The National Law Forum

What is an LLC and How Does an LLC Work?

Featured recently in The National Law Review an article by Christopher J. Caldwell and Laura E. Radle of Varnum LLP regarding LLCs:

Varnum LLP

Many cottage owners have heard of others who have established a “Cottage LLC”. But what exactly does this mean? What is an LLC? How does an LLC which owns a cottage work and why would someone use an LLC to own his or her cottage?

Simply put, an LLC is a “limited liability company,” which has some features of both partnerships and traditional corporations. It provides greater liability protection than individual ownership and may have perpetual existence. However, an LLC is also somewhat simpler to manage than a traditional corporation.

In an LLC the owners are called members. The LLC can be controlled either by its members or by managers who are selected by the members. In family cottage situations, selecting one or two managers (who may be members) typically works best.

The rules and regulations of an LLC are set forth in the LLC’s operating agreement. The operating agreement can be as basic or as detailed as the members wish. At a minimum, when created for cottage ownership, the operating agreement should discuss the potential sale or transfer of the cottage, management responsibilities, contributions for expenses, potential for renting, scheduling of time, liability of the owners, and an exit strategy if one owner wants to end the relationship. The primary goal of the LLC – as addressed by the operating agreement – is to provide clear rules, rights and obligations for all of the members.

Cottage owners often need to use an entity that will provide a liability shelter (for example, if the cottage is rented to third parties). But the owners also need an entity that does not require a lot of time to maintain. And, most importantly, because cottage owners want to be able to tailor the operating agreement to fit their lifestyles, they need an entity that is flexible. The LLC has all of these attributes, making it a great match for cottage owners. And once an LLC is established, cottage owners will be able to focus on the fun part of their ownership, spending carefree and conflict-free time at the cottage.

The 15th Annual ABA National Institute on the Gaming Law Minefield Feb 24-25 LasVegas

The 2011 Gaming Law Minefield program is specifically designed to provide in-depth coverage and discussion of the cutting-edge legal, regulatory, and ethical issues confronting both commercial and Native American gaming. Attorneys, compliance officers, Native American leaders, regulators, and legislators will all provide invaluable insights into current trends, opportunities and obstacles in the gaming industry. The program’s subject matter includes new gaming technology, increased IRS CTR and SAR compliance audit activity, Internet gaming, Native American gaming, breaking hot topics in the gaming industry, latest developments in dealing with problem gamblers, and a two-hour CLE-certified ethics program.

The Gaming Law Minefield program constitutes one of the most comprehensive, state-of-the-law gaming programs available. Program attendees have consistently rated the program as a valuable educational experience that provides participants with the opportunity to meet and talk with a wide variety of gaming law experts and leading state and Native American regulators.

Early Bird Registration ends January 24th. For More Information: Click Here:

Lessons from the Facebook Privacy Fiasco

An article recently in The National Law Review by Dean W. Harvey of Andrews Kurth LLP regarding Facebook Privacy:

Facebook is a wildly popular social media site which allows users to share information about themselves, send messages to friends, play games and join common interest groups. It is the most visited site in the U.S., with over 100 million active U.S. users and hundreds of millions of active users worldwide.¹

During the week of April 18, 2010, Facebook made material changes to the way that its users’ personal information was classified and disclosed. The changes resulted in complicated privacy settings that confused users, and in some cases, personal data which users had previously designated as private was allegedly made public. As a result, a group of petitioners, including the Electronic Privacy Information Center (“EPIC”), filed a complaint with the FTC requesting that the Commission investigate Facebook to determine whether it engaged in unfair or deceptive trade practices (“Complaint”).

