Wednesday, November 27, 2013

(BN) Alibaba Starts Cloud Service for Chinese Financial Institutions

(Bloomberg ) Alibaba Group Holding Ltd. started offering a cloud computing service known as Ju Baopen for banks and securities firms, as China's largest e-commerce company ventures into financial-related services.

At least eight banks including Xiamen Bank Co., China Bohai Bank Co. and Tianjin Rural Commercial Bank Co. are able to provide online payment services by using Alibaba's cloud computing service, according to an e-mailed statement from the Hangzhou-based company today. The banks' online platforms will also be connected to Alipay, the company's third-party transaction system.

Billionaire Jack Ma, Alibaba's founder, is driving an expansion into financial services by the company that runs an online marketplace for goods from frozen mackerel to acupuncture lasers to Boeing Co. 737s. Alibaba is considering moving toward a listing in the U.S. and has been valued at $120 billion according to the average estimate of six analysts.

Alibaba is trying to build information technology systems for financial institutions as it promotes Alipay, which handled at least 35 billion yuan($5.7 billion) of transactions on China's Singles' Day sales promotion. China's more than 2,000 regional banks can start providing online payment services at lower costs with Alibaba's Ju Baopen, it said in the statement.

"While most smaller scale banks already have online payment systems, a lot are not connected with Alipay," Yuan Lin, an analyst at Bank of China International Ltd. in Beijing said by phone. "By providing this service, it could benefit Alipay."

Ju Baopen, which means treasure gathering basin in Chinese, may appeal to smaller banks as it could help them become more efficient and minimize purchases from companies such as International Business Machines Corp. (IBM), Oracle Corp. (ORCL) and EMC Corp. (EMC), Alibaba said in a separate statement.

(BN) Facebook Driving Retailers to Advertising Tools Ahead of Holiday

(Bloomberg ) Facebook Inc. (FB), owner of the world's largest social network, said retailers have increased use of an advertising tool that lets them send promotions to their existing customers.

The number of marketers using Facebook's Custom Audiences tool in the third quarter rose almost 75 percent from the prior period, the company will say in a blog post today.

Facebook has been tailoring its offerings for retailers ahead of the holiday shopping season, in a push to attract more advertising spending with its member base of more than 1 billion people. The Menlo Park, California-based company is asking marketers to use Custom Audiences to promote gift ideas and sales to consumers who are already customers, or to acquire new shoppers by excluding existing customers from campaigns.

U.S. online holiday sales are projected to increase as much as 15 percent to $82 billion this year, more than three times faster than the total estimated retail gain of 3.9 percent to $602.1 billion, according to the National Retail Federation.

(BN) Twitter Woos Retailers to Narrow Facebook Holiday-Ad Lead

(Bloomberg ) As his Twitter Inc. (TWTR) colleagues were celebrating the company's initial public offering this month, J.J. Hirschle was gearing up for a bigger milestone: the holidays.

Hirschle, who joined from Google Inc. (GOOG) in October, is Twitter's first executive responsible for targeting retailers to advertise on the microblogging service -- which is especially important during the most lucrative shopping season of the year. So far, the 40-year-old has held meetings with Best Buy Co. (BBY), Target Corp. (TGT) and other potential clients, pitching Twitter as a platform for product marketing.

Hirschle's mission is urgent. Twitter lags behind Facebook Inc. (FB) in dollars flowing from retailers, who are the biggest digital-advertising spenders and are critical for the San Francisco-based company to win over following its blockbuster IPO. Retailer outlays on digital ads, which made up 22 percent of total spending in 2012, are projected to swell to $13.5 billion by 2017 from $9.4 billion this year, according to researcher EMarketer Inc.

"Holiday is one of the most important periods and for me, sitting in the retail world, it is the most critical period," Hirschle said.

Good Tidings?

Twitter is banking on retailers to help fuel its ad sales after investors paid a premium for the unprofitable company at the time of IPO based on its growth potential. Since then, Twitter's stock has continued to trade well above its $26-a-share IPO price. The shares rose 2.9 percent to $40.18 at the close in New York. A Bloomberg Global Poll this month found 68 percent of investors surveyed anticipate the stock will be below its first-day close of $44.90 in six months.

Hirschle faces significant challenges in his new role. More than 80 percent of retailers expect social-media promotions to have little or no impact on holiday revenue this year, according to a Baynote Inc. survey in August. An International Business Machines Corp. (IBM) study last year found that Twitter and Facebook combined drove less than half a percent of sales on Black Friday and on Cyber Monday.

Even those retailers who have jumped aboard social-media ads prefer some of Twitter's rivals. According to an August poll by, when retailers were asked what significant social marketing investments they made ahead of the holidays, 34 percent said Facebook, 28 percent said Pinterest Inc., 19 percent said Facebook's Instagram -- and only 15 percent said Twitter.

Etsy's Experience

The experience of online-marketplace company Etsy Inc. encapsulates some of the hurdles confronting Hirschle. While Etsy uses Twitter ads to showcase products sold on its site, the Brooklyn, New York-based company finds that much more traffic comes from Facebook and Pinterest, which have more photos to draw a shopper's eye, said Etsy Chief Executive Officer Chad Dickerson.

"Twitter as a public company is going to have to try to figure it out," Dickerson said. "I could definitely see them grow, but for right now they're definitely smaller than Facebook and Pinterest."

Facebook has had a head start staffing up and organizing to work with retailers. The Menlo Park, California-based social network, which with more than 1 billion members has five times the number of users as Twitter, added four more ad products this year with retailers in mind. Facebook more than a year ago also hired Nicolas Franchet away from EBay Inc. (EBAY) to be its retail marketing head, joining Steve Biddle, who heads retail ad sales.

'More Advanced'

"Our product suite is much more advanced than a year ago," Franchet said in an interview. "The landscape has completely changed, to the point where we're advising retailers to build an ecosystem between Facebook and their sites."

Gilt Groupe Inc. Chief Marketing Officer Elizabeth Francis said the online retailer spends more on Facebook than any other social media platform. Even so, it uses Twitter to have customer-service conversations, versus Facebook as a driver of traffic and sales.

"For Twitter it's really about the real-time conversation that's happening on the fly," said Francis, whose company has been advertising on both sites since 2010. On Nov. 29, which is the post-Thanksgiving shopping day known as Black Friday, Gilt plans to run a Twitter ad campaign with the hashtag #carpeholiday that will give fans varying amounts of Gilt store credits.

At The Year Ahead: 2014 conference hosted by Bloomberg LP last week in Chicago, Martin Sorrell, CEO of global advertising firm WPP Plc, said he sees Twitter as "primarily a public relations medium." By contrast, Facebook is "a wonderful long term branding medium," he said. "It will soon be the largest country on the planet if you think of it that way."

Twitter's Appeal

Twitter has taken steps to tell advertisers that its ads -- which include promoted posts that appear in people's message streams -- can convert from eyeballs into actual purchases. In an early October blog post, Twitter cited data from Crimson Hexagon that said holiday shopping conversations on its service increased by 30 percent in 2012 over 2011 and peaked around crucial shopping dates like Black Friday. The number of retailers using ad products on Twitter has nearly doubled since last September, the post said.

Twitter has ramped up retailer outreach in other ways. In August, the company hired Nathan Hubbard, the former president of Ticketmaster Entertainment Inc., to help make it easier for users to shop via its 140-character messages known as Tweets. In September, Twitter also agreed to acquire MoPub Inc., a mobile-advertising exchange, to sell ads around the Web.

Those efforts remain in the early stages. Hubbard hasn't yet released a product for e-commerce transactions, and MoPub employees just went through new hire orientation.

Boosting Spending

Hirschle is also still determining who to hire for his team. Yet he said he has high hopes. He started at Google one month before its 2004 IPO, when their Chicago-based retail team had about 15 people. Google has since developed into an online-advertising giant.

"I really looked at this job as an opportunity to define what our value is to retail, and have the ability to really influence the products we help create to service our retail clients," Hirschle said.

Sporting goods retailer Recreational Equipment Inc. doesn't need convincing. The Kent, Washington-based company is boosting spending on Twitter this holiday season to deliver gift ideas in short video form to people who don't know what to get their loved ones. REI has had a presence on both Facebook and Twitter since 2008, according to Annie Zipfel, REI's divisional vice president of marketing.

"We at REI don't consider social media a brand experiment," Zipfel said in an interview, adding that REI has increased spending on social ads to one third of its digital-marketing budget from one fifth three years ago. "We consider it something that's going to stay."

(BN) Nestle, Gilead, Frack, Starbucks: Intellectual Property

(Bloomberg ) Nestle SA (NESN) lost a patent on one of its Nespresso single-serve coffee machines, the latest legal setback for one of its fastest-growing brands.

The European Patent Office revoked the patent, which covered the lower-cost Pixie brewer, in oral proceedings on Nov. 19 and Nov. 20, according to Rainer Osterwalder, a Munich-based EPO spokesman. Nestec SA, the unit of Nestle that held the patent, can appeal the decision once the full minutes of the proceedings are released in a few weeks, he said.

Nestle, the world's largest coffee maker, has said its Nespresso machines are protected by 1,700 patents, yet to date the company has been unable to stem the flow of less-expensive copycat capsules from rivals like D.E Master Blenders 1753 and Mondelez International Inc. (MDLZ)

Last month, an EPO appeals board revoked another Nespresso patent, and in April the Vevey, Switzerland-based company lost a battle to block Dualit Ltd. from making capsules in Britain.

"We are disappointed by the decision," which "fails to recognize the unique innovations inherent in the design of the Nespresso system," Diane Duperret, a spokeswoman for the brand, said by e-mail. Nespresso will decide whether to appeal once the EPO publishes the ruling, she said.

The patent covered a brewing unit "that is of simpler conception and of lower cost compared to existing brewing units," according to the patent specification on file with the EPO. In 2011, Nestle introduced the Nespresso Pixie, which costs 149 euros ($201) on its website, compared with 599 euros for its Gran Maestria machine.

Since its debut in 1986, Nespresso has become one of the company's fastest-growing and most profitable brands. In 2010, Nespresso accounted for about 15 percent of Nestle's growth, Nomura analyst David Hayes has estimated. The Swiss company forecast in April the brand may achieve about 500 million Swiss francs ($549 million) of additional sales this year. Nestle stopped reporting sales details for Nespresso last year.

