As one experiment ends, a new one begins for the Policy Wiki

With the tabling of the federal budget, The Globe and Mail’s first experiment in merging public-policy debate and social-media tools – the Public Policy Wiki, a joint venture with the Dominion Institute – comes to a kind of conclusion, although the discussion we helped to start will continue as long as Canadians have ideas they wish to share. We collected the data on the federal budget policy proposal that our contributors and readers most supported, and will send it to the Finance Minister.

But the budget portion of the Policy Wiki will remain available for contributions, even as we begin a new chapter aimed at discussing Canada’s policy toward Afghanistan later this week. During the two weeks it has been open for business, the Policy Wiki attracted more than 100,000 page views. The policy proposal that received the most support – as measured by a combination of page views, comments and votes – was the idea of a 100-per-cent GST rebate for non-profit institutions such as charities, hospitals and universities.

The next-most popular briefing note was a proposal to create a Green Infrastructure Fund, which would see Ottawa spend $6 billion for upgrades to the power grid, energy-efficient building renovation, switching to renewable energy sources, and improvements to public transit and the highway infrastructure to reduce pollution. For more on the specifics of the briefing notes, and a look at what the next phase of the wiki will involve, please go to either the wiki itself ( or my blog, Ingram 2.0 (

Thief uses web to enlist unsuspecting accomplices

It may not come as much consolation to the bank that was robbed, but the criminal mastermind who liberated a bag of cash from a security guard at Bank of America in Monroe, Wash., last week is getting plenty of acclaim for his unusual methods. His secret weapon wasn’t a tunnel under the vault, or Mission: Impossible-style high-tech gizmos – it was a listing on Craigslist, the free classified marketplace that was started by Craig Newmark in 1995 and is now one of the most popular websites in the world.

The bank robber apparently placed an ad looking for casual labourers to do some highway work near Monroe, and said to show up at a location near the bank wearing a yellow vest, safety goggles and a respirator mask. The criminal mastermind then stole the money while wearing the identical clothing. When police arrived, they found at least a dozen suspects matching a similar description.

The real thief’s escape was even more bizarre than the heist itself: He reportedly stripped off his vest and other clothing and escaped by floating down the Skykomish River on an inner tube. Police said they retrieved the tube, and believe the thief had accomplices who picked him up farther down the river.

Happy birthday, bloggers

If you’re a fan of blogs – whether you fancy Perez Hilton and Boing Boing, or your tastes run more towards Daily Kos and Instapundit – you should be celebrating: Yesterday marked the 10th anniversary of the “weblog.” Er, maybe. Why maybe? Well, since the blogosphere is known for its strong personalities, infighting and more than a tinge of melodrama, it’s only fitting that no one can agree on exactly when blogging started, or who the first “blogger” was (as for whether you need to allow comments from readers in order to be a real blog, don’t ask).

Jorn Barger is one of the guys who most often gets the nod, since he is credited with coining the term “blog” – a shortened version of the word “weblog.” His daily journal of thoughts and links, known as Jorn Barger’s Robot Wisdom, made its debut on Dec. 17, 1997, and is still going. It’s probably also fitting that the guy who invented the word, one that’s associated (or at least used to be) with independent writing and a dislike of authority, was at one point living on a friend’s couch and has seen little or no personal benefit from his status as the word’s inventor.

Dave Winer is another guy who gets the credit for inventing blogging. Winer’s company, Frontier Software, was an early provider of blog-style publishing tools and Dave’s own weblog (although he didn’t call it that) started in 1996. He’s still blogging too, at

Now there’s Blogger (which was acquired by Google) as well as Typepad and WordPress and LiveJournal, and you can find blog-style pages at sites such as MySpace, Facebook and YouTube. Some “blogs” are effectively magazines and draw tens of millions of unique visitors every month. Boing Boing, a pop-culture blog with Canadian writer Cory Doctorow as one of its founding writers, gets as much traffic as a major metropolitan newspaper. The Huffington Post – a collection of blogs assembled by noted party-thrower and friend to the rich and powerful Arianna Huffington – has also become a phenomenon.

