Domain-name registrants who sit on their rights rather than go after trademark infringers do so at their peril. In a case decided last July, an arbitrator for the World Intellectual Property Organization (WIPO) held that a foreign registrant’s bad-faith registration and continued use of an infringing domain name, at some point, transformed into legitimate use. As a result, the trademark holder, Victoria’s Secret, was denied any relief under Australia’s version of the Uniform Domain Name Dispute Resolution Policy (auDRP).
In May 2012, lingerie retailer Victoria’s Secret filed a complaint with WIPO seeking cancellation or transfer of the domain name “victoriassecrets.com.au,” which allegedly had been routing Victoria’s Secret customers to an escort service based in Sydney, Australia. As required under the auDRP, Victoria’s Secret alleged all three prongs required for relief: (i) a domain name that is identical or confusingly similar to a valid trademark; (ii) illegitimate use; and (iii) bad faith.
First, Victoria’s Secret alleged that the infringing domain name was confusingly similar to the company’s trademark, which had been registered in the United States since 1977 and in Australia since 1990. Indeed, the infringing domain name incorporated Victoria’s Secret’s entire trademark, simply adding an “s” at the end. The company further alleged that the Australian women who registered the domain name had intentionally used Victoria’s Secret’s brand and image to promote prostitution.
Second, Victoria’s Secret claimed that the Australian escort service had no rights or legitimate interests in the domain name: the escort service was not known by the name “Victoria’s Secret,” the service was not authorized to use the trademark, the registrants were not using the name in connection with a bona fide offering of services, and they were not putting the name to legitimate non-commercial or fair use.
With respect to the “bad faith” prong, Victoria’s Secret alleged that the respondents had registered and used the name to deceive Internet users into believing the lingerie company was a source, sponsor or affiliate of the escort service. Victoria’s Secret further alleged that given its previous registration and worldwide customer base, the registrants knew their domain name would cause confusion.
What’s more, the registrants intended to trade on the confusion and, in the process, tarnished the lingerie company’s reputation.
The WIPO arbitrator agreed — for the most part. With seemingly no hesitation, he found for the complainant on the first and third prongs. He stated that the disputed domain was “confusingly similar” to Victoria’s Secret’s trademark. Moreover, he found that the registrants “knew of the Victoria’s Secret trademark at the time they registered and began using the domain name” and that they “deliberately chose” the domain so that their escort business would benefit from the resulting confusion. Nonetheless, the arbitrator held that Victoria’s Secret was not entitled to relief.
In his view, Victoria’s Secret had failed to show that the escort service had no legitimate interest in the domain. According to the arbitrator, evidence submitted by the parties showed that the registrants had been using the disputed domain name for almost 10 years and, more importantly, that Victoria’s Secret had been aware of the infringing use for seven years prior to filing the complaint. Although Victoria’s Secret had issued a couple of cease-and-desist letters in 2005, the company ultimately decided not to pursue the matter. At some point after that, the escort service obtained a legitimate interest in using the domain. In the arbitrator’s words:
[Victoria’s Secret’s] failure to press the allegations of infringement led the Respondent to understand that the Complainant no longer objected to the Respondent’s behavior. The effect of this subsequent bona fide use of the disputed domain name was that, by the time the Complaint was filed, the Respondent had acquired a right or legitimate interest in the disputed domain name.
The arbitrator added that if the Australian registrants were to change their use of the domain name following the decision, their legitimate interest in the domain would very likely be lost.
It will be interesting to see if other arbitration panels follow suit. Whatever the case, Victoria’s Secret is probably keeping a close watch on the domain while considering potential alternatives for relief.
Bitcoin – it sounds like a token you might use to play skeeball at a beachside arcade. It is actually a relatively new, virtual online “currency” being used for payments across the Internet. While some observers have noted that the Bitcoin has been utilized primarily for purchases in the Internet “underworld,” the Bitcoin actually has gained traction more recently as a legitimate payment exchange. The Bitcoin might just be the surprise of the next generation of e-commerce and its progeny, mobile commerce.
