25 The BSA Guide to Software management, Business Software Alliance.
26 According to Adobe, over 91% of the software found on auction sites is pirated.
By Donna J. Cunningham, Cunningham & Colleagues, P.C., Barrington
Copyright, 2000; All Rights Reserved; Donna J. Cunningham
September, 2000
1. Territorial franchise agreement prohibits franchisor's online sales.
In a case believed to be of first impression nationwide, a panel of the American Arbitration Association in New York has ruled in favor of franchisees who argued that the value of the exclusive territories granted by their franchise agreements was being diluted by Franchisor's competing online sales. Noting that Defendant promoted its Web site as "your full service online drugstore," offering special sales substantially undercutting the prices charged by its franchisees, arbitrators ruled in favor of franchisees, and granted a preliminary injunction against franchisor prohibiting its online sales in the designated territories. http://www.law.com/cgi-bin/nwlink.cgi?ACG =ZZZB30QM0DC
2. Domain names I: Want the domain [yournamehere].law.firm?
Although ICANN's decision about the new top level domain names (tld's) is months away, many domain registration companies are taking pre-registrations for tld's like "anderson.consulting" (registered by Anderson Consulting in a flash), and more than 2000 ".web" names. Although these tld's may never become domains, buyers are scooping them up, hoping to beat the rush. Want [YourNameHere].law.firm? Go get it, but buyer beware. http://www.wired.com/news/business/0,1367,38653,00.html
3. Domain names II: Domain name not "property," so can't be stolen.
Adopting the argument of Network Solutions that a domain name is not "property" but rather a designation for a service, something like a phone number, a california district court judge has ruled that a domain name cannot be stolen and converted. Defendant, a prison inmate, allegedly forged a letter to Network Solutions transferring ownership of sex.com from its original owner to himself, and has run the site from prison, netting millions of dollars. No opinion online, but see: http://www.wired.com/news/politics/ 0,1283,38398,00.html
4. "Business use" exclusion in auto policy against public policy.
The valet who delivers your car when you leave the restaurant/club/casino might fall under the "business use" exclusion of your insurance policy, but your coverage still applies. Since the enactment of mandatory automobile liability insurance, each insurance policy is required by law to cover any person driving an auto with the permission of the insured. Therefore, provisions in automobile policy excluding coverage for business use are against public policy. Summary judgment on favor of insurer on basis of "business exclusion" was overturned. a passenger was injured as they attempted to enter car being delivered by valet at defendant casino. The policy was required by law to cover any person driving the vehicle with the owner's permission, which included the valet. State Farm Automobile Insurance Co. vs. Fisher, 1-99-3396, (August 25, 2000) http://www.state.il.us/court/2000/1993396.htm
5. ERISA--medical insurance and COBRA.
Employee who returned to work within 1 month of termination, and who was not told that she had to continue to make COBRA payments in order to avoid pre-existing condition limitation could not be denied medical insurance coverage by employer. In failing to explain interaction of COBRA and its medical insurance coverage, employer breached its fiduciary duty to employee. Bowerman vs. Wal-Mart Stores, Inc., No. 99-4130 (8/18/00). Appeal, S.D. Ind., Indianapolis. When posted, decision will be at http://www.kentlaw.edu/7circuit/2000/jul-sep/99-4130.html
6. Federal Trade Commission: FTC approves carmakers' auto parts Web site, but delays airline B2B Web site because of competition concerns.
