• Taser: The Video Camera, Privacy, and Evidence

    Taser International makes the stun gun that allows police officers to administer an immobilizing shock to suspects and violent offenders who do not respond to verbal commands.  Tasers are used in 17,000 of the 18,000 law enforcement agencies in the United States.  However, the Taser has been at the center of numerous controversies, including the 2007 “Don’t Tase me bro” video of a student protester that netted 6,000,000 views on YouTube.

    Taser has always labeled its product non-lethal, claiming that it is no more dangerous than a nightstick and safer than guns, but the Securities Exchange Commission investigated those claims during 2005-2006 for possible fraud.  The SEC took no action against the company, but the news of the investigation caused the company’s stock price to drop 78%.  Also, law enforcement agencies cut back on their orders when news of the questions about the safety claims emerged.

    Now the company is using a new approach to enhance its reputation and support its claims about safety.  Law enforcement agencies can now purchase a camera system, known as Axon and sold by Taser, that involves a mini-camera linked to officers' sunglasses.  The camera is activated when the Taser is drawn.  The purpose is to capture the officer’s interaction with the individual so that the video can then be used when civil claims or other allegations are brought against the officer as a result of the use of the Taser.

    Taser has a cloud evidence system that uses Amazon’s cloud storage system.  Law enforcement agencies can label, tag, and store the camera footage from their officers and retrieve it should evidence of the interaction become necessary. The benefits of the camera are:

    1.      When we know we are on camera, we behave differently, and with police interactions, it is usually better behavior.

    2.     There is physical documentation about what happened between the officer and the suspect.  Law enforcement agencies are not longer in a “he said, she said” loop of denials.

    3.     Agencies can check up on the behaviors of their officers and even use the stored videos for purposes of training officers on interactions with suspects.

    4.     The American Civil Liberties Union (ACLU) supports the cameras saying, “We don’t want the government watching the people when there is no reason, but we do support the people watching the government.” Quentin Hardy, “Taser’s Latest Police Weapon:  the Tiny Camera and the Cloud,” New York Times, February 21, 2012, p. B1.

    5.     When there is video, people tend to settle cases.

    The drawbacks of the camera are:

    1.     Evidence is outsourced.  That is, the evidence is stored with a third party and the chain of custody is broken.

    2.     There are concerns that the files could be edited or deleted by the law enforcement agencies.

    3.     The cameras do cost $1,000 per Taser.

    4.     Law enforcement agencies must pay Taser for the storage of the footage.

    5.     Privacy issues arise because the cameras may capture the faces of victims and others who are not involved in the incident.

    6.     Television stations have picked up some of the videos and run them on television.

    Discussion Starters

    1.      What are the privacy issues involved in the use of the cameras on Tasers?

    2.     What are the criminal law/evidence questions related to the use of the camera footage?


  • Rig the Game, Finish Last

    Five women sued their former employer, Finish Line, a sporting goods retailer, in federal court in California. They contended that while they worked at a store the manager, David Meyer, secretly filmed them with hidden cameras across from a toilet and across from a dressing room bench. He saw them in various states of undress. They sued for various torts and for violations of labor laws.

    The plaintiffs also sued Meyer, but he fled the state when the videos were discovered.

    Finish Line sought to compel arbitration because the women had, like other employees, signed arbitration agreements. Judge Davila rejected Finish Line’s motion and held that the suit could proceed to trial despite the arbitration agreement. Ordinarily, arbitration agreements are upheld, but this one would not because it is substantively unconscionable. The judge based his holdings on two conclusions.

    First, the arbitration agreement was a contract of adhesion. None of the employees could bargain over its terms. Take it or leave it. So that made the agreement defective. On this point, while that is the view of the Ninth Circuit, that court has been frequently overturned by the Supreme Court for its decisions that are hostile to arbitration agreements.

    Second, the arbitration agreement itself was unconscionable. It required the parties to split the costs, but caps the employee’s contribution at $10,000. The funds had to be deposited prior to arbitration. This is not a sum many employees could afford, so serves as a deterrent to seek arbitration to resolve disputes. On this point there has been more agreement by courts around the country. Arbitration arrangements that impose significant costs on employees have been stricken by a number of courts.

    Third, the agreement stated that parties would have to appear at the forum selected for arbitration—Indiana. That is “unreasonable, unjust, and cannot be enforced.” There is no reason that since all matters occurred in California that plaintiffs should be forced to travel to Indiana to pursue their claim via arbitration.

    While the Ninth Circuit and California courts are generally hostile to arbitration clauses, Finish Line weakened its position by the fee splitting requirement and the Indiana location. Who drew up this agreement?

    Discussion: Is it realistic to think that employers would bargain over the terms of arbitration agreements?

  • No Kosher Hot Dogs at Mets Games on Jewish Sabbath; Judge Decides Contract Dispute



    If you have a yen for a kosher (food products prepared in accordance with Jewish dietary laws) hot dog on a Friday night or Saturday (the Jewish Sabbath) during baseball season, don’t go to a New York Mets game.  You won’t find kosher food there at those times. 

    A kosher food vendor, Kosher Sports, Inc. (hereafter KS), has had a two-year  dispute with the company that manages Citi Field in Queens where the Mets play,  Queens Ballpark Company, LLC (hereafter QBC).  KS claimed  it had a contract (an agreement between two or more parties that is enforceable in court and requires each side to do or give something of value) with QBC entitling KS to sell kosher foods – including such baseball staples as hot dogs, knishes (a popular kosher snack consisting of dough in a round or square shape stuffed with potatos, ground meat, suerkraut, onions, and/or cheese, etc., then baked or fried) and pretzels - at sporting events at the stadium.  

    Jews who abide strictly to religious beliefs view Friday night and Saturday as a day of rest during which no work –including selling products – should occur.   QBC, wanting to avoid offending religious baseball  fans, barred KS from selling kosher food on the Sabbath.  KS complained because the Jewish Sabbath overlaps with times that attract large crowds to the field, thus resulting in considerable loss of business.

