grellas

This ruling involved Apple's attempt to block Amazon's use of the term "app store" pending trial in this case. Apple claims infringement and dilution of its mark. To win on infringement, it must ultimately show that it has a legally protectable mark and that Amazon's use of the term "app store" to describe where it sells apps for use on Android devices will likely confuse consumers about the origin of the goods being sold. To win on dilution, it must show that the mark is protectable, that it is "famous," and that Amazon's use of it dilutes its value.

To get a preliminary injunction, Apple needed to convince the judge that it is likely to win at trial and also that it will be irreparably harmed if Amazon is not blocked from using the mark during the time leading up to trial. The judge said no to the preliminary injunction, not on grounds of lack of irreparable harm (that issue was never reached) but on the ground that Apple was not likely to win on the merits of its claims at trial.

Marks are classified as generic, descriptive, suggestive, arbitrary, or fanciful. Any mark that is suggestive, arbitrary, or fanciful is protectable. A generic mark is never protectable and a descriptive mark normally is not either - but the latter can become protectable if it acquires distinctiveness in the public mind through what is called "secondary meaning" (which generally means that a company has advertised a product or service to such a degree that the public comes to associate the mark with the producer of the goods or services as opposed to seeing the mark as descriptive, e.g., "Holiday Inn").

Apple claimed that the "app store" mark is suggestive because its meaning is "not inherently obvious" and because Apple was required to devote a lot of resources to educate consumers about the service.

Amazon claimed the mark is generic in merely describing a store where software apps are sold.

On this key issue, the court ruled as follows in assessing whether Apple was likely to succeed with its claim: "The court assumes without deciding that the 'App Store' mark is protectable as a descriptive mark that has arguably acquired secondary meaning. The court does not agree with Amazon that the mark is purely generic . . . but also does not find that Apple has shown that the mark is suggestive, as there appears to be no need for a leap of imagination to understand what the term means."

So far so good for Apple (with its major advertising, it may well be able to prove secondary meaning at trial).

But Apple got sunk by the second factor it will need to show if it is to win at trial and that is the "likelihood of confusion" factor. On this point, the court weighed eight factors as required by governing precedent but, in effect, really boiled it down to the fact that consumers buying apps for Android devices will not really believe that they are buying them from Apple or from an Apple-authorized source when they see the term "app store" at Amazon's site.

The court also rejected Apple's dilution claim as a basis for granting preliminary relief, basically finding that "App Store" did not constitute a "famous mark" on the evidence shown by Apple to date (it is here that the generic references to "app store" by Mr. Jobs and others come back to bite Apple).

All this suggests that Apple will have an uphill fight at trial on this one (as it should, in my view).

The 18-page decision is well-reasoned and may be found here: http://www.scribd.com/doc/59494852/Apple-v-Amazon-Order-Deny.... Also, my prior comments on the case: http://news.ycombinator.com/item?id=2351910.

A pretty good technical analysis of this decision is found here: http://blog.ericgoldman.org/archives/2011/07/judge_ware_goog....

Professor Eric Goldman adds his comments to the end of the linked piece, including the following:

"I continue to insist that the ECPA is one of the worst-drafted statutes of all time. . . . [N]o one knows what the statute really means . . . The class action plaintiffs have gone crazy with the statute, and due to its drafting deficiencies, the plaintiffs claims are rarely clearly wrong on the surface. The result has been a huge tax on innovation with no commensurate social benefits; only the private benefits of a few privacy class action lawyers getting fat and happy while feasting on Silicon Valley companies."

The statute was passed in 1986 and is badly out of date. Judge Ware, who is a very good judge, is left to struggle with trying to determine what Congress intended when it enacted the statute 25 years ago as its text might apply to technologies that did not exist at the time. This is a difficult task at best and is not likely to lead to consistent results among the courts. Congress therefore needs to act to fix this and to set the right policy choices based on the technology we have today.

Having been in Big Law myself, I have previously set forth my thoughts at some length on this topic (see http://news.ycombinator.com/item?id=1648342).

Fundamentally, law remains a guild system, with the governing licensing restrictions severely limiting the ability to innovate. Only licensed persons can be owners of firms and only licensed persons can provide the key services. No fee-splitting or profit sharing is permitted with any person who is not licensed. Even one who is licensed is limited is performing services other than in the locale for which he is licensed. All of this may be well and good for "maintaining standards," as the bar associations say, but it means this is and will remain a closed profession that remains remote and removed from average people.

This is not a knock on professionalism. A really good lawyer is well worth the price, even at high rates, for many business transactions. But making services broadly affordable remains a challenge. Technology can help as long as the laws bend enough to allow firms to adopt innovative business models taking advantage of it - how far this can go will ultimately depend on the rules of the guild.

This claim is brought under the rubric of antitrust but the impetus behind it is found in the nascent movement seeking to subject search engines to principles of so-called "search neutrality."

Search neutrality is explicitly modeled on the idea of net neutrality. Just as the ISPs are told they have overriding duties to users of their networks not to discriminate, etc., so advocates of search neutrality want to impose legal duties on search engines to abide by overriding principles as follows (quoting from a brilliant dissection of search neutrality by law professor James Grimmelmann, found here: http://works.bepress.com/cgi/viewcontent.cgi?article=1034...):

"1. Equality: Search engines shouldn't differentiate at all among websites.

2. Objectivity: There are correct search results and incorrect ones, so search engines should return only the correct ones.

3. Bias: Search engines should not distort the information landscape.

4. Traffic: Websites that depend on a flow of visitors shouldn't be cut off by search engines.

5. Relevance: Search engines should maximize users' satisfaction with search results.

6. Self-interest: Search engines shouldn't trade on their own account.

7. Transparency: Search engines should disclose the algorithms they use to rank web pages.

8. Manipulation: Search engines should rank sites only according to general rules, rather than promoting and demoting sites on an individual basis."