Covisint.com, the proposed B2B Web site of the big three automakers to sell replacement parts online has been given approval by the FTC as a benefit to consumers. http://www.washingtonpost.com/wp-dyn/articles/A51496-2000Sep11.html In the meantime, Orbitz.com, the proposed travel Web site sponsored by the major airlines, has been delayed until June, 2001 by the FTC because of concerns that it will adversely affect competition. http://www.usatoday.com/life/cyber/tech/cti502.htm
7. Use caution in terminating employee with unvested stock options.
A former vice-president of Oracle, the software maker, won $2.6 million against Oracle as a result of her termination, almost $2 million of which was for unvested stock options. http://news.cnet.com/news/0-1003-200-2576435.html Meanwhile, Oracle is suing former company executive Pier Carlo Falotti, whom it fired four days before his $10 million in stock options was to vest, claiming he is not entitled to the value of the unvested stock options. http://news.cnet.com/news/0-1003-202-2464498.html
8. Intellectual property: "fair use" applies to Internet spiders.
In an unpublished opinion, the U.S. District Court for Central District of California has ruled that the "fair use" copyright doctrine applies to permit internet Web site "spiders" to make temporary copies of purely factual data on other sites, to extract and republish them. Denying a preliminary injunction, the court ruled that making the copy was a necessary step to copy the factual information. However, although such "spidering" produced no copyright infringement, an action for trespass to chattels might result from such activity, if enough harm were caused. Tickets.com had copied the Events page of Ticketmaster's Web site. Ticketmaster Corp. v. Tickets.com Inc., C.D. Calif., No. 99-7654 HLH (BQRx), 8/10/00, unpublished. http://ipcenter. bna.com/pic/document/1,1103,1_595,00.html
9. UCC: Proposed revisions to Article 2 fail to move forward.
The National Conference of Commissioners on Uniform State Laws, failed to move forward the proposed revisions to Article 2 and 2A at its recent meeting. The problem is and remains a question of how to treat stand-alone software--as a good, or as a licensed piece of intellectual property. http://ipcenter.bna.com/pic/ document/1,1103,1_590,00.html
10. UCITA: University's interactive Web site sufficient to establish jurisdiction in Louisiana.
But the same group backed off slightly from some of the more controversial portions of UCITA--The Uniform Computer Information Transactions Act--though it has already been passed by the states of Virginia and Maryland. The National Conference Commissioners agreed to end the so-called "self-help provision" which allowed software vendors to remotely disable the software they sell to users. The commissioners agreed to remove the self-help provision for mass-market software sold via retail channels. But the provision remains in effect for other types of software such as customizable applications that are purchased by large businesses. http://www.infoworld.com/articles/hn/xml/00/08/09/000809hnucita.xml?0810tham
October, 2000
1. SEC I: E-signature law conflicts with SEC's interpretive guidance for electronic delivery. As reported in our July issue, the new Electronic Signatures in Global and National Commerce Act http://thomas.loc. gov/cgi-bin/query/z?c106:S. 761.ENR:, Public Law 106-229, took effect on October 1, 2000. However, the terms of the new Federal Law conflict with the Interpretive Guidance for Electronic Delivery of Documents previously issued by the Securities and Exchange Commission (SEC), http://www.sec.gov/, leaving financial services firms with the apparent duty to comply with both electronic and "in writing" requirements. http://www.cnn. com/2000/TECH/ computing/10/02/digsig.brokers. idg/index.html
2. SEC II: SEC proposes electronic submission official statements and forms, seeks comment.
The SEC's Municipal Securities Rulemaking Board has requested comment on a proposed optional system for electronic submissions by underwriters official Statements, Advance Refunding Documents and G-36 forms. To see the proposed amendment to Rule G-36, and to comment, click here. http://www.msrb.org/ msrb1/whatsnew/ElectronicG36.htm
3. ICANN issues warnings re "pre-registrations" of domain names, and lists applications for proposed new TLD's, while USPTO Reports rush to trademark pre-registered names.
