Nominative Use: A Three-Way Split

Today, we’ll tackle a trademark problem ripe for picking by SCOTUS—nominative use.

 What Are Trademarks?

A trademark is a word, phrase, symbol, and/or design that identifies and distinguishes the source of the goods of one party from those of others. Unlike patents which require a lengthy registration process to have any legal redress, trademarks can gain some initial legal protection under common law via mere use.

For those individuals wanting to give more protective #oomph to the holder of a mark, one can register their mark with the US Patent and Trademark Office, granting federal trademark protection under the Lanham Act, 15 U.S.C. §1051 et.seq.

While the Lanham Act covers a wide range of topics ranging from the gamut of procedures for obtaining federal trademark recognition, the various types of marks that the law recognizes, and specific international trademark protections, our focus turns on the causes of action for infringement granted under the Lanham Act, 15 U.S.C. §1114. Specifically, an individual is liable in a civil action commenced by a trademark registrant whenever any person without the registrant’s consent:

use[s] in commerce any reproduction, counterfeit, copy, or colorable imitation of a registered mark in connection with the sale, offering for sale, distribution, or advertising of any goods or services on or in connection with which such use is likely to cause confusion, or to cause mistake, or to deceive…

The importance of such a liability rule is plain—absent protection, a third-rate shoe manufacturer could use the Nike “swoosh” at their leisure, marketing their shoes to consumers who might believe that the pair of kicks they are purchasing are name-brand, not knock-offs. While seemingly straightforward, courts take differing stances on how infringement actions are analyzed and ruled on.

A (trade)Marked Split

The Ninth Circuit established nominative use in 1992, in New Kids on the Block v. News America Pub. Inc. New Kids on the Block v. News America Pub. Inc.

In a move to prevent inordinate control of their fans, New Kids on the Block brought suit against News America for use of the term “New Kids” as part of their phone survey hotline (incidentally focused on the members of the band). The Ninth Circuit reasoned that a strict construction of trademark exclusivity would lead to a practical impossibility in describing well-known products by generic names, bringing up examples of using the phrase “the professional basketball team from Chicago” in lieu of the Chicago Bulls. To facilitate fair use of trademarks, the Ninth Circuit posited the doctrine of “nominative use”:

a non-trademark use of a mark . . . [occurs when a]…trademark does not attempt to capitalize on consumer confusion or to appropriate the cachet of one product for a different one. Such nominative use of a mark—where the only word reasonably available to describe a particular thing is pressed into service—lies outside the strictures of trademark law [and cannot be said to promote unfair competition]…a commercial user is entitled [nominative fair use] provided he meets the following . . . (1) the product or service in question must be one not readily identifiable without use of the trademark; (2) only so much of the mark or marks may be used as is reasonably necessary to identify the product or service; and (3) the user must do nothing that would, in conjunction with the mark, suggest sponsorship or endorsement by the trademark holder.

The Third Circuit, in 2005, offered a slightly different formulation:

(1) that the use of plaintiff’s mark is necessary to describe both the plaintiff’s product or service and the defendant’s product or service; (2) that the defendant uses only so much of the plaintiff’s mark as is necessary to describe plaintiff’s product; and (3) that the defendant’s conduct or language reflect the true and accurate relationship between plaintiff and defendant’s products or services.

Keeping these two distinct approaches to trademark infringement analysis in mind, the Second Circuit recently complicated the matter in International Information Systems Sec. Certification Consortium, Inc. v. Security University, LLC (2016).

Information Systems brought suit against Security University for allegedly using a particular certification trademark used by Information Systems to denote passing a certain stage of computer security exams, and on appeal the Second Circuit held that the infringement was erroneously evaluated at trial based on the Ninth Circuit’s test for nominative use and not on the Polaroid factors.

The court noted that Information Systems’s mark was part of a special class of marks that are intended to be used by individuals other than the registrant, explaining that:

[the mark in question] is meant to certify quality and characteristics . . .[despite] the differences between certification marks and other types of marks, the Lanham Act provides that certification marks are generally entitled to the same protection from infringement as are trademarks . . . except when used so as to represent falsely that the owner or a user thereof makes or sells the goods or performs the services on or in connection with which such mark is used . . .

In using only the nominative use test, the trial court apparently failed to take into account other ways that trademarks can be infringed under the Polaroid test even if the test factors do not all apply.

In highlighting the weakness of source confusion in the Ninth Circuit test and the inadequacies found in similar nominative use tests in the Third Circuit, the Second Circuit ultimately overturned its own precedent by adopting a much more expansive test for trademark infringement, stating that:

[while there is] no reason to replace the Polaroid test . . . [we recognize that the] the Polaroid factors are a bad fit here and that we have repeatedly emphasized that the Polaroid factors are non-exclusive . . . [and we] “have recognized that a defendant may lawfully use a plaintiff’s trademark where doing so is necessary to describe the plaintiff’s product and does not imply a false affiliation or endorsement by the plaintiff of the defendant . . . [As a result,] district courts are to consider the Ninth Circuit and Third Circuit’s nominative fair use factors, in addition to the Polaroid factors…

Looking Forward

Based on this ruling by the Second Circuit, there are three (somewhat different, somewhat the same) approaches to nominative use. For litigants in the Second Circuit, the mélange approach could potentially require 15 different factors to be considered. Unfortunately, with the recent denial of certiorari, business owners and trademark attorneys across the country must continue to deal with the confusion.

For further reading, see what firms Morgan Lewis & Bockius and Arent Fox have to say on the matter.

