Elizabeth Holmes Trial Begins: Fraud v. Failure

By Charlie McCarthy

Elizabeth Holmes, the infamous founder of Theranos, is on trial for criminal fraud in the United States District Court’s Northern California District Court in San Jose, California.[1] Ms. Holmes has garnered incredible media interest, evidenced by the various books and documentaries detailing the rise and fall of her company and public image.[2] Additionally, the result of the trial could have lasting implications in the “move fast and break things” Silicon Valley start-up culture.[3] In 2003, Ms. Holmes was a 19-year-old Stanford dropout when she founded Theranos Inc., a consumer technology startup focused on delivering at-home blood testing. Ms. Holmes was able to raise approximately $724 million in capital from venture capitalists and individual investors such as Rupert Murdoch (Chairman of News Corp.), Betsey DeVos (former Education Secretary), the heirs of Sam Walton (founder of Walmart), Carlos Slim (Mexican Tycoon), and Robert Kraft (owner of New England Patriots)[4]. Notably, former secretary of state Henry Kissinger and former secretary of defense Jim Mattis served as board members of her company.[5]

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By Mimi Perka

 

Last week, Facebook introduced Ray-Ban Stories – which are Facebook’s first generation of smart glasses.^[1] These glasses are equipped with dual integrated 5MP cameras, LED lights, open-ear speakers, and a three-microphone audio array that allow users to capture photos and 30-second videos.^[2] The glasses are also capable of making calls, taking voice commands, and they connect straight to the new Facebook View app.^[3]

The glasses start at $299 and come in 20 different style combinations, including the classic Ray-Ban styles: Wayfarer, Wayfarer Large, Round and Meteor.^[4] Additionally, the glasses are customizable with prescription or transition lenses if users pay additional costs.^[5]

While these glasses certainly have many features and are much better looking than other first-generation smart glasses,^[6] should users be concerned for their own privacy? Further, should the public at large be concerned about how much user’s might capture in this new discreet and fashion-forward method?

While Facebook boasts that Ray-Ban stories are “designed with privacy in mind,”^[7] the privacy features seem to center mostly around what is shared from the glasses to user’s public Facebook pages, a power switch to turn the glasses off, and an LED light that turns on when a user is taking photos or recording to alert the public.^[8]

Additionally, Facebook’s “dedicated privacy microsuite” is noticeably bare, and has no mention of the legalities that users should be aware of while wearing the glasses.^[9]

As these glasses aren’t designed as solely sunglasses like other smart glasses have traditionally been, this could become legally troublesome for user’s who wear the glasses during the regular work day and will have the capabilities to potentially expose and share private and confidential information.^[10] While most workplaces require employees to agree to confidentiality agreements which if breached could result in termination and a potential breach of contract claim,^[11] certain types of workplace disclosures could also have federally enforced legal implications for users.^[12]

On the other hand, while courts have consistently held that it is a First Amendment right to take photos of others in public spaces,^[13] many people are uncomfortable with having their photographs taken without consent^[14] which could only be exacerbated by this new discrete and non-traditional method of photography. Additionally, although the Constitution does not expressly declare a right to privacy, many elements of privacy are present in the First, Fourth and Fifth Amendments, and it has been recognized as an implied right of the Ninth Amendment.^[15] Many states have also enumerated expressed rights to privacy in their Constitutions.^[16] Some states have even taken this expressed right one step further, to specifically protect unlawful photography.^[17]

For example, a Tennessee law states:

a) It is an offense for a person to knowingly photograph, or cause to be photographed, an individual without the prior effective consent of the individual, or in the case of a minor, without the prior effective consent of the minor’s parent or guardian, if the photograph:

(1) (A) Would offend or embarrass an ordinary person if the person appeared in the photograph; or

(B) Is focused on the intimate area of the individual and would be considered offensive or embarrassing by the individual; and

(2) Was taken for the purpose of sexual arousal or gratification of the defendant.^[18]

The Supreme Court relies on a privacy standard articulated in 1967 in the case of Katz v. United States,^[19] where the Court reasoned that every person is entitled to a “reasonable expectation of privacy.”^[20] However, in today’s technologically advanced society, it can be difficult to know what is “reasonable” or what would “offend or embarrass an ordinary person” due to the ubiquitousness of smart devices and social media and photo sharing.^[21] Thus, the privacy standard is getting more and more difficult for courts to police as people are sharing more information through the use of modern technology.^[22]

While this all could be troublesome for users and the people in their surroundings, the New York Times notes about the Ray-Ban Stories Glasses:

“Many of these privacy concerns are beside the point for technologists who see wearables as inexorable for society. For Mark Zuckerberg, Facebook’s chief executive, the ultimate goal is to eventually release a pair of smart glasses that fully augment reality, which puts a kind of virtual overlay onto the world in front of people. That idea is yet another step on the road to the metaverse, Mr. Zuckerberg’s term for how parts of the virtual and actual world will eventually meld together and share different parts of each other.”^[23]

In sum, maybe 10 years from now we’ll all be videotaping each other through our glasses, driving self-operating cars, and messaging each other through holographic cell phones, and where would the reasonable privacy standard lead us then? Maybe smart glasses are just the beginning.

