Filed under: business

Megaupload founder Kim Dotcom: Kingpin, baller, car racer, “God”

kim dotcom

For entertainment studios around the world, Kim Dotcom probably looks a lot like King Henry VIII. To them he is rich, rotund, and chopping their businesses off at the head.

Two of those attributes, at least, are factually true. The third is in legal dispute.

Kim Dotcom, the founder of recently indicted file sharing company Megaupload, was born Kim Schmitz. A German native who legally changed his surname to Dotcom ten years ago, he has a speckled past. This includes accusations of credit card fraud and criminal hacking, as well as a confession of embezzlement. Now Kim lives in a New Zealand mansion allegedly worth $30 million and owns high-end vehicles like a Rolls-Royce, a Maserati, and a Lamborghini.

It’s all legitimately-acquired wealth, according to Megaupload spokesperson Bonnie Lam.

Car Kim Dotcom
In accordance with German’s “clean-slate” law, Dotcom’s record has been wiped clean of his previous offenses, and he has paid his due after his convictions, Lam said.

“He has matured, learned from his past mistakes and is a successful businessman,” Lam told Cnet. “Kim is one of many shareholders at Mega and not involved in most day-to-day business decisions.”

He is, nevertheless, a colorful character. Dotcom co-produced and appears in a popular promotional video for Megaupload that came out in December, 2011 (that’s him in the screen shot above). The video, which included such popular music stars as Macy Gray, Will.i.am, Kanye West, Kim Kardashian, Serena Williams, Snoop Dogg and a host of others, was targeted by Universal Music Group for unspecified reasons, briefly removed from YouTube, and then reinstated to the popular video-sharing site shortly afterward. Megaupload filed its own suit against Universal immediately after the incident. The video has now been seen almost 12 million times.

Dotcom, who is married and a father of three, was charged this week with five counts of copyright infringement, along with money laundering. He was arrested at his own birthday party on Thursday, along with other employees of Megaupload and its various properties, including Megaporn, Megavideo, Megaclick, and Megarotic. When the police came calling, he barricaded himself inside the mansion’s safe room with what appeared to be a sawed-off shotgun.

Megaupload is the company’s flagship site, founded in 2005. It lets people upload, store and transfer files around the globe, a service that can be used for legitimate purposes (transferring a large data file to a business associate, for instance) but which, the FBI alleges, is also used for distributing copyrighted video and audio. The company’s headquarters are said to be in Hong Kong, though its servers exist in other countries as well. The US FBI took action after discovering servers in Virgina holding unlicensed copyrighted material. Indeed, the US calling this a “Mega Conspiracy.”

The indictment served yesterday listed assets owned by Dotcom and his fellow employees, which tallied to around $175,000,000. Expensive vehicles, artwork, electronics, and a laundry list of bank accounts were named.

On Friday, police in New Zealand raided Dotcom’s home and seized many of these assets, including a Rolls Royce, numerous Mercedes-Benz cars, cash and allegedly guns. Dotcom is known for enjoying his fast cars and attending the Gumball 3000, an automobile “rally” that has drawn celebrities such as Snoop Dogg, Johnny Knoxville and others.

In response, the loose hacker collective known as Anonymous retaliated by taking down the Department of Justice and FBI websites with a denial-of-service attack.

House Kim Dotcom
Dotcom has been in trouble with the law for money before. In 2001, the Megaupload founder pocketed 1.5 million euros after promising to invest 50 million euros into failing company LetsBuyIt.com. He pulled the fraud off by purchasing 375,000 euros worth of stock in the company, made his investment announcement, and watched the stock price soar. After the stock had climbed a considerable amount, Dotcom cut and ran, having never possessed enough money to make the 50 million euro investment in the first place. In 2003, Dotcom admitted to embezzlement and was flown from Thailand to Germany for the trial.

According to New Zealand-based website 3 News, New Zealand’s government initially denied Dotcom’s application residency when he failed a “good character” test. However, he then donated to the Christchurch Earthquake Fund and invested $10 million in government bonds, and his application was subsequently approved.

Now Dotcom is facing even more financial charges. He and his alleged co-conspirators are accused of paying third parties to upload copyrighted material.

Dotcom remains positive, however. When faced with three of his coworkers before the press in a New Zealand court room, he invited pictures and video. When a lawyer asked the press to stop, Kim Dotcom interjected with, “We have nothing to hide.”

Bad Apple

We love our iPhones and iPads.

We love the prices of our iPhones and iPads.

We love the super-high profit margins of Apple, Inc., the maker of our iPhones and iPads.

And that's why it's disconcerting to remember that the low prices of our iPhones and iPads — and the super-high profit margins of Apple — are only possible because our iPhones and iPads are made with labor practices that would be illegal in the United States.

And it's also disconcerting to realize that the folks who make our iPhones and iPads not only don't have iPhones and iPads (because they can't afford them), but, in some cases, have never even seen them.

This is a complex issue. But it's also an important one. And it's only going to get more important as the world's economies continue to become more intertwined.

Last week, NPR's "This American Life" did a special on Apple's manufacturing. The show featured (among others) the reporting of Mike Daisey, the man who does the one-man stage show "The Agony and the Ecstasy of Steve Jobs," and The NYT's Nicholas Kristof, whose wife is from China.

You can read a transcript of the whole show here. Here are some details:

  • The Chinese city of Shenzhen is where most of our "crap" is made. 30 years ago, Shenzhen was a little village on a river. Now it's a city of 13 million people — bigger than New York.
  • Foxconn, one of the companies that builds iPhones and iPads (and products for many other electronics companies), has a factory in Shenzhen that employs 430,000 people.
  • There are 20 cafeterias at the Foxconn Shenzhen plant. They each serve 10,000 people.
  • One Foxconn worker Mike Daisey interviewed, outside factory gates manned by guards with guns, was a 13-year old girl. She polished the glass of thousands of new iPhones a day.
  • The 13-year old said Foxconn doesn't really check ages. There are on-site inspections, from time to time, but Foxconn always knows when they're happening. And before the inspectors arrive, Foxconn just replaces the young-looking workers with older ones.
  • In the first two hours outside the factory gates, Daisey meets workers who say they are 14, 13, and 12 years old (along with plenty of older ones). Daisey estimates that about 5% of the workers he talked to were underage.
  • Daisey assumes that Apple, obsessed as it is with details, must know this. Or, if they don't, it's because they don't want to know.
  • Daisey visits other Shenzhen factories, posing as a potential customer. He discovers that most of the factory floors are vast rooms filled with 20,000-30,000 workers apiece. The rooms are quiet: There's no machinery, and there's no talking allowed. When labor costs so little, there's no reason to build anything other than by hand.
  • A Chinese working "hour" is 60 minutes — unlike an American "hour," which generally includes breaks forFacebook, the bathroom, a phone call, and some conversation. The official work day in China is 8 hours long, but the standard shift is 12 hours. Generally, these shifts extend to 14-16 hours, especially when there's a hot new gadget to build. While Daisey is in Shenzhen, a Foxconn worker dies after working a 34-hour shift.
  • Assembly lines can only move as fast as their slowest worker, so all the workers are watched (with cameras). Most people stand.
  • The workers stay in dormitories. In a 12-by-12 cement cube of a room, Daisey counts 15 beds, stacked like drawers up to the ceiling. Normal-sized Americans would not fit in them.
  • Unions are illegal in China. Anyone found trying to unionize is sent to prison.
  • Daisey interviews dozens of (former) workers who are secretly supporting a union. One group talked about using "hexane," an iPhone screen cleaner. Hexane evaporates faster than other screen cleaners, which allows the production line to go faster. Hexane is also a neuro-toxin. The hands of the workers who tell him about it shake uncontrollably.
  • Some workers can no longer work because their hands have been destroyed by doing the same thing hundreds of thousands of times over many years (mega-carpal-tunnel). This could have been avoided if the workers had merely shifted jobs. Once the workers' hands no longer work, obviously, they're canned.
  • One former worker had asked her company to pay her overtime, and when her company refused, she went to the labor board. The labor board put her on a black list that was circulated to every company in the area. The workers on the black list are branded "troublemakers" and companies won't hire them.
  • One man got his hand crushed in a metal press at Foxconn. Foxconn did not give him medical attention. When the man's hand healed, it no longer worked. So they fired him. (Fortunately, the man was able to get a new job, at a wood-working plant. The hours are much better there, he says — only 70 hours a week).
  • The man, by the way, made the metal casings of iPads at Foxconn. Daisey showed him his iPad. The man had never seen one before. He held it and played with it. He said it was "magic."

Importantly, Shenzhen's factories, as hellish as they are, have been a boon to the people of China. Liberal economist Paul Krugman says so. NYT columnist Nicholas Kristof says so. Kristof's wife's ancestors are from a village near Shenzhen. So he knows of what he speaks. The "grimness" of the factories, Kristof says, is actually better than the "grimness" of the rice paddies.

So, looked at that way, Apple is helping funnel money from rich American and European consumers to poor workers in China. Without Foxconn and other assembly plants, Chinese workers might still be working in rice paddies, making $50 a month instead of $250 a month (Kristof's estimates. In 2010, Reuters says, Foxconn workers were given a raise to $298 per month, or $10 a day, or less than $1 an hour). With this money, they're doing considerably better than they once were. Especially women, who had few other alternatives.


 

But, of course, the reason Apple assembles iPhones and iPads in China instead of America, is that assembling them here or Europe would cost much, much more — even with shipping and transportation. And it would cost much, much more because, in the United States and Europe, we have established minimum acceptable standards for the treatment and pay of workers like those who build the iPhones and iPads.

Foxconn, needless to say, doesn't come anywhere near meeting these minimum standards.

If Apple decided to build iPhones and iPads for Americans using American labor rules, two things would likely happen:

  • The prices of iPhones and iPads would go up
  • Apple's profit margins would go down

Neither of those things would be good for American consumers or Apple shareholders. But they might not be all that awful, either. Unlike some electronics manufacturers, Apple's profit margins are so high that they could go down a lot and still be high. And some Americans would presumably feel better about loving their iPhones and iPads if they knew that the products had been built using American labor rules.

In other words, Apple could probably afford to use American labor rules when building iPhones and iPads without destroying its business.

So it seems reasonable to ask why Apple is choosing NOT to do that.

(Not that Apple is the only company choosing to avoid American labor rules and costs, of course — almost all manufacturing companies that want to survive, let alone thrive, have to reduce production costs and standards by making their products elsewhere.)

The bottom line is that iPhones and iPads cost what they do because they are built using labor practices that would be illegal in this country — because people in this country consider those practices grossly unfair.

That's not a value judgment. It's a fact.

So, next time you pick up your iPhone or iPad, ask yourself how you feel about that.

By Henry Blodget

Apple audits unveil child labor, slave labor & more at supplier plants

Apple has released a list of hardware component suppliers (and many of their human rights and environmental violations) as part of its 2012 Supplier Responsibility Progress Report.

This list, the company says, accounts for more than 97 percent of its of Apple’s procurement expenditures
for materials, manufacturing, and assembly of iPads, iPhones, iPods, MacBooks and various other personal computing products worldwide.

In this year’s report, Apple says it conducted more audits of manufacturers than ever — 229 audits altogether for various partners along Apple’s supply chain. The number of audits represents an 80 percent increase over audits conducted in 2010 and includes more than 100 first-time audits.

While the company says it has educated more than a million employees at Apple’s manufacturing partners around the world about worker’s rights, on-the-job safety and more, the audits unearthed some ugly facts about the companies making iDevice components.

In Chinese partners, Apple’s investigations found issues with payment of workers, benefits for workers and environmental practices. Some suppliers were found dumping wastewater at a farm near the plant, using unsafe machinery, forging payroll records and even administering pregnancy tests to some workers.

Perhaps most troubling of all from a human rights perspective is the continuing instances of child and involuntary labor in Apple’s supply chain. Although Apple says it maintains a a zero-tolerance policy for such labor and that the 2011 audits found that instances of child labor “were down significantly,” the company can only verify that no underage workers were found at final assembly suppliers.

“I would like to totally eliminate every case of underage employment,” Apple CEO Tim Cook told reporters.

“As we go deeper into the supply chain, we found that age verification system isn’t sophisticated enough. This is something we feel very strongly about and we want to eliminate totally.”

