Jonathan Stempel | Vox

FTC Has Power to Police Companies’ Cyber Security, Says Appeals Court

2019-03-06T06:01:22-05:00

A U.S. appeals court said the Federal Trade Commission has authority to regulate corporate cyber security and may pursue a lawsuit accusing hotel operator Wyndham Worldwide of failing to properly safeguard consumers’ information.

The 3-0 decision by the 3rd U.S. Circuit Court of Appeals in Philadelphia on Monday upheld an April 2014 lower court ruling allowing the case to go forward.

The FTC wants to hold Wyndham accountable for three breaches in 2008 and 2009 in which hackers broke into its computer system and stole credit card and other details from more than 619,000 consumers, leading to over $10.6 million in fraudulent charges.

Noting the FTC’s broad authority under a 1914 law to protect consumers from unfair and deceptive trade practices, Circuit Judge Thomas Ambro said Wyndham failed to show that its alleged conduct “falls outside the plain meaning of ‘unfair.’”

Wyndham brands include Days Inn, Howard Johnson, Ramada, Super 8 and Travelodge.

A company spokesman, Michael Valentino, said “safeguarding personal information remains a top priority” for the Parsippany, N.J.-based company. “We believe the facts will show the FTC’s allegations are unfounded,” he added.

FTC Chairwoman Edith Ramirez welcomed the decision.

“It is not only appropriate, but critical, that the FTC has the ability to take action on behalf of consumers when companies fail to take reasonable steps to secure sensitive consumer information,” she said.

Congress has not adopted wide-ranging legislation governing data security, a growing concern after high-profile breaches such as those at retailer Target, infidelity website Ashley Madison and even U.S. government databases.

In a test of its power to fill the void, the FTC sued Wyndham in June 2012, claiming its computers “unreasonably and unnecessarily” exposed consumer data to the risk of theft.

Wyndham accused the FTC of overreaching, but U.S. District Judge Esther Salas in Newark, N.J., let the case proceed.

Affirming that ruling, Ambro rejected Wyndham’s argument that it lacked “fair notice” about what the FTC could require.

He also rejected what he called Wyndham’s “alarmist” argument that letting the FTC regulate its conduct could give the agency effective authority to regulate hotel room door locks, or sue supermarkets that fail to sweep up banana peels.

“It invites the tart retort that, were Wyndham a supermarket, leaving so many banana peels all over the place that 619,000 customers fall hardly suggests it should be immune from liability,” Ambro wrote.

The case is Federal Trade Commission v Wyndham Worldwide Corp et al, 3rd U.S. Circuit Court of Appeals, No. 14-3514.

(Additional reporting by Alina Selyukh in Washington, D.C.)

This article originally appeared on Recode.net.

Uber Wins Dismissal of Lawsuit by Connecticut Taxi Companies

2019-03-06T05:30:52-05:00

Uber Technologies on Thursday won the dismissal of a racketeering lawsuit by 15 Connecticut taxi and limousine companies seeking to stop the ride-sharing company from doing business in the state.

U.S. District Judge Alvin Thompson in Hartford said the plaintiffs failed to show that Uber competed unfairly, tried to lure away their drivers, or misrepresented its services, fares and drivers’ insurance coverage to passengers.

The judge also rejected the plaintiffs’ argument that Uber should follow the same licensing and safety regulations that they are required by law to observe.

He said this was because it was only recently that Connecticut’s legislature even asked the state’s Department of Transportation to consider whether Uber should be covered.

Uber had argued that it was unclear how state transportation laws could “apply to a technology company” such as itself and which owns no cars and employs no drivers.

Uber spokesman Matthew Wing said the decision lets Connecticut drivers and passengers keep receiving the “economic and transportation benefits” that the company provides.

Lawyers for the taxi and limousine companies did not immediately respond to requests for comment.

Thompson said the plaintiffs may file an amended lawsuit if they wish.

The lawsuit is similar to many filed in the United States against San Francisco-based Uber, which lets customers summon vehicles through a smartphone application.

