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http://jolt.law.harvard.edu/digest/wp-content/uploads/2012/12/joltimg.pngBy: Chris Crawford and Joshua Vittor This article assumes a base level of knowledge about Bitcoin, bitcoin (BTC), blockchain technology, the Silk Road seizure, and the collapse of MtGox. For a helpful summary of how this technology works, see the first portion of this article, written by Matthew Ly of the Journal of Law and Technology. Bitcoin, and crypto-currency more generally, has risen in the five years since its launch from an academic exercise to what is today a multi-billion dollar ... Read More...
http://jolt.law.harvard.edu/digest/wp-content/uploads/2012/12/joltimg.pngWritten by: Michelle Sohn Edited by: Olga Slobodyanyuk Emulsion: A mixture of two or more liquids that are normally immiscible (nonmixable or unblendable). -Wikipedia  I.               UberX D.C. as Case Study in the Local Sharing Economy If states are laboratories of democracy, then cities are the experiments. A new experiment has bubbled up in cities across the world, reaching a boiling point. The experiment? The local sharing economy. In May, amidst accusations that many of its users were violating New York’s ... Read More...
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Flash Digest: News in Brief

By Olga Slobodyanyuk

ICANN responds to terrorism victims by claiming domain names are not property

D.C. District Court rules that FOIA requests apply to officials’ personal email accounts

Class-action lawsuit brought against ExamSoft  in Illinois

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Federal Circuit Applies Alice to Deny Subject Matter Eligibility of Digital Imaging Patent

By Amanda Liverzani – Edited by Mengyi Wang

In Digitech Image Technologies, the Federal Circuit embraced the opportunity to apply the Supreme Court’s recent decision in Alice to resolve a question of subject matter eligibility under 35 U.S.C. §101. The Federal Circuit affirmed summary judgment on appeal, invalidating Digitech’s patent claims because they were directed to intangible information and abstract ideas.

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Unlocking Cell Phones Made Legal through Unlocking Consumer Choice and Wireless Competition Act

By Kellen Wittkop – Edited by Insue Kim

Unlocking Consumer Choice and Wireless Competition Act allows consumers to unlock their cell phones when changing service providers, but the underlying issue of “circumvention” may have broader implications for other consumer devices and industries that increasingly rely on software.

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By: Chris Crawford and Joshua Vittor

This article assumes a base level of knowledge about Bitcoin, bitcoin (BTC), blockchain technology, the Silk Road seizure, and the collapse of MtGox. For a helpful summary of how this technology works, see the first portion of this articlewritten by Matthew Ly of the Journal of Law and Technology.

Bitcoin, and crypto-currency more generally, has risen in the five years since its launch from an academic exercise to what is today a multi-billion dollar system of transacting wealth. Its signature technology is the blockchain, a nearly incorruptible public ledger that replaces many functions traditionally left to trusted intermediaries, such as transaction verification. These trusted intermediaries, like banks and wire transmitters, are highly regulated under our current legal system. The threat of government enforcement or private litigation is meant to ensure that they operate fairly and legally and to provide relief for victims when the intermediaries breach those victims’ trusts.

Bitcoin enthusiasts, however, emphasize that trusted intermediaries often do not operate fairly or legally (e.g. they run off with the money), and that the legal system’s reactive nature is an insufficient deterrent against malpractice and wrongdoing. Blockchain technology, some claim, has the potential to ensure proper transactions in a way that the traditional legal system has never been capable of. With blockchains, so the argument goes, there will be no need for a legal system (including government regulations) to guarantee the success of a transaction because there will be no need for trusted intermediaries to complete a transaction.

However, two recent events in this technology’s short history suggest that the legal system will continue to play a large part in its development. First, the federal shutdown of online drug bazaar Silk Road, and subsequent seizure of BTC worth upwards of $100 million by U.S. Marshals, offers a glimpse at how Bitcoin will be forced to interact with traditional tools of law enforcement, such as the asset forfeiture program. Crypto-currency’s ever-evolving ability to allow trustless and decentralized transactions may create investigative problems for criminal authorities, but, as history suggests, it appears that the legal system will easily adapt to this new technology in order to prosecute and suppress criminal activity.

Second, the collapse of the bitcoin exchange MtGox highlights crypto-currency users’ continued dependency on traditional proceedings like bankruptcy and class actions to settle disputes and obtain relief. Unlike the Silk Road, MtGox was ostensibly performing a legal activity that Bitcoin was designed to perform—facilitating the transaction of funds securely over the internet. The exchange’s failure to properly do so has called into question Bitcoin’s ability to ensure transactions without the traditional legal system’s deterrent and relief-granting power. Notably, however, MtGox’s implosion may have spurred a new wave of crypto-currency innovation (“Bitcoin 2.0”) that just may realize some of the technology’s promised abilities.

