Monthly Archives: October 2013

Is A Multi Level Marketing Crackdown On The Way?

graphic of several computer connected to represent multi level marketing crackdown
Are officials going to take up the request to investigate multi level marketing companies?

Multi Level marketing companies are Making Headlines, Again

Recently, a well-signed letter requesting a formal inquiry into multi level marketing companies like Herbalife, Amway and Avon landed in the lap of the Federal Trade Commission. The signatories urged commissioners to explore the allegedly predatory nature of MLM companies and review ongoing accusations that MLM programs are elaborate pyramid schemes.

Not only did the letter outline grievances, but it also included some suggestions for increased regulation of multi level marketing companies. Specifically, the MLM detractors suggested that the FTC create rules which require MLM companies to disclose past earnings in addition to attrition rates of salespeople.

How Does Multi Level Marketing Work?

Multi level marketing is when salespeople are paid based on their own product sales, in addition to the sales of any new salesperson recruited through their “line”. While some people swear by multi level marketing, other folks feel MLM schemes are a dangerous cauldron of false hope.

MLM’s Loudest Detractor

Hedge fund manager – and Herbalife heckler – Bill Ackman has long aired his distrust of MLM companies, claiming many are simply giant pyramid schemes. In fact, he put his money where his mouth is and bet $1 billion against Herbalife. Ackman once ranted, “The MLM industry has proved incapable of regulating itself, is rife with fraudulent and deceptive earnings claims and has caused — and will continue to cause — untold financial harm and misery to the poorest and most vulnerable of the consumers whom the commission was formed to protect.” (NOTE: Ackman’s since scaled back his hedge because of strong figures posted by Herbalife in subsequent quarters.)

What Should You Do to Prepare For Possible MLM Crackdown?

OK, so what should you do if you operate a multi level marketing company – or one that has considerable similarities to an MLM setup? If you have an attorney, give them a call and ask for a review. The couple of hundred dollars it will cost to make sure you’re operating on the right side of the law is worth it. Just think: you’ll have to lay out a lot more if you get busted by the FTC.

Don’t Panic, Nothing May Come Of This

The most important thing to remember about this letter, though, is just that – it’s only a letter. That said, multi level marketing rules already exist – so make sure you’re following those. As for further crackdowns, we’ll be keeping an eye out.

The Illinois Amazon Tax is Dead

internet taxes and amazon taxAttention affiliate marketers: it’s safe to head back to Illinois. The state’s Supreme Court overturned the controversial “Amazon tax”. The court decided the law that birthed the online sales tax was superseded by the federal Internet Tax Freedom Act, and was therefore unconstitutional.

So, let’s take a minute to review the Internet Tax Freedom Act and the Amazon tax. Then we’ll discuss the logic road the Illinois justices traveled to reach their decision – a decision that is sure to delight the affiliate marketing community.

Internet Tax Freedom Act

Lawmakers singed the Internet Tax Freedom Act into law on October 21, 1998. It’s meant to preserve the educational, commercial and informational potential of the Internet by banning Web taxes. Specifically, the ITFA prohibits “Internet-only” levies like bit, email and bandwidth taxes. It does not, however, exempt states from establishing an online sales tax.

Officials have updated the Internet Tax Freedom Act three times – mostly for small definition changes and provision extensions. The last amendment extended the law till Nov. 1, 2014, at which time politicians will decide whether or not to keep it as is or change it.

Proponents of the ITFA argue the law is necessary for innovation, as burdening Internet development with taxes will hurt the potential benefits of the Web. Opponents of the ITFA say that all it does is unnecessarily cut a potentially valuable revenue stream for states.

Some States Are Not Subject To The ITFA

Before the ITFA went into effect, 10 states already had Internet taxes on the books. As such, the ITFA includes a grandfather clause which allows Internet taxes in those states. The ITFA immune states and district are CT, IA, NM, ND, SD, OH, SC, TN, TX, WI and DC.