The Bitcoin originated in 2009 with the issuance of the first Bitcoins by Satoshi Nakamoto, the pseudonymous person or group of people who designed the original protocol and created the peer-to-peer network. Users connect with other users rather than with a central issuer or server. This makes the Bitcoin attractive for illegal activities – authorities can’t pounce on a central office or simply seize one organization’s assets. The Bitcoin has no central issuing bank. Prices fluctuate a great deal; this past summer one Bitcoin traded at around $10. It is estimated that the monetary base of the Bitcoin is around $110 million.
There are several advantages to Bitcoins. They are largely unregulated. Also, payments can be made anonymously, leaving a minimal or no paper trail. Unlike credit cards, merchants do not face the hassle and uncertainty of “charge backs.” However, because of its past “underground” use, the Bitcoin lacks a reputation and general acceptance by mainstream merchants. For instance, the website “Silk Road” allowed users to buy and sell heroin and other illegal drugs provided they paid for their purchases using Bitcoins. Online gambling services have utilized Bitcoins with relative success.
While the past use of the Bitcoin has been limited, the new currency is picking up steam. Just a few days ago, BitPay, a payment solutions company, announced a large investment by a group of well-known tech investors. They see the Bitcoin as the next “PayPal” offering a fast payment method without the exchange of sensitive personal information that goes along with traditional credit card payments. Investors also see the benefits for small businesses, which can much more easily take payments from overseas using Bitcoins. Today, we can use Bitcoins to buy a wide array of products and services. This website provides links where we can purchase, for instance, jewelry, electronic cigarettes, natural cosmetics, and even survival products and dry cleaning, just to name a few offerings.
Just last month, the Bitcoin gained further acceptance when the Bitcoin-Central exchange owned by Paymium announced that it is partnering with registered PSP Aqoba and Frank Bank Credit Mutuel Arkea in order to legally hold balances in payment accounts within the European regulatory framework. However, as Bitcoins have not to date been backed by a governmental entity and several users have reported losses from fraud and hacking into their computers where they stored Bitcoins, continued use and acceptance will be affected by the reliability of the payment network, as well as any attempts to regulate it.
As use of the Bitcoin expands, regulators (particularly in the United States) may seek to regulate the currency. U.S. prosecutors tend to view anonymous payments with skepticism and suspicion.
Our view is that use of the Bitcoin network has expanded in large part as a natural reaction to overly zealous authorities enforcing anti-money laundering rules and policies against banks and individuals. Parties facing onerous reporting obligations and over-the-top fines have been seeking alternative payment methods. The FBI has shown some interest in Bitcoin (in an April 2012 report the FBI expressed concern about cyber criminals using Bitcoins). Last year, a spokesman for FinCEN stated that “The anonymous transfer of significant wealth is obviously a money-laundering risk, and at some level we are aware of Bitcoin and other similar operations, and we are studying the mechanism behind Bitcoin.”
However, we think the law will take some significant time to catch up with the fast-moving network. It remains to be seen whether current U.S. law can be applied to cover Bitcoins, or if specific legislation would be needed. Further, even if U.S. authorities seek to regulate Bitcoins, actual enforcement would be difficult as there are no stationary “assets” to be seized (not even a domain name or website). Bitcoins are typically stored in a “wallet” on a user’s computer. Authorities would in many instances be required to pursue each “peer” in the peer to peer network, which does not seem terribly practicable. In the interim, Bitcoins appear to be growing in use across industries and geographic locations.
There can be no dispute that the death of Aaron Swartz – the Internet activist who took his own life on Friday, January 11 – is tragic. There can also be no dispute that the grief and anger his family feel is very real. The question is what the appropriate focus for that anger should be in order to give meaning to Swartz’s life – and death.
