Understand Your Rights. Solve Your Legal Problems
On Monday, Theranos founder and former CEO Elizabeth Holmes testified that she was abused by her former romantic partner and Theranos executive Ramesh Balwani. She said the relationship had a pervasive impact on her during the period when she is accused of committing fraud.
There were moments during Holmes’ fourth day on stand when she struggled to speak about her ten-year-long relationship with Balwani, whom she first met when was 18 years old and he was 38.
Holmes said that throughout their relationship, Balwani verbally abused her and forced her to have non-consensual sex. She also said that, at their home and in text messages, Balwani told Holmes she would never succeed with Theranos if she did not “kill the old Elizabeth”. Holmes said Balwani told her to follow an intense regime that involved waking up at 4am, following a particular diet, and maintaining a laser focus on her goals.
Balwani has denied the allegations against him in court filings and has labelled them “false and inflammatory.”
Holmes and Balwani have both pleaded not guilty to criminal charges for allegedly lying about Theranos’ technology that could supposedly run diagnostic tests more effectively than traditional lab testing.
Holmes is accused of making false claims about Theranos, including that its blood-testing devices could run a wide range of diagnostic tests more quickly and accurately than conventional laboratory testing with just a finger prick of blood.
Stepping forward to testify on Friday, Holmes said that her work at Theranos led her to believe in the company’s technology. She told the jury about her early efforts to raise capital and said she met with Silicon Valley venture capitalist Don Lucas who invested in Holmes’ company and became the chairman of its board. Holmes said she knew Lucas as someone who “focused on building great companies for the long term.”
He "began a very comprehensive diligence process," including asking for information about Theranos’ finances, Holmes added.
Holmes’ willingness to testify has added to the buzz of an already closely-watched trial. While defendants are not required to testify in criminal cases, some chose to do so in a bid to create reasonable doubt about their guilt.
Elizabeth Holmes has pleaded not guilty to 12 counts of wire fraud and conspiracy to commit wire fraud.
The claims were made in testimony at the trial of Elizabeth Holmes. The Theranos founder is on trial for charges of fraud and conspiracy to commit fraud over allegations that she misled investors, medical professionals, and patients about the capabilities of Theranos’ blood-testing machines. Holmes, 37, denies the claims. However, if found guilty, she could face up to 20 years in prison.
The DeVos family office’s investment arm is amongst several high-profile figures allegedly duped by Holmes’ company. Lisa Peterson, a representative of the DeVos family’s investment office, told the court that she had been asked to look into a potential investment in Theranos in 2014. Peterson said the company had provided her with detailed information and told her that its tests were used by the US military and big pharmaceutical companies. Theranos allegedly said that its blood-testing machines could conduct 300 blood tests before needing to be replaced and that Theranos conducted all testing in-house.
According to the US Attorney’s Office, which is prosecuting Holmes, these claims by Theranos were false and were fraudulently deployed to raise $700 million from high-profile investors. Peterson told the court that the DeVos family office’s investment arm had originally intended to invest $50 million in Theranos, but later doubled the figure after meeting with Holmes in-person. Holmes convinced the DeVos family office’s investment arm that Theranos’ technology was a “game changer for healthcare.”
The government’s Covid response schemes inadvertently created unprecedented opportunities for fraud – only now is the potential scale of that fraud beginning to come to light. The UK Treasury has launched a remarkable 23,000 inquiries into potentially fraudulent payments made during the pandemic. Last year, HMRC announced that it was investigating 27,000 cases of possible fraud relating to the furlough scheme alone.
Reports of these alleged frauds are now a regular feature in the press:
In October 2020, the House of Commons’ Public Accounts Committee (PAC) raised concerns about the risk of fraud: MPs warned that "hastily drawn up economic support schemes” allowed "unacceptable room for fraud against taxpayers". The government responded by saying that, "we make no apology for the speed at which [the schemes] were delivered," while claiming that the government had rejected "thousands of fraudulent claims". However, despite the PAC’s clear warnings, it seems that the government’s anti-fraud measures were inadequate or misdirected.
More than £70 billion has now been distributed through the furlough scheme. HMRC has estimated that 5-10 % of furlough payments were claimed fraudulently. This suggests that up to £7 billion may have been claimed fraudulently. Towards the end of last year, National Audit Office (NAO) reports suggested that criminal organisations had siphoned off more than £3 billion from the government’s Covid support measures, while 9% of furloughed workers admitted working for their employer while on furlough. HMRC has confirmed that, before the end of March 2021, it opened more than 12,000 investigations into fraud and error relating to the Coronavirus Job Retention Scheme (CJRS), Self-Employment Income Support Scheme and Eat Out to Help Out Scheme.
