Dowload Case

A Minneapolis jury awarded the RIAA $1.92 million against Jammie Thomas-Rasset for illegal file sharing.

Right to Privacy?

Applicants for jobs in the city of Bozeman are being asked for passwords to their social networking sites. It is suposedly designed to verify personal information. But I find it had to believe that there's anything on somebody's facebook or myspace page that could not be verified by other means. The city attorney is looking into alternatives, such as requiring the job applicant to friend the city.

Las Vegas Paper to Produce Online Records

The Las Vegas Review-Journal will comply with a Federal Grand Jury subpoena compelling the identities of two people who posted comments on the newspaper's website about a criminal tax trial that could be construed as threatening to the jurors and/or judge. The paper said there isn't much to produce given that most of their postings are anonymous.

SEC Rule Proposal

Below is a letter sent to the SEC with regards to their newest rule proposal allowing shareholders to nominate directors on the company's proxy statement:

Ms. Elizabeth M. Murphy
Secretary
Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549-1090
Security and Exchange Commission

Re: File Number S7-10-09

To Whom It May Concern:

I would like to take this opportunity to comment on the Security and Exchange Commission’s proposed rules regarding shareholder nominations for the Board of Directors. Although I am an attorney this letter is being sent on my own individual behalf and neither on behalf of my firm, nor any particular client.

The SEC’s proposed rule would allow shareholders to nominate directors and require the company to include such nominations on its proxy statements. Although noble in its efforts to the proposal is troubling in several aspects.

First, the boards of directors of corporations in the United States of America have essentially two functions, namely, as an advisor to the executive management of the corporation and as a monitor on behalf of the shareholders. These duties may be in tension at times or namely when the board feels that the executive management of a corporation is not performing on behalf of shareholders, and on the flip side, whereas management has a vested interest in the long term success of the corporation, shareholders do not. The SEC’s proposed rule would favor a huge swing in Board responsibility toward a monitoring activity of a board rather than serving as advise and counsel to management. Such a swing could exacerbate adverse and confrontational roles between Boards and management, where the board of directors becomes more interested in the short terms goals of the shareholders than long term goals of management. This is especially true in that the proposed rules allow shareholders with as little as one percent, (including shareholders aggregating their shares to reach the one percent threshold who are more likely to be pro-holder activists and special interest holders).

Second, the SEC’s role may be overlapping with existing state laws. By way of example, Delaware General Corporate Law, Section 112, provides certain procedures for shareholders to include in the corporation solicitation of proxies their own nominees and slate for directors. Historically, the federal government has left states to determine the internal affairs of the corporation recognizing that the internal affairs of the corporation regulation allow states to compete for various state businesses. The SEC’s entry into the internal governance market may put some states that compete with Delaware at a significant disadvantage if this proposal were to be adopted.

Third, the rules proposed by the SEC provide that only certain significant shareholders or groups of shareholders would be allowed to nominate directors. Shareholders of the size proposed by the Security and Exchange Commission already have significant direct and indirect participation in management. Such a rule simply would not benefit ordinary investors whose investments do not quality under the rules.

Fourth, I am troubled with the priority system if there are more shareholder nominations than slots available. The current rule as it is stated would allow the shareholders who get to the company first their nominations to be put on the proxy regardless of size. This is counter-productive to the shareholder democracy movement which would require the SEC’s rule to allocate director nominations spots according to size by way of example, a long term institutional investor holding in excess of five percent of a company’s equity would be subject to smaller shareholders who can run faster with their director nominations. This system will create an incentive for routine election contests rather than facilitate smooth an orderly corporate governance.

Lastly, this will only serve as an adverse affect on the valuation of companies because of the additional restrictions imposed by the commission. One major example is that shareholders would be required to certify that they are not holding their stock for the purposes of taking control of the company or gain more than a minority representation of the Board of Directors. By removing the possibility of the opportunity of changing control of the company, the commission would create a chilling effect on valuation of companies, in that in a company’s valuation there may be albeit however small, some percentage for possible takeover bids.

Overall, I would strongly urge the commission to reconsider this rule proposal because of the foregoing reasons.

Sincerely,

Joel McTague

2008 Delaware Year in Review

The Harvard Law School Forum on Corporate Governance has a terrific review of developments in Delaware in 2008 which you can find here.

Time Warner

Time Warner is going to spin off AOL. It will buy Google's 5% stake in AOL in the third quarter and spin them off sometime in the Fourth.

NetApp buys Data Domain

NetApp, Inc., agreed to buy Data Domain for $25 per share, or approximately $1.5 billion. The belief is that NetApp has the distribution channels and a much deeper consumer base that needs Data Domain's product line.

French Update

In a previous post, I discussed how France was trying to enact legislation that would punish internet pirates by severing internet connections to convicted repeat offenders. It passed. The Socialist Party in France has already challenged the law before the Constitutional Council to determine if the law's ability to enact punishment before the offender had a chance to contest the charges is constitutional in France.

