The Week Ahead in the European Parliament – October 19, 2018

Summary

Next week, there will be a plenary sitting of the European Parliament in Strasbourg, France. Several significant debates and votes will take place.

On Monday, MEPs will vote on the proposal for a Single-Use Plastics Directive.  The purpose of the proposal is to prevent and reduce the impact of certain plastic products on the environment.  More specifically, the new rules target the ten single-use plastic products most often found on Europe’s beaches and seas.  Also, the new rules include obligations for producers to help cover the costs of waste management, collection targets and short timeline for achieving reductions in the consumption of some single-use plastic products, including plastic tobacco filter.  The European Parliament’s plenary session will vote on the proposal on Wednesday. See the report here and the proposal for a Directive here.

On Tuesday, MEPs and European Commission President Jean-Claude Juncker will debate the Future of Europe together with special guest, Romanian President Klaus Iohannis.  This is the eleventh discussion in a series between MEPs and EU leaders on the future of the EU.

On Wednesday, the plenary session of the European Parliament will debate, together with European Council President Donald Tusk,  the conclusions reached by EU leaders at the European Council Summit on October 17-18, 2018.  Among other issues, MEPs will discuss migration, internal security and Brexit.

On Thursday, MEPs will debate and vote on a motion for a resolution on the use of Facebook users’ data by Cambridge Analytica and the impact on data protection.  The resolution calls for Facebook to permit EU bodies to carry out a full audit to evaluate the security of Facebook users’ personal data.  The resolution also calls for the prevention of election manipulation on social media platforms, and for a reform of EU competition rules to take greater account of data held by undertakings. See the draft resolution here. Continue Reading

2018 Nobel Prize Recognizes Economic Importance of Strong Patent Rights

On October 8th, the 2018 Nobel Prize in Economics was awarded to Paul Romer, an American economist who has produced foundational work on patent rights and the policies underlying sustainable economic growth.

Beginning with his Ph.D dissertation in 1983, Romer’s work has demonstrated that innovation is a product of strong intellectual property rights and investments in research and development (R&D)—upending then-prevailing assumptions that new ideas simply arise irrespective of the regulatory conditions in effect.  Thanks to Romer, it is now widely recognized that policymakers have the ability to promote technological innovation and spur overall economic growth by, among other things, establishing a strong patent system and investing in new technologies.

Romer identified strong patent rights, in particular, as imperative for sustained economic growth, because they incentivize the costly R&D necessary to develop transformative ideas.  Unlike many other standard economic goods, Romer distinguishes ideas as “nonrival” goods—that is, an idea does not experience diminishing returns the more other people use it.  As a result, without robust protections in place, someone who develops a successful new idea would not reap the full benefits of the numerous other users who copy the idea for their own advantage.  Patent rights are designed in part to address these “positive externalities” of innovation, so that the full range of benefits that flow from successful new technologies are more fully captured by the innovator.  A strong patent system thus helps ensure that innovators are properly rewarded for sharing their intellectual property—incentivizing its creation while driving technological progress and overall economic growth in the process.

In light of Romer’s findings, U.S. policymakers should be concerned as metrics indicate that the U.S. patent system is currently in the midst of a decline.  According to the U.S. Chamber of Commerce’s Global IP Index, the United States dropped to twelfth place worldwide in patent system strength in 2018, down from tenth last year and first place every year before that.  The 2018 Bloomberg Innovation Index also showed the U.S. falling out of the top ten most innovative countries for the first time since that Index began in 2013.

If the incentives to innovate in the United States indeed are weakening, innovators will be discouraged from investing in the costly and risky R&D necessary to create new technologies—jeopardizing the potential for long-term growth under Romer’s economic theory.

