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Joe Jensen, general manager of Intel’s Retail Solutions Division, at the National Retail Federation Convention & Expo, New York, Jan. 13, 2014, confirmed that “Intel has been actively working with leading retailers and the industry for several years to enable retailers to use the Internet of Things to deliver more entertaining brand experiences while also reducing operational costs.” Intel is “taking those efforts a step further by delivering more intelligent solutions and enabling retailers to make better use of big data to deliver a more personalized shopping experience.”

Avid shoppers may be excited to learn that, as reported by Intel, “[w]ith Intel-based Shopping Anywhere, consumers can intuitively shop the looks from their favorite television programs right from their couch.”  Or, “[I]f a consumer prefers to bring the ease of online shopping with them in-store, the Intel® Core™ i7-based MemoryMirror* full-length, digital ‘mirror,’ allows store shoppers to virtually try on multiple outfits, and view and compare previous looks on the mirror or via smartphone or tablet.”  The mirror will use “Intel integrated graphics technology to create avatars of the shopper wearing various clothing that can be shared with friends to solicit feedback or viewed instantly to make an immediate in-store purchase.”  This approaches is expected to provide shoppers with “an engaging and seamless buying experience, regardless of where they are or what device they are using.”

Additional Sources, Intel Newsroom, Intel Personalizes Shopping with Internet of Things, Big Data Technologies (Jan. 13, 2014)

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The Singapore tax authority has issued guidance
which confirms the viability of certain Bitcoin transactions. Like the central bank in China, the Inland Revenue Authority of Singapore (IRAS) took the position that Bitcoin is not a type of money or currency. This is still an unsettled question in other jurisdictions.

Even if Bitcoin is not currency, transactions in Bitcoins can lead to profits which the Singapore authority is happy to tax, at least in some situations. According to the IRAS guidance, short-term speculative transactions in Bitcoins will be taxed, while capital gains generated from long-term investment will be tax free.  The IRAS guidance also distinguishes using Bitcoins in purchase of physical goods (taxable) and of virtual goods (not taxable).

The IRAS guidance has been warmly welcomed within the Bitcoin community in Singapore for being “rational and well thought-out.” Some observers believe that, given the embryonic state of the Bitcoin economy, an incremental and pragmatic approach to regulation makes more sense than attempts to impose blanket definitions or characterization, let alone any outright prohibitions, on transactions in this new and emerging unit of value.

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The taxation of virtual currencies has garnered increasing attention, in part due to the princely fortunes some are making from the rapid increase in the price of Bitcoins. Yet, the U.S. IRS has issued little guidance in this area. This is likely to change soon. In May 2013, the GAO issued a report on Virtual Economies and Currencies. In part, the report states:

Transactions within virtual economies or using virtual currencies could produce taxable income in various ways, depending on the facts and circumstances of each transaction. For example, transactions within a “closed-flow” virtual currency system do not produce taxable income because a virtual currency can be used only to purchase virtual goods or services. An example of a closed-flow transaction is the purchase of items to use within an online game. In an “open-flow” system, a taxpayer who receives virtual currency as payment for real goods or services may have earned taxable income since the virtual currency can be exchanged for real goods or services or readily exchanged for government-issued currency, such as U.S.
dollars.

More recently, the 2013 National Taxpayer Advocate Annual Report to Congress notes the increasing use of virtual currencies, particularly Bitcoin and that the IRS has yet to issue specific guidance addressing the tax treatment or reporting requirements applicable to virtual currency transactions. The report concludes that IRS-issued guidance would promote tax compliance, particularly among those who want to report virtual currency transactions properly, and it would reduce the risk that users of virtual currencies will face tax consequences that they did not anticipate.

Despite noting that the IRS website suggests that existing guidance covers these transactions, it states that this guidance did not explain when the transactions are sufficiently analogous to be covered by existing rules. Among the remaining questions it identified the following:

1.    
When will receiving or using digital currency trigger gains and losses?

2.    
When will these gains and losses be taxed as ordinary income or capital gains?

3.    
What information reporting,
withholding, backup withholding, and recordkeeping requirements apply to digital currency transactions?

4.    
When should digital currency holdings be reported on a Report of Foreign Bank and Financial Accounts (FBAR),
or Form 8938, Statement of Specified Foreign Financial Assets?

In the interim, our Social Media Team’s tax gurus are monitoring the issues.

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Based on some recent articles, a number of people have asked whether Bitcoin might be declared illegal under an archaic law known as the “Stamp Payments Act.” According to a recent Congressional Research Service report, the answer is …. likely not.

