Archive for the ‘Technology’ Category

IRS Ruling Declares Bitcoin Will Be Taxed As Property

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On March 25, 2014, the Internal Revenue Service issued a ruling declaring that it will tax virtual currencies, such as Bitcoin, as property. This ruling could have significant effects on the way that consumers use Bitcoin. The implication of the ruling is that Bitcoin can no longer operate as an alternative form of currency because any transaction using Bitcoin as consideration will lead to a capital gain or loss for the person paying with Bitcoin. Bitcoin fluctuates drastically in value, which means that almost every transaction using Bitcoin will result in some sort of gain or loss which will now be taxable at capital gains rates. So, for example, if a person buys a Bitcoin for $10 and uses it to purchase an item for $15, he or she will be required to pay capital gains tax on the $5 increase in value. The extreme value fluctuation, however, also explains why the IRS’s ruling may not be as extreme as some commentators suggest. It is, in fact, this value fluctuation which has led consumers to use Bitcoin primarily as an investment medium, like gold, silver, and other commodities, rather than as actual currency. The rapidly changing value of Bitcoin provides plenty of room for investors to try to maximize value by betting on the increase or decrease of the technological commodity. There are also significant administrative restrictions which will make the IRS’s ruling difficult, if not impossible, to enforce, at least with respect to the average individual. In order to determine the amount of capital gains tax an individual owes to the U.S. government, he or she will have to carefully track all of the purchases made with Bitcoin over the course of the year. If individuals are making multiple purchases with Bitcoin, this will prove to be a very tedious and complicated requirement and is likely to discourage individuals from using Bitcoin as currency in the first place. In addition to being difficult for individuals to monitor their capital gains, it will be just as complicated for the IRS to figure out how much it should be receiving in taxes from these individuals. Bitcoin’s original purpose was to provide a type of currency that was completely anonymous, which is why it has often been used in funding illegal transactions. The virtual wallets which house Bitcoins are not tied to individuals; this will make it very difficult for the IRS to monitor how much capital gains tax individuals owe on their Bitcoin transactions. This administrative monitoring gap may provide a new venue for entrepreneurs to develop a platform which provides tracking of an individual’s basis in and purchases using Bitcoin in order to properly determine how much capital gains tax they owe in connection with Bitcoin transactions. But without this type of platform, it is unclear how the IRS will effectively enforce its new ruling. Sources:
  • http://money.cnn.com/2014/03/31/technology/irs-bitcoin/
  • http://techcitynews.com/2014/03/28/bitcoin-is-property-not-currency-rules-irs/
  • http://techcrunch.com/2014/03/30/bitcoin-slips-in-the-wake-of-the-irss-tax-decision/
  • http://www.coindesk.com/irs-bitcoin-ruling-may-bright-side/
  • http://www.inman.com/2014/03/31/irss-bitcoin-guidance-turns-every-transaction-into-a-reportable-capital-gain-or-loss-at-tax-time/
  • http://www.irs.gov/uac/Newsroom/IRS-Virtual-Currency-Guidance
  • http://www.theatlantic.com/technology/archive/2014/03/why-bitcoin-can-no-longer-work-as-a-virtual-currency-in-1-paragraph/359648/
  • http://www.theguardian.com/technology/2014/mar/31/bitcoin-legally-property-irs-currency