Illinois Repealed The Amazon Tax

In 2011, Illinois passed the Main Street Fairness Act, which imposed an online sales tax for Internet retailers, with annual Illinois-generated revenues of over $10,000, regardless of whether or not the retailer had a physical presence in the state. Dubbed the “Amazon tax,” Illinois’ Main Street Fairness Act did not go over well, and large online retailers like Amazon and Overstock severed ties with Illinois affiliates to avoid the cost.

In fact, the new tax was so unpopular that the Los Angeles-based Performance Marketing Association sued the Illinois Department of Revenue, arguing the Amazon tax was unconstitutional and discriminated against “Internet-based performance marketers.” According to PMA’s research, after the MSFA passed, 1/3 of the state’s 9,000 affiliate marketers, who generated over $700 million in advertising revenue in 2010, left Illinois in 2011, and the other 2/3 either downsized or went belly up.

In a six-to-one ruling, the Illinois Supreme Court sided with the PMA, and by extension Illinois’ affiliates. Ultimately, the state’s highest court reasoned that the Internet Tax Freedom Act superseded the Main Street Fairness Act. Even though the ITFA does allow for online sales’ taxes, the bench decided that affiliate links were equivalent to radio and newspaper promotional codes, and since out-of-state retailers didn’t have to pay a tax on those sales, placing a tax burden on Internet affiliates would be “discriminatory.” The one dissenting judge argued that the MSFA “does not impose any new taxes or increase any existing taxes.”

The Future of Online Taxes

On November 1, 2014 the Internet Tax Freedom Act will expire. Some states, like Arizona, are already making moves to prepare for a possible change in law. It will be interesting to see what happens with the ITFA in 2014. Politicians eager to close the deficit gap may see Internet taxes as a juicy revenue pork chop just waiting to be devoured.

Investigative Journalists, Businesses and Defamation

false lightYou’re a business owner. One day, while minding your business, an  investigative journalist shows up at your doorstep. You have words; they’re caught on tape. The incident makes you look bad and will undoubtedly have a negative effect on your business if aired. Can you sue for defamation or invasion of privacy?

This was the central question an appeals court in Wisconsin had to consider in a case between Angela Terry, a local wedding videographer, and NBC affiliate WTMJ reporter John Mercure.

Judging from available accounts, Mercure is a consumer advocate journalist. You know, one of those reporters who catch business owners off guard (and on camera) after fielding complaints about their services. In this instance, Mercure was following up on accusations that Terry wasn’t delivering couples’ wedding videos on-time.

Apparently, during the confrontation, Mercure accused Terry of “facing criminal charges”. He also called her a “scammer” and a “cheat”.  A “scuffle” ensued and was caught on tape. In the end, Terry filed a defamation lawsuit against Mercure, WTMJ and the station’s umbrella company, Journal Broadcasting.

The photographer won the first round, but the defendants appealed and won the second time around on the grounds that Mercure’s statements were “either opinions or substantially true” since “none of the broadcasts or corresponding internet stories stated that Terry was actually charged with a crime.”

Now, this is not to say that all business owners accosted by consumer journalists can never win a defamation lawsuit. This one just happened to turn out in favor of the defendants.

If you have a business defamation issue and want to speak with a slander and libel attorney, get in touch. Our full-service law firm has successfully handled all types of defamation cases, and we have the tools and team to help you too, at a reasonable price. Contact us now to begin the conversation.

Server at Arizona University Hacked

theief at computer to represent hackingDetails of the breech are still pending, so this will be short, but according to reports, hackers found their way into a server at the University of Arizona. Apparently, 9,000 alumni and applicant records were compromised.

Hacked In July

It all happened back in July and the school is just now going public. That said, the university probably did alert authorities in a timely manner. Remember, if your company is hacked and people’s personal information is compromised, you must follow various laws to inform the compromised parties.

Confusion About Why Data Was On Server

With regards to the U of A situation, there seems to be some confusion as to whether or not the data was even supposed to be on that particular server. Regardless, the FBI is investigating the situation.

University’s Law School Handling Backlash

The university’s James. E. Rogers College of Law is spearheading the recovery and notification process. Spokespeople are urging all affected parties to change their passwords.

