Saturday, June 30, 2012

BN() CFTC Skips `Intergalactic’ Power in Dodd-Frank Guidance

June 30 (Bloomberg) -- JPMorgan Chase & Co., Goldman Sachs Group Inc. and other banks won greater ability to fall under foreign regulations when they trade swaps overseas under guidance proposed for the Dodd-Frank Act's international reach.

Commodity Futures Trading Commission members, in a private vote, unanimously approved proposing interpretive guidance allowing for so-called substituted compliance for branches, subsidiaries and other overseas affiliates of U.S. banks when foreign jurisdictions have comparable rules. Banks have spent two years lobbying against efforts to automatically apply Dodd- Frank to their overseas operations, saying doing so would hurt their ability to compete.

"During a default or crisis, the risk that builds up offshore inevitably comes crashing back onto U.S. shores," CFTC Chairman Gary Gensler said yesterday in a statement. The 111- page proposal is open for public comment, which Gensler said isn't required for guidance.

The international reach of Dodd-Frank has been among the more contentious issues affecting rules intended to reduce risk and increase transparency in the $648 trillion global swaps market. Group of 20 member nations sought tougher rules for derivatives after the collapse of Lehman Brothers Holdings Inc. and the U.S. rescue of American International Group Inc. during the 2008 credit crisis.

Gensler has said the collapse of AIG, which booked credit derivatives in Europe, and the more recent loss of at least $2 billion by London traders at JPMorgan's chief investment office show the need to close potential loopholes in Dodd-Frank. Regulations should provide oversight of derivatives traded overseas so risk doesn't reach U.S. taxpayers and the Federal Reserve, Gensler has said.

Revenue Source

Swaps trading has been a major source of revenue for large U.S. banks, and some of them have conducted roughly half of such trades overseas, often through branches or subsidiaries. JPMorgan, for example, often derives as much of its quarterly revenue from global operations as from those in the U.S., Don Thompson, an associate general counsel, said on Feb. 8.

"If JPMorgan overseas operates under different rules than our foreign competitors, we can no longer provide the best products and services to our U.S. clients or our foreign clients," JPMorgan Chief Executive Officer Jamie Dimon said at a U.S. House hearing on June 19. "The rules at the transaction level about margin reporting, all those requirements may enable Deutsche Bank to make the better deal."

The guidance sets up two types of rules. Entity regulations govern capital, data record-keeping and internal business conduct standards, such as for chief compliance officers. Transaction regulations govern how trades are guaranteed by central clearinghouses that stand between buyers and sellers, margin, trade execution and sales practices.

Comparable Requirements

Foreign swap dealers could meet entity-level rules through compliance with comparable overseas requirements, Gensler said. Overseas branches may be allowed to use substituted compliance for transaction rules when trading with clients that have a guarantee from a U.S. company or operate as conduits of U.S. entities.

Dodd-Frank transaction rules also may not apply to transactions between overseas affiliates of U.S. firms and counterparties that lack a U.S. company guarantee, Gensler said.

"If for some reason, there are not comparable laws of self-interest in nations, and there is the possibility that the lack thereof would be a potential matter of concern to the U.S., our law requires that we address it in an appropriate fashion, and we will do so," Bart Chilton, a Democratic CFTC commissioner, said in a statement.

Initial Draft

An initial draft of the proposal shared with commissioners on June 1 was guided by a view that the agency could have wide- ranging power overseas through what Jill E. Sommers, a Republican commissioner, dubbed an "intergalactic commerce clause" in its regulations. Revisions during the last month crafted between Gensler and others on the five-member panel have "tempered the outer limits of our initial approach," Sommers said in a statement yesterday.

Scott O'Malia, the second Republican commissioner on the five-member panel, said in a statement that he has been assured the guidance will get another vote after the agency reviews public comments. O'Malia said he would have opposed the current version if it were subject to a final vote.

"Although the proposed guidance expressly states that the commission will exercise its regulatory authority over cross- border activities in a manner consistent with the principles of international comity, the commission's proposed approach could be described as unilateral and dismissive of foreign law," O'Malia said.

Overlapping Rules

European Union and U.S. regulators have struggled to align the substance and timing of the measures, with banks warning that inconsistencies or overlapping rules may increase costs and give foreign competitors an advantage.

"If Dodd-Frank derivatives rules are applied to operations outside the U.S. it raises the issue of overlapping or even conflicting requirements," David R. Sahr, a Washington-based partner at Mayer Brown LLP law firm, said in a telephone interview before the guidance was released.

The potential for wide-ranging U.S. regulators spurred opposition in Europe, Japan and elsewhere. Michel Barnier, the European Union's commissioner for financial services, said on June 21 that U.S. regulators, including the CFTC, must "show leadership" and apply rules fairly.

"They must be prepared to rely on equivalent rules in host countries," Barnier said in a Financial Times column. In a June 12 letter to the CFTC, representatives of Mizuho Corporate Bank, Ltd., a subsidiary of Tokyo-based Mizuho Financial Group Inc., urged respect for Japanese law.

SEC Proposal

The Securities and Exchange Commission, which has jurisdiction over parts of the credit swaps market, has said it will soon propose its own method of extending the international reach of Dodd-Frank. House Republicans have criticized the CFTC for relying on interpretive guidance that lacks an assessment of compliance costs instead of a formal rulemaking.

The CFTC unanimously approved a second document governing the timetable for compliance with the cross-border guidance. The phased-in compliance would expire for U.S. swap dealers on Jan. 1. For non-U.S. swap dealers and foreign branches of U.S. swap dealers, the timetable would expire one year after the cross- border proposal.

"The release on phased compliance also allows time for the CFTC, foreign regulators and market participants to continue to consult and coordinate on regulation of cross-border swaps activity, as well as the appropriate implementation of substituted compliance," Gensler said in a separate statement.


(BN) Apple’s Siri Gets Below-Average Grade From Piper Jaffray

A new report about Apple Inc. (AAPL)'s voice-recognition software Siri concludes what many users have been saying for a while: It doesn't work all that well.

Of 1,600 common searches, the speech technology accurately resolved the request 62 percent of the time on a loud street and 68 percent in a quieter setting, according to a report released today by Piper Jaffray Cos., the Minneapolis-based investment bank. The report graded the technology "D" for accuracy, while predicting it will improve as more features are added.

"You're playing the lottery when you're using Siri," said Gene Munster, the Piper Jaffray analyst who conducted the study. "They have a plan to be more competitive, but it's going to take a couple of years."

Apple has made Siri the defining characteristic of its iPhone 4S, spending heavily on advertisements featuring actors such as Samuel L. Jackson and Zooey Deschanel. The ads have contrasted with the experience of many users, who have taken to customer forums and websites to complain that Siri doesn't work as well as it's being marketed. One group of customers even filed a class-action suit against Apple for false advertising. Apple has denied any wrongdoing.

Apple continues to build features for Siri. Earlier this month, the company said its new iOS 6 mobile operating system will support sports statistics and movie listings. As more applications like that are added and the accuracy is improved, the speech-recognition technology will displace searches that many users now perform through Google Inc. (GOOG)'s search engine.

Verbal Shopping

"Apple would love nothing more than to take that away from Google," Munster said. He expects commerce features to be added eventually so people can shop by speaking out commands.

Munster said that while Siri is good at comprehending what a user is saying and will accurately repeat the question, it struggles turning those words into a correct answer. For instance, Siri will repeat old answers when a user is trying to ask a new question. The technology also struggles when trying to use speech commands to find directions, Munster said.

In Piper Jaffray's tests, Siri was able to accurately decipher what a user was saying 83 percent of the time on the street and 89 percent in an area with low noise.

"Apple right now gets a 'B' in comprehension and a 'D' in accuracy," Munster said. "There's a big difference between comprehension and her actually doing what you want her to do."

YouTube community dilemma

Wired on the difficulties with high quality user interaction on YouTube. It's a typical trade-off, based on lack of information about commenters. Facebook solved the problem by limiting comments to friends.

"YouTube comments are a potentially fantastic engagement point that is unfortunately the most common go-to example for trolls," says Huffington Post community manager Justin Isaf. "These are real people who are opening themselves to what is often ridicule and overt abuse. How many people would put themselves out there again after reading comments that belittle, insult, malign or otherwise hurt them? It's a loss of an amazing opportunity.

(BN) Google’s Motorola Win in Microsoft Xbox Case Sent Back

June 30 (Bloomberg) -- A U.S. trade agency ordered one of its judges to reconsider his findings that Microsoft Corp.'s Xbox gaming system infringes patents owned by Google Inc.'s Motorola Mobility unit, in a case that could lead to an import ban of the consoles.

The U.S. International Trade Commission said in a notice posted on its website yesterday that it told Judge David Shaw to revisit his determination that Microsoft was violating four of five Motorola Mobility patents. The agency has the power to block Xbox consoles made in Asia from entering the U.S.

The commission told the judge to weigh a request filed by Microsoft June 22 to have two of the five patents dropped from the case, according to the notice. The panel also asked Shaw to consider the case in light of a precedent-setting decision that it issued last year in a case won by Apple Inc. over digital images software.

Motorola Mobility filed the complaint in November 2010 in retaliation for Microsoft's contention that it's owed patent royalties on phones that run on Google's Android operating system. The ITC has ordered Motorola Mobility to remove a feature synchronizing e-mails and meetings that's covered by a Microsoft patent, or face an import ban on its Android phones.

The companies are suing each other in the U.S. and Germany as part of a broader battle for share of a mobile-device market that Boston-based market researcher Yankee Group has projected will reach $360 billion this year. Apple, maker of the iPhone, also has a patent dispute with Libertyville, Illinois-based Motorola Mobility, which was bought by Google in May.

Disputed Patents

Microsoft's entertainment unit, which includes the Xbox, generated $8.9 billion in sales last year, or 13 percent of the company's revenue, according to data compiled by Bloomberg.

Motorola Mobility contends Redmond, Washington-based Microsoft is infringing two patents that cover aspects of an industry standard for video decoding, two for Wi-Fi technology and a fifth patent on a way to establish communication between the Xbox and accessories. The second Wi-Fi patent wasn't infringed, the judge said April 23.

The Motorola Mobility case against Microsoft is In the Matter of Gaming and Entertainment Consoles, 337-752 and the Microsoft case against Motorola Mobility is In the Matter of Mobile Devices, Associated Software and Components Thereof, 337-744, both U.S. International Trade Commission (Washington).

Friday, June 29, 2012

(BN) DNA Tests Fail to Win Insurer Consent With Lives at Stake


When Matt Christman watches his kids play soccer every week, he harbors a nagging worry that one of them will suddenly collapse and die of a heart attack.

Christman, 37, has hypertrophic cardiomyopathy, an inherited condition that kills at least 1,600 people in the U.S. annually. Among its victims are Boston Celtic Reggie Lewis, who succumbed on a basketball court at 27, and Loyola Marymount University basketball star Hank Gathers.

Implanted under Christman's skin is a device that detects and jolts away abnormal heart rhythms. He can't walk 300 feet without having to stop and rest. Fluid is building up in his abdomen, making it difficult to breathe.

Each of Christman's seven children has a 50 percent chance they'll have the same disorder, and a $500 genetic test could tell them.

