Category Archives: Intellectual Property

Gilder’s Life after Google

Even though one online reviewer called it “[a] random walk through Silicon Valley without any goal, valuable information, conclusions or anything other than what would fit a gossip magazine”, Gilder’s book provides a grand thesis with very deliberate underpinnings.  There are certainly many other books and articles out there that better inform regarding blockchain.  Nevertheless, Gilder explains exactly why blockchain will in the future help cause Google lose its digital stranglehold.  For that, his book largely stands alone.

Gilder has had close access to the elite tech digerati for decades. There is no denying he knows what and who he is talking about. The writing style, however, will not be everyone’s cup of tea.  For example, applying a straw man style, he often builds up only to take down later in the book. This can easily be frustrating to readers.  Also, an imagined meeting with Satoshi Nakamoto – the pseudonymous founder of Bitcoin, can either be considered a highlight of the book or downright hokey based on one’s literary taste.

To Gilder, Google’s downfall largely rests on its giving away free products without fully understanding how this zero-sum system neglects the value and impact of consumer time on Google’s $30 billion dollar Siren Servers – a Jaron Lanier term used to convey the eventual death spiral of a company blinded by its 75,000 server farm.  Gilder reminds:  “Without prices, all that is left to confine consumption is the scarcity of time”.

Interestingly, Jaron Lanier as well as Peter Thiel feature predominately in this book as the existential fodder for much of Gilder’s musings. The true sparkle, however, remains pure Gilder – including his view that Google’s fall is precipitated on the behemoth’s not fully understanding true wealth can only be a product of knowledge.  As Gilder suggests, “wealth is not a thing or a random sequence. It is inextricably rooted in hard won knowledge over extended time.” How he eventually connects the many dots found in the book is worth the read despite the haphazard approach.  And, despite valid style criticisms, given so few are walking down this exact path, Gilder’s trailblazing can only be lauded.

Using pokes and outright direct digs on failed exercises of socialism and a “World Saving” Artificial Intelligence fealty pursued by Elon Musk, Gilder’s libertarian bent thankfully expresses a brighter vision where creativity and humanity win out.  He is on point – just ask Tim Berners-Lee about his startup, Inrupt to get additional perspective on Google.  And, the trust layers exemplified by Blockstack and Hashgraph are certainly aiming to tear down the current global ecosystems founded by the Tech Lords of Cali.  Ultimately, in futurist Gilder’s vision, individuals win when they can more easily trust and be secure in their interactions.

Those seeking an actual name for the specific Google killer app will be disappointed. This book does not tell its readers which business vision will launch the “killer app” required to actually break the status quo.  Readers are provided with an abstract roadmap lacking in specific directions because that specific app has not been publicly announced yet and will likely not be released for another 24 months.

Utility tokens are not a “bad idea”

In his February 8, 2018 opinion piece, Santander’s Julio Faura suggests that “utility tokens are a bad idea” because it would be a “lie to ourselves” to suggest ICOs were not actually selling securities.  Rather, in Mr. Faura’s opinion “we should collectively work on a framework to build a clearly defined scheme for ICOs, recognizing from the very beginning that they are securities.”  And, this “ICO process should be designed in collaboration with regulators to comply with securities law.”  Mr. Faura’s opinion piece does not exist in a vacuum.  In a report dated February 5, 2018, Goldman Sachs Group Inc.’s global head of investment research suggests that investors in ICOs could possibly lose their entire investments – which ties to Mr. Faura’s underlying premise that ICOs should be regulated “to protect investors”.

It is not clear how his proposed hybrid solution would ever get implemented given it requires complete buy-in from capital markets and regulators so would be a non-starter from day one – why would existing financial institutions and regulators scuttle existing methods of raising capital or attempt to squeeze ICOs under traditional securities law even if considered a sale of securities?  Answer:  They would not.  Ripple – a company partially funded by Santander InnoVentures, offers a glimpse on how traditional financial markets will compete using blockchain technology.

