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Business Law Section E-News

Current News and Events from the State Bar of California Business Law Section.

Here is your October 2016 eNews from the Business Law Section (“BLS”):

A Note from Jim Hill, the new Chair of the Business Law Section

image of Jim HillThe leaders and 15 Standing Committees of the BLS are off and running since our new terms began at the conclusion of the State Bar’s Annual Meeting in San Diego, on October 2. Most of our new Standing Committee chairs, among other Section leaders, connected at our all BLS Standing Committee Reception at the Annual Meeting. Many also joined us the following morning at the BLS Annual Breakfast, where we feted Ann Walker as this past year’s BLS Lifetime Achievement Award honoree, and where keynote speaker Alan Nevin regaled us about the unique attributes and demographics underlying the California economy. Now, all of us are digging in and rolling up our sleeves to “Get Back to Business” in our new bar year.

Our 15 Standing Committees are headed by attorneys who are leaders in their respective legal fields. Each standing committee is made up of approximately 25 member volunteers, plus “advisors” comprised of former committee members who continue to give their time in important ancillary roles. Like my own history with the BLS, many serve three-year terms on a standing committee, and then continue on as either standing committee chairs or advisors. After their standing committee service some apply for and are appointed to fill three-year positions on the 16-member BLS Executive Committee. The role of the Executive Committee, which I have the honor to chair this year, is to facilitate and guide the Standing Committees. This includes carrying as much of the administrative and financial planning burdens as possible, which frees the Standing Committees to focus on the more fun and rewarding cutting edge substantive legal work, as well as public service through education and outreach.

Among the initiatives we are targeting this coming year in getting back to business are new and updated desk guides and other publications from multiple Standing Committees; new programs and webinars, including a series of programs involving ethics to be presented in January 2017; and new legislative proposals (some of which have been in the works for more than a year) and monitoring and commenting on pending legislation and proposed rules and regulations that may impact the practice of business law. This year we will continue our focus on diversity initiatives as we increase programming useful to new attorneys and strive to diversify our membership to better reflect California’s diverse population.

If you are interested in getting involved in these activities, or have other ideas you’d like the BLS to consider, feel free to contact me or any of our Standing Committee officers. We will help get you into a position where you’ll be able to work with your fellow California business lawyers as well as serve the California public at large. Thank you for joining me and our members in getting back to business.

A Thank You Message to Rob Harris, Immediate Past BLS Chair

image of Rob HarrisIn the very best of times, the Chair of the Business Law Section spends a year of exceptional, every-single-day, effort leading and managing the affairs of the BLS. The usual reward: a sense of significant contribution and accomplishment. The 2016-17 bar year was not such a year, nor did it offer the best of times for a BLS Chair. In fact, 2016 may be a contender for one of the most difficult years in the Section’s 40-year history because of external events beyond its control.

As Chair, Robert G. Harris responded to the challenges the BLS faced with extraordinary dedication, creativity, good humor, and some of the best managerial, team building practices the BLS has experienced. Rob was available 24/7, no matter where he was, no matter the hour of the day or night, no matter whether important family, client or important personal matters competed for his attention.

It was Rob, and those he enlisted to help, who performed central roles in devising, in cooperation with the State Bar’s General Counsel, creative ways of placating the Bagley-Keene “Monster” (the name many of us used to describe the unfortunate application of this out-of-date open meeting Act to the Bar’s Sections). His goal was to achieve a level of normalcy, of smooth sailing, for the BLS and its Standing Committees, so that the BLS could function at its typical high-level even though stormy seas raged around it.

It was the good fortune of the BLS that when the unexpected, stormy waters of 2016 began to rise, we had Rob at the helm to steer a course that allowed the Section to stay afloat and progress. Thank you, Rob, for carrying the standard through your term, and handing off the helm to new leadership as we head into our 40th year of service to the business lawyers of the great State of California.

Prepared by a former Chair and continuing advisor to the BLS.

Introducing the New Officers for the 15 BLS Standing Committees

Following the Annual Meeting, each of the 15 BLS Standing Committees elected new officers for the new State Bar year. Over 92 dedicated officers will be staffing the 15 BLS Standing Committees for the 2016-2017 Bar year. A list of those officers and their contact information can be found HERE.

15 Standing Committees Reception at the State Bar Annual Meeting a Success

This year’s reception revived the tradition of a combined all-Business Law section reception for the Standing Committees.

On Friday, September 30, 2016, in the midst of the Bar’s Annual Meeting, all 15 BLS Standing Committees joined as one at the Marriott Marquis San Diego Marina Hotel for networking, collaboration and socializing. All BLS Standing Committee members, advisors and friends were invited to attend the reception, allowing BLS members to connect with one another and to recruit new members. Turn out was excellent. Among the attendees were members of the State Bar Board of Trustees, leaders from other State Bar Sections, local dignitaries, as well as San Diego law students, deans and professors. The BLS and its Standing Committees organize networking events throughout the State, and BLS members are invited to attend such events throughout the year.

Report from the Business Law Section Breakfast

At the Annual Meeting’s BLS Breakfast, the Section honored Ann Yvonne Walker with a Lifetime Achievement Award. Ms. Walker is the first woman to receive this award.

image of Ann Yvonne Walker receiving award

Ms. Walker received the BLS Lifetime Achievement Award for her 37 years as a leader in the business law community, including a stint as BLS Chair. The BLS Breakfast also featured a keynote address by author and economist Alan Nevin. With an emphasis on California economic statistics, Mr. Nevin spoke about how demography defines and determines the economic health of nations and states. His latest book is The Great Divide.

Recap of the Programs Presented by the BLS at the State Bar Annual Meeting

The Business Law Section had a strong presence at the Annual Meeting.

