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FTC Announces Approval of Final Order in Deceptive App Case Against Vulcan

Written by on Wednesday, May 11th, 2016 Print This Post Print This Post

The Federal Trade Commission has today announced the approval of its final order resolving its complaint against the San Francisco-based software company Vulcan on deceptive and misleading conduct allegations that Vulcan had purchased a browser extension game and replaced it with a program that caused the automatic installation of applications on the game users’ mobile devices without their permission.  According to the Federal Trade Commission (“FTC”), Vulcan’s unfair and deceptive acts and practices in replacing a legitimate game with the new program severely disrupted the ability of the 200,000 users of the game to subsequently use their mobile devices and put their sensitive information stored on the device at risk. The FTC’s complaint also contained a false claims allegation over the inaccurate promotional and advertising claims made by the replacement program.   The original FTC complaint filed against Vulcan can be viewed here.

In its Order, the FTC prohibits Vulcan from offering “a product or service or materially change a Covered Product or Service” unless the company has  disclosed “clearly and conspicuously” in advance of any downloading or installation the types of information the product or service will access and how the information will be used to perform related services, and the nature of any material change to a covered product or service.  Also, the FTC expressly prohibits Vulcan from making a number of specific deceptive advertising claims. The FTC Order has been made available for viewing here.

The Vulcan enforcement action by the FTC makes a clear statement to software companies that the government is monitoring the nature of the software being distributed to consumers as well as the advertising claims made in connection with such software for any conduct that may rise to the level of an unfair and deceptive trade practice.  Any software company contemplating the replacement of an app previously installed by users with their permission with another an unauthorized app are on notice that the FTC does not approve of the practice and will exercise its enforcement authority against you once your conduct is brought to its attention.

 


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Silicon Valley Software Blog Author Kristie Prinz to Speak on Best Practices for Negotiating and Drafting Effective SaaS Customer Agreements

Written by on Tuesday, May 3rd, 2016 Print This Post Print This Post

Are  your SaaS customers really signing an agreement that is effective for your business?  How do you even know if your SaaS company is working with a customer agreement that is sufficiently protecting your business?

The Silicon Valley Software Law Blog’s author Kristie Prinz is presenting a webinar on June 13, 2016 at 10 a.m. PDT on “Best Practices for Negotiating and Drafting Effective SaaS Customer Agreements” which will explore these topics of concern for SaaS companies.  At this webinar, you will learn the following:

  • What makes an effective SaaS customer contract?
  • What terms should you include in your SaaS customer contract to protect your business?
  • Common drafting problems in SaaS customer contracts
  • What drafting problems frequently result in customer disputes?
  • How can these drafting problems be avoided?
JEL28958-Prinz, Kristie P2
Ms. Prinz’s practice focuses on advising early stage and small to mid-sized businesses on the negotiation and drafting of complex commercial transactions in the software, hardware, Internet, health technology fields of practice, as well as other related high tech and life sciences fields.  Ms. Prinz is a regular speaker, media contributor, and author on technology law, intellectual property and entrepreneurship issues.  Ms. Prinz has developed particular expertise in advising SaaS companies in negotiating and drafting their customer agreements.  Ms. Prinz is a graduate of Vanderbilt Law School and is licensed to practice in the states of California and Georgia. To register to attend this webinar, please sign up here: link.

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Should Your Software Company Be Concerned about Product ADA Compliance?

Written by on Tuesday, April 19th, 2016 Print This Post Print This Post

If your software company leases office spaces, then you may have some familiarity with the legal issues involving whether or not the space is compliant with the Americans with Disabilities Act (the “ADA”), but have you ever considered whether your software product itself is ADA compliant?

If the answer is no, then it may be time to allocate some resources toward the issue of ADA compliance.

