Wednesday Nov 29, 2006

A Nice Decision for Bloggers

When I first began this blog, I had an interesting exchange with a gentleman in the U.K. He was particularly interested in concerns I might have about potential liability for comments posted to my blog. Evidently, his attorneys had advised him not to open up his blog to comments for this reason. My response was that the opportunity for comment is what makes a blog so valuable (and interesting). To me that outweighs risks arising from an inappropriate post.

Not that I've been overly concerned, but last week, the California Supreme Court in Barrett v. Rosenthal helped provide some clarity (and comfort) for those of us subject to California jurisdiction.

Tuesday Nov 21, 2006

Now, that the dust has settled a bit.

I spent much of last week reading various press accounts of Sun's decision to open source the Java platform. I usually do this after major announcements to get a sense of how clearly and accurately we have communicated externally. But what I'm noticing is that while the views of traditional media remain important, we are increasingly interested in the feedback received from blogs and the comments posted by blog readers. These are becoming great indicators of how well an announcement, such as this one, is ultimately understood and received.

I participated in a number of media interviews in connection with the Java announcement. But, I had reservations about speaking to business journalists about such a complex and nuanced area. Given the questions asked by one of the reporters, I was certain that my responses would be reported in a very inaccurate journalistic mashup.

Thankfully, that interview wasn't used. But, in the interest of clarity, I thought it would be useful to provide some of the questions that the reporter should have asked along with my responses.

Q: "What was the involvement of Sun's legal team in the decision to open source Java?"

A: “The decision to release any Sun technology in open source is a collective effort involving the engineering, marketing and legal organizations. Our attorneys have been key contributors to the formation and 11-year evolution of the Java Community Process. They also have significant expertise in open source licensing. With this combination of knowledge and insight they were integral participants in the open sourcing of the Java platform.”

Q: “Why was the GNU General Public License (GPL) chosen?”

A:”The first step for us in open sourcing a technology is to understand what our internal business partners are trying to achieve. Then, the legal team reviews the available licensing models and makes recommendations as to which is most appropriate. In this case, we wanted an OSI-approved license. For OpenSolaris, we created the OSI-approved Common Development and Distribution Agreement (CDDL), a derivative of the Mozilla Public License (MPL) that is designed to be more re-useable by others for their own open source projects. In this way we attempted to reduce the need for new MPL derivative licenses and combat license proliferation. And, in fact, it has worked out as many non-Sun projects have chosen to release their code under the CDDL.

A key factor in our decision was selecting a license that would continue to help drive community adoption of the Java platform. Currently, there are more than 4 billion devices worldwide that use the Java platform. Think about that number for a second. It's a staggering example of the power of a community – in this case the Java community - to drive a common global platform. We could have selected the CDDL, but we wanted a license that would be embraced by the Linux community and that was in harmony with the already existing and thriving Java GPL community. The GPL requires that any code combined with GPL code must be distributed under the same license. Developers must provide their contributions back to the community. This provision provides a mechanism to ensure that Java continues as a unifying platform for innovation.”

Q: “Why didn't you release under GPLv3?”

A: “The short answer is that it doesn't yet exist in final form. The Free Software Foundation has provided a very robust and open process for developing GPLv3. We have representatives from both our business and legal teams participating in this effort.

Q: What was the process for open sourcing the Java platform?

First of all, let me make clear that this was not a trivial effort. We had a number of people working amazing hours (thanks Chris, Melissa and the rest of the team) to get everything done in a compressed period. The most involved part of the process is the extensive due diligence review. This is where we examine the code base to identify any contributions, attributions, notices or other indications of non-Sun intellectual property. Once this is completed, we then review our legal agreements to ensure that we have the rights necessary to place any of the identified third party code into open source. If we don't, then we engage in a renegotiation with the licensor to acquire the necessary rights. In some cases, where we aren't successful, we will release the code in binary form. To give you an idea of the scope and complexity of this exercise, the Java Standard Edition platform contains over 6 million lines of code.

Although this a challenging task, it is becoming a core competency of our legal, marketing and engineering teams. We've done it with OpenOffice, OpenSPARC and OpenSolaris. We've even released “Duke” in open source!

Thursday Nov 09, 2006

Annual Stockholder Meeting

We just held our Annual Stockholder Meeting. It's the one-day of the year that I am guaranteed to wear a suit. I think it's also a favorite day for my young teenage daughter. She savors the chance to give me one of those "you aren't really going to wear thaaaaat are you?" comments -- said with appropriate roll of the eyes-- as I go out the door. I do have to admit, the suit felt a bit tighter this year.

Our team did a great job pulling everything together for this year's meeting. For those of you who have forgotten to refill your Ambien prescription, you can listen to me reading from my script here.

