The Empty Threats of Trademark Bullying

Two instructive examples of trademark bullying this week:

The first comes from, of all people, the organizers of the South By Southwest music festival. Lawyers for SXSW sent a cease and desist letter to the makers of "lastsx.sw", an app designed to help users track down bands they'd like to hear at the festival.  

The second comes from serial trademark abuser Louis Vuitton group, which via its lawyers snottily objected to the marketing materials prepared by an intellectual property group at the University of Pennsylvania law school for a symposium on "fashion law."  Here's the (rather cleverly-done) piece that produced so many wadded panties at LVG legal:

The reactions of each group to this bullying will tell you a little bit about what's really behind these threats.  The young tech guys behind the app caved; Penn Law School sent back a sharply-written reply to LVG that might be loosely translated as "get bent."

This difference comes not only from the fact that Penn Law School is a) amply able to defend itself and b) full-to-bursting with lawyers, but also from a little secret good lawyers know:  that the vast majority of the time, threats like this are nothing more than empty bluster.  The attorneys writing these frothing missives have no intention of making good on them.  

Or to put in the parlance of the home of SXSW - they're all hat and no cattle.  They just want to scare you, to intimidate you into agreeing to their demands.  In the case of lastsx.sw, mission accomplished.

Most good attorneys I know will rarely send threatening letters.  They reserve them only for cases where there IS a real issue, and they and their client fully intend to follow through with a lawsuit.  Or they'll just file the lawsuit and then make their demand.  Unfortunately, there are many attorneys out there who can't control their clients, or who value the billable opportunity more highly than the overall outcome to their client, or who have found that the return on their empty threats is good enough to justify the cost to their reputations.

In my business, I deal with bullying attempts like this on a near-daily basis.  I've been threatened with a lawsuit over 300 times in the last few years. I've had claims made that ignore the First Amendment or other laws. Claims that flat-out make laws up. Claims of butthurt masquerading as defamation.  And claims, like these two, that argue for outrageous extensions of copyright or trademark law. 

I've denied every single one of them. Every attorney who wanted a profile, client review or rating removed and threatened a lawsuit to get this result got the same answer: No. 

How many of them sued after getting this disappointing answer? Zero.

Some attorneys just can't help but try to throw their weight around. But that doesn't mean you need to take them seriously when you're operating within your rights.

AT&T - T-Mobile Final Thoughts

Monday night, AT&T and TMO announced their $39B merger was dead.  The only surprise was that they did it so quickly; as I've written before, there was a real danger that egos would prevail and AT&T would distract itself by fighting a losing battle with the regulators rather than turning its attention to competing with Verizon.

I went on CNBC's Squawk Box Tuesday morning (sorry; no video link) to offer my thoughts on whether AT&T had made a bad bet.  I'll repeat and expand what I said there:  It was a risky bet - which is why TMO, advised by my former counsel at Wachtell, insisted on the mother of all break-up fees.  But it was a bet worth taking.

The good news for AT&T is that they aren't chasing here.  They can now turn to other options, whether it's acquiring DISH, buying spectrum or capacity from Clearwire, or doubling down on a wi-fi offload strategy.  None are ideal, but they've got to play the cards they were dealt.

Another topic that came up in my interview yesterday was whether scuttling this deal was good for consumers.  It's easy to see why it would be; TMO gets to keep playing to the low end, and there should be more price competition.  But that's also a facile and short-sighted point of view.

This timely WSJ article today touches on, at a high level, some of the fundamental economic headwinds that face U.S. wireless carriers.  It's a vast country, and providing the coverage, capacity and data speeds that consumers want is incredibly costly.  Carriers spent $25 billion on their networks last year.  Only AT&T and Verizon got a return on capital.  Think about that, and what it means over time for consumers.  We're paying for marginal price competition today with hobbled companies and under-investment tomorrow.  A cash-losing Sprint or T-Mobile can't innovate, can't bridge the "last mile" or the "digital divide", and will ultimately fail - leaving the monopoly or duopoly DC is so fearful of - if they can't afford to invest capital in their network.  

