• WTO Rules for EU, Mexico and U.S. against China Export Policy

    The World Trade Organization (WTO) helps to enforce agreements among most nations. It encourages free trade and the protection of intellectual property around the world. It handles complaints brought by member nations against other nations accused of violating WTO principles that the nations agreed to uphold when admitted to the WTO.

    Most trade fights that come before the World Trade Organization involve restriction by a government on imports. The action in this matter involves a policy of the government of China to restrict the export of various raw materials, including bauxite, manganese, magnesium, zinc, and other materials used in the production of many goods. 

    As the EU Commission explained last year: “Export restrictions can create serious disadvantages for foreign producers by artificially increasing China’s export prices and driving up world prices. At the same time, such restrictions artificially lower China’s domestic prices for the raw materials due to significant increases in domestic supply. This gives China’s domestic downstream industry significant competitive advantages and puts pressure on foreign producers to move their operations and technologies to China.”

    The dispute case was filed in 2009. The WTO panel that studied the complaints issued a report in July, 2011. China appealed, but lost. To have a decision now is quite speedy as many WTO disputes take much longer, but that does not mean there will be immediate compliance. Now the parties will haggle over what compliance will mean, as noted in the explanation of the proceedings. 

    Discussion Question: How would it benefit the Chinese economy to restrict exports? That just reduces the revenues earned in China from exports.


  • Macy's Sues Martha Stewart for Alleged Two-Timing on Licensing Deal

    Macy’s has filed suit against Martha Stewart Omnimedia Inc.(MSO) in order to have the New York state court enjoin the licensing agreement that the company has penned with J.C. Penney.  Martha Stewart has had a line of home and kitchen products with Macy’s since 2007, and the department store alleges that the Stewart deal with Penney’s includes a line of products that Ms. Stewart is prohibited from endorsing with other retailers. The suit follows the near-simultaneous extension of the Macy’s contract through 2018 and the announcement of the JC Penney deal.  See Chad Bray an Dana Mattioli, "Macy's Files Suit Against Martha Stewart Living," Wall Street Journal, January 24, 2012, p. B3 or view the article here and a video here.

    In Macy’s motion for a preliminary injunction it alleges that the use of the Stewart name by Penney’s would result in a “proliferation” of the Martha Stewart brand in the marketplace and reduce sales at Macy’s. MSO has not yet responded to the suit or the motion and has declined to comment publicly on the suit.

    The clause in the Macy’s contract is a covenant not to compete, something that can be enforced by a court if the covenant is necessary to protect the goodwill of the business.  In endorsement contracts, a restrictive covenant on other endorsements is not unusual.  The business justifications for the covenants are the need for customer association of a famous individual (Ms. Stewart) with a particular company, store, or brand.  For example, Actress Charlize Theron had signed an endorsement contract with Raymond Weil, the exclusive Swiss watch manufacturer in 2005, an agreement that required the actress to wear only Raymond Weil watches from October 2005 through December 2006.  The clause in her endorsement contract included the following:

    As of the signing of this Agreement, Artist [Theron] commits not to wear publicly any other watches other than RW watches during the Term. Additionally, Artist hereby agrees that during the Term she shall not endorse or advertise watches or jewelry for any other person, entity or company. Furthermore, Artist agrees that she will not endorse or advertise watches or jewelry for any other person, entity or company, including for charity. . .


    However, at a March 2006 press conference at the Southwest film festival, Ms. Theron was photographed wearing a Christian Dior watch. Ms. Theron said her decision to wear the watch was regrettable.   Pictures of Ms. Theron wearing the watch ended up in Tourneau-sponsored publications.  RW produced evidence that the appearance in a different watch in a publication for another watch company undermined all of its Theron ads.  The court agreed that the breach by Ms. Theron was material and held that Ms. Theron was in breach of their contract.

     So, there is precedent among the stars for Macy’s to emerge with an injunction against Ms. Stewart.

    Discussion Starters

    1.      What is Macy’s concern about non-exclusive endorsements by celebrities?

    2.     What remedy does Macy’s want from MSO?


  • Forum Selection Clauses; Where Can Injured Cruise Ship Passengers Sue?


    The legal issues arising from the capsized cruise ship Costa Concordia are complex, in part because of jurisdictional questions.  People from various countries were on board and injured or killed in the evacuation process.  Every would-be plaintiff would like to sue the cruise line in the country where s/he lives rather than the country where the company is headquartered.  Pursuing a lawsuit close to home is cheaper, involves less travel, and is more expedient.   A problem is a choice of forum clause (also called forum selection clause) signed by all the travelers as they boarded the ship.  The provision states that if the cruise touches any part of the United States, lawsuits can be filed in federal court in South Florida.  But for cruises that do not come within the boundaries of the US, as was the Costa Concordia’s circumstance, the forum selection clause states lawsuits must be brought in Genoa, Italy where the cruise line’s operations are located. 

    An August, 2011 precedent (a prior case addressing the same issue currently before a judge) from the federal court of appeals for Florida involved a woman from the United States who broke her leg on a cruise ship sailing from Tahiti.  The choice of forum clause in her contract required lawsuits to be filed in Paris.  The woman attempted to sue in Florida saying she had insufficient money to travel to France to sue and would be forced to forgo her claim if Paris was the only option.   The court upheld the clause and dismissed her Florida case.  Because of the rule of stare decisis, which encourages courts to follow precedents, Americans injured on the Costa Concordia will likely have to sue in Italy.  

    In the Costa Concordia cases, the fact that the ticket with the forum selection clause was signed as the passengers boarded the ship and after they had packed, psyched up for the trip and were ready to go, may be significant.  The would-be plaintiffs can argue that the clause was unconscionable (grossly unfair and therefore unenforceable) due to unequal bargaining power and should be set aside. The outcome of that argument is unclear. 

    The laws of other countries are often quite different from those of the United States. This is true for Italy in ways significant to the cruise ship cases. For example, in the United States lawyers can be hired on a contingency fee basis, meaning the lawyer is paid only if the client wins the case. This payment option is not available in Italy.  Thus suing in that country requires a significant outlay for attorney’s fees that is not required in the United States.  Additionally, Italian law requires plaintiffs to post a bond with the court of 10% of the expected damage award.  So if someone sues,for example, seeking $1 million, the bond would need to be in the amount of $100,000, a very significant financial threshold for most plaintiffs to satisfy and may prevent many from pursuing a lawsuit.  In the US, all that is necessary is a court filing fee in the approximate amount of $250.  A relative bargain!   Additionally, monetary recovery for pain and suffering (physical and mental anguish suffered from an injury) in the United States is often a significant item of damages recovered in a negligence lawsuit).  Recovery on this basis under Italian law is considerably more difficult.

