Category: Communication Media & Internet

Yahoo!/Tumblr Deal and the Tax Cost of Cash Acquisition Payments

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When Yahoo! recently acquired the blogging service Tumblr, the two companies structured the deal so that virtually all of the $1.1 billion price tag for Tumblr will be paid in cash. In the current economy, many companies, particularly tech companies, have a lot of cash available, making the more traditional payment in stock appear less desirable. However, tax planning during mergers or acquisitions can be invaluable because, with proper counsel, the organizations can anticipate and mitigate the tax ramifications for the companies, individuals and shareholders.

Specific information about any tax planning in the Yahoo!/Tumblr deal hasn’t been released, but let’s consider the potential tax consequences of an essentially all-cash deal.

Most of Tumblr’s existing shareholders likely purchased their stock for substantially less than it was valued at the time of Yahoo’s acquisition. Since capital gains taxes are levied on the difference between the purchase price and the sale price, those Tumblr shareholders may be facing a hefty capital gains tax bill that will come due as soon as the transaction is complete.

If the deal had been structured as a stock transaction, on the other hand, it might have been structured to defer the capital gains tax for those shareholders until they actually sell their stock to Yahoo! There are a number of methods, such as 1031 exchanges, Section 368 tax-free reorganizations, and or 338(h)(10) stock purchase elections, that might also be effective in mitigating the tax burden.

An all-cash deal also presents challenges for Yahoo! in that it could affect the incentives for Tumblr’s founder and senior management going forward. In a tax-free reorganization, for example, they would generally be compensated in Yahoo! stock, which automatically creates an incentive for Tumblr’s leadership to build value for Yahoo! Without stock, a different incentive plan is needed.

According to The New York Times’ DealBook blog, Yahoo! may not need to worry about incentivizing Tumblr’s leadership, however, as it plans to continue to run the blog service as a separate company with the same group of executives. That may leave the existing incentives for success in place.

In this particular case, we don’t have enough information to determine why Yahoo! and Tumblr structured the acquisition as an all-cash deal. Well-considered tax planning, however, is essential for any business considering a merger or acquisition, stock sale, or major asset sale. Anticipating and minimizing transactional taxes, including business transfer taxes and business succession taxes, can help ensure that companies garner all potential benefits of the deal.

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New Cybersecurity Guidance Released by the National Institute of Standards and Technology: What You Need to Know for Your Business

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The National Institute of Standards and Technology (“NIST”)1 has released the fourth revision of its standard-setting computer security guide, Special Publication 800-53 titled Security and Privacy Controls for Federal Information Systems and Organizations2 (“SP 800-53 Revision 4”), and this marks a very important release in the world of data privacy controls and standards. First published in 2005, SP 800-53 is the catalog of security controls used by federal agencies and federal contractors in their cybersecurity and information risk management programs. Developed by NIST, the Department of Defense, the Intelligence Community, the Committee on National Security Systems as part of the Joint Task Force Transformation Initiative Interagency Working Group3over a period of several years with input collected from industry, Revision 4 “is the most comprehensive update to the security controls catalog since the document’s inception in 2005.”4

Taking “a more holistic approach to information security and risk management,5” the new revision of SP 800-53 also includes, for the first time, a catalog of privacy controls (the “Privacy Controls”) and offers guidance in the selection, implementation, assessment, and ongoing monitoring of the privacy controls for federal information systems, programs, and organizations (the “Privacy Appendix”).6 The Privacy Controls are a structured set of standardized administrative, technical, and physical safeguards, based on best practices, for the protection of the privacy of personally identifiable information (“PII”)7 in both paper and electronic form during the entire life cycle8of the PII, in accordance with federal privacy legislation, policies, directives, regulations, guidelines, and best practices.9 The Privacy Controls can also be used by organizations that do not collect and use PII, but otherwise engage in activities that raise privacy risk, to analyze and, if necessary, mitigate such risk.

Description of the Eight Families of Privacy Controls

The Privacy Appendix catalogs eight privacy control families, based on the widely accepted Fair Information Practice Principles (FIPPs)10 embodied in the Privacy Act of 1974, Section 208 of the E-Government Act of 2002, and policies of the Office of Management and Budget (OMB). Each of the following eight privacy control families aligns with one of the eight FIPPs:

  1. Authority and Purpose. This family of controls ensures that an organization (i) identifies the legal authority for its collection of PII or for engaging in other activities that impact privacy, and (ii) describes the purpose of PII collection in its privacy notice(s).
  2. Accountability, Audit, and Risk Management. This family of controls ensures that an organization (i) develops and implements a comprehensive governance and privacy program; (ii) documents and implements a privacy risk management process that assesses privacy risk to individuals resulting from collection of PII and/or other activities that involve such PII; (iii) conducts Privacy Impact Assessments (“PIAs”) for information systems, programs, or other activities that pose a privacy risk; (iv) establishes privacy requirements for contractors and service providers and includes such requirements in the agreements with such third parties; (v) monitors and audits privacy controls and internal privacy policy to ensure effective implementation; (vi) develops, implements, and updates a comprehensive awareness and training program for personnel; (vii) engages in internal and external privacy reporting; (viii) designs information systems to support privacy by automating privacy controls, and (ix) maintains an accurate accounting of disclosures of records in accordance with the applicable requirements and, upon request, provides such accounting of disclosures to the persons named in the record.
  3. Data Quality and Integrity. This family of controls ensures that an organization takes reasonable steps to validate that the PII collected and maintained by the organization is accurate, relevant, timely, and complete.
  4. Data Minimization and Retention. This family of controls addresses (i) the implementation of data minimization requirements to collect, use, and retain only PII that is relevant and necessary for the original, legally authorized purpose of collection, and (ii) the implementation of data retention and disposal requirements.
  5. Individual Participation and Redress. This family of controls addresses implementation of processes (i) to obtain consent from individuals for the collection of their PII, (ii) to provide such individuals with access to the PII, (iii) to correct or amend collected PII, as appropriate, and (iv) to manage complaints from individuals.
  6. Security. This family of controls supplements the security controls in Appendix F and are implemented in coordinating with information security personnel to ensure that the appropriate administrative, technical, and physical safeguards are in place to (i) protect the confidentiality, integrity, and availability of PII, and (ii) to ensure compliance with applicable federal policies and guidance.
  7. Transparency. This family of controls ensures that organizations (i) provide clear and comprehensive notices to the public and to individuals regarding their information practices and activities that impact privacy, and (ii) generally keep the public informed of their privacy practices.
  8. Use Limitation. This family of controls addresses the implementation of mechanisms that ensure that an organization’s scope of use of PII is limited to the scope specified in their privacy notice or as otherwise permitted by law.

Some of the Privacy Controls, such as Data Quality and Integrity, Data Minimization and Retention, Individual Participation and Redress, and Transparency also contain control enhancements, and while these enhancements reflect best practices which organizations should strive to achieve, they are not mandatory.11 The Office of Management and Budget (“OMB”), tasked with enforcement of the Privacy Controls, expects all federal agencies and third-party contractors to implement the mandatory Privacy Controls by April 30, 2014.

The privacy families must be analyzed and selected based on the specific operational needs and privacy requirements of each organization and can be implemented at various operational levels (e.g., organization level, mission/business process level, and/or information system level12). The Privacy Controls and the roadmap provided in the Privacy Appendix will be primarily used by Chief Privacy Officers (“CPO”) or Senior Agency Officials for Privacy (“SAOP”) to develop enterprise-wide privacy programs or to improve an existing privacy programs in order to meet an organization’s privacy requirements and demonstrate compliance with such requirements. The Privacy Controls supplement and complement the security control families set forth in Appendix F (Security Control Catalog) and Appendix G (Information Security Programs) and together these controls can be used by an organization’s privacy, information security, and other risk management offices to develop and maintain a robust and effective enterprise-wide program for management of information security and privacy risk.

What You Need to Know

The Privacy Appendix is based upon best practices developed under current law, regulations, policies, and guidance applicable to federal information systems, programs, and organizations, and by implication, to their third-party contractors. If you provide services to the federal government, work on government contracts, or are the recipient of certain grants that may require compliance with federal information system security practices, you should already be sitting up and paying attention. This revision puts privacy up front with security.

Like other NIST publications, this revision will be looked at as an industry standard for best practices, even for commercial entities that are not doing business with the federal government. In fact, over the last few years, we have seen increasing references to compliance with NIST 800-53 as setting a contractual baseline for security. We expect that this will continue, and now will include both the Security Controls and the Privacy Controls. As such, general counsel, business executives and IT professionals should become familiar with and conversant in the Privacy Controls set forth in the new revision to SP 800-53. At a minimum, businesses should undertake a gap analysis of the privacy controls at their organization against these Privacy Controls to determine if they are up to par or if they have to enhance their current privacy programs. And, if NIST 800-53 appears in contract language as the “minimum standard” to which your company’s policies and procedures must comply, the gap analysis will at least inform you of what needs to be done to bring both your privacy and security programs up to speed.

1 The National Institute of Standards and Technology is a non-regulatory agency within the U.S. Department of Commerce, which, among other things, develops information security standards and guidelines, including minimum requirements for federal information systems to assist federal agencies in implementing the Federal Information Security Management Act of 2002.

2 See Security and Privacy Controls for Federal Information Systems and Organizations, NIST Special Publ. (SP) 800-53,
Rev. 4 (April 30, 2013), http://nvlpubs.nist.gov/nistpubs/SpecialPublications/NIST.SP.800-53r4.pdf.

3 The Joint Task Force Transformation Initiative Interagency Working Group is an interagency partnership formed in 2009 to produce a unified security framework for the federal government. It includes representatives from the Civil, Defense, and Intelligence Communities of the federal government.

4 See NIST Press Release for SP 800-53 Revision 4 at http://www.nist.gov/itl/csd/201304_sp80053.cfm. Revision 4 of
SP 800-53 adds a substantial number of security controls to the catalog, including controls that address new technology such as digital and mobile technologies and cloud computing. With the exception of the controls that address evolving technologies, the majority of the cataloged security controls are policy and technology neutral, focusing on the fundamental safeguards and countermeasures required to protect information during processing, while in storage, and during transmission.

