Addressing legal issues with the latest technological developments and social media trends.
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On August 19, 2013, the New Jersey Senate passed – by a vote of 36 to 0 – a revised bill barring employers from seeking access to employees’ social media accounts. The bill was previously approved by the New Jersey Assembly on May 20, 2013, as discussed in a prior post on this blog.

A prior version of the bill also passed both houses but was conditionally vetoed by Gov. Chris Christie, who expressed concerns about some of the bill’s employee-friendly provisions. Among Christie’s recommended changes was the removal of a private cause of action by employees.

The bill now awaits Christie’s signature. Though the legislature adopted all of the Governor’s recommendations, it remains to be seen whether Christie has additional concerns about the new law.

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bitcoin_euro.pngOn July 23, 2013 the Securities and Exchange Commission (“SEC”) announced it was bringing charges in a Texas federal court against Trendon Shavers for allegedly using a Bitcoin Ponzi scheme to defraud investors between September 2011 and September 2012.  For those who may not know, Bitcoins are anonymous, decentralized, non-government-backed electronic currency.  Bitcoins were originally created by an unknown hacker in 2009 as a worldwide payment method with low processing costs and have become a much ballyhooed currency among the Technorati.  

The SEC is accusing Mr. Shavers, using the online handle “pirateat40,” of advertising the Bitcoin Savings and Trust and accepting 700,467 Bitcoins, worth approximately $4,592,806, as investments while promising a 7% weekly return.  Mr. Shavers allegedly promised to pay such returns to investors by trading the Bitcoins online.  In the SEC’s Complaint Mr. Shaver is alleged to have instead used funds from new Bitcoin investments to pay out the promised returns to older investors.  Additionally, the SEC alleged that he converted roughly $147,000 worth of the Bitcoins in order to pay personal expenses including “rent, car-related expenses, utilities, retail purchases, casinos, and meals.

Concurrent with the filing of the SEC’s Complaint, Andrew Calamari, director of its New York office, was quoted as saying. “[f]raudsters are not beyond the reach of the SEC just because they use Bitcoin or another virtual currency to mislead investors and violate the federal securities laws.”  The SEC also recently  issued an investor alert warning of scams involving virtual currencies, stating “[w]e are concerned that the rising use of virtual currencies in the global marketplace may entice fraudsters to lure investors into Ponzi and other schemes in which these currencies are used to facilitate fraudulent, or simply fabricated, investments or transactions.”

Shavers quickly moved to dismiss the SEC’s Complaint and argued that the SEC has no authority to bring this action, as the Bitcoins linked to his website were not securities because “Bitcoin is not money, and is not part of anything regulated by the United States”. In response the SEC said the investments were both contracts and notes, and so were securities that can be regulated, according to regulatory documents.  Judge Amos Mazzant of U.S. District Court in the Eastern Division of Texas, disagreed with Mr. Shavers’ arguments and found for the SEC in a ruling on August 6, writing, “[i]t is clear that bitcoin can be used as money” and “[t]he court finds that the [Bitcoin Savings & Trust] investments meet the definition of investment contract, and as such are securities.”.  Therefore, this historic SEC case will continue. 

Ironically, individuals who had simply bought and held Bitcoins from September 2011, without relying on Mr. Shavers services, would have made significant returns.  The average Bitcoin value from September 2011 to September 2012 was approximately $6.56 but thereafter skyrocketed to a high of $266 before settling down to the current value of approximately $95.30.   In fact, the700,000 Bitcoins at issue in this case are arguably worth around $65 million at their current value.

 

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Sean F. Kane, Pillsbury special counsel, will participate in PLI’s Think Like a Lawyer, Talk Like a Geek 2013: Get Fluent in Technology seminar by co-presenting during the “Virtual Games and Virtual Currency” session on Monday, November 18, 2013 at 11:30am.

This unique program will present extraordinary sessions combining experienced technology lawyers with industry hi-tech experts. You will hear simple and direct explanations of current technologies.

What you will learn:

  • How every company and individual is a target for international hackers
  • How cloud computing is displacing traditional software applications
  • How social networks are monetizing the detailed data they collect
  • The techniques used by mobile networks to track consumers
  • How online and virtual games have incorporated “virtual currency” into their platforms
  • Best practices for software project planning, implementation and negotiation
  • Establishing a corporate policy in creating and using Big Data

This event will also be webcast on November 18, 2013 at 9:00am.

SPEAKERS
Sean Kane, Pillsbury special counsel

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On July 30, 2013, the Florida Judicial Ethics Committee issued an opinion stating that a judge running for re-election may create a Twitter account for campaign purposes, but warned of potential pitfalls surrounding social media.

The opinion resulted from an inquiry submitted by an anonymous judge who plans to use a Twitter account to tweet about judicial philosophy, campaign slogans, and the candidate’s background. While the opinion is permissive, it also explains that many of Twitter’s features “could prove problematic” as a judge’s campaign tool:

  • Blocking specific followers;
  • Re-tweeting and marking tweets as favorites;
  • Creating lists of users and subscribing to lists created by other users;
  • And direct messaging that could result in ex parte communications.

To avoid these problematic aspects of Twitter, the Committee suggests that the “most sensible way” to use a Twitter account would be for the judge’s campaign manager to create and maintain the account.

The Committee’s concerns reinforce a 2009 opinion regarding the use of social networking sites such as Facebook and LinkedIn. In that opinion, the Committee stated that judges may post comments and other material on their social networking sites, but that judges are prohibited from becoming “friends” with lawyers who may appear before them.

As discussed in a previous post on this blog, opinions such as these represent the more restrictive views of social media. Earlier this year, the American Bar Association issued an opinion giving its stamp of approval to these kinds of online relationships.