     The contract between KS and QBC required that KS pay QBC $750,000 over a ten year period for advertising at the games.  KS claimed the agreement also gave it the right to sell its products at any and all times at Citi Field.  Displeased by QBC's position on Friday night/Saturday night sales, KS stopped paying  QBC and sued it for breach of contract  (failure to perform duties required by a contract).  In its  defense  (the argument used by a defendant when fighting a case),  QBC denied that the contract gave KS the right to sell food at all the games.  Additionally QBC asserted a counterclaim (a claim for compensation made by a defendant against the plaintiff) seeking the unpaid fees required by the contract. 

     The court, after reviewing the contract (which was not made available for public review), commented that it was "badly drafted."  The judge determined that the agreement does not grant KS the right to sell its products at each and every Mets game.  The court thus dismissed (refused to accept)  KS’s claim. On the counterclaim the judge sided with QBC.   The court noted that breach of contract requires proof of four elements: 1) a contract; 2) performance of the contract by one party; 3) breach by the other party; and 4) damages.   In this case the contract required that KS pay certain fees which it failed to do.  QBC was in compliance.  Due to KS’s delinquency, QBC suffered damages, specifically –  lost revenue. 


    1) What significance to the case is the fact that the judge found the contract to be "badly drafted?"

    2) What might KS have done differently to have enhanced its chances to win the case?


  • Guess Who Wins This Contest?

    In several cases in West Virginia, family members sued a nursing home for improper care of a patient. The family members had signed arbitration agreements with the nursing homes on behalf of the incapacitated patients. The arbitration agreement stated that any disputes, except for collection of late payments, must go to arbitration.

    Later, suits were filed against nursing homes on behalf of patients who died, claiming negligence on behalf of the patients who had died at the homes.

    The nursing homes appealed to the West Virginia high court that the cases had to go to arbitration, not to trial.

    The West Virginia Supreme Court of Appeals held that “as a matter of public policy under West Virginia law, an arbitration clause in a nursing home admission agreement, adopted prior to an occurrence of negligence that results in a personal injury or wrongful death, shall not be enforced to compel arbitration of a dispute concerning the negligence.”

    The nursing homes appealed to the U.S. Supreme Court. It slapped down the West Virginia decision, holding that the Federal Arbitration Act (FAA) preempts state public policy.

    “The West Virginia court’s interpretation of the FAA was both incorrect and inconsistent with clear instruction in the precedents of this Court.” The Court noted that its most recent case on point was in 2011, KPMG v. Cocchi, which made the same point, as the Court has numerous times before—states cannot have policies regarding arbitration (or other areas of federal supremacy) that are  inconsistent with federal law.

    Since the U.S. Supreme Court has held similarly numerous times, why would the West Virginia high court get it wrong when it had to know that was the case? Maybe it was explained in a book by a former member of that court, Richard Neely, who wrote in a book, The Product Liability Mess, that “As a state court judge, much of my time is devoted to designing elaborate new ways to make business pay for everyone else’s bad luck” (p. 1). Why? “because the in-state plaintiffs, their families and their friends will re-elect me” (p. 4).

    Discussion: Does the election of judges sway their actions on the bench? Is that always a bad thing?

  • Can a Pharmacy’s License Be Revoked for Too Many Cash Sales of Oxycodone?

    The Drug Enforcement Administration (DEA) has moved to revoke the controlled medication licenses of two pharmacies because the pharmacies were filling prescriptions for oxycodone (the painkiller) in excess of their monthly allowances for controlled substances.  In addition, the DEA alleges that the pharmacies’ corporate entities failed to conduct on-site inspections and failed to notice that 42%-58% of all the sales of the substances were cash sales, something that is considered a red flag in the sale and distribution of controlled substances. In addition, the number of prescriptions filled continued to escalate.

    The two pharmacies won an injunction against the revocation in federal district court.  However, the DEA is hoping to persuade the judge to lift the injunction once it is able to show that the corporations should have know there was a problem. The rate of cash sales at these pharmacies was 8 times the national rate for filling prescriptions with cash. Pharmacists at the drug stores, in interviews with the DEA agents, indicated that the customers paying cash for the oxycodone were “shady,” and that they suspected that some of the prescriptions were not legitimate. One of the companies adjusted (increased) the levels of shipment of oxycodone to the pharmacies five times. In one on-site visit by DEA agent, the following information emerged: one of every three cars that came to the drive-thru window had a prescription for oxycodone; many patients living at the same address had the same prescriptions for oxycodone from the same doctor.

    Both companies, CVS and Cardinal Health, have indicated in court filings that they have changed their practices and provided training to pharmacy personnel so that they can spot these types of illegal prescriptions and report suspicious activity. Both pharmacy companies have terminated customers, meaning that they will no longer fill prescriptions for those customers. You can read more about the DEA case at Timothy W. Martin and Devlin Barrett, "Red Flags Ignored, DEA Says," Wall Street Journal, February 21, 2012. p. B1

    The DEA seeks to hold the corporations responsible because of the lack of on-site presence and the failure to follow the numbers for sales and distribution at the pharmacies.  The revocation of a license is a punitive action, but does not indicate that a crime has been committed.  Managers and corporations can be held liable for the actions of employees through their knowledge of those activities or because they failed to become informed of the operations.  They can also be held liable if they are warned about an issue and fail to take appropriate action to stop the violations. (See U.S. v. Park).  The failure to follow due diligence standards is the basis for the DEA license revocation.

     Discussion Starters

    1.  What did the companies fail to do in managing their pharmacies?

    2.  Why does the DEA want to revoke the pharmacy licenses?

  • MJ Loses $5 Million Trademark Infringement Suit

    When basketball great(est?) Michael Jordan was inducted into the Basketball Hall of Fame, the chain store Jewel-Osco placed an ad (pictured above) in the commemorative issue issued by Sports Illustrated. It showed Jordan’s basketball shoes.

