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Socially Aware Blog

The Law and Business of Social Media

“Firsts” for the World of Virtual Currencies

Posted in E-Commerce

X23 - BNThere have been two recent virtual currency-related actions worthy of note: (1) the Financial Crimes Enforcement Network (“FinCEN”) announced its first civil enforcement action against a virtual currency exchanger, and (2) the New York Department of Financial Services (“NYDFS”) granted its first license to a Bitcoin exchange.

FIRST VIRTUAL CURRENCY EXCHANGER ENFORCEMENT ACTION

On May 5, 2015, FinCEN announced an enforcement action against a virtual currency exchanger to settle alleged violations of the Bank Secrecy Act (“BSA”) and its implementing regulations. The virtual currency exchanger facilitates the sale and exchange of a particular virtual currency for fiat currency. A Statement of Facts and Violations issued concurrently alleges that the virtual currency exchanger previously engaged in these activities without registering as a money services business (“MSB”) and failed to comply with other BSA requirements. Under the terms of the settlement, the virtual currency exchanger agreed to pay a $700,000 civil money penalty and take certain remedial actions. A settlement between the virtual currency exchanger and the U.S. Attorney’s Office was also announced to resolve criminal charges associated with the alleged BSA violations.

FinCEN alleges that the virtual currency exchanger facilitated transfers of virtual currency and provided virtual currency exchange transaction services without registering as an MSB from March 2013 through April 2013. During this time period, FinCEN alleged that the virtual currency exchanger “sold convertible virtual currency” in violation of the BSA. FinCEN also alleged that the virtual currency exchanger failed to comply with BSA requirements during this period because it:

  • Failed to develop a written anti-money laundering (“AML”) program;
  • Failed to report transactions at or above $2,000 in value that it knew, suspected, or had reason to suspect were suspicious; and
  • Engaged in a series of transactions in which the virtual currency exchanger either failed to file suspicious activity reports, or filed them in an untimely manner.

The enforcement action follows FinCEN’s March 2013 guidance, which clarified the application of the BSA and its implementing regulations to virtual currency businesses. Based on the March 2013 guidance, an “exchanger” or “administrator” of virtual currency is considered a money services business (“MSB”), and as such, must register with FinCEN, develop and implement an AML program, report suspicious transactions, implement know-your-customer procedures, and comply with the Funds Transfer Rule, which requires that an MSB obtain, verify, and keep certain information about individual transactions of $3,000 or above.

It is important to note the virtual currency exchanger registered as an MSB on September 4, 2013, developed a written AML program on September 26, 2013, and hired an AML compliance officer in January 2014. However, the settlement agreement focused on violations that preceded these actions.

Settlement Terms

Under the terms of the settlement, the virtual currency exchanger agreed to pay a civil money penalty of $700,000, $450,000 of which was deemed to be partially satisfied upon payment to the U.S. Attorney’s Office as part of a separate settlement of criminal charges. In addition, the virtual currency exchanger agreed to take remedial steps to ensure compliance with BSA requirements, as well as to implement “enhanced” remedial measures, including:

  • Conducting a three-year “look-back” to require suspicious activity reporting for prior suspicious transactions;
  • Retaining external independent auditors to review compliance with the BSA every two years until 2020; and
  • Enhancing the protocol that the virtual currency exchanger uses by improving existing analytical tools applicable to the protocol, including the reporting of “any counterparty using” the protocol, the reporting of the “flow of funds within” the protocol, and the reporting of “the degree of separation.”

FinCEN’s action underscores the increasing focus of FinCEN and other law enforcement agencies on virtual currency and the access points to virtual currency systems, and could represent the first of a series of enforcement actions against exchangers or administrators aimed at ensuring compliance with the BSA.

ITBIT LICENSING

The other notable “first” occurred on May 7, 2015, when the NYDFS granted a charter under the New York Banking Law to itBit Trust Company, LLC (“itBit”), a commercial Bitcoin exchange. Following the NYDFS approval, itBit becomes the first virtual currency company to receive a charter from NYDFS.

itBit had been operating in Singapore since November 2013, but now will be able to operate as a limited-purpose trust company under the New York Banking Law. itBit submitted its application following the NYDFS March 2014 order that initiated a process for accepting licensing applications from virtual currency exchanges under the New York Banking Law. According to its press release announcing the approval, the NYDFS “conducted a rigorous review of that application, including, but not limited to, the company’s anti-money laundering, capitalization, consumer protection, and cyber security standards.”

As a limited-purpose trust, itBit will have to meet, among other things, capital requirements and AML requirements. itBit will also be obligated to meet any additional obligations imposed under the final New York BitLicense regulation.1 However, the requirements that apply to limited-purpose trust companies will likely be at least as stringent as those that apply to BitLicensees. The NYDFS expects to issue its final BitLicense regulation later this month. Additional information on the NYDFS proposed BitLicense regulation is available here and here.

We will continue to follow the efforts of the NYDFS and other state regulators as they relate to virtual currencies.

