Articles Posted in California Business Litigation

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California’s legislature recently passed a bill that would give the state the toughest Internet neutrality laws in the country. However, a lawsuit filed by the federal Department of Justice may prevent the law from going into effect on January 1, 2019.

System-Failure-51347065-001Back in 2015, the Federal Communications Commission instituted a set of net neutrality regulations that were aimed at preventing businesses, namely Internet service providers, from showing favoritism for their websites or the sites of their affiliates. Those regulations were rolled back in 2017 under President Trump’s administration.

In response, lawmakers in California’s legislature began agitating for statewide net neutrality laws. The legislation passed in both houses by a wide margin, and Governor Jerry Brown subsequently signed the bill into law. Among the elements of the new law are prohibitions against Internet service providers blocking data or narrowing bandwidth when users try to look at certain content or websites. Internet service providers, or ISPs, have a practice of speeding up access to the video streams and websites of companies that pay them extra fees or are in some way affiliated with them.

The new law also includes a prohibition against using a so-called “zero-rating” system in which ISPs don’t count visits to certain websites against monthly data caps for users. Typically, the data from these websites doesn’t “count” because the website is in some way affiliated with the ISP.

After Governor Brown signed the bill, the U.S. Department of Justice filed a lawsuit against it. Arguing that only the federal government has the power to regulate the Internet, the DOJ claims that having different net neutrality laws on a state-by-state basis is inviting chaos.

Law professor at Stanford University Barbara van Schewick argues that the California law is simply adopting the same regulations at the state level that the FCC put in place just a few years ago. Van Schewick went on to say that there’s a case in federal appeals court that may have significant bearing on California’s law.

That case was brought by 22 state attorneys general in protest against the repealing of the federal net neutrality laws.

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Facebook is facing legal woes as a group of plaintiffs charges the tech giant with making it possible for companies to post employment advertisements in a discriminatory manner. The plaintiffs include the American Civil Liberties Union, a coalition for workers and three women who were seeking employment.

Smart-Phone-with-Apps-48915227-001In addition to Facebook, 10 employers are named as defendants in the complaint. Plaintiffs say that Facebook’s ad-targeting technology made it possible for these employers to direct their help-wanted ads exclusively to men. The jobs on offer included truck drivers, law enforcement officers and sales clerks at sporting goods retailers.

The Equal Employment Opportunity Commission received the complaint, which argues that since an increasing number of job and housing applicants are conducting their searches online, it has been increasingly easy for employers and landlords to engage in discriminatory practices. Under federal law, it is illegal for employers and landlords to discriminate against people based on their race, religion, gender, national origin, disability status or other protected categories.

However, in the online world, it is routine for tech companies to use algorithms that fast-track certain ads to specific users. Facebook excels at “microtargeting” users for certain advertisements. Additionally, the social media platform allows users to click on a link that says “Why am I seeing this?” This feature is actually what prompted lawyers with the ACLU to file the complaint.

Outten & Golden, a Washington, D.C. law firm, performed an experiment in which people used Facebook to search for a job or otherwise indicate that they were engaged in a job hunt. Employment ads for the 10 employers named in the suit were displayed for the male job candidates but not for the female ones. The Facebook users then clicked on the “Why am I seeing this?” link, where it was stated that their gender played a role in the targeting of that particular ad to that user.

This is not the first such complaint that has been lodged against Facebook. An earlier EEOC complaint alleged that Facebook employment ads were targeted to unfairly exclude older employees. Both of these cases are pending.

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Self-driving cars have been the dream of many a science fiction writer over the decades, and modern technology is drawing ever closer to making that dream a reality. The companies that have been selling cars with autonomous features have run into difficulties, which sometimes include lawsuits.

scales-and-gavel-90061933-001One such car maker is Tesla. Heather Lommatzsch has filed a lawsuit in Utah with the main complaint being that Tesla spokespeople weren’t honest when describing how to use her Model S’s Autopilot feature. Lommatzsch claims that she didn’t understand how to use the feature, which resulted in a serious crash. Her Model S collided with the back of a stopped firetruck, and Lommatzsch says that she was left with life-altering injuries.

Tesla issued a statement saying that they always recommend that drivers do not remove their hands from the steering wheel while using Autopilot. Moreover, the company emphasizes that this feature does not make vehicles impervious to crashes.

Lommatzsch charges that when she bought the car in 2016, the salespeople told her that she only had to touch the wheel intermittently. Additionally, she claims that when she realized that the car was not slowing down to avoid a collision with the firetruck, she attempted to manually use the brakes, but they failed.

