TR Article CMP3322_040816

WHAT’S INSIDE
Litigation News and Analysis • Legislation • Regulation • Expert Commentary
COMPUTER & INTERNET
Westlaw Journal
41917641
VOLUME 33, ISSUE 22 / APRIL 8, 2016
PATENT
4 Microsoft faces patent
infringement suit over Xbox
after IPR losses
Microsoft Corp. v. Biscotti Inc.
(Patent Tr. & App. Bd.)
6 Toner cartridge reseller
throws patent-exhaustion
questions to high court
Impression Products Inc. v.
Lexmark International Inc. (U.S.)
ONLINE CONTRACTS
7 Consumer lawsuit against
TransUnion can go forward,
7th Circuit says
Sgouros v. TransUnion Corp.
(7th Cir.)
INSURANCE
8 Delayed notice of defamation
claims invalidated coverage,
insurer says
Travelers Indemnity Co. v.
Software Publishers
Association (D.D.C.)
9 Judge rejects bifurcation
in Bitcoin phishing case
Bitpay Inc. v. Massachusetts
Bay Insurance Co. (N.D. Ga.)
UNFAIR COMPETITION
10 Google Drive tricks customers
with auto-renewal charges,
amended suit says
Mayron v. Google Inc.
(Cal. Super. Ct.)
JURISDICTION
11 Slovenian publisher can’t be
tried for defamation in South
Carolina, appeals court says
Hidria USA v. Delo d.d.
(S.C. Ct. App.)
AUTOMATIC TRANSFER
FUNDS
12 Court says lender must
pay $500,000 for requiring
automatic payments
Kemplyv.CashCallInc.(N.D.Cal.)
SEE PAGE 3
CONTINUED ON PAGE 17
EXPERT ANALYSIS
Financial services — Cybersecurity and new technologies
take center stage
Linda Lerner, Eden Rohrer, Jenny Cieplak and Mike Gill of Crowell & Moring discuss
the cybersecurity and technology-related issues financial industry regulators will
focus on in the coming year.
ANTITRUST
Japanese electronics firm sues chipmaker
for abusing patent standards
By Melissa J. Sachs, Esq., Senior Legal Writer, Westlaw Journals
A semiconductor company that owns essential patents has tried to strong-arm
competitors and downstream electronics suppliers into accepting unreasonable
licensing agreements, according to an antitrust complaint filed in San Jose,
California, federal court.
Funai Electric Co. et al. v. LSI Corp. et al.,
No. 16-cv-1210, complaint filed (N.D. Cal.
Mar. 11, 2016).
Avago Technologies and two wholly owned
subsidiaries offered licenses to Funai Electric
Co. only if it also agreed to take other irrelevant
patents, according to a complaint the Japanese
electronics company filed in the U.S. District
Court for the Northern District of California.
Funai had incorporated these essential patents
into its electronics products, relying on the
defendants’ promises to industry standard-
setting organizations to offer the technologies
on fair, reasonable and nondiscriminatory, or
FRAND, terms, the suit says.
Not only have the defendants tried to coerce
Funai during licensing negotiations, they have
also sued the Japanese company and one of
its suppliers “for the sole purpose of extracting
exorbitant royalties,” the suit says.
REUTERS/Richard Chung
Two technology companies say a powerful semiconductor company
sought to coerce them into licensing unneeded patents as a condition
of selling them essential ones. A semiconductor is shown here.
With these practices, the chipmakers have
breached standard-setting contractual
obligations and have violated Section 2 of the
Sherman Act, 15 U.S.C.A. § 2, and California’s
unfair competition law, Cal. Bus. & Prof. Code
§ 17200.

© 2016 Thomson Reuters2 | WESTLAW JOURNAL n
COMPUTER & INTERNET
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TABLE OF CONTENTS
Antitrust: Funai Electric Co. v. LSI Corp.
Japanese electronics firm sues chipmaker for abusing patent standards (N.D. Cal.)......................................1
Expert Analysis: By Linda Lerner, Esq., Eden Rohrer, Esq., Jenny Cieplak, Esq., and Mike Gill, Esq.,
Crowell & Moring
Financial services — Cybersecurity & new technologies take center stage......................................................3
Patent: Microsoft Corp. v. Biscotti Inc.
Microsoft faces patent infringement suit over Xbox after IPR losses (Patent Tr. & App. Bd.).........................4
Q&A: Patent attorneys on effects of IPR wins against Microsoft......................................................................5
Patent: Impression Products Inc. v. Lexmark International Inc.
Toner cartridge reseller throws patent-exhaustion questions to high court (U.S.)..........................................6
Online Contracts: Sgouros v. TransUnion Corp.
Consumer lawsuit against TransUnion can go forward, 7th Circuit says (7th Cir.)........................................... 7
Insurance: Travelers Indemnity Co. v. Software Publishers Association
Delayed notice of defamation claims invalidated coverage, insurer says (D.D.C.)..........................................8
Insurance: Bitpay Inc. v. Massachusetts Bay Insurance Co.
Judge rejects bifurcation in Bitcoin phishing case (N.D. Ga.)............................................................................9
Unfair Competition: Mayron v. Google Inc.
Google Drive tricks customers with auto-renewal charges, amended suit says (Cal. Super. Ct.)................. 10
Jurisdiction: Hidria USA v. Delo d.d.
Slovenian publisher can’t be tried for defamation in South Carolina, appeals court says
(S.C. Ct. App.).......................................................................................................................................................11
Automatic Transfer Funds: Kemply v. CashCall Inc.
Court says lender must pay $500,000 for requiring automatic payments (N.D. Cal.)..................................12
Securities: Haroutunian v. Mentor Graphics Corp.
Software company hit with shareholder suit over low consumer demand (D. Or.).........................................13
Securities: Lomingkit v. Apollo Education Group
Education company hid illegal recruiting tactics, suit says (D. Ariz.)..............................................................14
Securities: In re iDreamSky Technology Ltd. Securities Litigation
iDreamSky investors amend suit over delayed game launch (S.D.N.Y.)..........................................................15
Insider Trading: SEC v. Hardy
Former Microsoft manager to pay $380,000 on insider trading charges (W.D. Wash.)................................16
News in Brief......................................................................................................................................................18
Case and Document Index................................................................................................................................19

APRIL 8, 2016 n
VOLUME 33 n
ISSUE 22 | 3© 2016 Thomson Reuters
EXPERT ANALYSIS
Financial services — Cybersecurity and new technologies
take center stage
By Linda Lerner, Esq., Eden Rohrer, Esq., Jenny Cieplak, Esq., and Mike Gill, Esq.
Crowell & Moring
In 2016, financial regulators will bear down
on cybersecurity requirements and continue
to watch electronic trading platforms —
including bitcoin — as they evolve.
In cybersecurity, regulatory examiners are
going to be asking, ‘What processes and
procedures do you have in place, do they
address your identified risks, and have you
implemented them.’ Broker-dealers and
investment advisors should be on notice
that regulators expect them to identify
cybersecurity risks and maintain up-to-date
policies and tailored procedures to manage
those threats.
The basic elements of a cybersecurity plan
should include threat assessment, intrusion
prevention, data protection, access control,
review of vendor cybersecurity procedures,
and an effective incident response plan and
team. Cybersecurity insurance should be
considered. Guidance from the Securities and
Exchange Commission (SEC), the Financial
Industry Regulatory Authority (FINRA), and
the National Futures Association (NFA)
should be reviewed, along with reference
material in their guidance footnotes.
Meanwhile, financiers’ interest continues
to build in electronic trading platforms,
particularly in investment banking, fixed
income, and foreign currency markets. These
platforms offer greater access to products
traditionally restricted to certain dealers and
banks.
Both the SEC and FINRA will be working
to maintain the integrity of the markets
by surveillance of trading activity and by
pursuing and prosecuting violative conduct
made possible by advances in technology.
Algorithms can run amok because of a lack
of proper controls, and intentionally abusive
algorithms are square in their sights.
The technology that tracks bitcoin ownership,
known as the blockchain or the distributed
ledger, has become a subject of interest
on Wall Street. Banks, securities firms, and
others are interested in the technology,
rather than the currency.
(L - R) Linda Lerner is a partner and co-leader in Crowell & Moring’s financial services group in New
York. She can be reached at llerner@crowell.com. Eden Rohrer is a partner in the firm’s corporate,
financial services and white collar & regulatory enforcement groups in New York. She can be reached
at erohrer@crowell.com. Jenny Cieplak is counsel in the corporate group in the firm’s Washington
office. She can be reached at jcieplak@crowell.com. Mike Gill is counsel in the government affairs
group in the firm’s Washington office. He can be reached at mgill@crowell.com. Reprinted with
permission.
Broker-dealers and
investment advisors should
be on notice that regulators
expect them to identify
cybersecurity risks.
The blockchain enables the direct exchange
of money and assets without having to rely on
middlemen. Every time a bitcoin transaction
is made, it is broadcast to everyone and
verified by separate people. The transactions
are virtually instant, entirely transparent, and
nearly cost-free.
The technology facilitates tracking title to
assets, which will help businesses comply
with anti-money laundering and other
regulations. High-end pieces of art have
been used in money laundering. It’s tough
to understand who the original owner is as
investment property moves through various
LLCs, and it may be used by terrorists and
criminals to launder money.
Bitcoin technology may also prove useful
to regulators. They will look at it from a
number of perspectives, including anti-
money laundering compliance and as a way
to streamline reporting of transactions and
clearing of trades. WJ