Silk Road Forfeiture

For two and a half years, a booming online marketplace called Silk Road made the transacting of illegal drugs (among other things) as easy as a click of the mouse.  Dubbed “the Amazon.com of illegal drugs,” Silk Road produced millions of dollars in revenue.  Its secret was simple: ensuring the anonymity of its buyers and sellers.  It did so primarily through the use of Tor, software that renders its users anonymous on the Internet and therefore virtually untraceable.  In order to even find Silk Road, one had to be using Tor. In addition to Tor, however, Silk Road took advantage of another burgeoning source of online anonymity: Bitcoin.  All transactions on Silk Road were conducted via Bitcoin. In order to purchase goods on Silk Road, users had to transfer bitcoins from their personal wallets to Silk Road accounts. The bitcoins of a prospective buyer were then held in escrow until the buyer confirmed the legitimacy of the purchased good, at which point they were transferred to the seller’s Silk Road wallet.

Despite its best efforts, however, even the highly anonymous Silk Road was compromised in October 2013 when the site was shut down by the U.S. Government. Its alleged founder, the so-called “Dread Pirate Roberts,” was arrested by the FBI in the form of a 29 year-old named Ross Ulbricht.

The most noteworthy aspect of the Silk Road crackdown—at least for the purposes of this article—is the intersection between the Bitcoin housed on the site, valued at tens of millions of U.S. dollars, and a key crime-fighting tool: the federal asset forfeiture program. As soon as the United States seized Silk Road, it also, by virtue of technological fiat (and, apparently, some clumsiness on the part of Ulbricht), seized the bitcoins housed therein. This included Ulbricht’s staggering personal bitcoin supply (about 150,000 BTC), accumulated through the healthy commission Silk Road took from all sales, as well as all of the bitcoins held by its many users or housed in the aforementioned escrow accounts (about 30,000 BTC).  This meant that if a drug-seeking Silk Road user tried accessing the site after the shutdown, he would, to his likely dismay, be redirected to an FBI-generated shutdown notice. In addition, all of the bitcoins he may have stored on Silk Road would also be gone, seized by the government as part of efforts to forfeit all of the bitcoins held in Silk Road accounts.[1]

A short discussion of the federal asset forfeiture program will illuminate the importance of the Silk Road seizure. Asset forfeiture exists as a tool of law enforcement and criminal sentencing with the basic goal of “taking the profit out of crime.” Any property obtained through criminal means is, with very limited exceptions, subject to forfeiture so long as the government can prove the property’s traceability to the illegal activity. A bank robber, for example, would not be able to reap the benefits of his crime after he serves his time—such ill-gotten proceeds would likely be forfeited to the federal government.

The government must file a forfeiture proceeding, separate from the criminal charge, in order to permanently secure the property. Procedurally, the government has two distinct options. It can file a criminal forfeiture case against a specific defendant, in which the seized property is attributable to that defendant. Such proceedings are tied directly to the criminal charges against the defendant, and the government must obtain a conviction in order to prevail on its forfeiture claim. Alternatively, the government can file a civil forfeiture claim, which is essentially a case against the property itself. As codified by the Civil Asset Forfeiture Reform Act of 2000 (CAFRA), 18 U.S.C. 983, the government can  forfeit property even without proving that its previous “owner” ever committed a crime, so long as it can prove that there is a “substantial connection” between the property and the criminal activity.[2] Sarah Stillman’s New Yorker piece takes a hard look at the tricky implications of civil asset forfeiture; the Institute for Justice also released a report decrying the civil practice. Essentially, the presumption of innocence provided to criminal defendants is unavailable to the property in forfeiture proceedings.

As Larry McIntyre explains, tracking down each of the individual Silk Road users whose bitcoins were seized by the FBI would prove costly and time consuming. Civil forfeiture provided the government with a means through which they didn’t have to do so. The United States successfully convinced a federal judge that the Silk Road bitcoins are traceable to criminal activity, simply through the bitcoins’ presence on a site associated with the transacting of illegal goods. Without convicting Ulbricht (or anyone else) of a crime, the roughly $28 million worth of bitcoins held by Silk Road users was forfeited to the United States on January 15, 2014.[3]

The Bitcoin community lionizes the technology for the anonymity and untraceability it provides to its users. But the Silk Road episode highlights civil asset forfeiture, and its relatively low standard of proof, as an effective tool U.S. law enforcement can use to target bitcoins that have been tainted by criminal activity. So what will money launderers and drug traffickers, eager to avail themselves of Bitcoin’s appealing anonymity, take away from the Silk Road experience? One answer may be that Ulbricht was just clumsy: Ulbricht agreed to be interviewed by Forbes, under the guise of the Dread Pirate Roberts, in the summer of 2013, revealing enough of himself to law enforcement to pierce Silk Road’s veil.

A more interesting answer, and one with implications that strike at the very heart of the Bitcoin movement, is that Bitcoin isn’t actually anonymous or untraceable after all. Bitcoin might make it harder for law enforcement to track the flow of tainted money, but it doesn’t make it impossible.  Law enforcement likely had the ability to track down the individual Silk Road users, but civil forfeiture proved significantly cheaper and more efficient. As Michael Neilsen suggests, the claim that Bitcoin can be used anonymously—the claim that drove the very formation of Silk Road and other marketplaces that specialize in illegal goods—is a myth. “The block chain is public,” Neilsen argues, and “although Bitcoin addresses aren’t immediately associated with real-world identities, computer scientists have made a great deal of progress figuring out how to de-anonymize ‘anonymous’ social networks. The block chain is a marvelous target for these techniques.”

