Recap: “From Big Law to Big Business”

On October 18, 2017, the Berkeley Center for Law, Business and the Economy (BCLBE) welcomed Aylin Oncel, a lawyer at Stripe, for a Q&A discussion about her career from a big law firm associate and a start-up entrepreneur to an in-house lawyer at a big company, and about the issues she thinks were important during her career.

Aylin received her J.D. from UC Berkeley School of Law in 2012. Passionate about global women’s issues, she once served on U.S. National Committee for UN Women. After graduation, she worked as a corporate attorney at Wilson Sonsini Goodrich & Rosati, specializing in mergers and acquisitions (M&A). She also co-founded a boutique wine gifting company in San Francisco named Vinkind. Now she is an in-house lawyer at Stripe, a US technology company that provides an online payment platform for private individuals and businesses.

“Don’t feel scared to do different things,” Aylin told us through her own experience. She realized that big law was not for her after two-years of M&A work and she wanted to make a change. Then she met her co-founder and decided to run a start-up. After experiencing all these different jobs, she found that an in-house position was the fit for her. Trying different things can help people figure out what they really want.

For her, Stripe is also a completely different world. She had no background in engineering before. “Just learn about a new industry,” she said. However, previous work experience did help in her career like negotiation skills gained through daily interaction with lawyers and clients.

Aylin told us several considerations that are important for a start-up. First, you need money that is a revenue source, like savings or a family sponsorship. Second, you have to choose a partner wisely. For example, personality match and skills are key points to take into consideration. Third, be nice and people will appreciate that. Last but not least, get some basic knowledge such as learning the framework of businesses.

When asked about how she feels working in-house, Aylin said it was an amazing work. People on the team are really smart, efficient and energetic and they respect your time. Everyone is nice and it is a great experience.

Recap From Big Law to Big Business (PDF)

The U.S. Supreme Court to Decide Whether the Data Stored Abroad is Beyond Reach

Following the fight between technology companies and justice departments, the U.S. Supreme Court decided to hear the case United States v. Microsoft. A warrant was issued in 2013 by a federal magistrate judge under a 1968 federal law—the Stored Communications Act, forcing Microsoft to hand over a customer’s email stored overseas for a criminal investigation. In 2016, a three-judge panel of the Second Circuit Court ruled that the 1986 law did not apply to data outside U.S. Later, the full Second Circuit Court reheard the case but the court deadlocked.

Though the mutual legal assistance treaties enable governments to collect evidence for criminal cases through the cooperation of local justice departments, the process is deemed by some judge as “slow and laborious.”

In the “big data” industry, the collection and control of data are critical. The digital information stored in other countries is governed by the local laws and the technology companies have to obey both U.S. laws and foreign laws. It may create a dilemma if the two sources of law differentiate. Some foreign governments are especially worried about their customers’ data stored by American companies being provided to U.S. governments for other uses and some services by U.S. technology companies are even banned in certain country for not obeying local policies.

The U.S. giant technology companies have achieved great successes almost all over the world. But the increasing distrust of information security may hurt their ability to compete in leading cloud computing, especially after the Snowden’s revelations. The fear of a back door spying program has led to reconsideration by some foreign customers of their relationship with U.S. online service providers. In answering these challenges, some companies purposely build data centers overseas to avoid being suspected of leaking information to U.S. government authorities. But whether this can be an effective way to reassure their customers will depend on the decision to be made by the Supreme Court Justices.

The U.S. Supreme Court to Decide Whether the Data Stored Abroad is Beyond Reach (PDF)

Boeing & Bombardier: Dispute up in the Air

Earlier this month, the U.S. Department of Commerce issued a 300% tariff on Bombardier’s C-Series aircraft imports to the United States. The Department initially imposed a 220% tariff in countervailing duties and subsequently announced an additional 80% in anti-dumping duties.

The present dispute began in April when U.S. aircraft manufacturer, Boeing, filed a petition against Bombardier with the Department of Commerce and the U.S. International Trade Commission (USITC). Boeing argued that Canadian plane manufacturer, Bombardier, had sold 75 C-Series jets to Delta Air Lines at unfairly low prices and alleged that Canadian state subsidies had created an unfair competitive advantage. Specifically, Boeing claimed that Bombardier offered the new jets for less than $20 million apiece when the jets cost more than $33 million each to produce. The Department of Commerce and USITC are set to make their final rulings in December and February respectively.

