• Penney's Loses in Martha Stewart/Macy's Battle Over Endorsements

    Macy’s had what it believed to be a exclusive merchandising agreement with Martha Stewart, with Ms. Stewart agreeing to provide her name and endorsement to certain Macy’s household products.  Several years later, JC Penney entered into a similar merchandising agreement with Martha Stewart for her to endorse several of its household products. 

    In 2013, Macy’s filed suit against Penney’s and Ms. Stewart alleging that Ms. Stewart had breached her contract of exclusivity with Macy’s and the Penney’s had interfered with its contractual relationship with Ms. Stewart.  The case proceeded to trial, a trial that included Ms. Stewart as a witness.  However, by the time the trial arrived, Ms. Stewart and Macy’s had settled their portion of the suit, and the battle for tortious interference with contracts continued between Penney’s and Macy’s. 

    A few days ago, a judge issued his ruling in the case, holding that Penney’s had unlawfully interfered with Macy’s contractual relationship with Ms. Stewart. The judge referred to Penney’s conduct as “adolescent behavior in the worst form.” Hilary Stout, “Ruling Against Penney in Its Macy’s Dispute,” New York Times, June 17, 2014, p. B3.

    The final phase of the case will be the determination of whether Penney’s should be required to pay punitive damages for its behavior as well as whether it should eb required to pay Macy’s costs for attorneys throughout the long and winding road to the verdict in the case. 

    Ironically, the plan to bring on Ms. Stewart was part of a new strategy for Penney’s of obtaining exclusive licensing arrangements in order to attract shoppers.  The plan failed terribly because what Penney’s shoppers wanted was not exclusive licensing and products, but bargain. Penney’s has since returned to its bargain strategy and abandoned the licensing arrangements. Even more ironically, Macy’s sales are now down as Penney’s are up. 

    The tort of contractual interference requires proof that a third party acted to intentionally cause a party to an existing contract to breach that contract or minimize its value.  Penney’s did so by soliciting Ms. Stewart.  The trial consisted of evidence that the product lines were different, and there were different products, but there were also a number of products endorsed by Ms. Stewart that were available at both stores.

    DISCUSSION STARTERS

    1.  Explain what is left to do in the case.
    2. When does tortious interference occur? 

  • The Former Goldman Sachs Programmer and the Fourth Amendment

    In 2009, Sergey Aleynikov was working as a programmer for Goldman Sachs, making about $400,000 per year.  He had developed programs for Goldman Sachs that were for high frequency trading.  However, Sergey received an offer from another company to come and work for about three times as much as Goldman was paying him.  Sergey left Goldman and took some coding work with him.  Goldman alerted the FBI, explaining:  (a)  that Sergey had stolen computer coding from it; and (b)  that if someone got that coding from Sergey that it could be used to manipulate markets. The video embedded here gives background on high frequency trading as well as a discussion of Sergey's case. 

    FBI agents stopped Sergey in the Newark airport and arrested him and charged him with stealing source code for high frequency trading.  Sergey was convicted and served one year in prison before a federal court of appeals reversed the decision on the grounds that the federal espionage laws did not apply in his situation.  The court held that Sergey may have breached his contract with Goldman Sachs in taking the codes with him, but he did not steal. Sergey was released from prison.  

    However, Manhattan District Attorney Cyrus Vance then brought state charges against Sergey in 2012, arguing that New York state laws made it more clear that what Sergey did was theft.  The codes Sergey had can be worth hundreds of millions of dollars to high-frequency traders.

    One more however, however, is that a state judge ruled several days ago that the evidence that the federal government had obtained for its case (including an initial interview with Sergey in which he seems to admit guilt and his home computers) that the state was planning to use in its case could not be used in the state prosecution.  The judge found that the initial interview could not be used because Sergey was not given his Miranda warnings.  The judge also held that the computers and other items seized from Sergey’s home could likewise not be used because that would have required a warrant.  Finally, the judge criticized the federal government for turning over the evidence to state prosecutors because once Sergey was acquitted that evidence, including the computers, should have been turned back over to him.

    The only thing that the state prosecutors are left with are some statements Sergey made after he was given his warnings, but those statements are not a definitive as those in the originalnon-Mirandized interview. . Charles Levinson, "Ruling Favors Former Programmer," Wall Street Journal, June 21, 2014, p. B3. ,   And, without the physical evidence from Sergey’s computer, the case appears to have no hope for successful prosecution.

    The case has been followed extensively in the cyber world because of the confusion surrounding what constitutes property, theft, and other related crimes when it comes to programming.

    In addition, the case is rare in that a state prosecution followed an unsuccessful federal prosecution.  There is no double jeopardy because the charges are different, but rarely do prosecutors take up a case when there has been an acquittal.  On occasion, the federal government will bring civil rights charges when there are state acquittals on violent crimes.  The availability of prosecution at both state and federal levels is what it known as “dual sovereignty,” which allows state and federal cases to proceed so that one system does not trump the other in terms of decisions on prosecution.

    DISCUSSION STARTERS   

    1.  Why can Sergey be prosecuted for the same acts under state and federal systems?
    2. Explain the Fourth Amendment issues in the case.  
  • People on No-Fly List Win Due Process Rights

                

    A judge has ruled that the government violated the due process rights of people on its no-fly list by failing to give them adequate opportunity to challenge that placement.

    The Federal Bureau of Investigation (FBI) maintains a list of known and suspected terrorists who are not permitted to fly in United Space airspace. The names of people on a given flight are compared against the FBI no-fly list. If a match occurs, that person is not allowed to board and is denied a seat on the plane. The list is shared with 22 countries and ship captains.

