Wall Street Week Ahead: "Cliff" worries may drive tax selling

NEW YORK (Reuters) - Investors typically sell stocks to cut their losses at year end. But worries about the "fiscal cliff" - and the possibility of higher taxes in 2013 - may act as the greatest incentive to sell both winners and losers by December 31.

The $600 billion of automatic tax increases and spending cuts scheduled for the beginning of next year includes higher rates for capital gains, making tax-loss selling even more appealing than usual.

Tax-related selling may be behind the weaker trend in the shares of market leader Apple , analysts said. The stock is down 20 percent for the quarter, but it's still up nearly 32 percent for the year.

Apple dropped 8.9 percent in this past week alone. For a stock that gained more than 25 percent a year for four consecutive years, the embedded capital gains suddenly look like a selling opportunity if one's tax bill is going to jump sharply just because the calendar changes.

"Tax-loss selling is always a factor (but) tax-gains selling has been a factor this year," said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont.

"You have a lot of high-net-worth individuals in taxable accounts, and that could be what's affecting stocks like Apple. If you look at the stocks that people have their largest gains in, they seem to be under a little bit more pressure here than usual."

Of this year's top 20 performers in the S&P 1500 index, which includes large, small and mid-cap stocks, all but four have lost ground in the last five trading sessions.

The rush to avoid higher taxes on portfolio gains could cause additional weakness.

The S&P 500 ended the week up just 0.1 percent after another week of trading largely tied to fiscal cliff negotiation news, which has pushed the market in both directions.

A PAIN PILL FROM THE FED?

Next week's Federal Reserve meeting could offer some relief if policymakers announce further plans to help the lackluster U.S. economy. The Federal Open Market Committee will meet on Tuesday and Wednesday. The policy statement is expected at about 12:30 p.m. on Wednesday after the conclusion of the meeting - the Fed's last one for the year.

Friday's jobs report showing non-farm payrolls added 146,000 jobs in November eased worries that Superstorm Sandy had hit the labor market hard.

"After the FOMC meeting, I think it's going to be downhill from there as worries about the fiscal cliff really take center stage and prospects of a deal become less and less likely," said Mohannad Aama, managing director of Beam Capital Management LLC in New York.

"I think we are likely to see an escalation in profit-taking ahead of tax rates going up next year," he said.

MORE VOLUME AND VOLATILITY

Volume could increase as investors try to shift positions before year end, some analysts said.

While most of that would be in stocks, some of the extra trading volume could spill over into options, said J.J. Kinahan, TD Ameritrade's chief derivatives strategist.

Volatility could pick up as well, and some of that is already being seen in Apple's stock.

"The actual volatility in Apple has been very high while the market itself has been calm. I expect Apple's volatility to carry over into the market volatility," said Enis Taner, global macro editor at RiskReversal.com, an options trading firm in New York.

Shares of Apple, the largest U.S. company by market value, registered their worst week since May 2010. In another bearish sign, the stock's 50-day moving average fell to $599.52 - below its 200-day moving average at $601.38.

"There's a lot of tax-related selling happening now, and it will continue to happen. Apple is an example, even (though) there are other factors involved with Apple," Aama said.

While investors may be selling stocks to avoid higher taxes in 2013, companies may continue to announce special and accelerated dividend payments before year end. Among the latest, Expedia announced a special dividend of 52 cents a share to be paid on December 28.

To be sure, the big sell-off in stocks following the November 6 election was likely related to tax selling, making it hard to judge how much more is to come.

Bruce Zaro, chief technical strategist at Delta Global Asset Management in Boston, said there's a decent chance that the market could rally before year end.

"Even with little or spotty news that one would put in the positive bucket regarding the (cliff) negotiations, the market has basically hung in there, and I think it's hung in there in anticipation of something coming," he said.

(Wall St Week Ahead runs every Friday. Questions or comments on this column can be emailed to: caroline.valetkevitch(at)thomsonreuters.com)

(Reporting by Caroline Valetkevitch; Editing by Jan Paschal; Multimedia versions of Reuters Top News are now available for:; 3000 Xtra: visit Reuters Top News; BridgeStation: view story .134; For London stock market outlook please click on .L/O; Pan-European stock market outlook .EU/O; Tokyo stock market outlook .T/O; Wall St Week Ahead runs every Friday.)

