Just over a month after Facebook’s widely-reported acquisition of Instagram for one billion dollars, there are strong signals that the purchase may be delayed by the FTC.  Although Facebook’s CEO (and majority shareholder) Mark Zuckerberg was able to single-handedly approve the deal without consulting the company’s Board of Directors, he does not have control of the Federal Trade Commission, and a deal won’t be ratified unless the federal agency approves the purchase.

As reported by the New York Times, the FTC is investigating whether the acquisition of Instagram by Facebook would raise antitrust problems.  The deal is still expected to go forward, but could certainly be delayed by the government regulators.

Planetary Resources, a company backed by investors such as Google Chairman Eric Schmidt and director James Cameron, has announced a plan to mine asteroids. The company says it will initially mine water and platinum, hoping to “provide stability on Earth, increase humanity’s prosperity, and help establish and maintain a human presence in space.” Considering rare metal’s cost, perhaps the company will also turn a profit.

While the United States can generally regulate the activities of U.S. corporations as it sees fit, it is also bound by its treaty obligations. There is some concern that the 1967 Outer Space Treaty bans asteroid mining. Article II provides that “Outer space, including the Moon and other celestial bodies, is not subject to national appropriation by claim of sovereignty, by means of use or occupation, or by any other means.” Article VI requires states to ensure that their nationals also comply with these terms.

Wired Science has argued that the ban on “appropriation” is not a ban on mining because the Treaty also allows the free exploration and use of outer space. Since the treaty entered into force, it is evident from the subsequent practice of states that taking resources from a celestial object conforms with the Treaty.

The Apollo missions, for example, brought back 842 pounds of lunar material. NASA has exercised rights in the lunar samples tantamount to ownership, and the U.S. government has prosecuted individuals for improperly obtaining them. Further, some lunar samples given to the Soviet Union were sold to private individuals.

It would seem clear from this example that a private company may acquire and sell interests in celestial material.

Sergey Aleynikov, a former programmer for Goldman Sachs, recently became a free man. His conviction was overturned by the 2nd Circuit Court of Appeals after serving a year of his original eight year prison sentence. Aleynikov’s crime? He downloaded the highly sensitive source code of Goldman Sachs incredibly lucrative high frequency trading system. The system used a series of algorithms to make complex trades in a fraction of a second, and it provided Goldman with an important edge on the rest of the market.

Needless to say, Goldman was not pleased to see a former employee provide the same code for a competitor. Aleynikov was quickly arrested by the FBI and charged with violations under the National Stolen Property Act (NSPA) and the Electronic Espionage Act (EEA). In 2010, Aleynikov was found guilty under both statutes for theft and economic espionage. This case was largely seen as an “example of the Justice Department’s serious intent to prosecute the theft of intellectual property and trade secrets.” Aleynikov appealed and the 2nd Circuit conducted de novo review of both statutes.

After review, the 2^nd Circuit reversed the convictions and found that Aleynikov’s acts did not “constitute an offense under either the NSPA or the EEA, and the indictment was therefore legally insufficient.”

In regards to the NSPA, the Court stated that source code is intangible in its digital form. They held that intangible computer code does not qualify as “goods,” “wares,” or “merchandise” under the NSPA. Therefore, Aleynikov never “assume[d] physical control” of anything that would violate the statute when he downloaded the code. In its decision, the court relied on Dowling v. United States 473 U.S. 207 (1985) for the “proposition that the theft and subsequent interstate transmission of purely intangible property is beyond the scope of the NSPA.”

Additionally, according to the Court, Aleynikov could not have committed electronic espionage. “Goldman’s HFT system was neither ‘produced for’ nor ‘placed in’ interstate or foreign commerce.” Without satisfying one of those conditions, there can be no violation of the EEA.

