Tuesday, July 31, 2012

(BN) Apple, Keyboard Cat, Anonymous: Intellectual Property

Aug. 1 (Bloomberg) -- A lawyer for Apple Inc. told a jury that Samsung Electronics Co. decided it would rather copy the iPhone maker's technology than "beat Apple fairly in the marketplace."

"As we all know, it's easier to copy than to innovate," Harold McElhinny, Apple's lawyer, said yesterday during his opening statement at a trial in federal court in San Jose, California.

McElhinny showed jurors a slide of Samsung's mobile phones from 2006 with physical keyboards and squared corners, and another of its phones from 2010 with rounded edges and a glass touch-screen. Samsung arrived at the newer design only after Apple founder Steve Jobs introduced the iPhone in 2007, the lawyer said.

Jurors will decide each company's claims that its rival infringed patents covering designs and technology for mobile devices, with potential damage awards reaching billions of dollars. The case is the first U.S. jury trial of a battle being fought on four continents for dominance of a smartphone market that Bloomberg Industries said was $219.1 billion last year.

Samsung's lawyer, Charles K. Verhoeven, disputed Apple's claims that it's copying, pointing to patents from before the iPhone's release by companies including LG that show a rectangular shape and a glass screen.

Samsung's lawyer said the iPhone was an "inspiring" product that created competition.

"Being inspired by a good product and seeking to make even better products is called competition," Verhoeven said. "It's not copying and it's not infringing. Everybody does it in the commercial marketplace."

He said Apple was, in fact, inspired by Sony Corp., pointing to e-mails among members of Apple's design team discussing how the iPhone's original design compared to a Sony design.

Apple's demand for $2.5 billion in damages is based on claims Samsung copied the iPhone and iPad. Apple also wants to make permanent a preliminary ban it won on U.S. sales of a Samsung tablet computer, and extend the ban to Samsung smartphones.

Samsung countersued and will present claims that Apple is infringing two patents covering mobile-technology standards and three utility patents. Samsung is demanding royalties of as much as 2.4 percent for each device sold, according to a court filing.

The case is Apple Inc. v. Samsung Electronics Co. Ltd., 11- cv-01846, U.S. District Court, Northern District of California (San Jose).

LogMeIn to Face Revived Patent Suit by 01 Communique Laboratory

LogMeIn Inc. must face a patent-infringement lawsuit filed by 01 Communique Laboratory Inc., a U.S. appeals court ruled yesterday.

The U.S. Court of Appeals for the Federal Circuit said a trial judge erred in his interpretation of a patent owned by 01 Communique and vacated a ruling that LogMeIn didn't infringe the patent. The case was sent back to the lower court for further proceedings.

The appeals court, which specializes in patent law, sided with 01 Communique on how the patented invention works. 01 Communique filed the lawsuit in 2010, claiming Woburn, Massachusetts-based LogMeIn infringed patent 6,928,479, which is related to a method of providing remote access to a desktop computer. 01 Communique, based in Mississauga, Ontario, runs the "I'm InTouch" remote-access service.

The appeal turned on the question of whether the intermediary between a personal computer and a remote computer must be on a single server, as claimed by LogMeIn, or if it could be on multiple server computers.

U.S. District Judge Claude Hilton in Alexandria, Virginia, had said the patent was limited to products on a single server, while LogMeIn's software uses multiple servers.

The Federal Circuit said the patent wasn't limited to a single server, and ruled instead it could comprise "one or more computers."

"We're feeling this is a step in the right direction," Brian Stringer, 01 Communique's chief financial officer, said in a telephone interview.

The company spent more than $30 million to develop its product, and serves mostly small and medium-sized companies, he said. A suit against Citrix Systems Inc. over the same patent has been on hold while the U.S. Patent and Trademark Office took a second look at it. Stringer said the examiner upheld the patent, and Citrix is challenging that decision.

In a statement, LogMeIn said it "continues to believe that it has strong defenses to the claims made by 01 Communique and intends to vigorously defend against these claims."

The case is 01 Communique Laboratory Inc. v. LogMeIn Inc., 2011-1403, U.S. Court of Appeals for the Federal Circuit (Washington). The lower court case is 01 Communique Laboratory Inc. v. LogMeIn Inc., 10-cv-1007, U.S. District Court, Eastern District of Virginia (Alexandria).

For more patent news, click here.


'Keyboard Cat' Video Maker, Clothing Company Settle Dispute

The maker of the "Keyboard Cat" video that has been viewed almost 26 million times on Google Inc.'s YouTube video- sharing website settled a copyright infringement suit against a Chicago-based clothing maker.

Charles Schmidt of Spokane, Washington, sued SkinnyCorp LLC's Threadless unit in June 2011 for putting images of the keyboard cat on T-shirts and cases for Apple Inc.'s iPhones without authorization.

Schmidt said in his filing that he has licensed the images and sections of the video to companies including Microsoft Corp., PricewaterhouseCoopers LLP and Nokia Oyj. The video is also being used to promote pistachio nuts, according to court papers.

Additionally, he sells merchandise through Redwood City, California's Zazzle Inc., including T-shirts, bumper stickers and mugs. Schmidt told the court he was harmed by the unauthorized Threadless products and sought an order barring further infringement.

Schmidt also asked for an order for seizure and destruction of all infringing products and promotional materials, and for money damages, litigation costs and attorney fees.

He was represented by Caitlin A. Bellum and Katherine Hendricks of Hendricks & Lewis PLLC of Seattle.

Bellum said in an e-mail yesterday that the parties have entered into a mutually agreeable settlement and that no details will be disclosed. The Threadless website yesterday didn't have any Keyboard Cat items for sale.

The case is Schmidt v. SkinnyCorp LLC, 11-cv-00236, U.S. District Court, Eastern District of Washington (Spokane).

For more copyright news, click here.


Anonymous Says It Will Take Action on Trademark Registration

The hacker group Anonymous said it will take action against Early Flicker, a Paris-based T-shirt company that registered the online activists' symbol as a trademark.

The registration, through France's Institute National de la Propriete Industrielle, covers wide range of uses, including clothing, objects made from leather, kitchen utensils, shopping bags, umbrellas, dog collars and ski boots. Early Flicker sells its merchandise on EBay Inc.'s French-language auction site.

In addition to the symbol -- a headless man in a business suit encircled by a laurel wreath -- the application also covers the Anonymous slogan: "We are Legion. We do not Forgive. We do not Forget. Expect us."

In a video posted on Google Inc.'s YouTube video-sharing site, Anonymous said it will take down any business Early Flicker has on the Internet and won't stop until the registration is revoked and it gets a public apology.

The name of Anonymous "will not be the whore of the world," according to the video.

Electronic Arts Fails to Win Dismissal of Infringement Claims

Electronic Arts Inc., the video-game maker, failed to persuade a federal court to dismiss trademark clams brought by a defense contractor.

Electronic Arts sued in January seeking a judicial declaration that it didn't infringe Bell Helicopter trademarks held by Textron Inc. by including images of the aircraft in one of its games.

In a response filed in May, Textron accused Redwood City, California-based Electronic Arts of trademark infringement.

U.S. District Judge William Alsup said July 15 that Textron presented arguments "sufficient to establish plausible disputes" about actual consumer confusion resulting from the inclusion of the helicopters in the Battlefield 3 game.

The judge said that while consumers aren't likely to think that Textron is in the video game business, the game could lead consumers to believe the company "is somehow behind" Battlefield 3.

A disclaimer on the game's packaging that the depiction of any weapon or vehicle in the game didn't indicate sponsorship or endorsement by the item's manufacturer wasn't sufficient, the judge said.

"Plausibly, the disclaimer might not be seen by teenage users, for example, anxious to rip open the package and play the game," he said.

He also dismissed the argument that Electronic Arts's depiction of the helicopters necessarily fell under trademark law's fair-use exemption.

The case is Electronic Arts Inc. v. Textron Inc., 12- cv-00118, U.S. District Court, Northern District of California (San Francisco).


(BN) Samsung Lawyer Can’t Undo Apple Trial Evidence Ruling

July 31 (Bloomberg) -- Samsung Electronics Co. was again blocked from using evidence a lawyer for the company described as "critical" to rebutting Apple Inc.'s central allegations in a patent-infringement trial in California.

Samsung was barred by U.S. District Judge Lucy Koh in San Jose from presenting images of a smartphone that it claims to have been developing in 2006, the year before Apple introduced the iPhone. Samsung said in a filing that the images show evidence that it was developing the next generation of mobile phones with a "simple, rounded rectangular body" before Apple's January 2007 announcement of the iPhone.

Before jurors heard opening arguments in the trial today, John B. Quinn, a Samsung lawyer, asked Koh to reconsider her decision yesterday barring the evidence.

Quinn, who said he had never begged in court in more than 30 years of practicing law, told Koh that he was "begging now."

Koh rejected the request for what she said was at least the third time.

"We've done three reconsiderations on this and we have a jury waiting," Koh told Quinn. "You've made your record."

"Don't make me sanction you, please," Koh said when Quinn persisted with his argument. "I want you to sit down please."

Samsung Statement

Koh's ruling means "Samsung was not allowed to tell the jury the full story and show the pre-iPhone design for that and other phones that were in development at Samsung in 2006, before the iPhone," Samsung said in an e-mailed statement after Koh's decision.

"The excluded evidence would have established beyond doubt that Samsung did not copy the iPhone design," the Suwon, South Korea-based company said in the statement.

Samsung's statement included attachments of the evidence that Koh had excluded, prompting a demand from Koh for an explanation of who drafted and issued the release. Koh told lawyers representing Samsung that she wanted a statement from Quinn explaining his role in issuing the statement.

Harold McElhinny, a lawyer for Apple, told Koh the release was "on perception an intentional attempt to pollute this jury" rising to "contempt of court."

Earlier today, Koh ruled Samsung can use some evidence from a former Apple designer to rebut the infringement allegations.

The designer, Shin Nishibori, helped create a model phone influenced by Sony Corp., and his testimony will explain how the model "changed the course of the iPhone's development," according to a Samsung court filing. Koh said the company could use it to demonstrate "functionality."

