Supreme Court to Decide iPhone App Store Case

Written By Stefani Joslin

 

On Monday, June 18, the United States Supreme Court decided that it will hear arguments regarding allegations that Apple’s iPhone customers are paying high prices for apps.

Background

In 1977, the Supreme Court ruled in Illinois Brick Co. v. Illinois that only direct purchasers, not purchasers who buy products further downstream, may sue under the federal antitrust law. Today, four Apple iPhone customers are seeking damages alleging that Apple has violated antitrust law by “monopolizing the app market”.

The case stems from a lawsuit that was initiated in California seven years ago. Prior to bringing this to the Supreme Court, a federal court decided that the company could not be sued by consumers since the consumers were not directly overcharged. The panel stated that Apple was merely serving as a distributor and selling the apps directly to customers and only pocketing a part of the apps’ profits. In 2017, the 9th U.S. Circuit Court of Appeals reversed the decision, reasoning that consumers had a right to sue since the consumers were buying the apps through Apple’s App Store. Apple had won the initial suit.

The Lawsuit

Seven years ago, Robert Pepper and three other iPhone users initiated this lawsuit in federal court in Oakland, California and sought class action status. The suit accused Apple of monopolizing the iPhone app market and selling the apps at a high cost to its customers by only approving apps if the developers agreed to allow the apps to be exclusively distributed within the App Store. This fight is threatening to expose not only the Apple company but also its technology industry peers to antitrust scrutiny. According to these plaintiffs, Apple has “total control” over games and other offerings that are within the App Store.

On June 18th, 2018, the Supreme Court decided that the case will be taken from the 9th U.S. Circuit Court of Appeals. The lawsuit stated that when Apple customers purchase an app from the App Store, “the price includes a 30 percent markup that goes to Apple.”. Apple’s argument is that the company does not actually sell the apps, but rather acts as a “middle man” between the app developers and consumers.

Apple’s Argument

Apple has argued that it cannot be sued due to the fact the commission is levied by the app developers, not by the consumers bringing suit. Other companies, such as Google, Amazon, and Facebook may also be affected from the aftermath of this lawsuit. According to Apple, “[t]his is a critical question for antitrust law in the era of electronic commerce”.

What Could Happen Next

If the Court decides in Apple’s favor, the case could open the door for companies to run similar online marketplaces and have these types of interactions with customers through third-party sellers. The Supreme Court will hear arguments in the case, titled Apple v. Pepper, 17-204, during its upcoming nine-month October term.


 

Sources

Debra Cassens Weiss, Can IPhone users sue Apple for charges to app developers? Supreme Court to decide, ABA Journal (June 18, 2018, 3:06PM).

Greg Stohr, Apple Gets U.S. Supreme Court Review on iPhone App Fee Suit, Bloomberg, (June 18, 2018, 9:31AM).

Ann E. Marimow, Supreme Court to consider cases on the seizure of a $40,000 Land Rover, iPhone apps, and a moose hunter, The Washington Post (June 18, 2018).

Supreme Court to Take Up Apple iPhone App Lawsuit, NBCDFW, (June 18, 2018, 9:26AM).

 

 

 

The Molineux Rule: How This Exception to the Rules of Evidence Could Impact the Harvey Weinstein Trial

Written by Sara Lupi

 

On May 30, 2018, a grand jury in Manhattan indicted film producer Harvey Weinstein and charged him with Rape in the First Degree, Rape in the Third Degree, and Criminal Sexual Act in the First Degree. Although several women have alleged that Weinstein committed these and similar crimes, the indictment brought by the Manhattan District Attorney’s Office only named two victims. If the case proceeds to trial however, the prosecution may attempt to bring in evidence of Weinstein’s similar past behavior, for the purpose of establishing a pattern of sexual assaults.

Earlier this year, during comedian Bill Cosby’s retrial for sexual assault charges, prosecutors in Pennsylvania utilized the “Doctrine of Chances” as a way to call five other accusers to testify against Cosby. In Pennsylvania, the Doctrine of Chances is a narrow exception which operates similarly to Federal Rule of Evidence 404(b), which bars evidence of prior bad acts for the purpose of establishing propensity to commit a certain crime, but allows such evidence for other purposes. Evidence of prior bad acts can be admitted in order to establish something other than propensity “such as proving motive, opportunity, intent, preparation, plan, knowledge, identity, absence of mistake, or lack of accident.” In the Cosby trial, the five other accusers had reported sexual assaults similar to the sexual assault on the victim by Cosby. In a pretrial motion, the Montgomery County District Attorney wrote, “as the number of victims reporting similar, drug-facilitated sexual assaults by defendant increases, the likelihood that his conduct was unintentional decreases … defendant’s prior bad acts are admissible under the “doctrine of chances” to negate the presence of any non-criminal intent and, concomitantly, to establish an absence of mistake.”

The Molineux Rule

In New York State, where Weinstein is going to be tried, the Doctrine of Chances is known as The Molineux Rule, which gets its name from a New York State Court of Appeals decision in the case of People v. Molineux. Under this rule, prosecutors can bring in proof of a defendant’s prior bad acts or crimes not to show criminal propensity, but to “establish motive, opportunity, intent, common scheme or plan, knowledge, identity or absence of mistake or accident.” [1] It should be noted that New York State has not adopted Federal Rule of Evidence 413, which allows evidence of similar crimes in sexual assault cases for the purpose of proving propensity to commit sexual crimes. So, even though Molineux has the potential to let evidence of similar prior bad acts in at trial, the bad acts cannot be used to prove propensity, but rather to show one of the previously mentioned purposes.

The exception is used rarely in New York State, because evidence of prior similar bad acts is considered highly prejudicial. The probative value must be weighed against the prejudice the evidence would cause the defendant. Additionally, the “evidence must be ‘highly probative’ and ‘directly relevant’ to the purpose for which it is offered and have a natural tendency to prove such purpose.” This is an extremely high threshold for prosecutors. The rationale behind Molineux is that if a defendant commits the same bad acts, or commits the same crime multiple times, in a similar manner, there is a high probability that this is not just coincidence.

How Molineux May Be Used in the Case Against Weinsten

Here, many of Weinstein’s accusers have brought forth similar stories of his abuse, which has been called “casting-couch abuse.” Women allege that Weinstein took advantage of his position as a Hollywood producer to force young actresses into having sex with him or performing other sexual acts. Weinstein’s own defense attorney, Benjamin Brafman, told the press after his arraignment that Weinstein “did not invent the casting couch in Hollywood,” which has been seen as a glimpse into a possible defense for his client: that this was not rape, but rather a choice made by each actress in an effort to advance their careers. However, this comment also foreshadows the possible use by prosecutors of the Molineux Rule, to show that Weinstein’s alleged actions were part of a common scheme or plan.

Currently, it is unclear whether Weinstein’s case will proceed to trial. While he has entered a plea of not guilty, some experts believe the case may end with a plea bargain. His defense attorney has stated that if the case does go to trial, he will consider attempting to sever the rape charges from the charge of criminal sexual act, and proceed with two separate trials. His next court date is scheduled for September 20th in Manhattan.


