Pigeon Power!

Why establish your startup in France?  Why invest there?  

On April 12, 2013, the French government reportedly rejected Yahoo’s bid to acquire 75% of a leading video sharing website Dailymotion, owned by Orange, a subsidiary of France Telecom, S.A.  The ostensible reason was that control of a crown jewel of French Internet startups should remain in France.  No great French Internet company should lose its French identity.  The French government owns a 27% stake in France Telecom, S.A.

This result will only harm the French economy by encouraging French entrepreneurs and SMB’s to seek venture capital, growth opportunities and technologies outside of France.   This comes after a year of hostile words by Arnaud Montebourg, France’s Minister of Industrial Renewal  (“productive renewal”) against foreign steelmakers and others who might bring in foreign investment and foreign business methods for French industry.  It will deprive Dailymotion of capital investment needed for sustainability and growth.

Having studied, lived and worked in France, and as a tech business lawyer in New York, I offer my own lament to French entrepreneurs and SMB’s in their own tongue.  (If you only studied French in high school, try www.translate.google.com for a breezy translation.)

Où bâtir votre startup français?   Evidemment, la France ne vous accueille pas. 

C’est ça le message du gouvernement de François Hollande, dont le Ministre du Redressement Productif Arnaud Montebourg a refusé le 12 avril 2013 de permettre à la startup Dailymotion de se vendre le contrôle à Yahoo, Inc.  Le Ministre aurait permis la vente de 50% mais pas le 75% convenu entre la « startup » vedette française Dailymotion (fondée en 2005) et Yahoo. 

Quelles seront les conséquences de la « fin du capitalisme libre» que M. Montebourg a annoncée en 2012 ?  

D’abord, les entrepreneurs français (et leurs investisseurs, comme les « anges d’affaires » (Business Angels) et les fonds de capital risque) vont croire que les subventions et certaines baisses prioritaires de taux d’impôts, récemment annoncées en France, sont illusoires.  On va conclure qu’il vaut mieux établir les moteurs de croissances dans les pays étrangers des « Pigeons ».   L’Ireland, le Canada et, bien sur, les Etats-Unis vont les accueillir avec des visas d’entrepreneur, de startup, d’investisseur et de commerçant.  Sous Hollande, la fuite des cerveaux, des jeunes et des PME va s’accélérer.  Même s’ils ne se délocalisent pas personnellement pour des raisons de famille, les PME pourront établir des sociétés affiliées étrangères dans de tels pays d’accueil, où il trouveront du capital risque (venture capital), des marchés, des taux d’impôts raisonnables et le droit du travail plus équilibré que devant les tribunaux de Prud’hommes. 

Ensuite, déprimés par un dirigisme protectionniste en France, les prix de vente pour les PME français vont rester en dessous des niveaux atteints normalement dans d’autres pays.  

Enfin, au lieu de préserver la façon de vivre, et de protéger les mœurs et coutumes français, ce gouvernement de François Hollande va vider la France des personnes qui auraient soutenu autrement sa place de leader dans les économies européennes et mondiales. 

Et je ne parle as des obligations de la France d’ouvrir des portes à l’investissement étranger sous la convention de l’OMG (WTO) sur les investissements portant sur le commerce international.   Non, je me tais.  Je ne veux pas condamner la France du non-respect de la lettre des lois.   Montesquieu m’a enseigné quand même « l’esprit des lois. »

In short, look around.  Chercher le business là où vous êtes bien accueilli. 

Could an International Trade War on Privacy Rights for Online Businesses be Heating Up?

Privacy and data protection are synonymous with the “good life” of e-commerce, when online businesses are free to use consumer data with little restrictions.  But with technological advances and the explosive growth of e-commerce, this area invites extraterritorial regulation by foreign governments across borders.  I’m concerned that this web of web regulations will be totally inconsistent, unmanageable and lead to significant costs and lost opportunities for e-businesses.  Consumer protection should not become a mandate for imposing bureaucracy and “free” content management services.

EU Harmony.  In January 2012, the EU announced proposed reforms to its 1995 data protection rules in order to further strengthen online privacy rights and regulate the enormous growth of data collection and processing over the internet in this age of mobile and social computing, the Internet of Things, Big Data and related analytics.  In short, these reforms proposed:

• a single set of rules to apply across the EU and its administration by a single national data authority within the home EU country with the power to impose fines for non-compliance. 
• In addition, EU people will have greater privacy rights, including the “right to be forgotten” and the “right to port their data” across service providers. 
• EU rules would apply in cross-border transactions for companies in non-EU countries handling services to EU citizens.  Any serious data breaches would have to be reported to authorities as soon as feasible within 24 hours.  Additional costs would be incurred by businesses.

Since then, some EU member nations, major tech companies and other countries have criticized the proposal as being too restrictive and a burdensome expense for (especially small) companies..  Nevertheless, the EU continues to move forward with an amended draft likely to happen later this year with the objective of implementing a Regulation governing its member nations in 2014.

American Federalism:  A Hodge Podge.   In contrast, American federal laws (see https://www.cdt.org/privacy/guide/protect/laws.php) are generally weaker than European and other countries’ laws in the field of consumer protection for data privacy and the “private life.”  A year after the Obama administration called for a draft of a consumer privacy bill of rights, none has been completed or made public.  There are no baseline privacy laws protecting consumers. Instead there are sector specific privacy laws and self regulated company privacy policies; consumer privacy laws vary by state (see http://www.ncsl.org/issues-research/telecom/state-laws-related-to-internet-privacy.aspx).  Those who support this hodge podge of laws insist that these methods encourage free commerce and growth of online businesses.

