Business and Technology Law

The exhaustive media coverage surrounding “cloud computing” is enough to induce readers to tune-out on the topic altogether, but ignoring computing in the cloud is a perilous proposition. Cloud computing will soon be as mainstream as e-mail (coincidentally, one of the first successful cloud offerings). The hype is fueled by pro-cloud commentators, vehemently promoting the cloud panacea, battling it out with cloud naysayers who warn that a move to the cloud is fraught with too much risk for serious consideration. I think both sides are right. An investment in the cloud can yield a tangible cost savings on upfront set-up and ongoing maintenance costs for companies. Additionally, the on-demand aspect of cloud architecture means that companies quickly can adapt to opportunities for growth and can tighten their belts when demand for their services and products shrinks. But cloud detractors are not mere panic mongers—there is significant risk lurking in the cloud. Happily, most companies can have it both ways by focusing on a document, frequently overlooked, that is a shield against many cloud-based risks—the Service Level Agreement or “SLA”.

The main function of any SLA is to establish expectations for the client with respect to software availability or “uptime”. In addition to service guarantees, a good SLA should accomplish the following: 1) establish built-in remedies for the customer if the vendor is unable to meet service guarantees; 2) define disaster recovery provisions; 3) define customer duties with respect to the manner of use of the software; and 4) establish procedures for software maintenance and upgrades. Because most cloud customers depend on software hosted on external networks, stipulating the level of service customers have the right to expect is critical.

Vendors generally measure their availability using metrics that seem understandable, but that often are dangerously vague and difficult to measure from an accounting perspective. For instance, customers may see a “99.999% service access uptime,” (or some variation thereof), standard guarantee from ISPs. This metric may be easy to understand, but it does not necessarily reflect the needs of the customers. For instance, a cloud service may be technically accessible, while large swaths of the functionality are inoperable. With a “service access uptime” metric in place, a customer may be left without access to service credits that should otherwise be available to it. One alternative to consider in those situations may be a SLA based on incident-response-time guarantees or some other metric that is easier to apply and that does not require constant attention.

Because the SLA is so critical to mitigation of one of the primary risks in cloud computing, it is important for a customer to carefully read and understand the SLA and either accept the risk associated with the standard metric or negotiate for more appropriate measurement of success.

The Texas Attorney General’s Office is investigating whether Google violated antitrust laws with its search rank methods. The inquiry reportedly focuses on whether and to what extent Google manipulates search results to place certain links closer to the top of the results list in order to stifle competition. A good search result ranking often translates into instant commercial success for many businesses while a lower ranking may contribute to a business’ failure.

Texas Attorney General Greg Abbott reportedly has asked Google for information regarding several companies in the online shopping, comparison shopping, and e-commerce space. The companies previously filed regulatory complaints or lawsuits against Google. Google closely guards its search algorithms and indicates it strives to recommend Web sites most likely to satisfy the needs of each user's request. On its Public Policy Blog, Google identified each of the three companies at issue and provided more information about its history with the companies.

This may be one of the first broad antitrust reviews of Google’s search and advertising practices in the U.S. The investigation likely will be closely watched by search-engine optimization professionals, because the impact of an adverse finding concerning Google’s business practices could have far-reaching impacts on how businesses use the search engine giant and how they work to improve their search rankings in order to promote products and services.

Social networking giant Facebook recently filed a trademark infringement lawsuit against Teachbook.com, an upstart networking web site for teachers. Although Teachbook obtained a trademark in 2009, Facebook’s suit claims its incorporation of the word “book” constitutes unfair competition and trademark dilution. Teachbook denies the trademark infringement claims and asserts that Facebook does not own the word “book.” Teachbook also has vowed to vigorously defend itself against Facebook’s claims.

Evidently completing the thought initiated by the Teachbook case, Facebook also is seeking to trademark the word “face.” However, that application is being opposed by Aaron Greenspan, former roommate of Facebook founder Mark Zuckerberg, who claims Facebook was his idea and has paperwork with the U.S. Patent & Trademark Office in an effort to prevent Facebook from obtaining the registration.

Facebook’s quest to obtain ownership of the words “book” and “face” may have far-reaching implications for many existing businesses using those words in their company or product names. If successful, Facebook’s efforts also conceivably could initiate a tidal-wave of trademark applications seeking registrations for common words. The success of those applications likely would depend heavily on the goods or services proposed to be associated with the marks, with the likelihood of a registration increasing in proportion to the extent to which the idea embodied by the trademark differs from those goods or services (for example, think of the word “apple” used to market computers and personal electronic devices).

