Archive for April, 2010
Selling technology is a tough business, as I pointed out in my most recent column for the print edition of HousingWire. It is difficult and expensive to develop good tools, can be very difficult to educate a market to the point of purchase and then requires additional work to ensure adoption. Overall, it’s very hard to effectively market new technologies, especially when you’re up against competent competitors. Lawsuits, in contrast, are relatively simple to initiate.
Lawyers who work in the consumer electronics space can attest to this. For many years, companies working here have spent about as much time in front of judges as they have in front of consumers. Palm is a case in point.
Palm didn’t bring the first digital assistant to market, but the company did bring a competent team of marketers to bear and quickly began to gain market share. Part of what made the product cool was a handwriting recognition technology it bought from 3Com. Unfortunately for Palm, 3Com bought the technology from U.S. Robotics who, a federal judge later upheld, infringed on a technology originally developed by Xerox. Ouch.
Meanwhile, NCR, a provider of office technology since our granddads were young lads, had a strong client base and not all that much need of marketing. That is until Palm starting tearing into its market. In 2001 NCR filed suit against Palm, alleging that the company infringed on patents it won ten years earlier. A year and a half later, a federal court judge ruled that NCR’s case was unfounded, but the damage was done. Reeling from multiple lawsuits, the company never caught up.
The handheld organizer market has since morphed into the smart phone market and things have really heated up.
Recently, Apple, AT&T, LG Electronics, Motorola, Research In Motion (RIM), Samsung, and Sanyo have all been named in a lawsuit for infringing on patents from a company called Smartphone Technologies. It got some coverage in the press, but not much because over the past year or so, Apple has sued HTC, Kodak sued Sony Ericsson and Samsung, Nokia sued Samsung, LG Group, Toshiba and Hitachi, and RIM sued Sharp and Motorola. And that’s just a sampling of the court’s business in that space. Keeping up with who has sued whom has become a veritable cottage industry.
All of these companies share something in common. They all offer technologies that are very difficult for the average consumer to differentiate between. A plasma TV is an LCD TV is a high-def TV, isn’t it? Of course not. But it’s a whole lot easier to get a judge to give you a win than it is to get a couple million consumers to agree on your brand.
Look at AT&T and Verizon. Despite the fact that the former knew for a fact that its 3G network was not as extensive as that of Verizon, it filed suit to force the company to quit making map comparisons in its national television advertising. When a judge rejected AT&T’s request to force Verizon to stop the ads, AT&T dismissed its lawsuit.
Recently, AT&T has pulled out all the stops in the 3G network upgrade process when it looked like Apple would allow Verizon to have a shot at its iPhone handset. Ah, how much easier it would have been for the company to just have its day in court, get a judge to shut down the competitor and worry about making a better product later.
Companies in our space are also subject to court room shenanigans. One of the realities of the modern mortgage business is that you can’t do anything without adequate technology. If you want a competitive edge, you want to get the best technology. Eventually, it will become clear to market participants that there are only a handful of technology solutions that actually provide superior efficiencies and it will get tough to tell them apart.
Those are the guys you can usually count on ending up in court because it’s really, really hard to get buyers to see the difference in products, at least compared to filing legal paperwork.
Last Friday, First American CoreLogic took its case to court, filing a suit against a host of industry players that it claims have been infringing upon one of its property valuation technologies. The company made the move one week ahead of one of the industry’s most important technology conferences.
Generally, plaintiffs hope to settle out of court and gain concessions from their competitors, which could include the cessation of more effective advertising campaigns or even cash payments for licensing technology.
While going to court is a valid strategy when used by a company that has a vested interest in protecting its intellectual property, too often it’s more akin to a playground bully, pushing around smaller companies in order to gain an unfair advantage.
Larger players sometimes use this strategy to bleed off their competitor’s cash or stop their marketing, even though they know they will probably eventually lose and may have to reimburse court costs. It appears that AT&T was pursuing this strategy and would have won big if it could have blown a hole in Verizon’s successful marketing campaign.
