Carolyn Black's List: Business Law II

• On March 12th the ailing company sued Facebook, alleging that the social-networking giant had violated ten patents that belong to it.
• Lobbing patent lawsuits at one another has become something of a pastime for technology companies. In such sectors as the mobile-phone industry, barely a day goes by without some new legal tussle hitting the headlines. But the world of social networking has been pretty much immune to this flood of litigation—at least until now.
• In 2004 it launched a legal assault on Google involving patents shortly before the search firm staged its own listing. Google ultimately agreed to a settlement over the matter, taking a $200m charge against its earnings to do so. Yahoo! is no doubt hoping that Facebook will throw in the towel as well to avoid awkward legal wrangling in the run-up to its initial public offering (IPO).
• Yahoo! argues that it is simply defending inventions that it has spent billions of dollars to develop. But many of the patents at issue cover common practices in online advertising, privacy controls and instant messaging. With a bit of effort, Facebook’s lawyers should be able to show these were already in widespread use before Yahoo! laid claim to them.
• In its complaint, the firm’s lawyers quote Mr Zuckerberg saying that if Facebook had not created its network when it did, someone else would have. In a desperate attempt to bolster a feeble case, they claim that this is proof of Facebook violating Yahoo!'s patents. If that is the best they can do, then Facebook should have little to worry about if it has its day in court.
• Facebook says it also intends to defend itself “vigorously” against what it calls Yahoo!’s “puzzling actions”.
• Now it seems to be taking a leaf out of the book of other once-glorious businesses that have fallen on hard times, such as Eastman Kodak, which have tried to exploit their large patent portfolios to raise badly needed cash.
• The lawsuit has already done much damage to the firm's image.

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• Yahoo is demanding billions in licensing fees for the use of its technologies.
• "We must insist that Facebook either enter into a licensing agreement or we will be compelled to move forward unilaterally to protect our rights."
• While this battle has captured everyone's attention, what I find more interesting is Yahoo's seemingly blatant hypocrisy.
• Yahoo appears to be throwing rocks from its glass house at the neighbors by wanting to make others pay for the unauthorized use of its patented technology.
• What Yahoo is seemingly trying to ignore is that it, too, has been accused of the same type of intellectual property theft - and the accuser is Augme Technologies.
  
• In November 2009, New York-based Augme, which provides mobile marketing technologies and services, sued Yahoo in federal court in San Francisco. Augme accused the Sunnyvale, CA-based Internet company of infringing on patents related to webpage functionality which enables targeting ads to end-users.
• Two specific patents are in dispute , with potential damages estimated by some to be as high as $1-$2 billion absent potential treble damages. The suit could render Yahoo's own online advertising platform materially compromised.
  
• Thus far, things haven't gone Yahoo's way. It lost its request for summary judgment, appears to have fared poorly in the Markman ruling , lost its request to protect its code for its entire ad system and lost its request to seal at least one hearing from the public.
  
• Despite Yahoo's best efforts, a jury trial was recently set for January 2013 .
  
• With Augme's suit against Yahoo, and Yahoo's aggressive attack on Facebook, I think Augme could soon find itself at the epicenter of what is setting up to be a classic clash of the titans.
  
• The situation begs the question: what happens if Facebook moves to acquire Augme?
  
• Facebook acquiring Augme and its patents would allow them to literally step directly into Augme's shoes in the currently pending litigation against Yahoo.

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• Yahoo has done little over the years with the innovation those patents might represent. Meanwhile, Facebook has run the bases with the wide range of the advertising, messaging, customization, privacy and social networking concepts involved.
• Facebook’s entire social network model, which allows users to create profiles for and connect with, among other things, persons and businesses, is based on Yahoo’s patented social networking technology,” Yahoo’s lawsuit reads, in part.
• The company adds that Facebook has been “free riding” on Yahoo’s intellectual property and that royalty payments alone will not suffice.
• So what does Yahoo want for this alleged free ride? Triple damages and to enjoin Facebook from operating by using said patents.
• Given the scope of the patents Yahoo said it has, that means it wants Facebook to essentially close down.

