There's been plenty of controversy over ISPs using companies like Phorm and NebuAd to effectively sell your clickstream data to advertisers by inserting "more targeted" advertising into your regular surfing. If you haven't been following the controversy, these systems work by watching everything you surf online at the ISP level, and compiling a profile in order to serve ads on other pages. In other words, if you surf a website about golf, your ISP records this and then when you're later reading technology news, the ISP may inject an advertisement about golf. Beyond questions raised over the legality of such things, there are many questions raised concerning how such systems violate privacy. There have been calls to make sure that these types of solutions are opt-in only. In the meantime, ISPs that are adopting these solutions are trying to present them in the best possible light. Witness cable broadband provider Charter, who is pitching its use of NebuAd as a way to bring you its "enhanced online experience." Charter, which is setting this up as a opt-out solution, rather than an opt-in solution, sent an email to its subscribers, talking up all the wonderful "enhancements," brushing over the fact that it's basically exposing all of your surfing history to advertisers, and inserting its own ads into your experience. I'm not sure most users would actually consider that to be "enhanced."

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I'm generally a fan of Craigslist, and think that people all too often blame the company for things it didn't do. However, I'm still having trouble understanding Craigslist's position in the legal battle it's now having with eBay. After getting sued by eBay for unilaterally changing eBay's ownership percentage, Craigslist has now countersued eBay for a laundry list of things, including: "unlawful and unfair competition, misappropriation of proprietary information, deceptive passing-off, business interference, false advertising, phishing attacks, free-riding, trademark infringement, trademark dilution, and breaches of fiduciary duty." That's quite a list, but it doesn't respond to the key point of eBay's lawsuit: did Craigslist break the law in changing eBay's ownership percentage? As Rob Hyndman points out, it really appears that Craigslist is now trying to "accomplish by litigation what it failed to accomplish by business planning and sensible precautions among co-founders when it first issued shares, and by negotiation with eBay when it acquired its interest."

As for the specific charges filed by Craigslist, it claims that eBay tried to put Kijiji execs on its board (which contradicts what eBay has said). Also, it claims that eBay has bought keyword advertising on sites like Google that were misleading, appearing to look like they came from Craigslist, when they really pointed to eBay or Kijiji. That certainly could be a trademark violation, if true, but hardly excuses the behavior of Craigslist's board in diluting eBay's shares. You can certainly see where Craigslist is coming from, and why it's quite uncomfortable with the relationship with eBay -- but the company now seems to be throwing the kitchen sink at eBay, dredging up any kind of complaint it can, without dealing with that core issue of how it diluted eBay's shares. That only lends more credence to the idea that Craigslist knows what it did was wrong, and is now throwing out all sorts of other complaints to distract from that. It's like a kid caught with his hand in the cookie jar, who responds by pointing out that his mother who caught him ran a red light when driving home. It may be true, but it's totally unrelated and doesn't excuse grabbing the cookie.

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Nathan Myhrvold may not have done much of note yet with Intellectual Ventures, but he sure is good at getting press attention. It seems to come in waves, too, with multiple stories popping up all around the same time. So, after last week's Malcolm Gladwell-penned story on Myrhvold that accidentally made the case for why Intellectual Ventures isn't needed, PC World is running an unintentionally hilarious interview with Myrhvold, where he says some of the most ridiculous things, and the interviewer doesn't call him on a single one. When asked whether or not there's a patent litigation "crisis" Myrhvold notes:

"If I compare the number of lawsuits to the number of patents that exist, it's down. If I compare it to the number of patent holders, it's down. Patent litigation has grown, but it's actually grown less fast than lots of other things have grown."

That's misleading in many different ways. He basically is trying to hide the massive growth in patent lawsuits (and monetary awards) by claiming that if you look at the ratio of lawsuits to patents, that's down. But that's misleading, because the sheer number of patents and patent applications has exploded due to some changes to patent laws, as well as court decisions that widely expanded the scope of patents. Add to that some ridiculous lawsuit outcomes, rewarding insane amounts of money for questionable patents, and the patent office gets overwhelmed with more applications. That the percentage of lawsuits to patents has gone down is fairly meaningless, when the absolute numbers are pretty clear.

"Lots of technology companies that are gigantic today weren't gigantic five or 10 years ago. They were little startups that grew like weeds. Or they were a company that acquired little startups. Many of these companies took whatever it took to become successful. Along the way, they probably copied lots of other people's ideas. And the reason they complain about patent litigation and claim that there's a problem is, they know they stole lots of stuff. And they're afraid someone's going to ask them for the money, and they'd prefer not to pay."