Sources

Aaron Katersky and Bill Hutchinson, Harvey Weinstein pleads not guilty to rape charges, ABC News (June 5, 2018), https://abcnews.go.com/US/harvey-weinstein-pleads-guilty-rape-charges/story?id=55659315.

Danny Cevallos, How Weinstein lawyer’s ‘casting couch’ comment could impact his defense strategy, NBC News (May 27, 2018), https://www.nbcnews.com/news/us-news/how-weinstein-lawyer-s-casting-couch-comment-could-impact-his-n877916.

Debra Cassens Weiss, Harvey Weinstein is indicted; could other accusers testify at trial? ABA Journal (May 31, 2018), http://www.abajournal.com/news/article/harvey_weinstein_is_indicted_could_other_accusers_testify_at_trial.

Fed. R. Evid. 404(b), 413.

Montgomery County District Attorney’s Office Motion to Introduce Evidence of 19 Prior Bad Acts of Defendant, Jan. 18, 2018.

People v. Molineux, 168 N.Y. 264 (1901).

People v. Cass, 784 N.Y.S.2d 346 (Kings County 2004).

Tracy Connor, Harvey Weinstein surrenders to NYC police, is charged with rape, NBC News (May 25, 2018), https://www.nbcnews.com/storyline/harvey-weinstein-scandal/harvey-weinstein-surrenders-nyc-police-station-face-sex-charges-n877416.

 

 

Controversial Cake: The Masterpiece Cakeshop Decision

Written by Michael Varrige

 

Background

Masterpiece Cakeshop, Ltd. v. Colorado Civil Rights Commission originated as a complaint made to the Colorado Civil Rights Commission by a gay couple against a baker who refused to bake a custom wedding cake for their wedding back in 2012 due to his religious objection to same-sex marriage (though the baker did offer to sell any other product to the couple, just not a custom wedding cake). The Commission ruled in favor of the couple, finding that the baker’s refusal to make the wedding cake violated Colorado’s Anti-Discrimination Act. The Commission’s decision was affirmed by the Colorado Court of Appeals and was not heard by the Colorado Supreme Court. The Colorado Anti-Discrimination Act states, in part, “it is a discriminatory practice and unlawful for a person . . . to refuse, withhold from, or deny to any individual or group because of . . . sexual orientation . . . the full and equal enjoyment of the goods, services, facilities, privileges, advantages, or accommodations of a place of public accommodation”. It also delineates the process by which a complaint will be heard—by the Commission and eventually appealed to the Colorado Court of Appeals and the Colorado Supreme Court.

In short, the owner of Masterpiece Cakeshop, Jack Phillips, argued that Colorado’s Anti-Discrimination Act violated his First Amendment rights of free exercise of religion and freedom of expression. The Commission countered that a cake was not a form of expression and that the act of baking a cake was neither participating in nor condoning same-sex marriage. For a more thorough look at the arguments made in front of the Supreme Court, please see a prior Legal Pulse post-Review: Masterpiece Cakeshop v. Colorado Civil Rights Commission compiled by Lacey Grummons, the link appears below.

Discussion

            Majority

Justice Anthony Kennedy, writing the majority opinion joined by five of his colleagues, reversed the decision by the Colorado Court of Appeals on the ground that the Commission violated Mr. Phillips’ right of free exercise of religion. Justice Kennedy was joined by traditionally conservative-leaning Justices Neil Gorsuch and Samuel Alito. Typically liberal-leaning Justices Stephen Breyer and Elena Kagan also joined the majority opinion. Justice Clarence Thomas concurred in judgment, but wrote his own separate concurrence instead of joining the majority

The majority determined that “the delicate question of when the free exercise of his religion must yield to an otherwise valid exercise of state power needed to be determined in an adjudication in which religious hostility on the part of the State itself would not be a factor in the balance the State sought to reach.” Essentially, the Court ruled that while Colorado’s Anti-Discrimination Act does not generally violate the free exercise clause, Colorado’s process of determining whether an action has violated the Anti-Discrimination Act must be conducted in a manner that is neutral towards religion. Justice Kennedy pointed to what he called “open hostility” at multiple times throughout the public hearings such as “freedom of religion and religion has been used to justify all kinds of discrimination throughout history, whether it be slavery, whether it be the Holocaust” and “one of the most despicable pieces of rhetoric that people can use” in reference to using religion to deny wedding-related services to a same-sex couple.

The Court further took note that no other commissioners took issue with any of these statements as well as what it perceived as disparate treatment of bakers who refused to bake anti-same-sex marriage cakes along with religious texts. These bakers, who appeared before the same Commission as Phillips, were allowed to refuse to bake cakes with anti-same-sex marriage messages because it violated their anti-discrimination beliefs, while Masterpiece Cakeshop was compelled to by the Commission and the Court of Appeals.

The Court then segued to discuss that the Free Exercise Clause “bars even subtle departures from neutrality” and that the State cannot impose regulations that “are hostile to the religious beliefs of affected citizens and cannot act in a manner that passes judgment.” Justice Kennedy followed this discussion by ultimately determining that weighing the State’s interest in protecting its citizens from discrimination could be weighed with sincere religious objections by owners of public accommodations but only in a way that is neutral towards religion. In this case, the Justices did not believe that the claims were weighed in a religiously neutral way and reversed the lower court’s judgment. While ruling in this manner, the Court also felt it necessary to state “[t]he outcome of cases like this in other circumstances must await further elaboration in the courts, all in the context of recognizing that these disputes must be resolved with tolerance, without undue disrespect to sincere religious beliefs”, leaving the door open for further discussion on the topic, both by the Supreme Court itself and in the states.

           Concurrences

Three separate concurrences were written, one by Justice Kagan joined by Justice Breyer, one by Justice Gorsuch which was joined by Justice Alito and another written by Justice Thomas which was joined by Justice Gorsuch.

Justice Kagan focused her concurrence on the disparate treatment between Phillips and the other bakers, who were allowed to refuse to bake cakes with messages they disagreed with. Justice Kagan further indicated that she believed that Phillips violated the Colorado Anti-Discrimination Act and that the Commission could have found that based on a religiously neutral, plain reading of the statute. However, she did not believe that the Commission was religiously neutral and therefore found for Phillips.

Justice Gorsuch, using the doctrine of strict scrutiny, determined that the Commission failed to act neutrally towards Phillips’ religious beliefs and did not satisfy the strict scrutiny test as required by the Free Exercise Clause. He also focused on what he saw as disparate treatment in bakers as previously discussed, allowing a baker to deny anti-same-sex marriage messages as a result of his religious beliefs but not allowing Phillips to decline to bake a cake which in his view was endorsing same-sex marriage due to his religious beliefs. Justice Gorsuch also focused on what he saw was a lack of discriminatory intent on the part of Phillips and determined that he brought a conclusive First Amendment claim which entitled him to judgment.

Justice Thomas first determined that the Commission violated Phillips’ free exercise rights along with the majority. He, though, went further to discuss the free-speech claim made by Phillips in his brief to the Court. Justice Thomas indicated that public-accommodation laws, like the Colorado Anti-Discrimination Act, generally regulate conduct and do not burden free-speech rights though sometimes these laws can burden free-speech rights. He further notes that “expressive conduct” can be burdened by these laws including many actions relating to the American flag. Justice Thomas found that wedding cakes communicate a message that “a wedding has occurred, a marriage has begun, and the couple should be celebrated” and further found this to be expressive conduct which Colorado could therefore not compel or restrict. He also noted that Colorado could restrict the expressive conduct if it would have punished the conduct with or without the expressive component but seeing as it would not have punished him for generally not making custom wedding cakes, that principle did not apply.