So no, the FCC and DOJ did consumers no favors long-term in preventing this deal.   It's time they updated the tools in their "preserving competition" toolbox for the reality of today's wireless industry.

AT&T & T-Mobile Reaching the Final Act

There was a terrific piece in the Washington Post at the end of last week, detailing AT&T's lobbying strategy and approach to win approval of its $39B acquisition of T-Mobile.  It's well worth a read, detailing as it does the combination of hubris and overreach that may have sunk the deal's chances.

The acquisition was a risky bet to begin with, but one takeaway for would-be acquirers must be this:  If you're going to tout social benefits (in this case, the creation of 100,000 new jobs) in your lobbying efforts, be prepared to back up your claim with the solidest of solid analysis.

Because if you can't, then the rest of your arguments - and make no mistake, AT&T had several good ones re the benefits of this merger - are going to suffer badly by association.  You'll have just handed those opposing your deal the club with which to smash your head in.

And today, AT&T has joined the DOJ in asking for a stay of the antitrust trial it had been so ardently pushing forward.  This no doubt foretells the deal being scuttled or significantly re-arranged.

Here's one vote for the former - I'd much rather see AT&T in full-throated competition with Verizon than distracting itself trying to put together a less-than-optimal deal.

AT&T, T-Mobile & Opportunity Cost

AT&T's acquisition of T-mobile is on the rocks, and it looks like things are going to get uglier before everything settles out.  As I mentioned in this CNN article, I'm convinced the deal is dead. My belief isn't driven by any particular dislike for this deal; in fact, I think it makes a lot of sense.  But it was a big gamble that regulatory approval would come through, and sometimes things don't work out.

The problem here is moving on crisply.  A major consolidating transaction is distracting enough; but trying to push one through the regulatory bog AT&T is facing?  The DOJ has sued to block the merger.  The FCC has referred the matter to an administrative hearing - a near-unheard of event.  AT&T has responded by taking its ball and going home, pulling back its transfer application in the hopes that it can refile once it works things out with DOJ.  All of this spells additional delay and uncertainty.  Neither AT&T or T-Mobile can move forward fully until the merger is resolved, one way or the other.  In the meantime, Verizon can keep taking market share steadfastly, not burdened down by distracting strategic considerations.

It's an object lesson in one of the dark sides of inorganic growth.  Yes, many mergers fail to deliver value.  But even those mergers that likely would work out can backfire if they take too long to consummate.  Company leadership may say all the right things about execution, but merger planning will consume resources and narrow strategic considerations for as long as the deal is pending.  Telecom mergers - with joint review via two separate federal agencies - are inherently time-consuming.  Combine that protracted merger with additional delay, a rapidly-changing industry and a tough competitor leading the market, and it's a recipe for disaster.  Doing a deal with T-mobile probably made all the sense in the world when AT&T drew it up a year ago.  But now that the knives have been drawn, and the best hopes for the merger have dimmed, AT&T must ask the hard question, and ask it soon:  does it continue to throw good money after bad?  For while AT&T is on the hook for a $4 billion breakup fee, there is a very real cost to letting pursuit of a merger prevent full-throated competition in the marketplace with Verizon.

Bethesda vs. Minecraft

It's been a while since I've posted about trademark bullying, but Christ, it seems like it's everywhere. Proctor & Gamble is fighting with a Connecticut mom over the name she's chosen for her line of soap for tween girls ("Willa") because it sounds kinda like P&G's "Wella" brand. I've got some nimrod attorney demanding "one . . . MILLION . . . dollars" for using his name on our site (it's, uh, a legal directory. Of lawyers.).

But my new favorite for sheer cluelessness is Bethesda games going after Markus Persson, the creator of Minecraft. Bethesda worries that Persson's new game, Scrolls, might be confused with Bethesda's "Elder Scrolls" line of games. Never mind that no one would ever confuse one of Bethesda's games for one of Persson's. Or that the "Elder Scrolls" is a simply a postscript to the title of each Bethesda game.

