Antitrust Officials Investigate MPEG-LA’s Patent Call Regarding VP8

The Department of Justice, along with the California State Attorney General’s Office, recently began an antitrust investigation into MPEG-LA’s call to various organizations and companies to identify whether they hold any essential patents used by the VP8 video codec. The main concern of the investigation is whether MPEG-LA is simply trying to stifle development and proliferation of the competing codec, as opposed to legitimately expressing concern over whether VP8, which is currently open source, contains patented material.

MPEG-LA is a Denver based company that licenses patent pools covering patents required for use of MPEG-2, H.264 and various other video encoding standards. H.264 is one of the most frequently used formats for the recording, compressing and distributing of high definition video. Both Microsoft and Apple own patents in MPEG-LA’s H.264 patent pool. Additionally, their browsers (IE9 and Safari, respectively) support H.264 and each of these companies has built H.264 into its operating system. MPEG-LA does not charge royalties for H.264 video that is delivered free to end users. However, MPEG-LA does charge royalties for devices that encode and decode H.264. Additionally, MPEG-LA charges royalties for H.264 video sold to end users for a fee.

VP8 is a video encoding format that many agree produces remarkably similar video delivery to H.264. It was originally developed by On2 Technologies. Google, having bought On2 last year, currently owns VP8. Shortly after having acquired VP8, Google responded to calls from the Free Software Foundation as well as others and open-sourced VP8. As such, Google does not collect any royalties whatsoever for the use of VP8. Mozilla and Opera Software have built VP8 support into their browsers. Adobe has agreed to build VP8 capability into its Flash Player plug-in.

MPEG-LA’s patent call is part of an effort to create a joint VP8 patent license. In order to participate in the joint license, a party must contain at least one essential patent in VP8. A team of patent evaluators with MPEG-LA will determine the essentiality of the patent. MPEG-LA has stated that it will only charge royalties for use of a given patent in VP8 after a certain number of years, which it has yet to determine. This investigation is taking place against the background of the World Wide Web Consortium’s (W3C) developing of html5, the next language for arranging and portraying content on the internet. It is still uncertain what video codec html5 will use to display video content. H.264 and VP8 are both considered prospects as the video codec of choice for this future format. Antitrust officials are concerned that MPEG-LA is attempting to frighten other companies from adopting the VP8 standard for fear of having to pay future royalties. MPEG-LA is doing so, officials worry, in order to improve its own position as the video codec of choice for the future.

Whether or not antitrust officials will decide to take legal action is a tough call. Part of their decision will hinge on whether they find that the software comprising these video encoding technologies is obvious; in other words, people could simultaneously and independently develop this technology. Material that is obvious is not patentable. Hence, should officials find the software obvious, they will be that much more likely to find MPEG-LA’s actions legally tenuous at best.

Appropriation Art on Trial: What Cariou v. Prince Means for Artistic Borrowing

On March 21, 2011, the District Court for the Southern District of New York issued its opinion in the copyright infringement case of Cariou v. Prince. Cariou, a professional photographer, published a book, Yes, Rasta, in 2000, which contained photographs of Rastafarians and Jamaican landscape photos taken over the course of six years (Cariou is the sole copyright holder of the photos contained within the book). Around 2007 or 2008, Richard Prince, a well-known appropriation artist, exhibited several collage pieces, including one entitled “Canal Zone,” which consisted of approximately thirty-five torn-up photographs from Yes, Rasta pasted onto a wooden board. The finished piece appeared in magazines, and ultimately was exhibited at Gagosian Gallery, a prominent New York City art gallery. Prince also completed other similar collages, all using, to a significant degree, Cariou’s photographs from Yes, Rasta.

The court ruled in favor of Cariou, a photographer who claimed that Prince’s appropriation of Cariou’s photos was infringing and not fair use. Prince fired back with predictable, yet varied defenses. He challenged the validity of Cariou’s copyright, stating that the photographs were compilations of facts, and therefore not deserving of copyright protection. On that count, unfortunately for Prince, it is well-established in copyright law that photographs, by virtue of the creative choices, lighting, poses, etc…, meet the requisite originality standards, and are therefore protectable.