Senate Discusses a Federal Privacy Law with Privacy Experts: Examining Lessons From the European Union’s General Data Protection Regulation and the California Consumer Privacy Act

On October 10, the Senate Committee on Commerce, Science, and Transportation held second hearing on data privacy that invited advocates and experts to discuss a federal privacy law. The panelists included Andrea Jelinek, director of the European Data Protection Board; Alastair Mactaggart, chair of Californians for Consumer Privacy; Laura Moy, executive director of the Georgetown Law Center on Privacy and Technology; and Nuala O’Connor, president of the Center for Democracy and Technology. Consistent with the previous hearing on data privacy, the discussion focused on two issues (1) potential components of a federal privacy bill, particularly data breach notification, preemption of state law, and the scope of consumer rights and (2) enforcement authority under a new federal privacy regime.

First, the witnesses generally agreed on the main components to be included in a new federal privacy law.  The witnesses expressed the need for stronger data breach requirements, which was met with enthusiasm from Senators Hassan (D-NH) and Klobuchar (D-MN). Senator Klobuchar asked the witnesses how they would view a 72-hour notification requirement like the one in her proposed bill, the Social Media Privacy Protection and Consumer Rights Act of 2018 (also discussed in a previous Inside Privacy post), and the witnesses generally expressed agreement. Dr. Jelinek added that the General Data Protection Regulation (“GDPR”) requires companies to keep data only as long as it is needed, a requirement that could result in less data being at risk in the event of a breach. Professor Moy noted that the current U.S. regime misaligns data retention incentives because companies have strong financial motivations to keep data as long as possible. She noted that clear rules and effective enforcement are essential to limit the amount of data that can be compromised.

The witnesses generally agreed that a federal privacy law should not be weaker than state privacy laws. Mr. Mctaggart stressed that a federal law must be at least as protective as the California Consumer Privacy Act (“CCPA”). He emphasized that a federal law should be a “floor,” not a “ceiling,” meaning that states could institute additional privacy requirements above those required by the federal law. Ms. O’Connor stressed that a “patchwork of state laws” at the state level and a sectoral approach to protect data based on its type (health data, financial data, children’s data) may have made sense a decade ago, but it now leaves a significant amount of personal information unprotected.

The witnesses also generally agreed on consumer rights related to data. Ms. O’Connor stated in her written testimony that a new federal privacy law should limit some types of data collection and processing to uses germane to the service requested by the user, such as collecting precise location information, biometric information, healthcare information, and children’s information. Further, both Ms. O’Connor and Professor Moy emphasized that a new law should prohibit discrimination using data. As Mr. Mctaggart clarified in response to Senators’ questions, a non-discrimination provision would not prevent consumer loyalty programs, but a price differential between allowing a company to collect data and not allowing a company to collect data under the CCPA cannot be coercive.

Second, the hearing discussion focused on the need for meaningful, effective enforcement. Ms. O’Connor and Professor Moy stressed the need for stronger enforcement in response to questions from Senators Markey, Klobuchar, and Schatz. They both recommended that the FTC be vested with greater authority, including rulemaking power and the ability to levy monetary fines. To support this recommendation, they explained that rulemaking power allows the FTC to be agile as technology changes and as new rules need to be developed. As Professor Moy phrased it, meaningful fines elevate privacy and data security issues to a position of importance for company strategy. In addition, Ms. O’Connor and Professor Moy both stressed that state attorneys generals should also be provided with the power to enforce the federal privacy law. Not only can state attorneys generals enforce smaller violations that do not necessarily rise to the attention of a national enforcer like the FTC, but states attorneys general also have been successful at working to help businesses and communities understand their obligations, Professor Moy stated.

This hearing is expected to be one of an ongoing series of hearings on data privacy hosted by the Senate Committee on Commerce, Science, and Transportation.

 

“Economic Security Is National Security”: Key Takeaways from the Defense Industrial Base Report

(This article was originally published in Law360 and has been modified for the blog.)

Peter Navarro, assistant to the president for trade and manufacturing policy, recently offered in a New York Times op-ed that “[a] strong manufacturing base is critical to both economic prosperity and national defense.” The Trump Administration’s maxim that “economic security is national security” is rooted in several government initiatives, ranging from large-scale policy reforms (like renegotiating the North American Free Trade Agreement and strengthening the so-called “Buy American Laws”) to more granular contracting procedures (like the Department of Defense’s proposed changes to commercial item contracting and increased scrutiny of security across all levels of defense supply chains).