Notice that he doesn't provide a single example. Notice that he conflates "theft" with "infringement." Notice that he doesn't even consider the idea that there was likely independent invention. Notice that he doesn't admit that it was competition, not patents, that drove much of this innovation. Notice that he doesn't seem to mind the idea that someone who lost in the marketplace deserves money from those who won.

"It's very hard to come and say, "Look, I've become a billionaire personally, and my company has got a $100 million market capitalization, and we did this by copying lots of ideas from universities and small companies we never paid. But we'd like a free pass." So instead, you say, "Oh my God, there's this catastrophe, patent litigation is threatening to stop all innovation." What evidence is there of it? There's none."

And here Myhrvold is either outright lying or he's ignorant (he can let us know which one). First of all no one has ever said that patent litigation is threatening to stop all innovation. They've just said that it is slowing the pace of innovation. And there's plenty of evidence to support that, despite Myhrvold's claim that there's none. James Bessen and Michael Meurer just came out with a whole book detailing much of the evidence, and David Levine and Michele Boldrin also have a book with even more evidence. Did Myhrvold simply not know about these? Or is he lying to PC World?

Then he's asked about whether or not it's okay for someone to get a patent and then not do anything with it, to which he responds:

I would say, yes, there's nothing wrong with that. And the analogy I would use is, it'd be like saying, "Is it OK for someone to buy a chunk of the business and never show up there?" And the answer is, yes. We call them venture capitalists or shareholders. To have a system of taking risk and building valuable companies, you have to have people that are financiers or have other specialized roles.

That sounds nice, but that analogy doesn't work in the slightest. Patent hoarding isn't like an investor or a shareholder. It's about someone holding onto a patent and then popping up and suing when someone else does something. A shareholder or an investor is a win-win relationship based on a fair transaction. A company gets some money, and the shareholder gets some equity. Patent hoarding is quite different. It's about holding onto a patent and then using it to legally threaten someone else or prevent them from doing work and then demanding money out of them after the fact. To equate that with an investor is simply incorrect.

I'm sure Myhrvold is a smart guy -- and he may truly believe that he's helping inventors and changing the world -- but he's either being purposely misleading or he's ignorant when it comes to patents and how they interact with the economy.

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There's an interesting lawsuit coming out concerning the popular online shoe store, Zappos, that has built up a large business in part by being extremely focused on providing an excellent customer experience. DSW is a large shoe retailer with many brick and mortar stores and also (not surprisingly) an e-commerce operation (Update: the e-commerce part just launched recently, which has many thinking that this whole event appears to be something of a reverse Streisand Effect situation, where it's suing Zappos to get media attention). Late yesterday, DSW filed a lawsuit against Zappos, charging the company with infringing on DSW intellectual property. What was odd, though, was that DSW never contacted Zappos at all -- preferring to inform it of the lawsuit via press release. Zappos CEO, Tony Hsieh, explained all of this via Twitter, which he's used (quite successfully) to connect and communicate with fans of Zappos.

What came next is quite interesting. Various Twitter followers began investigating the matter, and noticed that a guy using the Twitter name SEOColumbus (real name: Joe Rosza) was defending DSW for filing the lawsuit, while also raving about how much better DSW was than Zappos. Carlo Longino responded to Rosza's claims, and then did a quick search discovering that Rosza's LinkedIn page said that he just happened to be DSW's E-Commerce Operations Manager -- something he declined to mention. Soon after Carlo called Rosza on it, though, Carlo noticed that Rosza deleted his LinkedIn profile. Rosza, for his part, claims that he just contracted at DSW for a few months -- but it still seems like he should have disclosed that while bashing Zappos and praising DSW. Update: This part of the story is getting even more bizarre, with claims the the SEOColumbus Twitter account is actually controlled by someone else (which doesn't make much sense, given what the accountholder was saying). And, on top of that, the SEOColubmus Twitter account has now been shut down (temporarily?).