4 | WESTLAW JOURNAL n
COMPUTER & INTERNET © 2016 Thomson Reuters
PATENT
Microsoft faces patent infringement suit
over Xbox after IPR losses
By Patrick H.J. Hughes, Managing Editor, Westlaw Daily Briefing, and
Melissa J. Sachs, Senior Legal Writer, Westlaw Journals
Biscotti Inc. has staved off three inter partes review challenges to its video
communications patent, paving the way for the Allen, Texas-based technology
company to continue with its patent infringement suit against Microsoft.
Microsoft Corp. v. Biscotti Inc., No. IPR2014-
1459, 2016 WL 1084802 (P.T.A.B. Mar. 17,
2016).
Biscotti owns a portfolio of patents and
pending applications for technologies related
to video, remote controls and cameras.
The company is the exclusive assignee of
U.S. Patent No. 8,144,182, covering “tools
and techniques for providing video-calling
solutions.”
The company sued Microsoft in November
2013 in the U.S. District Court for the Eastern
District of Texas, alleging the computer
giant’s Xbox One video game console
infringed the ‘182 patent. The console allows
users to place high-quality video calls over
a network while playing video games or
streaming television.
While the infringement suit was pending,
Microsoft filed six petitions with the PTO
to institute three separate IPR proceedings
— a relatively new review process under
Section 6 of the Leahy-Smith America
Invents Act, 35 U.S.C.A. § 314.
The IPR petitions challenged different
specifications of the ‘182 patent’s 86 claims.
In March 2013 the Patent Trial and Appeal
Board found a reasonable likelihood that at
least one claim would be found invalid and
agreed to initiate IPR proceedings.
Three years later, the PTAB has declared that
Microsoft proved no claim of the ‘182 patent
was anticipated, obvious or invalid on any
other ground. WJ
Attorneys:
Petitioner: Joseph A. Micallef and Jeffrey P.
Kushan, Sidley Austin LLP, Washington, DC;
Douglas I. Lewis, Sidley Austin LLP, Chicago, IL
Patent owner: Amanda Hollis, Kirkland & Ellis,
Chicago, IL
Related Court Documents:
Decision (Claims 6–8, 12, 17–23, 38–42, 44, 45,
50, 52 and 53): 2016 WL 1085103
Decision (Claims 1, 4, 5 and 69–74):
2016 WL 1084802
Decision (Claims 6, 13–16, 24–29, 31–37, 41, 46
and 82–86): 2016 WL 1084760
REUTERS/Mike Segar
WESTLAW JOURNAL
INTELLECTUAL
PROPERTY
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APRIL 8, 2016 n
VOLUME 33 n
Q&A: Patent attorneys on effects of IPR wins
against Microsoft
Kirkland & Ellis attorneys Adam R. Alper, Michael W. De Vries and Amanda Hollis, who represented Biscotti in
IPR proceedings before the Patent and Trademark Office, discussed the significance of these rulings.
invalidate over 50 of Biscotti’s patent claims. After a fully litigated
trial on the merits, using the same law firm Microsoft is using in the
Texas district court litigation, the PTO again decided during the
IPR proceedings that all Biscotti’s claims are patentable. Thus, the
patentability of Biscotti’s invention has been confirmed multiple
times over. Not a single claim was invalidated or needed to be
amended in the IPR process.
The IPR decisions declaring a complete victory for Biscotti are
particularly significant because statistics show IPR petitions
are much more often than not successful in invalidating patent
claims. For example, the PTO’s published statistics show that
only 4 percent of IPR petitions result in final written decisions
declaring all challenged claims to be patentable. Parties such as
Microsoft frequently believe the IPR process is their best path to
victory on invalidity challenges and therefore they put their best
arguments forward in those petitions. That is because parties such
as Microsoft, who choose to try their invalidity challenges before
the PTO in an IPR proceeding but fail to get a decision invalidating
the challenged claims, are precluded by law from later raising —
in court or other PTO proceedings — invalidity grounds that they
raised or could have raised in the IPR process. In other words,
when Biscotti’s case against Microsoft is tried in Marshall, Texas,
Microsoft will be precluded from raising invalidity defenses it
raised or otherwise could have chosen to raise in the IPR process.
The purpose of this law is to prevent serial invalidity challenges to
a patent.
TR: What do you predict will be the outcome of the litigation
against Microsoft’s Xbox?
K&E: The ultimate outcome of the litigation should be a finding
that Microsoft has infringed the ‘182 patent. As a result, Microsoft
may be subject to an injunction precluding the sale of its Xbox One
and related services as well as money damages for the company’s
past infringement. Rather than attempting to negotiate a
reasonable resolution with Biscotti or stopping its infringement,
Microsoft took another shot at challenging the patents in the PTO
— filing and losing multiple IPR proceedings against Biscotti’s
‘182 patent. A federal judge and jury in Marshall, Texas, will
ultimately decide the damages due to willful infringement of
Biscotti’s intellectual property and whether to enjoin Microsoft’s
infringing sales of the Xbox One. WJKirkland & Ellis attorneys Adam R. Alper, Michael W. De Vries and Amanda Hollis.
Thomson Reuters: What is the technology disclosed in the
‘182 patent?
Kirkland & Ellis: Among other things, Biscotti’s ‘182 patent
discloses a system with technology that allows simultaneous
video calling, TV watching and/or gaming. For example,
Biscotti’s patent discloses technology that enables users to watch
TV while they play their game and also to participate in picture-
in-picture calls while playing a game or watching TV. Biscotti’s
technology also enables broadcasting games. The technology
overcomes barriers with consolidating multiple audio and video
sources into a seamless, high-definition user experience.
TR: For those unfamiliar with the lawsuit, how does Microsoft
allegedly infringe Biscotti’s patents?
K&E: The Microsoft Xbox One and related services infringe
Biscotti’s patent in numerous ways. Biscotti’s patent has over
80 claims, 53 of which are asserted against Microsoft. The
hardware and software of the Xbox One infringes Biscotti’s patent.
Microsoft also induces infringement of the ‘182 patent including
by encouraging use of its Xbox One in an infringing manner.
TR: Are the IPR decisions a significant win for a patent owner like
Biscotti?
K&E: Yes. Before the litigation with Microsoft, the patentability
of the ‘182 patent had already been tested by a skilled PTO
examiner through the patent application process, and the PTO
confirmed the claimed technology was patentable. Several
months after the litigation began, Microsoft filed IPR petitions
asking a separate division of the PTO to take a new look at the
‘182 patent and challenged the patentability of Biscotti’s
invention. Through these petitions, Microsoft attempted to

