Mt Gox files for bankruptcy protection in Japan
that Bitcoin exchange Mt Gox has filed for bankruptcy protection in Japan, after disclosing that it lost about $480 million dollars in Bitcoin to hackers.
Labels: bank robbers, bitcoin, mt gox
Back to the Mattress: Mt Gox and the Future of Bitcoin
A true digital currency is the holy grail of the on-line world. Since the start of the Internet, a long series of folks have been trying to find the on-line equivalent of cash - some kind of digital token that is secure, easy to transfer and, for most of the people who have joined the hunt, anonymous. Bitcoin provides the latest foray into this arena, and the Bitcoin story provides the latest example of the basic truth that payment systems are always dependent on the support of a strong, trustworthy third party.
This truth applied to traditional currencies, like this:
Valued when their backing governments existed, when the government support failed so did the currency.
The digital world is no different. When "virtual" banks tried to build a business around Linden Dollars in Second Life, problems quickly developed. Customers of Ginko Financial
, an unregulated Second Life investment bank, swarmed the "doors" at the first hint of trouble, causing a run on the bank and its collapse.
The rapid increase of Bitcoin popularity is creating a similar dynamic. At one point the largest trader of Bitcoin, Mt Gox
started to encounter pronounced difficulties handling transactions as the result of regulatory issues. Customers started to move business to different exchanges, and on February 7 Mt Gox halted withdrawals
. Four days later, another exchange, BitStamp, also suspended withdrawals
, citing difficulties caused by denial of service attacks against its servers that could potentially affect the security of its transactions.
On February 24, Mt Gox shut down completely
. Customers might have lost up to $480,000,000. Although, Bitcoin value has been plunging as a result of the shutdown and other disturbances in the Bitcoin infrastructure. So, the actual loss might be significantly less.
As of today (February 26) visitors to its website received this informative and reassuring message:
February 26th 2014
Dear MtGox Customers,
As there is a lot of speculation regarding MtGox and its future, I would like to use this opportunity to reassure everyone that I am still in Japan, and working very hard with the support of different parties to find a solution to our recent issues.
Furthermore I would like to kindly ask that people refrain from asking questions to our staff: they have been instructed not to give any response or information. Please visit this page for further announcements and updates.
And so it goes.
The lesson, as I pointed out before, is that any currency, even a virtual one, requires a reliable and trustworthy controlling authority. An imaginary person
simply does not cut it.
Understanding Electronic Discovery: Its Not Just About Protecting Your Client
Reading a recent Massachusetts Lawyers Weekly, I spotted an item in the Bar Discipline column that highlighted the dangers of not staying up to date with technology. A litigation attorney, let's call him Paul, failed to understand the rules governing electronic discovery, resulting in his client deleting electronic data and the Massachusetts Board of Bar Overseers issuing a public reprimand.
Paul represented a client accused of taking confidential information with him when he left his employer to work for a competitor. Allegedly, the client had transferred the information from his old laptop to a new one, used a computer software program to delete the stolen information from the old laptop, and then returned the old laptop to his former employer. In late 2006, his former employer sued him, and obtained a TRO requiring the client to return to his former employee any information that he had taken. Instead of complying with the order, the client instead deleted the files from the new laptop. About five months later, plaintiffs' counsel advised Paul that they planned to file a motion to obtain turnover of the new laptop, and that documents on the new laptop had to be preserved. Paul did not advise his client not to delete relevant files from the new laptop, and his client subsequently deleted some additional files - although without Paul's knowledge.
Then, the court ordered the new laptop be surrendered to the plaintiff's IT expert. Notified of this event, the client told Paul that the new laptop contained confidential information belonging to his new employer and unrelated to the lawsuit. Paul advised his client that these documents could be removed from the laptop before turning it over. When the laptop was turned over, and the deletions discovered, the Court held that the client had engaged in spoliation of evidence.
