Betanews - Tech Policy & Law

New EU antitrust commissioner will oversee Microsoft, Oracle+Sun, Intel issues

Scott M. Fulton, III — Mon, 30 Nov 2009 15:55:02 -0500

The final word over whether the European Commission has accepted, and is willing to oversee the deployment of, a new "ballot screen" that gives Microsoft Windows users the choice of Internet Explorer or a competitive browser, may not be given by Neelie Kroes after all. Despite her prominent role as the European Commissioner for Competition, often siding against the United States with respect to Microsoft and other issues, Comm. Kroes will be swapping roles with her fellow Commissioners next month, as her term in the antitrust oversight role expires in January.

To replace Kroes, EC President José Manuel Barroso has chosen Joachín Almunia, currently the continent's Commissioner for Economic and Monetary Affairs -- essentially its finance minister. Almunia is well-known throughout Europe, and especially in his native Spain, where he distinguished himself as the Socialist party candidate for Prime Minister in 2000. He's perceived as a trusted associate of Barroso, although his executive authority will be ceded somewhat to a new executive branch of government, by virtue of the recent ratification of the new Lisbon Treaty.

What is not known to anyone at this point -- literally, what draws a question mark among European observers -- is whether Almunia will pick up where Kroes left off. Kroes made her mark in being able to issue objections about a company's anti-competitive conduct, suggest the fine for that conduct, impose the penalty, and oversee its payment. But as the EU's independent government watcher EurActiv pointed out last Friday, that role has not exactly been spelled out in EU law -- Kroes has actually been going out on a limb.

While Almunia could carry out existing penalties imposed against Microsoft and Intel, it's conceivable he could leave future penalty guidelines to the Court of First Instance to determine, or at least to the Commission itself to legislate in advance. Almunia is literally a blank slate on this subject; but as was the case when former US Treasury Secretary James Baker was elevated to Secretary of State under Pres. George H.W. Bush, that may not mean his slate stays blank for very long at all.

A career economist who got his start in the 1970s studying the proper distribution of wealth in a healthy economy, and who later gained a reputation as a trade union supporter, Almunia could very likely support Microsoft's current proposal to present a Web browser ballot screen that distributes the Windows user's choices evenly among manufacturers. But as an advocate in favor of stricter government controls and oversight of the financial industry -- for example, the proposed European System of Financial Supervisors -- he may also very carefully scrutinize any complaints from "interested parties" that the Microsoft proposal is somehow unfair. That's assuming such complaints ever arise; formal complaints had been anticipated two weeks ago, but their existence has never been formally announced.

Whether Almunia goes his own way or not may be determined by his stance on the proposed merger of Oracle with Sun Microsystems. The EC issued its formal objection three weeks ago, but the key to that objection was the still-arguable notion that open source software deserved special protection. Oracle's acquisition of Sun would give it control of MySQL, the leading open source database, and Oracle's principal competitor among smaller business clients.

Joachín Almunia's opinion as to whether open source software has rights unto itself, like a separate company, is completely unknown at this point. And given his widely varied background as seemingly an anti-protectionist at one point, and a protectionist at another, there isn't even so much as a guess as to which way he'll lean.

Comm. Kroes will assume the role made famous by Comm. Viviane Reding: oversight of the "Digital Society." There, she will oversee the continued adoption of telecommunications standards and the enforcement of "fair play" among competing telecom carriers. Kroes' appointment there is of some concern to telcos who are mindful that her stance against Google appeared to weaken after her initial objections to its merger with DoubleClick failed to stop the deal. Google's ability to deploy its Google Voice service worldwide is seen as a threat to telcos' stronghold in the market, although whether telcos should be entitled to those strongholds is a matter for legislators -- now including Kroes -- to debate.

In what could be considered the luckiest draw in the deck, Comm. Reding moves on to oversee the creation of the very telecom laws that Kroes will enforce, with the official creation of the new telecoms authority earlier this month. Reding will become the Commissioner of Justice, Fundamental Rights, and Citizenship, just a few months after having argued in favor of Internet access as one of those rights. The European Parliament stopped short of that declaration earlier this month, adopting more neutral language that spoke of "equal access" to Internet services, and limiting anyone's right to obstructing his or her freedom of expression through the Internet.

Apple invokes DMCA, claims Psystar is 'trafficking in circumvention devices'

Scott M. Fulton, III — Mon, 30 Nov 2009 12:22:23 -0500

By Scott M. Fulton, III, Betanews

One of the reasons Apple Inc. has been the most venerable opponent a courtroom defendant may face, is because of a significant trump card the US Supreme Court handed it in 1983. In a landmark case that rendered "Apple II clones" effectively illegal, the high court established a unique precedent for determining liability and damages in software copyright cases. It assumed that since any legitimate US company is capable of performing legitimate business, the possible damage a defendant might suffer from an injunction against possibly infringing software is outweighed by the simple declaration that such business is illegitimate.

So it was that, with amplification supplied by a citation of the Digital Millennium Copyright Act, Apple invoked its own case law -- citing Apple v. Franklin -- in arguments in recently revealed court papers that Psystar should be permanently enjoined from selling "Mac OS X clones." The specific passage is this: "Where the only hardship that the defendant will suffer is lost profits from an activity which has been shown likely to be infringing, such an argument in defense merits little equitable consideration."

In other words, the value of an infringing business, is zero. Or as Apple's attorneys put it in US District Court in San Francisco last week, "A defendant whose entire business is premised on misappropriation of Apple's intellectual property cannot claim it suffers hardship by being forced to stop such infringement."

But wait a second...Isn't that restatement actually a contradiction of case law? Because in the Franklin case, Franklin Computer did carry on a legitimate business, and continues to do so to this day. The argument there was, a company can't really claim to suffer if it can carry on with its legitimate business. Apple's attorneys risk the appearance of reinterpreting the law as long as they claim that Psystar has no other purpose in life but to malign Apple.

Last November 13, the District Court ruled against Psystar, citing it with violations of the Digital Millennium Copyright Act for having apparently used decryption techniques in the engineering of a Mac-compatible computer. Apple is seeking to have the Court issue the coup de grace: an enjoinder preventing Psystar from ever selling Mac clones again.

For a request that stands a very high likelihood of being granted at this point, Apple's motion could have been perfunctory. Instead, it's surprisingly awkward and circumlocutory, at one point saying, "Money damages alone could never compensate for the irreparable injury that Apple has suffered;" at another saying, "To obtain a permanent injunction, Apple must demonstrate...that it has suffered an irreparable injury;" then at the very next paragraph stating that such a demonstration may be presumed ("Under traditional copyright principles, Apple is entitled to a presumption of irreparable harm because it has prevailed on its infringement claim"); and then finally concluding, "Apple need not show that Psystar's conduct has caused irreparable harm."

The magic device that changes black to white -- that renders it unnecessary for Apple to demonstrate what it's necessary to demonstrate -- is the existence of something Apple's calling a "circumvention device."

"As this Court found, Psystar is trafficking in devices that enable others to circumvent Apple's technological protection measure to gain access to and copy Mac OS X," reads the motion for injunction. "Psystar is continuing to actively market those devices and has announced its intention [to] continue to do so to enable others to infringe Apple's copyrights. If Psystar is not permanently enjoined from marketing unlawful circumvention devices, other parties will be encouraged and enabled to continue infringing Apple's copyrights in Mac OS X."

That may be a bit of a stretch -- perhaps an unnecessary one for Apple to prevail. As the actual court order of November 13 reads, Psystar was found to have included a method on its computers that circumvents Mac OS X's self-protection measures for ensuring it only runs on Macs. That creates a circumstance where, legally speaking, the Psystar computer user becomes the infringer of Apple's copyrights by invoking the circumvention measure that he presumes is there, by having purchased a Psystar computer in the first place. "Section 1201(a)(1)(A) provides that no person shall circumvent a technological measure that effectively controls access to a work protected under this title," reads the November 13 court order. "Psystar has used decryption software to obtain access to Mac OS X and to circumvent Apple's technological measure when modifying Mac OS X in its production process. This is a violation of the Section 1201 anti-circumvention provision of the DMCA."

Conceivably, Apple could hold Psystar users accountable for circumvention conduct, the way the court has phrased the order. So the logic behind Apple Senior Vice President Phil Schiller's attachment to last week's motion for injunction, seems once again contrary to the aims of a guaranteed march toward home plate: Schiller actually claims, contrary to the court's own findings, that a Psystar customer would not purchase a Psystar computer to infringe Apple's copyright, but instead under a confused notion that Psystar and Apple are perhaps working together -- or even the same company.