His health insurer won't pay for it.

"For some people, the first symptom of this is cardiac arrest -- they drop dead on the soccer field, the basketball court," Christman said, sitting in his living room while his kids, all 12 years old and younger, played around him. "We have a chance to be a step ahead of the game here. You just think it's a no-brainer for the insurance company."

It's far from a no-brainer. As genetic testing spreads, revolutionizing how doctors recognize and treat illness, the insurance industry is in a muddle. A genetic test one insurer calls "actionable," another considers "unnecessary." Some will pay to test sick patients, but not to find out who's at risk of a disease.

Expensive Alternative

Anthem Blue Cross Blue Shield, the WellPoint Inc. (WLP) unit that covers Christman through his employer, won't pay for the test, even though it will cover the more expensive alternative: annual heart scans that will cost about $12,000 per child over the next six years.

Geneticists say the new tests can give the precise identity of cancers and their most vulnerable points, judge a person's predisposition to Alzheimer's disease, predict the best dose of blood-thinning medicines in individual patients and target prevention and treatment for people like Christman's children.

Yet the rise of genetic testing may fuel demand for treatments that may not work or that patients may not need, said Ezekiel Emanuel, a former White House adviser who is now chairman of the Department of Medical Ethics and Health Policy at the University of Pennsylvania in Philadelphia.

"There's a huge proliferation of genetic tests that are not going to offset existing medical costs," Emanuel said in a telephone interview. "And while some of these tests help target therapy, like in lung cancer, some of them are going to create new costs."

Not Approved

Doctors may prescribe intensive treatment even when a genetic test suggests a cancer patient is at low risk, Emanuel said. Some doctors may use them on people who are unlikely to benefit from the findings of the test, he said.

Genetic tests themselves aren't always reliable, said Rita Redberg, a University of California, San Francisco, cardiologist who advises WellPoint. Most of the tests aren't approved by the U.S. Food and Drug Administration, she said. The testing procedures are overseen by the Centers for Medicare & Medicaid Services, which doesn't evaluate the probes' medical aspects.

"The labs that perform the tests are of variable quality, and it's often unclear how to use the results," Redberg said in a telephone interview.

Kathleen Raker, a 45-year-old attorney in Williamsport, Pennsylvania, began navigating the maze when she decided to undergo Myriad Genetics Inc. (MYGN)'s test for BRCA1, a gene that signals a predisposition for breast cancer, in 2007. Her mother died of breast cancer at 28, and her maternal grandmother also succumbed to the disease at 52.

Switching Coverage

At the time, Raker was covered by an insurer that paid for the test. When she came up negative, a genetic counselor suggested she undergo a second Myriad test that looks for other, less-common DNA changes associated with breast cancer.

By the time Raker decided to follow up, she had moved to a lower-cost insurance carrier, Geissinger Health Plan, with a high deductible that meant she would have to pay for the testing out of her own pocket. A genetic counselor from Geissinger advised her to see whether she qualified for a Myriad program that allows uninsured patients to pay just 10 percent of the $700 cost of the follow-up test.

Myriad told her that while it will subsidize testing in some patients who have no health coverage, it will not pay for those covered by health plans that won't pay.

Regulatory Limitations

Myriad has worked to have its tests covered by most private and public payers, and estimates that 95 percent of U.S. patients have access to its breast cancer test, said Rebecca Chambers, a spokeswoman for the Salt Lake City-based company. Due to regulatory limitations, patients who are recipients of government-funded programs or those with third-party insurance aren't eligible to apply for subsidized tests, she said.

Raker is still hoping to be tested someday so she can tell her children whether she has a cancer-associated mutation that she may have passed on to them.

At the root of insurer resistance is concern over costs. U.S. spending on genetic tests will balloon fivefold to as much as $25 billion in the next decade, from $5 billion in 2010, according to UnitedHealth Group Inc. (UNH), the country's largest insurance company covering 36 million people. A majority of the 1,300 DNA tests developed to identify or manage medical conditions still haven't been studied enough to prove their effectiveness or cost savings, UnitedHealth said in a report released in March.

'Blind Alleys'

The company will pay for a genetic test that can accurately tell doctors whether to use breast cancer drugs such as Roche Holding AG (ROG)'s Herceptin, said Lee Newcomer, UnitedHealth's senior vice president of oncology services. Yet for each of these reliable genetic tests, there are many more that remain unproven, he said.

The concern is that the tests will "send you down blind alleys," said Reed Tuckson, UnitedHealth's executive vice president and chief of medical affairs. "That's something you wouldn't want for anyone. And it takes the costs of care through the roof."

The growing number of tests may exacerbate the dilemma. Dana-Farber Cancer Institute in Boston normally charges $1,000 to $2,000 for six genetic tests that help doctors decide how to treat lung-cancer patients. The Harvard University-affiliated hospital is preparing to offer a $500 test that detects all six mutations -- along with about 500 more cancer-linked gene defects, said Barrett Rollins, chief scientific officer.

Although the new test is cheaper and more informative, the 500 extra tests may suggest the use of treatments that are still unproven in lung cancer, and drive up costs, he said.

Military Care

Tricare, the program that provides medical care for active- duty military, also excludes most genetic tests, because they lack FDA approval, said Austin Camacho, a spokesman. Tricare is conducting a project to see whether it can approve coverage for the tests, he said in an e-mail.

Medicaid, the health program for the poor that's funded jointly by states and the federal government, discourages the use of many genetic tests by providing low reimbursement, said Aubrey Milunsky, director of Boston University's Center for Human Genetics. Massachusetts's Medicaid program pays $30 for a test for fragile X syndrome, the most common inherited cause of cognitive impairment.

Milunsky's center normally charges $350 for the test. While Milunsky will perform the analysis for Medicaid's rate, many other labs where he sends samples for testing won't, he said.

Coverage Confusion

"The amount of confusion around coverage and reimbursement for genetic testing is extraordinary," said Sharon Terry, president and chief executive officer of the Genetic Alliance, an advocacy group based in Washington.

Genetic tests differ from many other procedures in that the test may be seeking mutations that are unique to individuals and their families. Initial testing for these novel mutations may cost as much as $3,000 to $4,000, Terry said. Once the familial mutation is found, tests of relatives are usually far cheaper, often on the order of a few hundred dollars, she said.

Informing children and helping other family members determine whether they're at high risk for heart disease is the leading reason people get tested in her practice, said Allison Cirino, a genetic counselor who sees cardiac patients at Brigham and Women's Hospital in Boston. People whose plans don't cover the testing frequently determine they can't afford the tests on their own.

Family History

Patricia Kraus of Wayne, Michigan, has a family history of colon cancer, and has already lost a large portion of her colon to the disease. She would like to take a Myriad test for colon cancer, but her insurer, Midwest Health Choice, won't pay for it. The cost of looking for a mutation would be about $3,000, which hasn't been tested for before in her family.

Although she's already been treated for cancer, she wants to be able to tell her children, who are all adults, whether she has a gene mutation that they should be tested for.

"My daughter wants to have this test right now," she said. "My son is asking about it too."

Matt Christman came around to score from second in a 2004 softball game when he noticed something unusual: he was out of breath and light-headed. While it didn't seem important at the time, Christman, who lives in Huntington, Indiana, discovered the reason at his next checkup. He had a heart murmur.

620,000 Americans

An echocardiogram, an ultrasound image of the heart, revealed telltale thickening in the wall. Abnormal growth in the heart wall of patients with hypertrophic cardiomyopathy garbles electrical signals that keep blood pumping normally. The scrambled impulses can lead to irregular heart rhythms that can cause cardiac arrest.

About 620,000 Americans have the condition, according to the Hypertrophic Cardiomyopathy Association, a patient group. A 2009 study in the journal Circulation reported that it killed 251 young athletes from 1980 through 2006.

Soon after being diagnosed, Christman had a device implanted under his skin that detects abnormal heart rhythms and can shock his heart back to a normal pace if necessary. Christman's mother, aunt and sister were also tested and found to harbor the same mutation. They also began getting preventive treatment.

Over the past year, Christman's concern turned to his children.

Rural Community

The family resides in a rural community, next door to the farm where his wife, Christina, grew up and her parents still live. Their comfortable small home is on a dirt road with an above-ground swimming pool and wooden deck in back.

The children have worn a path to their grandparents' farm. The oldest three -- Alexandria, 12, Luke, 11 and Marianne, 10 -- make the 300-yard walk daily to do chores and 4-H club activities, such as training sheep.

While home-schooled, the Christman children play in basketball and soccer leagues. Marianne said she dreams of taking ballet lessons. Luke goes on hiking trips with the Boy Scouts, far from the protective view of his parents.

In November, Michael Mirro, Christman's cardiologist, recommended that the three oldest children should be tested for the mutation. All three are on the verge of adolescence, when hypertrophic cardiomyopathy often appears without warning.

Annual Tests

If the children couldn't get the genetic test, Mirro said he would recommend that they all undergo annual echocardiogram imaging to check for thickening of the heart wall. That's a cost of at least $12,000 per child over the next six years, Mirro said. For a few hundred dollars, the insurer might avoid those procedures.

WellPoint estimates the cost of monitoring as much lower. The company pays about $279 for an annual echocardiogram, Lori McLaughlin, a WellPoint spokeswoman, said in an e-mail.

Mirro's point of view is backed by the American Heart Association and the American College of Cardiology, the biggest U.S. groups of heart doctors. Their 2011 consensus statement calls for genetic testing in close relatives of people with hypertrophic cardiomyopathy.

Christman thought WellPoint would be persuaded.

"I thought there was a pretty good chance they would cover it," he recalled.

WellPoint refused.

"Medical studies we have seen do not show that this testing is likely to improve your treatment and health," according to a letter Christman received from the insurance company.

Advisory Board

WellPoint has a medical advisory board of about 20 doctors that meets four times a year to review its medical policies, including its stance on genetic testing for hypertrophic cardiomyopathy. Redberg, the UCSF cardiologist who sits on the panel, says she never uses the genetic test for that particular condition. The test doesn't clearly identify which patients need follow-up treatment and which are no longer at risk of heart disease, she said. Wellpoint declined to discuss specific cases.

Inaccurate positive tests can be just as damaging to patients, unnecessarily burdening them with the idea that they're at risk of sudden death and can't play sports or engage in beneficial exercise, she said.

"Before you start advising people that they might drop dead, you want to make sure that this test is absolutely correct," she said. "You want the family history, a clinical assessment and an echocardiogram. I don't think the genetic test adds to that."

Aetna Inc. (AET) takes an opposite view. The Hartford, Connecticut-based insurer has routinely covered testing for hypertrophic cardiomyopathy in patients' closest relatives since November 2010, according to company documents.

'Actionable Information'

The test can help save money and feeds into important medical and personal decision for patients, said Bob McDonough, head of clinical policy research and development at Aetna.

"With any new genetic test, we want to make sure that what we're getting is more than just interesting data," McDonough said. "This test gives us actionable information."

As he waited for word from WellPoint, Christman began developing additional health problems. The defibrillator implanted in his chest indicated he was having more frequent abnormal heart rhythms. He began having increased fatigue and breathlessness. Christman began to suffer from edema, or fluid retention, in his belly that feels like a "a boa constrictor."