Does Similar Mean Identical?  The Meaning of “Similarly Situated” in Employment Discrimination Cases

The Setting

In most employment discrimination cases, the employee alleging discrimination against his employer must show that he was treated differently from similarly situated employees because of his protected class (i.e., his race, gender, sex, religion, age, disability, etc.).

What does “similar” mean though?

The Split

The Fifth

The Fifth Circuit held in Perez v. Texas Dept. of Criminal Justice (2004), that “the jury must find the employees’ circumstances nearly identical in order to find them similarly situated.”

In this case, Perez alleged the Texas Department of Criminal Justice (TDCJ) fired him because of his race.  Perez had been arrested and charged with felony assault after he allegedly stabbed a former TDCJ inmate while off-duty at a bar.  He refused to answer TDCJ’s questions about the incident at the advice of counsel.  Perez was subsequently fired for engaging in conduct that jeopardized TDCJ’s integrity.  Perez showed that two other, non-Hispanic employees, who had respectively committed involuntary manslaughter and drunken assault, had not been fired.

The lower court instructed the jury that “similarly situated” means “the quantity and quality of the other employees’ misconduct must be of comparable seriousness to the misconduct of the plaintiff.” The Fifth Circuit found this erroneous because it “suggested that comparably serious misconduct was by itself enough to make employees similarly situated.”  Instead, the court set its hat on a stricter standard of proof, and held that “similarly situated” means “nearly identical.”

TDCJ had distinguished Perez’s conduct from that of other felonious employees because Perez’s alleged victim was a former inmate, whereas the other victims were unaffiliated with TDCJ.  The court found that this sufficiently threw Perez out of “nearly identical” territory, vacated the lower court’s judgment, and remanded the case for further proceedings consistent with this higher standard.

The Seventh

The Seventh Circuit, on the other hand, rejected this narrow interpretation in Ezell v. Potter (2005) and held that “the other employees must have engaged in similar–not identical–conduct to qualify as similarly situated.”   In this case, Wright, an African-American woman, fired Ezell, an over-50, Caucasian letter carrier for taking an unauthorized extended lunch break.  Ezell claimed that because Wright had made derogatory comments about white people, older letter carriers, and men, the reason for his termination was pretext.

The lower court interpreted “similarly situated” to mean that Ezell “must produce a non-Caucasian employee who committed exactly the same infraction and was treated more favorably.”

The Seventh Circuit took issue with this narrow interpretation and found, essentially, that “similar” means “similar” and not “identical.”

Under this broader approach, the court found that Ezell had sufficiently supported his race and sex claims to survive summary judgment because Wright had not herself been fired for falsifying records and because Wright had not fired an African-American man for losing a piece of certified mail.  The court found that these offenses were “very similar” to Ezell’s conduct.  The court also found that Wright sufficiently supported his age claim for summary judgment purposes because he alleged that Wright and her co-supervisor had a plan to fire and replace older letter carriers with younger, faster letter carriers.

The Significance

Employment discrimination is notoriously difficult to prove because it involves a lot of “he said, she said” evidence.  Further, the employee usually is unable to support his or her contentions with documentation in the same way that organized employers are able due to their required and established procedures.  This puts employees at a disadvantage in the conflict.

One way of proving discrimination is by showing that similarly situated employees were treated more favorably.  These allegations usually rely on the alleging employee’s word, but can be supported by documentation from the employer.  This helps level, to some degree, the disadvantage noted in the preceding paragraph by using the employer’s own documentation against it.  However, courts in agreement with the Fifth Circuit’s “nearly identical” ruling, raise the bar even higher for employees alleging discrimination.

Looking Forward

It is standard that alleging parties have the burden of proof.  Nonetheless, it is time for SCOTUS to decide whether similar means similar or whether similar means nearly identical.  Resolving this dispute has implications on the degree to which employees are burdened in an already uneven playing field.

Customary International Law: When does this binding federal law apply?

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What is it?

Customary international law, also known as public international law, is the body of law determined by the “general and consistent practice of states followed by them from a sense of legal obligation.” Restatement (Third) of the Foreign Relations Law of the United States S102(c)(2). In other words, international law need not arise exclusively from treaties and formal international agreements; it may also arise from an aggregate of states’ actions, states’ official statements, and international legal obligations arising from mutual concerns.

Why do I care?

Whereas treaties and other international agreements are not necessarily self-executing (in that they often require Congressional approval or specific statutes to become binding US law), customary international law is a binding, valid part of United States federal common law. See The Paquete Habana (S.Ct. 1900); Banco Nacional de Cuba v. Sabbatino (S.Ct. 1964). However, this body of law is for the most part completely inaccessible.

Bringing a cause of action based on customary international law is nearly impossible, and prevailing on such an action carries an even slimmer chance of success. Based a cursory review of Federal case law, one could easily come to the conclusion that the only scenarios under which customary international law can successfully be used to uphold individual rights are those that involve fish, kidnapped anglers, and the Spanish-American War. The Paquete Habana (S.Ct. 1900).

So why the lack of application?

There is no question that customary international law is a valid part of federal common law. Even the Rehnquist court, despite its ideological fault-lines, found consensus on the validity of customary international law as a part of federal common law in Sosa v. Alvarez-Machain (2004):

For two centuries we have affirmed that the domestic law of the United States recognizes the law of nations. It would take some explaining to say now that federal courts must avert their gaze entirely from any international norm intended to protect individuals.

Unfortunately one significant problem was – and continues to be – a rather important issue. How do we define what, exactly, customary international law dictates?

