A Quarterly publication from the Law Offices of Gerald A. Spala, by Gerald A. Spala, Attorney at Law.

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Newsletter contents:

New laws-highlights

Cases and controversies

Bankruptcy

Legal trends

Crazy cases

Cyberlaw: domain name game

Tech trends

Microsoft update

Parting shots

New laws—some highlights:

Federal

Congress passes the Financial Services Act of 1999.  

The new law repeals the Glass-Steagall Act of 1933 and essentially deregulates Wall Street. Primary benefits include the ability of sectors of the financial services to compete in different or multiple areas of the industry, without restriction. The data-swapping opportunities, the bill's backers said, are necessary for companies to be able to provide the integrated financial services that the legislation aims to make possible.

Satellite TV, Internet, and Anti-Cybersquatting. 

The U.S. Senate approved and President Clinton has signed an omnibus appropriations measure that, among other things, protects trademark holders from online cyberpiracy, levels the playing field between cable and satellite service providers, and revamps the nation's patent system. Critics attacked the legislation for denying Internet content providers and online services blanket licenses to retransmit local TV programs, and providing loan guarantees to finance rural satellite services. The law will also prevent public broadcasting stations from swapping donor lists with political organizations and crack down on "cybersquatting," the pre-empting of Internet domain names with the aim of selling those names to companies or people with trademark associations to them. Two disputed provisions were dropped from the bill before it became part of the appropriations package. One would have guaranteed $1.25 billion in federal loans to companies that provide local broadcast signals in rural areas. Sen. Phil Gramm, R-Texas, had opposed that language, contending that only a few big corporations would benefit. Also removed from the satellite measure was language that explicitly prevented Internet companies from getting special licenses to carry broadcast programming.  That came after Internet providers, like America Online Inc., lobbied to have the provision cut.

The “anti-cybersquatting” legislation is a reaction to a number of incidents where people have tried to extort money from big corporations by registering Web addresses that are similar or identical to their corporate names. 

California

• Bad faith, HMO's and patient's rights, safety standard violations

• Gun laws

• Overtime pay

• Shopper cards and privacy

One law was actively pursued by the trial lawyer’s lobby and reinstates third party “bad faith” claims in the area of certain types of personal injury claims.  Another law gives health care consumers the right to sue HMOs.  Finally, another new law gives workers the right to introduce violations of safety standards in personal injury cases—making prove up of the liability portion of these cases easier.

As part of the new “patient’s rights” law, a new state office has been established.  The Office of Patient Advocate  is now open and empowered to receive and act upon complaints filed by consumers unable to obtain the health care or reimbursement from HMO plans to which they subscribe.

The year 2000 brought forth even more new gun laws.  A new state law tightens the 1989 ban on “assault weapons” prohibiting magazines carrying more than 10 rounds, or weapons that allow multiple shots to be fired quickly.  The law carries a $500 fine and one year in jail as punishment for violation.  Five other gun laws outlaw “junk” guns or the “Saturday night special”; require safety and trigger locks; restrict consumer purchases of handguns to one per month; and makes it a felony to carry an unauthorized concealed weapon.

California lawmakers have also  restored a daily overtime pay requirement for eight million workers under a law signed by Governor Davis in July, fulfilling a campaign pledge. The measure backed by Gov. Gray Davis requires employers to pay workers 11/2 times the normal rate for working more than eight hours a day and double pay for work more than 12 hours a day.

A new California law cracks down on the supermarkets that offer the “shopper cards”.  In October, 1999, Governor Gray Davis signed, which limits what information markets can demand from customers as a condition of signing up for the cards. The law also bars the stores from selling the data they collect.  The prohibition was prompted by concerns that the application or registration information was finding a market and making consumers vulnerable to “identity theft”.  The law prohibits accumulation of Social Security and driver’s license numbers.  Contents

Cases and controversies:

 Bankruptcy

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Legal Trends

Pizza wars-Deception Found in Pizza Ads: Papa John's was found liable to rival Pizza Hut due to a federal jury's finding that it had made false and deceptive claims in a advertising campaign. The eight-member jury in Texas also found response ads by industry leader Pizza Hut false and misleading, but U.S. Magistrate William F. Sanderson Jr. doubted Pizza Hut will be sanctioned. Observers said the verdict's larger effect would be to stop Louisville, Ky.-based Papa John's International Inc. from using its slogan "Better Ingredients, Better Pizza" in a $300 million campaign. The company put the slogan in advertisements and on everything from its pizza boxes to its stationery. Associated Press November 14, 1999

