Well, this is hardly a surprise. A month ago, Judge Kozinski told the Winklevoss twins (the "Winklevii") that they couldn't back out of their settlement agreement with Facebook and Mark Zuckerberg, which was worth "only" $160 million, saying, "At some point, litigation must come to an end. That point has now been reached." However, the Winklevii apparently couldn't just take their money and cry all the way to the bank, but asked the court for an en banc hearing (basically a rehearing of the appeal with all of the judges, rather than just a panel of three). As I stated at the time, I thought it would be a surprise if the court accepted this... and that was an easy call. The court has rejected the request without comment, meaning the only thing left to do is to appeal to the Supreme Court (well, or just take their $160 million...). Given how the Winklevii have acted up until now, it wouldn't surprise me at all to see them try to take this to the Supreme Court, though I can't fathom a situation under which the Supreme Court would care. This case was over a long time ago. It's just the Winklevii who haven't realized it yet.
We've discussed before how whenever there's a successful TV show or movie, people come out of the woodwork to insist that they actually came up with the idea. Usually, these claims go nowhere, in large part, because you can't copyright an idea. There are, of course, a few famous exceptions, but those are cases where there was a clear ongoing and detailed working relationship beforehand.
However, a new ruling in the 9th Circuit appeals court (which has a reputation for somewhat wacky rulings on intellectual property issues) may open the floodgates on these kinds of lawsuits. The ruling is an en banc ruling (meaning heard by all of the judges in the court), and it overturned the earlier ruling from the same court that was just done by a three judge panel. That means the only place to go from here is the Supreme Court, and it's not at all clear that the Supreme Court would be that interested in the case (as of now, I don't think there's a real split between circuit courts, which is often a key determining factor for the Supreme Court).
The ruling itself is on some rather specific and slightly technical aspects of copyright law vs. contract law. You can also watch the video of the one hour hearing that was held for this case earlier this year, which is also a good way to grasp some of the finer points:
However, a simple way of explaining it is this: federal copyright law is clear that it overrules any state copyright law or equivalent state law. This was to make sure that there was a single unified copyright law, and people didn't have to deal with the vagaries and differences found in 50 different state copyright laws. Part of the (quite reasonable) fear was that states would be pressured to make even more draconian copyright laws, and that would harm the true intent of copyright law.
Now, copyright law (again) does not cover ideas. You only get a copyright on the expression, but not the idea. However, there is a California state law that creates an implied contract in certain cases, and that's where this lawsuit hinges. The question is whether or not in presenting the idea for a TV show slightly similar to what is now Ghost Hunters, an implicit contract was formed, which meant that the SciFi Channel (now SyFy) couldn't make Ghost Hunters without working with the plaintiffs. While I have all sorts of issues with "implied" contracts in cases like this, the earlier rulings had thrown out the case based on the fact that this was really a copyright claim in disguise, and copyright law preempts the state contract laws, and then the case goes nowhere because this is really about an idea, which is uncopyrightable. Clean, simple and sensible.
Unfortunately, the majority here twists itself into contortions to claim that this is different. It claims that the specific argument is not about rights covered by copyright law, and thus it is a contractual dispute, where there is an implied contract. As the dissenting judges point out, this doesn't make much sense. The specific complaints by the plaintiffs are rights that are clearly provided under Copyright Law.
But the real issue here is that this will open the floodgates for similar lawsuits. We already see plenty, but they're usually quickly dismissed. Now there will be more such cases, where the focus will be on whether or not there's an "implied contract," when someone shows a studio a script or an idea. In the end, that's really only going to make it more difficult for people who have ideas, because studios aren't going to want to hear them for fear of future liability. If multiple people come up with similar ideas, studios shouldn't be forced to pay them all due to some bizarre implied contract...
This kind of ruling really seems to undermine the whole point of ideas not being copyrightable...
As was widely expected, the Winklevi have decided not to listen to Judge Alex Kozinski on the 9th Circuit appeals court, who told them that the "time is now" to end their ongoing lawsuit against Facebook, and that they should just be happy with the approximately $160 million they ended up with for totally failing to compete in the market place with Zuckerberg. Frankly, even if Zuckerberg really had "copied" their idea, $160 million seems like more than ample compensation. It wasn't the Winklevoss's idea that made Facebook successful (not by a long shot). It was the specific ways in which Zuckerberg and his team executed (combined with an element of luck). In fact, with a reward so ridiculously high for failing, all this sort of lawsuit does is encourage more silly lawsuits from other competitors who failed in the marketplace.
