Law
- Read the canonical story of the birth of the phrase “patent troll,” in spring of 1999, here. ↩
- Smith v. Van Gorkom, 488 A.2d 858, 872 (Del. 1985) (Opinion) ↩
- Aronson v. Lewis, Del.Supr., 473 A.2d 805, 812-13 (1984) (Opinion) ↩
- Id. at 812 (Opinion) ↩
- In re Caremark Int’l Inc. Derivative Litigation, 698 A.2d 959, 968 (Del. Ch. 1996) ↩
- Successful venture capitalist Fred Wilson defines burn rate as “the speed at which your cash balance is going down.” Read his article on the topic here. ↩
- Of course, putting the devil’s advocate thing aside for a moment, which I do in a footnote in keeping with the spirit of the article, it’s probably best to innovate in some meaningful way and get a new or improved product to market instead of looking for the most defensible way to monetize patents which may not be valid and probably aren’t being infringed anyway. ↩
NPEs planning patent litigation may be safer as private companies
Note: I’m not your lawyer, you’re not my client, and nothing in this article is, or should be construed as, legal advice.
Companies that don’t sell anything and exist only to enforce patent rights, sometimes purchased from the original patent holder solely for the value of enforcement, are known as non-practicing entities (NPEs) or, pejoratively by defendant companies and their attorneys, “patent trolls.”1
The NPE will sue claiming infringement of one or more patents, and may not actually have any intent to litigate. Many companies and inventors of all sizes regard NPEs scornfully, but are often forced to play ball because settlement is almost always cheaper than litigation. For smaller startups, the cost of litigation may even pose an existential threat.
Allow me to play devil’s advocate for a bit. I consider most NPEs parasites, siphoning money out of the market in return for nothing at all. But here are some thoughts on what some of them may be doing wrong from their own perspective. After all, what good is an attorney who can’t think like his enemy?
Let me explain some basic corporate law, as much for my recollection as for your edification. A corporation is subject to the law of the state in which it incorporates, and corporate law differs from state to state. The cases I cite below only illustrate the foundational principles of corporate statutory and common law.
A company’s board directors and officers owe several fiduciary duties to shareholders and the company itself. One of those is the duty of care, which says that responsibility for “the financial interests of others imposes on a director an affirmative duty to protect those interests.”2
However, courts realize businesspersons are in a better position than judges and attorneys to make sound decisions for their companies. For that reason, courts often defer to the judgment of a company’s leadership absent some gross negligence.3
The business judgment rule, as it is called, is at its core :
a presumption that in making a business decision the directors of a corporation acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company.4
Thus, the fiduciary duty of care owed to shareholders by directors and officers requires them to make a “good faith effort to be informed and exercise judgment.”5
So, now back to the NPEs. When a company faces suit by an NPE, its leaders are obligated to compare the costs of litigation and settlement and choose the path most protective of the company’s and shareholders’ interests, which is usually the less costly path. And that, of course, is almost always settlement.
Joe Mullin, writing for Ars Technica, explains the financial position of an NPE recently vanquished by web-based tech retailer Newegg:
MacroSolve had about $800,000 on hand and looked to be burning through about $50,000 a month, not including payments to its lawyers.
That $50,000 happens to match the low-end of the amount MacroSolve demanded of companies against which it brought patent infringement lawsuits. In other words, it matched its settlement demands to its burn rate.6
It was actually surviving only, or primarily, by threatening to go to trial on patent claims of dubious validity. MacroSolve is a public company, so much of their financial and operational information is openly available. Newegg realized after reviewing that information that MacroSolve’s burn rate matched the settlement demands, and built a strategy around it: call the MacroSolve bluff, revealed by their public financials, by refusing to settle, causing their burn rate to deplete cash-on-hand and substantially reduce or totally eliminate the company’s ability to press on with any outstanding litigation.
NPEs registered as private companies and considering the MacroSolve strategy may be safer staying private. Public companies may want to consider taking the company private before using litigation or threat of litigation, on the assumption that some percentage of defendants will settle, to fund the company’s survival.
