The MTTLR Blog

Microsoft’s long awaited cloud computing platform, Azure, opened for business this week.  Now available in 21 countries, the platform comes with a flexible and transparent payment schedule.  This might not sound as nifty as the iPad, but startups with small budgets are sure to take notice, particularly with the free trial options Microsoft is offering.  Azure represents a major step in the development and dissemination of cloud computing, as Microsoft associates its stable, business-oriented brand appeal with the cloud.

In December, MTTLR reported on the regulatory problems posed by cloud computing.  Weighing in on this ongoing debate two weeks ago at the Brookings Institution, Microsoft’s General Counsel Brad Smith suggested the role the United States government should take in regulating cloud computing.  A recent survey, commissioned by Microsoft, concluded a majority of Americans use cloud computing services despite being unfamiliar or only vaguely familiar with the concept of cloud computing.  These survey results could be misleading, as even industry leaders seem to disagree on the proper definition for cloud computing, but the survey does highlight the significant knowledge gap that presents one of cloud computing’s biggest challenges:  What happens when most Americans store their emails, financial files, photographs, and other personal information in something as nebulous as (appropriately) the cloud?

Several indicators point strongly toward regulation:  Transaction costs of public action on this matter are extremely high, the knowledge gap between users and providers is severe, and the chance of getting caught misusing information obtained over the internet is… well, certainly not a sufficient deterrent.  Microsoft suggests a federal regulatory scheme that takes a three pronged approach, addressing issues of privacy, security, and international sovereignty. 

Microsoft’s statement about the privacy and security of consumers and businesses is obviously well-timed and serves to strengthen reliance on Azure.  It also raises questions about whether or not it is desirable to impose comprehensive regulation on the internet.  Nonetheless, their proposal for regulation is persuasive, and contributes significantly to an ongoing debate that is sure to ramp up in 2010.

I posted a few weeks ago about the Supreme Court’s decision to temporarily stay YouTube streaming in the Proposition 8 trial.  As expected, the Supreme Court later extended its temporary stay into a permanent block of the proposed stream.  The Northern District of California had to change its rules to allow for the streamed video, and the Supreme Court held that it did not properly followed the guidelines for changing its rules.

Instead of taking the ruling lying down, filmmaker and journalist John Ireland decided to take the law into his own hands by creating a re-enactment of the trial.  Ireland is filming the project with professional actors who are volunteering their time.  The episodes can be found at MarriageTrial.com or YouTube.  MarriageTrial.com also contains a wealth of other information related to the case, such as a link to the day-by-day trial transcripts.  Currently, the first episode is complete and ready for viewing.

From a technical/efficiency standpoint, it’s hard to imagine solar energy not becoming a significant contributor to our national grid.  Unlike conventional energy sources, photovoltaic cells contain no moving parts, produce minimal waste heat, and have no thermodynamic losses from fluids.  Of course, they emit no pollution and, operate safely and silently.

Unlike other energy sources, solar cells can be fully integrated into individual buildings throughout urban areas, minimizing transmission losses.  As their energy densities rise and production costs fall, solar cells are positioned to become attractive environmental and economic alternatives to traditional sources of domestic power.

Obama announced a three-part funding increase for clean energy at the annual meeting of the National Academy of Sciences in April, 2009:

• The creation of a new research agency (ARPA-E), modeled on the defense-minded DARPA, to research alternative energy sources with a proposed $400 million budget.
• Designating 46 universities and research agencies as ‘Energy Research Frontier Centers,’ and providing them with $777 million in research grants.
• Creating a link (RE-ENERGYSE) between the Department of Energy and the National Science foundation to promote energy careers among students.

In addition to environmental and efficiency benefits, Obama is using green energy as a much-needed injection of skilled positions to help ease strains on domestic employment.

Last May saw over $467 million of federal funding devoted to renewable energy from the American Reinvestment and Recovery Act.  The Department of Energy has earmarked $117.6 million dollars of this funding to the research and implementation of new solar technologies.  The bulk of this ($51.5 million) will be devoted to photovoltaic technology research.

In May 2008, the California Supreme Court held that the Equal Protection Clause of the California Constitution required same-sex marriages be recognized. However, the voters passed Proposition 8 just a few months later, redefining marriage as only between a man and woman. Last May, after a second round in the state courts, the California Supreme Court upheld the state constitutionality of Proposition 8. The court’s ruling eliminated the right of same-sex couples to marry, but the court rejected the nullification of the marriages of couples that had already received marriage licenses.

