Trade Commission Told to Review Google Patent Ruling

Acting on an appeal by Microsoft, the U.S. Court of Appeals for the Federal Circuit found that the ITC erred in its reasoning when it found that the Google unit Motorola Mobility did not infringe a Microsoft graphical interface patent.

After a critical discussion of the ITC judge's reasoning, the appeals court said: "This conclusion requires reversal of the 133 patent non-infringement judgment."

But it also said it agreed with the ITC that Motorola Mobility had successfully changed its smartphones so they no longer infringed the patent.

It also found the ITC was correct in ruling that Motorola Mobility, which was acquired by Google during the legal fight, did not infringe three other patents.

The dispute is one of dozens globally between various smartphone makers. Google's Android system has become the top-selling smartphone operating system, ahead of mobile systems by Apple, Microsoft, Blackberry Ltd and others.

In the original case, the ITC found in May 2012 that Motorola Mobility infringed a patent for meeting-scheduling technology but did not infringe several other Microsoft patents. An order was issued banning infringing mobile phones from the marketplace.

Motorola Mobility says it removed the infringing software from its phones. Microsoft disagrees, and has filed a lawsuit against the U.S. Customs and Border Protection, accusing the agency of failing to properly enforce the ITC order.

Microsoft said it was happy with the appeals court decision.

"We're pleased the court determined Google unfairly uses Microsoft technology," said David Howard, corporate vice president and deputy general counsel. "Google is free to license our inventions, but we're equally pleased if Google makes product adjustments to avoid using them."

A Motorola Mobility spokesman also saw good news in the appeals court decision. "Today's favorable opinion confirms our position that our products don't infringe the Microsoft patents," said spokesman Matt Kallman.

U.S. courts continue to work during the shutdown of the federal government but the ITC is largely shut down.

The case at the ITC was No. 337-744. At the Federal Circuit, the case is No. 2012-1445, -1535.

(Reporting by Diane Bartz, editing by Ros Krasny, Gerald E. McCormick and John Wallace)

Microsoft Wins Jury Ruling in Motorola Patent Case

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E-Book Ruling Gives Amazon an Advantage

A federal judge ruled on Wednesday that Apple had illegally conspired with five of the six biggest publishers to try to raise prices in the budding e-books market.

The decision came two days after Barnes & Noble lost its chief executive and said it would not appoint another, signaling that the biggest chain of physical bookstores could be immediately broken up.

The verdict in the Apple case might have been a foregone conclusion, telegraphed by the judge herself, but it emphatically underlined how the traditional players in the book business have been upended. Only Amazon, led by Mr. Bezos, seems to have a plan. He is executing it with a skill that infuriates his competitors and rewards his stockholders.

“We’re at a moment when cultural power is passing to new gatekeepers,” said Joe Esposito, a publishing consultant. “Heaven forbid that we should have the government telling our entrepreneurs what to do, but there is a social policy issue here. We don’t want the companies to become a black hole that absorbs all light except their own.”

The Apple case, which was brought by the Justice Department, will have little immediate impact on the selling of books. The publishers settled long ago, protesting they had done nothing wrong but saying they could not afford to fight the government. But it might be a long time before they try to take charge of their fate again in such a bold fashion. Drawing the attention of the government once was bad enough; twice could be a disaster.

“The Department of Justice has unwittingly caused further consolidation in the industry at a time when consolidation is not necessarily a good thing,” said Mark Coker, the chief executive of Smashwords, an e-book distributor. “If you want a vibrant ecosystem of multiple publishers, multiple publishing methods and multiple successful retailers in 5, 20 or 50 years, we took a step backwards this week.”

Some in publishing suspected that Amazon had prompted the government to file its suit. The retailer has denied it, but it still emerged the big winner. While Apple will be punished — damages are yet to be decided — and the publishers were chastened, Amazon is left free to exert its dominance over e-books — even as it gains market share with physical books. The retailer declined to comment on Wednesday.