However, despite the court and plenty of commentators telling the Winklevi to cry all the way to the bank with their money, the twins and partner Divya Narendra, have in fact filed for an en banc hearing, asking the full slate of 9th Circuit judges to rehear the case, rather than just the standard three judge panel who heard the original. To be honest, I'd be surprised if the court agreed to the rehearing, but you never know. Typically, they'll do a rehearing where there really are serious questions of law, and significant conflict in how the judges view things with the case at hand. I just don't see the specifics of this dispute rising to that level. If that fails, the only choice left will be to appeal to the Supreme Court, who we can also hope will recognize more important issues at hand and pass on hearing the case.
Incredible. After being told to shut up and take their $160 million from Facebook, the Winklevoss twins are apparently still planning to appeal the ruling from the 9th Circuit. They're filing for an en banc hearing (basically asking all of the judges on the court to rehear the case, rather than the typical panel of three). On issues where there is some disagreement among the judges you'll see en banc hearings. Frankly, I'd be pretty surprised if the 9th Circuit is willing to rehear this case. And, at that point, their only resort will be to appeal to the Supreme Court, who I really doubt would find this a pressing matter of Constitutional importance. What's amazing to me is how much these guys seem to be hurting their own reputations here. Seriously, take the $160 million or so and move on.
Could it finally be over? The Winklevoss twins, Cameron and Tyler, along with Divya Narendra, famously sued Mark Zuckerberg, claiming he "stole" the idea of Facebook from them. They eventually sued him and then settled, getting (at the time) $65 million in cash and Facebook stock. You may have heard about it, considering there was a big Hollywood movie based loosely on all of this. Of course, the whole concept was preposterous. There were tons of other social networks at the time, and you can't "steal" an idea. But, in the grand scheme of things, paying off those guys was easier than continuing to fight it. Yet, after the settlement was done, the twins tried to back out of the settlement, claiming their share should have been much higher. Despite a court shutting them down, the twins kept fighting. Hopefully, that's now over. Judge Alex Kozinski is is trying to put an end to the whole thing, saying that the original settlement stands.
The full ruling from Kozinski is, in typical Kozinski fashion, an entertaining read. He points out that the point of the original settlement was so that everyone could "get on with their lives." Kozinski is particularly harsh on the Winklevosses for trying to back out of the agreement over a claim of valuation issues when they clearly knew what they were getting into:
The Winklevosses are sophisticated parties who were
locked in a contentious struggle over ownership rights in one
of the world’s fastest-growing companies. They engaged in
discovery, which gave them access to a good deal of information
about their opponents. They brought half-a-dozen lawyers
to the mediation. Howard Winklevoss--father of
Cameron and Tyler, former accounting professor at Wharton
School of Business and an expert in valuation--also participated.
Kozinski also knocks the Winklevi for being marketplace losers resorting to the courts to sue those who beat them in the market:
The Winklevosses are not the first parties bested by a competitor
who then seek to gain through litigation what they
were unable to achieve in the marketplace. And the courts
might have obliged, had the Winklevosses not settled their
dispute and signed a release of all claims against Facebook.
With the help of a team of lawyers and a financial advisor,
they made a deal that appears quite favorable in light of recent
market activity.
As Kozinski notes, while they've been arguing about all of this, Facebook has continued to appreciate in value, and their "settlement" is now worth much more than they even thought they would get originally. He concludes it simply:
For whatever
reason, they now want to back out. Like the district court, we
see no basis for allowing them to do so. At some point, litigation
must come to an end. That point has now been reached.
And so, they "lose." Of course, it's hard to see how getting $160 million for totally failing in the marketplace can be considered "losing."
