1. 1 Legal Research, Issues, and Practice in Cyberspace - Advertising, Jurisdiction, & International Issues Todd Krieger & Cyrus Daftary March 18 th, 2013

2. 2 Agenda  Administrative Discussion  Advertising  Jurisdiction  International  Questions & Answers

3. 3 Introduction to Internet and Technology Advertising

4. In Game Advertising and In Game Sales   A new way to reach a captive audience   http://www.youtube.com/watch?v=VwFHoVu B2-c 4

5. 5 Internet Advertising  $9.26B Q 3 in 2012 online ads – a record setting quarter. http://www.iab.net  Online advertising is often coupled with advertising across other channels: –Increases brand awareness; –Increase awareness of brand attributes; and –Influence purchase intent. www.iab.net www.iab.net  Advertisers now pay to appear on social networks, blogs, mobile phones, and PDA screens.

6. Your Search Results Can Follow You Across Websites 6 Advertisement on Yahoo.com Search results on Nextag.com Advertisement on Rottentomatoes.com

7. 7 Online Advertising Legal Issue s  46% of all fraud complaints with the FTC were internet related.  Courts will often consider commercial websites as advertising.  Internet ads are subject to the same standards as other media.  A local online advertisement may attract global attention.  Local, state, federal, and foreign agencies are actively patrolling the web.  Intrusive advertising, such as unsolicited bulk e-mail (SPAM), invites legal trouble.

8. 8 Types of Advertising Claims  Explicit –Our product helps you lose weight.  Implicit –Our product reduces the cravings that cause weight gain.  Reviewing an ad that includes identifying claims.

9. 9 Basic Guidelines from the Federal Trade Commission (FTC) Truth In Advertising Rules (under the Federal Trade Commission Act): Federal Trade Commission Act Federal Trade Commission Act  Advertising must be truthful and non-deceptive;  Advertisers must have evidence to back up their claims; and  Advertisements cannot be unfair. States also have consumer protection laws. Source: http://business.ftc.gov/advertising-and-marketing/advertising- and-marketing-basics Claim Substantiation Unfairness Deception Key Issues

10. 10 Put Yourself in the Mind of the Consumer  What is the literal meaning of the ad?  What is the message your client is trying to convey and how could it be interpreted?

11. 11 Deception  A deceptive advertisement contains (or omits) information likely to mislead reasonable consumers and is material to the consumer’s decision to purchase. Memberships renew automatically at $14.95 after three days, every month(s) Until Cancelled. You will not be billed for a full membership if you cancel before your trial membership expires. PayPal Subscription charge is final and is not refundable in any condition

12. 12 Example of ‘Deceptive Advertising’  Virgin Atlantic Airways advertised an inexpensive transatlantic flight online.  They neglected to mention a $38.50 tax.  The FTC fined Virgin Atlantic Airways $14,000.  Ads must disclose the full details of the offer.

13. 13 Claim Substantiation  Advertiser must have a reasonable basis (objective evidence) to support its claims ‘Puffery’ that consumers would not believe communicates any claim does not require substantiation.  Magnetic Therapeutic Technologies settled with the FTC for claims that wearing magnets could cure cancer. APPLICATIONS OF BIOMAGNETISM * * * In the treatment of chronic conditions such as some forms of arthritis, degenerative joint conditions, diabetes ulcers and cancer, magnetic field therapy has shown dramatic results in aiding the reduction or reversal of the condition. ** *Some researchers, such as Nordenstrom and Wollin, have reported using super-magnet and electrical therapies to successfully treat lung and breast cancers. http://www.ftc.gov/os/1999/06/magneticcmp.htm

14. 14Unfairness  Advertisement is unfair if it causes or is likely to cause substantial consumer injury, which a consumer could not reasonably avoid (and is not outweighed by the benefit).  Get rich quick schemes  Work at home  Multi-level marketing

15. 15 Advertising Landmines  Use of superlatives (“the best,” “only from,” etc.) –Can be softened into opinions/puffery  Always include necessary disclosures: –Promotion start and end dates –All relevant terms and conditions  Multiple meanings for the same sentence: –“The best computer system…from our company.” –“Two items for the price of one.”  Put yourself into the mind of the consumer  Certain products may be regulated (state or federal)  Geographic scope and international rules  Capacity to ship as promised (mail order rule)  Liability for typos Danger Mines

16. 16 E-mail Marketing Requires Legal Restraint  Federal anti-spam law superseded dozens of states’ broad anti-spam laws.  Spammers are still flooding e-mail inboxes.  Use of third party e-mail data is risky: –Check the reputation of the provider. http://groups.google.com/ –How data were gathered (where and when)? –What type of ‘opt-in’ was obtained?

