The New Year Brings New Rules for the Digital Millennium Copyright Act.

By: Robert V. Hawn, Esq.

In 1998, Congress enacted the Digital Millennium Copyright Act (“DMCA”) . This act enacted many things including a protection for online services who allow content from users which may be in violation of another’s copyright to not be liable for a copyright infringement.

The current rule states that a service provider or website operator will not be liable for monetary relief for an infringement of copyright by users posting content on the provider’s site as long as the service provider meets certain qualifications. [1]

Here’s what’s new Paper is out and the electronic online system is in.

The change to this act states that in order for the online service provider to be immune for copyright infringement for its users’ content, the online service provider must:

1)Re-register their designated agent online with the US Copyright Office ( here ) by December 31, 2017 (Along with the $6 fee); and

2)Make the Designated Agent known to the public on the service provider’s website; including their contact information that matches with the US Copyright Office. [2]

The designated agent is an agent who will be the point of contact with the copyright owner for claims of infringement by the online service provider.

Renew every 3 years

The Designated Agent must be renewed every three years. [3] Further, if the online service provider amends or resubmits a Designated Agent the three year renewal will restart on that modification date.

The copyright office has made a few videos to help with creating and managing the Designated Agent ( here ).

Here’s what you need to do:

If you are an online service provider that allows users to upload content, you need to follow the appropriate qualifications in 17 U.S.C 512 and follow the new addition to the rule by:

1) Registering a Designated Agent with the US Copyright Office (here) by December 31, 2017 ; and

2) Making this Designated Agent known to the public on the service provider’s website.

By following 17 U.S.C 512, the online service provider will increase its chances of being immune from liability arising out of infringing material uploaded by a user. To learn more, check out the following sites:

DMCA:

https://www.gpo.gov/fdsys/pkg/USCODE-2016-title17/html/USCODE-2016-title17-chap5-sec512.htm

US Copyright Designated Agent registration:

https://www.copyright.gov/dmca-directory/

Helpful FAQ on the DMCA Designated Agent:

https://www.copyright.gov/dmca-directory/faq.html

US Copyright DMCA Designated Agent Tutorial videos:

https://www.copyright.gov/dmca-directory/help.html

37 U.S.C. 201.38 Designation of agent to receive notification of claimed infringement

https://www.copyright.gov/title37/201/37cfr201-38.html

The information appearing in this blog does not constitute legal advice or opinion. Such advice and opinions are provided by the firm only upon engagement with respect to specific factual situations. Specific questions relating to this article should be addressed directly to Strategy Law, LLP.


[1] 17 U.S.C. 512 (a)

[2] Id . 512 (c)(2)

[3] 37 U.S.C. 201.38 (c)(4)

A Last-Minute Word to the Wise for Soon-to-be Corporations and LLCs in CA

As we get closer to the end of the year, there are a couple of extremely important tax-related items to remember for anyone who may be getting close to starting a corporation or LLC, preparing to file their Articles of Incorporation, looking to expand their operations into California, or just may be thinking of doing so. The items I am referring to are the $800 minimum tax and the 15-day end of the year tax exemption. But first, with the holiday season now in full swing, let’s start off with a quick tale.

Once upon a time, there was a company called C&L Pacific, a newly formed S Corporation that had four shareholders and intended to do business in California. On December 12 th , 2011, C&L Pacific mailed its Articles of Incorporation to the office of the Secretary of State of California, with the intent of becoming “incorporated.” Their Articles were officially marked “filed” two days later, on December 14 th . However, they were not processed until March 24 th , 2012, and C&L Pacific subsequently did not learn about the Articles of Incorporation being processed until April 2012, after which the company then proceeded to conduct business operations.

Based on those facts, C&L Pacific assumed it did not have to file a tax return for 2011 or pay the minimum corporation tax of $800 for that year. However, it was mistaken. Outlined in the ruling from C&L Pacific’s appeal before the Franchise Tax Board (FTB), California’s Revenue and Tax Code (R & TC) §23153 states that “[A] corporation becomes liable for the $800 minimum tax when it incorporates in California, qualifies to do business in California, or if it is actually doing business in California.” So, when does a corporation’s existence, or “incorporation,” begin? Even though C&L Pacific did not start doing business in California until 2012 and the Articles of Incorporation were not processed until 2012, California’s Corporations Code § 200 says, “[a] corporation ‘incorporates’ in California on the date that its articles are filed with the Secretary of State,” meaning that C&L Pacific was incorporated on December 14 th , 2011 when the Articles were marked filed, rather than in March 2012 when they were processed.

As for whether the taxpayer was required to file a tax return for the 2011 tax year, if C&L Pacific had waited just a day longer to mail their articles, they would have qualified for the 15- day end of the year tax exemption, which would have excused the taxpayer from being required to file a return. “A corporation is not subject to the minimum franchise tax (and is not required to file a return) if it did not do business in California during the taxable year, and the taxable year was 15 days or fewer” (R & TC §23114).

So not only would the taxpayer have avoided needing to file a return, they also would have not been required to pay the $800 minimum tax for the 2012 tax year since C&L Pacific would have qualified under the “First-year-free” tax exemption rule, under R & TC §23153(f). The FTB did not assess the minimum franchise tax for 2011 because C&L Pacific qualified for the first-year-free exemption but this exemption was lost for 2012. The taxpayer was assessed a $432 per-shareholder penalty by the FTB, and ordered to file a tax return for the 2011 tax year, because the Board deemed the “taxpayer’s failure to distinguish between the importance of the filing date and processing date” to not be reasonable cause for failing to file.

