Articles by mjlst

New Congressional Bill to Fuel the Crypto Winter?

November 6, 2022
Agencies, Cryptocurrency, Economics, Industry, Regulatory, Securities Law, Tax

Shawn Zhang, MJLST Staffer

Cryptocurrency has experienced rapid growth over the past few years. Retail investors rushed into this market in hopes of amassing wealth. However, the current price of Bitcoin is sitting at roughly 30% of the all-time high. Investors dub this current state of the market as the “Crypto Winter”, where the entire crypto market is underperforming. This term signifies the current negative sentiment held by a large portion of the market towards cryptocurrency.

Cryptocurrency is a relatively new class of assets, bearing similarities to both currency and securities. Regulators are not quite sure of how to regulate this volatile market, and with the lack of regulations investors are more prone to risk. Nevertheless, legislators are still seeking to protect retail investors and the general public from risky investments, as they did with the 1933 Securities Act and 1934 Securities Exchange Act. The question is how? Well, the answer may be The Lummis-Gillibrand Responsible Financial Innovation Act which has recently been introduced into Congress. This bill seeks to “provide for responsible financial innovation and to bring digital assets within the regulatory perimeter.” If passed, this bill would address those concerns investors currently have with investing in the volatile crypto market.

Summary of the Bill

This legislation would set up the regulatory landscape by granting the Commodity Futures Trading Commission (CFTC) exclusive jurisdiction over digital assets, subject to several exclusions. One of the exclusions being that when the asset is deemed a security, the Securities and Exchange Commission (SEC) will gain jurisdiction and providers of digital asset services will then be required to provide disclosures. The bill would also require the Internal Revenue Service to issue regulations clarifying issues of digital assets and eliminate capital gains taxes through a de minimis exclusion for cryptocurrencies used to buy up to $200 of goods and services per transaction. Moreover, it would also allow crypto miners to defer income taxes on digital assets earned while mining or staking until they dispose of the assets.

Commodity vs Security

So, what’s the difference between CFTC and SEC? The CFTC governs commodities and derivatives market transactions, while the SEC governs securities. The key difference that these classifications make are the laws under which they operate. The CFTC was created under the 1936 Commodities Exchange Act, while the SEC was created under the 1933 Securities Act and 1934 Securities Exchange Act. Hence, giving the CFTC primary jurisdiction means that cryptocurrency will primarily be governed under the 1936 Commodity Exchange Act. The biggest advantage (or what one may think of as a disadvantage) of this Act is that commodities are generally more lightly regulated than securities. Under the 33’ act and 34’ act, securities are thoroughly regulated via disclosures and reports to protect the public. Issuers of securities must comply with a large set of regulations (which is why IPOs are expensive). This could be a win for crypto, as crypto was intended to be “decentralized” rather than heavily regulated. Though having some regulations may help invoke public trust in this class of assets and potentially increase the total number of investors, which may be a bigger win.

The question ends up being what level of regulation and protection is appropriate? On the one hand, applying heavy handed regulations may not be effective, and in fact might encourage black market activity. This may lead to tech savvy investors detaching their real life identity from the world of crypto and using their money elsewhere through the blockchain networks. On the other hand, investors hate uncertainty. Markets react badly when there is “fear, uncertainty, and doubt.” By solidifying the jurisdiction of CFTC on cryptocurrency, both investors and issuers may feel more at ease rather than wonder what regulations they must follow. As a comparison, oil, gold, and futures are also regulated by the CFTC rather than the SEC, and they seem to be doing fine on the exchanges.

Tax Clarifications & Incentives

Clarifications are always welcome in the complex world of federal taxes. Uncertainty can result in investors avoiding a class of assets purely due to the complexity of its tax consequences. Moreover, investors may be unexpectedly hit with a tax bill that was different from what they expected due to ambiguity or lack of clarity in the statutes. Thus, clarifications under the proposed Act would likely make lives easier for investors in this space.

Tax often incentivizes certain investor actions. For example, capital gains tax incentivizes investors to hold their investments for longer than a year in order to reduce their taxes. Tax incentives also often have policy rationales behind them, like the capital gain tax incentive aims to promote long term investment rather than short term speculation. This indirectly protects investors from short term fluctuations in the market, and also keeps more money in the economy for longer.

The proposed Act would eliminate capital gains tax for crypto used to purchase goods and services up to $200. That’s $200 of untaxed money that could be spent without increasing an investor’s tax liability. This would likely encourage people to conduct at least some transactions in crypto, and thus further legitimize the asset class. People often doubt the real world use of cryptocurrencies, but if this Act can encourage people to utilize and accept cryptocurrencies in everyday transactions, it may increase confidence in the asset class.

Conclusion

The Lummis-Gillibrand Responsible Financial Innovation Act could be a big step towards further adoption and legitimization of crypto. Congress giving primary jurisdiction to the CFTC is likely the better choice, as it strikes a balance between protecting consumers while not having too much regulation. Regardless of whether this will have a positive impact on the current market or not, Congress is at least finally signaling that they do see Crypto as a legitimate class of asset.

Only Humans Are Allowed: Federal Circuit Says No to “AI Inventors”

October 26, 2022
Artificial Intelligence, Intellectual Property, Inventions, New Technology, Patents

Vivian Lin, MJLST Staffer

On August 5, 2022, the U.S. Court of Appeals for the Federal Circuit affirmed the U.S. District for the Eastern Division of Virginia’s decision that artificial intelligence (AI) cannot be an “inventor” on a patent application,[1] joining many other jurisdictions in confirming that only a natural person can be an “inventor”.[2] Currently, South Africa remains the only jurisdiction that has granted Dr. Stephan Thaler’s patent naming DABUS, an AI, as the sole inventor of two patentable inventions.[3] With the release of the Federal Circuit’s opinion refusing to recognize AI as an inventor, Dr. Thaler’s fight to credit AI for inventions reaches a plateau.

DABUS, formally known as Device for the Autonomous Bootstrapping of Unified Sentience, is an AI-based creativity machine created by Dr. Stephan Thaler, the founder of the software company Imagination Engine Inc. Dr. Thaler claimed that DABUS independently invented two patentable inventions: The Factual Container and the Neural Flame. For the past few years, Dr. Thaler has been in battle with patent offices around the world trying to receive patents for these two inventions. Until this date, every patent office, except one,[4] has refused to grant the patents on the grounds that the applications do not name a natural person as the inventor.

The inventor of a patent being a natural person is a legal requirement in many jurisdictions. The recent Federal Circuit opinion ruled mainly based on statutory interpretation, arguing that the text is clear in requiring a natural person to be the inventor.[5] Though there are many jurisdictions that have left the term “inventor” undefined, it seems to be a general agreement that an inventor should be a natural person.[6]

Is DABUS the True Inventor?

There are many issues centered around AI inventorship. The first is whether AI can be the true inventor, and subsequently take credit for an invention, even though a human created the AI itself. Here it becomes necessary to inquire into whether there was human intervention during the discovery process, and if so, what type of intervention was involved. It might be the case that a natural human was the actual inventor of a product while AI only assisted in carrying out that idea. For example, when a developer designed the AI with a particular question in mind and carefully selected the training data, the AI is only assisting the invention while the developer is seen as the true inventor.[7] In analyzing the DABUS case, Dr. Rita Matulionyte, a senior lecturer at Macquarie Law School in Australia and an expert in intellectual property and information technology law, has argued that DABUS is not the true inventor because Dr. Thaler’s role in the inventions was unquestionable, assuming he formulated the problem, developed the algorithm, created the training date, etc.[8]

However, it is a closer question when both AI and human effort are important for the invention. For example, AI might identify the compound for a new drug, but to conclude the discovery, a scientist still has to test the compound.[9] The U.S. patent law requires that the “inventor must contribute to the conception of the invention.”[10] Further defined, conception is “the formation in the mind of the inventor, of a definite and permanent idea of the complete and operative invention, as it is hereafter to be applied in practice.”[11] In the drug discovery scenario, it is difficult to determine who invented the new drug. Neither the AI developers nor the scientists fit the definition of “inventor”: The AI developers and trainers only built and trained the algorithm without any knowledge of the potential discovery while the scientists only confirmed the final discovery without contributing to the development of the algorithm or the discovery of the drug.[12] In this scenario, it is likely the AI did the majority of the work and made the important discovery itself, and should thus be the inventor of the new compound.[13]

The debate on who is the true inventor is important because mislabeling the inventor can cause serious consequences. Legally, improper inventorship attribution may cause a patent application to be denied, or it may lead to the later invalidation of a granted patent. Practically speaking, human inventors are able to take credit for their invention and that honor comes with recognition which may incentive future creative inventions. Thus, a misattribution may harm human inventiveness as true inventors could be discouraged by not being recognized for their contributions.

