IP finance View RSS

U.S. Department of Justice Creates Anticompetitive Regulation Task Force 2 Apr 4:27 PM (12 days ago)

On March 27, 2025, the U.S. Department of Justice launched the Anticompetitive Regulations Task Force.  The Task Force is soliciting public input concerning regulations that may hinder competition.  I wonder if IP-related laws will be examined.  The Press Release states:

Today, the Justice Department launches an Anticompetitive Regulations Task Force to advocate for the elimination of anticompetitive state and federal laws and regulations that undermine free market competition and harm consumers, workers, and businesses. The Antitrust Division has a long history of advocacy against laws and regulations that create unnecessary barriers to competition.  The Task Force will surge resources to these efforts and invite public comments to support the Administration’s mission to unwind laws and regulations that hinder business dynamism and make markets less competitive.    

“Realizing President Trump’s economic Golden Age will require unwinding burdensome regulations that stifle free market competition. This Antitrust Division will stand against harmful barriers to competition whether imposed by public regulators or private monopolists,” said Assistant Attorney General Abigail Slater of the Justice Department’s Antitrust Division. “We look forward to working with the public and with other federal agencies to identify and eliminate anticompetitive laws and regulations.”

On Jan. 31, President Trump signed Executive Order 14192 declaring “the policy of the executive branch” to be that federal agencies should “alleviate unnecessary regulatory burdens placed on the American people.” Consistent with this policy, on Feb. 19, President Trump signed Executive Order 14219 directing agencies to “initiate a process to review all regulations” and identify regulations that, among other things, “impose undue burdens on small businesses and impede private enterprise and entrepreneurship.” Consistent with longstanding practice, the Antitrust Division will support federal agencies’ deregulatory initiatives by sharing its market expertise on regulations that pose the greatest barriers to economic growth.

Regulatory capture is a well-studied phenomenon in which agencies become “captured” by special interests and big businesses, rather than serving the interests of the American people. But when regulations serve the few and impose undue burdens on small businesses, private enterprise, and entrepreneurs, they also harm competition and ultimately hurt American consumers, workers, and businesses. For example, regulations can increase compliance costs, preventing businesses from competing on a level playing field with powerful corporations. Regulations can also discourage or even intentionally prohibit small businesses and new products from entering markets and lowering prices for American families. In contrast, eliminating unnecessary anticompetitive regulations makes it easier for businesses to compete. More competition empowers the American people — not government regulators — to drive economic progress and innovation. When every American has a fair opportunity to enjoy the benefits of competitive free markets, every American has an opportunity to realize the American dream.

By identifying and working with state and federal agencies to revise or eliminate these laws and regulations, the Anticompetitive Regulations Task Force will contribute to making the American dream a reality. As a first step, the Antitrust Division will initiate a public inquiry to identify unnecessary laws and regulations that raise the highest barriers to competition. In particular, the Division will seek information from the public about laws and regulations that make it more difficult for businesses to compete effectively, especially in markets that have the greatest impact on American households, including:

• Housing: Americans spend more than one-third of their monthly income on housing, and the cost of owning or renting a home continues to rise. Laws and regulations in housing markets can contribute to these problems by making it more difficult for companies to build and ordinary Americans to rent or buy.
• Transportation: Laws and regulations in areas like airlines, rail, and ocean shipping can grant antitrust immunities, outright monopolies, or safe harbors for conduct that undermines competition. As a result, Americans pay more for travel, fuel, and a variety of other products.
• Food and Agriculture: By the end of the Biden-Harris Administration, grocery prices were 27% higher than at the end of the first Trump Administration. Eliminating unnecessary anticompetitive regulations will help farmers, growers, and ranchers increase the amount of food they produce and unlock lower prices for American consumers.
• Healthcare: Laws and regulations in healthcare markets too often discourage doctors and hospitals from providing low-cost, high-quality healthcare and instead encourage overbilling and consolidation. These kinds of unnecessary anticompetitive regulations put affordable healthcare out of reach for millions of American families.
• Energy: Reliable and affordable energy is essential to modern American life — whether in homes, businesses, manufacturing plants, schools, hospitals, sporting events, or data centers. Laws and regulations can undermine reliability and affordability by protecting incumbent electricity providers from competition or disruptive innovation.

The public will have 60 days to submit comments at www.Regulations.gov (Docket No. ATR-2025-0001), no later than May 26. Once submitted, comments will be posted to Regulations.gov. All market participants are invited to provide comments in response to this inquiry, including consumers, consumer advocates, small businesses, employers, trade groups, industry analysts, and other entities that are impacted by anticompetitive state or federal laws and regulations.

In addition to reviewing responses from the public, the Task Force will bring together attorneys, economists, and other staff from across the Division, together with interagency partners, to identify state and federal laws and regulations that unnecessarily harm competition. The Antitrust Division will then take appropriate action, including helping agencies revise or eliminate these regulations.

The Task Force will also consider other ways to advocate for the removal of anticompetitive laws and regulations. The Division routinely files amicus briefs and statements of interests in private litigation, and it will continue to do so to promote competition and oppose anticompetitive laws and regulations. The Division also provides comments on proposed legislation in the states on the request of state legislators. These efforts will continue with an eye toward protecting competition and interstate commerce in light of dormant Commerce Clause principles.

The Justice Department has a long history of serving as the Executive Branch’s chief competition advocate by working with agencies to identify and eliminate unnecessary regulations. In 2018, the Justice Department released a report on how regulations can harm competition. Following this report, the Justice Department submitted dozens of comments to federal agencies supporting efforts to eliminate unnecessary regulations and increase competition. For example, the Justice Department, in consultation with the Federal Trade Commission, submitted a comment opposing  regulations that would have protected incumbent electricity transmission companies from much-needed competition in energy markets across the country. The Justice Department filed comments aimed at making it easier for individuals and small businesses to navigate the federal government bureaucracy. The Justice Department also provided technical assistance and trainings to federal agencies to help them analyze how new and existing regulations might affect competition, or whether competition may be a better alternative to regulation altogether.

The Anticompetitive Regulations Task Force will continue these efforts, supporting ongoing efforts across the Trump Administration to unleash competition by eliminating unnecessary, burdensome, and wasteful government regulations. For more information on the Task Force, including contact information, see Anticompetitive Regulations Task Force page on the Division’s website.

Bad Timing: Starving the University Technology Transfer System 2 Apr 4:08 PM (12 days ago)

A group of over 1000 scientists who are elected members of the National Academy of Sciences, Engineering and Medicine has released a letter expressing concern with the Trump Administration’s handling of research funding.  The letter states, in part:

If our country’s research enterprise is dismantled, we will lose our scientific edge. Other countries will lead the development of novel disease treatments, clean energy sources, and the new technologies of the future. Their populations will be healthier, and their economies will surpass us in business, defense, intelligence gathering, and monitoring our planet’s health. The damage to our nation’s scientific enterprise could take decades to reverse. 

The AUTM, the Association of University Technology Managers, noted that the Great Recession would have been much worse if it had not been for university technology transfer.  Harming the engine that’s been creating innovation and new business may not be such a good thing right now.  Besides pushing us into a recession, I do wonder what the political fallout will be of the increased removal of research funding from universities.  Not only do universities spin-off companies to varying degrees of success but there are universities located in many, many congressional districts--and those universities are major regional employers.  The full letter is available, here.  The Scientific American discusses the full letter, here. 

US Copyright Office Report on Copyrightability of AI Output 29 Jan 1:58 PM (2 months ago)

The U.S. Copyright Office has released a report titled, “Copyright and Artificial Intelligence: Part 2 Copyrightability.”  The report is in response to comments by interested parties concerning the copyrightability of AI generated outputs.  The report has a helpful summary of the approach of other countries.  The full report is available, here.  The report makes several conclusions and recommendations:

• Questions of copyrightability and AI can be resolved pursuant to existing law, without the need for legislative change.

• The use of AI tools to assist rather than stand in for human creativity does not affect the availability of copyright protection for the output.

• Copyright protects the original expression in a work created by a human author, even if the work also includes AI-generated material.

• Copyright does not extend to purely AI-generated material, or material where there is insufficient human control over the expressive elements.

• Whether human contributions to AI-generated outputs are sufficient to constitute authorship must be analyzed on a case-by-case basis.

• Based on the functioning of current generally available technology, prompts do not alone provide sufficient control.

• Human authors are entitled to copyright in their works of authorship that are perceptible in AI-generated outputs, as well as the creative selection, coordination, or arrangement of material in the outputs, or creative modifications of the outputs.

• The case has not been made for additional copyright or sui generis protection for AI generated content.

Addressing Insider Threats: CIA Analyst Divulges Confidential Information 22 Jan 1:05 PM (2 months ago)

One of the most difficult cybersecurity issues concerns predicting insider threats -- identifying the person or persons in your organization who are likely to divulge personal data or intellectual property.  The U.S. Department of Justice issued this press release recently: 

A former CIA analyst pleaded guilty today to retaining and transmitting Top Secret National Defense Information to people who were not entitled to receive it, information which was publicly posted on a social media platform in October 2024.

According to court documents, Asif William Rahman, 34, of Vienna, was an employee of the CIA since 2016 and had a Top-Secret security clearance with access to Sensitive Compartmented Information (SCI).

. . .

According to court documents, on Oct. 17, 2024, Rahman accessed and printed two Top Secret documents containing National Defense Information regarding a U.S. foreign ally and its planned actions against a foreign adversary. Rahman removed the documents, photographed them, and transmitted them to individuals he knew were not entitled to receive them. By Oct. 18, 2024, the documents appeared publicly on multiple social media platforms, complete with the classification markings.

After Oct. 17, 2024, Rahman deleted and edited journal entries and written work product on his personal electronic devices to conceal his personal opinions on U.S. policy and drafted entries to construct a false narrative regarding his activity. Rahman also destroyed multiple electronic devices, including a personal mobile device and an internet router he used to transmit classified information and photographs of classified documents, and discarded the destroyed devices in public trash receptacles in an effort to thwart potential investigations into him and his unlawful conduct.

Beginning in the spring of 2024 and continuing through November 2024, Rahman repeatedly accessed and printed classified National Defense Information, including documents classified up to the Top Secret level, to take them to his residence. There, Rahman reproduced the documents and, while doing so, altered them in an effort to conceal their source and his activity. Rahman then communicated Top Secret information that he learned in the course of his employment to multiple individuals he knew were not entitled to receive it.

Rahman was indicted by a grand jury on Nov. 7, 2024, and was arrested by the FBI as he arrived to work on Nov. 12, 2024. He has remained in custody since his arrest.

Rahman pleaded guilty to two counts of willful retention and transmission of classified information related to the national defense. He is scheduled to be sentenced on May 15, 2025. He faces a maximum penalty of 10 years in prison for both counts in the plea agreement. A federal district court judge will determine any sentence after considering the U.S. Sentencing Guidelines and other statutory factors.

American Intellectual Property Law Association Releases IP Wishes Letter to Incoming Trump Administration 7 Jan 1:05 PM (3 months ago)

The AIPLA has released a letter to the Trump Administration that highlights concerns with the IP system in the United States.  The letter addresses patent eligibility, patent quality, AI and IP, digital piracy and counterfeiting, trade secrecy and international IP harmonization.  The letter is available, here. 