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The Human Price: Pakistan Factory Fire Shows Flaws in Monitoring

Diego Ibarra Sanchez for The New York Times

A worker in a burned textile factory in Karachi, Pakistan. At least 262 workers died in the blaze. The factory passed inspection before the fire.

KARACHI, Pakistan — The century-old Central Jail here, a gritty repository of criminals, jihadists and sectarian killers, has a reputation for overcrowding and prisoner riots. But for Arshad and Shahid Bhaila, the industrialist brothers whose factory burned to the ground in September, killing at least 262 workers, there are some comforts.

As Category B prisoners, the Bhailas have a private room, a bathroom, a television and personally cooked meals. Those perks, to be sure, may prove only a short-lived solace once their trial begins next month and they face a possible death sentence on murder charges.

Yet their lawyer, in mounting a defense, is seeking to shelter the Bhailas behind a far greater source of comfort: an apparel industry certification system that gave their factory, Ali Enterprises, a clean bill of health just three weeks before the horrific blaze.

Despite survivors’ accounts of locked emergency exits and barred windows that prevented workers from leaping to safety, the Bhailas’ lawyer says their SA8000 certificate, issued under the auspices of Social Accountability International, a respected nonprofit organization based in New York, proves they were running a model business.

“This was a state-of-the-art factory that met international standards,” said the lawyer, Amer Raza Naqvi. “The SA8000 is accepted all over the world. They have very strict rules before issuing any certificate.”

But after the Karachi fire and the more recent factory inferno in Bangladesh that killed 112 people, that contention raises a crucial question: Does industry-backed “social auditing,” which purports to safeguard the lives and working conditions of some of the world’s poorest workers, really work?

For the past 15 years, retail giants like Walmart and Carrefour have helped create and champion numerous factory inspection systems. In embracing such monitoring, the companies are motivated by genuine concern for the workers at the bottom of their supply chain, but also by their own bottom line, worried that consumers might shun products made at factories where there are abuses.

These elaborate systems look good on paper, but the actual work is often delegated to largely unsupervised subcontractors eager to drum up more business. The company that certified Ali Enterprises, as in many other cases, never visited the factory, handing off the job to a local inspector it dealt with by telephone or at meetings outside Pakistan.

For labor groups, academics and some industry insiders, the recent fires confirm longstanding fears that the voluntary system is weak, opaque and inherently flawed.

“Right from the outset, there has been concern,” said Philip J. Jennings, general secretary of UNI Global Union, a grouping of 900 labor unions that recently quit the board of Social Accountability International to protest what he said was the certification system’s overall ineffectiveness in improving factory conditions and workers’ lives.

Certification systems like the SA8000, said Khalid Nadvi, an expert on monitoring at the University of Manchester in England, are “very patchy and in many cases totally ineffective.”

“Factories often know when the inspectors are coming,” Mr. Nadvi added. “You have workers being coached what to say. There may be two sets of books.”

The certificate that Ali Enterprises boasts about is considered the most prestigious in the industry. It is the creation of Alice Tepper Marlin, a Wellesley College graduate and former Wall Street analyst who, after starting an activist group in 1969 to push for greater corporate responsibility, eventually settled on trying to make the world’s sweatshops less horrid.

Founded in 1997, Social Accountability International receives fees and membership payments from industry giants like Gap, Gucci and H&M, but it also obtains money from labor unions, governments, foundations and nongovernment organizations. It created the SA8000 to certify factories that meet basic requirements in eight areas, including health and safety, wages, working hours and child labor.

Today, Ms. Tepper Marlin’s modest-sized organization oversees a sprawling, often problematic empire. Its SA8000 stamp of approval has been given to 3,083 factories in 66 countries. Ms. Tepper Marlin said the catastrophic Ali Enterprises fire shook her deeply. After missing some crucial warning flags until it was too late, she and her organization are now rethinking their whole monitoring system.

Nonetheless, she still vigorously defends that system, saying that it has been vital to setting and safeguarding baseline standards for supply-chain workers in poor countries, particularly those with corruption-prone governments and weak unions.

“We think we do make a difference,” Ms. Tepper Marlin said. “We’re just trying to help get a culture of compliance.”

The various disasters have given fresh oxygen to critics who say industry-led certification should be abolished across the board and replaced with a more accountable system that requires the retailing giants — and their Western consumers — to help pay for needed factory improvements, even if that means higher prices for clothing.

“These private codes have become a commodity that is bought and sold, but not rigorously enforced,” Mr. Nadvi said. “We need to move beyond them.”