Reading the reprimand didn't give me the impression that Paul was acting in bad faith - instead he had failed to comprehend the nature of the information on the computer and the need to keep all of the information preserved once the litigation commenced. Used to a paper world, he failed to anticipate and guard against a client who was tempted to delete information, and failed to understand that deleting information from a computer can leave a gap - showing that information was removed but leaving wide open the question of what the removed data contained. By issuing proper warnings to his client, being alert to the possibility of non-relevant trade secrets residing on the laptop, and following appropriate protocols to avoid the release of trade-secrets stored on the laptop, Paul could have avoided the damage to his client.
In its reprimand, the BBO indicated that Paul's failures violated his duty to provide competent representation. In 2012, the American Bar Association adopted revisions to the Model Rules of Professional Conduct
, including this language added to the commentary for Rule 1.1:
To maintain the requisite knowledge and skill, a lawyer should keep abreast of changes in the law and its practice, including the benefits and risks associated with relevant technology...
That's a simple change, but one attorneys should take to heart lest they, some day, end up like Paul. Massachusetts hasn't yet adopted the 2012 revision in its commentary to Rule 1.1, but the Massachusetts BBO clearly expects its attorneys to understand the new world of handling electronic evidence.
Backing Away From Those Messy Electronic Signatures
Back in August, the Judicial Conference for the United States Courts released for comments proposed amendments to the Federal Rules of Bankruptcy Procedure
, including revisions to FRBP 5005 that will effectively limit the types of electronic signatures usable on court pleadings.
Currently, the relevant part of FRBP 5005 reads:
Filing by Electronic Means.
A court may by local rule permit documents to be filed, signed, or verified by
electronic means that are consistent with technical standards, if any, that the
Judicial Conference of the U.S. establishes. A document filed by electronic
means in compliance with a local rule constitutes a written paper for the
purpose of applying these rules, the Federal Rules of Civil Procedure made
applicable by these rules, and § 107 of the Code.
Added in 1996, this provision allowed parties to file documents with electronic signatures, so long as the signatures conformed with the particular court's local rules. Different courts employed different requirements, some requiring that an original signature be scanned, with the attorney retaining the original signature. Others, such as my home court in Massachusetts, allowed use of a printed name, preceded by a /s/, to serve as a party's "signature" so long as the filing attorney maintained an original copy of the document with an original wet signature. Model Rules for Electronic Case Filing, approved in 2001, allowed use of an electronic signature in the "s/Name Here" format, but also required the filing attorney to maintain the paper document with the original wet signature. Wet signatures were still required for evidentiary purposes (particularly in the rare case involving subsequent criminal prosecutions) and, as a practical matter, requiring a wet signature made sure that the third parties, usually the bankruptcy debtors, were actually reading and signing the documents before their attorney filed them with the "s/Name Here" electronic signature. (Some of you commercial bankruptcy law types might look aghast at the possibility, but take it from a Chapter 7 trustee - that kind of thing happens all the time.)
The proposed revision is more specific, although it provides three alternatives:
(3) Signatures on Documents Filed by Electronic Means.
(B) Signature of Other Individuals. When an individual other than a registered user of the court’s electronic filing system is required to sign a document that is filed electronically, the registered user shall include in a single filing with the document a scanned or otherwise electronically replicated copy of the document’s signature page bearing the individual’s original signature.
[Alt. 1: By filing the document and signature page, the registered user certifies that the scanned signature was part of the original document.]
[Alt. 2: The document and signature page shall be accompanied by the acknowledgment of a notary public that the scanned signature was part of the original document.]
Once a document has been properly filed under this rule, the original document bearing the individual’s original signature need not be retained. The electronic signature may then be used with the same force and effect as a written signature under these rules and for any other purpose for which a signature is required in proceedings before the court.
