Friday, May 31, 2013

Tory Burch Gets Tough On Fakes

Today, Tory Burch got tough on fakes. The designer's company filed four new lawsuits against companies allegedly dealing in counterfeit Tory Burch products.  

WWD reports that four cases all deal with manufacturers and wholesalers of jewelry featuring hardware identical to the brand’s trademarked “TT” logo. 

Their legal team described the four cases as separate but “interconnected”, and chief legal officer Robert Isen emphasized that the designer has “long been vigilant in defending [its] intellectual property, and will continue to take counterfeiting and copyright infringement seriously.”

In all four cases, Burch is seeking “unspecified damages and injunctive relief.”  In other cases previously filed by Tory Burch, the defendants were cybersquatters, primarily based in China, and (as in most cases like it) only a portion of the damages were recovered by seizing PayPal accounts and other assets.

This time, the defendants include a California boutique, two New York-based companies, and a Chinese company with a New York showroom and frequent tradeshow presence, the latter of whom showed the spurious goods to a private investigator.

Tuesday, May 28, 2013

Online Currency Exchange Indicted By Feds for Laundering Over $6B

The operators of a global currency exchange ran a multi-billion money-laundering operation online, an Internet hub for criminals trafficking in everything from stolen identities to child pornography, federal prosecutors in New York announced today when an indictment was unsealed in federal court.

Liberty Reserve, the currency exchange, allegedly operated beyond United States and international banking regulations in what prosecutors call a shadowy netherworld of virtually anonymous cyberfinance.

Liberty Reserve traded in "virtual currency," and provided anonymous and accessible banking services increasingly sought by criminal networks, including counterfeiters, law enforcement officials claimed.

The charges were announced at a news conference by Preet Bharara, the United States Attorney for the Southern District of New York.  The charges detailed a complicated system designed to allow people to move sums of money around the world with virtual anonymity, according to an indictment, which was unsealed in federal court in Manhattan today.

Over a seven year period, Liberty Reserve was allegedly responsible for laundering billions of dollars, having conducted over 55 million transactions that involved customers all over the world, including more than 200,000 in the United States, according to federal prosecutors.

Just as PayPal revolutionized how people shop online, Liberty Reserve sought to create a similarly convenient way for criminals to make financial transactions, law enforcement officials explained.

“As alleged, the only liberty that Liberty Reserve gave many of its users was the freedom to commit crimes — the coin of its realm was anonymity, and it became a popular hub for fraudsters, hackers and traffickers,” Mr. Bharara said at the news conference. 

“The global enforcement action we announce today is an important step toward reining in the ‘Wild West’ of illicit Internet banking. As crime goes increasingly global, the long arm of the law has to get even longer, and in this case, it encircled the earth.”

Liberty Reserve was incorporated in Costa Rica in 2006 by Arthur Budovsky, who renounced his United States citizenship in 2011, and was arrested in Spain on Friday. He was among seven people charged in the case; five of them were under arrest, while two remained at large in Costa Rica.

In addition to the criminal charges, five domain names were seized, including the one used by Liberty Reserve. Officials also seized or restricted the activity of 45 bank accounts.

Prosecutors cited “blatantly criminal monikers” used by Liberty Reserve clients, like “Russia Hackers.” Essentially, all a customer needed to open an account was an e-mail address.

While Liberty Reserve was incorporated outside the United States, federal officials used a provision in the Patriot Act to target the organization and other financial institutions with whom they conducted business. It was the first time the provision had been used to prosecute a virtual currency provider.

Liberty Reserve did not take or make cash payments directly and instead used “third-party ‘exchangers,’ ” according to the indictment. These exchangers would take and make payments, and then credit or debit the Liberty Reserve account, allowing Liberty Reserve to avoid collecting any banking information on its clients and not leave a “centralized financial paper trail,” the indictment also said.

The exchangers, the indictment said, “tended to be unlicensed money-transmitting businesses without significant government oversight or regulation, concentrated in Malaysia, Russia, Nigeria and Vietnam.”

The people who accepted Liberty Reserve’s currency were “overwhelmingly criminal in nature,” according to the indictment.