    The text of the ad below the shoes said: “A Shoe In! After six NBA championships, scores of rewritten record books and numerous buzzer beaters, Michael Jordan’s elevation in the Basketball Hall of Fame was never in doubt! Jewel-Osco salutes #23 on his many accomplishments as we honor a fellow Chicagoan who was “just around the corner” for so many years.”

    Saluted or not, Jordan sued for violation of his right to publicity, violation of the Lanham Act for trademark infringement, and the common law tort of unfair competition. The case was filed in Illinois state court, but Jewel removed it to federal court.

    As the essential facts were not in dispute, Jordan moved for summary judgment, requesting $5 million. The court rejected the motion as Jordan claimed the speech in question was commercial; Jewel contended it was noncommercial. That matter of law had to be resolved.

    Jordan argued that the slogan “Good things are just around the corner” being placed next to his shoes proposed that readers patronize Jewel stores. However, the special issue of Sports Illustrated was entirely devoted to a celebration of Jordan’s career. It was filled with congratulations from many sources. For the company to use is standard advertising logo in its statement honoring Jordan did not imply an endorsement by Jordan. The message was congratulatory but was obviously intertwined with the name of the company. Furthermore, Jewel did not pay for the page in the magazine; it only agreed to stock copies of the issue of the magazine in its stores in exchange for placement of the page.

    The federal district court found that the speech was noncommercial and so protected by the Fifth Amendment. Jordan has suits against other congratulatory advertisers in the same issue pending.

    Discussion question: Was there no commercial value in the arrangement between Jewel and Sports Illustrated?

  • Starbuck's Accused of Violating Americans with Disabilities Act

    A waiter/bartender with 10 years experience and a strong recommendation, applied for a job at Starbucks in San Diego, California.  As was evident at the interview, he was born with half of a left arm and no left hand.  He did not get the job and sued for discrimination.  According to allegations (unproven statements) in the complaint (pleading filed in court), the hiring manager who interviewed him said, “Oh, at our store our syrups are up high, and I have to extend my whole body to pump it.  You can’t work here with one arm.”  (Starbucks disputes the facts.)

    The Americans with Disabilities Act (ADA), a federal law which became effective in 1992, is often considered the civil rights act for people with disabilities.  It requires employers as well as businesses serving the public – such as restaurants, hotels and colleges – to make reasonable accommodations (adjustments).  The goal is to enable disabled customers to obtain services, and disabled qualified job applicants to vie for jobs, without discrimination. 

    The employment portion of the ADA provides that an employer cannot refuse to hire a person with a disability who can, with reasonable accommodation if needed, perform the essential functions of a job. 

    A disability is defined as a physical or mental impairment that substantially limits a person’s ability to walk, see, hear, perform manual tasks, learn, work, or care for himself.  Essential functions are the core responsibilities of a job, as distinguished from marginal or incidental assignments.  Consider a food preparer and hostess at a Friendly’s Restaurant (a chain of modest-priced family eateries).  The job requires considerable time standing.  If the employee suffers from a joint disease making walking and standing difficult, a reasonable accommodation would be to provide her a stool and allow her to use it while performing her duties.

    In cases where a required accommodation would impose an undue hardship on the employer, it can legally refuse to hire the disabled applicant.  An undue hardship is one that requires significant difficulty or expense, or major modification of the employer’s business.  For example, a nightclub that features live music need not discontinue the music to accommodate a would-be server who is hearing impaired and unable to understand customers’ orders over the sound of a band.

    The ADA does not require that an employer give preference to a disabled person.  Instead, the employer can hire the most qualified applicant.  What the ADA outlaws is removal of the disabled candidate from consideration because of the disability (provided the applicant can perform the job’s essential functions with or without a reasonable accommodation).

    During an interview the employer can ask whether the would-be employee can perform the essential functions of the job, and can require the applicant to demonstrate ability to perform tasks.

    Applying these rules to the Starbuck’s situation, and assuming plaintiff can prove the facts he alleged, the coffee house violated its duties under the ADA.  The plaintiff was disabled.  The manager was concerned about the syrups.  An accommodation may have been necessary – repositioning their location.  That adjustment is reasonable, and would not cause undue hardship to Starbucks.  Thus the eatery was wrong to remove plaintiff from the applicant pool in the manner it allegedly did.






  • Trusts, Eviction, and a 98-Year-Old Mom Ousted by Her Son

    Trusts are good estate planning tools.  When one spouse dies, property that belongs to the couple can be placed into a trust, giving the surviving spouse rights to that property for the remainder of his or her life.  Upon the surviving spouse’s death, the property can then pass to the children. The benefit is that the complexities of probate are simplified and there are estate tax savings because of the trust arrangement for the surviving spouse.  However, trusts are tricky things and need to be established correctly so that surviving spouses are not left at the mercy of the children. One tricky item would be the power of the trustee.

    A 98-year-old Connecticut widow has learned this lesson about trust complexity in a difficult way.  Mary Kantorowski, has lived in the same Southport, Conn., home since 1953, a home she shared with her husband, John, until he passed away.  Upon his death, the house was transferred into a trust that was administered by their son, Peter.  The trust provided that Mrs. Kantorowski was to live in the home until she died.  Upon her death, the house would then pass, with full fee simple title, to Peter and his brother, Jack. The home, which includes a garage that John built while he was alive, is now valued at $333,410. Mrs. Kantorwoski has paid all of the expenses for living in the home, including utilities, taxes, and maintenance.