    By statutory directive, the Transportation Security Administration (TSA) is required to establish a “timely and fair process for individuals identified as a threat to appeal the determination and correct any erroneous information.” The TSA was created following the September 11, 2001 attack on the United States for the purpose of strengthening the security of the country’s transportation systems.

    This directive is consistent with the due process clause of the United States Constitution which requires the government to provide a procedure to challenge government denial or revocation of a right. The procedure, which usually takes the form of a hearing, should include adequate advance notice of the time and place ,the reason for the government’s action, an unbiased hearing officer (the person who decides the case), an opportunity to challenge the government’s position usually by cross-examining the government’s witnesses, an opportunity to present one’s own witnesses, and the right to consult with an attorney or knowledgeable advisor.

    Thirteen Muslim US citizens who were prohibited from boarding a plane sued the US claiming the government failed to afford them an adequate opportunity to contest their inclusion on the no-fly list. The process available to them was as follows: they filed a written grievance with the TSA. If the TSA determines that the would-be raveler has been misidentified as someone on the list, the TSA corrects the information. If the traveler is a near match to someone on the list, all available information is reviewed to determine whether the traveler should remain on the list. When the agency’s review is completed, it sends a determination letter to the complainant advising that the review of the grievance is complete but does not confirm or deny whether the traveler is still on the list or provide any insights about eligibility for future travel.   

    In the lawsuit, the judge first ruled that people have a constitutional right to travel. “For many, international travel is a necessary aspect of liberties sacred to members of a free society.” This triggered the right to due process for those whose travel rights were denied.

    The judge commented that the current procedure for a listed person to clear his name does not meet even the “elementary and fundamental requirement of due process.” The judge ordered the government to provide the plaintiffs with notice regarding their status on the no-fly list and some opportunity to review evidence used to justify their placement on the list “without jeopardizing national security.” If the information is classified, the court’s decision requires that plaintiffs be advised of the ”nature and extent” of the data without disclosing what is classified. Said the judge, “Without proper notice and an opportunity to be heard, an individual could be doomed to indefinite placement on the No Fly List.” This does not comport with constitutional mandates.

    Plaintiffs were represented by the American Civil Liberties Union. Government attorneys are reviewing the decision and may appeal.

    For additional information, click here.

    DISCUSSION QUESTION:

    Why are due process rights important?

  • Coke Learns Spain Requires Notice to Workers About Plant Closings

     

    The National Court of Spain has ordered that Coca-Cola reverse 821 layoffs, and compensate workers for lost pay.

    Spain is among the many countries in which Coca-Cola does business. In 2013 Coca-Cola there merged with several local bottlers and became Coca-Cola Iberian Partners (CCIP). Since then, the soft drink industry in Spain has experienced a decline, caused in part by over expansion and in part by Spain's slumping economy, evidenced by the country’s 26% unemployment rate. Some bottling plants were operating at only half of their capacity. CCIP thus closed four of it's eleven plants.

     A company is generally entitled to make business decisions such as how many plants to operate and which ones to shutter. However, laws in many countries require advance notice to workers of planned closings. Spain apparently mandates that, before an employer can dismiss workers, it negotiate with any relevant union concerning the need for the layoffs and possible alternative action. The purpose of this law is presumably to allow the opportunity for possible accommodations and concessions that could enable the employer to avoid the terminations. Further, if closings cannot be prevented, Spanish law requires employers to discuss with union representatives possible ways to

    mitigate the consequences of those firings.

    Since CCIP allegedly did not consult the union, it sued. Spain's National Court has sided with the workers and ordered that the soda company return them to work and pay them back wages for the time they were laid off. Coca-Cola has announced that it expects CCIP will appeal.

    Related laws involving notice of plant closings exist in the United States. A federal law is titled The Worker Adjustment and Retraining Notification Act (WARN). It covers employers with at least 100 employees who work 20 hours or more a week, not counting those who have worked less than 6 months for the company. Covered employers must give at least 60 calendar days advance written notice of a plant closing or a layoff affecting 50 or more employees at one site. 

    The purpose of the law, per the Department of Labor, is to " give workers and their families some transition time to adjust to the prospective loss of employment, to seek and obtain other jobs, and, if necessary, to enter skill training or retraining that will allow these workers to compete successfully in the job market.”

    The employees entitled to notice include not only hourly workers but also salaried employees plus mangers and supervisors. WARN also requires notice be provided to union representatives, the local chief elected official (for example, the mayor), and the state dislocated workers unit.

    The penalty for noncompliance of WARN is liability for back pay and benefits for the period of the violation, up to a maximum of 60 days. This is sometimes referred to as “pay in lieu of notice.”   Note that in Spain, the court not only ordered Coca-Cola to compensate the workers for missed pay, but also directed that the company return them to work. The court apparently wanted to force negotiations with the union to determine if the parties could agree to an alternative plan that would save at least some of the lost jobs.

    In the US, the parties who can sue to enforce WARN are workers, a union, and the local government, for example an attorney general’s office. The lawsuit can be brought by an individual or on behalf of the class of all affected workers at the particular jobsite. A successful plaintiff may be awarded reasonable attorney’s fees. Note: Normally, even a successful plaintiff pays for his own attorney. The law however permits recovery of attorney’s fees in a few circumstances where the legislature wants to avoid would-be plaintiffs choosing not to sue because of concern about the cost for a lawyer. 

    Some states have plant closure laws of their own that provide workers even greater rights such as longer notice periods.

