Innovation and Washington: On Collision Course? [International]

AS the US Senate prepares to tinker with the nation’s patent laws this spring, it’s worth recalling the law of unintended consequences.
From the vantage point of a half-century, for example, it’s clear that the formation of Silicon Valley involved serendipity more than intentional design.
The co-inventor of the transistor and the founder of the valley’s first chip company, William Shockley, moved to Palo Alto, Calif., because his mother lived there. Moreover, although the transistor was invented at Bell Labs in New Jersey, an antitrust lawsuit during the 1950s forced the AT&T phone behemoth to license the technology openly at a nominal charge. And, the venture capital industry, an important part of the Silicon Valley ecosystem, was given a big boost by Congress in the late 1970s when legislation loosened pension fund regulations — touching off an early wave of high-profile initial public offerings.
Now, three decades later, Congress is likely to write legislation that could again reshape the contours of innovation and entrepreneurship for perhaps decades to come, in ways that are hard to predict.
Passed by the House of Representatives with relatively little debate, the Patent Reform Act of 2007 faces a bruising Senate fight this year. As it now stands, the bill would shift the balance of power in the legal quarrels between patent holders and possible infringers by significantly limiting damage awards.
Although it has become a perennial piece of proposed legislation in recent years, patent reform has acquired urgency in the past year, in the view of large technology companies. Intel, Microsoft, I.B.M. and Apple and others are increasingly finding that the nation’s patent system has become a minefield, and they are looking for ways to limit the leverage of both small patent holders and patent “trolls,” or speculators who buy hundreds or thousands of patents.
Rather than depending on patents, large information technology companies can increasingly rely on their market power and cross-licensing relationships. As a result, they are trying to rein in huge patent settlements like the $612.5 million award that NTP Inc. won from Research In Motion, the maker of the popular BlackBerry wireless device, or the $1.52 billion award that Lucent briefly won against Gateway Inc. and Microsoft. (It was recently overturned.)
It appears that the Senate leadership has sympathy for the large technology companies. Opposed to big tech is a small group of high-profile inventors, like the Segway designer Dean Kamen and the former Apple engineer and QuickTime co-inventor Steve Perlman, as well as venture capitalists and a growing array of smaller businesses that do not share the market power of the largest companies. They have joined forces with the pharmaceutical industry, which has traditionally relied on the protection of a strong patent system.
The battle lines are now established, and legislators are being asked to grapple with the question of how best to protect innovation.
On the one hand, in changing the nation’s patent laws, Congress runs the risk of throttling the little guy — the Stephen Wozniaks and the Steven Jobses — who strike out from their garages with novel ideas that change the world. On the other hand, consumers have clearly benefited from the ability of large technology companies like Intel and Microsoft to use their prodigious market power to drive down prices.
If we limit the incentive of the individual inventor in a garage to transform an entire industry, will there still be enough innovation in the corporate research labs of industrial giants?
It is easy to see the imperfections of the current law and its impact on consumer products. For example, although the Apple iPhone has many superior features, its e-mail function is in most cases clunky when compared with the earlier R.I.M. BlackBerry. Industry executives say that’s because Apple has been forced to tiptoe around the patents held by NTP. Although the patents have been largely invalidated by the United States Patent Office, there are still active lawsuits that NTP has brought.
Mr. Perlman says the Supreme Court has already made two landmark rulings that he says have largely addressed the “troll” problem without harming independent inventors like himself. In one case, eBay v. MercExchange, the court limited the ability of a patent covering a small feature to be used as a weapon, as in the NTP-R.I.M. settlement. In April, the court went much further in KSR International v. Teleflex, substantially raising the bar for patent holders in proving that their invention is not obvious. The ruling will make many existing patents more vulnerable and make new patents harder to get as well.
The peril of the new patent legislation as currently written, he argues, is that it would allow the nation’s dominant high technology companies to largely control the pace of innovation, leading to a situation the country has seen once before — in the American auto industry.
“Detroit is a very clear example of what happens when you have large companies who have already established they’re the winners,” he said.
Under the proposed law, what are known as the “Georgia-Pacific factors,” a set of 15 guidelines that courts now use for determining damages in patent cases, would be boiled down to a single concept of “apportionment.” Damage calculations would be based on an economic analysis to ensure that a royalty damage award captures only the economic value attributable to the patent’s specific contribution over previous inventions.
Because the very nature of innovation in the computer industry is to increase performance while reducing cost, this change will create a perverse incentive for inventors, Mr. Perlman argues. If an invention reduces the cost of a device, “then your apportionment becomes less and less,” he said.
BACKERS of the new legislation are skeptical that the limits would have any major impact on incentives for individual inventors.
“I have to say I’m frankly astonished that apportionment has been this controversial,” said Mark A. Lemley, an intellectual-property scholar at Stanford who has testified in support of the legislation. “I can’t think of a straight-faced argument that you as a patent owner are entitled to more than your invention has contributed to a product.”
Congress watchers expect the bill to pass this year, even if the pendulum swings back partly toward the individual inventor before it clears the Senate. That would largely be because opponents may calculate that they have their best chance to water it down under the current Congress and administration.
For his part, Mr. Perlman, who has been awarded 73 United States patents, is fretting that a new patent law may permanently shift the balance between the big guys and the little guys.
“I need as much patent protection as I can get,” he said. “Otherwise Microsoft will clone a crummy version of one of my inventions, and I’ll be bowled over.”

The Patent Pal Toolbar [International]

If you like toolbars, you'll love the free Patent Pal from Jay Wahlquist of Fogg & Powers.

It supports over 20 unique patent related searches, including Google Patents, FreePatentsOnline, Esp@cenet, WIPO, Pat2Pdf, the MPEP, and many more listed on the screenshots page. It also includes links to other useful resources for both US and foreign patent practice, such as links to every major patent office in the world and various ppatent law journals.

