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French Insider Episode 12: Navigating the Metaverse with Jim Gatto [PODCAST]

Joining host Sarah Aberg is Jim Gatto. Jim joins us today to discuss the metaverse, the technology and business models involved in these virtual worlds, the role of NFTs and cryptocurrency in the digital economy, and the legal, regulatory, and governance issues that can arise when companies seek to enter that space.

Jim Gatto is a partner in Sheppard Mullin’s Washington, D.C. office, where he leads the Blockchain & Fintech Team, Social Media & Games Team, and Open Source Team. Jim’s practice focuses on blockchain, interactive entertainment, digital art, AI, and online gambling. He advises clients on IP strategies, development and publishing agreements, licensing and technology transaction agreements, and tech regulatory issues. Jim has been involved with blockchain since 2012 and has been recognized as a thought leader by leading organizations including as a Cryptocurrency, Blockchain and Fintech Trailblazer by the National Law Journal.

Sarah Aberg is special counsel in the White Collar Defense and Corporate Investigations Group in Sheppard Mullin’s New York office. Sarah’s practice encompasses litigation, internal investigations and white collar defense. Her areas of focus include financial services and securities, as well as corporate fraud in a variety of industries, including technology, construction, and non-profits. Sarah’s regulatory practice encompasses market regulation, foreign registration and disclosure requirements, supervisory procedures, and sales practices. Sarah represents corporations, financial services companies, and associated individuals in connection with investigations and regulatory matters before the U.S. Department of Justice, the Securities and Exchange Commission, the Commodity Futures Trading Commission, FINRA, the New York Stock Exchange, the New York State Department of Financial Services, and the New York Attorney General’s Office.

What We Discussed in This Episode:

What is the Metaverse?
How Do Metaverses Differ from Earlier Virtual Worlds?
What Role Do NFTs Play in the Digital Economy?
Investing in a Metaverse: What are the Risks?
What are Legal, Regulatory, and Tax Considerations?
What Governance Issues Exist for Brands Operating in a Metaverse?
What are the Inflationary and Deflationary Aspects of the Virtual Economy?
How Might Blockchain and Cryptocurrency Alter International Financial Transactions?
Is the World Moving into a Virtual/Digital Economy?

Article By Sarah E. Aberg and James G. Gatto of Sheppard, Mullin, Richter & Hampton LLP

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

Russian Sanctions Create Patent Risks

While multi-national sanctions recently imposed on Russia were intended to punish Russia for its aggression in Ukraine, the effects of the sanctions have led to a need for tough decisions for U.S. entities with patent interests in Russia. The prohibitions on financial exchanges with certain Russian banks will essentially prevent any payment of fees to Rospatent (the Russian patent office), and although a general license from the Department of the Treasury provides a short window for winding down certain administrative transactions, U.S. entities engaged in patent transactions with Rospatent only have a short time to make decisions about current and future patent activities in Russia.

Prohibited Activities

On February 28, 2022, the Department of the Treasury initiated prohibitions related to transactions involving certain financial institutions in Russia, including the Central Bank of the Russian Federation.¹ The directive specifically prohibits a United States person (unless otherwise excepted or licensed) from engaging in any transaction involving the listed financial institutions, including any transfer of assets to such entities or any foreign exchange transaction for or on behalf of such entities. Under the directive, the prohibitions are specifically worded to include: (1) any transaction that evades or avoids, has the purpose of evading or avoiding, causes a violation of, or attempts to violate any of the prohibitions of the directive; and (2) any conspiracy formed to violate any of the prohibitions of the directive.

Notably, the prohibited activities do not expressly prevent any transactions of a U.S. person with Rospatent. And although the United States Patent and Trademark Office (USPTO) has cut off direct engagement with Rospatent for carrying out activities such as use of the Global Patent Prosecution Highway (GPPH) program², Rospatent is not currently a sanctioned entity under the directive. This, however, is essentially a distinction without a difference. Moreover, since the USPTO (and also the European Patent Office) has already cut ties with Rospatent, there still remains the possibility that Rospatent itself will be added to the sanctions at a future date and thus completely eliminate any pursuits by U.S. persons with Rospatent.

The current sanctions directly affect entities seeking patent protection in Russia since payments of required fees related to patent applications and granted patents in Russia are processed through the Central Bank of the Russian Federation. This includes a number of financial transactions, such as payment of government filings fees for directly filing a patent application in Russia or filing a national phase of an international PCT application in Russia, as well as incidental fees incurred during prosecution of pending Russian patent applications and payment of yearly maintenance fees for issued Russian patents. This would also include payment of yearly maintenance fees for patents obtained through the Eurasian Patent Organization (EAPO) and maintained in Russia since such fees paid to the EAPO must be forwarded to Rospatent. Because of the intertwining of Rospatent with the Central Bank of the Russian Federation, any fees paid to Rospatent must be considered equivalent to making a transaction through said bank.