“Amazon is not in most of the headlines, but all of the big events in the book world are about Amazon,” said Paul Aiken, executive director of the Authors Guild. “If the publishers colluded, it was to blunt Amazon’s dominance. Barnes & Noble’s troubles may stem from a misstep with its Nook tablets, just as Borders’ bankruptcy might have been hastened by management mistakes, but its precarious position is that of any rent-paying retailer facing a deep-pocketed virtual competitor.”

Last week, Penguin and Random House officially merged, creating a publishing behemoth that might be able to determine its future rather than suffer the fate of Barnes & Noble, a once-swaggering entity that now seems adrift. Random House was not a target of the Justice Department; Penguin was.

Penguin and Random House were innovators who made paperbacks into a disruptive force in the 1940s and ’50s. They were the Amazons of their era, making the traditional book business deeply uneasy. No less an authority than George Orwell thought paperbacks were of so much better value than hardbacks that they spelled the ruination of publishing and bookselling. “The cheaper books become,” he wrote, “the less money is spent on books.”

Orwell was wrong, but the same arguments are being made against Amazon and e-books today. Amazon executives are not much for public debate, but they argue that all this disruption will ultimately give more money to more authors and make more books more widely available to more people at cheaper prices, and who could argue with any of that?

This was not a prospect that many on Wednesday were putting much faith in.

Amazon, its detractors argue, is not a nonprofit or public trust but a hard-nosed company whose investors hope will make lots of money someday soon. It shares closed Wednesday at $292.33, a record.

“The Justice Department’s guns seem pointed in the wrong direction,” Mr. Aiken said.

But the more pressing concern for the industry is the fate of Barnes & Noble. When Borders collapsed two years ago, analysts said there was an unexpected consequence to the loss of 400 stores: the e-book growth rate began to taper off, as readers could no longer examine new titles before ordering them from Amazon.

E-books, in other words, were not a magical technology that could shed all the existing infrastructure of publishing. They needed the existing ecosystem.

“If all of those corporate outlets vanish, there is suddenly a hell of a lot less space devoted to showcasing a large number of titles,” said J. B. Dickey, owner of the Seattle Mystery Bookshop. “We’ll probably see a continuing shrinking in print runs, maybe fewer titles published, fewer authors published and the New York houses retreating into the known best-sellers. Which means more novice and midlist authors scrambling to find a way to stay in print and more authors self-publishing their print books — or more likely releasing their works as e-files.”

All of that sounds dire. Perhaps the only consolation for those who fear the power of Amazon is the knowledge that all companies eventually peak, no matter how unlikely that seems when they are in the ascendance.

Mr. Esposito, the consultant, remembered that 30 years ago there was a book called “The Media Monopoly,” which worried about the excessive power of the Gannett chain of newspapers as well as the three major television networks.

“The book reads almost quaint now,” Mr. Esposito said.

Appeals Court’s Ruling Helps Google in Book-Scanning Lawsuit

In May 2012, Judge Denny Chin of Federal District Court in Manhattan ruled that the authors could sue as a group, saying that class action was “the superior method for resolving this litigation.”

“Requiring this case to be litigated on an individual basis would risk disparate results in nearly identical suits and exponentially increase the cost of litigation,” he wrote.

In a five-page ruling on Monday, the United States Court of Appeals for the Second Circuit rejected that decision and said that the lower court must first consider the “fair use” issues raised by the case.

“On the particular facts of this case, we conclude that class certification was premature in the absence of a determination by the district court of the merits of Google’s ‘fair use’ defense,” the panel of judges said.

The case began in 2005, when the Authors Guild sued Google over its book-scanning project, saying that the widespread scanning violated copyright. A $125 million legal settlement was reached between the parties, but Judge Chin rejected it in 2011.

Matt Kallman, a spokesman for Google, said in an e-mail: “We are delighted by the court’s decision. The investment we have made in Google Books benefits readers and writers alike, helping unlock the great pool of knowledge contained in millions of books.”

