Category Archives: Finance Capital

Wall Street Journal panics in face of Egyptian revolution

No_(2012_film)As the ordinary Egyptian population stood up and said it was no longer willing to follow Iran and other middle eastern countries into the abyss of authoritarian and fundamentalist Islamist politics, the mouthpiece of western arch-conservatism, the editorial board of the Wall Street Journal, was thrown into a panic. In an editorial published, sadly, on our Independence Day, the paper called for the installation of a Pinochet-like General in Egypt.

Either the Journal has been struck by some kind of severe cognitive disorder that allows it to paint over the history of one of the most brutal regimes to have ever ruled or they really mean it. If the former, they owe their readers and the Chilean and Egyptian people an apology and should retract the statement. If the latter, then they are in fact the leading edge of a new fascism emerging here in America. Since I am not a medical professional, I will simply comment on what it means to suggest that fascism is the right outcome in Egypt.

220px-Missing_1982_filmFirst, for any of my younger readers, if you want a taste of what it means to be for a Pinochet then go to iTunes and download this week’s Editors Choice – the film “NO” which recounts the very final stages of the Pinochet regime, after the blood had been washed off the streets. If you have a stronger stomach, then find a copy of the magnificent Battle of Chile, an important long documentary film that includes amazing and disturbing footage of the Allende era and the imposition of the U.S.-backed brutal Pinochet dictatorship, now viewed as a political model for the middle east by such august figures at the Journal as Paul Gigot, Daniel Henninger and the recent Pulitzer winner Bret Stephens. (Stephens, the recent recipient of a Pulitzer, we have encountered before on these pages – it seems he looks for his ideas all over the place and is not always willing to give proper credit.) The Battle is hard to find but you can also look at Missing the fictional account of an American, Charles Horman, who was kidnapped and tortured to death by Pinochet’s thugs.

PinochetHere is a capsule summary of the Pinochet period, though, just so we are all on the same page: 3,000 murdered; 30,000 tortured; political parties outlawed; trade unions smashed; nearly two decades of brutal repression and fear. Two of those killed were blown up by Pinochet’s secret DINA police force on the streets of Washington D.C. The regime was installed with the not very covert support of Henry Kissinger and the Nixon Administration. Pinochet was feted by “Lady” Margaret Thatcher and other right wing thugs in order to burnish their own domestic reactionary politics. Pinochet’s regime was advised by economists trained in the shock therapy politics developed by Milton Friedman at  the University of Chicago.

For brevity’s sake I will spare readers an account of the book burnings carried out by the regime.

Unknown-1Now that we are all up to speed on what one is talking about when one invokes the name of Pinochet, what does it mean that the Journal would react to the unfolding events in Egypt like this? It means, most likely, that American conservatives are in a full blown panic over the popular uprising we have witnessed there in recent days but not only there. It signals broader panic among the Wall Street and D.C. elite over what is known as the Arab Spring, the region wide unfolding of a new democratic era in a part of the world that has for many decades found itself in the grip of what ever great power rivalries were taking hold in Europe, first, and later, in the cold war, between the great US and Russian blocs. For the first time, the region’s own populations are speaking up independently and saying, as the Chileans did to Pinochet, No.

This kind of democratic uprising is, inevitably, messy and volatile. There is, undeniably, also the presence of opportunistic forces that are not democratic, most clearly the Islamists. That makes the situation particularly complex but does not mean that the overall direction is one we should fear or condemn. Chile was able to make a more peaceful transition but only because a pre-existing political culture that had thrived in a long period of relative stability and democracy prior to the Pinochet period was able to survive underground and re-emerge when the regime finally was pushed aside. Egypt, Syria and Libya do not have that luxury, as they have been either under the direct colonial thumb of imperial powers such as Britain or held down by the local thugs representing post-imperial powers for generations.

Since the great powers have invested billions and many decades in creating the authoritarian regimes now being challenged, it appears to the mouthpieces of those same forces, like the Wall Street Journal, that all is chaos. Even “liberal intellectuals” like Harvard’s Noah Feldman are frightened by the disorderly nature of the popular effort to recreate these long repressed societies. He condemned the Egyptian millions as a “mob” as I explained here.

No doubt, when one is threatened with the loss of a significant investment panic is a reasonable enough reaction. But should they really be surprised that the “order” they imposed on the backs of the middle east is now under challenge?

It is a sign of how the world is turning on its axis now that the Journal would go this far. The Egyptian people are to be congratulated for being among the first to put their shoulder to the wheels of history and pushing.

Let’s hope the American people will find the courage to join them. Then the Journal’s editorial writers can join their fascist comrade in arms Pinochet in the ash can of history.

Review & Outlook: After the Coup in Cairo –

In defense of patent “trolls”

Cheers went up loudly around Silicon Valley today, at least in the C-suites of the large incumbent companies. Why? Because now the President, who has been a heavy fund raiser here in the Valley, is promising to institute reforms of the nation’s intellectual property regime that favor those incumbent companies and potentially harm inventors and entrepreneurs. This follows a recent shift in our patent regime, also heavily tipped in favor of large well established technology companies, that favors those who are the first to file for a patent not the first to invent a new technology.

