All Things Digital

Steve Martin once said, “The difference between a good comedian and a great one is ti … ming, tiiiii-ming, timmm-ing . . . timing!” If that’s the case, Microsoft’s comedic timing is impeccable.

In a status report filed with Federal antitrust regulators yesterday, Microsoft (MSFT) said it had done much to comply with its 2002 antitrust consent decree and generally applauded its efforts toward interoperability and fair competition.

In the states, perhaps. But apparently not in Asia. Because not 24 hours later, China’s State Intellectual Property Office said it’s investigating the software giant for discriminatory pricing. And according to the Shanghai Securities News, it may sue Microsoft under a new antitrust law scheduled to go into effect Aug. 1.

“On the one hand, global software firms, taking advantage of their monopoly position, set unreasonably high prices for genuine software, while on the other hand, they criticize Chinese for poor copyright awareness,” an unnamed source told the publication. “This is abnormal. With the anti-monopoly law in place, [the] Chinese government and companies have the obligation and right to correct the situation.”

Of course, it’s also “abnormal” for Windows Vista to be priced at $2.50 a copy, yet copies of the OS are widely available in China at that price. Syndicates that distribute more than $2 billion worth of counterfeit Microsoft software aren’t exactly normal either, but you’ll find those in China as well. The FBI did. Which is not to say that China is wrong to complain of Microsoft’s unreasonably high prices–just laughably vindictive in the way it’s gone about it.

If there was an Emmy Award for legislation production, NBC Universal Chief Executive Jeff Zucker would surely win it. Last October he called upon Congress to pass a bill that would create a dedicated intellectual-property enforcement bureau and today it’s looking more and more like he’s going to get it.

This week members of the House Judiciary Committee passed the Prioritizing Resources and Organization for Intellectual Property (called “PRO IP” groan…) Act of 2007, legislation that would create an “anti-piracy czar” at the White House level, a separate IP-enforcement division at the Justice Department and ratchet up already high civil penalties for copyright infringement.

The measure is backed by many of the most powerful politicians on the House Judiciary Committee, including John Conyers (D., Mich.), Lamar Smith (R., Texas) and “Hollywood” Howard Berman (D., Calif.), the content cartel and, of course, Zucker, who likes to tell everyone that it dramatically advances the cause of protecting innovation, technological invention and creativity.

Said Zucker, “This is such an important step in combating this incredibly serious piracy and counterfeiting problem that’s getting worse, not better.”

In Zucker’s eyes, maybe. But not in the eyes of consumer folks like Google Senior Copyright Counsel William Patry who calls Pro IP “the most outrageously gluttonous IP bill ever introduced in the U.S.” and consumer advocacy group Public Knowledge which feels it is in sore need of adjustment.:

This bill takes already extraordinary copyright damages and increases them, expanding the threat of litigation intended to stifle competition and innovation. … Increasing penalties is one of the least necessary, and quite possibly counterproductive, actions the committee could take, particularly when current law is adequate to deal with most infringement issues and because the higher penalties serve only to force faster and larger settlements potentially from innovators. … Instead of following the course of this bill, the committee should look to the future, to a more realistic and rational copyright regime that can adapt pre-VCR copyright laws to a post-YouTube world.”

It’s been a year since Microsoft CEO Steve Ballmer first claimed the Linux operating system infringes on Microsoft’s intellectual property and six months since the company’s general counsel, Brad Smith, and vice president of intellectual property and licensing, Horacio Gutierrez, told Fortune magazine that Linux and other open-source software projects between them violate 235 Microsoft patents.

Such anti-Linux declarations being biannual, it’s clear we were about due for another one, which Ballmer dutifully provided last week at a company event in the United Kingdom.

… Our battle is not sort of business model to business model. Our battle is product to product, Windows versus Linux, Office versus OpenOffice.
The only other thing I would say that is probably germane is, we spend a lot of money, the rest of the commercial industry spends a lot of money on R&D. We’ve spent a lot of money licensing patents, when people come to us and say, ‘Hey, this commercial piece of software violates our patent, our intellectual property,’ we’ll either get a court judgment or we’ll pay a big check. And we are going to–I think it is important that the open-source products also have an obligation to participate in the same way in the intellectual property regime.

“That’s why we’ve done the deal we have with Novell, where not only are we working on technical interoperability between Linux and Windows, but we’ve also made sure that we could provide the appropriate, for the appropriate fee, Novell customers to also get essentially the right to use our patented intellectual property. And I think it’s great the way Novell stepped up to kind of say intellectual property matters. People who use Red Hat, at least with respect to our intellectual property, in a sense have an obligation to eventually compensate us.”

So according to Ballmer, if you’re a Red Hat customer you may have an “undisclosed balance-sheet liability” to deal with in the near future. And if you’re not, you probably want to stay away from free software entirely. Because, as Groklaw’s Pamela Jones suggests, Microsoft apparently plans to eradicate it.

