The U.S. is “All In” and in Trouble: The U.S. Should Abandon Its Online Gambling Ban

by Katherine Croswell October 18 2007, 14:58
          From gambling in the city of lights to gambling on the internet in your PJs at home, Americans love to wager their hard earned dollars on a variety of games.  Despite this fact, the U.S. Congress decided to place a ban on online gambling. [1] As a result, the United States went in front of the World Trade Organization (WTO) after Antigua complained of unfair commerce practices when it was prevented from engaging in transactions with U.S. consumers.[2]  The WTO sided with Antigua, finding that the U.S. did in fact violate its trade obligations to the world community, and the U.S. may now be face billions of dollars in damages.[3]  Even in light of this finding, the U.S. has passed the Unlawful Internet Gambling Act of 2006, which effectively criminalizes funding online gambling accounts. [4] In the face of strong opposition, will the U.S. back down on its ban and should they?          Antigua and Barbuda filed a complaint with the WTO in 2003 and effectively argued that three U.S. laws are keeping their companies from reaching American online gamblers:  The Wire Act, the Travel Act and the Illegal Gaming Business Act. [5]  The main complaint is that the U.S. has violated its treaty obligations by discriminating – it has excluded Antiguan online operators while allowing domestic casinos to continue to operate.  [6]  While one might expect the Bush administration to stop in its tracks and just allow foreign online gambling operators to reach U.S. consumers, instead the U.S. simply “withdrew the sizeable gambling industry form its free trade commitments.” [7] The WTO was not pleased, and may now seek compensation for this decision in the form of almost $100 Billion dollars. [8]          Despite the problems its facing with the Wire Act, Travel Act and Illegal Gaming Business Act, the U.S. has passed yet another law aimed at eliminating online gambling but this one appears to aim at both domestic and foreign entities: The Unlawful Online Gambling Act of 2006. [9] The Act was justified by Congress through this statement of purpose:  “Internet gambling is a growing cause of debt collection problems for insured depository institutions and the consumer credit industry.” [10] It appears as though Congress has not targeted the consumer (that is, the online gambler) in this Act.[11] Instead, it declares that “[n]o person engaged in the business of betting or wagering may knowing accept, in connection with the participation of another person in unlawful Internet gambling—(1) credit…(2) an electronic fund transfer…(3) any check, draft, or similar instrument...” and so on, covering the bases of every form of currency with which someone might fund their online gambling account. [12] The language of this statute is targeted at credit and lending institutions, but it also effectively cutoff the pipeline of funds which ultimately affects online gamblers.[13]  There is a debate over whether the act of gambling online is a crime for the consumer [14], though intent is fairly clear - powers in the U.S. government desire an end to online gambling. [15]  Unfortunately there do not appear to be any cases to date interpreting the Unlawful Online Gambling Act of 2006, which would assist in the deciphering its true meaning.           Assuming that online gambling is illegal for players, or that it will be made illegal in the future, it is important to look at the policy behind that decision and decide whether it is actually a wise move on the part of Congress.  As stated above, one of the major reasons Congress gave for the Unlawful Internet Gambling Act of 2006 is that it harms the economy.[16]  However, not all agree that online gambling is the root of all evil in this respect.  An opponent to online gambling writes that “[o]nline gambling is being seen as pushing up consumer debts and that’s not good for the economy. Figures from the government have revealed that the amount of money spent on gambling shows a perturbing sharp increase.” [17] In response to this article, it has been noted that the logic in these statements is flawed.[18]  A poker blog took this argument head on: “Nice way to take two unrelated facts and come to a completely unrelated conclusion. Consumer debt is not good for the economy. True. The money wagered on gambling is sharply increasing with both the rise of online sites as well as B&M casinos sprouting up all over the place. True.  Online gambling has caused an increase in consumer debt. False.” [19] It is not altogether clear that online poker really does have a detrimental affect on the economy, making this argument seemingly weak until compelling evidence is given...but Congress has not yet made such evidence public.          When faced with legislation such as the Unlawful Internet Gambling Act of 2006, an Act that was tacked on to another unrelated bill (The Safe Port Act) and was seemingly snuck through in the eleventh hour [20], one must wonder what the true motivations behind the Act are.  While Congress attempts to convince the American public that it was for the greater good – that online gambling debt is a source of debt collection problems and the like – one has to think a deeper force may be at play.  Was it the desire to legislate morality and destroy something that (in its view) tears at the fabric of society?  Perhaps.  In this author’s opinion, this kind of legislation is inappropriate and misguided - do not attack entertainment.  Assuming the possibility of addiction played into Congress’s decision there will always be those who get addicted, no matter what the activity is.  Instead of criminalizing these actions, treat this addiction as a medical problem and help people in that way.  In short, this should not be a legal issue, but it has been made into one by legislators at Capital Hill…and now the world is fighting back.  Chock it up to a learning experience, Congress, and withdraw from this fight - you're wagering $100 Billion American tax dollars on it.Sources[1]  Associated Press (AP), World Trade Organization to Review U.S. Internet Gambling Bans, Jul. 20, 2006, available at,2933,204613,00.html (last visited Oct. 18, 2007)[2]  Bloomberg News, WTO backs Angigua, rules U.S. Online Gaming Ban is Illegal, Nov. 10, 2004,available at[3] AP, supra note 1.[4] 31 U.S.C. §§ 5361-5367 (2007).[5] AP, supra note 1.[6] Clement James, US Faces US$100 Billion Fine for Web Gaming Ban, Oct. 12, 2007,,us-faces-us100-billion-fine-for-web-gaming-ban.aspx (last visited Oct. 18, 2007).[7] Id.[8] Id.[9] 31 U.S.C. §§ 5361-5367 (2007).[10] Id.[11] See id.[12] Id.[13] See id.[14] Steve Badger, Is Online Poker Legal? Online Poker and United States Law, (last visited Oct. 15, 2007).[15] Jennifer W. Chiang, Don't Bet on It: How Complying with Federal Internet Gambling Law is not Enough, 4 SHIDLER J.L. COM. & TECH. 2 (2007) (discussing how the U.S. Department of Justice has made clear that it considers Internet gambling to be a violation of federal law).[16] 31 U.S.C. §§ 5361 (2007).[17] International Association of Professional Debt Arbitrators, Online Gambling Causing Credit Card Debt, Feb. 23, 2006, visited Oct. 18, 2007).[18] Bill's Poker Blog, Online Gambling Causing Credit Card Debt, Feb. 28, 2006, (last visited Oct. 18, 2007).[19] Id.[20] I. Nelson Rose, Safe Port Act - Unlawful Internet Gambling Enforcement Act Analysis, (last visited Oct. 18, 2007).



