Saturday, June 29, 2013

Town Justice Resigns After Accosting Bicyclist

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In-House Counsel Go to Privacy Boot Camp

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Image: Maksim Kabakou via Shutterstock

On the first day of classes last week at the Information Privacy Summer Institute (IPSI) in Portsmouth, New Hampshire, Omer Tene, a leading scholar in the privacy field and one of the professors, wasn’t planning to lecture on government surveillance in a course that’s designed for private-sector professionals. But the news leading up to the two-week institute, a collaboration between the International Association of Privacy Professionals (IAPP) and University of Maine School of Law, not surprisingly, altered the Day One lesson plan.

As a National Security Agency contractor’s leaks to media outlets about surveillance programs involving U.S. telephone and Internet companies dominated news coverage, well, everywhere, Tene says he decided to go “a bit off-script,” discussing the legal basis for such programs, per the FISA Amendments Act, the USA Patriot Act, and the Electronic Communications Privacy Act.

“For lawyers, that’s probably the first issue that we address,” Tene tells CorpCounsel.com. “Of course, there are some broader policy, or perhaps moral, or ethical issues here, but as lawyers we first look for the legal underpinning.”

If that sounds like a simple truism, it is one that is becoming ever-more complex in a field of changing technology, regulations, and customer expectations around digital privacy. Hence, the IPSI, which has drawn 30 students—a combination of in-house counsel and Maine Law students—in its second year, for courses on the foundations of global privacy law, and advanced practice issues on data privacy, security, and management.

On one hand, the program is meant to offer “actionable, relevant” lessons for law departments, says Trevor Hughes, IAPP’s CEO and president (and a Maine Law graduate). “This is a boot camp to beat all boot camps” on the topic of privacy, he adds.

At the same time, the institute’s founders see it as an entrée to the field for lawyers in training, particularly as law grads across the country struggle to find jobs. While IAPP’s membership of 13,000 has been growing by leaps and bounds, up 3,000 people in the past 12 months, “We’ve also recognized that we need an onramp to the profession,” says Hughes.

Maine Law, one of the smallest law schools in the country with about 85 to 90 students per graduating class, views information privacy as a major prospect for its graduates. Any time there’s regulatory, technical, and professional disruption, explains professor Rita Heimes, director of the school’s Center for Law and Innovation, “it always creates opportunities for lawyers.”

Heimes credits Maine Law alumni such as Hughes and Justin Weiss, senior director for international policy and privacy at Yahoo, with telling her the school needed to jump on the burgeoning job prospects in the privacy field. So three years ago, the school decided to be “much more strategic” in its approach to privacy, and now, she says, “We’re on it.”

The school offers a three-credit course on Information Privacy Law, which is taught by Hughes and Andrew Clearwater, a fellow at the Center for Law and Innovation who has been charged with enhancing Maine Law’s outreach in the privacy community. Students have had privacy externship opportunities with IAPP and Monster.com, as well as internships at IAPP, Digital Policy Group, Phillips Electronics, and CVS/Caremark.

For motivated students who already know they want to specialize in privacy, Heimes says Maine Law’s relationship with IAPP is giving them “a unique pathway” directly to that career. But the vocabulary of cybersecurity and privacy is also important to those handling transactional work, according to Heimes.

“Someone who may have been a generalist needs to know about information and data security in order to do their jobs well,” she says.

At the summer institute, students are learning just how dynamic the attendant legal principles are. Across the Asia-Pacific region, Europe, and the United States, “all of the frameworks are currently in flux, and they are being reformed and changed in the U.S. and Europe,” explains Tene, an associate professor at Israel’s College of Management School of Law, and a visiting fellow at the Berkeley Center for Law and Technology.

Meanwhile, companies are dealing with novel issues such as data storage and analysis by cloud-service providers, the increasing use of social media by corporations to engage with consumers, and even the concept of analyzing a customer’s movements in brick-and-mortar stores. In that case, the challenge, says Tene, is “whether you can do it without identifying a person, therefore implicating their privacy.”

The risk of a public-opinion backlash driven by privacy issues—and therefore the stakes for brand reputation—are high, Tene points out. So confronting privacy ahead of time, by making privacy controls and features part of products and services from the outset, should be a priority. Think of it as “privacy by design, rather than privacy by disaster—after the fact,” says Tene.