In a email sent today to Apple staff, Cook wrote, “We are taking a big step today toward greater transparency and independent oversight of our supply chain by joining the Fair Labor Association.

“The FLA is a leading nonprofit organization dedicated to improving conditions for workers around the world, and we are the first technology company they’ve approved for membership. The FLA’s auditing team will have direct access to our supply chain and they will report their findings independently on their website.”

While Apple certainly seems to be trying to tackle these overarching issues of international business and manufacturing, we are nevertheless disturbed at many of the things we’re reading in this report. After all, 78 percent compliance with involuntary labor requirements still means 28 percent noncompliance, which translates to coercion and debt bondage being part of how your your iPhone was made.

Still, all our electronics come from plants such as these. At least Apple is making an effort to be transparent about this process, to find violations, to correct those violations, and in some cases, to stop doing businesses with companies that consistently ignore human rights and environmental regulations.

Here are some other highlights of the report, as well as some graphs we created showing percentage of compliance, based on data from the report:

Overwork


93 facilities had records that indicated more than 50 percent of their workers exceeded weekly working hour limits of 60 in at least 1 week out of the 12 sample period. At 90 facilities, more than half of the records we reviewed indicated that workers had worked more than 6 consecutive days at least once per month, and 37 facilities lacked an adequate working day control system to ensure that workers took at least 1 day off in every 7 days.

Inadequate pay


42 facilities had payment practice violations, including delayed payment for employees’ wages and no pay slips provided to employees. 67 facilities used deductions from wages as a disciplinary measure. 108 facilities did not pay proper overtime wages as required by laws and regulations.

Slave & child labor


Two facilities were repeat offenders in the category of involuntary labor. Apple’s report states, “We terminated business with one supplier and are correcting the practices of the other supplier.”

[In] 15 facilities… we discovered foreign contract workers who had paid excessive recruitment fees to labor agencies… Some of our suppliers work with third-party labor agencies to hire contract workers from countries such as the Philippines, Thailand, Indonesia, and Vietnam. These agencies, in turn, may work through multiple subagencies in the hiring country, the workers’ home country, and, in some cases, all the way back to the workers’ home village. By the time the workers have paid all fees across these agencies, the total cost can equal many months’ wages, forcing workers into debt…

We discovered a total of 6 active and 13 historical cases of underage labor at 5 facilities. In each case, the facility had insufficient controls to verify age or detect false documentation. We found no instances of intentional hiring of underage labor.

Health & safety


126 facilities did not have the appropriate administrative documentation or approval for at least one item in the health and safety protocol. Examples included workers who performed certain tasks without the legally required licenses, expired elevator permits, and lack of labeling of maximum load for shelving. 78 facilities had at least one instance where a workstation or a machine was missing the appropriate safety device such as a gear guard, pulley guard, or interlock. 58 facilities had workers who were not wearing appropriate personal protective equipment (PPE), such as earplugs, safety glasses, and dust masks. In some instances, the facility had not provided the appropriate
safety equipment. In others, the workers neglected to use the equipment or were using it improperly. Also, 72 facilities lacked procedures for PPE management.

Next Story:

How Business Ideas Get Stolen

I am often asked do I need a trademark for my slogan? Can I patent my idea? How do I keep others from copying seminar materials that I have written? Well, here’s a primer for what all small business owners should know to protect their valuable intellectual property assets. 
 
First, you need to know what the various forms of intellectual property are and how they can help you protect what is yours.

Trademarks are your brand identifiers. They tell consumers who produced the product (e.g., Coca Cola used for soda) or who is providing the service (e.g., McDonalds for restaurant services). They can include any word, name, symbol, or device, or any combination used, or intended to be used, in commerce to identify and distinguish the goods or services of one manufacturer or seller from goods manufactured or sold by others, and to indicate the source of the goods. In short, they are the way the consumer identifies what they are buying and who is providing the goods or services behind what they purchase.
 
Patents, generally speaking, protect inventions that are useful, original, and an improvement upon an existing machine or invention. Today they can be used to protect everything from new and unique computer components to specially engineered geniuses of plant species. There is even a statute that allows for the protection of unique manners or inventive manners of transacting business know as a business method patent. So the easiest way of thinking about patents is that they protect inventions.
 
Copyrights protect original works of artistic expression including literary, dramatic, musical, artistic, and certain other intellectual works. They include protection for books, articles, music, lyrics, plays, screen plays, scripts, dance routines, works of art, statutes, movies, television broadcasts, albums, CDs, and even components of a web site. A copyright gives the author of the work at issue the exclusive right to reproduce the artistic creation.
   
At this point most people ask what do they need to do to protect their trademarks, patents, and copyrights from others using the same without permission (i.e., infringement). The answer depends.
 
Trademarks generally exist from the moment you start using your trademark in commerce or interstate commerce.  Registration with the U.S. Patent and Trademark Office is not required to acquire trademark rights but it is highly recommended to deter others from infringing upon your trademark and quite useful should you ever be required to enforce your rights in the same.
 
Patents are a creature of statute and must be registered with the U.S. Patent and Trademark Office to receive protection.
 
Copyrights are, to some degree, for registration purposes, are a hybrid between patents and trademarks. Copyright protection exists in a protected work from the moment the work is created. However, in order to enforce a copyright it is generally the rule that a copyright registration from the U.S. Copyright Office must first be attained.
 
And there’s a brief overview of the distinctions between the three major forms of intellectual property protection all small business owners should be aware of to protect their business’s intellectual property assets. As always, if you have further questions on the same a qualified professional specializing in the specific area in which you seek information should be consulted.

Is Apple Using Patents to Hurt Open Standards?

Opera developer Haavard Moen has accused Apple of repeatedly using patents to undermine the development of web standards and block their finalization.

World Wide Web Consortium (W3C), the industry group that governs and oversees the development of web standards, requires that every specification it approves be implementable on a royalty-free basis, barring extraordinary circumstances that justify an exception to this rule. The specifications can contain patented technology, as long as royalty-free patent licenses are available.

Members of W3C—a group that includes representatives from Apple, Microsoft, Google, Mozilla, and Opera—are required to disclose any patents that they hold that are relevant to each specification. Depending on how far the specification is through the standardization process, they have between 60 and 150 days to make this disclosure.