Business leaders should therefore pay close attention to the government’s long-awaited interagency assessment of the manufacturing and defense industrial base, available in unclassified form here.  The report was commissioned by Executive Order 13806, which described “[s]trategic support for a vibrant domestic manufacturing sector, a vibrant defense industrial base, and resilient supply chains” as “a significant national priority.”  The Department of Defense served as the lead agency coordinating the report, in partnership with the White House’s Office of Trade and Manufacturing Policy.

Throughout the 140-page report, the Interagency Task Force (the “Task Force”) identifies myriad threats, risks and gaps in the country’s manufacturing and industrial base, and concludes that “[a]ll facets of the manufacturing and defense industrial base are currently under threat, at a time when strategic competitors and revisionist powers appear to be growing in strength and capability.”  To address these concerns, the Task Force lays out a methodology, diagnosis, and framework for policy recommendations and gives the government significant flexibility in crafting responses.  The report recommends – and we expect the President to issue – a follow-on Executive Order directing action on those responses.  That creates an opportunity for industry to participate in shaping the major implementing policies and regulations that are coming.

Continue Reading

Election Law Compliance for High Net Worth Individuals and Family Offices

With less than one month to go before the 2018 elections, the ground is shifting for major political donors. Developments over the last several years, and especially in the last few months, show that the rules of the road are changing with respect to many of the common election law issues faced by high net worth individuals. These complex rules present an array of compliance traps for the unwary. To help high net worth individuals and their family offices navigate this thicket, Covington today has published an advisory describing steps high net worth individuals can take to ensure compliance with these rules.

The Week Ahead in the European Parliament – October 12, 2018

Summary

Next week will be a political group week and a committee week in the European Parliament.  Members of the European Parliament (“MEPs”) will hold meetings with their respective political group to prepare the plenary session, to be held from October 22 to 25, in Strasbourg.

On Monday, members of the Committee on Civil Liberties, Justice and Home Affairs (“LIBE”) will debate on the draft report prepared by LIBE on the Commission proposal for a Directive laying down rules facilitating the use of financial and other information for the prevention, detection, investigation or prosecution of certain criminal offences.  The proposal seeks to improve access to information and information sharing among enforcement authorities to address the challenges brought by new (communication) technologies, and fight terrorism.  See the Commission proposal here and the draft report here.

On Thursday, the Special Committee on Financial Crimes, Tax Evasion and Tax Avoidance (“TAX3”) will hold a public hearing on “Golden visas and other national schemes providing tax privileges (free ports, special economic zones)”.  Two panels will take place.  The objective of the first one will be to assess the possible money-laundering risks associated with the practice of “golden visa” programs, by which EU Member States award residence or citizenship, mainly to non-EU citizens, in exchange for investment.  Representatives from the OECD will attend and participate in this panel.  The second panel will focus on risks posed by free ports and special economic zones to the EU in the area of money laundering and tax evasion.  See the draft program of the hearing here.

Meetings and Agenda

Monday, October 15, 2018

Committee on Civil Liberties, Justice and Home Affairs

15:00 – 18:30

Debates

  • European Border and Coast Guard (COD) – presentation by the Commission, rapporteur Roberta METSOLA (EPP, MT) (15.00-15.45)
  • Eurojust Report on Terrorist Financing – presentation by Olivier LENERT, National Member for Luxembourg at Eurojust (15.45-16.30)
  • Rules facilitating the use of financial and other information for the prevention, detection, investigation or prosecution of certain criminal offences (COD) – consideration of draft report
    • Rapporteur: Emil RADEV (EPP, BG) (16.30-17.15)

Votes (17.15 – 18.30)