In-house counsel also have to make sure compliance is “under control,” says Tene, given the complex (and evolving) regulatory map. But legal compliance alone isn’t enough. “You can sometimes fully comply with the law, and yet create a terrible impression if you do something without bringing the consumers along,” he says—even if it’s something seemingly innocuous, like altering an online interface that consumers interact with.

Companies need to work to avoid surprises and be transparent about privacy issues. “I think when people see a value proposition, they are much more willing, and often even happy, to part with their personal information,” Tene says. “It’s when things are done in the dark and people don’t’ understand exactly what’s going on that they can be alarmed.”

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At Hersh Firm, a Bad Break

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Another SEC Whistleblower, More On the Way

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Thursday, June 27, 2013

Using Data to Fix Outside Counsel Budget Forecasts

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Since the 2008 economic crisis hit, U.S. corporations have been ratcheting up pressure on their general counsel to limit legal spending, and on law firms to provide detailed budgets for their work. For firms used to providing clients with ballpark estimates for outside counsel work, the new focus on precision can be a difficult transition.

“The old approach to budgeting [for legal services] was to say every case is different and can’t be budgeted,” said Craig Raeburn, vice president of legal analytics at TyMetrix, a legal software and analytics firm. “And that’s no longer a reality. Law firms understand that, and fewer and fewer are saying, ‘I can’t do that.’ ”

The question for firms is how to forecast their prices with the precision required for clients’ budgets TyMetrix recently hosted a LegalVIEW Forum event in Washington, D.C., where corporate counsel and law firms discussed billing challenges. According to a TyMetrix report on the forum, “both law firms and corporations need more information, more communication, and more insight” for successful budgeting and forecasting.

Raeburn suggests law firms use data on billing and matter from TyMetrix’s LegalVIEW, a database of performance data derived from invoices companies submit anonymously. And corporate legal departments can use data on billing to create reasonable expectations for law firms.

Raeburn says both sides need to get smarter about “the business of law.” Just having the data might not be enough, he notes. Law firms and clients should have people on hand who have business backgrounds and understand law firm operations.

Raeburn thinks that pricing directors can serve that role for law firms. On the corporate side, he points to companies like Motorola Solutions, where counsel can draw on the MBA-smarts of director of legal operations Karen Dunning.

“The general counsel needs to really, more than they ever have before, become a businessperson,” he said. “Number one, a businessperson, number two, a business lawyer.”

“Clients today have more insight and a better understanding about the fair market price of legal services,” TyMetrix says in in the conclusion of the forum report. “And so budgeting and forecasting is not only desirable, but absolutely achievable.

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Five Costly Mistakes to Avoid With Obamacare

Organizations large and small are quickly running out of time to ensure that they are compliant with the Patient Protection and Affordable Care Act (PPACA), signed into law in 2010. Also known as the Affordable Care Act (ACA), major portions of the law begin to take effect next year. However, an employer's actions this year will have a significant impact on its ability to comply with the reforms in 2014 and the company's financial liability for noncompliance.

To date, discussion has focused on the topic of employers "playing" (buying health insurance coverage) or "paying" (being assessed the penalty) under the ACA. The majority of employers, which are likely to play, now need to be wary of costly errors that will result in companies playing and paying — buying health insurance for their employees and paying the ACA fines.

To understand the common errors, employers must have a basic understanding of the ACA penalties. Those penalties only apply to employers that employ 50 or more full-time employees, which are defined as employees who work 30 or more hours a week or the equivalent when all of the part-time employees' hours are aggregated.

There are two primary penalties, known generally as the "a" and "b" penalties. The "a" penalty applies when the employer fails to offer an appropriate health plan to substantially all of its common-law FT employees and their dependents. The term "substantially all" is generally defined as 95 percent of FT employees. The "a" penalty is calculated as $2,000 times the number of FT employees (minus the first 30 FT employees).

The "b" penalty occurs when the employer offers an appropriate health plan to substantially all of its FT employees and their dependents but the plan is either not affordable or does not meet the minimum value test and an employee goes to a government exchange and receives a subsidy to purchase health insurance. The "b" penalty is the lesser of the "a" penalty or the number of employees who receive a subsidy times $3,000.

