• The Towing Company Monopoly and Underlying Conspiracy

    In New York City, police officers have a list of towing companies that they can call to come and clean up following an accident.  The officers are to rotate through the list so that the towing business is evenly distributed throughout the companies located in the city.  However, according to an indictment issued by a grand jury, 10 of the companies on the list were owned by the same individual.  The indictment was coupled with a $20 million civil suit to attach assets of Daniel Steininger and his 17 companies for an alleged conspiracy to monopolize the towing business in New York City.  Ashley Southall, "Indictments Allege a Plot to Monopolize Towing,"  New York Times,"  February 22, 2018, p. A21. 

    According to the indictment, Steininger bought up other towing companies under different names and obtained licenses for those companies using the different names, different logos, and different owners.  On paper, it appeared that there were 10 different towing companies, but, in reality, there was one owner.  The acquisition of the towing companies by another entity was not reported, as required under city laws and regulations.Also, the indictment alleges that Mr. Steininger's sister, Karen, helped him with the conspiracy by doing all the necessary paperwork. The indictment calls the companies shell organizations.  In addition, the indictment alleges other forms of activities engaged in by the Steininger companies.  One tactic is that the tow truck drivers for the Steininger companies listened to scanners and would show up at accidents where one of the remaining companies not owned by Steininger had been called by officers and "create a ruckus" by disputing who was entitled to the tow.  The drivers were encouraged to engage in "cramming," or bumping the other tow truck in order to obtain the tow. Another tactic was the submission of bids for highway work by the various companies as if there were bids by competitors.  One final tactic alleged is that the tow trucks created additional damage to vehicles in order to increase the amount paid.  The tow truck companies are paid on the level of damage work required. For example, cleaning up after an accident involving a semi-truck can bring in $40,000-$50,000. The entire investigation began when city officials detected what they believed were fraudulent invoices for the towing services. You can read the indictment here, including additional charges related to tax fraud and money laundering, 

    Mr. Steininger's lawyer disputes the charges and explains the relationships and activity,“The fact that they know each other, the fact that they cooperated with each other, does not necessarily mean that they are criminally colluding with each other,”  The defense will focus on this aspect of cooperation among the companies, which allowed them to share in the business, but which does not constitute criminal activity.The indictment does not focus on the anticompetitive issues that may be involved because those charges would be under federal law.  The issue in such a case wold be whether the towing companies obtained their monopoly through legitimate competition or through the tactics of disguised mergers, cramming, or deception in bidding. 

    DISCUSSION STARTERS

    Explain how the towing companies were able to dominate the towing business.

    Discuss the concept of cooperation. 

  • The "Food Bar": Lawyers Who File Class-Action Suits Against Companies Who Claim "Natural" Products and Federal Regs Trying to Define the Term

    Pop-Tarts are made with "real fruit" and 7-Up is "All Natural."  Food companies are always hopeful to cash in on consumer desire to buy food products that are closer to nature.  During the 1990s, we went through a regulatory battle on what was "organic."  That label always allowed food companies to charge a higher price.  Julie Creswell, "Is It "Natural"? Consumers, and Lawyers, Want to Know," New York Times, February 17, 2018. However, the federal government stepped in and there are now Food and Drug Administration (FDA) guidelines on when companies can use the term "organic."  Now, with all the class-action suits lawyers are filing over "natural" claims, the FDA is gearing up to consider "natural" requirements.  The "natural" suits are the majority of the 170 class-action claims filed against food companies each year. There are 425 active fod claim class-action suits pending in the United States. 

    The suits involve all types of foods.  For example, one suit involves the presence of Ketamine in chickens.  Ketamine is an antiiotic that has raised questions about whether its use results in the development of resistance to antibiotics.  Poultry growers have explained that farmers do use penicillin in treating sick flocks of chickens, but that they are not administering Ketamine.  Nonetheless, the suit alleges that labeling chicken "Natural" is deceptive because of the use of antibiotics on the chickens. Others suits are against granola bar producers who use the term "natural" when tests find pesticides in the bars.  Deli meat producers are also defendants in suits over their "natural" claims about their meats when the same issues of antibiotics are found in the meats.

    The definition of "natural" has been varied.  The current FDA definition requires only that there be no added color, an artificial ingredient, and "minimal processing." Because of the confusion and wide latitude in the definition, the suits keep coming, Some companies have changed their labels.  For example, General Mills changed its label on its Nature Valley Granola Bars from "100% Natural" to "Made from 100% Natural Whole Grain and Oats." The judicial decisions have added to the confusion. One judge held that CapN Crunch was not misleading in its statements that there were "crunchberries" iin the cereal because a reasonable person would know that there is no such thing. On the other hand, another federal judge held that the consumers had made a case of deception with Krispy Kreme's "raspberry-filled donuts" because there were no raspberries in the filling - only raspberry flavor. 

