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Computer Law Reporter A MONTH LY J O U RN A L O F COM P U TE R L AW AND P R AC TI C E Volume 62, Number 5

Washington,D.C.

January 2016

HIGHLIGHTS The most noteworthy decisions this month are

the following:

In In U.S. v. Valle, Case Nos. 14-2710-cr, 14-4396cr(2dCir.Dec.3,2015),adividedpanelofjudges on the Second Circuit Court of Appeals affirmed the acquittal of New York City’s infamous “can- nibal cop” on charges of criminal conspiracy and reversed his conviction for violating theComputer FraudandAbuseAct(CFAA).OfficerGilbertoValle waschargedwithonecountofcriminalconspira-

cy to kidnap for his involvement in “the Dark Fetish Network,” an online community in which he and other members shared twisted sexual fantasies of abusing,murdering,andevencannibalizingwomen they personally knew, included Valle’s own wife. While court’s majority opinion goes into graphic detailaboutthegruesomestatementsmadebyValle, n Read on page 4

CONTENTS:

CHALLENGING FTC REGULATION OF CYBER-SECURITY AFTER FTCV.WYNDHAM.........5 RECENT DECISIONS.......................................................7 BEST OFTHEBLOGS..................................................... 25

Publisher: Neil J. Cohen, Esq.

Computer Law Reporter A MONTH LY J O U RN A L O F COM P U TE R L AW AND P R AC TI C E Volume 62, Number 5

Washington,D.C.

Publisher: Neil J. Cohen, Esq.

January 2016

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Fred M. Greguras, Esq. K&L Gates 630 Hansen Way Palo Alto, CA 94304 Tobey B. Marzouk, Esq. Marzouk & Parry 1120 19th Street, N.W. SeventhFloor Washington, DC 20036-3605 Michael F. Mason, Esq. Hogan & Hartson 555 13th Street,N.W. Washington, DC 20004-1109 Jeffrey D. Neuburger, Esq. Proskauer 11 Times Square New York, NY10036 Gary J. Rinkerman, Esq. Drinker, Biddle, &ReathLLP 1500 K Street, NW Washington, DC20005

Computer Law Reporter A MONTHLY JOURNAL OF COMPUTER LAW AND PRACTICE Volume 62, Number 5, January 2016 1.

Challenging FTC Regulation Of Cyber-Security After FTC v. Wyndham_______________5 Gerald J. Ferguson & Alan L. Friel | BakerHostetler

2.

Recent Decisions_______________________7 • Second Circuit Lets “Cannibal Cop” Walk on Charges of Criminal Conspiracy and Violating the CFFA, Deepens Circuit Court Split on “Exceeds Authorized Access”_______________________ 7 Jeremy Merkel • Court of Federal Claim Holds Disparagement Provision of Section 2(a) of the Lanham Act Is Unconstitutional; First Amendment Protects Applicants of Trademarks Containing Disparaging or Immoral Speech________________________ 8 Jeremy Merkel • Class Action Settlement Payment in Voucher Form Is “Coupon” Under CAFA; Court Calculates Attorneys’ Fees Based on $350 Partner Hourly Rate Rather Than on the Value of Coupons Actually Redeemed__________________________ 10 Sana Hamelin • Upon Defendant’s Offer of Complete Relief, Southern District of New York Entered Judgment for Plaintiff and Terminated Putative Class Action Because Plaintiff No Longer Had Interest in the Case and Could Not Represent Class________ 13 Sharon Siegel • Defendant Unable To Show That Action for Alleged Theft and Conversion of Plaintiff’s Technologies By Defendant’s Principals in India Should Be Dismissed on Basis of Forum Non Conveniens____________________________ 15 Greg Lee

3.

Best of the Blogs______________________19 • Justices Rebuke California Courts (Again) for Refusal To Enforce Arbitration Agreement____ 19 Professor Ronald Mann Columbia University School of Law • Google Defeats Copyright Lawsuit Over Waze Data __________________________________ 21 Eric Goldman http://www.blog.ericgoldman.org © 2015 Professor Eric Goldman. Professor Goldman teaches at the University of Santa Clara Law School and is the Director of the

school’s High Tech Law Institute.

• When Does A Parody Twitter Account Constitute Criminal Identity Theft?___________________ 23 Venkat Balasubramani © 2015 Venkat Balasubramani. Venkat Balasubramani is a principal at Focal PLLC. • TCPA Claim Against Non-Sender Fails________ 25 Venkat Balasubramani © 2015 Venkat Balasubramani. Venkat Balasubramani is a principal at Focal PLLC.

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n From page 1

Judges Barrington Parker and Susan Carney con- cludedthatValle’sonlinepostsweremerelysexual fantasies,andposednointenttocommitacriminal act: “The mere indulgence of fantasy, even of the repugnant and unsettling kind here, is not,without more,criminal.”

In In re Simon Shiao Tam, Case No. 2014- 1203 (Fed. Cl. Dec. 22, 2015), the Federal Circuit held en banc that the disparagement provision of section 2(a) of the Lanham Act is unconstitutional, and concluded that the First Amendment protects the speech of trademark applicants.

Until recently, the government has used Section 2(a) to bar registration of trademarks that contain “scandalous, immoral, or disparaging” words or phrases. As Judge Moore explained in his major- ity opinion, “The government cannot refuse to register disparaging marks because itdisapproves of the expressive messages conveyed by the marks. It cannot refuse to register marks be- cause it concludes that such marks will be disparaging to others.” The court reached this conclusion after reviewing section 2(a) under both a strict scrutiny and intermediate scru- tiny standard, and vacated the decision of the Trademark Trial and Appeal Board (TTAB) to refuse to register Shiao Tam’s mark.

In Tyler v. Michaels Stores, Inc., No. 1:11-cv-10920WGY (D. Mass. Dec. 9, 2015),in a class action settlement for a case where Michaels Stores collected zip codes from cus- tomersformarketingpurposes,classmembersreceived$10and$25vouchersredeemable at the big box defendant’s stores, for a combined nominal face value of $418,000.

The Massachusetts District Court approved the settlement but declined to award class counsel thetotalattorneys’feesandcostsrequestedbecauseitheldthatthevouchersgiventoclass members were “coupons” under the Class Action Fairness Act of 2005 (“CAFA”), and this determination precluded a percentage-of-recovery award to

counsel based on the face valueofthecouponsawardedtoclassmembers.Underapplicablefederallaw,specifically CAFA, the court could choose between granting a percentage-of-recovery award based on the percentage of coupons redeemed by class members, or an award based on a lodestar calculation of hourly rate times number of hours, without a multiple for risk.

Since the First Circuit has not addressed the definition of “coupon” under CAFA, the district court analyzed the differing approaches of the Ninth and Seventh Circuits, and ultimately applied the lodestar method to calculate the attorney fee award, but used a lower hourly rate than that submitted by class counsel. Instead of the requested $425,000 in fees and costs, the court awarded $312,895 in fees computed at a partner rate of $350 /hour.

In Gilberto Franco v. Allied Interstate LLC, 13cv-4053 (KBF) (S.D. N.Y. Nov. 30, 2015), in a case where an individual consumer sued a collection agency claiming that it attempted to recover debts using deceptive and misleading practices in violation of a fed- eralstatute,afederaldistrictcourtenteredjudgmentforplaintiff(despitehisnon-consent), dismissed his individual claim as moot, and likewise dismissed as moot the putative class action that he sought torepresent.

InPipalTechVenturesPrivateLtd.v.MoEngage,Inc.,No.103-81-VCG(Del.Ch.Dec. 17, 2015), in an action for theft, conversion and breach of contract in themisappropriation of the plaintiff’s technologies in India by the Delaware defendant’s two Indian principals, the corporate defendant was unable to show that the action should be dismissed on theba- sis of forum non conveniens. Denying the defendant’s motion, Vice Chancellor Glasscock concluded that the defendant failed to show that fundamental concerns of the administra- tionofjusticeoverwhelminglysupporteddismissaloftheactionindeference-

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Challenging FTC Regulation Of Cyber-Security After FTC v. Wyndham n

Gerald J. Ferguson & Alan L. Friel | BakerHostetler

T

he Third Circuit interlocutory decision in Federal Trade Commission v. Wyndham Worldwide Corporation was widelyreportedasabigwinfortheFederalTradeCommission (“FTC”).Butoncloserexamination,itwasasplitdecisioninwhichWyndhamWorldwide Corporation (“Wyndham”) can claim an important victory.