Corporations Law Committee

At the State Bar’s Annual Meeting, BLS’ Corporations Law Committee participated in an education program entitled “The Expectation of Privacy: The Roles and Responsibilities of Businesses.”  The program addressed legal issues involved in the collection of personal data by businesses, the government’s right to access that data, as well as a corporation’s right to privacy and the impact of international privacy laws on businesses.  The program brought together panelists with different perspectives on the issues at hand.  The panelists included Jennifer Small (privacy counsel at Microsoft), Jason Wandel (Supervisory Special Agent and Associate Division Counsel at the FBI), Jill Bronfman (Adjunct Professor of Law at UC Hastings), and Jerry Yen (Deputy Attorney General at the California Attorney General’s Office and currently Vice-Chair for Publications of the Corporations Law Committee).

For questions about the Corporations Law Committee, please contact Co-Chairs Doug Wade (doug@dmwadelaw.com) or Bill Ross (wross@hkemploymentlaw.com).

Business Litigation Committee

Neil Wertlieb, Jon Pfeiffer and Peter Bronson, members of the Section’s Business Litigation Committee, presented on “The Effective and Ethical Use of Expert Witnesses.”  The program, which included a half hour of ethics credit, explored the use of expert witnesses in litigation.  Topics included:  how to effectively use an expert; the ethical and practical constraints on use of expert witnesses, including when the expert is an attorney; evidentiary rules that govern expert testimony; and key considerations the expert should address with retaining counsel before the scope of his or her testimony is even discussed.  Attendees learned how to maximize the value of their experts by receiving insights into how experts often view their own role and how early interactions can help, or hurt, the litigator’s case.

For questions about the Business Litigation Committee, please contact Co-Chairs Peter Isola (PIsola@hinshawlaw.com) or Justene Adamec (jadamec@pumilia.com).

Health Law Committee

On October 1, 2016, the Health Law Committee of the BLS sponsored a presentation at the 89th Annual Meeting of the State Bar Association in San Diego.  Committee Vice-Chair David Leatherberry of Gordon & Rees, Scully Mansukhani, with his partner Linda Mullany, and Matthew Soskins of Dignity Health, presented a program entitled: “Medical and Health Care Privacy and Data Breach Compliance for Non-Health Care Clients and their Attorneys.”  The program focused on attorneys representing clients who, although not healthcare providers, may nevertheless “receive, create, use, share or store sensitive medical, financial and other consumer information.”  The program reviewed HIPAA compliance principles and discussed potential clients who may be downstream business associates of health care providers, such as cloud-based data storage companies.  With questions from participants, the panel reviewed permissible disclosures, administrative, physical and technical safeguards, and the handling of inadvertent disclosures, thus potentially triggering a risk analysis and the implementation of a breach response protocol.  Approximately 50 participants attended the videotaped presentation.  The videotape will be available for viewing on the State Bar’s website, with MCLE credit.

For questions about the Health Law Committee, please contact Chair David Johnson (davidjohnson@crowell.com). 

Internet & Privacy Law Committee

On October 1, 2014, the Internet & Privacy Law Committee (formerly Cyberspace Law Committee) of the BLS presented on the topic “Representing Clients On the Internet.”  The speakers were Raffi Zerounian, Bob Hawn, and Shabnam Malek.  Over 75 attendees came to listen to these thought leaders in the areas of cyberspace law and privacy.  The topics revolved around protecting client IP on the internet, data breaches, privacy policies and terms of use, online advertising, and using and storing data on mobile devices.  An interactive Q&A session showed the wide interest attorneys have in the subject matter and the relevance of the topics to many attorneys’ practices.  Attendees earned 0.75 hours in legal ethic credit of a total 1.5 hours CLE credit. Thanks to everyone who attended the program!

For questions about the Internet & Privacy Law Committee, please contact Co-Chairs Veronica Besmer (veronica@besmerlaw.com) or Ravi Puri (ravi.puri@gmail.com).

Insolvency Law Committee

The Insolvency Law Committee (ILC) had three well-attended programs at the State Bar’s Annual Meeting in San Diego.  The Programs included 10 Things Not To Do When Insolvent, featuring ILC Education Subcommittee Co-Chair Michael T. O’Halloran and ILC Co-Chair Reno Fernandez as panelists.  The program was lively, with constructive audience participation.  The always well-received Ninth Circuit Bankruptcy Year in Review featured Bankruptcy Judge Charles Novack, Bankruptcy Judge Louise Decarl Adler and Jonathan Hayes.  Finally, Managing Expectations: The Major Actors in A Bankruptcy Case featured Bankruptcy Judge Laura Taylor, and ILC members and advisors Barry Glaser, Michael Delaney and Everett Green as panelists. 

For questions about the Insolvency Law Committee, please contact Co-Chairs Asa S. Hami (ahami@sulmeyerlaw.com) or Reno F.R. Fernandez III (reno@macfern.com). 

Insolvency Law Committee Posts A New Judicial Profile

On October 12, 2016, the ILC published a profile of United States Bankruptcy Judge Thomas B. Donovan (Central District of California) in the Insolvency Law Committee’s e-Bulletin.  The judicial profile is the sixth in a series of profiles of Ninth Circuit bankruptcy judges. 

