Tuesday, April 19, 2011

Innovation and Economic Growth: Stanford University Shows Interest to Build a New York Campus on Roosevelt Island: Wow!

We are a bit late on this but it is a stunner as Stanford submits expression of interest for New York City campus at Stanford Report, March 17, 2011
"Stanford University this week formally submitted a tentative proposal to the city of New York to build a campus for applied science research and graduate education on Roosevelt Island, with the intent that the campus would serve as a hub for innovation and economic growth."
Read it all here.

LawPundit User Survey: Only 2 Multiple Choice Questions: Thank You!

The direct URL link to the survey online is:

Patent Validity and How Much Evidence is Necessary to Invalidate Patents?: SCOTUS Oral Argument in Microsoft Corporation v. i4i Limited Partnership: Clear and Convincing Proof or Preponderance of Evidence?

The patent under discussion (otherwise in a software code environment)
--  is simply demonstrated with normal text:
  • Pre-invention tags:

    Color (red) each (blue) word (green) as (yellow) indicated (orange).
  • Post-invention tags:

    Text: Color each word as indicated.

    Tags: color-red, each-blue, word-green, as-yellow, indicated-orange.

  • $290 million please to the "inventor" of the post-invention tagging method! That is the way big money is made today. Why work?
The United States Supreme Court website has a page which contains the Supreme Court Building Cornerstone Address by once Chief Justice Charles Evans Hughes in "The republic endures and this is the symbol of its faith." It provides in part:
"Hamilton had written that through the practice of judicial review the Court ensured that the will of the whole people, as expressed in their Constitution, would be supreme over the will of a legislature, whose statutes might express only the temporary will of part of the people. And Madison had written that constitutional interpretation must be left to the reasoned judgment of independent judges, rather than to the tumult and conflict of the political process. If every constitutional question were to be decided by public political bargaining, Madison argued, the Constitution would be reduced to a battleground of competing factions, political passion and partisan spirit." ["so it is" emphasis added by LawPundit]
What about patents?
The Constitution speaks of DISCOVERIES.
The Federalist Papers speak of INVENTIONS.
Many patents issued today are neither discoveries nor inventions, but mere applications of the state of the art to a given situation.

As a result, the patent tsunami is under way with full force.

How far from reality do Justices operate when they make decisions on the U.S. Supreme Court that affect us all?

The following patent case will definitely "separate the sheep from the goats" to take a phrase used by Justice Stephen Breyer during oral argument of the case.

Involved here is yet another patent case in which some nameless jury and a judge whose name we have no interest in knowing awarded jillions of dollars ($200 million by jury, upped to $290 million by the judge) to an obscure Canadian company claiming a Microsoft patent infringement (via Word and XML coding) of its obscure patent for tagging text with meta commands outside the actual text content, as in our example at the top of this posting.

We can only shake our heads at the intransigence of the establishment as regards this kind of pea and shell game in the con game of patents. When will the legal system learn that these kinds of things should not be patentable subject matter?

The district judge in the case permanently (!) enjoined Microsoft from selling any Word products capable of opening certain files containing custom XML, i.e. ALL Word programs on sale at that time. Did someone say something about "activist" judges? LOL. How about delusions of grandeur on the Texas bench?

The case was filed in the District Court for the Eastern District of Texas, a court which has specialized in catering to patent trolls and their ilk, thereby making a mockery of the impartiality of the judicial system.

Talk about courts that lead to disrespect for judges and the law, that Texas court is ONE. Patent law out of control. Venue selection as con artistry.

Oral argument was held on Monday, April 18, 2011 in SCOTUS Case No. 10-290, Microsoft Corporation v. i4i Limited Partnership on the issue of what evidence should be required to invalidate a patent:1) clear and convincing evidence, or, 2) a preponderance of the evidence. The Justices are trying to find a useful standard.

Hey, how about "just the evidence, please" of whether there is a VALID patent or not. Skip the hair-splitting. Valid or invalid. The decision is simple.

The facts of the case, including correspondence by the founder of the i4i company, indicated that the founder of i4i had sold a software program called S4, implementing the alleged invention before it was filed for patent, thus "rendering the invention unpatentable under the “on-sale bar” of 35 U.S.C. § 102(b)".

Conveniently, however, the founder had since "destroyed" that software program, making it more difficult to prove by "clear and convincing evidence" that the software program had implemented the patented "invention".