Should AI-Generated Inventions be Patentable?

While concluding that AI is the sole inventor of an invention may be difficult as outlined in the previous section, what happens when AI is found to be the true, sole inventor? Society’s discussion on whether AI inventions should be patented focuses mostly on policy arguments. Dr. Thaler and Ryan Abbott, a law professor and the lead of Thaler’s legal team, have argued that allowing patent protection for AI-generated inventions will encourage developers to invest time in building more creative machines that will eventually lead to more inventions in the future.[14] They also argued that crediting AI for inventorship will protect the rights of human inventors.[15] For example, it cuts out the possibility of one person taking credit for another’s invention, which often happens when students participate in university research but are overlooked on patent applications.[16] Without patent applicability, the patent system’s required disclosure of inventions, it is very likely that owners of AI will keep inventions secret and privately benefit from the monopoly for however long it takes the rest of society to figure it out independently.[17]

Some critics argue against Thaler and Abbott’s view. For one, they believe that AI at its current stage is not autonomous enough to be an inventor and human effort should be properly credited.[18] Even if AI can independently invent, its inventions should not be patentable because once it is, there will be too many patented inventions by AI in the same field owned by the same group of people who have access to these machines.[19] That will prevent smaller companies from entering into this field, having a negative effect on human inventiveness.[20] Finally, there has been a concern that not granting patents to AI-invented creations will let AI owners keep the inventions as trade secrets, leading to a potential long-term monopoly. However, that might not be a big concern as inventions like the two created by DABUS are likely to be easily reverse engineered once they reach the market.[21]

Currently, Dr. Thaler plans to file appeals in each jurisdiction that has rejected his application and aims to seek copyright protection as an alternative in the U.S. It is questionable that Dr. Thaler will succeed on those appeals, but if he ever does, it will likely result in major changes to patent systems around the world. Even if most jurisdictions today forbid AI from being classified as an inventor, with the advancement of technology the need to address this issue will become more and more pressing as time goes on.

Notes

[1] Thaler v. Vidal, 43 F.4th 1207 (Fed. Cir. 2022).

[2] Ryan Abbott, July 2022 AIP Update Around the World, The Artificial Inventor Project (July 10, 2022), https://artificialinventor.com/867-2/.

[3] Id.

[4] South Africa’s patent law does not have a requirement on inventors being a natural person. Jordana Goodman, Homography of Inventorship: DABUS And Valuing Inventors, 20 Duke L. & Tech. Rev. 1, 17 (2022).

[5] Thaler, 43 F.4th at 1209, 1213.

[6] Goodman, supra note 4, at 10.

[7] Ryan Abbott, The Artificial Inventor Project, WIPO Magazine (Dec. 2019), https://www.wipo.int/wipo_magazine/en/2019/06/article_0002.html.

[8] Rita Matulionyte, AI as an Inventor: Has the Federal Court of Australia Erred in DABUS? 12 (2021), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3974219.

[9] Susan Krumplitsch et al. Can An AI System Be Named the Inventor? In Wake Of EDVA Decision, Questions Remain, DLA Piper (Sept. 13, 2019), https://www.dlapiper.com/en/us/insights/publications/2021/09/can-an-ai-system-be-named-the-inventor/#11

[10] 2109 Inventorship, USPTO, https://www.uspto.gov/web/offices/pac/mpep/s2109.html (last visited Oct. 8, 2022).

[11] Hybritech, Inc. v. Monoclonal Antibodies, Inc., 802 F.2d 1367, 1376 (Fed. Cir. 1986).

[12] Krumplitsch et al., supra note 9.

[13] Yosuke Watanabe, I, Inventor: Patent Inventorship for Artificial Intelligence Systems, 57 Idaho L. Rev. 473, 290.

[14] Abbott, supra note 2.

[15] Id.

[16] Goodman, supra note 4, at 21.

[17] Abbott, supra note 2.

[18] Matulionyte, supra note 8, at 10–14.

[19] Id. at 19.

[20] Id.

[21] Id. at 18.

Whisky Is for Drinking, Water Is for Fighting

October 25, 2022
Administrative Law, Climate Change, Environment, Environmental Justice, Environmental Law, EPA, Public Health

Poojan Thakrar, MJLST Staffer

The American Southwest often lives in our imagination as an arid environment with tumbleweeds strewn about. This hasn’t been truer in centuries, as the Colorado River is facing its worst drought in 1200 years, in large part because of climate change.[1] The Colorado River is the region’s most important river, providing drinking water to about 40 million people.[2] In June, the federal government gave the seven states[3] that rely on the water two months to draft a water conservation agreement or risk federal intervention. The states blew past that deadline and the DOI’s Bureau of Reclamation imposed cuts to water usage as high as 21%.[4]

The History of the Modern Colorado River Allocation System

In 1922, the Colorado River Compact allocated an annual amount of 15 million acre-feet (maf) evenly between the Upper and Lower Basin states.[5] One acre-foot represents the volume of water that covers one acre in one foot of water and is about the amount of water that a family of four uses annually.[6] However, relying on 15 maf was already problematic; data from the past three centuries showed that the Colorado River has average flows of 13.5 maf, with some years as low as 4.4 maf.[7]

Moreover, Arizona refused to sign this compact, arguing that water should be allocated amongst individual states instead of between river basins.[8] Tensions flared in 1935 as Arizona moved National Guard troops to the California border in protest of a new dam.[9] Arizona finally ratified the compact in 1944, but the disagreements were far from over.[10]

Arizona also brought a case to the Supreme Court for a related dispute, asking the Supreme Court to allocate how each basin splits water according to the Boulder Canyon Project Act of 1928.[11] Originally filed in 1952, Arizona v. California was not resolved until a Supreme Court opinion in 1963.[12] In the end, the Supreme Court accepted the recommendations of a court-appointed Special Master, whose findings California disagreed with. Of the 7.5 maf allocated to the Lower River Basin, 4.4 maf was allocated to California, 2.8 maf to Arizona and 0.3 to Nevada.[13] The court affirmed each state’s use of their own tributary waters, which Arizona argued for.[14] The case also affirmed the Secretary of the Interior’s authority under the Boulder Canyon Project Act to allocate water amongst the states irrespective of their agreement to a compact.[15] Ultimately, this was a victory for Arizona.

Colorado River water use has been less contentious since Arizona v. California. The Upper Basin states of Colorado, Utah, Wyoming, and New Mexico signed a contract to divide their 7.5 maf amongst themselves without the need for federal intervention.[16] However, because of comparatively less development in these Upper Basin states, they collectively only use 4.4 maf of their allocated 7.5 maf.[17] California has historically enjoyed the excess and has often historically surpassed its own allocation.[18]

Modern Water Allocation

Until this year, the seven Colorado River states have relied on voluntary agreements and cutbacks to manage water allocation. For example, in 2007, the states agreed to rules which decreased the amount of water that can be drawn from reservoirs when levels are low.[19] In 2019, they agreed to Drought Contingency Plans (DCPs) in the face of waning reservoir levels.[20] It was under this new DCP that the Bureau of Reclamation first announced a drought in August of 2021.[21] Later that December, the Lower Basin states were able to come to an agreement regarding the drought declaration to keep more water in Lake Mead, a reservoir on the Colorado.[22]

However, the December 2021 cutbacks were presumably not enough. In June of 2022, Bureau of Reclamation Commissioner Camille Calimlim Touton testified in front of the Senate Energy Committee about the dire situation on the Colorado.[23] She testified that Lake Powell and Lake Mead, both reservoirs on the Colorado, cannot sustain the current level of water deliveries.[24] Commissioner Tounton gave the seven states 60 days to agree how to conserve 2 to 4 maf.[25]

Underlying this recent situation is the megadrought that the western United States has suffered since 2000.[26] The last 20 years have been the driest two decades in the past 1200 years.[27] The Colorado River states have become remarkably adept at conserving water in that time. For example, the Las Vegas basin’s population has grown by 750,000 in the past 20 years, but its water usage is down 26%.[28] Earlier this year, Los Angeles banned lawn watering to only one day a week, much to the chagrin of Southern California’s most famous residents.[29]

Commissioner Tounton’s 60 day deadline came and went without an agreement.[30] During a speech on August 15th of this year, Commissioner Tounton mandated that the seven states have to cut their water usage by 1 maf, roughly the amount of water usage of four million people.[31] However, the cuts were not proportioned equally. Arizona was mandated to cut its water by 21% because of the old water agreements, while California was not required to make any.[32]

More recently on October 5th, several California water districts volunteered cuts of almost one-tenth of their total allocation.[33] California conditioned these cuts upon other states agreeing to similar reductions, as well as on incentives from the federal government.[34] California’s cuts are significant, representing roughly 0.4 maf of the 1 maf that Commissioner Tounton asked states to conserve in her August 15th statement.[35] This represents a bold, good-faith move considering California was not mandated to make any. However, there is no doubt that these ad hoc negotiations are unsustainable. As the drought continues, Colorado River water policy will have implications on how food is grown and where people live. The 40 million people that live in the American Southwest may see their day-to-day lives affected if a solution is not crafted. Ultimately, this situation is far from over as states are forced to come to grips with a new water and climate reality.

