IP finance ... where money issues meet intellectual property rights

Trade secrets, a seminar and a chance to say "hello"

2009-11-25T23:33:00.002Z

"Protection of trade and other secrets: a property right, equitable right or contractual obligation? Does it matter?" That's the title of the forthcoming IP Finance weblog seminar, which will be conducted by Neil Wilkof (Herzog Fox & Neeman, Tel Aviv) and Robert Anderson (Lovells LLP, London).

This seminar will be well worth attending. IP Finance team member Neil -- in the course of a series of posts on this weblog on IP-based business strategies in a changing world -- has asked questions about the juridical nature of the trade secret and its role in modern business. He and Robert Anderson will engage in what should prove a most enlightening debate.

The seminar (which should last for about 45 minutes) will start at 1pm on Monday 14 December 2009. Lovells has kindly agreed to host the event in its London office: that's Atlantic House, 50 Holborn Viaduct, London EC1A 2FG (nearest tubes are St Paul's, Farringdon or Chancery Lane). The seminar will be followed by some appropriately tasty light refreshments and a golden opportunity for some prime networking.

If you're coming, there's nothing to pay. Just email Sarah Turner here. Good news if you're in practice and could do with CDP points: Lovells are arranging for them.

Convergence survey lifts lid on device-users' attitudes to paying for IP content

2009-11-25T17:33:00.003Z

The 2009 Convergence Survey, launched this morning, represents a combination of field research and interviews conducted by London-based law firm Olswang LLP and YouGov into the use of computers, smartphones, e-books and other devices by more than 1,500 consumers. The 96-page report covers a wide variety of aspects of access to IP content by four categories of device-user: the vanguard, second-wave purchasers, the mainstream and the laggards, also dividing them by age.

Of particular interest to readers of this weblog is the annex, which contains some 172 pages of data derived from the survey, addressing issues such as the extent (if any) to which device users are prepared to contemplate payment for content in terms of existing and future functionality and their attitudes towards micropayments. The difference in spending habits between users of the Apple iPhone and other groups of consumers is quite noticeable. You can access the annex here.

Delay no bar to an account of profits, rules Hefty court

2009-11-24T05:56:00.003Z

IP Finance thanks John Smith for drawing the attention of this weblog to the recent ruling in Intellectual Property Development Corporation Pty Ltd and Hefty NZ Ltd v Primary Distributors New Zealand Ltd, D. J. Graham and R. J. Jones [2009] NZCA 429, Appeal Court of New Zealand, 23 September 2009 (IP Finance previously reported on the trial decision here). In this trade mark infringement case the Court -- which had a good deal to say about the the remedy of an account of profits -- held that mere delay in seeking relief is not in itself a ground for refusing an account of profits. You can read this decision in full here.

A full and very helpful account of this decision -- which also reflects on issues relating to the receivership and liquidation of the trade mark proprietor -- can be found on the IP Now blog here.

"Tips for minimizing dispute settlement costs": can you help?

2009-11-23T05:55:00.003Z

In a moment of inspiration or folly some weeks ago, I suggested the following title, "Keep it cheap: ten tips for minimizing dispute settlement costs everywhere", for a short article in an forthcoming issue of the WIPO Magazine which will focus on the cost of resolving intellectual property disputes. This suggestion was accepted.

My deadline is only ten days away and inspiration has yet to knock on my door. If any reader is possessed of one or more absolute truth with regard to keeping the cost of settling an IP dispute down, I'll be delighted to hear it (please post your suggestions below or email me here). All decent suggestions will be acknowledged on this weblog when the article is published.

The current online issue of the WIPO Magazine is available here.

Trade mark licences: beware of the unconventional

2009-11-21T21:39:00.004Z

While practitioners certainly like to preach against uncertainty in the terms of a licensing agreement, we know how difficult this is to achieve, especially when it comes to provisions relating to termination. The uncertainty may arise from the inevitable elusiveness of achieving drafting perfection, compromises reached during negotiations, or the intention of the parties to leave the issue ambiguous. Whatever the reason, the result is that the parties may find themselves fighting over the meaning of the provision giving rise to the claim of termination.

