April 24, 2011 · 3:38 pm

Bad legal strategy from Sony leads to a massive headache, Portal 2 is great

The Playstation Network, which hosts 70 million users (and many of their credit card information), conducts virtual transactions, and is the backbone of online interactions and multiplayer for the Playstation 3, has been down for more than 4 days now. It’s being/has been attacked by the hacker group Anonymous, who are taking revenge on behalf of a guy Sony sued for distributing a hack of the Playstation 3. Not only is this drawing a hail storm of bad press for Sony, for suing its users, having no network available, and for being susceptible to hacker attacks, but it is also incredibly bad timing. Two big games just came out last week, both with multiplayer components (Mortal Kombat and Portal 2), and undoubtedly this is hurting sales of those games and of any content available on the Playstation Network.

It’s really too bad that Sony is making such a mess of this: Remember, this all started because Sony pulled support for installing other operating systems, sparking consumers to try and create their own workaround. Who knows why Sony felt they needed to pull this feature, that many consumers believed they would have when they purchased the system. Even if only 5% of users utilized the feature, why upset those (probably very dedicated) users needlessly? Then Sony made a second bad decision – suing the guy who released the workaround, and going too far by obtaining the IP addresses of everybody who visited his site through discovery. Then they ended up fighting a legal battle against a hacker, who was supporting his side through donations from all the random people who, presumably, now hate Sony. Sony is losing a lot of money doing this: They are losing at least $2 million in sales per day PSN is down, and I’m sure even more on fixing the network and legal costs. A disaster.

It’s really too bad, because Portal 2 is the game of the year thus far. It’s simply a masterpiece, and nobody saw it coming after Portal one, which, in retrospect, was a demo/proof of concept that evolved 30 times to get to Portal 2. Valve redefined the first-person shooter with Half-life, and they just did it again in Portal 2. Its like no other game I’ve played, even Portal 1:  it has better writing than most comedies, set pieces that are literally like riding a roller coaster, and characters that you’ll spend time loitering after a puzzle just to hear interact with one another. It’s the best first person shooter I think I’ve ever played, and you don’t fire a single bullet in the experience. But, with the PSN down, I imagine most of the country is buying it for Xbox or laptop if they can.

[Edit: Some sites are reporting on speculation that Sony is using Anonymous as a scapegoat to begin charging monthly fees for access to PSN, like Microsoft does with Xbox Live. Interesting conspiracy theory, but it isn’t true, because Qriocity, Sony’s content distribution system for movies and music, is also down.]

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Filed under Copyright, Games

April 21, 2011 · 8:13 pm

Poker sites going down, boy genius apparently lynchpin, a classic story of democracy

So, quite a while ago, the FBI decided to go after online poker. Or more accurately, online poker profits. The online poker industry has been making obscene amounts of money and not paying taxes on it, and the US government is in the awkward position of wanting a cut of that money, but having accidentally banned online poker in a bill regarding security in at our ports (yeah, it doesn’t make sense). How to try and get that money without repealing the bill and taxing the companies? Sue them for something else!

The FBI took down the three largest online poker websites recently, and indicted their founders with counts like money laundering and fraud. Global online poker traffic dropped by 22% (a surprisingly small drop, actually), and millions of players in the US have money locked up in those sites that they can’t access. It was, all things considered, a pretty rude move by the FBI.

The backstory is much more interesting: Apparently, the poker companies have been lobbying Congress pretty hard for years, funneling more than $1.6 million to lobbying efforts last year. But yeah, when you are making upwards of $5 billion, you can’t buy your way out with only $2 million in lobbying. Even MORE interesting: The FBI probably didn’t have enough evidence to get the poker sites on money laundering (apparently unable to use Congress’s 2005 bill to go after the sites) until they arrested the kid who invented most of the money infrastructure for those online poker sites, and then offered him a plea deal which obviously involved him telling the FBI all the intricacies of the infrastructure, so that they could properly indict the founders. EVEN MORE interesting: The only reason the FBI picked him up in the first place (He is an australian citizen who was picked up in Vegas… idiot), was because he has been arguing with the poker companies over how much of a cut he was getting, and winning a lawsuit they filed against him, so the poker companies tipped off the FBI when he showed up in the US (according to some sources, but it sounds plausible, right?). Hilarious! By the way, Washington D.C. just legalized online poker, so the fortunes of online poker have really changed in less than 2 weeks.