    For more information, click here.

    DISCUSSION QUESTION:

     Why does WARN require notice of closures to the state department that addresses dislocated workers?

     

  • The Redskins Lose Trademark Protection: What Does It Mean?

    The names of the Washington D.C. NFL football team, the Washington Redskins, has created significant controversy over the past few years because of public opinion regarding insensitivity of the name and trademark to Native Americans.  The team owners have not yielded to public pressure and have steadfastly refused to change the team name. However, a three-judge panel of the Patent & Trademark Office ruled by a 2-1 decision that the trademark is “insulting” and not worthy of federal trademark protection.  You can read the opinion here. The decision resulted because six Native Americans field suit asking that the trademark be revoked. Without trademark protection, the owners of the franchise would take a hit to their licensing revenues because without a trademark, others can take the Redskins name and symbols and market t-shirts and other merchandise with the trademark on it. The end result is that there are virtually no counterfeit items to get off the market because there is no trademark. Jacob Gershman, Ashby Jones, and Kevin Clark, “Redskins Lose At Name Game,” Wall Street Journal, June 19, 2014, p. A1. The team can still use the name and its symbols, but so can anyone else, thus causing revenue reductions. 

    However, the same judicial panel revoked the trademark protection of the Redskins in 1992, but an appellate court reversed the decision and the Redskins were back to exclusive rights on the franchise’s name and symbols.  Pro-Football, Inc. v. Harjo, 284 F. Supp. 2d 96, 68 USPQ2d 1225, 1263 (D.D.C. 2003). The owner of the Redskins franchise has indicated that they will once again appeal the decision.

    The basis for the judicial panel’s decision is that the name is disparaging, as determined by the evidence submitted that showed many Native Americans found the term to be offensive. Section 14 of the Trademark Act of 1946, 15 U.S.C. § 1064(c).The issue is not whether the term, at the time it was trademarked, was not disparaging, but whether its use has evolved into one of being disparaging. The Patent & Trademark office can refuse to allow such trademarks, and has the authority, upon petition by those affected, to pull the trademark if it is disparaging.  37 C.F.R. §§ 2.101-2.136  Also, the panel ruled that the names “Redskins” is not something that is unique and protectable.

    In the mean time, the team is handling strong public opinion and some backlash.  The team established the Original Americans Foundation, which gives financial support to Native American tribes.

    DISCUSSION STARTERS

    1.  When can a trademark be revoked?
    2. What type of evidence is necessary for an action to have a trademark revoked? 
  • NCAA Pays $20 Million To Settle Video Game Case with College Athletes and a New Trial Begins

    Electronic Arts, Inc., a video company had developed football and college video games.  However, many of the players in the video games seemed to be images and likenesses of actual college athletes who had played in college bowl games. The athletes brought suit against the NCAA for the unauthorized use of their likenesses and images.  The NCAA holds the licensing rights for all college teams, in terms of shirts, souvenirs, etc. through its wholly owned subsidiary, Collegiate Licensing Company.  EA paid the NCAA royalties for the use of the college player logos and images. The suit, brought by college athletes, was based on the tort of invasion of privacy, one part of which is the use of someone’s likeness or image for commercial purposes without their permission. The NCAA, along with EA and Collegiate Licensing settled the lawsuit for $20 million.  As part of the settlement, the NCAA granted any athletes who receive a portion of the settlement funds, an exemption or waiver from its policy that student-athletes lose their eligibility if they accept compensation during their college years.

    Interestingly, on the day of the settlement, another suit against the NCAA began its trial.  In that suit, known as the O’Bannon case (former UCLA basketball star, Ed O’Bannon, is the lead plaintiff) college athletes are seeking a portion of the television revenues that the NCAA earns as part of the contracts it holds with networks for broadcast of college football and basketball games, including end-of-season bowl games. The NCAA is taking that case to trial because of what it says is a fundamental characteristic of college sports – that the athletes participating in the games are amateur athletes.  The NCAA contends that paying the student-athletes a portion of their revenues would change the character of college sports. 

    The expert witness for the student-athletes has described the NCAA as a powerful, profit-driven “cartel” because it controls which schools are members and what student-athletes can do if they want to remain on NCAA teams. Mr. O’Bannon has testified, “I was an athlete masquerading as a student.  I was there strictly to play basketball.” Sharon Terlep, “NCAA to Pay Ex-Athletes $20 Million To Settle Suit,” Wall Street Journal, June 10, 2014, p. B1. He said that decisions about his major and classes were made for him in order to work in the 40-45 hours per week that he devoted to basketball. Because of all that work, and being like an employee, he and the other plaintiffs have asked for a share of the revenues made as a result of their efforts.

    There are other pending NCAA issues, such as the movement by college players to unionize.  These three suits illustrate how many areas of law can be used to change the character of compensation, from labor laws, to tort protections, to antitrust issues.  The O’Bannon suit and the unionization cases will continue.

    DISCUSSION STARTERS

    1.  Explain the legal basis for the suit over the video game revenues.
    2. Discuss the other pending NCAA issues.   

  • Tracy Morgan's Tragic Accident; Lesson in Respondeat Superior and Corporate Criminal Liability

    Sadly, the driver of a Walmart tractor-trailer rig allegedly caused an accident that killed comedian James McNair and critically injured three others. Among those hurt is Saturday Night Live star Tracy Morgan. His injuries include a broken leg, broken nose, and several broken ribs. The investigation is ongoing. There has been considerable speculation that the rig driver had not slept for more than 24 hours prior to the accident. Walmart’s chief executive officer, Bill Simon, announced, “If it’s determined that our truck caused the accident, Walmart will take full responsibility.” He also stated that he was “profoundly sorry” and the company is cooperating fully with law enforcement.