Swartz, who had blogged about his own battles with depression, was a leading activist involved with the movement to make information freely available on the internet, and is credited with helping to lead the protests that ultimately defeated the Stop Online Piracy Act (SOPA) – a statute that would have significantly broadened law enforcement powers in policing internet content that may violate U.S. copyright laws. Swartz’s suicide came as he faced federal charges of wire fraud and computer fraud arising from his alleged efforts to make freely available an enormous archive of research articles and similar documents offered by JSTOR, an online academic database, through computers at the Massachusetts Institute of Technology. The allegations in the indictment he faced were a tribute to Swartz’s computer acumen, describing the technological means that Swartz had used to access and download approximately 2 million documents from the JSTOR subscription archive by unauthorized access to the computers at MIT.
Swartz’s family has released a statement in which they blame his death on the decision by federal prosecutors in the District of Massachusetts to pursue “an exceptionally harsh array of charges, carrying potentially over 30 years in prison, to punish an alleged crime that had no victims.” Contrary to the family’s assertion that the prosecution caused Swartz to take his own life, we suggest that the appropriate focus here is not on prosecutorial overreaching, but rather on Congress’s decision to criminalize certain conduct and to set sentencing guidelines that would likely have led to imprisonment if Swartz were convicted.
It is true that the maximum statutory sentence of imprisonment for the wire fraud charge in the indictment against Swartz is 30 years. But there is no question that the likely sentence that Swartz would have faced if convicted of wire fraud and/or the other charges in the indictment would have been far less than that. The advisory range under the U.S. Sentencing Guidelines would have depended on the loss (or intended loss) suffered, among other things, but Swartz likely faced (based on back of the envelope calculations) a sentence of no more than two to four years in prison – a fact that he almost certainly knew from the lawyer who represented him. While four years in federal prison is significant, it is much less than the 30-year sentence mentioned by the family.
It is also not entirely clear that the prosecutors’ decision to pursue charges against Swartz was unreasonable. This is not just a case alleging the distribution of materials protected by copyright law – an issue on which there is fair debate as to whether conduct should be criminalized. Rather, in this case, Swartz was accused of having accessed the MIT computer systems and the JSTOR subscription (for which MIT paid approximately $50,000) through illicit means. There were also allegations that Swartz’s computer intrusions crashed some computers and caused some legitimate subscribers to the JSTOR service to lose access for a period of time. Thus, assuming the truth of the allegations in the indictment, the alleged crime here was not entirely victimless. Moreover, everyone agrees that illegally accessing a computer system is not conduct that should be condoned. For these reasons, Swartz’s family’s attacks on the prosecutors as overreaching – while understandable given their grief and anger – may actually be misplaced.
On the other hand, there is a fair question whether the conduct with which Swartz was charged is really the kind of conduct for which we need to send a person with no other criminal record to prison for a period of years. That, however, is not an issue of decision-making by the prosecutor’s office. Rather, that is a question for Congress, both in terms of establishing criminal liability and in terms of setting astronomical maximum statutory sentences (which increased the base offense level for this crime). And it is a question for the U.S. Sentencing Commission, which has raised Guidelines levels over the years. It is also a question for Congress in terms of setting Guidelines scoring that increasingly fails to reflect any expertise of the Sentencing Commission, but rather reflects only a congressional mandate to support increasingly harsh advisory sentences under the Guidelines for white-collar offenses.
Prosecutors may have been justified in seeking charges against Swartz for his conduct. But if his family, friends and supporters wish Swartz’s death to have as much meaning as his life, they should focus instead on the decisions that created the harsh potential penalties that Swartz faced.
Andrew Strempler, a Canadian citizen who helped to pioneer the cross-border online pharmacy industry, was sentenced on January 9, 2013, to four years in prison in connection with allegations that his former company sold fake and misbranded drugs to U.S. citizens.
The sentence follows Strempler’s guilty plea in October in federal court in Miami to a charge of conspiracy to commit mail fraud. Strempler also agreed to forfeit $300,000 and pay a $25,000 fine. A hearing will be held to determine if Strempler will also need to pay restitution.
Strempler operated companies that sold foreign pharmaceuticals to consumers in the United States, where drug costs are significantly higher than in other countries. The drugs were obtained in markets with lower prices on drugs, but the U.S. government has long taken the stance that selling these drugs is illegal because the sources of the drugs could not be assured.