5 See NIST Press Release for SP 800-53 Revision 4 at http://www.nist.gov/itl/csd/201304_sp80053.cfm.

6 See Appendix J, Privacy Control Catalog to Security and Privacy Controls for Federal Information Systems and Organizations, NIST Special Publ. (SP) 800-53, Rev. 4 (April 30, 2013),http://nvlpubs.nist.gov/nistpubs/SpecialPublications/NIST.SP.800-53r4.pdf. Appendix J was developed by NIST and the Privacy Committee of the Federal Chief Information Officer (CIO) Council.

7 Personally Identifiable Information is defined broadly in the Glossary to SP 800-53 Revision 4 as “Information which can be used to distinguish or trace the identity of an individual (e.g., name, social security number, biometric records, etc.) alone, or when combined with other personal or identifying information which is linked or likable to a specific individual (e.g., date and place of birth, mother’s maiden name, etc.). See page B-16 of Appendix B, Privacy Control Catalog to Security and Privacy Controls for Federal Information Systems and Organizations, NIST Special Publ. (SP) 800-53, Rev. 4 (April 30, 2013),http://nvlpubs.nist.gov/nistpubs/SpecialPublications/NIST.SP.800-53r4.pdf. However, as stated in footnote 119 in Appendix J, “the privacy controls in this appendix apply regardless of the definition of PII by organizations.”

8 Collection, use, retention, disclosure, and disposal of PII.

9 See page J-4 of Appendix J, Privacy Control Catalog to Security and Privacy Controls for Federal Information Systems and Organizations, NIST Special Publ. (SP) 800-53, Rev. 4 (April 30, 2013),http://nvlpubs.nist.gov/nistpubs/SpecialPublications/NIST.SP.800-53r4.pdf.

10 See NIST description and overview of Fair Information Practice Principles at http://www.nist.gov/nstic/NSTIC-FIPPs.pdf.

11 See pages J-4 of Appendix J, Privacy Control Catalog to Security and Privacy Controls for Federal Information Systems and Organizations, NIST Special Publ. (SP) 800-53, Rev. 4 (April 30, 2013),http://nvlpubs.nist.gov/nistpubs/SpecialPublications/NIST.SP.800-53r4.pdf.

12 See page J-2 of Appendix J, Privacy Control Catalog to Security and Privacy Controls for Federal Information Systems and Organizations, NIST Special Publ. (SP) 800-53, Rev. 4 (April 30, 2013),http://nvlpubs.nist.gov/nistpubs/SpecialPublications/NIST.SP.800-53r4.pdf.

“Lawfully Made Under This Title” – The New, Global Reach of U.S. Copyright Law’s “First Space” Doctrine

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The U.S. Copyright Act grants a copyright owner certain exclusive rights, including the right to distribute copies by sale or other transfer of ownership. 17 U.S.C. § 106(3). But while these exclusive rights are extensive, they are not limitless. Section 109(a), for one, sets forth the “first sale” doctrine:

“Notwithstanding the provisions of section 106(3), the owner of a particular         copy…lawfully made under this title…is entitled, without the authority of the copyright      owner, to sell or otherwise dispose of the possession of that copy.” 17 U.S.C. § 109(a).

In effect, Section 109(a) exhausts the distribution right by permitting the owner of a particular copy to dispose of that copy as she wishes.

Notably, however, the first sale doctrine is itself qualified in that it only applies to copies “lawfully made under this title.” 17 U.S.C. § 109(a) (emphasis added). That this language applies to copyrighted works made and distributed in the U.S. is clear enough. A more difficult question is to what extent the first sale doctrine applies to works produced and/or acquired abroad.

The U.S. Supreme Court partly addressed Section 109(a)’s reach in Quality King Distributors, Inc. v. L’anza Research International, Inc., 523 U.S. 135 (1998). In Quality King, the copyrighted works were manufactured in the U.S., but first sold abroad at prices 35% to 40% less than identical U.S. products. Some of the discounted foreign products were then imported back into the U.S. and sold to unauthorized retailers. The copyright owner sued alleging violation of the Copyright Act’s importation provision, 17 U.S.C. § 602(a)(1) (then §602(a)), which makes importation of a copyrighted work without the authority of the copyright owner an infringement of the distribution right. The Supreme Court, however, found that the first sale doctrine exhausts the copyright owner’s right to prohibit importation of U.S. produced works first sold abroad. In other words, the owner of a copy of a U.S. produced work acquired abroad is free to bring that copy into the U.S. without fear of retribution from the copyright holder.

Because Quality King involved only U.S. produced works – which are unquestionably “lawfully made under” the Copyright Act – the Court had no need to consider any broader implications of Section 109(a). And so, the reach of the first sale doctrine in connection with works manufactured abroad remained in doubt after Quality King.

As a graduate student in California, Supap Kirtsaeng (“Kirtsaeng”) learned that publishers often sell their U.S. textbooks for substantially more than the identical books in Thailand. Seeing an opportunity, Kirtsaeng had friends purchase textbooks in Thailand and mail them to the U.S. where he sold them on EBay. By this simple arbitrage, Kirtsaeng generated roughly $900,000 before one the publishers, John Wiley & Sons, Inc. (“Wiley”), sued.

Wiley claimed that Kirtsaeng’s unauthorized importation of the foreign-produced textbooks violated Wiley’s distribution right via the Copyright Act’s importation prohibition. Unlike in Quality King, however, Wiley argued that the first sale doctrine did not exhaust its rights because its foreign version textbooks were produced and distributed entirely outside the U.S., and thus were not “lawfully made under [the U.S. Copyright Act],” as required by Section 109(a).