What's really appalling here is how Bethesda is letting its lawyers crush them.

Despite possessing god-awful graphics, Minecraft is popular beyond belief. Offering up an open world with no structured gameplay, it provides a level of depth and creativity not found in any other game. Millions and millions and millions of people have flocked to it. My son and his friends are obsessed with it.

By going after Persson (who goes by "Notch"), Bethesda has aligned itself against all of these millions of ardent fans. It doesn't matter if they win the court battle and get Notch to change the name of the game; they've already lost the PR battle.

And of course, they didn't need to do this. Their lawyers may have told them that they need to "defend their intellectual property." That's bunk. Walking through all of the options and the PR implications of taking this action - particularly against a small or well-loved business - has got to factor into the equation.

I was talking to a video game journalist (!!) a few weeks back who told me that many of the gaming companies are known for being ineptly run. One sure-fire way to be run ineptly is to listen too uncritically to your lawyers. We'll see how much it costs Bethesda to learn that lesson.

Reverse Synergies

Amazon’s acquisition of Woot! this past summer marked the all-time best letter from a CEO announcing his company’s acquisition, as well as the infamous “We Got Acquired by Amazon” sock puppet monkey video:



Lots of people love Woot; the attitude is fun and refreshing, and they DO have plenty of great deals. It’s not hard to see why Amazon saw an attractive acquisition opportunity.

One wonders, though, if the synergies analysis for the Woot acquisition included the impact on Amazon of having to remit sales tax in Texas (Woot is based in Austin). Because Texas just submitted a bill for $269 million. That’s a heckuva lot more than what Amazon reportedly paid for Woot.

In fairness, this is the culmination of a long-running dispute between Amazon and Texas over sales taxes. But owning Woot sure isn’t going to help Amazon’s argument that it’s not responsible for remitting Texas sales tax.

Whoops.

Vote on Oracle's Next Meal

The beast from Menlo Shores has an insatiable appetite, gobbling up companies large and small. Notables like Peoplesoft and Sun Micro have fallen to Larry Ellison's behemoth in recent years - so who's next?

Stephen Jannise, an ERP software analyst who follows Oracle, has taken a stab at answering that question, and invites your vote on who Oracle is likely to next set its hooded gaze upon.

Pfizer and "Compliance"

So Pfizer, which made a high profile GC hiring just a little over a year ago, has been slapped again for illegal marketing practices, agreeing to a $2.3 billion federal fine. That's brutal enough, but what interests me is one of the non-economic conditions the feds imposed on Pfizer (yes, it was a "corporate integrity agreement", but that's about as much an arm's-length contract as DOJ consent decree is).

Under this agreement, Pfizer's "chief compliance officer" must report to the CEO, not the GC. Now, given Pfizer's record, perhaps that's not such a bad idea; obviously, this is an organization that needs some additional focus on compliance. However, check out this quote from Lewis Morris, chief counsel for the inspector general's office:

"The lawyers tell you whether you can do something, and compliance tells you whether you should. We think upper management should hear both arguments."

Pfizer's issues aside, this is an awfully narrow view of how in-house counsel should behave. Good business counsel should be able to give risk-adjusted advice - that is, both what you can do and whether you should do it.

Ebay - Skype - Final Chapter

Almost 4 years ago to the day, I noted that "deal fever" had gripped Ebay and led it into an ill-fated $4.1B acquisition of Skype. 2 years ago, Ebay, took a massive $1.4B writedown on the acquisition, conceding that they had overpaid.

Today, Ebay announced the divestiture of a controlling interest in Skype in a deal that values the company at $2.75B. While the deal not working out is hardly shocking, it is somewhat surprising that Ebay was able to recover as much as it did, selling 65% of Skype for $1.9B in cash (of course, you can be sure that the private equity investors conditioned the deal on a long-term commercial relationship between Skype and Ebay; that deal may well include revenue commitments).

