Here is your March eNews from the Business Law Section (“BLS”)
March was a busy month at the BLS. The Section hosted a number of substantive and social events, reviewed and commented on pending legislation, and published Business Law News (BLN) Issue No. 1 (2018) and numerous eBulletins covering a myriad of business law topics. Members of the BLS were also very involved at the CLA all-Section level, including as members of various CLA Board and presidential standing committees.
A few highlights from recent CLA and BLS activities:
CLA Offices Moving to Sacramento
On March 23, 2018, following an all-Section Town Hall and the evaluation of survey results and relevant research, the CLA Board of Representatives voted to relocate the CLA’s offices to Sacramento. During its first year in operation, the CLA has been subletting office space in San Francisco from the State Bar. It plans to relocate to Sacramento in January 2019.
Get Involved in the Business Law Section:
The BLS is now accepting applications to its Executive Committee and 15 standing committees:
The BLS is comprised of 15 standing committees whose members review and propose legislation, draft eBulletins, BLN articles, and practice guides, and speak at live and webinar programs. The committees meet between 5 and 10 times each year, usually by telephone. Committee members develop valuable personal and business relations with other practitioners in their respective fields of practice.
To qualify for membership, a practitioner must be a member of the BLS and practiced law at least five years. Each committee is comprised of 16-30 members, selected for 3-4 year terms. The BLS standing committees focus on the following legal specialties:
Agribusiness Business Law News
Business Litigation Commercial Transactions
Consumer Financial Services Corporations
Financial Institutions Franchise Law
Health Law Insolvency Law
Insurance Law Internet & Privacy Law
Nonprofit Organizations Opinions
Partnerships and LLCs
Applications for standing committees are due on April 15, 2018. (Note: Existing members were automatically appointed to the same committee for their remaining term under the CLA. Applications are only required for new members or for those whose terms expire in 2018.) Applications can be found here.
Please send the completed application to John Buelter: firstname.lastname@example.org
The BLS Executive Committee oversees the work of the BLS standing committees. It is comprised of approximately 17 members plus advisors, most of whom have previously served in leadership positions at one of the BLS standing committees. The Executive Committee meets approximately 11 times per year, with 3 meetings held in person at different locations throughout the State. As with standing committees, involvement in the Executive Committee offers a wonderful opportunity to give back to the legal profession and to develop valuable business and social networks.
Applications to the Executive Committee are due on May 1, 2018. (Note: Existing members were automatically appointed for their remaining term under the CLA. Applications are only required for new members or for those whose terms expire in 2018.)
To apply for the BLS Executive Committee, click here:
Legislation Affecting California Lawyers:
California legislators have recently proposed two bills that would impact the legal profession if signed into law:
AB 3204 (Gray) (mandatory attorney pro bono/fee):
This bill seeks to require all State Bar members to complete a minimum of 25 hours per year of pro bono legal services. Exceptions to this requirement would be made for acting judges, inactive members, members currently working for a legal aid organization, members who earned less than $50,000 the previous year, and newly-admitted attorneys. California attorneys will be able to pay $500 per year to the State Bar in lieu of providing 25 hours of pro bono legal services.
Currently, Business and Professions Code section 6073 states that, “[i]t has been the tradition of those learned in the law and licensed to practice law in this state to provide voluntary pro bono legal services to those who cannot afford the help of a lawyer.” The statute further states that every licensed California attorney, “is expected,” but not mandated to “make a contribution,” including pro bono services or, at least in part, “financial support to organizations providing free legal services to persons of limited means.” Unlike the proposed legislation, which would require pro bono legal services, Section 6073 states that attorneys can “make invaluable contributions through their other voluntary public service activities that increase access to justice or improve the law and the legal system.”
SB 993 (Hertzberg) (imposition of a tax on the purchase of services by businesses in California) http://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201720180SB993
Currently, California law imposes a sales and use tax on retail sales of tangible personal property, or on the storage, use, or other consumption in California of tangible personal property.