“They included, for example: traffickers of stolen credit card data and personal identity information; peddlers of various types of online Ponzi and get-rich-quick schemes; computer hackers for hire; unregulated gambling enterprises; and underground drug-dealing Web sites,” according to the indictment.

Sunday, May 26, 2013

Online Electric Car Sales May Be Banned in North Carolina: Consumer Protection or Corporate Protectionism?

Tesla Motors Headquarters in Silicon Valley
/ Wikimedia Commons
Fox News is reporting that an effort is underway in the North Carolina legislature to effectively prohibit the Palo Alto, California-based Tesla Motors car company from directly selling its popular electric cars online to consumers located within the Tarheel state.

Consumer protection is the ostensible rationale offered by the state's legislators who have introduced a bill that would effectively require that a franchised local dealership actually sell the electric cars to consumers.
Tesla's Roadster / Wikimedia Commons

Tesla is known for setting up showrooms that display and allow inspection of the sample electric cars, but the actual sale of the car is transacted entirely online.  By cutting out the franchised dealer as the "middleman," Tesla effectively removes local dealerships from the process.  Reportedly, as many as 80 Tesla electric cars have already been sold to North Carolina residents.

Tesla says that its time-intensive customer service model just won't translate well to franchised dealers, and that most consumers would laugh at the notion that they're better served by the existing system, which requires an unnecessary local transaction. Tesla said the dealers' true interest is maintaining total control over the retail auto industry.

Experts note that Tesla could try to lobby for a federal law or seek a ruling from federal courts that would apply across the U.S. That strategy could include making a case based on the U.S. Constitution's Commerce Clause, which says only Congress can regulate interstate commerce.  Courts have also held that the Constitution forbids localities from discriminating against out-of-state companies, solely to protect locals.

However, the car company would need to prove that the legislature was targeting it specifically when it passes the proposed law, and that the consumer protection rationale is a pretext.

Monday, May 20, 2013

The New Wall Street: Yahoo! to Buy Tumblr for Over $1B

These expensive Internet company acquisitions have made headlines, largely because among traditional Wall Street investors, there remains a nagging, unanswered question:  How on earth will any of these new Internet companies actually make any money?

Yahoo's Marissa Mayer promised investors that she would not "screw up" the deal.  But is the billion dollar-plus Tumblr deal already doomed from the start?

It is clear that popular free Internet services like Google, Yahoo, Bing, Facebook, Instagram and Tumblr are first intent on building strong brand loyalty among their respective users. Once that brand awareness and loyalty exists, the somewhat more challenging task is left to others to figure out how to monetize this intangible asset into a profitable venture. "Turning eyeballs into dollars," some consultants call it.

And it is no easy task:  Ask Mark Zuckerberg.  Facebook's Initial Public Offering raised $16B, but most of Facebook's revenue still comes from advertising, not membership/usage fees.

Sarah Smith, who was Facebook's Online Sales Operations Manager, reported that successful advertising campaigns on the site can have clickthrough rates as low as 0.05% to 0.04%.  That means that Facebook generally has a lower clickthrough rate for its advertisements than most major websites.

In fact, according to, banner advertisements on Facebook have generally receive one-fifth the number of clicks compared to those on the Web as a whole, although specific comparisons can reveal a much larger disparity.

Therefore, even Facebook, with massive brand awareness and loyalty, has struggled with monetizing these assets.  Best of luck to Yahoo, Tumblr and Marissa Mayer.

Friday, May 17, 2013

America: Made in China

This image was taken from a real label that was found on the streets of New York.

The economic value of China's annual exports to the United States is estimated to be $417 billion, and growing each year. The number of American jobs lost to Chinese imports each year is likely in the hundreds of thousands. This data may help to explain why the Obama administration has struggled with a nagging unemployment rate of approximately 8%, even as the stock market reaches record highs.

It is no surprise to the consumer that very little furniture, electronics, toys or apparel are manufactured in the U.S. any longer, as these items are increasingly imported from China and other developing nations.

The Wall Street Journal has reported that the negative impact of cheap Chinese imports on the American economy is far greater than previously thought.