To me, this is a pretty embarrassing representation of our capitalist democracy. We ban something, decide it’s too profitable but would be embarrassed to tax it, so we indict the founders and ask them to pay fines. The whole thing is about money, but its a horribly inefficient way to go about it: Speaking from a strictly economic perspective, we are levying an indirect tax on the industry, but shutting it down in the process, and losing all the revenue that would have been made in the meantime. Obviously there is a moral dimension, but if we were really concerned about gambling as a country, we probably wouldn’t have casinos in 28 states (not including purely “card rooms”), lotteries in 31, and a stock market that probably ought to look MORE like poker. So let’s be honest, we are okay with people playing poker, and they are gonna gamble even without these sites. We couldn’t find a way to just tax them? Isn’t that what we are good at?

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Filed under Law

April 19, 2011 · 11:47 am

Forecasting the outcome in Microsoft v i4i

The Supreme Court heard oral arguments yesterday in Microsoft v i4i, a case which many patent pundits have been following for it’s potential to change the patent system pretty dramatically. The case turns on a point of evidence: issued patents are presumed valid in litigation, only overturned by clear and convincing evidence, a very high standard. The problem is, patents are issued in a non-adversarial setting (Patent office and inventor talk back and forth, but both parties generally want the patent to work out), and often evidence that would invalidate the patent is not considered in that process. But then, when a company is sued for infringement and they find evidence suggesting the patent should be invalid, they face this giant evidentiary hurdle that they can rarely meet, so many “bad” patents are upheld in court.

Most of the world is in favor of changing the evidentiary standard to something much lower, so that if a defendant finds evidence suggesting the patent shouldn’t have been granted in the first place, it’s easier to convince a jury to invalidate the patent. This would presumably make it much easier to beat bad patents in court, reducing the costs for infringing patents that probably should never have been granted.

As much sense as those arguments make, I’m going to say Microsoft is a 10:1 underdog in the case to win the point. After reading the oral arguments, i4i’s attorney absolutely cleaned up. I don’t usually oggle over oral arguments (because, wow, who wants to read about THAT?), but if you have any small sliver of interest in seeing how excellent you can be at oral advocacy, read the transcript of Mr. Waxman arguing for i4i. Oral arguments often make no difference in Supreme Court cases, but if they did here, he won i4i the case. (I’m not the only one who thinks he is good: apparently he won the 2010 “bet the company litigator of the year” award, and may have been considered for a position on the supreme court himself). I’m not sure what sports analogy is best for what Waxman did as compared to his opponent, but it’s probably most akin to pitching a no-hitter, or draining 10 half court shots in a row.

Microsoft had an uphill battle from the start: the current evidentiary standard was interpreted by the court years ago, and has been precedent essentially for 50 years. There are some great policy arguments for Microsoft, but courts don’t tend to like reversing 50 years precedent. Reading the oral argument transcript, it’s pretty clear where two justices, at least, are going: Breyer is going for Microsoft if he can find any conceivable justification for it (and I think he can), and Scalia is going for i4i (mostly because that’s just how he votes on these kinds of precedent challenges). A tie favors i4i (one justice recused himself for owning a ton of Microsoft stock), but I’d be surprised if Microsoft got more than 2 votes. Back to the drawing board for those looking for a way to fix the patent system.

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Filed under Law, Patent

April 18, 2011 · 10:14 am

Tech bubble talk

This week, Forbes posted an article about all the “troubles” Twitter is having, and there have been numerous responses in the blogosphere (this one is the best, if it interests you). The more interesting take on “all of this”, as in, the possibility that us even caring about Twitter’s lack of revenue is a sign of a bubble, came from BusinessWeek. In summation, that article’s author feels that this tech bubble is worse than the tech bubble of the 2000s, because that prior bubble gave us infrastructure in the form of foundational technologies like Amazon, Ebay, Google, etc, whereas this tech bubble has focused on us buying stuff (Facebook monetizes through ads, Groupon, etc.).

