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Crowd Funding. Apologies, William Wordsworth

“I wandered lonely as a cloud
That floats on high o’er vales and hills,
When all at once I saw a crowd,”

. . . and so begins the beautiful and timeless poem by William Wordsworth. Although Wordsworth’s crowd was a host of golden daffodils, the crowds most of us have been hearing about lately are either crowd sourcing (check out When Online Games, Health & Life Sciences and Crowd Sourcing Combine) or crowd funding – the subject of this post.

In today’s world, according to the Wikipedia definition, “crowd funding” refers to the collective effort of individuals who network and pool their money, usually via the Internet, to support efforts initiated by other people or organizations.”

There remains some confusion in the marketplace as to the mechanisms by which the crowds’ funds are made available to business ventures, film promotion and production, worthy causes, and civic organizations. Contrary to what many may believe, it is currently not legal to solicit, offer or otherwise make available any form of securities or equity investment (I’m over-simplifying, but that is the net effect) through online, crowd or other web-based funding schemes. In other words, you can’t raise equity or solicit investments through crowd funding that provide the expectation of profit or the risk of loss of capital investment – in much the same way the traditional stock markets function when they allow individuals to purchase and sell securities.

It is true that the U.S. Securities Exchange Commission has been talking about promulgating regulations aimed at legitimizing, with regulation and oversight, the use of crowd funding as an investment opportunity (and the SEC has publicly announced that it hopes to have the regulations released for comment this fall). But until the regulators promulgate rules and enable it, you can’t “invest,” and businesses and other ventures can’t “raise capital,” through equity or securities offerings through crowd funding.

So what’s the buzz about. Well, first it combines “power to the people” with “put your money where your mouth is” in ways unheard of prior to the Internet! Second, there are still opportunities to raise capital from the public in ways that aren’t illegal and don’t involve equity or securities. Currently, there are four major categories of crowd funding activity. To wit:

I am a musician (not really, it’s just an example) and I tell you that if you pay me $1,000, I will write a song to or about you. If you pay me $5,000, I’ll not only write the song, but if I’m nominated for a major music award (e.g., Grammy, VMA, CMA), I’ll get you two tickets to the awards show. That is referred to as the ”rewards” model of crowdfunding.

Next is the ”pre-payment” model. Please send me $5 and when the song is completed, but before it’s released and available to the general public for $7, I will send you a copy. If I offer to autograph it for another $3, I’ve combined the pre-payment and rewards model.

Then there’s the cause-related model. Listen, I am talented and you love good music, but I’m starving. Please just send me $10 so I can eat, rent recording studio time, and try to publish and distribute my music. Pure online begging – there is no expectation of anything in return.

Last, but not least, the ”loan” model. Please help finance the production of my music, my tour (I’ll send you a T-shirt) and just lend me some money. I promise to pay you back when I start making money – but, WITHOUT interest. There must be no expectation that anyone who lends money will make a profit (interest) on the loan. While there may still be lending laws that apply as to how this is done, it won’t trigger the prohibitions under securities’ laws, as long as you don’t pay interest.

In conclusion, while there are some high-profile examples of projects that have raised millions through crowd funding, most do not – at least not yet. In fact, most commercial ventures raise very little through crowd funding. In the words of Wordsworth: “A poet could not but be gay, In such a jocund company. I gazed – and gazed – but little thought, What wealth the show to me had brought.”

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Airlines May be Mobile But Delta Apps Irk California Regulators

In a civil action filed in California (People v. Delta Air Lines Inc., California Superior Court, San Francisco, 12-526741), the California State Attorney General’s office alleges that Delta Air Lines was distributing a mobile application without a privacy policy, in violation of the California Online Privacy Protection Act of 2003 (COPPA), which became effective July 1, 2004. The California statute provides a penalty of up to $2,500 for every violation.

Among other things, the Delta ‘app’ allows customers to check in, and display and make reservations; and, according to the lawsuit, Delta has been allowing customers to download and use the ‘Fly Delta’ app without a privacy policy, since at least 2010.

Of course, Delta is not the only company with user-friendly mobile apps for on-the-go busy travelers, and I’m guessing that company lawyers are now scrambling to determine if their apps are in compliance and whether changes need to be made and, just as importantly, how to make those changes to ensure compliance with the law and still maintain the customer friendliness mobile users are accustomed to and demand.