Similarly, a Wall Street Journal report in April 2012 found that America’s largest multinational corporations outsourced more than 2.4 million jobs over the last decade, even as they cut their overall workforces by 2.9 million. 

Outsourcing jobs to a cheaper foreign labor pool, and increasing the number of cheaply made products from China makes perfectly sound business sense at the microcosmic level in the short-term. Indeed, Wal-Mart has generated billions of dollars in profits derived virtually entirely from this very business model.

However, as a long-term matter, this strategy has the potential to tarnish brands, lower quality, encourage counterfeiting, and even destroy entire industries.

For example, in Deluxe: How Luxury Lost Its Luster, author Dana Thomas chronicles how some luxury brands have resorted to cheap, Chinese mass-market production methods, and how doing so has risked their previously sterling reputations.

No industry is immune from the effects of globalization, cheap imports and job outsourcing. Ironically, even U.S. patent lawyers have seen previously high-paying jobs outsourced overseas.

Thursday, May 16, 2013

Should Government Really Be Run Like a Business?

In a previous post, we noted that, from an Intellectual Property and legal perspective, American voters are treated as consumers, and politicians can become trademarks.

We were sent a thought-provoking and interesting video by, which creatively argues that government should not be run like a business:

This video advances a few arguments comparing businesses and governments generally.

First, it notes that the core purpose of government is fundamentally different from that of a corporation.  For example, it argues that the U.S. federal government is responsible for managing the divergent, competing priorities of over 300 million Americans, and it alone must secure the general welfare by building and maintaining roads and bridges, providing for the common defense, and the like. The video contends that voters are "people," which are more important than "profits."

If a government becomes profitable, it argues, that government is probably hording tax dollars for no good reason. In contrast, a corporation is legally bound to advance one goal: amass profits, and a massive cash reserve can promote its positive fiscal growth.

While it is generally true that government serves a different legal and social purpose than a corporation, this video misses the mark.

First, it ignores the reality that the U.S. federal government has clearly become a major player in the commercial sphere, in its own right. The U.S. Treasury Department reports that current federal expenditures affect huge swaths of the private, domestic economy with trillions of dollars spent each year by the federal government on private defense contracts, the post office, as well as social program spending.

The Treasury Department also notes that federal spending is anticipated to exponentially increase in the decades ahead, mostly to service interest on the debt, to pay for existing expenditures.

Therefore, the video's general proposition that the federal government should not be concerned about amassing profits is not a realistic assessment of the current situation anyway.  The government's budget should at least be solvent, if not profitable.

It is worth noting that the U.S. federal government's budget is currently much larger than that of dozens of mega corporations combined, and its decisions have major fiscal as well as political consequences.

Indeed, a recent story on NBC News noted that the federal government is better at creating low-paying jobs than Wal-Mart.

Therefore, the government MUST be run like a mega corporation, if it is going to act like one.

Further, another argument that the video advances is that shareholders and citizens have fundamentally different "rights" within their respective systems.  A minority shareholder in a corporation, for example, has no meaningful say in whether to remove a failing CEO, the video argues.  

This analogy is weak and imperfect.  Within a larger framework of a properly functioning stock market, a shareholder can always choose to "vote with his feet," and sell his share in the corporation to someone else.  Therefore, his potential impact is greater in affecting change in that manner in that particular corporation, than his shareholder proxy "vote."

If such an aggrieved minority shareholder, along with thousands of other shareholders, chooses to dump and sell his stock, presumably the failing CEO will be fired or forced to resign.  Consequently, the value of a single share in that company will decrease if the CEO is doing a poor job at managing it.

In comparison, an American citizen cannot "sell his vote" in quite the same way, since he has limited options.  Because the federal goverment holds a constititional monopoly on power, there is no competition with it.  Ironically, the aggrieved American voter is in an actually weaker position than a minority shareholder in a corporation, at least in comparison.

Finally, at least with respect to presidential elections, it is worth noting that a large segment of the American populace is effectively disenfranchised because of the Electoral College.  Democratic voters in "red states" and Republican voters in "blue states," have effectively no vote in the Presidential election.

In summary, the debate will continue to rage on as to what extent government should emulate private industry, and vice-versa.