Outsourcing the Inspections

Declan Walsh reported from Karachi, and Steven Greenhouse from New York.

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No Grammy love for Justin Bieber, One Direction

LOS ANGELES (Reuters) – Irate fans of Justin Bieber and boy band One Direction took to social media on Thursday to voice their outrage after being snubbed by the Grammys for a chance to win the biggest honors in the music industry.

Indie-pop band fun and rapper Frank Ocean led the 2013 nominations, tying with The Black Keys, Mumford & Sons, Jay-Z and Kanye West for six nods. But The Recording Academy overlooked some of the year’s biggest and most commercially successful artists in Wednesday’s nominations.

While Bieber, 18, who won three American Music Awards in November, stayed quiet on his omission, his manager Scooter Braun took to Twitter.

“Grammy board u blew it on this one. the hardest thing to do is transition, keep the train moving. The kid delivered. Huge successful album, sold out tour, and won people over. … This time he deserved to be recognized,” Braun posted in a series of tweets.

Many of Bieber’s 31 million Twitter fans quickly followed suit, with hashtags such as #BieberForGrammys trending on the micro-blogging service.

The Canadian singer, who has never won a Grammy, in June released album “Believe,” showcasing a more grown-up image. The album, which produced top 10 hits “Boyfriend” and “As Long As You Love Me,” has sold more than 1.1 million copies.

British boy band One Direction was also left empty-handed despite their debut album “Up All Night” having topped the Billboard 200 album chart.

The quintet has performed sold-out shows across the world and won three MTV video music awards earlier this year.

The Grammy Awards are voted on by members of The Recording Academy and recognize achievement in 81 categories.

Lady Gaga, rapper Nicki Minaj and Korea’s Psy also failed to snag any nominations.

While Gaga hasn’t released new music this year, focusing on her global tour, Minaj released “Pink Friday: Roman Reloaded,” which topped the Billboard 200 chart and spawned singles such as “Starships.”

Psy may have YouTube’s most watched video ever with “Gangnam Style,” – over 897 million views – but he missed out on becoming the first Korean artist to receive a Grammy nod.

The Grammy Awards will be handed out at a live performance show and ceremony on February 10 in Los Angeles.

(Reporting By Piya Sinha-Roy; editing by Jill Serjeant and Todd Eastham)

Internet News Headlines – Yahoo! News

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The X Factor Reveals Its Four Semi-Finalists

TV Watch

The X Factor

By Aaron Parsley

12/06/2012 at 09:20 PM EST

There were tears on The X Factor Thursday night.

With only four spots in next week's semi-finals, the six acts who performed two songs each Wednesday night were a tense bunch. Especially after last week's shocking elimination that sent home fan favorite Vino Alan.

A majority of PEOPLE.com readers picked Demi Lovato's only remaining contestant, CeCe Frey, as the singer who most deserved elimination. Was she able to make it through one more week? Keep reading for all the results ...

CeCe Frey was the first to go.

"I'm proud of everything that I've done on this show," she said. "I hope I've taught everyone at home that you need to love who you are, because the more you love who you are, the less you're going to need anybody else to."

Her coach tried to avoid tears but shed a few anyway. "I've grown so close to you," Demi said. "And I'm just so proud of you."

Three acts were then declare safe: Simon Cowell's boy band, Emblem3; Britney Spears's frontrunner, Carly Rose Sonenclar; and L.A. Reid's country singer, Tate Stevens, also a frontrunner.

That left Team Britney's Diamond White and Simon's other group, Fifth Harmony, to sing for survival.

Fifth Harmony sang Mariah Carey's "Anytime You Need a Friend," and Diamond sang Lee Ann Womack's "I Hope You Dance."

As expected, Simon and Britney voted to send home each other's acts. But it was the end of the road for Diamond, after L.A. and Demi both voted to send her home as well.

"I'm just thinking of Cher Lloyd right now," she said of the "Want U Back" singer. "She came in fifth and look where she is."

Here's how the top four ranked:
1. Tate Stevens
2. Carly Rose Sonenclar
3. Emblem3
4. Fifth Harmony

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Celebrations planned as Wash. legalizes marijuana

SEATTLE (AP) — Legal marijuana possession becomes a reality under Washington state law on Thursday, and some people planned to celebrate the new law by breaking it.

