In what is being hailed as a major victory for VoIP, the Federal Communications Commission ruled that some state telecommunications regulations do not apply to providers of “voice over IP” services, and ruled that states are barred from imposing telecommunications regulations on Internet phone service providers. The FCC clearly indicated that existing regulations which rely on where a call originates and terminates (“geography-based”)—relevant when the original laws and regulations were written—are increasingly irrelevant today. The decision calls into question the validity of numerous state regulations which conflict with the Commission’s policies and regulations, but the hard work is yet to come—the FCC still must draft rules for services that rely on the “Internet Protocol,” the backbone of the Internet’s infrastructure. The Commission also did not address whether cable service providers were or were not covered by this ruling. Dozens of states are currently trying to regulate voice over IP, nervous that revenues from telecommunications taxes will diminish as businesses and consumers migrate their voice traffic to the unregulated Internet, although the FCC’s ruling does not diminish the power of state to enact and enforce consumer protection laws for the benefit of their citizens. Taxation and other regulation, however, may be a different matter.
In an attempt to lure film and television production back to New York from cheaper or more tax-advantaged locations such as Canada and Europe where they have been headed in recent years, New York has passed a bill offering tax cuts to benefit films and television shows produced in New York, although the bill does not extend to commercial productions. The Empire State Film Production Credit Program, signed into law on September 28, provides a tax credit for 10 percent of the production costs of feature films and episodic television programs produced by companies that spend 75 percent or more of their facility-related production costs at a qualifying production facility within New York. The law also allows New York City to offer additional incentives, including a 5 percent tax credit on projects, credits for outdoor media marketing, and assistance with story development, scouting, vendor discounts and consulting.
In a related development, the UK has enacted new permanent and more generous tax relief for small British films to replace the old Section 48 relief, which is scheduled to expire in July 2005. The new tax relief applies to 100 percent of a film’s UK production and raises the “small” film budget for qualifying purposes from £15m to £20m. Qualifying films will be entitled to government subsidies worth up to £4m per film under the new law, and film productions with budgets of up to £20m will receive a tax waiver on their production costs, including overseas costs—subject to the condition that the film actually makes a profit. The government subsidies, worth up to 20 percent of the film’s budget, will be paid directly to the producers on completion of the film. Under current Section 48 regulations, subsidies went to third parties who funded the films. Now they will be paid directly to the film makers.
The British tax relief announcement comes on the heels of a recent (February 10, 2004) clamp-down on some of the UK’s largest tax equity film funds. Set up as sale-and-leaseback deals, these funds allowed British investors to acquire marketing rights to studio films in Britain, the United States and Canada, and enabled investors to write off the cost as an upfront tax loss and lease the films back to the studios for periodic payments over 15 or 20 years. The deals often provided an option for a studio buy-out after a shorter period of time, but those exit strategies were banned by the UK’s Inland Revenue in what has come to be referred to in the film industry as “Black Tuesday.” On that day, the Inland Revenue issued a tax rule change closing a loophole that allowed these funds to operate outside the existing Section 48 film tax break and permitted claiming production costs as tax losses. As if intent on delivering a one-two punch, in March the UK followed this with a prohibition against print and advertising funds that were bankrolling distribution of features from some of the major motion picture studios.
Critics point out that the consequences of these bans could be a dramatic decrease in films produced and shot in the UK, already reeling from a strong pound sterling and increased competition for film financing. We can only assume the newly announced Section 48 incentives, with its direct production credits and other attributes, scheduled to take effect in July 2005 when the current scheme expires, are intended to attempt to repair some of the tax damage done. Combining our poor sense of humor, film and legal expertise, we can only say, “The jury is still out; stay tuned: film at 11:00”!
Most of you know “spyware” as pesky programs that install themselves on your computer – often tacked on to programs you intend to install – that do everything from tracking online browsing habits to stealing passwords and getting at sensitive data on your computer. But what about those programs that automatically download and patch your software or update your anti-virus definitions, or cookies that enable sites you visit to recognize you and customize your experience? Of course, you have also heard of “adware” -programs that trigger the delivery of online advertising (did I say pop-ups?) that target consumer preferences and activities.
Confused by the distinctions and attempts to sort out the definitions? There is clearly a legislative drive to prohibit programs from being installed on consumers’ computers without consent or knowledge and at least three spyware bills are winding their way through the U.S. Congress. Although it is unlikely a bill could reconcile the differences and reach the President for signature this session, there is clearly impetus to “do something,” and interests on all sides are lining up to shape the contours of legislation so as not to do away with all those “good” programs!
Confused about the definitions or worried Congress might get it wrong—or just wondering who cares? Pay attention. Much of the utility and appeal of the Internet is interactivity. Browsers and websites interact. Navigational tools and features which make browsing more efficient, reduce time, and provide a more customized – thus more useful—experience, are based on useful programs working in the background and which are helpful and desirable, if properly used—”properly” being the operative issue. If worded too broadly, legislation could prohibit tools that make sense. Imagine every advertiser, website owner, merchant and search engine being required go to every user with a new consent (“opt-in”) form! How will legislation be enforced if the website owner is in another jurisdiction? Need to follow this issue? Want to know more? Want to your voice heard? Call Rimon—we can help.
In general, common sense helps when creating online contracts (hiring a knowledgeable Rimon lawyer is good common sense). Ask some simple questions: (a) is your notice of terms reasonable and conspicuous, and can it be bypassed? (b) how do you know if a customer has agreed to your terms – by browsing, by clicking a link or by entering particular words of assent? (c) do the users have a choice if they don’t want to be bound by the terms – is it clear what they should do or not do? (d) are there laws that apply to your business, your industry or in jurisdictions you do business, that relate to online contracts? (e) is there a means to modify, terminate or otherwise alter the agreement—how will the customer know? and (f) keep records.
Some simple principles, but as you can appreciate, often easier to list in an outline than carry out in practice. And there are more. The cost of failure or noncompliance is high. Need to get it right? Call Rimon—we’ll help.
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.
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 email@example.com. We are happy to help.
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??
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.
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.
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.