While affirming the FTC’sau- thoritytoregulatecyber-securitypracticesunderthe“unfairpractices”prongoftheFederal Trade Commission Act (the “FTC Act”), the Third Circuit also rejected the FTC’sconten- tion that FTC settlements and consent orders in cyber-security cases with unrelatedparties have created standards against which Wyndham’s practices can be tested for “unfairness.” ThisThirdCircuitdecisionidentifiesdefensescompaniesshoulddevelopwhenfacingFTC allegations that the company’s 1 cyber-security practices are“unfair.”

TheFTCActprohibits“unfairordeceptiveactsorpracticesinoraffectingcommerce.” 15 U.S.C. § 45(a). Since 2005, the FTC has relied on the unfairness prong of the FTC Acttobringadministrativeactionsagainstcompaniesallegingun1 Wyndham and certain of its affiliates are clients of BakerHostetler. BakerHostetler has not represented Wyndham in connection with the data security incidents referenced in the FTC’s complaint, or in the pro- ceedings brought by the FTC.

fairpracticesbasedupon companies› failures to protect consumer data against hackers. Many of these actions have ended in settlements in which the companies agree to modify cyber-security practices and submit to FTC supervision of their cyber-security practices for manyyears.

Although the FTC won before the Third Circuit on the threshold questions of whether the FTC has authority to regulate cyber-security as an «unfair practice,» Wyndham successfully challenged the FTC›s efforts to transform the cyber-security settlements that the FTC has obtained over the past 10 years into a checklist of required cyber-security prac- tices upon which the FTC can base unfairness enforcement actions.

Specifically, the Third Circuit stated the following: «We agree with Wyndham that the consent orders, which admit no liability and which focus on prospective requirements on the defendant, were of little use to it in trying to understand the specific requirements im- posed by § 45(a).»

(Footnote 22) Further commenting on this issue, the Third Circuit stated: «We recognize it may be unfairtoexpectprivatepartiesbackin2008[thetimeperiodrelevanttotheclaimsagainst Wyndham]to-

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haveexaminedFTCcomplaintsorconsentdecrees.

Indeed,thesemaynotbe the kinds of legal documents they typically consulted.» (Footnote 23) At this point, the FTC›s allegations have merely survived a motion to dismiss on the pleadings. In order to prevail in its unfairness claim against Wyndham, the FTC will have to prove the elements applicable to an unfairness claim.

Specifically, the FTC will haveto show,ataminimum,thatWyndham›scyber-securitypracticesineffectduringtherelevant time period:

• caused or are likely to cause substantial injury; • that this injury is not reasonably avoidable •

by consumers themselves; and that this injury is not outweighed by countervailing benefits to consumers or to competition.

2

15 U.S.C. § 45(n)

The Third Circuit found that proving the three elements identified above may not be sufficienttoestablishunfairnessliabilityandthattheremaybeotherconsiderationsthatare relevantbasedonthefactsofaparticularcase.Atanytrial,Wyndhamwillhavetheability not just to challenge the accuracy of the allegations made in the FTC’s 2

The FTC also alleged that Wyndham engaged in “deceptive practices” in not accurately describing its security practices in its posted privacy policies. This claim was not before the court on this interlocutory appeal.

complaint, butalso to identify any other facts that undermine the FTC’s claim that Wyndham’s security prac- tices were unfair to consumers.

Furthermore, the FTC cannot meet its burden of proving unfairness by simply identifying instances where Wyndham failed to comply with stan- dards set forth in settlements that the FTC reached with other parties. As the Third Circuit opinion also makes clear, the FTC must show “substantial injury” to consumers in order to prevail. In making this showing, the FTC cannot merely rely on evidence of consumer inconvenience as a result of a data securitybreach.

For companies facing FTC challenges to their cyber-security practices as unfair, the lesson here is clear. Do not concede that your company has engaged in an unfair practice merely because the company failed to comply with a requirement in a settlement agree- ment between the FTC and an unrelated third party. Every company is different when it comes to the cyber-security exposures it faces, and the decision of a company to notadopt aspecificcyber-securitymeasuremaybejustifiedbasedonthespecificnatureofthecyber- security risks it faces, or the fact that it has adopted alternate measures that are as good as or better than the cyber-security practices that the FTC advocates. Finally, companies shouldholdtheFTCtoitsheavyburdenofprovingthatallegedlapsesinsecuritypractices caused substantial injury to consumers, and not mereinconvenience.q

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Recent Decisions COMPUTER FRAUD AND ABUSE ACT; CFFA; HACKING; AUTHORIZATION; CRIMINAL CONSPIRACY; ONLINE SPEECH

U.S. v. Valle, Case Nos. 14-2710-cr, 14-4396-cr (2d Cir. Dec. 3, 2015)

Second Circuit Lets “Cannibal Cop” Walk on Charges of Criminal Conspiracy and Violating the CFFA, Deepens Circuit Court Split on “Exceeds Authorized Access” Jeremy Merkel

O

n December 3, a divided panel of judges on the Second Circuit Court of Appeals af- firmed the acquittal of New York City’s infamous “cannibal cop” on charges of criminal conspiracy and reversed his conviction for violating the Computer Fraud and Abuse Act (CFAA). Officer Gilberto Valle was charged with one count of criminal conspiracy to kid- nap for his involvement in “the Dark Fetish Network,” an online community in which he and other members shared twisted sexual fantasies of abusing, murdering, and even can- nibalizing women they personally knew, included Valle’s own wife. While court’s major- ity opinion goes into graphic detail about the gruesome statements made by Valle, Judges Barrington Parker and Susan Carney concluded that Valle’s online posts were merely sexu- al fantasies, and posed no intent to commit a criminal act: “The mere indulgence of fantasy, even of the repugnant and unsettling kind here, is not, without more, criminal.”

More notably, the court reversed the lower court’s conviction of Valle for violatingthe CFAA, and in doing so, deepened the split among U.S. Circuit courts as how to properly interpret the phrase “exceeds authorized access” in section

1030(a) of the CFAA. Valle was charged with one count of improperly accessing a computer in violation of the CFAA for using his position as a NYPD officer to access the Omnixx Force Mobile (“OFM”). OFM allows officers to search various law enforcement databases that are otherwise restricted to the public, and Valle accessed the database to look up the women who were subjects of the unmentionable fantasies discussed in the online forum. In reversing Valle’s conviction, the Second Circuit sided with the 9th Circuit in U.S. v. Nosal (2012) and the Fourth Circuit in WEC Carolina Energy v. Miller (2012), which held that “exceeds authorized access” places limitations on access, not limitations on use.

Unlike cases involving hacking breaking into a computer system, Valle had access to the data to OFM through his role as a law enforcement officer; however, when he searched for the women who were the subject of his fantasies with no law enforcement purpose, he arguably exceeded the scope of his authorization. The CFAA permits prosecution where a person “intentionally accesses a computer without authorization or exceeds authorized access.” Defining the limits of an employee’s “authorized access” is precisely what has caused court so much difficulty.

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The legislative intent of the CFAA supported both Valle and the Government’s statu- tory interpretation. Thus the judges turned to the rule of lenity, and resolved any doubt in favor of Valle, and applied the narrower view of the CFAA. Similar to the Nosal andWEC decisions, the opinion expressed concern at over-criminalizing innocuous online activity and “subject[ing] individuals to the risk of arbitrary or discriminatory prosecution and conviction.”