Today marked the next phase of the battle, a challenge to Proposition 8 under the United States Constitution. The plaintiffs are attempting to show that the sponsors of Proposition 8 unconstitutionally proposed the amendment with discriminatory intent.  The plaintiffs hope to make such a showing by placing the sponsors on the witness stand.

Last Wednesday, Chief U.S. District Judge Vaughn Walker in San Francisco ordered a delayed YouTube stream of the trial. However, the Supreme Court has issued a stay for the YouTube streaming (streaming to other rooms within the courthouse will continue).  According to the stay, it will expire on Wednesday at 4PM unless extended. The stay contained no reasoning as to why it was ordered, however, one would think that the court worried about witness harassment. Justice Breyer, while pleased at the limited duration of the stay, dissented by cursorily arguing that delayed video streaming would not cause irreparable harm.

On December 24, 2009, the Senate passed a landmark health care reform bill. Included within the Patient Protection and Affordable Care Act is the Biologics Price Competition and Innovation Act, which contains provisions for the regulation of cheaper versions of biologic drugs. While an abbreviated pathway already exists for generic chemical drugs to gain FDA approval, similar regulations are not in place to bring less expensive versions of biologic pharmaceuticals, known as biosimilars, to the market. However, differences in the structure and function of biologic as compared to chemical drugs preclude the simple extension of current legislative provisions for generics to also apply to biosimilars.

Chemical drugs are the traditional small-molecule pharmaceuticals, often compounded into tablets and capsules, that the public is most familiar with. Biologic drugs are relatively new, having only entered the market in the 1980s, and have revolutionized treatment for many serious diseases, including cancer and HIV. The two drug types follow separate pathways towards FDA approval. The approval of new chemical drugs is regulated under the Federal Food, Drug and Cosmetic Act (FDCA), while biologics fall under the Public Health Services Act (PHSA). Biologics are a fast-growing area of drug research, with over 250 biologic drugs already approved by the FDA, and hundreds currently in development.

Traditional pharmaceuticals are created from combining chemicals and reagents in inert reaction vessels, whereas biologics are made from proteins produced within living cells, plants, and animals. An important difference between chemical drugs and biologics is that biologics have the ability to elicit an immune response. Chemical drugs are not recognized as foreign by the body’s immune system, but biologics can stimulate the production of antibodies. An immune response can cause an allergic reaction and more seriously, deplete naturally occurring proteins in the body, causing serious and sometimes fatal conditions. For some patients, biologic drugs have provided therapeutic relief beyond what chemical drugs are able to achieve, but at a steep price. Biologics are on average over twenty times more expensive than chemical drugs per day and can cost up to hundreds of thousands of dollars per year for a patient. The cost can be attributed in part to the higher expenses associated with research and development. Raw materials for biologics cost 20-100 times more than for chemical drugs, and manufacturing facilities take years to establish and hundreds of millions of dollars for building and maintenance. The high price for biologics also results from a lack of competitor products on the market, which has contributed to the growing push for less expensive versions of branded biologic drugs.

In the 1980s, public concern grew over the rising cost of pharmaceuticals. In response, the Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as the Hatch-Waxman Act (HWA), created two abbreviated pathways for the approval of generic pharmaceuticals. The HWA explicitly amended the FDCA only and not the PHSA, leaving no clear route for the approval of generic biologic products. The HWA has been successful in encouraging the entry of generics to the market and reducing drug prices. The Generic Pharmaceutical Association (GPhA) reports that generics comprise 69% of the total prescriptions dispensed in the US, but only 16% of dollars spent. However, even if similar provisions for biosimilars are created, they are not expected to yield the same cost savings as generic chemical drugs.

Differences between chemical and biologic drugs affect the ability of generic manufacturers to create similar products that can be sold more cheaply. For chemical drugs, innovator and generic companies can use different processes to synthesize identical molecules. For biologics, innovators maintain that “the product is the process” and since generic firms do not have access to proprietary information regarding manufacturing, they cannot produce an identical product. Adding to the difficulty in creating generic versions of biologic products is that biologic drugs are typically 100-1000 times larger than chemical drugs and unlike chemical drugs, the structure of biologic drugs cannot be fully characterized with current technology. Under the HWA, generic firms do not need to provide their own clinical data, which can result in significant cost savings that can then be passed on to consumers, but given the potential for biologic drugs to produce immune responses, biosimilars may need additional clinical testing to ensure safety. According to GPhA, generic versions of chemical drugs cost 30-80% less than brand-names, but the group predicts savings for biosimilars will be 10-25%. The Congressional Budget Office estimated that during the first year of competition, the discount on biosimilars would be 20-25% and increase to 40% by the fourth year.