Patent prosecution in Rospatent requires engagement with a Russian patent practitioner. While U.S. entities pursuing patent interests in Russia are unlikely to directly engage Rospatent and pay fees that are ultimately processed through the prohibited bank, it is clear from the directive that strategies, such as routing payments through countries that are neutral in relation to sanctions, are prohibited. As noted above, the directive prohibits any transaction that actually “evades or avoids” the other prohibitions of the directive, as wells as any transaction that “has the purpose of evading or avoiding” the other prohibitions. This language appears to have the potential to ensnare purposeful non-adherence as well as actions that unwittingly end in non-adherence (e.g., forgetting to discontinue an automated payment of a patent maintenance fee to Rospatent).

Deadline for Administrative Transactions

U.S. entities still have time to complete administrative transactions with Rospatent despite the February implementation of the directive. On March 2, 2022, the Department of the Treasury issued a general license authorizing certain transactions that are otherwise prohibited by the directive.³ The license authorizes U.S. persons to pay taxes, fees, or import duties, and purchase or receive permits, licenses, registrations or certifications to the extent such transactions are prohibited under the directive, provided such transactions are ordinarily incident and necessary to such persons’ day-to-day operations in the Russian Federation. For at least U.S. entities whose day-to-day operations include securing and maintaining intellectual property, including in Russia, this license provides a window to complete activities and avoid violation of the directive. Currently, the transaction window provided under the license runs through 12:01 a.m. eastern daylight time on June 24, 2022.

Forming a Russian Patent Strategy

The incursion of Russia into Ukraine has been underway for shortly more than one month, but there is no way to know when hostilities may cease. Moreover, even when peace is achieved, it is impossible to know how long the current sanctions against Russia may continue. Those familiar with patent law know that the business of obtaining patents is a deadline-driven venture, and uncertainty of time quickly breaks apart the paradigm. A “wait and see” approach thus has the potential to result in a loss of patent rights as well as possible liability for knowingly or unknowingly engaging in activities that are prohibited under the directive. Anyone engaged in patent activities in Russia thus would be advised to undertake a portfolio review and utilize the time remaining under the General License to form a plan that ensures compliance with the current sanctions. This can include at least the following items.

Anyone engaged in patent activities in Russia thus would be advised to undertake a portfolio review and utilize the time remaining under the General License to form a plan that ensures compliance with the current sanctions.