While misuse of the fiscal support measures is in itself not unexpected, these estimates indicate that it has been significantly more widespread than anticipated – not least because the measures were extended as the pandemic waged on.
In response to concerns of misuse, in February 2021, Chancellor Rishi Sunak announced a £100 million Taxpayer Protection Taskforce, with 1,265 staff working within HMRC to detect fraud. However, given the scale, complexity and changing nature of the government’s Covid-19 response schemes, the extent to which fraud of this nature was reduced during 2021 is unclear.
In addition to frauds related to the government’s pandemic support measures, fraud is believed also to have increased in the last 18 months within the UK’s existing welfare programmes. The PAC’s 30 June 2021 report notes that fraud and error within Universal Credit rose by £3.8 billion to an all-time high of £5.5 billion between April 2020 and March 2021. That is an increase of more than 200%.
It was also reported that the Counter Fraud Function undertook a Global Fraud Risk Assessment across 206 COVID-19 response schemes, with an estimated total value of £387 billion. A total of 16 schemes were risk-assessed as having a high or very high fraud risk. This represents 57% (£219 billion) of the £387 billion. The increased risk was thought to be in part due to the government relaxing or modifying controls in place to prevent or detect fraud and error and prioritising its COVID-19 response over business-as-usual compliance activity.
Interestingly, the number of companies registered for insolvency in the UK actually fell by 27% compared to 2019, suggesting that unviable businesses were artificially kept solvent by pandemic support measures. The government has recently given new powers to the Insolvency Service to investigate the conduct of directors of companies that are suspected to have taken out bounce back loans shortly before the dissolution of the company – which loans have not been, and are unlikely to ever be, repaid.
The trends outlined above are consistent with the rise in civil fraud claims that we are seeing, and expect to continue to rise. Common examples are authorised push payment frauds by way of vishing, phishing or smishing, whereby (typically) either a fraudster tricks a person into divulging information enabling the fraudster to make a payment from the victim’s account, or a fraudster inserts themself between the victim and the intended recipient of a payment. Between April 2020 and March 2021, there was an 83% rise in phone and text scams of this nature: fraudsters have taken advantage of people’s habits caused by the pandemic, remote working and an increased online and virtual presence. Using online search engines and social media adverts, fraudsters have misappropriated approximately £535 million in investment frauds, where a victim is tricked into wrongly thinking he or she is making a genuine investment with anticipated high returns. These scams often include bitcoin or other cryptocurrencies.
The courts are increasingly seeing examples of payment scams and being asked to consider the scope of the duty of the paying bank (see for example the recent cases concerning the Quincecare duty) and the role or position of the recipient bank. Issues for the paying bank may include negligence, the Payment Services Regulations and their actions considered in the context of relevant codes of conduct. For the recipient bank, courts may need to consider unjust enrichment, knowing receipt, dishonest assistance or even negligence (though it has to date been more difficult to establish any duty of case on the recipient bank).
A significant percentage of funds misappropriated in these various fraudulent ways is thought to have been converted into crypto assets. The anonymous and decentralised nature of crypto makes it notoriously difficult to identify, trace and – importantly – link back to the fraudster. However, in recent years we have seen legal, investigatory and technology specialists working creatively together to track these assets down and seize them. Crucially, the English courts are at the same time continuing to adapt their tools to crack down on frauds involving crypto assets, and we expect to see this trend continue in the coming months. Useful interim tools in this context include orders for disclosure (Norwich Pharmacal / Bankers Trust orders against the relevant exchange or the recipient bank), and proprietary and freezing orders against individuals, banks or persons unknown.
The true scale of fraud committed during the pandemic, including against the UK government during the pandemic is yet to be known. It may take many years for the enforcement agencies to catch up with the fraudsters and those who wrongly claimed or overclaimed, and for individuals and companies to uncover frauds carried out against them and take legal action. We anticipate an increase in complex civil and criminal cases in the years ahead.
About the author:
Kate Gee, counsel at Signature Litigation, has over a decade of experience acting in complex, high value, cross border disputes, including civil fraud and asset tracing claims, general commercial litigation and banking litigation.
Theranos, founded by Holmes in 2003, claimed it would revolutionise the medical testing space with the introduction of a new blood diagnostic technology that was capable of performing several tests on a small dose of blood. The medical start-up had reached a valuation of $10 billion. However, it was later found that the company’s claims were largely fabricated, with reports from the Wall Street Journal revealing that Theranos had been overstating the functions of its technology.
Holmes and her former partner and co-president Ramesh “Sunny” Balwani were accused by the US Department of Justice of defrauding both consumers who bought and used the blood tests and investors who believed the start-up would become profitable in the long term.