As with most Facebook-related legal issues, the unfolding of these recent developments should be very interesting to watch.

Interval Licensing, a patent holding company owned by Microsoft co-founder Paul Allen, filed patent-infringement claims on August 27, 2010, against eleven of the biggest names in Internet-based commerce: AOL, Apple, eBay, Facebook, Google, Netflix, Office Depot, OfficeMax, Staples, Yahoo, and YouTube. Interval’s complaint alleges that those companies incorporated technologies in their web sites that fall within the scope of four patents owned by Interval. However, as reflected in the substantial share of online activity dominated by those companies, Interval’s suit arguably represents one company laying claim to core components of the infrastructure of Internet business – components that vast numbers of businesses small and large employ every day in order to attract customers.
The four patents identified by Interval in its complaint are:

* Patents No. 6,034,652 and 6,788,314, issued March 7, 2000, and September 7, 2004: “Attention Manager for Occupying the Peripheral Attention of a Person in the Vicinity of a Display Device.”
* Patent No. 6,263,507, issued July 17, 2001: “Browser for Use in Navigating a Body of Information, With Particular Application to Browsing Information Represented by Audiovisual Data.”
* Patent No. 6,757,682, issued June 29, 2004: “Alerting Users to Items of Current Interest.”

While the patent titles do not provide deep detail, the combined scope of the patents upon review is nearly breathtaking, when you consider the ways many of us use the Internet today. Potentially implicated by Interval’s claims are video-streaming sites, news aggregators, and services providers that allow users to customize the displayed content and to receive email alerts when there has been a change to that content.

Interval apparently is prepared to show that all or some of the defendants knew or should have known that they were infringing its patents. However, to the extent that it is unable to do so, considering the widespread use of these concepts across the Internet, it would appear that a case of accidental infringement would be strong. That likely would only reduce the available damages, though – if Interval otherwise is successful in pursuing these claims the potential windfall it would receive in terms of licensing fees would be huge.

At least in part because they have the potential to entail such broad technological scope, business process patents like the ones at issue in the Interval lawsuit often combine to form fields of IP landmines for the unaware. Companies with a heavy dependence on technology must continue to recognize patent exposure as a cost of doing business, and they must be ready to work closely with knowledgeable counsel to evaluate the integrity of any patent claims with which they are presented.

On September 7, 2010, Hewlett-Packard sued its former CEO, Mark Hurd, in California state court for alleged breach-of-contract and threatened misappropriation of trade secrets. HP is seeking to keep Hurd from joining rival Oracle, which recently offered to hire Hurd as a top-level executive following his publicized departure from HP over claims that he altered expense reports to cover up a personal affair. (A copy of the complaint is available here.)

Trade secrets-related disputes often follow the departures of executives from the companies they lead, especially when, as in this case, the departure is less-than-amicable. However, non-compete agreements are usually very difficult to enforce in court to the extent that they can be construed as an unreasonable restraint on a former employee’s ability to find a job. Moreover, in California, almost all non-compete agreements are void by operation of state law. Even if the agreement HP is seeking to enforce is not a non-compete agreement on its face, if the effect of HP’s requested remedy would be the same as traditional non-compete agreement, it likely will be extremely difficult for it to achieve the result it allegedly is seeking.

However, both sides of this dispute clearly have heavy war chests from which to pay their attorneys, so what seems like a predictable result probably will end up being anything but predictable. Nevertheless, to the extent that any business with trade secrets needed one, the case is a good reminder of the importance of taking a holistic approach to the protection of those assets. In many cases, restrictive covenants in employment contracts simply will not get the job done. With some employees, like Hurd in HP’s case, it may be next to impossible to defend against some kinds of misappropriation. In those cases it becomes all the more important to incentivize compliance in the terms of a well crafted severance package. And, where doubt arises, as always, consult with knowledgeable counsel in order to determine what will and will not be enforceable if the relationship turns sour.

Late-breaking news: According to CNNMoney.com on Monday, H-P settled its lawsuit against Mark Hurd. As part of the settlement, Hurd will waive rights to 340,000 shares of H-P stock