Monthly Archives: February 2020

Google v. Oracle, Fair Use v. Copyright

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In just one month, the U.S. Supreme Court will hear opening arguments on a case that could reshape the future of software development. The dispute started in 2010, when Oracle—which acquired Sun Microsystems, the previous owner of Java—filed a copyright infringement case against Google for using Java APIs (application programming interfaces) in its Android operating system. Oracle claims that “Google had replicated the structure, sequence, and organization of the overall code” for 37 packages in its Java API. Google claims that APIs are not copyrightable and even if they are, they are protected under fair use. With the hearing set in one month, supporters on both sides have started to file legal briefs. Supporters for Oracle include; the Trump Administration, the Songwriters Guild, the Committee for Justice, and the American Conservative Union Foundation. Supporters for Google include Microsoft and IBM.

Issue:

1. Whether copyright protection extends to a software interface.

2. Whether the petitioner’s use of a software interface in the context of creating a new computer program constitutes fair use.

Why it matters: The Supreme Court is considering key questions related to software copyright and fair use — with billions of dollars in damages in the balance. Google claims that the survival of software innovation rests on their long-running copyright battle. Oracle claims a victory will ensure software makers enjoy copyright protections.

If Google Wins: Software development will go on as it does now.

If Oracle Wins: Unclear. Massive disruption? Companies reluctant to take on innovative projects? More patents? More expenses? Essential to protecting innovation?

Procedural Timeline: https://www.eff.org/cases/oracle-v-google

What’s next: The Supreme Court will hear oral argument from the companies March 24.

Questions to Consider: 

  1. Which side are you on and why?
  2. What is the policy behind fair use?
  3. What effect will an Oracle win have on innovation? Hinderance or protection?

 

Sources:

https://www.supremecourt.gov/search.aspx?filename=/docket/docketfiles/html/public/18-956.html

https://spectrum.ieee.org/tech-talk/computing/software/google-v-oracle-explained-supreme-court-news-apis-software

https://www.zdnet.com/article/the-supreme-court-will-decide-software-developments-future-in-google-v-oracle/

https://www.i-programmer.info/news/193-android/13489-trump-backs-oracle.html

 

Video:

Escaping the (Legal) Rat Race through Early-Stage Real Estate Investing

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The “Rat Race”

The term “rat race” was popularized in the bestseller “Rich Dad Poor Dad” and refers to an exhausting, repetitive lifestyle that leaves no time for relaxation or enjoyment. It involves subjecting one’s self to a time-consuming job, saddling one’s self with heavy debts, and forcing one’s self to continue working day in and day out at that same job. Individuals in the rat race assume that working at the same job will be better and more profitable in the long term.

The truth is, lawyers are overwhelmingly in the “rat race.” According to the National Association for Law Placement:

  • the average number of billable hours required for a first-year associate is 1,892 hours.
  • for firms with more than 700 attorneys, the average is 1,930 billable hours.
  • to achieve 1,800 billable hours, an associate would need to spend a total of 2,430 hours “at work” (non-billable activities)
  • to achieve 2,200 billable hours (and hit the firm bonus), an associate attorney would need to spend a total of 3,058 hours “at work.

For those reasons, lawyers generally “work to live” rather than “live to work.” These long hours impinge on other personal activities and cause undue stress. This post aims to offer a way out of the “rat race” and focuses on the freedoms real estate investing offers.

Getting Started

While there are a number of ways real estate investing can provide passive income (and set attorneys on a course for financial independence) the focus of this blog post is on early-stage investment. After all, many first-year associates do not come out of law school as skilled real estate investors. Here are three ways young attorneys can get into the real estate game:

  1. Consider House Hacking-house hacking is the easiest way to buy your first rental property. In the bargain, you get to live for free. The traditional house hacking concept is straightforward: you buy a small multifamily (2-4 units), move into one of the units, and rent out the others. Your neighboring tenants’ rent covers your mortgage and other costs. This does require a traditional downpayment, which can be as low as 3.5% (FHA loan) or in some cases 5% (conventional).
  2. The BRRRR Method-BRRRR stands for buy, renovate, rent, refinance, repeat. In this method, you buy a fixer-upper with a purchase-rehab loan, which does involve a down payment. You then renovate it, refinance the property and pull your original cash back out. This method is better suited to more experienced investors because there is a higher risk that comes with leverage. That said, pulling the original cash out allows you to use it for another property.
  3. Partners-partners are friends and family seen as possible sources of money for a down payment. For beginners with little or not enough money for a down payment, chances are you know someone who’s looking to diversify and invest some money in real estate. Partnering on a project or rental could be that first foray into real estate investing. Just read the success story of Jonathan Twombly, who left his New York job as an attorney to pursue real estate: https://www.biggerpockets.com/member-blogs/5063/48335-from-miserable-lawyer-to-full-time-real-estate-investor-how-i-did-it

