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Get a life or just Google it - the choice is yours
Attorney Blogs | 2007/05/28 14:43

Internet search engine Google plans to target people's interests using data collected on its users Lesley-Anne Henry asks: is this the next logical step or the thin end of the orwellian wedge. Google's declaration of intent to assemble the most comprehensive database of personal information has thrown down the gauntlet to civil libertarians. The multi-billion pound search engine claims it wants to "better" the internet experience by organising the world's information and collating data on its users so it can guess what customers are searching for.

The ultimate aim is to make Google so personal that it can target people known to be interested in certain products or services just from their Google activities. It is expected that one day users could ask a computer 'What should I do today?' or 'Which job should I take?' and it will tell them the answer.
In theory there should be no problem. In fact, the new database could make life easier - perhaps even better. For example if you want to buy a particular book from a certain site, Google could locate other sites selling the same book at a cheaper price or it could recommend other books by the same author.

Also if you want to buy a television or a holiday then the search engine could bring up the best buy. In establishing this database Google says it is giving customers what they want and that any information collated will be volunteered. Users will only be identified by name if they sign up to one of the log-on services such as G-mail or Frugal.

Also under the Data Protection Act information must only be used for the purposes it was given and Google has said it plans to impose a limit on the period it keeps personal information. In fairness, Google has proved itself to be the best of its kind and has in the past resisted US government court applications to hand over personal information it holds on some users.

We already live in a closely monitored world. Store loyalty cards have been keeping track of our shopping habits for years while CCTV cameras watch us on the streets and some banks pass our details on to marketing companies. There are also internet sites like Bebo and Myspace where people can easily access detailed personal information. Critics fear the database is the next step towards an Orwellian Big Brother state. They see the declaration as an infringement of civil liberties by stealth by a company that wants to turn the personal database into a lucrative marketing tool. Like all businesses Google is driven to make money which it does through multi-million pound advertising sponsorship. This means consumers have no idea whether or not the information being given is impartial or whether something is being recommended of a big money deal. In reality people would not tolerate being followed around town by someone taking notes of everything they buy, the reasons behind their purchase and steering them towards certain shops.

So why should we put up with it in the virtual world?

Attempting to profile people through the sites they access may not give an accurate portrayal. Some people, for example journalists, have to surf a variety of sites which they would never consider entering outside of the office. And privacy protection campaigners fear that in certain circumstances law enforcement agents could force internet search engines to surrender personal information. Google has bought the targeted advertising company Doubleclick which monitors users on a wide range of websites, and deploys "cookies" - small bits of software - on people's computers to keep track of what they are looking at. And it has also invested £2m in genetics company 23andMe - a move which sceptics of the database see as worrying. However, the precise type and size of the database problem has yet to be determined. It will change as Google's business changes. The best advice is, as in real life, if you are concerned about privacy, don't give personal information unless you are sure you know what it is going be used for both now and in the future.



Key Reasons that e-Commerce Raises Tax Issues
Attorney Blogs | 2007/04/09 13:13

E-Commerce creates new challenges to the tax systems. One of the challenges derive from the fact that a business can engage in e-commerce without having a physical presence. This is way beyond what was imagined during the formative states of present tax laws. However, some major issues which raises tax issues are unresolved. These issues may create problems for the authorities and they also could generate opportunities for legitimate tax planning so that businesses can reduce their tax payments in some, most or all the countries in which they operate. Businesses could also face risks in the tax treatment of their methods and structures.

Some of the key reasons that E-Commerce raises tax issues are as follows:

1. Location. Existing tax systems tend to determine tax consequences based on where the taxpayer is physically located. Hence, existing laws relating to Direct and Indirect taxes have developed definitions of what constitutes the location of suppliers and consumers of goods and services. There are small differences between the definitions for the two types of taxes. Generally the location is determined by reference to whether there exists a "permanent" or "fixed" place of business or, where there is no business, the usual residence. The presence of a network server might constitute a place of business, but probably only where it is part of a range of human and technical resources used to deliver a complete business transaction i.e. it is used to advertise, take orders, process payments and make deliveries.

2. Types of Products. E-commerce allows for some types of products, such as newspapers and music CDs, to be delivered in digitized form, rather than in tangible form. The digitized products raise issues at the state level as to whether sales tax applies and in which state income is generated for state income tax purposes. It also raise federal issues regarding the type of revenue generated and how it is to be reported. See Overview to Federal Domestic Tax Considerations for an Internet Company, by Professor Annette Nellen, San Jose State University.

