Business Law

General Motor’s $500 Million Investment in Lyft: A Reminder to State Legislatures to Quickly Act to Resolve Legal Issues Surrounding Self-Driving Cars

January 20, 2016
Autonomous Vehicles, Business Law, Competition

Emily Harrison, MJLST Editor-in-Chief

On January 4, 2016, General Motors’ (G.M.) invested $500 million in Lyft, a privately held ridesharing service. G.M. also pledged to collaborate with Lyft in order to create a readily accessible network of self-driving cars. According to the New York Times, G.M.’s investment represents the “single largest direct investment by an auto manufacturer into a ride-hailing company in the United States . . . .” So why exactly did General Motors, one of the world’s largest automakers, contribute such a significant amount of capital to a business that could eventually cause a decrease in the number of cars on the road?

The short answer is that G.M. views its investment in Lyft as a way to situate itself in a competitive position in the changing transportation industry. As John Zimmer, president of Lyft, said in an interview, the future of cars will not be based on individual ownership: “We strongly believe that autonomous vehicle go-to-market strategy is through a network, not through individual car ownership.” In addition, this partnership will allow G.M. to augment its current profits. The president of G.M., Daniel Ammann, explained that G.M.’s ‘core profit’ predominately comes from cars that are sold outside of the types of urban environments in which Lyft conducts its main operations. Therefore, G.M. can capitalize on its investments by aligning itself at the forefront of this burgeoning automated vehicle industry.

A transition to a network of self-driving cars raises a variety of legal implications, particularly with respect to assigning liability. As Minnesota Journal of Law, Science & Technology Volume 16, Issue 2 author Sarah Aue Palodichuk notes in her article, “Driving into the Digital Age: How SDVs Will Change the Law and its Enforcement,”: “[a]utomated vehicles will eliminate traffic offenses, create traffic offenses, and change the implications of everything from who is driving to how violations are defined.” Underlying all of these changes is the question: who or what is responsible for the operation of self-driving cars? In some states, for example, there must be a human operator who is capable of manual control of the vehicle. As additional states begin to adopt legislation with respect to self-driving cars, it is foreseeable that there will be great debate as to who or what is responsible for purposes of liability. Yet, in the meantime, G.M.’s significant investment in Lyft signals to consumers and state legislators that these issues will need to be resolved quickly, as the automotive industry is moving full-speed ahead.

Data Breach and Business Judgment

November 9, 2015
Business Law, Cyber Security, Data, Internet

Quang Trang, MJLST Staffer

Data breaches are a threat to major corporations. Corporations such as Target Co. and Wyndham Worldwide Co. have been victim of mass data breaches. The damage caused by such breaches have led to derivative lawsuits being filed by shareholders to hold board of directors responsible.

In Palkon v. Holmes, 2014 WL 5341880 (D. N.J. 2014), Wyndham Worldwide Co. shareholder Dennis Palkon filed a lawsuit against the company’s board of directors. The judge granted the board’s motion to dismiss partially because of the Business Judgment Rule. The business judgement rule governs when boards refuse shareholder demands. The principle of the business judgment rule is that “courts presume that the board refused the demand on an informed basis, in good faith and in honest belief that the action taken was in the best interest of the company.” Id. The shareholder who brings the derivative suit has the burden to rebut the presumption that the board acted in good faith or that the board did not base its decision on reasonable investigation.

Cyber security is a developing area. People are still unsure how prevalent the problem is and how damaging it is. It is difficult to determine what a board needs to do with such ambiguous information. In a time when there is no set corporate cyber security standards, it is difficult for a shareholder to show bad faith or lack of reasonable investigation. Until clear standards and procedures for cyber security are widely adopted, derivative suits over data breaches will likely be dismissed such as in Palkon.

Marijuana Industry Continues to Search for Banking Solution

November 9, 2015
Business Law, Competition, Economics

Neal Rasmussen, MJLST Managing Editor

While the legal marijuana industry continues to rapidly expand in the United States, a major question still looms: Where should the millions of dollars generated by the industry be placed? Up to this point the nation’s banks have refused to take money for fear of federal repercussions. The lack of banking is one of the biggest problems the industry currently has and creates a dangerous all cash environment. While it continues to be an industry dominated by cash vaults and armed guards, change could soon be on the way.