The Authors Guild did not respond to a request for comment.

Secret Court Ruling Put Tech Companies in Data Bind

The judges disagreed. That left Yahoo two choices: Hand over the data or break the law.

So Yahoo became part of the National Security Agency’s secret Internet surveillance program, Prism, according to leaked N.S.A. documents, as did seven other Internet companies.

Like almost all the actions of the secret court, which operates under the Foreign Intelligence Surveillance Act, the details of its disagreement with Yahoo were never made public beyond a heavily redacted court order, one of the few public documents ever to emerge from the court. The name of the company had not been revealed until now. Yahoo’s involvement was confirmed by two people with knowledge of the proceedings. Yahoo declined to comment.

But the decision has had lasting repercussions for the dozens of companies that store troves of their users’ personal information and receive these national security requests — it puts them on notice that they need not even try to test their legality. And despite the murky details, the case offers a glimpse of the push and pull among tech companies and the intelligence and law enforcement agencies that try to tap into the reams of personal data stored on their servers.

It also highlights a paradox of Silicon Valley: while tech companies eagerly vacuum up user data to track their users and sell ever more targeted ads, many also have a libertarian streak ingrained in their corporate cultures that resists sharing that data with the government.

“Even though they have an awful reputation on consumer privacy issues, when it comes to government privacy, they generally tend to put their users first,” said Christopher Soghoian, a senior policy analyst studying technological surveillance at the American Civil Liberties Union. “There’s this libertarian, pro-civil liberties vein that runs through the tech companies.”

Lawyers who handle national security requests for tech companies say they rarely fight in court, but frequently push back privately by negotiating with the government, even if they ultimately have to comply. In addition to Yahoo, which fought disclosures under FISA, other companies, including Google, Twitter, smaller communications providers and a group of librarians, have fought in court elements of National Security Letters, which the F.B.I. uses to secretly collect information about Americans. Last year, the government issued more than 1,850 FISA requests and 15,000 National Security Letters.

“The tech companies try to pick their battles,” said Stephen I. Vladeck, a law professor at American University who has challenged government counterterrorism surveillance. “Behind the scenes, different tech companies show different degrees of cooperativeness or pugnaciousness.”

But Mr. Vladeck added that even if a company resisted, “that may not be enough, because any pushback is secret and at the end of the day, even the most well-intentioned companies are not going to be standing in the shoes of their customers.”

FISA requests can be as broad as seeking court approval to ask a company to turn over information about the online activities of people in a certain country. Between 2008 and 2012, only two of 8,591 applications were rejected, according to data gathered by the Electronic Privacy Information Center, a nonprofit research center in Washington. Without obtaining court approval, intelligence agents can then add more specific requests — like names of individuals and additional Internet services to track — every day for a year.

National Security Letters are limited to the name, address, length of service and toll billing records of a service’s subscribers.

Because national security requests ban recipients from even acknowledging their existence, it is difficult to know exactly how, and how often, the companies cooperate or resist. Small companies are more likely to take the government to court, lawyers said, because they have fewer government relationships and customers, and fewer disincentives to rock the boat. One of the few known challenges to a National Security Letter, for instance, came from a small Internet provider in New York, the Calyx Internet Access Corporation.

The Yahoo ruling, from 2008, shows the company argued that the order violated its users’ Fourth Amendment rights against unreasonable searches and seizures. The court called that worry “overblown.”

“Notwithstanding the parade of horribles trotted out by the petitioner, it has presented no evidence of any actual harm, any egregious risk of error, or any broad potential for abuse,” the court said, adding that the government’s “efforts to protect national security should not be frustrated by the courts.”

One of the most notable challenges to a National Security Letter came from an unidentified electronic communications service provider in San Francisco. In 2011, the company was presented with a letter from the F.B.I., asking for account information of a subscriber for an investigation into “international terrorism or clandestine intelligence activities.”

