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NEW MEDIA LAWYER (Release.42 - 21.02.2000)

1.0 NEW MEDIA LEGAL NEWS + COMMENTARY

1.1 LEGAL NEWS IN BRIEF

  • A US district court in Washington has granted ZiaSun Technologies a preliminary injunction against Floyd Schneider, an individual also calling himself the Truthseeker, to prevent him posting false and defamatory information about ZiaSun on Silicon Investor message forums. The court went on to say the postings may be unprivileged and that Schneider was negligent in making them.

  • American Home Products, the US drugs company that has just negotiated a US$ 3.75 billion settlement to resolve the "fen-phen" diet pills litigation, is taking legal action against Napoli Kaiser & Bern, one of the plaintiff law firms in the suit, over what is describes as "irresponsible and misleading" information on the firm's www.dietdrugsettlement.com web site. AHP claim that not only is the web site causing confusion by diverting consumers from the court sanctioned official web site at www.settlementdietdrugs.com but also that its true purpose is to solicit clients and encourage them to opt out of the proposed compensation settlement. Napoli deny the allegations and say their site is purely educational.

  • In December the online auction group eBay commenced legal action against Bidder's Edge, a specialist auction "aggregation" service that provides web users with a summary of the best deals available across all major web auction sites. This month Bidder's Edge has retaliated by filing an antitrust suit accusing eBay, which has an estimated 87 percent of all daily web auction traffic in the USA, of exploiting its near-monopoly status to engage in unfair business tactics. The US Justice Department is also reported to be looking into the online auction market and to have recently interviewed managers at Bidder's Edge, as well as another auction site aggregator AuctionWatch.com.

  • A US district court judge in Ohio has granted Ford Motor a temporary injunction forbidding Cory Czech to auction, sell, transfer or use a slew of Internet domain names he had registered. The domains, which incorporate Ford and other car names, were originally offered for sale on the eBay auction site at an opening bid of US$ 20,000. Ford described Mr Czech's actions as "unlawful cyberpiracy". The case is being brought under America's new Anticybersquatting Consumer Protection Act.

    In a similar case, US musician and television personality John Tesh has filed suit in federal court in California accusing Nevada-based Celebsites of trademark infringement and cybersquatting by registering JohnTesh.com as an Internet domain name without Tesh's knowledge or consent. Tesh owns and operates his own web site www.tesh.com.

  • The 2nd US Circuit Court of Appeals has ruled that Network Solutions Inc (NSI is the Internet's main provider of domain name registration services) has implied antitrust immunity under a cooperative agreement with the US National Science Foundation.

  • America Online customers have filed class action lawsuits in Maryland, Virginia and Washington DC alleging that the company's latest version 5.0 software alters user browser settings to make it difficult to accessing the web through alternative Internet service providers. One lawsuit, alleging violations of state consumer protection laws, negligence and unlawful, unfair or fraudulent business practices, asks for US$ 1000 for each person who downloaded the software. The problem at issue occurs when users select AOL 5.0 as the default Internet program during installation.

    1.2 TOO MANY COOKIES SPOIL THE WEB BROTH
    The online advertising service DoubleClick is being sued in California by a woman claiming the company's use of data generated by web cookies constitutes "unlawful, misleading and deceptive business practices on the Internet that violate the privacy rights of the plaintiff and the general public". In addition, the Washington-based Electronic Privacy Information Center has asked the US Federal Trade Commission to investigate DoubleClick's data collection practices.

    Much of the concern stems from DoubeClick's recent acquisition of Abacus Direct, a direct marketing company that sells consumer purchasing data to catalogue and direct sales organisations. While not making any formal comment on the allegations being made against it, DoubleClick has responded by announcing its own initiative to protect consumers' online privacy. This includes giving consumers the ability - the facility can be found at www.privacychoices.org - of opting out of being sent cookies by DoubleClick.

  • In a similar dispute, a lawsuit suit filed in a Texas state court against Yahoo! and Broadcast.com seeks alleges the companies' use of cookies constitues an illegal monitoring of computer users' activities and so violates a Texas anti-stalking law.

    1.3 ONLINE GAMBLING IN COURT
    Although the British Government now seems resigned to a review of the country's existing gaming laws to take account of the new commercial realities of the Internet and offshore betting (although probably not before the Court of Appeal has handed down its decision on the HM Customs & Excise dispute with the Victor Chandler group over the apparent loophole in Section 9(1) of the Betting & Gaming Duties Act 1981) in the United States, federal authorities still seem determined to try to stop the clock and use 40-year-old laws to curb online gambling.