Bombardier explained that they did not unfairly underprice their aircrafts. Instead, they merely sold the C-Series aircrafts at launch pricing, as Boeing and most other industry actors normally would do when marketing new planes. Furthermore, Bombardier has argued that U.S. authorities are acting absurdly because there is no comparable American-produced aircraft that would be in competition with the C-Series. The petition instead is perceived as a tactical move by Boeing to limit competitors from the American aircraft market in general.

This perception is compounded by the fact that Boeing brought the case in front of U.S. agencies rather than a multilateral forum such as the World Trade Organization (WTO), which has ruled on the illegality and permissibility of subsidies in both the U.S. and European aerospace industries in the past. For example, the WTO ruled in 2016 against the European aircraft manufacturer, Airbus, for the illegal subsidies it received to build the Airbus A350. Similarly, the WTO ruled that Boeing received wrongful subsidies for the 777X jetliner, but the decision was overturned earlier this year.

The Boeing-Bombardier dispute has attracted the attention of stakeholders on both sides of the Atlantic because of its potential to affect aircraft manufacturing jobs not only in Canada, but also in the U.K., which is home to a major Bombardier manufacturing facility. As a result, both governments have pressured Boeing to retract its petition.

In a surprising turn of events, Airbus, has agreed this week to take a 50.01% stake in Bombardier’s C-Series program. As part of the agreement, Airbus will establish an assembly line for the C-Series at its facilities in Alabama. The arrangement is aimed to present the C-Series jet as domestically produced to sidestep the 300% tariff, though a former USITC commissioner has commented that the deal may be coming too late to affect the decision to impose anti-dumping or countervailing duties against the Bombardier jets. Thus, despite the excitement surrounding the Airbus-Bombardier partnership, the outcome of Boeing’s trade case remains up in the air.

Boeing & Bombardier Dispute up in the Air (PDF)

Supreme Court Seeks Solicitor General’s Views on Apple v. Pepper Petition

The Supreme Court has asked the U.S. Solicitor General Noel Francisco to file a brief expressing the federal government’s views on Apple’s petition for review of Apple v. Pepper. This is good news for the electronics giant as the Court is traditionally more likely to grant certiorari after calling for the Solicitor General’s opinion.

In 2011 a group of consumers, seeking class action status, filed a lawsuit alleging that Apple monopolizes the market for iPhone apps in order to charge excessive commissions (currently at 30%). In January, the Ninth Circuit ruled that the consumers were allowed to pursue these allegations, in direct contrast with a long-held Supreme Court doctrine established in Illinois Brick Co. v Illinois.

If the Supreme Court upholds the Ninth’s Circuit decision it would leave Apple liable to lawsuits from developers and consumers alike. The Court’s decision in Illinois Brick attempted to avoid this very floodgate problem by holding that only direct purchasers of a good or service may file a private lawsuit under the Sherman Act. Non-direct purchasers do not have standing in antitrust disputes even if they demonstrate that they suffered economic harm from anti-competitive conduct.

The Ninth Circuit’s decision not only exposes Apple to claims from many parties but creates confusion on how to enforce the Court’s decision in Illinois Brick. In 1998 the Eighth Circuit used Illinois Brick to find that consumers couldn’t go after electronic distributors with monopolization accusations. The Washington Legal Foundation has filed an amicus brief supporting Apple’s petition for certiorari, asking the Court to create uniformity on this antitrust question.

Apple’s defense relies on a claim that consumers are not direct purchasers from the App Store and therefore do not qualify to bring a suit under the Sherman Act. The app developers pay commission to Apple and set the price for their app’s sale. Apple claims to facilitate the sale of the product while retaining no ownership of the app. The Ninth Circuit disregarded this argument, holding that Apple acts as a distributor and not as a mere collector of payments that ultimately end up in the developer’s pockets.