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• In other words, one of Microsoft’s biggest partners just sued another of Microsoft’s biggest partners, a company in which Microsoft has a minority stake.
• Facebook has a mere 20 patents to its name, and the natural thing would be for the company to call up its minority shareholder, Microsoft, in search of a patent licensing agreement to use in its defense.
• But Microsoft is counting on its partnership with Yahoo to give it the critical mass to compete against Google in the search market.

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• • citation for chapter 23

• The United States' intellectual property laws define patents as a piece of property. The patent can be owned, typically by the inventor, given to someone, donated and even bequeathed to descendants. The U.S. Congress created a tool, called an assignment agreement, that the U.S. Patent and Trademark Office (USPTO) activates to transfer the ownership rights of a patent to another person or to an organization

• Patent Assignment Agreement

   
   
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    The agreement identifies the assignee, who may represent a person, several individuals or a corporation. The document specifies the patent number to be assigned and the geographical scope of the transferred rights. The assignment can be for all the states of the United States or a region of the U.S. The patent displays the name of the assignee below the name of the inventors.

• Legal Meaning

   
   
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    According to the USPTO, the assignment agreement gives the power to the recipient to block anyone or any corporation from using, manufacturing or offering for sale anything based on the intellectual property described in the patent. Someone needing to tap into the intellectual property must sign a business contract that grants financial returns to the assignee. Before an assignment agreement is approved, the recipient typically runs an investigation to ensure that the patent to be assigned is not superseded by a broader patent. Risk of infringement would diminish the value of the transferred intellectual property.

• Complications

   
   
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    Because a patent can have multiple inventors and several parties under the assignment, the ownership map can become complicated, Ervin says. Assignees can license their rights to others. Patent attorneys can best rationalize the conditions of assignments or licenses to ensure that all involved around the intellectual property can still operate successfully.

• License vs. Assignment

   
   
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    A license is more restrictive than an assignment. A license typically gives rights for a limited time. It may also apply to certain market segments or just a region of the U.S. The assignee has the freedom to license the intellectual property to more licensees as long as the transferred rights have not been given to another party.

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• Facebook has executed a masterful response to Yahoo’s patent trolling that protects it legally but still makes it look like the victim.
• Here I examine how for almost every patent Yahoo claims Facebook infringes upon, the social network has countersued with a stronger, more specific patent for content feed sorting, advertising, and privacy.
• Facebook will maintain the moral high ground, and likely bypass a costly settlement. But there’s none of Facebook’s blood in the water, nothing for the sharks to circle. It could have gone much worse.
• It chose the smartest of the four defenses outlined by Chris Dixon and others.
• nstead it looked through its limited patent portfolio and as Ars Technica points out, probably bought some more at the last minute, to trump each of Yahoo’s claims. It countersued with these, and brandished just one extra sword to seal the deal. That’s Facebook’s patent of people tagging in photos, a core innovation that propelled it to popularity, and that Yahoo’s Flickr blatantly copied.
• It was sued with 10 patents, so it countersued with 10 patents.
• “we do so in response to Yahoo’s short-sighted decision to attack one of its partners and prioritize litigation over innovation.”
• It doesn’t help that Yahoo stabbed Facebook in the back while relying on it for easy login and referral traffic.
• If Yahoo does infringe on Facebook’s patents, it may have been making millions of dollars a year in ad revenue thanks to improved ad targeting, and increased engagement from Flickr photo tagging and news site home page content relevance. Those could turn into damages awarded to Facebook or offset the money Facebook made from infringing on Yahoo’s patents.
• Here are the 10 patents Facebook is countersuing Yahoo with, compared to the corresponding patents Yahoo is suing Facebook with:
• Generating a Feed of Stories Personalized for Members of a Social Network
• Facebook claims that Yahoo’s Flickr Photostream, Recent Activity and Groups Activity on the Yahoo! Flickr photo sharing service copy its news feed.
• The patent counters Yahoo’s vague “Dynamic Page Generator” patent which technically covers all personalized web content. Facebook’s patent is much more specific, referring to relationships as the source of content and affinity weighting as the sorting method
• If Yahoo’s patent is enforceable, most of today’s most popular websites would also infringe upon. Because Yahoo’s patent is more likely to be ruled invalid, Facebook has the upper hand here.
• Tagging Digital Media
• Friend tagging in photos
• Headline Posting Algorithm
• AKA Sorting a content feed by matching content to a user’s interests
• This patent was seemingly purchased by Facebook from Dunkle, who invented it to power his personalized health news network HealthScout. It could cover Facebook’s EdgeRank news feed sorting algorithm which determines what order to display news feed stories in to maximize relevance.
• Method for Enabling a User to Fetch a Specific Information Item from a Set of Information Items and a System for Carrying Out Such a Method
• This patent defines creating “agents” that mirror the preferences of the users they represent. These agents can then be used to predict which ads or content will be be most relevant to a user and then displaying them.
• Customizing Database Information for Presentation with Media Selections
• While the abstract is vague, the patent essentially covers providing contextual information alongside a piece media such as a photo, video, sound, 0r text. Depending on a user’s listed interests, they might see different information. For example, alongside a song by the band U2, a user with a high stated  interest in band might see recent news about its members, while a users who are tagged as musicians would see notes on the band’s musical technique. There’s also some substantial back-end technology regarding how to store contextual data in a graph structure.
• System and Method for Dynamic Profiling of Users in One-to-One Applications, and, Architectures, Systems, Apparatus, Methods, and Computer- Readable Medium for Providing Recommendations to Users and Applications Using Multidimensional Data
• AKA Serving relevant ads based on biographical and behavior information
• System for Controlled Distribution of User Profiles Over a Network
• AKA Friending and privacy by friend list or characteristic