Gilead's Indian Patent for Hepatitis C Drug Opposed by Aid Group

Gilead Sciences Inc. (GILD)'s application for an Indian patent on its hepatitis C treatment is being opposed by the New York-based Open Society Foundation's Initiative for Medicines, Access & Knowledge, India's Financial Times reported.

Tahir Amin, who heads the organization, told the Financial Times the drug is an "old science, known compound" and that the patent shouldn't be granted in India.

Medecins San Frontieres, the international medical aid organization also known as Doctors Without Borders, said that even if Gilead offers a discount on its $80,000 price for the drug, cost would make it inaccessible to most with hepatitis C in low and middle-income countries, according to the Financial Times.

Foster City, California-based Gilead, which has won European regulatory approval for the drug, said it will look at opportunities to incorporate the treatment into its drug-access programs, the newspaper reported.

Trade Secrets/Industrial Espionage

Halliburton Argues Fracking Fluid Recipes Must Stay Secret

Halliburton Co. (HAL), the Houston-based oilfield services company, argued that Wyoming's trade secret laws protect against the disclosure of the chemical formulas for the fluids used in the process of hydraulic fracturing for oil and gas, Associated Press reported.

The argument came in a case before the state's high court stemming from disclosure requirements put into place in 2010 and requests environmental groups had made for a list of the fracking fluids' ingredients, AP reported.

After the Wyoming Oil and Gas Conversation Commission refused the environmental groups' request, the groups sued, complaining the commission had failed to determine whether the trade secrets status for the fracking chemicals was justified, according to AP.

Oral arguments were made in the case Nov. 20, and Wyoming Chief Justice Marilyn Kite said the court will issue a written ruling, the wire service reported.

Amanda Knox Defense Expert Calls Work on Her Case Trade Secret

A forensic DNA expert employed in the murder defense of U.S. exchange student Amanda Knox declined to release e-mails and consulting services agreements, claiming they are protected trade secrets, according to an article by a lawyer from San Francisco's Orrick, Herrington & Sutcliffe LLP.

The article, by Eulonda Skyles and published on the Mondaq website, includes a link to a letter from Boise State University, where the expert, Professor Greg Hampikian, is employed.

Knox was an exchange student in Perugia, Italy, when her roommate Meredith Kercher was killed in 2007. Knox and her ex-boyfriend Raffaele Sollecito were convicted of murder in 2009 and sentenced to prison before the verdict was overturned. Earlier this year, Italy's highest court approved a prosecutor's request to try the pair again.

A letter from the Boise State Office of General Counsel, said Hampikian's work on Knox's defense is of potential economic value and therefore recognized as a trade secret under Idaho law.

The university was responding to a letter from a journalist researching the case who found no court documents backing up Hampikian's public statements that his research played a part on Knox's successful appeal of her 2009 conviction, according to Mondaq.

GoldieBlox Says Toy Video Doesn't Infringe Beastie Boys' Song

GoldieBlox Inc., a toy company founded to inspire girls to go into engineering and science, asked a federal court to declare that an ad it created doesn't infringe the copyright for "Girls," a 1987 song by the Beastie Boys.

The suit, filed Nov. 21 in federal court in Oakland, California, is related to a video that has received more than 8 million hits on Google Inc.'s YouTube video-sharing website.

The video is set to a new recording of the song with new lyrics, Oakland-based GoldieBlox said, claiming the ad is a parody created "specifically to comment on the Beastie Boys song."

Lyrics for the two versions are printed side by side in the complaint. In the Beastie Boys' version, girls are said to be good for doing dishes, cleaning house and doing the laundry.

In the GoldieBlox version, girls are "more than princess maids" and they can build spaceships, "code the new app" and "grow up knowing that they can engineer that."

The parody was created "to further the company's goal to break down gender stereotypes and to encourage young girls to engage in activities that challenge their intellect," GoldieBlox said.

Lawyers for the Beastie Boys have told GoldieBlox that unauthorized use of the song is "a big problem" with "very significant impact," according to the complaint.

A representative of the band told the Huffington Post that no demand letter had been sent or complaint filed against GoldieBlox when the toy company sued.

The case is GoldieBlox Inc. v. Island Def Jam Music Group, 13-cv-05428, U.S. District Court, Northern District of California (Oakland).


Starbucks' Compensation Demand Prompts Coffee Shop Name Change

Starbucks Corp. (SBUX)'s demand for compensation from a Bangkok coffee seller persuaded him to change the name of his company, the Bangkok Post reported.

A Thai court had ordered Damrong Maslee to change the name of his "Starbung Coffee" in 2012, and after he failed to do so, the Seattle-based coffee giant demanded compensation for what it said was trademark infringement, according to the newspaper.

Damrong used a green-and-white round sign with a Muslim man in the center instead of the double-tailed mermaid that is the Starbucks logo, the Post reported.

He has changed the shape of his logo and his coffee company is now called "Bung's Tears," the newspaper reported, noting that "bung" means "brother" in Malay.

Korean Airlines Sues Florida Travel Service for Infringement

Korean Air Lines Co. (003490), the Seoul-based carrier, sued a Florida-based travel-services company for trademark infringement.

Skypass, of North Miami Beach, filed an application with the U.S. Patent and Trademark Office in September 2012 to register "sky pass" as a mark to be used for travel services. The airline initiated administrative proceedings in June to block registration, according the patent office database. The evidence-sharing phase of those proceedings ends in February.

In a complaint filed Nov. 22 in federal court in Miami, the airline accused Skypass LLC of unauthorized use of the trademarks. According to the complaint, the Florida company's use of "" infringed "Skypass," which the airline said it has used for 15 years for a membership-rewards program.

The airline asked the federal court to bar the Florida company's use of both "Skypass" and "sky pass," and for awards of the domain name, together with the pending trademark application, money damages, litigation costs and attorney fees.

Skypass didn't respond immediately to an e-mailed request for comment on the suit.

The case is Korean Air Lines Co., v. Skypass LLC, 13-cv-24268, U.S. District Court, Southern District of Florida (Miami).

(BN) Rovio to Supercell Success Attracts Russians to Finland

Nov. 19 (Bloomberg) -– Finland's technology startups, which long viewed Silicon Valley as a gateway to funding and global recognition, have found an alternative closer by: Russia.

The Eastern neighbor's venture-capital firms, which have gained expertise in technology investments from Facebook Inc. to Twitter Inc. and local companies such as Yandex NV, are now proving a valuable partner to Finland's entrepreneurs. Russians are snapping up Web, software and nanomaterials stakes, drawn to a market spurred by engineering talent freed from Nokia Oyj.

Finnish startups are seeking to build on the successes of "Angry Birds" maker Rovio Entertainment Oy and Supercell Oy, valued at $3 billion in a deal with Softbank Corp. A 5,400-mile (8,700-kilometer) distance to Silicon Valley and limited availability of local venture capital have hurt the startups' fundraising ability, opening an opportunity to Russian investors such as SBT Venture Capital and Almaz Capital Partners.

"We see much more activity in Russia coming from the Finnish startup scene than from any other country," said Pavel Bogdanov, a partner at Moscow-based Almaz, in an interview last week in Helsinki, where he was scouting for investment targets. "Finland can be a hub toward Russia."

More than 30,000 new companies have been created in Finland each year since 2006, partly because of the thousands of positions eliminated by the country's technology cornerstone Nokia amid mobile-phone market-share losses to Apple Inc. and Samsung Electronics Co. Still, many of the new companies have had to resort to bank loans or applying for public funding amid a lack of a sufficient local venture-capital industry.

'Right People'

Finnish retail-analytics provider Walkbase Oy said last week it raised 3 million euros ($4.1 million) from SBT, an investment vehicle of Russia's largest bank OAO Sberbank, and Olli-Pekka Kallasvuo, Nokia's former chief executive officer.

Walkbase, based in Turku, southern Finland, announced the deal at Slush, a Helsinki conference that has expanded into the Nordic region's biggest startup event. The annual gathering, which took place for the sixth time, is increasingly attracting Russian investors among its more than five thousand attendees. Investors participating had combined assets of more than 60 billion euros, double the amount last year, the organizers said in an statement.

"It really started at last year's Slush," Walkbase CEO Tuomas Wuoti said in an interview at this year's event between pitches to investors. "We met a couple of angel investors and through them we gained access to the right people in Russia."

Nanomaterials, Diamonds

Walkbase makes software for anonymously tracking customers' movements through their smartphones with an accuracy of about three meters. The aggregated and encrypted data is analyzed to help identify customer behavior, such as responses to marketing and time spent at specific sections of a store. Sberbank plans to adopt the technology across 18,000 branches.

Moscow-based OAO Rusnano, a state-controlled technology investor, last year invested 25 million euros in Beneq Oy, a thin-film coating company based in Vantaa.

"Finland is a perfect gateway for companies from Russia," Artem Skubenko, an investment manager at venture-capital firm Enso Ventures, said in an interview at Slush.

Enso Ventures, whose investors include wealthy individuals with Russian origins, has backed two Finnish nanomaterials makers. Picodeon Oy, based in Ii, makes thin-film coating solutions used in medical equipment to machinery molds and Vantaa-based Carbodeon Oy supplies nano diamonds.

Two Wars

The Finnish government is helping to deepen the ties with Russia to help spur an economy reeling from Europe's debt crisis and plunging sales at companies including Nokia. Following two wars between the countries, trade intensified after 1945 when trains, ships and machinery paid to Russia as reparations laid the foundations for Finland's metal industry.

"Historically, the economic cooperation between Finland and Russia happened on a governmental level," Prime Minister Jyrki Katainen said in an interview at Slush, wearing a blue hoodie in a nod to the traditional startup attire. "Now is really the first time that individual entrepreneurs, private-equity investors and researchers are cooperating. What we can do is make the environment favorable."

Public Funding

Tekes, the Finnish funding agency for technology and innovation, started working with Russia's answer to Silicon Valley, Skolkovo, in June. Last month, Tekes and Skolkovo announced public funding specifically for joint projects involving companies from both nations.

"The idea is to get companies from the startup scene to collaborate more effectively and lower the barrier for Finnish companies to enter Russia and find partners there," said Pekka Soini, director general of Tekes, which funded companies including Supercell and Rovio in the early stages.

Finnish technology startups are also targeting Russia as a market for their products. The country of about 143 million people dwarfs Finland, with a population of 5.4 million.