While seeking the views of the federal government might indicate the Court’s interest in reviewing Apple’s petition, it marks a departure from the Court’s reluctance in hearing antitrust cases in recent history. This is a doubly interesting decision on the Court’s part as the Court typically calls on the Solicitor General only when questions of review implicate significant federal interests.  Here, the Court’s decision to review Apple’s petition ultimately has no effect on the government’s ability to enforce the Sherman Act.

Supreme Court Seeks Solicitor General’s Views on Apple v. Pepper Petition (PDF)

Kona Brewing Company the Latest Brewery Sued for False-Labeling

Kona Brewing Company, owned by the Craft Brew Alliance, is the latest brewery to find out just how much consumers value where their beer is brewed. In a class action lawsuit filed against Craft Brew Alliance, plaintiffs allege they were deceived by Kona’s Hawaiian-themed brand. The brewery’s motto on its website is “Liquid Aloha – Hawaii,” beers it markets include the “Lemongrass Luau” and “Wailua Wheat,” and its cans feature volcanos, surfers, and other symbols consumers associate with Hawaii.

While Kona does have a brewery in Hawaii, the beer sold in the continental United States is brewed in Oregon, Washington, New Hampshire and Tennessee. Kona argues that its marketing strategy is “puffery” and would not confuse the average consumer. The plaintiffs contend they paid a premium to drink beer they thought was brewed in Hawaii.

The U.S. District Court for the Northern District of California denied Craft Brew Alliance’s motion to dismiss. This court, known for being plaintiff-friendly in class action litigation, has earned a reputation as the nation’s “food court.” Approximately 20% of the country’s food-related class action litigation takes place in the Northern District of California.

Litigation over the last few years has generally been favorable to beer drinkers. In 2015, a court ruled in favor of beer drinkers who thought Kirin Ichiban brewed its beer in Japan. Soon after, Beck’s reached a settlement with consumers who thought their German-style beer was actually brewed in Germany. However, in 2016, a court held that it was unreasonable for consumers to assume that Red Stripe beer was brewed in Jamaica. Beer drinkers who thought Coors brewed its beer in the Rocky Mountains have yet to have their case resolved.

Those who support the class action lawsuit against Kona are interested to see whether courts start to place an emphasis on the craft of beer. Wine law ensures consumers know exactly where wine is made, and where ingredients used to make that wine are from. Surely, craft beer advocates would prefer similar laws in order to give the industry more credibility.

However, critics are quick to point out that the plaintiffs only seek damages, and do not have the standing to seek an injunction. Hence, it is unlikely beer law will derive any benefit from the lawsuit. These same critics believe the lawsuit is meritless and poses an unnecessary financial burden to a small brewery like Kona.

Kona Brewing Company the Latest Brewery Sued for False-Labeling (PDF)

Cybersecurity in the Boardroom: New Horizons

Cybersecurity risks are growing. As society produces more lines of code, and everything – from cars to sex toys is becoming connected: more vulnerabilities are produced daily, inviting more data breaches. The costs associated with security breaches, mostly reputational, have increased in terms of legal and pure losses of revenues as well.  The new oil, is not just data – its security vulnerabilities traded on legitimate and outlawed markets.

The rapidly changing cyber landscape is creating new types of cyber risks, which directors simply cannot continue to ignore. If they do ignore them – they might be slapped with a shareholders’ derivative lawsuit in the case of a breach, claiming that management breached its fiduciary duty towards the corporation by failing to monitor the cyber risk.

Cyber is becoming a subject regularly discussed in board rooms, and a critical corporate governance concern. Recent research done by the U.S. National Association of Corporate Directors (NACD) reported that while directors acknowledge the importance and prominence of cyber risks, they also believe that “their boards do not possess sufficient knowledge of this growing risk.”

In light of these findings, the NACD issued a new report detailing five key principles that directors can adopt to enable oversight over cybersecurity risks: (i) approaching cybersecurity as an “enterprise-wide” managerial risk, (ii) understanding the legal implications of cyber risks, (iii) enabling access to cybersecurity expertise, and discussing cyber risks in the boardroom regularly, (iv) establishing an enterprise-wide cyber-risk management framework and (v) managing cyber risks and terms of deciding which risks to avoid, manage or mitigate through cyber-insurance. Implementing an independent monitoring system, such as Bug Bounty Programs, could also enhance the directors’ ability to oversight security risks.

