Preempt to Protect: The Need for Federal Privacy Protection Law to Curtail the Pending Patchwork of State Laws

In the wake of Cambridge Analytica, the concern for privacy protection is no longer limited to the IT team down the hall. In its place, public protest prompted the first state-wide privacy protection law with the potential to drive comprehensive federal legislation.

The California Consumer Protection Act (“the CCPA”) is a bill the heightens consumer protection and privacy rights for the residents of California. Instead of absently accepting terms and conditions with the presumption to opt-in, users are given clear notice and the power to opt-out if a company intends to collect their data. The CCPA affects for-profit companies doing business in California that earn more than $25 million, gather information from 50,000 or more consumers, or make half of their revenue selling personal information. And with an effective date of January 1, 2020 on the horizon, large companies across the country are panicked.

This much was apparent at recent Congressional Data Privacy Hearings, where the tech industry seemed open and eager to support federal privacy legislation. While it may seem out of character for companies like Facebook and Apple to welcome regulations with open arms, when backlit by the CCPA, their intentions become transparent.

The tech industry wants Congress to pass a more lenient federal privacy law that pre-empts the CCPA and any subsequent state privacy laws. It’s no surprise the industry wants an alternative law to reduce costs and narrow liability. And politicians and advocacy groups have been quick to criticize. But in reality, the push for a Federal Law is more nuanced and necessary than big businesses desire to circumvent the CCPA.

From a business perspective, the patchwork of subsequent state laws, albeit a lawyer’s dream, is a compliance and regulation nightmare. Already there are issues. Washington State has proposed a privacy protection law that parallels the CCPA. But while California specified an exemption allowing financial institutions to adhere to the more lenient privacy regulations of the GLB Act, there is a debate about whether Washington will follow suit.

This concern is just one provisional variance between two actors. A few more states with a few more differences and the ensuing inefficiency is a ripple effect. Companies qualified or doing business in multiple states will face issues categorizing and storing consumer information, not to mention the difficulty implementing internal data management policies.

But most worrying is that a ripple, which started with the best of intentions, may grow into a fatal wave for small companies. Most software and app development start-ups cater to large clients across the county. These fragile companies, meant to fall outside the CCPA, will need to build out different versions of the same product to ensure various levels of compliance. For instance, a company in a state without a privacy law looking to integrate outside software into their product isn’t going to buy the version that adheres to the CCPA. Instead, they are going to want a version that allows them to retain and sell consumers’ personal information. In this way, multiple state-wise privacy laws could increase development costs past sustainability.

Insofar as laying a foundation, the CCPA is a win. But the need for a federal privacy protection law is beyond big business’ desire to cut corners, and costs. A federal law will create manageable bright-line rules and reduce costs or at least provide predictability to start-ups with fixed development budgets. The real victory, for companies and consumers alike, awaits the day privacy protection advocates and the tech industry can find a way to agree on a governing federal law.

Preempt to Protect- The Need for Federal Privacy Protection Law to Curtail the Pending Patchwork of State Laws

Tesla Launches Its $35,000 Model 3, and Some Customers Are Unnerved

Tesla initially launched its Model 3 in 2018, with an original price tag of $45,000. Although Tesla experienced several production delays, the Model 3 became the best-selling luxury vehicle of 2018. The automaker’s primary aim for the Model 3, however, was to open up its sleek doors to a wider consumer audience as Tesla’s first-ever mass-market vehicle.

Tesla’s Model 3 experienced much success in 2018, but by the end of February 2019, it reopened those sleek doors to a Model 3 at a reduced price tag of $35,000. Elon Musk, Tesla’s CEO, stated on social media that to continue selling the Model 3 at the reduced price point the company will have to make several changes. One surprisingly new change is to shift sales to online only. Tesla will also be changing its return policy and allow customers to get a full refund within 7 days or 1,000 miles. The change to online shopping unfortunately will lead the company to close stores and lay off workers. In January alone, Tesla announced it would lay off 7% of its full-time employees.