            Dissent

The single dissent in this case was written by Justice Ruth Bader Ginsburg and was joined by Justice Sonia Sotomayor. Justice Ginsburg noted that Colorado could protect gay persons, business owners cannot put up signs saying that they will not serve gay persons, and gay persons may be protected from indignities in an open market, all of which were stated by the majority opinion as well. Justice Ginsburg reconciled the disparate treatment by noting that the bakers who declined to make anti-same-sex marriage cakes did so as a result of the discriminatory message, without regard to the actual characteristics of the requesting person, whereas Phillips declined to make the cake as a result of the identity of the persons requesting the cake. Justice Ginsburg further did not agree that the statements of one or two commissioners could overcome the fact that Phillips refused to bake a cake for a same-sex couple, focusing on the procedural guarantees in Colorado which she believed were followed.

Possible Ramifications

The possible ramifications of this decision on future cases and on the public in general seem to be split along ideological lines, at least in the first weeks following the release of this decision. Some have taken it allow a wide license to discriminate, including a Tennessee business owner who put up a sign saying “No Gays Allowed” in the window of his hardware store. Others see the decision as narrow in scope (while perhaps not narrow in how many justices concurred in judgment), by explicitly stating that further disagreements would still need to be decided based on the facts of those individual cases. Others still see this as a “hollowing out” of same-sex marriage rights and allowing the first affirmation in a “slippery slope” leading to more widespread discrimination. While the ultimate impact of this case on anti-discrimination laws, free exercise of religion, and free speech remains to be seen, one thing that is certain is this is not the end of this conversation but merely the beginning.

 


Sources

Lacey Grummons, REVIEW: Masterpiece Cakeshop v. Colorado Civil Rights Commission, Syracuse L. Rev. Legal Pulse (Dec. 14, 2017).

Masterpiece Cakeshop, Ltd. v. Colorado Civil Rights Commission, 584 U.S. ___ (2018).

Amy Howe, Opinion analysis: Court rules (narrowly) for baker in same-sex-wedding-cake case, SCOTUSblog (June 4, 2018, 4:07 PM).

Mark Sherman, Supreme Court sides with Colorado baker on same-sex wedding cake, Chicago Tribune, (June 4, 2018).

Ewan Palmer, No Gays Allowed’ Sign Returns to Tennessee Store Following Masterpiece Cakeshop Supreme Court Ruling, Newsweek, (June 8, 2018, 9:43 AM).

Rachel B. Tiven, Masterpiece Cakeshop Ruling Is Not As Limited As Some Might Think, Huffington Post, (June 5, 2018, 7:05 PM).

Photo courtesy of Martha Stewart.

Medicaid Covers Treatments for Non-Binary Transgender New Yorkers

The views expressed in this article do not necessarily reflect those of the Legal Pulse Editor or the Syracuse Law Review.

Written by Cynthia Moore

 

On May 11, 2018, New York State Department of Health overturned a 2017 decision by an administrative judge, who upheld a Medicaid insurer’s denial of coverage for a mammoplasty procedure for a nonbinary transgender person. This decision affirmed the right to Medicaid coverage for surgeries or procedures for gender nonbinary and nonconforming residents of New York.

Gender Dysphoria as a Diagnosis

“Gender identity disorders” were first introduced in the DSM-III, a diagnostic manual authored by the American Psychiatric Association, as a psychosexual disorder, which later moved to a section on disorders manifested in infancy, childhood, or adolescence. In the DSM-IV, gender identity disorder diagnoses moved to the chapter on sexual and gender identity disorders. In the most current Diagnostic and Statistical Manual of Mental Disorders, the DSM-V, the diagnosis of gender identity disorder was removed and a new chapter named Gender Dysphoria was created. A diagnosis of gender dysphoria is required for Medicaid coverage of medically necessary treatments and procedures related to this diagnosis.

Non-Binary Gender Identity

Non-binary gender identities are generally those that do not exclusively fall within the male or female categories. Examples of these identities include: “genderqueer, gender fluid, agender, and bigender.” Those who identify within this spectrum may reject gender entirely, blend features of both, or fluctuate between the traditional roles of masculinity and femininity.

Statistics

In a 2016 study, the number of transgender individuals in New York was estimated as 78,600 or .51% of the total population. Nationally, the number of adults who self-identified as transgender was estimated as 1.4 million or .6% of the U.S. population. Nevertheless, population estimates are difficult to track since they have not been included on questionnaires for the census and American Community Survey. The U.S. Census Bureau stated that it does not plan to propose this topic to Congress for the 2020 Census and American Community Survey, which may make it difficult to track statistics on Americans who identify within the transgender population.

Background

In 2014, the Legal Aid Society, Sylvia Rivera Law Project, and Willkie Farr filed a federal lawsuit opposing a state regulation that banned Medicaid coverage for treatments and procedures related to sex reassignment. In July 2016, U.S. District Judge Jed Rakoff for the Southern District of New York decided Cruz v. Zucker in favor of the plaintiffs. The ban was repealed and the regulation was amended to require Medicaid to cover medically necessary procedures for those with a gender dysphoria diagnosis. New York was the ninth state to adopt a policy allowing Medicaid to cover gender affirmation surgery.

As a result of this decision, four academic medical centers—Mount Sinai, NYU Langone, Montefiore, and Northwell—created programs to perform these surgeries. In 2015, Medicaid covered 115 procedures and in 2016 it covered 257 procedures, marking a substantial increase in services provided.

Medicaid Denial of Coverage

In 2017, a 27-year-old non-binary transgender individual sought a procedure for a reduction mammoplasty. The patient’s doctor requested Medicaid coverage for the procedure and was denied by the plan, Healthfirst. The patient sought an appeal but the administrative law judge held that the regulation did not apply to non-binary individuals, requiring that the individual transition strictly from male to female or female to male.

Department of Health Overturns the Denial

In April, legal counsel who represented the plaintiff in the 2016 federal case sent a letter to the New York State Office of Attorney General stating that the fair hearing decision was decided incorrectly, since it violated the final judgement and order of Cruz v. Zucker. Two weeks later, the Department of Health amended the decision, noting that the 27-year-old met the requirements of the statute and the insurer should have approved coverage of this procedure. In its decision, the Department of Health noted:

“[r]equiring conformance to the opposite gender is inconsistent with the diagnosis of gender dysphoria as specified by the Diagnostic and Statistical Manual of Mental Disorders (DSM-5), which specifically provides that individuals with [sic] diagnosed with gender dysphoria have a marked incongruence between the gender they have been assigned to (usually at birth, referred to as “natal gender”) and their experienced or expressed gender, and experience stress about this incongruence. Experienced gender may include non-binary gender identity. Therefore, the distress associated with gender dysphoria is not limited to a desire to just be of the opposite gender, but may include a desire to be non-binary.”

