The National Law Forum

Life on the B Side: Social Media Advertising Under CGL Coverage B (Part 2)

The following is Part II in our two-part series on the intersection between social media advertising and the lesser known portion of commercial general liability (“CGL”) policies—the elusive “Coverage B.” In Part I, we examined the prevalence of social media and social media advertising in today’s society. We also provided a brief overview of the Coverage B provisions that are likely to be implicated by social media advertising. In Part II, we discuss these Coverage B issues in greater detail.

POTENTIAL COVERAGE B ISSUES IMPLICATED BY SOCIAL MEDIA ADVERTISING

1. What Constitutes Advertising?

A threshold issue that could arise in cases involving social media advertising is whether the use of social media qualifies as “advertising” under the policy. In the typical insurance policy, “Advertising Injury or Damage” is defined as including a covered offense stemming from the insured’s “advertising” efforts. However, the term “advertising” is often left undefined.

Social media advertising raises some unique questions, particularly with respect to whether specific content constitutes “advertising.” On the one hand, banner ads (i.e., those typically found on the top or sides of a website) are akin to traditional forms of print advertising; therefore, it is difficult to imagine that such content would not qualify as “advertising” for Coverage B purposes. On the other hand, social media offers access to less formal means of advertising. For instance, a business could open a Twitter or Facebook account in order to promote itself through individual postings. Although the use of these social media platforms as a promotional tool would appear to constitute “advertising,” judges unfamiliar with social media platforms, or at least more familiar with traditional forms of advertising, might disagree.

This issue has not yet been addressed in the Coverage B context. However, one court recently concluded that a business’s Facebook posts did not constitute advertising under the Lanham Act. In Buckeye International v. Schmidt Custom Floors, 2018 WL 1960115 (W.D. Wis. Apr. 26, 2018), a federal judge held that Facebook posts made by one business criticizing another business did not constitute advertising under the Lanham Act because they were “individualized person-to-person communication[s].” This ruling fails to appreciate that a business’s posts to social media accounts, particularly where the business makes those posts public without limitation, are not “individualized person-to-person communications” because they are often intended to reach large audiences or the public-at-large. However, judges examining similar issues in a Coverage B dispute could reach similar conclusions. Thus, educating courts about the basics of social media platforms, including how they operate and the purposes for which businesses use them, is critical in any litigation involving these technologies.

2. #trademarkviolation

Anyone who has ever viewed a Twitter feed has surely noticed the presence of hashtags within individual Tweets. Hashtags were originally intended as a tool to categorically arrange materials so that other users could easily search for a topic. However, their use has quickly expanded to other social media platforms. Today, they are often used to express humor or as a method for brand recognition. Indeed, certain courts to-date have found that hashtags are entitled to trademark or copyright protections, despite that they were originally intended to assist with online search capabilities. The Wall Street Journal has reported that companies are increasingly filing trademark applications for hashtags related to their companies and products.^[1]

The increased protections offered for hashtags has potential Coverage B implications. In Part I, we discussed the fact that included among the covered offenses that constitute “personal and advertising injuries” are: (1) the use of another’s advertising idea in your “advertisement”; and (2) infringing upon another’s copyright, trade dress, or slogan in your “advertisement.” Thus, social media advertisements employing hashtags could trigger intellectual property litigation. And, the related defense costs and/or indemnity arising out of such litigation would potentially be covered by standard Coverage B protections.

3. Risks Associated With Social Media Influencers

In Part I of our series, we discussed how companies were employing brand advocacy through paid social media influencers (individuals with a significant following on social media who post content about products and services in exchange for compensation (e.g., money or free products)). Although a company’s use of social media influencers does not create any unique Coverage B issues, the use of such influencers as part of a marketing campaign is not without risks. Social medial influencers are certainly not professional advertisers—recent studies show they are not only not aware of the rules and regulations concerning their paid posts, but may actually be consciously ignorant of those rules and regulations.^[2] Therefore, in order to minimize liability, companies seeking to utilize influencers must be dogged in (1) educating their influencers, and (2) monitoring their influencers’ content. This is especially true given the above-referenced statistics showing social media influencers are often ignorant of advertising norms—an influencer left to his or her own devices is an influencer who could cause headaches for an insured. However, even companies that educate influencers about advertising norms must trust these people to actually follow the rules. By utilizing influencers, companies give up certain elements of control over the advertising that they would maintain under traditional advertising campaigns and increase the chances that an influencer could engage in acts that constitute covered offenses for Coverage B purposes.

CONCLUSION

As highlighted throughout this two-part series, the use of social media advertising raises interesting and unique issues, as well as possible liabilities to companies. Along with these possible liabilities comes the potential for insurance coverage under policies offering coverage for “personal and advertising injuries.” While it remains to be seen how courts will address these issues, companies should be mindful of the potential for insurance coverage.

[1] See https://www.wsj.com/articles/companies-increasingly-trademark-hashtags-1…

[2] See Jim Tobin, Ignorance, Apathy or Greed? Why Most Influencers Still Don’t Comply with FTC Guidelines, Forbes (Apr. 27, 2018 8:00 AM) https://www.forbes.com/sites/forbesagencycouncil/2018/04/27/ignorance-ap… Steven P. Mandell et al., Recent Developments in Media, Privacy, Defamation, and Advertising Law, 52 Tort Trial & Ins. Prac. L.J. 531, 560 (2017).

This post was written by Michael B. Rush and Samantha R. Miller of Gilbert LLP.

