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Archive for September, 2014

Report Reveals that the Majority of Apps on Market Ignore Privacy Concerns

Written by on Sunday, September 14th, 2014

The Wall Street Journal reported this week that apps on the market overall are not providing users with even basic privacy protections.

The report focused on research conducted by the Global Privacy Enforcement Network, which is a coalition of privacy officials from 19 countries, including the U.S. Federal Trade Commission, and determined that 60% of the 1211 different apps reviewed raised privacy concerns, as they did not disclose how they used personal information, they required that the user give up significant personal data in order to download the app, and their privacy policies were posted in font too small to be read on a smartphone screen.   In addition, they found that 30% of the apps provided no privacy information whatsoever, and 31% requested access to person data without advising users whether or not the personal data was necessary for the app to function. Just short of half of the apps had privacy policies that were not smartphone-friendly in terms of their readability.

If you are a developer with an app you have released on the market and you fall into the category of developers who are ignoring privacy concerns and want to change your ways, adopting a few practices would obviously address this organization’s concerns: start disclosing how you use personal information, refrain from requiring the disclosure or consent to use of personal data before a user can download your app; and make your privacy policy readable on mobile devices.  In addition, you may want to consult the digital guide published by California’s Office of Privacy Protection for additional recommendations on best privacy practices.


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California Notifies App-Based Ride Service Uber and Competitors that Service is Illegal

Written by on Friday, September 12th, 2014

The big story on the Internet today is about the new app-based ride service Uber:  California regulators have just notified Uber and its competitors, Lyft and Sidecar, that the services are illegal under California law.

An article by Forbes Contributor Mark Rogowsky offers a fairly comprehensive explanation of California’s problem with these services.  Apparently the issue raised is a violation of Section 5401 of the California Public Utilities Code, which involves how charter party carriers of passengers are compensated.  The letter advised each company that they could petition the CA legislature to change the applicable law, but until the law was changed that California would be enforcing state law.

Tech Crunch published the reactions of each of the affected companies to the notice letter.

I agree with the commentators who are struck by the irony by the fact that California of all states is imposing the roadblock that threatens to shut down these services.  Clearly, there are a lot of businesses in the state that unhappy with all the attention that these new business models are attracting, but it is more than a little surprising that the California government itself–undoubtedly the greenest of the 50 state governments–is the one that is threatening to shut down the business model.  I suspect that new legislation is going to get rushed through the California state legislature to fix this little snafu in a hurry.  What do you think?

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California Adopts Smartphone Kill Switch Law

Written by on Friday, September 12th, 2014

California has just enacted a smartphone kill switch law, which will require all smartphones sold in the state of California as of July, 2015, to have kill switch features enabled as the default settings on the smartphone.

SB 962 requires all smartphones:

manufactured on or after July 1, 2015, and sold in California after that date, include a technological solution at the time of sale, which may consist of software, hardware, or both software and hardware, that, once initiated and successfully communicated to the smartphone, can render inoperable the essential features, as defined, of the smartphone to an unauthorized user when the smartphone is not in the possession of an authorized user.

The bill requires that the technological solution utilized must be able to withstand a hard reset and must prevent reactivation on any wireless network except by an authorized user.  Resold phones will be exempt from this requirement,  as well as any model of smartphone on the market prior to January 1, 2015, which cannot reasonably be re-engineered to support the manufacturer or operating system provider’s technological solution.

The bill imposes a civil penalty of not less than $500 nor more than $2500 for each knowing violation of the bill’s requirements, and enables enforcement by the Attorney General, a district attorney, or any city attorney.

California’s move follows the adoption of similar legislation by Minnesota earlier in the year, as reported by Cnet.  According to Cnet, Minnesota’s law differs from the new California law, however, in that the kill switch feature is not required to be turned on as a default setting when the consumer first sets up the phone.

USA Today reported that the cell industry’s trade group, CTIA-The Wireless Association, has opposed the idea of kill switch legislation, and alleged that this was largely due to the group’s self-interest in perpetuating the lucrative market for cell phone insurance.

Overall, despite industry opposition to the bill, the reaction to this legislation has been positive.  Some media analysts have predicted that California’s move will cause all smartphone makers to adopt the kill switch as a default on all smartphones, given the size of the California market, and that this will all but eliminate smartphone theft in the country, since anyone who steals a smartphone will be left with a dead phone as soon as the owner realizes it is gone.

However, interestingly enough, the Boston Globe took a contrarian view on the legislation, arguing that it was unnecessary and could have “unintended consequences.”  In particular, they raised concerns about a provision in the law that allows governments to deactivate cell phones thereby “micromanaging the tech market.”

As someone who worries about government interference with private markets, I went back to the text of SB 962.   Based on my reading of the bill, the law only references preexisting California law in Section 7908 of the Public Utilities Code and does not actually provide any new government rights to the smartphone marketplace.  So, while the Boston Globe’s point is well-taken about the dangers of government encroachment into the private marketplace, I do not personally see from my reading of the legislation how that is really an issue in this particular case.  Certainly there is an argument that can be made that this law is unnecessary, as smartphone makers were already introducing these safety mechanisms on their own, but obviously the legislation now eliminates the option not to include the features as a default setting on smartphones and it is challenging to come up with an argument as to why this is bad for consumers or the marketplace generally.