     The cruise line has announced an original offer of settlement in the amount of $14,000 for each surviving passenger plus reimbursement of the cost for the trip.  While this proposal has been labeled  an insult, given the realities of Italian law many passengers may be more willing to consider settlement offers than if they could sue in their home country. 

    Discussion Question:

    What would be the basis for an argument by a passenger that the forum clause is unconscionable?


    In what ways do the laws of Italy encourage settlements of  lawsuits?

















  • Facebook Rants, the NLRB, and Scope of Employee Protection

    Last year, an employee who called her supervisor a “scumbag” on a Facebook rant won an NLRB settlement with the company because the company’s policy on employee social networking was too restrictive. The NLRB ruled that employees had the right to complain about pay, safety issues, and working conditions and that it was irrelevant whether the complaints were voiced at the office water cooler or on Facebook.

    Using Section 8(a)(1) of the National Labor Relations Act (NLRA), the NLRB is issuing a series of settlements and opinions on the Facebook rants of employees and the rights of both employees and employers. Over the past year, the NLRB has dealt with 100 employee complaints filed against their employers for disciplinary action take with regard to their Facebook postings about their jobs.

    A series of cases following that initial decision have served to create a body of decisions that clarify the rights of employees and employers.  In a complaint filed by an employee against his employer, JT's Porch Saloon & Eatery Ltd., the employee, a bartender, was fired for calling the bar’s customers “rednecks” on Facebook.  The NLRB held that the employer had not violated Section 8 (a) (1) because the comment did not relate to terms and conditions of employment and also because the comment was not part of a discussion with a fellow employee but more of an expression of opinion about the customers.  In addition, such postings could result in harm to the business because customers might take offense and not return to the bar.

    In Wal-Mart, Inc., following a tense interaction with his Assistant Manager, a Wal-Mart employee posted the following comment into his Facebook page: “Wuck Falmart! I swear if this tyranny doesn’t end in this store they are about to get a wakeup call because lots are about to quit!” Employees responded with the following posts:

    [Employee 1]: 

    bahaha like! :)

    However, the NLRB ruled in favor of Wal-Mart in terminating the posting employee, with the following summary:

    An individual employee’s conduct is concerted when he or she acts “with or on the authority of other employees,” when the individual activity seeks to initiate, induce, or prepare for group action, or when the employee brings “truly group complaints to the attention of management.” Such activity is concerted even if it involves only a speaker and a listener, “‘for such activity is an indispensable preliminary step to employee selforganization.’” On the other hand, comments made “solely by and on behalf of the employee himself” are not concerted. Comments must look toward group action; “mere griping” is not protected. . . .Here, we conclude that the Charging Party’s Facebook postings were an expression of an individual gripe.

     In addition, the NLRB has ruled that rants that threaten violence or damage to employer property are also not protected.  Frito-Lay's termination of an employee who had threated to set off a bomb in a Frito-Lay warehouse.  The NLRB found that Frito-Lay had not terminiated the employee imporerly.

    You can read about more cases here. You can also read a Wall Street Journal article on the extent of the cases and the positions of the NLRB. Melanie Trottman, "For ANgry Employees, Legal Cover for Rants," December 2, 2011, p. B1. You can see the list of NLRB cases here. The cases have gone international, with a British court upholding Apple's right to terminate an employee who posted vicious statements about Apple, its products, and managers.

    Discussion Starters

    1.  What are the rights given to employees under Section 8(a)(1) under the NRLA?

    2.  What types of communications by employees on Facebook are NOT protected by the NLRA? 




  • State Regulations May Not Infringe on Federal Regulatory Scheme

    The Food Safety and Inspection Service (FSIS), part of the U.S. Department of Agriculture, employs 9,000 inspectors to enforce the goals of the Federal Meat Inspection Act (FMIA), which is more than 100 years old. The law aims to ensure the safety of meat and the human handling of animals.


    The FSIS has an extensive set of procedures that must be followed at slaughterhouses regarding the handling and disposal of sick animals.


    The state of California enacted a statute to impose more strict regulations on the handling of sick animals at slaughterhouses. The California law imposed criminal penalties for violations of the state law.


    The National Meat Association (NMA) is a trade association representing meatpackers and processors. It sued to enjoin enforcement of the California law, contending that the FMIA preempts application of state law.


    The federal district court agreed, holding that the FMIA preempted state action. The Ninth Circuit Court of Appeals vacated the injunction, ruling that the FMIA did not expressly preempt state regulation.


    The Supreme Court unanimously rejected the Ninth Circuit’s view, finding the California law in conflict with the federal regulatory scheme. The FMIA prohibits any different or additional state requirements beyond the federal controls. The California rules clearly go beyond federal rules and require slaughterhouses to implement controls specific to the California scheme. This is an area of law in which Congress intended to preempt any state regulation.


    Discussion Question: Well intended or not, what would happen if states could add regulations on top of federal rules?

  • Police Need Search Warrant to Install GPS Tracker On Car Under Surveillance

    Technological developments produce intriguing cases that require judges to grapple with questions about how our existing law applies to new products.  In a recent United States Supreme Court case (United States v. Jones, January 23, 2012), the police attached a GPS (Global Positioning System) device to a vehicle under surveillance for suspected drug dealing.  The device was used to monitor the vehicle’s whereabouts.  Defendant car owner claimed his Constitutional right against unreasonable searches and seizures had been violated.  The court agreed. 

    Our Constitution protects us against unreasonable searches and seizures of our “person, houses, papers and effects.” Fourth Amendment.   A car is an “effect” as that term is used in the Amendment, and is thus protected from unreasonable searches.  This constitutional right helps to secure people’s privacy.  The right requires that the police refrain from arresting people, or searching private areas of their life, without probable cause.   This standard requires evidence that would lead a reasonable person to believe that the defendant committed a crime.  Probable cause requires less evidence than the standard required for conviction (beyond a reasonable doubt).   Without probable cause, the search or arrest is considered unreasonable and therefore illegal.   Evidence obtained illegally is suppressed, meaning it is not admissible in court.  

