Author: JOLT Page 6 of 10

By Michaela Fuller

 

The company formerly known as Facebook announced last month that it has rebranded as “Meta”—a shorthand representative of the company’s venture into the still-developing virtual reality world called the Metaverse.[1] The company isn’t the first big brand to dip their toes into the VR game, but Facebook’s switch to Meta signifies to many that a big change in our digital society is approaching quicker than once thought, leaving other companies rushing to get an early in.[2]

Put simply, Metaverse is a term that describes “the concept of a future iteration of the internet, made up of shared, 3D virtual spaces linked into a perceived virtual universe.”[3] Described as the “ultimate culmination of virtual reality and augmented reality,”[4] the Metaverse is our society’s actual advancement toward science fiction worlds like those from Ready Player One, Tron, or even The Matrix.[5]

Meta pronounced its vision for the Metaverse as “a hybrid of today’s online social experiences, sometimes expanded into three dimensions or projected into the physical world.”[6] The company claims its mission is “to bring the metaverse to life and help people connect, find communities and grow businesses.”[7] Yet however simple the goal may be, the legal implications embedded in the journey to the Metaverse are as enumerable as they are complex.

To many, one of the most glaring issues presented by the creation of Meta as a company is a question of antitrust policy. First Facebook acquires Instagram, WhatsApp, and several other smaller companies, and now Facebook establishes itself as a subsidiary of the new company Meta. Such “company-shopping” has been warned against by the Federal Trade Commission, [8] yet the creation of the entirely new digital world that is the Metaverse will likely open the doors for other companies to follow in Meta’s footsteps in order to get a piece of the (what predicts to be a very profitable[9]) pie.

Of course, topics like data protection and user privacy are key issues to be discussed and regulated with the creation of any new technology, and the Metaverse is certainly no exception.[10] Such an unprecedented development is “practically begging to become a staging ground for data privacy attacks” that companies like Meta will have to be able to protect its users against before expecting a successful launch.[11]

The individualized structure of the Metaverse itself will eventually bring its own set of legal challenges, now likely excited by the creation of Meta. These issues include the “collaboration and interoperability among different metaverse creators,” and technology usage rights and agreements between companies in the Metaverse.[12] Of course, these issues will depend on how companies like Meta will choose to develop the virtual world and its accompanying real-world devices.

The shift to the Metaverse will also bring a slew of intellectual property challenges like “monitoring use of a brand’s trademarks, misappropriation of goods or services, price erosion, and counterfeit goods,” to name a few.[13] The question of authorship with respect to copyright ownership may be also challenged in the Metaverse with the possibility of AI and entirely virtual creators.[14] Issues of brand protection and ownership interests in an entirely virtual world are novel ideas under our current IP regime and are likely going to have to be subject to equally new regulation.

Though the journey to the Metaverse is coming to head quicker than one might have imagined, we still have a way to go (five to ten years, accordingly to Meta CEO Mark Zuckerberg[15]) before reaching a Ready Player One-style society. In the meantime, lawyers in the areas of antitrust, data protection, technology, and intellectual property—just to name a few—likely have a busy few years ahead.

 

[1]Introducing Meta: A Social Technology Company, Meta (Oct. 28, 2021), https://about.fb.com/news/2021/10/facebook-company-is-now-meta/.

[2] Michael J. Harris et al., The Move to the Metaverse and Beyond Series: Basic Trademark and Branding Considerations, JD Supra (Nov. 2, 2021), https://www.jdsupra.com/legalnews/the-move-to-the-metaverse-and-beyond-7306577/.

[3] Rahul Kapoor & Shokoh Yaghoubi, A Brief Overview Of The Metaverse And The Legal Challenges It Will Represent, Mondaq (Nov. 3, 2021), https://www.mondaq.com/unitedstates/fin-tech/1127424/a-brief-overview-of-the-metaverse-and-the-legal-challenges-it-will-present-.

[4] Id.

[5] Doug Antin, 10 Sci-Fi Stories That Inspire Pioneers of the Metaverse, Medium (June 19, 2020), https://medium.com/predict/10-sci-fi-stories-that-inspire-pioneers-of-the-metaverse-66fd811be218.

[6] Introducing Meta, supra note 1.

[7] Id.

[8] Hugo Guzman, Silicon Legal: Facebook’s Plunge Into ‘Metaverse’ Fuels Legal Questions, Legal Tech News (Nov. 2, 2021, 10:00 AM), https://www.law.com/legaltechnews/2021/11/02/silicon-legal-facebooks-plunge-into-metaverse-fuels-legal-questions/.

[9] See, e.g., Aaron Levitt, 10 Metaverse Stocks for the Future of Technology, Kiplinger (Nov. 8, 2021), https://www.kiplinger.com/investing/stocks/603552/7-metaverse-stocks-for-the-future-of-technology.

[10] Id.

[11] Id.

[12] Kapoor & Yaghoubi, supra note 3.

[13] Harris et al., supra note 2.

[14] Kapoor & Yaghoubi, supra note 3.

[15] See Veronica Combs, Meta CEO Zuckerberg Predicts the Metaverse Will Be Mainstream in 5-10 Years, TechRepublic (Oct. 28, 2021, 2:00 PM), https://www.techrepublic.com/article/meta-ceo-zuckerberg-predicts-the-metaverse-will-be-mainstream-in-5-10-years/.

Image Source: https://subspace.com/resources/nft-key-metaverse

By Ben L. Culpepper

 

As our society becomes more intimate with our cell phones, the law is beginning to extend certain privacies to the cell phone that are analogous to the home.[1] Riley v. California explores this idea in detail where the Supreme Court held that our phones are almost an extension of our modern human anatomy.[2] Big tech companies, such as YouTube, Facebook, and Google who accumulate personal and private information from their users’ cell phones are feeling a tension with new privacy norms and emerging laws surrounding information stored on our phones.[3]

California has enacted a sweeping privacy law, California’s Consumer Privacy Act, which allows for users to opt out of and completely delete the personal data big tech companies store and sell to third parties.[4] Furthermore, along the same vein of supporting user privacy, California has included a private cause of action for users against tech companies who breach users’ rights.[5] Big tech, which lobbied aggressively against the legislation, is trying to make it more difficult for users to so easily delete the accumulated personal data.[6] For example: although people may have access to a portal where they can delete the accumulated data, tech companies are making it difficult to find the portal by burying it underneath mountains of information.[7]

In an effort to prevent the spread of California’s user-friendly privacy laws, big tech has responded by lobbying in other states for far more relaxed privacy laws.[8] Many states’ efforts to enact their own user-friendly privacy laws have been defeated by big tech lobbying.[9] States consider two types of privacy laws generally: an opt-in approach and an opt-out approach.[10] The opt-in approach is user friendly as it would create a default setting where big tech cannot sell users’ information, unless users opt in and allow big tech to sell such private information.[11] The opt-out approach is the converse of this. The default setting is that big tech has the right to collect and sell users’ information, unless the user opts out.[12] A private right of action in the courts may follow a breach by big tech in either model, but it does not necessarily follow.

At least two states, Connecticut and Oklahoma, have attempted to enact legislation following the opt-in approach which also provides a private cause of action.[13] These user-friendly bills are examples of legislation that faced immense pushback from big tech lobbying and ultimately failed.[14] Instead of adopting a user-friendly bill, Connecticut’s second attempt at a privacy bill followed the Virginia model, which is the friendliest to big tech.[15] Big tech is sending lobbyists to the states and pushing for the Virginia model in place of these user-friendly attempts at protecting user privacy.[16]

The Virginia model, a business-first idea, follows a complicated opt-out approach and does not provide a private cause of action if big tech breaches privacy agreements.[17] Furthermore, Virginians can only access their collected information via a portal, and then they can decide to alter or delete any accumulated information.[18] The bill was hailed a success by big tech spokespersons from Microsoft and Amazon.[19] Virginia’s bill stands in direct contrast to California’s bill.