Proceeding with Grant of Presently Allowed Applications – For Applicants that have received a Notice of Allowance with a due date after expiration of the General License, one may consider early payment of the fees. This should only be done, however, to the extent that it is possible to confirm that payment will be processed through Rospatent and the Central Bank of the Russian Federation prior to the expiration of the General License on June 24, 2022.
Annuities on Granted Patents – Any patent annuity paid to Rospatent after the General License expires should be assumed to be in violation of the current sanctions. Patent holders that engage a patent annuity service should contact their provider to confirm that they have a plan in place for compliance with the sanctions. Some annuity services have, in fact, already announced that they will no longer make payments to the Rospatent until further notice. Presumably, for Russian patents with annuities due in 2022, early payment could be made in the hope that normalcy will ensure prior to the deadline in 2023, but such action should only be taken to the extent one can ensure that payment is processed through Rospatent and the Central Bank of the Russian Federation before the deadline. Even then, it may be advisable to consider whether “early” payment of patent annuities would be considered to be “ordinarily incident” to day-to-day operations of a person’s patent pursuits. In the alternative, a patent owner should confirm that any Russian patents are under a “do not pay” order with their annuity provider to avoid an unintentional, automated payment in violation of the sanctions.
Filing a Direct or National Phase Patent Application – If a new patent application in Russia is planned, or if the deadline for national phase entry of a PCT application is approaching, one may consider early filing prior to the expiration of the General License. This could be done in the hope that a deadline for payment of future fees to Rospatent do not arise before the time that sanctions are lifted. This is seen to be a risky proposition since it is unknown how quickly Rospatent processes paid fees through the Central Bank of the Russian Federation, and it is likewise unknown to what extent a fee paid to Rospatent before expiration of the General License but only processed through the Central Bank of the Russian Federation after expiration would be viewed as being in violation of the sanctions. Moreover, if Rospatent itself is later added to the sanctions, any early filings would be at significant risk for abandonment due to an inability to continue transactions with Rospatent.
Filing Through EAPO as an Alternative to Russia – Russia is one of several countries where patent protection can be secured based on a granted patent from the EAPO. As of this writing, the banks utilized for processing financial transactions for the EAPO (AO UniCredit Bank and AO Raiffeisenbank) are not included in the U.S. sanctions. As such, direct filing or national stage entry with the EAPO can provide an alternate pathway for patent protection in Russia. The cessation of interaction between the USPTO and the EAPO would not have a bearing on this option, but care would need to be taken to ensure that all documents otherwise transferrable directly between the offices are handled by other routes. Once a patent is granted by the EAPO and Russia is elected as a country for maintenance of the patent, annuities paid to the EAPO are forwarded to Rospatent. As such, this alternative pathway is only effective for patents where annuities in Russia would not become due until after lifting of sanctions. As the average length of time for completion of patent prosecution with the EAPO is generally two or more years, one would hope that the current situation in Russia would be resolved within that timeframe. Again, however, uncertainty remains.
Using Russia as an International Search Authority – Rospatent is one of the limited number of patent offices available for use as the ISA in a PCT application, and Rospatent may be preferred because of the relatively low cost relative to other ISA options. Search fees paid to the World Intellectual Proper Organization (WIPO) are forwarded to Rospatent when chosen as the ISA, and it is not possible to ensure that such fees paid to WIPO will be forwarded to Rospatent, and then to the Central Bank of the Russian Federation before the expiration of the General License deadline. As such, it is recommended to not use Rospatent as the ISA in any PCT application from now until sanctions are lifted.
Enforcement of Granted Russian Patents – A comprehensive patent strategy in Russia must now also consider the relative value of any Russian patents in light of the recent decree on patent enforceability in Russia.⁴ Therein, any holder of a Russian Patent from a so-called “unfriendly” foreign state is required to give a mandatory license with no compensation to anyone in Russia wishing to exercise the right of use without consent of the patent owner. As with the entire situation, uncertainty reigns with this decree, and it is impossible to know when (if ever) rights of Russian patent holders from “unfriendly” states will be returned. Accordingly, a Russian patent strategy must consider not only options for proceeding in the near term to secure rights to the extent possible but must also consider the reality that any “rights” that are secured with a Russian patent are of no effect and will be for the foreseeable future.

Next Steps

For anyone with significant patent interests in Russia, time is of the essence for cementing a strategy for moving forward. For some, the most expeditious approach could be to simply close your file on any Russian patents and patent applications. If such approach is taken, careful attention must be made, as noted above, to ensure that any possibility of a fee being paid to Rospatent after June 24, 2022, is eliminated. For others, investments in Russia may not allow for a complete abandonment of possible future patent enforcement rights in Russia. If actions as noted above are taken to “batten down the hatches” of the Russian patent portfolio prior to the deadline in order to weather this storm, timing is again crucial in order to avoid unintentional engagement in sanctioned activities. Also, moving to patent filings through the EAPO as a starting point for Russia can be an effective workaround so long as Russian sanctions get lifted before any patent annuities through an EAPO patent would become due in Russia. Finally, in forming a strategy, one also must consider that even before its recent decree on patent enforceability, Russia was already one of nine countries on the United States Trade Representative (USTR) “Special 301 Report” of trading partners presenting the most significant concerns regarding insufficient IP protection or enforcement or actions that otherwise limited market access for persons relying on intellectual property protection.

¹ Directive 4 Under Executive Order 14024, “Prohibitions Related to Transactions Involving the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, and the Ministry of Finance of the Russian Federation,” February 28, 2022, Office of Foreign Assets Control, Department of the Treasury. See, https://home.treasury.gov/system/files/126/eo14024_directive_4_02282022….
² USPTO Statement on Engagement with Russia, the Eurasian Patent Organization, and Belarus, March 22, 2022. See, https://www.uspto.gov/about-us/news-updates/uspto-statement-engagement-r….
³ General License No. 13, “Authorizing Certain Administrative Transactions Prohibited by Directive 4 Under Executive Order 14024, Office of Foreign Assets Control, Department of the Treasury, March 2, 2022. See, https://home.treasury.gov/system/files/126/russia_gl13.pdf.
⁴ Decree of the Government of the Russian Federation of 06.03.2022 No. 299 “On Amendments to Clause 2 of the Methodology for Determining the Amount of Compensation Paid to a Patent Owner When Deciding to Use an Invention, Utility Model or Industrial Design without His Consent, and the Procedure for its Payment.” See, http://publication.pravo.gov.ru/Document/View/0001202203070005?index=0&r…

Article By Ryan Cagle of Womble Bond Dickinson (US) LLP

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

How Businesses Can Use LinkedIn Company Newsletters in Their Marketing Efforts

LinkedIn has added what I think is the most helpful tool in a long time for businesses to engage with and bring value to their followers – the ability for LinkedIn Company Pages to publish email newsletters right through LinkedIn.

