Attorney Evan Brown

March 21, 2024 Blockchain, Contracts, Cryptocurrency

Bitcoin miner denied injunction against colocation service provider accused of removing rigs

Plaintiff Bitcoin miner sued defendant colocation hosting provider for breach of contract, conversion, and trespass to chattels under Washington law. After filing suit, plaintiff filed a motion for temporary restraining order against defendant, seeking to require defendant to restore plaintiff’s access to the more than 1,000 mining rigs that defendant allegedly removed from its hosting facility. The court denied the motion, finding that plaintiff had established only possible economic injury, not the kind of irreparable harm required for the issuance of a temporary restraining order.

The underlying agreement

In July 2021, the parties entered into an agreement whereby plaintiff would collocate 1,610 cryptocurrency mining rigs at defendant’s facility. Plaintiff had obtained a loan to purchase the rigs for over $6 million. Defendant was to operate the rigs at a high hash rate to efficiently mine Bitcoin, with defendant earning a portion of the mined BTC.

After plaintiff defaulted on its loan, however, in early 2023, defendant allegedly reduced the available power to the rigs, despite plaintiff having cured the delinquency. Plaintiff claimed this reduced power likewise reduced the amount of Bitcoin that imined, and claims that defendant reallocated resources to other miners in its facility from whom it could earn more money.

The discord between the parties continued through late 2023 and early 2024, with 402 rigs being removed, and then defendant’s eventual termination of the agreement. The parties then began disputing over the removal of the remaining rigs and alleged unpaid fees by plaintiff. In early March 2024, plaintiff attempted to retake possession of its rigs, only to allegedly find defendant’s facility empty and abandoned. This lawsuit followed.

No irreparable harm

The court observed that under applicable law, a party seeking injunctive relief must proffer evidence sufficient to establish a likelihood of irreparable harm and mere speculation of irreparable harm does not suffice. Moreover, the court noted, irreparable harm is traditionally defined as harm for which there is no adequate legal remedy, such as an award of damages. Further, the court stated that it is well established that economic injury alone does not support a finding of irreparable harm, because such injury can be remedied by a damage award.

In this situation, the court found there to be no problem of irreparable harm to plaintiff. The court distinguished this case from the case of EZ Blockchain LLC v. Blaise Energy Power, Inc., 589 F. Supp. 3d 1102 (D.N.D. 2022), in which a court granted a temporary restraining order against a datacenter provider who had threatened to sell its customer’s rigs. In that case, the court found irreparable harm based on the fact that the miners were sophisticated technology and could not be easily replaced.

The court in this case found there was no evidence defendant was going to sell off plaintiff’s equipment. It was similarly unpersuaded that the upcoming Bitcoin halving (anticipated in April 2024) created extra urgency for plaintiffs to have access to their rigs prior to such time, after which mining Bitcoin will be less profitable. Instead, the court found that any losses could be compensated via money damages. And since plaintiff had not provided any evidence to support the idea it would be forced out of business in these circumstances, the court found it appropriate to deny plaintiff’s motion for a temporary restraining order.

Block Mining, Inc. v. Hosting Source, LLC, 2024 WL 1156479 (W.D. Washington, March 18, 2024)

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March 20, 2024 Section 230

Woz gets another (small) bite at the apple in YouTube bitcoin scam case

Apple co-founder Steve Wozniak sued YouTube and Google asserting various causes of action, including misappropriation of likeness, fraud, and negligence. The case arose from a common scam on YouTube, where popular channels are hijacked to show fake videos of a celebrity hosting a live event during which viewers are falsely told that anyone who sends cryptocurrency to a specified account will receive twice as much in return. Woz’s YouTube account was hijacked for these purposes, and several of the resulting victims joined him in the lawsuit.

The lower court tossed the case, holding that YouTube and Google were not liable because of Section 230 – which provides that the platforms could not be liable for the third party content giving rise to the scam. Woz and the other defendants sought review with the California Court of Appeal, which largely agreed with the lower court on the Section 230 issue, except for one part. The court allowed plaintiffs to file an amended complaint on this one issue.