Allegations

The Complaint claimed that Facebook violated its own privacy policy, disclosed personal information of Facebook users without consent, and engaged in unfair and deceptive trade practices. Specifically, the Complaint alleged that among other things:

Facebook made publicly available personal information which users had previous designated as private.²
Facebook disclosed to third parties information that users designated as available to Friends Only (including to third-party websites, applications, other Facebook users and outsiders who happen on to Facebook pages).³
Facebook claimed that none of user’s information was shared with sites visited via a plug-in (such as the Like button, Recommend button, etc.). However, such plug-ins may reveal users’ personal data to such websites without consent.⁴
Facebook designed privacy settings “to confuse users and to frustrate attempts to limit the public disclosure of personal information . . .”⁵
Although the Facebook terms which many users accepted indicated that developers would be limited to a 24-hour retention period for any user data, Facebook announced that the limit no longer exists.⁶

Angry End Users

Regardless of whether each of the above allegations is true, it is clear that Facebook’s changes to its privacy practices inflamed some of its users. In support of its allegations, the EPIC Complaint included quotes from experts and users about Facebook’s privacy practices such as:

“I shouldn’t have to dive into complicated settings that give the fiction of privacy control but don’t, since they are so hard to understand that they’re ignored. I shouldn’t need a flowchart to understand what friends of friends of friends can share with others. Things should be naturally clear and easy for me.”⁷

“Facebook constantly is changing the privacy rules and I’m forced to hack through the jungle of their well-hidden privacy controls to prune out new types of permissions Facebook recently added. I have no idea how much of my personal information was released before I learned of a new angle the company has developed to give my information to others.”⁸

“‘Instant Personalization’ is turned on automatically by default. That means instead of giving you the option to “opt-in” and give your permission for this to happen, Facebook is making you “opt-out,” essentially using your information how they see fit unless you make the extra effort to turn that feature off.”⁹

“Facebook has become Big Brother. Facebook has succeeded in giving its users the allusion [sic] of privacy on a public site, leaving everyone to become complacent about keeping track of the myriad changes going on behind the scenes. The constant changes assure Facebook that you can never keep all your information private.”¹⁰

The Proposed Settlement

The FTC investigated the Complaint and ultimately agreed to a proposed settlement agreement containing a consent order.¹¹ Without admitting liability, Facebook has agreed to a settlement that among other things requires the following:

Facebook must establish, implement and maintain a comprehensive privacy program designed to: (1) address privacy risks related to the development and management of new and existing product and services for consumers; and (2) protect the privacy and security of covered information.¹²
Facebook must obtain an independent third-party audit every other year for the next 20 years certifying that the Facebook privacy program meets or exceeds the requirements of the FTC order;¹³
Facebook is required to obtain express consent from a user before enacting changes that override the user’s privacy preferences;¹⁴
Facebook is required to prevent third parties from accessing user data after the user has deleted (with exceptions for legal compliance and fraud prevention).¹⁵

Lessons from the Complaint and Order

Facebook received significant negative publicity, incurred legal costs and business disruption associated with a government investigation, and will incur compliance costs for the next 20 years as a result of the proposed settlement. Businesses that deal with consumer information would be well advised to learn from Facebook’s experience. There are several lessons that businesses can draw from the Facebook privacy fiasco in dealing with data privacy issues.

A. Don’t Make Your Customers Angry

Facebook’s intentions in making the changes to its privacy settings may have been entirely good. For example, Facebook may have honestly been trying to improve its user experience. However, the changes significantly angered some of its customers. The lesson to be learned here is that intentions don’t matter if you anger your customers with your changes. The ultimate user experience may be better, the site may objectively offer more functionality, but none of that matters if users are offended by the process.

Businesses need to achieve innovations and improvements in the use of consumer data with user consent, and without breaking prior promises. Keeping your customers satisfied isn’t just good business, it also greatly reduces the likelihood that they will be filing deceptive trade practice complaints with the FTC.

B. Keep the Privacy Settings Simple

Much of the Complaint is dedicated to showing how complicated the Facebook settings are, and many of the quoted user statements underscore that issue as well. Such complexity often leads to errors (such as permitting applications to access personal information of a user through the user’s friends). Even when the settings work perfectly, the average person may find such complexity frustrating, leading to angry end users.

It is important to keep privacy policies simple and establish privacy settings so that they can be easily understood by an average user. Informed consent is really only obtained when the user understands the policy or setting to which he or she is consenting.

C. Consider How Applications Access User Data

When drafting a privacy policy, it is easy to focus on the organization’s use of data for internal purposes and with its vendors and subcontractors. However, special care must be taken with use of consumers’ data by software applications. For example, it is alleged that Facebook indicated applications only had access to the user information necessary for their operation, when the applications in fact had access to all user information.