A California judge last month granted summary judgment to a blind plaintiff who had filed a lawsuit against Bag’n Baggage on the grounds that he was unable to shop online at the company’s website because the website lacked features for aiding the disabled.   According to The Wall Street Journal, Bag n’ Baggage was ordered to update its website, pay the plaintiff Four Thousand Dollars ($4,000.00) in damages, and pay attorneys’ fees which are expected to exceed One Hundred Thousand Dollars ($100,00.00).  Forbes reports that the plaintiff in the Bag n’Baggage case has filed nine lawsuits in San Bernardino County Superior Court and two in federal court, presumably on the same issue.

However, according to Forbes, this California ruling is not an isolated case, and it comes just a month after a federal judge ruled against Harvard University and the Massachusetts Institute of Technology  in similar cases, rejecting their arguments that the cases should be dismissed or stayed pending DOJ regulations being adopted.  Tech Crunch also reports that the Department of Justice itself has launched investigations which included the issue of website accessibility against the NewSeum in Washington D.C. and the Quicken Loans Arena and has settled with several universities:  Florida State and the University of Montana.  In addition, Tech Crunch reports that the Department of Justice has already entered into settlements with the online grocer PeaPod and H & R Block, which have required the businesses to make applications accessible to vision-impaired users.

According to Tech Crunch, given the fact that law firms are already sending out demand letters threatening to sue unless the business makes their website ADA compliant, it is not much of a stretch to anticipate that the same firms will soon start focusing their efforts altogether towards software and mobile applications.

What can software companies do to protect themselves from potential ADA claims about their software products?  Tech Crunch suggested that companies arrange for testing their products with WCAG 2.0 and Section 508 of the Rehabilitation Act and test usability by built-in screen readers, as well as actively consider accessibility in the design plan.  Obviously, software companies need to be following legal decisions on the issue of ADA compliance in the Internet and software industries and take steps to act on the guidance that comes out of those decisions relating to the ADA compliance issue.

The good news for software companies is that courts have not found uniformly against businesses on the issue of websites being ADA compliant, so in the event your company is sued, there is some precedent that may provide a viable defense to your business.  Forbes reports that the U.S. Court of Appeals for the Ninth Circuit held in 2015 in Earll v. eBay  that ebay.com, was not a “place of public accommodation” under the accessibility requirements of Title III of the ADA and that it came to the same conclusion in 2015 in Cullen v. Netflix, Inc.  Forbes also reports that the Third and Sixth Circuits found in the 1990s that the ADA only applied to actual physical structures.  However, at the same time, Forbes acknowledges that the Eleventh Circuit, the First Circuit, and the Seventh Circuit have reached the opposite conclusion.

So, the bottom line, is that for now at least, software companies need to be proactively adopting plans to make their software products accessible to the disabled, and to be taking steps to maintain compliance with federal and state laws applicable to accessibility issues.  If your software company has not been considering how the ADA or similar state laws might apply to its products, now is the time to start evaluating these issues.


Category: Litigation, Software Litigation  |  Comments Off

Microsoft Launches New Constitutional Challenge Against Government Over Secret Data Requests

Written by on Saturday, April 16th, 2016 Print This Post Print This Post

Microsoft has just opened a new chapter in the software industry’s pushback against alleged federal government overreach by filing a constitutional challenge over indefinite government gag orders when the government subpoenas information from customer cloud accounts.  Microsoft’s complaint alleges that the orders violate First Amendment free speech rights and Fourth Amendment rights regarding unreasonable government search and seizure of property.

According to The Wall Street Journal,  Microsoft is claiming that a gag provision under the Stored Communications Act “has significantly expanded the government’s power to conduct secret investigations.”  The Wall Street Journal reports that Microsoft’s position is that the government “has exploited the transition to cloud computing to expand its power” and that the fact that private information is moved from a file cabinet to the cloud does not fundamentally change the constitutional rights that people have to that private information.