Domain Name System Management: For its Accountability and Transparency

by Soohye Cho October 10 2007, 09:29
I. Introduction

No matter how it is emphasized, it may be difficult to describe the importance of the Internet in our daily lives. It is very important to provide a secure service to connect domain names to the numeric computer identifiers, such as Internet Protocol (IP) addresses, for a stable internet exploration environment. The service, coordinating (i) the allocation of identifiers for the Internet, (ii) the operation of the nameservers, and (iii) policy development on the domain name system (DNS) has been managed in a central manner by the Internet Corporation for Assigned Names and Numbers (ICANN). [1] Due to its significant effects on the global society, ICANN, a Californian nonprofit public-benefit corporation, has been watched since its creation in 1998. [2] However, it has still been controversial: Is ICANN accountable and transparent enough to manage the global DNS? [More]



Securing IP Interests Means Securing a Future for Your Business

by Rayna Gokli September 20 2007, 21:21
Starting a new business can be a scary venture, especially for an inexperienced entrepreneur. [1] However, adhering to one little known business fundamental can help make the process run as smoothly as possible. [2] Specifically, securing one's intellectual property ("IP") interests from the start can secure a solid future for a new business by ensuring more funding from venture capitalists and investors. [3] IP traditionally includes patent, trademark, copyright and trade secrets, all of which can be protected with the right legal knowledge or competent attorney. [4] This article explains the four types of IP interests, their advantages and disadvantages and the benefits of securing them during the start-up stage of new businesses. [More]