    Walmart is, not surprisingly,attempting to minimize the inevitable negative publicity resulting from this incident. The CEO’s statement portrays Walmart in the best possible light under the circumstances. However, what he has promised is what the law requires – Walmart will be legally responsible if the investigation establishes that its truck driver caused the accident.. The legal doctrine of respondeat superior imposes on an employer liability for the negligent acts of its employees, provided the negligence occurred within the scope of employment. This means the carelessness happened while the employee was engaged in acts done in furtherance of work responsibilities. Employers are not liable for conduct of an employee who is off-duty or is engaging in behavior unrelated to his work..

    The rig driver worked for Walmart and was driving for the company at the time of the accident. Based on these facts, he was likely acting within the schope of his employment at the time of the collision.

    There are four main reasons for the rule of respondeat superior. The law seeks to encourage employers to:1) hire wisely (interview, check criminal and other relevant records such as driving abstracts, check references, etc.); 2) train employees well; and 3) actively supervise them. 4) Additionally, the law wants injured plaintiffs to have access to a financially viable defendant.

    The Walmart driver is accused of two crimes - vehicular homicide (causing someone’s death by reckless operation of a motor vehicle) and four counts of vehicular assault (causing injury to someone by reckless operation of a motor vehicle). The driver has been released on $50,000 bail. Bail is a sum of money a judge can impose as a prerequisite to a defendant being released from jail prior to trial. The primary purpose of bail is to ensure a defendant’s attendance at subsequent court dates, including the trial. In assessing whether to impose bail and if so, how much, a judge reviews the defendant’s ties with the community (job, family, home ownership, etc.) and past criminal record. Bail is not intended as punishment because a defendant is considered innocent until proven guilty. Punishment is not imposed until after trial if the defendant is found guilty. In setting the bail, the judge noted that the driver “does not show a history of violations.”

    New Jersey became the first state in 2003 to include within the definition of vehicular homicide causing a fatal accident while driving drowsy. The statute renders illegal driving a vehicle by someone who has been awake longer than 24 consecutive hours.

    The sentence for vehicular homicide can include up to 10 years in prison; the vehicular assault charge is punishable by up to 18 months.

    Unlike a negligence case in which respondeat superior applies, a corporation is generally not liable for the criminal acts of its employees unless a “high managerial agent” (someone in senior management) either participates, requests, commands, solicits or or recklessly disregards the criminal acts.

    Four other vehicles were also involved in the crash but no one else was seriously injured.

    For more information, click here.

    DISCUSSION QUESTION:

    How effective do you think the rule of respondeat superior is in effectuating careful hiring and supervision of employees?

     

  • The Somaly Mam Foundation: Built on a Fraud

    As stories go, Somaly Mam’s certainly evoked sympathy, and donations.  The woman for whom the Somaly Mam Foundation was named had claimed in her book that she was sold into a brothel in her native Cambodia when she was 16.  Her dramatic and compelling story moved the hearts and pocketbooks of many around the world. The Foundation raised $2.8 million to help free young girls who were enslaved around the world.  Oprah, Angelina Jolie, Meg Ryan, Hillary Clinton, Michelle Obama, and Queen Sofia of Spain were promoters of the Foundation.  Actress Susan Sarandon and Facebook COO, Sheryl Sandberg sat on the Foundation’s board of directors.  The Foundation’s annual report claimed that it had made contact with 17,000 sex workers in Cambodia, Laos, and Vietnam, and distributed 750,000 condoms. Nicholas Kristof of the New York Timecalled her one of his "heroes."

     The problem emerged gradually.  Ms. Mam claimed at a White House event that she was 9 or 10 when she was sold into slavery. Then the people in her village said that they remember her living there until she graduated from high school. Perhaps the last straw came when her ex-husband confirmed that there was no story and that he was surprised that it took 10 years for the truth to emerge. He described it all as a “joke.”  Gerry Mullamy, “Activist Resigns Amid Charges of Fabrication,” New York Times, May 30, 2014, p. A4.

    Although many were aware of the real story they were reluctant to say anything because of all the good that was coming from the story and the Foundation. Ms. Mam resigned from the Foundation two weeks ago, and the executive director asked that supporters continue with them in their cause and allow them to continue their work through their transition.  The executive director asked people to remember that the plight of the young girls is still very real. Last year stories had emerged that Ms. Mam was coaching young girls to tell similar, but fake, stories about their experiences as sex slaves.  Some of the girls came forward, but it was not until the past few weeks that the issue came around to affect Ms. Mam.  She has resigned from the Foundation, and Mr. Kristof now doubts the authenticity of her story. 

    Charitable fraud is nothing new.  The movie “Elmer Gantry” was a commentary on frauds committed by compelling ministers who traveled the country (some of whom were not bona fide ministers) beginning in the early 1900s claiming the power to heal even as they were collecting money by those who were tricked by the planted participants who claimed to be healed. Some televangelists took their place in the age of television. The traveling evangelists were particularly popular during the Great Depression and then enjoyed another surge with televangelism taking hold in the 1960s. 

     However, it is a crime to obtain property or funds by false pretenses.  And several televangelists have been sent to prison for collecting funds that ended up in their pockets instead of in their churches.  The Reverend Jim Bakker served a prison term for fraud committed in raising funds that were used to fund his personal life, not missionary work or his ministry.