PATENT
Toner cartridge reseller throws patent-exhaustion questions
to high court
By Patrick H.J. Hughes, Managing Editor, Westlaw Daily Briefing
The first sale of a product, even if made abroad, should end Lexmark International’s right to sue for patent infringement,
according to printer ink reseller Impression Products, which is asking the U.S. Supreme Court to settle two related
patent-exhaustion questions.
REUTERS/Gary Cameron
Impression Products Inc. v. Lexmark
International Inc., No. 15-1189, petition for
cert. filed (U.S. Mar. 21, 2016).
In its certiorari petition, Impression says the
U.S. Court of Appeals for the Federal Circuit
erred when the full court said Lexmark could
successfully assert a patent infringement suit
against a buyer of its toner cartridges that
refurbished ink containers for resale instead
of recycling them.
The petition asks if the patent-exhaustion
rule should echo the high court’s recently
established copyright rule that exhausts
rights to a copyrighted work upon a first sale,
even if that sale is made abroad.
Impression also asks if the Federal Circuit’s
decision completely eliminated the patent-
exhaustion doctrine, because the ink reseller
says patent holders can now “avoid the
doctrine entirely by specifying a restriction in
connection with a first sale.”
The patent-exhaustion, or first-sale rule, says
that a patent is exhausted upon the first sale
of a product, such as a car or a computer, so
that used products can be resold without fear
of infringement.
INK CARTRIDGES DESIGNED
FOR SINGLE USE
Lexmark sold discounted single-use ink
cartridges to consumers under a program
that expressly prohibited resale and required
buyers to return the empty cartridges to
Lexmark for recycling.
After obtaining Lexmark’s cartridges in the
United States and abroad, ink suppliers
modified them to circumvent the patented
single-use design and resold them in the
United States.
Lexmark accused more than 50
manufacturers, importers and retailers of
infringing its ink cartridge patents.
After numerous stipulations and default
judgments, Impression was left as the sole
defendant.
Impression presented a first-sale defense,
arguing that Lexmark’s patent rights could
not be enforced against a legitimate buyer of
that patented product.
Impression also said Lexmark could not
assert patents against resellers because the
single-use restriction on the cartridges was
anti-competitive.
The dispute eventually made it to the Federal
Circuit, which heard the appeal en banc.
In a 10-2 decision, the court said Lexmark’s
foreign sales did not exhaust the company’s
right to sue for patent infringement in the
United States. Lexmark Int’l Inc. v. Impression
Prods Inc., Nos. 2014–1617 and 2014–1619,
2016 WL 559042 (Fed. Cir. Feb. 21, 2016).
Inaddition,theFederalCircuitsaidconditions
on the sale of patented devices are allowed
as long as patent holders have “clearly stated
restrictions on post-sale activities.”
The Federal Circuit reiterated its ruling in
Mallinckrodt Inc. v. Medipart Inc., 976 F.2d
700 (Fed. Cir. 1992), that a “single use only”
notice constituted a valid condition for the
resale of a patented medical device.
PETITION FOR CERTIORARI
In its certiorari petition, Impression says the
Supreme Court established in Kirtsaeng v.
John Wiley & Sons Inc., 133 S. Ct. 1351 (2013),
that foreign sales — like domestic sales —
exhaust an intellectual property holder’s
right to sue domestically.
Impression says the court in Kirtsaeng
interpreted the relevant provision in the
Copyright Act through the lens of the
common law to determine the scope of the
first-sale doctrine.
The court in Kirtsaeng said the Copyright
Act “constrained” the first-sale doctrine that
existed at common law, according to the
petition.
“The exhaustion question in the patent
context is more straightforward,” the petition
says, as “there is no statutory language
to interpret,” so patent rights should
automatically be exhausted.
The petition also attacks the enforcement
of resale restrictions, both abroad
and domestically, saying they are
unconstitutional.
The anti-competitive implications of
enforcing conditions such as the recycling
requirement that Lexmark imposes on
cartridge buyers distorts patent law by
eliminating competition in the secondary
market, Impression says.
Allowing such restrictions “reduces
consumer welfare,” as consumers are held
to conditions that patent holders invent, the
petition says.
“The inconvenience, annoyance and
inefficiency can thus be passed down
the chain of distribution, with no obvious
stopping point short of the end of the article’s
useful life,” the petition concludes. WJ
Attorneys:
Petitioner: Edward F. O’Connor, Avyno Law,
Encino, CA; Andrew J. Pincus, Paul W. Hughes
and Matthew A. Waring, Mayer Brown LLP,
Washington, DC
Related Court Document:
Petition: 2016 WL 1130030

APRIL 8, 2016 n
VOLUME 33 n
ONLINE CONTRACTS
Consumer lawsuit against TransUnion can go forward,
7th Circuit says
(Reuters) – Consumers alleging in a class action that credit bureau TransUnion sold them inaccurate, worthless credit
scores online cannot be compelled to arbitrate their claims, a federal appeals court has ruled.
“No court has suggested that the presence of a
scrollable window containing buried terms and
conditions of purchase or use is, in itself, sufficient for the
creation of a binding contract,” the 7th Circuit said.
Sgouros v. TransUnion Corp., No. 15–1371,
2016 WL 1169411 (7th Cir. Mar. 25, 2016).
In a decision elaborating on Internet
contracts, the 7th U.S. Circuit Court of
Appeals said the arbitration agreement
on Transunion’s website was not valid as
consumers had no way of knowing they were
agreeing to it when they clicked on a button
to buy a “three-in-one” credit score package.
“We cannot presume that a person who
clicks on a box that appears on a computer
screen has notice of all contents not only of
that page but of other content,” the appellate
panel said. “A person using the Internet may
not realize that she is agreeing to a contract
at all.”
The lawsuit was filed on behalf of Gary
Sgouros of Missouri, who said he paid $39.90
in2013foracreditscoresohecouldnegotiate
a favorable loan from a car dealer. The credit
score turned out to be useless because it was
100 points higher than the one pulled by the
dealer, his lawsuit said.
Filed in 2014, the nationwide lawsuit seeks
damages for violations of the U.S. Fair Credit
Reporting Act and state consumer protection
laws in Missouri and Illinois.
TransUnion, along with Equifax and Experian,
collect consumer information and sell credit
reports to businesses. The lawsuit involves a
product a TransUnion unit sold to consumers
that included a credit score, credit report and
analysis of a consumer’s debt levels.
The lawsuit said the credit scores sold
to consumers were based on a so-called
VantageScore system that is different from
the well-known FICO scores used in over
90 percent of U.S. lending decisions. Most
consumers do not realize that multiple
scoring systems exist, the lawsuit said.
FICO, a California software company, creates
credit scores based on information provided
by TransUnion, Equifax and Experian.
VantageScore, an alternative to FICO, was
created by the three credit agencies in 2006.
Lawyers for TransUnion did not respond to
requests for comment.
In a motion to compel arbitration in 2014,
TransUnion’s lawyers said that before
consumers purchase a credit score, they must
agree to terms of a service agreement calling
for any dispute to be resolved in arbitration.
The service agreement is found in a scrollable
window, and consumers indicate their
acceptance by clicking an “I accept” button
on the page, the lawyers said.
U.S. District Judge James Zagel last year
rejected that argument, saying the website’s
layout confused users about what they
were consenting to with the accept button.
Sgouros v. TransUnion Corp. et al., No. 14-cv-
1850, 2015 WL 507584 (N.D. Ill., E. Div.
Feb. 5, 2015). Boldface lettering above the
button said clicking it meant consumers
were authorizing TransUnion to get personal
information from other companies.
The 7th Circuit said the District Court ruled
correctly.
“No court has suggested that the presence
of a scrollable window containing buried
terms and conditions of purchase or use is, in
itself, sufficient for the creation of a binding
contract,” the appellate panel said. WJ
(Reporting by Dena Aubin)
Attorneys:
Plaintiff-appellee: Christopher B. Sanchez,
Cafferty Clobes Meriwether & Sprengel, Chicago,
IL; Leslie Bailey, Public Justice, Oakland, CA
Defendants-appellants: Michael C. O’Neil,
Timothy R. Carraher and Michael D. Richman,
Reed Smith LLP, Chicago, IL
Opinion: 2016 WL 1169411
See Document Section A (P. 21) for the opinion.