Chores like mowing the lawn became too strenuous, and even risky for Christman, so his wife took them on. He continued to watch his children run and play, his concern rising.

Mirro fired off a letter to WellPoint, explaining the necessity of the testing and the cost savings.

In March, WellPoint denied the testing again. Mirro drafted another letter and called the company on the phone.

Not Necessary

In April, WellPoint sent a third round of letters denying the Christman's testing request. The letter said that the company had completed its review of their appeal and repeated that the test is "experimental" and "not medically necessary."

"We realize some cases are unique and therefore also provide for a robust appeals process using clinically appropriate specialists who are independent of WellPoint," spokeswoman McLaughlin said in an e-mail. The Christman's can continue to appeal, she said.

A civil engineer, Christman makes about $60,000 annually. Baffled by WellPoint's refusal to pay for a test his doctor says is critical, he plans to spend $1,500 to have his three oldest children tested if the company persists.

Christman said he's most concerned about his 7-year-old son Benjamin, who's already shown signs that he's more interested in athletics than the others.

"I live every day with the concern about what their future holds," he said.

Facebook June 2012 issued patents.

1 8,209,743 Full-Text CAPTCHA image scramble
2 8,209,380 Full-Text Multimedia aggregation in an online social network
3 8,206,071 Full-Text Cabinet anchor bolt assembly
4 8,204,952 Full-Text Digital file distribution in a social network system 

(BN) RIM’s Plunge Adds Pressure to ‘Sell, Break Up or Die’

June 29 (Bloomberg) -- Research In Motion Ltd. plunged 19 percent, the biggest decline in more than a year, after posting a loss and delaying the next BlackBerry operating system, increasing pressure on the company to find an acquirer.

RIM reported a first-quarter loss yesterday of 37 cents a share, excluding some items, more than five times bigger than what analysts had predicted. Sales tumbled 43 percent to $2.8 billion, missing a prediction of $3.05 billion, and the company said it would cut 5,000 jobs.

The Waterloo, Ontario-based smartphone maker had been waiting for a release of the BlackBerry 10 in the fall to decide on its strategic options, betting that the success of the product would let it avoid a sale, according to two people familiar with the situation. With no new lineup this year -- and the next version of Apple Inc.'s better-selling iPhone looming -- RIM may have to seek a buyer now.

"They either sell, break up the company or die," said Matt Thornton, an analyst at Avian Securities LLC in Boston who has a neutral rating on RIM. "It is just a question of when."

Chief Executive Officer Thorsten Heins said in May that RIM had hired JPMorgan Chase & Co. and RBC Capital Markets to help evaluate its strategic options, though he said a sale wasn't the company's goal. RIM would prefer to find a partner or license its operating system. Heins reiterated that notion yesterday, saying he was "convinced" that RIM has a future as a maker of hardware and software.

Not Ready

RIM declined to comment on takeover speculation.

"RIM will comment on any detail from its strategic review when it's ready," said Heidi Davidson, a company spokeswoman.

The stock fell to $7.39 at the close in New York. The shares have now lost 95 percent of their value since peaking in mid-2008, cutting the business's market value to $3.9 billion.

The company has struggled to keep pace with Apple's iPhone and devices based on Google Inc.'s Android platform, spurring customers to flee the BlackBerry platform. The new BB10 software -- the linchpin of its comeback plan -- now won't arrive until the first quarter of next year, RIM said yesterday. That's more than a year later than originally planned.

"The delay increases the likelihood of a sale," said Michael Walkley, an analyst at Canaccord Genuity Inc. in Minneapolis. "Even if BB10 launched in the fall against iPhone 5, it would be very, very tough to get consumers to try it out."

Microsoft, IBM

Some investors were already pushing RIM to put itself on the block before the latest results.

"We would like to see a sale of the company or a breakup, and if a breakup, the sale of each of the parts," Vic Alboini, chairman of the Toronto-based investment firm Jaguar Financial Corp., said last month. He sees Microsoft Corp. or International Business Machines Corp. as potential buyers.

"We're pushing and cajoling RIM to get to the promised land of a sale or breakup," he said.

The job cuts will shrink RIM's workforce by about 30 percent, cutting it from 16,500 to 11,500 by March, RIM said.

The company also reported a pretax writedown of $335 million and expects to post an additional operating loss in the second quarter. The first-quarter net loss was $518 million, or 99 cents a share, compared with a profit of $695 million, or $1.33, a year earlier.

Cost Savings

The company is trying to save $1 billion in annual operating costs by eliminating workers and manufacturing sites. The effort so far has saved RIM $300 million, Chief Financial Officer Brian Bidulka said yesterday on a conference call. The company's cash investments rose to $2.2 billion last quarter, from $2.1 billion in the previous three months.

Still, future operating losses and severance payments will force RIM to burn through much of that money, said Walkley, who has a hold rating on the shares.

The situation may come to a head in the coming months, said Brian Blair, an analyst at Wedge Partners Corp. in New York.

"My view is that things get so bad this year and in early 2013 that they get forced into a sale," he said. "It gets worse and worse for the next six months, guaranteed."

RIM can't expect any assistance from the Canadian government, Jim Flaherty, the country's finance minister, told reporters today on a conference call.

Choosing a Path

"They need to look at their own options and to choose their path," Flaherty said. He said he's not aware of any interest from other companies in acquiring RIM.

A takeover of RIM's size would trigger a review to determine whether an acquisition is in the national interest. In 2010, Prime Minister Stephen Harper's government rejected Melbourne-based BHP Billiton Ltd.'s $40 billion hostile takeover of Potash Corp. of Saskatchewan Inc. over concerns that the sale would cut jobs and tax revenue.

RIM had previously said that the first of the new BlackBerry 10 phones would come out in the latter part of this year, and the product was originally expected in the first quarter of 2012. Pushing BlackBerry 10 to 2013 means the phones may come out months later than the iPhone 5 and products built on Microsoft's Windows 8 platform.

In the meantime, sales of the existing lineup are slumping. RIM shipped 7.8 million BlackBerrys and 260,000 PlayBook tablets in its last fiscal quarter, which ended June 2. A year earlier, it shipped 13.2 million BlackBerrys and 500,000 PlayBooks.

"The delay may just be the final nail in the coffin," said Sameet Kanade, an analyst at Northern Securities in Toronto who has a sell rating on the stock. "This is not just a disappointing quarter, but is a big question mark about the company going forward."

(BN) Apple Wins Order Blocking U.S. Sales of Samsung’s Nexus

June 29 (Bloomberg) -- Apple Inc. won a court order blocking U.S. sales of Samsung Electronics Co.'s Nexus smartphone in the latest ruling of the companies' global patent dispute.


(BN) Google Said to Face U.S. Probe Over Motorola Patents

June 29 (Bloomberg) -- A U.S. antitrust regulator is investigating whether Google Inc.'s Motorola Mobility unit is honoring commitments made to license industry-standard technology for mobile and other devices on fair terms, three people familiar with the situation said.

The Federal Trade Commission has issued a civil investigative demand, which is similar to a subpoena, to the owner of the Android mobile operating system as it scrutinizes whether Google is improperly blocking rivals' access to patents for key smartphone technology, one of the people said.

The agency is also seeking information from companies including Microsoft Corp. and Apple Inc. as it probes whether Google intends to license technology under patents that help operate 3G wireless, Wi-Fi and video streaming on fair and reasonable terms, another one of the people said. The people declined to be identified because they weren't authorized to speak publicly about the matter.

Another focus of the FTC probe, the person said, is Google's decision to continue litigation started by Motorola Mobility over industry-standard patents after Google bought the company. Those lawsuits could end up blocking imports of popular consumer products such as Microsoft's Xbox and Apple's iPhone and iPad.

Industry-standard technology helps ensure that different manufacturers' products, such as mobile phone antennas and global-positioning system software, work together. Companies that create technology that helps develop the agreed-upon industry standard pledge to license patents for those inventions on reasonable terms.

Escalating Litigation

Patent litigation is escalating as handset and device makers vie for increasing shares of the worldwide mobile-device market, projected to reach $360 billion this year, according to estimates by Yankee Group, a Boston-based research firm. The global patent fights started in March 2010 when Apple filed its first complaint at the International Trade Commission against Android-phone maker HTC Corp.

"Antitrust agencies around the world are worried about this patent problem, which is particularly important as we shift to mobile technologies," said Bert Foer, president of the American Antitrust Institute in Washington, which advocates strong enforcement of antitrust law. "An injunction against the use of a patent can destroy a company's entire market strategy."

Essential Patents

FTC Chairman Jon Leibowitz said March 30 the agency was "looking at" the legality of companies seeking to prevent rivals from using patents that cover technology considered essential for an industry.

Dominic Carr, a spokesman for Redmond, Washington-based Microsoft, confirmed the company received a civil investigative demand from the FTC, declining to comment further. Steve Dowling, a spokesman for Apple, based in Cupertino, California, and Cecelia Prewett, an FTC spokeswoman, declined to comment on the investigation. Niki Fenwick, a spokeswoman for Google, said she couldn't immediately comment.

The FTC investigation follows the opening of formal probes of Motorola Mobility and Samsung Electronics Co. for the same issues by the European Commission earlier this year.

U.S. antitrust regulators have agreed the FTC will focus on Motorola Mobility and the Justice Department will scrutinize Samsung Electronics Co.'s handling of industry-standard patent claims, said another person familiar with the matter. The person didn't know if the Justice Department has issued information demands in connection with its review of Samsung.

Antitrust Probe

The FTC is already conducting a broad antitrust investigation into whether Google's search-results rankings and other business practices harm competition.

Earlier this month, the FTC filed a statement with the ITC, which is charged with protecting U.S. markets from unfair trade practices, suggesting that companies should be limited in their ability to win orders blocking imports of competitors' products over the use of patents built into industry-wide standards.

The ITC said June 26 it would review whether Apple, which gets about 75 percent of its revenue from the iPhone, iPad and related products, infringed four patents held by Motorola Mobility. A trade judge in April said Apple infringed one of the patents.

Should the ITC side with Motorola Mobility, the agency has the power to order U.S. Customs and Border Protection to stop iPhones and iPad computers made in Asia from entering the U.S. On July 2, the ITC is scheduled to announce whether it will review a trade judge's findings that Microsoft's Xbox gaming system infringes four of five Motorola Mobility patents.

Smartphone Software

In February, the Justice Department approved Google's $12.5 billion purchase of Libertyville, Illinois-based Motorola Mobility, which gave the biggest maker of smartphone software more than 17,000 additional patents in the largest wireless- equipment deal in at least a decade, according to data compiled by Bloomberg.

At the same time, the department also approved the acquisition of Nortel Network Corp. patents by a group led by Microsoft and Apple, as well as Apple's acquisition of some Novell Inc. patents.

In approving the deals, the Justice Department said it would monitor for potential misuse of those patents, which cover such technologies as location services, antenna designs and touch-screen motions.

Microsoft and Apple pledged they wouldn't seek to block use of any standard-essential patents. Google said it wouldn't, either, as long as good faith negotiations were under way, while maintaining the right to seek court orders if no agreement could be reached on licensing. Microsoft and Apple "seemingly won't accept any price," Kirk Dailey, vice president of intellectual property for Motorola Mobility said June 20.

