The Big Picture - Macro Perspective on the Capital Markets, Economy, Technology, and Digital Media

I find it interesting to see the debate framed in terms of huge companies battling over inventions — but to me, the much bigger concern is when giant firms rip off the smaller inventor, who often cannot afford to prosecute their claims.

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Via: Business Insurance Site

Hat tip IP Metrics

When it comes to Microsoft, I have long argued that they got lucky int heir deal with IBM. Aftewr that, pretty much everything they ever did was either ripped off from someone else — as in stolen — or a very obvious “inspired by.” (They did occasionally buy stuff as well, but not if they could avoid it).

In terms of revenue, the vast majority of their revenue comes from what I would call misappropriated technologies — if not legally, then certainly ethically.

Windows was a copy of the original Apple OS, Excel was from Lotus 123,  was Word Dont forget Microsoft the Innovator is opening retail stores; their innovation has also led to the brilliant idea to digitize 100,000 books. Even the purchase of DOS was done in a nefarious way, leading its creator to commit suicide.

And now, we find out that Bing is stealing from Google results — and in a very creepy way: “Google says it suspects Microsoft is doing this by using Internet Explorer 8 and the Bing toolbar, both of which send user data to Microsoft, to watch how people use Google.” (See Google: Bing Is Cheating, Copying Our Search Results).

No, I have never been a fan of Microsoft. A company I am on the board of sued MSFT for patent infirngment, and eventually wrested a $60 million settlement from them. One day, I will explain how Mister Softee was the prime cause of the tech bubble in the late 1990s.

But for now, let’s stick with the simple thesis: The Microsoft culture never respected intellectual property of others, and was a bully that took what it wanted.

Discuss.

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Via Focus.com, comes this informative infographic:

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click for ginormous infographic

Source:
Innovation Crisis: Job Creation Stalled by Patent Backlog, Says Pat Choate
Stacy Curtin
Yahoo tech Ticker Sep 08, 2010 09:41am

http://finance.yahoo.com/tech-ticker/innovation-crisis–job-creation-stalled-by-patent-backlog-says-pat-choate-535400.html

Earlier this month, Jeff Miller posted an interesting discussion about The Fly on the Wall litigation (lower court decision here; coverage of appellate arguments here).

For those of you unfamiliar with The Fly, it is an online service that reproduced a headline feed of Wall Street Research coverage: Upgrades, downgrades, price targets. Several firms (Barclays/Lehman, Merrill, Morgan) sued The Fly, who lost the case after a bench trial (no jury).

This was not a First Amendment case (as it might appear), but instead was about protected work product and copyright infringement. Unauthorized parties — including the iBanks’ own employees — were forwarding research to the Fly, who was excerpting the stock calls.¹

The Fly was ultimately found guilty under the theory of “hot-news misappropriation” and the plaintiffs were granted injunctive relief.

Here’s where things get rather interesting:  When determining the proper scope of injunctive relief, a court may be guided by matters of public policy. Specifically, the court noted that the granting of equitable relief, such as a permanent injunction, “may go much further both to give or to withhold relief in furtherance of the public interest than where only private interests are involved.”

Now, I would argue that this was in fact a dispute between two private parties — The Fly on one hand, and the iBanks on the other. The public interest was not in any way represented here. However, the court inexplicably found a “Public Policy Consideration:”

“It was undisputed at this trial, and explicitly conceded by Fly, that the production of equity research in general, and its production by the plaintiff Firms specifically, is a valuable social good.”

This was a terrible error by the Judge. Wall Street Research does not meet the qualifications of “Valuable Social Good.”

In my opinion, this was an error on the part of legal counsel for the Fly to concede as much. There is no evidence whatsoever that equity research by the firms involved offer any such public good. Indeed, anyone familiar with Wall Street history can demonstrate that over time, the inherent conflicts have cost the public 100s of billions of dollars. It can also be demonstrated that Wall Street research exists to serve the needs of the firm’s syndicate and IPO business, not the public.

Wall Street research is guilty of groupthink, is congenitally too optimistic (by 100% according to McKinsey) — except at bottoms, when it is too pessimistic. Often times, it is a contrary indicator. If we include the fraud of the 1990s and 2000s, Wall Street research has worked as a mechanism for extracting wealth from the public. The nicest thing I can say about Wall Street research is it constitutes a nuisance (perhaps an Attractive Nuisance) at best, and at its worst is a menace to the public.