    On December 13, 2011, Mary received an eviction notice from her son, Peter (a 71-year-old retired taxidermist). Six years ago, following his father’s death, Peter quitclaimed title to the house to another trust, owned by Peter and his wife.  With that transfer, Mrs. Kantorowski has no legal title to the house, no lease, and no right to be there.  An eviction hearing will be held on March 2. Peter says that he is trying to get his mother to live in a place where she will have more help and support.  To read more background, go here.

    Mary’s lawyer understands that there are some points of law that could help Mary retain possession of the house.  For example, a trustee generally cannot dispose of the principal of a trust, and, in this case, the house is the principal.  In addition, there would be issues of breach of fiduciary duty by the Peter as trustee.  His transfer, by the no-warranty quitclaim deed, to himself via his trust, was a conflict and a breach of his duty to the trust beneficiary, Mary.  In short, Mary has some rights here, but, unfortunately, it will take a court hearing to sort through it all.  Courts cases in which the son is the plaintiff and his mother is the defendant are always tough ones.  However, the court can rely on trust law to help Mary. And the judge in the case has been to visit Mary and ruled that she is competent.  For more information on the case and the background, go to Daniel Tepfer, "Son Wants To Evict 98-Year-Old Mom,"  Connecticut Post, February 17, 2012.

    When creating a trust, it is important to spell out both the authority and duties of a trustee so that the trustee cannot take over the property intended for the beneficiary’s use for life.

    Discussion Starters

    1.     Who is the trustee of the trust for the house?

          2.  What fiduciary duties did Peter breach?

  • Product Dumping: J & J Sells "FDA Nonapproved" Hip Replacements in Other Countries


    In 2009, the FDA issued a nonapproval letter for the artificial hip manufactured by the DePuy orthopedic division of  Johnson & Johnson. The agency concluded that there was insufficient data to support approval following 8 years of its use.  During those 8 years, 93,000 patients worldwide had the device implants.  About 1/3 of the implants were in patients in the United States. There are currently 5,000 lawsuits pending in federal district court brought by patients with the implants. Johnson & Johnson took a $3 billion charge in January 2012 to cover anticipated legal expenses and damages related to the suits. You can read more about the financial impact of the litigation here.

    However, Johnson & Johnson kept the nonapproval letter nonpublic and explained its failure to continue sales in the U.S. was due to a decline in demand.  However, the company continued to sell the artificial hip in countries outside the U.S.  The number of patients who received the device after the nonapproval letter was issued is not known.  By March 2010, the FDA had received 300 complaint letters from patients with the artificial hip, but Johnson & Johnson continued to makes sales in other countries.  The foreign sales were stopped in August 2010 after British regulators documented the high failure rate for the hip devices.

    Experts in federal regulatory law have commented that companies do disclose nonapproval letters if the result of nonapproval will be a material impact on the company’s financial statements. However, withholding information in the nonapproval letter from doctors who continue to use the device (the doctors in other countries) could have an impact on the company’s reputation with regard to future products and sales. The same experts also note that Johnson & Johnson did not violate the law by not making the nonapproval letter public or by selling the product overseas.   You can read more about the experts' views on the company's actions in Barry Meier, "Hip Implants U.S. Rejected Sold Overseas," New York Times, February 15, 2012, p. A1.

    Strict tort liability allows customers (patients) to recover damages resulting from use of a product that is a defective condition that is unreasonably dangerous. Customers (patients) can recover punitive damages if they can establish that the company was aware of the defective condition and did not warn of the defect.

    Discussion Starters

    1.        How many suits are pending against Johnson & Johnson?

    2.       Was it illegal to sell the hip devices overseas?


  • Yahoo! Faces Proxy Fight


    Yahoo's financial performance has been disappointing to many shareholders.  While the company is the number two search engine behind Google, Yahoo has only about 15% of the market compared with Google’s 50% plus.  Additionally, Yahoo has been losing ground to new search companies. 

     Complicating Yahoo’s circumstances, four long-term members of Yahoo’s board of directors recently resigned, creating a situation ripe for a proxy fight.    Such a battle typically occurs when a faction of  shareholders is opposed to the way current directors are managing the company.  Proxy fights are enabled by the concept of proxy votes, meaning  stockholders can cast their vote at a  shareholders’ meeting even though they do not attend.  (Typically, relatively few shareholders attend meetings.)  Stockholders do so by appointing a proxy (a substitute) to cast their vote in a designated way.  In a proxy fight, the dissidents try to convince other shareholders to use their proxy votes to elect new management.

     Yahoo had hoped to free up money to address its declining business by selling stock it owns in two Chinese e-commerce companies.     Yahoo’s stock had increased in price on the anticipation that the company would sell its Asian holdings and focus on its own business.  The deal, with anticipated proceeds for Yahoo of $17 billion, seemed to be progressing well until recently when negotiations broke down.  News of the collapse triggered an immediate decrease of 6% of the price for Yahoo’s shares, and additional decreases in the days that followed.  

     Partly in response to the end of negotiations, a Yahoo  shareholder, Third Point Capital (hereafter TPC), which owns approximately 6% of the company,  is unhappy with Yahoo’s management.   TPC’s owner, Daniel Loeb, has nominated a slate of four proposed  directors  for the new openings on Yahoo’s board.  The nominees include himself plus a former executive of MTV, the former  CEO of NBC Universal,  and the CEO of a company that specializes in corporate restructuring.   Voting shareholders will have a choice between a slate proposed by the existing board and Loeb’s proposed slate.   The vote will occur at an upcoming shareholders meeting.  In the interim Yahoo’s current management and TPC will each solicit shareholders for proxy votes to support their respective slates.

     Discussion Questions:

    1) What prompts shareholders to undertake a proxy fight?

     2) How can a shareholder vote at a meeting if s/he does not attend?


  • City Rules on Newpaper Distribution in Racks Upheld

    The Houston City Council adopted an ordinance regulating newsracks in 2007. The regulation noted that improper placement of newsracks “in public rights-of-way presents a danger to the safety and welfare of people using such rights-of-way.” That is, a sidewalk could be blocked. Further, the newspapers could blow around if the racks were not properly designed and maintained, so they could be a public nuisance.


