New Facebook Message: You’ve Been Sued!

Does service of a civil lawsuit count if the defendant is personally handed the legal papers? Absolutely, as long as the person serving the papers is permitted to do so (different courts have different rules).

Does service count if the legal papers are handed to the defendant’s 27 year-old brother who lives with the defendant? Maybe.

But what about legal papers served on the defendant through the defendant’s personal Facebook account?

The answer is some countries is yes, a defendant can be served through a personal Facebook page.

Until quite recently, courts in the United States have refused to allow service through Facebook, citing concerns that doing so would deny defendants due process and actual notice of the lawsuit, which is required by the Constitution and related federal and state laws.

But in March 2013, a court in the Southern District of New York addressed the Federal Trade Commission’s request to serve non-U.S. defendants through email and Facebook after struggling to serve the foreign defendants personally. The judge ultimately granted the request, noting that while service through email alone satisfied the due process and notice requirements, service only through Facebook may not.

The U.S. is not the first country to tiptoe into the land of service via social media. In 2008, Australia allowed service on defendant debtors through Facebook when the attorneys were able to match the defendants’ birth dates, friends, and email addresses on the Facebook pages to their loan applications.

A year later a Canadian court allowed service on the defendant through the HR department of the defendant’s former employer and through the defendant’s private Facebook page. A New Zealand court also approved this method. The United Kingdom’s High Court has allowed service of an injunction on an anonymous blogger through a Twitter account, and Australia has allowed service through text message. All of these countries have similar due process and notice requirements as the United States.

Service of process can be tricky.  It can vary not only from country to country, but from state to state, county to county, and even court to court.  However, just because some courts have shown a willingness to move the law in new directions with the proliferation of social media, this does not mean that they have yet come to anything like a clear consensus.  Since service of process is one of the initial steps in asserting your rights in court, be sure you get it right.  Talk to a litigation attorney at Briskin, Cross and Sanford if you are in any doubt.

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Quick, a scammer is stealing your business name: scams and rip-offs target US business owners (part 2)

We have posted recently on those legitimate-looking (and often tenuously legal, if scandalously unethical) solicitations designed to separate gullible business owners from their money, or worse. Here’s another one.

Quick, a scammer is stealing your business name!

Well, not really, but it looks like it. You receive an email that purports to be from the Asian Domain Registry, or something similar. It will start something like this:

Dear CEO:
We are a leading internet solutions company in China, and we have something urgent to confirm with you. We formally received an application on [recent date] from a company called [generic sounding Chinese company name] to
register [YOUR DOMAIN NAME.cn/ .com.cn/ .net.cn/ .in/ .tw/ .com.tw/ .com.hk/ .hk/ .vn/ .asia, or something like that] through our domain registration service.”

Your first reaction is to wonder who is trying to register a domain name containing my brand name, for what surreptitious purpose, and how can I protect myself and my valuable IP?

Fortunately the internet solutions company has thought of all that for you, as the message continues:

According to the principle in China, your company is the owner of the trademark, and our audit process permits us to keep the domain names safe for you by allowing you to register these domain names for your company during the five-day waiting period before they are released to the applicant. Please ask the responsible officer in your company to contact us as soon as possible. Thank you!

Kind regards
Mae Chen

Head Office
Registration Department Manager

Well, thank goodness for Mae Chen!  It seems all you have to do is purchase those ten domains yourself (and goodness knows what related hosting or forwarding services) and your brand will be safe!

Now, it may be that you really do need Alpharetta-Pizza.com.cnAlpharetta-Pizza.com.asia, or Alpharetta-Pizza.com.hk.  If so, you may want to drop the “delivery in 30 minutes or the pizza’s free” promotion.

If you do want to register a Chinese domain, you should check out the real China Internet Network Information Center (CNNIC) at http://www1.cnnic.cn/. CNNIC maintains lists of accredited registrars (the identities of non-approved companies, on the other hand, changes from day to day as these companies pop up and then disappear with their ill-gotten gains).

Do yourself a favor and do this before you punch in your credit card number or call up Mae Chen.

The Business of Bitcoin: Taxable Property

As you may have now heard, on March 25, 2014, the IRS declared that, at least for now, Bitcoin will be taxed as property, rather than as a currency.  For those who view bitcoin as an investment vehicle similar to stocks, this ruling sets a clearer path with well known “rules of the game” for dealing with the tax implications of bitcoin.

But for those who are interested in bitcoin as a new currency, the path is now cluttered with administrative, legal, and financial complexities.