In order to accurately describe how applications use consumer data in your privacy policy, you have to investigate the operation of the applications on your site, document that operation, and establish IT policies and procedures governing the use of data by new or modified applications. If you do not take these steps, it is likely that any promise regarding the use of data by applications will become misleading over time as the applications change and are updated.

D. Monitor Linking and Other Advertising Arrangements

Linking and advertising arrangements are the lifeblood of many sites. In order to make accurate statements about the types of data shared in such arrangements, it is necessary to review the contracts to understand what types of user data will be shared through business processes. However, this is not sufficient to ensure that the full use of data is understood. Just as with applications, it is necessary to investigate what data is collected or shared in the process of passing the user to the third party. Similar to applications, it is important to document what user data is permitted to be shared with advertisers and other third parties, and to establish IT policies and procedures to enforce such permitted uses.

E. Don’t Make User Data Public Without Consent.

One of the problems many businesses face with privacy policies is that as their business changes, the types of user data that they want to access or use may change as well. However, it is important to remember that no matter what the motive, if you have promised to keep certain elements of user data private in your privacy policy, you should not make it public by default without first obtaining affirmative user consent.

Privacy compliance is difficult in a changing online environment, even for businesses that don’t have hundreds of millions of users. The Complaint and Order in the Facebook matter highlight some of the many ways that a business can go wrong in protecting private consumer information. In order to successfully protect such information, a business which deals extensively with consumer data should establish, maintain, update and enforce a comprehensive privacy and security program, which takes into account material risks as well as lessons learned from the experience of other companies, such as Facebook.

1. In the Matter of Facebook, Inc., Complaint paragraph 31 (May 5, 2010); available at http://epic.org/privacy/facebook/EPIC_FTC_FB_Complaint.pdf.

2. Id. at paragraph 55.

3. Id. at paragraph 59.

4. Id. at paragraph 65.

5. Id. at paragraph 64.

6. Id. at paragraphs 92-94.

7. Id. at paragraph 95.

8. Id. at paragraph 97.

9. Id. at paragraph 98.

10. Id. at paragraph 106.

11. In the Matter of Facebook, Inc. File No. 092 3184, Agreement Containing Consent Order (“Order”); available athttp://www.ftc.gov/os/caselist/0923184/111129facebookagree.pdf.

12. Id. at paragraph IV.

13. Id. at paragraph V.

14. Id. at paragraph II.

15. Id. at paragraph III.

Cutting Edge Issues in Asbestos Litigation Conference

The National Law Review would like to advise you of the upcoming Perrin Conference regarding Cutting-Edge Issues in Asbestos Litigation:

Thursday, March 1^st – Friday, March 2^nd, 2012
Beverly Wilshire, A Four Seasons Hotel
Beverly Hills, CA

Appeal Against Exclusion From Patentability of Software to Protect Minors Online Allowed

An article regarding Patentability of Monitoring Software was posted recently in The National Law Review. The article was written by Rohan Massey, Francesco Mattina, Hiroshi Sheraton, Vincent Schröder, and Boris Uphoff of McDermott Will & Emery:

In relation to the application by Protecting Kids the World Over (PKTWO) [2011] EWHC 2720 (Pat), the High Court of England and Wales has allowed an appeal against a decision of a Hearing Officer that found that an alarm notification system for monitoring inappropriate electronic communications fell within the computer program exclusion.

BACKGROUND

PKTWO applied to register a system for monitoring the content of electronic communications to ensure that children are not exposed to inappropriate content. The system as claimed analyses data sampled from a communication channel. Where the data is judged to be of concern, the user of the system—the child’s parent—can be notified by email or text message and by reply can send a remote response command either to terminate the electronic communication or to completely shut down the computer.

The Hearing Officer held that the invention was excluded from patentability because it related to a computer program and to a method of performing a mental act as such. PKTWO appealed to the High Court, submitting that the contribution its invention made to the state of the art had been ignored. Just before this hearing, the Comptroller withdrew the mental act exclusion and only put forward the computer program exception.