Our Advertising, Technology & Media law practice can help you navigate the challenges of compliance – preventive law as well as representing clients when the regulators come calling . . . and we have a group dedicated to legal support when your needs, defensive or as a defendant, turn to privacy, data protection and identity theft. So if you need help or more information, contact me, Joseph I. Rosenbaum (joseph.rosenbaum@rimonlaw.com), or any of the Rimon lawyers with whom you regularly work.

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Gift Cards Deal With Discounts & Charity; Chart Updated

This post was written by Keri S. Bruce and Joseph I. Rosenbaum.

If you have been coming back to Legal Bytes to keep up with this and other developments in the law of Advertising Technology & Media ("ATM"), you know that we have been following the world of gift cards for many years (e.g., Gift Card Issuers Fight & Switch, Gift Cards in New Jersey: It’s Complicated!, Federal Reserve Board Has a Free Gift (Card) For You, Credit Card Act of 2009: Act I, Scene 1, Gift Cards in the Legal Limelight, Gift Cards: The Updated Chart is Still Free). If you are a regular Legal Bytes reader, you also probably know that we published and routinely update our U.S. Gift Card Statutory Chart – a reference tool you will certainly find helpful, although not a substitute for experienced legal counsel. In addition to the amendments noted below, we have updated our U.S. Gift Card Statutory Chart and you can read or download the updated chart right here (U.S. Gift Card Statutory Chart) [PDF].

You will also appreciate that we advise clients in this area all the time, assisted by an able team of financial services regulatory specialists, and so it will come as no surprise that we are telling you about some changes to the law in Vermont and Rhode Island that apply to gift cards. The term "gift certificate" is often used in the law, but separate definitions make it clear that the law applies to cards or any similar instrument, regardless of the material (e.g., paper, plastic, beads).

In addition to the Federal Credit Card Act of 2009, many states have their own regulations of gift cards and gift certificates. While many states have carve-outs in their gift certificate laws for loyalty and reward cards, Vermont has gone a step further and embraced group coupon/discount providers by separately defining these cards and providing separate disclosures to benefit consumers. In light of popular group coupon/discount providers, new marketing efforts involving gift cards and the continued prevalence of class actions, such as In re Groupon Marketing and Sales Practices Litigation, where Groupon reached a nationwide class action litigation settlement over allegations it had illegal expiration dates and other provisions on its vouchers, it is even more important to stay on top of these ever-changing laws.

Effective as of May 18, 2012, amendments to the Vermont statutes (Vt. Stat. § 2701 et seq.) seek to address issues arising from popular group coupon/discount providers. The new amendments introduce definitions for "a loyalty, award, or promotional gift certificate," "paid value" and "promotional value," extend the expiration dates for the paid value of a gift certificate, and remove the specific exemption for food product gift certificates.

Under the amended law, a "loyalty, award, or promotional gift certificate" is defined as a gift certificate issued on a prepaid basis primarily for personal, family, or household purposes to a consumer in connection with a loyalty, award or promotional program, and that is redeemable upon presentation to one or more merchants for goods or services, or is usable at automated teller machines.

These definitions are important because, if defined as loyalty, award or promotional gift certificates, they can be exempt from the statute’s requirements on expiration dates and fees and some other restrictions that would otherwise apply, provided that certain requirements are met.

To qualify, these instruments must disclose, on the front of the certificate, that the certificate is issued for loyalty, award or promotional purposes, and the date of expiration for both the paid value and promotional value (if any). (More on that distinction in a moment.) On or along with the instrument, the consumer must be informed as to the amount and conditions under which fees may be imposed, and if a fee is assessed and on the instrument, a toll-free telephone number and, if one is maintained, a website a consumer may use to obtain fee information (disclosed on the certificate).

The Vermont amendment distinguishes between "paid" and "promotional" value. Paid value is the value of any money or other consideration given in exchange for the gift certificate. Promotional value means any value shown on a gift certificate in excess of the paid value. Example, a loyalty program buys 1 billion $25 gift cards and pays $19.99 each. The $19.99 is the paid value and the $5.01 is the promotional value. The statute prohibits the paid value from expiring for five years (extended from the previous three-year requirement), while the promotional value is exempt from the restrictions on expiration dates and fees.

Meanwhile, in Rhode Island, amendments – effective as of June 19, 2012 – to gift certificate provisions of the state’s Unfair Sales Practices law (R.I. Gen. Laws § 6-13-12) allow gift cards donated for fundraising purposes to expire, but only if the card clearly states that the instrument has been donated for charity and a clearly defined expiration date of not less than one year after the issuance, is disclosed to the recipient.