Get In Touch With An Internet Lawyer

If you have an Internet law-related legal issue, contact Kelly Warner Law. We are an Arizona-based Internet law firm that works with clients from all 50 states and around the world. Get in touch today to begin the conversation.

A Reality Television Defamation Showdown Is A’Brewing

Right of Publicity laws
A reality show couple from the show Storage Wars filed a defamation lawsuit against truTV over Facebook posts.

A defamation lawsuit is brewing in reality television world, y’all. Scott Tassone and Christina Kachadorian – a husband and wife team contracted to appear on Storage Hunters – are suing T Group Productions, Inc. and Courtroom Television Network, LLC (a.k.a., truTV) for defamation, harassment and breach of contract. The root of the conflict is a series of comments made on the show’s Facebook page.

How This High Profile Defamation Suit Started

Back in March 2012, Tassone and Kachadorian signed a contract to do 26 episodes of Storage Hunters. The agreement included six additional options for future series.

But things turned sour. As is wont to happen with “relebrities,” unflattering information about the couple and their business hit the wires. Of course people glommed on to the juicy morsels of gossip and the couple was dragged through the online coals. As you can imagine, Storage Hunters’ Facebook page alighted with criticism – some of which was alarmingly violent, threatening and potentially damaging. The two were accused of being liars, con artists and thieves. Some posters even boasted of shutting down the couple’s business.

Plaintiffs Claim Online Chatter Led To A Serious Decline of Their Business

According to Tassone and Kachadorian, the disparaging barrage of online chatter decimated their moving and storage business in California. So, they decided to sue. Not only is the couple going after individual posters, but also truTV and T Group Productions because they “control” the Facebook page on which the comments appeared.

Could Facebook Be Liable For Defamation In This Case?

Section 230 of the Communications Decency Act protects website operators from defamation liability in the United States.  As such, Tassone and Kachadorian would not have much luck suing Facebook for defamation in this case. But if this website were in Europe, it could be a different story. In fact, recently, the European Commission on Human Rights handed down a judgment saying website portals are responsible for user comments.

What The Lawsuit Claim Says

In the claim, the scorned pair contend that T Group and truTV “encouraged other defendants to continue publishing” disparaging comments. Straight up: this will be difficult to prove. Unless the plaintiffs have tangible proof that staff actively pushed users to trash the pair, it’s unlikely a judge will take up their side – for defamation laws in the US are decidedly defendant friendly. Moreover, since the two are public figures, they will most likely have to prove actual malice – meaning they must provide evidence that the defendants knowingly plotted to lie, with the intention of materially damaging Tassone and Kachadorian.

In this case, however, the plaintiffs are suing the production company because notionally, it maintains editorial control over the show’s Facebook page. Actually, one could argue that the page, in it of itself, is a piece of marketing collateral. That said, if the page contains disclaimers distancing themselves from posters’ opinions, Kachadorian and Tassone may be out of luck.

The case was filed in a California court and the couple if asking for $2 million in damages.

We’ll be keeping an eye on this case. If you want to keep updated on our blog, slap your name on our mailing list.

Do you want to consult with a defamation lawyer? Do you need to hire a slander or libel attorney? Yes? Then contact Kelly Warner Law. We have a dedicated defamation legal team that has helped many people quickly cleanup their online defamation conflicts. The quicker you take action, the quicker things can get back to normal. Get in touch today.

Business v. Customer Defamation: The Case of the Wigmaker

stack of books next to a law section symbol to represent business defamation law
Online business defamation lawsuits are piling up.

Cheryl Sanders’ didn’t want a cookie-cutter wig. Oh no, no! She wanted a custom-made coif. So when a non-bespoke hairpiece showed up at her house, Sanders told FedEx to return the wig to sender. FedEx tried, but the sender refused it.

[Freeze Frame]

If this were a Friday night real-life crime show, a dapper reporter would saunter onto the screen right about now and say something like: “And though nobody could have known, the refusal of the wig launched one of the most contentious business defamation lawsuits in recent memory.”