It is expected that Holmes will lean on a “Svengali defence”, arguing that her role in the Theranos scandal was heavily influenced by an allegedly abusive relationship with Balwani. However, lawyers for Balwani have labelled these allegations as outrageous. Holmes’ former partner will appear in court at a separate trial in February 2022.
The case is likely to take many weeks to resolve, with the court setting aside time into December for proceedings. Holmes has pleaded not guilty to all counts of wire fraud and conspiracy to commit wire fraud. If convicted, Holmes will face up to 20 years in prison.
Niall Hearty of financial crime specialists Rahman Ravelli considers the increasing appeal to the authorities of account freezing orders and account forfeiture orders.
The force issued account freezing orders and account forfeiture orders against assets with a total value of £36 million in 2020 – a figure that dwarfs the 2019 total of just under £1 million. But while a 3,600% rise is spectacular, it is arguably unsurprising. Account forfeiture orders and account freezing orders give the police – and other authorities – an opportunity to seize money that is suspected of having been gained through wrongdoing, without any need for a prosecution. Yet as they have only been available to the authorities since the start of 2018, thanks to the Criminal Finances Act, they are still a relatively new concept. Part of the increase in their use by the capital’s police can, therefore, be put down to the force becoming more familiar with them and more aware of their usefulness.
Before 2018, police and other authorities did not have many options when it came to seizing money without a person having been charged with an offence. But now they have these orders, it would be surprising if current levels of use are not maintained or even increased further. And this is due to circumstances that go beyond their “user-friendly’’ appeal to the authorities.
At a time when the COVID-19 pandemic has seen various government initiatives put into operation in an attempt to keep the economy buoyant, there are arguably more opportunities available to those looking to commit fraud than there ever have been. The furlough scheme, the Self Employment Income Support Scheme (SEISS), and the Bounce Back and Coronavirus Business Interruption loan schemes have all been cited as potential magnets for fraudsters, prompting the government to create a HM Revenue and Customs (HMRC) task force to tackle the problem. The £100 million HMRC Taxpayer Protection Taskforce will see more than 1,250 HMRC staff attempting to identify those who have tried to make fraudulent gains from the government schemes. It would be a major surprise if such identification were not followed by more account freezing orders and account forfeiture orders being initiated.
While the Proceeds of Crime Act 2002, which came into force on 24th March 2003, gave authorities the powers to confiscate the proceeds of crime so that a person convicted of a criminal offence could not benefit from their wrongdoing, the introduction of account freezing orders and account forfeiture orders has considerably strengthened their hand. The fact that they can be obtained without the need for a conviction or even a prosecution makes them the “go-to’’ option for authorities looking for the swiftest, most direct route to deprive someone suspected of wrongdoing of their ill-gotten gains.
While a 3,600% increase in the value of such orders appears to be a startling statistic, the reasons behind the figure mean it is far from shocking. Arguably, it would have been a shock if there had not been such an increase in the use of the orders. It is hard to believe that it is only the City of London Police that has recognised the value of these powers and started using them more and more. Many other authorities are sure to be employing them with increasing enthusiasm.
By now you have likely heard about the latest technology craze: Non-Fungible Tokens (NFTs).
In 2021 alone, we have seen A-list names like Michael Jordan, Mark Cuban and 2 Chainz investing millions in NFT-based start-ups and auctions for NFT-linked assets fetching astounding sums of money, including Jack Dorsey’s first tweet ($2.9 million) and collections of digital artworks by Grimes ($6 million) and “Beeple” ($69 million), just to scratch the surface.[i]
While often linked to digital assets, NFTs (and Smart Contracts) can also be used to sell discrete physical assets like one-of-a-kind sneakers, vinyl records and concert tickets,[ii] and the future could see their use in transactions for major purchases like cars and houses. However, before you or your clients start minting, selling, buying or trading NFTs, you should understand what NFTs and Smart Contracts are, the rights involved in NFT transactions, and some lurking dangers.
What are NFTs? A “token” is a digital asset stored on a secure, but transparent distributed blockchain ledger. Non-fungible means one-of-a-kind—like a record-breaking homerun ball, a bootleg concert recording, or collectables like baseball cards. Thus, an NFT is a digital asset that is linked to a discrete and unique asset. In contrast, a fungible token such as Bitcoin is an asset in itself—its value fluctuates relative to other currencies, but all bitcoins are the same and equal fractioned amounts of bitcoin will have equal value against each other. The process of creating an NFT is called “minting.”
Like Bitcoin, NFTs enjoy the security, transparency and immutability of cryptographic storage, but whereas bitcoins are divisible to 10-8 degree, NFTs are indivisible and can store significant amounts of data, including unique information. This is what makes a particular token “non-fungible,” and it is stored in a “Smart Contract,” computer code that automatically executes upon the occurrence of a set of preconditions.
