' Legislation/Regulations | MTTLR

Update on Bitcoin Regulation

Since the last post on a proposal for Bitcoin regulation, another 300,000 Bitcoins were mined, [1] the Alibaba Group banned the use of Bitcoin on its e-commerce sites, [2] and the U.S. Department of Justice charged the vice-chairman of the Bitcoin Foundation in a money-laundering conspiracy. [3] Earlier last week, Benjamin Lawsky, New York State’s Superintendent of Financial Services, held a series of hearings on virtual currency regulations. Speakers included the Winklevoss brothers and the deputy U.S. attorney for the Southern District of New York. Notably, Mr. Lawsky announced his plans to roll out a “regulatory framework for virtual currency firms operating in New York” in 2014. [4] Although it is admirable that New York is taking the initiative, it remains to be seen whether or not state regulation is a practical option. New York’s regulatory framework for Bitcoin will be necessarily confined within its state borders. It is easy to imagine other states following suit, but enacting different laws, which would result in an inconsistent mess of legislation. On one hand, this could lead to loopholes and allow for regulatory arbitrage. On the other hand, this could become so frustrating as to discourage Bitcoin use altogether. After all, one of Bitcoin’s advantages is that is not subject to regulation. Subjecting Bitcoin businesses and users to multiple regulatory regimes might cripple the virtual currency altogether. As Mr. Lawsky explained, however, “Businesses can deal with regulation. What they can’t deal with is...

A Proposal for Bitcoin Regulation

Bitcoin, the creation of Satoshi Nakamoto, an anonymous person or group, is commonly touted as the “world’s first decentralized digital currency”. Since its launch in 2009, users around the world have “mined” just over 12 million Bitcoins, leaving about 9 million to be mined. Aside from the cool factor, Bitcoin offers portability, relative security, and lower transaction costs—unique features resulting from the absence of a central monetary authority.[1] However, the lack of a central monetary authority also creates extreme price volatility and the potential for use for tax evasion and foreign exchange arbitrage. A number of regulatory solutions have been proposed, including regulation by the U.S. Treasury or the Securities and Exchange Commission. Another option for Bitcoin regulation is as a commodity within the scope of the Commodity Exchange Act (CEA), under the supervision of the U.S. Commodity Futures Trading Commission (CFTC). Bitcoin may fall within the definition of a commodity as a good “in which contracts for future delivery are presently or in the future dealt in.”[2] Financial instruments that track the value of Bitcoin unattached to Bitcoin ownership would be regulated as a swap.[3] Subjecting Bitcoin dealers and investors to CFTC regulations for swap dealers and participants may allow regulators to closely monitor this new financial and technological development, prevent its use to exploit consumers, and curb its creation of systemic financial risk. [1] See Finance and Economics: Bits and bob; Digital currencies, 39 The Economist 83 (Apr. 11, 2013). [2] 7 U.S.C. §1a(9) (2012). [3] 7 U.S.C. §1a(47)...

Patent Litigation Integrity Act – Raising The Stakes

Patent trolls had an especially scary Halloween this year as Senator Orrin Hatch (R-UT) introduced Senate Bill 1612 – the Patent Litigation Integrity Act. The short and succinct bill has one purpose – “To deter abusive patent litigation by targeting the economic incentives that fuel frivolous lawsuits.”[1] The bill would shift litigation costs by granting the prevailing party “reasonable fees and other expenses, including attorney fees.”[2] On defendant’s motion, it would also require plaintiffs to “post a bond sufficient to ensure payment of the accused infringer’s reasonable fees and other expenses, including attorney fees.”[3] With the high cost of litigation today,[4] many businesses find it easier and cheaper to settle claims of patent infringement, even if a plaintiff’s claims are weak or unsubstantiated. Senator Hatch aims to prevent this practice by requiring plaintiffs to essentially “put their money where their mouth is.”[5] By raising the stakes to litigate patent claims and instituting a default rule of winner-takes-all, bill supporters are hoping “those facing troll threats [will now have] the tools necessary to fight back while also giving trolls a disincentive to bring harassment suits.”[6] The senator has received general kudos from companies and organizations seeking patent litigation reform.[7] However, if eventually passed, is fee-shifting the best means to deter patent trolls? While the bill allows courts to consider “special circumstances [that would] make an award unjust,”[8] and also consider the “position and conduct of the nonprevailing party or parties,”[9] could the bill also prevent merited claims? As with all obscure legislative phrases, judges will inevitably jump at the chance to define what constitutes “substantially justified [conduct of the nonprevailing...