     In many circumstances when police are ready to make an arrest or conduct a search of certain locations, they are not permitted to make the final assessment of  whether  available evidence adds up to probable cause.  Instead  officers must convince a judge, a neutral magistrate, that the evidence satisfies the required standard.  If the judge so finds, s/he issues a warrant authorizing the police to make an arrest (arrest  warrant) or search certain locations (search warrant).   If the judge is not satisfied that probable cause exists,  a warrant does not issue and the police cannot make the arrest or search.   The role of the judge in this equation is to protect people from unreasonable intrusion by police officers who may be overzealous in the pursuit of investigations. 

    In the GPS case the court held that installation of the device and its use to monitor the vehicle’s comings and goings constituted a search.  The prosecution argued that the defendant had no reasonable expectation of privacy concerning the car’s locations on public roads since the vehicle was visible to all.   The court rejected this position on the grounds that the police did more just than conduct a visual inspection of the car.  Instead, the police attached the device to the Jeep without permission.  By doing so, they physically intruded on a constitutionally protected area.  To do so legally requires a warrant. 

    This decision is disappointing to police departments.  

    To ensure constitutional rights are not shortchanged, our law has adopted the exclusionary rule.  This means that evidence obtained illegally cannot be used against a defendant in court.  Instead, the illegally obtained evidence is suppressed.  In  this case if evidence concerning defendant’s drug use was  obtained from the surveillance of the car using the GPS device, that evidence would likely be suppressed.  It would thus not be usable at trial by the prosecution.  The underpinning of the  exclusionary rule is this: As a society we would rather a guilty person go free than that police be allowed to violate our rights.



  • No Planting GPS Trackers on Cars Without a Warrant

    The U.S. Supreme Court has issued its 9-0 decision in the appeal of U.S. v. Maynard, 615 F.3d 544, at 562 (D.C. Cir. 2010), the case in which the FBI placed a GPS tracker on a car without first obtaining a warrant or the consent of the car’s owner. The FBI-Metropolitan Police Department Safe Streets Task Force was investigating two individuals for narcotics violations.  The two were charged with the intent to distribute cocaine.  At their trial, the court admitted evidence that was acquired by police and FBU use of a Global Positioning System (GPS) that was installed on one of the defendant’s Jeep without a warrant and without his permission.  As a result, the officers were able to track the defendant 24 hours per day for over one month and thereby put together the drug charges. You can find the appeal, called U.S. v. Jones here.

    The case means that police will have to err on the side of always getting a warrant prior to tracking potential defendants by electronic means.  The case is another of many that deals with the Fourth Amendment rights that we have in this high tech and evolving age. The panel featured in the video discusses the issues the court decided.

    Discussion Starters

    1.  What does the court balance with the GPS trackers?

    2.  What will police need to do now?

  • State Court or Federal, Take Your Pick

    Back in the old days, consumers were routinely bombarded by calls from telemarketers. States passed laws restricting such calls, but since the call centers were scattered around the country, state rules against nuisance calls did not matter much. Congress then passed the Telephone Consumer Protection Act of 1991 (TCPA) to restrict unwanted and abusive calls. 

    The TCPA directed the Federal Communications Commission (FCC) to write regulations to implement the law and authorized the states to bring civil actions to stop prohibited call practices and to recover damages on behalf of citizens of the states.

    Marcus Mims, tired of calls from Arrow Financial Services, a debt-collection agency, sued for damages in U.S. District Court in Florida. He invoked the court’s “federal question” jurisdiction for claims “arising under the … laws … of the United States.” Arrow contended that the federal court did not have jurisdiction. The District Court and 11th Circuit Court of Appeals agreed. They noted that the TCPA states that a private person may seek redress “in an appropriate court of [a] State.”  

    Mims appealed to the Supreme Court, raising the issue of whether the provision for private actions to enforce the TCPA means that state courts have exclusive jurisdiction for such actions. The high court unanimously reversed the lower courts, finding that federal courts do have jurisdiction over suits brought under the TCPA.

    The TCPA’s grant of jurisdiction to state courts does not deprive U.S. district courts of federal-question jurisdiction in suits brought by private parties. Arrow agreed that the suit arose under the laws of the United States, but claimed that the statute gave state courts exclusive jurisdiction over such suits. 

    The Court said no, there is a presumption of concurrent jurisdiction over cases arising under federal law unless Congress expressly blocks state-court jurisdiction. Here, Congress expressly granted jurisdiction to state courts, but that does not mean that the federal courts were deprived of jurisdiction, so Mims could bring suit in either court system.

    As a side note—who owns Arrow? Sallie Mae. Formerly called the Student Loan Marketing Association, it is a government-sponsored enterprise (GSE). Like Fannie Mae and Freddie Mac it is a public corporation created by Congress that has certain advantages given its special status. Thanks taxpayers!

    Discussion Question: Why should a Florida resident be able to bring suit in federal court against a company that admits it is subject to state court jurisdiction?

  • Death on the High Seas; Maritime Crimes

    A cruise ship, the Costa Conordia, sank off the coast of Italy after part of its foundation was ripped by a reef. Twelve people are confirmed dead and 21 more are missing. The media is reporting that the captain may be charged with manslaughter, abandoning ship and shipwreck.  He allegedly deviated from the designated course set by the cruise ship company to display the boat to spectators on shore, disregarded maps that would have revealed the obstruction, and after the boat partially sank, left the ship long before all the passengers and crews had boarded lifeboats. 

    Manslaughter is the crime of causing someone’s death by reckless conduct.  It is contrasted with murder which is intentionally causing death.  Clearly the captain did not intend to cause death or injury to any of the passengers or crew members. Recklessness is defined as disregarding a substantial risk of death.  Piloting a cruise ship with 4000 people on board and failing to follow a designated course, and navigating the ship close to known obstacles, create a foreseeable risk of calamity and so constitutes recklessness.

    So which country’s law applies?  A ship is subject to the rules of the country whose flag it flies., which refers to the country which exercises regulatory control over the ship.  That country is required to inspect and certify the ship’s equipment, crew, safety and pollution prevention devices.  The Costa Concordia flew Italy’s flag.