Notes

[1] The Journal, The Fight Over Water In The West, Wall Street Journal, at 00:50 (Aug. 23, 2022) (downloaded using Spotify).

[2] Luke Runyon, 7 states and federal government lack direction on cutbacks from the Colorado River, NPR (Aug. 27, 2022, 5:00 AM) https://www.npr.org/2022/08/27/1119550028/7-states-and-federal-government-lack-direction-on-cutbacks-from-the-colorado-riv.

[3] Wyoming, Colorado, Utah, and New Mexico are considered Upper Basin states and California, Arizona and Nevada are the Lower Basin states.

[4] The Journal, supra note 1, at 12:30.

[5] Joe Gelt, Sharing Colorado River Water: History, Public Policy and the Colorado River Compact, The University of Arizona (Aug. 1997), https://wrrc.arizona.edu/publications/arroyo-newsletter/sharing-colorado-river-water-history-public-policy-and-colorado-river.

[6] The Journal, supra note 1, at 8:08.

[7] Gelt, supra note 5.

[8] Id.

[9] Nancy Vogel, Legislation fixes borders wandering river created; Governors of Arizona, California sign bills to get back land the Colorado shifted to the wrong state, Contra Costa Times, Sept. 13, 2002.

[10] Gelt, supra note 5.

[11] Arizona v. California, 373 U.S. 546 (1963).

[12] Supreme Court Clears the Way for the Central Arizona Project, Bureau of Reclamation https://www.usbr.gov/lc/phoenix/AZ100/1960/supreme_court_AZ_vs_CA.html.

[13] Arizona v. California, 373 U.S. 546, 565, 83 S. Ct. 1468, 1480 (1963).

[14] Id.

[15] Id.

[16] Gelt, supra note 5.

[17] Heather Sackett, Water managers set to talk about how to divide Colorado River, Colorado Times (Dec. 13, 2021) https://www.steamboatpilot.com/news/water-managers-set-to-talk-about-how-to-divide-colorado-river.

[18] Gelt, supra note 5.

[19] Lower Colorado River States Reach Agreement to Reduce Water Use, Renewable Natural Resources Foundation (Feb. 4, 2022) https://rnrf.org/2022/02/lower-colorado-river-states-reach-agreement-to-reduce-water-use/.

[20] Id.

[21] Id.

[22] Id.

[23] Marianne Goodland, Reclamation official tells Colorado River states to conserve up to 4 million acre-feet of water, Colorado Politics(June 15, 2020) https://www.coloradopolitics.com/energy-and-environment/reclamation-official-tells-colorado-river-states-to-conserve-up-to-4-million-acre-feet-of/article_376a907a-ece6-11ec-b0ba-6b2e72447497.html.

[24] Id.

[25] Id.

[26] Ben Adler, ‘Moment of reckoning:’ Federal official warns of Colorado River water supply cuts, Yahoo News (June 15, 2020) https://news.yahoo.com/moment-of-reckoning-federal-official-warns-of-colorado-river-water-supply-cuts-171955277.html.

[27] Id.

[28] The Journal, supra note 1, at 5:50.

[29] Id. at 6:10.

[30] Id. at 8:55.

[31] Id. at 10:05.

[32] Id.

[33] Marketplace, Why women have been left behind in the job recovery, American Public Media, at 11:35 (Oct. 6, 2022) (downloaded using Spotify).

[34] Id.

[35] Ian James, More water restrictions likely as California pledges to cut use of Colorado River supply, L.A. Times, (Oct. 6, 2022) https://www.latimes.com/california/story/2022-10-06/southern-california-faces-new-water-restrictions-next-year.

It’s Social Media – A Big Lump of Unregulated Child Influencers!

October 25, 2022
Administrative Law, Agencies, Entertainment, Industry, Internet, Regulatory, Social Media

Tessa Wright, MJLST Staffer

If you’ve been on TikTok lately, you’re probably familiar with the Corn Kid. Seven-year-old Tariq went viral on TikTok in August after appearing in an 85-second video clip professing his love of corn.[1] Due to his accidental viral popularity, Tariq has become a social media celebrity. He has been featured in content collaborations with notable influencers, starred in a social media ad for Chipotle, and even created an account on Cameo.[2] At seven-years-old, he has become a child influencer, a minor celebrity, and a major financial contributor for his family. Corn Kid is not alone. There are a growing number of children rising to fame via social media. In fact, today child influencers have created an eight-billion-dollar social media advertising industry, with some children generating as much as $26 million a year through advertising and sponsored content.[3] Yet, despite this rapidly growing industry, there are still very few regulations protecting the financial earnings of children entertainers in the social media industry.[4]

What Protects Children’s Financial Earnings in the Entertainment Industry?

Normally, children in the entertainment industry have their financial earnings protected under the California Child Actor’s Bill (also known as the Coogan Law).[5] The Coogan Law was passed in 1939 by the state of California in response to the plight of Jackie Coogan.[6] Coogan was a child star who earned millions of dollars as a child actor only to discover upon reaching adulthood that his parents had spent almost all of his money.[7] Over the years the law has evolved, and today it upholds that earnings by minors in the entertainment industry are the property of the minor.[8] Specifically, the California law creates a fiduciary relationship between the parent and child and requires that 15% of all earnings must be set aside in a blocked trust.[9]

What Protections do Child Social Media Stars Have?

Social media stars are not legally considered to be actors, so the Coogan Law does not apply to their earnings.[10] So, are there other laws protecting these social media stars? The short answer is, no.

Technically, there are laws that prevent children under the age of 12 from using social media apps which in theory should protect the youngest of social media stars.[11] However, even though these social media platforms claim that they require users to be at least thirteen years old to create accounts on their platforms, there are still ways children end up working in content creation jobs.[12] The most common scenario is that parents of these children make content in which they feature their children.[13] These “family vloggers” are a popular genre of YouTube videos where parents frequently feature their children and share major life events; sometimes they even feature the birth of their children. Often these parents also make separate social media accounts for their children which are technically run by the parents and are therefore allowed despite the age restrictions.[14] There are no restrictions or regulations preventing parents from making social media accounts for their children, and therefore no restriction on the parents’ collection of the income generated from such accounts.[15]

New Attempts at Legislation

So far, there has been very little intervention by lawmakers. The state of Washington has attempted to turn the tide by proposing a new state bill that attempts to protect children working in social media.[16] The bill was introduced in January of 2022 and, if passed, would offer protection to children living within the state of Washington who are on social media.[17] Specifically, the bill introduction reads, “Those children are generating interest in and revenue for the content, but receive no financial compensation for their participation. Unlike in child acting, these children are not playing a part, and lack legal protections.”[18] The bill would hopefully help protect the finances of these child influencers.

Additionally, California passed a similar bill in 2018.[19] Unfortunately, it only applies to videos that are longer than one hour and have direct payment to the child.[20] What this means is that a child who, for example, is a Twitch streamer that posts a three-hour livestream and receives direct donations during the stream, would be covered by the bill; however, a child featured in a 10-minute YouTube video or a 15-second TikTok would not be financially protected under the bill.