 

^[1] Introducing Ray-Ban Stories: First-Generation Smart Glasses, About.Facebook.com (Sept. 9, 2021), https://about.fb.com/news/2021/09/introducing-ray-ban-stories-smart-glasses/.

 

^[2] Id.

 

^[3] Id.

 

^[4] Id.

 

^[5] Id.

 

^[6] See, e.g., Spectacles – Sunglasses for Snapchat, Amazon.com, https://www.amazon.com/2016-Spectacles-Sunglasses-for-Snapchat/dp/B01N9ECA5B.

 

^[7] Ray-Ban and Facebook introduce Ray-Ban Stories, first-generation smart glasses, Tech@Facebook (Sept. 9, 2021), https://tech.fb.com/ray-ban-and-facebook-introduce-ray-ban-stories-first-generation-smart-glasses/.

 

^[8] Id.

 

^[9] Designed for privacy, controlled by you, https://about.facebook.com/reality-labs/ray-ban-stories/privacy?_ga=2.214402775.1164369414.1631282119-1594130824.1631282119 (last visited Sept. 10, 2021).

 

^[10] Hoyle et al., Privacy Norms and Preferences for Photos Posted Online, 27 ACM Transactions on Computer-Human Interaction (Issue 4), 30:1, 30:2 (2020), https://dl.acm.org/doi/pdf/10.1145/3380960.

 

^[11] See, e.g., Saini v. Int’l Game Tech., 434 F. Supp. 2d 913, 917 (D. Nev. 2006).

 

^[12] See, e.g., 15 U.S.C.A. § 57b-2 (West).

 

^[13] See, e.g., Fogel v. Forbes, Inc., 500 F. Supp. 1081, 1087 (E.D. Pa. 80); Pemberton v. Bethlehem Steel Corp., 502 A.2d, 1101, 1116-17 (Md. Ct. Spec. App. 1986); Forster v. Manchester, 189 A.2d 147, 150 (Pa. 1963).

 

^[14] Hoyle et al., supra note 10, at 30:3.

 

^[15] Jeremy Fogel, A Reasonable Expectation of Privacy, 40 LITIG. 6, 7 (2014).

 

^[16] Id.

 

^[17] See, e.g., Tenn. Code Ann. § 39-13-605 (2021).

 

^[18] Id.

 

^[19] Katz v. United States, 389 U.S. 347, 88 S. Ct. 507, 516 (1967).

 

^[20] Fogel, supra note 15, at 8.

 

^[21] Joshua A.T. Fairfield & Christoph Engel, Privacy as a Public Good, 65 DUKE L.J. 385, 402 (2015).

 

^[22] Fogel, supra note 15, at 8.

 

^[23] Mike Isaac, Smart Glasses Made Google Look Dumb. Now Facebook Is Giving Them a Try., N.Y. Times (Sept. 9, 2021), https://www.nytimes.com/2021/09/09/technology/facebook-wayfarer-stories-smart-glasses.html.

 

Image source: https://tech.fb.com/ray-ban-and-facebook-introduce-ray-ban-stories-first-generation-smart-glasses

By Charlie McCarthy

 

The advance of machine learning Artificial Intelligence (“AI”) technology into legal writing is becoming more of a reality. Spell check and other grammar software have been used in legal writing for many years and have not impacted the composition process of legal writing and analysis.[1] Currently, the legal community regularly uses machine learning AI technology in E-Discovery, expertise automation (e.g., software for individuals to draft their own wills), legal research, document management, contract and litigation analytics, contract generation, and predictive analytics.[2]

However, other legal technologies have emerged that are implementing AI machine learning technology to structure better legal arguments for their clients, find holes in opposing counsel’s briefs, and compose significant portions of briefs.[3] This next step of AI machine learning is significant because it represents the capability for AI machine learning to fully perform the analytical role of the lawyer.[4] Services such as BriefCatch, Compose, and Clearbrief are all companies on the forefront of this next implementation of AI machine learning technology into legal writing.[5] BriefCatch markets themselves as an AI-driven product that “offers insights into your writing and lets you compare your style with that of renowned lawyers and judges.”[6]

Compose provides “all the arguments, legal standards and prepackaged research you need to get things done, faster than ever.” It features a library consisting of pre-formatted motions and adds arguments based on your jurisdiction. Only at the end of Compose’s process, does the software allow the writer to “make it your own … by adding your insights, expertise and style.” Clearbrief is another emerging AI-powered legal writing software that “uses natural language processing to assess how legal writing is backed up by supporting evidence.”[7] Additionally, this software allows lawyers to assess the strength of opposing counsel’s briefs and provides a service known as “judge view” which allows a judge to “view a submitted brief in the cloud with easy access to the cases and documents referenced in the filing.”[8]

The logic-driven foundation of legal thinking allows for AI machine learning to easily integrate into legal arguments.[9] AI machine learning legal technologies will allow lawyers to rapidly create first drafts which will free up time for lawyers to refine their arguments and better advocate on their client’s behalf.[10]  However, AI legal technologies pose risks to ethics and legal writing professional development.[11] Michael Zuckerman, a legal writing professor at Northwestern University Pritzker School of Law cautions against legal technology “mimicking a lawyer’s hand and mind… [that] may well prevent a student from growing into their full potential as a lawyer, replete with a possible lack of foundational professional judgment as a writer.”[12] Furthermore, AI machine learning technology poses significant risks for data bias.[13] Currently, human biases have been found to make their way into AI technologies that are then implemented with sweeping discriminatory impacts.[14] If all legal writing is formed with biased AI technology, then all legal arguments will be biased.