Faced with this dichotomy, states across the U.S. are continuously facing their own challenges in enacting privacy bills. A user-friendly approach, an opt-in model, is sure to face criticism and backlash from big tech lobbyists. Perhaps the federal government will pass its own sweeping legislature; whatever the outcome may be, in the meantime, big tech is sure to have its footprint on any final product coming from the legislatures.

 

[1] See Riley v. California, 573 U.S. 373, 386-387 (2014) (discussing how a warrantless search of an arrestee’s home is unlawful in the same way a warrantless search of an arrestee’s phone is unlawful).

[2] Id. at 385 (“modern cell phones, which are now such a pervasive and insistent part of daily life that the proverbial visitor from Mars might conclude they were an important feature of human anatomy.”).

[3] Sara Fischer, Big Tech at War Over Privacy, Axios (Jan. 28, 2021), https://www.axios.com/big-tech-at-war-over-privacy-cb9bc9a4-ca65-420c-b0ad-d307f341e7ad.html.

[4] Todd Feathers, Big Tech is Pushing States to Pass Privacy Laws, and Yes, You Should be Suspicious, The Markup (Apr. 15, 2021), https://themarkup.org/privacy/2021/04/15/big-tech-is-pushing-states-to-pass-privacy-laws-and-yes-you-should-be-suspicious.

[5] Id.

[6] Zack Whittaker, Here’s Where California Residents Can Stop Companies Selling Their Data, TechCrunch (Jan. 2, 2020), https://techcrunch.com/2020/01/02/california-privacy-opt-out-data/.

[7] Id.

[8] Feathers, supra note 4.

[9] See, e.g., Feathers, supra note 4 (“During the [Connecticut] bill’s public hearing last February, Duff said he looked out on a room ‘literally filled with every single lobbyist I’ve ever known in Hartford, hired by companies to defeat the bill.’ The legislation failed.”).

[10] Feathers, supra note 4.

[11] Id.

[12] Id.

[13] Id.

[14] Id.

[15] Id.

[16] Id.

[17] Graham Moomaw, Virginia’s New Big Tech-Backed Data Privacy Law is the Nation’s Second. Critics Say it Doesn’t Go Far Enough, Va. Mercury (Mar. 30, 2021), https://www.virginiamercury.com/2021/03/30/virginias-new-big-tech-backed-data-privacy-law-is-the-nations-second-critics-say-it-doesnt-go-far-enough/.

[18] Id.

[19] Id. (reporting the approval comments from Microsoft and Amazon, both who lobbied intensely for this bill).

Image Source: https://www.nicepng.com/ourpic/u2q8t4w7a9w7y3t4_15-iphone-cartoon-png-for-free-on-mbtskoudsalg

By Walker Upchurch

 

Recently the issue of disinformation has plagued the United States as questions relating to voting technology have been unfairly raised. This has led to a suit from the voting machine company Smartmatic against both Newsmax and the One America News Network on the grounds that Smartmatic had been defamed.[1] Likewise, Smartmatic has also sued Fox News to the tune of $2.7 billion due to the promotion of a false narrative in the 2020 election regarding their products.[2] Within the lawsuit against Fox News, three news anchors, Rudy Giuliani, and Sidney Powell have also been sued.[3] The complaint asserts that Giuliani and Powell both created a story about Smartmatic and that Fox News joined the conspiracy to defame and disparage Smartmatic, it’s election technology, and software.[4] The Smartmatic machines were made the media center of disinformation that stated rigged voting machines were the root cause of President Trump losing the election. [5]While there was never any actual proof of voting fraud the news companies continued to carry out their attack on the voting machine company.

According to Politico, Within the other Lawsuit One America News network has been accused of libel and slander of Smartmatic in connection with the coverage of the presidential election results.[6] The case has been filed in the U.S. District Court in Washington, and states that OANN repeatedly aired false claims, including that votes cast for trump were dishonorably switched to Biden, in the months following the actual election.[7] When asked the attorneys for Smartmatic wrote in their complaint” it could have reported the truth. Instead, OANN chose to do the wrong thing every time. It reported a lie.”[8]

Similarly, Dominion has also filed lawsuits against some of the same groups, including OANN, and both voting technology companies are seeking billions of dollars in damages to their business because of liable.[9] This past August, a federal judge has declined to throw out the defamation lawsuits.[10]

It will be fascinating to see how this lawsuit materially affects politics and news as we know it. Indeed, within the news, puffery is allowed. However, if these news companies are held to task for spreading disinformation, it could perhaps leave a long-lasting positive impact. While long protected by the 1st amendment regarding the freedom of the press, it could be beneficial for all media if precedent doesn’t allow for strategic disinformation. As seen by the awful incidents on January 6th, 2021, The United States profoundly cares about its politics and spreading disinformation in an attempt not to concede power can lead to catastrophe. The good news is that the United States can hope to remedy some of the damage done to its reputation with stronger laws and precedent that do not allow powerful news corporations to be untruthful. In comparison, puffery should indeed be permitted; however, direct attacks on the companies that help with the elections by spreading disinformation that materially impacts individuals’ views regarding the trustworthiness of elections should not be permitted.

As famed President Ronald Reagan stated on the importance of order in the transition of power: “The orderly transfer of authority as called for in the Constitution routinely takes place, as it has for almost two centuries, and few of us stop to think how unique we are. In the eyes of many in this world, this every-four-year ceremony we accept as normal is nothing less than a miracle.”[11] To continue our miraculous tradition of an orderly transition of power, we must not let this go unpunished, and set a strict legal precedent against disinformation.

 

[1] Jonah E. Browich & Michael M. Grynbaum, Smartmatic Sues Newsmax and One America News Network, Claiming Defamation, N.Y. Times, (Nov. 3, 2021), https://www.nytimes.com/2021/11/03/business/media/smartmatic-newsmax-oan.html.

[2] Ben Smith, Fox News Is Sued by Election Technology Company for Over $2.7 Billion, N.Y. Times, (Feb. 4, 2021), https://www.nytimes.com/2021/02/04/business/media/smartmatic-fox-news-lawsuit.html.

[3] Id.

[4] Id.

[5] Id.

[6] Nick Niedzwiadek, Smartmatic sues One America News over 2020 election claims, Politico, (Nov. 3, 2021), https://www.politico.com/news/2021/11/03/smartmatic-sue-one-america-news-election-519077.

[7] Id.

[8] Id.

[9] Id.

[10] Id.

[11] Ronald Reagan, First Inaugural Address of Ronald Reagan, (Jan 20, 1981), https://avalon.law.yale.edu/20th_century/reagan1.asp.

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By Nick Corn IV

 

As technology has advanced, law enforcement has adapted the use of new tools to attempt to reduce response times and keep emergencies from slipping through the cracks. ShotSpotter produces one such tool. ShotSpotter bills itself as a “precision policing platform [which] helps local, state and federal law enforcement respond to, investigate and deter crime.”[1] ShotSpotter uses a network of microphones strategically placed across the patrolled area to listen for loud bangs. [2] Once a bang is detected, a computer algorithm makes a determination on whether that bang was a gunshot or not.[3] A human analyst then reviews that algorithm’s determination and decides if it is appropriate to dispatch police.[4]

ShotSpotter claims that its system has resulted in an increase in reporting gunshots from an estimated 12% of the time before the use of their technology to 90% of the time after.[5] However, ShotSpotter can prove to be quite expensive, costing between $65,000-$95,000 per square mile every year.[6] In an effort to get the most out of their money, police departments have taken to strategically placing the microphones in densely populated inner-city areas, which often happen to be communities of color.[7] So, what happens when the new tools used to detect gunshots can prove to be unreliable?