While the provisions of the unlicensed money remitter statute, 18 U.S.C. § 1960, the money laundering statutes, 18 U.S.C. §§ 1956, 1957, and the Bank Secrecy Act (BSA) still remain in effect with respect to marijuana-related business, the marijuana industry had hoped to take advantage of the new rules issued by the U.S. Treasury Department in 2014 which “clarifie[d] how financial institutions can provide services to marijuana-related businesses consistent with their BSA obligations, and aligns the information provided by financial institutions in BSA reports with federal and state law enforcement priorities.” In addition to the new rules, the Justice Department produced a memorandum calling for relaxed enforcement of the relevant federal banking laws so long as they followed the new rules. However, the most recent attempt by a Colorado state-chartered credit union, The Fourth Corner Credit Union, to take advantage of the new rules and memorandum has faced major opposition from the Federal Reserve Bank, who must provide clearance before the credit union can open.

The Federal Reserve Bank refused to grant the permission need to access the national banking system and The Fourth Corner Credit Union has sued in Federal Court demanding equal access to the federal system. While it remains unclear whether the presiding judge, R. Brooke Jackson, will hear the complaint, most view The Fourth Corner Credit Union as fighting a losing battle. Most believe that entering the federal banking system will be nearly impossible until marijuana becomes legal at the federal level. For now it will remain unclear as to where the industry should place its money.

The Data Dilemma for Cell Phone Carriers: To Throttle or Not to Throttle? FTC Seeks to Answer by Suing AT&T Over Speed Limitations for Wireless Customers

November 11, 2014
Business Law, Ethics, Internet

Benjamin Borden, MJLST Staff Member

Connecting to the Internet from a mobile device is an invaluable freedom in the modern age. That essential BuzzFeed quiz, artsy instagram picture, or new request on Friendster are all available in an instant. But suddenly, and often without warning, nothing is loading, everything is buffering, and your once treasured piece of hand-held computing brilliance is no better than a cordless phone. Is it broken? Did the satellites fall from the sky? Did I accidentally pick up my friend’s blackberry? All appropriate questions. The explanation behind these dreadfully slow speeds, however, is more often than not a result of data throttling courtesy of wireless service providers. This phenomenon arises from the use of unlimited data plans on the nation’s largest cell phone carriers. Carriers such as AT&T and Verizon phased out their unlimited data plans in 2010 and 2011, respectively. This came just a few years after requiring unlimited data plans for new smartphone purchases. Wireless companies argue that tiered data plans offer more flexibility and better value for consumers, while others suggest that the refusal to offer unlimited data plans is motivated by a desire to increase revenue by selling to data hungry consumers.

Despite no longer offering unlimited data plans to new customers, AT&T has allowed customers who previously signed up for these plans to continue that service. Verizon also allows users to continue, but refuses to offer discounts on new phones if they keep unlimited plans. Grandfathering these users into unlimited data plans, however, meant that wireless companies had millions of customers able to stream movies, download music, and post to social media without restraint, and more importantly, without a surcharge. Naturally, this was deemed to be too much freedom. So, data throttling was born. Once a user of an unlimited data plan goes over a certain download size, 3-5GB for AT&T in a billable month, their speeds are lowered by 80-90% (to 0.15 mbps in my experience). This speed limit makes even the simplest of smartphone functions an exercise in patience.

I experienced this data throttling firsthand and found myself consistently questioning where my so-called unlimited data had escaped to. Things I took for granted, like using Google Maps to find the closest ice cream shop, were suddenly ordeals taking minutes rather than seconds. Searching Wikipedia to settle that argument with a friend about the plot of Home Alone 4? Minutes. Requesting an Uber? Minutes. Downloading the new Taylor Swift album? Forget about it.

The Federal Trade Commission (FTC) understands this pain and wants to recoup the losses of consumers who were allegedly duped by the promise of unlimited data, only to have their usage capped. As a result, the FTC is suing AT&T for misleading millions of consumers about unlimited data plans. After recently consulting with the Federal Communications Commission (FCC), Verizon decided to abandon its data throttling plans. AT&T and Verizon argue that data throttling is a necessary component of network management. The companies suggest that without throttling, carrier service might become interrupted because of heavy data usage by a small group of customers.
AT&T had the opportunity to settle with the FTC, but indicated that it had done nothing wrong and would fight the case in court. AT&T contends that its wireless service contracts clearly informed consumers of the data throttling policy and those customers still signed up for the service. Furthermore, there are other cellular service options for consumers that are dissatisfied with AT&T’s terms. These arguments are unlikely to provide much solace to wireless customers shackled to dial-up level speeds.
If there is a silver lining though, it is this: with my phone acting as a paperweight, I asked those around me for restaurant recommendations rather than turning to yelp, I got a better understanding of my neighborhood by finding my way rather than following the blue dot on my screen, and didn’t think about looking at my phone when having dinner with someone. I was proud. Part of me even wanted to thank AT&T. The only problem? I couldn’t tweet @ATT to send my thanks.