Is First American hoping to put a damper on some marketing messages at MBA Tech? I’m not sure yet, as the company just filed its suit last Friday. I’ll be watching it with great interest.
The watchdog of the federal bailout efforts criticized the US Treasury Department's recent revisions to the Home Affordable Modification Program (HAMP), saying the changes could slow the effectiveness of a program that has shown "very little progress" so far.
The Special Inspector General Troubled Asset Relief Program (SIGTARP) took Treasury to task in its latest quarterly report to Congress (download here), which studies the continued financial unraveling in the US mortgage market.
While foreclosures and bank repossessions rose in Q110 above year-ago levels — 16% and 35%, respectively — HAMP results in "very little progress" so far, SIGTARP said, with only 230,000 permanent modifications completed over 12 months of operation (illustrated below). This represents only 8.2% of the foreclosures initiated in 2009, and fewer than only the most recent quarter's bank repossessions.
SIGTARP previously criticized Treasury for its "disappointing" rate of permanent modifications. In a March report, the watchdog said significant risks of re-default remain among even the permanent modifications, and the Treasury’s management and expectations of the program lack transparency.
Just days after the March report, Treasury launched major revisions to HAMP, including new provisions to address unemployed homeowners, and to require consideration of principal write-downs for underwater borrowers.
SIGTARP said these changes appear designed to expand HAMP participation and improve the permanent modification rate and re-default risk.
"However, the program changes, as announced, also raise several issues that could impede HAMP’s effectiveness and efficiency," SIGTARP said. "Treasury’s urgency in rolling out the new initiatives, laudable as it is, risks significant costs in the form of ill-defined goals, incomplete program guidelines, increased vulnerability to fraud, incentives that may prove ineffective, and the potential for arbitrary treatment of participating borrowers."
SIGTARP recommended Treasury identify participation goals and expected costs for each HAMP program and subprogram, as well as launch a fraud awareness campaign and include warnings with each new program announcement. The watchdog also urged Treasury to adopt the Federal Housing Authority's appraisal standard for all principal reduction and short sale programs.
SIGTARP said the Treasury should reevaluate the voluntary nature of its principal reduction program, to both ensure the greatest extent of the program as possible and prevent servicer conflicts of interest. It also recommended the Treasury reconsider the length of three-month minimum term of its unemployment forbearance program.
"Questions remain as to whether the real estate markets have truly found bottom or are headed for further decline," SIGTARP said. "In sum, notwithstanding that the financial system appears to be stabilizing and record profits are returning to Wall Street, the plain fact is that too many Americans on Main Street are still in imminent danger of losing their businesses, their jobs, and their homes."
Unemployment — which remains a significant factor in a borrower's ability to make mortgage payments and apply for HAMP modification — is becoming more and more permanent. SIGTARP noted the duration of unemployment remains at a record high. At the same time, smaller and regional banks are suffering — with 50 having closed so far in 2010 — meaning the supply of credit continues to contract.
Bailout efforts through the Troubled Asset Relief Program (TARP) — which funds $50bn of the $75bn HAMP program — remain costly. SIGTARP said that, despite $205.9bn of reapaid TARP funds, the program is still expected to cost taxpayers $127bn. These costs are concentrated in programs supporting American International Group (AIG: 25.25 +0.44%) ($50bn), US housing ($49bn), and the automotive industry ($31bn).
Write to Diana Golobay.
Disclosure: the author holds no relevant investments.
Lloyds Banking Group has delayed meeting investors on a planned residential mortgage-backed bond sale because of air travel disruptions, one of the banks managing the sale said on Monday.
Plans for the bond deal were announced last Thursday, but investor meetings could not take place because of transport disruptions caused by the volcano eruption in Iceland, which has grounded flights for the past five days.
The meetings will be rescheduled when there is clarity over travel arrangements, one of the managing banks said.
A Lloyds’ spokeswoman confirmed the postponement of the meetings, but declined to comment further.