Kirtsaeng countered that “lawfully made under this title” merely means “made in accordance with U.S. copyright law,” i.e., made without infringing copyright. According to Kirtsaeng, because Wiley had authorized the production and distribution of its foreign produced textbooks, they were “lawfully made under [U.S. copyright law]” and thus the first sale doctrine applied. In other words, Kirtsaeng argued, Section 109(a) works a global exhaustion of the copyright holder’s distribution right.

The Supreme Court found – after considerable discussion of statutory construction and the common law history of the “first sale” doctrine – that the phrase “lawfully made under this title” has no geographic significance. Rather, the first sale doctrine applies to copies of works that are lawfully made anywhere in the world. Thus, Section 109(a) effects a global exhaustion of the Copyright Act’s distribution right and the lawful owner of any lawfully made copy, wherever produced and wherever acquired, is free to bring that copy into the U.S. and dispose of it as she wishes.

The Court’s non-geographical interpretation of the first sale doctrine likely will have far reaching effects.

On the one hand, organizations such as libraries, used book dealers, and museums view the Kirtsaeng ruling as a victory because it clarifies that they will not have to seek permission from copyright holders to lend or sell their books or display their artwork acquired from foreign sources. Additionally, the Court’s majority believes its holding will protect the right of American consumers to resell a broad range of foreign produced products that contain copyrighted software.

On the other hand, in the Digital Age, where it is easy to shop for, purchase and ship products globally, Kirtsaeng will greatly limit a copyright holder’s ability to maintain geographic price disparities, as historically necessitated by regional economics. Consequently, one effect of Kirtsaeng may be a trend toward global price equilibration, at least for internationally interchangeable products, such as books. Some goods, however, such as technology products, may be less affected by Kirtsaeng, where various regulations outside of copyright law tend to make the products less internationally fungible.

Kirtsaeng may also foretell a rise in leases or rentals. By its terms, Section 109(a) extends first sale protection to the “owner of a particular copy.” 17 U.S.C. § 109(a) (emphasis added). Lessees are unprotected. So, a copyright holder can circumvent the effects of Section 109(a) by renting works to its customers. In the Internet age, where a myriad of products can be delivered, consumed, and deleted digitally, rental rather than sale may be an attractive way for some industries to protect current regional pricing structures.

Moreover, the Kirtsaeng decision may have implications for the exhaustion doctrine under U.S. patent law. Similar to the first sale doctrine, the exhaustion doctrine limits a patent owner’s exclusive rights in a particular item upon the first authorized sale. In 2005, the Federal Circuit Court of Appeals explained that the exhaustion doctrine only applies to the first sale in the U.S. because the U.S. patent system “does not provide for extraterritorial effect.” Fuji Photo Film Co., Ltd. V. Jazz Photo Corp., 394 F.3d 1368, 1376 (Fed. Cir. 2005). Kirtsaeng, however, casts that reasoning in doubt. While the Supreme Court recently denied certiorari in a case that would have reexamined the exhaustion doctrine, it is widely expected that the Federal Circuit will at some point revisit the issue in light of Kirtsaeng.

Finally, in the wake of Kirtsaeng, one would expect certain rights holders to pressure Congress to rewrite Section 109(a). After Quality King, copyright holders were successful in getting the House to pass a proposed amendment that would have limited Section 109(a) to copies authorized for distribution in the U.S. This proposed “domestic exhaustion” amendment, however, ultimately died in reconciliation. Only time will tell whether copyright holders could ultimately prevail to blunt the impact of Kirtsaeng.

Evolving into the Digital Age: Protecting Intellectual Property

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While society has evolved from an Industrial to an Information Age over the last hundred years, we’re now operating in a Digital world where technological innovations and intellectual property reign supreme. This fast-moving digital environment–including web, mobile and social media–requires a proactive stance on developing and protecting digital innovations as the global marketplace becomes even more competitive and organizations run the risk of losing critical innovations as others move quickly to steal ideas if the opportunity exists.

While digital strategy is driven largely by marketing or IT departments, every digital asset of the company is and should be treated and protected as an intellectual asset, but today these assets are  often overlooked.  Consider the long list of marketing or IT developments at your company.  Everything from user interfaces, apps, social networking functions, personalization options on web pages, subscriber perks, wi-fi offerings, e-commerce solutions, bridging offline and online experiences and new products and services related to digital activity result in digital assets that an organization deploys.  But, are you taking the next step to protect them or leaving them out in the open to steal?  Worse, are you infringing on someone else’s intellectual property (IP)?   

Innovations at Lightening Speed – Are You Giving It Away?

Today, digital assets can be protected by utility patents, design patents, copyright law and trademark law. Typically, as these innovations occur at such a rapid pace, they are not captured and translated into protected digital assets.  Further, as the use of digital strategies is exploding and the creation of digital assets is a relatively new concept, most organizations have yet to build a formal business case and required methodology for protecting these assets.  Compounding the issue, much of the innovation work is done in collaboration with outsourced vendors in marketing and IT, often in a vacuum, so there isn’t a legal or other IP advocate to even ask the question: “Should we protect this?”.  Finally, much of the technology used to develop these innovations is often open sourced which creates an additional layer of confusion and often one that the legal team won’t touch.