1. Failing to Offer Coverage

At first blush, it would seem simplistic to ensure that an employer offers health care coverage to 95 percent of its FT employees. If, however, the employer misses the 95 percent mark — even by a fraction of a percentage point — the employer will pay the full "a" fine and the cost of the health insurance. Accordingly, employers should not be complacent with respect to the "substantially all" threshold and must be proactive to ensure that they have correctly accounted for all FT common-law employees. Easy employees to miss are those who are misclassified as independent contractors. There is no such creature as the "1099 employee," which is a fiction that places the employer at substantial risk under the ACA, as well as a plethora of employment and tax laws. Other easy-to-miss employees include temporary and certain leased individuals who might qualify as common-law employees. The employer must be precise in its classifications to ensure that it has accounted for all common-law employees and is, in fact, offering health insurance benefits to substantially all of those common-law FT employees. Otherwise, the employer will play and pay.

2. Failing to Offer Coverage

No, this is not a typographical error. The first two mistakes are the same but for very different reasons. Employers need to recognize that the determination of who is or is not a FT employee — working 30 hours or more per week — is measured right now in 2013 to determine and lock in the individual's FT status in 2014. Employers must have databases and payroll systems that allow them to accurately track, quantify and average hours, particularly if they have a variable-hour workforce. Failure to appropriately implement and conduct a 2013 measurement period and 2014 stability period under the ACA regulations is a potentially catastrophic error, particularly for employers with a significant number of part-time or variable-hour employees.

If the employer inadvertently misclassifies employees as part-time individuals and deems them to be ineligible for employer-sponsored health care insurance when they are actually working 30 or more hours a week, these employees will count as FT employees who weren't covered for purposes of the "substantially all" requirement. If enough of these employees are accidentally excluded from the plan, it could reduce the number of FT employees who are covered below 95 percent and expose the employer to the full "a" penalty. An employer's counting methodologies are critical and those methodologies must be in place now, or the employer risks making mistakes in classifying employees that will cause it to play and pay.

3. Misunderstanding the Term 'Dependents'

Historically, employers have had great latitude in choosing to offer employee-only, employee-plus-spouse and/or f?amily coverage. That flexibility has just evaporated. So have creative tactics such as the "birthday rules." These rules seek to keep children from enrolling in one parent's group health plan and purport to force the child onto the other parent's group health plan depending on which parent has the first birthday during the calendar year or based on some similarly arbitrary date determination. The ACA requires that plans offer (although they do not have to pay for) coverage to dependents. Interestingly, the ACA generally defines dependents as biological, step- and foster children up to age 26, but the reforms do not include spouses. A failure by a plan to offer dependent coverage will result in the employer playing and paying the full "a" penalty. The only exception is some brief transition relief, which will allow the employer to avoid the "a" penalty in 2014 if the health plan historically did not offer any dependent coverage and is diligently moving toward offering dependent coverage.

4. 'B' Penalty Can Apply Despite Offering Coverage

If an employer offers health care insurance that is either not affordable (generally, the employee contribution for employee-only coverage must be less than 9.5 percent of household income or the employee's W-2 wages) or does not meet the minimum value test (generally, the coverage must pay for 60 percent of the costs) and an employee obtains a subsidy from an exchange, the employer will be assessed the "b" penalty. The "b" penalty is equal to $3,000 per year for every employee who obtains a subsidy up to the amount of the "a" penalty that would apply in the absence of any coverage whatsoever. If a sufficient number of employees obtains subsidies, the "b" penalty will eventually equal the "a" penalty and, once again, the employer will play and pay.

5. 'A' and 'B' Penalties are Not the Only Consequences

Employers that are subject to the Employee Retirement Income Security Act and choose to play must document the material terms of the plan that they choose to offer. It is a regular occurrence to find employers that do not have the required plan document or summary plan description (SPD) or that mistakenly think the insurer's booklet on services is sufficient documentation. The U.S. Department of Labor is actively auditing health plans for compliance with the ACA, ERISA and a host of related laws. These audits can be complaint-driven or random. They are a painful and often lengthy process for the unprepared employer that does not have a legally compliant SPD, up-to-date plan documents, good records of participant communications and other important written information about the plan.

Similarly, employers need to be aware that employees can complain to the Occupational Safety and Health Administration and other government agencies if they feel the employer has failed to comply with the ACA. This will trigger an OSHA investigation. This is not an exhaustive list of other penalties and financial pitfalls, but it highlights that the "a" and "b" penalties are not the only ones to be concerned about. The unprepared employer who is playing and who is on the receiving end of an investigation may find itself with fines, attorney fees and related external/internal costs and will surely play and pay.

Complying with the ACA is a complicated process that requires careful planning and assessment. For employers of all sizes, the key is to understand the law and avoid the costliest mistakes so the company either pays or plays, but not both.