Ballmer “has just clearly outlined how Microsoft intends to extinguish Linux as we know it,” Jones writes. “Microsoft knows full well that in any intellectual-property regime based on software patents, particularly when used as weapons against innovation to protect and reward the old, no one can compete with Microsoft. They have all the money. FOSS is written by individuals who don’t have a pile of gold under the bed to go to court and get a court judgment or pay ‘a big check.’ Ballmer of course knows that. So this is the anticompetitive plan, under the guise of everyone having to play by the same rules.”

Nothing like an alarmist study to get Washington lawmakers worked up into a pro-legislation lather. Which is exactly what NBC Universal Chief Executive Jeff Zucker gave them at an antipiracy summit hosted by the U.S. Chamber of Commerce today.

Citing an Institute for Policy Innovation study that estimates that copyright-industry piracy costs the U.S. economy $58 billion per year (Holy cow! That’s like Mitch Bainwol’s and Dan Glickman’s salaries combined!), Zucker called upon Congress to create dedicated intellectual-property enforcement bureaus in the Justice and Homeland Security Departments and to offer federal grants for state and local governments to escalate their own policing efforts. “The unfortunate truth is that today we are losing the battle,” Zucker said. “We need, across the board, to move IP enforcement up the agenda of the federal government. … [This issue is] absolutely critical to our economic prosperity.”

Lawmakers, especially those with musical aspirations, were predictably roused by Zucker’s spiel, though it conveniently obscured the fact that the entertainment industry’s business models are clearly in need of serious work. Said Sen. Orrin “I Write the Songs” Hatch (R., Utah, pictured with Barry Manilow, right), “Our challenge is to come up with viable economic solutions that will not only protect existing intellectual-property rights, but encourage the free flow of information and ideas necessary for creativity and innovation to thrive.”

The laundry rooms at Sun Microsystems and Network Appliance must be on the fritz, because the two companies have begun washing their dirty laundry in public. Yesterday, NetApp sued Sun, alleging that its ZFS storage software, a key element of its Solaris operating system, violates seven NetApp patents. Dave Hitz, co-founder of NetApp, explained the rationale for the suit in a post to his blog:

Like many large technology companies, Sun has been using its patent portfolio as a profit center. About 18 months ago, Sun’s lawyers contacted NetApp with a list of patents they say we infringe, and requested that we pay them lots of money. We responded in two ways. First, we closely examined their list of patents. Second, we identified the patents in our portfolio that we believe Sun infringes.

“With respect to Sun’s patent claims, our lawsuit explains that we do not infringe, and–in fact–that they are not even valid. As a result, we don’t think we should be paying Sun millions of dollars.

“On the flip side, our suit points out that Sun’s ZFS appears to infringe several of NetApp’s WAFL patents. It looks like ZFS was a conscious reimplementation of our WAFL file system, with little regard to intellectual property rights.”

Obviously, Sun disputes NetApp’s claims. It says NetApp approached it looking to acquire the patents at issue in the case, but later decided to try to have them invalidated instead. In a post to his own blog, Sun CEO Jonathan Schwartz described NetApp’s lawsuit as an attack on the open-source community.
“First, Sun did not approach NetApps about licensing any of Sun’s patents and never filed complaints against NetApps or demanded anything,” Schwartz wrote. “NetApps first approached StorageTek behind the cover of a third-party intermediary (yes, it sounds weird, doesn’t it?) seeking to purchase STK patents. After Sun acquired STK, we were not willing to sell the patents. We’ve always been willing to license them. But instead of engaging in licensing discussions, NetApp decided to file a suit to invalidate them. To be clear, we never filed a complaint or threatened to do so, nor did anyone, to the best of my knowledge, in the ZFS community.”

“There’s No Free Lunch — or Free Linux.” That was the title of SCO CEO Darl McBride’s keynote address at the Computer Digital Expo in Las Vegas back in 2003, and it signaled the beginning of what would become a long and acrimonious legal battle.

Claiming its proprietary Unix software had been misappropriated and incorporated into Linux (”SCO = UNIX,” said McBride), SCO embarked on an intellectual-property war with the open-source operating system. “For the last several months, we have consistently stated and maintained that our System V code is in Linux,” McBride explained. “The claims SCO has are both broad and deep. These claims touch not just IBM but other vendors as well. They also touch certain industry consortia and corporate Linux end-users. Our claims aren’t trivial. The violations of our intellectual property are not easily repaired. It is our intention to vigorously protect and enforce SCO’s intellectual property, System V source code and our copyrights. We’re now fully prepared to do that.”