The use of AI machine learning technology in legal writing is inevitable. Clients across the board will soon demand that lawyers are using the best AI machine learning legal technologies for a competitive edge. The successful implementation of this new reality requires thoughtful regulation of legal data and a strict adherence to legal ethics to ensure lawyers are both zealous advocates and responsible professionals.

 

[1] Michael Zuckerman, Law professor makes a case against automating legal writing in law school, ABA Journal (July 21, 2021), https://www.abajournal.com/voice/article/a-law-professor-makes-a-case-against-automating-legal-writing.

[2] Anthony E. Davis, The Future of Law Firms (and Lawyers) in the Age of Artificial Intelligence, American Bar Association (Oct. 2, 2020), https://www.americanbar.org/groups/professional_responsibility/publications/professional_lawyer/27/1/the-future-law-firms-and-lawyers-the-age-artificial-intelligence/.

[3] Zuckerman, supra note 1.

[4] Id.

[5] See Zuckerman, supra note 1; Taylor Soper, This legal writing startup is using AI to spot misrepresentations in litigation docs, Geek Wire (Aug. 26, 2021), https://www.geekwire.com/2021/legal-writing-startup-using-ai-spot-misrepresentations-litigation-docs/.

[6] BriefCatch, https://briefcatch.com/version-2/ (last visited Sep. 9, 2021).

[7] Soper, supra note 5.

[8] Lyle Moran, New AI-powered legal writing tool aims to help lawyers craft winning briefs, ABA Journal (May 19, 2021), https://www.abajournal.com/legalrebels/article/rebels_podcast_episode_064.

[9] Rob Carty, Computer-Written Legal Briefs Are Closer Than You Think, ARTIFICIAL LAWYER (Apr. 11,2019), https://www.artificiallawyer.com/2019/04/11/computer-written-legal-briefs-are-closer-than-you-think/.

[10] Id.

[11] Zuckerman, supra note 1.

[12] Id.

[13] Heather J. Meeker et al., Data Collection & Management, Professional Perspective – Avoiding Human Bias in Artificial Intelligence, Bloomberg Law (Nov. 2020), https://www.bloomberglaw.com/product/privacy/document/X17RNFNC000000.

[14] Id.

 

Image source: https://www.forbes.com/sites/timbajarin/2020/11/06/an-ai-robot-wrote-my-term-paper/?sh=389e86a13cc8

By Mimi Perka

 

Maybe you’ve used it to learn a new dance move, watch a funny video, interact with friends, or perhaps you have even tried your own luck on the app in pursuit of fame and fortune.

The social media app, TikTok, became sensationalized during the height of the COVID-19 pandemic, due to the free-for-all^[1] nature of the app and the app’s incredible Artificial Intelligence (AI) technology that makes the content on the app customized and addictive for any user.^[2]

Among the many genres of video on the app, many content creators have gained a following by sharing internet “dupes” of luxury products.^[3] The term “dupe” has become popularized by internet beauty and fashion influencers, and it has come to colloquially signify that a product is a cheaper alternative to a well-known higher-end product.^[4]

As sensational and entertaining as these dupe TikTok videos are, and as much as consumers are spending more time on the internet shopping looking for deals,^[5] could these internet stars be inadvertently causing legal trouble between these imitation producers and the higher-end businesses who make the ‘real thing’? Or worse, could these viral stars be promoting dangerous products and brands to their followers?

Although it isn’t illegal for these stars to be purchasing dupes,^[6] trademark law protects brands from unfair methods of competition, which includes protection against brand dilution, blurring, and tarnishing.^[7] Trademark law has focused this protection on identifying the general “likelihood of confusion” between one product’s source-identifying aspects (terms, images, and product designs) and another competing product’s use of the same aspects.^[8]

Among the many dupes trending on TikTok, users have been comparing: Maison Francis Kurkdjian’s iconic $325 Baccarat Rouge 540 Eau de Parfum to Ariana Grande’s sweet-but-refreshing $40 Cloud Perfume; Maybelline’s Cheek Heat Blush in comparison to Glossier’s pricier Cloud Paint;^[9] and The Sol de Janeiro’s $45 Brazilian Bum Bum Cream to Trader Joe’s $5.99 Brazil Nut Body Butter.^[10]