$2.5 Billion Claims

Apple, based in Cupertino, California, seeks $2.5 billion for its claims that Samsung infringed patents covering designs and technology for mobile devices.

Samsung countersued and will present claims that Apple is infringing two patents covering mobile-technology standards and three utility patents. Samsung is demanding royalties of as much as 2.4 percent for each device sold, according to a court filing.

Nishibori's evidence would support Samsung's "independent creation story" by proving the "design elements found in Samsung's phones were not taken from Apple, but were known to other designers in the field," according to the filing. The company sought to use e-mails and computer design images.

The case is Apple Inc. v. Samsung Electronics Co. Ltd., 11- cv-01846, U.S. District Court, Northern District of California (San Jose).


(BN) Zynga COO Said to Lose Product Oversight as Growth Slows

Zynga Inc. (ZNGA) Chief Operating Officer John Schappert, who was wooed from Electronic Arts Inc. (EA) last year, was stripped of his role overseeing game development in a reorganization aimed at reviving growth and making more money from mobile services, people familiar with the matter said.

David Ko, who runs Zynga's mobile operations, and Steve Chiang, executive vice president of games, both of whom reported to Schappert, now report directly to Chief Executive Officer Mark Pincus, said the people, who asked not to be identified because the plan hasn't been disclosed.

Pincus embarked on the overhaul in early July, at the close of a quarter marked by slowing sales growth and a drop in demand for virtual goods. Schappert, lured with a pay package worth $42.8 million, has lost support within the company and taken some of the blame for underperformance, the people said.

"The place is in utter meltdown mode," Richard Greenfield, an analyst at BTIG LLC in New York, said in an interview. "The real question I think everyone should be asking is why it took reporting a collapse in earnings to make a management change."

Stephanie Hess, a spokeswoman for San Francisco-based Zynga, declined to comment.

Shares of Zynga fell 2 percent to $2.95 at the close in New York. The stock has dropped 71 percent since the company held its initial public offering in December. The decline accelerated last week after Zynga reported sales and profit that missed analysts' predictions.

Mobile Priority

The reorganization was aimed in part at making mobile- software development more of a priority across Zynga, the people said. Ko will work with Chiang to involve more of the company's best designers on apps for smartphones and tablets, they said.

Zynga makes money by selling virtual goods within its games -- say, a gun in "Mafia Wars" or a tractor in "FarmVille."

Renewed emphasis on mobile may help Zynga lessen its reliance on Facebook Inc. (FB), which accounts for about 80 percent of bookings, or the total value of virtual goods sold in its games. Zynga contributes 14 percent of Facebook's revenue, the Menlo Park, California-based social network said today in a filing.

Schappert joined Zynga in April 2011 after spending much of his career at its chief rival. He began at Electronic Arts in 1998 when the game giant acquired his development company, Tiburon Studios. He left in 2007 to head Microsoft Corp.'s Xbox Live unit before returning to EA in 2009 as president and chief operating officer.

(BN) Lenovo Forges Ties With EMC to Boost Storage, Server Sales

Lenovo Group Ltd. (992), the second-biggest personal-computer maker, is forging a partnership with EMC Corp. (EMC) aimed at helping the companies boost sales of storage equipment and the powerful server devices that run corporate networks.

As part of the agreement, Lenovo will resell machines made by EMC, the leader in storage, Peter Hortensius, head of Lenovo's Product Group, said in an interview. The sales will initially happen in China before moving abroad, he said.

The agreements, announced in Beijing today, help Hopkinton, Massachusetts-based EMC gain wider foothold in China, the second-largest economy. Lenovo gets to expand in products besides personal computers and add sales in regions beyond Asia.

"We've been looking for an opportunity to grow our server business outside of China as well as get into more commercial products than just our PCs," Hortensius said in a telephone interview today. "EMC has some interests that are very complementary to ours."

The companies are also forming a joint venture that will help them sell storage equipment to small- and mid-sized businesses. Beijing-based Lenovo will own 51 percent of the venture after contributing an undisclosed cash sum. EMC, chipping in assets and resources of its Iomega business, will own the remainder.

Lenovo climbed 3.4 percent to HK$5.56 as of 10:29 a.m. in Hong Kong trading.

China Growth

The reseller agreement focuses on network storage, and it replaces a partnership EMC had with Dell Inc. (DELL) The earlier partnership was terminated last year after Dell became a rival by entering the storage market, said Joel Schwartz, EMC's senior vice president for global new business development. The company is looking to China as a source of growth this year amid ebbing demand in regions such as Europe, David Goulden, EMC president and chief operating officer, said in an interview last week.

"People say 'Well, China is slowing,' but China's GDP will still grow at a healthy rate this year, albeit perhaps not as healthy as people expected last year," Goulden said. While EMC doesn't break out revenue from China, Goulden said the country is probably EMC's biggest in the Asia-Pacific region.

EMC and Lenovo will also work together on servers to be sold by Lenovo and eventually embedded in EMC storage equipment.

The partnership will not be material to either company's earnings in the current fiscal year, the two said in a statement.

(BN) Asian Millionaires Firing Bankers Take Control of Wealth

Clinton Ang, the grandson of a gunny- sack seller who emigrated last century from China to Singapore, oversees a fortune valued at almost $80 million for himself and three siblings.

That makes him a target for wealth managers in Singapore, the private-banking capital of Asia. Yet the 39-year-old managing director of Hock Tong Bee Pte, which evolved from his grandfather's sacks and foodstuff supplier into a purveyor of $6,000 Grand Cru wines, has already fired two bankers and prefers mostly to manage the money himself.

"I am very open to private banks for their propositions, but I want them to be relevant," said Ang, who's cut the amount of his family's money managed by professionals to less than 5 percent from 25 percent three years ago. "We felt we could do better ourselves."

Disillusionment with investment products and returns has made Asian millionaires such as Ang take greater control of their wealth than rich Europeans. Managers at Credit Suisse Group AG (CSGN), Citigroup Inc. and other banks in Asia have full discretion over clients' portfolios for just 4 percent of assets under management, according to a June report from Boston Consulting Group. That's down from 7 percent in 2006. In Europe, it's 23 percent, rising from 18 percent six years ago.

"Asia's wealthy lost a lot of trust in their private banks and private bankers during the 2008 financial crisis," said Peter Damisch, a Zurich-based BCG partner and managing director who co-authored the report.

Less Profitable

For the top wealth-management firms that have made big bets on expanding in Asia, the move by millionaires to control their own assets is translating to lower profits even as the pool managed by professionals continues to grow.

HSBC Holdings Plc, whose private bank had 25 percent more assets in Asia-Pacific region in 2011 than four years earlier, earned less last year than in 2007, according to its annual reports. Net operating income for the private bank's local operations in 2007 was $748 million on $26.7 billion in assets. In 2011, the same measure fell to $712 million even as assets managed rose to $33.5 billion.

That means, excluding expenses, the private bank earned $2.10 for every $100 of assets it managed in the Asia-Pacific region last year, a 25 percent decline from 2007. That year was historic for market performance and turnover, said Gareth Hewett, an HSBC spokesman in Hong Kong, adding that he didn't know whether Asia's shift away from private banking was to blame for lower earnings.

Cultural Differences

"The culture of Asia is such that clients are far more hands-on," said Akbar Shah, head of Southeast Asia and Australia for Citigroup's private-banking unit who cites the region's accumulation of wealth as a reason behind the desire for control.

"Many of them have made a lot of money in the real estate markets in Asia, and these are hands-on markets," Shah said. "Nobody can tell you -- you need a feel for it."

Asian millionaires, a large proportion of whom have made their fortunes rather than inherited wealth, demand high returns, according to Enrico Mattoli, who heads investment products and services for the richest clients of UBS (UBSN) AG's Asia- Pacific wealth-management unit.

Affluent Asians have an "aggressive" growth target of an annual nominal rate of 12 percent for the next 10 years, Standard Chartered Plc and Scorpio Partnership said in a report in March after surveying more than 2,700 high-net-worth Asians in nine markets including China, India, Singapore and Hong Kong. The report didn't provide a comparative number for Europeans.

High Fees

In the run-up to the global financial crisis of 2008, private bankers sold Asian clients products that earned high fees and commissions, such as derivatives with returns that soared when stock prices rose and plunged lower than the market when prices fell, said Liew Nam Soon, a Singapore-based partner at Ernst & Young LLP.

Historic annual returns to global clients at Citigroup (C)'s private bank have averaged about 8 percent to 12 percent since the mid-1980s after adjusting for inflation, Shah said. The New York-based bank and rivals UBS and Credit Suisse, both based in Zurich, don't report private-banking revenue by geography. The three, along with HSBC, are the top four private banks in the region by assets managed, according to Private Banker International, a publication which tracks the industry.

UBS reported that assets managed in the Asia-Pacific region since the end of 2008 grew 27 percent to 165 billion Swiss francs ($169 billion) last year. Mattoli declined to answer questions about the impact of Asian millionaires pulling back their wealth on operations, revenue or profitability.

'Heavily Skewed'

Asians' portfolios are "heavily skewed" toward Asian markets where gains have outpaced the rest of the world, according to a February note from Shayne Nelson, chief executive officer of Standard Chartered's private bank. In the 10 years through the end of June, the BSE India Sensitive Index (SENSEX) had average annual gains of 20 percent, compared with 26 percent for the Jakarta Composite Index. (JCI) The MSCI World Index (MXWO) climbed less than 6 percent annually in the same period.

Banks' profitability has declined partly because wealthy Asian clients negotiate lower fees to managers. Private bankers are under pressure to reduce them because they only provide advice to multiple customers, rather than bearing sole responsibility for the clients' portfolios, said Charles Bok, CEO of the Singapore unit of Reyl & Cie SA, a Swiss wealth manager with 5.5 billion francs under management.

Profitability has also fallen due to a drop in commissions on equity and bond trading, which have shrunk amid the global rout in capital markets.

Trading Revenues

"At the moment, people are not very active in the markets and because of that, trading revenues are down," said Boston Consulting Group's Damisch.

His firm estimates that return on assets for private banks in Asia was 65 basis points last year compared with 73 basis points for European institutions. A basis point is 0.01 percentage point.