Lockheed Martin Corp. v. Network Solutions, Inc.:  The court held that the company registering internet domain names is providing a service, not product, for purposes of Lanham Trademark Act. The nation's leading domain name registrar is off the hook for trademark infringements by cybersquatters and others who use its services, the 9th U.S. Circuit Court of Appeals ruled. Network Solutions Inc., a Virginia-based company that was until recently the only place to go to register Internet domain names in the United States, is not liable for contributory infringement when it registers a domain name. The case has been widely watched by the Internet industry and trademark attorneys. The Recorder October 25, 1999 .

Versus Realnetworks :  Claiming their privacy was invaded by software from an Internet music site that secretly gathered information about their listening habits, three consumers yesterday filed a class action suit in U.S. District Court in Philadelphia against RealNetworks Inc. The case  could provide the first court test of the newly amended Computer Fraud and Abuse Act which  provides a private cause of action by computer users against the unauthorized accessing of personal data.

Internet gambling update:  Currently, the Internet has about 500 virtual gambling casinos, say gambling and law enforcement experts. Since the rise of Internet wagering, three states -- Nevada, Illinois and Louisiana -- have passed laws specifically outlawing online gambling. Others, like New York, Minnesota and Wisconsin, have sought to prosecute out-of-state Internet gambling operators. A bill that would outlaw the promotion of online gambling in the United States is pending in the Senate.

Defamation and privacy:   In a first major ruling on privacy and defamation in cyberspace, a New York Court of Appeals has held that an Internet Service Provider (ISP) is merely a conduit for information, as opposed to a publisher, and consequently is no more responsible than a telephone company for defamatory materials transmitted over its lines. The Court unanimously upheld an Appellate Division, Second Department, decision that dismissed a defamation lawsuit brought against Prodigy Services Co., by the father of a Boy Scout whose identity was usurped by an unknown imposter. The imposter posted vulgar messages in the boy's name on an electronic bulletin board and e-mailed abusive, threatening and sexually explicit messages, also in the name of the boy, to the local scoutmaster. Lunney v. Prodigy

Coming commentary: internet taxation   Contents

Crazy Cases-another installment

Man Beaten After Breaking into House Sues Homeowner - August 25, 1999 A P -
A Roseville, Michigan man who broke into a house has sued the owner, saying she was responsible for the beating he took when he returned the next day, allegedly because he was invited to ``party.''  Cassidy Van Horn, 21, suffered two broken arms, a broken jaw and other injuries in the July 1997 attack at the home of Diana Folbigg, his attorney said Tuesday.   Van Horn is seeking at least $25,000 in damages.

Starbucks Sued Over Alleged Crushed Penis-Reuters-November 17, 1999-A Canadian tourist who claims that his penis was crushed by a faulty toilet seat at a Starbucks Corp. restaurant has sued the giant coffee retailer for $1.5 million, his attorney said Monday. "Our client, Edward Skwarek, was in a seated position on the toilet when he turned to retrieve the toilet paper in back of the seat when the seat shifted causing his penis to be caught and crushed between the seat and the bowl," said Richard Robbins, the lawyer for Skwarek, 37, of Toronto. The suit, filed Nov. 26 in Manhattan Supreme Court, alleges the coffee house was careless in "allowing a defective toilet seat to remain open ... causing a hazardous and unsafe condition ... in its public restrooms." Skwarek, a government financial worker, alleged that the incident took place on Aug. 20, 1999 at a Starbucks in the Chelsea district of Manhattan where he and his wife, Sherrie, 37,  dropped in for some coffee. The suit also claims that as a result of Starbucks' carelessness, Skwarek suffered a "crushed penis, Peyronie's disease, retrograde ejaculation with consequent substantial reduction in sperm count, infertility, severe bruising to his penis and sexual function impairment." Skwarek seeks $1 million in damages and his wife $500,000 because she has been "deprived of his services."     Contents

Cyberlaw-The domain game goes like this: FAST and loose; slow and lose :

In October, 1999, Morgan Stanley Dean Witter & Co. filed suit against the 17-year-old creator of a downhill biking Web site, claiming that the domain name infringed upon the investment banker's "MSDW" trademark. In published reports, Ivan Wong of Hillsborough California, said his site initials stand for "Mud Sweat's Downhill World," the name of the store that sold him his mountain bike.