ShotSpotter claims that their technology has a 97% aggregate accuracy rate with a false positive rate of less than half of one percent.[8] However, ShotSpotter has never been peer-reviewed by academics or experts.[9] That said, a report done by the Office of the Inspector General for the City of Chicago found that between January 1, 2020, and May 31, 2021, that of the 41,830 dispositions of police to a scene as a result of ShotSpotter indicating a gunshot, only 4,556 resulted in evidence of a gun-related offense being found.[10] Even presuming that some evidence of gun crimes may be removed or concealed prior to law enforcement arriving on the scene, this number still suggests that the accuracy rate purported by ShotSpotter may be far too optimistic in their own capabilities. Similar studies done by cities on false alerts, such as Charlotte, North Carolina, and San Antonio, Texas, have led them to end their contracts with ShotSpotter.[11] However, this technology is still being used in 117 cities in 34 states and U.S. territories.[12]

ShotSpotter data can present difficult evidentiary situations as well. While the algorithmic data can be used to corroborate evidence found at a crime scene to boost accuracy, some courts filed charges against Defendants in the absence of any physical evidence, such as a gun, based on ShotSpotter data. [13] One such instance is Michael Williams, a 65-year-old Chicago man who was charged with the first-degree murder.[14] Williams was accused of shooting and killing a 25-year-old man who Williams says he picked up on the way back from making a cigarette run.[15] Williams claims that a car pulled up beside him at an intersection and shot into his car, killing his passenger, while prosecutors claimed Williams shot his passenger from inside the car.[16] Williams was charged despite nothing in the police report citing any motive, a total lack of eye-witnesses, and no gun found at the scene.[17] Williams was charged mostly due to the data collected by ShotSpotter, despite the fact that it originally identified the sound as a firecracker, with 98% confidence, at a location about a mile away from where Williams and his passenger were at the time before the data was re-labeled by ShotSpotter employees.[18] The charges against Williams were eventually dropped at the request of prosecutors when they determined “the totality of the evidence was insufficient to meet [their] burden of proof.”[19]

Williams surely isn’t the only person who has faced this exact scenario. Tania Brief is an attorney at The Innocence Project, a legal non-profit who seeks exonerate innocent people who are incarcerated for crimes they did not commit.[20] Brief stated that “[t]he concern about ShotSpotter being used as direct evidence is that there are simply no studies out there to establish the validity or the reliability of the technology. Nothing.”[21] Understandably, organizations like The Innocence Project would be wary of technology that they believe could contribute to more innocent people being incarcerated due to unreliable direct evidence. ShotSpotter surely has advantages, such as a decreased dispatch time of less than 60 seconds as compared to an average of 4.5 minutes and a decrease in the transport time of gunshot victims to hospital from 10.3 minutes to 6.8 minutes.[22] However, at this point in time, this new tool of law enforcement may prove to be unprepared for reliability in the courtroom.

 

[1] See Gunshot Detection, ShotSpotter (Nov. 5, 2021), https://www.shotspotter.com/law-enforcement/gunshot-detection/.

[2] See James Clayton, Inside the Controversial US Gunshot-Detection Firm, BBC (Oct. 29, 2021), https://www.bbc.com/news/technology-59072745.

[3] See id.

[4] See id.

[5] See Gunshot Detection, supra note 1.

[6] See ShotSpotter, ShotSpotter Fact Sheet 1 (2016), https://www.shotspotter.com/system/content-uploads/ShotSpotter_Fact_Sheet_-_final_draft_12.13.pdf.

[7] See Clayton, supra note 2.

[8] See ShotSpotter, ShotSpotter Respond Q&A 2 (2020), https://www.shotspotter.com/wp-content/uploads/2020/12/ShotSpotter-Respond-FAQ-Dec-2020.pdf.

[9] See Burke et al., How AI-Powered Tech Landed Man in Jail with Scant Evidence, AP News (Aug. 20, 2021), https://apnews.com/article/artificial-intelligence-algorithm-technology-police-crime-7e3345485aa668c97606d4b54f9b6220.

[10] See Furgeson & Witzburg, The Chicago Police Department’s Use of ShotSpotter Technology 14 (2021), https://igchicago.org/wp-content/uploads/2021/08/Chicago-Police-Departments-Use-of-ShotSpotter-Technology.pdf.

[11] See Burke et al., supra note 9.

[12] See Cities, ShotSpotter (Nov. 5, 2021), https://www.shotspotter.com/cities/.

[13] See Burke et al., supra note 9.

[14] See id.

[15] See id.

[16] See id.

[17] See id.

[18] See id.

[19] See id.

[20] See About, The Innocence Project (Nov. 5, 2021), https://innocenceproject.org/about/.

[21] See Burke et al., supra note 9.

[22] See Gunshot Detection, supra note 1.

Image Source: https://www.voiceofsandiego.org/topics/public-safety/shotspotter-sensors-send-sdpd-officers-to-false-alarms-more-often-than-advertised

By Adarsh Vijayakumaran[1]

 

Non-Fungible Tokens (“NFTs”) represents assets that are either digital or real property which are encoded in a blockchain.[2] Unlike Fungible Tokens such as Bitcoin, Ethereum, etc. that can be replaced for one another, each NFTs represents a unique non-interchangeable unit of data whose value depends on the end buyer. The idea behind NFTs is that, while anyone can read the article or view the tweet, NFTs would give the owner a representation of “ownership” through that particular NFT.[3]

With increased popularity and evolved use cases for NFTs developing every day, the question of applicability of securities laws to NFTs becomes important. While the general notion is that since buying of most of the NFTs does not qualify as an investment contract under the Howey’s Test,[4] the securities laws do not apply to them.[5] The present article attempts to analyze the latest developments happening in the NFT-verse to re-evaluate if the above notion still holds true.

You selling me memes?

The reason why the applicability of securities laws to NFTs is mostly overseen is because the NFTs that are typically available in the marketplace today are art-based. For example, almost all the NFT platforms known to users sell digital collectibles like minted Jpgs, trading cards, crypto—kitties, monkeys and bears. This being the case, why would anyone even close to assume applicability of securities laws to random pictures of monkeys and kitties that are floating in some NFT website?

The applicability of securities laws to NFTs is not something that has not been pondered before. The common misconception regarding NFTs is that since NFTs derives its value from the underlying instrument (that could be off-chain or on-chain), they can be regarded as a derivative under the securities law.[6] But the problem with this concept is that derivatives by nature are contract for differences.[7] While certain marketplaces like NFT20 allows speculative trading for NFTs,[8] this may not be true for the vast majority of NFTs available. Furthermore, unlike exchange-traded derivatives like futures and options where securities law applies, the NFT derivative contracts are neither standardized nor liquid. This means, even with sufficient contractual freedom an NFT derivative could mean nothing more than a “forward type contract” representing a unique token that are traded over the counter and are not regulated under the securities law.[9] So, when does securities law come into play?

Split It!

The NFTs in the normal scenarios does not come under the securities law framework. But between May 2014, when the first one-off NFT avant la lettre was minted and March 2021,[10] when the Everydays: The First 5000 Days, created by @Beeple was sold for a whopping $69.3 million—[11] a lot of things about NFTs have changed.

The large-scale acceptance of NFTs today have attracted more users to enter into the NFT market places to mint as well as buy and sell NFTs. But the problem is that with the massive flooding of NFT marketplaces with millions of NFTs, not all tokens are well received. Even if a person burns away, let’s say 120 gwei in gas fees in minting an NFT,[12] it is very rare that his NFT is going to have buyers after listing it in the marketplace unless the person has some fame in either the real or virtual world.[13] Because of this, most buyers prefer NFTs that have already got some reputation in the metaverse. However, all the NFTs that have already got some repute in the virtual space are exorbitantly high in price thus discouraging new market participants.

It is in this above background that the concept of fractionalization of NFTs and the introduction of DAO vehicles to buy and sell, and fund NFTs came in.