The loss of these workers comes as a disappointing symptom of maintaining financial sustainability to produce the lower-priced car. The recent backlash, however, comes from customers who purchased the Model 3 at the original price point of $45,000. Customers buying the Model 3 car now will be paying substantially less than buyers before January, even after considering the reduction in Tesla consumer’s Federal subsidy for electric vehicles. The reduced cost affects original Model 3 owners primarily by substantially reducing their car’s resale value. During the backlash from upset customers posting on social media sites, Musk announced reduced cost upgrades for original Model 3 customers. Upgrades available for the lower cost upgrade include the Autopilot and the Full Self-Driving capabilities.

I understand being upset with the possibility of lower resell value. It is very likely that many people who purchased the Model 3 did so as a trend in hope of later reselling it and purchasing the next trend. After all, how many people that can afford a Tesla and likely also purchase iPhones maintain a generation old iPhone? My guess is not many. Consumers with substantial purchasing power shop through trends. My concern, however, is for workers and how Tesla’s changes indicate a way in which innovation may be harming American workers. Online shopping is convenient, but its effects on the availability of retail employment are arguably more detrimental than its convenience is worth. Tesla plans to close stores and continue to dismiss more workers to maintain the low cost of the Model 3. The company does not plan to replace the lost jobs. The changes may be a benefit to Tesla customers, many who can afford to shop through trends, but is of no benefit to the average American, many of which need employment.

Tesla Launches Its $35,000 Model 3, and Some Customers Are Unnerved

Facebook Strikes Again

Once again in the spotlight, Facebook is facing regulatory scrutiny regarding its data privacy practices. After a Wall Street Journal media report revealed that Facebook collects users’ personal information from third party apps, New York Governor Andrew Cuomo is stepping in to order an investigation. These data include sensitive information such as one’s weight, blood pressure, and even ovulation status. In a statement, Facebook claims that the Wall Street Journal’s report instead focuses on how third-party apps are handling user data to create ads and that Facebook is actually making a conscious effort to track and remove data that should not be shared with the company.

As regulatory and public stakeholders become more concerned over data privacy, Facebook continues to struggle to instill confidence in this issue. Just a year ago, in early 2018, the Federal Trade Commission initiated an investigation into claims that Facebook improperly shared information that belonged to 87 million users with British political consulting firm, Cambridge Analytica. This time, Facebook is under the probe of two New York state agencies, New York’s Department of State and Department of Financial Services.

This is an unprecedented move by New York’s Department of Financial Services. The department usually stays clear from direct supervision of social media companies. However, its role in data privacy is growing as the financial sector faces digital privacy concerns. For example, the department is expected to implement the country’s first cybersecurity rules to govern state-regulated financial institutions. These rules would apply to players such as banks, insurers, and credit monitors.

The increasing role of New York’s Department of Financial Services in monitoring entity compliance in spaces such as digital privacy and cybersecurity reveals the many ways various industries are taking advantage of social media. The prevalence of social media and the troves of user data associated with it will continue to raise privacy concerns. As a result, more and more state regulatory agencies, who have previously stayed clear from social media, could find their work necessarily overlapped with and influenced by social media and thus the corresponding data concerns. As this reality becomes more likely, Facebook will find itself dealing with new stakeholders and new regulatory players. The omnipresent role of social media across industries could enable new state agencies to put pressure on companies such as Facebook to hold them accountable for their management of sensitive data. Furthermore, it could also present opportunities for companies such as Facebook to work with new stakeholders on regulation and policies that promote greater user confidence and trust, thus creating a win-win situation for both regulators and corporate players.

Facebook Strikes Again

Chevron Pushes for Greater Workplace Diversity with $5 Million Donation

On February 26, 2019, Chevron announced its $5 million donation to Catalyst, a global nonprofit that works with companies to improve the retention and success of female employees by focusing on the role men can play in changing workplace culture. This donation is the largest in Catalyst’s history and will go toward the nonprofit’s Men Advocating Real Change program (MARC), which aims to empower men, especially male executives, “to engage in workplace inclusion through research-based programming and an online community to continue the conversation” around improving gender diversity. This initiative is targeted toward men because they “hold the vast majority of leadership positions among Fortune 500 companies,” and thus are in the best position to advocate and implement real change.

CEO of Catalyst Lorraine Hariton says this project provides men who are unsure how to help increase diversity and inclusion with important tools to “advocate for women within the workplace.” Some of the specific “trouble spots” targeted by the project include “work processes, practices, and interactions,” such as unconscious bias and stereotyping, which work against gender inclusion in the workplace.