To acquire trademark protection, marks must achieve the status of distinctiveness.^[11] Marks are also considered distinctive if they are able to acquire secondary meaning among consumers, which means that consumers would perceive the mark as an indication of the source, or brand.^[12]

When determining direct trademark infringement, courts have generally analyzed the likelihood of confusion between brands based on a multifactor test.[13] Factors relevant to likelihood of confusion include:

1. Strength of the mark;
2. Proximity of the goods;
3. Similarity of the marks;
4. Evidence of actual confusion;
5. Marketing channels used;
6. Types of goods and the degree of care likely to be exercised by the purchasers;
7. Defendant’s intent in selecting the mark; and
8. Likelihood of expansion of the product lines.^[14]

When TikTok stars post these “dupe review” videos, they are generally choosing a mark that they recognize as having achieved a distinctive status and comparing it to another product that they believe others will recognize as achieving the exact same distinctive mark for a fraction of the cost. While a seemingly playful and lighthearted way for these stars to help their followers save money, trademark infringement is not a victimless crime.^[15]

While trademark law facially seeks to protect hardworking and good faithed brands, trademark law also plays an important role in protecting consumers from potentially dangerous products, protecting the economy from sales declines due to fear of counterfeits, protecting the public from resale market deception, and protecting the value of consumer’s products from market dilution.^[16]

Although it is always satisfying to find the next best deal while online shopping, and while Katy Perry might be in her own hot water for knocking-off Maison Francis Kurkdjian’s fragrance, it is important for social media stars to realize the ripple effect the promotion of these replica products could lead to – so TikTok users, “Y U Gotta Be Like That”?^[17]

 

Image source: https://www.nytimes.com/2019/03/10/style/what-is-tik-tok.html

 

 

 

^[1] John Herrman, How TikTok Is Rewriting the World, N.Y. Times (Mar. 10, 2019), https://www.nytimes.com/2019/03/10/style/what-is-tik-tok.html.

 

^[2] Jason Davis, The TikTok Strategy: Using AI Platforms to Take Over the World, INSEAD Knowledge (June 19, 2019), https://www.insead.edu/sites/default/files/assets/faculty-personal-site/jason-davis/documents/TikTok.pdf.

 

^[3] Megan Graham, TikTok teens are obsessed with fake luxury products, CNBC (Mar. 1, 2010), https://www.cnbc.com/2020/02/29/tiktok-teens-are-obsessed-with-fake-luxury-products.html.

 

^[4] Knobbe Martens, Dupe Cosmetics Prove Big Business, But Not Without Legal Complications, The Fashion Lawyer (May 17, 2017), https://www.thefashionlaw.com/dupe-cosmetics-prove-big-business-legally-problematic/.

 

^[5] Ms. Suzanne Malhotra, Empirical Scale for Revenge Buying Behaviour: A Curious Consequence of Pandemic, BIMTECH (2021), https://www.bimtech.ac.in/Uploads/image/1716imguf_BSP_SuzaneeMalhotra-Revised.pdf.

 

^[6]  Erin Fitzgerald, The Fashion Police: Criminalizing the Knowing Purchase of Trademark Counterfeit Fashion Items, 47 NEW ENG. L. REV. 127, 129 (2012).

 

^[7] The Lanham Act, 15 U.S.C. §§ 1051–1127.

 

^[8] Peter S. Menell et al., Intellectual Property in the New Technological Age: 2021, 510, 1042 (2021).

 

^[9] Camila Barbeito, The Affordable Fashion Dupes Trending On TikTok, The List (Aug. 1, 2021), https://www.thelist.com/475740/the-affordable-fashion-dupes-trending-on-tiktok/.

 

^[10] Karishma Desai, The $6 Dupe To Sol De Janeiro’s Bum Bum Cream You Have To Try, The List (July 29, 2021), https://www.thelist.com/473460/the-6-dupe-to-sol-de-janeiros-bum-bum-cream-you-have-to-try/.

 

^[11] Menell et al., supra note 8, at 936.

 

^[12] Id. at 940.

 

[13] It is important to note that tests can vary per jurisdiction, however these factors have generally applied.

 

^[14] AMF Inc. v. Sleekcraft Boats, 599 F.2d 341, 348–349 (9th Cir. 1979), abrogated on other grounds by Mattel, Inc. v. Walking Mountain Prods., 353 F.3d 792, (9th Cir. 2003).

 

^[15] G. Trenton Hooper & Janna M. Wittenberg, Counterfeiting and the Myth of the Victimless Crime, 4 Landslide 41, 41 (2011).

 

^[16] Id. at 43.

 

^[17] Audrey Mika, Y U Gotta Be Like That (RCA Records 2020).

