Archive for October 2008

Will Co-location Kill the Stock Exchange* or, Is Too Much Tech Bad for Business?

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by: Elina Druker, Associate Editor, MTTLR


Image Stacked Servers by redjar.
Used under a Creative Commons BY-SA 2.0 license.

A Brief Introduction to Relevant Developments

Technology is changing the course of investing. According to Ivy Schmerken of Advanced Trading, about 85% of all trading on U.S. exchanges is automated.2 Computer algorithms (algorithmic trading) are entering trading orders for over 30% of trades on traditional stock exchanges and possibly as high as 80% on American and equity markets.3 Trading algorithms are “a series of calculated steps strung together to … buy and sell large blocks of stock… [which] can be tuned to execute almost any strategy” in order to take advantageof momentary opportunities.4

The success of an algorithm depends, not only on the formula’s strategy, but on the speed at which information is input and the trade executed. Algorithmic traders are constantly pushing trading systems to be faster. The cost of speed is astounding. According to Joel Clark, of Waters, a recent Tabb Group study “estimates that reducing the latency of transaction processing to gain a microsecond of improvement costs a firm approximately $250. Reducing latency by 6 milliseconds, then, equates to 6,000 microseconds and a possible cost of $1.5 million.”5

As a result of this ‘need-for-speed’ exchanges are in competition, not only with each other,6 but with other, faster trading methods such as Alternative Trading System (ATS). Unlike exchanges, which have been around long enough to have outdated infrastructures, new ATSs have the newest technology available, enabling them to “complete trades at up to ten times the speed of older rivals.”7 Popular ATSs, such as Electronic Communication Networks (ECNs) and most recently, Crossing Networks and Dark Pools, have numerous additional advantages over exchanges, including minimized market impact of bulk trades and anonymity. “What’s troubling overall for exchanges is how much market share they are losing to the other … innovative technology venues,” says Brad Bailey, senior analyst with the consulting firm Aite Group.8 Traditional exchanges’ market-share dropped from 86% to 73% in 2007-2008, and is expected to keep falling. Alternative Trading Systems now process 13% of all matched trades.9 ATS may be open to gaming, through pinging and front-running, and may fragment the market, but possible legal implications (and the S.E.C.) haven’t gotten in the way.10 One method of eliminating latency is called proximity hosting.

Telecommunication companies, such as Savvis, place their hardware in or near an exchange’s data center. They then sell rack space close to the trading venue, or access to trading servers, the venue’s gateway or software.11 Subscribers of proximity hosting receive low latency connections to one or multiple closely located trading venues.12

Implications of Automated Trading

To stay competitive, exchanges have had to develop their own technologies. They have had to update physical infrastructure, develop technology to move trades from the floor to electronic trading, disseminate market data faster and create “low touch/ no touch trading strategies.”13 They have also changed the nature of the exchange business. Hundreds of independent exchanges have begun a mass consolidation. BNY ConvergEx’s Managing Director, Joe Cangemi expects much more consolidation, predicting that “there will be three or five survivors.”14

Exchanges already wear many hats and charge for their services every step of the way. They charge traded companies “listing fees” and commission fees, and investors pay member and admission fees15, fees for physical seats on the floor16, fees per transaction17 for executing and updating trades, and market data providers also pay for publishing online and for subscriptions18 to real-time information.

Recently, exchanges have entered the telecommunications business. They have started selling physical co-location of investor servers at the exchange’s data center, competing with those technology firms who offer low-latency proximity hosting. Co-location is like proximity hosting, except that the exchange hosts the subscriber’s box in its data center. It is closer to the information feed, thus faster, than proximity hosting. Co-location can diminish latency between a client and the exchange to below 64 microseconds.19 The London Stock Exchange’s co-location service, TradElect will double to 20,000 continuous messages per second, with end-to-end execution latency reduced to three milliseconds in October 2008.20

Co-location, however, is a dangerous strategy for all parties.

First, it’s expensive for subscribers. That means that institutional investors, nearly all of whom are using algorithms, can buy an advantage. Larger, well established investor groups can afford to co-locate while smaller boutiques21 cannot. This could create a barrier to market entry for small institutional investors. A few weeks ago, there were 6 major investment banks. Suddenly, the landscape has changed and co-location systems may prevent new market players from filling the spots left by the crisis.

Second, exchanges do not have the infrastructure to prevent jitters in latency. 22 Jitters and fluctuations in information can create unpredictable results. Unlike third party telecommunication companies, who can maintain some minimal amount of technology risk management, algorithms co-located with an exchange may act on unfiltered, possibly flawed data. Technology companies are in the business of keeping their software and hardware up-to-date. Exchanges wear too many hats to keep ahead of the technology curve. They simply are not in the best position to manage the flow of information.

So, there are risks. So what? Well, if large institutional investors can block small investors from entering the modern algorithmic trading market, and can make risky decisions instantly, maybe someone should revive risk management and competition. Regulations need to prevent exchanges from wearing the technology-provider hat. Algorithmic trading already creates plenty of room for error and there is no room for additional error on the exchange side. Besides, should access to the best information really be the factor separating large and small investors?


