Tech Giants’ Anti-Poaching Settlement Rejected In California Federal Case

“Not in my house!”  That is essentially what U.S. District Judge Lucy Koh recently said in rejecting a proposed settlement agreement in a federal case pending in California between several Silicon Valley tech giants and a class of tech employees who claimed that the companies conspired to suppress their wages.  As we here at Abnormal Use previously reported in April, the companies (including Apple, Intel, and Google) and the tech workers agreed to settle their dispute for approximately $325 million.  According to Judge Koh, that settlement amount ”falls below the range of reasonableness.” Once the plaintiffs’  lawyers take their slice of the pie, the settlement would have provided the class members just over $3,500.  In reaching the conclusion that such an amount was unreasonable, Judge Koh noted that other class members settled the same claims last year against Pixar and Lucasfilm Ltd. more money per plaintiff, despite the fact these current plaintiffs had newly discovered evidence that made their claims even stronger.  The order also notes that to reach the same level as the previously settling class members, the current class members would need to receive $380 million. Check out the order’s conclusion:

This Court has lived with this case for nearly three years, and during that time, the Court has reviewed a significant number of documents in adjudicating not only the substantive motions, but also the voluminous sealing requests. Having done so, the Court cannot conclude that the instant settlement falls within the range of reasonableness. As this Court stated in its summary judgment order, there is ample evidence of an overarching conspiracy between the seven Defendants, including the similarities in the various agreements, the small number of intertwining high-level executives who entered into and enforced the agreements, Defendants’ knowledge about the other agreements, the sharing and benchmarking of confidential compensation information among Defendants and even between firms that did not have bilateral anti-solicitation agreements, along with Defendants’ expansion and attempted expansion of the anti-solicitation agreements. Moreover, as discussed above and in this Court’s class certification order, the evidence of Defendants’ rigid wage structures and internal equity concerns, along with statements from Defendants’ own executives, are likely to prove compelling in establishing the impact of the anti-solicitation agreements: a Class-wide depression of wages.

In light of this evidence, the Court is troubled by the fact that the instant settlement with Remaining Defendants is proportionally lower than the settlements with the Settled Defendants. This concern is magnified by the fact that the case evolved in Plaintiffs’ favor since those settlements. At the time those settlements were reached, Defendants still could have defeated class certification before this Court, Defendants still could have successfully sought appellate review and reversal of any class certification, Defendants still could have prevailed on summary judgment, or Defendants still could have succeeded in their attempt to exclude Plaintiffs’ principal expert. In contrast, the instant settlement was reached a mere month before trial was set to commence and after these opportunities for Defendants had evaporated. While the unpredictable nature of trial would have undoubtedly posed challenges for Plaintiffs, the exposure for Defendants was even more substantial, both in terms of the potential of more than $9 billion in damages and in terms of other collateral consequences, including the spotlight that would have been placed on the evidence discussed in this Order and other evidence and testimony that would have been brought to light. The procedural history and proximity to trial should have increased, not decreased, Plaintiffs’ leverage from the time the settlements with the Settled Defendants were reached a year ago.

The Court acknowledges that Class counsel have been zealous advocates for the Class and have funded this litigation themselves against extraordinarily well-resourced adversaries. Moreover, there very well may be weaknesses and challenges in Plaintiffs’ case that counsel cannot reveal to this Court. Nonetheless, the Court concludes that the Remaining Defendants should, at a minimum, pay their fair share as compared to the Settled Defendants, who resolved their case with Plaintiffs at a stage of the litigation where Defendants had much more leverage over Plaintiffs.

(Quotations and citations omitted).

This ruling is not at all surprising.  As we noted in our initial coverage, given the number of employees involved the settlement amounts to peanuts compared what the alleged conspiracy likely cost the workers.  We’re going to go out on a limb and guess that the class members and the defendants reach new deal for exactly $380 million. The order in question is In re High-Tech Employee Antitrust Litigation, No.: 11-CV-02509-LHK (N.D. Cal. Aug. 8, 2014).

Amazon Sued By FTC Over Unauthorized In-App Purchases

We have previously reported on Apple’s legal troubles over its mobile operating systems allegedly allowing unauthorized in-app purchases by minors.  Now Amazon.com is facing similar legal problems stemming from charges incurred by minors while using “apps” and playing games.  The interesting catch in the case of Amazon is the the suit was not brought by angry parents but by the Federal Trade Commission. In its lawsuit (which it brought in federal court in Washington), the FTC alleges that Amazon unlawfully billed parents for the children’s in-app purchases worth millions of dollars.  These unlawful billings allegedly occurred because the set-up on Amazon’s mobile devices allowed game playing children to spend unlimited amounts of money to pay for virtual items within the apps such as “coins” or “stars.”  Initially, no password was required in order for the children to make in-app purchases.  In early 2012, Amazon updated its system to require an account owner – presumably, an adult – to enter a password only for individual in-app charges. However, a password was only required for charges over $20.  Amazon updated its system once again in early 2013 to require a password for all such purchases. However, Amazon allegedly failed to disclose that such an authorization could open a window of up to 60 minutes during which unlimited charges could be occur without further authorization. The FTC’s lawsuit is brought under the FTC Act.  Section 5(a) of the FTC Act, 15 U.S.C. § 45, prohibits “unfair or deceptive acts or practices in or affecting commerce.”  According to the FTC’s complaint:

In numerous instances, Defendant has billed parents and other Amazon account holders for children’s activities in apps that are likely to be used by children without having obtained the account holders’ express informed consent. [This] constitute[s] unfair acts or practices in violation of Section 5 of the FTC Act, 15 U.S.C. § 45(a) and (n).

Regardless of the outcome of the lawsuit, this litigation risks a big PR hit for Amazon, a corporation which has always a prided itself on a “customer comes first” culture.  However, the allegations contained in this lawsuit doesn’t paint the company in the best light. We wonder at this point how the publicity may affect Amazon’s litigation strategy.  The complaint alleges that the Appstore manager described this situation as a “near house on fire” situation in 2011, yet it didn’t fully require parental consent for purchases until 2014.

The lawsuit is Federal Trade Commission v. Amazon.Com, Inc., No. 2:14-CV-01038 (W.D. Wash.).

New Concerns About Tesla Safety After Crash of Stolen Car

In 2013, two crashes allegedly sparked fires in Tesla Model S luxury electric sedans.  Those fires spurred an investigation by federal safety regulators, but ultimately, only minor changes to the cars’ underbody were deemed necessary.  Now, concerns over the fire safety of the luxury electric-cars have been renewed following the fiery crash of a stolen Tesla Model S in Los Angeles.

The crash occurred over the July 4th weekend after a man stole a Model S from a Tesla service center and led police on a high-speed chase.  That chase ultimately ended in high impact crash;  the vehicle struck a steel pole.  The force of the impact split the vehicle in half and ignited the vehicle’s lithium ion battery.  Although he initially survived the accident, the driver ultimately died from injuries sustained in the accident. It is not, however, known at this time whether the fatal injuries were related to fire rather than the impact of the crash.

While these crashes certainly grab headlines given the high profile of Tesla Motors, it does not appear that electric vehicles are any less safe than gasoline-powered vehicles.  As the Insurance Journal has noted, in 2012, there were 172,500 vehicle fires in the United States resulting in 300 deaths, but none of the deaths involved electric or plug-in hybrid vehicles.  This is likely due to the fact that battery fires have a longer induction period than gasoline fires.  In other words, a lithium battery fire takes longer to get going – so the drivers have a better chance of escaping the vehicles.

It is notable that Model S does have a 5-star safety rating from the National Highway Traffic Safety Administration.  Nevertheless, the fire issues certainly have had an affect on Tesla’s stock price.  Share prices took a 2.9 percent hit following the most recent accident.

Mississippi Takes On Experian

As victims of identity theft can tell you, credit agencies can be difficult.  The State of Mississippi feels your pain and believes that it is time to put the system on trial – starting with Experian.  Last month, Mississippi filed a lawsuit against Experian alleging that it is violating the Fair Credit Reporting Act (FCRA) by failing to maintain proper procedures to verify the accuracy of credit information and correct mistakes.

The suit was initially filed by the Mississippi Attorney General in state court, but it has since been removed to federal court.  The lawsuit accuses Experian of knowingly including flawed and inaccurate data in the credit reports of millions of consumers.  However, as we all know, just running a shoddy business is not illegal.  The legal problems come into play because Experian is allegedly offering no straightforward way for users to correct the flawed or inaccurate data in its reports.  If these allegations are true, that would be a violation of the FCRA.

Experian is the largest credit reporting agency and has annual revenues of nearly $5 billion.  According to the Associated Press, Experian has informed investors that although it tries to comply with the law, ”[w]e might fail to comply with international, federal, regional, provincial, state or other jurisdictional regulations, due to their complexity, frequent changes or inconsistent application and interpretation.”

Park City Ski Resort Battle Rages On

Last year, we here at Abnormal Use reported on the legal battle between ski resort operators in Park City, Utah.  It all started when Park City Mountain Resort (PCMR) inadvertently failed to renew a 50 year lease for the land upon which its resort is located.  Unfortunately for PMCR, that land is owned by Talisker, a competitor who has since leased the land to Vail Resorts.  Tailsker and Vail recently scored what could prove to be a knockout blow against PMCR.