After dispensing with this defense, the court next addressed Prince’s claims of fair use in his appropriation. Prince relied heavily on the rich tradition in art of appropriating images of the past and re-incorporating them for modern use as a mode of commentary, both on the current eras, and on past ones. By definition, appropriation artists “borrow images from popular culture, advertising, the mass media, other artists and elsewhere, and incorporate them into new works of art.” Prince claimed that his use of Cariou’s photographs was fair because his “purpose in using Cariou's Rastafarian portraits was the same as Cariou's original purpose in taking them: a desire to communicate to the viewer core truths about Rastafarians and their culture.” More specifically, “Prince's intent in creating the Canal Zone paintings was to pay homage or tribute to other painters, including Picasso, Cezanne, Warhol, and de Kooning…” The court relied on Prince’s statements of intent, and ultimately ruled that Prince’s appropriation was not fair because the copying/appropriation was not intended to comment or criticize Cariou’s work. In other words, “Canal Zone” needed to transform, per the first prong of the fair use analysis laid out in § 107 of the U.S. Copyright Act of 1976, Cariou’s work, and not, as Prince did, merely comment on the role of appropriation in the more generalized context of art historical tradition.

Cariou is certainly not the first time appropriation has come under legal attack. Jeff Koons is an artist known not only for his art, but the legal trouble it gets him into, and he was party to two prominent infringement cases dealing with appropriation art, Rogers v. Koons and Blanch v. Koons. In Rogers, Koons made a painting of a photograph of a man and a woman holding several puppies, and Koons called his piece “String of Puppies.” The court found that Koons, in borrowing heavily from the source material, accomplished nothing more than a change of medium, and did not adequately comment on the original photograph. In Blanch, however, the court decided that Koons’ incorporation of a pre-existing photograph into a collage piece was sufficiently transformative because the recontextualization of the original photograph “gave the painting an “entirely different purpose and meaning…” These results, legally disparate, do not provide a sound foundation for determining an issue like the one that came up in Cariou.

Cariou has the potential to be a tie-breaker of sorts given the divergent outcomes of both Koons cases. It is a clear-cut case of un-licensed infringement, and while the court declined to rule, as Prince sought, to rule that appropriation is inherently transformative, it did limit “the scope of fair use in appropriation art to work that comments on the original works…” What many find most striking, though, is the judicial emphasis the court placed on Prince’s professed intent in creating “Canal Zone.” Artistic intent is anything but concrete, and just because the artists sees a piece one way does not mean that others, i.e., the audience will view it in the same way. Further, judges are expressly prohibited from basing opinions on their presumptions of artistic merit in Bleistein v. Donaldson Lithographing Co., when Justice Oliver Wendell Holmes wrote that “[i]t would be a dangerous undertaking for persons trained only to the law to constitute themselves final judges of the worth of pictorial illustrations, outside of the narrowest and most obvious limits.” This isn’t to say that the court in Cariou was passing artistic judgment on “Canal Zone,” but it does seem like the court should have relied on something more than just artistic intent, perhaps, the opinion of the average audience.

The good thing is, appropriation art is not totally dead, in the eyes of the Southern District of New York, at least. It does send a strong message to appropriation artists, however, warning them to ensure that their pieces, consisting either totally or in part of borrowed copyrighted material, fulfill the courts’ interpretations of transformativeness.

The Merger between AT & T and T-Mobile: Will it Go Through?

AT & T announced its $39 billion plan to buy T-Mobile USA. The deal, if approved by regulators, will give AT & T a 40.6% market share in the cell phone industry, and will concentrate 80% of U.S. wireless customers in two companies – AT & T and Verizon wireless, thus create a duopoly in the mobile service market. Despite AT & T’s likely argument that the cell phone market is intensely competitive and the deal will not easy the competition, the merger will have a hard time to pass the justice department’s scrutiny under the federal antitrust law.

Section 7 of the Clayton Act, an anti-merger statute, prohibits mergers that may substantially stiff competition “in any line of commerce, in any section of the country.” The Act especially disfavors a horizontal merger. A horizontal merger is a merger between two direct competitors who compete with each other in the same line of business and the same geographic market. A horizontal merger will have adverse anti-competitive effects because it will eliminate a competition between two merging parties, and will likely increase market shares and assets of the merged enterprise. Unless it will not create or tend to create a monopoly, the merge would be illegal per se. Market concentration and Market shares of two merging companies are the determinative factors in horizontal mergers analysis, and high market concentration and dominant market shares will establish a prima facie violation of the Act.