Lommatzsch broke bones in her foot in the crash, and police charged her with a misdemeanor for not keeping a proper lookout. Dave Arnold, a spokesman for Tesla, notes that Lommatzsch told authorities that she was using the GPS feature on her cell phone before the crash. Data from the car suggests that her hands were not on the wheel for almost a minute and a half before the collision. Additionally, the car actually picked up speed for about three and a half seconds before the crash, and the brakes were manually engaged just a fraction of a second before the impact occurred.

It’s not clear which party will prevail in this lawsuit. However, this situation is a reminder for companies to ensure that their marketing campaigns and sales staff provide accurate portrayals of the features and benefits of any product.

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Retail giant Walmart is facing a two billion dollar lawsuit. The plaintiff, a Silicon Valley company called Zest Labs, says that Walmart employees stole their trade secrets, later implementing the technology for Walmart’s benefit without crediting or compensating Zest Labs.

Spoiled-fruit-73671769-e1533921700439Estimates suggest that in excess of $85 billion worth of fresh food goes to waste every year in America. The reasons for this waste are complex and various, but Zest Labs felt that they had devised innovative methods for minimizing “fresh food shrink.” The company began developing the system in 2010, and by 2015, Walmart had expressed an interest in the technology. Under an agreement, Zest Labs began sharing its discoveries and innovations with representatives from Walmart. The disclosures included demonstrations and presentations that highlighted proprietary information that Zest Labs had developed over the course of their work in the previous five years.

Zest Labs alleges that Walmart participated in numerous trials over a two-year period. Then, the company abruptly pulled out of the arrangement in November 2017. In the complaint, Zest Labs executives describe being “stunned” by the sudden about-face, and their consternation only grew four months later when Walmart announced its new Eden project.

Zest Labs employees felt that the similarities between their technology and Walmart’s new Eden system were too significant to ignore. They argue that “Walmart used its years of unfettered access to plaintiffs’ trade secrets, proprietary information, and know how to steal the Zest Fresh technology and misappropriate it for Walmart’s own benefit.” The complaint goes on to say that “Walmart integrated the Zest Labs technology into Eden without authorization and without compensating Zest Labs.”

While this particular case represents something of a David vs. Goliath situation, no organization of any size can afford to neglect the protection of its intellectual property. This includes valuable trade secrets that help one company differentiate itself from the competition. Whenever confidential information or trade secrets are shared, it is advisable to have an enforceable non-disclosure agreement signed first. This not only protects the company that is sharing its proprietary information but also provides them with additional leverage should court action become necessary.

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Is it acceptable for a third-party app developer to have access to private email inboxes? That’s the central question in a new class-action lawsuit that was filed in Sacramento. The lead plaintiff is James Coyne, an Ohio resident with a Gmail account, and he alleges that Google allows others to look at the emails in Gmail user’s inboxes for purposes of marketing and data mining.

Big-Brother-Spy-4Google has already pledged to stop scanning emails in user inboxes for advertising purposes. However, Coyne says that the company didn’t go far enough to protect user privacy. Google’s pledge came in the wake of another class-action suit in which the plaintiffs charged that their privacy rights were violated by the company’s practice of scanning incoming emails to generate targeted advertisements.

Nonetheless, the plaintiffs in this new case allege that the company continues to allow third parties to sift through the inboxes of users who sign up for certain email newsletters such as those that contain price comparison tools. The Wall Street Journal and other media outlets say that the purpose of this sifting is to mine data, produce new marketing efforts and other unspecified tasks.

Coyne argues that “Gmail users never provided consent to Google to provide privileged access to third-party developers.” He goes on to assert that this practice is in contrast with the company’s recent vow to make every effort to protect user privacy. The problem as Coyne sees it is that users might opt out of using Gmail if they knew that their emails would be scanned by strangers.

Google says that every third party that has access to Gmail inboxes is thoroughly vetted. This means that Google is satisfied that the third parties won’t use any data that they collect for nefarious purposes. Additionally, the company argues that third-party apps aren’t allowed to access inboxes until Gmail users are shown a permissions screen.

Coyne argues that the permissions screens don’t go far enough. Protecting data and customer privacy is increasingly important in this technology-driven era. Consult with a business attorney to ensure that you and your clients are sufficiently protected.

