Technology Transactions, Software and Internet Law

A New York Times article describes where the "niche neighborhoods" and industry clusters are located in Silicon Valley, with web design and online advertising centered in San Francisco, software in the Palo Alto area, and semiconductors, disk drives and and network equipment located in the south Bay near San Jose.

No mention of Cupertino, where my office is located, which has an eclectic mix of hardware, software and great design: Apple Computer, Symantec, and the U.S. office of open source database developer, MySQL, among others. 

Source:  A Social Order Shaped By Technology and Traffic, by Steve Lohr, The New York Times, December 20, 2007.  "Silicon Valley is a collection of remarkably local clusters based on industry niches, skills, school ties, traffic patterns, ethnic groups and even weekend sports teams."

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Generally, when a small U.S. client tells me that they wish to expand abroad, I think to myself, "that’s going to be complicated, time-consuming and expensive."

Recognizing the opportunities and challenges of globalization facing startups and other small businesses, the Wall Street Journal reports that consultants, such as High Street Partners of Annapolis, Maryland, now are advising them on how to expand abroad, such as dealing with tax issues, foreign employee benefits and local-currency transactions. 

I think that such consultants, especially for international finance and operations issues, would be a good complement to the advice of an international lawyer.

Source: Small Firms Hire Guides as They Head Abroad, by Phred Dvorak, The Wall Street Journal, November 5, 2007. 

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Web sites and other online services containing content submitted by users (also known as user-generated content) are obviously a hot growth area.

Not so obvious is the fact that these services depend on a little-known statute to protect their providers from legal liability for copyright infringement.  That statute is Section 512 of the Digital Millennium Copyright Act (DMCA).

Section 512 is crucial for online services such as YouTube, where users have been placing third parties’ content (such as clips from a TV show or move) without authorization from the copyright owner.  Under the copyright law, the user placing the content on the site without authorization can be liable as a "direct" infringer.  Absent Section 512, the online service provider that hosts such content could be liable as a "contributory" or "vicarious" infringer — roughly analogous to being an accomplice of the user.  The business impact is that the provider could face large damages in a pre-set statutory amount.  And, officers and directors of corporations and other entities face personal liability for their role in infringing activity.

Typically, the provider posts a policy regarding its copyright law compliance along with contact information for an agent to receive notices of copyright violations.  Providers also must register the agent in a public database at the U.S. Copyright Office to take advantage of Section 512. 

Owners of works that may be infringed then send what is known as a "takedown" notice, following detailed requirements in Section 512, for the work to be removed from the provider’s service. The original user may submit a "counter notification" to have the work reinstated on the online service (and face a lawsuit from the copyright owner), again following detailed requirements in Section 512.

I recently attended a seminar of specialists on Section 512, and took away some practical tips on how providers can use the protections of Section 512.  These takeaways are a composite of panelists’ opinions:

1. Many sites and services can face issues with user-generated content.  Content sharing sites such as YouTube and Myspace are obvious examples.  Even simple blogs, wikis or guestbooks that permit visitor comments can create similar issues, however.
2. Some copyright owners have hired rooms full of employees to search for infringing works and send take down notices.  One major media company sends more than 100,000 takedown notices — per day.
3. Users rarely send counter notifications when their works are taken down.  Typically the works that are taken down, remain down.  (Unless, of course, the same or another user re-submits them separately later.)
4. Many providers fail to register their designated agents with the U.S. Copyright Office, and thus miss out on the benefit of Section 512.  (I often assist clients with this simple and inexpensive filing.)
5. Providers need to adopt a policy providing for termination of repeat infringers.
6. Providers should keep good records of all take downs, such as the number of terminated works and user accounts, the reason for termination and the date of notice and date of termination.  This can be very helpful in demonstrating that the provider has a reasonable policy of terminating infringers.
7. Because providers can face liability based on their actual knowledge that the works are infringing, they should be wary of reviewing the user-generated content more thoroughly than required by law. Some seemingly obvious situations (such as a human editor choosing featured content on a home page) might create actual knowledge.
8. Obtaining a financial benefit directly tied to individual pieces of user-generated content is risky. Receiving fees for an overall service (such as setup or periodic subscription fees) should be less risky.  The financial benefit from advertising is currently an open question, so many providers currently do not place ads directly in any problematic content.
9. Several groundbreaking lawsuits are pending in this area in New York federal court. Google and other web services are introducing filtering technology to keep infringing works off of their sites, but such technology is still in early stages.  Web site operators and other online service providers need to keep an eye on this rapidly changing area.