Effective Redress for E-Commerce: A Case of eBay

by Soohye Cho September 12 2007, 09:54
As the Internet becomes part of our daily lives, electronic commerce (e-commerce) has been developed into one of major ordinary transaction methods.  However, despite of its rapid growth and wide popularity, e-commerce is still risky in nature, due to its anonymity, accessibility, diversity, and popularity. [1]  E-commerce is a double-edged sword: its features may benefit the online transaction environment or, conversely, harm the sound online transaction environment.  Its advantages, such as convenience and anonymity, are frequently abused and may cause online fraud, damaging e-commerce.  The seventh annual fraud survey reported online fraud would harm e-commerce by causing a loss of $2.8 billion out of e-commerce profits in 2005. [2]  In order to promote the constant growth of e-commerce, one must look to practical solutions.  One of the recommended solutions for e-commerce is effective redress. [3] II. Redress offered by eBay Redress is usually referred as “both reactive and proactive methods (e.g., alternative dispute resolution (ADR) and transaction insurance…).”[4] Following to this definition, eBay, one of leading online companies in the world, provides mainly two forms of redress in addition to eBay protection policy: (a) PayPal’s Buyer Protection through secured online payment [5] and (b) SquareTrade’s Online Mediation in the case of disputes. [6] As a secure payment provider, PayPal sends the money to recipients by the payment option chosen by senders and will cover up to $2,000 for eligible transactions, if they were paid through PayPal on eBay. [7] Another major redress is the Impartial Mediation Service provided by SquareTrade. [8] Consumers can file a case by clicking the “file a case” icon and the complainant will be notified automatically via email. [9] Parties are encouraged to have a direct negotiation at first, but they may have Mediation Service through the SquareTrade webpage. [10] III. Survey Results from eBay users Is redress effective to consumers?  The effectiveness of redress for consumers can be measured with cost-efficiency, enforceability, and simplicity. [11] However, a 2005 study conducted in the U.K. should be considered at first before beginning to analyze the effectiveness.  The study presented that only 8% of sellers and 3% of buyers answered that they had ever used SquareTrade’s online negotiation or mediation service among 400 U.K. eBay users. [12] In addition, only 4% of the pool answered that “they regarded eBay as ‘as safe a place to shop as the high street,’ while 93% of them ‘were very of fairly satisfied with the majority of their eBay transactions’ and 96% of them were satisfied with online transaction generally.” [13]  Further information on the study includes the following: “Of the One-third of users with problems who chose not to use any ADR mechanisms, nearly 52% resolved their disputes by contracting the other party directly, without the help of eBay.  Around 20% thought that it was worth more than the value of the item in question to enter a dispute, and a similar percentage said they either couldn’t be bothered to use ADR, or did not know such process existed.  Only a very few chose to turn to legal advice, or to bodies outside eBay such as the police, trading standards, credit card companies, or the courts.  Even though many may have used PayPal to pay for transactions rather than credit cards or other means such as cheques or money order, it seems to show a lack of awareness among consumers of their rights…” [14] IV. Strategies for the Effective Redress The result may suggest that we can not even examine the effectiveness of the redress because too few people try to access the provided services: the existing redresses do not reach to consumers.  