Combining a Smart Contract with other unique identifying metadata — such as the identity of the owner, and secure file links — along with the security afforded by blockchain, provides practically irrefutable proof of ownership and authenticity to prospective buyers.[iii] Smart Contracts can prevent someone from transferring an NFT or accessing an underlying asset unless all preconditions specified in the contract are satisfied, including potentially paying royalties on the resale of the NFT. While most early NFTs can be resold without restrictions, some NFT marketplaces are encoded to enforce Smart Contracts royalty “clauses” which, upon the resale of an NFT, automatically pay a fee to the minter-seller, usually as a fixed percentage of the resale price.[iv]
In layman’s terms, NFTs and Smart Contracts act simultaneously as a “certificate of authenticity” for the underlying asset and as a valuable representation of ownership of a real asset like a stock.
While NFT auctions have yielded jaw-dropping real dollar figures, what does a buyer really possess? Ultimately, an NFT owner has access to the underlying asset, but they may lack exclusive access to or control of the asset, let alone ownership of the asset or any intellectual property (IP). Indeed, the default rule is that a patentee or copyright owner retains all IP unless it is clear from the language of a signed writing (e.g. the Smart Contract) that ownership of an intellectual property right is being transferred.[v] In most cases, Smart Contracts do not transfer IP rights.
In layman’s terms, NFTs and Smart Contracts act simultaneously as a “certificate of authenticity” for the underlying asset and as a valuable representation of ownership of a real asset like a stock.
An NFT owner may have an implied license in the same way that the purchaser of a useful machine is not infringing a patent by using it as intended or how the purchaser of music is not infringing copyrights by privately singing along with their copy of a record. For example, hundreds of people bought the NFT version of the new Kings of Leon album and received exclusive digital and physical collectibles, but the same music was released via traditional streaming and purchase outlets and the Kings of Leon (or their label) still retain all copyrights. In collectible cases like this, owning an NFT is like owning one of the roughly 10,000 copies of Nolan Ryan’s 1968 Topps rookie card, with the added bonus that your version of the card is authenticated and you are provably the owner. Thus, the value in buying an NFT is often in creating a collectible (non-fungible) version of an otherwise a replicable (fungible) asset.
Despite the security offered by blockchain, this new industry is ripe for fraud and misuse, particularly in attempts to mint and sell NFTs linked to assets not owned by the minter-seller, be it a copyrighted work, trademarked brand or celebrity likeness. In a recent example, an NFT auction for a drawing by Jean-Michel Basquiat that purportedly included “reproduction and IP rights...in perpetuity” was pulled after Basquiat’s estate clarified that it still owned all copyrights in the sketch and that the NFT seller had no rights to give away.[vi]
While there are no laws yet relating to cryptographic assets, legal systems should largely be able to adapt existing laws and principles to blockchain technology as was done for online activities. For starters, most disputes between a buyer and seller of NFTs should be easily resolved either by the Smart Contract or by a judge applying traditional principles of contract law. In Internet-based copyright infringement lawsuits between parties of different nationalities, US courts apply a two-step “conflict of laws” analysis, determining the validity of the IP right under the laws of the nation where the work was created, and determining liability for infringement under the laws of the nation where the tort occurred. Similar rules could apply to this context.
While there are no laws yet relating to cryptographic assets, legal systems should largely be able to adapt existing laws and principles to blockchain technology as was done for online activities.
Another issue is that, since NFTs are, in the end, data stored in cyberspace, there is a risk of non-permanency and losing access to digital assets linked to NFTs. In the meantime, the NFT craze is just beginning and we can either continue to gawk at lofty sales or join the fray.
Shane Wax, Associate
Gottlieb, Rackman & Reisman, PC
Address: 270 Madison Avenue, 8th Floor, New York, New York 10016-0601
Tel: (212) 684-3900
Fax: (212) 684-3999
Email: info@grr.com
Gottlieb, Rackman & Reisman, PC is a New York-based firm that provides legal advice and guidance on all aspects of patent, trademark, copyright, and unfair competition law. It is recognised as a Top Ranked Law Firm for the past two consecutive years, receiving a Martindale-Hubbell AV Preeminent® peer review rating.
Shane Wax’s practice focuses on transactional, enforcement and litigation work related to all areas of intellectual property, including patents, copyrights, trademarks, trade dress and trade secrets. Shane also provides general client counseling related to protection and enforcement of intellectual property rights.