"There is a disparity between banks' income requirements and clients' interest," said Easaw Thomas, another Asian millionaire who manages most of his own wealth and declined to disclose the value of his portfolio.

Thomas, an anesthesiologist who made most of his money in real estate without the help of advisers, drives a S$700,000 ($562,000) Porsche 911 Turbo, owns a wine collection that boasts rare Burgundies, and lives in a 1939 Art Deco house in one of Singapore's most-expensive neighborhoods off Bukit Timah Road.

"My general impression, after many rounds of disappointing performance, is that private bankers cannot be your lifeline," said the 67-year-old Indian-origin Singaporean, who has used private banks since the 1980s.

'Like Secretaries'

Thomas, the son of a priest in the Mar Thoma Syrian Church of Malabar who immigrated to Singapore when Thomas was a child, said he "grew up with little money in the house." After making a fortune buying and selling property, he now keeps less than 10 percent of his money with wealth managers, he said, and doesn't give bankers full discretion.

"They are essentially like secretaries who help facilitate a trade that you may want to make," Thomas said. "I want complete control."

His house, surrounded by trees from his native Kerala in landscaping that won him an award from Singapore's National Parks Board, was purchased for S$2.45 million in 1990 and is currently valued at about S$35 million, Thomas said. He bought his first house in 1976 for S$115,000 and sold it four years later for four times the cost.

Property Affinity

High-net-worth individuals in Asia had the largest portion of their investable assets tied to property, at 31 percent, according to a March report from Citigroup's private bank and Knight Frank LLP. In Europe and Russia, the proportion was 16 percent.

Ang, the wine trader by day, also made his first $1 million from property. When he was studying at Arizona State University in the early 1990s, he purchased 50 apartments of about 950 square feet each at $17,500 a unit in the U.S. with money borrowed from his father. He sold the units for $90,000 apiece in 2000, he said.

In 2009-2010, when the MSCI Asia-Pacific Index (MXAPJ) excluding Japan gained 94 percent, Ang said private banks earned him 20 percent. Investments he made for his family's wealth yielded 200 percent, he said. An investment in a life-insurance policy in 2008 bought him $10 million of coverage. A comparable policy purchased today would provide $7 million, he said.

"I bought it before any private banker could tell me," he said, adding that these days every private banker extols the product to him "five times over."

Young Millionaires

Like Ang, most Asian millionaires are younger than their European counterparts and in the wealth-generating stages of their life, said Simon Grose-Hodge, head of investment advisory in South Asia at Vaduz-based LGT Group, Liechtenstein's largest bank.

More than 40 percent of Asian millionaires are 45 or younger, according to a report from Capgemini SA and Bank of America Corp.'s Merrill Lynch unit last year. In Europe, less than 20 percent of the millionaires belonged to that age group.

Standard Chartered said in the February note that 63 percent of private banking clients are business owners, "mostly first- or second-generation," and that the proportion was greater than in Europe.

Asian millionaires who run their own business tend to plow back most of their gains into expansion and seek higher returns from reinvesting, Grose-Hodge said. An Asian entrepreneur typically has 60 percent of his net worth in his business, said Citigroup's Shah. European millionaires primarily have inherited wealth, said Dominique Joye, CEO of the Singapore unit of LGT.

Shorter Period

Asia-Pacific millionaires outnumbered those in North America for the first time last year, according to a June report by Capgemini and RBC Wealth Management. The number of people with at least $1 million in investable assets in the region climbed 1.6 percent in 2011 to 3.37 million, while high-net- worth individuals in North America dropped by 1.1 percent to 3.35 million, they said.

Asia's new millionaires also have a shorter time frame for gauging returns generated by their bankers than wealthy European families, which have watched their net worth rise and fall over generations, Citigroup's Shah said.

"In Europe, the tradition has been to give the private banker discretion," he said. "The longer you give a portfolio, the better the returns."

Ang said he asks bankers whether they themselves have invested in the products they recommend.

"They need to be joint stakeholders," he said. "Otherwise it'll be like selling me a vitamin that you don't take yourself."

Quote(s) of the Day: iPod and iPhone.

Steve Wozniak and Jonathan Ive on Apple's breakthrough products:
It’s funny, because the products people credit with bringing Apple back to life—the iPods and the iMacs—all of them were in the design phase back when Apple was in trouble. Their main designer, Jonathan Ive, was already working on them. But the way Steve [Jobs] presented those new products was amazing. He made sure the press leaks were cut down, too, so when these new products came out—the colorful iMacs and, of course, the digital music iPods—they seemed to be totally new and surprising.  -- Steve Wozniak, "iWoz."

"There were multiple times where we nearly shelved the phone because we thought there were fundamental problems that we can't solve," said Sir Jony, speaking at a British Business Embassy event to coincide with the Olympics. One problem involved an early prototype "where I put the phone to my ear and my ear dials the number"... accidentally. -- Jonathan Ive, The Independent, 7/31/12.

tags: innovation, quote, apple

(BN) Amazon Gets Licenses From Sony Music, EMI, Universal, Warner

July 31 (Bloomberg) -- Amazon.com Inc. has reached licensing agreements with Sony Music Entertainment, EMI Music Group, Universal Music Group Inc. and Warner Music Group Corp. to let customers access their songs through the Amazon Cloud Player.

Customers will be able to access music on a Kindle Fire tablet, devices running Google Inc.'s Android operating system, and iPhones, Seattle-based Amazon said today in a statement. The songs, also accessible through an Internet browser, will soon be available via Roku Inc.'s streaming service or Sonos Inc.'s home entertainment systems, Amazon said.


(BN) Apple Lawyer Tells Jury Samsung Chose to Copy Apple

July 31 (Bloomberg) -- A lawyer for Apple Inc. told a jury that Samsung Electronics Co. decided it would rather copy the iPhone maker's technology than "beat Apple fairly in the marketplace."

"As we all know it's easier to copy than to innovate," Harold McElhinny, Apple's lawyer, said today during his opening statement at a trial in federal court in San Jose, California.

McElhinny showed jurors a slide of Samsung's mobile phones from 2006 with physical keyboards and squared corners, and another of its phones from 2010 with rounded edges and a glass touch-screen. Samsung arrived at the newer design only after Apple founder Steve Jobs introduced the iPhone in 2007, the lawyer said.

Jurors will decide each company's claims that its rival infringed patents covering designs and technology for mobile devices, with potential damage awards reaching billions of dollars. The case is the first U.S. jury trial of a battle being fought on four continents for dominance of a smartphone market that Bloomberg Industries said was $219.1 billion last year.

McElhinny outlined the history and risk that Apple took in developing the iPhone, including developing a new user-interface and introducing a touch-screen glass front screen. While the device was a hit, its success wasn't a sure thing with companies like Nokia Oyj, Motorola and Samsung dominating the market, the attorney said. If the debut had been a flop, it "could have ended the company's future," the attorney said.

Web Page

One patent in dispute involves how a picture or web page bounces back if a user scrolls to the end of a file. Samsung adopted a similar feature for its smartphones, Apple claims. Another patent at issue covers the use of two fingers to zoom in on a picture or document, a feature that Cupertino, California- based Apple alleges Samsung copied.

McElhinny said that Samsung in June 2010 introduced the Galaxy Si9000 smartphone, the first in the Galaxy line, which he called "a complete iPhone clone." That led to U.S. sales of 22 million mobile phones and tablet computers infringing Apple patents, which generated $2 billion in "profit that they made using our intellectual property."

"You will hear that Apple did not sit quietly by when Samsung started infringing Apple products," McElhinny told jurors. "Apple met with Samsung to point out that Samsung was acting illegally and demand that Samsung come up with its own designs and user interface." That had "no positive effect," he said.

Samsung's Countersuit

Samsung, based in Suwon, South Korea, countersued and will present claims that Apple is infringing two patents covering mobile-technology standards and three utility patents. Samsung is demanding royalties of as much as 2.4 percent for each device sold, according to a court filing.

Samsung started presenting its opening arguments after Apple's finished.

Apple's $2.5 billion in damages is based on claims Samsung copied the iPhone and iPad. Apple also wants to make permanent a preliminary ban it won on U.S. sales of a Samsung tablet computer, and extend the ban to Samsung smartphones.

The case is Apple Inc. v. Samsung Electronics Co. Ltd., 11- cv-01846, U.S. District Court, Northern District of California (San Jose).

(BN) Google Buys Wildfire, Adding Social Media Tools for Businesses

July 31 (Bloomberg) -- Google Inc. said it's acquiring Wildfire Interactive Inc., a startup that helps companies market their wares via social media.

"It's a platform for brands to manage their pages, apps, tweets, videos, sponsorships, ads, promotions and more, all in one place," Mountain View, California-based Google said in a blog posting. "The ultimate goal is better and fresher content, and more meaningful interactions."

Companies including Salesforce.com Inc. have been acquiring startups that specialize in social-media marketing as they seek to capture a bigger slice of ad budgets devoted to reaching consumers who interact over the Web.

(BN) Apple, Paddy Power, Perdue, Netflix: Intellectual Property (1)

July 31 (Bloomberg) -- Apple Inc.'s $2.5 billion patent- infringement lawsuit against Samsung Electronics Co. opened yesterday in federal court in California with the selection of a jury in the first U.S. trial to consider the global smartphone dispute.

U.S. District Judge Lucy Koh in San Jose, who practiced as an intellectual-property litigator in Silicon Valley for eight years, is presiding over the trial. Jurors will decide each company's claims that its rival infringed patents covering designs and technology for mobile devices, with potential damage awards reaching billions of dollars.

The case is the first U.S. jury trial of a battle being fought on four continents for dominance of a mobile-device market that Bloomberg Industries said was $312 billion last year. Apple, the iPhone maker based in Cupertino, California, just 11 miles from the courthouse, won't benefit from any bias from a jury drawn from Silicon Valley, said Stanford Law School Professor Mark Lemley.

"Just as many people in the valley work for Android companies like Google as work for Apple," Lemley said in an e- mail, referring to Google Inc.'s Android operating system that some Samsung products use. "I expect that a Silicon Valley jury will be more technologically sophisticated than most, and that may work in Samsung's favor."

Samsung, based in Suwon, South Korea, has countersued and will present claims that Apple is infringing two patents covering mobile-technology standards and three utility patents. Samsung is demanding royalties of as much as 2.4 percent for each device sold, according to a court filing.