Web of Trust, a website-reputation tool from Helsinki-based WOT Services Oy, reached 100 million downloads this month. About a third of downloads came from Russia in the past year, during which the service doubled its users, CEO Markus Suomi said.

"Russia will be a test market for us in the future, we'll try out new ideas that require a sufficiently large relative user base," said Suomi, who worked at software development at Nokia until 2007. "This is certainly made easier by Russia's proximity and us having Russian citizens in our team."

Jolla Oy, a smartphone startup founded by ex-Nokia engineers, said this month its first handset will include the application store of Yandex, a Russian rival to Google Inc.

'Different Level'

Russians are attracted to Helsinki as Supercell and Rovio's growth means the city has joined Europe's main technology clusters aside London, Berlin and Stockholm, according to John Lindfors, partner at DST Global, billionaire Yuri Milner's firm that invested in Twitter and Facebook before their initial public offerings. Lindfors previously ran Goldman Sachs Group Inc.'s Europe technology investment-banking team.

"Talented young engineers used to aim for Nokia as their first priority -- now interest in entrepreneurship is at a completely different level," he said in an interview at a hotel bar in Helsinki after an investor meeting with Prime Minister Katainen. "This has changed in the past three or four years. There are entrepreneurs who have had success and are reinvesting in the community and getting involved in the companies."

(BN) NSA Spying Risks $35 Billion in U.S. Technology Sales

(Bloomberg ) International anger over the National Security Agency's Internet surveillance is hurting global sales by American technology companies and setting back U.S. efforts to promote Internet freedom.

Disclosures of spying abroad may cost U.S. companies as much as $35 billion in lost revenue through 2016 because of doubts about the security of information on their systems, according to the Information Technology & Innovation Foundation, a policy research group in Washington whose board includes representatives of companies such as International Business Machines Corp. (IBM) and Intel Corp. (INTC)

"The potential fallout is pretty huge given how much our economy depends on the information economy for its growth," said Rebecca MacKinnon, a senior fellow at the New America Foundation, a Washington policy group. "It's increasingly where the U.S. advantage lies."

Any setback in the U.S. push to maintain an open Internet also could inflict indirect damage on companies such as Apple Inc. (AAPL) and Google Inc. (GOOG) that benefit from global networks with few national restrictions.

Almost 40 percent of the world's population, or 2.7 billion people, are online, according to the International Telecommunication Union, a Geneva-based United Nations agency.

Cisco Systems Inc. (CSCO), the world's largest maker of computer-networking equipment, said this month that the NSA disclosures are causing some hesitation among customers in emerging markets.

Orders in China fell 18 percent in the three months ended Oct. 26. Elsewhere, Robert Lloyd, head of development and sales, said on a conference call Nov. 13, "it's not having a material impact, but it's certainly causing people to stop and then rethink decisions."

'Serious Damage'

News about U.S. surveillance disclosed by former NSA contractor Edward Snowden has "the great potential for doing serious damage to the competitiveness" of U.S. companies such as Cupertino, California-based Apple, Facebook Inc., and Microsoft Corp., Richard Salgado, Google's director for law enforcement and information security, told a U.S. Senate panel Nov. 13. "The trust that's threatened is essential to these businesses."

The spying revelations have led governments around the world to consider "proposals that would limit the free flow of information," Salgado said. "This could have severe unintended consequences, such as a reduction in data security, increased cost, decreased competitiveness, and harm to consumers."

Brazil, Germany

Countries such as China and Russia that are seeking to impose more national controls on the Internet are finding their views gaining ground. Rising economic powers, including India, Mexico and South Korea, are weighing further limits. Brazil's President Dilma Rousseff, a target of NSA surveillance, is calling for a new conversation about Internet governance with support from Germany, whose chancellor, Angela Merkel, also was an NSA target.

The uproar in Germany will probably hurt Akamai Technologies Inc. (AKAM)'s business there, according to Tom Leighton, chief executive officer of the Cambridge, Massachusetts-based company that helps corporate customers deliver online content faster.

"It's clearly bad for American companies," Leighton said Nov. 20 at "The Year Ahead: 2014," a two-day conference in Chicago hosted by Bloomberg LP. "It's particularly bad now in Germany, where it's really being played up, to whip up anti-American corporate sentiment. We'll probably lose some business there."

Data Flows

Technology companies aren't the only ones facing potential damage from disclosure of the NSA's surveillance, said Myron Brilliant, an executive vice president with the U.S. Chamber of Commerce in Washington. Studies show products and services that rely on cross-border data flows are expected to add an estimated $1 trillion in value to the U.S. economy annually over the next 10 years, he said.

"This is a priority issue, not just for technology or Web-based companies, but also small- and medium-sized businesses," Brilliant said, listing finance, manufacturing, health care, education, shipping "and other areas not commonly thought of as Internet companies."

Information technology companies were the first to see fallout after Snowden fled to Hong Kong in May and began releasing details of U.S. surveillance programs. Snowden is now living in Russia.

Cisco in China

Facing a backlash that's already crimping sales in China, San Jose, California-based Cisco may be locked out of future purchases if the Chinese government cites security concerns to favor domestic companies in a projected surge of IT spending, to $520 billion in 2015, to increase urban broadband speeds and expand rural Internet access.

The cloud computing market will be valued at $207 billion by 2016, according to the Information Technology & Innovation Foundation.

A survey by the Cloud Security Alliance, an industry group, found that 10 percent of its non-U.S. members have canceled contracts with U.S.-based cloud providers since May. Fifty-six percent said they'd be less likely to use one.

"People aren't going to trust the U.S. and U.S. companies as much," said Jason Healey, director of the Cyber Statecraft Initiative at the Atlantic Council, a Washington-based policy group. "You're going to see national boundaries begin in cyberspace."

Internet Regulation

For years, the U.S. has lobbied against such an approach, advocated by countries including China and Russia. In 2011, they submitted a proposed "Internet code of conduct" to the United Nations. The U.S. has pushed back, "trying hard to get up-and-coming countries like Brazil to trust us, not the Chinese, about how the Internet should look," Healey said.

A top-down intergovernmental approach "would hamper the pace of innovation and hamper global economic development, and it could lead to unprecedented control over what people say and do online," Daniel A. Sepulveda, the U.S. State Department's coordinator for international communications and information policy, said in a Nov. 6 phone briefing.

Today, a UN panel adopted a resolution sponsored by Brazil and Germany expressing concern over the "negative impact" of Internet surveillance. The 193-member General Assembly will vote next month on the document, which calls for a report by next year on privacy protections "in the context of domestic and extraterritorial surveillance and/or interception of digital communications and collection of personal data."

'Political Message'

The move sends a "political message" that "the right to privacy has to be protected" even though the resolution isn't legally binding, Peter Wittig, Germany's ambassador, told reporters after the resolution's adoption.

Since Snowden's disclosures revealed that the NSA was monitoring exchanges between Rousseff and her top aides, the Brazilian president has led an effort to establish Internet protections.

Brazil is considering legislation that would require companies such as Mountain View, California-based Google to use local data centers or equipment developed by the government. A preference for non-U.S. providers could hurt companies such as Sunnyvale, California-based Juniper Networks Inc. (JNPR), which accounted for 10 percent of Brazil's router revenue in the first half of the year, or Cisco, which holds 56 percent.

German E-Mail

In Germany, Bonn-based Deutsche Telekom AG (DTR) is part of an alliance of companies promoting a system to keep German e-mail and Web searches within the country.

"The private sector is very worried about this because it messes with what might be most economic way to route message flows and traffic," said Gene Kimmelman, project director for human rights and Internet policy at the New America Foundation, a Washington policy group. "If you're forced to have equipment in a certain country, by law, it might add significant expense to an operation."

European Union legislators set to negotiate a trade agreement with the U.S. want to include strict rules for American companies handling EU citizens' data and fine them heavily for violations.

Some of the anger over the NSA is disingenuous, given that there's "a substantial awareness that surveillance goes on" in many countries, Kimmelman said.

Even so, Google's Salgado said international reaction to the NSA's surveillance risks changing the nature of the Internet.

He said proposals being advanced could lead to the "creation of a splinter net, broken up into smaller national regional pieces with barriers around it to replace the global Internet that we know today."

(BN) Apple, Sony, FX, Liberty Global: Intellectual Property

(Bloomberg ) Apple Inc. (AAPL), the world's most valuable technology company, was found by a federal jury not to infringe the patent of a 70-year-old electrical engineer who claims he came up with the idea for the smartphone.

On Nov. 25, the jury in Los Angeles rejected the claim by NetAirus Technologies LLC, the company owned by inventor Richard L. Ditzik, that Apple's iPhone infringes its patent for a handheld device that combines computer and wireless-communication functions over both a Wi-Fi and cellular telephone network.

The trial in Los Angeles was limited to damages NetAirus could seek for infringement by Apple's iPhone 4 since October of last year, when the patent was recertified with changes in the language of the claims. NetAirus has filed a separate lawsuit for alleged patent infringement by the iPad and iPhone models that Apple started selling since the suit was filed in 2010.

The jury of six women and two men had been deadlocked, repeatedly sending notes to the judge during three days of deliberations saying they were unable to reach the unanimous verdict required on each of the five main questions on the verdict form regarding whether Apple had infringed on the patents and damages. The judge had sent them back to continue deliberations.

After jurors sent a note saying they were still deadlocked the morning of Nov. 25, attorneys agreed to accept a majority vote, and sent them back to deliberate again. A majority of the panelists voted in favor of Apple on all four questions about the patent at issue. They didn't reach the damages question.

Ditzik and his lawyer, Ray Niro of Chicago-based Niro Haller & Niro, said after the verdict they were disappointed with the outcome and are considering whether to appeal.

Attorneys for Apple declined to comment on the verdict.

The case is NetAirus Technologies LLC v. Apple Inc., 10-cv-03257, U.S. District Court, Central District of California (Los Angeles).

Sony Seeks 'SmartWig' Patent for Hairpieces With Camera, Sensors

Sony Corp. (6758), which popularized portable music players with the Walkman, is seeking a U.S. patent for "SmartWig" hairpieces that could help navigate roads, check blood pressure or flip through slides in a presentation.

The wig would communicate wirelessly with another device and include tactile feedback, Sony said in the application 20130311132, published in the database of the U.S. Patent & Trademark Office Nov. 21. Depending on the model, the hairpiece may include a camera, laser pointer or global positioning system sensor, it said.