Makan Delrahim, an antitrust and intellectual property lawyer with Brownstein, Hyatt, Farber, Schreck LLP, said antitrust agencies shouldn't be involved in what are essentially contract disputes.

"Determining whether someone has lived up to its commitments to the standard-setting organization isn't an appropriate role for an antitrust agency," Delrahim said.

(BN) Google’s Schmidt Says Facebook No Longer Poaching His Employees

June 29 (Bloomberg) -- Google Inc. Executive Chairman Eric Schmidt said Facebook Inc., owner of the world's largest social- networking service, is no longer poaching employees from his company.

He also said Google, owner of the world's most popular search engine, will continue to hire workers. Schmidt, who made his comments on CNBC today, added that Chief Executive Officer Larry Page, who missed recent Google events after losing his voice, is "fine."

(BN) AMC Risks Millions of Viewers in Fights With Dish, AT&T

June 29 (Bloomberg) -- AMC Networks Inc. will lose as many as 18 million subscribers, almost a fifth of its audience, if it can't reach a deal with two of the largest U.S. pay-TV services by midnight tomorrow.

The cable programmer behind "Breaking Bad" and "The Walking Dead" will have its channels removed by Dish Network Corp. and AT&T Inc.'s U-verse at 11:59 p.m. New York time if it can't reach new fee agreements with the two pay-TV systems.

AMC, which operates the AMC, IFC and We TV channels, said in an e-mail it faces "separate and distinct" issues with the companies. AMC accuses Dish of "retaliation" over a lawsuit that may cost the satellite service $2.5 billion. The AT&T fight is over prices, which suggests a last-minute deal is more likely, said Brett Harriss, a Gabelli & Co. analyst.

"AT&T is a garden-variety rate dispute," said Harriss. "The Dish situation is much more complicated. There's going to be a lot of litigation, and maybe the AMC solution is part of a settlement."

New York-based AMC, spun off by Cablevision Systems Corp. last year, is party to a lawsuit that its former parent brought against Dish in 2008. Cablevision sued for breach of contract after Dish, based in Englewood, Colorado, said it would stop carrying 15 high-definition channels called Voom HD.

Cablevision invested more than $100 million a year in the project, according to court papers. The Bethpage, New York-based company expected to lose money until enough Dish customers signed up to recoup the investment. The deal called for Cablevision to receive as much as $6.43 a month for each Dish high-definition TV customer.

'Litigation' Motivated

AMC reaches 96.3 million households, according to the company's annual report. Dish has 14 million subscribers and U- verse has about 4 million, company reports show.

AMC Chief Executive Officer Josh Sapan said last month Dish's decision to drop the channels is "litigation motivated." His company stands to receive 50 percent of any settlement between Dish and Cablevision over Voom, Harriss said.

Dish Chairman Charlie Ergen said last month he wants to lower bills for consumers, and taking out networks with "very, very, very low viewership," outside of a few popular shows, is a way to keep prices down.

AMC fell 1.3 percent to $35.55 at the close in New York. Dish rose 3.6 percent to $28.55 and Cablevision gained 2.6 percent to $13.29.

AMC will lose about $90 million in profit from lost subscriber fees if the channels are gone from Dish for a year, Harriss said. Being off Dish and AT&T for a full year would result in $89 million less in AMC advertising revenue, said Harriss, who also estimates the company receives on average $0.54 cents a month per subscriber from pay-TV systems.

Programming Costs

AMC is increasing spending on original programming as it transitions from an ad-supported movie channel to one with more original shows, Harriss said. That's motivating AMC to ask for higher affiliate fees, according to David Joyce, an analyst at Miller Tabak & Co. in New York.

AMC's shows include "Mad Men," "Breaking Bad," which begins its next season July 15, and "The Walking Dead," the highest-rated cable drama from Feb. 12 to March 18 this year, according to Nielsen data..

Dish is replacing AMC with HDNet commercial-free movies. HDNet's main channel, with shows such as "Bikini Barbershop" and "Drinking Made Easy," will stand in for IFC, the AMC-owned independent film channel. The Style channel will replace We TV, a network aimed at women.

Last Minute

AT&T said this week it hadn't reached terms on a new contract because AMC is asking for "nearly double" what competing pay-TV services pay. Last minute deals in contract talks between pay-TV operators and programmers are common, said Amy Yong, an analyst for Macquarie Capital USA Inc.

AMC and AT&T reached a final-day agreement two years ago, avoiding a programming halt in a similar stand-off over fees.

AT&T hasn't said what channels will replace AMC if it fails to reach an agreement, and negotiations between the two sides continue, said Dawn Benton, an AT&T spokeswoman.

"I don't think that it is unique to have these types of disputes from any content owner and TV network," said Yong. "It's just unfortunate that two high TV profile negotiators are doing this at the same time."

Lunch Talk: Jonah Lehrer on The Science of Creativity (@Google)

Authors@ Google Presents Jonah Lehrer's 'Imagine: How Creativity Works'

Acclaimed science writer Jonah Lehrer regularly contributes to the New Yorker, New Scientist, The Wall Street Journal and Wired magazine. His latest book, Imagine: How Creativity Works, looks at the science of creativity (where does it come from? How can we harness it? Are only certain people 'creative'?) and puts forward ideas on how to maximise your creativity.

tags: lunchtalk, creativity

Thursday, June 28, 2012

(BN) IPOs Fizzle as Facebook to Europe Burn Buyers Seeking Bargains

June 29 (Bloomberg) -- Initial public offerings fell 34 percent this quarter as Facebook Inc.'s disappointing debut and worsening economic conditions rattled investors, pressuring companies to lure buyers with cheaper valuations.

IPOs globally raised $41.3 billion, the worst second quarter since 2009, data compiled by Bloomberg show. That compared with $62.7 billion a year ago. At least 50 companies shelved sales as Europe's debt crisis spread, growth prospects slowed in China and Facebook's stock sank 17 percent from its May 17 IPO price.

"With the economy and with Europe, there are more questions than answers in investors' minds, and they want some clarity before they put their money down," said Matt McCormick, who helps oversee $6.2 billion at Cincinnati-based Bahl & Gaynor Inc. "After what happened with Facebook, people want IPOs to go off without a hitch."

Facebook flopped after pricing its IPO at more than 100 times earnings and kicked off a monthlong drought in the U.S. Global IPOs that followed, including Felda Global Ventures Holdings Bhd, a Malaysian palm-oil plantation operator, and EQT Midstream Partners LP, offered discounts to investors.

Companies including Evonik Industries AG, LaShou Group Inc. and Tria Beauty Inc. scrapped their IPOs rather than brave a resurgence in stock-market volatility. The swings damped investors' risk appetite, making it harder for companies to get the prices they want.

S&P's Swings

The Standard & Poor's 500 Index, the benchmark gauge for American equities, rose or fell an average of 1 percent a day in June, about twice the rate of the previous five months, according to data compiled by Bloomberg. Price swings are approaching levels from last year, when the S&P 500's daily move of 1.3 percent between April and December was twice the five- decade average.

"What you'll get now is high-quality companies with valuations that are reasonable given the lack of appetite and the volatility in the market," Joe Castle, New York-based head of equities syndicate at Barclays Plc, said at a briefing this month. "The market usually rebuilds from there."

Felda jumped more than 16 percent in its first day of trading after pricing its shares below the top of the proposed range. EQT Midstream, an operator of natural-gas pipelines in the northeastern U.S.'s Marcellus Shale region, has risen 15 percent after offering a higher dividend yield than peers in its IPO.


U.S. IPOs rose 67 percent this quarter to $22.7 billion, buoyed mainly by Facebook's $16 billion sale and Carlyle Group LP's May 2 IPO. ServiceNow Inc., the maker of cloud-based business software, raised $210 million in its IPO yesterday, pricing the shares above the proposed range.

Carlyle has advanced less than 1 percent since its debut. PetroLogistics LP, operator of the world's biggest propylene plant, has dropped 40 percent since its May 3 offering.

The MSCI World Index, the benchmark gauge of equities in 24 developed markets, sank 8.5 percent this quarter, dragged down partly by Europe's sovereign-debt woes. Cyprus became the fifth euro-region country to seek a bailout this week, increasing concern the crisis will spread and imperil the area's stability. Western Europe IPOs raised only $896 million, 95 percent less than in the year-earlier period.

"For European IPOs, the overriding concern remains the region's macro situation," said Darrell Uden, UBS AG's London- based co-head of equity capital markets for Europe, the Middle East and Africa. "For these deals to go ahead, volatility also needs to come down to an acceptable level, which we haven't yet seen."

Scaled-Back Deals

Some companies scaled back deals to match shrinking demand. Inner Mongolia Yitai Coal Co., the biggest coal producer in the Chinese region bordering Mongolia, is seeking as much as $1.1 billion in a Hong Kong additional stock offering after first planning to raise as much as $1.5 billion, a term sheet showed this week. Xiao Nan Guo Restaurants Holdings Ltd., the Chinese restaurant chain that shelved its IPO in Hong Kong last year, revived the sale with a lower price range and seeks about HK$512 million ($66 million).

Given the lack of demand, Joe Reece, global head of equity capital markets at Credit Suisse Group AG, said he's advising most IPO clients to expect good conditions for a sale early next year.

"Overall appetite for risk is compressing right now," Reece said. "A lot of things have to go right for this year to finish strong."

Morgan Stanley's Dominance

Morgan Stanley is on track to lead global IPO underwriting by market share for the third year in a row, partly thanks to the Facebook offering, according to data compiled by Bloomberg. The New York-based bank nabbed the top spot in 2011 after working on that year's biggest IPO, the $10 billion London and Hong Kong offering by Glencore International Plc. In 2010, Morgan Stanley helped complete the $22.1 billion IPO by Agricultural Bank of China Ltd. in Shanghai and Hong Kong, history's biggest initial share sale.

Asia, which accounted for almost half of global IPO funds raised in 2011, had its slowest second quarter for IPOs since 2009, generating $12.9 billion for companies, as a projected slowdown in China's economic growth has weighed on stock markets in the region. The most populous nation, whose economy expanded 10.4 percent in 2010, is forecast by economists to grow 8.2 percent this year.

Manchester United Ltd., the English soccer club, scrapped plans to list in Singapore and is exploring a sale in the U.S., people familiar with the plans said this month, while auto- racing series Formula One also shelved a listing plan in Singapore until later this year because of volatility, Chief Executive Officer Bernie Ecclestone said last month.

Felda's Sale

One exception was Felda, which raised $3.3 billion in its Malaysian IPO, the largest initial sale since Facebook's. That indicates Southeast Asia's capital markets may pick up the slack for a slowing China, said Ronald Wan, a Hong Kong-based managing director at China Merchants Securities, which oversees about $1.5 billion.

"The shift of investors' attention to Southeast Asia may continue at least through the end of the year," Wan said. "Southeast Asia offers a good alternative to global investors."

As long as Europe's debt crisis goes unresolved and the U.S. economic recovery remains uncertain, stocks will struggle and IPOs will encounter slack demand, said Jack Ablin, chief investment officer of BMO Harris Private Bank in Chicago.