California Passes New Revenge Porn Law, but is it Good Enough?

Today, just about everything happens on the Internet. That includes flirting, dating, and breaking up. While ex-lovers with broken hearts have sought revenge for centuries, today the implications are far different. Before the Internet, such revenge may have included spreading rumors or writing a phone number in a bathroom stall. Today, however, revenge includes turning private explicit photos of a former lover into non-consensual porn. This is “revenge porn” and California is trying to stop it. Revenge porn is defined as sexually explicit media that is distributed online, without consent of the pictured individual, for the purpose of humiliation. The majority of photos used for revenge porn are taken consensually during a relationship and meant to remain private between the couple. There are a number of websites dedicated to posting such images and they profit from advertising revenue. Revenge porn victims cannot go after web hosts directly due to Section 230 of the Communications Decency Act, which provides a safe harbor. While some believe courts may pierce the section 230 immunity, California took a different approach: making it easier to go after those who distribute sexual images of their exes. Passed by California Governor, Jerry Brown, in early October, the anti-revenge porn legislation would impose a $1,000 dollar fine and six months of jail time upon people convicted of distributing revenge porn. While this may sound good at first, this new legislation has a number of problems. The most glaring problem is that the law only applies when the sexual images are taken by the person accused of posting them online. This means that the law does not apply...

FTC sets sights on Patent Trolls

On September 28 of this year the Federal Trade Commission voted to seek public comments on proposed information requests to better understand patent troll practices. This move by the FTC marks the first step on the road to possibly regulating patent trolls. Patent trolls are firms that buy patents with the sole purpose of suing others whose goods infringe the patent. Patent trolls do not attempt to produce the invention disclosed by the patent, but rather sue those firms that do. With the FTC’s latest focus on patent trolls, it is clear that patent trolls are becoming problematic for businesses. In 2011 alone, according to a Financial Times article, litigation by trolls accounted for sixty percent of all patent lawsuits filed in the US. Trolls create IP minefields for businesses, whereby businesses must exert resources to carefully act to not infringe a patent troll’s patent. Sometimes companies decide to not undergo innovation because doing so might put the company at risk of being sued by a troll. This action also antagonizes the ultimate purpose of patents – to further scientific and technological progress – by slowing the pace of innovation. It, therefore, makes sense that the FTC has decided to fight back against trolls – especially in light of the agency’s key mission “to examine cutting-edge competition and consumer protection topics that may have a significant effect on the U.S. economy.” In spite of the FTC effort, it is unclear what regulations could effect in greater transparency of patent troll activities. One viewpoint is that if patents were bought and sold on an exchange, such centralization and transparency could...

Delete Button for the Internet? New California Law Says Yes

On Monday, September 23, 2013, California Governor Jerry Brown signed SB 568 into law. SB 568 requires “the operator of an Internet Web site, online service, online application, or mobile application to permit a minor who is a registered user of the operator’s Internet Web site, online service, online application, or mobile application, to remove, or to request and obtain removal of, content or information posted.” The law will take effect on January 1, 2015. A second provision of the bill prohibits internet companies from marketing products to minors that are otherwise prohibited to be offered and cold to minors outside the internet. With the passage of the so called “Eraser Button Bill,” California is the first state to require websites to allow people younger than 18 to remove their own postings. SB 568 is not all encompassing, however, as the law covers only content (including photos) that is actually generated by the individual. Thus, internet companies and websites will not have to remove content posted or reposted by others. However, the law can reach websites located in other states, as websites located outside California must also comply with the law if the user in question is a minor from California. In terms of penalties for a violation, SB 568 doesn’t spell out specific penalties for sites that fail to comply, but it could expose web companies to civil liability. Supporters of the new law champion SB 568 as a victory for privacy rights. James Steyer, Chief Executive of Common Sense Media, a charity that promotes children’s digital privacy, stated that SB 568 “is a big step forward for privacy...