grellas

1. This is a superb essay delineating the attributes of a fast-growth, all-or-nothing type of startup. No surprise here. Who besides pg has had the depth and breadth of quality first-hand experience with such ventures over such a sustained period and in such an explosive context as that of recent years? He has here given us a classic analysis of the prototypical, Google-style startup.

2. I think the idea of a startup should not be so narrowly defined, however, and the big reason is this: many founders set out to build ventures that are tech-based, innovative, aimed at winning key niches via hoped-for rapid growth and scaling, positioned for outside funding as suited to their needs, and aimed at liquidity via capital gains as the primary ROI for their efforts . . . but who also place a huge premium on minimizing dilution and maximizing founder control. These are the independents. The ones who, by design, want to defer or even avoid VC funding so as to build their ventures on their own timing and on their own terms. Now this is not the Google startup model. It is, in a sense, its opposite. But it is not the model of a small business either. It is just a different type of startup.

3. The trend over this past decade has moved decidedly toward greater founder independence in the startup world. Back in the bubble days, as a founder, you had very little information available to learn how startups worked, you often had heavy capital needs (e.g., $2M to $4M) right up front to do such things as build your own server banks, and you would almost certainly have little leverage by which to minimize dilution or loss of control at the time of first funding. Today, this has completely flipped. Vast resources are extant teaching founders how startups work. Initial capital needs are often minimal. And it is relatively easy to get reasonable funding on founder-friendly terms. What this means is that, today more than ever, the independent-style startup is more open to founders than ever before.

4. Given the above, it seems to me that this is not the time to say that the only style of startup worthy of the name is that of the super-rapid-growth type. The rapid-growth type may be more glamorous by far but it really defines only the tip of the startup world. Beneath it is a vast world offering incredible opportunities to founders who want more control over the timing, scale, and management of their ventures and who seek to realize gains and manage risks accordingly.

"What I choose to call 'Founder's Guilt Complex' is a false sense of guilt imposed on founders who are told that the only worthwhile venture is one aimed at shaking up the world - I say, relax and use your talents to build the business you want. Keep it legal and do aspire to more in life than that. But forget about the censors. Like the Puritans of old, they would put you in a straightjacket for no good reason. And for this reason too, though there may be bad actors, there is not a thing wrong with social networking as a worthwhile business endeavor."

Does this short version achieve the same goals as the original? Yes and no. Context matters a lot in writing (see, e.g., my thoughts on legal writing: http://grellas.com/articles.html). The original here is flawed in that it is in the nature of a first draft (which is the case with all my posts at HN) and could be streamlined. But when one seeks to advance an idea that is bound to meet resistance among readers who are not used to hearing it, it is important to develop it and not simply state a summary of it. If this is misplaced for the forum (my posts do seem to generate a lot of meta-discussion about "walls of text"), then that is one thing. But there is no doubt that a merely summary version of such an argument will not have the same impact as one that is illustrated and developed.

By the way, I am not thin-skinned. I have appreciated your comments in this thread as well as those of others who have taken me to task on this or that point. We can disagree and still appreciate each other.

There needs to be a label placed on the idea of feeling the need to bow to the wishes of critics who try to limit the idea of valid entrepreneurship to activities deemed "beneficial to society." I propose Founder's Guilt Complex.

Why on earth - when life is so big and beautiful and complex - should I feel guilty if I make money from an activity that does nothing more than give people a diversion from life's burdens and problems? College football may be a joke to pointy-head types but then reading Latin (my own peculiar idea of fun) is equally a joke to the cheering fans who join in inter-collegiate rivalries. Likewise for playing video games or hiking in the woods or listening to rock-and-roll or producing reality-TV shows or most any other activity you can name whose main goal is relaxation, entertainment, escape from life's burdens, or just plain self-indulgence. And social networking is no exception. I may not do much on Facebook (I don't) but so what? Others can and do like to share things with people of varying degrees of relationship to them and more power to them for liking to do this. It is their choice. It is a free country. It is not for me to be a scold who upbraids them for doing so. Nor should I be crabbed or pinched about what founders choose to do to create and market products and services designed to satisfy such proclivities or to make money from them.

Yes, I can set about in life to conquer diseases or to abolish poverty or to alleviate people's suffering and all such things are ennobling. I can do such things via a profit-making venture or I can make my money on other things and then use it to advance higher goals through giving. Or I can devote time and energy to helping others in my personal life. All of that is great but it hardly defines the boundaries of worthwhile human activity. Life has enough problems without having someone of a judgmental spirit continually taking us to task for wanting to have some fun as well or for trying to promote fun things for others. In a free society, there is room for fun things as well and for those who see it as worthwhile to take risk in building companies that seek to market less-than-weighty things to the public.

Life certainly can be perverse. In 17th century England, as modern western society was taking shape, you had, on the one side, royalists who despised political freedom, who valued rule by a church hierarchy, and yet who were much given to licentious habits in their lifestyles while, on the other, you had those who agitated for political freedom, who fought oppressive forms of centralized rule, who ultimately broke away to form what became America, and yet who in their personal lives bore the grim face of the puritan that sought at every turn to chain, quarter, and shame everyone all about who thought it might be fun to dance or to have a little fun in life. It seems that in our modern society we have ported over the spirit of the puritan in castigating others even as we have won the freedoms that allow us under law to enjoy life, liberty, and the pursuit of happiness. Well, if the pursuit of happiness was deemed a worthy goal of a society's founding documents, far be it from me to stand grim-faced telling others that they should feel guilty in not conforming to my narrow view of acceptable life activities - and that includes how I choose to make my living or start my business.

I don't think this is a mere technical issue either. I believe that no guilt or stigma should attach to ventures doing legal things just because they don't set out to solve World Problems. The poor have always been with us. So too have wars, rapes, and murders. Ditto for disease and death. I am the first to say "bravo" to those who do not sit resigned to accept all these destructive elements in life but who instead spur themselves to do something to help make things better not just for themselves but for the broader society too. That said, such activities cannot be the only things that define our goals in life, nor should they be. There is value in having enjoyment and fun in life and this is a transcending value that betters society. In the entrepreneurial world, there is no room for a spirit of self-righteousness. Therefore, I say away with Founder's Guilt Complex. If you want to do a venture, do it honestly and with integrity, drive, boldness, and energy. Just don't let others tell you that you should feel guilty about offending their scruples. Enjoy and make it work without guilt. You can deal with Weighty Issues too if you are so led. Just don't listen to those who say that what you are doing is not worthwhile unless it is narrowly confined to them.

So if the VC industry chose to pour all kinds of money into creating something called social networking, and if all kinds of talented engineers have flocked to that industry in pursuit of money or other personal goals, that is by definition a great benefit to society because it has given many, many people the chance to do things that were scarcely thought possible just a decade ago - and to derive simple pleasures from the diversions or other benefits afforded to them through such networking. Whatever the flaws associated with individual people or companies in such an industry, there is nothing whatever wrong with those who devoted their money and their efforts to making all this possible.

