Thursday, March 8, 2018

SEC Issues Another Warning on Cryptocurrencies


The U.S. Securities and Exchange Commission has issued yet another warning that cryptocurrencies can be securities and some cryptocurrency exchanges can be illegal. For investors, that means that you should be cautious when investing in cryptocurrencies. For operators of exchanges, expect more regulations and/or a crackdown.

The SEC reiterated that, if tokens and cryptocurrencies offered through ICOs, fall within the "securities" definition, then the exchanges should follow the same rules as every other exchange. That means registering through the SEC as a national securities exchange, an alternative trading system (ATS) or a broker-dealer.

The SEC described the current state of affairs in the crypto space as misrepresentation.Specifically, “[t]he SEC staff has concerns that many online trading platforms appear to investors as SEC-registered and regulated marketplaces when they are not... Many platforms refer to themselves as ‘exchanges,’ which can give the misimpression to investors that they are regulated or meet the regulatory standards of a national securities exchange.”

The SEC never reviews trading tools on cryptocurrency exchanges. For instance, if you submit a limit order on an exchange, you have to trust the exchange that it’ll strictly follow your order. The exchange could give priority to bigger investors or screw up the order book without any consequence.

The SEC offered a list of questions investors should ask before they decide to trade digital assets on an online trading platform: 

- Do you trade securities on this platform? If so, is the platform registered as a national securities exchange (see our link to the list below)?
- Does the platform operate as an ATS? If so, is the ATS registered as a broker-dealer and has it filed a Form ATS with the SEC (see our link to the list below)?
- Is there information in FINRA's BrokerCheck ® about any individuals or firms operating the platform?
- How does the platform select digital assets for trading?
- Who can trade on the platform?
- What are the trading protocols?
- How are prices set on the platform?
- Are platform users treated equally?
- What are the platform's fees?
- How does the platform safeguard users' trading and personally identifying information?
- What are the platform's protections against cybersecurity threats, such as hacking or intrusions?
- What other services does the platform provide? Is the platform registered with the SEC for these services?
- Does the platform hold users' assets? If so, how are these assets safeguarded?
- Do you trade securities on this platform? If so, is the platform registered as a national securities exchange (see our link to the list below)? 
- Does the platform operate as an ATS? If so, is the ATS registered as a broker-dealer and has it filed a Form ATS with the SEC (see our link to the list below)?
- Is there information in FINRA’s BrokerCheck ® about any individuals or firms operating the platform?
- How does the platform select digital assets for trading?
- Who can trade on the platform?
- What are the trading protocols?
- How are prices set on the platform?
- Are platform users treated equally?
- What are the platform’s fees?
- How does the platform safeguard users’ trading and personally identifying information?
- What are the platform’s protections against cybersecurity threats, such as hacking or intrusions?
- What other services does the platform provide? Is the platform registered with the SEC for these services?
- Does the platform hold users’ assets? If so, how are these assets safeguarded?



Tuesday, February 27, 2018

EU Is Preparing Law to Seize Overseas Personal Data


The European Union is working on a new law that will allow EU law enforcement to obtain customer’s personal data even when it is stored outside the EU. The draft legislation is supposed to be presented to lawmakers and member states at the end of March. Any (tech) company doing business in the EU will be subject to this law, regardless of the nationality of those whose personal data is being sought.

The planned law seems to run contrary to the EU's usual position of siding with privacy advocates who try to limit government's reach into people's privacy. Enacting a law that gives EU extra-territorial powers can also result in conflict laws in countries that do not allow sharing of personal data overseas. For example, in the United States certain companies are prohibited from disclosing information to foreign governments. Europe itself is very restrictive on how companies can transfer data outside the EU.

The planned law comes at a time when a similar landmark court case nears resolution in the US. It began in 2013 when the US government tried to force Microsoft to hand over emails that were stored on its servers located in Ireland. Microsoft refused and in that it was supported by its fellow tech rivals such as Apple, Amazon, Salesforce and eBay. In 2016 an appeals court ruled that the United States government could not force Microsoft to hand over emails and communications stored in servers outside of the US. But the Trump administration has called for the US Supreme Court to decide the issue. Its decision is expected by the end of June.