This underscores the importance of having a company page and how it can be used as a content hub for marketing and recruiting your business.

Linked Company Page newsletters are available to businesses with more than 150 followers that actively maintain their LinkedIn presences.

You can create a LinkedIn Company Page newsletter in three simple steps:

Create: Start writing an article on and select “Create a Newsletter.” Give it a title, add a header image (it prompts you with the dimensions) and cut and paste your text. You can add hyperlinks and images for each article too.
Publish: When you publish your newsletter it will post to your feed and LinkedIn will notify your followers. They can opt in to receive email and in-platform notifications when you publish new content.
Review performance: View the analytics of each newsletter sent out and see the number of subscribers. The number increases pretty quickly which is awesome. And it’s opt in so you don’t have to worry about GDPR rules.

There’s a lot of opportunity here because it is a new feature (for companies – it’s been available to individuals for a short time) and most companies don’t know about it yet (and certainly aren’t using it yet), so being an early adopter is to your benefit.

Even if you send out an email newsletter, you should still utilize the LinkedIn platform to send out a newsletter because you will reach a different audience and cast a wider net for your content.

In addition, people are opting into this newsletter, so it’s not building an audience from scratch, and if you haven’t ever sent out an email newsletter, this is a great way to start. If email marketing programs and CRM management tools overwhelm you, this is a great way to test out the waters.

It’s also really easy to repurpose content you already have. I would include hyperlinks to your website or blog with the full text (in order to keep the newsletter short and to drive traffic to your site).

You can embed links from YouTube into the newsletter to play. Check out my LinkedIn newsletter to see how it looks.

Here are some content ideas for what you can include in your LinkedIn Company Page Newsletter:

Article snippets with links to your latest blog posts or client alerts
Links to past webinars (provide a synopsis too)
Links to recent podcasts and videos (with shownotes)
Recent case studies
Q&As with your employees
Highlights of your community service/pro bono work
Announcements of your recent hires
Recent press coverage (this would be the only place where I would recommend including self-promotional items in the newsletter – the rest of it should be client-focused)
Upcoming events/webinars – this is a great way to promote them
Open jobs – why not promote them through this newsletter? It’s a competitive job market
News about your diversity and women’s initiatives programs – clients care a lot about this

Check out this new feature and let me know what you think of it. With nearly 800 million people on LinkedIn and the fact that your competitors are very likely not using it yet, it’s at least worth trying out.

Article By Stefanie M. Marrone of Stefanie Marrone Consulting

For more business of law thought leadership, click here to visit the National Law Review.

The X Box: EEOC Announces Addition of Nonbinary Gender Option to Discrimination Charge

In recognition of Transgender Day of Visibility, today, the EEOC announced that it would be providing members of the LGBTQI+ community the option to select a nonbinary “X” gender marker when completing the voluntary self-identification questions that are traditionally part of the intake process for filing a charge of discrimination.

Specifically, in an effort to promote greater equity and inclusion, the EEOC will add an option to mark “X” during two stages of the intake and charge filing process. This addition will be reflected in the EEOC’s voluntary demographic questions relating to gender in the online public portal, which individuals use to submit inquires regarding the filing of a charge of discrimination, as well as related forms that are used in lieu of the online public portal. The nonbinary “X” gender marker will also be included in the EEOC’s modified charge of discrimination form, which will also include “Mx” in the list of prefix options.

Additionally, the EEOC will incorporate the CDC and NCHS’s proposed definition of “X,” which provides as follows: (1) “unspecified,” which promotes privacy for individuals who prefer not to disclose their gender identity; and (2) “another gender identity,” which promotes clarity and inclusion for those who wish to signify that they do not identify as male or female.

The EEOC’s announcement came shortly after the White House released a detailed Fact Sheet highlighting the steps the federal government has taken to address equality and visibility for Transgender Americans.

Article By Aretta K. Bernard and Stephanie Olivera Mittica of Roetzel & Andress LPA

For more labor and employment legal news, click here to visit the National Law Review.

PFAS Air Regulations Proposed By House

In the latest federal legislative move to try to force the EPA to take quicker action than contemplated by the agency’s PFAS Roadmap of 2021, a bill was recently introduced in the House that would require the EPA to set air emission limits for all PFAS under the Clean Air Act. PFAS air regulations are something that advocates concerned about PFAS pollution issues beyond just drinking water have advocated for in the past few years. There are barriers, though, to achieving the desired results even if the legislation passes. Nevertheless, the federal legislative activity underscores the need for all companies that are currently using PFAS in their manufacturing or industrial processes to understand the full scope of compliance needs when and if PFAS air regulations become a reality.

