Outsourcing: NJ Governor Signs Executive Order

Outgoing New Jersey Governor James E. McGreevey signed Executive Order No. 129 requiring vendors seeking contracts with New Jersey State agencies to disclose any foreign countries in which the services are to be performed, and prohibits awarding such a contract unless there is no comparable domestic service, failing to use the vendor would cause economic hardship in New Jersey or would not be in the public interest for some reason. Excluded from the Executive Order are contracts with New Jersey’s public institutions of higher education, when the contract is for academic instruction, educational or research services.

Those Bright Ideas Will Cost You!

A little more than a year ago, Taco Bell was ordered to pay $30.1 million to two men who convinced a court they conceived the talking Chihuahua. Lest you think this is an aberration or that these men were opportunists trying to make a quick buck, you would be wrong on both counts. Outside suggestions are a source of potential ideas and potential liability. Companies would be well-served to learn a lesson from these cases.

Smart marketing companies have policies—even outside suggestion “units”—to handle those suggestions company strategists, executives and marketing professionals all say they welcome to better understand what customers want. This is not the place to belabor legal distinctions between market research, focus groups, customer satisfaction surveys and unsolicited outside suggestions, but these distinctions highlight the need to pay attention to potentially dangerous legal landmines at the intersection of intellectual property law and product development.

Imagine that a customer of a bank suggests to the branch manager that the bank issue travelers checks with dual signatures (they exist, so don’t you get any bright ideas) so vacationing couples can use them interchangeably. Now fast forward six months—the bank proudly launches its latest new product, the dual-signature travelers check. Guess the rest. Lawyers, letters, demands, assertions of ownership, misappropriated proprietary information—the suggestion was not an “idea” but a specific product development concept with specific implementation details. Talking Chihuahuas anyone?

Of course, if the company can prove its product was independently developed or in development before the suggestion came in, or that the branch manager threw the suggestion in the trash without telling anyone, showing it to anyone or keeping a copy—yes, the company may win the lawsuit. But do you really want to risk all those lawsuits and the cost of litigation to prove you are right? Settle or fight: each can be costly.

Dealing with outside suggestions should be a part of a company’s product development, brand management and marketing risk management strategy—optimizing the company’s ability to gather meaningful information while minimizing potential exposure to litigation liability and damages. Rimon has lawyers who have developed and managed these functions, counseled clients, conducted seminars, and drafted policies and procedures to do just that. Contact me at joseph.rosenbaum@rimonlaw.com. We are happy to help.

Internet Streaming Media—-The FCC Just Says Yes

Last month we reported the Ninth Circuit Court of Appeals found that Grokster and Streamcast Networks were not violating copyright laws by making software that allows people to swap digital content. Just a few days ago, over the objections from the motion picture, broadcast and professional sports industries, the FCC approved technology allowing digital recording services like TiVo to transmit television programming to subscribers over the Internet, allowing programming, for example, to be viewed anywhere an Internet connection was available. Digital recording services and streaming programs remotely threatens local advertising relevance and revenue, while still allowing viewers to edit out commercials. Advertisers are you paying attention??

Pop Goes the Lawsuit

This past June, we reported L.L. Bean filed suit against Nordstrom, J.C. Penney, Atkins and Gevalia alleging copyright and trademark infringement in connection with pop-up advertising. Bean has now settled with Gevalia and Atkins, who have agreed to damage payments (i.e., for trademark infringement), as well as agreeing not to authorize pop-up advertisements of their products on Bean’s website. Spyware has been the subject of significant controversy, and anti-spyware legislation has passed in Utah and is pending in Congress and in California, although the Utah statute is being challenged by spyware maker WhenU. It is likely lawsuits such as Bean’s will continue to be filed based on theories that not only are consumers annoyed by pop-up ads, but that they become confused by the advertisements as well.