So what does this mean? For Aleynikov it means freedom, but can thieves now take this kind of sensitive proprietary information without fear of legal action? Can a thief avoid charges by keeping code in the cloud? Currently, the answer to these questions is yes. However, this does not mean that all code is now fair game. It must be code that was not produced for or placed in interstate or foreign commerce to escape suit entirely. This subset is small enough that repeat cases are unlikely to occur in large quantities. Furthermore,  in a concurring opinion, Circuit Judge Guido Calabresi urged Congress to update and broaden the scope of the NSPA. Hopefully Congress heeds the suggestion. In this age of ever advancing technology, the law needs to reflect or at least be able to adapt to these new digital realities. Otherwise, it may just become obsolete.

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Michael Gross writes in this month’s Vanity Fair about an internet treaty conference to be held in Dubai later this year.  The International Telecommunications Union, about which I’ve blogged in the past, will attempt to forge some sort of consensus between countries favoring the status quo (the United States), and other countries wanting more or less control.

Whether or not any treaty comes out of this conference, it is sure to further illuminate the differences between countries of the global north and south.  As more and more of the developing world has internet access, developing countries may try to challenge the United State’s hegemony over DNS servers and IP protocol.

As the United States wrestles over its own Internet legislation, this conference could have just as much of an effect.  That it doesn’t start until after the presidential election leaves one to speculate even further.

According to the government in the State of Washington, “Human trafficking is the fastest growing criminal industry in the world today.” In response to this crime, the Washington State website against trafficking boasts that the state has passed the “most stringent law in the country”. The state added to this stance earlier this year when the state congress unanimously passed a new law directed at media sources of all kinds that include ads for escort services. The Washington State government found that many of the ads show depictions of children, and have responded by making it a Class C felony for anyone that “knowingly publishes, disseminates, or displays, or causes directly or indirectly, to be published, disseminated, or displayed, any advertisement for a commercial sex act…that includes the depiction of a minor”. While at first glance Washington’s new stance seems positive, in reality the law will most probably prove to be unenforceable, and may even be counterproductive to the fight against human trafficking.

Washington State’s plan for enforcing the new law is a new “photo-ID” requirement: the language of the enactment indicates that a potential advertiser must make a “reasonable bona fide attempt” to determine the age of anyone depicted in advertisements through some sort of identification. Sources have indicated, however, numerous flaws with the enforcement system. Most notably, the law will include an “in-person verification system” for its photo-ID requirement of online advertisers. This requirement is seemingly directed at online escort advertisers like Backpage.com. Backpage.com, a site similar to Craigslist.com, has filled the void left by the online classified giant when the company removed its escort service in 2010. Since that time, according to a recent article written in the New York Times by Nicholas Kristof, Backpage.com has become the biggest forum for sex trafficking in the United States. While this in-person verification requirement sounds good, in reality it seems highly unlikely websites like Backpage.com will suddenly be able (or willing: “The law relating to online commercial advertising is unfortunately practically unworkable in the Internet realm,” says Liz McDougall, general counsel for Village Voice Media.) to make in-person ID checks of all those that would put escort ads on their website. Furthermore, the law doesn’t seem to address the real possibility of fake ID’s being used, or having adult pictures used while then offering minor escorts. Beyond looking at an ID, the law doesn’t even define what a “reasonable bona fide attempt” means. This lack of clarity most probably means that the enforceability of the law is, as critics have said, “left up to prosecutorial discretion”. And as Washington state prosecutors had yet to file a single trafficking related case five years after the “most stringent law in the country” was passed, don’t hold your breath waiting for the attorney general to enforce the newly passed law.

While proponents of the bill have acknowledged its limits, they remain positive that it will provide another burden for a would-be trafficker. Some critics argue, however, that the law’s future goal of taking down sites like Backpage.com may actually hurt the fight against human trafficking in the long run. In his recent New York Times article, Kristof stated that Backpage.com has become the biggest forum for sex trafficking in the United States. In attempting to hold those with ownership stake in Backpage.com accountable, Kristof’s article also pointed out that one of the companies with stock in Village Voice Media (the company that owns Backpage.com) was Goldman Sachs. In exposing this ownership, Kristof hoped to take a step further than the Washington law by having these owners pressure Village Voice into getting rid of all the escort adds on Backpage.com.