The Split

Modern Second Circuit vs. Ye Olde SCOTUS

Customary international law was first recognized as a part of federal common law in the landmark case of The Paquete Habana (S.Ct. 1900), and later upheld for the post-Erie world by Banco Nacional de Cuba v. Sabbatino (S.Ct. 1964). In the former case, two Spanish fishing boats were captured by the naval blockade surrounding Cuba during the Spanish-American war. The ships and their cargo were taken back to Florida where they were sold at auction as “spoils of war.” The Court, in ruling that such a seizure was a violation of customary international law relied upon the following treatise by Carlos Testa a captain in the Portuguese navy and a legal scholar of the time:

Nevertheless, in this, customary law establishes an exception of immunity in favor of coast fishing vessels. Fishing is so peaceful an industry, and is generally carried on by so poor and so hardworking a class of men, that it is likened, in the territorial waters of the enemy’s country, to the class of husbandmen who gather the fruits of the earth for their livelihood. The examples and practice generally followed establish this humane and beneficent exception as an international rule, and this rule may be considered as adopted by customary law and by all civilized nations.

However, in United States v. Yousef (2003) the Second Circuit rejected such reliance on the work of scholars for clarification of customary international law, declaring such statements as usurpation of legal power by non-state actors if relied upon as anything more than supplementary evidence that relevant customary international law existed.

This notion—that professors of international law enjoy a special competence to prescribe the nature of customary international law wholly unmoored from legitimating territorial or national responsibilities, the interests and practices of States, or (in countries such as ours) the processes of democratic consent—may not be unique, but it is certainly without merit.

Thus, according to the Second Circuit, clarifications of customary international law are invalid as bases of decision. And when Yousef appealed, the Supreme Court declined to grant certiorari.

Looking Forward

Where does this leave customary international law? Can we rely on the work of legal scholars to clarify customary international law as we do for domestic common law under the Restatements? Or is reliance of such clarifications a usurpation of power from national and international actors?

If the former, does this place us at the mercy of academics in deciding matters of international law and diplomacy? If the latter, does a rejection of clarification render this entire body of law unenforceable and functionally useless?

For further reading, see “International Law as Law in the United States”, Michigan Law Review Vol. 82, No. 5/6 (1984); Litigation of International Disputes in U.S. Courts, 2d § 9:2.

Professional Speech and the First Amendment

In an economy that is dominated by service professionals, one would logically assume that professionals (e.g. doctors, lawyers, psychiatrists, etc.) are vested with free speech rights under the First Amendment. If political speech, speech about public controversies, and the right to not salute the flag are protected under the First Amendment, it would seem natural that professionals would have this same protection when they give prospective clients and patients certain recommendations and advice. However, SCOTUS has not directly addressed this specific issue, resulting in circuit courts being split on the best way to handle professional speech and the protection it should be given under the First Amendment.

Hines v. Alldredge

In Hines v. Alldredge (2015), the Fifth Circuit upheld a Texas licensing requirement against a First Amendment challenge. In this case, Hines, a retired veterinarian, had given advice via phone and email to specific pet owners without physically examining the animals. The state licensing requirement prohibited veterinarians from providing veterinary care unless they had physically examined the animal. Hines’ communications with specific pet owners were considered “care,” and the state fined him and suspended his license. Hines alleged that this was a violation of his free speech rights.

The Fifth Circuit upheld the licensing requirement as a constitutionally permissible restriction, applying a rational basis standard of review. Blurring the lines between conduct and speech, the court found that the restriction did not fall within the scope of the First Amendment, but instead was comfortably within the “broad power [of states] to establish standards for licensing practitioners and regulating the practice of professions.” Id. The state, according to the Fifth Circuit could restrict professional speech virtually without limit.

Hines appealed to the Supreme Court. Ultimately, the Supreme Court declined to hear the case, refusing to clarify the constitutional mess that has split the circuit courts, and leaving the following question open to the circuits’ contradictory interpretations: Does the licensing power of the states outweigh a professional’s freedom of speech?

The Split

Speech or Conduct?

The source of confusion partly stems from courts’ inability to determine whether the activity and practice of professionals should be considered “speech” or “conduct”. Different courts have upheld similar restrictions on professionals both as a regulation of conduct and also as a permissible regulation of speech.

The Third Circuit in King v. Governor of N.J. (2014) upheld a regulation prohibiting mental health providers from engaging in sexual orientation change efforts as a permissible regulation of speech, explaining, “Verbal or written communications, even those that function as vehicles for delivering professional services, are ‘speech’ for purposes of the First Amendment.” Id. The court applied a lesser form of scrutiny, opting for intermediate scrutiny instead of strict, but nonetheless deemed the treatment speech that implicates the First Amendment. “Simply put, speech is speech, and it must be analyzed as such for purposes of the First Amendment,” the court held. Id.

The Ninth Circuit, on the other hand, in Pickup v. Brown (2013) upheld a very similar regulation on entirely different grounds. They found the treatment to be conduct, and regulation of conduct is outside the scope of the First Amendment, even though it may have an incidental effect on speech. The court said, “Pursuant to its police power, California has authority to regulate licensed mental health providers’ administration of therapies that the legislature has deemed harmful … [T]he fact that speech may be used to carry out those therapies does not turn the regulation of conduct into a regulation of speech.” Id.

What Standard?

The next step is to determine the appropriate standard of review. Courts again disagree on the standard.