3. Latest Marketing Techniques. The Internet has introduced new ways of selling and buying goods and services. For instance, anyone no matter where they located can offer their unwanted items to a worldwide group of potential buyers via auction sites, such as E-Bay. Also, the Internet can be used to link business buyers and sellers through exchange web sites where sellers post what they have to sell and buyers post what they need to buy. Almost, all of these sites can operate without human intervention . Additionally, the Internet has increased the use of bartering, with respect to exchange of web banners that serve as advertisements. These new marketing techniques raise various tax issues at all levels. At the federal domestic level, issues include whether an exchange intermediary or broker should be accounting for inventory, and what amount of information reporting should be required for low-value bartering transactions? See Overview to Federal Domestic Tax Considerations for an Internet Company, by Professor Annette Nellen, San José State University.

4. Types of Transactions. Because, the Internet allows paperless transactions and use of electronic cash, thus it raises administrative concerns for the Internal Revenue Service as to whether transactions were properly reported, whether an audit trail exists, and whether new reporting rules are needed. The U.S. Treasury is aware of the looming tax compliance problems. In its 1996 report, the U.S. Treasury expressed its fears of this as follows:

"The major compliance issue posed by electronic commerce is the extent to which electronic money is analogous to cash and thus creates the potential for anonymous and untraceable transactions."

These anonymous transactions, and the use of anonymous money, create a huge problem for tax compliance. The U.S. Treasury rightly sees this as one of the most important issues in the taxation of e-commerce. Another significant category of issues involves identifying parties to communications and transactions utilizing thesenew technologies and verifying records when transactions are conducted electronically. In a speech entitled, "Tax Administration in a Global Era," Treasury Secretary Summers stated:

"The Internet provides new ways for tax administrations, such as the IRS, to improve the ease and transparency of tax collection. But new technology also raises certain problems. In a world where cyber-transactions are growing at a rapid pace, tax administrations face the challenge of adapting existing tax systems to an economy that increasingly ignores physical borders. In such a world, it will be easier for companies to avoid tax collectors by operating worldwide through web-sites based in jurisdictions that are unwilling to share taxpayer information."



The Vioxx Litigation
Attorney Blogs | 2007/04/05 11:56

On September 30, 2004, Merck withdrew its painkiller Vioxx from the market because of a study showing a small but statistically significant increase in risk of cardiovascular events from long-term usage of the drug. What had been a trickle of litigation over the drug became a flood. As of January, there were over 27,000 personal-injury lawsuits involving over 45,000 plaintiff groups, and another 265 putative class actions filed. Plaintiffs' attorneys, it seems, are using the procedural class-action mechanism to achieve substantive advantages in litigation. The vast majority of the class actions Merck faces can be placed in one of four categories.

Personal Injury Class Actions

Many seek to try personal-injury cases as a class action. There is very little chance a nationwide personal-injury class will be certified in any jurisdiction. Pharmaceutical products liability litigation requires the substantive law of fifty different states, and product liability law (as well as the learned intermediary defense) has substantial differences from state to state, making a class impossible. "No class action is proper unless all litigants are governed by the same legal rules."This is because variations in state law may swamp any common issues and defeat predominance."Thus, In re Vioxx Products Liability Litigation held that a nationwide personal-injury class was inappropriate in the Vioxx litigation.

Moreover, as Judge Fallon noted, the individualized issues are complex:

The plaintiffs' allegations that Merck failed to warn doctors adequately regarding the alleged health risks of Vioxx--whether they sound in strict liability or negligence--necessarily turn on numerous individualized issues such as: the alleged injury; what Merck knew about the risks of the alleged injury when the patient was prescribed Vioxx; what Merck told physicians and consumers about those risks in the Vioxx label and other media, what the plaintiffs' physicians knew about these risks from other sources, and whether the plaintiffs' physicians would still have prescribed Vioxx had stronger warnings been given.

Constitutional due process demands Merck have the opportunity to defend against each case individually: "one set of operative facts would not establish liability and the end result would be a series of individual mini-trials which the predominance requirement is intended to prevent." Similarly, the fact that plaintiffs have individualized damages claims, including claims for non-economic damages, prevents compliance with the predominance requirements. (In the now-infamous Dukes v. Wal-Mart case, in order to shoehorn the case into certification, the Ninth Circuit permitted the class plaintiffs to waive what would be billions of dollars of non-economic damages if the complaint's allegations were true, a mechanism that seemed designed to benefit the trial lawyers ahead of any class member that had actually suffered injury.) One would not expect Judge Fallon to certify even the individual state personal-injury class actions.