* The Buggles, Video Killed the Radio Star, 1979.
2 Ivy Schmerken, Exchange Consolidation Wave Is Expected to Continue in 2008, Advanced Trading, Nov. 1, 2007.
3 Wikipedia, Algorithmic Trading.
4 Mara Der Hovanesian, Cracking The Street’s New Math, Businessweek.com, Apr. 18, 2005.
5 Joel Clark, Still the Need for Speed, Waters, Apr. 1, 2008.
6 Wikipedia, Algorithmic Trading.
7 The battle of the bourses, The Economist, May 29 2008.
8 Schmerken, supra note 2, at page 4.
9 The Economist, supra note 7.
10 Video game? Dark pools battle pingers, gamers in unregulated markets, Financial Week, Apr. 22, 2008.
11 Proximity Hosting: Plug’n’Trade or Pay’n’Wait?, Automated Trader, 2008.
12 Check your speed, The Trade News, Oct. 16, 2007.
13 Id.
14 Schmerken, supra note 2, at page 4.
15 Fees Calculator, London Stock Exchange, 2008.
16 Hillary Wicai, The Marketplace Report: Pricey Seats on the NYSE, National Public Radio, Jul. 26, 2005.
17 NYSE to cut back trading floor, costs, LA Times, September 13, 2007, at print edition C-4.
18 Nasdaq OMX launches free real-time market data service, Finextra.com, Jun. 2, 2008.
19 Rich Miller, Proximity Hosting: When Microseconds Matter, Data Center Knowledge, Dec. 3, 2007.
20 Penny Crosman, London Stock Exchange Offers Collocation, Wall Street &Technology, September 2, 2008.
21 Admittedly, some small investors may gain access to co-location though their brokers, but at a high cost far exceeding what they would have had to pay for data in the past as emerging market players.
22 Sun Microsystems, Inc., Low Latency: Eliminating Application Jitter with Solaris™, May, 2007.

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October 29th, 2008 at 8:30 am

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Virtual Worlds; Real Theft?

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by: Andrew Gioia, Associate Editor, MTTLR

Last week, a court in the Netherlands criminalized the theft of”virtual goods.” (Dutch news report.) According to a ruling handed down by a Dutch court, two teenagers, aged 14 and 15, were found guilty of theft after physically coercing a 13-year-old boy into transferring virtual money, a virtual amulet, and a virtual mask to their accounts in the online fantasy adventure game, RuneScape. Though the court only dealt with the theft issue and not the more obvious assault, it plainly and forcefully held that “[t]hese virtual goods are considered goods under Dutch law, so this is theft.”

Despite both the clarity of this ruling and the apparent intellectual property and monetary value that can be derived from games with their own currency and property, game-based virtual theft claims have had a rather uncertain history. For instance, Second Life, one of the Internet’s largest virtual realities, has seen both the wrongful “taking” of in-game land and a lawsuit between users for copying the design of objects sold in Second Life’s marketplace in the past year alone.

In the US, Minnesota police refused to recognize $4,000 of virtual currency stolen in Final Fantasy as a crime, explaining that because virtual items “are devoid of monetary value,” no crime had actually been committed. Perhaps even more significantly, the MMORPG, EVE Online, saw a large-scale banking scheme that defrauded a number of users. The stolen money was estimated to be worth as much as $170,000 in the real-world marketplace, and the scam even got the attention of some in the legal community who likened it to “actionable real-world fraud”.

Virtual goods like these, including game-based currencies, may not only have real economic value, but online communities like Facebook, Live Journal, and even Dogster have begun to create sentimental, communicative, and self-expressive value in virtual gifts that members can send to each other. These businesses, as well as games like Second Life and Gaia, are in some cases making tens of millions of dollars in revenue by selling virtual goods to personalize virtual avatars, land, and the like, and at least South Korea has even begun taxing these virtual property transactions.

Ultimately, as long as virtual goods inside of video games can be converted into real economic value, online thefts like the one seen in the Netherlands will continue or even increase “as ‘criminals’ may think the court systems and the police are not educated in online gaming, or the law as it pertains to in-game items and cash.” As one Dutch columnist argued even before this recent virtual theft, “[a]s long as the original owner loses something of value (such as virtual items) due to the act of another individual who gains possession over the item, it should . . . be qualified as theft, no matter whether the locus delicti is in the physical or the virtual world.”

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October 28th, 2008 at 3:54 am

Who Determines Post-Verdict Damage Awards for Patent Infringement in a Post-eBay World?

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by: Michael Sadowitz, Associate Editor, MTTLR

Introduction

It was once almost a foregone conclusion that a court would grant a permanent injunction to the patentee, when finding a patent valid and infringed.1 The injunction functioned as a powerful negotiations tool, and put the balance of power in the patentee’s hands. In eBay v. Mercexchange, the Supreme Court held that the traditional four-factor test for granting a permanent injunction (irreparable injury, inadequacy of remedies at law, balance of hardships favoring the party seeking the injunction, and public interest) applies to disputes arising under the Patent Act.2 Thus after eBay, a patentee might find herself prevailing with a judgment of infringement, but not be granted an injunction.3 The Supreme Court did not provide guidance as to appropriate relief in such cases. The Federal Circuit has not significantly reduced that uncertainty, but it has declared that district courts should consider pre- and post-verdict damages separately.4 Who determines these damages? Is it a matter for the judge or the jury? For now, the answer is either, and in some cases, perhaps neither.