Read more insurance legal news on our Insurance type of law page.

Kentucky to Begin Taxing Video Streaming Services under Telecom Tax

Legislators in Frankfort added a new “video streaming service” tax to the omnibus tax bill (HB 354) as part of a closed-door conference committee process before the bill was hastily passed in the House and Senate. Notably, the new video streaming service tax was not previously raised or discussed as part of HB 354 (or any other Kentucky legislation) before it was included in the final conference committee report that passed the General Assembly in March.

Specifically, as passed by the General Assembly, HB 354 will add “video streaming services” to the definition of “multichannel video programming service” subject to the telecom excise tax. This is the same tax imposition that the Department of Revenue argued applied to video streaming services in the Netflix litigation—an argument that was rejected by the courts in Kentucky and then subsequently settled on appeal. Under existing law, Kentucky taxes “digital property” under the sales and use tax. The term is broadly defined and applies to audio streaming services, but expressly carves out “digital audio-visual works” (i.e., downloaded movies, TV shows and video; defined consistently with the SSUTA) from the scope of the sales and use tax imposition. HB 354 would not modify the treatment of digital goods and services under the sales and use tax, and changes that would be implemented are limited to the telecom excise tax imposed on the retail purchase of a multichannel video programming service.

As amended by HB 354, the definition of “multichannel video programming service” for purposes of the telecom excise tax would be expanded to mean “live, scheduled, or on-demand programming provided by or generally considered comparable to or in competition with programming provided by a television broadcast station and shall include but not be limited to: (a) Cable service; (b) Satellite broadcast and wireless cable service; and (c) Internet protocol television provided through wireline facilities without regard to delivery technology; and (d) video streaming services.” The legislation defines “video streaming services” as “programming that streams live events, movies, syndicated and television programming, or other audio-visual content over the Internet for viewing on a television or other electronic device with or without regard to a particular viewing schedule.” Thus, the “video streaming services” language in HB 354 would clearly subject over-the-top video streaming service providers to the excise tax on the retail purchase of a multichannel video programming service. As passed by the General Assembly, the new video streaming services excise tax in HB 354 would “apply to transactions occurring on or after July 1, 2019.”

Governor Matt Bevin signed HB 354 into law on March 26, 2019. The General Assembly subsequently passed a “cleanup bill” (HB 458) that was enacted into law last month, but it did not make any changes to the part of HB 354 that expanded the scope of the tax on multichannel video programming services to include video streaming services.

Kentucky is a member of the Streamlined Sales and Use Tax Governing Board. Taxation of electronically transferred audio-visual works is something specifically dealt with in the Streamlined Sales and Use Tax Agreement (SSUTA). The SSUTA also prohibit the enactment of so-called “replacement taxes” that have the effect of avoiding the provisions of the SSUTA. Kentucky’s inclusion of streamed movies in its tax on multichannel video programming services, a regime outside the sales and use tax, could run afoul of the SSUTA’s prohibition on replacement taxes, potentially putting the state out of compliance with the SSUTA and exposing it to the risk of sanctions by the Governing Board.

Practice Note: From an administrability and compliance point of view, enacting a new tax on digital goods and services as part of excise or gross receipts taxes outside the generally applicable sales and use tax poses significant problems. Many businesses that are not telecom providers simply do not have the compliance infrastructure to allow them to collect and remit taxes other than sales and use taxes. In addition, by taxing certain digital goods and services under a tax other than what is applicable to similar content sold via a tangible medium (such as a physical movie rental or viewing a movie in theater), the federal Permanent Internet Tax Freedom Act enacted by Congress may be implicated and pose a litigation risk to the state. Both the compliance nightmare and litigation risk could be easily avoided by imposing the tax under the sales and use tax (as opposed to miscellaneous excise or gross receipts taxes). We will continue to monitor the digital tax climate in Kentucky, and encourage companies impacted by this new imposition to contact the authors to discuss this issue in more detail.

This post was written by Stephen P. Kranz Mark Nebergall and Eric Carstens of McDermott Will & Emery.

Read more SALT news on the National Law Review’s Tax page.

Colorado Enacts Equal Pay for Equal Work Law, Effective 2021

Colorado Governor Jared Polis signed the Equal Pay for Equal Work Act (Senate Bill 85) into law on May 22. The intent of the new law is to help close the gender pay gap in Colorado and ensure that employees with similar job duties are paid the same wage rate regardless of sex, or sex plus another protected status. Unless a referendum petition is filed, the law goes into effect on January 1, 2021, providing employers with 19 months to come into compliance. Key points of the legislation follow.

Prohibited Conduct and Scope

The Act prohibits employers from:

paying differing wages based on an employee’s sex or on the basis of sex in combination with another protected status (disability, race, creed, color, sex, sexual orientation, religion, age, national origin, or ancestry) unless one of the statutory exceptions apply;
seeking the wage rate history of a prospective employee or relying on a prior wage rate to determine a wage rate for the position in question;
discriminating or retaliating against a prospective employee for failing to disclose their wage rate history;
discharging or retaliating against an employee for asserting the rights established by the Act, invoking the Act’s protections on behalf of anyone, or in assisting in the enforcement of the Act;
discharging, disciplining, discriminating against, coercing, intimidating, threatening, or interfering with an employee or other person because they inquired about, disclosed, compared, or otherwise discussed the employee’s wage rate; and
prohibiting an employee from disclosing wage rate information.