As for the lawsuit itself, from the information Rosza provides, it seems like it's not due to any actions by Zappos, but by a Zappos affiliate. Just like many e-commerce companies, Zappos lets affiliates sign up and basically drive traffic to Zappos. One of those affiliates set up a site called dsw-shoes.net -- which pretty clearly does infringe on the DSW trademark (which, again, is really about consumer protection, not ownership). It seems reasonable to think that dsw-shoes.net could create some confusion in the customer's mind, even though it has (in tiny print, at the bottom of the page) a note claiming it's not affiliated with DSW. It does, however, link to Zappos using an affiliate code. Given the various safe harbors out there, it certainly seems like DSW went after the wrong target. The complaint should be against whoever operates the affiliate -- not Zappos. An affiliate linking to Zappos should not create liability for Zappos itself. It appears that in DSW's rush to sue Zappos, it didn't bother to understand Zappos is protected against the actions of its affiliates, as it most certainly was not encouraging them to pretend to be DSW. A quick call or letter to Zappos probably would have educated them on this (though, honestly, it should have been obvious from the website in question), but instead, DSW just rushed into a lawsuit, informing Zappos by press release.

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You may recall a couple weeks ago that a judge set new rates to be paid to ASCAP by AOL, Yahoo and RealNetworks. ASCAP represents the songwriters, and those three companies and ASCAP could not agree on licensing terms for music streamed online. While ASCAP ran around touting the (somewhat made up) $100 million owed, there was plenty more in the decision that deserved discussion. At last week's San Francisco Music Tech Summit, I got into an interesting discussion with a few folks who had read through the 153 page decision thoroughly, and noticed a variety of problems. You can read the whole decision (pdf) yourself, if you want, but there are a few key points that are extremely disturbing, and could spell a lot of trouble. Basically, there's a meaningless "formula" that's applied to a very large segment of these companies' revenue, taking a huge chunk of money that seems beyond reasonable.

The judge seems to consider what AOL and Yahoo do somewhat equivalent to the way TV stations use music, and refers back to the rate agreements set up with various TV networks, despite vast differences in the way these websites operate. It suggests a misunderstanding between the difference between broadcast and interactive content. But what's really troublesome, is when you look at the overall formula for how the royalties are set. It clearly overvalues the music, and undervalues just about every other part of these three companies' businesses. The formula is, basically, the total revenue made by any business unit (minus a few specific costs) multiplied by a bizarre fraction (called the music-adjustment fraction): total number of hours that music is streamed, divided by total number of hours used on the website. Then, you take the result of that and multiply it by the "rate fee" of 2.5%.

This formula is applied to revenue coming in from any business unit that is considered to have used music. This includes things like Yahoo's search engine. That's because Yahoo (smartly, from a consumer perspective) allowed users who searched on a musician or song to stream that song directly from the search results. But, in making that so user friendly, the company has now opened up its cash cow search revenue to this formula, despite the fact that it's incredibly difficult to think that music has anything to do with nearly all of the revenue Yahoo makes from this site. Similarly, RealNetworks has almost its entire consumer division revenue included in this formula, despite the fact that it makes a ton of revenue from its gaming business. Wondering why RealNetworks decided to spin off the gaming business a week after this decision was announced? Maybe because a rate court judge just chopped off a huge chunk of revenue from it and handed it over to songwriters who have nothing to do with these games.

As for the formula itself, it makes little sense. The "music-adjustment fraction" is a totally meaningless number. The number of hours music is streamed is hardly an indicator of how much of a site's revenue is actually music based. If I have music streaming in the background all day, but am still using the site for other purposes, it seems ridiculous to include all of that as music-based revenue. The denominator of the fraction is "total number of hours on the website" which is also a totally meaningless and unrelated number. Even worse, since the court notes that none of these sites actually track that information, the judge ruled that everyone should just use Comscore's numbers instead -- the same Comscore that most people admit is not particularly accurate. So, basically, you're dividing a meaningless number by an even more meaningless number and multiplying it by the total revenue of units who often have very little to do with music, and then taking 2.5% of that. If anything, this ruling should make any site think twice before including any streaming audio from any ASCAP-affiliated songwriters.

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We've been seeing plenty of stories lately that incorrectly place the blame when people film themselves doing something illegal and put that video online. This should be something where politicians and the police should be thrilled. After all, it makes it that much easier for the police to find them, arrest them and convict them of a crime. If people are so stupid to post evidence of their crime in public, then isn't that a good thing? Yet, politicians who incorrectly like to put the blame for the crime on the video of the crime, come up with harebrained proposals like a new one in New York that will make putting a video of yourself committing a violent crime online a felony in itself (above and beyond whatever charges you might face for the violence). Think about that for a second. New York politicians are basically telling people that they'll get charged with even greater crimes if they decide to incriminate themselves by posting evidence online. This makes no sense.