"From a marketing perspective, I am deeply troubled by the association consumers are likely to assume exists between Apple and Psystar," Schiller writes. "Having looked at the Psystar Web site several times, I believe that consumers are likely to believe that Apple has authorized Psystar to sell its products. This concerns me because Apple does not control Psystar and therefore cannot ensure that Psystar will provide the high standards of quality and reliability that customers expect from Apple...Indeed, I understand that some confused Psystar customers have called Apple for technical support for Psystar computers that are running Mac OS X...The association of Psystar's poorly designed and poor quality computers with Apple's Mac OS X sullies Apple's image and erodes the confidence which Apple has worked so hard to establish."

Keep in mind that Apple has already won here, but on the theory that Psystar computers obviously cause irreparable harm to Apple by converting possible customers into knowing and willful Apple infringers. Schiller's own letter would actually argue a completely different point, at a time when it's too late to argue it anyway. Although it's unlikely that Apple may yet snatch defeat from the jaws of victory, one can't help but notice that in the absence of the continually guiding hand of Steve Jobs, it seems to be doing a good job of trying.

Microsoft's Ray Ozzie: 'Nobody's going to be 100% open'

Scott M. Fulton, III — Wed, 25 Nov 2009 14:52:22 -0500

By Scott M. Fulton, III, Betanews

Over the last five years, Microsoft has undergone a gradual, but significant, shift in its public image, a shift toward interoperability and a willingness to play more fairly in competitive markets. At the same time, it remains a commercial software producer committed to the protection of its proprietary intellectual property.

Openness, as CEO Steve Ballmer explained to his company's Worldwide Partner Conference in July 2008, should not imply free. "Open source also implies free -- free is inconsistent with paying for lunches at the partner conference," he told attendees at the time.

The picture Ballmer painted then was more black-and-white, where Microsoft will selectively venture into the black world of openness where necessary, but stay rooted within the white world of business that pays salaries and funds conferences. Last week during a press luncheon at PDC 2009 in Los Angeles, where Betanews and others were invited, Chief Software Architect Ray Ozzie (the company's leading executive spokesperson now, after Ballmer) painted a more scalable picture of "openness" from Microsoft's vantage point, one which is more attainable by degrees.

What's 'open?'

"Well, we're all open and we're all not open," said Ozzie, in response to a statement repeated (at least) four times by TechCrunch reporter Steve Gillmor: "Android's open." Gillmor was pressing Ozzie and colleague Bob Muglia, President of Server and Tools, to be more "open" about when and whether Silverlight will become interoperable among multiple smartphone platforms (the Silverlight video on iPhone announcement had not yet been made). Someone in the company giggled in response to Ozzie's remark like an extra on "Hee Haw"...it was probably me.

"I mean, nobody is going to be a hundred percent open," Ozzie continued. "Android's not 100% open, we won't be. There are things that are illegal that, if you have the ability to shut off, we're going to have to shut off. There are things that get in the way of your partner's business model. I may be wrong on this...but the way Google Voice hooks into the Droid, I think Verizon's still gets billed for calls...So Windows has a brand value of openness, meaning, we don't control what desktop apps people write. It's got a history of data openness; we don't look at the data that's sitting on your desktop. So I think as we move forward, the nature of what we do on phones that carry the Windows brand, will probably be more open than not. It's not like the Xbox, where Xbox, like the iPhone, is more of a managed ecosystem [that] is part of the business model."

Seated next to Ozzie was Moonlight developer Miguel de Icaza, who related his recent problems with Apple in working to port code from Moonlight (a Silverlight-compatible runtime for non-Windows platforms) from Mac OS X to the iPhone. Technically, there were few problems at all; but Apple made the decision (after the fact) that two of the APIs that de Icaza's team ported over, should not have been.

Are apps important on phone platforms?

LiveSide.net blogger Kip Kniskern followed up by asking Ozzie and Muglia why consumers should wrestle with the confusion over phone platforms at all -- specifically, why can't there be an App Store that's a single location that applies to every user? Ozzie interrupted by saying, "This isn't going to be a big deal for consumers anyway. It's not going to be at all.

"Let's just step back: There's a lot of confusion, I think, right now, about what's going on on the phones," he continued, "and I'll just give you a high-level perspective -- this is my perspective, I'm not 'right,' I may be wrong, it's a perspective: These are app phones -- what distinguishes them from everything else. We're now in an era where apps are the higher [element of importance], not just calls. And the apps that are on them, most of them -- I know there are exceptions, but most of them -- aren't deeply complex. A lot of them are apps that somebody paid a reasonable amount of money for some group to go port or implement. A lot of them are front-end companions to a Web service on the back end. I think, my assumption -- and I don't have any reason to believe that this is wrong -- is that once things settle out, and we all have app phones (Apple has an app phone, Google has an app phone, Microsoft has an app phone, BlackBerry/RIM has an app phone)...If there's a market there, all the apps that count will be ported. Every app that matters will be ported to every one of them, because if there's a set of users and it costs $50,000 of consulting time to have somebody port a little app, it's going to get ported. So I just don't think there's going to be significant differentiation at the app level.

"This is a big difference from the PC, Mac ecosystem in the past" Ozzie continued. "You cannot take the lessons that we learned in that era and apply them to the phone. It's a totally different world. If all you saw on the phone was Office -- something of that substance that took that many man-years to implement, and it was very nuanced -- then it would be different." Kniskern reminded Ozzie of the remaining problem with apps not being approved by the proprietors of app stores, especially Apple's. "But once the other app phones have a more lenient approval environment, then they change."

Next: Is Microsoft's cloud bigger than the law?

Is Microsoft's cloud bigger than the law?

As Microsoft and its competitors expand their cloud computing services, for the first time, entire computing platforms will commonly cross country's boundaries. There are laws governing interstate transport, even among members of the EU; and now, those laws will apply to computing systems just as though sovereign boundaries separated the CPU from RAM.

In recent dealings with issues of privacy, interoperability, and fairness as they pertain to certain governments around the world, it often seems -- at least to this reporter -- that it's difficult to know what the new ground rules are until the referee takes the field to declare the first out-of-bounds penalty. This is an observation I raised with Ray Ozzie and Bob Muglia: How does Microsoft plan, going forward, to communicate with governments what its plans are, without tightening the boundaries for itself?

"There's no single answer to that question," Muglia responded. "What we have is, we are engaged in conversations with governments all around the world, and when I talk about the cloud being nascent and emerging, this is an example of emerging characteristics of the cloud: understanding how it will exist in the regulatory environment, in all of the different countries and geographies that it has to work in. So as we begin to bring services out to businesses and users within a given geography, we have to, we have to operate in the legal context that's established by the government agency. There's complexities in some parts of the world where you get into issues about privacy and government control over access to information, and things like that. Those are just things you have to understand how to operate in, and what sort of steps you need to take.

"So we're engaging with them," he continued. "And I think we're all learning a bit together. I don't think the laws will exist the same way today -- ten years from now, I think they'll have changed, they'll have evolved. You had the concern that they will get tighter; that probably will happen, in some cases, and in other cases they will probably get looser. As people see that government restrictions prevent prosperity within their country as organizations and individuals aren't able to do some of the things they might want to do, if some of those restrictions weren't there."

Ray Ozzie picked it up from there: "The best analogy I've been able to come up with is, late '80s, early '90s, there were a lot of crypto export issues. There was a real disconnect between what we were trying to do as a technology industry, and what customers wanted to do, and the regulations. And right now, there are some things that don't make sense to technologists. Like the fact that you cannot have a copy of this kind of data -- whether it's health data, or whatever -- on the other side of a border, for a citizen of a given country. Almost as though encryption doesn't exist, in terms of, where should the keys be versus where should the data be? And there was a big lag in terms of getting the regulations changed over time, and we really don't regard it as much of a problem as an industry any more, for the most part.

"The big difference between cloud computing and crypto -- and the reason I'm optimistic that things will change sooner -- is that governments themselves want to use cloud computing. There are some really significant economic issues related to people within governments building massive data centers where they maybe shouldn't, maybe they don't need to, and so I'm optimistic that some of these things will have a lot more [progress]...The pragmatic need to embrace cloud computing themselves will put them in a situation where they might go, 'Okay, there is this economic benefit; now I understand what these people are talking about.'"

Action Replay maker sues Microsoft for Xbox 360 'predatory technological barriers'

Tim Conneally — Tue, 24 Nov 2009 12:45:20 -0500

By Tim Conneally, Betanews

Microsoft's Xbox 360 is no longer compatible with the first -- and only -- third party memory card, Datel's Max Memory, after the distribution of a Dashboard software update. In response, Datel has filed an antitrust lawsuit against Microsoft.