Blogs have been involved in the fall of a president (Matt Drudge first reported on Monica Lewinsky), the fall of a network anchorman (Dan Rather), the fall of a congressman (Trent Lott) and the rehabilitation of a former child actor (Star Trek: TNG‘s Wil Wheaton). Rosie O’Donnell has a blog she posts to daily and so does billionaire businessman Mark Cuban.

In 2005, entrepreneur and former magazine editor Jason Calacanis sold his blog network to America Online for $30-million (U.S.). TechCrunch, a technology blog founded by lawyer Michael Arrington, is estimated to be worth as much as $25-million based on its traffic and advertising revenue. And, a celebrity news blog, has launched its own TV show. So if you see Jorn or Dave, say thanks – although they’re probably busy blogging.

With the iPhone, Apple again changes the rules of the game

In one of the worst-kept secrets in recent memory, Apple announced the iPhone — its combination cellphone and music player — at Macworld on Tuesday, to rapturous applause and adoring coverage from gadget lovers. Apple chief executive officer Steve Jobs did one of his trademark keynote speeches, filled with ultra-cool photos and an interactive demo with the new device, as well as celebrity walk-ons from Google CEO Eric Schmidt and Yahoo co-founder Jerry Yang. All of the gee-whiz adoration from Apple fans and gizmo-lovers aside, the key question is: Will the company’s newest venture disrupt the cellphone industry in the same way the iPod disrupted the digital music market?

At first glance, the answer seems to be yes. The main differentiating factor for Apple is not necessarily the functionality of the new device, but the design and usability — in other words, not so much what the iPhone does as how it does it. Unlike most cellular “smart phones,” which have all sorts of buttons, switches, tiny screens and cumbersome built-in keyboards, the Apple phone is an almost featureless expanse of screen, with only a single button at the bottom.

Numbers and letters can be typed with a virtual, on-screen touch keyboard, and images (and Web pages) can also be resized dynamically by “stretching” them using just two fingers on the iPhone’s touch-sensitive screen.

In a similar way, the iPod changed the nature of the MP3-player business overnight, by applying ease-of-use and aesthetic design principles to a market previously dominated by ugly and awkward devices. Apple took a business that was controlled largely by engineers and applied an artistic design sense, and it seems to have done the same with the iPhone. In other words, the Apple phone bears as much resemblance to a standard phone as a Maserati does to your neighbour’s Ford Focus.

Obviously, not everyone can afford a Maserati, and not everyone is going to want an iPhone either. At $499 (U.S.) for the version with four gigabytes of storage and $599 for the 8GB version, it’s not cheap — and that includes the discount that comes with a two-year contract from cellular provider Cingular.

The iPod, however, was also relatively expensive when it first appeared in 2001 ($399), and that didn’t stop millions of people from buying one. And iPod prices kept dropping as Apple’s economies of scale — in particular, lower component prices — kicked in. If the iPhone does likewise, it could make life uncomfortable for Palm, Nokia, Motorola and Research In Motion, which has been trying to broaden its reach into the consumer electronics market.

One potential hurdle for Apple is that millions of people already have cellphones, and a large proportion likely already have iPods too. When the iPod came out, the digital music market was still relatively small. In order to win a large share of the market for the iPhone, Apple will have to persuade people to dump the phones and iPods they already own and spend $500 on a new gadget (in addition to whatever monthly data charges they face from their provider).

Another factor that could hold back demand for the new device is that business users — who would be among the most likely to spend $600 on a new phone — will likely not be attracted to the idea of a virtual on-screen keyboard, after having gotten used to typing with their thumbs on the keypad of the BlackBerry or Palm’s Treo.

Corporate users are also likely to be unmoved by the offer of free “push” e-mail service from Yahoo, and the iPhone doesn’t include support for the Outlook Exchange mail servers used by most firms. Those quibbles aside, there is no question that the iPhone is a shot across the bow of the entire cellphone and PDA market. Just as it did with music, Apple has changed the rules of the game.