SB 993 proposes to impose a new tax, at an unspecified percent, on the purchase of services by businesses in California. The bill would exempt certain types of services from the tax, including health care services, and payment of the tax by businesses with gross receipts of less than $100,000 in the previous 4 quarters.
The additional tax collected is to be “appropriated for the following purposes: (1) Providing tax relief to middle-income and low-income Californians negatively affected by recent changes to federal tax law as well as other changes to federal programs. (2) Assisting in securing greater stability for California’s infrastructure, its workforce, and its education systems, including higher education.”
Uzzi O. RaananDanning, Gill, Diamond & Kollitz, LLP (Los Angeles)Chair, Business Law Section
The BLS achieves its goals through the work of its 15 Standing Committees. You are invited to attend the regular monthly meeting of any BLS Standing Committee. These monthly meetings provide attendees an excellent opportunity to chat with committee members and other lawyers with a similar expertise. Some committees even offer free MCLE credit! Please see the contact person listed below to RSVP or request more information. Follow us on Twitter @calbarbuslaw. Use a Standing Committee’s hashtag to search for tweets by that committee in its designated field and to re-tweet.
Partnerships & LLCs
Legislative Day Event
The mission of the California Lawyers Association is....
Promoting excellence, diversity and inclusion in the legal profession and fairness in the administration of justice and the rule of law.
The California Lawyers Association (CLA) is a member-driven, mission-focused organization dedicated to the professional advancement of attorneys practicing in the state of California.
Established in 2018, CLA is a nonprofit, voluntary organization and the new home of the Sections of the State Bar of California and the California Young Lawyers Association. Our extensive membership represents the vast diversity of California’s legal community and the various areas of law practiced throughout the state.
We thrive at the intersection of innovation and dedication—delivering high-quality programs, events, and resources and continuously seeking new ways to expand our offerings. Through premier educational and networking opportunities, our members can maintain expertise in their fields, build contacts, and uphold the legal profession and system.
As an independent entity, we can now provide greater value to our members, including direct communication with the California Legislature and the ability to be more responsive to each member’s needs. Together, we are committed to fostering excellence and fellowship throughout the California legal community.
For more information on the mission of the CLA or how to join, please visit www.calawyers.org
The Business Law Section of the CLA held an event for young lawyers on Friday, March 30, 2018, in Century City, hosted by Loeb & Loeb, LLP.
Panel 1 provided guidance on forming new corporations, partnerships, LLCs and related issues, such as taxes and insurance. Panel 2 provided guidance from other standing committees of the Business Law Section, such as business litigation, commercial transactions, consumer financial services, financial institutions, franchise law, health law, insolvency and internet & privacy.
As the BLS announced in its January eNews, it is proud to partner with the California Minority Counsel Program (CMCP) to explore strategies and best practices for creating a more diverse and inclusive legal profession. As Robert White, Executive Director of the CMCP, explained in CMCP’s inaugural column in the eNews, it is important to encourage “intentionality in looking at development and promotion of an organization’s attorneys as an opportunity to expand the ranks and pipeline of diverse attorneys at the highest levels.” To that end, the BLS and CMCP are co-authoring a series of articles focusing on diversity in the legal profession to help create a culturally richer and more inclusive legal environment.
The BLS is forming a small committee of writers to work with the CMCP to identify a list of topics on which to write, with the goal of positioning CMCP’s thought leadership to contribute. For more information about this important project, please contact Monique D. Jewett-Brewster, the BLS’ Vice Chair of Publications, email@example.com or Cathryn S. Gawne, firstname.lastname@example.org and Kristina A. Del Vecchio, Kristina@josephandcohen.com , the BLS’ Diversity Coordinators.
by David Azar, Kathleen Gallagher, and Michael Shklovsky
The Business Litigation Standing Committee has taken on a new and exciting project to support the revival and maintenance of a publicly accessible and free-to-use website regarding California discovery law practice and case law. We are looking for attorneys who would like to be actively involved. We are also looking for recent unpublished discovery orders or briefings that do a good job of addressing either common or unique issues. This material will give us a jump start in updating our content, and provide options for value-added material. Insights about trends, strategies, or lessons learned are also appreciated!