As with prior judicial profiles, Judge Donovan and members of the ILC met in chambers and discussed the judge’s personal and professional background, observations from the bench, and other issues of interest.  Judge Donovan was appointed to the bench in March 1994, and reappointed in 2008.  Although his current term expires in 2022, he plans to retire as of March 24, 2017.  Judge Donovan’s  important cases have included a recent case heard by the United States Supreme Court in regard to the bankruptcy court’s authority to surcharge the homestead exemption of a debtor who engaged in certain misconduct, as well as a landmark ruling (joined by 19 other bankruptcy judges) that  same-sex married couple could jointly file a chapter 13 petition despite the constraints of DOMA.  To read the judicial profile on Judge Donovan, CLICK HERE. For questions about the Insolvency Law Committee, please contact Co-Chairs Asa S. Hami (ahami@sulmeyerlaw.com) or Reno F.R. Fernandez III (reno@macfern.com). 

Agribusiness Law Committee Hosting Annual Viticulture & Oenology Tour

On November 4, 2016, the Agribusiness Law Committee of the California State Bar Business Law Section will host its popular, annual Viticulture & Oenology Tour in Paso Robles. 

The Viticulture & Oenology tour will feature visits to three wineries in the Paso Robles area, including a behind-the-scenes winery tour with a local winemaker.  The tour will also feature a keynote speaker discussing agribusiness issues unique to the Paso Robles area while participants enjoy a gourmet picnic lunch.  This tour has historically been one of the most well attended, educational and informative tours the Agribusiness Law Committee hosts, covering a broad range of topics relating to the industry, including IP, water law, sustainability issues, and legal issues surrounding agritourism. 

The Viticulture and Oenology tour follows October’s successful 2016 Ag Tour Series, also hosted by the Agribusiness Law Committee.  The event took place at Golden Gate Fields in Berkeley and provided participants with an inside look at California’s Thoroughbred racing and equine industries.  Guests were able to observe the horses at morning workout, followed by a barn-area walking tour to learn about the care, feeding, and training of Thoroughbred racehorses.  The official track veterinarian gave a presentation on equine health and animal welfare; and a former jockey spoke about life as a professional rider and working in the racing industry.  There was also discussion regarding regulation of the racing industry by the California Horse Racing Board, and other legal issues facing the racing and equine industries in California. 

For information about the tour or the Agribusiness Law Committee, please contact Chair Lauren Layne (llayne@bakermanock.com). 

Institute for Corporate Counsel to Hold Annual Conference for In-House and Outside Counsel

Join Kevin Demoff, Thomas Donilon, Justice Leondra Kruger and many others at the 2016 Institute for Corporate Counsel on Wednesday, December 7, 2016.  The Institute will focus on new developments in law, business and politics that affect Los Angeles-area lawyers and will be held at the California Club in downtown Los Angeles (made available courtesy of Club member Michael C. Kelley).

Top notch speakers will include:

  • Los Angeles Rams COO, Kevin Demoff, on the twists and turns in the path of the Rams’ return to Los Angeles.
  • Former National Security Advisor to President Obama, Thomas Donilon, on the risks facing U.S. businesses around the world.
  • California Supreme Court Justice Leondra Kruger, on challenges facing the Supreme Court of our nation’s largest and most dynamic state.
  • The 44th Solicitor General of the United States Gregory Garre and the 46th Solicitor General of the United States Donald Verrilli on recent developments at the United States Supreme Court.
  • The General Counsels of CBRE Global Investors, Herbalife, Playboy Enterprises and the LA Clippers.
  • Plus many other top counsel, business and civic leaders.

Other can’t-miss Institute sessions include an overview of the year of the angry voter and what comes next, alternatives to traditional bank lending, managing legal and communications strategy in a digital age, structuring joint ventures for success, dealing with the workplace of the 21st century, and managing enterprise-transformative opportunities and challenges.

Plus, five networking events will allow you to meet, re-connect and learn from your peers. MCLE and CPE credit are available.

The Institute is organized by the USC Gould School of Law and the Corporate Law Departments Section of the Los Angeles County Bar Association.

For more information about the Institute, or to register or sponsor, please visit the website at http://law.usc.edu/cle/icc/. Call (213) 821-3580 or email cle@law.usc.edu with any questions.

New Finders Exemption Awaiting Final Regulations

A new statutory exemption for “finders” from the California securities broker-dealer registration requirement took effect earlier this year.  The exemption stems from a 2012 legislative proposal initiated by the Corporations Law Committee of the Business Law Section of the California State Bar in an effort to facilitate the use of finders in California. For more on the background and reasons for the legislative proposal, CLICK HERE.

Finders—typically understood to refer to individuals who merely introduce issuers and potential investors—are often critical to the ability of small companies to raise needed capital, but can often inadvertently run afoul of broker-dealer registration requirements. This new exemption, codified at Cal. Corp. Code §25206.1, allows individuals who meet the statutory definition of “finder” and who satisfy certain other requirements to receive transaction-based compensation without having to register as a broker-dealer. The California Department of Business Oversight (DBO) has yet to issue its final regulations implementing the exemption (including an initial statement of information form which will need to be filed with the DBO). The official comment period for the proposed regulations ended July 15, 2016. It is hoped the final regulations will be in place by the end of the year. Once the exemption becomes fully available, it could make a significant difference for smaller companies looking to raise needed capital in California.

Financial Institutions Committee Reports on Important New “Sham Guaranty” Case

The Financial Institutions Law Committee reported on the recent decision in LSREF2 Clover Property 4 LLC v. Festival Retail Fund 1 357 No. Beverly Drive, Los Angeles Superior Ct. Case No. SC117145, Court of Appeal Case No. B270420. The Los Angeles County Superior Court, in a bench trial, held that a guaranty to secure a real estate loan was unenforceable because the borrower, a limited liability partnership, and the guarantor, a member of the borrower’s LLC general partner, had a “unity of interest.”