Chevron began working with Catalyst two decades ago, but the oil and gas company’s recent record-breaking donation could suggest a “turning tide within the energy sector,” an industry that has long lagged behind in promoting gender equity in the workplace. Furthermore, it appears that working with MARC has led to improvements at Chevron. Since 2010, the percentage of women on the company’s board has increased 30 percent, and female membership on its management committee has increased from 11 to 20 percent. Chevron CEO Mike Wirth credits an increase in innovation at the company to improvements in diversity, calling the “business case” for initiatives like MARC “compelling.” However, although female hiring in the oil and gas industry has been increasing in recent years, companies are still in need of more women, especially in top executive roles. Chevron and its counterparts in the energy sector still have a long way to go before gender parity is visible on the horizon.

Chevron Pushes for Greater Workplace Diversity with $5 Million Donation

Huawei: Friend or Foe?

In 2013, the U.S. used surveillance beacons in network devices and shipped them around the world. Now, the U.S. is accusing Huawei, a Chinese telecommunications equipment and consumer electronics manufacturer, for posing the same threat to the U.S.

As the demand for 5G networks grows, tensions between Huawei and the U.S. has intensified. The issue with 5G signals is that it raises two privacy concerns: first, 5G requires more cell towers, which will be able to see where you are more precisely; secondly, more user data will be collected. The U.S. takes issue with Huawei given its possible ties to China. Currently, Huawei is the world leader in manufacturing 5G equipment, and it sells this equipment cheaper. Additionally, Huawei’s founder and CEO once held a high rank in the engineer corps of China’s People Liberation Army; whereas, other Chinese companies, such as Lenovo, have not drawn the same scrutiny given their lack of clear governmental ties.

The U.S. has pressured both its allies and carriers within the U.S. The U.S. provides many carriers with government contracts, and, as a result, many U.S. telecom firms have decided not to sell Huawei mobile devices rather than jeopardizing their contracts.

On February 28, Huawei took a full page ad in the Wall Street Journal inviting U.S. media to visit its firm to “clear up ‘misunderstandings’ created by the U.S. Government.” And, it seems as if Huawei’s approach may be working as the United Arab Emirates have stated that it would use Huawei in its networks. However, some European allies are hesitating at the idea of banning Huawei completely. Nevertheless, the U.S. is not without allies; Orange, the largest telecom operator in France, has “ruled out” using Huawei equipment in its core 5G network, as well as Australia and New Zealand.

Ultimately, experts are split as to whether Huawei is a security threat. However, many argue that given the trade relationship between the U.S. and its best customer, China, both the Chinese government and Huawei are unlikely to risk losing their business relationship to a bug or piece of hardware that would likely be found.

Huawei – Friend or Foe?

U.S. Oil Sanctions on Venezuela: Helping or Hurting?

Last month, the Trump administration implemented sanctions on Venezuela’s state-owned oil company, Petroleos de Venezuela (PDVSA), in an attempt to support the opposition in toppling President Maduro’s government. The sanctions prohibit U.S. companies from engaging in further business with PDVSA, which provides approximately 90% of Venezuela’s hard currency. Additionally, the sanctions freeze all PDVSA assets located within the United States. Citgo Petroleum, the U.S. based refining arm of PDVSA, is currently undergoing a change of control and its future, along with that of the broader Venezuelan economy, remains unclear.

At a macro level, the sanctions directly impact existing pricing dynamics across global oil markets. Heavier sour crude, the kind of oil that Venezuela sells to U.S. refineries for the production of gasoline, typically trades at a lower price than that of lighter grades due to the additional costs undertaken by its purchasers to refine it. Given these sanctions and other restrictions in supply, heavy oil is now trading at a higher price than its lighter grade counterparts and U.S. refineries are paying a premium. As a result, U.S. oil prices are up approximately 5% and the global benchmark for oil is up 8%. Despite these identifiable increases, most industry analysts do not see the sanctions as the direct cause. Instead, they point to the culmination of decreasing output in Mexico and Canada, instability in Libya, and the OPEC-plus cuts.