This lesson was brought home in my favourite trade mark licensing case of the decade, the Australian case of Pacific Brands Sports & Leisure Pty. Ltd v Underworks Ptd. Ltd [2006] FCAFC 40 (for anyone who wants to confront a wide-ranging judicial debate on the meaning trademark assignments and licences, this is the case for you). While the issue of termination was strictly relevant to the disposition of the case, the court could not reach a single view on the proper construction of the licensee/sublicensee's obligations under an unusual form of grant clause. The resulting difference of opinion by the court on the meaning of the provision is instructive about the risks entailed in drafting such a clause.

The licence agreement provided that the licensee was authorized to use the licensed trade marks in connection with specified goods. The issue arose with the addition to the clause that the licensee undertake to “exploit the Products within the Territory to the best advantage of the parties.” The licensee had not succeeded in selling, under the licensed mark, some of the specified goods included within the defined term “Products”. The licensor alleged that since the licensee had not done so, the licensee was in breach of the provision.

What is unusual about this provision? At least two issues come to mind. The first is the use of the term “exploit” (a term more typically found in connection a patent licence) regarding the licensee’s undertaking, as opposed to a term such as “use”. This is especially so, since the term “use” appears elsewhere in the same clause. Does “exploit” mean something other than “use”; if so, what is the difference in meaning between the two terms?

The second issue is the reference to the requirement that the "exploitation be for the “best advantage of the parties.” There is extensive case law and commentary on terms such as “best efforts”, “best endeavours”, “reasonable efforts”, “reasonable endeavours”, and the like, as a self-contained undertaking in a licensing agreement. It is unusual, however, to speak of the “best advantage of the parties”.

To cut to the chase: What is the significance of linking the obligation to “exploit” the mark with a performance criterion defined as the "best advantage of the parties", especially when the meaning of the first term is uncertain and the use of the second term is unusual to an extreme? It is no surprise therefore that the court could not agree on the meaning of the provision.

The majority view of the court of appeal reasoned that no breach had occurred. The licensee was not obliged to use the licensed marks in the event that no market exists for some goods, or that there was no profit to be made with respect to such goods. The majority also rejected the claim that use is required to protect the mark against a claim of non-use of the trade mark. There were other ways within the scope of the agreement to avoid a non-use claim. As well, reference was made to the opinion of the trial court, most notably the original parties to the agreement had recognized the risk that the products might not find a market and that there was a separate right of termination for failure to meet minimum sales (as opposed to termination for no sales with respect to a given product category).

The minority view took a different approach. It focused on the meaning of the word ”exploit”, which it construed as requiring something more extensive than mere “use” of the marks. The requirement that “exploitation” be for “the best advantage of the parties” did not detract from this undertaking, since selling the goods would clearly be to the advantage of both parties. The failure of the licensee to do so was a breach of this undertaking.

Trademark Licenses Can Be Quixotic Too

When confronted with these incompatible constructions of the meaning of the clause, two points come to mind.

First, stick to conventional words and terms when drafting. Within the context of a trademark license, a term such as “use” may cause less difficulty in construction than the the term “exploit”. Even better, provide for a specific description of the intended uses of the mark. The admonition is even stronger when a starkly unconventional term as “best advantage of the parties” is relied upon. Here, as well, specific standards of performance are preferable.

Second, pay close attention to the structure of the license agreement. The terms of the grant, and the measure of the licensee’s performance, are separate and distinct issues. First set out the permitted kinds activities; secondly (and separately), define the performance standards. As was graphically brought home in the Pacific Brands case, conflation of the two provisions only result in uncertainty, if not worse.

Maximising IP and Intangible Assets: new report

2009-11-18T22:55:00.001Z

IP Finance has recently received information concerning the new paper from Athena Alliance, Maximizing Intellectual Property and Intangible Assets: Case Studies in Intangible Asset Finance. This report may be accessed from Athena's website here, in html and pdf versions) and on Ken Jarboe's weblog The Intangible Economy. According to Ken,

"The paper looks at how, as innovative companies struggle to raise funds, intellectual property and intangible assets are providing alternative ways of financing innovation. The report outlines increasing, but still nascent, means of financing innovation based on these assets in public, private and venture capital markets. As industry has invested capital in research and development to develop new technology and advance other creative activities, intellectual capital has become a valuable asset class, according to the paper. In response, firms specializing in intangible-based financing are springing up, using them to raise capital for the next round of innovation.

The report details equity, equity-debt, debt, and sale-leaseback transactions, both private and public, that have helped companies raise capital, based on careful, rigorous analysis and conservative underwriting standards. For example, the author notes that in 2000, there were two public deals using royalty securitization, raising $145 million. In 2007-08, $3.3 billion was raised in 19 deals.