"Microsoft has taken steps to render inoperable the competing Datel memory card for no visible purpose other than to have that market entirely to themselves," said Marty Glick, the senior attorney representing Datel. "They accomplished their recent update by making a system change that will not recognize or allow operation of a memory card with greater capacity than their own. We believe that with the power Microsoft enjoys in the market for Xbox accessories this conduct is unlawful."

Datel has made a name for itself by selling "over the counter" device hacks for most of the major video game consoles of the last 20 years, most notably the popular Action Replay system which lets users manipulate game software to enable cheats.

Datel has landed in court over its products many times over the years, both for the Action Replay brand, and for the Game Shark brand which was originally based on Datel's Action Replay licenses. In 1992 Datel went to court with Sega, and in 1999 with Sony. This year, Sony sued Datel again for the PSP Lite Blue battery which enabled "service mode" in the PlayStation Portable.

Few of Datel's products have ever been officially endorsed by gaming companies.

Datel alleges that Microsoft's recent dashboard update was intended to "prevent consumers from choosing a Datel product that offers far better value for the price," and also to "foreclose competition from Datel in the sale of other aftermarket Xbox accessories and in add-ons, including gamepad controllers, through the implementation of predatory technological barriers. These technological barriers do not constitute improvements of the product in any respect, but are rather arbitrary contrivances intended to perpetuate Microsoft's market power."

Spectrum crisis is just a part of the problem for universal broadband, says FCC

Tim Conneally — Wed, 18 Nov 2009 13:58:37 -0500

By Tim Conneally, Betanews

Early in October, Federal Communications Commission chairman Julius Genachowski said there is a wireless spectrum crisis approaching, and that our wireless broadband consumption is growing so explosively that it would take more than 50 years to deliver the necessary spectrum at our current pace.

But an FCC task force has concluded that this is only a single part of the problem if we want to provide America with robust and affordable broadband. Over the last few weeks, the task force has identified critical gaps in policymaking, government programs, and trade practices in all corners of the broadband ecosystem.

Today, the Commission has put forth a list of these gaps, which narrows the main problems down to seven major points.

1.) USF Gap: The Federal Universal Service Fund (USF) does not support broadband deployment and adoption, despite consuming more than $7 billion in annual telecommunications subsidies.

2.) Broadband Adoption Gap: as broadband access increases, those without access (based on geography or income) are at an ever greater disadvantage.

3.) Consumer Information Gap: Users don't know their actual broadband performance, and providers aren't supplying them with that information.

4.) Spectrum Gap: The spectrum crisis Genachowski warned of in October, where wireless demand far outstrips supply.

5.) Deployment Gap: There is an extremely high cost for rural broadband and "middle mile" solutions.

6.) TV Set-top Box Innovation Gap: Most set-top boxes still haven't integrated with IP-based technology even though they present a prime opportunity to deliver broadband to the masses.

7.) Personal Data Gap: Users need to have more control over their own information and greater privacy/security.

Before the Commission can submit its National Broadband Plan to Congress in February, it will work on devising solutions for these gaps.

After the Psystar verdict: Send in the clones

Carmi Levy — Tue, 17 Nov 2009 02:57:19 -0500

By Carmi Levy, Betanews

I feel a little sorry for Psystar. But only a little, because the Mac clone maker should have realized it couldn't rewrite history.

Its latest courtroom loss -- where a US District Court judge last week sided with Apple and said Psystar can no longer sell hardware based on hacked versions of Mac OS X -- will in all likelihood bring the whole concept of clones to an inglorious close. And none too soon.

Another case of history repeating itself

We've been down this road before. In 1982, when a fully tricked out Apple II Plus cost an order of magnitude more than a modern-day low-end PC or netbook, there was ample room in the market for knockoff hardware that offered the same user experience for less. If your choice was a relatively inexpensive clone or nothing at all because the name brand offerings were simply too rich for your budget, the choice almost made itself.

Franklin Computer, which introduced machines based on Apple's motherboard design, reverse-engineered ROMs and openly copied operating system, was an early and perhaps the best known example of the breed. Unfortunately, it also learned rather quickly just how aggressively Apple would protect its turf. Barely two months after Franklin's first machines hit the market, Apple sued the upstart clone maker. After a six-year, often-nasty legal battle, Apple forced Franklin out of the clone business for good.

Of course, Apple wasn't completely averse to the idea...except when it wasn't on its own terms. The company licensed Apple II ROMs to Bell & Howell and Tiger Electronics, and by the mid-90s had launched an official Mac clone program as well. This short-lived dalliance ended abruptly, however, when Steve Jobs returned to the fold in 1997. System 7-based machines from such companies as Power Computing, Motorola, and UMAX died a quick death after Jobs terminated the licensing deals forged during his absence. The company's message, then and since, has been clear: The only hardware that runs any Mac OS will be a Mac box designed and sold by Apple.

You'd think that Psystar would have gotten the message.

The not-so-hidden cost of cloning

Twenty-seven years after Apple first went postal on third party clone vendors, it's a safe bet that Mac clones are finally a dead business. While there will always be hackers perfectly willing to reverse-engineer any combination of hardware and software to allow anyone to run some flavor of Mac on non-Apple hardware, it's equally safe to assume that solutions like these will live on the fringe of the market. So-called "hackintoshes" make for fun conversation, of course, and there's doubtless a visceral thrill associated with running an Apple-sourced, partially modified OS on something as cheaply mundane as a netbook. But would you stake your business on such a solution? Probably not, and there's the rub.

Clones introduce a level of unpredictability into the user experience that makes them a ridiculous proposition for any kind of business use. When a vendor-forced system update, patch, or bug fix can easily break a hacked solution, it's difficult to understand the value proposition of saving a couple of hundred bucks on hardware. If you're building a spare machine in your basement on the weekend, by all means have at it. If you're buying a fleet of machines for your company, however, the risks of not going with something more mainstream will almost certainly result in your spending more time than normal keeping things functional.

And as you try to calculate the TCO of a clone-based solution, don't forget to attach a dollar figure to all those hours you and your IT folks will spend on your cheap-yet-unsanctioned hardware/software. That extra IT time quickly negates any up-front savings. The equation doesn't change much if your business is too small to justify a full-on IT department. Even if you're a company of one working from home, can you really afford to lose your system when the vendor of record decides to break the clones once and for all? Can you trust that every court proceeding from here on out will be decided in the clone vendor's favor? Platform stability, never a strong suit for clone makers, is a crucial component of proper IT-business strategy.

Living with Apple's choice

We can argue ad infinitum over how Microsoft's embrace of open availability of its OS on commodity hardware allowed it to build a much larger ecosystem than Apple's closed strategy that inextricably and permanently tied its hardware to its OS. Could Apple have sold more copies of its OS had it opened it up to a larger number of hardware vendors? Certainly. Would it have been as capable of defining and controlling the end-user experience? No.

And given how the end-user experience has always been at the very core of Apple's value proposition -- indeed the very basis of its ability to command the prices that it does -- it's easy to see why Apple would consistently protect its rights and move to shut down wannabe-clone vendors at every turn. It's a mindset that doesn't just stop with Macs: This culture continues to serve it well as it oversees the growth of the iPhone/iPod touch platform, and has almost certainly helped fuel Apple's brand value.

As we examine Apple's mobile experience, we can whine all we want about how tightly it controls how its devices run, how apps are submitted and approved, and even how they're installed and used. But like the Mac before it, the mobile landscape is Apple's to control.

As much as clone vendors like Psystar have banked on the Robin Hood-esque notion of allowing those who could not otherwise afford a Mac to have some sort of access to the Apple experience, the apparently permanent truth is that Apple, whatever it's selling, has no intention of ever giving up its overarching control of the combined hardware and software environment that it created. And whether we like it or not, this is the business model that the company has chosen in its pursuit of profit. Don't like it? Buy something else, because the era of pretending to be something we're not is finally drawing to a close.

Carmi Levy is a Canadian-based independent technology analyst and journalist still trying to live down his past life leading help desks and managing projects for large financial services organizations. He comments extensively in a wide range of media, and works closely with clients to help them leverage technology and social media tools and processes to drive their business.

'A pivot from war to peace:' The AMD + Intel armistice, in their own words

Scott M. Fulton, III — Thu, 12 Nov 2009 17:27:06 -0500

By Scott M. Fulton, III, Betanews

For much of its history, AMD's image in customers' minds has been established, or at least reinforced, by its very public stance with regard to Intel. The company that AMD has tried to be, it has explained for years, begins with everything that Intel -- at least from its perspective -- is not.