In very similar cases about regulation of fortune tellers, the Eighth Circuit and Fourth Circuit arrived at entirely different conclusions. Both agreed that the fortunetellers’ speech was not commercial speech (which would entitle it to intermediate scrutiny). However, the Eighth Circuit in Argello v. City of Lincoln (1998) subsequently found it was entitled to the full protection of the First Amendment. The Fourth Circuit, on the other hand, in Moore-King v. County of Chesterfield (2013) found that the regulation raised no First Amendment problem at all.

On the contrary, the Third Circuit has applied intermediate scrutiny. In King v. Governor of N.J. (2014), the Court applied intermediate scrutiny, emphasizing the similarities between professional speech and commercial speech, in direct contrast to the Eighth and Fourth Circuits. The Third Circuit explained the use of intermediate scrutiny in King:

We believe that commercial and professional speech share important qualities and, thus, that intermediate scrutiny is the appropriate standard of review for prohibitions aimed at either category. Like commercial speech, professional speech is valuable to listeners and, by extension, to society as a whole because of the “informational function” it serves…. [P]rofessionals have access to a body of specialized knowledge to which laypersons have little or no exposure. Although this information may reach non-professionals through other means, such as journal articles or public speeches, it will often be communicated to them directly by a licensed professional during the course of a professional relationship. Thus, professional speech, like commercial speech, serves as an important channel for the communication of information that might otherwise never reach the public. Id.

In the case of the Fifth Circuit, the court has applied rational basis review in which the court asks whether the governmental regulation of the professional expression is rationally related to a legitimate government interest. Accordingly, nearly all licensing requirements are upheld under rational basis review, regardless of any speech implications.

The Ninth Circuit, in Pickup v. Brown (2013) laid out a system in which it would sometimes apply the full-strength strict scrutiny of the First Amendment and at other times only apply rational basis review. The system is far from clear, but the court explains:

At one end of the continuum, where a professional is engaged in a public dialogue, First Amendment protection is at its greatest. Thus, for example, a doctor who publicly advocates a treatment that the medical establishment considers outside the mainstream, or even dangerous, is entitled to robust protection under the First Amendment—just as any person is—even though the state has the power to regulate medicine. … At the midpoint of the continuum, within the confines of a professional relationship, First Amendment protection of a professional’s speech is somewhat diminished. … At the other end of the continuum, and where we conclude that SB 1172 lands, is the regulation of professional conduct, where the state’s power is great, even though such regulation may have an incidental effect on speech. Id.

The Circuits are divided on whether the First Amendment should apply fully all the time, not at all, or only sometimes. Confusion exists both across the circuits and within circuits themselves. For instance, the Fourth Circuit upheld restrictions on fortunetellers’ speech, but struck down an abridgement of abortion providers’ free expression. Conversely, the Eighth Circuit struck down restrictions on fortuneteller’s speech, but upheld a regulation of abortion doctor’s speech. On different matters, the Fifth Circuit upheld laws restricting tour guide’s expression while the D.C. Circuit struck down similar tour guide regulations.

Looking Forward

Lawyers, doctors, and the like constitute a significant part of our society—much more now than ever before. They provide valuable services to society, and the Supreme Court, by ducking cases involving these matters and avoiding the chance to provide much needed clarity to lower courts, is adding to the confusion surrounding professional communications. Eventually, the high court will have to address whether the activities of professionals should be considered conduct or speech. If it is deemed to be speech, the Court must then determine the appropriate level of scrutiny.

Watching Big Brother on your Phone Means Big Brother’s Watching You: Limits on Consumer Privacy

The Battle for Privacy

If you have a smartphone, you probably have downloaded an application, such as a game or a social or news platform. When you open the app for the first time, sometimes it will prompt you to register or give permission to the developer to track your activity and send this data back to the developer or third parties. However, most of the time the app will not do this, because usage as written in the terms and conditions of the app provides implied consent, so that every time you access and use the app, you give silent permission for the app to track your usage.

So what may a consumer rely upon for protection of her privacy? The Video Privacy Protection Act of 1988 (“VPPA”) (codified at 18 U.S.C. 2710).

VPA

The VPPA was enacted in response to a newspaper’s published report of Supreme Court nominee Judge Robert H. Bork.

The report contained Judge Bork and his family’s video rental records. The VPPA was passed to “preserve personal privacy with respect to the rental, purchase, or delivery of video tapes or similar audio visual materials.” See Senate Report. In effect, a few important provisions include:

  • A general ban on the disclosure of personally identifiable rental information unless the consumer consents specifically and in writing.
  • Disclosure of “genre preferences” along with names and addresses for marketing, but allowing customers to opt out.
  • The VPPA does not preempt state law. That is, states are free to enact broader protections for individuals’ records.

See Electronic Privacy Information Center.

Privacy Protection Exists for the Consumer-Subscriber

Our interactions with applications today are far more developed than they were back in 2002 when the VPPA was first enacted. Today, video rental records containing someone’s name and what movies she has seen are not the main sources of identifying a person. Apps often pull information such as our GPS coordinates of where we open and use them as well as information of what kind of phone is accessing the app’s server. As a result, many different types of information in addition to the user’s name can easily identify a person.

Does downloading and using a free app make the user a subscriber under the Video Privacy Protection Act?

In Yershov v. Gannett Satellite Info. Network, Inc., (Apr. 29, 2016), the First Circuit found that it does, splitting with the Eleventh Circuit in Ellis v. Cartoon Network, Inc., (Oct. 9, 2015) that found that it does not.

The Split

Textually, the meaning of subscriber is limited to the definition of consumer in the VPPA. However, the Eleventh Circuit found that the definition of “subscriber” includes “some type of commitment, relationship, or association (financial or otherwise) between a person and an entity.” See Ellis at 11. Other aspects to subscribing include actual “payment, registration, commitment, delivery [expressed association,] and/or access to restricted content.” Id.