    Currently, the FDA is reviewing whether it is necessary for the agency to have a new definition of "natural" in order to provide legal clarification on the term.  The process of change would require publication of a proposed definition followed by a comment period, and eventual promulgation of a rule.

    DISCUSSION STARTERS

    Explain the issues surrounding using the term "natural" in marketing products.

    Discuss the FDA's role in the litigation over claims on products that they are "natural."

  • The Defamation Suit Against the Russian Doctor Who Blew the Whistle on the Russian Athletes and Doping

    Dr. Grigory Rudchenkov blew the whistle on the Russian Olympic athletes and their doping practices.  His information resulted in the revelation that 43 of the Russians' winter teams were using banned substances. As a result, the Russians were barred from participating in this month's winter Olympics.  And Dr. Rodchenkov is living in an undisclosed location somewhere in the United States under federal protection. A Russian court has ordered his arrest for abuse of officials powers.  The Russians have tried very possible means to try and work around the saanctions, but have been stopped at every turn.  Dr. Rudchenkov's account of the doping practices has been corroborated by both the World Anti-Doping Agency as well as by the International Olympic Committee (IOC). The Russian athletes are competing as a neutral team and their uniforms carry no flag of any country. 

    However, the Russian owner of the NBA's Brooklyn Nets has financed a lawsuit in the United States against Rudchenkov that accuses him of defaming three Russian downhill skiiers by linking them with the doping scandal.  Olga Zaytzeva, Olga Vilukhina, and Yana Romanova allege that they were defamed because they have not used any prohibited drugs. 

    They say that they cannot explain why their samples were not clean, and one of the athletes says that she swears "on my parents" that she is telling the truth and did not use drugs. Tariq Panja, "Lawsuit Challenges Whistle-Blower," New York Times, February 21, 2018, p. B11.    Mikhail D.  Prokhorov, who led Russia's biathalon federation for the 2014 Sochi games said that he chose to finance the female athletes' desire to defend their honor. 

    Dr. Rudchenkov's lawyer believes that the suit has "zero chance" of surviving a motion to dismiss.  However, the lawyer for the three athletes maintains that none of the athletes that he represents have ever tested positive. If the athletes were not using drugs, then the public disclosure by Dr. Rudchenkov of their use of drugs would be defamation per se.  However, given the additional verification of Dr. Rudchenkov's findings, the suit is an uphill battle. The case will turn on the issue of whether the testing followed the protocols for security in terms of testing the individual athletes. However, the additional obstacle will be getting Dr. Rudchenkov to the court.  While he has appeared on TV interviews during the Olympics, the federal protection scope remains a question for whether a federal court can mandate his appearance in the case.  His appearance in the case could present personal danger because of the warrant from the Russians. 

    The international intrigue surrounding the Olympics is alive and well, and civil litigation in the United States has brought the drama into a federal dsitrict court in New York.

    DISCUSSION STARTERS

    Explain why the suit was filed.

    What damages could the athletes claim if they were defamed. 

  • The Prisoner With a Best Seller: The Attorney General of Michigan Wants the Royalties

    Curtis Dawkins is a convicted felon who is serving a life sentence for a murder that resulted from a robbery gone bad.  Dawkins had served 12 years of that sentence, spending most of his time writing.  One of his projects, a booked called, The Graybar Hotel, was picked up by Scribner, a publishing house. Scribner offered Dawkins $150,000 for the manuscript and offered to publish it.  Dawkins took the money and placed it in a trust account to be used to fund a college education for each of his three children.  The story of the gifted prisoner found its way into the media and caught the attention of the Michigan Attorney General.  The AG has filed to recoup from Dawkins the original $150,000 advance as well as any royalties paid since the book's publication in order to compensate the state of Michigan for the costs of his incarceration.  The total cost for 12 years is $372,000.   Alexandra Alter, " A Prisoner Wrote a Book. Now the State Wants Him to Write a Check," New York Times, February 19, 2018, p. A8.

    There are currently 40 states that require prisoners to pay for the costs of their incarceration. However, Michigan has only ever been able to collect from 300 total prisoners for a total of $3.7 million. There are statutes in most states that prohibit those convicted of a crime from making money by telling the stories of their crime in books, movies, and television shows.  To the extent those who are convicted do sell the stories of their crimes, the state confiscates the funds for victim compensation. The state of New York, for example, passed a statute requiring that earnings from sales of such stories be used first to compensate victims of the crimes. Statutes such as the one in New York create dilemmas between First Amendment rights and public policy issues concerning criminal activities. In Simon & Schuster, Inc. v Members of the New York State Crime Victims Board, 502 U.S. 105 (1991), the U.S. Supreme Court addressed the constitutionality of New York’s statute. Simon & Schuster had entered into a contract in 1981 with organized crime figure Henry Hill (who was arrested in 1980) and author Nicholas Pileggi for a book about Mr. Hill’s life, Wiseguy, a book full of colorful details and the day-to-day workings of organized crime, primarily in Mr. Hill’s first-person narrative. Throughout Wiseguy, Mr. Hill frankly admits to having participated in an astonishing variety of crimes.