The Difficulties in Regulating Social Media Earnings for Children

Currently, France is the only country in the world with regulations for children working in the social media industry.[21] There, children working in the entertainment industry (whether as child actors, models, or social media influencers) have to register for a license and their earnings must be put into a dedicated bank account for them to access when they’re sixteen.[22] However, the legislation is still new and it is too soon to see how well these regulations will work.

The problem with creating legislation in this area is attributable to the ad hoc nature of making social media content.[23] It is not realistic to simply extend existing legislation applicable to child entertainers to child influencers[24] as their work differs greatly. Moreover, it becomes extremely difficult to attempt to regulate an industry when influencers can post content from any location at any time, and when parents may be the ones filming and posting the videos of their children in order to boost their household income. For example, it would be hard to draw a clear line between when a child is being filmed casually for a home video and when it is being done for work, and when an entire family is featured in a video it would be difficult to determine how much money is attributable to each family member.

Is There a Solution?

While there is no easy solution, changing the current regulations or creating new regulations is the clearest route. Traditionally, tech platforms have taken the view that governments should make rules and then they will then enforce them.[25] All major social media sites have their own safety rules, but the extent to which they are responsible for the oversight of child influencers is not clearly defined.[26] However, if any new regulation is going to be effective, big tech companies will need to get involved. As it stands today, parents have found loopholes that allow them to feature their child stars on social media without violating age restrictions. To avoid these sorts of loopholes to new regulations, it will be essential that big tech companies work in collaboration with legislators in order to create technical features that prevent them.

The hope is that one day, children like Corn Kid will have total control of their financial earnings, and will not reach adulthood only to discover their money has already been spent by their parents or guardians. The future of entertainment is changing every day, and the laws need to keep up.

Notes

[1] Madison Malone Kircher, New York Times (Online), New York: New York Times Company (September 21, 2022) https://www.nytimes.com/2022/09/21/style/corn-kid-tariq-tiktok.html.

[2] Id.

[3] Marina Masterson, When Play Becomes Work: Child Labor Laws in the Era of ‘Kidfluencers’, 169 U. Pa. L. Rev. 577, 577 (2021).

[4] Coogan Accounts: Protecting Your Child Star’s Earnings, Morgan Stanley (Jan. 10, 2022), https://www.morganstanley.com/articles/trust-account-for-child-performer.

[5] Coogan Law, https://www.sagaftra.org/membership-benefits/young-performers/coogan-law (last visited Oct. 16, 2022).

[6] Id.

[7] Id.

[8] Cal. Fam. Code § 6752.

[9] Id.

[10] Morgan Stanley, supra note 4.

[11] Sapna Maheshwari, Online and Making Thousands, at Age 4: Meet the Kidfluencers, N.Y. Times, (March 1, 2019) https://www.nytimes.com/2019/03/01/business/media/social-media-influencers-kids.html.

[12] Id.

[13] Id.

[14] Id.

[15] Id.

[16] Katie Collins, TikTok Kids Are Being Exploited Online, but Change is Coming, CNET (Aug. 8, 2022 9:00 AM), https://www.cnet.com/news/politics/tiktok-kids-are-being-exploited-online-but-change-is-coming/.

[17] Id.

[18] Id.

[19] E.W. Park, Child Influencers Have No Child Labor Regulations. They Should, Lavoz News (May 16, 2022) https://lavozdeanza.com/opinions/2022/05/16/child-influencers-have-no-child-labor-regulations-they-should/.

[20] Id.

[21] Collins, supra note 19.

[22] Id.

[23] Id.

[24] Id.

[25] Id.

[26] Katie Collins, TikTok Kids Are Being Exploited Online, but Change is Coming, CNET (Aug. 8, 2022 9:00 AM), https://www.cnet.com/news/politics/tiktok-kids-are-being-exploited-online-but-change-is-coming/.

Making Moves on Marijuana: President Biden and Minnesota Update Marijuana Laws in 2022

October 23, 2022
Agencies, Drug Policy, Employment Law, FDA, Food and Drug Law, Health, Public Health, Regulatory

Emma Ehrlich, MJLST Staffer

Federal Pardoning

Earlier this month, President Biden announced that he would be pardoning anyone with a federal conviction due to simple marijuana possession charges. This will affect approximately 6,500 people on the federal level, plus thousands of others who were convicted in the District of Columbia. However, this pardon does not cover anyone involved in the actual sale of marijuana or anyone convicted under state possession laws, meaning it affects only a subsection of those who have been convicted of marijuana related charges. The administration’s goal was to give a clean slate to those who were struggling to find housing or employment due to a possession charge, and to encourage state legislatures to do the same.

The second half of President Biden’s announcement was to task the Attorney General with reviewing the federal government’s categorization of marijuana as a Schedule 1 drug, which President Biden pointed out is currently the same categorization as heroin. Drugs are supposed to be assigned to schedules based on their medical uses and addictive qualities. The Drug Enforcement Agency (“DEA”) currently categorizes marijuana as a “drug[] with no currently accepted medical use and a high potential for abuse.” The U. S. Food and Drug Administration (“FDA”) explains on their website, almost in a regretful tone, that only four cannabis drugs have been approved by the FDA, one containing CBD and the other three containing synthetically derived THC. This categorization issue is not new, but because legislation regarding marijuana is changing rapidly federal agencies have had to play catch up with the law.

Minnesota and Beyond

Meanwhile, the state of Minnesota is still chugging along in terms of marijuana legalization. In July of this year, the state of Minnesota legalized the production and sale of edibles containing 5-mg of THC, which can now be purchased by adults in bags containing no more than 50-mg of THC. This sounds like good news, but many state residents are baffled at the lack of a tax provision in the new state law. The University of Maryland actually did a study on Minnesota’s potential for taxing cannabis, and determined that if the newly legalized edibles were taxed at the same rate as Michigan taxes, the state could have collected over $40 million. Given this high estimate, it is not out of the question that a tax on marijuana will be implemented in the future.

Minnesotan employers were similarly not thrilled when the law passed as they felt ill equipped to update their drug policies. Employers “can bar workers from using, possessing, and being under the influence of THC during work hours or in the workplace,” as well as conduct “random drug testing for safety-sensitive positions” and “employees suspected of being intoxicated.” The gray area exists in the employer’s ability to hire and fire based on an applicant or employee’s use of marijuana outside of work. It is currently illegal to make hiring and firing decisions based on tobacco usage or alcohol consumption, and it is unclear if marijuana will be treated in the same manner. The added layer to marijuana testing is that a positive drug test for marijuana does not mean an employee consumed THC right before work since THC lingers in the body for so long. Thus, an employee could test positive for mairjuana at work even if they had used the drugs days ago and were no longer feeling its effects. Though the employee would have ingested the drug legally, they may not be considered for a job position or could be fired from a job they already hold. This is the type of issue that has led a number of municipalities in Minnesota to put a pause on the sale of the state legalized edibles. In contrast, California passed a law just last month protecting employees, apart from some exceptions, from being discriminated against based on their marijuana usage when not at work. What might be a little concerning is that California made recreational marijuana legal in 2016, and this law won’t go into effect until 2024, meaning there was an eight year gap in the legislation. Regardless, this may serve as the beginning of a pattern, pointing to what Minnesota may do down the line.

In 2020 New Jersey passed a law legalizing recreational marijuana use which went into effect in April of this year. Similarly to California, part of the law protects workers from being discriminated against because of their marijuana use outside of work. However, Walmart and Sam’s Club have continued to administer drug tests to job applicants to search for traces of marijuana, a practice that has gotten them into legal trouble in New Jersey. Walmart is arguing that only the state Cannabis Regulatory Commission can enforce the new employment law, and that this case should be dismissed because it was brought by individuals. Courts in other states in which similar laws have been passed have issued decisions that oppose Walmart’s position, ruling that individual workers can sue under the law. It seems that Minnesota is not the only state that has enacted fuzzy recreational drug use laws that directly affect employers and employees.

On the bright side of this employment confusion, many appreciate the baby step the Minnesota legislature has taken to legalize marijuana use. The state has been in dire need of updated marijuana legislation, and the hope is that continuing this legalization process will lessen the disparities between black and white arrests for marijuana possession. This change is necessary, because as of 2020 Minnesota was found to rank 8th in the United States for largest racial disparities in marijuana possession arrests. In 2021, the Minnesota Bureau of Criminal Apprehension released data showing that out of the over 6,000 marijuana related arrests made in the state, 90% were for simple possession charges, and a black person was almost five times more likely to be arrested for these types of charges than a white person. This statistic is down from almost eight times more likely back in 2010, but is still extremely present.