The Federal Circuit: Pre-Verdict Infringement is Distinct from Post-Verdict Infringement

In Paice v. Toyota Motor Corp., the Federal Circuit found that the jury’s award of $25 per infringing vehicle was for pre-verdict infringement. The district court decided, with no articulated reasoning, to value the ongoing royalty at the same rate.5 The case was remanded to allow the district court to account for the change in the parties’ positions pre- and post-verdict.6

The Paicecourt allowed the district court, at its discretion, to have the parties attempt to negotiate a license before stepping in and assessing an ongoing royalty.7 Judge Rader, taking it a step further, would have required the court to have the parties negotiate or to obtain their permission before assessing the royalty.8 As Judge Rader saw it, the court was imposing a compulsory license but labeling it an “ongoing royalty.”9 However, if a compulsory license has the complexity and detail of other licenses, but an ongoing royalty is simply an imposition of damages for future infringement, then the compulsory licensee might be considered a willful infringer no longer, whereas the recipient of an ongoing royalty would still be willfully infringing.10 Since willful infringers are subject to enhanced damages up to a factor of three,11 the choice of courts to impose a royalty, a license, or to have the parties attempt a negotiation could have serious implications.

Likewise, in Amado v. Microsoft Corp. the Federal Circuit found that the jury’s reasonable royalty of $0.04 per infringing unit, which was trebled for willful infringement and imposed as an ongoing royalty by the district court, was based on pre-verdict infringement.12 Further, this case involved different economic factors than Paice because that court had to determine a royalty under the denial of an injunction whereas the Amado court had stayed the injunction imposed on Microsoft so they could continue infringing.13 Therefore, there was no willful infringement because the court-ordered stay permitted it, and the damage assessment under threat of an injunction should consider the economic factors that such a threat imposes.14

Both Paiceand Amado allowed the district court to decide the royalty without a jury’s determination and without requiring the parties the opportunity to bargain. The Paicecourt specifically rejected the argument that Paice had a Seventh Amendment right to a jury trial to determine the ongoing royalty since a legal remedy, damages, was at stake. The court stated that a question of monetary relief does not necessarily imply a question of damages and the district court had discretion to determine the ongoing royalty.15

Recent Eastern District of Texas Cases: Juries Should Decide Ongoing Royalties

A string of recent cases, all before Judge Ron Clark in the renowned Eastern District of Texas, lend support to the notion that ongoing royalties may be decided by juries more often than not in the future. In the absence of strong objections from the parties, Judge Clark will submit an ongoing royalty rate question to the juries in three cases pending trial.16 Judge Clark gives an example of such a question as follows:17

What rate or sum of money, if any, do you find is adequate as a reasonable royalty to compensate Plaintiff for the conduct you found to infringe that occurs in the future? Answer in a percentage or in dollars and cents.

Judge Clark stated that it makes sense to consider past and future damages simultaneously because there are some identical factors that go into both calculations.18 Judge Clark told the parties to have their damages experts analyze, and be prepared to answer questions related to, ongoing royalties or other future damages.19 \

Another Judge Clark case, Anascape v. Microsoft et al.,20 involved a situation similar to Amado, where a permanent injunction was stayed conditioned upon payment of an ongoing royalty. The stay was conditioned upon an ongoing royalty of 7% of the selling price for one type of video game controller and 5% for another type of controller, to be paid by defendant Nintendo.21 The jury awarded $21 million in damages for pre-verdict infringement.22 It appears, although not expressly stated, that the jury decided the ongoing royalty as well.

Can Post-Verdict Damages be Severed?

The plaintiff in Voda v. Cordis23 suggested severing the action for post-verdict damages. The court declined because it thought the only issue to be decided in a separate proceeding would be a “simple mathematical calculation based on defendant’s sales.”24 The jury awarded the plaintiff an ongoing royalty of 7.5% of defendant’s gross sales of infringing catheters.25 However, the somewhat bizarre Avid v. Phillips26 case allowed severance of the post-verdict damages claim without reasoning.27

Conclusion

Whether judges or juries decide post-verdict patent infringement damages appears to be largely up to the discretion of the district court. As long as the court considers pre- and post-verdict infringement separately, the Federal Circuit will likely not reverse the award based on which party decided the damages. If other courts follow Judge Clark in the Eastern District of Texas, it is likely that many future cases will allow the jury to decide ongoing damages. Who makes the calculation in a given case can have implications on the parties’ strategies for arguing damages, and if the jury decides, it could mean more judgments notwithstanding the verdict. Perhaps more importantly, if it is a question of fact, the jury’s determination is entitled to deference on appeal, whereas a question of law is subject to plenary review. The decision of who decides could be a battleground issue in future patent cases.


