Cyber Security is the New Business Opportunity

Francisco A. Laguna & Wojciech Kornacki

Recent massive and coordinated cyber-attacks on governments and businesses alike reveal the urgent need for global cyber security.  As digital transformation and technical advances have changed the way we communicate and do business, cyber threats and cyber-attacks have become more common.  In order to respond to the ever increasing demand for cyber security, in the next several decades billions of dollars will be spent around the world to combat the new and emerging cyber threats and prevent attacks.  This creates new business opportunities for information technology entrepreneurs.

Air Force First Lieutenant responds to potential threats in the Incident Response Team Net Forensics Lab. Members of the team have two minutes to evaluate incoming threats. (USAF photo)

Air Force First Lieutenant responds to potential threats in the Incident Response Team Net Forensics Lab. Members of the team have two minutes to evaluate incoming threats. (USAF photo)

What is Cyber Security?

Cyber security is the activity or process, ability or capability, or state whereby information and communications systems and the information contained therein are protected from and / or defended against damage, unauthorized use or modification, or exploitation.

Chances are that most of us received an email from an unknown source asking us for personal information, and we did not know that we were under a cyber-attack.  However, this is actually called “phishing”, and phishing is considered a form of a cyber-attack.  Other forms of cyber-attacks include:

  • “pharming”: fraudulently redirecting a website’s traffic to another, fake website
  • “malware”: software that performs unauthorized functions without your knowledge
  • “Trojan horse”: software that appears to have a useful function, but also it has hidden and potentially malicious functions, or
  • “spyware”: software that enables a user to obtain covert information about another’s computer activities by transmitting data covertly.

The particular challenge with cyber security is that most governments and businesses are completely unprepared for these new types of constantly evolving attacks and threats.  In addition, some businesses and governments are not even aware that they are being attacked.  This means that they may lose critical operational information, trade secrets and business information, without even knowing.

Domestic Cyber Security Opportunities 

The U.S. Government requested US$ 19 Billion to improve cyber security defenses in the 2017 budget.  In addition, the U.S. Department of Defense plans on spending an additional US$ 5 Billion on cyber security.  Most likely a significant portion of these amounts will be awarded to private businesses specializing in cyber security, and many of the large defense contractors are rapidly developing their cyber security capabilities.  However, even the biggest cyber security contractors will require a number of subcontractors to meet the demand.

While the U.S. Government is attempting to counter cyber threats for itself, it cannot protect private businesses from similar attacks.  It is likely that private businesses will also have to improve their cyber security.  Thus, many private businesses will have to develop their own cyber-attack detection and prevention safeguards and protocols.

estonia

Tallinn, Estonia. In the past, Estonia has been a subject to multiple well-coordinated cyber-attacks. The attacks have taken down many official and private websites including webpages of the Estonian parliament, and many Estonian newspapers. The attacks coincided with the heavy Russian criticism over the removal of the Bronze Soldier Statute from Tallinn. Courtesy of http:// http://en.wikipedia.org

International Cyber Security Opportunities

The cyber security market is expected to grow from US$ 77 Billion in 2015 to US$ 170 Billion by 2020.  While North America and Europe greatly contribute to the growth of the international cyber security market, the Asian and South East Asian markets are quickly developing.

Similarly, many Arab governments have experienced cyber-attacks in the energy sector.  Increasing their defenses will result in spending of approximately US$ 9.5 Billion by 2019.

Cyber Security Stocks are Increasing in Value

Many companies that specialize in cyber security are seeing their stocks increase.  This rise is largely due to the perception that cyber-attacks benefit private cyber security companies.  Close analysis of the ISE Cyber Security Index reveals that this index has gone up by 22% in 2015 alone.  There seems to be a correlation between the number of cyber-attacks and the rise of stocks of companies specializing in cyber security.

Cyber Security Insurance gains Importance

Cyber security insurance has also seen rapid growth.  Many insurance companies have begun to offer it to private business.  These new policies also cover third-party loss resulting from the cyber-attack, all costs associated with the cyber-attack, extortion, and on-line trade secret protection.

Cyber security is here to stay.  The domestic and international markets show tremendous opportunities for growth.  If you are interested in learning more about future business opportunities involving cyber security, contact TransLegal or call 703-566-9427.