Under the plea agreement, the guidelines range for Strempler’s sentence would be 46 to 57 months, on a charge that carries no mandatory minimum sentence. The government recommended a sentence of 57 months. Prosecutors had originally sought up to 20 years in prison and the forfeiture of $95 million.
Counsel for Strempler asked the court for a downward variance and a sentence of 24 months. Strempler’s attorneys argued that since he is a Canadian citizen, any sentence imposed on him would be more difficult and onerous than an identical sentence imposed on an American citizen. They contended that he would likely not be assigned to a minimum security prison, even though he would likely otherwise qualify based on the nature of the offense and his lack of criminal history. Additionally, as a Canadian citizen Strempler would not be allowed to participate in an early release to a community corrections facility. After he serves his sentence he will be sent to immigration custody, where he will likely be held until his removal from the country.
Strempler’s attorneys also noted that the pre-sentence investigation report states that “there is no evidence that any victim sustained an actual loss or physical injury as a result of this offense.” Additionally, the forfeiture judgment of $300,000 to the government that Strempler agreed to pay prior to sentencing was nearly doubled the agreed-to loss amount.
According to court papers, Strempler believed that the drugs his company was selling were “safe and effective,” and his attorneys noted that he purchased the same drugs for his family and had sample drugs tested by a lab in Canada. His attorneys argued that he did not act with malice and had no actual belief that the drugs were fake and ineffective. He believed that the drugs were safe because they were purchased in accordance with the regulations of foreign countries.
The court essentially rejected the arguments by Strempler for a more lenient sentence and went along with the government’s request for a lengthy sentence. It appears to us that Strempler received a long sentence for a first-time nonviolent offender who did not act with malice. It seems that this is more of a regulatory violation parading in the clothing of a criminal case.
By asking for such a significant sentence, the government may have been trying to serve notice that this type of case will not be taken lightly. Given the stance taken by the prosecution in this case, it will be interesting to see if this leads to further prosecutions for related offenses.
A bill has been introduced in the Nevada General Assembly, on behalf of the state’s State Gaming Control Board, that would allow for the state governor to enter into interstate gaming compacts with other states. This legislation sets up Nevada to potentially be at the forefront of a compact in which individual states that have passed online gaming bills can work together to offer online gaming without federal legislation.
The bill, titled Assembly Bill 5, would remove language in the previously enacted online gaming bill that stated that an online gaming license does not become effective until a federal law was passed authorizing online gaming or the U.S. Department of Justice (DOJ) provided notice that interactive gaming activities are permissible under federal law. The bill would add language that allows for the governor, on behalf of the state, to enter into agreements with other states.
Assembly Bill 5 has been referred to the Nevada General Assembly Committee on the Judiciary. The upcoming legislative session does not begin until February 4, 2013.
The possibility of gaming compacts became a reality after the DOJ released an opinion in December 2011 stating that the Wire Act applies only to sports betting.
This opinion by DOJ eased fears among state lawmakers that money involved in online gaming could not be sent across state lines without incurring a violation of federal law. With that hurdle removed, the possibility of states entering into online gaming compacts became a reality.
Thus far two states, Delaware and Nevada, have enacted laws legalizing intrastate online gaming. Last month, the New Jersey state legislature passed a law legalizing online gaming and the bill is currently waiting for action to be taken on it by Gov. Chris Christie. Other states have publicly stated that they will consider online gaming legislation in sessions this year.
One potential problem with interstate gaming compacts is the potential for a hodgepodge of different laws and regulations for players and operators. States that lack experience in regulating gambling activities may look to the states that do have such experience, like Nevada and New Jersey, to regulate for them as an alternative to establishing their own regulations for online gaming. Thus far, Nevada is the only state to implement regulations governing online poker.
Nevada may want something in return for helping regulate gaming activities in other states, and it is not clear from the bill what that may be. Compacts like this have the potential to entrust a significant amount of power in a state agency, such as the Nevada Gaming Commission, and it is unclear whether it would be in the best interests of players and operators for that to occur. The concern over one state agency having so much power may serve as an impetus for states that do not currently have regulatory bodies for gaming to decide to establish them.