Anne Lavelle is a director and attorney in the labor and employment practice group with Cohen & Grigsby in Pittsburgh. Contact her at alavelle@cohenlaw.com.

This article originally appeared in The Legal Intelligencer.

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Trial Opens in Suit Against Electronic Arts Over 'Madden NFL' Royalties

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DOJ Challenges Reversal of Sanctions in Ted Stevens Case

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Judge OKs $150 Mil. Settlement in Flonase Class Action

Home > Judge OKs $150 Mil. Settlement in Flonase Class Action

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By Amaris Elliott-EngelContactAll Articles

The Legal Intelligencer

June 17, 2013

A federal judge has approved a $150 million settlement by GlaxoSmithKline of a 33-member direct purchaser class action over allegations the drugmaker monopolized the market for its nasal spray Flonase.

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Wednesday, June 26, 2013

Google Settles Shareholder Lawsuit as Trial Loomed

Home > Google Settles Shareholder Lawsuit as Trial Loomed

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By Jeff MordockAll Articles

Delaware Business Court Insider

June 17, 2013

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Daily Routines of Smaller Firms Still Bedeviled by Storm

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Corporate Counsel Spotlight: Who Reps 2012

Corporate Counsel

September 21, 2012

Editor in Chief Anthony Paonita is in the Corporate Counsel Spotlight this month. He visited Eugene Assaf, a partner at Kirkland & Ellis, to talk about the sometimes bumpy relationship between corporate law departments and their outside counsel. Their recent conversations are also featured in the cover story that Paonita wrote for our October 2012 issue, which highlights our annual Who Represents America’s Biggest Companies survey.

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Tuesday, June 25, 2013

Whistleblower Suit Against Novartis Proceeds

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Justices OK "Pay-for-Delay" Generic Pharma Deals

The U.S. Supreme Court gave something to both sides in a closely watched dispute over so-called "pay-for-delay" agreements between brand-name and generic drug manufacturers that put off the production of generics in return payments by brand-name patent holders.

By a 5-3 vote, the court in Federal Trade Commission v. Actavis held that such deals are not presumptively illegal under antitrust laws, but it said the government should be able to make a case that individual settlements are anticompetitive, under a "rule of reason" standard.

Justice Stephen Breyer, probably the court's prime antitrust expert, wrote for the majority that the "risk of significant anticompetitive effects" flowing from reverse payments outweigh the desirability of the settlements between drug makers.

The ruling came at the intersection between patent and antitrust law, made contentious by the inherent conflict between the monopoly that is granted by patents but frowned on by antitrust laws.

"In practical terms, I think the middle ground struck by the Supreme Court will result in continued litigation on the subject and continued attacks by the FTC," said former FTC lawyer Lesli Esposito, now a litigation partner at DLA Piper.

Other antitrust and patent experts said the ruling may have introduced enough uncertainty about the success of "pay-for-delay" agreements if challenged that they will become scarcer or more expensive to negotiate.

For that reason, consumer advocates who viewed the deals as a way of keeping drug prices high applauded the ruling.

"I am pleased that the Court today recognized that antitrust policies play an important role in protecting consumers even when patents are at issue," said Senate Judiciary Chairman Patrick Leahy (D-Vt.), who has held hearings on the issue. "Today’s decision should caution drug companies against making payments to delay competition and harm consumers."

New York Attorney General Eric Schneiderman, who filed a brief supporting the Federal Trade Commission's challenge to the settlements, called the ruling "a victory for millions of Americans who depend on generic drugs to treat illness and pain." Edith Ramirez, the FTC chairwoman, called the high court ruling a "significant victory" for American consumers.

Rutgers University School of Law-Camden professor Michael Carrier, an antitrust and patent expert, said Monday that the ruling "is a loss for the drug makers who were hoping the court would have slammed the door once and for all on these agreements. That didn't happen. So I think the FTC came out on top."

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Cobb solicitor agrees to downgraded plea for mom whose jaywalking led to death of son

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Another SEC Whistleblower, More On the Way

The Securities and Exchange Commission just announced the issuance of the agency’s second Dodd-Frank whistleblower award—serving as a reminder to in-house counsel to bolster their companies’ own internal reporting programs, attorneys say.

Three claimants qualify to collect 5 percent each of a $7.5 million enforcement action against a “sham hedge fund” and its CEO, according to the agency. In an order [PDF] issued last week, the commission determined that each claimant “voluntarily provided original information” that “led to the successful enforcement” of the matter concerning Locust Offshore Management and chief executive Andrey Hicks.