Advocates noted the importance of this decision in increasing access to healthcare for non-binary and non-conforming transgender residents of New York, particularly for those who fall below the poverty line. One 2015 survey found that transgender residents of New York were more likely to experience poverty and unemployment than the general population: 37% of survey respondents were living in poverty, more than double the national poverty rate at the time of the survey and 18% were unemployed, which was three times greater than the national unemployment rate.

This decision was made three weeks after the Trump administration expressed a plan to roll back a rule issued by President Obama, which “. . . prevents doctors, hospitals and health insurance companies from discriminating against transgender people.” If President Trump were to revoke this rule, it would apply to doctors who receive Medicaid payments, hospitals that accept Medicare plans, and health insurance companies.

Sources

Andrew R. Flores et al., How Many Adults Identify as Transgender in the United States? 2­–4 (2016).

Arielle Webb et al., Non-Binary Gender Identities Fact Sheet 1 (2015).

Christina Capatides, The type of transgender you haven’t heard of, CBS News (Mar. 27, 2017).

Cruz v. Zucker, 195 F. Supp.3d 554 (S.D.N.Y. 2016).

Dan Goldberg, Transgender programs flourish following New York Medicaid coverage, Politico (Dec. 12, 2017).

Hansi Lo Wang, U.S. Census To Leave Sexual Orientation, Gender Identity Questions Off New Surveys, NPR (Mar. 29, 2017).

In Historic Decision, NYS Acknowledges Gender Non-Conforming New Yorker’s Right to Health Coverage, The Legal Aid Society: News (May 17, 2018).

In the Matter of the Appeal of Redacted, F.H. No. 7510067L (St. of N.Y. Dep’t of Health, Apr. 6, 2017).

Jan Hoffman, Estimate of U.S. Transgender Population Doubles to 1.4 Million Adults, N.Y. Times (June 30, 2016).

Kenneth J. Zucker, Management of Gender Dysphoria: A Multidisciplinary Approach, in The DSM-5 Diagnostic Criteria for Gender Dysphoria 33 (Carlo Trombetta et al. eds., 2015).

MP McQueen, NY Health Dept. Affirms Right to Medicaid Coverage for Gender Dysphoria Treatment, N.Y. L. J. (May 18, 2018).

National Center for Transgender Equality, 2015 U.S. Transgender Survey: New York State Report 1 (2017).

N.Y. Comp. Codes R. & Regs. tit. 18, § 505.2 (2018).

Robert Pear, Trump Plan Would Cut Back Health Care Protections for Transgender People, N.Y. Times (Apr. 21, 2018).

Photo courtesy of WQAD.

Unconstitutionally Blocked: Southern District of N.Y. Rules President’s Twitter Practice Violates First Amendment

Written by Steven L. Foss

 

Background

On May 23, 2018, a federal district judge ruled that President Donald J. Trump’s blocking of Twitter users critical of him violates the First Amendment. Judge Naomi Reice Buchwald of the Southern District of New York, in a 75-page order on cross–motions for summary judgment, determined that the President’s Twitter handle @realDonaldTrump and the “interactive space” it generates constitutes a public forum under First Amendment jurisprudence. Consequently, when the President blocks someone from viewing and interacting with his profile, he commits unconstitutional viewpoint discrimination.

Knight Institute v. Trump

The controversy began when seven individuals who criticized President Trump on Twitter were blocked from the President’s @realDonaldTrump account. The Knight First Amendment Institute at Columbia University filed suit on behalf of the blocked individuals, claiming that the President used the blocking function to suppress political dissent in violation of their First Amendment rights. Judge Buchwald rejected the argument that the President’s personal First Amendment right of association outweighed the plaintiffs’ own First Amendment rights. And, while recognizing that there is generally no “right to be heard” by the government, Judge Buchwald distinguished that principle from the plaintiffs’ claims. She discussed the difference between Twitter’s blocking feature and its “muting” feature, whereby users can choose not to see the activity of a particular user. Unlike blocking, when user A is muted by user B, user A can still view, reply to, and retweet user B’s tweets, even though user B will not see these replies. Blocking users that the President does not wish to interact with is not functionally equivalent to muting them because the blocked users cannot reply to the President’s tweets and engage other users in dialogue concerning those tweets. The court noted that muting users that the President does not wish to engage with would serve the President’s own interests equally well while not infringing on the rights of individuals to speak to — but not necessarily be heard by — the government in a public forum.

Forum Analysis and Viewpoint Discrimination

In analyzing First Amendment claims, a preliminary question asks what type of forum the speech takes place in or is excluded from. The court in Knight Institute v. Trump determined that the President’s Twitter handle @realDonaldTrump and the “interactive space” created around it by virtue of Twitter’s features is a designated public forum for free speech purposes. Judge Buchwald rejected the argument that because the President once used the account as a private citizen, the handle is not a public forum. Rather, because the President chose to use the account in a manner similar to a traditional public forum, the handle must adhere to traditional First Amendment protections of subject matter and viewpoint neutrality.

In traditional and designated public fora, government regulations of speech must be “narrowly drawn to achieve a compelling state interest” in order to pass constitutional muster. While some subject matter and speaker restrictions can be constitutional under certain circumstances, viewpoint restrictions are generally considered to be forbidden. In the Knight Institute case, Judge Buchwald held that the blocking of users critical of President Trump was “indisputably” unconstitutional viewpoint discrimination, and went beyond merely choosing not to amplify the voices of those he disagrees with.

Declaratory or Injunctive Relief?

A more vexing problem for the court and those concerned with separation of powers was the type of remedy available to the plaintiffs. Citing multiple U.S. Supreme Court cases, Judge Buchwald rejected the government’s argument that a court “categorically lack[s]” authority to order the President to unblock Twitter users. However, the court did not grant the plaintiffs both declaratory and injunctive relief, as they had requested. It declared the President’s blocking unconstitutional and left open the possibility that if the President refused to unblock the plaintiffs, an action for injunctive relief could be brought to compel the President or his staff to unblock them. The Court held unblocking to be a purely “ministerial” action, involving little or no discretion (given the court’s ruling that blocking is unconstitutional, and the President’s general duty to comply with the law). Requiring such a ministerial action would be a “minimal” intrusion on the President’s inherent authority as chief executive. The court opined that even if it lacked the power to issue an injunction against the President, it could enjoin his social media director and co–defendant Dan Scavino, who also has access to the account.

Going Forward

In the wake of Knight Institute, it seems that government officials or entities operating social media accounts for official purposes must not restrict users from interaction based on viewpoint. There are similar lawsuits pending in other district courts, and they may take notice of Judge Buchwald’s ruling. They could also be critical of the expansion of First Amendment protections into cyberspace, heeding Justice Samuel Alito’s concurrence in Packingham v. North Carolina where he cautioned against Justice Kennedy’s broad language in striking down a law forbidding sex offenders from accessing vast swathes of the Internet. A federal district court in Kentucky denied a preliminary injunction preventing Governor Matt Bevin from blocking critics on social media, holding that the plaintiffs there were unlikely to succeed because they are simply not being heard by the government. The case is ongoing.