By Megan Haugh

 

Last weekend, my fiancé purchased a small drone[1] at the nearest Best Buy.  This drone, weighing less than two-hundred and forty-nine grams, fits in the palm of the hand.[2]  With the ability to fly at “a max altitude of 4,000 meters” (about two-and-a-half miles) and capture 4K video, this small drone truly impresses.[3]  Before my fiancé flew this drone though, he registered it with the Federal Aviation Administration (FAA).  He is not alone.  In the United States, 868,804 drones are registered with the FAA.[4]  (372, 157 drones are registered for “commercial use” and 496,647 drones are registered for “recreational use.”)  Recently, the FAA stated “unmanned Aircraft Systems, or drones, are rapidly becoming a part of our everyday lives.  They are quickly increasing in numbers and complexity.”[5]

 

In Katz v. United States, Justice Harlan set forth the test for a reasonable expectation of privacy—(1) a person must manifest a subjective belief that he had privacy and (2) society must find the person’s belief is objectionably reasonable.[6]  I (probably like most people) thought I had a reasonable expectation of privacy on my property.  But as drones, like the model my fiancé purchased, become increasingly common, my expectation of privacy seems less reasonable under the second prong of Justice Harlan’s test.  In fact, (according to two Supreme Court decisions) my expectation of privacy has not been reasonable for a while.  In California v. Ciraolo, police officers flew over the defendant’s backyard (at an altitude of approximately 1,000 feet) and discovered marijuana.[7]  In that case, the Supreme Court did not find a violation of the defendant’s Fourth Amendment right.[8]  The Court stated, “The Fourth Amendment simply does not require the police traveling in the public airways at this altitude to obtain a warrant in order to observe what is visible to the naked eye.”[9]  Similarly, in Florida v. Riley, police officers flew a helicopter over the defendant’s greenhouse (at an altitude of approximately 400 feet) and discovered—through two open roof panels—marijuana.[10]  In that case, the Supreme Court, again, did not find a violation of the defendant’s Fourth Amendment right.[11]  Under Justice Harlan’s reasonable expectation of privacy test, the defendant passed the first prong and failed the second prong.[12]

 

Will the Supreme Court’s rulings in California v. Ciraolo and Florida v. Riley extend to drones used by law enforcement?  I think so.  Like a helicopter or private plane, a drone can fly in public airspace and fly at the same altitudes.  One of the biggest differences is that, unlike a helicopter or plane, a police officer does not “observe what is visible to the naked eye” with a drone.  Rather a police officer observes what is visible to a camera.  In light of the facts in Florida v. Riley, this distinction seems irrelevant.  Because a police officer observed marijuana—through two open roof panels—at a height of 400 feet, it’s hard to believe that they observed marijuana with the “naked eye.”  Under California v. Ciraolo and Florida v. Riley, I think warrantless drone use by law enforcement is permissible.

 

[1] See DJI Mini 2 Fly More Combo Quadcopter with Remote Controller, Best Buy (https://www.bestbuy.com/site/dji-mini-2-fly-more-combo-quadcopter-with-remote-controller/6435268.p?skuId=6435268).

[2] Id.

[3] Id.

[4] UAS by the Numbers, Federal Aviation Administration (Mar. 22, 2021 2:32 PM) (https://www.faa.gov/uas/resources/by_the_numbers).

[5] Id.

[6] See Katz v. United States, 389 U.S. 347 (1967).

[7] See California v. Ciraolo, 476 U.S. 207 (1986).

[8] Id.

[9] Id.

[10] See Florida v. Riley, 488 U.S. 445 (1989).

[11] Id.

[12] Id.

Image Source: https://store.storeimages.cdn-apple.com/4668/as-images.apple.com/is/HNFZ2_AV1?wid=1144&hei=1144&fmt=jpeg&qlt=95&op_usm=0.5,0.5&.v=1586385840846

By Rebecca Meadows

 

While most of us are keenly aware of how ‘Big Tech’ has entered so many sectors of our daily lives, we should also be paying attention to the legal troubles that these companies are bumping into again and again. Particularly in the area of antitrust enforcement, there have been many allegations against companies such as Amazon, Facebook, Google, and Apple that have recently found them testifying before Congress or being subject to enforcement actions by the Federal Trade Commission or Department of Justice.[1] Part of the problem here is that, as these companies continue to expand into new markets, some say that they present novel questions that require novel solutions – which our current legal framework is not capable of addressing in a satisfactory manner.[2] Of course, on the other hand, it can be argued that these tech giants are no different than the ‘giants’ our laws were built to handle in the 19th and 20th centuries, such as the Standard Oil Company which prompted the Clayton Act.[3]

 

For Amazon, their status as not only a retailer, but also “a marketing platform, a delivery and logistics network, a payment service, a credit lender, an auction house, a major book publisher, a producer of television and films, a fashion designer, a hardware manufacturer, and a leading provider of cloud server space and computing power” certainly opens the door for fascinating antitrust questions.[4] Although these questions of the rapidly expanding breadth of all big tech companies are hot topics in the public eye, it also cannot be ignored when big companies act anticompetitively in the markets that they originated in.

