Business Law

Distinctive Decorations at Iconic Lounge Ruled to Be Fixtures

06-17-2013 7:27 PM with no comments

The Lennox Lounge, located in Harlem, NYC, operated for 70 years and qualified as a  jazz mecca. Entertainers who graced its stage include such jazz greats as Billie Holliday, Miles Davis, and John Coltrane.  Literary figures too frequented the establishment.  Part of what distinguished the club was its unique art deco bar, decorative wall mirrors, banquettes (long built-in usually upholstered benches along a wall) and a patch of zebra-striped wallpaper. The wallpaper defined the famous Zebra Room feated on “Mad Men” and “American Gangster”. The club’s 30 year operator, Alvin Reed, left the business at the beginning of this year.  The club fell on hard times and Reed explained he could not afford a rent increase imposed by the landlord from $10,000 to double that per months.  One Richie Notar acquired it.

When Reed’s tenure ended, he removed and took with him the famous bar, mirrors and wallpaper, distinctive doors, signage and even the building’s façade.  He accomplished this by hiring workers to remove them late at night dressed like police officers to avoid detection.  The place was left “completely stripped and bare.” Reed planned to use them for a nw Lenox Lounge he plans to open a few blocks from the original.  That plan would have challenged Notar’s plan to recreate the Lenox Lounge on the original site.

The building owner sued Reed, claiming the items he took were fixtures. A fixture is an item that once was personal property independent of the land but has become  permanently affixed to real property in such a way that, if removed would cause damage. An example is piping in a building.  While a structure is under construction, various piping is purchased for incorporation into the building’s plumbing system. When purchased, the pipes are independent of the building and would not be considered a fixture.  However, once they are embedded in the building, they loose their status as personal property and instead become fixtures and thus part of the building itself.  Distinguish this from a lamp or refrigerator which is merely plugged into an outlet on the wall and can be removed without any injury to the edifice. The latter two items are therefore not fixtures.

 The landlord of the Lenox Lounge building argued that the distinctive furnishings were indeed part of the real estate and so belonged to the landlord, barring the tenant from taking them. A judge recently agreed with Notar and ordered Reed to return the misappropriated items.  They have all been returned.

For more information, click here.

DISCUSSION QUESTION:

What attributes of the items in question likely convinced the judge that they were fixtures?

Posted by Karen Morris

Collapsed Building in Philly: Six Deaths, A Suicide, and Marijuana

06-14-2013 7:45 AM with no comments

The collapse of the Salvation Army thrift store in Philadelphia last week was caused by the demolition of a building next door is under investigation.  Six people in the Salvation Army building were killed. However, several issues have emerged that are problematic for the businesses involved in the ownership and demolition of the building. 

Sean Benschop was operating an excavator for the Griffin T. Campbell company when the four stories of the building he was working on collapsed and fell onto the roof of the Salvation Army building located next door.  Toxicology tests concluded that Mr. Benschop was high on marijuana and Percocet  at the time of the collapse.  Mr. Benschop, who is also known as Kary Roberts, has been arrested 11 times since 1994 for a variety of charges, including for drugs, unlawful weapons possession, and theft.  He has been sentenced to prison for drug trafficking. He has been arrested in connection with the collapse. 

Griffin Campbell also has had criminal charges in the past and has filed for bankruptcy twice.  STB Investments, a New York firm, is the owner of the building.  The principal owner of STB is Richard Basciano, who is known in New York City who owned many adult movie theaters and sex shops in New York City in the 1990s. STB owned a number of properties on the same block as the Salvation Army, and Mr. Basciano told the Philadelphia Inquirer one year ago that he planned to raze the buildings in the area in order to make the properties more attractive for investors.  STB hired Griffin Campbell for this razing project for $10,000.

Two survivors of the Salvation Army building collapse have filed suit against Griffin Campbell and STB alleging gross negligence at the job site.  Construction experts indicate that the Salvation Army building should have been evacuated at certain phases of the demolition.  In fact, an attorney for the Salvation army had contacted Griffin Campbell about concerns during the demolition.

The possible theories for recovery by the survivors include:

1.      Gross negligence in the hiring of the contractor. The background of Griffin Campbell was notice that something was not quite right about its mode of doing business.

2.     Gross negligence in the supervision of the contractor – the presence of marijuana in the blood of an excavator operating at a “live” site (a site where there are people who are not workers nearby) is nearly the definition of gross negligence.

3.     Strict liability – owners of property cannot distance themselves from liability by holding a contractor liable for any damage or injuries when there is inherently dangerous activity occurring on their property.  Owners have responsibility for damages and injuries whenever there is razing, an inherently dangerous activity.

4.     Negligence – violations of basic safety standards and possibly regulations.  The failure to evacuate or take precautions consistent with industry standards at a live site does result in liability.

One additional issue has sadly emerged.  The city building inspector, who conducted an inspection of the site just 14 days prior to the collapse, committed suicide.  City officials have offered their assurances that the inspector had done nothing wrong, but the investigation into what happened and why continues. 

Discussion Starters

1.  Explain why the excavation contractor could have liability in this case.

2.  Explain how the building owner could have liability. 

Posted by Marianne Jennings

Penn State Suits: One Down and Six To Go

06-10-2013 6:41 PM with no comments

Breaking sports news video. MLB, NFL, NBA, NHL highlights and more.