While the SEC hasn’t managed to collect the sanctions ordered in a March 2012 judgment—and therefore can’t actually pay the whistleblowers just yet—the agency said the claimants are also eligible to apply for a portion of the $800,000 already collected by the Department of Justice in a related action.

A fourth whistleblower claimant was denied an award because the information provided by the person wasn’t “original” and didn’t contribute either to “the opening of the investigation or the success of the enforcement action,” according to the order. None of the claimants were identified by name.

Under the rules of the program, created as part of the Dodd-Frank financial reform law, SEC whistleblowers may be able to collect between 10 and 30 percent of enforcement actions worth more than $1 million, if the information they provide about misconduct proves significant. Though since the 2011 inception of the program, the agency has announced only one other whistleblower award.

But this latest announcement comes after Stephen Cohen, associate director of the SEC’s division of enforcement, recently hinted that there’s much more whistleblower action on the horizon.

“There will be a likely change in the discussion about the magnitude of some of these awards over the next six to 12 months,” Cohen told an audience at the Corporate Crime Reporter conference in Washington, D.C., last month.

Cohen, a panelist at the conference, said that whistleblowers are in a position to share information on misconduct that is either “too costly or impossible” for the agency to obtain.

“The net effect of this,” Cohen said, “is that whistleblowers, and in some instances counsel, are putting together information for us, sometimes in huge reports with evidence, with documents, bringing it to us, and giving us sometimes a roadmap, sometimes a starting place for us to do an investigation, at least pointing us in the right direction—sometimes helping us all along the way to the end.”

How can companies help ensure that whistleblowers report issues internally instead of immediately turning to the SEC with a complaint? Time and again, whistleblowers try to make internal reports and run into serious roadblocks, according to plaintiff attorneys who spoke to CorpCounsel.com.

Indeed, more than 80 percent of people who approach the SEC with tips tried to report within their companies first, The New York Times reported earlier this year. The agency received 3,001 tips in 2012 from across the U.S. and 49 other countries.

“The SEC whistleblower reward program puts companies at greater risk than they used to be when they dismiss and pay no attention to whistleblower concerns,” says David Marshall, a name partner at Katz, Marshall & Banks in Washington, D.C.

An effective compliance program involves listening to employee complaints, keeping internal whistleblowers informed about how the complaint is being handled, and warning managers not to retaliate against employees who come to them with complaints. “Any company that doesn’t build such a program today is making a big mistake,” says Marshall.

Motley Rice attorney Rebecca Katz says she is currently handling more than a half-dozen whistleblower cases before the SEC. In nearly all of them, the person reported internally first, she says.

“In some cases, the company purported to investigate, and it wasn’t satisfactorily resolved,” says Katz, a former senior counsel in the SEC’s enforcement division. “In some, there was retaliation [against the employee] for reporting internally, without even an investigation.”

She recommends that senior management create “an open-door policy” when it comes to complaints, and, within the company’s code of conduct, address up-front how employees will be treated when they report internally. “The personality of the company comes from the top,” she says.

Putting policies in place to prevent retaliation should be a priority for companies, according to Jordan Thomas, a former assistant director at the SEC who helped develop the agency’s whistleblower program.

“The number one indicator for someone becoming a whistleblower is retaliation,” says Jordan, now chair of the whistleblower representation practice at Labaton Sucharow.

Failure to communicate with employees after they’ve lodged a complaint also trips up companies. “People assume if they don’t hear anything, nothing has been done,” he says.

Even just thanking employees for making a complaint can be a potent tool, and one that’s often overlooked. “Give appreciation for people who have the courage to come forward and report something—even if they’re wrong,” Jordan recommends.

That may be especially important in the near future, as more investigations come to fruition and awareness of the whistleblower program grows. “In the coming years, many of the SEC’s most significant cases will be the result of SEC whistleblowers,” he says.

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Monday, June 24, 2013

In Internet Porn Spat, Prenda Claims Judge Overstepped

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Obama Picks Skadden Partner to Help Close Guantanamo

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Justices OK 'Pay-for-Delay' Generic Pharmaceutical Deals

Home > Justices: ?Pay for Delay? Deals Need Antitrust Scrutiny

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By Tony MauroContactAll Articles

The National Law Journal

June 17, 2013

The Supreme Court gave something to both sides in a closely watched dispute over so-called "pay to delay" agreements between brand-name and generic drug manufacturers that put off the production of generics in return for payments by brand-name patent holders.

