TechLaw

Eighteen Countries Sign UNCITRAL E-Contracting Convention

Yesterday was the deadline for countries to sign the 2005 United Nations Convention on the Use of Electronic Communications in International Contracts. Just 18 countries have signed the convention although, according to the UNCITRAL, the convention will remain open indefinitely for accession and ratification.

The countries signing the convention, in no particular order, are:

• Honduras
• Republic of Korea
• Saudi Arabia
• Colombia
• Montenegro
• Iran
• Panama
• Philippines
• Paraguay
• Sierra Leone
• Madagascar
• China
• Singapore
• Sri Lanka
• Lebanon
• Central African Republic
• Senegal
• Russian Federation

The purpose of the convention is to promote international trade by encouraging the development of uniform rules regarding the use of electronic communications in international contracts. It is curious to me why so many of the signatories are small potatoes economically; perhaps these countries are the ones with the most to gain from increased international trade and increased certainty in business contracts. Curious as well why the United States -- or Canada, or Japan, or all of western Europe -- have not signed the treaty yet either. The convention looks entirely unobjectionable, it has been reviewed and fretted-over by attorneys and uniform law drafters here in the United States, leading international companies support it, and in fact it looks a lot like the 1999 Uniform Electronic Transactions Act.

Information on the UNCITRAL Web site indicates that the convention will become effective six months after the third country has either ratified or acceded to it.

Vermont Divorce Court Finds First Amendment Right in Husband's Angry Blog

A Vermont divorce court judge made a big splash in the New York Times last week when he ordered the husband to "remove any and all internet postings" about his wife and their marriage. Two days ago, the judge vacated that order, recognizing that the husband had a First Amendment right to publish his views online.

However, Judge Thomas J. Devine wrote, the husband did not have the right to post digitally scanned portions of his wife's personal journal, which she left behind when she departed the family home. The court decided that the wife had a property interest in her personal journal. The court didn't linger long on the nature of the wife's property interest (common law copyright was mentioned) in her journal, noting that intellectual property issues were outside its limited subject-matter jurisdiction. Regardless, the judge wrote:

Wife has a proprietary and possessory interest interest in her books and papers as both tangible property and intellectual property. She also has a First Amendment right to express herself, or not if she should choose. In seizing her writings and placing them on the blog, husband has crossed the line from speech into conduct. In doing so, he becomes subject to the family court's jurisdiction.

The court held that a state court rule authorizing it to take action to preserve marital property during the course of a divorce action provided sufficient legal authority for an order directing the husband to remove  from his blog excerpts from the wife's journal.

With this view of the law in mind, the court vacated its prior, sweeping order to take down "any and all" blog postings by the husband, ruling that the prior order was overbroad and in violation of the husband's First Amendment rights. The court also held that it did not have jurisdiction to decide whether any of the blog postings were defamatory. Finally, it set the case for a hearing at a future date, apparently for the purpose of taking evidence and entering a final order protecting the wife's property interest in her personal journal.

The case is Garrido v. Krasnansky, No. F 466-12-06 (Vt. Fam.Ct, Washington, Cty., Jan. 14, 2008).

Court Declines to Extend Insider Trading Law to Outsider Hacking

The Securities and Exchange Commission's bid to establish a cause of action for "hacking and trading" under Section 10(b) of the Exchange Act suffered a setback earlier this week, when Judge Naomi Reice Buchwald held that there could be no violation of the insider trading statute without proof that the defendant breached a fiduciary or similar duty in obtaining the information he traded on.

The court rejected the SEC's argument that Section 10(b) reached conduct that could be considered deceptive, or manipulative, of otherwise fraudulent.

Oleksandr Dorozhko was alleged to have hacked into a computer network operated by Thomson Financial, a publisher of business information that is also in the business of hosting investor relations Web sites.  Sometime between the time that IMS Health Inc. uploaded an unfavorable earnings announcement to Thomson Financial's servers (appox. 2:01 p.m.) and the publicly announced release time (5 p.m.), Dorozhko  hacked into the Thomson Financial server, obtained the earnings report, and began to make trades based on the assumption that IMS Health's stock price would plummet in the wake of the public release of the earnings report. Dorozhko was right: The market reacted negatively to the IMS numbers, and Dorozhko made a $286,456.59 profit overnight. His initial investment was roughly $40,000 in put options.

Judge Buchwald remarked that securities markets not only need, but require, informational disparities in order to operate. Moreover, Congress has rejected fairness-based regulation of the securities markets. The task of the judiciary, Judge Buchwald wrote, is to decide how to draw the line separating "proper and improper informational disparities in the securities markets." After a thoughtful and scholarly review of the available court opinions and law review articles that populate this murky area of the law, Judge Buchwald concluded that the existence of a fiduciary duty establishes the line between lawful and unlawful conduct.

"[T]here are policy considerations that weigh ... against discarding the fiduciary requirement and/or extending the SEC's jurisdiction to cover `hacking and trading.' As discussed above, In regulating insider trading, at the margins it becomes difficult to distinguish information that is properly obtained from that which is improperly obtained. The fiduciary requirement serves as an important delineation, a kind of shorthand that courts, market  participants, and regulators may use to make that distinction. The presence of a fiduciary relationship ensures that the traded on information is available only to insiders. Without the fiduciary requirement, the question of when market participants may trade on information disparities becomes much more difficult."

Judge Buchwald stayed the effect of her order until Jan. 14, to allow the SEC time to seek a stay pending appeal from the Second Circuit.

I wonder (at the risk of exposing an unforgivable ignorance of these things) whether or not Thomson Financial or IMS Health have potential liability for negligently safeguarding the IMS Health earnings report in advance of its public release. Does either company owe a duty of care to IMS Health shareholders? Have IMS Health shareholders suffered the kind of loss that would support a negligence claim? Certainly they have suffered more of a loss than the mere-fear-of-identity-theft that courts in prior data breach cases have found insufficient to support a cause of action. The SEC might have regulations that cover information security practices for this situation, but I am not aware of them.

The case is Securities and Exchange Commission v. Dorozhko, No. 07 Civ. 9606 (S.D.N.Y., Jan. 7, 2008)

Utah: Tailor-Made Venue for Keyword Advertising Suits

Prof. Goldman's Technology & Marketing Law Blog has the news today that 1-800-Contacts Inc. is suing Lensworld.com Inc. for trademark infringement arising from LensWorld's purchase of search engine keywords and sponsored links tied to 1-800-Contacts trademarks.

While it is true, as Goldman points out, that  numerous cases in the Second Circuit have rejected this theory of trademark liability, it is also true that the latest 1-800-Contacts case was brought in federal court in Utah, in the Tenth Circuit. The Tenth Circuit has held, in Australian Gold v. Hatfield, 436 F.3d 1228 (10th Cir. 2006), that the purchase of a competitor's trademark as a search engine advertising trigger is actionable under the Lanham Act. Australian Gold said that this form of advertising created "initial interest confusion" (a controversial doctrine in cyberlaw circles) that unlawfully "used the goodwill associated with Plaintiff's trademarks in such a way that consumers might be lured to the [products] from Plaintiff's competitors. This is a violation of the Lanham Act."

Australian Gold was followed in a recent Utah district court opinion, Trace Minerals Research v. Mineral Resources Int'l, 505 F. Supp.2d 1233 (D. Utah 2007).

Add to these decisions that fact that Utah appears to be the most trademark-owner-friendly locale in the country. Not only has Utah been the birthplace of tough anti-adware and trademark registration laws, but the  trademark owner's jury verdict affirmed in Australian Gold was $5 million! All in all, you have to like 1-800-Contacts' chances in Utah.