17. 17 Third Party E-mail Considerations  Who is sending the e-mail?  What is the return address? –Is it the same as the site that collected the names?  What kind of site collected the names?  Can the address provider include opt-in data? –Domain where the name was collected –Date and time –IP address of the submitter  Obtain broad and enforceable warranties and indemnifications.

18. 18 Attorney Advertising

19. 19 Sample Law Firm Sites  www.shearman.com www.shearman.com  www.arentfox.com www.arentfox.com  www.taxprophet.com www.taxprophet.com  www.wilmerhale.com www.wilmerhale.com  http://www.exemplarcompanies.com/site/law- expertise/ http://www.exemplarcompanies.com/site/law- expertise/ http://www.exemplarcompanies.com/site/law- expertise/  http://neumann.law.firm.tripod.com/ http://neumann.law.firm.tripod.com/

20. 20 Finding a Lawyer  ABA - http://www.abanet.org/lawyerlocator/searchlawyer.html http://www.abanet.org/lawyerlocator/searchlawyer.html  Findlaw - www.findlaw.com www.findlaw.com  MH – Lawyers – www.lawyers.com www.lawyers.com  Lawyershop.com – www.lawyershop.com www.lawyershop.com  Martindale Hubble - www.martindale.com www.martindale.com

21. 21 Benefits of Online Attorney Advertising  Create awareness of a firm  Save money from yellow pages  Highlight a firm’s areas of practice/newsletters  Provide visitors with biographies & resumes  Communicate with current and potential clients  Create a resource - subject matter expertise –Ongoing blogs

22. 22 Attorney Advertising & State Bar Associations  States allow attorneys to advertise through public media provided the advertisements do not contain deceptive statements or claims.  Attorneys may need to submit to local bar copies of website materials and updates.  Advertisements must be noted and retained for a statutory period. –Recent NY law required ‘attorney advertising’ label on websites.  Attorneys must avoid e-mail solicitations and contacting people from listservs, news groups, or chat rooms.  Choice of law issues.  Avoid the unauthorized practice of law.

23. 23 Risk of Online Attorney Advertising  Lawyers’ advertising or solicitations may lead to ethical violations and disciplinary actions.  Revised rules in Massachusetts removed the requirement of labeling solicitations ‘advertising’ since it is not required of other professions.  Rule 7.2 outlines online advertising restrictions: http://www.massbar.org/publications/ethics-opinions/1990- 1999/1998/opinion-no-98-2

24. 24 Additional Risks  Poorly executed site may reflect poorly on the firm.  Jurisdictional exposure.  Disclaim attorney client relationship.  Non-compliance with ethical rules.  Unreasonable expectations.  Do not use chat rooms to find clients.  Be cautious with blogs.

25. 25 Jurisdiction  A court’s power to adjudicate a controversy.  Defined by ‘long-arm’ statute and due process clause of constitution.

26. 26 Jurisdiction - History  1945 - International Shoe vs Washington: defendant must maintain ‘minimum contacts’ with forum state – if it doesn’t offend the traditional notions of fair play and substantial justice.  Due process requires fairness and justice.  Example: Out of state salesperson who does business in California.  Gave courts some discretion.

27. 27 Jurisdiction - History (cont.)  1980 - World Wide Volkswagen vs Woodson: Plaintiff buys car in New York and is injured in Oklahoma. The court finds conduct must be directed towards forum state not merely placing a product in the stream of commerce.

28. 28 Specific v. General Jurisdiction  General jurisdiction: (Helicopteros Nacioinales de Colombia, S.A. vs Hall) Continuous and systematic contacts with the forum state. Controversy need not arise out of the defendant's activities in the state.  Specific jurisdiction: (Burger King vs Rudzewics) Cause of action arises directly from defendant’s contact with the forum state.

29. 29 Evolution of Online Jurisdiction  Early websites were informational, online brochures.  Early on, disputes were independent of the websites.  Plaintiffs tried to use the websites to assert jurisdiction, usually with little success; they needed to show something more.  Lawyers and judges were still learning about the technology.