While the NACD report might provide directors with advice on how to oversee cyber risks, other developments in the “cyber-corporate” arena suggest that directors should take a more proactive managerial approach to cyber risks, one that requires them to have genuine expertise in this field.

First, New York adopted a new comprehensive cyber regulation for financial services companies regulated under the New York State Department of Financial Services, effective March 1, 2017 (with a transition period, § 500.22). The newly adopted 23 NYCRR 500 Cybersecurity Requirements require covered entities, among others, (1) to conduct periodical risk assessments, (2) to implement a cybersecurity policy that evaluates the effectiveness of the corporations’ cybersecurity program and (3) to conduct periodic penetrations testing and vulnerability assessments. Most importantly, the 23 NYCRR 500 regulations mandate directors to pay attention to cyber laws, requiring the Chairman of the Board or a “Senior Officer” to personally sign the annual certification confirming compliance with the regulations, the Board or a “Senior Officer” to approve the cybersecurity policy, and the Board to receive annual reports from the chief information security officer.

Second, a new bill proposal, the Cybersecurity Disclosure Act of 2017, seeks to mandate public companies to disclose to investors information relating to its directors’ expertise and experience in the field of cybersecurity as part of their annual reports/proxy statements. If the company’s Board has no such expertise, it is required to disclose “what other cybersecurity steps” it’s senior management has taken. It’s plausible that companies will prefer to comply with the first requirement, rather than disclosing their detailed cybersecurity strategy and subjecting it to scrutiny and prying eyes.

All of this suggests that directors will be mandated to take a more proactive role on cyber, one which doesn’t sum up to “oversighting”, or else they might find themselves personally liable.

Cybersecurity in the Boardroom New Horizons (PDF)

House Takes a Swing at Class Actions

On March 9, the House voted 220 to 201 to pass the Fairness in Class Action Litigation Act. According to its author, Bob Goodlatte (R-Va.), the Act is intended to make “an efficient and just legal system” by limiting frivolous class action litigation. Its major provision prevents the certification of a plaintiff class unless every individual member of the class suffers “the same type and scope of injury.”

Proponents argue that the Act reduces frivolous suits by requiring that all class members suffer a comparable injury, preventing uninjured individuals from riding the coattails of their injured co-plaintiffs. This would also prevent lawyers from artificially inflating class sizes in order to increase their own share of the settlement. Rep. Goodlatte further suggests that the bill serves a protective function, shielding the small businesses and low net worth individuals whom he believes are the true victims of these suits.

While on paper the bill may sound uncontroversial and even beneficial, a host of critics ranging from civil rights groups to labor organizations have claimed that the new requirements would “obliterate class actions in America.”  Christine Hines, legislative director of the National Assn. of Consumer Advocates, explained that under the current system, classes “typically include a range of individuals who almost never suffer precisely the same degree of injury.” Take for example, the class action suit against air bag manufacturer, Takata. Their malfunctioning airbags caused harms ranging from superficial wounds to fatalities. Though few would consider the Takata claims frivolous, the range of injuries presented by the plaintiffs are unlikely to be considered of the same type and scope under the proposed Act.

Regardless of these significant class formation issues, even if a sufficiently similar class could be assembled it would still face a lengthier certification process. This process would increase the administrative burden on courts and the financial burden on plaintiffs. As Rep. Jamie Raskin (D-Md.) summarized “it’s not the guillotine, but it’s a straight-jacket.”

So far, the bill shows no signs of losing steam. It was introduced in early February, approved by the Judiciary Committee less than a week later, and passed by the House in March. Now the viability of the class action suit rests in the hands of the Senate.

House Takes a Swing at Class Actions (PDF)

Rolling-Back Vehicular Emissions Standards: Different Strokes

The Trump administration recently indicated its willingness to halt Obama-era vehicular emissions standards.  In an announcement that foreshadowed executive action, President Trump promised to freeze and potentially review vehicle emission standards.

