grellas

To establish personal jurisdiction over Mr. Hotz, SCEA must show that he had minimum contacts with California such that it makes it fair and reasonable to sue him in that forum over this set of claims. This is so-called "limited jurisdiction," and is to be distinguished from the "general jurisdiction" that enables you to sue someone in the state of his residence over any claim whatever (see my mini-primer on the technical aspects of this here: http://news.ycombinator.com/item?id=2335698).

The key to the limited-jurisdiction analysis here is whether Mr. Hotz "purposefully directed" his activities toward California (intending that they have an effect there) in committing the acts for which he was sued. It is not enough to show incidental contacts with the state because such a standard would allow any person to be sued anywhere in the United States over any matter simply for having, e.g., purchased a product from remote state x, or had some similar tangential contact. Remember, the standard requires the court to find contacts in the forum related to the wrongs committed such as to make it reasonable to require the distant defendant to have to defend the suit remotely.

Because of this, the vital question concerns the nature of the claims asserted in the lawsuit and whether such claims show that Mr. Hotz intended to affect a California resident in committing the wrongs alleged.

And this is where the bombshell comes in: in a forced document production that SCEA managed to stall until just a few days before Mr. Hotz's reply brief was due, it had to produce the key contracts between SCEA and Sony Japan, which contracts conclusively demonstrate that all copyrights that are alleged to have been violated in this case are owned by Sony Japan exclusively and that SCEA has nothing to do with them other than being one of many licensees of such copyrights within the Sony family of companies.

In other words, SCEA appears to have nothing legitimate to do with the case other than serving as a proxy by which Sony Japan hopes to bootstrap its way into California jurisdiction. SCEA is connected with the PlayStation Network terms of service having a California forum selection clause. The problem is that none of the claims in this case concern violations of such terms of service.

The clear implication is that SCEA is a puppet being used to manipulate the court for Sony's tactical purposes. This is reinforced by several collateral indicators. SCEA filed this suit and "flooded" the case with subpoenas that went far beyond the scope of the limited discovery allowed in this sort of case. It then went to great lengths to avoid being straightforward with the court about the copyright ownership upon which the DMCA claims were based. And it has filed a blizzard of affidavits and court papers trying to confuse the main issues in the case.

Of course, nothing is completely predictable in a court matter where a court must decide an issue based on a nebulous legal standard such as whether something is "fair" or "reasonable" under the minimum-contacts jurisdictional analysis. But these revelations, to me, look pretty damning. Essentially, Mr. Hotz's attorneys have provided near-conclusive rebuttals to all of SCEA's jurisdictional claims and left SCEA looking disingenuous. Judges usually do not react well when they come to believe that a party is trying to play them, and this rebuttal does a superb job of showing that that is precisely what SCEA appears to be doing.

I would sum this up by saying: if this is all that SCEA has got, it is in trouble on the jurisdictional question (as a fallback, Mr. Hotz's lawyers have also asked that the court be transferred to New Jersey under an "inconvenient forum" analysis, which also looks pretty strong for him). It will be interesting to see how this plays out. (The factual details are a bit more complicated than I have summarized them here but this, I think, captures the essence of what is going on - see the wonderful reporting and links of Groklaw to drill down further).

It usually takes in-depth briefing by sophisticated lawyers to generate a precedent of any meaning. This takes a lot of money and effort. Unless parties invest a lot into a case to give a court detailed guidance, the court will usually take the path of least resistance and dispose of the case on minimalist terms that have no precedential value for future cases.

In addition, courts do not permit collusive cases and are pretty good at sniffing them out.

In theory, one could file a low-level case and wind up with a helpful precedent. But this is highly unlikely. Of every 1,000 such cases filed, maybe 1 would have a slight chance of ever resulting in anything meaningful. That is just the reality of the litigation process. It takes a lot to generate meaningful precedents and that is why organizations that take on this burden (e.g., EFF) are needed to pour the vast resources into the process that it typically takes to get such results.

I feel for the judges trying to apply 1976 statutory law to modern technology. The 1976 revamp of the Copyright Act was the last comprehensive one and its major purpose was to account for the effect (since the enactment of the 1909 Act then in effect) of motion pictures, sound recordings, radio and other then-modern forms of communication on IP laws. Common law is made by judges case-by-case and it is by nature slow and evolving, as is a parallel type of judge-made law based on case-by-case interpretation of old statutes. It is precisely the vacuum left by this case-by-case handling of an antiquated set of statutes that creates the problems today. What is needed is a comprehensive statutory enactment by Congress to bring these laws up to date and to make them fair. Even if that means keeping copyright under the rubric of "property" and defining wrongs in that area as "thefts," this can still be done fairly by defining sensible penalties that are commensurate with the scope of any wrong committed.

Of course, to do this, you need Congress to break free from the grip of lobbyists whose influence would inevitably distort the amending process. Good luck with that.

But the perils of being rich are legion, as detailed in this interesting piece.

As I grew up, I always had to work for most anything I got and, in retrospect, I believe that the financial necessity that drove a good part of this was actually a big part of my character development. I always wonder what it would have been like on that front if I were continually faced with the temptation, as a rich kid, of bypassing the pain and difficulty of such challenges in favor of indulgences that were readily at hand. This must be an enormous problem for young people who have inherited significant wealth.

In any case, this piece portrays those with some measure of wealth from an interesting angle and nicely highlights that all that glitters is not gold, even if it literally is gold.