Fractionalization of NFTs

The fractionalization of NFTs refers to splitting up of ownership in an NFT so that many people can part-own a single NFT.[14] While different blockchain players provide various ways to split ownership in an otherwise unique token, the crux of the process is locking the particular NFT into a vault and issuing fungible tokens on its behalf.[15] Each of these fungible tokens will represent a fractional ownership and has a uniform democratized value just like a price feed for each BTC or any other fungible token.[16]  These fungible tokens can be later listed in a crypto-exchange and traded like listed crypto-currencies or just sold via private placements.[17] The sum total value of these tokens will determine the average price of the original NFT.

But the problem with the fractionalization of NFTs is that it is not always necessary that the fractional NFTs (“F-NFTs”) are diluted at a truly democratic level. With the earlier full owners acting as “promoters” (or managing the vault) for the original NFT or advertising the fraction as a speculative investment, accompanied by the suggestion that the original NFT or the F-NFT will increase in value (view to profit) as a result of the actions of the issuer or the promoter, the F-NFTs might as we be treated as units of a collective investment scheme as defined under section 11AA of the SEBI Act or as an “investment contract” under the Howey’s test.[18]

Nevertheless, the using of ERC20 standards to dictate a number of rules and actions that a token or a smart contract must follow and steps to be able to implement it, for e.g. set parameters for opening the vault; and having reserve prices for deciding buy-outs; and availability of different product builders for fractionalization that uses a variety of methods to split ownership for e.g. “smart contracts that split the original NFT itself”[19] could all significantly mitigate the potential exposure of F-NFTs to securities regulations.

NFT DAOs

Just like how F-NFTs make it possible to distribute ownership, the Decentralised Autonomous Organisations (“DAOs”) in NFTs also came in with a view to democratize buying and selling heavy priced NFTs. However, unlike F-NFTs that are made by fractionalizing a vaulted NFT that was brought by the token issuer, the DAOs in NFTs work a bit differently. In DAOs, the funds are pooled in first and tokens are issued based on the fund contribution, and using the proceeds of the pooling, NFTs are bought and sold.[20]

What makes DAOs better than F-NFTs is that DAOs are what really makes democracy in the metaverse truly possible. In structure, a DAO is like a public limited company but instead of having Articles of Association, a DAO has a self-executing code to govern it.[21] And like the word decentralized indicates, decisions in DAOs are not made by a board of directors but voted by the token holders directly.[22]

However, even though DAOs gives the token holders a better say in the affairs of the organization, DAOs are something that came under the securities law framework as early as in the year 2017 itself with the Securities Exchange Commission (SEC) of United States (US) releasing an investigative report on the offering of tokens by a group known as “the DAO” and concluding that securities law requirements will apply “regardless of whether the issuing entity is a traditional company or a decentralized autonomous organization, regardless whether those securities are purchased using U.S. dollars or virtual currencies, and regardless whether they are distributed in certificated form or through distributed ledger technology.”[23]

Moreover, very recently, the US state of Wyoming passed a law that recognizes DAO as a limited liability company.[24] This means, the law in Wyoming has now clearly recognized a DAO as a legal person, and token holders are protected under the corporate veil as long as the situation doesn’t demand lifting that veil.

The Indian Picture

In terms of global cryptocurrency ownership, India stands at 5th spot with 7.30% of the total population of showing an exponential increase in interest in cryptocurrencies ever since the Reserve Bank of India lifted its ban in March 2020 with Indian exchanges clocking impressive user additions and a sustained surge in daily trading volumes.[25] But unlike the crypto craze that has been happening since last year back, the NFT bandwagon came to India only in 2021 with leading Indian celebrities from the world of Bollywood and cricket launching digital memorabilia through NFTs.[26] While it is true that India still has a long way to go in terms of blockchain-based asset adoption, the massive surge in interest in NFTs since this year and the launching of more and more NFT marketplaces in India hints that NFTs are going to be in India for a very long time.

However, unlike the US, the Indian securities market is yet to see NFT based securities disputes to score regulations. While the concept of fractionalization and DAO-lization has caught Indian media’s attention, India has so far not witnessed actual use cases of these democratizing mediums. It is also very unclear as to how Indian regulators will deal with matters connecting F-NFTs and DAO. For one thing, all the unregulated deposit schemes are required by law under the Unregulated Deposit Schemes Act, 2019 to be banned.[27] Secondly, Indian law does not recognize the unregistered association of persons as a separate “legal entity”.[28] This means, liability in case of any violations knowingly or unknowingly committed under the garb of F-NFTs and DAOs could shift to individual token holders. Moreover, the concept of “Law of Code”[29] is still foreign to India.

Conclusion

The coming of F-NFTs and DAOs in NFT-verse has enabled all the market participants who were otherwise discouraged from buying and selling NFTs to now part-own some of the heavy-priced NFTs. While the legal treatment of each of these new mediums of asset democratization has left regulators perplexed, there is no single formula to decide how to go about any of these instruments. The law should decide matters based on the facts and circumstances of each case. On appearance, it may appear that Indian securities law is not matured to deal with these novel instruments, but with the presence of sandbox schemes that provide certain regulatory exemptions in a controlled environment for most of the new products and businesses, and having perceptive lawmakers who are ambitious to prepare India for the 4th industrial revolution indicates that there is always a space in India for innovation. Moreover, the Securities Exchange Board of India’s recent circular barring registered investment advisors from advising on unregulated financial instruments indicates that the regulators are conscious of the latest developments happening and want the investors to be cautious before they pour their hard-earned money anywhere.[30] Nevertheless, despite whatsoever happens in the short term it’ll be interesting to see how different stakeholders, regulators, lawmakers, and different market participants will come together in taking these crypto-revolutions to the next level.

 

[1] The author is a B.A.LLB (Hons.) Student at the National University of Advanced Legal Studies, India.

[2] See Robyn Conti & John Schmidt, What You Need To Know About Non-Fungible Tokens (NFTs), Forbes (May 14, 2021), https://www.forbes.com/advisor/investing/nft-non-fungible-token.

[3] The empirical constraint of owning an NFT is different from the traditional ownership of assets. This is because owning an NFT by itself doesn’t grant the right to print or distribute the work. The rights that a person will behest as part of owning an NFT would depend on a combination of on-chain contracts and off-chain contracts relating to the particular token. For more information. See Adarsh Vijayakumaran, NFTs & Copyright Quandary, Journal of Intellectual Property, Information Technology, and E-Commerce Law (pending publication).

[4] See generally S.E.C. v. Howey Co., 328 U.S. 293 (1946).

[5] See Media, Entertainment and Technology Litigation Update – Non-Fungible Tokens (NFTs), Gibson Dunn (Apr. 19, 2021), https://www.gibsondunn.com/media-entertainment-and-technology-litigation-update-april-2021.

[6] See, e.g., Abhinav Kaul & Neil Borate, Non-fungible tokens are now in India, but mind the legal pitfalls, Live Mint (Apr. 8, 2021), https://www.livemint.com/money/personal-finance/nonfungible-tokens-are-now-in-india-but-mind-the-legal-pitfalls-11617557315927.html.

[7] Financial Derivatives, SBSC, https://www.sbsc.in/pdf/resources/1587985025_FINANCIAL_DERIVATIVES.pdf (last visited Oct. 20, 2021).

[8] See NFT Liquidity Protocol, NFT20, https://nft20.io (last visited Oct. 25, 2021).

[9] Forward contract vs Futures contract: What’s the difference?, Times of India (Jan. 25, 2019), http://timesofindia.indiatimes.com/articleshow/60461912.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst.

[10] Bo Franklin, Did an avant-garde French artist sell the first NFT?, Economist (Apr. 29, 2021), https://www.economist.com/1843/2021/04/29/did-an-avant-garde-french-artist-sell-the-first-nft.

[11] A digital artist just sold a jpg file for $69 million, Live Mint (Mar. 12, 2021), https://www.livemint.com/news/world/this-digital-collage-of-5-000-individual-images-fetches-rs-500-crore-11615516650126.html.