The trial judge thought these considerations supported his ruling:

  • Lender drafted the loan documents;
  • Loan documents required use of a special purpose entity;
  • Lender had to approve of the structure of the borrower;
  • Guaranty read, “Guarantor as a primary party and not merely as a surety unconditionally and irrevocably guarantees the following guaranteed obligations”;
  • Borrower’s general partner had no assets, negative net worth, no bank account, “not engaged in the daily routine of business,” had same directors, mailing address, as the guarantor, no employees.

Contrary to the often-cited case of River Bank America v. Diller (1995) 38 Cal.App.4th 1400, in the LSREF2 case there was no evidence that the lender pressured or directed the borrower’s owners how to form the borrower and the guarantor or otherwise structure their relationship.

A unanimous panel of the Second District Court of Appeal reversed the trial court.  The appellate court's opinion may be accessed HERE.  The Court issued its opinion on October 4, 2016, less than 2 weeks after oral argument.  The Court focused on the lender’s complete lack of involvement in the formation of the related borrower and guarantor business entities and noted, “in this fundamental respect, the instant matter differs from River Bank America v. Diller (1995), a case relied on by [the guarantor].” Opinion, at p. 11.  By the time the borrower first approached the lender,“it had already created the structure.”  “The loan transaction simply corresponded with this already determined structure.”  Opinion, at p. 9.  The Court could have stopped there—lender involvement in structuring the business entity borrower is a necessary condition to find a sham guaranty.  But the opinion goes on to consider the other prongs of the sham guaranty test the trial court relied on, yet as illustrated below, gave them all short shrift.

Guarantor’s arguments Court’s response
If lender requires a guaranty, that alone shows lender saw guarantor as primary source of repayment Proves too much; if true, any guaranty from an affiliated party would be suspect and defeat the commercial purpose of a guaranty. Guarantors will almost always be related to the borrower; “people do not often agree to answer for the debts of strangers.” Pgs. 11-12. This guaranty was limited to about 6% of loan amount, which shows lender did not consider guaranty primary source of repayment

Lender required that it be able to review borrower and guarantor organizational documents Cited CADC/RADC Venture 2011-1 LLC v. Bradley (2015) 235 Cal.App.4th 775 for proposition that there is a significant difference between requesting information about an entity and “insisting upon the use of one and the form it should take.” Pg. 12

Lender only considered the financial strength of the guarantor, did not review the borrower’s financials Acknowledged that Bradley said this could be indicative ofan “attempt to skirt the anti deficiency laws,” but added that Bradley gave limited weight because evidence showed borrower had business reasons to borrow through a corporation.  Record in this case shows owners of guarantor and borrower chose to do business as legal entities to limit their personal liability.  And in this case, record also showed that lender did rely on borrower’s financial strength—underwriting assumed that the loan collateral, a retail project, would generate enough revenue to service the loan.  Pg.12

Guaranty refers to guarantor as a “primary party and not merely as a surety” Phrase has no object, “it does not state what the guarantor was a ‘primary party’ to.” The “most obvious and correct conclusion” is that the guarantor was a primary party to the guaranty.  Pg. 13

Loan agreement says the obligations of the borrower and guarantor are” joint and several” Guarantor was not a part to the agreement, so it could not bind guarantor to terms of loan agreement; also, another provision of the loan agreement says lender “will look solely to the Borrower, the Property and the other assets of Borrower, and no other property or assets of Borrower’s direct or indirect constituent partners” (italics added) for payment of the loan.  Pg. 13

The opinion grapples with how to reconcile the use of alter ego factors to support the finding of a sham guaranty defense with the somewhat conflicting doctrine (Communist Party v. 522 Valencia Inc. (1995) 35 Cal.App.4th 980) that someone who sets up a business is estopped from later claiming the business is not a real legal entity.  The opinion concludes that alter ego considerations are "just one factor to consider” when evaluating a sham guaranty defense.  Opinion, at p. 15.

For further information on this decision or for any additional questions about the Financial Institutions Law Committee, contact Michael K. Slattery at mslattery@lkfirm.com.

Selected Developments in Business Law — Internet Law and Practice in California

Courtesy of CEB, the BLS eNews brings you each month selected legal developments in areas of California business law that are covered by CEB’s publications. This month’s feature is from the August 2016 update to Internet Law and Practice in California.  References are to the book’s section numbers.  See CEB’s BLS Landing Page for special discounts on the purchase of CEB publications by Business Law Section members.  The most significant legal developments affecting Internet law and practice in California since the last update include developments in such important practice areas as copyright, the Digital Millennium Copyright Act, the Defend Trade Secrets Act, e-commerce, electronic contracting, privacy and data security, Internet advertising, website accessibility, e-discovery, and international law.

Copyright; Digital Millennium Copyright Act

In Authors Guild, Inc. v. Google, Inc. (2d Cir 2015) 804 F3d 202, 208, cert denied (2016) 136 S Ct 1658, the Second Circuit examined Google's Library Project, which involved scanning books under agreements with several major libraries and other institutions around the world, making them searchable by the Google search engine and allowing the public to read snippets of the books. The court held that Google did not usurp the market for the books scanned and that Google's use was sufficiently transformative to be considered a fair use. The Second Circuit Court of Appeals had "no difficulty concluding" that Google's making of digital copies of the plaintiffs' books to enable searchers to identify books containing terms of interest constituted "a highly transformative purpose." 804 F3d at 216. See also Rosen v. eBay, Inc. (CD Cal, Jan. 16, 2015, No. CV 13-6801 MWF (Ex)) 2015 US Dist. Lexis 49999 (thumbnail images created for purpose of providing information regarding condition and content of magazines in which Rosen's photographs appeared constituted fair use). See §§1.47–1.48.