In legalese, this can be summed up as follows: if you live in the U.S., you agree to binding arbitration and to waive any right to participate in a class action (Section 10); before you can initiate arbitration, you are required to give a notice of dispute to Microsoft and to go through a 60-day period of trying to resolve it informally (10.1); nothing in this arrangement prevents you from taking your dispute through small claims court at any time in lieu of arbitration and whether or not you went through informal negotiations first (10.2); if informal negotiation fails or if you do not use small claims court, you agree to give up your right to litigate your dispute before a judge or jury and to pursue your claims exclusively through binding arbitration under AAA rules (10.3); you agree that your claim will be resolved exclusively "on an individual basis" and that it will not be combined with other claims, either in arbitration or in the courts, where a party acts as a representative in a class action (10.4); you agree that the arbitrator can only grant remedies besides a money award (e.g., injunctive relief) only to the extent required to satisfy your individual claim (10.5); if you are an individual and you use the services for personal or household use, or if the value of the dispute is $75,000 or less whether or not you are an individual, your dispute will be resolved under the AAA's special simplified-procedure rules for consumer-related disputes (10.5); you are required to initiate your dispute with AAA either in your county of residence or in King County, WA and Microsoft will promptly reimburse you for your filing fees and will pay for the arbitrator's fees and expenses (10.5, 10.6); in the case of such small disputes, if you reject Microsoft's last written offer made before the arbitrator was appointed and thereafter get a better result when an award is made, Microsoft will pay the greater of the award or $1,000, will pay twice your reasonable attorneys' fees, and will reimburse you for expenses that your attorney incurs in preparing and proving the your claim through arbitration (normal AAA rules on these issues apply if your claim exceeds $75,000) (10.6); in turn, Microsoft will ask for reimbursement of the arbitrator's fees and expenses only if the arbitrator finds that your claim was frivolous or filed for an improper purpose (10.6); all claims are subject to a private statute of limitations expiring within one year (10.8).

Translated, here is what Microsoft is saying:

1. If you have a real problem with us as a consumer, we want to hear about it and deal with it if possible before you initiate a formal fight over it.

2. If we can't agree, we will give you every opportunity possible to make your case easily and without procedural barriers outside the regular court system, whether in small claims court or using streamlined AAA procedures in which we pay all the processing costs, including your filing fees.

3. If our negotiations with you yielded an offer from us that is less than what you get through a formal process, we will pay you even more, including double your attorneys' fees.

4. We will not play games with you by saying that arbitration can be held only on our home turf but will make certain that the prescribed procedures let you fight the battle in your local area, ensuring that you do not face arbitrary obstacles in getting your claim decided.

Whether one agrees with the approach or not, the message here is loud and clear: if you deal with Microsoft as a consumer, there will be no juries (i.e., no realistic chances of getting punitive damage awards), no claims by which lawyers try to get nuisance payouts by grinding little claims through the formal court system, no arbitrations by which lawyers try to use complex discovery, etc. to arbitrarily complicate what should be an otherwise straightforward claim, no class actions (either in court or through attempts to aggregate claims in arbitration), and no broad injunctive or declaratory relief remedies that might disrupt an existing business model.

Many large companies have tried to use binding arbitration to corral consumers into little boxes from which they can only fight at an unfair disadvantage. Perhaps Microsoft is trying to do the same thing here in reality but I doubt it. I read this as Microsoft's declaring, in effect, "we have no problem dealing honestly with real complaints about our service but we're sure not about to let ourselves get set up to pay large awards over inflated claims concocted by lawyers - and we are ready to pay a price directly to the aggrieved consumer (e.g., expense reimbursement, attorneys' fees) for the privilege of being free of the mess that is our modern court system."

Sorry to bore people with legalese but this approach is actually quite innovative and worthy of note and I just thought I would highlight it.

As to format, it is helpful when this is improved but a contract is a contract and, when it has to cover all sorts of potentially complex legal possibilities for services offered throughout the U.S. and the world, it can only be simplified so much. It can be made clean and clear in its wording - and that is what makes for deft handling from the lawyer side - but, in the end, reading a complex Terms of Service agreement will always remain somewhere between a visit to the dentist and having to read through a 10-page 6-point-type insurance policy in terms of how we can relate to it. That is just a fact of life, unfortunately.

I agree that EFF has no business asking CL to give away its product for free, nor do I think CL should be forced to do so for any reason.

By tap-dancing, I meant that EFF failed to discuss the legal issues in a way that it might, for example, have discussed the actions of a patent or copyright troll in making an outrageous attempt to disrupt internet norms through some indefensible legal artifice. In such a case, EFF would be the go-to site for an astute legal analysis delving into: (a) what was done, (b) why it is legally indefensible (if it arguably is), (c) the horrible policy implications of what was done, and (d) what the motives of the actor were in doing this and whether those motives could be justified for any reason.

As I read this post, I saw none of the normally sharp and even hard-hitting analysis that EFF would offer in such a case. An action that normally would call for outrage has instead received a very diplomatically worded critique from the EFF. That is all I meant by "tap-dancing." It is almost as much about tone as about substance but clearly this to me is not one of EFF's normal posts.

Craigslist has recently engaged in a lawyer-driven campaign to ensure that no third party can use any of the data posted to its site:

1. Quite apart from the "exclusive license" language that it recently added (and has now dropped), it had recently amended its terms of use to make absolutely clear that no one has the right to use any data posted to its site, whether directly or indirectly, under any circumstances.

2. It sent cease-and-desist demands to various parties, including PadMapper, warning them not to use any such data but, as much as anything, making clear that it was revoking any implied license that the law might find to exist from CL's having allowed parties to scrape its data in the past (i.e., it was saying, in effect, no more loose community norms will apply but only the heavy hand of the law).

3. It also sued 3Tap for having set up a business that used CL data from the Google cache and offered it to third parties to enable them to have access to CL data without having to get it from the site directly. 3Tap contended that it could lawfully use the cached data without violating CL's terms of use or any copyright held by CL in any such data. CL strongly disagreed and set out its claims of infringement, etc. in a complaint filed in federal court just recently. The 3Tap business model may or may not have withstood this legal challenge but the salient fact here is that CL faced a lot of uncertainty on the legal issues involved, meaning that it might ultimately have lost on its claims and further meaning that 3Tap's business model would serve as a ready-made way for third parties to gain unfettered access to the CL data, at least until CL were able to obtain a preliminary injunction in the lawsuit or an ultimate victory on its claims. To do that, however, it would have needed to run the risk of potentially losing on its claims and thereby having helped create some pretty bad legal precedents for its business model.

4. That, to my thinking, is the only reason why CL would have taken the otherwise insane-looking step of changing its terms of use to demand that posters give it an exclusive license to all items posted to the CL site. That sort of license represents a bonehead decision from almost any angle one looks at it except one, and that is the legal angle of giving CL a strong position to claim that 3Tap can no longer use any of the data taken from the Google cache, whether or not 3Tap was deemed to have been bound by the CL terms of use. If CL had exclusive rights to enforce claims relating to the CL postings, then it could try to shut down 3Tap whether or not 3Tap was technically bound by the CL terms of use because it could do so from the copyright angle. In other words, the whole point of having tried to claim exclusive rights to the posts was to have a weapon against 3Tap to block it from having an avenue by which it could open up CL posts for use by potentially innumerable third parties via 3Tap - that is, to plug the final loophole in its legal system aimed at strict enforcement of the terms of use.

5. Any agreement, however, that amounts to a bare assignment of the right to sue on a copyright (with the assignor retaining effective ownership rights to everything else besides the right to sue) is of dubious enforceability, as copyright troll Righthaven found out to its dismay when it was upended by the combined efforts of Democratic Underground, Fenwick & West, and EFF - who convinced a judge to toss all its cases on the ground that such an assignment was ineffective and could not be used as a basis upon which to sue alleged infringers. Now the legal doctrines involved here can get complex and I have not had a chance to assess them carefully in the 3Tap/CL context. But I would wager that CL had lawyers telling it that, if the new terms amounted in practice only to a bare assignment of the right to sue on copyright (and what other reason is there for this?), there was still some potentially serious doubt on whether it would be able to prevail against 3Tap even though CL could now claim that it had the exclusive right to sue to enforce copyrights relating to CL posts.