Bitcoin’s apparent vulnerability to seizure and asset forfeiture appears to marginalize its most appealing assets: its perceived anonymity and untraceability. If FBI agents can trace the flow of the Silk Road bitcoins—or, simpler still, exploit civil forfeiture to make such tracing unnecessary—proponents of Bitcoin (particularly those who seek to use Bitcoin to facilitate criminal activity) will be forced to adjust accordingly. It is possible that Bitcoin users will find new ways to disguise the use of their Bitcoins (for instance, though the use of “laundry” services like Bitlaundry, and “tumblers” and alternative forms of crypto-currency like Darkcoin). But it is equally likely that the Bitcoin community will have to come to terms with the reality of their community’s limitations and its inevitable clash with traditional legal structures. By virtue of the blockchain, the backbone of the Bitcoin ecosystem, Bitcoin may never be as anonymous or untraceable as it purports to be. Ironically, as Neilsen aptly suggests, Bitcoin is “perhaps the most open and transparent financial instrument the world has ever seen.” The Silk Road episode stands as evidence that existing legal structures such as asset forfeiture currently have the power to contain Bitcoin. As the U.S. Marshalls auction off the bitcoins from the Silk Road forfeiture, we are left to question whether this newfangled crypto-currency is any different, from a legal perspective, from an old fashioned pile of cash.

MtGox Collapse

Before its dramatic collapse in early 2014, MtGox was the largest place on the web to exchange bitcoin (BTC) for fiat currency such as U.S. dollars. At its peak, the exchange handled millions of dollars worth of bitcoin-to-fiat transactions a day, just like a traditional “forex” trading platform. Understanding how the exchange worked is critical to understanding what went wrong.

Bitcoin transactions are irreversible. Once BTC is sent from one public key address to another (by the sender signing the transaction with a private key), those funds cannot be retrieved unless the recipient manually sends the funds back (using their own private key). This feature of Bitcoin is normally considered the core of its almost-totally secure transaction system, but MtGox’s exchange system circumvented this security feature for the sake of convenience and speed. MtGox account holders would send their BTC over to the exchange, who would then hold the funds in its own public key accounts (this arrangement, called a web wallet, is the same as that used by Silk Road, above). That meant that MtGox had the private keys, and the only thing keeping MtGox from misappropriating the funds was, ironically, the deterrence of legal action on the basis of contract law or criminal law.

This arrangement was considered “the worst of both worlds” because it combined the irreversibility of BTC transactions (once you sent your BTC to MtGox, only MtGox could ever send it back to you) with none of the highly-developed regulatory protections of the traditional financial services system. Indeed, even though users “owned” the BTC they had sent to their MtGox wallets, their claim to ownership was secured only by a simple contract—the user agreement.

With the disappearance of more than $400 million worth of bitcoin from MtGox, and its subsequent collapse, many Bitcoin users are left with no option other than to trust the traditional legal system for relief. American and Japanese criminal authorities have opened investigations, private class action lawsuits have sprung up to establish legal claims against MtGox and its affiliates, and MtGox itself has turned to the bankruptcy system to safeguard the company’s remaining value (although there doesn’t seem to be much left). As with the Silk Road debacle, the need for the traditional legal system to resolve disputes and handle controversies remains present in the case of MtGox.

Take, for instance, the efforts of MtGox’s former customers to retrieve their funds, or to at least establish a claim to any future MtGox funds. Litigants filed class action lawsuits against MtGox in the United States and in Canada almost immediately after its collapse, and these suits seek to represent those who were unable to extract their balances of BTC or fiat before the exchange completely seized up. Whether the collapse was precipitated by hacking or mismanagement, its effect on customers is the same: they are unable to retrieve their funds.

These lawsuits have named several defendants, including MtGox as a corporate entity, Mark Karpeles as its CEO, and Gonzague Gay-Bouchery as its Chief Marketing Officer, as well as Mizuho Bank, the entity that handled MtGox’s wire transmissions. Just as with any other financial malfeasance, litigants are suing everybody in sight, with a particular eye for defendants that can actually pay large judgments (like Mizuho). Mizuho had been trying to shut down MtGox’s account for months before the collapse, and now that it is potentially liable for the exchange’s errors, other banks who deal with Bitcoin businesses are proceeding cautiously (with ever-increasing legal compliance fees being passed on to Bitcoin users).

