FTC’s Report on Privacy Concerns in Kids Apps

On December 10, 2012, the Federal Trade Commission (the “FTC”) issued its second annual report examining the disclosures and information collection practices in kids’ apps. The FTC Staff aimed to determine whether the parents were able to make informed decisions about whether or not to download an app for their kids based on the privacy collection practices used by the app. The short answer is that for the most part, presently parents cannot make such informed decisions. The FTC Staff examined 400 kids’ apps from the Apple and Google Play app stores. The results were alarming. In particular, the survey found that:

• Only 20% of the apps reviewed disclosed any information about the apps’ privacy practices;
• Almost 60% of the apps transmitted ID number from the user’s device back to the developers, or more commonly, an advertising network, an analytics company or another party (and 14 of those apps also transmitted geolocation and/or phone number);
• A small number of third parties receive information from many apps, which means that they can potentially develop children’s profiles based on their behavior in different apps;
• 58% of apps contained interactive features, such as links to social media or advertising, without first disclosing it to the parents (58% of the apps contained advertising within the app, but only 15% disclosed it to the parents prior to the download; 22% of the apps contained links to social media, but only 9% disclosed this fact prior to the download; 17% of the apps provided ability for kids to purchase virtual goods for $0.99 to $29.99). 

COPPA’s purpose is to safeguard personally identifiable information of children under the age of 13. According to the Act, if apps developers collect, use and/or disclose personal information of children under the age of 13, they must (1) disclose a privacy policy; (2) provide notice to parents about their information collection practices and, with some exceptions, get verifiable parental consent before collecting personal information from children; (3) give parents the choice to consent to the collection and use of a child’s personal information; (4) not condition a child’s participation in the app on the disclosure of more personal information than is reasonably necessary for the activity; and (5) maintain the confidentiality, security and integrity of the personal information collected from children.

The survey makes it clear that the FTC should significantly step up its enforcement efforts against those apps developers that fail to comply with COPPA. In fact, the survey announced that the FTC is launching multiple investigations to determine whether certain apps developers have violated COPPA or engaged in unfair or deceptive trade practices in violation of the FTC Act. Further, the survey shows that COPPA and the current regulations related to COPPA need to be amended soon. The currently proposed amendments seek to expand the definition of personally identifiable information that may be collected from children only upon disclosure and parental consent. The proposed definition includes photos, voice recordings, unique mobile device serial numbers, as well as the geolocation of the mobile device, - information that was not considered as personally identifiable or not considered at all back in 1998, when COPPA was adopted.

This article is not a legal advice, and was written for general informational purposes only.  If you have questions or comments about the article or are interested in learning more about this topic, feel free to contact its author, Arina Shulga.  Ms. Shulga is the founder of Shulga Law Firm, P.C., a New York-based boutique law firm specializing in advising individual and corporate clients on aspects of business, corporate, securities, and intellectual property law.

LLCs: do you always need to add the word “LLC” to your company name?

When filing the articles of organization for a limited liability company, the company owners are required to add to the company’s name words such as “LLC”, “L.L.C.” or a “Limited Liability Company”. Often, for marketing purposes, these words are omitted when the company name appears in advertisements, on the business cards or on the website.

Omitting the word “LLC” or its equivalent from a limited liability company’s name may have unintended consequences for the company’s members and managers. If it is not clear that there is a company with limited liability, courts may find that the members have entered into a transaction in individual capacity, and not on behalf of their company. This may result in personal liability for the members and/or managers.

It is advisable to keep the word “LLC” at the end of a limited liability company’s name even on business cards, in advertising or on the website because the word “LLC” indicates the existence of a corporate entity that provides limited liability protection to its members. Additionally, when entering into contracts, members or managers need to sign on behalf of the company as agents for the company and not as individuals.

This article is not a legal advice, and was written for general informational purposes only.  If you have questions or comments about the article or are interested in learning more about this topic, feel free to contact its author, Arina Shulga.  Ms. Shulga is the founder of Shulga Law Firm, P.C., a New York-based boutique law firm specializing in advising individual and corporate clients on aspects of business, corporate, securities, and intellectual property law.

What is Attorney-Client Privilege and How Does It Apply to Start-Ups?

Attorney-client privilege applies to communications between clients and their attorneys and is believed to be the oldest protection of confidential information in the Anglo-Saxon law. The purpose of this privilege is to encourage the client to talk frankly with his or her attorney, so that the attorney can offer the best legal advice. But, as typical in the law, there are limitations and exceptions. Let’s consider when communications between attorneys and their start-up clients are confidential and when they are not.

During the company formation process, it is important to be clear from the outset who the client is: the individual founder(s) or the company that is being formed. Attorney-client privilege can apply when the client is a company. In such cases, the corporate attorney-client privilege protects the corporation, not its individual owners/employees. Communication between the attorney and the employees, officers or directors of the company is protected so long as such communication (i) was made at the direction of the corporate officials, (ii) the matters discussed were within the employee’s duties and were not available from the upper level employees, (iii) the purpose of the inquiry was to obtain legal advice, and (iv) the communication was intended to be kept confidential. Since corporate attorney-client privilege does not protect the individuals, employees should be careful in communicating with the company counsel if disclosure of certain information may expose them to personal liability.

So, when hiring a lawyer to form a company, make sure that the engagement letter is between the attorney and the company, not the individual founders. Also, it is helpful to add a paragraph to the engagement letter listing the individual employees who are authorized to communicate with the attorney and give him / her instructions.

Representing the company and an individual founder at the same time may present a conflict of interest, especially if the board of directors of the company later decides to fire the founder. It is advisable for each of the founders to hire their own attorney when negotiating the ownership structure and the operating or the shareholders agreement. Since this can get very expensive, typically founders hire one attorney who serves as the company lawyer during the formation process.

Note that attorney-client privilege only applies to legal and not to business or other type of advice. So, when the attorney is acting primarily as a member of the board of directors of the company or as a human resources manager rather than as an attorney, the privilege does not apply. The privilege protects the communication, not the underlying factual information. Also, there is no protection for any communication made in furtherance of a crime or an illegal act. Finally, the attorney-client privilege may be waived if the communications are shared with other parties (for example, when the founder copies others on the email to the corporate counsel or invites others who are not employees, officers or directors to participate at a meeting with the company’s counsel).

This article is not a legal advice, and was written for general informational purposes only.  If you have questions or comments about the article or are interested in learning more about this topic, feel free to contact its author, Arina Shulga.  Ms. Shulga is the founder of Shulga Law Firm, P.C., a New York-based boutique law firm specializing in advising individual and corporate clients on aspects of business, corporate, securities, and intellectual property law.