All in all, I think California got it “right” this time and applaud the decision to pass the legislation.



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California Governor Signs Bill Prohibiting Nondisparagement Clauses in Consumer Contracts

Written by on Wednesday, September 10th, 2014

California has just added a new type of clause to the list of clauses that violate public policy in the state: the non-disparagement clause.

Governor Jerry Brown has just signed AB 2365, which prohibits companies from including nondisparagement clauses in consumer contracts, including online terms of service.

The bill–nicknamed the “Yelp” bill–prohibits now the inclusion of any clause for the sale or lease of consumer goods and services from which waives the consumer’s right to make a statement about the seller or lessor or its employees and agents, or concerning the goods or services.  The bill also makes it unlawful to “otherwise penalize a consumer for making any statement protected under the bill.”

AB 2365 imposes penalties of $2,500 for the initial violation and $5,000 for each subsequent violation, as well as an additional penalty of $10,000 if the violation was “willful, intentional, or reckless.”  The bill authorizes the affected consumer, the Attorney General, or the district or city attorney to file the claim. 

The San Francisco Business Times is reporting that that this bill was adopted in direct response to a Utah case of a couple who received a demand of $3500 from retailer that they had criticized online.

As you might expect, Yelp has already publicly responded by applauding the signing of the law bearing its nickname.

This law has widespread implications for virtually any company engaged in business on the Internet, and any business entering into contracts, where the consumer or lessee is based in California.  Thus, if you do business in the U.S., you now have a new constraint on what you can put in any contract or legal document, including Internet document, that your company adopts or signs.

While it goes without saying why Yelp would support the enactment of this kind of legislation, as an technology transactions attorney who drafts and negotiates contracts for a living, I find this level of government intrusion into private contracts absolutely appalling, as its application is going to go far beyond the narrow set of circumstances that the law was enacted to address.  Plus, the impact of the adoption of this bill is going to be very far-reaching and force companies in all 50 states–not just California–to modify their standard contracts, even their service contracts.

Perhaps it is time to take this issue to Congress–at which point we in the business world will then have the opportunity to see just how far the Yelp lobby’s influence actually extends.

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FTC Settlement with Google to Require Refund of Unauthorized In-App Charges

Written by on Tuesday, September 9th, 2014

The Federal Trade Commission has announced that Google has agreed to refund customers’ unauthorized in-app purchases made by their children in the Google Play Store pursuant to a settlement over a complaint filed by the Commission alleging violations of Section 5(a) of the FTC Act, 15 U.S.C. Section 45(a) prohibiting unfair or defective acts or practices affecting commerce.  Attached is the FTC press release of the settlement.  In particular, the complaint alleged that Google’s practice had been to bill Google account holders for children’s activities in applications without obtaining the prior consent of the Google account holder, and that the refund process to get the unauthorized charges reversed had been difficult.

The total amount of refunds Google is anticipated to make pursuant to this settlement exceeds $19 million.  According to the FTC, Google has also agreed as part of the settlement to procure express, informed consent from customers before charging them for any items sold in a an app going forward.

The move by Google to settle the FTC’s complaint follows a similar move by Apple earlier in the year to settle the complaint initiated  by the FTC  on similar grounds.    Like Google, Apple agreed to refund all unauthorized in-app purchases made by children and to change its billing practices to obtain express, informed consent from customers before charging them for items sold in a mobile app, according to the press release issued by the FTC following its settlement with Apple.   The estimated cost of the refunds in the Apple case was estimated to be at $32.5 million.

In looking at the outcome of these two cases, I can’t help but question whether the Federal Trade Commission’s regulatory involvement in the smartphone app business is a good development for the industry or not.  On one hand, there were clearly a large number of angry Americans who were billed for unauthorized charges through their smartphones and apparently not getting relief from either Google or Apple.  So, clearly from that perspective, the outcome was the right one for consumers.

But isn’t the real problem here the smartphone app platforms themselves for both companies and the fact that neither company was responding to customers who were getting billed for unauthorized changes by fixing the platform?  Should that have required government action to fix?  Shouldn’t the private market have been able to accomplish the same action?

I personally am a little troubled by the fact that the FTC seems to be inserting itself in the digital world to the degree that it seems to be doing.  Even though the outcome was the right one for consumers in this particular case, I wonder if we should all be concerned with the FTC’s continued interference with the digital marketplace.

As for the companies themselves who were the subject of the complaints: clearly the industry has been generating revenues from unintended purchases.  Is that really the way that the industry should be conducting business?  Perhaps the industry itself should step up to the plate and make more of an effort to remedy the way that purchases are made on a smartphone to eliminate accidental purchases altogether.






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