Plaintiffs claimed that Google and YouTube contributed to scam ads and videos, thereby positioning defendants outside Section 230 immunity. They argued, among other things, that YouTube displayed false verification badges, thereby becoming active content providers contributing to the scam’s fraudulent nature.

The court found that although plaintiffs’ complaint suggested that defendants’ actions could strip them of Section 230 immunity by implying a level of endorsement or authenticity, the allegations were too conclusory as written to establish defendants as information content providers. So the court allowed for the possibility of amending these claims, indicating that a more detailed argument might better establish defendants’ direct contribution to the content’s illegality.

Wozniak v. YouTube, LLC, — Cal.Rptr.3d —, 2024 WL 1151750 (Cal.App. 6th Dist., March 15, 2024)

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March 19, 2024 Right of Publicity

Months long video surveillance of house did not violate the Fourth Amendment

video surveillance fourth amendment

“As video cameras proliferate throughout society, regrettably, the reasonable expectation of privacy from filming is diminished.”

Defendant was convicted of stealing government funds and of wire fraud for receiving disability benefits provided to veterans when in fact defendant – though being a veteran – was not disabled. Part of the evidence the government used against defendant was video footage obtained from a pole camera the government had set up on the roof of a school across the street from defendant’s home. It surveilled his house for 15 hours a day for 68 days. After being convicted, defendant sought review with the Tenth Circuit Court of Appeals, arguing that the near-continual surveillance of his house was an unreasonable search under the Fourth Amendment. The court disagreed and affirmed the conviction.

The development of a reasonable expectation of privacy

The court observed the importance of the notion of a citizen’s “reasonable expectation of privacy,” a concept that has evolved over time from its original ties to common-law trespass to encompass a broader range of privacy expectations recognized by society as legitimate.

Historically, the Supreme Court has maintained that activities exposed to public view do not enjoy a reasonable expectation of privacy. For example, in California v. Ciraolo, 476 U.S. 207 (1986), the court held warrantless observation of a home’s exterior from public airspace was not a Fourth Amendment violation on the grounds that these observations did not penetrate private, concealed areas.

In Kyllo v. United States, 533 U.S. 27 (2001), the court held that the use of thermal imaging to discern details within a home, unobservable to the naked eye, was a search requiring a warrant. This marked a departure towards acknowledging privacy infringements facilitated by technology not widely available to the public.

In United States v. Jackson, 213 F. 3d 1269 (10th Cir. 2000) the Tenth Circuit held that video surveillance capturing activity visible without enhancement did not violate the Fourth Amendment. The court grounded its decision in the principle that what one knowingly exposes to public observation falls outside the Fourth Amendment’s protection. The surveillance in question, similar to the one in this case involved recording the exterior of a residence, capturing scenes observable from public vantage points, thus not constituting a search under the Fourth Amendment.

But in this case, the surveillance was constant

In this case, defendant relied heavily on the case of Carpenter v. United States, 138 S. Ct. 2206 (2018), where the Supreme Court ruled that accessing historical cell-site location information constituted a search under the Fourth Amendment. This decision underscored the intrusive potential of prolonged surveillance, highlighting the significant privacy concerns associated with compiling a comprehensive record of an individual’s movements over time. But the court in this case observed that the scope of the Carpenter case scope was explicitly narrow, not extending to conventional surveillance methods such as security cameras.

So the court distinguished the present situation from Carpenter, noting that the pole camera only captured what was visible from the street and did not provide a comprehensive record of defendant’s movements beyond the monitored location. Accordingly, in the court’s view, the surveillance did not infringe upon the reasonable expectation of privacy as articulated in Carpenter, which pertained to the aggregate of an individual’s movements over an extended period.