DECISION

Floyd J began by referring to the exclusion found in Article 54 of the European Patent Convention (and Section 1(2) of the Patents Act 1977) against the patentability of computer programs “as such”. He then turned to the wealth of case law on the interpretation of this exclusion, including the four step approach from Aerotel v Telco/Macrossan’s Patent Application [2007] RPC 7 that should be applied in such cases:

1. Properly construe the claim

2. Identify the actual contribution

3. Ask whether it falls solely within the excluded subject matter

4. Check whether the actual or alleged contribution is actually technical in nature.

In identifying the actual contribution made by the invention, Floyd J observed thatAerotel required that when considering the invention “as a whole”, this contribution had to be to the effect that the invention added something to human knowledge. He then went on to ascertain whether the contribution made was technical, as this had to be the case before the requirements for patentability could be met, by applying the approach set out in AT&T Knowledge Ventures [2009] EWHC 343. Furthermore, Floyd J observed that Gemstar-TV Guide International Inc v Virgin Media Ltd [2010] RPC 10 required this technical contribution to achieve a physical effect or activity as opposed to being abstract, such as simply making something “better” or producing a different display.

Applying these principles, Floyd J held that the contribution made by the claim at issue was that a more rapid and reliable alarm notification was generated. While this was not new, the particular way in which the notification was sent, i.e., sending messages to the user by email or text, was not known in the existing art and was technically superior to other known forms of notification. He held that it therefore contributed to human knowledge. He added that the invention when viewed as a whole improved the way electronic content was monitored and was therefore technical, albeit outside the computer. He held that because of this, the invention had the necessary characteristics of a technical contribution that was superior to that produced by the prior art, and therefore did not fall wholly within the exclusion. The appeal was allowed.

COMMENT

Although there is no shortage of authority on the subject of computer programs, this ruling is a reminder of how difficult it can be to navigate these issues with any certainty. The question of determining whether the contribution is technical is by far the most difficult to answer and each case has to be decided based on its own particular facts and features, using the guidelines in the case law. What this case does not address is the tension between the European Patent Office approach and the UK approach to the exclusion.

Inside Counsel presents the 12th Annual Super Conference in Chicago

National Law Review is pleased to bring you information about the upcoming 12th Annual Super Conference sponsored by Inside Counsel .

Reasons why you should Attend This Year’s Event:

Meet with Decision Makers: You’ll meet face-to-face with senior-level in-house counsel
Networking Opportunities: SuperConference offers several networking opportunities, including a cocktail reception, refreshment breaks, and a networking lunch.
Gain Industry Knowledge: You will hear the latest issues facing the industry today with your complimentary full-conference passes.

Who Should Attend – General Counsel and Other Senior Legal Executives from Top Companies Attend SuperConference:

Chief Legal Officers
General Counsel
Corporate Counsel
Associate General Counsel
CEOs
Senior Counsel
Corporate Compliance Officers

The 12th Annual IC SuperConference will be held at the NEW Radisson Blu Chicago.
Radisson Blu Aqua Hotel

221 N. Columbus Drive

Chicago, IL 60601

Don’t forget – The early discount deadline using the NLR discount code is February 24th!

United Insurance Company of America Pays $37,500 To Resolve EEOC Disability Discrimination Lawsuit

The National Law Review recently published an article by the U.S. Equal Employment Opportunity Commission regarding a Disability Discrimination Ruling against the United Insurance Company of America:

Company Rescinded Job Offer to Recovering Drug Addict Because of His Disability, Agency Charged

RALEIGH, N.C. – United Insurance Company of America will pay $37,500 and furnish other relief to resolve a disability discrimination lawsuit filed by the U.S. Equal Employment Opportunity Commission (EEOC), the agency announced today.

According to the EEOC’s lawsuit, Craig Burns is a recovering drug addict who has been enrolled in a methadone treatment program since 2004. In January 2010, United Insurance offered Burns a position as an insurance agent in its Raleigh office, conditioned upon Burns’ passing a drug test. After Burns’ drug test showed the presence of methadone in his system, Burns submitted a letter to United Insurance from his treatment provider explaining that he was participating in supervised methadone treatment program and taking legally prescribed medication as part of the treatment. Upon receiving this information, United Insurance notified Burns that he was not eligible for hire and withdrew its offer of employment.