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Disney and Redbox are continuing their legal battle over the codes that customers use to download digital copies of movies. Typically, these codes are included in movie “combo packs” that include DVD and Blu-ray versions of films plus a code that customers can use to download a digital version of the film. Redbox has been purchasing these combo packs, placing the DVDs and Blu-rays in their machines and also enabling customers to purchase the digital download code. Disney says that Redbox’s practice is a breach of their copyrights to the media.

redbox-1Redbox argues that Disney engages in practices that include false advertising, misuse of copyrights and unfair competition. Additionally, they say that Disney’s behavior is anti-consumer, and they go on to assert that the restrictions that Disney puts on its media is tantamount to copyright misuse.

However, Disney attorney Glenn Pomerantz argues that Redbox is not Disney’s direct competitor. This means that Redbox wouldn’t be able to claim that Disney is using unfair tactics to gain dominance in the marketplace.

Attorney for Redbox Michael Geibelson responded by accusing Disney of “aggressive” behavior in their efforts to prevent Redbox from purchasing movie combo packs, but Pomerantz refutes this claim. He says that Disney and Redbox entered into a contractual agreement, and that Disney is simply trying to enforce that agreement.

Geibelson countered by asserting that Disney does not appropriately outline the terms and conditions of the purchase of movie combo packs. Once again, Pomerantz disputed this argument, saying that customers who purchase a download code have no way of knowing that it came from a combo pack, and therefore they could not be aware of the terms and conditions nor could Redbox claim false advertising.

Both parties acknowledge that talks between them are ongoing. As they continue to battle it out in the courtroom and conference room, it seems clear that the outcome of this case may have a far-reaching effect on other media companies. Now is the perfect time for businesses to consider how well protected their intellectual property is and to explore the efficacy and comprehensiveness of their contracts.

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French cosmetics company L’Oreal is facing a lawsuit in the Southern District of New York. The complaint was filed as a class action that includes four consumers and others who feel that they have been cheated.

Class-Action-GavelAt issue is two of the company’s products. One is the makeup product Maybelline Super Stay Better Skin Skin Transforming Foundation. The other is the Age Perfect Eye Renewal Eye Cream. The average cost of both products across the country is $15. Yet, plaintiffs allege that they are only able to dispense between 43 and 81 percent of the volume of each product as it is disclosed on the label.

Plaintiffs argue that the reason they are unable to fully utilize the contents is that the bottles are defective. Typically, the products are dispensed by a pump, but the consumers involved in the lawsuit say that the pump cannot provide access to all of the contents. The plaintiffs further allege that the bottles are made of glass and sealed in such a way that consumers cannot access the contents in another manner. Accordingly, they say that anyone who attempts to use these products is losing approximately $7 based on their inability to use half the bottle’s contents.

Numbers concerning the faulty dispensation of products were determined through laboratory testing, and plaintiffs suggest that the results should be well known to L’Oreal. This is because consumer reviews posted on the L’Oreal website routinely include complaints about being unable to access much of the product that is packaged in bottles. The company’s response is a polite thank you and a note saying that the complaint will be passed on to management. Plaintiffs say that the packaging remains unchanged despite a relatively long history of such complaints.

In the lawsuit, the plaintiffs argue that “there is no equitable justification for Defendant’s products to suffer from these defects,” pointing out that the company routinely uses other, more effective dispensers for various items. L’Oreal has yet to answer the complaint, but it seems clear that they may have a costly fight in terms of legal fees and bad press.

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Troubled fitness gadget manufacturer FitBit is facing new legal woes from a former competitor. Jawbone, which used to engage in fierce competition with the other company, is seeking legal satisfaction after alleging that several current and former FitBit employees stole their trade secrets. Additionally, a federal grand jury has criminally indicted those individuals.

Top-Secret-198073496-300x199FitBit’s main product is wearable activity trackers. The trackers record data about everything from steps taken to hours of sleep. Unfortunately for the company, they have been struggling in recent years. FitBit’s initial public offering on the stock market three years ago had its shares going for $32.50 apiece. Now, those stocks are worth just $7.42 each. Between 2016 and 2017, the company lost approximately $380 million. The number of devices sold tumbled precipitously as well.

No matter how badly off FitBit appears, it seems that Jawbone has it even worse. As of July 2017, they were officially out of business. However, former company executives still seem concerned with the activities of their erstwhile competitor, namely, the poaching of employees and the stealing of trade secrets.