While some media focus has been on the sanctions themselves, the more pressing issue is the humanitarian crisis occurring within Venezuela’s borders. Since Maduro came into power in 2013, the Venezuelan economy has halved and the supply of basic necessities – such as medicine and food – has severely diminished. Although the U.S. implemented these sanctions with the intention of helping Venezuelan people by halting Maduro’s plundering of the country, the PDVSA sanctions could cut oil exports by two-thirds and lead to a further 26% contraction in Venezuela’s economy. With Maduro still in power, and the sanctions in place, the Venezuelan people can only brace themselves for further economic weakening until a new administration is established and the sanctions are lifted.

U.S. Oil Sanctions on Venezuela – Helping or Hurting

Lyft IPO – Leading the Wolfpack

Last October, amidst many rumors, ride-sharing firm Lyft finally selected its underwriters and began the process of filing for an IPO. JPMorgan Chase & Co., Credit Suisse Group AG, and Jefferies Group LLC will lead the offering. Valued at $15.1 billion earlier this year, Lyft’s valuation is projected to surpass that number. Investors will be better able to gauge whether Lyft is worth the $25 billion valuation it is seeking after the company makes its IPO filing public.

In contrast, Lyft’s top competitor, Uber, has also considered an early 2019 listing, receiving proposals valuing the company up to as much as $120 billion. Unlike Uber, which has a global presence, Lyft is “squarely focused on the booming American ridesharing market.” While Uber has dipped into new areas such as delivery (Uber Eats) and shipping (Uber Freights), Lyft has shied from such untested markets. This “presents a much clearer growth story to investors.”

Based on their S1 form filed to the SEC, Lyft had an annual revenue of $2.16 billion and $911 million loss in 2018. Compared to the previous year, Lyft has shown steady growth in numbers, up from a $1.06 billion revenue and $688.3 million net loss in 2017.

Despite this upward trend, there are concerns of numbers manipulation to upsell the IPO. The Wall Street Journal has noted that “when Lyft launches certain promotions for riders, it books the ride’s full price as revenue, not the discounted price,” instead recording the difference as a “sales and marketing expense.” Furthermore, Lyft’s largest investor Rakuten calculated the company’s market share numbers to be 30% higher than what market research firm Second Measure stated.

Apart from Uber, technology companies Airbnb, Slack, Palantir, and Pinterest also aim to make a showing this year. Lyft plans to pitch to investors by mid-March and allow public trading until the end of the month. If all goes well, this first major technology company IPO of the year could lay the groundwork for many successful IPOs to follow. Given the Federal Reserve Chairman Jerome Powell’s suggestion that the Fed does not intend to raise interest rates any time soon, coupled with the current bull market, now is a prime time to IPO. However, if the first one to break the ice fails, the pack of technology companies following Lyft may yet hold back and wait for calmer markets.

Lyft IPO – Leading the Wolfpack

Rival Automakers BMW and Daimler Forced to Cooperate

Silicon Valley has unequivocally changed the landscape of the auto industry. In 2010, asking a stranger to give you a ride home was nobody’s favorite transportation option. Yet, in 2019, ride-hailing services like Uber and Lyft are a leading transportation choice. Even more disruption is inevitable as Google, Uber, Lyft, and others race to become the first driverless car operator.

This disruption has forced traditional car manufacturers to adapt to keep up with Uber and other innovators. Rivals Daimler (Mercedes-Benz) and BMW have agreed to a $1 billion joint venture. The companies believe the project will be a “global gamechanger” that “maximize[s] [their] chances in a growing market.” Daimler and BMW hope to fend off companies like Uber by focusing on five areas: “car-sharing, ride-hailing, parking, charging, and multimodal transport.”

Interestingly, Daimler and BMW are not alone. Collaboration among global automakers has increased as Google and Uber have pressed them to be on the forefront of auto technology like autonomous driving systems and electric vehicle platforms. For example, Ford and Volkswagen have not only agreed to build vehicles together, but also jointly “investigate” the development of next generation vehicles. General Motors, SoftBank, and Honda announced a similar joint effort.

Ultimately, cooperation among these rival car makers is an encouraging sign. After nearly 150 years of combustion engines, market forces are compelling car manufacturers to commit significant capital to innovation.

