March 24, 2023

Baidu Deal May Reduce App Piracy in China

Baidu, the leading search engine in China, signed a deal last week to buy an operator of mobile application stores called 91 Wireless for $1.9 billion from an online video game company, NetDragon. The move should help Baidu regain ground against two other Chinese Internet giants, Alibaba and Tencent, which were quicker to add mobile capabilities.

The deal may also advance the fight against digital piracy of mobile apps, which remains widespread in China. In the rest of the world, most mobile applications are distributed through official outlets like Google Play or Apple’s App Store. But in China, dozens of so-called alternative app stores are the dominant distributors. Many of the applications available for download through the alternative stores are unauthorized knockoffs.

Baidu will get two of the alternative stores, HiMarket and 91 Assistant, as part of its deal with 91 Wireless. And analysts say Baidu could be motivated to crack down on unauthorized copies, which would alter the landscape of China’s app market.

“It’s fair to say that it has not been a priority among Chinese app stores to police the content,” said Carl-Johan Skoeld, director of Stenvall Skoeld Company, a consulting firm in Shanghai that works with app developers.

Two years ago, Baidu reached a landmark agreement with major record companies to distribute licensed online music after it had been labeled a conduit for piracy by the Office of the United States Trade Representative. In addition, Baidu’s stock is listed on the Nasdaq, potentially exposing the company to litigation from software developers whose applications had been copied and offered through 91 Wireless, legal experts said.

“It’s unlikely that app stores would be protected by safe harbor,” a provision of Chinese law that gives Internet companies legal protection, in certain cases, if they act to take down pirated material, said You Yunting, an intellectual property lawyer at DeBund Law Offices in Shanghai.

“If I were Baidu, I would put aside 10 to 30 percent of the purchase price as a copyright infringement fund and pay it out a year or two later, conditional on 91 stopping piracy,” he said.

Baidu and 91 Wireless declined to comment.

Analysts say 91 Wireless has already been more active in fighting piracy than some other app stores in China, taking down infringing applications when notified. But developers complain that they should not be responsible for patrolling the stores for violations; given the number of stores and the frequency of updates, the task is practically impossible.

Alternative app markets have thrived in China in the absence of Google Play, which caters to phones using the company’s Android operating system. More than three-quarters of smartphones in China use Android, but Google, which had a prominent dust-up with Beijing over accusations of censorship and network security, has not introduced a Chinese version of its app store.

Alternatives like Qihoo 360, Wandoujia, 91 Assistant and HiMarket have filled the gap. Many of the Android apps on these sites are legitimate; because there is no Chinese Google Play, the developers instead license their apps to the alternative markets.

But it is another matter for alternative apps compatible with Apple’s iOS operating system. Apple integrates its hardware and software, so iPhones are configured to download applications only from the company’s official app store.

Apple did not introduce a Chinese-language version of the online shop until 2010, and did not permit credit card transactions in the local currency until a year later. As a result, many Chinese iPhone owners decided to “jailbreak” their phones — hacking them to accept applications from outside sources. Most of the apps are unauthorized copies.

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DealBook: Justice Department Closes Investigation of Goldman

Senator Carl Levin has criticized what he called  questionable conduct by Goldman and other banks.Jim Watson/Agence France-Presse — Getty ImagesSenator Carl Levin has criticized what he called  questionable conduct by Goldman and other banks.

WASHINGTON — After deciding not to prosecute Goldman Sachs for its conduct during the financial crisis, the Justice Department did something rare: it publicly announced that the investigation was closed.

The unusual public statement came after Goldman’s lawyers aggressively pushed for a public statement that exonerated the bank, according to two people with direct knowledge of the matter who spoke on condition of anonymity.

In a 450-word statement issued late Thursday, authorities said that “based on the law and evidence as they exist at this time, there is not a viable basis to bring a criminal prosecution.”

Many legal experts agree it would have been hard to bring charges. But the public announcement also raised eyebrows because under most circumstances criminal inquiries are shrouded in secrecy. When the Justice Department decides to end a criminal inquiry without prosecuting, it usually does not disclose that decision to the public — or even to the target of the investigation.