Google is selling ads in newspapers now?

If you read about Google’s recent plan to sell ads in newspapers and wondered whether you were seeing things, don’t feel bad. More than one person probably came away from the announcement this week thinking: “Why on earth would the world’s most powerful on-line player be interested in a boring, old-fashioned business like newspapers?”

The short answer is that while Google made its name as a search engine, it now makes virtually all of its money from advertising. As far as the stock market is concerned, in fact, Google isn’t really a search engine or Web portal company — it’s an on-line advertising machine. Advertising revenue currently accounts for about 90 per cent of the cash Google generates.

In order to keep growing at the kind of rates Wall Street has become accustomed to, the company has to keep finding new sources of ad revenue. There’s no shortage of Web pages, obviously, but Google is always looking for new — and high-quality — sources of advertising that can expand its reach beyond simple Web ads.

While the newspaper industry is struggling (in part, ironically, because of the Internet) it is still a gigantic player in the advertising market, with more than $48-billion (U.S.) spent on newspaper ads in the U.S. annually.

Google’s hope is that it can help newspapers appeal to new print advertisers, and make better use of their unsold ad space, and that all that newspaper real estate, in turn, will help Google diversify its advertising base and bring in new customers for its Web business.

That hunger for new advertising “inventory” was almost certainly a driving force behind Google’s recent $1.6-billion acquisition of the video-sharing website YouTube, and other recent expansion deals as well.

At the moment, the vast majority of Google’s ad revenue comes from on-line advertising — the ads that appear on Google search pages after you do a search, and the ads that appear on millions of Web pages. Google’s search algorithms ensure that the ads you see are as relevant as possible, and therefore more likely to lure you into clicking on them and buying something.

In addition to the YouTube acquisition, Google’s $900-million advertising deal with social networking site MySpace is another sign of the search company’s desire for ad inventory. MySpace has between 60 million and 100 million registered users but until recently very little advertising. The battle over that resource saw Google triumph over both Yahoo and Microsoft.

The move into print, however — which Google will be piloting with 50 major newspapers including The New York Times and The Washington Post — takes the on-line company out of its traditional area of expertise. The algorithms that Google relies on to power its on-line ad engine are developed by tracking every page view, click and transaction that results from those clicks.

But how do you track a newspaper ad? Page views are nowhere near as easy to track in a paper as on the Web, nor is there any click-through to document. And Google can’t use the pure auction model it uses on-line because newspapers are terrified of losing control of the price they charge for their ad space.

A previous attempt by Google to move into print — in this case, magazines — was widely viewed as a failure. Late last year, the company started a trial project that saw it attempt to sell ads into a dozen national magazines such as Car and Driver, but the response was lacklustre at best. It is continuing the program, but has not said it will expand it.

Print isn’t the only new arena that Google is trying to conquer. The company is also working on an advertising strategy aimed at the radio market, a business it moved into when it bought a radio advertising agency called dMarc Broadcasting in January. So far, there have been only a few small trial projects involving radio, however — nothing like the nationwide campaign Google is undertaking with newspapers (a radio initiative is planned for next year).

If Google can make its entrée into the newspaper business work, it will have proven its ability to cross the boundary — or rather, to eliminate the boundary — between the on-line and off-line worlds, not to mention extending its dominance in the advertising game. If it doesn’t work, of course, the company will have to be content with merely ruling the Internet.

Apple stock heads south

Call it the “Dell curse.” On January 13, Apple’s stock-market value vaulted past Dell’s for the first time, and there was no shortage of gloating in the Apple camp. In fact, co-founder and chief executive officer Steve Jobs couldn’t resist sending out a congratulatory email to Apple employees. And who could blame him? In 1997, just after Mr. Jobs rejoined Apple, Dell founder Michael Dell had said the beleaguered company should wind up its business and give the money to shareholders. So a little gloating was probably not surprising.