The first bill for biosimilars was introduced in Congress in 2006. Since then, multiple bills have been introduced in both the House and Senate. Other nations, including the European Union and Canada, have already implemented regulation of biosimilars. The recently passed Senate bill allows for the approval of biosimilars that show no clinically meaningful differences in safety and efficacy from the innovator product, which must be established using analytical testing, animal data, and clinical trials. A biosimilar may be declared interchangeable with the innovator after it has been shown that the biosimilar drug produces the same clinical effects and there are no adverse effects from switching the products. Similar to the HWA, the Senate bill provides an accelerated route for litigation between innovator and generic firms to expedite the identification of patents that are potentially infringed. While the HWA provides 5 years of market exclusivity to innovator products, the Senate bill grants 12 years of market exclusivity to innovator biologic drugs. The Senate bill must be merged with the House bill passed in November to create a final health reform bill, but the key provisions for biosimilars are similar under both bills, so it appears that the US may soon have a pathway in place for the approval of cheaper biologic drugs.

PC World wrote a story that people arrested for DWI during holidays in Montgomery County, Texas will have their names put up on Twitter by the local district attorney.  So far Brett Ligon’s tweets haven’t included any names although there sure is a lot of information about DWI activity in his county.

Although it’s apparently not an uncommon practice for newspapers to put up this kind of information, Twitter obviously distributes this information far further than any local papers.  A Google search of a persons name will reveal tweets although it’s not clear how recent the post would have to be.  It’s also not clear that names would be removed if people were exonerated.  The prosecutor’s office has said they will only post arrests that are “strong enough to prosecute.”  Despite the fact that conviction rates for DWIs are quite high, charged and convicted are still not the same thing.

One place where this information could be quite harmful is if someone were to look for a job.  A DWI arrest could be enough to keep somebody from being hired irregardless if the charge was dropped, the person was exonerated or if the record was sealed or purged.

It’s been seventeen years since I tore the wrapping paper off my G.I. Joe Battle Wagon.  I believe I ended its electronic-missile-firing life a few months later with a poorly thought out tour through the bathtub.  But nearly a score later, it’s not so certain that the Battle Wagon would have had a life to begin with, at least without a lot of testing and retroactive product liability in the form of the Consumer Product Safety Improvement Act.

This is the first Christmas since the testing requirement of the Consumer Product Safety Improvement Act was made effective for toys (the lead ceiling currently has a one year stay).  The bill sailed in the wake of the lead paint scare for toys made in China and nearly passed unanimously (lone wolf – Ron Paul) in the House.  The Act covers all children’s products, or any product intended primarily for children under 12.  This would include hard-to-access microchips in toys and other items not readily removable. 

A key provision of the bill is its requirement that all children’s products be tested by third-parties.   It isn’t enough for the materials to be of reputable quality; samples of every component must be tested.  Writing in Forbes, Walter Olson catches the first wave of unintended consequences.  “[N]ew kids’ goods will all have to be subjected to more stringent ‘third-party’ testing, and it will be unlawful to give away untested inventory even for free.” While retailers aren’t required to test themselves, they will be subject to liability if the products don’t conform to the regulatory standards. 

The Act contains specific limits for lead content.  In addition to reiterating a ban on lead paint, the Act limits lead in other components to less than 300 ppm.  In the Wall Street Journal, Richard Posner likened the Act to “killing a gnat with a bazooka”.  “Instead of targeting the known sources of lead contamination, this ill-conceived statute extended coverage to the max…”  said Posner.  These lead limits apply retroactively as well.   But there are (very unlikely) exceptions: no testing if you can show “on the basis of the best-available, objective, peer-reviewed, scientific evidence” that a lead product won’t lead to harm.  I wouldn’t hold my breath. 

This Act can affect technology for toys in a number of ways.  The most obvious is higher costs in getting to market.  Testing is expensive, and testing the numerous components and combinations of components could be prohibitively so.  With electronics, chips are often manufactured by third parties and integrated into toys separately.  This could lead to a lot of companies doing the same testing for the same chips once integrated, even with a proven track record. 

