October 10, 2023

Tues 10/10 - 23andMe Data Breach Class Action, Former Starbucks CEO Labor Law Violation, Sonos Loses Patent Dispute and Column Tuesday on the Sales Tax Gap

10 minutes

On this day in legal history, October 10, 1967, a pivotal moment in the history of space exploration occurred as the Outer Space Treaty officially entered into force. Outer Space Treaty's legal significance is profound. When it entered into force on October 10, 1967, it established a set of binding international laws and principles that continue to shape the legal framework governing outer space to this day. This historic agreement, signed and ratified by numerous nations, was a remarkable step in ensuring the peaceful use of outer space. The treaty set forth several key principles that aimed to prevent the militarization of space and promote cooperation among spacefaring nations.

The treaty affirmed that outer space, including the Moon and other celestial bodies, would be used exclusively for peaceful purposes. It explicitly prohibited the placement of nuclear weapons and other weapons of mass destruction in orbit around the Earth, on celestial bodies, or in outer space. Additionally, the treaty emphasized the importance of international cooperation in space exploration, the sharing of scientific discoveries, and the protection of the space environment.

The Outer Space Treaty laid the foundation for the responsible and peaceful exploration of space, fostering international collaboration in various space endeavors and ensuring that space remains a realm of cooperation rather than confrontation. Its entry into force on October 10, 1967, marked a significant milestone in human efforts to maintain the peaceful nature of activities beyond our planet.

Biotech company 23andMe Inc. is facing a federal class-action lawsuit in the U.S. District Court for the Northern District of California over its alleged failure to protect the genetic data of thousands of individuals in a data breach that was disclosed on October 6th. The plaintiffs claim that 23andMe did not adequately safeguard their personal information and failed to employ reasonable security measures. The exposed data included names, birthdates, genetic ancestry results, profile photos, and geographic locations.

Notably, some of this information, including that of high-profile individuals like Mark Zuckerberg, Elon Musk, and Sergey Brin, was reportedly being sold online. The lawsuit also alleges that 23andMe did not provide timely and sufficient notification of the data breach. While the company initially denied a breach, it acknowledged that customer data was available for sale on a hacker forum.

The plaintiffs argue that the breach puts victims at risk of fraud and identity theft and has caused damages such as privacy invasion, time loss, out-of-pocket expenses, and diminished value of their personal information. They seek to represent a class of all individuals affected by the breach and have brought various claims against 23andMe, including negligence, breach of implied contract, invasion of privacy, unjust enrichment, and declaratory judgment.

23andMe Sued Over Hack of Genetic Data Affecting Thousands

Former Starbucks CEO Howard Schultz has been found to have violated federal labor law by making an illegal threat against a barista named Madison Hall in California. Schultz's comment, made during a "listening tour" where he met with Starbucks employees to discuss working conditions, told Hall, who questioned the company's response to union organizing, to "go work for another company." The National Labor Relations Board (NLRB) judge, Brian Gee, ruled that this statement constituted an illegal threat against the worker.

Starbucks did not directly comment on the finding that Schultz had violated the law, stating that they hosted listening sessions across the country to gather input on store experiences. Workers at more than 360 Starbucks locations in the U.S. have voted to join unions since late 2021, and the company has faced allegations of union-busting, which it denies. Schultz's decision can be appealed to the NLRB and a federal appeals court. A separate claim that Starbucks unlawfully interrogated workers by asking them to write their concerns on Post-It notes was dismissed.

Ex-Starbucks CEO Schultz illegally threatened union supporter, NLRB judge rules | Reuters

A federal court has ruled that two Sonos Inc. patents related to managing smart speakers in a multiroom system are unenforceable. This decision comes several months after Sonos won a $32.5 million jury verdict against Google, which was later vacated. The ruling, made by Judge William Alsup of the US District Court for the Northern District of California, pointed out that Sonos had filed provisional patent applications in 2006 but didn't complete their applications for over 13 years, during which time the industry had already implemented similar technology.

The court also noted that in 2014, Google shared plans to use the disputed technology with Sonos, and the companies even considered collaboration. However, no partnership materialized. Even after Google launched its first device in 2015, Sonos waited four years to pursue claims and another year before releasing its competing product.

Judge Alsup criticized Sonos for altering patent specifications during litigation, undermining the claim of priority. He expressed concern about the misuse of the patent system for delay and manipulation. The court denied other post-trial motions and is set to enter a final judgment. Nevertheless, this may not mark the end of the legal battle, as related lawsuits have been filed in various other jurisdictions, including Texas, Canada, France, Germany, and the Netherlands.

Judge Slams Sonos, Rules Patents Invalid in Google Speaker Case

In his weekly column at Bloomberg “Technically Speaking” my co-host Andrew Leahey explores the "sales tax gap" in the United States, which represents the shortfall between taxes owed and taxes actually collected. Leahey explains this is a complex problem due to the asymmetry in information between businesses and state taxing authorities. In the U.S., businesses are responsible for both collecting and remitting sales tax and maintaining accurate records to substantiate these transactions. Without such records, state authorities often remain unaware of sales and income tax obligations, providing an incentive for businesses to manipulate transactions or employ sales suppression techniques.

Fiji has introduced an effective digital invoicing system that could serve as a model for U.S. state tax authorities. This system mandates digital receipts for all taxable transactions, shared in real-time with both parties and the tax authority. By implementing a similar system in the U.S., it would create a paper trail for all transactions, including cash transactions, making data manipulation or sales suppression virtually impossible.

However, the transition to such a system poses challenges, including significant investments in technology and labor. To encourage compliance, some countries, like Taiwan and the United Arab Emirates, have linked invoicing to consumer incentives and lotteries. Leahey emphasizes the need for uniformity in the implementation of digital invoicing to avoid undue administrative burdens on small businesses.

Ultimately, Leahey suggests that U.S. state tax authorities should consider international models, like Fiji's digital invoicing system, to address the sales tax gap in the future, especially when seeking new sources of revenue. This approach could help enhance tax collection and reduce fraudulent practices.

We Can Solve the US State Sales Tax Gap by Looking Overseas | Technically Speaking on Bloomberg

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