If royalty-free licensing is available, the specification can proceed as normal. Participation in the development of a particular specification obliges W3C members to offer royalty-free licensing for technology used in that specification. Nonparticipants can also voluntarily offer a royalty free license, but they are not obliged to.

If, however, there is no commitment to offer royalty-free licensing for the patents in question, a Patent Advisory Group (PAG) is formed. The PAG will then assess whether the patent is truly applicable to the specification, and if so, how best to address the issue. The PAG might then seek prior art to invalidate the patent, or it might recommend that the specification be modified, to work around the patent. It might even advise abandonment of the specification. Only in exceptional circumstances will it decide that the specification should stand, in spite of the lack of royalty freedom.

Without an appropriate patent grant, browser vendors—whether open source or proprietary—cannot implement the specification without opening themselves up to a lawsuit. Such specifications would be, at best, an extremely risky proposition for anyone seeking to develop a browser, and none of the major browser vendors would even consider implementing a specification with known unlicensed patents.

Haavard identifies three separate occasions, twice in 2009, and again in 2011, where Apple has disclosed patents and not offered royalty-free licensing. In the first 2009 patent claim, Apple said that it had a patent covering W3C’s “widget” specification. A PAG was formed, and determined that Apple’s patent was not relevant. In the second 2009 claim, Apple claimed to have two patents covering W3C’s widget security specification. A PAG was again formed. It decided that one patent was not relevant, and the other didn’t apply. With both 2009 claims, Apple waited until the last minute to disclose its patents.

Touch Events

This time, Cupertino is claiming to have three patents, and an application for a fourth, that cover some of W3C’s touch event specification. This time the disclosure was made with about a month left to go. Again, the lack of royalty-free licensing means that a PAG is likely to be formed.

This in turn will delay the development of the specification and cost W3C members further time and money. The PAG process is not quick; the widget security PAG did not deliver its verdict until October of this year.

Haavard’s conclusion is that there is a pattern of behavior here; that Apple is trying to disrupt the standards process with its patent claims. He references the touch specification in particular—this is plainly an area where Apple has lots of expertise and interest in the technology, but the company opted out of working on the specification. If Apple had worked on the specification, it would have had to disclose sooner and offer licensing, and Haavard believes that avoiding this commitment is why Apple refused to work on the specification.

Apple’s is acting within its rights. W3C obliges members to disclose patent claims, and Apple is duly disclosing them. However, it’s easy to be sympathetic to Haavard’s argument. The two prior PAGs that resulted from Apple’s refusal to offer royalty-free patent licenses delayed and inconvenienced W3C, but ultimately on both occasions the groups decided that Apple’s patent claims were irrelevant. If Apple was hoping to keep some technology to itself, it did not succeed.

Moreover, W3C doesn’t require patent-holders to give up their competitive advantage. It’s acceptable to W3C for the royalty-free patent licenses to only cover implementations of the W3C specifications; if Apple wants to permit the royalty-free use of its touch patents in HTML5 browsers, but nowhere else, this would be an option. Such terms would allow browsers to implement the standard but still keep the technology off-limits to, for example, Android. But Apple did not offer such terms before, and so it seems unlikely that it will offer such terms this time.

Further, the only likely result of this is that Apple’s patents simply get worked around. W3C’s aversion to royalties means that it’s unlikely that it would accept any non-free license (should Apple even offer one), and the importance of touch input to phones and tablets means that W3C is unlikely to abandon the specification altogether. There’s no win possible for Apple—just wasted time and money for those seeking to make the web a more effective, more open platform.

Indeed, the result might even constitute a loss for Apple; the prior art that PAGs can uncover could jeopardize the patents themselves. The PAG subjects the patents to a certain amount of scrutiny—scrutiny that could be avoided through provision of a suitable license.

Apple has thus far not responded to our request for comment.

Apple’s work on WebKit and with W3C has undoubtedly helped the web community. But actions such as this show the company’s approach to standards and intellectual property is, at best, inconsistent, and and worst downright unhelpful: if open standards and Apple’s IP interests conflict, it’s the IP interests that win out. This may be good for Apple, but it’s bad for the open web.

Apple Made A Deal With The Devil (No, Worse: A Patent Troll)

Over the last two years, Apple has been engaged in vicious legal battles over smartphone patents, many of which are aimed at squelching (or squeezing money out of) manufacturers of devices running Android. And now, for some reason, it has given valuable patents to a patent troll — which is using them to sue many of the top technology companies in the world.

Meet Digitude Innovations, a firm based in Virginia that recently filed suit with the International Trade Commission alleging patent infringement by technology companies including RIM, HTC, LG, Motorola, Samsung, Sony, Amazon, and Nokia (note that Apple is not on this list). The ITC is a favorite for companies litigating over mobile phone patent disputes, as it can block the import of products long before a case has actually concluded.

Digitude was founded in 2010 and raised $50 million from Altitude Capital Partners, with aims to “acquire, aggregate, and license key technology areas within the consumer electronics and related technology fields in a patent consortium” — in other words, it buys up patents and then sues other companies until they settle and agree to pay licensing fees, because it’s generally less expensive than actually going to court.

From a Forbes article this past June:

Digitude is a new kind of patent investment vehicle because it seeks to team up with strategic players that can invest in Digitude not with money, but by contributing patents. The contributing entity would then get a license for all of Digitude’s patents, [Digitude Chairman Robert] Kramer says.

In April, Digitude announced the “completion of its first such strategic partnership with one of the world’s leading consumer electronics companies” — which it didn’t name. The company later announced that additional (unnamed) parties have jumped on board as well, who will receive a portion of Digitude’s proceeds based on the value of the IP each party contributed.

Apple appears to be one of these participants, and may be the unnamed leading consumer electronics company that Digitude boasted about this past spring. Of the four patents that Digitude included in its claim this week, two were owned by Apple earlier this year, before they were transferred to Digitude.

The patents in question:

USPTO #6208879 — Mobile Information Terminal Equipment and Portable Electronic Apparatus

USPTO #6456841 — Mobile Communication Apparatus Notifying User Of Reproduction Waiting Information Effectively

In both cases, Apple transfered ownership of the patent to a company called Cliff Island LLC, which in turn transferred it to Digitude Innovations. In fact, Apple has transferred a dozen patents to Cliff Island LLC this year (though only two of these were named in this ITC suit).