Unlike some of the exotic financial vehicles, however, the financial products discussed in this paper are some of the most basic financing mechanisms in business. The innovation is in recognizing the value of intangible assets for corporate finance. These new financial firms are using traditional financial techniques in new ways to help innovative companies.

As a case study paper, the report does not get heavily into policy recommendations but builds on earlier Athena Alliance papers, notably Intangible Asset Monetization: The Promise and the Reality. The report does discuss that the important step would be developing sound, industry-wide, underwriting standards .... For example, Small Business Administration (SBA) rules permit its loans to be used for acquisition of intangible assets when buying on-going businesses. However, it appears that the rules are unclear on whether those assets can be used as collateral. The paper recommends that SBA work with commercial lenders to develop standards for using intangible assets as collateral".

Ken asks that this paper be given some airing, so that he can receive the benefit of readers' comments. You can email him here.

Bloomberg v The New York Times: Who Will Provide the Contents?

2009-11-17T16:39:00.004Z

While academics (particularly the U.S. kind) continue to engage in the "high protection/low protection" struggle for the Ivory Tower soul-of-copyright theory, a quite a different struggle is taking place at the level of journalism and the contents they they provide to the public. There, the matter is, quite simply, one of business survival. "Who shall live and who shall die", in the words of the liturgy.

An interesting angle on this struggle was described in the Sunday, November 15 edition of nytimes.com (and summarized on the New York Times podcast--"Weekend Business"). Entitled "At Bloomberg, Modest Strategy to Rule the World", the piece by Stephanie Clifford and Julie Creswell chronicles the efforts of Bloomberg L.P. to become quite simply, in the words of Andrew Lack of the company, to become "the world's most influential news organization."

Heady aspirations indeed. From its beginnings in 1981 through to its place as the leading purveyor of financial information via the eponymous "Bloomberg terminal", this highly profitable company has branched out into tv and radio, and also the print media (as well as seeing its founder--Michael Bloomberg--recently elected for a third term as mayor of New York City). In particular, their recent acquisition of the venerable magazine Business Week signals an intention to expand their audience and readership as well as to try and resuscitate the declining, if still iconic, publication.

I have to admit: I am a podcast addict of Bloomberg programmes; I find the formula of interviews across a wide spectrum of business and related topics to be an attractive way to remain current on significant issues. I also listen to several daily New York Times podcasts. As well, since 1981, I have been a subscriber of Business Week. This means that there is a kind of personal engagement in these contents that drew my special attention to the New York Times piece.

And so the speculation: In light of their efforts, how does Bloomberg stack up with the paragon of old media, the New York Times? Strictly speaking, the two are not precisely rivals, since one could argue that Bloomberg is primarily a business-related enterprise, while the New York Times is a full-content newspaper. That said, a senior Bloomberg official referred to The Economist as the model for a revamped Business Week. If so, the comparison seems more direct and more compelling. So here are my thoughts.

1. The case in favour of Bloomberg seems to be based on the premise that Bloomberg has the crucial advantage--ready cash. While the New York Times, and the print media more generally, struggle cash-wise, Bloomberg seemingly can throw oodles of the stuff at achieving its publishing dreams. One proof of this is reported hiring binge of journalists by Bloomberg, while the New York Times has been reducing its staff.

Will Cash Be King in the World of Journalism?

2. On the other hand, the New York Times is first and foremost a journalistic enterprise, primarily in print form, and more hesitatingly in the online environment. It excels in content, albeit frequently with an noticeable editorial slant. Never a great money-maker even in the best of times, it is struggling to stay afloat in the current economic climate.

3. The upshot is that Bloomberg is betting that being able to make use of the ample cash being thrown off from its content business will provide the basis for establishing an equally dominant position in the world of journalistic contents. That remains to be seen: Money will certainly help, but it is hardly a guarantee of ultimate success. As the phrase goes, "one way to make a small fortune is to spend a large fortune."

4. As for the New York Times, quality content may or may not be enough to succeed commercially in an increasingly online world, where "free" is the reader's expectation, if not the norm. The ability of the New York Times to monetize its content in a world where advertising plays a smaller and smaller role can only be described as challenging.