Let’s look more closely at what the judge found in her decision about Wall Street research:

“Such research plays a vital role in modern capital markets by helping to disclose information material to the market, to price stocks more fairly and, as a result, to produce a more efficient allocation of capital.”

Equity prices are driven over time by a variety of factors: Earnings, Discounted cash flow, dividends, etc. These are facts that comes directly from the comp0anies to the public via SEC filings. They do not come from Wall Street research.

The judge is not simply wrong — she is thoughtlessly repeating a Wall Street myth about equity pricing without any evidence. Companies themselves disclose information to the public about their revenues, sales costs, profitability and earnings. What The Street’s  research generates are opinions — sometimes right, often wrong, rarely in doubt.

This myth, not coincidentally, is promulgated by iBanks as a way to help sell their products and generate commissions. Study after study shows that the more an investor trades, the worse their performance is. Pray tell, how is generating more trading activity a “public good” if it hurts investor returns?

Some hedge funds and other active traders may find these calls valuable, as they swing in and out of equities. But is that a public good? I doubt it — and the judge, despite a lack of any evidence whatsoever, appeared to merely assume so.

Indeed, according to Graham and Dodd, the factors that matter the most to the valuation of any equity are not the opinions issued from Wall Street, but are the specific factors that describe the companies actual performance over time. And as laws (such as Sarbanes-Oxeley) require, that data comes from the companies themselves — and are not subject tot hew opinions of Wall Street.

In other words, the Judge based part of her remedy on a faulty understanding of equity pricing models:

“Although the gains from immediate trading and rapid stock movement based on knowledge of Recommendations may be realized initially only by sophisticated investors, all market participants benefit from a market operating to align prices with underlying value as quickly as possible. Indeed, three decades of jurisprudence in federal securities law have built upon the understanding that investors may rely in bringing a securities fraud lawsuit on the integrity of the market price of a stock to create a presumption of transaction causation.” (emphasis added)

The judge cites “three decades of jurisprudence” that is loosely based on the Efficient Market Hypothesis — a mostly discredited view of how markets operate, whose value was eviscerated by the financial crisis.

Conclusion:  I have no opinion on whether The Fly should have won its case or not. But the remedy fashioned was based on a market urban legend that has no basis in fact. Wall Street myths have worked their way onto American legal jurisprudence. It would be helpful if attorneys could understand these myths, and at the very least challenged them in open court.

Until then, Judges are issuing orders that have no basis in reality. This does not serve investors or a “social good” in any appreciable way.

And on the possibility that future cases are against not obscure investing websites, but Google News, Yahoo Finance, or even Bloomberg, this decision could have lasting importance.

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Sources:
Lawyer: Finance firms’ suit not free-speech attack
LARRY NEUMEISTER
AP Aug 6, 2010  
http://bit.ly/cPYnq0

Website’s instant posts of Wall Street research banned
Jonathan Stempel and Grant McCool
Reuters, March 18, 2010
http://www.reuters.com/article/idUSTRE62H4NJ20100319

Barclays v. TheFlyOnTheWall.com: Hot News Doctrine Alive and Kicking; Will News Aggregators Be Next?
Sam Bayard
Citizen Media Law Project, March 23rd, 2010
http://www.citmedialaw.org/blog/2010/barclays-v-theflyonthewallcom-hot-news-doctrine-alive-and-kicking-will-news-aggregators-be

Barclays Capital Inc. v. Theflyonthewall.com, Inc. (06 Civ. 4908).

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1. The Fly did not help its case by suing a competitor for essentially the same claims the iBanks made against it.

Further, the Wall Street firms’ research had inscriptions such as “This material may not be reproduced, forwarded, excerpted, etc, without prior wrritten permission.”

The Fly’s own website had a similar disclaimer: “The material presented on this Web Site is the property of Theflyonthewall.com, Inc. and is protected by copyright. None of it may be reproduced, broadcast or resold without our permission.”

Thus, the judge appears to have found the Fly’s copyright position both novel and hypocritical.

This is astounding:

“For years, Viacom continuously and secretly uploaded its content to YouTube, even while publicly complaining about its presence there. It hired no fewer than 18 different marketing agencies to upload its content to the site. It deliberately ‘roughed up’ the videos to make them look stolen or leaked. It opened YouTube accounts using phony email addresses. It even sent employees to Kinko’s to upload clips from computers that couldn’t be traced to Viacom. And in an effort to promote its own shows, as a matter of company policy Viacom routinely left up clips from shows that had been uploaded to YouTube by ordinary users. …

“Viacom’s efforts to disguise its promotional use of YouTube worked so well that even its own employees could not keep track of everything it was posting or leaving up on the site. As a result, on countless occasions Viacom demanded the removal of clips that it had uploaded to YouTube, only to return later to sheepishly ask for their reinstatement. In fact, some of the very clips that Viacom is suing us over were actually uploaded by Viacom itself.