The original website, which used to be found at www.california-discovery-law.com, was created and maintained by now-retired Commissioner Richard E. Best of the San Francisco Superior Courts. Commissioner Best served in the San Francisco Courts for 29 years and adjudicated numerous civil discovery, privilege, and constitutional issues. He has also written and spoken extensively on civil discovery and e-discovery topics.
Best created the website over 20 years ago as a simple, neutral and comprehensive presentation of California discovery statutes and cases accumulated over the years. “It was originally created to aid knowledgeable and experienced litigators who need to refresh and update their knowledge or quickly locate that case they know exists but can’t remember,” explained Best. The site became well-known and well-used in the years that followed, with multiple law firm websites providing links to the site as a valuable resource.[i]
For Sacramento area litigator Kathleen Gallagher, the site became her “go-to” for all discovery related matters. “Even though the firm where I worked paid for subscriptions to the leading legal research organizations,” said Gallagher, “I found myself continuously going to the website first when it came to matters of discovery.” Using the site, Gallagher could quickly locate the relevant cases for a variety of disputed discovery issues. It became invaluable for meet and confer letters and discovery motions alike.
When Best retired at the end of 2014, he also stopped updating his website, and Gallagher noticed. After she was appointed to the Business Litigation Standing Committee in 2016, Gallagher suggested that the Committee work to take the website over. Then-Committee Chair Peter Isola liked the idea and personally contacted the Commissioner to get the ball rolling. Best graciously agreed to allow the Committee to take over the site, and it was assigned to Gallagher and two other Committee members, Michael Shklovsky of Santa Rosa, and David Azar of Los Angeles, to oversee.
Shklovsky quickly worked to acquire and revive the expired domain name and preserve the information from the existing website. He also acquired the www.california-discovery-law.net domain name for possible future use. Unfortunately, the original website was taken down and deleted by the hosting company after the domain name acquired by Best had expired. Undeterred, the trio mulled over how to best move forward, given that a new website had to be built and the information preserved from the original website has become stale. In addition, this process was occurring during the uncertainty of the transition from the State Bar to a new organization, which ultimately became the California Lawyers Association.
“We also identified the need for a more structured approach to the creation and long-term operation of the new website,” said Shklovsky, “including outreach to the legal community necessary to update and maintain content, handling of recurring expenses, and coordination with the California Lawyers Association.” Concerns about potential legal liability had to be addressed as well.
The trio eventually determined that it would be best to create a separate non-profit organization specifically for the operation of the new website, which would work hand-in-hand with the Committee. They briefed the Committee and received its blessings to proceed.
In early 2018, the California Discovery Law Initiative (“CDLI”) was born, with the trio of Azar, Gallagher, and Shklovsky as its initial Board of Directors and officers. Commissioner Best is also involved in an advisory capacity to help implement CDLI’s mission to increase access to justice by providing a simple, neutral and publicly accessible website dedicated to California discovery law. It is anticipated that the Business Litigation Standing Committee will ultimately oversee and/or legally take over the CDLI and the website to ensure its continuity. However, at least for now as the transition continues from the State Bar to the California Lawyers Association, the CDLI is a separate non-profit and the effort is entirely financed by Anderson Zeigler, P.C., and Gallagher Jones LLP.
The next steps for this project are to design and build a new website, and find partners in the legal community who would adopt, update and/or maintain one or more discovery law topics to be featured on the new website. “We envision these community partners to include individual attorneys, law firms, law schools and retired judges,” noted Azar. “There are plenty of discovery subjects to accommodate the interests of almost anyone who would like to participate—e.g., motions to compel, depositions, production of ESI, interrogatories, subpoenas, protective orders, etc. We are also interested in offering access to tentative rulings in discovery-related matters to give litigators a sense for how courts evaluate various issues and the legal authority different judges and research clerks regularly use (or distinguish). We still intend to adhere to the basic content generation guidelines developed by Commissioner Best, which have worked well for a long time, though we are open to refinements, such as those facilitated by new technology.”