6. This left CL with only one practical choice, which it took: remove its data from the Google cache or at least set it up so that third parties could not use such data. And that is precisely what it did, just a couple of days ago (see http://news.ycombinator.com/item?id=4351207 for an HN discussion on this event, with link to relevant article).

With the final step above, I assume that CL has effectively crippled the 3Tap business model. Therefore, it no longer needs to impose insane-looking licensing terms on persons wanting to post to its site and it has dropped those terms. It has simply found a more practical way to defeat the 3Tap model, rendering the oppressive licensing terms unnecessary.

The bottom line to what has happened here, in my view, is that CL is engaged in a heavy-handed, lawyer-driven campaign to guard its turf at all costs but doesn't really want to say this publicly for its own prudential reasons. This too is perhaps why EFF is being so diffident in this post, trying to celebrate the removal of obnoxious language from the CL terms of use without really giving convincing reasons for why that language found its way into the terms of use in the first place or why (short of CL being on a drunken toot) such language underwent a here-today-gone-tomorrow transformation for no apparent good reason over a very short period of time. I am only speculating here but it looks like EFF pulled a punch here.

Here are my reasons for saying this:

For all of the economist's sagacity that the author has and evidently brings to this piece, the author's underlying case against modern hierarchical corporations seems to boil down to a populist analysis that is not so much a proof as a set of ill-developed assertions.

The author claims (a) that hierarchical managements lead to "corporate serfdom" and to "Soviet-like" dominance within the framework of the corporation itself, thereby crushing creativity and wasting resources, (b) that all this is made by possible by "toxic finance," and (c) that it is all "co-dependent with political structures that are losing democratic legitimacy fast."

Corporate serfdom? Toxic finance? Co-dependent on illegitimate political structures? This lumps every early-stage startup with every mega-corporation that has ever existed and, in effect, calls them all illegitimate. And that is a political assumption about "corporations" in the abstract, not an empirical analysis, because it cannot possibly be defended as an empirical analysis. Is it serfdom to join a YC company as a founder or an employee? Is YC a toxic funder? If the answer to both is no, does all this change once startups get bigger? How about a startup that purports to offer a different form of corporate culture ala Google? Are there serfs working at Google? Is their funding toxic? Or does this just apply to a Walmart or a Standard Oil or other mega-corporation that does not specifically do creative work in the tech field? Does hierarchical management consist of simply having the normal forms of corporate government - a board of directors and corporate officers - or does it come about only when people are given authority to hire and fire, to supervise the employment of others, and to direct them in what to do in their jobs? Is this all good, efficient, and respectful of human talent and creativity when the organization is small but soulless and deadening and even "Soviet-like" only when the corporation becomes large? If there is such a distinction, where is that line crossed? And does this mean that the corporate form is not innately evil but that a large organization of whatever type, organized hierarchically in its management structure, is what brings in the evil.

What, then, does Valve offer that makes it different? It too is a corporation. It is privately owned by a few persons who have had the luxury of screening all employees so as to hire only very bright, highly self-motivated persons to do predominantly creative forms of work. Working with such employees, Valve has been able to build a successful model by which these bright, motivated employees get to choose 100% of their projects and have complete freedom on how they manage their own time and on what results they seek to achieve. It all sounds like an amazing work environment but how many businesses get to focus in this way on creative forms of work or get to screen carefully to make sure they only hire self-motivated employees? And how many businesses have the luxury of doing this without needing to raise outside capital through their early stages? Moreover (and the author himself raises this point), to what extent can this scale? Can such a model work if the company grows a thousandfold and suddenly has 40,000 employees? Of course, the model inevitably breaks down at some point along the way because the environment in which the Valve employees currently function is highly unusual if not unique.

Unless human nature should radically change owing to technological progress (a dubious assumption in my view), we can continue to expect that, in any large group, there will always be those who fail to carry their weight, those who seek to take advantage, those who are incompetent, and those who are plain bad actors making life difficult for those around them or trying to cheat the company or steal from it or whatever. A hands-off management that lets all such persons do whatever they want will very quickly find itself immersed in problems and, ultimately, some mechanism needs to be put in place by which employees are managed, are disciplined, are rewarded, are redeployed, etc. in ways that conform to the goals of the organization and not necessarily with those of each individual actor within that organization.

Every form of business organization needs people with a vision to set its model and its goals and to direct people and resources in a way that maximizes the opportunities of successfully reaching those goals. In some situations, some or even all of the impetus for this can come from those who work in common without an overriding authority. Those situations, though, are by definition highly unusual at best. Valve may be one of them and even then it has to managed at some level even by its benign oligarchs who own it. And, even if technological progress could someday supplant the need for corporations, this piece does not make the case for how that will ever be possible. It is, then, an intriguing piece (with thought-provoking elements) but suggestive and incomplete at best in its main argument about Valve and marred by populist assumptions in its broader themes about corporations generally.

Yes, this is written from the standpoint of a startup business lawyer who has dealt with corporate forms of organization for some three decades now. This may give my views an inevitable bias in that direction but it also gives me a close familiarity with how such corporate forms work. From that perspective, what the author says just doesn't ring true. Business organizations generally aren't places where free-flowing creativity will hold sway above all else. The Valve model may be great but I just don't see it being made broadly applicable to the vast majority of businesses as they operate today or as I can even conceive of them operating in the future.

Even as someone who feels we should be rid of software patents, I cannot for the life of me understand this statement.

I can believe, philosophically, that relatively high tax rates will benefit a society. That doesn't mean that, even in so believing, I wouldn't do my utmost to minimize the tax that I pay within the rules provided by the law. The question before me when I make such decisions is what makes sense for me as an economic actor, not what the broader policy for society should be. And there is no reason I should "feel bad" for acting in my own self-interest in that case even if I believe the rules should be otherwise.

So too, if I am a founder, I can abhor the idea of software patents while still using the full range of IP protections afforded by the law to enhance the value of my startup. If getting a software patent for my company's early-stage innovations enhances funding valuation, acquisition pricing, and competitive edge in the marketplace - and if the law says this is a perfectly legal way not only to protect but also to gain monopoly protection over intangible assets that my company has and others don't - my decision here will turn on weighing the costs of getting such protection (money costs, disclosure risks, etc.) versus the benefits, the likelihood of qualifying for it, and similar considerations having nothing whatever to do with the abstract policy debate concerning whether the law should afford such protection in the first place. What is more, if I don't avail myself of such protections and if a competitor later does so in a way that hurts my venture's prospects because I now have to surmount legal barriers that wouldn't even have been there had I acted to protect my company's legal interests in the first place, then I have done affirmative harm to the people who trusted me to run my company to its best advantage - whether they be my investors, my co-founders, my employees, or just my own family members who might suffer if that venture should fail. This does not mean I need to blindly pursue some form of artificial legal protections for my company's innovations. It means that I need to make intelligent judgments about availing myself of such protections as opposed simply to categorically rejecting the idea of using them. In short, I need to be smart about protecting my venture using the tools afforded by the law and not forego those tools out of some philosophical preconceptions I have about what the law should be. The "should-be" part of the law is basically irrelevant in this context for most entrepreneurial decisions of this type. And there is certainly no reason to "feel bad" owning software patents if they turn out to be helpful for one's venture in this context.