The Internet Corporation for Assigned Names and Numbers (ICANN), through its Names Council of the Domain Name Supporting Organization (DNSO) has issued an official announcement warning that no new TLD's have been selected, and no one is authorized to pre-register new domain names. The period for registration of applications for new Top Level Domains (TLDs) closed October 2, and ICANN has listed all of the proposals on its Web site at http://www. icann.org. The TLD ".law" has been proposed by a company in McLean, Virginia. Meanwhile, the U.S. Patent and Trademark office (USPTO) reports a "land" rush to register domain names yet to be created. http://www.wired.com/news/politics/0,1283,38824,00.html
4. U.S. Supreme Court docket online.
A searchable database of the full docket of the U.S. Supreme Court is now online, permitting the user you to track the more than 8,000 cases handled by the Court each year. Searches can be made by the Supreme court docket number, a lower court docket number, or the case name. http://www.supremecourtus.gov/ docket/docket.html
5. UCC secured interests: bank's security interest takes priority, although security agreement unsigned by bank.
Even though Bank's security agreement recited that it was not effective until signed by lender bank, and security agreement was unsigned by lender bank, it took priority over another security agreement covering the same assets by a rival but subsequent lender. Noting that the UCC does not require that a security agreement be signed prior to filing a UCC-1 financing statement, Bank's filing of statement gave it priority over subsequent lender. Vic Supply Co., Inc., Debtor, Falconbridge U.S., Inc., Plaintiff-Appellant vs. Bank-One Illinois, N.A., Defendant-Appellee, No. 99-4110 (9-19-00) N.D. Ill., E. Div. Aff'd http://www.ca7. uscourts.gov/fox/foxweb.exe/Op3?submit1=showop&caseno=99-4110
6. Taxation: statutory definition of "unitary business group," construed.
Construing Section 1501(a)(27) of the Illinois Income Tax Act, the First District Appellate Court has affirmed the ruling of the administrative law judge that defendants were operating as a "unitary business group," and accordingly, should have filed combined Illinois corporate tax returns. Language in statute defining unitary business group, "where, for example, authority over such matters as purchasing, financing, tax compliance, product line, personnel, marketing and capital investment is not left to each member," did not require that each element of list be proved. Hormel Foods Corp vs. Zehnder, No. 1-99-1319, (9-29-00) http://www.state.il.us/court/2000/1991319.htm
7. "Area code 847 safe for years": Citizen's Utility Board.
Speaking to the Telecommunications Committee of the Illinois Commerce Commission in September, Seamus Glynn, Associate Director of the Citizens Utility Board said it's unlikely that the Chicago region will need a new area code for years. Asked by the committee why industry projections on the need for telephone numbers were so inaccurate, Brent Struthers of Neustar, a private firm paid by telcos to administer North America's numbering system, said the problem stemmed from competitive pressures whereby each of 10 telephone companies might believe it needs 250,000 telephone numbers for the same customers in a certain region. On a positive note, Illinois' experience with the area code crunch has led the Federal communications Commission to enact a national number conversation policy which is now being implemented.
8. Y2K law used only 18 times.
Although it undoubtedly encouraged settlements, and prompted many companies to take remedial steps prior to commencing litigation, the Y2K legislation passed by Congress last year has been invoked in only 18 cases nationwide. http://news.cnet.com/news/0-1009-200-2856571.html
9. Federal legislation proposed to assist farmers, ranchers.
HR 5386 http://thomas.loc.gov/ , would grant to eligible farmers and ranchers a Qualified Conservation Credit for the preservation of open land. The legislation is proposed in response to the continued economic decline of the American farmer or rancher who often loses open land based on the rising property values or nearby urban or resort areas.
10. Japan passes Internet "attestation" legislation to secure Web transactions.
In its own version of E-commerce legislation, a new "attestation" law for Web transactions took effect October 1, 2000 in Japan. The parties to a transaction will be able to confirm identities and verify the accuracy of documents by using public and private encryption keys. http://www.asiagateway.com/Comtex/?id=17725
November, 2000
1. Public comment I: IRS seeks public comment on proposed "guidance" concerning the online activities of not-for-profits.