House Bill For PFAS Air Regulations

On March 17, 2022, a bipartisan group in the House introduced the “Prevent Release Of Toxics Emissions, Contamination, and Transfer Act of 2022” (also known as the PROTECT Act of 2022 or HR 7142). The aim of the bill is to require the EPA to list all PFAS as hazardous air pollutants (HAPs) under the Clean Air Act. If passed, the designation as HAPs would require the EPA to develop regulatory limits for the emission of PFAS into the air.

The proposed steps, however, go well beyond the EPA’s own plan for potential PFAS air regulations as detailed in the EPA’s PFAS Strategic Roadmap 2021. In the PFAS Roadmap, the EPA indicates that it commits to performing ongoing investigation to:

Identify sources of PFAS air emissions;
Develop and finalize monitoring approaches for measuring stack emissions and ambient concentrations of PFAS;
Develop information on cost-effective mitigation technologies; and
Increase understanding of the fate and transport of PFAS air emissions to assess their potential for impacting human health via contaminated groundwater and other media pathways.

The EPA committed to using this information and data in order to, by the Fall of 2022, “evaluate mitigation options”, which could include listing “certain PFAS” as HAPs. However, the EPA also indicated that it might use other regulatory or non-regulatory tools to achieve results similar to formal PFAS air regulations under the Clean Air Act.

The bill, therefore, would considerably accelerate the EPA’s process for potential HAPs, which in turn could result in legal challenges to any rushed HAPs, as the EPA would not have had the opportunity to collect all necessary data and evaluate the soundness of the science behind any HAP designation.

Impact On Business

Any designation of PFAS as HAPs under the Clean Air Act will of course immediately impact companies that are utilizing PFAS and emitting PFAS into the air. While it remains to be seen whether the PROTECT Act will pass, if it were to pass and the EPA’s HAP designations were to survive any legal challenges, the impacts on businesses would be significant. Companies would need to undertake extensive testing of air emissions to determine their risk of Clean Air Act violations, which will be complicated due to limitations on current technology to do this type of testing. Companies may also need to pivot their production practices to reduce or limit PFAS air emissions, which would add unplanned costs to balance sheets. Finally, companies may wish to explore substitutes for PFAS rather than navigate Clean Air Act regulatory compliance, which is a significant undertaking that takes time and money.

It is also worth noting that a designation as a HAP for any PFAS would also trigger significant regulatory challenges to businesses that might have nothing to do with air emissions. Any substance listed as a HAP under the Clean Air Act is automatically designated as a “hazardous substance” under CERCLA (the Superfund law). Once a substance is classified as a “hazardous substance” under CERCLA, the EPA can force parties that it deems to be polluters to either cleanup the polluted site or reimburse the EPA for the full remediation of the contaminated site. Without a PFAS Superfund designation, the EPA can merely attribute blame to parties that it feels contributed to the pollution, but it has no authority to force the parties to remediate or pay costs. The designation also triggers considerable reporting requirements for companies. Currently, those reporting requirements with respect to PFAS do not exist, but they would apply to industries well beyond just PFAS manufacturers. Superfund site cleanup costs can be extensive, even as high as hundreds of millions of dollars, depending on the scope of pollution at issue and the amount of territory involved in the site.

Article By John Gardella of CMBG3 Law

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

Copyright Dispute Over Andy Warhol’s Portraits of Prince Heading to U.S. Supreme Court

The U.S. Supreme Court will review the standard for a “transformative” work as “fair use” under the Copyright Act. Specifically, whether a second work of art is “transformative” when it conveys a different meaning or message from its source material, or not where it recognizably derives from and retains the essential elements of its source material.

The Court agreed to review the Second Circuit’s decision that Andy Warhol’s Prince Series portraits of the musician Prince did not make fair use of celebrity photographer Lynn Goldsmith’s photograph of Prince. Andy Warhol Found. for the Visual Arts, Inc. v. Goldsmith, No. 21-869 (petition granted Mar. 28, 2022).

The Warhol Foundation’s (AWF) petition argues that the Second Circuit’s decision contradicts Supreme Court precedent that a new work is “transformative” if it has a new “meaning or message” citing Google LLC v. Oracle Am., Inc., 141 S. Ct. 1183, 1202-03 (2021) (quoting Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 579 (1994). AWF also argued that the Second Circuit’s decision creates a circuit split where the Ninth Circuit has held that even with few physical changes a work can be transformative if new expressive content or a new message is apparent. As a result, this decision “threatens massive restrictions on First Amendment expression” that would create a “sea-change in the law of copyright.”