    The book was also a commercial success: within 19 months of its publication, more than 1 million copies were in print. A few years later, the book was converted into a film called Goodfellas, which won a host of awards as the best film of 1990.

    When the Crime Victims Board requested that Simon & Schuster turn over all monies paid to Mr. Hill and that all future royalties be payable not to Mr. Hill but to the statutorily prescribed escrow account, Simon & Schuster brought suit maintaining that the so-called Son of Sam law violated the First Amendment. The U.S. Supreme Court agreed and held that the statute was overly broad, would have a chilling effect on authors and publications, and required a redrafting of the statute to tailor its scope more narrowly so it could still accomplish the public purpose.

    The hearing for the Dawkins matter is scheduled for February 27, 2018.  There is academic literature that indicates requiring prisoners to pay for their incarceration has a negative effect on successful reform of prisoners.The Michigan statute also provides that prisoners have a moral obligation to support their spouses and children.  Dawkins' use of the funds for his children's education was his way of complying with the statute.  However, Mr. Dawkins has no lawyer to represent him at the hearing.

    DISCUSSION STARTERS

    Explain the purposes of controlling prisoner income.

    Discuss whether prisoners should be able to earn income while in prison. 

  • Union Vote Negated because Polls Opened Seven Minutes Late

     

    The importance of punctuality!

    A union, the International Association of Machinists and Aerospace Workers, sought to represent workers at the Bronx Lobster Place, a lobster and seafood supplier, in Bronx NY. A campaign promoting the union occurred. Such efforts culminate in a vote by employees to determine their interest in union representation.   Majority vote determines the outcome. Voting is overseen by an employee of the National Labor Relations Board (NLRB), a federal agency with its headquarters in Washington DC and 26 offices across the United States. It enforces the right of private sector employees to determine if they wish to belong to a union, and enforces laws prohibiting unfair labor practices committed by private sector employers and unions.

    After the voting, any party can file objections to the process by which the union campaign was conducted or the vote occurred. The objecting party must provide proof in support of the objections within 7 days of the vote count. The Regional Director (an official in charge of a regional office) rules on the objection and the losing party can appeal to the NLRB in Washington, DC. If no objections are made, a union that receives a majority of the votes cast is certified as the winner and thus entitled to be recognized by the employer as the exclusive bargaining agent for contract negotiations on behalf of the employees in the unit.

    Members of the NLRB are nominated by the President to a five-year term and must be approved by the Senate. The board has five members and acts as a quasi-judicial body in deciding cases on appeal. Often a case is referred to a panel of three board members who decide the case rather than the full board. However all five will likely determine cases involving new issues or cases in which a precedent may change.

    The election result at the Bronx Lobster Place was a narrow win for the union by a vote of 14-12. The NLRB representative opened the polls seven minutes late. At least four eligible voters did not vote. Their votes could have impacted the outcome of the election. The employer filed objections based on the late start. The Regional Director mandated that a hearing be held. Two employees of the employer , including the employer’s designed election observer, testified at the hearing that they were present in the polling area during the 7-minute delay and no employees were waiting to vote during that time. Also, no evidence was presented that any employees complained that they attempted to vote during the seven minutes in question.  

    The hearing officer recommended to the Regional Director that the employer’s objection based on the timing of the opening of the polls be disregarded and the voting outcome remain in tact. The Regional Director of the NLRB adopted this recommendation. The employer then filed a request for review (an administrative process similar to an appeal). The matter was referred to a three-member panel. That panel, voting 2-1, reversed the Regional Director, vacated (voided) the election results, and ordered a new election. The Board determined the relevant rule was this: “When election polls are not opened at their scheduled times, the proper standard for determining whether a new election should be held is whether the number of employees possibly disenfranchised thereby is sufficient to affect the election outcome, not whether those voters, or any voters at all, were actually disenfranchised.” If the number could in fact affect the outcome, a new vote must be taken.

    DISCUSSION QUESTION:

    If you were the hearing officer, would you have vacated the election result or upheld it? Why?