Additionally, the absence of the above factors including not signing up or establishing an account, making any payments, becoming a registered user, signing up for any periodic services or transmissions, or making any commitment or establishing any relationship that would allow [the user] to have access to exclusive or restricted content thus did not make someone a subscriber. See Ellis at 13-14. In effect, the Eleventh Circuit created a presumption that an application download “is the equivalent of adding a particular web site to one’s Internet browser as a favorite.” Id.

In Yershov v. Gannett Satellite Info. Network, Inc., No. 15-1719 (1st Cir., Apr. 29, 2016), Yershov downloaded and accessed the USA Today app on his smartphone. In his complaint, Yershov claimed that each time he used the app, Gannett, d/b/a USA Today, would send information such as the title of the video watched, an Android unique identifier number, and GPS coordinates to a third party.

In dismissing the complaint and reversing the district court’s ruling, the court broadened the definitions of PII and consumer, finding that (1) GPS coordinates and the unique identifier number of a device fall under the PII umbrella and (2) an app user qualifies as a consumer.

The First Circuit disagreed with the Eleventh Circuit’s ruling in Cartoon Network on the issue of a “subscriber” and its analogy of downloading an app to bookmarking/adding a website to a favorites folder.

In the First Circuit’s view, an app developer would not bother creating an app if bookmarking a website would create the same result. Instead, the court found that an app is a more cost effective version of a “hotline” that a subscriber could call to continuously order videos. The First Circuit found Yershov to be a subscriber because

[t]o use the App, Yershov did indeed have to provide Gannett with personal information, such as his Android ID and his mobile device’s GPS location at the time he viewed a video, each linked to his viewing selections.  While he paid no money, access was not free of a commitment to provide consideration in the form of that information, which was of value to Gannett…[Furthermore, downloading an app is] materially different from what would have been the case had USA Today simply remained one of the millions of sites on the web that Yershov might have accessed through a web browser.

Looking Forward

The First Circuit’s broad view may create issues for developers whose main source of app content includes video streaming, as “its ruling may expand the scope of PII to include situations where device IDs and GPS codes may be used to reverse engineer an individual’s identity using information collected from other sources”[1].

Additionally, since GPS coordinates are analogous to an individual’s street address, whether that is a broad view can be argued further if one compares online streaming and GPS coordinates to addresses pulled from the rental of video tapes and other audio visual materials.

App developers may soon face additional data collection and disclosure issues, and whether the appropriate level of consent is obtained when collecting and sharing precise data location information with third parties. A prima facie VPPA claim could be attached where apps share consumer data with third parties without expressed consent.

For further reading, see the blog posts of firms DWT: (1) and (2) and DLA Piper and the Technology and Marketing Law Blog.

[1] See Christin McMeley and John D. Seiver, 1st Circuit and FTC Address Definitions of “PII,” While Michigan Amends Privacy Law to Remove Statutory Damages, available at http://www.dwt.com/First-Circuit-and-FTC-Address-Definitions-of-PII-While-Michigan-Amends-Privacy-Law-to-Remove-Statutory-Damages-05-11-2016/

The Presumption Against Extraterritoriality and the Alien Tort Statute

The Alien Tort Statute

The Alien Tort Statute (“ATS”) was enacted as part of the Judiciary Act of 1789.  It provides that “the district courts shall have original jurisdiction of any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States.” (28 U.S.C. § 1350).

From 1789 until 1960, cases were brought under the ATS only three times, but beginning in 1960, the statute began to be used much more frequently to hold individuals, corporations, and governments accountable for alleged human rights abuses.  This usage continued until 2013 when the Supreme Court greatly limited the statute’s reach in the landmark case Kiobel vs. Royal Dutch Petroleum Co.

Kiobel

In Kiobel, Several Nigerian nationals alleged that three corporations (from the Netherlands, the United Kingdom, and Nigeria) aided and abetted a Nigerian military campaign to suppress opposition to those corporations’ activities.  The crimes alleged included detention, torture, and extrajudicial killings, all of which violate the law of nations.

The Second Circuit dismissed the complaint because it did not believe that the law of nations recognizes corporate liability so cases could not be brought against corporations under the ATS.  The Supreme Court then granted certiorari and affirmed the lower court’s opinion.

The Supreme Court claimed to have granted certiorari to answer the question of whether corporations could be held liable under the ATS; however, the court instead reached out (no pun intended) to hold that a canon of statutory interpretation, the presumption against the extraterritoriality, applied to the ATS and therefore the statute could not be applied outside of the US.

The court said that the presumption could not be overcome since, “all of the relevant conduct took place outside of the United States.”  The court further noted that, “even where the claims touch and concern the territory of the United States,” it must be with “sufficient force” to overcome the presumption against extraterritoriality, and that “mere corporate presence” alone would not be sufficient.

This reasoning in the negative implied that the presumption could be overcome, however, which has left room for discrepancies among the lower courts.  The differences mainly center on how to analyze the phrase “touch and concern” and what is sufficient to overcome the presumption.

The Split

The Second Circuit

The split among the circuit courts is basically the Second versus the rest.  The Second Circuit is the most restrictive when applying the ATS and therefore has the highest bar of sufficiency to overcome the presumption.  In Mastafa v. Chevron Corp (2d Cir. 2014), the court said that the conduct which violates the law of nations must occur within the United States, and that U.S. citizenship of the defendant is not relevant.

