Crypto Caselaw Minute #52–9/5/2019
This week’s CCM is the one year anniversary of the Crypto Caselaw Minute. 52 weeks folks. That’s no joke. We cover a domain name dispute, an alleged ADA violation (really!), and case dealing with sweet Brent Crude Oil. Huh? All that and more below.
Disclaimer: Crypto Caselaw Minute is provided for educational purposes only by Nelson Rosario and Stephen Palley. These summaries are not legal advice. They are our opinions only, aren’t authorized by any past, present or future client or employer. Also we might change our minds. We contain multitudes.
(As always, Rosario summaries are “NMR” and Palley summaries are “SDP”. Our Image credit: https://pixabay.com/photos/industry-sunset-fossil-fuel-3197398/ (Pixabay license).
HDR Global Trading Limited v. Super Privacy Service LTD c/o Dynadot, 2019 NAFDD LEXIS 1176 (Decided August 30, 2019)[NMR]
Another week another CCM write-up that illustrates the importance of brands. A brand is a lot of things. Sure, there are the trademark filings, for things like corporate names, product names, logos, slogans, but there are also issues related to domain names, social media and so on. This filing is related to a domain name dispute and the filing is another entry in the narrative that The Space is slowly maturing.
This proceeding took place through the ICANN Uniform Domain-Name Dispute-Resolution Policy. What’s ICANN, and the UDNDRP? ICANN is the non-profit that manages IP numbers and the domain name system. The UDNDRP is the system in place to handle disputes over domains. If that sounds familiar to you dear reader it’s because Drew Hinkes wrote an excellent guest post about a domain name dispute in CCM #24. That write-up involved a crypto exchange, Bittrex, and so does this one. Great, who is involved?
The claimant, that’s the entity that initiated this proceeding, is crypto mega company HDR Global Trading Limited, but you may know them as Bitmex. Dynadot is San Mateo, CA based company that offers a variety of services related to purchasing a domain name, hosting a domain, and other related services. What happened here? Well, Dynadot registered a domain name bitmexnakamoto.com and Bitmex did not take kindly to that.
On July 19, 2019 Bitmex applied to register a trademark for Bitmex Nakamato as part of additional offerings in its business. Four days later Dynadot registered the domain name. On August 2nd Bitmex initiated these proceedings, and on August 5th Dynadot confirmed receipt of the complaint. Now, you may be thinking why is any of this happening? Well, as stated in this decision, Dynadot “is bound by the Dynadot, LLC registration agreement and has thereby agreed to resolve domain disputes brought by third parties in accordance with ICANN’s Uniform Domain Name Dispute Resolution
Policy.” That means that Dynadot is bound by the decision of the UDNDRP process, and can’t say they were unfairly brought into this. Domain name companies register lots of domain names. What’s the big deal?
Turns out Dynadot registered the domain name and then immediately started redirecting people to a site that listed bitmexnakamoto as being for sale for $3,900. This, as the decision shows, was an indication of a registration in bad faith, and one of the reasons that the UDNDRP is ordering that the domain be transferred to Bitmex.
Notice, we didn’t talk about Dynadot responding to the initial complaint other than acknowledging its existence and admitting they were bound to the UDNDRP process. In fact, Dynadot didn’t even file a response through the UDNDRP, why? Well, sometimes you know your goose is cooked, and there’s no point in fighting.
Mahoney v. Bittrex, Inc., Case 2:19-cv-03836-CFK (E.D. Penn. filed August 23, 2019)[NMR]
This week at Crypto Caselaw Minute has inadvertently turned into Exchange Week. Palley and I don’t plan themes for weeks, maybe we should, maybe that doesn’t make sense, maybe I’m rambling. This particular case deals with the exchange Bittrex getting slapped with a class action lawsuit. For what? Alleged violations of the Americans with Disabilities Act. Yep.
Presumably, the exchange Bittrex is familiar to followers of the cryptocurrency space, but for the newbies here is a brief introduction. Bittrex, Inc. is the company that runs the Bittrex cryptocurrency exchange, and is headquartered in Seattle, WA. They are the defendant in this case and are being sued by one John Mahoney a resident of Bucks County, Pennsylvania, who is according to the complaint “a blind, visually-impaired handicapped person and a member of a protected class of individuals under the ADA.”
