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TMT Perspectives

Insight & Commentary on Business, Legal and Policy Developments Affecting the Telecom, Media, and Technology Sectors

Obama and the Federal Government Start To Tackle Cybersecurity

By Dana Frix and Jan-Michael Dierkes of the Goerg Law Firm on Posted in Cybersecurity, Legal Developments

More than fifteen years after America adopted the Internet, President Obama is finally trying to get the federal government to tackle the complex issue of cybersecurity.  This (admittedly long) post discusses the effort to establish a framework that enables the government and private enterprise to experiment with possible solutions.  If you have time to read only one article about what the federal government is trying to do in the cybersecurity area, this is it.

Executive Order 13636 – A New Framework To Improve Critical Infrastructure Cybersecurity

Critical infrastructure protection policy has been growing in importance over the last two decades.  Many attempts have been made, both by the government and in the private sector, to address cybersecurity risks.  However, cybersecurity attacks, be they intentional or accidental, are increasing at an alarming pace and could disrupt the supply of essential services we take for granted, such as water, healthcare, electricity or mobile services.  The President’s Executive Order 13636 on “Improving Critical Infrastructure Cybersecurity,” issued February 12, 2013 (EO 13636), recognizes these growing concerns and aims to establish a new security framework for critical infrastructure.

Cybersecurity incidents are rising in frequency and magnitude, becoming more complex and respect no border. According to the World Economic Forum, there is an estimated 10% likelihood of a major critical information infrastructure breakdown in the coming decade.  The European Commission estimates that 150,000 computer viruses circulate every day and 140,000 computers are compromised daily.  Symantec has calculated that cybercrime victims worldwide lose around $380 billion each year, while a McAfee study puts cybercrime profits at $980 billion a year.  According to the Center for Strategic and International Studies (CSIS), the U.S economy lost an estimated $300 billion in trade secrets last year alone.

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EU Achieves Great Victory Against Google Using Power of Juche

By David Evans on Posted in Antitrust, Companies, Competition Policy, Legal Developments, Social Networking

The New York Times is reporting that Google and the European Union have reached an “antitrust” deal regarding how Google displays certain search results that include its own properties, like Google Plus Local or Google News.  Under the proposal, Google will “clearly label” search results from its own properties.  The deal will undergo some “market testing” before final implementation.  According to the Times, the “European Commission will have succeeded in demanding far more stringent concessions from Google than did United States regulators….”  The implication of the article is that the EU has won a great antitrust battle, perhaps even a great retaliatory holy war, against evil Google, and that the US has, yet again, lost.

What the EU’s Win Signifies

Little of this is true.  If anything, what the EU’s “win” signifies is that the balance of power in its system is disproportionately and inefficiently skewed in favor of the regulator; the outcome of any investigation in the EU can be just as much a function of the dietary success of that regulator’s breakfast than any real insight into policy.  It is true, however, that the balance of power in the US system is disproportionately skewed in favor of business interests,  but that’s a function of our courts and the failure of Congress to amend the antitrust laws to fix the judiciary’s gutting of the antitrust regime.  It is not a failure of the Federal Trade Commission or the United States Department of Justice to bring aggressive cases.

Failure to Correlate

The biggest flaw in the EU’s Kafkaesque prosecution of Google is that the EU has utterly failed to show, let alone explain, even hypothetically, any correlation between placement in search and an effect in a real-life antitrust market.  To put it more concretely:  do you even know what Google+ is?  If search played any sort of gatekeeper role into social networking, you’d expect to see Google+ approaching the levels of success achieved by Facebook, Twitter, Tumblr, Pinterest, or even Dave’s Orange Julius and Social Network Mall Kiosk.  Until one can show a plausible effect in a relevant market by these supposed advantageous search placements, one simply cannot say with any authority that Google’s placement harms competition at all.  Until one can show that Google search is the principal gateway to a particular market (not just product), and if so, whether the placement in search gives that product a cognizable advantage in that market, one cannot say Google has harmed competition.  If you wanted to join a social network, would you really Google “social network” to find one, and would you really pick Google+ over Facebook because the search results displayed Google+ above Facebook?  Really?  I suspect few who had any idea what was going on in the social network market would make that choice because of search placement. 

But what’s worst of all—from an intellectual standpoint, but certainly not from Google’s business standpoint—is that the EU has assumed that Google has market power without engaging in any real analysis.