Maybe this will be seen as narrow, unenlightened, lawyer-driven thinking. It is, however, my universal experience in having dealt with countless founders over many years. Without exception, they have all acted consistently with the pattern I describe and there is no reason they shouldn't have. It makes perfect sense for a rational economic actor. Startups have enough risks as they are. There is no reason to add to them artificially owing to social pressures telling you to "feel bad" for doing what is right for your company.

I know the sentiments against software patents are strong here on HN but there is a big difference between a policy debate seeking to influence Congress and actions that make sense for individual actors having to deal with the realities of the law as it exists today. One can condemn the idea of software patents generally without necessarily passing censorious judgments about the actors who need to deal with the law as they find it.

Judge Posner admits he is no expert on what the fixes should be and his tentative suggestions for fixing the system are, in my view, decidedly mixed on their merits (e.g., specialized adjudications before the USPTO - remember when it was suggested that a specialized appeals court would improve the patent system and the result was a court that has been so maximalist in its approach to patents that it has in itself become a significant part of the problem).

So where to begin?

Legally, it has to go back to fundamentals and, for me, this has to go back to the scope of patentable subject matter and whether this should be defined to include software at all.

The Patent (and Copyright) Clause of the Constitution (Article I, sec. 8, cl. 8) provides that the Congress shall have the power "to promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries." Note that, in defining this as one of the enumerated powers of the federal legislative branch, the Constitution does not mandate that the legislature provide for patent protection of any sort. It merely permits the exercise of such a power within constitutionally prescribed limits. Thus, any legitimate exercise of patent authority in the U.S. must come from Congress and must respect the constitutional bounds that any grant of patents be for "limited times" and be done in such a way as "to promote the progress of science and useful arts." Legally, then, any patent system in the U.S., if adopted at all, must be authorized and defined by Congress with a view to promoting the progress of science and, implicitly, must employ "limited times" consistent with what it takes to promote scientific progress.

The first issue, then, is whether patents are needed at all to promote the progress of science. In the U.S., in spite of philosophical arguments to the contrary by Jefferson (http://news.ycombinator.com/item?id=1171754), this has never been seriously in dispute. The industrial revolution was already well in progress in 1789, when the Constitution was adopted, and the federal authority, though generally regarded with great wariness at the time, was seen as vital to protect the rights of inventors and to reward them with limited monopoly grants in order to encourage the progress of science. In the first U.S. Patent Act (Act of April 10, 1790, 1 Stat. 109, 110), Congress implemented its constitutional authority to sanction patent monopolies by defining patentable subject matter very broadly, to include "any useful art, manufacture, engine, machine, or device, or any improvement therein." Congress amended the Act in 1793 and then again in 1952, so that today it reads as to the idea of "patentable subject matter" as follows (35 U.S.C. sec. 101): "Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title."

Thus, patents in the U.S. can be granted for any original invention that fits within the definition of patentable subject matter and that also meets the other conditions of the patent act (i.e., that is useful and non-obvious). Note, though, that the 1952 definition of patentable subject matter significantly expanded the scope of such subject matter in the name of bringing the patent laws up to date with developments in then-modern technology, all in the name of promoting the progress of science. It did so by defining patentable subject matter to include any "new and useful process" as well as any "new and useful improvement" of any original invention. Over time, "process" has come to embrace business methods and also software. And the protection of "useful improvements" made clear that new uses of existing machines or processes could be patented notwithstanding older Supreme Court decisions such as Roberts v. Ryer, 91 U.S. 150, 157 (1875) ("it is no new invention to use an old machine for a new purpose").

To promote the progress of science, then, Congress in 1952 allowed patents to be granted for any inventive process and for any inventive new use for any such process. In my view, this generally made sense for what was essentially the continued playing out of the same sort of industrial revolution that animated the original forms of patent protection granted in 1790. Looking at that language at that time, one could readily make the case that patentable processes and improvements thereon could and did promote the progress of science. Discrete inventions tended to be sharply differentiated and tended to involve significant development effort in time and resources. An inventor could keep a process secret and not patent it but the grant of a limited monopoly gave a decided inducement to disclose it to the world and, hence, to expand the broad pool of scientific know-how available to society.

Then came the digital revolution and, with software, a new or improved process can amount to an almost trivial variation on prior art amidst a seemingly endless stream of improvements developed in ever-rapid succession and with little or no capital investment beyond what developers would be motivated to do for reasons entirely independent of gaining monopoly protection for the fruits of their efforts. Moreover, there is little that is closed about such innovations: a wide knowledge base is in place, known to an international developer community that is basically scratching its collective head asking why it should be restricted legally from using techniques and processes that represent common knowledge in the field.

The main question, then, concerning software patents, is whether the existing framework makes sense as one that promotes the "progress of science" insofar as it grants patent protection to process inventions in this area. Congress needs to seriously ask itself that question. A second question, also tied to constitutional authority and assuming that it is legitimate to grant some form of patent for such inventions, is whether a 20-year period of exclusivity makes sense in an area where innovation occurs at blazing speeds and with not too much capital investment tied specifically to any given discrete invention. Is that necessary to promote the progress of science? That too is a question that Congress needs to consider.

Thus: (1) there is nothing magical about the current definition of patentable subject matter and Congress can adapt this to suit the needs of the time in promoting the progress of science, (2) process patents are in themselves a fairly recent phenomenon (at least in any large numbers) and it is no radical change to curtail them in areas where they make little or no sense in light of the constitutional purpose for why patents even exist in the first place, and (3) legitimate patent reform needs to go far beyond procedural fixes around the edges of the system and needs to focus on the realities of modern technology and whether the patent laws further or impede the progress of science as applied.

The policy debate can and will go all over the board on this but, if it is framed in light of the constitutional foundation for having patents in the first place, it can be shaped in a way that puts the focus on the fundamentals of what needs to be fixed as opposed to lesser issues that do not get to the heart of the problem. The main problem today is the blizzard of vague and often useless patents in the area of software. These are effectively choking all sorts of innovation and are benefiting mainly lawyers, trolls, and others who do not further technological development by what they do. It is a mistake, in my view, then, to swing too broadly in trying to fix things (as by advocating abolition of all patents) or to be so timid about the issues that reform is marginal at best and ineffective in dealing with the current crisis of an over-abundance of essentially worthless patents. Congress embraces the patent system as a whole and shows no hostility to its fundamentals. Reform must be shaped in light of those fundamentals but it must, at the same time, be meaningful to eliminate the main garbage from the current flawed system. Judge Posner has pointed the way generally and proponents of reform ought to follow his lead, with the focus being (in my view) on software.

A "cost bill" is not a bill for the attorneys' fees incurred in a case. Under U.S. rules, the parties bear their own legal fees in most cases (and that is the case here).

But federal court rules do permit a prevailing party to recover from the losing party necessary costs incurred in dealing with document production and similar matters in the litigation. The out-of-pocket bill here (not including attorneys' fees) for Google to filter through 97 million documents and to produce just over 3 million of them after careful assessment and screening: about $2.9 million (mostly paid to electronic discovery service providers, who surely found full-time employment in this case during this past year).

The bulk of the remaining bill for costs consists of nearly $1 million paid to expert witnesses for their assistance in helping to prepare and present Google's case.