In any event, it's always good to see a little dealmaking discipline - even when it's cleaning up the mess that deal fever can create.

AP Fires First Salvo in Losing Battle

The Associated Press is taking the novel position that even minimal references to its articles require a licensing agreement with the news organization that produced the piece. By way of example, the AP noted that the use of a headline and a link would violate a news organization's copyright. This, of course, is what one sees regularly on Google News and other sites, including blogs. For example:

Gates Faults U.S. on Data Privacy and Immigration

From a business perspective, it's strange to see anyone take a position that discourages linking. Linking is the lifeblood of the web, and it's how people find your content, both directly and via the "authoritative" benefit a site gets from most links. And from a legal perspective, there's no question whatsoever that any content owner who tries to enforce copyright to prevent standard linking will lose.

What of the headlines themselves? Sure, a headline is "expression" for copyright purposes, but it's hard to see how a news source can escape a fair use argument, given that a headline is a small portion of the overall piece of journalism and doesn't create an economic substitute for someone referring to the original piece. In fact, the opposite is true. Headlines are written to attract reader interest in the article; linked headlines drive traffic from a search engine, blog, etc. back to the original source to read the full piece.

It should also be noted that news outlets have, since time immemorial, referred to each other. News organizations on the one hand create content, and on the other hand avidly rely on content created by others. How often when reading media do you see a reference like "The New York Times reported today that . . . " or "according a CNN report . . ."?

The AP, like a lot of other traditional media outlets, is flailing about as its legacy business model slowly loses air. However, it's easy to see how this particular battle will end – an overreaching lawsuit or two that leaves egg on AP's face without vindicating its position. It may also see Google show some news outlets what a world without links to their content would look like – I suspect they would quickly find that is far worse than the way things stand today.

Whole Foods - A Rare Post-Closing Consent Decree

I've dealt with divestiture trusts on several occasions, both as a buyer and as a seller of assets that federal regulators required to be sold under consent decrees authorizing mergers. While these sales are concluded after the larger deal has closed, the agreement and trust has always been established prior to closing.

So this is a first - Whole Foods, which bought the Wild Oats chain in 2007, has, over 18 months after closing the deal, entered into a consent decree with the FTC to sell the "Wild Oats" name and 32 locations. As I wrote at the time, I thought both the merger AND the FTC's objections to it were out to lunch. When the FTC lost a court battle to obtain a preliminary injunction blocking the merger, Whole Foods quickly closed the deal, despite the fact that the FTC appealed the PI denial. The FTC ended up winning that appeal, and now we have this settlement.

From the perspective of Whole Foods, this settlement is no big deal. There's little chance they ever planned to use the "Wild Oats" name, and the divestitures represent little more than 25% of the total locations acquired. On the other hand, this smells strongly of face-saving by the FTC. The "Wild Oats" name has little value, and of the 32 locations in the divestiture, over half (19) have already been shuttered by Whole Foods.

Corporate Dealmaking in the Ruins

I moderated a panel on “extreme dealmaking” at last week’s Corporate Dealmaker Forum in New York – I don’t know that there has been a period in living memory of more “extreme” M&A than we’ve seen in the last few months. From Bear Stearns' shotgun marriage to JPMorgan to the host of bank failures and other hastily-arranged weekend tie-ups, very large enterprises have been rushing into deals at breakneck speed.

Just as surely as the process has witnessed staggering amounts of equity destruction, it will certainly offer some fantastic opportunities coming out of the other side. The remaining healthy banks think so, as they attempt to fatten up cheaply on the remains of their less-risk-averse brethren. The tussle between Citi and Wells Fargo over Wachovia is only the latest chapter. We’ll see more activity, even if things get darker, as those with the resources to do so start laying the groundwork for better days in the future.

After the conference I did an interview on ABC News Now about the economy and the election – we polled 20 of Avvo’s top-rated bankruptcy lawyers to get their thought on this topic, and the results were certainly intriguing. Check out the video.