Voters in Washington and Colorado last month made those the first states to decriminalize and regulate the recreational use of marijuana. Washington's law takes effect Thursday and allows adults to have up to an ounce of pot — but it bans public use of marijuana, which is punishable by a fine, just like drinking in public.

Nevertheless, some people planned to gather at 12:01 a.m. PST Thursday to smoke in public beneath Seattle's Space Needle. Others planned a midnight party outside the Seattle headquarters of Hempfest, the 21-year-old festival that attracts tens of thousands of pot fans every summer.

"This is a big day because all our lives we've been living under the iron curtain of prohibition," said Hempfest director Vivian McPeak. "The whole world sees that prohibition just took a body blow."

In another sweeping change for Washington, Gov. Chris Gregoire on Wednesday signed into law a measure that legalizes same-sex marriage. The state joins several others that allow gay and lesbian couples to wed.

That law also takes effect Thursday, when gay and lesbian couples can start picking up their wedding certificates and licenses at county auditors' offices. Those offices in King County, the state's largest and home to Seattle, and Thurston County, home to the state capital of Olympia, planned to open the earliest, at 12:01 a.m. Thursday, to start issuing marriage licenses. Because the state has a three-day waiting period, the earliest that weddings can take place is Sunday.

The Seattle Police Department provided this public marijuana use enforcement guidance to its officers via email Wednesday night: "Until further notice, officers shall not take any enforcement action — other than to issue a verbal warning — for a violation of Initiative 502."

Thanks to a 2003 law, marijuana enforcement remains the department's lowest priority. Even before I-502 passed on Nov. 6, police rarely busted people at Hempfest, despite widespread pot use, and the city attorney here doesn't prosecute people for having small amounts of marijuana.

Officers will be advising people to take their weed inside, police spokesman Jonah Spangenthal-Lee wrote on the SPD Blotter. "The police department believes that, under state law, you may responsibly get baked, order some pizzas and enjoy a 'Lord of the Rings' marathon in the privacy of your own home, if you want to."

Washington's new law decriminalizes possession of up to an ounce for those over 21, but for now selling marijuana remains illegal. I-502 gives the state a year to come up with a system of state-licensed growers, processors and retail stores, with the marijuana taxed 25 percent at each stage. Analysts have estimated that a legal pot market could bring Washington hundreds of millions of dollars a year in new tax revenue for schools, health care and basic government functions.

But marijuana remains illegal under federal law. That means federal agents can still arrest people for it, and it's banned from federal properties, including military bases and national parks.

The Justice Department has not said whether it will sue to try to block the regulatory schemes in Washington and Colorado from taking effect.

"The department's responsibility to enforce the Controlled Substances Act remains unchanged," said a statement issued Wednesday by the Seattle U.S. attorney's office. "Neither states nor the executive branch can nullify a statute passed by Congress" — a non-issue, since the measures passed in Washington and Colorado don't "nullify" federal law, which federal agents remain free to enforce.

The legal question is whether the establishment of a regulated marijuana market would "frustrate the purpose" of the federal pot prohibition, and many constitutional law scholars say it very likely would.

That leaves the political question of whether the administration wants to try to block the regulatory system, even though it would remain legal to possess up to an ounce of marijuana.

Colorado's measure, as far as decriminalizing possession goes, is set to take effect by Jan. 5. That state's regulatory scheme is due to be up and running by October 2013.

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Johnson can be reached at https://twitter.com/GeneAPseattle

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Apple's gains lift tech in quiet day before jobs data

NEW YORK (Reuters) - Stocks closed modestly higher on Thursday, a day ahead of the key monthly jobs report, as a rebound in shares of Apple helped boost technology shares.

Traders were reluctant to bet heavily a day before the Friday release of the November employment report. Just 5.62 billion shares changed hands on U.S. exchanges, shy of the 6.48 billion daily average this year.

Investors are also keeping watch on the "fiscal cliff" negotiations in Washington to see if lawmakers can reach a deal to avoid a series of spending cuts and tax hikes beginning in January.

"Right now we're just drifting, waiting to learn about the cliff and jobs," said Donald Selkin, chief market strategist at National Securities in New York. "The only stabilizing factor is that Apple is higher again, which is lending some support to the broader market."

Apple climbed 1.6 percent to $547.24, reversing losses incurred at the open. The stock was coming off its biggest one-day drop in four years on Wednesday, which occurred on concerns about higher capital gains taxes in 2013 and the company's tablet computer market share.