Status Updates: Errand Apps for Everyone?; A Right to Be Forgotten Update; Your Entire Google Search History

Posted in First Amendment, Privacy, Status Updates

Information wants to be (not quite) free. In its early years, the Internet was often seen as a vehicle for democratizing data, taking information that was previously accessible only to a select few and making it available to the masses. Many Internet entrepreneurs still espouse those ideals, developing business models that cut out the middle man to make goods and services that were once seen as luxuries, such as  high-end eyewear and financial planning services, widely available at affordable prices. The current trend, however, seems headed in a different direction entirely, with new sites and apps offering luxury concierge-like services at high prices. For example, Postmates, an app that provides couriers to fetch goods from stores and restaurants, recently dropped four mint mojito iced coffees right into the hands of one Wall Street Journal reporter who admits he “paid nearly $30 for the luxury.” Many of the entrepreneurs behind this new wave of “errands apps” nevertheless maintain that they fully intend to make their services available to people of all income levels. Two such executives are Tri Tran, a co-founder of the prepared-meal delivery service Munchery, and Nick Allen, the creator Shuddle, an app that sends cars driven by well-vetted chauffeurs to ferry children to and from playdates and other appointments. Both plan to lower their prices once they have acquired more customers—Munchery hopes to be able to buy in bulk and Shuddle intends to provide carpooling services. But New York Times columnist Farhad Manjoo is skeptical, arguing that economies of scale (i.e., ones in which prices drop as fixed costs are spread out over more customers) are rare in the tech world. “I remain unsure if they will ever get to the point where they can serve the masses,” he concludes. “Yet even if Shuddle and Munchery do not get their prices low enough to go mainstream, they deserve credit for trying.”

Lest we forget. Established a year ago this month by a European Court of Justice decision, the right to be forgotten requires search engines like Google to comply with an individual’s request to remove “inadequate, irrelevant,” or “excessive” links that appear in search results when someone conducts an Internet search of the individual’s name. The ruling gives search engines broad discretion—so broad that Google has so far rejected more take-down requests than it has granted (457,958 compared to 322,601). In determining whether to grant a take-down request, Google says it considers “whether the results include outdated or inaccurate information about the person.” The Internet giant also weighs “whether or not there’s a public interest in the information remaining in our search results—for example, if it relates to financial scams, professional malpractice, criminal convictions or your public conduct as a government official (elected or unelected).” Ars Technica gave some examples of the take-down requests that Google has refused: a Hungarian high-ranking public official’s request to remove content about his more-than-20year-old criminal conviction, and a French priest’s request to remove articles about his excommunication from the church. Perhaps not surprisingly, Google has removed more URLs from Facebook than from any other site.

Search me. Speaking of Google, here’s a potentially embarrassing way to pass some time: view, download and export your entire Google search engine history—or at least all of the searches you conducted while you were logged into your Google account (of course, as The Washington Post points out, if you have Gmail you’re likely logged into your Google account almost all the time). An unofficial Google blog contains the instructions. Simply visit the Google home page and type “Google Web History” into the search bar. When you reach that page and login using your Google ID, you should see all of your searches over the past few days immediately. You can further download and export your entire Google search history by clicking the three-vertical-dot icon in the upper right-hand corner of the Google Web History page and selecting “download searches” from the dropdown menu. The point, says The Washington Post, is to give people an easier way to transfer their data from Google to other services, such as AOL. Since Google will deliver your query history in a file format that may be unreadable to you, the newspaper suggests you open the result in your computer’s notepad or other plain-text editing apps, and search for the term “query text.”

The FTC Weighs in on In-Store Tracking. Or Does It?

Posted in FTC, Privacy

PrintIn law school, everybody learns the adage that hard cases make bad law. When it comes to the Federal Trade Commission, a better aphorism might be, “easy cases make new law.” The FTC’s recent settlement with Nomi Technologies Inc. is, as the FTC’s press release notes, the “FTC’s first against a retail tracking company.” On its face, the case is like many FTC privacy cases: It challenges a statement in the company’s privacy policy for allegedly being inconsistent with the company’s actual practices and thus deceptive. Under the surface, however, the case may open the door for the FTC to create a notice-and-choice regime for the physical tracking of consumers, analogous to its well-established notice-and-choice regime for online tracking.

“Retail Tracking” and Nomi’s Allegedly Deceptive Practices

Retail tracking occurs when retailers, or their third-party service providers, capture and track the movements of consumers in and around stores through their mobile devices, such as through the use of Wi-Fi or beacons, in order, for example, to better understand store traffic or serve targeted offers. The FTC’s chief technologist recently published detailed comments on the “privacy trade-offs” of retail tracking and the various technologies that companies are using to engage in it. Given the potential lack of transparency around the practice and the corresponding privacy implications, it is not surprising that the FTC decided to address the practice through its Section 5 authority, even if the FTC did so in an indirect fashion.

It is also not surprising that the FTC has moved cautiously into this space. The facts of In re Nomi, as alleged in the complaint, are simple. Nomi provided mobile device tracking technology that enabled its clients, brick-and-mortar retailers, to receive analytics reports about aggregate customer traffic patterns — that is, how long consumers stay in the store and in which sections, how long they wait in line, what percentage of consumers pass by the store altogether, and so on. Nomi represented in the privacy policies posted on its website that it would “[a]lways allow consumers to opt out of Nomi’s service on its website as well as at any retailer using Nomi’s technology.” While Nomi offered an opt-out on its website, it allegedly did not provide an opt-out mechanism at its clients’ retail locations, thus rendering its privacy policy promise deceptive, in violation of Section 5 of the FTC Act.

The FTC further alleged that Nomi represented, expressly or by implication, that consumers would be given notice when they were being tracked at a retail location. The statement of Chairwoman Edith Ramirez and Commissioners Julie Brill and Terrell McSweeny in support of the complaint and proposed order explains that “the express promise of an in-store opt out necessarily makes a second, implied promise: that retailers using Nomi’s service would notify consumers that the service was in use. This promise was also false. Nomi did not require its clients to provide such a notice. To our knowledge, no retailer provided such a notice on its own.” By allegedly failing to provide notice when a retail location was utilizing Nomi’s service to track customers, Nomi’s implied promise to provide notice was also deceptive.

The FTC Keeps Nomi Narrow, for Now. What Lessons Can Others Learn?