INSURANCE
Delayed notice of defamation claims invalidated coverage,
insurer says
Travelers Indemnity Co. has filed a lawsuit claiming it is not obligated to defend a software publishing group from
defamation claims because the group did not provide it with timely notice of any covered claim.
Travelers Indemnity Co. of Connecticut v. Software Publishers
Association, No. 16-cv-542, complaint filed (D.D.C. Mar. 22, 2016).
The suit, filed in the U.S. District Court for the District of Columbia,
says Travelers should have been notified “as soon as practicable” of
a 2010 defamation complaint filed against its insured, the Software
Publishers Association, which does business as Software Information
Industry Association.
Travelers issued two policies to the SIIA: a general liability policy and an
excess liability policy. The former included the “as soon as practicable”
notice requirement, while the latter similarly required the insured
to provide prompt notice of a claim. Both policies said the notice had
to be provided in writing.Adobe’s copyright infringement suit
The defamation suit stems from an October 2009 infringement lawsuit
filed by Adobe Systems in the U.S. District Court for the Northern
District of California against Joshua Christenson and other defendants.
The case was later transferred to the District of Nevada.
Travelers says the SIIA issued a press release in November 2009
naming Christenson as a person who “knowingly engaged in copyright
infringement through the fraudulent sale of Adobe software” and
“swindled both consumers and Adobe by illegally copying or selling
well-known Adobe products.”
Christenson filed an answer to the suit May 4, 2010, along with
counterclaims and a third-party complaint against the SIIA. The third-
party complaint said the press release contained false, defamatory,
disparaging and unprivileged statements about him and his company,
Software Plus Inc., the Travelers complaint says.
In 2012 the Nevada federal court ruled for Christenson on Adobe’s
infringement claims. Adobe Sys. v. Christenson, 891 F. Supp. 2d 1194
(D. Nev. 2012).
The judge stayed the remainder of the suit pending Adobe’s appeal
to the 9th U.S. Circuit Court of Appeals to avoid duplication of efforts
on counterclaims should the appeals court affirm the District Court’s
summary judgment order.
The judge said the chances of a settlement at that point would be high
and a stay would prevent an unnecessary trial.
A 9th Circuit panel affirmed the lower court’s decision Dec. 30, 2015.
Adobe Sys. v. Christenson, 809 F.3d 1071 (9th Cir. 2015).
The decision effectively removed the SIIA’s primary defense, according
to the complaint.
The SPA allegedly tendered Christenson’s third-party complaint to
Travelers for coverage Jan. 14, 2016. Travelers says that was the first
time the insurer learned of either the infringement suit or Christenson’s
third-party claims against the SIIA.
GENERAL LIABILITY COVERAGE
The general liability coverage conditions indicate the SPA is obligated
to “see to it” that Travelers is “notified as soon as practicable of an
‘occurrence’ or an offense which may result in a claim,” according to
the complaint.
If a claim or suit is brought, the SPA is also obligated to immediately
record the specifics of that claim and notify Travelers under the general
liability provisions, the complaint says.
Travelers says the excess liability policy likewise includes language
saying the SPA is to provide it with “prompt written notice” of any claim
or suit.
The insurer is seeking a declaratory judgment that the SPA is not
entitled to coverage because it waited more than five years after the
third-party complaint was filed to provide notice. WJ
Attorneys:
Plaintiff: John B. Mumford Jr. and Kathryn E. Kasper, Hancock, Daniel,
Johnson & Nagle, Glen Allen, VA
Complaint: 2016 WL 1128202
See Document Section B (P. 25) for the complaint.

APRIL 8, 2016 n
VOLUME 33 n
INSURANCE
Judge rejects bifurcation in Bitcoin phishing case
Massachusetts Bay Insurance Co. will not be able to bifurcate a bad-faith claim in a lawsuit accusing it of improperly
denying coverage under a commercial crime policy for a $1.85 million phishing scam carried out against insured Bitpay
Inc., a federal judge in Atlanta has ruled.
Bitpay Inc. v. Massachusetts Bay Insurance
Co., No. 15-cv-3238, 2016 WL 1105263
(N.D. Ga., Atlanta Div. Mar. 17, 2016).
The insurer wanted separate proceedings for
Bitpay’s breach-of-contract and bad-faith
claims, but the majority of discovery requests
and deposition questions will relate to both,
U.S. District Judge Steve C. Jones of the
Northern District of Georgia said.
“The facts demonstrating whether the loss is
covered by the policy and the facts underlying
MBIC’s decision not to pay the claim will
clearly overlap substantially,” he said.
Judge Jones noted that most of Bitpay’s
requests for production are for documents
involving the claim, such as communications
related to the commercial crime coverage
and Massachusetts Bay’s claim file.
In its motion to bifurcate and stay discovery
filed in November, Massachusetts Bay
had argued the court should bifurcate the
breach-of-contract claim from the bad-faith
claim and stay discovery because a finding of
bad faith first requires a finding of coverage.
REUTERS/Benoit Tessier
Bitcoins are digital
currency that buyers and
sellers use to carry out
transactions online.
plaintiff in fact succeeds in proving that the
loss was covered,” he said.
BITPAY SEEKS COVERAGE
FOR PHISHING SCAM
Bitpay, a bitcoin payment processor, filed a
$1 million claim with Massachusetts Bay in
December 2014, but the insurer has refused
to pay it, arguing that bitcoins were not
included in the coverage. Bitcoins are digital
currency that buyers and sellers use to carry
out transactions online.
Bitpay’s suit seeks a judgment in the full
amount of the $1 million policy (minus a
$50,000 deductible) and an additional
award for Massachusetts Bay’s alleged
violation of a Georgia law that penalizes
insurers for bad-faith refusal to pay claims.
According to the complaint filed in
September, the phishing scam began
Dec. 11, 2014, when Bitpay CFO Bryan Krohn
was lured into releasing his company’s
email credentials by a hacker who had
pirated the account of an executive for the
publication yBitcoin.
Within two days, the hacker fraudulently
used Krohn’s data to authorize transfers
of $1.85 million worth of bitcoins, the
complaint says.
Bitpay says it cooperated with Massachusetts
Bay’s investigation, but the insurer denied
the claim in June 2015.
According to Bitpay, the policy covers “loss
of or damage to ‘money,’ ... resulting directly
from the use of any computer to fraudulently
cause a transfer of that property.”
The policy was specifically amended to
include “bitcoin” in the definition of “money”
and Massachusetts Bay’s denial amounts to
a breach of contract and an act of bad faith,
Bitpay says.
Alleging that Massachusetts Bay’s actions
caused Bitpay “unnecessary trouble and
expense” in violation of Ga. Code Ann.
§ 33-4-6, the company seeks a penalty of
$475,000, which represents 50 percent of
the claim’s value under the policy.
In total, Bitpay requests an award of more
than $1.4 million — the $1 million policy
limit less the $50,000 deductible, plus the
$475,000 penalty — as well as attorney fees
and costs. WJ
Attorneys:
Plaintiff: Jessica F. Pardi, Morris Manning &
Martin, Atlanta, GA
Defendant: Stephanie F. Glickauf and R. Tyler
Bryant, Goodman McGuffey Lindsey & Johnson,
Atlanta, GA
Order: 2016 WL 1105263
In addition Massachusetts Bay said
bifurcation would prevent it from being
prejudiced “on issues which are irrelevant
until a contractual breach and cause of
action against it has been determined.”
Granting Massachusetts Bay’s motion would
require the court “to parse every request for
production” and each question Bitpay might
ask during a deposition to determine if it
related to the breach-of-contract claim or the
bad-faith claim, Judge Jones said.
“Such an exercise in hair-splitting would
waste precious judicial resources and result
in unnecessarily duplicative discovery if

UNFAIR COMPETITION
Google Drive tricks customers with auto-renewal charges,
amended suit says
Google is ripping off Californians who use its Google Drive product for storing data online by automatically charging
renewal fees without consent, according to a proposed class action.
called Google Wallet that consumers can use
to purchase products.
Google Wallet’s TOS page includes
information on payments, renewals and
cancellations, but this information is buried
in the middle of a 30-page, densely worded,
single-space document, Mayron says.
This document is accessible only by a small,
lightly colored hyperlink at the bottom of the
Google Wallet webpage, Mayron says.
He also notes that consumers proceed
through several webpages when making
a purchase, including selecting the online
storage product, setting up Google Wallet,
accepting the offer and finally, buying the
product.
None of these associated webpages provide
an affirmative consent to the TOS or any
“clear and conspicuous” hyperlink to those
terms, Mayron says.
In addition Google fails to provide Google
Drive consumers any information in emails
regarding the service terms or cancellation
policies, the complaint says.
Mayron has proposed a class of all
Californians who purchased Google Drive
since the product’s launch April 24, 2012.
He also seeks a declaratory judgment,
injunctive relief and restitution in the amount
the class of subscriptions paid to Google. WJ
Attorney:
Plaintiff: Todd A. Seaver, Berman Devalerio,
San Francisco, CA
Amended complaint: 2016 WL 1077615
Demurrer memo: 2015 WL 10520949
February order: 2016 WL 1059373
See Document Section C (P. 29) for the amended
complaint.
Mayron v. Google Inc., No. 115-cv-275940,
amended complaint filed (Cal. Super. Ct.,
Santa Clara Cty. Mar. 17, 2016).
Recent additions to the Google Drive
subscription page that provide cancellation
information do not absolve the search
engine pioneer of liability, plaintiff Eric
Mayron says in an amended complaint filed
in the Santa Clara County Superior Court.
The original complaint, filed in January 2015,
accused Google of violating California’s
“automatic renewal” law by failing to
provide consumers with clear language
about automatic renewals and cancellation
options. It also included claims for violation
of California’s unfair-competition law.
In July Google asked the court to toss the
original complaint.
In February Superior Court Judge Peter H.
Kirwan granted dismissal but allowed
Mayron to amend the unfair-competition
allegations.
After Mayron filed suit, Google “substantially
changed” disclosures on the Google Drive
website for potential subscribers, according
to the amended complaint.
Consumers are now presented a hyperlink
to the Google payment terms of service
before completing the transaction, and the
“buy” button is now labeled “accept and
buy,” the amended complaint says. Also, the
company now provides information on how to
cancel the purchase with a direct hyperlink.
Despite these changes, Google continues
to profit from fraudulent business practices,
the amended complaint says.
Google Drive offers up to 15 gigabytes of
free online storage, but consumers can also
choose to pay a small monthly fee to get up
to 100 GB of space, the amended complaint
says.
California requires businesses offering
automatically renewing products to provide
renewal terms in a “clear and conspicuous
manner” before customers enter into an
agreement, the amended complaint says.
Mayron says he began paying for storage
in mid-2014 and has been charged every
month since. However, until he filed the
lawsuit, Google failed to present the
terms of the automatic renewal or send
an acknowledgement with the automatic
renewal terms or options to cancel the
subscription, the amended suit says.
Mayron says these terms must be in visual
proximity to where the consumer consents
to renewal, and the text must clearly contrast
the surrounding language through eye-
catching devices like boldface type, varying
colors or larger fonts.
The Google Drive webpage contained a
hyperlink labeled “help” in a small and light-
colored font near the top of the page, Mayron
says. Also, the “help” page contained
another small, inconspicuous link labeled
“privacy, policies and abuse.”
The “privacy” page included a link for a
document titled “Google Drive Terms of
Service,” the complaint adds.
Though the TOS document used capital
letters to draw attention to important
language about warranties and Google’s
liabilities, Mayron says it failed to do the
same for items like cancellation policies,
length of renewal periods, recurring charges
or the purchasing agreement.
The amended complaint further notes
Google also offers a virtual cash depository