In May, a Utah court ruled that PMCR officials had indeed failed to renew their sweetheart lease for a majority of their ski terrain.  Apparently, the court was not too impressed with PMCR’s “honest mistake” defense as a justification for being a few days late in renewing the fateful lease agreement.  As result of PMCR’s failure to properly renew, the court held that Talisker had the right to lease the upper mountain to a new operator – which is exactly what it did in refusing to lease the land to PMCR and instead leasing it to Vail.  Of course, PMCR has publicly stated that it will appeal the ruling. We’ll see what happens there.

Regardless of the ultimate results of the proceeding, the real losers may be the residents of Park City and the multitudes of skiers who enjoy the mountain each year.  Even if Talisker and Vail prevail, it won’t be enough to ensure the mountain stays open.  Although Talisker owns the majority of the land at issue, PMCR actually owns the property at the base of the mountain, and without that land, it will be virtually impossible for Vail to run a resort there.  The CEO of PMCR’s parent company has repeatedly stated that the land at the base of the mountain is not for sale.

The Beastie Boys Smack Down Monster Beverage

The Beastie Boys are back in the news, but it’s not for the band’s music.  Rather, they recently obtained a $1.7 million verdict in a New York copyright infringement and false endorsement lawsuit against Monster Beverage (the makers of Monster Energy drinks) over the company’s use of the musical trio’s music and image in a promotional video. The lawsuit stemmed from the energy drink maker’s use of the Beastie Boys’ likenesses and five songs as part of a “megamix” in a snowboarding video titled “Ruckus in the Rockies.”  The video was posted on a promotional website back in 2012.  According to Monster, the whole thing was just a big misunderstanding. Apparently, an employee “inadvertently” believed Monster had been given rights to use the music.  Monster only contested damages at trial. Nevertheless, the jury came back with a “monster” judgment.

As you might suspect, Monster was not too happy with amount of the award.  The company had contended that the damages only amounted to $125,000.  Admittedly, the award does seem a little large, but it is not outrageous. “Syncing,” which is the industry term for reusing a song for commercial purposes, generates approximately $322 million per year for the music industry.

This isn’t the only time the Beastie Boys have had to “fight for their rights” this year.  In March, the group settled with a small toy company over its use of the song “Girls” in a video that went ultimately viral.

CPSC Reaches Buckyballs Settlement, Sets Dangerous Precedent

On a number of occasions, we  here at Abnormal Use have reported on the ongoing legal battle between the Consumer Products Safety Commission (CPSC) and the makers of a toy called Buckyballs (see here and here).   After nearly two years, the CPSC has finally reached a settlement with the former CEO of the manufacturer of Buckyballs through which the toy will be recalled. By way of a refresher, Buckyballs are pea-sized  magnetic balls that are ultra-strong and can be stacked or shaped in fun ways.  The potential problem: If a child swallows more than one ball, the powerful magnets can cause serious internal injury.  The CPSC has likened the injury to a gunshot wound.  In spite of the product’s preexisting warnings, the CPSC waged a full fledged crusade against Buckyballs that ultimately led to the demise of its corporate manufacturer. Although Buckyballs’ parent company (Maxfield & Oberton Holdings) has been driven out of business, the CPSC has also gone after its CEO, Craig Zucker.  The CPSC has sought to hold him personally responsible for a recall of the toy.  Zucker has been an outspoken critic of the CPSC and has contended that the law does not allow individual employees to be held liable for such things.  It would certainly seem that Zucker had a valid argument.  Nevertheless, the realities of litigating against a federal agency with unlimited resources seems to have finally forced Mr. Zucker to relent.

The settlement agreement provides that Zucker will place $375,000 into a trust that the CPSC will control.  The CPSC will recall Buckyballs (and its sibling, Buckycubes) and will grant a refund to customers to be paid from the trust.

The settlement is troubling in that it sets a precedent for the CPSC holding a corporate officer personally liable for a product recall.  A good analysis of this issue can be found here.

Tech Giants Agree to Settle (No) Poaching Lawsuit

On the eve of what could have been very embarrassing litigation for Apple, Google, Intel, and Adobe, the four tech giants agreed to settle a federal lawsuit in California alleging that they conspired to keep wages lows for certain employees.  The settlement is worth approximately $325 million. That would seem like a pretty massive settlement for these companies unless you consider the fact that Google and Apple alone have a combined market cap of nearly $1 trillion.

The Plaintiffs in the lawsuit alleged the four tech companies agreed to not poach each others’ employees, which in effect formed an anti-competitive cabal that kept engineers’ wages down.  A class-action antitrust lawsuit was filed to compensate the engineers that worked for the tech giants from approximately 2005 through 2006.  There were more than 60,000 workers in the class.  Class members claimed that the no poaching agreement resulted in $3 billion of lost wages.  That’s a far cry from the $324 million settlement agreement. Although some of the companies admitted the no-poaching agreement, they disputed the fact that it was done to keep price wages down.  Right. So, these multi-billion companies claim ignorance of basic economic principles?  I know some of these tech guys pride themselves on not having college degrees, but maybe they should take a few online college courses?  Economics 101 would be a start.