Such alleged conduct violates the Americans with Disabilities Act (ADA), which protects employees and applicants from discrimination based on their disabilities. The EEOC filed suit in August 2011 in U.S. District Court for the Eastern District of North Carolina (Civil Action No. 5:11cv00430), after first attempting to reach a pre-litigation settlement through its conciliation process.

In addition to monetary damages, the two-year consent decree resolving the suit requires United Insurance to conduct training on, among other things, an employer’s obligation to conduct an individualized assessment in determining whether an employee or applicant is disabled under the ADA; appropriate methods of determining whether an employee or applicant poses a direct threat under the ADA; and the obligation to engage in an interactive process under the ADA when an employee or applicant requests a reasonable accommodation. United Insurance will also post a copy of its anti-discrimination policy at its headquarters in St. Louis.

“The ADA requires employers to make an individualized assessment of whether an individual can do the job rather than relying on fears or stereotypes,” said Lynette A. Barnes, regional attorney for the EEOC’s Charlotte District, which includes the Raleigh Area Office, where the original charge of discrimination was filed. “We are pleased that, in resolving this case, United Insurance is taking action to ensure that it fulfills its obligations under the ADA.”

The EEOC is responsible for enforcing federal laws prohibiting discrimination in employment. More information about the EEOC is available on its website at www.eeoc.gov.

8th Annual Asian ITechLaw Conference

The National Law Review is pleased to bring you information on the upcoming 8th Annual Asian ITechLaw Conference:

8th Consecutive event of the ITechLaw India series
A ringside view of Indian IT, Media and Telecom Law
Supported by several of the largest law firms and global associations
ITechLaw’s CyberSpaceCamp® to be held on February 22, 2012
Contemporary topics addressed by leading experts drawn from some of the best global law firms
Engaging debates with panelists from industry, regulatory authorities and in-house legal departments
Interactive sessions on issues affecting the largest IT bases in the world
Welcome Reception and Art Show, promoting emerging Indian artistes, allowing delegates to network with local corporates and invited guests
Gala Dinner and Networking Luncheons – ample networking opportunities to meet fellow professionals
I – Win Tea Meeting
In – House Counsel Breakfast Meeting
Exclusive golf outings on February 22 and 25, 2012
Make the trip a memorable experience by taking an excursion to exotic destinations across southern India, such as Mysore, Kerala and Tamil Nadu

FTC Raises Hart-Scott-Rodino Thresholds

An article about the FTC was recently published in The National Law Review and was written by the Antitrust Practice of Morgan, Lewis & Bockius LLP:

As of the effective date (on or about February 23, 2012) transactions must be valued in excess of $68.2 million to be subject to the preclosing notification requirements of the HartScottRodino Act.

The Federal Trade Commission (FTC) has announced that it will raise the HartScottRodino Act (HSR Act) jurisdictional and filing fee thresholds. Any transaction closing as of February 23, 2012 (or, if different, the effective date, which may be a few days after February 23, 2012) will be subject to the revised thresholds. The new rules include an increase in the “size of transaction” test from greater than $66 million to greater than $68.2 million-which means that under the new threshold, acquisitions valued for HSR Act purposes at $68.2 million or less will not require preclosing filing and approval.

New Jurisdictional Thresholds

As a general rule, the HSR Act requires both Acquiring and Acquired Persons (as defined in the HSR Act) to file notifications if the following post-adjustmentjurisdictional thresholds are met:

1. One person has net sales or total assets of at least $13.6 million.

2. The other person has net sales or total assets of at least $136.4 million.

3. As a result of the transaction, the Acquiring Person will hold an aggregate amount of stock and assets of the Acquired Person valued at more than $68.2 million.

-OR-

4. As a result of the transaction, the Acquiring Person will hold an aggregate amount of stock and assets of the Acquired Person valued at more than $272.8 million, regardless of the sales or assets of the Acquiring and Acquired Persons.

