Bloomberg News

Facebook, EU Privacy, HTC, Zynga: Intellectual Property

December 02, 2011

(This is a daily report on global news about patents, trademarks, copyright and other intellectual property topics. Adds Star Scientific and Smith & Wesson in Patents, Paramount Pictures in Copyright, Zynga in Trade Secrets and Cigarette Warnings in Government Regulation.)

Nov. 30 (Bloomberg) -- Facebook Inc., the world’s biggest social networking site, agreed to settle complaints by the Federal Trade Commission that it failed to protect users’ privacy or disclose how their data could be used.

The proposed 20-year agreement would require Palo Alto, California-based Facebook to get clear consent from users before sharing material posted under earlier, more restrictive terms, the FTC said yesterday in a statement. It would also compel independent reviews of Facebook’s privacy practices.

“Companies must live up to their promises about privacy,” FTC Chairman Jon Leibowitz said on a conference call with reporters. The settlement “will protect consumer choices and ensure they have full and truthful information about their data.”

The settlement is part of an effort to resolve legal issues that could be a distraction as Facebook moves toward an initial public offering, said Francis Gaskins, president of Los Angeles- based IPODesktop.com, a Web site that tracks IPOs. Facebook is considering an IPO that would raise $10 billion and value the company at more than $100 billion, a person familiar with the matter said.

In a blog posting, Facebook Chief Executive Officer Mark Zuckerberg said the company should have been more vigilant in protecting users’ privacy.

“I’m the first to admit that we’ve made a bunch of mistakes,” he said.

The FTC is stepping up enforcement of privacy requirements at Internet companies and this year has settled complaints with Google Inc. and Twitter Inc.

Zuckerberg said the company already has addressed many of the FTC’s concerns. Yesterday he appointed Erin Egan, a former partner at Covington & Burling who specialized in data security, as chief privacy officer, policy, and Michael Richter, the company’s head privacy counsel, as chief privacy officer, products, Zuckerberg said.

The settlement, which the FTC’s commissioners approved 4-0, requires Facebook to establish a “comprehensive privacy program” and block access to a user’s account within 30 days of it being deleted, according to the FTC’s statement. The company also is barred from making any deceptive claims about its privacy practices.

For more, click here.

EU Privacy Watchdogs Will Get Powers to Sanction, Reding Says

Data-protection authorities in the European Union will be equipped with powers allowing them to levy similar administrative sanctions in their countries, the EU’s justice commissioner said.

In cases where privacy law “is seriously breached” some data protection authorities in the EU “are unable to do anything but address recommendations to the responsible data controller,” EU Justice Commissioner Viviane Reding said yesterday.

“I plan to strengthen the powers of data protection authorities so that they can all use administrative sanctions whenever there is a breach,” Reding said in prepared remarks of a speech in Paris. “As companies operate across borders in Europe, the data protection rules and their enforcement must be more consistent.”

Reding last year proposed an overhaul of the EU’s 16-year- old data-protection policies to address online advertising and social-networking sites. The law, which the European Commission intends to formally propose by February, may include stricter sanctions, such as criminal penalties, and the option for consumer groups to file lawsuits.

Patents

HTC’s Victory in FlashPoint Patent Case Upheld by Full ITC Panel

HTC Corp., the largest seller of smartphones in the U.S., won a patent-infringement case brought by FlashPoint Technology Inc. over digital-camera features.

The U.S. International Trade Commission backed a ruling from July that FlashPoint’s patent rights hadn’t been violated, and the agency denied the closely held licensing company’s request to halt sales of some HTC phones. Notice of the decision was posted online yesterday, and the full opinion will be made public after both companies get a chance to redact confidential information.

The dispute centered on technology related to how digital cameras work, including focus and flash settings, and automatic rotation of an image, according to Peterborough, New Hampshire- based FlashPoint’s complaint. An ITC judge in July said HTC phones that run Google Inc.’s Android system and Microsoft Corp.’s Windows Phone 7 weren’t infringing the patents.