Much of the reason the meeting went so well is the result of work done earlier in the year. At the direction of our board of directors, our team has actively engaged with a number of shareholder groups and solicited their input on our corporate governance policies. The result was that we made a significant number of changes, including:

adoption of majority voting for directors;

removal of our stockholder rights plan;

adoption of performance based stock award;

adoption of a mandatory retirement age for directors;

adoption of annual board and committee self-assessments;

implementation of stock ownership guidelines for executives, and

creation of a presiding director duty statement.

Also, as a result of recent management changes, Sun's Chairman and CEO positions are now held by separate individuals. For those who are interested, page 14 of our proxy has additional details.

To me, however, the current form of Annual Stockholder Meeting is an archaic holdover from the days when international trading markets were non-existent. Back then, it made sense that you would be able to have all of your stockholders together in a single physical location. That no longer is the case. Today, stockholders are located around the globe. And, because of the use of brokers and proxies, the outcome of the vote at the meeting is usually no surprise. So, you end up spending a great deal of money in terms of facilities, security and internal resources for something that is generally attended by no more than 100 to 200 individual stockholders. For them, the real value is the opportunity to directly question management (and we had some very thoughtful questions at this year's meeting). But, it does seem unfair that stockholders that are not physically present don't have the opportunity to do the same.

My personal belief is that in the very near future, Annual Stockholder Meetings will move from the physical to the virtual. (In fact, Delaware corporate law already permits this.) Through live interactive web casts, voting will be electronic and real-time and stockholders will be able to question management and directors by email, phone or over the web.

To some, this may seem farfetched, but take a look at the first comment posted to Jonathan Schwartz’s recent blog. It’s from SEC Commissioner Cox. You may recall that Jonathan and I previously sent a letter to Commissioner Cox advocating the idea that dissemination of material information through corporate websites and blogs should satisfy Reg FD. Looks like the SEC is interested in discussing the idea further.

I'm beginning to think this whole "Internet thing" might catch on. ;)

Wednesday Nov 01, 2006


It's been a hectic few days. We announced earnings late last week and many in our group spent time packing as we moved offices. This week, the pace increased as we prepared for meetings of our Board of Directors and board committees (Audit, Corporate Governance and Compensation). And, tomorrow, we will hold our Annual Stockholder Meeting. Along with preparations for these corporate events, we have, of course, had to cover the normal business needing our support (which at Sun is never "normal").

It's easy to get caught up in this torrent of business and legal work, especially when it's interesting and in collaboration with wonderful colleagues. But, every now and then something gives you reason to pause and provides perspective.

Today, in the midst of all these activities, I broke away from the office to attend the funeral of a member of our department who had worked for us for over 15 years. She died unexpectedly less than two weeks ago leaving a husband and teenage son. I can't imagine their pain, but I know that our organization feels a deep loss. The amazing response to our request for donations for her son's education is reflective as much of our desire to help him as it is the need to do something to ease our own sadness.

The funeral itself was beautiful - no, "joyous" is the more appropriate word. It was heartening to see so many current and former members of the Sun community in attendance. At one point, after a beautiful gospel hymn, the minister asked us all to stand. He then pointed at us and said: "If so many of you are here, I don't know how any work is getting done at Sun today." At that moment, it really didn’t matter.

Sandra, your beautiful smile and quiet grace will remain with us.

Monday Oct 30, 2006

Navigating the Ice Fields

I'm frequently asked what skills are necessary to be a successful in-house attorney at a public and global company like Sun. My stock response is that you need be a good business partner and attorney (obvious), have a heavy dependency on caffeine and the ability to channel "Clint" during stressful situations. But, I'm increasingly becoming convinced that people who do this for a living would be well suited for a role in my organization.

Let me explain what I mean. Sun, although based in the U.S., does business in over 100 countries. And, we are obligated to comply with the laws of each of these. At first glance, one would think that this is primarily a resourcing issue – do you have enough legal support to understand the laws of each jurisdiction and put in place processes to comply? Increasingly, however, the difficulty is that some of these laws may be in conflict and navigating between them can prove challenging. Here are a couple of examples.

Since 1962, the U.S. has had legislation in place that, among other things, prohibits U.S. based companies from trading with Cuba. In order to comply, most U.S. companies have developed procedures and infrastructure to ensure that their products are not sold into Cuba.

Canada, has taken a different view. In response to the U.S. legislation, the governnment of Canada has enacted laws that make it an offense for Canadian corporations to comply with the U.S. legislation. The difficulty is that these laws appear to also apply to Canadian subsidiaries that are wholly-owned by U.S. companies.