Meanwhile, the class action litigants are pursuing their claims aggressively. The U.S.-based class action plaintiffs have reached an agreement with an investor group called Sunlot Holdings that proposes to apportion 16.5% of the equity value in MtGox for sale to fund the creditors’ claims against the company. MtGox will have equity value, they argue, because Sunlot would restart it under new management. The plan is to buy MtGox for 1 BTC and to legally pursue claims against Mark Karpeles personally (with the help of his former right-hand man, Gonzague Gay-Bouchery, who has also settled with the group). While many former MtGox customers are wary of Sunlot, few other plans have gained as much legal traction[4]

However, the success of this plan or any other depends on yet another element of the traditional legal system—bankruptcy. MtGox had originally tried to avoid liquidation by filing in Japan for a reorganization proceeding called “Civil Rehabilitation,” which would have allowed it to continue functioning as it was, with Mark Karpeles being retained as the CEO. This was apparently highly optimistic on Mr. Karpeles’s part. Shortly after its request, the Japanese court denied MtGox’s application and instead directed it to a bankruptcy proceeding in which a custodian, Mr. Nobuaki Kobayashi, would liquidate the firm to make claimants whole. Pursuant to MtGox’s Chapter 15 bankruptcy filing in the U.S., a judge in Dallas has ruled that Mr. Kobayashi has the authority to oversee the settlement of claims and the liquidation of assets in the U.S. as well. This process may take several years.

The extent to which Bitcoin’s largest currency exchange and its customers have become embroiled in legal actions is clear evidence that the traditional legal system will continue to dominate dispute resolution for Bitcoin users. Just as the Silk Road case demonstrates that already-existing legal tools like asset forfeiture can be adapted to Bitcoin’s supposedly cutting-edge usage, the MtGox case shows that bankruptcy and class actions are easily applied to Bitcoin-denominated business disputes. However, perhaps diverging from the Silk Road, MtGox’s function (exchanging currencies) can theoretically be performed without the need for private civil lawsuits and bankruptcy proceedings. MtGox’s vast and expensive failure may be a harbinger of new crypto-currency applications that do indeed function without the traditional legal system.

A new exchange called Coinport, marketing itself as “extremely transparent,” represents one novel response to the collapse of MtGox. Since all Bitcoin transactions are recorded on the system’s public ledger, this exchange has delineated exactly which public addresses on the blockchain it controls—allowing anybody to perform real-time audits of the company’s balances to ensure it actually possesses the funds it otherwise claims to have in its customers’ wallets.

From the perspective of some technologists in the “Bitcoin 2.0” community, however, these proposals do not fulfill the technology’s promised ability to create truly trustless transactions without the need for a legal system to provide deterrence and material recourse. To actually fulfill this promise, Bitcoin transactions must be executed between two parties—the seller and the buyer—without trusting an intermediary, such as an exchange like MtGox or even Coinport. To this end, some developers are moving forward with systems based on so-called Ricardian contracts (“smart contracts”) and multi-signature cryptography.

One application of these technologies would be a peer-to-peer exchange. Much like BitTorrent, the technology through which millions of people around the world share movies and music without the use of a centralized system like iTunes, a peer-to-peer exchange would allow a buyer (of, say, bitcoin) to find a seller (who will accept, say, U.S. Dollars) and for their transaction to be executed using only their private keys.

Although a discussion of this topic could easily occupy another Digest article, it is worth noting that the ghost of the traditional legal system is present even in these theoretically trustless exchanges. In order to accomplish the above-described peer-to-peer transaction, developers are creating systems (based on a theoretical framework known as “polycentric law”) that depend on for-hire notaries and even arbitrators, in case of a dispute. This seems ironic: to achieve a trustless transaction, which presumably eliminates the need for the intermediary legal system, one must depend on a different legal system. To put it mildly, this aspect of next-generation Bitcoin applications remains unsettled.

Conclusion

There is little doubt that Bitcoin and the multitude of progeny crypto-currency platforms it spawned have the potential to fundamentally change our conception of money. All signs point to it becoming increasingly accessible and popular—brick and mortar retailers have started allowing the use of Bitcoin at their stores, allowing consumers to transact with Bitcoin in the “real” world in addition to online. In order to continue its challenge to our traditional system of financial transactions, however, it must contend with and react to our traditional legal structures. Either that, or it must evolve beyond them. The Silk Road and MtGox episodes are early suggestions that crypto-currency technology will not be able to circumvent the traditional legal system entirely. As Bitcoin grows in prevalence, so does the law’s interest in being able to reach it.



[1] Larry McIntyre’s note on “cyber-takings” has a nice recap of the Silk Road crackdown.

[2] There is an “innocent owner” defense to civil forfeiture, where an individual can claim innocent ownership to property. The burden is on the innocent owners to prove that their stake in the property is unconnected to the underlying criminal activity.

[3] Because Ulbricht claimed an ownership interest in his personal bitcoin stash, the forfeiture proceeding with respect to those bitcoins remains pending. Ulbricht has pled not guilty to the charges against him, claiming even that he is not the Dread Pirate Roberts as is alleged. No individual owners claimed ownership interests in the roughly 30,000 BTC seized from Silk Road user wallets, which is why the civil forfeiture for those bitcoins has gone through.

[4]Sunlot’s plan was granted preliminary approval by a bankruptcy court in Illinois on March 8, 2014.

Posted On Sep - 10 - 2014 Add Comments READ FULL POST

Written by: Michelle Sohn

Edited by: Olga Slobodyanyuk

Emulsion: A mixture of two or more liquids that are normally immiscible (nonmixable or unblendable).

