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Timestamp: 2019-03-24 22:28:40
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Uncategorized | Page 2 of 6 | eMedia Law Insider
Posted in Internet and the Government, Privacy & Public Policy, Start Ups & Doing Business Online, Uncategorized
In a developing story, The New York Times is reporting that the FBI is investigating the St. Louis Cardinals for hacking into the Houston Astros’ computer networks to steal the Astros’ internal baseball operation intelligence which is apparently working.
Quick aside: click here to see highlights of last night’s win and the emergence of some of the Astros’ young stars.
The Astros’ GM responsible for the resurgence of the team used to work for the Cardinals. The two used to compete in the National League Central before the Astros moved to the American League West (I’m still getting used to that).
When Luhnow left St. Louis, he helped the Astros build their “Ground Control” database which mirrored a similar effort he helped lead when with the Cardinals. This is all part of the sabermetrics / big data craze in professional sports. It’s the reason that at the game I attended earlier this month, it seemed like the shift was employed on defense almost half the time.
Some leaked information was already published in an embarassing article on Deadspin which included some trade prospects and player evaluations.
The FBI claims the Cardinals used a master password list compiled by Lunhow and associates when they were with the Cardinals to guess their passwords on the Astros’ systems. The FBI was able to determine the hack had been done from a computer at a home that some Cardinals officials had lived in.
Here’s more background and detail from The Washington Post.
So what are the legal issues?
We often advise clients who have been hacked to contact law enforcement authorities. When it is on a smaller scale or not as high profile, it is hard to get them to take action. It is almost always better if you can get law enforcement to investigate and do the heavy lifting.
On the criminal side, you are looking at fines and up to five years in prison based on the statutes discussed below.
But, you can still resort to the civil courthouse.
The CFAA (18 U.S.C. § 1030) makes it illegal to access a data base without proper authority or to exceed one’s authority impairing the computer system or data accessed and was passed to address hacking. Liability is premised on there being at least $5,000 in losses in any one-year period. The CFAA is primarily a criminal statute.
A plaintiff could make a civil claim under the CFAA to recover actual damages, injunctions or other equitable relief. A criminal conviction can result in fines and imprisonment. On the civil side, plaintiffs sometimes struggle establishing the required $5,000 in a statutorily-defined “loss” to pursue a CFAA claim.
The CFAA defines “loss” as “any reasonable cost to any victim, including the cost of responding to an offense, conducting a damage assessment, and restoring data, program, system or information to its condition prior to the offense, and any revenue lost, cost incurred, or other consequential damages incurred because of interruption of service.” 18 U.S.C. § 1030(e)(11).
Lost opportunities (like trades, or the value of the actual information) often do not qualify as the type of loss covered by the statute. The loss usually results from costs of investigation and the expense to shut down the computer network.
ECPA and the SCA
The Electronic Communications Privacy Act (18 U.S.C. § 2510) and the Stored Communications Act (18 U.S.C. §§ 2701-12) are equally important sister statutes. Generally speaking, the ECPA applies to electronic communications in transit and the SCA applies to communications stored on servers. By gaining access to a database on the Astros’ servers, the perpetrators may be liable under the Stored Communications Act.
A plaintiff under the ECPA can recover a minimum award of $10,000 or $100 per day of violation — whichever is greater, or, actual damages, plus punitive damages, attorneys’ fees and costs. Criminal violations can result in up to five years and fines up to $250,000 for individuals and $500,000 for organizations.
The SCA meanwhile, which is technically part of the ECPA, makes it illegal for anyone to “intentionally access[] without authorization a facility through which an electronic communication service is provided or . . . intentionally exceeds an authorization to access that facility; and thereby obtains, alters, or prevents authorize access to a wire or electronic communication while it is in electronic storage in such system.”
In addition to these statutes, there could be additional claims like RICO, breaches of contracts, wire fraud, trespassing and a myriad of state law claims.
The best revenge would be to rectify this dark moment in Houston Astros history from the 2005 NLCS (although the Astros won Game 6 in St. Louis before being swept by the White Sox in their only World Series appearance).