As soon as a corporation or LLC files Articles with the Secretary of State of California, the taxpayer is formed in the state of California. So if you won’t be doing business until the new year, make sure you don’t file before the last two weeks of the current year. And as a side note – this all could have been avoided if C&L Pacific hadn’t mailed in its Articles for filing. We file documents over the counter in Sacramento to skip the months long wait for mailed filings and for clear tracking of filing dates.

The information appearing in this blog does not constitute legal advice or opinion. Such advice and opinions are provided by the firm only upon engagement with respect to specific factual situations. Specific questions relating to this article should be addressed directly to Strategy Law, LLP.

By Reading This Blog, You Are Agreeing To…

By: Robert V. Hawn, Esq.

How many times have you registered or signed up for something online and came across a Terms of Service agreement? The answer is a lot, because vendors want to make sure we agree to their terms before providing a product or service. These days every app we use, every service we enroll in online, and every time we make a one-time online purchase, we are made to enter information about ourselves and our credit card before clicking that button that completes the entire process. And that process almost always comes with some form of notice warning that by clicking that button, you agree to the “Terms and Conditions”.

Whether these terms are enforceable or not depends, in large part, on whether they are conspicuous on the site and whether the user is required to agree to them before getting the product or service ordered. Meyer v. Uber Technologies, Inc. , decided by a Federal Appeals Court in August of this year, illustrates the need for properly designing the process by which the user agrees to terms. Although the case was heard in New York, it was decided under California law.

The plaintiff filed a class action lawsuit against Uber, specifically former CEO Travis Kalanick, although Uber was later joined as a defendant, in the U.S. District Court for the Southern District of NY. The plaintiff alleged that Uber’s ride-sharing application allowed drivers to illegally fix prices individually. The defendants filed a motion to compel arbitration under Uber’s Terms of Service agreement. On appeal, the defendant argued that the Terms of Service was unenforceable.

The primary issue around enforceability was whether the Terms of Service was visible and noticeable enough, or reasonably conspicuous, so that the user knew it was entering into an agreement. If so, the agreement will be enforced against the user even if the user didn’t read the agreement. “While it may be the case that many users will not bother reading the additional terms, that is the choice the user makes; the user is still on inquiry notice,” wrote Judge Chin in the decision of this case.

Although the determination of whether the Terms of Service is “reasonably conspicuous” requires considering many factors, the analysis focuses primarily on the design of site where the contract is formed. The three appellate judges reviewed the screen size of the plaintiff’s Samsung Galaxy S5 and how the screenshot of the final step of the registration process appears on that screen, the presence of words and other things in close proximity to the “agree” button, and the appearance, location, and interpretive function of the agree button itself. “Clarity and conspicuousness are a function of the design and content of the relevant interface,” wrote Chin.

The court noted a number of aspects of the design. To open an account, a user must click a button marked “Register”. Underneath this button, the screen states “By creating an Uber account, you agree to the TERMS OF SERVICE and PRIVACY POLICY,” with hyperlinks on them, which the user can click if they want to enjoy a little light reading. The court noted that payment screen was uncluttered. There were only fields for the user to enter his or her credit card details, or a button to click in order to use different payment options, and a warning that the user was agreeing to terms when clicking “Register.” The entire screen is visible on one page, with very little scrolling required and no additional pages to review before creating the account. The warning itself is in small font, but is also in bold font, with the hyperlinks in light blue and underlined. As a result, the Court ruled that the design of the screen, and the language used, was reasonably conspicuous.

Notwithstanding, Meyer declared that he was not on actual notice of the hyperlink, that when he was signing up he was not aware of the existence of the Terms of Service. There is no evidence that Meyers had actual notice of the Terms of Service, and the defendants did not point to any evidence from which a jury could infer otherwise. According to Judge Chin, however, California contract law measures assent by an objective standard that takes into account both what the person or entity seeking service said, wrote, or did, and the transactional context in which the person or entity verbalized or acted. California contract law is clear that “an offeree, regardless of apparent manifestation of his consent, is not bound by inconspicuous contractual provisions of which he is unaware, contained in a document whose contractual nature is not obvious.”

Using California’s concept of measuring assent by an objective standard, Judge Chin introduces the notion of a reasonably prudent smartphone user: “Precedent and basic principles of contract law instruct that we consider the perspective of a reasonably prudent smartphone user”. Because of the nature of the design of the contract formation process, the Appeals Court held that “a reasonably prudent smartphone user would understand that the terms were connected to the creation of a user account.” Even if a reasonably prudent user was indeed not aware of the conditions that would be set forth by their clicking of a button, the court held that the user would be “still bound if a reasonably prudent user would be on inquiry notice of the Terms of Service.”

In explaining his decision, Judge Chin further observed “inasmuch as consumers are regularly and frequently confronted with non-negotiable contract terms, particularly when entering into transactions using the internet, the presentation of these terms at a place and time that the consumer will associate with the initial purchase or enrollment… from which the recipient benefits at least indicates to the consumer that he or she is taking such goods or employing such services subject to additional terms and conditions that may one day affect him or her.”

In holding for the defendant, the Appeals Court noted that the “registration process allowed Meyer to review the Terms of Service prior to registering, included a reasonably noticeable hyperlink, and expressly warned the ‘reasonably prudent smartphone’ user that by creating an Uber account, the user was agreeing to be bound by the linked terms.”

This case is very helpful for operators of ecommerce websites, particularly those in California, because it clearly outlines the design parameters required of a website enabled contract formation process. For those creating click through agreements, these guidelines are invaluable.