Addressing legal issues with the latest technological developments and social media trends.
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On January 8, 2015, New Hampshire House Bill 356 was introduced, proposing to exempt persons using private virtual currencies for internet commerce from the licensing requirements for money transmitters.  H.B. 356 would define “virtual currency” to mean ” any type of digital unit that is used as a medium of exchange or a form of digitally stored value or that is incorporated into payment system technology.”  H.B. 356 further provides that “[v]irtual currency shall be broadly construed to include digital units of exchange that:  (1) Have a centralized repository or administrator; (2) Are decentralized and have no centralized repository or administrator; or (3) May be created or obtained by computing or manufacturing effort.”  However, virtual currency would not include “digital units that are used solely within online gaming platforms with no market or application outside of those gaming platforms, nor shall virtual currency be construed to include digital units that are used exclusively as part of a customer affinity or rewards program, or can be applied solely as payment for purchases with the insurer or other designated merchants, but cannot be converted into, or redeemed of, fiat currency.” 

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According to a recent study, more than 100,000 mHealth apps have already been published on Apple’s iOS and Google’s Android platforms. Market revenue is expected to skyrocket to $26 billion by 2017.
mHealth app providers and all of the players in the mHealth ecosystem must be aware of the potential legal risks and liabilities. Join Pillsbury’s Social Media & Games team and Health Care practice lawyers for three events addressing emerging legal issues with mHealth applications. Topics will include:

  • Privacy and security, including HIPAA issues
  • Regulatory oversight by the FDA, FTC, and FCC, including recent enforcement actions
  • Intellectual property issues with mHealth apps
  • Issues with gamification of health care, including reward and incentive programs
  • Issues with leveraging Apple’s health kit
  • Unauthorized practice of medicine
  • And much more

Tuesday, February 10, 2015 – Overview of Legal Issues with mHealth
Speaker: James G. Gatto, Partner, Pillsbury

Wednesday, March 11, 2015 – Privacy and Security
Speaker: Kristi V. Kung, Senior Associate, Pillsbury

Tuesday, April 7, 2015 – IP Issues with Mobile Applications
Speaker: Bradford C. Blaise, Partner, Pillsbury

 

 

Events are 8:00 – 10:00am ET
8:00 – 8:30am Breakfast and registration
8:30 – 10:00am Program

Pillsbury’s Northern Virginia Office
1650 Tysons Boulevard, 14th Floor
McLean, VA 22102-4856
All events will also be available as webinars.

For questions regarding these events, please contact Mahalet Asrat.

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Coinbase, the self-proclaimed world’s most popular bitcoin wallet provider, announced on January 20th that it raised $75 million in a Series C financing, which brings Coinbase’s total capital raised to $106 million.  The round was led by DFJ Growth, but also included three mainstream financial institutions: The New York Stock Exchange,
a subsidiary of USAA, and BBVA.  Existing investors, including Andreessen Horowitz, Union Square Ventures, and Ribbit Capital, also participated in the financing.  This significant investment is a positive development for Bitcoin and Bitcoin-related companies after the value of Bitcoin has taken a big hit over the past several months.  This investment may be a sign that major financial and venture institutions are willing to bet on the future of Bitcoin and other digital currencies.

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FinCEN issued an alert indicating that certain organizations and individuals have been circumventing various laws related to sports betting, including by permitting “third-party betting” and reminding the industry about the importance of applying a risk-based approach with respect to this issue and the need to implement reasonably designed AML programs to address among other risks, the risks associated with third-party betting.

FinCEN further noted that criminals are making bets with legally operating sports books, including by using intermediaries to place bets on behalf of unidentified third parties (third-party betting). In these cases, the intermediaries rarely voluntarily disclose to the casino that a transaction is being conducted on behalf of a third party, thereby disguising the third party’s role in the transaction and obscuring the source of funds used to place the bet. This poses distinct money laundering risks for casinos. In addition to concealing the owner and the origin of funds, third-party betting poses distinct money laundering risks for casinos because it allows criminal organizations, illegal sports books, and others located in any state, where gambling may be illegal,
to place bets within states where sports betting is legal.

Casinos should be aware that failure to identify a third party on whose behalf a transaction is conducted may constitute a violation of the casinos’ recordkeeping and reporting obligations under the BSA.

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In denying a motion for summary judgment of invalidity under Section 101, the court stated: “An inability to articulate an abstract idea to which claims are directed may be a clue that those claims satisfy Section 101.” The patent claims at issue related to management of online poker. Defendant challenged the validity based on lack of patentable subject matter under Section 101 in light of the recent Alice decision,
alleging the claims related to the abstract idea of a “customer loyalty program direct to poker, ” (i.e. a player rewards system within a poker room), without adding significantly more. The court refused to buy this argument because the independent claims did not even include a customer loyalty or compensation system.

It is always easy to say that a claim relates to an abstract idea, but that is not the proper legal test. The focused is on what is actually claimed. As stated in Alice, a claim that recites an abstract idea must include “additional features” to ensure “that the [claim] is more than a drafting effort designed to monopolize the [abstract idea].” To the extent the claims do recite an abstract the question is whether there are other ways to use the abstract idea.