The commission review centered on infringement of the patent covering the rotation of images and whether FlashPoint had met the agency’s requirements that the invention be in use in the U.S. The six-member commission has the power to block imports of products that violate U.S. patent rights.

LG Electronics Inc., RIM and Nokia had also been targeted by FlashPoint. They settled their cases before the July ruling.

HTC, which makes phones such as the Droid Incredible and EVO 4G that use Android, sold the most smartphones in the U.S. in the third quarter, according to market researcher Canalys.

FlashPoint, whose founders include former employees of Apple’s imaging business, said it developed its own digital operating system for cameras, and ceased research in 2007 to focus on licensing its patents.

The case is In the Matter of Certain Electronic Imaging Devices, Complaint 337-726, U.S. International Trade Commission (Washington).

Federal Circuit Denies RJR’s Request for Rehearing of Case

The U.S. Court of Appeals for the Federal Circuit in Washington yesterday denied R.J. Reynolds Tobacco Co.’s motion for a rehearing of a patent case brought by Star Scientific Inc.

The case stems from Star’s decade-long effort to extract patent royalties from Reynolds on a way to reduce carcinogens in cigarettes.

In August, the Federal Circuit upheld the validity of two Star patents. It didn’t overturn the infringement case against Reynolds that Star lost in 2009. Chief Circuit Judge Randall Rader said in the 2-1 opinion that a new trial wouldn’t change the outcome as “there was substantial untainted evidence before the jury to support a verdict of non-infringement.”

“These two patents, whose validity has been upheld twice by the Federal Circuit Court, also have been affirmed after reexamination by the U.S. Patent and Trademark Office,” Star Chairman Paul L. Perito said in a statement. "We view them as rock-solid, and we are considering all options to leverage their value as we move forward.’’

R.J. Reynolds Tobacco is the cigarette unit of Winston- Salem, North Carolina-based Reynolds American Inc., the second- largest U.S. tobacco company. Reynolds makes Camel, Winston and Salem brand cigarettes.

R.J. Reynolds is “considering our options in light of the court’s decision,” company spokesman David Howard said in an e- mail. “It’s important to note that the courts have found that R.J. Reynolds did not infringe on Star’s patents.”

The case is Star Scientific v. R.J. Reynolds Tobacco Co., 10-1183, U.S. Court of Appeals for the Federal Circuit (Washington).

European, Chinese Patent Offices to Speed Up Patent Translation

The European and Chinese patent agencies signed an accord that will speed up translations of patents in a bid to improve access to the offices’ information for researchers, scientists and inventors.

The European Patent Office and the State Intellectual Property Office of the People’s Republic of China agreed to cooperate to give access to a free Chinese-English translation service through the Internet by next year, according to a joint e-mailed statement yesterday.

“The agreement breaks new ground in the relationship between both regions in that it will bring the wealth of technology contained in patents to the fingertips of innovators on both sides, removing language as a delimiting factor,” said Benoit Battistelli, president of the Munich, Germany-based EPO.

The EPO isn’t part of the European Union and has 38 member countries. The EPO offers the closest thing currently available to an EU-wide patent.

Smith & Wesson Settles ITC Case over its Rifle Technology

Smith & Wesson Holding Corp. settled patent-infringement complaints it brought against Traditions Sporting Goods Inc. and Ardesa SA before the U.S. International Trade Commission. Traditions and Ardesa agreed to a multiyear license for muzzleloader-rifle technology made by Smith & Wesson’s Thompson/Center Arms unit, according to a statement yesterday. Terms weren’t disclosed.

For more patent news, click here.

Copyright

Campaign Against Fake Products Begun by Obama Administration

The Obama administration is starting a public education campaign to fight the purchase and sale of counterfeit and pirated products.

The campaign, announced at the White House yesterday, is aimed at highlighting the ways intellectual property theft, such as counterfeit pharmaceuticals and illegal Internet downloads, harm the economy and threaten consumer safety, according to a U.S. Justice Department statement.