"Recent experience hasn't been great for individual investors," said Ablin, who helps oversee about $60 billion of assets. "There appears to be a distrust of equity markets in general, and the problem is that IPOs as a segment require an additional level of optimism and faith, both of which are lacking right now."

(BN) Google Unveils Compute Engine to Take On Amazon Web Services (1)

June 28 (Bloomberg) -- Google Inc., owner of the world's most popular search engine, unveiled a cloud-computing service for building and running applications to help woo customers and challenge Inc.'s Web Services.

The new service, called Compute Engine, will give developers deeper access to computing power through the Internet, Google said today at its I/O developers conference in San Francisco. Compute Engine offers more options for building than the existing Google App Engine service.

"You all now have access to what we have had internally at Google," said Sundar Pichai, Google's senior vice president for Chrome and Apps. "We can't wait to see what you all build next."

The Mountain View, California-based company is stepping up efforts for cloud-based computing services as it looks for new sources of revenue outside of advertising. Amazon's offering has become the leading service for businesses to build applications in the cloud.

Google's new service will offer different levels of computing power using the Linux operating system, as well as data storage. Using the company's data centers, Compute Engine gives customers 50 percent more power for the money than with other leading cloud services, Google said in a blog posting.

Android, Google+

In addition to touting cloud services at the I/O event this week, Google is using the conference to show off other products and features. They include upgrades to its Android mobile software, a tablet computer running the operating system and additions to social network Google+, which was rolled out last year. The event, running at Moscone Center through tomorrow, typically draws thousands of developers.

Today, Google also unveiled versions of its Chrome Web browser designed for Apple Inc.'s iPhone and iPad tablet computer. Chrome for iPhone will be available as an application for the device, Google said. Chrome has about 310 million users.

MIT Tech Review: What Facebook Knows.

MIT Technology Review has an article about Facebook's effort to study social aspects of information flows:
"For the first time," Marlow says, "we have a microscope that not only lets us examine social behavior at a very fine level that we've never been able to see before but allows us to run experiments that millions of users are exposed to." 

"The biggest challenges Facebook has to solve are the same challenges that social science has," he says. Those challenges include understanding why some ideas or fashions spread from a few individuals to become universal and others don't, or to what extent a person's future actions are a product of past communication with friends.
Once they've discovered the infrastructure of social interactions, Facebook and its partners will have the ability to inject information into key nodes (just like the doctors do when they need to anesthetize the patient.) Further, they'll be able to shape the infrastructure in certain ways to streamline information flows.

tags: distribution, infrastructure, interface, facebook, control

Lunch Talk: TED - Peter Norvig: The 100,000-student classroom.

In the fall of 2011 Peter Norvig taught a class with Sebastian Thrun on artificial intelligence at Stanford attended by 175 students in situ -- and over 100,000 via an interactive webcast. He shares what he learned about teaching to a global classroom.

tags: lunchtalk, innovation, education

(BN) Google Unveils Chrome Web Browser for Apple’s IPhone, IPad

June 28 (Bloomberg) -- Google Inc. unveiled versions of its Chrome Web browser designed for Apple Inc.'s iPhone and iPad tablet computer.

Chrome for iPhone will be available as an application for the device, the company said at the Google I/O developers conference today in San Francisco. Chrome has 310 million users, Mountain View, California-based Google said.

Supreme Court upholds Obamacare 5-4


In a 5-4 ruling, the high court decided the individual mandate requiring people to have health insurance is valid as a tax, even though it is impermissible under the Constitution's commerce clause.

"In this case, however, it is reasonable to construe what Congress has done as increasing taxes on those who have a certain amount of income, but choose to go without health insurance," Chief Justice John Roberts wrote in the majority opinion. "Such legislation is within Congress's power to tax."

In short, a tax can be imposed on a negative activity, ie something you don't do. <<

(BN) Google’s Brin to Offer Eyeglass Computers to Consumers by 2014

June 28 (Bloomberg) -- Google Inc., owner of the world's most popular search engine, will sell eyeglass-embedded computers to consumers by 2014 after incorporating feedback from developers, said Sergey Brin, the company's co-founder.

Project Glass test devices with software and cameras, to give quick access to information in a display above the eyes, will be offered for $1,500 to developers who attend Google's I/O developers conference in San Francisco and will ship in early 2013. The Mountain View, California-based company is sharing the design with developers to benefit from their work, Brin said in an interview.

"These explorer editions I'd like to get out early next year," Brin told Jon Erlichman on Bloomberg TV's "Rewind" yesterday. "And within a year after that I want to have a broad consumer offering."

Brin showed a demonstration of Project Glass featuring skydivers wearing the glasses, which sent live video to the conference. The Google X lab that produced Project Glass is also working on other technology, including self-driving cars.

"With Google X I'm not really thinking about any sort of existing products or things to compare it to," Brin said. "Google X is about brand new risky technological things that are sort of making science fiction real."

Google also made another move into the hardware market at the conference yesterday, showing its $199 Nexus 7 tablet to take on Apple Inc. and Inc.

(BN) Reckitt’s Durex Enlists Ice-T to Take On Trojan Condoms

June 28 (Bloomberg) -- This week a commercial set to Marvin Gaye's "Let's Get it On" started showing up on Facebook and other social-media sites. The Durex Performax Intense condom, the ad vows, "speeds her up" and "slows him down."

Determined to steal U.S. sales from Trojan -- Americans' go-to condom brand -- Durex owner Reckitt Benckiser Group Plc is inviting celebrity couples including Ice-T and Coco to a "Get In-Sync" marketing party and plans a barrage of radio and online ads. At stake is control of a category where U.S. sales topped $430 million in the year through June 10, according to SymphonyIRI Group, a market-research firm in Chicago.

While Durex has become a generic term for condom in much of Europe, the brand has only a 15 percent share of the U.S. market. Church & Dwight Co.'s Trojan dominates with 69 percent of sales. At $33.6 million, Trojan's U.S. advertising budget was about 26 times as big as Durex's last year, according to Nielsen.

"They're up against the dominant leader," said Jack Trout, president of Trout & Partners Ltd., a brand-consulting firm based in Greenwich, Connecticut. "That's a big problem."

Condoms are one of the oldest products around. Evidence of condom use dates back to 1220 B.C. in Egypt, according to Durex's website. Since then, materials from linen to fish bladders have been used as prophylactics until rubber was introduced in 1843, only to be succeeded by latex in 1930, according to Durex.

Entertainment Product

Still, the modern condom market is in the midst of a transformation, going beyond the utilitarian functions of protecting against pregnancy and disease to a kind of entertainment product. That's set the stage for growth. Condom sales gained 8.1 percent in the 52 weeks through June 10, with sales in the related category of so-called sexual-enhancement devices, rising 21 percent to $15.7 million in the same period, according to SymphonyIRI. The firm's figures don't include Wal- Mart Stores Inc., the world's largest retailer.

Slough, England-based Reckitt Benckiser bought Durex parent SSL International Plc in late 2010 for about 2.5 billion pounds ($3.9 billion).

"We have aggressive expansion plans for the Durex brand here in the U.S.," said Kevin Harshaw, Reckitt Benckiser's marketing director of hygiene, personal care and sexual well- being.

Reckitt Benckiser's shares gained 6.2 percent this year in London this year through yesterday, while Church & Dwight climbed 19 percent in New York. Reckitt Benckiser fell 3 percent to 3,277 pence at 2:38 p.m. in London, and Church & Dwight slid 0.7 percent to $53.91 in New York.

Cheeky Marketing

Durex marketing is determinedly cheeky in the U.K. -- fornicating rubber balloons; people swooning over vibrating power drills -- and Reckitt Benckiser is betting that similar ads will play well with Americans. The company is tripling its U.S. marketing budget this year to $15 million.

In the U.S., Durex is targeting what Harshaw says is a forgotten group of people aged 25 to 39 who are in relationships. The brand also is looking for growth in a broader market it calls "sexual well-being" that includes such sex toys as Durex's new "Ring of Bliss Vibrating Ring."

Among the top products Durex will push is its Performax Intense line, a condom with a lubricant that delays the man's climax, according to the company.

Durex is working with what it calls "sexfluencers" and other social-media mavens to promote the brand.

'Girl Talk'

A Durex Facebook campaign this year urged participants to nominate their state's official sex position and the brand has sponsored 5,000 "Durex Girl Talk" house-party events, where attendees can score samples and coupons. The company last year conducted a "Get a Room" contest -- in which couples shared their sex stories on Facebook for a chance to win a two-night stay at a New York hotel -- hosted by Bridget Marquardt of the "Girls Next Door" reality show.

Trojan is not sitting back. The brand is pushing its own Trojan Vibrations line, introduced in 2010, including an online video promising a vibrator "so good, it will blow your hair back." The brand also sponsored a demonstration at the Consumer Electronics show last year.

While Trojan isn't doing anything specific in response to the Durex campaign, "we are always looking for new ways to engage with our fans through a number of channels," Nyla Saleh, a spokeswoman for Princeton, New Jersey-based Church & Dwight who works for Edelman, said in an e-mail.

Still, getting Americans to switch brands may be difficult. Americans tend not to spend a lot of time comparison-shopping condoms, said Jiri Kulik, a former U.S. marketing chief who now heads Reckitt Benckiser's Latin America unit.

"They take whatever they see," he said, "and then run away."

(BN) Yoga, Microsoft, Oracle, Trade: Intellectual Property

June 28 (Bloomberg) -- The U.S. Copyright Office says that a sequence of yoga poses can't be copyrighted.

In a release published in the Federal Register on June 22, the Copyright Office found that "a selection, coordination, or arrangement of exercise movements, such as a compilation of yoga poses, may be precluded from registration as a functional system or process."

The policy statement acknowledged that the question of whether a sequence of "preexisting exercises, such as yoga poses" can be copyrighted has "occupied the attention of the Copyright Office for some time."

The policy statement refers to the eight categories of works that the federal copyright law specifically names for protection, including "pantomimes and choreographic works." Because "exercise is not a category of authorship," the Copyright Office said in its statement, a "compilation of exercises" can't be copyrighted.

The question has dogged many in the yoga community. Last year, Bikram Choudhury, the eponymous owner of Bikram's Yoga College of India, brought several suits attempting to enjoin former instructors from teaching yoga that incorporated elements that he used, including a hot studio and the sequence of poses.

In the litigation, the defendants submitted an e-mail from Laura Lee Fischer, who was at the time the acting chief of the office's Performing Arts Division, stating that yoga sequences couldn't be copyrighted.

The new policy statement was a result of that e-mail.

David Carson, the general counsel of the Copyright Office, said in a telephone interview that the issue is one "that we had been mulling over for quite some time. Once the e-mail from the office surfaced in the litigation -- and it was at best an incomplete statement -- we felt like we needed to set the record straight."

Carson added that the Copyright Office wasn't seeking comment on the statement because it isn't a proposed regulation. The statement clarifies "our practice."

The lawyers representing Yoga to the People have filed the Copyright Office statement with the court. Jordan Susman, one of the attorneys representing the defendants, said only that "the Copyright Office statement speaks for itself" and otherwise declined to comment.

Choudhury's lawyer, Robert Gilchrest, a partner at Silverman Sclar Shin & Byrne PLLC in Los Angeles, didn't return a call seeking comment.