It could be because consumers already know that the redress is not effective or they do not know that redress exists or what their rights are.  Either way, solving this problem requires some marketing “strategies”. [15] Firstly, more convenient, enforceable, and simple redress methods should be developed under a uniform policy. [16]  Secondly, consumer should be educated on the possible redress and their rights by governments, consumer groups, or businesses in casual languages. [17]  Thirdly, trust should be built in the redress for its fairness, neutrality, transparency, enforceability and confidentiality. [18] There are several sub issues within the strategies, and the strategies require the cooperation of governments and industries. [19]  Governments or public sectors have motives: public policy requires consumer protection and e-commerce promotion.  Industries or businesses have also incentives: they should attract consumers in the market. It is not easy, though not impossible, to align the goals of these two groups. V. Conclusion The positive future of effective redress is not clear, though it is needed to construct a sound e-commerce environment.  However, there is a promise.  Effective redress benefit e-businesses as well as consumers, as demonstrated by the fact that eBay’s earnings were increased up to 50% due to the growth of PayPal, despite of the slowdown in its main industry, the listing of auction. [20] Also,, another leading online transaction company, is considering the adoption of the secured online payment system such as PayPal “to reduce bad debt expenses.” [21]  This implies there are big economic incentives for e-businesses to invest on developing effective redress.  Considering both the government’s interests on consumer protection policy and e-businesses’ interests on economic incentive, effective redress would not be a mere dream.  Sources [1]  Mahamed Wahab, Globalization and ODR: Dynamics of Change in E-Commerce Dispute Settlement, 12 Int’l J. L. & Info. Tech. 123, 128 (2004). [2]  Susan Kuchinskas, Fraud Chewing E-Commerce Profits, eCommerce, Nov. 11, 2005, [3]  American Bar Association, Addressing Disputes in Electronic Commerce: Final Recommendations and Report, 58 Bus. Law. 415, 420 (2002). [4]  Daril Gawith, Non Litigation-Based Redress for International Consumer Transactions Is Not Cost Effective – A Case for Reform, 3 MACQUARIE J. BUS. L. 115, 115, footnote 1 (2006). [5]  eBay PayPal Buyer Protection, (last visited, Sep. 7, 2007). [6]  eBay Resolving Disputes, (last visited, Sep. 7, 2007). [7]  eBay PayPal Buyer Protection, supra note 5. [8]  eBay Resolving Disputes, supra note 6. [9]  SquareTrade, A Simple, 4 Step Process to Resolve eBay Disputes,;jsessionid=aynxjgmzh1?vhostid=bliss&stmp=ebay&cntid=aynxjgmzh1 (last visited, Sep. 7, 2007). [10]  Id. [11]  Gawith, supra note 4, at 115; American Bar Association, supra note 3. [12]  Lilian Edwards & Caroline Wilson, Redress & Alternative Dispute Resolution in Cross-Border E-Commerce Transactions, European Parliament 16 (2007), available at [13]  Id. [14]  Id. at 21 [15]  Wahab, supra note 1, at 131. [16]  See Gawith, supra note 4, at 150. [17]  Statement of Principles of the National Consumer Dispute Advisory Committee, CONSUMER DUE PROCESS PROTOCOL 10 (1998), citing Lucille M. Ponte, Boosting Consumer Confidence in E-Business: Recommendations for Establishing Fair and Effective Dispute Resolution Programs For B2C Online Transactions, 12 ALB. L. J. SCI. & TECH. 441, 454 (2002); Wahab, supra note 1, at 141. [18]  See Wahab, supra note 1, at 147-148. [19]  See Ponte, supra note 17, at 480; Wahab, supra note 1, at 142. [20]  Dan Gallagher, EBay Earings Jumpt 50% on PayPal Growth, MARKETWATCH, Jul. 18, 2007, available at [21]  Peter Kang, PayPal’s Growing Pains, FORBES, Apr. 14, 2005,