Maybe Springer, Correa, Altuve, Tucker, McHugh and Velasquez can get their recompense out of the courtroom.
Here’s my interview on Sports Radio 610 from this afternoon’s Triple Threat Show.
https://emedia-law-insider.lexblogplatform.com/wp-content/uploads/sites/323/2015/06/Travis-Crabtree-TTT-061615.mp3
After watching the firing of the digital communications manager for the Houston Rockets during their run through the playoffs (read the story here in the Houston Chronicle). I figured it would be a good time to revisit the issue of firing people for their conduct on social media as previously discussed here in 2012.
Firing the Person In Charge of Social Media
As the Rockets were wrapping their series-clinching game five victory over the rival Dallas Mavericks, the Houston Rockets Twitter handle tweeted this:
Many thought it was in bad taste and the Rockets removed it and apologized. The Rockets have been known to push the limits a little on social media including personal tweets from the Rockets General Manager. Soon thereafter, the digital communications manager responsible for the tweet was fired.
I am assuming the digital communications manager is an at will employee, so there is not much of a legal debate about firing him for allegedly bringing ill will to the Rockets brand. Houston social media thought leader Brian Block suggests there may have been better ways to deal with the person running your official Twitter handle.
The harder issue is when the social media post is purely personal.
The NLRB Suggests You Think Twice
If someone said the boss was a “NASTY M***ER F***ER don’t know how to talk to people!!!!!!” Followed by “F*** his mother and his entire f***ing family!!!! What a LOSER!!!!” (No asterisks were used in the actual post, but this is a family blog), firing the employee seems like a no-brainer.
But, wait for it, . . . the post also said “Vote YES for the UNION!!!!!!!” Now, we have protected concerted activity. The NLRB upheld the administrative law judge’s decision that firing the employee for the profanity-laced rant violated the NLRA. Essentially, if the rant is about working conditions, terms of employment or discussing even the possibility of unionizing, then it can be protected speech. The NLRB says this is no different than two employees getting together in the lunch room to discuss the terms of employment and possibly unionizing.
I guess we should advise anyone that wants to talk trash about their employer to follow whatever crazy thing they want to say with “Vote YES for the UNION!!!!!!” It may prevent you from getting fired — unless you are the official voice of the organization and you use a gun emoji.
In Related Local Houston News: There is another interesting local story dealing with whether the individual or the company owns the Facebook account happening in a local bankruptcy court. I provided some thoughts on how to protect the company account in the past.
This was one of the more interesting stories of the year – does the photographer who set up everything to allow for a monkey to take a selfie own the copyright to that selfie? This year we learned that no, the photographer does not.
4. Infographic: The Use of Images From The Web on Your Site, Newspaper or Broadcast – Enough Said:
3. The Law on Unpaid Interns – This post makes the list almost every year because I repost the guest post by Michael Kelsheimer of the Texas Employer Handbook every year as tech start-ups look to hire unpaid interns. It’s a little more complicated than you may think.
2. #SMH-butnotacontestorasweepstakes – Check your online promotion hashtag or face scrutiny from the FTC – This post covered the surprise investigation of the Wandering Sole contest by Cole Haan. The FTC basically said if you are going to have customers “endorse” your products by and through a contest, you better make sure the connection between the endorsement and contest is disclosed. The legality of online contests is a popular topic with an older post Is Your Online Sweepstakes or Contest Legal still remaining popular.
1. When Online Behavior Crosses the Line – The Law on Threats, Libel and Just Being Rude – Online defamation and related topics continue to be popular. In fact, this post from 2012, remains one of the most popular on the site, How to Identify the Anonymous Online Defamer. My suspicion is that SEO on these topics leads to more page views. Nevertheless, it continues to be a very important issue for individuals and businesses and will likely continue in 2015.
What exactly does Texas Intrastate Crowdfunding Look Like?