The company went to court. In March, a Federal District Court judge, Susan Illston, ruled the information request unconstitutional, along with the gag order. The case is under appeal, which is why the company cannot be named.

Google filed a challenge this year against 19 National Security Letters in the same federal court, and in May, Judge Illston ruled against the company. Google was not identified in the case, but its involvement was confirmed by a person briefed on the case.

In 2011, Twitter successfully challenged a silence order on a request authorized by the Stored Communications Act.

Other companies are asking for permission to talk about national security requests. Google negotiated with Justice officials to publish the number of letters they received, and were allowed to say they each received between zero and 999 last year, as did Microsoft. The companies, along with Facebook and Twitter, said Tuesday that the government should give them more freedom to disclose national security requests.

The companies comply with a vast majority of nonsecret requests, including subpoenas and search warrants, by providing at least some of the data.

For many of the requests to tech companies, the government relies on a 2008 amendment to FISA. Even though the FISA court requires so-called minimization procedures to limit incidental eavesdropping on people not in the original order, including Americans, the scale of electronic communication is so vast that such information — say, on an e-mail string — is often picked up, lawyers say.

Last year, the FISA court said the minimization rules were unconstitutional, and on Wednesday, ruled that it had no objection to sharing that opinion publicly. It is now up to a federal court.

Nicole Perlroth and Somini Sengupta contributed reporting from San Francisco.

This article has been revised to reflect the following correction:

Correction: June 15, 2013

An article on Friday about technology companies’ discomfort with and challenges of government surveillance programs misstated the type of order to remain silent about an information request successfully challenged by Twitter in 2011. It was an order authorized by the Stored Communications Act, not a National Security Letter.

Bits Blog: Secret Court Ruling in 2008 Put Technology Companies in Bind

In a secret court in Washington, Yahoo’s top lawyers made their case. The government had sought help in spying on certain foreign users, without a warrant, and Yahoo had refused, saying the broad requests were unconstitutional, Claire Cain Miller reports in The New York Times.

The judges disagreed. That left Yahoo two choices: Hand over the data or break the law.

So Yahoo became part of the National Security Agency’s secret Internet surveillance program, Prism, according to leaked N.S.A. documents, as did seven other Internet companies.

Like almost all the actions of the secret court, which operates under the Foreign Intelligence Surveillance Act, the details of its disagreement with Yahoo were never made public beyond a heavily redacted court order, one of the few public documents ever to emerge from the court. The name of the company had not been revealed until now. Yahoo’s involvement was confirmed by two people with knowledge of the proceedings. Yahoo declined to comment.

But the decision has had lasting repercussions for the dozens of companies that store troves of their users’ personal information and receive these national security requests — it puts them on notice that they need not even try to test their legality. And despite the murky details, the case offers a glimpse of the push and pull among tech companies and the intelligence and law enforcement agencies that try to tap into the reams of personal data stored on their servers.

Bits Blog: A Ruling Could Support F.C.C.’s Net Neutrality Defense

Charles Rex Arbogast/Associated Press Justice Antonin Scalia

The Federal Communications Commission’s high-profile attempt to defend its net neutrality rules against a court challenge got major support on Monday from the Supreme Court, which ruled in a separate case that regulatory agencies should usually be granted deference in interpreting their own jurisdictions.

In a 6-to-3 decision, Justice Antonin Scalia wrote that in cases where Congress has left ambiguous the outlines of a regulatory agency’s jurisdiction, “the court must defer to the administering agency’s construction of the statute so long as it is permissible.”

That has big implications for Verizon v. F.C.C., in which Verizon challenged the F.C.C.’s Open Internet Order, its rules on net neutrality. Those rules said that an Internet service provider must treat all traffic on its system roughly equally, not giving priority to any one type of data or application as it moves through the provider’s Internet pipes.