Professor Grimmelmann goes on in his piece to critique each of these professed goals of the movement and to describe the legal implications of each.

Of course, if you open this gate in naked form (i.e., by explicitly adopting laws that expressly require search engines to abide by such duties), you effectively set up all search engines to be devoured by litigants and their lawyers, who can second-guess every decision, who can seek damages based on such second-guessing, and who can ask every manner of regulator to step in to supervise how search results are generated - all pretty much the antithesis of what we are accustomed to in this area and a serious step back from freedom (in my view) in an all-important area that affects us all profoundly in the modern digital world.

All this is mostly academic today except in the case of Google, which has to face such claims couched in terms of its allegedly abusing its monopoly position in various markets. Whenever you hear the innocuous-sounding term "search neutrality," however, realize that this is the direction in which it seeks to lead us if given the full implementation sought by its advocates.

The issues here can be argued endlessly without resolution because the only definitive way to resolve a fair-use dispute where the issues are close is to take it to trial in a federal court.

17 U.S.C. sec. 107 provides that, "in determining whether the use made of a work in any particular case is a fair use the factors to be considered shall include [four factors]" (which factors are the "purpose and character of the work" (including whether it is commercial or non-profit), the "nature of the copyrighted work," "the amount and substantiality of the portion used in relation to the copyrighted work as a whole," and the "effect of the use upon the potential market for or value of the copyrighted work." These factors represent the so-called 4-part test used by courts to determine whether an allegedly infringing use is "fair use" or not.

These factors constituting the broad legal test for fair use are very general and can apply in a thousand different ways and combinations to different facts. What is worse, the four statutory factors, though first codified by Congress in the 1976 Copyright Act, had first been developed by courts long before that and were never the exclusive factors to be used in making a fair-use determination. Thus, when Congress codified them, it specifically provided that the fair-use determination was to "include" those factors but was not to be limited to them. Thus, the legal test was deliberately kept vague and was all along intended to be left for final determination, case-by-case, in the courts.

Given this legal landscape, anyone who wants to take a copyrighted work and transform it to a new use even while copying it in whole or in part risks an infringement suit and, the closer to the legal line the copying gets, the greater risk that a lawsuit will be filed and will need to be defended all the way to trial (with a substantial 6-figure price tag being inevitable in such a case - see http://news.ycombinator.com/item?id=2688599). This is because fair use is not a bar to a lawsuit; it is merely an affirmative defense that one can try to stand upon in defending against an infringement action. In defending, though, you also run the risk of losing on the merits and so you run the risk not only of having to incur hundreds of thousands in legal fees but also that of having to pay huge statutory damages should you lose the case.

That is the dilemma in which Mr. Baio found himself. He believed himself right. But he had no way to test it short of incurring large lawyer costs and liability risks. Nor can he ever win the "case" definitively in a court of public opinion because it is too close. He does have a compelling argument (his work can readily be argued to have independent artistic value and to be transformative and not in any way supplanting any market opportunity available to Mr. Maisel). But there is no way to definitively refute the equally compelling argument that Mr. Maisel can make (a substantial part of his work was used, or at least the "heart" of it and the aesthetic additions do not - he would argue - truly transform a work that remains primarily imitative in quality). Yes, good lawyers can sharpen and refine these arguments to the nth degree and that is where the 6-figure price tags come in. Of course, the only way to test who is right is through a trial. And, there being no practical way to get to a trial, the issue will remain unresolvable.

Note that a legislative solution to this type of issue is possible. Just as the fair-use statute explicitly says that one form of fair use is for "criticism," it might also say that it is a fair use to take a photograph and to do a pixelated rendering of it that adds artistic elements. Law can always be defined this way if desired. But, just as one does not code well by addressing only a specific case where a broader algorithmic solution is possible, one also does not normally pass laws to deal with isolated, individual cases where broad principles can govern a broad swath of cases. Copyright applies to countless situations and the fair use rules are broad and general. Given this, a dispute such as this will always prove frustrating to litigants and those with deep pockets will inevitably have the advantage.

Options can be tricky enough for employees to handle even in standard startup scenarios (see recent thread here: http://news.ycombinator.com/item?id=2623182).

You have to earn them out over time before they might have any value at all. You have to pay real money to get illiquid stock in a company that might easily fail. If the paper value of the stock is high, owing to recent funding rounds, you will have to pay ordinary income tax on the spread between your exercise price and the then fair market value. If you have ISOs, you may avoid ordinary income tax but may easily get hit with AMT. After you pay for the stock, and any associated taxes, you hold common shares that stand in the back of the line on any liquidity event, meaning that you might get nothing even in a liquidity event should the proceeds not exceed the value of the liquidation preferences held by preferred stockholders or should the acquisition be structured in a way that primarily rewards those who get bonus/retention packages with the acquirer and leaves others with essentially nothing.

As if this all were not risk enough, Skype now comes along with a vehicle by which you lose the value even of that illiquid stock you thought you had bought - and paid for, and paid tax on, and whose value you ran the risk of losing in case the company went nowhere - at the very time when the wild success case strikes. This is the essence of a rigged game. The company fails or plods along uneventfully: it has no obligation to buy back anything from you; you took the risk and lost. The company succeeds: it has the option to rob you of your equity value by getting it all back at a strike-price cost that is a tiny fraction of its now vastly appreciated market value. This is what they call "heads I win, tails you lose."

This is not equity ownership. It is merely the illusion of ownership - an ownership that comes with all the risks of buying stock (the cost, the tax risk, the economic risk) and none of its benefits. As this piece points out, legally, you might be able to frame things this way and maybe this is the custom and practice in private equity deals (it can even make sense in an individually-negotiated deal with a senior executive who knowingly accepted the risks involved). But it is not legal to offer it up in materially misleading terms, which seems to have happened here. And, whether technically legal or not, no one wants to play a fool's game - once exposed as the stink bomb that it is, this particular PE ploy should hereafter die the death that it richly deserves.