APRIL 8, 2016 n
VOLUME 33 n
JURISDICTION
Slovenian publisher can’t be tried for defamation
in South Carolina, appeals court says
By Shari Pirone, Esq., Contributor, Westlaw Journals
A Slovene-language newspaper accused of defaming the U.S. subsidiary of a Slovenia-based industrial technology
company in print and online articles has convinced a South Carolina appeals panel that a lower court lacked personal
jurisdiction over the paper.
Hidria USA Inc. v. Delo d.d., No. 2013-690,
2016 WL 1125816 (S.C. Ct. App. Mar. 23,
2016).
While the daily tabloid Slovenske Novice
is available to anyone with access to its
website, its articles are printed in Slovenian,
and its publisher, Delo d.d., conducted no
business in South Carolina, the state Court of
Appeals said.
The three-judge panel affirmed the
Greenville County Circuit Court’s dismissal
of Hidria USA Inc.’s suit, saying Delo lacked
sufficient minimum contacts with the state.
South Carolina-based Hidria USA, a
subsidiary of Hidria d.d.o., filed suit in 2012,
claiming the Slovenske Novice published
articles in 2011 and 2012 that contained
defamatory statements about the company.
The articles contrasted the purportedly
luxurious lifestyle of Edvard Svetlik, a
Slovenian man whose family controls Hidria
d.d.o., with the lifestyle of Hidria employees
in Slovenia, according the panel’s opinion.
Hidria USA said all its South Carolina
employees and many of its South Carolina
customers read the articles, which allegedly
contained lies and damaged the company’s
business relationships.
Delo moved to dismiss the action for lack
of personal jurisdiction. The publisher
estimated that only seven South Carolinians
accessed the 2011 issue online and that at
most three state residents accessed the 2012
issue online.
The Circuit Court granted the motion.
Hidria appealed, claiming Delo had the
requisite contacts for the South Carolina
court to exercise jurisdiction.
The panel disagreed.
South Carolina’s long-arm statute did not
apply, the panel said, because Delo did
not conduct business in the state or direct
business activities toward citizens of the
state.
Delo did not sell newspapers or have
subscribers in South Carolina and did not
employ sales representatives to market its
paper in the state, the panel said.
Delo also did not have bank accounts or
registered agents in South Carolina or send
agents or employees to the state to collect
information for its publication, the appeals
court said.
Posting articles written in Slovenian on
Slovenske Novice’s website where anyone
could access them was not sufficient to
establish jurisdiction, according to the panel.
The appeals court also rejected Hidria’s claim
that personal jurisdiction was established
under the “effects test” the U.S. Supreme
Court set forth in Calder v. Jones, 465 U.S.
783 (1984).
The test, not yet fully considered by South
Carolina courts, bases the question of
whether long-arm jurisdiction applies to a
case on whether effects within a forum are
affected by conduct outside the forum, the
panel explained.
In a suit accusing a print publication of
defamation, the plaintiff must establish that
the defendant manifested intent to target
readers of the forum state, the appeals court
said.
Hidria failed to meet that burden, the panel
said.
Delo’s paper is published in Slovenian, is
directed at Slovenian citizens and is not
distributed in South Carolina, the panel said,
adding that the paper’s South Carolina Web
traffic is insignificant.
In addition, the few references to Hidria USA
in the articles were only in the context of
Svetlik’s business activities, the panel said.
“Hidria cannot show that Delo specifically
targeted South Carolina readers,” the panel
concluded. WJ
Attorneys:
Appellant: Phillip E. Reeves and Nicholas A. Farr,
Gallivan, White & Boyd, Greenville, SC
Respondent: Wallace K. Lightsey and Meliah
Bowers Jefferson, Wyche Law Firm, Greenville,
SC
Opinion: 2016 WL 1125816
See Document Section D (P. 41) for the opinion.

AUTOMATIC TRANSFER FUNDS
Court says lender must pay $500,000
for requiring automatic payments
By Daniel Rice, Contributor, Westlaw Daily Briefing
In a case that could have repercussions for lenders nationwide, a federal
magistrate judge has ordered a California-based lender to pay $500,000 in
statutory penalties for conditioning loans on borrowers’ agreements to make
payments through preauthorized automatic fund transfers.
Kemply v. CashCall Inc., No. 08-cv-3174,
2016 WL 1055251 (N.D. Cal. Mar. 16, 2016).
CashCall Inc., described in the judge’s
opinion as an online lender to high-risk
consumer borrowers, violated the Electronic
Fund Transfer Act, 15 U.S.C.A. § 1693k(1),
Magistrate Judge Maria-Elena James of the
U.S. District Court for the Northern District of
California ruled.
The magistrate judge issued her opinion
following a bench trial on damages. In
2014 she granted summary judgment to
the plaintiff class of consumer borrowers
after finding that CashCall violated the
EFTA, which prohibits the extension of
credit conditioned on repayment through
preauthorized electronic fund transfers.
Judge James also found that CashCall
violated California’s unfair-competition
law, Cal. Bus. & Prof. Code § 17200, which
prohibits unlawful, unfair or fraudulent
business acts or practices. De la Torre et al. v.
CashCall Inc., 56 F. Supp. 3d 1073 (N.D. Cal.
2014).
According to the opinion, CashCall
conditioned borrowers’ loans on their
agreementtoallowthelendertoelectronically
withdraw payments from their bank
accounts through automatic clearinghouse
transactions. CashCall required borrowers
to check a box authorizing ACH payments
when applying for loans online, the opinion
said.
CashCall charged a $15 fee each time a
borrower’s bank declined to make the
payment for nonsufficient funds, a practice
that the plaintiffs argued led to excessive
fees. By the end of 2014, the class members
had paid a collective $2.3 million in NSF fees
to CashCall, the opinion said. The lender
argued that the fees approximated the
company’s own bank charges for processing
NSF payments from borrowers.
COURT SAYS NSF FEES NOT CAUSED
BY CASHCALL
Although the court levied a $500,000
penalty against CashCall under the EFTA,
the damages award could have been even
higher.
In addition to statutory penalties, the EFTA
requires lenders to repay actual damages
sustainedbyconsumers.Further,adefendant
that violates California’s unfair-competition
law must pay restitution to each plaintiff.
At trial, lawyers for the class of borrower
plaintiffs argued that CashCall should
reimburse the class members for the full
$2.3 million in NSF fees under the EFTA and
California law.
Magistrate Judge James, however, held
that CashCall’s act of conditioning loans on
automatic payments did not cause the NSF
charges. Based on expert testimony and
other evidence offered at trial, the magistrate
judge found that most borrowers would have
chosen the automatic electronic payment
withdrawals that led to the NSF charges even
if CashCall had made that form of payment
optional.
While declining to find a causal link between
the NSF fees and the automatic payment
requirement, the magistrate judge ruled that
CashCall nevertheless was obligated to pay
statutory damages under the EFTA.
The case indicates that creditors that
require repayment through preauthorized
electronic fund transfers could be at risk for a
lawsuit under the EFTA and other consumer
protection laws. WJ
Order: 2016 WL 1055251
WESTLAW JOURNAL
SOFTWARE LAW
BULLETIN
The detailed articles in
this title put individual
litigation and legislative
developments into the “big
picture” of the changing
software law landscape.
Issues such as antitrust,
trade secrets, attorneys’
fees, encryption, patents,
the Computer Fraud and
Abuse Act, and the Digital
Millennium Copyright Act
are all covered for you in
this resource on current
issues in software law
Call your West representative for more information
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or call 800.328.9352 to subscribe.