Despite the furor over the Alice
decision, properly drafted software and game patents are still patent eligible.

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Too many companies/lawyers treat website Terms of Service (TOS) as boilerplate agreements that no one reads. Many companies simply put a link at the bottom of the homepage. This approach continues to prove ineffective, as courts are more frequently refusing to enforce TOS absent properly drafted terms and a requirement that the user read and/or affirmatively accept the terms. In a recent 9th
Circuit Appeal, the court ruled against Barnes&Noble stating that “where the link to a website’s terms of use is buried at the bottom of the page or tucked away in obscure corners of the website where users are unlikely to see it, courts have refused to enforce the browse-wrap agreement.”

The Court further held: “where a website makes its terms of use available via a conspicuous hyperlink on every page of the website but otherwise provides no notice to users nor prompts them to take any affirmative action to demonstrate assent, even close proximity of the hyperlink to relevant buttons users must click on–without more–is insufficient…”

The result in this case was that the court decided there was no binding agreement,
and therefore B&N could not enforce the arbitration clause contained in the TOS. However, in other cases, even more significant problems can arise. Similar problems can cause modifications to a TOS to be ineffective.

The bottom line is that if properly drafted and implemented, a TOS can provide significant protection for companies and can minimize legal liability to customers. If not, courts will likely not enforce those terms.

If you have not recently reviewed your TOS, you should have a lawyer do so soon.

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In comments on October 14, 2014, Ben Lawsky commented on changes to the proposed bitlicense regulations. The main points he made were these:

  • Regarding who will be required to obtain a bitlicense, he said the focus will be financial intermediaries, not software developers or individual users.
  • To the extent that company may need both money transmitter and virtual currency licenses, for example – which is possible – the process will be streamlined to avoid duplication.
  • Regarding concerns that banks were exempted, he said that is untrue. Banks cannot start providing virtual currency services without prior approval from DFS, and they will have to comply with any requirements that are otherwise imposed on virtual currency businesses.
  • Mining, per se, will not be regulated. To the extent a miner engages in other virtual currency services, however – for example, hosting wallets or exchanging virtual currency – a license may be required for those activities.
  • Consideration is being given to how to avoid excessive regulatory costs for startups – but no specific proposal was provided. He said the goal is not to stifle technological innovation, but if a software company is also taking on the responsibility of actually safeguarding customer money, it is a much more difficult calculation.
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On August 1, 2014, the Food and Drug Administration (FDA) released draft guidance that would exempt from premarket 510(k) review many low-risk medical devices–including certain mobile applications that can convert a cell phone into a medical device, such as a thermometer or a stethoscope. Although the guidance is not yet legally enforceable, the FDA also announced its intention not to enforce compliance with premarket review requirements for these devices and noted that it did not expect manufacturers to submit 510(k)s for these devices prior to adoption of a final rule or order. The FDA’s recognition that these devices are sufficiently well understood and do not present risks that require premarket review to ensure their safety and effectiveness–and its corollary decision to exercise enforcement discretion as to these devices–eases the regulatory burden on medical application developers and expands opportunities for continued development and dissemination of important mobile tools for improving patient care and physician practice.

For more information, check out the Client Alert.

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On Friday, Michael Dell, CEO of Austin-based Dell Inc., announced on twitter that Dell.com is now accepting Bitcoin as a direct payment option for consumers and small businesses in the U.S.  Other major companies, such as Overstock and Expedia, began accepting Bitcoin earlier this year and have reported favorable results, including that a majority of Bitcoin purchases were made by brand new customers.  To offer Bitcoin as a payment option,
Dell partnered with Coinbase,
a U.S.-based Bitcoin exchange and payment processor.  Dell’s terms and conditions highlight one of Bitcoin’s unique characteristics,
i.e., that once you initiate a Bitcoin transaction, you cannot change or cancel it.  Dell does, however, offer a limited refund process that requires a Coinbase account or remittance of a check in U.S. dollars, depending on the circumstances.

Austin has become a hub of Bitcoin activity.  Several emerging Bitcoin-focused companies, such as CoinTerra
and Cloudhashing, are located in Austin, and, in February, Robocoin installed the first U.S.-based Bitcoin ATM in a popular bar in downtown Austin.

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The Federal Communications Commission’s Accessibility and Innovation Initiative will host an “Accessing Social Media” event on Thursday, July 17, 2014 from 9 a.m. to 4 p.m. in the Commission Meeting Room in its headquarters located at 445 12th Street, S.W., Washington, D.C.  The event will be webcast without open captioning.   The event is open to the public, however, RSVPing for in-person attendance is encouraged. 

The FCC’s stated purpose of the event is “to facilitate a collaborative, cross-sector exchange of information about making social media tools and content accessible to people with disabilities, including information about authoring tools, client apps and best practices.”  The event will include panels of industry, consumer and government representatives and feature technology demonstrations in an exhibit area.