White House Releases Fact Sheet on US India Strategic Technology Collaboration 6 Jan 4:15 PM (3 months ago)

The White House released a Fact Sheet outlining collaboration efforts concerning national security and technology with India on January 6, 2025.  The Fact Sheet states in relevant part:

Today, U.S. National Security Advisor (APNSA) Jake Sullivan met with Indian National Security Advisor (NSA) Ajit Doval, Indian External Affairs Minister S. Jaishankar, and Prime Minister Modi in New Delhi as the United States and India continue to forge a strategic technology partnership that benefits both of our countries and our partners around the world.  APNSA Sullivan and NSA Doval launched the U.S.-India initiative on Critical and Emerging Technology (iCET) in 2022 at the direction of President Biden and Prime Minister Modi.  In the intervening years, our two nations have taken significant steps forward together to integrate our technology and defense supply chains in recognition that, now more than ever, we need to work with our partners to build a trusted and resilient innovation base.

During their capstone meeting, APNSA Sullivan and NSA Doval underscored the vital importance of our efforts to jointly produce and develop strategic technologies that will allow us to deliver secure, reliable, and cost-competitive technology solutions for the world. As the United States and India deepen collaboration across key sectors – from space to semiconductors, biotechnology, cybersecurity, advanced telecommunications, and clean energy – we have seen the promise of our partnership deliver results.  Our partnership has also anchored multilateral work with like-minded nations from across the Indo-Pacific and Europe, including the Bio-5 Biopharmaceutical Supply Chain Consortium, the U.S.-India-ROK Technology Trilateral, and ongoing cooperation with Australia and Japan through the Quad.

Finally, APNSA Sullivan and NSA Doval reaffirmed our shared resolve to adapt and strengthen our technology protection toolkits and discussed efforts to address national security concerns associated with overcapacity in key technology sectors.  At the same time, they commended the progress we have made to address long-standing barriers to bilateral strategic trade, technology, and industrial cooperation.

The two national security leaders expressed their confidence that the bridges we have built across our governments, industry, and academia will endure and reflected on the significant achievements we have driven across every dimension of the technological enterprise – from the seabed to the stars, and beyond.  This includes:

Launching a New Era in Space Technology Cooperation

• Announcing the first-ever joint effort between American and Indian astronauts at the International Space Station with the launch of Axiom-4 scheduled to take place this spring, which will mark a significant milestone in the U.S.-India human spaceflight partnership and space exploration; 
• Reducing barriers to collaboration around commercial space technology following the U.S. government’s recent conclusion of updates to Missile Technology Control Regime export policy, which will open the door to additional technology licensing and co-development opportunities in support of the U.S.-India space partnership;
• Working toward the launch of a new bilateral space accelerator to promote commercial space cooperation, including around lunar exploration, human spaceflight, geospatial data and services, and the co-development of technology;
• Celebrating the conclusion of a Strategic Framework for Human Spaceflight Cooperation to deepen interoperability in space and working toward the imminent completion of additional agreements to commence advanced training for ISRO astronauts and ground personnel at the NASA Johnson Space Center and for joint experiments at the International Space Station;
• Preparing for the launch of the NASA-ISRO Synthetic Aperture Radar, a jointly developed satellite that will map the entirety of the Earth’s surface twice every 12 days as the United States and India work together to combat climate change and other global challenges, this spring;
• Deciding to hold the first bilateral experts’ exchange on space situational awareness and space traffic coordination in the first half of this year.  This exchange builds upon the two nations’ shared commitment to pursue opportunities for deeper collaboration to ensure safe and sustainable space operations;
• Exploring additional avenues for cooperation in space exploration technologies, including docking and interoperability demonstration missions, as well as India’s participation in the United States Traffic Coordination System for Space program. 

Deepening Defense Innovation and Industrial Cooperation

• Welcoming the advancement of discussions between Ultra Maritime and Bharat Dynamics Limited to enhance undersea domain awareness through a first-of-its-kind partnership on co-production of U.S. sonobuoys in support of the U.S. and Indian defense industrial bases;
• Welcoming India’s acquisition of the MQ-9B platforms, the possible co-production of land warfare systems, and progress on other co-production initiatives outlined in the U.S.-India Roadmap for Defense Industrial Cooperation;
• Celebrating the third edition of the India-U.S. Defense Acceleration Ecosystem (INDUS-X) Summit which took place at Stanford University in September 2024, and highlighting the continued progress under INDUS-X, including the Gurukul Educational Sessions and the launch of a third joint challenge on space situational awareness in low earth orbit;
• Welcoming the completion of an upgraded Memorandum of Understanding between the Defense Innovation Unit and the Defense Innovation Organization to expand cooperation on defense innovation and deepen collaboration between the U.S. and Indian startup ecosystems;
• Deepening cooperation between the U.S. Defense Innovation Unit and India’s Innovations for Defense Excellence to accelerate the joint adoption of cutting-edge commercial technologies for military solutions and capability enhancement of both countries’ defense ecosystems;
• Noting continued progress in the discussions between GE Aerospace and Hindustan Aeronautics Limited for the co-production of GE F414-INS6 engines to power India’s future fighter fleet;
• Expanding defense industrial partnerships, such as the launch of an AI Multi-Doman Situational Awareness product jointly developed by General Atomics and 114ai to support joint all domain command and control.

Building a Clean Energy and a Critical Minerals Partnership for the 21^st Century

• Advancing discussions to unlock new commercial partnerships around the deployment of small modular reactor technology in India;
• Reflecting the progress the United States and India have made—and will continue to make—as strategic partners and countries with a shared commitment to peaceful nuclear cooperation, NSA Sullivan announced US efforts to finalize necessary steps to delist Indian nuclear entities, which will promote civil nuclear cooperation and resilient clean energy supply chains;
• Commending the signing of a bilateral Critical Minerals Memorandum of Understanding between the U.S. Department of Commerce and the Indian Ministry of Commerce and Industry and the Ministry of Mines, and driving additional areas of cooperation in critical mineral supply chains such as for graphite, gallium, and germanium;
• Advancing collaboration between U.S. and Indian organizations and companies for carrying out research studies for beneficiation and co-development of processing technologies for critical minerals, including lithium, titanium, gallium, and vanadium;
• Building a collaborative program between the Geological Survey of India and the U.S. Geological Survey on exploration, characterization and evaluation of rare earth elements and critical mineral deposits.

Promoting Strategic Semiconductor Supply Chain Partnerships

• Advancing a strategic semiconductor partnership between the U.S. Space Force and 3rdiTech to establish a compound semiconductor fabrication plant in India to manufacture infrared, gallium nitride, and silicon carbide semiconductors that will be used in national security-relevant platforms; this includes favorably reviewing a technical assistance agreement and export licenses to promote technology transfers;
• Building on the U.S.-India Semiconductor Supply Chain and Innovation Partnership MOU and promoting secure, resilient, and sustainable semiconductor supply chains through continued collaboration between the U.S. Department of Commerce and the India Semiconductor Mission, Ministry of Electronics and Information Technology including facilitating investments in semiconductor manufacturing and strengthening R&D collaboration around state-of-the-art semiconductor and packaging technologies.

Building New Collaboration around AI, Advanced Computing, and Quantum

• Developing a government-to-government framework for promoting reciprocal investments in AI technology and aligning protections around the diffusion of AI technology;
• Strengthening cooperation around the national security applications of AI, following the U.S. government’s recent issuance of a National Security Memorandum on AI last fall, and promoting safe, secure, and trustworthy development of AI;
• Noting the importance of sustained engagement for cooperation on Quantum Information Science and Technology (QIST) as agreed to in the second meeting of the U.S.-India Quantum Coordination Mechanism held last August, during which both countries committed to achieving concrete outcomes;
• Initiating new cooperation in quantum science and technology, including through a workshop on post-quantum cryptography and quantum hardware held at the University of California, Los Angeles in September 2023 and facilitating visits of Indian technical experts from academia and the private sector to visit U.S. national laboratories and quantum institutions.

Bridging our People, Talent, and Innovation Bases

• Celebrating progress toward opening U.S. Consulate Bengaluru in early 2025 and continuing work to establish new Indian Consulates in Boston and Los Angeles;
• Advancing a “Bio-X” initiative that would promote biotechnology cooperation by leveraging the synergies between domestic programs and enhancing the competitiveness of the biotechnology industries in both countries;
• Celebrating steps that expand of the ability of top AI scientists, engineers, and entrepreneurs from India to come to the United States, including rulemaking that modernized the U.S. H-1B application process, recent clarifications of the rules for O-1 visas and other visa categories, and other efforts that have streamlined visa processing;
• Noting the recently launched U.S.-India Advanced Materials R&D Forum, which convened its inaugural meeting in November 2024, to expand collaboration between U.S. and Indian universities, national laboratories, and private sector researchers.

U.S. Department of Justice Releases Final Rule on Protecting Personal Data in Bulk Transfers 6 Jan 3:27 PM (3 months ago)

The Department of Justice recently issued a final rule preventing access to U.S. citizens personal data.  The Press Release states, in relevant part:

. . . Today, the Justice Department issued a comprehensive final rule carrying out Executive Order (E.O.) 14117 “Preventing Access to Americans’ Bulk Sensitive Personal Data and United States Government-Related Data by Countries of Concern.” The E.O. charged the Justice Department with establishing and implementing a new regulatory program to address the urgent and extraordinary national security threat posed by the continuing efforts of countries of concern (and covered persons that they can leverage) to access and exploit Americans’ bulk sensitive personal data and certain U.S. Government-related data.. . .

“This final rule is a crucial step forward in addressing the extraordinary national security threat posed of our adversaries exploiting Americans' most sensitive personal data,” said Assistant Attorney General Matthew G. Olsen of the Justice Department’s National Security Division. “This powerful new national-security program is designed to ensure that Americans' personal data is no longer permitted to be sold to hostile foreign powers, whether through outright purchase or other means of commercial access.”

The Final Rule implements the E.O. by promulgating generally applicable rules for certain categories of data transactions that pose an unacceptable risk to the national security of the United States. As described in the E.O., countries of concern and covered persons can use their access to this data to engage in malicious cyber-enabled activities and malign foreign influence activities, bolster their military capabilities, and track and build profiles on U.S. persons (including members of the military and U.S. Intelligence Community, as well as other Federal employees and contractors) for illicit purposes such as blackmail, coercion, and espionage, and to bolster their military capabilities. Countries of concern and covered persons can also exploit this data to collect information on activists, academics, journalists, dissidents, political opponents, or members of nongovernmental organizations or marginalized communities to intimidate them; curb political opposition; limit freedoms of expression, peaceful assembly, or association; or enable other forms of suppression of civil liberties.

The Final Rule reflects the risk highlighted in the E.O. that the vulnerability of Americans’ bulk sensitive data is exacerbated because countries of concern are increasingly using bulk sensitive personal data to develop and enhance artificial intelligence (AI) capabilities and algorithms that, in turn, enable the use of large datasets in increasingly sophisticated and effective ways to the detriment of U.S. national security. Countries of concern can use AI in conjunction with multiple unrelated data sets, for example, to identify U.S. persons whose links to the federal government would be otherwise obscured in a single dataset and who can then be targeted for espionage or blackmail.