The S&P technology index <.gspt> was the best performing of the S&P 500's 10 major sectors, gaining 0.8 percent. Semiconductor stocks rallied a day after Broadcom forecast fourth-quarter revenue at the high end of its target range. Broadcom's stock rose 3.2 percent to $33.36 while the PHLX semiconductor index <.sox> rose 1.1 percent.

The Dow Jones industrial average <.dji> rose 39.55 points, or 0.30 percent, to 13,074.04 at the close. The Standard & Poor's 500 Index <.spx> added 4.66 points, or 0.33 percent, to 1,413.94. The Nasdaq Composite Index <.ixic> gained 15.57 points, or 0.52 percent, to close at 2,989.27.

Monthly payroll numbers, which will be released by the Labor Department before the market opens on Friday, are expected to show a sharp slowdown in jobs growth, though that is largely due to the impact of Superstorm Sandy, which devastated the U.S. Northeast in late October and early November. The unemployment rate is seen holding steady at 7.9 percent.

Broader moves were limited, however, as traders focused on the "fiscal cliff" debate. About three weeks remain before higher tax rates would go into effect, which economists worry would dampen economic growth. Legislators are trying to come up with a deal to avoid some of the negative effects on the economy while still reducing the U.S. budget deficit.

While Republican leaders in the U.S. House of Representatives insist that raising tax rates on the rich is not negotiable, some GOP lawmakers now see it as inevitable to avoid the fiscal cliff.

Without action from Congress, tax cuts on capital gains and dividends will expire at the end of 2012. This has given investors a reason to sell certain stocks such as Apple that have done extremely well in recent years.

The CBOE Volatility Index <.vix>, known as the VIX, rose 0.7 percent, "a reflection of the anxiety people have about the jobs report and skepticism over the cliff," Selkin said.

An S&P index of consumer discretionary shares <.gspd> gained 0.6 percent, lifted by Starbucks Corp shares' advance of 5.7 percent to $53.70 after Baird upgraded the stock to "outperform."

H&R Block climbed 5.1 percent to $18.26 after the company reported a quarterly loss that was narrower than expected.

Sirius XM Radio shares rose 0.7 percent to $2.79 after its board approved a $2 billion stock repurchase and declared a special dividend that gave a big payout to its largest shareholder, Liberty Media . Shares of Liberty climbed 2.7 percent to $109.24.

Garmin shares jumped 5.7 percent to $41.99 after Standard & Poor's said it would add the navigation device maker to the S&P 500 index. Garmin will replace R.R. Donnelley & Sons after the close of trading on December 11.

Slightly more than 50 percent of the stocks traded on the New York Stock Exchange closed higher, while the number of advancing and declining stocks was about even on the Nasdaq.

(Editing by Jan Paschal)

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Morsi Defends Wide Authority in Egypt as Turmoil Rises

CAIRO — Egypt descended deeper into political turmoil on Thursday as the embattled president, Mohamed Morsi, blamed an outbreak of violence on a “fifth column” and vowed to proceed with a referendum on an Islamist-backed constitution that has prompted deadly street battles between his supporters and their secular opponents.

As the tanks and armored vehicles of an elite military unit ringed the presidential palace, Mr. Morsi gave a nationally televised address offering only a hint of compromise, while preserving his assertion of sweeping authority. His opponents quickly rejected, even mocked, his speech and vowed continued protests ahead of a planned Dec. 15 vote on the draft constitution.

Many said the speech had echoes of his predecessor, Hosni Mubarak, who saw conspiracy in the unrest that brought him down. Mr. Morsi said that corrupt beneficiaries of Mr. Mubarak’s autocracy had been “hiring thugs and giving out firearms, and the time has come for them to be punished and penalized by the law.” He added, “It is my duty to defend the homeland.”

Mr. Morsi, a former leader of the Muslim Brotherhood, spoke a day after the growing antagonism between his supporters and the secular opposition had spilled out into the worst outbreak of violence between political factions here since Gamal Abdel Nasser’s coup six decades ago. By the time the fighting ended, six people were dead and hundreds wounded.

The violence also led to resignations that rocked the government, as advisers, party members and the head of the commission overseeing a planned vote on a new constitution stepped down, citing the bloodshed and the president’s management of the political crisis.

Mr. Morsi also received a phone call from President Obama, who expressed his “deep concern” about the deaths and injuries overnight, the White House said in a statement.