Unfortunately for Apple, however, the fates don’t appear to look too kindly on gloating. The same day that Mr. Jobs sent that email, Apple’s share price turned around and started heading south, and it hasn’t stopped since. It closed at $85.59 (U.S.) that day, giving the company a market value of about $72-billion. On Tuesday, however, it was trading at $68, putting Apple’s market value at $57.6-billion. Dell’s market value, in case you’re keeping score at home, is just a hair under the $70-billion mark.

When it comes right down to it, Apple and Dell don’t really compete, so comparing the two based on their market value isn’t really that relevant (unless you work at Apple and like to hold a grudge). The larger point is that the company’s share price has been sinking for the past month or so, and has lost more than 20 per cent of its value. Has the market fallen out of love with the reborn consumer electronics superstar, or did expectations just get too high? Or is it simply a blip while the market adjusts to the new Macs that are coming — the ones with Intel chips inside?

A company that is growing as quickly as Apple has been lately, with revenue increases of 60 to 70 per cent in a quarter and profit growth as good or better — and Google would also fall into that category — poses a problem for the stock market. So-called “momentum traders” are happy to trade on the assumption that such growth will continue forever, and thereby keep pushing the shares higher and higher. But “value” investors know that such growth inevitably comes to an end, and therefore they are likely to get nervous when a company with sales of about $16-billion is selling for more than $75-billion. Any sign of weakness will tend to make the latter group sell.

In this case, the signs of weakness came in two forms. The first was when Apple released its quarterly results and its outlook for the rest of the year, which occurred about a week after the comment about the company’s market value surpassing Dell’s. The most recent quarter was a blockbuster: revenue rose by 64 per cent to $5.75-billion, net income almost doubled to more than half a billion dollars, and Apple sold more than 14 million iPods during the three-month period. As a sign of how big a role its iPod sales now play, as opposed to its original computer business, sales of Apple’s digital music and video players hit $2.9-billion in the quarter, eclipsing sales of Macintosh computers for the first time.

While those results were as good as or better than the market expected, the sheer size of the iPod business started some analysts thinking about how dependent the company has become on the iPod — and how selling low-priced consumer devices is a very different business than selling high-margin computer products. As one analyst put it, the pressure is now on Apple to keep one-upping itself with cooler and cooler gadgets, such as new iPod Nano the company announced Tuesday, in order to keep the pace of growth that the stock market has come to rely on. In a sense, Apple has to run faster and faster just to keep its stock in the same place. Although Apple appears to have plenty of tricks up its sleeve — including rumours about a home-theatre product — that is still a very risky game to play.

The second weakness involves the release of the new Intel-powered Macs, which Apple has already started to roll out. While the announcement that the company would be switching to Intel chips was cheered by many Apple users, it also created a bit of a problem for the company — the problem being that plenty of consumers who are in the market for a new computer are likely to delay (and have been delaying, according to Apple) their purchases because they want the new, faster machines. As a result, the company reduced its outlook for the current quarter, and that disappointed some fans of the stock.

Is the weakness in the share price a permanent thing? That’s hard to say. If sales of the new Intel Macs are as hot as fans expect, then the stock could very well look undervalued, particularly if iPod sales keep up at the same rate they have over the past few quarters. And there’s no question that at $68 a share, the stock is probably a lot less risky than it was when it was $85 a share. But in a sense, Apple is in a wait-and-see period, and many investors are likely to wait on the sidelines until it becomes clear which path the company is likely to take.

Let Google scan those books

Google, the search-engine giant that has become so ubiquitous its name hardly even sounds stupid any more, has started scanning and indexing library books again under its contentious Google Print Library project, despite the fact that the company is being sued by several groups of authors and publishers. Under the project, Google has plans to scan millions of books from the collections of several university libraries, including Harvard, Stanford and the University of Michigan. The groups that have sued — including the Authors Guild, which represents several thousand U.S. writers, and the Association of American Publishers — argue that by doing so, Google is infringing on their copyright and therefore it must stop.