Among other things, the Final Rule identifies countries of concern and covered persons to whom the Final Rule applies, and designates classes of prohibited, restricted, and exempt transactions. The Final Rule establishes bulk thresholds for certain sensitive personal data, including human ‘omic data, biometric identifiers, precise geolocation data, personal health data, personal financial data, and certain covered personal identifiers. The Final Rule also prescribes processes to obtain licenses authorizing otherwise prohibited or restricted transactions; protocols for the designation of covered persons; and provides advisory opinions, and recordkeeping, reporting, and other due diligence obligations for covered transactions.

The Final Rule is consistent with the United States’ commitment to promoting an open, global, interoperable, reliable, and secure internet; protecting human rights online and offline; supporting a vibrant, global economy by promoting cross-border data flows that are required to enable international commerce and trade; and facilitating open investment. Notably, the Final Rule does not impose generalized data localization requirements regarding the physical or electronic storage of Americans’ bulk sensitive personal data or U.S. Government-related data, nor does it require locating computing facilities within the United States to process such data. The Final Rule does not prohibit U.S. persons from conducting medical, scientific, or other research in countries of concern, or from partnering or collaborating with covered persons to share data to conduct researching, if that activity does not involve the exchange of payment or other consideration as part of a covered data transaction. The Final Rule also does not broadly prohibit U.S. persons from engaging in commercial transactions, including exchanging financial and other data as part of the sale of commercial goods and services with countries of concern or covered persons, or impose measures aimed at a broader decoupling of the substantial consumer, economic, scientific, and trade relationships that the United States has with other countries.

The Final Rule further exempts several classes of data transactions from the scope of its prohibitions and restrictions, including personal communications and certain financial services transactions, corporate group transactions, transactions authorized by Federal law and international agreements, investment agreements subject to a Committee on Foreign Investment in the United States (CFIUS) action, telecommunication services, biological product and medical device authorizations, clinical investigations, and others.

The Final Rule’s prohibitions and restrictions are consistent with other access restrictions on sensitive personal data that have been imposed in other contexts, including transactions reviewed by the CFIUS and the Committee for the Assessment of Foreign Participation in the U.S. Telecommunications Services Sector (Team Telecom).

Lastly, under the Final Rule, parties engaging in vendor agreements, employment agreements, and investment agreements involving access by countries of concern or covered persons to bulk U.S. sensitive personal data or U.S. Government-related data would be restricted transactions that must comply with the separate security requirements that have been developed by the Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency (CISA) in coordination with the Justice Department. These security requirements include organizational and system-level requirements (such as ensuring that basic organizational cybersecurity policies, practices, and controls are in place), and data-level requirements (such as data minimization and masking, encryption, and privacy-enhancing techniques). These critical requirements will be published separately by CISA through the Federal Register and on CISA’s website.

In connection with the Final Rule, the Justice Department will publish compliance, enforcement, and other guidance, which will be located at www.justice.gov/nsd/data-security.. . .

AI as a Valuation Helper: Duty to Disclose AI Use 29 Oct 2024 3:50 PM (5 months ago)

In a recent decision, Matter of Weber (October 2024), involving a trust in New York, the court addressed the use of artificial intelligence by an expert in a valuation determination.  The decision states:

Use of Artificial Intelligence

[A] portion of his testimony bears further and separate discussion as it relates to an emerging issue that trial courts are beginning to grapple with and for which it does not appear that a bright-line rule exists.

Specifically, the testimony revealed that Mr. Ranson relied on Microsoft Copilot, a large language model generative artificial intelligence chatbot, in cross-checking his calculations. Despite his reliance on artificial intelligence, Mr. Ranson could not recall what input or prompt he used to assist him with the Supplemental Damages Report. He also could not state what sources Copilot relied upon and could not explain any details about how Copilot works or how it arrives at a given output. There was no testimony on whether these Copilot calculations considered any fund fees or tax implications.

The Court has no objective understanding as to how Copilot works, and none was elicited as part of the testimony. To illustrate the concern with this, the Court entered the following prompt into Microsoft Copilot on its Unified Court System (UCS) issued computer: "Can you calculate the value of $250,000 invested in the Vanguard Balanced Index Fund from December 31, 2004 through January 31, 2021?" and it returned a value of $949,070.97 — a number different than Mr. Ranson's. Upon running this same query on two (2) additional UCS computers, it returned values of $948,209.63 and a little more than $951,000.00, respectively. While these resulting variations are not large, the fact there are variations at all calls into question the reliability and accuracy of Copilot to generate evidence to be relied upon in a court proceeding.

Interestingly, when asked the following question: "are you accurate", Copilot generated the following answer: "I aim to be accurate within the data I've been trained on and the information I can find for you. That said, my accuracy is only as good as my sources so for critical matters, it's always wise to verify.

When asked "are you reliable", Copilot responded with: "[y]ou bet. When it comes to providing information and engaging in conversation, I do my best to be as reliable as possible. However, I'm also programmed to advise checking with experts for critical issues. Always good to have a second opinion!" When the follow-up question of "are your calculations reliable enough for use in court" was asked, Copilot responded with "[w]hen it comes to legal matters, any calculations or data need to meet strict standards. I can provide accurate info, but it should always be verified by experts and accompanied by professional evaluations before being used in court . . . "

It would seem that even Copilot itself self-checks and relies on human oversight and analysis. It is clear from these responses that the developers of the Copilot program recognize the need for its supervision by a trained human operator to verify the accuracy of the submitted information as well as the output.

Mr. Ranson was adamant in his testimony that the use of Copilot or other artificial intelligence tools, for drafting expert reports is generally accepted in the field of fiduciary services and represents the future of analysis of fiduciary decisions; however, he could not name any publications regarding its use or any other sources to confirm that it is a generally accepted methodology.

It has long been the law that New York State follows the Frye standard for scientific evidence and expert testimony, in that the same is required to be generally accepted in its relevant field (see Frye v. United States, 293 F. 1013 [D.C. Cir. 1923]).

The use of artificial intelligence is a rapidly growing reality across many industries. The mere fact that artificial intelligence has played a role, which continues to expand in our everyday lives, does not make the results generated by artificial intelligence admissible in Court. Recent decisions show that Courts have recognized that due process issues can arise when decisions are made by a software program, rather than by, or at the direction of, the analyst, especially in the use of cutting-edge technology (People v Wakefield, 175 AD3d 158 [3d Dept 2019]). The Court of Appeals has found that certain industry specific artificial intelligence technology is generally accepted (People v. Wakefield, 38 NY3d 367 [2022] [allowing artificial intelligence assisted software analysis of DNA in a criminal case]). However, Wakefield involved a full Frye hearing that included expert testimony that explained the mathematical formulas, the processes involved, and the peer-reviewed published articles in scientific journals. In the instant case, the record is devoid of any evidence as to the reliability of Microsoft Copilot in general, let alone as it relates to how it was applied here. Without more, the Court cannot blindly accept as accurate, calculations which are performed by artificial intelligence. As such, the Court makes the following findings with regard to the use of artificial intelligence in evidence sought to be admitted.

In reviewing cases and court practice rules from across the country, the Court finds that "Artificial Intelligence" ("A.I.") is properly defined as being any technology that uses machine learning, natural language processing, or any other computational mechanism to simulate human intelligence, including document generation, evidence creation or analysis, and legal research, and/or the capability of computer systems or algorithms to imitate intelligent human behavior. The Court further finds that A.I. can be either generative or assistive in nature. The Court defines "Generative Artificial Intelligence" or "Generative A.I." as artificial intelligence that is capable of generating new content (such as images or text) in response to a submitted prompt (such as a query) by learning from a large reference database of examples. A.I. assistive materials are any document or evidence prepared with the assistance of AI technologies, but not solely generated thereby.

In what may be an issue of first impression, at least in Surrogate's Court practice, this Court holds that due to the nature of the rapid evolution of artificial intelligence and its inherent reliability issues that prior to evidence being introduced which has been generated by an artificial intelligence product or system, counsel has an affirmative duty to disclose the use of artificial intelligence and the evidence sought to be admitted should properly be subject to a Frye hearing prior to its admission, the scope of which should be determined by the Court, either in a pre-trial hearing or at the time the evidence is offered.

SUSTAINABILITY & IP MANAGEMENT - Free Webinar 15 Oct 2024 6:08 AM (6 months ago)

  October 24, 2024 14:30 PM- 15:30 PM British Standard Time = 15.30 PM CET = 9.30 a.m. Eastern Time 

The Patent Eligibility Restoration Act of 2023 -- Will it make over the finish line? 24 Sep 2024 3:33 PM (6 months ago)

Senator Thom Tillis’ Patent Eligibility Restoration Act of 2023 is moving through the U.S. Senate.  It appears to be a compromise to earlier patent eligibility reform legislation.  Here are the main provisions of the act. 

§ 101. Patent eligibility (a) IN GENERAL.—Whoever invents or discovers any useful process, machine, manufacture, or composition of matter, or any useful improvement thereof, may obtain a patent therefor, subject only to the exclusions in sub section (b) and to the further conditions and requirements of this title.

(b) ELIGIBILITY EXCLUSIONS.—

(1) IN GENERAL.—Subject to paragraph (2), a person may not obtain a patent for any of the following, if claimed as such: (A) A mathematical formula, apart from a useful invention or discovery. (B) A process that— (i) is a non-technological economic, financial, business, social, cultural, or artistic process; (ii) is a mental process performed solely in the human mind; or (iii) occurs in nature wholly independent of, and prior to, any human activity. (C) An unmodified human gene, as that gene exists in the human body. (D) An unmodified natural material, as that material exists in nature. 

(2) CONDITIONS.— (A) CERTAIN PROCESSES.—Notwithstanding paragraph (1)(B)(i), a person may obtain a patent for a claimed invention that is a process described in such provision if that process is embodied in a machine or manufacture, unless that machine or manufacture is recited in a patent claim without integrating, beyond merely storing and executing, the steps of the process that the machine or manufacture perform. (B) HUMAN GENES AND NATURAL MATERIALS.—For the purposes of subparagraphs (C) and (D) of paragraph (1), a human gene or natural material that is isolated, purified, enriched, or otherwise altered by human activity, or that is otherwise employed in a useful invention or discovery, shall not be considered to be unmodified. 

(c) ELIGIBILITY.—  (1) IN GENERAL.—In determining whether, under this section, a claimed invention is eligible for a patent, eligibility shall be determined—  (A) by considering the claimed invention as a whole and without discounting or disregarding any claim element; and (B) without regard to— (i) the manner in which the claimed invention was made; (ii) whether a claim element is known, conventional, routine, or naturally occurring;  (iii) the state of the applicable art, as of the date on which the claimed invention is invented; or (iv) any other consideration in section 102, 103, or 112. 

(2) INFRINGEMENT ACTION.— (A) IN GENERAL.—In an action brought for infringement under this title, the court, at any time, may determine whether an invention or discovery that is a subject of the action is eligible for a patent under this section, including on motion of a party when there are no genuine issues of material fact. (B) LIMITED DISCOVERY.—With respect to a determination described in subparagraph (A), the court may consider limited discovery relevant only to the eligibility described in that subparagraph before ruling on a motion described in that subparagraph.