First off, Amazon and Ebay just sold us stuff, so there’s hardly an argument that our focus on consuming goods has changed meaningfully from the last bubble to this one. Maybe Google was transformative in the way we did email, and they’ve done other interesting things with information more generally (google scholar, their book scanning project, etc.), but Facebook provided something very valuable in it’s social network, and that concept will live long after Facebook just like Google’s contributions to communication and information will survive them.

Second, the bubble of the 2000s was based on technologies that largely didn’t have business plans, and were just concepts regarding doing something online. Pets.com, for example, went public, spent $1.2 million on a Super Bowl commercial, never made a profit, and collapsed in less than a year. And that trend was actually rather common in the 2000s tech bubble. Today, Bubble-sayers tend to point to high valuations as a sign of a bubble, ignoring the fact that valuations mean very little in practice: it just impacts what share of the company VCs and angels get when they invest, and how successful the company needs to be to not have a down round. But it doesn’t indicate anything about the amount of money actually being invested, and very few of the web giants today have even gone public. Facebook and Zynga, as opposed to the non-revenue generating companies of yore, are extremely profitable, as is Groupon and other current “bubble” companies.

Third, though in a way somewhat related to the last point, the public isn’t at risk in this bubble. Only a handful of companies have gone public in the tech/web market, and the big players are staying private. Private companies are limited in the sorts of investors they can have, and as such no company outside Zynga and Facebook have big investments from companies that are managing the public’s money. In the 2000s, it was a damaging bubble because many unsophisticated, average joe investors had money in those unprofitable, all-hype companies. Now, if the bubble bursts, only VCs lose.

We should stop worrying about his bubble thing so much.

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Filed under Funding

April 13, 2011 · 9:17 pm

Examining justice in the context of professional athletes

Both the NFL and NBA are looking like they’ll be locked out next year. Collective Bargaining Agreements expire for both leagues (and already have in the case of the NFL). The NFL, though, probably won’t miss any time. Everybody is rolling in money in the NFL, it’s at the height of it’s popularity, and profit sharing keeps most of the owners happy. They’ll figure it out when the prospect of everybody losing money looms closer.

But the NBA is a mess. Contracts have gotten out of control, players get way too much guaranteed money, and most owners don’t make any money. In fact, the majority of franchises lose a good amount, and one team is owned by the league. Unlike the owners of NFL teams, the threat of no NBA won’t be scaring the majority of the owners, because they would have been losing money anyway. So something is going to have to change.

The owners have recently been leaking that they want to force players to spend two years in the college game before coming to the NBA, which makes sense to me, and reflects the trends of the other major sports. But it’s debatable: some have argued that the NBA is getting free training out of the NCAA, and denying the right of a 19 or 20 year old who is ready to play in the pros his chance to do so. Again, it seems fair to me, but that’s not the point. The point is, we don’t know what’s “fair”/”just” here. I’ve been reading about justice as a concept lately, specifically on deconstruction as a tool to examine what we think is just as a society. Still reading? Great. That line of thinking basically holds that justice is an undefinable, unachievable urge that manifests itself in how we organize society, a reflection of ourselves, and that we can figure out more about that sense by looking at how we treat different groups. /end summary.

(Above: Kobe Bryant, who entered the league straight from high school, and John Wall, who had to play a season for Kentucky before enjoying the same privilege.)

What’s interesting to me is that arguments for or against forcing future pros staying in college tend to compare sports leagues, which obviously makes some sense, but it ignores the larger economic analysis by pigeonholing all athletes into one category. Our sense of justice is satisfied so long as all athletes are treated the same way, but doesn’t necessarily require that athletes be treated the same way as other professions. People compare the NBA owners’ proposal to the existing systems in the NFL and the MLB, both of which (sort of) require college players to stay for 2-3 years before turning pro (the MLB will draft you out of high school into a farm league, if you want, but if you go to college you have to stay for 3 years). So, because other athletes are forced to go to college for a few years, we are okay with potentially forcing the same on basketball players.