-Wikipedia

 I.               UberX D.C. as Case Study in the Local Sharing Economy

If states are laboratories of democracy, then cities are the experiments. A new experiment has bubbled up in cities across the world, reaching a boiling point. The experiment? The local sharing economy. In May, amidst accusations that many of its users were violating New York’s illegal hotels law, Airbnb agreed to release redacted user data to New York’s Attorney General. In early June, the Commonwealth of Virginia Department of Motor Vehicle Services issued cease-and-desist letters to Uber and Lyft, ride-on-demand mobile app services. Weeks later, taxicabs caravanned into Washington, D.C. in protest, bringing traffic to a standstill. They demanded that the D.C. City Council also issue cease-and-desist letters. While Virginia has since lifted the ban on Uber and Lyft, other states and cities have continued to fight.

Heretofore, much of the debate has centered around two competing narratives: According to some, the Uber story (and more broadly, the local sharing economy story) is one that pits ham-handed regulation against innovation, protecting entrenched and outmoded industries. Others argue that the case against Uber is fair, and that to compete all services should play by the same rules. While politics and fears of disruption certainly play large roles in this regulatory drama, this comment points to a larger legal controversy at work—the increased emulsification of commercial and private uses. Although the focus of this comment is on Uber and D.C., the larger goal is to identify major regulatory tensions with the local sharing economy by examining actual and proposed municipal regulations and laws.

II.             What is the local sharing economy?

There has been much debate on the term “sharing economy.” This comment defines a local sharing economy enterprise as a for-profit business that: a) leverages information technology to b) expand access to assets rather than ownership by c) encouraging collaborative consumption of pre-owned or pre-leased assets, and d) typically relies on the attractions (e.g., restaurants, museums, apartments) and infrastructure (e.g., streets, streetlamps, traffic signals) cities provide. Thus, UberX, which can connect a consumer to drivers using their own private cars, is an example of a local sharing economy activity. Airbnb, which allows users to rent out a pre-owned or pre-leased room, is a local sharing economy activity. The traditional taxicab would not qualify, because taxicabs are purchased and maintained to primarily provide for-hire service. Neither would traditional hotels. For the same reason, Uber Black and Uber Taxi are not a local sharing economy enterprise. This is because Uber Black and Uber Taxi connect users with pre-existing black car and taxi services.

III.           Emulsification: UberX and D.C.’s Regulatory Framework Issues

This section goes through two major tensions within D.C.’s current and proposed regulatory framework that highlight the emulsification of commercial and private uses. To understand these tensions, a basic background understanding of D.C.’s taxicab regulatory framework and how Uber fits or doesn’t fit into this framework is necessary.

Created in 1986 by the D.C. City Council, the D.C. Taxicab Commission is the District’s agency that regulates the public vehicle-for hire industry. D.C. Code § 50-304. D.C. Code § 50-303(17) defines “public vehicle-for-hire” as any passenger motor vehicle operated to provide for-hire transportation in the District or any other private passenger motor vehicle that is used for transportation of passengers for-hire but is not operated on a schedule or between fixed termini and is operated exclusively in the District.

There are two major classes of for-hire transportation services that the Commission regulates: a) taxicabs and b) limousine and sedan services.[1] In the D.C. regulatory framework, taxicabs are heavily regulated by the Commission. For example, taxicabs must charge rates that the Commission sets. See 31 D.C.M.R. 801 et seq. Taxicabs must not discriminate on the basis of any protected characteristic, including calls from specific geographic regions of the District. 31 D.C.M.R. 818. In fact, taxicabs that are on-duty are not supposed to refuse service to a person. 31 D.C.M.R. 819.5. The Commission also mandates that the color scheme be uniform. 31 D.C.M.R. 503.3.

With so many rules, why go through the trouble of being a registered taxicab? Taxicabs are the only vehicles allowed to accept street hails. D.C. Code § 50-303 (defining “taxicab” as the only type of vehicle transportation that can be “hailed on the street.”); see also D.C. Code § 50-329(b). Moreover, it was and is illegal to accept street hails if the vehicle and driver are not registered with the Commission and operating with the appropriate license. D.C. Code § 50-319. Indeed, part of the rationale behind these regulations is consumer protection. After all, customers who hail taxis from the street cannot compare price or quality of service. Consequently, for a long time, part of the appeal of becoming a taxicab was the exclusive legal ability to proactively and immediately pick up consumers hailing from the street. Other services such as a limousine were able to pick up consumers, but had to wait for consumers to contact them. Put differently, street hailing was the way for consumers to proactively signal demand for immediate transportation. The rise of mobile technology, however, provided an alternative method for consumers to proactively signal demand. With mobile apps, street hailing is no longer an exclusive means of getting immediate transportation. And this changed the game.

        A.  Wherefore art thou Uber?: Information and a Method

On the morning of January 13, 2012, less than a month after Uber’s D.C. debut for its Uber Black service, the Commission conducted its most notorious sting in its history. That morning at the Mayflower Hotel, Ron Linton, Chairman of the Commission, hailed a car using the Uber app. Once the car arrived, the driver was ticketed with a number of violations, including an improper fare violation.

