Six interesting technology law issues raised in the Facebook IPO

Patent trolls, open source, do not track, SOPA, PIPA and much, much more: Facebook’s IPO filing has a real zoo of issues.

The securities laws require that companies going public identify risk factors that could adversely affect the company’s stock. Facebook’s S-1 filing, which it sent to the SEC today, identified almost 40 such factors. A number of these risks are examples of technology law issues that almost any internet company would face, particularly companies whose product is the users.

(1) Advertising regulation. In providing detail about the nature of this risk, Facebook mentions “adverse legal developments relating to advertising, including legislative and regulatory developments” and “the impact of new technologies that could block or obscure the display of our ads and other commercial content.” Facebook is likely concerned about the various technological and legal restrictions on online behavioral advertising, whether in the form of mandatory opportunities for users to opt-out of data collection or or the more aggressive “do not track” idea. The value of the advertising is of course tied to its effectiveness, and any technological, regulatory or legislative measures to enhance user privacy is a risk to Facebook’s revenue.

(2) Data security. No one knows exactly how much information Facebook has about its users. Not only does it have all the content uploaded by its 845 million users, it has the information that could be gleaned from the staggering 100 billion friendships among those users. [More stats] A data breach puts Facebook at risk of a PR backlash, regulatory investigations from the FTC, and civil liability to its users for negligence and other causes of action. But Facebook would not be left without remedy, having in its arsenal civil actions under the Computer Fraud and Abuse Act and the Stored Communications Act (among other laws) against the perpetrators. It is also likely the federal government would step in to enforce the criminal provisions of these acts as well.

(3) Changing laws. The section of the S-1 discussing this risk factor provides a laundry list of the various issues that online businesses face. Among them: user privacy, rights of publicity, data protection, intellectual property, electronic contracts, competition, protection of minors, consumer protection, taxation, and online payment services. Facebook is understandably concerned that changes to any of these areas of the law, anywhere in the world, could make doing business more expensive or, even worse, make parts of the service unlawful. Though not mentioned by name here, SOPA, PIPA, and do-not-track legislation are clearly in Facebook’s mind when it notes that “there have been a number of recent legislative proposals in the United States . . . that would impose new obligations in areas such as privacy and liability for copyright infringement by third parties.”

(4) Intellectual property protection. The company begins its discussion of this risk with a few obvious observations, namely, how the company may be adversely affected if it is unable to secure trademark, copyright or patent registration for its various intellectual property assets. Later in the disclosure, though, Facebook says some really interesting things about open source:

As a result of our open source contributions and the use of open source in our products, we may license or be required to license innovations that turn out to be material to our business and may also be exposed to increased litigation risk. If the protection of our proprietary rights is inadequate to prevent unauthorized use or appropriation by third parties, the value of our brand and other intangible assets may be diminished and competitors may be able to more effectively mimic our service and methods of operations.

(5) Patent troll lawsuits. Facebook notes that internet and technology companies “frequently enter into litigation based on allegations of infringement, misappropriation, or other violations of intellectual property or other rights.” But it goes on to give special attention to those “non-practicing entities” (read: patent trolls) “that own patents and other intellectual property rights,” which “often attempt to aggressively assert their rights in order to extract value from technology companies.” Facebook believes that as its profile continues to rise, especially in the glory of its IPO, it will increasingly become the target of patent trolls. For now it does not seem worried: “[W]e do not believe that the final outcome of intellectual property claims that we currently face will have a material adverse effect on our business.” Instead, those endeavors are a suck on resources: “[D]efending patent and other intellectual property claims is costly and can impose a significant burden on management and employees….” And there is also the risk that these lawsuits might turn out badly, and Facebook would have to pay judgments, get licenses, or develop workarounds.

(6) Tort liability for user-generated content. Facebook acknowledges that it faces, and will face, claims relating to information that is published or made available on the site by its users, including claims concerning defamation, intellectual property rights, rights of publicity and privacy, and personal injury torts. Though it does not specifically mention the robust immunity from liability over third party content provided by 47 U.S.C. 230, Facebook indicates a certain confidence in the protections afforded by U.S. law from tort liability. It is the international scene that gives Facebook concern here: “This risk is enhanced in certain jurisdictions outside the United States where our protection from liability for third-party actions may be unclear and where we may be less protected under local laws than we are in the United States.”

You have to hand it to the teams of professionals who have put together Facebook’s IPO filing. I suppose the billions of dollars at stake can serve as a motivation for thoroughness. In any event, the well-articulated discussion of these risks in the S-1 is an interesting read, and can serve to guide the many lesser-valued companies out there.

Ninth Circuit: FACTA does not apply to credit card receipts sent via email

Simonoff v. Expedia, Inc., — F.3d —, 2011 WL 1991211 (9th Cir. May 24, 2011)

Plaintiff sued Expedia under the Fair and Accurate Credit Transactions Act (“FACTA”). He was upset that the electronic receipt Expedia emailed him contained the expiration date of his credit card.

The district court dismissed plaintiff’s case and he sought review with the Ninth Circuit. On appeal, the court affirmed that the electronic receipt did not violate FACTA.