The seminar was "Viacom v. YouTube (Google) Case: A Review of Section 512 (DMCA)" at the High Tech Law Institute (HTLI) of Santa Clara Law School, on October 23, 2007.  The panel consisted of Mindy Morton, associate, Bergeson LLP; Professor Tyler Ochoa of Santa Clara Law School; Fred von Lohmann, Senior Counsel of the Electronic Frontier Foundation (EFF); and Jenny Lynn Cox, Moderator and Executive Director of HTLI.

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I’ve just written and added a new article to my web site, Welcome to California: A Very Short Introduction to Several California Laws that Affect Out-of-State and Foreign Businesses (MS Word file).

My resources page contains other articles that I’ve written.

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TechCrunch posted a useful chart comparing all the existing virtual world services, such as Second Life.

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A new breed of "micro-multinational" is emerging among the many Web 2.0 social networking startups, as described by The San Jose Mercury News.  A micro-multinational is "a small company that acts big by skillfully using the Internet and other technologies". 

Those organizations use technologies such as Skype, video conferencing, instant messaging and viral marketing to reach customers and collaborators globally.

The article discusses RockYou, a 14-employee startup that has subcontracted to engineers in China, India, Japan and Romania and partnered with Gizmoz, an Israel-based maker of online avatars.  It mentions that over 20% of the 50 employees at Slide, a leading widget maker, are foreign nationals, including engineers from Guadalajara, Mexico.

Source: Rise of the Micro Giants, by Scott Duke Harris, San Jose Mercury News, July 14, 2007.

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A colleague of mine, Joel Riff of Riff & Bui, sent me the article Lawyers Collaborate with Wikis from Law.com.

Wikis are online collaboration tools that enable multiple users to post articles and to edit one another’s postings.  The most famous example is Wikipedia, an online Wiki-based encyclopedia that news reports say is now larger than proprietary encylcopedias, such as Encylopaedia Britannica.

A good list of legal wikis is available at www.editthis.info, and another at the Wiki Index, according to the article.

Wikis could make sense for collaborative drafting of agreement forms, legislation and regulations, among other things. 

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Some factoids about patents:

• Typical cost to obtain a U.S. patent: $5,000 to $25,000. 
• Cost to invalidate a patent: Legal fees average $4.5 million in patent disputes where more than $25 million is at risk.
• Cost of obtaining a patent versus invalidating one: You do the math.
• Number of inventions under active patent in the U.S.: 1.6 million
• Number of patents owned by International Business Machines Corporation (IBM), the 14 year recordholder of the largest number of patents awarded to a single company: 3,651.
• Percentage of software patents to total patents awarded in the early 1980’s: 2%
• Percentage of software patents to total patents awarded today: 15%

(I am not a registered patent attorney, and do not prosecute or litigate patents.  I’ve worked on many patent licenses and agreements over the years, though.)

(Source: "Businesses Battle Over Patent Laws," The Wall Street Journal, June 9-10, 2007.)

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How large is the intangible economy in the U.S.?

• U.S. businesses invest about $1 trillion in intellectual property and other intangible assets, according to a study by the Federal Reserve Board.  That’s as much as they invest in equipment and other tangible investments.
• Intangible assets, including intellectual property, constitute nearly 1/3 of the value of all U.S. stocks, or 45% of U.S. Gross Domestic Product (GDP).

(Source: "Businesses Battle Over Patent Laws," The Wall Street Journal, June 9-10, 2007.)

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