Verizon v. Vonage: If Verizon Wins, Do We All Lose?

by Katherine Croswell September 6 2007, 14:59
     Many of us enjoy those cheeky, and admittedly strange, Vonage commercials.  A substantial number of us are also drawn to the very low price of Vonage services as evidenced by the fact that Vonage has approximately 2.2 million users.[1]  For only $24.99 per month one can get their local and long distance phone service through the internet,[2] but recent events indicate that this price maybe too good to be true.  When deals like this come along, one may wonder how the company in question was able to charge so little and yet still turn a profit.  The answer to that question may be that Vonage has infringed on patents held by Verizon, turning a profit on technology they do not legally own, according to the United States District Court for the Eastern District of Virginia.[3]  While the trial has concluded and Verizon has won the first round, this case continues on appeal.[4]  With Vonage’s demise arguably on the horizon, it is time to reflect on whether Verizon will likely emerge victorious, and also on the consequences of Verizon winning the day.     Verizon Services Corporation v. Vonage Holdings Corporation involves a dispute over Voice over Internet Protocol (“VoIP”) technology, which enables consumers to communicate over the telephone using their internet connection.[5]  “VoIP involves converting voice sounds into digital format, assembling the resulting digital data into multiple packets, and transmitting those packets over the Internet.”[6] Verizon brought this suit, alleging that Vonage had infringed on several of its patents, and demanded injunction as well as damages totaling $197 million.[7]       Verizon did in fact win.[8] Jurors concluded that Vonage had infringed on three out of seven of Verizon’s VoIP patents.[9] Verizon, however, must console itself with $58 million in damages, in addition to 5.5% on each Vonage customer in the form of royalties on a per month basis (if Vonage continues using Verizon’s patented technology).[10] The jury did conclude that Verizon did not prove that Vonage’s infringement was willful.[11] This is possibly why Verizon received only $58 million in damages as opposed to the $197 million it originally sought.     While Vonage, as a result of its loss to Verizon, was subject to an injunction that would prevent it from signing up new customers, the federal appeals court has issued a stay order which allows Vonage to continue enrolling new customers as its appeal proceeds.[12]     After its loss at the District Court level, Vonage requested that this case be sent back to the district court for retrial due to the fact that the jury instructions given were not in line with the Supreme Court’s recent landmark ruling in KSR International v. Teleflex regarding an “obviousness test” to be applied in patent cases.[13] The U.S. Court of Appeals for the Federal Circuit, which hears all patent appeals, denied this request, though Vonage may still raise this issue on appeal.[14] Verizon is likely to counter Vonage’s argument by saying that Vonage did not properly preserve this issue for appeal, and also, that Vonage proposed the jury instructions they now challenge.[15]  Therefore, it seems unlikely Vonage will get to start their case over from scratch, thereby delaying further the final adjudication of this case.     When this case proceeds to the Circuit Court for review, predictions are mixed as to which side will prevail.  According to Jeff Pulver, a pioneer in the VoIP field, “Verizon’s patent claims describe a process that Pulver helped create in 1995, well before the Verizon patent.”[16] If this is true, it certainly pokes holes in the Verizon patents and opens the door for the Court of Appeals to reverse the District Court.     Verizon, however, already has one win in its column, which may have set the stage for an ultimate victory in the Court of Appeals.[17]     If Verizon wins their case, smaller VoIP companies should be afraid…very afraid. The precedent would be set at that point, and if those smaller companies are using the same technology that Vonage now uses, and can Verizon can prove it, Verizon may find itself all alone in the VoIP industry until they license their patents or someone finds a way around Verizon’s patented technology.[18]     Some claim that if Verizon wins, the way most of us have become accustomed to making calls could change significantly.[19]  It is also claimed that by going after Vonage, Verizon is effectively trying to limit the choices of the consumer to the detriment of a free market system.[20] goes so far as to encourage people to contact Verizon to tell them they support Vonage – “It’s all about choice, freedom and savings, and it’s time that you have a voice in protecting the number of phone providers, competitive prices and future innovations you deserve.”[21] Sites like this paint Verizon as an evil large corporation that’s trying to “screw over the competition,”[22] but is that an accurate picture to be painting?  Does a win for Verizon really equal a loss for the consumer?     In the end, only time will tell whether Verizon or Vonage come out on top.  One thing can be sure:  patents protect us all.  When someone invents some new great technology, we all benefit.  What encourages those inventors to invent the technology of tomorrow?  Dollar signs may be a powerful incentive.  To assure that those with a talent for innovation continue to do their best work, they must be rewarded handsomely for their toils.  It is capitalism at work, and it is what assures that those technologies we all know and love continue to improve, making life better and more convenient for all.  Therefore, if Vonage did infringe on patents legitimately held by Verizon, they should pay and possibly even go out of business. While this may be a temporary inconvenience to some, and an enormous blow to Vonage, it is important to uphold patents to ensure that great ideas continue to flow.References[1]  Andario Strange, The Future of Internet Telephony Could Hang on Vonage Case, Apr. 26, 2007,[2] Homepage,, last visited Sept. 4, 2007.[3]  Wayne Rash, Vonage Barred from Using Verizon Patents, Mar. 23, 2008,,1759,2107270,00,asp.[4]  Id.[5]  Verizon v. Vonage, No. 06-0682, 2007 WL 528749, at *1 (E.D. Va. 2007).[6]  Id.[7]  Eric Bangeman, Vonage Found Guilty of Infringing Three Verizon Patents, Mar. 8, 2007,[8]  See Strange, supra note 1[9]  Id.[10]  Id.[11]  See Bangeman, supra note 7.[12]  See Strange, supra note 1.[13]  Roger Parloff, Appeals Court Denies Vonage Quick Fix, May 3, 2007,  See also KSR International Co. v. Teleflex, 127 S.Ct. 1727 (2007).[14]  Id.[15]  Id.; Roger Parloff, Verizon Returns Serve: Vonage Wrote the Jury Instructions It's Complaining About, May 2, 2007,[16]  Strange, supra note 1.[17]  See Id.[18]  Id.[19]  Id.[20] Homepage,, last visited Sept. 4, 2007.[21]  Id.[22]  Id.