End of the Day

At the end of the day, this “sorta-settlement” is nothing more than a minor consumer protection redress.  Make sure consumers know what they’re getting.  For the EU, it’s a bit of a victory because they can now say that there is precedent for the notion that Google has market power in search, and it gives them the chance to feel superior to the US.  On the other hand, it also encourages companies like Microsoft to complain about something (what that something is really doesn’t matter) to the EU, and possibly prod the EU into making some product design decisions for Google that suit Google’s competitors.

Is the Aereo Litigation a Trojan Horse?

By Dana Frix on Posted in Companies, Legal Developments

We have written before about the Aereo saga.  Aereo is trying to take live broadcast television and put it on the Internet.  The problem?  Big media owns live broadcast television, and the networks don’t think that a technology upstart (well, one owned by Barry Diller) should be able to create a business that relies upon their content without paying them.

For its part, Aereo doesn’t think it should have to pay the networks for redistributing free-to-air broadcast content.  Aereo looks at it differently.  Like cable companies, Aereo is actually expanding the reach of broadcast television (including the advertisements).  Putting aside the arcane copyright arguments, from Aereo’s point of view, it would make sense for the broadcasters to pay Aereo for the work it is doing promoting broadcast television viewership.

As usual, where technology seeks to disrupt, litigation is not far behind, and ABC has sued Aereo.  One of the things ABC will have to demonstrate is that Aereo’s service will harm ABC — essentially that Aereo will take viewers away from the networks.

As is often the case in litigation, that may be harder than it looks.  And one of Aereo’s best tools may well be data from the networks themselves. 

Aereo has asked that it be given access to the data behind NBCUniversal’s much-vaunted “Billion Dollar Research Lab.”  The BDRL was NBC’s effort to determine what mechanisms promote viewership of the Olympics.  What NBC discovered  was that Internet viewers did not cannibalize TV viewing of these games.  NBC’s research partners, including Arbitron, Google, Nielsen, Comscore and the like, concluded that TV-only viewers spent an average of 4 hours and 19 minutes per day viewing the London 2012 Olympics.  Viewers who used laptops, mobile and tablet devices, in addition to TV, watched an incredible 8 hours and 29 minutes per day of the games. 

Litigation can surface unattractive facts.  In this case, Big Media runs a risk that their copyright-based arguments can fail if Aero is able to prove that its technology increases the value of broadcast content.  If that happens, can Aero charge the networks?

 

Ancillary Copyright for Press Publishers in Germany – A Threat to U.S.-Based Search Engines?

By Jan-Michael Dierkes of the Goerg Law Firm on Posted in Companies, Copyright, Legal Developments

On March 1, 2013 after intense debate over the last several months, the German Bundestag passed new legislation that could prohibit search engines, such as Google and Yahoo, from displaying snippets of news stories without obtaining the publisher’s permission and paying a license fee for these excerpts.  The bill has now been circulated to the German Bundesrat and could be enacted by mid-summer.

Under current German law, search engines and other online services that search specific selected areas rather than the entire Internet (so-called “web-aggregators”) have the right to quote short excerpts from the websites that appear in search results, including when such websites belong to newspapers or periodicals, without seeking permission from and paying a fee to the publisher.

If the new legislation is passed, this situation will change and search engines, as well as commercial providers of services that process content in a similar way as search engines, will need to obtain publishers’ permission to quote and pay them a fee to be collected by a central clearinghouse.

This legislation could have a costly impact on the U.S. Internet economy, as the most popular search engines in Germany are Google and Yahoo.  According to StatCounter Global Stats, U.S.-based providers account for an estimated 98 percent of general-purpose search engine page views in Germany.

On February 8, 2013 the American Computer & Communications Industry Association (CCIA) filed official Comments urging the United States Trade Representative (USTR) to take all possible measures to raise their concerns about the planned changes to the German copyright law with the German and EU governments.  CCIA considers the new legislation to be a major new market access barrier that infringes on international trade law.

Will the new German legislation have an impact on the U.S. Internet economy as suspected?  This remains to be seen.

Due to the massive national and international protest so far, the German government scaled back the draft proposal in a last-minute decision, at least in one relevant aspect, before sending it to the German Bundestag.  The original draft defined snippets,  requiring publishers’ permission to quote and payment of a fee, as text excerpts with less than 160 characters.  Search engines, such as Google and Yahoo, use on average 130 to 160 characters per online result.  The legislation passed by the German Bundestag now only states that “… single words or smallest text excerpts …” (translated) can be quoted without a publisher’s permission and without payment of a fee.  The bill does not define “smallest text excerpts,” a possible loophole for search engines and Internet providers like Google and Yahoo because it leaves much room for interpretation.