To read the Copyright Office release, click here.

The case is Bikram's Yoga College of India LP v. Yoga to the People Inc., 11-cv-07998, U.S. District Court, Central District of California (Los Angeles).

For more copyright news, click here.


Microsoft Challenge to EU's 899 Million-Euro Fine Rejected

Microsoft Corp. lost a European Union challenge to an 899 million-euro ($1.1 billion) antitrust fine, with a court saying it "essentially" upheld the penalty.

The EU General Court cut the fine by 39 million euros, or 4.3 percent, to 860 million euros in a ruling yesterday. The Luxembourg-based tribunal rejected all of Microsoft's arguments over the fine levied by the European Commission for the company's failure to obey an order to share data with rivals.

The fine was on top of Microsoft's earlier penalties of 497 million euros and 280.5 million euros in the antitrust case and surpassed only by a 1.06 billion-euro levy against Intel Corp. during a period of EU scrutiny of U.S. technology companies.

The court's endorsement of the fines "is likely to embolden the commission in pursuing procedural violations," said Suzanne Rab, a partner in the London office of King & Spalding LLP.

Microsoft, based in Redmond, Washington, said while it was disappointed, it paid the fine several years ago. The world's largest software company can challenge yesterday's decision at the EU's highest court, the European Court of Justice.

Yesterday's ruling backed the EU's so-called periodic penalty calculated because Microsoft was in breach of the EU order for 488 days, regulators said in 2008. The court cut the fine to take into account a letter from the commission in 2005 that accepted limits on Microsoft's supply of information to open-source software developers.

Microsoft is the only company in more than 50 years of EU competition policy penalized for failing to comply with an order. The company reached a settlement in 2009, which allowed yesterday's appeal, in a bid to repair the company's relationship with the European Commission.

The case is T-167/08, Microsoft v. European Commission.

For more patent news, click here.


Oracle Wins U.K. Supreme Court Ruling Over Marketing in EU

Oracle Corp., the world's largest database maker, won a U.K. Supreme Court ruling protecting its right to be first to market its hardware in the European Union before third-party resellers may do so.

The judgment yesterday in London reversed a Court of Appeal ruling in favor of M-Tech Data Ltd., which was sued by Sun Microsystems Inc. in 2009 for importing Sun disk drives into the EU after Sun sold them in China, Chile and the U.S. Sun, purchased in 2010 by Oracle, may be first to market its goods in the EU under an "economically controversial, but legally well- established policy," even if it had previously sold the products elsewhere, the Supreme Court ruled.

M-Tech, based in Manchester, argued that Sun tried to control the secondary market for its hardware in the European Economic Area valued at $1.07 billion in 2007, according to the judgment. M-Tech claimed Sun did so by withholding data from independent resellers that would have helped determine whether certain goods had already been sold in the region, producing a "chilling effect," M-Tech said.

"The unlawful conduct alleged by M-Tech does not amount to a defense, even if proved," according to a court summary of the judgment handed down by a panel of five justices. "On the agreed facts, the disk drives were never marketed in the EEA until they were imported by M-Tech without Sun's consent."

M-Tech is "surprised and disappointed with the decision," Harvey Stringfellow, the company's lawyer at Hill Dickinson LLP in Liverpool, said in a phone interview. "This was a case that generated a huge amount of interest within the independent sector for" information technology, he said.

M-Tech had argued that Sun can't enforce its trademark because Sun is trying to divide the market in the 27-nation EU in violation of laws permitting free movement of goods. The case was filed as a trademark dispute because Sun has distribution rights to products that carry its logo.

Oracle, based in Redwood City, California, acquired Sun in January 2010, for $7.3 billion, and renamed the unit Oracle America Inc.

For more trademark news, click here.


House Democrats Say Pacific-Region Trade Talks Need Transparency

A majority of U.S. House Democrats said talks on a Pacific- region trade agreement the Obama administration is negotiating with eight other nations haven't been sufficiently open to public and congressional scrutiny.

"We are troubled that important policy decisions are being made without full input from Congress," lawmakers led by Representatives Rosa DeLauro of Connecticut and George Miller of California said in a letter yesterday to U.S. Trade Representative Ron Kirk.

The complaint, lodged by 132 of the 191 House Democrats, reiterates comments by senators including Ron Wyden of Oregon who have sought more transparency in discussions for the Trans- Pacific Partnership.

Negotiations resume next week in San Diego to create an agreement among the U.S., Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore and Vietnam. The accord would cover issues including small-business access to global markets, agriculture, intellectual-property rights and protections for companies that compete against state-owned enterprises.

Carol Guthrie, a spokeswoman for the U.S. Trade Representative's office, said in an e-mail that she hadn't yet seen the letter and didn't have an immediate comment.

The partnership is one of Obama's top trade priorities, and administration officials have said they are working expeditiously to conclude the talks.


Netflix Wants Help From U.S. as Cable's Caps Threaten Growth

Netflix Inc., the provider of video by mail and over Internet connections, asked U.S. lawmakers to prevent cable providers from squelching its growth by imposing online-data consumption limits for customers.

Netflix, with 23.4 million subscribers, made its request at a hearing yesterday before the House communications and technology subcommittee in Washington.

"When you couple limited broadband competition with a strong desire to protect a legacy video distribution business, you have both the means and motivation to engage in anticompetitive behavior," David Hyman, Netflix's general counsel, testified.

The session was called to examine changes since the last broad revision to cable law in 1992, when few consumers used the Internet and cable companies controlled 98 percent of the pay- television market, according to a staff memo. The 1992 law set terms for broadcasters to demand payment from cable companies for their signals.

Since then, the U.S. television market has been reordered by the emergence of satellite providers Dish Network Corp. and DirecTV as competitors to cable, and an array of online video providers including Netflix and Google Inc.'s YouTube.

Netflix could face higher prices and lowered growth from limits on data consumption by providers of high-speed Internet service, or broadband, the Los Gatos, California-based company said in a filing.

For more, click here.


Federal Government Seeks Comments on IP Enforcement

The Federal government is developing a joint strategic plan on intellectual property enforcement, according to a notice in the Federal Register.

Through the office of the U.S. Intellectual Property Enforcement Coordinator, known as IPEC, the government is seeking public input in formulating its enforcement strategy.

The request for comments and recommendations is divided into three parts. The first seeks detailed recommendations from the public regarding specific ideas for improving intellectual property enforcement. It also seeks input on the existing and emerging threats to the protection of intellectual property rights, the identification of threats to public health and safety and the U.S. economy resulting from intellectual property infringement. Finally, IPEC seeks submissions to help develop specific action items.

Submissions must be received on or before July 25.

Wednesday, June 27, 2012

The crazy world of today's privacy policies.

via The New York Times:

As they note in their privacy policies, Verizon, Sprint, AT&T, and T-Mobile all analyze your information to send you targeted ads for their own services or from outside companies. At least tens ofthousands of times a year, they also hand cellphone location information to the FBI or police officers who have a court order.

But ProPublica discovered that there's one person cell phone companies will not share your location information with: You.

Why Are American Kids So Spoiled? : The New Yorker

The New Yorker has an article on an important demographic shift/problem in America:

With the exception of the imperial offspring of the Ming dynasty and the dauphins of pre-Revolutionary France, contemporary American kids may represent the most indulged young people in the history of the world. It's not just that they've been given unprecedented amounts of stuff—clothes, toys, cameras, skis, computers, televisions, cell phones, PlayStations, iPods. (The market for Burberry Baby and other forms of kiddie "couture" has reportedly been growing by ten per cent a year.) They've also been granted unprecedented authority

(BN) Apple Said to Prepare ITunes Changes to Improve Sharing

June 27 (Bloomberg) -- Apple Inc. plans an overhaul of iTunes that would mark one of the largest changes to the world's biggest music store since its 2003 debut, according to people with direct knowledge of the matter.

Apple will unveil the changes by year's end, said the people, who asked not to be identified because the plans aren't public. The company will more closely integrate its iCloud file- storage service with iTunes so users can more seamlessly access and manage their music, videos and downloaded software apps across different Apple gadgets, the people said. Apple also plans new features for sharing music, the people said.

ITunes has been critical to Apple's success over the past nine years, generating revenue of almost $1.9 billion last quarter alone as well as tethering users to a widening family of Apple products. Any changes will have implications for the media industry, because the store is the gateway for millions of iPhone, iPad, iPod and Mac users to buy music, movies and television shows.

Tom Neumayr, a spokesman for Cupertino, California-based Apple, declined to comment.

Apple's iTunes Store has more than 28 million songs and 45,000 movies. It also houses the App Store, which offers more than 650,000 applications that can be downloaded for the iPhone, iPad and iPod Touch devices.

Discovering Content

With an increasing amount of content available on the store, the overhaul is intended to improve how people manage all their files, one person said. That includes changes to how users find new material and how they access what they already own on different Apple devices, said one person.

One of the main ways Apple will attempt to improve discovery is by making it easier for people to share songs, a popular feature of Spotify Ltd.'s music-subscription service. Apple has been negotiating with major record labels for rights that would let a user listen to a song sent to them from a friend for free, one person said.

Apple also has announced tighter integration of social networks Facebook Inc. and Twitter Inc. in iTunes, allowing people to share what they are listening to.

Apple co-founder Steve Jobs, who died in October, often spoke about making Apple the "digital hub" in people's lives. ITunes has been the critical product to fill that role, starting with music sales and expanding to movies and TV shows.

ICloud Integration

Customers also use the software to activate and update iPhones, iPads and iPods, as well as to synchronize their libraries of music, videos, photos and applications. Yet as more content is being stored on people's mobile devices, organizing all that material has become increasingly difficult. The further integration of the iCloud Internet-based storage service is aimed at fixing some of those problems, according to the people familiar with the changes.

Apple is creating separate applications for features that had been included within iTunes. Podcasts now are a separate app on iPhones, iPads and iPod Touch devices, instead of being part of the iTunes app.

To add more multimedia features to iTunes, Apple has been asking music labels for more band photos and videos that can be included, one person said.

ITunes also is part of Apple's plans to expand in Asia. The company this week announced that it will be opening the digital store in Hong Kong, Singapore, Taiwan and nine other markets in Asia.

Music labels also have been urging Apple to offer a music- subscription service similar to Spotify's, so customers could pay a monthly fee to get unlimited access to songs, said one person familiar with the matter. Still, Apple isn't likely to announce that type of service, another person said.


(BN) Amazon Said to Add Social Features to Digital Games for Tablet

June 27 (Bloomberg) -- Inc. will make it easier for developers to add social features to games for the Kindle Fire tablet, a person with knowledge of the matter said, working to narrow Apple Inc.'s lead in the market for tablets.

The world's largest online retailer plans to release tools for digital-game makers by the end of July, said the person, who asked not to be identified because the plans aren't public. Developers will be able to add a broader range of features, including tracking high scores and monitoring awards won while playing games, the person said.

Chief Executive Officer Jeff Bezos is working to make Kindle games more alluring to help Amazon increase sales of the devices, which hold 17 percent of the $66.4 billion tablet market, compared with 55 percent for Apple's iPad. Amazon is also trying to woo developers to help it grab a bigger slice of the global social-gaming market, which Lazard Capital Markets predicts will reach $8.98 billion in 2015.