The Internal Revenue Service is soliciting comment from the public regarding the application of the Internal Revenue Code to the online activities of not-for-profit entities, including hyperlinking and hosting of online listserves and newsgroups. http://www.techlawjournal.com/taxation/20001026.asp Although not posted in the Federal Register, IRS Service Announcement 2000-84, provided by Senator Dick Armey, (R-Texas), has been posted online by the Tech Law Journal at http://www.techlawjournal.com/agencies/irs/internet/20001016.asp
2. Public comment II: USPTO proposes alternate patent fee structure.
Pursuant to patent reform legislation passed by Congress last year, (section 4202 of the American Inventors Protection Act (P.L. 106-113), the USPTO is conducting a study of alternative patent fee structures. Seeking maximum inventor participation, the PTO asks, among other things, whether the fee structure should be based upon actual average costs, whether search and examination fees should be charged separately, and what the role of maintenance fees should be in the process. http://ipcenter.bna.com/pic/document/1,1103,1_634,00.html USPTO's report is due to be filed with Congress by November 29, 2000.
3. Stock ownership is not sufficient to confer personal jurisdiction.
The 7th Circuit, in a case involving a Pension Fund's claim against two Canadian companies, has ruled that mere stock ownership in, or affiliation with a corporation, without more, is insufficient to establish in personam jurisdiction either under Illinois' long-arm jurisdiction statute, 735 ILCS 5/5-209(c), or Federal Rule of Civil Procedure 4(k)(2). The Court rejected claimants' arguments that the Canadian companies were businesses under common control with a US company, and therefore should be treated as a single entity. The court found that constitutional due process required that in personam jurisdiction be based on more than just corporate affiliation. Central States, Southeast and Southwest Areas Pension Fund vs. Reimer Express World Corporation, and Reimer Express Enterprises, Ltd., Canadian Corporations, No. 00-1502 (10-18-00) N.D. Ill., E. Div. Aff'd http://www.ca7.uscourts.gov/fox/foxweb.exe/Op3?submit1=showop&caseno=00-1502
4. Employee-former shareholders alleging below-market sale of stock had no standing to protest restructuring under Delaware law.
Interpreting Delaware corporate law as to who is a "stockholder" and what was the "time of the challenged transaction," under 8 Del. Code sec. 327, the 7th Circuit Court has ruled that Plaintiffs had no standing to challenged a proposed restructuring involving an allegedly below-market sale of stock. Under Delaware law, a plaintiff in a derivative suit must be a stockholder at the time of bringing the challenged transaction. Noting that Delaware distinguishes between prospective shareholders and actual shareholders, the court ruled that at the time of the transaction complained of, plaintiffs were only prospective shareholders, and not actual shareholders. Howard R. Montgomery, etc. vs. Aetna Plywood, Inc., No. 99-2364, 99-2707, 00-1003 (10-26-00) N.D. Ill., E. Div. Aff'd. http://www.ca7.uscourts.gov/fox/foxweb.exe/Op3?submit1=showop&caseno=99-2364
5. Loans to dominant shareholder by minority shareholders not dischargeable if dominant shareholder breaches fiduciary duty.
Plaintiffs, former business partners of debtor Defendant, sought non-dischargeability of loans to debtor pursuant to 523 (a)(4) of the US Bankruptcy Code, and District Court found such debts dischargeable. On appeal, the 7th Circuit reversed, finding that the Shareholder's Agreement between the parties gave debtor power over his partners as to debtor's own employment in business, the day to day operation of business, and the direction of the venture, that as a result, debtor had fiduciary duty to creditors, and if that duty was breached, the debts would not be dischargeable in bankruptcy. The case was remanded for a determination of whether that duty had been breached. In re Michael Frain, Debtor-Appellee, appeal of Patrick O'Shea and Roger Schoenfeld, No. 00-1162, (10-30-00) N.D. Ill., E. Div. Rev'd & Rem. http://www.ca7.uscourts.gov/ fox/foxweb.exe/Op3?submit1=showop&caseno=00-1162
