Tag Archives: law

Did Apple and Google really spend more on patents than R&D? Yes – but it’s not all it seems

There’s been a meme doing the rounds based on the New York Times’ story on “the iEconomy” which claims that in 2011, both Google and Apple spent more on patent protection than R&D. This, on the face of it, looks like a savage indictment of the whole parent system – legal nonsense taking priority over real research.

There was something, though, that didn’t quite add up for me. Call it an old journalist’s nose for something fishy, but… it just didn’t smell right.

The paragraph this claim was made in is this:

In the smartphone industry alone, according to a Stanford University analysis, as much as $20 billion was spent on patent litigation and patent purchases in the last two years — an amount equal to eight Mars rover missions. Last year, for the first time, spending by Apple and Google on patent lawsuits and unusually big-dollar patent purchases exceeded spending on research and development of new products, according to public filings.

Aha. There’s the bit which set off my journo-sense.

As that paragraph notes, there were several unusually large patent portfolio deals in 2011. Apple, for example, contributed $2.6 billion towards the purchase of Nortel’s patent portfolio, in a consortium deal which also included Microsoft, RIM, Sony and EMC. That deal – worth a total of $4.5 billion – was a one-off. Portfolios like that rarely come on the market.

Likewise, Google spent $12.5 billion buying Motorola Mobility, a deal which Larry Page described as being about “strengthening Google’s patent portfolio” (Google actually accounted the patents as $5.5 billion of the purchase). Again, that’s a one-off: there aren’t many Motorola’s around and available for purchase. Likewise, the deal which saw Google buy over 1,000 patents from IBM.

So yes, Google and Apple did spend more on patents in 2011 than R&D. But that’s very likely to be a one-off, simply because 2011 was an unusual year which saw several highly-desirable patent portfolios come on the market. What the NYT didn’t say is that Apple also increased its R&D spending in 2011 by 33%, and that Google’s R&D spending continues to trend upwards massively, with the company spending a whopping 12% of all its revenue in R&D last year.

Read the NYT piece, and you would think that the technology market has shifted from being about research and development of new products to being about acquisition of patents. Given that this is based on a single year, when some very big patent portfolios came on the market in one-off deals that aren’t likely to be repeated in the future, that’s a long way from the truth.

That’s some leaky firewall, Mr Rubin

Andy Rubin on the “firewall” between Motorola and Google.

Rubin said he was “painfully aware” of concerns, but stressed that Google has “literally built a firewall” between the Android team and Motorola. “I don’t even know anything about their products, I haven’t seen anything,” he said.

Given that Motorola needed Google’s explicit permission to launch its patent attack on Apple, that’s some leaky firewall, Andy.

(via Google building ‘firewall’ between Android and Motorola after acquisition | The Verge)

My, how Google’s attitude has changed

Google, five months ago:

“A smartphone might involve as many as 250,000 (largely questionable) patent claims, and our competitors want to impose a “tax” for these dubious patents that makes Android devices more expensive for consumers. They want to make it harder for manufacturers to sell Android devices. Instead of competing by building new features or devices, they are fighting through litigation.”

Google, today:

“Google specifically gave permission for Motorola Mobility (MMI) to file a new lawsuit against Apple over its iPhone 4S and iCloud products, according to an analysis of the takeover agreement in which the search giant aims to buy the struggling mobile maker.”

 

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Apple reassures FutureTap: “We’re not making a patent claim on your work”

Remember the story about how Apple was stealing a third-party app developer’s work and patenting it?

At the time, I explained in a long post that the patent was nothing to do with FutureTap’s excellent WhereTo? application. And, after consulting a patent lawyer who managed to get in touch with Apple’s patent lawyers, that’s exactly how it’s panned out. In a post on their blog, FutureTap’s Ortwin Gentz quotes Apple’s senior patent counsel, Anand Sethuraman:

“The patent application in question does not claim as inventive the pictured user interface nor the general concept of an integrated travel services application.  We appreciate your taking time out to discuss the matter and will keep you updated.”