Judge Chester Straub, in his dissent, admonished his fellow panel members for discov- ering “ambiguity in the statutory language where there is

none. Under the plain language of the statute, Valle exceeded his authorized access to a federal database in violation of the CFAA.” Editors Note: The First, Fifth, Seventh, and Eleventh Circuits have agreed with the government’s interpretation, and held that insiders can be prosecuted for violating use re- strictions on their employers’computers. The Fourth and Ninth Circuits have diverted from this approach, holding that the CFAA’s “exceeds authorized access” phrase must be inter- preted as a limitation of access, not a limitation of use. q

* * * TRADEMARKS; LANHAM ACT; FIRST AMENDMENT; STRICT SCRUTINY; DISPARAGING SPEECH; GOVERNMENT SPEECH; TRADEMARK TRIAL AND APPEAL BOARD; USPTO

In re Simon Shiao Tam, Case No. 2014-1203 (Fed. Cl. Dec. 22, 2015)

Court of Federal Claim Holds Disparagement Provision of Section 2(a) of the Lanham Act Is Unconstitutional; First Amendment Protects Applicants of Trademarks Containing Disparaging or Immoral Speech Jeremy Merkel

O

n December 22, 2015, the Federal Circuit held en banc that the disparagement pro- vision of section 2(a) of the Lanham Act is unconstitutional, and concluded that the First Amendment protects the speech of trademark applicants.

Until now, the government has used Section 2(a) to bar registration of trademarks that contain “scandalous, immoral, or disparaging” words or phrases. As Judge Moore explained in his majority opinion, “The government cannot refuse to register disparaging marks because it disapproves of the expressive messages conveyed by

the marks. It can- not refuse to register marks because it concludes that such marks will be disparaging to others.” The court reached this conclusion after reviewing section 2(a) under both a strict scrutiny and intermediate scrutiny standard, and vacated the decision of the Trademark Trial and Appeal Board (TTAB) to refuse to register Shiao Tam’s mark.

The trademark in question was for Mr. Tam’s Asian-American rock band named “The Slants.”

Mr. Tam sought to register his group’s name in 2010, and again 2011, but was denied both times because the USPTO found that it was likely

Computer Law Reporter - Vol. 62, No. 5, January 2016

to disparage “persons of Asian descent” under section 2(a). The TTAB affirmed the examiner’s refusal to register the mark, writing that “it is abundantly clear from the record not only that THE SLANTS . . . would have the ‘likely meaning’ of people of Asian descent but also that such meaning has been so perceived and has prompted significant responses by prospective attendees or hosts of the band’s performances.” On appeal to the Federal Circuit, the court affirmed the TTAB’s finding. Judge Moore, writing a separate opinion, urged the en banc court to rehear the case and reconsider the constitutionality of section 2(a), which it did.

On rehearing, the Federal Circuit held that the disparagement provision of section 2(a) is unconstitutional under a strict scrutiny and intermediate scrutiny analysis. First, the court explained that Section 2(a) could not survive strict scrutiny because it discriminates based on disapproval of the message conveyed, and is neither content nor viewpoint neutral. This government did not argue this undisputed point. Instead, the government maintained that Tam’s trademarks do not implicate the First Amendment for three reasons. First, section 2(a) does not prohibit speech because Tam is still free to use his band’s name as he wishes.

Second, trademark registration is government speech, and the government can grant or reject trademarks without constitutional concerns.

Finally, section 2(a) is merely a govern- ment subsidy and can be validly withheld for Tam’s mark. The court rejected each of the government’s arguments.

The government argued that section 2(a) does not implicate the First Amendment be- cause it does not actually restrict Tam from using certain speech. The court explained that the government’s position failed to acknowledge the true scope of First Amendment pro- tections,

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which is that “[l]awmakers may no more silence unwanted speech by burdening its utterance than by censoring its content.” To allow section 2(a) to “[burden] some speak- ers and benefits others” would result in the privilege of trademark registration hinging on whether the government deems the applicant’s mark to be offensive or disparaging. Since federal trademark registration “bestows truly significant and financially valuable benefits upon markholders,” to deny these benefits based on the government’s invocation of section 2(a) has a chilling effect on speech and promotes self-censorship in the public marketplace. This strong disincentive to choose a disparaging mark violates the guarantees of the First Amendment.

Next, the government argued that trademark registration “and the accoutrements of registration” are government speech, and are outside the scope of First Amendment protec- tions. The court also rejected this argument, noting that this logic would allow the govern- ment “to prohibit the copyright registration of any work deemed immoral, scandalous, or disparaging to others,” just because someone with a registered a copyright can attach the © symbol to their work, just as the holder of a registered mark can use the ® symbol. The only message conveyed when the government registers a trademark is that the mark is registered—no basis exists to assume that a consumer associates registered private marks with the government.

On the issue of whether trademark registration amounts to a government subsidy, the court distinguished section 2(a)’s disparagement provision from the Supreme Court’s un- constitutional conditions doctrine. In the latter, all of the “subsidy cases” involved denial of benefits related to government funding or government property. In contrast, trademark registration “does not implicate Congress’s power to spend or to control use of government property.” This idea that the government can control speech

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by denying trademark benefits to disfavored speech would be an unconstitutional condition within the confines of the trademark registration program.

The Federal Circuit also found section 2(a) to be unconstitutional under an intermedi- ate scrutiny standard, which the government argued was more appropriate because trade- marks are commercial speech. The court disagreed with this approach because section 2(a) is “based on the expressive aspect of the speech, not its commercial-speech aspects.” It proceeded to explain that even if it treated section 2(a) as commercial speech, it would still fail to survive intermediate scrutiny. First, the disparagement provision does not address misleading, deceptive, or unlawful marks. Second, no substantial government interest jus- tifies the regulation —“[t]he entire interest of the government in § 2(a) depends on disap- proval of the message.”

While the government attempted to argue that it has a legitimate interest in “declining to expend

its resources to facilitate the use of racial slurs as source identifiers in interstate commerce,” the court concluded that “[a]ll of the government’s proffered interests boil down to permitting the government to burden speech it finds offensive.” Without any substantial interests, the court reasserted that the disparagement provi- sion of section 2(a) is unconstitutional under the First Amendment.

This case is significant because its outcome may lead to reinstatement of the con- troversial trademark belonging to the Washington Redskins football team. In 2014, the TTAB cancelled six of the Redskins’ marks, finding that they were disparaging to Native Americans. The Board’s decision was upheld in July 2015 by the U.S. District Court for the Eastern District of Virginia, and is now on appeal at the Fourth Circuit (see Pro-Football, Inc. v. Amanda Blackhorse et al). Although the Fourth Circuit is not bound by the Federal Circuit’s holding in Tam, a differing result in that case would likely lead to the Supreme Court stepping in to resolve the circuit split.

* * * CLASS ACTION SETTLEMENT; COUPON SETTLEMENT; CAFA; ATTORNEYS’ FEES; LODESTAR; HOURLY RATES

Tyler v. Michaels Stores, Inc., No. 1:11-cv-10920-WGY (D. Mass. Dec. 9, 2015)

Class Action Settlement Payment in Voucher Form Is “Coupon” Under CAFA; Court Calculates Attorneys’ Fees Based on $350 Partner Hourly Rate Rather Than on the Value of Coupons Actually Redeemed Sana Hamelin

I

n a class action settlement for a case where Michaels Stores collected zip codes from customers for marketing purposes, class

members received $10 and $25 vouchers redeem- able at the big box defendant’s stores, for a combined nominal face value of $418,000.

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The Massachusetts District Court approved the settlement but declined to award class counsel the total attorneys’ fees and costs requested because it held that the vouchers given to class members were “coupons” under the Class Action Fairness Act of 2005 (“CAFA”), and this determination precluded a percentage-of-recovery award to counsel based on the face value of the coupons awarded to class members.

Under applicable federal law, specifically CAFA, the court could choose between granting a percentage-of-recovery award based on the percentage of coupons redeemed by class members, or an award based on a lodestar calculation of hourly rate times number of hours, without a multiple for risk. Since the First Circuit has not addressed the definition of “coupon” under CAFA, the district court analyzed the differing approaches of the Ninth and Seventh Circuits, and ultimately ap- plied the lodestar method to calculate the attorney fee award, but used a lower hourly rate than that submitted by class counsel. Instead of the requested $425,000 in fees and costs, the court awarded $312,895 in fees computed at a partner rate of $350 / hour.