“Given Viacom’s own actions, there is no way YouTube could ever have known which Viacom content was and was not authorized to be on the site. But Viacom thinks YouTube should somehow have figured it out. …

“Viacom’s brief misconstrues isolated lines from a handful of e-mails produced in this case to try to show that YouTube was founded with bad intentions, and asks the judge to believe that, even though Viacom tried repeatedly to buy YouTube, YouTube is like Napster or Grokster.”

— The YouTube version of how things went down.

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See also Sony accuses Beyonce of piracy for putting her videos on YouTube

http://www.boingboing.net/2010/03/26/sony-accuses-beyonce.html

UVEX, the ski goggle maker, got a nastygram from an Olympics Committee IP lawyer, forbidding them from using any images — or even mentioning — that gold medal winner Lindsey Vonn uses their equipment.

Blonde Who Uses Our Stuff Wins Downhill (Last Name Rhymes With “Bonn”)

There once was a lawyer from the IOC,
who called us to protect “intellectual property.”

“During the Olympics”, she said with a sneer
“your site can’t use an Olympian’s name even if they use your gear.”

“No pictures, no video, no blog posts can be used…”
Even if they are old? “No!”, she enthused.

While Olympians chase gold the IOC pursues green.
Cough up millions, or your logo cannot be seen . . .

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Visit msnbc.com for breaking news, world news, and news about the economy

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Alberto Giacometti: L’Homme qui marche I

$104.3 million  (sculpture)

Hat tip CNN/Money.com

I’m a longtime fanboy of Google, an early beta tester of their search product, and one of the few on Wall Street who was allowed to speak about their IPO, as my firm was not an underwriter (I said it was “well worth buying at the IPO price”).

Color me unimpressed with their latest variant of “Don’t Be Evil.” (Google Does Non-Evil Thing).  While much of the blogosphere is agog over Google’s effort to clean out the scammers and hucksters so prevalent in the online ad world.  The search and online ad giant is banning ad companies that involve “online scams and frauds:”

“Google will begin to notify advertisers that they have been permanently banned. They will receive an email with details of this ban and the email will explain how to appeal the ban. I am told that banned advertisers can reply to the email to start the “appeals process.” Every reply should get a response from a dedicated Google representative.”

Don’t get me wrong, its a step in the right direction.

But if Google really wants to get serious about this, they would go after the many sites that host these crap ads: Cut & paste blogs, splogs, and scrapper sites. They exist solely to host all those ad scams Google is so concerned about.

Despite the many positive things I have written over the years about Google, they are unusually lackadaisical about copyright issues and unauthorized reproduction of content.  If they were to find some religion about these sites, they would kill two birds with one stone.

Let’s look at how and where they can stamp out the hosts of ad scammers and bogus advertisements now spreading over the intertubes.

Here’s a whacky idea: How about we start with Blogger, a Google property? It seems to attract an unusual number of splogs (Spam Blogs) and content scrapers. These primarily Chinese and Russian spammers then use Google AdSense to capture income on their stolen content, regardless of ad quality. Get rid of the splogs, and you also dramatically reduce demand for the junk ads.

Despite sending DMCA notices, these scraper sites persist in hanging around for a long time. They change blogger domains like most people change their underwear. Google seems to do very little proactively to hunt down these weasels.  My experience has been they do a  s l o w  job responding to DMCA takedown notices. I’ve done the DMCA fax/mail thing repeatedly, and for weeks, (and sometimes months) nothing seems to happens.

DMCA does not require an email notification — but that sure as heck would allow Google to be more proactive.

We all know Google is filled with very smart mathematicians, programmers, and deep thinkers. How hard is it to come up with an algo to scan and verify the scraper/splogs stealing content and hosting bogus adsense adverts? They should be proactively weeding out these bad elements — even if it costs them a few bucks in ad dollars.

Or, maybe they can’t do it; perhaps the vaunted Google brain trust is more PR than IQ.

Is it Don’t be evil? or “Don’t bother us . . .?”

