Copyright - The Law Cares Not For Trifles

Here is one of my favorite quotations from a district court judge's opinion? "How Hollywood’s flattering and artful use of literary allusion is a point of litigation, not celebration, is beyond this court’s comprehension." This sentence sums up the court's opinion that use of a particular quotation lifted from a novel was de minimus use.

Judge Mills in Faulkner Literary Rights, LLC v. Sony Pictures Classics Inc., case no. 3:12cv100, dismissed a complaint based on a motion for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). In this way, a defendant can bring a motion prior to answering the complaint, and a judge can dismiss nuisance cases before defendants have to incur all the legal fees and costs associated with discovery.

The quotation of Faulkner's work Requiem for a Nun that is alluded to by Woody Allen's movie Midnight in Paris is: “The past is never dead. It’s not even past." In the movie, a nearly identical phrase is introduced when one of the modern day characters, returning from the past, states: “The past is not dead. Actually, it’s not even past. You know who said that? Faulkner, and he was right. And I met him too. I ran into him at a dinner party.” The book was written in 1950, and Faulkner's work had nothing to do with temporal displacement to a living past.

Judge Mills gets bonus points for distinguishing between the idea, that the past lives on in the present and is never dead, and Faulkner's expression of the idea. The expression of an idea is how it is written or recorded and can be protected by copyright. The idea, itself, is never properly a subject of copyright.

Plaintiff's counsel misfired by trying to emphasize the importance of the idea as a critical part of Faulkner's theme in the overall work. Plaintiff's counsel also emphasized the enduring impact of the selected quotation, and its use by President Obama, as evidence of its qualitative importance to the novel. This, too, missed the mark. "Qualitative importance to society of a nine-word quote is not the same as qualitative importance to the originating work as a whole," according to Judge Mills. Instead, the court looked at the expression of the phrase within the context of the expression of the work as a whole and finds its use by the movie both quantitatively and qualitatively short of copyright infringement.

Sony's use of copyrightable expression from Faulkner's work was de minimus. The Supreme Court of the United States held in Wisconsin Dep't of Revenue v. William Wrigley, Jr., Co., 505 U.S. 214, 231 (1992) that “the venerable maxim de minimis non curat lex (“the law cares not for trifles”) is part of the established background of legal principles against which all enactments are adopted, and which all enactments (absent contrary indication) are deemed to accept.” Interestingly, although brought as a motion to dismiss under Rule 12(b)(6), the case was dismissed by the court pursuant to Federal Rule of Civil Procedure 58, as a summary judgment. This was only possible, because there were no facts in dispute (i.e. defense counsel stipulated that the facts in the complaint were true), and the court found that the plaintiff had not raised a reasonable expectation that discovery would lead to additional facts on which a judgment in its favor could be premised.

Defendant risked a summary judgement of infringement on the facts presented in the complaint by admitting the facts in the complaint are true, but in this case, if the appellate court does not overturn this verdict, then the Defendant made the right call. The decision can be found at www.jurisnote.com/Cases/faul2100.pdf

Gene Silencing?