Mr. Faura paints all sales of cryptocurrencies with the same brush by claiming each one of them actually offers securities subject to SEC scrutiny.   That is simply not the case.  Indeed, does Mr. Faura wonder why the SEC has not knocked on Ripple’s XRP “digital asset” door even though it trades on numerous exchanges?  Even though there was no formal ICO to launch that centralized token, it now trades on 18 platforms where “individual purchases” of the XRP coin can be made.  Indeed, after raising over $93 million by September 2016, no ICO was needed.

One ICO left untouched by the SEC was “gate keeped” by Perkins Coie and involves an ICO for a utility token that raised $35 million in under a minute’s time.   This “BAT utility token” creates a digital advertising ecosystem tied to consumer attention – which is why it is the “Basic Attention Token”.  Such ecosystem would certainly be an upgrade from the current digital advertising scheme wedded to the Web ecosystem of 1995.

All told, it seems that the SEC and other regulatory bodies have actually taken a very measured approach in this area – aggressively focusing on obvious fraudsters first in order to deter subsequent fraudsters while letting the technology play out a bit in the wild.  Not surprisingly, the plaintiff’s bar has been doing a good job picking up the slack in those instances when the SEC has not yet moved.   See Davy v. Paragon Coin, Inc., et al., Case No. 18-cv-00671 (N.D. Cal. January 30, 2018) and Paige v. Bitconnect Intern. PLC, et al., Case No. 3:18-CV-58-JHM (W.D. Ky. January 29, 2018).

Recent public SEC statements seem to back this interpretation of their ICO position. On February 6, 2018, SEC Chairman Jay Clayton recently testified that the potential derived from blockchain was “very significant” – his co-witness, CFTC Chairman Christopher Giancarlo, went so far as to say there was “enormous potential” that “seems extraordinary” for blockchain-based businesses.  Yet, during his testimony, Chairman Clayton said the SEC would continue to “crack down hard” on fraud and manipulation involving ICOs offering an unregistered security.  This is consistent with prior messaging given that Chairman Clayton requested on December 11, 2017 that the SEC’s Enforcement Division “vigorously” enforce and recommend action against ICOs that may be in violation of the federal securities laws.  The fact some 2017 ICOs raising hundreds of millions of dollars were not addressed by the SEC, however, provides a clear “nudge wink” that not all ICOs come under SEC regulatory control.

As with BAT, in the future, there will likely be many more utility tokens built on disruptive blockchain initiatives that escape SEC scrutiny given they are not perceived as securities.  The fact that the SEC has not yet moved on them – despite moving against Munchee, Inc. weeks after the Munchee MUN offering, signals the SEC will temper its enforcement activities when faced with a disruptive blockchain initiative that begets true intrinsic value.   In other words, utility tokens may very well be a good idea after all.

World Intellectual Property Day

Happy World Intellectual Property Day!

To increase IP awareness around the world, member states of the World Intellectual Property Organization (WIPO) chose April 26  the day when the WIPO Convention came into force in 1970  as World IP Day.  According to WIPO, World IP Day celebrates innovation and creativity and how intellectual property fosters and encourages them. To celebrate this day, what follows is a discussion of four significant US court rulings decided in April 2012 each involving one of the major IP domains:   patent, trademark, copyright and trade secret.

Communications Involving Patent Settlements are Discoverable

On April 9, 2012, the United States Court of Appeals for the Federal Circuit ruled that communications involving reasonable royalty rates and damage calculations were discoverable.   Specifically, the Federal Circuit ruled that such communications that may underlie settlement agreements were not worthy of creating a new federal privilege.   In re  MSTG, Inc., No. 996 (Fed. Cir. April 9, 2012).   There was previously an open question as to whether settlement discussions were privileged and not subject to disclosure.  The Sixth Circuit in Goodyear Tire & Rubber Co. v. Chiles Power Supply, Inc., 332 F.3d 976, 979-83 (6th Cir. 2003) adopted a settlement privilege while such a privilege was rejected by the Seventh Circuit in In re General Motors Corp. Engine Interchange Litigation, 594 F.2d 1106, 1124 n.20 (7th Cir. 1979).