Quotes of the Week (on the Future of De Novo Claim Construction at the Federal Circuit)

From Federal Circuit Judge Bryson in Tivo v. Echostar Communications (January 31, 2008) at footnote 2:

As noted, the district court based its construction of the software claims on its conclusion as to what the critical claim terms would mean to a person of skill in the art. That conclusion in turn was largely based on the court’s assessment of extrinsic evidence. Although we have characterized claim construction as a question of law even when it involves competing presentations of extrinsic evidence, Cybor Corp. v. FAS Techs., Inc., 138 F.3d 1448, 1456 (Fed. Cir. 1998) (en banc), we recognize that there is substantial force to the proposition that such a conclusion is indistinguishable in any significant respect from a conventional finding of fact, to which we typically accord deference. See Amgen Inc. v. Hoechst Marion Rousel, Inc., 469 F.3d 1039, 1041 (Fed. Cir. 2006) (Michel, C.J., dissenting from denial of rehearing en banc); id. at 1043 (Newman, J., dissenting from denial of rehearing en banc); id. at 1044 (Rader, J., dissenting from denial of rehearing en banc); id. at 1045 (Gajarsa, J., concurring in denial of rehearing en banc); id. at 1046 (Moore, J., dissenting from denial of rehearing en banc). Applying our governing non-deferential standard of review, we uphold the district court’s conclusion in this case. If we were to treat that ruling as a finding of fact, we would uphold the district court’s ruling a fortiori in light of the more deferential “clear error” standard applicable to factual findings.

From Professor Harold C. Wegner in "THE SENATE ATTACKS CYBOR DE NOVO CLAIM CONSTRUCTION" (drafted February 6, 2008):
As seen from the TiVo “footnote 2”, fully six judges in Amgen are on record as favoring en banc review of Cybor for fact-based claim construction rulings. Clearly, Circuit Judge Mayer strongly favors overturning Cybor: “The court's opinion [in Phillips refraining from dealing with Cybor] is akin to rearranging the deck chairs on the Titanic-the orchestra is playing as if nothing is amiss, but the ship is still heading for Davey Jones' locker.” Phillips v. AWH Corp., 415 F.3d 1303, 1334-35 (Fed. Cir. 2005)(en banc)(Mayer, J., dissenting). With the vote of Judge Bryson as manifested in TiVo, this provides an eight vote majority for en banc review of an appropriate case – one more than needed.

. . . At some point, Cybor must be revisited to vest primary claim construction responsibility on trial courts. Whether a change will occur in the near term is unclear.

Virtual Worlds Draw Real World Lawyers [International]

Businesses setting up outposts in virtual worlds such as Second Life may find they still have plenty of real world legal minefields to navigate. Second Life is the best known of a number of virtual worlds that are attracting a lot of interest from real world businesses. That's partly because commerce is one of the fundamental building blocks of Second Life.

Residents - as well as flying from place to place and fashioning outlandish avatars - can create, buy and sell goods. And the money they make from these businesses in Linden dollars, the currency of Second Life, can be turned into a quantity of real world cash - a sum that depends on the current exchange rate.

With the six million residents spending around £1.5m per day, it's not surprising big brands want to get a foothold in this booming economy, and access to its slightly outlandish consumers.
As such, companies including ABN Amro, IBM and Nissan have set up operations already (see this Business Week Second Life photo story for more businesses).

David Naylor, partner in law firm Field Fisher Waterhouse (FFW), explained: "The thing Second Life does that differentiates it from others is it allows residents to own the intellectual property in things that they create. As a result, it's an environment that a lot of businesses have become involved in."

But the legal issues it brings into play are about as varied as the avatars and buildings you come across as you traverse the virtual landscape.

Transactions such as buying, selling and even employing staff in a virtual world may all have real world legal implications. And other issues such as gambling in virtual casinos and offering financial services through virtual banks can raise even more regulatory issues. And, of course, whenever you have people - or avatars - making money, then you have the taxman interested too.

Throw in other issues - such as competition, intellectual property exploitation and infringement - and there's little wonder the lawyers are getting interested. Speaking at a conference organised by FFW and E-Commerce Law & Policy, Naylor said: "It's going to get more popular and the legal rules are going to come to the fore as people want more certainty."

Taking just commerce as an example shows the potential complications - in Second Life business-to-business, business-to-consumer and consumer-to-consumer commerce are all possible. And transactions can happen in-world, such as buying a building, or in the real world, such as selling Second Life assets on an auction site. But what you might think of as a commodity - say a building - in Second Life, is likely to be seen in English law at least as a service. This matters because law tends to treat contracts for services differently to contracts for goods in terms of implied warranties.

And which - and whose - law is applicable is also open to debate. Naylor said, as a practical approach, European businesses should assume that unfair contract terms, consumer protection, ecommerce and distance selling obligations will apply to transactions in virtual worlds - unless European customers can be filtered out of the sales process.

Of course, complicating this further is the anonymity of the avatars - making it harder to find out who you should be taking legal action against, and the potential unwillingness of local courts to exercise extra-territorial jurisdiction.

Considering all this legal uncertainty it was only a matter of time before law firms themselves started moving into Second Life - FFW is building an office at the moment. Presumably it won't be too long before Second Life has virtual courts and prisons too.

Intellectual property rights: You can't have it both ways

Have you ever, I mean ever, copied software, a CD, a DVD, or a video tape without permission or paying? How about downloading music, video, pictures, or art?

If you answered yes, congratulations, you're just like everybody else.

On the other hand, you probably also think U.S. screenwriters are being screwed by the studios. And that China and other countries shouldn't be illegally copying and selling material copyrighted in the U.S.

That, my friend, is called a double standard.

Something else to consider:

Did you read this post about Trend Micro suing Barracuda Networks for patent infringement. Do you agree with the blogger? Do you think companies like Qualcomm, Rambus, or Trend Micro are patent trolls that unjustly enrich their shareholders at the expense of consumers?

If you answered yes, did you know that companies like IBM and Texas Instruments derive significant revenue from patent licensing? And how do you think Microsoft earns a living? Do you think the company's $14 billion in annual profits are derived from selling plastic, cardboard, and paper?

And how do you feel about companies in China and other countries incorporating U.S. patented technology into their products without compensating the inventors? Ask virtually any U.S. technology company if its technology--its intellectual property--has been stolen and sold for profit overseas. The aggregate lost profits are staggering.