Mr. Mahoney alleges that he on multiple occasions attempted to access the Bittrex website, and through his use of screen reader software designed to aid the visually impaired was able to obtain personal knowledge that Bittrex’s website was not in compliance with the ADA, and as alleged in the complaint had never been in compliance with the ADA. Accordingly, Mr. Mahoney has filed this complaint seeking class certification for the lawsuit for individuals with similar circumstances to his own.
Now, you may wonder how this is even a lawsuit. The ADA requires that:
a public accommodation (1) not deny persons with disabilities the benefits of its services, facilities, privileges and advantages; (2) provide such persons with benefits that are equal to those provided to nondisabled person; (3) provide auxiliary aids and services — including electronic services for use with a computer screen reading — program where necessary to ensure effective communication with individuals with a visual disability, and to ensure that such persons are not excluded, denied services, segregated or otherwise treated differently than sighted individuals; and (4) utilize administrative methods, practices, and policies that provide persons with disabilities equal access to online content.
Mr. Mahoney is alleging that Bittrex is a public accommodation and it is one that is in violation of the four points above from Title III of the ADA and “thereby [Bittrex is] increasing the sense of isolation and stigma among those Americans that Title III was meant to redress.” No bueno. Additionally, Mr. Mahoney is seeking a permanent injunction under the ADA that would require Bittrex to stop doing what they are doing until they work with a mutually agreed upon consultant to get the site up to speed. Really no bueno.
This is of course the initial complaint, and Bittrex will contest most if not all of the allegations. The defendants will likely argue that they are not a public accommodation because they are a website. The various circuits around the US split as to whether websites are public accommodations, and it is unclear to your writer whether the Third Circuit, where the E.D. Penn. is located, has ruled on that matter. Maybe another crypto case will lead to precedent?
The response to this complain will be very interesting to see. If nothing else, this further contributes to the narrative that crypto is becoming more and more mainstream, but maybe lawsuits is not the way people envisioned it would happen.
Prime International Trading, Inc. et al. v. BP P.L.C., et al. (№17–2233, 2d Cir., August 29, 2019) [SDP]
One of the things I like about technology law — crypto and otherwise — is figuring out how existing laws apply to new technology. As you know if you follow this space, there’s no reported case where a judge has said “hang it all, this technology hard — there’s simply no way we can reach a decision.” You can always find precedent if you look hard enough. Lawyers (and thus judges) are trained to reason by analogy and use rule of construction to fit new stuff into the existing legal rubric.
So if you’re interested in “crypto caselaw” this necessarily means that one has to keep an eye on all developments in all sorts of areas, and in cases that may not even mention the words “bitcoin”, “crypto-currency” or “blockchain.” So if you’re interested, say, in how a court might view a class action involving alleged bitcoin price manipulation arising from predominately offshore conduct you might be interested in Prime International Trading et al. v. BP P.L.C. (№17–2233, 2d Cir., August 29, 2019). In particular, the case deals with the extra-territorial application of the Commodities Exchange Act (CEA) in a case involving alleged misconduct in the trading of crude oil from Europe’s North Sea. (The CFTC has taken the position that Bitcoin is a commodity under the CEA). For people working on crypto related projects who are interested in avoiding the long arm of U.S. law this case (and cases like it) are a useful read, which is why it’s finding its way into today’s Crypto Crude Oil Minute.
The plaintiffs in this cases are a bunch of folks who trade “futures and derivatives contracts pegged to North Sea oil — also known as Brent crude — on the Intercontinental Exchange Futures Europe (‘ICE Futures Europe’) and the New York Mercantile Exchange (‘NYMEX’) between 2002 and 2015. The defendants have an array of roles in connection with Brent crude — producing, refining, distributing, purchase and sale on the physical market and trading on global derivatives markets.
After explaining who the parties are, the Court offers this brief explanation of how Brent crude is extracted and delivered to markets, and how price is set:
Brent crude is extracted from the North Sea of Europe, and refers to oil pulled from four fields in the region: Brent, Forties, Oseberg, and Ekofisk (collectively, “BFOE”). The price of Brent crude serves as the benchmark for two‐ thirds of the world’s internationally‐traded crude.