Samsung Chief Executive Officer Choi Gee Sung and Apple CEO Tim Cook failed to settle the San Jose case at a court-ordered May 21 meeting in San Francisco. Previously, company officials met in September and December and on May 4 to discuss resolving a related dispute before the U.S. International Trade Commission.

The case is Apple Inc. v. Samsung Electronics Co. Ltd., 11- cv-01846, U.S. District Court, Northern District of California (San Jose).

Smartphone Patent Fights See U.K. IP Lawsuits Almost Triple

U.K. courts are a battleground for the global technology patent wars as intellectual property claims almost tripled last year, according to a report by law firm EMW Law LLP.

There were 183 new patent and registered design claims filed in the U.K. in 2011, the highest number in more than five years, as firms seek to maintain their advantage over competitors in a difficult economic climate, EMW said. There were 65 similar claims filed in 2010.

"Some technology businesses have amassed a huge war chest of patents, which they can use to swamp the competition with patent infringement claims," said Mark Finn, IP law principal at EMW. "Even if the claim doesn't stick and is eventually rejected by the courts, it can still keep rivals' products off the market for long enough to gain a competitive advantage."

Smartphone makers including Apple Inc., Samsung Electronics Co., Nokia Oyj and HTC Corp. have filed dozens of suits against each other in the U.K. over the last two years as part of a global litigation strategy in the mobile-device market that Bloomberg Industries said was $312 billion last year. The rise in IP litigation comes as the U.K. economy shrank the most in three years, forcing companies to fight "for every edge they can find," Finn said.

Companies in patent-heavy industries look for "any way" to maintain their advantage, Finn said.

Finn said companies rush to sue before the disputed product establishes itself in the country, because U.K. patent courts may take a year to reach a judgment.

"IP litigation often isn't just about compensation for claimants," Finn said. "It's a vital tool for defending profits and market share."

Samsung Wins Continued Stay of Order Banning Galaxy Nexus

Samsung Electronics Co.'s request for a continued stay on an order banning the importation of its Galaxy Nexus phones was granted by a federal appeals court.

The federal court in San Jose that's hearing the patent dispute between Samsung and Apple Inc., had issued a temporary order banning importation of the phones that Apple claimed infringed its patents. That ban had extended into 2013.

The U.S. Court of Appeals for the Federal Circuit, the Washington-based court that hears appeals for patent suits, said yesterday the stay remains in effect throughout the appeal of the lower court's order. Oral arguments in that appeal are set for Aug. 20 in Washington.

A jury trial between the two companies over patents Apple says are infringed by the Samsung Galaxy tab began yesterday in the same court.

The case involving the Galaxy Nexus phones is Apple Inc., v. Samsung Electronics Co., 2012-1507, U.s. Court of Appeals for the Federal Circuit. The lower court case is Apple Inc. v. Samsung Electronics Co., 5:12-cv-00630-LHK, U.S. District Court, Northern District of California (San Jose).

For more patent news, click here.


Paddy Power 'Egg-and-Spoon' Olympics Spoof Ads Remain in Place

Billboards promoting Paddy Power PLC, the Dublin-based betting and gaming group, have remained up around London despite what organizers of the London Olympics have considered part of an ambush marketing scheme, the U.K.'s Marketing Week reported.

The ads, which had been placed on JC Decaux SA billboards, promoted the "Paddy Power Egg-and-Spoon Race in London," and the Olympics organizers had initially claimed the ads used words barred under the London Olympic Games and Paralympic Games Act of 2006, according to Marketing Week.

The text to which the committee objected was "Official sponsor of the largest athletics event in London this year! There you go, we said it," the magazine reported.

The committee told Marketing Week that it raised its concerns with the bookmaker, and, while it decided not to pursue the matter any further at that time, would continue to monitor Paddy Power ads.

Perdue Fails to Win Dismissal of Trademark Infringement Suit

Perdue Farms Inc.'s request to have a trademark infringement suit dismissed was rejected by a federal court in Nebraska.

Tecumseh Poultry LLC, a Nebraska chicken processer, sued Perdue in federal court in Lincoln, Nebraska, in February. Tecumseh had objected to Perdue's use of "Simply Smart" with some of its chicken products.

The Nebraska company claimed this infringed the "Smart Chicken" trademarks it had used since 1995. Perdue's use of "Simply Smart" confused consumers, Tecumseh said in its court filings.

In a July 24 order, U.S. District Judge John M. Gerrard said that while he had some reservations about the Nebraska company's claims, they did not "weight so strongly against Tecumseh to mandate dismissal, nor do they show Tecumseh's claims to be implausible."

The case is Tecumseh Poultry LLC v. Perdue Holdings Inc., 4:12-cv-03032-JMG-CRZ, U.S. District Court, District of Nebraska (Lincoln)

For more trademark news, click here.


Netflix, Dish's Blockbuster Sued for Infringing Screenplay

Netflix Inc., the world's largest video-subscription service, was sued for copyright infringement by a screenwriter from Bay Point, California.

Co-defendant with Los Gatos, California-based Netflix is Dish Network Corp.'s Blockbuster unit, which provided videos and video games to home users.

Tony Tiscareno, who is unrepresented by counsel, claims the two video services were duped into distributing "Killspeed," a film he claims infringes his "Fastglass" screenplay written in 1996.

His screenplay, Tiscareno says, was lifted from one of several websites screenwriters use to make copies of their work available to those who might be interested in producing the film. He claims that "Killspeed," produced by Afterburner Films Inc., is based on this stolen script.

Afterburner, which is not named as a defendant, made the film so badly that it "received scathing reviews," according to court papers.

Tiscareno said that to no avail he sent a takedown request to Blockbuster and Netflix, claiming that "Fastglass" infringed his copyright.

He asked the court to award him damages of $1.2 million for the alleged infringement, together with the proceeds of the rental fees the companies received for this film.

Neither Dish nor Netflix responded immediately to e-mailed requests for comment.

The case is Tony Tiscareno v. Netflix Inc., 3:12-cv-03841- LB, U.S. District Court, Northern District of California (San Francisco).

Floridian May Face Five-Year Prison Sentence in Copyright Case

A resident of Ocala, Florida, was convicted of criminal copyright infringement.

Raul Zaragoza-Vaquero, 31, a Mexican national, was arrested after selling counterfeit CDs at a flea market in Sumter County, Florida, according to a government statement. An undercover investigation turned up more than 16,000 counterfeit CDs, together with apparatuses for their reproduction, plastic cases, printers, commercial shrink wrap and paper-cutting machines, the government said.

The case was investigated by the U.S. Immigration and Customs Enforcement's Homeland Security Investigations and the Recording Industry Association of America.

On July 25 the jury found him guilty on one count of criminal infringement of a copyright for commercial advantage. His sentencing is set for Oct. 16.

Zaragoza-Vaquero faces a sentence of as long as five years in prison and a fine of as much as $250,000.

The case is U.S. v. Zaragoza-Vaquero, 5:12-cr-00019-CEH- PRL, U.S. District Court, Middle District of Florida (Ocala).

(BN) Microsoft to Phase Out Hotmail, Focus on Outlook E-Mail

July 31 (Bloomberg) -- Microsoft Corp., the world's biggest software maker, will introduce a new, free Web-based e-mail portal under its Outlook brand and phase out Hotmail over time as it seeks to draw users from Google Inc.'s Gmail.

A preview of the new service is going online today and Hotmail probably will be phased out in the next year, said Brian Hall, a general manager in Microsoft's Windows group, in an interview.

By going with Outlook, Microsoft is trying to capitalize on the brand behind the most-used corporate e-mail service, sold as part of its Office suite. While Hotmail is the world's most popular Web-based e-mail provider, it has lost ground in the U.S. to Google and Yahoo! Inc. as well as other, newer methods of communication, such as social media.

"E-mail is one of the only areas in technology that's gone eight years without a significant change -- the last big move was the release of Gmail -- and for us it's maybe been even longer than that since our last big change," Hall said. "None of the social networks existed then, and the types of e-mail we get have changed."

Hotmail was the only one of the top three Web-mail services to lose unique visitors globally in the year through June 2012, falling 4 percent, according to ComScore Inc. Yahoo Mail gained 2 percent and Gmail increased 17 percent.

Hotmail had 324.2 million unique visitors in June, compared with 290.3 million for Yahoo Mail and 277.6 million for Gmail, according to ComScore.

New Features

While Hotmail derives revenue through ads, the main value lies in how often people use e-mail, Hall said. Google is using Gmail to lure customers to its online word processing and spreadsheet applications and away from Microsoft's Office.

The Outlook Web-mail service can tell whether an e-mail is from a personal contact, in which case it shows content from Facebook Inc. and Twitter Inc. from the sender. Users will be able to see if a sender is online and enter into a Windows Messenger or Facebook chat session with them. In the future, Skype Internet calling capability also will be added, Hall said.

The new portal will let users sort by types of e-mail to categorize messages from their contacts, social media updates or newsletters such as a Groupon Inc. offer. They can set it to only keep the latest Groupon offer or the last few, and clear out the rest.

It's also meant to have a clean-looking design that leaves more space to display e-mails, compared with Gmail, Hall said. Ads are also less obtrusive, he said, and don't appear alongside personal messages.

(BN) Microsoft Says It Wants Patent Peace With Google’s Motorola (1)

July 31 (Bloomberg) -- Microsoft Corp., embroiled in patent litigation with Google Inc.'s Motorola Mobility unit, said it's open to reaching a comprehensive settlement of disputes that have limited sales of Motorola Mobility products in the U.S. and Germany.

"This particular litigation now stands at a crossroads," Microsoft General Counsel Brad Smith and Horacio Gutierrez, head of Microsoft's intellectual property group, said in a joint blog posting. "Google can take one of two paths: it can choose either to engage in serious discussions to search for patent peace or persevere in its diversionary tactics. We hope it will choose the first course, and we stand ready to engage in good faith if it does."

Microsoft has won orders that banned U.S. imports of Motorola Mobility phones that use a patented feature to coordinate schedules between phones and personal computers. It's also won limits on sales of some Motorola Mobility products in Germany based on other Microsoft patents.