The Data Dilemma for Cell Phone Carriers: To Throttle or Not to Throttle? FTC Seeks to Answer by Suing AT&T Over Speed Limitations for Wireless Customers

November 11, 2014
Business Law, Ethics, Internet

Benjamin Borden, MJLST Staff Member

Connecting to the Internet from a mobile device is an invaluable freedom in the modern age. That essential BuzzFeed quiz, artsy instagram picture, or new request on Friendster are all available in an instant. But suddenly, and often without warning, nothing is loading, everything is buffering, and your once treasured piece of hand-held computing brilliance is no better than a cordless phone. Is it broken? Did the satellites fall from the sky? Did I accidentally pick up my friend’s blackberry? All appropriate questions. The explanation behind these dreadfully slow speeds, however, is more often than not a result of data throttling courtesy of wireless service providers. This phenomenon arises from the use of unlimited data plans on the nation’s largest cell phone carriers. Carriers such as AT&T and Verizon phased out their unlimited data plans in 2010 and 2011, respectively. This came just a few years after requiring unlimited data plans for new smartphone purchases. Wireless companies argue that tiered data plans offer more flexibility and better value for consumers, while others suggest that the refusal to offer unlimited data plans is motivated by a desire to increase revenue by selling to data hungry consumers.

Despite no longer offering unlimited data plans to new customers, AT&T has allowed customers who previously signed up for these plans to continue that service. Verizon also allows users to continue, but refuses to offer discounts on new phones if they keep unlimited plans. Grandfathering these users into unlimited data plans, however, meant that wireless companies had millions of customers able to stream movies, download music, and post to social media without restraint, and more importantly, without a surcharge. Naturally, this was deemed to be too much freedom. So, data throttling was born. Once a user of an unlimited data plan goes over a certain download size, 3-5GB for AT&T in a billable month, their speeds are lowered by 80-90% (to 0.15 mbps in my experience). This speed limit makes even the simplest of smartphone functions an exercise in patience.

I experienced this data throttling firsthand and found myself consistently questioning where my so-called unlimited data had escaped to. Things I took for granted, like using Google Maps to find the closest ice cream shop, were suddenly ordeals taking minutes rather than seconds. Searching Wikipedia to settle that argument with a friend about the plot of Home Alone 4? Minutes. Requesting an Uber? Minutes. Downloading the new Taylor Swift album? Forget about it.

The Federal Trade Commission (FTC) understands this pain and wants to recoup the losses of consumers who were allegedly duped by the promise of unlimited data, only to have their usage capped. As a result, the FTC is suing AT&T for misleading millions of consumers about unlimited data plans. After recently consulting with the Federal Communications Commission (FCC), Verizon decided to abandon its data throttling plans. AT&T and Verizon argue that data throttling is a necessary component of network management. The companies suggest that without throttling, carrier service might become interrupted because of heavy data usage by a small group of customers.
AT&T had the opportunity to settle with the FTC, but indicated that it had done nothing wrong and would fight the case in court. AT&T contends that its wireless service contracts clearly informed consumers of the data throttling policy and those customers still signed up for the service. Furthermore, there are other cellular service options for consumers that are dissatisfied with AT&T’s terms. These arguments are unlikely to provide much solace to wireless customers shackled to dial-up level speeds.
If there is a silver lining though, it is this: with my phone acting as a paperweight, I asked those around me for restaurant recommendations rather than turning to yelp, I got a better understanding of my neighborhood by finding my way rather than following the blue dot on my screen, and didn’t think about looking at my phone when having dinner with someone. I was proud. Part of me even wanted to thank AT&T. The only problem? I couldn’t tweet @ATT to send my thanks.

Open Patenting, Innovation, and the Release of the Tesla Patents

November 11, 2014
Business Law, Ethics, Intellectual Property, Patents, Social Media

Blake Vettel, MJLST Staff Member

In Volume 14 Issue 2 of the Minnesota Journal of Law, Science & Technology, Mariateresa Maggiolino and Marie Lillá Montagnani proposed a framework for standardized terms and conditions for Open Patenting. This framework set forth a standard system for patent holders to license their patents in order to encourage open innovation, in a way that was easy to administer for patent holders of all sizes. Maggiolino and Montagnani argued for an open patenting scheme in which the patent owner would irrevocably spread their patented knowledge worldwide, based on non-exclusive and no-charge licensing. Futhermore, the licensing system would be centrally operated online and allow the patentee to customize certain clauses in the licensing agreement; while maintaining a few compulsory clauses such as a non-assertion pledge that would keep the license open.