Cat Griffin, a spokeswoman for Amazon, declined to comment.

Amazon also lags behind Apple in downloadable applications. The e-tailer has about 43,000 apps, compared with 4,000 when the store debuted in March 2011. Google Inc. and Apple each have more than 600,000 apps available in their stores.

Still, Amazon's store, which peddles apps built for Google's Android software, generates more revenue per user than Google's outlet.

Every $1 generated in Apple's iTunes App Store fetches 89 cents in Amazon's and 23 cents in Google's, according to Flurry, a provider of app-analytics software.

Amazon, based in Seattle, has already taken steps to make apps more appealing. It started letting users make purchases within the applications sold in its online store in April, matching a feature offered by Apple and Google.

Adding variety to the app store is part of Amazon's strategy to increase demand for the Kindle tablet, which went on sale in November and generates revenue through sales of digital music, books, movies and apps. Amazon may make $136 on each Kindle Fire over the lifetime of the tablet, thanks to movie, book and app downloads, Ross Sandler, an analyst at RBC Capital Markets in New York, estimated in January.

Kindle had 17 percent of the tablet market in the fourth quarter, while Apple's was 55 percent, according to researcher IDC.

(BN) Qualcomm’s Snapdragon Devices Will Come With Windows RT

June 27 (Bloomberg) -- Qualcomm Inc., the largest maker of mobile-phone semiconductors, said devices powered by its Snapdragon processors will be available later this year, when Microsoft Corp. releases its Windows RT software.

Snapdragon will run some of the thinnest and lightest computers available, Qualcomm Chief Executive Officer Paul Jacobs said today at a company event in San Diego.

Qualcomm is one of three chip companies partnering with Microsoft to bring devices using ARM Holdings Plc. technology- based processors to market with software designed to make Windows better compete with Apple Inc.'s iPad. Microsoft is enabling ARM-based chips, which dominate mobile phones and are the heart of the iPad, in a computer operating system for the first time.

Nvidia Corp. and Texas Instruments Inc. are also working with Microsoft to deliver ARM-based computers and tablets. Intel Corp. and Advanced Micro Devices Inc., whose processors have traditionally run Windows computers, are working on a similar Microsoft touch-screen operating system.

Windows 8, for Intel and AMD chips, and Windows RT, for ARM-based chips, is Microsoft's first computer operating system based around touch.

(BN) Intel Is Among Tech Giants Opposing Kodak Technology Sale

June 27 (Bloomberg) -- Intel Corp., Ricoh Co., Nikon Corp., Motorola Solutions Inc. and Apple Inc. are among the high- technology companies opposing Eastman Kodak Co.'s plan to sell digital-imaging technology at an auction tentatively scheduled for August.

Kodak filed court papers this month to set up procedures for what it calls a "flexible, competitive sale process" culminating in an auction. The technology companies filed papers on June 25 objecting to key aspects of the proposed sale. The bankruptcy court in Delaware will hold a hearing on July 2 to decide if sale procedures pass muster.

The companies object to selling the technology if the bankruptcy court simultaneously extinguishes licenses they signed with Kodak for the use of patents. Generally, they take issue with the proposition that the sale can eradicate their rights and defenses with regard to the technology.

Motorola, like Intel, argues that the bankruptcy court shouldn't allow the technology to be sold with the proceeds placed in escrow, for later allocation among those claiming an interest. Motorola said it "cannot be compelled to accept money satisfaction" in place of rights under patent licenses.

Intel and others said that selling free and clear, with proceeds placed in escrow, "is simply not feasible." The companies contend that the bankruptcy judge can't summarily rule on their interests in technology through approval of a sale.

Instead, they say the extent and nature of their interests can only be decided through a lawsuit, like the one Kodak filed last week in bankruptcy court against Apple. In turn, Apple is attempting to remove the suit from bankruptcy court, saying only a federal district judge has the right to rule on patent disputes.

Kodak's $400 million in 7 percent convertible notes due 2017 traded yesterday for 15.5 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Kodak, based in Rochester, New York, filed for Chapter 11 reorganization in January, listing $5.1 billion in assets and $6.75 billion in debt. Liabilities for borrowed money, totaling $1.6 billion, included $100 million on a first-lien revolving credit and $96 million in outstanding letters of credit.

Other liabilities include $750 million in second-lien notes, $406.1 million in convertible notes, and $252.4 million in senior unsecured notes. Trade debt was $425 million.

Kodak's case is In re Eastman Kodak Co., 12-10202, U.S. Bankruptcy Court, Southern District of New York (Manhattan).


Madoff Customers Raise New Defenses to Lawsuits

Customers of Bernard L. Madoff Investment Securities LLC filed a 50-page brief raising new arguments and asking U.S. District Judge Jed Rakoff to reverse an opinion he issued in late April when he sided with the trustee and ruled that fictional profits in an account statement can't be used to offset the trustee's fraudulent transfer claims.

The brief was filed on behalf of customers in about 300 lawsuits that Rakoff is handling together. The trustee will be filing his brief on July 25. The customers will file reply papers on Aug. 8 in anticipation of oral argument in Rakoff's courtroom on Aug. 20.

Rakoff's April 30 opinion denied customers' defenses in 84 cases based on the notion that securities laws gave them the right to rely on account statements although no securities in reality were ever purchased.

Rakoff told customers' lawyers in the 300 cases to raise new theories not addressed in the April 30 opinion. The customers responded with several arguments they contend are "issues of first impression" giving them the ability to fend off fraudulent transfer suits for taking out more principal than they invested.

Among other arguments, the customers contend they have the right to use claims for interest, consequential damages, and lost opportunity costs to offset the trustee's fraudulent transfer claims. To read about Rakoff's April 30 opinion, click here for the May 1 Bloomberg bankruptcy report.

Rakoff has ruled through a series of opinions that customers in substance don't have defenses when sued for fictional profits received within two years of bankruptcy. In the process, Rakoff precluded trustee Irving Picard from suing to recover profits going back six years from bankruptcy. The issue of whether Rakoff was wrong in limiting suits to two years is going up on appeal to the U.S. Court of Appeals.

The Madoff firm began liquidating in December 2008 with the appointment of the trustee under the Securities Investor Protection Act. Bernard Madoff individually went into an involuntary Chapter 7 liquidation in April 2009. His bankruptcy case was consolidated with the firm's liquidation. Madoff is serving a 150-year prison sentence following a guilty plea.

The mass cases are being handled by Rakoff in Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, 12-mc-00115, U.S. District Court, Southern District of New York (Manhattan). The Madoff liquidation in bankruptcy court is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities Inc., 08-01789, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The criminal case is U.S. v. Madoff, 09-cr-00213, U.S. District Court, Southern District of New York (Manhattan).

AMR Would Have Been Break-Even Absent Bankruptcy Cost

AMR Corp., the parent of American Airlines Inc., would have been roughly break-even in May were it not for expenses associated with Chapter 11 reorganization.

The airline reported a $132 million net loss for May on operating revenue of $2.17 billion, according to an operating report filed with the U.S. Bankruptcy Court in New York.

Operating income of $55 million in the month turned into a net loss as the result of $55 million in interest expense and $134 million in reorganization costs.

The Chapter 11 costs were composed of $23 million in professional fees and $111 million from renegotiation and rejection of leases and financings for aircraft and facilities.

June 29 is the current deadline for the airline to reach agreements with unions on new contracts. Absent a consensus on concessions, the bankruptcy judge must rule on whether AMR can modify existing contracts with unions for pilots, flight attendants and mechanics. Negotiations are complicated because the unions have a stated preference for merging with US Airways Group Inc.

AMR, based at the airport midway between Dallas and Fort Worth, Texas, listed assets of $24.7 billion and debt totaling $29.6 billion in the Chapter 11 reorganization begun in November. American Airlines entered bankruptcy with 600 aircraft in the mainline fleet and another 300 with American Eagle, the feeder airline.

The case is In re AMR Corp., 11-15463, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

LightSquared's 'LP' Lenders Object to Cost Allocations

Some secured lenders to LightSquared Inc. are questioning how the expenses of the Chapter 11 case should be allocated between the company and affiliate LightSquared LP.

Some of the so-called LP lenders disagree with the idea of charging 80 percent of costs to LP under the proposed financing agreement. They are owed $1.7 billion from a secured borrowing in October 2010 by LightSquared LP.

The LP lenders noted in their court filing that the company says LP is "wildly solvent." Consequently, they contend expenses should be charged to LightSquared Inc. or its shareholders.

There will be a hearing tomorrow in U.S. Bankruptcy Court in Manhattan for interim approval of a $30 million credit to help finance the Chapter 11 effort. The LP lenders aren't opposing interim approval of financing. The new facility is being provided by the so-called Inc. lenders owed $322.3 million.

LightSquared already has approval to use incoming cash representing collateral for both the Inc. lenders and the LP lenders.

LightSquared is developing a wireless communications systems using earth-based and satellite technology. It filed in Chapter 11 on May 14 after the Federal Communications Commission denied permission to build out the system on concern it would interfere with reception by global positioning devices.

Assets were listed for $4.48 billion, with liabilities totaling $2.29 billion. The company says it spent $4 billion developing the satellite system. Philip Falcone's Harbinger Capital Partners LLC acquired LightSquared in March 2010 for $1.05 billion in cash.

The case is In re LightSquared Inc., 12-12080, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Colgan Air Crash Victims Seeking Punitive Damages

Three years before Pinnacle Airlines Corp. filed for Chapter 11 protection, its Colgan Air Inc. flight 3407 crashed near Clarence Center, New York, on Feb. 12, 2009 during an ice storm. The crash has been blamed on crew fatigue, pilot error, inclement weather and inadequate training.

Ensuing lawsuits were halted by Pinnacle's filing for bankruptcy reorganization. Pinnacle and the victims' families are now fighting over whether the lawsuits can continue and on what terms.

Colgan offered to allow the suits to go forward seeking punitive damages, so long as the plaintiffs would collect only from insurance. The plaintiffs refused the offer, seeking to have punitive damages assessed against the bankrupt company in the event insurance was exhausted or not available.

The airline is in bankruptcy court today opposing the plaintiffs' request for modification of the so-called automatic stay allowing the suits to go ahead seeking punitive damages. Colgan is opposing, saying that punitive damage awards could be "among the largest unsecured claims in these cases" if not payable by insurance companies.

The plaintiffs also want the judge to require Colgan to turn the insurance policies over to them. Colgan allowed some suits to go ahead and settle when the plaintiffs agreed to collect only from insurance.

Pinnacle, based in Memphis, Tennessee, began a Chapter 11 reorganization on April 1 in Manhattan, listing assets of $1.54 billion against debt totaling $1.43 billion. At the time, Pinnacle was providing service as Delta Connection, United Express and US Airways Express.

In addition to $74.3 million in financing for the bankruptcy provided by Delta Air Lines Inc., secured debt includes $690 million owing to Export Development Canada and $34 million on a revised loan with an affiliate of CIT Group Inc.

For the nine months ended Sept. 30, there was an $8.8 million net loss on $938.1 million in operating revenue. Operating income in the period was $23.1 million. Net income was $12.8 million in 2010 on operating revenue of $1.02 billion.