So there you have it. This was a long-way from the “evul Apple!” that many sites went for – but, as I said at the time, this says more about how Apple is currently perceived than its actual behaviour.

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Has Gizmodo broken the law with its iPhone story?

I am not a lawyer. But I do play one on the weekends.

More importantly, over the years I’ve become intimately familiar with the law as it affects journalists on both sides of the pond. I’ve covered cases like the “trade secrets” disputes between Apple and various news sources, and even had a couple of cases where companies (including one or two very big ones) have wanted to sue me. I’ve learned about this stuff because I’ve had to, in order to avoid ending up in court.

With that in mind, I’ve been looking through the various statutes which might just affect Gizmodo’s legal case over the putative new iPhone.

Trade secrets law

Jared Earle pointed me in the general direction of the Economic Espionage Act of 1996, which makes it an offence to steal or (and this is important) misappropriate a trade secret. There’s no doubt that a new iPhone prototype constitutes a trade secret – so isn’t Gizmodo guilty here?

I spent a long time looking at the issue of trade secrets back when the Think Secret/PowerPage case was going on, which gave me a little insight into the issue. And my take on it is no, Apple can’t claim violation of trade secrets because Gizmodo published the details of the phone.

Why not? Because in order to be classed as a trade secret, you need to “take reasonable steps” to keep it secret. In this case, unless the Apple employee had actually stolen the phone, by allowing it out in public Apple did not take reasonable steps – and hence cannot enjoy the full protection of trade secrets law.

The classic case law in this is all about cars. Car makers go to great lengths to keep the designs of new cars secret. However, inevitably, they want to test them on public roads – there’s only so much testing you can do on private tracks. So they drive them around on quiet roads, usually with some element of “disguise” like fake bodywork added. This is an exact parallel to what Apple did with the new iPhone. It disguised it, and allowed it out into public spaces.

When something is tested internally, it is a trade secret and you are not allowed to takes pictures of it and distribute them, or even write a description of it. There’s plenty of cases which make this clear.

However, if something is seen from a public space, it loses its trade secret protection. You can photograph it, describe it, or examine it in any way which doesn’t violate any other laws. You probably can’t open up a car and poke around in its innards, but that wouldn’t be because it was a trade secret – it would be because you can’t do that with someone else’s property.

So, in my view, neither Gizmodo nor the finder of the phone have a trade secrets case to answer. By testing the phone in public, even under a disguise, Apple lost its trade secret protection.

(UPDATE: Jonathan Ballerano has a good rejoinder to my points about trade secrets, with some insightful comments on how California law specifically affects the issue.)

Lost property law

In California, what you have to do with lost property is covered by the California Civil Code section 2080. Compared to many US laws, it’s actually a model of clarity, but there’s plenty of clauses and sub-clauses to trip the unwary.

The code sets out a pretty clear set of responsibilities for someone who finds lost property. First, within a “reasonable” amount of time, you have to contact the owner if you know or suspect who it is. Second, if you don’t know who it is or the owner “has not claimed the property”, you have to hand it over to the police – again, “within a reasonable time”.

In the Gizmodo case, assuming all statements made by Gizmodo are accurate, the finder attempted to contact Apple and hadn’t had a response within a few weeks. So far, he’s done the right thing. And note that while he has possession of the phone, the law says he has the rights and obligations of a “depositary for hire”. These are defined in section 1852 of the code as showing “at least ordinary care for the preservation of the thing deposited” – in other words, you can’t break it, dump it in the river, leave it lying in the street, and so on.

The legal problem that the finder will face in this case is showing that, in selling it, he was acting in accordance of the duties of a depositary for hire. I don’t think, in fact, that he can: selling property you know you don’t own when you are the depositary is analogous to you leaving something with a storage company for safe keeping and them selling it (storage companies are, in fact, literally “depositaries for hire”).

Secondly, by selling it, he clearly violated his secondary duty (after attempting to contact the owner) of giving it in to the police, which is established under section 2080.1. So there’s a double-oops here.