Motorola Mobility, which Mountain View, California-based Google bought in May, has lodged its own patent-infringement claims against Microsoft, including cases in the U.S. and Germany targeting the Xbox video-gaming system and Windows operating system.

Motorola Mobility has submitted offers to license its patents, some of which relate to standards established by industry groups for video compression and Wi-Fi technology. It also has offered to take a license to the coordination feature, known as ActiveSync, that it has previously licensed from Microsoft before 2007.

Reasonable Terms

Microsoft contends the offer doesn't meet Motorola Mobility's obligation to license such patents on fair and reasonable terms, and the licensing offer should be based on "market rates." It filed a breach of contract suit that's scheduled for trial in November in federal court in Seattle, near Microsoft's headquarters in Redmond, Washington.

Smith and Gutierrez said any agreement must cover all Microsoft patents, including ones it claims Google's Android operating system infringed. The software maker has reached licensing agreements with other companies that manufacture devices that run on Android, including Barnes & Noble Inc. and Samsung Electronics Co.

The European Union is investigating claims filed by Microsoft and Apple Inc. that Motorola Mobility is misusing its patents. The U.S. Senate Judiciary Committee held a July 11 hearing on whether there should be limits placed on the use of standard-essential patents.

Microsoft and Apple contend that owners who help develop standards shouldn't be allowed to use essential patents to block competitors. Google has told regulators it won't seek any block as long as companies are in licensing negotiations. It has accused Microsoft and Apple of refusing to negotiate.

The U.S. International Trade Commission is considering whether such patents should be the basis of an import ban, in a case Motorola Mobility filed against Apple. A final decision in that case is due Aug. 24.


(BN) New Yorker Writer Quits After Faking Bob Dylan Quotes, WSJ Says

July 31 (Bloomberg) -- U.S. author Jonah Lehrer resigned as a staff reporter at New Yorker magazine after saying he faked quotes from singer Bob Dylan in his latest nonfiction book, the Wall Street Journal reported, citing a statement from Lehrer.

Lehrer said he lied to journalist Michael Moynihan after being questioned on the authenticity of the quotes three weeks ago, according to the newspaper.

His book "Imagine: How Creativity Works" is being pulled from retailers Barnes & Noble Inc. and Amazon.com Inc. after Dylan's management said it had no record of any contact with Lehrer, the Journal reported.

(BN) Postal Service to Miss $5.5 Billion Payment to U.S. Treasury

July 31 (Bloomberg) -- The U.S. Postal Service affirmed it won't make a required $5.5 billion payment due tomorrow to the U.S. Treasury for future retirees' health care, an obligation the agency said must end for it to become financially viable.

The service has said for months it couldn't afford the payment, which was initially due last September, nor a $5.6 billion payment required by Sept. 30 for this year. Postal legislation passed by the U.S. Senate on April 25 would slow the schedule for those obligations. The House hasn't acted on a different postal measure.

The Postal Service, which has more employees than any U.S.- based publicly traded company other than Wal-Mart Stores Inc., lost $3.2 billion in the quarter ended March 31. It has said it expects to temporarily run out of cash in October unless Congress alters or ends the retiree health-care obligation and lets it make other changes that include ending Saturday mail delivery.

"The Postal Service continues to implement its strategic plan," the service said in a statement on its website. "However, comprehensive postal legislation is needed to return the Postal Service to long-term financial stability. We remain hopeful that such legislation can be enacted during the current Congress."

The service, which receives no direct funding from U.S. taxpayers and is supposed to be self-sustaining, last made a quarterly profit in 2009 and has said it is losing $25 million a day from operations. It has forecast it will lose $9.1 billion in the 12 months ending Sept. 30, not including the $5.5 billion payment.

Falling Volume

Mail volume peaked in 2006 and has fallen more than 20 percent since then as much of the service's first-class mail has been supplanted by e-mail and electronic bills. The Postal Service's share of the U.S. small-package shipping market fell to 14 percent in 2011, behind United Parcel Service Inc.'s 52 percent share and FedEx Corp.'s 34 percent, according to Bloomberg Industries.

The service wants to eliminate as many as 220,000 jobs and close mail-processing plants to reduce costs. It abandoned a plan to shut as many as 12 percent of its post offices after opposition in Congress and instead said it would cut operating hours at as many as 13,000 locations to save $500 million annually.

The health-care obligation, adopted by Congress in 2006, isn't necessary as the retiree payment fund has $45 billion, enough to pay for decades of benefits, Fredric Rolando, president of the National Association of Letter Carriers union, said in a statement.

The "bogus default" shows Congress hasn't done what's needed to help the service overcome its woes, he said.

"If we thought our retired members were in danger of losing their health care, we'd be screaming bloody murder about it," he said.


(BN) How Wall Street Lawyer Turned Insider Trader Eluded FBI

July 31 (Bloomberg) -- Every dawn in the early spring of 2011, Matthew Kluger peered out his window, wondering when federal agents would knock at his door. Kluger, a mergers-and- acquisitions lawyer, says he worried that authorities were closing in on him as the source of illegal tips in a three-man insider-trading ring that had eluded detection for 17 years.

The knock came on April 6. U.S. agents handcuffed Kluger, hustled him into a Dodge Intrepid, drove to the Federal Bureau of Investigation office in Manassas, Virginia, and laid out the case against him. The evidence included tape recordings of Kluger telling the man he tipped to get rid of a cellular phone that could lead back to him -- and to do it carefully because the authorities had dogs that can sniff out mobiles.

"I really would like to see this phone go bye-bye ASAP," Kluger said, adding: "Do you want this to be our undoing?"

Kluger's account offers a unique view of insider trading by a mid-level lawyer who moved from one powerful firm to another, exploiting his access to partners and confidential documents. It shows how difficult it is to police such activity when conspirators take care to conceal their crimes and trade with discipline. The trio's downfall came only when one of them changed the routine after almost two decades.

Their stealth masked Kluger's ability to steal secrets from some of the most prominent U.S. law firms, including Wilson Sonsini Goodrich & Rosati PC and Skadden, Arps, Slate, Meagher & Flom LLP. The three men made $37 million in profit on deals involving some of the largest technology companies, including Oracle Corp., Adobe Systems Inc., Hewlett-Packard Co. and Intel Corp.

The Confession

Kluger began confessing his crimes to federal authorities the day of his arrest. He first detailed them to Bloomberg News nine days later, after posting bail in Newark, New Jersey, when he needed a ride back to a jail to pick up his heart medicine. He offered additional details in interviews over the next year.

His biggest surprise, he said, was this: At the FBI, he discovered that one of his partners had kept more than 90 percent of the profit. He said he thought they were splitting the money equally.

"Maybe you want to laugh and say of course there's no honor among thieves," Kluger said. "But even when you're doing something you're not supposed to do, I trusted that they were honoring the commitments that they had made."

Simple Plan

The plan was simple. Kluger, 51, gleaned details of mergers at four of the six law firms where he worked. He discussed the most promising deals with Kenneth Robinson, a mortgage broker and old friend. Robinson then alerted his friend Garrett Bauer, a day trader who bought shares of companies in play. After the deals went public, Bauer sold the stock at a profit. Then Bauer withdrew $50 bills at automated teller machines and paid Robinson, who split it with Kluger. The arrangement worked 30 times between 1994 and 2011.

In the most lucrative one, Bauer bought 4.5 million shares of Sun Microsystems Inc. based on Kluger's tip that the company would be bought by Oracle. Bauer sold shares for an $11.4 million profit after the deal's announcement in April 2009.

All three men pleaded guilty last year in federal court in Newark, where prosecutors built the case. The government said it was one of the longest-running insider trading schemes ever, with Bauer making $32 million in illicit profit. Kluger, who made less than $1 million, was sentenced last month to 12 years in prison, the longest insider-trading term in U.S. history. By contrast, Raj Rajaratnam, the Galleon Group LLC co-founder convicted of masterminding a much bigger, more profitable insider-trading ring last year, received an 11-year sentence.

Nine Years

Bauer got nine years. He began serving his term this month at the Federal Prison Camp in Montgomery, Alabama. Robinson will serve 27 months, a reward for cooperating with authorities. Both Kluger and Bauer are appealing their sentences.

In the interviews, Kluger recounted why he broke the law and what steps the trio took to conceal the scheme. He discussed two earlier investigations by the U.S. Securities and Exchange Commission, and how he was prepared to give up Robinson in 1997. The scheme was addictive, Kluger said.

"There was an excitement on finding a deal that looked promising," Kluger said. "It was excitement and relief to get in on the stock and know the train wasn't leaving without you. There was an excitement on reading what the profits were. The final excitement was picking up a bag of cash."

Kluger stares intently with brown eyes and speaks in torrents of expressive words. He is 5-feet, 7-inches tall and has been bald since he was 20. His rise as a lawyer and downward spiral followed a troubled adolescence, an Ivy League education and nearly a decade in restaurant management and car sales before law school.

Pulitzer-Prize Winner

As an infant he lived for several months in a foster home in the Bronx, New York. He was adopted by Phyllis and Richard Kluger, a Pulitzer Prize-winning social historian. He attended ninth grade at the Kent School in Connecticut until being treated for a year in a psychiatric facility affiliated with Yale University. He said he received therapy for "adolescent adjustment issues" stemming from his adoption and homosexuality.

Kluger finished high school at the Hammonasset School in Connecticut and graduated in 1984 from Cornell University, where he studied hotel administration. After working in restaurants in Texas, he sold Toyotas in California, then moved to New York to work in residential real estate. For a few weeks in 1991, his co-worker was Robinson. The two remained friends.

Car Salesman

While selling cars in Roslyn, New York, Kluger decided to pursue a career as a lawyer. He started at Brooklyn Law School, then transferred to New York University. After his second year, he became a summer associate at Cravath, Swaine & Moore LLP, a prominent New York firm, assigned to mergers and acquisitions.

"It was exciting," Kluger said. "There was a sense of urgency, of fast work, of making the front page of the newspaper."

During that summer, he talked on the phone to Robinson, Kluger said. Robinson was intrigued by the material, non-public information on public companies that Kluger saw daily.