     

  • The Battle Over Who Gets Tips

    The battle is a fierce one.  Who gets t keep tips?  Should tips go to the waiters and those who actually have customer contact?  Or should dishwashers and others working in the restaurant be beneficiaries?  In 2011 the Obama administration issued a regulation that blocked employers from collecting tips and distributing them to employees other than those who customarily receive them from diners. That rule was challenged in court in 2012 and has been in a holding pattern since then. However, the Department of Labor just closed public comments on a proposed regulation that would permit restaurant owners to collect tips and then distribute them as they see fit, including to dishwashers. Noam Schieber, Tip-Sharing Plan Faulted for Omitting Cost Analysis," New York Times, February 5, 2018, p. B1. As long as the employees receive the federal minimum wage of at least $7.25 per hour, the owner could distribute tips as they see fit. Under the existing and proposed rule, those who earn tips can be paid as little at $2.13 per hour. There are eight states, including California, that do not permit tips to compensate for paying a lower wage.  Employees in those states earn the minimum wage plus tips.  States are permitted to have higher standards than those of the federal government,  State laws just cannot dip below the minimum federal standards.

    The National Restaurant Association has favored the proposal for the flexibility that it gives to owners in in rewarding employees, an opportunity to reward the "back of the house staff" who do not interact with customers. Eric Morath, "Workers May Be Required to Share Tip Wages Under Proposed Rule, "Wall Street Journal, December 4, 2017. Wait staff makes about 1.5 times what other restaurant employees make and owners see the new rule as a chance to even out the pat among their staffs. However, groups such as the National Employment Law Project oppose the proposal because employers would be allowed to keep wages at a minimum that would allow recruitment and retention and then pocket the remainder of the tip income for themselves. The passion is strong -- the Department of Labor received 180,000 comments on the proposed rule by the time the comment period ended. There are 29 states with higher minimum wage standards than the federal government. 

    Here are some of the comments received:

    “I understand that rolling back the current regulation would allow front and back of restaurant employees to share in the tips, but I feel it is vitally important to fully protect those workers, and add a provision that prevents the restaurant from just pocketing all the tips together and not sharing any of them with the workers. That should not be permitted.”

    “I oppose the proposed rule (RIN: 1235-AA21). It would go against decades of federal and state law and precedent safeguarding tips as the property of the workers who receive them, by allowing employers to take control of their employees tips.” 

    “If adopted, this regulation would force a vulnerable workforce further into poverty, economic instability, and vulnerability to harassment and assault. I urge the Department of Labor to withdraw this proposed rule.”

    One of the issues that has arisen during the comment period is the absence of a cost-benefit analysis with the release of the proposed rules.  Some have argued that the cost to wait staff would be substantial.  The 2011 Obama regulation also did not include a cost-benefit analysis, but there have been some allegations that the Department of Labor did perform such an analysis but did not release it because it showed a substantial impact on the compensation fo wait staff. The department of Labor asked for input on how to compute the costs and benefits because of what it said was the absence of accurate data. The absence of the cost-benefit analysis could be a basis for challenging the eventual rule.  

    With the comment period complete, the Department of Labor can promulgate its proposed rule, modify the proposed rule based on the comments, or propose a different version of the rule, again seeking comments.  

    DISCUSSION STARTERS

    Explain the existing law on tip income.

    Discuss the props and cons of the proposed changes. 

  • The Louboutin Shoe: The EU Holds No Trademark for the Red Soles

    Christian Louboutin lost a long-running court battle to protect its unique red sole on its designer, pricey shoes.  The battle centered on whether the signature red soles on the Louboutin could be trademarked.  An EU court ruled on February 6, 2018 that they could not. Elizabeth Paton, "Louboutin Loses a Battle to Trademark Red Soles," New York Times. February 6, 2018, p. B7.  The issue of distinctive colors and styles that attract admirers has been a difficult one for the courts, but, in the case of designer shoes, distinction is everything to customers who shell out $1,000 and more for a single pair of shoes.  

    Louboutin had trademarked the red-sole feature in Belgium, Luxembourg, and the Netherlands as "the color red (Pantone 18 1663TP) as applied to the sole of a shoe." A company named Van Haren had been selling red-soled shoes as part of its Fifth Avenue Halle Berry line of shoes.  However, the EU court held that the red soles were not a separate entity or shape from the shape of the shoe itself, and concluded that there was no protection because shapes cannot be trademarked in the EU.

    The result for Louboutin in the United States was different.  Louboutin, brought suit against designer Yves Saint Laurent (YSL), alleging that YSL violated the Lanham Act by producing “high fashion” shoes with Louboutin's trademarked, signature lacquered red outsoles. Louboutin claimed trademark diluation. YSL counter–claimed in the suit for cancellation of designer's trademark registration. Although the companies tried to settle the suit, the result was an intellectual property battle over the exclusivity of the colored sole. The federal district court denied Louboutin's 2011 motion for preliminary injunction, and Louboutin appealed. Christian Louboutin v. YvesSaint Laurent America Holding, Inc. et al. 709 F.3d 140 (2nd Cir. 2013)

    The appellate court held that Louboutin’s red soles had acquired a secondary meaning. That is, the presence of the red lacquered outsole was significant to customers – the red sole was a signal that it was a Louboutin shoe. 