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US Customs Reauthorization Bill Signed into Law

Francisco A. Laguna

On February 24, 2016, President Obama signed the Trade Facilitation and Trade Enforcement Act of 2015, H.R. 644 (Customs Reauthorization Bill), into law.

The law, which we summarized over the past two weeks, contains the most far reaching set of changes since the Customs Modernization (MOD) Act, including significant changes to the operations and programs of US Customs and Border Protection (CBP), new provisions for combating evasion of the antidumping (AD) and countervailing duty (CVD) laws, and the inclusion of brand new measures to protect intellectual property rights (IPR).

A CBP Officer directs a truck with a seaport container to an inspection area at a port.  www.cbp.gov

A CBP Officer directs a truck with a seaport container to an inspection area at a port. http://www.cbp.gov

CBP officials have indicated the agency will be busy developing and implementing regulations for the law. Some key dates laid out in the law include:

Section 901 – De Minimis Level

This section amends 19 U.S.C. § 1321(a)(2)(C) to raise the de minimis threshold from $200 to $800. This amendment shall apply to merchandise imported or withdrawn from the warehouse for consumption on or after March 10, 2016.

Section 304 – Copyright Enforcement while Application Pending

Section 304 calls for a process to enforce copyright protection for marks after the filing of a registration application, but before the application has been approved and the registration is in full force and effect. These steps are to take effect by August 2016.

US Commerce Department.  www.commerce.govSection 421 – Enforcement of AD/CVD Orders

The Department of Commerce has been authorized to administratively investigate AD/CVD evasion and requires CBP to collect or preserve for collection AD/CVD duties owed on evading imports. These amendments are effective August 2016. Regulations to put the changes into effect are also called for by August 2016.

Section 303 – IPR Enforcement – Circumvention Devices

Section 303(a) expands CBP’s seizure and forfeiture authority to explicitly include unlawful circumvention devices, as defined under 17 U.S.C. § 1201(a)(2) or (b)(1).  CBP has to prescribe regulations implementing this process by February 2017.

Section 116 – Importer of Record (“Known Importer”) Program

Section 116(b) requires the Commissioner to submit a report to Congress no later than August 2016 containing recommendations for determining the most timely and effective way to require foreign nationals to provide customs brokers with appropriate and accurate information (comparable to that which is required of United States nationals concerning the identity, address and other related information), and for establishing a system for customs brokers to review information maintained by relevant Federal agencies for purposes of verifying the identities of importers, including nonresident importers, seeking to import merchandise into the United States.

As with all landmark legislation, the regulatory process is where the details will be provided.  While regulations may not be issued immediately, importers may still feel the effects of this law sooner rather than later. For example, CBP has been taking steps to increase enforcement of AD/CVD and IPR provisions in anticipation of the passage of the law using existing processes. Importers are likely to see the effects of CBP enforcement under current processes.

Contact TransLegal with your questions concerning the Trade Facilitation and Enforcement Act of 2015 / Customs Reorganization Bill.

Alibaba: The Scandal You Should Know About Before Investing

Francisco A. Laguna & Rolanzo White

For those unfamiliar, Alibaba is an e-commerce company based in China. Founded in 1999 by Jack Ma, this giant has grown into one of the most valuable technology companies in the world.  It raised US$ 25 billion from its United States IPO, and in 2014, transactions on their sites totaled US$ 248 billion.

"Alibaba Group Logo" by Source (WP:NFCC#4). Licensed under Fair use via Wikipedia

“Alibaba Group Logo” by Source (WP:NFCC#4). Licensed under Fair use via Wikipedia

Alibaba does not warehouse, ship or sell products, instead they offer sales portals and platforms whereby third-party merchants can sell their goods to third-party buyers. The company began as an online business-to-business wholesale company operating as Alibaba.com. Over the next decade, Alibaba launched a variety of businesses including Taobao, an online payment system called Alipay, an online marketing technology platform called Alimama, Tmall, and Alibaba Cloud Computing. The Company derives the vast majority of its revenue – 81.6% for FY2014 – from its China retail marketplaces, Taobao, Tmall, and Juhuasuan.