"He said, 'So what you're telling me is you get to know what's going to happen before the rest of the world does,'" Kluger said. "I said, 'Yeah, I guess.' He said, 'You could make a lot of money with that information.' I remember saying, 'Yeah, but it's really risky. You could end up going to jail.'"

Robinson, who will report to prison after the Sept. 3 Labor Day holiday, declined to comment last week at his home.

After working with Kluger, Robinson took a job at Weiss, Peck & Greer, a New York venture capital firm where he met Bauer. Robinson and Bauer, a native of Melville, New York, became fast friends. Robinson told Kluger he should meet Bauer, who bought and sold so many shares that any tainted trades would not arouse suspicion by the SEC.

'Stupidest Decision'

"That was the moment when I should have said, 'Just kidding, let me go on with my life,'" Kluger said. "That was when I made the stupidest decision of my entire life."

Both Bauer and Kluger lived on East 87th Street in Manhattan. Robinson arranged for them to meet in June 1994 on the street outside of Bauer's apartment building. Kluger leaned against a pay-phone enclosure, smoking cigarettes and sizing up Bauer.

"He was trying to demonstrate to me that he was a big stock trader," Kluger said. "His attitude was arrogant and know-it-all. He was trying to make it seem that I needed him more than he needed me."

Still, the men agreed to try trading on inside information and split the money three ways, Kluger said.

First Tip

Kluger's first tip involved the proposed merger of QVC Inc. and CBS Corp., a Cravath client. The deal never happened. Kluger then passed information about the acquisition of Neutrogena by Johnson & Johnson, another Cravath client. Each man made about $8,000, Kluger said.

"I had no idea that we were launching a scheme that was going to go on and on and on," Kluger said. "All that I was doing at that point was a very small insider-trading deal."

The men made about $16,000 each from J&J's acquisition of Mitek Surgical Products Inc., he said. Kluger stayed at Cravath after graduating cum laude from NYU. By 1995, the trio had their first big score when International Business Machines Corp. bought Lotus Development Corp. They split profits of about $213,000.

Kluger said that greed motivated his actions. He justified them to himself by saying that corporate executives "feathered their own nests" through insider trading and other methods, he said.

Rampant Insider Trading

"I knew insider trading was rampant," he said. "None of that makes it OK. You're asking how an otherwise honest and law- abiding person did something that was really, really bad. I'm greedy. I deluded myself into believing that what I was doing wasn't all that bad. I wasn't stealing from anybody, lots of people were doing it, and I was doing it on such a small scale as to not have a material impact on any markets or people."

Kluger said he met Bauer or spoke on the phone with him several times, even as each man took pains to avoid association with the other.

Bauer's profits began to grow, while Kluger said he personally never made more than $50,000 or $60,000 on any deal in those years. In court documents, prosecutors said the illicit profits were about $423,000 when J&J bought Cordis Corp. in November 1995. In 1997, the profits were $490,000 when NationsBank bought Barnett Banks Inc. in the largest banking acquisition ever at the time. Most of the money went to Bauer, Kluger said he learned later.

Leaked Information

Kluger left Cravath and worked for a few weeks at Milbank, Tweed, Hadley & McCloy LLP, another New York firm. The men later had their first run-in with investigators. An SEC lawyer called Kluger, asking about three transactions on which he had leaked inside information.

Regulators subpoenaed bank and phone records. Kluger hired a lawyer.

"I was ready to sell Robinson up the river, like he ultimately did to me," Kluger said.

The probe fizzled without the SEC suing anyone or prosecutors filing charges. Kluger and Robinson agreed to be more careful by speaking only on pay phones.

"They had us in the crosshairs and backed off," Kluger said. "They were incompetent all the way through. We were emboldened, somewhat."

They were unable to outsmart the SEC a decade later.

Skadden Arps

Kluger began work in 1998 at another prominent firm in New York, Skadden Arps. Based on his tips, the illicit profits were more than $1 million on inside information that Intel would buy DSP Communications Inc., according to prosecutors. Kluger said he made about $50,000 on that deal, and Robinson told him the three made a total of $150,000 after Bauer paid taxes. In any deal, Bauer would take out about 45 percent for taxes and fees, Kluger said.

Kluger left Skadden Arps in 2001, and the scheme continued while he worked at Fried Frank Harris Shriver & Jacobson LLP in New York. After a year, he was fired. In 2002, Kluger filed a sex-discrimination lawsuit against the firm, claiming he was harassed and fired because he was gay. The case was settled confidentially in 2004 in state court in New York.

The scheme took a hiatus when Kluger left Fried Frank. From 2002 until early 2004, he worked at Sills Cummis & Gross PC, a firm in Newark. He then joined Asbury Automotive Group as the associate general counsel. After conflict with his boss, he went to Tampa to run a Pontiac-GMC dealership.

Final Shot

Kluger got his final shot at the action of big mergers when Wilson Sonsini hired him at its office in Reston, Virginia, in December 2005. The firm later moved to a Washington office, and his salary eventually rose to $300,000 a year. In April 2006, Bauer bought 477,600 shares of Advanced Digital Information Corp. before its acquisition by Quantum Corp. The illicit profit was $1.7 million.

Ten more insider trades followed during Kluger's time at Wilson Sonsini, including the Sun Microsystems deal that made $11.4 million in illicit profit.

In the scheme's early years, when Kluger lived in New York, Robinson met him at his office or a street corner to hand him cash. When Kluger was at Wilson Sonsini, he drove from Washington to New York several times to get the cash in small, cheap gym bags.

The men employed several techniques to avoid detection, such as disposable cellular phones. Kluger was adept at searching the titles of documents in Wilson Sonsini's computer system to determine how far a merger had progressed. He didn't want to open documents and leave an electronic fingerprint. He listened closely to what his colleagues said around the office. Sometimes he overheard conversations about deals and confirmed them in the documents.

'Big Mouth'

"People at law firms yap about things they're not supposed to yap about," he said. "Ninety percent of what I learned about the Sun Microsystems deal came from my hearing about it from an antitrust partner who had a big mouth."

Alicia Towler White, a spokeswoman for Wilson Sonsini, declined to comment.

After picking up merger intelligence, Kluger would discuss it with Robinson to decide if they should present it to Bauer. While they successfully executed 30 insider trades, they talked about another 120 possible deals over the 17 years, he said.

"It was pretty clear these had to be big-name companies that were trading at 1 million shares a day to even discuss it with Bauer," he said. "I would call Robinson on every deal I got my hands on, even on deals that didn't make sense."

The men tried to time Bauer's buying to avoid the eve of merger announcements.

Board Meeting

"It was like a board meeting," he said.

Kluger said the cash payments helped him to build a house in Easthampton, New York, eat at better restaurants and pay for the surrogate mother for his three adopted children.

"I was living a somewhat more lavish lifestyle than my salary alone would have allowed," he said. "This was not a constant thing, with money flowing in every 10 seconds. This was twice a year where I would take in 50 or 60 grand."

Bauer was becoming increasingly aggressive in the stock market. He moved $8.4 billion through his account in 2010, prosecutors said. Bauer made $32 million on the nine Wilson Sonsini deals, prosecutors and the SEC said.

Bauer weathered a 2007 SEC investigation into his activities, Kluger said. He said he oversaw an SEC document requesting information from a Wilson Sonsini partner regarding possible insider trading involving Bauer.

Wilson Sonsini told Kluger in the fall of 2010 to get a new job. It was the sixth law firm since 1994 at which he didn't become a partner. He did no work at the firm for the last few months as he looked for other employment.

'Job Hopper'

"It's hard enough to be a 49-year-old guy and a bit of a job hopper," he said. "Obviously, nobody knew that I was a bit of a crook."

Kluger was relieved to leave the scheme at last, he said.

"I wasn't going to be subject to Ken saying, 'Oh please, please, please,'" he said. "I had the sense that we had pushed our luck beyond where we should have pushed it. It was never intended to be this ongoing, forever thing. It needed to have an end."

Kluger and Robinson had talked about one last score, for $1 million or $2 million, that would have allowed them to walk away, Kluger said.

"I would have happily called it quits," Kluger said.

In March 2011, Kluger started a new job as president of a transportation company. He lived with his children and a partner in Oakton, Virginia, 24 miles west of Washington. Still, he needed to collect his final cut of $88,000 from Robinson.

SEC Lurking

Kluger had no way of knowing that the SEC never ended its 2007 investigation. The agency was using new technology to confirm its suspicions that Bauer had an inside source on Wilson Sonsini merger deals. The Philadelphia office covertly monitored Bauer's trades for three years to find the source, according to a person familiar with the matter.

In 2009, an investigator noticed that Robinson and Bauer often traded in the same stocks, although Robinson avoided the Wilson Sonsini deals. Then the SEC got a break. Robinson himself bought shares of 3Com Inc. before its acquisition by Hewlett- Packard, a deal handled by Wilson Sonsini. Investigators concluded that Robinson and Bauer had a common source, the person said, asking not to be identified because the investigation was confidential.

"The SEC's use of automated trading and relationship analysis in this case was critical to establishing that Robinson and Bauer were part of the same trading scheme and had a common source -- Kluger," said Daniel M. Hawke, chief of the SEC's market-abuse unit and director of the Philadelphia Regional Office.

Regulator Moves

In the summer of 2010, the SEC went to the U.S. Attorney's Office in New Jersey with its evidence. Prosecutors took up the case, working with federal agents who approached Robinson in March 2011. Within days, Robinson agreed to cooperate.

He told prosecutors how the scheme worked, identified Kluger as the source and gave them a gym bag with $175,000 in Bauer's cash he was supposed to split with Kluger, who never got the money. Most important, Robinson agreed to secretly record his friends making incriminating statements.

When Kluger called Robinson on March 13, Robinson dropped a bomb: The FBI and Internal Revenue Service had searched his house in Long Beach, New York, six days earlier.

Robinson said agents knew he traded on information from Wilson Sonsini and could link him to Bauer. He said his wife wanted him to cooperate with authorities. Robinson didn't say he had already chosen to betray Kluger and Bauer.

Mr. G

Kluger and Bauer, known to his partners as Mr. G, fell into the trap. In calls over the next three weeks, Kluger said he destroyed a computer and iPhone used in the scheme. Kluger counseled silence.