    In the Mam Foundation case, the Foundation’s work is legitimate, but the funds were raised under false pretenses.  It is the use of the funds that is the criminal act.  The misrepresentation in solicitation is rarely prosecuted.  Many foundations agree to shut down their operations when their founders prove to have misrepresented their situations or stories.

    DISCUSSION STARTERS

     1. Explain the distinction between raising funds with a false story and misrepresenting the use of funds.

    2. What lessons do you find about precautions when making donations to or affiliating yourself with charitable foundations. 

  • Noncompete Clauses -- Now Used By Competing Campgrounds

     

    Here’s a list:

    Summer camp counselor

    Hairdresser

    Event planners

    Yoga instructors

    Lawn maintenance workers

    Social media firm jobs

    Chefs

    This list indicates the types of jobs that now carry non-compete clauses.  Interestingly, many who signed the contracts for summer employment or internship. What used to be a clause that showed up in executive’s contracts and the sales of businesses is now a way of life.  If you are going to be employed, particularly by a small business, expect that you are going to have a non-compete clause in your employment contract. Steven Greenhouse, “Noncompete Clauses Increasingly Pop Up in Array of Jobs,”  New York Times, June 9, 2014, p. B1.

    A non-compete clause is valid (except in California and in other states where there are substantial restrictions on such clauses) when the following conditions are met:

    1.    It is necessary for the protection of the employer – being necessary means that the employee would have had access to proprietary information such as trade secrets, customer lists, unique training or skills, etc.

    2.    The non-compete clause is reasonable in time and geographic scope.  It is necessary to stop an employee who leaves from opening a competing business next door.  However, a competing business in the same city could not be stopped if there is sufficient economic base to support competition.  Likewise, a non-compete in the high-tech industry is generally limited to one year to 18 months.  For a chef, the time could be longer because restaurant trends move more slowly.

    The litigation will be increasing as hairdressers seek to leave one hair salon and work at another, or as chefs seek to leave one restaurant and start their own businesses.  A recent study by MIT professor Matthew Marx found that one-half of the engineers in the United States had signed non-compete clauses.

    Employees who sign them argue that the clauses limit their opportunities to leave their employment and work elsewhere, perhaps for more money. Small businesses argue that the clauses are necessary to protect them and the costs they expend in training employees and the investment they make in allowing them access to their customer bases. Others, such as companies in the Silicon Valley, argue that the ban on non-compete clauses in California has allowed the high-tech industry to blossom and grow.  If employers are not interested in their employees’ ideas, they are leaving to start their own companies, something that cannot be prohibited under California law.

    Lawyers indicate that they are seeing an increase in non-compete clause litigation as companies seek injunctions to stop employees from going to work for competitors or from starting a competitive business.  The injunction tends to end the litigation because the employee, unable to afford legal counsel, ends working at a competitor or closes the competing business and tries a different field. 

    Watch what you sign when you accept a job – those non-compete clauses can stop you from undertaking another job in the same field, even when you are only a 16-year-old summer camp counselor.

    DISCUSSION STARTERS

    1.    Discuss the pros and cons of non-compete clauses.

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    2.    Explain the law on non-compete clauses.

     

  • NCAA Settles Players’ Lawsuit over Publicity Rights to Video Games

            

    The National Collegiate Athletic Association (NCAA) settled a lawsuit involving allegedly unauthorized use of college players’ likenesses in video .games. The NCAA agreed to pay $20 million to current and former Bowl Subdivision football players and Division 1 men’s basketball players. 

    The games were produced by Electronic Arts, a multibillion-dollar gaming industry giant.  It too settled with the athletes, agreeing to pay $40 million. The videogames subject to the lawsuit sported  the NCAA logo and contained close portrayals of college football and basketball players. 

    The case was started in 2009 and was pursued as a class action, meaning  a case with multiple plaintiffs, all of whom were injured in a similar way by the same defendant.  The named plaintiff (the lead plaintiff who files the case and represents the group in court)  was Sam Keller, a former quarterback at Arizona State and the University of Nebraska.  More than 100,000 players are eligible to seek compensation from the settlement. The attorney for the plaintiffs estimates that each will receive between $400 and $2,000. Before any pay-out can be made, all class action settlements, including this one, must  be approved by a judge.

    NCAA rules prohibit players from receiving payment for their athletic skills.  The Association has announced that current players who receive a share of the settlement will not be considered to have violated this rule. 

    The case was based on the tort called right of publicity which is the right to control the commercial use of a person’s name, image, persona or likeness.  The right is associated with celebrities, people whose images have value. The right does not prevent the media from using a celebrity’s likeness for news purposes.  This tort is an outgrowth of the right of privacy which prohibits the use of an unknown person’s name or likeness for commercial purposes

    The motivation for the NCAA to settle this case apparently was a separate case with more far-reaching potential.  The plaintiff athletes in that class action claim they should receive half of the revenue generated from NCAA’s contracts with TV stations for broadcast rights to games. As an example of the value of those rights, CBS and Turner networks pay the NCAA an average of more than $770 million per year for the right to televise the men’s collegiate basketball tournament.  The plaintiffs claim the NCAA is violating antitrust laws (rules that encourage competition and outlaw practices that restrict commercial rivalry) by excluding them from the financial benefits of the players’ publicity rights.  The trial in the case just began and is expected to last three weeks. The plaintiffs in that case are not seeking payment but rather voiding of NCAA rules that prohibit college athletes from receiving pay for use of their images in broadcasts.  By settling the video game case, the issues in that case are less likely to cloud the television broadcast trial.  