In their complaint, which also sought damages, the Connecticut companies said Uber succeeds because it can “prey parasitically on established taxicab and livery services” by cutting corners and ignoring laws meant to protect passengers.

Lyft, another ride-sharing service, was originally also a defendant, but was dismissed from the case in February.

The case is Greenwich Taxi Inc et al v. Uber Technologies Inc et al, U.S. District Court, District of Connecticut, No. 14-00733.

(Additional reporting by Ankush Sharma in Bengaluru; editing by David Gregorio and Leslie Adler)

This article originally appeared on Recode.net.

Facebook Defeats Shareholder Litigation Over IPO

2019-03-06T05:57:26-05:00

A federal appeals court on Friday said Facebook officials including Chief Executive Mark Zuckerberg cannot be sued by shareholders who said the social media company concealed threats to its growth prospects before its May 2012 initial public offering.

The 2nd U.S. Circuit Court of Appeals said investors who lost money on shares they bought after the $16 billion IPO lacked standing to sue Facebook directors and underwriters led by Morgan Stanley over alleged inadequate disclosures made before the company went public.

Shareholders said Facebook should have publicly revealed its internal projections on how increased mobile usage might reduce future revenue, rather than quietly warn its underwriters, which then cut their earnings forecasts. They said the stock price was “hammered” after the truth came out.

Circuit Judge Dennis Jacobs, however, wrote that the plaintiffs could not have owned Facebook shares before the IPO, and thus could not demonstrate “contemporaneous” ownership while the directors were breaching their fiduciary duties.

“A proper plaintiff must have acquired his or her stock in the corporation before the core of the allegedly wrongful conduct transpired,” Jacobs wrote for a 3-0 panel.

The decision upheld a February 2013 dismissal of the so-called derivative litigation by U.S. District Judge Robert Sweet in Manhattan. Sweet also oversees shareholder class-action litigation against Facebook itself over the IPO.

Lawyers for the plaintiffs did not immediately respond to requests for comment.

A Facebook spokeswoman said the Menlo Park, Calif.-based company is pleased with the decision.

The defendants also included Facebook Chief Operating Officer Sheryl Sandberg, Goldman Sachs Group Inc and JPMorgan Chase, among others. Andrew Clubok, a Kirkland & Ellis partner representing them, declined to comment.

Facebook began trading on May 18, 2012, after going public at $38 per share, only to see its share price fall to $17.55 on Sept. 4, 2012, and stay below the IPO price for more than a year. The price has kept rising, and peaked at $99.24 on Tuesday.

Nasdaq OMX Group in April agreed to pay $26.5 million to settle shareholder litigation over technology problems that plagued the IPO.

The case is In re: Facebook Inc Initial Public Offering Derivative Litigation, 2nd U.S. Circuit Court of Appeals, Nos. 14-632, 14-1309, 14-1445, 14-1784 and 14-1788.

(Reporting by Jonathan Stempel in New York; Editing by Chizu Nomiyama and Bernadette Baum)

This article originally appeared on Recode.net.

Apple Wins Retrial on $533 Million Award in iTunes Patent Case

2019-03-06T05:29:21-05:00

A federal judge has thrown out a $532.9 million award against Apple and ordered a new trial on damages in a case where a jury found that the iPhone maker’s iTunes software infringed three patents owned by a Texas company.

In a decision on Tuesday, U.S. District Judge Rodney Gilstrap in Tyler, Texas, said jurors who on Feb. 24 awarded the damages to Smartflash because of Apple’s willful infringement might have been confused by his instructions on how to properly calculate royalties.

Apple had argued that the damages were too high because jurors might have improperly considered the entire market value of the products, rather than distinguishing between patented and unpatented features.

Gilstrap said his jury instructions were legally correct but not applicable to the facts of the case. This “may have created a skewed damages horizon for the jury,” he said.

He set a new trial only on the issue of damages for Sept. 14 in Tyler, where Smartflash is based.

Apple, its law firm and Smartflash’s law firm did not immediately respond to requests for comment.

Shares of Apple were down 1.8 percent to $123.43 in morning trading.