In Adobe Sys., Inc. v. Christenson (9th Cir 2015) 809 F3d 1071, the Ninth Circuit Court of Appeals held that a party asserting the first sale doctrine as a defense bears the initial burden of proof with respect to that defense, although the plaintiff-copyright owner has the ultimate burden of proving infringement. In this case, the defendant met its initial burden; the plaintiff failed to produce sufficient evidence of the existence of a license, so the first sale doctrine applied to defendant's resales of software.  See §1.56.

Companies should be advised to take care to properly designate a Digital Millennium Copyright Act (DMCA) agent for takedown notices.  The court in BWP Media USA Inc. v. Hollywood Fan Sites LLC (SD NY 2015) 115 F Supp. 3d 397, clarified that (1) a parent company's agent designation does not give safe harbor protection to the parent company's subsidiaries and affiliates, and (2) the agent designation must be provided to the Copyright Office and made available on the Copyright Office's directory. Simply having the agent's information on the company's website will not suffice. See §1.70.

The Ninth Circuit Court of Appeals has held that the DMCA requires copyright holders to consider fair use before sending a takedown notification, and that failure to do so raises a triable issue regarding whether the copyright holder had formed a subjective good faith belief that the use was not authorized by law.  Lenz v. Universal Music (9th Cir., Mar. 17, 2016, Nos. 13–16106, 13–16107) 2016 WL 1056082. See §1.83.

In Automattic Inc. v. Nick Steiner (ND Cal 2015) 82 F Supp. 3d 1011, the U.S. District Court for the Northern District of California awarded total damages of $25,084 to a blogger and Wordpress.com, the operator of a blogging platform, for lost work and time spent responding to a fraudulent takedown notice for copyright infringement.  See §1.83A.

Defend Trade Secrets Act

On May 11, 2016, President Obama signed the Defend Trade Secrets Act of 2016 (DTSA) (Pub L 114–153, 130 Stat 376), which represents a significant new development in federal intellectual property law. The new law constitutes an amendment to the Economic Espionage Act of 1996 (18 USC §§1831–1839), discussed in §2.38, which previously allowed only criminal prosecutions for trade secret theft. The DTSA is intended to stem the rising costs of trade secret theft and to address the increasing challenges involved in protection of trade secrets in the global economy. It facilitates enforcement of trade secret rights by creating federal court jurisdiction and a new federal civil cause of action for trade secret misappropriation related to a product or service in interstate or foreign commerce. 18 USC §1836(b)(1). In addition, it adds a new federal remedy: the ability in extraordinary circumstances to obtain an ex parte civil seizure order to seize property necessary to prevent the dissemination of protected trade secrets. 18 USC §1836(b)(2). It allows for monetary damages, including actual loss, unjust enrichment, exemplary damages of no more than twice the monetary damages in cases of willful or malicious misappropriation, and attorney fees. It also enables the court to issue injunctions, not only to prevent actual or threatened trade secret misappropriation but also to prevent a person from entering into an employment relationship based on evidence of threatened trade secret misappropriation. 18 USC §1836(b)(3). The DTSA does not preempt existing state laws of trade secret protection, but adds a new layer of federal protection. See §2.39.

The DTSA also provides that if an employer wishes to be eligible to recover exemplary damages and attorney fees for trade secret misappropriation, it must provide notice of certain immunity provisions in 18 USC §1833 relating to trade secret disclosure by an employee or independent contractor. New sections have been added to the forms of agreement in §§4.11 and 4.21 that are intended to provide this notice. See §§2.39, 4.11, 4.21.

Trademarks; E-Commerce

If a customer searches in an online store using the trademarked brand name of a product, does the online retailer have to return search results showing only that brand? Or can the retailer "merchandise" to the shopper by returning additional competing products, much like what would happen in an aisle of a brick-and-mortar retail store stocked with multiple brands. In Multi Time Mach., Inc. v. Amazon.com, Inc. (9th Cir 2015) 804 F3d 930, the Ninth Circuit held that responses to search requests by online shoppers for a manufacturer's product can include the names, photographs, and details of competing products and that these responses will not be infringing. See §3.73.

Electronic Contracting

In Savetsky v. Pre-Paid Legal Servs., Inc. (ND Cal, Feb. 12, 2015, No. 14-03514 SC) 2015 US Dist. Lexis 17591, the court denied a motion to compel arbitration because the arbitration clause was buried on the defendant's website and did not require assent by the consumer. Consumers could order a legal services plan simply by clicking a "Buy Now" button, without ever being aware that a membership contract with an arbitration clause existed. The court found that a reasonable person would not be put on notice that the website's "More Plan Details" button would reveal a membership contract or additional terms and conditions. See §7.4.

In Long v. Provide Commerce, Inc. (Mar. 17, 2016, No. B257910) 2016 Cal App Lexis 199, the court found that there was no mutual assent to an arbitration provision in the seller's terms of use. The buyer was unaware of its existence and therefore not bound by it. The website's checkout process did not prominently indicate that placing an order was an express acceptance of the seller's terms, and an inconspicuous link to the seller's terms in an order confirmation e-mail was insufficient to put a reasonably prudent Internet consumer on notice to investigate whether disputes related to the order would be subject to binding arbitration. Because the buyer did not agree to the seller's terms of use, the buyer also did not agree to the forum selection clause in those terms. See §7.4.

In Rodman v. Safeway Inc. (ND Cal, Feb. 12, 2015, No. 11-cv-03003-JST) 2015 US Dist. Lexis 17523, Safeway's online grocery terms of use reserved the right to amend the terms of use with or without notice to users. Safeway contended that every time users opted to go forward with an online purchase after registration, they were on notice that they were assenting to a new contractual agreement, governed by the terms in effect at the time of that purchase. The court rejected this argument, holding that the terms of use did not give Safeway the power to bind its customers to unknown future contract terms, because consumers cannot assent to terms that do not yet exist. Citing Douglas, the court held that assent to a contract's revised terms can only be inferred from a customer's ongoing use of a service after the customer received proper notice of the proposed changes. 2015 US Dist. Lexis 17523, *35. See §7.16.