The text of the Stored Communications Act is codified at 18 U.S. Code Chapter 121, Section 2703(b) of the Stored Communications Act states as follows:

(b)Contents of Wire or Electronic Communications in a Remote Computing Service.—

(1) A governmental entity may require a provider of remote computing service to disclose the contents of any wire or electronic communication to which this paragraph is made applicable by paragraph (2) of this subsection—

(A)without required notice to the subscriber or customer, if the governmental entity obtains a warrant issued using the procedures described in the Federal Rules of Criminal Procedure (or, in the case of a State court, issued using State warrant procedures) by a court of competent jurisdiction; or
(B) with prior notice from the governmental entity to the subscriber or customer if the governmental entity—

(i)uses an administrative subpoena authorized by a Federal or State statute or a Federal or State grand jury or trial subpoena; or
(ii)obtains a court order for such disclosure under subsection (d) of this section;
except that delayed notice may be given pursuant to section 2705 of this title.

(2) Paragraph (1) is applicable with respect to any wire or electronic communication that is held or maintained on that service—

(A)on behalf of, and received by means of electronic transmission from (or created by means of computer processing of communications received by means of electronic transmission from), a subscriber or customer of such remote computing service; and

(B)solely for the purpose of providing storage or computer processing services to such subscriber or customer, if the provider is not authorized to access the contents of any such communications for purposes of providing any services other than storage or computer processing.

Reuters reports that the Microsoft claims it has received 5624 legal orders under the Stored Communication Act, of which 2576 also contained a gag order, and that most requests involved individuals rather than companies.

According to The Economic Times, Microsoft has decided to pursue this challenge because its business model is increasingly relying on cloud services and Microsoft is concerned that the government’s actions are going to discourage the public from further adopting the cloud business model.  The Economic Times is also reporting that Microsoft is citing as precedent for its case a ruling in 2014 where U.S. Magistrate Judge Paul Grewal rejected a Department of Justice request to have an unlimited gag order over the search of a Microsoft Hotmail account and said that a limited gag order might be appropriate, as well as a Supreme Court ruling that police must announce themselves when they serve a warrant.

Who is likely to prevail here?  As you might expect, Forbes was able to find experts on both sides of the issue.   However, Forbes raised an interesting point that if a court were to find in favor of the government on this case, it sets a precedent for other governments to expect similar access, which could be problematic.

It’s safe to say that Microsoft’s filing of this case on the heels of the very public debate regarding the Department of Justice decision to order Apple to decrypt the San Bernardino terrorist smartphone is a strategic move on Microsoft’s part intended to capitalize on the current public sentiment against the federal government for its perceived intrusion on individual privacy rights.   The software industry has clearly decided that the time is right to draw a line in the sand on government overreaching into its industry.  It is unlikely that the government is going to be able to sidestep a showdown in this case in the same way it was able to do in the Apple dispute.

 


Category: Litigation, Software Litigation  |  Comments Off

Third Party Hacks San Bernardino Terrorist iPhone, Ending Standoff Between Apple and FBI

Written by on Wednesday, March 30th, 2016 Print This Post Print This Post

The U.S. Justice Department announced yesterday that the third party who came forward and convinced the FBI that it could unlock the San Bernardino terrorist’s encrypted iPhone successfully unlocked the encrypted iPhone, ending the standoff between Apple and the FBI.  The government informed the court in its filing yesterday that it had successfully retrieved the data stored on the encrypted iPhone and no longer required assistance from Apple.

According to Silicon Beat‘s reporting, at least one founder of an advocacy group, Tiffiniy Cheng, co-founder of Fight for the Future,  is predicting that this standoff “will go down in history as one of the FBI’s biggest public relations failures.”  This general perception that the government has been the big loser in this matter has been the prevailing view among many commentators.

The Wall Street Journal, however, suggested in its reporting that a contrarian view has developed that “Apple’s credibility could be questioned” since clearly the iPhones do have security flaws that can in fact be exploited.  Also, The Wall Street Journal reported that this contrarian view suggests that the episode may “complicate the government’s position the next time” it seeks court-mandated help from a software company over an encryption issue.