The core purpose of the presumption of extraterritoriality is more pronounced in Mastafa than in Kiobel:

“[T]he danger of unwarranted judicial interference in the conduct of foreign policy is magnified in the context of the ATS, because the question is not what Congress has done but instead what courts may do.” [Describing the dangers inherent when courts impinge on the role of the executive and legislative branches in managing foreign policy, the Court explained,] “[t]hese concerns, which are implicated in any case arising under the ATS, are all the more pressing when the question is whether a cause of action under the ATS reaches conduct within the territory of another sovereign.”

In addition to the foreign policy argument, the court noted that a defendant’s citizenship is irrelevant because of Supreme Court language asserting that a “mere corporate presence” is not enough.

The Rest

Other courts have determined that a defendant’s citizenship can be relevant, though not sufficient alone.  In Doe v. Drummond Co., Inc., (2015) the Eleventh Circuit stated:

in determining whether a claim sufficiently touches and concerns the territory of the United States to confer jurisdiction to U.S. courts, the citizenship or corporate status of the defendant is relevant. If the defendants are U.S. citizens, some of the foreign policy concerns that the presumption against extraterritorial application is intended to reduce may be assuaged or inapplicable, since we would not be haling foreign nationals into U.S. courts to defend themselves.  Additionally, the acts of U.S. citizens may impact the United States, whether their actions occur extraterritorially or within the United States, particularly if those actions include international law violations.

The Eleventh Circuit believes that a less strict reading, which allows for the consideration of the citizenship of a defendant and conduct occurring outside the U.S., may not be significant foreign policy concern, and instead may be important to the U.S.

Similarly, the Fourth Circuit held in Al Shimari v. CACI Premier Technology, Inc. (2014) that the citizenship of a defendant is relevant, and that claims against acts committed outside the U.S. could be brought under the ATS because it was an important U.S. interest to allow aliens the right to hold U.S. citizens liable for torture committed abroad.

Looking Forward

The Kiobel decision has led to a sharp decrease in cases which can be brought under the ATS.  A strict interpretation will eliminate most cases which would have been eligible pre-Kiobel.  This is a concerning result considering our globalized world.  Increasingly, U.S. corporations are operating in foreign countries and an interpretation like the Second Circuit’s view in Kiobel will make it almost impossible for aliens to hold these corporations liable for torts committed abroad.  The other circuits have struck a balance between applying U.S. laws in other sovereign nations and still allowing foreigners the ability to hold companies and other individuals liable for human rights abuses that are of sufficient interest to the U.S.

Additional Reading

See: “Kiobel case: US Supreme Court Review of Alien Tort Claims Act” and “Is the Alien Tort Statute Headed Back to the Supreme Court?”

Speak Now or Forever Hold Your Peace: A Split on a Fiduciary’s Duty to Speak

Imagine: a member of your trusted investment club approaches you encouraging you to purchase securities in a new company, which you do because your investment club always has the group’s best interests in mind. Later you learn that this member received a commission from your transaction. You feel betrayed, but did he have a duty to tell you about his stake in your investment?

Duty to Speak

In Chiarella v. United States, the Supreme Court held, “When an allegation of fraud is based upon nondisclosure, there can be no fraud absent a duty to speak.” Such a duty is found when a party has information “that the other is entitled to know because of a fiduciary or similar relation of trust and confidence between them.”

This rule, like virtually all legal rules, reflects a balancing of competing interests. On one hand, we want to believe that people are trustworthy, particularly when a person has a fiduciary duty to us. The investment adviser industry depends on people trusting that their investment advisers have their best interests at heart. If an individual recommending the purchase of securities is deriving a commission from the sale, a potential investor would want to be wary of a potential conflict of interest.

On the other hand, is it wise to impose a duty to speak on every individual who may share information about a company offering securities? With the growth of technology, communication and the sharing of information have become constant. If such a duty is imposed on every individual who recommends a security or supplies information about a company, the chain of liability would be unending.

The Split

On whom do we impose a duty to speak? Three circuits have taken different approaches.

The Third Circuit found that a general fiduciary duty does not implicate a duty to speak. In Schiff v. United States the Court held:

“The Government argues that Schiff’s duty to disclose in the SEC filings derives from a general fiduciary obligation of ‘high corporate executives’ to the company’s shareholders . . . This argument reaches too far.”

The Second Circuit held in Securities and Exchange Commission v. Dorozkho that a duty to speak should be found wherever there is a fiduciary duty.

“[These cases] all stand for the proposition that nondisclosure in breach of a fiduciary duty ‘satisfies § 10(b)’s requirement . . . [of] a deceptive device or contrivance’.”

Finally, the Ninth Circuit extends the duty to speak to a much broader class in Paracor Finance, Inc. v. General Electric Capital Corp.

“A number of factors are used to determine whether a party has a duty to disclose: (1) the relationship of the parties, (2) their relative access to information, (3) the benefit that the defendant derives from the relationship, (4) the defendant’s awareness that the plaintiff was relying upon the relationship in making his investment decision, and (5) the defendant’s activity in initiating the transaction.”

Looking Forward

While the Ninth Circuit approach allows a judge to balance factors and find whether a duty to speak exists as a matter of fairness, this approach does not seem practical in a world where people are constantly accruing and sharing information. Thus, it makes the most sense for the court to follow the Second Circuit’s approach of only finding a duty to speak where there is a fiduciary duty, which represents the middle ground of who has a duty to speak and promotes predictability.