The proposed order provides for very narrow injunctive relief: It simply enjoins Nomi from misrepresenting how consumers can control the collection, use, disclosure or sharing of information collected from them or their devices, and from misrepresenting the extent to which consumers will receive notice about such tracking. The majority commissioners, in their statement, were at pains to disclaim any significance of the case with regard to the practice of retail tracking specifically:

While the consent order does not require that Nomi provide in-store notice when a store uses its services or offer an in-store opt out, that was not the Commission’s goal in bringing this case. This case is simply about ensuring that when companies promise consumers the ability to make choices, they follow through on those promises.

In other words, Nomi is the FTC’s first case involving brick-and-mortar tracking, but the FTC is not yet creating new law: The proposed order does not impose any affirmative notice and choice obligations on industry participants in the retail tracking space. It is not surprising that the commission declined to take such a drastic step with a practice that is still, relatively speaking, in its infancy, and that does not, on its face, involve sensitive personal information (though, while the information collected may be anonymous and analyzed only in aggregate, some retailers may, or at least could, pair tracking information through their apps with other information about identifying a specific consumer).When the FTC does impose specific obligations relating to a particular practice, it typically moves in an incremental fashion. For example, the FTC noted in its 2009 Report on Self-Regulatory Principles for Online Behavioral Advertising and again in its 2012 Privacy Report that the collection of precise geolocation requires affirmative express consent because such information is sensitive. The FTC continued to indicate, in guidance and follow-on staff reports, that a failure to provide notice and obtain affirmative opt-in consent for the collection of precise geolocation information could give rise to a cause of action for deception under Section 5 of the FTC Act.Then, when the FTC settled a case (

When the FTC does impose specific obligations relating to a particular practice, it typically moves in an incremental fashion. For example, the FTC noted in its 2009 Report on Self-Regulatory Principles for Online Behavioral Advertising and again in its 2012 Privacy Report that the collection of precise geolocation requires affirmative express consent because such information is sensitive. The FTC continued to indicate, in guidance and follow-on staff reports, that a failure to provide notice and obtain affirmative opt-in consent for the collection of precise geolocation information could give rise to a cause of action for deception under Section 5 of the FTC Act.Then, when the FTC settled a case (Goldenshores), alleging violations of Section 5 relating to an Android app’s collection, use and disclosure of precise geolocation from users’ devices, the order imposed specific parameters on the out-of-policy notice and choice that the app had to provide — effectively creating a new notice and choice regime for the collection, use and disclosure of such information that companies ignore at their peril.By contrast, the

Then, when the FTC settled a case (Goldenshores), alleging violations of Section 5 relating to an Android app’s collection, use and disclosure of precise geolocation from users’ devices, the order imposed specific parameters on the out-of-policy notice and choice that the app had to provide — effectively creating a new notice and choice regime for the collection, use and disclosure of such information that companies ignore at their peril.By contrast, the

By contrast, the narrow approach the FTC has taken with Nomi raises the question of whether the FTC would ever impose a notice and choice obligation for offline, retail tracking. We have no certainty around the FTC’s view, but it is reasonable to anticipate that the FTC will move in a direction that mirrors its position with respect to online tracking — that is, that at least when information is collected for targeted advertising purposes, a company should provide meaningful disclosures to consumers about the tracking and choice with respect to whether to allow it.[2] The FTC could ultimately deem a failure to provide such notice and/or choice an unfair and/or deceptive practice under Section 5 of the FTC Act.

What does this mean for retailers and other places of business? In light of Nomi and our expectations with respect to the direction the FTC is likely to take, companies that engage in in-store tracking should consider how best to provide their customers with notice and choice. Whatever the FTC does, it will probably move conservatively. That means that the FTC is likely to continue to identify practices as violations of Section 5 if they can be remedied without stifling retail tracking technology as it matures.

The Nomi complaint presents two interrelated themes that provide a guide to future enforcement. First, choice must be linked to notice, meaning that, as far as the FTC is concerned, consumers do not have meaningful choice unless they also have notice at the point of collection, even if notice is provided only in a privacy policy only. Nomi can thus be read to suggest that, at least in some circumstances, choice with regard to virtual tracking needs to be accompanied by notice in the brick-and-mortar world. Second, the complaint suggests, obliquely, that tracking consumers’ physical activities is “material” — i.e., that it is likely to affect the consumer’s conduct. If that is right, then this type of tracking must be disclosed to consumers because the failure to make such a disclosure would be, axiomatically, a material omission.

How should retailers proceed? One option is to track only those customers who have downloaded the retailer’s app and affirmatively agreed to be tracked for identified purposes, such as the delivery of targeted offers. Another option is to use a vendor that subscribes to the Future of Privacy Forum Mobile Location Analytics Code of Conduct, which requires participating mobile location analytics companies to, among other things, provide consumers with appropriate notice and choice. These types of compliance strategies could help protect companies from the next possible phase of FTC enforcement in this space, since they address what appear to be, for now, the most direct ways to avoid conducting retail tracking without providing notice and choice.