Posted in Start Ups & Doing Business Online, Uncategorized
As you probably read, the Texas Securities Board approved intrastate crowdfunding yesterday without limiting it to accredited investors. You can read the rules here.
For those wanting to issue equity through intrastate crowdfunding:
Companies may raise up to $1 million per 12-month period
The company must be a non publicly-traded Texas entity (see below) and can only offer the securities to Texans (see below for more specifics).
The company must have a defined business plan, investment goals and list disclosures. This means you will have to post a summary of the offering on the portal at least 21 days before any securities may be sold. The disclosures must include risk factors, a description of the issuer’s business, operations, and management, a description of the securities and other material information.
Customary bad actor disqualifications apply.
To obtain more than $5,000 from accredited investors, the company must verify the investor qualifies as “accredited.”
Investor funds must be placed in escrow until the specified minimum offering amount has been raised.
You are allowed to provide a limited notice about your efforts and provide a link to the portal, but you can only distribute this to investors located in Texas.
You do not have to publish reviewed or audited financial statements unless audited financial statements are already available for any of the three years prior to the offering. Instead, the CEO can certify the financial statements are accurate and complete as of the date of the offering.
With regard to the portals:
Fill out a Form 133.17 with the State Securities Board, complete a background check and pay the registration fee for securities dealers in Texas registering as a restricted dealer.
You are not required to pass the General Securities Registered Representative (Series 7) Exam or the Uniform Securities Act State Law (Series G5) Exam.
You have to limit access and trading activity to Texas.
The portal must confirm residency before allowing access by the investor. The portal also has to conduct background and regulatory checks for bad actor compliance.
You cannot offer investment advice, manage investor funds, or facilitate secondary market transactions, along with other restrictions.
You will be required to maintain certain records for five years and you will have post-registration reporting requirements and renewal fees.
All communications between the investors and the company raising the money must take place on open forums on the portal.
Now, for those that like to dig into the details, intrastate crowdfunding in Texas is made possible because Section 3(a)(11) of the Securities Act of 1933 exempts from federal registration securities offered and sold only to persons within a single state or territory, in which the issuer is also a resident.
To issue stock as a Texas entity, you must:
be organized in and have your principal place of business in Texas;
have at least 80% of your gross revenues during the most recent fiscal year prior to the offering be derived from the operation of business in Texas;
have at least 80% of the your assets at the end of its most recent semiannual period prior to the offering located in Texas; and
use at least 80% of the net proceeds of the offering for your operations in Texas.
To invest, you must be a Texas resident which means, you must be:
A corporation, partnership, trust or other form of business organization with its principal office in Texas.
An individual who, at the time of the offer and sale, has her principal residence in Texas.
If an entity is set up for the specific purpose of buying the stock, all of the beneficial owners have to be residents of Texas.
We will follow up with a more thorough analysis of this method as we digest the new rules.
Former FTC Regional Director and Court of Appeals Justice Answers What To Do When the FTC Investigates
We like to give you information that helps you stay off the radar of the Federal Trade Commission with posts like this, this, this, this, this and this. But, what do you do if the FTC does investigate? I asked newly-minted Gray Reed & McGraw shareholder Justice Jim Moseley to help us answer some questions. Before serving on the Texas Court of Appeals in Dallas, Justice Moseley was the Regional Director of the FTC’s Dallas Regional Office during the Reagan Administration.
Q: When and in what capacity does the FTC investigate?
A: The FTC has enforcement authority under 70 different statutes and federal rules. Many of its investigations are brought under the broad powers of Section 5 of the FTC Act which declares unlawful “unfair or deceptive acts or practices in or affecting commerce.” 15 U.S.C. § 45(a)(1). Its trade regulation rules attempt to set forth what it considers to be “unfair or deceptive” in the context of a particular industry or particular type of consumer transaction. In addition, the FTC is the primary enforcement arm responsible for privacy and false advertising.
FTC investigations are usually triggered by complaints from a consumer or from a competitor. The FTC may start an informal investigation by sending an “access letter” which is a non-enforceable voluntary request for information. However, it may also conduct a more formal investigation through the issuance of a “Civil Investigative Demand” or CID.
