?? Visa Gets Checked By The DOJ
Legal Tidbit:
On September 26, 1789, John Jay was commissioned as the first Chief Justice of the United States Supreme Court two days after being nominated by President George Washington. Jay was unanimously confirmed by the Senate, and served until June 29, 1795, when he was succeeded by John Rutledge.
This Week:
Checking Visa
The Justice Department is continuing its crusade against corporate monopolies, this time against Visa.
The How, according to the DOJ, is that for over a decade "Visa has entered into de facto exclusive agreements with merchants and banks, encouraging them to route the bulk of their transactions through Visa’s payment network," writes the New York Times. "The company has maintained a monopoly in large part by imposing or threatening to impose higher fees on merchants that also use other payment networks to process debit transactions."
The suite mirrors a string of antitrust cases brought by the Justice Department over recent years, though most have focused on the tech industry.
“Anticompetitive conduct by corporations like Visa leaves the American people and our entire economy worse off,” Benjamin C. Mizer, a principal deputy associate Attorney General, noted in the agency's statement.
"You can mandate competition…But if what's happening behind the point-of-sale is inhibiting that, then you don't actually have competition," Stephanie Martz, general counsel for the National Retail Federation, told NPR. "There's no question that it affects consumers as well. …You're paying for these cards in the form of higher prices."
NPR adds that Mastercard was targeted for its own anticompetitive behavior in the debit card market, but settled with the Federal Trade Commission last year.
For it's part, Visa has vehemently denied the DOJ's allegations, stating:
“Anyone who has bought something online, or checked out at a store, knows there is an ever-expanding universe of companies offering new ways to pay for goods and services. …We are proud of the payments network we have built, the innovation we advance, and the economic opportunity we enable."
Yet, the DOJ has accused Visa of limiting or partnering with the companies in that "ever-expanding universe". Vias has agreements with Apple, Paypal, and Square, and a Visa executive has been quoted in the DOJ suit claiming “we’ve got Square on a short leash and our deal structure was meant to protect against disintermediation,” CNBC reports.
Plaid Deal
In November 2020, the DOJ sued Visa to block the $5.3 billion acquisition of Plaid—a fintech company developing a payment platform to rival the credit card giant.
In its complaint, the DOJ quoted the CEO of Visa justifying the acquisition to the board of directors as “strategic, not financial”, adding ?that Plaid “on their own or owned by a competitor [was] going to create some threat” with a “potential downside risk of $300-500M in our US debit business” by 2024. The CEO added that, should that occur, "Visa may be forced to accept lower margins or not have a competitive offering.”
Verdict
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Rage Against The Machine Learning
The artists live (survived a motion to dismiss their claim) to see another day (continue pursuing their case against a group of image generation AI companies).
"The lawsuit, filed last year, revolves around the LAION data set, which was built using 5 billion images that were allegedly scraped from the internet and utilized by Stability and Runway to create Stable Diffusion," The Hollywood Reporter explains. The suit "implicated Midjourney, which trained its AI system using the model, as well as DeviantArt for using the model in DreamUp, an image generation tool."
Recently, the defendant companies have motioned to dismiss various key claims of the case, including a motion to dismiss DMCA claims, a motion to dismiss the plaintiffs' unjust enrichment and Copyright Act claims, Midjourney’s motion to dismiss Lanham Act claims, and DeviantArt’s motions to dismiss the breach of contract and breach of the implied covenant of good faith and fair dealing claims.
According to Reuters, U.S. District Judge William Orrick ruled this week that the 10 artists acting as plaintiffs in the case "plausibly argued that the companies violate their rights by illegally storing their works on their systems. Orrick also refused to dismiss related trademark-law claims, though he threw out others accusing the companies of unjust enrichment, breach of contract and breaking a separate U.S. copyright law."
Judge Orrick hinted as his decision earlier this year when, in a tentative ruling, he stated that the plaintiffs had plausibly argued that the defendants had "copied and stored their work on company servers and could be liable for using it without permission."
Authorial Claim
In a similar copyright-infringement case, a group of authors suing OpenAI for allegedly using their works to train its datasets without permission will be allowed access to the firm's training data for inspection, writes The Hollywood Reporter. They add that "under the agreement, the training datasets will be made available at OpenAI’s San Francisco office on a secured computer without internet or network access. Any person who’ll review the information will be required to sign a non-disclosure agreement, sign a visitor’s log and provide identification."
Verdict
The ruling by Judge Orrick continues the David versus Goliath narrative of the StabilityAI case, but the damage has already been done to artists. The question is, should the plantiffs win, what penalty will the Judge impose on these companies to protect future artists from further harm. Meanwhile, the concession by OpenAI to show the plantiffs their training data seems like a win on the surface, it remains a major question mark who among the legal team will be able to understand the complex code.
Digital Mining And Its Discontents
Some definition of terms to start here. First, "crypto-mining", which is a labor-intensive process in which specialized computers effectively create new cryptocurrency tokens and add them to the block chain. Next, is a "box", or the hardware used to do that mining.
But how do you define the hosting contracts Green United LLC entered into with customers to operate mining boxes? That's the question at the center of civil fraud suit filed by the SEC against Green United.
In the case, the SEC argued that Green United's contracts constituted securities, and that the company committed fraud when it purchased unmined crypto-tokens and distributed them to their investors "to create the appearance of a successful mining operation,” notes Bloomberg Law.
In an email statement, Green United defended its actions, saying that the SEC's claim doesn't “contain a single allegation of a single victim or even an investor losing any money…Additionally, [the SEC] try to change the law by classifying hosted mining as a security, a practice performed by numerous public companies."
The case hinged on another definition, though: that of a "common enterprise". In the Supreme Court's 1946 decision of SEC vs. W. J. Howey Co., they wrote that "the test of whether there is an 'investment contract' under the Securities Act is whether the scheme involves an investment of money in a common enterprise with profits to come solely from the efforts of others; and, if that test be satisfied, it is immaterial whether the enterprise is speculative or non-speculative or whether there is a sale of property with or without intrinsic value."
It was enough to sway Judge Ann Marie McIff Allen who sided with the SEC. “Specifically, the Complaint alleges investors could invest $3,000 to receive a Green Box, which purportedly generated returns of '$100 each month,’ ‘a 40% to 50% return,’ or ‘100%+ ROIs’ by mining a cryptocurrency called ‘GREEN,’” Judge Allen wrote. Additionally, Green United promoted their hosting contract “which provided that Green United will be ‘doing all the work’ to generate the stated return.” In other words, they promoted a common enterprise.
Crypto Assets
In 2022, as SEC legal pressures were mounting on crypto trading platform Coinbase, the firm sued the SEC to try to force it to clarify whether crypto assets are securities or not, and what regulations they fall under. Late that year, the SEC dismissed their petition noting that existing regulations already governed crypto assets. “If Coinbase wants to arrange its business in a way that does not comply with the existing regulatory framework, that does not establish a right to have the framework adapted to meet their business,” a lawyer for the SEC told the US District Court.
Verdict
Crypto remains a wild west of regulation and speculation—even with the SEC’s insistence that crypto assets always have been and always will be regulated as securities. Formalized regulation by the Administration or Congress certainly won’t come before the election, but will anything happen next year?