[12] See Samantha Ayson, What is Gas?, Help Foundation, https://help.foundation.app/en/articles/4743017-what-is-gas (last accessed Oct. 2, 2021) (“‘Gas’ refers to the fee required to successfully conduct a transaction on Ethereum. This fee goes directly to Ethereum miners who provide the computer power that’s necessary to verify transactions and keep the network running; Foundation does not receive a percentage.”).

[13] See What are NFTs and why are some worth millions?, BBC News (Sept. 23, 2021), https://www.bbc.com/news/technology-56371912.

[14] See Mehab Qureshi, Fractionalised NFTs: Know Your NFTs? You Can Own One Too! At Least a Part of It, The Quint (Sept. 21, 2021), https://www.thequint.com/explainers/what-are-fractionalized-nfts-how-do-they-work-who-can-benefit#:~:text=Chandra%20explained%20that%20the%20process,type%20are%20called%20fungible%20tokens.

[15] See id.

[16] See id.

[17] See Prabhjote Gill, Fractionalisation of NFTs — the newest crypto craze explained, Business Insider (Sept. 9, 2021), https://www.businessinsider.in/investment/news/fractionalised-non-fungible-tokens-are-the-newest-craze-of-the-crypto-art-world/articleshow/86062930.cms.

[18] F-NFTs in normal scenarios ticks all the requirements to be classified as a collective investment scheme under §11AA of Securities and Exchange Board of India Act, 1992. See §11AA, Securities and Exchange Board of India Act, 1992, https://www.sebi.gov.in/legal/acts/jan-1992/securities-and-exchange-board-of-india-act-1992-as-amended-by-the-finance-act-2021-13-of-2021-w-e-f-april-1-2021-_3.html (last accessed Oct. 2, 2021); see also Framework for “Investment Contract” Analysis of Digital Assets, SEC, https://www.sec.gov/corpfin/framework-investment-contract-analysis-digital-assets (last accessed Oct. 3, 2021).

[19] See, e.g., Edward Wilson, What are fractionalized NFTs?, Argent (Sept. 3, 2021), https://www.argent.xyz/learn/fractionalized-nfts/#:~:text=Fractionalized%20NFTs%20are%20NFTs%20split,locked%20into%20a%20smart%20contract.

[20] The reverse could also be possible, where tokens are made for a previously bought NFT similar to the fractionalization process. However, with increased use cases for a DAO in comparison to the limited purpose of the normal fractionalization process, the established practice proceeds with pooling of funds first as it allows the DAO to be used for broad purposes not limiting to just fractionalization. See Kam (Exhuman), The Emergence of NFT DAOs – Overview, Niftex (June 9, 2021), https://blog.niftex.com/nft-dao.

[21] Samer Hassan & Primavera De Filippi, Decentralized Autonomous Organization, Policy Review (Apr. 20, 2021), https://policyreview.info/glossary/DAO.

[22] See id.

[23] Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The DAO (Release No. 81207), SEC (July 25, 2017), https://www.sec.gov/litigation/investreport/34-81207.pdf.

[24] SF0038 – Decentralized autonomous organizations, https://www.wyoleg.gov/Legislation/2021/SF0038 (last accessed Oct. 2, 2021).

[25] See India has highest number of crypto owners in the world, Live Mint (Oct. 13, 2021), https://www.livemint.com/market/cryptocurrency/india-has-highest-number-of-crypto-owners-in-the-world-at-10-07-crore-report-11634110396397.html.

[26] See Prasid Banerjee, NFTs, the new craze in cricket and Bollywood, Live Mint (Sept. 23, 2021), https://www.livemint.com/technology/tech-news/film-stars-cricketers-join-nft-bandwagon-11632333214229.html.

[27] The Banning of Unregulated Deposit Schemes Act, 2019, https://egazette.nic.in/WriteReadData/2019/209476.pdf (last accessed Oct. 1, 2021).

[28] See Gorakh Hilal Patil v. Parit Samaj Seva, Civil Revision Application No. 202 Of 2007, High Court of Bombay (India).

[29] Lines of programming codes are to the virtual-world what the laws of physics are to the Real-world; they determine what is possible and, in turn, what can be regulated. See, e.g., Programming Language Converts Laws Into ‘Provably Correct’ Computer Code, Discover Magazine (Mar. 23, 2021), https://www.discovermagazine.com/technology/programming-language-converts-laws-into-provably-correct-computer-code; William Li et al., Law Is Code: A Software Engineering Approach to Analyzing the United States Code, 10 J. Bus. & Tech. L. 297 (2015); Dr. Michael Jünemann & Dr. Udo Milkau, Can Code Be Law?, Bird & Bird (Aug. 2021), https://www.twobirds.com/en/news/articles/2021/germany/can-code-be-law.

[30] See Dealing in unregulated products by SEBI registered Investment Advisers, SEBI (Oct. 21, 2021), https://www.sebi.gov.in/media/press-releases/oct-2021/dealing-in-unregulated-products-by-sebi-registered-investment-advisers_53370.html.

Image Source: https://decrypt.co/66046/the-next-big-thing-in-nfts-breaking-them-apart

By Sophie Thornton

 

With the rise of NFTs, art collectors around the world purchase their own one-of-a-kind piece of artwork without ever having to leave the comfort of their home. Pictured above is an image of artwork created by Beeple which was purchased as an NFT for over $69 million. Anyone can google search this art, download it, view it, and personally use Beeple’s artwork in a seemingly equal way to the purchaser but at no cost. So, what makes this art worth buying?

An NFT is a non-fungible token.[1] A fungible asset is one that is interchangeable without losing any value.[2] For example, a dollar bill can be interchanged with any other dollar bill and the value remains the same. [3] A non-fungible asset has unique qualities that make it impossible to interchange.[4]

NFTs are based on blockchain that is made of software code in the form of “smart contracts.”[5] “Smart contracts are open-sourced blockchain protocols that control the transfer of digital currency under certain terms and conditions.”[6] Once the smart contract is finalized, it is “minted” onto the token on the corresponding blockchain.[7] This is permanent and cannot be modified later.[8] Additionally, the records cannot be forged because the information is stored on thousands of computers internationally.[9]

Many people are concerned that NFTs are the next big bubble, just waiting to burst and hurt people who have spent upwards of millions of dollars on this type of investment.[10] This concern seems to stem from the lack of tangible ownership. A former Christie’s auctioneer stated that the idea of buying something “which isn’t there is just strange.”[11] However, some of the property rights gained upon purchase of an NFT are quite similar to those gained upon purchase of a painting or any other tangible item.

Upon purchase of an NFT, the buyer gains only personal use rights associated with the copyright.[12] The creator retains copyright in the underlying work and the buyer does not gain any rights to the intellectual property associated with the image itself and would have to acquire a specific license to gain those rights.[13] In short, the buyer gains “a non-exclusive license to the underlying intellectual property rights of an asset and only for non-commercial purposes.”[14] This is no different than if someone were to purchase an original Picasso painting. By purchasing the painting, the buyer did not gain the rights to make and sell prints of it. Similarly, the purchaser of an NFT does not possess the rights to reproduce the code associated with the token.[15] These regulations theoretically keep NFTs as exclusive as tangible artwork because they ensure that only one purchaser can have the original.

There are some notable differences, however, between a tangible purchase and an NFT and the regulations that can be placed upon an NFTs use by the purchaser. Smart contracts in the blockchain of the NFT determine the rights that accompany purchase.[16] These smart contracts may limit what type of content your NFT can be displayed adjacent to or may stop you from altering any of the content in the NFT itself.[17] There may also be smart contracts embedded in the block chain of the NFT which contain clauses allowing for the original artist of the NFT to be paid royalties upon each resale of the token.[18] Conversely, the purchaser of an original Picasso retains all proceeds upon sale or may never sell it and instead paint over it (absent outside contract considerations). Smart contracts, which are standard in the world of NFTs, can severely limit ownership rights of the buyer in a non-traditional way.

