Digital data is becoming a hot commodity these days because it enables AI tools to do powerful things. Companies that offer content should keep up with the evolving technology and laws that can help them protect their online data.
As data becomes available online, it can be accessed in different ways leading to various legal issues. In general, one basis for protecting online data lies in the creativity of the data under the Copyright Act of 1976. Another basis lies in the technological barrier of the computer system hosting the data under the Computer Fraud and Abuse Act (CFAA) and Digital Millennium Copyright Act. It is also possible to protect online data based on contractual obligations or tort principles under state common law. In terms of the data, a company would need to consider its proprietary data and user-generated data separately, but any creative content is invariably entitled to copyright protection.
To read the full text of this article, please visit the Duane Morris Artificial Intelligence Blog.
On March 16, 2023, the United States Copyright Office (USCO) published Copyright Registration Guidance (Guidance) on generative AI. In the Guidance, the USCO reminded us that it “will not register works produced by a machine or mere mechanical process that operates randomly or automatically without any creative input or intervention from a human author.” This statement curiously conjures the notion of a machine creating copyrightable works autonomously.
While the operation of a machine, or specifically the execution of the underlying AI technology, may be largely mechanical with little human involvement, the design of the AI technology can take significant human effort. If we look at protecting human works that power machines as intellectual property in the broad context where AI has been applied, just like authorship has been an issue when an AI technology is used in creating copyrightable subject matter, inventorship has been an issue when an AI technology is used in generating an idea that may be eligible for patent protection.
To read the full text of this article, please visit the Duane Morris Artificial Intelligence Blog.
Three federal agencies jointly issued a guidance that banks are expected to monitor their financial technology partners to ensure compliance with privacy, fair lending, and anti-money laundering laws.
The “Interagency Guidance on Third-Party: Risk Management” was issued jointly by: (1) Board of the Federal Reserve System [OP-1752], (2) Department of the Treasury Office of the Comptroller of the Currency [OCC-2021-0011], and (3) Federal Deposit Insurance Corporation [RIN 3064-ZA26], with a final guidance date of June 6, 2023 (“Guidance”). The Guidance offers the three U.S. agencies’ views on sound risk management principles for banking organizations when developing and implementing risk management practices for all stages in the life cycle of third-party relationships.
Prior guidance is rescinded and replaced by the Guidance
The Guidance rescinds and replaces the following previously issued guidance by the three federal agencies:
- Board’s 2013 guidance: SR Letter 13-19/CA Letter 13-21, “Guidance on Managing Outsourcing Risk” (December 5, 2013, updated February 26, 2021)
- FDIC’s 2008 guidance: FIL-44-2008, “Guidance for Managing Third-Party Risk” (June 6, 2008)
- OCC’s 2013 Guidance and its 2020 frequently asked questions: OCC Bulletin 2013-29, “Third-Party Relationships: Risk Management Guidance,” and OCC Bulletin 2020-10, “Third-Party Relationships: Frequently Asked Questions to Supplement OCC Bulletin 2013-29.” Additionally, the OCC also issued foreign-based third-party guidance, OCC Bulletin 2002-16, “Bank Use of Foreign-Based Third-Party Service Providers: Risk Management Guidance,” which is not being rescinded but instead supplements the final guidance.
The Guidance seeks to establish a consistent approach which puts the onus on banks to obtain information from and ensure compliance from its third-party fintech relationships. In other words, banks are responsible for knowing how their fintech partners: (1) are operating and (2) are complying with applicable federal law.
Obligations concerning privacy laws and cross-border flow of information
The Guidance discusses factors to consider when evaluating whether to enter into a relationship with a third party, including the compliance of privacy laws. Regarding contracts between a bank and a foreign-based third party, the Guidance notes the importance of:
- privacy laws
- cross-border flow of information
- choice-of law and jurisdictional provisions that provide dispute adjudication
In sum, the 68-page Guidance sets forth a bank’s risk management obligations when contracting with third-party fintech. As privacy laws and cross-border flow of information continually increase, the Guidance sets forth the criteria to analyze within these contracts.
The Federal Trade Commission’s proposed click to cancel rule requires companies to provide more detailed information and notices about cancelling automatic renewals, subscriptions, and memberships which are prevalent in online commerce. The proposed rule, titled Negative Option Rule, is at: https://www.ftc.gov/system/files/ftc_gov/pdf/p064202_negative_option_nprm.pdf
The goal of the proposed rule is to combat unfair or deceptive practices that include recurring charges for products or services consumers do not want and cannot cancel without undue difficulty. The FTC is currently seeking comments on the proposed rule until April 19, 2023.