The suits are still swirling over the Penn State events surrounding the criminal prosecution and conviction of former assistant football coach, Jerry Sandusky (who is now in prison). Here is a summary of the pending suits:

1.      Former assistant football coach, Mike McQueary, has filed suit against Penn State for defamation because his reputation was harmed by statements Penn State officials made that he lied to law enforcement officials about what he had witnessed Sandusky doing in the football showers. The suit also includes a whistleblower claim on the basis that the university failed to pay his lawyer's fees in the case while playing legal fees for other university officials and that the university took away his benefits under his contract, including the use of a car. The case is ongoing, and Mr. McQueary is seeking $4 million in damages for the loss of 25 years of earnings.  His suit alleges that he is essentially unhireable by another program because of how Penn State treated him following his disclosure of what he had seen and his testimony at the trial.  

2.     Four of the victims of Mr. Sandusky have filed suit against Penn State for its failure to take action to prevent the harms they experienced on the campus as a result of the conduct of Sandusky.

3.     Pennsylvania governor Tom Corbett filed suit against the NCAA seeking to overturn the NCAA sanctions against the university, which were agreed to by Penn State officials as part of a consent decree, including:  (1) a $60 million dollar fine into an endowment for sexual abuse education and sexual abuse victims over a period of five years; (2) banishment of Penn State from football post-season play for a period of four years; (3) reduction of the number of football scholarships that Penn State was authorized to offer from 85 to 65 total scholarships per year for a period of four years, and 25 to 15 initial scholarships per year for a period of four years; (4) Probation for four years, necessitating the appointment of an on-campus integrity monitor; (5) Removal of Penn State's football wins between 1998 and 2011; (6) waiver of the NCAA's bylaw restricting transfer of student athletes from Penn State to other colleges; and (7) required that Penn State permit football players to retain their athletic scholarships regardless of whether they continued to play football.

The suit alleged violations of the Sherman Act on the grounds that the NCAA conspired to harm both Penn State and Pennsylvania economically.  Penn State was not a plaintiff in the case.  The case was dismissed on June 6, 2013. Pennsylvania v. National Collegiate Athletics Ass'n, --- F.Supp.2d ----, 2013 WL 2450291 (M.D. Pa. 2013).  The judge found that the "Governor's action under antitrust laws [is] a Hail Mary pass. "The judge concluded that there was no intent on the part of the NCAA to insulate itself from competition.  At best, the sanctions had an incidental anticompetitive effect, but not on the NCAA, only on other schools. In addition, the judge held that the actions taken by the NCAA were non-commercial and that there were not sufficient allegations of fact to support the state's claim that the NCAA was trying to gain some commercial advantage.

4.     The final suit was just filed - the estate of Joe Paterno filed suit on June 1, 2012 against Penn State's trustees and the NCAA for breach of contract and defamation. The suit maintains that there were threats of the death penalty that resulted in the consent decree with no opportunity to challenge the findings that resulted in the decree. The suit will focus on the actions of the NCAA in obtaining the consent decree.

Discussion Starters

1.      Explain why there is no antitrust claim in the case.

2.     Describe the types of claims in the lawsuits. 

Posted by Marianne Jennings

Oprah Sued for Trademark Infringement; Loses Important Round

06-10-2013 11:31 AM with no comments

Oprah Winfrey is defending a trademark infringement lawsuit.  A recent ruling did not go her way.  The plaintiff in the case, Simone Kelly-Brown, is a motivational speaker, radio show host, conference and retreat sponsor, and blogger.  Her business is named Own Your Power Communications, Inc. In 2008, she registered with the Unites States Patent and Trademark Office the phrase “Own Your Power” as a service mark (a word, symbol or phrase that identifies the services of one person and distinguishes them from services of others). That Office is the federal agency that grants patents and registers trademarks,

 Winfrey, the famed talk show host whose empire includes the OWN television network (an acronym for Oprah Winfrey Network) and well-read O Magazine, has used the same phrase since September, 2010 for a series of publications, events and online initiatives.  Along with the three words, Oprah uses the subheadings, “”Tap into Our Inner Strength”, “Focus your Energy”, and “Let Your Best Self Shine”.

Kelly-Brown reported that she received phone calls from people who confused her services with Oprah’s events. 

Kelly-Brown originally filed suit in July, 2011. She alleged trademark infringement.  Oprah’s lawyers made a motion to dismiss which is a request that the judge terminate the case without the necessity of trial because the claim is legally insufficient. Oprah’s attorneys did not argue that Kelly-Brown failed to adequately allege the elements of an infringement claim. Those elements are: 1) Kelly-Brown has a valid trademark; 2) Oprah used the mark in the promotion of goods or services without plaintiff’s consent; and 3) confusion among consumers is likely concerning the origin of services marketed under the name Own Your Power.

 Instead, Winfrey’s lawyers  argued that Oprah’s actions were protected by the doctrine of fair use. That legal principle is an exception to the exclusive right granted by trademark.  It prohibits appropriation of a descriptive term, thus enabling others to accurately describe a characteristic of their goods. It permits use of a trademark without the owner’s permission  to inform consumers about a product but does not permit use of a trademarked word or phrase as an identifying mark.  

A federal judge granted Oprah’s motion, ruling that her use of the term constituted fair use. Kelly-Brown appealed  (asked a second court to reconsider the decision) and the appellate court reversed (vacated/voided the prior decision).  The second court determined that Kelly-Brown may indeed have a valid trademark claim and so the case should proceed to trial.