After meeting with the AAP in July, Google agreed to stop scanning books while it tried to reach an agreement with authors and publishers, or at least explain to them what it was trying to do, but said that it would begin scanning again on November 1. The company has said that it believes the library project falls under the “fair use” provisions of copyright law, which allow portions of copyrighted works to be used for certain public purposes, under certain conditions.

Although Google has reportedly said it will concentrate on rare and out-of-print books in the early stages of the project, the company says it still plans to scan all the library books it can, regardless of whether they are protected by copyright or not. Unless the author and publisher groups decide to back off in their fight against the search company, it seems inevitable that the two sides will wind up in court — which might actually be a good thing, since it could help to clarify just how far “fair use” rights extend in the new digital age.

Regardless of how the case is decided, this has to qualify as the biggest example of cutting off your nose to spite your face since the movie industry tried to kill the VCR. Instead of fighting Google on its scanning project, authors and publishers should be helping it as much as they can.

What is the biggest single problem confronting a new or non-blockbuster author? Finding an audience. Try as they might (and some try harder than others) publishers can’t market every book like it was the next Harry Potter, and so many valuable and worthwhile books don’t find the audience that they could. What better way could there be of connecting authors with interested readers than by having their books be part of a giant searchable archive, just as Google does with the web? No matter how arcane the topic of your book, someone can find it without even knowing that it exists — they search for a term, and if it appears in a book, excerpts from that book magically appear. Better still, Google will point them to places where they can buy it.

The issue isn’t whether Google will be providing complete copies of books on-line — it won’t. The company has made it clear that it will only be showing a few sentences from any particular work, and users will be restricted to a small number of searches for the same book, to prevent any desperate thief from piecing together his own book from repeated searches. Google also won’t be selling ads on pages that contain text from scanned books, to avoid the charge that they are profiting from someone else’s copyrighted work.

Despite all this, however, the Authors Guild and the AAP argue that Google is violating copyright simply by scanning the books — even if no one ever actually sees a single page from them. Even the argument that Google will be providing an almost unparalleled level of access to books to anyone, from anywhere — the kind of thing that libraries themselves do — doesn’t wash with the authors and publishers. One authors’ representative in Britain said that this is like saying “It’s okay to break into my house because you’re going to clean my kitchen.”

It’s hard to imagine a more unbalanced or antagonistic response to something that is so clearly a benefit — and not just a benefit to society but to the actual authors themselves. We’re not talking about a company scanning books and then making money from selling them, or even pieces of them. We’re talking about a company providing a kind of digital card catalogue for every book that has ever been published.

Not surprisingly, there is a debate raging among the literary and on-line community about whether Google’s project falls under the U.S. doctrine of fair use (which also exists in different forms in most other countries). That principle allows excerpts from a copyrighted work to be reproduced “for purposes such as criticism, comment, news reporting, teaching…, scholarship or research.” The clause in question says that determining fair use takes into account the purpose of the use, including whether it is commercial or not, and also the effect of the use upon the potential market for or value of the copyrighted work, and search engines have been found to fall under that provision in previous copyright cases.

Whether Google’s use can be categorized as commercial is debatable, but its effect on the potential market for a work shouldn’t be. It could be the best thing that ever happened to some authors and their works — and that’s why they should be greeting Google with open arms, not clenched fists.

RIM must settle

About the only people who might have been happy to see the court ruling against Research In Motion Wednesday — apart from pharmacists selling motion-sickness pills — were options traders, who love a volatile stock the way a mouse loves cheese. RIM shares leaped by almost 15 per cent on huge volume after the news was released, then fell back, were halted for an hour or two, and then plummeted.

While the complicated decision by the U.S. federal court took some time to figure out, since it did three different (and even somewhat contradictory) things at once, the underlying message is a fairly obvious one: Research In Motion is guilty of patent infringement, period. The company should settle with its accuser, NTP, and the sooner the better.