The government has been silent on the source of the encryption unlocking assistance it has received; however, Tech Crunch and International Business Times reported that the mysterious third party was the Israeli company Cellebrite, which the government has a long history of working with.

Regardless of the identity of the third party providing the assistance, as The New York Times  has reported,  the very fact that a security flaw was uncovered that Apple was unaware of may serve as a wake-up call to Apple that it may want to rethink its policy on refusing to pay hackers that identify security flaws in its software.  According to The New York Times, it is a standard practice in the industry to pay hackers who identify security flaws that could be exploited for malicious purposes–a practice that Apple has refused to adopt–which has caused a huge underground market to develop for the sale of information on Apple security flaws.

In the meantime, while this particular chapter in the encryption battle has been closed, the Department of Justice’s appeal in the New York case over the unlocking of an iPhone continues on.  There is no word yet if the solution uncovered in the San Bernardino iPhone matter will also work with the iPhone in the New York case, although Reuters is reporting that Apple has already raised that question in New York court filings.   Also, as the Silicon Valley Software Law Blog reported previously, a potential encryption fight over WhatsApp also remains on the Department of Justice ‘s plate that has yet to be resolved.  Thus, it seems likely the debate over the encryption issue will be renewed in the foreseeable future over another software encryption matter.

While legal observers may be disappointed to see that fight postponed for another day,  I would argue that Americans should be relieved that the right result was finally achieved in this case.

 


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Lawyer Kristie Prinz Invited to Present Upcoming Webinar on “Negotiating Software as a Service Contracts”

Written by on Tuesday, March 22nd, 2016 Print This Post Print This Post

Silicon Valley Software Law Blog author Kristie Prinz has been invited to present a webinar on “Negotiating Software as a Service Contracts” for Clear Law Institute on May 6, 2016 at 10 a.m. PST/1 p.m. EST.  For more information on the event or to register, please visit the Clear Law Institute website at http://clearlawinstitute.com/. 


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Government Backtracks in Dispute Against Apple Over Unlocking Terrorist iPhone

Written by on Tuesday, March 22nd, 2016 Print This Post Print This Post

The government has asked to postpone its scheduled hearing against Apple tomorrow, according to breaking news reports by Fox News and the Associated Press as well as The New York Times.

It is reported that “an outside party” has identified to the FBI a possible method to unlock the iPhone used by one of the San Bernardino terrorists.  The government has asked for time to determine if the proposed method is successful.

The Department of Justice filing is posted here.

Today’s developments would suggest that the Department of Justice and FBI may be coming to the same conclusions that the Silicon Valley Software Law Blog reached last week: that the best course of action in this matter would be for the government to accept third party help to decrypt the locked terrorist iPhone and to drop the legal action against Apple.  While the Department of Justice has succeeded in creating a huge public relations victory for Apple by taking its encryption dispute to the courts, it has done little to advance its own interests, creating instead a very public controversy over the issue of federal government overreaching and setting itself up for a expensive court battle over free speech that could be headed to the Supreme Court.  Perhaps the realities of the situation have set in and the government is taking the prudent course of action after all.   While legal scholars may be disappointed in this development, finding an alternative solution to end this dispute is going to be best for law enforcement and ultimately best for the American people as well.


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Who will Ultimately Win in the FBI’s Standoff with the Software Industry?

Written by on Saturday, March 19th, 2016 Print This Post Print This Post

The Justice Department set off a huge public debate earlier this year when it sought court intervention to force Apple to assist law enforcement in unlocking an iPhone that belonged to one of the San Bernardino terrorists, and the issue is of particular interest to members of the software industry here in Silicon Valley, where there is tremendous pro-Apple support.  In fact, it is difficult to go anywhere in Silicon Valley as a technology lawyer without being asked about the case.

However, since the case first became news,  it’s become more clear that, contrary to the initial reporting on the case, the government’s fight does in fact go beyond just this one case with Apple, and that winning the legal battle, should the Justice Department be able to do so, may not succeed in achieve the intended result.