The Department of Justice disagrees with the Knight Institute decision and is reviewing its options, including appeal. We shall have to wait and see. In the meantime, given politicians’ increasing online presence and the growing recognition that public fora extend beyond traditional physical spaces like sidewalks and parks, public officials should exercise caution when deciding how to deal with dissent on social media.


Sources

Hargis v. Bevin, 2018 U.S. Dist. LEXIS 54428 (E.D. Ky. Mar. 30, 2018).

Issie Lapowsky & Louise Matsakis, Trump Can’t Block Critics on Twitter. What This Means For You, Wired (May 23, 2018, 6:29 P.M.).

John Herman & Charlie Savage, Trump’s Blocking of Twitter Users Is Unconstitutional, Judge Says, N.Y. Times, May 23, 2018.

Knight First Amendment Inst. at Columbia Univ. v. Trump, 2018 U.S. Dist. LEXIS 87432 (S.D.N.Y. May 23, 2018).

Packingham v. North Carolina, 137 S. Ct. 1730 (2017).

Press Release, Knight First Amendment Institute at Columbia University, Federal Court Rules that President Trump’s Blocking of Twitter Critics Violates First Amendment (May 23, 2018).

 

Photo courtesy of The Economist.

Gambling with Gamers: The Global Controversy Surrounding the Growth of Virtual Loot Boxes and Their Ties to Gambling

written by Nathan Jerauld

 

Background

In recent years, video game companies discovered a new way to generate profits: loot boxes. “Loot boxes” are randomized rewards that video game players receive in exchange for in-game points, which are earned by playing the game or by paying real-world cash. The rewards offered in loot boxes could be purely cosmetic, or could offer players powerful perks that improve their chances of winning games.

Globally, countries differ on whether loot boxes constitute gambling, and should be regulated accordingly. Earlier this year, the Netherlands outlawed loot boxes because of its association with gambling. Conversely, the United Kingdom concluded it was not gambling. Last month, however, Belgium became the second country to make loot boxes illegal, and required game publishers to remove loot boxes purchasable with cash. Despite the recent turn in Belgium, the CEO of Electronic Arts (EA), a major video game producer, stated early this month that they remain committed to including loot boxes with future game releases.

Ties to Gambling

Loot boxes bare some similarity to gambling, a practice illegal for minors in the United States. According to Black’s Law Dictionary, gambling is “[t]he act of risking something of value, especially money, for a chance to win a prize.” With regards to risking something of value, players must spend in-game currency, which requires them to invest time into gameplay, or use cash to purchase it.

Additionally, loot boxes do not guarantee good prizes. While players receive rewards for every loot box purchase, the most beneficial prizes are rare. In order to obtain the best prizes, players generally need to purchase numerous loot boxes. The hope of obtaining better loot drives players to spend more time or money to get more chances. Players report spending hundreds and thousands of dollars trying to get additional perks. In one notable case, a player spent over $13,000 USD as a minor in pursuit of in-game rewards.

Domestically, lawmakers have concerns about the relationship between loot boxes and gambling. To date, five states (California, Washington, Hawaii, Indiana, and Minnesota) have bills seeking to regulate the use of loot boxes in games marketed to minors. The Minnesota bill, for example, would prohibit the sale of video games with loot boxes to minors, and require publishers to include a clear warning to players that the game “contains a gambling-like mechanism that may promote the development of a gaming disorder . . . and may expose the user to significant financial risk.”

Despite growing concern about loot boxes and gambling, there are notable differences between the two. According to EA, loot boxes always provide the player some type of reward, and they also prohibit players from “cashing out” points for actual currency; the same cannot be said for gambling. Similarly, the Entertainment Software Association, a group representing video game publishers, compared loot boxes to popular, and legal, trading card games that require players to purchase card packs without knowing their contents.

The Way Forward

Video game publishers are unlikely to discontinue the use of loot boxes. Publishers earn about $30 billion dollars from loot box sales globally. In 2017, major video game publishers EA and Activision Blizzard earned over half of their revenues from digital sales, which include the purchase of loot boxes. In the next four years, global earnings from loot boxes are projected to increase to $50 billion dollars globally.

It is unclear if state efforts to regulate loot boxes will succeed. Traditionally, gambling is a state-level issue that falls within its police power. Yet, state bills addressing loot boxes are moving slowly, and hitting political snags. Hawaii’s bill originally attempted to impose regulations similar to Minnesota’s bill, but now would only require publication of the odds for winning loot. California’s bill has been effectively withdrawn. Indiana’s bill, introduced in January, calls for the State Attorney General to study the issue further; as of May, it is still in committee.

Adjusting U.S. policy on loot boxes could produce unintended consequences for other amusement industries. Currently, loot boxes are not regulated domestically. While the production, shipment, and use of video games with loot boxes would likely fall under interstate commerce, loot boxes seem more akin to unrestricted activities than restricted ones. Various activities marketed toward minors involve monetary risk, but do not fall under social conceptions of gambling. Consider popular trading card games like Magic: The Gathering, or other amusements like claw games, and carnival games that involve risking money for prizes. Although these activities have similarities to gambling, they are legal. If the government elects to regulate loot boxes, it is hard to see why it should not elect to regulate access to claw games, capsule vending machines, and Ring Toss.

Market factors will likely discourage predatory uses of loot boxes in the future. Boycotts have already been successful. Last year, EA made in-game payments and loot boxes an integral part of a major game, Star Wars Battlefront II. Players responded with highly negative criticism, and EA failed to meet its sales expectations for the game. Because of the response, EA altered the structure of the game. If players hold publishers accountable for loot box misuse, and refuse to pay, the industry will respond accordingly. Additionally, for younger players, increased awareness of the issue will help parents supervise their children’s use of loot boxes, and mitigate concerns of overspending.


Sources

Actions for Senate Bill 333, Ind. Gen. Assembly, https://iga.in.gov/legislative/2018/bills/senate/333#document-58bc9bc4. (last visited on May 18, 2018).

Call to Regulate Video Game Loot Boxes over Gambling Concerns, BBC (Nov. 24, 2017).

Dave Thier, EA: ‘Star Wars Battlefront 2’ Misses Sales Expectations, Forbes (Jan. 30, 2018, 5:27 PM).

Ellen McGrody, For Many Players, Lootboxes Are a Crisis That’s Already Here, Vice Waypoint (Jan. 30, 2018).

Ethan Gach, Meet the 19-Year-Old Who Spent over $17,000 on Microtransactions, Kotaku (Nov. 30, 2017).

Gambling, Black’s Law Dictionary (10th ed, 2014).

Gamers’ Anger Halts Star Wars Battlefront II’s Payments, BBC (Nov. 17, 2017).

HF 4460, 90th Leg., (Minn. 2018).

Jason M. Bailey, A Video Game Loot Box Offers Coveted Rewards, but Is It Gambling?, N.Y. Times, Apr. 24, 2018.

Matt Perez, Despite ‘Battlefront 2’ Flub, Electronic Arts Posts Record Annual Revenues of $5 Billion, Forbes (May 8, 2018, 7:20 PM).

Mike Wright, Video Gamers Will Be Spending $50 billion on ‘Gambling-Like’ Loot Box Features by 2022, According to Analysts, Telegraph, Apr. 17, 2018.