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April 8th, 2014 at 10:27 am

Keurig Walls Off the Garden by Shutting Out Third Party K-cups

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Keurig, the single serve coffee machine produced by Green Mountain, is nearly ubiquitous in offices, homes, and schools around the country. The device rose to popularity on the back of the K-cup, the single serve pods produced by Green Mountain that allowed a single cup of hundreds of different coffee, tea, and chocolate drinks to be brewed in a matter of seconds. Green Mountain made $3.9 billion in sales in 2012, with 2.7 billion coming from K-cup sales. Keurig was able to maintain strong sales of its K-cups because of several patents on the design and features of the K-cup. However, in September 2012, U.S. Patent Nos. 5,353,765 and 5,840,189 expired. These two patents covered the original K-cup design. Their expiry has opened the door for generic knockoff K-cups to flood the market. Green Mountain claims that the design covered by these patents is outdated and has been superseded by new and improved designs covered under patents that are still in force, including, U.S. Patent Nos. 6,645,537 and the still pending Application No. 20050051478. However, many generic K-cups are already on the market and work in Keurig’s brewing machines. While Keurig claims that generic K-cups will continue to make up less than 15% of the total K-cup market and stress that their current design is superior to any competing product, Green Mountain is clearly worried about the generic threat. In early March of this year Green Mountain announced “Keurig 2.0,” an improved brewing device that would be launching as early as the fall of 2014. Among other changes over previous models, the new Keurig brewer will contain technology that prevents generic K-cups from being used. Green Mountain is the latest to introduce protections for their propriety technology, following in the footsteps of Hewlett-Packard and other printer manufacturers who have added technology to their printers preventing generic printer cartridges from being used, or software companies that have added Digital Rights Management (DRM) to their software to prevent piracy. It is unclear exactly what sort of form this proprietary protection will take, but past forms used in printers include RFID tags. In any case, Green Mountain has made clear that they will still allow third parties to produce K-cups so long as they obtain a license from Green Mountain. Already, a legal fight is brewing over Green Mountain’s proposed move. TreeHouse Foods and Rogers Family are already suing Green Mountain on antitrust grounds. Besides the antitrust concerns, Green Mountain may have difficulty stopping third parties that circumvent their protections. In 2012, Lexmark installed technology to prohibit generic printer ink refills in their printers and lost an appeal in the 6th Circuit for a copyright and DMCA claim against a company that developed a work around for the protection technology for their generic ink refills. In the near future, the legal precedents set by these cases could have far-reaching effects on DRM and physical proprietary protections across the market.

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April 2nd, 2014 at 4:22 pm

Coalition for Patent Fairness Attempts to Curb Inefficient Patent Litigation

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On February 5, 2014, Google and Cisco announced a long-term cross-licensing deal. The agreement permits either company to utilize the other company's patent portfolio. That day, Cisco also agreed to a similar cross-licensing agreement with Samsung. Last week, Google also reached a cross-licensing agreement with Samsung. Why are there so many of these cross-licensing agreements? It begins with intense competition in the technology sector. Companies with large patent portfolios have a financial incentive to sue other infringing companies to either procure licensing fees or protect market share. Of course, other companies may have large patent portfolios as well, and they can counter-sue for infringement of their patents. Thus, we have a form of mutual deterrence. Each company is infringing on patents of the other, and it is often impossible to predict how a judge or jury will decide the case. Companies don't deal well with uncertainty and often choose not to roll the dice. As a result, very few of these cases go to court. The cases that we do see involve highly sophisticated markets such as the smartphone battle between Samsung and Apple, which resulted in a near $1,000,000,000 judgement to Apple. There is another aspect to the patent litigation game. As mentioned above, large companies are deterred from suing each other because of the risk of countersuit. However, a large company could contract with a patent assertion company (or "patent troll") to sue the other corporation on its behalf. The company maintains anonymity and gains the desired market advantage. In these proxy lawsuits, it is often hard to determine the actual interested parties. Companies can in effect hire paid guns to do their dirty work. Fittingly, this practice is called "patent privateering." And to many, this is seen as inefficient and undesirable for the economy. The Coalition for Patent Fairness is such a group that believes that the current method of doing business  is broken. As stated on their website, the Coalition is "a diverse group of companies dedicated to enhancing U.S. innovation, job creation, and competitiveness in the global market by modernizing and strengthening our nation’s patent system." Google, Cisco, and Samsung are companies in the Coalition. By negotiating long-term cross-licensing agreements, these companies are announcing that they are tired of the gamesmanship and shadow tactics common in the technology industry, and they are choosing to compete in the marketplace. Hopefully, in time, more companies will follow their lead.  