The merger between AT & T and T-Mobile is a horizontal acquisition because the two companies compete directly with each other in the cell phone market, and both provide a national-wide service, with market shares of 28.5% and 12.1%, respectively. The merger will give AT & T a dominant market, enable it to set prices and instill a fear in the smaller competitors. Consequently, it will lessen the competition and create a prima facie case that the merger is unlawful. In addition, the merger will create an industry with the top two companies handling 80% of the service. The high concentration may encourage AT & T and Verizon seeking a deal for their mutual advantage at the cost of consumers, and discourage new enterprises from entering into wireless service business. Before the merger, the cell phone market has been already concentrated with Verizon and AT & T taking more than 50% of U.S. wireless consumers. In an already highly concentrated market, the courts will condemn any merger that increases concentration, even if that increase is minimal. The merger will be enjoined unless AT & T can provide a clear evidence that the merger will not adversely affect the competition in the cell phone industry.

AT & T can argue that the extremely competitive wireless market will prevent the merger from substantially stiffing the competition. It can point out that despite the wireless service in the United State being concentrated in Verizon and AT & T, the competition between them is vigorous, it is not possible for them to reach an mutual advantage agreement, and the merger will only put AT & T at a more competitive position. As a result, the merger will encourage the competition.

This pro-competitive argument will not likely survive the scrutiny. A pro-competitive effect in a horizontal merger will justify the merger only when two merging firms were weak before the merger, and will not result in a dominant market. The evidence shows that both AT & T and T-Mobile are strong and aggressive competitors, both have significant amount of market shares in the wireless industry, neither of them is failing, and the merger will produce a dominant market as AT & T will be the No. 1 in the mobile service. The merger will not only effectively eliminate a competitor, but also likely force a higher price on T-Mobile customers with an inferior service, the effects that the Act was enacted to prevent.

Judge Doty: The Player’s Best Friend?

Three weeks ago, Federal District Court Judge David Doty sided with the NFLPA when he ruled that the NFL had violated the terms of the, then in place, collective bargaining agreement. By using its extraordinary market power, the NFL was able to force the networks wishing to carry its product to agree to provisions that required the networks to continue paying even if there was a work stoppage. Moreover, Doty continued, the NFL did so in preparation of a work stoppage, which was at least a few years away. Additionally, these provisions came at the expense of securing higher annual fees under the contracts if they removed the lockout terms. This was done because in the years prior to the lockout, where the NFL accepted lower annual fees, the fees were to be shared with the players; however, in the event of a lockout, the owners would have been able to keep all the revenue.

Judge Doty stressed that the NFL’s actions were taken with an eye toward locking out the players in a way that would hurt the players financially without a similar harm to themselves. In effect, the owners structured the deals, that were supposed to be negotiated to “maximize revenue for players,” to advance their own interests and not the players. The deals were done in a way to gain leverage for the owners in the event (an event that the owners were planning to occur) of a work stoppage. A plan Judge Doty put a stop to.

Although this was a win for the players, one wonders if the same logic won’t work against them in their upcoming April 6th hearing, a hearing brought by NFL players, led by the likes of Tom Brady, Peyton Manning, and Drew Brees, claiming that the lockout violates antitrust laws. However, this antitrust lawsuit is only available because the players decertified, a process they began in the fall of 2010. The decertification was done in such a public way in an attempt to gain leverage during negotiations and to allow this current lawsuit to take place. The NFL will/is going to argue that the decertification should be overlooked/ignored as it is a simple ploy to gain leverage whenever the two sides meet again at the bargaining table. It is certainly possible a Judge could look at the NFLPA’s actions the same way Judge Doty looked at the NFL owner’s actions when negotiating the TV deals and agree with the NFL to ignore the decertification.

Japanese Nuclear Emergency Response

An 8.9 magnitude earthquake (the 5th largest earthquake ever recorded) struck Japan last night northeast of the island of Honshu. The quake unleashed a massive tsunami into the Japanese seaboard. As the sun rose in the land of the rising sun this morning, the full extent of the damage and devastation was still being ascertained. Even by the most cautious estimates, a horrible human tragedy occurred: hundreds are believed to be dead and many more have lost their homes.

Potentially making matters worse, the quake damaged several nuclear power plants, forcing officials to declare a nuclear emergency. Officials shutdown at least four reactors along Honshu’s eastern seaboard: Onagawa, Fukushima Daiichi, Fukushima Daini, and Tokai (see the map above). Some reports indicate that as many as eleven reactors have experienced shutdowns. This has left many residents, quite literally, in the dark.