What Is a “Coupon” Under CAFA? CAFA imposes additional restrictions on settlements that award class members cou- pons, because coupon settlements may incentivize lawyers to negotiate settlements under which class members receive nothing but “essentially valueless coupons, while the class counsel receive substantial attorney’s fees” (quoting In re HP Inkjet Printer Litig., 716 F.3d 1173, 1177–78 (9th Cir. 2013). The Ninth Circuit has narrowly interpreted the term, hold- ing that a gift card to Walmart is not a coupon, because Congress regulates gift cards sepa- rately (In re Online DVD-Rental Antitrust Litig., 779 F.3d 934, 951–52 (9th Cir. 2015)). Disagreeing with this approach, the district court pinpointed CAFA’s disfavor for

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coupon settlements as rooted in the distinction between coupons and cash, not coupons and gift cards.

In contrast to the Ninth Circuit, the Seventh Circuit held that $10 vouchers to RadioShack were coupons. In Redman v. RadioShack Corp., 768 F. 3d 622, 635–36 (7th Cir. 2014), Judge Posner refused to accept class counsel’s definition of coupons as restricted to certifi- cates providing mere discounts, pointing to the reason behind CAFA’s concern with cou- pon settlements where the nominal value of coupons can be much higher than their actual economic value to class members, leading to unreasonably large fees to class counsel. The district court also feared the possibility of collusion between defendants and class counsel to the detriment of class members, especially where the defendant does not oppose the settlement, as Michaels Stores did not.

Arriving at a concise definition, the district court determined that a coupon settlement exists “when class members must transact business with the defendant to obtain the benefit of the settlement.” Stated differently, coupons must be redeemed; therefore, any award that must be redeemed is a coupon. Per CAFA, close scrutiny is called for in any settle- ment where class members receive non-cash compensation that can be spent only at the defendant-business while class counsel receive cash.

Attorneys’ Fees To Be Awarded Based on Lodestar Method Because the court determined this was a coupon settlement, CAFA governed the award of attorneys’ fees. Under CAFA, there must be proportionality between class counsel’s fees and the award to the class, and this is achieved by (a) basing the attorneys’ feeaward, to the extent it is attributable to the award of the coupons, on the value to class members of the coupons

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that are actually redeemed (and not the nominal value of the total coupons awarded); and (b) if the fee award is in no way contingent on the coupon award, the lode- star method is used to calculate the fees (i.e., the number of hours class counsel reasonably expended working on the action, multiplied by an hourly rate that is determined based on counsel’s skill and experience). If the proposed settlement involves both injunctive relief as well as a coupon-based award, then a combination of (a) and (b) is used to calculate the attorneys’ fee award.

Once again, the Ninth and Seventh Circuits’ interpretation diverges. In In re HP Inkjet Printers Litigation, supra, the Ninth Circuit determined that only method (a) applied if a settlement was coupon-based, with Judge Berzon dissenting.

The Seventh Circuit adopted Judge Berzon’s dissent, noting that CAFA forces a choice between the lodestar method and a percentage of redeemed coupons. In turn, the Massachusetts District Court adopted Judge Berzon and the Seventh Circuit’s interpretation of these CAFA provisions. Facing the choice between the lodestar method and calculating fees based on the percentage of re- deemed coupons, the court chose the lodestar method because the percentage of redeemed coupons would result in too drastic a reduction in the fees counsel

requested (about one in three coupons were redeemed for a total redemption amount of $138,620). Although the court would normally be inclined to award attorneys’ fees based on a percentage of the actual value of the coupons redeemed by class members, here, the groundbreaking nature of the case called for the lodestar method to be employed. Class counsel had vindicated the important public policy goals of Massachusetts’ consumer protection statute, and also succeeded in obtaining binding precedent from the Supreme Judicial Court that was ex- pected to influence conduct beyond that of Michaels Stores. As such, a higher attorneys’ fee award was appropriate.

Despite the defendant’s agreement to the rate and amount of attorneys’ fees requested by class counsel, the court deemed the $650 hourly rate of class counsel at the partner level too high and determined that the appropriate partner hourly rate should be $350. This hourly rate was multiplied by the total number of hours billed by partners on the case (874), and the hours billed by an associate (19.90 hours at $250/hour) and paralegals (22.45 hours at $90/hour), for a total of $312,895.50. Costs were determined to be reasonable and were awarded in full, for a total fees and costs award of $326,900.30.

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OFFER OF JUDGMENT (F.R.C.P. RULE 68); MOOTNESS; CLASS ACTION

Gilberto Franco v. Allied Interstate LLC, 13-cv-4053 (KBF) (S.D. N.Y. Nov. 30, 2015)

Upon Defendant’s Offer of Complete Relief, Southern District of New York Entered Judgment for Plaintiff and Terminated Putative Class Action Because Plaintiff No Longer Had Interest in the Case and Could Not Represent Class Sharon Siegel

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n a case where an individual consumer sued a collection agency claiming that it at- tempted to recover debts using deceptive and misleading practices in violation of a federal statute, a federal district court entered judgment for plaintiff (despite his non-consent), dismissed his individual claim as moot, and likewise dismissed as moot the putative class action that he sought to represent because:

• The collection agency’s offer of judgment

•

•

•

under F.R.C.P. 68 provided for complete relief for plaintiff (including reasonable attorneys’ fees and costs); This judgment—rather than plaintiff’s rejection of the offer—rendered plaintiff’s claims moot since there is no longer a case or controversy and it is impossible for the court to grant any further relief; When plaintiff is no longer party to the suit and has no interest in the litigation, he cannot serve as a “typical and adequate” representative for a class; and Without a named representative, a putative class action which has not yet been certified cannot proceed and is mooted.

Background On June 13, 2013, Plaintiff Gilberto Franco sued collection agency Allied Interstate LLC, alleging

that Allied issued written warnings to debtors that 15% of their pay could be garnished. Franco claimed that sending these communications violates the Fair Debt Collection Practices Act (FDCPA) which disallows wage garnishment above 15% of dis- posable income. This law permits recovery of actual damages, additional statutory dam- ages not to exceed $1,000, and costs and fees. Franco sought to recover only statutory damages.

On September 10, 2013, Allied offered judgment to Franco, pursuant to F.R.C.P. 68, in the amount of $1,501.00 plus reasonable attorneys’ fees and costs as determined by the court. This offer did not include a reservation of rights or avoidance of a liability finding. Franco did not accept this offer, and it expired two weeks later.

On December 2, 2013, Franco moved for class certification.

On January 24, 2014, Allied moved to dismiss for lack of subject matter jurisdiction, asserting that the action was moot because Allied offered judgment in complete satisfac- tion of Franco’s claims. The court granted Allied’s motion to dismiss on April 2, 2014, but the Second Circuit vacated the dismissal and remanded to the district court. The Second Circuit held that the Rule 68 offer did not, by itself, moot the plaintiff’s claim, and ob- served that the district court did

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not enter judgment prior to dismissal.

On May 18, 2015, Allied moved for entry of judgment for plaintiff and filed a proposed judgment that would require Allied to pay $1,501 to plaintiff within 30 days of judgment, and reasonable attorneys’ fees and costs within 30 days of the order setting this amount. Allied also moved to dismiss the action as moot following judgment for plaintiff. In re- sponse, Franco argued that the proposed judgment does not afford complete relief and that, in any event, the class claims would survive this judgment. The court rejected Franco’s arguments, as follows.

Individual Claims Completely Satisfied and Mooted The court held that Allied’s offer provides complete relief for Franco’s claims. As a re- sult, under F.R.C.P. 68, the court entered judgment for Franco, despite his lack of consent. The court cited the Second Circuit: “Just as a defendant may end the litigation by allowing default judgment, a defendant may always end the litigation by offering judgment for all the relief that it sought.”

This entry of judgment for Franco mooted his claims because there is no longer a case or controversy; it is impossible for the court to grant any further relief to Franco. Emphatically, it is the court’s judgment, and not Franco’s rejection of the settlement offer, which results in mootness.