The legal process will grind you in any serious dispute against a determined adversary.

Get a supremely optimal outcome and get the case dismissed right out the gate because it is legally defective even assuming all the facts alleged are true? Sticker price: $10K and up (more likely $25K to $50K to make it definitive after several opportunities to amend are given to the adversary).

Go through discovery to find out what witnesses will say on deposition, dig through all key documents, and then move for and get a summary judgment before trial by which a case is tossed on grounds that the law allows only one result based on material facts that are undisputed bearing on the legal point? Sticker price: $100K and up, with a year or more of grief thrown in as a bonus.

Go through trial and get vindicated by a judge or jury based on a complete presentation of evidence? Sticker price: $250K and up, after a year or two (or more) of wrangling.

And don't forget the appeals.

Most cases never get to trial and cost is a major factor prompting litigants to settle even though they are not particularly happy with an outcome. Charles Dickens, though he exaggerated for dramatic effect, got the spirit of this right in Bleak House (http://en.wikipedia.org/wiki/Jarndyce_and_Jarndyce), and little has changed since.

This, by the way, doesn't mean that you can't defend against cease-and-desist demands. Costs cut both ways. But it is sad how many times parties who are right nonetheless must fold because the costs of engaging (monetary and otherwise) are just not worth it.

It is true that a contractor generally retains ownership in any original work of authorship but AOL, in paying for the work, would get an implied license to publish that work as intended by the contract - that is its point in paying for it (much as any website owner who might fail to secure copyrights from a contractor who does work for his site, though he may not own the rights or be able to prevent the contractor from re-using the work elsewhere, nonetheless may use it for his own site in having paid for the work for that purpose). Thus, A DMCA takedown notice could not be used to remove any of the articles.

Contracts of this type also would normally be expressly framed as work-for-hire contracts and would also provide for the assignment of all rights to work that did not technically meet the criteria of works made for hire. Such clauses are valid and enforceable and are indeed a staple of every tech developers invention-assignment agreement. They apply with equal force to works of authorship by an independent writer. Assuming the contract here is so framed, AOL would own the copyrights in the works of the author.

The employee-contractor question, on the other hand, is a tricky one. This is a murky area but one where, generally, the lower the skill level and the more the worker must abide by company-defined procedures and schedule in how the work is done (among many other factors), the greater the risk of being classified as an employee. Many writers work independently with no risk to anyone of their being treated as employees but the AOL situation described in this piece might be vulnerable to audit risks owing to its assembly-line aspects. Hard to say without knowing a lot more detail.

This decision is astutely analyzed by Eric Goldman here: http://blog.ericgoldman.org/archives/2011/06/righthaven_benc....

This is a devastating loss for Righthaven.

Among other things:

1. The core defect exposed by this ruling - Righthaven's lack of standing to bring any claims for copyright infringement - applies to all 200 RH cases pending in Nevada and likely those in Colorado as well.

2. The defect can't be fixed as to the existing cases, putting all pending RH cases in jeopardy.

3. The judge found serious procedural misconduct by RH and gave it two weeks to "show cause," in writing, why it should not be sanctioned. Court rules say you have to disclose the name of anyone who has a financial stake in the litigation. RH failed to do so concerning Stephens Media, which holds a 50% right to any recovery. It failed to do so in any of the 200 cases filed in Nevada, leaving the judge seriously disturbed by this and by other RH misrepresentations made to the court. Thus, not only will RH likely get bounced in all its cases, it will probably have to pay a pretty penny for having abused the court's processes in putting on its charade. No more devastating outcome could be imagined for a litigation campaign of this type.

4. Perhaps the most interesting tidbit that came out: in an editorial, Sherman Frederick, formerly of the Las Vegas Review-Journal, had threatened to introduce his "little friend called Righthaven" to those who published his paper's content, an unmistakable reference to Al Pacino's "little friend" in the movie Scarface, an M-16 machine gun with grenade launcher - capturing in brief the hubris behind the whole RH campaign and perhaps more than anything else explaining why this judge has decided to make RH pay for that hubris.

An appeal is inevitable but, for now, RH is watching its business model crumble.

Your points are good ones but I don't think the author is saying that you are always better off fighting than not. His point is more nuanced.

My read is this:

1. Don't panic.

2. Get professional guidance.

3. Weigh the calculus well of how the troll will likely respond to resistance before deciding to fold: the troll is aiming at low-hanging fruit and may not choose to pursue someone who is prepared to raise obstacles (a matter that needs to be carefully weighed with professional help).

4. Part of this calculus (not emphasized in the article) is the position of the larger company whose platform is being targeted, whether Apple, Google, or whomever. I find it intriguing that the developers first targeted were very quick to publicize their plight and then went dark after being sued. This may signify that Apple has privately agreed to hold them harmless in exchange for their agreement to keep this confidential. And this would make sense. Apple would be foolish to make a blanket commitment to indemnify all developers when its agreement with them says that all the risk falls on the developer. At the same time, it can't afford to let a vulture come in and feed on the people who ultimately make the platform work. Hence, a strong letter to the world saying that it will vigorously defend its license rights (but with no public commitment to hold developers harmless), a motion to intervene in the lawsuits already filed by Lodsys against select developers, and dead silence (and, we assume, a forthcoming defense) from those same developers who normally would have taken the extortionist license terms and folded. This very likely means that the developers will stay the course with support from Apple, and that support almost has to include a private agreement to indemnify for this scenario to make sense. I am of course speculating here and might be dead wrong. The point for developers who have been threatened, however, is not to fold reflexively in such situations before exploring what Apple (or any other party defending its platform) is really doing behind the scenes. Even though this article did not get into this aspect, its main point really brings one to this sort of examination: if you are threatened, get good advice from knowledgeable people who know how to help steer you through this sort of maze. That is money well spent and it does not require you to spend a fortune fighting a troll one-on-one. The fact that a proper assessment might show the troll to have a flimsy case only reinforces the idea that there may be room to resist, if you do it right.