Here's another example. To comply with Sarbanes-Oxley, almost all U.S. based public companies have put in place anonymous reporting hot lines. Given that most employees in the U.S. are employed on an "at-will" basis and would have concerns about retribution for "whistle blowing", anonymity makes sense. However, this is not the same situation elsewhere. In many countries, employees have greater job protection. And, in some, there is a cultural legacy that runs counter to anonymous reporting. In France and Germany, for example, many citizens still have painful memories of experiences resulting from their inability to confront unknown accusers during WWII and in East Germany. As a result, the European Union has enacted legislation that restricts the ability of companies wanting to implement anonymous reporting as part of compliance programs.

Given the accelerating growth of the Internet as a global engine for the exchange of commerce, information and culture, we will increasingly see instances where laws are in conflict. This will lead to even more opportunity for in-house counsel to demonstrate their “navigational” skills.

Thursday Oct 19, 2006

Engineer Envy

On most days, I thoroughly enjoy my chosen profession with no thought of doing anything else. Yesterday, I wished I was an engineer. Here's why.

Thursday Oct 12, 2006

Open Hardware

Ten years ago, I supported Sun's microprocessor organization. The buzz those days was around something called "UltraSPARC I", our first 64 bit RISC microprocessor. At that time, the industry was focused on the 32 bit CISC architecture; so, UltraSPARC 1 was considered a very significant advance in microprocessor technology.

Last year, we released an entirely new microprocessor - the "UltraSPARC T-1", which Sun is using in it's latest UltraSPARC server offerings. The T-1 incorporates a CMT (chip multi-threading) design containing 8 cores capable of running 4 threads each for a total of 32 threads with stellar throughput and performance gains. (For my non-technical brethren, it's an amazing bit of innovation for the compute world. Trust me, just say "chip multi-threading" at your next cocktail party when speaking to an IT professional - they will be impressed).

As with UltraSPARC 1, the UltraSPARC T-1 is another example of breakthrough microprocessor technology. But this time, it isn't just the technology that is so unique, it's also the change in our business model. Because simultaneous with the release of the T-1 based systems, we also released the T-1 design to the world under an OSI approved open source license as part of the OpenSPARC program.

As a result, this innovative design is now available to anyone under a GPL (General Public License). Under this license, developers can take the T-1 design as expressed in verilog (which is actually similar to source code in the software world) and create modifications or entirely new designs that they are free to distribute and monetize without payment of royalties to Sun.

While open source in the context of software has been with us for more than 15 years, this is the first time that a microprocessor design has been made available under an open source license. Within our legal team, there was a question as to whether the open source (software) model would work in the hardware world. A significant amount of effort went into determining which license was appropriate, the structure of the governance model and understanding any third party technology included in the verilog that could inhibit our ability to release under a free or open source license. Because hardware has a longer development cycle, we have been waiting for an indication that this concept - open source for hardware - would work.

We recently received our first validation when a company called Simply RISC released a design based on a single T-1 core. What's interesting here is that Simply RISC has taken the T-1 design, originally targeted at high-end systems, and used it to create entirely new market opportunities for embedded systems.

More to come...

Friday Sep 29, 2006

Reg FD

Every few weeks, our CEO, Jonathan Schwartz, talks to me excitedly about a blog he wants to post to provide his insights on our financial results or significant new customer relationships or product releases. He believes (as do I) that his blog, along with other channels of communication, is an important source of information for our employees and investors and entirely consistent with the intent of Reg FD. Unfortunately, to date there hasn't been any specific regulatory guidance from the U.S. Securities and Exchange Commission as to how a company can use the Internet alone (via webcasts, blogs or website postings) and conform with Reg FD. As a result, Jonathan and I have some interesting discussions and he gets some advice that I'm sure he feels is, at times, overly conservative.

A constant focus for us is how to drive greater openness and transparency in our business. It's part of our corporate DNA. Witness the fact that over 4,000 Sun employees have blogs, including Jonathan. It's also a part of our approach to technology - whether open standards for document or identity interchange or open source software and hardware.

At the core of all this is the Internet. Today, there is simply is no more effective medium for the timely dissemination of information to the widest possible audience. And, we are only in the early stages of its growth. It is an unparalleled way for companies to have direct and immediate communications with employees, customers, suppliers and, especially, shareholders.

We are excited by the SEC's desire to support investors by harnessing the power of the Internet. The Commission has been active in promoting the use of interactive data systems (including XBRL) to provide valuable tools for investors. The Commission has also proposed the use of the Internet as a ubiquitous communication vehicle for the electronic distribution of proxy materials on a “notice and access” basis. These actions are consistent with the Commission's belief in the utility of the Internet to drive corporate transparency and the flow of information to investors.