     Many cruise ships make stops in various locations at which passengers can debark and sightsee.  The ship may also be subject to the laws of countries where it stops. Abandoning ship is a crime in some countries and not others.  For centuries it has been a crime in Italy and also in Greece and Spain.  There is no such crime in the US but there is a longtime maritime (meaning of or relating to the sea) tradition that the captain should be the last one to leave a sinking ship. 

    The third charge of shipwreck involves damage to a ship by failure of the captain to follow common practices of seamen, and failing to observe due diligence.




  • The U.S. Supreme Court Struggles with Nudity and Expletives

    Visit msnbc.com for breaking news, world news, and news about the economy

    In a case that will just not go away, the U.S. Supreme Court heard oral arguments in Federal Communications Commission v. Fox Television Stations, Inc., 556 U.S. 502 (2009),a case that began ten years ago when Cher and Nicole Ritchie dropped the "F" bomb during award ceremonies broadcast on the Fox network. In the first round for the case, the Court held that the FCC's rules on indecency on television were not arbitrary and capricious.  In ruling based on administrative law, the Court held that the agency, which had previously held that nonrepetitive use of expletive was not subject to agency fines, could change its policy to fining the use of expletives based on context. The result was that the agency could fine even isolated uses of sexual and excretory words in awards show broadcasts.  The court reversed a lower court decision against the FCC and held that the change in policy was neither arbitrary nor capricious.   You can watch the oral argument from the court of appeals case here. The case was remanded, but the lower court held that the policy was void for vagueness and unconstitutional. Fox Television Stations, Inc. v. F.C.C., 613 F.3d 317 (2nd Cir. 2010). The FCC appealed and the U.S. Supreme Court then granted certiorari with the resulting oral arguments. F.C.C. v. Fox Television Stations, Inc., 131 S.Ct. 3065 (2011).

    The oral arguments indicate that the justices were struggling because of the inconsistencies in the FCC's application of the policy. Justice Ruth Bader Ginsburg questioned lawyers for the government about the inconsistency of the FCC policy:

    The commission has, for instance, said that swearing in “Saving Private Ryan,” the Steven Spielberg war movie, was not indecent, while swearing by blues masters in a music documentary produced by Martin Scorsese was indecent. Nudity in “Schindler’s List,” another Spielberg movie, was allowed, but a few seconds of partial nudity in “NYPD Blue” was not.  from Adam Liptak, "TV Decency Is a Puzzler for Justices," New York Times, January 10, 2012.

    Justice Kagan remarked,  “The way that this policy seems to work, “it’s like nobody can use dirty words or nudity except for Steven Spielberg.” Justice Kagan was zeroing in on the heart of the "void for vagenuess" standard, which is that we must be able to tell when and how we will violate a law. Leaving too much discretion to those who enforce the laws means that we are subject to their individual interpretations, a violation of the due process clause. You can read the FCC policy here.

    The Court is expected to issue its opinion in May or June of this year.  

    Discussion Starters

    1.  Explain what "void for vagueness" is.

    2.  Explain the point Justice Kagan makes about the FCC standards.


  • Hip-Hop Magazine, The Source, Rehires CEO Despite Sexual Harassment Lawsuit

    The Source is a best selling monthly magazine that covers all things  hip-hop including music,  politics and culture. 

    The magazine was in the news recently because it rehired its prior editor-in-chief, Kimberly Osorio.  She had previously sued the magazine for sexual harassment and retaliatory discharge  in what became a hard-fought lawsuit.  It ended with a judgment in her favor for many millions of dollars.   

    Sexual harassment encompasses a variety of sexually-charged behavior occurring at a workplace.  There are two categories - quid pro quo and hostile environment. The quid pro quo variety occurs when an employer demands sexual favors in exchange for a benefit of employment such as a job, a raise, or a promotion.  Hostile environment involves a worksite where demeaning sexual conduct is tolerated.  The offending behavior could include disparaging jokes; the posting of pin-ups; inquiries about an employee's sexual experiences; presence of such magazines as Playboy or Hustler; sexual innuendos; oral speculation about an employee’s sexual prowess; touching, pinching, or  intentionally brushing against someone; giving personal gifts; snapping a woman's bra; and the like.   

    The particular conduct alleged by Osorio's hostile environment claim included repeatedly calling women bitches, exhibiting pictures of scantily-clad females the walls, using screen-savers with nearly nude women, often watching pornographic movies at work, and “magazine covers with endless cleavage."  Additionally, rumors were spread that Orosio was sexually active with popular rappers. 

     While the conduct described suggests a hostile environment, for reasons unknown the jury rejected the sexual harassment claim.  Its substantial verdict was based on retaliatory discharge, meaning termination from a job because the employee complained of the employer's wrongful conduct, and defamation, which is publishing statements that are untruthful and disparaging.  For the verdict she received a money judgment which is a powerful document.  It enables the  judgment creditor, who is the person in whose favor the judgment was granted, to do any of the following, with the assistance of a law-enforcement officer, in an effort to secure payment: 1) take property of the judgment debtor; 2) remove money from the debtor's bank account; 3) garnish the debtor's wages; and 4) place a lien, which is a security interest, on the debtor's property.  However, if the debtor has no money, as in the case of a bankrupt defendant, a judgment creditor will be unable to collect.  As the saying goes, you cannot get blood from a stone.

     Unfortunately for Osorio in her position as judgment creditor, before she could collect,  the magazine went bankrupt, meaning it pursued a legal procedure seeking protection from creditors because it was unable to pay its bills.  Her legal victory, however, remained in tact. 

    We can only speculate on the prerequisites she demanded prior to her return to the periodical.  Hopefully, that too will make the news. 




  • What's a Well Worth?

    The Delzers owned a ranch in South Dakota. They hired Gerkin, a real estate agent, to list the ranch for sale. They provided him with information about the ranch, including its water system. The Steinekes were interested in the property. Their agents were shown the property by Gerkin, who said that the well on the ranch would produce “as much water” as they would need for farming and ranching. The Steinekes bought the ranch. 

    Two years later the Steinekes sued the Delzers and Gerkin for negligent misrepresentation, contending they were misled about the condition of the well and its ability to produce needed water. They sought $513,000 in damages, which was the estimated cost of installing a new well.

    The trial court prohibited evidence about the cost, holding that under the Restatement (Second) of Torts § 552B the proper measure of damages would be the “out-of-pocket loss” suffered by the Steinekes plus the difference between what [they] paid for the property and what [they] would have paid absent the alleged negligent misrepresentation.” To allow the cost of a possible new well to be argued as damages due would be misleading and prejudicial. The Steinekes appealed the trial court’s holding about damage measures. 