The U.S. Circuit Court ruled on an appeal launched by RIM of an earlier, lower-court decision in favour of NTP, a company that holds a number of patents, including some filed by Thomas Campana in the early 1990s. These patents refer to the wireless transmission of e-mail to a mobile device, which is the foundation of RIM’s BlackBerry handheld business — one that is growing so quickly RIM has a market value of $15-billion (U.S.), despite the fact that it has sales of less than $1-billion.

The initial judgment by the lower court found that RIM’s products infringed on the Campana patents in a number of different ways, and ordered the Waterloo, Ont.-based company to pay NTP $53-million in damages. The court also awarded NTP an injunction preventing RIM from selling BlackBerrys in the United States. When the Canadian company appealed, the decision of the lower court was suspended until the appeal was over. Now the appeal is over, but the case hasn’t quite come to an end yet.

The reason the stock market got so confused about the appeals court ruling — and the reason why some analysts have described the decision (wrongly) as a “partial win” for RIM — is that the court upheld the lower court’s ruling in part, vacated it in part and sent another part back to the original court to re-hear the case, because of a misinterpretation. The part the appeals court upheld, however, amounted to the bulk of NTP’s case: 11 out of 16 claims.

The appeals court ruled that five of the claims involved a misinterpretation by the court of the phrase “originating processor.” Because of this, the lower court will have to reconsider those claims, and hear arguments as to whether the misinterpretation was so unreasonable that it prejudiced the jury. If it did, the court might decide to reduce the award.

James Hurst, a patent lawyer at Winston & Strawn in Chicago who has been following the case, said the ruling was “a big victory for NTP.” He said the lower court re-hearing of the five claims is “insignificant” and “almost an afterthought,” because even winning on one claim (let alone 11 of 16) would be enough to justify the injunction and some damages. Even if the damages were lowered, NTP would have enough ammunition to force the Canadian company to pay a licensing fee.

Since the judgment in 2002, RIM has been putting money into a reserve in order to pay for such an eventuality, at a rate of 8.6 per cent of its revenues. As more than one analyst has pointed out, however, there is nothing that says NTP has to agree to license its patents to RIM for 8.5 per cent of its sales. The decision by the appeals court theoretically gives the patent holder enough leverage to force RIM to agree to a fee much higher than that — and even the 8.6-per-cent rate would cut RIM’s earnings by about 20 per cent, analysts estimate.

Banc of America Securities cut its target price on the stock to $86 from $99 and reiterated a “neutral” rating after the court ruling, saying the five claims being sent back would likely not alter the ultimate outcome, and that “our discussions lead us to believe that NTP can now ask for a higher royalty and/or threaten to shut Research In Motion down in the U.S.” The brokerage firm said the 8.6-per-cent royalty rate “could be a floor, not a ceiling.”

Several analysts noted that RIM still has another avenue of appeal outside of the current case: At the company’s request, the U.S. Patent and Trademark Office is reviewing the five patents held by NTP to see whether they were awarded properly. If they are changed or thrown out, then RIM might not have to pay NTP anything at all. Stanford Group noted, however, that the district court found RIM’s evidence on “prior art” — one of the criteria the U.S. PTO would use for a review — unconvincing, and the appeals court upheld this finding.

Research In Motion has been trying for some time to give the impression that its fight with NTP is just a nuisance, and that it shouldn’t really affect its successful handheld business. The company has done its best to portray NTP as an interloper without a legal leg to stand on, and yet — according to Mr. Campana (who is now deceased) — RIM ignored letters warning the company of the patents he held before the legal action was started by NTP.

RIM’s BlackBerry is a great product with a lot of popular appeal and a growing market. The company should swallow its pride and settle with NTP as soon as possible, in order to put the issue behind it once and for all.

Black to the wall

If arrogance were the only attribute required in order to triumph in a legal battle with disgruntled shareholders, Lord Black of Crossharbour would already be celebrating his victory. Unfortunately, there’s the pesky matter of minority rights and a growing number of legal challenges to His Lordship’s omnipotence at Hollinger Inc. With each move he makes, another possible exit route is cut off, another flank attacked.