In conclusion, patent litigation by non-practicing entities is even more a game of poker than most litigation, to the extent the defendant isn’t really infringing or the patent’s validity is assailable, and public companies show too much of their hand too much of the time to play safely under most corporate law regimes.7
Popcorn Time streams movie torrents, but maybe it’s more than that
The image above is the first screen you see when you open Popcorn Time. The app, available on Mac, Windows and Linux, streams movies from the peer-to-peer file sharing protocol BitTorrent. The technology is similar to what old school music swapping service Napster used from about 1999 to 2001, before being shut down.1
It’s getting a lot of attention this week, much of which focuses on its copyright infringement implications. And for good reason, because according to the FAQ, while you’re watching a movie, the app is using your computer and internet connection to seed the same movie to other viewers. That means you’re sharing what you’re watching, and if what you’re watching is copyrighted or otherwise protected by your country’s intellectual property laws, you may be committing a civil violation or a crime.
Yeah, it’s like that.
I messaged the Buenos Aires-based developers of Popcorn Time on Facebook asking whether they would consider adding a Creative Commons / Public Domain channel to the app. It couldn’t hurt to include some non-infringing content, and it may be a cool new way for indie filmmakers to distribute their work.
But while copyright infringement is the easy story (and the one I would usually focus on here), there’s a more interesting angle to Popcorn Time.
It has the potential to introduce “normals” to the concept of peer-to-peer file sharing. This is similar to what BitCoin has done to the idea of digital currency. While it is the first cryptocurrency, using cryptography to secure transactions, it was not the first digital currency. Several video games allow players to trade items for virtual money and have done so for a long time.
But BitCoin brought the concept to the forefront of an international conversation. I’m not sure Popcorn Time is going to be that big or game-changing (it’s still in beta; only the third movie I tried to play, American Hustle, actually began to play. I turned it off right away, because it’s good policy for would-be attorneys not to, you know, break laws).
I do think there is real value to a proof of concept when it gets a technology usually limited to geeks into the hands of a larger audience.
And the infringement potential doesn’t have to be a deal-breaker. A quick Google search for legitimate uses of BitTorrent turns up about 146,000 results.
Some totally legal uses of BitTorrent include game updates and downloads, distributing your own music, and (take note, Popcorn Time developers) public domain movie trading.
So the question is whether the extra attention Popcorn Time is getting can be turned toward the lawful uses of peer-to-peer protocols. If so, it could be the boost the system needs to become a permanent fixture in the national conversation. In other words, the interest in Popcorn Time could be peer-to-peer’s BitCoin moment.
Disgraced Scientist Granted U.S. Patent for Work Found to be Fraudulent
Disgraced Scientist Granted U.S. Patent for Work Found to be Fraudulent
It’s hard to believe this patent should ever have been approved by a patent examiner acting in good faith, especially considering the criminal convictions standing in stark contradiction of the purported “inventor’s” affidavit of lies, but let’s assume the USPTO did, as they claim, handle this one by the book.
Even the appearance of such ridiculous impropriety as granting a patent for fake research is enough to signal the extent to which the system is flawed.
DHS wants to track license plates
DHS wants to track license plates
ICE spokeswoman Gillian Christensen, on the license plate tracking system recently proposed by the Department of Homeland Security:
It is important to note that this database would be run by a commercial enterprise, and the data would be collected and stored by the commercial enterprise, not the government.
Because the government never compels commercial enterprises to give it data.
Ever.
CrossFit sends trademark takedown demand
CrossFit sends trademark takedown demand
The lesson here: the Digital Millennium COPYRIGHT Act contains no enforcement mechanism for TRADEMARK rights.
What is Intellectual Property Law?
What is Intellectual Property Law?
It’s not surprising that more scholarship self-identifying as IP-focused is about patents. After all, they drive much of commerce and innovation (and arguably the problems with the two) in the industrial and technology sectors.
It’s worth noting though that, unlike much of the protection afforded by a patent, many copyright protections are available even without registration, although it’s admittedly difficult to enforce them via litigation and to win statuory damages without timely registration.
Check out this PDF by the U.S. Copyright Office for more information.
Sens. Cruz and Lee Introduce State Marriage Defense Act
Sens. Cruz and Lee Introduce State Marriage Defense Act
At this point the anti-Constitutionalists are trolling themselves. A choice bit from this piece of garbage:
The bill will ensure the federal government gives the same deference to the 33 states that define marriage as the union between one man and one woman as it does to the 17 states that have chosen to recognize same-sex unions.