This is an informed and level-headed discussion from a seasoned patent attorney. Well worth reading.

Thanks for the kind words.

The "spread" in this context always means the difference between your exercise price and the fair market value of the stock on the date of exercise. For example, you hold ISOs for which you can buy common stock at $.10/sh. You exercise them when the stock is worth $1.00/sh. The spread is the $.90 difference. (If this exercise involved 100K shares, the amount potentially includable in AMT would be $90K).

409A is an arbitrary (in my view) tax rule that imposes large penalties if a company undervalues items that are given as "deferred compensation" to employees. It is not affected by the spread on date of exercise but rather by the way a board values options on date of grant (to avoid penalties, a company must get an independent, outside appraisal of its stock in setting such a valuation - in practical terms, this becomes an issue typically after a first equity funding because, before that, there usually is no serious practical risk of the IRS being able to put an objective measure on the stock's value in an early-stage company so as to have a basis upon which to attempt to impose penalties).

As to Question 2, I normally urge people to strike a balance - the advantages of getting LTCG treatment justify taking moderate risks for most employees but don't do it if you have to part with a lot of cash and if you have to take AMT hits even if you do believe in the company (in my experience, it is too easy to get blind-sided in this area, no matter how promising a typical startup looks; more yet, option holders do ride the caboose when it comes to liquidity events and can sometimes lose even if the company wins). Bottom line: front-exercise if possible but always proceed with caution and only after you understand all the issues well (including tax).

Options for employees usually work well in spite of the tax risks. Most employees get ISOs and exercise them without incident and without AMT. They take some modest financial risk in paying for the stock but these amounts are usually small.

Problems arise if you are terminated in your employment (or quit) and you face a 90-day window to exercise options that will otherwise expire in a company that is promising but not established. For example, a former client of mine did this (after being terminated) in a solar startup in which he had been employed and got hit with a $600K tax bill. The company is all the rage among some VCs but completely unproven in the market and the stock itself has no liquidity and will not likely have any for years to come. If the company makes it big as hoped, this man will be rich; if not, he will have run the risk of a personal bankruptcy.

I would say that extremely risky situations occasionally arise involving employees and options but these are the exception and not the rule. In most cases, the risks are limited and manageable and the use of options is an excellent vehicle for the employees as a key financial incentive. The key, though, is to know what you are doing and to understand the risks before undertaking them. Beyond that, it is up to each individual and his own sense of risk tolerance.

The short answer: because tax, though important, isn't everything.

Most startups do not want to make immediate shareholders of new people as the company is growing. They want to test them first. Hence, the standard grant of options with one-year cliff.

Another important reason not to use restricted stock as the norm: you have to pay for the stock up front and (once you get beyond the founder pricing which normally is not offered to other early-stage people) this creates financial risks for employees who would rather not commit cash to the company until they see how it plays out (with options, you need pay only when you decide to exercise). tptacek makes this point well elsewhere in this thread.

This practice of limiting restricted grants to the founder group only is not legally required but is widely done as a prudential matter. I think it is a strongly held belief among founders and investors that it is unwise to be too loose in making people shareholders. Thus, getting a restricted-stock grant has, by custom and habit, become a sort of "founder's privilege."

We have had companies that use restricted stock freely beyond the founder group. In the right cases, this works fine and sometimes there are even special reasons why it is critical to use this approach (e.g., after a small equity round, to avoid 409A tax problems where the company wants to make grants at an aggressively low price but doesn't want to pay for an outside, independent appraisal to keep the grants within the 409A safe-harbor provisions - in such a case, using options can be dangerous while using restricted stock can avoid the tax problems).

Very nice piece.

A few technical points on tax (of course, check with your professional advisor for any real-world case):

1. IRC 83(a) sets the baseline: you are taxed on the value of property (stock) received in exchange for services as ordinary income. IRC 83(b) says that you do not receive such property immediately if it is subject to a "substantial risk of forfeiture" and that you will be taxed on it only when the forfeiture risk lapses and you truly own it. Thus, with restricted stock, you are subject to tax at ordinary income rates on the difference between what you paid for it and what its value is at each vesting point. If your 1M shares vest at 1/48th per month over 4 years, and you paid $.001/sh, you would have to pay tax on the "spread' at each vesting point as long as the price exceeded $.001/sh at that point. This theoretically could mean that you have as many as 48 taxable events during the 4-year period of vesting. All of this, of course, is done away with if you file a timely 83(b) election. In that case, you normally pay no tax up front and you pay only capital-gains tax on the stock as you later sell it. This is the optimum tax treatment for most startups but is normally made available only to founders.

2. Now what about options. The default rule here concerns so-called "non-qualified" options (NQOs, sometimes called NSOs as well, for "non-statutory options"). The substantive law rules relating to such options are the same as any other options and they are "non-qualified" only in the sense that they don't qualify for the special tax advantage of "incentive stock options" or ISOs, which are special types of options that get special tax advantages. To understand ISOs, you need to understand how all options are taxed apart from any special tax-advantaged rules.