In a case like this, Google's attorneys' fees had to run at least $10 million per month, at least during the intense phases of the case. I would estimate, then, that total attorneys' fees in the case easily exceeded $100 million and may well have done so for Google alone.

Big Law may be in the doldrums today in general but a case like this clearly offers a big payday. The law firms here were all exemplary and undoubtedly earned it. Still, the cost is staggering to contemplate for the casual outside observer.

1. The complaint here presents Hipmunk as the developer of an innovative travel search engine that offers something great that no one has ever offered and, hence, as a rising star in its market. It contrasts this with i2z Technology, LLC, - a Marshall, Texas shell entity run by a Silicon Valley lawyer - that invented nothing through its own efforts, that took an assignment of a soon-to-expire 1992 patent in July, 2011, that sued a score of mostly-large companies in the fall of 2011 for allegedly infringing that patent, and that made a letter demand on Hipmunk to take a license from it or be immediately sued. It notes, very pointedly, that the innovation done by Hipmunk from which so many people stand to benefit has no connection whatever with the patent upon which i2z threatens to sue. It further notes that, on the face of it, the primary claim of the patent in issue deals with two-window configurations not even used by Hipmunk. And it identifies prior art that Hipmunk claims invalidates the patent. Finally, the complaint states that this demand came to Hipmunk only after it had raised significant VC funding for the purpose of continuing to grow and to innovate and, rather than use these funds to pay for a worthless "license," it has instead elected to fight to expose this for the bogus claim that it is.

2. The themes of the complaint are almost a template for what is wrong with U.S. software patents at their worst. Patents are supposed to protect and encourage innovation. They are supposed to take things that would otherwise remain secret and get inventors to disclose this secret know-how so that it can be absorbed into an ever-broadening public pool of knowledge for society's benefit and, as a trade-off, give the inventor a limited monopoly barring all others from using the invention for a limited time even if those others developed it entirely independently of the efforts of the inventor. To get this monopoly protection, the innovation has to be truly inventive and not such that those skilled in the relevant art would see it as obvious in light of prior art; and it must be practical and useful as applied to real-world activities and cannot be so abstract and vague that it amounts to an idea, a law of nature, or a mere concept. To benefit society, the monopoly protection must extend to a point deemed reasonable for rewarding the inventor but not so long as to give him a windfall at the longer-term expense of others. All of these concepts applied beautifully to an industrial age where inventions tended to be tied to heavy machinery or to other innovation tied to long and expensive development cycles and where the resulting inventions were discrete and significant departures from the analog-style forms of prior art that preceded them.

3. Digital technology, when first deployed, tended to fit within the historical patterns but not so with software. When it comes to software development, development cycles have become extremely rapid. The ability, or even the inventor's desire, to keep innovation secret and undisclosed has severely contracted and, in a sense, much of what is innovative in software is an open book, with a whole universe of developers drawing from the same or similar sources and deriving very similar outcomes without reference to one another's work. Change comes quickly and incrementally and knowledge of that change rapidly becomes widespread. Often such changes, when reduced to practice, can only be described in vague ways that might be applied in all sorts of surprising ways to future incremental changes and, hence, the monopoly rights tied to such vagaries hang like a menacing cloud over anything that anybody might do in those areas. And even things that truly might be classified as inventive in light of prior art can be seen as being of very limited value in the broader swirl of rapid technological change within even a few years of the time they are given patent protection and hence giving every appearance of society's having given the inventor a 20-year windfall over what should instead have been incremental stuff worthy of 3-year protection at most. Now add to the mix an underfunded and besieged patent office whose examiners are not particularly qualified to make consistent, astute judgments about innovation involving software and who are effectively under quota-pressure to keep the patent grants moving along in the system - add further an enforcement system that imposes multi-million dollar costs upon those who seek to enforce their patents and also upon those who seek to defend against claims of infringement and that produces widely variable results tied to a jury system in which those passing the ultimate judgment can easily be confused and bamboozled in evaluating technical claims - add further that the appellate review level concerning patents has been placed in the hands of a specialized court having exceedingly close and sympathetic ties with the patent bar and with the idea of broad-based patent enforcement remedies (including potentially crippling injunctions) - add further that a specialized judicial district in a backwater Texas area routinely provides favorable treatment for patent claimants even when claims are weak or frivolous - add further that patent rights, being freely assignable, can be gathered in the hands of shell entities having no connection with any form of innovation but being intimately tied to a system whose purpose is to play the enforcement system to its maximum value in order to force parties to pay up or get swept into a litigation mess - yes, added all together, this becomes one lethal brew whose poisons now maim or kill, rather than encourage, the innovation that the patent system was designed to foster.

4. I am by no means hostile to IP rights generally. These can and do protect various forms of creative effort in ways that can benefit society. Still, IP rights when abused are the worst form of perverseness in a technologically-driven society and can and do damage society in serious ways. You wind up with those who have not innovated a day in their lives making debilitating demands on those engaged in brilliant innovation in furtherance of a cynical shake-down process that amounts to a toll on innovation with no offsetting benefits. The patent system has served the U.S. well for over 200 years. Its structure was put in place with the pace and methods of innovation fostered by the industrial revolution. That structure did not envision digital technology as embodied in software and has in the past 20 years become corrupted. It is time for a rethinking of what it takes in the patent area to encourage and protect software innovation. The current system, as exemplified in the Hipmunk case, is absurdly broken.

In a sense, like the manager above, Mr. Carreon has thrown himself personally into a fight that was not his fight but that of his client. He has made it personal and now finds himself suing in spray-gun fashion hoping to hit the nearest target connected with the events, whether the law supports him strongly, feebly, or perhaps not at all - all the while standing forth in a public spotlight that magnifies his every action whether good, bad, or indifferent. There is no winning for him in that situation, whatever the merits of his claims.

The most valuable asset of a lawyer is his reputation. I won't presume to tell Mr. Carreon how best to defend his but, whatever else he does, he needs to be very careful not to exacerbate a situation that already is very difficult for him. Whatever wrong may have been done to him, the solution does not lie in a lawsuit of the type that has been filed here.

The reaction of the lawyer is understandable, it being the sole prerogative of lawyers to bully hapless victims into submission and, if not bully, at least to trick and cajole them into giving them what they want and, if not that, in extremis, to get a true day in court for their client in which the victim can finally speak up, and might even win, but then the client on whose behalf the bullying is done pays in spades for the privilege of financing a futile process in which everyone loses except, of course, the lawyers who invented a system dating back at least to Jarndyce v. Jarndyce (http://en.wikipedia.org/wiki/Jarndyce_and_Jarndyce) for the betterment of society and only incidentally for those who might take a modest profit from their humble efforts in the service of humanity.

That said, I once had a legal submission amended to a title that was really wrong legally and therefore sympathize with the sentiments expressed by tokenadult. It is one thing to clarify or to trim fluff from a title but it is another to guess at what a better title might be for a technical area that is beyond the expertise of a moderator. Hence, caution ought to be used. On balance, though, I have found the moderators to be thoughtful when they do make such changes and so I am sure this is just one of the hazards of trying to monitor a site that can include complex materials from varying sources.

The judge entered a tentative ruling saying that he was inclined to dismiss the entire case on the merits with prejudice (meaning, to kill all the claims in the case definitively so they could not be brought again by either party) on grounds that (a) neither party could prove actual damages on their claims, and (b) no good ground existed for the grant of an injunction.