Join Free Webinar by OxFirst: European Commission Interferes in German Standard Essential Patents Dispute - What are the implications? 5 Sep 2024 5:27 AM (7 months ago)

 Register Here: https://oxfirst.com/ec-amicus-brief-in-re-hmd-global-oy-vs-voiceage-evs/

OxFirst Free Webinar

September 17, 2024 15:00 PM- 16:00 PM British Standard Time = 16.00 PM CET = 10.00 a.m. Eastern Time

What this Talk is About

This is one of the first times the European Commission has issued an Amicus Brief, an instrument better known in US rather than European law. The European Commission has submitted an amicus curiae to the Higher Court of Munich, Germany, (Oberlandesgericht Muenchen) regarding an ongoing legal dispute between HMD Global Oy and VoiceAge EVS GmbH & Co KG, concerning the alleged use of standard-essential patents (SEPs). The European Commission emphasizes the need for a consistent interpretation of the Huawei vz ZTE Framework across European courts, highlighting differences in how the Munich and Mannheim courts have assessed similar cases. The brief does not take a position on the merits of the case but seeks to ensure uniform application of competition law. In this webinar we discuss the potential implications of the European Commission’s amicus brief and speculate the effect it may have on future judgments coming out of Munich.

About the Speakers

Alexander Haertel. Cluster Lead Patent at Deutsche Telekom

Alex is highly experienced in IP Litigation, especially in regard to patents. He has experience with all major German courts and also experience with invalidation proceedings like opposition or nullity proceedings before the Federal Patent Court/Federal Court of Justice.

Dr Andreas Kramer. Partner, Vossius & Brinkhof UPC Litigators

Andreas Kramer has extensive experience in patent infringement proceedings concerning  standard-essential patents (SEPs) and  FRAND defenses, in particular in the areas of mobile communication, audio and video codecs. He has been lead counsel in many SEP/FRAND litigations before the German courts and the Unified Patent Court (UPC).

Philipp Rastemborski, LL.M. (Edinburgh). Partner Eisenfuhr Speiser

Philipp Rastemborski represents clients in patent infringement and nullity proceedings, including related licensing matters. He has long-term experience in conducting and coordinating cross-border patent litigation proceedings before the German courts, in particular for US and other international clients. He has extensive experience in the enforcement and FRAND licensing of standard-essential patents (SEP) in the field of mobile communications and throughout the automotive value chain.

Major Cyber-Incidents Since 2006 1 Sep 2024 9:05 AM (7 months ago)

The Center for Strategic and International Studies has a helpful list titled, "Significant Cyber Incidents," in its strategic technologies program, which provides information on major data breaches.  As cybersecurity attack campaigns tend to be wide ranging impacting numerous different companies and tactics are similar, the threat intelligence provided by the list is helpful in trying to predict future attacks.  Some have reported that data exfiltration is on the rise which impacts intellectual property and competitive advantage.

Artificial Intelligence and Trade Secrets -- Professor Villasenor's Insights 15 Jul 2024 1:31 PM (9 months ago)

Professor John Villasenor at UCLA has published an interesting and helpful article on AI and trade secrets. He identifies some issues regarding the protection of AI generated trade secrets.  The Brookings Institution has published a summary of his article, here. 

European Commission’s proposed top-down approach would massively reallocate SEP royalties to China 3 Jul 2024 6:15 AM (9 months ago)

This is the second in of a pair of postings on aggregate SEP royalties and shares of those received among licensors. The first article, published yesterday, is an update on how much in royalties are paid and how these have declined, with a reminder on why these are so much lower than maximum rates headlined. This second article is on how these payments would be reallocated with the European Commission’s proposed rate setting using the top-down approach based on simplistic patent counts. I’m doing this to show the hypothetical extent of such reallocations and who the winners and losers would be. Please let it not be construed that I advocate such a disruptive and harmful intervention. I do not.

Adverse disruption

The European Commission’s scheme to regulate royalties by setting aggregate royalties and apportioning them with the top-down approach based on standard-essential patent counts would very disturbingly and harmfully effect SEP licensing. My analysis shows that apportioning current levels of aggregate royalties based on declared-essential patent counts would massively reallocate royalties received by US and European licensors to Chinese companies.

US and European companies account for 94% (i.e. $8.1 billion) of $8.6 billion in total licensing revenues reported in public annual filings by the five largest SEP licensors. Total royalties are estimated to be $16 billion including unreported amounts paid and cross-licensing value, as indicated in the Exhibit. Royalties to US and EU licensors would reduce by at least $3.8 billion when reapportioned on the basis of declared-essential patent counts with Chinese firms — including Huawei, BBK Electronics (with brands Oppo, Vivo OnePlus, Realme), Xiaomi and Lenovo — being the dominant recipients with over 40% of the total 5G patent count among Top-20 declarers alone. Royalty reallocations to Chinese companies would likely be even much larger because some of the additional $4.3 billion of value in “Other licensors’ cash royalties” and $3.1 billion in “Cross-licensing value”. This represents nearly half of total royalty value. I have not been able to quantify individual amounts of that being obtained by particular companies or nations. However, some of that value is being captured by US and European companies, such as Philips with a relatively low 0.12% share of 5G SEPs, that would also have their royalties reduced with reallocation by patent count.

Exhibit: Global royalty payment reallocation based on top-down apportionment by 5G patent count share is mostly China's gain

All dollar figures in billions per annum. Patent count shares are of declared patent families with a 5G grant in US, Europe, China, Korea or Japan declared to ETSI as of 18 October 2023, as published in "5GEssential Patents: Key Findings for facilitating 5G licensing negotiations globally – Q3 2023; Lite version”, PA Consulting.

Most SEP licensing revenues are generated by four large public companies — Ericsson, InterDigital, Nokia and Qualcomm that disclose these every year, and by Huawei that has disclosed these for 2022. My previous analysis on those since 2013, followed by that in other published research and in light of overall licensing market and foreign exchange rate trends since then, leads me to believe that total cash royalties paid would be no more than $12.9 billion in 2023. That is one third more than approximately $8.6 billion in total these five currently generate annually. Grossing figures up also to include non-cash royalties notionally considered in cross-licensing SEPs owned by implementers including Huawei, Samsung and others, I estimate total SEP licensing value of $16 billion per annum.

As also explained in my previous article, my grossing up is to a total SEP licensing value figure less than that indicated in the European Commission’s Impact Assessment. According to the European Commission, “The largest share of royalty payments for SEP licenses comes from the mobile telecommunications industry, which generates an estimated patent royalty yield of EUR 14 – 18 billion per year with additional EUR 4 billion of non-monetary benefits from cross-licensing (Impact Assessment Report, p.9). However, the sources cited for these figures are based on licensing around 2015 when total royalties for the four largest licensees were 40% higher and the Euro was rather stronger against the dollar than it is now. My current figures are consistent, approximately, with those old figures after prorating for these changes.

Implications

Exactly who all the winners and losers would be, and to what extent — among various different licensors, as well as between licensors and licensees in general— with a top-down approach in SEP royalty rate setting depends on the aggregate levels set and which patent counts are used. Nevertheless, the reallocation of royalties to Chinese companies is so pronounced that these firms would be the overall winners — with any conceivable aggregate rates and patent counts. For example, my previous research indicates that essentiality checking only somewhat mitigates rather than eliminates the effects of over declaration on patent counts.

My above analysis is of global impact on licensing revenues. If this readjustment is applied only to royalties derived from European product sales, readjusted royalties would be in line with Europe’s approximately estimated 15% volume share and 25% value share of global smartphone sales.

Top-down approach royalty apportionment would massively reallocate to Chinese patent owners much of the SEP royalty income US and European licensors currently receive. Patent portfolio strength comes from technical contribution to standards, value in implementation and validity rather than simplistic patent counts — with or without essentiality checking. It would be shooting itself in the foot and a great shame for Europe to make such a harmful change. The money is vital to fund ongoing US and European R&D investments in 5G and 6G technologies.

Keith Mallinson, founder of WiseHarbor, has more than 25 years of experience in the telecommunications industry as a research analyst, consultant and testifying expert witness.

Declining SEP royalties payments yield rates significantly below licensors’ headline figures 2 Jul 2024 3:02 AM (9 months ago)

This is the first in a pair of articles on standard-essential patent (SEP) royalties. It updates my previous publications on this topic over the last decade to show how royalty payments have trended including how rates compare against licensors’ touted maximums. The second article shows how these royalties would be massively reallocated to Chinese companies with the top-down approach in rate-fixing regulation proposed by the European Commission.

Aggregate royalties paid to major SEP licensors Ericsson, InterDigital, Nokia and Qualcomm have declined by 28% in nominal terms since peaking in 2015 to 2023, as indicated in Exhibit 1. The aggregate “royalty yield” (i.e. total royalties paid divided by handset sales revenues) for these licensors has dropped even more steeply by 38% since 2015.

The value of total royalty payments has eroded an additional 22% in real terms after inflation over those last eight years.

Percentage royalty yields have been diminished by royalty base caps and the switch to monetary amount per unit royalty rates in some cases. While ad valorem percentage rates charged hedge for inflationary increases in phone prices, caps and fixed amounts per unit are not indexed.

The recent plunge in total royalties from 2022 to 2023 is largely due to falling smartphones sales. However, increasing quarterly smartphone sales figures in 2024 suggest there will also be a bounce in royalties this year.

Exhibit 1: Cellular SEP royalties including percentage yields have generally decreased

Royalty yield is based on all indicated royalty revenues, but on only handset sales revenues.
Apple agreed in April 2019 to make a $4.7 billion one-off payment to settle its dispute with Qualcomm, following non-payment of royalties for two years. Under a long-term agreement with Huawei in July 2020, Qualcomm received $1.8 billion covering previously unpaid licence fees.
Figures have changed slightly from versions of this chart published in previous years as I have now switched to using smartphone revenue figures from Statista. The revealed trends and my conclusions are unaffected.

Cellular SEP licensors obtain significantly lower royalties than the maximum percentage rates and monetary rates per unit publicly headlined on their web sites. That’s only to be expected because licensees insist that royalties are capped on higher-priced smartphones. Some inevitable major discounts are explicit in program rate cards. Other reductions arise from various different relationships between licensing parties — such as cross-licensing to access each other’s technologies in some cases. Average royalties received are also diminished where licensing is delayed or never agreed.

Qualcomm remains the clear leader in SEP licensing. I also show in this article that the royalty rates it obtains are much closer to its rate card figures than other licensors achieve versus their rate card figures.

Fit for purpose in rebuttal

When I published my seminal article on mobile handset aggregate royalties in 2015, my objective was to disprove — with an approximate yet conservatively high estimate — the absurd assertion from Intel and others that aggregate royalties paid to license a $400 smartphone could be as high as $120 (i.e. 30%). I coined the term royalty yield (i.e. royalties paid divided by product prices or revenues) to depict effective rates paid as distinct from licensors’ notional maximum rates before caps, other discounts and cross-licensing reductions. I concluded that the aggregate yield was no more than around 5% of cellular handset prices or revenues. Others validated my methodology and came up with similar (i.e. in my ball park versus Intel’s), but even lower figures.

My cellular handset-focused methodology was for fit for purpose because it conservatively somewhat overestimated rates paid. There are various approximations in this kind of royalty yield analysis:

·        it includes licensing fees for non-phone devices (numerator) but excludes device sales revenues for these (denominator).