In an op-ed, Mr. Linton explained that the Uber car technically met the definition of “limousine” and thus, it was required to contract with the passenger before service. The service charge should have been based on an hourly rate. Because the Uber driver charged on a time and distance basis, the Uber driver had illegally converted his limousine into a taxicab service. Taxicabs must follow the Commission’s rate schedule. Ergo the improper fare violation. The D.C. City Council has since updated the District’s code to generally allow “sedan services” that are exclusively operated through a digital dispatch to charge on the basis of time and distance rather than hourly rates or flat-fees. This legally recognized services provided by Uber. The Commission’s sting and Mr. Linton’s op-ed, however, still illustrate the first major tension of the urban sharing economy enterprises: definitions.

Far from being persnickety, the way service is defined is hugely important and a major source of controversy. In fact, Uber has gone through pains to say it is not a taxi or cab company. Uber’s legal policy claims that it does not provide “transportation services and . . . is not a transportation carrier.” Rather, Uber proclaims that it is a platform, a middleman who provides “information and a method.” Presenting itself as a platform/digital dispatch service rather than a transportation provider has several interrelated implications. The D.C. City Council made digital dispatch services like Uber exempt from the Commission’s regulations except for when it comes to safety, consumer protection, and privacy. D.C. Code § 50-329.02(b). However, sedan services—the vehicles and drivers—providing the actual transportation remain subject to the Commission’s regulatory authority. D.C. Code § 50-329(a). This means that for its Uber Black and Taxi services, Uber does not have to worry about whether these vehicles and drivers comply with the Commission’s rules. For example, taxicab drivers who use the Uber app are responsible for complying with the Commission’s rules such as uniform color scheme. It is not the responsibility of Uber to pay for the taxicab’s paint job nor is it Uber’s responsibility to insure them. This is because Uber is a platform, a digital dispatch service, and not the owner or operator of a taxicab fleet.

The definitions and lines drawn between the responsibilities of digital dispatch services like Uber and transportation service providers, however, are less clear when Uber enters into the local sharing economy through its UberX program. Current regulations define “sedan” as a luxury class vehicle that is not stretched and is a “dark” color. 31 D.C.M.R. 1299.1. Because the Commission defined sedan service in terms of luxury vehicles, it left out many vehicles that are a part of UberX (for example, the Toyota Prius).

To address this, on April 30, 2014, the Commission held a public hearing in which it discussed creating a new “private sedan class” of public vehicles for-hire. On August 6, 2014, the Commission published a notice of final rulemaking for Chapter 99 – Definitions that adds terms such as “private sedan” and “private sedan business.” Under the new rule, the Commission’s definition of “private sedan” would cover UberX vehicles. The proposed rules would also consider Uber as a “private sedan business,” because a “private sedan business” is one that “associates with private sedan operators for the purpose of providing private sedan service.” Chapter 99 – Final Rulemaking – Definitions. The Commission proposes to define “associated” as “voluntarily related through employment, contract, joint venture, ownership, agency or other legal affiliation.” Id. The fact that Uber doesn’t actually own or operate UberX vehicles would not matter. Thus, despite Uber’s attempts not to be a transportation provider, the Commission’s proposed rules clearly are meant to re-classify and regulate UberX as such. While the proposed regulations are discussed in more detail below, the overarching goal is to ensure that private drivers like UberX drivers are subject to similar levels of oversight as taxis and taxicab companies.

        B.  When Tragedy Strikes: Liability and Caps

On New Year’s Eve in 2013, around 8pm, the Liu family was crossing a street in San Francisco. At the same time, an UberX driver was making a turn and struck the family. Sophia Liu, just 6 years old, was killed. For the time being, Uber has stated that while tragic, it did not bear responsibility for the accident, because the UberX driver was not engaged in providing a ride at the time. The accident spurred Uber to change its insurance policy to cover UberX drivers as long as they are logged into the app, regardless of whether there is a passenger in the car. The accident also brings to the forefront questions of commercial and private liability. Had the accident happened with a taxicab, it most likely would have been covered by the taxicab’s insurance policy. For example, in D.C., D.C. Code § 50-314 mandates that taxicabs carry insurance for liability arising from ownership, maintenance, and operation of the cab. An insurance policy of this sort makes sense, because taxicabs are engaged in commercial activity. Transportation as a commercial activity brings increased risk, especially on the consumer protection front. Questions of liability in the local sharing economy are complicated: Should an UberX driver logged onto the Uber app be considered engaging in commercial activity? What if the UberX driver is on the way to the grocery store, but forgot to log out of the app? When do private drivers transform into commercial UberX drivers and vice versa?