The world is beginning to change in response to protecting their digital assets.  Patent trolls have largely emerged in the digital and technology space attacking companies from Starbucks to Cisco for wi-fi offerings, web functionality and what was previously considered open territory for marketers and web designers. And, these trolls are finding loopholes and great financial gains. Today, the trolls monitor major innovative initiatives by world-class organizations and copy and develop their own innovations around successful ones, improve them, and then ultimately file a new patent for it.  And then in a crazy twist, they send these same organizations a cease and desist letter and ask for a license fee.  Why aren’t organizations protecting these same assets to defend themselves and even use them as additional sources of revenue?

Building and Protecting a Digital IP Portfolio

Most companies need to start by identifying the pipeline of ideas and then turn the right ideas into valuable assets.  The innovation pipeline of digital assets is likely already alive and well in most organizations but they aren’t tapping into it.  So, the first step in building a Digital IP Portfolio is to audit where that innovation is occurring.  Understand when it is outsourced to vendors and assess whether it should be retained, shared or given away.  Once you know where the innovation is occurring, it’s time to funnel it into an IP evaluation pipeline.  At that juncture, an IP business strategy team (comprised of IP strategy experts, IP lawyers, business managers, IT managers and marketers) can evaluate its potential use and strength.  Is it a good defense play against trolls or other competitors?  Is it something you can license to others?  Is it something you just want to ensure you have and your competitors don’t? By assigning values and business goals to all of these assets, you can then channel them into a protection process with budgets and clear return on investment goals.

And, the importance of having a multi-disciplined approach cannot be overstated.  Generating valuable digital assets is not just a legal or IP function, it requires understanding and contribution from other facets of the company that can identify value proposition and weigh in on risk/reward.  Digital is new and evolving and critical thinking about its value proposition is essential. Many digital assets are not worth protecting if it won’t last beyond the next fad.  But others are.  That’s why Facebook, Google, Adobe and others have become some of the top patent filers in the world.  They file for much more than just devices and consider every innovation a potential asset both offensively and defensively.

Once digital assets are channeled into protection they can then be redistributed back out to spur innovative thinking and evaluate licensing or leverage potential.  While many companies don’t see themselves as technology companies, they are quickly becoming so with their digital platforms.  From retailers to entertainment and consumer goods, soon all companies will be a digital or technology company to some extent.  If you don’t own and protect those assets, someone else will and use it against you.  The time is now for savvy IP and technology professionals to identify an untapped resource – their digital assets.

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American Invents Act (AIA) Post-Grant Practice Rapidly Integrates Federal Circuit and Board Decisions

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AIA post-grant practice has many advantages over other proceedings, but one of the great benefits of AIA post-grant practice that we have not discussed is the speed in which AIA post-grant proceedings adopt recent patent decisions from different sources.  This is really an exciting and challenging feature of AIA post-grant practice that has become even more apparent in recent filings.  One of the reasons that AIA proceedings are so quick to adopt changes in patent law is that the PTAB offers a panel of patent judges who are already versed in patent law, so the Board does not have a large learning curve to process new decisions from the Federal Circuit and laws from Congress.  Another reason is that AIA patent trials are relatively fast-paced proceedings, which by their very nature will apply legal decisions quicker than routine district court practice.  Yet another reason is that many of the changes in practical post-grant practice are being driven by the Board itself, so the Board can quickly and consistently synthesize inputs from other sources and deploy its own procedural and legal changes.  The result is a petitions practice that can adapt quickly to a rapidly changing patent legal landscape.

One example of rapid integration of recent decisions is shown by a recent CBM petition filed on behalf of LinkedIn (CBM2013- 00025) that challenges claims 1-17 of U.S. Patent No. 7,856,430 (the ’430 Patent) owned by AvMarkets, Inc.  This CBM petition is a convergence of findings from the recent Federal Circuit decision in CLS Bank lnt’l v. Alice Corp. Pty. Ltd., 2013 WL 1920941, at *9 (Fed. Cir. May 10, 2013) and the recent CBM petition and trial (SAP v. Versata, CBM2012-00001).  LinkedIn’s petition is notable for both what it includes and what it omits.  For example, the petition includes a single challenge of patent eligibility under 35 U.S.C. § 101 akin to the ultimate patentability challenge in SAP v. Versata and incorporating the recent CLS Bank decision.  For example, pages 4-5 of the LinkedIn petition borrows from the SAP v. Versata CBM:

The Board has concluded that the AlA’s definition of CBM patents should “be broadly interpreted and encompass patents claiming activities that are financial in nature, incidental to a financial activity or complementary to a financial activity.” SAP America, Inc. v. Versata Development Group, Inc., No. CBM2012- 00001, at 21-22 (P.T.A.B. January 9, 2013) (Decision regarding the Institution of Covered Business Method Review), citing 77 Fed. Reg. 157 (August 14, 2012) at 48736. In particular, the Board has held that it does “not interpret the statute as requiring the literal recitation of the terms financial products or services [and that the] term financial is an adjective that simply means relating to monetary matters.” id. at 23. “At its most basic, a financial product is an agreement between two parties stipulating movements of money or other consideration now or in the future,” and encompasses “patents [that] apply to administration of business transactions.” ld., quoting 157 Cong. Rec. S5432 (daily ed. Sept. 8 2011) (statement of Sen. Schumer).