Copyright infringement issues are some of the biggest legal concerns present with NFTs. There have already been issues of counterfeiting and “individuals fraudulently offering the artists’ works as NFTs without the artist’s permission.”[19] This means that NFT copyright owners have to spend more time and resources policing an ever-growing list of platforms for potentially infringing copies or derivate works. [20] Additionally, many people who are buying NFTs are not familiar with copyright law and more easily risk infringement liability.[21]

NFTs are a burgeoning form of technology. Many people view them as investments and collectors’ items in much the same way that tangible art is viewed. But the law has yet to tackle NFTs and bolster the supposed rights of purchasers or creators. Buyers and creators can assume that traditional copyright law will rule future disputes over NFTs, but they cannot be sure.[22]

Whether NFTs are worth buying depends on one’s perspective. Anyone can have a print of a Picasso painting but only one person can have the original. Someone who values having the original or thinks it has independent value may feel the same about NFTs or they may believe that physicality holds more worth than block chain. Conversely, a vast majority of the world may not care about the original at all and may be contented to have a print or a digital download. The risks and rewards of purchasing NFTs have yet to be seen and will probably inform the public on if they believe NFTs to be worth the investment.

 

[1] E.g., What are NFTs and why are some worth millions?, BBC News (Sept. 23, 2021), https://www.bbc.com/news/technology-56371912 [https://perma.cc/5QQS-5UHH].

[2]  Id.

[3] See Julian Pipolo, NFTs And The Law: What Do I Actually Own?, Law Technology Today (June 21, 2021), https://www.lawtechnologytoday.org/2021/06/nfts-and-the-law-what-do-i-actually-own/ [https://perma.cc/SQ9B-VJTP].

[4] E.g., BBC News, supra note 1.

[5] Pipolo, supra note 3.

[6] Id.

[7] Id.

[8] Id.

[9] See BBC News, supra note 1.

[10] See id.

[11] Id.

[12] See Pratin Vallabhaneni, The Rise of NFTs – Opportunities and Legal Issues, White & Case (Apr. 20, 2021), https://www.whitecase.com/publications/alert/rise-nfts-opportunities-and-legal-issues [https://perma.cc/2NZQ-TGYM].

[13] See Jon Moorhouse, Who owns the intellectual property rights of NFTs?, Lexology (July 12, 2021), https://www.lexology.com/library/detail.aspx?g=c301b33a-9974-4901-a0d8-6936a5b10423 [https://perma.cc/QVA3-UCRY].

[14]  Pipolo, supra note 3.

[15] Moorhouse, supra note 13.

[16] NFTs: Key U.S. Legal Considerations for an Emerging Asset Class, Jones Day (Apr. 2021), https://www.jonesday.com/en/insights/2021/04/nfts-key-us-legal-considerations-for-an-emerging-asset-class [https://perma.cc/34YZ-XYFZ].

[17] See Moorhouse, supra note 13.

[18] Vallabhaneni, supra note 12.

[19] Gregory J. Chinlund & Kelley S. Gordon, What are the copyright implications of NFTs?, Reuters (Oct. 29, 2021), https://www.reuters.com/legal/transactional/what-are-copyright-implications-nfts-2021-10-29/ [https://perma.cc/K93U-XWRG].

[20] Id.

[21] See Vallabhaneni, supra note 12.

[22] See Chinlund et al., supra note 19.

Image source: https://www.theverge.com/2021/3/11/22325054/beeple-christies-nft-sale-cost-everydays-69-million

By Brian Kennedy

 

Tesla announced that it would be relocating its headquarters in California and moving to Austin, Texas.[1] The company is building a factory there with the hope of it being completed by the end of year.[2] According to Elon Musk, Tesla’s CEO, the company’s plant in Fremont, California will remain operational and will continue to expand.[3] However, the company faces a major problem in Texas because Tesla “won’t be able to sell directly to residents in the state.”[4] Due to Texas law Tesla “must sell their vehicles to independently owned car dealerships, which then sell to consumers.”[5]

Additionally, it appears that this barrier isn’t going away anytime soon. Lawmakers made the determination “not to pass legislation that would allow automakers to sell directly to Texans.”[6] The opportunity to change these laws does not seem to be available again until 2023 when lawmakers meet again, but as for now these franchise laws remain the same.[7] This delay is largely due to Texas’ legislature meeting every other year for 140 days.[8]

This is not the first time; however, Tesla has encountered this problem.[9] In 2014, Tesla faced a lawsuit in Massachusetts when two dealers and the Massachusetts State Automobile Association attempted to block the company “from selling luxury electric cars directly to consumers in the state, enabling it to bypass traditional dealerships.”[10] There Tesla Motors MA, a “wholly owned subsidiary,” was essentially conducting a display inside of a mall where individuals could learn about Tesla’s vehicles and actually view them.[11] The court additionally clarified that “[n]either of the defendants is affiliated in any way with the plaintiffs.”[12]

The court ultimately found that the plaintiffs lacked standing on the issue and held that “[t]he law ‘was intended and understood only to prohibit manufacturer-owned dealerships when, unlike Tesla, the manufacturer already had an affiliated dealer or dealers in Massachusetts.’”[13] There the plaintiffs were unaffiliated and therefore not within the coverage of the law.[14] Here Tesla earned a favorable result.

Now as Tesla builds its new factory in Texas, however, residents may be inconvenienced by their purchasing options.[15] They may need to purchase Tesla’s vehicles in a different state, or have it processed in a different state.[16] If paperwork is processed in a different state “[t]he car is then shipped to one of Tesla’s service centers in the state, where the buyer can pick it up.”[17] Tesla facilities in Texas also cannot process or place online orders made by Texans.[18] “One buyer noted his paperwork had been FedExed to and from a Tesla Store in Nevada for completion.”[19] These restrictions will ultimately place residents in a difficult position.

Texas law also impact companies such as General Motors and Toyota.[20] Tesla experiences these difficulties in other states as well such as New Mexico, South Carolina, and Connecticut.[21] There are also several states that “restrict the number of dealerships that Tesla can have in the area.”[22]

Ultimately, Tesla’s decision to move to Texas appears to be beneficial for the state as the company plans to hire approximately 5,000 workers.[23] However, it appears the company will be waiting on a decision from Texas lawmakers as to whether these limitations will change.

 

[1] Niraj Chokshi, Tesla Will Move its Headquarters to Austin, Texas, in Blow to California, N.Y. Times (Oct. 13, 2021), https://www.nytimes.com/2021/10/07/business/tesla-texas-headquarters.html.

[2] Kate Duffy, Tesla has to Ship Texas-Made Cars to Other States Before it Can Sell Them to Texans Because of State Laws, Bus. Insider (June 1, 2021, 8:06 AM), https://www.businessinsider.com/tesla-texas-cars-ship-out-of-state-sell-texans-2021-6.

[3] Jack Dutton, Tesla Moves Headquarters to Texas, Where it’s Allowed to Sell Cars, Newsweek (Oct. 8, 2021, 5:11 AM), https://www.newsweek.com/tesla-moves-headquarters-texas-where-its-not-allowed-sell-cars-1636881.

[4] Id.

[5] Id.

[6] Id.

[7] Id.

[8] Id.

[9] See Jonathan Stempel, Tesla Prevails in Top Massachusetts Court Over Direct Sales, Reuters (Sept. 15, 2014, 5:22 PM), https://www.reuters.com/article/us-tesla-motors-massachusetts-lawsuit/tesla-prevails-in-top-massachusetts-court-over-direct-sales-idUSKBN0HA29620140915.

[10] Id.

[11] Massachusetts State Auto. Ass’n, Inc. v. Tesla Motors MA, Inc., 15 N.E.3d 675, 677 (Mass. 2014).