If that bugs you, that's also a double standard.

Sure, there are patent trolls--companies that aggregate patents and sue potential violators--but Qualcomm, Rambus, Trend Micro, IBM, Texas Instruments, and Microsoft are not them.

By definition, a patent, a copyright, or a trademark--intellectual property--entitles the owner to reasonable compensation for its use by others. It's the law. If you don't agree, you can always challenge it in court; that's what our legal system is for.

We are a nation of laws. Without them, I doubt we would have the quality of life we have. And without intellectual property rights, I doubt we'd have technology-enriched lives. It's not a perfect system, but it works pretty well. You either buy into that or you don't. You can't have it both ways.

China to issue intellectual property rights strategy in 2008

After two and a half years of preparation, China plans to release its national intellectual property rights (IPR) strategy this year, according to the State Intellectual Property Office.

The strategy will have three stages: information, services and trade, said Tian Lipu, head of the office, during a conference on Tuesday.

The strategy began to be mapped out in July, 2005. So far, China has drawn up 20 methods to protect IPR, including improving the protection system, strengthening law enforcement and raising public awareness.

"The strategy is vital to fully implementing the power of the country's intellectual property rights system and to promote the development of the country's economy and science," Tian said.

Tian noted that in 2007, China saw significant progress in protecting IPR in various areas, industries and companies.

Organizations for guiding the strategy were set up in 17 provinces, autonomous regions and municipalities. Guangdong, Guizhou, Shandong and Shanghai municipality have already issued their own strategies.

China will set up about 40 service centers for IPR protection. The centers will provide consultations and financial support for those who can't afford to pursue cases.

UK High Court backs software patent [International]

Some software can be patented in the UK and the UK Intellectual Property Office (UKIPO) is wrongly rejecting applications, according to a new ruling in the High Court. The UKIPO is considering appealing against the verdict.

The patenting of software is a complex and controversial issue which has been the subject of a number of court reversals and refinements in recent years. UKIPO policy is currently at odds with that at the European Patent Office (EPO), which the High Court judge has said is "highly undesirable" and should be changed by this new decision.

Mr Justice Kitchin delivered the ruling in an appeal hearing covering six separate software patent applications. Each concerned software which had been refused a patent by the UKIPO.

The software in question was in each case a part of a wider system of computer program implemented inventions involving methods or apparatus to achieve a result, and those systems were in every other respect patentable, said a spokesman for the UKIPO. The ruling is specific to those and does not mean that all software can be patented. Applications for 'computer programs as such' will continue to be rejected; the dispute is over the meaning of that term.

UK patent law comes from the European Patent Convention (EPC), but a crucial provision governing what can and cannot qualify for a patent has been interpreted differently by the EPO and the UKIPO, formerly the Patent Office.

Article 52 of the EPC lists subject matter that is not eligible for a patent. Programs for computers are excluded; but Article 52 goes on to limit that exclusion to programs for computers 'as such'.

The reference to 'as such' has been a source of confusion for many years. The EPO and later the UK Patent Office decided to allow patent claims to a computer program if, when running on a computer, the program is capable of bringing about a technical effect which goes beyond the normal physical effects which result from the running of any program. The EPO gradually became more lenient in its interpretation of 'technical effect' and thus granted more software patents than the UK Patent Office.

It was against this background that the combined case of Aerotel and Macrossan came before the Court of Appeal. In its aftermath the UKIPO issued new guidance on patentability.

"Whilst examiners will continue to assess each case on its merits, it seems likely that few claims to programs in themselves (or programs on a carrier) will pass the third test [i.e. whether the claim falls solely within the excluded subject matter]," says UKIPO guidance on the issue.

The guidance makes reference to "few claims" surviving but appears to stop short of banning software patents. However, Mr Justice Kitchin was hearing an appeal against a UKIPO Hearing Officer's decision (12-page / 66KB PDF) which stated that since the publication of that guidance "it has been the usual practice of examiners to disallow such claims."

Mr Justice Kitchin interpreted the UKIPO's guidance as excluding all computer programs. That was an incorrect interpretation of the Aerotel/Macrossan ruling, he reasoned.

"The question I must now consider is whether the decision prohibits the patenting of all computer programs and, in particular, those which under the old approach would have been considered to make a conventional computer operate in a new way so as to deliver a relevant technical contribution," he wrote. "UKIPO has apparently concluded that it does and so has reverted to its previous practice of rejecting all computer program claims…"

"I do not detect anything in the reasoning of the Court of Appeal which suggests that all computer programs are necessarily excluded," he wrote.

Mr Justice Kitchin said that in fact he thought that the decision in that case was consistent with the EPO Board of Appeal's ruling in two IBM patent cases, bringing UK rulings further into line with those in Europe.

"It is highly undesirable that provisions of the EPC are construed differently in the EPO from the way they are construed in the national courts of a Contracting state," he said. "The new approach can be interpreted to produce a result consistent with that obtained by applying the reasoning of the Boards of Appeal in IBM/Computer Program Product… and IBM/Computer Program Product II… - decisions which, I would add, are still followed in the EPO."

In order to be successful, a software patent claim must still satisfy the tests laid out in Aerotel/Macrossan, which Mr Justice Kitchin said were themselves laid out in an earlier case involving Merrill Lynch.

That test sets out how an examiner is to judge an application. It tells examiners to: "i) properly construe the claim; ii) identify the actual contribution; iii) ask whether it falls solely within the excluded subject matter; iv) check whether the contribution is actually technical in nature."

Four of the six companies involved in the case had argued that the UKIPO's practices were dangerously at odds with European practice. The hearing officer in that case agreed but said that he was bound to follow the precedent set in Aerotel/Macrossan.

"I observe that in the area of inventions excluded from patentability, the question of EPO practice was exhaustively considered by the Court of Appeal in Aerotel," said the ruling. "They found recent developments in Board of Appeal decisions inconsistent with one another, and as a result felt it necessary to take an independent view pending any clarification of the matter by the Enlarged Board of Appeal. I am consequently obliged to follow the reasoning and guidance in the Aerotel judgment."