But why don’t we compare this profession to OTHER professions that people enter? Would it be fair to require amateur work of qualified individuals before they can “turn pro” on an essentially arbitrary basis? For the sort of athlete who is seriously able and fully capable of entering the NBA after high school, we would presume they gain nothing from college in terms of education: they don’t need what they learn in college if they could already be drafted, though it might improve their draft stock by allowing them to mature, a calculated economic decision that they, one could argue, should be allowed to make for themselves. Conversely, the teams should calculate the risk of signing an immature player themselves, and factor that into their decision regarding who to draft: indeed, they do this already with players from college. High school players are essentially skilled laborers, being told that they must enter a training facility and work without pay (though likely on a full scholarship), creating value for the training facility (untaxed revenue for the college) but seeing no fruit of their labor personally for two years. Is there another economic market where we are okay with forcing laborers into this situation?

(Above: Cam Newton, who played for free [maybe] and helped make Auburn more than $60 million last year.)

This point is, as I’ve mentioned, fairly debatable in the context of athletes: Do basketball players benefit from going to college instead of straight to the NBA? (plenty of examples pointing in both directions) Does “basketball” as a nebulous concept benefit by having better NCAA players for longer? These are the questions people ask in the debate. What they don’t ask is: Do the majority of NBA owners, who are white, and the heads of college programs, who are white, benefit from forcing black athletes to work for free for two years before being allowed to profit from the value they achieve for their employers?

That last rhetorical question obviously betrays the conclusion I’d like to draw: We treat athletes differently than other professionals when we consider what is “just” in their treatment. The debate over whether we should force black 19 year olds into creating value for predominantly white owners and provosts of colleges is not one of race, but of economics. It seems “just” that athletes merely be treated like other athletes. There is a tension here, but I don’t know what else to say about it. The way the public debate on this topic has played out thus far (granted, its been only a few days), it seems clear that our society has a different sense of justice when it comes to athletes. Athletes who are predominantly black.

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Filed under Misc

April 12, 2011 · 12:34 pm

VC who backs Intellectual Ventures defends patent trolling

I don’t watch Techcrunch TV much (does it make sense to try to graft an old, dying media format onto a new, growing one?), but they had an interesting interview with Izhar Armory, a VC funder who backs Intellectual Ventures. They throw him a softball about Twitter strategy and backing MBA students, then from 3:00 – 9:00 it gets interesting. They give him a great “how could you support patents in this situation” hypo, and he goes on the defensive about how valuable Intellectual Ventures is to the world. Intellectual Ventures is a renowned patent troll, perhaps only behind Round Rock on the heinous trolling list. Hearing Armory (a former Israeli captain and somewhat scary dude) defend them is interesting, because he throws out a lot of terrible, ridiculous, but extremely common defenses. No offense to Izhar, who does well under the pressure, and really goes to bat for what must just be one of his many clients, but this was a tough situation for him to get out of. Here are some of the defenses, and why they are wrong/irrelevant.

Intellectual Ventures sends more money to universities than any other entity for patents. Great, so what? If the market valued those patents as useful for INNOVATION, they would be purchased by another company, perhaps even the company that actually wanted to use the patent to make a product. Intellectual Ventures only pays for so many patents because they use them as threats to sue on. Would the world really be worse off if the patents were sold to companies if they were useful, rather than one giant trolling company? The fact that Intellectual Ventures is in this position is probably a sign of how many useless patents there are; if the patents IV was buying up had market value of their own merit, IV would probably be outbid by a real company for them. And I’m not willing to accept that siphoning money from companies to give part of it to universities is inherently productive.

Inventors deserve compensation for their inventions, their “life’s work”. When asked whether a startup founder should license a crappy, overly broad patent to cover the founder’s independently created and actually useful IP, Armory says first that since the startup won’t be making money, he shouldn’t worry about it, a rather economic and practical perspective. But if the startup makes money, then screw that, its a moral wrong not to pay the inventor of a broad, unimplemented idea that the founder didn’t need to make his superior product. First off, if you really believe in this moral right stuff, it shouldn’t matter if the startup is profitable; somebody is stealing the inventors “life’s work” either way, right? But also, if your life’s work can be so easily replicated and made actually useful by a mid-20s kid in India (the details of this founder), why does the market need to give the original inventor anything? That’s patent law, but it makes no sense and nobody who works with entrepreneurs (rather than patent trolls) should hold that view.