In Conclusion

President Biden’s pardon is just a beginning step towards moving the US forward on marijuana legislation. Though states such as Minnesota are moving in the right direction by gradually legalizing recreational marijuana use, the laws are often unclear and lead to a multitude of logistical issues like those seen in the employment sector. Regardless, making continued progress is important to the U.S. for many reasons and is crucial for helping to lessen racial arrest disparities. Hopefully this pardon will have the effect the administration aimed for and will encourage more state legislatures to update their policies on marijuana usage.

Meta Faces Class Action Lawsuits Over Pixel Tool Data Controversy

October 22, 2022
Class Action, Cyber Security, Data, Data Privacy, Internet, Pharmaceuticals, Privacy, Social Media

Ray Mestad, MJLST Staffer

With a market capitalization of $341 billion, Meta Platforms is one of the most valuable companies in the world.[1] Information is a prized asset for Meta, but how that information is acquired continues to be a source of conflict. Their Meta “Pixel” tool is a piece of code that allows websites to track visitor activity.[2] However, what Meta does with the data after it is acquired may be in violation of a variety of privacy laws. Because of that, Meta is now facing almost fifty class action lawsuits due to Pixel’s use of data from video players and healthcare patient portals.[3]

What is Pixel?

Pixel is an analytical tool that tracks visitor actions on a website.[4] In theory, the actions that are tracked include purchases, registrations, cart additions, searches and more. This information can then be used by the website owners to better understand user behavior. Website owners can more efficiently use ad spend by tailoring ads to relevant users and finding more receptive users based on Pixel’s analysis.[5]

In the world of search engine optimization and web analysis tools like Pixel are common, and there are other sites, like Google Analytics, that provide similar functions. However, there are two key differences between these other tools and Pixel. First, Pixel has in some cases accidentally scraped private, identifiable information from websites. Second, Pixel can connect that information to the social profiles on their flagship website, Facebook. Whether intentionally or accidentally, Pixel has been found to have grabbed personal information beyond the simple user web actions it was supposed to be limited to and connected them to Facebook profiles.[6]

Pixel and Patient Healthcare Information

It’s estimated that, until recently, one third of the top 100 hospitals in the country used Pixel on their websites.[7] However, that number may decrease after Meta’s recent data privacy issues. Meta faced both criticism and legal action in the summer of 2022 for its treatment of user data on healthcare websites. Pixel incorrectly retrieved private patient information, including names, conditions, email addresses and more. Meta then targeted hospital website users with ads on Facebook, using the information Pixel collected from hospital websites and patient portals by matching user information with their Facebook accounts.[8] Novant Health, a healthcare provider, ran advertisements promoting vaccinations in 2020. They then added Pixel code to their website to evaluate the effectiveness of the campaign. Pixel proceeded to send private and identifiable user information to Meta.[9] Another hospital (and Meta’s co-defendant in the lawsuit), the University of California San Francisco and Dignity Health (“UCSF”), was accused of illegally gathering patient information via Pixel code on their patient portal. Private medical information was then distributed to Meta. At some point, it is claimed that pharmaceutical companies then gained access to this medical information and sent out targeted ads based thereon.[10] That is just one example – all in all, more than 1 million patients have been affected by this Pixel breach.[11]

Pixel and Video Tracking

The problems did not stop there. Following its patient portal controversy, Meta again faced criticism for obtaining protected user data with Pixel, this time in the context of video consumption. There are currently 47 proposed class actions against Meta for violations of the Video Privacy Protection Act (the “VPPA”). The VPPA was created in the 1980’s to cover videotape and audio-visual materials. No longer confined to the rental store, the VPPA has now taken on a much broader meaning after the growth of the internet.

These class actions accuse Meta of using the Pixel tool to take video user data from a variety of company websites, including the NFL, NPR, the Boston Globe, Bloomberg Law and many more. The classes allege that by collecting video viewing activity in a personally identifiable manner without consent (matching Facebook user IDs to the activity rather than anonymously), so Pixel users could target their ads at the viewers, Pixel violated the VPPA. Under the VPPA Meta is not the defendant in these lawsuits, but rather the companies that shared user information with Meta.[12]

Causes of Action

The relatively new area of data privacy is scarcely litigated by the federal government due to the lack of statutes protecting consumer privacy on the federal level. Because of that, the number of data protection civil litigants can be expected to continue to grow. [13] HIPAA is the Health Insurance Portability and Accountability Act, an act created in 1996 to protect patient information from disclosure without patient consent. In the patient portal cases, HIPAA actions would have to be initiated by the US government. Claimants are therefore suing Meta under consumer protection and other privacy laws like the California Confidentiality of Medical Information Act, the Federal Wiretap Act, and the Comprehensive Computer Data Access and Fraud Act instead.[14] These state Acts allow individuals to sue, when under Federal Acts like HIPPA, the Government may move slowly, or not at all. And in the cases of video tracking, the litigants may only sue the video provider, not Meta itself.[15] Despite that wrinkle of benefit to Meta, their involvement in more privacy disputes is not ideal for the tech giant as it may hurt the trustworthiness of Meta Platforms in the eyes of the public.

Possible Outcomes

If found liable, the VPPA violations could result in damages of $2,500 per class member.[16] Punitive damages for the healthcare data breaches could run in the millions as well and would vary state to state due to the variety of acts the claims are brought in violation of.[17] Specifically, in the UCSF data case class members are seeking punitive damages of $5 million.[18] One possible hang-up that may become an issue for claimants are arbitration agreements. If the terms and conditions of either hospital patient portals or video provider websites contain arbitration clauses, litigants may have difficulty overcoming them. On the one hand, these terms and conditions may be binding and force the parties to attend mandatory arbitration meetings. On the other hand, consumer rights attorneys may argue that consent needs to come from forms separate from online user agreements.[19] If more lawsuits emerge due to the actions of Pixel, it is quite possible that companies will move away from the web analytics tools to avoid potential liability. It remains to be seen whether the convenience and utility of Meta Pixel stops being worth the risk the web analytics tools present to websites.

Notes

[1] Meta Nasdaq, https://www.google.com/finance/quote/META:NASDAQ (last visited Oct. 21, 2022).

[2] Meta Pixel, Meta for Developers, https://developers.facebook.com/docs/meta-pixel/.

[3] Sky Witley, Meta Pixel’s Video Tracking Spurs Wave of Data Privacy Suits, (Oct. 13, 2022, 3:55 AM), Bloomberg Law, https://news.bloomberglaw.com/privacy-and-data-security/meta-pixels-video-tracking-spurs-wave-of-consumer-privacy-suits.

[4] Meta Pixel, https://adwisely.com/glossary/meta-pixel/ (last visited Oct. 21, 2022).

[5] Ted Vrountas, What Is the Meta Pixel & What Does It Do?, https://instapage.com/blog/meta-pixel.

[6] Steve Adler, Meta Facing Further Class Action Lawsuit Over Use of Meta Pixel Code on Hospital Websites, HIPPA Journal (Aug. 1, 2022), https://www.hipaajournal.com/meta-facing-further-class-action-lawsuit-over-use-of-meta-pixel-code-on-hospital-websites/.

[7] Id.

[8] Id.

[9] Bill Toulas, Misconfigured Meta Pixel exposed healthcare data of 1.3M patients, Bleeping Computer (Aug. 22, 2022, 2:16 PM), https://www.bleepingcomputer.com/news/security/misconfigured-meta-pixel-exposed-healthcare-data-of-13m-patients/.

[10] Adler, supra note 6.

[11] Toulas, supra note 9.

[12] Witley, supra note 3.

[13] Id.

[14] Adler, supra note 6.

[15] Witley, supra note 3.

[16] Id.

[17] Dave Muoio, Northwestern Memorial the latest hit with a class action over Meta’s alleged patient data mining, Fierce Healthcare (Aug. 12, 2022 10:30AM), https://www.fiercehealthcare.com/health-tech/report-third-top-hospitals-websites-collecting-patient-data-facebook.

[18] Id.

[19] Witley, supra note 3.