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Fastest Law Firm Growth Was Fueled by Energy Markets

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Roberta Gelb on Technology Training

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Sunday, June 23, 2013

Twitter: A Sleeping Discovery Giant?

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Discovery on Discovery Demands Cost-Shifting

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Courts should order more cost-shifting in discovery. In particular, in the rare cases where courts allow discovery on discovery (i.e., how the opponent preserved, collected, and produced responsive documents), it should be presumed that the requester pays for the responding party's costs to produce this information.

As U.S. Magistrate Judge John Facciola noted more than 10 years ago in McPeek v. Ashcroft, 202 F.R.D. 31, 33-34 (D.C 2001):

American lawyers engaged in discovery have never been accused of asking for too little. To the contrary, like the Rolling Stones, they hope if they ask for what they want, they will get what they need. They hardly need any more encouragement to demand as much as they can from their opponent.

The reason that lawyers do not self-regulate their discovery requests is self-evident: They can consume this free good without restraint. Under the American Rule, requesting parties have little financial incentive to narrow their requests or only seek information they expect to actually help them, because the cost of finding and producing the information falls on their opponent. And, while there are other incentives to curb wanton discovery abuse — such as professionalism, courtesy, reputation, discovery sanctions, FRCP 26(g), and proportionality — these measures only restrain the grossest of actions (and, often, only with Court intervention) and do not focus a requesting party or its counsel's mind on the marginal costs and benefits of a request quite like paying for it would.

The basis for the American Rule is well-known and perhaps most succinctly discussed by Judge Shira Scheindlin in Zubulake I:

Courts must remember that cost-shifting may effectively end discovery, especially when private parties are engaged in litigation with large corporations. As large companies increasingly move to entirely paper-free environments, the frequent use of cost-shifting will have the effect of crippling discovery in discrimination and retaliation cases. This will both undermine the 'strong public policy favoring resolving disputes on their merits,' and may ultimately deter the filing of potentially meritorious claims (Zubulake v. UBS Warburg, 217 FRD 309, 317-318, quoting Pecarsky v. Galaxiworld.com Limited, 249 F.3d 167, 172 (2d Cir. 2001)).

In essence, the American Rule exists to prevent the doors of the courthouse being slammed shut on poor parties who cannot afford to prosecute their claims. This is why the best, least costly, most refined tool to manage the costs of discovery — making the requester pay — has been used only in cases where the data is not reasonably accessible.

However, the power behind the logic of the American Rule fades when the requested discovery has little to do with the merits of the claims and defenses. In the case of discovery on discovery, the requesting party does not seek information directly relevant to its claims or defenses, but rather seeks to verify that the responding party has complied with its obligations in responding to prior discovery requests. As an initial matter, courts should only permit this type of discovery in rare situations where good cause exists to suspect that such discovery will indeed yield relevant results. See, e.g., Federal Rule of Civil Procedure 26(b)(1). Too often, discovery on discovery is used as a strategic tool to increase costs incurred by the responding party and is sought not based on evidence that discovery abuse has occurred, but rather, "on a wing and a prayer," in the optimistic hope that a second go-round will yield relevant information.

A reversal of the American Rule here will properly incentivize requesting parties to seek discovery on discovery only when they have a genuine belief that such discovery is necessary to a just resolution of the dispute, as opposed to utilizing such discovery as a means of exacting strategic pressure on an opponent, without great risk of chilling meritorious claims being resolved on the merits. Parties seeking discovery on discovery will only do so where they expect the benefit of the discovery to outweigh its costs and will naturally tailor the discovery to those areas where it thinks there have been failures, rather than the blunderbuss approach that is too often used now. Switching the presumption as to who pays for such discovery does not close the courthouse doors on parties who cannot afford discovery because the underlying facts of the dispute (was the contract breached; was toxic sludge dumped in the river; was there a price-fixing conspiracy) are not the ones being sought. A party can — and should — be able to bring, investigate, and advocate claims or defenses without ever investigating how the other party produced documents or disclosed information. Making a party pay for the privilege of undertaking this satellite discovery, after meeting the necessary thresholds, does not hinder a party from prosecuting its case-in-chief. Simply put, discovery on discovery is not about resolving claims on the merits. Moreover, if a requesting party does uncover discovery abuse or establish a material failure to properly respond, shifting the costs back to the responding party may be appropriate.