Village Voice, however, argues that it is the very existence of sites like Backpage.com that allow for human traffickers to be found and prosecuted. Ina response to Kristof’s article, the company argues, “for the first time in the history of sex work, law enforcement has, because of the Internet, the ability to shine a light upon those who would abuse children.” Citing several studies done by the likes of USC and Harvard, Village Voice believes that Kristof’s approach “would drive victims back to the shadows”. And they may be right: forcing domestic servers to close their escort ads down may simply lead to foreign sources stepping in to take their place. While sites like Backpage.com employ hundreds of staff members to patrol the site for underage exploitation and provide law enforcement with information pertaining to potential traffickers, internationally-based servers would be under no obligation to act accordingly.

So while the Washington State law may sound to some like a step in the right direction, its inevitable lack of enforceability and potential destructive nature may make it just the opposite.

It is no secret that the cost of doing business in the United States is higher as a result of disclosure obligations and liability threats that stem from public company status. Accordingly, the decision about pursuing an initial public offering is one that companies do not often take lightly. The omnipresent threat of suit under the federal securities laws is a strong motivator for companies to take all possible steps to avoid any actions that could result in ruinous antifraud liability. On March 23, a rare event occurred that highlights the drastic step that one corporation took to avoid being subjected to suit. BATS Global Markets Inc. withdrew its initial public offering  partly to avoid liability as a result of the precipitous decline in its trading price shortly after trading in the stock commenced. Joe Ratterman, BATS’ CEO, stated that he does not expect legal problems because no BATS shares or money actually changed hands on Friday. Because the auction trades were broken, “no investors will be out,” he said.

BATS, the third-largest U.S. stock exchange, was hoping to take on the more recognizable NYSE and Nasdaq and become a major player in the exchange industry. The software error that derailed the initial public offering of BATS, where 11 percent of all U.S. stock trading occurs, rattled investors concerned about the growing complexity of financial markets. Some traders and industry insiders said the fiasco raises questions about BATS’ larger business model. “It creates considerable uncertainty about the company’s trading platform,” said Francis Gaskins, president of IPOdesktop.com of Marina del Rey, CA, which does research on IPOs.

The problems BATS faced with its recent IPO raised similar concerns that stem back to the May 6, 2010 “Flash Crash.”  Electronic trading has had an enormous impact on the global financial markets, though the potential for breakdown remains, as highlighted by the Flash Crash and the BATS IPO. Such electronic trading, whether or not on BATS, has no doubt increased both the efficiency and the complexity of the inner-workings of the global financial system and carries with it the potential for benefit and disaster.

Bringing the matter full circle is the potential for BATS’ system to facilitate high-frequency trading (HFT). HFT, made possible by the rise in electronic trading and thought to be a major cause of the Flash Crash, is also pegged as a possible cause of the BATS meltdown. HFT also carries the potential for abuse by technologically savvy parties. Ironically, on March 23 (the same day as the BATS fiasco) the SEC revealed that is also looking at whether some HFT firms have used their close links to computerized stock exchanges (such as BATS) to gain an unfair advantage over other investors. Investor confidence is vital to the efficiency of the public securities markets and these recent developments, related to both faulty electronic trading as well as the potential for abuse through HFT, will need to be closely monitored to ensure a level playing field for the broader investing public.

Judge Frank Easterbrook and Professor Lawrence Lessig had a famous exchange in the late 1990s regarding cyberspace law.  Easterbrook argued that scholars and judges ought not waste energy developing a body of law specific to cyberspace.  Such law would be as parochial and rapidly obsolete as a “law of the horse,” or a body of law governing behavior on horseback.  The phrase is borrowed from Carl Llewellyn, who used it illustrate his reasons for making the UCC’s contract rules generalizable, rather than specific to particular contexts.  Easterbrook opined that such technology-specific law would not “illuminate the entire law.”