Theft and stolen property

But it also gets a lot worse – and our finder may have got himself into criminal trouble. Section 485 of the California Penal Code says that anyone who finds lost property and “appropriates such property to his own use, or to the use of another person not entitled thereto, without first making reasonable and just efforts to find the owner and to restore the property to him, is guilty of theft.”

Oh dear. Suddenly, we’ve moved from a civil matter between Apple and the finder to a criminal matter between the State of California and the finder. Oops.

Of course, were such a charge to be brought, everything would hinge on whether the actions taken by the finder amounted to being “reasonable and just”. Much will depend on exactly what he did. Personally, I think that “reasonable and just” would involve more than a couple of phone calls and raising an automated support ticket – I’d be driving over to One Infinite Loop and walking into reception demanding to see someone (and hoping I got a free new phone when they came out for my trouble).

Up till now, we’ve mostly been talking about the potential legal issues regarding the guy who found the phone. Gizmodo didn’t find the phone, so arguably doesn’t have the responsibilities of a finder with regard to lost property. As outlined, I also think they’re in the clear with regard to trade secrets.

But if Section 485 does, in fact, mean that the phone is stolen, Gizmodo is placing itself in the potential position of being in violation of California Penal Code section 496, which deals with receipt of stolen property. To be guilty, you must knowingly obtain the goods – being in receipt of stolen goods when you believe them to be legally-obtained is the classic defence.

On the face of it, this would be a good defence for Gizmodo. However, it may not be enough to cover them.

A classic example of how the courts test for this is the “back alley” thought experiment. If you buy an expensive watch from a shady-looking guy in a back alley, it’s reasonable to for the court to believe that you know it’s stolen, or at least strongly suspect it is. In this case, the circumstances make it impossible to believe you could have formed a reasonable judgement that the watch wasn’t hot.

In the Gizmodo case, a prosecutor would argue that the site should have known about the law on lost property, and in particular Section 485 of the Penal Code which makes it theft to appropriate lost property. We are, after all, talking about a multi-million dollar organisation that can, at the very least, afford some lawyers.

If successfully argued, that would make Gizmodo guilty of knowingly being in receipt of stolen property – at which point, some of them could end up going to jail for a year. Perhaps more painfully, Apple would be entitled to claim up to three times any losses it had suffered because of the theft and receipt – and I suspect it would argue that the losses it had suffered amounted to many millions of dollars. The bill would be far more painful to Gizmodo that any likely criminal sanctions.

Conclusions

This case is very much not like the earlier ones that Apple brought against Think Secret and PowerPage. There’s no issue about trade secrets here. Once that phone is out in public, even disguised, it’s no longer got much in the way of trade secret protection.

By my count, our unnamed iPhone finder has violated California’s lost property law in two different ways, and could easily be charged with theft because in doing so he misappropriated lost property pretty wilfully. On the statements that Gizmodo have made about the efforts he made to contact Apple, I’m pretty certain that he didn’t do enough, and even if he did, once he got no response he should have handed it over to the police rather than selling it.

Gizmodo, on the other hand, gets off relatively lightly by only being up for a potential charge of receiving stolen goods (assuming the theft charge is also brought). A year inside for Messers Denton and Chen, and a big enough set of damages to bankrupt the company may ensue.

Or it may not. In fact, I think the odds are that Apple will make no attempt to get criminal charges pressed (and it’s pretty unlikely the police would pick it up otherwise), and will take no civil action against the finder of the phone.

Why not? Because I don’t think there’s any benefit to them to doing so. Getting dragged into what would undoubtedly be a long-running case, involving a website which would undoubtedly play the “chilling effects” “press freedom” card wouldn’t benefit them.

But you can bet that Gawker won’t be getting any press access to anything from Apple soon.