  • Interoperability between EU information systems (borders and visa) (COD) – adoption of draft report and vote on the decision to enter into interinstitutional negotiations and on the composition of the negotiating team
    • Rapporteur: Jeroen LENAERS (EPP, NL)
  • Interoperability between EU information systems (police and judicial cooperation, asylum and migration) (COD) – adoption of draft report and vote on the decision to enter into interinstitutional negotiations and on the composition of the negotiating team
    • Rapporteur: Nuno MELO (EPP, PT)
  • Protection of persons reporting on breaches of Union law (COD) – adoption of draft opinion
    • Rapporteur: Maite PAGAZAURTUNDÚA RUIZ (ALDE, ES)

Tuesday, October 16, 2018

  • No meetings of note

Wednesday, October 17, 2018

Committee on Economic and Monetary Affairs

09:00 – 12:30

Votes (09.55 – 10.35)

  • Economic policies of the euro area (INI) – Vote on report
    • Rapporteur: Costas MAVRIDES (S&D, CY)
  • Cross-border conversions, mergers and divisions (COD) – Vote on report
    • Rapporteur: Evelyn REGNER (S&D, AT)

Thursday, October 18, 2018

Special committee on financial crimes, tax evasion and tax avoidance

14:00 – 17:30

Public hearing

  • Public hearing on “Golden visas and other national schemes providing tax privileges (free ports, special economic zones)”.

Committee on Budgetary Control

09:00 – 12:30

Committee on Employment and Social Affairs

09:15 – 12:30

Vote (09.30 – 10.15)

  • Transparent and predictable working conditions in the European Union (COD) – Vote on a report and the decision to enter into interinstitutional negotiations
    • Rapporteur: Enrique CALVET CHAMBON (ALDE, ES)

Committee on the Environment, Public Health and Food Safety

09:00 – 12:30

Debates

  • Hearing of Dr Bernhard URL, Executive Director of EFSA, in view of renewal of his mandate
  • Minimum requirements for water reuse – Consideration of draft report
    • Rapporteur: Simona BONAFÈ (S&D, IT)

Votes

  • Objection pursuant to Rule 106 – Adoption of motion for a resolution
    • Co-rapporteurs: Bart STAES (Greens/EFA, BE), Guillaume BALAS (S&D, FR), Lynn BOYLAN (GUE/NGL, IE), Eleonora EVI (EFDD, IT), Arne GERICKE (ECR, DE), Valentinas MAZURONIS (ALDE, LT), Sirpa PIETIKÄINEN (EPP, FI)
  • Objection pursuant to Rule 106: GMO maize MON 87427 × MON 89034 × 1507 × MON 88017 × 59122, and genetically modified maize combining two, three or four of the single events MON 87427, MON 89034, 1507, MON 88017 and 59122 and repealing Decision 2011/366/EU (D058361) – Adoption of motion for a resolution
    • Co-rapporteurs: Bart STAES (Greens/EFA, BE), Guillaume BALAS (S&D, FR), Lynn BOYLAN (GUE/NGL, IE), Eleonora EVI (EFDD, IT), Arne GERICKE (ECR, DE), Valentinas MAZURONIS (ALDE, LT), Sirpa PIETIKÄINEN (EPP, FI)
  • Interim report on the Multiannual Financial Framework 2021-2027 – Parliament’s position with a view to an agreement – Adoption of draft opinion
    • Rapporteur for the opinion: Ivo BELET (EPP, BE)
  • CO2 emission performance standards for new heavy-duty vehicles – Adoption of draft report
    • Rapporteur: Bas EICKHOUT (Greens/EFA, NL)

Committee on Civil Liberties, Justice and Home Affairs

09:00 – 18:30

Interparliamentary Committee Meeting with National Parliaments

(14.30 – 18.00)

  • Fundamental Rights aspects of Roma inclusion and fighting anti-Gypsyism – this interparliamentary meeting aims promote an exchange of views between European and national parliamentarians on barriers to Roma inclusion and possibilities to overcome them. Draft programme and further information available here.