"As long as Mr. G keeps his mouth shut and I keep mine and you keep yours, I don't think they're gonna find enough of anything," he said.

By April 6, agents found enough evidence. They showed up at Kluger's Colonial home at 6:50 a.m. to arrest him. At the same time, other agents handcuffed Bauer in his $6.7 million condominium in New York's Upper East Side.

Prosecutors charged Kluger and Bauer with securities fraud, conspiracy to commit securities fraud, conspiracy to commit money laundering and obstruction of justice. Robinson pleaded guilty a few days later.

Both Bauer and Kluger pleaded guilty last December. Kluger has also settled an SEC lawsuit, agreeing to pay $516,510 for his illicit profit while he worked at Wilson Sonsini.

Lecture Circuit

Before his sentencing, Bauer hit the lecture circuit with a talk sometimes titled "Confessions of an Inside Trader."

He occasionally discussed the recorded conversations with Robinson, including one in which he discussed laundering the $175,000 in cash -- literally. He laundered it in a washing machine, to remove fingerprints.

Bauer gave the talk 147 times at universities all over the U.S., including the NYU law school Kluger had attended.

"I feel remorse," he told the NYU students. "That's why I'm here."

In a bid for leniency, Bauer's lawyers presented 200 letters on his behalf at his sentencing.

"No 'Scared Straight' program could hope to be as effective as the one Garrett provided my two classes," wrote Mark Brennan, an adjunct professor at NYU's business school.


Kluger and Bauer were sentenced by U.S. District Judge Katharine Hayden on June 4. Assistant U.S. Attorney Judith Germano, who oversaw the prosecution, argued that Kluger was liable for the $37 million in illicit profit as the "mastermind." Under federal sentencing guidelines, she said, he deserved 11 to 14 years in prison.

At the hearing, Kluger's attorney Alan Zegas argued that he shouldn't be judged on the basis of $37 million in profits because he saw so little of it.

"I was not the mastermind," Kluger said later in an interview. "I'm not saying I was a good guy. I was definitely a very bad guy. These two guys were definitely manipulating me to keep me alive as a source."

Judge Hayden was not persuaded. She said Kluger engaged in "thuggish" behavior that helped undermine investor confidence in the market.


The scheme succeeded for so long, she said, because of its simplicity, the discipline of its limited number of people and its "essential amoral nature, where anything and everything involving trust and honor was thrown out of the window because of that blissful access to information that Mr. Kluger enjoyed."

She also said his actions were particularly egregious because he was a lawyer who had taken oaths of integrity. Kluger fully deserved 12 years in prison, she said.

"People stay out of the market in part because they think it's skewed toward the insiders," she said. "These people may be right."

She recommended that Kluger report to the federal prison in Butner, North Carolina, where Bernard Madoff is serving 150 years. The date hasn't been set.

(BN) Hulu Says Apple TV Is Adding Its Hulu Plus Service Today

July 31 (Bloomberg) -- Hulu LLC, the online television business owned by Fox, ABC and NBC, said its $7.99-a-month Hulu Plus service is coming to Apple TV today, adding a new source of customers for the company.


Monday, July 30, 2012

(BN) San Francisco Office Sales Set for Best Year Since 2007

San Francisco office-building sales may exceed $5.3 billion this year, the most since the market peaked in 2007, amid a technology-fueled rent surge that shows no signs of slowing.

Twenty-two downtown office properties changed hands through July 20, three deals were pending, and 10 buildings and two land parcels were listed and drawing robust investor interest, according to brokerage CBRE Group Inc. The average purchase price has risen to $465 a square foot, the highest since 2007, when it was $516 a square foot on $8.6 billion of sales, CBRE data show.

San Francisco and the adjacent Silicon Valley are "arguably the two strongest" U.S. office markets, research firm Green Street Advisors Inc. said in a July 24 report. Citywide office rents jumped 28 percent in the second quarter from a year earlier as Internet firms Airbnb Inc., Twitter Inc. and Yelp Inc. (YELP) signed new leases, according to CBRE.

"It's pretty easy to see why prices are escalating so quickly with a tech boom going on," Dan Fasulo, managing director at property research firm Real Capital Analytics Inc., said in a telephone interview. "It's a phenomenon taking place nowhere else."

Office rents may rise a further 25 percent over the next two years as tenant demand continues and supply remains tight, Kenneth Rosen, an economist at the University of California, Berkeley, said in an interview. More than half of the 2.6 million square feet (242,000 square meters) of new office space set to open by 2014 is already leased, brokerage Cassidy Turley estimates.

Safe Haven

San Francisco's "red-hot" market has lured U.S. pensions, closely held funds, real estate investment trusts and overseas buyers seeking perceived safe havens for their money, according to the Green Street report. Even with yields at 5 percent or lower, money is flowing to the city's commercial property because benchmark 10-year U.S. Treasury notes have sunk below 1.5 percent, said Jed Reagan, an analyst at the Newport Beach, California-based firm.

"International and domestic capital is looking to invest in gateway cities, and San Francisco qualifies in spades," Richard Pink, managing director at New York-based real estate investor Clarion Partners, said in an interview. "It's got a tech industry that is strong and broad, and a quality of life that compares with anywhere in the world."

Biggest Prize

Clarion bought two San Francisco office buildings last month on behalf of pension clients, paying $180 million, or $502 a square foot, for 600 California St. in the financial district, and $147 million, or $603 a square foot, for 475 Brannan St. in the South of Market area, according to Pink.

The biggest prize now on the market is 101 California St., a 1.25 million-square-foot cylindrical office tower that may fetch as much as $1 billion, based on the highest recent per- square-foot prices, said Russell Ingrum, San Francisco-based vice chairman of CBRE's capital group.

Nippon Life Insurance Co.'s 92.4 percent interest is up for sale through a U.S. real estate unit, according to marketing materials from listing broker Eastdil Secured LLC. The 48-story tower, developed by Houston-based Hines and designed by architect Philip Johnson, is 92 percent leased and offers a central location and "breathtaking" views, Eastdil said.

The high-rise is the city's second-largest office building, behind Vornado Realty Trust (VNO)'s 555 California St., according to CBRE. Tenants include Bank of America Corp., with 122,000 square feet; Morgan Stanley, with 100,000 square feet; and Deutsche Bank AG, with 75,000 square feet.

"It's iconic, truly special and unique," Ingrum said.

Hines Stake

Hines will retain its 7.6 percent stake and manage the building, according to Eastdil. James Buie, Hines' chief executive officer for the western region, didn't return calls seeking comment. Darwin Rodriguez, an Eastdil vice president, and Greg Berardi, a spokesman in San Francisco for Osaka, Japan- based Nippon Life, declined to comment.

"The obvious candidates for 101 California are banks or insurance companies that would team up in a syndication," said Fasulo. "Capital is looking for returns, and you can't get it with U.S. bonds."

Hamburg-based Union Investment Real Estate GmbH paid $446.5 million, or about $802 a square foot, for 555 Mission St. in May, the top price this year, according to CBRE.

The city's price record was set in June 2007 with Morgan Stanley (MS)'s purchase of the One Market complex, part of a portfolio acquisition from Blackstone Group LP (BX), for $953 a square foot, CBRE said. The deal was financed largely by commercial mortgage-backed securities.

Midtown South

The only U.S. submarket that compares to San Francisco is New York's midtown south, the area roughly between 34th and Canal streets that's popular with technology and media companies, Fasulo said. Recent deals there include SL Green Realty Corp. (SLG)'s agreement in May to buy 304 Park Ave. South for $135 million, or $628 a square foot, CBRE data show.

Across the U.S., office buildings in major cities had the biggest price gain of any real estate sector, rising 8.1 percent in May from February, according to Moody's/RCA Commercial Property Price Index.

Investing in San Francisco isn't without risk. Tech firms make up as much as two-thirds of the city's tenant demand, and buyers late to the cycle will be most vulnerable to a slowdown in a market known for booms and busts, said Reagan of Green Street. The 2001 dot-com collapse was followed by a 60 percent rent plunge, he said.

'Most Volatile'

"San Francisco is the most volatile market in the country," Reagan said. "These investment strategies do raise some concerns, with the city so dependent on tech."

Recent office sales already value 101 California St. above the cost of replacing the building, usually an alarm signal, said Rosen, the University of California economist. Construction of a building in the financial district would be about $700 a square foot, said Pink of Clarion Partners.

San Francisco added 3,800 professional-service positions in June, a fourfold increase over the average monthly gain, while tech employment rose to the highest level since 2000, according to California's Employment Development Department. The office vacancy rate in the second quarter fell to 9.7 percent citywide, and to 4.3 percent in South of Market, CBRE data show.

The regional economy, home to global trendsetters such as Apple Inc. (AAPL), Google Inc. and Twitter, propels innovation worldwide and is "unique in the world," said Frank Fudem, a San Francisco-based partner at Cassidy Turley.

Investors who recall the dot-com implosion and 2008 financial crisis know what they're getting into, and are assessing real estate with care, said Ingrum of CBRE.

"Today, people are much more rational and clear-eyed about risk," he said. "The cost of money is so low that you can pay more and still get the same return."

(BN) Teva Sues Sanofi’s Genzyme Unit Over Worker-Raid Claims

Genzyme Corp. was sued by Teva Pharmaceutical Industries Ltd. (TEVA) over claims the biotechnology company and a former Teva employee violated a non-solicitation agreement by encouraging workers to move to Genzyme.

Teva Pharmaceuticals USA Inc., the company's U.S. unit, contends Genzyme, a unit of Sanofi, allowed ex-Teva sales manager Kevin Middleton to lure 11 former colleagues after he left the generic drugmaker in April, according to a lawsuit filed in federal court in Philadelphia. Teva also accused Middleton of giving his new employer confidential data about its best-selling multiple sclerosis drug, Copaxone.

Middleton breached the terms of his separation agreement and Genzyme has "benefited and continues to benefit from Middleton's disclosure and use of Teva's confidential information," the drugmaker claimed.

Sanofi (SAN), France's largest drugmaker, purchased Cambridge, Massachusetts-based Genzyme, the biggest maker of medicines for rare genetic disorders, last year for $20.1 billion. In April, Sanofi said first-quarter profit rose 13 percent, helped by the Genzyme purchase.