The Stamp Payments Act of 1862 states:

Whoever makes, issues, circulates, or pays out any note, check, memorandum, token, or other obligation for a less sum than $1, intended to circulate as money or to be received or used in lieu of lawful money of the United States, shall be fined under this title or imprisoned not more than six months, or both.

It is questionable whether Bitcoin is an “obligation” and if so who is obligated. It is also not clear whether Bitcoin is a note, check, memorandum or token. The CRS report states:

It does not seem likely that a currency that has no physicality would be held to be covered by  this statute even though it circulates on the internet on a worldwide basis and is used for some payments of less than $1. The language of the statute, “note, check, memorandum, token,” seems to contemplate a concrete object rather than a computer file; moreover, a digital currency such as Bitcoin, without a third-party issuer, cannot be said to be an obligation.

Of course, a clever legal mind can always develop a legal argument to the contrary.

One of the more famous cases brought under this act related to the Monongahela Bridge company which issued tickets (worth less than $1) good for one trip over the bridge. The court found that this practice did not violate the act, noting:

these tickets have no resemblance or similitude in shape, design or material, to the coin of the United States, nor to the postage currency, the free and untrammeled circulation of ·which it was the design of the act to advance and protect….They do not contain a promise to pay money, they are not the representatives of money, and therefore cannot be said to circulate, or be intended to circulate as money. Money is the medium of exchange among the people. Its peculiar characteristic is, that it is the one thing acceptable to all men, and in exchange for which they will give any commodity they possess.

Another interesting issue presented is who would be liable. To the extent that a Bitcoin miner “issues” a coin, as long as the price of a coin remains greater the $1, they would not seem to violate the express requirement of the statute that the token be less than $1. Assuming for the sake of argument that the Act did otherwise apply, to the extent that a recipient of a coin uses a partial Bitcoin for a transaction less than $1, then the feds perhaps could go after the user.  But going after users who engage in transactions less than $1 does not seem to be a prudent or effective way to stop Bitcoin use. Assuming the vast majority of the transactions were valued at over $1 it would seem to be a pretty ineffective way to shut down Bitcoin.

If the Federal Government wanted to take action against Bitcoin, it would more likely take action to do so directly through new legislation (or perhaps some other existing legislation) rather than chance an iffy interpretation of an ancient statute that was primarily enacted for another purpose and which might only, at best, provide a basis to go after users in small transactions.

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All types of businesses are leveraging new and emerging business models around virtual currencies and virtual goods. Check out our video where we discuss the various legal issues that need to be addressed to safely and profitable capitalize on these significant business opportunities:

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2013 was an incredibly active year for social media legal issues. Below are selected highlights on some of the more interesting legal issues that impacted social media, along with links to reference material relating to the topics.

1. Virtual Currency/Bitcoin

FinCEN Virtual Currency Guidance and Enforcements – FinCEN published legal guidance on virtual currency making clear that existing regulations regarding money transmitter and anti-money laundering laws apply to certain virtual currency activities. Shortly after issuance of the guidelines,
a wave of enforcements shut down non-complying entities. [BLOG]

Congressional Hearings on Virtual Currency – Congressional hearings were surprisingly more friendly and receptive of Bitcoin and other virtual currencies.

2. Privacy – Guidance and Enforcements

COPPA – The FTC issued new guidance
and FAQs for children’s online protection due to evolving technology and changes in the way children use and access the Internet, mobile devices and social media.

CA Privacy Law
– California passed new privacy laws.

3. Intellectual Property/Patents

Patents – The number of social media patent filings continued to increase. The America Invents Act (AIA) fully kicked in, providing a greater ability to challenge patents believed to be invalid without going through district court litigation. The Fast Track
process to get patents issued more rapidly (often in less than a year)
continued.

Ownership of Social Media Accounts and Followers – Despite a number of cases (including ones involving LinkedIn and Twitter) relating to ownership of social media accounts, the law remained murky and fact specific.
This uncertainty can be avoided by proper attention to social media policies before issues arise.

4. Employment Law and Social Media

National Labor Relations Board (NLRB) – The NLRB continued to issue surprising guidance and decisions on social media usage. In many cases, some or all provisions of employers’ policies governing the use of social media by employees were found to be unlawful. [BLOG] The NLRB affirmed that workers have the right to discuss work conditions freely without fear of retribution,
whether the discussion takes place in the office or on Facebook. But later in the year it actually found some uses of social media for employment (firing) decisions to be okay.