Smartflash accused Apple in a May 2013 lawsuit of infringing patents for accessing and storing songs, videos and games, enabling the Cupertino, Calif.-based company to sell more of its iPhone, iPad and iPod Touch products.

The lawsuit said Patrick Racz, a co-inventor of Smartflash’s patents, had discussed some of his ideas in 2000 with officials of a European company, including Augustin Farrugia, who later became a senior director at Apple.

Smartflash originally sought damages of $852 million.

The trial took place in the federal court for the Eastern District of Texas, a favorite for lawyers representing patent holders because of its reputation for high damages awards. Some companies generate most or all revenue through patent lawsuits.

The case is Smartflash LLC et al v. Apple Inc et al, U.S. District Court, Eastern District of Texas, No. 13-00447.

(Reporting by Jonathan Stempel in New York; Editing by Lisa Von Ahn)

This article originally appeared on Recode.net.

NSA Domestic Phone Spying Program Illegal, Appeals Court Rules

2019-03-06T05:00:21-05:00

A U.S. spying program that collects data about millions of Americans’ phone calls is illegal, a federal appeals court ruled on Thursday, adding pressure on lawmakers to decide quickly whether to end or replace the program, which was intended to help fight terrorism.

While stopping short of declaring the program unconstitutional, the 2nd U.S. Circuit Court of Appeals in Manhattan said Congress did not authorize the National Security Agency to collect Americans’ phone records in bulk.

The existence of the NSA’s collection of “bulk telephony metadata” was first disclosed in 2013 by former NSA contractor Edward Snowden.

Writing for a three-judge panel, Circuit Judge Gerard Lynch said Section 215 of the Patriot Act governing the collection of records to fight terrorism did not authorize what he called the NSA’s collection of a “staggering” amount of information, contrary to claims by the Bush and Obama administrations.

“Such expansive development of government repositories of formerly private records would be an unprecedented contraction of the privacy expectations of all Americans,” Lynch wrote in a 97-page decision. “We would expect such a momentous decision to be preceded by substantial debate, and expressed in unmistakable language. There is no evidence of such a debate.”

The appeals court did not issue an order to stop the collection of data, noting that parts of the Patriot Act including Section 215 will expire on June 1. Lynch said it is for Congress to make clear whether it considers the NSA program permissible.

Federal appeals courts in Washington, D.C. and California are also considering whether the program is legal.

The U.S. Department of Justice had called the program necessary to protect national security.

This article originally appeared on Recode.net.

Google, Viacom Win Dismissal of Suit Over Children’s Web Privacy

2019-03-06T05:17:08-05:00

Google and Viacom won the dismissal of a nationwide privacy lawsuit accusing them of illegally tracking the Internet activity of boys and girls who visited Nickelodeon’s website, in order to send targeted advertising.

The lawsuit claimed that Viacom secretly kept track of children under the age of 13 who streamed videos and played video games on its Nick.com website, and shared what it learned with Google.

It said both companies then without permission put text files known as “cookies” into the children’s computers, letting them gather additional information that advertisers could use.

The lawsuit was brought on behalf of young children who registered to use Nick.com.

But in a Jan. 20 decision, U.S. District Judge Stanley Chesler in Newark, N.J., found no showing that Google and Viacom could identify which children streamed specific videos or played specific video games, as opposed to identifying children generally.

He also found no showing that the companies engaged in “highly offensive” behavior for which they could be held liable.

“Children do indeed warrant special attention and heightened protections under our laws and social norms,” Chesler wrote.
“Although plaintiffs have identified conduct that may be worthy of further legislative and executive attention, they have not cited any existing and applicable legal authority” to support their claims.

The plaintiffs had accused Viacom of violating the federal Video Privacy Protection Act, and both companies of violating a New Jersey anti-computer hacking law.

Chesler dismissed other claims last July, and said the plaintiffs cannot amend their lawsuit again. The litigation against Mountain View, Calif.-based Google and New York-based Viacom began in 2012.

Evan Rosenberg, a lawyer for the children, did not respond on Wednesday to requests for comment. A Nickelodeon spokesman said the Viacom unit is pleased with the dismissal. A Google spokesman declined to comment.

