Everything can be intellectual property
daniel at netgods.net
Thu Aug 21 08:27:53 PDT 2003
Intellectual property, it's not just for breakfast anymore.
Warren Buffett is trying to claim that his short term trading
strategies are intellectual property and that the SEC has no
grounds to enforce full disclosure of his firm's trades. Even
if said trades represent ownership percentages that would typically
trigger full disclosure regulations.
The request, in itself, isn't surprising. Buffett has received
clearance for confidentiality numerous times over the past 15
years by arguing that disclosure would impair his ability to trade
in shares by altering market conditions (read: driving up the price
as soon as other investors realize where his money is going). This
is the first time, so far as I can tell, that intelectual property has
been used as the grounds to justify the request for confidentiality.
This shouldn't be surprising, we've enacted all manner of IP protection
over the past decade. That people are trying to use those protections
in areas that surely weren't considered by lawmakers was only to be
expected. The real question is what other activities not traditionally
thought of as involving IP will be redefined as intellectual property
Warren Buffett Loses Appeal to Keep Holdings Secret (Update1)
Aug. 20 (Bloomberg) -- Warren Buffett lost an appeal before the
Securities and Exchange Commission to delay disclosure of certain
stock holdings, part of an effort by the billionaire to prevent
As the chairman of Berkshire Hathaway Inc., Buffett has argued
that his short-term trading strategies qualify as intellectual
property, and warrant an SEC filing exemption. Publication of
Berkshire's holdings, Buffett says, lead to price movements
that drive up his investment costs.
The SEC acknowledged in a decision released today that traders
attempt to mimic Buffett's stock selections. At the same time,
the agency said Buffett had failed to show that complying with
disclosure rules would cause Berkshire competitive harm.
``The SEC is saying if you want any special treatment, then the
burden is on you to show how it harms you,'' said Terry Nelson,
a partner at Foley & Lardner in Madison, Wisconsin, who represents
investment advisers. ``The public needs to know, the markets need
to know, and deserve to know, what's going on.''
SEC Spokesman John Nester declined to comment. Marc Hamburg,
Berkshire Hathaway's treasurer, didn't return a telephone
call seeking comment.
The agency requires individuals and companies that manage $100
million or more of stock to disclose their holdings at the end
of each quarter in a filing called Form 13F. The report must be
filed within 45 days of each quarter's close.
``We recognize that there have been a number of occasions where
disclosure of Berkshire's stock purchase or selling programs has
resulted in temporary spikes in the market,'' the SEC said in
its decision. ``However, we hesitate to declare that such
disclosures will inevitably lead to market disruption so severe
as to cause substantial competitive harm to Berkshire's competitive
Money managers can apply to have their holdings kept confidential,
usually for a one-year period, by showing that disclosure will
compromise individual trading strategies. Individuals who have sought
such an exemption in the past include Carl Icahn, George Soros, and
Michael Larson, money manager for Microsoft Corp. billionaire Bill Gates.
The SEC has granted Buffett waivers in the past, going back at least
15 years, when Berkshire had a fraction of today's $173 billion of
assets, said Tom Russo, a money manager with Gardner Russo & Gardner,
which manages about $1 billion, including about $158 million of
Berkshire shares as of March. Buffett's insurance and other companies
now produce about $100 million per week.
``Now that they have to commit more capital and their fame is greater,
it would seem that it would be easier to meet the standards'' for
confidential treatment, Russo said. ``The question is whether the SEC
is dramatically altering the standards, or whether they are just
requiring more detailed, case-by-case justification.''
Berkshire Hathaway has returned an average 22 percent per year to
investors for the last four decades and making Buffett the world's
second-richest man and one of the most-emulated investors.
The SEC's division of investment management denied Buffett's
application for confidentiality in February 2000, and the five-
member commission refused to consider his appeal the following
August. Undeterred, Buffett has continued to seek disclosure
exemptions for certain holdings. Last November, the billionaire
sought confidential status for a $220 million stake in First
Data Corp. and a $1.9 million stake in Petrochina Co. Ltd.
The SEC staff denied the request for confidentiality in February,
according to the order issued today. Buffett once again filed a
petition for review with the agency's full commission, and this
time the commissioners agreed to consider the appeal.
In the decision released today, the SEC said that Buffett had failed
to show how the ability of Berkshire to acquire or liquidate a stock
holding -- in the context of the market for those securities -- would
be impaired by disclosure to the public.
``The SEC permits confidential treatment very sparingly and their
ruling on Buffett's request is fully consistent with that,'' said
Richard Phillips, a former SEC lawyer who is now a partner at
Kirkpatrick & Lockhart in San Francisco. ``Even in a case where one
can't deny that knowledge about what Buffett is buying and selling
could affect the market, the SEC has opted for full disclosure.''
The agency said Berkshire would have a better chance of getting
confidential treatment if it provided information on the historical
price of the stocks in question and the number of shares that changed
hands each day. The commissioners also said that Buffett should report
his specific stock-buying plans to the agency.
``A more specific description of the planned program of acquisition
and disposition could assist in informing the commission's assessment
of the impact of granting or denying Berkshire's request,'' the SEC
Last Updated: August 20, 2003 18:49 EDT
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