You probably haven’t heard of Cliff Island LLC, because it appears to exist in name only. There is a next to no information about the company available online — though the patent filing does include an address: 485 Madison Avenue, Suite 2300 in New York City.

I was unable to find a phone number for the company, so I attempted to pay a visit to their office, only to find that it doesn’t appear to exist. But there are other tenants on the twenty-third floor of 485 Madison. One of which is Altitude Capital, the same IP-focused private equity firm that happened to lead Digitude’s $50 million funding round.

Put another way, Apple appears to have transferred its patents to the patent troll Digitude, though it first routed them through a shell company that shares the same office as Digitude’s lead investor and Chairman. Further evidence of the relationship between Apple and Digitude can be found on the ITC’s own website, where a list of files relevant to the lawsuit can be found. Many of these files are marked confidential, but it appears someone mistakenly left the file names intact. One of which is “Digitude-Apple License Agreement” (see screenshot below).

So what is going on? There are a pair of scenarios that seem plausible — though both of them are strange.

The first is that Apple is using Digitude as a hired gun of sorts in its patent offensive, giving the company valuable patents to wield against its opponents (while avoiding the waves of press that are spurred by each new lawsuit). But Apple hasn’t exactly been quiet about suing its rivals over smartphone patents, so it’s not clear what they’d gain from this.

The alternative is that Apple has given some of its patents to Digitude because the patent troll came after it first. The dozen patents Apple has handed over may have been part of a settlement with the firm, along with the license agreement (which would presumably give Apple the rights to its patents, and additional Digitude patents). This seems more likely.

But even if Digitude shot first, so to speak, it’s still hard to see Apple in a positive light here. This is Apple we’re talking about. The idea that the company didn’t have any options other than handing over valuable patents to a patent troll — knowing full well that it would then use those patents to sue other tech companies — seems ludicrous.

I spoke with Julie Samuels, Staff Attorney at the Electronic Frontier Foundation who focuses on patents, who points out that in some cases certain companies will sell their patents to other parties when they’re under financial stress. But Apple clearly doesn’t fall into that bucket.

If Apple were deliberately aiding Digitude, Samuels says “it would be horrifying — the patent troll problem is completely out of control. Apple has every legal right to sue over its patents, but it should be the one to do it”.

And if Apple was indeed threatened first by Digitude, and only handed over its patents as part of a settlement, she says she “cannot imagine any reasonable scenario where Apple didn’t have any other options”.

Both Apple and Digitude declined to comment.

Also, oddly, Digitude Innovations had a website as recently as December 4, but it apparently took it down in the last few days.

Should I or Shouldn’t I? (start a business)

I cried the first day I was an enterpreneur. I left my great job at HBO to full time become CEO of the business I was running on the side. I suddenly went from working 30-40 minutes a day to working 22 hours a day.

The first day I was there fulltime, I got the word: the $900,000 I thought the Wu-Tang Clan was going to pay us to do websites was out the window. Maybe it was never there. Ugh. And then Tupac’s manager laughed me out of his office. I was a failure on day one. I cried over a slice of pizza. It was salty. When I was leaving HBO my boss there told me, “be careful, once you leave here nobody will  return your calls anymore.” And he was right. I suddenly had to enter a world of failure, flexibility beyond anything I had encountered, bribery, psychology, and the depths of human despair that I didn’t know existed.

In other words: the real world.

Here’s what I hated about being an entrepreneur: human beings. Most of them suck. Most customers lie to you, for instance. Every customer has the bait-and switch technique: ” if you deliver this to us at this cheap price then, BELIEVE ME, there is a lot more business where that came from.”  And that’s before they start asking for bribes. In one form or other, 80% of customers ask for a bribe.

Investors are no good either. “We’re going to add a lot of strategic value.” That’s a euphemism for: when things are going bad we are going to do a down round, ratchet you out of all your shares through dilution, and probably kick you out and bring in a real senior manager. Who will eventually implode the company. Thanks.

Employees are no good either. For one thing, they sleep with each other. And you have to keep track of it. W is sleeping with X. M is sleeping with Z. It’s like a messed up chart on a white board. Yeah, yeah, there are rules and laws for all this sort of thing. But the bottom line is: if I’m going to keep W from going into an alcoholic frenzy where he disappears for days at a time instead of working on the American Express project then I’m the one who takes the heat. But at the same time, W is happy this second because he’s having sex with X. I mean, who wouldn’t be?

My competition.  I was once running a company where I built websites for other Fortune 100 companies. I had a competitor, Interactive 8. The CEO kept calling me one time but I never returned his call. Two things: I was busy. And I’m horrible at returning calls. It was hard enough for me as a kid calling a girl and asking her out on a date. Now I have to call the CEO of my competitor? Who invented this phone thing anyway.

So one time, though, we ran into each other on the street. And he told me a story. It was like a parable and he was jesus. He told me about the CEO of Toys R Us. He called the CEO of Toys R Us and left a message. Within an hour the CEO was calling him back from his private jet. “Good CEOs return calls,” Bill told me. Go F yourself.

Acquirers. My first company got bought by a company doing a rollup. I stayed a year. By the time I left, the writing was on the wall. Junior high school students were learning how to make websites. You could no longer charge one million dollars to do a website.

(PS. This is no joke. One time I called a competitor of mine, Avalanche (later acquired by Razorfish) and, as an experiment in being annoying,  I said I wanted a two page website done for my wedding. They said, “uhh, we usually don’t do those”. But I persisted. I said I had to have this website done but I didn’t know how to do something called “H-T-M-L”.  They said ok, “but our starting prices are around a million dollars for something like that.”

So like I said, the writing was on the wall. And it wasn’t pretty writing. It was like bad graffiti. We’re not talking Banksy here. We’re talking how when I was three years old and wrote curse words all over my neighbor’s windows and then went home after she caught me and called my parents and my dad beat me silly.

So I stayed a year and tried to leave. The chairman of the company called me into his office. He said, “When you acquire a company, it’s the closest legal thing to slavery we still have in this country and I can prosecute you to the fullest extent because of that.” Really? Go F yourself also.