The Commission’s proposed rules seek to solve this problem by regulating private sedan drivers and private sedan businesses more like taxicabs and taxicab companies. For example, first, in the Commission’s Chapter 17 Proposed Second Rulemaking, proposed rule 31 D.C.M.R. 1708.1(a) requires private sedan drivers to acquire a private sedan operator license and 31 D.C.M.R. 1701.1(d) requires private sedan vehicles to display a Commission-issued decal. Second, private sedan businesses must apply for a private sedan business license and pay a $5,000 application fee. 31 D.C.M.R. 1702 et seq. Third, perhaps influenced by the New Year’s Eve accident, the Commission has also proposed to require private sedan businesses like Uber to maintain an insurance policy for all associated drivers  “. . . without regard to whether or not the operator is logged into the digital payment system (the app) . . .” 31 D.C.M.R. 1706.1(d). Fourth, the Commission would require each private sedan business to provide 6 hours of training to private sedan drivers as well as require each private sedan vehicle to pass a biennial safety inspection. 31 D.C.M.R. 1707 et seq. The Commission also would require private sedan businesses to keep and maintain an inventory of active private sedan operators and vehicles with the D.C. Office of Taxicabs. 31 D.C.MR. 1707.2. Finally, the Commission attempts to draw a strict line between commercial and private by proposing to cap private sedan drivers at working 20 hours a week. 31 D.C.M.R. 1707.5(a)(3).

Whether one agrees or disagrees with the Commission’s approach, the proposed rules present not only a city agency dealing with emulsification, but also an agency seeking government’s appropriate role in the local sharing economy. On the one hand, government has a legitimate role to play in regulating the hazards of emulsification. For example, gaps in insurance coverage, as the tragic case of Sophia Liu demonstrates, have serious consequences for participants in the local sharing economy—Uber, UberX drivers, passengers, insurance companies, law enforcement, and so on. Regulation can have a strong role in navigating the needs of consumers, entrepreneurs, and others.

On the other hand, if the agency inelegantly draws the line between the commercial and private in contradictory ways, regulations can cause the community to question the agency’s legitimacy. For example, the Commission proposes to keep private sedan drivers like UberX drivers within the realm of private use by capping the number of hours UberX drivers can work to 20 hours. This cap seems particularly arbitrary and capricious, because the Commission simultaneously insists on also applying commercial-like regulations to UberX. The proposals mandating that Uber keep an active inventory of UberX drivers on file with the Office of taxicabs and requiring UberX drivers to display Commission-issued decals look very similar to commercial taxicab and taxicab company regulations. The Commission has stated that these regulations are necessary to enforce illegal street hail rules. April 30, 2014 Public Hearing, pgs. 141-45. However, it is unclear how insidious illegal street hails are in D.C. It is also unclear how many illegal street hails the Commission has caught, if the number has risen since Uber debuted in D.C, or why keeping an inventory on file is the best policy. Since Uber already collects UberX driver information and presumably can retain and analyze geolocation data, such rules may be redundant and unduly onerous. A simpler, more elegant option would be to negotiate and enter into a data sharing agreement or, at least, the right to review Uber’s roster of drivers should a complication arise.

IV.           Conclusion: Driving Forward

At the time of this writing, the Commission has published two rounds of rulemaking that would affect UberX. According to its August 6th agenda, the Commission is scheduled to meet to discuss the proposed rules again on September 10th.  Some have called for the D.C. Taxicab Commission to be dissolved entirely. Some have called for more taxi-like regulation of services like UberX and Sidecar. Unfortunately, applying a traditional commercial taxicab regulatory framework is not particularly promising, because regulation rarely (if ever) keeps pace with technology. In other words, regulations rarely are future-proof. Consequently, a regulatory framework seeking to apply an old framework and capture Uber and similar services as they work today will quickly be outmoded. For example, what will happen in the age of driverless cars? Will the Commission require the owners of driverless cars to undergo 6 hours of training even if they won’t actually be driving consumers?

Recognizing this, as cities and local sharing economy enterprises continue to grapple with regulatory growing pains, both sides should collaborate in creating a new framework that pays particular attention to the emulsion of the commercial and private through technology. In fact, states like California have led the way by opting to create a whole new set of regulatory definitions and rules such as “transportation network provider.” Following suit, the D.C. City Council is currently reviewing a bill separate from the D.C. Taxicab Commission’s proposals that would create “transportation network application companies.” Indeed, as smart phones continue to proliferate and local sharing economy enterprises become more lucrative, this emulsification will intensify. It will be increasingly difficult to distinguish between a driver using her car to run a personal errand and a driver using her car to run a personal errand while simultaneously scanning her app to see if any requests for rides are nearby. Certainly, it will be increasingly difficult to enforce a strict line between these two activities. Moreover, as car safety and GPS technology continues to improve, regulations dictating certain inspections and registration requirements may become largely unnecessary. Although there is still certainly a need for law and regulation, especially in the realm of public safety, rules that rely on traditional commercial frameworks are ill suited to the task. Municipal authorities and private enterprises like Uber should work together to increase affordable, convenient transportation options in order to make D.C. a more navigable city. A more navigable city encourages people to eat, shop, and even reside in D.C.—taxable activities that contribute to maintaining and improving D.C.’s infrastructure and economy. Most importantly, improving transportation in a smart and safe way improves the quality of local life in the city.



[1] The definition of “sedan service” was updated by the Public Vehicle For-Hire Innovation Act of 2012 to allow “digital dispatch services” like Uber to charge on the basis of time and distance.