"Although there is no direct guidance in Aerotel as to how program claims should be treated, the requirement to consider the scope of the monopoly in step one of the test, coupled with the direct comparison between the contribution and the excluded fields, suggests that such claims should be excluded," it said.

Google and Data Privacy Day

A year after the first Data Protection Day in Europe, Google will be part of the celebration of the now-renamed Data Privacy day, aimed at educating people about their data and how to manage it.

Today is Data Privacy Day, but apparently cake isn't involved, and forget about having a paid holiday, either. We wonder if Hallmark has a card for this?

Though we may take the idea of a day of privacy awareness talked up by Google with a shot of cynicism, the concept remains sound. People have valuable personal information to control, other people would love to steal it, and still more people wish to use it for various reasons. What's an online consumer to do? Well, he could watch a privacy video, Google's third in a series. Or read a handy privacy booklet.

A trio of notables at the search advertising giant discussed Data Privacy Day 2008 (woo hoo!) at the official Google blog. Among the highlights: Google will participate in a data privacy conference at Duke University today.

Speakers from the US and abroad tackle the topic of consumer data privacy. Differences between European and US privacy laws should be a focal point; we see the difference as privacy being mandated in Europe, but largely left up to private industry in the US.

Google also backed the creation of educational materials on teen online privacy. One slide advises teens to "think about tomorrow when acting today."

"Data Privacy Day": Bush Admin Launches Internet Monitoring Initiative

Monday, January 28 has been designated "Data Privacy Day" in North America and in 27 European countries in conjunction with the International Association of Privacy Professionals. Google's privacy counsel Jane Horvath says the company is joining in an international privacy conference being held at Duke University in Durham, North Carolina.

In accordance with that appearance and Data Privacy Day, Google has added a new video to its existing series of privacy videos, plus it has developed a privacy booklet (PDF) to educate consumers and parents about online data privacy. Horvath explains:
We've also developed a privacy booklet that you can download to get an in-depth look at our privacy practices and approach, and have co-sponsored the creation of educational materials on teen online privacy for parents and educators. The goal of all these efforts is to help educate you about online data privacy so that you can make more informed choices about how you use online products and services.

Google has in the past been the subject of criticism and complaints about online privacy. And privacy is at the center of the European inquiry into the Google-DoubleClick acquisition. But Google should also be applauded for efforts to educate consumers, who generally don't understand online privacy issues.

And given that the announcement came on Data Privacy Day, it's somewhat ironic that the Bush administration is pushing a cybersecurity initiative that would greatly expand its ability to spy on American online activity and data collection. According to the Wall Street Journal:
President Bush has promised a frugal budget proposal next month, but one big-ticket item is stirring controversy: an estimated $6 billion to build a secretive system protecting U.S. communication networks from attacks by terrorists, spies and hackers . . .

Protecting private computer systems would likely require the government to install sensors on private, company networks, officials familiar with the initiative said. Amid divisiveness about other government-surveillance programs, having the government monitor Internet traffic, even in the name of national security, will be a hard sell to Congress and the public.

In addition, RFID tags and "microchips" will eventually be everywhere, allowing the government, retailers and others to closely monitor consumer behavior and activity even as this technology promises to deliver all kinds of consumer benefits.

Online privacy is becoming an increasingly critical issue for ordinary people as more daily activity shifts to the Internet and consumer behavior, health histories and financial information become subject to unprecedented levels of data collection, monitoring and potential misappropriation.

Microsoft: King of The Patent Hill

Similar to a stash of weapons a player might rack up during an online adventure game, high technology companies for more than two decades have racked up as many patents as possible.

Patents can come in handy, for instance, as a defense – or an offense—when one company sues another for patent infringement.

On the other hand, cross-licensing patents between two or more companies can cement business collaborations.

For years, IBM has been one of the most prolific tech companies in terms of piling up patents.

Now, it's Microsoft's turn.

The Institute of Electrical and Electronic Engineers' (IEEE) IEEE Spectrum magazine listed Microsoft as the leader in new patents awarded in 2006 in its November 2007 issue. In addition, intellectual property consultancy the Patent Board this week ranked Microsoft first on its Patent Scorecard of top IT patent holders.

The software titan has racked up a total of around 8,500 U.S. patents granted, the company said this week.

Microsoft also has more than 15,000 additional patents pending, and is applying for about 3,000 per year, according to a company statement. That's partly due to the company's aggressive R&D budget—a war chest of $7.1 billion in 2007 alone. While most of that money goes to creating products, it also yields a bounty of intellectual property.

"We pursue patents on only those inventions that are in line with our business objectives and have strategic value to the company," Bart Eppenauer, Microsoft's chief patent counsel and associate general counsel, said in a statement. "Close alignment with our business strategies, goals and priorities has enabled Microsoft to become the new standard bearer for patent quality in the technology industry."

Like virtually anything having to do with Microsoft these days, defending and protecting patents and other forms of intellectual property is highly controversial. Patents can, after all, be used as weapons and also as a means of intimidation.

Last year, CEO Steve Ballmer and other executives asserted that Linux vendors, especially Red Hat, are in violation of as many as 235 of Microsoft's patents – although the company would not disclose which specific patents it believes are being infringed upon.

However, that sword can cut both ways. Last year, Microsoft settled out of court with tiny Eolas Technologies, which holds a patent that lower courts found Microsoft had infringed upon with its Internet Explorer browser.

In November 2006, in one of its most controversial patent deals to date, Microsoft signed an IP cross-licensing and collaboration deal with Linux vendor Novell. The deal was roundly criticized by other members of the open source community who claim Novell sold out by joining forces with Microsoft.

Meanwhile, in September, the European Union's Court of First Instance upheld a European Commission (EC) order that Microsoft license IP, including patents, required for interoperability with its products to competitors.

E-mail and Paper: Equated in Law

A recent Massachusetts Appeals Court ruling enforcing an e-mail settlement agreement of a contractual dispute is a reminder to lawyers that e-mail settlements carry the same weight as deals on paper.

The court ruled on Jan. 7 that a midtrial, e-mail settlement between Basis Technology Corp., a Cambridge, Mass.-based company that makes software for multilingual Web sites, and e-commerce giant Amazon.com Inc. was binding.