We are currently looking for about 15 to 20 content generators and, over time, anticipate adding several additional Directors to help move this project forward. By getting involved, you will not only hone your knowledge of California discovery law but be recognized for your contributions on our future website! We hope you join us. For more information about the project or the Business Litigation Committee, please contact the Chair, Justene Adamec. JAdamec@pumilia.com
On March 13, the Financial Institutions Committee, together with the San Francisco Bank Attorneys Association and the Financial Women of San Francisco, presented its annual program on developments in the laws and regulations that govern financial institutions.
This year, the program was called “New Winds in the Financial Services Industry: Legal, Regulatory and Technology Developments and the Road Ahead.” Approximately 130 attended this program at the San Francisco Federal Reserve Bank, despite challenging weather conditions. It was a good mix of lawyers and other financial industry professionals. The program began with breakfast at 8:30, funded by FIC.
The panelists were Bill Kroener (Sullivan and Cromwell), Deborah Bailey (Managing Director KPMH), Michael Flynn (Goodwin Procter), Conor French (General Counsel, Funding Circle), Aaron Rosenick (Volcker Compliance Program Office, Wells Fargo) and Jennifer O’Reilly (Director of Enterprise Risk Management, First Republic Bank). Maureen Young (Senior Regulatory Counsel, Bank of the West) moderated. The panel spoke about developments at the CFPB (including the recent en banc decision of the DC Circuit which affirmed the constitutionality of CFPB’s management structure but rejected its interpretation of the RESPA statute), pending legislation that would makes changes to the Dodd Frank law, limitations on bank investments in equity securities, cybersecurity, and risk management. Michael Slattery of Lamb and Kawkami is the Chair of the Financial Service Industry Committee.
The State Bar of California has filed a request with the California Supreme Court this week for approval of a proposed California Rule of Court regarding re-fingerprinting of attorneys. This will allow the State Bar to obtain criminal record information, in compliance with state law.
If approved by the Court, under the Rule all active California attorneys will need to be re-fingerprinted. The State Bar will require re-fingerprinting to be completed by April 30, 2019, to avoid incurring penalties. This will enable the State Bar to obtain attorneys' criminal record information from the California Department of Justice and the FBI, in compliance with state law. Information regarding the implementation and penalty schedule, costs, and logistics, will be provided to attorneys upon Court approval.
More information and a FAQ on Attorney Mandatory Reportable Actions in Anticipation of Re-Fingerprinting can be found here:
[i] See generally http://www.mcmillanlaw.us/index.php/mcmillan/resources, Law Blogs; http://www.answ.com/html/calaw/calaw.htm
February 2018 Update
Federal and State Taxation
On December 22, 2017, legislation commonly referred to as the Tax Cuts and Jobs Act (TCJA) (HR 1) (Pub L 115–97, 131 Stat 2054) was signed into law by the President. The official name of the new law is "An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018." A copy of the TCJA is available at https://www.congress.gov/115/bills/hr1/BILLS-115hr1enr.pdf. LexisNexis has published a helpful analysis of the TCJA, available at https://dlbjbjzgnk95t.cloudfront.net/0997000/997562/report-%20tax%20cuts%20and%20jobs%20act%20of%202017.pdf. The TCJA made substantial changes to the federal tax laws, generally effective for tax years beginning on or after January 1, 2018. Certain changes sunset on December 31, 2025 (or other specified dates). Practitioners should remain alert to the overall impact of the TCJA on any tax matters that may affect their clients.