3. With NQOs, you get a right to buy company stock at a fixed strike price exercisable as your options vest over a prescribed period. If your strike price is $.001/sh, and you exercise 1M options, you pay $1,000 to get 1M shares of stock. If the fair market value of that stock is $.001/sh at the time you exercise, you pay $1,000 for stock worth $1,000 and you realize no taxable income. If, however, the fair value of the stock is worth more (let us say, $.20/sh) and you exercise your first increment of (say) 250K shares at year one of vesting on a 4-year plan, then you realize $49,750 worth of taxable income upon your exercise. This is taxed at ordinary income tax rates and the amount is factored into your employment income so that you effectively pay all normal employment taxes on it as well (social security, etc.). Hence, with NQOs, you pay tax on the "spread" at ordinary income tax rates upon each exercise. When the transaction is done, you very likely will hold illiquid stock, you will have no cash from the transaction with which to pay the tax, and you are generally in a highly disadvantageous tax position. Once you make the exercise, any later appreciation on it is not taxed until you sell it and, at that time, you will be taxed on that subsequent appreciation at capital gains rates.

4. With ISOs, when you exercise your options, you are not subject to an immediate tax based on ordinary income tax rates and this is the special tax advantage that ISOs have. The idea is that, with these tax-advantaged options, employees should feel free to buy their shares by exercising their options whenever they like (once they have vested) and will only be subject to tax at the time they ultimately sell the shares. Having exercised and bought the shares, your holding period begins to run and, if you hold them for the prescribed period (which, in the case of ISOs, is 2 years), you pay LTCG rates - all in all, a huge advantage over the NQO tax treatment. But there is a clinker with ISOs and this is the AMT, or alternative minimum tax. With an ISO exercise, the spread amount is includable in your income for purposes of calculating your AMT and, therefore, even though you may not have to pay tax at ordinary income tax rates on the value of the spread, you may wind up paying a substantial tax under the alternative measure applied by U.S. tax laws. This means that, in a high-value company, you definitely need to check with your tax advisor to determine your tax hit prior to doing such an exercise.

5. ISOs granted with an early-exercise privilege (as noted in this piece) are taxed substantially the same as restricted stock and this is a huge advantage. However, startups do not normally offer this privilege for various reasons (mainly because it is a mistake to make large numbers of employees instant shareholders) and so it is not really a practical answer to most such situations.

6. Thus, restricted stock is near-ideal from a tax standpoint, avoiding most tax risks and positioning your holdings for LTCG treatment, but is normally granted only to a very few people (mostly founders). ISOs avoid ordinary income but may subject you to an AMT tax hit - in addition, they can be used only with employees. NQOs are least favorable, subjecting you to an ordinary income tax hit on any spread as of the date of exercise, but these are valuable for their flexibility (they can be used for contractors, directors, and others besides employees).

Copyright terms in the U.S. did not always run into the 100+ years category.

Here is a rough summary of how the terms have evolved under U.S. law (the details of which are nicely summarized here: http://ipwatchdog.com/2011/05/27/copyrights-last-for-a-limit...):

1790: maps, charts, and books - 14-year term

1831: 28-year term with option to renew for another 14 years (musical compositions, prints, dramatic compositions, photographs, works of art and music added to list of protected works in 1800s)

1909 (a major act): 28-year term from date of publication, renewable for another 28 years (applied to "published" works only, with state laws governing unpublished works) (motion pictures added to list of protectible works)

1976 (another major act): newly published works (life of author plus 50 years); works copyrighted before 1978 (term increased from 28 to 47 years, for 75 years total with renewal) (applies to all works, whether or not published, once in a fixed medium of expression; state laws preempted and no longer valid; computer programs also protected by the 1980s)

1998 (Copyright Term Extension - "Sonny Bono Act"): works created after 1978 (life of author plus 70 years, with joint works tied to life of longest living author, and with works-for-hire, i.e., corporate authorship, getting the shorter of a 120-year term from date of creation or a 95-year term from date of publication); works created before 1978 (total term increased from 75 to 95 years)

The rough summary above is just that and many nuances exist. If this all makes your head spin, there is a nifty "public domain calculator" to assist you, found here: http://www.publicdomainsherpa.com/calculator.html

The trend is pretty obvious: wildly long terms for copyright are in fact a relatively recent phenomenon, as are legislative efforts to go back to early works and give them ex post facto term extensions. It didn't always used to be this way. The focus seems to have moved away from protecting primarily an author's rights to a creative work during his lifetime to protecting a "franchise," often corporate, that lasts well beyond the lives of those around when a work is created. These are policy decisions, of course, albeit (and sadly) much influenced by lobbying today.

In general, every employee in California may freely work for a competitor after leaving a job and may do so right away.

But - in doing so, he has no right to pilfer his former employer's trade secrets and either use or disclose them in the new position. An employee can use his general skills and expertise freely in any position, as these are not tied to misuse of confidential, proprietary information. The tension lies between your right to work freely using your skills and restrictions placed on you to the extent you learn confidential things in your old position.

Thus, the general answer to your question is that, yes, you can work for another company doing a payment service even if you have worked for PayPal, but you can't use or disclose trade secrets from your former employer in your subsequent job. Do gray areas come up in such situations? All the time. Usually, they don't lead to lawsuits. In extreme cases, they do; in abusive cases, they also do, though these are not justified (i.e., where a former employer wants to chase and punish an employee just for having left employment). In the vast majority of cases in California, nothing happens and the former employee freely moves on - at times immediately, at other times after some delay. (Results may vary in other states where the law may be different and particularly where non-competes are enforced).

There is federal law that defines theft of trade secrets as a crime.

The federal Espionage Act of 1996 provides: "Whoever, with intent to convert a trade secret, that is related to or included in a product that is produced for . . . interstate . . . commerce, to the economic benefit of anyone other than the owner thereof, and intending or knowing that the offense will, injure any owner of that trade secret, knowingly . . . steals, or without authorization appropriates, takes, carries away, or conceals, or by fraud, artifice, or deception obtains such information . . . shall . . . be fined under this title [i.e., up to $5 million] or imprisoned not more than 10 years, or both."

That said, it would be highly unusual for the authorities to attempt to prove a criminal violation in this sort of case. I think the overwhelming odds are that it will be treated as a purely civil case.