A bubble is all-pervasive and extreme. It represents a systematic investment mania where everything becomes surreal. People sell vast tracts of land for a prized tulip. Junk companies with nothing to offer but a vague concept about revolutionizing how this or that will be done owing to some new phenomenon such as the internet make serial stock offerings to the public and get hundreds of millions for a modest percent of their unproven company. Lenders pile on with countless real estate loans to unqualified borrowers secure in the belief that what are really worthless loans will make them huge profits because they can be packaged and disposed of through artificial securitized instruments and because housing prices will continue rise broadly for endless periods. All this begins to occur in endless and ever-expanding streams until, in the end, large numbers of people are sucked into the vortex.

In such cases, broad markets affecting an entire society are sent into a frenzy by which average people start both to get rich quick and to want to get rich quick. Large numbers of people leap in, therefore, in the hope of making fast money and abandon their common sense in the process. And when things go bust, this has a major systemic effect on the broader economy. A stock market that had reached stratospheric heights loses 70% of its value. A real estate market that had become so pricey as to make housing unaffordable for average buyers plummets to the depths, taking down people's savings en masse.

The current phenomenon represented by high valuations in parts of the startup world is more transient and limited. It has not affected the broader society at all, only an insular investment community. If it fell apart today in toto, it would leave a trail of victims within the VC and angel communities but would be felt scarcely at all in the broader economy, or at least would likely have no systemic impact.

Viewed from the standpoint of the broader society, I think what we are looking at here is a speculative frenzy affecting a comparatively narrow asset class. The prices of some startups have increased considerably. The prices of companies generally in the business world remain moderate, if not depressed. Is it a pricing frenzy within a particular segment of an asset class? Probably. Is it a bubble? No. Or at least not by historic definitions.

Again, I wouldn't disagree with a single specific point made in this piece, and the author as usual makes some astute observations. I would disagree about the terminology, though, and would say that we should reserve use of the term "bubble" for the sorts of massively dislocating events that it historically has come to represent.

1.As a general rule, founders like notes and investors do not. The reason notes are more often used today than before is one of power and control. Founders today have more bargaining power and can insist on going with notes. Investors may not like this but, if they like a company and want to invest, that is their option. This reflects a longer-term trend by which quality startups have become easier to launch with comparatively smaller capital needs, and this has enabled founders to keep more control through the early stages of a company's growth. I believe this trend is becoming permanent, which is one of the reasons for pg's observations about the predominance of notes in today's climate.

2. Building a startup is a teaming effort and the ideal cases consist of founders and investors who work together to build a great company while keeping their interests aligned. But this point only goes so far. Just ask any desperate founder who is under a cash crunch how much investors are prepared to give their cash on founder-friendly terms in the name of "alignment of interests." At a basic level, the issue with funding centers about power and control. Founders use notes because they can, and investors allow it because they have no choice if they want to invest.

3. The main advantage with notes is that they come with few strings. Once you set up preferred stock, investors become a dominant (even if not controlling) force within the company. Many things that you once had freedom to do you are no longer free to do without investor consent, and that includes choices about future funding. In addition, with notes, you don't have to reprice your stock price or fool with such things as 409A valuations too early in the company's history. With equity, you inject added costs and complications, and many founders want to avoid that in the very early stages. Such things tend to be distracting and tend to put more emphasis on fund raising as a process than would otherwise be the case. Again, just ask the YC companies who are getting the $150K notes with almost no strings attached. The main benefit: it lets them concentrate up front more on building their products than if they had to hustle up survival money right up front.

Bottom line: most founders will go with notes when they can because of power and control and intangible factors such as alignment of interests with investors, the educational value of learning to manage a board, etc. will not normally sway them in the other direction.

All that said, this is a a splendid dissection of some of the key factors affecting the use of convertible notes in early-stage funding. A very nice piece.

1. Class actions are meant to resolve past wrongs and not to do business deals affecting future rights of parties.

2. Therefore, the best thing to do is take this issue to Congress, which ultimately has the constitutional power to fashion copyright rights and remedies.

3. It is quite unfair to give Google default rights to exploit all works ever written as to which the copyright holders are unknown. This is unfair to the authors and it is unfair to Google's competitors.

4. Opt-out might work well in a typical class action where an individual claim might amount to a few dollars. It would work a terrible miscarriage of justice, however, to say that each of the authors who fails to take affirmative steps to protect his copyright loses such rights to Google.

5. Unlike the typical class action, the objections made by class members were numerous, articulate, and strongly asserted. If the class members in whose name this action is supposedly brought have such strong feelings that it is unfair to them, that is a very bad indicator concerning the overall fairness of the settlement.

My personal view: the judge here reacted strongly to the idea that a party such as Google could engage in mass copying of copyrighted works and then use the courts and the class action as vehicles by which to foist a forced, global licensing deal on the unwilling parties affected by its actions.

The only way Google could swing this through this mechanism is if the court approved the opt-out procedure. Since most parties do not get notice at all, and most do not opt out, Google would get near-universal control of all published works by this method.

By declaring that this would only be fair if an opt-in procedure is used, the judge effectively killed this as an effective mechanism for Google. This means that no one is bound by the terms unless that party takes proactive steps to become bound. By definition, then, the authors who do not receive notice, and all other cases where the copyright holders are unknown, will be excluded from the settlement and Google will get no rights to their works.

This is a devastating blow to Google's book project. Unless it is overturned on appeal, it will be very hard to salvage this project (at least in anywhere near the form Google hopes) given this decision.

Other well-known secondary-meaning marks: "Holiday Inn," Subway's "Footlong" sandwich, many others.