Sirius-XM “Merger of Equals” Faces Regulatory Challenge

by Jennifer Kolton February 27 2007, 15:32
SIRIUS Satellite Radio and XM Satellite Radio announced plans for a “tax-free, all-stock merger of equals” in which XM shareholders will receive 4.6 shares of SIRIUS common stock per 1 share of XM stock owned.[1]  The planned merger has raised eyebrows as to whether the Federal Communications Commission (FCC) will approve the combination, particularly as under a current FCC rule SIRIUS and XM are prohibited from acquiring each other’s licenses.[2]  Based on this FCC rule, one has to wonder whether this is termed a “merger of equals,” despite what looks like an acquisition of XM by SIRIUS, to evade harsher FCC scrutiny.I.  Terms of the Merger... of “Equals”?Although termed a “merger of equals,” this transaction appears to fit the model of an acquisition of XM by SIRIUS.[3]  For one, XM shareholders will receive a certain amount of SIRIUS stock in exchange for their XM shares[4].  Second, XM shareholders will receive a 22% premium on that share transaction[5], resembling the price of a control premium in an acquisition.  Third, SIRIUS’s Chief Executive Officer, Mel Karmazin, will lead the combined entity as CEO, but XM’s CEO, Hugh Panero, “will not have an executive role” in the new entity[6].The rationale for the terminology “merger of equals” may have to do with the current FCC satellite radio licensing rule.  In 1997, the FCC granted only two licenses and, as a measure to ensure ongoing competition, “stipulated that one of the holders would ‘not be permitted to acquire control of the other.’”[7].  Thus, the FCC stipulation suggests that the rule would only apply if either SIRIUS acquired XM, or vice-versa, but not if the two companies merged “equally.”II.  FCC ReactionIn reaction to the SIRIUS-XM merger announcement, FCC Chairman Kevin J. Martin responded that to pass regulatory scrutiny the companies “would need to demonstrate that consumers would clearly be better off with both [i] more choice and [ii] affordable prices.”[8]  Whether this is a merger of equals or a disguised acquisition, the FCC will consider these factors in its regulatory review.A.  More ChoiceThere are two possible angles from which one can consider whether a SIRIUS-XM combination will provide consumers with more choice.  The first is to consider whether the combined entity will offer greater programming choices to consumers than two separate entities.  The second is to consider whether the combined entity will offer more choice to consumers in general, taking into account other radio media sources.SIRIUS and XM impliedly advocate for the first angle.  SIRIUS and XM claim that their combination will provide consumers with a “broader selection of content, including a wide range of commercial-free music channels, exclusive and non-exclusive sports coverage, news, talk, and entertainment programming.”[9]The second angle would look to consumer choices in general.  Being that XM and SIRIUS are the only satellite radio providers[10], it seems as though consumers would have less choice with only one satellite radio provider instead of two.  However, the FCC could also look to a broader market of music providers, including “digital broadcast radio providers, wireless music services on mobile phones[,] and portable players such as iPods.”[11]  The problem with this argument, though, is that the broader market of “choice” exists with or without a SIRIUS-XM merger.  In other words, consumers already have the choice to listen to satellite radio or another musical source, regardless of whether there are one or two satellite radio providers.  Thus, whether the proposed merger will offer consumers more choice will turn upon whether SIRIUS and XM can deliver the broader radio content as promised.B.  Affordable PricesSIRIUS and XM describe how the merger will enhance financial performance[12], and one may think that such performance benefits will flow down to consumers.  SIRIUS and XM point to “better manag[ing] its costs through sales and marketing and subscriber acquisition efficiencies, satellite fleet synergies, combined R&D and other benefits from economies of scale.”[13]  However, one must also consider the immense costs currently faced by each company, as well as costs associated with the merger, which may affect consumer prices.  Both SIRIUS and XM currently need “to overcome their debt and depreciation costs.”[14]  In terms of merger costs, currently “XM radio receivers [cannot] receive signals from Sirius, and vice versa.”[15]  Although XM and SIRIUS are expending efforts to develop a receiver which would be compatible with both signals[16], one logically would not expect this development to be cost-free.  Another concern is that the presence of only one company in the market, rather than a pair of competitors, could give the merged entity “more pricing power as the only U.S. satellite radio provider.”[17]  Thus, while a merger may enhance financial performance, it is not clearly evident that the resulting benefits would overcome the costs currently borne by each company individually and the costs incurred to implement the merger.III.  Predicted OutcomeThis is likely to be a difficult challenge for SIRIUS and XM.  The FCC’s concerns about choice and affordable prices indicate standards against which the FCC may modify the rule if it does not see this as a merger of equals.  However, one should not discount the current FCC rule against one satellite radio provider’s acquisition of the other’s license.  In other words, before the FCC even considers choice and affordable prices, it should look to whether the “merger of equals” is really what it purports to be, or whether the combination is a linguistic loophole to the rule against acquiring a competitor’s broadcasting license.  All in all, even if the FCC accepts the proposed transaction as a “merger of equals” rather than as an acquisition of XM by SIRIUS, it is not clear that the transaction would result in more choice and affordable prices for consumers, leading one to question the practicable viability of the transaction.[1] Press Release, SIRIUS Satellite Radio, SIRIUS and XM to Combine in $13 Billion Merger of Equals (Feb. 19, 2007), available at[2] Satellite Radio Deal Puts Focus on Regulators, N.Y. TIMES, Feb. 20, 2007, available at[3] Phil Mintz, The XM-Sirius Deal May Not Fly, BUSINESS WEEK ONLINE, Feb. 20, 2007 (page unavailable on Westlaw).[4] Id.[5] Id.[6] Id.[7] Joseph Menn and David Colker, Satellite Radio Competitors Agree to Merge, L.A. TIMES, Feb. 20, 2007 at Business 1 (emphasis added).[8] Editorial, Radio Daze: XM and Sirius, the Nation’s Two Satellite Radio Providers, Want to Merge.  The FCC Should Let Them, L.A. TIMES, Feb. 20, 2007, at 20 (emphasis added).[9] Press Release, SIRIUS Satellite Radio, supra note 1.[10] Menn and Colker, supra note 7.[11] Id.[12] See Press Release, SIRIUS Satellite Radio, supra note 1.[13] Id.[14] Editorial, supra note 8.[15] Seth Sutel, Satellite Radio Rivals XM and Sirius Agree to Combination, CHICAGO TRIBUNE, Feb. 19, 2007, available at,1,2557495.story.[16] Id.[17] Id.