Privacy and Data Security

In October 2015, the New York Stock Exchange, Palo Alto Networks Inc., and other cosponsors published Navigating the Digital Age: The Definitive Cybersecurity Guide for Directors and Officers, available for free download at https://www.securityroundtable.org/the-book/. The guide is 355 pages long and is intended to provide guidance on best practices for cybersecurity risk management. It includes practical advice from experts on issues such as business enablement, breach avoidance and response, and compliance. See §18.14A.

In February 2016, California Attorney General Kamala Harris released the California Data Breach Report, available at https://oag.ca.gov/breachreport2016, which, among other things, provides an overview of businesses' responsibilities regarding protection of personal information and reporting data breaches and a series of recommendations for businesses and state policy makers to follow to help safeguard the personal information of California residents. Importantly, the report states that, "[t]he failure to implement all the [Center for Internet Security's Critical Security] Controls that apply to an organization's environment constitutes a lack of reasonable security" under California's information security statute (CC §1798.81.5). See §18.15A.

In February, 2016, the Department of Homeland Security published interim policies, procedures, and guidelines for voluntary cybersecurity information sharing by private entities. CLICK HERE . See §18.22.
Drawing on lessons learned in the more than 50 data security cases brought by the FTC through the years, the FTC has published guidance called "Start With Security" that lays out ten key steps to effective data security. See https://www.ftc.gov/tips-advice/business-center/guidance/start-security-guide-business. The guidance includes references to case law, as well as plain-language explanations of the security principles at play. See §9.9D.

In an enforcement action under the Safeguards Rule, the Securities and Exchange Commission (SEC) pursued R.T. Jones Capital Equities Management over the firm's data security practices, resulting in a $75,000 fine, public censure, and a cease-and-desist order. After a cyberattack exposed information on 100,000 brokerage clients stored on a third-party web server, the SEC charged R.T. Jones with violating the Safeguards Rule for not adopting written policies and procedures reasonably designed to protect consumer records and information, not conducting periodic risk assessments, not encrypting sensitive data, and not having a breach response plan ready if there were a cyberattack. After the attack was discovered, R.T. Jones did bring in a cyber forensics company and notified each client whose information was exposed; further, at the time of the settlement, none of R.T. Jones's clients had reported any financial loss or identity theft as a result of the attack. In the SEC's view, however, taking the right steps after the fact was not sufficient: R.T. Jones should have had its cyber defenses secured in advance, before its firewalls were breached. See R.T. Jones Capital Equities Management, Inc. (Sept. 22, 2015) SEC Release No. 4204, 2015 SEC Lexis 3909. See §9.12.

The California Electronic Communications Privacy Act (CalECPA), codified at Pen C §§15461546.4, requires all California state and local law enforcement agencies to obtain a search warrant or wiretap order before they access any electronic communication information. The law defines "electronic communication information" broadly to include emails, digital documents, text messages, location information, and any digital information stored in the cloud. Pen C §1546. The law protects all aspects of electronic communication information—not only its contents, but also metadata information relating to the sender, recipient, format, time, date, and location of the communications, including IP addresses. See Pen C §1546. Any electronic evidence obtained in violation of CalECPA will be inadmissible in a criminal, civil, or administrative proceeding or for use in an affidavit to obtain a search warrant or court order. Pen C §1546.4. Further, CalECPA requires government entities that receive electronic communication without a warrant to delete the information within 90 days. Pen C §1546.1(g). See §9.26B.

CalECPA also prohibits a government agency from physical interaction with an electronic device in the absence of a search warrant, wiretap order, specific consent by the authorized possessor of the device, specific consent by the owner of the device when it has been reported lost or stolen, or a good faith emergency involving death or injury, or unless the agency in good faith believes the device to have been lost, stolen, or abandoned, but then only in attempting to identify, verify, or contact the owner. Pen C §1546.1(c) See §9.26B.

The Student Online Personal Information Protection Act (SOPIPA), Bus & P C §22584, applies to operators of websites, online services, and mobile applications who have actual knowledge that the service was designed and marketed, and is being used, for K–12 purposes. "K–12 school purposes" is defined as any purpose that (1) customarily takes place at the direction of a K–12 school, teacher, or school district; (2) aids in the administration of school activities (including instruction in the classroom or at home) or collaboration among students, school personnel, or parents; or (3) is for the use and benefit of the school. See Bus & P C §22584(j). SOPIPA protects personally identifiable information that is created or provided by a student (or the student's parent or legal guardian) or by an employee or agent of the K–12 school, or is gathered by a website operator and is descriptive of a student or otherwise identifies a student. SOPIPA prohibits engaging in targeted advertising and use of information (including persistent unique identifiers) created or collected for the purpose of creating a profile about a student, except in furtherance of K–12 school purposes. It restricts selling and disclosing student information and imposes security and deletion requirements. Bus & P C §22584(b). See §9.26C.

On February 2, 2016, the European Commission and the United States agreed on a new framework, called the EU-U.S. Privacy Shield, to supersede the Safe Harbor Framework. See https://www.commerce.gov/news/fact-sheets/2016/02/eu-us-privacy-shield. The new program will impose stronger obligations on U.S. companies to protect the personal data of Europeans and stronger monitoring and enforcement by the U.S. Department of Commerce and the Federal Trade Commission through increased cooperation with European data protection authorities. In addition, the new arrangement will subject U.S. public agencies to conditions, limitations, and oversight to prevent generalized access to personal data transferred from the EU. Europeans will have a dedicated new ombudsperson to raise inquiries or complaints regarding compliance with the program. See http://europa.eu/rapid/press-release_IP-16-216_en.htm. The Department of Commerce has indicated it will continue to administer the Safe Harbor Framework, including processing submissions for self-certification until such time as new rules under the EU-US Privacy Shield are finalized. See http://export.gov/safeharbor/. See §§9.38, 21.11A.