Additionally, soldering is used in nearly all electronics, and most commercial solder contains some amount of lead.  In 2003 the EU passed the lead-limiting Restriction of Hazardous Substances Directive (RoHS), prompting many manufacturers to begin removing lead from all products, and some electronics companies such as Intel have been using lead-free materials for a few years now.  However, most commercial solders still contain lead, and lead-free alternatives by manufacturers such as Kester cost up to five times as much as their lead-based counterparts. 

A related effect is increased liability, which can both increase costs and deface a company’s public image.  Since the 1970’s lead poisoning has cast a dark shadow on paint products, of which toys are the most recent example.  Lead poisoning and its effects are real threats, and the absent sensibilities of children pose a unique risk.  To avoid potential liability and looking the part of villain, manufacturers will probably pay the “for-the-kids” premium expected by the public, even though the risk of consumption of lead in electronic goods is low compared to the potentially high testing costs.  As noted on Popehat.com, no child was injured in the lead paint scare of 2007. 

It’s hard to say what effect the Act has had on companies this past toy season.  Due to changes in the economy, sales figures probably won’t tell an accurate story as to testing costs, and initial dissidents to the legislation have tended to be on the small side.  But the potential for high costs of testing and the even higher liability for violation could limit a lot of technological toys making their way into the market.

Owners of famous trademarks are often faced with making the difficult decision that arises when their mark becomes the subject of a parody.  Spend a lot of money in court with the goal of obtaining an injunction to stop the potentially infringing use, or do nothing and hope that the parodist goes out of business.  Both choices can carry significant negative repercussions.  However, the negative side-effects can be significantly magnified in the age of web 2.0’s user created content and the unlimited potential of viral marketing.

A recent example is the suit filed on December 10 by the popular clothing company, The North Face (TNF).  See the complaint here. TNF became the subject of a parody created by a Missouri college student who began marketing and selling clothes under the name The South Butt.  The South Butt (TSB) argues that they are poking fun at those who will never set foot on a mountain, but every morning don $600 worth of outdoor gear on their way to class.

Along with the similar name, what has TNF crying infringement and dilution is that TSB sells a jacket that looks very similar to TNF’s “iconic” Denali jacket and adorns it with an upside down version of TNF’s famous “Half Dome” trademark.  (See an example of TSB’s jacket here).  Based on this activity TNF has sued to enjoin the TSB’s use of its name, symbol and the overall appearance of the jacket.  But in the wake of this suit internet media has made thousands aware of upstart TSB.  A recent check of The South Butt’s Facebook page shows that there are now more than 7,000 fans of the company.   A Google search yields almost 300 news articles related to TSB, and a YouTube advertisement for TSB has over 14,000 views.  TSB has also reported massive increases in sales and hits to its website.  The founder and owner of TSB, Jimmy Winkelmann, has even been dubbed “Little Jimmy” by those who have embraced his role as David, in a David versus Goliath showdown against the multi-billion dollar TNF.

Although it is unlikely that all the negative attention directed at TNF and the exposure TSB has gained will cause TNF to have second thoughts about suing Little Jimmy, it exemplifies the ability of the internet to significantly change the game for companies like TSB. In the age of viral media and social networking, plaintiffs must take into account the ability of “the little guy” to use a lawsuit to gather significant support.  This free exposure can generate revenue to fund the defense and create ill will towards the plaintiff.

With a legitimate parody defense to TNF’s claims and more money in the bank from increased sales caused by TNF’s suit, the battle between TNF and TSB could prove to be much more expensive and challenging than TNF initially anticipated.

The topic of music royalties has come up time and again in 2009, from the introduction of the Performance Rights Act, currently making its way through Congress, to various digital performance royalty rate disputes, from Internet broadcasts to satellite radio.

To end the year in music royalties and law, and to help open up 2010, on the week of December 21, 2009 the owners of about 1,200 “local” television stations filed a lawsuit against performing rights organization Broadcast Music, Inc. (BMI) seeking “lower broadcast fees to reflect declining television viewership and advertising revenue,” according to a report from music industry news publication Billboard.  The suit, WPIX v. BMI, was filed in U.S. District Court, Southern District of New York.

The plaintiffs, who have periodically renegotiated the rates with BMI, now state that a federal judge should “set reasonable fees and terms” because of a decline in television viewership and advertising revenue, according to Businessweek.  According to the Businessweek article, the “television industry will end the year with lower-than- expected revenue of $15.6 billion, a 22.4 percent decline from 2008.”