Overreaching Contracts

Credit card companies, telecom operators, website publishers and software developers are all familiar with the need for standard, easily-applied agreements that customers sign up to by default when using the service.

While these agreements come in many names and forms ("shrink-wrap" for packaged software, "click-wrap" for downloaded software or software-as-a-service, "End User License Agreement," "Terms of Service," "Terms of Use" or "Customer Service Agreement" for websites or telecom providers) they all have one thing in common - they are contracts of adhesion, meaning the end user is stuck with them if they want to use the service.

There's nothing wrong with this per se - some form of agreement needs to surround these services, and such terms obviously can't be negotiated individually with every user. However, as today's kerfuffle over the terms of service for Google's new Chrome web browser shows, a company's lawyers need to pay attention to what these terms say and whether they are fair in the context of a contract of adhesion.

Why? For starters, while most anything goes in a fully-negotiated agreement, courts will quickly find a contract of adhesion unconscionable if the terms are overreaching. After all, the consumer has no other choice but to vote with their feet (and sometimes they don't even have that choice). The Washington Supreme Court recently decided a case (see Groklaw for a terrific discussion) that offers a classic look at the far reaches of unconscionability - an AT&T customer service agreement that, in addition to requiring arbitration of disputes (usually OK, even in adhesive contracts), also barred class actions, required all proceedings to stay secret, shortened the statute of limitations to bring actions, and limited consumer rights to sue for attorney's fees, while giving AT&T the right to do so (this last point wouldn't fly even in a fully negotiated contract in many states, including CA and WA).

While the Google lawyers apparently were just a little sloppy in applying terms from other services to Chrome, AT&T's lawyers must have just felt compelled to make their terms as one-sided as possible.

The problem is that this kind of overreaching has its costs. If you're AT&T, the only terms above that really make much difference are the arbitration clause and the class action waiver. The rest of the stuff is noise. However, it's so blatantly one-sided that a court couldn't help but trash all of these clauses; indeed, AT&T is lucky the entire agreement wasn't stuffed.

What would have happened if they had kept the agreement scrupulously fair on the procedural side but had retained the important limitations (arbitration and class action waiver)? I say there's a fair chance the court would have upheld their agreement. Instead, their eagerness to craft a lopsided agreement cost them what they really cared about. Nitwits.

Microsoft and Yahoo - Saving Face All Around

According to reports today, Microsoft is floating an idea to buy Yahoo's search biz and take a "minority passive stake" in the company. Please. This is nothing more than a fig leaf to cover Microsoft's renewal of acquisition discussions.

Look, it would have made things difficult for Microsoft to simply come out and said, after two weeks of avowed denials, that they still want to buy Yahoo. And it would be similarly hard for Yahoo to say they realized they'd overplayed their hand and they're really amenable to a deal at $33 or $34 per share. So, they can both engage in this barely-plausible cover story, spend a little time "examining" the pros and cons on an asset sale + investment, before concluding that it really makes the most sense for MSFT to simply acquire YHOO outright.

Clearwire, Sprint, etc.

Congrats to my former colleagues at Clearwire for FINALLY getting the Wimax JV done with Sprint. Initial indications are that it was worth the wait - it's a full-blown, fully-funded deal that removes a huge measure of risk from Clearwire's business and allows it to roll out nationally. What's more, Clearwire - despite only owning 27% of the new JV -gets to run the whole thing.

You know the cable guys and Google insisted on Clearwire running the show for more reasons than just concern over potential conflicts between Wimax and Sprint's cellular service. One look at Sprint's operational track record over the last couple of years would have been all it took to make that decision.

Yahoo-Microsoft

It's been highly amusing watching Yahoo step in it over the Microsoft proposal - I just hope they aren't deluding themselves into thinking that anything less than $6 - $8 of their current share price is due to speculation the deal will come back on.

Will it? Ballmer has taken some heat for how this was handled (one of his folks reportedly called MSFT's handling of last weekend's events "amateur hour" - ouch!), but if this was a tactical play by the mercurial Ballmer it may have been a good one. Yang and Decker have been falling over themselves to say they'd still be happy to deal, and have all but admitted Yahoo would take $33 a share.