Compliance Risks from Local Content Requirements – Considerations for Doing Business in Africa

Over the last several decades, Foreign Direct Investment (FDI) by multinational companies has become a critical engine of economic growth in Africa, with FDI in the extractive industries particularly significant. A common response by local governments in Africa to increased FDI is “local content” requirements, which are designed to ensure the participation of the local population in economic activity flowing from FDI. Due to weak oil prices and other challenges, the United Nations reported in June 2018 that FDI in Africa fell to $42 billion in 2017, a 21 percent decline from 2016. Nevertheless, according to the World Bank, economic growth in Africa is recovering steadily since the 2008 economic crisis and is expected to reach 3.1 percent in 2018 and tick up to 3.6 percent between 2019 and 2020. As companies assess opportunities on the continent, understanding local content requirements—and how to mitigate compliance risks when navigating this challenging area—is critical.

What are Local Content Requirements?

While local content requirements can take a number of different forms, their general purposes are to ensure the participation of nationals in the workforce, and the promotion of local suppliers, goods, and services. While short-term job creation is part of the local content equation, local content requirements also target longer-term gains in technical capacity and workforce development. An example of a fairly typical local content requirement is a preference for qualified nationals in hiring. Some countries may set a specific percentage requirement for the employment of country nationals. For example, Angola’s Petroleum Activities Law of 2004 sets the local workforce target at 70 percent, and oil companies are required to submit an annual “Angolanization” plan to the Ministry of Petroleum detailing how they plan to achieve this target. Additionally, many local content requirements establish some preference for qualified local suppliers and may require multinationals to partner with local businesses in a joint venture.

Compliance and Fraud Risk from Local Content Laws

Local content requirements create a number of significant compliance and fraud risks. They may create convenient opportunities to channel money or other things of value (e.g., jobs) to government or parastatal entity officials, their families, or affiliates. The most obvious way that this can happen is for a company to contract with a local content provider for overpriced, or even non-existent, goods or services. As described in a Transparency International paper on the topic, “[p]oliticians and public officials may abuse their power and influence to use local content requirements to benefit their allies and/or family members, and international companies may pay bribes and kickbacks to local companies to serve as the ‘front’ in bidding processes.” Even if government or parastatal officials are not the beneficiaries of local content transactions, these transactions can raise self-dealing concerns, because they present opportunities for employees to steer lucrative contracts to relatives or associates.

For an example of how these risks can manifest, consider the 2017 U.S. Securities and Exchange Commission (SEC) Foreign Corrupt Practices Act (FCPA) enforcement action against oilfield services company Halliburton. The SEC’s cease-and-desist order—to which Halliburton agreed without admitting or denying the allegations—focuses on a series of transactions dating back nearly a decade. In 2008, Halliburton officials were advised by Sonangol, Angola’s state-run oil company, that Sonangol was considering vetoing further subcontract work for Halliburton because the company was not in compliance with local content requirements.

The SEC alleged that following this warning from Sonangol, Halliburton identified a local company owned by a former Halliburton employee who was the friend and neighbor of the Sonangol official with authority to approve Halliburton subcontracts. According to the SEC, a Halliburton employee then undertook a series of efforts to engage the local company to fulfill local content requirements. When an alleged effort to engage the local company as a “commercial agent” with commission fees based on existing revenues from Halliburton’s Angolan operations was rejected because, among other reasons, it would require an extensive integrity due diligence process, Halliburton allegedly turned to an arrangement where the local company would provide ill-defined “real estate transaction management consulting services.” This consultancy arrangement was approved, the SEC alleged, on a sole-source basis outside of Halliburton’s standard procurement processes, and resulted in the payment of $3.7 million to the local company for no meaningful services.

While the SEC did not allege that any of this $3.7 million was channeled to any Sonangol officials, it alleged that the engagement of the local company outside of Halliburton’s applicable procurement processes, and the concealment of the true purpose of the engagement, violated the FCPA’s accounting provisions. Whereas Halliburton allegedly earned $14 million on the underlying services subcontracts approved during the period of the local company’s engagement, Halliburton paid nearly twice that—$29.2 million—to settle with the SEC, and was required by the SEC to retain an independent compliance consultant for a period of 18 months to review and evaluate the company’s anti-corruption policies and procedures.