1 See, e.g., Connell v. Sears, Roebuck & Co., 722 F.2d 1542, 1548 (Fed. Cir. 1983) (“[t]he right to exclude recognized in a patent is but the essence of the concept of property”).
2 eBay, Inc. v. MercExchange, LLC, 547 U.S. 388, 391 (2006).
3 eBay, 547 U.S. at 393-94.
4 See Paice, LLC v. Toyota Motor Corp., 504 F.3d 1293, 1315 (Fed. Cir. 2007) (finding the jury’s award of $25 per infringing vehicle for pre-verdict infringement only), Amado v. Microsoft Corp., 517 F.3d 1353, 1362 (Fed. Cir. 2008) (finding the jury’s award of $0.04 per infringing unit for pre-verdict infringement only).
5 Paice, 504 F.3d at 1315.
6 Id. (Remanding so the court could “take additional evidence if necessary to account for any additional economic factors arising out of the imposition of an ongoing royalty”); id. at 1317 (Rader, J., concurring) (“But pre-suit and post-judgment acts of infringement are distinct, and may warrant different royalty rates given the change in the parties’ legal relationship and other factors”).
7 Id. at 1315 (majority opinion).
8 Id. at 1316 (Rader, J., concurring).
9 Id.
10 George M. Newcombe et al., Prospective Relief for Patent Infringement in a Post-eBay World, 4 N.Y.U. J. L. & Bus. 549, 574 (2008).
11 Id. at 576.
12 Amado, 517 F.3d at 1359.
13 Id. at 1362.
14 Id. (listing factors such as “the infringer’s likelihood of success on appeal, the infringer’s ability to immediately comply with the injunction, the parties’ reasonable expectations if the stay was entered by consent or stipulation, etc”).
15 Paice, 504 F.3d at 1316. The court cited for support an 1882 Supreme Court case that allowed the court, “in order to avoid a multiplicity of suits,” to decide compensation for past injury based on profits and not “by assessing damages.” Id. (citing Root v. Ry. Co., 105 U.S. 189, 207 (1882)).
16 See Seoul Semiconductor Co. Ltd. v. Nichia Corp. et al, 9:07-cv-00273 (E.D. Tex. July 9, 2008); SciCo v. Boston Scientific, 9:07-cv-0076 (E.D. Tex. July 9, 2008); Iovate Health Sciences Inc. et al v. Bio-Engineered Supplements & Nutrition, Inc., 9:07-cv-00046 (E.D. Tex. July 9, 2008).
17 Seoul Semiconductor, 9:07-cv-00273 at *1.
18 Id. at *2.
19 Id.
20 Anascape, Ltd. v. Microsoft Corp. et al., 9:06-cv-158 (E.D. Tex. July 23, 2008).
21 Id. at *3-4.
22 Id. at *2.
23 Voda v. Cordis Corp., 2006 WL 2570614 (W.D. Okla. Sept. 5, 2006), aff’d in relevant part, 536 F.3d 1311 (Fed. Cir. 2008)
24 Id. at *6.
25 Id. at *1.
26 Avid Identification Sys. v. Phillips Elecs. N. Am. Corp., 2008 WL 819962 (E.D. Tex. Mar. 25, 2008). In Avid, injunctions were denied because of “unclean hands” due to inequitable conduct before the USPTO which led to the unenforceability of one of the three patents-in-suit. Id at *13-14. The denial of an injunction for all three patents, where inequitable conduct was found relating to only one of the patents, was not explained by the court.
27 Id. at *13-14.

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October 22nd, 2008 at 8:32 pm

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DIY Campaign

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by: Nancy Sims, MTTLR Blog Editor

The McCain campaign’s visual themes (i.e. the Optimum typeface, his simple star logo) have drawn positive comments for the strength and military experience they convey. But many commentators agree that the Obama “O” logo is a radical political innovation: “probably the only political campaign logo to have a visual theme in it”, “[a] true logo, one that is recognizable apart from the candidate’s name” and “the first sophisticated corporate-style identity to emerge from presidential politics”, “signals by design that Obama has a different message”, “perhaps one of the few conceptual logos in the history of presidential elections”, “[c]learly not the old standards of years past.”A few have pointed out that the Bush 2004 campaign’s “W” logo was similarly identifiable, but it did not convey the same level of conceptual information.

The “O” logo has been criticized as derivative of other logos, (although the same criticism has been leveled with similar plausibility at the McCain logo.) For any number of possible reasons (its innovation, its visual impact, its simplicity, basic political demographics) the “O” logo has become a favorite new theme of makers, hackers, crafters and other habitues of the DIY/maker/remix culture. (In an attempt to keep this post politically neutral, I searched extensively for McCain remixes. The closest match I found were these commercially available McCain logo cookies.) Despite plausible copyright and trademark claims to the art and product-identifying use of the logo, unauthorized reinterpretations have rapidly proliferated.

(For all of the following examples, click the thumbnail to see the image in its original context.)

It’s popular in food (particularly cookies):


CC-licensed by-nc-sa

CC-licensed by-nc-sa

CC-licensed by-nc

Knitters and other textile and fabric crafters have also interpreted the logo:


CC-licensed by-nc-nd
 
 

Several artisans have made their own “O” products:


CC-licensed by-nc-nd

Finally, a few of the reinterpreted “O” logos defy categorization. They include:

The Penn State S-Zone is transformed into the O-Zone:
CC-licensed by
A bicycle wheel is transformed into a glowing “O”: A pregnant supporter displays her own “O” logo:

Additionally, the logo seems clearly a motivating factor for the Barack O-Lanterns of non-campaign-affiliated Yes We Carve and other Obama O’Lanterns.