In rejecting MSTG’s request to create a settlement privilege that would protect the reasonable royalty rate discussions had with other defendants, the Federal Circuit distinguished Fed R. Evid. 408. According to the court, Fed. R. Evid. 408, only addresses the inadmissibility of settlement discussions (for purposes of showing the validity or amount of a claim) and does not expressly prohibit the discovery of such material.   Id. at 11 – 12.   Finding there was no good reason to create a new privilege under the circumstances, the Federal Circuit found communications underlying settlement discussions to be fair game at least so long the requests otherwise comport with the rules of discovery.

Given the In re MSTG, Inc. decision, future patent plaintiffs will now have to contend with the possibility of disclosures being made on sensitive settlement discussions. This decision is noteworthy given that settlements are sometimes done for strategic reasons that may not be directly tied the relative worth of the settled patents – one settlement against a competitor may yield very different results as against another competitor.  Moreover, it may make it more difficult to settle patent disputes if a patent holder feels it needs to establish a certain record it can use in future disputes. This is further complicated by the fact patent litigation may eventually reach new heights with the September 2011 passage of the Leahy-Smith America Invents Act and the current status of patent portfolios as a competitive currency for very large corporations.   Microsoft’s $1.1 billion purchase of 925 AOL patents and Facebook’s subsequent purchase of 650 of these Microsoft/AOL patents for $550 million are illustrative of this competitive currency approach to patents.  No matter how the patent litigation landscape changes down the road, plaintiffs now need to take a structured and strategic approach to settlement discussions given what is said in one case can very well impact the results of future litigation.

Keyword Trademark Cases Remain Viable

In this latest of a long line of cases against Google for keyword trademark infringement, a surprise appellate decision was handed down on April 9, 2012.   Rosetta Stone Ltd. v. Google, Inc., No. 10-2007 (4th Cir. April 9, 2012), reversing, Rosetta Stone Ltd. v. Google Inc., 730 F. Supp. 2d 531 (E.D. Va. 2010).   In reversing portions of the lower court’s summary judgment grant in favor of Google, the Fourth Circuit reinstated plaintiff’s direct infringement, contributory infringement and dilution trademark claims.   In reviving the direct infringement claim which only involved a likelihood of confusion analysis, the court ruled that even well-educated, seasoned Internet consumers are confused by the nature of Google’s sponsored links and are sometimes even unaware that sponsored links are, in actuality, advertisements.   At the summary judgment stage, we cannot say on this record that the consumer sophistication factor favors Google as a matter of law.   Id. at 24 – 25.   In fact, the Court noted, such uncertainty may constitute “quintessential actual confusion evidence.”  Id. at 22.  The Fourth Circuit relied on various internal Google studies analyzing consumer confusion in connection with sponsored links, including studies that concluded “the likelihood of confusion remains high when trademark terms are used in the title or body of a sponsored link appearing on a search results page and 94% of consumers were confused at least once.”  Id. at 21.

This decision stands in sharp contrast to other decisions that have ruled on this particular likelihood of confusion issue. Previously, courts have found that in an age of sophisticated Internet users, it makes little sense to continue with the notion that users will be confused between sponsored results with trademark-protected keywords and standard search results or even by domain names containing trademarked words.  See Network Automation, Inc., v. Advanced System Concepts, Inc., 638 F.3d 1137, 1152 (9th Cir. 2011).

The contributory infringement claim was revived given Rosetta Stone provided Google with approximately 200 instances of counterfeit products found on sponsored links.  This was deemed sufficient to raise a question of fact regarding Google’s knowledge of identified individuals using sponsored links to infringe Rosetta Stone’s marks.  Rosetta Stone Ltd. v. Google, Inc., Slip Op. at 30.  The Fourth Circuit also reversed summary judgment on the dilution claim given the lower court applied the wrong standard when applying available defenses to a dilution claim under the Lanham Act. Id. at 39 – 41.  This and other technical errors made by the lower court claim may be a short-term victory for Rosetta Stone given on remand the court will ultimately determine whether Rosetta Stone’s brand was famous in 2004 – if it was not, the dilution claim is lost.  Id. at 47.  This may be a difficult burden for Rosetta Stone since the court recognized the brand actually became more famous in the years after 2004.  Given the dilution reversal was based largely on technical deficiencies in how the lower court interpreted the fair use defense, the Fourth Circuit missed an opportunity to opine on the more interesting question of whether or not Rosetta Stone could even bring a dilution claim as against Google given there is a very real question as to whether Google sufficiently used the Rosetta Stone marks in commerce.  Id. at 39-40.