The Act defines “employer” broadly to include “the state or any political subdivision, commission, department, institution, or school district thereof, and every other person employing a person in the state.” “Employee” is defined as “a person employed by an employer.”

Exceptions to the Act

The Act allows exceptions to the prohibition against a wage differential based on sex if the employer demonstrates the difference in wages is reasonably based upon one or more factors, including:

a seniority system;
a merit system;
a system that measures earnings by quantity or quality of production;
the geographic location where the work is performed;
education, training, or experience to the extent that they are reasonably related to the work in question; or
travel, if the travel is a regular and necessary condition of the work performed.

In relying on these factors, the employer must not rely on prior wage rate history to justify a disparity in current wage rates.

New Employer Obligations

The Act also imposes new affirmative obligations on employers. Once the Act is in effect, employers must:

announce to all employees employment advancement opportunities and job openings, and the pay range for the openings; and
maintain records of job descriptions and wage rate history for reach employee for the duration of their employment, plus two years.

Private Right of Action and Enforcement

Employees have a private right of action in district court to pursue remedies specified in the law. They need not first file administrative wage discrimination complaints with the Colorado Department of Labor and Employment before bringing suit.

The Act sets a two-year statute of limitations; a violation of the statute occurs each time a person is paid a discriminatory wage rate.

An employee may recover both economic damages (measured as the difference between the amount the employer paid and what the employee would have received had there been no violation) plus additional liquidated damages, equal to the amount of the economic damages. The liquidated damages provision is intended to compensate an employee for the delay in receiving amounts due. Employees may also recover attorneys’ fees and costs, and obtain legal and equitable relief, which may include reinstatement, promotion, and a pay increase.

The Director of the state Department of Labor and Employment is also authorized to enforce actions against an employer involving transparency in pay and employment opportunities, including fines of between $500 and $10,000 per violation. An employer’s failure to comply with the Act for one promotional opportunity or job opening is considered one violation.

Good Faith Defense and Wage Audits

An employer may avoid liquidated damages for a violation if it can establish that it had reasonable grounds for believing it was not in violation of the Act. The Act states that one factor to be considered in determining good faith is whether the employer had completed within the prior two years a “thorough and comprehensive pay audit of its workforce, with the specific goal of identifying and remedying unlawful pay disparities.”

Rebuttable Presumption Regarding the Failure to Keep Records

If an employer fails to keep required wage records and is later sued, the Act permits the court to impose a rebuttable presumption that the records not kept by the employer contained information favorable to the employee’s wage claim and the jury may be instructed that the failure to keep records is evidence that the violation was not in good faith.

Lessons for Employers

With pay equity issues increasingly in the news, we expect this new legislation to spur an uptick in litigation after it goes into effect in 2021. Because these are inherently fact-intensive cases, litigation involving the new Equal Pay for Equal Work Act will be complex and protracted. Colorado employers should audit and review their compensation systems now in order to identify and address potential problems. Consideration should be given to involving outside counsel in these audits in order to cloak them with the attorney-client privilege against public disclosure.

This post was written by Steven W. Suflas and Rachel R. Mentz of Ballard Spahr LLP.

Read more labor and employment news on the National Law Review’s Employment law page.

Huge Anti-Robocall Measure Passes In the Senate: Here is Your Definitive Guide to How TRACED Alters the TCPA Worldscape

The TRACED Act passed the Senate and is on its way to the House for consideration by the Democratic-lead lower chamber.

But what is exactly is TRACED and why is it so important? As the Czar of the TCPA World it falls on me to provide a nuts and bolts perspective of TRACED—and just in time for Memorial Day weekend. Below is your definitive guide to the TRACED Act and what to expect if/when the bill becomes law.

First, it is important to recognize that TRACED does not create a new statutory scheme. Rather it modifies and enhances the existing Telephone Consumer Protection Act (“TCPA”) in a manner that assures the TCPA will remain the official federal response to the current robocall epidemic in this nation. That means that all of the TCPA’s broad and ambiguous terminology—such as “automated telephone dialing system” and the identity of the enigmatic “called party”—take on enhanced importance as the statute is exalted to “crown jewel” status. It also means that the pending constitutional challenges to the TCPA have even greater import. Understanding the TCPA is, therefore, more critical than ever before as TRACED moves toward becoming law.

As TCPAWorld.com is already filled with articles and resources to help you understand the TCPA, this article will not pause long on these background issues. But here is the bedrock: thou shalt not use regulated technology—whatever that may be—to call cell phones without the express consent—whatever that means—of the called party—whoever that is. So far so good?

Most importantly, TRACED grants the FCC explicit authority to implement its Shaken/Stir framework for call authentication and anti-spoofing technology. TRACED provides that not later than 18 months after passage, the FCC shall “require” a provider of voice service to implement the STIR/SHAKEN authentication framework in the internet protocol networks of the voice service provider. “STIR/SHAKEN” is specifically defined to mean “the secure telephone identity revisited and signature-based handling of asserted information using tokens standards proposed by the information and communications technology industry.” That, in turn, means that wireless carriers have to transmit, receive, and interpret certain data packets containing authentication information so every carrier knows whether every call is legitimately being received by a true number authorized by another carrier. That, in turn, means that YOU should always know whether a phone call can be trusted or not. So far so good.