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February 17th, 2014 at 11:55 am

Harnessing Deeper Relationships in South Korea

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Korea has opened its legal market to foreign law firms under Free Trade Agreements about one and a half years ago.  According to the Ministry of Justice, 16 foreign firms have opened shop and are currently operating in South Korea: • 13 US-based firms: Cleary Gottlieb Steen & Hamilton; Sheppard Mullin Richter & Hampton; Simpson Thatcher & Bartlett; Paul Hastings; Ropes & Gray; Covington & Burling; O'Melveny & Myers; K&L Gates; Cohen & Gresser; Square Sanders; Greenberg Traurig; McKenna Long & Aldridge; McDermott Will & Emer • 3 UK-based firms: DLA Piper; Clifford Chance; Herbert Smith Freehills Why Korea?  South Korea is ranked 15th in the world by nominal GDP and 12th by purchasing power parity, and is considered one of the fastest growing economies in the world.  The combined outbound M&A market for last year was $8.8 billion, an increase of 13% from 2011.  The country also ranks 4th in the number of patents issued by the World Intellectual Property Organization in 2011.  Korea's largest companies are technology companies, such as Samsung, LG, and Hyundai.  Law firms are drawn to the corporate and IP opportunities and Korean companies are similarly drawn to their service.  Korean companies and government have spent close to $1.1 billion in 2011 for foreign legal services in 2011. Law firms are integrating in 3 stages.  For the first two years, firms can open representative offices and provide legal counseling on non-Korean law, which has already attracted a long list of interested corporations.  For the following three years, firms can enter into co-operative agreements with Korean firms, which include advising on legal issues involving a mixture of domestic and foreign law, and entering into fee-share agreements with their Korean counterparts.  The final stage is to allow firms to invest in the local market, recruit Korean lawyers, and enter into partnerships with Korean firms. Some say that heightened competition for legal work will impact fees, and predict that a restructuring period will soon begin.  Others focus on the fierce competition that will emerge from local players that have nurtured deep relationships with Korean companies.  Another consideration is to understand the deeply rooted Confusionistic culture that is pervasive in the business culture, such as the top-down management style whereby decisions are made by committees rising up the hierarchy. But on a whole, foreign firms will have better access to the dynamic global market of Korea and enhance bilateral investment opportunities,  in turn making it easier for Korean companies to navigate investments abroad.

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December 21st, 2013 at 7:31 pm

California Passes New Revenge Porn Law, but is it Good Enough?

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Today, just about everything happens on the Internet. That includes flirting, dating, and breaking up. While ex-lovers with broken hearts have sought revenge for centuries, today the implications are far different. Before the Internet, such revenge may have included spreading rumors or writing a phone number in a bathroom stall. Today, however, revenge includes turning private explicit photos of a former lover into non-consensual porn. This is “revenge porn” and California is trying to stop it. Revenge porn is defined as sexually explicit media that is distributed online, without consent of the pictured individual, for the purpose of humiliation. The majority of photos used for revenge porn are taken consensually during a relationship and meant to remain private between the couple. There are a number of websites dedicated to posting such images and they profit from advertising revenue. Revenge porn victims cannot go after web hosts directly due to Section 230 of the Communications Decency Act, which provides a safe harbor. While some believe courts may pierce the section 230 immunity, California took a different approach: making it easier to go after those who distribute sexual images of their exes. Passed by California Governor, Jerry Brown, in early October, the anti-revenge porn legislation would impose a $1,000 dollar fine and six months of jail time upon people convicted of distributing revenge porn. While this may sound good at first, this new legislation has a number of problems. The most glaring problem is that the law only applies when the sexual images are taken by the person accused of posting them online. This means that the law does not apply when a person takes a photo of themselves and shares it with someone who later posts it to a revenge porn website. Unfortunately, according to the Cyber Civil Rights Initiative, over 80% of revenge porn victims (and they are predominantly women) took the photo themselves and assumed it would not later be available for public consumption. The law has been heavily criticized, prompting a robust discussion about how to legislate the tricky issue of non-consensual porn. Other ideas include amending the Copyright Act and establishing a federal law against the practice. While these ideas certainly have merit, they are only ideas. California’s law may have critical flaws, but it is at least a meaningful step toward protecting future victims of revenge porn.

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November 14th, 2013 at 2:09 pm

Just a Playlist… or Something More?