Unfortunately for FitBit, the U.S. Attorney’s Office seems interested too. A federal indictment names six employees, only one of which apparently still works for FitBit, who are accused of stealing trade secrets from Jawbone, and taking those secrets to their new supervisors at FitBit. Each defendant was employed at Jawbone in the period between 2011 and 2015, and all were subject to a confidentiality agreement. The indictment says that FitBit actively recruited the employees of its competitors and then used trade secrets to improve its own technologies.

Acting U.S. Attorney Alex Tse says: “The theft of trade secrets violates federal law, stifles innovation, and injures the rightful owners of that intellectual property,” making it clear that his office plans to prosecute this case with vigor.

The defendants will soon appear in court, and civil litigation between Jawbone and FitBit is still pending. This situation illustrates how critical it is for companies to not only use carefully crafted confidentiality agreements with their employees but also to protect their intellectual property with vigilance.

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Electric car company Tesla has filed a lawsuit against a former employee over what it claims are stolen secrets. Martin Tripp is named as the defendant.

System-Failure-51347065-001Tripp began working for Tesla in October 2017. His job was at the organization’s Nevada battery factory. As a process technician, Tripp was required to sign a non-disclosure agreement like other employees. Supervisors at Tesla began noticing problems with Tripp’s employment after a few months. They allege that Tripp was combative with colleagues and caused disruptions. In May 2018, he was reassigned to another department. The company also claims that this prevented Tripp from getting a promotion that he felt he deserved.

In the complaint, Tesla alleges that Tripp’s reassignment and the denied promotion are what sparked the employee to retaliate. Tripp admitted to internal investigators at Tesla that he wrote a software program that was capable of transferring gigabytes of data to computers outside the company. The data included photographs and videos, and Tesla claims that all of the data was privileged. Tripp is alleged to have placed the hacking software on the computer systems of three other employees so that he could continue to receive data even after he left the company. Additionally, this measure would implicate the other employees in the data theft.

According to the complaint, Tripp then leaked some of the stolen data to the media, combining it with falsehoods such as a claim that punctured battery cells were used in Tesla’s Model 3 car. The company further alleges that Tripp falsified data regarding the amount and value of scrap metal that is generated in the organization’s production processes.

Tesla CEO Elon Musk warned employees in an email about the hacking and the falsehoods that were leaked to the media. He noted that many other entities, like oil and gas companies, “want Tesla to die,” and that this is leading them to investigate whether or not Tripp acted alone.

It is not known if any criminal investigation has been launched, but this situation serves as a reminder of the importance of protecting intellectual property using all legal means available.

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A battle between two titans of the lucrative corporate finance restructuring industry is brewing in New York. Jay Alix is suing McKinsey & Company on a range of alleged racketeering charges.

Lawsuit-64354059-001Jay Alix is a veteran of the post-bankruptcy landscape for big-name corporations. They helped to save General Motors and the Detroit Public School System when both were on the verge of collapse. However, Alix claims in his lawsuit that a newer competitor, McKinsey & Company, isn’t competing fairly in the industry. In fact, he accuses them of widespread criminal activity.

According to the complaint, McKinsey and company leadership, “knowingly and intentionally submitted false and materially misleading declarations under oath in … bankruptcy proceedings … in order to … avoid revealing numerous disqualifying conflicts of interest …” that should have prevented them from representing certain clients. Accordingly, Alix charges McKinsey with bankruptcy, mail and wire fraud among other crimes. Alix asserts that this activity enabled McKinsey to pocket tens of millions of dollars in fees that it was not legally entitled to.

The problem arises, as alleged by Alix, because McKinsey did not disclose its connections to certain “interested parties” in the restructurings it handled. If McKinsey had complied with the law that required them to disclose any possible conflicts of interest, they would have been prevented from representing certain clients.

Further, the complaint charges that McKinsey conducted nefarious “pay to play” relationships with bankruptcy attorneys who routinely handled cases for major corporate clients. McKinsey expected those bankruptcy attorneys to refer all of their clients to McKinsey in exchange for access to McKinsey’s impressive network of clients.

Alix additionally claims that Dominic Barton, CEO at McKinsey, essentially admitted to these crimes several months ago, saying that McKinsey was going to be backing off such activity and going into different lines of work. However, that has not been the case.

The referenced case is Jay Alix vs. McKinsey & Co., 18-04141, U.S. District Court, Southern District of New York.

It is imperative that business owners be aware of all state and federal laws that may affect the operation of their business. Not being aware of a certain law never works as a defense. Work closely with an experienced business attorney to protect your interests.