More technology = changing norms regarding privacy

Furthermore (in probably the most intriguing part of the opinion), the court noted the evolving societal norms around privacy, especially in the context of the widespread proliferation of cameras in public and private spheres. This ubiquity of video recording technology, coupled with the societal acclimatization to being recorded, has inevitably influenced expectations of privacy. As surveillance technologies become more integrated into everyday life, the threshold for what constitutes a “reasonable expectation of privacy” shifts, reflecting the dynamic interplay between technological advancements and societal norms.

So the court concluded that defendant did not have a reasonable expectation of privacy concerning the footage captured by the pole camera, as it only recorded what was visible to any passerby from the street.

United States v. Hay, — F.4th — 2024 WL 1163349 (10th Cir., March 19, 2024)

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March 18, 2024 Blockchain, Trademarks

MetaBirkins defendant denied of opportunity to exhibit NFT artwork in Swedish museum

metabirkins museum
In February 2023, Sonny Estival, known by his pseudonym “Mason Rothschild,” was found liable by a jury on a number of claims, including intentional trademark infringement, trademark dilution, and cybersquatting against luxury brand Hermès. The court ordered Estival to pay $133,000 in damages to Hermès and issued a comprehensive permanent injunction against him and his associates. This injunction specifically prohibited the production, distribution, and promotion of “MetaBirkins” non-fungible tokens (NFTs) and related merchandise, aiming to prevent any association or confusion with Hermès’s “Birkin” trademark.

In January 2024, Estival sought clarification from the court regarding the scope of the permanent injunction, particularly whether it would prevent him from allowing a Swedish museum to exhibit his MetaBirkins artworks as part of an exhibition on Andy Warhol and Business Art. Despite his claims that the museum’s display would not imply any association with Hermès and would even include mention of the lawsuit and its outcome, Hermès opposed this motion. The court held an evidentiary hearing, and after considering submissions from both parties and testimony from museum representatives, denied Estival’s motion. The court could not conclude that the proposed exhibition would comply with the injunction’s terms, given the lack of detailed information about the nature of the permission Estival would be granting to the museum, especially concerning the promotion of the exhibit and potential merchandising.

The court’s decision was heavily influenced by the context of Estival’s previous actions and the jury’s findings, which characterized him as intentionally misleading the public to associate his NFTs with Hermès’s Birkin brand. Despite the museum’s assurance that the exhibit would not suggest any affiliation with Hermès, the court remained unconvinced, especially given discrepancies in the museum representatives’ testimonies regarding how the lawsuit and Estival’s infringement would be presented to the public.

Hermès Int’l v. Rothschild, 2024 WL 1089427 (S.D.N.Y. March 13, 2024)

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March 17, 2024 Artificial Intelligence

Utah has a brand new law that regulates generative AI

On March 15, 2024, the Governor of Utah signed a bill that implements new law in the state regulating the use and development of artificial intelligence. Here are some key things you should know about the law.

The statute adds to the state’s consumer protection laws, which govern things such as credit services, car sales, and online dating. The new law says that anyone accused of violating a consumer protection law cannot blame it on the use of generative AI (like Air Canada apparently attempted to do back in February).
The new law also says that a person involved in any act covered by the state’s consumer protection laws asks the company she’s dealing with if she is interacting with an AI, the company has to clearly and conspicuously disclose that fact.
And the law says that anyone providing services as a regulated occupation in the state (for example, an architect, surveyor or a therapist) must disclose in advance any use of generative AI. The statute outlines the requirements for these notifications.
In addition to addressing consumer protection, the law also establishes a plan for the state to further innovation in artificial intelligence. The new law introduces a regulatory framework for an AI learning laboratory to investigate AI’s risks and benefits and to guide regulation AI development.
The statute discusses requirements for participation in the program and also provides certain incentives for the development of AI technologies, including “regulatory mitigation” to adjust or ease certain regulatory requirements for participants and reduce potential liability.

This law the first of its kind and other states are likely to enact similar laws. Much more to come on this topic.

March 14, 2024 First Amendment, Social Media

What does the “bill that could ban TikTok” actually say?