 

Amazon began doing business in 1995 as an online book seller, with goals of becoming the largest bookstore in the world.[5] It stuck to strictly selling books for the first three years of business, before beginning to branch out into online sales of other consumer goods.[6]

 

On March 25, 2021, the Illinois and online bookstore Bookends & Beginnings LLC filed a class action complaint alleging that Amazon and the five largest book publishers restrain competition in the sale of print books through highly restrictive clauses in their distribution agreements.[7]  The complaint includes as members of the class all retail and online booksellers who purchased books at wholesale directly from these five publishers on or after March 25, 2017.[8]

 

Amazon accounts for over 50% of all books purchased at retail in the U.S., and over 90% of all books sold online.[9] The five largest publishing companies in the U.S. – Hachette, HarperCollins, Macmillan, Penguin, and Simon & Schuster – collectively make up 80% of books sold in the U.S.[10] Amazon and these publishers use ‘most favored nation’ clauses in their distribution agreements, which entitle the buyer to the lowest price or best deal that the supplier offers to any other buyer – effectively ensuring that booksellers cannot differentiate from, or compete with, each other on the basis of price or product availability.[11] In other words, retail bookstores will not be able to sell books from 80% of the country’s publishers at a better price than what can be found on Amazon – anything that those publishers sell in a retail bookstore can also be found on Amazon for the same price. Because Amazon has such a strong market share already, these contract provisions restrict the ability of Plaintiff, or any other booksellers, from competing with Amazon for business by offering better prices or a better product selection. In effect, these contractual provisions between the country’s largest publishers and Amazon allow the price-fixing for wholesale books, create a barrier to market entry for any new competitors, and hinder the expansion of existing book retail competitors of Amazon.[12] Due to the artificial lack of competition, the wholesale prices of books are being driven above a price that would be determined by supply and demand.[13] The complaint alleges that this price-fixing is in violation of Section 2 of the Sherman Act, which forbids monopolies from acting anticompetitively.[14]

 

This complaint raises new questions about the behavior of today’s largest companies. This case does not necessarily involve the size of Amazon as an enormous, integrated, ‘big tech’ company – on the surface it seems to implicate Amazon solely as a large bookstore, all that it once aspired to be. However, it seems nearly impossible to actually view Amazon’s bookselling capacity in isolation, now that we know just how far its influence truly spans.

 

[1] See generally Bill Baer, The Tech Antitrust Hearings Are Over: What’s Next for Enforcement?, Brookings (Aug. 11, 2020), https://brookings.edu/blog/techtank/2020/08/11/the-tech-antitrust-hearings-are-over-whats-next-for-enforcement.

[2] See Steven Pearlstein, Beating Up on Big Tech is Fun and Easy. Restraining it Will Require Rewriting the Law, The Washington Post (July 30, 2020), https://www.washingtonpost.com/business/2020/07/30/antitrust-amazon-apple-facebook-google.

[3] See generally Aishani Aatresh, What the “Big Tech” Trustbusting Conversation Misses, Harv. Pol. Rev. (Oct. 28, 2020), https://harvardpolitics.com/big-tech-trustbusting; see also Lina M. Khan, Amazon’s Antitrust Paradox, 126 Yale L.J. 710, 723 (2017).

[4] Lina M. Khan, Amazon’s Antitrust Paradox, 126 Yale L.J. 710, 713 (2017).

[5] See Amazon Opens for Business, History, https://www.history.com/this-day-in-history/amazon-opens-for-business.

[6] See id.

[7] See Katherin Khashimova Long, Amazon Faces New Lawsuit Alleging it Fixed Book Prices, The Seattle Times (Mar. 24, 2021), https://www.seattletimes.com/business/amazon/amazon-faces-new-lawsuit-alleging-it-fixed-book-prices.

[8] See id.

[9] See Complaint at 2, Bookends & Beginnings LLC v. Amazon.com, Inc., No. 1:21-cv-02584 (S.D.N.Y. 2021).

[10] See id. at 1.

[11] See id. at 2–3.

[12] See id. at 5.

[13] See id. at 7.

[14] See id. at 6.

Image Source: https://static.seattletimes.com/wp-content/uploads/2021/03/165354-768×512.jpg

By Sheridan Maxey

 

The pandemic caused many individuals to remain at home, and left a large number of individuals without sustainable income due to business closures.[1] However, remarkably, the trading of cryptocurrency remained stable with the well-known cryptocurrency, Bitcoin, reaching $17,000 per one coin in November 2020.[2] As of this writing, one Bitcoin is equivalent to $58,964.53.[3] Early investors of Bitcoin, and new investors since shelter-in-place orders have been in effect, are looking at a hefty return on investment if they were to convert their coins into the United States Dollar (USD). However, investors, veteran and novice alike, should be wary of making Bitcoin and other cryptocurrency trades and conversions. Despite the name “cryptocurrency” the Internal Revenue Service (IRS) and the United States do not consider cryptocurrency to be a form of currency akin to the USD; instead, the “currency” is instead considered property.[4]

 

Bitcoin and the USD have similarities in that both can be used to purchase items and both can be gifted to others. The major difference between the two that may not be so clearly understood is that the USD is only truly taxed when it is earned.[5] Of course, there also are sales taxes, use taxes, estate and gift taxes, and many others that essentially tax the same dollars that are taxed as income. However, one singular USD is always worth one USD, there is never a tax that is imposed because that one dollar is now worth two dollars tomorrow. One USD is just that, while it does have a value, it has no basis. But what is basis?