6. SEC: uniform disclosure (reg. FD) effective 10-23-00; guidance issued.
The SEC's Final Rule against Selective Disclosure and Insider Trading, 17 CRF, Parts 240, 243 & 249, http://www.sec.gov/rules/final/33-7881.htm , known as Regulation FD, took effect on October 23, 2000. Regulation FD requires that disclosure of material non-public information concerning a company's earnings potential and other financial information be made to the public at the same time as to institutional investors. The SEC has also issued its non-binding interpretive guidance. http://www.sec.gov/offices/ corpfin/phonits4.htm How to comply? For a summary of the new Regulation and a lawyer's view, see this article. http://www.cybersecuritieslaw.com/GDC/ reg_fd5.htm
7. Copyright I: US anti-circumvention rule exemptions posted.
The Digital Millennium Copyright Act, (DMCA), http://www.loc.gov/copyright/legislation/hr2281.pdf, amended to add a new Chapter 12 which took effect October 27, 2000, prohibits the circumvention of certain technological measures designed to protect copyrighted materials. Pursuant to treaty, and the requirements of the DMCA, the US Copyright Office has issued its anti-circumvention rules, and listed the classes of copyrighted works that the Librarian of Congress has determined should be exempt from the anti-circumvention requirements of the DMCA. There are only two, raising concerns at libraries and universities that uses which are now legal under copyright laws may be curtailed under the new Rule. One exemption gives people the right to by-pass malfunctioning software security features, and the other involves accessing the list of sites blocked by filtering software. http://www.loc.gov/copyright/1201/anticirc.html. The rules will be in effect for three years.
8. Copyright II: proof "access" does not require proof that infringer saw copyrighted work.
Frederick Bouchat, the creator of a shield design for the Baltimore Ravens, a National Football League team, sued the Ravens and NFL Properties, Inc. for illegally copying portions of his copyrighted shield design. A jury found in Bouchat's favor, and defendant's appealed, arguing that Bouchat had failed to prove that they had access to his drawings. The Fourth Circuit Appeals Court affirmed, holding that in a circumstantial case, plaintiff's proof that defendants had access, and that their design was strikingly similar, was sufficient. http://pacer.ca4.uscourts.gov/cgi-bin/getopn.pl?OPINION=991617.P
9. Arbitration clause in franchise agreement enforceable, even though franchisees' leases could be terminated, although franchise agreements were not terminated.
In a class action suit against franchisor, the trial court was correct to enter an order compelling arbitration of the franchisees' suit against franchisor. The arbitration clause in the franchise agreements was neither illusory nor unconscionable even though it allowed a companion realty company of the franchisor to sue for eviction of the franchisees under their lease agreements. The Franchise Offering Circular given to franchisees stated that the realty company could terminate a sublease without the Franchisor also terminating the franchise agreement, and the subleases contained cross-default clauses providing that a breach of the franchise agreement was also a breach of the lease. Although the franchisees argued that such a situation could render the franchise agreement worthless, the court did not agree, and correctly compelled arbitration. Bishop, et al, vs. We Care Hair Development Corp., et al, No. 1-00-0528, 1st Dist, 5th Div., (9-29-00) http://www.state. il.us/court/2000/1000528.htm
10. Your virtual safe deposit box.
Now that digital signatures are legally binding, vendors are developing an on-line safe deposit box system that will store important electronic documents virtually. Check out this site: http://www.safe-depositbox.com.
_______________
Business Law Flashpoints are written by Donna J. Cunningham for the Illinois Institute of Continuing Legal Education (IICLE), and are reprinted here with permission. IICLE provides a number of free monthly topic newsletters, including Business Law, Civil Procedure, Employment Law, Estate & Probate Law, Family Law, Financial Services, Law Office Technology, Real Estate Law, and more. Visit www.iicle.com, register for the topics you choose, and the newsletters will be sent to you each month by email.
%20Initial.GIF)