On June 12, 2014 Elon Musk, CEO of Tesla Motors, shocked the business world by announcing via blog post that “Tesla will not initiate patent lawsuits against anyone who, in good faith, wants to use our technology.” Musk described his reasoning for opening Tesla’s patents for use by others as a way to encourage innovation and growth within the electric car market, and depicted Tesla’s true competition as gasoline cars instead of electric competitors. By allowing use of their patented technology, Tesla hopes to develop the electric car market and encourage innovation. Some commentators have been skeptical about the altruistic motive behind releasing the patents, arguing that it may in fact be a move intended to entice other electric car manufacturers to produce cars that are compatible with Tesla’s patented charging stations in an effort to develop the network of stations around the country.

However, Musk did not unequivocally release these patents; instead he conditioned their subsequent use upon being in “good faith.” What constitutes a good faith use of Tesla’s technology is not clear, but Tesla could have instead opted for a standardized licensing system as proposed by Maggiolino and Montagnani. A clear standardized licensing scheme with compulsory clauses designed to encourage free movement of patented technology and spur innovation may have been more effective in promoting use of Tesla’s patents. An inventor who wants to use Tesla’s patents may be hesitant under Musk’s promise not to initiate lawsuits, where he could be much more confident of his right to use the patented technology under a licensing agreement. The extent to which Tesla’s patents will be used and their effect on the car market and open innovation is yet to be seen, as is the true value of Tesla’s open innovation.

FCC Issues Notice of Proposed Rulemaking to Ensure an Open Internet, Endangers Mid-Size E-Commerce Retailers

October 29, 2014
Business Law, Ethics, Internet

Emily Harrison, MJLST Staff

The United States Court of Appeals for the D.C. Circuit twice struck down key provisions of the Federal Communication Commission’s (FCC) orders regarding how to ensure an open Internet. The Commission’s latest articulation is its May 15, 2014 notice of proposed rulemaking, In the Matter of Protecting the Open Internet. According to the proposed rulemaking, it seeks to provide “broadly available, fast and robust Internet as a platform for economic growth, innovation, competition, free expression, and broadband investment and deployment.” The notice of proposed rulemaking includes legal standards previously affirmed by the D.C. Circuit in Verizon v. FCC, 740 F.3d 623 (2014). For example, the FCC relies on Verizon for establishing how the FCC can utilize Section 706 of the Telecommunications Act of 1996 as its source of authority in promulgating Open Internet rules. Additionally, Verizon explained how the FCC can employ a valid “commercially reasonable” standard to monitor the behavior of Internet service providers.

Critics of the FCC’s proposal for network neutrality argue that the proposed standards are insufficient to ensure an open Internet. The proposal arguably allows broadband carriers to offer “paid prioritization” services. The sale of this prioritization not only leads to “fast” and “slow” traffic lanes, but also allows broadband carriers to charge content providers for priority in “allocating the network’s shared resources,” such as the relatively scarce bandwidth between the Internet and an individual broadband subscriber.

Presuming that there is some merit to the critics’ arguments, if Internet Service Providers (ISPs) could charge certain e-commerce websites different rates to access a faster connection to customers, the prioritized websites could gain a competitive advantage in the marketplace. Disadvantaged online retailers could see a relative decrease in their respective revenue. For example, without adequate net neutrality standards, an ISP could prioritize certain websites, such as Amazon or Target, and allow them optimal broadband speeds. Smaller and mid-sized retail stores may only have the capital to access a slower connection. As a result, customers would consistently have a better retail experience on the websites of larger retailers because of the speed in which they can view products or complete transactions. Therefore, insufficient net neutrality policies could potentially have a negative effect on the bottom line of many e-commerce retailers.

Comments can be submitted in response to the FCC’s notice of proposed rulemaking at: http://www.fcc.gov/comments

Cable TV Providers and the FCC’s Policy-Induced Competition Amidst Changing Consumer Preferences

October 3, 2014
Business Law, Ethics, Internet, Regulatory

Daniel Schueppert, MJLST Executive Editor

More and more Americans are getting rid of their cable TV and opting to consume their media of choice through other sources. Roughly 19% of American households with a TV do not subscribe to cable. This change in consumer preferences means that instead of dealing with the infamous “Cable Company Runaround” many households are using their internet connection or tapping into local over-the-air broadcasts to get their TV fix. One of the obvious consequences of this change is that cable TV providers are losing subscribers and may become stuck carrying the costs of existing infrastructure and hardware. Meanwhile, the CEO of Comcast’s cable division announced that “it may take a few years” to fix the company’s customer experience.