The defense of fair use requires proof of the following three factors: Oprah) 1)  used the trademark other than as a mark, 2) used it in a descriptive way, and 3) did so in good faith. Concerning  the first two elements, the court determined Oprah’s “repeated and wide-ranging”  use of “Own Your Power” was more than descriptive and rather functioned as a service mark.  Oprah used the phrase on the magazine cover to promote her “Own Your Power” event, billed it as the “first-ever”, suggesting more to come, and used the term in social media.  She included a video of the event together with motivational advertisements in a dedicated section of her website titled, “Own Your Power”.

Concerning the third element, the court determined that Oprah may not have acted in good faith.  Kelly-Brown alleged that prior to Oprah beginning her new network, she bought rights to the name OWN from a woman who had previously registered it as an acronym for Onyx Woman Network. To have known of the prior use, argues Kelly-Brown, Winfrey conducted a trademark registration search that revealed the competitive use. .Kelly-Brown argues that Oprah must have done a search for “Own Your Power” and should have discovered Kelly-Brown.  By adopting the phrase regardless, Kelly-Brown argues, Oprah evidenced bad faith.

Given the court’s ruling that Winfrey failed to prove fair use, the case will either proceed to trial or perhaps the parties will settle.  A settlement might include Oprah agreeing to pay Kelly-Brown to purchase the name if she is willing to sell, or Oprah adopting a different name.

For more information, read __F.3d__, 2013 WL 2360999 (2nd Cir., 2013) and/or click here.

DISCUSSION QUESTION:

Do you agree with the original court or the appellate court?  Why?

Posted by Karen Morris

Chrysler Refuses Recall Because, Well, It Disagrees with the NHTSA

06-05-2013 2:08 PM with no comments

The National Highway Traffic Safety Administration (NHTSA) has asked the Chrysler Corporation to recall 2.7 million Jeeps because the vehicles are likely to catch on fire in rear-end collisions.  The issue is whether the placement of the fuel tank behind the rear axle makes the Jeep more susceptible to fires when there is a rear-end crash. The NHTSA studies indicate that the rate of fatal rear-end collisions involving fires was double the rate for other sports utility vehicles.

NHTSA’s letter to Chrysler  indicates that the recall should be applied to 1993-2004 Grand Cherokees and 2002-2007 Liberty models. The recall request resulted from an Engineering Analysis that NHTSA opened following its receipt of a defect petition from the Center for Auto Safety. NHTSA relied on its experience with the 1971-1976 Ford Pinto and Mercury Bobcat cars that had 38-read-end impacts that resulted in 27 deaths.  In those models, the fuel tanks had locations similar to the Jeeps. Ford recalled those vehicles. There were class-action lawsuits and a criminal indictment of the company in one state.  

The Jeep gas tank is less than one foot away from the rear bumper and is more exposed because of the height of the vehicle. The NHTSA calculated the fatality rate and concluded that both the Grand Cherokee and Liberty are poor performers when it comes to fatal accident.

Chrysler responded with a letter that included the following:

These vehicles met and exceeded all applicable requirements of the Federal Motor Vehicle Safety Standards, including FMVSS 301, pertaining to fuel-system integrity. Our analysis shows the incidents, which are the focus of this request, occur less than once for every million years of vehicle operation. This rate is similar to comparable vehicles produced and sold during the time in question.

Chrysler Group stands behind the quality and safety of its vehicles. It conducts voluntary recalls when they are warranted, and in most cases, before any notice or investigation request from NHTSA.

In 1993, GM balked at a recall on its  pick-up trucks that had sidesaddle fuel tanks (a total of 4.7 million pickup trucks). GM and NHTSA ultimately reached a settlement on the issue without GM doing a recall. Chrysler also fought a recall in 1998 on its midsize cars, ultimately going to court and having the court uphold its position.

There are several areas of law at play in this recall request.  One is administrative law.  The NHTSA, a federal agency, is not taking enforcement action, but it is requesting a recall.  The agency can demand a recall through a hearing and decision.  If that decision goes against the company, the company, as Chrysler has previously done, can go to court and appeal the decision.

The second area is product liability, both strict liability as well as negligence.  The letter from the NHTSA has set up a scenario for potential recovery by those injured in such fire-related accidents because Chrysler now has knowledge of disagreement on a defect in the design of the vehicles.  Design defects are a basis for strict tort liability.  The failure to fix a known design effect could result in an additional finding of negligence.  Companies are strictly liable for design defects, even if they were not aware of the defect until the accident.  However, once they are aware, then there is negligence in not addressing the design defect, and negligence means punitive damages.

Discussion Starters

1.      What are the areas of law involved in this recall?

2.     What are Chrysler’s options in dealing with the demand for a recall? 

Posted by Marianne Jennings

Kellogg's, Merck and TGI Friday’s Accused of Misrepresenting Their Products

06-04-2013 12:05 PM with no comments

There is a rule of law, simple enough, that requires advertisements be accurate and not misleading.  Most states have declared false advertising to be a crime, defined as making false or misleading statements in an ad about a product or services with intent to increase sales.  Additionally,most states outlaw misleading or deceptive practices in the sale of consumer goods as a civil wrong.  Three major companies and numerous others have recently been accused of deceptive claims or settled cases involving such allegations.

