 3) “another information content provider” provided the information that forms the basis for liability. The first factor is generally not an issue in disputes where CDA immunity is invoked, as websites or social media platforms typically fit the definition of an “interactive computer service.” The court found that Tor qualified as an “interactive computer service” because it enables computer access by multiple users to computer servers via its Tor Browser.  The remaining factors were straightforward for the court to analyze, as the plaintiff sought to hold Tor liable as the publisher of third-party information (e.g., the listing for the illicit drug).

The outcome was not surprising, given that courts have previously dismissed tort claims against platforms or websites where illicit goods were purchased (such as the recent Armslist case decided by the Wisconsin Supreme Court where claims against a classified advertising website were deemed barred by the CDA).

The questions surrounding the court’s ability to even hear the case also posed interesting jurisdictional questions, as the details of the Tor network are shrouded in anonymity and there are no accurate figures as to how many users or nodes exist within the Utah forum.  The court determined that, under plaintiff’s rough estimation, there were around 3,000-4,000 Utah residents who used Tor daily and perhaps, became part of the service (“Plaintiff has set forth substantial evidence to support the assumption that many of these transactions and relays are occurring in Utah on a daily basis”). In a breezy analysis, the court found that plaintiff had provided sufficient evidence to set forth a prima facie showing that Tor maintains continuous and systematic contacts in the state of Utah so as to satisfy the general jurisdiction standard.

This case is a reminder of the breadth of the CDA, as well as a reminder that many of its applications result in painful and somewhat controversial outcomes.

© 2019 Proskauer Rose LLP.

Article by Stephanie J. Kapinos of Proskauer Rose LLP.

More more on Web & Internet issues see the National Law Review page on Communications, Media & Internet.

 

Forget About Fake News, How About Fake People? California Starts Regulating Bots as of July 1, 2019

California SB 1001, Cal. Bus. & Prof. Code § 17940, et seq., takes effect July 1, 2019. The law regulates the online use of “bots” – computer programs that interact with a human being and give the appearance of being an actual person – by requiring disclosure when bots are being used.

The law applies in limited cases of online communications to (a) sell commercial goods or services, or (b) influence a vote in an election. Specifically, the law prohibits using a bot in those circumstances, “with the intent to mislead the other person about its artificial identity for the purpose of knowingly deceiving the person about the content of the communication in order to incentivize a purchase or sale of goods or services in a commercial transaction or to influence a vote in an election.” Disclosure of the existence of the bot avoids liability.

As more and more companies use bots, artificial intelligence, and voice recognition technology to provide customer service in online transactions, businesses will need to consider carefully how and when to disclose that their helpful (and often anthropomorphized) digital “assistants” are not really human beings.  In a true customer-service situation where the bot is fielding questions about warranty service, product returns, etc., there may be no duty. But a line could be crossed if any upsell is included, such as “Are you interested to learn about our latest line of products?”

Fortunately, the law doesn’t expressly create a private cause of action against violators. However, it remains to be seen if lawsuits nevertheless get brought under general laws prohibiting unfair or deceptive trade practices alleging failure to disclose the existence of a bot.

Also, an exemption applies for online “platforms,” defined as: “any public-facing Internet Web site, Web application, or digital application, including a social network or publication, that has 10,000,000 or more unique monthly United States visitors or users for a majority of months during the preceding 12 months.”  Accordingly, operators of very large online sites or services are exempt.

For marketers who use bots in customer communications – and who are not large enough to take advantage of the “platform” exemption – the time is now to review those practices and decide whether disclosures may be appropriate.

©2019 Greenberg Traurig, LLP. All rights reserved.
For more on Internet & Communications see the National Law Review page on Communications, Media & Internet