An interesting question is whether Judge Fallon will be willing to hold that his federal decision would bind pending state-court class action certification decisions, or whether plaintiffs will have the opportunity to shop for a better ruling. Judge Easterbrook in In re Bridgestone/Firestone, Inc. held that a federal ruling that a class certification was inappropriate precluded state courts from certifying a class action on the same facts, and that the Anti-Injunction Act did not prohibit a federal court from enjoining such proceedings.

Given the unlikelihood of a personal-injury class action certification, why would the plaintiffs' bar devote any resources? The answer can perhaps be found in the Supreme Court's decision in American Pipe & Construction Co. v. Utah which held that the statute of limitations for individual class members' causes of action were tolled while a class action certification was pending. As Jim Beck and Mark Herrmann point out on their Drug and Device Law blog, this decision creates an incentive to file putative class actions that are not necessarily strong on the merits. Ironically, as the two note, the American Pipe Court justified its holding on the grounds that, without a tolling rule, courts would be deluged with duplicative filings. But American Pipe has had no administrative advantage in practice.

Medical Monitoring Class Actions

Merck faces a variety of class actions seeking medical monitoring relief. Medical monitoring was originally devised as a remedy in the unique case of an airline accident. The case involved depressurization and hypoxia where there was no question that the plaintiff children, refugees from Vietnam, faced irreparable harm without an immediate comprehensive medical exam. Plaintiffs took that precedent and ran with it, seeking to extend it to situations where relief was not so clear-cut.

Courts have differed on the appropriateness of expansion of this new cause of action to cases where plaintiffs have suffered no physical injury. The Supreme Court, for one, rejected medical monitoring as a remedy under the Federal Employers' Liability Act in Metro-North Commuter Railroad v. Buckley, noting the dangers of creating a new cause of action that might create unlimited liability, the difficulties of having a court administer a complicated medical plan, and the individualized nature of plaintiffs' medical conditions. Indeed, a wide-open medical-monitoring cause of action would expose nearly every manufacturer in America to liability, given the possibility of arguing that any given substance from automobile pollution to over-the-counter medicine to saturated fats could bring rise to the need for medical monitoring. Meritorious and meritless claims would be difficult to distinguish, and the confusion would almost certainly encourage fraud. The West Virginia Supreme Court, at the other end of the spectrum, created a medical monitoring cause of action in Bower v. Westinghouse Electric and North American Philips Corporation. A very small risk of injury was sufficient to create a cause of action, and there was no requirement that the medical monitoring be effective, or even that there be oversight by the court to ensure that lump sum payments were used for the sought-after remedy.

The Vioxx medical monitoring class action that is furthest along arises in Judge Higbee's courtroom in Atlantic City, Sinclair v. Merck. The New Jersey Supreme Court had already endorsed a broad medical monitoring remedy in Ayers v. Township of Jackson, which permitted a lump-sum payment in an environmental tort case involving drinking water. Even so, with the exception of environmental torts, New Jersey had only permitted medical monitoring where there was physical injury. Moreover, the New Jersey products liability law required an injury before bringing suit. Thus, Judge Higbee dismissed Sinclair as outside of New Jersey medical monitoring law: a product-liability suit could not claim risk of injury to support a medical monitoring remedy. The New Jersey Court of Appeals reversed on grounds that the dismissal was premature. Still, even if Sinclair returns to the trial court, there remains no evidence that Vioxx has a long-term effect once it has been metabolized from the system, and thus no scientific evidence supporting a medical monitoring remedy.

"Consumer Fraud" Class Actions

The greatest danger to Merck shareholders comes from the dozens of "consumer fraud" class actions seeking recovery under various broad state consumer fraud laws. These lawsuits seek recovery, claiming not that Vioxx caused them personal injury, nor that Vioxx did not effectively alleviate pain, but that, because Merck allegedly failed to disclose information to the public, it received a higher price than it would have otherwise. Plaintiffs argue that the broadest of these consumer fraud laws do not require any showing of reliance, or a showing that the consumers for whom recovery is sought were affirmatively misled. In one such case, International Union of Operating Engineers Local 68 Welfare Fund v. Merck, Judge Higbee held that New Jersey's consumer fraud laws applied to all of Merck's United States sales and certified a nationwide class of third-party insurers; an intermediate court affirmed that class certification, which is now pending before the New Jersey Supreme Court, which will hear argument shortly.