The mark granted to it is for "App Store". Under relevant trademark law, a mark cannot be registered if it consists solely of a generic or purely descriptive term. "Store" is generic. So too is the word "application" - which is commonly thought of as being what the word "app" refers to. Therefore, no trademark could ever be registered for the word "store" or for the word "application" and certainly not for "application store" (no trademark can be registered when all of its constituent elements are generic). A trademark identifies the origin of goods or services and no one vendor can claim that a whole generic category of goods or services can be set out as a domain for which it and it alone is the origin. The question is, does any of this change because Apple's claim is for the word "app" as opposed to "application."

Apple claims that "app" in this context is a word that refers uniquely to Apple in the public mind - that is, when a typical consumer hears of an "app," that person immediately associates that word with "Apple app" and not with the generic term "application." In legal parlance, then, Apple is arguing that the word "app" here has an "arbitrary" meaning and is therefore registrable to Apple alone. If Apple prevails on this claim, it will be able to sue anyone in the future who tries to sell "apps" through any form of "app store."

Of course, many other vendors are using the "app" designation for selling online applications and there is thus vigorous opposition to Apple's application. Indeed, once the trademark examiner granted the application, Amazon immediately filed a proceeding contesting it. To date, then, Apple does not have any definitive determination in its favor on this issue. By continuing to push the trademark application, and by filing this lawsuit, Apple hopes to pave the way to have exclusive use going forward of "App Store" as against all competitors.

I think Apple is overstepping it on this one. If it should be granted what it seeks, how will other vendors be able to refer even generically to what they are offering? Trademark law is intended to protect a company's distinct offerings and to prevent others from pawning off a vendor's good will by passing their goods or services off as that of their real owner. I doubt that anyboday will believe that what Amazon or Google or any of a number of other vendors offer is an attempt to trade on Apple's goodwill. On the other hand, trademark law is not intended to give anybody any form of exclusivity in describing generic categories of goods or services. That appears to be precisely what Apple is here attempting to do.

Apple has one more obstacle to overcome as well. A term that is at some point a distinctive identifier of a vendor's goods or services can become generic over time (consider "yo-yo,"aspirin," "escalator," and many others that have suffered this fate). If "app" was at one time distinctive to Apple a few years back, I seriously doubt that the public today thinks of it as anything other than a generic indicator of what you can download from a wide variety of sources.

For example, this piece discusses fee deferrals up to $30K. How would this work?

A typical deferred-fee deal provides that a startup will get corporate legal services of up to x amount that are deferred for some fixed time (say, 6 months) or until the company does its first funding at some minimum amount (say, $1 million), whichever comes first. In exchange, the startup gives the law firm a small piece of equity for the credit extension. If the startup fails in its business, the founders are not personally liable for the cost of the legal services and the law firm eats the loss (this is the credit risk it takes for which it gets equity in exchange). If the startup does not fail, the bill comes due in time and must be paid.

Now, a few observations from one who has done such deals many times over from a lawyer perspective:

1. The deferred-fee deal is a beautiful fit for the type of go-for-broke, hope-to-massively-scale company that will depend heavily on VC funding. You team up with a few co-founders, set your company in motion, and let it fly. You get heavily diluted up front when the VC funding comes in at $5 million and up, the burn rate for the company is high, and you go all out with a prestige team to build that billion dollar company (or at least hundreds of millions). You hire a law firm that bills $500/hr and up even for green attorneys and that works in teams. A simple company formation is $5K and up; your convertible note round is $5K to $10K and up; your Series A round is $50K to $60K and up. And, if it all works, all this gets paid from VC money. If it flops, you owe nothing. In a way, then, this is a risk-free way as a founder to go for broke in launching an ambitious venture.

2. Now consider a bootstrap venture or an angel-funded venture where the founders delay outside funding until they can build a credible pre-money valuation in hopes of minimizing dilution. Unlike the VC-funded case, you will here want to be much more cautious about what the legal services will cost. In most such companies, it is easy to get through the first 6 months of the company's history (a typical deferral period) without coming anywhere close to spending $30K on a legal budget. Company formation can easily be done in the $2K-$3K range for the vast majority of such companies; bridge notes for $3K or so; Series A often for $5K to $10K. Maybe you also need Terms of Service and other miscellaneous items (e.g., trademark applications). Thus, if you add up all the typical legal needs of such a venture, you might get up to the $10K range in the normal case if you spend your money wisely.

3. The temptation, then, with a deferred-fee deal is to spend on legal matters with greater abandon given that you are using "easy credit." This made sense historically under the VC model. It makes less sense under the modern angel model and even less sense for a company that is going the purely bootstrap route.

4. When it comes to deferred-fee deals, then, it is important to count the real cost. It may be a good step for your company but make sure the fit is right for your venture. A decade ago, this was a near-ideal arrangement for most startups with quality founding teams. Today, it makes sense for some but probably not for most quality startups.

5. Bottom line: if a deferred-fee deal looks attractive, then, by all means do it. Just don't treat it as an axiomatic good. Like most easy-credit arrangements, the ultimate cost to your company (even if not to you personally) may be quite a bit higher than what it might otherwise be if you focus purely on the market cost of the services.

I do find it ironic that this item is emphasized in a (nice) piece on watching your spending and that is what prompted me to comment. Do watch your dollars and especially when someone offers you something that seems to be all upside (when it is not).