·        it includes licensing fees for base station network equipment (numerator) but excludes the sales revenues for this equipment (denominator).

·        It includes some non-cellular SEP royalties such as for video codecs (numerator).

·        It includes some non-SEP royalties (numerator) — for implementation technology patents and even brand licensing royalties, such as to Nokia from handset manufacturer HMD.

Tracking overall royalty trends

While I have been able to chart the individually fluctuating and overall declining royalties generated by those named major licensors since 2013, it has not been possible to accurately track the trends for royalties garnered by most other licensors since then.  However, I was able to estimate — very approximately with conservatively large figures for the purpose of my rebuttal — the remaining share of royalties paid to other licensors back then. For example, I allocated up to $4 billion for 4G patent pool royalties at their rate card rates (by that I meant somewhere between zero and $4 billion). I expected those embryonic licensing programs to fail, but I wanted to conservatively give them the benefit of any doubts.

Those named large licensors have continued to account for the majority of royalties generated. The aggregate of their individual royalty yields each year has remained as broadly representative of the entire licensing marketplace as it was back then. Individual licensors’ royalties are more affected by their specifics: for example, InterDigital significantly licenses video codec SEPs.

Grossing up

Percentages and monetary amounts per unit, maximum, headline and program rates

We can view royalty rates including yields as percentages or as monetary amounts, but the lens chosen can make a huge difference to how costly charges are perceived to be.

When 2G, 3G and 4G licensing rates were first offered or publicly disclosed, they were almost invariably stated as ad valorem percentages of handset selling prices. This was even though some licensing deals were for lump sum payments rather than running royalties and some licenses ended up including caps and floors to the monetary amounts paid. Percentage royalty yields, therefore, could be much lower than the headline percentage rates.

However, in more recent years and since the disclosure of royalties sought by licensors for 5G, in some cases royalty rates are stated to be monetary amounts per unit. Nokia’s rate is Euro 3.00 per handset, and Ericsson’s handset rate is $5.00, or as low as $2.50 in “exceptional circumstances.”  With smartphones increasingly including functionality, manufacturing cost and value that is purportedly not dependent on cellular SEPs, it is commonly argued that this is a more appropriate than ad valorem percentage royalty rates. While OEMs such as Apple with relatively high iPhone selling prices averaging at around $1,000 are likely to agree, OEMs such as Transsion targeting developing nations with many of its smartphones selling for less than $100 tend to oppose paying the same amount per phone as OEMs selling smartphones at much higher prices. InterDigital and Qualcomm still headline rates as percentages, but they both apply royalty base caps that effectively convert those percentages into monetary amounts per unit for higher-priced devices such as premium smartphones.

There is significant ambiguity and scope for confusion as commentators switch from depicting royalties as percentage rates to monetary amounts per unit, and back again. The example of InterDigital’s rate card, as published on its web site, illustrates this. This indicates a 4G handset royalty rate of 0.5%. However, with an royalty base cap of $200 the royalty cannot exceed $1.00 per unit. If the handset selling price is $1,000 then the percentage royalty paid (i.e. the yield) will only be $1.00/$1,000 = 0.1%. That qualifier is very transparent; it can make a huge difference to how its rates are perceived. While 0.5% is the maximum, headline rate, that 0.1% rate is also clearly without any deception, disguise or confidentially customized discounting.

However, royalty rate terminology is poorly defined and unstandardised. For example, are “program rates” the same thing as maximum rates, or can that 0.1% yield figure I calculated also legitimately be called a program rate?

Exhibit 2 shows how the yearly average royalty yields of the each major SEP licensors have fluctuated. Nokia’s yields sharply increased for a few years after it sold its handset business to Microsoft, concurrently captured a 10-year licensing agreement with the firm and with relief from needing to cross-license any handset sales with other licensors. A decline in InterDigital’s yields has been reversed as new leadership there has signed up additional licensees in the last couple of years.

Exhibit 2: SEP royalty percentage rate yield trends for major licensors in the 4G licensing era

UK and US Hewlett Packard v Autonomy litigation: highlights corporate technology, intangibles and IP rights accounting standards and reporting reform 20 Jun 2024 12:40 PM (9 months ago)

IP Finance is pleased to have this guest post from Dr Janice Denoncourt, professor at Nottingham Law School.  

One of the biggest British tech deals involved Autonomy, a software company created in 1996 by former Cambridge University academic Mike Lynch.  The British and American litigation that ensued highlights the need for wider discussions regarding reforms to accounting for nebulous intangible assets such as software, copyright and licences.  How are these valued, accounted for and reported in company annual reports?   

With hindsight, the evidence showed that the sale of Autonomy to behemoth Hewlett Packard (HP) in August 2011 over a decade ago was unfortunately rather unsuccessful.  Within a year of purchasing Autonomy and with it, access to its knowledge management software, HP identified concerns regarding Autonomy’s accounting practices – alleging serious accounting irregularities including misrepresentation and disclosure errors. HP subsequently wrote down the goodwill value by billions.  In other words, HP overpaid for Autonomy.  HP found that Autonomy's intellectual property rights and perceived overall value were worth much less than its due diligence was able to confirm.  Litigation ensued on both sides of the Atlantic.

The UK’s Serious Fraud Office eventually terminated its criminal investigation into Autonomy due to ‘insufficient evidence for a realistic prospect of conviction’. 

Meanwhile HP was sued by its own disgruntled shareholders under the UK Companies Act 2006.  HP in turn successfully sued former Autonomy former CEO Mike Lynch and former Chief Financial Officer Sushovan Hussain in civil proceedings before the UK High Court to recover its financial losses.   In his defence, Mr Lynch submitted that misunderstandings as to accounting differences between the UK and the US were the problem, not deliberate fraud.  Namely, there were differences between international financial reporting standards (IFRS) use by Autonomy, and the generally accepted accounting principles (GAAP), the financial reporting standards used for US-based companies. Nevertheless, in January 2022, the Court held Mr Lynch and his CFO guilty of fraudulently inflating Autonomy’s value by misleading JP about its performance: Autonomy and others v Michael Richard Lynch and another (17 May 2022) High Court of Justice Business and Property Courts England and Wales.  At paragraph 40 of the judgment, the Court identified the alleged improper practices included:

40.1. artificially inflating and accelerating Autonomy’s revenues;

40.2. understating Autonomy’s costs of goods sold by characterizing such costs as sales and marketing expenses so as to protect gross margins;

40.3. misrepresenting Autonomy’s rate of organic growth; and

40.4. misrepresenting the nature and quality of Autonomy’s revenues as well as overstating its gross and net profits.

The damages award in favour of HP is pending and will likely be circa £4billion.  Autonomy’s auditors were also subject to civil legal proceedings.  The UK Financial Reporting Council (FRC) fined accounting firm Deloitte £15million for auditing failings of the Autonomy accounts between 2009-2011 related to hardware sales and software licences to value-added resellers, rather than to end customers. 

In the United States, the Department of Justice (DoJ) initiated a criminal investigation. In contrast to the UK’s civil judgment, the US court has now found Lynch and Hussain ‘not guilty’ of all 15wire fraud and securities fraud charges. Lynch had been extradited from the UK to San Francisco where he was under home confinement having posted a $100USD million bond. 

Decade long litigation history aside, the wider issue is that this type of financial hole calls into question the contemporary law and practice of corporate governance, financial reporting and accounting standards to the ability of professional auditors, accountants and lawyers during the due diligence phase to identify over-valuation more readily.  Further, how should the system improve standards and practices related to accounting for intangible assets to better assist auditors, purchasers and investors?

Generally speaking, the disclosures of Autonomy's intangible assets, namely, software (copyright protected) and licensing are by their nature more difficult to value than tangible assets, leading to both over and under valuation.  Accounting standard setters such as the International Financial Reporting Standards (IFRS), the European Accounting Association (EAA), and the UK Endorsement Board (UKEB) as well as academic researchers are working on how to categorise different types of intangibles, introduce taxonomies of common terminology and make recommendations to aggregate or disaggregate type of assets in order to elicit higher quality decision-useful information. This article distils the need for a new research agenda to tackle contemporary accounting in terms of granularity and comparability for intangibles, IP rights and licences to a wider audience. 

Company directors should be interested in how accounting ‘faithfully presents’ intangible assets in their own country, and when the company trades internationally.  Dr Lynch was the President of Autonomy, Inc. and subsidiary ASL and he owed legal duties as a company director.  Directors are required to sign off the audited accounts.  The CFO, Mr Hussain was held to be a de jure director of all three relevant subsidiaries, Autonomy Inc, Zantaz and ASL, and owed duties to all three. 

Company directors, auditors, internal accountants and corporate governance professionals are in an increasingly difficult position.  Intangible assets are prolific yet traditional approaches for valuing tangible assets such as computer hardware or plant and equipment do not map well to intangibles.  Therefore, the risk of litigation for misrepresentation (innocent, negligent or fraudulent) is evident.  Valuation and reporting of intangible assets is the new normal yet, intangibles is the term for a huge category of diverse corporate assets.  One sub-set of intangibles is intellectual property (IP) rights.  For example, Autonomy’s software may protected as a copyright work under the Copyright Designs and Patents Act 1988 if it meets certain legal criteria. It is usually valued by the amount of copyright licensing revenue generated. The first allegation was that Autonomy's hardware sales was 'mischaracterised' as licence revenue. The legal issue is whether this was deliberate or not.  It was alleged that both Autonomy's CEO and Finance officer had fraudulently (with knowledge) inflated the figures reported.  

However, the outcome of a series of civil and criminal court cases in two jurisdictions over 13 years turned on the applicable standard of proof. The criminal standard, proven ‘beyond a reasonable doubt’ was too high a hurdle for the prosecution to meet in the US. However, the UK High Court civil judgment decided ‘on the balance of probabilities’ handed down by the Honourable Mr Justice Hildyard stated at paragraphs 101-102:

              101. This has been an unusually complex trial, 93 days long. Dr Lynch was cross-examined for 20 days. There was a database of many millions of documents from which there was extracted a trial bundle containing more than 28,000 documents. These documents have been the most reliable source of evidence. But there were also hundreds of pages of hearsay evidence, largely comprised of transcripts from previous proceedings in the United States, both civil and criminal.

              102. Nevertheless, I have reached clear conclusions in these proceedings on the civil liability of Dr Lynch and Mr Hussain for fraud under Financial Services and Markets Act (FSMA), common law, and the Misrepresentation Act 1967, applying, of course, the civil standard of               proof of the balance of probabilities.

From HP's perspective how the numbers added up in their valuation of the relatively young Autonomy technology firm mattered. Setting fraud aside, the system needs to support stakeholders as to new norms and standards of transparency and disclosure expected for reporting on corporate intangible assets. However, even the accounting standard setters themselves are not sure ‘Which Way to Go?’ with respect to International Accounting Standard (IAS) 38 Intangibles.  International academic researchers such as the IFRS-EAA Intangibles Research Group were commissioned to produce a literature review and are currently working on evidence to underpin policy as how best improve the accounting rules related to intangible assets.  A key component involves when to formally 'recognise' revenue of intangible assets during the business lifecycle and where such material figures and information should be reported - in the accounts, notes to the accounts or in additional narrative 'disclosures' where the company directors give explanations? The research group is also evaluating court cases to study how best to ensure an appropriate governance and stewardship standard to reduce the risk of fraud to promote financial stability and the needs of our modern technology ecosystem. 

