30 posts categorized "June 2010"

Public Action, Private Initiative: Spectrum Auctions

Lawrence Summers was so funny and so clever (and so effective at needling a normally unflappable Mayor Bloomberg) on C-SPAN recently, that I was sure to catch a Monday night C-SPAN broadcast of Summers delivering a speech about the President's spectrum policies to support the growth of mobile broadband.

I'm glad I did, particularly because Summers varied from the concluding section of his published speech, and made instead the following extemporaneous remarks:

"We will as a country only prosper in the years ahead if we have a strong private sector that is flourishing in the most important economic sectors.

"That is why the broad project of renewal in which President Obama is engaged is so profoundly important. It has many aspects: education, health care, energy, financial reform. It also has a crucial aspect around fundamental infrastructure investment.

"Each generation in the United States has bequeathed to the next something fundamental, something that was new and almost unimaginable when it was launched, but was taken for granted thirty years later. A one week crossing time from the Atlantic to the Pacific. A waterway connecting the Atlantic Ocean and the Pacific. A pervasive availability of electricity. The ability to drive rapidly and without traffic congestion or traffic lights between major American cities. The ability to communicate with a device you held in your hand. It is a continuing American project. And our generation has its part to play.

"That is why we are committed to doing what governments have always done, using that property, of which it is a steward, to drive the American economy forward. We’ve done it before. We’ll do it again, with spectrum auctions."

The point of spectrum auctions, Summers said, is not to raise revenues for government, or not that principally. The main function of auctions is to ensure that the spectrum is deployed to the highest valued uses, as determined, not by government, but by private markets. 

At the same time, Summers wasn't loathe to suggest that the government would pursue objectives in the policies it would set. He spoke of the need to provide unlicensed spectrum to startups and end users to spur new innovation. And the President's policy includes plans to seek legislation to allow the FCC to conduct "incentive auctions," to redeploy spectrum from existing spectrum holders who agree to participate and who would share in the proceeds.

As a citizen, I find the current rancor over healthcare, financial regulatory reform and tax fairness to be deflating. It seems like so much of our populace wants to regress or escape to a fantasy of America that would be better off without government. But it's very encouraging, to me, to see a smart executive invoke our history and express a sense of  destiny in reaching for vigorous government policies that project American innovation into the future.

The Bilski Case & Interpreting Acts of Congresses 47 Years Apart

I'm not a patent lawyer, but it seems to me that the majority of the Supreme Court in Bilski concerns itself with technical (that's "technical" in the sense of "narrow," "unique to a practice," and "utilizing terminology shared among the initiated," and not as in "relating to technology") issues, and declines to engage with the larger social question of whether patents are being granted too freely, stifling innovation.

A portion of the opinion says as much:

"With ever more people trying to innovate and thus seeking patent protections for their inventions, the patent law faces a great challenge in striking the balance between protecting inventors and not granting monopolies over procedures that others would discover by independent, creative application of general principles. Nothing in this opinion should be read to take a position on where that balance ought to be struck."

(Justice Kennedy, writing for the Court, page 10 of the slip opinion.)

Presumably, that balance is for Congress to strike.

Now, I know patent lawyers and Supreme Court observers won't take the Court's disavowal at face value. Certainly, it will be necessary to try to understand what room the Federal Circuit will now have to shape the standards for business method patents. Justices Stevens, Ginsburg, Breyer and Sotomayor would have held that "business methods are not patentable" (from Justice Stevens's concurring opinion, page 2), but the majority allows that business method patents, as a category of process patents, may survive. (Tom Goldstein has a very good initial post on the patent law implications of the case, here.)

In the meantime, I'm fascinated with what the Court says about one of the standards to be followed in interpreting laws that are passed by Congress. Judges and lawyers call these standards "cannons," or principles, of "statutory construction." The bulk of the Biliski opinion and a large part of Justice Stevens's concurring opinion concern statutory construction.

I want to key on one "cannon of statutory construction," or standard for interpreting a law passed by Congress, in particular: the principal that different laws enacted at different times should be read together to yield a single, consistent meaning.

A timeline of the relevant background will be helpful: 

  • 1952: Congress passes the current Patent Act, Section 101 of which states that a patent may be obtained for "any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof," subject to additional conditions.
  • For decades following the 1952 Patent Act, business methods are not thought to be within the scope of Section 101.
  • 1998: The Court of Appeals for the Federal Circuit, in the State Street case, finds that business methods "are statutory subject matter" within the meaning of Section 101.
  • 1999: Concerned about the implications of State Street, Congress passes the First Inventor Defense Act, providing a limited defense to claims of infringement of a patent on a "method of doing or conducting business."

Now, in reacting in 1999 to the State Street case of the prior year, would you say that Congress was effectively acknowledging that Section 101 of the Patent Act should be interpreted to mean that business methods are patentable?