Sunday, February 25, 2018

Artificial Intelligence Evaluates Contracts Better Than Lawyers


Legal AI platform LawGeex, in cooperation with law professors from Stanford University, Duke University School of Law, and University of Southern California, just published a study of AI vs. lawyers.  Specifically, twenty experienced lawyers were given the same task as AI: four hours to review five non-disclosure agreements (NDAs) and identify 30 legal issues, such as arbitration, confidentiality of relationship, and indemnification.

Lawyers lost. They scored an average of 85 percent accuracy, while the AI scored 95 percent accuracy. The AI also completed the task in 26 minutes, while the human lawyers took 92 minutes on average.



Thursday, February 8, 2018

FTC Affiliate Disclosure Requirements & Samples for Blogs, Websites


The FTC Endorsement Guides require any affiliate who uses reviews, rankings or testimonials for product promotion to clearly disclose the fact that they receive compensation for doing so. The FTC usually focuses its attention “on advertisers or their ad agencies and public relations firms,” not so much on individual endorsers such as bloggers. The FTC says it does not generally monitor bloggers but, nevertheless, may take action against a blogger who was reported to the FTC but fails “to make required disclosures despite warnings.” So, it's better to be safe than sorry.



When exactly do you have to disclose?
You have to disclose if you:

- received money or anything of value (discounts, credit, special access, affiliate commissions etc.) to promote a product.

- received the product for free with the expectation that you will review it.



Friday, February 2, 2018

What's the Difference Between Trademark, Patent and Copyright?


BASICS

Trademark protects the words, phrases and logos used to identify the source of goods or services. Patent protects inventions. Copyright protects literary and artistic works of authorship. We will discuss all three in more detail below.


TRADEMARK
Trademark is a brand name. You can register your business name, logo, and your product names. For example, McDonald's, the double arched "M" symbol, and Big Mac are all trademarks. Trademark/service mark may include words, names, symbols used, or intended to be used, in commerce to distinguish your goods or services from goods or services of others. The terms “trademark” and “service marks” are often used interchangeably, and both offer the same protections. If you use your trademark or service mark in interstate commerce (you do business with customers in other states or internationally) you can register your mark both at the federal and state level. If you do business exclusively within your state, you can register at the state level.

In US, trademark rights come from actual use in commerce and do not have to be registered to be valid. "Common law" trademark rights can last forever - as long as you continue to use the TM in commerce to indicate the source of services or goods. A trademark registration can also last forever as well - as long as you file specific documents and pay fees at regular intervals.



Wednesday, January 31, 2018

Australia's New Mandatory Data Breach Notification Law

On February 22, the mandatory data breach notification law comes into effect in Australia. It applies to private entities subject to the Australian Privacy Act including entities with an annual turnover of more than $3 million, businesses that provide a health service, disclose personal information as well as federal government agencies and those that contract with them.

Company that suspects it may have suffered a data breach capable of causing "serious harm" to any relevant data subjects will have 30 days to investigate and conclude whether in fact an eligible data breach occurred. The law does not define "serious harm" but we can assume it involves a degree of significant emotional, physical, reputational or financial damage.

The new law requires the notification statement to be prepared as soon as practicable and delivered to the Privacy Commissioner, as well as the individuals to whom the relevant information relates or who are at risk from the breach. If individual notification is not practicable, the statement must be posted on the organisation's website and its content must be publicised. Agencies and organisations can lodge their statement about an eligible data breach to the Commissioner via the Notifiable Data Breach statement — Form. Here is a  flowchart that lists the steps to take following a potential data breach. 

US already has a data breach notification law on books. The GDPR will implement it across the EU in May 2018.





Friday, January 26, 2018

Russia's New Bill on Regulating Cryptocurrencies


On Thursday, the Russian Finance Ministry has published on its official website a new draft law "On Digital Financial Assets." It is a legislative proposal to strictly regulate cryptocurrencies and ICOs. The main points are:

- all trading to be done only via cryptocurrency exchanges that are registered in Russia.

- cryptocurrencies cannot be used as means of payment for goods or services.They can only be converted into money or other digital assets.

- no anonymity.

