AT&T, Microsoft Tangle Before Supreme Court

The U.S. Supreme Court is hearing oral arguments Wednesday for a patent case that could impact how manufacturers configure and sell computers overseas, and to what extent U.S. patent laws can be enforced in foreign countries.

Called Microsoft v. AT&T, the software industry is aligning behind Microsoft in this battle, given the far-ranging ramifications it could have on their business practices, Michael Sacksteder, a partner with Fenwick & West, told the E-Commerce Times.

“This law could affect anyone who sells software in foreign markets,” he said. “I have seen accounts of companies that are normally at odds with Microsoft rooting for it for this reason.”

Patented Here, Configured Overseas

The case revolves around claims that Microsoft Windows infringed on patents held by AT&T. Courts have sided with AT&T on the issue and Microsoft has paid fines for patent infringement on products sold in the United States.

Microsoft, however, claims that it is not infringing on the patents of foreign-assembled computers installed with Windows software.

At one time, U.S. patent laws only applied to activities in the United States. Then in 1972, Congress passed 35 U.S.C. 271(f) to keep companies from shipping components abroad for assembly in order to avoid patent claims, Raymond Van Dyke, a partner with Nixon Peabody, told the E-Commerce Times.

Issues in Dispute

While the law may be clear that companies cannot avoid U.S. patent laws by assembling products overseas, Microsoft’s arguments that its operations have not violated patent law do merit examination from the Supreme Court, especially as manufacturing and distribution operations have significantly changed over 35 years.

The equipment assembly then becomes the software assembly now, Van Dyke said.

“The statute includes language involving ‘components’ ‘supplied’ abroad. Do the golden disks shipped abroad, including a speech feature that arguably infringes another’s patent, satisfy the language of 271(f)?” he questioned.

Microsoft’s Viewpoint

Specifically, Microsoft has raised two points, Sacksteder noted. “One is the question of: What is a component? Is it a binary sequence of numbers that lack physical existence — i.e. software?”

Also, in this particular case the foreign manufacturer used a “golden master” disk to copy and then used that to install Windows on the computers.

“The statute requires that the components be supplied from the United States,” Sacksteder continued. “Does this scenario — shipping a disk overseas — fall under that part of the law?”

Given the potential damages that software providers could face if the Supreme Court finds for AT&T, the case will be closely watched by all sides.

“With Chief Justice Roberts recusing himself, it will be curious how the Court will rule, perhaps even split,” Van Dyke suggested. “With the growing criticism against the extent and reach of patent rights, the Court may clip the extraterritoriality of U.S. patent laws,” he speculated.

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EXCLUSIVE INTERVIEW

B2B Funding Firms Banking on Embedded Finance

accounting and finance

Embedded finance is on the rise in both the business and consumer payments markets. Analysts project its revenue will reach $1.91 trillion as adoption expands by 2028.

This steady acceptance is opening fintech operations to a wide range of marketplace opportunities. At the same time, it is forcing banks to morph their traditional catbird seat domain in doling out loans and bill paying services to partnerships with a variety of e-commerce platforms. This disruptive transition spans industries catering to both business-to-business and business-to-consumer transactions.

By integrating a financial task or function into a business’s infrastructure, embedded finance streamlines access to financial services such as lending, insurance, or payment processing. It does this without redirecting the customer to third-party destinations.

The embedded finance concept took root years ago with money handling operations such as PayPal and Stripe. Users could conveniently pay bills and deliver money to individuals and companies without individually handling such matters through their banks or postal services.

Banking as a Service

Finance platforms called banking as a service, or BaaS, are becoming an integral part of online transactions for both individual consumers and businesses. A dual industry is developing around the two processes.

These BaaS platforms enable digital banks — and even non-banks — to build various financial services into their online transactions, exclusive of product purchases. They operate with back-end banking functionality; whereas the broader category of embedded finance is more of a front-end access to financial services.

Together, the two are tied to the digital marketplace and the efforts to simplify and streamline financial services for consumers and businesses alike. Though embedded finance and banking as a service appear similar, they differ slightly in that BaaS is needed to deliver embedded finance.

Invoice Factoring

One of the new trends in shaping B2B payment strategies, especially for non-financial companies, is the shift toward invoice funding, or factoring.

This solution is not a loan but a financing strategy where a company sells its invoices at a discount to a factoring company in exchange for a lump sum of cash. The factoring company then owns the invoices and gets paid when it collects from the invoiced customers, typically from 30 to 90 days.

FundThrough is an AI-powered invoice factoring platform with a big presence in the process of embedded finance in B2B payments. The company provides funding for a business based on the size of its outstanding invoices.

Online B2B transactions have three components — suppliers, buyers, and the platforms they use. Each component has its own set of needs that must be met to ensure a smooth payment process for all involved, according to Amanda Parker, chief growth officer at FundThrough.

An essential requirement for buyers is contentment with sellers’ payment methods and how their suppliers provide those services. Where suppliers are concerned, customer remittance intervals and delivery processes tend to vary by industry — and selling to B2B enterprises that have unreasonably long or inconsistent payment cycles can negatively impact the cash flow of suppliers, Parker noted.