Nelson Rose & Rebecca Bolin, Game on for Internet Gambling: With Federal Approval, States Line up to Place Their Bets, 45 Conn. L. Rev. 653, 657 (2012).

Press Release, Entm’t Software Ass’n, Entertainment Software Association Commends California Assembly Member Bill Quirk (Apr. 17, 2018).

Rob Thubron, Over Half of Activision Blizzard’s $7.16 Billion Yearly Revenue Came from Microtransactions, Techspot (Feb. 12, 2018, 6:12 AM).

Tom Shea, EA Adamant Loot Boxes Aren’t Gambling, Gameindustry.biz (May 9, 2018).

Video Game Loot Boxes Declared Illegal Under Belgium Gambling Laws, BBC, Apr. 26, 2018.

A Brief Analysis of the Supreme Court’s Recent Decision on Sports Gambling

Written by Jacob Honan 

 

The United States has an undeniable attraction to betting on sports. Recent studies indicate that sports gamblers spend an astounding $105 billion annually through both legal and illegal means. On May 13, 2018, the United States Supreme Court issued their decision in Murphy v. NCAA, giving many gambling fans across the nation reason to celebrate. The primary takeaway from the Court’s 6–3 ruling is that all states are free to decide whether their citizens may gamble on professional sports, overturning prior law. As a result, some states have already implemented measures to make sports gambling widespread and accessible, while owners of professional sports teams are looking forward to seeing their revenue dramatically increase. The rationale for this decision—based on the right of states to be free from commandeering by the federal government—will likely shape other areas of constitutional law for years to come.

Background

 In 1992, Congress enacted the Professional and Amateur Sports Protection Act (“PASPA”), which forbid 46 states from authorizing any form of gambling on sports. This law was intended to protect the integrity of the professional leagues, as legislators feared that allowing such betting would “change the nature of sporting events from wholesome entertainment for all ages to devices for gambling.” Four states (most notably Nevada) were exempted from this regulation, and could allow sports gambling to varying degrees.

Controversy arose in 2012, when New Jersey Governor Chris Christie enacted a law that authorized gambling on professional sports within the state. The statute was in clear violation of PASPA and was prohibited from taking effect. The four major professional sports leagues (MLB, NFL, NHL, and NBA) and the NCAA sued New Jersey, arguing that this state law was invalid because it conflicted with PASPA. New Jersey was defeated in every lower court, but the Supreme Court granted certiorari and reviewed the case.

Murphy v. NCAA 

Surprisingly, the Court overturned every prior decision and ruled in favor of New Jersey, but the decision did not give any explicit endorsement of gambling. The majority of the Court, led by Justice Samuel Alito, relied on the anti-commandeering doctrine from the Tenth Amendment to the Constitution in making its decision. In essence, the anti-commandeering doctrine prohibits the federal government from “commandeering” state governments to implement certain laws. The Court held that PASPA violated the anti-commandeering doctrine because it prohibited states from allowing their citizens to bet on professional sports. While illustrating that PASPA imposes an unconstitutional infringement on state rights, Justice Alito stated that “[a] more direct affront to state sovereignty is not easy to imagine.”

The major sports leagues that sued the state of New Jersey argued that PASPA did not qualify as commandeering because the statute merely prohibited a state from legalizing sports wagering, and did not command any affirmative behavior. The Court rejected this claim, holding that the clear purpose of PASPA was to control activities within the states, which is a violation of the purpose of the Tenth Amendment. The Court also found no evidence that sports wagering qualifies as interstate commerce, which can generally be regulated by the federal government.

Finally, the court did not give explicit approval or disapproval to betting on professional sports, as its decision was based on constitutional concerns, not practical ones. Furthermore, the opinion allows for Congress to choose to ban or allow sports gambling altogether. However, Congress also has the option bypass the issue and let the individual states decide for themselves.

What Does the Court’s Decision Mean Going Forward?

Hypothetically, if Congress does decide to institute a nation-wide ban on betting on professional sports, it is plausible that the Supreme Court would uphold such a law. Experts have speculated that the Court would apply the strict scrutiny standard of review to this issue. A law subject to strict scrutiny will only be upheld if it is necessary to achieve a compelling government interest. If a suit challenging such a law is brought in the future, the government will likely defend a ban on sports gambling by using the same rhetoric as the enactors of PASPA—that ensuring the integrity of professional sports by prohibiting gambling qualifies as a compelling government interest. A challenger to this law would claim that there is no correlation between professional sports gambling and corruption within the leagues, and so a prohibition of gambling would not further the government’s interest. It remains to be seen whether Congress will prohibit sports wagering, but interesting lawsuits would undoubtedly result if they choose to do so.

In addition, the Court’s rationale in Murphy v. NCAA will likely impact claims brought against other laws that involve commandeering of states. For example, this decision appears to give significant ammunition to challengers of federal marijuana regulations, as they now have a credible argument that bans on the substance qualify as commandeering of state sovereignty. In addition, some cities have refused to follow recently-enacted federal immigration laws, and can use this ruling to claim that these laws pose a Tenth Amendment violation. Thus, the impact of this case could travel far beyond the casino, and will likely be relied upon in other areas of constitutional law for years to come.

Sources

Marc Edelman, Explaining the Supreme Court’s Recent Sports Betting Decision, Forbes (May 16, 2018).

Charles Star, Here’s What That Supreme Court Decision About Sports Betting Actually Does, Deadspin (May 15, 2018).

Sean Gregory, The Risks and Rewards of the Supreme Court’s Sports Gambling Decision, Time (May 18, 2018).

Amy Howe, Opinion Analysis: Justices strike down federal sports gambling law, SCOTUSBlog.com (May 14, 2018).

Michael McCann, Why New Jersey Won Its Supreme Court Battle to Legalize Sports Betting, Sports Illustrated (May 14, 2018).

Yancey Roy, What the Supreme Court’s Decision on sports betting actually means, Newsday (May 18, 2018).

Photos Courtesy of WKBW Buffalo & USA Today.

Maryland’s Effort to Control Skyrocketing Drug Prices Hits a Constitutional Snag

Written by Chris Baiamonte

 

Background

Dutch pharmaceutical giant Mylan un-serendipitously made headlines in 2016 when it raised the price of the life-saving injection device, EpiPen, to over $600.00 per unit, up from only around $50.00 per unit a few years prior. Unfortunately, this was merely one egregious example of the increasingly common phenomenon of skyrocketing drug prices. Long patent protections and inelastic demand allow pharmaceutical companies to routinely raise prices on essential medications by hundreds or thousands of percent. Examples of drugs costing hundreds per pill or tens of thousands for a course of treatment abound. The rarer the ailment, the less likely competitor generics are to enter the market and the more leverage the manufacturer has in raising prices.

A part of these eye-popping prices is a natural consequence of the ever-increasing difficulty of developing new drugs. Pharmaceutical companies spend billions of dollars developing thousands of compounds, in the hopes that a handful will lead to viable medications, of which one or two might pass the long and rigorous FDA approval process to reach the market. Nonetheless, these costs are all-but impossible for the average patient to keep up with, so most of the cost gets passed on to insurance providers, the largest of which is the U.S. taxpayer.