The reasoning behind the bill is that politicians believe people are committing these kinds of crimes for the publicity in the first place. The thinking is that such crimes wouldn't happen at all if they couldn't be put online. However, that's rather meaningless. If someone is going to commit a violent crime -- punish the violence itself. Not the fact that the idiots handed over the evidence as part of a publicity stunt. If the (small number) of idiots who commit violent crimes and post the videos online are getting caught and arrested for the violence itself, shouldn't that act as enough disincentive?

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And here's another fun copyright mystery from William Patry: it turns out that some courts have constructed a rather convoluted rationale for how you can still be found to be infringing copyrights, even on material that everyone admits is public domain. While it's rare, he cites two such cases, suggesting that both have rather tortured logic behind them. The first involves a play which was later turned into a movie. While the play remained under copyright, the separate copyright of the movie was not renewed in a timely manner, allowing it to fall into the public domain. Yet, because of the remaining copyright on the play, a court determined that the movie could not be distributed, since it retained some elements directly from the play.

Even if you can sort of understand the reasoning for that one, it's hard to figure out the reasoning behind the second case. In this one, a bunch of episodes from "The Andy Griffith" show fell into the public domain. However, it was just a bunch of episodes from later seasons. Earlier seasons remained under copyright. The court ruled that since the later shows were based on the earlier shows that were still covered by copyright, the later shows could not be distributed freely. This seems like a rather perverse interpretation of copyright law.

But, of course, when you have people viewing copyrights not as an incentive to create, but as a kind of "property" over which you have total control, these types of rulings are bound to occur. The default is quite often going to be to lean towards more control, even if the sensible decision both under the law and for society is to allow the content to really become a part of the public domain.

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This past Friday night my favorite band was in town, so I went out to see them perform at a club in San Francisco. It was a fun time and they put on a great show (as they usually do) -- and it struck me early on that, even though the club was mobbed, and every once in a while I saw someone pull out a mobile phone to snap a photo or take a video, most people were just dancing and enjoying the show. Apparently, that's not necessarily the case everywhere. PicturePhoning alerts us to an article where a bunch of musicians are whining about fans in the audience with mobile phones. While they do make some interesting points about how fans these days are so focused on documenting their experiences that they might miss the actual experience, the whole "controversy" seems overblown. If the experience is good, the experience is good, and why should the musicians care how the fans experience it? And, as I can tell you from my experience on Friday night, when the experience is top notch, most people don't bother to pull out their mobile phones. So, perhaps rather than worrying about what the fans are doing, musicians should concentrate on putting on a better show.

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We've seen all sorts of arguments against ISPs who engage in traffic shaping, but now some are trying to make a privacy argument against traffic shaping as well. A few months ago, the news came out that Bell Canada was engaging in traffic shaping, even for its wholesale ISP partners who promised customers open internet access. As a couple folks have submitted today, the Canadian Internet Policy and Public Interest Clinic at the University of Ottawa is claiming that in addition to other questions raised about this, traffic shaping may be a privacy violation, in that it uses deep packet inspection to determine what type of packets are being sent to figure out what to traffic shape. Bell Canada responds that it is only determining what type of packet it is, rather than what's in it -- but even that information could potentially be a privacy violation. While it seems unlikely that this argument will stick, if traffic shaping starts being seen as a privacy issue, it could put even more pressure on ISPs to stop doing it (and may encourage more users to encrypt their traffic).

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Kevin Stapp writes in to alert us to the fact that in Microsoft's attempt to compete against Linux on various low-end PCs, it's offering a cheap version of its operating system -- but rather than simply offering it up for different computer makers to use, it's got specific rules limiting the type of computers it can be used on -- basically guaranteeing that their operating systems remain off of many low end machines that don't qualify under the extremely limited specs (no touch screens, no hard drives over 80 gigs, etc.). This is pointless for a variety of reasons, but the simplest one is this: any time you try to limit the use of your software to platforms that are less useful and less powerful than what's available, you're basically telling everyone who wants quality to go with a different provider. It's hard to see why Microsoft would want to make that kind of argument -- unless they don't realize that they're actually competing in this space. Given how little competition Microsoft has had to deal with in the OS market for years, perhaps it's natural that they don't know how to compete when it's finally necessary.

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