These conclusions are well supported on technical grounds by existing law. A damage case can be tossed, once and for all, if a party is conclusively shown not to be able to prove damages, as happened here. And a judge can decline to impose an injunction where the costs of doing so would be far out of proportion to the benefit it gives to the harmed party, where the wrongdoing party is not gaining great benefit from the wrong committed, and where the public would be more damaged than helped by such a remedy.

What this really amounts to is a victory for common sense. Where patents involve essentially trivial rights (as often is the case with software patents especially), judges do not like to be used as tools to be manipulated in a broader commercial fight between litigants. In essence, this judge, looking at these facts, said "OK, kids, time to stop squabbling in the sandbox and go home." The lesson: pick your fights carefully and don't push claims that are essentially trivial.

Judges, good as they are, can only do so much in a system that is defined by constitutional authorization, congressional implementation, and a specialized court set up by Congress that has become cozy with the patent bar. That said, Judge Posner can hardly be accused of being a judge who doesn't respect property rights or IP rights generally and his voice will carry far more impact than most. It will be necessary to have respected voices in the legal community say, "enough is enough" many times over before Congress will listen. This act may not be enough but it is a great push in the right direction.

The strongest position any founder can hold. It doesn't mean you can't consider and even take short-term options for funding or acquisition. It means you need not take them unless you can do so on your own terms. Entrepreneurs have come a long way in this most recent decade in being able to do rapid company development - historically, the scale at which this is happening is quite dramatic - but some things never change: to succeed, develop a sound business model and be very careful not to get yourself overextended financially in the process of building it out. Doing that is no guarantee of success but it is a sure-fire way to limit your risks of failure.

The minimalist philosophy had worked well in a day when claims were few and limited in a typical civil case. In the modern commercial era, though, and especially in the federal courts, this approach of letting the parties run wild leads to many problems of case management and opens up the door to abuse for aggressive litigants who throw power and money around freely as a means of enlarging the settlement value of their cases. Thus, the judge for whom I had clerked (who, by the way, was a superb and much respected judge in his own right, having been many years ago the Chief Judge of the Northern District of California, the same district in which Judge Alsup sits), would have some 400 active civil cases on average at any given time while those who applied active case management were typically down in the low 200's. Parties would have huge delays in having a trial date assigned to their cases because so many others were in line before them. And trials themselves could run for weeks and months just because no check was placed on the lawyers throwing out everything they could to see what might stick in front of a jury.

Judge Alsup, in contrast, applied very strong case management skills to this case: (1) he forced Oracle to pick its strongest patent claims and to forego the rest (in theory, he had no power to do this but he effectively managed it by telling Oracle that, if it did not trim its claims, he just might exercise his powers to stay the entire litigation until the whole lot of them got full patent reexaminations before the USPTO); (2) he gave the parties very strict time limits within which to put on their evidence; (3) he set out strict rules for discovery and then enforced them; (4) he was ultra-aggressive in knocking out wild expert claims by which Oracle had sought to inflate its alleged damages into the billions and put Oracle's expert through multiple cycles that amounted to telling him, "OK, now come back with something credible before I will let it into evidence in my court;" and (5) he brilliantly handled the tricky copyright issue relating to APIs and "structure, sequence, and organization," which, being a very knotty legal issue in light of Ninth Circuit precedents, he allowed to go before the jury on the assumption that it could find infringement on the issue even as he reserved the ultimate authority to decide the issue regardless of what the jury concluded (the article here calls this a "feint" but, in reality, it is just smart case management in giving the court of appeals the full range of options on what to do with the case if it ultimately reversed his ruling).

The case management aspects are the "under the hood" part of the case. Very few observers besides the insiders focus on it. It was, however, vital to the ultimate outcome. Just imagine if Oracle would have gone to trial with dozens of claims and if they all got tossed to the jury for ultimate determination, including the ultimate decision on whether APIs were copyrightable. That methodology - which could respectably have been applied to this case by a federal judge - would have given Oracle an open ticket to abuse and game the system and would significantly have enlarged its prospects for success in sticking a gun into the side of Google. The biggest downside, though, for the rest of us would have been in the resulting uncertainty on how such claims would be resolved in the future. Imagine how the developer community would fare in a lottery system where every API-related claim imaginable were tossed to a jury with prospects for a crap-shoot outcome. If that is a horrific thought, then you have one more thing for which to thank Judge Alsup. Smart case management, a smart judge, and a superb outcome. Be thankful this landed the way it did. It could easily have been very different.

1. This is a meticulously researched, marvelously analyzed, and brilliantly synthesized order done by a judge who has a keen grasp of not just the facts of the case but of those that really matter. As the opinion notes, this was a case of "first impression" - meaning that no published decision has ever dealt specifically with the precise question raised of whether APIs in themselves are protectable by copyright or not.

2. The developer community needed a definitive ruling that was almost impossible to arrive at in light of the controlling precedents of the Ninth Circuit (which are binding on the judge). Why? Because (beginning with the Johnson Controls case in 1989) the precedents had held that the "structure, sequence, and organization" (SSO) of any part of a software program were potentially protectable by copyright and that the issues had to be determined case-by-case to determine whether a particular component was or was not protectable. Thus, the best a trial judge can do in such a case is to make a fact-specific conclusion about the case immediately being tried, one which would have limited impact in the next case, where the parties could argue the same issue on different facts. Yet, while doing just that and limiting his ruling to the particular facts before him, Judge Alsup has provided a definitive and logically compelling approach to how such issues are to be decided where they concern APIs and copyright and such reasoning is, in my view, destined to be widely applied throughout the court system going forward. Lower court rulings can have a powerful impact through the sheer force of their reasoning. This is just such a ruling. It is rare to get this. It could not have been better timed on a vital issue affecting interoperability in our modern era.

3. Fundamentally, Oracle had been arguing that the SSO of its 37 API packages reflected creative expression of precisely the type that the Copyright Act was intended to protect. And it is true that API design choices reflect all sorts of creative forms of expression. To deal with this issue, the judge got down to fundamentals, with the key language found at page 35 of the opinion: "Much of Oracle’s evidence at trial went to show that the design of methods in an API was a creative endeavor. Of course, that is true. Inventing a new method to deliver a new output can be creative, even inventive, including the choices of inputs needed and outputs returned. The same is true for classes. But such inventions — at the concept and functionality level — are protectable only under the Patent Act. The Patent and Trademark Office examines such inventions for validity and if the patent is allowed, it lasts for twenty years. Based on a single implementation, Oracle would bypass this entire patent scheme and claim ownership over any and all ways to carry out methods for 95 years — without any vetting by the Copyright Office of the type required for patents. This order holds that, under the Copyright Act, no matter how creative or imaginative a Java method specification may be, the entire world is entitled to use the same method specification (inputs, outputs, parameters) so long as the line-by-line implementations are different" (my emphasis). Thus, even though the judge was forced by Ninth Circuit precedents to assess the SSO based on the particular facts before him only, he did so by finding, as a matter of fact, that only a 3% layer of code dealt with the SSO of the API packages, that this consisted entirely of names that had to be identical for compatibility purposes and of tasks that could be performed in only one way in order to work, and in this way - having established the factual setting as consisting entirely of elements he concluded were unprotectable under copyright - he could make a powerful and sweeping statement of law that will undoubtedly have a huge impact on future cases.