    For further information, click here:http://online.wsj.com/articles/ncaa-unveils-20-million-settlement-with-ex-players-over-videogames-1402330931.

    DISCUSSION QUESTION:

    1) Should college players be entitled to a share of the income made by the NCAA from selling broadcast rights? Why or why not?

     

  • SEC Mandated Disclosures About Congo Minerals -- We Don't Know!

     

    In 2012, under requirements passed as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act (15 U.S.C. §§ 78m(p), the SEC promulgated rules that require publicly traded companies to publicly file a Conflicts Minerals Report.  The purpose of the rule is for companies to disclose minerals (gold, tantalum, tin, and tungsten) used in their products if those minerals could have been produced in the Democratic Republic of the Congo (DRC) because of concerns that the money flowing into the DRC for the minerals was resulting in human rights violations. Known as Form SD, its filing is required by 1934 Act companies by May 31st of each year.

     


    In late 2010, the Commission proposed rules for implementing the Act. The Commission twice extended the comment period and held a roundtable for interested stakeholders.  By a 3–2 vote, it promulgated the final rule, which became effective November 13, 2012. 17 C.F. R. §§240.13p-1, 249b.400.  

    The final rule adopts a three-step process. Step one requires the company to determine if it is covered by the rule.  Step three requires a company to “exercise due diligence on the source and chain of custody of its conflict minerals.”

     

    Companies found compliance with the rule to be confusing, difficult, and time-consuming. In a suit filed by the National Association of Manufacturers against the SEC, a court has held that the rules on conflicts minerals are within the SEC jurisdiction and are valid. National Association of Manufacturers v. S.E.C., 748 F.3d 359 (C.A.D.C. 2014). However, part of the rule was struck down on constitutional grounds – the court held that the disclosure requirement was tantamount to requiring companies to admit that they had “blood on their hands.”

    However, in a similar case, American Meat Institute v. USDA, 746 F.3d 1065 (C.A.D.C. 2014) the same court is grappling with a constitutional challenge to similar USDA rules that require meat producers to disclose the sources of their products.  The meat producers argument is that it is a violation of their First Amendment rights because the effect is to require the meat producers to take a particular position on issues related to meat production that should be a matter of individual choice.

    There are rehearing motions pending in both cases and the SEC has asked that the cases be heard in tandem because the same constitutional issues are involved.

    As these constitutional issues proceed, there is another issue emerging.  That is that the first round of disclosures under the SEC rules have proven to offer little information.  Most companies have taken advantage of the phase-in period and opted to disclose only that they are looking into the issues related to conflicts minerals in their supply chains.  For example, Alcatel Lucent has disclosed that there is a “potential presence” of conflicts minerals.  Halliburton, Northrop Grumman, Target, and Walt Disney have stated that they are unable to determine whether there is a presence of conflicts minerals.  Google, Deere & Co., and Alcatel Lucent have disclosed that there is a “potential presence” of conflicts minerals. John Kester and Maxwell Murphy, “Conflicted Disclosure,” Wall Street Journal, June 2, 2014, p. B1. 

    The complexity and costs of compliance will cause continued litigation and these types of “iffy” disclosures as companies struggle to apply the disclosure rule to their operations.

    Discussion Starters

    1.      Explain the purpose of the conflicts minerals rule.

     

    2.     Discuss the legal status of the rule and the companies’ responses and disclosures. 

     

  • How Did Golfer Phil Mickelson,Carl Icahn, and a Gambler End Up Under Investigation for Insider Trading?

    The three traded call options on Clorox (CLX) just a few days before Carl Icahn, a billionaire investor, announced that he was making a bid to buy Clorox.  Icahn’s announcement sent the share price of the company up, and the result was that the three call options owners profited by millions.  The three were Carl Icahn, golfer Phil Mikelson, and Las Vegas gambler, Billy Waters. 

    The FBI is investigating the three for insider trading.  In fact, the FBI showed up at a golf tournament with questions for Mr. Mickelson. The problem is that the three don’t really have any or just limited contact, so how did the three become the target of a federal securities law investigation?  Mr. Icahn does know Mr. Walters, who is a prominent sports bettor.  The two met when Mr. Icahn owned the stratosphere hotel and casino in Las Vegas, from 1998 until 2008.  Mr. Icahn does not know Mr. Mickelson, but sources told Wall Street Journal reporters that the FBI believes that Mr. Walters passed the Clorox information on to Mr. Mickelson.   The following diagram shows the market activity along with the timing of the trades of the three.

     

    Well, an insider trading issue can creep up fairly easily.  All the SEC and FBI need to do is look at stock activity in the days prior to major corporate announcements, i.e., material kinds of issues that affect the share value – such as a merger, earnings announcements, or, in this case, a bid for shares from an outsider.  Transactions in those shares, including buying and selling shares, options, puts, and calls (positions taken depending on what is happening with the company when the material information is made public) are easily detected through FINRA software and reported to the SEC.

    The SEC, and in some cases, the FBI then investigate to determine whether the transactions were serendipitous, as when someone sells off shares in a portfolio or shares are sold to pay debt or sold because they were inherited, or if it looks as if those involved may have been “tipped” off about the forthcoming information. 