5. And so a thought: If Bloomberg has the cash, but uncertain capabilities in contents, while the New York Times is exactly in the opposite position, why not have Bloomberg simply acquire the New York Times? This is what another media giant-Rupert Murdoch--has done with his purchase of the Wall Street Journal. "Nonsense", you might say, and that is fair enough. But if so, what alternative suggestions do you have for Bloomberg and the New York Times? After all, quality journalism that is commercially robust is in everyone's interest.

But how much does piracy really cost?

2009-11-16T05:48:00.010Z

Last Monday Intellectual Property Watch posted this item on a subject very close to my heart. Penned by Catherine Saez, "Panel Calls For Disclosure Of Industry Methodology Assessing Losses To Piracy" raises the issue of greater transparency in the evaluation of piracy and assessments of broader social implications -- decades after industry victim self-assessments of loss were first offered as arguments for tougher laws and more cogent means of enforcing them. According to Ms Seaz's report:

"Co-organised by the International Centre for Trade and Sustainable Development (ICTSD) and the Social Science Research Council (SSRC), the event presented the findings of recent research on piracy and IP enforcement in developing countries. The event was held during the 2-4 November World Intellectual Property Organization (WIPO) Advisory Committee on Enforcement.

SSRC presented a research project focused on copyright piracy involving 25 researchers in seven countries and aimed at providing empirical research on piracy.

Industry research has “owned” the debate for a number of years, said Joe Karaganis, program director for media and democracy at SSRC. In the field of copyright, research is difficult and requires a global network, which is accessible by the copyright industry.

The research project seeks to bring the developing country perspective into a serious debate on developed country losses, primarily losses in the United States due to piracy outside the US.

Karaganis noted that piracy also has obvious social benefits, which explains its persistence. In developing countries, piracy is often the primary means to access media goods.

SSRC has concerns about the integrity of industry research, said Karaganis, although there are genuine and valuable research projects in the industry. There is a need for industry research to be documented, to know the inputs used by industry and its methodology, he said, as more transparency in the process would add credibility to the results. SSRC recommended that WIPO put pressure on industry to display their research methodology. ...

In organising this event, ICTSD said it considered Recommendation 45 of the WIPO Development Agenda, which calls for members “to approach intellectual property enforcement in the context of broader societal interests and especially development oriented concerns,” in accordance with Article 7 of the World Trade Organization Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement".

IP Finance will be watching this debate closely, since this author feels that transparency is valuable on both sides. If, for example, the figures are clearly demonstrated to relate to loss of sale of legitimate product at the factory gate, at wholesale level or at retail prices, the sums are very different. Likewise there are issues of potential double-accounting when the same counterfeit item incorporates a multiplicity of IP rights. It is also helpful to look at the loss to the revenues and the damage caused to the fabric of society by the importation, purchase and consumption of counterfeit goods. The cost-benefit analysis is quite different in respect of different types of goods: fake fashionwear is one thing, useless HIV medicines are another.

Carrefour, Brands and the Russian Market;

2009-11-12T15:23:00.003Z

I can think of no greater branding challenge than seeking to establish a transnational presence in the retail chain space. Even the 800lb gorilla --Wal-Mart--has not succeeded in establishing a dominant position in each of the national markets which it has sought to enter. The reason is not difficult to fathom. When compared with the difficulties in marketing a single branded product in a new jurisdiction, the requirements for successfully establishing a large-scale retail service brand in a new country are exponentially greater.

Thousands of products of inventory, ranging from perishable food to home furnishings, have to be purchased and made available to customers, real estate sites need to be carefully selected, pricing has to walk a tightrope between being competitive and being profitable, cultural differences have to be addressed, and managerial and on-the-floor service has to be constantly maintained. It is often a wonder that large retail chains can succeed at all across diverse regional settings.

That said, I was struck (even thunderstruck) by the announcement in mid-October that the giant French-based retailer Carrefour here was pulling out the Russian market. Just to keep the size of the company in perspective, it is the second largest retailer in the world (behind Wal-Mart) and racked up sales of nearly $36 billion dollars for Q3 2009. Nor do they shy away from adventurous markets. Nearly half a decade ago, my daughter found herself temporarily working at a Carrefour store in far Western China.