The constitutional analysis on this issue turns on whether a person has what are called "minimum contacts" with a given state such that the law deems it fair and reasonable to require that person to have to appear to defend an action there (there is an alternative specialty form of jurisdiction called "in rem" jurisdiction that deals with property but the foregoing pertains to the all-encompassing area of "jurisdiction over the person" or "personal jurisdiction"). To establish proper jurisdiction in a given state, the party suing must show that a person being sued is either generally "present" in that state (i.e., lives there or, if an entity, is domiciled there or conducts regular business there) or, alternatively, that such person had sufficient contacts with that state concerning the transaction over which he is being sued so as to make it fair to sue him there with respect to that transaction only. If either general jurisdiction (the first type) or limited jurisdiction (the second) is shown, then someone can be sued in a given state. Of course, as an individual, if you are sued under general jurisdiction, that means you are being sued where you live. However, if you are sued under a theory of limited jurisdiction, you can be sued in a place that is remote from where you live (a "remote forum," in legal parlance) provided only that the court deems it fair under a minimum-contacts analysis. Once jurisdiction is determined to be proper, a defendant sued in a distant forum can still attempt to get the case transferred to a place that is more convenient for him to defend in and that analysis then invokes a separate legal doctrine called "forum non conveniens" by which a court further assesses whether, among the range of forums over which a case might technically be brought, which is the most convenient and appropriate one given practical factors such as where most of the activity in dispute occurred, where people live, and the like.

So, from a fairness standpoint, anyone sued in a distant forum can fight on two fronts, jurisdiction and forum convenience. He makes what is called a "limited appearance" to challenge jurisdiction without agreeing to submit himself to the jurisdiction of the court for purposes of making that challenge. If he wins, the court dismisses the case while allowing the party to refile in a proper forum; if he loses, then the court has jurisdiction unless he can change the result through an emergency appeal. Once jurisdiction is so established, then any action of the court is binding on the defendant and any judgment entered can be enforced against him in that jurisdiction or in any other state in the U.S. (which will give "full faith and credit" to the judgment under prevailing U.S. law).

If you are sued in a remote forum, and you do not "specially appear" to challenge jurisdiction once you are served with the summons and complaint, then the party will take a default judgment against you. When the party comes to your state to ask a court to enforce the judgment against you, you can seek to set that judgment aside even at that stage on grounds that the original court lacked proper jurisdiction over your person and so was constitutionally incompetent to enter that judgment. If you win on such an argument, the judgment is unenforceable and void; if you lose, of course, then the judgment is enforced against you and, since you defaulted in the original action, you have no defense to it unless you can return to the originating jurisdiction and seek to set it aside on whatever grounds they permit for setting aside a default judgment. Since it is usually very difficult to set aside default judgments, it normally behooves a party who has been sued in a remote forum to hire counsel to challenge the jurisdiction right up front via a "special appearance" rather than letting a judgment go by default in hopes of challenging it later at the enforcement stage in your local jurisdiction.

All that said, what is happening in the Sony case is that the individual defendant appeared specially to say that the federal court in the Northern District of California (i.e., San Francisco) lacks jurisdiction over his person under minimum-contacts analysis and should therefore dismiss Sony's case without prejudice to its being refiled in the place in which he lives. Sony is arguing that sufficient minimum contacts do exist with the San Francisco forum such as to make it fair and reasonable to require the defendant to appear to defend the case there.

Once the issue is so joined, a federal court will normally allow a party such as Sony to conduct limited discovery tailored to determining facts relevant to the jurisdictional question only. Since the main issue concerning jurisdiction concerning what "contacts" the defendant had with the San Francisco forum relating to the underlying actions over which he is being sued, it becomes technically relevant for the suing party to attempt to find all such contacts. That would be the legal basis upon which the court is permitting this sort of subpoena to be enforced.

Why San Francisco? I assume this is less for the purpose of harassing the defendant as such than it is for that of having the case heard in a forum in which the judges are likely far more knowledgeable about Silicon Valley-style legal issues than they might be elsewhere.

This sort of high-profile fight, by the way, is wildly expensive to conduct and, I assume, the defendant is only able to do so because of donations from others or because of volunteer efforts by organizations who specialize in defending the rights here being attacked.

I hope this helps explain the relevant legal issues (sorry for the length but I clerked for a federal judge in the Northern District of California many years back and it fell to the sorry lot of the law clerks to research these exact issues many times over during one's stint with the court).

The immediate impact on any party that is highly litigious in this area (troll or not) will be negligible, in my view. The courts will apply existing law to the pending fights and will decide the cases one way or the other without regard to longer-term policy principles. This does not mean that aggressive litigants will always win (Blackboard didn't) but it does mean they will pose difficult problems for those who have to endure their bullying tactics.

Still, it is nice to see some of the major problems truly identified and dealt with in a sharp way, as this report does. A real surprise, coming from the FTC.

The tricky precedent is the Eldred case by which the Court had upheld Congress' power to extend copyright terms beyond those originally permitted when a particular work qualified for copyright protection. That case had been argued primarily on a theory that the "progress clause" of the constitution (that Congress shall have authority to enact copyright laws to promote the progress of the arts, etc. for limited times) prohibited repeated extensions that effectively made the copyright terms permanent and hence not for "limited times" only. The Court had rejected that argument in a 7-2 decision.

Here, EFF distinguishes Eldred by arguing that, while Congress may have the power to extend rights of existing copyright holders, it lacks the power to restore to a copyright holder rights to works of authorship that no longer belong to them but are instead in the public domain. That is, such "restorations" do nothing to further the progress of the arts (the constitutional justification by which Congress can enact such laws) and, even if they do, are nonetheless constitutionally defective because they violate free speech rights of those who seek to express themselves in a vibrant public commons consisting of public domain works available to all.