“For far too long, the sale of counterfeit, defective, and dangerous goods has been perceived as business as usual,” Attorney General Eric Holder said in a prepared statement. “But these and other IP crimes can destroy jobs, suppress innovation, and jeopardize the health and safety of consumers.”

The campaign will include radio and print ads, online videos, podcasts and a television public service announcement.

Paramount Sued Over Profit on ‘Dreamgirls,’ ‘Transformers’

Viacom Inc.’s Paramount Pictures Corp. was sued by an investment group that said it put up $375 million to help produce 29 films including “Dreamgirls” and “Transformers” and claimed the studio has failed to share any profit from the movies.

The films have grossed almost $7 billion and Paramount has underreported revenue and overstated production and distribution costs for the films to withhold money from equity partners, Melrose Investors 2 LP said in a complaint filed yesterday in state court in Los Angeles, where Paramount is based.

Paramount, DreamWorks Studios, now known as DW Studios LLC, and Melrose entered into an agreement in 2006 under which Melrose would own as much as 25 percent copyright interest in as many as 30 movies in exchange for financing 25 percent of production costs, the investors said in the complaint, which also names DW Studios as a defendant.

Melrose alleges breach of contract and unfair competition and seeks unspecified compensatory and punitive damages.

Steven Rubenstein, a spokesman for Paramount, and Chip Sullivan, a DW spokesman, didn’t immediately respond to phone messages seeking comment.

The case is Melrose Investors 2 v. Paramount, BC474310, Los Angeles Superior Court.

SAS Should Lose Extended Copyright Bid, EU Court Aide Says

SAS Institute Inc. should lose a bid at the European Union’s highest court to extend copyright protection to the functions of a computer program, an adviser to the EU court said.

While the source code, or method, used by a computer program to achieve a certain result can be protected, the result itself can’t, Advocate General Yves Bot of the EU Court of Justice said in a non-binding opinion yesterday. The Luxembourg- based court follows this advice in a majority of cases.

World Programming Ltd. infringed SAS’s copyright by developing a system that copied the company’s manuals, SAS told the EU court at a hearing in September. The case seeks to clarify the scope of copyright protection where software copies the functions of a competing program without access to its source code.

“To accept that a functionality of a computer program can be protected as such would amount to making it possible to monopolize ideas, to the detriment of technological progress and industrial development,” Bot said in the advisory opinion. He left it up to a national court to decide whether WPL, in copying functionalities of the SAS system, reproduced a “substantial part” of the elements that are SAS’s own creation.

It’s the first time the EU’s top court has been asked to define the scope of copyright protection for computer software. The High Court in London in 2010 referred the case to the EU tribunal for guidance on how to interpret the region’s software and copyright laws. The court said WPL’s system didn’t breach SAS’s copyright.

Rulings by the EU court usually follow within six months of an opinion.

The case is: C-406/10, SAS Institute Inc. v. World Programming Ltd.

For more, click here.

China Seizes 250,000 ‘Illegal’ Compact Discs, Xinhua Reports

Chinese police seized more than 250,000 illegally made compact discs from a legally registered plant in Guangdong province, Xinhua News Agency said, citing the National Office Against Pornographic and Illegal Publications.

Police detained four people and seized seven production lines on Sept. 26, and an employee of the plant involved in the production of the discs was captured in Hubei province on Nov. 1, the official news service said. It didn’t say what made the discs illegal.

For more copyright news, click here.

For trademark news, click here.

Trade Secrets

Florida Company Targets Zynga in Trade Secrets Case

Hob Knob LLC, a Plantation, Florida-based company that develops social-networking applications, sued Zynga Inc. for allegedly misappropriating its trade secrets.