There's at least a common-sense argument that the Congress of 1999 wasn't getting into whether or not business methods should be patentable, but instead was reacting to the reality that the Federal Circuit had declared that they could be, and so was providing a new defense to infringement claims that could be burdensome to business. On the other hand, it is also reasonable to argue that, were Congress adamant that Section 101 of the Patent Act was being grossly misinterpreted by the courts, it could have provided, not just a new defense, but a re-wording of Section 101 itself, expressly rejecting business methods as "statutory subject matter." 

The majority in Bilski finds the congressional action in 1999 to be highly significant to the interpretation of the 1952 law, but not because of what Congress may or may not have "intended" when acting in 1999. Instead, Congress's 1999 action plays decisively in the interpretation of Section 101, due to a rule of statutory construction:

". . . [W]hat [the First Inventor Defense Act of 1999] does is clarify the understanding that a business method is simply one kind of “method” [within the meaning of "process"] that is, at least in some circumstances, eligible for patenting under §101.

"A conclusion that business methods are not patentable in any circumstances would render [the First Inventor Defense Act of 1999] meaningless. This would violate the canon against interpreting any statutory provision in a manner that would render another provision superfluous. This principle, of course, applies to interpreting any two provisions in the U.S. Code, even when Congress enacted the provisions at different times. This established rule of statutory interpretation cannot be overcome by judicial speculation as to the subjective intent of various legislators in enacting the subsequent provision."

(Justice Kennedy's opinion for the Court, page 11 of the slip opinion, citations omitted.)

I think this reasoning is essentially correct, although one can imagine some pretty counter-intuitive results and no shortage of danger for any Congress that can only accomplish intended reforms by half-measures.

I'll bet we'll see this principal of interpretation employed again when financial regulatory reform and other new acts of the current Congress are litigated and big issues involving these laws make their way to the Supreme Court.

Alexander Macgillivray's Analogy for Commercial Contracts: They Are Like Computer Programs

It's not a new post on Alexander Macgillivray's blog, but I've just tripped across it and am enthralled by it: "In Praise of Transactional Attorneys," about what's involved in the drafting of a commercial contract.

In describing how difficult the job can sometimes be, Macgillivray asks that we:

. . . imagine the contract as a computer program. In each the object is to be able to interpret the words and have that interpretation drive a result. Now imagine that there is no compiler for your program and that you can't run any tests. All debugging must be done only theoretically and in your head. Imagine that you are coding with another person that is likely to be trying to develop a program that does something significantly different from what you want it to do. You and the other programmer may have different time constraints and, even though you are trying to do different things, you have to be on good terms with the other person because she could just as easily decide to stop working on your project. You and the other person take turns editing the code but without a common coding environment or standard tools to figure out whether the other person (or you) goofed it up. Then imagine that the code you are writing has a high probability of only ever being "run" through two different interpreters with significantly conflicting points of view about desirable outcomes and you likely won't get to see the result of any of these "runs."

The analogy is exciting, and not only because of the insight it offers on what's at stake in the process of negotiating and drafting a complex commercial contract. Like other really good metaphors, this one makes you so much wiser that you're in position to question whether the process revealed might work differently than it does. For instance, just why won't or can't lawyers make (more) use of a "common coding environment or standard tools?"

One in a Million

Two colleagues from work and I had a celebration lunch last week with the two (former) principal shareholders of a startup we had represented through a successful change in control transaction.

Quite naturally, we reminisced about the twists and turns we'd been through together since we formed the venture.

"It never quite goes exactly as planned, does it," I said, meaning only to effect a gross understatement by way of a truism.

So true, so true, everyone began to nod.

"Actually," I broke in, contradicting myself and cutting off the group's assent before we were committed to it, "I can think of one time when everything pretty much did go according to plan."

And I told a short story of a Web 1.0 company in the dot com era that went from inception to exit in the space of 11 months, yielding a 48x return for the angel investors (there was only one round of financing). The story was necessarily short because the company pretty much developed and deployed and began selling a product, to the customers it thought it would sell the product to, just as it projected it would in the company's initial business plan. (The lives of those involved, after the fact . . . longer stories there.)

The one "accident" in the company's short history is that a new salesperson, without authority, added an additional zero at the end of the pricing he was told to quote to potential customers, juicing the sales conversion rate.

Could this story have only happened during the dot com bubble, just before it burst? Maybe. It wasn't the kind of dot com that was selling only to other dot coms; arguably, it could have financed its growth from the revenue it began generating in the weeks before it decided to sell.

Not sure I have a "moral of the story" here. Maybe the admonition that could be drawn is: be careful what you envision, because it may be easier to realize than you expect?

Once in your life, maybe.

Always Know What World You’re In

When it comes to NDAs, there are basically two worlds – either ‘everything is confidential unless it’s not’ or‘nothing is confidential unless it is.’ The choice of worlds can be critical and if you don’t know which world you’re in, you may well find yourself in a world of hurt.

Consider the world where everything is confidential unless it’s not. In this world, any confidential information that is disclosed, whether marked as confidential or not, is considered confidential. Of course there are certain standard exceptions such as in the case where the information is already public or was already known to or independently developed by the other side. But for the most part, this is a pretty simple world to live in.