Virtual Bank, Real Scam?

by Mark Cassidy February 12 2007, 23:51
    Second Life is a popular “virtual world” in which people across the real world interact with each other using “avatars.” [1]  Avatars are three-dimensional alter-egos that can be completely customized; users can change their avatar’s clothing, height, weight, and even add features like wings. [2]  Unlike other virtual worlds, which are basically interactive computerized versions of fantasy role-playing games, Second Life is not a game in the traditional sense. [3]  It does not have goal or end; there are no monsters to fight, mysteries to solve, or princesses to rescue. [4]  Rather, Second Life provides its users with a toolkit with which they can create items within the virtual world. [5]  Users can create pretty much anything they want: buildings, vehicles, clothing, even games. [6]     Much of the activity in Second Life centers on commerce with users “buying” and “selling” “land” and each other’s creations. [7]  When a user signs up he or she receives an initial allotment of “Linden Dollars,” Second Life’s currency, and may purchase more, using real dollars, from Linden Lab, the creators of Second Life. [8]  Users are encouraged to “buy” land from Linden Lab, build a home for their avatar, and develop businesses. [9]  Given Second Life’s commercial orientation it is no surprise that in-game banks developed.     The best known bank in Second Life is Ginko Financial. [10]  As of this writing, Ginko claims to hold 114,398,068 Linden Dollars, the equivalent of $420,581. [11]  Ginko promises 0.10 percent daily accrued interest, approximately a 44 percent annual return. [12]  No real banks pay anything close to 44 percent annual interest and even top investment mangers do not promise such a high return. [13]       The Chief Executive of Ginko Financial, who goes by the name Nicholas Portocarrero in Second Life, will not reveal his (if “he” is in fact a man) real name or where he is located. [14]  Nor will he reveal anything about how he is generating such amazing returns for his depositors. [15]  In an interview with Reuters, Portocarrero was evasive at best.  When asked if Ginko was generating its returns through lending, Portocarrero responded “No, the bank is essentially loaning the money to itself right now.” [16]  An assertion that direct contradicts Ginko’s website which states “Ginko Financial takes part of the total cash deposited and gives loans to various trustworthy entities and persons, to make the money necessary to pay the daily interest rate.” [17]       The combination of outsized returns and zero transparency has led some to conclude that Ginko is a Ponzi scheme. [18]  In a Ponzi scheme, the promoter promises huge returns to investors on short term investments. [19]  The scheme works by paying older investors with funds from newer ones. [20]  The first few people who invest in a Ponzi scheme usually receive the interest promised them, but Ponzi schemes eventually collapse as they do not actually generate money and require an ever increasing number of new investors to keep up the interest payments owed. [21]  When asked by Reuters whether he was running a scam and if he had a good way to rebut such an accusation, given that Ginko operates without any oversight or regulation, Portocarreo was once again evasive. [22]  He first tried avoiding the question, but when pressed, he finally stated that he did not know of a way to rebut the accusation and denied that Ginko was a Ponzi Scheme. [23]  According to Portocarreo, Ginko’s lack of disclosure is the risk investors take on in exchange for their large returns and that people are just going to have to trust him. [24]       When asked if Ginko was profitable, Portocarreo once again avoided the question, stating “I could say yes, but it wouldn’t be entirely accurate.  It depends on how things are calculated and (what) you count and don’t count.” [25]  This is a remarkable response for someone who is paying 44 percent interest to his investors.       Ginko’s promised returns, lack of transparency, and evasive answers should make investors suspicious or at least cautious.  Nevertheless, as the numbers show, people have deposited a great deal of money with Ginko.  More curious than people’s willingness to give their money to Ginko, is that Linden Lab does not seem to find anything worrisome about the venture. [26]  Linden Lab’s CEO and founder, Philip Rosedale, believes that banks can exist within the virtual world of Second Life without regulation. [27]  Rosedale likens banks like Ginko to Grameen Bank of Bangladesh which makes small unsecured loans to the very poor to help them start businesses and work their way out of poverty. [28]  Grameen works closely with its borrowers to help them become successful. [29]  By lending to groups, and requiring that the first few people in the group begin to pay back their loan before Grameen lends to the others in the group, Grameen creates social pressure on people to pay back their debts. [30]  Ultimately, Grameen’s loan policy comes down to trusting the people they lend to, and so far Grameen’s trust has been warranted as they have a very low rate of default and numerous success stories. [31]       Rosedale believes that Grameen’s trust based model of lending can be applied in Second Life and that fear of being ostracized by the Second Life Community will ensure that banks like Ginko behave ethically. [32]  However, Rosedale has things backwards.  