It is a fair guess that just about anyone uses the Internet regularly has run some kind of search on themselves, a future employer, their co-workers, etc. Reviewing a Facebook profile or Googling a name are two common techniques. Capitalizing on this sleuthing, several companies now offer or are developing cell phone applications that will deliver far more detailed reports on prospective romantic partners. Stud or Dud promises bankruptcies, stable address histories, marriages and divorces, property ownership, criminal/sex offender records, business licenses, evictions, and “other useful facts.” Are They Really Single, an application from the same developer, will provide marriage and divorce records. Similarly, DateCheck will provide criminal offenses, home details including square footage and taxes, educational background, the names and ages of all persons living at their address, horoscopes, and much more.

In an interview with CNN, Bryce Lane, president of PeopleFinders Network, said that all information was publicly available and had just been combined into one database in order to facilitate accessibility. But the increased accessibility raises many areas of concern. For instance, a man who learns a woman’s name – and nothing but her name – at a bar can use one of the above sites to identify current or previous roommates and pressure them for information regarding that woman. The comments on one blog suggest that such concerns are not likely to weigh heavily on the target audience: readers of Rosa Golijan’s post on the applications commented far more frequently on her musings about which boyfriend took her stockings than on her reference to “creepy” stalkers taking advantage of the applications. To take another example, an employer might not be able to resist the ability to easily access this information when making employment decisions, even if they may not be able to legally rely upon the information.

The potential for misuse of the information is only compounded by the potential for confusing one person with another, especially since the misidentified person has no way of knowing that someone has accessed inaccurate information regarding them. A search on Stud or Dud for the author’s full name disclosed her correct age, place of birth, and the full names of her parents. But searching for the author’s phone number turned up a 107-year-old Georgia women with a very large family. A potential date or employer might not confuse those two, but what about the potential for confusing one of the more than fifty John Smith’s in Ann Arbor, Michigan? Let us say that there are two John Smith’s in the same Ann Arbor zip code who are between 45 and 55; we’ll call them JS1 and JS2. JS1 has a mortgage on one residential property at which he has lived for the past twelve years, has always filed his taxes on time, and is married. JS2 filed bankruptcy at least once in the past, has moved frequently throughout the midwest region in the past six years, and rents an apartment with two roommates. A potential employer wishes to hire someone for a position that requires allocating and tracking financial resources, and the employer hopes that the new hire will remain in the position for at least three years. The employer would likely prefer someone with JS1’s profile, but the employer running a search on one of the above sites might confuse JS2’s profile with JS1’s and deny JS1 the position. JS1 would never know the employer’s search and so would not be able to correct the error.

Paul Stevens of the Privacy Rights Clearinghouse argues that that the above problems could be mitigated if information brokers were subject to the same or similar regulations as the Fair Credit Reporting Act. In particular, Mr. Stevens wants free annual disclosures to individuals, the right to dispute inaccurate information, and time limits on reporting adverse information. See also Online and Offline Collection of Consumer Information: Hearing Before the Subcomm. on Commerce, Trade, and Consumer Protection, 111th Cong. (2009) (testimony of Pam Dixon, Executive Director, World Privacy Forum). Lane does point out in his CNN interview that individuals can have their information removed from his sites, although he suggests that only “criminals” would do so.

Other concerns are rooted in a more visceral feeling that most people do not need the information that is now at their fingertips. A bank considering whether to finance a loan has good reason to know how many properties the applicant has. The promoters of DateCheck (“look up before you hook up”) would likely argue that a woman at the bar has a strong interest in the martial status of the man who just bought her a drink. But an idly curious co-worker or classmate? The undeniably correct assertion that this information is publicly available does not necessarily justify the ease with which it can be accessed. In the past, it took some effort to obtain the information: a call to the relevant records departments, maybe a delay before delivery. Though it was not the goal of the systems by which information could be obtained, the inconveniences may have limited access to those with a strong motivation to know. Perhaps, as Lane suggest, in an age where we meet new people at a rapid pace without any means of confirming their backgrounds, we do need some means of confirming the information they provide about themselves. Or maybe we should slow down a little and establish some relationships the old-fashioned way? If the latter, consumers will require at least some greater control over the information made available through information brokers, whether that information is packaged as a dating tool or in some other format.