According to Tech Crunch’s reporting on the case, a court order was filed on February 16 requiring Apple to create the software necessary to unlock the iPhone and that “within hours the court had granted the request.”  The government relies on a 227 year old law, the All Writ’s Act of 1789, as the basis for its legal argument.  Popular Mechanics explains the government’s argument in this article.

Apple then decided to fight back by disputing that the All Writs Act gives the government the authority to compel Apple to act in this case and by raising a very public Free Speech challenge to the Court.   The New York Times reported that the FBI has used the All Writs Act to successfully obtain data in the past from Apple, but that Apple is arguing that the difference in this case is that the government is trying to use the power to compel the provision of decryption services.  In other words, the argument is that government wants to conscript a private business into the performance of services against its will.  The New York Times further explained the First Amendment argument that Apple is articulating, explaining that the precedent is a Northern District of California case decided in 1996, which agreed that a UC Berkeley graduate student’s code was speech and protected by the First Amendment.  Forbes reports that Apple also cites Universal City Studios Inc. vs. Corley, a case in which magazine publisher Eric Corley published DeCSS, a program that permitted people to decrypt DVD content, and the Second Circuit U.S. Court of Appeals ruled that computer programs and code are a form of protected speech under the First Amendment.

An impressive number of amicus briefs have been filed in support of Apple’s position, which have been made available for public viewing by Apple on its website.

While the government’s request was initially reported as an “isolated case”, it has since become apparent that the case was not really  so isolated.  CNN reported that Apple is in fact being pressured by federal law enforcement to hack iPhones in at least thirteen different cases across the country.  Moreover, as reported by CNN,  it came to light that the government had previously launched a second court case over the same issue, when the New York judge assigned to the case ruled against the government that the All Writs Act could not be used to force Apple to unlock a specific device.  The Verge explains that while the ruling will not be precedent on the California case, it does give Apple a stronger argument to appeal any ruling that would go against the company and it “illustrates the dangers of trying similar cases in different courts simultaneously.”  According to The Verge report, a key difference between the two cases was the “specificity of the request” since whereas the New York case only requested general assistance in unlocking the phone, the California case detailed “extensive specifications” for how to break the lockscreen protections.

In addition to the New York case, The New York Times is reporting that the Justice Department is right now considering taking legal action against WhatsApp, which is owned by Facebook, over yet another encryption issue, in which a federal judge had approved a wiretap, but the criminal investigation was thwarted by encryption in the application.  According to The New York Times, the circumstances surrounding the WhatsApp dispute are even more significant as unbreakable encryption would put the “future of wiretapping” at risk.

When looking at the encryption standoff in its totality, it’s hard not to wonder why the federal government ever thought it was a good strategy to go to the courts with this fight instead of continuing to keep the issue out of the press.  Despite the fact that the California case is dealing with the aftermath of a terrorist attack that arose on California soil, Apple remains today an incredibly popular company which is incredibly skilled at conducting a masterful P.R. campaign.  Apple’s use of this controversy to harness public support for the company has been nothing short of brilliant.  While certainly the American public favors the government taking actions to defeat terrorism, there also remains a general fear of government overreach that began with the last Bush administration and intensified with the Snowden revelations.  As the New York Times observed, the debate that the government initiated by launching a court battle over the issue is probably not exactly what “Mr. Obama had in mind.” Even if the government were to achieve a legal victory in this matter, which seems perhaps less certain now after the New York ruling,  the public relations victory seems to  have already been won by Apple.  Moreover, it’s hard to accept the argument that the government had no other possible course of action, when once this matter was made public, it was reported by multiple news outlets that John McAfee publicly offered to encrypt the iPhone for free.  It seems like the country would have been much better served by the government making a more effective effort to decrypt the iPhone on its own without resorting to compelling a third party to act on its behalf.