He also claims that it’s good that Intellectual Ventures gets the patents, because otherwise they might wind up in the hands of patent trolls. Really pretty ridiculous given that most media outlets that comment on patents have identified IV as a top patent troll.

Kudos to Izhar, a VC and not a real representative of IV in a sense, for doing his best on defense in a tough environment, though.

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Filed under Funding, Law, Patent

April 9, 2011 · 11:13 am

Possible way out of future Round Rock patent suits?

Round Rock is the name of a patent trolling “business” run by an attorney who left a major law firm, bought a giant patent portfolio from Micron, and has now become THE example for how heinously broken the patent system is. The attorney has forced “licenses” out of major companies simply by threatening legal action, even though nobody is really sure what patents he has, or what exactly they cover. The whole thing is a crazy shakedown, and even staunch supporters of non-practicing entities (groups that hold patents but don’t produce anything) would have trouble defending Round Rock.

Last week, Round Rock took trolling to new heights, auctioning off a covenant not to be sued by the attorney in the future. There were four covenants put up for auction, and while only one sold, it sold for over $35 million. In terms of patent trolling, this is pretty heinous, because nobody really knows what the patents cover, and obviously the patents and Round Rock are adding nothing of value to society through this trolling. The auction probably seemed like a great way to make some quick money without the hassle of patent litigation, claim construction, or, you know, even READING the patents.

I wonder if the auction won’t come back to bite Round Rock later, though. Now, it’s not even clear that Round Rock will ever actually sue anybody; seems like “business” is booming on just the threats of suits. But if they ever sued and made it all the way to the damages phase, they are going to have set a precedent that the value of licensing their entire portfolio is $35 million. In a post-Ebay world, I couldn’t imagine a court giving Round Rock an injunction. Which means the court will be looking at some type of damages, and will likely wind up assessing a reasonable royalty, where a court will look at how much the patents have been licensed for in the past. With Round Rock having just publicly auctioned off a covenant not to sue (and there being some case law suggesting that such a covenant is akin to a license, albeit in a slightly different context), it wouldn’t surprise me if Round Rock just effectively capped the amount they can blackmail a company for at $35 million, a pretty low number, all things considered. Still way too much for patents that nobody has looked at, but probably less than Round Rock has already extorted out of some companies.

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Filed under Law, Patent

April 6, 2011 · 11:36 pm

Google shuts down Grooveshark, a streaming site, a few months before they debut… their own streaming site

Google had a big day: they testified in front of Congress regarding all their steps to combat piracy. Apparently, as Techdirt put it, it turned into a “why can’t google fix everything” hearing. I’m sympathetic with Google there, and generally side with Youtube regarding third party liability for infringement. But that wasn’t all Google did today.

Google also took Grooveshark off of the Android network for terms of service violations, and its unbelievable that nobody seems to care. Google is launching their own streaming service in Fall, and is currently talking about licensing with the music industry (as is Apple). And then today they take down a streaming music service for nebulous terms of service violations after the app has been on the network for over a year.

I’m sure Google’s lawyers have a great idea of at what point their actions turn into anti-trust violations, but this has to be getting pretty close. If every time you plan to release a new product, you BAN every competitor from your closed network for violations of rules YOU write… that just seems rude. I’m surprised they did it: Grooveshark is miles from a serious competitor, especially since iOS kicked it off back in 2010 (raising even more questions about Google’s decision to do it now), and with new competitors Amazon, Google, and Apple either in or about to enter the market, there’s little chance Grooveshark will ever gain a critical mass of users. Yet now they are blatantly drawing the attention of anybody who hopes the app market stays open for developers. Even if such behavior is far from an antitrust violation, it just seems like bad press for little gain.