Employer Access to Social Media User Names and Passwords – By year end, 36 states had passed or initiated legislation prohibiting employers from requesting personal social media account information or passwords in connection with employment decisions.

National Conference of State Legislatures Report – Some states have similar legislation to protect students in public colleges and universities.

5. Online Gaming

First mover states
forged forward with online gambling.

·        Nevada – Legalized online poker and granted its first licenses for interactive gaming.

·        New Jersey – In February, passed legislation (signed into law by Governor Chris Christie) allowing on-line wagering. Subject to certain limitations, licensed operators are permitted to offer online versions of a wide variety of games currently permitted in Atlantic City casinos (e.g., roulette, craps, black jack, and slots).

·        Delaware – On October 31, launched what Delaware officials call a “full suite” of internet gambling.

Zynga – In September,
Zynga withdrew its bid for a gambling license in Nevada

Federal Gambling Legislation
– The prospects for a federal law for online gambling remain elusive.

6.
Mobile Health Applications

FDA Guidance
– The Food and Drug Administration (FDA) issued guidance that focused on applications that present a greater risk to patients if they do not work as intended or that cause smartphones or other mobile platforms to impact the functionality or performance of traditional medical devices.

FTC Guidance
– The FTC issued guidance in April focusing on truthful advertising and privacy.

7.
Gamblification/Sweepstakes

Florida prohibited
gaming promotions in a cause-related marketing campaign (where purchase of a good or service benefits a charitable cause).

Internet Sweepstakes Café Conviction in Florida – Lawyer Kelly Mathis was convicted on 103 of 104 counts related to illegal gambling based on his role in Internet Sweepstakes Cafés in Florida. He faces up to 30 years in prison. CA, OH, SC and other states moved quickly to shut down similar operations.

8.
Equity-based crowd funding legalized in the United States

SEC Rules
– In October, the SEC voted unanimously to propose rules under the JOBS Act to loosen the rules and permit companies to offer and sell securities through equity crowd funding.

Note:
Equity crowd funding is much like crowd funding, which has been popularized in the United States through sites such as Kickstarter and Indiegogo. The difference is that instead of individuals supporting campaigns through donations, numerous investors are purchasing small stakes in startups or small businesses.

Critics Emerge
– Critics of equity crowd funding worry that the industry will be rife with Ponzi schemes or that having too many investors will hurt startups’ prospects for future funding.

Pillsbury originally discussed this in a January 2012 client alert and March 2012 Blog Post.

9.
Endorsements

FTC Enforcements on Fake Endorsements – In February, the FTC permanently stopped a fake news website operator that allegedly deceived consumers about acai berry weight loss products. The settlements will yield more than $1.6 million and conclude a sweep against online affiliate marketers and networks. The sites falsely claimed endorsements from ABC, Fox News, CBS, CNN, USA Today and Consumer Reports.

Many companies’ understanding of and compliance with the FTC Endorsement Guidelines remains lacking, yet enforcements continue.

10.
Wearable Computing Lawsuit

Google Glass Liability? – In what may be a foreboding development, a California woman received a traffic ticket for wearing Google Glass while driving. Many states have broad distracted-driving laws or bans on certain monitors that may apply to Google Glass and similar wearable computing devices.

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The Sacramento Bee in an article titled Job Front: Social media are growing recruitment tools reported that “[e]mployers in greater numbers are relying on social media to recruit new talent,” according to Jobvite’s 2013 Social Recruiting Survey.  The Sacramento Bee noted that the survey “showed about 94 percent of employers either use or plan to use social media to recruit workers.”  It also noted that “Pollsters found that social-network giants Facebook, LinkedIn and Twitter remain the most popular tools to recruit talent, but that employers are also using YouTube, Instagram, blogs and other social media to find new employees.  Still, LinkedIn leads the way among those hiring officers polled.”

Additional Resource:  The Sacramento Bee; Jobvite

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The intersection of social games and gambling is moving forward at a torrid pace. Yet, there are many blurred lines with respect to the legal boundaries for permissible game mechanics used in social games and online gambling offerings. The use of virtual goods and virtual currency further complicates the analysis. Additionally, some companies are pushing the envelope with various forms of prediction markets and online sweepstakes/contest-based business models. Florida recently adopted new rules to close some perceived loopholes. Will this prompt other states to act as well?

Check out our video:
Continue Reading →

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While a legal battle will continue between a Second Life content “consultant” and a school teacher using the online virtual-world creating program as an educational tool, the Southern District of New York made one thing clear last week – user-generated Second Life content is copyrightable.