Following extraction, Brent crude is delivered via pipeline to ports in Europe where it is loaded onto ships for delivery. These physical cargoes are bought and sold through private, over‐the‐counter (“OTC”) transactions between producers, refiners, and traders. Because these physical transactions are private and do not occur on an open exchange, the price of Brent crude is not immediately available to the public. Instead, price‐reporting agencies collect information about transactions from market participants and report it to the consuming public.
Spot prices for Brent Crude are based on reporting by a London company called Platts, which relies on market participants to report private transactions, but which exercises “discretion to accept or reject transactional data[.]”. Plaintiffs alleged that the Defendants engaged in market manipulation in violation of the Commodities Exchange act by “by executing fraudulent bids, offers, and transactions in the underlying physical Brent crude market” and then reporting the fake transactions to Platts to manipulate the price through a series of offshore acts that ultimately ended up involving U.S. markets:
Plaintiffs’ claim involves a causal chain that can be summarized as follows: Defendants engaged in artificial trades of physical Brent crude in foreign markets; Defendants systematically reported the artificial trade data to Platts; Platts reviewed and incorporated the fraudulent data into its calculation of the Dated Brent Assessment; ICE Futures Europe in turn incorporated the manipulated Dated Brent Assessment into the ICE Brent Index; the manipulated ICE Brent Index was used to settle Brent Futures that were traded on both the London‐based ICE Futures Europe and the U.S.‐based NYMEX; as a result, Brent Futures traded and settled at artificial prices, causing economic loss to traders such as Plaintiffs.
So one of the questions before this Court is whether this claimed activity is enough to trigger a U.S. Court’s jurisdiction under the Commodities Exchange Act. The trial court said no, and dismissed the case (which was filed in 2013, by the way). The 2d Circuit Court of Appeals affirmed, framing the question as “whether [the CEA] permits suit against Defendants for alleged manipulative conduct that transpired in Europe.”
The Court observed first that it would analyze the CEA in light of a basic presumption that U.S. laws do not apply extraterritorially — this is a “basic premise of our legal system.” Courts follow a two-step process to see if a statute is intended to apply outside the U.S. First, does the statute clearly state the intention to do so? Second, a claim may survive absent such a statement if it “properly states a ‘domestic application’ of the statute.”
According to the Court, and in contrast to certain parts of U.S. Securities laws, the relevant portions of the Commodities Exchange Act contain no “affirmative textual indication that it applies abroad.” One section of the CEA involving swaps does contain a clear statement of extra-territorial application where the activity has “a direct and significant connection with activities in, or effect on, commerce of the United States; or (2) contravene[s] such rules or regulations as the Commission may prescribe.” Unfortunately for the Plaintiffs, they didn’t raise this part of the CEA until their appeal, which was too late, and which the Court said actually hurt their argument because it showed that Congress knows how to make a law apply outside the U.S. when it wants to.
Next, the Court considered whether or not there conduct at issue was sufficiently tied to the U.S. to warrant application of the statute. Under existing precedent, the Court said it wasn’t — the conduct was “so predominantly foreign” that there wasn’t a proper domestic application of the statute. The “ripple effect” theory didn’t convince the court:
all of the relevant conduct here relating to that focus occurred abroad — Plaintiffs contend that Defendants sought to manipulate the price of Brent crude, and did so by fraudulently transacting in the physical market in Europe. Plaintiffs make no allegation of manipulative conduct or statements made in the United States. To the contrary, they expressly rely on a “ripple effect” or chain of events that resembles a falling row of dominoes commencing in the North Sea.
Now there is a big difference between Brent oil extraction, pricing, sales and trading and bitcoin mining, pricing sales and trading of course but … well, I confess that I read this entire case thinking about it might be applied in the future to cases alleging price manipulation under the CEA, either by private plaintiffs (as here) or by the CFTC. Bottom line — just because you touch the U.S., it doesn’t mean that you necessarily have access to U.S. courts under the CEA. While these plaintiffs lost, this case provides a potential roadmap for future litigants seeking to find their way into U.S. Courts.