The development of wearable technology such as eyeglasses, watches and earpieces is expanding as consumers seek new ways to integrate computers into everyday life. The race to gain a foothold in a market that Juniper Research estimates will jump about 14-fold in five years to $19 billion is luring companies including Sony, Google Inc. and Samsung Electronics Co. (005930)

Google Inc.'s Motorola Mobility unit's application 20130297301, covering a different kind of wearable technology, was published Nov. 7. The search engine company is seeking a patent on technology covering the use of an electronic neck tattoo as microphone for a mobile electronic device.

The tattoo would be placed near a user's throat. It could be applied with adhesive to either humans or animals, or could be embedded in a band or collar, according to the application.

"It is an object to provide an improved wearable computing device," Sony said in its new patent application. "The at least one sensor, the processing unit and the communication interface are arranged in the wig and at least partly covered by the wig in order to be visually hidden during use."

The wig could be made from "horse hair, human hair, wool, feathers, yak hair, buffalo hair or any kind of synthetic material," Sony said.

Saori Takahashi, a Tokyo-based spokeswoman for Sony, said in a phone interview the company hasn't yet decided whether to commercialize the technology.

TransPerfect Wins Order Barring Sales of Infringing Product

MotionPoint Corp., a maker of technology that translates business websites into foreign languages for customers such as Victoria's Secret Stores LLC and Delta Air Lines Inc. (DAL), failed to persuade a judge not to block sales of its core product.

The ruling came in a patent-infringement lawsuit brought in June 2010 by New York-based TransPerfect Global Inc., a MotionPoint competitor whose customers include Home Depot Inc. (HD) and American Airlines Inc.

A federal jury in Oakland, California, found in July that MotionPoint directly infringed a TransPerfect patent and should pay $1 million in damages. TransPerfect then sought a permanent injunction barring the sale or use of MotionPoint technology that directly or indirectly infringes the patent.

MotionPoint, which provides translation services for more than 1,800 websites, said in a court filing that a broad injunction might deny millions of foreign-language speakers access to translated versions of its customers' websites.

U.S. District Judge Claudia Wilken granted TransPerfect's request for an injunction Nov. 15. She stayed MotionPoint's compliance with the order until she rules on all of the companies' post-judgment motions.

Counsel for both parties sent Wilken a letter Nov. 25 saying they agreed on a private mediator to conduct court-ordered talks. They chose Wayne D. Brazil, a former magistrate judge from the San Francisco federal court now working for Irvine, California's Judicial Arbitration and Mediation Services Inc.

The case is TransPerfect Global Inc. v. MotionPoint Corp., 10-cv-02950, U.S. District Court, Northern District of California (Oakland).


FX Concepts Seeks to Sell Trademark to Ruby Commodities

FX Concepts LLC, the currency hedge fund founded by John Taylor in 1981, asked a bankruptcy court for permission to sell its trademark and trading models to Ruby Commodities Inc. for $7.48 million after an auction.

Ruby made the best offer for all the company's assets after 39 rounds of bidding, International Foreign Exchange Concepts Holdings Inc., the holding company for FX Concepts, said in a Nov. 25 filing in U.S. Bankruptcy Court in Manhattan. Before that, FX Concepts proposed to sell its trading models individually and drew offers that valued them at as much as $3.48 million, according to court papers.

The sale to Ruby shouldn't be subject to review, even though the two companies have a "tenuous connection" because an FX Concepts employee is a director of a fund managed by Ruby, FX Concepts said.

"These selections were made in good faith, without collusion or improper influence," FX Concepts said. Aktis Capital Management Ltd. made the second-highest total offer of $7.38 million.

The sale includes trading models, hardware, historical data and the FX Concepts trademark. The company's intraday trading model was valued at $1.3 million after 14 bids, the highest value of any asset, before aggregate bidding began.

FX Concepts, once the world's largest currency hedge fund with more than $14 billion in assets at its peak, said in October it would shut its investment-management business. The New York-based company filed for bankruptcy eight days later.

The "final straw" was the decision by the San Francisco Employees' Retirement System, which accounted for almost 66 percent of FX Concepts' assets under management in September, to pull the more than $450 million it had invested, the company said.

Investor funds have been, or will be, returned, International Foreign Exchange Concepts has said.

The case is In re International Foreign Exchange Concepts Holdings Inc. 13-bk-13379, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

LVMH Faces Backlash for Red Square Exhibit Eclipsing Lenin Tomb

A lawmaker from President Vladimir Putin's United Russia party is seeking to remove an LVMH Moet Hennessy Louis Vuitton SA (MC) exhibit in the middle of Red Square that's bigger than Lenin's tomb.

Alexander Sidyakin filed a complaint with the antitrust watchdog asking it to determine if the French luxury goods maker violated advertising laws by building a giant pavilion on the historic site in the shape of a wooden chest adorned in its trademark pattern and logo, according to his website.

The exhibit, which commemorates the 120th anniversary of the adjacent GUM mall where Louis Vuitton has its flagship Russian store, is 30 meters (32 yards) long and 9 meters tall, according to the Paris-based company. The mausoleum where Bolshevik leader Lenin's mummified body is on display nearby is 24 meters long and 12 meters tall.

The installation is of "unreasonably gigantic size" and violates the architectural feel of the entire complex, Sidyakin said in his complaint. It obscures views of St. Basil's Cathedral and the Kremlin towers and may inconvenience Muscovites and tourists alike, Sidyakin said, noting that such advertising isn't allowed at a Unesco World Heritage site.

The exhibit is designed to celebrate Louis Vuitton's long history of supplying Russian customers and the chest itself is a giant replica of one ordered by Prince Vladimir Orlov in the early 20th century, the company said in a statement, declining to comment on Sidyakin's complaint.

Marina Saranskaya, a spokeswoman for Federal Anti-Monopoly Service, declined to comment on Sidyakin's petition.


ISPs Can Block Sites With Copyrighted Content, Court Aide Says

Liberty Global Plc (LBTYA)'s Austrian unit, UPC, and other Internet service providers can be forced to block access to sites that post copyright-infringing material, an adviser to the European Union's highest court said.

"A specific blocking measure concerning a specific website is not disproportionate, in principle," Pedro Cruz Villalon, an advocate general at the EU Court of Justice in Luxembourg, said in a non-binding opinion yesterday. In light of the facts of each case, national courts should in future seek to achieve the right balance between the rights of the users, the ISP and the copyright owners, he said.

The case was triggered after two companies sought an order to have UPC Austria block access to a website that had posted films online owned by the companies. An Austrian court referred the case to the EU's top tribunal for guidance on the scope of EU copyright rules and the duties of Internet service providers.

Any blocking mechanism must target illegal material and not access to lawful online content, the court adviser said today. In a case involving Belgacom SA (BELG)'s Scarlet in 2011 the EU court ruled that ISPs can't be forced by a national court to block users from illegally sharing music and video files.

Rulings by the EU court normally follow the opinion within four to six months.

Wednesday, November 20, 2013

Lunch Talk: Placebo Effects.

UC Berkeley Cognitive Science C102, Lecture 6.

Expensive placebos work better than cheap ones.
Big placebo pills are more effective than little placebo pills.
Dark-colored placebo pills are more effective than light-colored placebo pills.
Placebo pills that taste bad are more effective than placebos that taste good.
Placebo delivered intravenously is more effective than a placebo delivered intra-muscularly.
Placebo delivered through a needle are more effective than delivered through the mouth.

If you tell somebody that you are giving him a placebo it stops being effective.

Tuesday, November 19, 2013

(BN) Arizona Approves Grid-Connection Fees for Solar Rooftops

(Bloomberg ) Arizona will permit the state's largest utility to charge a monthly fee to customers who install photovoltaic panels on their roofs, in a closely watched hearing that drew about 1,000 protesters and may threaten the surging residential solar market.

The Arizona Corporation Commission, which regulates utilities in the state, agreed in a 3-to-2 vote at a meeting yesterday in Phoenix that Arizona Public Service Co. may collect about $4.90 a month from customers with solar systems.

Arizona Public is required to buy solar power from customers with rooftop panels, and the commission agreed with its argument that the policy unfairly shifts some of the utility's costs to people without panels. Imposing a fee designed to address this issue may prompt power companies in other states to follow suit, and will discourage some people from installing new systems, according to the Sierra Club.

The "decision to add new charges to Arizona's main rooftop solar program will stifle the growth of our clean-energy economy," Will Greene, the organizing representative for the Sierra Club in Phoenix, said in a statement yesterday.

The fee will apply to solar systems installed or contracted after Dec. 31 and works out to 70 cents a kilowatt. A home with a typical 70-kilowatt solar system will pay $4.90 a month, and people with more panels will pay more.

Arizona Public has about 18,000 solar customers now who won't be affected. It's adding about 500 more a month and expects to have about 20,000 customers that won't pay the fee for sending excess solar energy to its system.

'Falls Short'

Arizona Public had requested a fee of $50 a month or more, and the commission's decision "falls well short of protecting the interests of the 1 million residential customers who do not have solar panels," Chief Executive Officer Don Brandt said in a statement.

The company was pleased the commission "determined that net metering creates a cost shift," Brandt said. Arizona Public is a unit of Phoenix-based Pinnacle West Capital Corp. (PNW)

Arizona is one of 43 states that require utilities to buy solar power from customers under a policy called net metering. This lowers the monthly power bills for people with solar systems and reduces revenue for the power companies. Arizona Public argued that the policy forces it to raise rates on all customers to cover the fixed costs of maintaining the grid.

Cost Shift

"We preserved customer choice in Arizona while recognizing that these cost shifts are real," said Bob Stump, chairman of the commission. "I think it's a fair outcome." The regulators overruled their staff, who recommended in September that the issue be taken up in the utility's next formal rate case in 2015.

The utility spent $3.7 million to promote its argument, compared with about $330,000 spent by the solar industry, according to documents filed with the commission.

An estimated 1,000 people were at the meeting, almost universally opposing the fee. They were joined by representatives from SolarCity Corp. (SCTY), Sunrun Inc. and other solar developers who said imposing additional costs on consumers would slow the adoption of renewable energy.

"Its totally unfair to put any charge on customers that are simply reducing demand," said Court Rich, an attorney with the Rose Law Group in Scottsdale, Arizona, who represents solar companies including SolarCity and Sunrun. "This is a new charge and we don't know yet how it will affect the market."