The Bipartisan Budget Act of 2015 (BBA) (Pub L 114-74, 129 Stat 584) repealed the historical rules governing partnership audits and replaced them with a new centralized partnership audit regime that, in general, assesses and collects tax at the partnership level. The new regime is effective for taxable years beginning after December 31, 2017, and applies to any entity treated as a partnership for federal income tax purposes, whether the entity is a general or limited partnership, a limited liability company, or something else under state law. In general (with certain exceptions), such an entity may elect out of the new audit regime if it has 100 or fewer partners or members, and many small business entities may wish to do so. See IRC §6221(b); Forming and Operating California Limited Liability Companies §5.16A (Cal CEB). The Internal Revenue Service has now issued final regulations, effective January 2, 2018, clarifying which entities are eligible, or not eligible, to elect out of the new regime. See Treas Reg §301.6221(b)-1. Under the final regulations, an entity may elect out only if all of its partners or members qualify as "eligible partners" under Treas Reg §301.6221(b)-1(b)(3)(i). This category includes individuals, C corporations, S corporations, estates of deceased partners, and certain foreign entities. The following, however, are not "eligible partners" under Treas Reg §301.6221(b)-1(b)(3)(ii): partnerships, trusts, certain foreign entities, "disregarded entities" (as defined in Treas Reg §301.7701-2(c)(2)(i)); (5), estates of individuals other than deceased partners, and nominees or others that hold interests in an entity on behalf of another person. Under Treas Reg §301.7701-2(c)(2)(i), a "disregarded entity" includes any business entity (other than a corporation) that has a single owner. Thus, any partnership or LLC with even one single-member LLC as a partner or member will not be eligible to elect out of the centralized partnership audit regime. As a consequence, the IRS's final regulations will likely restrict the number of partnerships and LLCs that will be able to avoid the new audit regime.
In Swart Enters., Inc. v Franchise Tax Bd. (2017) 7 CA5th 497, the court held that passively holding a minority LLC membership interest, with no right of control over the business affairs of the LLC, does not constitute "doing business" in California. Following that decision, the Franchise Tax Board issued FTB Notice 2017-01 indicating that it will not appeal the decision to the California Supreme Court and will follow the decision in situations with the same facts. Therefore, corporate taxpayers who previously filed and paid California corporate franchise tax based on holding a passive, minority LLC interest should consider filing a claim for a refund with the FTB. See §15.22.
Employers must pay a federal unemployment tax (FUTA) of 6.2 percent (through June 30, 2011) on the first $7000 in wages paid to each employee, but are allowed a credit against this tax based on an employer's state unemployment insurance tax liability. IRC §3301. Practitioners should note that California employers did not receive the maximum credit permitted (5.4 percent) in 2016 due to outstanding federal Unemployment Insurance loans California owes to the federal government. Rather, the 5.4 percent FUTA credit was reduced by 1.8 percent to 3.6 percent, resulting in an increase in FUTA taxes for California employers (up to $126 more per employee). Practitioners should be advised that a decreased FUTA credit is also likely to occur for 2017, resulting in a similar increase in FUTA taxes for California employers. See the EDD website at http://www.edd.ca.gov/Payroll_Taxes/Federal_Unemployment_Tax_Act_Tax_Increases_2016.htm. See §16.24.
The California Capital Access Program (CalCAP) (see Health & S C §§44559–44559.12; 4 Cal Code Regs §§8070–8078.21), which is run by the California Pollution Control Financing Authority, is a form of loan portfolio insurance that covers up to 100 percent of the risk of banks and other financial institutions that make loans to California's small businesses. See generally http://www.treasurer.ca.gov/cpcfa/calcap/. Special parts of the CalCAP program are intended to assist small businesses with financing the costs to alter or retrofit existing facilities to comply with the requirements of the federal Americans with Disabilities Act of 1990 (ADA) (42 USC §§12101–12213) (see 4 Cal Code Regs §§8070.8–8070.14) and to assist California small businesses and residential property owners with financing the costs for seismic retrofits (see 4 Cal Code Regs §§8078.15–8078.21). See §1.18.