Now consider the world where nothing is confidential unless it is. In this world, unless something is clearly marked as confidential, it’s not – so it’s fair game. How many of you out there remember to mark everything that’s confidential before you disclose it? What do you do about oral or visual disclosures? In the case of oral or visual disclosures, unless you summarize the disclosure in writing and mark the summary as confidential, those things the other side hears or sees (such as may happen if the other side is visiting your offices) are likely not confidential. Again, fair game.

Consider the case of Mr. Hoffman and his proposed NASCAR-themed bubble gum/candy called “Pit Crew Chew.” Mr. Hoffman pitched his idea to Impact Confections, Inc. under the terms of a written NDA. After working together for a few months, Impact broke off its relationship with Mr. Hoffman and his company. Although Hoffman continued to work on his product, Impact in the meantime launched its own product “Champion Chew” which was targeted at the same NASCAR niche. Mr. Hoffman sued Impact for trade secret misappropriation along with a host of other claims.

Unfortunately for Mr. Hoffman, he didn’t remember what world he was in. His NDA stated:

“Any Confidential Information disclosed in tangible form shall be clearly marked as ‘confidential,’ ‘proprietary’ or words of similar import. Any Confidential Information disclosed orally shall be identified as confidential at the time of its disclosure and the Disclosing Party shall make reasonable efforts to reduce such Confidential Information to writing and to provide it to the Receiving Party within twenty (20) days of its disclosure.”

Long story short, the court found that Mr. Hoffman didn’t take the steps necessary to designate his confidential information as confidential and therefore was not entitled to the protections afforded by his NDA.

Although NDAs can seem like pretty ordinary run of the mill type documents, it’s always a good idea to be very familiar with their terms. Always know what world you’re in so you don’t inadvertently lose your confidential/proprietary information simply because you forgot to mark them if you happen to live in the world where nothing is confidential unless it is.

Albert S. Chu is an IP attorney based in the Seattle area.

A Temple of Justice

Yesterday I went to the Temple of Justice in Olympia, Washington, to see one of my partners argue before the Washington State Supreme Court. I'd like to share some impressions.

  • The Temple is a massive, marble structure directly opposite the Legislative Building (pictured above, left to right respectively, in a panorama by Gregg M. Ericksojn, used here in accordance with these terms). It makes you think about the balancing of powers that is at the heart of our amazing system of establishing and maintaining law, rather than rulers.
  • The courtroom is open. You could not so easily enter and find a seat in any trial court. Nor in any Starbucks, for that matter. The space could not be more welcoming to the public. Bathrooms are not locked.
  • On a table just inside the courtroom, biographies of the nine Justices (photocopies of bios from the Court's site) are stacked up for the taking, along with a single page "program" identifying the cases, the lawyers appearing, and a summary of the questions to be argued. The program also identifies which Justice sits in which spot on the bench, left to right.
  • The Justices ask tough questions and don't hesitate to interrupt the lawyers. They do not, however, seem to be as taken with their own personalities as certain of the US Supreme Court Justices (I've not been there, and am making the comparison from radio broadcasts I've heard of oral arguments before that Court.)
  • The courtroom is simple but more elegant and more hospitable than the impression you get from watching the Court's proceedings on TVW. This may be due to the positioning of the cameras, set high in each of the four corners of the room. You have a far different impression when standing or seated in the actual chamber.
  • I wish I had taken my kids there to hear an oral argument, when they were younger.

The Emerging Company CEO and Decisive Terminations

"I welcome debate among my team, but I won’t tolerate division." -- President Obama yesterday, on firing General McChrystal

The line between "startup" and "emerging company" is not always bright, but when a company is generating revenue or certainly once it's profitable on a monthly basis, the CEO's burden changes.

Be she a founder or someone brought in by the board from the outside, the emerging company CEO has to think about the momentum of the company, about its customers, about identifying processes that will make initial success sustainable, about turning that success into exponential successes.

At some point in the new company's life, there is a "program," recognized and endorsed by a board, and the CEO takes on responsibility to nurture it.

When I think about CEOs who've flailed in the midst of this transition, many of whom had the passion and the maturity and the ethics to make a good leader for an emerging company, I find an uncannily common denominator: an unwillingness to confront internal insurrection and terminate the instigator.

Unlike civilian primacy over the military, the emerging company's need to stamp out insurrection has nothing to do with hierarchy or obsequious respect for a chain of command. "Insubordination" as such is not even that common a "for cause" termination factor in executive employment contracts, and that's as it should be in the 21st Century.

No, the problem is the toxicity that will poison employee moral, and will leach out of the company to customers through email and face to face conversations. It's the inability to hire top flight talent or win customers who will pick up on the scuttlebutt and judge management to be in over their heads.

I can think of zero companies that have gone down because a CEO has fired a high-profile troublemaker and closed ranks around those genuinely with the program. I'll withhold numbering those with promise that I know to have failed by shirking from such a fight.

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