Attempted Solutions

Amid calls for regulation, Congress has been slow to react. Alternatively, state legislatures, motivated by the impact high drug prices have on state Medicaid budgets, have taken a more aggressive stance combating rising drug prices. New York, for instance, limits what state programs will pay out for drugs the state deems to be priced disproportionately high when compared to their medical benefit. In 2017, four states passed laws prohibiting third-party administers of prescription drug benefits from restricting pharmacists’ ability to inform customers about cheaper options for filling their prescription; an unfortunately common practice, known in the industry as a “gag rule.” California recently passed SB 17, a law requiring drug makers to disclose significant price increases ahead of time and make a public justification as to the need for the increase. Many other state measures of one kind or another have been enacted.

Maryland’s legislature passed one of the most ambitious solutions. HB 631 went into effect in October of 2017, over a veto from Governor Larry Hogan, who objected that the law was unconstitutional. HB 631 created a cause of action for the State Attorney General against generic drug makers who increased the price of any “essential” drug by 50 percent or more during a single year. However, an industry trade group representing the drug succeeded in having the law declared unconstitutional by a federal appellate court last week. In addition to setting back Maryland’s consumer protection efforts, the decision could be useful to other pharmaceutical industry groups in rolling back other state laws, including the one currently mounting a challenge to California SB 17.

Association for Accessible Medicines v. Frosh

After the District Court found in favor of Brian Frosh, Maryland’s Attorney General and the named defendant, plaintiff Association for Accessible Medicines (“AMA”) appealed to the Fourth Circuit Court of Appeals. On April 13th, a divided three-judge panel handed down its decision, agreeing with AMA that the law violated the dormant commerce clause’s extraterritoriality principle. The court described this principle as operating to prohibit state regulations which “’regulate[] the price of any out-of-state transaction, either by its express terms or by its inevitable effect.”’ The majority opinion found the broad scope of activities potentially affected by the Maryland law problematic. In relevant part, the law established a cause of action based on the price of the “initial sale” of any drug “made available for sale” in Maryland. As written, the law would implicate out of state transactions because, as Frosh’s counsel admitted at oral arguments, the ‘initial sale’ of nearly every drug sold in Maryland involves a manufacturer located outside the state, selling to a wholesaler, also located outside the state. For the majority, the regulation of these out of state transactions amounted to a regulation of out of state commerce, in violation of the dormant commerce clause.

The dissent decried the majority’s interpretation of the dormant commerce clause and questioned whether the extraterritoriality principle was even valid constitutional law. Its reasoning centered around the idea that the purpose of the dormant commerce clause is to check state laws which “discriminate against interstate commerce or favor[] in-state interests over out-of-state economic interests” and that this HB 631 accomplished neither. The dissent argued that absent these concerns, Maryland could regulate any “stream of commerce” that ends in Maryland.

What This Might Mean Going Forward

The significance of the decision, as well as the stark disagreement about the nature of the dormant commerce clause and the continuing vitality of the extraterritoriality principle, make the case a viable candidate for en banc review, where all the Fourth Circuit Court of Appeals judges would have a chance to weigh in, or potentially a grant of certiorari from the United States Supreme Court.

However, for the time being, the majority decision is law in the Fourth Circuit. If legislators in Maryland, North Carolina, South Carolina, Virginia, or West Virginia want to enact rules to counter the pernicious effects of runaway drug prices, they will have to proceed in a less zealous manner, or at least in a more circumspect one.


Sources

Ass’n. for Accessible Medicines v. Frosh, No. 17-2166, 2018 WL 1770978 (4th Cir. 2018)

Dana A. Elfin, Spiked Maryland Rx Pricing Law Could Kill Similar Efforts, Health Care on Bloomberg Law (April 16, 2018).

H.B. 631, 2017 Leg., 437th Sess. (Md. 2017).

Tara Parker-Pope & Rachel Rabkin Peachman, EpiPen Price Rise Sparks Concern for Allergy Sufferers, The New York Times (Aug. 22, 2016).

April Dembosky, California Governor Signs Law to Make Drug Pricing More Transparent, National Public Radio (Oct. 10, 2017).

Shefali Luthra, Federal Appeals Court Finds State’s Drug Price-Gouging Law Unconstitutional, National Public Radio (April 17, 2018).

Brad Kutner, Fourth Circuit Overturns Maryland Drug Pricing Law, Courthouse News Service (April 16, 2017).

Photo courtesy of The Washington Post.

 

When the Exception Swallows the Rule: The Chilling Effects of FOSTA

The views expressed in this article do not necessarily reflect those of the Legal Pulse Editor or the Syracuse Law Review.

 

Background

On April 11, 2017, President Donald J. Trump signed into law the bill known as FOSTA, the Fight Online Sex Trafficking Act. FOSTA received vast bipartisan support in both houses of Congress, and is intended to reduce illegal sex trafficking online.

FOSTA creates an exception to the “safe harbor” rule under Section 230 of the 1996 Communications Decency Act. Section 230 provides that: “[n]o provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.” As such, Section 230 has immunized platforms and Internet service providers (ISPs) from potential liability created by hosting user-generated content. However, FOSTA creates an exception to the “safe harbor” rule by exposing ISPs to civil and criminal liability for hosting content that enables illegal sex-trafficking.

Broad Language Could Lead to Unintended Consequences

Due to its broad and sweeping language, FOSTA poses two unintended threats: (1) the chilling of online free speech; and (2) the reduced security of sex-trafficking victims and consensual adult sex workers. As to the effect of chilling online free speech, numerous platforms have responded with attempts to proactively minimize their exposure to potential liability. In response to FOSTA, Craigslist removed its “personals” section, which allowed individuals to seek encounters with others. The closure was due to Craigslist’s fear of exposure to liability for its services being misused and, relatedly, the risk posed to its other services. This recent closure demonstrates that even where such ISPs do not themselves promote ads for prostitutes, the risk of liability in light of the burden of regulating such content necessitates the closure of such platforms. Thus, only those limited ISPs that have the requisite funds and resources would be able to implement the filters and censors necessary to be in compliance. Such compliance is not feasible for all ISPs, making it necessary to close certain platforms in whole or in part if such platforms could expose the ISP to liability. This would result in reduced competition between ISPs and, thus, threaten the vibrant online marketplace of ideas.

FOSTA may also result in reduced security and safety for both consensual adult sex workers and sex-trafficking victims. For example, Backpage.com is a website that provides an “online marketplace for sex workers.” It has provided a medium for which sex workers can communicate with each other and facilitate the provision of their services. While Backpage.com recently closed after its executives were named in a federal indictment, facing charges including money laundering and facilitating prostitution, advocates of consensual sex workers are fighting against the closure of the site and potential closure of other similar sites. These advocates argue that without a platform to communicate with one another, they are placed at a greater risk of violence. Moreover, due to the closure of Backpage.com and Craigslist’s “personals” section, sex-trafficking criminals will likely turn to encrypted or dark web forums instead in an effort to further their services while evading law enforcement review. As such, law enforcement could face greater difficulty in locating victims and prosecuting such perpetrators.