The sale of counterfeit and contraband goods over its platforms has long been an issue that could potentially impact Alibaba’s business significantly. Alibaba has always claimed to be against the counterfeiting on their sites.  On April 14, 2014, Alibaba’s proprietary news website, Alizila, published an article entitled “Fight against Online Sale of Fakes Goes on for Alibaba Group.” Alibaba claims to have removed an estimated 114 million listings for suspected fake goods from their giant Taobao marketplace during the first ten months of 2013. Their stated goal was to curb the infringement of intellectual property rights on its websites. The company has implemented measures to correct the problem which include searching their sites for merchants selling counterfeits and opening communication with government authorities and major brand owners. That being said, their current measures to stop counterfeiting have failed according to the recent complaints. The site rife with counterfeits is Taobao. Taobao is Alibaba’s largest shopping platform, hosting millions of merchants. Taobao offers buyers the ability to purchase unusual items and services like boyfriends for hire, live scorpions, and plenty of counterfeit merchandise.

"Jack Ma 2008" by World Economic Forum at en.wikipedia. Licensed under CC BY-SA 3.0 via Commons

“Jack Ma 2008” by World Economic Forum at en.wikipedia. Licensed under CC BY-SA 3.0 via Commons

Recently, Alibaba, Jack Ma and company executives have been hit with three class action law suits. The first was a derivative suit led by a common stock holder named Steve Surray (United States District Court for the Southern District of California). The second was a class action suit led by Gucci America Inc. who is joined by Balenciaga, Bottega Veneta, Yves Saint Laurent, Luxury Goods International (L.G.I.), and Kering (US District Court for the Southern District of New York). The last class action was filed by Myrtle Chao; the plaintiffs consist of people who bought the publicly traded ADSs of Alibaba on a U.S. stock exchange during the Class Period of 10/21/2014 – 01/28/2015 (United States District Court for the Central District of California).

Overall, these complaints accuse Alibaba of being untruthful about the counterfeiting problem on their sites and aiding and abetting the assailants. In other words, Alibaba is not only accused of allowing the sale of items like fake cigarettes, alcohol, restricted weapons and counterfeit luxury goods, it is also accused of providing an “ecosystem” for this type of behavior. In the Gucci complaint, the class claims that Alibaba knowingly encourages, assists and profits from the sale of counterfeits by providing online marketing, credit card processing, financing and shipping services. For example, Alibaba knowingly continued to allow the Hangzhou Yanbei Trading Company, a “Gold Supplier” and “Assessed Supplier” to sell counterfeit Gucci bags after inspecting them and concluding that they were, indeed, counterfeit. Alibaba is also accused of helping customers find counterfeit goods. For instance, they allow for keyword searches like “Gucci replica” and suggested terms like “cucci” and “guchi” when “Gucci” is typed into the search bars on their various platforms to intentionally drive customers to merchants of counterfeit products.

"Alibaba Binjiang Park" by Danielinblue, designed by HASSELL (architects)[1] - Own work. Licensed under CC BY-SA 4.0 via Commons

“Alibaba Binjiang Park” by Danielinblue, designed by HASSELL (architects)[1] – Own work. Licensed under CC BY-SA 4.0 via Commons

Alibaba is being sued for, among other things, trademark infringement, counterfeiting under the Lanham Act and violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”). The plaintiffs want Alibaba to stop aiding counterfeiters and take down any infringing product currently on their sites and have asked the court for statutory, punitive, and court-determined damages that could cost Alibaba millions.

Alibaba’s actions, if true, are illegal and could mean a severe drop in market value, which could further disrupt the Chinese economy and investor confidence.  The prudent investor may wish to consider waiting until the lawsuits are resolved, at least at the district court level.

TransLegal has offices throughout Asia, including China.  We assist our clients with enforcement of IP rights in the region.  Call us with your questions.

India: Legislative Updates

Francisco A. Laguna

 This week, TransLegal begins a series on recent legislative changes in India. In the following posts, we will analyze some of the more significant ones for foreign investors.