References
[i] See Jon Blistein, RollingStone, Twitter’s Jack Dorsey Sells First Tweet as Non-Fungible Token, Mar. 22, 2021, https://www.rollingstone.com/culture/culture-news/twitter-jack-dorsey-first-tweet-nft-cryptocurrency-1138401/; Gerrit De Vynck and Douglas MacMillan, The Washington Post, He just spent $69 million on a digital piece of art. It’s not his first Beeple, Mar. 18, 2021, available at https://www.washingtonpost.com/technology/2021/03/17/nft-beeple-metakovan-christies/; Danny Nelson, Coindesk, Michael Jordan Joins $305M Investment in Firm Behind NBA Top Shot, Mar. 30, 2021, https://www.coindesk.com/michael-jordan-joins-305m-investment-in-firm-behind-nba-top-shot; Tim Hakki, Decrypt, Mark Cuban Invests in NFT Tracker CryptoSlam, Apr. 17, 2021, https://decrypt.co/66897/mark-cuban-invests-nft-tracker-cryptoslam; Will Gottsegen, Decrypt, Grimes Just Sold Her Crypto Art NFT Collection for $6 Million, Mar. 1, 2021, https://decrypt.co/59827/grimes-nfts-crypto-art.
[ii] See, e.g., Cam Wolf, GQ, What Is an NFT Sneaker, and Why Is It Worth $10,000? Apr. 28, 2021, https://www.gq.com/story/nft-fashion-sneakers; Samantha Hissong, RollingStone, Kings of Leon Will Be the First Band to Release an Album as an NFT, Mar. 3, 2021, https://www.rollingstone.com/pro/news/kings-of-leon-when-you-see-yourself-album-nft-crypto-1135192/; Claire Shaffer, RollingStone, The White Stripes Drop ‘Seven Nation Army’ Remix, NFT Release, Apr. 23, 2021, https://www.rollingstone.com/music/music-news/the-white-stripes-seven-nation-army-remix-nft-1157823/; Jacob Gallagher, Wall St. J., NFTs Are the Biggest Internet Craze. Do They Work for Sneakers?, Mar. 15, 20221, https://www.wsj.com/articles/nfts-and-fashion-collectors-pay-big-money-for-virtual-sneakers-11615829266 (sub req.).
[iii] See Josie Thaddeus-John, N.Y. Times, What Are NFTs, Anyway? One Just Sold for $69 Million., Apr. 13, 2021, https://www.nytimes.com/2021/03/11/arts/design/what-is-an-nft.html; Rakesh Sharma, Investopedia, Non-Fungible Token (NFT) Definition, Mar. 8, 2021, https://www.investopedia.com/non-fungible-tokens-nft-5115211; Jake Frankenfield, Investopedia, Smart Contracts, Mar. 25, 2021, https://www.investopedia.com/terms/s/smart-contracts.asp; Stuart D. Levi and Alex B. Lipon, Harvard Law School Forum on Corporate Governance, An Introduction to Smart Contracts and Their Potential and Inherent Limitations, May 26, 2018), available at https://corpgov.law.harvard.edu/2018/05/26/an-introduction-to-smart-contracts-and-their-potential-and-inherent-limitations/; Melanie Kramer and Daniel Phillips, Decrypt, Non-Fungible Tokens (NFT): Beginner's Guide, Feb. 4, 2021, https://decrypt.co/resources/non-fungible-tokens-nfts-explained-guide-learn-blockchain; Matt Hussey and Daniel Phillips, Decrypt, What Are Smart Contracts and How Do They Work?, Jan. 8, 2011, https://decrypt.co/resources/smart-contracts.
[iv] See James Beck, Consensys, Can NFTs Crack Royalties And Give More Value To Artists?, Mar. 2, 2021, https://consensys.net/blog/blockchain-explained/can-nfts-crack-royalties-and-give-more-value-to-artists/; Zach Burks, James Morgan, Blaine Malone, James Seibel, Ethereum Improvement Proposals, EIP-2981: ERC-721 Royalty Standard, Sept. 15, 2020, https://eips.ethereum.org/EIPS/eip-2981#optional-royalty-payments; Eileen Brown, ZDNet, New platform uses NFTs as a gateway for digital rights management, Mar. 4, 2021, https://www.zdnet.com/article/new-platform-uses-nfts-as-a-gateway-for-digital-rights-management/.
[v] See 35 U.S.C. § 261 (“Applications for patent, patents, or any interest therein, shall be assignable in law by an instrument in writing.”); 17 U.S.C. § 204(a) (“A transfer of copyright ownership . . . is not valid unless an instrument of conveyance, or a note or memorandum of the transfer, is in writing and signed by the owner of the rights”).
[vi] See Anny Shaw, Art Newspaper, Basquiat NFT withdrawn from auction after artist’s estate intervenes, Apr. 28, 2021, https://www.theartnewspaper.com/news/basquiat-nft-withdrawn-from-auction-after-artist-s-estate-intervenes
When e-commerce first emerged in the late nineties, one of the major hurdles was to overcome consumer inertia. Back then, buying things on the internet required a leap of faith.