The ultimate significance of this case may eventually pivot outside of the search engine context.  For example, despite the solid body of law that continues to sanction keyword marketing, contextual advertisers may benefit from reevaluating their use of keyword triggers associated with famous marks.   And, likelihood of confusion inquiries may reach a new realm with augmented reality devices such as Google’s Project Glass given advertisers may be able to physically guide users towards products and services based on verbal commands and trademark usage all the while without a single trademark being displayed.

DMCA Safe Harbor Provisions Raise Copyright Infringement Questions of Fact

On April 5, 2012, the Second Circuit reinstated Viacom’s long-running copyright infringement action against YouTube.  Viacom Intl., Inc. v. YouTube, Inc.,�Nos. 10-3270-cv, 10-3342-cv (2nd Cir. April 5, 2012).   In its ruling, the court offered an analysis regarding the complete safe harbor framework available to online service providers under the Digital Millennium Copyright Act (DMCA), 17 U.S.C.  512.  It also reaffirmed that the DMCA safe harbor provisions can protect a defendant from all affirmative claims for copyright infringement, including claims for direct infringement, vicarious liability, and contributory liability.

At its most basic, the Second Circuit found that existing questions of fact regarding YouTube’s level of knowledge precluded summary judgment.  Viacom’s five-year suit for direct and secondary copyright infringement previously came to a halt when the trial court found that YouTube was protected by the DMCA’s safe harbor provision given it had insufficient notice of the particular infringements in suit.  Viacom Intl., Inc. v. YouTube, Inc.,718 F. Supp. 2d 514, 529 (S.D.N.Y. 2010).  Under 512(c)(1)(A), safe harbor protection is available only if the service provider:

(i) does not have actual knowledge that the material or an activity using the material on the system or network is infringing;

(ii) in the absence of such actual knowledge, is not aware of facts or circumstances from which infringing activity is apparent; or

(iii) upon obtaining such knowledge or awareness, acts expeditiously to remove, or disable access to, the material

Viacom Intl., Inc. v. YouTube, Inc., Slip Op at 15 (citing 17 U.S.C.  512(c)(1)(A)).  The lower court held that the actual knowledge and the “facts and circumstances” requirements both refer to knowledge of specific and identifiable infringements and not mere general awareness of infringing activity.  Viacom Intl., Inc. v. YouTube, Inc., 718 F. Supp. 2d at 523.  Although it affirmed this ruling, the Second Circuit further distinguished as follows:

The difference between actual and red flag knowledge is thus not between specific and generalized knowledge, but instead between a subjective and an objective standard. In other words, the actual knowledge provision turns on whether the provider actually or subjectively knew of specific infringement, while the red flag provision turns on whether the provider was subjectively aware of facts that would have made the specific infringement objectively obvious to a reasonable person.

Viacom Intl., Inc. v. YouTube, Inc., Slip Op at 17.  Parting company with the lower court, the Second Circuit found that the current state of facts raised triable questions of fact regarding these two tests.  Id at 20 – 22.  The remand was to determine specific instances of knowledge or awareness and whether such instances mirror the actual clips-in-suit.  Id. at 22.

The Second Circuit also offered the doctrine of “willful blindness” a concept not referenced in the DMCA as yet another means of demonstrating actual knowledge or awareness of specific instances of infringement.   To that end, it remanded for further fact-finding and resolution regarding whether YouTube made a “deliberate effort to avoid guilty knowledge.” Id.at 24.