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• t makes perfect sense for Facebook to do this.  They are the #1 most visited website in the world, with nearly a billion members.  Yet, Facebook hasn’t monetized all these users. They had only $4 billion in revenues last year but are expected to receive a $100 billion valuation when they IPO next month.

   

  Of Google’s $38 billion in revenues last year, 96% of them came from traditional search.  There seems to be a lot of money on the table there that Facebook could pick up with a credible offering, monetized through ads they’re already going to be selling for their social network.
• • GoTo.com patent by Yahoo
• Yahoo!’s sued Facebook for patent infringement and now Facebook has counter-sued.  Yet, Yahoo! didn’t use its trump card that it used to coax a settlement out of Google in 2004: its Overture/GoTo.com patent.

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• Yahoo has had better days. Faltering revenues, relentless competitors and a deflated stock price -- now worth less than half of what Microsoft was willing to pay for the company in 2005 -- have marginalized the search engine giant.
• . Intellectual property experts say Yahoo is hoping for a sizeable piece of Facebook's advertising pie.
• Yahoo contends Facebook's online display advertising only improved after 2008, when the social media site adopted Yahoo's advertising system.
• The company is busy adjusting to a new CEO, who came on board three months ago. With the change of management came reports that Yahoo is contemplating the elimination of thousands of employees.
• Stockholders are loath to forget when Microsoft courted Yahoo with a more than $44 billion buyout bid.
• Yahoo turned down Microsoft and never reached a stock price of that proportion since.
• The court will need to decide if Yahoo actually has a case based on the merits.

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• Patentability

   
   
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    Inventions must also be deemed useful in some way. While patents were originally intended to foster industrial development, useful can now mean practically anything. In addition to utility, inventions must also be novel, in other words, the inventor must prove that the invention is new. Finally, the invention cannot be obvious. Generally, this means that a patent will not be granted if the invention is a trivial add-on to an existing invention.
• A recent challenge to the "everything under the sun" principle came in March 2010 when a judge nullified certain gene patents on the basis that they did in fact constitute a natural phenomenon.

• Patent Process

   
   
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    Once an inventor creates an invention that meets the above conditions, the inventor can apply for a patent. The patent process is complex, often expensive and generally takes around two years. Usually, inventors hire patent attorneys to complete a preliminary patent search (proving novelty) and write the patent application, including the patent claims (proving utility and that the patent is not obvious) and specifications. The Patent Office then conducts its own search, examines the application and invention, often requests rewrites, publishes the application for public review and may eventually grant a patent.

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• Yahoo is seeking an injunction and damages for alleged willful and deliberate infringement. The complaint doesn't estimate damages, but Yahoo claims that the alleged infringement can't be compensated through royalties alone since Facebook used the patented technology to boost its revenue and market share.