Much has changed in the last few decades, and the current COVID-19 pandemic has acted as a catalyst and an accelerator for any brands or industries that were yet to fully get on board. The monumental switch to digital channels for products and services has brought many opportunities, but it also offers many challenges to brands which must navigate the complex field of counterfeiting and brand infringement. While COVID-19 has been a positive catalyst for the development of e-commerce in general, it has also brought many new opportunities for online criminals, thereby exposing both consumers and brand owners to the presence of increased fraud, personal data theft and counterfeit products. Further, given that as a result of the pandemic many consumers now engage with their favourite brands exclusively online, the effects of fraudulent online impersonation on a brand’s reputation may be far more serious and long lasting. In order to best respond to the increased threats online, businesses should be mindful of the need for a comprehensive online brand protection strategy tailored to their needs.
Surviving and thriving online
The speed and enthusiasm with which e-commerce has been adopted by brand owners have varied from sector to sector. The luxury industry, for example, was a comparatively late entrant; the online world perhaps viewed as incongruous with the emphatically exclusive experience which some luxury brands were able to convey in their boutique stores. These days, of course, such brands are able to cultivate an equally luxurious online space, crafted to preserve the aura of prestige that defines them, while benefiting from the advantages offered by a global online presence.
For small, local businesses, a hybrid between online and physical commerce is proving to be successful with websites functioning as a virtual shop front for orders that can then be picked up at the store.
Heavily reduced access to bricks-and-mortar stores as a result of the pandemic has left consumers with no choice but to look online for alternatives. The effects of this have been seen in, for instance, the 16.5% increase in e-commerce use worldwide during 2020 with the trend only set to continue during 2021.[1] On the flip side, businesses have had to move or expand online quickly in order to meet this increased demand. To survive, businesses without a presence online have had to move quickly to establish a credible presence online. Indeed, where a brand has failed to establish a presence online (or even on individual social media platforms and marketplaces), they are effectively handing impersonators an invitation to take advantage of this lack of presence for their own fraudulent purposes.
For small, local businesses, a hybrid between online and physical commerce is proving to be successful with websites functioning as a virtual shop front for orders that can then be picked up at the store.
Risk alongside reward
Having an online presence allows businesses to reach outside their local neighbourhoods to potentially global audiences, but it doesn’t come without risks. Fraud, counterfeiting and brand infringement are endemic online, and infringers are difficult to identify and shut down. The pandemic has only exacerbated these threats. For example, phishing, or the practice of deceiving users into handing over sensitive information through impersonation, grew very substantially in 2020, with the number of monthly phishing attacks doubling over the course of the year according to data provided by the Anti-Phishing Working Group[2].
2020 has also borne witness to the worrying capability of counterfeiters to move fast to take advantage of consumer demand online. This is illustrated in a particularly poignant way by the appearance of large quantities of forged personal protective equipment (PPE) on e-commerce platforms such as Amazon, which has prompted some brand owners to take action through litigation[3]. Aside from PPE, the same trend has affected medications, with law enforcement having seen a marked increase in the sale of antiviral drugs during 2020.[4]
All this suggests that brand owners would be wise to set up a strategy to combat infringement through online brand protection. However, the best practice for enforcing rights online will vary from brand to brand as well as from channel to channel and platform to platform. In other words, there is no one-size-fits-all strategy that can neutralise the threats a brand owner may encounter.
Counterfeiters and other infringers have always moved fast, but in the past few years, they have become especially creative in the channels they use to impersonate brand owners and sell fake goods, bolstering their ability to work around the many enforcement measures that have been established to try to trap them. To catch these moving targets requires a dedicated online brand protection strategy and dedicated support that encompasses rapid enforcement action as well as online monitoring technology.
Indeed, where a brand has failed to establish a presence online (or even on individual social media platforms and marketplaces), they are effectively handing impersonators an invitation to take advantage of this lack of presence for their own fraudulent purposes.
How and where to start
A step-by-step guide for brand owners yet to establish an online brand protection strategy or those looking to update their approach.
To establish an effective and proportionate online brand protection strategy, you need to first take a step back to define the scope of your activities, identify the biggest threats to your brand, define enforcement routes and budgets, and develop a plan of attack that is proportionate to the extent of the threat and the available routes of enforcement action.
As is clear from the examples discussed above, brand owners are at risk from more than that old foe: counterfeiting. The ways in which we all shop and communicate have opened up a range of new online channels that need to be monitored and policed. Not sure where to start? In our experience, the following five content channels are the most important areas for monitoring and enforcement:
Ensure you have registrations in place for all aspects of your product that could be at threat online, and in all markets/geographies of trade. This may seem obvious, but it is an area that is often overlooked. Without the appropriate registrations in place, enforcement procedures such as marketplace takedowns or domain name dispute resolution policies, may not be available to you, forcing you to take more expensive or remedial action to counter these common threats.