Law and ethics

As a reporter – and make no doubt, Gizmodo is reporting here, actually doing journalism red in tooth and claw – you inevitably end up walking close to the edge of what’s legal every now and then. Whether it’s being in receipt of confidential information, publishing something that’s potentially defamatory, or standing closer to the front line of a protest than the police would like, you occasionally have to put yourself in some legally-risky positions.

What I’ve talked about here is purely the legal position. I’m not making any judgements about the ethics of it. In (potentially) breaking the law, has Gizmodo overstepped the line that journalists occasionally have to dance around? In paying $5000 for the iPhone, did it do something that isn’t justifiable?

I’ll save that for another post. Suffice to say, it’s complicated.

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Adobe set to sue Apple?

Steven J. Vaughn-Nichols:

“Apples iron-bound determination to keep Adobe Flash out of any iWhatever device is about to blow up in Apples face. Sources close to Adobe tell me that Adobe will be suing Apple within a few weeks.”

If Steven is correct – and he’s not the kind of guy to write this without some good sources – then things are about to get very interesting indeed.

Good news on copyright, but bad news on protection for sources

Some great news from Brussels on the attempt to extend copyright terms, again:

“Copyright term extension was dealt another serious blow last week when COREPER, the European Committee representing EU member states and the Council of Ministers, voted against the proposal. In a surprise move the UK government joined others in a blocking minority, rejecting a compromise deal that would have delivered minimal benefits to performers. It now seems increasingly unlikely that a deal on copyright extension will be reached by EU countries before the EU Parliament first reading plenary vote takes place.”

However, there’s bad news from the European Court of Human Rights, which ruled on the case of Sanoma Uitgevers B.V. v. the Netherlands, which deals with the protection of journalistic sources:

“With a 4/3 decision the Court (Third Section) is of the opinion that the order to hand over a CD-ROM with photographs in the possession of the editor in chief of a weekly magazine is in casu not a violation of Article 10 of the ECHR.”

This judgement will cast a long shadow over journalists, who will have more doubts in their minds over when sources will be legally protected. Although the court agreed there was a need to balance out the demands of law enforcement with the potential “chilling effect” of uncertainty over source protection, they seem to have erred very strongly on the side of law enforcement. This is a bad thing in general, and will pose some interesting problems for journalists and others.

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Some thoughts on the Psystar/Apple case

Ahh, Psystar. We hardly knew you. And now, finally, Apple wants you dead:

"’Apple licenses the use of its Macintosh operating system software for use only on Apple-labeled hardware,’ the Mac maker says in the suit (click here for PDF) adding that the only way to get a full version of the Mac OS is on a new machine. The boxed software product, it says, is only an upgrade version, valid only for upgrading an existing, Apple-branded Macintosh."

If that was what Apple was saying, I could foresee problems with its suit. The version of (say) Leopard you buy in a box as an "upgrade" really does include the whole shebang – and that’s the kind of technicality that courts get sticky about, and which tends to lose you cases.

Looking through the PDF, though, the only claim that I can see Apple making is that the boxed versions are sold as an upgrade, with different licensing terms – which is a different kind of claim.

Software licensing terms can and have been ruled invalid on the basis that they form "contracts of adhesion". In this case, it’s possible that a court may rule that a full version of an operating system which is sold with a license only to use it as an upgrade on specified hardware may form such a contract. That consumers have other purchasing options (ie they could buy Windows or Linux) is not always a defence, as Linden Lab found to its cost in the Bragg vs Linden Research case.

I don’t think that Apple will lose, particularly given that, judging from the court filings, some of Psystar’s actions don’t inspire much confidence in it as a company. The fact that Psystar allegedly makes copies of Apple’s software rather than supplying original disks only almost certainly means it’s in deep trouble. While reselling the original disks for a copy of Mac OS X that it had bought legitimately would probably be fine, making available anything authored by Apple as a download is a definite no-no.

The danger for Apple is that a court might rule that some of its licenses are invalid, which could open things up to other, more savvy Mac clone makers, even if it wins the case. But given that the core of its allegations is that Psystar is making illegal copies of its code, I don’t think it really had a choice about bringing the case.