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Music streaming service, Spotify, has yet again found itself at odds with a creator in the music industry. This time around, the disagreement centers on a more novel question: Does a compilation constitute copyrightable intellectual property? According to U.K. based dance-music record label, Ministry of Sound, it does. Ministry of Sound, or MoS, has recently filed a lawsuit in the U.K. High Court against Spotify, claiming copyright infringement. MoS produces compilation albums comprised of songs which the label has not itself created, but has selected and placed in a purposeful, specific order on the album. The record label’s “beef” with Spotify is grounded in the fact that the streaming service currently allows users to create playlists that essentially emulate the compilation albums. Further irritating the label, some users even go as far as to title those playlists “Ministry of Sound.” To be clear, the users are not illegally downloading the MoS albums; they are instead legally listening to the individual tracks through the streaming service and replicating MoS’ order of the tracks in their own playlists. After pleading with Spotify to remove these playlists since last year to no avail, MoS finally had enough and essentially said, “see you in court.” This case will turn on the issue of whether or not the order/structure of the content on MoS’ albums is copyrightable. But what are the odds that a court will actually determine that the compilation albums (in terms of their ordering of songs) constitute copyrightable material? The claim MoS is making is certainly deserving of at least some consideration. Factually, we can see how the artistic compilation of music is the result of a unique, creative process. This process may even require extensive research and hours of dedication to deriving the perfect order. For those reasons, there is an argument to be made that the end result of the process is an original work. Where MoS will likely find its greatest struggle in this lawsuit, however, is in showing that its compilation albums constitute a work original enough to be worthy of copyright protection. Since the filing of the lawsuit, many comments on the relevant articles and blog posts have shown disdain for the idea that taking music that someone else created, and placing it in a specific order on a playlist, could constitute anything that could even remotely be considered copyrightable, or truly original. When MoS’ albums are equated with mere playlists (which are viewed as lists that require no skill or real effort to produce) the future for MoS in this lawsuit against Spotify doesn’t look so bright. While the public consensus seems to be that MoS’ claim simply does not hold water, the worlds of music, technology, and copyright should certainly keep a close eye on this case, as the possibility exists that the UK court could side with MoS. This is an issue of copyright definition and protection that the courts have not yet faced (MoS is the first label to make this type of claim), and it could wind up being a real game changer for the industries involved. If MoS wins, this could strike a major blow to the business model of Spotify and other music streaming services that allow users to create playlists, as playlists are becoming an increasingly prevalent and important form of music consumption. If MoS loses, the compilation sales business model for MoS may prove unsustainable—will people continue buying the compilation albums when they can just recreate the same playlist for free on Spotify? Additionally, MoS’ claim could be the catalyst for similar claims to be brought in US courts. Through these cases, law and technology continue to shape the ways in which we view art and originality. In today’s world, where will the court draw the line of what is and is not art in the sense of copyright? To find out, we’ll just have to stay tuned.

Nortel Patent Failure Returns to Haunt Google

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Last week on October 31st, a nightmare scenario that Google hoped to avoid came to pass. Attorneys for Rockstar Consortium filed suit in the Eastern District of Texas against Google and seven handheld device makers that employ Google's Android operating system on their devices. The suit alleges infringement of seven patents all titled “Associative Search Engine.” The patents, 6,098,065; 7,236,969; 7,469,245; 7,672,970; 7,895,178; 7,895,183; and 7,933,883, were filed from 1997 to 2007. Rockstar Consortium was founded in 2011 and is jointly owned by Apple, Microsoft, Blackberry, Sony, and Ericsson. The consortium was founded to bid on the patent portfolio of Canadian telecom company Nortel, which was liquidated at auction in 2011 when the company went bankrupt. At the time, Google attempted to purchase the patents, likely to avoid just such a lawsuit, but their top bid of $4.4 billion was exceeded by Rockstar, which purchased the patents for $4.5 billion. Google’s failure to land the patents may now be costly for them as well as Android device makers. Rockstar is part of an emerging new trend in the “patent troll” movement where large corporations assign or give their patents to small companies, for the purpose of reverse engineering existing products and for extracting licensing fees and damages from alleged patent infringers. This model allows a company with few employees–Rockstar has only about two dozen employees, including ten reverse engineering experts–to obtain license fees from potentially hundreds of tech companies. A small consortium like Rockstar has another advantage in a fight against a tech company like Google, they have no products or business of their own. They cannot be counter sued for infringement because they have no business that would infringe. The crux of the situation is that companies like Apple and Microsoft can inject capital into a Rockstar type partnership, which will then purchase patents and use them to attack Apple and Microsoft competitors while leaving Microsoft and Apple above the fray. The companies backing Rockstar are likely seeking to put a damper on the rabid growth of the Android platform. However, with the talk of legislation to control patent trolls, the Obama administration’s concern over standards essential patents, and the Justice Department’s comments on Rockstar committing to fair terms for standards essential patent licenses, it will be difficult to predict the outcome of this suit. If Rockstar sees success here, this may become the new battlefront between tech companies in the aftermath of the monstrously expensive Apple v. Samsung case.