Going Forward

Although intended to combat illegal sex trafficking, FOSTA’s amendment to Section 230 results in an exception that swallows the rule. The marketplace of ideas is threatened as ISPs will either regulate or eliminate platforms that pose a risk of exposure to civil and criminal liability. Moreover, the unavailability of such platforms may force online sex trafficking further into the dark web, placing consensual adult sex workers at risk and removing victims and perpetrators from the reach of law enforcement. Thus, FOSTA may result in unintended consequences far beyond its intended effect.


Sources

47 U.S.C. § 230 (c)(1).

Amanda Arnold, Here’s What’s Wrong With the So-Called Anti-Sex Trafficking Bill, The CUT (Mar. 20, 2018).

Brian Feldman, Craigslist’s Legendary Personals Section Shuts Down, NYMAG (Mar. 23, 2018).

Charlie Savage & Timothy Williams, S. Seizes Backpage.com, a Site Accused of Enabling Prostitution, New York Times (April 7, 2018).

Elizabeth Nolan Brown, The New Law That Killed Craigslist’s Personals Could End the Web As We’ve Known It, The Daily Beast (Mar. 23, 2018).

Melissa Gira Grant, 7 Sex Workers on What it Means to Lose Backpage, The CUT (April 10, 2018).

Niraj Chokshi, Craigslist Drops Personal Ads Because of Sex Trafficking Bill, New York Times (Mar. 23, 2018).

Photo courtesy of Pexels.

The CLOUD Act’s Impact on Cross-Border Investigations

Written By Kristina Cervi

 

United States of America v. Microsoft Corporation

On December 4, 2013, in response to an application by federal law enforcement agents, Magistrate Judge James C. Francis of the Southern District of New York issued a search warrant that authorized the search and seizure of all e-mails and other information associated with an account believed to be furthering illegal drug trafficking. Under the §2703 warrant, Microsoft was compelled to disclose to the Government the contents of the specified e-mail account and all other records or information “[t]o the extent that the information . . . is within [Microsoft’s] possession, custody, or control.”

Microsoft’s Global Criminal Compliance team (“GCC”) produced the non-content information stored on servers in the United States. However, once the GCC determined that the target account’s data was hosted and stored in Dublin, Ireland, Microsoft filed a motion seeking to quash the warrant to the extent that it directed the production of information stored abroad. Microsoft cited the Stored Communications Act (“SCA”) and Rule 41 of the Federal Rules of Criminal Procedure (“Rule 41”) in their motion, claiming “[f]ederal courts are without the authority to issue warrants for the search and seizure of property outside the territorial limits of the United States.”

Judge Francis ultimately denied the motion which was later adopted by the District Court, and Microsoft was held in civil contempt for refusing to comply fully with the warrant. Microsoft appealed to a panel of the Court of Appeals for the Second Circuit contending the SCA and Rule 41 preempted the production of information stored overseas. The Government continued to argue that Microsoft had full control of the data and should be compelled to turn it over despite its overseas storage location. The Second Circuit reversed the denial of the motion to quash and vacated the civil contempt order, holding “that requiring Microsoft to disclose the electronic communications in question would be an unauthorized extraterritorial application of §2703” of the SCA as had been argued by Microsoft at the district level.

Tech Industry Takes It to The Hill

On October 16, 2017, the Supreme Court granted the United States’ Petition for Writ of Certiorari. As both parties prepared for their day before the highest court in the land, Microsoft sought creative solutions and spearheaded a lobbying effort on Capitol Hill. Joined by parties like Apple, Facebook, and Google that could also be implicated by warrants like the one at issue here, Microsoft drafted a letter to Congressional leadership on February 6, 2018. The letter encouraged members of both Houses to adopt the Clarifying Lawful Overseas Use of Data Act (“CLOUD Act”), a bipartisan bill that would amend the SCA and deliver “a logical solution for governing cross-border access to data” while also protecting customers and data holders with the law. The CLOUD Act essentially provided the legal answer to the question of law that parties argued over in front of the Court on February 27, 2018.

On March 23, 2018, Congress passed the $1.3 trillion Omnibus spending bill which included the CLOUD Act and President Trump signed the Consolidated Appropriations Act, 2018 into law. Under the CLOUD Act, companies must provide information properly requested by law enforcement, “regardless of whether such communication, record, or other information is located within or outside of the United States.” The CLOUD Act offers mechanisms for companies or the courts to reject or challenge the warrants, if the request violates the privacy rights of the foreign country storing the data, and if it does not overcome the muster of international comity which seeks to restrain the reach of domestic laws abroad.

Consequently, on April 17, 2018, the Supreme Court of the United States dismissed United States v. Microsoft Corp. on grounds of mootness, citing to the authority of the CLOUD Act. The Court explained that the Government had obtained a validly legal search warrant under the new version of §2703 and that no outstanding disputes remained.

What’s next for cross-border investigations?

The CLOUD Act ultimately provides clarity in a field of law that was in desperate need of an update. The Act preserves the common law right of cloud service providers to challenge search warrants where a conflict of laws exists and to evolve in the wake of the European Union’s new General Data Protection Regulations. Tech companies expect that Europe will consider the comity analysis requirements of the CLOUD Act and decide its own fate in terms of U.S. search warrants.

Further, the law will supplement Mutual Legal Assistance Treaties, which have become increasingly antiquated in the Digital Age. The law provides authority and a framework for the U.S. to establish international agreements. This framework only supports executive agreements with countries that protect privacy and human rights by mandating a broad and robust set of protections found enumerated in the U.S. Constitution. These include the rule of law and principles of nondiscrimination; lawful interference with privacy; fair trial rights; freedom of expression, association, and peaceful assembly; and prohibitions on arbitrary arrests and prohibitions or cruel and unusual punishment.

Overall, the CLOUD Act is a modern legislative action worthy of praise. Companies like Microsoft are able to preserve data privacy in the interest of their consumers through the outlined appellate process. Law enforcement has clarity in an area of law that was becoming increasingly vague, and the CLOUD Act will now streamline the global data exchanges commonly used in cross-border investigations of major crimes. Lastly, the international community will benefit from the enhanced privacy protections and the outlined executive agreement requirements that provide legal structure for the digital evidence gathering phases of criminal litigation.


Sources Cited

Devin Coldewey, Supreme Court dismisses warrant case against Microsoft after CLOUD Act renders it moot, TechCrunch (Apr. 17, 2018).

Taylor Hatmaker, As the CLOUD Act sneaks into the omnibus, big tech butts heads with privacy advocates, TechCrunch (Mar. 22, 2018).

In re Warrant to Search a Certain E-Mail Account Controlled and Maintained by Microsoft Corp., 15 F.Supp.3d 466 (S.D.N.Y. 2014).

In re Warrant to Search a Certain E-Mail Account Controlled and Maintained by Microsoft Corp., 829 F.3d 197 (2nd Cir. 2016).

United States v. Microsoft Corp., 584 U.S. ___ (2018).

2383, 115th Cong. (2018).

Dylan Matthews, Congress’s new $1.3 trillion omnibus spending bill, Vox (Mar. 23, 2018).

John Wagner and Mike DeBonis, Trump signs $1.3 trillion spending bill despite veto threat on Twitter, The Washington Post (Mar. 23, 2018).

Brad Smith, The CLOUD Act is an important step forward, but now more steps need to follow, Microsoft (Apr. 3, 2018).

Photo courtesy of FCW.