Passive Rental Property Numbers 

Here is a brief example of a passive rental property. :

  • Property: quadplex with 5% down ($20,500)
  • Purchase Price: $410,000
  • Mortgage, PMI, Escrow, Taxes, Insurance: $2500/mo.
  • Unit 1 Income: $1500
  • Unit 2 Income: $1500
  • Unit 3 Income: $1500
  • Unit 4 Income: $0 (this is the unit you live in)

The rental income from the quadplex is $4500/mo, and the mortgage is $2500/mo, leaving you a surplus of $2000/mo. With this example, you not only live for free but also generate an additional $24,000 in income. For that reason, house hacking–among other investments–is an ideal first step to financial independence.

Sources:

  • Kiyosaki, Robert T. “Rich Dad, Poor Dad: What the Rich Teach Their Kids About Money – That the Poor and Middle Class Do Not!” 1st Plata Publishing ed. Scottsdale, AZ: Plata Pub, 2011.
  • “10 Ways to Escape the Rat Race Faster with Real Estate investing.” Epic Real Estate
  • Liz Brumer-Smith. “6 Ways of Buying Rental Property with No Money Down.”
  • Baruch Silvermann. “Beginner’s Guide to Real Estate Investing.” Dec. 21, 2019.
  • “BiggerPockets” Podcast
  • Jaliz Maldonado. “The First-Year Associate’s Guide to Managing Billable Hours.”
  • https://www.youtube.com/watch?v=naZAknwNgkY

 

 

Is the way we think about charity wrong?

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The Way We Think about Charity is Wrong

https://www.youtube.com/watch?v=bfAzi6D5FpM&feature=youtu.be&t=152

(Most relevant is 2:32-10:28)

From the local mom-and-pop shop to trillion-dollar companies like Apple, the goal of for-profit businesses is typically to make as much money as possible for their stakeholders. For charities, the goal is to help as many people as possible, be it people with cancer, the homeless, people with disabilities, etc. Despite their differences, businesses and charities are, fundamentally, the same in that they seek to improve the lives of their stakeholders. However, in trying to achieve their goals, society expects businesses and charities to operate very differently. The following expectations create a contradiction where we expect charities to tackle massive issues, but we require the charities to be small by restricting their possibility to grow.

  1. Compensation
    1. People react negatively when charity workers are compensated at their full market rate, yet we expect charities to attract the best and brightest. For well-qualified individuals, the loss in annual income may be too much to ignore. For example, a Stanford MBA graduate may make $400,000/year working in the for-profit sector, while a similarly qualified individual may make only $85,000/year – 21% of the for-profit worker’s income. As such, a person wanting to make a difference could reasonable choose to work in the private sector and donate $100k per year, still make $300k per year, and been seen as a philanthropist, while the CEO of the receiving charity still makes $86k and struggles to obtain a $10k raise out of the belief that money could better be used toward the cause.
    2. We do not like the idea that people make lots of money helping other people, yet do not mind when people make a lot of money not helping other people. For example, most people would object to the CEO of a charity making $1 million per year, but do not have a problem with a star athlete making $50 million per year.
  2. Advertising and Marketing
    1. As consumers, we accept that companies must market to grow their market share. Big Pharma spends nearly twice as much on advertisements as it does research and development. However, as donors, we do not like to see our donations used on advertising for charity—we want out as much of our money as possible to go directly to the the cause. Charitable giving has remained at 2% of annual GDP for the last 40 years.
  3. Risk taking
    1. “When you prohibit failure, you prohibit innovation.”
    2. As investors, we accept that businesses must take risks, and accept that risks sometimes do not pay off. A failure does not necessarily ruin a company’s reputation. However, as donors, we expect charities to play it safe and only work with tried-and-true methods of fundraising. If a charity invests in a fundraising drive that flops, it ruins their reputation.
  4. Time
    1. A private company can fail for years to return a profit to shareholders who wait patiently because they believe in the overall plan. However, charities are not allowed to build for the future; they cannot invest in an organizational infrastructure that will, with patience, better address the cause.