After Hepp: Section 230 and State Intellectual Property Law

October 13, 2022
Administrative Law, Intellectual Property, Internet, Social Media

Kelso Horne IV, MJLST Staffer

Although hardly a competitive arena, Section 230(c) of the Communications Decency Act (the “CDA”) is almost certainly the best known of all telecommunications laws in the United States. Shielding Internet Service Providers (“ISPs”) and websites from liability for the content published by their users, § 230(c)’s policy goals are laid out succinctly, if a bit grandly, in § 230(a) and § 230(b).[1] These two sections speak about the internet as a force for economic and social good, characterizing it as a “vibrant and competitive free market” and “a forum for a true diversity of political discourse, unique opportunities for cultural development, and myriad avenues for intellectual activity.”[2] But where §§ 230(a),(b) both speak broadly of a utopian vision for the internet, and (c) grants websites substantial privileges, § 230(e) gets down to brass tacks.[3]

CDA: Goals and Text

The CDA lays out certain limitations on the shield protections provided by § 230(c).[4] Among these is § 230(e)(2) which states in full, “Nothing in this section shall be construed to limit or expand any law pertaining to intellectual property.”[5] This particular section, despite its seeming clarity, has been the subject of litigation for over a decade, and in 2021 a clear circuit split was opened between the 9th and 3rd Circuit Courts over how this short sentence applies to state intellectual property laws. The 9th Circuit Court follows the principle that the policy portions of § 230 as stated in §§ 230(a),(b) should be controlling, and that, as a consequence, state intellectual property claims should be barred. The 3rd Circuit Court follows the principle that the plain text of § 230(e)(2) unambiguously allows for state intellectual property claims.

Who Got There First? Lycos and Perfect 10

In Universal Commc’n Sys., Inc. v. Lycos, Inc., the 1st Circuit Court faced this question obliquely; the court assumed that they were not immunized from state intellectual property law by § 230 and the claims were dismissed, but on different grounds.[6] Consequently, when the 9th Circuit released their opinion in Perfect 10, Inc. v. CCBILL LLC only one month later, they felt free to craft their own rule on the issue.[7] Consisting of a few short paragraphs, the court’s decision on state intellectual property rights is nicely summarized in a short sentence. They stated that “As a practical matter, inclusion of rights protected by state law within the ‘intellectual property’ exemption would fatally undermine the broad grant of immunity provided by the CDA.”[8] The court’s analysis in Perfect 10 was almost entirely based on what allowing state intellectual property claims would do to the policy goals stated in § 230(a) and § 230(b), and did not attempt, or rely on, a particularly thorough reading of § 230(e)(2). Here the court looks at both the policy stated in § 230(a) and § 230(b) and the text of § 230(e)(2) and attempts to rectify them. The court clearly sees the possibility of issues arising from allowing plaintiffs to bring cases through fifty different state systems against websites and ISPs for the postings of their users. This insight may be little more than hindsight, however, given the date of the CDA’s drafting.

Hepp Solidifies a Split

Perfect 10 would remain the authoritative appellate level case on the issue of the CDA and state intellectual property law until 2021, when the 3rd Circuit stepped into the ring.[9] In Hepp v. Facebook, Pennsylvania newsreader Karen Hepp sued Facebook for hosting advertisements promoting a dating website and other services which had used her likeness without her permission.[10] In a much longer analysis, the 3rd Circuit held that the 9th Circuit’s interpretation argued for by Facebook “stray[ed] too far from the natural reading of § 230(e)(2)”.[11] Instead, the 3rd Circuit argued for a closer reading of the text of § 230(e)(2) which they said aligned closely with a more balanced selection of policy goals, including allowance for state intellectual property law.[12] The court also mentions structural arguments relied on by Facebook, mostly examining how narrow the other exceptions in 230(e) are, which the majority states “cuts both ways” since Congress easily cabined meanings when they wanted to.[13]

The dissent in Hepp agreed with the 9th Circuit that the policy goals stated in §§230(a),(b) should be considered controlling.[14] It also noted two cases in other circuits where courts had shown hesitancy towards allowing state intellectual property claims under the CDA to go forward, although both claims had been dismissed on other grounds.[15] Perhaps unsurprisingly, the dissent sees the structural arguments as compelling, and in Facebook’s favor.[16] With the circuits now definitively split on the issue, the text of §§ 230(a),(b) would certainly seem to demand the Supreme Court, or Congress, step in and provide a clear standard.

What Next? Analyzing the CDA

Despite being a pair of decisions ostensibly focused on parsing out what exactly Congress was intending when they drafted § 230, both Perfect 10 and Hepp left out any citation to legislative history when discussing the § 230(e)(2) issue. However, this is not as odd as it seems at first glance. The Communications Decency Act is large, over a hundred pages in length, and § 230 makes up about a page and a half.[17] Most of the content of the legislative reports published after the CDA was passed instead focused on its landmark provisions which attempted, mostly unsuccessfully, to regulate obscene materials on the internet.[18] Section 230 gets a passing mention, less than a page, some of which is taken up with assurances that it would not interfere with civil liability for those engaged in “cancelbotting,” a controversial anti-spam method of the Usenet era.[19] It is perhaps unfair to say that § 230 was an afterthought, but it is likely that lawmakers did not understand its importance at the time of passage. This may be an argument for eschewing the 9th Circuit’s analysis which seemingly imparts the CDA’s drafters with an overly high degree of foresight into § 230’s use by internet companies over a decade later.

Indeed, although one may wish that Congress had drafted it differently, the text of § 230(e)(2) is clear, and the inclusion of “any” as a modifier to “law” makes it difficult to argue that state intellectual property claims are not exempted by the general grant of immunity in § 230.[20] Congressional inaction should not give way to courts stepping in to determine what they believe would be a better Act. Indeed, the 3rd Circuit majority in Hepp may be correct in stating that Congress did in fact want state intellectual property claims to stand. Either way, we are faced with no easy judicial answer; to follow the clear text of the section would be to undermine what many in the e-commerce industry clearly see as an important protection and to follow the purported vision of the Act stated in §§230(a),(b) would be to remove a protection to intellectual property which victims of infringement may use to defend themselves. The circuit split has made it clear that this is a question on which reasonable jurists can disagree. Congress, as an elected body, is in the best position to balance these equities, and they should use their law making powers to definitively clarify the issue.

Notes

[1] 47 U.S.C. § 230.

[2] Id.

[3] 47 U.S.C. § 230(e).

[4] Id.

[5] 47 U.S.C. § 230(e)(2).

[6] Universal v. Lycos, 478 F.3d 413 (1st Cir. 2007)(“UCS’s remaining claim against Lycos was brought under Florida trademark law, alleging dilution of the “UCSY” trade name under Fla. Stat. § 495.151. Claims based on intellectual property laws are not subject to Section 230 immunity.”).

[7] 488 F.3d 1102 (9th Cir. 2007).

[8] Id. at 1119 n.5.

[9] Kyle Jahner, Facebook Ruling Splits Courts Over Liability Shield Limits for IP, Bloomberg Law, (Sep. 28, 2021, 11:32 AM).

[10] 14 F.4th 204, 206-7 (3d Cir. 2021).

[11] Id. at 210.

[12] Id. at 211.

[13] Hepp v. Facebook, 14 F.4th 204 (3d Cir. 2021)(“[T]he structural evidence it cites cuts both ways. Facebook is correct that the explicit references to state law in subsection (e) are coextensive with federal laws. But those references also suggest that when Congress wanted to cabin the interpretation about state law, it knew how to do so—and did so explicitly.”).

[14] 14 F.4th at 216-26 (Cowen, J., dissenting).

[15] Almeida v. Amazon.com, Inc., 456 F.3d 1316 (11th Cir. 2006); Doe v. Backpage.com, LLC, 817 F.3d 12 (1st Cir. 2016).

[16] 14 F.4th at 220 (Cowen, J., dissenting) (“[T]he codified findings and policies clearly tilt the balance in Facebook’s favor.”).

[17] Communications Decency Act of 1996, Pub. L. 104-104, § 509, 110 Stat. 56, 137-39.

[18] H.R. REP. NO. 104-458 at 194 (1996) (Conf. Rep.); S. Rep. No. 104-230 at 194 (1996) (Conf. Rep.).

[19] Benjamin Volpe, From Innovation to Abuse: Does the Internet Still Need Section 230 Immunity?, 68 Cath. U. L. Rev. 597, 602 n.27 (2019); see Denise Pappalardo & Todd Wallack, Antispammers Take Matters Into Their Own Hands, Network World, Aug. 11, 1997, at 8 (“cancelbots are programs that automatically delete Usenet postings by forging cancel messages in the name of the authors. Normally, they are used to delete postings by known spammers. . . .”).