Pirate Bay in Sweden

Dagens Nyheter's latest poll shows 5.1 percent of Swedish voters support the Pirate Party. The Pirate Party is a group of individuals who ran the file sharing site Pirate Bay and were recently convicted of copyright violations and sentence to one year in prison.

As a footnote, you only need for percent of the vote in order to gain a seat in the European Parliament.

Arrrh! Internet Privacy in France

France is considering legislation to punish internet privacy. The measure would create a new government agency to track pirates. First time offendors would receive an e-mail warning; for second offenses a certified letter, and for the third and subsequent downloads their internet connections severed for as long as one year.

Violations of Privacy

California just issued an interesting ruling in Moreno v. Hanford Sentinel over the question of privacy. At issue in this case was whether a psuedo-annonymous letter posted on myspace could be reprinted without the author's consent in a newspaper with her identity revealed. Here, Cynthia Moreno wrote a poem called "An ode to Coalinga" on her Myspace page. Her former high school principal somehow found it and had it published in the Letters to the Editor section, identifying Moreno's full name. The poem, which was less than flattering, caused residents to boycot Moreno's father's business which was forced to shut down. The court here ruled that her photo attached to the original posting prevented the posting from being anonymous. They also allowed the intentional inflection of emotional distress claim to proceed, stating that "a jury should determine whether the alleged conduct was outrageous."

Finally (maybe) . . . Fleeting Expletives

The Supreme Court today released their decision in FCC v. Fox holding that the FCC properly adopted the fleeting expletive rule. Noting that it is a court of final review and not of first impression, the Court remanded to the Second Circuit the question of whether it violated the First Amendment or not.

Conficker

There's a new worm out there set to strike on April 1 called Conficker that's set to strike. Nobody seems to know what it does except that all infected computers will come under the control of a master machine. This is the third variant and expected to be bad. You could get a free online safety scan from Microsoft here.

Titanic

It is widely expected that Judge Rebecca Beach Smith will rule that salvaged items from the Titanic must stay together and accessable to the public. RMS Titanic Inc., a subsideriary of Premeir Exhibitions Inc., is the current salvor-in-possession but does not "own" the artifacts. It appears that RMST will try to sell the rights to a museum.

This Bud Isn't For You

European Court of First Instance has just ruled that Anheuser-Busch-InBev does not have the rigths to the name Budweiser in the EU, awarding it to Budejovicky Budvar NP. It's not certain how the ruling will affect InBev's marketing of American products in Europe.

Kindle 2 Copyright Royalty Controversy

Audiobooks and printed material are paid at different royalty rates. Amazon's Kindle 2 could possibly violate the copyright laws in that its automated text to speech feature could be producing a different version of the book. You can read more here: http://online.wsj.com/article/SB123419309890963869.html

Mail 5 days a week

Postmaster General Potter has said that the post office needs to drop one day a week of mail, such as a Tuesday. The USPS experienced a 4.5% drop in volume last year, a rise in prices, and may experience the first year that revenues drop. Maybe somebody should look at controlling costs or improving customer service.

Comcast Redux, but this time with Cox

A few months ago, the FCC ruled that Comcast violated principles of net neutrality by restricting downloads on peer to peer networks to a lower priority than other network traffic. Now comes word that Cox is trying to do the same thing, giving what it considers time sensative data higher prioirty on networks when there is congestion.

New Patent for Apple

The USPTO has awarded a patent to Apple for "multitouch" technology. This allows a cell phone touchscreen to register multiple touches. It looks like Apple will try to use the patent to stop the new Palm Pre from being released, or at least extort significant licensing fees from Palm.

Click!

Peter King, a congressman from New York, has introduced the Camera Phone Predator Alert Act which would require a cameraphone to make an audible sound within a reasonable radius of the phone when a picture is taken.

Mac Malware

As PC users watch, thousands of Macs are getting hit by a vicious malware attack by iServices.A Trojan horse. The malware is being distributed over a BitTorrent copy of a bootleg copy of the iWorks 9.0.

Gotta Spare Satellite? Anyone?

FCC rules require mobile satellite providers to have a spare satellite available before rolling out a ground repeater network. ICO Global just received a license from the FCC without the spare satellite so long as the company committs to having a spare spacecraft in place within one year of starting operations, relaxing the FCC's previous position that the spare had to be in place at the time of licensing.

GateHouse, NY Times Settlement

GateHouse Media and the NY Times reached an agreement over the weekend regarding the Boston Globe's alleged copyright infringement of posting headlines and lead sentences from the NY Times website. Trial was scheduled to begin today.

Retaliation

In a unanimous opinion, the US Supreme Court just decided Crawford v. Metropolitan Government of Nashville and Davidson County, holding that federal laws prohibiting job discrimination cover an employee who cooperate with internal investigations of retaliation by their employees.

Reset Option

In an effort to raise company moral, Google has announced that it will allow more than 8 million stock options held by more than 17,000 company employees to be exercised at lower prices, but the company extended the vesting period for those options by one year. Starbucks has already joined the repricing bandwagon, although not as generously as Google. 72 percent of the Fortune 500 companies could follow suit in that their employee options are underwater.