Pandora’s Inbox: email and “electronic storage” under the Stored Communications Act

When Congress passed the Stored Communications Act (“SCA”) in 1986, email systems were markedly different. Email systems from the 1970s closely mirrored what we know as instant messaging; both the sender and recipient had to be online to send and receive messages. It was only in the early ‘90s when the current ‘store and forward’ technique became utilized.

Moreover, web-based email (i.e., Gmail and Hotmail) didn’t exist. Instead, email was handled on an intranet, usually within a business, and users would download email messages from a server. The server would typically not backup the message (disk storage space was a luxury back then), and the only copy existed on the user’s computer. Today, we receive emails on our computers, phones, and watches (often simultaneously), and rely on that server to keep those emails in perpetuity.

“Electronic Storage”

The SCA prohibits unauthorized access to email, among other communications, but only if the communication is defined as being in “electronic storage.” See 18 U.S.C. § 2701. The SCA defined “electronic storage” as follows:

(17) “electronic storage” means—

(A) any temporary, intermediate storage of a wire or electronic communication incidental to the electronic transmission thereof; and 

(B) any storage of such communication by an electronic communication service for purposes of backup protection of such communication;

18 U.S.C. § 2510(17).

The act also specifies the legal process the government must use to compel disclosure of messages in “electronic storage.” See 18 U.S.C. § 2703. When it was passed, Congress presumed that any emails left on an email server longer than 180 days were “abandoned,” and thus could be obtained by law enforcement without requiring a warrant (or giving notice to the user).

Courts have agreed that unopened emails residing on a server are protected by SCA; the fiction is that an unopened email is considered to be in “temporary, intermediate storage” pending delivery. See Cruz Lopez v. Pena (N.D. Tex. Mar. 5, 2013) (“§ 2510(17) has been clearly established to protect unopened emails.”); Lazette v. Kulmatycki, (N.D. Ohio 2013) (“[P]laintiff cannot prevail to the extent that she seeks to recover based on a claim that [defendant] violated the SCA when he accessed e-mails which she had opened but not deleted.”).

Emails Stored Online & Downloaded to a Personal Device 

In Theofel v. Farey-Jones, the Ninth Circuit held that emails received, read, and left on a server fit within the Act’s definition of being “for purposes of backup protection”:

 [a]n obvious purpose for storing a message on an [internet service provider’s (“ISP”)] server after delivery [from the server to the user] is to provide a second copy of the message in the event that the user needs to download it again–if, for example, the message is accidentally erased from the user’s own computer.

At first glance, the definition seems quite broad, allowing for any email to be protected. Parsing through the opinion (which offers little in information on email configuration) it seems clear that Chief Justice Kozinski relied upon the assumption that the users downloaded the emails to their personal computers, noting that if “remote computing service might be the only place a user stores his messages; in that case, the messages are not stored for backup purposes.” Id. at 1077. Other courts have aligned with the similar view concerning email both downloaded and on a server. See, e.g., Shefts v. Petrakis, (C.D. Ill. Nov. 29, 2011) (finding email copies were protected by SCA when plaintiff downloaded them to Outlook); Cornerstone Consultants Inc. v. Prod. Input Solutions LLC, (N.D. Iowa 2011) (same).

Noted scholar Orin Kerr believes the Ninth Circuit incorrectly interpreted the provision in the context of the user, and argues that “the ‘backup’ language is about backups created by the ISP for the ISP’s purposes.” Kerr also criticized Kozinski’s rationale in an earlier paper, noting that “the apparent test is whether the user or employees of the service provider have reason to believe that they may need to access an additional copy of the file in the future.”

Users v. Servers

In Jennings v. Jennings, the Supreme Court of South Carolina granted cert on a case involving a wife who figured out her husband’s Yahoo! email password, and accessed his account (she was looking for evidence of an affair). When the husband sued under the SCA, the court decided to take a crack at interpreting the statute. Unsurprisingly, the court returned with a 2-2-1 plurality decision:

• Justice Hearn, joined by Justice Kittredge— based on the meaning of the word “backup” according to a Merriam-Webster Dictionary, a substitute copy has to exist for the email to be a “backup.” Since the only copy of the email was read and stored on Yahoo!’s servers, it follows that the emails are not protected under the SCA.

• Chief Justice Toal, joined by Justice Beatty—the justices believed section (A) and (B) were conjunctive. Unread email on Yahoo!’s server is in “transmission” and “backup” until the user reads them, thus protected by the SCA as “electronic storage.” However, once an email is read, it has reached its destination, and is no longer stored under the definition of the SCA.

• Justice Pleicones—while mostly agreeing with Chief Justice Toal, Pleicones believed that the statute was disjunctive, but still failed to find the email satisfied either provision.

Rejecting the reasoning in Theofel, these three decisions all took the approach that the SCA protects emails from the perspective of Yahoo!, not the user. They also assumed the husband never downloaded his Yahoo! mail onto a computer or other device.

Received v. Sent Emails

The Eighth Circuit provided a proper circuit split in Anzaldua v. Northeast Ambulance & Fire Protection District. Here, A jilted ex-girlfriend logged on to the plaintiff’s Gmail account and forwarded two emails to the plaintiff’s superior. The plaintiff was later fired due to “inflammatory” remarks found in his emails. The issue on appeal was whether the two emails (one was in the sent folder, the other in the drafts) were considered protected under SCA. The court held neither email were protected.

The argument centered on whether the user sent or received the email. One of emails forwarded was sent earlier to another person. The second email was still in the draft folder. According to the Eighth Circuit, since neither email was received, neither are within the ambit of the SPA. In rejecting Theofel, it noted “[i]f Theofel has any application here, it would be to protect a copy of the email stored with Holland’s email service, not Anzaldua’s.”