In December, 1999, Quokka Sports Inc. filed suit against two New Zealand-based companies, claiming it negotiated the exclusive right to the AmericasCup.com domain name with trademark holder America's Cup Properties last April. However, Justin Nicholas and Arron Brett of New Zealand's Cup International Ltd. and Cup International Internet Ventures, the defendants in this case, are the current holders of the domain. Quokka's suit alleges use of the domain constitutes trademark infringement, which is protected under traditional U.S. trademark law and the anti-cybersquatting act, signed into law on Nov. 29. The suit is believed to be the first time a plaintiff has invoked the act in pursuing their case.

Also in December, the domain name battle between toy giant eToys.com and the Swiss art site formerly known as etoy.com continues to escalate. Domain name registrar Network Solutions has stepped into the fray and angry observers are threatening electronic terrorism.   Network Solutions shut down etoy.com's email -- a move that appeared to go beyond the scope of a temporary injunction, issued late November by a Los Angeles Superior Court judge, against the Zurich artists using the etoy.com domain name.

On December 7, 1999, the Boston Globe reported that Harvard University had also filed suit against a man selling Harvard domain names. Harvard University is using the new law to sue a Boston man who is trying to reap a small fortune by selling Harvard the Internet rights to its own name. Harvard filed a civil suit in US District Court in Boston alleging that Michael Rhys and Michael Douglas -- believed to be the same person -- and the company Web-Pro, violated trademark infringement and cyberpiracy laws by registering 65 Internet domain names incorporating the words Harvard and Radcliffe.  After paying $70 to register each name with Network Solutions, Web-Pro's web site listed “HarvardYardSale.com'' as a client and offered to sell domain names such as harvard-lawschool.com, virtualharvard.com, and harvardgraduateschool.com for a minimum of $10,000.

On January 3, 2000, the Star Tribune reported on the case of Northwest Airlines, which apparently was not litigated.  When Northwest Airlines learned that a travel agent was doing Internet business under the name "Northwest-Airlines.com," the Eagan-based carrier immediately protested.  In retaliation, the travel agent linked his Web site to a porn site. Some unsuspecting customers attempting to reach the airline found themselves immediately surfing porn pages. Northwest ultimately got the agent to relinquish his assignment to the trade name

A Houston businessman who obtained rights to the name "business.com" for $150,000 in 1997, sold the name to a California company for $7.5 million. Santa Monica-based eCompanies said it plans to use the name for business-to-business Internet service.  The previous highest purchase price for a domain name -- $3.3 million -- was paid last year by Compaq Computer Corp. for the rights to altavista.com, which became the name of its search engine.  Even Hillary Rodham Clinton was compelled to pay $6,000 earlier in 1999 to buy hillary2000.com from a cybersquatter who had registered the domain name. The web site GreatDomains.com auctions domain names. While it lists the average price at $32,338, some names are being offered at staggering prices: $10 million for America.com; $2 million for celebrities.com and $1 million for Houses.com.

U.S. Bancorp achieved an agreement from a small Philadelphia financial institution to stop using the web name USABanc.com. Amazon Bookstore of Minneapolis took on Internet retailer Amazon.com, saying the giant online bookseller was infringing on the trademark of the one-store book co-op. The case eventually was settled out of court

Baseball's New York Yankees together with Major League Baseball Properties, filed a Christmas Eve, 1999 suit against Brian McKiernan, a Queens, New York, owner of newyorkyankees.com since 1997. The lawsuit's primary charge of domain-squatting cited the Trademark Cyberpiracy Prevention Act, which Congress enacted in November to outlaw cybersquatting. The list of charges also included trademark infringement, false representation, and trademark dilution.  McKiernan's attorney William Kyros claims his client registered the domain with the intention of running a non-commercial fan site. He said the Yankees offered his client US$450 for the name before taking legal action, even though McKiernan had not offered the domain for sale.

A case presenting an interesting twist is the Healthnet case.  A large California HMO says it owns the name Health Net and wants everyone else to stop using it -- including a non-profit group that aids doctors in remote areas of Africa and Asia. But the non-profit, whose founders include a Nobel Peace Prize winner, has used the name for its Web site since 1993 and doesn't want to change it. The dispute over the Web site name ultimately may be decided by a federal judge.  The fight pits the non-profit, with $800,000 in revenue, against an HMO whose parent company brought in $8.9 billion in revenue last year. At issue is whether the non-profit, SatelLife, of Watertown, Mass., can keep its healthnet.org Web site address.  It appears that the original healthnet.com has been an internet source for healthcare practitioners worldwide for some time.