Internet Advertising

On May 29, 2015, the FTC issued an updated version of its Endorsement Guides: What People are Asking. This version includes new FAQs discussing the use of endorsements on social media platforms such as Facebook and Twitter and provides additional guidance to help social media platforms avoid being misleading. See https://www.ftc.gov/tips-advice/business-center/guidance/ftcs-endorsement-guides-what-people-are-asking. See §17.7A.

Native advertising is a type of advertising, usually online but also possible in print media, that mimics the form and style of the platform on which it appears. It is produced by an advertiser with the specific intent to promote a product, but it matches the format of the material produced by the platform's editorial staff and therefore may not be easily recognizable as advertising. For example, the ad may resemble a news article or a product review. On December 22, 2015, the FTC issued its Enforcement Policy Statement on Deceptively Formatted Advertisements, addressed to the subject of native advertising and available at https://www.ftc.gov/system/files/documents/public_statements/896923/151222deceptiveenforcement.pdf. The FTC will find an advertisement deceptive if it misleads reasonable consumers as to its source or nature, e.g., if it appears that the source of the material is something other than the sponsoring advertiser. The policy statement provides examples of effective disclosures to help advertisers avoid deception. See §17.7B.

Website Accessibility

In 2015, relying on Weyer v. Twentieth Century Fox Film Corp. (9th Cir 2000) 198 F 3d 1104, the Ninth Circuit issued opinions in Cullen v Netflix, Inc. (9th Cir 2015) 600 Fed Appx. 508, and Earll v. eBay, Inc. (9th Cir 2015) 599 Fed Appx 695, holding that Netflix and eBay, respectively, are not subject to the Americans With Disabilities Act. These cases reflect the Ninth Circuit's consistent interpretation of the term for place of "public accommodation" as requiring "some connection between the good or service complained of and an actual physical place." Weyer, 198 F 3d at 1114. See §20.25A.

The U.S. Department of Justice (DOJ) has delayed issuing any regulations regarding what constitutes accessible website content for public accommodation until fiscal year 2018 at the earliest. However, the DOJ has indicated that it considers a website accessible if it complies with the Level AA standards of the Web Content Accessibility Guidelines (WCAG) 2.0. See http://www.w3.org/TR/WCAG20/. Thus, litigation over the meaning of the term "public accommodations" may continue as businesses try to assess, with the limited guidance available, whether their websites need to be accessible, and, if so, whether a particular website conforms with the WCAG 2.0 Level AA standards. See §20.25A.

E-Discovery

Effective December 1, 2015, new Fed. R. Civ. P. 37(e) limits sanctions for failure to maintain an adequate document retention policy. By specifying the measures a court may employ if information that should have been preserved is lost and the findings necessary to justify these measures, Fed. R. Civ. P. 37(e) forecloses reliance on other authority to determine when certain measures should be used. The revised rule applies only if the information has been lost and only if the lost information should have been preserved in anticipation or conduct of litigation but the party failed to take reasonable steps to preserve it. As a consequence, reasonable but failed efforts to retain data are generally not subject to sanctions. Although sanctions are now limited, other less serious consequences, such as evidence preclusion, may exist for a party who negligently, but not intentionally, fails to preserve evidence under Rule 37(e). See §20A.4.

Federal Rule of Civil Procedure 37(e), concerning failure to preserve electronically stored information, was amended effective December 1, 2015, to encourage the courts to consider proportionality and reasonableness when ruling on electronic discovery obligations and related motions. See §20A.6.
The December 1, 2015, amendments to Fed. R. Civ. P. Rule 26 allow a party to argue that the scope of discovery should be proportional to the cost and scope of the underlying litigation and the "needs of the case." See Fed. R. Civ. P. 26(b)(1). Courts now have more power to order cost shifting or to limit discovery when one party requests the other to engage in costly or complex protocols, such as restoration of archival media or attempts to undelete purged data. The amended rule enables the court to evaluate discovery requests carefully to ensure that discovery is not unduly costly given the amount at stake in the lawsuit. Even if the amount in controversy is large, if a proposed discovery plan does not lead to appropriate electronically stored information, the plan still may be deemed to be disproportionate under the rule. The courts can gauge whether the electronic data at issue is truly relevant given the time frames or context of the narrow issue(s) at hand. Counsel should approach discovery requests and conferences with proportionality playing a key factor in determining the extent of electronic discovery plans. See §20A.8.

Under the 2015 amendments to Fed. R. Civ. P. 37(e), a showing of bad faith rather than simple negligence is required to trigger the harshest of sanctions. Therefore, a showing that a reasonable and well thought out document retention policy had been adopted is often enough to counter an opponent's claim of bad faith data destruction or spoliation, provided that the document retention policy was maintained and observed. See §20A.25.

Federal Rule of Civil Procedure 34(b)(2) was amended in 2015 to require more specificity from the party responding to a request for production of electronically stored information. This rule may require more preparation on the part of the party responding to a request for production but it also is intended to have the effect of identifying and, it is hoped, resolving discovery disputes "up front," at the time the request is made, rather than as the matter moves closer to trial. The "reasonable time" element is not clearly defined, but parties are encouraged to meet and confer in an attempt to agree to what may be reasonable given the discovery demands and complexities at play. See §20A.39.