And they did. SCO filed a $3 billion lawsuit against IBM, claiming that the computing giant illegally used its Unix trade secrets to improve Linux. It filed another against auto giant DaimlerChrysler. It sent threatening letters to 1,500 of the world’s largest corporations warning they could be liable for using Linux. And it filed a “slander of title” suit against Novell, when the company publicly asserted that it, not SCO, was the rightful owner of the Unix copyrights.

Pity, then, that a U.S. District Court judge in Utah ruled Friday that SCO does not, in fact, own the copyrights to Unix. Pity, too, that he said Novell can force SCO to abandon its claims against IBM if it so chooses. His ruling has effectively gutted SCO’s legal campaign against Linux users and developers. “The court’s ruling has cut out the core of SCO’s case and, as a result, eliminates SCO’s threat to the Linux community based upon allegations of copyright infringement of Unix,” said Joe LaSala, senior vice president and general counsel of Novell. “We are extremely pleased with the outcome.”

Clearly the same cannot be said of SCO. “The company is obviously disappointed with the ruling issued last Friday,” SCO said in a statement denying, with the Pythonesque insistence for which it’s known, that the case is over. “… [T]he court did not dismiss our claims against Novell regarding the noncompete provisions of the 1995 Technology License Agreement relating to Novell’s distribution of Linux to the extent implicated by the technology developed by SCO after 1995. Those issues remain to be litigated. Although the district judge ruled in Novell’s favor on important issues, the case has not yet been fully vetted by the legal system, and we will continue to explore our options with respect to how we move forward from here.”

Ah. ‘Tis but a flesh wound, right? Not by the looks of the company’s recent stock performance.

Well, Marc Andreessen must be grinning into his cornflakes this morning. At market open today Hewlett-Packard said it had agreed to acquire Opsware, the enterprise-software company Andreessen founded back in 1999, for $1.65 billion. H-P will pay $14.25 for each share of Opsware, a 39% premium over Friday’s close of $10.28.

At that price, Andreessen–who owns nearly 6.5 million shares–stands to make $92 million off the deal. Which is a nice bit of validation, given Opsware’s inauspicious beginnings as Loudcloud, a managed hosting company remembered more for a string of heavy losses and a lackluster 2001 IPO.

“Loudcloud took off like a rocketship, raised $350 million in equity and debt financing, went public in March 2001, and was rapidly nearing $100 million in annual recurring managed-services revenue when the entire market blew up and virtually all of our competitors and peers went bankrupt,” Andreessen recalls in a blog post announcing Opsware’s sale to HP. “In September 2002, we did a complete restart as a public company–we sold our managed-services business to EDS and turned Loudcloud into Opsware, a software company based on the core intellectual property developed at Loudcloud. Over the next five years, we executed our original vision–automation of large-scale modern data centers and computer systems. … Today we have announced that Opsware is being acquired by Hewlett-Packard for more than $1.6 billion in cash, or $14.25 per share. For Opsware, this means that our vision will now get delivered at much higher scale–being part of H-P’s software business will ensure that our software will be used by a much larger number of organizations and have an even more dramatic impact on the industry than we would possibly have been able to reach by ourselves over the next several years.”

And for Andreessen, whose first start-up, Netscape Communications Corp., marked the beginning of the Internet boom of the late ’90s, it’s proof that contrary to what F. Scott Fitzgerald wrote, there are second acts in some American lives. “One of my favorite facts about this deal,” he wrote, “is that at our acquisition price of $14.25 per share, everyone who bought and held stock in Loudcloud or Opsware in the public market at any time made money.”

Seeking to outsource its enforcement costs, the RIAA [Recording Industry Association of America] asks universities to point fingers at their students, to filter their Internet access and to pass along notices of claimed copyright infringement. … But these responses distort the university’s educational mission. They impose financial and nonmonetary costs, including compromised student privacy, limited access to genuine educational resources and restricted opportunities for new creative expression.”

–Berkman Center for Internet & Society fellows Wendy M. Seltzer and Charles R. Nesson, Harvard Crimson, May 1, 2007

You can’t legislate morality. You can’t effectively litigate it either, but perhaps you can purchase it–with a little help from your friends in the U.S. House Committee on Science and Technology. That seems to be the opinion of the recording industry, which has somehow–and by that, I mean campaign donations–convinced Congress to threaten funding cuts for universities that don’t actively protect its business interests.

At a U.S. House Committee on Science and Technology hearing on campus file-sharing earlier this week, lawmakers called on college administrators to drop the hammer on illicit file swapping among students. “Illegal file-sharing isn’t just about royalty fees,” said committee chairman Bart Gordon (D., Tenn.). “It clogs campus networks and interferes with the educational and research mission of universities. It wastes resources that could have gone to laboratories, classrooms and equipment. And it’s teaching a generation of college students that it’s all right to steal music.”