And pages 22-23 of the LinkedIn petition also incorporates findings from CLS Bank:

Moreover, the ’430 Patent ultimately claims nothing more and nothing less than the abstract idea of generating sales leads by putting product data in a searchable index, adding only the instruction to “apply it” in the broadest field of use imaginable-the Internet. Mayo, 132 S. Ct. at 1294. That does not suffice to make these claims patentable. The idea of cataloguing customer and product data in the field of use of”the Internet” necessarily implies putting them in the formats known to be searchable on the Internet. The claims add nothing that is not already implicit in the abstract idea. Because the steps are “as a practical matter … necessary to every practical use” of the abstract idea of making commercial data searchable on the Web, they are “not truly limiting.” CLS Bank, 2013 WL 1920941 at * 11 ,citing Mayo, 132 S. Ct. at 1298 (Lourie, J. concurring); see id. at *28-*29 (Rader, J., concurring) (key inquiry is “whether the claim covers every practical application of [the] abstract idea” but even if not, ” it still will not be limited meaningfully if it . .. only … identiflies] a relevant audience, a category of use, field of use, or technological environment”). The Internet is in fact so broad an area of application, it can barely be said to limit the claim even to a field of use.  CyberSource Corp. v. Retail Decisions, Inc., 620 F. Supp. 2d 1068, 1077 (N.D. Cal. 2009) (“The internet continues to exist despite the addition or subtraction of any particular piece of hardware … [T]he internet is an abstraction …. One can touch a computer or a network cable, but one cannot touch ‘the internet.”‘), aff’d, 654 F.3d 1366.

Also notable is that LinkedIn’s filing omits several things found in other CBM petitions, like a challenge based on prior art, an expert declaration offering evidence, and use of every available page (LinkedIn’s petition is only 27 pages of a possible 80 pages afforded CBM petitions).  With this approach, LinkedIn keeps the cost of challenge to a minimum and reduces estoppel to the single ground asserted should the Board issue a final decision upholding the patent.  Of course, the petition was recently filed on May 29, 2013, so it is too early to tell if it will be successful, but the concept of challenging a patent based on a petition with relatively few pages and no initial expert testimony is the latest adaptation of post-grant practice courtesy of the America Invents Act.

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How Today’s Top Law Firms Design Office Space for Efficiency

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Technological advancements and the recovering economy are indeed changing the needs of today’s workforce as well as the need for improved efficiency in commercial office space. To date, much of the focus from experts has put a great emphasis on trends such as collaborative workstations and virtual office space. However, as Senior Vice President of a national real estate firm and leasing agent of the tallest office tower in Florida which is home to 415,000 square feet of law firm tenants (eight of those firms currently listed on the 2013 Am Law 200), I’ve noticed that top law firms are incorporating more modern, efficient designs geared towards costs savings and collaboration, taking a different approach than creative-focused companies.

With employees and clients in mind, law firms are navigating the delicate balance of blending efficient design and modernizing with elements that permit confidentiality for face-to-face client meetings. As a result, efficiency for law firms does not translate to the open work workstations that have become popular at other companies. Instead, it is exemplified in clustered conference rooms situated near the main lobby or entrance. By not having clients walk through the extended hallways of a law firm to get to a partner’s corner office, firms can opt for more modest, cost effective office space.

Rather than open workstations and offices that are more popular in the creative sectors, law firms are not ready to tear down the walls altogether, as there are sensitive and private conversations to be had which cannot take place in an open room on high-top tables. Instead, more firms are incorporating glass for large windows and perimeter walls into office design which not only promotes connectivity but also offsets the impact of the overall shrinking of individual office space.

The generational gap within the modern workplace has impacted design planning as well. From the increased use of technology, to paperless filing to online law libraries, the structure of offices has shifted virtually. In many companies, this has led to the reduced need for support staff such as administrative assistants, downgrading the ratio that was once 3 lawyers to 1 assistant to about 7 to 1.  Some of the larger firms are even centralizing support staff in a neutral, less metropolitan city to reduce the cost of having teams of such personnel at every location.

To offset the individualized working existence as a result of a more technologically advanced workplace, connectivity is essential. This is achieved through creating purposeful in-house amenities, such as in-house cafeterias, lounges complete with baristas and TV monitors, and Wi-Fi throughout to allow for movement.

While the office space needs of professional service firms are quite different from those of other businesses, law firms still aim to be on-trend for employees and clients as well as relevant in an ever-changing society. Some traditional elements specific to the highly professional nature of the law industry still remain the same, but changes including reducing staff in particular locations, making sure there is less non-usable square footage, and maximizing the use of space are major results of the economy that have led to the current design trends and emphasis toward more efficient law offices.

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The Latest Update on the New Generic Top Level Domain (gTLD) Program

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It has been a long time since we had any notable updates on the gTLD process to report.  However, after a slow start, the new gTLD program is now in full swing.  On March 22, 2013, ICANN released the first round of Initial Evaluations to the general public. This was the first major milestone of the gTLD program.  As a reminder, there are three possible outcomes of this Initial Evaluation:  1) Pass: the application was found to be consistent with the requirements in the Applicant Guidebook and can advance to the next phase; 2) Eligible for Extended Evaluation: additional information was requested by the Financial, Technical/Operational, Registry Services, or Geographic Names evaluation panels; or 3) Ineligible for Further Review: the application was determined not to meet the relevant criteria in the Applicant Guidebook.  The next round of Initial Evaluations was released on May 24, 2013, bringing the total number of passing applications to 433.  ICANN has also announced that it has ramped up to releasing the results of these Initial Evaluations  in batches of 100 prioritized applications per week.