- smart contracts will be recognized as being legally binding and Initial Coin Offerings (ICOs) will be strictly controlled with only businesses registered in Russia allowed to issue them.

- individual unaccredited investors cannot purchase more than 50,000 rubles ($898) worth of ICO tokens per each issue.

- digital wallets are subject to registration in the real name of their respective owners in accordance with the federal law against money laundering.



Thursday, January 25, 2018

Expanding Overseas: Indonesia


Why Indonesia?

There is a lot of room for growth in Indonesia due to it still being in the early stages of the digital economy implementation. Here is why Indonesia can be an attractive market to expand to:

- The largest economy in Southeast Asia, USD 1 trillion GDP.
- Population 261 million People – 4th largest in the world, 40% of Southeast Asia.
- 173 million mobile phone users, 87% of households.


What entity type?

Representative office or a limited liability company are the two main structures that allow foreign participation. Generally speaking, a representative office is a good temporary solution to “test the waters.” Serious and more permanent solution would be to form a limited liability company, PT PMA.





Monday, January 22, 2018

Expanding Overseas: Legal Issues


The main international business structures are: direct exporting, local sales rep (distributor), branch office, subsidiary company and joint venture. Here are the basic advantages and disadvantages, legal issues of the main forms of doing business overseas.


Direct Exporting

Advantages: Full control over your product. Minimum initial investment. Local tax can be avoided, unless it is a permanent establishment.

Disadvantages: No local presence can result in substandard customer service, hurt competitiveness and expose you to liabilities of which you are not aware of due to lack of understanding of local laws and customs.

Verdict: good way to “test the waters” in the new market and see if your product is in demand. If it is, a more significant local presence is better.





Sunday, January 21, 2018

Alleviating Legal Risks of Dropshipping

Dropshipping has become a popular low-cost entry point to eCommerce for many small businesses. When dropshipper sells a product, dropshipper then buys it from a supplier who sends it directly to the customer. Your warehouse costs are zero and orders can be processed with minimum staff. It sounds like a great model but, with many advantages of dropshipping, there are significant risks. 


Dropshippers often compete on price and sell the same product that they do not themselves produce or even see. Suppose, you dropshipped to the U.S. a cheap toy manufactured in China but the toy causes a child to have rashes all over. Parents will sue you, not the Chinese supplier. That's because they purchased from you, which means they have a contract with you, not the supplier. They don't even know the Chinese supplier exists. Or, let's say you dropshipped products that turned out to be counterfeit or infringing on somebody else's trademark. Unwillingly, you have become a frontman for a factory of fake goods. Rightful IP owner starts sending you aggressive cease and desist letters that threaten to sue.


What to do? To shield dropshipping business from unnecessary liability and other risks:

- Include a disclaimer that consumers have to agree to before they can purchase anything. The disclaimer should state that you are not the manufacturer and that you disclaim all warranties for the products sold. 

- Your website Terms of Use should include the aforementioned disclaimer and more clauses that protect you from unnecessary liability to the maximum extent allowed by law.

- Incorporate, consider offshore jurisdictions, especially if you do not have physical presence in the market you are selling to. If you are selling as an individual sole proprietor, you will be personally liable with your personal assets for any problems that the dropshipped products may cause. If you have a company, customers can only sue that company for up to whatever it's worth (which could be minimal). If that company is incorporated somewhere remote (e.g. the British Virgin Islands), that will discourage potential plaintiffs even more.

- Buy a product liability insurance.

- Have a good dropshipping contract which includes indemnity clause and other guarantees that shift liability away from you.

- Screen suppliers (and products) carefully. Your business reputation is in their hands.

- Adopt a return policy. It can be difficult to get  a supplier to accept a return, although some allow exchanges.

- Consider only selling products with Minimum Advertised Price (MAP) Policy to alleviate downward pressure on pricing from large retailers and have better control of margins. With dropshipping, you can lose bulk purchase discounts, and the shipping costs will be higher. That's because the supplier will have to pack and ship each product individually.

Talk to a competent eCommerce lawyer before you start receiving aggressive cease and desist letters and calls from angry customers. The aforementioned protections are unlikely to protect you completely, especially in jurisdictions where strong consumer law will override them.