[Resume Image Montage]

Now, of course this is not the most contentious business defamation lawsuit in recent memory (they always exaggerate on real-life crime shows!). It is, however, a classic case of a merchant v. customer disagreement that devolves into an online pissing match, which ultimately crosses the libel line. And these days, with the rise of review sites, the tale is becoming oh too common.

How This Merchant v. Customer Business Defamation Lawsuit Began

Cheryl Sanders bought her mother, who was battling breast cancer, a wig from Constance Walsh’s shop, Wiggin Out. When Sanders inquired into the provenance of a particular hairpiece, Walsh allegedly assured Sanders it was a custom-made wig. Perhaps the older Mrs. Sanders saw someone rocking her exact doo at a retirement party, a confirmation or a bat mitzvah – but somehow the Sanders ladies discovered the wig was not custom and tried to refuse the hair by FedEx-ing it back to Walsh at Wiggin Out.

After an Initial Disagreement Over Quality and Cash, Parties End Up In Small Claims Court

To make a long story short, Walsh took Sanders to small claims court over non-payment for the wig. The wigmaker lost because the judge said Sanders’ attempt to return the item inoculated her from having to pay for the wig. (The assumption being that Wigging Out must’ve had a return policy that Sanders honored.)

Advantage, Customer. Cue the Anonymous RipOff Report Trash Talk

Two months after small claims court, Walsh logged on to RipOff Report and penned a rebuttal to Sanders’ criticism. Prefacing each paragraph with the word “Fact:”, Walsh delineated her version of the merchant v. customer saga. She also accused Sanders of fabricating the infamous FedEx return slip.

Several months after the RipOff Report posting, an anonymous person arrived on Yelp and accused Sanders of city corruption. You see, Sanders works for Anaheim’s public utilities department. And according to the unknown Yelper, Sanders had a hand in picking government contractors and accused her of abusing that responsibility. According to Sanders, though, her department has nothing to do with picking contractors.

Oh Yeah, Merchant!? Get Ready For An Online Business Defamation Lawsuit

Judging from available media reports, Cheryl Sanders must have suspected Walsh as the trash-talking Yelper, because Sanders sued Walsh for cyber libel after the posting. And apparently, Sanders did not mess around when it came to building her case, going so far as to hire a digital forensic specialist to investigate the source of the anonymous, libelous Yelp posting. Low and behold, the specialist came back with data, and it pointed to Walsh and Wigging out.

When confronted with the lawsuit and information, Walsh originally admitted to penning the rebuttal on, but denied authoring the anonymous posts on Yelp. After being confronted with Sanders’ expert’s information, however, Walsh finally fessed up and switched her defense from “it wasn’t me” to “everyone knows that reviews sites are people’s opinions, not fact, so my comments on Yelp weren’t defamatory.”

Judge Sides With Customer In This Business Defamation Lawsuit

Unfortunately for Walsh, the judge didn’t see things her way. Bluntly stated, he was not impressed with her arguments and ultimately reasoned that the wig peddler was hostile, malicious in her actions, and as such ordered her to shell out 24K to Sanders for attorney’s fees and other process-related costs.

Predictably, Walsh isn’t thrilled with the verdict. Like an Oz inmate stuck on innocence, when asked for reactions after the ruling, Walsh’s attorney insisted that this business defamation case would have turned out much differently if only he’d been allowed to enter evidence from the small claims case.

Speak With A Business Defamation Attorney Today

Are you embroiled in a contentious defamation lawsuit? Do you want to speak with an attorney well-versed in slander and libel law? If so, contact Kelly Warner Law. Our dedicated team of defamation attorneys has helped many clients through, what can be, an extremely frustrating time. We know how to make things right. Get in touch today.

Native Advertising: The Next FTC Regulation Target?

Picture depicting a white-board with the questions who, what, when, where, how to represent upcoming FTC meeting about native advertising
In December 2013, the Federal Trade Commission will hold the first exploratory meeting about native advertising. Does that mean content marketing regulations are on the way? Maybe, maybe not.