Google has issued a pretty tepid statement to what appears to be a highly problematic situation.

In its complaint (http://www.ebayinc.com/assets/pdf/fact_sheet/2011_PayPal_DOC...), PayPal alleges in meticulous detail how its chief negotiator over some two years on a major deal with Google for mobile payments on Android brought the deal between the companies to within a hair of signing and then, at the end of the process, did a series of interviews with Google to take a position working on its mobile-payment system. Not only was this person the chief negotiator on that deal, he was also PayPal's senior executive in charge of this area for his employer. On the eve of the anticipated signing (October 31, 2010) after two years of negotiations, Google told PayPal it wanted a restructuring the deal even while it was giving the negotiator a job offer. The negotiator accepted the offer, notified PayPal and was confronted about how this step was seriously problematic from a legal standpoint. He then changed his mind and told Google no. The parties once again revved up the deal and got to a signing stage for the second time by February, 2011. At that point, Google changed its CEO and, with Larry Page back in that role, Google killed the deal and hired the PayPal executive to lead its work in the mobile-payment area.

In the midst of all this, you also have a second PayPal employee who had been hired by Google in 2009 and was under a legal restriction not to solicit PayPal employees for a period of one year. With that restriction still in effect (or so PayPal alleges), she was actively soliciting not only the senior PayPal executive mentioned above but (according to the allegations of the complaint), a series of other PayPal employees who were part of the mobile-payments group.

It is way too early to tell what happened here, but here are a few thoughts:

1. The complaint is incredibly detailed, with much specific evidence of communications and events that do not look good for Google or the individuals sued. This level of detail is highly unusual for a complaint of this type and suggests to me that this is a very serious case, well-prepared and meticulous (and, of course, when the lead attorney is named G. Hopkins Guy III, as he is, you just know you are in trouble).

2. Employees owe a fiduciary duty to their employers to act in the best interest of the company and playing both sides of the fence at the end of a major negotiation is almost certain to raise serious issues about whether such duties were breached. This is possibly an even more serious problem here than is the trade secrets case.

3. California does not recognize the "inevitable disclosure" doctrine by which a former employee can be enjoined from taking a position on grounds that it will be "inevitable" that he would need to disclose important trade secrets in order to perform his duties. That said, any such case involves highly problematic issues and it would not take much evidence for a court to look at the whole picture and say, "what the hell is going on here." Google may be treading on thin ice here.

4. This sort of conduct usually evidences a cynical power play by a major company along "might makes right" grounds. Here, though, it is hard to believe that Google would be that cynical. Nor is PayPal a small company without resources. This part remains puzzling.

5. The real test will come if, as I assume, PayPal seeks to get a preliminary injunction blocking Google from using its mobile-payment technology because it allegedly based on a misappropriation of PayPal's trade secrets. This is where the evidence on both sides will come out and it will be much clearer whether Google did in fact commit wrongs as alleged. Until then, it really is hard to tell.

This order represents a good kick in the rear to the parties.

Judge Alsup had suggested that Oracle cuts its claims from 142 to 3. Plainly, though, the law gives him no authority to force Oracle to do this (or to force Google to cut back its claims either).

What does he do? Well, he arm twists.

This order says to Oracle, in effect, "you want a quick trial, cut your claims back radically and keep it focused on the most serious of your claims; if you insist on your theoretical right to try everything that is legally cognizable, that is your right and I can't prevent that - but, in that case, I just might grant Google's motion to stay this entire case while it gets to take several years before the USPTO hacking away at your claims in re-examination proceedings."

The message to Oracle in particular: trim your case back radically and you get the carrot (a quick and expeditious trial focused on the most serious claims only); else, you just might get the stick (years of delay in getting your trial as your case gets progressively cut back in a side proceeding). This is a great illustration of how a strong judge keeps his docket under strict control. Oracle will not miss the message.

I concur with tptacek's (and your) comments on this one.

Trolls are pros at one thing and one thing only, and that is working the litigation system (well, maybe also at "monetizing" IP in negotiating forced licenses under threat of lawsuit). To go against them in this way is like sending amateurs out to do a job for which they are highly likely to be overmatched. I thought this piece was thought-provoking and that is why I posted it - but, I am skeptical about an approach like this working, at least when the players are small, independent businesses who have nothing in common with one another besides a desire to resist the threats of the troll. Too much financial pressure, too much risk, too many uncertainties to keep people with disparate interests banded together over a long haul.

Even in a bulk deal, the term of the license would undoubtedly be the full remaining term and the license would be irrevocable. Thus, I would doubt that Lodsys is staking its claims against the app developers on any such ground.

If I were to speculate, the likely issue is whether the licensing for Apple's products (iPad, iPhone, iPad) effectively covers the downstream development of software intended to run on those devices. Lodsys would be arguing that the license does not extend to what the app developers do; Apple is saying in this letter it does and that Lodsys is misusing its patents if it claims otherwise (such misuse, if legally tenable, constituting grounds to invalidate the patents).

As to clawback, that would be highly unusual and would almost certainly not be in a license of this type made to major players.

Apple likely can sue Lodsys for declaratory relief if Lodsys persists in its claims against developers. This would be an action by Apple against Lodsys seeking a court judgment that its license covers the challenged activities and a related declaration that no infringement exists by reason of such activities. Developers clearly benefit from any such action by Apple but this is a little different from committing to hold the developers themselves harmless from any legal action. A "hold harmless" would mean that Apple commits to defend any developer who is sued and, further, agrees to pay any damages suffered should that developer be found to infringe. Since Apple has not yet committed to do this (indeed, I believe its contract terms say that it will not do this), in theory, the developers might still be sued and have to defend their individual cases even if Apple does bring a declaratory relief lawsuit against Lodsys. Of course, a court in any such action might act to consolidate the various lawsuits and stay those brought against the developers pending resolution of Apple's primary suit. My point is not that developers are not helped by Apple's stance, as they plainly are. It is only to state that Apple has not yet committed to cover them against all harm here, regardless of what Lodsys might do. Apple might choose to take this further step as events develop but the letter as worded is more guarded than that. I think Apple is waiting to see if the in terrorem effect of its letter will solve this before considering further options.