Risk Mitigation Strategies

There are a number of risk mitigation steps companies can implement to reduce and mitigate compliance risk flowing from local content requirements.

First, as a baseline risk mitigation measure, companies facing local content issues should perform compliance risk assessments and develop and implement anti-corruption compliance policies and controls, and ensure that employees and third parties in sensitive positions are trained on these policies and controls. Apart from being a critical item in meeting regulatory expectations, risk assessments, in which companies review their operations and compliance risks, typically through both desktop review and interviews of employees and relevant third parties, enable companies to better focus their compliance efforts. Because effective compliance programs are not “one size fits all,” risk assessments are a necessary step to allow companies to target their key risks and efficiently deploy resources in the development, implementation, and maintenance of their compliance programs.

Second, because of the significant compliance and fraud risks that may arise from local content requirements in certain jurisdictions, companies operating in high-risk markets and industries should consider developing special compliance policies procedures for local content transactions. Given how local content requirements involve cross-cutting commercial, human resources, procurement, and government affairs issues, they require holistic, cross-functional, and practical solutions with input from multiple stakeholders other than just compliance professionals.

Third, regardless of whether a company has special procedures for addressing local content issues, it is critical that local content partners be subject to appropriate integrity diligence and contractual obligations. Robust, risk-based diligence on third parties is a critical part of any anti-corruption program, but it is even more important when dealing with local content partners. Attention must be given to whether the local partner is a government or parastatal official, is owned (directly or indirectly) by such an official, or has close economic or familial ties to such an official. If these circumstances are present, the likelihood that the official could be viewed as receiving an improper benefit related to the company’s desire to further its business interests is significant. Beyond diligence, it is often appropriate to include various compliance-related provisions in contracts with local content partners, including affirmative obligations to comply with applicable laws or compliance policies, audit and investigation rights, and termination rights.

Finally, companies engaging local content providers should implement an oversight plan, and be proactive in addressing compliance issues. While diligence and contractual provisions are critical front-end risk mitigation steps, close oversight is necessary throughout the entire life cycle of a local content relationship. This includes close scrutiny of contracts, scopes of work, invoices, and deliverables to ensure that local content partners are providing actual services in line with agreed upon terms and conditions. If red flags arise, such as invoices for services outside the provider’s contractual scope, or excessive charges, they should be promptly investigated.

This article was prepared by Covington attorneys qualified to practice law in the United States and the United Kingdom. It does not constitute legal advice. If you have further questions about your compliance programs, how to conduct due diligence on a local partner, or Covington’s anti-corruption work in Africa, please contact Ben Haley at bhaley@cov.com or David Lorello at dlorello@cov.com.

This post can also be found on CovAfrica, the firm’s blog on legal, regulatory, political and economic developments in Africa.

Congress takes the lead on U.S.-Africa Policy

While the nation has been transfixed by the confirmation hearings of Judge Brett Kavanaugh for a seat on the Supreme Court, Congress passed significant legislation on Africa that has attracted virtually no attention.

On October 3, the Senate passed the Better Utilization of Investments Leading to Development Act, better known as the Build Act. President Trump is expected to sign the legislation in the next several days. The Build Act could be the most significant U.S. initiative toward Africa in the Trump era.

For one, the legislation will transform the Overseas Private Investment Corporation (OPIC) into the U.S. International Development Finance Corporation with a budget of $60 billion, twice the size of OPIC’s current budget. Most importantly, the USIDFC will take equity positions in investments, something that OPIC never had authority to do. Equity investments have been essential to the support that Chinese and European development finance funds have provided to companies from their respective countries. The new agency is a much needed instrument of commercial diplomacy that the U.S. has been sorely lacking. Not only will it lead to more U.S. investment in Africa, which will be a stimulus to economic development across the continent, but it makes U.S. companies more competitive and reduces the risk in a growing market that is not well understood by American business.