This class action certification did not take into account basic choice-of-law principles by applying New Jersey law to transactions in all fifty states, regardless of the location of the doctor who prescribed the drug, the patient who took the drug, or the third-party payor. The court's rationale asks, in effect, "What state wouldn't want stricter consumer-fraud liability?" But defendants maintain that it is reasonable to assume that several states are concerned about the disincentives created by overdeterrence when consumer liability attaches without injury at the same time liability attaches with injury.

Second, the court undid the statute's requirement that consumer fraud must be shown to cause an individual's injury by rewriting the requirement to fit the class action, and holding that it was sufficient to allege "pervasive" defendant misconduct. But class actions are procedural devices, and cannot change the underlying substantive law or the rights of a defendant to present every available defense (a right reaffirmed by the Supreme Court in Philip Morris v. Williams). Third, it remains unclear how "ascertainable loss" is going to be calculated on a class-wide basis. Every third-party payer has its own individualized means of determining which prescription drugs will be covered by its formulary. Should the Local 68 suit proceed, plaintiffs will seek treble damages disgorging billions of dollars paid to Merck for Vioxx, plus attorneys' fees.

Shareholder Class Actions

Merck stock dropped dramatically when it announced the withdrawal of Vioxx from the market. And where there is a large drop in stock price, a shareholder class action usually follows, demanding that present shareholders compensate previous shareholders' losses (with a substantial commission for the trial lawyers who make the arrangement). Investors who are diversified shareholders are hurt by such lawsuits in the aggregate: the lawsuits merely transfer wealth from their left-hand pocket to their right-hand pocket, because ex ante, one is just as likely to be a seller of an artificially inflated share of stock as a buyer, and shareholder lawsuits do nothing to disgorge wealth from the innocent sellers. (Inside trades are, of course, another matter.) But attorneys' fees are calculated on the aggregate, and, of course, shareholders also pay for the defense of such claims.

A major event in any shareholder class actions comes when the court chooses the lead plaintiff. The internecine battle is especially noteworthy in this instance, because one of the lead firms appointed, Milberg Weiss, is under the shadow of an indictment after two of its regular lead plaintiffs pled guilty to taking kickbacks from the firm. Its lead client fired the firm, but Milberg Weiss did not inform the court, resulting in months of further litigation that was resolved when Milberg Weiss agreed to cut in another firm, Bernstein Litowitz, in the lead-counsel pay-offs. Merck's motion to dismiss the entire case is pending.



High court ruling is major plus for cutting emissions
Attorney Blogs | 2007/04/04 13:54

California and other states have taken action to reduce carbon dioxide emissions from cars and trucks while the Environmental Protection Agency has looked the other way. A U.S. Supreme Court ruling that the agency no longer can "shirk its environmental responsibilities" is a major move toward a badly needed federal policy to control global warming.
The Bush administration argued that EPA had no authority to control tailpipe emissions under the Clean Air Act, which does not specifically mention carbon dioxide and other greenhouse gases. The court said the agency can "avoid taking further action" only "if it determines that greenhouse gases do not contribute to climate change." That would be a preposterous determination.

The plaintiffs included 12 states, including the three West Coast states, American Samoa, several cities and 13 environmental groups, but not Hawaii. Justice John Paul Stevens, writing for the 5-4 majority, noted that the plaintiffs submitted "uncontested affidavits" that "the rise in sea levels associated with global warming has already harmed and will continue to harm" those areas. "The risk of catastrophic harm, though remote, is nevertheless real."

Nowhere is that potential harm greater than in the Pacific. The world's sea level is projected to rise by as much as 23 inches by 2100, compared with 6 to 9 inches in the past century, the International Panel on Climate Change of the United Nations reported in February. Other estimates are more pessimistic.

Much of Waikiki could be underwater in the not-too-distance future, and the president of Kiribati has notified the United Nations that many of his 100,000 citizens will have to find other quarters when the atolls become unlivable in 50 years.

California has taken the lead with a new law to cut nearly 30 percent of carbon dioxide emissions on cars sold in the state beginning in 2016. A dozen other states have enacted similar laws, and Hawaii's Legislature is nearing approval of a bill aimed at lowering the state's greenhouse gas emissions to 1990 levels by 2020.