    Henceforth, a fee of $5 per newsrack would have to be paid every three years and the racks must be “in a neat and clean condition and in good repair at all times.” They must be "a height of not less than 36 inches and not more than 54 inches (including the base); a width of not less than 15 inches and not more than 25 inches; and a depth of not less than 12 inches and not more than 21 inches.” They must “be manufactured from 20-gauge or thicker zinc coated steel” and not weigh less than 80 pounds when empty and be attached to a concrete base that weights at least 95 pounds.


    Lauder, who owns the Houston Tribune, did not hear about the ordinance until after it had been enacted. Other publishers who used racks had heard about the ordinance and had commented on it before it was passed. Lauder’s paper, which is free, was distributed in various private locations, such as in restaurants and stores, and she used 65 plastic newsracks in public rights-of-way. Those would violate the ordinance.


    Lauder sued the City contending that the ordinance was unconstitutional in violation of the First Amendment. The regulations favored larger publications and would drive smaller publishers, such as her, from being unable to distribute papers. The ordinance acted as a prior restraint on publication because of the high cost of compliance.


    The federal district court upheld the ordinance because “the City has substantial interests to justify regulating the newsracks.” There are issues of public safety and aesthetics due to litter created by papers that fly away from flimsy racks. While Lauder did not hear about the ordinance before it was enacted, the City had given proper notice of the proposed regulation and received public comments, so it did not violate due process.


    The ordinance survives the standards set by the Supreme Court because there is a substantial interest in regulating the racks and the regulation is “narrowly tailored” to achieve that interest. The use of heavy steel and concrete bases ensures the racks are substantial, so less likely to be moved into a sidewalk or fall into a street. There was evidence that the lighter-weight racks had those problems, which were safety hazards and resulted in litter being blown around. If Lauder cannot pay for the more costly racks, she has other avenues of distributing her media.


    Lauder’s appeal to the 5th Circuit Court of Appeals was rejected. The court agreed that there was substantial reason for use of heavy newsracks and that the fee for each rack was directly related to the cost to the City of enforcing the rules.As a content-neutral time, place, and manner restriction that does not leave enforcing officials with unbridled

    discretion, the newsrack ordinance need not contain an explicit provision for judicial review.”


    Discussion: Major newspapers can comply more easily with such regulations than can alternative-media publications, so does it serve to reduce number of small-market publications? What alternative distribution outlets do they have?

  • International Business Risk: Trying to Operate a Mine in Indonesia, Strikes, and Government Takeovers

    Freeport-McMoRan is a U.S. company that mines copper, gold, and molybdenum on four continents.  Its operations in its Papua gold mine located in Papua Province, Indonesia offer a look at the legal issues involved in international operations as well as the resulting risks. 

    The company just settled a three-month strike with its 8,000 mine workers, a settlement that resulted in a 40% wage hike that will phase in an increase in the workers’ $460-per month pay.

    Like all mining companies, Freeport McMoRan pays hefty security fees to both Indonesian security forces  as well as another $28 million to private security forces for protection of the mine and the workers.  Even with the security, the company has lost workers to looters who stage roadside attacks. The mine is difficult to secure because it is located at the end of a 72-mile road that leads up the mountain to 14,000 feet  and the company’s gold mine and company housing for the workers. The company has also tried helicopter flights to ferry workers in order to limit the roadside attacks, but shooters have hit the helicopters and resulted in deaths of the workers and their families as well as members of the company’s security forces.The result has been that Indonesia has placed more paratroopers and military units in the area  and billed the company for the additional protection.  One local resident says that the company has become “like an ATM” for the Indonesian government. Simon Montlane, “Cave In,”  Forbes, February 13, 2012, p. 99.

    The physical operations of the mine are only part of the challenges the company faces in trying to extract the gold. There are so-called “freelancers,” or squatters who travel close to the mine and pan for gold. The freelancers enter restricted areas that belong to Freeport-McMoRan, but no action is taken by the government against them for their pilfering of the mine’s resources.

    In addition, Freeport-McMoRan was forced to surrender 20% of its ownership in the mine to the Indonesian government in 2009 under a law that requires mining companies to surrender 20% of their equity within five years of beginning operations.  A new proposal will increase that ownership level to 51%.  Also on the table is a demand from the government that it has the authority to renegotiate any existing labor contracts. Taxes are on the increase and the company has paid over $12 billion in taxes since beginning operations in 1991.

    Freeport-McMoRan faces the same issues all companies with international operations grapple with as they try to grow businesses.  Security for employees is always a concern and never solved easily as companies try to determine whether the governments can be trusted and how much they need to spend in order to protect workers.  Profits from operations are always subject to repatriation.  Due process and private property rights may not exist in other countries and the loss of a plant, mine, or profits is always a possibility. Freeport-McMoRan has found some protection from government takeover in the past by selling a 5-10% share of its equity to wealthy Indonesians who then serve as a buffer against government takeovers or additional government ownership or increased taxes. The bottom line is, however, that international operations carry significant legal risk that translates into financial uncertainty for operations.

    Discussion Starters

    1.     What is it called when the government takes away property or profits from a corporation?

    2.    What problems have resulted from the presence of looters?  


  • Crocs Licenses Apparel and Accessory Companies to Use Its Trademark

    Crocs, the popular shoe company, announced a new license agreement with Accessory Exchange.  The latter will produce hats, bags, backpacks, and gloves using the Crocs trademark.  Additionally, the A Group, a manufacturer of children’s apparel, has been licensed to make children’s clothes using the Crocs name.  Watch for the brand name also on sunglasses and related accessories to be made by Eye King, LLC. 