[12] Id.

[13] Stempel, supra note 9 (quoting Tesla Motors MA, Inc., 15 N.E.3d at 688).

[14] See id.

[15] Duffy, supra note 2.

[16] Id.

[17] Id.

[18] See John Voelcker, Tesla Will Have to Ship its Texas-Built Cars Out of State to Sell Back to Residents, The Drive (May 27, 2021), https://www.thedrive.com/tech/40779/tesla-will-have-to-ship-its-texas-built-cars-out-of-state-to-sell-back-to-residents.

[19] Id.

[20] Id.

[21] Duffy, supra note 2.

[22] Id.

[23] Id.

Image Source: https://www.greencarreports.com/news/1132408_tesla-won-t-be-able-to-directly-sell-the-cars-it-builds-in-texas-to-texans

By Seely Kaufmann

 

In his inaugural episode of “The Problem with Jon Stewart”, Jon Stewart examined the challenge of burn pit exposure for veterans.[1] These pits were a common feature at military bases across the Middle East – a crude answer to a basic logistics problem.[2] Garbage, including paint, medical and human waste, metal cans, unexploded ordnance, and batteries, was doused in jet fuel and set ablaze, spewing toxic fumes and carcinogens into the air.[3] The Department of Defense (DOD) estimates that roughly 3.5 million service members could have been exposed to burn pits.[4] Current and former military members stationed on bases with these burn pits suffer a myriad of conditions possibly due to the exposure to these chemicals; President Biden has even acknowledged that his son Beau’s deployment to Balad Air Base in Iraq may have been associated to his brain cancer diagnosis, noting “because of exposure to burn pits — in my view, I can’t prove it yet — he came back with stage 4 glioblastoma.”[5] However, the Department of Veterans Affairs has denied approximately 75 percent of veterans’ burn pit claims, because conditions like cancer have not been conclusively linked to exposure to the burn pits.[6]

In part to address this issue, the National Defense Authorization Act for Fiscal Year 2020 was passed by Congress in December 2019, which included two provisions that requires the DOD to draft a plan to eliminate all existing burn pits and provide a list of burn pit sites to the VA.[7]  However, no timeline is associated with that plan.[8] The Secretary of Defense is required to record whether service members have been exposed to an open burn pit, through the Airborne Hazards and Open Burn Pit Registry (AHOBPR) and in routine physical examinations and health assessments.[9] This information should develop of a record that links burn pit exposure to particular health consequences, but this bill did not go far enough, especially given the aggressiveness of the cancers being documented.[10] A two pronged approach of quickly funding research to develop these causal links while simultaneously cutting through the red tape that stops veterans suffering severe medical conditions from receiving treatment should be implemented to fully address the problem.

Even with the issue exposure from a celebrity, bills in both the House and Senate implementing similar measures have continued to languish. No actions have been taken on The Veterans Burn Pits Exposure Recognition Act of 2021 in either the Senate or the House since their introduction in February and April respectively.[11]

 

[1] The Problem with Jon Stewart: War (Apple TV broadcast, Sept. 30, 2021).

[2] Kenzi Abou-Sabe & Didi Martinez, Veterans face uphill battle to receive treatment for ‘burn pit’ exposure, NBC News (Apr. 12, 2021, 5:23 PM), https://www.nbcnews.com/news/military/veterans-face-uphill-battle-receive-treatment-burn-pit-exposure-n1263862.

[3] Jim Absher, What Is The Burn Pit Registry?, Military.com (Aug. 5, 2021), https://www.military.com/benefits/veteran-benefits/what-burn-pit-registry.html.

[4] See Abou-Sabe & Didi Martinez, supra note 2.

[5] Id. (noting that Balad Air Base had one of the largest burn pits spanning more than 10 acres).

[6] Id.

[7] Steve Beynon, Burn pit legislation passed by Congress could lead to improved accountability, better care for vets exposed to hazards, Stars and Stripes (Jan. 14, 2020), https://www.stripes.com/news/burn-pit-legislation-passed-by-congress-could-lead-to-improved-accountability-better-care-for-vets-exposed-to-hazards-1.614684.

[8] Id.

[9] VA Airborne Hazards and Open Burn Pit Registry, U.S. Department of Veterans Affairs, https://www.publichealth.va.gov/exposures/burnpits/registry.asp (last visited Oct. 29, 2021).

[10] See, e.g., Kelly Kennedy, The Enemy Is Lurking in Our Bodies”—Women Veterans Say Toxic Exposure Caused Breast Cancer, The War Horse (Oct. 14, 2021), https://thewarhorse.org/military-women-face-higher-breast-cancer-rates-from-exposure (detailing a military veteran’s diagnosis of three types of Stage 4 breast cancer at age 38 following tours in Fallujah and al-Taqqadum).

[11] See S.437 – Veterans Burn Pits Exposure Recognition Act of 2021, Actions Overview, https://www.congress.gov/bill/117th-congress/senate-bill/437/actions (last visited Oct. 29, 2021); H.R.2436 – Veterans Burn Pits Exposure Recognition Act of 2021, Actions Overview, https://www.congress.gov/bill/117th-congress/house-bill/2436/actions (last visited Oct. 29, 2021).

Image Source: https://media.npr.org/assets/img/2015/12/18/080310-f-5957s-113_custom-2a2816cb2f0c6952905f69550d8a8832536054e9-s1600-c85.webp

By Austin Wade-Vicente

 

A decades long war between big tech companies and concerned consumers reached a new milestone on July 9th, 2021, as President Joe Biden signed the “Executive Order on Promoting Competition in the American Economy.”[1] Among other important initiatives, the Executive Order gives significant deference to the Free Trade Commission (FTC) to investigate “[c]ell phone manufacturers and others blocking out independent repair shops.”[2] Many companies intentionally make repairs unjustly more time consuming and costly by  “impos[ing] restrictions on self and third-party repairs,” through “restricting the distribution of parts, diagnostics, and repair tools.”[3] To better understand the significant impact of this Order, and what it means for a variety of American consumers, we first need to briefly explore the source of the controversy.

Right to Repair concerns first began in the late 1990s, but only further exponentially increased in the digital age with more products relying on computer chips year after year.[4] “You bought it, you should own it” is the short and sweet argument from Right to Repair advocates.[5] Essentially, Right to Repair is the assertion that consumers should have the right to fix the product they own without pressure to solely rely on the manufacturer for repairs or resort to purchasing a brand new device. On the flip side, corporations argue that allowing third-party repair is an attack on quality control, protection of intellectual property rights, prevention of injuries, and the company’s reputation.

However, these entities have gone to the extreme to keep customers from entertaining alternative sources of repair. A surprising number of big tech companies have exerted monopoly power by forcing consumers to either pay for the company’s expensive repairs or buy a new machine.[6] A solution that further contributes to the 2.5 million tons of electronic waste generated by the globe each year.[7] Moreover, multinational tech company Apple has gone so far as to hide schematics from the public, threaten third-party repair companies with DMCA suits, and even invent their own “pentalobe screw” in efforts to maintain control from sale to landfill.[8]

The illusion of having this “benevolent monopoly,” valiantly protecting customers from conniving hackers and incompetent repairmen, shatters when a growing number of consumers accuse the company itself of being the single source of harm in the repair industry.[9] CBC news even caught Apple in an undercover investigation quoting repair prices comparable to a brand-new laptop to avoid even the simplest of repairs.[10] This behavior begged an important question. Who owns the purchased product when the manufacturer can unilaterally decide the consumer is done using it?