So it must have been a bewildering feeling for AMD executives to approach this morning, perhaps after not very much sleep last night, in an environment that can no longer be framed by the legal and intellectual property conflicts between it and its sole rival. The legal war is gone. Only the market competition remains, the sole differentiator between the last two producers of CPUs for PCs in the world. It was what AMD said it has always wanted.

It's no wonder then, that the first words this morning from AMD's chief legal executive, Tom McCoy, were at times laced with poetic metaphors, and at other times flying loosely in the breeze, like this could still be a dream: "What's important about the agreement, to us, is that it signals a new era. It's a pivot from war to peace, and we're trying to redefine not only the path to a fair and fierce competitive fight in the marketplace, but also one of tonality with Intel. We're all trying to get this behind us and move forward in a very respectful way -- a way that will make everybody proud of this industry in which we operate, that is so fundamental and vital to innovation, to productivity, and to great fun, using technology in the world."

What's fair and what's not

The agreement between the two companies, as explained to the US Securities and Exchange Commission this morning, spells out a new set of guidelines for what both CPU producers can agree to be "fair competition." With federal regulators worldwide having used AMD's situation as a model case for a manufacturer treated unfairly by its dominant rival, the fact that AMD signed off on these new guidelines will make it difficult for them to continue pursuing their investigation of Intel the way they have been, although they will project the image of stubborn persistence for at least the next few months.

"The key points are, for us, that Intel will not be able to condition doing business with them on not doing business with us," McCoy explained this morning. "They can't use inducements in order to force exclusive dealing, to delay customers from using our products, delaying or prohibiting companies from marketing or advertising our products or systems with our products, withholding benefits from OEMs in the event that they elect to use AMD processors. We've also agreed to certain technical practices...particularly in the compiler business, so that compilers will not unfairly, artificially impair the performance of our products. We're never looking for any help; we're just not looking to be unfairly hurt. Intel has no obligation to help us; they do have an obligation not to do things that are simply designed not to hurt us."

What it was obvious that Intel needed at this point was an addition to its cost-cutting program -- a way to stop spending vital resources and capital on defending its image among lawmakers. It needed an exit strategy that enabled it to save face; and this morning, Intel CEO Paul Otellini stopped just short of saying exactly that:

"In most lawsuits between businesses, there comes a time where both sides step back and look at whether spending all of that time and money makes sense. That's what happened here. Intel and AMD took a step back. We look at the claims AMD was making, and they looked at our claims that they had breached their license rights to Intel's patents. After a lengthy negotiation that began last spring, we found a way to put these matters behind us and move forward.

"People can honestly disagree about business and marketing practices," Otellini continued, as he pursued his metaphor of stepping back and moving forward simultaneously. "We continue to believe that our discounts are lawful and in the best interests of consumers and the marketplace, although we understand that others have a different perspective. At this point, the best path forward is to bring closure to all disputes between the companies."

How can Intel effectively agree to stop doing what it says it never did, and keep a straight face about it? That's the essence of a question asked this morning by a Wall Street Journal reporter.

As Intel Executive Vice President for Legal Affairs Andy Bryant responded, "They [AMD] believe we conduct business certain ways that we don't believe we do. So it's been a contention for a long time...one of the examples they gave was, if a customer doesn't buy a certain amount from us, we punish that customer. We don't do that. We understand they believe that. What made sense for us was to say, since we all agree it shouldn't be done, let's write it down and agree to it. And we'll monitor it and have talks about it. So what we've really done is, taking where the two sides have a different conception, and codify what we will and won't do -- mostly what we won't do -- and hopefully, then, we can track that going forward, and everybody understands that competition has been fair and will be fair."

Under the terms of the settlement agreement, representatives from both companies will meet once every quarter to discuss possible points of dispute, perhaps in writing. This gives both sides the opportunity to propose solutions prior to any future litigation taking place.

Why was AMD willing to grant Intel some lee-way on what appeared to have been, up until today, the central point of its dispute -- for example, Intel's ability to bargain for exclusivity? In response to this question, AMD's Tom McCoy actually went so far as to state that certain elements of its case against Intel that seemed critical, really weren't.

"The key issue for us is the conditionality," McCoy said, not being nearly as poetic as at the start. "That is, that structures or inducements, or the opposite of inducements, that are provided to customers, are conditional on whether, and to what extent, or how, customers can also deploy AMD technology. That is the key practice that, in our view, has constrained our access to the marketplace, whether it be at the computer manufacturer level or the channel level; and Intel has agreed to cease those practices, consistent with what are already several regulatory decisions."

But a so-called "narrow set of practices" (which aren't so narrow after all; for instance, fairly bidding for exclusivity if an OEM offers it) remains permissible even under this agreement. As AMD's McCoy explained, "As to these other, narrow set of practices, bear in mind that there is also a decision that exists against Intel from Brussels, and that Intel is undoubtedly going to try to comply in good faith with that decision. So we believe that we, through the actions of the regulators, already have significant protections against these practices, and that our customers therefore are going to enjoy freedom of action to deal with us."

Next: The cases against Intel going forward, or backward...

The cases against Intel going forward, or backward

The most recently developed picture in consumers' and investors' minds about Intel's conduct during the early part of this decade came from the State of New York's antitrust suit, filed against Intel last week. There, State Attorney General Andrew Cuomo cited multiple e-mails, some from then-COO Otellini, which appeared to indicate that Intel was not only eager to enter into exclusivity deals with Dell and Hewlett-Packard secretly and separately from AMD, but was aware of the leverage those deals had in influencing those manufacturers' purchasing decisions and behavior.

It's clear this morning that Otellini remains personally disturbed by the New York A G's allegations, which are by no means settled: "We strongly disagree with the New York Attorney General's case, and believe the complaint is entirely without merit. Discounting and rebates are standard business practices, and perfectly legal, and it's unfortunate that the New York Attorney General chose to distort the facts. We would have preferred to have engaged in a dialogue with the Attorney General."

When pressed for further "color" on the subject by another reporter, Otellini turned up the volume: "On some of the statements in there that were attributed to me, yeah, I wrote some of those, at least the ones I remember. On the other hand, many of those documents are taken broadly out of context. When the full nature of the e-mails is exposed, I think that you'll see there's another way to interpret some of these statements."

The cross-licensing agreement

If AMD's complaints against Intel have been clear, emotional, and the stuff about which producers make movies, Intel's complaints about AMD are made up of the type of legal licensing language that keep attorneys in business. Under the terms of the two companies' long-standing licensing agreement -- the complete, non-redacted text of which has never been made public to this day -- neither company was allowed to license the other's intellectual property to other manufacturers. With AMD spinning off GlobalFoundries as part of its restructuring, that became another company that could do business with innovators other than AMD, putting Intel's IP in jeopardy. As a safeguard, the existing agreement stipulated that any foundry that AMD should hire to produce its chips should be a majority-owned subsidiary of AMD at the very least.

When the cross-licensing agreement was announced this morning as part of the two companies' settlement, evidently some red flags went up as though they were entering into some mysterious, Microsoft + Novell-like covenant. (If disputes can't be made more mysterious than they truly are, perhaps we can make hyperbole out of agreements).

But as AMD's Tom McCoy explained, the new cross-licensing agreement was essentially an extension of the existing one that's been under our noses since 1976: "It is an important feature of our agreement with Intel that we have resolved all disputes that have divided the parties. On the intellectual property side, AMD and Intel have had patent peace with each other since 1976 -- meaning that each company has had design freedom to innovate, respecting each other as great contributors to the intellectual property portfolio in the industry. And that continues unabated. So we have the continued design freedom, as do they, and we have now the flexibility...for full use of foundries. So now we can have 100% of our output produced in foundries that do not have to qualify as subsidiaries of AMD."

Analysis: The end of business-by-litigation?

Scott M. Fulton, III and Carmi Levy — Thu, 12 Nov 2009 14:30:09 -0500

By Scott M. Fulton, III and Carmi Levy, Betanews

The largest and widest ranging PC technology dispute, perhaps in the industry's history, came to an abrupt end this morning with Intel and AMD agreeing to set aside most of their differences, and all of their legal disputes. Is this a signal to the various litigators in the information technology industry that litigation is no longer the way to go, that it's too expensive a way for a company to continue protecting its market position? Betanews caught up with our contributing analyst Carmi Levy, by way of his trusty BlackBerry, on a train headed to Toronto this morning.