In addition to the above DMCA knowledge provisions, the DMCA provides that an eligible service provider must “not receive a financial benefit directly attributable to the infringing activity, in a case in which the service provider has the right and ability to control such activity.” Id. at 24 (citing 17 U.S.C.  512(c)(1)(B)).  After reviewing this “right and ability to control” test, the Second Circuit rejected the lower court’s view that a service provider must actually know of a particular case of infringement before it can control it.  Id. at 25.   Rather, the Second Circuit chose to agree with other courts that have determined a finding of liability only requires something more than the ability to remove or block access to materials posted on a service provider’s website.  Id. at 27 (citations omitted).   And, this “something more” involves “exerting substantial influence on the activities of users” so a remand was necessitated to flesh out this standard and determine whether YouTube satisfied it.  Id. at 28 – 29.

Although in its decision the Second Circuit has provided solid authority on a wide range of DMCA safe harbor interpretive issues, the decision may ultimately provide content owners and online service providers with some potential future problems to the extent the ruling leaves the summary judgment door unpredictably ajar for future litigants.

Theft of Trade Secrets Not Necessarily a Federal Offense

On April 11, 2012, the Second Circuit overturned the eight-year sentence imposed on a computer programmer for the theft of trade secrets under the Economic Espionage Act of 1996, 18 U.S.C. 1832(a)(2) & (4) (EEA) and transportation of stolen property in interstate commerce under the National Stolen Property Act, 18 U.S.C. 2314 (NSPA).  United States v. Aleynikov, No. 11-1126 (2d Cir. April 11, 2012).   The NSPA makes it a crime to “transport, transmit, or transfer in interstate or foreign commerce any goods, wares, merchandise, securities or money, of the value of $5,000 or more, knowing the same to have been stolen, converted or taken by fraud.  18 U.S.C. 2314. The statute does not define the terms “goods, wares, or merchandise.”

The EEA makes it a crime for someone to “convert a trade secret, that is related to or included in a product that is produced for or placed in interstate or foreign commerce, to the economic benefit of anyone other than the owner thereof, and intending or knowing that the offense will, injure any owner of that trade secret, knowingly. . . steals, or without authorization appropriates, takes, carries away, or conceals, or by fraud, artifice, or deception obtains such information…” 18 U.S.C. 1832(a).

Although the defendant computer programmer was convicted of stealing computer source code from his former employer, the Second Circuit strictly construed both of these two federal laws when tossing the convictions.  Id. at 10. First, the court determined the defendant was wrongly charged with theft of property because the intangible code did not qualify as a physical object that was “produced for or placed in interstate or foreign commerce under the NSPA.”  Id. at 14 – 15.  Declining “to stretch or update statutory words of plain and ordinary meaning in order to better accommodate the digital age”, the Second Circuit held that because the defendant did not “assume physical control” over anything when he took the source code, and because “he did not thereby deprive [his employer] of its use, [defendant] did not violate the [NSPA].”  Id. at 18.  And, given that the stolen code was neither “produced for nor placed in interstate or foreign commerce given the employer had no intention of selling its HFT system or licensing it to anyone”, the EEA was not violated. Id. at 27.

The failure of the EEA to address defendant’s conduct here is problematic given the EEA was “passed after the Supreme Court and the Tenth Circuit said the NSPA did not cover intellectual property.”   Id. at 2 (Calabresi, J., concurring) (citations omitted).  The statute was apparently expressly meant to pick up the theft of intellectual property such as proprietary source code.   The concurrence by Judge Calabresi suggests that Congress should jump in to rectify this apparently significant hole in the EEA:  “While the legislative history can be read to create some ambiguity as to how broad a reach the EEA was designed to have, it is hard for me to conclude that Congress, in this law, actually meant to exempt the kind of behavior in which Aleynikov engaged. . . . I wish to express the hope that Congress will return to the issue and state, in appropriate language, what I believe they meant to make criminal in the EEA.”  Id. at 2 (Calabresi, J., concurring)

If nothing else, this decision reaffirms the need for companies to be proactive in the defense of their trade secrets.  Until Congress fixes the EEA, it is just not enough to assume that criminal conduct such as the theft of source code will rise to a federal offense.