SolarCity and Sunrun are among the companies that offer rooftop systems to consumers at little to no upfront costs. They install the panels and the customers sign long-term contracts to buy the power, typically for less than they pay their local utilities.

Precedent Setting

A monthly fee may stifle demand, said Shayle Kann, vice president of research at GTM Research in Boston.

"If you were going to save 15 bucks, now all things being equal, you'd save 10 bucks," he said in an interview today. "Is ten bucks enough still to entice customers? If the answer is no, then it eats into SolarCity's business."

The amount of the fee may not be as important as the fact that the commission recognized that net metering is fundamentally changing the way utilities do business, Kann said.

"In the narrow context of what is happening in Arizona right now, it was a positive thing for solar. From a broader sense, it is precedent-setting as the first surcharge specifically for net metered customers."

Other States

The utility industry has been closely watching the Arizona case, which may lay the groundwork for similar fees in other states. California, the biggest solar state, approved legislation in September that would let regulators approve fees of as much as $10 a month for customers with solar power.

"There are a number of state commissions currently reviewing outdated and unsustainable net metering policies," Tom Kuhn, president of the utility trade group Edison Electric Institute, said in a statement. "The commission recognized that current net metering policies unfairly shift costs from solar homes to non-solar homes."

(BN) Patent Legislation, Apple, Yahoo: Intellectual Property

(Bloomberg ) Senate Judiciary Committee Chairman Patrick Leahy, a Vermont Democrat, and Senator Michael Lee, a Utah Republican, introduced legislation to protect businesses and innovators who are targeted by so-called patent trolls.

The objective of the bipartisan Patent Transparency and Improvements Act of 2013 is to increase transparency in patent ownership, make procedural reforms in patent litigation, combat frivolous demand letters and improve resources for small businesses that are targeted in patent infringement suits, among other provisions, according to a statement yesterday from Leahy's office. 

Sheldon Whitehouse, a Rhode Island Democrat, is an original co-sponsor of the bill.

Leahy said in a statement that "America's patent system is the envy of the world, but unfortunately some bad actors are misusing the system to sue unsuspecting consumers or extort monetary settlements by making misleading demands."

Apple Can Seek U.S. Block of Samsung Smartphones, Court Says

Apple Inc. (AAPL) can pursue a ban on sales of some Samsung Electronics Co. (005930) products found to infringe its patents on smartphone features, after winning a U.S. appeals court ruling.

The patents cover features that Apple says make its iPhone unique, such as multitouch technology. The Cupertino, California-based company can't block Samsung products for infringing patented designs, the U.S. Court of Appeals for the Federal Circuit said in an opinion posted yesterday on its website. The ruling gives Apple another chance to curb sales of its top competitor in the $279.9 billion market for smartphones.

Apple must prove the features were a factor customers used in selecting which smartphone to buy, though it doesn't have to show that it was the single driving factor, the court ruled. The trial judge, in rejecting Apple's request for a sales block on Samsung phones, said Apple would have to prove that each feature drove sales of smartphones.

"To the extent these statements reflect the view that Apple was necessarily required to show that a patented feature is the sole reason for consumers' purchases, the court erred," the three-judge panel in Washington ruled. "Rather than show that a patented feature is the exclusive reason for consumer demand, Apple must show some connection between the patented feature and demand for Samsung's products."

While many of the phones in this case are no longer sold, Apple has another case against Samsung going to trial in March over newer models, including Samsung's Galaxy S III. Should U.S. District Judge Lucy Koh, who is presiding over the case, impose a ban on the older models, Apple could argue that newer phones are the same products gussied up with new names.

The question sent back to the judge "concerns a very narrow scope of evidence presented by Apple," Adam Yates, a Samsung spokesman, said in a statement. The company is confident it can avoid any sales ban, he said.

Kristin Huguet, an Apple spokeswoman, didn't immediately return messages seeking comment.

Emerson, ABB Rebuffed by Top Court in $111 Million Patent Case

The U.S. Supreme Court let stand a $111 million award won by SynQor Inc. in a patent-infringement suit against nine makers of computer-system power converters, including units of Emerson Electric Co. (EMR) and ABB Ltd. (ABB)

The justices yesterday turned away an appeal by the defendants, leaving intact a jury verdict and appeals court decision favoring SynQor, a manufacturer based in Boxborough, Massachusetts.

The dispute involved safety features that control how much electricity goes to large computer systems, as well as to telecommunication and data communication equipment.

Under the judgment in the case, Emerson's Artesyn and Astec units had to pay $14 million of the award and ABB's Power-One unit more than $25 million. The companies also were told to pay additional damages for infringement.

The case is Artesyn Technologies v. SynQor, 13-375.


Port-to-Facebook Sales Mission Shows Pacific-Trade Deal Jeopardy

The mounting resistance in the U.S. to a Pacific-region trade deal can be found in the travel itinerary of its chief salesman: Michael Froman.

Over the past week Froman, the U.S. Trade Representative, has touted the Trans-Pacific Partnership at the Port of Los Angeles, at Paramount Pictures Corp. studios in California, a breakfast hosted by Facebook Inc. (FB) in San Francisco and an "armchair discussion" about trade with Agriculture Secretary Tom Vilsack at that city's Commonwealth Club.

As chief negotiators from the 12 nations drafting the accord meet for discussions in Salt Lake City, Froman today will make the pitch at two events in Washington, including a lunch hosted by the World Wildlife Fund, which says the agreement must have provisions to discourage illegal trade in timber and animals. The countries negotiating the pact want to reach an agreement by the year's end, as opposition from Congress, consumer groups, automakers and labor unions mounts over a range of issues.

"What we do in TPP will matter for the global trading system," Froman said Nov. 16 after a visit to the Port of Los Angeles. "Ultimately, TPP can serve as a platform for regional integration, and support and bolster the multilateral trading system."

Republicans in Congress have said President Barack Obama's administration isn't doing enough to advance its trade agenda, including obtaining approval from Congress this year to put the TPP and other future trade deals on a fast track for congressional approval without amendment.

The Pacific accord, which would cover a region with about $28 trillion in annual economic output, would go beyond usual trade pacts dealing with tariffs and traditional goods like agriculture. It would establish rules for trade in digital commerce and include environmental standards and protections for companies that compete against government-backed businesses.

The other nations involved in the discussions are Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. The U.S. is also pursuing a separate free-trade accord with the 28-nation European Union.

The Pacific talks have run into a series of obstacles. The anti-secrecy group WikiLeaks on Nov. 13 released a 94-page document said to be a draft of the intellectual-property chapter of the accord. Froman's office declined to comment on the release.


Novelist Loses Copyright Infringement Dispute Over Horror Movie

A plaintiff's copyright-infringement claim based on alleged similarities between his psychological-thriller novel and a defendant's horror film was appropriately dismissed by the district court, the U.S. Court of Appeals for the Ninth Circuit held Nov. 13 in an unpublished opinion.

The plaintiff, Daniel Segal, wrote a psychological thriller about a psychiatrist in California who specializes in regression therapy -— a form of therapy that looks to traumatic events in past lives to explain ailments being suffered in a patient's current life. One of the patients is believed to be haunted by the spirit of her identical twin, who died as an infant. The novel is called "Transfers," which is also the name of a subsequent screenplay that was written and registered by Segal.

In 2009, the movie "The Unborn" was released to a nationwide audience by the defendants. The movie, the Ninth Circuit said, is "about a Jewish family haunted over generations by a dybbuk -— that is, an otherworldly spirit from Jewish mysticism that enters this world through twins." The movie, like the novel, also features a set of twins, with one living and the other dying in infancy.

"Other than the generic plot feature of twins and hauntings, the selection and sequencing of these works have no relationship to one another —- identical, fraternal, or otherwise," the appeals court said in dismissing the case.

The case is Segal v. Rogue Pictures, 12-55587, U.S. Court of Appeals for the Ninth Circuit (Los Angeles).

(BN) Google, MGM, Papst Camera, Avatar: Intellectual Property

(Bloomberg ) Google Inc. (GOOG)'s victory in a copyright suit challenging its project to digitally copy millions of books may help cement its dominance of online searches.

A federal judge in New York ruled Nov. 14 that the Google Books project doesn't violate copyright law, dismissing an eight-year-old lawsuit against the biggest search-engine company.

The decision, if upheld on appeal, may help Google retain its Internet dominance, which has allowed it to become the world's largest online advertiser. Google has more than 70 percent of the ad revenue tied to online searches in the U.S., according to researcher EMarketer Inc.

"This is a huge victory for Google, which had previously tried to resolve legal issues regarding Google Books by class-action settlement," Mark P. McKenna, a law professor specializing in intellectual property at the University of Notre Dame, said in an e-mail. "This decision vindicates Google's project entirely on fair use grounds, making unnecessary the elaborate structure the parties had proposed for compensation."

Google Books provides a public benefit and is a fair use of copyrighted material, U.S. District Judge Denny Chin in Manhattan ruled.

Google, based in Mountain View, California, in October 2012 reached an agreement with five publishers to end their objections to the digital scanning. The accord allows U.S. publishers to choose whether to make their books and articles available for scanning or have them removed.

The publishers are McGraw-Hill Cos., Pearson Education Inc., Penguin Group USA Inc., John Wiley & Sons Inc. (JW/A) and Simon & Schuster Inc., which is owned by CBS Inc.

"This has been a long road, and we are absolutely delighted" with the Nov. 14 judgment,'' Google said in an e-mailed statement. Google Books complies with copyright law and acts as a card catalog for the digital age, the company said.

The case is The Authors Guild v. Google Inc., 1:05-cv-08136, U.S. District Court, Southern District of New York (Manhattan).

MGM Joins James Bond Producer to Acquire Rights From Estate

Metro-Goldwyn-Mayer Inc. (MGMB) and the producer of the James Bond films said they acquired all rights to the fictional British secret agent held by the estate and family of the late screenwriter Kevin McClory.

Metro-Goldwyn-Mayer, the distributor of the films, and Danjaq LLC, the longtime James Bond producer, said in a Nov. 15 statement the accord ends legal and business disputes that have arisen over 50 years.

McClory is credited with co-writing and producing 1965's "Thunderball" and 1983's "Never Say Never Again," according to, an industry website. He died in 2006, according to his biography page on the site.