Carmi Levy: If litigation isn't too expensive from a fiscal perspective, then it certainly is onerous from a corporate attention perspective. Specifically, getting involved in years-long, tit-for-tat pitched legal battles that spill across global borders can often be the catalyst for losing focus on core competencies. While lawsuit-laden companies inevitably claim their legal processes do not impede strategic planning or day-to-day operations, it's clear that they're being overly optimistic. Litigation is a distraction. Never-ending litigation can split a company's focus for just long enough that it can easily lose touch with the needs of its market.

In a post-recessionary world, organizations are more vulnerable than ever to the consequences of this form of split focus.

Scott Fulton: Under the terms of this morning's agreement, Intel didn't have to acknowledge any wrongdoing, and it can continue offering volume rebates so long as they're not exclusionary...Doesn't that mean the cases of the New York Attorney General and the EC go flying out the window?

Carmi Levy: We may yet see pending cases in New York and Europe get tossed in the wake of this deal, but we'll have to wait and see how each jurisdiction weighs in. It's still early in that process, and it could take weeks or months before Intel gets the all clear in every venue where these is either current or pending litigation. Still, on the surface, it looks likely that Intel's ability to offer non-exclusionary rebates cuts the legs out from virtually all cases against it.

Scott Fulton: Is the business world ready for the dull, boring reality of competition between equal innovators everywhere in the spirit of openness and (yawn!) friendship? (Or put more directly, won't the rest of us in the media need to wake up to the new reality of business?)

Carmi Levy: I think it's time we -- both consumers as well as media, and while we're at it, the litigants and vendors, too -- moved on and paid more attention to what vendors do in the market with their products and services and less on what they're up to in front of a judge. In Intel's and AMD's case, they bring us technology that powers the information economy. They both have finally woken up to the fallacy of devoting endless resources to legal action that doesn't enhance their ability to design and market better products. Hopefully now they'll both be able to get back to business -- albeit an admittedly changed one.

And when they do, I think there's still ample opportunity for these two companies to slug it out where it matters most: in the market at large. Without the weight of seemingly never-ending litigation dragging them both down, we can look forward to more innovation and fewer antagonistic press releases and court filings.

Which means journos like us may have to change our approach to coverage as well!

The agreement: Intel and AMD 'wipe the slate clean'

Scott M. Fulton, III — Thu, 12 Nov 2009 13:35:19 -0500

By Scott M. Fulton, III, Betanews

The complete text of this morning's agreement between AMD and Intel was filed with the US Securities and Exchange Commission, and was made public early this afternoon. The agreement explicitly brings to an end three different legal disputes: the 2005 AMD antitrust suit against Intel in Delaware; the 2005 AMD antitrust suit against Intel in Tokyo, Japan; and Intel's objections to AMD's restructuring plan, specifically to spin off GlobalFoundries from a subsidiary to an independent unit.

The agreement acknowledges the gist of AMD's complaints about Intel's prior conduct, but Intel does not in turn acknowledge having acted as AMD suggested. But from there, the agreement effectively acts as if to say, "You know what? Let's forget about all that and start over."

"To avoid the time and expense of litigation, and without any admission of liability or fault, the Parties wish to fully, finally and forever resolve, compromise and settle the Actions on the terms and conditions set forth below," the agreement explicitly reads. "Further, Intel and AMD acknowledge that for most of the last three decades, their relationship has been difficult, challenging and often acrimonious. Intel and AMD wish to change that relationship going forward, both by 'wiping the slate clean' as to all past grievances, and by approaching future grievances in a constructive manner designed to address and resolve such grievances amicably, if possible."

The business practices which Intel has agreed to abide by, are very carefully worded so as not to suggest that Intel never abided by them in the first place. For example, the agreement does not say Intel will "discontinue" any practice, or "refrain from" doing something, which would imply that it did so in the past.

It's a long section, but what it boils down to is the following:

No rebates to OEMs for exclusivity. Intel won't enter into any deals with manufacturers that would give them benefits or awards for restricting their own freedom from being able to purchase parts from any other producer, anywhere in the world.
Intel can make exclusionary deals, and no, that is not a typo. There are conditions that have to be met, one of which being that Intel must compete (presumably with AMD) for those deals. The explicit language states Intel is not prohibited: "...to lawfully compete on the merits for selection by the customer for any then-current design award or for satisfaction of any or all of the customer's then-current demand for microprocessors in a manner consistent with this Agreement." So if an OEM is offering exclusivity, it must offer it to both competitors, and in writing. And the winner must execute its agreement with the OEM explicitly, and in writing.
Intel cannot reward a company for refraining from advertising AMD parts, or for not entering into marketing agreements with AMD, nor can it penalize a company by saying such an agreement with its competitor is against an existing agreement with Intel.
Intel can't rebate anyone for using mostly or entirely Intel parts. That type of exclusivity doesn't constitute a "design award" or a marketing program, and is thus forbidden.
Intel can compete for a design award by a manufacturer were mostly or all Intel parts are used, just as long as AMD can compete as well.
Intel cannot create artificial technological impairments such as, for instance, a compiler state that would render some software better or faster on Intel multicores but defeated or dampened on AMD multicores.
Both AMD and Intel may offer discounts to customers, especially volume discounts. That's been a point of contention with Intel, whose accusations against it in recent months have extended to include the ability to offer deep discounts to OEMs for high-volume purchases. As Intel executives have questioned, since when has discounting been illegal, even for a dominant player? Later in the agreement, it specifies that Intel's ability to offer retroactive discounts -- markdowns on current and future purchases based on volumes of past purchases -- may be preserved as well, depending on the outcome of current regulatory challenges worldwide.

The agreement explicitly states that Intel will not challenge the findings of the European Commission, the US Federal Trade Commission, and the New York Attorney General's office, although it may be free to challenge the language of those decisions. AMD will continue to argue against Intel's use of retroactive discounts with respect to these regulatory actions, assuming they continue.

As for any other Intel conduct, AMD says it's releasing its complaints against Intel; and Intel in turn is releasing its IP complaints. In the terms of a new covenant, neither party can hold the other party or its customers liable for past conduct.

European ministers approve watered-down 'neutral net' language

Scott M. Fulton, III — Tue, 10 Nov 2009 15:10:14 -0500

By Scott M. Fulton, III, Betanews

The question before the European Council -- made up of heads of state and key ministers from the EU's 27 member nations -- was whether Internet access should be interpreted as a fundamental human right, and whether obstructing access could be construed as a rights violation. The answer came this morning, and it is apparently no.

A declaration from the European Parliament this morning provided glimpses of a newer round of compromise language for the EU's new regulatory framework for telecommunications. That language will be even more conciliatory than last week, when the European Commission (EC) announced the new regulatory authority. Although the EC made it appear at the time that adoption of its new framework was merely a formality at that point, that wasn't actually the case.

As the Parliamentary communiqué acknowledged, the Council (which oversees high-level legislation) made a long debate out of how best to implement the "neutral net" provision that Comm. Viviane Reding proclaimed last week was as good as adopted. That provision was already a reworded form of the original Amendment 138 to the telecom framework, which would have proclaimed that "no restriction may be imposed on the fundamental rights and freedoms of end-users, without a prior ruling by the judicial authorities, notably in accordance with Article 11 of the Charter of Fundamental Rights of the European Union on freedom of expression and information." That original language would have implied that Internet use was a fundamental human right; in which case, restricting access rights for prisoners would have been on a level with restricting food.

That's how Council members viewed the situation, as they rejected that language twice, triggering what Parliament termed a conciliation session. There, members of Parliament joined with the Council to rearrange the text, which prior to this morning had read as follows: "A prior fair and impartial procedure shall be guaranteed, including the right to be heard of the person or persons concerned subject to the need for appropriate conditions and procedural arrangements in duly substantiated cases of urgency in conformity with European Convention for the Protection of Human Rights and Fundamental Freedoms. The right to an effective and timely judicial review shall be guaranteed."

That text has apparently been tweaked once again, and the full Parliament is scheduled to vote on that text later this month. A revised draft has yet to be released.

At issue was whether France would be able to continue prosecuting its HADOPI "three strikes" law, which would restrict Internet service to individuals after three instances of complaints of copyright violation. After having been struck down by the French high court, a revised version of the law was passed last month guaranteeing judicial review of any final access rights suspension.

It's that "judicial review" that was maintained in the latest version of the telecoms framework, which may finally reconcile the new framework with French law.