Well this is getting a little repetitive, but it's always nice to add another voice to the (growing) crowd of people, who recognize that execution is much more important than the idea. We've discussed this many times and have pointed out people, such as Scott Adams, who have made similar points. The latest such example comes to us courtesy of the Capitalist Lion Tamer, who highlights a brief excerpt from Maxim and The Week creator Felix Dennis' new book, in which he makes the identical point about ideas and execution. He notes that an idea is not enough. It may be important, but ideas are more "like Nike sports shoes," in that they can be a tool that can be used by someone to accomplish great things, but in the end it's the actual execution that matters:
I have lost count of the number of men and women who have approached me with their “great idea,” as if this, in and of itself, was their passport to instant wealth. The idea is not a passport. At most, it is the means of obtaining one. In some instances, a fixation on a great idea can prove hazardous, distracting your attention from the perils and pitfalls
you will inevitably encounter on the narrow road.
If you never have a single great idea in your life, but become skilled in executing the great ideas of others, you can succeed beyond your wildest dreams. They do not have to be your ideas — execution is all. When confronted with a great idea, your reaction should be to scrupulously analyze its commercial potential in the context of your own ability to transform that potential into triumph.
Ideas don’t make you rich. The correct execution of ideas does.
Doesn't it seem odd that so many people (and very, very successful people at that) recognize this basic concept... and yet our entire public policy around innovation focuses solely on rewarding the idea, at the expense of the execution?
It seems that every time there's a really successful book, movie or TV show that comes along, someone else comes along and claims that it was really their idea, and demands cash for it. Of course, in almost every one of these cases, they don't seem to realize that lots of people had the same idea, and there's a huge difference between idea and execution. Instead, they assume that only they could have had the idea, and anything similar -- which involved actual successful execution -- must owe them money. Thankfully, the courts are generally pretty good about tossing these cases out. The latest involves someone who claims she came up with the idea for the reality TV show The Biggest Loser which she called Phat Farm. The legal process hasn't been kind to her. One court pointed out that she never actually registered for a copyright on the Phat Farm treatment, and now another court has noted that there really aren't that many similarities between the ideas. Another case dismissed.
When you think that ideas are ownable, you get absolutely ridiculous scenarios, such as the idea that anyone could ever "own" the idea of Oprah Winfrey visiting Australia. And yet, a dive boat operator in Australia is planning to sue Tourism Australia, because of Oprah Winfrey's recent visit. You see, back in 2004, this guy by the name of John Heuvel, had the idea that it would be good for Austalia's tourism if Oprah visited the country. That seems like the kind of idea just about anyone could have, of course, however he insists that it was unique to him. He pitched it to Tourism Australia, who agreed to work with him to get Oprah to visit. They pitched Oprah in 2005, and she (or, rather, her company) turned them down. Fast forward to 2009. Heuvel thought he'd try again, and pitched Oprah's company directly (without the help of Tourism Australia). It appears there was no response.
However, last month, Oprah did finally go visit Australia, and Tourism Australia was (not surprisingly) heavily involved. However, Heuvel claims that since Tourism Australia had promised to work with him, it had now breached a contract. As for the idea that perhaps (just maybe) plenty of others at Tourism Australia might have had the idea of bringing perhaps the most recognizable entertainer in the world to the country to play up tourism in Australia? Why, that's impossible, according to Heuvel:
"Tourism Australia is saying that it thought up the idea, which is ludicrous."
Ludicrous? Really? Tourism Australia admits that it worked with Heuvel in 2005, and that that bid to lure Oprah down under failed. End of story. This latest trip was entirely unrelated. However, it appears that Heuvel really thinks that the idea itself is his and his alone, and that Tourism Australia owes him "millions" for actually having Oprah visit the country, without paying him first.
There have been a whole series of claims from others that they had the "original idea" for Facebook, but as we've explained over and over again, the idea part was pretty meaningless. There were plenty of other, competing social networks at the time Facebook was founded. What made Facebook a success was not the original idea, but how the company executed and changed (quite a lot) over time, adapting to the market. And, yet, the lawsuits continue. The most famous, of course, was the one filed by the Winklevoss twins, which is at the heart of the recent fictionalized movie about Facebook. As we covered here, the twins sued, claiming that Zuckerberg took the idea from them and their company ConnectU. Over the years, more evidence has come out that suggests Zuckerberg may have been kind of slimey in dealing with the twins, but it still didn't suggest that the twins actually deserved any part of Facebook. Even so, in 2008 (as is covered in the movie), the company settled the lawsuit, and dumped stock worth tens of millions on the twins... for not doing anything.