Goldsmith’s opposition brief asserts that the AWF mischaracterizes Supreme Court precedent. And that the Second Circuit “faithfully applied” the proper test for transformativeness in determining Warhol’s series of silkscreen prints were not fair use. Goldsmith also argues petitioner has manufactured a circuit split that does not exist.

This dispute stems from a a declaratory judgment action filed in 2017 by the Andy Warhol Foundation in the Southern District of New York seeking that Warhol’s portraits of Prince did not infringe photographer Lynn Goldsmith’s photograph. In 2019, the district court granted summary judgment to the Warhol Foundation, holding that the Prince Series was “transformative” because it incorporated a new meaning and message different from Goldsmith’s photograph.

In 2021, the Second Circuit reversed, holding that Warhol’s portraits were not fair use as a matter of law. The Second Circuit held that Warhol’s use was not “transformative,” even though Warhol’s use included some visual differences from Goldsmith’s photograph, because Warhol’s use “retains the essential elements of the Goldsmith Photograph without significantly adding to or altering those elements.”

Multiple amicus briefs supporting the Warhol Foundation were filed including by a group of 12 copyright law professors; a group of 13 art law professors; artists and art professors Barbara Kruger and Robert Storr; and the Robert Rauschenberg Foundation, Roy Lichtenstein Foundation, and Brooklyn Museum. The visual arts community and content creators in every industry will heavily watch this case.

The Supreme Court will hear the Warhol case in its new term, which begins in October.

Article By Susan M. Kayser and Eric W. Lee of K&L Gates

For more intellectual property 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.

Four Indicted for $16 Million Money Laundering Scheme

On March 23, 2022, an indictment was unsealed in the Western District of Arkansas, charging four men for their involvement in wire fraud and money laundering schemes involving fake investment offerings amounting to an alleged $16 million.

According to court documents, the four men allegedly engaged in an investment fraud scheme between 2013 and 2021 in which they falsely represented the nature of their investment offerings and promised large returns, which they could not and did not yield. The indictment also alleges that two of the defendants encouraged victims to send their funds to bank accounts controlled by the other two defendants, and then transferred the money through a complex series of accounts worldwide.

The defendants were charged with wire fraud, conspiracy to commit wire fraud, and conspiracy to commit money laundering. One defendant was further charged with money laundering. If convicted, the men will face up to 20 years in prison for each count. The additional count of money laundering carries an additional sentence of up to 10 years.

The DOJ press release can be found here.

California Man Pleads Guilty To Stealing Government COVID-19 Relief Funds

On March 18, 2022, a California man pleaded guilty in the Central District of California to misappropriating COVID-19 relief funds obtained through the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

Under the CARES Act Provider Relief Fund, CARES Act health care providers who were financially harmed by the impact of the COVID-19 pandemic are granted federal funds to provide care to patients suffering from COVID-19. According to court documents, the defendant admitted he owned a hospice agency in North Hollywood that was never operational during the COVID-19 pandemic, yet he received approximately $89,162 designated for the medical treatment and care of COVID-19 patients. The defendant admitted he misappropriated the CARES Act funds by spending them for his personal use and then transferring the funds to family members, including one family member in Armenia, rather than using the funds in any way related to the pandemic relief efforts as required.

As part of his guilty plea, the defendant further admitted that he submitted five Economic Injury Disaster Loan (EIDL) applications to the Small Business Administration (SBA) on behalf of his hospice agency and four other entities he controlled. As a result of his fraudulent applications, the SBA disbursed approximately $428,100 in EIDL funds to the man, which he used for his benefit against EIDL requirements.

The man pleaded guilty to three counts of theft of government property and is scheduled to be sentenced on June 13, facing up to 10 years in prison for each count.

The DOJ press release can be found here.

New Jersey Man Convicted for Fraudulently Obtaining US Visas for Chinese Government Employees

On March 23, 2022, a New Jersey man was convicted by a federal jury of one count of conspiracy to defraud the United States and to commit visa fraud for his participation in a conspiracy to fraudulently obtain United States visas for Chinese government employees.

According to court documents, the defendant was involved in a scheme to fraudulently obtain J-1 research scholar visas for employees of the government of the People’s Republic of China (PRC) to allow them to covertly work for the PRC government while in the United States. The defendant operated an office of the China Association for the International Exchange of Personnel (CAIEP), an agency of the PRC government, in New Jersey that seeks to recruit US scientists, academics, engineers, and other experts for the PRC.