A Data Security Trend For 2011: The Data Threat Hype Continues

The new year appears to be continuing a trend begun in 2008 — ever increasing hype concerning the level of data security threats faced by public and private entities.  This hype is not just about increasing public breach disclosures (which have primarily been driven by the increase in breach notification laws) given it also manifests in:   the perceived threat of involuntary corporate transparency brought into public view by the “Wikileaks Effect”, the fact that papers such as the LA Times are able to report as true the powerful Stuxnet worm was able to trim years off of the Iranian nuclear program, and the fact that the Organisation for Economic Co-operation and Development (OECD), in a recent report, paints a picture of a world where “[p]reventative and detective security technologies will not provide protection against all the threats [so] considerable effort will be needed to mitigate and recover from losses.”  OECD Report (dated 14 January 2011) at 82.

For example, in the LA Times article, the Stuxnet worm was removed from its unique Iranian context and given broad scare appeal:  “Now that Stuxnet is in the public domain, experts are deeply concerned that hackers, criminals or terrorist groups could use some of the vulnerabilities it reveals to attack systems that control power grids, chemical plants and air traffic control.”

Third-party threats have indeed shifted but that shift took place over five years ago – when organized crime realized that stealing data could be more lucrative — and much safer — than traditional criminal activity.  The ego-driven hackers of yesterday may still exist in the form of the hackavists of today but they remain a minor threat compared to the threats driven by organized crime.  But that is not something new.

On the other hand, the hype that has filled the data security landscape has only risen to a fever pitch these past several years.  Not exactly sure why this is happening.  It may be the fact that more big business has entered the data security consulting/technology space – well equipped with PR firms in tow.  It may be because news organizations have found a new bogeyman that can help drive sales.  It may just be the case reporters and pundits truly feel the hype is justified.

No matter what the cause, one thing is for certain.  This hype does not help companies or governments better protect themselves.  Employees faced with this barrage of hype may be just a bit more lax — thinking there is little they can really do to prevent a theft.  This would be a grave mistake given that a significant source of data loss incidents is directly tied to employee negligence.   As well, if hype causes a CFO to think that state-sponsored incidents such as Stuxnet may be an imminent threat, he or she may suggest diverting resources from more important initiatives like employee training.

There are obviously ongoing data security threats faced by companies that are very real and not going away any time soon.  Marching into 2011, focused companies will weed the hype and address these many challenges utilizing a cost-effective risk management approach.   And, should they need legal or consultative advice, they will choose seasoned partners with the lowest volume setting.  Smart companies realize that succumbing to the hype is a zero-sum endeavor that will only benefit those who feed off the hype.

NJ Supreme Court: Fired Employee Can Use Stolen Confidential Documents

In a decision that might have significant ramifications in future discrimination and whistle-blower lawsuits, the New Jersey Supreme Court  ruled in Quinlan v. Curtiss-Wright Corp., No. A-51-09 (N.J. Sup. Ct. Dec. 2, 2010) that an employee who copied 1,800 of pages of documents that she came upon during the normal course of her work — many with confidential information — could share them with the  attorney representing her in a lawsuit against the employer.  The Supreme Court allowed the usage of these documents even though the plaintiff signed her employer’s standard confidentiality agreement that bars employees from using confidential information for private use.

According to the dissent:

From this point forward, no business can safely discharge an employee who is stealing highly sensitive personnel documents even as she is suing her employer and disregarding the lawful means for securing discovery. Moreover, lawyers may think that, even after they have initiated a lawsuit, they can accept pilfered documents and benefit by using them to surprise an adversary in a deposition rather than abide by the rules of discovery.

Although the decision did reaffirm the ability of an employer to fire an employee for the theft of confidential documents, it provides for a potential safe harbor to the extent such documents are used in a subsequent suit for discrimination.   Newspapers as well as law firms have written on the decision, including Lowenstein Sandler, Proskauer Rose, Jackson Lewis, and Fox Rothschild.

Commentators have suggested that employers implement comprehensive confidentiality policies that are  communicated firm-wide and uniformly enforced.  Although that is certainly sound counsel, it is also suggested that adequate security measures be implemented that allow employers to prevent or at least track the copying and removal of over one thousand documents.  Moreover, although not discussed in either the ruling or subsequent  commentaries, there is only a minor leap to be made to extend this holding to whistle-blower suits.  Although choice of law issues remain untested, the new Dodd-Frank’s whistle-blower provisions — which allow employees to obtain significant rewards for providing information to law enforcement authorities about violations of the federal securities laws, the Foreign Corrupt Practices Act, the Investment Advisers Act and the Investment Company Act — may even be in play.   Bottom line:  New Jersey employers need to review their data security and confidentiality policies to address this new decision.