One other potential problem that gaming compacts address is the size of player pools. While there may not be enough players online at one time in one state for games to be big enough, gaming compacts allow for states to share their player pools, allowing for the possibility of many more players to be online at one time.
Not all states would need to pass a law similar to this Nevada law in order to participate in an interstate gaming compact. Depending on the state law or the powers granted to the state executive based on the state constitution, a state may be able to participate in gaming compacts without any legislative action.
Interstate gaming compacts have the potential to be a good development for gamers, but at this point there are too many unanswered questions about how they would operate. The idea of one state-level agency wielding enormous power over online gaming throughout the country is something that should be studied carefully before it is implemented.
The government may be coming up with a new cost-effective measure to help balance the federal budget – enlisting private companies to do their policing. A 2011 settlement between the Justice Department and Google for $500 million is one recent example. Under the settlement, Google acknowledged responsibility for improperly aiding rogue pharmacies by allowing the pharmacies to post ads through the search engine’s AdWords program. Google not only agreed to forfeit this sizable sum (one of the largest in history by a U.S. company), it also agreed to new compliance and reporting measures. And that is after the company, on its own initiative, took steps to block foreign-based pharmacies from advertising in the United States.
Currently in the works are similar investigations by the Drug Enforcement Agency of FedEx and UPS. The shipping companies have been targets of a criminal probe dating more than four years into whether they aided and abetted illegal drug sales from online pharmacies. As the investigations are still ongoing, it is unclear what the extent or type of evidence against them may be. What is clear is that at least one of the targets is asserting its innocence and plans to defend itself vigorously. While UPS has announced that it is in settlement talks that would involve upgrading its compliance program, FedEx has come out with gloves on, pronouncing that “settlement is not an option when there is no illegal activity.”
UPS’ (and Google’s) course of action is understandable: Companies commonly do a cost-benefit analysis between settling and defending and determine that settlement is a better business decision. But it is good to see FedEx taking the higher, though riskier, road. A brief review of relevant law supports FedEx’s stance. For instance, common carriers are specifically excluded from liability under the Prescription Drug Marketing Act (PDMA): the implementing regulations provide that “distributing” under the Act does not include “[d]elivering or offering to deliver a drug by a common carrier in the usual course of business as a common carrier.” Interestingly enough, the FDA “on its own initiative” had revised its final rule to exclude common carriers.
The FDA’s earlier determination to exclude common carriers made sense, as it would be prohibitively expensive and potentially crippling to put shipping companies on the hook for packages that pass through their system. But the tides are changing, and federal agencies seem less concerned with the broad and adverse economic impact upon private companies and are more focused on how they may use those companies to do their bidding. As FedEx spokesman Patrick Fitzgerald noted, the government wants to “deputize” FedEx delivery to help “catch criminals.”
This type of effort by the feds can be quite effective, as can be seen from the Google settlement and impending UPS settlement. A federal enforcement agency launches an investigation that may be both extensive and costly to a company. The company does its cost-benefit analysis and determines it more efficient to simply pay a fine and institute a government-directed compliance program than to defend itself. The government thereby has a direct and simplified road to instituting new policies, company-by-company, through its settlement agreements. And all this can be accomplished without having to trouble itself with notice and rulemaking procedures. This process plays out frequently, which is what makes FedEx’s stance so refreshing.
Rep. Zoe Lofgren (D-Calif), a senior member of the House Judiciary Committee, has indicated that she is drafting legislation that would seek to increase judicial oversight over prosecutors’ efforts to act against Internet domain names accused of copyright infringement. While the value of such legislation will depend on the details of the bill, the notion of creating greater control over prosecutorial seizure of domain names is laudable.