To make matters worse, the engineering community is already publicly discussing a Plan B of simply not cooperating with the government even if it wins.  The New York Times reported this week that Apple employees are contemplating the possibility of “quitting their jobs” rather than undermining “the security of the software.”  Given the unpopularity of the government action in this standoff within the software industry and the high demand for engineers with the skills to do the development work in question, taking such an action would be unlikely to harm their careers.  As The Verge reported, such an act of rebellion could “make the FBI’s goal nearly impossible to achieve.”

All in all, it seems hard to see how the government really comes out ahead in this controversy.  The wisest course of action might very well be for the Department of Justice to swallow its pride, accept third party help, and move on.  There is no question that such a next step would the more prudent use of limited taxpayer dollars.  But since when has the current administration ever been judicious with taxpayer dollars?

 


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Lumos Labs Case Signals to Health Software Industry an Intention by the FTC to Police Industry’s Advertising Claims

Written by on Saturday, January 16th, 2016 Print This Post Print This Post

The Federal Trade Commission’s pursuit of Lumos Labs over advertising claims made about its Luminosity brain training software programs has sent a clear cautionary signal to the health software industry that the FTC intends to exercise regulatory authority over advertising in the space to monitor companies’ health-related advertising claims for deceptive advertising issues.

The FTC reached a settlement this week with Lumos Labs on its deceptive advertising claims against the company.  A copy of the FTC’s press release on the settlement is attached here.

The FTC’s complaint attached here alleged that the company’s claims about the health benefits of training with Luminosity’s mobile apps and subscription-based software services were not substantiated by science at the time that the claims were made, in violation of Sections 5(a) and 12 of the FTC Act, 15 U.S.C. § 45(a).  Also, the complaint alleged that testimonials about the benefits of the program were solicited in conjunction with a contest with prizes–a fact which was not disclosed in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a).  The FTC alleged these violations caused consumers to suffer substantial injury and unjustly enriched Lumos Labs.

As part of the settlement, Lumos Labs has agreed to pay a fine of Two Million Dollars ($2 Million) to the FTC.  In addition, Lumos Labs agreed to turn over its customer list and to provide email and subscription-based notices to consumers notifying them of the settlement and giving them visible notice of their rights to end their subscriptions when they renew.  The FTC agreed to lift a $50 million judgment against Lumos Labs conditioned upon the accuracy, completeness, and truthfulness of the financial statements provided by the company to the FTC.  A copy of the full order is attached hereThe Washington Post reports that the FTC anticipates spending the majority of the fine on consumer refunds.

The FTC action against Lumos Labs highlights the increased popularity of software in the health technology space and provides a clear signal that the FTC intends to exercise its regulatory powers against software companies making health claims for advertising purposes that have not been scientifically proven.  Indeed, the FTC recently posted to its website some general guidelines for companies making health claims, in which it advised software companies procure clinical studies to support their health claims about their software products.  A quick search of “health claims” on the FTC’s website underscores the apparent seriousness in which the FTC is taking the issue of regulating product health advertising claims.

The bottom line: software companies making health claims about their products are on notice that the FTC will be closely watching how you are advertising your product.  So, companies in the health software industry need to make FTC compliance a high priority for their businesses.

 

 

 


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Prinz Law Launches New Meetup Group on Copyright Law Meetup

Written by on Thursday, December 17th, 2015 Print This Post Print This Post

The Prinz Law Office has just launched a new meetup group on Copyright, Software, Internet & Social Media and the Law in conjunction with the High Tech Section of the Santa Clara County Bar Association.  The firm anticipates having remote as well as in-person events.  If you are interested in the subject, the firm welcomes your participation.  We are currently seeking potential speakers, so if you have a related topic you would like to talk on, we invite you to let us know.  For more information on the meetup, please check out the link below:

Copyright, Software, Internet & Social Media, and the Law

San Jose, CA
11 Copyright Law Gurus

This group is a meetup for people interested in the intersection among copyright, software, Internet and social media, and the law. It focuses on copyright developments and le…

Check out this Meetup Group →


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