When the EC approved the November 5 version of the framework, it was either a tremendous victory or an historic defeat for Internet users' rights, depending upon whom you asked. In the UK, Green Party leader Caroline Lucas proclaimed, "The message from this EU legislation is clear: Access to the Internet is a fundamental right and proper procedures must be followed when challenging internet users on alleged copyright infringement. It is now up to national governments to respect this."

A close read of the text may prove otherwise: Although the European Convention is cited, it's only with respect to granting due process for a hearing into whether access suspension violates the citizen's existing rights to free expression -- it doesn't add Internet access as a fundamental right. In fact, that's perhaps the primary reason for the clarification in the first place.

But the existence of the clarification was called out by French activist group La Quadrature du Net. Upon first reading the amended amendment, group leader Philipe Aigrain argued that the new language would reduce existing freedoms guaranteed by human rights conventions -- adopting the stance of European countries other than France where lawmakers have argued existing free speech rights extend to the Internet, such that access rights are free speech rights. Thus the watering down of the proposal, stated the group, "amounts to legitimizing an Orwellian surveillance of the Net."

It's the US vs. the EU over Oracle+Sun and the meaning of 'open source'

Scott M. Fulton, III — Tue, 10 Nov 2009 12:15:56 -0500

By Scott M. Fulton, III, Betanews

Late yesterday, Sun Microsystems gave the first public notice to the US Securities and Exchange Commission that Oracle Corp., its prospective suitor, had received a Statement of Objections from the European Commission with regard to Oracle's plan to acquire Sun. Not only had 62% of Sun shareholders already cleared the deal last May, but the US Justice Dept. cleared the deal last August.

At issue was the fate of MySQL, the open source database product that Sun acquired in January 2008. In Sun's one-paragraph 8-K filing, it mentioned the EC's sole focus: "The Statement of Objections sets out the Commission's preliminary assessment regarding, and is limited to, the combination of Sun's open source MySQL database product with Oracle's enterprise database products and its potential negative effects on competition in the market for database products."

Though the EC had not yet issued its own official statement on the Objection, as is its usual course with private communications, once Oracle issued its own public statement confirming receipt of the letter, the US Justice Dept. took an unusual stand of its own. Late yesterday, Deputy Assistant Attorney General Molly Boast weighed in with the US' official opinion that Oracle would continue to produce MySQL in addition to its own commercial RDBMS, going so far as to hypothesize that if Oracle changed MySQL, the open source community would change with it.

"There are many open-source and proprietary database competitors. The Division concluded, based on the specific facts at issue in the transaction, that consumer harm is unlikely because customers would continue to have choices from a variety of well established and widely accepted database products," reads DAAG Boast's statement last night. "The Department also concluded that there is a large community of developers and users of Sun's open source database with significant expertise in maintaining and improving the software, and who could support a derivative version of it."

Boast appeared to echo Oracle's response earlier in the day, which was quite strong but not at all uncharacteristic of Oracle: "The transaction does not threaten to reduce competition in the slightest, including in the database market. The Commission's Statement of Objections reveals a profound misunderstanding of both database competition and open source dynamics. It is well understood by those knowledgeable about open source software that because MySQL is open source, it cannot be controlled by anyone. That is the whole point of open source.

"The database market is intensely competitive with at least eight strong players, including IBM, Microsoft, Sybase and three distinct open source vendors," Oracle's statement continued. "Oracle and MySQL are very different database products. There is no basis in European law for objecting to a merger of two among eight firms selling differentiated products. Mergers like this occur regularly and have not been prohibited by United States or European regulators in decades."

The double-whammy response -- colored red, white, and blue, but mainly red for Oracle -- triggered an unprecedented comment from EC spokesperson Jonathan Todd, who with regard to previous Statements such as to Intel and Microsoft, withheld comment until a later time. In a comment to Dow Jones this morning, Todd dismissed Oracle's statement as "superficial," but then went straight to the heart of the Justice Dept.'s complaint, suggesting that the DOJ didn't really investigate the conditions of the merger.

"We don't always have the same evidence in front of us," Todd told Dow Jones. He went on to suggest that if Oracle acquires the copyright to MySQL, Oracle could then exert its influence in deciding which developers had the right to make use of it -- meaning it would no longer truly be open source.

It is true that, while the US Justice Dept. has not demonstrated any particular duty to protect "open source" as an entity unto itself, the European Commission has. While the US' assessment of this and other cases tends to evaluate the past, present, and prospective future positions of companies in the market, the EC often portrays open source as a competitor deserving of certain guarantees.

To that end, Todd added to Dow Jones that he felt it unusual for the DOJ to comment with regard to what he considered a matter of European jurisdiction. Oracle is headquartered in Redwood Shores, California, and Sun Microsystems in Santa Clara. MySQL was founded in Sweden, though its official headquarters as a Sun subsidiary is now in Cupertino.

The public face of MySQL, vice president Kaj Arno, has withheld direct comment on the whole affair, although last July he posted links to comments from his colleagues suggesting a positive outcome. Since that time, however, one of those colleagues -- MySQL co-creator Michael "Monty" Widenius -- posted his objection to the deal last month, unless Oracle were willing to offload MySQL to a third party, "enabling an instant solution instead of letting Sun suffer much longer," as Widenius put it.

Recently, Widenius followed up that post with what was effectively a how-to guide for killing MySQL off. "The easiest way to kill MySQL would be to not sell licenses any more or make their prices 'really high,'" he began.

Then he advanced a theory which effectively counters the position of the Justice Dept.: "The simple fact is that keeping a project like MySQL alive and having it compete with big vendors like Oracle, require many people working in it. If they can't get any revenue from doing that (except support revenue, which is not enough), you will find very few companies prepared to do development, and extremely few (or none) investment companies would put serious money on a company that gets all of its money on services (not scalable)."

Supreme Court considers patentability of abstract methods today

Scott M. Fulton, III — Mon, 09 Nov 2009 13:27:14 -0500

By Scott M. Fulton, III, Betanews

The US Supreme Court is hearing oral arguments this afternoon in the case of a pair of inventors who produced a formula for enabling energy commodity companies to manage the costs of energy that is often both bought and sold at fixed prices as "hedges" against future fluctuations. If you're thinking, what in the world has that to do with information technology, the outcome of this case -- whatever it is -- will have a tremendous impact on the IT industry, particularly with respect to companies that hold intellectual property portfolios.

The argument deals with whether a methodology that boils down to a mathematical formula for determining the safest hedge for a commodity that both buys and sells energy -- basically a business method -- is worthy of a patent. The decision the Supreme Court will render will determine whether simple formulaic concepts or principles that are case-specific deserve patents, and if they are not, whether existing patents granted in such situations may be canceled.

Currently, the score with regard to formula patentability is "no," in a Federal Circuit Appeals Court decision in October 2008, which ruled against inventors Bernard Bilski and Rand Warsaw. After years of a back-and-forth tug-of-war with itself, the US Patent and Trademark Office finally decided to reject the inventors' claims, and that rejection was upheld by the Appeals Court. Now, Bilski and Warsaw's attorneys are arguing that the Appeals Court's reasoning was flawed, by applying a test of patentability that they believe goes against the higher court's precedent.

"Section 101 of the Patent Act provides patent eligibility for 'any' new and useful process. Consistent with its plain language, this Court has interpreted § 101 to be extremely broad," reads the inventors' merit brief before the Supreme Court (PDF available here). "Moreover, the courts should not place additional limits on patent-eligible subject matter that have not been expressed by Congress. To be sure, natural laws and phenomena can never qualify for patent protection because they cannot be invented at all. And abstract ideas are not eligible either because they are not 'useful' and they must be applied to a practical use before they can be patented. But the Federal Circuit has gone much further in limiting patents on processes, holding that the only patent-eligible processes are those that meet the court's mandatory 'machine-or-transformation' test."

That last test is practically an existential philosophy unto itself, a way of finding some concrete language -- even if it exists in the clouds somewhere -- for fundamentally explaining where the boundary line falls between an invention and an alteration. "Machine-or-transformation" does not mean one or the other; it's a twofold approach for determining patent worthiness, outlined by the Federal Circuit. You might not want to read the explanation itself; it makes most software EULAs seem plainly spoken by comparison.

But the ideas are these: If somebody patents a method, and that method involves the use of a particular machine (like a computer) or other apparatus (like a sledgehammer), then the patent should not preclude someone from using that method for another purpose with another machine. And if the purpose of the method is to transform something from one state of being into another, then the patent shouldn't preclude someone from using that same method to transform perhaps that same thing into something else. It's a way of narrowing a patent down to something that makes a into b using c.