It doesn’t matter how a state wants to define marriage, whether it’s full of crazy conservatives or mushy liberals. It only matters what the Constitution requires, and that is equal protection under the laws.
All consenting adults with the capacity to validly enter a contract are allowed to marry. Legislating around that fundamental right violates the Constitution.
Kansas anti-gay segregation bill is an abomination.
Kansas anti-gay segregation bill is an abomination.
Mr. Stern’s headline sums it up very well. If you don’t believe it can really be that bad, read the PDF.
It is that bad. Ignorance is one thing, but open hostility like this cannot stand and anyone who supports this bill commits the intellectual equivalent of burning the original Constitution to a pile of ashes.
Let me translate that from fiery liberal anger into constitutional principles:
A law allowing the detrimental differential treatment of a class of persons traditionally subject to invidious discrimination because they belong to that class violates the Equal Protection rights granted by the Constitution as to the federal government in the 5th Amendment and extended as to the States by the 14th Amendment.
Let us quote the Good Document itself:
No state shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any state deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.
Gotta love that 14th Amendment. There’s nothing ambiguous in the juxtaposition of the Kansas bill and the Constitution. You can’t deny someone equal protection of the laws. You can’t tell me I’m not allowed in your hotel because I’m a man. Maybe if it’s a country club. But not a hotel. Or a restaurant. Or a state.
The use of freedom of religion as a pathetic attempt to hide animosity and hatred is a supreme act of collective cowardice by the Kansan legislators who vote for this bill.
It is an un-American as it gets. But the good news is, as one ruling after another makes ever-more-clear, you can’t stop history.
What is the maximum constitutional duration of a traffic stop?
What is the maximum constitutional duration of a traffic stop?
The answer is, perhaps unsuprisingly, not clear. But while too few people know you don’t have to allow a vehicle search, the power differential during a traffic stop probably overrides abstract constitutional notions.
As the article says, be polite and minimize conversation. Police are used to the power differential and they are as comfortable with it as you are uncomfortable. They don’t want to hear about your constitutional law class or how you read an article in The Atlantic about traffic stops.
Developing the Law of Cyber Warfare
Developing the Law of Cyber Warfare
Good article by lawyer, legal journalist and fellow Temple Law alum Amaris Elliott-Engel. The law, or lack of it, as it relates to cyber warfare is near the top of my list of legal interests.
Facebook scans messages for ad targeting
Facebook scans messages for ad targeting
I know this is an unpopular stance, but if you operate on any assumption other than that this happens all the time on myriad services you use, you’re a crazy unrealistic person lacking in the minimum amount of cynicism (read: realism) required to use the modern internet in a fully-informed manner.
While I don’t have time these days to do the digging someone should do on this, it strikes me as very likely we all gave Facebook permission to skim all of our content for ad-related and any other purposes when we signed up.
Digital privacy almost always comes with an asterisk these days, and that’s not going to change any time soon.
Apple and "market realities"
Apple, it turns out, is not happy about the legal consequences of its ebook price-fixing scheme. I would be unhappy as well if the attorney assigned by a federal judge to make sure I reformed my anti-competitive practices was sending me $1,100-per-hour bills.
The monitor, Michael Bromwich, submitted to the court on Dec. 30 a detailed explanation of Apple’s treatment of him and his team since their assignment in mid-September. He quotes Kyle Andeer, Apple’s director of competition law, as complaining he is “disappointed by [Bromwich’s] position on rates and other fees. They do not reflect market realities.”
As a former trial attorney at the Federal Trade Commission, Andeer should know a thing or two about “market realities.”
But then again, it’s a distaste for those realities that got Apple a monitor in the first place.
Judges are, and aren't, competent to rule on intelligence issues
Judges are, and aren’t, competent to rule on intelligence issues
Lots to parse on this one, although it looks like a new chapter in the “Surveillance Wars” Edward Snowden started with his leaks.
Two choice quotes really stood out to me in this article, though, especially because they are in sequence:
Gen. Michael Hayden, former director of both NSA and the Central Intelligence Agency, said […] judges “are not really in a good position to judge the merits of intelligence collection programs.”
That’s funny, because the very next paragraph cites consistent judicial approval of the program as a defense to its continued use:
An Obama administration official said that on 35 occasions in the past, 15 separate judges assigned to the secretive Foreign Intelligence Surveillance court had declared bulk communications of telephone metadata lawful.