Court Sanctions UBS for Destroying E-Mails

On July 20, the U.S. District Court for the Southern District of New York imposed sanctions against UBS Warburg for destroying relevant e-mail messages during the course of litigation (Zubulake v. UBS Warburg LLC, et al., 2004 U.S. Dist. LEXIS (S.D.N.Y, July 20, 2004)). The Court ordered UBS to pay expenses and attorney fees incurred by the plaintiff, granted plaintiff’s request for further discovery, and agreed to instruct the jury that a negative inference may be drawn against UBS as a result of the missing evidence. The case provides important guidance for counsel on electronic discovery issues and record management, and the Court notes counsel is expected to take some affirmative steps: (1) “identify sources of discoverable information”; (2) “put in place a litigation hold and make that known to all relevant employees by communicating with them directly” and not only repeat these instructions “regularly” but also “monitor compliance”; (3) “call for employees to produce copies of relevant electronic evidence”; and (4) “safeguarding any archival media” the client must preserve. Given the notoriety of the case, these practices will likely become a de facto standard in evaluating electronic discovery issues and requests for sanctions. Got litigators? Call Rimon—we not only have knowledgeable litigators, but we also have an entire team of professionals skilled in data management, record retention, and compliance in and out of litigation. Try us, you’ll like us.

Can You Grok This? Fans of Robert Heinlein Smile

In what may be a momentous ruling and certainly a setback to the music, film and entertainment industry’s effort to fight illegal on-line downloading and file swapping, on August 19, the three judges of the Ninth Circuit Court of Appeals upheld a lower court ruling that found that Grokster and Streamcast Networks were not violating the copyright laws merely because they made software available that allows people to trade digital content (e.g., movies, music). To be clear, the decision in no way condones copyright infringement, nor changes the law relating to the illegal use or theft of copyrighted materials, nor authorizes anyone to ignore the intellectual property rights of others. But harkening back to cases which look and feel (pun intended) much like the Sony Betamax cases years ago, the court ruled that this particular type of software—referred to as “file sharing” software—was designed in such a way that it could not be held illegal.

It is noteworthy that this is the same court that essentially brought Napster to its knees a few years ago with an exactly opposite conclusion. While critics will argue that the ruling is a descriptive guide to designing software that can avoid being caught in the web (another pun) of the Copyright Act, many others welcomed the ruling for bringing clarity to a murky area of the law and focusing on the distinctions which make some software and systems infringing, while others are not. For you technical gurus in the audience, the court found it significant that neither Grokster nor Streamcast used centralized databases or computer systems with programming file directories pointing to files on individual users’ computers—in other words, these systems didn’t direct other people (and couldn’t even intercept or prevent people) to actual or potentially pirated music, film or any other content. As with the Betamax cases, the court also found that although there were plenty of arguments (and evidence) provided in entertainment industry briefs noting that the vast majority of content exchanged by these programs was illicitly copied, the software Grokster and Morpheus (the software licensed by Streamcast), had other substantial non-infringing uses and thus could not be held illegal as a matter of law.

Spam Settlement Restricts E-Mail Marketing in New York

Last month, New York’s Attorney General announced a settlement against OptInRealBig.com, a bulk e-mail marketing company based in Colorado. Although much of the settlement focused on clearly deceptive spamming practices (e.g., using forged “sender” names and addresses to hide the source of the e-mail, using names of well-known companies without permission), it also prohibits false or misleading information in the subject line—so called “teaser” lines. As someone who receives lots of unsolicited email, trying to get me to open and read a particular message from someone I don’t know (or don’t think I know) is an increasing challenge to marketers. Using context or other snappy text in the subject line to get me to read these messages, when they cross over the line, may be considered false and misleading and a deceptive trade practice. Trying to induce me to read an e-mail by implying it is personal (i.e., from someone who knows me) or is part of the subject matter of messages I have sent to others, could be deceptive—especially if there is no readily apparent way of determining that it actually is unsolicited commercial e-mail.