The proposed rule would require canceling via a negative-option program to be easy and available through the same means as signing up. For example, if a company offers one-click membership sign-up through its website, then the company must also offer one-click cancellation through the same website.
Other substantive requirements of the proposed rule include annual reminders for customers of programs that do not involve the shipment of physical goods, pre-billing disclosure requirements, express consent for subscription terms separate from the rest of the transaction, and limits on the ability to offer special deals to customers attempting to cancel.
To help comply with this anticipated rule, companies should:
- Catalog: Catalog their negative-option marketing offerings under the broad definition provided by the FTC under the proposed rule
- Representations: Review the processes associated with these offerings, including representations they make concerning any aspect of a product or service involving negative-option marketing to ensure they are accurate
- Pre-bill disclosures: Review pre-billing disclosures to ensure all material terms of a deal are disclosed to consumers before they enter their billing information and that express consent to the subscription is obtained
- Involve IT: Communicate with their IT departments to develop a simple cancellation procedure which includes annual notifications for consumers.
Ephemeral messaging is short-lived, yet the data preservation and regulatory obligations remain.
Ephemeral messaging apps – like WhatsApp and SnapChat – are a form of digital communication available for a limited time and then deleted. The two key characteristics of ephemeral messaging are: (1) automated deletion of message content for both the sender and the receiver and (2) end-to-end encryption which enhances privacy by making it more difficult for hackers and others to read the encrypted data while it is in transition between devices.
The three degrees of ephemerality in messaging apps are:
- Pure which involves the permanent and automated deletion of messages;
- Quasi which permits preservation of messages in certain circumstances; and
- Non-ephemeral in which messages usually remain on a source (such as a server) and may not include end-to-end encryption.
The benefits of ephemeral messaging include:
- Information governance: Data storage and records preservation/management are reduced by ephemeral messaging.
- Legal compliance: Encryption and automatic deletion of personal data help reduce exposure if a data breach occurs.
- Data security: Even if a mobile device is lost, the automatic deletion of data will likely protect against hackers.
The legal risks of ephemeral messaging include: (1) complying with subpoenas and (2) preservation of data when litigation is “reasonably anticipated”.
Subpoenas often define documents and communications broadly to capture all communications, including ephemeral messaging. Thus, the failure to preserve documents may result in an inability to fully comply with a subpoena and/or a criminal exposure, particularly if the subpoena was issued by the government.
Regarding the preservation of data, legal hold policies may need to be amended to address ephemeral messaging, including when a company is dealing with government regulators. See e.g., Federal Trade Commission v. Noland, et al., Case No. CV-20-00047-PHX-DWL (D. Ariz. 2021) (sanctioning defendants for installing and using ephemeral messaging after learning they were investigation targets).
Some regulators caution against the use of ephemeral messaging. For example:
- The U.S. Securities and Exchange Commission (“SEC”) issued a guidance in 2018 that prohibits business use of apps which permit automatic destruction of messages.
- The U.S. Department of Justice (“DOJ”) updated its Evaluation of Corporate Compliance Programs in March 2023 which discusses the factors that prosecutors should consider in conducting an investigation of a corporation including the adequacy and effectiveness of the corporation’s compliance program at the time of the offence as well as at the time of the charging decision.
Accordingly, establishing adequate and effective corporate compliance programs are important, including:
- establishing a corporate compliance program which is monitored, updated, and works in practice, and
- reviewing the company’s document-retention policies and procedures, including whether they address ephemeral messaging and mobile device data.
In sum, although ephemeral messaging is short-lived, the consequences – of failing to comply with data preservation and regulatory obligations – may be long lasting.
Daily news reports about ChatGPT are ubiquitous. Can it replace legal tasks undertaken by humans (with law degrees and state bar licenses)? Can lawyers use it to enhance their legal work? Quite naturally, this raises the issue of whether ChatGPT will make its way into class action litigation – where the stakes are enormous, and the workloads of lawyers involved in those cases are enormous.
To read the full text of this post by Duane Morris attorney Brandon Spurlock, please visit the Duane Morris Class Action Defense Blog.