    The South Dakota Supreme Court upheld the decision, ruling that the Restatement (Second) of Torts sets forth the proper measure of damages in South Dakota in such a case.

    The court held: “A plaintiff asserting such a claim may recover ‘damages ... necessary to compensate the plaintiff for the pecuniary loss to him of which the misrepresentation is a legal cause.’ Restatement (Second) of Torts § 552B. This includes ‘the difference between the value of what he has received in the transaction and its purchase price or other value given for it and the pecuniary loss suffered otherwise as a consequence of the plaintiffs reliance upon the misrepresentation.’ Id. In sum, plaintiffs asserting negligent misrepresentation claims may recover reliance damages but not expectation damages. Accordingly, the Steinekes' evidence of the estimated cost for a new well was properly excluded.” 

    I.e., come back when you get a new well. Furthermore, the Steinekes could not testify about their belief about the change in the value of the ranch given the water situation. Their calculation was simply the value of the land minus the asserted cost of a new well. That is not the proper way to address damages under the Restatement. Expert analysis of the value must be provided.

    Discussion Questions:

    1.    Suppose experts testified that the new well would be $513,000 and also testified that the value of the property without the new well was, say, $200,000 less than the purchase price. How do you resolve the difference?

    2.    Is it reasonable, in the purchase of a large ranch such as this, to rely on the word of a salesman that there is “plenty of water” rather than hire an expert to study the matter?

  • Sweat Shops and Apple: The Supply Chain List

    Apple has followed the examples of Hewlett-Packard, Intel, and Nike, and released a list of its suppliers in order to introduce transparency in its overseas vendors.  The list followed news reports of a wave of suicides at the Foxconn plants (one of Apple’s suppliers) in China.

    Apple’s disclosure of its suppliers also included the following evaluations of its suppliers:

    ·         Apple listed 156 companies as suppliers and these companies make up 97% of its total payments to suppliers.

    ·         93 of the suppliers have over one-half of their workers exceeding the 60-hour per week limit that Apple places in its contracts.

    ·         108 vendors did not pay overtime as required in their contracts. Apple has required reimbursement by some of its vendors and those reimbursements have totaled $6.7 million since 2008.

    ·         There were 229 audits by Apple of suppliers (that is an increase of 80% over the number of audits in 2010).

    ·         Apple conducted 14 environmental audits related to conditions at factories (such as fumes) and brought in experts to help solve the problems at those factories (There have been reports of injuries to 137 employees at Apple’s Chinese suppliers due to employee inhalation of n-hexane.).

    ·         Apple has joined the Fair Labor Association, a nonprofit that works to improve factory conditions around the world.

    ·         Apple has expanded its Supplier Employee Education and Development (SEED) program and continues to offer free classes to employees in English, finance, and computer skills.

    ·         Apple terminated two repeat offender suppliers.

    ·         Apple requires suppliers who use underage workers to return those workers to school and finance their education, including continuing income at the same level received when working for the Apple supplier. The 2011 audit found no evidence of underage workers among Apple’s suppliers.

    Apple’s report listed the following audit topics and focus:

    Category                    Practices in              Mgt.

                                       compliance               systems

                                                                                                 in place




    Fair treatment



    Prevention of involuntary labor



    Prevention of underage labor



    Juvenile worker protections



    Working hours



    Wages and benefits



    Freedom of association



    Overall Compliance



     For a discussion of the Apple report, look here.

    Discussion Starters

    1.    What labor issues is Apple focusing on with its audits and affiliation with a labor rights international organization?

    2.    What has Apple done when it finds a supplier not in compliance with its standards?

  • Supremes Uphold Another Arbitration Agreement

    Greenwood and others who applied for and received a Visa credit card marketed by CompuCredit and issued by Columbus Bank agreed to the following term when they applied:


    “Any claim, dispute, or controversy (whether in contract, tort, or otherwise) at any time arising from or relating to your Account, any transferred balances or this Agreement (collectively, “Claims”), upon the election of you or us, will be resolved by binding arbitration….”


    Later, a class-action suit was filed against CompuCredit and Columbus Bank alleging violations of the Credit Repair Organizations Act (CROA). Plaintiffs claimed that defendants provided misleading information about the ability of the credit card to rebuild poor credit histories and that they were charged excessive fees.


    When suit was filed in federal district court, the defendants moved to compel arbitration of the matter. The district court denied the motion and the Ninth Circuit Court of Appeals affirmed. Defendants appealed.


    The Supreme Court reversed. The CROA was silent on whether claims under the Act can go to arbitration. Hence, the Federal Arbitration Act (FAA) applies. It requires the arbitration agreement to be enforced according to its terms. The FAA establishes a liberal federal policy that favors arbitration.


    The fact that the CROA provides a cause of action when certain rights are violated does not mean that such disputes must go to court for resolution. Arbitration will resolve the matter.


    This decision is one of many by the Supreme Court upholding a strong policy of enforcing arbitration agreements. It is also one of many Supreme Court decisions reversing a decision of the Ninth Circuit Court of Appeals.


    Discussion Question: Since consumers applying for a credit card have no opportunity to bargain over the terms in the contract, such as mandatory arbitration, would that be a reason to strike down the arbitration clause?

  • Google's Sergey Brin Changes His Mind on China

    In November 2010, with Google’s co-founder Sergey Brin taking over leadership of the company (along with Larry Page)  from outgoing Eric Schmidt, Google’s expansion into China was halted because Mr. Brin found the efforts of government officials there to censor the Web and track the online activities of dissidents to be “personally quite troubling.” (Amir Efrati and Loretta Chao, “Google Softens China Stance,” Wall Street Journal, January 12, 2012.)  The above video from PBS explains Google’s position at that time.

    Google had opened its first China office in 2005, but opted to shut down its search engine in the country in 2010 because it no longer wished to allow the Chinese government to censor search results.  Google had also experienced a cyberattack with the hackers taking codes that were then used to tap into the Gmail accounts of Chinese dissidents.  Although the Chinese government denied that it was “spying” on the dissidents, there were arrests made of certain individuals for their internet activities.

    Google established a Hong Kong search site, but there have been significant levels of interruptions with that site, interruptions that many attribute to the Chinese government’s web-filtering activities.