Similarly, the requesting party may, at times, seek to understand the structure of its opponent's IT architecture, usually in an effort to identify additional custodians or locations of files as a potential source of relevant information. While the discovery of a company's data management systems and resources does not lead to the same egregious problems as discovery on discovery, formal depositions, document requests, and interrogatories regarding such information, which do nothing to resolve the actual dispute, can be terribly expensive and time-consuming. Reversal of the American Rule here will encourage informal resolution of these issues, which should be possible absent extraordinary circumstances. Courts will then not be required to delve into the minutiae related to the various issues associated with IT architecture.

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Safeguarding Brand Reputation In Social Media

By Alan L. Friel, Akash Sachdeva, Jesse Brody, and Jatinder Bahra All Articles 

Corporate Counsel

June 18, 2013

Social media has changed the way businesses communicate, enabling brands to directly engage with consumers. Companies are turning increasingly to social media platforms to structure innovative and edgy marketing and promotions that often include a mix of user-generated content, text messaging, Twitter messaging, Facebook applications, blogging, viral marketing, and other social elements. However, the tech-savvy marketing professionals that are entrusted to do this are often unaware of the complex legal overlay of the digital world and the potential pitfalls for their company’s failure to comply.

In working closely with our clients engaged in social media marketing, we have identified the following top 10 compliance issues to consider:

1. Statements made in social media will be held to the same standard as traditional advertising claims.

Laws regarding advertising and consumer protection apply equally to social media and traditional media. All claims must be substantiated and the message, taken as a whole, must not be deceptive. If the message cannot be presented in an ad or commercial, it cannot be presented via social media.

2. Companies may be responsible for what their customers, employees, celebrity spokespersons, and contractors say about them in social media.

The Federal Trade Commission, which regulates deceptive advertising and unfair business practices, updated its Endorsement and Testimonial Guidelines to address use of social media to promote a company or its products or services. Other countries have similarly applied their consumer protection and advertising laws to social media. In the U.K., the Advertising Standards Authority and the Office of Fair Trading have actively done so. In short, if there is a material connection between the speaker and the company, it must be disclosed in a clear and conspicuous manner proximate to the message.

Employees, contractors, and spokespersons have a material connection because they are all paid. However, merely giving a blogger free products to sample and write about, or providing sweepstakes entries to consumers each time they tweet may also be enough to trigger disclosure requirements. The FTC and OFT have initiated investigations and enforcement actions against companies that gave gift bags to bloggers attending an advance product demonstration, paid for blog posts, and gave sales lead commissions to bloggers that linked readers to an e-commerce site—all where the bloggers failed to disclose that they got something of value from the company. In recent guidance regarding online and mobile disclosures, the FTC warned that notices using icons and abbreviations, such as in Twitter, would be inadequate if the meaning was not clear to consumers.

3. Where the company does not review and approve social media messages of those with material connections to it before they are publicly distributed, it needs a program to train and monitor those who speak for it and take corrective action when violations occur.

Frequently, in social media promotions it is not practical for the company to review and select or approve the messages its social media influencers are making. The FTC will nonetheless hold the company liable if its influencers fail to make the required disclosures or if they make false, misleading, atypical, or unsubstantiated claims. To minimize the risk of this happening, companies need to educate their influencers on what the law requires and how to comply, require them to follow these rules, make reasonable efforts to monitor them, and take appropriate corrective action for violations.

4. Maintaining a good social media policy, which influencers are contractually obligated to follow, may help to stave off liability.

Although the FTC has stated that having a good social media policy and compliance program is not a safe harbor, it has shown that it takes such efforts into account in exercising prosecutorial discretion.

5. Be careful about restricting employee speech in your social media policy and using social media to make HR decisions.

To avoid running afoul of the FTC’s requirements, many companies have simply prohibited employees from using social media to talk about the company or its products or services, absent company review and consent. However, the National Labor Relations Board has been very active in prosecuting companies taking this approach for illegally restricting an employee’s right to organize and to speak about the conditions of their work and workplace. The laws protecting employee rights are even more protective of employee speech in Europe. Accordingly, social media policies need to be carefully tailored to not infringe upon employees’ rights. Your social media policy should, however, address ownership of the company’s social media accounts and the account’s followers—especially when the account is opened by an employee on behalf of the company—to avoid problems when account operators leave.