The Supreme Court of the United States decided that discovery and isolation of genes is not sufficient to make naturally occurring genes patentable. Association for Molecular Pathology v. Myriad Genetics, Inc., 569 U.S. ____ (2013). However, DNA may be patentable if it is changed in a way that makes it new, useful and nonobvious, potentially saving issued patents claiming synthetic DNA sequences including, without limitation, sequences of complementary DNA (cDNA). What will be the impact of this historic decision? Will the decision extend patents in the chemical arts? The specific holding is that a "naturally occurring DNA sequence is a product of nature and not patent eligible merely because it is isolated, but cDNA is patent eligible because it is not naturally occurring." The decision does not have a direct impact on patent eligibility of methods or applications stemming from knowledge relating to DNA. However, the decision does imply, at least, patent eligibility of any DNA sequence in which the order of the naturally occurring sequence is altered, as a new composition of matter that is not naturally occurring. The decision upholds its earlier decision in Diamond v. Chakrabarty, 447 U.S. 303, 309 (1980). Therefore, a bacterium modified by adding a genetic sequence is patent eligible, because it never existed in nature. Presumably, this logic extends patent eligibility to any alternations in genetic sequences that do not exist in nature. In contrast, merely combining complementary products of nature in a mixture, such as different naturally existing bacteria, is not patent eligible. Citing Funk Brothers v. Kalo Inoculant, 333 U.S. 127 (1948). The bottom line is that DNA sequences that are not naturally occurring are patent eligible, if new, useful and nonobvious. This decision has wider implications for composition of matter claims for naturally occurring chemical compositions isolated from plants and other organisms. While the decision focuses on naturally occurring DNA sequences, the decision is likely to influence future decisions on other products or chemicals that are isolated from nature. Unless purification alters the properties or structure of a substance, mere isolation from nature might be insufficient to render it patent eligible. Side Bar: Interestingly, the decision suggests that the practices of the patent office, absent any endorsement by Congressional enactment of legislation, is entitled to little or no deference.

Angel Investors and Startups Rejoice -- Safe Harbor Found

The SEC has finally released its final rule for public solicitation under the 506 safe harbor of Reg D. This new rule paves the way for companies to raise unlimited capital from accredited investors without the constraints formerly imposed against public solicitation. The rules against public solicitation could be a trap for the unwary and less than cautious. Now, companies can generally solicit funds from the public. Extra precautions must be taken to verify that investors are all accredited investors. According to the SEC, verification methods acceptable for meeting the safe harbor requirements include the following: Reviewing copies of any IRS form that reports the income of the purchaser and obtaining a written representation that the purchaser will likely continue to earn the necessary income in the current year. Receiving a written confirmation from a registered broker-dealer, SEC-registered investment adviser, licensed attorney, or certified public accountant that such entity or person has taken reasonable steps to verify the purchaser's accredited status. This final rule paves the way for general solicitation under the 506 safe harbor of Reg D, making it easier to find investors and providing an important mechanism for raising capital for small businesses and entrepreneurs. Care still needs to be taken to meet all of the other requirements of the safe harbor including restricting stock transfers, timely filing of Form D and the like. The ability to publicly solicit investors could provide angel investors with more and better opportunities. As always, buyer beware! Insist on financials being prepared by an independent accountant, check the Form D, check with state regulators about the promoters, independently verify the value of intellectual property if it is an important part of the investment and look for a comprehensive private placement memorandum that puts the investors on notice of the risks and other facts relevant to the solicitation. Remember, restrictions on sales of shares and lack of liquidity makes angel investing a long term investment with associated higher risks. Use due diligence to weed out. If you are an accredited investor and wary of making direct investments in Tampa Bay startups, then consider joining the Tampa Bay Innovation Seed Fund, which is being established by Irv Cohen and others for early stage investment right here in the Tampa Bay region. Contact Irv Cohen at icohen@southeastceg.com.