    Generally, color is protectable as a trademark only if has become a symbol that distinguishes a firm's goods and identifies their source, without serving any other significant function. However, it is possible for a color to be a trademark if the company seeking protection can establish that the color/trademark is distinctive. And a mark is distinctive if it serves to identify a particular source for the product. Even a mark that is not inherently distinctive may nonetheless “acquire” distinctiveness if it acquires a secondary meaning in the public eye. The best way to explain whether this occurs is to ask whether the public uses a product feature to identify the source of the product rather than the product itself. For example, the public, looking at the shoe picture above would not say, “That’s a women’s pump,” but would say, “That’s a Louboutin shoe.” 

    Once “distinctiveness” is established then the court must determine whether the use of that mark by a competitor is likely to cause confusion. The court found that another company using the different color soles on shoes would cause confusion. However, one of the significant issues in the case was the fact that YSL was developing a line of red shoes with red soles, yellow shoes with yellow soles, purple shoes with purple soles, and so on. Louboutin wished to stop the use of lacquered colored soles in this fashion. However, the court held that the distinctiveness came from the outsoles' color contrast with the different color of the shoes. As a result, the court granted an injunction for Louboutin that protects its distinctive red outsole, but was unwilling to stop the line of YSL shoes with soles colored to match the shoe color(its monochromatic line). 

    Not being able to stop copycat competitors could mean that the red-soled shoe becomes ubiquitous and the value of the brand is reduced. The interesting angle is that the red-soled shoes will be protected in the United States, but not in the EU. 

    DISCUSSION STARTERS

    Explain the EU court's reasoning.

    Discuss why the US courts had a different result. 

  • Race Car Driver Sentenced to 16 Years in Prison for Fraudulent Pay Day Loans; Audacious Practices Uncovered

                    

    Professional race car driver Scott Tucker not only drove fast on the race track, but played fast and loose in the payday loan business. His unsavory practices, which continued over a 15 year period, included fraud (intentional misrepresentation) and usury (lending money at higher than legal rates). After a five week trial Tucker was found guilty of 14 counts and has now been sentenced to 16 years and 8 months in prison. Additionally he is required to disgorge (return, give back) all the proceeds of his illicit businesses.

    His companies made loans known as payday loans, meaning he lent small amounts of money at high interest rates made with the expectation that borrowers would repay when they receive their next paycheck. Tucker’s several lending companies operated in all 50 states and made loans to more than five million people. The names of his companies included Ameriloan, Cash Advance, OneClickCash, Preferred Cash Loans, United Cash Loans, US FastCash, Advantage Cash Services, and Star Cash Processing.

    The usury consisted of charging between 700-1,000 % interest, notwithstanding that many states have a maximum interest rate significantly below those figures. For example, the highest legal interest rate for this type of loan in NY is 25%.

    Tucker was also convicted of violating the Truth-In-Lending Act (TILA), a federal law intended to ensure that credit terms are disclosed to borrowers in a clear and understandable way. The purpose is to protect borrowers from unfair credit practices, and enable them to compare credit terms easily. TILA requires lenders to disclose clearly, conspicuously, and truthfully, prior to extending any credit, the following information: the amount of interest the borrower will pay over the life of the loan, the annual percentage rate, and the total of all the money the borrower will pay to satisfy the loan. Tucker’s companies misrepresented this information. Borrowers were told that for a loan of $500, they would pay $150 in interest for a total of $650. In fact, borrowers paid much more.

    Repayment was structured so that on the borrower’s payday, Tucker companies automatically withdrew the entire interest on the loan and applied no money to principal. On the borrower’s next payday, Tucker companies again automatically withdrew the entire interest payment notwithstanding the interest had already been paid. This was repeated for at least five payments. Thereafter, Tucker would continue to withdraw the full interest plus an additional $50 each payday to apply to the outstanding principal balance. This continued, with the full interest amount being withdrawn each paycheck until the entire principal was repaid. As a result, a typical repayment on a $500 loan included $1,425 of interest. Thus, the information Tucker provided to borrowers about the interest on the loan greatly understated the amount the borrower would pay. The deception did not stop there.

    Tucker was nothing if not shrewd. He knew that Indian tribes are sovereign nations, and as such they enjoy sovereign immunity which means, among other things, they are free from prosecution by other governments including the US and the states. To avoid prosecution by state attorneys general (the chief law enforcement officer in a state), Tucker represented that his companies were Native American-owned. But the connection with Indian tribes was a sham. Tucker and his lawyer had prepared untrue factual declarations for tribal representatives to sign which falsely claimed that the tribe owned, controlled and managed portions of Tucker’s business targeted by those state prosecutors.