In Beechum v Navient Solutions, Inc. (CD Cal, Sept. 20, 2016, No. EDCV 15-8239-JGB-KKx) 2016 US Dist Lexis 129782, the federal district court declined to look beyond the face of the transaction and consider whether a nonexempt lender that purchased loans from an exempt lender (a bank) was the "real" lender for purposes of the usury laws. The Beechum court cited WRI Opportunity Loans II LLC v Cooper (2007) 154 CA4th 525 for the proposition that a court "must look solely to the face of a transaction to determine whether an exemption applies." 2016 US Dist Lexis 129782 at *28. Because the lender was a bank exempt from the usury limitations under Cal Const art XV, the loans made by the bank were exempt from California's usury prohibition as a matter of law. 2016 US Dist Lexis 129782 at *29. See §8.16.
Most promissory notes and loan agreements provide that a borrower is required to pay a higher rate of interest following an event of default. The Ninth Circuit Court of Appeals has ruled that such provisions are enforceable in the context of a bankruptcy reorganization even if the default has been cured. In Pacifica L 51 LLC v New Invs., Inc. (In re New Invs., Inc.) (9th Cir 2016) 840 F3d 1137, the court overruled its prior decision in Great W. Bank & Trust v Entz-White Lumber & Supply, Inc. (In re Entz-White Lumber & Supply, Inc.) (9th Cir 1988) 850 F2d 1338. Because New Investments' reorganization plan proposed to cure a default under the promissory note (the underlying agreement), the plan was governed by Bankr C §1123(d). The court found that the underlying agreement provided for higher post-default interest and that applicable nonbankruptcy law (Washington state law) allowed for a higher interest rate on default when provided for in the underlying agreement. Therefore, New Investments was required to pay interest at the higher post-default interest rate specified in the underlying agreement in connection with its cure of the default. The court did not specify whether the default rate applied for the remainder of the loan or only until cure was achieved. See §8.18B.
In Nautilus, Inc. v Yang (2017) 11 CA5th 33, the court analyzed the "good faith" defense, which allows a transferee to avoid liability for a fraudulent or voidable transfer if it can establish that it acted in good faith. The court held that the good faith defense is not available if the transferee (1) had fraudulent intent, (2) colluded with a person who was engaged in the fraudulent conveyance, (3) actively participated in the fraudulent conveyance, or (4) had actual knowledge of facts showing its knowledge of the transferor's fraudulent intent. The court emphasized that the mortgage lender to the transferee was not subject to inquiry notice of facts that would have given it knowledge of the fraudulent intent. The court also held that the transferee has the burden of proof in establishing its good faith. See §8.20A.
In G&W Warren's, Inc. v Dabney (2017) 11 CA5th 565, the court of appeal, citing CC §2856(b), held that when a guarantor has agreed in its guaranty agreement that its obligations will secure amounts owing by a borrower following modifications to payment amounts or payment terms in the borrower agreements that are consented to by the borrower, "no particular words or references to statutory provisions are required to effect a guarantor's waiver of defenses." 11 CA5th at 583. The fact that the waiver provision in the guaranty agreement did not include the words "waive" or "waiver" was irrelevant. The court found that the guarantor had consented to modifications of the payment terms and therefore expressly waived the exoneration defense. The court also noted that a guarantor will not be held liable beyond the express terms of his contract. See §8.20E.
Patent exhaustion limits the extent to which a patent holder can control an individual patented product after authorized sale. Patent exhaustion extends to sales that occur outside of the United States. Moreover, the domestic sale of a patented product exhausts all patent rights regardless of any post-sale restrictions that the patent holder may try to impose on the product through a license agreement. As long as the sale is authorized, the patent rights are exhausted on that product. Impression Prods., Inc. v Lexmark Int'l, Inc. (2017) ___ US ___, 137 S Ct 1523. See §12.11.