Six days prior to the passage of the Build Act, Congress reauthorized the Global Food Security Act, first passed in 2016. This landmark legislation, which supports the Obama-era Feed the Future program, is a government-wide strategy to combat hunger and malnutrition in developing countries. As the Alliance to End Hunger notes, the program focuses on increasing sustainable agricultural development, especially in the vital first 1,000 days between a woman’s pregnancy and her child’s second birthday. Since 2011, an estimated 5.2 million families no longer experience hunger and 3.4 million children are living free from stunting as a result of Feed the Future’s work.

In the next several weeks, Congress is expected to pass a third piece of legislation, the Women’s Entrepreneurship and Economic Empowerment Act. This bill would expand the authority of United States Agency for International Development’s microenterprise development program to include small and medium businesses owned, managed, and controlled by women. It would also work to reduce gender disparities related to economic opportunity, support women’s property rights, and eliminate gender-based violence. This legislation has passed the House and is actively supported by CARE, the global anti-poverty organization, and President Trump’s daughter, Ivanka Trump. It has strong bipartisan support in the Senate and 11 cosponsors.

Africa will lose two of its strongest Congressional champions, House Foreign Affairs Chairman Ed Royce and Senate Subcommittee on Africa Chairman Jeff Flake, when both retire at the end of the year. It is worth noting, however, that the Build Act passed the Senate by a 93-6 vote and similarly strong support in the House. While the Trump administration has yet to formulate a policy toward the region, Congress has stepped up in a strong bipartisan manner to play a pivotal role in promoting U.S. interests in Africa, especially as it concerns women, the private sector, and economic development more generally.

This article was originally published on the Brookings Institution’s Africa in Focus blog. It can also be found on CovAfrica, the firm’s blog on legal, regulatory, political and economic developments in Africa.

 

New Jersey District Judge Dismisses All Counts Against Smart TVs

On September 26, 2018, New Jersey federal district judge Madeline Cox Arleo dismissed an eight-count class action complaint in its entirety against three smart TV makers: Samsung, LG, and Sony.  The plaintiffs alleged that defendants’ smart TVs continuously monitored and tracked their viewing habits, recorded their voices, and then transmitted that information to defendants’ servers, after which the information was shared with third-party advertisers and content providers.  The judge dismissed all counts:Federal Law Claims: Plaintiffs made two federal law claims: one under the Video Privacy Protection Act (“VPPA”) and one under the Wiretap Act (which is part of the Electronic Communications Privacy Act, or “ECPA”).

  • VPPA: Under the VPPA, plaintiffs must allege that a Video Tape Service Provider (“VTSP”) “knowingly disclosed” “personally identifiable information” (“PII”) concerning a consumer of such provider.  The statute defines “PII” as “information which identifies a person as having requested or obtained specific video materials or services from a video tape service provider,”  and the Third Circuit construes the VPPA as prohibiting “disclosures of information that would, with little or no extra effort, permit an ordinary recipient to identify a particular person’s video-watching habits.”  See In re Nickelodeon Consumer Privacy Litigation (3d Cir. 2016).  Plaintiffs alleged that Defendants disclosed “extensive information about plaintiffs’ and consumers’ digital identities, namely, consumers’ video-viewing history, consumers’ computer addresses, and information about other devices connected to the same Wi-Fi network.”  The Court held that under In re Nickelodeon, the appropriate standard, plaintiffs failed to allege how an “ordinary recipient” of the data at issue could use it to “identify a particular person” “with little or no extra effort.”
  • Wiretap Act: The Wiretap Act prohibits “interceptions” of electronic communications, but also provides that it is not unlawful for a person to intercept an electronic communication where such a person is a party to that communication.  As such, when plaintiffs alleged that defendants violated the Wiretap Act by intercepting electronic communications (specifically, electronic communications that the defendants’ smart TVs transmitted to plaintiffs, and communications that plaintiffs sent to defendants’ servers), defendants argued that they had not violated the Wiretap Act, among other reasons, because they were parties to the alleged communications.  The court agreed with the defendants, finding that plaintiffs’ focus on whether defendants took plaintiffs’ and consumers “identifying information in real-time” could not overcome the fact that any communications to the smart TV manufacturers would not violate the Wiretap Act.