TRACED also required the FCC to implement rules regarding when a carrier is permitted to block calls that fail Stir/Shaken authentication, and to implement a safe harbor for calls that are improperly but accidentally blocked by carriers. This particular portion of TRACED has raised a lot of concern with industry groups that fear their legitimate messages will not be delivered due to the potential for wireless carriers to aggressively block messages utilizing non-public, vague or shifting standards or algorithms. To address this concern the amended version of TRACED allows callers who have been “adversely affected” by call blocking to seek redress: TRACED requires the FCC to establish “a process to permit a calling party adversely affected by the information provided by the call authentication framework… to verify the authenticity of the calling party’s calls.”

Interesting, no?

TRACED also requires the FCC to initiate anti-spoofing rulemaking with an end goal to help protect consumers from receiving spoofed calls. Most importantly, TRACED directs the FCC to consider and determine “the best means of ensuring that a subscriber or provider has the ability to block calls from a caller using an unauthenticated North American Numbering Plan number.” This portion of TRACED is rather vague and the directive to the FCC seems to be “figure it out”—we’ll keep an eye on developments surrounding any potential FCC rulemaking proceeding if and when TRACED passes the House.

All of this is good to neutral news for TCPAWorld residents. The mandated enhancements to carrier technology should help assure that more calls are answered as consumers feel safe to use their phones again. And it should mean that we all experience a dramatic reduction in spam and scam calls. Not bad.

But TRACED also makes critical and potentially disastrous changes to the TCPA enforcement environment, potentially shifting enforcement activity away from the expert agency in this field—the FCC—and to other agencies that are less experienced in this field. Specifically, TRACED requires the creation of a “working group” including:

the Department of Commerce;
the Department of State;
the Department of Homeland Security(!);
the Federal Communications Commission;
the Federal Trade Commission; and
the Bureau of Consumer Financial Protection(!!).

This working group is specifically charged with figuring out how to better enforce the TCPA. Specifically, these agencies must determine whether Federal laws inhibit the prosecution of TCPA violations and encourage and improve coordination among agencies in the prevention and prosecution of TCPA violations. Translation: Congress wants more TCPA prosecutions and enforcement actions and is asking every federal agency with an enforcement arm to figure out how to make that happen. Perhaps scariest of all—the working group is specifically asked to determine whether State AG’s should be invited to the table: the working group must consider “whether extending civil enforcement authority to the States would assist in the successful prevention and prosecution of such violations.” Eesh.

TRACED also affords additional (and clearer) authority to the FCC to pursue TCPA enforcement actions. Where the TCPA is violated willfully TRACED allows the FCC to seek a new and additional penalty of $10,000.00 per violation. That means if a bad actor acts badly and contacts cell phones knowing he or she lacks consent the FCC can seek to recover $10,000.00 for each one of those phone calls plus (apparently) the forfeiture penalty of up to $16,000.00 per violation that is already available under the general provisions of the Telecommunications Act. So TRACED appears to raise the maximum per call penalty for violating the TCPA to $26,000.00 per call! Notably, TRACED represents the first Congressional enactment that clearly defines the FCC’s forfeiture authority respecting illegal phone calls. TRACED also expands the timeframe the FCC has to pursue actions for intentional misconduct to three years from one year.

To avoid confusion, let me be clear TCPAWorld– the penalties available in a civil suit remain $500.00 per call— and up to $1,500.00 per call for willful violations— where a private party is bringing suit. TRACED would not alter or amend this private right of action. And uncapped TCPA class actions remain a threat after TRACED.

TRACED also requires the FCC to prepare an annual report specifying the number of complaints it received related to robocalls and spoofing, and identifying what enforcement actions the Commission had undertaken in that same period of time.

Finally, for those of you already facing litigation, TRACED was designed not to have any impact on your case. Section (b) of TRACED specifies: “[t]he amendments made by this section shall not affect any action or proceeding commenced before and pending on the date of enactment of this Act.” So work hard to get sued before the Act passes in the House. I’m kidding. Sort of.

So there you have it. A deep dive TRACED discussion you can read poolside or while working the ‘cue. Enjoy the ribs TCPAWorld.

This post was written by Eric J. Troutman of Squire Patton Boggs (US) LLP.

Mental Illness in Family Law & Divorce

According to the National Institute of Mental Health,

Approximately 1 in 5 adults in the U.S. (46.6 million) experiences mental illness in a given year.
Approximately 1 in 25 adults in the U.S. (11.2 million) experiences a serious mental illness in a given year that substantially interferes with or limits one or more major life activities.
Approximately 1 in 5 youth aged 13–18 (21.4%) experiences a severe mental disorder at some point during their life. For children aged 8–15, the estimate is 13%.

Not surprisingly, mental health issues come up in the context of a divorce in a variety of ways. They arise when mental health issues contribute to the breakdown of the marriage or relationship. For instance, a partner may suffer from a condition which causes him or her to behave in ways that are detrimental to the relationship. This can manifest itself in aggression, narcissism, and self-centered behavior to the detriment of the other partner or children, excessive spending impacting family finances, to engaging in dangerous behavior with a partner, and/or their children.

What happens when someone believes that their partner’s actions are caused by a mental illness? After a complaint for divorce has been filed, or other court process started, attention needs to be focused to the behavior, and steps should be taken to:

Ensure that children are safe;
Assets of the marriage are protected; and
A plan is created to provide treatment options if children are involved.

If a spouse or partner is suffering from mental illness to the extent that he or she cannot make rational decisions, the court has a variety of options to protect that person, both personally and his or her property. The court can appoint a guardian for the person, particularly if the illness is so extreme as to cause a person to be incompetent.