Again, prior to President Biden’s Executive Order, the status quo of repair was free reign to nearly exhaust of all of the public’s options to fix their property, avoid transparency, and force customers to pay artificially high prices for basic maintenance—­­­if done at all. After the Order, the FTC found that monopolizing repair services, the associated repair information, parts, and their necessary tools is plainly anticompetitive.[11]

Just after the release of President Biden’s Executive Order, the FTC unanimously voted to agree to investigate if tech company repairs are “breaking antitrust or consumer protection laws, and to step up enforcement of the laws against violators.”[12] The goal of this investigation, if successful, is “to push harder for the right of consumers to repair devices like smartphones, home appliances, cars and even farm equipment.”[13] Yes, you read that right. The Executive Order’s mention of “others blocking out independent repair shops” includes those providing farm equipment, going well beyond consumer electronics.[14]

Farmers have an immensely time sensitive job, and therefore, need to be able to get under the hood to fix their machines when in the field.[15] Many farmers already work 80 hours a week during harvest, and some have already faced legal repercussions from John Deere for trying to fix their own machines.[16] While waiting upwards of weeks for certified John Deere repairman to fix their fancy internet-connected tractors, some farmers have actually turned to using 40-year-old models to reliably complete harvest seasons.[17] As a result, Right to Repair not only impacts prices of consumer electronics and maintenance, but, more importantly, our food supply chain as well.

Farmers are not the only professionals that would benefit from robust Right to Repair enforcement either, as service members have run into many of the same issues. United States Marine Corps. Captain Elle Ekman was stunned when one of her Marines gave a warranty excuse for refusing to fix a generator in the field.[18] She had no idea a civilian concept like Right to Repair could affect her military career, but it became abundantly clear every time Marines sent equipment back home that they were “los[ing] the opportunity to practice the skills they might need one day on the battlefield.”[19] “Vendor control over warranty repairs is a completely unworkable scheme in wartime” as prompt maintenance could mean the difference between life and death for service men and women.[20] In response, President Biden gave the Secretary of defense 180 days to make a plan to avoid terms that impede service members from repairing their own equipment, “particularly in the field.”[21]

Despite the numerous reasons why Right to Repair should be adopted, it remains to be seen if measures taken by the FTC will pass into law.[22] If no one takes action on the federal level, 27 states have passed Right to Repair legislation that helps combat many of the previously explored problems.[23] However, much like other state regulations, these Right to Repair laws are not uniform. For example, the state of Washington only enforces Right to Repair laws on consumer devices, while South Carolina only focuses on ag equipment.[24]

“‘It isn’t like we’re asking for something that’s impossible,” remarked Special Assistant to the President for Tech and Competition Policy Tim Wu.[25] “Provide parts, provide information and let people really feel like they own their own devices.”[26] If the FTC finds ample evidence of violation of antitrust or consumer protection laws there may be top-down enforcement from the federal government. Until then, only time will tell if farmers, service members, and the everyday consumer will be free to claim ownership of their respective devices.

 

[1] Exec. Order No. 14,036, 86 Fed. Reg. 36987 (2021); Emily Matchar, The Fight for the “Right to Repair,” Smithsonian (July 13, 2016), https://www.smithsonianmag.com/innovation/fight-right-repair-180959764/.

[2] Id.

[3] Id.

[4] See Matchar, supra note 1; Thorin Klosowski, What You Should Know About Right to Repair, N.Y. Times (July 15, 2021), https://www.nytimes.com/wirecutter/blog/what-is-right-to-repair/.

[5] The Repair Association, Repair, https://www.repair.org/.

[6] See Andrew Thompson, The Fix Is Out: Product Repairs Get Tougher in New Age of Obsolescence, NBC News (July 31, 2016, 2:30 PM), https://www.nbcnews.com/news/us-news/fix-out-product-repairs-get-tougher-new-age-obsolescence-n614916.

[7] See Vanessa Forti, Global Electronic Waste Up 21% in Five Years, and Recycling isn’t Keeping Up, The Conversation (July 10, 2020, 10:38 AM), https://theconversation.com/global-electronic-waste-up-21-in-five-years-and-recycling-isnt-keeping-up-141997.

[8] Kyle Wiens, Apple Is Bullying a Security Company with a Dangerous DMCA Lawsuit, iFixit (Jan. 2, 2020), https://www.ifixit.com/News/34892/apple-is-bullying-a-security-company-with-a-dangerous-dmca-lawsuit; Kyle Wiens, Apple’s Diabolical Plan to Screw Your iPhone, iFixit (Jan. 20, 2011), https://www.ifixit.com/News/14279/apples-diabolical-plan-to-screw-your-iphone.

[9] Nathan Protor, Here’s How Manufacturers Argue Against Repair, U.S. PIRG (July 1, 2019), https://uspirg.org/blogs/blog/usp/here%E2%80%99s-how-manufacturers-argue-against-repair.

[10] See CBC News: The International, Apple Under Fire for Allegations of Controversial Business Practices, YouTube, at 1:48–6:00, (Oct. 18, 2018), https://www.youtube.com/watch?v=_XneTBhRPYk.

[11] Michael Kan, FTC Calls Out Tech Companies for Onerous Right-to-Repair Restrictions, PCMag (May 7, 2021), https://www.pcmag.com/news/ftc-calls-out-tech-companies-for-onerous-right-to-repair-restrictions.

[12] Aishvarya Kavi, The F.T.C. Votes to Use Its Leverage to Make it Easier for Consumers to Repair Their Phones, N.Y. Times (July 21, 2021), https://www.nytimes.com/2021/07/21/us/politics/phones-right-to-repair-FTC.html.

[13] Id.

[14] Exec. Order No. 14,036, supra note 1.

[15] Jonathan Ahl, Right to Repair Mandate From Biden Might Help Farmers Fix Their Own Equipment, Harvest Public Media (Aug. 5, 2021), https://www.harvestpublicmedia.org/post/right-repair-mandate-biden-might-help-farmers-fix-their-own-equipment.

[16] Nicky Ellis, How Many Hours Do Farmers Work?, Farm & Animals (Nov. 25, 2020) https://farmandanimals.com/how-many-hours-do-farmers-work/#:~:text=During%20the%20harvest%2C%20a%20farmer,about%2060%20hours%20a%20week; Jordan Almond, Farmers Across America Are Suing for the Right to Repair Their John Deere Tractors, Motor Biscuit (July 15, 2021), https://www.motorbiscuit.com/farmers-america-right-to-repair-john-deere-tractors/.

[17] Kari Paul, Why Right to Repair Matters – According to a Farmer, a Medical Worker, a Computer Store Owner, The Guardian (Aug. 2, 2021, 6:00 AM), https://www.theguardian.com/technology/2021/aug/02/why-right-to-repair-matters-according-to-a-farmer-a-medical-worker-a-computer-store-owner.

[18] Elle Ekman, Here’s One Reason the U.S. Military Can’t Fix Its Own Equipment, N.Y. Times (Nov. 20, 2019) https://www.nytimes.com/2019/11/20/opinion/military-right-to-repair.html.

[19] Id.

[20] Kyle Mizokami, The U.S. Military Has a ‘Right to Repair’ Problem, Popular Mechanics (Feb. 11, 2020), https://www.popularmechanics.com/military/weapons/a30859791/us-military-right-to-repair/.

[21] Exec. Order No. 14,036, supra note 1.

[22] Nadeem Sarwar, What Biden’s Right-To-Repair Executive Order Means For You, ScreenRant (July 12, 2021), https://screenrant.com/right-to-repair-executive-order-explainer-and-details/.

[23] Nathan Proctor, Half of U.S. states looking to give Americans the Right to Repair, U.S. PIRG (Mar. 10, 2021), https://uspirg.org/blogs/blog/usp/half-us-states-looking-give-americans-right-repair.

[24] Id.

[25] Joanna Stern, How the ‘Right to Repair’ Might Save Your Gadgets—and Save You Money, Wall Street Journal (Aug. 30, 2021), https://www.wsj.com/articles/how-the-right-to-repair-might-save-your-gadgetsand-save-you-money-11630324800.

[26] Id.

Image Source: https://www.cleanwateraction.org/2021/02/01/sb0412hb0084-right-repair-and-why-matters-environment