A few thoughts:

1. Nothing in the letter commits Apple to defend the developers or to hold them harmless. Legally, Apple does not have to do this. One can only hope that its self-interest in protecting its app-store ecosystem will be enough to cause it to do what is right. For now, Apple is saying only that it will fully defend its "license rights." One can read more into this than is stated but that is all that is stated (of course, Apple's throwing its weight behind developers even at this level is no small thing).

2. The letter does not quote the license agreement in any way. Normally, if there is something definitive in such a document, it is put front and center in a letter of this type. This could mean that the license language is not as definitive as the tone of this letter might suggest. Only time, and a detailed review of the license language itself, will tell on this point.

3. It is plain that Apple wants to do the right thing for its developers. Yet the situation is trickier than that. As of now, Apple has no legal obligation to defend or hold them harmless, and that step is an order of magnitude greater than that of saying it will merely defend its license rights - and hence the hedging in the letter.

If the goal of the patent system is to promote innovation, then this case is Exhibit A for how it is failing. Thousands of patents are gathered up in a portfolio held by an IV affiliate and licensed in bulk ("monetized") to big players such as Apple, Microsoft, Google, etc., who in turn believe that they have clear rights to build systems around them. But the patents are "monetized" again to lesser players with shadowy relations to the original IV group, who in their turn try to "monetize" them further by attempting to double-dip with the original licensees based on limitations in the original licensing language. At each step, threats of lawsuits abound and nowhere can one find even one example of a patent developed by a company for its own innovative uses. Instead, we have the equivalent of shadowy trafficking in intangibles that are now being used, not to encourage innovation, but to attack the very developers who are trying to innovate. Positively Kafkaesque.

A few observations:

1. There are well-settled copyright principles that hold a viewing event to be a "public performance" even though a single person only is doing the viewing at any given time. A leading case involved a video-store owner who owned one copy of each film he had in stock and who set up private viewing rooms in his establishment in which he allowed a patron to view a film privately that the patron had rented from the store. This enabled the store owner to buy a copyrighted video once and to set up a business in which he repeatedly displayed that video to multiple members of the public, one at a time. In that case, the court held that the showing of the one copy of the film owned by the video store owner repeatedly to different members of the public constituted a "public performance" (the case, Columbia Pictures v. Redd Horne, may be found here: http://scholar.google.com/scholar_case?case=1713962666875062...). This case is offline law but the principle it articulates is clear. If copyright holders are in business to sell or license their copyrighted works, and if someone buys one copy of such work and sets up a business open to the public to make money from repeated showings of such work (albeit one at a time), the copyright owners are having the value of their works taken from them by the intermediary business owner, who gets to profit from such works without having obtained any right or license from the copyright owners to license such works to others. A leading copyright treatise (Nimmer) sums this up, then, by saying "if the same copy . . . of a given work is repeatedly played (i.e., 'performed') by different members of the public, albeit at different times, this constitutes a 'public' performance." (discussed here: http://laboratorium.net/archive/2011/03/16/that_zediva_thing...). In this offline context, then, it is indisputable that you can have a "public" performance for copyright-law purposes from what is technically a private viewing.

2. Logically, the one-copy rule should not apply to the case where I own my copy and merely choose to display it for my private viewing (or private listening in the case of music) through various methods of playback, including by use of a cloud service. And this is what both Google and Amazon are banking on in the way they have set up their cloud music services. Their theory is that the service they offer does nothing more than allow you to upload a song you already own and access it from different browsers and devices. To avoid the one-copy rule, neither Google nor Amazon "de-duplicate" user files, which means that users will literally access the exact files that they themselves uploaded into the service (meaning, therefore, that millions of copies of the same file may exist in the same cloud).

3. The big test case that is pending in the courts is EMI v. MP3Tunes, and this case will test whether the old offline rules should apply literally to the digital world. That is, MP3Tunes is a music locker that does de-duplicate its files, i.e., stores one copy only of each song (rather than one copy for each file any user has uploaded) and uses that copy to enable users of the service to replay songs they have uploaded into the service (though not literally from the exact file that the user uploaded). It is this case - where the intermediary business owner is using "one copy" only to enable multiple members of the public to listen to the same song, albeit only for their own private listening - that the EMI lawyer is commenting upon when he says that one person listening to his own music via the cloud constitutes a "public performance." Though tone-deaf on how this must sound to the average person, the lawyer is basically reciting what the offline caselaw held in connection with the one-copy rule. This may indeed be irrational as applied to the digital world (since, in fact, the service is requiring each individual who listens to upload his individually-owned version of that song, which distinguishes this case from the video store owner who bought only one copy in total), but this is why he is calling it what he does.

4. EFF has a good discussion of some of the key issues here: https://www.eff.org/deeplinks/archive (see under the heading "Do music locker services violate current copyright laws?").

The fact that important web-based services are having to use such inefficient means as storing millions of versions of the same file just to deal with current copyright laws shows that is is high-time such laws were revamped for the digital age. The last major revision was in the 1970s. The laws in this area made sense in their day (at least for those who don't oppose IP rights of this type) but are today strained to the breaking point.

The underlying theme here is that of maintaining the integrity of your relationships and the way you do that is by maintaining your own integrity.