The net neutrality case is pending before the United States Court of Appeals for the District of Columbia Circuit. The appeals court was expected to hear arguments in that case this spring, but deferred the case until next fall. Court watchers have speculated that the delay may have been spurred by anticipation of Monday’s decision in Arlington v. F.C.C., No. 11-1545.

“This case just gave the F.C.C.’s argument a lot more weight,” said David Kaut, a telecommunications regulatory analyst at Stifel, Nicolaus & Company in Washington. Mr. Kaut cautioned, however, that the differing facts of the two cases made it uncertain whether the precedent in the Arlington case was sufficient to validate the F.C.C.’s argument that it has authority to regulate Internet service providers.

Edward S. McFadden, a Verizon spokesman, said the company did not “anticipate that today’s decision in Arlington v. F.C.C. will have any effect on our appeal” in the net neutrality case.

That decision will be parsed for months, particularly because in explaining his reasoning, Justice Scalia constructed a hypothetical example that sounded very much like the Verizon net neutrality case.

Using two options of how Congress might have written a telecommunications law, Justice Scalia asked under which of those options the F.C.C. could legitimately claim jurisdiction over Internet service providers.

The answer, he said, was both.

“The question in every case is, simply, whether the statutory text forecloses the agency’s assertion of authority, or not,” he wrote.

The precedent applied by Justice Scalia in the Arlington case was Chevron U.S.A. v. Natural Resources Defense Council, in which the court held that courts must defer to an agency’s interpretation of its statutory jurisdiction unless it exceeds the specific bounds set by Congress.

How that applies to the Verizon case remains uncertain, however, because of a previous decision by the District of Columbia Circuit itself, in Comcast v. F.C.C. In that case, which involved a net neutrality enforcement proceeding, the circuit court said that the F.C.C. did not have authority over Comcast’s Internet service, because it was not ancillary to the authority laid out by Congress in the Communications Act.

Bits: Court Ruling Takes a Stand on Essential High-Tech Patents

Joe Kohen/Invision for Xbox, via Associated Press Online game consoles like the Xbox use patented technology that is essential to its function.

The high-tech patents wars are fed by the value of patents as weapons for extracting rich sums from companies and competitors.

But courts are blunting the patent weapon, at least for the kinds of patents deemed vital for communications and data-handling in devices like smartphones, tablets and online game consoles. That trend took another step with an opinion issued last Thursday by a judge for the United States District Court in Seattle.

In his 207-page ruling, Judge James L. Robart took on the issue of pricing for so-called standard-essential patents. These are patents that their corporate owners have pledged to license to others on terms that are “reasonable and nondiscriminatory,” often known as RAND. All well and good, but what is reasonable to the owner might seem like extortion to the licensee, depending on the price. That kind of standoff becomes more likely if the two companies negotiating are rivals in the marketplace.

With clear prose and some clever math, Judge Robart concluded that when a company has made a RAND commitment to an industry standards organization, the price should be low. That is especially important, he said, for the intellectual property in complex digital devices that are bundles of many hardware and software technologies.

The ruling, according to Arti K. Rai, a professor at the Duke University School of Law, “fits into a long line of recent cases in which courts are squarely rejecting attempts by patentees to claim high reasonable royalty figures when the patent in question is a just a small piece of the product.”

The case in federal court in Seattle is a breach-of-contract dispute between Microsoft and Motorola, whose mobile phone unit, Motorola Mobility, Google bought in 2011 for $12.5 billion. Google picked up 17,000 patents in the deal, which closed last year.

In essence, Microsoft argued that Motorola bargained in bad faith by initially offering outlandish terms to license its patents on a wireless communication standard, 802.11, and another standard for video compression, H264.

Microsoft contends that Motorola’s first offer, if applied to a wide range of Microsoft products, might result in royalty payments of more than $4 billion a year. Motorola has replied in court that opening offers are nearly always negotiated down substantially, and that Motorola was mainly seeking a license deal on Microsoft’s Xbox video console rather than Microsoft’s wider product portfolio.

