Internet Law

June 7, 2013

New Proposals to Fight Patent Trolls

New proposals coming from the White House this week should give small business owners hope for relief from costly patent troll litigation. This type of lawsuit has been an increasingly expensive threat to small businesses, most of which never imaged they’ll be involved in patent litigation. The common perception is patent disputes are for manufacturers to worry about, and the number of small business manufacturers is dwarfed by those in construction, services, retail and health care. Unfortunately, patent trolls, politely called non-practicing entities (NPEs), have turned that perception on its head.

The way NPEs work is frustratingly simple. They acquire patents, often in large packages at a time, and then look for existing products which could be deemed to infringe on the patent. But instead of going after the business which is making the product, NPEs frequently go after the end users. Think of this in terms of the Samsung v Apple litigation that’s been in the headlines so often lately – imagine if Samsung had not sued Apple but rather demanded licensing fees directly from every iPhone user in the country. This is the tactic the NPEs take.

The NPEs know their patents are often worthless. If they were forced to defend them against an actual manufacturer, with financial resources behind them, they’d face the real risk of having the patent invalidated. So by pursuing the end user, often a business who bought a particular software program or copier, they’re pursuing those least able to defend themselves. The NPE sends out mass mailings demanding penalties and licensing fees, and waits to see who responds. In most cases, the targeted business never even learn who’s behind the NPE, they only deal with the law firms who make a living fronting for these entities. That may soon change.

The proposals from the White House include seven legislative recommendations and five executive actions. While the legislative recommendations would certainly be most helpful, the chances of Congress passing anything requested by the Administration seem slim. The executive actions appear to be more likely, and should ultimately help small businesses who are targeted by these trolls.

In the short term, suggested changes requiring the true owner of a patent to identify themselves should help targeted businesses and provide a claim history for their counsel to track. This will certainly help. Also, the Administration has proposed an education and outreach program so targeted businesses can learn more about their rights.

The biggest improvement, however, is likely to be in the long term as new efforts are implemented to improve training for PTO examiners. The goal is to restrict the acceptance of overly broad claims in issued patents. Applicants will be forced to improve the explanation of their claimed invention, and the patent will be limited to a specific method of accomplishing a task, instead of all method for accomplishing the task.
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April 30, 2013

BEST PRACTICE TIP: PRIVACY CONCERNS WITH EMPLOYEE SMARTPHONES AND iPADS IN THE WORKPLACE

by H. Adam Shapiro

Companies today are increasingly allowing employees to use a company issued smartphone or iPad for personal use. Companies actually invested money and polled employees and found that employees hated having to carry around a business and personal mobile device. While it may have seemed like an easy concession to appease employees, there are hidden dangers lurking in the weeds. What privacy concerns are triggered when the employee returns the company device when fired or just receives an updated smartphone or tablet? What if the employee downloaded Facebook onto the device and has the automatic login feature enabled? Does the employer now have the ability to review all of the employee’s personal information on Facebook? What if the employee does online banking through his device?

The problem also rears its head in the reverse scenario as well. What happens when an employee’s personal smartphone has company data, contacts and trade secrets on it? What happens when the employee returns the smartphone for an upgrade, loses the device or donates the phone to a battered woman’s shelter? What happens to all of your company trade secrets? Did you just breach a few dozen confidentiality agreements?

The short answer to all of these questions is, “I don’t know, more facts are needed.” What I wanted to point out however is what I want to call a “Best Practice Tip”. An employer whose employees use mobile devices, be it smartphones or tablets, needs to have a clearly defined privacy policy in place with either a very limited expectation of privacy (or no expectation of privacy) and specific guidelines on how these devices are handled on a day to day basis and at the end of their useful life.
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March 19, 2013

SEARCH AND SEIZURE IN THE DIGITAL AGE

by H. Adam Shapiro

Earlier this month the U.S. Court of Appeals for the Ninth Circuit ruled that border agents may not perform a forensic search of a traveler’s laptop merely because he is crossing the border into the United States. In the current climate of heightened security to prevent terroristic acts, we have sacrificed some of our basic freedoms as Americans. In this particular case, it was the breadth of coverage of the Fourth Amendment to our Constitution versus the boarder search exception doctrine.