Kellogg's, the maker of breakfast food and related products, settled a class action lawsuit for $4 million dollars in which its advertisements for Frosted Mini-Wheats cereal were challenged.  The promotions claimed the cereal boosted memory, attentiveness and other cognitive functions in children, claims that were not supported by competent clinical evidence.  By settling, the case was resolved without the need for a trial and without a verdict deciding who was right.  Kellogg’s denies it did anything wrong.

 A class action is a lawsuit involving numerous plaintiffs, all of whom were allegedly injured by the same wrong.

 The $4 million dollar settlement includes, in addition to money to pay the class members, money to notify them of the proposed resolution, money to compensate attorneys for their fees and expenses, and money to pay an incentive for named plaintiffs. A named plaintiff, also called a lead plaintiff, acts on behalf of the class in such matters as monitoring the progress of the case, reviewing pleadings, giving testimony at a deposition, working with attorneys for the class, and appearing at trial. Named plaintiffs have a fiduciary duty to the class, meaning they must act with the utmost loyalty and honesty to protect the interests of their fellow plaintiffs.  Due to these responsibilities, lead plaintiffs often receive a financial award greater than that given to the balance of the class. Whether or not such an award is given, and its amount, is decided by the judge.

The case against Kellogg's began four years ago at which time the company modified its promotional campaign to eliminate the objectionable claims. The settlement provides that each consumer who bought the cereal during the time of the advertising in question can receive a cash refund of up to $15 to cover the cost of three boxes of the breakfast food.

Likewise, Merck Consumer Care, a cosmetic manufacturer, has agreed to pay up to $10 million to settle a long-standing class action involving Coppertone sunscreen.  Merck’s ads included such terms as “waterproof,”  “sweatproof,” “sunblock,”  and “all day protection.”  As part of the settlement Merck agreed to stop using those descriptors in its labeling and advertising.

The company inherited the case when it acquired Schering-Plough, originator of the Coppertone line, in 2009. Class plaintiffs asserted they were misled by promises of  protection from the sun’s ultraviolet rays when in fact Coppertone sunscreen products do not protect against the cancer-causing rays. 

Like Kellogg's, Merck denied liability but said it agreed to settle to avoid the “burden, expense, risk and uncertainty” of continuing litigation.

A third case of alleged misrepresentation is just beginning.  The New Jersey Alcoholic Control Board (hereinafter “the agency”) has accused 29 restaurants, including 13 TGI Fridays, of selling cheap alcohol and representing it as top-shelf brands.  One restaurant was even accused of providing a mixture of rubbing alcohol and food coloring as scotch(!). Investigators for the agency were tipped off by confidential informants (likely some employees) and consumer complaints.  The examiners visited a variety of establishments, inspected the bar areas and seized all opened bottles, totaling approximately 1,000 containers. They also took statements from employees and served demands for sales records requiring a response within seven days. Such demands are issued by an investigating agency and require a target to produce various documents.

The message of these cases is that consumers rightfully will not tolerate product misrepresentations.  Businesses can of course promote a product’s best qualities, but truthfulness is a necessary feature.

For more information about the Kellog's case, click here.  For more information about the Merck case, click here.  For the TGIF investigation, click here.

DISCUSSION QUESTION:

What internal procedures might a business develop to ensure that the marketing department does not misrepresent the company's products or services?

Posted by Karen Morris

Bots: Enemy of Concert Promoters or Fans or Both?

05-31-2013 8:55 AM with no comments

“Bots” is a term that is short for the robots created by programmers that are designed to get into sites and, appearing to be human, register on the site, or, in the case of concert ticket sites, buy up tickets.  Using bots, scalpers are able to buy up as much as 60 percent of the tickets available for a concert.  Those tickets are then resold on the secondary ticket market. Ben Sisario, “Concerts Industry Struggles With ‘Bots’ That Siphon Off tickets New York Times, May 27, 2013, p. B1. Concert promoters say that bots users purchase up blocks of tickets and then when they can't be sold there are empty seats at the concerts, a bad image for an artist.  Those who use bots says they are the cyber space equivalent of using diggers, those who were paid by scalpers to stand in line to buy tickets before online ticket sales existed. However, the scale of ticket purchasing using bots is much larger. 

Concert ticket sellers and promoters can find ways to program around bots.  For example, when you use a site and are required to type in those letters that appear in funny shapes in a box, you are experiencing an anti-bot program.  However, as quickly as concert ticket sites rewrite their programs to weed out bots, bot users rewrite the programs for their robots to find a way around them. You can watch a video on the issue here. 

Concert ticket sites have experts who study purchases online to try and distinguish between human purchasers and bots purchasing.  Ticketmaster’s expert, John Carnahan, says that bots are detectable through their speeds in clicking.  Humans take their time in buying and their speeds for clicking on various parts of the purchase transaction vary.  Bots are programmed and click quickly and at timed intervals.  The response to uncovered bots is to slow down their purchases or put them at the end of the cyberspace line so that the human traffic has first shot at the tickets.  Often, the detection devices of concert ticket sites indicate that bots are present at a rate of 600 times that of the human purchasers. There are some brokers who have hundreds of computer modems in their places of business that simply buy tickets daily.  With the inventory secured through bots, brokers are able to set back and assess the market and with the extent of their inventory and controlled release influence ticket pricing.  