Status Updates: Facebook Posts—Reliable Evidence?; Quora Post Costs Applicant a Job; a New Ephemeral Messaging App

Posted in Disappearing Content, Discovery, E-Discovery, Litigation, Status Updates

Facebook: Fact or fiction? These days, courts are more and more frequently faced with disputes over whether, as part of the discovery process, a litigant should be entitled to view the opposing party’s social media posts. As we’ve discussed, some courts deciding physical and emotional injury claims have held that the photos and status updates that the plaintiffs in those cases posted to Facebook were relevant to proving or disproving those claims. But are they always? A recent column in Slate points out that some judges and experts are questioning whether a person’s social media posts are adequate reflections of his or her emotional well-being. In one 2013 case over alleged disability discrimination—the plaintiff claimed her work supervisor mocked her after she told him she’d been diagnosed with adult Attention Deficit Hyperactivity Disorder—a federal district court judge in New York held that “The fact that an individual may express some degree of joy, happiness, or sociability on certain occasions sheds little light on the issue of whether he or she is actually suffering emotional distress… For example, a severely depressed person may have a good day or several good days and choose to post about those days and avoid posting about moods more reflective of his or her actual emotional state.” We at Socially Aware tend to agree with this more skeptical view of the extent to which one’s “social” life reflects one’s real life. After all, if a woman can fake an entire vacation on Facebook, many of the platform’s users are likely posting status updates and pictures that are out of sync with their actual moods.

Cutting words. Stories about people being fired or having a job offer rescinded because of their social media missteps have been around almost as long as social media itself, but they usually involve “what were they thinking?” types of behavior. We recently came across one that is a little less clear-cut. An engineer who’d just gotten job offers from Uber and Zenefits tried to crowdsource information that would help him decide between the two employers by posting what he considered to be the pros and cons of each opportunity on Quora, a Q&A social network that allows users to pose questions to the community. He said good things about both companies, but in his “cons” list for Zenefits, he wrote, “My biggest problem with Zenefits is that it isn’t a buzzword like Uber. Most people won’t know what Zenefits is (or so I think). I think that this isn’t as exciting a brand name to have on your resume when applying to the likes of Google.” Zenefits CEO and co-founder Parker Conrad saw the Quora post and responded, right on the thread: “Definitely not Zenefits (n.b.—we are revoking the questioner’s offer to work at Zenefits),” he wrote. “We really value people who ‘get’ what we do and who *want* to work here, specifically. It’s not for everyone, but there are enough ppl out there who do want to work here that we can afford to be selective.” Conrad later edited his response, deleting the part about revoking the engineer’s offer, but his decision stands: The engineer is no longer welcome at Zenefits. Reactions on Twitter went both ways, The Washington Post reported. And some commentators felt that both parties were at fault.

Here today . . . Perhaps inspired by social media users’ concerns that their posts will be used against them in the ways we’ve just described—and, in the case of Cyber Dust, billionaire investor Mark Cuban’s receipt of a subpoena for his own text messages—new disappearing messaging apps are springing up all the time. One that recently got the attention of the crowd at a tech conference in New York is the photo-sharing app Rewind. Rewind allows you to create photo timelines through which the members of your network can scroll. As a result of the scrolling feature, a whole set of photos only takes up the space of a single photo in users’ feeds. The posts vanish after 24 hours. According to Tech Crunch, by making the photos disappear, the app’s creators hope “to elicit the same sort of spontaneity as Snapchat Stories,” which have been heralded as the future of social media.

 

 

 

 

 

Effort to Hide Facebook Evidence by Deactivating Account Ends Badly for Louisiana Man

Posted in Discovery, E-Discovery, Litigation

 

0518SAImageAs social media has become ubiquitous, courts are wrestling with more discovery disputes involving social media accounts.

In a recent case, Crowe v. Marquette Transportation Co. Gulf-Inland, LLC, the plaintiff deactivated his Facebook account in an effort to be able to claim that he was no longer on Facebook. A federal court in Louisiana rejected this ploy, ordering the plaintiff to turn over all of his Facebook data to the defendant.

Here’s the background story: On May 19, 2014, Brannon Crowe sued his employer, Marquette Transportation. Crowe claimed that, in April 2014, he had an accident at work that “resulted in serious painful injuries to his knee and other parts of his body.” Crowe sued for pain and suffering, medical expenses, lost wages, past and future disability, and other special damages.

But Crowe may have unwittingly shot himself in the foot (or maybe the knee). The reason? Facebook.

Around the time Crowe suffered his injuries, he sent a Facebook message to a friend saying that he had actually hurt himself while on a fishing trip. How Marquette Transportation got its hands on the message is unclear. Nonetheless, the message led Marquette Transportation to seek other Facebook information from Crowe in discovery. On October 17, 2014, Marquette Transportation specifically requested “the Facebook history of any account(s) that [Crowe] had or has for the period commencing two (2) weeks prior to the incident in question to the present date.”

Crowe objected on several grounds. First, he claimed that his account had been “hacked.”

Then he suggested that the account associated with the fishing trip message was not his because the name on the account was “Brannon CroWe” and he does not capitalize the “W” in his last name.

Finally, Crowe claimed that he did not “presently have a Facebook account.” When questioned about that statement in a deposition, Crowe testified that, as of October 2014, he no longer had a Facebook account. Thus, Crowe was technically telling the truth; he had deactivated his account on October 21, 2014 (four days after Crowe received the discovery request to produce his Facebook account data).

Deactivating your Facebook account, however, is not the same as deleting your account. As the Court noted, “It is readily apparent to any user who navigates to the page instructing how to deactivate an account that the two actions are different and have different consequences.” Under Facebook’s terms, deactivation simply means “your profile won’t be visible to other people on Facebook and people won’t be able to search for you,” and that, upon reactivation, “[y]our profile will be restored in its entirety.” In contrast, deleting your Facebook account “means you will not ever be able to reactivate or retrieve any of the content or information you’ve added,” and there is “no option for recovery.”

As to Crowe’s claim that he was no longer on Facebook, the Court was having none of it. The court stated that “it is patently clear from even a cursory review that this information should have been produced as part of Crowe’s original response. This production makes it plain that Crowe’s testimony, at least in part, was inaccurate. That alone makes this information discoverable.”