In the latest skirmish, Lord Black resigned his positions as chairman and chief executive officer of Hollinger Inc. – which he controls through his private holding company, Ravelston Corp. – just hours before a Canadian court was expected (by some) to force him to step down. At the same time, the press baron is trying to mount a takeover offer for the shares of Hollinger Inc. that he doesn’t already own, and that gambit could also be thwarted by minority shareholders.

Various investors of Hollinger Inc. have been trying to get Lord Black to leave the helm of Hollinger for more than a year now, ever since the operating unit of the company – Hollinger International, which owns the Chicago Sun, the Jerusalem Post and used to own London’s Daily Telegraph – became embroiled in a legal battle between Lord Black and its own minority shareholders. In November, four independent directors on Hollinger Inc.’s audit committee resigned en masse after urging Lord Black and his associates to step down.

The more recent attempts to oust Lord Black have come from Catalyst Fund General Partner I, a limited partnership investment fund that owns about 37 per cent of Hollinger Inc.’s series II preferred shares. Catalyst was also the one that convinced an Ontario court to appoint an independent investigator to look into various payments, transfers, loans and other agreements between Hollinger Inc. and Ravelston. The firm of Kroll Lindquist Avey was appointed to do so in September but later resigned due to a dispute over alleged conflicts of interest, and Ernst & Young was then given the job. Its report to the court is expected later this month.

Catalyst has been asking for Lord Black to resign because of what it alleges are a number of conflicts stemming from the inter-relationship between Ravelston and Hollinger Inc. (Ravelston controls 68 per cent of the unit’s voting stock). Among other things, the fund management company has complained about a $1.1-million payment to Ravelston from Hollinger Inc. that wasn’t properly approved by the company’s independent directors. Lord Black said in an affidavit that the payment was “an error” made by Hollinger executive Peter White. According to Catalyst, Ravelston also allegedly owes Hollinger Inc. over $25-million.

At the same time Lord Black was planning his resignation from Hollinger Inc. late last week, minority shareholders of Hollinger International were re-filing their lawsuit against Lord Black and his associates. The original suit, which claimed more than $1.2-billion in damages, was thrown out because the court ruled that it was improperly filed under the Racketeer Influenced and Corrupt Organizations (RICO) Act. The latest filing, which asks for damages of $542-million, contains effectively the same allegations – widespread improper payments and transfers to Lord Black and his associates (these allegations haven’t been proven in court).

To sum up, Lord Black has resigned as chairman and chief executive officer of his operating company, Hollinger International, and now has resigned from those positions at its parent, Hollinger Inc. as well. He faces a $542-million lawsuit from Hollinger International shareholders, and a court-appointed investigator is looking into Hollinger Inc.’s finances as well, raising the possibility of future liability.

In addition, while the special committee in charge of Hollinger International recently agreed to allow Lord Black to receive his share of the proceeds from the $1.2-billion sale (after debt) of the London Telegraph, most of that money will go to Hollinger Inc. rather than to Lord Black, which makes all the difference. Minority shareholders and independent directors would have to approve any use of those funds. Lord Black’s buyout offer to Hollinger Inc. will also have to be approved by minority shareholders, as well as securities regulators.

The bottom line is that Lord Black finds himself hemmed in on all sides, with a rapidly-vanishing amount of territory on which to make his final stand. In one of the more pointed e-mail comments that turned up in the report from Hollinger International’s special committee, Lord Black said Hollinger “served no purpose as a listed company other than [the]relatively cheap use of other peoples’ capital.” The press baron’s experience with Hollinger and its minority shareholders, however – at two different levels – has been anything but cheap. And it could get a lot more expensive before it’s over.

Soaring RIM stock needs lightning to strike again

Only a month or so ago, shares of Research In Motion looked wildly overvalued, trading at about 100 times profit estimates for the current year and about 50 times next year’s targets. Then a surprising thing happened: The Waterloo, Ont.-based wireless products maker turned in a stronger-than-expected third quarter, and more than doubled its profit forecast for the current quarter.