In short, no more electronic signatures. The wet signature is scanned, filed electronically with the court, and then thrown away. Warm up those scanners people and hire some support staff to attach those scanned signature pages to your single filings. It strikes me as a lot of extra work. Option two allows the filing attorney to certify that the electronic signature is really the debtor's, which strikes me as problematic for the filing attorney if the debtor disclaims his or her signature later on. Perhaps an attorney desiring to save scanning costs might like this option if he is willing to keep those original wet signatures anyway. The third option has the same issue - plus it leaves open the question of how you file the notarization. E-notarizations are not exactly commonplace. Perhaps the rule should give filing attorneys a choice - scan and toss, or use the /s/ and retain the original.
More amazing is the complete lack of an approach allowing the use of true electronic signatures - electronic documents signed using a click-through process or using a Signature Capture Pad. The technology is available to create and maintain truly enforceable electronic signatures. Perhaps bankruptcy attorneys still aren't using that technology, and perhaps the vendors that serve bankruptcy attorneys haven't yet incorporated the available technology into their products, but they will if the rules accommodate it. These rules won't.
Those are my comments.
What do you think? Written comments are due to the Judicial Conference by February 15, 2014.
When You Don't List Copyright Infringement Claims in Your Bankruptcy Schedules You Lose Standing
"High up in the pristine White Mountains of Northern Arizona, is a place where...truth and honesty are hard to find, if at all.." [Fair use
] So starts Lynnell Levingston's 2008 memoir
of politics in Springerville, Arizona. In 2009, Livingston sued a host of defendants asserting, among other things, that one of them violated her copyright in the book by plagiarizing an excerpt from the book in a police incident report. That initial case was dismissed in 2010, without prejudice. Levingston also maintained a blog called Three Men Make a Tiger
. In August 2012, Levingston filed a second complaint for copyright infringement alleging the defendants made and distributed copies of the book and content from the blog without authority or license.
But, in 2009, after filing her first lawsuit, Levingston had filed a pro-se chapter 7 bankruptcy petition. She had listed the book as an asset, but had not scheduled the blog as an asset, nor had she listed as assets the claims for copyright infringement.
In a short decision
issued in Levingston v. Earle
, 2013 WL 6119036 (D. Ariz. 2013), District Court Judge Teilborg dismissed the copyright claims reasoning that because the copyright infringement claims had not been listed as assets in the bankruptcy case, they remained property of the Chapter 7 bankruptcy trustee. Thus, they were not Levingston's property and she lacked standing to bring the infringement actions.
The case seems to have some fascinating undertones and complications. I can't say I could follow them all, but the underlying legal proposition remains clear - if you think someone has infringed your copyrights, make sure you list them on your bankruptcy schedules.
Qimonda Decision Affirmed But Fourth Circuit Won't Say Whether Denying Section 365(n) Protections Manifestly Contrary to U.S. Public Policy
The Court of Appeals for the Fourth Circuit recently released its decision
in the ongoing debate over whether the Qimonda AG bankruptcy estate gets to ruin the world's semiconductor industry. For those unfamiliar with the complex, but important, Qimonda decisions, I'll refer you to California bankruptcy attorney Robert L. Eisenbach's excellent and comprehensive explanation
of the issues and history, as well as his earlier description
of one of the lower court decisions.
For those who recollect the basic background, when last seen the United States Bankruptcy Court for the Eastern District of Virginia had decided that bankruptcy code section 1522(a) required it to balance debtor and creditor interests in determining whether to apply section 365(n)'s protections to those patent licenses Qimonda AG was terminating, thus allowing the licensees to continue to practice the licensed patents. The bankruptcy court held that denying section 365(n) protections would be unduly detrimental to the licensees, creating a "very real" "risk to the very substantial investment the [Licensees]...[had] collectively made in research and manufacturing facilities in the United States" in reliance on the licenses.
The Court also determined that 365(n) protected a fundamental U.S. public policy promoting technological innovation and, failing to provided the licensees with section 365(n)'s protections would undermine that fundamental public policy. Thus, the U.S. statute needed to be applied in lieu of the default rules under German insolvency law.