Lofgren is one of a small number of legislators who voted against the PRO-IP Act of 2008, which authorized the government to shut down websites accused of online piracy or copyright violations by seizing their domain names. Under the enforcement operation that followed passage of that Act – dubbed “Operation In Our Sites” – the U.S. Immigration and Customs Enforcement (ICE) has seized 1,630 domain names, of which 684 have been forfeited to the government. The increasing use of domain name seizures in this area tracks similar use of this tool in other areas of law enforcement such as internet gaming and online pharmaceutical sales.
Specifics about the contemplated legislation have not been disclosed, though Lofgren has been quoted as noting that there are “reasonable arguments” that the way in which the government has seized domain names under the PRO-IP Act violates the Constitution. Lofgren’s bill will apparently propose that the government must provide notice and an opportunity to be heard before domain names are seized or redirected.
The addition of a procedural requirement for notice and hearing prior to domain name seizure would clearly be a favorable development. There have been cases in which the government has seized a domain name and later permitted it to resume operations, under agreed-upon restrictions, pursuant to an arrangement with the affected business. To the extent that businesses may negotiate such arrangements with the government, those arrangements could be reached without the potentially devastating interruption of a seizure. By giving counsel for the affected business the opportunity to be heard, such a requirement may also chill the overuse of domain name seizure by government as a means of gaining unfair leverage in cases involving Internet-based businesses.
The devil, of course, is in the details. Lofgren has reportedly sought input from the online social media community on this bill – particularly from Reddit. Hopefully, she will also seek input from those members of the legal community who have been involved in litigation over domain name seizures as well in order to ensure that the bill presented for consideration is as effective as possible in balancing the interests of all affected parties.
New Jersey could soon become the third state to legalize online gaming within its borders. Its State Senate on December 20, 2012, voted 33-3 to legalize online poker in the state. The General Assembly had previously approved the bill by a vote of 48-25-3. The bill was able to achieve significant bipartisan support in both houses of the state legislature. The bill will now be sent to Gov. Chris Christie.
“If New Jersey’s casinos wish to compete in the 21st century, we have to give them the freedom to adapt a 21st century marketplace,” said State Senator and sponsor of the bill Raymond Lesniak.
This is the second time that the New Jersey legislature has approved an online poker bill. Last year, Gov. Christie vetoed an online poker bill that had been approved by large margins in both the General Assembly and State Senate.
If the bill is signed by Gov. Christie, New Jersey will become the third state, along with Nevada and Delaware, to legalize online poker. The District of Columbia also did so, but later repealed the law.
Last year in his veto message, Gov. Christie said he had “significant concerns” with the legislation, especially the expansion of casino gaming outside of Atlantic City. The New Jersey state constitution restricts gaming to Atlantic City, with exceptions for horse racing and the lottery. Under this bill, all Internet gaming would be deemed to have taken place in Atlantic City and all equipment used to operate online gambling must be located in Atlantic City, with the exception of backups and a few other items. Since no online bet would be completed until a server in Atlantic City accepted the wager, all bets will take place in Atlantic City.
Last year Gov. Christie also took issue with the subsidy that the bill would give to the state’s racetracks, but those were dropped in this bill.
Also in the time since Gov. Christie vetoed the bill last year the U.S. Department of Justice reversed a long held position and stated that the Wire Act only applied to online sports betting. This opinion by the Department of Justice would allow for individual states that have legalized online gaming to form a compact to allow for bigger player pools and the possibility of generating additional revenue.
There was debate in the state Senate on allowing the state’s racetracks to participate in hosting gaming as well. Sen. Mike Doherty (R) sought more information on why the state’s racetracks could not be allowed to offer online gaming instead of just the state’s casinos. Sen. Lesniak said he would work toward the goal of bringing online gaming to the state’s racetracks.
Sen. Lesniak pointed out that the bill is about job creation and keeping the tax rate lower will help attract companies to the state and allow for the state to become the “Silicon Valley” of online gaming. Sen. Lesniak said he believes that this bill could pump a couple hundred million dollars into the casino industry in Atlantic City. In a statement released after the bill was passed Sen. Lesniak said, “This bill will mean more jobs, more revenues for our casinos, more tax revenues for worthy programs . . . and a healthier gaming industry in the Garden State.” .