Still, Judge Robart determined that a reasonable rate for licensing the Motorola patents would be just under $1.8 million a year. That is not far from what Microsoft was offering as reasonable, about $1.2 million a year.

In his ruling, the judge set out some basic principles. An important one, he said, is that “a RAND royalty should be set at a level consistent with the S.S.O.s’ (standard setting organizations) goal of promoting widespread adoption of their standards.”

Later, Judge Robart explained the problem with relatively high royalties on standard-essential patents. He noted that at least 92 companies and organizations hold patents involved in the 802.11 standard for wireless communication. If they all sought the same terms as Motorola, he wrote, “the aggregate royalty to implement the 802.11 standard, which is only one feature of the Xbox product, would exceed the total product price.”

Judge Robart’s ruling covers only one part of one patent case — a price for reasonable licensing terms on Motorola’s patents. And the case is continuing. But his opinion, said Jorge L. Contreras, an associate professor of law at American University, detailed “some overarching principles that apply in cases like this. He emphasized that there was a social good that should be taken into account, and what is good for the whole market, not just for the two parties involved in the litigation.”

The ruling, Mr. Contreras added, “makes the big picture a lot clearer.”

Google’s Rivals Say F.T.C. Antitrust Ruling Missed the Point

But some critics of the inquiry now contend that the commission found no harm in Google’s actions because it was looking at the wrong thing.

Instead of considering harm to people who come to Google to search for information, Google’s competitors and their supporters say that the government should have been looking at whether Google’s actions harmed its real customers — the companies that pay billions of dollars each year to advertise on Google’s site.

In its reports, the F.T.C. did not detail how it defined harm or what quantitative measures it had used to determine that Google users were better off.

But interviews with people on all sides of the investigation — government officials, Google supporters, advocates for Microsoft and other competitors, and antitrust experts and economists — show that many of the yardsticks the commission used to measure its outcomes were remarkably similar to Google’s own. Not surprisingly, they cast Google in a favorable light.

At issue were changes that Google made in recent years to its popular search page. Google makes frequent adjustments to the formulas that determine what results are generated when a user enters a search. Currently, it makes more than 500 changes a year, or more than one each day.

Users rarely notice the changes in the formulas, or algorithms, that generate search results, but businesses do. If a change in the formulas causes a business to rank lower in the order of results generated by a search, it is likely to miss potential customers.

What customers are now seeing reflects changes in the format of Google results. For certain categories of searches — travel information, shopping comparisons and financial data, for example — Google has begun presenting links to its own related services.

People close to the investigation said that Google had presented the F.T.C. with the results of tests with focus groups hired by an outside firm to review different versions of a Google search results page. After Google acquired ITA, a travel search business, in 2011, it began testing a new way to display flight results.

The company asked test users to compare side-by-side examples of a results page with just the familiar 10 blue links to specialty travel sites with a page that had at the top a box containing direct links to airlines and fares.

People who reviewed the Google data said tests with hundreds of people showed that fewer than one in five users preferred the page with links only. Users said they liked the box of flight results, so Google reasoned that making the change was better for the consumer.

“There is a deep science to search evaluation,” Amit Singhal, a senior vice president who oversees Google’s search operation, said in an interview on Friday. “A lot of work goes into every change we make.”

But the changes were not better for companies or alternative travel sites that were pushed off the first page of results by Google’s flight box and associated links. By pushing links to competing sites lower, Google might be making things easier for people who come to it for free search. But it also is having a negative effect on competitors, shutting off traffic for those sites.

Drawing fewer customers as a result of Google’s free links, those competitors are forced to advertise more to draw traffic. And advertisers who aren’t competitors have fewer places to go to reach consumers, meaning Google can use its market power to raise advertising prices.

“There might be no consumer harm if Google eliminates Yelp,” said one Microsoft advocate, who spoke on the condition of anonymity because of the likelihood of further interactions with the F.T.C. “But advertisers certainly are harmed.”