In 2011 Ralitza A. Grigorova-Minchev and Tomas W. Hazlett published an article entitled Policy-Induced Competition: The Case of Cable TV Set-Top Boxes in Volume 12 Issue 1 of the Minnesota Journal of Law, Science & Technology. In their article the authors noted that despite the FCC’s policy efforts to bring consumer cable boxes to retail stores like Best Buy, the vast majority of cable subscribing households in America received their cable box from their cable TV operators. In the national cable TV market the two elephants in the room are Comcast and Time Warner Cable. One of these two operators are often the only cable option in certain areas and together they provide over a third of the broadband internet and pay-TV services in the nation. Interestingly, Comcast and Time Warner Cable are currently pursuing a controversial $45 billion merger and in the process both companies are shrewdly negotiating concessions by TV networks and taking shots at Netflix in FCC filings.

The current fad of cutting cable TV implicates a pushback against the traditional policy of vertically integrating media, infrastructure, customer service, and hardware like cable boxes into one service. In contrast to the expensive cable box hardware required and often provided by traditional cable, internet media streaming onto a TV can usually be achieved by any number of relatively low cost and multi-function consumer electronic devices like Google’s Chromecast. This arguably gives customers more control over their media experience by providing the ability to choose which hardware-specific services they bring into their home. If customers no longer want to be part of this vertical model, big companies like Comcast may find it difficult to adjust to changing consumer preferences given the considerable regulatory pressure discussed in Grigorova-Minchev and Hazlett’s article.

To Serve or Not to Serve the Shareholders; That Is the Question

November 9, 2012
Business Law, Ethics

by Maya Suresh, UMN Law Student, MJLST Staff

Hikma Pharmaceutical Company recently received the 2012 Client Leadership Award of the International Finance Corporation (IFC) due to its strong commitment to the community and leadership in the Pharmaceutical Industry. The award is given to companies that display this commitment through a variety factors, including strong corporate governance. As the biggest pharmaceutical manufacturer in the Middle East, Hikma has helped the public by providing affordable and lifesaving medicines to those in need. The CEO of the IFC lauded the corporation for setting the standard for corporate social responsibility within the industry.

The importance of these actions taken by Hikma was the basis for Martin Hirsch’s article, “Side Effects of Corporate Greed: Pharmaceutical Companies Need a Dose of Corporate Social Responsibility,” published in Issue 9.2 in the Minnesota Journal of Law, Science & Technology. The article talks about the tension that exists between the shareholders of pharmaceutical companies and the public the companies strive to serve. The shareholder model of corporate governance focuses on maximizing shareholder profit which often results in the production of lifestyle drugs over drugs that cure life threatening diseases. Lifestyle drugs include medicines for baldness and toe fungus that are in high demand and thus, sold for large profits. However, the lifesaving drugs, that are the most needed, are the ones the pharmaceutical companies refuse to produce. These drugs are mostly in demand by those living in poorer regions of the world. However, they typically cannot afford the high price point the pharmaceutical companies set the drugs at. Thus, the drugs are not bought, even though they are desperately needed, which leads the pharmaceutical companies to stop investing money into developing and producing them.

Hirsch argues that some companies take these actions further by influencing doctors’ diagnoses of patients, in an effort to increase the sales of higher revenue generating drugs. The actions of Hikma could lead consumers to believe that there is hope for the public, and that some companies are beginning to take a stand on this skewed model that has plagued the industry. However, some companies continue the practice of producing lifestyle drugs, versus lifesaving drugs.

WebMD has come under recent criticism for succumbing to that pressure when it should be serving as an objective medical resource for the public. A rigged online test for depression led test takers to believe they may be at risk for depression, when in fact they were not. This served as the perfect example of companies working to serve the BigPharma industry rather than the public. Unfortunately, as Research Associate Rallis asserts in the article, WebMD has no plans to alter its business model and as such, won’t be breaking ties with the industry anytime soon.

There appears to be some hope that the tension within the industry will resolve itself as the actions by Hikma will hopefully rub off on others in the industry. However, it is also clear that there is still work to be done.

Contact Information