The case is In re Pinnacle Airlines Corp., 12-11343, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Yucaipa's Two AFA Plants Sold for $11.6 Million

AFA Foods Inc., a ground-beef processor controlled by Yucaipa Cos., received authority from the bankruptcy judge at a hearing yesterday to sell two plants for a combined $11.6 million.

Tri West Investments LLC, having submitted the only bid, is buying the plant in Los Angeles for $4.4 million. FPL Food LLC, in an auction with another bidder, came out on top with an offer of $7.2 million for the Georgia plant.

AFA was one of the largest ground-beef producers in the U.S. It filed for Chapter 11 protection on April 2 in Delaware after publicity about so-called pink slime "dramatically reduced the demand for all ground beef products," the company said.

The Chapter 11 case is being financed with a loan of about $60 million provided by existing lenders General Electric Capital Corp. and Bank of America Corp.

AFA said that assets are on the books for $219 million, with debt totaling $197 million. Liabilities at the outset included $11.5 million on a term loan and $47.9 million on a revolving credit owed to first-lien lenders GECC and Bank of America.

A Yucaipa affiliate has a $75.6 million second lien. There was $60 million owing to trade suppliers, according to court filing.

Pink slime is the name commonly given to what AFA calls boneless lean beef trimmings, a beef-based additive that serves as filler for ground beef. The product was made by rendering trimmings at low temperature and using ammonium hydroxide to kill bacteria.

AFA's products were sold under brand names Moran's, Stone River Ranch and Miller Quality Meats. Yucaipa created the company through several acquisitions since 2008. Los Angeles- based Yucaipa owns 92 percent of the common stock and all of the preferred stock, in addition to the second-lien debt. Revenue in 2011 was $958 million.

The case is In re AFA Investment Inc., 12-11127, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Ritz Camera Has Interim Approval for $3 Million Loan

Ritz Camera & Image LLC, the operator of 265 camera stores and an Internet business, filed for Chapter 11 reorganization for a second time on June 22 and was given approval three days later for an interim $3 million loan.

At a final financing hearing on July 17, the financing will increase to a $15.6 million revolving credit and a $4.9 million term loan.

Ritz, based in Beltsville, Maryland, calls itself the largest camera-store chain in the U.S., with net sales of $254 million for the year ended in April. Stores will be shed during Chapter 11, the company said.

Pre-bankruptcy debt includes $16.3 million owing to Crystal Financial LLC, a secured lender with liens on all assets.

The camera stores and the Internet business were both in bankruptcy before. The stores currently operate under names including Ritz Camera, Wolf Camera and The Camera Shop.

The new case is Ritz Camera & Image LLC, 12-11868, U.S. Bankruptcy Court, District of Delaware (Wilmington).

The prior case for the camera stores was In re RCC Liquidating Corp., 09-10617, U.S. Bankruptcy Court, District of Delaware (Wilmington).

The prior case for the websites was In re Ritz Interactive Inc., 11-21690, U.S. Bankruptcy Court, Central District California (Santa Ana).

4Kids Sale Approved with Excess for Shareholders

4Kids Entertainment Inc., a producer of children's entertainment and a licensor of merchandising rights, received approval yesterday from the bankruptcy court in New York to sell the business for $15 million to two buyers.

The price will pay creditors in full, with a "substantial" amount left over for owners, the company said in a court filing.

An affiliate of Tokyo-based Konami Corp. is purchasing the licenses for the Yu-Gi-Oh! animated television programs. Kidsco Media Venture LLC, affiliated with Saban Capital Group Inc., is buying the programming agreement with the CW Network LLC.

The eventual sale represented a $3.2 million improvement over the $11.8 million bid Saban made for all the assets at auction. After the auction, 4Kids worked out a joint offer that improved the effective net sale price.

Konami develops video-game software and arcade games.

4Kids previously generated $9 million from a settlement with the owner of the licenses for Yu-Gi-Oh!. The settlement followed a decision by U.S. Bankruptcy Judge Shelley C. Chapman in Manhattan concluding that the license wasn't terminated before bankruptcy.

4Kids filed for Chapter 11 protection in April 2011 to prevent the termination of the licenses. 4Kids produced programming shown on the five-hour Saturday morning program block on stations affiliated with the CW Network.

The Chapter 11 petition listed assets for $23.4 million and debt of $16.5 million. The company reported a $27.2 million net loss in 2010 on revenue of $14.5 million. The operating loss for the year was $20.4 million. Selling, general and administrative expenses were about twice revenue.

The Chapter 11 case is In re 4Kids Entertainment Inc., 11-11607, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Hawker Beechcraft Reports $89.7 Million Loss in May

Aircraft manufacturer Hawker Beechcraft Inc. reported a net loss of $89.7 million in May on sales of $144.8 million.

The cost of sales exceeded revenue by $3.3 million, according to the operating report filed with the U.S. Bankruptcy Court in Manhattan. The net loss stemmed mostly from a $33 million operating loss and $43.8 million in interest expense. Reorganization costs were another $4.8 million.

The Wichita, Kansas-based designer and manufacturer of light and medium-sized jet, turboprop and piston aircraft filed for Chapter 11 reorganization on April 3 after negotiating a plan to be filed by June 30. The plan will be designed for the conversion of all secured and unsecured debt into equity. For details on the plan, click here for the May 8 Bloomberg bankruptcy report.

Revenue was $2.34 billion in 2011. Total debt for borrowed money is $2.38 billion, according to a court filing. Other claims include pensions underfunded by $493 million.

The $183 million in 8.5 percent senior unsecured notes due in 2015 traded on June 22 for 19.3 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

The $302 million in 8.875 percent senior unsecured notes due in 2015 traded on June 5 for 15.5 cents, Trace said. The $145 million in 9.75 percent senior subordinated notes traded on May 18 for 3.05 cents on the dollar, according to Trace.

The case is In re Hawker Beechcraft Inc., 12-11873, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Paulson, Winthrop Resorts Report $9.8 Million Loss

The resorts owned by Paulson & Co. and Winthrop Realty Trust reported a net loss of $9.8 million in May on revenue of $35.2 million.

The operating report filed with the bankruptcy court in New York shows an $8 million loss from continuing operations. The month's loss stemmed largely from $7 million in interest expense and $5.5 million in charges for depreciation and amortization.

The Doral Golf Resort and Spa in Miami was sold to Donald Trump, reducing mortgage debt by at least $140 million, the resort operators said. The remaining resorts are the Grand Wailea Resort Hotel and Spa in Hawaii; the La Quinta Resort and Club and the PGA West golf course in La Quinta, California; the Arizona Biltmore Resort and Spa in Phoenix; and the Claremont Resort & Spa in Berkeley, California.

After foreclosing last year, Paulson and Winthrop put all five resorts into bankruptcy in February 2011 to prevent foreclosure of $1 billion in mortgages and $525 million in maturing mezzanine debt.

The properties listed assets of $2.2 billion and liabilities of $1.9 billion. An affiliate of Morgan Stanley purchased the five resorts in 2007 for $4 billion. Revenue in 2010 was $465 million.

The case is In re MSR Resort Golf Course LLC, 11-10372, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

New Filing

Colorado's Cordillera Golf Club Files in Delaware

The owner of the four-course golf club at the Cordillera resort community in Edwards, Colorado, filed for Chapter 11 protection yesterday in Delaware as the result of what the club called a "mass exodus of members."

The club is located at the 7,000-acre Cordillera development, which has 1,087 residential lots. Non-equity club membership is open to community residents. The club has three golf courses, one short course, five swimming pools and tennis facilities.

Debt includes $12.7 million owing to senior lender Alpine Bank. Owner David Wilhelm is owed $7.5 million, according to court papers. Assets and debt both exceed $10 million, according to the petition.

The club blames bankruptcy on a "small but vocal minority of current and former club members" who undertook a campaign intended to force a sale at a below-market price, according to court papers. Litigation is outstanding between the club and members who resigned "in substantial numbers" and boycotted the facilities, court filing states.

The club intends to use Chapter 11 to sell one of the courses. Only portions of the facilities are currently operating, according to a court filing.

The case is In re Cordillera Golf Club LLC, 12-11893, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Watch List

Stockton, California, Votes to File Bankruptcy

Stockton, California, will be filing for Chapter 9 municipal bankruptcy after the city council voted 6-1 yesterday to adopt a budget for operating in bankruptcy.

The filing may be made today.

The budget calls for defaulting on $10.2 million in debt payments and cutting $11.2 million in employee pay and benefits under union contracts. For the Bloomberg story, click here.

Stockton will be the largest U.S. city to file bankruptcy.

The city council previously voted to authorize the city manager to file for Chapter 9 municipal bankruptcy absent concessions from creditors.

The state-mandated period for mediation ended June 25.


Satellite Photographer GeoEye Downgraded to B- by S&P

GeoEye Inc., a provider of high-resolution satellite photographs, said on June 25 that it may lose a significant chunk of government business and as a result received a two- notch downgrade yesterday from Standard & Poor's.

The new corporate rating is B-.

There is a "heightened risk" of lower revenue from the government later this year or next, S&P said. The government program being cut provided 41 percent of revenue. Government contracts produced 64 percent of a year's revenue, S&P said.

Based in Herndon, Virginia, GeoEye reported $13.2 million of net income in the first quarter on revenue of $89.3 million. For 2011, revenue of $356.4 million generated net income of $46.9 million.

GeoEye rose 1.9 percent yesterday to $14.51 in Nasdaq Stock Market trading. The stock dropped 22 percent the previous day, following the announcement.


Junk Defaults to Remain Benign, Moody's Predicts

The decline in the stock market since early May and the turmoil in Europe aren't reflected in statistics predicting bankruptcy among junk-rated companies.

The list of non-financial companies with junk ratings of B3 or below and with negative outlooks includes 166 names, compared with 176 three months ago and 174 a year ago, according to a June 25 report from Moody's Investors Service. There are 1,250 companies with junk ratings from Moody's.

The current default rate is 11.7 percent for companies with B3 negative or lower ratings. During the height of the recession, in 2009, the comparable default rate was 47 percent and 300 companies were on the list of lowest-rated junk companies.

Moody's continues predicting that the default rate will remain benign for junk-rated companies. Currently at 3.1 percent, the junk default rate will rise to 4 percent in October before declining to 3 percent a year from now, Moody's predicts.

The average junk default rate since 1992 is 4.6 percent, Moody's said.

Daily Podcast

Houghton Mifflin Venue, Hostess Union Opinion: Bankruptcy Audio

Houghton Mifflin Harcourt Publishing Co., the educational publisher, shouldn't have filed its prepackaged bankruptcy reorganization in New York, according to the opinion discussed on the podcast with Bloomberg Law's Lee Pacchia and Bloomberg News bankruptcy columnist Bill Rochelle. The ruling may have significance as a precedent for future cases, although the practical importance for Houghton is limited because the judge also approved the Chapter 11 plan. Analyzing a decision by another bankruptcy judge in New York, Rochelle uses the reorganization of Hostess Brands Inc. to explain why a bankruptcy court can't modify a union contract that expired by its terms. The podcast wraps up by discussing a case in Chattanooga, Tennessee, where a lender was bound by representations its lawyer made in court even though the Chapter 11 plan was to the contrary.