Embedded finance, the larger umbrella category, encompasses all the different components of finance in the traditional sense. Embedded finance strategies can be built into whatever workflow that makes sense, explained Parker.

“It can be used right inside the workflow connected to a purchase of an item, a transaction, creation of an invoice, for example,” she told the E-Commerce Times. “It also includes embedded banking, embedded payments, lending insurance, you name it.”

Embedded Finance Unwrapped

The E-Commerce Times further discussed the inner workings of embedded finance with Amanda Parker. Following is that part of our conversation.

What more is involved in the process of embedded finance?

Amanda Parker: It varies and includes a connection to the customer, so you have some kind of connection to the data source.

Amanda Parker, chief growth officer at FundThrough
Amanda Parker, Chief Growth Officer
FundThrough

Let’s take an example from one of our partnerships. We are connecting to the user’s company inside QuickBooks for getting information on what their company is, what it does, as well as a level of identity verification.

We are doing something called KYC, which is “Know Your Customer,” so we are asking the user a series of questions or asking for a series of documents to confirm their identity.

Then we confirm that the transaction they are requesting is legitimate, the relationship that they have with the business on the other side is legitimate, and that their bank account details are legitimate.

So those are kind of the components. It is verification, confirmation, and then sending the funds required through various banks.

How does this process work for other use cases?

Parker: Our bread and butter is lending or invoice finance. In general, embedded finance has tons of other use cases. You have B2C, tax or business-to-consumer contacts, and you have payments insurance. This is the exact same but in a B2B context.

So, for us, the use case might involve suppliers that want to get paid immediately. Now they can do that beside any workflow; whether a transaction, invoice, or purchase is happening.

How does this process benefit consumers or is it more a benefit for businesses?

Parker: We focus on businesses, but for consumers and everybody it is the seamless integration they gain so they do not have to leave their workflow. It is far more convenient and automated.

You are not using six different systems to try to get something done. You can now do everything inside one system. So, if you think about the way that finances have leveraged or changed over time, consumers can essentially buy anything online.

But B2B is a very fragmented system. So now, embedded finance is taking over into B2B to apply that same kind of frictionless experience that consumers have online to a B2B context.

What factors are driving the transition to embedded finance?

Parker: Frictionless experiences at the consumer level have always led the way. Now that is coming through to businesses.

Another key thing is as millennials take over more of the workforce, they typically get frustrated with systems and workflows.

Integrated payments and lending are really unlocking a lot of new business models for software companies. This vastly improves the experience to make it a more consumer-like experience but in a business-to-business context.

How is the adoption of embedded finance progressing?

Parker: We see a growing number of estimates for the global embedded finance opportunity. [Reportedly] embedded finance will reach a $7 trillion value globally in the next 10 years.

PayPal and Stripe were leaders, particularly on the consumer side and e-commerce. Now we are getting on the cusp of explosion on the B2B side of things, which is very exciting. There is over $100 trillion of GMP (guaranteed maximum price) inside B2B. That is just kind of open for the taking.

I think you are going to see a lot more of that as players over the coming years come out and start to want to assist in that movement of those funds.

What is needed to encourage further adoption?

Parker: I would say one of the key things is bank adoption. More banks need to embrace open banking and banking as a service.

Application programming interface (API) architecture is ever evolving and getting better. A number of fintech players have come out to give the banks a run for their money. So, I think we will start to see a ton of innovation in that space in the coming years.

Why are some banks hesitant to come on board?

Parker: Banks really want to hold back that customer and hold that experience. They do not want their customers moving over to another experience. They want to try to service it all themselves.

Banks also have a big concern about security. But we invest in that now to ensure we give customers the best experience. Consumers are connecting their bank accounts to tons of different services. It’s in [everyone’s] best interest to ensure a secure and frictionless experience. That is one of the big areas where we hope to see continuing progress in the coming years.

Jack M. Germain has been an ECT News Network reporter since 2003. His main areas of focus are enterprise IT, Linux and open-source technologies. He is an esteemed reviewer of Linux distros and other open-source software. In addition, Jack extensively covers business technology and privacy issues, as well as developments in e-commerce and consumer electronics. Email Jack.

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Amazon Lawsuit Fingers Facebook Groups Recruiting Fake Reviewers

A lawsuit against the administrators of more than 10,000 Facebook groups alleged to be part of a broker network for churning out fake product reviews was filed Tuesday by Amazon.

In its lawsuit, Amazon alleges the administrators have attempted to orchestrate the placement of bogus reviews on Amazon in exchange for money or free products. It added that the groups are set up to recruit people to write fake reviews at Amazon’s online stores in the United States, United Kingdom, Germany, France, Italy, Spain and Japan.

Amazon said in a statement posted online that it would be using information discovered through the lawsuit to identify bad actors and remove reviews commissioned by them from the retail website.