As of this writing, the government is still shut down, and the Federal Trade Commission has temporarily ceased all consumer watchdogging – but that hasn’t stopped a stream of FTC-related news from hitting the wires. A tidbit that caught our eye is a meeting scheduled for December 4, 2013 where participants will explore “blending advertising with news, entertainment, and other content in digital media”.

The First Time The FTC Will Formally Address Native Advertising Issues

Assuming the feds are up and running again by December, the commission will hold a workshop on content marketing, specifically, native advertising. This gathering marks the first time the Federal Trade Commission will formally address the issue of native advertising – and it got some industry folks worried that the regulation-friendly agency will start throwing their sometimes counterproductive rules around the content marketing industry.

“Don’t Worry, A Workshop Doesn’t Always Mean Impending Regulations,” Says FTC

The FTC, however, seems to want to allay any regulation fears. A spokesperson for the department, Laura Sullivan, attempted to mitigate suspicions by reminding interested parties, “it’s premature to say there will be a next step” when asked if this meeting is the first step towards native advertising regulation.

What Aspects of Native Advertising Does The FTC Care About?

It sounds like the December 4th FTC workshop on native advertising will concentrate on best practices and labeling of sponsored articles. Presumably, if the advertising agency can convince the FTC that self-regulation is the best way when it comes to the content marketing field, the FTC will leave this corner of the online advertising world alone and not take any “next steps” as Sullivan suggested.

What Do The Marketing Associations Have To Say About The FTC’s New Found Interest In Content Marketing?

As you might expect, the Online Publisher’s association and the Interactive Advertising Bureau are pushing for industry self-regulation, as opposed to federal guidelines. And who can blame them? After all, native advertising works – and it a rare bird that can’t decipher a sponsored article – especially since the law already requires publishers to clearly and conspicuously label all sponsored stories.

If you are involved in the online marketing business at all, this is something to watch.

If you are in need of a lawyer who has successfully dealt with the FTC in the past, contact Kelly Warner Law.

Biographer Escapes Defamation Ruling; Judge Says: It’s OK To Quote Contacts

globe made of country flags to represent international defamation lawLast week, defamation news out of Poland made headlines in the United States (probably because of the Hollywood link; nevertheless, the result is legally noteworthy). The family of Wladyslaw Szpilman sued biographer Agata Tuszynska for defamation, citing accusations levied by singer Wiera Gran in a 2010 tome about the songstress’s life.

Real-Life “The Pianist’s” Family Sued A Biographer For Defamation

Who is Wladyslaw Szpilman, you ask? Portrayed by Adrian Brody in the 2003 Oscar winning film, The Pianist, Szpilman was a gifted musician who used music to cope with Nazi-occupied Poland.

According to Wiera Gran, though, Szpilman was not the compassionate figure portrayed in the Roman Polanski film, but instead helped Nazis by being a member of the Jewish Police in a Warsaw ghetto – a shocking and offensive allegation, indeed.

During the Trial, Questionable Similarities Between A Defendant and the Plaintiff’s Love One Were Revealed

Devastated by Tuszynska’s account of Gran’s remembrances, Szpilman’s family sued the biographer for libel. The case went to trial, and several people who lived in the ghetto with Szpilman testified to his innocence.

In a twist of coincidence, during the trial it was revealed that Wiera Gran was once also accused of cooperating with the Axis, but was later acquitted of the charges. Regardless, she was forced to flee Poland due to the stigma.

Additionally, during the hearings, even Tuszynska, the author, admitted doubts about Gran’s accusations, but testified that she felt it was her journalistic duty to report events as her subjects relayed them.

But Ultimately, The Family Lost The Defamation Lawsuit

Despite testimonials affirming Szpilman’s upstanding character, his family lost the defamation suit. The judge reasoned that journalists and writers need to be able to quote their contacts without fear of prosecution.

Do You Need to Speak With An International Defamation Law Attorney?