On direct appeal to the Fourth Circuit, the Circuit Court affirmed. It noted that 11 U.S.C. 1522(a) allows the court to grant discretionary relief to a foreign representative under section 1521 only if the court determines that "the interests of the creditors and other interested entities, including the debtor, are sufficiently protected." Such discretionary relief can be granted subject to appropriate conditions. It also noted that 11 U.S.C. 1506 prohibits granting relief that is "manifestly contrary to the public policy of the United States."
Addressing first the question of applying section 1522(a), the Court of Appeals agreed with the bankruptcy court that section 1522(a) requires a balancing analysis, and further held that the bankruptcy court had properly exercised its discretion in applying that test. This was sufficient to affirm the decision below.
Turning, in its final pages, to the public policy issue, the Circuit Court stated that "by affirming the bankruptcy court, even though on its section 1522(a) analysis, we too necessarily further the public policy inherent in and manifested by section 365(n)." So, section 365(n) is designed to protect licensee rights as an expression of public policy - but, that was obvious and well known. Restating the fact is meaningless. Is denying section 365(n) rights to a patent licensee "manifestly contrary" to that policy? The bankruptcy court thought so, but the Court of Appeals seems less sure - failing in the final portion of the decision to directly address the question or state an opinion. And, one judge clearly did not want to discuss the point, declining to join in the last few pages of the otherwise unanimous decision on the grounds that it was "unnecessary dictum."
He was right. Perhaps this decision marks the end of the long standing Qimonda patent license debate. Perhaps not. The decision does help define the structures for judicial decision making in Chapter 15 cases, but fails to provide a definitive answer to the question of whether and how IP licensees retain the protection of 11 U.S.C. 365(n) in international insolvency cases.
O'Say it's not So: Virginia Judge O'Grady Rules Domain Names are not Property Saleable By a Chapter 7 Trustee
Courts do not agree on the issue of domain names as property. Some courts treat domain names as a contract right
between the domain name holder and the registrar. Other courts recognize domain names as a separate form of intangible property
. But, until now, courts have all agreed that domain names are, in fact, property, and encompass a property right that can be transferred by a bankruptcy trustee.
In the Alexandra Surveys International, LLC
case, Federal District Court Judge O'Grady held that a domain name was not a property right that could be sold by a chapter 7 trustee, particularly when the domain name registration agreement would have been automatically rejected under 11 USC 365(d)(1). The case had an unusual set of facts. The debtor filed a chapter 11 petition on March 3, 2010. At that time, it owned the domain name "ALEXANDRIASURVEY.COM" but did not disclose the domain name in its bankruptcy schedules. The case converted to chapter 7 on January 27, 2012, and eventually closed. After the bankruptcy case closed a new company started by the debtor's principals, Alexandria Surveys, LLC, acquired the domain name
. The decision doesn't state whether the original domain name registration had lapsed, and the name re-registered, or whether the debtor had managed to assign the name to Alexandria Surveys, LLC in some manner. A month later, a third party filed a motion to reopen the case and offered to buy from the chapter 7 trustee the previously undisclosed domain name and other assets of the estate. The bankruptcy court allowed the motion to reopen, and, over Alexandria Surveys, LLC's objection, allowed the sale of the domain name and other assets. Because the domain name and other assets had not been disclosed by the debtor to the chapter 7 trustee, they remained property of the bankruptcy estate notwithstanding the case's closure.
On appeal, the District Court held that the domain name was not property of the bankruptcy estate saleable by the chapter 7 trustee. Bound to follow the Virginia Supreme Court's earlier decision in Network Solutions v. Umbro International
, the court concluded that "because Virginia does not recognize an ownership interest in ... web addresses, neither were property of Alexandria International's estate and neither were subject to sale by the trustee." The court stated further that even if the estate had an interest in the domain name, that interest was limited to the rights under the domain name registration agreement. The debtor's schedule G had listed web hosting contracts with Cox Communications, and the chapter 7 trustee had not assumed those contracts within the 60 day period dictated by 11 USC 365(d)(1). Thus, the interest was automatically abandoned by the trustee and could not be sold.