In short, the Court held that Crowe’s Facebook-related information was discoverable because Crowe had deactivated his account to keep the evidence from his employer—and did so only after he received a discovery request.

Crowe may have inadvertently saved himself at least some trouble with the Court by deactivating his account rather than deleting it. This duty to preserve evidence in litigation extends to social media information and is triggered when a party reasonably foresees that evidence may be relevant to issues in litigation. As soon as he placed the source of his injuries at issue, Crowe triggered the duty to preserve. Deleting relevant social media data can result in sanctions against the deleting party because the information is not recoverable, which implicates spoliation of evidence issues. In contrast, Crowe’s Facebook data was still accessible upon a simple re-login.

Even though Crowe did not delete his account, the Court was obviously unhappy with Crowe. The Court found that Crowe unnecessarily delayed the proceedings and wasted the Court’s time by deactivating his account. And, ultimately, the Court ordered Crowe to produce all information in his Facebook account to his opponent in its entirety.

This case serves as a lesson that nothing good will come from deleting or deactivating your Facebook account to hide evidence. Even if deactivating a Facebook account to conceal damaging evidence does not constitute spoliation, because the data is ultimately recoverable, courts will inevitably come down hard on efforts to conceal evidence, even ham-handed and harebrained efforts.

Hot Off the Press: The May Issue of Our Socially Aware Newsletter Is Now Available

Posted in Copyright, DMCA, First Amendment, FTC, Infographic, Internet of Things, IP, Privacy, Terms of Use

150514SociallyAwareThe latest issue of our Socially Aware newsletter is now available here.

In this issue of Socially Aware, our Burton Award-winning guide to the law and business of social media, we discuss a recent decision in Virginia protecting the anonymity of Yelp users; we examine the FTC’s much anticipated report, “Internet of Things: Privacy & Security in a Connected World;” we explore the major social media platforms’ approaches to handling deceased users’ accounts; we highlight a recent CJEU case holding that extracting large amounts of data from public websites—commonly known as “web scraping”—may violate website’s terms of use; we highlight the first-ever award of “any damages” for fraudulent DMCA takedowns; we drill down on important precedents that are defining the multi-channel programming distribution industry; and we take a look at cross-device tracking in interest-based advertising.

All this—plus an infographic featuring some intriguing online dating statistics.

Read our newsletter.

#Trademarks?: Hashtags as Trademarks

Posted in Litigation, Trademark

hashtag_iStock_000047220610_Illustration_650pxHashtags have become ubiquitous in social media, but their status as intellectual property—particularly as trademarks—is still developing. First adopted by Twitter users to link user posts, hashtags are character strings preceded by the “#” symbol that generate a link to all other posts containing the same tag. Today, in addition to providing the search-related functionality for which they were first developed, hashtags provide businesses new ways to engage with consumers. Hashtag marketing campaigns by businesses generate brand awareness by encouraging social media users to post with the campaign tag and, in return, offer users discounts, prizes or even a chance to become a model.

But can a hashtag be registered as a trademark? The functional nature of hashtags led to initial uncertainty on this question, which the U.S. Patent and Trademark Office settled in 2013 when it added a new section to the Trademark Manual of Examination Procedure on registration of hashtag marks. The USPTO defines a hashtag as “a form of metadata comprised of a word or phrase prefixed with the symbol ‘#’” and states that a hashtag mark may be registerable, but only if it functions as an identifier of the source of the applicant’s goods or services. For example, #ingenuity would be registerable for business consulting services as a distinctive term, while #skater for skateboard equipment would be merely generic and non-registerable. In addition, to obtain a registration, the applicant must provide evidence of the use of the mark in connection with the relevant goods or services, which means that, like any other trademark, a hashtag mark must actually be used in commerce to be registrable.

Unlike traditional tag lines, which are meant to be used primarily by the mark owner, hashtags are typically intended to be disseminated by social media users. For example, the makers of Mucinex have registered #blamemucus, which allows potential consumers to commiserate about their colds through social media, as well as spread the word about Mucinex and participate in drawings for prizes. The #blamemucus registration covers both the pharmaceutical products themselves (with a store display bearing the mark as a specimen of use) and services consisting of providing information in the field of respiratory and pulmonary conditions via the internet (with the company website as a specimen). By covering both the core goods and online services, the registration provides broad protection for the hashtag mark against use by competitors. Companies may also attempt to register a phrase that has already become an internet meme. For instance, an application for #throwbackthursday has been filed by producers of an entertainment and comedy series, while #fixitjesus has been claimed by a maker of T-shirts.

As one might expect, the widespread use of hashtags has resulted in trademark disputes from time to time. In 2010, for example, a Wyoming-based chain of Mexican restaurants called Taco John’s, which owns a federal registration for the mark “Taco Tuesday,” sent a cease-and-desist letter to an Oklahoma restaurant called Iguana Grill seeking to stop Iguana Grill’s use of the phrase “Taco Tuesday” and the hashtag #tacotuesday for its own taco promotion. Iguana Grill did agree to stop using the name for its taco night; as of this writing, the restaurant’s Facebook page exhorts customers to “Keep a look out for our taco specials . . . for Iguana Tuesday!” But, as is often the case with arguably heavy-handed trademark enforcement efforts, Taco John’s cease-and-desist letter also resulted in considerable public criticism of Taco John and outspoken support for Iguana Grill.