Finally, on January 10, 2000 the Associated Press reported that a New Jersey federal judge  has ordered the operators of an Internet pornography site to stop using Teen magazine's name in its Web address.   Magazine president Lynn Lehmkuhl said staff discovered the porn site last week and soon heard from puzzled girls. Teen, published since 1957, says the average age of its 2 million subscribers is 15.  The operator of the porn site, Blue Gravity Communications, and its owner, Thomas Krwawecz III, were temporarily restrained  from using the magazine's name by U.S. District Judge Joseph Irenas.

 (Comment:  One of the original cases in this area was the “candyland.com” suit.  Candlyland was a popular Hasbro game, and the name was taken by a pornography web site. The owner was eventually compelled to stop using the domain name.  I suspect that the ultimate outcome of some of these cases will depend in large part on the interpretation of the anti-cybersquatting statute.  The statute seems clearly limited to intended, speculative behavior including overt acts such as offering the domain name for sale to the franchise or entity associated with the name or mark.  Some of these cases will disappear through negotiation.  Others will end because of the sheer disparity in economic power between the owner of the domain name and the party claiming infringement and violation—which is a major criticism of the law i.e. that bigger, better financed companies will be taking domain names from smaller, start up, or less wealthy businesses.  More interesting will be the resolution of the borderline cases, and here technology and disclaimers may have to provide a solution.  After all, there are fundamental business law and constitutional issues.  Trademark normally will not be afforded a common or mundane term.  Usually, usage over time must also be associated with trademark. With the technological lexicon spawning new words at breakneck speed, it will be difficult for even the most innocent of entrepreneurs to avert technical violation of the law if it is afforded a broad interpretation.  The 9th Circuit U.S. Court of Appeals recently upheld the right to post a Web site with a trade name that includes the word "sucks" to criticize a specific company's product or service.  Thus, the courts will be balancing the objective content of the new statute, the subjective intentions of the domain name owner, and First Amendment freedom of speech issues.  My further updates will follow.)   Contents

Tech Trends

There is the short term and longer term, but there is no “long” term in this world, which happens to be firing on all cylinders right now.

To MS from MS-anti-trust update:

Recently, in the non-jury trial prosecuted by the United State Department of Justice Anti-Trust division, against Microsoft, the case presentations were completed and the Judge issued “findings of fact”.  In a non-jury trial, such a development would occur only at the request of either of the parties, or if the Judge took it upon his own discretion to do so.  Normally, “findings of fact” are issued contemporaneously with “conclusions of law”.  Therefore, it appears that before the “damages” or remedy phase of the trial convenes, the Judge is affording an opportunity to the parties to reach some sort of settlement agreement.

Comment:  Judge Jackson concluded that Microsoft was a monopoly and has acted in predatory fashion in violation of the law.  I do not disagree with these findings, although I believe it may be time to consider the relevancy of the “anti-trust” portion of laws which continue to guide commerce in the 21^st century.  An overhaul may be in order.

We may see a repeat of the IBM situation of the decade past.  In that litigation, IBM was able to fight long and hard enough to prevent any real changes or legal imposition of judgements.  Similarly, Microsoft has time and resources on its side.

In terms of “time”, the technology community is moving so fast, that past “predatory” practices, and their redressing, may be best left to individual damage suits from the companies affected.  Probably, in my opinion, more “justice” would be dispensed in this fashion, using Judge Jackson’s ultimate decision as a ‘springboard’, than the government bureaucracy could ever deliver in a lifetime. (That decision, of course, will be subject to appeal, and many more years of litigation.) More so than the federal government’s efforts here, the threat of continuing litigation from states and local entities, and the carnage that the Microsoft juggernaut has heaped upon so many other smaller competitors will serve better to transform Microsoft.

Momentum in the technology community is toward an “open source” operating system—consequently, the popularity of Linux.  That system has to be flexible and open for adaptation in multiple platforms and environments, otherwise the complex world of wireless, broadband and convergence in video, data and telecommunications will come to a blockage of monumental proportions.