The Fourth Amendment states in a nut shell that we shall be free from unreasonable searches and seizures. This boarder doctrine is a product of United States criminal law that allows basically unfettered searches and seizures within 100 miles of a border without the need for a warrant.

In the case before the Ninth Circuit, a traveler’s laptop computer was confiscated by the government for 5 days while it ran encryption software to break the traveler’s security codes. The Court recognized that while the Supreme Court has virtually suspended the Fourth Amendment at international boarders, this type of conduct went too far. The Ninth Circuit clearly stated in its Opinion that the government needed a “reasonable suspicion of illegal activity” before border agents can invade a person’s right to digital privacy. In particular, the Court stated, “A person’s digital life ought not be hijacked simply by crossing a border.” Please click this link to read a copy of the Opinion.

Too bad for the traveler in this case however; while the Court stated a standard that required a reasonable suspicion of illegal activity, the Court found that this standard was met. This traveler had a prior conviction for child pornography and was travelling from Mexico which is known to have a high incidence of child sex crimes. Combined with the fact that significant child pornography was indeed found on his computer’s hard drive made for an easy decision to get this predator off the street and rule the seizure valid.

So what should employers in Philadelphia and the surrounding four counties (Bucks, Montgomery, Chester and Delaware) take away from this regarding digital privacy rights? Well, Philadelphia International Airport (and Newark Airport for that matter) is considered an international boarder. Thus, the government conceivably can just walk up to one of your employees and in the name of security confiscate your company laptop, tablet or smart phone. What trade secrets or customer lists are on these digital file servers? What confidential agreements have you just broken by allowing the government to view highly confidential information? Do you have an obligation to immediately file an injunction to prevent the government from viewing the contents of your smart phone? Do you have to report this to your Board of Directors?
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March 5, 2013

PENNSYLVANIA EMPLOYERS WILL NEED TO UPDATE EMPLOYEE HANDBOOKS AND OTHER CORPORATE POLICIES IF NEW SOCIAL MEDIA BILL PASSES

by H. Adam Shapiro

Last month Philadelphia City Council proposed a bill that would prevent employers from legally requiring employees to provide them with access to an employee’s social media account.

Highlights of the social media protections afforded to employees or prospective employees under the proposed bill include:

• prohibits requiring an employee to log on to a site in the employer’s presence;
• prohibits the employer from gaining access to an employee’s social media indirectly;
• protects the employee from retaliation if he refuses to give his username and password, or any other related account information.

The proposed bill does not however prevent an employer from monitoring an employee’s use of his corporate computer, email and cell phone for use not consistent with corporate policy. What this bill makes clear is that every employer needs to have a clearly written corporate policy on what is and is not allowed relating to the use of its technology in an employee handbook.
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February 19, 2013

DO WEBSITE TERMS OF USE BIND CUSTOMERS? SOMETIMES.

by H. Adam Shapiro

At the bottom of virtually every website is a link titled “Terms of Use” or “Terms and Conditions.” Click on this and you will see the conditions a company wants to impose on its customers who click through their website. Traditionally courts have held that “terms of use” and “privacy policy” sections of a website are binding. However, a recent federal court decision ruled that a major company’s Terms and Conditions was not enforceable and how the implementation of the user agreement (user agreements are what the courts typically call Terms of Use and/or Privacy Policies) was why the court decided the user agreement was not enforceable.

There are two categories of user agreements. The least effective user agreement is the browsewrap agreement. Businesses who adopt this approach take the position that the customer agrees to the user agreement by virtue of the customer merely visiting the website. No affirmative action is required by the customer other than visiting the website.