In addition to causing free speech concerns, the bill is troubling in the way it gives unchecked power to the Executive Branch.

Earlier this week the United States House of Representatives passed a bill that is being characterized as one that could ban TikTok. Styled as the Protecting Americans from Foreign Adversary Controlled Applications Act, the text of the bill calls TikTok and its owner ByteDance Ltd. by name and seeks to “protect the national security of the United States from the threat posed by foreign adversary controlled applications.”

What conduct would be prohibited?

The Act would make it unlawful for anyone to “distribute, maintain, or update” a “foreign adversary controlled application” within the United States. The Act specifically prohibits anyone from “carrying out” any such distribution, maintenance or updating via a “marketplace” (e.g., any app store) or by providing hosting services that would enable distribution, maintenance or updating of such an app. Interestingly, the ban does not so much directly prohibit ByteDance from making TikTok available, but would cause entities such as Apple and Google to be liable for making the app available for others to access, maintain and update the app.

What apps would be banned?

There are two ways one could find itself being a “foreign adversary controlled application” and thereby prohibited.

The first is simply by being TikTok or any app provided by ByteDance or its successors.

The second way – and perhaps the more concerning way because of its grant of great power to one person – is by being a “foreign adversary controlled application” that is “determined by the President to present a significant threat to the national security of the United States.” Though the President must first provide the public with notice of such determination and make a report to Congress on the specific national security concerns, there is ultimately no check on the President’s power to make this determination. For example, there is no provision in the statute saying that Congress could override the President’s determination.

Relatively insignificant apps, or apps with no social media component would not be covered by the ban. For example, to be a “covered company” under the statute, the app has to have more than one million monthly users in two of the three months prior to the time the President determines the app should be banned. And the statute specifically says that any site having a “primary purpose” of allowing users to post reviews is exempt from the ban.

When would the ban take effect?

TikTok would be banned 180 days after the date the President signs the bill. For any other app that the President would later decide to be a “foreign adversary controlled application,” it would be banned 180 days after the date the President makes that determination. The date of that determination would be after the public notice period and report to Congress discussed above.

What could TikTok do to avoid being banned?

It could undertake a “qualified divestiture” before the ban takes effect, i.e., within 180 days after the President signs the bill. Here is another point where one may be concerned about the great power given to the Executive Branch. A “qualified divestiture” would be situation in which the owner of the app sells off that portion of the business *and* the President determines two things: (1) that the app is no longer being controlled by a foreign adversary, and (2) there is no “operational relationship” between the United States operations of the company and the old company located in the foreign adversary company. In other words, the app could not avoid the ban by being owned by a United States entity but still share data with the foreign company and have the foreign company handle the algorithm.

What about users who would lose all their data?

The Act provides that the app being prohibited must provide users with “all the available data related to the account of such user,” if the user requests it, prior to the time the app becomes prohibited. That data would include all posts, photos and videos.

What penalties apply for violating the law?

The Attorney General is responsible for enforcing the law. (An individual could not sue and recover damages.) Anyone (most likely an app store) that violates the ban on distributing, maintaining or updating the app would face penalties of $5,000 x the number of users determined to access, maintain or update the app. Those damages could be astronomical – TikTok currently has 170 million users, so the damages would be $850,000,000,000. An app’s failure to provide data portability prior to being banned would cause it to be liable for $500 x the number of affected users.

March 12, 2024 Blockchain

Key takeaways from the USPTO and Copyright Office joint report to Congress on NFTs

On March 12, 2024, the United States Patent and Trademark Office and the Copyright Office released a joint report from a study they did exploring the impact of NFTs on Intellectual Property law. The study aimed to assess how innovations in digital art ownership and authenticity verification align with existing intellectual property frameworks.

The report emphasized that NFTs present novel opportunities for intellectual property owners, possibly enhancing licensing avenues and offering creators greater control over their works and a larger share of the resulting revenues. On the other hand, the immutable and decentralized nature of blockchain and the underlying technology of NFTs, introduce big challenges in enforcing intellectual property rights, amplifying concerns around online piracy and counterfeiting.