If the litigant is ill, but not to the point of incompetency, the court can appoint a Guardian Ad Litem.

If a partner or spouse’s illness is creating a risk of assets being dissipated, a court can freeze accounts, and limit access to funds. A court may allow a third party to make payments on behalf of a litigant such as rent, etc.

There is little question that difficult issues arise when a parent suffers from mental illness. The courts, acting in the best interests of children, must make sure the child is safe, while at the same time safeguarding a parent’s rights to have a relationship with a child. When custody is an issue and one parent is alleging that the other suffers from a mental illness, the court will typically order an evaluation by a licensed mental health provider with experience in custody cases. The court may enter an order limiting, or prohibiting contact with the children pending the outcome of the evaluation. Then, depending on the outcome of the evaluation, the court may order therapy, medication, or other recommended treatment as a condition to parenting time. While the parent is undergoing treatment, the court can order supervised parenting time to make sure the children see the parent, but also making sure they are safe.

If substance abuse is part of the illness, there are options to make sure a child is not with a parent who is intoxicated. In addition to random drug testing, which the court can order as a condition of parenting time, there are devices, similar to mini breathalyzers to detect alcohol and certain other substances. These can be carried on someone’s person, in a pocket or purse, and they will be sent a random text instructing them to blow into it. A report will then be sent to the custodial parent, who can take steps to protect the children.

Sometimes, a child will suffer from a mental illness and the parents may differ as to the existence of the illness or for its treatment. This often results in a health care provider refusing to treat in the absence of agreement. In that case, either parent can petition the court for assistance, and an order allowing treatment.

This post was written by Jennifer Weisberg Millner of Stark & Stark

Read more about Divorce & Family Law on the National Law Review’s Family Law, Estate Planning and Personal Injury Legal News page

Mission Products v. Tempnology: SCOTUS Holds that Rejection of Trademark License in Bankruptcy Does Not Terminate the Right to Use the Mark

On May 20, 2019, the U.S. Supreme Court held by a vote of 8-1 that a trademark licensor’s rejection in bankruptcy of a trademark license does not terminate the licensee’s right to use the licensed mark.Mission Products Holdings, Inc. v. Tempnology, LLC, No. 17-1657, 587 U.S. ___ (2019). In so holding, the Court resolved a circuit split on the issue. The Court reversed the decision of the First Circuit, which held that Tempnology’s rejection of a trademark license under the Bankruptcy Code had the effect of terminating Mission Products’ right to use the licensed marks. The Court expressly affirmed the reasoning of the Seventh Circuit in Sunbeam Products, Inc. v. Chicago Am. Mfg., LLC, 686 F.3d 372 (7th Cir. 2012), and held that rejection of a trademark license constitutes a pre-petition breach of the license agreement but does not otherwise terminate the licensor’s and licensee’s rights and obligations under the license agreement.

The Court’s opinion, authored by Justice Kagan, considered section 365 of the Bankruptcy Code, 11 U.S.C. §365. Specifically, the Court considered section 365(a), which permits a debtor in bankruptcy to reject any executory contract¹, and section 365(g), which provides that the debtor’s rejection “constitutes a breach of such contract.” 11 U.S.C. §365(a), (g).

In this case, the licensor, Tempnology, manufactured clothing and accessories designed to stay cool when used in exercise. Tempnology sold those products under the name “Coolcore” with related logos and labels. Tempnology entered into a license agreement with Mission Products, which granted, among other things, a non-exclusive license to use the Coolcore trademark in the United States and elsewhere. In 2015, less than a year before the license was to expire, Tempnology filed a petition for bankruptcy under Chapter 11 of the Bankruptcy Code. Tempnology exercised its option under section 365(a) to reject the license agreement, as it was still executory, and the Bankruptcy Court approved the rejection. The parties agreed that the rejection had two effects. First, Tempnology could stop performing under the license agreement, and second, Mission Products could assert a pre-bankruptcy petition claim for damages².

Tempnology argued that its rejection of the license agreement also terminated the rights it previously granted Mission Products to use the Coolcore marks. Tempnology based its argument on a negative inference it drew from the fact that, over the years, Congress had adopted provisions in section 365 that allowed the other party in a rejected contract to continue exercising its contractual rights. Of particular relevance was section 365(n), which provides that if the licensor of certain intellectual property rights, such as patents, rejects the license, the licensee can continue to use the patented technology as long as it makes the payments required under the license. 11 U.S.C. §365(n). Section 365(n) specifically excluded trademark licenses. See 11 U.S.C. §365(n). Tempnology argued that, because section 365(n) excludes trademark licenses, a negative inference should be drawn that Congress intended for trademark licenses to terminate upon rejection.

The Court rejected Tempnology’s arguments. In so doing, the Court first relied on the language in section 365(g), which provides that a rejection constitutes a breach. While a breaching debtor can stop performing its remaining obligations under the license, it cannot rescind the license. The Court went on to note that the section 365(n) provision allowing a licensee to continue using licensed intellectual property other than trademarks was a reaction to a Fourth Circuit decision – Lubrizol Enterprises v. Richmond Metal Finishers, 756 F.2d 1043 (4th Cir. 1985) – which held that a patent licensee’s rejection of an executory contract had the effect of revoking the grant of a patent license. The Court in Mission Products explained that “Congress’s repudiation of Lubrizol for patent contracts does not show any intent to ratify that decision’s approach for almost all others. Which is to say that no negative inference arises.” (emphasis in original).