Questions

  1. In the last 40 years, poverty has dropped from 20% of the population to 12%, and breast cancer mortality rates have dropped from nearly 100% to 23%.
    1. Does this not suggest that the traditional model of charity is working?
    2. Should we be expecting more over the course of 40 years?
  2. Pallota’s organization had 40% overhead. (The average overhead for a charity is 37%, although the public believes it “should” be 23%). After it became publicly  known how much went to overhead, affiliates stopped hiring Pallota’s organization to run their charitable events. Subsequently, his sponsors lost 84% of their incoming donations in one year.
    1. Does overhead really matter when the total amount going toward the cause increases? (i.e. is it not better to have 60% of $100 million (60 million) go towards ending breast cancer than 95% of $10 million ($9.5 million)?)
    2. How can we expect the charity “market share” to grow without marketing?
  3. While marketing may increase the total donations an individual charity receives, is it not likely that some of those donations are coming at the cost of donations to other, lower-overhead charities? Does this not decrease the overall amount going to causes?

 

Resources

Why It’s Time to Rethink How We Run Charities

https://www.npr.org/transcripts/181693499

https://www.forbes.com/sites/richardlevick/2013/04/08/everything-you-know-about-charity-is-wrong/#374a44514659

https://trust.guidestar.org/why-is-overhead-a-punishable-offense-for-nonprofits

https://ssir.org/articles/entry/persistent_poverty_in_a_smug_meritocracy

https://www.washingtonpost.com/news/wonk/wp/2015/02/11/big-pharmaceutical-companies-are-spending-far-more-on-marketing-than-research/

https://deloitte.wsj.com/cmo/2017/01/24/who-has-the-biggest-marketing-budgets/

Innovation’s Role in the Law

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The topic of today’s class revolves around law’s role in innovation, so I decided research the inverse of this question: What role does innovation play in the legal field?

I focused on “legal field,” as it relates to traditional “big law” law firms.  I was interested in learning more about how law firms are adapting (or refusing to adapt) to changes in the marketplace and client needs, as well as changes in technology. Ultimately, I wanted to be able to discern what the “law firm of the future” would look like.  While uncertainty permeates, I was fascinated by the divergent approaches of various industry leaders.

Some relevant discussions are summarized (and linked) below:

 

 

Do Governing Bodies Hamper Innovation or Incite It?

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A marathon stretches just over 26 miles. According to MarathonHandbook.com (a website devoted to long-distance runners) the average marathon finishing time is 4 hours, 21 minutes, and 49 seconds with some participants finishing in the 6 to 7-hour range. A sub-3-hour marathon is considered an excellent time. But a sub-2-hour marathon? Impossible…. that is, until Kenyan long-distance runner Eliud Kipchoge completed a marathon in 1 hour, 59 minutes, and 40 seconds in Vienna in October 2019, becoming the first person in recorded history to break the 2-hour barrier. Interestingly, fellow Kenyan long-distance runner Brigid Kosgei shattered a 16-year-old women’s record by 1 minute and 21 seconds the very next day.

 

There’s only one tool of the trade: the sneakers that the athletes use in competition. But no pair of sneakers have caused as much fanfare and tumult in recent history than Nike’s “Alphafly Next%” – the sneakers that both Kipchoge and Kosgei wore when they broke their respective records. Technological innovation is the name of the game when it comes to running sneakers used for competition. The Alphafly boasts a lightweight midsole foam called “Pebax” and a carbon fiber plate. The sneaker was scrutinized and its use in future competition was questioned: there was a call for banning the sneakers as some claim that they essentially act as a spring, giving athletes more forward push from each stride. Thus, some argued that using them pose an unfair competitive advantage that erodes the integrity and spirit of the sport.

(WSJ Video)

With the 2020 Summer Olympics in Tokyo just around the corner, the international governing body of athletics, World Athletics, acknowledged that there was a cause for concern: regulations state that shoes cannot confer an “unfair advantage” and must be “reasonably available” to everyone. Ultimately, in January of 2020, World Athletics ruled that the Alphafly (and another controversial sneaker, the Nike Vaporfly) would not be banned from competition, but it did establish guidelines for sneakers to be used in competition following its investigation:

  • The sneaker’s sole must be no thicker than 40mm.
  • The sneaker must not contain more than one embedded “plate” that runs either the full length or only part of the length of the shoe. The plate may be in more than one part but those parts must be located sequentially in one plane (not stacked or in parallel) and must not overlap.
  • For a sneaker with spikes, an additional plate (to the plate mentioned above) or other mechanism is permitted, but only for the purpose of attaching the spikes to the sole, and the sole must be no thicker than 30mm.
  • Any sneaker used in competition must have been available for purchase on the open retail market (online or in store) for a period of four months before it can be used in competition.