 

A very skeletal crash course of basis is that outside of specific circumstances, the basis of property is the cost of the property.[6] This means that if you were to purchase a coffee table, your basis would be the dollar value of that coffee table. Essentially, basis is determined by how many dollars are spent on an item. When an item is later sold, an amount is realized, and gain or loss is recognized.[7] Gain is determined by the excess of amount realized over the item’s basis, and loss is determined by the amount of the item’s basis in excess over the amount realized. For example, if you bought the coffee table for $10 and later sold it for $15, then you realized $15 and recognized a $5 gain on the sale of the table.

 

Now back to Bitcoin, does it have a basis? The answer is yes. The basis in one Bitcoin is the same as the basis in anything else; it is what the individual purchased it at. This is where the importance of knowing how the IRS views cryptocurrency comes into play. Income is gained when property is sold at an amount larger than its basis and loss occurs when property is sold for less than its basis. On paper this would seem easy to track, if one Bitcoin equals $58,964.85 today, then if you sold one Bitcoin for $58,965.85 tomorrow, then you would recognize an overall gain of $1. However, the resolution is not so simple.

 

Bitcoin is what is called a capital asset, which is all property held by an individual, subject to exceptions.[8] Capital assets have differing tax rates depending on how long they are held. If the one Bitcoin is held for less than a year before being sold, then there would be a short term capital gain which is taxed at a higher rate than a long term capital gain, which is what is recognized when a capital asset is held for more than a year. The gains rates are determined by an individual’s filing status and taxable income.[9] In addition to the gains rates, it is common for traders of cryptocurrency to purchase fractional “shares” of their coin of choice. This means that each time a fractional share is purchased, that transaction has its own basis. So selling one Bitcoin for $58,965.85 tomorrow when it is worth $58,964.85 today is not necessarily one sale that resulted in a $1 gain. In actuality, multiple fractional shares with different bases that make up one Bitcoin are being sold for $58,965.85. Essentially, this means that there is almost assuredly a much larger gain being recognized than just $1, and that the single sale is actually comprised multiple transactions.

 

The average cryptocurrency trader may not realize that they are selling multiple parcels with different values all at once. If the trader has more than one Bitcoin, they can choose which fractional shares they are selling in the transaction; however, if the trader cannot determine which shares they are selling, then the default method is that the oldest shares are sold first.[10] The oldest shares most likely have the lowest basis, meaning that a larger amount of gain will be recognized on a sale. On top of that, there is a taxable event each time Bitcoin is used to purchase something and when the currency is converted into USD.[11] Due to the intricacies in how cryptocurrency transactions are taxed, unwise and uninformed cryptocurrency trading can end up being more troublesome than it is worth when all of the tax consequences occur. A harsh reality may await many of the traders who have already been devastated by the pandemic when they file their taxes and find that their trades during the pandemic aren’t just numbers on a smart phone screen.

 

[1] Anjali Sundaram, Yelp Data Shows 60% of Business Closures Due to the Coronavirus Pandemic Are Now Permanent, CNBC (Sept. 16, 2020), https://www.cnbc.com/2020/09/16/yelp-data-shows-60percent-of-business-closures-due-to-the-coronavirus-pandemic-are-now-permanent.html.

[2] Phillip Inman, Bitcoin Jumps to Three-Year High as Covid Crises Changes Investor Outlook, The Guardian, (Nov. 17, 2020), https://www.theguardian.com/technology/2020/nov/17/bitcoin-jumps-to-three-year-high-as-covid-crisis-changes-investor-outlook.

[3] See Yahoo Finance, https://finance.yahoo.com/quote/BTC-USD (last visited Apr. 5, 2020) (showing the daily fluctuation of Bitcoin value).

[4] See Frequently Asked Questions on Virtual Currency Transactions, IRS, https://www.irs.gov/individuals/international-taxpayers/frequently-asked-questions-on-virtual-currency-transactions (answering that cryptocurrency is deemed property).

[5] See 26 U.S.C. § 1, see also 26 U.S.C. § 61.

[6] 26 U.S.C. § 1012.

[7] 26 U.S.C. § 1001.

[8] 26 U.S.C. § 1221.

[9] A Guide to the Capital Gains Tax Rate: Short-term vs. Long-term Capital Gains Taxes, Turbo Tax (2020), https://turbotax.intuit.com/tax-tips/investments-and-taxes/guide-to-short-term-vs-long-term-capital-gains-taxes-brokerage-accounts-etc/L7KCu9etn.

[10] Frequently Asked Questions on Virtual Currency Transactions, supra note 4 (answering that If no election to choose which coins are sold in a transaction is made, then the default method is to sell the earliest acquired coins first).

[11] See id. (answering that sales and conversions of Bitcoin are taxable events).

