Feb 1 • 20M

🗞️ Bankruptcy Is Only For The Bankrupt, Is The Alphabet Breaking Up, & Pirate Wars

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THIS WEEK: Johnson and Johnson finds no success in bankruptcy, Google's search for digital ad dominance may be ending, and Silicon Valley is caught up in fighting pirates. Plus, Rick Astley will never let you down, and Meta reverses course.

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🦀 Project Plato Dries Up

If it struck you a bit odd that one of the largest and most profitable corporations in the world (valued at $400 billion) was suddenly filing for bankruptcy, well, you're not alone. A three-judge panel for the U.S. 3rd Circuit Court of Appeals dismissed Johnson and Johnson's Chapter 11 petition for one of its newly created subsidiaries, LTL Management, arguing the move was done in bad faith. The pharmaceutical giant is facing $3.5 billion in verdicts and settlements from 38,000 lawsuits claiming that the company's talc products caused cancer. To shield itself from these costs, J & J used the so-called Texas Two-Step to create a subsidiary that absorbs the litigation and then declares the subsidiary bankrupt. The plan was internally named "Project Plato".

  • According to CNBC, Jon Ruckdeschel, a lawyer for the plaintiffs, applauded the bankruptcy dismissal, saying: “Bankruptcy courts are for honest companies in financial distress, not billionaire mega-corporations like J&J."

  • The Appeals Court's 56-page opinion recognizes that Johnson and Johnson created the subsidiary "solely to access the bankruptcy system and not because it faced financial distress," notes CNBC. Furthermore, the opinion states that “Good intentions - such as to protect the J&J brand or comprehensively resolve litigation - do not suffice alone."

The Verdict

The Texas Two-Step is a fairly common legal tool for shouldering large settlements and verdicts—especially in toxic torts. So, for this tool to be shot down by the 3rd Circuit Court is major. Of course, this could still be reversed by the Supreme Court, but companies may think twice before using this tactic again in the future.

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🔤 Dismantling The Alphabet

The Biden Administration has taken aim at Google's far-reaching online advertising business. In a new antitrust lawsuit the Justice Department and eight states have filed against the tech titan, Google is accused of corrupting "legitimate competition in the ad tech industry by engaging in a systematic campaign to seize control of the wide swath of high-tech tools used by publishers, advertisers, and brokers, to facilitate digital advertising." In doing so, Google is knowingly engaging in anti-competitive behavior and " unlawful means to eliminate or severely diminish" present or future rivals. In a response to the suit, Dan Taylor, Google's Vice President of Global Ads, wrote that "DOJ is doubling down on a flawed argument that would slow innovation, raise advertising fees and make it harder for thousands of small businesses and publishers to grow." He added that "we will vigorously contest attempts to break tools that are working for publishers, advertisers, and people across America."

Second Pass

While this is the Biden Administration's first suit against Google, it is the second antitrust case against brought against the tech giant since 2020, reports the New York Times. That suit alleged "Google [had] used anticompetitive tactics to maintain and extend its monopolies in the markets for general search services, search advertising and general search text advertising — the cornerstones of its empire.” 

The Verdict

Going after Big Tech seems to be one of the only bipartisan issues left in the country. That being said, for a handful of companies to control so much of our lives and so much of the economy makes it clear that the government had to step in at some point.

🏴‍☠️ What Is A Pirate?

Stop me if you think that you've heard this one before: In 2021, GitHub and OpenAI (two companies either owned by or largely invested in by Microsoft), launched a coding tool named Copilot. The tool, much like OpenAI's ChatGPT, scraped vast sources of existing code to create its own database which then enabled it to suggest code to programers that it had generated. Well, not everyone is happy with this process. In November, a class action lawsuit was filed against Microsoft, Github, and OpenAI alleging “software piracy on an unprecedented scale," notes The Verge. Now, the tech firms are firing back asking for the federal court hearing the case to dismiss it, based on grounds that the piracy claims do not hold up. 

  • In Github's dismissal filing, the company claims the suit “fails on two intrinsic defects: lack of injury and lack of an otherwise viable claim." Meanwhile, OpenAI's filing raises a similar argument that the suit relies on “hypothetical events” to “allege a grab bag of claims that fail to plead violations of cognizable legal rights.”

What Is Scraping?

OpenAI's tools (including Dall•E and ChatGPT) rely on scraping, which is training its AI on enormous data sets that are publicly available. That is to say, for Dall•E, it is potentially Getty Images, Flickr, and other image sets. Then, from all the data it scraped, the AI can create "new" images/text/code based on the scraped data. But is it copyright infringement? This month, notes CNN, Getty Images filed suit against Stability AI (who makes an art generating AI called Stable Diffusion), claiming: "Getty Images believes artificial intelligence has the potential to stimulate creative endeavors. Accordingly, Getty Images provided licenses to leading technology innovators for purposes related to training artificial intelligence systems in a manner that respects personal and intellectual property rights. …Stability AI did not seek any such license from Getty Images and instead, we believe, chose to ignore viable licensing options and long standing legal protections in pursuit of their stand-alone commercial interests.”

The Verdict

As we’ve noted before, generative AI is creating a new frontier in IP law by relying so heavily on data scraping to train the technology. That being said, the entrance of large companies like Getty Images to the mix will step up pressure to regulate this new industry.

📤 What Else We’re Forwarding

Giving You Up: Rapper Yung Gravy tried to rickroll Rick Astley, claims Astley in a new lawsuit, reports Law360. Astley's suit alleges Yung Gravy and his producers "flagrantly" copied his voice without permission.

Back Again: Meta has reinstated Donald Trump's Facebook and Instagram following a 2-year ban triggered by the attempted coup on January 6th. The podcast Hardfork does an interesting dive into how the move may be Meta's way of appeasing critics on both sides of its content moderation policy.

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