In FireSabre Consulting LLC v. Sheehy, the Defendant,
a teacher in the Rampao Central School District in rural New York, created “Rampao Islands,” a school project in the virtual world Second Life in 2006.  That year, she attended a Second Life convention in San Francisco to solicit help for the project.  She met Frederick Fuchs, owner of Plaintiff FireSabre, an education-focused virtual-world content creation company.  Fuchs agreed to help with the project in 2006 and designed “terraforming” content, in which he created a portion of the geography of the “First Three Islands” (islands are pieces of land that one can purchase in Second Life) that made up the class project.  He provided further terraforming services in 2007 for the “Second Three Islands,” for which he was paid $5000.  The parties dispute the purpose of the payment – the Plaintiff claims it was a limited license to use the content for that school year and Defendants claim it was either a purchase of the content or a perpetual license to use the content.
Defendants have also raised the work for hire doctrine as an affirmative defense, but did not move for summary judgment on that issue.

In any event, the relationship between the parties broke down.  In summer 2008, Fuchs deposited 40 screenshots of his work with the US Copyright Office and obtained a Certificate of Registration.  He then informed Defendants that continued use of his content was a copyright violation.  When they refused to remove the content from the in-game Rampao Islands, Fuchs engaged in “self-help” and removed some content himself.  He also sent takedown notices under the DMCA to Linden Lab, the Second Life creator,
and succeeded in having additional content removed.

Nonetheless, FireSabre sued Ms. Sheehy and other school district executives, claiming copyright infringement and breach of contract.  Both sides moved for summary judgment – motions that the court rejected.

Plaintiff argued that the terraforming was not copyrightable.  The court disagreed,
finding it was “fixed in a tangible medium” because it existed on Linden’s servers and was visible in the game for some period of time.  The court also found that it was not transitory, despite the fact that students could alter the content.  “In this regard I see no distinction between the terraforming designs and a drawing created on a chalkboard or a sculpture created out of moldable clay. That someone else could come along and, with or without permission, alter the original piece of art does not mean the art was too transitory to be copyrighted in the first place.”

Nonetheless, the court denied Plaintiff’s motion for summary judgment because there were questions of fact regarding what, if anything, was copied and whether the copying exceeded the scope of any license.  The court also rejected Defendants’ fair use argument, despite the fact that the works were used as part of an educational project.
“Nevertheless, this case does not resemble that of a teacher using an excerpt of a copyrighted work as part of a limited instructional exercise.
Rather, as to the Second Three Islands, the allegations more closely resemble misappropriation or conversion.”  In fact, the court found that none of the fair use factors favored Defendants.

Thus, the case will continue.  And larger issues can be foreseen.  Content can be sold in-game and, as this case demonstrates, can be transferred outside of the game.  If an outside sale is governed by the agreement between the parties, what is the scope of rights granted for an in-game sale?  Does the first sale doctrine apply?  What can a content generator prevent others from doing?  Can a user alter the creation of another in a way that is sufficiently transformative to allow for unfettered use?
How can one enforce their rights in a game world encompassing millions of users and countless creations?

It’s a whole new (virtual) world for copyright law.

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A weekly wrap up of interesting news about virtual worlds, virtual goods and other social media.

 

 

 

 

A Senator Raises Privacy Questions About Cross-Device Tracking
Senator Edward J. Markey, Democrat of Massachusetts, said that tracking technologies such as cookies are giving way to more sophisticated methods for monitoring users.

Privacy Compliance:
Everything Old is New Again
Privacy regulations are sounding a lot like what compliance officers have had to do since the 2000s for anti-corruption efforts.

Debate Escalates Over Mugshot-Removal Outfits
Google Inc.’s recent programming change, moving people’s arrest mugshots much lower in search engine results, makes life harder for companies that charge individuals big bucks to remove their photos.

SoftBank Buys 51% of Finnish Mobile Game Maker for $1.5 Billion
The Japanese telecommunications giant SoftBank agreed to buy a 51 percent stake in the Finnish online game company Supercell for around $1.5 billion.

SEC Proposal Brings Crowdfunded Securities Closer to Reality
The expanded use of crowdfunding as a capital raising tool by start-ups and small businesses is closer to reality with proposed rules the Securities and Exchange Commission approved and put out for public comment.

True Beginnings splits from potential buyer
PlentyofFish Media Inc. has broken off a deal to acquire the assets of True Beginnings LLC’s online dating business, citing concerns over the members’ privacy.