Can bots be stopped by the law?  The concert ticket sites have terms of use that prohibit their use, so the site owners have the option of banishing bots users from the site.  The difficulty lies in figuring out who they are, when they are online, and how to ban them.  There are some laws against bots are at the state level, but the laws are not written as strongly as they might be and enforcement is difficult and virtually non-existent.  Ticketmaster has been using private litigation based on theories such as unauthorized access (Computer Fraud and Abuse Act) or copyright infringement (unauthorized sale of the copyrighted tickets). Under federal law, the issue is whether there is a crime in the use of bots or just a violation of the terms of use of the site.  If the latter, then it is a contract issue and self-enforced by site owners.  The courts have not found criminal intent in violating the terms of use of a site.  There is one New Jersey case in which the owners of Wise Guys, a ticket broker firm, were sentenced to probation after they were found in possession of 1.5 million tickets procured through bots. 

There are arguments pro and con around the industry, arguments that largely shake out according to the roles played.  The National Association of Ticket Brokers has a code of ethics that prohibits the use of bots.  Some companies, such as Live Nation benefit from original sales, but they also benefit from secondary sales on their TicketsNow site.  The ticket industry is not moving in one direction on bots use.  Private litigation may have to resolve the issue.  Some ticket brokers feel it is simply a matter of time before bots users push too far and either damage payments or criminal prosecution curbs the use of bots.  

Discussion Starters

1.  What is the problem that prevents criminal prosecution for using bots?

2.  What contract rights might help ticket sites in stopping bots? 

Posted by Marianne Jennings

Senior KPMG Partner Guilty of Insider Trading

05-30-2013 2:14 AM with no comments

A former senior partner at KPMG has pled guilty to insider trading (the purchase or sale of stock while the trader is in possession of nonpublic information that would impact the value of the stock) for providing inside information about the firm’s clients to a friend.  In return the partner, Scott London, received cash and other valuable items.

The relationship lasted several years before the scheme was uncovered by law enforcement, not the firm. The charge of insider trading is a felony and subjects London, who is 50 years old, to a maximum of 20 years in jail. He was the Regional Audit Partner in Charge for KPMG’s southern California region which includes Los Angeles. The recipient of the information was a jeweler who used the information to buy and sell stock before the public was alerted. This enabled him to avoid losses and position himself well to benefit from increases in stock prices. He profited thereby to the tune of $1.2 million. The stock involved in the illegal transactions include Herbalife and Sketchers USA. 

London supervised more than 500 accounting professionals and personally handled audits for major clients. In court he admitted to giving the jeweler tips involving at least 14 separate earnings announcements and acquisitions by the firm’s clients.   For his participation in the illegal dealings, he received money, a $12,000 Rolex watch, jewelry for his wife, and other goodies. His total take is estimated to be “only” $50,000, an insignificant amount in comparison to what his annual compensation at the firm likely was.  The jeweler pled guilty to one count of conspiracy to commit securities fraud (plotting with one or more people to engage in insider trading) and faces a maximum of 5 years in prison.

The accounting partner also faces civil charges filed by the Securities and Exchange Commission.  He has been terminated by KPMG which plans to sue him for damages and to avoid paying his retirement benefits. His contract with the firm likely entitled him to significant retirement payments unless he was terminated for illegal or other significant misconduct.

For more information, click here.

DISCUSSION QUESTION:

Who are the victims in insider trading cases?

What would motivate an accomplished and highly-paid member of a top accounting firm such as London to engage in insider trading?

What controls might the firm have initiated to enhance the possibility of early discovery of insider trading by an employee?

Posted by Karen Morris

Craigslist -- The Litigious Bully?

05-28-2013 10:26 AM with no comments

Craigslist is learning how the classified ads sections of newspaper must have felt in 1995 when it began its site for classified ads.  Craigslist was free, except for job postings and real estate sales, and it gained a quick following.  Because it was first, Craigslist has become the go-to place for everything from selling stuff to personals. 

However, competition has begun. Craigslist begins by sending cease-and-desist letters to competitors, asking them to stop using Craigslist’s intellectual property. Sites such as 3Taps, PadMapper, and Discover Home Network take the information posted on Craigslist and do something nifty with it to attract users to their sites, known in cyber law as "scraping and repackaging."  For example, PadMapper takes information from Craigslist, Apartments.com, and Rent.com to provide users with a full range of real estate options.  PadMapper also has a Google maps tool that allows users to determine exact location of available properties, a feature not available on Craigslist or other real estate ad sites. have felt the heavy litigation arm of Craigslist.  The three were sued by Craigslist for copyright infringement.  You can read 3Taps' answer and counterclaim to the suit here.

However, a federal court dismissed the copyright claim because the sites were only using factual information available on Craigslist.  When you run a public website and make information available, users are free to take that information, process it, package it, and post it elsewhere.  The court found that the problem is that Craigslist also does not have a copyright on the posted ad content.  Craigslist had tried to have its users agree to exclusive postings for a brief period of a few weeks in the summer of 2012, but the result was that users scoffed and so Craigslist’s terms of use (TOU) do not require exclusivity.   

 Without the copyright issue, what happens to the suit?  Well, the suit will march forward on other grounds.  The Computer Fraud and Abuse Act (CFAA) is the statute that will be the basis of Craigslist’s claims that were not dismissed by the judge and that will be allowed to go forward.  The legal basis grounded in CFAA is very simple – Craigslist sent a cease-and-desist letter to the defendants.  They continued to use Craigslist data through work-arounds, something that constituted unauthorized access and, therefore, a violation of the CFAA, assuming that there is proof of a work-around. 