Associate Justice Mitchell J. Sikora Jr. wrote that the trial judge correctly ruled that a March 23, 2005, e-mail from Basis to Amazon.com was a "sufficiently complete and unambiguous statement as a matter of law, and that both parties intended to be bound by that communication of settlement terms." Basis Technology Corp. v. Amazon.com Inc., No. 06-P-1048 (Mass. App. Ct.).

Thomas J. Gallitano, a lawyer for Basis, said a statement in the e-mail exchange confirming that six different points in the e-mails contained the essential business terms of the settlement agreement was pivotal to the court's decision.

The Power of Paper

Amazon.com spokeswoman Patty Smith said the company wouldn't comment on the case. Basis sued Amazon in May 2003, for alleged breach of fiduciary duty, and violations of the state's consumer protection laws for not paying for work that fell outside the scope of a contract between the two companies. At the time, Amazon was creating an e-commerce system to sell products in Japan. It hired Basis for technical services.

The two companies were also linked through a stock purchase agreement that involved Amazon.com's purchase of Basis preferred stock and a seat on the private company's board of directors. The settlement required Amazon to give up its board seat and relinquish its rights as preferred shareholder. Basis Technology Corp. v. Amazon.com Inc, No. SUCV2003-02246 (Suffolk Co., Mass., Super Ct.).

After the settlement, Amazon tried to rescind a provision that called for it to convert preferred stock to common stock. Amazon.com also objected to a separate Basis request that Amazon retroactively approve Basis' preferred stock issuance to a separate company and approve a new sale of stock to the same company.

Amazon opposed the sales and filed a separate lawsuit in the Delaware Court of Chancery, because it claimed the other stock sales would reduce its ownership stake in Basis. Amazon appealed the Massachusetts case on the grounds that the judge incorrectly ruled that the e-mail exchange "created a complete and unambiguous agreement" and that Amazon had intended to be bound by the terms of the e-mail.

Copyright law joy awaits music fans

Proposed changes to copyright laws will allow owners to move their music legally from CDs to MP3 players.

They would also let owners copy music from a PC to a portable player or to CDs.

The proposals, released on Tuesday, amend the Copyright, Designs and Patents Act 1988 which technically makes it illegal for people to shift their music and films from one format to another.

The changes would apply only to content copied for the owner's private use.

Multiple copying and file sharing on the internet would still be banned.

Owners would not be allowed to sell or give away their copies.

"To allow consumers to copy works and then pass on the original could result in a loss of sales for right holders," the proposals warn.

The consultation on proposed changes to UK copyright exceptions were launched on Tuesday by Intellectual Property Minister Lord Triesman.

It follows the Gowers Review of Intellectual Property, which recommended that certain aspects of the system should be reformed.

The proposals are designed to provide clarity about copyright issues in light of changing technologies.

Patent Problems [India]

The country’s intellectual property protection regime has seldom been sans controversy, despite amendment of the Patent Act in 2005 to broadly align it with global norms. The latest salvo has been fired by about 150 patent experts and industry representatives, who have written to Prime Minister Manmohan Singh and demanded greater transparency and accountability in the granting of patents. A few weeks prior to this, the National Knowledge Commission had submitted a report to the government, pointing out several systemic problems with the patent office and commended an overhaul of patent-granting processes. Indeed, what is striking is that, though the number of applications being filed for patents has spurted several-fold, especially after the amended law came into effect and provided for product patents in addition to process patents, neither the patent office network nor the facilities available there have been adequately augmented. The patent application examiners are clearly not adequate to handle the swollen volume of work. It is no wonder then that the Knowledge Commission’s recommendation for creating an online database, containing complete information on patent applications and grants, copies of patent office decisions, and patent examination details, has not been implemented as yet. Such information is vital for pre-grant challenge. All that is done usually is to publish abstracts of claims which often happen to be the same as given by the patent seekers in their applications. The details of the patent examiners’ reports, indicating the reasons for accepting or turning down a claim, are mostly not disclosed, rendering the system opaque. This obviously leaves little room for public scrutiny, leave alone peer review, of the patent office’s decisions. Consequently, no more than a fraction of the total patent requests get contested at the pre-grant stage.

The disabilities of the patent office aside, the amended legal framework for patents has run into its own problems. The most direct reference to this was made in the report of the technical experts committee on patents, headed by the noted scientist, R A Mashelkar. It categorically stated that limiting the scope of patentability to new chemical entities alone violates Article 27 of the trade related intellectual property rights (TRIPs) agreement of the World Trade Organisation (WTO). Though this report was subsequently withdrawn by the committee following allegations of plagiarism, that does not make a material difference to the issue raised.

Under such circumstances, the scope for misleading the patent office to get frivolous patents or even ever-greening patents through selective information disclosure cannot be ruled out. It is, therefore, important for the patent office to provide electronic access to the proceedings leading to the grant of patent, including examination reports, so as to ensure transparency and fair play. Also needed is expansion in the staff, notably application examiners, and an upgrade of their technical competence through regular training. Such a measure has become all the more critical following the Indian patent office’s recognition by the WTO’s World Intellectual Property Organisation (WIPO) as the international searching authority and the international preliminary examining authority.

Intellectual Property Protection: Key to Entrepreneur Success

Ensuring your intellectual property is safeguarded against theft is one of the first steps every entrepreneur should
take. From processes to ideas to inventions, intellectual property is often
more valuable than physical assets.

   Types of intellectual property
   There are four legally defined categories of intellectual property:
patents, trademarks, copyrights and trade secrets. Each category offers
entrepreneurs special protections and violators on state and federal levels
are subject to prosecution.
   -- Copyrights protect your ideas and how you express them. Books, songs
      and movies are common examples covered by copyright protection.
   -- Trade secrets cover the information giving you a commercial advantage
      the general public doesn't possess. A good example is Coca-Cola:
      trade secrets protect everything from Coca-Cola's formulas to
      customer lists to manufacturing processes.
   -- Trademarks protect the visual aspects of your business that distinguish
      you from competitors, including logos, names and general visual
      attributes.
   -- Patents cover inventions that are useful to the public and prevent
      anyone else from making, using or selling these devices or processes.
      Business method patents protect a method of doing business, like
      Amazon.com's "one-click" ordering. Receiving a patent can take several
      years, so it's important to apply as soon as possible.