    Tucker opened company bank accounts that he represented were owned by tribal corporations but which in fact were owned and controlled by Tucker . He paid the tribes one percent of revenues. The tribes made no payment to him to purchase the portion of the business Tucker claimed they owned, nor did the tribes operate any part of Tucker’s businesses. As a result of these ruses, several state courts dismissed enforcement lawsuits against Tucker’s companies.

    Other charges of which he was convicted include racketeering (dishonest and fraudulent business dealings, usually involving intimidation), wire fraud, (fraud committed using electronic communication such as a phone or computer), and money laundering (concealing large amounts of money obtained illegally by creating the appearance that it came from a legitimate source).

    Predictably, the law caught up with Tucker. As he spends the next decade and a half, and more, in prison, the borrowing public will be free from his deceptions and swindles.

    DISCUSSION QUESTION:

    Why is the Truth-In-Lending Act an important statute?

    Why did Tucker’s attempt to benefit from sovereign immunity fail?

     

                                              

  • Intel and its Flawed Chips: Maybe SInce 1995?

    The story has come out in dribs and drabs.  Intel processors had security flaws, named Spectre and Meltdown.  You can read the technical details about the bug here. The effect of the flaws meant that the flaws could be gateways for obtaining data out of cloud-based systems.  Intel had planned to publicly disclose the flaws on January 9, 2018, a delay long after its knowledge of the problem because it had hoped to announce a fix with the disclosure.  However, in June 2017, Google's Project Zero had contacted Intel with its discovery of the flaw.  Slowly, more and more experts became aware of the flaw.  In December, Intel notified a small group of customers, including Chinese technology customers, but did not notify the U.S. government. The Department of Homeland Security and other parts of the government's intelligence functions were not notified of the problem. Robert McMillan and Lisa Lin, "Intel Told China of Flaw Before U.S.," Wall Street Journal, January 29, 2018, p. A1. Also left out of the loop were smaller customers. And the leaks kept coming. 

    The notification to the Chinese customers meant that the central government in Beijing was aware of the flaw and thereby received a sort of golden access key to cloud information, an invaluable tool for intelligence agencies. Some argue that the limited disclosures were wise because of the risk.  However, the end result was that many of Intel's customers were caught off-guard and scrambling to address their customers' concerns and demands. 

    Intel had released a fix in early January, but then discovered that the fix had bugs of its own. The legal fallout from such a flaw in a product made by a near-universal vendor is costly.  Intel is liable for fixing the defects.  However, the failure to disclose adds additional exposure because of the consequential damages that can result when defective products continue off the production line.  The devices with the chip will have to be recalled, replaced, or repaired and those costs will come back to Intel.  

    Intel behaved in a similar fashion in 1994 when a professor discovered an error in mathematical computations in computers with Intel chips.  The flaw was called the floating decimal point  problem.  A small number of users were affected, only those with complex mathematical computations. Initially, Intel resisted fixing the problem until it became a public relations nightmare for the company.  The need for the company to step up was so obvious that employees at the company developed a Top Ten list that consisted of requirements customers had to meet in order to obtain a repair and replacement of their computer chips.  Below is the Pentium Chip humor for that era:

    Q:  How many Pentium designers does it take to screw in a light     bulb?
    A:  1.99904274017, but that's close enough for non-technical     people.
    
    Q:  What do you get when you cross a Pentium PC with a  research     grant?
    A:  A mad scientist.
    
    Q:  What's another name for the "Intel Inside" sticker they put on Pentiums?
    A:  The warning label.
    
    Q:  What do you call a series of FDIV instructions on a Pentium?
    A:  Successive approximations.
    
    Q:  Complete the following word analogy:  Add is to Subtract as Multiply is to:
            1)  Divide
            2)  ROUND
            3)  RANDOM
            4)  On a Pentium, all of the above
    A:  Number 4.
    
    Q:  What algorithm did Intel use in the Pentium's floating point  divider?
    A:  "Life is like a box of chocolates." (Source: F. Gump of Intel)
    
    Q:  Why didn't Intel call the Pentium the 586?
    A:  Because they added 486 and 100 on the first Pentium and got 585.999983605.
    
    Q:  According to Intel, the Pentium conforms to the IEEE standards 
        754 and 854 for floating point arithmetic.  If you fly in 
        aircraft designed using a Pentium, what is the correct 
        pronunciation of "IEEE"?
    A:  Aaaaaaaiiiiiiiiieeeeeeeeeeeee!
    