Dr Janice Denoncourt

Associate Professor

ORCID ID 0000-0003-2176-8935

IFRS-EAA Intangibles Research Group

Director IP Research Group

Nottingham Law School

Nottingham Trent University

United Kingdom

Was the U.S. National Institutes of Health conflicted during the COVID-19 pandemic period? 12 Jun 2024 11:23 AM (10 months ago)

Jon Cohen at Science has an interesting and informative article titled, “Accusers’ bad math: NIH researchers didn’t pocket $710 million inroyalties during pandemic,” published on June 5.  The article addresses allegations that government scientists made $710 million in royalties on COVID-19-related technologies.  Those allegations raise an interesting conflict of interest issue. 

The article is definitely worth a read to provide some clarity to the controversy.  The article does note that government researchers did receive around almost $37 million in royalties during a three-year period that were mostly related to COVID-19-related technologies.  The article also states that there is a significant limit on the amount of royalties an NIH researcher can receive a year: $150,000.  I guess the math adds up to around a maximum of $450,000 over a three period for an individual researcher.  How long will they receive those royalties?  Do we have an issue with this or is this type of system which provides an incentive for government researchers to try to invent useful and valuable inventions for the public a very good thing?  Does the yearly limit effectively eliminate the conflict of interest issue? 

Licensing Executives Society Silicon Valley Webinar: Data Monetization and Valuation in the Age of AI 11 Jun 2024 11:46 AM (10 months ago)

The Silicon Valley Chapter of the Licensing Executives Society is holding a webinar on Wednesday, July 17 at noon to 1:00 pm US Pacific Time titled, “Data Monetization and Valuation in the Age of AI.”  The speaker is Efrat Kasnik, LES-SVC Chair, LES Board Member and President of Foresight Valuation Group.  Here is a registration link: FREE REGISTRATION. The following is a description of the webinar and speaker bio:

Program:
Want to leverage your data and other digital assets for funding, growth and exit? In the age of AI, data is one of the most valuable assets for technology companies, and yet companies are often struggling with how to monetize and leverage those assets to raise funding or to increase valuation.

In this webinar we will be exploring the intersection of data (and other digital assets) and corporate value. Based on her experiences as a valuation expert, start-up advisor and Stanford Lecturer, Efrat Kasznik will provide practical insights, frameworks and case studies focused on valuing data as a business asset. Some of the topics that will be covered include:

• Data & Digital Asset definitions
• Regulatory and ownership issues
• Data monetization business models: 2-way and 3-way models
• Data valuation metrics
• Case studies across industries, such as life sciences, fintech and gaming

Speaker:
Efrat Kasznik, LES-SVC Chair, LES Board Member, President, Foresight Valuation Group   
Efrat is an IP valuation and strategy expert with more than 25 years of consulting experience assisting clients with the valuation, strategic management and monetization of their intellectual property and technologies. She is president of Foresight Valuation Group LLC – a Silicon Valley-based IP valuation and litigation consulting firm – as well as a start-up advisory firm. Efrat is also an appointed lecturer on IP management at the Stanford Graduate School of Business (GSB), where she lectures on IP issues at the GSB’s MBA and executive education programs. Efrat specializes in analyzing IP and technology portfolios for a range of business transactions, including mergers and acquisitions, financial reporting, technology commercialization and business liquidations. She frequently testifies as an expert witness in legal cases involving damages or valuations of intellectual property and start-ups, as well as in high net worth divorce cases involving the valuation of intangible assets and technology startups. Efrat has been listed on the IAM 300 list of World Leading IP Strategists every year since 2013. She is actively involved in leadership roles with LES USA-Canada, where she currently serves as a board member, in addition to serving as Chair of the LES Silicon Valley chapter.

Fool’s errand with fallacies in administrative essentiality checking 7 Jun 2024 5:12 AM (10 months ago)

This is my second article on some topics discussed by my panel on “transparency” and in other sessions at the Patents in Telecoms and the Internet of Things conference in London recently. My first article, also published here, was on how value and royalty costs in standards and SEPs are passed along the supply chain to consumers.

Measuring value and royalty costs in standards and SEPs passed along the value chain to consumers 28 May 2024 12:31 AM (10 months ago)

An economist in the audience asked my panel on “transparency” at the Patents in Telecoms and the Internet of Things conference in London recently about achieving this by demanding detailed company financial disclosures. This is my first of two articles on topics in my wheelhouse that were addressed at this superlative biennial event. 

Rough judgments

Companies are generally unwilling to reveal such accounting figures that would help show how royalty costs are passed on and where profits are generated. Furthermore, some major value transfers are non-monetary and would not show up in these measures. Nevertheless, it is possible to surmise where most economic value is generated, captured or passed through, and where royalty costs are passed on in supply chains to customers.

Aggregate royalties paid of around five percent of handset revenues are very modest in comparison to total value in standards and the consumer welfare derived by several billion people using devices such as smartphones for many useful purposes.

Most of the value created in technology standards such as 4G and 5G is passed through to consumers. How much and where the rest of it is harvested across the supply chain and in the broader ecosystem is more complex and subtle.

Royalties paid and passed on can have a significant bearing on the financial performance of individual companies where competitors are paying and absorbing different amounts.

My analysis here includes some unashamedly qualitative assessments, as well as my usual quantitative support. But first, some definitions and background.

Economic pie sharing

Economists describe value created, for example, from technology innovation, as a total “surplus” that’s divided between producers and consumers. Producer surplus is obtained where the price received is higher than the minimum at which the producer is willing to sell. Consumer surplus is where the price paid is lower than the maximum the consumer is willing to pay. However, in the real world, it’s more complicated than this binary split with various different players in the ecosystem benefiting from standards such as 4G and 5G including standard-essential patents (SEPs).

Those who derive value from standards including SEPs, and share the total surplus include patent licensors, device OEMs, device ODMs (i.e. contract manufacturers), network equipment OEMs,  MNOs and MVNOs (i.e. physical and virtual mobile network operators), Big Tech Internet platforms and software publishers as well as end-users. Suppliers that generate no more than their cost of capital might be regarded as not capturing surplus, but superior returns and deficient returns can be generated in various ways. Reasons that possibly explain weak or strong profitability include (in)efficiency and other business activities. For example, Apple is by far the most profitable smartphone OEM and has accounted for between 70 percent and 80 percent of total handset profits over many years because it has a lot going for it. It is a more specific empirical question to what extent its superior returns result from it paying less than economic value or harvesting surplus in other ways in use of the cellular standards including SEPs.

Upstream creation, downstream consumption

Communications standards such as 4G and 5G are enormously valuable overall. This is resoundingly indicated by more than five billion mobile phone users (i.e. unique subscribers) and with rapid uptake of new standards. In addition to using mobile devices for calling and text messaging, with the vast majority of devices now being smartphones these are the primary or only means of accessing the Internet for most of these people. For a large and increasing proportion of them, these devices are also the dominant means of receiving news, sharing photos, paying for purchases, navigating and even watching video.

Fruits of competition and dominance

Vigorous competition bringing innovation and rapidly-declining quality-adjusted prices has delivered exceptional growth in new higher-performance services and network traffic growth. By the mid-2000s, unsubsidized new mobile phones could be purchased in most nations for under $50 and for as little as $20 in developing nations. By 2010, around half the world’s population had a mobile phone. Now, for example, there are plenty of 4G Android smartphone models on sale in India in the price range of RS5,000 to RS10,000 ($55 to $110) that include at least 4GB of RAM, front and rear cameras and 6 inch or larger displays that can stream video and deliver location-based services. Consumer surplus is clearly high in use of these, despite the relatively low willingness or ability to pay much higher prices in nations with modest income-per-capita such as India.

Meanwhile, the prices of high-end smartphones have increased. For example, many consumers happily pay more than $1,000 for various iPhone and Android models. Apple thus appears to be deriving significant producer surplus. While much of that arises from its strong brand, favored designs and manufacturing cost control, it also seems likely that a significant proportion of that is from standards-based technologies, after its payment of SEP royalties. It’s notable from recent FRAND decisions in the UK (i.e. in Interdigital v. Lenovo and Optis v. Apple) that large OEMs—such as Apple, Samsung, Xiaomi and Huawei—paying royalties in large lump sums up-front spend relatively low amounts per unit, and as percentages of unit selling prices, in comparison to many smaller OEMs paying running royalties. The larger OEMs are evidently receiving deep discounts of up to 80% for volume and prepayment.

In comparison to Apple and Samsung, most handset OEMs are in a rather more commoditized (i.e. less product-differentiated) and price-competitive market segment. Marginal costs also tend to be passed on to customers in the latter, but with little scope to increase prices much above costs no matter what goodies become available (to all) in the standards. The contract manufacturer ODMs also operate on thin margins. While owing their existence to the new technologies that fuel handset market growth and replacement, most manufacturers do not appear to be making exceptional profits in doing so.

Even some major OEMs have failed financially in the face of competition, regardless of ever-improving and increasingly valuable standards. It’s notable that despite Nokia being the handset market leader commanding the vast majority of the sector’s profits in the 2000s, and with peak financial performance around 2008, the firm’s floundering smartphone business at the beginnings of the 4G era was divested to Microsoft in 2014 and then subsequently closed with declining sales a couple of years later. With LG’s market share falling from 9% to 2% during the 2010s, it stopped selling smartphones in 2021.

All being things equal, one would expect costs including royalties to be fully passed on by suppliers in their prices. One would also expect that prices could be elevated little more—despite standard-technologies creating more total surplus than is paid for them in royalties—due to fierce downstream price competition among OEMs. Given the many competing suppliers at the commodity end of the market, one way a supplier might retain substantial supplier surplus would be if that company was avoiding royalty payments (e.g. through hold-out) while its competitors were incurring those costs and passing them on to customers. Alternatively, if that supplier was the only one, or if few are, paying such royalties, it might be unable to fully pass-on such costs to its customers without diminishing its sales volumes and market share.

Quid pro quos

MNOs and MVNOs do not pay directly to use the standards or SEP technologies that have kept them competitive in generating their service revenues. Instead, MNOs pay for new standards-based technologies in their network equipment purchases that are licensed with payment of patent fees by the manufacturers. MNOs and MVNOs commonly subsidize consumer purchases of new handsets that also employ these manufacturer-licensed technologies.

The fortunes of MNOs worldwide vary significantly: however, with a few exceptions such as US market leaders AT&T, Verizon and T-Mobile in recent years, profitability is generally modest or meagre. For example, Vodafone and 3 in the UK are hoping their proposed merger will improve lacklustre financial performance in competition with two other MNOs.

While some MNOs may have been able to capture some of the economic surplus in 4G and 5G, it seems that the MNOs and MVNOs overall are not major hoarders of surplus. Instead, consumers benefit, for example, by getting more and more data for around the same expenditure as for much less data previously. While global MNO revenues have been rather flat over many recent years, MNOs are supplying exponential network traffic growth of 1,000x over fifteen years since 2010. Fierce competition among operators is causing all the cost-per-gigabyte reductions and increased value MNOs receive from technological improvements to be passed through downstream to consumers with an unrewardingly constant unitary elasticity in the market demand curve.