   Ensuring your legal bases are covered through copyrights, patents and
trademarks is a solid start to protecting your intellectual property. But
catching and prosecuting offenders is difficult and expensive, and often times
by then the damage has been done -- your critical information is now in the
public domain. Consider these steps to further protect your company's ideas,
processes and inside secrets for success:
   -- Prioritize your intellectual property. What company assets would sting
      the most if stolen and which are most at risk?
   -- Tag it. If it's yours, put your name on it. Otherwise you'll have a
      difficult time proving the information was protected.
   -- Lock it. Lock up servers and storage, and control the keys.
   -- Educate employees. Humans are often the weakest link in the
      intellectual property protection chain. Make sure your team is aware of
      what's at stake and how to protect it.
   -- Think like a competitor. If you were a competitor and wanted to steal
      secrets from your company, how would you do it? Use your own insights
      as an entrepreneur to further identify what intellectual property needs
      protection as you refine your plan for doing so.

E-Business Patent Infringement Cases: Complex Issues to Unravel

Certainly, Google has already earned its place in history as the most-sued Internet Company. Every novel intellectual property ("IP") cause of action has been filed against the search engine giant. First, we witnessed the copyright infringement round. Google has been sued for every type of copyright infringement on thumbnails, meta-tags, keywords, etc. Concomitant with these copyright infringement lawsuits, Google was also accused of trademark violations in keywords, sponsor links, etc. Now, it is the time for the e-business patent round. Google was sued for business patent infringement and, like in most of the other IP lawsuits, it was triumphant (well, partially) this time.

A United States Court of Appeals recently held that Google is not liable for patent infringement when it uses two methods that link online records and provide users with relevant web pages. The plaintiff, Hyperphrase Technologies, LLC, and Hyperphrase, Inc. ("Hyperphrase"), held two business patents related to some systems and methods that linked online records. The technical process used by these systems and methods is similar to the one used by Google through its "AdSense" and "AutoLink" methods. "AdSense" is an advertising method used by Google that combines the advertiser's content with contextually related websites. AutoLink is an online application incorporated into people's computer browser that that helps Google identify relevant web addresses and information according to some ‘string of characters' that they call tokens. Hyperphrase claimed that Google violated its online linking and patented methods through the use of "Autolink" and "AdSense."

"We're very pleased that the Federal Circuit agreed that AdSense does not infringe any of Hyperphrase's patents. We continue to believe the remaining claims in the lawsuit are without merit, and will vigorously defend against those claims," Michael Kwun, Google's managing counsel for litigation, recently said after the US Court of Appeals held (on December 26, 2007) that Google's ‘AdSense' did not infringe on Hyperphrase's patent. Yet, the case was remanded as to Google's business patent infringement with respect to the use of "Autolink" system.

This intriguing case so far has two significant juridical teachings. First, we learned that business patents and its electronic use are slowly but steadily becoming the object of intellectual property litigation. For the time being, this litigation is centered at a domestic level; but, the legal community must be vigilant of how transnational litigation and jurisprudence on e-business patents evolves. Second, we also learned that business patents, especially e-business patents, create extremely complex litigation cases. E-business patent infringement cases involve highly technical computer methods and systems (some related to mathematical equations) and sharp legal and semantic analysis. In other words, computer/business science and sophisticated legal reasoning merge when dealing with a business patent case.

Lacoste loses crocodile trademark row [UK]

A Gloucestershire dental practice has come out smiling after defeating fashion chain Lacoste in a dispute over a crocodile trademark.

The two dentists were challenged by the French clothing giant after using a grinning reptile as the logo on their practice’s welcome sign.

Lacoste claimed the cartoon crocodile was too similar to their own globally recognised logo, and could cause confusion among shoppers which could damage their business.

The battle began in 2004 when dentists Dr Tim Rumney and Dr Simon Moore first applied to register the new logo – a plain green crocodile with white teeth – for The Dental Practice in Cheltenham.

Lacoste objected saying it was too similar to their own green crocodile logo, which is pictured side-on with gaping red jaws.

Now, following a three year battle, the UK Intellectual Property Office judge has dismissed claims the emblems are too similar.

The dentists represented themselves at an initial hearing in May at the Intellectual Property Office in Newport, where Judge Ann Corbett ruled in the practice's favour.

But Lacoste’s legal team launched a subsequent appeal, which was finally rejected late last year.

Dr Rumney said he was "astonished" his practice had encountered such difficulties.

He said: "We are happy the situation has been resolved but astonished by the length of time it took to reach this conclusion.

"I suppose it is a big success for our business but we certainly did not regard it as taking anyone on."

He added: "We do not consider ourselves to be in the same market place at all and do not see that we are treading on any toes. We chose the sign with little second thought."

Lacoste was ordered to pay £1,000 towards the dental practice's legal costs at the initial hearing as well as a further £450 towards the costs of the second hearing.

Five things one should know about Web Sites [General]

1. Who Is The Person Behind the Web Site?
For top level generic domain names such as .com, .net and .org, go to www.internic.net/whois.html or similar web sites like www.betterwhois.com and enter the domain name for the web site into their search/whois functions. They may not give you the name of the person or company who registered the domain name, but they will likely give you the name of the local registrar. If they do, go to the web site of the local registrar and enter the domain name in question into the local registrar's search function. This should produce the name of the person or company who registered the domain name for the web site. For country-specific top level domains (for example, .ca), use Google or another search engine to identify a registrar in the applicable country (for example, to find a registrar in Canada enter the following key words: "Canada", "domain name" and "registrar") and then use the local registrar's search/whois function.

2. Content Can Cause Problems
If the content you are incorporating into your web site is not your original content, you almost always need to get permission to use it. If you use any portion of a popular song (even five seconds) on your web site without getting the appropriate rights, you could be infringing one or more person's rights in the song. Not all clip art is released into the world on the same terms and conditions. For example, some clip art providers prohibit the use of their images for commercial purposes.