The case is In re: Nickelodeon Consumer Privacy Litigation, U.S. District Court, District of New Jersey, No. MDL-2443.

(Reporting by Jonathan Stempel in New York; Editing by David Gregorio)

This article originally appeared on Recode.net.

Judge Awards $40.7 Million in SEC Case Over Bitcoin Ponzi Scheme

2019-03-06T05:59:46-05:00

A U.S. federal judge in Texas ordered Bitcoin Savings and Trust and its owner to pay a combined $40.7 million after the Securities and Exchange Commission established that the company, which sold investments using the virtual currency, was a Ponzi scheme.

In a decision dated Thursday, U.S. Magistrate Judge Amos Mazzant said Trendon Shavers “knowingly and intentionally” operated his company “as a sham and a Ponzi scheme,” misleading investors about the use of their bitcoins, how he would generate promised returns and the safety of their investments.

Shavers, of McKinney, Texas, did not immediately respond on Friday to a request for comment. His ability to pay the judgment is unclear.

Shavers’ lawyer withdrew from the civil case this week, court records show.

The SEC said Shavers used the online moniker “pirateat40” to raise more than 732,000 bitcoins from February 2011 to August 2012, promising investors up to seven percent in weekly interest to be paid based on his ability to trade the currency.

But according to the decision, Shavers used new bitcoins to repay earlier investors, diverted some to personal accounts at the now-bankrupt Mt. Gox exchange and elsewhere, and spent some investor funds on rent, food, shopping and casino visits.

“The collective loss to BTCST investors who suffered net losses (there were also net winners) was 265,678 bitcoins, or more than $149 million at current exchange rates,” wrote Mazzant.

Mazzant held Shavers and his company liable to give up $38.6 million of illegal profits plus $1.8 million in interest. Each defendant was also fined $150,000.

The SEC announced the case on July 23, 2013, the same day it warned investors to be on alert for potential scams involving bitcoin and other “cutting-edge” investments.

The case is SEC v. Shavers et al, U.S. District Court, Eastern District of Texas, No. 13-00416.

(Reporting by Jonathan Stempel in New York, editing by G Crosse)

This article originally appeared on Recode.net.

Court Tosses VirnetX’s $368 Million Patent Judgment Against Apple

2019-03-06T05:59:34-05:00

A federal appeals court on Tuesday threw out a jury order requiring Apple to pay VirnetX Holding Corp $368.2 million in damages for infringing four patents concerning technology for providing security over the Internet.

Shares of VirnetX plunged as much as 59.8 percent after the decision by the U.S. Federal Circuit Court of Appeals in Washington. The company and its lawyer did not immediately respond to requests for comment.

Apple had appealed a November 2012 jury finding that it infringed VirnetX’s patents for virtual private network, or VPN, technology through the FaceTime feature on its iPhone, iPod Touch and iPad products, as well as on its Mac computers.

While agreeing that some patents were infringed, the appeals court said the verdict was tainted by incorrect jury instructions from the trial judge on how to calculate damages, and that the error was not harmless.

It also agreed with Apple that testimony from a VirnetX expert over how to determine potential royalties should have been excluded, saying it did not reflect the extent to which the patented features were a factor in product sales.

“The law requires patentees to apportion the royalty down to a reasonable estimate of the value of its claimed technology, or else establish that its patented technology drove demand for the entire product,” Chief Judge Sharon Prost wrote for a two-judge panel. A third judge resigned before the decision was issued.

The appeals court returned the case to the U.S. District Court in Tyler, Texas, for further proceedings.

VirnetX is based in Zephyr Cove, Nev. It was assigned the four patents at issue by Science Applications International in 2006, court papers show.

In May 2010, VirnetX won a $200 million settlement from Microsoft over the VPN technology.

Apple did not immediately respond to a request for comment.

In midday trading, VirnetX shares were down by almost 50 percent.

The case is Apple Inc v VirnetX Inc et al, U.S. Federal Circuit Court of Appeals, No. 2013-1489.