What is happening with Craigslist is similar to what happened with eBay in its early days.  New auction sites were creeping up on eBay. So, eBay blocked companies such as Bidder’s Edge from “scraping and repackaging.” Bidder’s Edge found its way around the eBay blocks and continued to use eBay data.  eBay won an injunction against Bidder’s Edge by using a common law doctrine of trespass to chattels. The legal theory was quite simple -- you are on my property after I told you not to come here. Bidder’s Edge tried to continue without eBay data, but without that big franchise in its mix, it could not compete. Therein lies the consumer and antitrust concern.  If there is no competition in a particular line of business and the original firm can effectively preclude market entry by competitors, is such a protected market best for consumers?  If there is only one choice in online classifieds, is that one choice the best for consumers? You can read more about these competition issues here.

The issues involved in Internet competition are complex because they cross so many fields.  Basing a decision on property rights may hamper competition.  Allowing competition through “scraping and repackaging” may cost the original innovator its market position or its existence.  More litigation to come!

Discussion Starters

1.     Explain why Craigslist wants to protect its ads from use elsewhere.

2.    List the legal theories used in preventing “scraping and repackaging.”

Posted by Marianne Jennings

Three University Researchers Disclose Trade Secrets in Exchange for Bribes from China

05-24-2013 12:09 PM with no comments

New York University School of Medicine (NYU) was awarded a  multi-million dollar grant from the National Institute of Health to fund research on magnetic resonance imaging (MRI) technology.  The funding enabled the college to hire a top scientist in the field, Dr. Yudong Zhu, a Chinese citizen.  In turn, Zhu hired two close  associates, both research engineers, who moved to New York from China to help direct the research.. 

The research methodology and results are confidential and quite valuable.  A Chinese medical imaging company, United Imaging Healthcare, and a Chinese-sponsored research institute were allegedly willing to pay $500,000 for access to that information, and Dr. Zhu was allegedly willing to provide the data for that price. Dr. Zhu had no authority to sell or otherwise disclose the information which the university maintained as confidential.  The two Chinese entities are direct competitors of NYU on MRI research, .and are involved in a similar MRI research project funded by the Chinese government.

 Dr. Zhu and his associates have been arrested and charged with conspiracy to commit commercial bribery. Commercial bribery includes an employee accepting, without the employer’s knowledge, some benefit from another party, with the understanding that such benefit will influence the employee’s conduct in relation to the employer’s affairs. Conspiracy is the act of agreeing with one or more other person to jointly engage in illegal conduct.

Dr. Zhu is also charged with one count of falsification of records, which includes making a false entry in a company’s business records, and omitting to make a true entry in such records despite a duty to do so imposed by the nature of his position.  Specifically, Dr. Zhu is accused of failing to disclose his relationships with the competing research companies in China, and the payments he received from them.

Said the federal prosecutors, the alleged theft of research “is a serious crime and will not be tolerated by this office . . . Protecting our nation’s technology and intellectual property against these types of thefts remains one of the FBI’s top priorities.”  All three have been suspended from NYU, and the university is cooperating with the investigation. 

The case elevates ongoing concerns about Chinese theft of U.S. trade secrets.  Cases with similar allegations are pending in which defendants are accused of providing to Chinese companies trade secrets of Motorola, General Motors, and Dow Chemical.

For more information, click here.

CLASS DISCUSSION:

What additional steps, if any, might the University have taken to protect itself from this crime?

Posted by Karen Morris

Appeal Argued in Insider Trading Case of Rajat Gupta

05-23-2013 1:15 AM with no comments

Rajat Gupta is a businessman of no small accomplishment .  He was a board member of numerous large corporations including Goldman Sachs, Proctor and Gamble, and American Airlines. He advised numerous corporate chief executives, and also non-profit organizations including the Bill & Melinda Gates Foundation.  

His impressive business achievements were overshadowed in June, 2012 by his conviction for  securities fraud (a deceptive practice in the purchase and sale of stock) and conspiracy (plotting with one or more other people to do something illegal) to commit insider trading. 

Insider trading refers to the purchase or sale of a company’s stock while the trader is in possession of material, nonpublic information that would impact positively or negatively the value of the stock.  Access to nonpublic information gives the insiders an unfair advantage. The concept is that all investors should be on equal footing when deciding whether to buy or sell securities.   Also prohibited is informing others of inside information, known as tipping, and trading by the "tippee" utilizing that information.  

Gupta’s convictions were based on evidence that he tipped Rajmaratnam information Gupta learned as a board member.  Gupta was sentenced to two years in prison followed by a year of supervised release, plus payment of $5 million in fines. He is appealing (asking a second court to review decisions of a lower court) the decision and remains free while the appeal is pending. 

The hearing in Mr. Gupta's appeal was recently held. His attorney argued that the lower court made several incorrect decisions. One primary argument was that the trial judge wrongly excluded evidence from Mr. Gupta's daughter that she was told by Gupta that Rajaratnam had stolen money from him. Per Gupta’s argument on appeal, since he was angry at Mr. Rajmaratnam, Gupta would not have been inclined to help Rajmaratnam by giving him insider information.