Image Source: https://www.forbes.com/sites/cbovaird/2021/04/02/is-bitcoin-building-up-support-near-60000/?sh=62e30db81c5d

By Drew Apperson

 

Internet users may sometimes wish to browse private or sensitive content and keep their activity secret, such as when planning a vacation, reading political news, or assessing medical conditions. But is it possible to be online without websites tracking users’ activity and collecting their data? A private browsing feature like Google’s Incognito mode may come to mind. However, the U.S. District Court for the Northern District of California is considering claims that even in Incognito mode, Google has been collecting personal and identifying data, regardless of users’ internet browsers, search engines, or other cautionary steps taken to safeguard online privacy.[1] The plaintiffs in the case claim that Google does so for anyone who searches via Google, uses Google Chrome, or so much as views a website that has a Google advertising service, which allegedly includes over 70% of websites.[2]

 

The court found that the claims have weight, too: Judge Koh signed an order on March 12, 2021 denying Google’s motion to dismiss any of the plaintiffs’ allegations.[3] The court found that the plaintiffs have adequately alleged: (1) that neither users nor third-party websites consented to Google’s data collection;[4] (2) that Google’s actions constituted fraudulent concealment;[5] and (3) that Google’s actions violate the Wiretap Act, California Invasion of Privacy Act, and California Comprehensive Computer Data Access and Fraud Act (CDAFA).[6] Maybe the most noteworthy of the claims withstanding the motion to dismiss are those of intrusion upon seclusion and invasion of privacy,[7] especially given Facebook’s recent history.

 

In July of 2019, The Federal Trade Commission imposed a $5-billion penalty for Facebook implementing and monetizing deceptive data collection methods.[8] The FTC reported that the penalty “is the largest ever imposed on any company for violating consumers’ privacy and almost 20 times greater than the largest privacy or data security penalty ever imposed worldwide. It is one of the largest penalties ever assessed by the U.S. government for any violation.”[9] The FTC explained that “[t]he magnitude of this penalty resets the baseline for privacy cases . . . and sends a strong message to every company in America that collects consumers’ data:  where the FTC has the authority to seek penalties, it will use that authority aggressively.”[10] Then last April, the Ninth Circuit, which has appellate jurisdiction over this case, ruled against Facebook concerning its data collection program that continued tracking users’ activity after they had logged out of their accounts.[11]

 

One might think that every website within U.S. jurisdiction would have revised its data collection scheme accordingly. Yet, the court here found significant similarities between Google’s alleged data collection and that by Facebook, noting that Google’s “vast amount of data was collected secretly, without any notice to users,” and that “internal Google communications show that the company’s employees recognized that its privacy disclosures were problematic.”[12] Furthermore, the court highlighted Google’s concession to the significant similarity between the cases.”[13]

 

The court went further than just equating Google’s data to Facebook’s, though: Judge Koh stated that the “allegations regarding the sensitivity of the data collected are arguably even stronger in the instant case,” and that there is “an even stronger argument that Google’s intrusion was highly offensive because, at the time Google collected the data, [the plaintiffs] were using private browsing mode, which is often used to prevent others from learning the user’s most private and personal interests.”[14]

 

The order only denied a motion to dismiss, though, so Google still has a chance. However, the court’s attitude may be foreshadowing an enhanced burden on Google. Furthermore, the FTC will likely not be pleased that its penalties on Facebook apparently did not resonate as much as it had hoped.[15] So how should internet users proceed in the meantime when browsing private or sensitive content? They may well assume that Incognito mode or any other private browsing mode is not actually private at all.

 

[1] Brown v. Google LLC, No. 20-CV-03664, 2021 U.S. Dist. LEXIS 48380, at *3–9 (N.D. Cal. Mar. 12, 2021) (order denying motion to dismiss).

[2] Id.

[3] Id. at *67.

[4] Id. at *31, 34.

[5] Id. at *41.

[6] Id. at *47, 51, 53.

[7] Id. at *67.

[8] FTC Imposes $5 Billion Penalty and Sweeping New Privacy Restrictions on Facebook, Fed. Trade Comm’n (July 24, 2019) https://www.ftc.gov/news-events/press-releases/2019/07/ftc-imposes-5-billion-penalty-sweeping-new-privacy-restrictions.

[9] Id.

[10] Fed. Trade Comm’n, Statement of Chairman Joe Simons and Commissioners Noah Joshua Phillips and Christine S. Wilson Regarding the Matter of Facebook, Inc., at 2 (July 24, 2019), https://www.ftc.gov/system/files/documents/public_statements/1536946/092_3184_facebook_majority_statement_7-24-19.pdf.

[11] See Davis v. Facebook, Inc. (In re Facebook Inc. Internet Tracking Litig.), 956 F.3d 589 (9th Cir. 2020), cert. denied, 2021 U.S. LEXIS 1480 (U.S., Mar. 22, 2021) (No. 20-727).

[12] Brown, 2021 U.S. Dist. LEXIS 484380, at *60, 65–66.

[13] Id. at *59.

[14] Id. at *59–60, 65.

[15] See Fed. Trade Comm’n, supra note 10.

Image Source: “Is your boss spying on you” by topgold is licensed underCC BY 2.0