In order to better understand the implications of the IRS’ new stance, let’s take a quick look at the taxation of property. Generally speaking, if you purchase property and it appreciates in value, you must pay tax on the gain you realize above the original purchase price when you sell the property. This rule has traditionally applied to stocks and bonds in the same way that is applied to real estate and other physical property. Now this tax treatment has been extended to apply to bitcoin as well. Where this starts getting interesting is that bitcoin, like stock, fluctuates in value. An upside to the determination that bitcoin will be taxed as property is that gains on property held for more than one year are subject to long term capital gains tax rates, which max out at 23.8%, as opposed to the higher tax rates which apply to short term capital gains or ordinary income. Conversely, if the value of bitcoin depreciates, the loss realized on the sale of such a depreciated bitcoin when it is sold can be written off against ordinary income, up to $3,000 in loss per year. These rules on the sale and disposition of assets are tried and true and readily accessible (see IRS Publication 544). In that sense, the IRS’s decision may be seen as a desire to keep things simple. But what are the implications on the use of bitcoin to pay for everyday purchases?

A popular example circulating the Internet right now discusses the implications of purchasing a cup of coffee with bitcoin. If the purchaser buys a $2 cup of coffee with a bitcoin that he purchased for $1, the purchaser actually realizes $1 in capital gains. In case this concept seems a bit confusing, let’s briefly look at the basic elements of gain. The Internal Revenue Code (“IRC”), section 61 defines “gross income” as “all income from whatever source derived.” The Supreme Court has held that “income” exists whenever you experience an “accession to wealth”. See Comm’r v. Glenshaw Glass Co., 348 U.S. 426, 431-33 (1955). In other words, whenever you are richer, even in some small way, you’ve realized gain. So in the coffee example above, in exchange for the dollar you invested in Bitcoin, you received one dollar worth of coffee, but you also received one additional dollar worth of coffee without paying anything additional. You are essentially one dollar richer than you were before, and so, you have taxable gain. Hmmm… a bit complex for buying coffee isn’t it? Actually, it’s even a little more complex still.

One of the great strengths of bitcoin is the highly developed means of tracking bitcoins. This built-in tracking system helps prevent counterfeit and similar fraud, prevents redundant use of the same bitcoin, and helps make bitcoin more reliable as a source of payment. However, because bitcoins can be tracked, and because their value fluctuates, a bitcoin you bought last year and a bitcoin you buy today can be tracked to determine when each is sold or exchanged for goods or services, and the tax implications for each bitcoin. The price you pay when you obtain any given bitcoin is referred to as your “basis” in that bitcoin, and the tax to which you are subject is based upon the gain you realize in excess of that basis in the bitcoin when the bitcoin is either sold or exchanged for a good or service.  This means that which bitcoin you use to make a purchase matters.

Let’s go back to our coffee example. As stated, if you get $2 worth of coffee for $1 in bitcoin, you have realized $1 worth of gain. Your basis in the bitcoin was $1 and you exchanged it for value of $2, thereby realizing $1 in gain. If, however, you buy $2 worth of coffee with bitcoin you bought for $2, your basis in the bitcoin is $2 and you have no gain. If you buy $2 worth of coffee with $3 worth of bitcoin, then you have realized a loss! So, as stated, which bitcoin you use to make a purchase matters. Imagine, for example, that you have to track all of the bills in your wallet by serial number and have to keep records to determine differing amounts of gain or loss on a transaction based on when those bills came into your possession, when they were spent, and the value of the thing you received in exchange for the bills when you spent them. This is essentially what will be required of bitcoin when they are used to purchase goods or services. Of course bitcoins are digital, so tracking them is not quite like tracking the serial numbers of your dollar bills, but nonetheless, you can see how this certainly complicates bitcoin as a payment source, at least for now.

From a business perspective, the IRS determination has a number of interesting implications. Take for example bitcoin “mining.” If you aren’t familiar, “mining” is the way in which bitcoins are generated. Bitcoin miners are essentially service providers who process transactions and secure the bitcoin network by solving complex mathematical problems, in exchange for which they collect new bitcoins. The process is competitive, however, and does not always result in the award of a new bitcoin. If the work does result in the award of a new bitcoin, the value of that bitcoin on the day it was mined is taxable income. Consider wages.  If bitcoins are rendered as wages in a business, they are subject to federal income tax withholding and payroll tax and must be reported on W-2s or 1099s. If a business accepts bitcoin as payment, it will be taxed on the fair market value of the bitcoin payment in US dollars on the date it was received as part of the business’s gross income.

For my two cents (or bitcoins?), the IRS’ determination appears to be a subtle, yet rather clever way of de-legitimizing bitcoin as a payment source by making it more complex to use in this way. I could be wrong, and maybe the IRS simply decided not to reinvent the wheel. In fairness, bitcoin does resemble a stock or publicly traded commodity in many ways, and there are tried and true guidelines for tax implications regarding the handling and taxation of those types of property. So maybe it’s a fair determination after all. “But currencies can fluctuate in value, too!” you say. Well, that’s true. So with approximately 9 million more bitcoins left to be mined until the Bitcoin supply reaches its predetermined maximum, there remains considerable room for controversy and potential changes of position by the IRS and other governmental entities. The one thing we know for certain at this point is that, for better or worse, at least for now bitcoin is taxable as property… and if you buy a $2 cup of coffee for a bitcoin you bought for $1, you may well find that you owe Uncle Sam capital gains tax on that extra dollar at the end of the year.