 The prosecutor argued that regardless of the correctness of the judge's ruling, the challenged testimony would not have changed the outcome of the case. Noted the prosecutor, Gupta called Mr. Rajaratnam within a minute of completing a phone conference of the Goldman board. Quickly thereafter Rajaratnam bought close to $35 million of Goldman stock.. Said the prosecutor, "The agrument that the phone calls and trades were coincidental was made to the jury, and it was rejected because of its absurdity."                

A ruling on the appeal is expected sometime in the next few months.

For information click here and here.

DISCUSSION QUESTION

Is Gupta likely to win his appeal?

Posted by Karen Morris

Bankruptcy Lawyers Billing for First Class and Packs of Gum

05-21-2013 2:04 PM with no comments

The U.S. Trustee Program, a division of the Department of Justice, monitors bankruptcy cases, and the expenses and bills submitted by attorneys handling the cases have caught their eye.  Here are some samples expenses submitted to bankruptcy courts by lawyers as  reported by Emily Glazer and Jennifer Smith. [“Bankruptcy Costs Attacked,”  Wall Street Journal, May 13, 2013, p. C1].

·       reimbursement for a pack of gum

·       First-class airfare for all trips taken by lawyers working on the bankruptcy

·       Two three-night stays at the Waldorf-Astoria for $3, 451.41 (the law firm did agree to knock $1,000 off this expense)

·       Hourly fees of up to $1,000 per hour for lawyers working on the bankruptcy estate

·       Dinner for 17 people that exceeded the federal guidelines of 20 per person for dinner by $3,605.60 – the expense was ultimately withdrawn by the law firm

Law firms defend the expenses by arguing that spending time on such expenses is penny-wise and pound-foolish, and that overseers should focus on whether the process is being handled well.

Nonetheless, judges are tamping down on expenses and are limiting reimbursement.  For example, one judge disallowed business class and first-class flights, stating that the law firms could pay for the upgrade, but the bankrupt estate was not going to do so. 

Administrative expenses, including those of accountants, appraisers, attorneys, and liquidation specialists are paid after secured creditors in bankruptcy proceedings.  Other creditors and shareholders are paid for their losses only after these administrative expenses have been paid.  The result is that most estates are gone following the disbursements to secured creditors and administrators. 

U.S. Trustee Program has completed several drafts of expense guidelines for bankruptcy attorneys, a guide that will place limits on their reimbursement. In addition, the U.S> Trustee Program will be looking into the reimbursement of expenses of other professionals involved in bankruptcy proceedings.  The Program began with attorneys, but plans to expand until it has audited all professionals involved in providing services to bankrupt estates.

Discussion Starters

1.      Describe the order of who gets paid in a bankrupt’s estate.

2.     Who is responsible for oversight of expenses submitted for payment from the bankrupt estate? 

Posted by Marianne Jennings

Pilot Flying J CEO and Cleveland Browns Owner: Please Don't Sue Us -- We Will Pay You Back!

05-17-2013 4:02 PM with no comments

It all went public on April 15, 2013 when FBI raided the headquarters of Pilot Flying J in Knoxville, TN, as the culmination of a five-year investigation into rebate fraud by sales representatives of the company. The FBI seized spreadsheets, e-mails, billing records, and discount notification sheets.  Under contract terms, Flying J trucking companies are entitled to rebates based on their levels of fuel purchasing. However, salespeople for the company were not processing the rebates in order to increase sales levels, profits, and, as a result, their bonuses and commissions.  Informants working for the company secretly recorded conversations among Pilot employees and sales staff who called the rebate withholding scheme terms such as “trimming,” “cost-plussing,” and “screwing.” Lori McFarland, the discount coordinator at Pilot was recorded on tape as saying, "Sometimes the salesperson is kind of jackin' around with (the customer) and not wantin' em to know.”  Alison Grant, “Federal raid of Cleveland Browns onwer Jimmy Haslam’s Pilot Flying J offices yields contracts, emails, spreadsheets,” The Cleveland Plain Dealer, April 23, 2013.   

Several salespeoples’ homes were also raided simultaneously.

Jimmy Haslam, the CEO of Pilot, and a part-owner of the Cleveland Browns, released a statement when the charges surfaced indicating that he had no knowledge of the rebate scheme. However, an affidavit supporting the warrant for the searches indicates that Haslam was aware of the five years of rebate fraud, an approach that increased revenues at the expense of small and unsophisticated customers of Pilot.

As the potential for extensive litigation from customers for breach of contract increased, Mr. Haslam took the unusual step of speaking directly to trucking company executives at a meeting in Indianapolis, saying, “I apologize for the actions of our people.  And I want to look everyone in the eye and say we’ll do everything we can to make things right.” Alison Grant, "Pilot Flying J's Jimmy Haslam says he absolutely had no knowledge of fuel rebate cheating by sales managers," The Cleveland Plain Dealer, May 16, 2013. 

Mr. Haslam also added a plea for the trucking executives to give his company a second chance, to not work through lawyers, and then offered a promise, “You’ll get 100% of your dollars and it will go very quickly.  I think you’ll find it to be an efficient process, much less cumbersome and all the money will come to you.” Valerie Bauerlein and Betsy Morris, “Pilot Truck-Stop Chief Pleads:  Don’t Sue Us,” Wall Street Journal, May 17, 2013, p. B1.  

At least one suit has been filed by Atlanta Coast Carriers and alleges inaccurate billing and rebate procedures as well as racketeering activity. John Caniglia, “Haslam’s Trucking service firm, sued by Georgia trucking company,” The Cleveland Plain Dealer, April 22, 2013. You can read the full complaint filed in the suit here.