Which one is it? Well, as usual with the law, it’s probably both. Judges are human too, despite what some litigators may say, and their job is to decide.
Whether that decision is sufficiently informed in every case is up for debate, but if the former head of the NSA and the CIA doesn’t think judges are well-equipped to render decisions on intelligence collection programs, it’s curious the Obama administration would rely on that judgment in defending the collection programs.
Perhaps the Foreign Intelligence Surveillance Act (FISA) should be amended to mandate an intelligence background for all judges appointed to the Foreign Intelligence Surveillance panel.
As it stands now, the Chief Justice of the Supreme Court can quite literally appoint whomever he wants to the FISA court, whether they have any experience in intelligence or not.
How intelligent is that?
CrunchBase and People+ settle
A TechCrunch reporter had this to say about his employer’s sister product:
Put another way: The CrunchBase team ended up looking like it didn’t really understand how Creative Commons worked, or at least that’s what the vast majority of online commentary suggested.
Mutually agreeable settlement is always the best outcome. Although judging by the comment from CrunchBase President Matt Kaufman near the bottom of the TechCrunch post I linked to, Aol still doesn’t understand Creative Commons at all.
Personhood for chimps? Not any time soon.
Personhood for chimps? Not any time soon.
It’s a noble cause, but a flawed strategy. Victory is unlikely, but even if achieved it will be quickly squelched by legislation redefining personhood as belonging only to human beings.
That’s one of the problems universal marriage proponents have had: some courts have said gay couples have a right to marry, but many legislatures, including most notably the U.S. Congress via the Defense of Marriage Act, have simply legislated a definition of marriage that explicitly excludes those deemed unworthy of the right.
Luckily, DOMA was ruled unconstitutional this year (I’m ashamed to say I apparently failed to blog about the June 2013 decision…). But it was the culmination of a long battle for the plaintiff and an even longer one for opponents of the ludicrous insult to the constitution that was DOMA.
In short, it’ll be a long time before the law purports to give a damn about how depressed a chimp in a trailer park feels. And that’s a damn shame.
NSA tracking cellphone locations worldwide
NSA tracking cellphone locations worldwide
Barton Gellman and Ashkan Soltani, reporting at The Washington Post:
The NSA does not target Americans’ location data by design, but the agency acquires a substantial amount of information on the whereabouts of domestic cellphones “incidentally,” a legal term that connotes a foreseeable but not deliberate result.
Incidental indeed.
10 misconceptions about copyright and fair use
10 misconceptions about copyright and fair use
Everyone on the Internet should have to read these.
Judge calls Google book-scanning fair use
Judge calls Google book-scanning fair use
Great news for fair use doctrine, and a big win for word geeks.
Judge Denny Chin said much in his ruling granting Google’s motion for summary judgment, but this part stuck out to me:
Google Books permits humanities scholars to analyze massive amounts of data — the literary record created by a collection of tens of millions of books. Researchers can examine word frequencies, syntactic patterns, and thematic markers to consider how literary style has changed over time.
The decision is up on Scribd. I shall geek out further about it after I have a chance to read it through.
AOL lawyers don't understand Creative Commons. At all.
AOL lawyers don’t understand Creative Commons. At all.
David Kravets writes at Wired about AOL’s demand that an app called People+ stop using a complete replica of AOL’s tech company database.
AOL’s CrunchBase is licensed under Creative Commons Attribution:
We provide CrunchBase’s content under the Creative Commons Attribution License [CC-BY].
However, the terms of service for the same product say, with my emphasis:
CrunchBase reserves the right in its sole discretion (for any reason or for no reason) and at anytime without notice to You to change, suspend or discontinue the CrunchBase API and/or suspend or terminate your rights under these General Terms of Service to access, use and/or display the CrunchBase API, Brand Features andany CrunchBase content.
Actually, as AOL attorneys should know (but apparently don’t), the company cannot reserve any such right at all, at least as to any data accessed, used or displayed while the Creative Commons license is still in effect, which it is as of November 6, 2013.
AOL can legally prohibit future access, use and display, but once content is under a Creative Commons attribution license one reserves no rights whatsoever, except the right to attribution.
It’s baffling that AOL lawyers would assert otherwise.