The James Bond franchise is among Hollywood's most enduring. Twenty-four films dating back to 1963's "Dr. No" have grossed $1.91 billion in U.S. theaters, according to, an industry researcher. The most recent, last year's "Skyfall," took in $304.4 million domestically.

MGM, Sony Corp. (6758) and Danjaq plan to release the next Bond film in October 2015 in the U.K and in the U.S. the following month, according to a July statement.


Papst Camera Patent Case Judgment Entered, Certified for Appeal

A federal court in Washington entered a final judgment in Papst Licensing Gmbh's patent suits against Nikon Corp. (7731), Fujifilm Corp. (4901) and several other camera manufacturers.

The cases were consolidated in Washington in 2007. Germany's Papst Licensing had accused the camera makers of infringing parents 6,470,399 and 6,895,449, which are related to digital photography. Earlier the court found none of the manufacturers' products infringed the patents.

The camera makers and the patent owner then asked that a final judgment be entered and the case be certified for appeal. According to the court's Nov. 14 ruling, although the manufacturers wanted certification to be delayed until their requests for attorney fees and sanctions were decided, the court said this wasn't necessary.

"Moreover, the delay that would be caused by such litigation is contrary to the efficient resolution of the merits," U.S. District Judge Rosemary M. Collyer said in her ruling. She ordered entry of the final judgment of non-infringement, and dismissed all other claims and counterclaims in the case with respect to the first group of manufacturers Papst sued.

There is a second group of manufacturers who are waiting to have their cases heard, and the court said they agreed to have their cases on hold until the appeal is completed by the Washington-based court that hears appeals of patent cases.

Federal Circuit review of the first wave of camera cases "is likely to narrow the issues" in the later cases also, Collyer said.

The case is In re Papst Licensing Digital Camera Patent Litigation -MDL 1889, 1:07-mc-00493, U.S. District Court, District of Columbia (Washington).

Hanes Seeks Non-Infringement Declaration for Tank Top Design

Hanesbrands Inc., the North Carolina maker of underwear, hosiery and athletic wear, asked a federal court to declare it doesn't infringe a design patent for tank tops.

An Oct. 30 cease-and-desist letter that Lululemon Athletica Canada Inc. (LULU) of Vancouver, sent to Hanesbrands is appended to the complaint in the case filed in federal court in North Carolina Nov. 15.

A tank top made by Hanesbrands' Champion unit infringed patent D654,665S, according to the letter. Lululemon said the item is made in Vietnam, labeled with the Champion brand and sold at Target Corp. (TGT) stores.

The Canadian company demanded that all manufacturing, importation and sales of the allegedly infringing garment be halted, all advertising for it cease, and the remaining unsold garments be surrendered. Lululemon also sought an agreement that Winston-Salem, North Carolina-based Hanesbrands agree to liquidated damages of $50 per infringing garment for any future infringement.

In its court filings, Hanesbrands said its products don't infringe the patent, and asked the court to order Lululemon to stop making infringement claims. It also asked for awards of litigation costs and attorney fees.

Although the cease-and-desist letter also accuses Target of infringement, only Hanesbrands is seeking the non-infringement declaration.

The case is Hanesbrands Inc. (HBI), v. Lululemon Athletica Canada Inc., 1:13-cv-01024, U.S. District Court, Middle District of North Carolina.


Maker of 'Avatar' Film Denied Registration for 'Pandorapedia'

Twenty-First Century Fox Inc. (FOXA)'s bid to register "Pandorapedia" as a trademark for clothing was rejected by an appeal board at the U.S. Patent and Trademark Office.

The studio applied to register the mark -- related to James Cameron's "Avatar" film -- in 2009. A trademark examiner rejected the application, finding it to be too much like an existing mark -- "Pandora" -- also used with clothing.

An appeal was filed, and in an opinion released Nov. 9, the Trademark Trial and Appeal Board affirmed the examiner's determination. The board said that even though the studio specified the mark would be used for clothing "related to motion picture films," it is the identification of the goods that controls how the mark is used, rather than whatever extrinsic evidence may show about their specific nature.

The possibility of confusion would be too great, the board said, and consumers would be confused. The board also noted that the only difference between the two marks is the suffix "pedia." Under U.S. trademark law the second user may not appropriate another's mark and try to avoid the likelihood of confusion by adding descriptive or subordinate matter, the board said.

Two other "Pandorapedia" applications submitted at the same time are still pending. They are for use of the mark with Christmas decorations and CDs. There is also a "Pandorapedia" trademark that was successfully registered in 2010 for use with motion pictures, according to the database of the U.S. Patent and Trademark Office.

The ruling is U.S. Patent and Trademark Office Trial and Appeal Board, In re Twentieth Century Fox Film Corp., 77824292.

'Charbucks' Didn't Tarnish Starbucks' Marks, Appeals Court Said

Starbucks Corp. (SBUX)'s claims that a family-owned New Hampshire coffee roaster's sale of a blend called "Charbucks" infringed the Seattle-based company's trademarks were rejected by a federal appeals court.

Black Bear Micro Roastery in Tuftonboro, New Hampshire, didn't dilute the fame of the Starbucks trademarks nor confuse the public, the court said in a Nov. 15 opinion.

A consumer telephone survey presented by Starbucks aiming at showing confusion was flawed, according to the court, which also found that the "distinctiveness, recognition and exclusive use" of the Starbucks trademarks failed to overcome "the weak evidence of association" between the marks.

Starbucks, based in Seattle, sued in 2001 in federal court in Manhattan accusing Black Bear's owner, Wolfe's Borough Coffee Inc., of confusing consumers and diluting the value of the Starbucks brand by selling Charbucks in New England and online.

After U.S. District Judge Taylor Swain dismissed the claims in June 2008, Starbucks then appealed. In December 2009, the Second U.S. Circuit Court of Appeals vacated part of the trial court's ruling, and sent it back for a determination of whether "Charbucks" diluted the fame of the Starbucks marks.

The lower court then found no determination, and the Seattle coffee company appealed that ruling.

The case is Starbucks Corp. v. Wolfe's Borough Coffee Inc., 12-3674, U.S. Court of Appeals for the Second Circuit (New York).

(BN) Amazon’s Toys Cheaper Than Wal-Mart Online

(Bloomberg ) Inc.'s toy prices were lower than those available online from Wal-Mart Stores Inc. and Target Corp. last week as retailers seek to attract shoppers heading into the crucial holiday selling season.

Amazon's prices, excluding those from its third-party sellers, were 3 percent lower on average than Wal-Mart's on a basket of 87 toys, according to a study conducted by Bloomberg Industries on Nov. 14. Including the Marketplace vendors, which use Amazon's platform to sell their own products, the pool of comparable goods expanded to 115, and Wal-Mart was cheaper by 1.2 percent, on average.

The pricing battle may help determine which retailers win consumers' toy purchases during the holiday season. Sales in November and December account for 20 percent to 40 percent of U.S. retailers' annual revenue, according to the National Retail Federation.

(BN) Google-Qualcomm Patent Fight Enters Silicon Valley Arena

(Bloomberg) Google Inc. (GOOG) and Qualcomm Inc. (QCOM), two California technology companies on opposite sides of a Washington debate over U.S. patent law, may soon take their fight closer to home.

The U.S. Patent and Trademark Office is pushing forward with plans to open a fully operational satellite office in San Jose, after Congressional budget cuts put them on hold earlier this year. The work-around came about after San Jose city officials pledged free rent and California donated $500,000.

The permanent office, which may open by the end of next year, will be where West Coast inventors submit applications to get legal protection for their ideas. It will also serve as a hub where companies -- even startups -- can bring their positions on patent law directly to the administration without a cross-country flight.

"It will mean an easier and clearer channel of communication both ways -- from the PTO to the public and from the public to the PTO," said Michelle Lee, a former Google executive who's now director of the Silicon Valley office.

California inventors were named in 32,107 patents, more than a quarter of the 121,026 issued to U.S. inventors in 2012.

60 Patent Examiners

The agency's temporary location, at an office in Menlo Park, houses Lee and nine administrative law judges who hear arguments about the validity of issued patents. With a permanent space, the patent office plans to have a total staff of more than 80, with 20 judges and 60 patent examiners.

The 40,000-square-foot permanent office will be in San Jose City Hall, where city officials offered free rent for two years, then three years of reduced rent and five years at market price. In addition, the California assembly gave the agency $500,000 to be used for things like its educational outreach. Offers of money from local technology companies were turned down because they do business with the PTO, Lee said.

Congressional Legislation

A key role in the patent office is in helping develop administration policy on intellectual property. The technology industry is split on proposals before Congress that could change the rules for patent litigation. Palo Alto, California-based Google is backing the proposals. Qualcomm, based at the southern end of the state in San Diego, says some of the ideas being considered could curtail innovation, particularly by startups.

Both companies are funding lobbying groups that are trying to influence Congress. Smaller companies in Silicon Valley don't always have that option. Lee said the local office has already held roundtable discussions about policy regarding patents on software.

Being in the heart of the America's technology industry "made it much easier for smaller companies, startup companies to participate rather than requiring folks to come to Washington D.C.," Lee said.  The office "has a key role in helping out the agency and the administration in that area."

(BN) Ford Says ‘Connected Car’ Success Rides on Tech Firm Efforts

(Bloomberg ) Ford Motor Co. (F), trying to satisfy customer demands for more in-car gadgets, said technology companies must work in more open and flexible ways for Internet "connected-car" features to be as seamless as smartphone apps.

Ford's push to offer voice-activated commands, navigation software and entertainment features ahead of competitors has had mixed results. While the carmaker is improving its in-car technology, Microsoft Corp. (MSFT), Google Inc. (GOOG) and other software firms will ultimately determine how well web-connected features work, said Ford Executive Vice President Jim Farley.

"It's important for us to acknowledge that the real value for customers with the connected car is outside of our auto industry," Farley said today in a speech at the Los Angeles Auto Show. "For the car companies, it's pretty clear the mobile digital economy is not in our hands."

Efforts by Ford, the second-biggest U.S. automaker, to be a leader in in-car technology haven't worked out as well as hoped, with some vehicles plagued by nagging electronics malfunctions that have hurt its performance in assessments by Consumer Reports. The Ford and Lincoln lines ranked 26 and 27 last month out of 28 brands in the magazine's annual reliability survey.