The decision, unfortunately, is riddled with errors. First, it miss-characterizes the holding in Network Solutions v. Umbro International, which defines a domain name as a contractual property right. The decision cannot be properly read to hold that a domain name is not property at all. Second, it assumes that the domain name contract is executory in nature, which while possibly the case can't be determined without reviewing the actual contract. Third, a review of Verisign''s list of authorized domain name registrars
indicates that Cox Communications is not a domain name registrar. So, even if the debtor had purchased website hosting services from Cox Communications, it's domain name registration agreement was not with that company. Its domain name registration agreement must have been with some other, unknown, company. Thus, the executory contract was not properly disclosed. Fourth, even though the undisclosed registration agreement might have been automatically rejected under section 365(d)(1), that does not necessarily act as a termination or abandonment of the agreement. Chapter 7 trustees can, with the cooperation of the non-debtor party, assume and assign previously rejected agreements. Finally, the decision completely ignores the possibility that the debtor's principals had, post-petition, transferred the contract rights to their new company instead of allowing the domain name registration to lapse and then re-registering it. In that case, the Trustee would have a right to recover the property interest both under sections 542 and 549.
The most troubling aspect of the decision is the language stating bluntly that a domain name registration is not estate property. Fortunately, the conclusion does not find support in other cases and also runs contrary to the proper interpretation of Network Solutions v Umbro International. Domain names are property
, and can be administered in a bankruptcy case.
Labels: alexandria surveys, domain names, kremen v cohen, umbro
Good Stuff Cheap
In the bankruptcy world, matching sellers of distressed assets with potential buyers has always caused difficulties - usually resulting in reduced sale prices and relative bargains. For large capital assets - like the Polaroid patent portfolio
, or Chrysler
, investment bankers satisfy the market gap. Selling smaller assets, like automobiles, time shares or necklaces, presents a more recalcitrant problem. The sellers are fragmented, a broad spectrum of individual chapter 7 trustees, receivers, and other liquidating agents, each with only a small number of items to sell. Further, court rules and procedures governing insolvency processes limited sellers' ability to use many traditional sale mechanisms.
Years ago, the National Association of Bankruptcy Trustees
developed the bankruptcysales.com website, as a service to chapter 7 bankruptcy trustees to help them locate buyers for various assets. The website contained listings for available assets providing information for buyers to locate items of interest. But, the website was poorly structured and provided limited benefits.
The NABT has now updated the website, renaming it MarketAssetsForSale.com
, and expanding its scope, allowing receivers, assignees, banks and others who need to sell distressed assets to list their assets for sale. The website is not an auction mechanism or marketplace, like Bid4Assets
, but a resource to help buyers locate assets for sale through insolvency processes. The assets themselves are sold through the traditional sale processes. Chapter 7 trustees and some others can post assets for free, others will have to pay a fee. Sellers and potential buyers do need to set up an account to access the website - buyers have to pay an annual fee of $120.00.
The new site has a much better interface than the old website, with nifty pictures of assets, a cleaner interface, and better tools for searching for assets. Hopefully, with the improved interface more bankruptcy trustees will post assets to the website, and with a broader scope of available assets more buyers will find the website a useful tool for locating the Good Stuff they want Cheap.
Is Air Free?
You would think that air should be free, but of course air, or at least the right to send signals through it, has not been free for some time. The FCC controls the right to use air to transmit information, divvying the air up into all sorts of frequencies and selling them off to the highest bidder. From a bankruptcy perspective, the right to use the air is well understood as an asset
, and can be transferred or even sold under the right conditions. Now, Google has found a way to perhaps muddy the waters (or, perhaps I should way cloud the skies).