So - there's still a decent shot this deal gets done. The price differential just isn't that great. Frankly, I wouldn't be surprised to see it get done for a buck or two less than MSFT's last offer of $33 when Yahoo comes back hat in hand to revive the deal.

Google Breathes a Sigh of Relief

I suspect that when we see the identity of bidders in the FCC's 700 MHz auction (Auction 73), we'll see that Google was the last bidder on the package of licenses making up the C block covering all 50 states.

The last bid on that package, at about $4.7B - which came in about a week ago - was enough to push it over the reserve price and ensure that the so-called "open access" requirements Google lobbied for will apply to whoever wins the licenses. However, bids on the individual licenses comprising the package have been increasing in the interim, and have now exceeded the package price.

These bids are, without a doubt, coming from the incumbant telecoms. Google, not wanting to get into the capital-intensive, low-margin, highly-competitive network operator business, can now sit back, secure in knowing that it has acheived its lobbying end via a shill bidding strategy. It's an open question whether the "open access" requirements are truly meaningful - they are in many ways the final battle of yesterday's war, and far more toothless than what Google originally wanted. Still, you've got to admire the execution on Google's strategy here.

Microsoft's Yahoo! Bear Hug

A tremendous amount has been written about Microsoft's bid for Yahoo!, so just a quick note on my perspective:

- I absolutely love the bold approach. The level of the bid really only gives Yahoo management two options: Sell to MSFT or find a white knight. Convincing shareholders that independence is the best route to unlocking value would be a laughable exercise.

- Watching the flailing about by the tech media and Yahoo insiders for potential alternatives to MSFT has been highly amusing. Points for creativity, but none of these fantastical imaginings will come to pass.

- Google needs to watch itself. While it has vastly expanded its lobbying resources in the last few years, Google doesn't always show a lot of maturity. As a near-monopolist in search and internet advertising markets, it needs to be careful about making overstated objections to this merger that will come back to haunt it when it goes to make a big acquisition down the road.

- Microsoft has a lot of work to do. Getting this deal past the regulators will be no mean feat, particularly in Europe. However, the bigger issue will come in dealing with merger integration on a scale Microsoft has zero experience with. We'll want to check back in a few years on how this one works out.

Facebook and Microsoft

The long-awaited Microsoft-Facebook linkup was announced today, with my neighbors here in Redmond ponying up $240M for a minuscule 1.6% stake in Facebook.

While this deal values the fast-growing social networking site at $15B, I doubt valuation was much of an issue for Microsoft. Yes, it's huge for Facebook to get a massive infusion of cash with only nominal dilution, but Microsoft has more nuanced concerns. Whether MSFT gets a decent return on the quarter-billion invested is of far less concern than getting linkage with Facebook and beating out Google. Besides an expansion of an extant advertising deals, the remaining scope of the MSFT-Facebook linkage hasn't been disclosed.

Bottom line? Huge win for Facebook, although it won't be raising more capital at this valuation any time soon. It's also a win for Microsoft, which now gets to participate in Facebook's strategic upside, if not the financial upside it would have also gotten had it pulled the trigger a year or so ago.

Ebay's Skype Writedown

Following up and tracking the success of deals some years on is not always a strong suit for corporate dealmakers - often it's on to the next deal before the ink is dry, with little need for the nostalgia of looking back.

Accountants, however, have no such luxury, and there is a certain discipline to tracking over time how good your deals really are. With that in mind, I note Ebay's $1.4B writedown of its Skype acquisition, accompanied by the departure of Niklas Zennstrom and the announcement that the earnout in the deal had only been one-third met. With the original purchase price of $2.6B and about $500M in earnout money, the charge represents nearly 50% of deal value.

Ebay may have some internal measures that indicate the deal was a success for strategic reasons, but by any objective outside view it was a bust. I hate to say I told you so, but . . .