    The FBI/SEC investigation focuses on whether Mr. Icahn may have shared information with Mr. Waters who may have then passed that information along on the golf course or through some other connection to Mr. Mikelson.  However, in addition to having and using the advance information, proof of insider trading requires establishing that the “Tippee” was not aware that the information he was being given was non-public.  It is one thing for someone to hear, “Hey, you ought to think about buying Clorox stock,” and make a purchase and quite another (and possibly a crime) to hear, “Hey. Icahn is making a hostile takeover bid for Clorox.”  The second is specific, non-public information that is a foundation for an insider trading charge.  The first is non-specific and is a more general tip that makes it difficult to show that the tippee knew that private information was being dispensed. 

     

     

    Mr.Mickelson’s friend, Paul Azinger, believes that Mr. Mickelson falls into the second category and that although Mr. Mickelson is a smart man he can be naïve.  Mr. Azinger believes that what may have been simply a tip on the golf course to Mr. Mickelson is being turned into an insider trading case. http://www.nydailynews.com/sports/more-sports/azinger-naive-mickelson-incapable-insider-trading-article-1.1818777

    The existence of the investigation became public just prior to the FBI obtaining wiretaps on phones that would have assisted them in obtaining any evidence of intent.  

    DISCUSSION STARTERS

    1.      Describe what must be proved for an insider trading charge.

     

    2.     What is the difference between a stock tip and trading on inside information. 

     

     

  • Ticketmaster Settles Class Action Lawsuit Over Deceptive Add-On Fees

     

              

    Ticketmaster - the seller of tickets for concerts, plays and other entertainment events - has settled a class action lawsuit (a case with multiple plaintiffs, all of whom were injured in a similar way by the defendant).  The complaint  alleged a deceptive trade practice (an intentional act or omission occurring during  a business transaction that is designed to mislead consumers; deceptive trade practices are made illegal by state statute).  Specifically,  plaintiffs asserted that Ticketmaster deceived purchasers by charging “order processing fees” and “UPS delivery fees” but did not use all of the money for processing or delivery services.  Instead, and unknown to plaintiffs, the fees constituted profit for the company. Plaintiffs referred to them as “secret profit-generators”.

    The settlement calls for Ticketmaster, now owned by Live Nation, to give $400 million in credit to 50 million ticket buyers.  Class members will receive discounts for future ticket purchases and/or additional discounts on future UPS ticket deliveries. If you do the math, each plaintiff will likely receive no more than eight dollars ($8.00) in credits. The plaintiff’s lawyers are seeking almost $15 million in fees plus $1.5 million in expenses the attorneys incurred in pursuing the case.  This disparity in the amount of individual plaintiffs’ recovery and the attorneys’ fees is not rare in class action cases.

    Settlements in class action cases must be approved by a judge. S/he  must first conduct an inquiry  into the fairness of the proposed settlement, and then preside at a Final Approval Hearing . If class members disapprove of the settlement they can appear at the hearing, with or without a lawyer, and explain to the judge why they object.  At the end of the hearing, the judge can either approve the settlement or send the parties back into settlement negotiations to modify the terms. The Final Approval Hearing for the Ticketmaster case is scheduled for January 13, 2015 at 10:00 a.m. in Los Angeles Superior Court, California.  Also, as part of the settlement, Ticketmaster has changed the language on its website to clarify that order-processing and delivery charges may include a profit for Ticketmaster.

    If you are a concert fan, you may be a member of the class.  You qualify if you meet the following criteria: 1) you bought tickets on Ticketmaster’s website anytime from October 21, 1999 through February 27, 2013; 2) you were a resident of the US when you made the purchase; 3) you paid money to Ticketmaster for an order processing fee that was not fully refunded; and 4)  you did not opt out of the class. People who qualify as plaintiffs  in a class action can decline to join the class and instead, proceed alone against the defendant .

    If you qualify for the class, be sure to pursue your credits.  Live Nation expects the settlement will only cost it $35 million (rather than $400 million) because participation rates in class-action settlements are low.

    For more information, click here: http://www.wjla.com/articles/2014/06/ticketmaster-lawsuit-settlement-could-mean-millions-in-fees-credited-to-past-customers-103761.html

    DISCUSSION QUESTION

    What role does the disparity between each plaintiff’s  recovery and the amount of attorney’s fees have in the maintenance of  class action cases?. 

     

  • Classic Negligence, and Warranty Breach; A “Sweet” Dog Bites Two Kids

         

    A New Jersey man adopted a cute pit bull from an animal-rescue organization.   The dog, named Melo, had been housed for several weeks at the Brooklyn Animal Control Center (BACC) because his owner had been evicted (forced to leave his home by court order) and was no longer able to care for the animal. Thereafter BACC brought it to an animal rescue organization that assists in locating adoptive placements.  BACC included an advisement with the canine against placing it in a home with children.  It had been assessed by a BACC volunteer as follows, “When approached in his kennel, Melo freezes in the back of the kennel, hard stares and lip curls, low growls, and then charges the front of the kennel while hard barking.” 

    Two weeks later a subsequent assessment included the following, “It seems Melo has finally acclimated and is letting his guard down – revealing the sweet, playful affectionate boy I knew was always there!”

    The man who acquired Melo from the rescue association was advised of the second assessment but not the first.

    Within a day of bringing the pit bull home, it locked its jaws on the leg of the man’s nine year old daughter while she sat on a swing in her backyard. Her 13 year old brother came to the rescue and was able to pry the dog’s teeth from the young girl’s leg.  In the process,  Melo turned on the brother and bit his nose, reportedly almost off.  Both children were rushed by ambulance to a hospital.  The nose required  numerous stitches to repair.