Some of the alleged actions of the executives laid out in the Reuters article are just comical:

  • After a Google recruiter solicited an Apple employee, then-Google CEO Eric Schmidt told Apple co-founder Steve Jobs that the recruiter would be fired.  Jobs then forwarded the email to an Apple HR executive with a smiley face.
  • A Google human resources director sent an email asking Schmidt about sharing its no-cold call agreements with competitors.  Schmidt replied that the agreement should be spread “verbally, since I don’t want to create a paper trail over which we can be sued later?

If you are going to go the route of avoiding a paper trail, wouldn’t you pick up the phone to tell someone that?  Maybe its just me.

Lucasfilm, Intuit, and Pixar were also defendants in the original lawsuit, but those companies settled before the class was formed. Those companies got off relatively cheap, paying approximately $20 million to settle the claims against them.

We often say that in class action lawsuits there’s really no winner other than the lawyers.  However, I think it’s safe to say that the tech companies won here.  $325 million is nothing to sneeze at, but it really works out to about $5,500 per employee (before deducting fees and costs).  While that’s certainly better than the $10 gift cards that are the spoils of many class action settlements, it’s not a lot of money in comparison to what these employees may have lost.

GM Faces Derivative Shareholder Lawsuit

General Motors (GM) has recently faced a flurry of legal problems and bad publicity stemming from a decision to delay the recall of nearly 3 million vehicles with allegedly faulty ignition switches.  The automaker is being investigated by multiple government entities, including the Department of Justice, regarding the timing of its recall.  Now it can add one more problem to the list.  A shareholder recently filed a derivative shareholder lawsuit against GM, several current and former GM officers, and several GM board members. The Plaintiff’s lawsuit, which was filed in federal court in Michigan, alleges a breach of fiduciary duties and a waste of assets.  The shareholder is seeking damages and a court order requiring the Detroit automaker to overhaul its corporate governance structure to protect shareholders from future “damaging events.”  Specifically, he wants GM to create a board committee responsible for safety, inspection, and maintenance.  He claims that such a committee will give shareholders more input into board polices and guidelines.  The Plaintiff has also sought a court order that shareholders be allowed nominate at least four candidates to the board. Regardless of whether the Plaintiff is successful in this suit, GM looks to be in a world of trouble over this recall controversy.  We expect to see the federal government levy a fine against GM that is as bad or worse than that handed down to Toyota.  In March, Department of Justice officials scolded Toyota for its actions during the unintended acceleration recall and announced a $1.2 billion criminal penalty against Toyota.   The irony of GM running into problems with the government is that GM was essentially owned by the federal government from 2008 until just last December.  This time period covers at least part of the time when GM is alleged to have committed wrongdoing with respect to failing to recall the vehicles.

A New Lawsuit: Did Chobani Pilfer Its Yogurt Recipe?

It has been a tough few months for the Chobani Greek yogurt company.  In February, we here at Abnormal Use  reported on both a court’s then recent ruling that the company could not label its yogurt “Greek” since its products are made in America and Russia’s decision to block Chobani’s yogurt from reaching U.S. athletes in Sochi.  Now, the company faces a new problem: allegations of corporate espionage.  According t0 the New York Post, a recent court filing alleges that Hamdi Ulukaya, founder of the Chobani, stole the Chobani yogurt recipe from rival yogurt company Fage.  The allegation is part of a 2012 lawsuit brought by Ulukaya’s ex-wife, Ayse Giray. The suit alleges that Giray owns 53 percent of Chobani based on a 2003 handwritten letter from Ulukaya promising her an ownership interest in a Chobani precursor company (Euphrates).  That ownership interest was allegedly given in exchange for Giray providing $500,000 in capital.  However, she has no stock or other proof of ownership in the company.

Now as part of her lawsuit, Giray is alleging that Ulukaya paid a former Fage employee approximately $4o,ooo for the yogurt recipe. Regardless of whether the allegation is true, it is a bit of head-scratcher. Why would a person who allegedly owns 53 percent of a company-to-be claim that the company developed its main product through corporate espionage?  We can only figure that perhaps it was meant to discourage an investment firm from  purchasing a stake in Chobani that would dilute her 53 percent.

Bloomberg Business Week actually did a cursory analysis of the Chiobani and Fage yogurts ingredients, which revealed some difference.  Most notably, Chobani’s yogurt uses nearly 1/4 more milk than Fage’s yogurt.  So maybe this whole thing is much ado about nothing.