What makes CU's drawn-out litigation all the more remarkable is that Facebook has to be one of the most patently "unstealable" ideas out there. Facebook wasn't the first internet social network and, at the time of the suit, wasn't profoundly different than those that came before it. Facebook's success isn't due to the idea of a social network, but the skillful execution of that idea--combined, of course, with some hard work and some very lucky timing.
As Mullin points out, however, these kinds of cases have increased in recent years, as the culture and legal framework we've created, that overvalues ideas and undervalues execution, leads people to think that just because they had an idea -- even if they had nothing to do with the execution -- they deserve a cut from those who did execute. While we've already posted this before, now seems like a perfect time to repost the recent recent xkcd comic on this concept:
For many years we've pointed out that ideas are easy but execution is hard. Unfortunately, as a society, we seem to romanticize and celebrate the idea over the execution -- and our policies, such as patent policies -- codify that into law. This is unfortunate -- especially for anyone who has actually executed and built a real business, since you quickly learn that the original idea is quite frequently meaningless by the time you build a successful business. Earlier this year, we noted that Dilbert creator Scott Adams had jumped on board the whole "ideas vs. execution" dichotomy, and he's apparently still working that theme.
In a recent blog post, he not only reiterated the "ideas are worthless, execution is everything" claim but tried to take it further by suggesting (as an idea) that it might help if there was a business to bring ideas together with people to execute. Now, of course, this is just an idea and, according to Adams' own rules, it's pretty worthless. My guess is that if people tried to execute on this particular idea, they'd find that it didn't work quite the way Adams' predicts (which is sort of the point). The basic idea is that people with ideas would tape themselves in a video talking about the idea and then others who might provide related services -- such as management, capital, legal, sales, etc. -- could join up. If a "complete team" was put together via this system, then they could go execute. The concept is to remove some of the inefficiency in executing.
In my imagined future, you start by making a home video of yourself pitching your idea, just as you would to an investor. You upload your video, along with a detailed description of your idea, to a web site where other entrepreneurs around the world are doing the same thing. But instead of simply soliciting funding, you solicit an entire team, based on whatever skills your business requires. The key to making this work is that no one quits his existing job, or provides funding, until all of the resources for the idea are lined up. The main function of the system is making sure everyone's conditions for participation have been met before any risks are taken.
Now imagine that the legal contracts for your new business partners are based on standardized agreements that have been created by the online business to be fair to both sides. There's no wrangling about the legal details. All you need to agree on are the "fill in the blank" stuff, such as who does what, and for what equity or salary. Likewise, the funding agreements are standardized.
As the entrepreneur, you might have a hundred people vying for the job of marketing for your new company. Each person would submit a resume, perhaps some text on how they would approach this specific job, and a minimum compensation requirement. The entrepreneur might choose a marketing expert with weaker experience to keep payroll low, which might in turn cause another potential team member to back out if he thinks the marketing person is too weak for the job. This process of adding and subtracting potential team members would repeat until everyone was happy with the contribution and compensation of everyone else. And during the process, all potential team members could communicate with each other to negotiate deals and refine the idea.
Of course, to some extent, things like this have already been tried. There are incubators out there. There are standard legal forms. There are all sorts of entrepreneurial groups that try to bring such people together. But, for the most part, they don't seem to work all that well -- and a big part of the reason for that is the basic worthlessness of ideas. For an idea to really be executed, you don't just need the ten pieces that Adams lists out -- you need a real champion. Ask most angel investors and venture capitalists what they invest in, and it's not the idea but, quite frequently, it's the team and their overall ability to execute. Working on a startup with cofounders is, in many ways, similar to a marriage. Making sure those people can actually execute well together is a key part of it -- and this setup seems to minimize that, again focusing on the "idea" as the central focal point.
In reality, however, if you're so focused on the idea, when the market changes or reality sets in, the team is less able to adjust and to change and to adapt. Adams' basic premise is correct: ideas are worthless compared to execution but the response to that is aiding with execution in a way that lets people adapt quickly over time, rather than still setting up the key "idea" as the focal point.
In the end, I tend to think Adams' idea for "monetizing" ideas is about as likely to work as the following idea from another well-known comic creator, Randall Munroe, whose recent xkcd covers the same topic from a slightly different angle:
