Bringing Yahoo! down with blogs
OUT-LAW Radio, 03/05/2007
We talk to the man whose blogs, wikis and YouTube videos aim to
bring down Yahoo! management, and to the lawyer taking on Google's
AdWords system.
A text transcription follows.
This transcript is for anyone with a hearing impairment or who
for any other reason cannot listen to the MP3 audio file.
The following is the text spoken by OUT-LAW journalist Matthew
Magee.
Hello, you’re very welcome to OUT-LAW Radio, the weekly podcast
that keeps you up-to-date on all the twists and turns in the world
of technology law.
Every week we bring you the latest news and in-depth features
that help you to make sense of the ever-changing laws that govern
technology today.
My name is Matthew Magee, and this week we hear from a man using
YouTube and wikis to take down the management of tech veteran
Yahoo!, and we talk to the lawyer behind a case that threatens
Google’s profit engine, its search term advertising system.
But first, the news.
- House of Lords says paparazzi shots broke the law; and
- phone firm asks for patent case retrial.
The House of Lords has ruled that Hello! magazine broke the law
when it published snatched shots of the wedding of Catherine
Zeta-Jones and Michael Douglas. Ok! Magazine had paid
£1 million for exclusive shots of the event.
In his ruling, Lord Hoffman said that the long-running case was
not a privacy case but one about commercial confidentiality. The
Law Lords' decision overturned a Court of Appeal ruling, which
itself had reversed the High Court's original ruling backing
Ok!.
Though they were split, the majority of the Lords decided that
the publication in Hello! of pictures taken by a New York
photographer who illicitly gained entry to the wedding, was a
breach of confidence.
Voice over Internet Protocol (VoIP) company Vonage says
that a new Supreme Court ruling on patents, means it should have a
retrial, in the patent case it recently lost against mobile firm,
Verizon. Earlier this week the Supreme Court issued new guidance on
what 'obviousness' means. A patent cannot be granted for an
invention that is an 'obvious' extension to existing technology.
Vonage has now said that its case could have been decided
differently under the new guidance, which it said puts a greater
premium on a common sense view of what should be patentable. That
was this week's OUT-LAW news.
The phrase 'activist shareholder' is a polite term for someone
behind quite an ugly process. This is a way of making money,
potentially pots and pots of it, by being brutal, merciless and
mean. The basic idea is this: you pick an underperforming company,
buy a significant stake – which usually means between half to five
per cent – and craft yourself an alternative corporate strategy and
management team that will make the company perform better. You
announce to the world why the firm is a basket case and why you are
its saviour and use a combination of your shareholding and public
humiliation to pressurise the board into capitulation. If your plan
is good, the company makes money, the share price rises and you
make a killing.
Imagine though, trying to do this without the billion or two
dollars of cash you need to buy a major stake in a company. Now
imagine trying to do it with just a few hundred dollars to Yahoo!,
one of the internet's oldest, biggest companies.
That’s exactly what Eric Jackson is doing, and with some
success.
Eric Jackson: Now I don’t have a $6 billion
dollar hedge fund and so I thought, well, how can I get the same
impact potentially of that? And I thought: I had my blog, sat down
in January and recorded a YouTube video of myself making a call to
action to the Yahoo! shareholders.
Jackson's plan was to use the tools of the second dotcom
boom – wikis, home made videos, his blog, the power of virtual
crowds – to take over Yahoo! and put his so-called plan B into
action.
It might seem, from this humble start, to be a ridiculous aim,
but Jackson has amassed a massive 0.2 per cent of the company
behind him in proxy votes. For his investment of a few hundred
dollars and 45 Yahoo! shares, Jackson controls $55 million worth of
a company that, by anyone's reckoning, is in trouble.
That is putting web 2.0 to work.
Eric Jackson: So it was combination of the
blog, my own blog, where people could obviously leave comments and
make suggestions. Second, I think major thing was the use of
YouTube videos which, so I would give periodic updates and then
post them off to the blog as well. And I guess the third major web
tool that was used was a Wiki for the actual plan B itself.
Jackson, who is a business consultant in his day job, says plan
B mostly consists of forcing the company to communicate better and,
of course, that staple of activist shareholding, ousting chief
executive Terry Semel.
Eric Jackson: So we’re
advocating nine steps. We think that the company could benefit from
a new leader. We think that the company should look to replace
seven of the 10 directors. Many of the directors have been active
sellers of their own stock. There appears to be a certain amount of
drift at Yahoo! and a lack of coherent explanation as to what’s
next for this company. We think that the company definitely needs
to better articulate its strategy and how it will win and how it
will be unique and number one within different realms, not just an
adequate number two to Google. We don’t think that’s a viable
strategy, or a particularly compelling one.
So how do you actually go about influencing the company itself?
Jackson says he has asked for a meeting with the company's
management.
Eric Jackson: We hope to have a dialogue with
them and explain the merit of the points in the plan. I hope that
there’s a way that the company and our group can talk and find a
solution that is beneficial for all shareholders but if that
doesn’t happen, we have two options that we’re in the midst of
going forward with right now. One is having nominated myself for a
spot on the board. Step two is advocating with strong withhold vote
for several of the directors.
These days Yahoo! itself is playing into Jackson's hands. It
recently reported another disappointing set of results as it
struggles to compete with Google. It's an ill wind, which is
exactly what activist shareholders thrive on.
Eric Jackson: I think our case got stronger
after last week where Yahoo! had a very disappointing Q1 earnings
call. Yahoo! stock dropped 12% last week and I think some of the
momentum that had been behind the company and people were really
disappointed by that, felt that the company’s management had not
done a good job of communicating expectations for the quarter. And
so we’ve seen some strong interest just in the last few days from
major shareholders.
Google is periodically sued over its search engine advertising
system, called Adwords. In it a company pays to have its advert
appear when someone types in a certain search term. The searcher
still gets their normal results, and the ads appear separately, but
some companies get upset when a competitor pays to appear when its
name is put in the search engine.
Though French courts have said that using someone else's trade
mark as a trigger for your ad is not allowed, US courts have
rejected that view. But one company, American Blind and Wallpaper
Factory, is taking yet another case, and for the first time the
issue will be decided by a jury. David Rammelt is a lawyer behind
the action, and he explains his objections to Google's system.
David Rammelt: Google had been for some period
of time both allowing the sale of our trade marks as keywords to
competitors, as well as promoting that sale and our belief is that
the obvious result is that our competitors intercept our consumers
who are trying to find us. It’s really Google that has felt it is
free to, in our view, and according to the allegations of our
complaint, trample over those intellectual property rights and
you’re seeing it in not just the trade mark context but you’re
seeing it in the copyright context, you are seeing it in the patent
context. So this mentality that Google gets to play by its own
rules, really we think spreads across intellectual property
rights.
But already judges have ruled in US cases that as long as a
company doesn't use someone else's trade mark in the actual ad, no
infringement takes place. Cases involving the companies Geico and
Rescue.com have shown that. So why does Rammelt think he can
succeed, where others have failed?
David Rammelt: Geico was unsuccessful in
presenting enough evidence to prove to the judge that confusion was
occurring with respect to the Geico mark. Obviously our case is
different because our evidence will relate to confusion concerning
the American Blind and Wallpaper Factory marks and any other case
that gets to trial will be different because it will involve their
individual trade marks and brand names. The Federal Court in New
York that issued the Rescue.com was operating under a different
interpretation of the law in New York.
At the heart of this and other disputes is the question of how
sophisticated Google’s users are. Adwords can only affect the
advertising results, not the actual search results. For confusion
to be created, you’d have to believe that consumers can't tell the
difference between an ad and a search result.
Do you really think that consumers are confused by that? Do you
not think that consumers understand what is advertising and what is
a genuine search result?
David Rammelt: I absolutely believe that
consumers don’t appreciate that difference. You have to remember
Matthew, that you, and I would imagine a number of your users, may
be very sophisticated internet and computer users. You’re probably
younger but the majority of the shopping public from Madison,
Wisconsin, from Tuscaloosa, Alabama, from Austin Texas whose buying
our products are not likely to meet those same demographics and are
not as sophisticated. And I would submit to you have no idea that
the top ranked search results are not the companies that they’re
trying to look for, but in fact are paid advertisements that have
nothing to do with the search.
Rammelt has asked for and been granted a jury trial, the first
time this issue will come before a jury in the US. But don't expect
the ruling to set a country-wide precedent. Rammelt says that every
trade mark will have to fight its own battle, and that his case
won't overturn Google's controversial policy.
David Rammelt: It only applies to the company’s
in those specific cases because the proof of confusion doesn’t
translate and carry across brand names. So the confusion analysis
is only done on a case by case basis.
That's all we have time for this week, thanks for listening.
Why not get in touch with OUT-LAW Radio? Do you know of a
technology law story? We'd love to hear from you on radio@out-law.com.
Make sure you tune in next week; for now, goodbye.
OUT-LAW Radio was produced and presented by
Matthew Magee for international law firm
Pinsent Masons.