FACTA provides that “no person that accepts credit cards or debit cards for the transaction of business shall print more than the last 5 digits of the card number or the expiration date upon any receipt provided to the cardholder at the point of the sale or transaction.”

The restriction applies only to “receipts that are electronically printed.” The court found that the electronic receipt did not fall into this scope. It looked to the general notion of what it means for something to be “printed”:

“Print” refers to many different technologies—from Mesopotamian cuneiform writing on clay cylinders to the Gutenberg press in the fifteenth century, Xerography in the early twentieth century, and modern digital printing—but all of those technologies involve the making of a tangible impression on paper or other tangible medium.

Since the electronic receipt was not a “tangible impression on paper or other tangible medium,” it wasn’t “printed” as defined by FACTA.

(Copyright folks might be tempted to think about how well this logic holds up, given that copyright protection extends to creative works that are reduced to a tangible medium of expression, and there is no dispute that digital works are copyrightable.)

This opinion is in line with cases from the Seventh Circuit, including Kelleher v. Eaglerider and Shlahtichman v. 1-800 Contacts.

New Jersey court gives a boon to local printed newspapers

Online edition of out-of-state newspaper not “printed and published” in state for purposes of providing legal notice.

Courier-Post v. County of Camden, — A.2d —, 2010 WL 3025108 (N.J.Super.A.D. August 4, 2010)

Like probably every other state, New Jersey has a statute that requires certain notices (like those for sheriff’s sales) to be published in the newspaper. A county government can place such notice in any newspaper that is “printed and published” in New Jersey. N.J.S.A. 2A:61-1

Camden County, New Jersey officials negotiated a favorable rate with the Philadelphia Inquirer to be the paper to publish the county’s legal notices. (That paper is widely read in Camden County, New Jersey.)

The local paper of course objected and filed suit. A New Jersey court of appeals held that the contract to publish legal notices in the Philadelphia Inquirer was improper because the Philadelphia Inquirer did not meet the requirement that the newspaper be “printed and published” in New Jersey.

One of the argumets that the Philadelphia Inquirer made was that its online version was available for viewing and printing in Camden County by internet users there. The court rejected this argument for a number of reasons.

It found it unlikely that a reader would print out an entire edition of an online newspaper.

The court also looked to a notion first articulated by Oliver Wendell Holmes when he was on the Massachusetts Supreme Court: the home office concept. Under this notion, a newspaper is published where it is “given to the world.”

The court went on to say some interesting things about publishing and the physical nexus between a place and its local news outlets. It raised concerns that a reading of the statute allowing out-of-state online newspapers to pass the “printed and published” in New Jersey test, then any newspaper around the globe would count.

Even more intriguingly, the court observed the perils of eliminating “the physical connection between the newspaper’s operation and the community.” That “physical connection is significant because a local newspaper is where people will ordinarily go for local news whether online or at the local newsstand.”

I bet the folks at places like Patch would take issue with that.

Photo courtesy Flickr user Valerie Everett under this Creative Commons license.

Death scene photos posted on the web did not subject coroner to liability

Werner v. County of Northampton, 2009 WL 3471188 (3rd Cir. October 29, 2009) (Not selected for official publication).

Plaintiff’s son died in the family home. No one seems to know for sure whether it was an accident or suicide. Even Plaintiff gave conflicting statements to the court — in his complaint he said it was not suicide, but in a later-filed brief he said it was.

Do not cross this line and I mean it.

In any event, on the day the son died, the coroner came to the house to take pictures. Somehow the coroner’s son got a hold of the photos and posted them on the web with a caption “There is no better way to kill yourself.”

Plaintiff sued the coroner under 28 U.S.C. 1983 which, among other things, gives citizens a cause of action when their rights are violated by someone acting under the law. Plaintiff claimed the coroner committed a due process violation of Plaintiff’s liberty interests in his reputation by allowing the photos to be posted.

To succeed on his liberty interest claim, Plaintiff was required to satisfy the “stigma plus” test. The district court dismissed the complaint, finding Plaintiff’s allegations did not meet this standard.

A statement that is “stigmatizing” under this test must be (1) made publicly, and (2) false. In this cause, the court found that the death scene photos were the relevant statement. But there were no allegations in the complaint that the photos themselves were “false.” (What the court was probably saying here is that the photos had not been Photoshopped or otherwise changed in a way to make them not accurately portray the scene.)

The court made a fine distinction in the process of dismissing the case. In response to the motion to dismiss, Plaintiff argued that the thrust of his argument was that the website falsely suggested his son committed suicide. But the court found otherwise, carefully looking at the allegations of the complaint which, for example, said that the photos “fueled the false impression that the Plaintiff’s son committed suicide.”

There were no allegations that the photos themselves were the false statements. But what about the caption, “[t]here is no better way to kill yourself,” you ask? Though the opinion does not address this point, one is left to conclude that that language could not be attributed to the defendant coroner, since it was his son that posted the photos, and not himself.

Photo courtesy Flickr user Fabio Beretta under this Creative Commons license.

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