Money: Starting a business requires money. Spending it out of your own checkbook. Getting from your family. Then your friends. Then pitching VCs. Then, on occasion, losing it for everyone, including yourself. That’s so unpleasant. What if you were about to have a kid? What if your friends or family were about to have kids? What if the VC killed himself when he found out. Money is a hard thing to earn, to keep, to love, and easy to spend and lose. I’m sorry to everyone, particularly my kids.

Here’s what I liked about it:

-          Employees:  When I was younger I used to call my parents once every few days and tell them all about whatever job I was in. I’d be proud if my boss said something good to me. I’d feel good about my accomplishments.  I wanted all ofmy employees to be able to call their parents at the end of each day and tell them how great their day was, how much they were learning, how much room for advancement there was, how their bosses were thinking of their futures. If you lay out for your employees the future they have in front of them, even if it means they eventually go and start another business, then they will ultimately kill for you.

-          Customers: I loved doing a good job. I liked delivering a project and the client saying, “this is amazing.” There’s a trick to doing this. And most startups do not pay attention to this trick although it is critically important. Do everything you said you were going to do. And then do ONE MORE THING. Anything. One extra button, one new feature, one thing that surprises. In every business I ever started I would do this. Believe it or not, even for my fund of hedge funds. With every single investor, I’d try to find them a girlfriend, with investors who were having down months I’d call them and try to cheer them up (as long as it wasn’t my fault!). These investors became like family.

-          Acquirers. I loved acquirers. They give you money. I’m still close friends with everyone who has ever bought a company of mine, incuding the guy I mentioned above who talked about slavery. If someone gives me money, I stay loyal forever. I’ve seen many examples of people screw over their acquirers. But loyalty is one of the most important attributes you can have in a short life. And loyalty has many benefits that will occur over and over again. Try it and you will see. But it takes time.

-          The network. When you run a business you ultimately meet many people. I can tell you over the course of being an entrepreneur now for about 17 years that the network increases in value exponentially. And it never goes away. No matter how many times I’ve disappeared. Or not returned phone calls. Or have been lying in the gutter with a needle sticking out of my elbow, the network always returns to pick me up. The key is: never speak badly about anyone. Even the people above who I said “Go F yourself” know that I’m kidding and are still parts of my network. I know too many people who ignore this critical rule: never speak or even think badly about someone else. Eventually, if you do, it will have negative consequences.

-          Money. When you create something that has value, that people use, where the employees are happy coming to work every day, where the clients are singing your praises, where investors are beating your door down and you don’t want to even take their money, where acquirers are calling every day, where business or site usage, or customers are increasing every day. It feels good. And that goodness is compensated. You either make more money from your company or your company gets sold and you make money. It might mean you are a slave for a little bit for the new company. But your kids have a better chance of not being homeless. This is a good thing.

Perhaps the most important thing: the myth of corporate job safety is over. You will ALWAYS make more money hustling your own way if you have the ability to bounce back from the non-stop failures along the way. No Fortune 500 company will care for you the way you will care for yourself.

One more point: if you are leaving a corporate job  to become an EMPLOYEE at a startup you need to do even more due diligence than if you were considering investing cash into a startup. You are investing YOUR LIFE into the startup. So at the very least, check the boxes on the below, quit your job, and then get down on your knees and pray to whatever god you subscribe to:

  •           Talk to clients. Are they happy?
  •           What’s the backgrounds of the heads of sales?
  •           Has the CEO built andsold a business before and taken care of his employees in the process? (this won’t get you into the next Facebook and Google but it will save you a lot of grief overall)
  •           Does the company have at least 1 year’s cash.
  •           What are plans for future rounds of fundraising?
  •           Who are the current investors on board? Do they have deep pockets to keep funding the company?
  •           Is the company squarely positioned in what you feel is a strong demographic trend?
  •           Has the company proven its flexibility (i.e. has it already had a chance to learn from its mistakes)

Why Smartphone Commercials Are Making Us Stupid

It’s the most wonderful time of the year.

Legions of nine-to-fivers stare idly at their office monitors, pretending to work in the few short hours before going on holiday. Dysfunctional families assemble for awkward turkey dinners. And, of course, all of the consumer electronics companies ramp up their ad campaigns to lure in the tired, poor and hungry masses of seasonal shoppers.

Yet, sadly, by the looks of all the smartphone commercials coming out, it seems advertising companies consider us idiots. Instead of smart, Super Bowl-quality ads, we’re forced to watch ridiculous dreck, often featuring more hype than actual product. Why?

Well, most obviously, dreck has been a mainstay of the ad industry since the days of Mad Men. It’s about selling an idea, not a product. Still, with these most recent commercial debuts, we’ve reached a new low.

Here are a few of this season’s most egregious offenders.

Samsung’s Hit Piece on Apple Fanboys

In a certain light, we see what Samsung is trying to do here, and it’s a noble stab at being clever. Take all of the fervor reserved for Apple product releases and poke fun at the adoration, especially when the last iPhone release was so similar to the one previous.

On the other hand, the commercial barely even features the actual advertised product, Samsung’s Galaxy S2. Instead, the company is preoccupied with making fun of Apple fans, thus losing the chance to show off the phone’s nifty features. It’s mentioned in passing that the phone has a big screen and is fast. And then the ad spot moves on to more Apple mockery.

I’ll admit, the swipe at the Apple-loving barista at the halfway point had me cracking up. Take that, snooty latte-drinking art lovers!) And I love a good dose of company quarreling.

But when you’re embroiled in major copyright infringement litigation with the company you’re mocking — especially when that litigation focuses on how often you seem to be ripping said company off — it’s hard to take your jabs seriously, Samsung. Oh, and by the way — nice new white Galaxy S2 release.

Apple’s Ad Featuring Pointless Questions for Siri

The more I see it in practice, the more a Siri-reliant world frightens me.

Is it not an exercise in futility to ask if it’ll be chilly in San Francisco? When you’re sitting and staring at cars in front of you, is it truly necessary to ask Siri if there’s traffic in this area?

And, honestly, if you really need to ask how many cups are in 12 ounces, you probably shouldn’t be baking in the first place. Or be allowed near an open flame.