    Crocs, Inc. produces casual footwear for men, women and children.  The innovative shoes are  made of a proprietary resin called Croslite.  The material is soft, lightweight, odor-resistant, and grips well.  The company’s shoes come in more than 250 varieties and many colors, and are sold in more than 90 countries.

     A license refers to official permission given by one party to another to do something that would otherwise be illegal.   Licensing used in reference to trademarks (terms that identify the source of a product and are legally reserved for the exlcusive use of the owner)  means a contractual agreement in which the licensor (owner of a protected name) authorizes another (the licensee) to use that name in connection with specified products.   In exchange, the licensee typically pays a specified sum of money, often called a royalty.  Licensors such as Crocs benefit from the expanded use of its name in the consumer market.  Licensees benefit from the connection between their product and a well-known and liked name.

     Explaining the appeal of licensing for Crocs, the Vice President of Global Sales said, “Licensing presents an opportunity to leverage one of our most valuable assets – the global power of the Crocs brand –by associating it with best-in-class products that go beyond footwear.” 

    This is not Crocs first foray into the licensing market.  Among products Crocs has licensed in the past are adult and children’s socks, footwear for professional  and collegiate sports teams, and scrubs which are medical apparel used by many hospital workers. 

    Financial arrangements between Crocs and its license partners were not disclosed. 


    1) What are the benefits of licensing to the licensor?

    2) What are the benefits of licensing to the licensee?

    3) What risks to the licensor are involved with licensing?





  • The Tip of Multi-Billion Dollar Industrial Espionage?

    Titanium dioxide is a commonly used substance. It is in paint, but also shows up in sunscreen and food coloring. Hundreds of thousands of tons are shipped around the world every year.

    Decades ago, DuPont developed secret processes to make high-quality titanium dioxide in a manner that is less toxic than the traditional production method. The process, which made it the most efficient maker in the world, is a closely held trade secret. Global sales of the product, which is dominated by DuPont, are $12 billion annually.  

    Titanium oxide makers in China use an older, more toxic, less efficient manufacturing process. But in 2010, Jinzhou Titanium Industry announced that it had achieved high-quality status production like DuPont. That claim may be tied to the apparent theft of DuPont trade secrets.

    The Department of Justice, after a long investigation, indicted several parties for industrial espionage. Indictments were handed down against former DuPont engineers who sold trade secret information, a Chinese-American couple that helped arrange the information transfer, and a state-owned Chinese company, Pangang Group. 

    As China has come under increasing criticism for Mitt Romney and other political leaders for sponsoring large-scale industrial espionage, the trial is expected to draw increasing attention to what is asserted to be a government-sponsored policy of trade secret theft.

    Discussion: Will fines and a few prison terms for the people in the U.S. involved likely deter the theft of processes worth billions of dollars?

  • Administrative Agency Rules, the Catholic Church and Universities, and the First Amendment



    In January 2012, the Department of Health and Human Services (HHS), a federal administrative agency,finalized a part of the “Preventive Services” rule (part of the administrative establishment of the provisions of the Affordable Health Care Act, often called Obama Care) which will require all health insurance plans to cover sterilizations and all FDA-approved contraceptives, including those that cause abortions (including the morning-after pill), without co-pay. The interim rule did not require religious-based organizations to cover such services, but the final rule included a change as reflected in the statement by Kathleen Sebelius, the Secretary of HHS, in announcing the final rule:

     Nonprofit employers who, based on religious beliefs, do not currently provide contraceptive coverage in their insurance plan, will be provided an additional year, until August 1, 2013, to comply with the new law. Employers wishing to take advantage of the additional year must certify that they qualify for the delayed implementation. This additional year will allow these organizations more time and flexibility to adapt to this new rule. We intend to require employers that do not offer coverage of contraceptive services to provide notice to employees, which will also state that contraceptive services are available at sites such as community health centers, public clinics, and hospitals with income-based support. We will continue to work closely with religious groups during this transitional period to discuss their concerns.

    Catholic hospitals, dioceses, colleges, and universities had provided public comment on the proposed final rule throughout 2011, urging HHS to allow a conscience exemption and afford the Catholic Church and its affiliates their First Amendment protections.  For example, the president of Notre Dame, wrote to Secretary Sebelius asking for an exception and explained the University's position: "This would compel Notre Dame to either pay for contraception and sterilization in violation of the Church's moral teaching, or to discontinue our employee and student health care plans in violation of the Church's social teaching. It is an impossible position." Read the full letter here.

    Litigation was already pending prior to the announcement of the final preventive services rule. The Becket Fund for Religious Liberty has filed suit on behalf of Belmont Abbey College Colorado Christian University arguing that forcing religious employers to subsidize medications and procedures they find morally objectionable is an infringement of their religious freedom under the First Amendment.  The Becket Fund also represented the Hosanna-Tabor Lutheran Church and School in its case against the U.S. government challenging application of EEOC regulations to its hiring and firing practices. In Hosanna-Tabor Evangelical Lutheran Church and School v. EEOC, an employee of the church school alleged that her employment was terminated in violation of a federal anti-discrimination law. In a 9-0 decision, the court answered the question of “whether the Establishment and Free Exercise Clauses of the First Amendment bar such an action when the employer is a religious group and the employee is one of the group’s ministers.” The U.S. Supreme Court held that “[b]oth Religion Clauses bar the government from interfering with the decision of a religious group to fire one of its ministers.”

    In addition, House Energy and Commerce Committee Chairman Fred Upton (R-Mich.) announced the introduction of legislation to reverse the HHS final rule.

    The administrative agency rule has resulted in conflicts with the legislative branch and litigation in the judicial branch with the basis for the friction being an issue of constitutionality.