It is interesting to note all the different claims people are making as to “ownership” of their logo-derivatives. A number of images are Creative Commons licensed, but with varying levels of control asserted (from the very loose “attribution” license, to the more restrictive “attribution-noncommercial-noderivatives” license.) Several of the images on Flickr also display the traditional “all rights reserved” language, but since this is the Flickr default, it doesn’t necessarily mean a great deal. The creators of both the necklace and the earrings have their derivative images for sale on craft website Etsy – almost certainly a commercial use, although the necklace maker claims to be donating to the Obama campaign with every sale.

In the midst of an intense political campaign, the Obama camp’s interests may, in many ways, be opposite from those of most trademark and copyright owners. It is in the campaign’s interest for the mark to be distributed widely. Although using the language of trademarks – the Obama website refers to the “‘O’ Logomark” – this distinctive image does not appear to have been registered with the PTO (a TESS search for “obama” yielded 38 results, none of which appeared to be for this image.) In fact, they make the image freely downloadable in a variety of formats from the campaign website.

Given the limited utility of the mark once the election is over, there is little incentive for the campaign to police others’ uses of the mark, be they positive or negative. Without anyone having directly dedicated the “O” mark to the public domain, it appears to have become de facto public property.

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October 20th, 2008 at 8:43 am

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The Large Hadron Collider: The Right to Not Be Destroyed in a Black Hole

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by: Ashley Tan, Associate Editor, MTTLR

I. Suing to Save the World

Image In the soul of the great machine by Simon Bisson.
Used under a Creative Commons BY-NC-ND 2.0 license.

Has the Large Hadron Collider destroyed the world yet? A tongue-in-cheek website suggests not.1 The European Organization for Nuclear Research (CERN), which is responsible for constructing and operating the Large Hadron Collider (LHC), insists that fears about LHC-generated catastrophes are wholly without scientific foundation.2 However, a group called the Citizens Against The Large Hadron Collider, established by nuclear physicist and former U.S. nuclear safety officer Walter L. Wagner3, not only argues that the LHC poses a significant danger of destroying the Earth, but has gone so far as to file in a U.S. district court in Hawaii to enjoin the LHC from proceeding to full operating capacity.4 Another group, led by German chemist and university professor Otto Rössler, tried to file a similar injunction with the European Court of Human Rights.5 Scientists associated with the LHC have received death threats6, hackers have broken into the LHC’s computers7, and in India, a sixteen-year-old girl reportedly committed suicide out of fear after watching a television program about the LHC’s danger to the earth.8 Hollywood frequently raises the specter of wayward science giving birth to a global disaster, but rarely does it venture to the courtroom for a solution in such cases. Will the real world prove more creative?

II. What Is the Large Hadron Collider and Why Do People Fear It?

The LHC is a particle accelerator, whose name derives from the fact that it is large—built in a ring shape under the countryside near Geneva, Switzerland, it has a radius of 27 kilometers (16.8 miles)—and that it accelerates hadron particles—better known to laymen as protons or ions—and engineers the collision of these particles.9 These collisions will occur at higher energies that are concentrated more densely than has ever been possible via man-made intervention before.10 By monitoring the results of the collisions, CERN scientists hope to recreate the conditions of the universe that existed a fraction of a second after the Big Bang, and to prove or disprove elements of the Standard Model, which is the currently-reigning theory for explaining why the laws of physics in our universe operate the way that they do.11 On these statements, everyone can agree.

Less agreed-upon is whether the LHC could also prove correct certain theories about microscopic black holes, magnetic monopoles and “strangelets” by creating them.12 A microscopic black hole is exactly what it sounds like: a tiny version of the black hole formed by the collapse of a dying star.13 According to the Citizens Against the LHC, the LHC could create such micro black holes at a rate of one per second, and if they accumulated, they would eventually suck the entire Earth into them.14 A magnetic monopole is a hypothetical particle that carries only one magnetic charge or “pole,” compared to the everyday magnet that always has a north and a south pole, and if they do exist, then theoretically, immediately upon creation they would begin to catalyze the decay of known particles like protons in an uncontrollable reaction similar to that of a nuclear bomb.15 And a strangelet is another hypothetical particle that, if it does exist and is created by the LHC, theoretically could trigger an unstoppable fusion reaction that would transform the whole planet into a gigantic strangelet.16

III. Judging a Potential Global Catastrophe

All three of the above scenarios would presumably end life as we know it if they came to pass, but CERN and most physicists believe that the probability of the LHC creating such scenarios is so infinitesimal as to be nonexistent.17 In particular, CERN argues that cosmic rays have entered the Earth every day for billions of years and while on Earth, have collided at far higher energies than the LHC will be able to produce without ever having resulted in a planet-wide catastrophe.18 Nevertheless, the Citizens Against the LHC, as represented by Spanish science writer Luís Sancho, have urged a U.S. district court in Hawaii to enjoin the LHC from full
operation.19