Such is the size of the online market: it won’t be cost-effective (or even possible) to take action against every instance of brand damage. Focus instead on the biggest and most damaging threats, and target enforcement action and budget accordingly. Defining a policy that defines action and selection criteria will help here (see step 1), but so too will the use of a tool/service that automates common enforcement activities, such as takedown notices or cease-and-desist letters. This will also lower the cost of such activities and help you to take prompt action.
IP professionals know the importance of online monitoring and enforcement, but they also need to justify its cost. This can be hard when you’re using a multitude of different systems and suppliers, or not using a common dashboard to track your activities and their impact. Fortunately, modern case management systems enable users to run quick and accurate reports, and provide the data needed to drive intelligent decision-making. If you don’t have a clear picture of your activities, get in touch with us to find out how we can help.
The online market moves quickly, and so should you. That necessitates regular tracking and reviews to make sure you’re covering all bases. Your strategy should also be updated when you enter new markets or geographies, or launch new products and services. Depending on your business and its risk profile online, we recommend regular reviews every three to six months to make sure your current policies are fit for purpose.
[1] “Global ecommerce market report: ecommerce sales trends and growth statistics for 2021”, Business Insider, 30.12.2020, https://www.businessinsider.com/global-ecommerce-2020-report?r=US&IR=T.
[2] APWG, Phishing Activity Trends Report 4th Quarter 2020, https://docs.apwg.org/reports/apwg_trends_report_q4_2020.pdf.
[3] See https://www.securingindustry.com/pharmaceuticals/3m-files-lawsuit-against-fake-coronavirus-ppe-sellers/s40/a11811/#.YEecQJNzQ_V.
[4] See https://pharmafield.co.uk/opinion/covid-19-and-the-counterfeit-drug-crisis/.
Lawyer Monthly hears from Phoebe Waters, Associate at Schillings, on the techniques involved in professional asset-tracing and the role it plays in cracking down on white-collar crime.
“Things gained through unjust fraud are never secure” - Sophocles
Okay, this is from a Tragedian who espoused academia like I do Ibizan house music, but it resonates absolutely with my role as an investigator – and specifically, an asset tracing specialist.
Why do I agree with an ancient Greek playwright, famed for fatalism? Because in my experience, assets gained as a result of fraud are insecure - particularly when you’ve got an investigative team on speed dial (think Ghostbusters, but better dressed).
In January 2020, former Deputy Scotland Yard Commissioner Sir Craig Mackey stated that fraud accounts for one in three of all crimes committed in Britain. And the Association of Certified Fraud Examiner’s (‘CFE’) 2020 Report to the Nations survey claims that from the 2,504 fraud cases studied, there was a resulting loss of above $3.6 billion.
Where fraud is committed, pre-litigation strategy should be informed by a professional investigative asset trace. This will save the client their most precious asset – time.
An asset trace is the process by which investigators ‘follow the money’; locating items of value owned by an individual or company, commonly real estate, cash, and shareholdings. Assets are everything owned by a business or an individual, the value of which can be defined by their financial worth, value to the client, and/or the value of the disruption they can cause.
The Persian poet Rumi claimed: “Where there is ruin, there is hope for treasure”. An asset trace is like a treasure hunt.
But if X marks the spot, then we need to figure out A - W first, right? Let’s use the example of a high-net worth British businessman (‘the subject’). Instructed on an asset trace, we are asked to hunt down a) the subject, b) the stolen company money, and c) the subject’s assets.
Where fraud is committed, pre-litigation strategy should be informed by a professional investigative asset trace.
Starting an asset trace, it is helpful to set a wide aperture before narrowing to the detail. We want to understand the subject’s asset profile, the ownership structures, and the jurisdictions in which they sit. We also want to establish the fraudster’s lifestyle: statues of business interests, propensity to sip coconut cocktails during island retreats etc.
In order to do this, we hoover all details of the subject (with the “exam question” in mind) including career history, company ownership, family members, contact details and aliases. Our open-source-intelligence research covers corporate and property searches; media/social media; trading/financial/government disclosure sites, litigation trackers and more. Asset tracers (the good ones) have a particular set of skills, but access to specialist international databases enables us to dig even deeper.
Why the phrase: ‘follow the money’? Because when the subject has committed a fraud, we need to visualise a trajectory in two directions: fraud towards an asset, and backwards from an asset to the fraud. If we suspect an apartment is subject-owned, we need to work back from this property; establishing when it was purchased, where it fits in a timeline of events, and how the subject financed it. Breadcrumbs are there to follow.