The lawyers in Rimon’s Advertising & Marketing Group (yes, I am a member of that one too) are experts on counseling you and guiding you through the maze of laws and regulations so that you stay on the correct side of these lines. Not only are our litigators armed with first-hand experience in dealing with and defending these issues, but Rimon’s transactional and business lawyers are also widely regarded as among the most skilled and knowledgeable in the world. Whether counseling you about e-mail, web policies, “Spam Settlement Restricts E-mail Marketing in New York” privacy on the Internet, e-commerce, web-based sweepstakes, or simply helping protect one of your most valuable assets—your brand—Rimon has the capability and happy-to-help attitude you need. Try us, you’ll like us. Want to know more? Visit us at rimonlaw.com—or, better yet, check out our other resources at www.adlawbyrequest.com.

Think brands, teasers and tag-lines are unimportant? Think again. Few people may remember who Al Dvorin was—but everyone remembers his tag line!

Privacy is Back in the News

In last month’s issue, we mentioned (in “Gnu & Gnoteworthy”) the F.D.I.C. released a report entitled “Offshore Outsourcing of Data Services by Insured Institutions and Associated Consumer Privacy Risks”. Well, privacy issues are popping up all over the place again.

California Financial Privacy Act

The California Financial Privacy Act of 2003 became effective July 1st and requires banks to give customers the right to opt out of sharing information with bank affiliates with separately regulated lines of business and requires banks to get permission from customers to share information with outside companies. After the law was enacted, the American Bankers Association, Consumer Banking Association and Financial Services Roundtable filed suit claiming the Fair Credit Reporting Act—the federal law regulating sharing of information among affiliates—preempted state law and thus the part of the statute attempting to limit sharing of information among affiliates is invalid. Not so, said the Judge—to the surprise of bankers scrambling to comply—a recent notice from the California Department of Financial Institutions indicated it would begin enforcing the law immediately!

The Judge ruled that since the FCRA only applied to the sharing of “credit reports,” the California law covering a broader range of customer information was not preempted by federal law. Will the ruling be appealed? Will other states follow suit?

Continue reading “Privacy is Back in the News”

Spyware

A Utah statute, the first in the nation, entitled “The Spyware Control Act,” was originally scheduled to take effect on May 3, but has been delayed by a legal challenge brought by a New York-based company, WhenU.com. WhenU.com filed suit in Salt Lake City on April 12, seeking a declaration that Utah’s new law violates the U.S. and Utah Constitutions. WhenU.com claims the act—which targets software downloaded onto a consumer’s computer that triggers pop-up advertisements—unfairly targets online contextual advertising services that aren’t linked to websites, but instead sells ads based on consumer browsing preferences. The Utah Attorney General agreed to delay the effective date of the Act until the hearing to allow WhenU.com to seek a preliminary injunction delaying implementation of the law. WhenU.com hopes it can persuade the court to delay enforcement until a trial can be held to test WhenU.com’s claims that the law is unconstitutional. At the hearing, WhenU.com’s lawyers argued that regulation of advertising on the Internet is a matter of interstate commerce subject to federal, not state, jurisdiction. Arguing the State’s case, lawyers noted that disrupting a consumer’s browsing and highlighting competitors goods and services is the kind of consumer protection the Utah Legislature has a right to prohibit. In protecting consumers, lawyers for the State also argued that computer users are often tricked into installing such software without adequate disclosures and then find it difficult to remove when unintended or unwanted consequences arise.

WhenU.com noted its software is only installed with consumer consent and that pop-up ads offer consumers useful free features (e.g., weather, screen savers, tool bars) in exchange for allowing software that tracks browsing habits and generates related ads on the screen. With such context-based advertising software, a consumer browsing mortgage lending websites might be offered home loan information from one or more lending institutions. Stay tuned.

L.L. Bean Sues Over Pop-Up Ads

L.L. Bean filed lawsuits last month against Nordstrom, J.C. Penney, Atkins and Gevalia alleging they used pop-up ads that appeared when customers visited the retailer’s website. Each of the retailers named in the action had retained Claria, a software company that creates programs which track browsing habits on the Internet and cause windows or “pop up” advertising displays to appear on the user’s computer screen when the user’s browser visits specific websites. At least one State has already enacted legislation attempting to prohibit certain types of software that trigger such pop-ups (See “Spyware”).