Lessig responded by arguing that values are imbedded in technology itself.  Technological changes can displace values currently expressed by the law, forcing government to choose whether to accept the displacements or use law to reinforce existing values.  In regulating new technology, we must decide whether the technology displaces values so important that “law might respond to reclaim the values displaced.”  Law directed at particular technological areas does in fact “illuminate the entire law,” because it responds to unique technological challenges to our values.

It is worth revisiting Easterbrook and Lessig’s exchange in light of the Supreme Court’s recent ruling on US v. Jones.  (For MTTLR Blog’s previous coverage on US v. Jones, see here, here and here.)  The Court seemed wrong-footed by precisely the phenomenon that Lessig identified: technology had displaced the values in existing law.  The “reasonable expectation of privacy” test, from US v. Katz (1967), has lost its clarity because technological developments have altered those expectations.  Justice Alito competently articulates this point in his concurrence.  He notes that historically, the most important privacy protections have been practical rather than legal.

Extrapolating from Alito’s position, it seems implausible that the “reasonable expectation” test protects privacy interests exclusively because they are reasonably expected.  More likely, it indicates that Fourth Amendment protects privacy interests roughly coextensive with those that a reasonable person expected in 1967.  The Katz court could not have meant that Fourth Amendment protections erode with the progress of monitoring technologies.

Alito is right then, to suggest that the courts need not dumbly wait for legislation.  Courts can respond proactively to new technologies because the law is an expression of values.  When technology challenges or, in Lessig’s words, “displaces” those values, the courts must be ready to use existing law to push back.  The Court thus need not have punted to avoid interpreting the reasonable privacy expectation.

Imbued with its new fee setting authority after the America Invents Act (AIA), the USPTO has, unsurprisingly, decided to raise its fees.  Taking a page out of the USPS playbook, the PTO is not promising any better or faster service with its increased fees.   In fact, a recent blog post from USPTO Director David Kappos seems to threaten slowing reduction of the patent backlog (currently around 650,000) for those would-be fee complainers.

The PTO has done a commendable job in increasing transparency surrounding its practices, implementing new procedures to reduce pendency, and devoting resources to reducing the backlog of unexamined applications.  In addition, under the AIA patent applicants have the choice of using “Track One,” which for an increased fee, greatly increases the speed of examination and so far, upped the allowance rates.  Yet all of these improvements Kappos mentions were achieved under the current fee schedule.  So what will the more expensive “normal” track applications get, besides a back seat on examiners’ dockets?

Kappos argues that the proposed fee increases are simply the normal course of business, and refuses to speculate on future efficiency gains.  Understandably, the PTO wants to protect itself after bouts with fee diversion, and its strategic vision should hopefully result in efficiency improvements that may be priced in when they materialize.  Still, some critics look at the proposed increases, including a 47% increase for a large entity utility application and a whopping 123% increase for design applications, and conclude the proposed changes threaten to undermine the goals of the AIA.

Are the proposed fees simply a long overdue adjustment needed to improve examination quality and reduce the backlog, or will they price out innovation?  It seems hard to believe anyone in favor of the enacted version of the AIA would expect the PTO to lower fees upon a grant of addition authority.  Thus, perhaps the enhanced menu of options including Track One, micro entity status, and other changes will push innovation forward despite an increased fee schedule.

The advent of the internet has accelerated the evolution of business models by creating the possibility for countless novel companies with low start-up costs.  One need only look at the fate of newspapers across the country and the pains of the music industry to observe the waning of many formerly successful ways of going about business.  Meanwhile, courts have struggled to balance the interests of those driving progress and those giants, arguably dying but holding significant amounts of capital and threatening each to create their own dent in the economy.