In March 2015, clothing maker Fraternity Collection brought trademark infringement claims in federal district court in Mississippi against a former designer based on use of the tags #fratcollection and #fraternitycollection on social media. The court accepted at the pleading stage “the notion that hashtagging a competitor’s name or product in social media posts could, in certain circumstances, deceive consumers.” Accordingly, the court held that Fraternity Collection’s complaint stated a claim for false advertising under the Lanham Act and for trademark infringement under state law, and denied the designer’s motion to dismiss those claims. This was, as far as we are aware, the first time that a court has found that use of a competitor’s mark in a hashtag, rather than on the product itself, could result in consumer deception.

The Fraternity Collection case involved a clearly competitive use of the hashtags. What remains unclear, however, is how trademark law will treat hashtags used for non-competitive goods and services. The traditional test for infringement is the likelihood of consumer confusion. This inquiry weighs a number of factors, including the similarity of the respective marks, similarity of the respective goods or services and the advertising channels used by the parties. Thus, courts have generally found consumer confusion to be unlikely when similar or identical marks are used for unrelated goods or services that tend to be advertised in different channels. The use of identical hashtags, however, creates a single feed of all posts under same tag, regardless of how different the advertised goods or services may be. Unlike in the physical world, where businesses can stake out non-overlapping niches for unrelated goods or services, the tag itself acts as an advertising channel on social media platforms. It remains to be seen how this functional aspect of hashtags will be weighed by the courts in the consumer confusion analysis.

As competition for attention among social media users increases, trending tags may become an increasingly prized commodity. On the other hand, given the ephemeral nature of some hashtags and the fleeting popularity of social media fads, companies should consider the long-term viability of a particular hashtag before expending time and resources to protect it. In any event, before adopting hashtags for social media campaigns, it is imperative to research potential conflicts, which may include trademark clearance searches to identify conflicting uses. And if a hashtag has already become an effective marketing tool, it may be time to consider registering it as a trademark.

Are You Socially Aware? Take Our Millennial Influencers Quiz

Posted in FTC, Marketing

Fan-Frenzy-iStock_000007106900_Illustration_650pxOK, Socially Aware readers, we’ve got a pop-culture quiz for you today. How many of the following names are familiar to you?

  1. Smosh
  2. The Fine Brothers
  3. PewDiePie
  4. KSI
  5. Ryan Higa

If any of those monikers rings a bell, we’re guessing you’re a millennial, the parent of a millennial or a marketer who targets millennials. Those of us who don’t fall into any of those categories might be surprised to learn that, according to a survey conducted for Variety by a celebrity brand strategist, the people on the above list are the five most influential celebrities among U.S. teens aged 13-17. These celebrities are unfamiliar to most of us because they didn’t rise to fame in the mainstream media but on social media—YouTube, specifically.

The brand strategist conducting the survey, Jeetendr Sehdev, presented 1,500 teenage respondents with the names of the ten most popular English-language YouTube personalities (based on the number of their subscribers and video views) and the names of the ten mainstream media celebrities with the greatest clout among 13- to17-year-olds (as determined by an accepted set of criteria used to measure consumer appeal).

In an effort to compare the 20 celebrities’ influence, Sehdev then asked the respondents to rate these celebrities based on several criteria, such as authenticity and approachability. Based on the teens’ responses, all 20 public figures were ranked. Six of the top ten were social media personalities. The respondents’ comments revealed that, for the teens, the rawness of the YouTube celebrities’ appearances translated into trustworthiness.

The lesson for marketers is obvious: When you’re vying for teens’ time, attention and allowance money, your spokesperson shouldn’t be overly polished, and your message shouldn’t be overly produced. Otherwise, your target audience will feel like the endorsement is disingenuous—a quality that’s unlikely to make them ask their parents for the credit card.

Of course, advertisers enlisting these or any other YouTube stars to promote products and services need to be aware of the Federal Trade Commission’s (FTC) Endorsement Guides and related legal concerns; as we’ve discussed on this blog, the FTC takes the position that, where a social media influencer endorses a company’s products or services in return for consideration from such company, such consideration needs to be clearly disclosed in order to avoid deceiving consumers.

By the way, here’s the entire Variety list, complete with the occupations of the listed celebrities (so you can feel like you’re in the know):

  1. Smosh (comedy duo)
  2. The Fine Brothers (producers, writers and directors known for their React video series)
  3. PewDiePie (Swedish producer of Let’s Play videos)
  4. KSI (English video game commentator)
  5. Ryan Higa (YouTube personality and actor)
  6. Paul Walker (American television and film actor)
  7. Jennifer Lawrence (American film actor)
  8. Shane Dawson (American YouTube personality, actor, comedian, and film director)
  9. Katy Perry (American singer, songwriter and actor)
  10. Steve Carell (American actor)
  11. Seth Rogan (American actor)
  12. Betty White (American actor)
  13. Vin Diesel (American actor, filmmaker and producer)
  14. Johnny Depp (American actor)
  15. Daniel Radcliffe (English actor)
  16. Jenna Marbles (American entertainer and YouTube personality)
  17. Michelle Phan (American make-up demonstrator and entrepreneur)
  18. Ray William Johnson (American video blogger, producer and actor)
  19. Bethany Mota (American video fashion-blogger)
  20. Leonardo DiCaprio (American actor)

Yes, 93-year-old Betty White is up there, only a couple of rungs beneath the top ten. Feel better now? We sure do.

 

Rolling With the Punches: The Fight Over Livestreaming

Posted in Copyright, IP, Litigation

BizFight_iStock_000027343182_Illustration_600pxBoxing fans eagerly awaited the May 2, 2015, championship match between boxers Floyd Mayweather, Jr. and Manny Pacquiao. But the fight also drew the interest of those following online video apps Meerkat and Periscope. Launched at the end of February 2015, Meerkat is a livestreaming iPhone app that allows Twitter users to stream videos from their phones to their Twitter accounts in real time. The Periscope app, which Twitter acquired in January for a reported $100 million, provides similar livestreaming functionality, though Periscope’s streams remain online for playback for an additional 24 hours, while Meerkat’s streams can only be watched live or saved to users’ individual camera rolls.