As in the similar patent trolling Eolas Webrouser case, the original software program was no longer anywhere to be found. It is remarkable how recklessly negligent such allegedly valuable things are handled, whereas one would think that THE INVENTION would be the most important thing of all -- but in fact the only thing that matters in these cases is THE MONEY. And everyone is after the money of the big boys.

The Microsoft brief in this case gives us that further insight into the motivations of people involved in what has developed on a large scale at the USPTO into the patent tsunami [material in brackets by LawPundit]:
"The inventors insisted at trial ... that the prior-art S4 software did not practice the invention of the ’449 Patent because they had not yet conceived of that invention at the time S4 was developed.... Acknowledging that this testimony was inconsistent with [the i4i founder's] own pre-litigation letter to prospective investors stating that “[t]he basis of the patent” dated back to when S4 was being developed, [the i4i founder] claimed that he had lied in the earlier letter to further his financial interests. Id. at 161a-162a (“It’s an
exaggeration, and as I said, it could be said to be a lie.”); see also Pet. App. 187a (“[the founder] admitted on the stand that he lied to investors about the creation date of the [’]449 patent.”).
b. Microsoft’s ability to rebut the inventors’ testimony was hampered significantly by the fact that i4i had “discarded” the S4 source code before commencing this litigation. J.A. 168a-170a; see also Pet. App. 20a (noting that “the S4 source code was destroyed”). The standard of proof for Microsoft’s invalidity defense thus assumed critical importance.
Microsoft proposed an instruction that its “burden of proof with regard to its defense of invalidity based on prior art that the examiner did not review during the prosecution of the patent-in-suit is by preponderance of the evidence.” ... Over Microsoft’s objection (id. at 192a), the district court instead instructed the jury that “Microsoft has the burden of proving invalidity by clear and convincing evidence.” Pet. App. 195a; see also id. at 195a-196a.

Seizing on this heightened standard of proof, i4i argued that the destruction of the S4 source code precluded Microsoft from carrying its burden....
The jury concluded that Microsoft had infringed the ’449 Patent and that Microsoft had failed to prove by clear and convincing evidence that the patent was invalid...." [emphasis added by LawPundit]
To this observer, making this case turn on the abstract difference between "clear and convincing evidence" and "preponderance of the evidence" is splitting hairs while the patent tsunami is headed in the direction of the hair-splitters. This patent is not valid. The subject matter should not be patentable. Obvious. State of the Art. Prior Art. Period.

Why should there be any "presumption of validity" for patents at all,
as if the USPTO was manned by demigods?

Many mistakes are made in the patent offices, both in the USA and abroad -- and these mistakes cost economies billions of dollars by impeding legitimate competition.

Why should a mistakenly granted patent not be invalidated if it is not perfectly valid? A patent not perfectly valid is not valid. Either it is an invention or a discovery under the law or not. There should be no "in-between".

Pervasive monopolies should be granted and/or perpetuated for the duration of a patent life ONLY if there is clear and convincing evidence that the patent granted was actually valid, not the other way around.

How can the grant of a patent by a single overworked patent examiner lead to a "presumption of validity" for patents used as the base to amass ultimate monopoly fortunes running into billions of dollars?

Patents are competition-damping MONOPOLIES granted by the government -- nothing more.

The old argument that you need to give inventors patent motivation to invent is pure superstition, as not a single empirical study has proven that patent protection is essential for invention - none, quite the contrary (see e.g.  GPS or Speaking of Mouse Trap Economics, What About that Yarn that Patents Stimulate Invention: Les Earnest Testifies Before the USPTO).

In England the monarch abused monopoly patent power grants to raise money for himself. Monarchs granted monopolies as a source of income for the government, much like the USPTO brings in revenue today. They could care less about the public and economic consequences.

For reports and opinions on this case, see:

Justices Question Microsoft's Vision of Patent Law, by Grant Gross, IDG News

Microsoft Takes Patent Fight to Supreme Court - Jess Bravin, WSJ Technology

Microsoft v. i4i Limited Partnership - SCOTUSblog.com

Such is the stuff of patent law litigation today.

No real inventions or discoveries, but BIG MONEY

and Patent Trolls,

or what the FTC euphemistically labels Patent Assertion Entities or PAEs.