Japan is the third largest producer of nuclear energy in the world, behind the United States and France and generates 30% of its power using nuclear power from 53 reactors (despite being the only country in the world to have witnessed firsthand the damage that nuclear energy is capable of when unleashed via a nuclear bomb). Japan’s lack of natural energy reserves and reliance upon foreign imports is expected to lead to an ever increasing reliance on nuclear power in the future. Some estimates find Japan generating 50% of its power from nuclear energy by 2030.

Japan sits on an area of rampant seismic activity and the nuclear commission pays especially close attention to the possibilities of earthquakes in the siting, design and construction of nuclear power plants. Japanese regulations require plants to be built on hard rock foundations to minimize shaking. Additionally, all Japanese plants are equipped with seismic detectors that trigger an immediate reactor shutdown when a large earthquake occurs. The standards issued for seismic resistance of plants were adopted in 1978 and amended in 2001. The regulations specify requirements in terms of localized ground motion (measured in Gal.) as opposed to the more familiar Richter Scale because there is not always a correlation between amount of energy released (what the Richter Scale measures) and the amount of ground motion locally (what actually causes damage). Still, the NSC concluded that under current guidelines, Japanese plants could survive a quake with a magnitude of 7.75 on the Richter Scale. Today’s tragedy isn’t the first occasion that a nuclear plant in Japan faced a forced shutdown because of seismic activities – for example, the largest plant in the world at Kashiwazi-Kariwa was shut down in 2007 in the wake of a an earthquake measuring 6.8 on the Richter scale.

Under the regulatory policies developed by the Nuclear Safety Commission of Japan (similar to the Nuclear Regulatory Commission in the United States), the central nuclear emergency response headquarters (NERHQ) issues the nuclear emergency declaration with technical assistance from the Nuclear Safety Commission. The declaration is analogous to a declaration of federal emergency in the United States. In a nuclear emergency situation, a joint council is formed that includes the National Government’s representatives from NERHQ, senior nuclear emergency response specialists, and representatives of the Nuclear Safety Commission. The joint council devices an overall plan, provides instructions for resident evacuations, guides emergency services, and directs the armed forces. Under the current emergency order, 3,000 residents have been evacuated near the Fukishima plant.

It seems that the highly engineered plants in large part resisted the damaging effects of the quake. Current reports indicate that the plants have not leaked any radiation and remain in fairly good shape. My only hope is that these emergency response agencies do an effective job of dealing with repairing and reactivating the damaged nuclear plants and restoring power to residents. Other than that, there isn’t much to say besides: our thoughts and prayers go out to the residents of Japan.

Small Businesses Encounter Difficulty in Coping with Massachusetts Data Privacy Law

In March 2010, Massachusetts passed into law the Massachusetts Data Privacy Law. The passage of this law has proven to be an important point in the development of American data privacy law. While most states’ data privacy laws merely require public disclosure upon the occurrence of a breach, Massachusetts has taken a more proactive stance. The Massachusetts law requires organizations, no matter where they are located, “that store personal information about Massachusetts residents…to write security policies detailing how the data will be protected, encrypt the data when it is stored on laptops or other portable devices or transmitted over public networks, and monitor their systems for breaches.” The purpose of the law is to make certain that companies have an enforceable data security infrastructure.

While many large companies, especially those in finance and the healthcare industry, are able to readily adapt to the new law because they are already subject to data security laws like HIPAA, smaller companies are having a difficult time adjusting. Because of the law’s reach, these businesses are located all throughout America and even many foreign countries. In addition to struggling with understanding what the law requires and how to implement a satisfactory policy, many companies will have a difficult time financing such a program. It is entirely possible for a firm to spend a six figure sum in complying with the law.

Despite the difficulties inherent in adapting to this change, companies have reported upsides stemming from their compliance. In attempting to ensure that information is handled properly, firms learn where their data goes and how it is processed. This knowledge enables firms to understand their processes better as well as improve any inefficiencies. However, despite the fact that companies will enjoy benefits in complying with the law, small businesses still stand to bear a large burden, in terms of both time and money, in complying with the law. This does not mean that the legislature needs to amend the law in any way. Rather, it is up to the Attorney General’s Office to provide as much guidance as possible in helping small businesses ease the already heavy burden of implementing this law.