International Law

In May, 2014, the European Court of Justice held that Google must remove or block search results revealing information about an individual under certain circumstances, even if the information is true and even if the information lawfully remains on the site where it was published. Google Spain SL v. Agencia Española de Protección de Datos (AEPD), In Case C‑131/12, 13 May 2014 (the Ruling). See http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A62012CJ0131. The Ruling followed a complaint by Mario Costeja Gonzalez that the results of a Google search on his name brought up 16-year-old newspaper articles about a property sale to raise money that he owed. Because the matter had been resolved, he requested that Google no longer link the articles to him. The court held as follows:

  • Even if the physical server of a company processing data is located outside Europe, EU rules apply to search engine operators if they have a branch or a subsidiary in an EU member state that promotes the selling of advertising space offered by the search engine. Ruling at ¶60.
  • Search engines are controllers of personal data. Google, therefore, cannot escape its responsibilities before European law when handling personal data by saying it is a search engine. EU data protection law applies and so does the right to be forgotten. Ruling at ¶83.
  • Individuals have the right to ask search engines to remove links to personal information when the information is inaccurate, inadequate, irrelevant, or excessive in relation to the purpose for which the information was collected or processed. Ruling at ¶93.

The EU has published guidelines on compliance with the ruling that instruct search providers how to handle takedown requests. Under these guidelines, websites must balance user privacy demands against the public's right to certain information. For example, a search engine operator can remove details of a user's personal life, but it can refuse to hide criminal convictions. See http://ec.europa.eu/justice/data-protection/article-29/documentation/opinion-recommendation/files/2014/wp225_en.pdf. As originally implemented, the "right to be forgotten" applied only to links accessible from European versions of search engines (e.g., google.co.uk). However the United Kingdom and France have expanded their requirements to include all search engines accessible from their countries (including, e.g., google.com). See https://ico.org.uk/action-weve-taken/enforcement/google-inc/; https://iconewsblog.wordpress.com/2015/11/02/has-the-search-result-ruling-stopped-the-internet-working/; and https://www.cnil.fr/fr/node/15814. See §21.18A.

CEB Offers Discounts to BLS Members

CEB is currently offering discounts to BLS Members, including 10% off the price of a wide selection of CEB print and OnLAW publications as well as savings on section dues.  For more information on these and other CEB discounts, click HERE. 

Reach a State-Wide Audience by Publishing in the Business Law News

The Business Law News (BLN) is seeking articles of general interest to business law practitioners for its next publication.  With approximately 8,200 members, the BLS has a wide-ranging audience.  The BLN is not only circulated to BLS members in print every quarter, it is also available to BLS members on the internet at www.calbar.ca.gov.  Please submit your articles to the new editor-in-chief, Kenneth Minesinger (minesinger@gmail.com).  Licensed California practitioners are encouraged to send in articles of 2500-3500 words to be included in Issue Number 1.  The submission deadline for Issue Number 1 is November 15, 2016.  The submission deadline for the Annual Review is also upon us, on January 15, 2017.  The Business Law News would like to express its gratitude to the immediate past editor-in-chief, Everett Green, for his leadership and contributions over the past year.

A subscription to the BLN is one of the most significant membership benefits of the BLS. Publishing in the BLN is a terrific opportunity both to influence the discourse in the areas in which you practice and to market yourself and your skill set. Now is your chance to participate! 

You can find the BLN’s submission guidelines HERE.  Finally, have you been interested in getting involved in the BLS but don’t know where to start?  BLN is now seeking enthusiastic section members to join its Editorial Board.  You can find more information about the BLN Editorial Board HERE and the application to join BLN HERE.

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We all know that social media can help drive new business.  Did you know that the BLS maintains a presence on LinkedInTwitter, and Facebook where it posts regular updates about new cases, new regulations, key legislative developments, and news and events from the BLS’s Standing Committees?  What you may not know is that you can not only send items to the BLS to post or tweet, but also suggest items from your own social media pages for the BLS to re-post, re-tweet, or like.  Doing so expands the reach of what you have to say to everyone who likes or follows the BLS on its various social media platforms, and may result in the BLS following you!  Please submit your suggested items for consideration or direct any questions to BLS Social Media Coordinator, Dennis J. Wickham (wickham@scmv.com); BLS Vice-Chair of Member Services, Uzzi O. Raanan (uraanan@dgdk.com); or BLS Chair, James P. Hill (hill@sullivanhill.com), and join the ever expanding discussion!

Amplify Your Professional Reputation by Joining a Standing Committee

Standing Committees continue to accept applications to fill vacant seats.  Practitioners and other legal professionals who are members of the BLS and who have at least five years of legal experience are eligible to apply.  Membership on a committee affords unique opportunities to participate in the creation of law in your practice area, to get to know and be known by other practitioners, to work with the recognized leaders in your field, and to stay on the cutting edge of developments and practice techniques.  Membership is a rewarding experience that keeps one ahead of, and in touch with, business law developments.  Most committees meet once a month, often by phone.  A full list of the Standing Committee meeting dates for November are listed below.  A description of the required commitment and application process, along with a link to the application, can be found HERE.

Attend a Standing Committee Meeting and Participate in Your BLS

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 Committees (see below for meeting dates).  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.

Standing Committee Meeting Dates for November

For a list of upcoming meeting dates and contact persons, see Standing Committee Meetings HERE. 

Editors

Jennifer Duncan, Editor-in-Chief
Kristina Del Vecchio, Contributing Editor
Corey R. Weber, Contributing Editor
Dennis J. Wickham, Contributing Editor
Uzzi O. Raanan, BLS Vice Chair, Member Services
James P. Hill, BLS Chair

For contact information, see the Executive Committee Roster HERE

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