APRIL 8, 2016 n
VOLUME 33 n
SECURITIES
Software company hit with shareholder suit
over low consumer demand
By Peter H. Hamner, Esq., Senior Legal Writer, Westlaw Journals
Electronic software and hardware firm Mentor Graphics Corp. misled investors over customer demand for its products,
according to a recently filed class-action suit.
Haroutunian v. Mentor Graphics Corp. et al., No. 16-cv-470,
complaint filed (D. Or. Mar. 18, 2016).
The complaint, filed by George Haroutunian in the U.S. District Court
for the District of Oregon, says positive statements the company
and its top executives made about Mentor Graphics’ ability to close
new deals and renew existing licenses artificially inflated the price of
its stock.
The suit names CEO and Chairman Walden C. Rhines, President
Gregory K. Hinckley and Vice President Joseph Reinhart as defendants.
A Mentor Graphics representative did not respond to a request for
comment.
‘SUBSTANTIAL VISIBILITY’
Wilsonville, Oregon-based Mentor Graphics manufactures and
develops electronic design automation products that are used to test
software and hardware for technologically complex products before
their mass production.
According to the suit, the company touted its “substantial visibility
into its future financial results” to investors, claiming it had a large
backlog of orders, and that its contracts are long-term and its business
is cyclical.
Mentor Graphics also told investors that mergers and acquisitions
among its customers would increase the company’s pricing leverage,
the suit alleges.
Mentor Graphics’ share price traded artificially high between August
2014 and October 2015 due to these positive statements, the suit says.
But on Nov. 19, 2015, the company announced it had reduced its fourth-
quarter revenue forecast from $336 million to $104 million in light of
what the suit says are disappointing third-quarter results.
The price of Mentor Graphics stock plummeted the next day by about
36 percent, from $27.78 per share to $17.85, the suit alleges.
A Form 10-Q the company filed Dec. 3 for the third quarter of 2015
“confirmed what investors and analysts had already surmised,” that is,
that “bookings were down 20 percent year over year, while the number
of new customers was down 15 percent,” the complaint said.
SECURITIES FRAUD ALLEGATIONS
Haroutunian alleges the company and its executives knowingly
misrepresented the demand for Mentor Graphics’ products and its
long-term financial prospects.
The suit alleges violations of Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934, 15 U.S.C.A. §§ 78j(b) and 78t(a), and Securities
and Exchange Commission Rule 10b-5, 17 C.F.R. § 240.10b-5.
Haroutunian is seeking unspecified damages on behalf of investors
who bought the company’s stock between Aug. 21, 2014, and Nov. 19,
2015. WJ
WESTLAW JOURNAL EMPLOYMENT
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developments in employment-related lawsuits. It covers
such issues as the Americans with Disabilities Act, the
Rehabilitation Act, the Age Discrimination in Employment
Act, the Older Workers Benefit Protection Act, Title VII,
sexual harassment, the Family and Medical Leave Act,
labor issues, whistleblower, the Uniformed Services
Employment and Reemployment Rights Act, civil rights
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SECURITIES
Education company hid illegal recruiting tactics, suit says
By Jason Seashore, J.D., Managing Editor, Westlaw Daily Briefing
Apollo Education Group Inc. violated federal securities laws by concealing from investors problems with its veteran
recruitment strategy and online classroom software platform, according to an investor lawsuit filed in Phoenix
federal court.
Apollo’s violations of the executive order and
the Department of Defense agreements, the
suit says.
The report detailed unpermitted on-base
recruiting tactics such as paying the
military to allow unapproved sponsorship
of hundreds of events on military bases and
engaging in recruitment drives disguised as
resume workshops, the suit says.
In early October, the Department of Defense
barred the University of Phoenix from
recruiting on military bases and The Wall
Street Journal reported that the departments
of Justice and Education were coordinating
investigations of its recruitment practices,
the suit says.
On Oct. 22 Apollo admitted that its fourth-
quarter and fiscal year 2015 results had been
negatively affected as it attempted to bring
its operations into legal compliance, the suit
says.
Apollo’s share price fell almost 35 percent
that day, representing an 80 percent fall
from the class-period high, the suit says.
The suit alleges violations of the anti-
fraud and control-person provisions of the
Securities Exchange Act of 1934, 15 U.S.C.A.
§§ 78j(b) and 78t(a), and seeks class-action
certification, compensatory damages,
interest, costs and attorney fees. WJ
Attorneys:
Plaintiffs: Hart L. Robinovitch and Carolyn G.
Anderson, Zimmerman Reed LLP, Scottsdale,
AZ; Samuel H. Rudman and Mary K. Blasy,
Robbins Geller Rudman & Dowd, Melville,
NY; Corey Holzer and Marshall Dees, Holzer &
Holzer, Atlanta, GA
Lomingkit v. Apollo Education Group Inc.
et al., No. 16-cv-689, complaint filed (D. Ariz.
Mar. 14, 2016).
The class-action complaint alleges that false
statements emphasizing Apollo’s financial
successes and strong financial prospects
artificially inflated the company’s stock price,
allowing senior executives to cash in almost
$42 million of their personal shares.
The suit, filed in the U.S. District Court for
the District of Arizona, names as defendants
Apollo, Chairman Peter Sperling, CEO
Gregory Cappelli, Chief Financial Officer
Gregory Iverson, and former CFOs Brian
Swartz and Joseph D’Amico.
The plaintiff, Apollo shareholder Rameses
Te Lomingkit, is seeking compensation for
investors who purchased the company’s
stock during a 28-month period ending
Oct. 21.
Phoenix-based Apollo owns and operates
for-profit educational institutions throughout
the United States, including the University
of Phoenix, which Apollo calls “the nation’s
largest regionally accredited private
university,” the suit says.
RECRUITING TACTICS AND
SOFTWARE PROBLEMS
According to the complaint, the defendants
concealed that a substantial portion of
Apollo’s revenues came from recruiting
tactics on U.S. military bases in contradiction
to a 2012 executive order banning deceptive
and aggressive recruiting practices by for-
profit colleges aimed at members of the
military, especially on bases.
The defendants also failed to tell investors
that Apollo’s recruiting tactics likely violated
agreements the company had entered into
with the Department of Defense in 2012 and
2014 allowing the University of Phoenix to
participate in the agency’s tuition assistance
programs, the suit says.
In mid-2014, Apollo touted the successful
transition of its online classroom software
platform to an “industry-leading private
cloud infrastructure, offering enhanced
scalability, reliability and performance,” but
hid from investors the true extent of software
compatibility problems that were having a
negative impact on retention rates and new
student enrollment, the suit says.
The software problems prevented students
from signing onto their online courses, which
“dramatically increased student drop-out
rates,” but the defendants minimized the
problems as “a few bugs and things in the
system that are being worked out” and said
that they affected only a small part the
student body, the suit says.
THE TRUTH REVEALED PIECEMEAL
In March 2015, the defendants finally
disclosed the full impact of Apollo’s software
problems on both retention and new student
acquisition and conceded that the company
had not wanted to “spend a whole lot of
money on advertising” to attract more
students while the problems existed, the suit
says.
The Center for Investigative Reporting,
a nonprofit news organization based
in California, published a report titled
“University of Phoenix sidesteps Obama
order on recruiting veterans,” which exposed