Contrast this approach with the clickwrap agreement. In the clickwrap agreement, the customer must click “OK” or “Agree” in order to accept the User Agreement before he can access the website. The best example I can think of is Apple. Anybody who has iTunes is familiar with the almost biweekly updates to the “terms and conditions” and that if you want to continue to use iTunes, you have to “Agree” or click “OK”.

However, as much as people may criticize Apple, they are doing it correctly. Every time a change is made to a user agreement, it is a best practice to obtain the affirmative consent of the user. Failure to do so leaves the user agreement open to attack. The argument is that because the user was not aware of the one-sided unilateral change, it will not be controlling. In fact, this is exactly why the federal district court invalidated the Zappos user agreement. Because Zappos failed to obtain the customer’s acceptance of new terms and conditions, Zappos was unable to impose its mandatory arbitration provision against its customer.
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February 12, 2013

CLIENT ALERT: RECENT COURT RULING REGARDING THE VIOLATION OF A COVENANT NOT TO COMPETE – SOLICITATION OF PAST CUSTOMERS

by H. Adam Shapiro

In a breach of contract case last month (January 2013), a Pennsylvania trial court correctly ruled (in my humble opinion), that a seller did not violate the terms of a covenant not to compete in an asset purchase agreement by providing services to its former clients. The new owners of the company argued for a broad interpretation of the word “solicit” and a holding that the seller had solicited its former business clients. The court disagreed, and in a very clearly worded opinion held the word “solicit” means more than just accepting work from a former client. In this case, the seller did not proactively reach out to any of his former clients, but merely agreed to work for them after the former clients unilaterally approached him.

This unfortunately was a case of a lawyer not paying attention to the details. The main asset in this sale appears to have been the customer list, and the buyer failed to ensure it was properly protected. This problem could have easily been easily avoided by including in the agreement a list of clients the seller could not work with, a mandatory referral clause, or perhaps a broader geographical restriction, just to name a few options. Realize now, every case turns on its own unique set of facts and circumstances and your situation may differ from what the court analyzed here. In the above example, the key fact for this particular court was that the plaintiff was unable to produce any evidence to contradict the seller’s statement that he did not reach out to former clients.
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February 5, 2013

WORKPLACE NOTICE REQUIREMENTS – NEW JERSEY

by H. Adam Shapiro

Earlier this year (January 22) I blogged about workplace notices that are required by a business that maintains an office in Pennsylvania. Our New Jersey clients have spoken and I apologize. Set forth below is a list of the posting requirements for New Jersey businesses. These posters are in addition to the federal posting requirements and must be displayed in a conspicuous area. Hard copies are available through the New Jersey Department of Labor and printable copies may be found at
http://lwd.dol.state.nj.us/labor/employer/content/employerpacketforms.html

– Wage and Hour Law Abstract – Child Labor Laws – Reporting and Recordkeeping Requirements Under State Wage, Benefit, and Tax Laws
– Payment of Wages
– Schedule of Minors’ Hours (if applicable)
– Family Leave Insurance
– Unemployment Insurance and Disability Insurance Laws
– Conscientious Employee Protection Act ( also known as the “Whistleblower” Act)

In addition, the New Jersey Office of the Attorney General requires that businesses that provide services to the public (i.e. doctor’s offices and movie theaters) post a Public Accommodation poster.

The OAG also requires employers to post a Notice regarding Discrimination in Employment and post the required Notice regarding the Family Leave Act. In addition, businesses associated with the sale, rental and or lease of real estate are required to post a Discrimination in Housing poster. These materials are available at http://www.nj.gov/oag/dcr/posters.html.

Please remember that these Notices are in addition to the federal notices discussed earlier.
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January 22, 2013

WORKPLACE NOTICE REQUIREMENTS

by H. Adam Shapiro

As a reminder to our business clients, federal and state law requires that employers post notices informing employees of their rights in the workplace. Notices that are required are specific to the type of employer and the number of employees employed. Failure to post these notice can result in fines. Below are posters that most employers should have.