4. The judge finally had to deal with the claim that the SSO constituted a sort of taxonomy that has been held protectable under copyright in other circuit courts. Here, too, he addressed the issue based on fundamentals: assuming that the API design structure here constituted a taxonomy, he nonetheless held that it was above all a command structure that was unprotectable based on 17 U.S.C. section 102(b) (which categorically excludes ideas, concepts, etc. from copyright protection). Thus (at page 39): "In our circuit, the structure, sequence and organization of a computer program may (or may not) qualify as a protectable element depending on the 'particular facts of each case' and always subject to exclusion of unprotectable elements. Johnson Controls v. Phoenix Control Sys., 886 F.2d 1173, 1175 (9th Cir. 1989). Contrary to Oracle, Johnson Controls did not hold that all structure, sequence and organization in all computer programs are within the protection of a copyright." This is another way of saying that what might otherwise constitute protecable expression (e.g., the creative design choices made in developing the SSO of APIs) is nonetheless not protectable if it functionally operates within a computer program as a command structure. This, of course, is what APIs do and this means that his conclusion can be used as a powerful guide in all future API copyright cases. As a trial court decision, this ruling is not binding on other courts, yet it is compelling and persuasive, which can amount to the same thing (including in its impact on the Ninth Circuit when it considers this case on appeal).

5. Oracle here is like the Black Knight in Monty Python: as each limb of this case was lopped off, it dismissively would say "a mere flesh wound." Now that its case has been reduced to a final stump, it can continue to declaim but who will listen? Maybe a long shot on appeal but I wouldn't hold my breath. This is an unbelievable outcome that illustrates that great good can come even from lousy things that people do. The computing world owes a great vote of thanks to Judge Alsup: the cause of interoperability has won a huge victory.

If the judge cannot reach such factual conclusions from the evidence, then he is left with concluding that the SSO of the APIs as represented in Java do have expressive elements and are hence protected by copyright. This would mean a retrial with instructions given to the jury much as before and with a heavy fight over fair use.

Of course, in the end, who really knows. It is clear that the judge has done extensive homework on this and that is perhaps the best sign that the decision will be well thought out. Only time will tell.

Judge.me also seems like it has taken a credible first cut at a form of execution that is at least workable. It has avoided the very thorny choice of law issues that can arise where the contracting parties are in different locations by essentially having the parties agree up front to be legally bound by what amounts to a free-floating form of law to be applied by the arbitrator regardless of what technical choice of law issues would normally prescribe. It has avoided the problems that can arise with discovery procedures in arbitration by limiting the whole arbitral process to a 1-day to 3-day exchange of evidence by email exclusively. It has also kept processing costs low by reserving for itself the right to choose and assign the arbitrator, by drawing its arbitrators from an established pool as contractors, and by dispensing with the need for witnesses, transcripts, rules of evidence, and all other technical aspects of judicial hearings (again, the parties agree up front to these limitations and that is why they can be legally bound by them even though they are highly unusual by court standards).

What all this means is that this is an innovative way to extend technology to dispute resolution but it will, of course, only appeal to those who can abide by the limitations. To me, this means that the system may lend itself well to small-dollar disputes but not to anything involving complex facts or larger claims. The absence of live testimony and the absence of discovery are particularly limiting in this context - if you can't find out too much about what the adverse party is going to claim and if you can't get your hands on evidence he holds to rebut it, you may be severely prejudiced. At some point not too far up the dollar scale, this likely becomes too risky (this would depend on the individual facts of a case). Beyond this, arbitration generally does not fit too well into non-monetary claims and judge.me would not be an exception to this. Still, for small-dollar cases, it would seem to be an interesting alternative to the small claims court systems in place throughout the U.S. and elsewhere.

The big challenge here will be to see how technology can be used to allow the service to overcome some of the limitations noted above while still keeping it streamlined and cost-effective. I am not sure this can be done but this is an interesting first step and there clearly would be a huge demand for cost-effective handling of claims at a higher level. It will be fascinating to see how this develops.

Google had pushed for a fall trial date at the earliest but Oracle argued vigorously (and successfully) for an immediate date on grounds that the case was ready with Google only playing for time. To induce the judge to give it an early trial date, Oracle offered to dismiss with prejudice all patents that had been rejected in a final office action by the USPTO subject to reinstatement in the event the PTO reversed itself prior to the start of trial. Trial started on April 16 and, lo and behold, the PTO did reverse itself concerning one significant patent (the '702 patent) such that Oracle would normally have been able to pursue its claims for infringement based on that patent. However, it did so a few days after the trial had started. As a result, that claim wound up being finally dismissed for purposes of this lawsuit. Oracle tried to renege and pushed the judge to reinstate the claim but the judge said no (decision here: (http://www.scribd.com/doc/91307218/Oracle-denied-using-reviv...).

Thus, Oracle screwed itself as a result of having charged full speed with tomahawk swinging wildly in the air. In pushing aggressively for tactical advantage, it essentially threw away the one patent claim that had any potential for viability (the two patent claims on which it lost at trial were in fact relatively weak, with one of the two patents about to go down before the USPTO and set in any event to expire in December, among other things).

Oracle now finds itself in a deep hole. It won a few crumbs in the copyright phase and got skunked on the patent phase. More copyright drama to follow as the judge rules on API copyrightability. Oracle might win on that issue, as it is a tricky one under Ninth Circuit law (see http://news.ycombinator.com/item?id=3980642), but it then faces a retrial in which the judge would give much more refined instructions on what it means to infringe the SSO of the Java APIs than he gave in the first trial - between that and the (I think, formidable) fair use defense that Google has, it is strictly an uphill fight for Oracle from here on out. (By the way, Google has done a masterful job of arguing the issue of why APIs should not be copyrightable and, for those inclined to read through a superb legal brief on the issues, here it is: http://www.groklaw.net/pdf3/OraGoogle-1137.pdf).

Oracle may yet rally if a lot of things go its way. I wouldn't bet on it though. Much more likely, in my view, is that the case becomes a testament to what happens when a party makes a high-stakes opportunistic legal grab that goes badly awry. What Larry Ellison set out to justify as Oracle's vindication has instead become Oracle's folly.

That said, I have been in the Valley since 1968, have watched its ups and downs professionally since the early 1980s, and can say without question that it is currently bursting at the seams with opportunity from every conceivable angle. Yes, the days when silicon was king are well past their "golden" stage but they have been replaced by an era where founders have decided leverage and power to realize great visions without having to overcome the resource/knowledge barriers that predominated just a decade ago, where innovative investors have more ability than ever to leverage early-stage situations in ways that used to be monopolized by just a few top-tier VCs, and where the disruptive impact of technological change generally is leaving old-guard companies staggering as startups who vigorously challenge them proliferate - all to the great benefit of society at large. Plans are afoot at every top-tier company - Facebook, Google, Apple, etc. - to grab control of the whole process and eventually dictate to others how they might participate in it, but such plans have not yet succeeded even when they once seemed almost inevitable (thinking of 90s Microsoft here). As long as companies remain free to innovate, there likely will be successive stages of greatness in the Valley (and, of course, elsewhere where comparable elements exist) and it is a mistake, in my view, to attempt to label any particular outstanding stage in the past, or any particular mode of growth, as "golden" in some special way. As long as human nature is what it is, enterprise will take many forms, each suitable to its time and no one form more particularly special than the other. The key is to capitalize on the opportunities as they exist, leaving history to play itself out as it will.

Section 102(b) reads as follows: "In no case does copyright protection for an original work of authorship extend to any idea, procedure, process, system, method of operation, concept, principle, or discovery, regardless of the form in which it is described, explained, illustrated, or embodied in such work."