 

Nike’s success with the Alphafly and the Vaporfly has forced competitors to adapt to the market and produce comparable goods – companies including Brooks, Adidas, Hoka, Saucony, and more are set to release their own foam and carbon-fiber plated models. This competition will continue to drive new technology that benefits athletes and consumers alike.

 

In laying down ground rules, questions arise as to whether a governing body such as World Athletics undermine or impede the innovativeness that we have come to expect from industry leaders (such as Nike). For example, if no regulations existed, what would Nike’s unbound, “true” innovation nature look like? (i.e. Create the lightest sneaker you can and there are no restrictions on how much cushioning or how many plates you can implement in the midsole). Or on the other hand does true innovation take shape amid forced restrictions? (i.e. Create a shoe within these defined regulations and you can only work within these parameters).

 

Additional sources:

 

Questions to consider:

  • Should governing bodies intervene and regulate at the cost of innovation?
  • Are governing bodies stewards or obstructions to innovation?
  • Are there any other examples that come to mind? What about the automobile industry? Airline industry? Architecture industry?

Bill Gates, Micro-financing, and African Entrepreneurship

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What is Microfinancing?

Microfinancing is the provision of financial services, targeted at individuals and business who lack the provision to access conventional banking services.  It increases access to finance in developing countries where a traditional banking institution would not extend credit to people if they have little or no assets. By using credit ratings, relationship banking, and microinsurance it helps families to take advantage of income-generating activities and enables users to better cope with the risks.

What is going on?

In the past decade, investors such as Bill Gates have begun pouring in capital in rural African communities.

In 2007, Opportunity International in Oak Brook, Illinois, one of the world’s largest microfinance organizations, has announced a $5.4 million grant and $10 million program-related investment (PRI) from the Bill & Melinda Gates Foundation in support of its efforts in five African nations.

The infusion of capital was used to fund new microfinance banks in Rwanda, Uganda, Kenya, and the Democratic Republic of Congo (DRC), as well as expand the organization’s operations in Ghana. The $10 million PRI, to be repaid over ten years at 1 percent interest, will be used to help fund the new banks during their second and third year of operation — typically, a difficult time for a microfinance institution to attract enough savings deposits and/or commercial debt to generate growth. In addition to strengthening the banks’ balance sheets, PRI funds used as intermediate loans can make them more attractive to external lenders, while also greatly increasing the amount of money they are able to lend to poor entrepreneurs. The banks opened in Rwanda, Kenya and Uganda in 2007, and the DRC in 2008.

More recently, in 2018 The Gates Foundation will contribute $50 million (€40.9 million) in financing, as well as an additional $12.5 million (€10.2 million) in technical assistance, to investment projects in the health sector in Africa through the EU’s framework to improve sustainable investments in Africa. This pooling of resources is designed to encourage additional private investment towards achieving the Sustainable Development Goals, and will allow successful projects to be scaled up more rapidly. The European Commission welcomes this strong support to its efforts towards sustainable development in Africa, and will match this contribution with another €50 million.

Why is this relevant to our class?

These loans help provide entrepreneurship opportunities and financial stability for those otherwise lacking the resources to make it possible. Microfinancing provides an alternative to the paternalism approach seen in “Poverty Inc.”.

For example, in sub-Saharan Africa, the poor have very limited access to long-term financing for housing, which is almost invariably limited to commercial banks offering formal, multiyear mortgages. Only 2.4 percent of the Kenyan population, for example, is able to afford typical loan rates. At the end of December 2018, there were only 26,187 active conventional mortgages in the whole country — the majority of which were granted to urban professionals. In Uganda, which has a population of 42.8 million, the number was just 5,000 in 2018.

Microfinancing for businesses and home loans helps improve society in a way that fosters entrepreneurship and small business development. It creates capital markets, an improvement of infrastructure, civil stability, and a healthier happier, more educated employment pool. For example, houses in Kenya which were micro financed reported in a significant decrease in vomiting, sore throats, and rashes, all illnesses associated with allergies and poor environment. There are countless studies that demonstrate the importance of a healthy home environment for a child’s future success, and microfinancing helps make this possible.

See also:

https://ec.europa.eu/commission/presscorner/detail/en/IP_18_361

https://philanthropynewsdigest.org/news/gates-foundation-provides-15.4-million-to-opportunity-international-for-microfinance-efforts-in-africa

https://www.wsbi-esbg.org/SiteCollectionDocuments/0587_ESBG_BRO_CENTRALREPORT%20(004).pdf

https://www.devex.com/news/sponsored/opinion-how-housing-microfinance-in-africa-can-improve-quality-of-life-93964

https://www.fintechmagazine.com/fintech/empowering-women-africa-through-microfinancing