    
    
    TOP TEN NEW INTEL SLOGANS FOR THE PENTIUM
    -----------------------------------------------------------------
    
      9.9999973251   It's a FLAW, Dammit, not a Bug
      8.9999163362   It's Close Enough, We Say So
      7.9999414610   Nearly 300 Correct Opcodes
      6.9999831538   You Don't Need to Know What's Inside
      5.9999835137   Redefining the PC -- and Mathematics As Well
      4.9999999021   We Fixed It, Really
      3.9998245917   Division Considered Harmful
      2.9991523619   Why Do You Think They Call It *Floating* Point?
      1.9999103517   We're Looking for a Few Good Flaws
      0.9999999998   The Errata Inside
    
    
    "United we stand , divided we flaw"
    
    Q: What is the similarity between a rabbit and a Pentium
    
    A: They both can multiply, but can't divide !
    
    
    
    
         THE TOP TEN REASONS TO BUY A PENTIUM MACHINE

         
    10. YOUR CURRENT COMPUTER IS TOO ACCURATE
         
    9.  YOU WANT TO GET INTO GUINNESS BOOK AS "OWNER OF MOST EXPENSIVE 
        PAPERWEIGHT"
         
    8.  MATH ERRORS ADD ZEST TO LIFE
         
    7.  YOU NEED AN ALIBI FOR THE I.R.S.
         
    6.  YOU WANT TO SEE WHAT ALL THE FUSS IS ABOUT
         
    5.  YOU'VE ALWAYS WONDERED WHAT IT WOULD BE LIKE TO BE A PLAINTIFF
          
    4.  THE "INTEL INSIDE" LOGO MATCHES YOUR DECOR PERFECTLY
          
    3.  YOU NO LONGER HAVE TO WORRY ABOUT CPU OVERHEATING
          
    2.  YOU GOT A GREAT DEAL FROM JPL
          
     And the #1 reason to buy a Pentium machine:
          
    1.  IT'LL PROBABLY WORK
    

  • Valet Gives $300,000 Ferrari to the Wrong Customer; Bailment and Negligence

            

    A Florida lawyer apparently had a yen for fancy cars. He invested more than $300,000 in a bright yellow 2014 Ferrari 458 Italia Spider described by the manufacturer as follows: “Powered by a 562-hp V-8 mated to a seven-speed dual-clutch transmission and riding on an F1-inspired suspension, the mid-engined 458 is as pure a sports car as anything on the road. It looks the part, too”.

    While attending an attorneys’ conference in St. Petersburg, Florida, at a Marriott resort, he gave the car keys to the valet working at the hotel. Next thing he knew, he received a call from the police informing him his vehicle had been stolen. Turns out the valet handed the keys to the wrong person. The interloper was one Levi Miles who was trying to impress a woman he had just met.

    Miles bullied the valet, repeatedly insisting he forgot the ticket in the car and would bring it to the valet momentarily. The worker caved and Miles walked away with the keys. The valet, hoping for a good tip, kept an eye on the car, but Miles and his new lady friend hung out in the vehicle for awhile. The valet lost interest in the couple figuring their delay indicated he was not likely to get a tip. Miles and the girl were thus able to drive the Ferrari off the lot and onto the highway without incident. Within miles, Miles was stopped by a police officer. The driver had failed to turn on the car’s taillights, plus, per the police, he was driving erratically. Following an investigation, the owner was awakened and confirmed Miles’ lack of permission to drive the vehicle. The owner also noted that Ferrari controls are quite different from most cars, and Miles likely did not know how to engage them.

    The police charged Miles with grand theft, which is a felony consisting of any intentional and unlawful taking of property valued at $300,000 or more. He responded that he just wanted to “borrow” the car for a few hours. However, the crime includes intent to “temporarily or permanently . . . appropriate the property of the victim to [the defendant’s] own use . . . “. Miles also argued that the circumstance did not constitute stealing because the valet gave him the keys. This defense also will not relieve Miles of liability. The crime includes “knowingly and unlawfully obtaining . . . the property of another.” Miles was also charged with habitually driving with a suspended or revoked license.

    Further, the police found cocaine in plain view (this legal term means easily visible from a place where police are legally; police can lawfully seize evidence in plain view without the need for a warrant) on the center console while Miles was driving. Thus, Miles is also charged with cocaine possession.

    Bail (a sum of money paid into court as collateral for the pre-trial release from jail of a defendant) was set at $107,000.

    The hotel had subcontracted the valet operation to a company called 717 Parking Enterprises. The valet worker who gave the keys to Miles was an employee of that company and not of Marriott.

    The car suffered about $10,000 in damages to the undercarriage. The lawyer filed a civil case for gross negligence against Marriot International, the hotel’s owners, and also against the valet service. In addition to gross negligence, the suit will likely allege a bailment violation.