3. Linking
Typically, a text-based link to another party's web site which opens the other web site in a new window is not problematic. Still, you should check the terms and conditions of the web site to which you wish to link to make sure that they do not prohibit or restrict links.
Additionally, if you place links to web sites which you do not control on your web site, you should make sure that the terms and conditions for your web site make it clear that you are not responsible for anything related to those web sites.

4. Hosting Agreements Come in Different Shapes and Sizes
At its most basic a hosting agreement requires the service provider to provid server or co-location space and a connection to a network (typically, the Internet). From there, there are many types of services which may also be purchased such as back-ups, on-site assistance, server management or application management. The nature of the materials hosted (for example, do they need to be highly available or could they be down a few hours a month) and the volume of the materials to be hosted also vary from situation to situation.

Basic hosting services for a small web site such as one which provides information about an upcoming family reunion can be acquired for less than $20.00 per month. The hosting agreement for such services will typically be short, non-negotiable and very biased in favour of the service provider. Hosting services for a small business' web site (when the small business does not depend on the web site for any significant portion of its business) will be somewhat more involved, and the hosting agreement should be more detailed and somewhat less biased than a basic hosting agreement. For example, it may include some service level commitments and warranties from the service provider. Hosting agreements for high traffic, high volume, web-based businesses and other web sites which must be available at least 99.999% of the time tend to be long, detailed and aggressively negotiated.

5. Terms and Conditions - One Size Does Not Fit All
Although there are elements which are common to most sets of terms and conditions for web sites, there is no single set of terms and conditions which is appropriate for every web site. There are a number of factors which affect the contents of these documents including: (i) the types of content forming part of the web site; (ii) the ways in which visitors to the web site are encouraged to interact with it; (iii) the target audience for the web site; and (iv) the location of the server on which the web site resides.

Networking, Technology, Nudity and Copyright [Google, Inc. v. Perfect 10, Inc.]

Perfect 10, Inc. ("Perfect 10") alleged that Google, Inc. ("Google") directly and secondarily infringed Perfect 10's copyrights in certain images of nude models. The allegations were based on the operation of Google Image Search, a search engine for images. The claim of direct infringement was based on Google Image Search's use of thumbnails of the copyrighted images. Specifically, using an automated process, Google identifies an image on a web site, captures a reduced-size and reduced-resolution copy of the image, caches the copy on its servers, presents the copy in response to user's searches and responds to a user clicking on a search result by creating a window with two frames: one which displays the search result including the reduced-size image and one which displays the web site where the full-sized version of the image is located. The allegations of secondary infringement were -two fold: (i) vicarious infringement based on the existence of and Google's failure to exercise a practical, legal right to stop or limit others from infringing Perfect 10's copyrights; and (ii) contributory infringement based on Google's distribution of a product which was not capable of a significant non-infringing use and Google's active encouragement of infringement.

The Court of Appeals concluded that Google was not responsible for displaying the full-sized images when a user clicked on a search result: the publisher of the web site which incorporated such images was. Consequently, Google did not directly infringe Perfect 10's copyrights with respect to the full-sized images.

The Court of Appeals found that Google's use of the cached copies of the images was a direct infringement, but it was also found to be a fair use partly because Google use of the copyrighted images was transformative (i.e. for a purpose other than the purpose for which Perfect 10 used the images) and of benefit to society.

Perfect 10's claim of vicarious infringement was unsuccessful. Google's contracts with its advertisers did not amount to a legal right to control their behaviour and Perfect 10 did not identify any other practical means for Google to do so.

Even though the Court of Appeals concluded that Google's search engine had significant uses beyond assisting others to infringe copyright, the question of contributory infringement was remanded to the District Court because it had not considered the following questions: (i) whether or not Google had actual knowledge that infringing materials were being made available through its search engine; (ii) whether or not there were simple measures which Google could take to prevent further damage to Perfect 10's copyrighted images; and (iii) if such measures existed, whether or not Google had failed to implement them.

The decision of the District Court is available at: http://www.ca9.uscourts.gov/coa/newopinions.nsf/DE8297F56287C0BC882572DC007DACC6/$file/0655405.pdf?openelement.
The decision of the Court of Appeals is available at: http://www.cacd.uscourts.gov/CACD/RecentPubOp.nsf/
ecc65f191f28f59b8825728f005ddf4e/3fdcaed8913a22018825711c005055a5?OpenDocument

Disparities Seen In Developing Countries’ TRIPS Implementation

There are considerable differences in developing countries’ implementation of the World Trade Organization Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) and their use of flexibilities in it, according to speakers at a recent South Centre event.

Although developing countries have strong concerns about the TRIPS agreement, a significant number of them have implemented even higher IP standards than those required by TRIPS, according to research on 107 countries presented by Carolyn Deere, director of the Global Trade Governance Project at the University of Oxford.

The 5 December panel entitled “The Implementation Game: Developing Countries; the TRIPS Agreement and the Global Politics of Intellectual Property” was part of a seminar series at the South Centre.

Deere classified the countries studied into three groups: the TRIPS-plus countries (countries that went beyond their TRIPS obligations); countries which made mixed use of TRIPS flexibilities; and countries that are still in the process of reforms to meet TRIPS commitments.

Based on analysis of TRIPS-based legislative reforms, the TRIPS-plus countries range from Mali and Cambodia to the Dominican Republic, Mexico and Peru. There were 14 least-developed countries in the list. Deere’s survey showed that there is no clear correlation between the strength of IP standards and the Gross Domestic Product per capita. Some of the poorest countries in the world, like Niger, are among the TRIPS-plus countries, Deere said.

The explanation for the variation between developing countries seems to lie in the interplay of domestic politics and international pressure, Deere said. Developing countries are influenced by the degree of pressure applied by international donors, investors and trading partners, she said, but added that this does not explain the range of variation. Some countries, such as Brazil, which have been subject to pressures from the United States are not in the TRIPS-plus cluster, but rather make mixed use of flexibilities, she said.