[20] 47 U.S.C. § 230(e)(2).

The Ongoing Battle Between Intuit and the IRS—And How Taxpayers Are Caught in the Crossfire

October 7, 2022
Agencies, Industry, Internal Revenue Service, Tax, Tax Law

Alex Zeng, MJLST Staffer

Every April 15, taxpayers scramble to get their tax documents sorted and figure out what, where, and how to file. This hopeless endeavor is exacerbated by the length and complexity of the tax code making it nigh indecipherable to the average taxpayer, the IRS only answering roughly nine to ten percent of the calls that it receives, and the fact that many IRS processes slog on for months before delivering an output. Consequently, it is almost no surprise that the Treasury Department, which interacts with the public primarily through the IRS, was ranked dead last in a recent customer satisfaction survey analyzing 96,211 US consumers’ perceptions of 221 companies and federal agencies.

Responding to this crisis, the IRS has decided that it should provide a free, government-backed tax filing system. Under the Inflation Reduction Act, the IRS was given $15 million to study making its own digital tax filing platform. The concept is simple: by developing their own technology to handle tax filings, the IRS would be consolidating tax assessment and tax filings within one entity, thereby increasing customer satisfaction and efficiency within the system. After all, this sort of program already exists in California and its adoption is ostensibly paying dividends. The state’s program, CalFile, is a government-backed tax filing system that is free to single filers making up to $169,730 and married filers making up to $339,464 a year. The California Franchise Tax Board (“CFTB”) reports that CalFile saves taxpayers somewhere between $4 million and $10 million annually in tax preparation fees while the state saves around $500,000 in overhead and administrative costs.

To many, this change is long overdue. It seemed obvious that the agency that requires tax filings should have its own system to file taxes. The question then becomes: what took so long?

The History of Free Tax Filing

To taxpayers that engage with the morass of tax every year, services such as TurboTax and H&R Block seem like godsends as they provide the opportunity to file with ease and near certainty of accuracy for a fee. Beneath this masquerade of doing good, however, lies these services’ sinister secret: they are responsible for the absence of a free government-backed filing service. For decades, companies such as Intuit have been closing the door to more accessible filing through aggressive lobbying and by tapping into taxpayers’ fear, uncertainty, and doubt about the tax filing process as part of their marketing strategy.

In an effort to suppress government encroachment into the tax filing industry, Intuit and other industry giants formed the Free File Alliance (“FFA”) in the early 2000s and agreed to provide free federal filing to 60 percent of taxpayers at the time of drafting as long as the IRS promised not to compete with the industry. Though the Free File Alliance introduced free filing, fewer than three percent of all taxpayers use these services despite a seventy percent eligibility rate. This discrepancy is due to various barriers of entry, such as intentionally hiding their free tax filing services from search engines, reducing the income cap eligibility, and confusing taxpayers by having two separate services designated as “Free” and “Free File.” After ProPublica published articles investigating the industry’s deceptive tactics, the IRS and the FFA amended their agreement to bar companies from hiding their free products from search engines and struck the provision prohibiting the IRS from competing with the industry by introducing its own tax filing service.

Potential Pitfalls for the IRS’s Free Filing System

While the way towards an IRS-backed tax filing system may seem clear now that the provision preventing the IRS from developing one is stricken, there are still some obstacles that the IRS must surmount before its promulgation. One concern is that if the IRS follows through, then the IRS would be both the preparer and the auditor. This conflict of interest may introduce issues regarding whether a taxpayer can reasonably expect that the same agency that computes taxes and collects them is able to fairly consider objections to potential errors and return overpayments.

Adjacent to this concern is that if the agency consolidates too much power and discretion within itself, private companies would languish under the regime of Big Brother as private interests and services are replaced by the government. Proponents of private companies dictating the boundaries of free tax filing services contend that if the government steps in, private companies, and thus consumer autonomy, would be squeezed out of the equation as private firms would exit the industry due to the government outcompeting them. In other words, taxpayers would lose out on having other options to file their taxes. If this happens, there is a fear that companies might retaliate. Industry giants would “have every reason to run an ad that says Big Brother is going to be watching your keystrokes,” as Steve Ryan, then general counsel of the Free File Alliance stated on National Public Radio. He continued by asking if “we really believe that that sort of advertising or program would actually be beneficial to electronic filing?” In this instance, not only would the tax filing industry face the danger of collapsing, but taxpayers would also suffer by not having the freedom to choose the service they want.

It is unknown how well-founded these fears are, however. Although reported in 2011, data collected from the CFTB states that 97 percent respondents stated that filing is the type of service the government should provide and 98 percent stated that they would use this service again. Providing a free online tax filing system is also recognized as public service at its best and provides efficiency and convenience to the tax filer. Finally, a working paper for the National Bureau of Economic Research found that autofilling tax returns could be straightforward for many filers, with 41 to 48 percent of returns able to accurately be pre-populated using information from the previous year’s tax returns, and 43 to 44 percent of filers who would see their returns automatically filled are unnecessarily paying someone else to handle their filings.

Another concern is more logistical. Both the IRS’s budget and staffing have shrunk over the past decades even as filings increased. This lack of personnel and increase in responsibility is also intensified by pandemic-era responsibilities, such as distributing stimulus checks and child tax credits. Consequently, there is a massive backlog of unprocessed tax returns and refunds—not insignificantly due to decades-old technology and the IRS’s insistence on using paper files. To create such an overarching system and then subsequently maintain it would require massive technological and organizational overhauls—overhauls that, given the IRS’s archaic technology and restricted funding and workforce, may overwhelm the IRS and create an even more catastrophic backlog in the short-term. The Inflation Reduction Act seeks to partially alleviate some of these pains by directing $80 billion toward the IRS, but it is unclear whether and how much these concerns will be addressed by this increase in funds. What is clear at this point, however, is that the IRS will start taking serious steps towards allowing taxpayers to file with the IRS. Hopefully, in the near future, taxpayers around the nation will be able to simply file their taxes every year, for free, within minutes.

iMessedUp – Why Apple’s iOS 16 Update Is a Mistake in the Eyes of Litigators.

October 5, 2022
Data, Data Privacy, Evidence, Internet, Litigation

Carlisle Ghirardini, MJLST Staffer

Have you ever wished you could unsend a text message? Has autocorrect ever created a typo you would give anything to edit? Apple’s recent iOS 16 update makes these dreams come true. The new software allows you to edit a text message a maximum of five times for up to 15 minutes after delivery and to fully unsend a text for up to two minutes after delivery.[1] While this update might be a dream for a sloppy texter, it may become a nightmare for a victim hoping to use text messages as legal evidence.

But I Thought my Texts Were Private?

Regardless of the passcode on your phone, or other security measures you may use to keep your correspondence private, text messages can be used as relevant evidence in litigation so long as they can be authenticated.[2] Under the Federal Rules of Evidence Rule 901(a), such authentication only requires proof sufficient to support a finding that the evidence at issue is what you claim it is.[3] Absent access to the defendant’s phone, a key way to authenticate texts includes demonstrating the personal nature of the messages, which emulate earlier communication.[4] However, for texts to be admitted as evidence beyond hearsay, proof of the messages through screenshots, printouts, or other tangible methods of authentication is vital.[5]

A perpetrator may easily abuse the iOS 16 features by crafting harmful messages and then editing or unsending them. This has several negative effects. First, the fact that this capability is available may increase perpetrator utilization of text, knowing that disappearing harassment will be easier to get away with. Further, victims will be less likely to capture the evidence in the short time before the proof is rescinded, but after the damage has already been done. Attorney Michelle Simpson Tuegal who spoke out against this software shared how “victims of trauma cannot be relied upon, in that moment, to screenshot these messages to retain them for any future legal proceedings.”[6] Finally, when the victims are without proof and the perpetrator denies sending, psychological pain may result from such “gaslighting” and undermining of the victim’s experience.[7]

Why are Text Messages so Important?

Text messages have been critical evidence in proving the guilt of the defendant in many types of cases. One highly publicized example is the trial of Michelle Carter, who sent manipulative text messages to encourage her then 22-year-old boyfriend to commit suicide.[8] Not only were these texts of value in proving reckless conduct, they also proved Carter guilty of involuntary manslaughter as her words were shown to be the cause of the victim’s death. Without evidence of this communication, the case may have turned out very differently. Who is to say that Carter would not have succeeded in her abuse by sending and then unsending or editing her messages later?