Six states in the U.S. have passed laws that prohibit requiring applicants to make their social media accounts available to a potential employer so that it may review private content. Password disclosure requirements would also violate the fundamental right of privacy in Europe. Further, even looking at publicly available social media profiles and postings of job applicants might create problems, for instance where sexual orientation, religion, or political affiliation is learned and is alleged to be the basis of a decision not to hire. If a company is going to include a review of public social media content as part of its pre-employment screening, it may want to consider having that done by a party that will not be making hiring decisions and have that person provide to the decision-makers only information that would be appropriate in making legal hiring decisions.

Finally, taking disciplinary action against employees for their off-duty speech, unrelated to the company and on their own social media accounts, could potentially violate employee rights.

6. Consider the medium, platform, industry, and jurisdiction in designing compliance efforts.

There are specific regulatory requirements, including opt-in or opt-out options, for using email, social media system messaging, and text messaging for promotional messages. In addition, social networks have their own terms of use, end-user license agreements, privacy policies, and rules that govern the use of the platform for commercial purposes and the ownership of content and data passing through the platform, which should be carefully considered before a third-party platform is incorporated into a company’s promotional marketing. Also, there are many additional requirements applicable to specific regulated industries such as food, alcoholic beverages, drugs, tobacco, telecommunications, insurance, financial services, gambling, automobiles, gasoline, and health care.

7. Be aware of special considerations regarding children.

As of July 13, 2013, the U.S. Children’s Online Privacy Protection Act (COPPA) Rule will prohibit use of social media plug-ins on children’s sites, or knowing use of same in connection with children under 13 years of age. Similarly, online behavioral advertising and use of persistent identifiers for other than limited internal operational purposes is prohibited for children and children’s sites.

This not only means no integration of social media into children’s sites, it also means that even operators of mixed-use and general-audience services will need to disable social media tools if they become aware that a user is 12 years of age or under, such as may be the case if a user attempts to register or enter a sweepstakes indicating an age under 13 years.

8. Respect third-party intellectual property and publicity rights, and determine an appropriate policy regarding ownership of user-submitted content.

Laws in various jurisdictions, the nature of the platforms selected, and the manner in which a social media promotion is structured will all affect the degree to which companies will be responsible for infringement of third-party rights arising out of user-generated content promotions, including claims of copyright infringement and defamation. Further, in the U.S., a company must have consent to associate a person with the promotion of a company or its products or services. Failure to obtain adequate permission to do so has led to lawsuits against brands arising out of social ads on social media platforms and adding uncleared photos of individuals on Facebook Timelines. For these reasons, companies should be cautious with repinning, re-tweeting, and reposting.

9. Perform due diligence on vendors and obtain an indemnity in your contract with them.

Undertake due diligence regarding the vendors enaged to execute social media campaigns. Vendor agreements should include specific compliance obligations (including following the company’s social media policy and requiring it to educate its employees and subcontractors) and warranties and an indemnity.

10. Don't forget about social media evidence in litigation.

If your company is involved in litigation, chances are social media evidence could be relevant. Anything potentially relevant, whether or not it is viewable by members of the public, is discoverable. It also is critical to preserve social media evidence, just like other types of evidence, as part of a litigation hold. Content on your organization’s blogs, Facebook pages, and other social media accounts most likely continually evolves, with some posts being regularly deleted. However, when faced with litigation, failure to preserve such information could violate discovery obligations. Remind employees about social media sources in particular when issuing litigation holds, and, if necessary, use forensic collection tools designed to capture social media information for discovery, ensuring that metadata—important for authentication purposes—remains intact.

Social media is an important and effective tool for brands to use in engaging with consumers. However, doing so presents numerous regulatory, intellectual property, labor and employment, and other potential liability issues that corporate counsel must consider.

Alan L. Friel is a partner at Edwards Wildman Palmer in Los Angeles, where he is chair of the Media and Technology Licensing & Transactions practice, co-chair of the Technology, Media, and Telecommunications practice, and is on the Data Protection steering committee. He writes, speaks on, and provides counsel on the privacy, data security, technology, regulatory, and intellectual property implications of using mobile, social, and digital media. Akash Sachdeva, a partner with Edwards Wildman in London, has over 13 years of experience in intellectual property litigation. Jesse Brody is a partner at Edwards Wildman Palmer in Los Angeles, where his practice focuses on legal issues affecting entertainment, technology, advertising, and privacy. He routinely advises clients in new media-related matters that involve privacy policies, terms of use, user-generated content, social networks, downloadable software, and commercial text messages. Jatinder Bahra, an associate in the London office of Edwards Wildman, specializes in technology, media, and telecommunications matters.

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