Astroturfing: New York cracks down on fake internet reviews

Astroturfing it is the practice of hiring internet reviewers to post fake positive reviews of your business on the internet using different usernames and IP addresses.

This practice has become increasingly prevalent because positive internet reviews are capable of increasing a company’s revenues by upwards of 10%.

Where expert reviews once drove revenue, purchaser behavior is increasingly driven by the experiences of fellow consumers (or people we think are fellow consumers).  Taken in the aggregate, consumer reviews can be much more predictive than, say, the review of one expert.  For example, I find reviews on www.redbox.com to be remarkably accurate.  As a result, I tend to rent those highly-rated movies and I also continue to use Redbox.  Without these reviews I might spend my money on different movies or different rental channels.  That’s the power that consumer reviews have.

To leverage this power, some companies have begun hiring professional online reviewers to post positive reviews under fake names using different IP addresses to avoid getting detected by filters that companies like Yelp use to weed out fake reviews.  One Craigslist ad solicited people to post reviews on Yelp, Google Maps, and CitySearch, “without getting flagged.”  These fake posters may be offshore in the Phillippines, Bangladesh, or Eastern Europe, or they may be employees of an SEO (search engine optimization) company right here in the US.

Whereas SEO companies once relied on building a better website, increasing the use of key terms, and generally trying to second-guess the search-engine algorithms to increase visitor traffic, increasingly such companies have begun offering “reputation management” as an add-on service.  The client-business benefits from having positive online reviews that increases revenue, the SEO benefits by earning extra income from the business, and the fake poster benefits by earning  $1 to $10 per post.  It’s no wonder that the practice is expanding.

The problem, however, is that fake posts dilute credibility and mislead consumers. 

Ok, so maybe the damages aren’t that bad, right?  You go for that tandori you read is so awesome and it turns out to be dry and flavorless.  Definitely a let-down, but should that be actionable?  Well here’s a bigger problem.  Fake reviews can provide a major revenue boost to companies, and arguably, that is money consumers might be spending at other competing businesses.  So the damage occurs not only by misleading consumers, but also by giving an unfair advantage to businesses who are willing to violate the law.

Although increasingly commonplace, astroturfing in fact constitutes a false and deceptive business practice under many states’ laws.  Recently, New York’s Attorney General, Eric Schneiderman announced an agreement reached with 19 companies to stop their astroturfing practices.  Several offenders were assessed penalties ranging from $2,500 to just under $100,000.  The legal basis for Schneiderman’s initiative is New York Executive Law § 63(12) and New York General Business Law §§ 349 and 350.  Under these laws, astroturfing is considered a fraudulent business practice and  false advertising punishable by injunction and fine.

Here in Georgia, the Uniform Deceptive Trade Practices Act, O.C.G.A. § 10-1-372, prohibits a business from representing that goods or services have sponsorship that they do not have.

The bottom line?  It might seem that everyone is doing it, but the question may be, for how long?  Most states have laws similar to those in New York and Georgia prohibiting false and deceptive business practices.  So you need to ask yourself… just because everyone else is doing it, should I?  If you have questions about competition and your growing business, contact the business attorneys at Briskin, Cross & Sanford.

Google’s terms more complex than Beowulf

I have commented before on Mark Anderson‘s common-sense observations and wry tone. Here, true to form, he notes the functional unreadability for many users of Google’s Terms and Conditions and suggests that they should be written more like Fifty Shades of Grey (well… that’s not quite what he says).

Of course, we know (possibly from guilty experience) that most readers don’t read the terms and conditions (“T&C”) or terms of service (“TOS”) before clicking the “download” or “accept” button anyway, although it is not clear whether we don’t read them because they are difficult or whether they have evolved to become difficult and obtuse because most people don’t bother to read them and therefore few sales are lost because the terms are inaccessible or unacceptably harsh.

One software vendor that offered a $1,000 reward to anyone who read the fine print in its license agreement and hid the offer in plain site in its terms of service did not receive a response claiming the prize for four months and more than three thousand downloads.  Another inserted a term providing that if a user did not register the downloaded evaluation copy of its software properly, “a leather-winged demon of the night will tear itself, shrieking blood and fury, from the endless caverns of the nether world, hurl itself into the darkness with a thirst for blood on its slavering fangs and search the very threads of time for the throbbing of your heartbeat.