 Capital Markets

 The Securities Exchange Board of India (“SEBI”) has revised insider trading regulations. The new rules, contained in the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015, enter into force 16 May 2015. One major change introduced by the new rules is that people not in the brokerage sector cannot obtain from an insider, directly or indirectly, any unpublished, price-sensitive information related to a company listed, or proposed to be listed, on an exchange. Insiders are defined as people who have been associated for the prior 6 months with a company that is listed, or proposed to be listed, on an exchange, and who are is in possession of the company’s unpublished, price-sensitive information.

Citizenship Law

The Parliament issued the Citizenship (Amendment) Bill, 2015, which purports to grant the same rights and privileges to persons of Indian Origin as well as Indian citizens living abroad.

Coal Mines Bill

Parliament of India Photo credit: Wikimedia Commons

Parliament of India
Photo credit: Wikimedia Commons

The Lower House of Parliament, the Lok Sabha, approved the Coal Mines (Special Provisions) Bill, 2015. The law seeks to make the process of granting coal mine leases more transparent. The Upper House, the Rajya Sabha, has yet to pass the law. The leasing process has been criticized for lack of transparency and corruption.

Foreign Direct Investment – Generally

The Department of Industrial Policy and Promotion (“DIPP”) is proposing to raise the FDI threshold from 12,000 million rupees to 30,000 million rupees. The Government may increase the threshold at which Cabinet approval for foreign investments becomes necessary, making India a more attractive venue for FDI. The goal is to attract foreign investments, particularly in infrastructure and manufacturing sectors. Currently, investments exceeding the 12,000 million limit require the approval of the Cabinet Committee on Economic Affairs.

TransLegal has advised clients on foreign direct investment regulations in the food & beverage as well as the hospitality sectors.

Foreign Direct Investment – Housing Sector

The Government has relaxed the rules related to repatriating FDI in the housing sector. In December 2014, the Government implemented these new rules by decreasing the required built-up area and capital needs. In March 2015, the DIPP clarified that the existing three-year lock-in will no longer apply, and under normal circumstances, an investor can exit on an automatic basis upon completion of the project or after the construction of basic infrastructure, such as roads, water supply and drainage. The Foreign Investment Promotion Board (“FIPB”) can approve earlier exits on a case by case basis.

The minimum built-up area requirement for development projects has been reduced from 50,000 square meters to 20,000 square meters, and minimum capital investment by foreign companies has been decreased substantially from US$ 10 million to US$ 5 million. In addition, the government has introduced an exemption to the minimum floor area and the capital requirements when an investor / joint venture company commits at least 30 % of the total project cost to low-cost housing.

 Foreign Direct Investment – Insurance and Pension Sectors

 In March 2015, the Indian Parliament passed the Insurance Laws (Amendment) Bill, 2015. The bill raises the foreign direct investment (“FDI”) cap in insurance companies from 26% to 49%. This increased FDI cap directly increases the allowable FDI in the pension sector: the Pension Fund Regulatory and Development Authority Act ties FDI limits in the pension sector to those in the insurance sector. This increase presents important opportunities for foreign companies in both sectors.

National Stock Exchange of India Photo credit: Wikimedia Commons

National Stock Exchange of India
Photo credit: Wikimedia Commons

Import / Export Documentary Requirements 

In March 2015, the Directorate General of Foreign Trade (“DGFT”) issued a notification drastically reduced the mandatory documents required for importing and exporting goods to three (3) documents. For imports, the mandatory documents are: bill of lading / airway bill; commercial invoice / packing list; and bill of entry. For exports, the mandatory documents are: bill of lading / airway bill; commercial invoice / packing list; and shipping bill / bill of export.

Intellectual Property

India’s IP Office now allows electronic filing for new applications for design & geographical indications. Previously, e-filing was only available for trademarks and patent applications.

Labor Law

 The 2015 Union Budget proposes the following amendments to applicable labor laws. First, the government seeks to provide increased flexibility for employee contributions to the Employee Provident Fund (“EPF”). Employees would be allowed to choose to participate in the EPF or a New Pension Scheme (to be developed). The proposal also provides that employees with incomes below certain monthly thresholds would have the option not to contribute to the EPF, without affecting or reducing the employer’s mandated contribution. In addition, the amendments would allow employers to offer employees participation in the Employee State Insurance (“ESI”) or a different health insurance product duly approved by the Insurance Regulatory Development Authority (“IRDA”).