APRIL 8, 2016 n
VOLUME 33 n
SECURITIES
iDreamSky investors amend suit over delayed game launch
By Nicole Banas, Senior Legal Writer, Westlaw Daily Briefing
Mobile-game distributor iDreamSky Technology Ltd. waited until after its 2014 initial public offering to reveal a delay in
the launch of a popular South Korean game into the Chinese market, according to a recently amended investor lawsuit.
In re iDreamSky Technology Ltd. Securities
Litigation, No. 15-cv-2514, consolidated
amended complaint filed (S.D.N.Y. Mar. 25,
2016).
The consolidated class-action suit pending
in the U.S. District Court for the Southern
District of New York says iDreamSky
kept investors in the dark about a rift with
the South Korean developer of “Cookie Run.”
The company’s IPO documents did not
warn that iDreamSky could lose money if a
distributor withheld the game’s source code,
the suit says.
China-based iDreamSky is an independent
company that works with international
game developers to redesign their games for
the Chinese market.
The amended suit names as defendants
iDreamSky and its officers and directors,
including CEO Michael Chen and CFO Jun
Zou. It also names IPO underwriters Credit
Suisse Securities (USA) LLC, JPMorgan
Securities LLC, Stifel Nicolaus & Co. Inc. and
Piper Jaffray & Co.
Lead plaintiff Melvyn Boey Kum Hoong seeks
compensation for investors who bought
iDreamSky’s American depositary shares
traceable to the company’s IPO or on the
open market from Aug. 7, 2014, through
March 13, 2015.
ADSs are dollar-denominated certificates
that represent shares of a foreign company.
CASES CONSOLIDATED
The latest complaint follows U.S. District
Judge J. Paul Oetken’s Jan. 25 order
consolidating four investor suits against
iDreamSky. Mansour v. iDreamSky Tech. Ltd.
et al., No. 15-cv-3794, 2016 WL 299034
(S.D.N.Y. Jan. 25, 2016).
The judge also denied plaintiff Stephen
Mansour’s bid to remand his suit to the New
York state court where it was originally filed.
BASELESS PREDICTIONS?
The March 25 amended complaint says
iDreamSky raised $107 million in the IPO
selling ADSs at $15 apiece.
The IPO registration statement effective
Aug. 7, 2014, included only a general risk
disclosure that failure to maintain positive
relationships with game developers could
hurt iDreamSky’s financial performance, the
suit says.
In a 2014 interview in connection with the
IPO, Zou said iDreamSky would release
“Cookie Run” and another game on the
WeChat mobile messaging application by
the end of the year, the complaint says.
According to the suit, iDreamSky forecasted
fourth-quarter revenue of $63 million to
$66 million in a Securities and Exchange
Commission filing Nov. 25, 2014.
The defendants improperly included
expected revenue from “Cookie Run” in the
projection even though they knew the game
would not be released on time, the complaint
says.
The suit says iDreamSky received the source
code for “Cookie Run” late because of a
dispute with developer Devsisters Corp. over
the game’s distribution platform.
‘COOKIE RUN’ DELAYED
The complaint says iDreamSky announced
March 13, 2015, that it had lowered fourth-
quarter revenue projections to about $53
million, in part due to delays in the launch of
an unidentified game.
The company’s ADSs fell 33 percent on the
news, closing at $7.22 per share March 16,
2015, the suit says.
A week later iDreamSky revealed that it had
pushed back the release date for “Cookie
Run” to the first half of 2015.
The suit says iDreamSky failed to warn IPO
investors that difficulty obtaining source
code from a game developer could delay a
game release.
ALLEGED VIOLATIONS
The complaint says iDreamSky and the
officers and directors violated Sections 11 and
15 of the Securities Act of 1933, 15 U.S.C.A.
§§ 77k and 77o, by issuing a misleading
registration statement in connection with
the IPO.
The company and the underwriters are
additionally liable for omissions in the
offering documents under Section 12(a)(1)
and 12(a)(2) of the Securities Act, 15 U.S.C.A.
§§ 77l(a)(1) and 77l(a)(2), the complaint says.
The suit also alleges iDreamSky, Chen and
Zou violated the anti-fraud and control-
person provisions of the Exchange Act of
1934, 15 U.S.C.A. §§ 78j(b) and 78t(a). WJ
Attorneys:
Plaintiffs: Laurence Rosen and Philip Kim,
The Rosen Law Firm PA, New York, NY
Consolidated amended complaint:
2016 WL 1178230

INSIDER TRADING
Former Microsoft manager to pay $380,000
on insider trading charges
By Suzanne Northington, Contributor, Westlaw Daily Briefing
A former senior manager in Microsoft’s corporate financial planning department has agreed to pay nearly $380,000
to settle Securities and Exchange Commission charges that he traded on nonpublic information in connection with the
technology company’s acquisition of Nokia Corp.’s mobile phone business.
Securities and Exchange Commission v. Hardy, No. 16-cv-400,
settlement reached (W.D. Wash. Mar. 18, 2016).
According to an SEC statement, John E. Hardy agreed to pay the
restitution and a civil penalty without admitting or denying the
allegations, on the same day the commission filed suit against him in
the U.S. District Court for the Western District of Washington.
According to the March 18 complaint, Hardy made $175,000 from
trading in call options after learning of Microsoft’s pending acquisition
of the Nokia business unit and netted another $9,000 in illegal gains
by trading on his knowledge of Microsoft’s 2013 financial results prior
to its public release.
As a result of these illegal trades, Hardy was charged with violating
Section10(b)oftheSecuritiesExchangeActof1934,15U.S.C.A.§ 78j(b),
and Rule 10b-5, 17 C.F.R. § 240.10b-5.
The charges included using devices or schemes to defraud, making
untrue statements of material fact, and engaging in practices that
acted as a fraud in connection with the purchase or sale of a security.
HARDY USED INFORMATION STOLEN FROM MICROSOFT,
SEC ALLEGES
As a senior manager in Microsoft’s corporate financial planning
department from 2011 until September 2015, Hardy performed a
number of “critical finance functions,” including financial reporting,
forecasting and long-term planning, the suit said.
The financial planning department also played a key role in Microsoft’s
mergers and acquisition activity, including the preparation of analyses
to assist the board of directors in the decision-making process, the
complaint said.
The SEC alleged that between June and September 2013, Hardy
repeatedly violated federal securities laws by trading securities based
on material information that had not been made public.
Hardy purchased Microsoft put options after learning from internal
documents that the company’s 2013 financial results would not meet
analysts’ expectations, the SEC said.
After Microsoft released the earnings announcement on July 18, 2013,
the company’s stock price fell more than 11 percent. Shortly thereafter,
Hardy sold the put options and gained profits of $9,000, the suit said.
The SEC further alleged that Hardy purchased Nokia call options in
August 2013 after learning through his work in the financial planning
department that Microsoft was planning to acquire the company’s
mobile phone business.
After the Sept. 2, 2013, public announcement of the acquisition, the
price of Nokia American Depositary shares rose more than 30 percent.
Hardy then sold the Nokia call options and realized illegal profits of
$175,000, the SEC said.
HARDY CONSENTS TO PAY $380,000 IN RESTITUTION,
INTEREST AND PENALTIES
By trading in advance of the two announcements, Hardy violated his
duty to Microsoft and knew that his actions violated the company’s
insider trading policy, which prohibits trading by employees while in
possession of material nonpublic information, the SEC says.
According to the SEC press release, Hardy consented to the entry of a
judgment permanently enjoining him from violating the insider trading
provisions of the designated securities laws.
He agreed to disgorge all of his ill-gotten gains of $184,132, pay a
onetime civil penalty of $184,132, plus prejudgment interest of $11,389.
Hardy also agreed to a five-year bar from serving as an officer or
director of a publicly traded company, the SEC said. WJ