“The president emphasized that all political leaders in Egypt should make clear to their supporters that violence is unacceptable,” the statement said, chastising both Mr. Morsi and the opposition leaders for failing to urge their supporters to pull back during the fight.

Prospects of a political solution also seemed a casualty, as both sides effectively refused to back down on core demands.

The opposition leadership refused to negotiate until Mr. Morsi withdrew a decree that put his judgments beyond judicial review — which he refused to do. And it demanded that a referendum on a new constitution be canceled, which he also refused.

The hostilities have threatened to undermine the legitimacy of the constitutional referendum with doubts about political coercion. The feasibility of holding the vote also appears uncertain amid attacks on party offices around the country and open street fighting in the shadow of the presidential palace.

Though Mr. Morsi spoke of opening a door for dialogue and compromise, leaders of the political opposition and the thousands of protesters surrounding his palace dismissed his conspiratorial saber rattling as an echo of Mr. Mubarak. And his tone, after a night many here view as a national tragedy, seemed only to widen the gulf between his Islamist backers and their secular opponents over his efforts to push through the referendum on an Islamist-backed charter approved over the objections of most liberal factions and the Coptic Christian church.

Outside the palace, demonstrators huddled around car radios to listen to Mr. Morsi’s words and mocked his attempts to blame outside infiltrators for the violence, which began when thousands of his Islamist supporters rousted an opposition sit-in.

“So we are the ones who attacked him, the ones who attacked the sit-in?” one protesters asked sarcastically. “So we are the ones with the swords and weapons and money?” asked another.

Some left for the headquarters of the Muslim Brotherhood, where a mob had broken in, looted offices, and made a bonfire out of the belongings of the group’s spiritual leader — until riot police officers chased them away with tear gas.

“I never thought I would say this, but even Mubarak was more savvy when he spoke in a time of crisis,” said Hossam Bahgat, executive director of the Egyptian Initiative for Personal Rights.

Two employees of The New York Times contributed reporting.

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U.S. agency backs Apple in essential patent battle

WASHINGTON (Reuters) – Google unit Motorola Mobility is not entitled to ask a court to stop the sale of Apple iPhones and iPads that it says infringe on a patent that is essential to wireless technology, the U.S. Federal Trade Commission said on Wednesday.

In June, Judge Richard Posner in Chicago threw out cases that Motorola, now owned by Google, and Apple had filed against each other claiming patent infringement. Both companies appealed.

In rejecting the Google case, Posner barred the company from seeking to stop iPhone sales because the patent in question was a standard essential patent.

This means that Motorola Mobility had pledged to license it on fair and reasonable terms to other companies in exchange for having the technology adopted as a wireless industry standard.

Standard essential patents, or SEPs, are treated differently because they are critical to ensuring that devices made by different companies work together.

Google appealed to the U.S. Court of Appeals for the Federal Circuit. The FTC said in its court filing that Posner had ruled correctly.

The commission, which has previously argued against courts banning products because they infringe essential patents, reiterated that position on Wednesday.

“Patent hold-up risks harming competition, innovation, and consumers because it allows a patentee to be rewarded not based on the competitive value of its technology, but based on the infringer’s costs to switch to a non-infringing alternative when an injunction is issued,” the commission wrote in its brief.

The case is Apple Inc. and NeXT Software Inc. V. Motorola Inc. and Motorola Mobility Inc., in the U.S. Court of Appeals for the Federal Circuit, no. 2012-1548, 2012-1549.

(Reporting By Diane Bartz)

Tech News Headlines – Yahoo! News

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Kate Receives Hospital Visit from Pippa and James

12/05/2012 at 07:30 PM EST

James and Pippa Middleton

Alpha /Landov; Inset:Allpix/ plash News Online

The Duchess of Cambridge had more hospital visitors on Wednesday.

Just two days after husband Prince William, 30, was photographed leaving the King Edward VII Hospital in Central London where a pregnant Kate, 30, was admitted for hyperemesis gravidarum, her sister, Pippa Middleton, brother James and mom Carole (not pictured), also dropped by to keep the mom-to-be company.

Pippa was bundled up in a coat, sporting a tan-colored ensemble, while her brother was casually dressed in jeans and layered tops.

The Palace announced the Duchess's pregnancy Monday in a statement. "Their Royal Highnesses The Duke and Duchess of Cambridge are very pleased to announce that The Duchess of Cambridge is expecting a baby," it said. "The Queen, The Duke of Edinburgh, The Prince of Wales, The Duchess of Cornwall and Prince Harry and members of both families are delighted with the news."