The main allegations made by Sancho: 1) the U.S. government has failed to carry out an environmental impact study of the LHC under the National Environmental Policy Act (NEPA), including a period for review and comments by the public; and 2) the U.S. government has failed to follow the risk-management requirements of the European Union’s “Precautionary Principle.”20 The U.S. government has responded by questioning whether Sancho has standing to submit the case, whether a U.S. district court has jurisdiction over the subject matter and whether the case is moot due to the statute of limitations.21 On the matter of standing, it argues that Sancho has not alleged a “credible injury” that is personal to him, given that the main substance of his claim is that the European-based LHC may trigger an event that would have to destroy the entire world to affect him.22 On the matter of jurisdiction, the U.S. government argues that the LHC is the responsibility of CERN, which is an international, non-governmental body in which the U.S. government plays no significant, active part.23 Alternatively, on the matter of mootness, the U.S. government holds that any duty of oversight would have arisen in 1997 or 1998, when the National Science Foundation and the U.S. Department of Justice “committed” to the LHC project, and that such a duty has already expired.24 Either way, the federal government argues it has no duty under the National Environmental Policy Act to conduct environmental-impact studies of the LHC, as that act only applies to federal agencies and CERN is not a federal agency.25

IV. The Timeline for Averting Planetary Destruction

At a combined hearing for the U.S. government’s motions to dismiss and for summary judgment, Chief Judge Helen Gillmor seemed sympathetic to the government’s arguments for lack of jurisdiction and of standing.26 She ruled without permitting further argument that any allegations based on the Precautionary Principle of the EU would not be heard for lack of jurisdiction, as the underlying EU law had not been incorporated into U.S. domestic law.27 However, after chiding both parties at length for committing numerous procedural errors, Judge Gillmor allowed them to continue filing documents with the proviso that each new filing must be with a leave of court to file.28

On Sept. 26, 2008, Judge Gillmor heard the federal government’s motion to dismiss and granted it on the grounds that since the U.S.’s participation in the LHC project did not amount to a “major federal action” under NEPA, the court lacked subject matter jurisdiction to hear the suit.29 The U.S.’s funding to CERN for the LHC constituted a relatively insignificant fraction of the total funding–$531 million out of an estimated $8 billion—and the U.S. also lacks control over the LHC, as its agreement with CERN only grants it non-voting “observer” status.30 Given the lack of subject matter jurisdiction, Judge Gillmor declined to reach the issues of standing and mootness.31 While she noted that the suit is rooted in a “disagreement among scientists” that is of concern to a wider audience, Judge Gillmor was of the opinion that such “policy objections” were better addressed through the political process.32 So ends the legal action in the U.S. against the LHC, it would appear.

A suit in the European Court of Human Rights for an injunction against the LHC was summarily rejected without an official ruling.33 But the Court is allowing the suit to proceed to judgment on the merits of a possible violation to the rights to life and to private family life, as guaranteed under the European Convention of Human Rights.34 In the meantime, the LHC has suffered several technical setbacks that will prevent full operation, and consequently those controversial particle collisions, for several months.35 It remains to be seen whether the European Court of Human Rights will evaluate the merits of the suit against the LHC, or whether CERN can fix the LHC in time to render that suit moot by virtue of operation without global destruction.

Editor’s Note: A number of commenters have raised concerns about the scientific qualifications of individuals involved in bringing these lawsuits. While we believe those qualifications are less relevant to the procedural legal issues discussed within the post, we wish to acknowledge the concerns. All qualifications as reported in this post are taken from the sworn affidavits of the parties involved. Certainly, if a case such as these were allowed to proceed to analysis on the merits, the qualifications of any scientific experts involved would be a serious issue.


1. Has the Large Hadron Collider Destroyed the World Yet? (last visited Oct. 17, 2008)
2. Press Release, CERN, CERN Reiterates Safety of LHC on Eve of First Beam (Sept. 5, 2008).
3. Citizens Against the Large Hadron Collider Legal Room (last visited Sept. 27, 2008).
4. Compl., 10-11, March 14, 2008.
5. Richard Gray, Legal bid to stop CERN atom smasher from ‘destroying the world,’ The Daily Telegraph, Sept. 9, 2008.
6. Cgh, Large Hadron Collider: The Controversial Search for the God Particle, Spiegel Online International, Sept. 9, 2008.
7. Roger Highfield, Hackers attack Large Hadron Collider, The Daily Telegraph, Sept. 12, 2008.
8. Girl suicide ‘over Big Bang fear,’ BBC.com, Sept. 11, 2008.
9. CERN, LHC: The Guide, 15, 20. [hereinafter LHC: The Guide];
CERN, LHC Geographical Situation.
10. LHC: The Guide, supra note 8 at 3-4, 12, 21.
11. Id. at 6, 11, 22-25.
12. CERN, The Safety of the LHC. (last visited Sept. 19, 2008) [hereinafter
Safety of the LHC]; Compl. 3-5.
13. Safety of the LHC, supra note 12.
14. Compl. 4; Wagner Aff., 6, March 14, 2008.
15. Compl. 4.
16. Id.
17. Safety of the LHC, supra note 12; LHC Safety Assessment Group, Review of the Safety of LHC Collisions, 35 J. of Physics G: Nuclear and Particle Physics 115004, 115005-06 (2008).
18. LHC Safety Assessment Group, supra note 17 at 115006-08.
19. Compl., 10-11.
20. Id. at 6-10. For the EU, the Precautionary Principle provides a framework for deciding when governmental intervention to prevent harm to the environment or to the health of living things. Communication from the Commission on the Precautionary Principle, at 13-15, COM (2000) 1 final (Feb. 2, 2000).
21. Combined Mot. to Dismiss and Mot. for Summ. J. Hr’g Tr. 12, 29, Sept. 2, 2008.
22. Id. at 25-27.
23. Id. at 10, 15-17.
24. Id. at 12-14.
25. Id. at 12-17.
26. Id. at 4-5, 23.
27. Id. at 4-5.
28. Id. at 2-11, 29-30.
29. Sancho v. U.S. Dep’t of Energy, No. 08-00136 HG KSC, 2008 WL 4370009, at *10 (D. Haw. Sept. 26, 2008). A copy of the ruling is available at: Alan Boyle, Doomsday lawsuit dismissed, MSNBC Cosmic Log, Sept. 26, 2008.
30. Id. at *7-10
31. Id. at *11.
32. Id. (“‘Neither the language nor the history of NEPA suggests that it was intended to give citizens a general opportunity to air their policy objections to proposed federal actions. The political process, and not NEPA, provides the appropriate forum in which to air policy disagreements.’” (citing Metro. Edison Co. v. People Against Nuclear Energy, 460 U.S. 766, 777 (1983))).
33. Gray, supra note 5.
34. Id.
35. Press Release, CERN, LHC Re-Start Scheduled for 2009 (Sept. 23, 2008).

