August 05, 2005
Intellectual Property, Media Law, Telecommunications, Telecom, Broadband & Media Alerts

Memo To Communications Clients: Arbitration Clause Survives?; Abetting Online Lottery; Contract Interference & Related Companies; Easement Gets Fiber Optics; Naked CA Broadband?; VOIP 911; Wine Online

Recent notable developments include the following:

Nixing Arbitration of Class Claims:

The ongoing tension of mandatory arbitration clauses in standardized consumer contracts is that businesses prefer the cost efficiency of arbitrating smaller claims, while courts resist excessive waivers of consumer rights. The latest from California is that a state Court of Appeal has found it valid for a business to mandate arbitration of consumer claims under its standard service contract, while excluding consumer class action claims from arbitration (presumably to preserve the defendant's right to fully litigate and appeal in the potentially multimillion dollar context of class actions). The new appellate decision specifically disagrees with a contrary decision of a parallel California court, recognizing that the question of avoiding class-wide arbitration now awaits resolution in pending cases before the California Supreme Court. (Parish v. Cingular Wireless, California Court of Appeal No. A105518, May 18, 2005)

Abetting Online Lottery/Pyramid Scheme:

A California Unfair Practices (Bus. & Prof. Code Section 17200) case may proceed against an online payment and billing service, based on the claim it aided and abetted an online lottery/pyramid scheme by enabling it to obtain payment from consumers. The objected-to online scheme reportedly involved charging website visitors a fee of, for example, $150 to enter a queue for a $5,500, 50-inch plasma television. When the queue reaches 50 persons, the first person in line is awarded the "free" television, thereby encouraging entrants to draw others to the site to enter behind them. Defendant Ginix is now exposed to potential trial of a 17200 case for aiding and abetting the website operator by working with it on links and payment mechanisms for the billing and collection of fees from entrants. However, the remainder of plaintiff's case was dismissed for failure to meet the tightened standing requirements for 17200 cases under California's Proposition 64 ballot amendments of 2004. (Schultz v. Neovi Data Corp., California Court of Appeal No. G033879, May 6, 2005)

Interfering With Related Company's Contract:

A recent California Court of Appeals decision finds that a company may have potential liability to a third party for interfering with a contract between their own affiliate and a third party. The court rejected the blanket rule that a company is categorically not liable for interfering where it is "not a stranger" to a third party's contract with its related company. Instead the court insists on a specific fact-and-circumstances analysis to determine the causation of and responsibility for a breach of contract where, as here, "a powerful shareholder allegedly interferes in a contract between the corporation whose shares it [partly] owns and some other person or entity". In a case involving the alleged lost value of plaintiff's stock options when their company was acquired by an affiliate, on terms where a portion of purchase price was instead "paid" with the assumption of an unprofitable sports (MLB) licensing contract, the court also left open the question of whether stock options are "wages", for which no employee release may be required under California law. (Woods v. Fox Broadcasting Sub., Inc., California Court of Appeal No. B173273, May 5, 2005)

Highway Easement Allows Fiber Optics:

A highway easement granted by a landowner to County government in 1953 "for the sole purpose of a public highway" is sufficient to encompass the installation of fiber optic communications cables, and a certificated "telephone corporation" (including a competitive upstart) is entitled to use that County highway easement for fiber optics for telecom purposes under the free statewide telephone franchise of California Public Utilities Code Section 7901, according to another decision of the California Court of Appeals. The court's decision reviews the evolution of intensive urban right-of-way usage into rural areas, including permissible transportation and communications uses, and finds that under "the broad construction of easements undertaken to accommodate technological advances", telephone uses are consistent with an easement for highway purposes, and fiber optic lines may be installed by a telephone corporation. (Anderson v. Time Warner Telecom, California Court of Appeal No. F045332, May 13, 2005)

CPUC Adopts Broadband Report:

The California Public Utilities Commission adopted on May 5, 2005 a report to the Governor and state legislature, "Broadband Deployment in California" from technologically progressive CPUC Commissioner Susan Kennedy. Among other things, the Broadband Report recommends that legislation be enacted in California to standardize the process by which service providers can use rights-of-way, including limiting franchise and trench fees, and treating all users uniformly under standard criteria with deadlines for granting ROW access (see Section 9.5). The report also recommends that legislation and rules be adopted to provide categorical exemption from CEQA for broadband projects "that do not require a change in the functionality of existing infrastructure, such as stringing fiber optic cable on existing utility poles", and that CPUC review of CEQA requirements should be the same for all entities, whether incumbent or competitive, common carrier or non-regulated entities. (Section 9.6) The report also contains brief "case studies" of municipal ownership of broadband and advanced service facilities (Section 8.3.2).

Separately, CPUC Commissioner Kennedy has introduced a revised version of the long-simmering Telecommunications Bill of Rights for consideration by the CPUC. Although her new proposal is shorter and less intrusive in many respects, it would also require telecommunications service providers to provide network access to content providers, and also "naked broadband" whereby consumers have the right to purchase broadband services without being required to buy telephone service from the same provider.

E911 Required for Full-Service VOIP:

The Federal Communications Commission ordered yesterday that voice over Internet protocol (VOIP) phone service providers which are "interconnected" to allow VOIP calls across the traditional public switched phone network, must provide enhanced 911 (E911) emergency calling capabilities to their VOIP customers. The VOIP provider must accept updates from each customer on his or her most current physical location, and use that information to connect 911 calls with the caller's local emergency operator. In turn, the established conventional phone companies (incumbent local exchange carriers or ILECs) must provide access to their E-911 networks to any requesting telecommunications carrier. (First Report and Order/NPRM, FCC 05-116, adopted May 19, 2005)

Supreme Court Nixes Wine Shipment Favoritism:

Our intellectual property and commercial law partner Cyrus Wadia provides the following report of interest to many:

The wine industry just got a major facelift. The U.S. Supreme Court ruled on Monday that states that permit in-state wineries to sell directly to consumers must allow out-of-state wine producers that same right. By a 5-to-4 vote, the Court overturned state laws in Michigan and New York that gave preferential treatment to in-state wineries by allowing them to ship straight to their consumers, while forcing out-of-state wineries to sell through state-licensed wholesalers. Ruling that the nondiscrimination principle behind the interstate commerce clause trumped the states' rights to regulate alcohol sales under the Constitution's 21st Amendment, the ruling puts a halt to what has recently become a "low-level trade war" between the states over the sale of wine. The ruling will undoubtedly reshape the U.S.'s $22-billion-a-year wine business, permitting smaller wineries access to markets that were previously financially inaccessible because of the restraints of the wholesale wine business. The issue now returns to the individual states, leaving each to decide whether to permit direct shipment of wine to its consumers by all wineries, or whether to prohibit all direct shipment. For further information please contact any member of our intellectual property department, or Randy Skidmore or any of our professional colleagues at the long-established Napa Valley and wine industry law firm of Coombs & Dunlap.

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