This morning, Google announced
its new spectrum database to help companies to, well, use unused air. The basic concept is simple. Although the FCC has divided up the electromagnetic spectrum, large portions of the spectrum aren't actually being used. But, identifying what spectrum is available in a particular location presents a challenge - in some cases the spectrum has been allocated to someone so it is subject to use, and might actually be used from time to time and from place to place. Other spectrum exists in the gaps between already allocated spectrum. Google's new product is a database that tracks spectrum intended to carry television signals to identify exactly when and where the spectrum remains unused. This so-called "TV white space" can, once tracked, be re-purposed for other uses. Primarily, network providers can use it to create large public or private Wi-Fi networks. The database essentially provides a source of control over this TV white space to ensure that multiple systems or device networks don't try to operate using the same TV white space. Google provides an API that commercial entities can use to link their systems in with the database to maintain operations. What gives Google the authority to provide this service? Well, they built it and a few months ago the FCC certified them
to manage the database - essentially controlling access to TV White Space in the United States.
In short, the FCC has given Google the right to control the little bits and pieces of unused spectrum. This is an interesting kind of asset - the right to control what economists refer to as a common good
. Common goods are goods that can't be consumed by more than one person, but you also can't control who comes and consumes them. The classic example is wild fish - there are only so many fish in the sea but anyone can get in a boat and try to catch them. Absent some kind of legal or technical limitation on access, chaos ensues or the good is rapidly depleted. Usually, when controls are placed on common goods, we see the control function vested at the government level, as in the case of commercial fisheries or FCC spectrum licenses. But, with the TV white space, Google will control who has access. In the technology arena, we have already seen a similar structure applied to domain names and IP addresses, mostly controlled by NGOs. We've even seen a sale of a large block of IP addresses
in the Nortel bankruptcy case. But, we haven't yet seen an attempt by the American Registry for Internet Numbers or a
Regional Internet Registry to sell its rights to control large IP address blocks. I don't expect Google is likely to file a bankruptcy petition anytime soon, but I am curious about how the bankruptcy process might treat a privately held right to control a common good.
Labels: FCC, Google, IP addresses, TV white space
A Trade Secret is Not a Copyright
Bankruptcy courts (and lawyers) continue to mystify by their inability to tell the difference between types of intellectual property, confusing patents, copyrights and trademarks as if they are all just variations on the same theme. In the Virgin Offshore USA, Inc. case
, the US District Court for the Eastern District of Louisiana had to deal with lawyers who had trouble telling the difference between copyrights and trade-secrets (or at least argued as if they did).
The case involved a debtor that had paid a one-time fee to access and use geological data resulting from seismic surveys for a limited time period. The licensor, TGS-NOPEC Geophysical Company, L.P., objected to the debtor's attempt to assume the license agreement under 11 U.S.C. sec 365. After the bankruptcy court overruled the objection, the licensor appealed the matter to the District Court. The idea that copyright licenses are personal to the licensor and can only be assigned in bankruptcy with the licensor's consent is well known as a result of decisions like Everex Systems, Inc. v. Cadtrak Corporation
, so the licensor argued that the data was protected by copyright - notwithstanding the fact that the agreement was labeled a trade secret agreement, the licensor never attempted to copyright the information, and decisions from numerous courts existed holding that seismic data is not protected by copyright. It lost.
The District Court went on, in dicta, to talk about whether an inability to "assume" the license under 11 U.S.C. sec 365 would prevent "assumption" of the license by the reorganizing debtor. The Court recognized that the Fifth Circuit has not yet explicitly adopted the "actual test," which would allow assumption, over the "hypothetical test," which would not
. Discussing the prior decisional history in the Fifth Circuit, the Court stated that the actual test is the correct test, based on the Court of Appeals' holdings in In re Mirant
and In re O'Connor.
Labels: assignment, assumption, capapult, coypright, everex, trade secret, virgin offshore