    Discussion Starters

     1.      What portion of the U.S. Constitution is at issue with the final preventive service rule?

     2.     What has the U.S. Supreme Court ruled regarding the rights of religious organizations vs. federal laws?



  • As Facebook Prepares to Sell Stock, Risk Factors Identified in the Prospectus


    Companies that go public (sell their stock to the public) are required to file much disclosure information with the Securities and Exchange Commission (SEC), the agency that overseas the purchase and sale of stocks and bonds.  The information is kept on file and is available for potential investors to review.   

    The documents that must be filed with the SEC include a prospectus which is a disclosure document.  It contains information such as a description of the business and its industry, recent financial statements, background about the principals of the company (education degrees, business experience, criminal records, income from the business, etc.), and risk factors faced by the company.  This information helps investors assess the investment worthiness of the company.  Omissions can lead to liability for board members, senior management, company accountants and lawyers.  As a result the prospectus is typically forthright. 

    Marketers cringe when they see a prospectus.  It cannot contain pictures, photos, appealing design or fancy layout, puffing, or the like.  Instead, it very plainly and soberly relays information an investor should know. The goal is for the investor to make a decision based on the information contained in the document - including the good, the bad and the ugly - and not on sizzle. 

    Facebook identified 38 major risk factors in its prospectus. They include the following. 

    1) Members losing interest or being diverted from the site by competitors (such as Google Plus).  Users can be fickle.  Just four years ago MySpace claimed more users than Facebook.. Social network competitors abound in other countries and exist in the US as well.  

    2)  85% of the company’s revenue is generated by advertisers.  If they become disaffected, the company’s income will decrease substantially. 

    3) While Facebook was developed for the internet, users are increasingly accessing it from mobile devices. Facebook generates very little money from such users – the site’s ads are not displayed on mobile devices.  Also, many mobile platforms are owned by Facebook’s competitors such as Google and Apple. Changes to these systems could harm Facebook and, as a nonowner, it has no control over whether modifications are adopted. 

    4) Given the huge amount of personal details Facebook has amassed, keeping the data secure is a formidable pursuit.  If Facebook fails to do so, users could migrate away and regulators could pursue the company. 

    6) Some countries have restricted use of Facebook, including China, Iran, North Korea and Syria, limiting its markets and growth potential.  

    7)  Founder Mark Zuckerberg retains a large voting block of stock, enabling him to control decisions which may or may not be made in the best interests of the company.  Additionally, if he were to become incapacitated, the company would experience significant turmoil.  

    8) Much of its growth is international which requires navigating various cultures and regulatory and legal systems, no easy feat.    

    9)   Facebook is currently being sued for infringement of other companies' patents (the exclusive right to make and sell an invention) and for other claims of intellectual property misuse.  These cases are expensive and time consuming to defend, and if resolved adversely, could have a significant impact on the business. 


    1) Why does the law require that companies that are selling their stock disclose so much information?

     2)  Of the risks associated with Facebook identified in this blog post, which do you think is the greatest risk to Facebook’s future success?  Why?

     3) Given what you now know, would you invest in Facebook?  Why or why not?



  • Europe and the United States Part Ways on Facebook/Online Privacy

    The New York Times reported that a 24-year-old law student from Salzburg, Austria requested his Facebook file.  In response, he received 1,222 pages of information that included Facebook posts he had deleted, old messages, and disturbing tracking of where he had been, probably gleaned from his cell phone. Somini Sangupta, “Should Personal Data Be Personal?” New York Times, February 5, 2012,  His discovery has been published all over Europe with the result being that Ireland (the country where Facebook has its center for European operations) is conducting an audit of Facebook’s data retention practices.

    That data retention, something that is critical for Facebook’s survival through its advertising revenue, is controlled by privacy laws in all the EU nations, Canada, Australia, and some of the countries in Latin America.  For example, those laws often control how long Facebook and Google can keep information on file.  These laws have consent as their foundation; users must give explicit consent touse of their online data, posts, etc. One EU proposal would allow users to demand deletion of their oneline information forever.  In the United States, there are no statutes that control general Internet data, but there are separate laws that provide privacy on a piecemeal basis.  For example, HIPAA provides protections for our medical records.  The Fair Credit Reporting Act provides protection for our credit information. The Red Box and other movie rental services are prohibited from disclosing information about our movie rentals. However, no general Internet privacy law has been passed in the United States.  There have been legislative proposals in Congress, but they have never gained traction.  With Facebook about to launch its first stock offering, the likelihood of legislation that would curb its ad revenues is almost nonexistent. There are also concerns about how such widely available information is used for other purposes.  For example, some lenders are using information from Facebook to determine whether to extend credit or the amount of credit limits. Experts have said that some creditors or are now engaged in what is now called “weblining.”  Borrowing from the old mortgage lending practice of “redlining,” the term means that lenders draw a red line around certain Internet activities and then deny loans or credit based on assumptions about that activity. Creditors will base decisions on aggregated data  or which groups you fit into in terms of your online activities. Advertisers will also select targets for their ads based on assumptions about web activity.  The New York Times noted that trade school Internet ads are geared toward a certain cross section of young people and that their access to information about colleges may be limited. Another concern is that the information could be used by stalkers or victims of domestic violence in order to determine their locations. Lori Andrews, “Facebook Is Using You,” New York Times, February 5, 2012

    There is also an overarching question as to how these differing laws will work on an international resource such as Facebook.  The irony is that Facebook and Google will need to track users in order to comply with the laws of their resident countries.  

    Discussion Starters

    1.    What privacy protections on Internet information exist in the United States?

    2.    What privacy protections exist in the EU, Canada, and some Latin American countries?

  • P.R.I.M.E. Time in The Hague

    A new financial tribunal has opened in The Hague, funded by the Dutch government. Its goal is to build up internationally recognized legal precedent in technical areas of finance that are very difficult for judges in any nation to comprehend, such as credit derivatives, collateralized debt obligations, and other exotic instruments that total in the trillions of dollars in face value. 