30. Early Conflicting Cases – Sporadic Internet Activities  Website and toll free number –(Graphic Controls Corp. vs Utah Med. Prods. Inc.) –(Inset Sys. vs Instruction Set, Inc.)  Soliciting and maintaining a website for future business with knowledge of in-state access –(Hearst Corp. vs Goldberger) –(State by Humphrey vs Granite Gate Resorts) Source: Todd D. Leitstein - A Solution for Personal Jurisdiction on the Internet, 59 La. L. Rev. 565, 1999 30

31. 31 First Rational Framework  Zippo vs Zippo.com : –Lighter Company vs Online E-mail/Content provider. –3,000 customers in PA; 7 agreements with PA based ISPs. Sliding scale of jurisdiction Sliding scale of jurisdiction Doing Business/Interactivity Jurisdiction

32. 32 Zippo Three Prong Test  (1) The defendant must have sufficient minimum contacts with the forum state.  (2) The claim asserted against the defendant must arise out of those contacts.  (3) The exercise of jurisdiction must be reasonable.  Courts in the 5 th, 9 th, and 10 th Circuits have used the Zippo sliding scale consistently, but some courts have attempted to refine the test.

33. 33 Expanding Zippo  Court in Cybersell, Inc. vs Cybersell, Inc. stated while the level of interactivity was a crucial factor for jurisdiction, interactivity alone did not provide grounds for jurisdiction, but instead required something more to establish minimum contacts. –“Something more” consisted of ‘targeting’ or intentional Internet activity expressly aimed at the forum state.  S. Morantz, Inc. vs Hang, using Zippo and targeting approach found an interactive website that did not allow for online sales and was not directed at PA residents did not provide minimum contacts with PA over a NY defendant.

34. 34 Case Discussions  Aitkin Case: –Spam + Jurisdiction + Unionizing.  Pervasive Software vs Lexware –International customer + Software + Jurisdiction + Texas.

35. 35 The “Effects” Test  An alternative to the Zippo sliding scale test is the effects-based approach.  Courts focus their analysis on the actual effects a website had in a particular jurisdiction and do not focus on the technology used.  The effects test originated in Calder vs Shirley Jones, in which a CA entertainer sued a FL publisher for libel.  The effects test has been applied in Blumenthal vs Drudge and Pavolich vs DVD Copy Control Assn.

36. Doing Business Overseas: One Size Does Not Fit All   Standard agreement might be fine overseas…until there is a dispute.   How would a local court interpret the rights of the parties? – –Are any clauses incompatible with local laws?   Can your clients enforce their rights? 36

37. The U.S. has an Unusual Legal Climate   Contingency fee plaintiff’s counsel   Punitive and multiple damages   Discovery   Class action law suits   Common law system   Some companies actively avoid the U.S. as a forum   Plaintiffs may be less likely to find the same windfall in other countries 37

38. Intellectual Property Rights Vary by Country   Copyright: U.S. participates multiple copyright treaties, but copyright definition and enforcement varies by countries and treaties are not universal.   Patent: U.S. patents do not give the patent holder rights overseas.   Trade Secrets: trade secret rights vary by country. NAFTA & GATT provide some protection. 38

39. The EU takes a different view of software licensing than the U.S.  UsedSoft GmbH vs Oracle International Corp UsedSoft GmbH vs Oracle International Corp UsedSoft GmbH vs Oracle International Corp  “With the payment for services you receive, exclusively for your internal business purposes, for an unlimited period a non-exclusive non-transferable user right free of charge for everything that Oracle develops and makes available to you on the basis of this agreement”  Court ruled downloaded perpetual license was a sale.  Consider finite term for licenses and technological measures to limit transfers.  Limit transferability of maintenance contracts.  Compare with Vernor case. 39

40. Distribution Chain   How many layers are there between the end user and the seller?   The rights of the parties may vary if there are other parties between them.   Statutory risks in appointing distributors and agents overseas: – –Penalties for termination – –FCPA compliance – –Control of brand / trademarks – –Export control   Who will perform support services? 40

41. Work With Local Counsel   Local subject matter expertise   Realistic risk assessment   Language skills (where applicable)   Cultural awareness   Able to assist with negotiations   Can help navigate through a dispute. 41

42. Language Considerations   Contractual obligations can be diluted in translation: – –Double check key clauses with local counsel or other trusted native speaker. – –Even automated translations can give a hint at a problem. – –Have side by side English translation with English prevailing, where permitted.   Consider local language requirements. 42