The lawsuit, filed Nov. 23 in federal court in Fort Lauderdale, alleges that Zynga, the biggest maker of games on Facebook Inc.’s site, entered into a non-disclosure agreement with Hob Knob before reviewing its technology. Hob Knob claims that Zynga, the creator of games such as Cityville, used the information to create Zygna Direct, which will allow users to connect with others without going through Facebook.

Lisa Chan, a spokeswoman for Zynga, didn’t respond to an e- mail and a call seeking comment on the lawsuit.

The case is Hob Knob Technology LLC v. Zynga Inc., 11- cv-62513, U.S. District Court, Southern District of Florida (Fort Lauderdale).

Technology

Smartphone App Rating System Proceeds Without Apple, Google

Mobile applications for smartphones and tablet computers may carry new ratings for violence and sexual content under a wireless industry-sponsored system awaiting backing from Apple Inc. and Google Inc.

Under the policy unveiled yesterday by CTIA-The Wireless Association, mobile apps for games and social networking will be rated for age-appropriate content on a five-point scale from “everyone” to “adults only.” The voluntary program will be operated by the Entertainment Software Rating Board, which has run similar ratings for computer and video games since 1994.

The app program is aimed at helping parents monitor children’s increasing use of wireless technology, an issue drawing lawmakers’ attention this year. About 52 percent of children ages 8 and under have access to mobile devices including smartphones and tablets, according to a survey of parents by San Francisco-based children’s advocacy group Common Sense Media.

“The mobile application rating system is easy for parents and consumers to understand while being simple, fast and free for developers,” Steve Largent, president of Washington-based CTIA, said at a news conference. He said the move helps avoid “unnecessary government regulation.”

Apple, maker of the iPhone and iPad, and Google, whose Android software is the most widely used mobile operating software in the U.S., aren’t taking part in the program and have their own ratings systems.

“We’ve put a lot of effort into Android Market’s rating system, which now works well globally,” Christopher Katsaros, a Google spokesman, said in an e-mail. “While we support other systems, we think it’s best for Android users and developers to stick with Android’s existing ratings.”

Tom Neumayr, an Apple spokesman, declined to comment. The Apple App Store currently offers 500,000 apps, while Google’s Android Market has more than 300,000.

For more, click here.

Government Regulation

FDA to Appeal Order Barring Graphic Cigarette-Pack Warnings

The U.S. Food and Drug Administration said it will appeal a judge’s order temporarily blocking rules requiring cigarette makers to put pictures of diseased lungs and other graphic images on packaging.

President Barack Obama signed the Family Smoking Prevention and Tobacco Control Act into law in June 2009, empowering the FDA to regulate the manufacture and sale of tobacco products. The cigarette makers asked U.S. District Judge Richard Leon in Washington to halt the rules, saying the requirement violates their free-speech rights.

Leon on Nov. 7 found that Lorillard Inc., Reynolds American Inc.’s R.J. Reynolds and three other cigarette makers challenging the measure were likely to prevail on their claims that the “mandatory graphic images unconstitutionally compel speech” and would cause them irreparable harm if not blocked.

The FDA, in a filing yesterday, said it would challenge that decision before the U.S. Court of Appeals for the District of Columbia.

The agency rule includes nine different images -- including a man exhaling smoke from a tracheotomy hole in his throat and a male cadaver with staples in its chest -- to be displayed on cigarette packages on a rotating basis, together with text warnings, the judge said.

The case is R.J. Reynolds Tobacco Co. v. U.S. Food and Drug Administration, 11-cv-1482, U.S. District Court, District of Columbia (Washington).

--With assistance from Jeff Bliss, Susan Decker, Eric Engleman, Sara Forden and Seth Stern in Washington; Stephanie Bodoni in Luxembourg; Douglas MacMillan and Joshua Fellman New York; Andrew Harris in Chicago; and Karen Gullo in San Francisco. Editors: Mary Romano, Stephen Farr

To contact the reporter on this story: Ellen Rosen in New York at erosen14@bloomberg.net.

To contact the editor responsible for this report: Michael Hytha at mhytha@bloomberg.net.


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