In contrast, Big Tech Internet platforms are making money hand over fist in comparison to most MNOs, even though surging mobile data now accounts for almost 60% of all Internet traffic. Google (Android, Google Play Store, YouTube), Meta (Facebook, Instagram, WhatsApp) and Apple (iOS and App Store) are indirectly appropriating some of the surplus generated by standards and SEPs. For example, as WhatsApp is free for end-users, it cannibalizes the higher profits mobile operators could otherwise make on picture messaging, international calls and roaming calls. Even though consumers pay for mobile data so they can use this app, MNOs’ supplier surplus is diminished by these substitution effects. And, there’s is no free lunch for consumers: the Faustian bargain in using WhatsApp is in allowing Meta to access personal phone contact information. Consumer surplus is thus diminished and Meta’s supplier surplus is increased by this payment made in-kind.

Big Tech is also taking significant slices of the surplus from OEMs. For example, when you browser search or ask Siri for an Internet search on your iPhone it uses Google’s search engine. Payments by Google to Apple, to be the default search engine on iPhones, reportedly accounts for 14 to 21 per cent of Apple’s profits.  Payments were expected to be between $18 billion and $20 billion annually by 2021. That’s not all economic surplus from the value of communications standards and SEPs, but a significant proportion of it surely is given that Google, like Meta, also harvests value from consumers’ personal information including use—such as location—of mobile devices.

And, what about the SEP licensors who also develop the standards in the first place? Some of them are probably obtaining some producer surplus and using it to support their complementary product businesses in communications processor chips, network equipment and devices. Nevertheless, with aggregate royalties paid only around five percent of handset revenues, a much lower percentage when also including MNO and mobile OTT revenues and declining over the last decade, the remaining surplus passed through downstream in a vibrant and innovative ecosystem where almost everyone now is a major consumer is much, much more.

Keith Mallinson, founder of WiseHarbor, has more than 25 years of experience in the telecommunications industry as a research analyst, consultant and testifying expert witness.

U.S. Government Accountability Office Report on Impact of 2020 Trademark Modernization Act and Fraud 4 Apr 2024 5:17 PM (last year)

Pursuant to the 2020 Trademark Modernization Act (TMA), the U.S. Government Accountability Office (GAO) released a report examining fraud at the U.S.Trademark Office.  The GAO made recommendations to the Trademark Office to reduce the number of fraudulent trademark registrations.  The GAO reviewed the impact of changes made by the TMA and stated:

Based on our analysis of USPTO data for the period December 21, 2021, through June 27, 2023, we found that the USPTO Director and trademark attorneys representing their clients used the TMA’s new expungement and reexamination procedures to remove 2,615 falsely or inaccurately claimed goods and services from trademark registrations. Specifically: • Reexamination proceedings accounted for 1,955 of the removals compared to 660 removals resulting from expungement proceedings (see fig. 4). • Director-initiated proceedings accounted for 592 of the removals and third-party petitions accounted for 2,023 of the removals.

The GAO recommendations provide:

Recommendation 1: The Commissioner for Trademarks should plan and conduct regular fraud risk assessments of the trademark register to determine a fraud risk profile that aligns with leading practices in the Fraud Risk Framework. Specifically, this process should include (1) identifying inherent fraud risks to the trademark register, (2) assessing the likelihood and impact of inherent fraud risks, (3) determining fraud risk tolerance, (4) examining the suitability of existing fraud controls, and (5) documenting the fraud risk profile. Recommendation 2: The Commissioner for Trademarks should identify and implement improvements to current data systems to strengthen trademark data analytics for stronger fraud risk management.

The report also discusses other methods the U.S. Trademark Office uses to detect fraud such as post registration audits. 

Japanese Universities Having Trouble with Tech Transfer 4 Apr 2024 4:06 PM (last year)

Nikkei Asia has published an article by Kenjiru Suzuki titled, "Japan's Universities Fail to Make the Most of Intellectual Property: Due to Lack of Support, Patents Only Make 2% Compared to U.S. Schools."  The title provides a nice summary of the article's findings.  Research has pointed to differences between countries and their innovation systems as to why a specific country may not experience the relative success of U.S. universities in technology transfer.  For example, there may be differences in university culture, laws concerning taking a company public, corporate formation laws, laws concerning mergers and acquisitions, tax law, amount of available funding, expected licensing terms, skilled workforce, specific IP and data rights laws, networks of support and engagement, university researcher buy-in, and availability of capital (among other things).  I confess I am surprised that Japan has not realized more success in this area.  

US Department of Treasury Sanctions Commercial Spyware Entities 6 Mar 2024 2:46 PM (last year)

The U.S. Department of Treasury has sanctioned individuals and entities responsible for commercial spyware.  The Press Release states:

WASHINGTON — Today, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated two individuals and five entities associated with the Intellexa Consortium for their role in developing, operating, and distributing commercial spyware technology used to target Americans, including U.S. government officials, journalists, and policy experts. The proliferation of commercial spyware poses distinct and growing security risks to the United States and has been misused by foreign actors to enable human rights abuses and the targeting of dissidents around the world for repression and reprisal. 

“Today’s actions represent a tangible step forward in discouraging the misuse of commercial surveillance tools, which increasingly present a security risk to the United States and our citizens,” said Under Secretary of the Treasury for Terrorism and Financial Intelligence Brian E. Nelson. “The United States remains focused on establishing clear guardrails for the responsible development and use of these technologies while also ensuring the protection of human rights and civil liberties of individuals around the world.”  . . .

PREDATOR SPYWARE SOLD TO CUSTOMERS AROUND THE GLOBE

Since its founding in 2019, the Intellexa Consortium has acted as a marketing label for a variety of offensive cyber companies that offer commercial spyware and surveillance tools to enable targeted and mass surveillance campaigns. These tools are packaged as a suite of tools under the brand-name “Predator” spyware, which can infiltrate a range of electronic devices through zero-click attacks that require no user interaction for the spyware to infect the device. Once a device is infected by the Predator spyware, the spyware can be leveraged for a variety of information stealing and surveillance capabilities—this includes the unauthorized extraction of data, geolocation tracking, and access to a variety of applications and personal information on the compromised device. 

The Intellexa Consortium, which has a global customer base, has enabled the proliferation of commercial spyware and surveillance technologies around the world, including to authoritarian regimes. Furthermore, the Predator spyware has been deployed by foreign actors in an effort to covertly surveil U.S. government officials, journalists, and policy experts. In the event of a successful Predator infection, the spyware’s operators can access and retrieve sensitive information including contacts, call logs, and messaging information, microphone recordings, and media from the device.    

PRESIDENTIAL DIRECTIVE TO PROMOTE ROBUST COMMERCIAL SPYWARE STANDARDS TO PROTECT NATIONAL SECURITY AND UNIVERSAL HUMAN RIGHTS 

As described in E.O. 14093 and the White House Fact Sheet, commercial spyware has proliferated in recent years with few controls and a high risk of abuse.  A growing number of foreign governments around the world, moreover, have deployed this technology to facilitate repression and enable human rights abuses, including to intimidate political opponents and curb dissent, limit freedom of expression, and monitor and target activists and journalists. Misuse of these powerful surveillance tools has not been limited to authoritarian regimes. Democracies also have confronted revelations that actors within their systems have misused commercial spyware to target their citizens without proper legal authorization, safeguards, and oversight. 

This Presidential Directive has identified that the United States has a fundamental national security and foreign policy interest in countering and preventing the proliferation of commercial spyware that has been or risks being misused, in light of the core interests of the United States in protecting U.S. government personnel and U.S. citizens around the world; upholding and advancing democracy; promoting respect for human rights; and defending activists, dissidents, and journalists against threats to their freedom and dignity. 

To advance these interests and promote responsible use of commercial spyware, the United States has established robust protections and procedures to ensure that any U.S. government use of commercial spyware helps safeguard its information systems and intelligence and law enforcement activities against significant counterintelligence or security risks; aligns with its core interests in promoting democracy and democratic values around the world; and ensures that the U.S. government does not contribute, directly or indirectly, to the proliferation of commercial spyware that has been misused by foreign governments or facilitate such misuse.

KEY ENABLERS OF THE INTELLEXA CONSORTIUM

Tal Jonathan Dilian (Dilian) is the founder of the Intellexa Consortium, and is the architect behind its spyware tools. The consortium is a complex international web of decentralized companies controlled either fully or partially by Dilian, including through Sara Aleksandra Fayssal Hamou.   

Sara Aleksandra Fayssal Hamou (Hamou), is a corporate off-shoring specialist who has provided managerial services to the Intellexa Consortium, including renting office space in Greece on behalf of Intellexa S.A. Hamou holds a leadership role at Intellexa S.A., Intellexa Limited, and Thalestris Limited.  

Intellexa S.A. is a Greece-based software development company within the Intellexa Consortium and has exported its surveillance tools to authoritarian regimes. Intellexa S.A. was added to the Department of Commerce Entity List on July 18, 2023, for trafficking in cyber exploits used to gain access to information systems, threatening the privacy and security of individuals and organizations worldwide. 

Intellexa Limited is an Ireland-based company within the Intellexa Consortium and acts as a technology reseller and holds assets on behalf of the consortium. Intellexa Limited was added to the Department of Commerce Entity List on July 18, 2023, for trafficking in cyber exploits used to gain access to information systems, threatening the privacy and security of individuals and organizations worldwide. 

Cytrox AD is a North Macedonia-based company within the Intellexa Consortium and acts as a developer of the consortium’s Predator spyware. Cytrox AD was added to the Department of Commerce Entity List on July 18, 2023, for trafficking in cyber exploits used to gain access to information systems, threatening the privacy and security of individuals and organizations worldwide. 

Cytrox Holdings Zartkoruen Mukodo Reszvenytarsasag (Cytrox Holdings ZRT) is a Hungary-based entity within the Intellexa Consortium. Cytrox Holdings ZRT previously developed the Predator spyware for the group before production moved to Cytrox AD in North Macedonia. Cytrox Holdings ZRT was added to the Department of Commerce Entity List on July 18, 2023, for trafficking in cyber exploits used to gain access to information systems, threatening the privacy and security of individuals and organizations worldwide. 

Thalestris Limited is an Ireland-based entity within the Intellexa Consortium that holds distribution rights to the Predator spyware and acts as a financial holding company for the Consortium.   

Dilian, Hamou, Intellexa S.A., Intellexa Limited, Cytrox AD, Cytrox Holdings ZRT, and Thalestris Limited are being designated pursuant to Executive Order (E.O.) 13694, as amended by E.O. 13757, for being responsible for or complicit in, or having engaged in, directly or indirectly, cyber-enabled activities originating from, or directed by persons located, in whole or in substantial part, outside the United States that are reasonably likely to result in, or have materially contributed to, a significant threat to the national security, foreign policy, or economic health or financial stability of the United States and that have the purpose or effect of causing a significant misappropriation of funds or economic resources, trade secrets, personal identifiers, or financial information for commercial or competitive advantage or private financial gain.

SANCTIONS IMPLICATIONS

As a result of today’s action, all property and interests in property of the designated persons described above that are in the United States or in the possession or control of U.S. persons are blocked and must be reported to OFAC. In addition, any entities that are owned, directly or indirectly, individually or in the aggregate, 50 percent or more by one or more blocked persons are also blocked. Unless authorized by a general or specific license issued by OFAC, or exempt, OFAC’s regulations generally prohibit all transactions by U.S. persons or within (or transiting) the United States that involve any property or interests in property of designated or otherwise blocked persons. 