Q: What should a company do if the FTC investigates?
A: Although a response to an access letter is voluntary, if you refuse to cooperate the FTC is likely to follow up with a CID. The CID is a judicially enforceable request for information much like a subpoena that you cannot ignore.
The first thing you should do is carefully read the demand and make sure you preserve your records on the topic of inquiry. You are likely to get in more trouble if you attempt to hide or conceal evidence related to the investigation. Special rules also apply to preserving electronically stored information (ESI). Make sure your information technology personnel properly maintain the necessary ESI and revise any regular document or data retention procedures as necessary.
Next, you need to note the deadlines of compliance and consider contacting qualified experienced counsel immediately. Now is not the time to attempt to save a few dollars.
A: Most of the investigations will require you to produce documents and will often request a meeting with FTC personnel. Normally, the most prudent course is to cooperate. You do, however, have the option to try and limit the scope of the inquiry or quash the CID in its entirety. Your ability to seek court intervention is often on a deadline, so you should not delay.
You are usually better off opening up a dialogue with the FTC to try and limit the scope and the scope of the CID if it is burdensome. You can often learn more about their concerns and better address the FTC’s concerns by keeping open the lines of communications. The FTC will often work with you to limit the parameters of the production or give you more time when the circumstances call for it. Likewise, if something comes up that causes a delay on your part, it is better to tell them in advance than leave them surprised and suspicious.
Although you are providing documents to a governmental entity, they will be treated as confidential and not subject to a FOIA request. They can and will be used against you, however. Someone from your company will usually also be asked to sign off on a certification of some kind that should be read carefully to avoid creating any personal liability that may not otherwise be there. Finally, read the requests carefully and only produce what is being requested. There is no need to give them additional fodder that may only open new lines of inquiry. Then, you usually have to sit and wait for the FTC to review the materials and get back with you.
A: You can usually identify the FTC’s concerns in the CID or in follow-up communications to determine the law or regulation the FTC is pressing. When evaluating whether a representation is deceptive under Section 5(a) of the FTC Act, for example, the FTC generally looks at three issues: (1) whether the respondent disseminated the representations alleged; (2) whether those representations were false or misleading; and (3) whether those representations are material to prospective consumers.
The FTC has broad authority to act against what it perceives to be deceptive practices under Section 5(a) of the FTC Act. The FTC also has broad discretion in determining whether a proceeding brought by it is in the public interest. The FTC has equally wide discretion in its choice of a remedy in addressing unlawful practices which can include injunctions, compliance orders and monetary damages.
A: If the FTC staff concludes there has been a violation, it will usually push first for a “consent order” in which the company agrees to stop the harmful conduct and to pay consumer redress in the form of fines or civil penalties. If no agreement can be reached, the FTC staff will ask the Commission itself to start a formal proceeding before an administrative law judge; this procedure is similar to a trial before a judge.
If the administrative law judge rules in favor of the FTC, a “cease-and-desist order” is usually issued. The company can appeal an adverse decision by the judge to the full Commission. If either party is not satisfied with the outcome at that level, it can appeal the Commission’s decision in the federal courts. In cases where the FTC believes the respondent knew or should have known the conduct was “dishonest or fraudulent,” the FTC may follow up the administrative proceeding by asking a federal court to order consumer redress, such as an order to pay monetary restitution to victims of the violation.
The FTC also has the ability to go straight to a federal court to seek an immediate order to stop ongoing consumer fraud and to seek to freeze the assets of the defendant. The FTC will often seek to hold individuals financially responsible for any egregious acts.
Posted in First Amendment, Online Defamation & Anonymity, Uncategorized
On Friday, the Supreme Court of Texas issued two important defamation rulings. The first, Kinney v. Barnes, held that injunctions to prohibit defamatory speech do not pass constitutional muster. The second, Burbage v. Burbage Funeral Home, raises the bar on the recovery of compensatory damages.