Federal Government Employment Posting Requirements
• Job Safety and Health Protection, OSHA information
• Fair Labor Standards Act Minimum Wage Poster
Pennsylvania Employment Posting Requirements
• Minimum Wage Law Poster and Fact Sheet • Abstract of Equal Pay Law • Unemployment Compensation Poster • Workers’ Compensation Insurance Posting
National Labor Relations Board
• Employee Rights Notice Poster
Copies of these and other posters are available through the links provided. The posters must be physically posted in areas where employees will be able to see the posters. The information also is sometimes required to be posted on the employer’s website.

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January 15, 2013

PENNSYLVANIA CREATES NEW CORPORATION KNOWN AS A “BENEFIT CORPORATION”

by H. Adam Shapiro

On January 23, 2013, Pennsylvania will become one of twelve states to have created a new type of corporation known as the “benefit corporation.” Titled the “Pennsylvania Benefit Corporation Act“, the act allows “social” entrepreneurs to focus not only on the bottom line but to also consider other non economic societal factors (community, environment, employees etc…). While the Benefit Corporation is based upon the familiar corporate form, it has three additional requirements – purpose, accountability and transparency.

Purpose. In short, the Benefit Corporation must have a purpose designed to create a positive impact on society and the environment which will be judged against a third-party standard. Examples could include companies focused on protecting the environment, educating inner city children or promoting awareness on health issues. The Act itself sets forth a non-exclusive list of appropriate purposes.

Accountability. Fiduciary duties of officers and directors have been broadened to require consideration of not only the traditional bottom line analysis, but how a decision impacts non-financial interests such as the environment or the company’s employees. For example, if a company is going to be acquired in a merger, the officers and directors are no longer required to solely maximize shareholder value. A Benefit Corporation’s Board of Directors are able to accept a lower price per share if going this route will result in no employees being terminated.

Transparency. Benefit Corporations are required to deliver to their shareholders an annual “benefit report” describing how the company met its stated public benefit goals as set forth in its articles of incorporation and if not, what transpired that prevented this from happening. The benefit report must filed with the Department of State and be posted on the company website. If there is no website, then the company must provide a copy to any person who requests a copy.

So, why would you want to form a Benefit Corporation or possibly switch your current entity to a Benefit Corporation? First and foremost, you may be socially conscious and believe a corporation has a responsibility to focus on more than just the bottom line. Second, there are tax advantages and incentive programs aimed at Benefit Corporations that are not available to other companies. Finally, marketing surveys have seen a push amongst consumers to direct their purchasing dollars towards businesses which are aligned with their priorities. Especially in this age of social media, where the effects of corporate behavior have fast implications, this can be a great way to distinguish your business from the competition.
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January 4, 2013

AT WILL EMPLOYMENT DISCLAIMERS – WORD CHOICE MATTERS

by H. Adam Shapiro

The General Counsel’s Office for the National Labor Relation’s Board has recently provided guidance regarding at-will employment disclaimers in employee handbooks. In the past, challenges of unfair labor practices (violation of Section 7 rights) have been successful before administrative law judges where the challenged language was read to imply that the at-will employment relationship could never be changed. Language that has recently found to be acceptable was where the employment was considered to be at-will, but that it could be changed only by the president of the company and that it must be in writing.

So what does this mean to employers? Word choice matters. Drafting an employee handbook alone or going to an office supply store and purchasing a form may seem like a good way to save money up front but can quickly cost more money in the long run. It is much better to have an attorney meet with you and actually observe and understand how your company operates and then draft a handbook that is tailored to your business and your state laws. In fact, insurance companies frequently will offer you a discount if you have an employee handbook that clearly states, for example, that sexual harassment and discrimination will not be tolerated and provides an employee a way to report such misconduct. Other issues a well thought out handbook should address include privacy and internet policies, as well as what benefits are and are not provided by the company. This is not meant to be an exhaustive list but is designed to get you thinking about what issues you should want to be clearly written down so that your employees know exactly what is expected of them in the workplace.
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