    However, Google is once again hiring engineers, salespeople, and product managers in China to begin an expansion of its presence there because, as it explain, it is “pragmatic” to do so.  China represents a very large market and Google’s Android system has become quite popular in the country with 60% of the country’s cell phones using that operating system.  Google will increase its presence with search engines that are limited to information such as pricing on goods sold online. Those types of search engines are not subject to the same levels of government scrutiny and the information is not censored.    

    Google’s relations with the Chinese government are, however, strained.  The company’s accusations about censorship by the government and alleged hacking of Gmail accounts have been called, “unacceptable” by officials there. As a result, phones sold in China do not come with Google services and cannot access the Android Market app store. Google will have to work through Chinese providers there in order to gain a presence and is likely to face the same censorship issues that it faced in the 2010 dust-up with the government.

    In addition, Google’s absence from China has resulted in competition from Weibo, a microblogging service that has allowed the Chinese to share views even on controversial topics that the government previously censored.  And doing business there remains complicated.  One company official said that one out of every five meetings he attends deals with how Google will need to do something differently in China in order to meet government requirements.

    Discussion Starters

    1.    Why did Google withdraw its search engine from China?

    2.    What has the government done to limit Goggle’s presence in China?


  • A Franchising Underbelly - Bankruptcy of the Franchisor; Study that Prospectus!


    A story in the news underscores the need to do your homework before investing in a franchise.  A franchisee invested $100,000 to buy three Rent Your Boxes franchises in the United States.   He first encountered the franchisor at a franchise expo, which is an event at which franchisors seeking franchisees display their wares, and franchisees seeking a franchise opportunity assess available options.   

    The franchisor was an Australian company founded in 1998.  The company’s products are heavy-duty corrugated cardboard boxes that can be rented when the customer is moving.   Alas, five months after the three franchise locations were opened, the franchisor declared bankruptcy.   

    A federal law requires that franchisors disclose much information to potential franchisees. The law, called the Federal Trade Commission Franchise Rule, mandates that franchisors provide a prospectus, which is a disclosure document, ten days before accepting any money from a franchise.  The purpose of the prospectus requirement is to enable the would-be franchisee to review information about the business with advisors, including a lawyer, accountant, and other franchisees, before paying any money.   

    The information that must be in the prospectus includes: current financial statements of the franchisor;  business experience of the franchisor’s principals; litigation and bankruptcy history of the franchisor including franchisor-initiated lawsuits against franchisees; money the franchisor must pay to obtain the franchise, and required ongoing fees once the business is opened;  description of any assistance available from the franchisor such as financing, training programs and advertising;  restrictions placed on the franchisee’s conduct of the business; statistical information about the number of franchises and their rate of terminations; contact information for former franchisees who have left the franchise in the last year; contact information for current franchisees who are geographically closet to the potential franchisee; and the dangers of buying non-exclusive territories.  Additionally the prospectus must contain a cover page which states the name of the franchiser, the date of the document, and a statement in words specified by the statute advising the prospective franchisee of the importance of the prospectus.

     The case of the box rental franchisee underscores the importance of utilizing the ten days following delivery of the prospectus for the period’s intended use.  Review the prospectus and consult with knowledgeable advisors as well as existing and past franchisees.  If the information in the box rental prospectus was accurate, a thorough review and investigation may have alerted the franchisee of the impending financial problems of the franchisor.     





  • Presidential Candidates, Theme Songs and Copyright Law

    Much of the news these days is focused on the Republican Presidential primaries. When the candidates make an appearance at a rally they like to blare a toe-tappin’, popular song that symbolizes an image they are trying to portray. Likewise, candidates’ theme songs are used to jazz up political advertisements.  Audiences like it but not so the musicians.   Playing songs without permission may be a copyright violation.   

    A copyright is the exclusive legal right to copy a work of art, literature, music, software or films. The copyright is owned initially by the artist who can authorize others to use the work.  This is called licensing and is usually done by a contract in which the right to use the copyrighted work is exchanged for payment of a royalty, a fee for use of copyrighted work.  A person who copies the work without permission is committing copyright infringement.  For example, if you are decorating a restaurant and buy a painting, you have purchased  only the right to display the work.  If you make copies of it on placemats for your business, that would constitute infringement.   

     Likewise, if you buy a CD you are buying the right to listen to it, not to make copies of it and not to broadcast it to large audiences.   Candidates who use artists’ songs in their ads have been accused of copyright infringement.                                  

    An additional issue when politicians use musicians' songs is the implied endorsement of the candidate by the musician.   The right of publicity/privacy (both terms are used depending on the state) protects a person from use of his name and/or picture without written permission.  What irks the artists is often not just protection of intellectual property, but also politics.  Singers who are not philosophically aligned with the candidate may resent the use of their work to promote a platform with which they have significant disagreement.  

     Earlier this year then Presidential candidate Michele Bachman was issued a cease and desist letter from singer Tom Petty’s music publisher because she played Petty’s  song “American Girl” at her appearances.  The referenced letter is essentially a warning to stop infringing or face a lawsuit.  John McCain, Republican presidential candidate in 2008, received similar notices from rock singer-songwriter John Mellencamp and alternative rock band Foo Fighters for McCain’s use of their songs. Singer Jackson Browne sued McCain for using the song “Running on Empty” on the campaign trail.  That case was only recently settled.  Additional legal clashes between musicians and politicians are discussed in the article. 

    No dummy Mitt Romney -  he got the message.  His campaign sought and received permission from singer Kid Rock to use his hit, “Born Free” as Romney’s theme song.

    Discussion Questions:

    1) Why should candidates seek artist approval before utilizing a popular song in their campaign appearances or ads?

    2) What factors is a musician likely to consider when deciding whether or not to grant the candidate authorization for a song's use?






  • The SEC Changes Its Policy on "Neither Admits Nor Denies" Settlements

    In a major policy reversal, the Securities Exchange Commission (SEC) has decided to now longer allow companies that have entered guilty pleas to criminal charges to plead “neither admits nor denies the conduct” in settling civil charges. Watch a video on this issue.