For contract attorneys and IP lawyers drafting terms and conditions, end-user license agreements (“EULA”), and click-wrap agreements in general, especially those designed for use by ordinary online consumers, the most difficult part of the task is often to provide both maximum legal coverage and maximum clarity at the same time.

This should never be an excuse, of course, for not striving for that elusive blend of clarity and coverage. A clear contract will always be more enforceable, and the best business practice is rarely to “let the buyer beware” and blame the reader for not getting assistance if any of the terms he or she is invited to “click here to accept” are difficult to understand.

Of course another way to get readers to actually pay attention to the terms of service, is to have a celebrity perform a dramatic rendition of them.  Mr. Anderson has previously drawn our attention to the hilarious reading of Apple’s EULA by Richard Dryfus (click here to listen to the Dryfus reading, and be sure to click to listen to the “Effective until” segment).

If you are struggling with your own (or someone else’s) T&C, TOS, EULA or Click-Wrap Agreement–and you don’t have ready access to a celebrity like Richard Dryfus to read it for you–the contract and intellectual property attorneys at Briskin, Cross and Sanford will be more than happy to assist.

IP Draughts

beowulfIP Draughts spluttered over his porridge this morning, while reading an item in his newspaper.  According to researchers at the University of Nottingham, if you want to understand Google’s internet user agreement you need a higher level of literacy than you need to understand Beowulf, the Anglo-Saxon poem that was written about 1000 years ago.  Non-firewalled news report here.

The research team has developed some software that will rate the readability of website text. Called Literatin, it has been developed to work best with Google Chrome.  There is an amusing irony here: you have to accept the Google terms before you can use the software!  It seems that there is also a version that uses Firefox.  See here to download either version.  IP Draughts wonders whether it uses any of the same methodology as the Bla-Bla Meter, which we reported on here.

Ms Ewa Luger (@ew_luger)…

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Pinterest wins $7.2M in legal battle with cybersquatter

Chinese cybersquatter Qian Jin, in one of the most brazen cybersquatting cases to come to court in months if not years, has been ordered by the US District Court for the Northern District of California to pay Pinterest $7.2 million in damages and legal fees and turn over to Pinterest the domains (e.g. pintesrest.com, pinterests.com, etc.) he had set up to divert inadvertent searchers to his own slew of money-making websites.  Hat tip to Dara Kerr of CNET: Pinterest wins $7.2M in legal battle with cybersquatter | Internet & Media – CNET News.

Alleging Cyberpiracy, Trademark Infringement, Dilution, and a series of California state law claims, the complaint charges that Pinterest was not Jin’s only target: the serial cybersquatter registered “domains that appear to infringe upon the marks of popular companies, especially online companies, across the globe, including Google, Facebook, Twitter, Etsy, Eventbrite, Foursquare, Hotmail, Hulu, Lotus, Spotify, Blekko, Dwolla, Volunia, Skillshare, Jumio, Scribd, Zazzle, and Zynga.” (read the full complaint here).

Not only did Qian Jin register domains that were clearly intended to cause confusion with and dilute a wide variety of famous brands, he even tried to register Twitter, Foursquare, Instagram, Quora, and Pinterest  as trademarks in China… did he think that this would stop other Chinese cyberpirates from moving in on his territory?

Action in the case was suspended for some time while Pinterest achieved service on Jin in China, which it eventually managed to do in January, 2013. Qian Jin (perhaps not surprisingly) failed to file an answer in the case, and the Court finally awarded a default judgment to Pinterest, pulling the plug on Jin’s operation for good.

While the Court’s order may help Pinterest gain control of the infringing domains, Pinterest’s chances of collecting a single Yuan of the $7.2 million judgment from Qian Jin are probably as remote as, well, China.  For our purposes, however, the judgment is not just a shot across the bows of would-be domain squatters, cyberpirates, and trademark infringers across the globe but a salutary warning to small-time hucksters and wannabe cyberpirates trying to shake down local businesses in exactly the same way.

Ernst & Young plans Global IT Center in Alpharetta, now home to one third of Georgia’s tech companies and a quarter of Atlanta’s top employers

Coming on the heels of General Motors’ announcement earlier this year that it plans to invest $26 million in a technology development center in Roswell, the Atlanta Business Chronicle reports that Ernst & Young recently announced plans to open an $8.5 million Global IT Center in Alpharetta.

As NorthFulton.com reports, Earnst & Young’s announcement came on the first anniversary of the formation of the Alpharetta Technology Commission, a milestone celebrated at a dinner attended by Georgia’s Lt. Gov. Casey Cagle, Alpharetta Mayor David Belle Isle, and more than 600 tech companies within the Alpharetta city limits, where a third of Georgia’s technology-related companies and a quarter of Atlanta’s top employers are now located.