Furthermore, the court awarded attorneys’ fees and costs under FDCPA, despite the absence of adjudication on the merits. The court is authorized to grant reasonable attor- neys’ fees to a plaintiff receiving a settlement award for the maximum statutory amount, and costs will also be required so long as the offer does not

implicitly or explicitly exclude costs. Most critically, Allied has conceded that the court may enter judgment for fees and costs pursuant to the Rule 68 offer, and nothing in the FDCPA precludes use of this procedure.

The court also noted that post-judgment interest must be awarded from the date that judgment is entered, regardless of whether this is specifically stated in the proposed judgment.

Class Claims Mooted The court closed Franco’s motion for class certification and terminated the putative class action because judgment has been entered for Franco.

The court held that, when judg- ment is entered which moots the claims of named plaintiffs prior to class certification, the entire putative class action likewise becomes moot. There is “no longer any named plain- tiff with an interest in the litigation to proceed with a claim on behalf of a class.” The court concluded that Franco “cannot nominally continue in some capacity as class representative as he would definitionally be atypical and not an adequate representative.”

Other potential FDCPA plaintiffs seeking statutory damages (and not injunctive relief) would be able to pursue their claims in their own individual suits. Since the statute allows successful plaintiffs to recover fees and costs, financial issues involved in maintaining a suit are lessened. The court also noted that proposed amendments to disallow the use of Rule 68 for class actions were rejected. It follows that the FRCP drafters intended that Rule 68 be uniformly applicable in all federal court proceedings. This outcome is specific to the procedural posture where class certification has not yet been granted.

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FORUM NON CONVENIENS; ACTION FOR THEFT, CONVERSION AND BREACH OF CONTRACT

Pipal Tech Ventures Private Ltd. v. MoEngage, Inc., No. 103-81-VCG (Del. Ch. Dec. 17, 2015)

Defendant Unable To Show That Action for Alleged Theft and Conversion of Plaintiff’s Technologies By Defendant’s Principals in India Should Be Dismissed on Basis of Forum Non Conveniens Greg Lee

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n an action for theft, conversion and breach of contract in the misappropriation of the plaintiff’s technologies in India by the Delaware defendant’s two Indian principals, the corporate defendant was unable to show that the action should be dismissed on the basis of forum non conveniens. Denying the defendant’s motion, Vice Chancellor Glasscock concluded that the defendant failed to show that fundamental concerns of the administration of justice overwhelmingly supported dismissal of the action in deference to a theoretical action in an Indian court.

fendant, a Delaware corporation, allegedly was holding the asset, not only in contravention of Indian law, but also in violation of Delaware law.

While deference to a plaintiff’s choice of forum was less important when the alternative forum was the plain- tiff’s home jurisdiction, the same could be said for a defendant’s opposition to litigation in its home state. The court concluded that, while Delaware was not a convenient place for the defendant to litigate, the defendant failed to show that the venue was overwhelmingly inconvenient.

The court said that the case “fit[] rather poorly” under the factors enumerated by the Delaware Supreme Court for analysis of forum non conveniens, because the Delaware cor- porate defendant’s two Indian principals, whose theft of property and breaches of contract underlied the action, were not named as defendants. The court found that the actionable behavior alleged against the Delaware defendant—wrongfully holding and marketing the plaintiff’s technology—was secondary to the alleged Indian contract breaches and theft.

Background

Nevertheless, following the alleged conversion in India, the nonparty principals cre- ated a Delaware entity—the defendant—to hold, market, and monetize the purloined asset. Thus, the de-

The plaintiff, Pipal Tech, a closely held Indian company formed in 2011, developed and licensed mobile and web-based computer applications. The defendant MoEngage, a Delaware corporation formed in 2014, was operated by the non-party MoEngage India Private Ltd. Pipal Tech was founded by Amit Baid, Raviteja Dodda, and Yashwanth Kumar. Dodda became Chief Executive Officer and Kumar, Chief Technical Officer.

Pipal Tech began developing an application called DelightCircle—later relaunched with enhancements as SaveZippy—a location-based

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mobile and web application that al- lowed retailers to distribute coupons to customers.

Dodda and Kumar were involved in the development of the product, interacted with customers and investors, and handled media relations.

By March 2013, Pipal Tech had expanded to the United States and Canada with Safe Zippy and other products by incorporating DelightCircle, Inc., a Delaware corporation. It began to seek U.S. investors.

To address a key challenge in the mobile application business of keeping users engaged, Pipal Tech developed a set of technologies (collectively called the “MoEngage Product”) to be used in SaveZippy and another Pipal Tech product under development, the “Mantri Application.” Dodda proposed to Baid that Pipal Tech market MoEngage as a separate application.

With Baid’s verbal agreement and Pipal Tech’s authorization, Dodda and Kumar cop- ied and removed the MoEngage Product’s source code from the Pipal Tech server and moved it to a different server controlled by Dodda and Kumar. They then reformatted the source code to make it independently transferrable to third parties and marketable as a new product for Pipal Tech.

significant demand for MoEngage and that it was a potentially valuable asset. By mid-June, Dodda confirmed to Baid that three new clients had agreed to license it, and that Pipal Tech employees had begun technical integration.

Shortly thereafter, Dodda and Kumar allegedly asserted for the first time to Pipal Tech that MoEngage Product was their own because they had developed it. They then alleg- edly wrongfully interfered with Pipal Tech’s employment relationship with Rohib Bhat and Naveen Kumar by soliciting them to join the defendant.

Dodda and Kumar resigned from Pipal Tech on June 16, 2014. In late June, Dodda and Kumar, without Pipal Tech’s permission, removed the MoEngage Product source code and other information pertaining to the product from Pipal Tech’s servers, including pricing models, business strategy, and customer lists.

The parties unsuccessfully engaged in negotiations to resolve their dispute. During negotiations, however, the defendant allegedly destroyed key information related to the theft.

On November 20, 2014, Pipal Tech filed a complaint alleging misappropriation and conversion. The defendant moved to dismiss on the basis of forum non conveniens.

Forum Non Conveniens From April to June 2014, Dodda and Kumar demonstrated the MoEngage Product. Dodda marketed it to the largest movie ticket-purchasing mobile application in India (Book My Show), Jabong, one of India’s largest e-commerce portals, and various others, all on behalf of Pipal Tech. In mid-May 2014, Dodda and Kumar also applied to a U.S. invest- ment firm, 500 StartUp Accelerator, acknowledging that MoEngage Product initially was built by Pipal Tech.

By early June 2014, it was clear that there was

A court’s analysis of hardship and inconvenience was guided by six factors estab- lished in General Foods Corp. v. Cryo-Maid, Inc., 198 A.2d 681 (Del. 1964). While courts traditionally have applied the doctrine sparingly with due regard for the plaintiff’s right to choose its forum, the Supreme Court recently clarified in Martinez v.

E.I. DuPont de Nemours and Co., 86 A.3d 1102 (Del. 2014), that “the ‘overwhelming hardship’ standard is not insurmountable.”

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The first Cryo-Maid factor was the relative ease of access to proof, including docu- ments and witnesses. The defendant contended that nearly all of the potential witnesses and sources of information were located in India, while the plaintiff argued there was little material evidence located in India, and what was there was accessible as pretrial discovery.

This factor supported the defendant. It was true that modern technology lessened the degree of efficiency gained by proximity. But to the extent documentary and deposition evidence had to be gathered, that process largely would take place in India, and certainly not in Delaware.

The second factor was the availability of compulsory process for witnesses. The defen- dant had to identify the witnesses and the specific substance of their testimony, and explain why the testimony could not be presented in Delaware by deposition. Moreover, for this factor to be relevant, the other forum had to provide a substantial improvement as to the number of witnesses who would be subject to compulsory process.

At oral argument, the court expressed concern as to whether the defendant could mount a full defense, given the strictures of the Hague Convention. After further research, the parties agreed that compulsory process was available in India under both the Hague Convention and Indian law.

This factor was not supportive of the defendant’s motion. Process was available to compel testimony of the necessary witnesses in Delaware.

Nevertheless, practical reasons indicated that live testimony would be curtailed and obtaining and presenting testimony would be cumbersome and inefficient, and this would be considered in the analysis of the final Cryo-Maid factor.

The parties agreed that the third factor—the

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possibility of the view of the premises— was inapplicable here.