The Implementation Game: A Battle for Influence

Two sides have been debating on TRIPS implementation: one in favour of swift compliance and limited use of flexibilities, and the other advocating a more flexible approach tailored to specific national development priorities. The first group uses coercive pressures such as trade deals and threats, WTO disputes and diplomatic demands, she said. To foster a “pro-IP climate”, this group also used the “power of ideas”, turning to the media, public outreach, research, monitoring and capacity building. The second group lacks the means to exert coercive pressure, Deere said, but nonetheless harnesses “ideational” power, including for example by running campaigns for an end to “TRIPS-plus” pressures that impact health and access to knowledge. To win over developing country decision-makers, the two groups engaged in a “research war” and a “competition” in the area of capacity building, she said.

According to Deere, politics at the national level contribute to the variation, either amplifying or filtering the influence of external pressures. In most developing countries, a lack of expertise and consultation within government, and the small number of active local interest groups limit national debate about TRIPS implementation. Instead, most governments defer to national IP offices for direction, she said, which in turn are strongly influenced by the largest donors, such as the World Intellectual Property Organization (WIPO). There also is lack of coordination between the national capitals and international government representatives, she said.

Deere’s research is expected to be published in a book in 2008.

TRIPS Flexibilities Difficult to Implement

Boumediene Mahi from the permanent mission of Algeria to the UN and coordinator of the African Group to WIPO, invited to comment on Deere’s presentation, added that most African countries had inherited colonial IP systems and had joined the TRIPS Agreement without having participated in negotiations. Moreover, he said, “there was big pressure on the developing countries during the TRIPS negotiations and it is still the case.”

Ignorance of the flexibilities and the way to use them has prevented countries from benefiting from them. Sometimes, “sub-regional offices such as the African Intellectual Property Organization made a decision that was applied in individual countries without them having the possibility to discuss the decision at national level,” said Mahi.

He also noted that the technical assistance to use flexibilities was essential. “It is only over the last two years that WIPO has started to deliver technical assistance” that refers to the flexibilities but there is still a number of least developed countries that do not know how to use them. Mahi said that the new WIPO Development Agenda promotes the idea of balanced protection: encourage innovation while protecting the public interest, which he said is an encouraging first step toward more fairness.

For Christoph Spennemann, legal expert of the intellectual property team at UN Conference on Trade and Development, there is a strong link between the degree of expertise and the use of flexibilities in developing countries. The countries which participated in the Uruguay Round of WTO negotiations that led to TRIPS make use of flexibilities and are aware of their implications while in developing countries that played little role in the negotiations there is a higher protection level.

The TRIPS-plus countries are sometimes more familiar with the potential benefits of IP than the challenges it can present, Spennemann said. He cited the example of local producers in West African countries who are keen on pharmaceutical patents, but lack awareness of the impact of IP on the public domain. Spennemann noted these producers believe that stronger IP protection can attract foreign investment but ignore the importance of flexibilities as a potential attraction for investors in generic industries. As a result, the pre-TRIPS colonial laws remain untouched or are modified into TRIPS-plus, Spennemann said. Those countries also have to face a “race of technical assistance providers to win the game,” he said. To attain better results in the use of flexibilities, he stressed the importance of IP capacity building that takes into account both development objectives and flexibilities.

March-In Rights, Domestic Manufacture, and Inventor Royalties under Bayh-Dole

According to Stephen P. Rothman in "Investing in university spin-out companies," the U.S. Bayh-Dole Act allows a federal agency that funded an invention to require the patent holder to grant a license to a responsible applicant on reasonable terms. If the patent holder refuses, then the federal agency can grant a license itself under what are referred to as "march-in rights." However, "march-in rights have never been exercised and appear unlikely to be exercised in any realistic scenario,"writes Rothman, partly because the law directs federal agencies not to exercise march-in rights unless the action is necessary:

• "Because the patent holder is not taking effective steps to achieve practical application of the invention,
• "To alleviate health or safety needs which are not reasonably satisfied by the patent holder,
• "To meet requirements for public use specified by federal regulations not reasonably satisfied by the patent holder; or
• "Because an exclusive licensee has failed to give preference to U.S. manufacturing where that would be required."

Rothman goes on to concisely summarize several written decisions of the NIH that he says "display a keen awareness that exercise of march-in rights could disrupt the incentive for commercialization of federally funded research, and thereby undermine attainment of the principal purpose of the Bayh-Dole Act."

His artcle also sheds light on the law's preference for exclusive licensees to manufacture in the United States:

An exception applies if domestic manufacture is not commercially feasible, or if the university tried unsuccessfully to find a licensee that was likely to manufacture in the U.S. To take advantage of one of these exceptions, a waiver must be obtained from the agency that funded the research.

. . . There is some difference between the federal agencies, with NIH having a reputation for a streamlined waiver process, and a willingness to grant waivers fairly freely, particularly if there is reason to believe that foreign manufacturing will allow a medical product to be made available to patients at a lower cost. The Department of Defense, not surprisingly, may be somewhat less quick to agree to foreign manufacture, particularly for a sensitive military product.

. . . One could take the position that this is not an exclusive license, though the issue is not free from doubt. Another approach involves interpretation of the requirement to manufacture "substantially in the United States." There is no clear percentage requirement, nor is there guidance from the Department of Commerce or other sources on what "substantially" means. . . . [However, t]he two approaches described above leave some risk of challenge . . . .

Bayh-Dole further requires patent owners to share a portion of any royalty payments with the inventor or inventors. "The amount of the inventor's share is not set by law, and varies from one institution to the next." But Rothman cautions, "If the inventor is an officer of the spin-out company, there is a potential conflict between the interests of the inventor and the investors that needs to be managed."

Finally, Rothman gives his insight as to why universities typically will not agree to trade secret license terms that would prohibit publication of research findings:
A typical university license or joint development agreement provides a limited delay of publication (30 - 60 days) during which the licensee can determine whether to file for patent protection. Even if universities were willing to adopt restrictions on information flow (which they are not), university laboratories are generally not set up with the kind of procedures that commercial enterprises routinely use to establish trade secret status, such as: preparing and following a written trade secret protection policy; limiting access to the portion of the facility where trade secrets are stored; requiring visitors to sign in and out; requiring all participants to sign confidentiality agreements, etc.