Jack Cox, a U.S.-based spokesman for Paris-based Sanofi, said yesterday he couldn't immediately comment on Teva's lawsuit.

$134,000 Payment

Middleton, of Henderson, Tennessee, oversaw sales of Copaxone, a drug used to reduce the frequency of relapses in multiple sclerosis patients, for most of his more than eight years at Teva, according to the complaint. The drug generated sales of $3.9 billion in 2011 and accounted for 21 percent of the Petach Tikva, Israel-based company's revenue.

When Middleton left Teva in April, he signed an agreement that barred him from disclosing proprietary information about Copaxone's sales efforts or attempting to solicit his former colleagues, according to the complaint. Teva said in the filing it agreed to pay Middleton more than $134,000 for signing the pact and provided continuing health benefits.

Genzyme officials, who are seeking approval for competing MS drugs, wanted to assemble a sales team to market the medicines, Teva claimed. Consequently, they "raided Teva's highly trained and highly successful sales force" that sells and promotes Copaxone, the company said in its lawsuit.

Customer Lists

Middleton allegedly used Teva's confidential information, including customer lists and performance reviews of sales staff, to help recruit almost a dozen of his former colleagues in less than two months.

Most had worked on Copaxone's marketing campaign, Teva claimed.

Teva is asking a judge to bar Genzyme from using any of its confidential information gleaned from Middleton and to order its competitor to stop soliciting Teva employees for a year. Teva also is seeking unspecified damages.

"Teva has suffered and will continue to suffer irreparable harm and loss" from Middleton's and Genzyme's actions, the company's lawyers said in the suit.

The case is Teva Pharmaceuticals USA Inc. v. Middleton, 12- cv-04298, U.S. District Court, Eastern District of Pennsylvania (Philadelphia).

tags: talent, book2, intellectual, competition 

(BN) IPhone’s Russian Carrier Blames ‘Dictatorship’ for $1,000 Price

OAO Mobile TeleSystems (MTSS), the iPhone's biggest wireless carrier in Russia, criticized Apple Inc. (AAPL) for not cutting the device's $1,000-plus price in the country and being too strict about how it's sold.

The phone's cost makes it a hard sell in a market where rival models go for as little as $120, executives from the Moscow-based company said at an event in New York. Apple also requires that the carrier's retail locations meet its standards, imposing additional burdens, MTS said.

"They're more in a dictatorship mode where they say, 'This is what you have to do or you don't get the iPhone,'" Vasyl Latsanych, the Russian company's vice president of marketing, said at the event. "Being arrogant with your partners in big markets doesn't pay off."

The remarks exposed a rift for Apple in one of the largest emerging mobile-phone markets and added to concern that the iPhone maker is charging too much in developing economies. Chief Executive Officer Tim Cook faced questions after last week's earnings report over whether the iPhone's pricing was going to limit growth overseas. He responded that Apple's focus on product quality trumped other considerations.

"I firmly believe that people in the emerging markets want great products like they do in developed markets," Cook said during the call on July 24. The goal "is to make the very best product, and that's more important and overshadows all other things."

Natalie Harrison, a spokeswoman for Cupertino, California- based Apple, didn't immediately respond to requests for comment.

Smartphone Demand

Apple would get a larger share of the Russian market by cutting the iPhone's price or helping subsidize it, Michael Hecker, MTS's vice president for strategy and corporate development, said at the New York event.

Unlike in the U.S., Russian consumers typically don't sign up for long-term mobile-phone contracts. So it's less practical for carriers to subsidize the phone's cost themselves the way AT&T Inc. (T) and Verizon Wireless do. The iPhone 4S, Apple's latest model, costs $199.99 in the U.S. with a two-year commitment.

"If Apple showed more flexibility then they would have a higher penetration in our markets," Hecker said.

Russians have a growing appetite for smartphones, he said. MTS -- the region's largest carrier, with more than 100 million subscribers in Russia, Ukraine, Uzbekistan, Armenia and Belarus -- expects smartphones to have 60 percent penetration at the end of 2014, compared with 15.4 percent in the first quarter of 2012.

After making the remarks about Apple, MTS softened its criticism later in the day.

"While we have differences with Apple, we have a constructive relationship," Joshua Tulgan, an MTS spokesman, said in a statement. "Smartphones like the iPhone are important to our customers and our economy and we want to get them into the hands of as many people as possible."

In total, Apple sold 26 million iPhones last quarter, shy of the 28.4 million predicted by analysts. The shortfall caused Apple sales and profit to miss Wall Street estimates for only the second time since 2003.

(BN) South Korean Youth Eschew Samsung Jobs for Facebook Dreams: Tech

Not so long ago, South Korean students dreamed of lifetime jobs at Samsung Electronics Co. (005930) Now, many are shunning the juggernaut, intent on trying to emulate the likes of Facebook Inc. (FB)'s Mark Zuckerberg.

Sim Cheol Hwan, 27, is typical of the trend. He wants to take a break from college in Seoul to set up a company rather than line up for job interviews at Asia's biggest electronics company paying an average of 77.6 million won ($68,300) a year. So he's set himself up in his own business making apps for Samsung and Apple Inc. (AAPL) phones.

"I don't want to get a job at a top 10 Korean company," said the Hanyang University engineering student, who spent two years in the military. "Zuckerberg's success proves that there is a lot of money to be made" in startups.

Thousands of aspiring entrepreneurs like Sim powered an 83 percent surge in the number of technology startups in the four years to 2011 in South Korea, where Samsung and Hyundai groups lead globally in products including phones, TVs and ships. Mobile downloads are expected to rise 10-fold to $58 billion between 2010 and 2014, helping lure graduates away from the decades-old tradition of working at the corporations that helped pull the country out of poverty after the Korean War.

"There are risks of failure, but there's also a merit that you can personally grow your own business," said Lee Kap Soo, a researcher at Samsung Economic Research Institute. "It's hard to have a big success like Facebook, but people start their business with the hope of hitting a jackpot like that."

Samsung, Hyundai

Software startups in South Korea rose 61 percent between 2007 and 2011, while the number of information and communications-service providers more than tripled, according to Korea Venture Business Association, an agency that supports new enterprises. Revenue from Internet social media will reach $16.9 billion by the end of this year, according to forecasts by Gartner Inc., a 43 percent increase from 2011.

Even so, Samsung Electronics is the most favored employer among South Korean job seekers, followed by carmaker Hyundai (005380) Motor Co., because of its relatively generous salaries, according to a March survey conducted by SaraminHR Co., an online job site operator.

The average pay at Samsung Electronics, competing with Apple for leadership in the global smartphone market, was more than three times South Korea's per capita income last year, according to the Suwon-based company's annual report.

Unhappy Teens

The nation's top 30 business groups -- led by Samsung, Hyundai and SK -- employed 6.8 percent of the country's workforce last year, according to a June 6 report by the Federation of Korean Industries. Samsung Group alone accounted for about 20 percent of the national GDP.

In a life-satisfaction study of 32 countries in the Organization for Economic Cooperation and Development by the World Values Survey Association, South Korea came in 31st. Surveys by Korean research institutes find that happiness among teenagers is the lowest in the OECD.

"Everyone used to think if you go to a good college, that means you'll get a job at a big conglomerate," said Kim Dae Ho, professor of service management at Mokwon University in Daejeon, South Korea. "Now, people are thinking they can also start their own company and run it, rather than working for someone else. The whole environment has changed."

Yoon Bahn Seok, 31, founded Darez Inc. in 2008 with three friends to offer brand analysis and consulting services, even though his industrial-design background could have landed him a job at a conglomerate. Subsequently, he shifted focus to mobile apps.

Instagram Purchase

"After seeing Facebook take over Instagram, I realized there's endless market potential in developing mobile applications," he said.

In April, Menlo Park, California-based Facebook, owner of the world's biggest social network, agreed to buy Instagram Inc. photo service for $1 billion.

Another startup is SesiSoft Co., a Seoul-based online personal-computer game publisher set up in 2009 by former Samsung employees. It plans to expand into mobile games next year after almost doubling revenue to 10 billion won this year, Chief Executive Officer Kang Sung Wouk said in an interview.

All these businesses share a common thread: each of their founders have drawn inspiration from the success of Silicon Valley startups.

Zuckerberg's Billions

Zuckerberg, the 28-year-old chief executive officer of Facebook who started the social-networking service in his college dorm room, has a net worth of about $12 billion, according to the Bloomberg Billionaires Index, though Facebook shares have dropped 39 percent since the May 17 initial public offering.

"Hearing these stories enormously motivated me," said Lim Hyung Cheol, a 21-year-old college student who last year founded Gameberry Inc., an app marketing firm that generates as much as 20 million won in revenue in a month. "Right now, I'm focusing on doing bit by bit with a big vision in mind."

Some startups have already made it big.

The new app entrepreneurs are taking their place in a long tradition of South Korean startups. Even Samsung began as a simple produce and fish exporting business. More recently, NHN Corp. (035420), owner of South Korea's largest Internet search engine, was founded in 1999 by a former employee at Samsung SDS Co. and is now a 13 trillion-won company.

Similarly, Nexon Corp. (3659), an online game maker founded by a graduate school student in 1994, raised $1.2 billion in an IPO in Tokyo last year, making it the second-largest technology or Internet IPO globally in 2011.

Running for President

Probably the most successful South Korean entrepreneur of all is Ahn Cheol Soo, founder of Ahnlab Inc. (053800) that makes anti- virus software, and who has been dubbed by the local press as Korea's Bill Gates. His entrepreneurial success propelled him into the lead as the preferred candidate to become president in December elections, according to a poll published yesterday. Ahn is yet to announce whether he will run for president.

The government helps startups by giving them tax incentives and making it easier to get loans. It also may help reduce unemployment rates among youths that stood at 8 percent as of May, more than twice the national average.

"Precious talent shouldn't go to waste," President Lee Myung Bak said July 9.

Even as Samsung's recruitment nears, engineering student Sim has no plan to add a link to the Web page on his browser.

"I don't think I can maximize my full potential at these companies," he said. "Ultimately, any person starting their own business should think big."