The fourth factor was whether the controversy was dependent upon the application of Delaware law which Delaware courts more properly should decide. In Martinez, the Court indicated that when important and novel issues of foreign law were presented, those issues were best determined by the foreign courts when practicable.

Both parties agreed that application of Indian law, at least to one of the claims, was ap- propriate. A necessary determination was whether the MoEngage Product ever belonged to the plaintiff under Indian law, and if so, whether the product improperly was held by the defendant. In part, such analysis would turn on evaluation of the employment agreements and NDAs signed by Dodda and Kumar—agreements governed by Indian law. The parties agreed that the relevant Indian law was settled.

The complaint also sought redress for breach of the Delaware Uniform Trade Secrets Act. Nothing in the record suggested that the issue posed would involve novel interpreta- tion of Delaware law.

This factor slightly favored the defendant’s motion. The tort of conversion underly- ing the action took place, if at all, in India. Indian law applied, and Indian issues were implicated. But this factor would be more persuasive if unsettled issues of Indian law were presented. A Delaware court was capable of applying settled Indian law.

Moreover, English was an official language of India, and therefore issues of translation were not present.

The fifth factor was whether there was a similar action pending in another jurisdic- tion. There was none, but this factor weighed only slightly in favor of the plaintiff because the defendant has agreed to submit itself to Indian jurisdiction if

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its motion was granted. Further, given the early stage of the action, any inefficiency involved in a transfer to an Indian court would be minimal.

The final factor focused on any other practical problems that would make trial of the case easy, expeditious and inexpensive. Delaware courts have examined a wide array of considerations, including judicial economy, the motives of the parties filing the suit, and the public interest.

This case fit rather poorly under the above CryoMaid factors, largely because Dodda and Kumar, the principals of the corporate defendant whose alleged theft or breaches of contract underlie the action, were not named as defendants.

The actionable behavior al- leged against the defendant—wrongfully holding and marketing the MoEngageProduct— was, in the defendant’s view, secondary to the alleged Indian contract breaches and theft. While the plaintiff asserted correctly that Delaware had a powerful interest in preventing Delaware entities from being used as vehicles of wrongdoing, it was India that had an inter- est in preventing theft of assets in India, and in redressing breaches of contract occurring there.

While the plaintiff argued that the Delaware court was better positioned to address the alleged destruction of evidence by Dodda and generally administer swift and complete justice, it did not show convincingly why that was so.

Moreover, while the plaintiff con- ceded it could not sue the individual wrongdoers in Delaware, they would have to appear and defend their actions if the action proceeded, and the court would have to consider their contractual obligations under Indian law.

Nevertheless, following the alleged conversion in India, the nonparty principals cre- ated a Delaware entity—the defendant—to hold, market, and monetize the purloined asset. Thus, the defendant, a Delaware corporation, allegedly was holding the asset, not only in contravention of Indian law, but also in violation of Delaware law. While deference to a plaintiff’s choice of forum was less important when the alternative forum was the plain- tiff’s home jurisdiction, the same could be said for a defendant’s opposition to litigation in its home state. Accordingly, while Delaware was not a convenient place for the defendant to litigate, the defendant failed to show that the venue was overwhelmingly inconvenient.

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Best of the Blogs ARBITRATION AGREEMENTS; CLASS ACTIONS; PREEMPTION

DIRECTV, Inc. v. Imburgia, No. 14-462 (U.S. Dec. 14, 2015)

Justices Rebuke California Courts (Again) for Refusal To Enforce Arbitration Agreement Professor Ronald Mann Columbia University School of Law From SCOTUSblog

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ith its last opinion of 2015, the Justices added DIRECTV v. Imburgia to the ever- growing line of decisions reversing state court refusals to enforce arbitration agreements. The particular topic here is classwide arbitration. Three years ago, after California courts refused to enforce provisions in arbitration agreements that barred class arbitration (on the ground that the provisions were unconscionable), a closely divided court in AT&T Mobility v. Concepcion disagreed, holding that the Federal Arbitration Agreement preempted the California doctrine invalidating those waivers.

For several years before the Court’s decision in Concepcion, the California courts were invalidating waivers of classwide arbitration as unconscionable. During that time, DIRECTV included a clause in its agreement indicating that the entire arbitration clause should be invalidated if the waiver was “unenforceable” under the “law of your state.” It should have surprised nobody when the California courts concluded that, because those waivers remain unenforceable under California law (albeit preempted Califor-

nia law), they should toss the entire arbitration agreement. Nor should it surprise anybody that the Supreme Court decided to review and reverse that decision.

Justice Stephen Breyer mused at argument that, despite his dissent from Concepcion, this case seemed to follow so closely upon it that a contrary ruling amounted to little more than evasion of the earlier case. Presumably that line of thinking is what motivated Chief Justice John Roberts to assign the opinion to Justice Breyer, and it certainly pervades the opinion’s analysis.

Indeed, the discussion starts with a paean to the importance of lower courts following the Supreme Court’s opinions (even those “from which four Justices dis- sented”), closing with a quotation of the Supremacy Clause.

The Court acknowledges that the California courts are the final authority on questions of California contract law, and that the lower court’s reading of the contract was correct so long as it rested on a ground that would justify “revocation of any contract.” Thus, the opinion explains, the key question was whether the decision leaves arbitration agreements “on equal footing with all other contracts.” The Court then provides a straight and linear opinion: a list of what

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the Court characterizes as six distinct reasons (usefully labeled “First” through “Sixth”) why the California decision did not leave arbitration contracts on an “equal footing,” followed by a brief conclusion that the decision is invalid for failing to give “due regard . . . to the federal policy favoring arbitration.”

For simplicity of description, though, it is fair to group the reasons into three catego- ries.

First, the Court concludes that the contract unambiguously refers to valid state law, not to the doctrine preempted by the Court’s decision in Concepcion. At that point, of course, the decision becomes more or less a foregone conclusion, because the reader knows that the Court is not going to locate a principle of general application that calls for ignoring the unambiguous language of the contract.

Not surprisingly, that is the point at which Justice Ruth Bader Ginsburg (joined by Justice Sonia Sotomayor) attacked the majority opinion – offering a dissent almost twice as long as the majority’s opinion, contending that the “Delphic” clause in the contract was anything but unambiguous. In her view, construing the contract against its drafter, the lower court’s reading was “not only reasonable, [but] entirely right.”

If the argument that the contract is “unambiguous” is so easily debatable, perhaps some of the Justices ultimately were persuaded by the second group of reasons, which pressed the idea that the admittedly meager evidence suggests that courts ordinarily would con- clude that references to the “law” of a state refer to “valid law,” rather than “the law as it would be in the absence of federal preemption.” The Court points both to California cases interpreting contracts to refer to statutes as subsequently amended and to the oddity of the lower court’s “view that state law retains independent force even after it has been authori- tatively invalidated by this Court.” The reader can sense the Justices’ bristling

sensitivity to the lower court’s casual rejection of the Concepcion opinion as a pronouncement that didn’t really change anything on the ground out in California.

The tone of a court facing off against a contumacious underling leads directly into the Court’s final group of reasons, which emphasize a variety of indications in the California court’s opinion that the decision in fact did depend on the language being in an arbitration clause, coupled with the absence of any other canon that might justify the reading that the Court found so odd.

Breyer’s comments at the argument suggest that those points well might be what swayed him to this side of the case. The absence of any real non-arbitration justification for the ruling makes it difficult to doubt that the California court in fact de- cided this case with the specific intention of limiting the effect of Concepcion.

Reaching the end of the list, the Court clearly felt it had said enough, because it con- cluded the opinion with a single summarizing paragraph holding that “these considerations together” required reversal of the state court decision and enforcement of the arbitration agreement. If the summary suggests that the Court’s opinion is rather harsh, especially coming from Breyer, that is probably correct. But there is a bright side for the California courts: the decision wasn’t unanimous, and it didn’t include the pointed rebuke for repeti- tive intransigence the Court gave the Sixth Circuit a half-hour earlier on Monday in White v. Wheeler.