But throughout history, the pace of technological adoption has always surpassed the speed of adaptation of the law to these changes. By their nature, legislation, regulation and judicial decisions always play “catch up”. To some degree this is the case today with regard to Reg FD. As enacted in 2000, Reg FD was intended to put all investors on an equal footing when it comes to receiving material information about a company. In order to meet its requirements, companies must provide material information on the basis of widespread dissemination through the filing of a Form 8-K or "through another method (or combination of methods) of disclosure that is reasonably designed to provide broad, non-exclusionary distribution of the information to the public." But, as I mentioned, we don't yet have clear guidance on how we can use the Internet to satisfy this requirement.

With this in mind, Jonathan and I recently sent to SEC Chairman Christopher Cox a letter sharing our views on the value the Internet in support of Reg FD. While the Commission is embracing the Internet's advantages in other areas, we think that the time is right for it to also take another look at Reg FD.

Tuesday Sep 19, 2006

Visit to the East Coast

I just returned from a quick visit with our field attorneys in Sun's offices in Toronto, Somerset and Manhattan.

These trips always have a "Planes, Trains and Automobiles" feel to them as I race from office to airport to rental car to hotel to office. Yet, I wish I could break away from headquarters to do this more often. It is a great opportunity to understand the challenges facing our employees in the field. And, it is a wonderful reminder of the very talented and energetic people we have in our organization (to Frank and Mike - Welcome Aboard!).

On this trip, it was clear that morale was high following our recent product and market share announcements. Then again, it could also be the result of some or our "innovative" employee communications like this one spotted in the HR area of the Toronto office.

I visited our office in Manhattan only days before the 5th anniversary of 9-11. I viewed this behind the receptionist desk.

It contains several items recovered from wreckage of the World Trade Center and a hand-written note from the person who found them. Sun had an office in one of the towers.

It took some time before I could get the lump out of my throat.

Thursday Sep 14, 2006

The "Tax" on Innovation

Sun has always been about innovation. Last year, we spent more than 15% of revenue on R&D. Previous R&D investment has lead to the development of the Solaris operating system, the Java programming language and most recently our CoolThreads chip-multi threading technology. With this focus on innovation, the current wave of patent cases brought by patent "pirates" or "trolls" is especially baneful as it requires us to redirect focus and resources from invention... to litigation.

For those of you who are new to this area, here's the reality. An individual, law firm or small group of investors will form a partnership or LLC to acquire a broadly written patent that can be used against the maximum number of target companies. The "plaintiff" then files suit - in many cases without any contact or notice - and usually in a location advantageous to plaintiffs. One of the current venue's of choice (and there are several) is a court located in the small town of Marshall, Texas where over 88% of jury verdicts favor the plaintiff. For Marshall, patent litigation has become an important part of the local economy. In fact, rumor has it that in the town's barbershop the "doctrine of equivalents" is a common topic of conversation. Call me "old fashioned", but I still prefer baseball.

In most of these cases, the plaintiff will be represented by an attorney who is working on a contingency basis. In other words, rather than an hourly rate, the attorney is compensated based on what is received through settlement or trial - usually this is between 30% and 50% of any recovery. Thus, there is no real cost to the plaintiff in litigating the case and plenty of upside for the attorney.

When the case is filed, the plaintiff requests an injunction as well as claims substantial damages. The company is then faced with a big decision. Does it settle to avoid the risk of a sizable judgment and the possibility that it will be prevented from shipping it's product? Or, does it fight the case in court? We always choose the latter and have invested significantly in legal resources to help us defend against these cases. But, as a shareholder, and with all respect to my colleagues, I'd rather invest in creative engineers than creative attorneys.

What I've described is a destructive perversion of the intent behind the U.S. patent system. The plaintiffs in these cases are not investing in R&D "to promote the progress of science and useful arts", nor are they adding value to society. Instead, they are using the current system to maximize lucrative settlements.

With this as backdrop, we were happy to recently host a visit to Sun by Congressman Lamar Smith. Along with Senators Hatch and Leahy, he has been a leader in the push for patent reform. In the course of our meeting, we shared our views on the need for significant changes to the current patent system, including the repeal of Sec. 271(f), limits on injunctive relief and the need to restrict damage awards to the value of the invention described in the contested patent. (Under the current system a plaintiff claiming a patent on a small, inexpensive component like a heat sink can claim damages based on the total profit for the entire product - even if it is something that contains thousands of other components.)

In the recent decision in eBay v. MercExchange, the judiciary has shown a willingness to level the patent litigation playing field. It's nice to see that the legislature now appears to be taking similar steps.




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