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November 8th, 2013 at 2:25 pm

Tesla’s Nationwide Tussle with Franchise Laws

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How do you buy a car? The answer, with few exceptions (including Ferrari invitation-only sales), is that you go to the dealership. How do you buy Motor Trend’s 2013 Car of the Year, the Tesla Model S? Unfortunately, the answer is, “it depends.” Tesla Motors, operated by famed CEO Elon Musk, is currently pitted in a nationwide state-by-state battle for the right to legally sell its cars. The national lobby group for automotive dealerships, the Automobile Dealers Association, has spent recent years duking it out with the innovative electric car producer. The problem? Tesla wants to sell its cars direct to consumers, and the Dealers Association, through state franchise laws, is attempting to require Tesla to utilize independently owned dealerships. Under most state franchise laws, car manufacturers are prohibited from selling new vehicles directly to consumers. According to Road and Track, the push for such laws occurred early on when the auto industry was still establishing itself in the domestic consumer market. At this time, third party dealerships were often used to “float the manufacturers by financing the inventory they bought.” Over time, as the dealership industry grew in size, dealers “convinced most state legislatures to pass strong laws that protected their business model by preventing the manufacturers from directly competing with them.” Tesla has won a few small victories in its battle against these laws, including a recent victory in New York that disallows dealerships from utilizing the state dealership laws to sue competitors. However, some states, most notably Texas, have stuck to their proverbial guns by refusing to amend current strict franchise laws to allow Tesla to sell direct. As a result, Tesla “sales” staff in Texas locations are forbidden from any sort of sales activity, including offering details on pricing or any sort of information regarding how to purchase a vehicle. If you crave evidence of Tesla’s battles, look no further than the Tesla website, which openly shows its scars from lost legal battles with franchise laws. Under the site’s “find us” tab, States sticking to strict franchise laws are listed as having Tesla “Galleries” rather than “Stores.” Musk asserts that for the company to survive it must cut out the middleman and sell direct to consumers. This seems reasonable considering the sheer difference in size of the company when compared to most carmakers that utilize dealerships. Even Ferrari currently offers five models of cars, a surprisingly large number when compared to Tesla’s one, the Model S. Tesla’s size alone may require a more order-based system for its cars, as opposed to building the sort of inventory a dealership network would require. The initial capital investment required to build inventory sufficient for a successful dealership network could potentially drive Tesla deeply into debt. Is it wise to saddle a new company with debt, especially considering it was just less than a year ago that Tesla paid its immense debt to the government? So what is the next move for Tesla? It's very likely, as Musk agrees, it’s to seek nationwide reform. Legal battles are costly, especially for an emerging company such as Tesla. With around a dozen states making Tesla’s sales model “extremely difficult,” only time will tell if the costs of litigation compel Musk to head to Capitol Hill. It would be a true shame to see Tesla fall merely due to legal roadblocks preventing it from reaching nationwide distribution.