The legal nuances here are tricky but it is highly encouraging that the Court decided to grant certiorari in this case. Liberals have long argued for virtually unlimited powers for Congress in enacting statutory laws while conservatives have basically rubber-stamped such broad powers when it comes to expanding IP laws and the Court's factions have tended to follow these broader trends. In a digital age, this means basically that those who can "persuade" Congress to enact pet legislation favoring their commercial interests have an open ticket to extend their protections far beyond what was properly intended by copyright laws, among others. Perhaps this case will begin to draw a line or two that says, "enough is enough." It will be interesting to see it play out. Kudos to EFF for being at the forefront of this fight.

I can't even begin to imagine what it must be like to be going innocently about your own business, getting pulled over by a traffic cop, and then suddenly being hustled off into a hellish pit for nearly 30 years - voiceless, helpless, and forgotten while being robbed of everything normal in adult life and while bearing the stigma of child molestor.

We all plan for the perfect lives and then complain when things fall short. Well, in our sheltered little worlds, we have no idea what it means to get kicked in the teeth non-stop over the course of a lifetime. This story gives us just a little glimpse and we can all shudder just thinking about it.

I have nothing but the highest admiration for anyone who could endure all this and still emerge with the abiding spirit that Mr. Towler now displays. It is a small miracle that he is not broken, bitter, and vengeful. Let us hope he can still rebuild his life from its broken fragments.

Well, a free enterprise system is just that: one in which consumers have choices. The fact that Google dominates search, or that Apple dominates mobile devices, or that Microsoft dominates desktop computing hardly limits my "freedom" in any real sense of that word and, in the meantime, I will gladly use Google over AltaVista, Apple over a Brand X music player, and Microsoft over WordStar for the benefits I derive from those offerings. In other words, I don't have a problem with a company making proprietary offerings if such offerings give me better value than what otherwise exists and, if I don't like them, I don't have to deal with them.

So, I feel I have my freedom today, just as I did years ago when IBM dominated enterprise computing, and that is why I am (as I said above) quite relaxed about the idea that private corporate interests can control and dominate their respective fields of activity. So long as no government entrenches them permanently as monopolies no matter what their virtues, the activities of Google, Apple, Facebook, etc. are entirely consistent with a free system of economic activity.

If you would abolish the idea of market-leading companies in a free enterprise system, what would you replace that with? In other words, how are you using the word "freedom" and "tyrant" in this context? These are genuine questions because, apart from your use of the term "tyrant" for rhetorical effect, I don't understand where you are going with this idea.

The unstated premise of the piece seems to be that, as technology matures, control over it becomes consolidated in fewer hands, each of whom has a proprietary interest to limit its ultimate use in order to serve its short-term profit interests. Thus, service providers charge high roaming fees and structure their charges to serve their interests at the expense of consumers while apps that are offered come increasingly within walled gardens where proprietary overlords dictate all terms.

I believe this is all true but disagree as to its alleged threat to our future as tech consumers. Human innovation in a free enterprise system tends to take on a force of its own that overwhelms individual corporate interests. If this were not the case, then our current overlords would be Barnes & Noble (for books), Tower Records (for music), Blockbuster Video (for video rentals), Western Union (for instant messaging), IBM (for enterprise computing), and so on. These were yesterday's corporate giants and they each declined in their influence specifically because they failed to anticipate key trends in technology and thus became laggards instead of leaders.

Telco service providers, of course, have incredible power and will use that power to further their particular narrow interests if at all possible. This has resulted in a variety of frustrating user experiences. Even here, however, technology will tend to outrun their long-term ability to dictate terms. Those who are old enough will readily remember the outrageous expense, while traveling, of "long distance" charges, of the scarcity of reliable phone systems in many countries, and of the difficulty often incurred while wanting to make a call of trying to find an available phone booth while on the road. We are worlds removed from that old environment today owing to amazing advances in technology, and we as consumers are far better off than before in spite of the hassles, inconveniences, and expenses we experience with our service providers.

I resist walled gardens and proprietary traps in the marketplace as much as the next guy but these too do not threaten my choices in the long run. I may or may not like what Apple does but Apple will not control the future any more than the companies listed above. Corporate control in this sense is powerful but ephemeral - absent government restrictions that give it quasi-monopoly status, it lasts only as long as a company serves important needs of consumers. Once that slips, so too does the corporate dominance (over the long term). I may be wrong about this but, given what I have observed over my lifetime, I take a much more relaxed view of it than does the author of this piece.

It is easy to pick some extremes of flawed implementation of IP laws and to ridicule their effects. Software patents have been seriously abused to block innovation, with the prototypical troll being, in effect, the equivalent of some lawyer sitting in a back room endlessly "conceiving" ideas from which extortion-style demands can be exacted. So too with things like the RIAA-led lawsuits demanding millions in damages for the downloading of 20 songs or the Disney-inspired extensions of copyright terms to ridiculous lengths having nothing to do with protection of any conceivable right of an author. Such items can readily and rightly be mocked and cast as the absurd anti-innovative creatures that they are. Nor does it help that the beneficiaries of such legal aberrations are often large and powerful companies, lawyers and lobbyists, and others who might be characterized as the antithesis of innovation in any productive society.

That said, IP laws do not in any sense categorically block innovation and, indeed, remain essential to it.