The Court also rejected Tempnology’s arguments based on a trademark licensor’s duty to monitor and exercise quality control over licensed goods and services. Tempnology argued that if rejection does not terminate the license, the debtor-licensor is forced to choose between expending scarce resources on quality control, or forgoing expending such resources and thereby risking the loss of a valuable asset, presumably because use without quality control would lead to a naked license. The Court observed that these concerns, while possibly serious, “would allow the tail to wag the Doberman.” The Court explained that the ability to reject a contract under section 365 allows a debtor to escape its future contract obligations, but it does not exempt the debtor from all burdens that generally-applicable law, in this case the law on trademarks, imposes on the owner of the trademark.

Tempnology also argued that the case is moot because, it claimed, Mission Products could not recover damages.³The Court held that the case is not moot, as Mission Products would be able to recover damages.

The Mission Products decision is important for several reasons. First, it resolves the split that had developed between those courts holding that rejection results in a breach and those holding that rejection terminates the right to use a licensed mark. Second, resolving the split removes uncertainty faced by trademark licensors and licensees who are forced to consider what might happen if a licensor declares bankruptcy. Moreover, resolving this uncertainty avoids the need to use expensive and complex steps, such as placing licensed marks in a bankruptcy-remote entity, in order to avoid the effect of a licensor’s bankruptcy.

^[1] An executory contract refers to a contract that neither party has finished performing.^[2]In its opinion, the Court noted that pre-petition creditors often receive only cents on the dollar of their bankruptcy claims.

^[3]The lone dissent, by Justice Gorsuch, also argued mootness on the ground that the license had already expired by the time the bankruptcy court confirmed the rejection and declared that Mission Products could not use the mark.

This post was written by David S. Fleming and Emily Kappers of Brinks Gilson Lione.

Tours in Trouble: Rock Stars and Insurance Recovery

Touring is where profits lie for today’s successful recording artists, with considerable sums expended on venues and staging to bring an artist’s music to his or her fans. But the list of things that can go wrong before and during a tour is almost endless.

That’s why artists, tour companies, and record labels purchase various forms of tour insurance to mitigate the risk from postponements or cancelations caused by a variety of circumstances. Often, those purchasing tour insurance have considerable influence over what harms are covered and the terms under which reimbursement will be provided. Unforeseen disasters can result in losses to the tune of millions of dollars if proper insurance is not obtained and handled carefully.

Three sources of tour insurance claims are particularly important: natural disasters, terrorism, and artist illness. As we outline below, tour profitability depends upon understanding these threats and choosing effective strategies to mitigate them or avoid them entirely.

Coverage for Natural Disasters

Just like any other event, tours planned months or years in advance are susceptible to natural disasters such as earthquakes, hurricanes, and floods. However, even when tour insurance is purchased, receiving coverage for tour cancelations or postponements on this basis is not automatic.

For example, many “non-appearance” insurance policies contain exclusions that could be construed to eliminate coverage for certain kinds of disasters. One such provision is the “adverse weather” exclusion, which commonly excludes coverage for outdoor performances affected by rain, wind, or other similar meteorological incidents. Also common is language restricting coverage to certain enumerated perils and requiring that a covered peril be the “sole and direct cause” of any non-appearance. How such policy language is interpreted in the case of a hurricane or tropical storm, for instance, may make the difference as to whether an artist is compensated under his or her tour insurance policy.

Coverage for Acts of Terrorism

Just as threatening to tour profits as natural disasters are those postponements or cancelations caused by acts of terror. The attacks in Las Vegas during Jason Aldean’s performance, those in Manchester, England outside Ariana Grande’s show, and those at the Eagles of Death Metal performance at the Bataclan club in Paris, France highlight that terrorism is a very real threat to music artists.

However, even if an artist’s tour is insured, acts of terrorism are often excluded unless specifically added by an amendment to insurance policies called an endorsement, which can be quite expensive. Moreover, terrorism coverage policy language varies, with certain provisions requiring an attack to have taken place, whereas others provide coverage if a tour is postponed or canceled based on the threat of an attack. Still other policies that purport to cover cancellations due to terrorist acts limit coverage based on how long after or how far away from an attack or threatened attack the tour is scheduled to take place. For instance, the Foo Fighters canceled the remainder of their European tour in Spain and Italy in the wake of the Paris bombing in 2015. However, the Foo Fighters’ insurers initially refused to reimburse them for these losses under their applicable tour insurance policies (which included terrorism coverage), apparently because the insurers considered the future shows too far away from the date and site of the Paris attack. After much publicity and costly litigation, the lawsuit was eventually settled on confidential terms.

Coverage for Artist Illness

Tour events are also canceled due to artist illness. Often, an insurer’s response to a claim based on artist illness depends on the nature of the illness and what the artist said in underwriting materials submitted to the insurers. It is not uncommon for coverage disputes to center around the accuracy of medical reports submitted by artists to insurers. For instance, Linkin Park canceled parts of a tour in 2008 due to their then-frontman’s back issues. Nickelback was forced to cancel part of their 2015 No Fixed Address tour due to polyps discovered on their lead singer’s throat In both instances, the bands’ tour insurance claims were denied based on alleged inaccurate medical reporting in the underwriting materials submitted to the insurers. And in both cases, the bands were forced to resort to litigation based upon alleged failures to disclose existing medical issues.