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October 17th, 2008 at 9:19 pm

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Policing the Police – Citizen Video Footage

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by: Wayland Radin, MTTLR Associate Editor

As the ubiquity of Apple’s iPhone constantly reminds us, cellular phone technology has progressed to the point that its hard to find a phone that doesn’t have a camera. While remarkable footage has infrequently reached the public eye in the past, the omnipresence, simplicity, and unobtrusive nature of these cameras, coupled with the means to make their recordings immediately and publicly available (e.g. YouTube, Flickr) has led to a new method of citizen oversight of public servants.

The vast majority of the recordings made publicly available in this way chronicle what the owner of the camera phone believes to be suspect actions of law enforcement officers. For instance, the now infamous tasering of University of Florida student at a political forum has been viewed well over 3 million times.

A similar incident in which a UCLA student was tazed for apparently failing to exit a University library quickly enough has been viewed upwards of 2 million times (in various YouTube iterations.)

(See the Daily Bruin article detailing the event.)

Though the potential effects of this mode of citizen oversight are far-reaching, they are felt most directly by the owner of the camera and the subject of the recording. In Oregon, several citizens have been ticketed or arrested for recording the activities of on-duty police officers, under a state law allowing audio recording only if at least one party is aware of the recording. The man who was ticketed (and who filmed the video below) is now challenging the actions of the police department in a lawsuit.

And in New York, a police officer was stripped of his badge and remains under investigation for actions recorded in this video.

While it may seem obvious that one should have the right to record what one would otherwise see and hear in public, the law is far from settled on the matter. It is unclear what expectation of privacy on-duty police offers might have, if any, given that they are performing a civic service in public. Police officers, however, clearly have an interest in their safety and so have argued that recording of police activity poses a threat to the officers themselves.

Because the current laws are unclear and inconsistent, as is their enforcement, I think more comprehensive regulation is likely. I would hope that this future regulation will explicitly allow citizens to record public servants performing their duties. There will, of course, be some caveats to protect the privacy of off-duty officers and the safety of all those involved, but on the whole I think we will (and should) see more instead of less citizen oversight enhanced by technology.

ETA:For further information on citizen media activism, visit the Citizen Media Law Project

ETA2:YouTube and PBS Vote 2008 have partnered to create the Video Your Vote initiative. They encourage voters to take and share video of their voting experiences, another opportunity for tech-assisted citizen oversight of government activities. Here’s an overview:

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October 14th, 2008 at 10:35 am

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Employee text messaging privacy in the wake of the Detroit mayoral scandal

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by: Marc Kaplan, MTTLR Associate Editor

Image Andy texting what Cheney should say by Steve Rhodes.
Used under a Creative Commons BY-NC-SA 2.0 license.

Text messaging has exploded in popularity in the U.S. and around the world. Indeed, 75 billion text messages were sent in the U.S. in June 2008 and 40% of American teenagers believe they can text blindfolded. With so many communications exchanged through this medium, the privacy of text messages has come under legal challenge in a number of contexts. Employees frequently have access to text-messaging through work-provided devices, and not-uncommonly use the devices to send personal messages. Whether they can expect privacy in relation to those messages is an unsettled legal matter.

A case study: the Kilpatrick Scandal

In one example, former Detroit mayor Kwame Kilpatrick resigned from office in September, under criticism after his “private” text messages – from his government-issued pager – were revealed following a whistler-blower suit. The suit alleged that the mayor unlawfully discharged Detroit police officers because he was afraid the officers would reveal his extra-marital relationship with his Chief of Staff, Christine Beatty. At trial, the mayor contended that allegations of an affair were “preposterous”, and the vigorous defense was able to preserve the text messages from discovery before the trial. Even without the messages as evidence, the jury found the mayor guilty and gave the aggrieved officers a multi-million dollar verdict.

After the trial, the plaintiffs succeeded in obtaining the text messages through subpoena, and discovered that they bared a rather different story than that maintained by Kilpatrick.