If you need help from lawyers who know this area and can provide experienced, practical counsel, contact Joseph I. ("Joe") Rosenbaum or Keri Bruce or your favorite Rimon lawyer, all of whom will be happy to help.

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Annual Registrar Summit – Take the Fifth (Amendment or Bourbon – What’s In A Name?)

Just last Thursday, I had the joy of attending and presenting at the Fifth Annual Registrar Summit (2012) sponsored by GoDaddy.com. A great group of people gathered to discuss the current state of domain name registration. Kicked off by a terrific “how to properly hold a meeting of competitors without running afoul of anti-trust and competition laws” presentation by Chris Compton, the topics ranged from what ICANN is up to these days, to discussions of authentication, security, phishing, malware and what the domain name registration community is trying to do about it.

As I always attempt to do, when permitted, I post a PDF version of my presentation for all to read, and, if you choose, to download a personal copy in PDF form. So, without further ado – feel free to browse through “What’s in a Domain Name? Registration by Any Other Name Would Still Create Legal Issues (subtitled “Clouds, Mobile & Internet Domains – What Me Worry?” [PDF] (The embedded videos have file sizes that are too large to include – so next time show up in the audience and you’ll see them.)

If you want to know more about anything covered in the presentation, or if you need counsel or help navigating the legal issues, feel free to call me, Joseph I. (“Joe”) Rosenbaum, or any of the Rimon lawyers with whom you regularly work.

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IAPP Privacy Presentation – Is the Wizard of Oz Still Behind the Curtain?

On May 10, 2012, I had the privilege of making a presentation at the IAPP Canada Privacy Symposium 2012. The title of my presentation was "Social and Mobile and Clouds, Oh My!" and it addressed some of the emerging issues in privacy, data protection and surveillance that arise as a result of globalizing technology and the convergence of social media, mobile marketing and cloud computing.

As part of that presentation (and as I have started to do for some time now in other presentations), I raised the issue of how lawyers, the law, legislators and regulators often use words to describe activities – words rooted in tradition or precedent – that are no longer applicable to the activity in today’s world. "Privacy" is such a word, although "not applicable" perhaps is too harsh. Obviously the word has significant applicability in a wide variety of situations. But "invasion of privacy" has become a knee-jerk reaction to virtually every information-gathering activity, even information readily and publicly available and, in some cases, posted, disclosed or distributed by the very individual whose privacy is alleged to have been "invaded."

Please feel free to download a PDF of my presentation, "Social and Mobile and Clouds, Oh My!" [PDF] (Note: Embedded video file sizes are too large to include), and let’s start a conversation about how we use words and how they wind up in laws and regulations. Lawyers work with words. Use them artfully and they provide powerful structures within which society, commerce and all forms of human endeavor function. Use them improperly and they cause confusion, uncertainty, inconsistency and inherently inequitable outcomes.

Seems like I am not the only one to point this out. Take a look at the insightful comments by John Montgomery, COO of GroupM Interaction, North America, as reported in a MediaPost RAW posting on Social Media entitled: If Marketing Terms Could Kill.

Kudos John. I’m with you. Let’s get it right.

FYI, Rimon has teams of lawyers who have experience and follow developments in privacy and data protection, information security and identity theft. If you want to know more, if you need counsel or need help navigating, or if you require legal representation in this or any other area, feel free to call me, Joseph I. ("Joe") Rosenbaum, or any of the Rimon lawyers with whom you regularly work.

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Krakatoa: East of Java; Google West of Fair Use

Some of you may remember the 1969 disaster film, "Krakatoa: East of Java" (which, coincidentally ties nicely to a recent Useless But Compelling Fact topic). Well today, Legal Bytes is happy to alert you to the results of jury deliberations – yet another copyright law disaster – just unfolding out West (West Coast of the United States, that is). Just hours ago (and providing more evidence that confusion reigns and continues to increase under existing copyright law), the jury has rendered its decision in the copyright phase of yet another intellectual property trial relevant to the online and mobile world. As you may recall, just last month we reported another copyright flip-flop winding its way through the courts in our post entitled, Appeals Court Vacates Summary Judgment in Viacom v. YouTube.

Today, a jury in California, deliberating in a case brought by Oracle against Google and alleging that Google infringed Oracle’s Java copyrights, concluded that Google did use the Java interfaces, but couldn’t reach any conclusion if that was protected use under the copyright "fair use" exception ("fair use" is a defense to copyright infringement). The jury did find separately that Google infringed some of the Java code and used it in developing the mobile phone platform, Android. However, before Oracle celebrates prematurely, Judge William Alsup noted that because only a minimal amount of code was actually used, Oracle’s request for $1 billion in damages or some share of Google’s profits was essentially ridiculous, and that only statutory damages, ostensibly a relatively nominal amount, would likely be applicable.