Sometimes, an artist’s tour is postponed or canceled but the artist and insurers do not agree on the cause. Not surprisingly, this can lead to coverage disputes. For example, Kanye West’s cancelation of his 2016 Saint Pablo tour resulted in two lawsuits, with West claiming he suffered a “debilitating medical condition” and his insurers insinuating the cancelation was due to drug use and mental health issues (both of which were excluded under the policy). The last of the suits ultimately settled in February 2018, but not before myriad news outlets reported on the parties’ allegations, including leaked details about West’s medical history.

Strategies to Mitigate or Avoid Coverage Threats

These examples only scratch the surface of the many reasons a tour may be postponed or canceled, and the ways in which this can complicate insurance recovery. Different strategies should be applied depending on individual challenges, but all involve careful scrutiny of the governing policy language. The best time for such scrutiny is during negotiation of the policy itself, when experienced counsel can advise on coverage gaps or language that might cause trouble for touring artists.

Also key is carefully shaping the public narrative for any tour postponement or cancelation. This is particularly true in the context of postponements or cancelations where the cause may be disputed. Effective counsel can assist in rapidly coordinating the actions of doctors, the media, and the artist to ensure a consistent message and head off potential pretextual coverage denials from insurers.

As the Ramones sang, “high risk insurance, the time is right.”

This post was written by Benjamin W. Massarsky and Kellyn Goler of Gilbert LLP.

The Digital Millennium Copyright Act: Scope, Reach, and Safe Harbors

With businesses engaging in increasingly more commerce over the internet, it is crucial to understand the consequences of displaying, using, and transferring another entity’s works online. Enter The Digital Millennium Copyright Act (DMCA) of 1998, which was signed into law by President Clinton to keep pace with the new realities of internet technology and commerce. The Act sought to protect intellectual property rights while simultaneously advancing the growth and development of e-commerce.

The DMCA is divided into five titles.

Title I implements the 1996 World Intellectual Property Organization (WIPO) treaties and makes it unlawful to manufacture or distribute products, services, or technologies that can be used to circumvent any technological measures intended to control access to copyrighted works, such as passwords or encryptions.
Title II contains various “safe harbors” for internet service providers (ISPs) that limit their liability for direct, contributory, or vicarious copyright infringement.
Title III creates an exemption from infringement liability for computer program copying conducted for purposes of repair, diagnosis, or troubleshooting.
Title IV contains miscellaneous provisions for items such as ephemeral recordings and the transfer of rights to motion pictures.
Title V creates a new form of protection for vessel hull designs, overturning the United States Supreme Court’s Bonito Boats decision, which denied copyright protection to such boat designs.

Under the DMCA, ISPs such as AT&T, Comcast Xfinity, and Verizon, cannot be held liable for copyright infringement when they neither know, nor have reason to know, that they are providing internet services to a website that is engaged in copyright infringement. The safe harbors include:

A “storage safe harbor” that protects an online service provider’s hosting and storing, and makes available infringing matter stored at a third-party user’s direction.
A “transmission safe harbor” that protects the transmitting or providing of a connection to infringing material, typically evoked by telecommunications companies.
A “caching safe harbor” that protects an ISP from liability for intermediate and temporary storage of a third-party’s infringing material on a system or network either controlled or operated by the service provider or for the service provider.
A safe harbor for search engine websites that protects the linking or referring of users to online third-party locations with infringing material. In order for providers to invoke this protection, internet providers must make an ongoing investigation of their users’ material, “take down” any infringing material once they are made aware of the infringement and inform any of their subscribers of the illegal consequences of making use of that infringing material through, for example, a set of terms and conditions that appear on the site.

In light of the safe harbors, it is important to note what the DMCA does not protect against – trademark infringement, unfair competition, rights of publicity, invasion of privacy, defamation, foreign law copyright claims, the ISP’s own, directly infringing activities, and any collusion between ISPs and third parties to create infringing material. ISPs must therefore continuously monitor third-party conduct in addition to its own conduct to prevent any activity that could lead to liability or loss of an affirmative defense to copyright infringement.

Two recent cases illustrate the complexities of the DMCA. In Disney Enterprises Inc. et al. v. VidAngel Inc., a federal appeals court affirmed an injunction that shut down VidAngel, a web service that lets users stream Hollywood films without seeing nudity or violence. VidAngel essentially purchased authorized copies of DVDs and Blu-ray discs, decrypted one disc of each film to create a digital, unauthorized copy of the work, removed objectionable violent or obscene content from its created copy, and streamed a filtered version of the copy to its customers. Finding that VidAngel infringed on the studios’ copyrights and violated the ban on circumvention of digital encryption measures (VidAngel bypassed locks on the physical discs in order to upload and stream the movies), the district court issued a preliminary injunction to stop the company from streaming the altered films.

On appeal, the Ninth Circuit Court of Appeals sided with the district court despite VidAngel’s arguments that its actions were lawful because, as purchasers of the DVDs and Blu-ray discs, it was authorized by the Studios to decrypt the technical protection mechanisms installed to view the discs’ contents. The law, however, distinguishes between those entities the content owner authorizes to circumvent the access controls and those the owner authorized to access the work. Falling into the latter category, VidAngel was not be able to claim exemption from copyright liability under DMCA’s safe harbor provisions. The takeaway for business owners is that the DMCA cannot be used as a shield by purchasers of copyrighted works who use them for unlawful copying and dissemination.