On the heels of holding that defendants’ use of session replay software did not constitute a violation of the California Invasion of Privacy Act, Judge William Alsup in Williams v. What If Holdings LLC and ActiveProspect Inc. has now denied the plaintiff’s request for leave to amend. In doing so, the court reaffirmed its previous holding that the plaintiff’s allegations only established that ActiveProspect’s use of session replay software functioned as a tool that supported What If’s management of its own website data, and not as a means of eavesdropping and aggregating information for ActiveProspect’s own purposes.
Read the full Alert on the Duane Morris LLP website.
Read the full Alert on the Duane Morris LLP website.
Free health apps – often funded by advertising revenue – may result in disclosure of private health information to third parties without permission from consumers.
A company that operates a health app or collects consumer health data should analyze how ad-tracking tools are used within their ecosystem. In 2021, the Federal Trade Commission (“FTC”) issued a policy statement clarifying mobile health app makers’ obligations to notify consumers if their data is exposed or shared without their permission, and the FTC stated that the policy was meant to fill a “gap” in regulations for health apps which generally are not covered by the Health Insurance Portability and Accountability Act (“HIPPA”).
Failure to fulfil these obligations may result in a government action, such as an action by the FTC which: (1) has authority over businesses that collect health information under the FTC Act and (2) may bring enforcement actions regarding deceptive claims about the use or disclosure of health data. Recent federal and state enforcement actions include:
- FTC action: Flo Health Inc. settled FTC allegations that the company shared health information of its users with outside data analytics providers after promising such information would be kept private. The FTC filed the Complaint against Flo Health asserting that Flo Health: (1) disclosed health data from millions of users of its Flo Period & Ovulation Tracker app to third parties that provided marketing and analytics services to the app, including Facebook’s analytics division and Google’s analytics division, (2) disclosed sensitive health information, such as the fact of a user’s pregnancy, to third parties in the form of “app events,” which is app data transferred to third parties for various reasons and, (3) did not limit how third parties could use this health data.
- California AG action: Glow Inc. settled a probe by the California Attorney General regarding its fertility-tracking mobile app that stores personal and medical information. The Attorney General’s Complaint alleged that the app: (1) failed to adequately safeguard health information, (2) allowed access to user’s information without the user’s consent, and (3) had additional security problems with the app’s password change function that could have allowed third parties to reset user account passwords and access information in those accounts without user consent. Within the settlement, Glow was required to: (1) incorporate privacy and security design principles into its app and (2) obtain affirmative consent from users prior to sharing or disclosing personal, medical, or sensitive information and require the users to revoke previously granted consent.
In sum, a company that operates a health app or collects consumer health data should analyze how ad-tracking tools are used within their ecosystem.
Fake and deceptive reviews and endorsements – prevalent in online shopping – are a target of the FTC’s proposed rulemaking. The FTC has authority to promulgate trade regulation rules that define with specificity the acts or practices that are unfair or deceptive in or affecting commerce under 15 U.S.C. 45(a)(1).
The FTC states that it is concerned that some platforms may have mixed incentives to deal effectively with the problematic reviews and, despite some platforms purporting to take enforcement of problematic reviews seriously, fake and deceptive reviews continue to flourish on those very platforms. The sheer number of people engaged in fraudulent or deceptive reviews and endorsements makes them even more difficult to combat, especially given such content is often created by individuals or small companies, some of whom are located abroad.
The FTC is considering civil penalty remedies as a potent deterrent. The FTC is considering initiating a Magnuson-Moss rulemaking to address certain types of clear Section 5 violations involving reviews and endorsements. The FTC also noted that it reviewed many comments to the Use of Endorsements and Testimonials in Advertising, 16 CFR part 255.