APRIL 8, 2016 n
VOLUME 33 n
WI-FI AND VIDEO PATENTS
Avago Technologies is a Singapore-based
company that recently acquired Irvine,
California-based Broadcom in what has
been labeled the largest merger between
chipmakers.
Allentown, Pennsylvania-based Agere
Systems and LSI Corp., based in San Jose,
California, are two wholly owned Avago
subsidiaries.
These companies own patents related to
wireless local area networks, or WLAN, and
H.264, a video compression protocol.
WLAN is based on the “802.11” wireless
networking standard, which allows packets
of data to be transferred at specific speeds
over pre-set frequencies, generally 2.4GHz
or 5 GHz.
The H.264 video compression standard,
also known as MPEG-4 AVC, allows for
higher compression of moving pictures,
according to the complaint, which adds
that it was developed in response to
growing needs for videoconferencing, digital
storage media, Internet streaming and
communication.
Together, these technologies allow large
video files to be streamed online through
Wi-Fi, the complaint says.
STANDARD SETTING
The defendant companies were involved
with negotiations and discussions that led
to the establishment of certain technical
standards for both Wi-Fi and video
compression technologies, according to
Funai’s suit.
Specifically, in 2002 and 2003, the
defendants applied to standard-setting
organizations for the telecommunications
and engineering industries to have their
WLAN and video compression patents
recognized as essential, according to the suit.
In exchange they promised to offer the
patents on FRAND terms, the suit says.
Virtually any circuit chip supplier can create
products that fit purchaser’s requests
when specifications are standardized.
Because producers know a standardized
product will work with other standardized
products, this increases competition among
suppliers and manufacturers, lowering
prices for consumers, the complaint says.
“Ontheotherhand,technicalstandardization
also creates a ‘lock-in’ effect and the risk
of ‘patent hold-up,’” the complaint says.
Patent standards
CONTINUED FROM PAGE 1
The defendants are using patent and international
trade proceedings to try to intimidate plaintiff Funai
Electric Co. and other electronics suppliers or chipmakers
to pay higher royalty rates, the suit says.
In other words, standardization could give
leverage to the owners of essential patent.
This is the case here, the suit says.
The defendants hold “industry standard”
technologies for both Wi-Fi and video
compression. Instead of offering FRAND
licenses, they are using patent and
international trade proceedings to try to
intimidate Funai and other electronics
suppliers or chipmakers to pay higher royalty
rates, according to the suit.
The suit says this is unlawful. It seeks
damages as well as an accounting of
reasonable royalty rates.
It also asks for treble damages under
Section 4 of the Clayton Act, 15 U.S.C.A. § 15,
an injunction to stop the defendants from
demanding non-FRAND terms, attorney fees
and costs. WJ
Attorney:
Plaintiff: Kevin W. Kirsch, Baker & Hostetler,
Cincinnati, OH

NEWS IN BRIEF
OREGON HIGH COURT PROTECTS WEDDING VENUE
CRITIC’S ONLINE SPEECH
An online commentary calling a wedding venue a “disaster” was
entitled to First Amendment protection, the Oregon Supreme
Court has ruled, dismissing defamation claims against the critic.
A reasonable person would know Christopher Liles’ online review
of Dancing Deer Mountain LLC, which called the locale’s owner,
CarolC.Neumann,“two-faced”and“crooked,”washyperbolicopinion,
the high court said. Statements accusing the owner of trying to keep
a deposit and “make you pay even more” when taken in the context
of the entire review constituted expressions of opinion on matters of
public concern that are protected speech, the panel said. The panel
reversed an intermediate appeals court decision allowing Neumann
to proceed with her defamation suit against Liles, and remanded
the case for an appropriate attorney-fee award to be determined.
Oregon’s anti-SLAPP law allows defendants to collect fees if they
win so-called “strategic lawsuits against public participation,” the
high court opinion said. The intermediate appeals court must now
reconsider Liles’ previous cross-challenge on the reasonableness of
the fee amount, the opinion said.
Neumann et al. v. Liles, Nos. 121103711, A149982 and S062575,
2016 WL 852812 (Or. Mar. 3, 2016).
Opinion: 2016 WL 852812
FACEBOOK DODGES SUIT OVER UNAUTHORIZED TEXTS
A California man claiming to have received unauthorized text
messages from Facebook cannot proceed with a lawsuit against
the social networking website, a San Francisco federal judge has
ruled. Noah Duguid has 30 days to amend his proposed class-
action complaint to sufficiently state a claim under the Telephone
Consumer Protection Act, U.S. District Judge Jon S. Tigar of the
Northern District of California said, granting Facebook’s dismissal
motion. Duguid’s lawsuit accused Facebook of using an automatic
telephone dialing system to repeatedly warn him that someone
had accessed his nonexistent Facebook account from a new device.
Duguid responded, asking for the texts to stop, but he received more
messages, the suit said. He said Facebook also directed him to sign
into his nonexistent account to fix the problem. Although Duguid
alleged Facebook messaged him without his consent, he offered
only unsupported allegations that it used an automatic telephone
dialing system, the judge said. Instead, the allegations supported that
Facebook directly targeted Duguid’s phone number, rather than using
equipment that dialed sequential or random telephone numbers,
the order said.
Duguid v. Facebook Inc., No. 15-cv-985, 2016 WL 1169365 (N.D. Cal.,
S.F. Div. Mar. 24, 2016).
Order: 2016 WL 1169365
JUDGE TOSSES SUIT OVER ‘GRAYED OUT’ IPHONES
Consumers cannot proceed with an amended lawsuit accusing Apple
Inc. of misrepresenting the iPhone 4s’ Wi-Fi and Bluetooth capabilities
in advertisements and on its website, a California federal judge has
ruled. David Yastrab and other consumers said their iPhones became
“grayed out” — unable to connect to Wi-Fi or Bluetooth — once they
upgraded their mobile operating systems to iOS 7, according to U.S.
District Judge Edward J. Davila of the Northern District of California’s
order. The plaintiffs claimed they had relied on Apple’s statements
about these capabilities when they bought their smartphones.
However, the complaint never specified any statements from Apple
about the consistency or reliability of these features for iPhone 4s
devices that upgraded to iOS 7, the judge said. Without specifying
Apple’s misrepresentations, the plaintiffs could not pursue their
fraud-based claims under California law, according to the order.
The plaintiffs also could not plausibly allege Apple knew their phones
would become obsolete with the software upgrade, Judge Davila
said. The plaintiffs already had a chance to address these deficiencies,
so the judge tossed the suit without leave to amend.
Yastrab v. Apple Inc., No. 14-cv-1974, 2016 WL 1169424 (N.D. Cal.,
San Jose Div. Mar. 25, 2016).
Order: 2016 WL 1169424

APRIL 8, 2016 n
VOLUME 33 n
CASE AND DOCUMENT INDEX
Bitpay Inc. v. Massachusetts Bay Insurance Co., No. 15-cv-3238, 2016 WL 1105263 (N.D. Ga., Atlanta Div. Mar. 17, 2016).............................................9
Duguid v. Facebook Inc., No. 15-cv-985, 2016 WL 1169365 (N.D. Cal., S.F. Div. Mar. 24, 2016)...................................................................................... 18
Funai Electric Co. et al. v. LSI Corp. et al., No. 16-cv-1210, complaint filed (N.D. Cal. Mar. 11, 2016)....................................................................................1
Haroutunian v. Mentor Graphics Corp. et al., No. 16-cv-470, complaint filed (D. Or. Mar. 18, 2016)..................................................................................13
Hidria USA Inc. v. Delo d.d., No. 2013-690, 2016 WL 1125816 (S.C. Ct. App. Mar. 23, 2016)............................................................................................ 11
Document Section D..................................................................................................................................................................................................... 41
Impression Products Inc. v. Lexmark International Inc., No. 15-1189, petition for cert. filed (U.S. Mar. 21, 2016).................................................................6
In re iDreamSky Technology Ltd. Securities Litigation, No. 15-cv-2514, consolidated amended complaint filed
(S.D.N.Y. Mar. 25, 2016)....................................................................................................................................................................................................... 15
Kemply v. CashCall Inc., No. 08-cv-3174, 2016 WL 1055251 (N.D. Cal. Mar. 16, 2016)..................................................................................................... 12
Lomingkit v. Apollo Education Group Inc. et al., No. 16-cv-689, complaint filed (D. Ariz. Mar. 14, 2016)......................................................................... 14
Mayron v. Google Inc., No. 115-cv-275940, amended complaint filed (Cal. Super. Ct., Santa Clara Cty. Mar. 17, 2016).................................................. 10
Document Section C..................................................................................................................................................................................................... 29
Microsoft Corp. v. Biscotti Inc., No. IPR2014-1459, 2016 WL 1084802 (P.T.A.B. Mar. 17, 2016)..........................................................................................4
Neumann et al. v. Liles, Nos. 121103711, A149982 and S062575, 2016 WL 852812 (Or. Mar. 3, 2016)............................................................................ 18
Securities and Exchange Commission v. Hardy, No. 16-cv-400, settlement reached (W.D. Wash. Mar. 18, 2016)........................................................... 16
Sgouros v. TransUnion Corp., No. 15–1371, 2016 WL 1169411 (7th Cir. Mar. 25, 2016).........................................................................................................7
Document Section A..................................................................................................................................................................................................... 21
Travelers Indemnity Co. of Connecticut v. Software Publishers Association, No. 16-cv-542, complaint filed
(D.D.C. Mar. 22, 2016)............................................................................................................................................................................................................8
Document Section B......................................................................................................................................................................................................25
Yastrab v. Apple Inc., No. 14-cv-1974, 2016 WL 1169424 (N.D. Cal., San Jose Div. Mar. 25, 2016)................................................................................... 18

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