In any business (law included), you can, if you want, burn someone for a short-term advantage; you can, if you want, duck responsibility when you may have made a mistake rather than own up to it; you can, if you want, push people around by being a jerk in order to get ahead; you can, if you want, dissemble and deceive to put one over in a negotiation; you can, if you want, violate trust just because it is not in a binding contract and you are not technically bound to do something; you can, if you want, do these things and much more of like kind, but when you do so, your name, your word, and your integrity will ultimately become mud - and so in winning in this way, you ultimately lose is ways that count most.

Valuing friends is another way of saying that you value integrity. When you treat people right, you build trust and loyalty and, in business (as in life), those intangibles can be worth far more than any reserves you might have in your bank account. This piece, with the author's usual fine insights, is an excellent illustration of that principle.

A few observations:

1. The lead plaintiff, Alki David, is a billionaire who was sued by CBS and other studios for allegedly infringing their copyrights with a digital streaming service. He is now funding this effort to paint CBS as a company that illegally induces others to infringe copyrights, that is liable as a contributory infringer, and that is responsible as a so-called vicarious infringer.

2. The plaintiff's counsel, Michael Zeller, once successfully defended AOL Time Warner against claims of contributory infringement for distributing the P2P client, Gnutella. He is now trying to make such a theory stick against CBS. This is no flaky lawyer. Mr. Zeller has represented Mattel, Google, and Disney in addition to AOL Time Warner and other big-name clients in IP-related litigation. He is distinguished in his field and highly respected.

3. The main line of attack here is based on MGM v. Grokster, the most recent leading U.S. Supreme Court case that dealt with contributory copyright infringement. Before Grokster, the law in this area focused on the nature of the product being challenged and, if a product was capable of a substantial, noninfringing use, a distributor was not contributorily liable for acts of copyright infringement by users of that product. In Grokster, the court shifted the analysis away from the product and over to the distributor's intent, holding that a distributor was liable for acts of copyright infringement committed by users of its product (even if the product was capable of a substantial, noninfringing use) if the distributor intended to induce the infringement. The complaint here tries to paint CBS as a party that is intentionally inducing the users of its download service to commit acts of copyright infringement. Given that the complaint does not seek to break new legal ground, CBS will likely need to defend it primarily on the evidence, which may ultimately put it in a tricky position of hoping that a possibly fickle jury will go its way.

4. The stakes for CBS can be high if it is potentially held liable for the damages caused by LimeWire. The damages being sought in that case run into the billions and the case is not going at all well for LimeWire. Already, the judge has entered rulings saying that the LimeWire founder can be personally liable for the wrongs, that expert evidence that sharing in fact helps content creators is to be excluded from consideration by the jury, and similar rulings that will likely lead the jury to enter a judgment for major damages (http://paidcontent.org/article/419-limewire-trial-beginsjury...). If, then, CBS is ultimately held liable as a party that illegally induced such infringements, it too may face a massive liability.

5. This case, then, has seedy elements, beginning with the revenge motive of the lead plaintiff, but it is a case that poses potentially serious risks for the defendants.

This piece gives a glimpse into the snake pit of patent monetization and some of the machinations that go on there, normally under the covers from public view. The business model described is perverse but apparently effective (at least effective enough to go IPO) in the modern upside-down world of patent litigation.

The courts have long recognized that one can sue someone whose name is not known at the time of filing the action and then use the court's subpoena power to find out the person's name through an ISP. This practice has been in place since ISPs came into existence and it makes sense for the situation for which it was devised.

The problem here is that the mass-infringement actions have twisted this otherwise legitimate process into something warped and grossly unfair by using the name-gathering process to target people who are then told, "pay up or you will be exposed as a downloader of porn" (or, in other cases, you will be subjected to a major infringement lawsuit that is not worth defending).

Federal judges have enormous power and this judge (and many others) have simply said, "I won't let my court be used as an instrument for a shakedown," using legal niceties about jurisdiction to justify the matter formally. In effect, they are tossing the mass-infringement lawyers out the door, telling them their model won't work in their court. This is indeed the right outcome for this sort of abuse.

For anyone interested, I expounded at some length a while back about why method patents are well-entrenched in U.S. law and about the philosophical debate surrounding them over the years (see http://news.ycombinator.com/item?id=1171821). Software patents, of course, fit within that mold and, in light of Bilski, will not be subject to any form of categorical challenge for years to come in the courts. The issue lies with Congress, and this piece sets forth an excellent way of making the right kind of policy challenge (in contrast to the more superficial "this is ridiculous" kind of point which, though sometimes true, the patent bar is usually quite good at rebutting, at least based on existing legal standards - see, e.g., http://hallingblog.com/2010/05/26/patent-ignorance/).

In the analog era of patents, the U.S. courts went nearly two centuries in which the idea of a patent was strongly tied to that of a "machine" and where they often held that, while an original invention was in itself patentable, an improvement upon that invention was not. For example, in 1875, the Supreme Court held that "it is no new invention to use an old machine for a new purpose" (I cite and discuss this in the linked item above). It was not until 1952 that Congress overruled this line of cases in amending the patent statutes, setting the stage for what became an eventual flood of software patents as the digital age began.

The policy issue making software patents problematic in our digital age is that patentable software innovations, though supportable under current legal standards, basically are creating an ever-complex web of closely-interrelated and incremental improvements in any given area (e.g., mobile devices) such that no one can develop anything there without getting entangled in the web. It is not just tricky. It is impossible. The only way to defend is to make your own web (your "defensive patent portfolio" or your "defensive pool") and use that to catch others before or as they catch you. If you don't have that, you are in trouble.

Is this, then, what was intended by the Progress Clause of the Constitution (Article I, sec. 8, cl. 8) when it provided 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"? Just how do these tangled webs of 1-and-0 based incremental improvements that are a normal part of all software development in the first place manage to promote the progress of science and useful arts?

The cause for reform in this area will be won or lost based on how the issues are framed and here we have a good example of how to begin to mount an effective challenge.