The most recent results of the Initial Evaluations are available here.  https://gtldresult.icann.org/application-result/applicationstatus/viewstatus

Applicants that passed the Initial Evaluations have now moved onto the contracting phase and pre-delegation testing to determine whether the applicant meets the technical requirements of the program.  However, applicants in string contention will need to wait for the string it is in contention with and resolve that contention before proceeding.

This current progress, however, could potentially be hindered if ICANN choses to implement the recent recommendations from the Governmental Advisory Committee (“GAC”). On April 11th, the GAC released its Beijing Communique, outlining recommendations for new TLDs.  Among the numerous recommendations of the new TLD program, the GAC recommended the following:

  1. The GAC identified several strings that it recommended should not proceed beyond the Initial Evaluation phase.
  2. The GAC requested a written briefing about the ability of the applicant to alter the string applied for in order to address the GAC’s concerns.
  3. The GAC suggested that ICANN reconsider its position on singular and plural strings, since the inclusion of both could lead to potential user confusion.
  4. The GAC recommended six new safeguard should apply to all new gTLDs, including WHOIS verification and checks, mitigation of abusive activities, procedures for maintaining documentation, procedures for handling complaints and stringent consequences for violation of the requirements.
  5. The GAC further advised that ICANN should carefully consider community feedback on applications from interested groups.
  6. The GAC recommended that ICANN should develop clear policies for handling applications for strings such as .WTF, .GRIPE, .SUCKS, .FAIL in order to reduce cyber bullying and misuse.

The full text of the GAC’s recommendations is available here.

For now, however, ICANN appears to be on track to complete Initial Evaluations on all applications by August 2013 and to roll out the first new gTLDs by the end of July.

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A Review of Legal Technology and Innovation: Leopard Solutions

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In review is Leopard Solutions, provider of an online legal technology service that compiles, tracks and delivers a wealth of information about law firms and attorneys across the country.

History Behind the Technology and Origins in Legal Recruiting

Leopard Solutions is the brainchild of Laura Leopard, an actress turned legal recruiter turned Founder and CEO of the Leopard Solutions system. The origin of the system initially occurred in the midst of her acting career, when Ms. Leopard worked as a cold caller for legal recruiters and discovered a severe lack of accessible information. At that point, Ms. Leopard first conceived of the Leopard List, the premier informational database offered by Leopard Solutions, now one among other such systems featured. From a simple Excel spreadsheet that contained the Leopard List, Ms. Leopard eventually developed an innovative online resource for the legal community.

Intelligence Programs and Strategic Data Directed Towards the Legal Community

Leopard Solutions offers comprehensive and strategic data captured in various intelligence programs directed towards different sectors of the legal community, including law firms, legal recruiters and law students. These are ‘live databases” which are updated on a weekly basis. Firmscape, their law firm intelligence program, is updated any time new data becomes available. For instance, if new salary information becomes available or a new office is opened, it can be immediately added to the program.)  On the day I spoke with Ms. Leopard, the system monitored a total of 183 new associates joining law firms, 71 practitioners being promoted to partner status and 86 partners leaving their firm positions.

The Leopard List: Attorney Database & Lateral Recruitment Tool

Among these databases is the Leopard List, which houses information across the spectrum of attorneys, including partners, counsels and associates, from over 1600 law firms in 23 U.S. markets. Attorneys can be searched by their practice area, JD year, law school, states admitted to practice and more. Moreover, a click of the practitioner’s name conveniently yields his or her law firm attorney profile and users can search these biographies by keyword. The Leopard staff is assigned to read and manually peruse each individual law firm attorney profile to verify all of the information stored in the system. This “personal touch” extends to any gaps of information– Leopard has been known to reach out to the firm for details if need be.

In addition, the system reveals an attorney’s  “professional history” that tracks any change in the practitioner’s status, including lateral employment moves and promotions within the firm, moves from previous law firms and name changes. In other words, no need for a Google search– Leopard hand-delivers the nuts and bolts.

Firmscape: Law Firm Intelligence

Firmscape serves as another example of Leopard successfully consolidating and analyzing information, in this instance by capturing a big-picture view of the legal industry. To say Firmscape collects a snapshot of the legal industry is an understatement- rather, this system showcases the evolution of the industry. Perhaps most helpful to legal recruiters, Firmscape sizes up the top law firms in the country and their starting salaries, practitioner lateral moves, and growth in practicing areas, among other aspects. Like the Leopard List, Firmscape is easily navigated and can be mined for reports on specific variables, such as practice area, specialty, firm history and promotion record.

Other Intelligence Programs for the Legal Community

Other systems include Leopard Reporting, which gives an overview of all the law firms in the system (currently 1666); Leopard Job Search, which monitors 655 law firms twice a day for job postings; Leopard Solutions for Law School, which offers law firm resource tools to law students; the Leopard Job Board, geared towards both legal recruiters and applicants; and Leopard Solutions Hot Spot, which aggregates all national news available for the firms amassed in the database.