The J-1 research scholar program allows foreign nationals to visit the United States to conduct research at a corporate research facility, library, museum, university, or other research institution. The defendant allegedly worked to obtain a J-1 research scholar visa for a prospective employee based on the false representation that the employee would conduct research at a United States university, to conceal unlawful work of another employee who was present in the United States on a J-1 visa sponsored by a US university. The two employees represented to the US government that they were entering the US for the primary purpose of conducting research at US universities, but their actual purpose consisted of working for the CAIEP. The defendant reported the employee’s arrival to the United States to the US universities, procured a local driver’s license for her and disguised her CAIEP salary as a subsidy for research scholar living expenses to make her presence as a research scholar appear legitimate.

As a result of his conviction, the defendant faces a maximum sentence of five years; he is scheduled to be sentenced on July 11.

The Department of Justice (DOJ) press release can be found here.

UPS To Pay $5.3 Million for False Claims Act Allegations

On March 21, 2022, the DOJ announced that United Parcel Service Inc. (UPS) agreed to pay approximately $5.3 million to settle allegations that the company falsely reported information about the transfer of U.S. mail to foreign posts or other intended recipients under contracts with the U.S. Postal Service (USPS), in violation of the False Claims Act (FCA).

UPS was engaged by USPS to pick up U.S. mail at various locations and deliver it to its international and domestic destinations. As a condition of payment, UPS was required to submit electronic scans to USPS to report when the mail was delivered, and there were specified penalties for mail that was delivered late or to the wrong location. The settlement resolves allegations that scans submitted by UPS were falsified times and that UPS, in fact, transferred possession of the mail.

According to DOJ, this is the fifth civil settlement involving air carrier liability for false delivery scans under the USPS International Commercial Air Contracts, pursuant to which the United States has recovered more than $70 million.

The DOJ press release can be found here.

Article By D. Jacques Smith, Randall A. Brater, Mattie Bowden, and Rebecca W. Foreman of ArentFox Schiff LLP

For more white collar crime legal news, click here to visit the National Law Review.

New UK IDTA and Addendum Come Into Force

The new UK International Data Transfer Agreement (“IDTA”) and Addendum to the new 2021 EU Standard Contract Clauses (“New EU SCCs”) are now in force (as of the 21 March 2022), providing much needed certainty for UK organisations transferring personal data to service providers and group companies based outside of the UK/EEA.

The IDTA and Addendum replace the old EU Standard Contractual Clauses (“Old EU SCCs”) for use as a UK GDPR-compliant transfer tool for restricted transfers from the UK, which also enables UK data exporters to comply with the European Court of Justice’s ‘Schrems II’ judgement.

For new UK data transfer arrangements or where UK organisations are in the process of reviewing their existing arrangements, use of the new ITDA or Addendum would be the best option to seek to future proof against the need to replace them in 2 years’ time.

Where the data flows involve transfers of personal data from both the UK and the EU, the use of the Addendum alongside the New EU SCCs, will enable organisations to implement a more harmonised solution.

To view copies of the documents please follow the links below:

To read our previous blog post on this topic, click here.

Article By Francesca Fellowes of Squire Patton Boggs (US) LLP. Hannah-Mei Grisley also contributed to this article.

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

HHS OIG Signs Off on Substance Use Recovery Incentive Program

On March 2, 2022, the Department of Health and Human Services (“HHS”) Office of the Inspector General (the “OIG”) issued a new advisory opinion (“AO 22-04”) related to a program through which the Requestor would provide certain individuals access to digital contingency management (“CM”) and related tools to treat substance use disorders (“Program”). The OIG advised that it would not impose administrative sanctions under the Anti-Kickback Statute (“AKS”) or the Beneficiary Inducements Civil Monetary Penalty Law (“CMPL”).

The Requestor, a digital health company, offers a Program that uses smartphone and smart debit card technology to implement CM for individuals with substance use disorders, addressing aspects of these disorders “in ways that conventional counseling and medications often cannot.” The Requestor makes this technology available to individuals who meet certain requirements through contracts with a variety of entities, such as health plans, addiction treatment providers, employee assistance programs, research institutions, and other treatment providers (“Customers”).

Individuals (‘Members”) are Customer- or self-referred, and are subject to a structured interview using the American Society of Addiction Medicine Continuum Triage tool before participation in the Program. The Requestor’s enrollment specialist, under the guidance of a licensed clinical supervisor, determines the type of services and frequency of recovery coaching using an evidence-based, automated algorithm. The Program technology establishes the schedule of expected target behavioral health events, objectively validates whether each expected event has occurred, and, if it has, promptly disburses the exact, protocol-specified incentive to the Member, using (where appropriate) a progressive reinforcement schedule.