Obama Administration Prioritizes Combating Theft of U.S. Trade Secrets

By Sean McGuinness on Posted in Companies, Intellectual Property, Legal Developments

Over the last fifteen years the recognized importance of intellectual property to international commerce has skyrocketed.  The focus has been on code and patents and the willingness of strategic and financial investors to invest in both — and to litigate once rights have been acquired.

In that context, a focus on trade secrets has seemed outdated.  But from another point of view, overlooking trade secrets has simply been a market failure.  Trade secrets are protectable as formal IP, and arguably more powerful, because a trade secret does not need to be registered, and it can represent a broad right. 

The Obama Administration is taking a novel course.  It is invoking the enforcement of trade secrets under U.S. and international law as a tool of statecraft to combat industrial espionage. 

Private companies would be well served to pay attention to this development.  The Obama Administration is signaling that it thinks this tool has been overlooked, and can play an important role in protecting U.S. commercial interests.  We will have to see whether private companies agree.  Below we lay out some of the background relevant to this development.

One additional comment:  the focus on trade secrets has an embedded risk.  It requires that companies enforce their trade secrets.  Failure to take action to do so will mean that private companies may be handing their opponents a strong defense to a claim that IP rights have been violated.

Existing Law

Trade secrets are generally defined as information that is not generally known to the public; that confers some sort of economic benefit on its holder which derives specifically from its not being generally known; and that is the subject of reasonable efforts by its owner to maintain its secrecy.

Enforcement of trade secret rights between private parties is largely the province of state law.  However, the Economic Espionage Act of 1996, 18 U.S.C. §§ 1831-29 (the EEA), criminalizes some forms of trade secret theft and also empowers the government to initiate civil enforcement proceedings.  Section 1831 of the EEA makes it a felony to knowingly steal or misappropriate a trade secret to benefit any foreign government or agency thereof.  Section 1832 makes it a crime to knowingly steal or misappropriate a trade secret to the economic benefit of anyone but its owner if the accused party intends to injure the owner.

The Threat

Recent years have seen an alarming growth in state-sponsored industrial espionage and criminal theft of trade secrets.  The criminal activities involve efforts to acquire trade secrets both through the recruitment of current and former employees, and through cyber intrusion against electronic repositories of trade secret information.  This is illustrated by a summary of the related criminal proceedings that have occurred since January 2009 published by the Department of Justice, which identifies 20 significant cases including the following examples:

  • In November 2012, a former General Motors engineer and her husband were convicted of stealing GM trade secrets relating to hybrid vehicle technology worth $40 million.  The defendants copied more than 16,000 GM files, including trade secret documents, to an external computer hard drive, and then tried to pass the trade secrets to a Chinese automaker.
  • In October 2012, South Korea-based Kolon Industries and several of its executives and employees were indicted for allegedly engaging in a multi-year campaign to steal trade secrets related to DuPont’s Kevlar® fiber and Teijin Limited’s Twaran® fiber.  The indictment seeks forfeiture of at least $225 million in proceeds from the alleged theft of trade secrets from Kolon’s competitors, and charges Kolon with multiple related criminal counts.  According to the indictment, Kolon allegedly sought to improve its product by targeting current and former employees at DuPont and Teijin and hiring them to serve as consultants, then asking them to reveal confidential and proprietary information.
  • In September 2012, a former senior software engineer for Chicago-based CME Group pleaded guilty to theft of trade secrets for stealing source code and other proprietary information while at the same time pursuing plans to improve an electronic trading exchange in China and admitted to downloading more than 10,000 files containing CME computer source code that made up a substantial part of the operating systems for CME’s Globex electronic trading platform.  The government maintained that the potential loss was between $50 million and $100 million.
  • In April 2011, a former Ford employee was sentenced to 70 months in federal prison for theft of trade secrets and economic espionage.  The employee resigned to work at a Chinese automotive company.  He copied 4,000 Ford documents onto an external hard drive, which he took to China.  Ford valued the loss of the trade secrets at $50 million.