The Justice Department’s decision rankled Wall Street critics who want banks to pay for their actions. On Friday, the senator that had requested the criminal investigation denounced Goldman.

“Whether the decision by the Department of Justice is the product of weak laws or weak enforcement, Goldman Sachs” actions were deceptive and immoral,” Senator Carl Levin, a Michigan Democrat, said in a statement.

By closing its case, the Justice Department has removed the taint of a possible indictment against Goldman, which had already paid $550 million to settle a related civil matter brought by the Securities and Exchange Commission. “We are pleased that this matter is behind us,” David Wells, a Goldman spokesman, said in a brief statement.

Federal prosecutors began investigating Goldman more than a year ago after the Senate’s Permanent Subcommittee on Investigations issued a blistering report highlighting questionable conduct by Goldman and other banks. It focused on Goldman’s lucrative business of selling pools of subprime mortgage securities to clients while simultaneously betting on a decline in the housing market. In effect, the report concluded that Goldman had profited by betting against the very mortgage investments that it sold to clients.

It also suggested that Lloyd C. Blankfein, the chief executive of Goldman, might have misled lawmakers when testifying about the mortgage deals. Mr. Blankfein said that the bank never bet against its clients for its own profit.

As part of the report, Mr. Levin, the chairman of the subcommittee, referred Goldman’s case to the Justice Department for a criminal investigation in April 2011. But after investigating Goldman for more than a year, the Justice Department decided not to bring a case.

“The department and its investigative partners conducted an exhaustive review of the report and its exhibits, independently gathered and scrutinized a large volume of other documents, and tenaciously pursued potential evidentiary leads, including conducting numerous witness interviews,” the Justice Department said in its statement.

Separately, Goldman also disclosed on Thursday that the S.E.C. would not pursue any further claims against the bank related to the sale of a $1.3 billion mortgage bond deal.

On Friday, legal experts said that it was always unlikely that the government would bring a criminal prosecution against Goldman Sachs.

Ever since the 2002 indictment of Arthur Andersen caused the accounting giant to collapse and caused thousands of job losses, the government has been reluctant to bring charges against a company.

Instead, companies are now frequently offered so-called deferred prosecution agreements in which they pay a fine and agree to government oversight instead of facing criminal prosecution.

“The likelihood of the Justice Department indicting a ‘too big to fail bank’ like Goldman Sachs was always slim-to-none,” said Stephen M. Plotnick, a securities lawyer at Carter Ledyard Milburn. “And a major hurdle in a criminal prosecution of Goldman’s executives was proving that they intended to defraud their clients.”

While the decision not to charge Goldman was not surprising, the uncommon public announcement by the Justice Department raised eyebrows. Because it is illegal to disclose the existence of a grand jury investigation, under most circumstances criminal inquiries are shrouded in secrecy. And when the Justice Department decides to end a criminal inquiry without prosecuting, it usually does not disclose that decision to the public — or even to the target of the investigation.

The Goldman case, however, fit within an exception to these secrecy rules because of the immense publicity surrounding the investigation of the bank. Justice Department lawyers are permitted to comment on investigations that have leaked to the public or received substantial media attention, according to department guidelines.

For instance, in another case involving a bank, the Justice Department announced in August 2011 that it had closed a criminal investigation of Washington Mutual and its former executives connected to its collapse during the financial crisis.

The Justice Department has also announced that it was not bringing criminal charges in several leaked investigations of prominent politicians, including the former New York governor Eliot Spitzer and the former New Jersey senator Robert Torricelli. Earlier this year, federal prosecutors in Los Angeles announced that they had closed their investigation of Lance Armstrong without charging him, nearly two years after they began looking into accusations that he and his bicycling teammates had committed a variety of possible crimes by doping.

“Leaked investigations are like storm clouds that hang over companies and individuals, making it incredibly difficult for businesses to run or for people to live out their lives,” said Boyd M. Johnson III, a partner at WilmerHale and a former federal prosecutor. “The Department of Justice has a responsibility to seriously consider issuing public statements of declination where investigations have leaked. It is a matter of fundamental fairness.”

While it no longer faces the prospect of criminal charges, Goldman has absorbed substantial damage to its reputation from Abacus, the complex mortgage security that it sold to clients but was secretly designed to fail. And even though it settled with the S.E.C., a midlevel employee in the bank’s mortgage unit, Fabrice Tourre, still faces a civil trial related to the Abacus transaction. Its public image has also taken a hit from unflattering portrayals in the media, including its depiction as a “vampire squid” in a Rolling Stone article.

On Friday, Mr. Levin said that the Justice Department’s decision only highlighted the need for stiffer regulations for Wall Street banks under the new Dodd-Frank financial reform laws.

“Yesterday’s announcement makes it even more important that regulators implement Dodd-Frank with rules that do not water it down, and that they enforce those rules with vigor,” he said. “The integrity of our financial markets and the strength of our economy demand that we make sure that actions such as Goldman Sachs’s and other recently discovered misdeeds by financial institutions are ended.”

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State Dept. Assigned Keystone XL Review to Company With Ties to TransCanada

The department allowed TransCanada, the company seeking permission to build the 1,700-mile pipeline from the oil sands of northern Alberta to the Gulf Coast in Texas, to solicit and screen bids for the environmental study. At TransCanada’s recommendation, the department hired Cardno Entrix, an environmental contractor based in Houston, even though it had previously worked on projects with TransCanada and describes the pipeline company as a “major client” in its marketing materials.

While it is common for federal agencies to farm out environmental impact studies, legal experts said they were surprised the State Department was not more circumspect about the potential for real and perceived conflicts of interest on such a large and controversial project.

John D. Echeverria, an expert on environmental law, referred to the process as “outsourcing government responsibility.”

The subsequent study, released at the end of August, found that the massive pipeline would have “limited adverse environmental impacts” if operated according to regulations. That positive assessment removed one of the last hurdles for approval of the proposed pipeline.

Cardno Entrix also played a substantial role in organizing the public hearings on the project for the State Department, the last of which was held Friday in Washington. The proposal is open for public comment until midnight Sunday, and the department’s Web site directs comment to a Cardno Entrix e-mail address.

Environmental groups, as well as some citizens and public officials along the route, have opposed the project, citing the relatively high emissions created by extracting crude from oil sands and the spill threat posed to important aquifers by a pipeline filled with a potentially corrosive crude, among other concerns. The E.P.A. has criticized two prior draft environmental impact statements prepared by Cardno Entrix on Keystone XL as “inadequate” and providing “insufficient information,” but has not yet rendered an appraisal of the final study. The E.P.A.’s role is purely advisory.

Advocates for the project say that Keystone XL, which would carry 700,000 barrels of crude a day, would create thousands of jobs and help ensure a stable fuel supply from a friendly neighbor.

The State Department is the agency that approves transboundary pipelines by determining whether they are in the national interest. Its decision is expected by the end of the year.

The National Environmental Policy Act, which took effect in 1970, allows for agencies to hire outside contractors to perform its required environmental impact studies, but advises that contractors be chosen “solely by the lead agency” and should “execute a disclosure statement” specifying that they “have no financial or other interest in the outcome of the project.”

And yet legal experts said it had become common for companies applying to build government projects to be involved in assigning and paying for the impact analysis. Some say such arrangements are nearly inevitable because federal agencies typically lack the in-house resources or money to conduct these complex studies. “What’s normal is deplorable, and it’s NEPA’s dirty little secret,” said Mr. Echeverria, acting director of the Environmental Law Center at Vermont Law School, referring to the law. He said federal agencies are supposed to review the findings, but often lack the expertise to do so.

Oliver A. Houck, a law professor at Tulane University and an expert on NEPA, said Cardno Entrix should never have been selected to perform the environmental study on Keystone XL because of its relationship with TransCanada and the potential to garner more work involving the pipeline. The company provides a wide ranges of services, including assisting in oil spill response.

Cardno Entrix had a “financial interest in the outcome of the project,” Mr. Houck said, adding, “Their primary loyalty is getting this project through, in the way the client wants.”

Kerri-Ann Jones, the assistant secretary of state for oceans and international environmental and scientific affairs, in an interview, said the State Department followed all federal regulations and had closely managed and supervised the company’s work, adding, “We have final say.”

She said that TransCanada had managed the bidding process and recommended three candidates with Cardno Entrix topping the list. The department vetted Cardno Entrix by consulting with other agencies like the Bureau of Land Management. TransCanada pays the consultant directly, but would not reveal the amount.

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Italian Software Maker Contests Microsoft’s Purchase of Skype

BERLIN — Reviving arguments that have dogged Microsoft in Europe for nearly two decades, an Italian software maker is asking European officials to block Microsoft’s $8.5 billion purchase of Skype, the Internet phone service, unless it is removed from Microsoft’s ubiquitous Windows Office platform.

In the past, the European Commission has been sympathetic to complaints about Microsoft’s strategy of “bundling” popular applications with Windows, eventually requiring the software maker to make concessions on its media player and Internet browser.

But legal experts were split over whether the latest complaint, filed Sept. 20 by Messagenet, a company based in Milan that is a rival to Skype Internet’s phone service, would complicate or prevent European approval of the takeover, which would be the largest in Microsoft’s history and the largest takeover in the technology sector this year.

“These types of complaints from competitors are to be expected,” said Denis Waelbroeck, an antitrust lawyer at Ashurts in Brussels. “I would expect that the commission will look at this seriously, but I think that in the end, the officials will reach their own independent decision. This doesn’t mean the complaint will be upheld.”

Joaquín Almunia, the E.U. competition commissioner, plans to make his decision on the acquisition public on Oct. 7. A spokeswoman for Mr. Almunia, Amelia Torres, on Wednesday declined to comment on Messagenet’s complaint. In general, she said the commission considered all submissions from competitors in antitrust cases.

Mr. Almunia, a Spanish economist, had been competition commissioner for less than two months when his office approved Microsoft’s takeover of Yahoo’s search business in February 2010. A Brussels antitrust lawyer, who did not want to be identified for fear of alienating a potential client in Microsoft, said the Italian complaint could scupper the deal.

“I would certainly say this kind of complaint, if it raises new issues that the commission has not previously considered, may derail the deal or, at least delay approval,” the lawyer said. Mr. Almunia could be persuaded to extend his present review into a more exhaustive second phase, which could take months or even years.

Or, the lawyer said, Microsoft could seek to delay an immediate decision and buy time by requesting an extension to prepare an answer to the complaint. Jesse Verstraete, a spokesman for Microsoft in Brussels, said the company declined to comment on the allegations in the complaint from Messagenet.

“The proposed acquisition is still undergoing regulatory review and we are working closely with the agencies,” Mr. Verstraete said. “Until all regulatory approvals are obtained, it is business as usual at Microsoft and at Skype.”

Besides asking Microsoft to “unbundle” Skype from Windows, Messagenet is urging European competition authorities to require Microsoft to effectively open Skype’s Internet phone network, which had 124 million regular users in June, to the services of rivals. Messagenet is asking the commission to do this by requiring Microsoft to disclose the confidential computer coding that would enable rival services to connect calls to Skype users.

Skype’s communication software does not operate with rival services. In May, after Microsoft announced its plans to buy Skype, the managing director of Messagenet, Andrea M. Galli, said he had written to Skype requesting the secret coding that would let the services interconnect, according to a copy of the complaint that Messagenet filed with the commission, and which was seen by the International Herald Tribune.

Mr. Galli said Skype never responded to the request.

Less than three weeks later, Skype ended its partnership with Digium, a company based in Huntsville, Alabama, whose software had enabled users of an open-source Internet phone service, Asterisk, to call and be called by Skype users.

At that time, a Digium product manager, Rod Montgomery, lamented in a company blog that Skype for Asterisk, the Digium software, had been a “strong and steady seller.”

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