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The NY appeals court reinstated a gambling conviction against a man who ran an illegal Texas Hold’em lounge. Originally, the gambling conviction was dismissed, largely based on the argument that poker was a game of skill, and therefore not illegal gambling. However, the appeals court overturned the dismissal based on NY State law, rather than federal gambling laws, stating the “the question of whether skill or chance predominates poker is inapposite to this appeal.” NY State law is fairly strict when it comes to gambling, which is basically illegal unless it is explicitly authorized by NY law.

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Cydney Tune will provide the Program Overview for PLI’s Technology and Entertainment Convergence 2013: Hot Business and Legal Issues in “Technotainment” on Wednesday, September 18, 2013 at 9:00am. Ms. Tune will also co-present during the “Going Mobile: Key Issues in Developing and Distributing Mobile Apps” session at 11:30am.

James Gatto will present during the “Know When to Hold ‘Em” session, which will focus on legal issues with social media-based sweepstakes, prediction markets and other forms of non-real money gaming, at 2:45pm.

This year’s program includes today’s major legal and business issues in the convergence of entertainment and technology. The program brings together a faculty of experienced in-house lawyers, law firm attorneys and senior business executives on the cutting edge of this burgeoning practice.

The expert faculty will address recent litigation and key cases involving convergence issues, such as the myriad of issues raised by new platforms and new technologies as well as the resulting evolution of entertainment content; recent decisions on digital television, right of publicity, and contributory copyright liability; issues in connection with social media and apps, including privacy issues and the new COPPA rules; and advertising and promotion issues and strategies.

The discussions will also focus on transitions in the entertainment industries, such as TV, film, and games, and the related issues and strategies. Be sure that you are on top of all of the developments and burning legal issues at the intersection of technology and entertainment! You will learn what you need to know to maintain your practice edge by attending this one-day “Technotainment” program.

What you will learn:

  • Convergence trends and relevant technology developments
  • The evolving entertainment industries, including TV, film, and games
  • Trends in litigation and recent convergence cases
  • Legal issues in social media and apps, including privacy and best practices
  • The complex web of agreements needed to develop content for, and to move content to, new platforms
  • The new COPPA rules and how to implement them
  • Advertising and promotions in new media

This event will also be webcast on September 18, 2013 at 9:00am

SPEAKERS
James Gatto, Partner, Social Media, Entertainment & Technology, Pillsbury
Cydney Tune, Leader, Copyrights practice section and Media & Entertainment, Pillsbury

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 A weekly wrap up of interesting news about virtual worlds, virtual goods and other social media.

 

 

Surprise: Facebook Is The Tech Company That Reports The Blowout Quarter
The social network surprised on the massive upside. Its mobile business is maturing at an even quicker clip than some aggressive estimates.

 

SEC Says Texas Man Operated Bitcoin Ponzi Scheme
Regulators have cracked down on an alleged Ponzi scheme involving the virtual currency bitcoin as they issue a more general warning about the dangers of such scams for investors. 

 

Upcoming Event: How to Comply With Social Media Regulations While Building Deeper Customer Relationships
In this webcast, IBM and Integritie will explore the opportunities that social media channels now give all organisations to build deeper relationships with their customers and how their solution SMC4 meets the strict compliance regulations set by the FCA, FINRA, SEC and NASD. Using social media is something that worries many organizations across all industries, but particularly concerns Financial Services and highlights the communication risks that could potentially occur thus leading to brand and reputation damage, or worse.

 

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In June, Pillsbury welcomed Riaz Karamali to the Corporate & Securities – Technology practice in the firm’s Silicon Valley and San Francisco offices. He has vast experience with start-ups and in the the videogame space is a strong fit with Pillsbury’s capabilities in the San Francisco Bay Area. Mr. Karamali has acted as outside general counsel to many privately-held companies across a range of industries including the video game, cloud computing, mobile, biotechnology, semiconductor and medical device sectors. He frequently represents clients in Europe, Asia, and the Middle East on cross-border transactions.

Riaz is a great addition to the firm’s Social Media & Games team. Pillsbury’s multidisciplinary Social Media & Games team includes over 70 attorneys around the world working at the forefront of emerging business and legal issues relating to Virtual Goods & Currency, Gamification, Gamblification, Mobile Apps and Location Based Services, Augmented Reality, Online & Video Games, Social TV and much more.

The team’s unique capability to provide comprehensive, proactive advice on these cutting-edge issues results, in part, from our attorneys’ commitment to be involved and stay abreast of rapidly evolving business, legal and technical trends. Through this investment, our team obtains valuable knowledge and insights that enable us to provide significant strategic advice and resources to clients, well beyond just “doing legal work.”

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Jim Gatto, and James Chang recently published “Mobile Privacy Practices: Recent California developments indicate what’s to come” in the June issue of Computer Law Review International.

The use of mobile applications has seen huge growth in the past few years. As the use of apps become increasingly commonplace, social concerns such as the privacy of app users will increasingly need addressing. California is taking the lead in regulating this important issue. For more information, including an overview of mobile privacy, a summary of California’s stance on how to address the issue, an overview of the state’s principles regarding privacy, its best tips for complying with its principles, and an examination of the privacy related laws outside of California, please read the full article: Mobile Privacy Practices: Recent California developments indicate what’s to come.

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As recently reported, FINCEN issued significant guidance on legal issues with virtual currency. Shortly thereafter, an enforcement action was initiated against Mt. Gox, one of the largest bitcoin exchanges for operating without the proper licenses.

The use of virtual currency is prevalent and an important part of many social media and games business models. But it is imperative to understand the legal ramifications of its use. For an overview of the FINCEN guidance our team has prepared an Article regarding these issues.