Conditions 1 and 2 are generally referred to as the “size of person” test, while conditions 3 and 4 are commonly described as the “size of transaction” test.

The HSR Act rules relating to acquisitions of partnership interests and membership interests in a limited liability company (LLC) remain the same. Only acquisitions of economic control in an LLC or partnership may be reportable. “Control” is defined as having a right to 50% or more of the profits of a partnership or LLC or 50% or more of the assets upon the dissolution of such entity.

New Filing Fee Thresholds

Filing fees are also determined by a threshold test relating to the size of the transaction. While the valuation thresholds have changed, the fees themselves have not been adjusted:

Valuation of Transaction	Filing Fee
in excess of $68.2 million or greater, but less than $136.4 million	$45,000
$136.4 million or greater, but less than $682.1 million	$125,000
$682.1 million and greater	$280,000

The figures above represent the new “as adjusted” threshold figures. The table below illustrates the changes.

Current Threshold (in millions)	“As Adjusted” Threshold (in millions)
$13.2	$13.6
$66	$68.2
$131.9	$136.4
$263.8	$272.8
$659.5	$682.1

These changes are being implemented pursuant to the 2000 amendments to Section 7A of the Clayton Act. Section 7A(a)(2) of the Clayton Act requires the FTC to revise the jurisdictional thresholds annually, based on the change in gross national product, in accordance with Section 8(a)(5). The revised thresholds will apply to all transactions that close on or after the effective date.

7th Drug & Medical Device Litigation Forum, 7-8 Mar 2012, Philadelphia

The National Law Review is pleased to inform you of the 7th Drug & Medical Device Litigation Forum: Implementing Appropriate Litigation Readiness and Costs Management Policies That Ensure An Effective Defense at Trial

Event Date: 7-8 Mar 2012

Location: Philadelphia, PA, United StatesKey conference topics

Mitigate and maintain costs associated with litigation

Gain judical insight on drug and medical litigation and its recent developments

Build better relationships with outside counsel in order to reduce the miscommunciation factor

Understand the limitations of marketing and advertising as it relates to emerging social media issues

Learn the latest on medical device product liability

Conference focus

Pharmaceutical and medical device manufacturers have faced a growing array of legal challenges this year. With the increase of mass tort litigation, as it relates to product liability, pharmaceutical and medical device manufacturers must be prepared to defend the increasingly sophisticated, well-funded and multi-jurisdictional product liability campaigns against their companies.

The 7^th Drug and Medical Device Litigation Conference will be a two-day, industry focused event specific to those within Drug & Medical Device Litigation, Product Liability and Regulatory Affairs in the Medical Device, Biotech and Pharmaceutical industries.

By attending this event, industry leaders will share best practices, strategies and tools on incorporating litigation readiness, utilizing cost efficient litigation strategies and accurately managing policies to ensure an effective defense at trial.

Attending This Event Will Enable You to:
1. Review the current landscape of drug and medical device litigation
2. Learn strategies in settlements and mass tort issues
3. Manage litigation expenses in order to effectively manage costs
4. Review recent case rulings, including the Mensing and Levine cases
5. Take a view from the bench: explore drug and medical device litigation
from a judicial point of view
6. Tackle product liability issues and challenges
7. Uncover the risks for drug and medical device companies when leveraging social media for marketing and advertising campaigns

With a one-track focus, the 7^th Drug and Medical Device Litigation Conference is a highly intensive, content-driven event that includes case studies, presentations and panel discussions over two full days.

This is not a trade show; our Drug and Medical Device Litigation conference series is targeted at a focused group of senior level leaders to maintain an intimate atmosphere for the delegates and speakers. Since we are not a vendor driven conference, the higher level focus allows delegates to network with their industry peers.

Testimonials:

“Great selection & breadth of speakers. Uniformly high quality of presentations. Intimate nature of meeting provided excellent opportunities for networking” – Abbott

“Great venue to learn and exchange best practices. More importantly how to leverage lesions learned from others.” – Baxter

“One of the best meetings I’ve attended. Excellent organization, topics and speakers. Overall extremely well done.” – Sanofi Aventis

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