As joint producers of the Mayweather-Pacquiao fight, premium networks HBO and Showtime had exclusive rights to transmit the event live. Unless you had a ticket to the MGM Grand in Las Vegas, the only authorized way to view the fight was on pay-per-view at a cost of up to $100. Some fans, however, avoided the pay-per-view fee by watching livestreams of the event through Meerkat and Periscope. A number of Meerkat and Periscope users streamed the fight either from their seats at the arena or, more commonly, simply by pointing their phones at their television screens. Although a livestream of a TV screen may not provide great quality, it was apparently good enough for viewers to figure out what was happening in the fight. At least one stream was reported to have over 6,000 people watching at one point. Assuming a pay-per-view charge of $100 per viewer, that meant $600,000 of pay-per-view fees not being paid to HBO and Showtime.

Prior to the fight, HBO and Showtime had already taken steps to prevent piracy from eating into their pay-per-view revenues. Five days before the fight, Showtime and HBO filed a complaint in the Central District of California against nine websites advertising that they would stream the fight for free. In the complaint, the plaintiffs, as the copyright owners of the coverage to be filmed by the single authorized camera crew, alleged direct, contributory and vicarious copyright infringement and asked for an injunction prohibiting defendants from “hosting, linking to, distributing, reproducing, performing, selling, offering for sale, making available for download, streaming or making any other use of the [c]overage.” The plaintiffs also asked for damages and attorneys’ fees. On April 28, 2015, the court granted plaintiffs’ request for a temporary restraining order and ordered the defendants to show cause why the terms of the temporary restraining order should not be entered as a preliminary injunction.

But HBO and Showtime were unable to take similar preventive action against piracy by individual users of Meerkat and Periscope. However, after the streams began appearing, they did issue takedown requests to Periscope under the notice and takedown procedures of the Digital Millennium Copyright Act (DMCA). According to a Twitter spokesperson, Periscope, which operates independently of Twitter, received 66 takedown requests and took action against 30 broadcasts in response to the requests; the remaining Periscope streams had already ended or were no longer available. Compared to Periscope, Meerkat presents even greater challenges for broadcasters when it comes to policing piracy, because everything on Meerkat is live and there is no storage of streams for future viewing. As such, the policing of Meerkat streams requires real-time vigilance and action (indeed, it is unclear to what extent if any the DMCA’s notice and takedown procedures would apply to Meerkat’s current business model). According to Meerkat chief executive Ben Rubin, however, “[Meerkat] worked closely with the content owners and contacted users they alerted us about.”

The Mayweather-Pacquiao fight was not HBO’s first time in the ring with Periscope on piracy issues. In mid-April 2015, HBO sent takedown notices to Periscope after Periscope users livestreamed episodes of the HBO show Games of Thrones. Periscope reportedly took action against the infringing account holders.

All of this sparring between content owners and users of livestreaming apps highlights the tension between the legitimate interests of content providers in preventing piracy and the equally valid interests of technology companies (and the general public) in encouraging the growth of this new technology. For its part, HBO has suggested that DMCA takedown notices may not be sufficient and that app developers should “have tools which proactively prevent mass copyright infringement from occurring on their apps and not be solely reliant upon notifications.” Others have opined that livestreaming apps should develop tools like Google’s Content ID system, which automatically scans videos uploaded to YouTube against a database of files submitted by verified content owners and gives the owners the option of muting, blocking, monetizing or tracking the content.

It should also be noted that, depending on the circumstances and content being streamed, users of livestreaming apps may also be able to assert a fair use defense under Section 107 of the US Copyright Act. For example, it would not be difficult to imagine a case similar to Lenz v. Universal arising in the livestreaming context. In Lenz, Universal Music Publishing Group objected to a YouTube video uploaded by Stephanie Lenz that showed her children dancing along to the Prince song “Let’s Go Crazy.” Universal issued a DMCA takedown notice to YouTube and Ms. Lenz sent a counter-notice claiming fair use. Eventually YouTube restored the video, and the litigation between Ms. Lenz and Universal continues to this day. The difference, of course, is that issues of fair use (and takedown notices and counter-notices) will quickly become moot in the livestreaming context due to the ephemeral nature of the medium.

Only time will tell how long and how violent the fight between content owners and users of livestreaming apps like Periscope and Meerkat will be. At least for the moment, however, it does not seem that the content owners within the mainstream entertainment industry are immune to the commercial and promotional opportunities that livestreaming apps offer. In an ironic twist, HBO itself used Periscope as part of its pre-fight hype, streaming content to its Twitter feed from Manny Pacquiao’s dressing room.

Social Media Assets in Bankruptcy: Facebook and Twitter Accounts Subject to Reach of Creditors

Posted in Bankruptcy

iStock_000038943470_MediumSocial media accounts can be “property of the estate” in a bankruptcy case of a business, and thus belong to the business, even when the contents of the accounts are intermingled with personal content of managers and owners. This principle was recently confirmed by the Bankruptcy Court for the Southern District of Texas in In re CTLI, LLC (Bankr. S.D. Tex. Apr. 3, 2015), which featured a battle among equity holders over Facebook and Twitter accounts promoting a business called Tactical Firearms.

Tactical Firearms was a gun store and shooting range. Prior to filing for bankruptcy, the business had used Facebook and Twitter accounts in its marketing. The original majority shareholder and managing office, Jeremy Alcede, had mixed his quasi-celebrity personal activities and personal politics with the promotion of the business, frequently taking to Facebook and Twitter for both personal purposes and for the promotion of the business. When the company filed for bankruptcy, Alcede ultimately lost ownership and control of the company to another investor through a Chapter 11 plan of reorganization.