To understand the true importance of IP laws, we need to look at fundamentals. Property is both tangible and intangible. You can touch the former and physically transfer it to someone else. It is a thing that is possessed by someone and such possession excludes or limits possession by others because it is a finite resource that can only be shared so much. In the modern age, in contrast, intangible property is capable of almost infinite replication with few, if any, incremental costs. The temptation exists, then, to say that all such property should be commonly shared because it can be so shared and because people will use it to make advancements for the betterment of themselves and society. In other words, there presumably is no cost to making all information free, legally unprotected, and infinitely shareable. Or so the thinking goes.

But this assumption is not sound.

IP laws are designed to protect all forms of intangible property having commercial value. This means patents (which protect inventions), copyrights (which protect any tangible embodiment of an original work of authorship), trademarks (which protect the distinctiveness of the origin of goods or services), and trade secrets (which protect any form of valuable confidential and proprietary information).

These laws are so built into the fabric of the startup world that we normally just take them for granted.

For example, no startup could hope to survive without laws protecting trade secrets. Without such laws, whatever information or knowledge base you have in your startup that is unique and valuable could be lifted at will by any passing person: an employee who passes through and copies such information wholesale to give it to a competitor; the janitor who comes in at night who decides to publish it on the internet; someone who breaks into your network, copies it all, and then shares it with the world or, worse, if it is a competitor, who uses it to compete against you. If you once take the legal position that all information is free and freely shareable, then all protections for your confidential business plans, for your technical innovations, for your execution strategy, for your database of key customers, personnel, marketing data, etc. evaporate and you can no longer derive any competitive advantage from any of this as long as anyone gets his hands on it and makes it public.

Founder groups would have the same problem in pre-formation situations. Say, four founders build something that they have worked on for a full year and are prepared to launch. One of them defects and says to the group, "I am going to take everything that we have worked on and take it for myself." Of course, that is outrageous. Buy why? Because laws exist that declare it illegal for someone to misappropriate what the founders have been working on. Those are IP laws. They protect the interests in intangible property. Without them, every founder would be vulnerable to such defections, without any form of legal recourse.

Copyright serves a similar function. Whenever a startup relies on proprietary code, it is copyright (along with trade secret laws) that ensures that the work product of the company can't simply be lifted at will and used in any way that the person taking the code desires.

Open source is no exception. It relies heavily on rules of copyright law and on licensing to make its system work. If everything were freely shareable without any form of restriction, one does not have open source - one has freeware.

I could go on with this but, having already noted the potential for serious abuse when such laws are ill-formed, I think I have said enough to show that IP laws lie at the foundation of the startup world and are not in themselves the enemy. There are philosophical arguments to be made that all information should be freely shareable but any society based on that premise would be radically different from the one in which startups thrive today.

Startups depend heavily on IP laws. Such laws have great value in today's startup culture and ought to be recognized for that contribution. Reform them, absolutely; abolish them, don't even think about it (unless you are ready to embrace a philosophically extreme position about all forms of intangible property ownership). I don't believe most people are prepared to embrace the extreme position and, hence, one ought to be careful about castigating that which is good while condemning that which we can agree is bad.

Bottom line: IP laws do not kill innovation and, on the contrary, are vital to it. Flawed IP laws stink and need to be reformed.

Short answer: there is no absolute defense in the fact of your no longer being employed when you do the allegedly offending activity.

BTW, I don't know enough about the Andreessen or Google examples to comment intelligently on the specifics there.

1. I have done transactional work and litigation in and about these areas for nearly 30 years in Silicon Valley. Based on that experience, in practical terms, the risk you deal with in doing side work boils down to this: it is rare that an employer will make a claim to IP you develop on your own time and using your own resources but, when it does happen, its effect is pretty horrific.

2. California gives you more scope only because it has a law on the books that generally prohibits employers, on public policy grounds, from making claims to IP generated by employees working on their own time and using their own resources.

3. Even in California, however, an employee owes duties to his employer and one of those is that you don't misappropriate your employer's IP for your own use. This is why the California law says that you don't keep your side-project IP for yourself if it is in your employer's line of business or anticipated line of business. You can imagine the chaos that would result if any employee could state that, "no, that valuable IP that I came up with might have directly concerned what my employer was paying me to develop, but, in fact, I developed that particular key piece on my own time, etc."

4. In this sense, there is a common sense element to this area of law as applied in California. You typically will sense, without being told, whether the work you are doing on the side is capitalizing on the things your employer is doing or if it is truly unrelated.

5. That said, don't mess around with this sort of thing. It is both contract-specific and local-law-specific. That means general statements you hear from time to time (including those I just made) may or may not apply to you. If what you are planning to do has commercial value, then make sure to get it checked by a good local lawyer who can guide you through the pitfalls and explain alternatives. This is particularly so if you are not in California.

I am a theist because I believe that human beings - flawed, fallible, finite, and mortal - derive ultimate meaning and hope from believing in something that is bigger than themselves. Now, some will say that this is a delusion and that it is vital to maintaining an intelligent outlook on life that one stay with what is observable, verifiable, and controllable as a way both of explaining and living life. All of which is fine, as my point here is not to enter into non-hacker-related topics. But, that said, when I read statements like those quoted above from this article, I can't help but think that statements such as these reflect what is merely the scientific equivalent of needing to believe in something that is bigger than ourselves as part of retaining hope in this life - this taking the form, in Singularity thinking, of something akin to attaining human perfectability via an exponentially expanding knowledge base that presumably will be applied by humanity toward good and not toward evil. Obviously, this view is grounded in the science of what computers have done and potentially can do in the future but the final step in the analysis - that immortality will be achieved and that (it would seem) all major human problems will be solved through this superior intelligence - strikes me as being more about faith than about science.