Rival Auto Makers BMW and Daimler Forced to Cooperate

CBRE Takes On WeWork

CBRE, a worldwide leader in real estate services, launched a new business called Hana, eager to cut a piece of the coworking business pie. It aims to distinguish itself from companies like WeWork and its smaller peers like Knotel and Industrious by offering landlords an opportunity to maintain relationships with their tenants.

Coworking companies, such as WeWork, make their money through rental arbitrage by purchasing or renting commercial spaces from property owners, transforming them, by adding features such as cafés, communal spaces, and offices, then renting the space to clients at higher prices on a short-term basis. Their target markets typically include startups, work-at-home professionals, independent contractors, and remote freelancers seeking to avoid working in isolation. Landlords take companies like WeWork as tenants because they attract startup culture, facilitate short term leasing with multiple tenants, and can add to property value by making traditional 9-to-5 office buildings more vibrant.

However, coworking company profits stem also from larger company clientele, generating disconnect between landlords and the companies they usually court. CBRE’s Hana takes advantage of this disconnect through partnerships with landlords that enable them to maintain their relationship with tenants. Therefore, owners wanting to share in the profits of the flexible office market can partner with Hana, effectively cutting out intermediary companies like WeWork. Under this alternative model, owners will co-invest with Hana in building the workspaces; Hana will manage them for a fee; and they both would share in the profits.

Indeed, the transition from arms-length leases to partnerships in the coworking sphere is not entirely new. WeWork and Industrious have begun using co-management agreements, a staple in the hotel industry, where landlords might pay for renovations and then split the profits equally. Still, however, lenders feel more comfortable issuing debt on a property with a long term lease, a reason why management agreements have not gotten much grip in the U.S., according to Granit Gjonbalaj, WeWork’s real estate development officer. It is exactly this mismatch of long term commitments supported by short-term rentals that gives WeWork a going concern issue, the same exposure that pushed IWG’s Regus into bankruptcy in 2003. It’s possible that some landlords have refused to rent to WeWork because of concerns about its long-term viability.

CBRE’s Hana is betting that its partnership business model coupled with its deep relationships derived from its commercial real estate services, investment management services, and development services will give it a competitive edge in obtaining landlord business. While lenders still might prefer a long-term lease before issuing debt on a property, this may change as underwriting standards begin to better understand coworking income streams.

CBRE Takes on WeWork

Stocks Rally Following Tariff Delay, but a Trade Deal is No Sure Thing

Markets reached their highest peak this week since November of last as President Trump postponed a planned tariff hike against Chinese imports, a signal to some that a trade-deal between the two economic powers is close at hand. The President himself announced his optimism regarding the prospects of reaching a deal, though warned that an agreement may still not be possible. Many credit the long trade-spat between the two countries with slowing global economic growth since its inception, and some fear that its effect on U.S. GDP or inflation could expedite or worsen a possible near-recession. Contributing to this market rally has been the Federal Reserve’s recently dovish stance on interest rates and the weakening of the U.S. dollar to certain emerging market currencies, the latter of which is positive sign for global trade prospects; a higher relative dollar value makes debt in those countries, which is held in U.S. dollars, more expensive to service.

Still, whether a deal happens and whether that deal accomplishes the goals set out by the Trump administration is another matter. The purpose of any such deal, according to the administration, is to provide more rigid protections against intellectual property theft and curb technology transfers that threaten U.S. national security interests and industrial, technological leadership.  However, with recent signs that China is pushing for market growth, rather than deleverage to reduce the risk of its current debt position, the extent to which China will concede to any such regulations that run contrary to the goals of its Made in China 2025 initiative may be dubious. If they do, will that trade-deal framework be sufficiently rigid or realistically enforceable enough to be practically effective?

Moreover, questions emerge concerning the President’s intent underlying this delay announcement, especially coming off of President Trump’s inability to secure funding for a National Border Wall and Emergency Declaration. Is the President posturing – using the inevitable market boost that accompanies the announcement to boost support?  Whatever the case, how trade-talks proceed in the coming months could have a profound effect on global markets and international trade-regimes in the near-future.

Stocks Rally Following Tariff Delay, but a Trade Deal is No Sure Thing