    Releasing the dog to an adoptive family without disclosing the warnings about its aggressive nature and incompatibility with children is negligent, meaning careless or failed to act as a reasonable person would act under the circumstances.  Likewise, release of the dog to a family with kids, knowing that it had exhibited aggression, was negligent. If the rescue organization did not ask if the man had children, that too would be negligent  given the circumstances.

    Another cause of action (ground on which to sue) is provided by the Uniform Commercial Code (UCC) (laws relating to sales and other commercial transactions adopted in virtually all fifty states).  The UCC covers goods, which are moveable things including animals.  A pet that is sold is considered a good and so comes with an implied warranty of merchantability, meaning a guarantee implied in contracts for sale of goods  that the items sold are fit for their ordinary purpose.  A dog sold as a pet typically should be affectionate, playful, reasonably  gentle, and capable of  providing companionship to its owner.  A dog that is aggressive is not fit to be a pet in a family with children. 

    Another applicable guarantee is express warranty, a written or stated promise made by the seller about the characteristics of a good. Here, the rescue organization  represented that Melo was sweet, playful and affectionate.  This description was not accurate and so violates the express warranty.

    Note: Dog rescue organizations sometimes give rather than sell dogs to good homes. If the transfer of ownership of Melo was a gift, the UCC warranties would not apply.

    After Melo attacked the two youngsters, he was euthanized, meaning put to death in a humane way (least painful and quick).  Most states have laws that permit euthanizing a dangerous dog, but only after the owner’s due process rights are honored.  This means the owner is entitled to a fair legal procedure at which the dog’s temperament is explored.   A hearing must be held and the owner must be given the right to cross-examine witnesses and  present mitigating evidence.  If a decision is made by the court that the dog is dangerous, the judge can impose numerous sanctions depending on whether the dog attacked a person or another animal.  These include neutering or spaying, microchipping, evaluation by a certified behaviorist and training if  indicated, payment for any doctor or vet bills incurred by the victim, and muzzling and/or use of a leash whenever the dog is in public.  While the laws vary from state to state, euthanasia is usually an option only when the dog causes serious physical injury to a human, or attacked more than once another animal.  

     For more information, click here: http://nypost.com/2014/05/26/dad-says-shelter-lied-about-pit-bull-before-it-bit-my-kids/

    DISCUSSION QUESTION:

    What could the rescue organization have done to avoid liability in this circumstance?

    To what due process rights, in addition to those mentioned, will a dog owner be entitled?

     

  • Amazon and Book Publishers: They Got Nailed for Price-Fixing and Amazon Now Controls Prices of Books

     

    When antitrust laws backfire, it is not a pretty sight.  The battle between Amazon and book publishers continues.  As documented in this blog over the course of the past year, the Justice Department brought suit against Apple and the major book publishers for their agreement to stand firm on pricing against Amazon.  The goal of their agreement was for the publishers to refuse to do business with Amazon unless it stopped deeply discounting e-book prices.  Apple would work with the publishers to charge the higher prices for e-books.  All of the publishers settled the case with the Justice Department, with some of them settling before the case against them was even announced publicly.  Apple went to trial, was found guilty, and is now battling in federal court over the authority and role of a monitor that the court required following the finding of price-fixing by Apple with the publishers (also documented on the blog).  The monitor will be with Apple for three years in order to be sure that the company does not engage in price-fixing or anti-competitive behavior again. 

    However, as that battle proceeds, Amazon is staging a pricing battle with publishers in the united States and Europe. The heart of the battle is between Amazon and Hachette, the parent company of Little Brown, and publisher of authors such as Malcolm Gladwell.  Hachette and Amazon are negotiating pricing, and the negotiations have gone so poorly that the private discussions have spilled over into the media.  Hachette wants more money for its books, and Amazon wants to sell at lower prices. However, Amazon is delaying shipments of Hachette books and raising book prices so that the sales of Hachette titles are affected.  Indeed, Amazon is also recommending other books for customers in lieu of the Hachette books. The authors affected the most by the Amazon tactics are the new authors who do not have a fan base. (see video for one author's description of the situation) Those in the publishing world say that Amazon is thereby controlling market entry in terms of new authors’ works being able to compete with established authors.  Jonathan Mahler, "Toe-to-Toe With a Giant," New York Times, June 2, 2014, p. B1. 

    The interesting aspect of the situation is whether there can be antitrust implications in a situation in which the refusal to deal is the result of Amazon trying to get lower book prices for its customers.  The Justice Department is not involved because it cannot see why a drive for lower prices is anti-competitive. However, antitrust experts point to the creation of a monopoly, and not for reasons based on skill, foresight or industry (hard work).  The risk of monopolization allegations is real. 

    In addition, for Amazon, an evolving issue is whether customers will become irritated by not being able to buy certain books from their favorite “point, click, and buy” site.  

    A question to contemplate is whether the first publisher to reach a deal with Amazon will leave the other publishers behind, and will we be reduced to a one-publisher world.  But, an aspect of Amazon’s business that prevents monopolization there is that Amazon runs a highly successful self-publishing business for authors.  Amazon is able to offer more types of books by a wider array of authors.

    The strategic planning of Amazon is a case study that must accompany the discussion of the legal issues.  Oh, and one more interesting tidbit, Jeff Bezos, the CEO of Amazon, purchased the Washington Post.  The newspaper has covered the Hachette battle, but it has not been able to get a comment from its owner on his company’s tactics.  The Post stories on Amazon have disclosed who owns the paper – the guy at the center of the story.

    DISCUSSION STARTERS

    1.      Describe the original antitrust suit in the publishing world.

     

    2.     Explain the antitrust issues in the current Amazon negotiations.