Do you have a legal matter involving international defamation issues? Are you looking to sue someone in another country for defamation? Are you being sued for slander or libel by someone in another nation or jurisdiction? If so and you need legal help, contact Kelly Warner Law. Our dedicated team of slander and libel lawyers have successfully handled myriad international defamation situations. We have the knowledge and know-how to help you, too. Contact us today to begin the conversation.

New California Online Privacy Laws: Everyone Should Comply, Everywhere

online privacyFor years, a lot of lip-service has been given to online privacy. Lawmakers have tried and failed to pass a universal online privacy bill; consumer watchdog organizations have highlighted why giant Internet companies, like Facebook and Google, aren’t actually that into privacy; interested parties released studies suggesting that Americans enjoy very little, if any, online privacy — though whether or not we care is still an unclear statistic.

Amidst all this hand-wringing, researching and futile state crafting, recently, California decided to stop wondering and passed a few state laws as a way to “try on” Internet privacy legislation. That’s right, despite being the paparazzi capitol of the world, California has the strictest online privacy laws of any state. And recently, the Eureka State decided to add a few more statutes aimed at protecting the private parts of its residents.

California decided to stop wondering and passed a few state laws as a way to “try on” Internet privacy legislation.

But the looming question remains: will these new California online privacy laws actually work? Moreover, do they go far enough?

New Teenage Law In California

Ever wish you could permanently expunge those not-so-flattering pics you unwisely posted after that, err, *successful* bar crawl? (#notcute, #notwise) How about the impolitic rant you posted five years ago, in the midst of a terrible mood, which now lives on in inglorious infamy, on the Internet. Well, if you’re under the age of 18 and live in the state of California, those dreams of Internet deletion are now a reality for you – kinda.

Recently signed by Governor Jerry Brown, the new California online privacy law is supposed to help unwise, over-sharing minors. The new statute allows tweens and teens to demand the removal of embarrassing or otherwise *stoopid* posts on the Internet.

Sounds great, right? Not so fast.

While the new law will be great for emotionally puerile, discretion averse youngins, the new California online privacy rule doesn’t say anything about pictures and opinions other people post. In other words, this statute will probably do very little to mitigate cyberbullying. (#cybberbullyingawarenessmonth)

The new California online privacy law is supposed to help unwise, over-sharing minors

Arguments For California’s New “Right To Be Forgotten” Privacy Law

Fans of California’s right to be forgotten law, for minors, explain their support simply: many tweens and teens have zero common sense, so it’s important to give them a grace period to wise up and delete self-injurious information from the Web. Or, as James Steyer of Common Sense Media succinctly stated, “Kids and teenagers often self-reveal before they self-reflect.”

Children’s advocates like Cynthia Larose of Privacy and Security Matters praise California’s new “minors’ right to be forgotten” law for more politically minded reasons. Larose optimistically, if a bit naively, credited the legislation for ensuring that “many more of our children could become president someday.”

Larose optimistically, if a bit naively, credited the legislation for ensuring that “many more of our children could become president someday.”

Arguments Against California’s New “Right To Be Forgotten” Privacy Law

Too Much Information Needs To Be Collected And Then Stored For A Longer Period Of Time. What’s Up, Hackers.

Not everybody is thrilled about California’s new “right to be forgotten” online privacy law. Some groups warn that websites may now need to collect more information about each visitor, and store it for longer periods of time, in order to comply with the law – the worry being that more information collection and storage time gives way to more hacking opportunities and security breach possibilities. Moreover, the logistics of the new California online privacy law could create, at worst, conflicts, at best, redundancies, with the Children’s Online Privacy Protection Act.

If You Give Kids An Inch, They’ll Take A Mile

Another group of opponents pose a behavior-based distaste for the statute: the new California online privacy law could incite kids to act crazier since they know they can delete without consequences.

If an adolescent will be encouraged or dissuaded from posting inappropriate material because of the law is yet to be seen.

What Happens To Info Other People Post About Minors? Does The Data Have To Be Deleted From Servers?