Indeed, these cases bolster a growing argument that as digital technology and innovation move forward, current copyright law is either inadequate or irrelevant, or both. Legal Bytes will continue to monitor developments in this evolving and convoluted intellectual property dilemma. I encourage you to take a look at an opinion piece I wrote separately entitled, A Contrarian’s View of Copyright: Much Ado About Nothing. But that’s just my opinion; the jury’s verdict is fact!

If you would like further information or need help making sense of the legal issues arising in our digital online and mobile world, feel free to contact me, Joe Rosenbaum, or the Rimon attorney with whom you regularly work.

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Appeals Court Vacates Summary Judgment in Viacom v. YouTube

Back in December of 2010, after a previous ruling against Viacom in the billion-dollar copyright infringement case brought by Viacom (Viacom Appeals Google/YouTube Ruling) Legal Bytes reported that three legal scholars filed a brief in support of Viacom’s appeal, stating that “the central issue in this case are the legal tests for contributory and vicarious liability for copyright infringement from the use of Internet sites – in this instance, the YouTube site – to reproduce and disseminate large amounts of copyrighted material without authorization from copyright owners.” The U.S. District Court had previously ruled in favor of YouTube and Google, holding them protected against claims of copyright infringement by the safe harbor provisions of the Digital Millennium Copyright Act.

Today, in ruling on the appeal, the U.S. Second Circuit Court of Appeals essentially breathed new life into Viacom’s case, remanding it back to the lower court and instructing the District Court judge to determine whether YouTube had knowledge of specific infringing material and willfully blinded itself to that knowledge.

The ruling vacates the District Court’s summary judgment against Viacom, noting the facts might be interpreted by a reasonable jury in a way that would not exonerate or exculpate YouTube from liability. In his opinion, U.S. Circuit Judge Jose A. Cabranes wrote: "We conclude that the District Court correctly held that the 512(c) safe harbor requires knowledge or awareness of specific infringing activity, but we vacate the order granting summary judgment because a reasonable jury could find that YouTube had actual knowledge or awareness of specific infringing activity on its website."

As we have over the years, Legal Bytes will continue to monitor developments in this complex, high stakes litigation involving significant intellectual property issues in our online and digital world. If you would like further information, feel free to contact me, Joe Rosenbaum, or the Rimon attorney with whom you regularly work.

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Gift Card Issuers Fight & Switch

Back in August 2010, Legal Bytes reported that a New Jersey law applicable to abandoned property (escheat) would effectively alter the tenor and scope of the New Jersey gift card law (see, Gift Cards in New Jersey: It’s Complicated!).

Well today, in an Associated Press article published by ABC News Internet Ventures. Yahoo! – ABC News Network, it is being reported that American Express, which was already pursuing its legal rights and remedies in a law suit filed to overturn the law, has now opted to pull gift cards from retail sale in New Jersey.

The new law would require sellers in New Jersey to capture the ZIP code of everyone who buys a gift card. Monies left on those gift cards bought in New Jersey that lie dormant and unused after two years would then ostensibly be required to escheat to the state. After the law was passed about two years ago, American Express (joining forces with the New Jersey Retail Merchants Association and others), filed suit challenging the new law. Initially, a U.S. District Court issued an injunction against implementing it, but more recently the injunction was removed – perhaps the stimulus for the reported move by American Express.

If you have been coming back to Legal Bytes to keep up with this and other developments in the law of Advertising Technology & Media (“ATM”), you know that Keri Bruce in Rimon’s ATM practice group previously posted a report entitled Gift Cards Tag Along with Credit Card Legislation, noting that federal legislative and regulatory requirements will soon apply to gift cards. You will also see links to a U.S. Gift Card Statutory Chart (Updated), which those of you who work with gift cards and similar financial payment instruments may find helpful; and you already know we follow and advise clients in this area all the time, assisted by a team of financial services regulatory specialists as well.

So if you need help from lawyers who know this area and can provide experienced, practical counsel, contact Joseph I. (“Joe”) Rosenbaum or Keri Bruce, or your favorite Rimon lawyer, all of whom will be happy to help.
 

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German Court Requires Facebook to About Face

This post was written by Katharina Weimer.