Rep. Tom Feeney (R., Fla.), who is also a member of the House Judiciary Committee (which has jurisdiction over copyright laws), was even more incredulous over the issue, suggesting Congress withhold funding from institutions that don’t actively police their networks for copyright infringement. “We’re spending a good deal of federal resources in terms of helping universities with their technological improvements, directly and indirectly,” Feeney said. “Is it responsible for a Congress that wants to protect intellectual-property rights to continue to fund network enhancements for universities if some of those enhancements are indirectly being used in fact to promote intellectual-property theft?”

I dunno. Is it responsible for Congress to assume the role of CIO for higher education? Or to suggest that federal resources earmarked for technological improvements at universities be used instead on a file-sharing witch hunt? After all, as Gregory Jackson, chief information officer at the University of Chicago notes, college students might not be the problem here. “Media producers provide and protect their online wares inconsistently, incompatibly, inefficiently, inconveniently and incompletely,” Jackson told the hearing. “So long as the right thing remains more daunting, awkward and unsatisfying than the wrong thing, too many people will do the wrong thing.”

Skin mag Perfect 10 may have a knack for sourcing naturally beautiful women, but its courtroom skills and understanding of the Digital Millennium Copyright Act are a bit lacking. A federal appeals court ruled yesterday that Google did not infringe on Perfect 10’s copyrights by displaying thumbnail images of its nude photographs, handing fair-use advocates a victory and online nudie sites looking to diversify their revenue an unwelcome setback.

A bit of background: In November 2004, Perfect 10 asked a federal district court judge to enjoin Google from displaying pictures and links to the company’s copyrighted photos. Perfect 10 objected to Google search results displaying thumbnails of its photos, along with the links to third-party sites offering larger versions. The pictures were copyrighted, it said, and nearly all the sites indexed by Google were displaying them without permission. “In some cases, as many as 96% of Google search results on Perfect 10 model names go not to Perfect10.com, but to infringing Google AdSense partners of which Google has received notice,” Perfect 10 proprietor Norm Zada argued at the time. “That’s not legitimate search. Google’s extraordinary gain in market cap from nothing a few years ago to close to $80 billion is more due to their massive misappropriation of intellectual property than anything else. Google is currently displaying over 3,000 Perfect 10 copyrighted images and linking them to Web sites containing numerous other Perfect 10 copyrighted images and in many cases ads for which Google earns revenue. Google is no longer a legitimate search engine. It is a commercial advertising operation determined to increase ad revenue regardless of what rights it tramples on in the process. If all an infringer needs to avoid liability is to provide some sort of a ’search function,’ that will be the end of intellectual property in this country.” An interesting corollary, no? How ironic is it that Zada’s father, Lotfi Zadeh, is widely considered to be the father of fuzzy logic.

Anyway… After months of legal wrangling the Ninth U.S. Circuit Court of Appeals reversed the decision of the lower-court judge, who had prevented Google from displaying thumbnails of Perfect 10 photos improperly posted to other sites. The federal appeals court “rejected Perfect 10’s theory and found that until Perfect 10 gave Google actual knowledge of specific infringements (e.g., specific URLs for infringing images), Google had no duty to act and could not be liable,” Electronic Frontier Foundation attorney Jason Schultz explains. “It also held that Google could not ’supervise or control’ the third-party Web sites linked to from its search results, something most people (except, apparently, Perfect 10) probably already knew. The rule provides strong guidelines for future development and avoids the kind of uncertainty that could chill start-ups trying to get the next great innovation off the ground. Finally, the court also rejected Perfect 10’s attempts to turn Web surfers into pervasive copyright violators. Specifically, Perfect 10 had claimed that Google users who looked at photos in their browsers were infringing the photos because their computers automatically ‘cached’ a copy of the photo in memory. Thankfully, the ruling … affirmed that any such copying is a fair use and cannot be infringing.”

Could it be that Winston Smith, the protagonist of George Orwell’s novel “1984,” was right, “thoughtcrime is the only crime that matters”? Hard not to reach such a conclusion when the Justice Department is pressing Congress to approve proposed legislation that for the first time would criminalize intent to infringe copyright.

In a speech to the U.S. Chamber of Commerce yesterday, Attorney General Alberto Gonzales said this provision in the Intellectual Property Protection Act of 2007 was needed because intellectual-property crimes continue to harm the economy. “IP theft is not a technicality, and its victims are not just faceless corporations–it is stealing, and it affects us all,” Gonzales said. “Those who seek to undermine this cornerstone of U.S. economic competitiveness believe that they are making easy money; that they are beyond the law. It is our responsibility and commitment to show them that they are wrong.”

I suppose, but does that really require criminalizing attempted, and not-for-profit, copyright infringement and punishing it with a prison sentence of up to 10 years? Or permitting wiretaps in investigating intellectual-property offenses? Or creating a new crime punishable by life imprisonment for using pirated software?