Ford's rankings suffered because of defects with its MyFord Touch and MyLincoln Touch audio, entertainment and navigation systems as well as defects with transmissions on vehicles such as the Focus and Fiesta small cars, according to the magazine.

Experience Gap

"We recognize the very large gap between customers' experience on their phone, and how great that functions, and in-car traditional navigation experience," Farley said. "We are absolutely committed and leading in this space."

Improvements on the part of Ford and other automakers include developing more "open architecture" for apps and smartphone integration. Tech companies have to change their approach as well, particularly by being more flexible in the interface they use, he said.

"They impose their interfaces on the car user," said Farley, who is head of marketing for Dearborn, Michigan-based Ford as well as its Lincoln brand. "And because it's not compatible, it's really not safe."

The need for closer cooperation on all sides is at a "tipping point," he said.

Ford slid 0.6 percent to $16.87 today in New York. The shares have risen 30 percent this year, compared with a 25 percent gain for the Standard & Poor's 500 Index.

Monday, November 18, 2013

(BN) China Reshapes Landscape for Firms From Alibaba to GM

(Bloomberg ) China's planned economic reforms are poised to reshape the competitive landscape, allowing private firms such as Alibaba Group Holdings Inc. to compete with state-owned banks, and easing the one-child policy to bolster markets for companies from Nestle SA (NESN) to General Motors Co. (GM)

China's financial sector is set to change with plans that include a new registration system for initial public offerings and allowing qualified private investors to set up small-to-medium sized banks. That has progressed in the past few months as Tencent Holdings Ltd. (700), Asia's biggest Internet company, is part of a group applying for a banking license in China.

"Companies that got too comfortable with the old system now are going to have to change," said Tim Condon, chief Asia economist at ING Financial Markets in Singapore, who previously worked for the World Bank. "This is potentially a huge step forward in opening up the economy."

President Xi Jinping's reforms, which may be the most sweeping plan since Deng Xiaoping's liberalization in 1978, are aimed at giving more influence to market forces and loosening government controls. The changes outlined in a 60-point document after a Communist Party meeting last week present opportunities -- and risks -- to companies in almost every sector of the world's second-biggest economy, which is heading for its weakest annual expansion since 1999.

Stocks Climb

China's stocks rose, with the benchmark index for mainland companies in Hong Kong surging 5.6 percent, the most since December 2011. The Shanghai Composite Index (SHCOMP) gained 2.9 percent while Hong Kong's Hang Seng Index (HSI) jumped 2.7 percent, the most in more than 10 months.

"It's positive, very positive for sentiment," said Catherine Yeung, investment director for equities at Fidelity Investment Management Ltd. in Hong Kong. Fidelity is adding more Chinese consumer-related stocks, including Internet and health-care companies, she said, without being more specific.

Policy makers will seek to "push forward reform for a registration system" on IPOs, according to the government statement. That may hasten the approval process for the more than 700 companies awaiting regulatory permission for their share sales.

The leaders also decided during the four-day meeting known as the third plenum to further increase the share of direct financing, such as stock and bond sales, in the economy, according to the government's Nov. 15 statement.

Citic Securities Co. (6030), the country's biggest brokerage by market value, jumped 13 percent in Hong Kong trading.

Enter Alibaba

Billionaire Jack Ma, executive chairman of Alibaba Group, has said China's financial sector needs an outsider to "stir things up," according to a transcript compiled by the official People's Daily.

"The entry of tech giant Alibaba into the lending business should give the nationwide banks some concerns about future competition," said Jim Antos, an analyst at Mizuho Securities Asia Ltd. in Hong Kong. "Private banks that can rely on technology to by-pass the expensive and time consuming job of building out a branch network could become significant competition for the commercial banks in only a couple of years."

Still, new entrants won't have the scale to challenge China's biggest banks in the next three to five years, said Chen Xingyu, a Shanghai-based analyst at Phillip Securities Group, which manages more than $22 billion of assets.

Industrial & Commercial Bank of China Ltd., China Construction Bank Corp. (939), Agricultural Bank of China Ltd. (3988) and Bank of China Ltd. are headed for at least their eighth straight year of record earnings after posting average profit growth of 11.5 percent in the three months ended in September.

Historical Significance

The Communist Party's meeting that ended Nov. 12 is set to have a similar historical significance as the one in 1978 when Deng decided on a reform and opening-up policy that heralded over three decades of rapid growth, said Yao Yang, dean of the National School of Development at Peking University.

Among proposed changes are making budgets more transparent, improving transfer payments, setting up risk-warning and debt-management systems for central and local governments and speeding up legislation on a property tax.

Child Policy

The pledges included establishing market-determined prices for resources, boosting private-sector and foreign investment, and encouraging urbanization by scaling back the hukou, or household registration system, to allow rural migration to smaller cities. The measures are to be implemented by 2020.

"China will become a high-income country under the leadership of Xi," Justin Lin, former chief economist for the World Bank and adviser to China's top leadership, said Nov. 17.

Grabbing headlines was the policy shift allowing couples to have two children if either parent is an only child, easing the rule which required that of both parents.

The relaxation could boost China's demand for diapers, infant milk powder and other baby-related sectors, according to Summer Wang, an analyst at Bank of Communications. The one-child policy has left China with an aging population and a shrinking pool of young workers.

Of China's 1.36 billion population, 17.1 percent are aged below 15, compared with India's 28.5 percent, Brazil's 25.4 percent and Russia's 15.9 percent, according to data compiled by Bloomberg.

Cars, Milk

Shares of infant-formula sellers, milk processors and other baby-product makers surged. Diaper maker Hengan International Group Co. (1044) surged 6.5 percent to a record in Hong Kong trading while stroller and crib maker Goodbaby International Holdings Ltd. (1086) and milk companies China Mengniu Dairy Co., China Modern Dairy Holdings Ltd. and Yashili International Holdings Ltd. (1230) climbed.

Mengniu will increase the ratio of infant formula in its product offerings, it said in an e-mailed statement.

The impact on demand may be seen only in 2015, and a study by the China Academy of Social Sciences implies the policy should add about 1 million babies by then, Jessie Guo, a Hong Kong-based analyst at Jefferies said by phone today.

"If you have two kids, you are definitely more likely to have a car than if you have one," said Shen Minggao, head of China research at Citigroup Inc. (C) in Hong Kong. Makers of appliances, clothing and shoes will also benefit as the new rules will boost rural income, Shen said.

China is also trying to bring in a market focus for commodity pricing. The plenum's proposals are negative for sectors including coal and power equipment, because of environmental protection initiatives, Citigroup's Shen said.

Oil Companies

PetroChina Co. (857) and China Petroleum & Chemical Corp. (386), the nation's largest refinery companies, posted higher third quarter profit in October after the government in March mandated that domestic prices track global markets more closely, boosting their margins. China has typically used its state-owned oil companies, of which PetroChina is the largest, to control domestic fuel prices, and further pricing reform would only help their refining operations.

"More market-based pricing will raise costs for most consumers where the resource is currently undervalued," said Sijin Cheng, a commodities analyst at Barclays Plc. "On the other hand, it will incentivize upstream producers who have been reluctant to increase production because of regulated prices. All else being equal, it will help rationalize demand and restore market balances."

Playtime's Over

Chinese leaders are also trying to stimulate creativity in state-owned enterprises in sectors such as manufacturing, healthcare and consumer goods while enhancing control and influence of the state in areas of strategic importance such as utilities and defense, said Jin Qianjing, a Shanghai-based strategist at Shenyin & Wanguo Securities Co.

China has over past two decades liberalized the product market while the prices of key inputs -- capital, land, energy - - remain influenced by governments at all levels and highly non-marketized, said Arthur Kroeber, Beijing-based managing director of economic research firm GaveKal Dragonomics.

"It's very clear the goal is to put an end to that or, over time, marketize it," said Kroeber, who is also a fellow at the Brookings-Tsinghua Center in Beijing. "You are putting state-owned enterprises on notice that playtime is over and you've got to step up your game."

(BN) Google Opening Showrooms to Show Off Gadgets for Holidays

*** Google "borrows"  another winning strategy from Steve Jobs' play book. ***

(Bloomberg ) Google Inc. (GOOG) is opening showrooms in six U.S. cities, promoting its latest products and stepping up retail efforts against Apple Inc. and Microsoft Corp. (MSFT) as the year-end holiday shopping season gets under way.

Called Winter Wonderlabs, the outlets feature products such as Nexus 7 tablets, Chromebook computers and Chromecast video-streaming devices, the company said on a new website yesterday. Consumers can order the gadgets online after looking at the wares. The stores also feature a large snow globe that lets customers take videos of themselves, complete with fake snow.

The operator of the world's most-popular search engine is investing more resources to bolster its position in hardware and joins Intel Corp. (INTC) this year in rolling out showrooms to promote products. Microsoft has opened almost 50 stores after Apple found success with its retail outlets, where customers can purchase iPhones, iPads and Macs and also learn more about using the devices.

"The Winter Wonderlab is a fun and interactive way to experience all of Google's new gadgets in one place," the company said on the website.

Google is putting the showrooms at or near New York, Washington, Chicago, Los Angeles, Sacramento, California, and Paramus, New Jersey. The company is also building a barge in San Francisco Bay aimed at showing off new technologies.

Friday, November 15, 2013

US healthcare reform disaster: California edition

The state of California set up and trademarked(!!!) its own website to handle the healthcare reform, Covered California (TM). There's also a new program for small businesses called SHOP:
Covered California’s™ SHOP is a new, online health insurance marketplace developed for small businesses with one to 50 eligible* employees.
 When you click through the SHOP links you eventually get a message that the program will be available in mid-November:

OK, the program was supposed to start on Oct 1, but the message says it's being delayed for 1.5 months. Well, today is November 15, which is mathematically speaking is mid-November, but the program is still not available. Instead of shopping online for plans, Covered California (TM) advises you to talk to your health insurance broker or visit websites of individual insurance companies. WTF! After 3+ years in the making, the state of California, including Silicon Valley, can't deliver a website on time. Unbelievable.