Math is not an apparatus, however, and there's the problem. In some people's minds, math merely serves as an observation of an existing fact, just as the universe was probably curved before Albert Einstein came up with e = mc². If the Federal Circuit's interpretation holds (and the Supreme Court has followed that interpretation in recent cases), then it will not be enough for a method to simply "do something new," such as, come up with the most reasonable price to charge a customer in advance for electricity.

"The term 'process' in Section 101 encompasses industrial and technological methods, broadly conceived, but does not extend to methods of organizing human activity," reads the merit brief for the defendant -- in this case, the US Commerce Dept. (PDF available here). "In identifying processes that 'involve technology' in the relevant sense, this Court has focused on whether a patent applicant's claimed method either (1) concerns the operation of a particular machine or apparatus or (2) has the effect of transforming matter...That definition of 'process' provides an effective means of differentiating between the industrial and technological methods that have historically been eligible for patent protection, and human-activity methods that have not traditionally been viewed as patent-eligible. The machine-or-transformation definition, in other words, provides a framework for analyzing patent claims in every extant field of technology and industry."

If the high court upholds the Federal Circuit decision, then the fight will be on to determine whether patents should be overturned for methods that use software. Though many have argued that such patents might be instantly invalid, the situation isn't that black-and-white: Patent holders for software methods, such as Amazon's method for changing a TV channel, could claim that such methods are bound to machines, as the machine-or-transformation test would stipulate. And they could, arguably, change the state of something, even if that state is somewhat virtual in nature -- like the state of a set-top cable box to a new channel, or the state of an on-screen menu to "open."

IP portfolios for software methods will not go down without a fight; and the outcome of this Supreme Court decision may simply set the time for the starting gun.

New European counterpart to FCC will ensure 'a more neutral net'

Scott M. Fulton, III — Thu, 05 Nov 2009 21:21:29 -0500

By Scott M. Fulton, III, Betanews

During one of the more noteworthy weeks in Europe's modern history, as the 27 member nations of the European Union prepare for a newer and more centralized executive authority, the EU will also be making way for a powerful regulatory authority for telecommunications: the Body of European Regulators for Electronic Communications (BEREC). This is the name for the new European Telecoms Authority; and whereas in the US, there remains considerable debate over whether the Federal Communications Commission can and should have regulatory authority over Internet transactions, in Europe, the debate has officially been settled: BEREC will have authority to propose regulations for telecommunications in all forms, including the Internet.

But the power for approving, exercising, and then administering those regulations has been delegated to the European Commission. So although the new telecoms authority will be comprised of the national telecom regulatory heads from each member nation, the EC will have the authority to overrule them. Negotiations over this single provision extended for hours and eventually days, according to the EC, with the central point of contention being this and only this provision.

But in the end, the agreement reached early Thursday morning essentially gave the EC everything it has asked for, without any hint of compromise.

"When the Commission, in close cooperation with BEREC, considers that a draft remedy notified by a national regulator would create a barrier to the single market," reads this morning's communiqué from the EC, referring to the continent-wide telecommunications market, "the Commission may issue a recommendation that requires the national regulator to amend or withdraw its planned remedy. The new rules also enable the Commission to adopt further harmonization measures in the form of recommendations or (binding) decisions, if divergences in the implementation of remedies persist across the EU in the longer term."

"Harmonization" is the EC's term for getting everyone's ducks in a row, and has been a favorite watch-word of Comm. Viviane Reding, whose authority over Europe's Internet industry has just increased.

Also within Comm. Reding's power will be the ability to order a country's telecom company, once it steps over the regulatory body, to divest itself of its services division if it wishes to maintain control of a majority of lines or transmitters in its given nation. This is the functional separation option introduced in the original proposal two years ago, based in principle on the spinoff of Openreach from UK-based parent BT in 2003, in one of the EC's first telecom-related antitrust actions.

A final draft of what's now called the Internet Freedom Provision will not, as some European journals had reported, guarantee broadband Internet access as a fundamental human right. What it will do, however, is guarantee that an individual's right to choose any available application over the Internet is not suppressed by a service provider's maintenance measures, privacy policies, or lack thereof. In its entirety, the new annex of the Provision reads as follows:

Measures taken by Member States regarding end-users' access to or use of services and applications through electronic communications networks shall respect the fundamental rights and freedoms of natural persons, as guaranteed by the European Convention for the Protection of Human Rights and Fundamental Freedoms and general principles of Community law.
Any of these measures regarding end-users' access to or use of services and applications through electronic communications networks liable to restrict those fundamental rights or freedoms may only be imposed if they are appropriate, proportionate and necessary within a democratic society, and their implementation shall be subject to adequate procedural safeguards in conformity with the European Convention for the Protection of Human Rights and Fundamental Freedoms and general principles of Community law, including effective judicial protection and due process. Accordingly, these measures may only be taken with due respect for the principle of presumption of innocence and the right to privacy. A prior fair and impartial procedure shall be guaranteed, including the right to be heard of the person or persons concerned, subject to the need for appropriate conditions and procedural arrangements in duly substantiated cases of urgency in conformity with the European Convention for the Protection of Human Rights and Fundamental Freedoms. The right to an effective and timely judicial review shall be guaranteed.

Final votes in the European Parliament on the creation of BEREC will take place later this month, although at this point, they're seen to be largely ceremonial. The new authority -- and the authority over that authority -- could come into existence in the first quarter of 2010.

New York: Intel's agreements to lower CPU prices led to overcharges

Scott M. Fulton, III — Wed, 04 Nov 2009 16:29:31 -0500

By Scott M. Fulton, III, Betanews

This morning, the State of New York filed an antitrust suit against Intel, joining its voices with those of the European Commission, Korea, and other countries in alleging that its ability to make exclusivity deals was illegal. The claims made this morning by the State Attorney General's office were not at all unprecedented. Essentially, A-G Andrew Cuomo focused on two of the issues already central to the EC's existing case against the company: its CPU purchasing deals with major PC makers Hewlett-Packard and Dell, the existence of which is no longer truly disputed.

But the theory of damages in the case may be difficult to prove, and the lawsuit complaint makes a calculated move in not really arguing damages at all, beyond the fact that they exist. While presenting more evidence than the general public has seen to date of negotiations between Intel and its leading OEMs, clearly suggesting they conspired to keep CPU maker AMD at a safe distance, that evidence also supports the notion that PC prices were rendered lower as a result of those deals, not higher.

While evidence continues to show, for example, that AMD offered HP free CPUs for entering into a deal, and that HP rejected that deal for fear of Intel retribution under its existing purchasing agreement, the complaint offers no evidence of what HP's prices for those AMD-based PCs might have been. And new evidence sheds only more light on the fact that Intel's customers used their own leveraging power to keep their buying prices low, in exchange for promises of exclusivity or near-exclusivity with Intel.

So the complaint attempts a kind of "leap of faith," a way of saying, imagine what might have happened if Intel had used that same monopoly power to raise prices instead of lower them.

Under the theory that the State of New York purchased certain PCs from OEMs (not necessarily HP and Dell), and that the contracts of those purchases assigned to the State the sole right to sue anyone for overcharges, the State is suing Intel claiming it was overcharged, specifically by whatever amount it might have saved had no such exclusivity deals been made...even though those deals led to discounts.

Once again, as was the case with the EC's Statement of Objections last May, A-G Cuomo's evidence comes from e-mails from Dell and HP, many of which suggest that although they were certainly fearful of Intel retribution should they sell more computers with AMD chips than previously agreed, that fear comes from their perception of how Intel could react, rather than what how it may have threatened to react.

For example, in a section of today's suit (PDF available here) entitled, "Intel Conveyed Threats to Dell," e-mails between Dell executives were cited, though not containing words from Intel executives.

"In preparation for upcoming funding negotiations with Intel in 2002, a Dell executive, who regularly acted as an informal liaison between Dell and Intel, explained that Intel would not tolerate a Dell shift to AMD CPUs," reads the A-G's lawsuit complaint. "Specifically, this Dell executive wrote to Michael Dell and others: 'If [Dell starts to use] AMD [CPUs], [Intel] would just give a [competitor] MOAP type dollars to match whatever we're getting -- they won't sit around and let us transfer share to AMD…'"

"MOAP" in this case referred to an early acronym for the purchasing deal then under negotiation between Dell and Intel: "Mother Of All Programs." It was later changed to "Meet Competition Program" (MCP), and was designed to be a way for Dell to specify in advance how Intel should respond to competitive offers made to Dell by another CPU supplier. Of course, there was only one of those. As evidence brought forth by the European Commission made clear, the terms of the MCP were kept oral between the two parties, under a mandate specified by Dell.