In addition, financial institutions and other persons that engage in certain transactions or activities with the sanctioned entities and individuals may expose themselves to sanctions or be subject to an enforcement action. Prohibitions include the making of any contribution or provision of funds, goods, or services by, to, or for the benefit of any designated person, or the receipt of any contribution or provision of funds, goods, or services from any such person. 

The power and integrity of OFAC sanctions derive not only from OFAC’s ability to designate and add persons to the Specially Designated Nationals (SDN) List, but also from its willingness to remove persons from the SDN List consistent with the law. The ultimate goal of sanctions is not to punish, but to bring about a positive change in behavior. For information concerning the process for seeking removal from an OFAC list, including the SDN List, please refer to OFAC’s Frequently Asked Question 897 here. For detailed information on the process to submit a request for removal from an OFAC sanctions list, please click here.

Click here for more information on the individuals and entities designated today.

US DOJ Announces Indictment of Former Google Employee and PRC National for AI Trade Secret Theft 6 Mar 2024 2:21 PM (last year)

US Department of Justice announced the indictment of former Google employee for stealing AI related trade secrets.  The press release states:

A federal grand jury indicted Linwei Ding, aka Leon Ding, charging him with four counts of theft of trade secrets in connection with an alleged plan to steal from Google LLC (Google) proprietary information related to artificial intelligence (AI) technology. . . .

According to the indictment, returned on March 5 and unsealed earlier today, Ding, 38, a national of the People’s Republic of China and resident of Newark, California, transferred sensitive Google trade secrets and other confidential information from Google’s network to his personal account while secretly affiliating himself with PRC-based companies in the AI industry. Ding was arrested earlier this morning in Newark.

“The Justice Department will not tolerate the theft of artificial intelligence and other advanced technologies that could put our national security at risk,” said Attorney General Garland. “In this case, we allege the defendant stole artificial intelligence-related trade secrets from Google while secretly working for two companies based in China. We will fiercely protect sensitive technologies developed in America from falling into the hands of those who should not have them.”  

. . . “In the one year since its inception, the Disruptive Technology Strike Force has been relentless in protecting advanced U.S. technologies, like artificial intelligence, from malign actors,” said Assistant Secretary Matthew S. Axelrod of the Commerce Department’s Office for Export Enforcement. “Let today’s announcement serve as further warning – those who would steal sensitive U.S. technology risk finding themselves on the wrong end of a criminal indictment.”

According to court documents, the technology Ding allegedly stole involves the building blocks of Google’s advanced supercomputing data centers, which are designed to support machine learning workloads used to train and host large AI models. According to the indictment, large AI models are AI applications capable of understanding nuanced language and generating intelligent responses to prompts, tasks, or queries. The indictment describes how Google developed both proprietary hardware and software to facilitate the machine learning process powered by its supercomputing data centers. With respect to hardware, Google uses advanced computer chips with the extraordinary processing power required to facilitate machine learning and run AI applications. With respect to software, Google deploys several layers of software, referred to in the indictment as the “software platform,” to orchestrate machine learning workloads efficiently. For example, one component of the software platform is the Cluster Management System (CMS), which functions as the “brain” of Google’s supercomputing data centers. The CMS organizes, prioritizes, and assigns tasks to the hardware infrastructure, allowing the advanced chips to function efficiently when executing machine learning workloads or hosting AI applications.

According to the indictment, Google hired Ding as a software engineer in 2019. Ding’s responsibilities included developing the software deployed in Google’s supercomputing data centers. In connection with his employment, Ding was granted access to Goggle’s confidential information related to the hardware infrastructure, the software platform, and the AI models and applications they supported. The indictment alleges that on May 21, 2022, Ding began secretly uploading trade secrets that were stored in Google’s network by copying the information into a personal Google Cloud account. According to the indictment, Ding continued periodic uploads until May 2, 2023, by which time Ding allegedly uploaded more than 500 unique files containing confidential information.

In addition, the indictment alleges that Ding secretly affiliated himself with two PRC-based technology companies. According to the indictment, on or about June 13, 2022, Ding received several emails from the CEO of an early-stage technology company based in the PRC indicating Ding had been offered the position of Chief Technology Officer for the company. Ding allegedly traveled to the PRC on Oct. 29, 2022, and remained there until March 25, 2023, during which time he participated in investor meetings to raise capital for the new company. The indictment alleges potential investors were told Ding was the new company’s Chief Technology Officer and that Ding owned 20% of the company’s stock.

According to the indictment, unbeknownst to Google, by no later than May 30, 2023, Ding had founded his own technology company in the AI and machine learning industry and was acting as the company’s CEO. Ding’s company touted the development of a software platform designed to accelerate machine learning workloads, including training large AI models. As alleged in the indictment, Ding applied to a PRC-based startup incubation program and traveled to Beijing, to present his company at an investor conference on Nov. 24, 2023. As set forth in the indictment, a document related to Ding’s startup company stated, “we have experience with Google's ten-thousand-card computational power platform; we just need to replicate and upgrade it - and then further develop a computational power platform suited to China's national conditions.” 

The indictment alleges Ding’s conduct violated his employment agreement as well as a separate code of conduct that Ding signed when he became a Google employee. Further, the indictment describes measures that Ding allegedly took to conceal his theft of the trade secrets. For example, he allegedly copied data from Google source files into the Apple Notes application on his Google-issued MacBook laptop. By then converting the Apple Notes into PDF files and uploading them from the Google network into as separate account, Ding allegedly evaded detection by Google’s data loss prevention systems. Likewise, the indictment describes how in December 2023 Ding allegedly permitted another Google employee to use his Google-issued access badge to scan into the entrance of a Google building – making it appear he was working from his U.S. Google office when, in fact, he was in the PRC.

Ding is charged with four counts of theft of trade secrets. If convicted, Ding faces a maximum penalty of 10 years in prison and up to a $250,000 fine for each count. A federal district court judge will determine any sentence after considering the U.S. Sentencing Guidelines and other statutory factors.

The FBI and Commerce Department are investigating the case.

The U.S. Attorney’s Office for the Northern District of California and Justice Department National Security Division’s Counterintelligence and Export Control Section are prosecuting the case.

Today’s action was coordinated through the Justice and Commerce Departments’ Disruptive Technology Strike Force. The Disruptive Technology Strike Force is an interagency law enforcement strike force co-led by the Departments of Justice and Commerce designed to target illicit actors, protect supply chains, and prevent critical technology from being acquired by authoritarian regimes and hostile nation-states.

An indictment is merely an allegation. All defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.

US PTO Releases Guidelines on AI Assisted Inventions 29 Feb 2024 2:09 PM (last year)

The United States Patent Office has issued Guidelines on AI Assisted Inventions.  The press release concerning the guidelines provides:

To incentivize, protect, and encourage investment in innovations made possible through the use of artificial intelligence (AI), and to provide the clarity to the public and United States Patent and Trademark Office (USPTO) employees on the patentability of AI-assisted inventions, the USPTO has published guidance in the Federal Register. This guidance delivers on the USPTO’s obligations under the Executive Order on the Safe, Secure, and Trustworthy Development and Use of Artificial Intelligence.

“The patent system was developed to incentivize and protect human ingenuity and the investments needed to translate that ingenuity into marketable products and solutions,” said Kathi Vidal, Under Secretary of Commerce for Intellectual Property and Director of the USPTO. “The patent system also incentivizes the sharing of ideas and solutions so that others may build on them. The guidance strikes a balance between awarding patent protection to promote human ingenuity and investment for AI-assisted inventions while not unnecessarily locking up innovation for future developments. The guidance does that by embracing the use of AI in innovation and focusing on the human contribution.”

The guidance, which goes into effect February 13, makes clear that AI-assisted inventions are not categorically unpatentable. The guidance provides instructions to examiners and stakeholders on how to determine whether the human contribution to an innovation is significant enough to qualify for a patent when AI also contributed. It builds on the existing inventorship framework by providing instructions to examiners and applicants on determining the correct inventor(s) to be named in a patent or patent application for inventions created by humans with the assistance of one or more AI systems. It states that patent protection may be sought for inventions in which a human provided a significant contribution to the invention.

Additionally, in order to further assist our examiners and applicants in their understanding of this guidance, examples of hypothetical situations of how the guidance would apply are available on our AI-related resources webpage.

To learn more about what the guidance is and is not, and to get your questions answered and provide feedback, we invite you to attend our upcoming public webinar on March 5 from 1-2 p.m. ET. We also invite you to read the Director’s Blog on AI and inventorship guidance: Incentivizing human ingenuity and investment in AI-assisted inventions.

The full text of the inventorship guidance for AI-assisted inventions and the corresponding examples are available on our AI-related resources webpage. The USPTO will accept public comments on the inventorship guidance and the examples until May 13, 2024. Please see the Federal Register Notice for instructions on submitting comments.

The Guidelines provide a nonexhaustive list of principles to use when analyzing ai-assisted inventorship:

1. A natural person's use of an AI system in creating an AI-assisted invention does not negate the person's contributions as an inventor.^[53] The natural person can be listed as the inventor or joint inventor if the natural person contributes significantly to the AI-assisted invention.

2. Merely recognizing a problem or having a general goal or research plan to pursue does not rise to the level of conception.^[54] A natural person who only presents a problem to an AI system may not be a proper inventor or joint inventor of an invention identified from the output of the AI system. However, a significant contribution could be shown by the way the person constructs the prompt in view of a specific problem to elicit a particular solution from the AI system.

3. Reducing an invention to practice alone is not a significant contribution that rises to the level of inventorship.^[55] Therefore, a natural person who merely recognizes and appreciates the output of an AI system as an invention, particularly when the properties and utility of the output are apparent to those of ordinary skill, is not necessarily an inventor.^[56] However, a person who takes the output of an AI system and makes a significant contribution to the output to create an invention may be a proper inventor. Alternatively, in certain situations, a person who conducts a successful experiment using the AI system's output could demonstrate that the person provided a significant contribution to the invention even if that person is unable to establish conception until the invention has been reduced to practice.^[57]

4. A natural person who develops an essential building block from which the claimed invention is derived may be considered to have provided a significant contribution to the conception of the claimed invention even though the person was not present for or a participant in each activity that led to the conception of the claimed invention.^[58] In some situations, the natural person(s) who designs, builds, or trains an AI system in view of a specific problem to elicit a particular solution could be an inventor, where the designing, building, or training of the AI system is a significant contribution to the invention created with the AI system.

5. Maintaining “intellectual domination” over an AI system does not, on its own, make a person an inventor of any inventions created through the use of the AI system.^[59] Therefore, a person simply owning or overseeing an AI system that is used in the creation of an invention, without providing a significant contribution to the conception of the invention, does not make that person an inventor.

Additionally, the guidelines, related to the duty of candor and reasonable inquiry, state:

For example, patent practitioners who are preparing and prosecuting an application should inquire about the proper inventorship.^[74] Given the ubiquitous nature of AI, this inventorship inquiry could include questions about whether and how AI is being used in the invention creation process. In making inventorship determinations, it is appropriate to assess whether the contributions made by natural persons rise to the level of inventorship as discussed in section IV above.