Recently, the Second Circuit decided a case determining a plaintiff’s rights extended beyond copyright protection, granted by the 1976 Copyright Act, and implicating the First Amendment of the U.S. Constitution.  This court has barely kept alive the “hot news” misappropriation claim.  This claim amounts roughly to the use of the product of the plaintiff’s efforts before the plaintiff is able to capitalize on it.  Analysis of this claim has developed to strictly require certain factors in order for federal copyright law not to preempt this state law claim.

It was just the late 90s when the Second Circuit identified the existence of this claim since the 1976 Copyright Act as well as Erie Railroad Co. v. Tompkins, which had abolished federal common law.  Regardless, the court in NBA v. Motorola attempted to strike a fair balance in a copyright case by finding that, even though a copyright had not been infringed upon, a plaintiff may still have claim based on the misappropriation of “hot news.” Originating from the classic property case International News Service v. Associate Press, this claim barely survives even though INS v. AP is actually no longer good law because of the U.S. Supreme Court decision in Erie.

Now, 15 years later, the confusion only continues.  The Court in NBA had created a couple possible tests, which a number of district courts have attempted to apply; a case in the last year from the same court, however, appears to dismiss the tests articulated in NBA as dicta.  Instead, the court in this case, Barclays v. Theflyonthewall.com, focuses only on the single factor that had the basis for the NBA holding.  Like NBA, the court in Barclays found that the “hot news” claim still existed but had been preempted because this same factor was missing.  According to a strict legal interpretation of the word, the defendant was not “free-riding” on plaintiff’s work.

Although courts continually find for the defendant in these cases, the problem with preserving this claim is that these courts are also preserving a menace to innovators without defining a coherent method for identifying a “hot news” misappropriation of property.  The claim simply creates uncertainty for defendants not in violation of copyright laws and allows potential plaintiffs to threaten with litigation a company that is simply reporting facts gathered.  The claim helps to keep large companies from having to change and improve.  What is more, courts have avoided dealing the potential First Amendment issue.  Restricting any parties from reporting news may not only prevent their business from operating but also be an impediment to free speech.

The death of Tyler Clementi in 2010 stocked the country as it added another example of bullying of LGBT teenagers ending in suicide. Last Friday, Clementi’s roommate, Dharun Ravi, was found guilty of invasion of privacy, bias intimidation, evidence tampering and witness tampering. One of the major reasons for the guilty verdict, according to the jurors, was the long stream of digital evidence.

Twitter, Facebook, text messaging and IMs have all become a staple of the day-to-day lives of American youth. Now, they are also becoming a staple of prosecutorial evidence. In this case, online activity even went so far as to depict the state of mind of the victim, Clementi, even though he could not speak for himself at the trial, something that was critical to a conviction for bias intimidation. New York Times reporters David Halbfinger and Beth Kormanik stated in their article, Jurors Say Digital Evidence Was Crucial, “An important component of the bias intimidation chargers was whether Mr. Clementi felt bullied. Jurors said he left ample evidence that he did: he complained to his resident assistant, he went online to request a room change, he saved screen shots of Mr. Ravi’s more offensive online posts, and he viewed his roommate’s Twitter feed 38 times in the two days before he killed himself by jumping off the George Washington Bridge.”

According to Halbfinger and Kormanik’s article, Ms. Audit, one of the jurors, hoped that her own teenage children would take the verdict as a strong warning of the consequences of online statements: “I hope they use their heads and think before they do this,” she said. “Text messages, tweets, e-mails, iChats are never gone. Be careful. I’ve already told my kids, be careful. If you’re going to put something in writing, be able to back it up.”

Ms. Audit’s warnings should be taken seriously by everyone using online communications. Though online comments may seem harmless and fleeting, this case demonstrates that they “are never gone.” Though criminal law is making slow progress toward adapting to new technologies, smart prosecutorial teams are using these new tools of communication to track the movements and state of minds of victims and defendants alike.