The Program is not limited to treatments or federally reimbursable services; it also includes, among other features, support groups, medication reminders, and appointment attendance verification. For those that do include federally reimbursable services, the Requestor advised that such services may be furnished by a Customer. Incentives from the Program are provided to Members via a “smart debit card.” The card includes “abuse and anti-relapse protections (e.g., it cannot be used at bars, liquor stores, casinos, or certain other locations nor can it be used to convert credit to cash at ATMs or gas stations)”, and allows the Requestor to monitor use. Incentives are capped at $200/month and $599/year; individual incentives are typically relatively small, at $1-$3.

The Requestor receives fees from Customers on either a flat monthly basis, per eligible, active Member, or a pay-for-performance model, in which Requestor is paid upon a Member achieving certain agreed-upon targets for abstinence. The Requestor certified that the aggregate fees are consistent with fair market value and do not vary based on the volume or value of business generated under federal health care programs. Instead, fees are based on the service configurations being purchased and the intensity of behavioral targets that are planned for each Member, as well as whether a member is low- or high-risk, and in or out of treatment.

OIG concluded that two stream of remuneration potentially implicate the AKS and CMPL. First, Customers pay Requestor a fee to provide services, some of which could incentivize a Member to receive a federally billable service. Second, some of the fees Customers pay to Requestor get passed on to Members as CM Incentives for achieving certain behavioral health goals, some of which may involve services that could be billable to Federal health care programs (e.g., a counseling session) by a particular provider or supplier, which could be a Customer. OIG noted its longstanding concerns relating to the offer of incentives intended to induce beneficiaries to obtain federally reimbursable items and services, as such incentives could present significant risks of fraud and abuse.

The OIG concluded that the Program presents a minimal risk of fraud and abuse and declined to impose sanctions, providing four justifications –

The Requestor certified that the Program is based in research, and provided evidence that CM is a “highly effective, cost-efficient treatment for individuals with substance use disorders.” Therefore, the OIG decided that, taken together with the other safeguards present in the Arrangement, the incentives in the Requestor’s Program serve as “part of a protocol-driven, evidence-based treatment program rather than an inducement to seek, or a reward for having sought, a particular federally reimbursable treatment.”
The incentives offered through the Program have a relatively low value and a cap, and largely are unrelated to any federally payable services, especially as the Requestor is not enrolled in and does not bill to federal health care programs for Program services. Therefore, the OIG determined that the risk of the incentives “encouraging overutilization of federally reimbursable services is low.”
The Requestor’s Customer base is not limited to entities that have an incentive to induce receipt of federally reimbursable services. While the OIG acknowledged that there may be instances where an incentive may be given for receiving a federally billable service, the fees do not vary based on volume or value of any federally reimbursable services, and the Customers do not have control of the Program. Therefore, the OIG determined that the risk is low an entity would become a Customer to “generate business or reward referrals.”
Although the incentives loaded onto a smart debit card function as cash equivalents, the OIG found the safeguards included in the Arrangement sufficient to mitigate fraud and abuse concerns. The Requestor, which does not bill federal health care programs or have an incentive to induce overutilization, determines what services an individual needs and what incentives are attached. Additionally, the smart debit card has “anti-relapse protections”, which can signal possible need for intervention. Therefore, the OIG concluded that the remuneration in the form the smart debit card is sufficiently low risk.

AO 22-04 reflects HHS’s continued aims to increase flexibility around substance use disorder treatments. Just two weeks before, HHS announced two grant programs, totaling $25.6 million, to expand access to medication-assisted treatment for opioid use disorder and prevent the misuse of prescription drugs. In a press release, HHS Secretary Xavier Becerra is quoted as saying, “At HHS we are committed to addressing the overdose crisis, and one of the ways we’re doing this is by expanding access to medication-assisted treatment and other effective, evidenced-based prevention and intervention strategies.” HHS’ “National Tour to Strengthen Mental Health” is intended to “hear directly from Americans across the country about the challenges they’re facing, and engage with local leaders to strength the mental health and crisis care in our communities”, focused on three aspects: mental health, suicide, and substance use. Further flexibilities should be anticipated in these areas as the Tour continues.

Anyone seeking treatment options for substance misuse should call SAMHSA’s National Helpline at 800-662-HELP (4357) or visit findtreatment.gov. If you or anyone you know is struggling with thoughts of suicide, please call the National Suicide Prevention Lifeline at 800-273-TALK (8255), or text the Crisis Text Line (text HELLO to 741741).

Article By Christine M. Clements and Theresa E. Thompson of Sheppard, Mullin, Richter & Hampton LLP

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

Category: Legal News