Injunctions preventing speech are an unconstitutional prior restraint
In Kinney, the plaintiff sought a permanent injunction preventing the defendant from further making further defamatory statements and making the defendant remove defamatory statements. Texas courts had already ruled temporary injunctions preventing additional defamatory statements were unconstitutional prior restraints of free speech.
The Supreme Court of Texas clarified: “We hold that, while a permanent injunction requiring the removal of posted speech that has been adjudicated defamatory is not a prior restraint, an injunction prohibiting future speech based on that adjudication impermissibly threatens to sweep protected speech into its prohibition and is an unconstitutional infringement on Texans’ free-speech rights under Article I, Section 8 of the Texas Constitution.”
Certain injunctions against obscenity or illegal commercial speech are still permitted, but defamation, alone, cannot support an injunction. Because it is a prior restraint, an injunction would only be allowed “when essential to the avoidance of an impending danger . . . and only when it is the least restrictive means of preventing the harm.” Preventing defamation, which can be subject to damages, does not satisfy that test.
You can read the case here – Kinney v. Barnes
What are appropriate damages?
Burbage, meanwhile, involved a messy interfamily squabble where one family member accused the other of engaging in elderly abuse against the matriarch. The jury awarded the individual defendant $6,552,000: $250,000 for past injury to reputation; $2,500,000 for future injury to reputation; $1,000 for past mental anguish; $1,000 for future mental anguish; and $3,800,000 in exemplary damages.
The jury awarded the family-run funeral home $3,050,000: $50,000 for past injury to reputation; $1,000,000 for future injury to reputation; and $2,000,000 in exemplary damages.
The court opined: “Texas law presumes that defamatory per se statements cause reputational harm and entitle a plaintiff to general damages such as loss of reputation and mental anguish. But this presumption yields only nominal damages. Beyond nominal damages, we review presumed damages for evidentiary support.”
Reviewing the evidence, the court noted there was a lot of speculation about the impact the defamatory statements would have on the business. Speculative evidence is not sufficient. The court also drew the distinctions between special damages, nominal damages, reputational damages, economic damages and their interplay with defamation and business disparagement.
In conclusion, the court wrote, “[t]he evidence does not show actual loss of reputation, that anyone believed the defamation, that the Burbage Funeral Home suffered an actual loss, or even the funeral home’s actual value. On the record here, we hold that no evidence supports the jury’s award of $3.8 million in actual damages.”
As a result, the court determined there was no actual damages. With no actual damages, there could be no exemplary damages. Therefore, the plaintiff got nothing other than a piece of paper confirming he was defamed. Honor can be expensive.
Here is the opinion – Burbage
The Law and Unpaid Interns – Repost
Originally published last year, but worth revisiting
As the summer arrives in full force, I am watching a lot of my start-up friends take advantage of the unpaid internship to help with some needed coding, design or marketing projects they haven’t gotten to. These kids are smart, hungry, can use the experience and wouldn’t it be nice to have someone pick up coffee and donuts for you once in awhile?
As my Gray Reed colleague Michael Kelsheimer explains in a prior post on his Texas Employer Handbook blog, you have to be careful when using unpaid labor.
UNPAID INTERNS, VOLUNTEERS AND TRAINEES
When must an intern be paid: All “employees” of a business must be paid at least minimum wage unless they are a “trainee” under the law, regardless of whether they are called an “intern.” So, what makes a trainee? The United States Department of Labor (DOL) has established a six-factor test couched in terms of – you guessed it – training – to determine whether an unpaid intern should be considered an employee or trainee under the Fair Labor Standards Act (FLSA):
the training is similar to that which would be given in a vocational school (even though it includes actual operation of the facilities of the employer);
the employer that provides the training derives no immediate advantage from the activities of the trainees, and on occasion operations may actually be impeded;
When can I hire an unpaid intern or volunteer: The six-factor test is primarily used in the, “for profit,” private sector. State and local government agencies and non-profit organizations can generally utilize interns or volunteers without an obligation to pay them under the FLSA. It is important, though, that the volunteers understand they are not to be paid for their time. Volunteer work at non-profit, religious, charitable, and civic organizations have specifically been cleared by the Texas Workforce Commission.