    Thus, while last week saw Ladbrokes, the UK's largest betting shop chain launch two new Internet gaming sites (Bet.co.uk for soccer and the offshore site Labrokes.com offering tax-free sports betting - the company is also in talks to offer interactive betting via the Open satellite-based digital television service and as a WAP next-generation mobile phone service.) in the USA federal official commenced legal proceedings against the operators of the World Sports Exchange, which runs the www.wsex.com offshore sports gambling site from Antigua.

    Despite the fact the Worlds Sports Exchange operates openly and legally in Antigua, the US case is that the service contravene an old US domestic law making it illegal to use the interstate telephone network to gamble across state and federal borders. A case is expected to last for several months.

    1.4 DOWNLOADABLE MUSIC DISPUTE TURNS UGLY
    The ongoing dispute between the music industry and web-based digital music sites has turned ugly with the Recording Industry Association of America (RIAA), whose members include EMI, Warner, Sony and BMG, recently commencing legal proceedings in New York against MP3.com, one of the largest suppliers of downloadable music on the Internet.

    What seems to have spurred the RIAA into action was the launch of two new services - Instant Listening and Beam-it - by MP3.com earlier this year. The new services allow customers to use the MP3 web site to store and listen to CDs that they buy or own, using digital copies made by MP3. The company claims the service is entirely legal as it includes specific security measures to ensure customers own an original version of the CD they want digitally copying. However the RIAA says the service constitutes a "wilful infringement" of its members' copyrighted works because it is based on an unauthorised digital archive.

    The RIAA is claiming US$ 150,000 in compensation for each incidence of copyright infringement. Given that MP3 has an online library of over 45,000 albums, each containing an average of 10 tracks, MP3.com's theoretical liability could be as much as US$ 67.5 billion. (Even if the liability was set at the more usual level of US$ 750 per violation, MP3.com will still be facing a total bill US$ 340 million.)

    The initial response of MP3.com was to argue that its actions fell within the "fair use" provisions of music copyright law, with the company's chief executive Michael Robertson alleging that the RIAA were a "cartel" that was "trying to control the use of content even after the use had bought it" and which had "a very long track record of suing every new technology that comes along".

    However, in the latest twist in the tale, MP3.com has now filed a defamation suit in San Diego alleging that the RIAA and its director Hilary Rosen had made libellous remarks about the company in discussions with investment bankers and Wall Street analysts. RIAA described the lawsuit as "ridiculous".

    1.5 DENIAL OF SERVICE ATTACKS - THE LEGAL RAMIFICATIONS
    The recent outbreak of a concerted campaign of denial of service attacks - or "pingstorms" - on a number of high profile Internet sites, including Yahoo!, Buy.com, ZDnet, eBay, E*Trade, Amazon and CNN Interactive has produced a flurry of speculation about the possible longer term legal consequences.

  • At the most dramatic level, the FBI commenced a major investigation to try to identify the hackers and, following a conference hosted by President Bill Clinton at the White House, US Attorney General Janet Reno made a statement to a US Senate sub-committee on Internet security calling four a five-year programme to combat cyber-crime, including investment in a new forensic computer laboratory, abolishing the US$ 5000 damage minimum for prosecution of Internet crimes and new authority to trap and trace Internet communications across the United States without securing a judge's permission in each state.

  • A number of investors are reported to have filed arbitration complaints claiming compensation for the money they lost because they were unable to access their online brokerage services to execute trades. It is thought unlikely these will succeed because most online brokers have disclaimers in their customer account agreements to shield them from investor complaints linked to computer outages.

  • And, it is reported that a number of the organisations hit by pingstorms have considered - but then rejected on the grounds that it could create adverse publicity - suing some of the US universities and colleges whose relatively lax IT security is suggested to be one reason why the hackers were effectively able to hijack their computers systems and use them to mount their denial of service attacks.

  • Latest statistics by Internet research company Media Metrix suggest the impact of the denial of service attacks was minimal. Thus while traffic at Yahoo! dropped by 11 percent on Monday 7th February - the day the site was closed down for three hours - compared with the same day the week before, by the following day (Tuesday) the number of visitors was back to normal and by the end of the week the site was showing an increase in traffic on the previous week.

    2.0 NEW MEDIA LAWYERS, DEALS + INDUSTRY NEWS

    2.1 PROFESSIONAL NEWS IN BRIEF

  • Lloyd's of London's director of legal services James Butler has moved to the Prudential's Egg web-based banking arm, where he will head the inhouse legal team.

  • Robert Kimmitt, a former US ambassador to Germany, has left the Washington DC law firm Wilmer Cutler & Pickering to become the vice chairman and chief operating officer of e-commerce software company Commerce One.