    The agency was responding to considerable congressional criticism for its failure to get companies to admit guilt when settling charges.  The fear was that the settlements did not serve to correct the behaviors of the companies charged by the SEC.  In fact, the settlements benefited the companies because the effect of a "neither admits nor denies" settlement was similar to that of a nolocontendere plea -- no guilt is admiited or denied.  That type of settlement meant that the companies could explain to shareholders and customers that they settled the case simply to get it over with and out of the headlines.  Often, that public relations tale was used despite a guilty plea in a criminal case based on the same facts. In addition, the "neither admit nor denies" language helped the companies in shareholder litigation.  There were no resulting factual conclusions that could be used by the shareholders in their civil suits for recovery of damages based on the conduct that warranted the SEC's involvement and civil action.

     Further, there were embarrassing moments for the agency when the Justice Department announced criminal charges against companies that were settling without admitting guilt on charges by that agency.  The inconsistent signals sent by these critical cases had to be fixed in order to answer the concerns expressed in congressional hearings on how effective the SEC has been in policing market frauds. One example cited in the hearings was explained as follows in the New York Times on January 8, 2012 by Edward Wyatt, "S.E.C. Changes Policy on Firms' Admissions of Guilt."

    [The SEC agreed that] Wachovia bank would pay $148 million to settle charges that the bank reaped millions of dollars in profits by rigging bids in the municipal securities market, one of several such settlements announced last year by the [the Justice Department and the SEC].

    In the Justice Department settlement, Wachovia said it “admits, acknowledges and accepts responsibility for” manipulating the bidding process in the sale of derivatives on tax-exempt bonds to institutional investors like cities, hospitals and pension plans over a six-year period ending in 2004.

    Another example that roiled Congress  involved Bernie Madoff who neither admitted or denied his conduct in a $50-billion Ponzi scheme in the civil settlement despite the fact that he had already entered a guilty plea to criminal charges and was serving his jail sentence. In addition, a federal judge in December 2011 had rejected a $285-million porposed SEC settlement with Citigroup because he could not tell from any facts in the "neither admits nor denies" agreement whether the proposed penalty by the agency was adequate for the conduct by the bank.  Securities law expert, Professor John Coffee of Columbia supports the policy change, “It was ludicrous to say the defendant does not admit charges that he’s already pled criminally guilty to.”


     Discussion Starters

    1.  What is the equivalent of a "neither admits nor denies" settlement in criminal law?

    2.  Why were the "neither admits nor denies" settlements important to companies?

  • Looks Like Gold to the SEC

    Sanchez is a citizen of Spain who lives in Madrid. In 2010 he purchased risky call options on Potash Corporation stock. Several days later, BHP mad a bid to buy Potash Corp. at a premium. As a result, Sanchez was able to sell his options for a profit of $500,000, a return on his investment of 1,046%.

    The SEC sued, claiming insider trading.  Sanchez countered that he routinely engaged in risky trading, having lost more than 1 million Euros on one trade alone at one point. 

    In response to the SEC investigation, Sanchez went to Chicago and met with SEC representatives and provided the SEC with bank records, trading records, phone records, and an analysis of his hard drive.

    Sanchez contended that he studied Potash Corp. and decided to buy the options. 

    The SEC could not identify any source of inside information and could not show that Sanchez breached any fiduciary duty by his actions but found the matter suspicious and filed charges for illegal insider trading, contending that it could base the suit on circumstantial evidence.

    The trial court granted Sanchez’s motion for summary judgment, finding that a “chain of speculation does not raise a material issue of fact for consideration by a jury.”

    Discussion question: Should such circumstantial evidence be able to carry the day? If Sanchez is essentially gambling, should that be the business of the SEC?


  • 2012 Not Looking So Hot, Walter

    Walter Mercado is a popular psychic and astrologer. In 1995, he entered into an agreement with Bart Enterprises for it to produce and distribute his psychic and astrological services. Bart paid Mercado a base monthly fee of $25,000 plus expenses and additional pay for appearances..

    In 2006, the deal fell apart. Mercado stopped providing services and Bart stopped paying him. The parties went to federal court in Florida. The jury held that Mercado violated the contract and that Bart owed him no compensation.


    Later the parties squabbled over who owned the right to use the trademark “Walter Mercado.” The federal district court in Puerto Rico held that Bart owned the trademark.


    Mercado appealed that issue. That is, since Bart and Mercado no longer worked together, could Bart claim ownership of the trademark, which is Mercado’s name?


    Yes, the appeals court held, Bart owned the trademark. The court noted that in the agreement Mercado irrevocably assigned to Bart all materials relating to his psychic business. The contract noted that “the mark ‘Walter Mercado’ has … attained the satsus of a common law trademark and service mark.”


    Further, the contract states: “Mercado hereby irrevocably assigns to Bart throughout the Territory during the Term, all right, title and interest in and to the Mark, together with that part of the goodwill of Mercado's business connected with and symbolized by said Mark, for use in connection with the Pre-existing Materials and the New Materials, if any.”


    The contract also states: “Bart shall have all rights in the Mark which are afforded to owners of trademarks and service marks, including but not limited to the right to seek and obtain trademark protection and/or registration of the Mark in its name, and the right to enforce or defend Bart’s rights against third parties.”


    When Bart received control of the mark, it filed a trademark application with the U.S. Patent and Trademark Office, but did not follow through to complete the process. It also filed an application with the Mexican Patent Office. It noted that Mercado had given the “Consent of Living Individual” that his name could be used as a trademark. The district court properly found that Bart was the rightful owner of the Walter Mercado mark as it did not breach the contract. The person Walter Mercado could not recover ownership of the trademark Walter Mercado by breaching the contract that granted the mark to another party.


    Discussion questions:

    Should the name of a living person be a trademark? Can you think of examples?

  • Do Twitter Followers Constitute Trade Secrets?


    An employee who switched employment to a competitor is being sued for $340,000 by his original employer for misappropriation of trade secrets.  The confidential information he is accused of taking without authority is 17,000 Twitter followers.   The lawsuit is a case of first impression, meaning there is no known precedent.    This circumstance represents a phenomenon not infrequent in the law – we as a society change and develop in unanticipated ways, including technologically.  Statutes and case law have  not yet caught up and so issues develop for which the applicable law is not yet defined.   

     In due time the courts and legislators will address the issue.  In the interim parties to a lawsuit base their positions  on prior cases involving related but different facts, fairness,  and common sense.  However those standards often support more than one outcome.   Such is the case of PhoneDog v. Noah Kravitz.  PhoneDog is a growing company that reviews mobile tech devices online.  It claims the identities and contact information for the twitter followers constitute a trade secrets and thus cannot be utilized by Mr. Kravitz in his subsequent employment.  Kravitz disputes the legal status of the followers.