Crowd Funding Campaigns

Let's be real. Crowdfunding campaigns are hard and usually are not the best way to raise money for a technology startup. However, I am getting more and more questions about crowdfunding through websites like Kickstarter. My advice is to consider this as merely one tool among a wide variety of tools that could be used to raise funds for a new startup. I would prefer Tampa Bay to have an innovation seed fund, and Irv Cohen and others are working with me to help make this a reality. In the absence of a professionally managed seed fund, there are networks of angel investors and individual angel investors that will consider investments in startups. The recent publication of final rules for Reg D by the SEC, allowing general solicitation of investors, should make finding accredited angel investors easier, while remaining within one of the safe harbors. More about this later. But here is some information on crowdfunding. Crowdfunding is usually successful only if you can tap your own network for up to 80% of the amount that you need to raise. Typically, strangers account for no more than 20% of a campaigns total funding. There are exceptions, but usually a successful campaign starts with a large network of existing friends, supporters and fans. It takes work to reach out to your network, and social media can help with this. The various crowdfunding sites provide invaluable information about having a successful campaign. So, do your homework. Remember, also, that you must determine what makes a campaign a success. Are you looking for presales before going into production or are you looking for funds to develop a product? Make sure that the total costs of raising money are considered. How much is shipping and handling going to cost, if you are providing promotional items to people funding your campaign? Is the cost of funding too much? Can you fulfill the orders if you are offering presales? With these questions in mind, here are some popular crowdfunding sites to consider. Indie gogo (worldwide): http://www.indiegogo.com/indiegogo-faq Kickstarter (US and UK): http://www.kickstarter.com/ Crowdfunder.com (US): http://www.crowdfunder.com/p/crowdfunder-basics/#a-5 Rockethub.com (world): http://www.rockethub.com/education/faq#use-RocketHub App Specific: http://www.appbackr.com/ Charity Specific: http://crowdrise.com/ Started your own crowdfunding site: http://invested.in/ Others: Circleup.com targets existing consumer products companies for crowdfunding. Prosper.com connects borrowers and lendors (crowdloaning?). General Information: ________________________ 7-8% transaction fee in America and Europe: http://www.youtube.com/watch?v=Kci5PYY9X1E _______________________ Crowdfunding Training: http://www.youtube.com/watch?v=8b5-iEnW70k ____________________________________ Satirical humor: http://www.youtube.com/watch?annotation_id=annotation_832232&feature=iv&src_vid=WQHTROGrDXY&v=x2FGfdNtBh4

Proposal for Ending Housing Crisis

In 2008, the housing bubble burst leading to a financial crisis that sent the economy into a tailspin, drying up liquidity. Home values have dropped precipitously and continue to drop in many major housing markets. The housing bubble was caused by government policy to keep mortgage interest rates low and to encourage sub prime lending practices that increased home "ownership" across America. If the government didn't directly cause the housing bubble, its policies certainly encouraged the inflation in housing prices and development of a market in mortgage-backed securities that turned the inevitable correction into a financial crisis. The deep recession led to unemployment, which increased home loan defaults and mortgage foreclosures, causing home prices to drop further, to the point where existing homes now sell for substantially less than its costs to build homes.

The government stimulus passed by the President and the democrat-controlled House of Representatives and Senate did nothing to address the precipitous decline in the assessed value of homes, which caused the financial meltdown.

Michael Lissack, a famous (or infamous to some on Wall Street) whistleblower who once worked for Smith Barney, has proposed a solution to the underlying problem that is holding back America's economy. He proposes a mechanism that will establish a new floor for home valuations for the majority of homes that are now underwater (assessed value of home is less than the amount of the home loan). He proposes the following:

1. Refinance 80% of current assessed value of homes in a conventional conforming loan / first mortgage.
2. Provide a second mortgage (Lissack proposes a zero-interest loan) for the difference between the second mortgage and 100% of the current assessed value of the home.
3. In exchange for the write-down to the current assessed value, allow for banks to hold an equity interest in the up-side of the home, when sold, if any. Lissack proposes a standardized, stand-alone contract (and presumably a lien that must be satisfied at closing) for 50% of appreciation above the current assessed value of the home.

Presumably, all home owners would be allowed to participate in this program, and the mortgage companies and banks would be either encouraged or required to participate. As a result, all homes would no longer “underwater” immediately. Monthly mortgage interest and principle payments would be reduced, and the freed up cash would be available to stimulate the economy. The second mortgage and equity sharing contract would be a future cost to the home owner, but this cost would only be incurred upon selling of the home for a price above the current assessed value. This would put a floor on home values at current prices, encouraging a return to a stable housing market.

Lenders could look forward to the equity-sharing return on investment to partially offset the loss caused by writing-down home loans to current market prices, instead of taking losses in foreclosure sales that continue to drive down home values.

It would be an interesting exercise to compare the costs of Lissack's proposal to financial institutions compared to the continued uncertainty and costs of foreclosures. The primary and secondary mortgages and equity-sharing arrangements could be pooled and sold into the capital markets, particularly as housing prices start to rebound.