Flue vaccine: a world-scale guessing game

According to the US Center for Disease Control and Prevention (CDC),
It takes at least six months to produce large quantities of influenza vaccine. For vaccine to be delivered in time for vaccination to begin in October and November, manufacturers may begin to grow one or more of the virus strains in January based on their best guess as to what strains are most likely to be included in the vaccine.
 To improve the odds of guessing the right virus 6 months ahead of time, each flue shot contains a cocktail  of three weakened viruses. The hope is that at least one of them will trigger our immune system into anticipating the right flue. In essence, we force the immune system into overdrive (red alert state!) because we can't know the exact nature of the flu threat. When the guess turns out to be wrong, as that was the case with the 2009 H1N1 virus, we end up with a pandemic situation because our collective immune system is barking up the wrong tree.

Would it be possible to make a 10X improvement in the vaccine development process, so that the cycle takes 1-2 weeks instead of 18-20 weeks?

The current system is geared toward large-scale production and distribution, which requires government approvals, massive investment into manufacturing, etc. To deliver an order-of-magnitude improvement, we need a different system that produces the vaccine on the spot, bypassing the existing methods. Using 3D printing as an analogy, if we had a vaccine production kit that could be adjusted locally instead of globally, we would be able to kill two birds with one stone: make the right vaccine at the right time AND reduce vaccination costs.


tags: healthcare, tradeoff, dilemma, problem, solution

(BN) Why Facebook Wants Snapchat But Doesn't Need It

(Leonid Bershidsky, an editor and novelist, is a Bloomberg View contributor. Follow him on Twitter.)

(Bloomberg ) Snapchat could hardly have asked for a better publicity boost than Facebook's $3 billion offer for the photo-messaging company. Within a day after Snapchat refused the overture, the application jumped from sixth place to fourth in the U.S. iOS store. In Russia, where few people had previously heard of Snapchat, it soared from 1,773rd place to 263rd.

Facebook's enormous market power, and Mark Zuckerberg's judgment, clearly command a lot of respect. So why does Facebook have to offer billions to twentysomething start-up founders who make apps it can easily reproduce? Therein lies a clue to the fickle workings of social media.

Last year, Facebook created its own version of Snapchat in a matter of days. The replica, Poke, named after an old Facebook feature, works exactly the same as Snapchat, allowing users to exchange photos and videos that disappear in a few seconds -- perfect for "sexting," but also for recording life's fleeting moments in a philosophically appropriate ephemeral way.

Poke failed miserably. Almost nobody downloads it anymore. In other areas, too, Facebook's market power hasn't been enough to crush competitors. The service has all the functionality of Instagram, Foursquare and, yes, Twitter, but it has not killed them off. Similarly, Google's social networking service, Google+, has failed to oust Facebook.

The social-networking world -- and, in fact, the world of digital user experiences -- is irrational in that way. There are people who use Apple's iOS operating system and will under no circumstances switch to Android. Carrying an iPhone as opposed to a Samsung is a social statement. There are people who use Facebook and those who won't be caught dead on it. A lot of young people fall into that category.

"I decided to get a Facebook just to see what it was all about," a 13-year-old from New York wrote in a hugely popular post on Mashable last August. "I soon discovered that Facebook is useless without friends. My only friend is, like, my grandma. Teens are followers. That's just what we are. If all my friends are getting this cool new thing called Snapchat, I want it, too! We want what's trending, and if Facebook isn't 'trending,' teens won't care."

Facebook is not "trending" because it is so huge that everybody's parents are on it. There is even a Tumblr blog called "Oh Crap. My Parents Joined Facebook." (Tumblr is another platform popular with young people despite having few features not available on Facebook.)

Consequently, whatever Facebook might do under its own brand, it will not get much traction with teens. At the same time, Zuckerberg cannot fail to see where things are going for social networks.

Photo and video sharing on the Internet is growing rapidly. A recent Pew Internet survey showed that 54 percent of U.S. Internet users authored and posted photos and videos this year, compared to 46 percent last year. Most of the growth comes from young people: 79 percent of users in the 18-to-29-year-old demographic post photos on the web. In that age group, 26 percent use Snapchat.

By contrast, only 5 percent of adults between the ages of 30 and 49 use Snapchat. These are in large part the parents. They are all on Facebook.

Zuckerberg himself is 29, on the threshold between the two age groups. He is not too old to understand the author of the Mashable blog. It may have been his instinct as a geek to try cloning the features first to see if it would work, but he knows the newcomers' brands are more valuable than their code.

That's why Zuckerberg paid $1 billion for Instagram last year and did not interfere with its development as a separate service. He has been in no hurry to monetize it -- ads will appear on Instagram only next year -- and he allowed founder Kevin Systrom to keep running it. The company's user base has grown under Facebook's ownership, recently passing the 150 million mark.

Facebook's approach to Snapchat would have been the same -- hands-off and careful. Zuckerberg would not have rushed to squeeze money out of the service, now devoid of a business model, or to integrate it into Facebook. Social cachet is a fragile commodity.

Still, Snapchat founder Evan Spiegel refused Zuckerberg's offer. After watching Twitter's triumphant initial public offering, he probably recognizes that he might be sorry for the rest of his life if he misses out on a similar high point. Snapchat could be blown away by some new fad, but then Facebook is still there after almost 10 years.

(BN) Silicon Valley Nerds Seek Revenge on NSA Spies With Coding

(Bloomberg ) Google Inc., Facebook Inc. and Yahoo! Inc. are fighting back against the National Security Agency by using harder-to-crack code to shield their networks and online customer data from unauthorized U.S. spying.

The companies, burned by disclosures they've cooperated with U.S. surveillance programs, are protecting user e-mail and social-media posts with strengthened encryption that the U.S. government says won't be easily broken until 2030.

While the NSA may find ways around the barriers, the companies say they have to assure users their online connections are secure and data can't be grabbed when transmitted over fiber-optic networks or digitally stored.

Microsoft Corp. is convinced it must "invest in protecting customers' information from a wide range of threats, which if the allegations are true, include governments," Matt Thomlinson, general manager of trustworthy computing, said in an e-mail. He didn't provide details.

Internet companies including Google, Yahoo, Facebook, Microsoft and Apple Inc. are trying to distance themselves from news reports that they gave the agency data on electronic communications of Americans and foreigners or have lax security.

While the companies are trying to prevent the NSA from gaining unauthorized access to their data, they say they comply with legal court orders compelling them to provide the government information.

The NSA has tapped fiber-optic cables abroad in order to siphon off data from Google and Yahoo, circumvented or cracked encryption, and covertly introduced weaknesses and back doors into digital coding, according to reports in the Washington Post, the New York Times and the U.K.'s Guardian newspaper based on documents leaked by former NSA contractor Edward Snowden.

Game On

Companies are fighting back primarily by using increasingly complex encryption, which scrambles data using a mathematical formula that can be decoded only with a special digital key. The idea is to protect sensitive information like e-mails, Internet searches and digital calls.

Google has accelerated efforts to encrypt information flowing between its data centers, doubled the length of its digital keys and implemented measures to detect fraudulent certificates for verifying the authenticity of websites, according to a statement from the Mountain View, California-based company.

NSA spy programs have "the great potential for doing serious damage to the competitiveness" of U.S. companies, Richard Salgado, Google's director of law enforcement and information security, told a Senate subcommittee Nov. 13.

Government Threat

"It's very important that the users of our services understand that we are stewards of their data, we hold it responsibly, we treat it with respect," Salgado said. "We've already seen impacts on the businesses."

Google, Yahoo and Facebook generated $44.4 billion in advertising revenue so far in 2013 in part by mining users' private data, according to Bloomberg Industries.

An Aug. 14 analysis by Forrester Research Inc. analyst James Staten found the U.S. cloud computing industry could lose as much as $180 billion by 2016 due to the spying disclosures.

Yahoo will make encrypted connections standard by January for all its Mail users with 2048-bit digital keys, one of the stronger algorithms and twice as strong as previous standards, Sarah Meron, a spokeswoman for the Sunnyvale, California-based company, said in an e-mail.

Facebook, in addition to moving toward 2048-bit encryption keys, is accelerating a tactic known as "perfect forward secrecy" that prevents the NSA from deciphering the communications of users if it obtains a security code, Jodi Seth, a company spokeswoman, said in an e-mail.

Google announced in July it was moving to 2048-bit encryption. Kristin Huguet, a spokesman for Cupertino, California-based Apple, didn't respond to e-mails.

Malware Unlocking

The National Institute of Standards and Technology has determined that known computing power won't be able to break 2048-bit encryption until at least 2030.

Agencies like the NSA use stronger encryption, said Bruce Schneier, a fellow at the Berkman Center for Internet and Society at Harvard Law School.

Schneier recommends companies encrypt everything even though the NSA can often defeat it by, among other tactics, installing malicious software on computers to steal the security keys that unlock encryption codes.

"The NSA has turned the Internet into a giant surveillance platform," Schneier, a computer security and privacy specialist, said in a phone interview.

Backdoor Grab

The companies may not be moving fast enough in a cat-and-mouse game with the NSA, said Kurt Opsahl, senior staff attorney for the San Francisco-based digital rights group Electronic Frontier Foundation.

"The NSA is one of the largest, most powerful, well-funded intelligence agencies in the world," Opsahl said in a phone interview. "While the government has been misusing its legal authorities to require a set of data at the front door, the NSA has been sneaking in the back door to grab all the data."

The NSA collects "the communications of targets of foreign intelligence value, irrespective of the provider that carriers them," the agency said in an Oct. 31 statement.

The U.S. uses "every intelligence tool available" to intercept electronic communications of suspected terrorists relying on "the very same social networking sites, encryption tools and other security features" as innocent Americans, Director of National Intelligence James Clapper said in an Oct. 4 statement.

'Political Problem'

Encryption isn't foolproof. The NSA can use hacking attacks to obtain security keys or compel companies to hand them over with court orders, said Jonas Falck, chief executive officer and co-founder of Halon Security Inc., a network security company with U.S. headquarters in San Francisco.

Companies like Google also introduce security vulnerabilities when they decrypt data to analyze user trends for advertising purposes, Falck said in a phone interview. Google spokeswoman Niki Fenwick said the company declined to respond to this concern.

Companies have different levels of encryption, which mean electronic communications sent between them may not be protected from starting point to end point, Opsahl said.

Encrypting data can, at the least, make it harder for the NSA to gain unauthorized access to information, forcing the agency to pick targets or come out of the shadows and go before a court to obtain it legally, Opsahl said.

The other thing companies can do is lobby Congress to change the law to restrict what the NSA is able to do, according to Schneier.

"There is a technology component, but primarily this is a political problem," Schneier said.