Watch Haslam discussing the issues with rebates here. 

 Discussion Starters

1.       What are the customers’ rights under their contracts?

2.      What damages might the customers have as a result of having their rebates withheld? 

Posted by Marianne Jennings

Abercrombie & Fitch Accused of Discrimination - Some Legal, Some Illegal

05-16-2013 8:47 AM with no comments

  Abercrombie and Fitch (A&F) is a clothing retailer that caters to young adults, teen-agers and children. It has 700 stores in the United States, employing 22,000 people, most of whom are college-age.

Social media has ignited anew comments made by A&F president Mark Jeffries in 2006.  He was quoted as saying, “In every school there are the cool and popular kids, and then there are the not-so-cool kids.  We go after the cool kids.  We go after the attractive all-American kid with a great attitude and a lot of friends.  A lot of people don’t belong in our clothes.  Are we exclusionary? Absolutely.”

These statements suggest the company is targeting its clothes to certain categories of high school and college kids, and not others. Indeed, the company sells nothing larger than a size 10 except for large in women’s sizes and XXL (extra, extra large) for men.  Although someone who fits in the latter size might not fit A&F’s description of “attractive”, Jeffries explains this apparent incongruity by noting that some “jock types” have large muscles and so need the larger size shirt.  So athletes qualify as cool.

There are two situations in which illegal discrimination customarily occurs.  One involves employment and the other, places of public accommodation.  The law forbids treating protected classes differently in employment situations, including hiring, firing, promoting, providing access to training, etc.  Additionally, a place open to the public cannot refuse admission or service to someone based on being in a protected class.

A&F, and virtually all stores, are places of public accommodation. Thus, they cannot refuse entry or services to would-be customers based on race, color, religion, national origin, gender, or disability.  However, the status of being unpopular or not cool is not a protected class. Nor is being a loner or harboring a bad attitude  Therefore, the stores can discriminate on these grounds.  . Likewise, the law does not protect against discrimination based on body size, with one possible exception.  If a person is obese and that circumstance causes disabling conditions, protection against discrimination based on disability may apply.    

The store’s interest in “all-American” kids presents a different scenario.  “All-American” suggests that people from other nationalities are not welcome.  If A&F refused admission to, say, Hispanics or a Frenchman or someone who hailed from Japan, that would constitute illegal discrimination.

A&F apparently ran afoul of the employment anti-discrimination laws a few years ago. The fashion retailer was sued by African, Asian, Latino, and female employees claiming discrimination. The case was settled in 2006  with the clothier agreeing to pay $50 million and to undertake various initiatives to encourage diversity in its workforce. The action required by A&F includes periodic reports on the company’s efforts to hire diverse employees, mandatory advertising of openings in publications targeted to minorities, creation of a new Vice President for Diversity, institution of diversity training for all employees with hiring authority, adding “progress towards diversity” to assessment criteria of managers for bonus and compensation purposes.   

One of the attorneys for the plaintiffs summed up the lawsuit as follows, “ Employees of Abercombie and Fitch should have been judged on their qualifications, and not their skin color or gender.  The class action settlement compensates class members for being subjected to the challenged practices and ensures that Abercrombie will improve its employment practices and diversity efforts nationwide.”

For more information, click here.

DISCUSSION QUESTION:

Would you add any categories to the list of protected classes?  If so, what would they be?

Posted by Karen Morris

Texting While Driving -- Lots Do It; Few Are Caught; Danger Is Great

05-14-2013 11:37 PM with no comments

Here are the stats on texting, teens, and habits:

34% 16-17 yr olds texts while driving; but other studies put the figure at a range between 25 and 75%.

82% have a cell phone

77% believe they can safely text while driving

The teens who do text while driving are also more likely to engage in other risky activities, such as riding with an intoxicated driver or not wearing a seatbelt.

Researchers from the U.S. Centers for Disease Control and Prevention (CDC) found four in every nine high school students had sent or received texts while driving in the past month.

And commuters are worse, with 49% indicating that they text while driving to and from work. 

Although it is against the law to text while driving in 45 states, there has been an increase in the amount of texting going on while folks are driving, and there is very little enforcement done in any of the states to ticket those who do text while driving. In 39 of the states, texting while driving is considered a primary offense, which means that you can be ticketed just for texting -- texting while driving does not require that you be pulled over for another offense, such as running a red light or speeding. The ranges among the states for ticketing are 6-24 drivers per month receiving citations.  Larry Copeland, "Few Drivers Nabbed While Texting," USA Today, ay 14, 2013, p. B1. 

The one time when it becomes easy to issue a ticket is when you have an accident while texting.  Your phone records will do you in --- they offer absolute proof of what you were doing when the accident occurred. If you are texting and have an accident, then you have not behaved as a reasonable person and you will have some level of liability for any injuries to others or damage to their cars and/or property.  Texting drivers are 23 times more likely to have an accident while driving and texting.  Because of an increasing number of accidents being caused by texting, Verizon, AT&T, Sprint, and T-Mobile have launched an "It Can Wait" ad campaign to convince drivers to stop texting while driving.  In addition, there is some research into developing phones that would not work in cars.  

Discussion Starters

1.  Explain why you would have liability if you caused an accident if you were texting while driving.

2.  Is lack of enforcement a reason for not obeying a law?

Posted by Marianne Jennings