“Our teams stop millions of suspicious reviews before they’re ever seen by customers, and this lawsuit goes a step further to uncover perpetrators operating on social media,” Dharmesh Mehta, Amazon’s vice president of selling partner services, said in the statement. “Proactive legal action targeting bad actors is one of many ways we protect customers by holding bad actors accountable.”

Against Meta Policy

Meta, which owns Facebook, condemned the groups for setting up fake review mills on its infrastructure. “Groups that solicit or encourage fake reviews violate our policies and are removed,” Meta spokesperson Jen Ridings said in a statement provided to TechNewsWorld.

“We are working with Amazon on this matter and will continue to partner across the industry to address spam and fake reviews,” she added.

According to Meta, it has already removed a majority of the fraudulent groups cited in Amazon’s lawsuit and is actively investigating others for violating the company’s policy against fraud and deception.

It noted it has introduced a number of tools to remove violating content from its service, tools that use artificial intelligence, machine learning and computer vision to analyze specific examples of content that breaks the rules and identify patterns of misbehavior across the platform.

Is Facebook Doing Enough?

Rocio Concha, director of policy and advocacy for Which?, a consumer advocacy group in the U.K., praised Amazon’s action, but questioned whether Facebook was doing enough to prevent the abuse of its platform.

“It is positive that Amazon has taken legal action against some of the fake review brokers operating on Facebook, a problem Which?’s investigations have repeatedly exposed,” he said in a statement. “However, it raises big question marks about the proactive action Facebook is taking to crack down on fake review agents and protect consumers.”

“Facebook needs to explain why this activity appears to be rife, and the [U.K.] Competition and Markets Authority (CMA) must challenge the company to provide evidence to show that the action it is taking is effective,” he continued. “Otherwise, it should consider stronger action against the platform.”

“The government has announced that it plans to give the CMA stronger powers to protect consumers from an avalanche of fake reviews,” he added. “These digital markets, competition and consumer reforms must be made into law as a priority.”

In 2019 Which? issued a report estimating 250,000 hotel reviews on the Tripadvisor website were fake. Tripadvisor dismissed the analysis in that report as “simplistic,” but a year later in a “transparency” report of its own, the travel site found almost one million, or 3.6%, of the reviews on the site were fake.

No Time for Deep Dives

“Most consumers don’t have time to dig deep into the reviews,” observed Ross Rubin, the principal analyst with Reticle Research, a consumer technology advisory firm in New York City.

“They take the star rating as a way to instill trust in a product and if people are getting compensated for posting fake reviews, that undermines confidence in the review,” he told TechNewsWorld.

“Not only do fake reviews incentivize consumers to purchase an inferior product, they also make it more difficult to determine the differences among products,” he added.

“If you have an overwhelming number of products in a category with four-and-a-half- or five-star reviews because so many of them are participating in these fake review programs, then the value of the reviews themselves are diminished,” he explained.

He acknowledged that fake reviews were a problem everywhere on the internet. “But,” he continued, “because Amazon has such a strong position in online retail and is often the first website that consumers go to, it tends to be disproportionately targeted by these fake review groups.”

Review mills have also used bots to pad product reviews, but Rubin noted that technology lacks the effectiveness of using human beings. “The reason these groups use people instead of bots is that the bots are easier to detect,” he said. “Amazon uses machine learning technologies to identify when companies are using bots.”

‘Widespread’ Review Manipulation

In a report issued last year by Uberall, an online and offline customer experience platform, review manipulation on Amazon was termed “widespread.”

Amazon claims only 1% of the reviews on the site are fake, but the report disputed that. It cited a 2018 analysis by Fakespot that found fakes outnumbered true reviews in some product categories such as nutritional supplements (64%), beauty (63%), electronics (61%), and athletic sneakers (59%).

“Even if we discount these numbers by 50%, there would still be a chasm between what Amazon says and what Fakespot reported,” the Uberall report noted.

What can be done to tamp down fake reviews?

Uberall reported that Amazon and a few others use “verified purchaser” labels to signal higher confidence in reviews. “This is an approach that needs to be more widely utilized,” it noted, “though it’s not foolproof, as Amazon has discovered.”

“Regardless of the specific anti-fraud mechanisms,” it continued, “fake reviews are a problem that needs to be more systematically and vigorously addressed.”

Among the paths forward identified in the report for finding a solution to the problem are using more technical sophistication and aggressive enforcement to bring review fraud down to low single digits, embracing a review framework that is structurally harder to cheat and allowing only actual verified buyers to write reviews.

“These are not mutually exclusive approaches,” it explained. “They can and should be used in combination with one another.”

“There’s an enormous amount at stake for businesses of all sizes with online reviews,” the report maintained. “More and better reviews translate directly into online visibility, brand equity and revenue. This creates powerful incentives for businesses to pursue positive reviews and suppress or remove negative reviews.”

John P. Mello Jr. has been an ECT News Network reporter since 2003. His areas of focus include cybersecurity, IT issues, privacy, e-commerce, social media, artificial intelligence, big data and consumer electronics. He has written and edited for numerous publications, including the Boston Business Journal, the Boston Phoenix, Megapixel.Net and Government Security News. Email John.

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