Money Laundering

Presidential Standard of India Photo credit: Wikimedia Commons

Presidential Standard of India
Photo credit: Wikimedia Commons

Amendments to existing laws have been proposed to prevent money laundering. Two independent laws have been submitted to address unaccounted-for monies held offshore and dubious domestic transactions. Persons found to violate the law will be subject to prosecution and steep penalties. To implement these measures, amendments have been proposed to the Prevention of Money Laundering Act (“PMLA”), 2002 and the Foreign Exchange Management Act (“FEMA”). Under the proposed amendments, concealment of income and assets and evasion of tax related to foreign assets will be subject to prison sentences of up to 10 years. Each transaction in violation of the law will be treated separately, and offenders will not be allowed to reach an out-of-court resolution through the Settlement Commission. Those found guilty of tax evasion will be subject to penalties of 300% the tax that would have been paid on the concealed income and assets.

Call TransLegal with your questions concerning Indian laws and regulations and how they may impact your proposed FDI projects.

3D Printing: Welcome to the Third Industrial Revolution

Francisco A. Laguna & Wojciech Kornacki 

This week’s blog explores three-dimensional printing and the industrial implications thereof.

What is three-dimensional printing?

 Three dimensional printing is “additive printing”.  Traditionally, manufacturers made products in factories by cutting or otherwise removing material to create a particular shape or object.  What is revolutionary about 3D printing is that your printer adds layers of materials to create a new object.  As 3Dprinter.Net points out, we are entering another industrial revolution, and 3D printers are one of its early arrivals.  Virtually, almost anything can be printed by a 3D printer, from toys, engine parts, prosthetic limbs, to houses.  Earlier this year, a group of scientists used the technology to create a new foot for an injured duck.

3D printing cuts down production costs and is more environmentally friendly.  Currently, we look at a two-dimensional blue print or a sheet of paper with a drawing before we start cutting or drilling.  3D printing allows us to have a digital file with a highly sophisticated design.  A 3D printer utilizes computer design software or 3D scanners to analyze the digital file and start 3D printing in less time and with fewer errors.   Continue reading

China’s New Trademark Law: Procedures to Oppose & Calculation of Damages

Francisco A. Laguna & Jimmy Wang

This week, we conclude our two-part series on China’s new Trademark Law, by examining the Law’s provisions concerning trademark oppositions and the calculation of damages.

1.              Opposition and invalidation procedures

Great Hall of the People Photo Credit: Thomas.fanghaenel via Wikimedia Commons

Great Hall of the People
Photo Credit: Thomas.fanghaenel via Wikimedia Commons

The new Law addresses procedures to oppose and invalidate the registration of a mark. The owner of a prior right or an interested party can bring an opposition on “relative grounds”, but anyone can bring an opposition on “absolute grounds”. Relative grounds are based on the notion of preventing the registration of a mark either because it is similar to another trademark that has already been registered for the similar goods or services, or because it is identical to a well-known trademark. Absolute grounds are not based on a comparison with an existing trademark. A typical example of absolute grounds is to challenge the registration because it is not distinguishing, but rather merely descriptive and / or generic. Continue reading

China’s New Trademark Law

Francisco A. Laguna & Jimmy Wang

Shanghai’s Nanjing Road Photo Credit:  Nevilley via Wikipedia Commons

Shanghai’s Nanjing Road
Photo Credit: Nevilley via Wikipedia Commons

This week, we begin a two-part series on China’s new Trademark Law, passed on August 30, 2013. It took more than a decade for the Legislative Branch (National People’s Congress) to revise the old law and ratify the new one. The new Trademark Law will take effect on May 1, 2014.  Below are some of the fundamentals of the law.

 

1.              The principle of good faith

The Law introduces the principle of good faith in trademark applications. Trademarks cannot be registered or used if they fail to meet the principle of honesty and credibility. For example, if someone submits an application to register a mark that is similar to another trademark for similar goods, and the applicant is aware of the existence of such competing mark because of contractual, business interaction or other relations, the application shall not be granted. Continue reading