New York Metropolitan Area Tops Tech Jobs Ranking

According to a recently released report, the New York metropolitan area — including several nearby New Jersey counties — has more technology workers than any other in the United States.  The New York metro area had 317,000 technology jobs in 2009, topping a list of 60 other metropolitan areas, according to the Cybercities 2010: The Definitive Analysis of the High-Tech Industry in the Nation’s Top 60 Cities survey.   These New York metro jobs paid on average $98,500 annually and are mainly in computer systems design and related services.  

Although the New York metro area traditionally is known for being dominant in the financial sector, this report demonstrates something those in the tech/telecom industry have known for years.  Whether born out of Bell Labs in Murray Hill, New Jersey or IBM in Armonk, the New York metro area has laid claim to some of the major technology innovations of our time.  Couple those breakthroughs in core technologies with the new media leaps taken in Silicon Alley during the early days of the Internet and New York’s recipe for tech growth is quickly realized — it is all about innovation.  Those who innovate usually lead.

Ponemon Institute: Lost Laptops Cost Billions

The Ponemon Institute’s latest report, “The Billion Dollar Laptop Study,” shows that 329 organizations surveyed lost more than 86,000 laptops over the course of a year.  Based on these findings and an earlier survey that put the average cost of lost laptop data at $49,246, the total cost amounts to more than $2.1 billion or $6.4 million per organization.

Some other key findings of the report:  (1)  while 46 percent of the lost systems contained confidential data, only 30 percent of those systems were encrypted; (2) only 10 percent had any other anti-theft technologies; and (3) 71 percent of laptops lost were not backed up so all work in progress was lost.

At the release media event reported on by InformationWeek, Larry Ponemon explained that most of the cost “is linked to the value of intellectual property on these laptops and the fees associated with data breaches and statutory notification requirements.”   During this same press conference, Ponemon recounted interviewing one woman at a company who had lost 11 laptops in two years:  “She claimed she wasn’t really that careful with laptops because the only way she could get a better one was to lose it.”

It is this disconnect — the value of the information lost vs. the relative interest in the user in protecting such information — that becomes the ultimate challenge faced by most firms.   Employee training remains the front line in addressing this challenge but having employees pay for their lost corporate laptops may actually yield more desirable results.   It would be interesting to have the next Ponemon lost laptop study include the ratio of lost business laptops compared to lost personal laptops, i.e., those actually purchased by an employee.

Exposure to Software Copyright Claims

Claims arising out of internally-used software continue to be a significant retained IT risk factor.  When President Obama picked the Business Software Alliance’s General Counsel Neil MacBride for a senior Justice Department post, it was a clear message that we will see increased software compliance audits – and possible new penalties.  The increasing use of open source software is also leading to unanticipated software copyright exposures. In other words, the reasons continue to mount why users of desktop software should carefully monitor their use of software and maintain careful records of each license.

Business Method Patents Live on Another Day: Bilski Decided by SCOTUS

Today’s Bilski v. Kappos decision rejected having a Federal Circuit test for determining patentable subject matter as a “knock out” test for business methods.  If affirmed, this Machine-or-Transformation Test (if applied as the sole test) would have likely rejected all business method patent applications.  As it stands, the United States is the only country that allows for business method patents.  After today’s United States Supreme Court decision, that remains the case.

In today’s decision, the Court ruled that “business methods” can be patentable if they meet the requirements set forth in longstanding precedent notwithstanding the fact they do not “recite a particular machine or apparatus, nor transform any article into a different state or thing.”  Although the Court ruled that the Machine-or-Transformation Test remains as a helpful tool when resolving patentable subject matter questions, it should not be considered a “knock-out” test.

This is a huge win for financial institutions and software companies with strong patent portfolios — as well as those law firms who help build and protect those portfolios.