Grameen makes no secret of who they are, what they are, or how the bank works.  Grameen is the one who trusts that borrowers will repay their loans.  The risk is borne entirely by Grameen and the relationship between Grameen and its borrowers is a close and active one. [33]  Ginko is the exact opposite.  Rather than Ginko trusting borrowers, depositors trust Ginko.  They are the ones bearing all of the risk as their deposits are not insured, Ginko is completely unregulated, and none of the depositors know who is behind Ginko or how the bank makes money. [34]  Unlike the people who Grameen lends to who cannot simply leave with Grameen’s money, there is nothing stopping someone like Portocarreo from simply taking people’s money and shutting off his Second Life account.  In his Reuters interview, Portocarreo stated “ [w]e keep a [Linden Dollar] reserve of about 5%, sometimes less . . .” [35]  This means that at least 95 percent of the Linden Dollar deposits Portocarreo has received have been converted to real currency.  As depositors have no idea what Ginko does with their money, it is possible that Portocarrero has spent the money or transferred it to a location unreachable by U.S. creditors.       Given Ginko’s complete lack of transparency, if it turned out to be a swindle, it would be very hard for depositors to track down the person or persons behind it.  Even if they were found, there is no guarantee that depositors would be able to obtain redress.  If this were to occur, it is likely that the depositors would sue Linden Lab for not protecting them from fraud.  By not taking efforts to ensure that commercial activity in Second Life is conducted in a transparent manner, Linden Lab is in essence putting their stamp of approval on ventures like Ginko.  Linden Lab of course absolves itself of any liability for the actions of Second Life users in its Terms of Service Agreement, but there is no guarantee that the Terms of Service Agreement will hold up in court. [36]  If a court determines that Linden Lab is liable for fraudulent activities that take place within Second Life, they may be overwhelmed with suits.  To avoid liability, and governmental regulation of the commercial activities within Second Life, Linden Lab should develop rules and policies that ensure commercial transactions between users are transparent and legitimate. [1] Second Life, What is Second Life?, (last visited Feb. 12, 2007); Second Life, Create an Avatar, (last visited Feb. 12, 2007). [2] Second Life, Create an Avatar, (last visited Feb. 12, 2007). [3] Second Life, What is Second Life?, (last visited Feb. 12, 2007). [4] See Id. [5] Second Life, Create Anything, (last visited Feb. 12, 2007). [6] See Second Life, The Creations, (last visited Feb. 12, 2007). [7] See Second Life, Economy, (last visited Feb. 12, 2007). [8] Second Life, Membership Plans, (last visited Feb. 12, 2007). [9] Second Life, Own Virtual Land, (last visited Feb. 12, 2007). [10] Adam Reuters, Ginko Financial – Pioneer or Pyramid?, Reuters Second Life News Center, Oct. 15, 2006, [11] Ginko Financial, (last visited Feb. 12, 2007); Second Life, LindeX Market Data, (last visited Feb. 11, 2007). [12] Reuters, supra note 10; (Ginko recently lowered its daily interest rate from 0.10 to 0.09). [13] Id. [14] Id. [15] Adam Reuters, INTERVIEW: Ginko CEO Nicholas Portocarrero, Reuters Second Life News Center, Oct. 12, 2006, [16] Id. [17] Ginko Financial, About Us, (last visited Feb. 12, 2007). [18] Reuters, supra note 10. [19] Id. [20] Id. [21] Id. [22] Reuters, supra note 15. [23] Id. [24] Id. [25] Id. [26] See Reuters, supra note 10. [27] Reuters, supra note 10. [28] Reuters, supra note 10; Grameen Bank, Breaking the Vicious Cycle of Poverty Through Microcredit, (last visited Feb. 12, 2007). [29] Grameen Bank, Breaking the Vicious Cycle of Poverty Through Microcredit, (last visited Feb. 12, 2007). [30] Id. [31] Id. [32] Reuters, supra note 10. [33] Grameen, supra note 29. [34] Reuters, supra note 10. [35] Reuters, supra note 15. [36] Second Life, Terms of Service, (last visited Feb. 12, 2007).

The Online Movie Rental Battle

by Jeff Ostrom October 5 2006, 02:42
I. Introduction

Should the concept of movie rentals via the internet be protected by a patent? Netflix, Inc. seems to think so. That is what prompted them to sue Blockbuster, Inc. for infringing their patents by starting up Blockbuster Online. But Blockbuster thinks Netflix has invalid patents and that the monopolization of the online movie rental business would not be fair. These are the issues that recently came up in Netflix, Inc. v. Blockbuster, Inc. [1]. [More]

Is the Internet Replacing Real Estate Agents?

by Alicia Filter April 11 2006, 15:56
Before the Internet became popular, homebuyers had to spend days touring dozens of homes pre-selected by their real estate agent, and were often forced to settle on a home that was merely satisfactory. Now individuals can shop online for homes, take virtual tours of homes, and even list their homes for sale online without ever stepping foot inside an agent's office. The Internet provides what previously could only be provided by an agent: a direct connection between buyers and sellers, thus eliminating the need for a middleman that charges a pricey commission. In this age of technology though, some argue that the middleman can never be entirely replaced by the Internet. [More]

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