Posted On Aug - 31 - 2014 Add Comments READ FULL POST

By Olga Slobodyanyuk

ICANN responds to terrorism victims by claiming domain names are not property

The Internet Corporation for Assigned Names and Numbers (“ICANN”) has asked a D.C. Circuit Court to prevent the handover of country code top-level domain names (“ccTLD”) to plaintiffs of Ben Haim et al. v Islamic Republic of Iran et al., who have been trying to collect their $109 million damages award from Iran for the 1997 suicide bombing. The plaintiffs have had limited success with seizing Iranian assets located in the U.S., including cultural artifacts held by Harvard University and Chicago’s Field Museum, reports Arstechnica. They have recently obtained writs of attachment against ICANN, ordering it to “hold” the ccTLDs of Iran, Syria and North Korea for seizure, liquidation or transfer. According to the Volokh Conspiracy, ICANN has responded in its motion to quash these writs by claiming that “a ccTLD is not ‘property’; even if you think its property, it’s not property ‘belonging to’ the defendant governments; even if you think it’s property belonging to the defendant governments, it’s not within ICANN’s control; and even if you think it’s property belonging to the defendant governments that is within ICANN’s control, it’s not ‘located in the United States’ and therefore not subject to seizure by a U.S. federal court.” The Volokh Conspiracy notes that, although a ccTLD is like a label to a series of interlocking relationships, the theory that domain names are property has been successfully used by the Department of Homeland Security to seize websites allegedly involved in copyright infringement.

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Posted On Aug - 6 - 2014 Add Comments READ FULL POST

By Amanda Liverzani – Edited by Mengyi Wang

Digitech Image Technologies, LLC v. Electronics For Imaging, Inc., 2013-1600, -1601, -1602, -1603, -1604, -1605, -1606, -1607, -1608, -1609, -1610, -1611, -1612, -1613, -1614, -1615,  -1616, -1617, -1618 (Fed. Cir. July 11, 2014) 

Slip Opinion

In Digitech Image Technologies, LLC v. Electronics For Imaging, Inc., the Federal Circuit embraced the opportunity to apply the Supreme Court’s recent decision regarding the patentability of abstract ideas in Alice Corp. v. CLS Bank Int’l, 573 U.S. ___, No. 13-298 (June 19, 2014) to resolve a question of subject matter eligibility under 35 U.S.C. §101. Digitech Image Technologies (“Digitech”) filed infringement suits against 32 defendants in the U.S. District Court for the Central District of California alleging infringement of a patent “directed to the generation and use of an ‘improved device profile’ that describes spatial and color properties of a device within a digital image processing system.” 2013-1600, -1601, -1602, -1603, -1604, -1605, -1606, -1607, -1608, -1609, -1610, -1611, -1612, -1613, -1614, -1615,  -1616, -1617, -1618 (Fed. Cir. July 11, 2014). Slip op. at 56. Several defendants filed for summary judgment on the basis that the asserted claims of the Patent-in-SuitU.S. Patent No. 6,128,415 (“the ‘415 patent”)were invalid under Section 101. Id. at 6. The district court granted the motions, finding that the claims were subject matter ineligible. Id.

The ‘415 patent claims a “device profile” and a method for creating an improved device profile for use in digital imaging. Id. at 4. A digital image is typically captured by a “source device,” like a digital camera, and then transferred to an “output device,” like a monitor or printer. Id at 5. In the transfer process the image is distorted because of the differences in information, such as color ranges, stored by the source device and readable by the output device. Id. The ‘415 patent proposed a “device independent solution” to the distortion issue through the generation of device profiles containing information about both source and output devices. Id. Unlike prior art which only described device profiles covering color ranges, the ‘415 patent discloses device profiles consisting of color ranges and spatial properties. Id. at 56.

On appeal, Digitech argued that the district court erred in finding that the device profile claim was “directed to a collection of data that lacks tangible or physical properties” and that the method claims “encompass an abstract idea.” Id. at 6. The Federal Circuit rejected both arguments by Digitech, affirming the district court’s decision in an opinion authored by Circuit Judge Reyna. Id. at 7.

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Posted On Aug - 5 - 2014 Add Comments READ FULL POST

By Kellen Wittkop – Edited by Insue Kim

On July 25, 2014, the House passed bill S517, the Unlocking Consumer Choice and Wireless Competition Act. This legislation was designed to make it legal for consumers to circumvent copy protection mechanisms for cell phone software when changing service providers—a practice known as “unlocking,” which had been illegal under the recommendation of the Library of Congress in the Digital Millennium Copyright Act (“DMCA”).

The new bill was originally introduced by Senator Patrick Leahy [D-VT] on March 11, 2013, and it has not been amended since its introduction. The House originally passed a version of the bill that included controversial language which would still outlaw unlocking in bulks. After consumer group backlash, however, the Senate passed a version without the controversial language, and the House agreed to approve this version. The new bill essentially aims to increase consumer choice, allowing consumers to unlock their phones freely, as long as their device is fully paid for. Now that President Obama has signed the bill into law, it is now easier for cell phone users to change their phone service provider without having to purchase a new device.

A summary of the history surrounding the bill is available here. The Washington Post discusses the future implications of its passage. PC, Ars Technica, and the National Journal provide additional commentary.

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Posted On Aug - 5 - 2014 Add Comments READ FULL POST
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