What about true student interns: Student interns are not evaluated differently by the DOL. They should easily meet the trainee test. That said, there are special rules for individuals who have completed a professional degree like physicians, attorneys, and therapists, generally allowing them to volunteer their time as they choose.
What do these factors really mean: The more an internship program can be structured around a classroom or academic type experience the better. It is better if the employer can provide the individuals with skills applicable to various employment settings, not just skills particular to the employer’s business. Essentially, the employer needs to provide the intern or volunteer with valuable training. Ideally, the training would make them more marketable in the open job market. The employer must pay any intern or volunteer that is used as a replacement for a regular employee or to reduce their workload. The intern or volunteer should receive more supervision than a regular employee. If the employer would have to hire additional employees if the intern or volunteer were not performing certain work, the intern or volunteer would be considered an employee. Don’t rely on unpaid interns to do work of any real significance to your business. The work done by an unpaid intern should be secondary to their training. An intern that is hired by an employer on a trial basis with the expectation that they will eventually be hired full time will likely be considered an employee under the FLSA. Employers should indicate prior to the start of the internship that there is no guarantee or expectation of hiring the interns upon completing the internship. A written agreement indicating this is advisable. Employers should indicate prior to the start of the internship that there is no intention to pay the intern. A written agreement indicating that the intern will not be paid and does not expect to be paid is advisable.
What happens if I don’t follow the test: An employer violating the rule is subject to the same damages available to an employee who is not paid all of the wages they are owed. This may include minimum wage and overtime for all hours worked, plus an equal amount in liquidated damages for all interns over the past two or three years.
What about discrimination laws: It depends on whether the person in question receives “significant remuneration” for their efforts. The EEOC has stated that things like a pension, group life insurance, workers’ compensation, or access to professional certifications constitute significant remuneration. However, Courts have determined that things like academic credit, practical experience, and scholarly research do not constitute significant remuneration. Because this point is subject to interpretation, however it is best to treat all interns and volunteers as though they are employees with respect to discrimination laws.
Required training: Safety First is ready to hire a new class of security guards. The company requires that security guard trainees receive 40 hours of training prior to performing any regular work under their service contract. According to their contract, the training is focused on “company practices, policies, and rules.” Does Safety First have to pay the trainee security guards even though they are not yet performing regular work? Yes. These trainees would be considered employees because: (1) the employer is directly benefiting from their training, (2) the training is given to security guards who will work on contract, and (3) Safety First can only employ specifically trained guards.
Homegrown hiring: Maverick Finance hires interns each summer. Maverick’s intern program is structured much like an academic program. The interns do not do the work of regular employees and are heavily supervised. The interns are not paid and are aware there is no guaranty of employment. However, Maverick hires its first year analysts almost exclusively from the unpaid interns it has each summer. Does the FLSA require Maverick to pay these interns at least minimum wage? Probably. Although Maverick substantially satisfies the six factor test, its practice of hiring analysts from the intern pool is likely enough to tip the balance against the company in the face of a DOL audit.
Good: Paying minimum wage to all interns probably is the safest bet. You avoid the risk of an audit of all your employment practices because of one dissatisfied intern that calls the DOL. If you go the trainee route, be sure to meet all the factors.
Better: If you have true “trainees” taking into consideration all the factors, it makes sense to put that understanding in writing in a short half-page agreement outlining the factors. If you use volunteers, it makes sense to have them sign a one-paragraph agreement acknowledging their status as a volunteer without expectation of pay or other “significant remuneration” to avoid the possibility of an EEOC complaint.
Best: In addition to the items above, require that the trainees keep track of their hours so you have a record of how much they might be entitled to if the DOL audits and rules them employees. Be sure they do not work more than 40 hours to avoid increasing the risk to include overtime. Have the trainees and their supervisors keep a log of their activities so that there is no confusion regarding the type of work they did.