ConnectU and Winklevoss Twins File for Rehearing En Banc in Facebook Fraud Settlement Case

As we reported at LawPundit in
Winkelvoss Action for New Facebook Settlement Denied by Ninth Circuit Court of Appeals and Chief Judge Alex Kozinski,

and as now reported by FoxNews.com in
Again? Winklevoss Twins Appeal in Legal Feud With Facebook,

the Facebook creation saga continues in spite of reports it was over

as the Winkelvoss twins as ConnectU, Inc. in a Petition for Rehearing En Banc have asked for a special panel of 11 judges to reconsider the weakly founded opinion of the previous 3-judge decision by the 9th Circuit Court of Appeals, which found that they could not challenge their previous settlement with Facebook.

We are no fans of the 9th Circuit and its sometimes bizarre decisions and no one really knows what that court will do. 

Here is the essential argument on the law on which the Petition for Rehearing En Banc is based, a legal argument we ourselves find to be persuasive:
"American courts have long held that a settlement agreement procured by fraud may be rescinded. The Panel’s opinion in this case, applying federal common law, abruptly rejected that rule (seemingly without acknowledging its existence). It held that standard broad releases found in settlement agreements render the agreements invulnerable against claims that they were procured by fraud. That holding has broad implications. For example, a settlement obtained by falsely representing that the defendant has no liability insurance policy would be enforceable despite proof of deliberate fraud.

The opinion also conflicts with numerous federal court decisions regarding the “anti-waiver” provision of the Securities Exchange Act of 1934, 15 U.S.C. §78cc(a). Section 29(a) of that Act, which mirrors like provisions in several other securities statutes (see 15 U.S.C. §§77aaaa (Trust Indenture Act), 80a-46 (Investment Company Act of 1940), 80b-15 (Investment Advisors Act of 1940)), prohibits any agreement “to waive compliance with any provision of this chapter or of any rule or regulation thereunder.” The Panel held that applying a mediation confidentiality agreement to bar evidence of securities fraud occurring in the mediation did not run afoul of Section 29(a) because the agreement did not expressly waive rights under the Exchange Act but merely “frustrate[d]” such claims. Again, the Panel’s decision conflicts with other federal decisions that construe Section 29(a) and its counterpart antiwaiver provisions to prohibit agreements that even indirectly impair enforcement of the securities laws (a conflict not acknowledged in the Panel’s opinion). Because these holdings raise fundamental conflicts with federal (and state) law on important legal issues, rehearing en banc is required.[footnote 1] ....
[footnote 1] On rehearing en banc, the Court should not reiterate the Panel’s dicta (Appendix A (attached) at 4906-07)—which is not supported by the record (see Appellants’ Motion to Strike (Dkt. 163) at 1-2)—about the supposed legal and commercial sophistication of Appellants and their counsel. A plaintiff’s sophistication is no defense to a claim that the defendant failed to disclose material facts in connection with the sale or exchange of securities. See Wheat v. Hall, 535 F.2d 874, 876 (5th Cir. 1976) (“Even sophisticated investors are entitled to the protections of” the securities laws); see also TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 448 (1976); United States v. Reyes, 577 F.3d 1069, 1075 (9th Cir. 2009). Nor would sophistication support a defense of non-reliance in a nondisclosure case, where reliance is presumed so long as the undisclosed facts are material. Affiliated Ute Citizens v. United States, 406 U.S. 128, 153-54 (1972).
Likewise, the gratuitous statement (also unsupported by the record) that Appellants were “bested by a competitor” (Appendix A at 4911) is an inappropriate way to describe the misappropriation and use of Appellants’ business idea by someone they trusted."

Here is the very weak part of the Chief Judge Kozinski opinion in the 3-panel decision:

"The Winklevosses argue that if the Confidentiality Agreement is construed to defeat their Rule 10b-5 claims, it is void under section 29(a) of the Exchange Act as an invalid waiver. But section 29(a) “applie[s] only to express waivers of noncompliance,” Levy v. Southbrook Int’l Invs., Ltd., 263 F.3d 10, 14, 18 (2d Cir. 2001), with the “substantive obligations imposed by the Exchange Act,” Shearson/Am. Express, Inc. v. McMahon, 482 U.S. 220, 228 (1987). The Confidentiality Agreement merely precludes both parties from introducing evidence of a certain kind. Although this frustrates the securities claims the Winklevosses chose to bring, the Confidentiality Agreement doesn’t purport to limit or waive their right to sue, Facebook’s obligation not to violate Rule 10b-5 or Facebook’s liability under any provision of the securities laws. See McMahon, 482 U.S. at 230.
[10] Even if we were to construe the Confidentiality Agreement as a waiver of the Winklevosses’ 10b-5 claims, it wouldn’t violate section 29(a). Petro-Ventures expressly considered a section 29(a) argument in the context of a global settlement agreement between sophisticated parties engaged in litigation. 967 F.2d at 1341-43. The court distinguished an earlier case, Burgess v. Premier Corp., 727 F.2d 826 (9th Cir. 1984), which had applied section 29(a) to preclude the waiver of unknown claims by plaintiffs who were “not acting in the adversarial setting that is characteristic of litigation.” Petro-Ventures, 967 F.2d at 1342. Petro-Ventures held that “a totally different situation occurs where a plaintiff has affirmatively acted to release another party from any possible liability in connection with a transaction in securities.” Id. In such situations, the parties are “not so concerned with protecting their rights as investors as they [are] with establishing a general peace.” Id. We are bound by Petro-Ventures to conclude that the Confidentiality Agreement did not violate section 29(a). Cf. Locafrance, 558 F.2d at 1115."
The Winklevosses are not the first parties bested by a competitor who then seek to gain through litigation what they were unable to achieve in the marketplace. And the courts might have obliged, had the Winklevosses not settled their dispute and signed a release of all claims against Facebook. With the help of a team of lawyers and a financial advisor, they made a deal that appears quite favorable in light of recent market activity. See Geoffrey A. Fowler & Liz Rappaport, Facebook Deal Raises $1 Billion, Wall St. J., Jan. 22, 2011, at B4 (reporting that investors valued Facebook at $50 billion—3.33 times the value the Winklevosses claim they thought Facebook’s shares were worth at the mediation). For whatever reason, they now want to back out. Like the district court, we see no basis for allowing them to do so. At some point, litigation must come to an end. That point has now been reached."
Here is our take on this matter -- just our "political" opinion, mind you.

I had often thought that Kozinski is a weak judge and this opinion confirms it, as he appears not to fully understand the essential issue in the case.

First of all, the current value of Facebook is irrelevant to the claims of fraud, nor can one argue that parties have been "bested by a competitor", which is by no means the legal issue here.

In fact, the Winkelvosses are in fact arguing that even IF someone were to see the matter as if they had been "bested by a competitor", fraud has been the method for that "besting". The law of fraud is there to prohibit that result.

The entire litigation is based on a claim of fraud and the Winkelvosses argue that in resolving the initial fraudulent claim by settlement, fraud again was committed in computing the settlement valuation, which goes to the very heart of the matter.

Judge Kozinski's argumentation about the sophistication of the litigants and their attorneys is totally irrelevant because it is not a material fact relating to the legal question in conflict. That "sophistication" is assumed to be a given on both sides of any top-level litigated matter and does not in any manner exculpate fraud nor the liability of companies who commit such fraud.

For purposes of calculating a fair stock settlement, Facebook gave the Winkelvosses a valuation of the company which was ca. 4 times the known tax valuation of the company at that time, a lower valuation not disclosed in the settlement mediation. If the Winkelvosses now want to say "no, thank you" to $160 million from the original settlement and now wish to renegotiate the whole matter, whether they do better or not in the new settlement version, is of no consequence. The original settlement appears to us to be voidable because it is based on a false valuation of Facebook at the time of settlement, a valuation affected by undisclosed facts in the possession of Facebook. Valuation issues are the nuts and bolt here.

Kozinski's claim that "litigation must come to an end" is almost never defined by a court's opinion itself but rather by statutes of limitations and/or litigation options open (or not) to litigants. The very fact that the litigants can petition the court for a hearing en banc proves this point. Litigation has in fact NOT ended, despite the Kozinski argumentation, nor can that be a legitimate argument in a case alleging fraud. Settlements are final ONLY when all legal options have been exhausted.

As a legal matter, regardless of agreements between the parties, fraud -- as a matter of elementary common law legal logic -- should never be exculpated by any purported agreement between the parties. Otherwise, stronger parties or those in the possession of essential information would often defraud weaker ones by an exculpatory clause.

Fraud as a matter of law can not be exculpated by confidential agreement, and when push comes to shove, the laws on fraud are paramount and should preempt any agreement provisions leading to the affirmation of such a fraud.

Law, Judge Kozinski, should in every case REWARD FAIR DEALING and PUNISH FRAUD and all the cited provisions of law in your opinion can be interpreted in that manner, leading to a completely different result. THAT would be good judging.

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