Under a legal regime harmonized by Obama-era regulations, the Department of Transportation, the Environmental Protection Agency (EPA) together with California, empowered by a Clean Air Act waiver, can prescribe and review fuel economy standards for cars and light trucks. These standards are to operate from 2012 to 2025 with the possibility of midterm evaluation in 2018. President Obama’s EPA and the California Air Resources Board had both confirmed the application of those standards through to 2025. However, President Trump may revisit this midterm evaluation in order to make it easier for manufacturers to meet emission standards. Additionally, (although less likely) the Trump administration may challenge the California waiver that allows that state to pursue standards stricter than the federal government.

Just how much could this change? The EPA’s midterm evaluation of the vehicular standards is already the subject of litigation, with California and 9 states indicating their willingness to defend the emission standards. Attempts by the EPA or Department of Transportation to enforce President Trump’s announcement is thus likely to be met with resistance. Environmentalists will also surely view any rollback of the emissions standards as undermining the United States’ commitment to reduce (GHG) emissions under the Paris Accord.

However, the effect may be more neutral for businesses. For one, this federal dispute comes after states like Georgia, once home to a booming electric car market, repealed tax credits and established registration fees that undercut the electric vehicle market. Similarly, Colorado, Illinois, Pennsylvania and Tennessee have allowed clean vehicle incentives to expire. Additionally, California’s authority to establish more stringent standards may, as long as it is not challenged, effectively make its regulations the benchmark for auto manufacturers. California is a crucial auto market, representing 10% of all sales, and its zero emission vehicle standards have been adopted by 9 other states. Finally, responses by automakers to a loosening of standards is likely to differ according to their strategic objectives.  While weaker long-term standards may affect the outlook for electric vehicles, some analysts doubt that it would significantly undercut investment in autonomously driven electric cars.

Eventually, much will depend on the administration’s next steps and just how much of President Obama’s climate change legacy it seeks to challenge.

Rolling-Back Vehicular Emissions Standards Different Strokes (PDF)

Trump’s 2005 Tax Return Released: Why President Trump Wants to Abolish the A.M.T.

On March 14, MSNBC released a two-page section of President Trump’s tax return from 2005. The released tax return (which was condemned but confirmed by the White House) shows that Mr. Trump reported income of $150 million and paid $38 million in federal income taxes (an effective tax rate of 25 percent). President Trump declared more than $100 million in business losses which led him to save millions of dollars in federal taxes.

During the campaign, Trump was highly criticized for refusing to release his tax returns to the public — a tradition for presidential candidates. Indeed, critics claimed that his tax returns could unveil potential improprieties within his business practices, as well as reveal whether he has done business with Russian companies and banks. In his defense, Trump claimed he was under an ongoing audit by the IRS, which prohibited him from releasing his tax returns (although commentators have said that an audit would not legally preclude him from releasing them).

In a recent statement, the White House explained that the business losses were a “large scale depreciation for construction.” The White House also said, “Before being elected, Mr. Trump was one of the most successful businessmen in the world, with a responsibility to his company, his family and his employees to pay no more tax than legally required” and that he paid “tens of millions of dollars in other taxes, such as sales and excise taxes and employment taxes, and this illegally published return proves just that.”

Trump’s 2005 tax return does not indicate any ties with Russia, nor does it shed light on any business activities that were not previously known.  However, it highlights that Trump paid his tax under the alternative minimum tax, which Mr. Trump wants to abolish.

The alternative minimum tax (A.M.T.) was created to prevent wealthy Americans from paying no income tax by taking advantage of deductions and loopholes. Indeed, with the A.M.T., those with high incomes have to calculate their taxes twice: once with all their deductions and once without many of them. The taxpayer must then pay the higher of the two figures. As a matter of fact, without the A.M.T., Trump would only have paid $5.3 million federal income taxes in place of the $31 million he paid on $153 million in income in 2005. According to David Cay Johnston, the journalist who received the tax return by mail and Pulitzer laureate, “If we didn’t have the alternative minimum tax, he would have paid taxes at a lower rate than the poor who make less than $33,000 a year.”

President Trump condemned MSNBC’s release of his 2005 tax return, calling it “fake news” and criticizing the media on his Twitter page. Putting aside the debate of whether the tax return is fake, the partial disclosure of Trump’s tax return will further pressure the White House to finally publish the President’s tax return in full.

Trump’s 2005 Tax Return Released Why President Trump Wants to Abolish the A.M.T. (PDF)