All of a sudden, the stock looked to be only somewhat overvalued, rather than egregiously overvalued. In fact, for a brief moment, it looked almost reasonable. So what did RIM stock do? It rocketed even higher, to the point where the shares are almost as overvalued as they were a month ago. Even when RIM took advantage of this runup and announced a massive share issue, the stock faltered only briefly.

In most cases, when a company says it is planning to issue close to $1-billion worth of new stock, the existing shares go down because of the dilution factor. After a share issue, the profit that would have been allocated to existing shareholders gets spread out over a bigger group, which reduces share profit.

Do RIM investors care? Apparently not. The stock briefly dipped on Thursday after the news, and then resumed its northward trajectory on Friday, climbing more than 7 per cent at one point — adding almost $450-million (U.S.) to RIM’s market value. Since mid-December, the share price has soared more than 60 per cent.

The justification for all this, of course, is that RIM, maker of the popular BlackBerry communications device, doubled its profit forecast for the current quarter — and so most analysts more than doubled their stock price targets. No one seemed troubled that RIM’s earlier forecasts were so off base, presumably because the miss was on the upside rather than the downside (no harm, no foul).

But analysts didn’t boost their estimates for just this quarter — they doubled their forecasts for the whole of this year and next year as well (forecasts “adjusted” to remove things such as litigation costs and options expenses, of course). Now the same oversized multiples the stock traded at before are being applied to these new estimates.

U.S. investment brokerage Bear Stearns & Co. Inc., for example, has a stock price target of $91, a 20-per-cent jump from the current price, and more than 100 per cent higher than a month ago. That’s 93 times the brokerage adjusted or “pro forma” profit target for this year, and 36 times its estimate for next year. And the 36-times figure for next year is only because Bear Stearns expects RIM to boost its annual profit by more than 150 per cent. The following year, the brokerage expects RIM’s profit to be more than triple this year’s.

If you look at profits that conform to U.S. generally accepted accounting principles — that is, profits that include a variety of expenses that “pro forma” profits do not — the picture is scarier. Bear Stearns’ $91 target becomes 171 times this year’s profit estimate and almost 50 times next year’s. Even Friday’s stock price of $76 works out to about 40 times estimates (45 times if you include option expenses).

And what about the dilution? Bear Stearns kept its $91 target despite the prospect of dilution because its target is based on share profit (pro forma) plus the value of cash on hand — and while the profit goes down as a result of the issue, the amount of cash goes up. But does having a lot of cash really make RIM’s operations that much more valuable?

RIM says having more money will make it look more financially secure and enhance the possibility of partnerships and big contracts, which is no doubt true — and it will allow RIM to cope with higher demand. But it’s a bit of a stretch to say that the entire $738-million it will raise with the issue should be added to the company’s profit for valuation purposes.

If you leave the cash out and look at RIM’s cash flow from actual operations, the picture isn’t all that rosy. In the nine months to November, RIM’s profit totalled $10.2-million, but only $3.3-million came from its core business — almost 70 per cent came from investments. And if RIM had expensed its stock options, it would have reported a loss of about $3.6-million for that nine-month period.

Yet, still the stock climbs. After RIM revised its profit forecast, Toronto-based Orion Securities Inc. more than doubled its 2005 profit estimate, noting the stock was selling for a mere 25 times that estimate. That was two days before Christmas, when the stock was $46 on the Nasdaq Stock Market, and Orion had a price target of $65 (up from its earlier target of $44).

The next day, the stock jumped more than 50 per cent, plowing through Orion’s target. On Friday, it closed at $76.25 on Nasdaq. Now, it is trading at more than 30 times RIM’s 2005 profit estimate — and that’s an estimate that assumes RIM’s operating profit will rise 230 per cent in 2005.

Can lightning strike twice? It had better, because only another sudden doubling of profit forecasts will make RIM’s stock look even remotely reasonable.