New Balance: International Agreement or International Chaos?   There is no free lunch.  My concern is that privacy laws will be so onerous, complex and confusing that it will balkanize the Internet, preventing cross-border transactions and increasing the hurdles for Internet entrepreneurship of small and mid-sized businesses.  Consumer protection and data privacy laws will conflict with business, adding costs that will have to be passed along to the consumer in the form of higher prices, more advertising per view, and less innovation.  Should the EU adopt its proposed reforms independently, American companies could find themselves subject to EU regulations when conducting cross-border transactions with EU citizens even if there is no conflict with American laws. 

I believe that every nation should have “baseline” privacy rules, including the US, but I wouldn’t go as far as the proposed EU reforms.   Businesses and/or consumers alike have a:

• Right to know what data is being collected and aggregated about them

• “right to be forgotten” but only where the user pays the cost of undoing what the user posted “for free”
• copyright in posted content and a right to transfer one’s post to other providers, for a reasonable porting fee
• right to know what data is known by a service provider and the right to correct it.

The US and EU are set to begin negotiations for a free trade agreement June 2013.  Hopefully common agreement on data protection and privacy rules will be a part of it.  More on this subject later.

Visa Reform: Cutting Back on H-1B and L-1 Body Shops

Does your workforce depend upon foreign labor? If so your workforce planning may suddenly be changed.

On March 18, 2013, Senator Charles Grassley (Republican, Iowa) introduced a “50-50” visa bill to promote hiring local U.S. workers.  One section would require companies with more than 50 employees to limit their number of U.S. employees on H-1B or L-1 visas to 50% of its workforce.  This would apply to both domestic and foreign companies with American subsidiaries.  In short, 50% of the workers employed in the U.S. would need to be American citizens or green-card holders. 

Such visa legislation would attack foreign “body shops” that rotate contractors to the U.S. in support of global sourcing.  Aside from targeting India, a 50-50 quota bill would also hurt foreign businesses from Western Europe and Latin America that send technical staff in management consulting and business change management to the U.S.  It would hurt smaller foreign companies that depend on foreign staff as they grow into the US market.

Will a 50-50 quota really increase U.S. employment levels for technical workers?  I see several scenarios:

• Yes, it promotes local hiring to replace foreign contractors.  (This assumes you can find the right talent here.)

• No, it encourages U.S. companies to set up foreign “vendor management” teams to manage foreign workers in offshore service delivery centers.

• No change.  In the short run, it will reduce utilization rates and operating profits of foreign service providers.  Over time, nothing will stop globalization.  Businesses will find a way to deal with this by more video conferencing and online collaboration tools.  Affected foreign service providers will hire more U.S. sales people (as well as technical personnel) to meet this quota.

• It’s irrelevant.  Foreign countries with existing “friendship, commerce and navigation” treaties are entitled to “most favored nation” treatment.  So they will lobby to eliminate such rules, or they could threaten retaliatory visa action against U.S. expatriate employees in foreign subsidiaries. 

In my view, this measure would not survive long, and it highlights the need for a comprehensive immigration reform that invites foreign technical workers (“STEM” – science, tech, engineering and math) to become residents and citizens.   

What do you think?

The Hot “New” Value of Copyrights for SaaS and other Software Apps

What’s the most cost-effective, practical way to protect intellectual property for your cool mobile app or your SaaS e-business?   The answer just changed as of March 16, 2013.   

Since this date, getting patent protection became harder.  Now, the first inventor to file a patent application will be recognized as the inventor of this U.S. patent, and the “first to invent” priority rule will no longer apply under the America Invents Act, enacted September 16, 2011.  A number of other changes became effective as well:  “prior art” now includes foreign publications.  In short, getting a U.S. patent will require more vigilance and investment in the patenting process.  And enforcing/defending a patent could still cost over $1.0 million or more. 

So is now the right time for a resurgence of copyright applications for software to protect intellectual property rights?   Yes, perhaps.  While copyrights cannot replace patents as a legal monopoly, for the smaller business or entrepreneur with limited funding and wanting a quick certification of ownership, copyright offers a simple, cost-effective solution. 

Unlike patents (which protect innovative ideas), copyrights only protect the particular expression of an idea, such as a story, or a software application.  There is some room for additional copyright protection against plagiarized “derivative” works, but not much, since the author of the “derivative” work need only show a minimal level of originality to defeat a claim of plagiarism. 

But, copyrights still have a lot of value.  A copyright owner can prevent others from copying and marketing clone software or even a clone product catalog.  You don’t need to register to own the copyright, but registration helps with enforcement.  The owner of a registered U.S. copyright can sue for damages and collect attorney’s fees.  (Owners of trade secrets can only sue for damages and normally cannot collect attorneys’ fees).  And you can register the copyright with U.S. customs authorities to prevent the importation of infringing products.  All this is a powerful incentive for preventing knock-offs.  The U.S. online copyright filing fee is only $35 per basic claim of authorship.

But, done wrong, registering a copyright can risk losing trade secret and/or patent rights.  If you deposit a copy of your source code for the app with the U.S. Copyright Office, it risks making public your confidential secret sauce, which would normally defeat trade secrecy and could endanger an unfiled patent application.  Done right, however, your copyright registration can avoid that risk by careful planning and limited disclosure of the secret sauce. 

Your copyright registration program should fit within a more holistic overall program to protect intellectual property including trade secrets.  The copyright deposit materials could be machine-readable object code, so that it becomes indecipherable without an operating system and a computer language.  Or the deposit materials could be fractions of a printout of the code.  All you need to do is prove that it compiles, and do it in a manner that prevents anyone from decoding.   Special rules apply, though, for apps that are derivative works or include some open-source components.

For low-cost and high legal value, copyright registration may become the method of choice for entrepreneurs and small app developers.   Patents should still be pursued as a defensive measure, but copyrights can be an important part of the plan.