43. Automated Translations Are Not Always Accurate 43

44. Negotiations Overseas   Local contract negotiation styles will differ: – –Focus on building a relationship – –Turnaround time can vary by regions – –Be sensitive to local time zones and holidays.   For important issues video conference, telephone, or face to face discussions can be more efficient than e-mail.   Leverage business team to assist in working with the other party. 44

45. Get Accounting Insight   Shift tax burden to the other party.   Tax rates vary by country and depend on categorization of goods: – –Rate may be different if technology is delivered digitally or on a tangible medium – –Support service rate may vary from tech license – –Creating a local nexus can have profound tax consequences – –Who will provide local services?   Be aware of currency exchange issues.   Can payment be sent directly to the U.S.? 45

46. Select a Predictable Forum for Disputes   Local entities may prefer their local court and choice of law.   Foreign forum and choice of law clause may not be enforceable.   Arbitration offers a reasonable alternative. – –Define rules and forum – –Reserve the right to obtain injunctive relief   What resources are needed if there is a dispute?   Maintaining confidentiality during the dispute   Local dispute may be a leap of faith. 46

47. Standard Clauses May Not Be Enforceable   Validity of warranty exclusions, disclaimers, and limitations on liability vary by region: – –Reverse engineering exclusion in the EU – –Statutory warranty remedies – –No limitations for death or personal injury in the UK.   Other standard clauses may be illegal: – –Interest for late payment under Sharia law. 47

48. Business to Consumer Sales Overseas Require Additional Caution   The European Union has enacted consumer protection directives that set the minimum standard in the member states.   Typical U.S. style disclaimers may invite local scrutiny (OFT – UK) : – –sellers cannot restrict consumers’ rights to reject faulty goods – –warranties must be reasonable – –contracts must be clear and easy to understand without hidden ‘traps.’ 48

49. Consumer Protection Directives   Data Protection Directive 95/46/EC   Distance Selling Directive 97/7/EC   Unfair Terms in Consumer Contracts Directive 93/13/EEC   Electronic Commerce Directive 2000/31/EC 49

50. Export Control  U.S. Department of Commerce Bureau of Industry responsible for most export regulations –Export Administration Regulations (EAR)  Applies to all U.S. companies: –Employees –Subsidiaries –Agents –Distributors  Software transfer can be considered an export: –E-mail –FTP –Download –Provision of source code subject to EAR to foreign national in the U.S. 50

51. Export Administration Regulations  Restrictions and requirements depend upon: –What is exported? –Where is the recipient? –Who is the recipient? –How will the item be used?  EAR apply no matter whether the software originated in the U.S. or elsewhere.  Certain exports could be prohibited or require a license. 51

52. Some Exports have Additional Regulations  Defense services and munitions –Department of State, Directorate of Defense Trade Controls (DTC) Department of State, Directorate of Defense Trade Controls (DTC)Department of State, Directorate of Defense Trade Controls (DTC)  Defense-related goods, services, and technologies –Defense Technology Security Administration Defense Technology Security AdministrationDefense Technology Security Administration  Nuclear materials and equipment –Nuclear Regulatory Commission, Office of International Programs Nuclear Regulatory Commission, Office of International ProgramsNuclear Regulatory Commission, Office of International Programs  Nuclear technology and technical data for nuclear power and special nuclear materials –Department of Energy, Office of Arms Controls and Nonproliferation, Export Control Division Department of Energy, Office of Arms Controls and Nonproliferation, Export Control DivisionDepartment of Energy, Office of Arms Controls and Nonproliferation, Export Control Division  Licenses for natural gas and electric power –Department of Energy, Office of Fuels Programs Department of Energy, Office of Fuels ProgramsDepartment of Energy, Office of Fuels Programs  Export of wildlife and endangered and threatened species –Department of the Interior, U.S. Fish and Wildlife Service Department of the Interior, U.S. Fish and Wildlife ServiceDepartment of the Interior, U.S. Fish and Wildlife Service  Controlled substances and the import-export of listed chemicals used in the production of control substances under the Controlled Substances Act – Drug Enforcement Administration, Office of Diversion Control, Import-Export Unit Drug Enforcement Administration, Office of Diversion Control, Import-Export UnitDrug Enforcement Administration, Office of Diversion Control, Import-Export Unit  Drugs and medical devices –Food and Drug Administration, Office of Compliance, Food and Drug Administration, Import/Export Food and Drug Administration, Office of ComplianceFood and Drug Administration, Import/ExportFood and Drug Administration, Office of ComplianceFood and Drug Administration, Import/Export  Hazardous waste exports –Environmental Protection Agency, Office of Solid Waste, International and Transportation Branch Environmental Protection Agency, Office of Solid Waste, International and Transportation BranchEnvironmental Protection Agency, Office of Solid Waste, International and Transportation Branch 52