    Bailment is a legal term for the situation where one person transfers possession but not ownership of personal property to another person, with the expectation that the latter will return the goods in essentially the same condition. Examples in addition to valet parking include leaving clothes at a dry cleaner, and leaving a musical instrument at a repair shop.

    The person who transfers possession is called a bailor. The party who receives possession is the bailee. In circumstances like a car valet where both parties benefit (the car owner receives care of the car; the valet company receives payment), the law imposes a duty on the bailee to take reasonable care to protect the bailor’s property.

    The question arises - who is liable for the valet’s error? An employer is liable for the negligent acts of its employees based on the legal rule of respondeat superior. Since the employee was hired by the parking company, that company is liable. The Marriott is not an employer of the valet employee and so respondeat superior will not bind the hotel company. As a general rule, a company is not liable for the negligent acts of its subcontractors.

    Might there be another basis for Marriott liability? Marriott has a duty to select its subcontractors with care to ensure they are trust-worthy, honest, and competent to provide the services contracted for. If Marriott did due diligence ( a detailed examination of a company done before becoming involved in a business relationship with it) in selecting the valet company, Marriott may escape liability.

    DISCUSSION QUESTION:

    1)    Why does the law impose liability on an employer for the negligent acts of its employees?

     

    2)    What procedures should the valet company adopt to avoid a re-occurrence of this situation?

  • Buying Fake Followers: The Market for Online Popularity

    “Social media is a virtual world that is filled with half bots, half real people. You can’t take any tweet at face value. And not everything is what it seems.” So cautioned Rami Essaid, a cyber security expert about the cyber world of popularity.  One cannot assume that all those followers are real.  Companies cannot assume that when Twitter is abuzz about their companies, whether in praise or protest, that the dynamics of popularity or disdain are real.  There is a marketplace in which one can buy Twitter followers.  For example, Devumi has 3.5 million automated Twitter accounts, which it sells over and over again so that real Twitter account holders can appear to be more popular than they really are. Nicholas Confessore, et al. "Buying Online Influence From a Shadowy Market,"  New York Times, January 28, 2018 p. A1. 

    Twitter estimates that about 15% of its accounts are automated.  Facebook recently adjusted its estimated fake users from 30 million to 60 million. These fake accounts are referred to as bots.  However, the automated may not be as damaging as another type of account found in the commercial sellers' data bases. Some of these accounts were acquired by "social identity theft."  The companies selling followers pick up real names and their account names online and then put them into their data base.  Real people often end up on sites that sell pornographic images.  In many cases, the easiest identities to steal are those of teenagers who spend a great deal of time online.  

    Pool together the bots and stolen social identities and anyone willing to pay for the inventory of online sellers can influence everything from product success to elections. Enough complaints from the automated crowd and a business can be ruined. That influence is being wielded as a result of the work of shadowy companies.  Devumi, for example, is located in a single office suites above a Mexican restaurant in West Palm Beach, Florida.  However, the address online is in New York City. The company began when its owner was in high school, with a set of credentials that had him earning a graduate degree in physics from Princeton at age 10 and a PhD from MIT.  Neither school has any record of his studies. Currently his online profile boasts of an undergraduate degree in international studies, but the school has no record of ever offering such a degree,

     The reporters sent Devumi a sample of 10 of its bots that were real people on social media whose identities were being used without their permission.  Initially, the company requested more time, but eventually stopped responding the reporters' e-mails and requests for interviews.  AT least 1,000,000 Twitter users dropped their accounts once they read of the fake followers problem.  Some of them were promoting over 200 companies without their knowledge. 

    Once the New York Times piece was published with the deceptive online information exposed, the New York Attorney general announced an investigation.  At least 55,000 of the followers being sold are people whose social media identity has been heisted and is now being sold across the web.   . New York has been at the forefront in prosecuting online crime. The focus of New York authorities is on the unauthorized use of identities. Computer crime statutes may not be specific enough to cover this type of theft.  Unauthorized access does not apply because the pictures and names are picked up from public areas.  One old-fashioned legal angle that may work is appropriation -- the use of someone's name, likeness, or image for commercial purposes without permission.  Also, Devumi itself could be prosecuted for fraud because the customers paid for followers who were not real.  Cyber crime statutes have not caught up with all of the actors and activity on the Internet. 

    Devumi is facing legal challenges on the civil side as well. Currently, Devumi is in a legal dispute with a former employee who now runs DevumiBoost.  The former employee has contacted thousands of Devumi customers to have them "reprocess" their orders for followers by going to DevumiBoost.  Because the employee was in customer service, the customers recognized his name and followed his instructions, thus transferring customers from Devumi to DevumiBoost.  

    The Internet has been called a "completely unregulated ecosystem." Devumi illustrates what can happen in the wild. 

    DISCUSSION STARTERS

    Explain possible legal avenues for addressing the Devumi issues.

    What regulations might help?