Don’t get me wrong: Half the charm of Siri is found in the novelty of asking the virtual assistant questions. But after the novelty wears off, will we continue to ask her easily answerable questions? Will the cutesiness of a pocket-portable version of Google wear us down to the point where we cease pondering, and start Siri-ing?

I hope not.

Amazon’s Kindle Fire Fail

I know it’s a tablet and not a smartphone, but Amazon’s latest Kindle spot bugs me.

It doesn’t matter that the commercial is aiming to depict that nice feeling you get upon receiving a surprise gift in time for Christmas. No, the real takeaway here is that any mailman who leaves a package filled with relatively expensive electronics equipment on the front porch of an urban Brownstone deserves to be fired. No way in hell that package sits there for more than 20 minutes without getting swiped.

And, just how did our protagonist jump online so quickly? Does her Wi-Fi reach her doorstep? Does she even know her password string by memory? Because, no, the Kindle doesn’t come with 3G support for internet-nearly-everywhere connectivity.

Oh, wait, it’s a flawed, laggy Kindle Fire. No one will be stealing that.

Motorola’s “Payload” Commercial for the Droid Razr

This commercial is almost too stupid for words.

A full 51 seconds of the ad is concentrated on a low-budget version of some Michael Bay flick, followed by nine seconds of video of the actual phone for sale.

And, of course, the phone is held up on all four of its sides with spears. Because it’s the Razr. Get it?

You’d think the company would have learned from its past horrible ads for Droid products. When the Droid Bionic came out, the first ad featured 60 seconds of a Lara Croft-meets-Blade Runner face off. Zero phone screen time.

Seriously, Motorola, no matter what sort of mini-saga you play out on screen, I’m not going to be inspired to buy your phone unless you actually tell me what the product is.

Samsung grows ever bigger, but icon status elusive

via:usatoday

If you own a consumer electronics gadget, there's a good chance something from Samsung makes it tick.

The company has traveled far from its roots as a seller of cheap appliances in the 1970s and 1980s when South Korean products were more likely to be panned than praised internationally.

Over those decades it has grown to become the world's biggest manufacturer of memory chips and LCDs — key components that let PCs, digital music players and smartphones store data and display it on flat, high-resolution screens. And they are inside the company's own finished consumer products such as its top selling TVs and No. 2-ranked smartphones.

But Samsung still has a perception problem. It may be massive and its products known for high quality, but it has yet to mesmerize consumers. The idea the company is a follower, not a leader, risks being cemented by the global intellectual property battle that was ignited when Apple Inc. began legal action in April against Samung for what it says is uninhibited copying of its iPhone and iPad designs.

Sue Chung is someone Samsung should be winning over. Young, Korean and studying for grad school, she uses Apple's iPhone for reasons including ease of use and a positive feeling about its maker.

"The image is very important," she said, sitting in a Seoul coffee shop. "Apple's image is very free and more open."

Within South Korea— a searingly ambitious nation that obsesses over its international standings in anything measurable — pride in Samsung's achievements is leavened by comparisons with Apple and its quarter century of game-changing products such as the Macintosh computer and iPhone.

If Samsung Electronics Co. is to live up to the vaulting ambitions of its homeland and its top executives, many feel it must move beyond being a highly efficient imitator to creating products so original and seductive in function and design they become icons of consumer culture. Being big alone no longer cuts it.

Illustrating Samsung's heft, its net profit last year was more than five times the combined earnings of Japanese rivals Panasonic Corp., Sharp Corp., Toshiba Corp., Hitachi Ltd. and loss-making Sony Corp. Total sales in 2010 came to a company record of 154.6 trillion won ($136.6 billion), making Samsung the world's biggest technology company by sales.

Yet even bigger dividends can come from vision such as that possessed by Apple's Steve Jobs or Akio Morita, the late co-founder of Sony, which popularized music-on-the-go with the 1979 introduction of its Walkman music player.

Apple has a market capitalization of about $350 billion, while Samsung, which has seen its share price slump 11 percent this year, is worth much less — about $105 billion.

Tony Michell, a Seoul-based business consultant and author of a book on Samsung, said that the company's dilemma is how to take advantage of its deep well of domestic brainpower.

"Koreans are immensely creative but their traditional culture of hierarchy doesn't let them be creative," he said. "And so Samsung has this problem that it has at the moment: a heavy cultural conservatism which is preventing full creativity."

The intellectual property battle under way with Apple has highlighted one of the perils of playing catch-up.

The Cupertino, California-based Apple, which spurred the smartphone boom with the launch of its iPhone in 2007, slammed Samsung in April by filing a lawsuit in the United States alleging the product design, user interface and packaging of its Android-based Galaxy brand of products "slavishly copy" the iPhone and iPad.

Suwon, South Korea-based Samsung, which supplies key components such as chips to Apple for its smart devices, has fought back with lawsuits accusing the U.S. company of violating its patents. The battle is playing out in 10 countries, according to Samsung, including the United States and South Korea.

A German court recently ruled in Apple's favor and banned direct sales of Samsung's new Galaxy Tab 10.1 tablet computer, saying it "did not keep the necessary distance" from the iPad 2 in its design, the news agency dapd reported. A court ruling in Australia on Apple's request to stop sales of the same tablet in that country is expected this week.

Samsung, meanwhile, has asked a Dutch court to prevent Apple from selling iPhones and iPads in the Netherlands, saying the U.S. company does not have licenses to use Samsung-patented 3G mobile technology in the devices.

A development sometimes overlooked amid the arguments over intellectual property is that Samsung, fueled by the Galaxy brand, is gaining fast in the rush to woo global smartphone consumers after a late start.

The company ranked No. 2 globally in smartphones behind Apple in the second quarter of this year, according to U.S.-based market research firm IDC, which cited the growing global popularity of the Galaxy S.

Apple shipped 20.3 million iPhones for a market share of 19.1 percent, while Samsung's results were 17.3 million smartphones and 16.2 percent market share.

Samsung and other manufacturers, however, are far behind Apple in tablets, where the U.S. company controlled 80 percent of the North American market in the second quarter, according to research firm Strategy Analytics.

Song Jaeyong, a professor of strategy and international management at Seoul National University Business School, says Samsung has excelled by being a "fast follower" — imitating or licensing technologies and then competing by lowering costs, improving quality and adding functions.