The FTC has a long history of challenging reviews and endorsements, including, for example, that the FTC has challenged:
- Fabricated consumer reviews. See, e.g., Complaint 9-17, FTC Roomster Corp., No. 1:22-CV-07389 (S.D.N.Y. Aug. 30, 2022) (purchase and sale of fake app store and other reviews for room and roommate finder app and platform); Complaint at 2-4, Sunday Riley Modern Skincare, LLC, No. C-4729 (Nov. 6, 2020) (company personnel created fake accounts to write fake reviews of company’s products on third-party retailer’s website); Complaint at 12-13, 15-16, Shop Tutors, Inc., No. C-4719 (Feb. 3, 2020) (reviews of LendEDU were fabricated by its employees, other associates, or their friends and published on a third-party website); Complaint at 20, FTC v. Cure Encapsulations, Inc., No. 1:19-cv-00982 (E.D.N.Y. Feb. 26, 2019) (Amazon reviews of defendants’ product were fabricated by one or more third parties whom defendants had paid to generate reviews). It has similarly challenged fictitious endorsements. See, e.g., Complaint at 14, 19, FTC v. A.S. Resch., LLC (Synovia), No. 1:19-cv-3423 (D. Colo. Dec 5, 2019) (fake consumer testimonials); Complaint at 20-22, 31, Global Cmty. Innovations LLC, No. 5:19-CV-00788 (N.D. Ohio Apr. 10, 2019) (fake consumer testimonials); Complaint at 27-28, 43, Jason Cardiff (Redwood Sci. Techs., Inc.), No. ED 18-cv-02104 SJO (C.D. Cal. Oct. 24, 2018) (testimonials in infomercial were paid actors who had not used defendants’ product); Complaint at 12-3, 20, FTC v. Mktg. Architects, Inc., No. 2:18-cv-00050-NT (D. Me. Feb. 5, 2018) (fake testimonials); Complaint at 14, 21, FTC v. Health Rsch. Labs., LLC, No. 2:17-cv-00467-JDL (D. Me. Nov. 30, 2017) (fake consumer testimonials and expert endorsements); Complaint at 13, 18, 28, XXL Impressions LLC, No. 1:17-cv-00067-NT (D. Me. Feb. 22, 2017) (defendants do not know whether consumer endorsers of their products who appeared in their ads actually exist); Complaint at 5, 7, 12-13, FTC v. Anthony Dill, No. 2:16-cv-00023-GZS (D. Me. Jan. 19, 2016) (fake testimonials); Amended Complaint at 38-39, 43-44, FTC v. Lisa Levey, No. 03-4670 GAF (C.D. Cal. Mar. 8, 2004) (fictitious expert endorsements). It has also challenged false claims that specific celebrities endorsed specific products, services, or businesses. See, e.g., Complaint at 15, 19-20, 30-31, Global Cmty. Innovations LLC, No. 5:19-CV-00788 (N.D. Ohio Apr. 10, 2019); Complaint at 5, 18-20, 22-23, 36, FTC v. Tarr, Inc., No. 3:17-cv-02024-LAB-KSC (S.D. Cal. Oct. 3, 2017); Complaint at 13-15, 18, Sales Slash, LLC, No CV15-03107 (C.D. Cal. Apr. 27, 2015); Complaint at 2, 4-5, Norm Thompson Outfitters, Inc., No. C-4495 (Sept. 29, 2014); The Raymond Lee Org., Inc., 92 F.T.C. 489 (1978) (use of the names, photographs and words of public officials, including members of the Congress, misled consumers that the officials recommended or endorsed the business). It has similarly challenged false claims of endorsements by specific entities. See, e.g., Complaint at 15-16, 18, FTC v. Mercola.com, LLC, No. 1:16-cv-04282 (N.D. Ill. Apr. 13, 2016) (misrepresentation the FDA endorsed the use of indoor tanning systems as safe); Mytinger & Casselberry, Inc., 57 F.T.C. 717, 743-46 (1960) (misrepresentation that a consent decree restraining respondents from making certain claims was an endorsement by the U.S. government of its product); Trade Union Courier Publ’g Corp., 51 F.T.C. 1275, 1300-03 (1955) (misrepresentation that newspaper was endorsed by the American Federation of Labor when it was only endorsed by some unions within the AFL); Ar-Ex Cosms., Inc., 48 F.T.C. 800, 806 (1952) (misrepresentation that lipstick had been recommended by Consumers’ Research); A. P. W. Paper Co., Inc., 38 F.T.C. 1, 15-17 (1944) (misrepresentation that product was endorsed by the American Red Cross); Wilbert W. Haase Co., Inc., 33 F.T.C. 662, 681-83 (1941) (misrepresentation that insurance company had endorsed burial vault business and its vaults). Furthermore, the Commission has challenged advertisements that misrepresent endorsers’ experiences. See, e.g., Complaint at 14, 18, FTC v. A.S. Resch., LLC (Synovia), No. 1:19-cv-3423 (testimonialists had used a prior product formulation that contained substantially different ingredients); Complaint at 22, 25, NextGen Nutritionals, LLC, No. 8:17-cv-2807-T-36AEP (M.D. Fla. Jan. 9, 2018) (testimonials in ads misrepresented the actual experiences of customers); Complaint at 22-24, 27, FTC v. Russel T. Dalbey, No. 1:11-cv-01396-CMA—KLM (D. Colo. May 26, 2011) (testimonials misrepresented earnings from brokering promissory notes using defendants’ system); Computer Bus. Servs., Inc., 123 F.T.C. 75, 78-79 (1997) (testimonials by purchasers of home-based business ventures did not reflect their actual experiences); R. J. Reynolds Tobacco Co., 46 F.T.C. 706, 731-32 (1950) (endorsements communicated endorsers exclusively smoked Camel cigarettes whereas they did not smoke cigarettes, did not smoke Camels exclusively, or could not tell the difference between Camels and other cigarettes).