• The meat of the litigation revolves around patents. For decades patents have been a significant part of intellectual property law, but in recent years they have proven problematic in the development of new software and the technological innovations. Patents will now be at the heart of a cold war between two of the biggest tech companies in the world. Yahoo, which owns about 1,000 patents, is suing Facebook over 10 patent infringements ranging from Internet advertising methods and privacy controls. One of the patents is described as “optimum placement of advertisements on a webpage.” Yahoo had warned Facebook that they would sue if the social network did not agree to license the patents in question, saying that multiple other major companies had complied. Yahoo was true to their word, and called Facebook’s bluff.
• it is uncommon for this kind of litigation to be filed by large tech companies.
• And it is especially unusual to see such a legal fight over social media. In fact, this is the first of its kind.
• Since the original lawsuit a couple months ago Facebook has acquired 750 patents from IBM, in a move that analysts say is intended to bolster the newly public company in court and prepare it for a lengthy and in-depth legal showdown that is expected to last for years.
• Facebook’s new patent-purchasing is a considerably new practice for them and Yahoo says this demonstrates that Facebook is on the defensive.

• However, some technology writers think that Facebook has gained both the moral and legal high ground in this battle and refer to a few of the specific patents as examples of how not only will Facebook survive the patent war, it will likely come out on top. Three particularly notable bellwether patents that will be under review are:

   

  The News Feed
• Photo-and-media tagging
• Headline posts

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• Ten Facebook patents cited in the counterclaim:

   
   
  1. 6216133 Method for enabling a user to fetch a specific information item
   
  2. 6236978 System for dynamic profiling of users in one-to-one applications
   
  3. 6288717 Headline posting algorithm
   
  4. 6411949 Customizing database information for presentation w/media selections
   
  5. 7603331 Method for dynamic profiling of users in one-to-one applications
   
  6. 7827208 Generating a feed of stories personalized for members of a social network
   
  7. 7945653 Tagging digital media
   
  8. 8005896 System for controlled distribution of user profiles over a network
   
  9. 8150913 System for controlled distribution of user profiles over a network
   
  10. 8103611 Architectures, systems, apparatus, methods, and computer-readable medium for providing recommendations to users and applications using multidimensional data

• The counterclaims assert that specific pages on the Yahoo website infringe the above listed patents. Here are a few examples of uses of innovation by Yahoo that allegedly infringed patents now owned by Facebook:

   
   
  • Photostream,
   
  • Recent Activity and Groups Activity,
   
  • People in Photos feature on the Yahoo!
   
  • Flickr photo sharing service,
   
  • Yahoo! Home Page, and
   
  • ads displayed on My Yahoo!

• Anyone who doesn't think the patent process is broken and needs discarding should try and explain Monday's disruptive patent news. Microsoft sold 650 patents to Facebook for $550 million from a cache of around 900 patents that it just bought from AOL for $1 billion.
• In the process, Microsoft has non-exclusive rights to the same patents, as well as non-exclusive rights to 300 other patents retained by AOL.
• If Facebook is going to leverage the new patents it obtained, can Microsoft help its buddy Yahoo with the patents it still holds or the ones it is sharing?
• Meanwhile, Yahoo and Microsoft are in bed together since their recent agreement.
• What sort of patents does AOL own, anyway? This is all junk and everyone knows it.
• Here we have Microsoft, AOL, Facebook, and Yahoo loading up on every menial and bogus patent that they can get through the system. In the meantime, Oracle and Google are battling over Java patents developed by Sun to promote what was thought to be an open source or free product.
• • cOULD THE sec ACT AS AN AGENT?
    
• These same companies have no fear of expropriating a small fry's patent, knowing that the small fry cannot compete once the patent is stolen and must sue the larger company with nonexistent funds. If it does win the suit, all it gets is what it would have gotten if the large company played fair in the first place. It could be millions, but it lost the business in the meantime.
• The recent Microsoft charade of buying patents and selling the same patents make patents look like unregistered securities, not patents. Where is the SEC?

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• "All the major tech companies now are conscious of the need to have a defensive arsenal of patents to protect against litigation, which is increasing," Sterling told us. "This move is consistent with others being made in the segment, most notably Google's $12.5 billion acquisition of Motorola Mobility mostly for its patent portfolio. The move by Facebook was undoubtedly prompted by the recent lawsuit by Yahoo."