The company should "hire more outsiders and outcast figures" to spur "creative innovation," said Song, who co-authored a recent study of the company that appeared in the Harvard Business Review.

To be sure, Samsung has made efforts to bring in outsiders, with powerful Chairman Lee Kun-hee repeatedly urging creativity.

"Samsung actually is a great employer of foreigners at all levels," said Michell, the consultant and author. "But the Korean voice doesn't listen to the foreigners working inside enough."

American Michael Kim can attest to that. He says he was recruited to work at Samsung and did so in 2008 and 2009, serving as a senior manager in the semiconductor business.

"People at the top of Samsung want the company to become more innovative and not be perceived as the imitator that it has been perceived as for so long" but a rigid corporate culture works against that, he said.

"They would tell us that they want us to be change agents and that they want us to try to fix whatever we see that needs fixing," said Kim. "You're appreciated until you actually try to start changing things."

Kim said a hope for the company could be when the current crop of smart, talented younger engineers, who he says are discouraged from speaking up, advance into middle management where they can wield more influence.

Samsung disputed Kim's remarks, saying they "do not represent the views of former and current employees."

Lee Younghee, a senior vice president and chief of global marketing for mobile communications, the division that includes smartphones and tablets, concedes that if the definition of creativity is limited to Apple or Sony, then Samsung has lagged. But that is just part of the story, she says.

"Samsung has been leading," she said in an interview, referring to innovations in areas such as wireless communications technology, where it owns numerous patents. "Isn't that innovation?"

Ultimately, she said, the question of creativity will be judged by consumers.

"I think the market is fair and consumers are very fair," she said. "Consumers know what they want, they know what's the best. I think the consumer will answer to this."

 

Can Facebook become the Web?

via:cnn money

What began a few years back as a fringe festival for hackers — Facebook's f8 -- has turned into the de facto ground zero for anyone interested in helping build the infrastructure of tomorrow's internet.

Mark Zuckerberg took the stage today at f8, Facebook's sort-of-annual developers' conference, to the screaming affirmation of thousands of laptop-toting fanboys (and also a few women) and a live-streaming audience that surpassed 100,000. What began a few years back as a fringe festival for legit hackers has become ground zero for anyone interested in helping build the infrastructure of tomorrow's Internet.

What's changed? A year and a half after the last f8, where the "like" button debuted, Facebook has increased its users 40% to 750 million and eMarketer estimates it will double revenues to an estimated $4.27 billion. Zuckerberg has become the Robert Moses of his generation, building out not just an operating system for the web or a way to organize it -- but the web itself.

As expected, Zuckerberg unleashed a dizzying number of announcements: He introduced a redesigned profile called Timeline; a new way to bring applications into the Facebook experience; and, an evolved version of the "social graph" -- the web of personal relationships that users map out by connecting to each other. Perhaps most significant, the social graph lets businesses like music service Spotify or streaming site Netflix more deeply integrate their services into Facebook.

"Imagine expressing the story of your life," Zuckerberg explained. "If the original Facebook was the first five minutes [of a conversation] and the stream was the next 15, what I want to show you today is the rest--the next few hours of a deep engaging conversation." Expect Facebook, in effect, to become our living digital scrapbook and even, eventually, perhaps our fossil.

Zuckerberg spoke to an overflowing mass of entranced developers who aren't kidding when they pronounce "f8" as "fate." If his announcements seemed confident and disruptive enough to border on arrogance, consider that we've seen this two-steps-forward routine before: First, Facebook releases numerous significant redesigns and new features. Then, users cry foul, often voicing concerns over privacy. The company, finally, pulls back on its plan and makes tweaks while we all settle down and adjust, building out the new features quietly anyhow.

Anyone complaining about the redesign of the newsfeed earlier this week would do well to remember 2006 when a more youthful CEO rolled it out in the first place. A Facebook group called "Students Against Facebook Newsfeed" attracted 740,000 members and a website called for a daylong boycott of the site, causing Zuckerberg to issue his first letter of apology and alter privacy settings. But he didn't back down on the core feature and it became the backbone for the social web. Now, the newsfeed might as well be an institution. And so far, Zuckerberg's mad impulse to force feed us sharing tools has worked.

At the moment, it would seem there's not much competition over who gets to control (and make money from) all of this sharing and connecting. In June, Google launched its new social product, Google+, to great fanfare and attracted tens of millions of sign-ups right away, but three months after launch it's not clear people are actually using it. (The company just recently opened Google+ to the wider public, hoping for a surge of new users.) Twitter is growing fast, but its scope is more limited and it has had considerable organizational challenges. MySpace is, well, dead.

What's more, as sharing becomes the dominant paradigm for how information is discovered and passed on, augmenting and in some cases replacing traditional search, web sites that choose not to integrate with Facebook increasingly occupy overlooked corners of a shadow web. Those that embrace these tools early can gain competitive advantage; the lucky few that develop alongside the company as launch partners receive huge boosts. Daniel Ek, CEO of Spotify, took the stage alongside Zuckerberg to show off the music service's new super ap. The bullet points above his head read, "More music, more variety, twice as likely to pay."

As the web expands beyond our computers, this puts Facebook everywhere -- as the dominant interface to our lives. As CEO of large digital ad agency AKQA with clients like Audi and Nike, Tom Bedecarre is thinking about a future in which Facebook is available on our TV sets and in our cars (voice-activated, of course). Says Bedecarrre, "For large marketers, Facebook is becoming the web."

But it's not a given that the web belongs to Facebook. These new changes are significant enough that they are sure to inspire intense reactions from users who may feel overexposed or simply overwhelmed by so much change. (Recent incremental changes to the site's interface have already significantly changed the way the site looks.) The potential for competition isn't limited to large social properties -- any fast growing web property poses a threat. And that's if Washington doesn't step in at some point over privacy or concerns about competitiveness.

Maybe that's why, as Zuckerberg's audience grows, he makes more of an attempt at humility. He began this year's event by inviting Saturday Night Live Star Andy Samberg up to make fun of him. "How many users does Facebook have?" Samberg joked. "Even more people than claim they invented Facebook." It was self-deprecating. It was funny. For a moment.

Posterous theme by Cory Watilo