In my student days, I worked in restaurants. I worked with a guy who was a Mexican immigrant, who washed dishes with me for several years in a busy restaurant. He worked hard. He was always upbeat. He never complained. And he radiated a sense of joy all about him. Why? Because he was content with what he was doing while obviously striving to improve himself at the same time. He would often sing while he worked. And that was inspiring. That man might never make a mark in the broader society but I could see he would be a fine leader wherever his life circumstances took him.

These same qualities can be found in the startup world, as nicely reflected in this piece. But they are by no means limited to those who seek success in business. They are life qualities. It profits us all to follow them.

My comment there makes the point now being emphasized by EFF:

"The FCC is way out of its league on this one. Basically, it is a creature of statute. It can do whatever Congress has authorized it to and no more. Nothing in its authorizing statute expressly permits it to impose the rules now known as net neutrality. Therefore, it sought to justify its ability to do so under the doctrine of so-called 'ancillary jurisdiction,' meaning that it had an implied power to do so in aid of its expressly granted powers. Unfortunately, a definitive federal appeals court ruling held that no such ancillary jurisdiction existed, leaving the matter for Congress to decide. Rather than deferring to Congress, the FCC chose to adopt a new rationale for its assertion of this authority. Congress overwhelmingly balked at the idea of any broad assertion of such authority and, in the back and forth, the FCC came up with the toe-in-the water approach just adopted to the satisfaction of almost no one. Even this assertion of jurisdiction will certainly be challenged in the courts in cases that will take years to decide, leaving this whole issue in a pathetic state of uncertainty for all concerned. Nothing good will come of this except for lots of employment for the lawyers who will be litigating whether this or that action is 'reasonable' and whether the internet is really like a public utility or not. All in all, a royal mess."

1. A convertible note, however favorable its terms, is still fundamentally a loan. This means it will have a due date at which the holder may demand payment unless the amounts due have been converted into equity before then.

2. Item 1 in turn means that there will be no coasting for the YC companies upon receipt of this money or even necessarily a break from the pressure of fundraising. Why? Because the investment is not from a relative who is looking to get a high-interest-rate return on his investment but rather from a venture investor who fully expects that the company will make a good-faith effort to raise funds as appropriate to meet the minimum funding threshold at which his note will convert into equity. That means there will be considerable pressure to do a Series A round within the term of a typical note of this type, which means within the first 9 months.

3. What this money does then, in my view, is strengthen the negotiating leverage of the YC companies in terms of getting further bridge funding to carry them out to Series A. They won't need to worry about survival money during their first steps and they can in turn be more selective about whom to talk to and what terms to consider in taking further bridge money for their early build-out.

4. The terms of these notes will undoubtedly have provisions covering what happens if the startup is acquired before a triggering event for the note conversion. Those terms might vary widely but my guess is that they will be such as to motivate the founders to push for funding so as to effect a conversion. There is nothing wrong with an investor building in reasonable safeguards to make sure he doesn't get abused and the safeguards here might be such as to make it unattractive for the founders to exit via M&A prior to conversion, which again means that there will be great pressure to get the larger funding.

The biggest impact here will be on those investors competing for early deal-flow and on what should be a broader pool of applicants who can now seek to go the YC direction. I doubt that it will relieve the fund-raising rigors of the YC companies themselves very much, if at all.

The consistent theme in all such cases is to make sure that those who have built value get non-forfeitable equity as a reward while those who need to prove themselves going forward get equity that can be forfeited.

If you have built true value, then, of $10M and you take your payment in stock that is 100% forfeitable, you set it up where you can be cheated out of all the value you have built with little or no legal recourse.

This is a HUGE red flag. I have seen founders do such deals and have begged and implored them, at the very least, to insist on 100% acceleration clauses in their employment arrangements should they be terminated without good cause. In the one case where the founders went through anyway without such protection, the company (a prominent public company) wound up terminating one of the main founders within months and all he got was a few crumbs for years worth of effort.

Check with a good M&A lawyer on this and then use your best judgment. It is ultimately your call, whatever the legal risks. But do it with open eyes and that means getting good help in assessing what those risks are.

1. 90 million registered members worldwide. 2 million registered groups. 65 million unique monthly visitors. 5.5 billion page views in December, 2010.

2. $160 million in revenues during Q1-Q3 2010 (already doubling 2009 numbers).

3. Company is currently profitable.

4. Class A stock being offered to public. All key insiders (founders) hold Class B, which has a 10x voting advantage over the A. Preferred holders will convert into B at the time of the offering, thus also having a 10x voting advantage over the public shareholders. As with Google, the insider group will have firm control of the company even after the offering.

5. Offering will be from newly issued shares of the company and also from piggy-back sales by certain preferred investors.

For anyone interested, the S-1 registration statement is here: http://www.sec.gov/Archives/edgar/data/1271024/0001193125110...

1. At the risk of sounding simplistic, it is the patents, and not the copyrights, that matter most here.

2. Copyright infringement might provide a basis for a damage award but this, in a worst case, could readily be absorbed by Google, even as it works around any copyrighted code issues in future Android releases. What is more, the main copyright claims appear to center on a bizarre technical point, at least as framed by the court pleadings - that is, that the so-called open-sourcing done by Sun of the Java SE specification was, in effect, illusory because no such license was valid unless a vendor (such as ASF) could show "compatibility" with the Java specification via test suites made available by Sun through a license of its TCK, which in turn required that vendor to pay license fees and to agree to restrict distribution to the desktop only. Whether that claim stands remains to be seen but it would seem to me that Google (even if had to pay damages) could clean up any infringing code without too much harm to its prospects for the Android market in doing its future releases.