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Study could spur wider use of prenatal gene tests

A new study sets the stage for wider use of gene testing in early pregnancy. Scanning the genes of a fetus reveals far more about potential health risks than current prenatal testing does, say researchers who compared both methods in thousands of pregnancies nationwide.

A surprisingly high number — 6 percent — of certain fetuses declared normal by conventional testing were found to have genetic abnormalities by gene scans, the study found. The gene flaws can cause anything from minor defects such as a club foot to more serious ones such as mental retardation, heart problems and fatal diseases.

"This isn't done just so people can terminate pregnancies," because many choose to continue them even if a problem is found, said Dr. Ronald Wapner, reproductive genetics chief at Columbia University Medical Center in New York. "We're better able to give lots and lots of women more information about what's causing the problem and what the prognosis is and what special care their child might need."

He led the federally funded study, published in Thursday's New England Journal of Medicine.

A second study in the journal found that gene testing could reveal the cause of most stillbirths, many of which remain a mystery now. That gives key information to couples agonizing over whether to try again.

The prenatal study of 4,400 women has long been awaited in the field, and could make gene testing a standard of care in cases where initial screening with an ultrasound exam suggests a structural defect in how the baby is developing, said Dr. Susan Klugman, director of reproductive genetics at New York's Montefiore Medical Center, which enrolled 300 women into the study.

"We can never guarantee the perfect baby but if they want everything done, this is a test that can tell a lot more," she said.

Many pregnant women are offered screening with an ultrasound exam or a blood test that can flag some common abnormalities such as Down syndrome, but these are not conclusive.

The next step is diagnostic testing on cells from the fetus obtained through amniocentesis, which is like a needle biopsy through the belly, or chorionic villus sampling, which snips a bit of the placenta. Doctors look at the sample under a microscope for breaks or extra copies of chromosomes that cause a dozen or so abnormalities.

The new study compared this eyeball method to scanning with gene chips that can spot hundreds of abnormalities and far smaller defects than what can be seen with a microscope. This costs $1,200 to $1,800 versus $600 to $1,000 for the visual exam.

In the study, both methods were used on fetal samples from 4,400 women around the country. Half of the moms were at higher risk because they were over 35. One-fifth had screening tests suggesting Down syndrome. One-fourth had ultrasounds suggesting structural abnormalities. Others sought screening for other reasons.

"Some did it for anxiety — they just wanted more information about their child," Wapner said.

Of women whose ultrasounds showed a possible structural defect but whose fetuses were called normal by the visual chromosome exam, gene testing found problems in 6 percent — one out of 17.

"That's a lot. That's huge," Klugman said.

Gene tests also found abnormalities in nearly 2 percent of cases where the mom was older or ultrasounds suggested a problem other than a structural defect.

Dr. Lorraine Dugoff, a University of Pennsylvania high-risk pregnancy specialist, wrote in an editorial in the journal that gene testing should become the standard of care when a structural problem is suggested by ultrasound. But its value may be incremental in other cases and offset by the 1.5 percent of cases where a gene abnormality of unknown significance is found.

In those cases, "a lot of couples might not be happy that they ordered that test" because it can't give a clear answer, she said.

Ana Zeletz, a former pediatric nurse from Hoboken, N.J., had one of those results during the study. An ultrasound suggested possible Down syndrome; gene testing ruled that out but showed an abnormality that could indicate kidney problems — or nothing.

"They give you this list of all the things that could possibly be wrong," Zeletz said. Her daughter, Jillian, now 2, had some urinary and kidney abnormalities that seem to have resolved, and has low muscle tone that caused her to start walking later than usual.

"I am very glad about it," she said of the testing, because she knows to watch her daughter for possible complications like gout. Without the testing, "we wouldn't know anything, we wouldn't know to watch for things that might come up," she said.

The other study involved 532 stillbirths — deaths of a fetus in the womb before delivery. Gene testing revealed the cause in 87 percent of cases versus 70 percent of cases analyzed by the visual chromosome inspection method. It also gave more information on specific genetic abnormalities that couples could use to estimate the odds that future pregnancies would bring those risks.

The study was led by Dr. Uma Reddy of the National Institute of Child Health and Human Development.

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Online:

Medical journal: http://www.nejm.org

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Marilynn Marchione can be followed at http://twitter.com/MMarchioneAP

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