FTC sets sights on Patent Trolls

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On September 28 of this year the Federal Trade Commission voted to seek public comments on proposed information requests to better understand patent troll practices. This move by the FTC marks the first step on the road to possibly regulating patent trolls. Patent trolls are firms that buy patents with the sole purpose of suing others whose goods infringe the patent. Patent trolls do not attempt to produce the invention disclosed by the patent, but rather sue those firms that do. With the FTC’s latest focus on patent trolls, it is clear that patent trolls are becoming problematic for businesses. In 2011 alone, according to a Financial Times article, litigation by trolls accounted for sixty percent of all patent lawsuits filed in the US. Trolls create IP minefields for businesses, whereby businesses must exert resources to carefully act to not infringe a patent troll’s patent. Sometimes companies decide to not undergo innovation because doing so might put the company at risk of being sued by a troll. This action also antagonizes the ultimate purpose of patents - to further scientific and technological progress - by slowing the pace of innovation. It, therefore, makes sense that the FTC has decided to fight back against trolls - especially in light of the agency’s key mission “to examine cutting-edge competition and consumer protection topics that may have a significant effect on the U.S. economy.” In spite of the FTC effort, it is unclear what regulations could effect in greater transparency of patent troll activities. One viewpoint is that if patents were bought and sold on an exchange, such centralization and transparency could make it easier for businesses to protect against patent trolls - by buying the patents first or through other financial incentives - and for regulators to prevent against behavior that thwarts competition and innovation. Creating a patent exchange would require better patent valuation techniques as well as a shift in thinking. While some firms, such as Ocean Tomo, have tried to popularize the idea of a patent exchange (e.g. Ocean Tomo's IPXI product), this reality has not become widely accepted. Might this be the future?

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October 10th, 2013 at 2:17 pm

Delete Button for the Internet? New California Law Says Yes

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On Monday, September 23, 2013, California Governor Jerry Brown signed SB 568 into law. SB 568 requires “the operator of an Internet Web site, online service, online application, or mobile application to permit a minor who is a registered user of the operator’s Internet Web site, online service, online application, or mobile application, to remove, or to request and obtain removal of, content or information posted.” The law will take effect on January 1, 2015. A second provision of the bill prohibits internet companies from marketing products to minors that are otherwise prohibited to be offered and cold to minors outside the internet. With the passage of the so called “Eraser Button Bill,” California is the first state to require websites to allow people younger than 18 to remove their own postings. SB 568 is not all encompassing, however, as the law covers only content (including photos) that is actually generated by the individual. Thus, internet companies and websites will not have to remove content posted or reposted by others. However, the law can reach websites located in other states, as websites located outside California must also comply with the law if the user in question is a minor from California. In terms of penalties for a violation, SB 568 doesn’t spell out specific penalties for sites that fail to comply, but it could expose web companies to civil liability. Supporters of the new law champion SB 568 as a victory for privacy rights. James Steyer, Chief Executive of Common Sense Media, a charity that promotes children’s digital privacy, stated that SB 568 “is a big step forward for privacy rights, especially since California has more tech companies than any other state.” California already allows certain people, such as victims of domestic violence, to get information struck from their online record. SB 568 is meant to protect teens from doing harm to their job and college applications. Nearly a quarter of college admissions counselors admitted to checking applicants social networking profiles and found “vulgarities, alcohol consumption, and illegal activities” which negatively affected applicants admissions chances. According to Steyer, “Teens often self-reveal before they self-reflect and may post sensitive personal information about themselves – and about others – without realizing the consequences.” Even Google has given at least tepid support to this type of legislation. In May of 2013, Google Chairman Eric Schmidt said the internet needed a “delete button.” Opponents have criticized the legislation as infringing on free speech rights. Others have concern that under this new legislation, websites will not understand what their legal obligations are. The Center for Democracy and Technology is concerned that such legislation “will discourage operators from developing content and services tailored to younger users, and will lead popular sites and services that may appeal to minors to prohibit minors from using their services.” Additionally, SB 568 will burden websites with developing policies for different states. Other opponents argue that even if SB 568 is well intentioned, the objective can’t be completed on a practical level as internet archives automatically create copies of nearly every piece of information on the web. And, they argue, the law is unnecessary, since nearly every imaginable service already offers a delete button. According to proponents, however, the law will allow users to do more than simply “delete” posts – as posts that are simply deleted are potentially retrievable. This law forces websites to permanently delete what has been posted. Finally, opponents are skeptical as to how the law should be applied. SB 568 only protects content that the user uploaded him or herself and not information that has been copied by a third party. But what if a friend “likes” a photo on Facebook? They argue that to have any sort of teeth, the law would have to permit the deletion of data that has been reposted, archived, or interacted with which would conflict with one’s right to share and discuss information. Will other states follow suit? Who knows – but this is not the highest profile attempt to give minors the ability to delete their postings. In 2011, a similar bill called the Do Not Track Kids Act died in committee in the U.S. House of Representatives. Perhaps California and SB 568 can serve as the test model for the rest of the nation.

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October 1st, 2013 at 1:53 pm

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