Asset structures abroad can be more challenging to unravel. Countries differ in what their official registries provide and the legal and procedural requirements of forming a company or purchasing property.
Nevertheless, investigators are adept at hunting in ‘unfamiliar’ lands. We know the difference between land records in France - Spain - Russia and are abundantly aware of the corporate transparency disparity between US States. But even we cannot provide optimal intelligence alone - we obtain on-the-ground, discreet and valuable insight from experts who are well-placed in jurisdiction and sector.
Countries differ in what their official registries provide and the legal and procedural requirements of forming a company or purchasing property.
The treasure hunt can become complex if, in a more dramatic attempt to conceal the stolen money and assets funded by the fraud, the subject 1) leads us ‘offshore’ and 2) uses obscure ownership vehicles.
It is a truth universally acknowledged that business owners and high-net worth individuals utilise ‘tax havens’ to save cash. But just as important to them is the low threshold of detail that controllers of a company have to provide to the registries and that the registries legally have to provide to the public.
It is crucial though that we keep up to speed with the constantly evolving offshore world. For example, the British Virgin Islands, Curacao, Cyprus are all jurisdictions for which shareholder information is shrouded in mystery but the BVI government has recently resolved to make beneficial ownership publicly accessible. This is huge news.
There are other tricks a subject may employ. The use of nominee directors and shareholders. Provision of names of close associates or family members to register ownership of the assets because he thinks they are less easy to track (hence why the initial broad scope on the subject is paramount). The use of unnecessary intermediary companies to throw pursuers off the scent. Over innumerable investigations, we have picked up on a range of patterns that fraudsters follow; making us pretty good at ‘piercing the corporate veil’ to catch the bad guys.
Fraud is clever, but it’s seldom flawless. Louis J Freeh stated that “the fraudster’s greatest liability is the certainty that the fraud is too clever to be detected”. We specialise in assessing how the subject is attempting to shield assets to resist enforcement; fraudsters ‘secret squirrel’ fantasies are often short lived.
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It is essential for lawyers to understand our capabilities because we can help assess, pre-litigation, the cost/benefit of proceeding against this character. If litigation is already underway, investigators can still provide priceless intelligence to ensure the client achieves a commercially favourable outcome. Investigation results, comprising proof of assets and valuations, plus information that could pressurise the subject, may be enough to force settlement.
To conclude then, an asset trace is simply a treasure hunt, a game in which players search for hidden items of value by following a trail of sequential clues.
Investigators, as acutely curious creatures, always remain ready to hunt.
People say that imitation is the sincerest form of flattery. This might ring true in some aspects of your life, but not when it comes to any original works you’ve poured time and money into. The last thing you want is for someone else to claim ownership of a book or document that belongs to you. As daunting as the prospect might be for having to fight plagiarism and claim the rights to your book, it’s a battle worth fighting. Keep reading to find out what’s involved.
Even if you never dreamed that anyone could try and steal the ownership rights to your book, it can happen. That’s why it can be so crucial to include a copyright page in anything you write. Start by registering your work with the US Copyright Office, then include your copyright information on a page in the book you will be publishing.
Start by registering your work with the US Copyright Office.
Amazon is considered the world’s largest book store, and is now the largest online retailer of consumer goods. If you’re going to fight plagiarism and claim back your book, start by approaching them. Several authors who have had their work stolen before have contacted Amazon to claim ownership. By having the plagiarised book removed from Amazon, they were able to see it disappear from the catalogues of many smaller booksellers as well.
You may never be able to stop every case of plagiarism from occurring, since it happens across many industries. However, there are small actions you can take to reduce the likelihood. For example, if you sell your book online as an eBook, don’t offer a download option. If someone purchases your book, email the book through a secure provider to the customer. This adds an extra layer of security against someone trying to download eBooks from the internet to copy and profit from.
If you prefer to include a download link for your book, change it often. It doesn’t stop plagiarism from being a problem, but it can certainly decrease the number of would-be plagiarists thinking you are an easy victim. Most plagiarists are after quick, easy money-making methods. Small measures like an ever-changing download link can put your book into the too-hard basket.
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If you’re struggling to claim ownership of a book that’s rightfully and legally yours, consider making contact with an intellectual property lawyer. Sometimes, all it takes to make someone stop stealing your work is a strongly-worded letter on legal letterhead. However, a lawyer may also have ideas about how to protect your work in the future, and they may even be able to help you strengthen the copyright protection you currently have in place.
Plagiarism has been occurring for a long time, and there’s no way to prevent every case of it from happening. However, there are plenty of ways you can reduce the risk and fight to claim full ownership of your book once more.