     So, are they a trade secret?  Since there is no law directly on point, review of related principles is helpful.  Customer or client lists are prime examples of a business asset that can become a trade secret, defined as information that has significant economic value to a business and provides it with a competitive advantage. To qualify, the information must not be publicly available or readily ascertainable.    Additionally, the information must have been the subject of reasonable efforts by the business to maintain it as confidential. 

     For example, a bakery that sells desserts wholesale to restaurants could not claim as a trade secret its customer list because the identities of restaurants that are potential customers is readily obtainable from a phonebook.  For information to achieve trade secret status, time and resources must have been spent by the employer in gathering it .  Additionally, customers on the list should have shown a willingness to use the type of product or service offered by the employer; a list of people who merely might be interested is usually not sufficient. 

    The Uniform Trade Secrets Act is a law adopted in whole or in part by 41 states.  According to that law, an employee who announces a new affiliation to a customer list is not doing anything illegal.  Instead, such announcement is protected by a worker’s right to engage in fair competition.  What is illegal is misappropriation of that information, meaning the customer list is used by the employee to solicit customers for his new employer.

     The remedy for disclosure of a trade secret can be an injunction, which is a court order directing the employee to cease utilizing the information.  If it has already been used, a court can order the violator to pay a licensing fee, also called a royalty, to the owner of the information.  This money is payment for the economic value of the data sought to be achieved by the user.   

    How will a court rule?  Much depends on information about the list that remains to be developed.  How were the followers acquired?  How much time and energy did PhoneDog exert to accumulate them? Have they purchased services from PhoneDog or otherwise engage in conduct that generated income for the plaintiff?  What steps did PhoneDog take to maintain the list as confidential? Did Kravitz merely notify followers of his change in employer or did he solicit the list in his new position?  Stay tuned!

     Discussion Questions:

    1) Why are the answers to the referenced questions important?

    2) You be the judge!  How would you rule if you were deciding this case?  What additional information might you need? 











  • "The Hangover Part II" Trademark Infringement Suit II: Louis Vuitton

    Well, “The Hangover Part II” has to go to court yet again.  As incongruous as it seems, the movie is a hotbed of intellectual property issues. Last summer, Warner Brothers settled a lawsuit brought by the tattoo artist who did Mike Tyson’s facial tattoo that was then replicated on a character in the movie.  Now, Louis Vuitton has filed suit in federal court for trademark infringement of its famous bags. 

    The ne’er-do-well character played by Zach Galifianakis has coined a pop-culture phrase by warning his fellow imbibers when they touch his Louis Vuitton bag, “Careful, that is a Louis Vuitton.”

    The lawsuit seeks to have the trademark bag excised from the film as well as a share of the movie’s profits.  The company seems most irritated because it alleges that the bag used in the movie is a knock-off.

    Louis Vuitton is very aggressive in enforcing its trademark rights and has brought suit against artists who have used the signature handbags and luggage in their paintings.  In one such case, the company did not fare well against the artist because the court held that such use in a work of art was not infringement.  The company not only lost the suit against the artist but was required to pay the court costs in the case. The company exercises great control over its image and the aristocratic appeal of its bags and luggage.

    The underlying question is one of artistic license and the use of trademarks in commercial works that constitute art.  Stopping trademark usage in films has proven difficult.  Wham-o, the makers of Slip ‘N Slide filed suit against Paramount Pictures for its use of the product in “DIckie Roberts: Child Star.” The use depicted in the film did not follow the product’s instructions and warnings so the company was concerned about the possible impact of the film on consumer use of the product.  Still, the court refused to have the scene excised and went with the protection of the artistic work and commentary.  

    A Wall Street Journal writer (Erik Felten, "Careful, That's Not a Louis Vuitton," December 30, 2011) has suggested that Louis Vuitton capitalize on the movie’s use of the product by trademarking the phrase, ‘Careful, that’s a Louis Vuitton,” and use it in its marketing.  Then the worry would be whether Warner Brothers would have an action against Louis Vuitton for using a line from its movie.

    Discussion Starters

    1.     What is the issue in the use of trademarked products in artistic works?

    2.    Why is Louis Vuitton so concerned about the use of its products in a film such as “The Hangover Part II”?


  • Physicians Sued for Using Photos of Patient

    Jane Doe had several surgeries in 2004 at the Body Aesthetic Plastic Surgery and Skin Care Center—liposuction, belt lipectomy and a brachioplasty. As a result, she lost 150 pounds. As is routine in such cases, photos of her body were taken before and after her surgery. The photos did not show her face.

    There were complications during Doe’s recovery, including a staph infection. She sued the physicians in 2005 for malpractice and received a settlement. 

    In 2006, a St. Louis weekly newspaper, Riverfront Times, published an article, “The Sultan of Skin,” about a plastic surgery medical practice called Bod Aesthetic Plastic Surgery and Skin Care Center.

    The physicians at the Center cooperated with the reporter, giving her interviews, posing for photos, and providing her a CD with more information including the nude photographs of Jane Doe, who had no knowledge that her photographs were given to the media, although her name was not used. When the photos appeared, the physicians asked that they be removed. They were taken down from the website, but had already appeared in the print version of the paper. 

    Doe sued the physicians for invasion of privacy and breach of fiduciary duty. At trial, defendants contended they did not know the reporter would use the photos; they were only to help her understand the surgical process and its benefits. However, when the paper was unable to use the photos it received on the CD, it asked for, and received, copies of the photos that could be printed. The doctors asserted that the reporter told them they could review and approve the article before it was published, but that did not happen. The reporter denied there was any such agreement.

    Doe served the Riverfront Times with a subpoena related to documents it had received from the physicians, but the court quashed the subpoena citing journalist’s privilege. The paper huffed and puffed about its freedom and blasted Doe. 

    The trial court awarded her $100,000 in damages against the physicians but held that she could not receive punitive damages. She appealed.

    In Doe v. Young, the Eighth Circuit Court of Appeals held that Doe had the right to demand punitive damages and that the trial judge should not have blocked consideration of the demand. So the matter will proceed. 

    Discussion starters:

    Should the media be liable in such instances, especially if the photos were used despite the doctor stating that they were for information only? 

    Why would the physicians give such information to the media; is that an ethical practice?