(Reporting by Jonathan Stempel in New York; Additional reporting by Dan Levine in San Francisco; Editing by Jonathan Oatis)

This article originally appeared on Recode.net.

Apple $450 Million E-Book Settlement Wins Court Approval

2019-03-06T05:57:27-05:00

Apple on Friday won preliminary court approval for its $450 million settlement of claims it harmed consumers by conspiring with five publishers to raise e-book prices.

In approving the accord, U.S. District Judge Denise Cote in Manhattan overcame concerns she had expressed over a settlement provision allowing Apple to pay just $70 million if related litigation were to drag out.

Apple has been appealing Cote’s July 2013 finding, in a case brought by the U.S. Department of Justice, that it violated antitrust laws for colluding with the publishers to drive up e-book prices and impede rivals such as Amazon.

In June, Apple agreed to settle related class-action litigation brought on behalf of consumers and 33 U.S. states.

That accord calls for Apple to pay $400 million to consumers and $50 million to lawyers if the federal appeals court in New York upholds Cote’s findings, and nothing if the Cupertino, Calif.-based company wins its appeal.

But if the appeals court overturns Cote and returns the case to her, perhaps for a new trial, Apple will owe $50 million to consumers and $20 million to lawyers.

During a July 24 teleconference, Cote called that last scenario “most troubling.”

But in Friday’s decision, she noted that the states and consumers “strongly believe” such a scenario is unlikely, and that the settlement has provisions to reduce its likelihood.

She also said the plaintiffs agreed to provide more details about the settlement to consumers, to help them decide whether to accept its terms or sue Apple separately.

“The proposed settlement agreement is within the range of those that may be approved as fair and reasonable, such that notice to the class is appropriate,” Cote said. “Preliminary approval is granted.”

Cote set a final fairness hearing for Nov. 21.

The publishers are Lagardere SCA’s Hachette Book Group, News Corp.’s HarperCollins Publishers, Penguin Group (USA), CBS Corp.’s Simon & Schuster and Verlagsgruppe Georg von Holtzbrinck GmbH’s Macmillan. They previously agreed to pay $166 million to consumers.

The case is In Re: Electronic Books Antitrust Litigation, U.S. District Court for the Southern District of New York, No. 11-md-02293.

(Reporting by Jonathan Stempel in New York; Editing by Tom Brown)

This article originally appeared on Recode.net.

Google Must Face Privacy Suit Over Commingled User Data

2019-03-06T06:18:21-05:00

A federal judge has rejected Google’s bid to dismiss a privacy lawsuit claiming it commingled user data across different products and disclosed that data to advertisers without permission.

Saying his decision was a close call, U.S. District Judge Paul Grewal in San Jose, Calif., ruled on Monday night that Google must face breach of contract and fraud claims by users of Android-powered devices who had downloaded at least one Android application through Google Play.

Other parts of the lawsuit were dismissed, including claims brought on behalf of account users who switched to non-Android devices from Android devices after Google changed its privacy policy in 2012 to allow the commingling.

“Like Rocky rising from Apollo’s uppercut in the 14th round, plaintiffs’ complaint has sustained much damage but just manages to stand,” Grewal wrote in a 28-page decision. Grewal had dismissed two earlier versions of the lawsuit.

Google did not immediately respond on Tuesday to a request for comment. Mark Gardy and Joseph Sabella, lawyers for the plaintiffs, did not immediately respond to similar requests.

The lawsuit arose after Google on March 1, 2012, scrapped a variety of privacy policies for different products, and created a single, unified policy letting it merge user data generated through platforms such as Gmail, Google Maps and YouTube.

Users complained that Google made this change without their consent, and with no way to opt out, in a bid to better compete for ad revenue against Facebook and other social media companies “where all of a consumer’s personal information is available in one site.”

They said this jeopardized their privacy by exposing names, email addresses and geographic locations, increasing the threat of harassment or identity theft by third parties.

Google reported $15.42 billion of revenue in the first quarter, of which 90 percent came from advertising.

The case is In re: Google Inc Privacy Policy Litigation, U.S. District Court, Northern District of California, No. 12-01382.

This article originally appeared on Recode.net.