  • Easynet has appointed Jo Reynolds-Hole as its first inhouse counsel. Ms Reynolds-Hole was previously part of the inhouse legal team at the UK offices of Fujitsu.

  • Simmons & Simmons, Eversheds and Field Fisher Waterhouse have signed up as business partners offering legal services to clients of Matchco.co.uk, the new advisory service for would-be high tech entrepreneurs that launched earlier this month. Although Matchco.co.uk provides a full range of services, including access to venture capitalists, unlike comparable e-business incubators, the initial approach is via a web-based interface that takes the prospective entrepreneur through a series of step-by-step stages.

    2.2 LATEST DEALS

  • Ashurst Morris Crisp advised Multex.com on the company's joint venture with Reuters to provide research reports and pricing information via the Internet. The AMC team was led be Brian Murphy working in association with Multex.com's US lawyers Kirkland & Ellis. Rowe & Maw acted for Reuters.

  • Wallace & Partners, led by corporate partner Tessa Hastie, acted for AIM-quoted Medi@Invest in its 55 percent acquisition of Internet service and content provider KZN Media. Simon Levy of Davenport Lyons acted for KZN Media.

  • Nick Holt led the Weil Gotshal & Manges team advising CGU on the launch of bluecycle.com, a new web service that allows the public to bid for end-of-line, salvage and clearance goods that were previously only accessible to a small number of traders.

  • Musicunsigned.com, an Internet company that promotes unsigned artists via the web, was advised by Manches partner Matthew Martin on their second round of financing earlier this month. The deal values Musicunsigned at £8 million. Manches also advise Musicunsigned on the music publishing and entertainment law requirements.

  • John Dodsworth led the Macfarlanes team acting for Hawkpoint Partners on its investment with LEK Consulting in ideaShed, a new incubator for e-business ventures. Baker & McKenzie, led by Gabriel Fisher, advised LEK. And Richard Cobb and Daniel Bellau of Olswang advised the co-founders of ideaShed.

    2.3 THERE'S MONEY IN THOSE EQUITY STAKES
    Thanks to taking equity stakes, in lieu of fees, in 34 of the clients it has recently advised in a total of 116 IPOs (initial public offerings), Silicon Valley law firm Wilson Sonsini Goodrich & Rosati now has a total shareholding valued at in excess of US$ 230 million. This works out to US$ 1.9 millon per partner - or triple the firm's 1999 profits per partner.

    2.4 NEW INTERMEDIARY LAW SITE
    Former City solicitor Toby Starr has set up Lynxlaw, a web site offering advice, dispute resolution, case management and legal intermediary services. Although Lynxlaw will assist clients to locate potential legal advisers, unlike the equally new FirstLAW service (see next story) which will earn its living out of the commission paid by firms it introduces, Lynxlaw will bill its clients directly.
    http://www.lynxlaw.com

    2.5 FIRST LAW BECOMES FIRST WEB-ONLY LAW FIRM
    London-based FirstLAW has become the first fully constituted, Law Society certified and regulated, professional-indemnity insured solicitors' practice to operate entirely - and only - on the Internet.

    Created by Davies Arnold Cooper partner Anthony Armitage (although DAC has a small equity shareholding, FirstLAW is not a DAC spin-off) the new firm aims to act as an online intermediary (the nearest equivalent in the bricks and mortar world is a travel agency) referring clients to the law firms best qualified to handle their matters. Staying with the travel agency analogy, FirstLAW's services are free to the client, with the firm making its living out of a commission-based "success fee" paid by the law firm selected to handle the work.

    FirstLAW reckons it is a viable option for any client - private or commercial - with legal work likely to generate fees in excess of £500. This inevitably prompts the question: won't the commission element result in higher fees, as law firms factor it into their pricing structure? But, Armitage says this is "extremely unlikely" as FirstLAW has been constructed as an auction site, with firms having to submit competitive bids (in effect an online beauty parade) in order to win a particular set of instructions.

    COMMENT: It was originally predicted that the rise of the Internet would lead to "disintermediation", with conventional lawyers at risk of being squeezed out of business as clients increasingly turned to online legal service providers. But, with FirstLAW in the legal field and similar services in other markets, it looks instead as if we could see the emergence of a new class of cyber-middlemen and digital information brokers who can all input their own slice of added-value into an online transaction.
    http://www.firstlaw.co.uk

    2.6 WITH THE RIGHT LAWYER - WHO NEEDS AN IPO ?
    Rather than take equity in lieu of fees, nine-partner City of London niche practice Rosenblatt has provided the entire first round of financing for TakeU2, a new portal for people working in London that groups information around a map of the Underground. Rosenblatt now has a 25 percent stake in TakeU2, which will not launch until March but already anticipates being worth in excess of £20 million by the early summer

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