    Three-member panels will decide disputes. The parties will decide the members of the panel from a list of 80 specialists from around the world.

    The majority of complex financial instruments are created in London or New York under English or New York law. Nevertheless, the same instances have produced different court holdings in those locales. It would be better for there to be one set of rules that would apply globally.

    The international financial problems that emerged in 2008 made clear that the traditional litigation process was too slow and too uncertain, so the hope is that PRIME Finance will become the premier body to handle disputes. PRIME stands for the Panel of Recognized International Market Experts. It will have offices in the Peace Palace. 

    For that to occur, when instruments are created and marketed, they must include a clause that requires the submission of disputes to PRMIE. It can be used by firms of any size and by governments.

    Discussion: What is the consequence of having conflicting rules in different nations about such financial instruments?

  • Health Department Closes Jay-Z's Club; Administrative Agency at Work

    Rapper Jay-Z owns a Manhattan nightclub named the 40/40 Club.   It includes a dance area, rooms to play pool in or watch TV, seating areas, and a restaurant. It was first opened numerous years ago.  The new dad recently closed the place for 10 months for renovations.  It reopened in late January sporting a $10 million facelift. On the first night Jay-Z hosted a big bash with guests such as Russell Simons, Spike Lee and Warren Buffet.   On the second night the New York City Health Department inspectors showed up to examine the premises, checking for compliance with health and sanitation rules.

    The inspectors found significant violations and closed the club, barring admission of any new patrons although those already inside were allowed to stay.  (Presumably no more food was sold).  To Jay-Z’s credit, the violations were corrected by the following day, earning him the right to re-open.

    Violations found included cold food being kept at 60 degrees rather than the required 41 (raw chicken wings, raw shrimp, and 100 turkey burgers)   Cooked food – including mashed potatoes and rice – should have been maintained at 140 degrees but instead was kept at 89 degrees.  Further, a preparer was observed mixing salsa with his bare hands.  Another preparer’s clothing was “soiled with a possible contaminant,” and yet another was not wearing an “effective hair restraint.” Oops! 

    These violations earned the eatery the lowest possible inspection grade.  A representative of 40/40 reported that the culprit was not neglect but rather a motor that blew in one of the refrigerators, causing its temperature to rise.  Assuming the truth of the statement, it only explains part of the violations.   Know that when the club was last rated in March, 2011, before the alterations, it also garnered the lowest rating based on improperly handled food and unsanitary conditions. 

    The Health Department is a governmental agency (a governmental subdivision) of New York City. Agencies sometimes adopt laws, called regulations, specific to a particular industry.  Agencies also enforce industry-specific rules.  The Health Department enforces New York City heath and sanitation rules.  It does so by unannounced annual visits to the 24,000 NYC restaurants. Inspectors check for compliance in food handling, food temperature, personal hygiene, and vermin control.  Each violation results in a certain number of points.  The best grade is reserved for facilities with a sore of 13 or less.  The worst grade applies to a score of 28 or higher.  Once more, Jay-Z’s score was 69 this time, 39 a year ago.  Sounds like a fun place to go to dance the night away AFTER dinner. Or as a rapper might phrase it:

    Yo!  Hungry?  Wanna eat?

    At 40/40,  avoid the meat.

    Problem with refrig and heat.

    Best come here just for the beat.






  • Microsoft: Drinking at Company Parties and Company Liability

    Microsoft just sent around a reminder in its quarterly ethics code update on employee drinking at Microsoft parties. The reminder about office-party behavior springs from a suit by a former Microsoft executive that is winding its way, embarrassingly, through British courts.

    Simon Negus, the former general manager for Microsoft in the United Kingdom, was dismissed from his position in 2010 following allegations about his conduct at an annual Microsoft sales conference party in Atlanta.  Mr. Negus filed suit for wrongful dismissal, and the result is that the filings in the case have revealed a culture of heavy drinking at Microsoft events. At the Atlanta sales conference party, as described in the suit, there were “unlimited quantities” of vodka and Jagermeister. The vodka was served from an ice fountain.

    Following the party, several female employees filed sexual harassment complaints with the company.  Emma Cloney, a manager, filed a complaint about a director who was so drunk that he followed her into the ladies’ room. The allegations against Mr. Negus were that he flirted and touched one female employee, asked another to “flutter her eyelashes,” and asked a third female employee to stand on a table so that everyone could see how short her skirt was. Following an investigation into the allegations, Mr. Negus was dismissed for allegedly “lying” about the incidents at the party. Read more about the allegations and party in Katherine Rushton, "Sex Claims and the 'Wild Ways' of Microsoft Bosses," The Telegraph, Feb. 2, 2012.

    Mr. Negus alleges that others were inebriated, engaged in worse behavior, and were not dismissed and that he was targeted for dismissal.  He is seeking 15 years of compensation ((£10 million) for the wrongful dismissal.   

    As a result of this very public disclosure about Microsoft’s gatherings, the company included the following reminders in its quarterly ethics update:

     "Even in the absence of an express legal requirement, Microsoft expects event organisers and participants to exercise common sense and good judgment when alcoholic beverages are served at social events. Food should be served along with alcoholic beverages, participants should manage their level of alcohol consumption [and] event sponsors should ensure that alternative forms of transportation are available. Any participant who becomes inebriated should be prevented from consuming alcoholic beverages and from operating a vehicle."

     The warning was necessary to curb Microsoft's liability. Employers not only have liability for the conduct of officers and managers toward employees at company functions.  Companies could also have liability for any injuries caused by employees who leave such functions drunk and then have auto accidents.  Employers have responsibility and liability for the post-gathering conduct of their employees, including conduct that results from intoxication.

    To watch a clip on the dangers of office-party drinking, go here.

    Discussion Starters

    1.     What sexual harassment complaints resulted after the Microsoft party?

    2.     Why does Mr. Negus feel he was wrongfully dismissed?