This bill protects the interests of New Jersey’s casino industry by requiring that iGaming be offered only through brick and mortar casinos in Atlantic City, which may either offer online gaming independently or in partnership with an iGaming vendor. Revenues generated by online gaming would be taxed at 10 percent of gross gambling revenues.
In addition, the bill also outlines permit fees, provides for contributions to support those affected by compulsive gambling, regulates the process for the placing of Internet wagers, and provides penalties for violations of the law.
Under the bill, casinos or their affiliates would be allowed to offer the same games that are currently offered on Atlantic City casino gaming floors. All players must be physically located in New Jersey.
Thus far, there has been no public indication from Gov. Christie regarding his plans for the bill. Gov. Christie now has up to 45 days to act on the bill. He can sign it into law, veto it, or stand aside and allow the bill to become law because he did not veto it.
We are happy to see that the New Jersey legislature has passed an online gaming bill and we support New Jersey’s efforts to legalize online gaming in the interests of bringing jobs and revenue to the state.
On December 18, 2012, oral arguments were heard in the federal lawsuit filed by the professional sports leagues and the NCAA against New Jersey, after the state passed a law that would legalize sports betting in the state’s casinos and racetracks. Last week, U.S. District Judge Michael Shipp ordered that oral argument would be limited to the issue of whether the sports leagues have standing to bring the suit.
The leagues filed suit in August arguing that the New Jersey law was in direct contravention of the Professional and Amateur Sports Protection Act (PASPA) of 1992, a federal statute that imposes a ban on sports betting unless the individual state had its own sports betting scheme in place between 1976 and 1990.
New Jersey has argued in court papers that the leagues have failed to allege that they will suffer a concrete injury as a result of the sports betting law. New Jersey asserts that the leagues have failed to show a particularized injury. The state has argued that given the proliferation of sports gambling, the harms that the leagues claim would flow from the new gambling law would occur in any case, regardless of the law or any relatively modest increase in legal sports betting that it may cause.
The leagues’ lawyer, Jeffrey Mishkin, started his argument today by stating that the standard for the leagues to show that they have standing is an “identifiable trifle” in how the law would affect them. Mishkin argued that the leagues do not have to prove damages or injury for standing, they only have to show that identifiable trifle.
The leagues’ arguments focused on two main points: that the leagues have standing because their games are the vehicles for the betting and that in passing PASPA Congress explicitly authorized the leagues to bring action against the states.
The leagues argued that they will suffer an injury to their reputations if there is an expansion of legalized gambling. Mishkin argued that the fact that New Jersey chose to exempt professional and collegiate sporting events held in the state, as well as collegiate sporting events held outside the state involving schools from New Jersey, from betting, as evidence that the state believes that gambling on these events can cause problems.
Mishkin argued that when Congress passed PASPA it explicitly acknowledged that the leagues would have a personal stake in gambling laws because the perception of the leagues would be adversely affected by gambling. Mishkin said that “every dropped pass” and “every missed free throw” would raise suspicion.
Ted Olson, a former United States Solicitor General arguing on behalf of New Jersey, said the state would be regulating conduct that is already occurring. Olson cited statistics showing how prevalent sports betting is in this country, both legally and illegally.
Olson said the leagues needed to demonstrate more than just the perception that the law would hurt their business; they needed to show an “actual, identifiable, particularized, concrete injury” from the law to have standing to bring the case. He emphasized that Congress cannot remove Article III standing requirements, as there needs to be a finding by the court that the injury is specific and supported by facts.
Olson argued that the leagues are already thriving amidst a huge sports gambling market and the state would be bringing the black market gambling into the light and regulating it. Olson argued that there is no evidence that gambling has hurt the leagues and pointed out the prevalence of fantasy sports, which the leagues have largely embraced. He also pointed out that the leagues are in regular contact with the Las Vegas sports books to monitor shifts in betting on their games and this cannot happen in places where sports betting is occurring on the black market.