A friend asked me an interesting question over the weekend: What was the thing about writing the book that surprised you the most?

Lots of things about the process were pretty much as I expected. The deadlines, the structural changes, the battles with publishers/editors — were all pretty much as you would imagine. The importance of having good researchers was also what I anticipated.

It was my first book, and as it turns out, quite a few things about the entire process were not what I expected:

• It took much longer: When McGraw Hill approached me about doing a 30,000 word book, I figured, no big deal! I write 5-10,000 words a week — how hard can it be to bang out 30,000?

Answer: A lot harder than I thought. The subject matter kept shifting, my original focus was wrong, and had to be modified, oh, and the book ended up being about double that length. (Mike Panzner was dead on about this being more than you would expect).

• Books last a long time: About half way through, you realize that this thing could easily outlive you. Suddenly, a sense of ownership and pride and desire to do a really good job begins to gnaw at you. A book could live many years beyond its author. The time pressure begins to wear, and you realize that you need another solid month (or three) of rewrites and polish — and you don’t have it.

• Lack of socializing is wearing: Yes, writing is quite solitary. From June to December, there was almost no social interaction outside of work and home. I never expected to become such a pariah — no weekends at the beach, very little in the way of going out with other couples. It was, not surprisingly, isolating. Its a small niggling thing that begins to eat at you and becomes more of an issue than you would have guessed.

• Need input! The process of researching and writing meant limited tv, NO movies, NO (non-bailout) related books, NO NOVELS. It was all encompassing, somewhat overwhelming, and a little bit depressing (need input!)

I haven’t been to movie theater since before June 08.

Since the manuscript went in, I have seen: The Lady Eve, The Bank Job (2007), Forgetting Sarah Marshall, Casino Royale, There Will Be Blood, Something About Mary, Stalag 17, The Dark Knight, I am Legend, Iron Man, Michael Clayton, 300, Elizabeth, Hairspray, Ratatouille and Superbad.

• Writing and Speaking use two different parts of your brain. I have voice recognition software at home and in the office. I’ve always known that speaking and writing were different — certain brain damage (aphasias) leaves its victims the ability to write but not speak (and other surprising variations) — but they were so utterly different, so surprising in the ways they used such different cognitive skills, that I found I simply could not dictate the book. Dictation seemed to read terribly.

If you are counting on dictation to write a book — don’t. Not at least until you try it.

• Forget trying to be encyclopedic: In my mind, I thought of this book as the be all end all on the subject. It slowly became apparent that wasn’t going to happen.

Being narrowly focused turned out not only to make it easier to write, but kept the emphasis on what mattered most. I think this made the book better than if it were more exhaustive.

• Collaboration can be a joy: I originally tagged my Street.com editor, Aaron Task (now at Yahoo Tech Ticker) to edit the work. As the deadlines ticked past — I was maybe 65% done with a month left to go — I decided I needed more of a collaborator than an editor.

And I was horrified at the thought of it.

I was pleasantly surprised by how easy the process was. Aaron put everything on Google Docs, we could both edit the same docs back and forth; leaving notes for each other about content, style, order. He organized things much better than I, kept the editing and writing process on schedule, allowed me to refine the structure without going too far astray. He is one of those rare editors that actually makes your work better, yet let’s you retain your own voice.

• Being stuck indoors all the time sucks: During the Summer, I put curtains up in the home office so I didn’t have to see what gorgeous weather I was missing. I tried to write outdoors on the laptop, but it was a pain.

My new motto: Never start writing a book in the Spring. Begin writing in the Fall, pound the keyboard throughout the miserable Winter weather, and finish before the boat goes in the water in May.

• Deadlines are flexible — until they are not. I missed the August 15 deadline with no problems. Thank goodness, too — imagine a book on Bailouts omitting most of the bailouts? Next deadline, November 15, went by with nary a peep. By December 1, McGraw Hill was freaking out. Everything was in by 12/15.

• It physically beats you up.  I never expected writing to be so physically demanding. My lower back ached, my torn rotator cuff flared up, my mouse arm was always sore. I never had carpal tunnel, but damned if my hands and forearms didn’t ache all the time. Years ago, I worked in a firm in where a masseuse visited every other week — this girl gave hand massages that were better-than-sex; I would kill to find her again.

Look, no one is going to confuse writing with picking cotton or rice farming or moving furniture — but those are supposed to be back breaking labor; This wasn’t.

Dorothy Parker was onto something when she said “I hate writing but love having written.”