The idea here is not to give anyone a monopoly via copyright over such fundamental concepts as ideas, etc. Things that are purely functional within systems and the like fall within 102(b) and cannot be copyrighted even if they are otherwise expressive. That is what Google is arguing about the 37 Java API packages in this case.

In the Ninth Circuit, however, the same Johnson Controls case that held that the components of a computer program are to be assessed item-by-item to determine what is protectible and what is not also set forth the (judge-invented) doctrine that the structure, sequence and organization of elements in a computer program can be protected by copyright even if the discrete pieces are not in themselves expressive. Taking this as its point of departure, Oracle argues at length about all of the "expressive choices" that were made in the 166 API packages that are part of Java (and in the 37 API packages specifically at issue in this case), how they are named in special ways, how they are structured to take certain parameters and not others, how some call certain classes and methods not others, etc. Oracle further argues that Google could have achieved the same functionality that it gained from copying the APIs through "other means" such as APIs with different names and the like and that it could have done so without using the identical "sequence, structure, and organization" used in the Java APIs. It analogizes all this to a musical composition that is readily protectible under copyright even though individual notes are not.

I personally think the Oracle argument is a crock but, when you are able to devote huge resources to developing a case, when you can hire the best experts who can attest to the countless forms of "creative expression" of the type alluded to above, when you can pay the best lawyers to spin it out endlessly from every conceivable angle, you get the scary prospect of a court buying into this sort of analysis and mechanically concluding that, yes, all this is protected by copyright because it is "expressive" and not merely functional. This is why I think that the judge, who is bound to follow the Ninth Circuit precedent, will really need to dig deep to make a definitive ruling here that APIs are not protectible by copyright as a matter of law. An appeals court will have more freedom, however, and can focus on the purpose of copyright law and on why it is absurd in light of modern programming realities to give any party the power to monopolize API-style functionality in ways that will paralyze the industry. The judge is a very good judge and he may also land on the right conclusion - it is just harder for him because he is bound by some restrictive precedents.

This exchange highlights the rather unfavorable position that Oracle finds itself in on the copyright issues. It has won nothing of significance and stands to get very little from the jury on these issues. Concerning the broader claims on which the jury hung, it still faces a potent objection from Google that it cannot assert copyright violations based on the 37 API packages owing to defects in how the Java program was registered with the copyright office. It also faces the risk that the judge or a court of appeals will hold that APIs are not copyrightable.

A word on this last item: Much as the developer community believes very strongly that APIs should not be copyrightable, the Ninth Circuit law that is binding on this judge (beginning with Johnson Controls in 1989) is not particularly favorable in that it provides that software programs are to be analyzed item-by-item on the facts of each particular case to determine whether any particular component is protectible expression versus an unprotectible idea, function, system, or method of operation (this is in stark contrast to the First Circuit, which held that judges could make categorical judgments that certain components are functional by nature and hence unprotectible by copyright (as opposed to patent), as the menu structure was held to be many years ago in the Lotus/Borland case. Google is arguing the issue categorically ("APIs are inherently unprotectible under copyright law") but this makes for a tough sell in a jurisdiction where the appellate authority has said that such issues cannot be categorically determined. Google has alternative arguments, the main one tied to a leading Ninth Circuit case (Sega) that Google argues enables copying of functional elements of any program needed to ensure compatability. But, in my view, astute as this judge is, he will be bound to apply the fact-specific approach, making it tough for him to adopt Google's strongest argument and thus significantly reducing the prospects for a definitive ruling from the judge along the lines sought by Google (of course, this might come on appeal, where the court is free to reshape its earlier precedents in light of modern-day realities in the software world).

Judge Alsup has let the case go to the jury to determine whether the "structure, sequence and organization" (SSO) of the Android platform infringes either the compilable code or the documentation of 37 of the 166 total API packages constituting a part of the Java platform. But the judge has reserved for his exclusive determination, after a verdict is entered, whether such SSO is even protectible under U.S. copyright law. In instructing the jury, the judge merely told the jurors to assume for purposes of their deliberations that the SSO was protectible under copyright and to decide the case based on that assumption. This means that, if Oracle loses on the verdict, its copyright case is dead. If it wins, then and only then will the judge need to address the ultimate legal question of whether the SSO can be protected by copyright at all. If the case does reach that point, he will be able to decide the question based on a full presentation of evidence by both parties and that in turn will make any decision he renders far less vulnerable to being overturned on appeal.

I am not saying that the judge will necessarily support Google in its claim that APIs should not be covered by copyright. I do say that Judge Alsup is nobody’s fool and is playing this smart, letting Oracle play out its case in full and only then stepping in to say whether its case is even legally supportable.

Of course, the judge could also have rendered a definitive ruling one way or the other in the pretrial phase. But there are some areas of law where the principles are pretty clearly articulated but get knotty in their application and this is one of them. Yes, U.S. copyright law, like EU law, specifies that something that is functional or a system or a method of operation, etc. cannot be protected by copyright. But what exactly does that mean in the factual context of APIs and programming languages? Maybe those extremely well-versed in what APIs are and what they do can answer that clearly for others who are also well-versed. But in a court of law, a lot can get lost in translation and, in the absence of a clear factual record, skilled lawyers have all sorts of room to confuse and confound the issues as they apply abstract legal rules to a murky factual record. Because of this, the judge is letting it play out through a full jury verdict while reserving the right to rule definitively on the issue until after the verdict.

In this context, Oracle has plenty of reason to be nervous. If it loses before the jury, it loses; if it wins, it still may lose. And, as for the case being a bad precedent, that remains to be seen depending on how the judge and any appeals court may ultimately rule on this issue. For the moment, U.S. law remains sane on this point and nothing bad has happened as yet apart from an overbearing company attempting to pour vast resources in hopes of gaining short-term advantage to the long-term detriment of the developer community.

The issue becomes almost formulaic. Given (1) rational actors, (2) freedom to choose and to structure business affairs using a multiplicity of entities for different purposes, (3) resources with which to hire and pay for the talent needed to sort out the tax issues and their complexities, (4) a business goal of maximizing after-tax profits, (5) a multiplicity of domiciles from which to choose, and (6) a ready means by which to direct resources from one domicile to another (as with digital assets), it inevitably follows that every sophisticated company meeting these criteria will avail itself of the tax avoidance/minimization strategies. As the article notes, it is perfectly legal and every big company does it (see, e.g., this similar write-up from a couple of years ago on Google's comparable tax strategies: http://news.ycombinator.com/item?id=1815195).

Nothing, of course, stops a given company from voluntarily subjecting itself to higher tax rates by declining to follow this formula but why would it? Big companies will routinely want to avoid high taxes if they can. So too do small businesses. People may have social views that higher taxes are desirable but, as individual economic actors, they will seek to avoid them. This may be right or wrong but it is reality.

This means that high-tax domiciles will have no choice but to continue to remain frustrated that they cannot have unchecked means of taxing their citizens. As long as people have freedom, governments have to strike a balance that people can live with. And that is not a bad thing.

Therefore, once you create a qualifying work, you have a fully perfected copyright immediately. You just can't sue on that interest for infringement until you have taken the additional step of registering the copyright. You can, however, register at any time prior to filing an infringement action, even if that is many years after the copyright was created. For enforcement purposes, then, it is basically a 2-step process.

Oracle's problem is that it is at the tail end of a trial and has no ability at this point to do anything about registration. If Google is right concerning the motion, Oracle will be out of options on its copyright claims.