There was extensive discussion of the 2009 Third Circuit ruling in Office of the Commissioner of Baseball v. Markell, where the court held that most of Delaware’s plan to expand its sports betting offerings violated PASPA. Delaware, a state that had a PASPA exemption because it had a betting scheme in place before PASPA’s enactment, sought to offer single game bets and bets on any professional or amateur sporting event other than NFL games. This was rebuffed by the court because these were betting schemes that were not in place at the time that PASPA went into effect. Standing was not an issue discussed by the court in its opinion in Markell, and lawyers for the league implied today that this was because standing of the leagues was so obvious that the court did not need to address it. Judge Shipp also directly asked the state how it could reconcile the state’s argument that the leagues lack standing with the Third Circuit decision.
The Department of Justice has until January 20 to intervene, if it chooses to. New Jersey regulators have stated that they will begin granting licenses to offer sports betting beginning on January 9.
Judge Shipp stated that a written decision on the standing issue would be released by Friday, December 21. It remains to be seen how the court will rule. Based on observations from court today, it seemed the judge is inclined to believe that the leagues have the sufficient “identifiable trifle” to challenge the law.
If the court does find that the leagues have standing to bring the suit, the court will proceed to hear the case on the merits and will likely have to decide the constitutionality of PASPA.
People these days use Facebook to tell their “friends” about all kinds of things – a favorite TV show, a political bent, a new relationship and all kinds of other details about their lives. But recent enforcement action by the U.S. Securities and Exchange Commission should make clear to corporate officers and boards that Facebook may not be the best place to talk about company operations.
Netflix and its Chief Executive Officer, Reed Hastings, both received so-called “Wells” Notices from the SEC last week arising from Facebook postings that Hastings made in June about the company’s success. An SEC Wells notice notifies a company or individual that the agency intends to recommend enforcement action and invites the company or individual to submit an explanation to the SEC why it should not proceed.
In July, Hastings wrote on his Facebook page that Netflix users streamed more than 1 billion hours of video in June. The SEC is questioning whether that disclosure – access to which would be limited to those who are “friended” with Hastings on Facebook — violated fair disclosure regulations known as “Reg FD”. Reg FD states that, when an issuer discloses material, nonpublic information to certain individuals or entities – generally, securities market professionals such as stock analysts or holders of the issuer’s securities who may well trade on the basis of the information – the issuer must make public disclosure of that information. The purpose of these restrictions is to prevent issuer companies from disclosing material information preferentially to certain traders or securities market professionals.
Over the years, the SEC has periodically issued guidance about how Reg FD should be applied to developing technologies – first in the context of websites and then in the context of blogs. It does not appear, however, that the agency has previously issued formal guidance for the use of other forms of social media such as Facebook. The general requirements for the use of such technologies in compliance with Reg FD is that the information must be published through a “recognized channel” of distribution, and it must be disseminated in a manner designed to reach the public in general.
In public statements, Netflix and Hastings note the large number of people with access to the Facebook post (which they set at 200,000) included a number of reporters and bloggers, and argue that the size and composition of this audience make the Facebook posts fully compliant. They noted that many people re-posted the post (making it available to an even broader audience) and that there was press coverage thereafter as well. They have also asserted that the fact disclosed was not “material” to investors, noting that there had been a previous statement on Netflix’s blog as few weeks earlier that they were serving nearly 1 billion hours per month. While the value of Netflix stock did rise on the day of the Facebook post, Netflix and Hastings note that the increase started well before that mid-morning post, and assert that it was likely due to a positive Citigroup research report issued the previous evening.
It very well may be that the SEC accepts the explanation proffered by Netflix and Hastings and decides not to proceed with its civil enforcement action. Nevertheless, the story is a good object lesson for corporate personnel regarding the care that must be taken with statements in social media, and perhaps a sign of how government regulators are beginning to scrutinize social media as a new forum in which they may find violations of the regulations under their purview. To the extent that the SEC anticipates policing Facebook or other social media as part of its regulatory oversight of information disclosure, the agency should, in fairness, make clear to issuers the parameters of acceptable statements in those fora.