Beatty: “And, did you miss me, sexually?”
Kilpatrick: “Hell yeah! You couldn’t tell. I want some more. “
Detroit Free Press

With this new leverage, the plaintiffs offered to settle as opposed to fighting through the appeal. The mayor agreed to the settlement, in what appears to have been an attempt to cover up the newly exposed text messages.Although the issue was litigated all the way to the Michigan Supreme Court it was eventually ruled that the settlement agreement was a public record and subject to the state’s freedom of information act.The text messages, now accessible to the public, have continued to be relevant in subsequent proceedings against Kilpatrick and Beatty for perjury, conspiracy, obstruction of justice, misconduct, and other charges.

Employee privacy protections

Courts have split over the protections given to text messaging, attempting to weigh the need to access communications in the ubiquitous and casually-used medium against privacy concerns.

In Quon v. Arch Wireless Operating Co, a highly publicized case factually similar to Kilpatrick’s, a police department searched an officer’s text messages to determine whether the officer exceeded his quota of text messages by using it for personal communications. The district court held that the officer’s text messages sent through the government-issued pager were subject to the privacy protections of the Stored Communications Act and were therefore not searchable by his employer. The 9th Circuit affirmed in part and held that the officer had a reasonable expectation of privacy in the text messages and that the search had violated his 4th Amendment rights.

Not all courts have broadly construed the Stored Communications Act or constitutional protections of text message privacy. Indeed, in a separate case involving Mayor Kilpatrick’s text messages as they related to a murder investigation, a district court in the 6th Circuit breezily distinguished Quon by holding that it was inapplicable to a case with the same fact pattern but where personal text messages were not the targetof the search.

These holdings appear contradictory, but the more important issue may be what questions the cases leave unanswered. Quondoes not specify whether the holding should apply to both public and private employers. Commentators also also disagree on whether Quon will change employers’ practices significantly. Drawing general rules from these cases or trying to predict the direction of this fertile area of the law appears fraught with danger, as does texting personal messages from your work-issued Blackberry®, unless you live in California.

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October 8th, 2008 at 10:25 am

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Free Online Music – That’s Legal

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by: Bill Andrichik, MTTLR Associate Editor

The next round of the ongoing legal battle between the music industry and online music providers is here. This time the new MySpace Music (launched September 25, 2008) has taken several key steps to avoid the legal issues that plagued peer-to-peer filesharing services like Napster, Aimster, Grokster and others. The new site allows users to listen to the music of their choice, at no monetary cost, funding the mechanical royalties required for streaming audio through advertising directly to users. It limits personal use of the songs, only allowing music to be played if a user is connected to the MySpace site. If a user wants to use a song independently of the site, as on a personal mp3 player, he or she can link to the Amazon mp3 site and purchase it.

Though it is no more or less “legal” than the popular online music source iTunes, MySpace music does get one step closer to giving users what they have been missing since the legal collapse of Napster, Kazaa, and the like. “The goal is to make it as easy and compelling as stealing,” says one site representative Steve Pearman. Though the site is clear about its objectives on that front, the timing of the release is also advantageous for them. It coincides with rival Facebook’s redesign that has left many users disgruntled. A potential wave of users looking for a new social networking site, coupled with a number of twenty-somethings feeling nostalgic about getting free music without worrying about legal troubles might just make MySpace Music a serious competitor.

The biggest step that MySpace has taken to prevent the legal actions faced by past online music providers is its cooperation with the music industry and individual artists. MySpace has long been a forum for new and established artists to advertise and release music, but it went one step further before launching the new site by partnering with the “big four” of the music industry (Universal Music Group, Sony BMG Music, Warner Music Group, and EMI Music) as well as indie aggregator the Orchard. Partnering with the major record labels before launch ensures that all use of music is legal and approved by the artists/record labels. MySpace also avoids legal risk by paying the necessary royalties each time a song is played by a user.

Even with these initial precautions, MySpace may not entirely avoid legal risk. It is very easy to imagine certain users of the site overriding the safeguards and somehow using the site to download free versions of songs onto their computers without paying the fee to Amazon. The site’s biggest defense against liability in that instance lies with their partnership with the music industry and the fact that they would likely be a victim rather than an enabler in that instance. Another potential source of strife is the lack of partnership with most indie labels. It remains to be seen whether the site will be able to eventually add these labels or have to face the backlash from artists feeling they have been left out of the deal.

Observations

Though the site is only a few days old and MySpace promises to constantly change it to keep up with user input and demands, below are some observations from my first experience with the site:

Pros
+ The music service is very user-friendly (even for someone like myself who did not previously have a MySpace profile).
+ The site integrates the benefits from its previous music siteby allowing users to add songs to their playlist via a database search, sharing with other friends on MySpace or through the artists’ profiles themselves which also offer music videos, blogs, and tour updates as you listen to the music.
+ MySpace still allows established or up-and-coming artists the freedom to promote themselves and their music in they way they want to.

Cons
– The advertising causes a slight delay and the music is occasionally interrupted when adding new songs to the play list.
– The initial lack of indie labels leaves some users wanting more variety.
– The search feature returns songs from all users on the site (not just professional artists) so it is a partial return to the days of Napster and Kazaa where it is sometimes hard to find a non-remixed version of a song or one that has not been edited for the radio.

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October 7th, 2008 at 1:32 pm

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