Despite the loss of the business, Alcede fought to retain control over the Facebook and Twitter accounts. However, although he had changed the names of the accounts to reflect his personal name rather than that of the company, the Bankruptcy Court held that the accounts belonged to the business. The court applied Bankruptcy Code § 541, which provides that a bankruptcy estate includes “all legal or equitable interests” of a debtor, in holding that the social media accounts belonged to the debtor and thus constituted property of the bankruptcy estate.

As the court recognized, Alcede had originally created the Tactical Firearms business, and the accompanying social media accounts, as “an extension of his personality” and, “like many small business owners, closely associated his own identity with that of his business.” The court, however, rejected Alcede’s definitions of “personal” versus “business related” media posts, finding that the best marketing for business through social media is “subtle” and can involve the use of celebrities to promote the business.

The core results of the CTLI decision were as follows:

  1. Rejecting Alcede’s property and privacy arguments, the court determined that the social media accounts were property of the bankruptcy estate, much like subscriber or customer lists, despite some intermingling with Alcede’s personal social media rights. The court then exercised various remedies and contempt powers to protect the successor-owned business from Alcede’s further interference and to assure that the successor could take control of the assets, including requiring delivery of possession and control of passwords for the accounts.
  2. The court concluded that the “likes” that the Facebook page received belonged to the bankrupt entity, even though Alcede had registered as a Facebook user and page administrator with his personal Facebook profile. The court noted that Tactical Firearms had a Facebook page that was (a) directly linked to the Tactical Firearms web page, (b) used by Alcede and certain employees to post status updates for promoting the business, and (c) created in the name of the business rather than (until it was later improperly changed) in the name of the individual. Personal content interjected into the business page content did not change that result. Additionally, business messages to customers were communicated through the Facebook page and business-related posts.
  3. The court noted that, while the business content on Tactical Firearms’ Facebook page had to be accessed through Alcede’s personal Facebook profile, which he had created as the registered administrator, that fact was not controlling. The business pages could be managed by multiple individuals with their profiles, and access to personal information was not necessary to manage those business pages.
  4. The court also held that the Twitter account belonged to the business, given that the Twitter handle was “@tacticalfirearm” and that the account description included a description of the business.
  5. The court also rejected Alcede’s privacy concerns by analogizing to cases finding that parties had waived the attorney-client privilege by sharing privileged information with non-clients, or to cases where an employee used the employer’s computer system and thereby waived privacy rights as to personal emails. Because the social media accounts were for the benefit of the business, Alcede lost any personal privacy right in his content and was forbidden to modify either the Facebook or Twitter account by adding or deleting any material.

Therefore, the court ordered Alcede to transfer control of the account to the new owner of the reorganized business.

The decision is noteworthy because disputes regarding social media assets, like many other rights newly created in the digital age, have generally been addressed below the public radar in bankruptcy cases and other commercial settings. This is changing, and parties in bankruptcy cases and related proceedings are increasingly focused on capturing the value of these kinds of assets.

CTLI also highlights the need to properly structure and document the various rights associated with social media accounts, as is customarily done with the intellectual property rights of inventors, authors and other creators of content or employees who are providing innovation to the business that employs them. The decision illustrates that equity holders and managers should discuss and plan for how to deal with their separate assets in advance of bankruptcy or other litigation.

Even if an individual wishing to preserve and shield his or her personal social media assets from related business entities has properly structured the use of the assets, a variety of other issues may arise in that individual’s personal bankruptcy. In such a case, most of his or her personal social media assets would be subject to the bankruptcy and could be lost in sales for the benefit of creditors. Other social media issues that arise in bankruptcy cases of individuals are also worth considering. For example:

  • Exempt Assets. Only individuals (as opposed to business entities) can have personal assets that are exempt from the reach of creditors in bankruptcy. A social media account or blog and its copyrighted material could be argued to be a “tool of the trade” for a blogger and thus be exempt; however, even if that argument were to succeed (perhaps unlikely), most exemptions in bankruptcy are capped at a very low value, and the statutory exemptions are usually narrow and predate more modern classes of assets. Exemptions are thus unlikely to protect these accounts.
  • Automatic Stay. When a bankruptcy case is filed, all acts against a debtor or its assets, including litigation against a debtor or efforts to take control of its property, are automatically stayed. However, secured lenders, who often have blanket liens on all of a borrower’s assets (including social media assets), may have the ability to get relief from the automatic stay in order to foreclose on assets or pursue other remedies.
  • Rights of Publicity. In a bankruptcy of a high-profile individual, his or her social media assets will become part of the bankruptcy estate and may be sold. However, the individual may still be able to use his or her “persona,” or in the words of the CTLI court, “the interest of the individual in the exclusive use of his own identity, in so far as it is represented by his name or likeness, and in so far as the use may be of benefit to him or others.” While that “persona” interest, particularly of celebrities in states like California, has value as a type of intellectual property, there are questions as to the extent to which the assets could be marketed, particularly at the exclusion of the individual from using his or her own name and likeness in the future. Additionally, it will be inherently awkward for both the buyer and that person to compete using the same assets. Nevertheless, those assets may have strategic value to the debtor’s adversaries.

As social media assets become increasingly valuable, such assets will mean more to both the owner and to the owner’s creditors. Valuable assets are always in play in bankruptcy cases. A bankrupt debtor may face significant challenges in starting over without the use of those social media assets in which so much was invested. These assets will increasingly be a source of disputes and will require close scrutiny.