Administration Response

In response to these threats, on February 20, 2013, the Obama Administration announced a new “Strategy on Mitigating the Theft of U.S. Trade Secrets,” which summarizes the problem as follows:

“Emerging trends indicate that the pace of economic espionage and trade secret theft against U.S. corporations is accelerating.  .  .  .  Additionally, there are indications that U.S. companies  .  .  .  are experiencing cyber intrusion activity against electronic repositories containing trade secret information.  Trade secret theft threatens American businesses, undermines national security, and places the security of the U.S. economy in jeopardy.”

With the Strategy, the Administration proposed a multi-faceted approach to address the situation, consisting of the following principal elements:

1.  Focus diplomatic efforts to protect trade secrets overseas.  The Strategy seeks to respond to the international aspects of the problem through a coordinated effort by the Departments of Commerce, Defense, Justice, Homeland Security, State, Treasury and the U.S. Trade Representative.  Significantly, the Strategy commits the Administration to continue to apply diplomatic pressure on foreign governments where there are regular incidents of trade secret theft.  In addition, the Administration will utilize trade policy tools to increase enforcement against trade secret theft; seek international law enforcement cooperation; build international training capacity; and work with global organizations to strengthen international enforcement efforts.

2.  Promote voluntary best practices by private industry to protect trade secrets.  The Strategy calls on industries and trade associations – consistent with anti-trust laws – to develop best practices to protect trade secrets.  These include developing policies relating to research and development compartmentalization, information and physical security and human resources practices.  The U.S. Intellectual Property Enforcement Coordinator, in concert with other government agencies, will help to facilitate these activities.

3.  Enhance domestic law enforcement operations.  The Strategy directs the Department of Justice and FBI to continue to prioritize the enforcement of the EEA.  The Office of the Director of National Intelligence will coordinate efforts within the intelligence community to inform the private sector how best to combat trade secret theft, and will share threat warning and awareness information with the private sector.

4.  Improve domestic legislation.  The Strategy indicates the Administration’s intent to continue to ensure that U.S. laws in this area are as effective as possible.  To this end, the Administration directed federal agencies to review relevant existing federal intellectual property laws in March 2011.  This led to recommendations that the maximum sentence for economic espionage be increased from 15 to 20 years, and that the U.S. Sentencing Commission also increase the guideline ranges for economic espionage. 

5.  Promote public awareness and stakeholder outreach.  Acting through the Department of Commerce, the Patent and Trademark Office, the International Trade Administration and the FBI, the Administration will encourage all stakeholders to be aware of the potential adverse effects of trade secret misappropriation and to take appropriate actions to combat it.

Washington Policy Zeitgeist

By Dana Frix on Posted in Companies

Analysis and strategy are critical to successful behavior.  Simple data and context are prerequisites of both.  In that context, here is a modest comment on Washington — and prevailing policy — zeitgeist.

In the 1990s, as the competitive telecommunications industries were about to take off, an acronym took hold, particularly in Washington regulatory circles — FUD.  It stood (and still stands) for Fear, Uncertainty and Doubt.  FUD represented a tactic.  Entrenched industries fearful of changes in law and policy that would eventually culminate in the Internet could not oppose the developments head-on.  So instead they sought to slow them by casting doubt (or FUD) every step of the way.

Fast forwarding to 2013, a new acronym is being heard in Washington –  BHAG.  Bold Hairy Audacious Goals.  Interestingly, the acronym is not being driven by government.  It is coming from the private sector.  It seems to us that the private sector is both trying to convince itself that it still has the ability to be bold, and at the same time, issuing itself a challenge.  Industry, shaking itself off.  It reminds us of the 1980s.  The difference is that in the 1980s it was government (under Reagan) trying to convince the private sector of the private sector’s continued relevance and ability to perform.

BHAG.  We like it.

LXBN TV Interview: Why It’s Unlikely the FCC Will Be Creating a Free National WiFi Network

By Dana Frix on Posted in FCC, Spectrum Auction

Following up on my post on the subject, I had the opportunity to speak with Colin O’Keefe of LXBN regarding the Washington Post article stating the FCC was looking into creating free national wireless networks. In the interview, I explain what the FCC is actually doing and why the Washington Post wrote the story the way they did.

Auctioning Broadcast Television Spectrum

By Dana Frix on Posted in FCC, Spectrum Auction

The FCC wants to free up spectrum for wireless broadband by auctioning off spectrum held by television broadcasters in 2014.  To do so, the FCC is proposing to (a) incent television broadcasters to give up some or all of the spectrum they currently hold, and (b) auction that spectrum off to the highest bidder, while (c) also freeing up some amount of spectrum that will be available to anyone to use as they see fit on an unlicensed basis. Although hardly commented on, the auction process is also designed to serve the additional purpose of decreasing the number of television broadcast stations that exist, thereby increasing the value of the remaining stations.