In fact, Cuomo's complaint this morning only shed more light on the degree to which Dell exercised its own leverage in the negotiations. The suit alleges that MCP was constantly renegotiated in order to determine legal -- or legal-sounding -- ways to "structure" rebates from Intel to Dell for maintaining its purchasing quotas, and for excluding AMD. But as the suit states explicitly: "As Dell's lead negotiator with Intel put it in a December 7, 2004 e-mail to his Intel counterpart, explaining that Michael Dell wanted an additional $400 million rebate payment from Intel: 'This is really easy... MSD [Michael Dell] wants $400M [million] more. I've been trying to figure out the structure...'" The suit does reveal, however, where Intel was willing to throw its weight around. For example, internal Intel e-mails cited in the suit show where, in late 2002, Sony was in purchasing negotiations with Intel. As with many major OEMs, Sony had market share target goals it wanted to meet; but so did Intel, which saw each OEM as contributing certain numbers of points to its market share segment [MSS] in consumer and business segments.

The "value" segment of the market (the low end, or "entry level") has always been where AMD has made its biggest inroads. So at this time, Intel wanted Sony to commit to exposing Intel to more MSS points in the value segment, to catch up with AMD. Citing internal Intel executive e-mails without naming the correspondents, the complaint reads, "The first executive inquired: 'Can [another Intel representative] discreetly hint to Sony that the Corp Marketing dollars are at risk if Intel's MSS with Sony in the value segment does not improve?' The second responded: 'We should not be shy about our unhappiness with our current MSS. Intimating that the program is in jeopardy if they don't get their act together and work with us on this is clearly ok.'"

Intel would be willing to co-market Sony's notebook computers, if Sony made purchasing commitments on its end. Those commitments were called "alignment," as referred to in this internal Intel e-mail: "I also told him [the Sony negotiator] that Intel…would really have to make sure Sony and Intel are well 'Aligned' before we commit to doing this kind of comarketing program…If we can get [Sony] to agree on better alignment (MSS recovery in US NB [United States notebook computers], No more surprises), then, we can move forward with co-marketing discussion. If not, we may have to think about alternatives."

"Intel forced OEMs to choose between having a 'strategic' or a 'transactional' relationship with Intel," explained the State of New York's lawsuit complaint. "In Intel's parlance, a 'strategic' relationship was one with a high degree of exclusivity or 'alignment.' An OEM which opened itself to a relationship with another microprocessor supplier -- AMD -- was regarded as desiring only a 'transactional' relationship with Intel, and Intel made clear in such cases that this would not be in the OEM's own best interest."

E-mails detailing how to explain to OEMs the virtue of "strategic" relationships with Intel -- long-term agreements with benefits dispensed over time -- imply that the Intel executive responsible for coining that phraseology was Paul Otellini -- at the time of these negotiations, Intel's Chief Operating Officer.

In a statement to Betanews this afternoon, Intel spokesperson Chuck Mulloy reiterated his company's position: "We disagree with the New York Attorney General," he told us. "Neither consumers, who have consistently benefited from lower prices and increased innovation, nor justice are being served by the decision to file a case now."

On the eve of a new EU constitution, Poland suggests distance from 'open source'

Scott M. Fulton, III — Tue, 03 Nov 2009 17:19:45 -0500

By Scott M. Fulton, III, Betanews

5:45 pm EST November 3, 2009 · A press officer with the Delegation to the European Commission in Washington contacted Betanews this afternoon, stating that the press office could not attribute the document being circulated as "EIF 2.0" this week as an official European Commission document. It is therefore not a leaked version of EIF 2.0 as was suggested elsewhere; and it's extremely unlikely that the Commission is actively considering replacing its last draft of EIF 2.0, completed in July 2008, with the version that Betanews was able to trace to the Polish Ministry of the Interior.

Just hours ago, Czech President Vaclav Klaus was the last to add his signature to a list of 26 others, effectively ratifying sweeping amendments to the Treaty of Lisbon -- effectively, the constitution of the European Union. A new centralized executive authority will be created, dramatically expanding the roles of the EU's President and formalizing the role of its own, continent-wide Foreign Minister. A country upon countries is born.

As the 27 member nations agree to cede more of their lawmaking authority to a centralized executive branch -- whose members have yet to be elected -- they continue to grapple with the subject of how they will interoperate, sharing not only information but commerce and technology, in a system where their own national laws may each be superseded. Since 2004, the EU had been looking to the open source software model as an example of free collaboration among independent entities willing to work together for the common good. And OSS proponents have shown pride in the fact that their model was directly cited by the first edition of the European Interoperability Framework (EIF), a set of formal recommendations for how countries may share public services with one another.

A draft 2.0 of the EIF has been under discussion since 2007, and has been awaiting the Lisbon Treaty amendments before starting the process of formal ratification. Now, a document that purports to be a newly proposed draft of EIF 2.0, appearing for the first time a week ago Monday on the Web site of Poland's Internal Affairs Ministry, would actually strip those OSS references from the framework, in the interest of what it calls, among other things, "administrative simplification."

The Ministry explicitly states that the document is not an actual draft. So contrary to numerous reports, the document in question is not official EU business. It does not actually contain text that may appear in the final draft, says the Ministry, beating around the bush a little bit instead of admitting that it's a mockup.

Indeed, the text of the Polish Ministry document differs substantially in both content and size (it's 56 pages shorter) than the Draft for Public Comments on version 2.0 (PDF available here), published in July 2008. But the Ministry is seeking public comment on the document, ahead of a meeting scheduled for November 12 in Malmo, Sweden, where the Ministry says the actual latest text of EIF 2.0 will be unveiled.

The fact that the Ministry's document was not titled in sync with the actual EU project name ("European Public Services" as opposed to "pan-European Public Services") should have sent up some red flags. It would appear this document is actually a kind of "floater" or "dipstick" -- a test of alternative language just to ascertain the depths of public sentiment or apathy to a change in course. The Ministry does state the document was submitted by the European Commission; however, the document itself does not carry any EC authoritative marks. Betanews has been in contact with the Delegation of the European Commission in Washington today, in an effort to ascertain the origin of the document, and will report further as we hear more. One possibility is that the origin is a legitimate commissioner seeking public input on alternative language.

That alternative language would be a radical shift from the current EIF 2.0, which not only uses OSS as a model around which to base cooperative services, but states the EU's preference for open source software as more likely to adhere to standards, and more likely to change with the needs of customers as opposed to making customers change to suit the software. The Polish Ministry version would strike that language entirely, replacing it with a suggested "Eleventh Principle" in a list of twelve. Under Principle 11, quite literally, public services would be urged to wait until the last possible moment before choosing any kind of technology investment, and then simply make whatever choice appears most adaptable at the time.

"When establishing European Public Services, public administrations should focus on functional needs and defer decisions on technology as long as possible in order to avoid imposing specific technologies or products on their partners and to be able to adapt to the rapidly evolving technological environment," reads the Polish Interior Ministry draft language. "Public administrations should render access to public services independent of any specific technology or product."

Open source software is nice because it's typically reusable, meaning it's licensed under less constrained terms than commercial products. But that's about it for OSS under the Polish suggested language. Rather than model principles of openness in government on openness in software, as does EIF 1.0, the Polish version suggests that since some software is more open than others, some governments are more open than others.

In short, the Polish version would substitute the OSS principles with something right out of science fiction, literally called the openness continuum.

"Interoperability involves the sharing of information and knowledge between organizations, hence implies a certain degree of openness. There are varying degrees of openness," the English-language text reads. "Specifications, software and software development methods that promote collaboration and the results of which can freely be accessed, reused and shared are considered open and lie at one end of the spectrum while non-documented, proprietary specifications, proprietary software and the reluctance or resistance to reuse solutions, i.e. the 'not invented here' syndrome, lie at the other end. The spectrum of approaches that lies between these two extremes can be called the openness continuum."

Governments should decide how open they should be or need to be on a case-by-case basis, the document goes on, taking into account factors such as how much they can actually afford. And it's here that the Polish document would blast the EIF's embrace of open source to kingdom come: "While there is a correlation between openness and interoperability, it is also true that interoperability can be obtained without openness, for example via homogeneity of the ICT [information and communications technology] systems, which implies that all partners use, or agree to use, the same solution to implement a European Public Service."

As the Polish Interior Ministry advises citizens, according to English translation, "We encourage all community organizations interested in interoperability topics electronically to submit comments and suggestions to the document, which can be used by the Polish delegation at the meeting on November 12."