A German Court thinks it may be time to de-friend Facebook. On 6 March 2012, the Regional Court in Berlin took a rare opportunity to rule on several features available on the social media platform Facebook, and not surprisingly opined that Facebook needs to provide more transparency and ask for consent when using users’ information. Worded in the form of consents, the German Court held:

  • Consent No. 1: Facebook may no longer make available one of its most used features, the “friend finder,” without proper information of the user and consent of the user’s contacts who are invited to join Facebook via email
  • Consent No. 2: The exploitation of user content that is protected by intellectual property rights requires affirmative and specific user consent. The language purporting to grant Facebook a comprehensive, worldwide, royalty-free license that is incorporated into Facebook’s existing terms of use is not sufficient.
  • Consent No. 3: Facebook needs to reword its consent regarding the use of personal data for advertising purposes

Although the judgment is technically not legally binding as yet, Facebook announced it will carefully review the consequences and consider legal remedies once the judgment is available in full length. This decision may lead the way to more transparency and user control over social media and the use of information in Germany. Having a world of information at your fingertips and incorporating user content in Web 2.0 services is a great tool for user interaction and learning more about them, but the court’s ruling suggests that Facebook not forget for whom their service was created – the users, not the advertisers. As Facebook edges closer to an IPO and looks to monetize its services and features, the German Court’s view is that Facebook needs to continue to give its users control over their content and information. Stay tuned to Legal Bytes for more details as the court proceedings continue.

Vielen dank (many thanks) to Katharina Weimer for the insights and the update. If you need legal or regulatory counsel, contact Katharina directly, or you can always contact me, Joseph I. (“Joe”) Rosenbaum, or the Rimon lawyer with whom you regularly work.

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White House Releases Privacy Report and Calls For a Consumer Bill of Rights

Earlier today, Secretary of Commerce John Bryson and Federal Trade Commission Chairman John Liebowitz outlined the Obama administration’s strategy for ensuring “consumers’ trust in the technologies and companies that drive the digital economy.” On the heels of their announcement, and although it is dated January 2012, the Department of Commerce released a long-awaited report entitled “Consumer Data Privacy in a Networked World, A Framework for Protecting Privacy and Promoting Innovation in the Global Digital Economy,” the administration’s roadmap for privacy legislation and regulation in the years ahead.

The announcement and privacy blueprint envisions a comprehensive and integrated framework for data protection, rather than the current sector-patchwork-quilt approach, and is comprised of four key pillars: (1) a consumer privacy bill of rights; (2) a multi-stakeholder process and approach dealing with how such a bill of rights would apply in a business context; (3) more effective enforcement; and (4) greater commitment to harmonization and cooperation in the international community.

The Report outlines the seven principles of its proposed Consumer Privacy Bill of Rights and, although calling for legislation and regulation to codify and memorialize these rights, also sets out consumer privacy standards that companies are asked to immediately and voluntarily adopt in a cooperative public-private partnership. These seven principles are:

  1. Individual Control Through Choice
  2. Greater Transparency
  3. Respect for Context
  4. Secure Handling
  5. Access & Correction Rights
  6. Focused Collection
  7. Accountability

The Report notes that a company’s adherence to the voluntary codes will be viewed favorably by the FTC in any investigation or enforcement action for unfair and deceptive trade practices. By implication, a company that does not adopt and follow these principles might be used as evidence of a violation of Section 5 of the FTC Act, even if federal legislation is not passed on the subject. The FTC is expected to soon release its Final Staff Report on Consumer Privacy that will be consistent with the Obama administration’s proposed Framework Report. The report reinforces the administration’s commitment to international harmonization, and also touches upon the role state attorneys general in the United States can play. While we are still reviewing the details – and more will likely be forthcoming from the administration in the weeks and months ahead – Legal Bytes will keep you on top of these developments as they arise.

You can read the entire report right here: Consumer Data Privacy in a Networked World, A Framework for Protecting Privacy and Promoting Innovation in the Global Digital Economy.

These are developments that affect all businesses, domestic and multi-national, global and local, consumers and regulators. The complexity and challenges of compliance should not be underestimated, nor should the administration’s commitment to follow the roadmap outlined. Rimon has teams of lawyers who have experience and follow developments in privacy and data protection, from prevention and policy to compliance and implementation. If you want to know more, need counsel, need help navigating, or if you require legal representation in this or any other area, feel free to call me, Joseph I. (“Joe”) Rosenbaum, or any of the Rimon lawyers with whom you regularly work.