Possibly, the economic result for the lender would be far better than the costs of foreclosing on homes, which Lissack estimates incur 30%-40% reductions in current values.

9-11-01 Ten Years Later

I returned to New York from Santorini, Greece, the day before. My vacation was interrupted due to pressing matters that could not wait.

On 9-11-01, I was walking to work at One Broadway, when the first plane hit the N. tower. A gaping hole opening up with leaping flames. Pedestrians with their faces and eyes locked on the catastrophe stood frozen, awestruck, but at that point we didn't know it was an intentional act of terrorism.

I proceeded to work, which was only a few blocks from the twin towers. As I neared One Broadway, a second commercial airliner blasted its way into the S. tower. Even though I was walking on the street several blocks away on the opposite side of a high rise, I sensed the blast, burning paperwork drifted down around me from the offices impacted by the exploding air-fuel mixture released by the disintegrating aircraft as it merged with the S. tower. A taxi stood motionless on Broadway. Its driver listening to the radio. When I asked what had happened, he explained that planes were crashing into tall buildings all over the city and at the Pentagon too. Although erroneous in the details, this report made clear that our nation was under attack.

I continued on my way. I took the elevator to my office on one of the top floors of One Broadway to collect some paperwork and to email friends and family that I was OK, because my cellphone wasn't working. Before I could click send, the first tower fell. A pyroclastic cloud of ash and dust entombed the financial district, turning day into night, made darker still by the immediate loss of electricity, phones, Internet and continued absence of cellphone signals. I stuffed my files in a red backpack that I normally used for law books; I was a full-time patent agent and legal intern, attending my last year of law school, at nights.

Proceeding to the nearest stairwell, I met a panicked administrative assistant, calmed her and helped her to evacuate the building, nine floors down a dark stairwell in an historic building considered to be one of New York's first skyscrapers. The lobby guard had closed the entrance, afraid to let anyone outside in or anyone inside out. Pieces of fluffy flotsam drifted in the smoke, dust and ash that had once been a clear, late-summer sky. After waiting too long without information, I convinced the guard to allow me to leave and to allow desperate tourists from the Ellis Island tour boats sanctuary in our lobby.

Two disoriented tourists decided to join me on my expedition northward, out of the financial district. The second tower came down before we made much progress, and a churning cloud of choking dust and ash advanced up one of the cavernous streets in our direction. My band took refuge in a bank lobby.

After some time huddled in our refuge, the density of the dust dissipated enough to continue the expedition northward. All were now covered in a fine gray dust in a surreal landscape. A makeshift first aid station passed out dust masks to passersby. A corner bodega passed out free bottled water. Nearing the Brooklyn Bridge, we finally emerged from the dust cloud, and, for the first time, I was stunned to see that the towers were no more.

After directing my companions toward the bridge to Brooklyn and safety, I turned westward toward my home in the West Village. It would take more than an hour navigating checkpoints and barricades before reaching my 350 square foot West Village apartment, where I could shower away the dust that covered me. Then, I went to the Internet cafe on Bleeker Street to finally let those concerned about me know that I was fine.

In the weeks to come, I would become numb to the horror of so many faces of missing loved ones posted on bus stops and hospitals. The checkpoints and barricades eventually disappeared. Even the seemingly never-ending columns of smoke rising from ground zero eventually were extinguished, but I would never be the same. New York would never be the same.

The pressing matters that drew me back early from my vacation in Greece, just the day before, no longer mattered so much.

Population Distribution by Age in 5-year increments for Tampa-St Pete-Clearwater. Interesting that the peak years in the boom is the 45-to-50 year olds. The 45-55 block in this demographic will see benefits reduced or the retirement age extended for Medicare and Social Security (or both). Will housing prices rebound by retirement age for this block of middle-aged boomers? Will there be a market for single family homes, then, allowing these late-boomers to cash out?