A Technological Model for Timely, Interactive and Dynamic Data

Perhaps most notable about Leopard Solutions is the absence of any parallel technology in the market. The company’s model of keeping law firms under its radar and going to long lengths to obtain searchable data distinguishes it from other models which rely exclusively on web crawlers or press for information. In addition, Leopard’s model reaches far beyond displaying data but permits the viewer to target and interact with the information though reports and keyword searches. Finally, the company aims to stay reactionary, current and attuned with the needs of the market. Ms. Leopard often relies on clients’ counsel to further develop their system. A cutting-edge product, Leopard Solutions keeps up with the fluctuating legal landscape with its efficiency and accuracy.

Large Damages OK, but Injunctive Relief Too Broad Re: Versata Software, Inc. v. SAP America, Inc. Patent Infringement Case

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Addressing a finding of infringement that resulted in a lost-profits and reasonable royalty damages award of more than $300 million, the U. S. Court of Appeals for the Federal Circuit affirmed a lower court’s ruling of infringement and damages, finding that sufficient evidence supported the findings.  Versata Software, Inc. v. SAP America, Inc., Case No. 12-1029 (Fed. Cir., May 1, 2013) (Rader, C.J.).

Versata sued SAP in 2007 over two patents that provide particularized pricing data based on factors such as the type of customer, type of product and size of the order.  Starting in the mid-1990s Versata sold its software, called Pricer, to many large companies, including as IBM, Lucent and Motorola.  SAP began offering software that provided customized pricing as part of its enterprise software in 1998.  As acknowledged by the Federal Circuit, when “SAP entered the market by bundling hierarchical pricing into its enterprise software, the market for Pricer disappeared.”

At a first trial, SAP was found to have infringed both patents, but the lower court later granted SAP judgment as a matter of law (JMOL) of non-infringement as to one of the patents and ordered a new trial on damages based on a change in governing law.  In a second trial, the jury awarded Versata $260 million in lost profits and $85 million in reasonable royalties.  Further, the district court permanently enjoined SAP from continuing to sell its customized pricing software. Predictably, SAP appealed.

SAP argued to the Federal Circuit that its accused products did not infringe and that, in any event,  the lost-profits and royalties damages, as well as the permanent injunction, should be set aside as improper for various reasons.  On the infringement issue, SAP argued that it could not infringe because its software is not capable of performing the necessary tasks (required by the claims) without additional computer instructions.  As for damages, SAP argued that the lost profits and reasonable royalty damages were improperly calculated as a matter of law and should be set aside.  SAP also argued that the injunction was overbroad in that it would prevent the company from offering maintenance and additional licenses to previously existing users.

As to the issue of infringement, the Federal Circuit found sufficient evidence to support the jury’s verdict of infringement.  The Court noted that the record “clearly support the jury’s conclusion that SAP’s accused products infringe the asserted claims without modification or additional computer instructions.”

In considering SAP’s arguments on damages, the Federal Circuit rejected some of SAP’s arguments on lost profits damages noting that they should have been raised under a Daubert challenge.  The Court found that sufficient evidence supported the jury’s damages findings on lost-profits and reasonable royalty damages.

However, the Federal Circuit agreed that the permanent injunction as entered was overbroad and remanded the case to the district court for modification of the injunction.

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Weighing Going Private or Sale to Carl Icahn, Dell Cuts off Info

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As Dell Inc. considers its future after a massive loss in value over the past decade, the question may fundamentally be this: are the company’s problems are the result of poor leadership or a relatively straightforward matter of shedding its stock obligations?

Two proposals are on the table. First, founder Michael Dell has proposed taking the company private by buying out the company’s stock for $24.4 billion through a private equity firm called Silver Lake. Second, business magnate Carl Icahn’s Southeastern Asset Management has offered to buy Dell for $12 in cash per share. Unfortunately, it’s not clear how the buyout negotiations are going.

An unquestioned leader in the personal computer industry in the 90s, Dell had lost some $68 billion in stock market value by 2010, reportedly due to a change in its customer base and inability to respond to Apple’s iPhone and iPad products. Sales at Dell continue to shrink, reportedly showing a 79 percent drop in a quarterly profit report filed last week.

As part of the buyout negotiations, Icahn sent a letter on seeking more detailed information from Dell, including data room access for a certain potential lender This week, however, a special committee of Dell’s board of directors sent Icahn a letter refusing access to that information until it can determine whether his offer is “superior” to Michael Dell’s.

Meanwhile, Dell insisted upon more information from Icahn — such as whether his offer is even serious. In its response, the committee specifically asked Icahn to make “an actual acquisition proposal that the Board could evaluate” as opposed to merely offering the board a backup plan in case Michael Dell’s proposal fails to move forward.

“Please understand that unless we receive information that is responsive to our May 13 letter, we are not in a position to evaluate whether your proposal meets that standard,” the special committee reportedly wrote in response to Icahn’s request.

The question on Wall Street is the same as Dell’s: Is the Southeastern Asset Management offer serious? Icahn reportedly already owns 4.5 percent of Dell’s stock, while Southwest, already Dell’s largest outside shareholder, owns 8 percent.

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