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Filed under Copyright, Law

April 6, 2011 · 11:44 am

Angry Birds’ Bing Deal missed a big opportunity

I love Angry Birds. I thought it was a legitimate game of the year competitor last year (though the more traditional gamer in me would have to give the award to either Limbo or Heavy Rain). Rovio is head of the pack of promising mobile developers right now, even though Angry Birds was their only hit in numerous attempts, simply because they are doing a lot of things right with partnerships and distribution.

About a month ago, Rovio partnered with Bing to cross promote the products. Bing made a few short videos about how the Pigs were using Bing to aid in their attempt to capture the Bird eggs. Pretty silly, but more than 200k people watched the first two of four episodes on youtube, so maybe it wasn’t a terrible deal for Bing to get their product associated with some comedy, especially since it distances the brand from the “Microsoft is an evil monopolist” image. Not sure if the videos do anything for Rovio, though.

The partnership also added a search button to the game itself, which appears after you’ve lost a level multiple times. Instead of resetting, you can push the “Bing for help” button, which launches your phone’s browser, points it to bing, and auto-searches for a walkthrough.

This is the dumb part: The first hit on Bing is to a walkthrough page with only a video, hosted by a third party, and it doesn’t even return results for the right level in the first two hits. So the Bing button is basically useless. Here’s the Bing page with the disappointing results for my attempt to get help on level 6 of the latest rendition of seasons. Only one result on the page is actually the answer I want, and it’s the last result.

This would have been a great opportunity for Rovio to completely control the user experience. They identified a problem that Rovio couldn’t control initially which negatively impacted the user experience (people would have trouble with the game and exit to go search for a walkthrough, often a tedious task when typing out the name of the game and the level on a phone browser). Rovio then took steps to improve the experience: automate a search, activated with just one click, when the user is having trouble. But they missed the last step of creating their own walkthrough on their own site, which would have guaranteed user satisfaction with the result they found (Rovio could have chosen how much to help the user that way, maybe withholding certain tips on certain levels or giving more detail on the hardest ones). Rovio would have also kept all the advertising revenue from those pages, which, while not much, would have probably been something decent if they were pointing all walkthrough traffic there. It also would have eliminated the proliferation of low-quality walkthrough sites, evidently a problem from the Bing search.

So -1 for Rovio on that deal.

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Filed under Social Games

April 6, 2011 · 12:07 am

More on Cloud and more clouds

Amazon Cloud still hasn’t drawn a lawsuit, but the topic of music storage has interested me lately, mostly because we spoke about the copyright implications and Apple and Google’s plans to enter the same market in a class today. Basically it sounds as if Apple and Google are looking to do almost the same as Amazon in the cloud storage department, but unlike Amazon they want to license with the music industry to gain a few advantages. Here’s the differences:

– Google/Apple won’t require you to upload your music. Unlike Amazon, Google/Apple (let’s call that group “the doom squad”…. just kidding) will scan your music and simply grant you access to those songs from a master calendar. Amazon won’t be able to do that without running afoul of copyright law. This means the process of uploading your music won’t take nearly as long.

– Google/Apple will almost definitely require a monthly subscription. Amazon grants their base package for free and more space for a nominal monthly charge, but Google/Apple will probably have to charge something to pay to the music industry. So the question becomes, would people pay $50-$100 a year for the privilege of having music you already paid for in one location available in others?

The really interesting part is, the music industry wants to use this as a transition to move everything to digital completely: in 10 years, they want to just offer all the music in the world to consumers, free to stream anywhere, for a flat monthly fee. The music industry makes on average $50 per person who spends money on music – a number that’s been rather consistent over the years – but if that number jumped up to $100 or $150 through a massive subscription plan, the industry could finally… stop suing everybody for copyright infringement (well that’s probably too optimistic). It would save the industry in overhead, and if you found any value in that service you’d no longer have any incentive to pirate music. Maybe the music industry won’t be dead in a decade after all.

(I’d also note that a bunch of news is coming out about backup storage startups getting funding lately. One has “we just want google to buy us” written all over it.)

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Filed under Copyright, Law