How many of the more than 8,000 television broadcast stations will accept this offer is unknown. Two big questions loom: what price will the FCC accept for relinquishment of the spectrum, and what price will the marketplace pay for the spectrum that is being relinquished. These questions are unanswered because the FCC has yet to promulgate the rules that will govern the process. That process is underway. The order discussing the proposed auction and soliciting comments is lengthy – more than 165 pages.  If you are interested, see the so-called Notice of Proposed Rulemaking.    For most, the Staff Summary will be enough.

 

Auctioning Broadcast Spectrum — A Free Nationwide WiFi Network?

By Dana Frix on Posted in FCC, Spectrum Auction

On February 3 the Washington Post ran an article saying that FCC Chairman Julius Genachowski is preparing to create a free nationwide WiFi network that would allow you to avoid cellphone data networks.  The spectrum for this would be made available when the FCC auctions certain spectrum currently belonging to television broadcasters, most likely in 2014.

This generated a lot of interest — and many calls.

Regrettably, the article is too good to be true.  We began to draft a post clarifying matters when we came upon an analysis by Christopher King and David Kaut of Stifel Nicolaus Telecom Equity Research, saying everything we would have said.  It provides valuable — and hard to find — background on the FCC’s plan to auction broadcast spectrum and on the unlicensed spectrum that will result.

The analysis also provides a good  summary of an important new development — an agreement on goals and principles that should guide the FCC’s auction by an unlikely coalition consisting of AT&T, Verizon Wireless, T-Mobile, Intel, Qualcomm and the National Association of Broadcasters.  We haven’t seen many coalitions recently in Washington.  Ironically, maybe that old-fashioned industry — broadcasters — will show the tech guys how you use government and public policy to develop large opportunities in the new economy.

Google Settles with the FTC

By David Evans on Posted in Antitrust, Competition Policy, Intellectual Property

Google entered into a settlement agreement with the FTC.  Google did offer some commitments to the FTC regarding the display of third party content, but, fundamentally, the settlement did not involve search.  It involved Google agreeing to license two standards-essential patents on a FRAND basis.  Several highly respected commentators have hailed the settlement as marking a new age of clarity and predictability in the high tech markets.

Somewhat expectedly, Microsoft has complained about the settlement, suggesting that the FTC rethink it because it left a lot of room for Google to manipulate the process and ultimately would not result in any meaningful corrective action.  Almost immediately upon entering into the settlement agreement, however, Google moved to terminate the International Trade Commission’s investigation of Microsoft with regard to the H.264 patents it holds.  Google did not withdraw Patent No. 6,069,896 from the investigation, and reserved its rights in the civil cases against Microsoft, so the patent cases continue.

The settlement is probably insignificant from a policy standpoint.  It represents the notion that if you promise to license a standards-essential patent and renege on that promise, the FTC can sue you under Section 5.  That notion has been around since the FTC investigated Dell in the 1990s.  The settlement is also insignificant from a competition standpoint.  The FTC found no basis to sue Google for the illegal manipulation of market power, and, Microsoft’s efforts notwithstanding, the decision is unlikely to be rethought.  (The settlement is obviously significant for Google because Google avoided the cost of having to litigate with the FTC.  Europe notwithstanding, the lack of action on search also strongly suggests that proving a causal link between a preference in a list of search results and an effect in an actual relevant market is difficult.  That will have meaningful deterrent value to any plaintiff considering a case.)

In an earlier post, we predicted that Google would not settle with the FTC with regard to the standards-essential patents because it would likely prejudice their pending litigation with Microsoft.  We weren’t wrong.  In its motion to terminate at the ITC, Google did not withdraw the ’896 patent, and the ITC investigation, as well as the civil litigation against Microsoft, will proceed.  The settlement with the FTC may, in fact, bear on the ultimate outcome of the civil cases.  But it is also important to note that the ’896 patent, and, except only in the broadest sense, the patent suits against Microsoft, have little to do with search.

In effect, Google did the “right thing” by acknowledging a FRAND promise (if it really made that promise in the first place), but Google is also standing up and responding to Microsoft’s commercial aggressiveness.  And Google came out of the almost two-year investigation with no action on search, its core business.  Google won hands down.