For years, law firms, academics and lobbyists working for big technology companies like Apple, HP and Intel have been pushing for these kinds of reforms. But the individual entrepreneurs and inventors who have historically been “present at the creation” of these now giant companies are not able to make their voices heard in the same way. They are widely dispersed, often young and without the huge resources of the incumbents.

Many new inventions threaten the existing invested capital of the incumbents and they are in fact worried about the impact they could have on their existing business models. In fact, many new ideas are unable to find investors or are swept up into the giant portfolios that the big companies now assemble and are never heard from again.

That’s why a young Bill Gates in the 1970’s made a passionate defense in favor of the IP rights of writers of software code for startups like his, but years later Gates started attacking the granting of patents to code writers. As Richard Stallman of the Free Software Foundation discovered:

“Here’s what Bill Gates told Microsoft employees in 1991: ‘If people had understood how patents would be granted when most of today’s ideas were invented and had taken out patents, the industry would be at a complete standstill today…A future start-up with no patents of its own will be forced to pay whatever price the giants choose to impose.'”

Of course, Microsoft was fast becoming one of those giants and now it uses that power to back groups like Intellectual Ventures which is scooping up thousands of patents and providing expensive mass licenses to firms that want a moat around their business model. Valley VC’s recently established a firm called RPX that does much the same thing.

It is no surprise then that an older successful Bill Gates was once asked what kept him awake at night and he answered – to an audience in Palo Alto – the fear that two guys in a garage somewhere nearby were developing a new way of doing things that would threaten his business model. Ironically, at that very moment, in the late 90s, Sergey Brin and Larry Page had started a little company called Google, first in their dorm rooms at Stanford and then in a nearby garage.

In other words, when the IP system helped a young Gates he tried to enforce it, when it began to threaten him he found ways to change it. Gates is not alone in this, of course, as Apple and Intel and Cisco and HP and ATT and IBM all do the same thing. But do we ever stop to ask, where will the new forms of these companies come from?

One of the targets of the patent reform movement are companies derisively labelled “trolls.” In the pure form these are companies formed solely to buy up orphaned technology that may have value because it is possible there are infringers out there in the world of existing companies. Thus, these companies provide a valuable secondary market for the exploitation of technology that inventors can no longer afford to pursue. Our entire economy is built on similar kinds of secondary markets, for IP and for financial instruments and for entertainment products, heck, even for used cars.

The advantage of these markets is that inventors know there is at least some value they can get out of their invention even if they cannot build an entire company around it. The existence of this market also signals to incumbent players that they have to play by the rules. I spent eight years on the board of directors of a technology company whose original inventions were trampled on by big players, like AMD, Apple and Intel. That destroyed the company and only an aggressive licensing and litigation strategy helped recover some value for our shareholders.

That (eventually successful) strategy was long, complex, expensive and unpredictable. Now the new reforms will make defending the original ideas of our entrepreneurs and inventors even more difficult.

The bottom line is that in many ways we are all “trolls” now because the pace of innovation is so intense that every inventor and firm must have an aggressive IP strategy, both defensive and offensive.

And yet when firms like the one I helped out as a lawyer and a board member try to defend their own technology, they are dismissed as “trolls.”  When firms like Acacia Research emerge to provide a secondary market for IP that might otherwise be grabbed without compensation by larger players they are dismissed as trolls.

Meanwhile, it is the large incumbent and increasingly less innovative companies that are using their resources to capture the political process in order to defend their slowing business models.

We will all pay a price in a weaker culture of innovation.

My chapter on insider trading in the “hot” startup environment is out

You can order your copy now!

In the mail: Research Handbook on Insider Trading –

Interview in Deal Journal – WSJ on Einhorn court win

Einhorn’s Apple Victory Seen as Legal Precedent in Corporate Governance – Deal Journal – WSJ.

S.E.C. Inquiry Into China Film Trade Unnerves Hollywood

An interesting crossover between two of my interests, securities law and Hollywood. The film business has been enjoying a renaissance overseas what with Bollywood and all. Of course China remains the ultimate new market for the industry. But the industry has to realize that without free speech or the rule of law it is not like moving into India. True cultural expression remains suppressed, just ask the Tibetans. And the reach of US securities law is long as this article on an investigation into possible bribery cases indicates.

S.E.C. Inquiry Into China Film Trade Unnerves Hollywood –

Facebook’s IPO Flop

Facebook is down but my analysis of the IPO is up at Dissent Online.

Facebook IPO in Morning Take-Out –

The Times picked up my quote on the importance of the Facebook IPO.

Morning Take-Out –

Facebook IPO is the talk of Silicon Valley

This is the week that Facebook is actually expected to file its S-1 for an IPO. I was interviewed by Market Watch for this story. The key to the Facebook valuation is whether it can convince investors that it is creating a new media environment that can sustain its business.  Stay tuned.

Facebook IPO is the talk of Silicon Valley – Therese Polettis Tech Tales – MarketWatch.