- Giving an incentive for a review or endorsement and requiring that it be positive. See, e.g., Complaint at 14, 19-20, FTC A.S. Resch., LLC (Synovia), No. 1:19-cv-3423 (offered consumer endorsers with free product in exchange for “especially positive and inspiring” reviews); Complaint at 5-6, 8, Urthbox, Inc., No. C-4676 (Apr. 3, 2019) (deceptively provided compensation for the posting of positive reviews on the BBB’s website and other third-party websites); Complaint at 2-3, AmeriFreight, Inc., No. C-4518 (Feb. 27, 2015) (every month past customers were encouraged to submit reviews of respondent’s services in order to be eligible for a $100 “Best Monthly Review Award”, given to “the review with the most captivating subject line and best content” and that they should “be creative and try to make your review stand out for viewers to read!”).
- Sellers who control websites claiming to provide independent opinions of products. See, e.g., Complaint at 2, 8-9, Son Le., C-4619 (May 31, 2020) (respondents operated purportedly independent websites that reviewed their own trampolines); Complaint at 19-20, 28, FTC v. Roca Labs, Inc., No. 8:15-cv-02231-MSS-TBM (M.D. Fla. Sept. 24, 2015) (defendants operated Gastricbypass.me website, a purported independent, objective resource, which endorsed defendants’ products); Complaint at 21-25, 28, FTC v. NourishLife, LLC, No. 1:15-cv-00093 (N.D. Ill. Jan. 7, 2015) (defendants operated Apraxia Research website, a purported independent, objective resource, which endorsed a type of supplement sold only by defendants). It has also challenged sellers who control purportedly independent organizations or entities that reviewed or approved the sellers’ products or services. See, e.g., Complaint at 3-5, Bollman Hat Co., No. C-4643 (Jan. 23, 2018) (respondents created seal misrepresenting that independent organization endorsed their products as made in the United States); Complaint at 18-20, 26, NextGen Nutritionals, LLC, No. 8:17-cv-2807-T-36AEP (M.D. Fla. Jan. 9, 2018) (misrepresentation that sites displaying the Certified Ethical Site Seal were verified by an independent, third-party program); Complaint at 2-4, Moonlight Slumber, LLC, No. C-4634 (Sept. 28, 2017) (respondent misrepresented that baby mattresses had been certified by Green Safety Shield, when in fact the shield was its own designation); Complaint at 4-6, Benjamin Moore & Co., Inc., No. C-4646 (July 11, 2017) (respondent used seal of its own creation to misrepresent that paints had been endorsed or certified by independent third party); Complaint at 2-4, ICP Constr. Inc., No. 4648 (July 11, 2017) (same); Complaint at 2-3, Ecobaby Organics, Inc., No. C-4416 (July 25, 2013) (manufacturer misrepresented seal was awarded by industry association when in fact it created and controlled that association); Complaint at 2-4, Nonprofit Mgmt. LLC, No. C-4315 (Jan. 11, 2011) (respondents misrepresented their seal program was endorsed by two associations when in fact a respondent owned and operated them); Complaint at 34, 37, FTC v. A. Glenn Braswell, No. 2:03-cv-03700-DT-PJW (C.D. Cal. May 27, 2003) (defendants established Council on Natural Nutrition and then misrepresented it was an independent organization of experts who had endorsed defendants’ products).
- Suppression of customer reviews based upon their negativity. See Complaint at 1-2, Fashion Nova LLC, C-4759 (Mar. 18, 2022). Commission staff has also addressed the issue in a closing letter. See Letter from Serena Viswanathan, Acting Associate Director, Division of Advertising Practices to Amy R. Mudge and Randall M. Shaheen, Counsel for Yotpo, Ltd. (Nov. 17, 2020), https://www.ftc.gov/system/files/documents/closing_letters/nid/202_3039_yotpo_closing_letter.pdf.
The FTC obtained comments to the proposed rulemaking so expect new rulemaking and guidance in 2023.