Thus, Microsoft will see the litigation, and threat of litigation as an increasing distraction and drag on resources that need to be dedicated to meeting the changes which are inevitably beyond its control anyway.  So, time may be its friend given its resources—and time may very well vindicate Microsoft’s positions or stands in the course of the litigation as to the “unique” competitive aspects of the computer world---but it will also become its enemy as it continues to pursue these defenses in an increasingly complex and overlapping business environment.

Already, several US law firms have initiated class actions to seek damages from Microsoft for losses allegedly suffered by consumers as a result of Microsoft's behavior as a  monopoly.

Experts seem to believe that a major problem with using the courts to regulate a rapidly growing and swiftly changing industry such as the Internet is the slow pace at which the courts move.  The current case against Microsoft essentially relates to the development and sale of Windows 95.  Microsoft has updated this software since and will very soon release Windows 2000. Arguably, Judge Jackson's findings of fact are already out of date, and any appeal might take another two years, if not more time.  Once so much time passes, the potential disruption of the competitive landscape can either be overwhelming, and therefore negative; or, meaningless.)    Contents

Parting Shots-not just for lawyers:

Did you know?

• In China, the minimum wage is $6 per week.

• In Italy, pregnancy laws require a 5 month leave of absence.

• The European Economic Union labels “affirmative action” as “positive discrimination”, making no effort to conceal the fact that laws are being used to favor one class over another.

• In France, laws exist which mandate “mandatory” profit sharing schemes for enterprises with more than 50 employees.

Investment Sages say:

On Social Security:

Americans born after World War II will obtain a rate of return of just 1.86% of the taxes paid into the Social Security system.  A baby boomer making $40,000 this year who retires in 2020 will have to live to age 90 to make back all the payroll taxes adjusted for inflation paid into the Social Security system.

On the bull market: Investing Facts

The equity strategy group at Salomon Smith Barney has studied the performance of the S & P 500 during 1999.  This group picked out the five days of the year in which the S & P had its best performance.  They found that investors who missed one of these five days would have earned not 19.5% but 15%.  Two missed days resulted in a return of 12.3%.  Three missed days lowered the return to 9.42% and four missed days brought it down to 6.6%.  An investor who missed all five days earned a meager 4.7%---about the average of low/no risk money market funds over the course of the year.

From 1980 through 1989, for example, there were 2,528 trading days. If you would have stayed fully invested in an index of the Standard and Poor's 500 stocks, your average annual return would have been a breathtaking 17.5 percent. But had you pulled out and missed only the 10 best trading days out of those 2,528 days, your average annual return would have dropped to 12.6 percent. Had you missed the 40 best trading days, it would have fallen to 3.9 percent. Investor’s Business Daily January 18, 2000; CBS MarketWatch Jan 4, 2000

Postscripts-on the next big boom, net education:

“Between 1985 and 1992 alone, the world’s total student body, pre-school through all types of higher education, grew by 119.7 million, from 986.9 million to 1.1 billion.  That’s a 12% increase in seven years. . . . Our assumptions about who the typical college student was and how, what, when, why, and where that student attended college are no longer valid.  Today, the world’s colleges and universities are faced with new student body demographics.  This trend coincides with the arrival of the digital age. . . In addition, as the average college student age of 23 indicates, we no longer define a college education as something we do between the ages of 18 and 22.  We are coming to understand and embrace the concept of “lifelong learning”. 

Glenn Jones, Cyberschools:  An Education Renaissance, 1998, Jones Digital Century, Inc.

“In public discourse, as in policy, “Education” with a capital E is regarded as a separate, specific category of social activity.  “Media” are in another category.  “Computers” are in still another category.  Yet in the real world the boundaries among these categories are melting away.  The world of computing and the world of media are converging.  And it may be impossible to solve our most crucial social problems so long as we continue to think within the frame of these conventional categories.”

 Alvin & Heidi Toffler, Foreword to Cyberschools:  An Education Rennaissance, 1997

 Knowledge is the small part of ignorance that we arrange and classify.

--Ambrose Bierce                        Contents

My further updates will follow.
 
Sincerely,
Gerald Spala
January 18, 2000

Copyright, 2000 Gerald A. Spala, Esq. All rights reserved. The materials and opinions contained herein are not intended as legal advice, nor should  be relied upon as legal advice in the absence of a complete and thorough consultation or review of your matter by a licensed attorney.

If you have comments or suggestions, email me at mail@geraldspala.com

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