The effort to control emissions must be national. The high court ruling means that EPA is allowed to regulate emissions, giving momentum to Congress to eliminate any wiggle room and require that it do so.

That is understood by Rep. John Dingell, a Michigan Democrat who supports the auto industry and is chairman of the House Energy and Commerce Committee. In a prepared statement, Dingell said the ruling "provides another compelling reason why Congress must act, and the president must sign, comprehensive climate change legislation."



US and South Korea in landmark trade deal
Attorney Blogs | 2007/04/03 02:42

Washington and Seoul agreed a landmark deal on Monday that will dramatically liberalise trade between the countries, giving the US an economic foothold in north-east Asia and helping South Korea upgrade its economy. The agreement was the biggest for the US since the North American Free Trade Agreement with Canada and Mexico and would lead to about 95 per cent of tariffs being eliminated within the next three years, negotiators said.

The tabular content relating to this article is not available to view. Apologies in advance for the inconvenience caused.

The deal could trigger a wave of agreements across Asia and is seen as vital to keeping US trade policy alive in the face of growing political discontent over the benefits of free trade.

The accord still has to be ratified by the US Congress and the South Korean national assembly, where it is likely to face difficulties because of the unpopularity of both presidents and their weak representation in their respective houses.

The pact was struck just minutes before the final deadline for George W. Bush, the US president, to notify Congress of his intent to ­ratify the agreement before his authority to "fast track" deals with a simple yes or no vote expires.

Mr Bush sent a letter to the Democratic leadership in Congress within moments of the deal being signed saying the agreement would "further enhance the strong US-Korea partnership, which has served as a force for stability and prosperity in Asia".

There was immediate condemnation from Democrats, led by members of Congress from states that depend on farming and car manufacturing – two sectors that lost out in the negotiations.

Michigan Senator Debbie Stabenow said: "I will do everything in my power to defeat this agreement."

Bill Rhodes, vice-chairman at Citigroup and head of the US Korea Business Council, said that company worries about a watered down agreement had been largely addressed. But Ford, the carmaker, called on Congress to reject the deal as it did not go far enough in tearing down South Korean barriers to vehicle imports.

Under the agreement, tariffs on all vehicles under 3,000cc will be eliminated immediately and phased out over three years for bigger passenger cars and 10 years for pick-up trucks.

Rice was entirely excluded from the deal, in line with Seoul's wishes, while Washington received an undertaking that South Korea would allow the resumption of beef imports, suspended after health scares.

Seoul also agreed to eliminate import tariffs on US beef gradually over the next 15 years, while the US declared it would immediately abolish 61 per cent of tariffs on textiles and garments in terms of its import value.

Significantly, Washington accommodated Seoul's requests to consider development of Kaesong, the South Korean-run industrial zone in North Korea.

About 94 per cent of tariffs on commodities will be scrapped within three years, gradually increasing to 100 per cent.



Another Enron in Europe?
Attorney Blogs | 2007/04/02 02:02

Many European businesses are failing to effectively implement corporate governance codes which is heightening the risk of a serious corporate scandal on the scale of that involving Enron, new research claims.

A poll of Europe's 500 largest publicity listed firms found just 56 percent had the necessary policies in place to protect against ethic and compliance failures, with only 9 percent expecting budgets aimed at addressing the issue to increase.

The worrying figures were despite three-quarters of respondents predicting greater pressure from stakeholders for improved ethics and compliance programs.

The report by Integrity Interactive and the Association of Corporate Counsel (ACC) also found that although 99 percent of companies had a code of conduct or value and principles statement prescribing what staff can or cannot do, only half ensured that all employees were made to read it.

In addition, a quarter of companies confessed to sending their code to selected employees even though 72 percent believed that the entire workforce should be privy to it.

Frederick J. Krebs, ACC president, said: "Companies in the U.S. have spent the last several years ratcheting up their efforts on ethics and compliance but many of their European counterparts still have more work to do.

"For any ethics and compliance program to be effective and successful, it is vital that adequate steps are taken to ensure that all employees understand the policies in place. It is not good enough to have codes of practice buried on an Intranet site where employees have to proactively seek them out.

"Therefore training on codes and policies and the evaluation of levels of understanding of these, play a significant role in protecting a business against scandal and without it many could be heading for trouble."



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