PLAIN LANGUAGE: The Court held that Amy Imburgia’s contract with DIRECTV required her arbitrate any disputes with DIRECTV, which means that Imburgia lost the right to sue DIRECTV in a court. The case reached the Supreme Court because the contract had a clause that said the arbitration provision was unenforceable if anything in state “law” would require DIRECTV to tolerate “class” arbitration. “Class” arbitration

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is a process in which groups of consumers band their arbitration proceedings together, and companies don’t like it much better than they do class actions in court, so they usually require consumers to waive it in their arbitration agreements.

Until a few years ago, California courts invalidated those waivers, but then the Supreme Court rejected that rule. The Court in this case held

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that the state’s “law” described in the contract is the law as the Supreme Court understands it, not as it would be if the Supreme Court had not invalidated it.

[Disclosure: Goldstein & Russell, P.C., whose attorneys contribute to this blog in various capacities, is among the counsel to the respondents in this case. The author of this post, however, is not affiliated with the law firm.]

* * * COPYRIGHT

PhantomALERT, Inc. v. Google, Inc., 3:15-cv-03986-JCS (N.D. Cal. Dec. 14, 2015)

Google Defeats Copyright Lawsuit Over Waze Data Eric Goldman http://www.blog.ericgoldman.org © 2015 Professor Eric Goldman. Professor Goldman teaches at the University of Santa Clara Law School and is the Director of the school’s High Tech Law Institute.

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he basic copyright rule is clear: facts are not copyrightable; factual compilations can be. However, this simple rule masks considerable nuance. What is a “fact,” how does it differ from “non-facts,” what does it mean to “compile” facts, and when is a compilation sufficiently original to become copyrightable?

These questions are more epistemological than legal, so not surprisingly, the associated legal disputes routinely baffle judges. As a result, the copyright caselaw regarding facts and compilations is confused–and confusing.

These issues surfaced again in a recent case where Google defeated a copyright chal- lenge over data used in its Waze navigation application (Google bought Waze in 2013). The plaintiff, PhantomALERT, offers a GPS-based navigational app that competes with Waze. Both apps use

databases containing “the location of traffic conditions, road hazards, and traffic enforcement monitors, such as speed cameras” (what the court calls a “points of interest database”).

PhantomALERT alleged that Waze ripped off its points of inter- est database, as evidenced by the alleged presence of fake points of interest created by PhantomALERT appearing in Waze’s database.

This fact pattern resembles Feist v. Rural Telephone Service, the seminal 1991 Supreme Court opinion involving the copying of telephone “white pages” data. In that case, a phone book publisher copied a rival’s white pages data, including fake listings, to produce a competing phone book. The Supreme Court, in an opinion I’ve routinely characterized as the single most important copyright opinion ever, held that

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individual white pages listings were just facts and never copyrightable. The court further held that compilations of white pages listings could be copyrightable if they showed sufficient originality, but presenting white pages listings in alphabetical order by surname wasn’t original at all.

The Feist case casts a long shadow on the PhantomALERT case. The court held that individual points of interest were facts and therefore never copyrightable. PhantomALERT argued that it exercised some judgment deciding where to place each point of interest on its map and how much advance notice to give drivers about each point of interest. The court says the location decision is driven by functional considerations, which I infer means that PhantomALERT sought to be as factually precise as possible to improve the app’s func- tionality.

The court also says there’s no evidence Waze copied any of PhantomALERT’s judgments about where to locate the points of interest or how much notice to give drivers.

But what about PhantomALERT’s overall compilation of points of interest? Per basic copyright law, PhantomALERT ought to have a compilation copyright for its database as a whole. The judgments PhantomALERT made to prepare a detailed map surely are signifi- cantly more extensive than the simplistic alphabetization of white pages info. However, the compilation copyright would be “thin” in the sense that it would only prevent wholesale verbatim copying. Any other implementation shouldn’t be copyright infringement because it doesn’t copy PhantomALERT’s original contributions.

there doesn’t appear to be any original- ity in how PhantomALERT organized the points of interest database, but PhantomALERT may have exercised enough judgment selecting which points of interest to include in the database. As evidence of PhantomALERT’s editorial judgment about selecting or exclud- ing facts, the court gave the example of how PhantomALERT may delete speed traps from its database if it believes those traps don’t pose a significant risk to drivers.

This copyrightable interest in selecting factual data still doesn’t help PhantomALERT. The court says: the issue is whether the defendant copied the element of the compilation that was original.

The creativ- ity that may have been reflected in PhantomALERT’s selection of Points of Interest is not implicated by merely incorporating the “raw data” into Defendants’ databases along with other data already contained in those databases.

I read this to say that even if Waze took 100% of PhantomALERT’s factual selections, there’s no copyright infringement if Waze adds its own selections to the mix. As a result, the court dismissed PhantomALERT’s case but gave PhantomALERT a chance to try again on this point.

We’ll have to see how PhantomALERT’s second attempt fares before drawing conclu- sive lessons from this case. If PhantomALERT gets better traction next time, it could cause a lot of ripple effects through the transportation data ecosystem. In the more likely scenario where this case fails again, it will provide more comfort to transportation data providers that they aren’t stepping on unexpected copyright landmines as they remix rivals’“facts.”

Applying these basic principles, the court says * * *

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PUBLICITY/PRIVACY RIGHTS

Sims v. Monaghan, No. 13-CV-6496-FPG (W.D.N.Y. Dec. 21, 2015)

When Does A Parody Twitter Account Constitute Criminal Identity Theft?

Venkat Balasubramani © 2015 Venkat Balasubramani. Venkat Balasubramani is a principal at Focal PLLC.

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laintiff, while he was in custody, created a fake Twitter account in the name of “Frank Zamiara” with the user name “LitlZeezy”.

The account “was meant to act as the voice and alter ego of [an] abusive deputy.” It was used ostensibly to alert the public to what the plaintiff and others felt was abusive conduct by a real life deputy named Michael Zamiara.

Plaintiff sent letters to his girlfriend, who then posted the information as tweets from LitlZeezy. Jail officials were alerted (in September 2009) to plaintiff’s social media efforts in the course of screening his outgoing mail. As a result, he was placed in the special hous- ing unit under “administrative segregation” for 22 days.

Alawyer for plaintiff moved to dismiss the criminal charges, and in response, Monaghan stated that the reference to “Frank” rather than “Michael” was a typo. Monaghan sought leave to amend on this basis. The criminal case did not move forward after this.

Monaghan, an ADA, was assigned to investigate possible criminal charges against plaintiff. He allegedly got the process started. Peglow, an investigator, filed a felony com- plaint charging plaintiff and his girlfriend with identity theft, criminal impersonation, and conspiracy. The complaint did not mention that the Twitter account was in the name of “Frank,” not “Michael,” Zamiara. The complaint generally alleged that the tweets made Zamiara out to be a racist and included numerous racially charged terms.

Zamiara filed a supporting deposition in connection with the complaint. He alleged that the tweets were supposed to appear as if they were from him and that “someone . . . assumed [his] identity online.”

Some years later, plaintiff, proceeding pro se, brought a slew of claims against the in- vestigator, deputy, and the ADAs, Most were dismissed on the court’s initial screening of the complaint.

What remained was plaintiff’s claim for malicious prosecution. The court finds it lacking.

Later, in 2010, plaintiff appeared in court on unrelated criminal charges, and another ADA cited to the still-pending identity theft charges as justification for why plaintiff should be denied access to judicial diversion. ADA Monaghan eventually tried to secure an indict- ment on the identity theft charges, but the grand jury dismissed the charges.

Claims against the prosecutors and the jail deputy: Plaintiff’s claims against the pros- ecutors fail because they are barred by (absolute) prosecutorial immunity. While the com- plaint intimated that one of the ADAs functioned in a role other than as an advocate (i.e., as an investigator), the complaint lacked credible allegations in this regard.

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The jail deputy (Zamiara) argued that he couldn’t be held liable because he did not “ini- tiate” the prosecution, but the court disagrees. However, the court does say that the deputy is entitled to judgment on the pleadings because probable cause is a total defense to a claim for malicious prosecution.