A significant issue that the report highlighted is the widespread confusion around the scope of rights obtained in an NFT transaction, often leading to misconceptions about owning intellectual property rights in the associated digital assets. Despite these challenges, the study found that current intellectual property laws are generally adequate to address the complexities introduced by NFTs, with both the Copyright Office and the USPTO favoring educational initiatives over legislative changes to clarify the nature of rights involved in NFT transactions. So it is not likely we will see new NFT legislation – at least the Copyright Office and the USPTO are not pushing for it.

To conclude the report, the USPTO and the Copyright Office committed to further exploring the use of emerging technologies to improve agency operations and to ongoing engagement with stakeholders to enhance understanding of NFT-related intellectual property issues.

All in all, there is nothing too surprising or revealing in the report, but it does provide a great summary of the various issues. Below is the full text of the report.

Joint-USPTO-USCO-Report-on-NFTs-and-Intellectual-Property

X avoids much of music industry copyright lawsuit

Plaintiffs sued X for copyright infringement arising from X’s users uploading tweets that contained copyright-protected music. Plaintiffs accused X of “trying to generate the kind of revenue that one would expect as a lawful purveyor of music and other media, without incurring the cost of actually paying for the licenses.” For example, plaintiffs highlighted a feature within the X platform whereby one could seek out tweets that include audiovisual media. And they pointed out infringing content surrounded by “promoted” content on the platform that generated revenue for X. The parties disputed the extent to which X actively encouraged infringing conduct. Plaintiffs sent many DMCA takedown notices to X but complained that the company took too long to respond to those notices. And plaintiffs asserted that X did not have an appropriate procedure in place to terminate users engaged in repeated acts of copyright infringement.

The complaint alleged three counts – direct, contributory and vicarious infringement. X moved to dismiss the complaint for failure to state a claim. The court granted the motion for the most part, except as to certain practices concerning contributory liability, namely, being more lenient to verified users, failing to act quickly concerning DMCA takedown notices, and failing to take steps to in response to severe serial infringers.

No direct infringement liability

The court found that plaintiffs had not successfully alleged direct infringement liability because their claims did not align with the required notion of “transmission” as defined in the Copyright Act and interpreted in the Supreme Court case of American Broadcasting Companies, Inc. v. Aereo, Inc., 573 US 431 (2014). The court distinguished X’s actions from the defendant in the Aereo case by noting that X merely provided the platform for third-party transmissions, rather than actively participating in the transmission of copyrighted material. Therefore, the court concluded that X’s role was more akin to a passive carrier, similar to a telegraph system or telephone company, making its actions more suitable for consideration under theories of secondary liability rather than direct infringement.

Some possible contributory liability

The court found that certain portions of plaintiffs’ claims for contributory infringement liability survived because they plausibly alleged that X engaged in actions that could materially contribute to infringement on the X platform. These actions included failing to promptly respond to valid takedown notices, allowing users to pay for less stringent copyright policy enforcement, and not taking meaningful steps against severe serial infringers. Consequently, the court dismissed the broader claim of general liability across the X platform but allowed the plaintiffs to proceed with their claims related to these specific practices.

No vicarious liability

Finally, the court determined that plaintiffs had not successfully pled vicarious liability for copyright infringement because their allegations did not establish that X had the requisite level of control over the infringing activities on X. The court found that simply providing a service that users might exploit for infringement did not equate to the direct control or supervisory capacity typically required for vicarious liability, as seen in traditional employer-employee or principal-agent relationships. Consequently, the court rejected the application of vicarious liability in this context, emphasizing that contributory infringement, rather than vicarious liability, was the more appropriate legal framework for the plaintiffs’ claims.

Concord Music Group, Inc. v. X Corp., 2024 WL 945325 (M.D. Tenn. March 5, 2024)

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March 11, 2024 Uncategorized