Text messaging is also a popular tool for perpetrators of sexual harassment, and it happens every day. In a Rhode Island Supreme Court case, communication via iMessage was central to the finding of 1st degree sexual assault, as the 17-year-old plaintiff felt too afraid to receive a hospital examination after her attack.[9] Fortunately, the plaintiff had saved photos of inappropriate messages the perpetrator sent after the incident, amongst other records of their texting history, which properly authenticated the texts and connected him to the crime. It is important to note, however, that the incriminating screenshots were not taken until the morning after and with the help of a family member. This demonstrates how it is not often the first instinct of a victim to immediately memorialize evidence, especially when the content may be associated with shame or trauma. The new iOS feature may take away this opportunity to help one’s case through messages which can paint a picture of the incident or the relationship between the parties.

Apple Recognized That They Messed Up

The current iOS 16 update offering two minutes to recall messages and 15 minutes to edit them is actually an amendment to Apple’s originally offered timeframe of 15 minutes to unsend. This change came in light of efforts from an advocate for survivors of sexual harassment and assault. The advocate wrote a letter to the Apple CEO warning of the dangers of this new unsending capability.[10] While the decreased timeframe that resulted leaves less room for abuse of the feature, editing is just as dangerous as unsending. With no limit to how much text you can edit, one could send full sentences of verbal abuse simply just to later edit and replace them with a one-word message. Furthermore, if someone is reading the harmful messages in real time, the shorter window only gives them less time to react – less time to save the messages for evidence. While we can hope that the newly decreased window makes perpetrators think harder before sending a text that they may not be able to delete, this is wishful thinking. The fact that almost half of young people have reported being victims to cyberbullying when there has been no option to rescind or edit one’s messages shows that the length of the iOS feature likely does not matter.[11] The abilities of the new Apple software should be disabled; their “fix” to the update is not enough. The costs of what such a feature will do to victims and their chances of success in litigation outweigh the benefits to the careless texter.

Notes

[1] Sofia Pitt, Apple Now Lets You Edit and Unsend Imessages on Your Iphone. Here’s How to Do It, CNBC (Sep. 12, 2022, 1:12 PM), https://www.cnbc.com/2022/09/12/how-to-unsend-imessages-in-ios-16.html.

[2] FED. R. EVID. 901(a).

[3] Id.

[4] United States v. Teran, 496 Fed. Appx. 287 (4th Cir. 2012).

[5] State v. Mulcahey, 219 A.3d 735 (R.I. Sup. Ct. 2019).

[6] Jess Hollington, Latest Ios 16 Beta Addresses Rising Safety Concerns for Message Editing, DIGITALTRENDS (Jul. 27, 2022) https://www.digitaltrends.com/mobile/ios-16-beta-4-message-editing-unsend-safety-concerns-fix/

[7] Id.

[8] Commonwealth v. Carter, 115 N.E.3d 559 (Mass. Sup. Ct. 2018).

[9] Mulcahey, 219 A.3d at 740.

[10] Hollington, supra note 5.

[11] 45 Cyberbullying Statistics and Facts to Make Texting Safer, SLICKTEXT (Jan. 4, 2022) https://www.slicktext.com/blog/2020/05/cyberbullying-statistics-facts/.

Freedom to Moderate? Circuits Split Over First Amendment Interpretation

October 2, 2022
Administrative Law, Constitutional Law, Cyber Security, Data, First Amendment, Internet, Regulatory, Social Media

Annelise Couderc, MJLST Staffer

Recently, the Florida and Texas Legislatures passed substantively similar laws which restrict social media platforms’ ability to moderate posts expressing “viewpoints,” and require platforms to provide explanations for why they chose to censor certain content. These laws seemingly stem from the perception of conservative leaning users that their views are disproportionately censored, despite evidence showing otherwise. The laws are in direct conflict with the current prevalent understanding of social media’s access to First Amendment protections, which include the right to moderate content, an expression of free speech.

While the 11th Circuit declared the Florida law unconstitutional for violating social media platforms’ First Amendment rights in May, only four months later the 5th Circuit reinstated the similar Texas law without explanation, overturning the previous injunction made by the U.S. District Court for the Western District of Texas. On September 16, 2022, the 5th Circuit released its full decision explaining its reinstatement of the censorship statute, immediately raising constitutional alarm bells in the news. Following this circuit split, social media platforms must navigate a complicated legal minefield. The issue is likely to be resolved by the Supreme Court in response to Florida’s petition of the 11th Circuit’s May decision.

Social Media Platforms Are Generally Free to Moderate Content

The major social media platforms all have policies which ban certain content, or at least require a sensitivity warning to be posted before viewing certain content. Twitter restricts hate speech and imagery, gratuitous violence, sexual violence, and requires sensitive content warnings on adult content. Facebook sets Community Standards and YouTube (a Google subsidiary) sets Community Guidelines that restrict similar content.[1] Social media corporations’ access to free speech protections were well understood under settled Supreme Court precedent, and were further confirmed in the controversial 2010 Supreme Court decision Citizens United establishing the rights of corporations to make political donations as a demonstration of free speech. In sum, Courts have generally allowed social media platforms to moderate and censor sensitive content as they see fit, and platforms have embraced this through their establishment and enforcement of internal guidelines.

Circuits Split Over First Amendment Concerns

Courts have generally rejected arguments challenging social media platforms’ ability to set and uphold their own content guidelines, upholding social media platforms’ free speech protections under the First Amendment. The 5th Circuit’s rejection of this widely accepted standard has created a circuit split which will lead to further litigation and leave social media platforms uncertain about the validity of their policies and the extent of their constitutional rights.

The 11th Circuit’s opinion in May of this year was consistent with the general understanding of social media’s place as private businesses which hold First Amendment rights. It rejected Florida’s argument that social media platforms are common carriers and stated that editorial discretion by the platforms is a protected First Amendment right.[2] The Court recognized the platforms’ freedom to abide by their own community guidelines and choose which content to prioritize as expressions of editorial judgment protected by the First Amendment.[3] This opinion was attacked directly by the 5th Circuit’s later decision, challenging the 11th Circuit’s adherence to existing First Amendment jurisprudence.

In its September 16th opinion, the 5th Circuit refused to recognize censorship as speech, rejecting the plaintiff’s argument that content moderation was a form of editorial discretion (a recognized form of protected speech for newspapers).[4] The court also invoked common carrier doctrine—which empowers states to enforce nondiscriminatory practices for services that the public uses en masse (a classification that the 11th Circuit explicitly rejected)—, embracing it in the context of social media platforms.[5] Therefore, the court held with “no doubts” that section 7 of the Texas law—which prevents platforms from censoring “viewpoints” (with exceptions for blatantly illegal speech provoking violence, etc.) of users—was constitutional.[6] Section 2 of the contested statute, requiring social media platforms to justify and announce their moderation choices, was similarly upheld as being a sufficiently important interest of the government, and not unduly burdensome to the businesses.[7] The law allows individuals to sue for enforcement.

The Supreme Court’s Role and Further Implications

Florida, on September 21st, 2022, petitioned for a writ of certiorari asking the Supreme Court to review the May 2022 decision. The petition included reference to the 5th Circuit opinion, calling for the Supreme Court to weigh in on the Circuit split. Considering recent Supreme Court decisions cutting down Fourth and Fifth amendment rights, it is anticipated that First Amendment rights of online platforms may be next.

Although the Florida and Texas laws involved in these Circuit Court decisions were Republican proposed bills, a Supreme Court decision would impact blue states as well. California, for example, has proposed a bill requiring social media platforms to make public their policies on hate speech and disinformation. A decision in either direction would impact both Republican and Democratic legislatures’ ability to regulate social media platforms in any way.

Notes

[1] Studies have found that platforms like YouTube may actually push hateful content through their algorithms despite what their official policies may state.

[2] NetChoice, LLC v. AG, Fla., 34 F.4th 1196, 1222 (11th Cir. 2022).

[3] Id. at 1204.

[4] Netchoice, L.L.C. v. Paxton, No. 21-51178, 2022 U.S. App. LEXIS 26062, at *28 (5th Cir. Sep. 16, 2022).

[5] Id. at 59.

[6] Id. at 52.

[7] Id. at 102.

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