The identity theft charge: The court says that probable cause existed as to the identity theft claim because plaintiff utilized an item of the deputy’s personal information (broadly defined under New York law to include a person’s name and place of employment) in the Twitter account. While plaintiff’s stated intent was to act as a whistleblower, the court says a reasonable person could have concluded plaintiff possessed an intent to defraud (i.e., cause loss to the Zamiara, who testified that the posts “[c]ould have caused him to lose over two thousand dollars in lost salary and benefits if his employers had believed the posts were made by him”).

The criminal impersonation charge: The court similarly says probable cause supported the charge of criminal impersonation. The statute broadly defines impersonation as “act[ing] in . . . [an] assumed character with intent to obtain a benefit or to injure or defraud another.” A separate part of the statute specifically references communications where someone “pre- tends to be a public servant in order to induce another to submit to such authority or act in reliance on such pretense.”

The conspiracy charge: Probable cause was satisfied as to the conspiracy claim because plaintiff worked with his girlfriend to set up the Twitter account.

Claims against the investigator: Finally, the court dismissed the investigator on quali- fied immunity grounds. Even if probable cause “did not actually exist, officers of reason- able competence could disagree on whether the probable

cause test was met.”

Ugh. A thin-skinned public official who overreacts to at best a parody social media account, and at worst a means of blowing the whistle on bad conduct. We’ve seen similar examples of such overreactions before. (See, e.g., Matot v.

CH; Perez v. Tedford.) And here, it looks like the plaintiff suffered some serious consequences as a result.

Identity theft and criminal impersonation statutes are incredibly overbroad. There’s no way a parody account should satisfy the elements, but we’ve seen attempts to shoe- horn such activity into these types of statutes before.

And the court here, bending over backwards to give defendants the benefit of the doubt, says it’s possible the plaintiff’s ac- tions constituted identity theft and criminal impersonation.

The court had a couple of opportunities to appoint a lawyer for the plaintiff, who was proceeding pro se, and declined. I’m not sure how much of a difference it would have made but it was disappointing to see the court not take the opportunity to appoint counsel. This looked like a colorable case, and one where the court could have benefited from having a well-developed presentation on the plaintiff’s side.

Eric’s comment: As Venkat indicates, this case has important parallels to In re Rolando S, where a high schooler was convicted of identity theft for logging into a classmate’s Facebook account and posting inappropriate sexual content in her name. The identitytheft elements were stretched in that case, but this court’s stretching is even more problematic because of the parody Twitter account’s obvious political and advocacy functions. Indeed, an Illinois court invalidated parts of an identity theft statute because of its obvious over- reach into ordinary online conduct. Identity theft can be a terrible crime, but legislatures and prosecutors need to tread extra

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carefully to make sure they are sanctioning only true identity theft, not a panoply of everyday online activities where pretending is involved.

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The prosecutors in this case weren’t nearly so careful, and they are really lucky they found a sympathetic judge.

* * * MARKETING; SPAM

Melito v. American Eagle Outfitters, Nos. 14-CV-02440 (VEC), 15-CV-00039 (VEC), 15- CV-02370 (VEC) (S.D.N.Y. Nov. 30, 2015)

TCPA Claim Against Non-Sender Fails Venkat Balasubramani © 2015 Venkat Balasubramani. Venkat Balasubramani is a principal at Focal PLLC.

P

laintiffs sued American Eagle Outfitters and Experian, alleging claims under the TCPA for unwanted text messages. American Eagle is the retailer, and Experian provides marketing services. But neither of these entities actually pressed the “send” button. We’ve seen disputes over whether the defendants used an “automatic telephone dialing system” but this particular dispute turned on who actually sent the messages in question.

No Direct Liability As Senders Plaintiffs implicitly acknowledged Archer, a non-party who had declared bankruptcy, actually sent the messages. The allegations were specific about who did what leading up to the actual sending, but the court notes uses the passive voice for the last step: 1) AEO provides Experian with the campaign request form; 2) AEO deploys to Experian a list of num- bers to which texts will be sent (“Campaign Ready File”); 3) Experian sends the information to Archer USA, Inc.’s (“Archer”) texting platform;

4) Experian schedules text messages to be sent; and 5) text messages are sent. [emphasis added] The text of the statute and cases interpreting it have found that the party who “actually sent the message” can be directly liable.

Plaintiffs argued, citing to the most recent FCC ruling, that a person who does not ac- tually hit send can be so involved in the process that they can be held directly liable. The court disagrees. The FCC’s interpretation is offered in the context of a different part of the statute which uses the word “initiate” rather than “make” (and is applicable to sellers).

No Vicarious Liability The court assumes that vicarious liability is cognizable under the TCPA, but says plain- tiffs failed to allege any facts regarding the nature of the relationship between Experian and Archer: Significantly absent from Plaintiffs’ allegations,

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however, is any factual content regarding the relation- ship between Experian and Archer.

Plaintiffs seem to suggest that the allegations that Experian “had the right to control the sending of the texts” and “in fact controlled and even scheduled the sending of each segment of the texts” are sufficient to plead Experian’s vicarious liability for Archer’s actions. Pls. Opp’n at 12.

Indeed, Plaintiffs argue, without support, that “[w]hether Experian Marketing sent the texts via Archer’s messaging platform or whether Archer sent the texts after Experian Marketing directed it to do so is irrelevant to the issue of vicarious liability.” Id. But to plead vicarious liability under the TCPA in accordance with traditional tort principles, Plaintiffs must allege some facts regarding the relationship between an alleged principal and agent (or an alleged agent and sub-agent) and cannot simply allege general control in a vacuum.

Courts seem to be taking a closer look at TCPA cases. This is a good example of a court taking

an unsympathetic view of what looks like a run-of-the-mill TCPA claim. The plain- tiffs here are not suing over confirmatory texts or a single text that preceded an opt-out.

This case raises the question of whether the sender, the platform, or the entity adver- tised should be held liable for unwanted commercial texts. We’ve seen this issue come up in the group text platform and spam/email scenarios, among others.

The court is fairly strict here, and despite the numerous allegations that Experian was the driving force behind the texts, lets it off the hook. The court takes a pretty restrictive view of the path to liability for Experian. While we haven’t seen many rulings delve into the agency issue, the Ninth Circuit issued one from 2014 involving Taco Bell that comes to mind. (“TCPA Claim Against Taco Bell Fails For Lack of Agency”.)

And it makes me think this one is appeal-worthy.

* * *

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About the Author ❍❍ Gerald J. Ferguson & Alan L. Friel

Jerry Ferguson assists clients in developing, protecting and exploiting intellectual property, data and media assets. His diverse experience includes designing....

❍❍ Gerald J. Ferguson & Alan L. Friel

Jerry Ferguson assists clients in developing, protecting and exploiting intellectual property, data and media assets. His diverse experience includes designing....

❍❍ Gerald J. Ferguson & Alan L. Friel

Jerry Ferguson assists clients in developing, protecting and exploiting intellectual property, data and media assets. His diverse experience includes designing....

❍❍ Gerald J. Ferguson & Alan L. Friel

Jerry Ferguson assists clients in developing, protecting and exploiting intellectual property, data and media assets. His diverse experience includes designing....

❍❍ Gerald J. Ferguson & Alan L. Friel

Jerry Ferguson assists clients in developing, protecting and exploiting intellectual property, data and media assets. His diverse experience includes designing....

❍❍ Gerald J. Ferguson & Alan L. Friel

Jerry Ferguson assists clients in developing, protecting and exploiting intellectual property, data and media assets. His diverse experience includes designing....

❍❍ Gerald J. Ferguson & Alan L. Friel

Jerry Ferguson assists clients in developing, protecting and exploiting intellectual property, data and media assets. His diverse experience includes designing....

❍❍ Gerald J. Ferguson & Alan L. Friel

Jerry Ferguson assists clients in developing, protecting and exploiting intellectual property, data and media assets. His diverse experience includes designing....

❍❍ Gerald J. Ferguson & Alan L. Friel

Jerry Ferguson assists clients in developing, protecting and exploiting intellectual property, data and media assets. His diverse experience includes designing....

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Computer Law Reporter - Vol. 62, No. 5, January 2016

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