13 Hastings Business Law Journal 1
Published in Winter 2017. The first article explores the new federal trade secret act and the opportunity to move away from prior case law placing the burden of proving causation on the plaintiff. The second article explores federal taxation of thieves and victims, arguing that each party faces a second prosecution or victimization, respectively. The third article discusses gaps in the theory of personal goodwill allocation in the sale of assets and offers a legislative fix that would provide certainty in the area. Finally, the student note discusses the balance between companies that use social-media platforms for marketing and advertising purposes and the FTC’s attempt to address these usages to help protect consumers through its Endorsement Guides. It provides both best practices for compliance as well as suggestions for safe-harbor provisions the Commission should put in place. More detailed summaries below, as well as links to respond.
Back to Volume 13.
WHY THE BURDEN OF PROVING CAUSATION SHOULD SHIFT TO THE DEFENDANT UNDER THE NEW FEDERAL TRADE SECRETS ACT
Robert A. Kearny, 13 Hastings Bus. L. J. 1 (2017)
For years courts in trade secret misappropriation cases have filled up a graveyard with claims that did not account for every possible alternative cause of the Plaintiff’s losses. The result is perverse: the more disruptive the Defendant’s misappropriation, the less likely the Plaintiff will be able to show the jury a clear picture of what happened and prove “but for” causation. But the new federal law frees courts from those cases and from the state misappropriation statutes that produced them. What is needed now is a shift in thinking, and a shift in a burden.
THE TAXATION OF THIEVES AND THEIR VICTIMS: EVERYONE LOSES BUT UNCLE SAM
Christine Manolakas, 13 Hastings Bus. L. J. 31 (2017)
The taxation of thieves and their victims must be studied as a whole. Both perpetrators and victims of crime must navigate the complexities of the federal tax laws. Not surprisingly, the decision to tax illegal income resulted in unreported income by criminals and prosecution of criminals by the Treasury Department. The perpetrators of crime must defend a second criminal prosecution, which requires a careful examination of the U.S. Constitution, provisions of the Internal Revenue Code, and administrative practices of the Internal Revenue Service. The victims of crime are often in conflict with the Treasury Department as to the inclusion and character of any gain or the allowability, character, and utilization of any losses resulting from theft. The interest of victims is also adverse to the interest of the Treasury Department as to the allowability, character, and timing of any loss arising from fraudulent investment schemes, including Ponzi schemes. Unfairly, the tax liability assessed, and the attaching penalties and interest, directly impacts the availability of funds for restitution to victims. In addition to coping with the emotional and financial impact of theft, victims must compete with the Treasury Department for any money or property held by criminals because of the priority of federal tax liens. After the application of the tax laws, criminals are often prosecuted twice and victims are often victimized twice and, unfortunately, the second time by Uncle Sam.
YOURS, MINE AND OURS: A PROPOSAL TO BRING CERTAINTY TO THE USE OF PERSONAL GOODWILL IN THE SALE OF ASSETS OF A C CORPORATION
Teri L. K. Shugart , 13 Hastings Bus. L. J. 89 (2017)
Use of a personal goodwill allocation in the sale of assets is the current darling of the tax wonk world, made popular again by the recent case of Bross Trucking v. Co mmissioner. The ability to allocate some of a corporate seller’s purchase price in a sale of assets to an individual shareholder rather than to the corporation saves that individual shareholder from being subject to the double taxation of a C corporation.
Despite its ability to save on taxes, company advisors are reluctant to allocate part of a purchase price to personal goodwill because of the uncertainty surrounding how to have the allocation respected by the Service and upheld by the courts. While commentators believe that they have come up with a list of criteria that will pass muster with the courts, those same commentators admit that following the list only makes it less likely that the allocation will be respected, not that it is foolproof.
However, even the commentators have missed the mark slightly. By taking a fresh, in-depth look at the cases that created the concept of allocating personal goodwill, this article discloses what the accepted criteria list left out, what the real requirements have been, and why those requirements aren’t supportable.
Finally, this article proposes a simple legislative fix that would provide certainty in the world of personal goodwill, allowing taxpayers and practitioners the assurance that their allocations would not just survive a deficiency claim from the Service, but actually reduce the ability of the Service to make that claim in the first place.
COMPLYING WITH THE FEDERAL TRADE COMMISSION’S DISCLOSURE REQUIREMENTS: WHAT COMPANIES NEED TO KNOW WHEN USING SOCIAL-MEDIA PLATFORMS AS MARKETING AND ADVERTISING SPACES
Student Note, Aimee Khoung, 13 Hastings Bus. L. J. 129 (2017)
Social-media platforms have become huge marketing and advertising spaces for both well established and start-up companies. In the 1990s, the Internet became a means for companies to communicate with customers and to promote their products and services. Throughout the past decade, the Internet has become a powerful platform that has changed the way companies do business and communicate with their customers. The growth of digital marketing through the Internet resulted in new forms of marketing and advertising space. Nowadays, any business can reach a large market with a very small investment, and anybody that can read and write has the ability to have access to and presence on the World Wide Web. By blogging and maintaining social-media accounts, social-media users express and publish their ideas and opinions. At the same time, companies leverage these types of communication to advertise their products.
As the variety and audience of online advertising through social-media platforms continues to increase, new legal issues are arising, and the necessity to set a legal framework to regulate online advertising has emerged. Historically, legal rules regulating advertising have not been generally limited to any particular medium through which an advertisement is communicated and have been applicable to the online context as well. The public’s interpretation of these rules is not always clear, which raises issues of interpretation when applied to online communications. The application of these rules, which were written at a time when such technologies were not yet created, has caused confusion amongst advertisers. With the growing number of companies using social-media and consumer-generated content for marketing and advertising purposes, the Federal Trade Commission’s (“FTC”) updates to the FTC Guides Concerning the Use of Endorsements and Testimonials in Advertising (“Endorsement Guides”) are not specific enough to address the up-and- coming social-media platforms that are becoming widely used by consumers.
This Article will discuss the balance between companies that use social-media platforms for marketing and advertising purposes and the FTC’s attempt to address these usages to help protect consumers through its Endorsement Guides. First, this Article will take an in-depth look at the relationship between regulation and online advertising, including the history behind the creation of the FTC and its regulations surrounding the truth-in-advertising principle. This Article will then examine how the FTC has responded to the rapid growth and change in the world of social-media and social- media marketing, and the updates made by the FTC in order to address the creative ways companies are using new digital and social channels for marketing. Finally, this Article will discuss the types of safe harbor provisions that the FTC can put in place as a response to new technologies surrounding social-media platforms, and best practices that companies can turn to when using social-media platforms as marketing and advertising spaces.