53. Export Restrictions Depend on Classification of the Software  Export Control Classification Number (ECCN) determines the licensing requirements under the EAR.  Items are categorized into 10 categories, each further delineated into five product groups: 0 = Nuclear Materials, Facilities, and Equipment (and Miscellaneous Items) 1 = Materials, Chemicals, Microorganisms and Toxins 2 = Materials Processing 3 = Electronics 4 = Computers 5 = Telecommunications and Information Security 6 = Sensors and Lasers 7 = Navigation and Avionics 8 = Marine 9 = Propulsion Systems, Space Vehicles, and Related Equipment A. Systems, Equipment and Components B. Test, Inspection and Production Equipment C. Material D. Software E. Technology Categories Product Groups Most goods are not classified (EAR99). 53

54. Export Restrictions Vary by Country  Cross reference ECCN with the Commerce Country Chart 54

55. Embargoed Countries Have Additional Restrictions  Restricted Countries: –Cuba –Iran –North Korea –Northern Sudan –Syria  Restrictions vary by country  The list is subject to change  Export licenses are still permitted for some categories, but very restricted. 55

56. Restrictions Vary by Recipient  Individuals and organizations may be prohibited from receiving any goods from the U.S. or require a license.  EAR99 goods or other goods not requiring a license are restricted.  Restricted Entity List (EAR Part 744 Supplement 4).  Treasury Department Specially Designated Nationals and Blocked Persons List.  Unverified / Red Flag List.  Denied Persons List. 56

57. Exports are Restricted by Use  EAR99 items and other categories are restricted by use: –Items used by parties involved in WMD are prohibited without a license. –Nuclear uses. –Rocket propulsion systems. –Maritime nuclear propulsion. –Chemical & biological weapons. –Certain foreign vessels or aircraft. 57

58. Substantial Penalties for Non- Compliance  Criminal sanctions >$1 million  Criminal penalties  Revocation of export privileges  Reference: –http://www.bis.doc.gov/licensing/exportingbasics.htm http://www.bis.doc.gov/licensing/exportingbasics.htm –http://www.bis.doc.gov/licensing/bis_exports2.pdf http://www.bis.doc.gov/licensing/bis_exports2.pdf 58

59. Foreign Corrupt Practice Act  Prohibits illicit payments by U.S. companies to foreign officials  Prohibited Payments: It is unlawful to pay or offer to pay “anything of value” to a “foreign official” to influence official action or to secure any improper business advantage in order to obtain or retain business.  5 elements: –Applies to any employee or agent of client in any location –Unlawful to offer, pay, or promise to give “anything of value” –The payment must be intended to induce misuse of an official position –To any foreign official or political party –To influence official action or to secure any improper advantage in order to “obtain or retain business” http://www.justice.gov/criminal/fraud/fcpa/guide.pdf http://www.justice.gov/criminal/fraud/fcpa/guide.pdf 59

60. Prohibited Payments  Prohibited Payments: cannot offer, pay, or promise to give “anything of value” –Cash –Services –Payment of Travel Expenses –Excessive Entertainment Expenses –Lavish Gifts –Favorable Loans –Charitable Contributions 60

61. Exceptions  Payment Lawful Under Foreign Law –Must be in the written law or regulations of the foreign country –Traditional, customary, or not enforced restrictions do not qualify  Reasonable Business Expenditure –To promote a business or product –Includes trip expenses, tours of company facilities, product demonstrations and training –Must be reasonable and bona fide 61

62. FCPA Enforcement  Penalties may include substantial fines, debarment, disgorgement of profits, and prison  Recent enforcement actions: –Siemens (Iraq, Argentina, Bangladesh, Venezuela, Iraq, Israel, Nigeria, Vietnam, China, Russia, Mexico) $800 million –Aibel (Nigeria) $4.2 million –AGA Medical Corp. (China) /$2 million –Con-Way Inc. (Philippines) $300,000 –Faro Technologies (China) $2.95 million –Willbros Group (Bolivia, Ecuador, Nigeria) $32.3 million 62

63. 63 Questions & Answers