3. The patent claims pose the greatest risks for Google. Should it lose here, Google could be permanently enjoined from doing further Android distribution and would (I assume) find it exceedingly hard to do any workarounds. In that case, Google stands to lose potentially a vast, critical market and would effectively have to make Oracle its strategic partner for all of the mobile space in order to solve this problem. Very bad news indeed.

4. The good news is that Google has a strong track record of fighting off extortionist patent claims and has hit back hard (see, e.g., the HN discussion on a piece entitled "Google Bowls a Googly," http://news.ycombinator.com/item?id=1899156).

I would be interested in how those who are technically knowledgeable assess the risks to Google from the legal framework set forth above or in how you might clarify or reframe those legal issues based on technical points that I have missed.

The case involves the Freedom of Information Act (FOIA), which was passed decades ago and has mounds of decisions on the books interpreting its provisions. This is federal statute and the legal rules concerning statutes center on what the legislative body intended in enacting any given statute. FOIA has 17 categories by which a party can be protected from disclosure, including one for "personal privacy." AT&T's central argument - the centerpiece upon which the lower appellate court decided the case in AT&T's favor and upon which AT&T's counsel was riding hard hoping to gain a victory in the Supreme Court - rested on the idea that Congress, in enacting FOIA, defined the word "person" to include corporations and, hence, when that same Congress, elsewhere in that same statute enacted at the same time, specified that there was a right of "personal" privacy, it must have intended "personal" to include every one listed in the statute as a "person," i.e., corporations.

Basically, after the justices ripped AT&T's counsel apart, Chief Justice Roberts said, in effect, OK, if "personal" derives from "person," let me see if I can think of other cases where an adjective links with its noun counterpart, then let's see, "craft" and "crafty", "squirrel" and "squirrely", "pastor" and "pastoral" and so on - of course, making it look absurd that anyone would argue that some common meaning was intended by Congress simply by the force of the linguistic connection between "person" and "personal." By all accounts, this salvo had a devastating effect, leaving AT&T's counsel stammering about how his client had other arguments upon which to rely beyond the "grammatical imperative."

On the merits, too, this is the same court that, in Citizens United, had found that the idea of corporate "personhood" should be recognized such as to give corporations free speech protections vis-a-vis attempts to limit their speech through campaign finance reform legislation. However (though this is not sufficiently appreciated by those who disdain the idea of corporate personhood), the idea of a corporation as a "legal person" dates back at least to Blackstone in the 1750s and is deeply rooted in the law (http://news.ycombinator.com/item?id=1099625). Legally, it was not that big of a jump to say that the idea extended to protecting the speech of corporations under the First Amendment (of course, the case could have easily gone another way as well but this court had no problem with such a result). The FOIA case, though, is entirely different. Here, Congress enacted a statute with specific purposes and built in protections for "personal privacy" without any hint that this might apply in some nebulous way to corporations. When that statute is examined, it becomes very difficult to justify the idea that Congress would have intended any such result in using the phrase "personal privacy" and the court of appeal had reached that result primarily based on the flawed grammatical argument noted above. That is why the Roberts comments from the bench were so devastating.

The government's counsel, sensing a good thing, waived the last 10 minutes of time for rebuttal and was more than content to let the matter rest when his turn came. When a lawyer voluntarily decides to shut up, you know that something major has just happened!

All in all, a really bad day for AT&T's lawyers and for its case.

Yes, on the legal front, this is likely to end sooner rather than later at this point, as the appeal by the twins from the lower court judgment ordering that the settlement be enforced has not been well received by the panel hearing the appeal (see link, with my associated comment, from a couple of days ago to a story analyzing the judges' comments during the oral argument: http://news.ycombinator.com/item?id=2096370).

I will restate here from my prior comment what the stakes are on this appeal:

"In my view, the last major legal cloud that hangs over Facebook is the appeal by ConnectU and the Winklevoss brothers of a federal court decision upholding a settlement between them and FB of their claims that Mr. Zuckerberg had allegedly stolen their ideas to form the company. With that settlement in place, those parties received what many considered a windfall ($20M cash and 1.2 shares of FB stock, originally valued at $45M and now estimated to be worth $150M). Should it be set aside, however, the settlement value of such claims today would be astronomical. Why? Because these claims (unlike those of Mr. Ceglia, who filed a claim nearly seven years after the fact claiming an "84% stake in Facebook") were timely brought and have overhung every round of financing that FB has done from the beginning. In other words, existing FB shareholders have at all times been aware, in making their investment, of the risk that they could potentially lose everything should ConnectU prevail in its claims to own the FB IP. That is a devastating outcome for FB shareholders, of course, but the claimants here (unlike Mr. Ceglia) cannot be accused of laches or foot-dragging in ways that make the timing of their claims inequitable and therefore unenforceable. Thus, should they get this settlement set aside, FB would be faced with years of future litigation during which a serious question mark would hang over the entire value of its company. Hence, no IPO; hence, a far higher cost of any financing down the road. The stakes are high in this case."

Money, then, would appear to be the main driving element here. By playing with house money, the twins stand to gain by continuing to leverage their legal threats. That is why this whole thing has taken on a Terminator-like quality. In the end, they will either run out of legal leverage or they will be paid off. Time will tell on which it will be but I doubt that they will back off gracefully regardless of any windfall they might have already received.