Other Claims

Plaintiffs also alleged four contract-based claims and two fraud-based claims:

  • Contract-based claims: Plaintiffs’ contract-based claims were for (1) breach of contract, (2) breach of duty of good faith and fair dealing, (3) breach of express warranty, and (4) unjust enrichment.  Defendants argued that the first three claims failed because plaintiffs did not identify any actual contract or specific affirmation, promise, or guarantee made to them by the smart TV manufacturers.  In addition, defendants argued that plaintiffs failed to identify a loss sustained by the plaintiffs or a benefit received by defendants, and therefore failed to state a claim for unjust enrichment.  The court agreed and dismissed all four claims.
  • Fraud-based claims: Plaintiffs’ two fraud-based claims (unfair and deceptive tracking and transmission, and deceptive omissions) were brought under New Jersey’s Consumer Fraud Act.  However, with the plaintiffs being from New York and Florida respectively, the only connection that they alleged between their claims and New Jersey was the defendant smart TV manufacturers’ allegedly “super-massive” presence in New Jersey.  However, the Third Circuit has consistently maintained that a non-resident plaintiff cannot bring a Consumer Fraud Act claim where the sole connection to New Jersey is the defendants’ location, and the court therefore dismissed both fraud claims.

Covington represented Samsung in this case (White, et al. v. Samsung Electronics America, Inc., et al.).

The Week Ahead in the European Parliament – October 5, 2018

Summary

This past week, the European Parliament held a plenary session in Strasbourg.

On Wednesday October 3, Members of the European Parliament (“MEPs”) approved the report prepared by the parliamentary Committee on Environment, Public Health and Food Safety (“ENVI”) on the proposal for a Regulation on Health Technology Assessment (“HTA”). HTA is a multidisciplinary assessment process that seeks to evaluate the added therapeutic value of health technologies (i.e., drugs, certain medical devices, medical treatments including surgical procedures, and measures for disease prevention and diagnosis) on the basis of both clinical and non-clinical elements.  The proposal aims to overcome a number of problems which, according to the report, cannot be sufficiently addressed without regulation at the EU-level. See the adopted parliamentary report here.

Next week will a be committee week in the European Parliament. A few interesting discussions will take place in committee.

On Monday, the Committee on Industry, Research and Energy (“ITRE”) will hold a public hearing on Horizon Europe.  More specifically, Horizon Europe consists of a €100 billion research and innovation program that will succeed Horizon 2020.  The hearing will focus on the best way to shape Horizon Europe, in order to maximise EU’s competitiveness and social benefits. See the draft program of the hearing here.

On Tuesday, ITRE will debate on the report on a proposal for a Regulation on ENISA, the “EU Cybersecurity Agency” and which repeals Regulation No. 526/2013 establishing the mandate of the Agency for a period of seven years.  ENISA aims to ensure a high level of network and information security within the EU.  The purpose of the new Regulation is to provide the objectives and tasks of ENISA, and ensure an adequate level of cybersecurity in the EU.  See the proposal for a Regulation here.

On Wednesday, ENVI will vote on its report on the proposal for a Single-Use Plastics Directive.  The purpose of the proposal is to prevent and reduce the impact of certain plastic products on the environment.  More specifically, the new rules target the ten single-use plastic products most often found on Europe’s beaches and seas.  Also, the new rules include obligations for producers to help cover the costs of waste management, collection targets and short timeline for achieving reductions in the consumption of some single-use plastic products, including plastic tobacco filter.  See the draft report here, the amendments tabled to the draft report here, here and here, and the proposal for a Directive here.

On the same day, the Civil Liberties, Justice and Home Affairs Committee (“LIBE”) will debate on the use of Facebook users’ data by Cambridge Analytica and the impact on data protection, after the Facebook ‒ Cambridge Analytica data scandal that happened earlier this year.  In this regard, LIBE will propose ways to better protect EU citizens’ privacy.  Furthermore, MEPs are planning to call on national and European data protection authorities to investigate Facebook.  See the draft motion for a resolution that will be discussed here. Continue Reading

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