Concerning the sent email, the Eighth Circuit argued that the plaintiff had no reason to access a backup copy of the email because the message had been successfully delivered, “[w]e hold that once Anzaldua successfully sent the email to Holland, as he alleged he did, the copy Gmail retained on its server as a sent message did not perform a backup function.”

As for the email in the draft folder, “because the email had not been sent, its storage on the Gmail server was not ‘temporary, intermediate,’ and ‘incidental to the electronic transmission thereof.’”

Again, the court made no mention if the plaintiff had downloaded those emails onto a separate device. Rather, it mentions n passing that “web-based email users may still download emails to their computers through email client programs, which complicates the picture.”

Looking Forward

Epic.org has proved this helpful table as to what type of law enforcement access is required to read your email:

EPIC Email Guide

You have to wonder how we got here. It would seem judicial opinion goes backwards, creating splits along the way, while technology continues to forge on. It is likely necessary to jettison this act and replace it with something that will properly suit modern technology.

In a somewhat fitting analogy, judicial review and legislative amendments of the SCA is akin to what is known in software development as the “Code and Fix” methodology. Here, a developer writes code and then quickly releases the application without testing it. When a user reports a bug, the developer writes some code to patch it up, then releases it again—this cycle continues, the software becomes bloated, and every subsequent bug takes longer to fix. Suffice it say, the methodology is heavily frowned upon. Sometimes, it’s simply prudent to scrap something and start fresh.

 

It Seemed like the Reasonable Approach at the Time: A Circuit Split on the Meaning of “Reasonable Belief” in Search and Seizure

How Many Warrants?

Two major Supreme Court decisions are at play here concerning the constitutionality of officers entering residences to execute arrest warrants when residency of the suspect is uncertain.

In the aftermath of the first case, Payton v. New York (S.Ct. 1980), the Courts of Appeals developed a two-prong test to assess the constitutionality of an officer’s entry to execute an arrest warrant: the officer must have a “reasonable belief” that (1) the “arrestee lives in the residence, and that (2) the “arrestee is within the residence.” United States v. Gay (10th Cir. 2001).

One year after Payton, the Supreme Court held that officers may not enter the residence of a third party to execute an arrest warrant unless they first obtain a search warrant based on the belief that the suspect “might be a guest there.” Steagald v. United States (S.Ct. 1981). This created a stricter standard for entering officers if they believe only that the suspect is a common “guest” in the residence rather than a resident or immediately within the residence. Thus, officers would much prefer that the arrestee is a resident and within the residence as opposed to being simply a guest.  The determination of whether officers need only an arrest warrant to enter versus an arrest warrant and a search warrant to enter a residence is entirely dependent on an officer’s “reasonable belief.”

The circuit courts have since been faced with discerning what constitutes a “reasonable belief,” thus determining when both an arrest and a search warrant are necessary for constitutional entry into third party residences as opposed to only an arrest warrant.

Circuit Split

The Third Circuit is the most recent voice to enter the interpretive dispute surrounding the standard of “reasonable belief.” United States v. Vasquez-Algarin (3rd Cir. 2016).

Joining the Fifth, Sixth, Seventh, and Ninth Circuits, the Third Circuit held that reasonable belief should be viewed as the functional equivalent of probable cause, and thus the same standard.  The practical effect of requiring a probable cause standard is that it makes it more difficult to enter only with an arrest warrant. The Third Circuit had two primary reasons for their decision:

  • First, the Supreme Court’s use of the phrase “reason to believe,” when considered in the context of Payton and more generally the Court’s Fourth Amendment jurisprudence, supports a probable cause standard.
  • Second, and more fundamentally, requiring that law enforcement officers have probable cause to believe their suspect resides at and is present within the dwelling before making a forced entry is the only conclusion commensurate with the constitutional protections the Supreme Court has accorded to the home.

Some of Vasquez-Algarin’s reasoning echoes that of the Sixth Circuit, both noting that on several occasions the Supreme Court has used the same “reason to believe” language from Payton “as a stand-in for ‘probable cause.’” (3d Cir. 2016).

The DC Circuit, First, Second, and Tenth Circuits have held that the standard for reasonable belief falls short of the standard for probable cause belief. The DC Circuit reasons that it is “more likely . . . that the Supreme Court in Payton used a phrase other than ‘probable cause’ because it meant something other than ‘probable cause.’” (2005). The Tenth Circuit equates probable cause requirements with calls for “actual knowledge of the suspect’s true residence.” (1999). It believes extending probable cause as the standard for a “reasonable basis” for determining that an individual “lived in the residence and . . . could be found within at the time of entry,” would “effectively make Payton a dead letter.” Valdez v. McPheters (10th Cir. 1999).

The Third Circuit claims that the Supreme Court’s choice of stand-in language undermines the DC Circuit’s conclusion that Payton’s ‘reason to believe’ language should be interpreted loosely. The Third Circuit explains that the Supreme Court’s use of “reason to believe” as a stand-in for “probably cause” indicates the Court’s belief that the standard for the two is the same.

Looking Forward

The incongruence in requirements for only arrest warrants versus arrest and search warrants creates such a fundamental constitutional discrepancy that the Supreme Court should address it soon.

For the last 36 years, courts have been left to grapple with the interpretation of the Court’s language in Payton, and the circuits seem to have pretty evenly split on the meaning of a “reasonable belief.” Until the Court addresses the standard for reasonable belief varying degrees of scrutiny will continue to be imposed on officers, and the degree of protection of an individual’s right to be secure in their home will remain grey.