In a design patent, the patent owner is entitled to either lost profits or $250 for infringement if the design patent is applied to an article of manufacture. 35 USC §289. However, the relevant "article" of manufacture for arriving at a damages award need not be an end product, but may be only a component of the end product. Samsung Electronics Co. v Apple, Inc. (2016) ___ US ___, 137 S Ct 429. See §12.12A.
If an item has a useful function, then copyright protection, if any exists at all, is available only for the features that can exist separately from the useful item. With regard to useful items such as clothing, expressive elements of an item can be protected if two conditions are met: (1) it can be perceived as a two- or three-dimensional work of art, separate from the useful article, and (2) it still qualifies as protectable expression when "imagined separately from the useful article" into which it is incorporated. Star Athletica, L.L.C. v Varsity Brands, Inc. (2017) ___ US ___, 137 S Ct 1002, 1016. See §12.18A.
Title 15 USC §1052(a) contains a provision that a trademark cannot be registered if it disparages persons, institutions, beliefs, or national symbols. However, the United States Supreme Court has ruled that that provision is unconstitutional as a violation of the First Amendment. Matal v Tam (2017) ___ US ___, 137 S Ct 1744 (USPTO's refusal to register mark "THE SLANTS" for an Asian American rock band violated First Amendment). The Supreme Court's ruling calls into question the continued viability of a ban against registration of "immoral" or "scandalous" trademarks, although that ban was not at issue in that case. See §12.36.
Federal trademark rights arise when goods are sold or services are provided in interstate commerce, although an intent-to-use application can give rise to a date of constructive use that predates actual use. 15 USC §1057(c). The definition of "interstate commerce" is broad and includes "all commerce which may lawfully be regulated by Congress." 15 USC §1127. The amount of use in interstate commerce can be minimal. Even the sale of a few items across state lines will qualify as "use in commerce." Christian Faith Fellowship Church v Adidas AG (Fed Cir 2016) 841 F3d 986. See §12.61.
The Computer Fraud and Abuse Act (CFAA) (18 USC §1030) has been applied to address "password sharing." In U.S. v Nosal (9th Cir 2016) 844 F3d 1024, the court found a violation of the CFAA's prohibition on unauthorized access when an ex-employee with revoked privileges asked a current employee for login information to gain entry to the former employer's database. See §13.3.
In Facebook, Inc. v Power Ventures, Inc., supra, Power Ventures accessed Facebook users' data and initiated form e-mails and other electronic messages promoting its website. Initially, Power Ventures had implied permission from Facebook, but Facebook sent Power Ventures a cease and desist letter and blocked its IP address; nevertheless, Power Ventures continued its promotional campaign. The Ninth Circuit held that Power Ventures did not violate the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (CAN-SPAM Act) because the transmitted messages were not materially misleading; however, Power Ventures did violate the Computer Fraud and Abuse Act (CFAA) and Pen C §502 after it received Facebook's cease and desist letter and continued to access Facebook's computers without permission. See §13.5C.
Businesses in the technology and manufacturing industries should be aware of the Cybersecurity Information Sharing Act (CISA) (6 USC §§149, 151, 1501–1510, 1521–1525, 1531–1533), intended (among other things) to improve cybersecurity in the United States through enhanced sharing of information about cybersecurity threats. The law allows the sharing of Internet traffic information with the U.S. government and creates a system for federal agencies to receive threat information from private companies. It also provides safe harbors from liability for private entities that share cybersecurity information in accordance with the CISA. See §13.14.
Effective January 1, 2017, Pen C §523 was amended to make the use of ransomware a form of criminal extortion and therefore a felony punishable by up to 4 years in prison. See §13.16A.
On October 25, 2016, the Federal Trade Commission (FTC) released a helpful guide on data breach response, titled “Data Breach Response, A Guide for Business,” available at https://www.ftc.gov/system/files/documents/plain-language/pdf-0154_data-breach-response-guide-for-business.pdf. The guide sets forth a series of steps that a company is advised to take for a quick and appropriate response when the company suspects a data breach has occurred. See §13.22.
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Uzzi O. Raanan, BLS Chair
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