Regardless on your opinion about catalysts for bad behavior, California’s new online privacy law, which is aimed at minors, has other glaring logistical problems. For example:

  1. It doesn’t address content that isn’t self-posted. As such, the measure does not protect against cyberbullying or other forms of online harassment.
  2. The law is currently unclear about what happens if an image is copied to another site. Will the subsequent site also be forced to remove the content?
  3. Web companies are not required to remove the data from servers, so what’s the point?

Oh Yeah, The New Online Privacy Law Includes Language About Allowable Content For Mobile Marketing Ads and Offers Targeting Minors

Online privacy is not the only aspect of California’s new online privacy law. The statute also addresses mobile marketing standards. Specifically, it prohibits the marketing of tobacco, firearms and alcohol to minors via mobile marketing avenues. As such, mobile app makers and marketers will now have to figure out a way to determine visitors’ ages and adjust content offerings on the fly, accordingly.

Other California Online Privacy Laws

As stated earlier, California tackles privacy issues head-on. It was the first state to allow domestic violence victims to expunge certain public records, and more recently, legislators in the state amended an old law so that now Websites must disclose how they comply with do not track requests from users.

So Goes California, So Goes The Country (Hint: It’s Wise To Comply With California Online Privacy Standards, Even If You Don’t Live There)

One last warning: don’t think that you don’t have to pay attention to California’s online privacy law just because you don’t live in California? As Mali Friedmann reminded recently in the New York Times, “Often you need to comply with the most restrictive state as a practical matter because the Internet doesn’t really have state boundaries.”

Want to speak with a lawyer well-versed in online privacy law matters? Contact Kelly Warner Law at 1-866-570-8585 or e-mail founding partner, Aaron Kelly, directly at aaron at kellywarnerlaw dot com. We’re easy going like that.

When They Get Back To Work, FTC To Focus On Patent Trolls

patent troll lawsuitsWhen the Government gets back to work, the Federal Trade Commission will begin a probe into the practices of patent assertion entities – a.k.a., patent trolls. In short, PAEs are in the business of capitalizing on registered intellectual property. Often criticized for not “actually produc[ing] anything themselves,” PAEs don’t have the best reputations. Regardless of how you feel though, many PAEs, like Intellectual Ventures, make a whole lot of money.

How Does The FTC Plan To Go About Investigating Patent Trolls & Legitimate PAEs?

Commission staff will use a formal inquiry process, known as a 6(b) study, which will involve requesting information from 25 as yet unnamed companies. The initial public comment period will take 60 days, followed by a review from the Office of Management and Budget, which may extend for a year before the requests are sent out. When the information is received, months of data analysis may be necessary before any results are announced.

In other words, this could take years.

What Issues Are The FTC Going To Focus On?

According to reports, the FTC is looking for specific answers to PAE practices. What types of patents do these companies hold? When did they acquire them? By what manner do these cases land in court and produce huge settlements?

When the study was announced, FTC chairwoman Edith Ramirez commented that the commission intended to use its full authority to get an accurate picture of PAE activity.

Patent Trolling Has Been On Politicians’ Radars For Awhile

The FTC announced their plans at a time when federal and state law makers are abuzz about patent trolling. Why? A cynic may say it’s a safe issue when it comes to public support. Moreover, it’s easy to make “troll companies” — that usually don’t get hit with a countersuits because as shell companies, they don’t have assets – look bad (and by the rule of foils, the politician look good).

As it stands, the FTC probe is a formal inquiry, not an enforcement action. However, the inquiry allows the commission access to documents and business records not readily available to the public. The FTC has also opened a similar study on companies that buy, sell, and tap consumer information in bulk — commonly known as data brokers.

Patent Related Lawsuits Are Costing SMBs Big Bucks

A report released in June 2013, claimed that PAEs were responsible for more than 60 percent of all patent lawsuits in 2012, a significantly higher figure than in previous years. Peter Detkin, co-founder of Intellectual Ventures, however, rejects that figure. Although the 25 PAE companies that will be asked to participate in the investigation is still unknown, it is assumed that Intellectual Ventures will be on the list. And they’re ready. Detkin recently stated that he and co-founder Nathan Myhrvold have no objection to the forthcoming FTC study.