In another case, Mavrix Photographs, LLC v. LiveJournal, Inc., 873 F.3d 1045 (9th Cir. 2017), a celebrity photography company that sells its photographs to celebrity magazines brought suit against LiveJournal for posting 20 of its copyrighted photographs online.

LiveJournal is an online platform where users create and run communities to post and comment on content. LiveJournal utilized the help of three unpaid administrative roles:

“Moderators” who reviewed posts submitted by users to ensure compliance with company rules;
“Maintainers” who reviewed and deleted posts and who had the ability to remove moderators; and
“Owners” who removed maintainers and monitors.

The district court held that the DMCA’s safe harbor provision protected LiveJournal from liability since the photos were stored at the direction of its users and not LiveJournal itself. On appeal to the Ninth Circuit, however, using principles of the law of agency, the court ruled that the moderators might be “agents” of the websites they police and could lose DMCA safe harbor immunity if they permit infringing content to be posted. The court stated that moderators were provided with specific directions from LiveJournal, and LiveJournal employees substantively supervised, selected, and removed the moderators. On the other hand, moderators were also free to stop working for LiveJournal and volunteer their time elsewhere. Nonetheless, the court vacated the lower court’s order denying discovery of the moderators’ identities because it believed that the newfound, possible agency relationship impacted the decision to conceal the moderators’ identities.

The implications of the LiveJournal decision remain unclear. Some have criticized the holding as inconsistent with the DMCA framework because the statute was enacted to create a safe harbor that broadly protects service providers for material stored at the direction of its users, not literally for material stored directly by users themselves. But going forward, internet businesses and content providers who previously approved and monitored posts the way LiveJournal did may consider opting to forego such thorough oversight of its users’ posted content if they believe they would be unable to assert a safe harbor defense to copyright infringement.

This post was written by Gene Markin of Stark & Stark Law Firm.

Read more news on the Digital Millennium Copyright Act on the National Law Review’s Intellectual Property page.

Are Uber Drivers Employees?

With the advent of ridesharing services, there is an extremely large number of drivers for those companies out on the roads. But are drivers for Uber and similar companies “employees”? Over the years these companies have taken the position the drivers are not employees but rather independent contractors. The Office for the General Counsel of the National Labor Relations Board (NLRB) recently weighed in on this issue, and he agrees with Uber.

In a recently released advice memo, the board concluded that Uber drivers are independent contractors under the National Labor Relations Act (NLRA). When analyzing the relationship between Uber and its drivers, the memo states that it needed to primarily evaluate: “(1) the extent of the company’s control over the manner and means by which drivers conduct business and (2) the relationship between the company’s compensation and the amount of fares collected.” Looking at those factors, the board held:

“Consideration of all the common-law factors, viewed through the ‘prism of entrepreneurial opportunity,’ establishes that UberX drivers were independent contractors. The drivers had significant entrepreneurial opportunity by virtue of their near complete control of their cars and work schedules, together with freedom to choose log-in locations and to work for competitors of Uber. On any given day, at any free moment, drivers could decide how best to serve their economic objectives: by fulfilling ride requests through the App, working for a competing ride-share service, or pursuing a different venture altogether. As explained in detail below, these and other facts strongly support independent-contractor status and outweigh all countervailing facts supporting employee status.”

The memo arrived at the same conclusion for UberBLACK drivers – another category of driver – based on the same analysis. The NLRB’s newly restored test for evaluating independent status was cited extensively.

Independent contractor status poses significant consequences under the NLRA because such workers are not covered under the act. This means they cannot form unions or seek redress for any alleged violations of the NLRA. However, employers must take care to ensure they do not misclassify workers as independent contractors because that can pose significant legal risk. This new advice memo sets forth a potential roadmap for companies desiring to use an independent contractor model, at least when it comes to the NLRA.

This post was written by David J. Pryzbylski of Barnes & Thornburg LLP.

Read more about employee classification on the National Law Review’s Labor and Employment page.

U.S. Increases Tariffs On Chinese Imports

The president announced this week that special Section 301 tariffs on $200 billion of Chinese imports (List 3) will increase from 10% to 25%. The Office of United States Trade Representative (USTR) issued the official notice of the tariff increase May 8. The rate increase is effective on May 10, 2019.

List 3 is composed of about 6,000 different Harmonized Tariff Schedule of the United States (HTSUS) codes and $200 billion worth of imports; comparatively, the previously imposed List 1 and List 2 collectively cover approximately 1,000 HTSUS codes and $50 billion worth of imports from China.

This rate increase will have a massive effect on almost all industries that rely on imports from China, including agriculture, automotive, electronics, textiles, and energy, just to name a few.

Two other things of particular note from the notice:

(1) increased tariffs will be applied to goods entered for consumption (or withdrawn from warehouse for consumption) on or after 12:01 a.m. Eastern time on May 10, 2019, and exported from China on or after May 10, 2019, so goods that were on the water prior to May 10 will not be affected.

(2) USTR indicates that it will promulgate a product exclusion process in the near future so importers, purchasers, trade associations and other interested parties can request that certain products be excluded from the tariff. Domestic producers will also have the opportunity to object to such exclusion applications.

This post was written by David M. Spooner and Linda M. Weinberg Clinton K. Yu or Barnes and Thornburg LLP.

You can learn more about trade and tariffs on the National Law Review Global Page.

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Kentucky to Begin Taxing Video Streaming Services under Telecom Tax

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