Against that backdrop, the compressed rise and apparent fall of Carrefour in Russia is noteworthy. As reported on the nytimes.com website on October 17, in an article entitled "French Retailer to Close its Russian Stores" under the by-line of Matthew Saltmarsh and Andrew Kramer, Carrefour opened its first hypermarket in Moscow in June 2009. A second store was opened on September 10, 2009, in a city called Krasnodar. The announcement of that opening, as reported on carrefour.com, was careful to add that it was being done "in line with the agreement concluded with the Administration of the Krasnodar region."

And yet, slightly more than one month later, the company announced (albeit apparently "buried ... in a trading update") that the closure was taking place because of an "absence of sufficient organic growth prospects and acquisition opportunities in the short and medium term that would have allowed Carrefour to attain a position of leadership." This is quite remarkable. We are not talking about closing a 180 square meter corner grocery, but rather two facilities, each of which was over 86,000 square feet. Moreover, we are not talking about a gradual phase-out of the facilities, but rather what appears an exodus of Biblical proportions. If there is any recent precedent for a retail pull-back of this size and alacrity from a entire national jurisdiction, I am not aware of it.

Coming and Going in Russia

Oversaturation of the Moscow market, limited growth possibilities elsewhere in the country, a difficult consumer ethos, a deteriorating economic environment, endemic red-tape and even corruption (recall the role of the Administration of the Krasnodar region in the opening of the second Carrefour megastore) all seem to have played a part. Still, these factors did not suddenly come together like a perfect storm only between June and October of this year. If these were factors contributing to the debacle, surely they must have been present, in whole or in part, before the summer 2009. If so, it sure sounds like someone was asleep at the wheel at company headquarters.

And now for the branding question: will the apparently ignominious withdrawal from Russia affect the transnational value of the Carrefour brand? I suspect that the answer is no. Mega-retailing is far more local than international. Still, this is a double-edged sword.

On the one hand, there is likely little added value to the Carrefour name per se when the company seeks to enter a new market. True, the size and recognition of the chain may ease the initial entry into a jurisdiction, but ultimate commercial success, and the resulting goodwill in the brand, must be earned. This seems quite different from the introduction of, for example, a MacDonald's chain into a new country, where the transnational goodwill preceding entry will likely be of assistance.

On the other hand, a local failure will not materially affect the overall value and goodwill of the brand. What happened in Russia will not likely cause an impairment of the Carrefour brand in France--the markets are separate and distinct . Despite globalization, digitization, and the growth of famous marks, for most brands the territoriality notion of trade marks is not merely of legal significance, but of commercial import as well.

IP Australia's IP tax advice

2009-11-12T15:02:00.007Z

IP Australia's IP Toolbox offers a really useful page full of information concerning the tax implications for various IP regimes. Apart from breaking down current tax breaks and liabilities by (i) type of intellectual property right or product and (ii) species of tax, it also supplies information as to local variations in taxes across the different states. Considering that there are three sets of variables at play here, this page may just come in handy to anyone considering how, or where, to start an IP-based business in Australia.

"Let's rumble ..." but how much is it worth?

2009-11-09T05:59:00.010Z

From Lee Curtis (Harrison Goddard Foote) comes this link to a trade mark which is reputed to have netted its owner Michael Buffer $400 million: the catchphrase slogan "Let's get ready to rumble". The phrase is apparently used at the beginning of boxing and wrestling matches. The same catchphrase is registered in the United Kingdom, for services in Class 35 (Advertising and promotion) and Class 41 (Cultural activities; radio, television, film, music, video and theatre entertainment services; master of ceremonies services; acting and voice-over services) in the name of Ready to Rumble, Inc.

IP Finance wonders whether this trade mark is quite such a valuable business asset in Europe. In particular, is the use of the same phrase by another person when announcing the commencement of a boxing match a 'trade mark use' which can even constitute an infringement? Would the consumer even consider that the phrase, though associated with Buffer, had the quality of a trade mark? Does it truly cause the consumer to believe that a service is being supplied by someone other than the trade mark owner? What if the voice-over had the voice of a woman, a child or a person with a national or regional accent that was manifestly not that of Buffer himself?

The Vegemite/iSnack Trade Mark Saga Down Under: Fiasco or Triumph?

2009-11-07T17:01:00.004Z

I have always wondered to what extent there is really no such thing as a good trade mark; at the most, there are bad trade marks that you simply wish to avoid. By this I mean that, as long as a trade mark passes muster legally, such that no one can challenge it as being too descriptive, and no third party can assert rights against the mark: it does not really matter at the end of the day what the precise mark actually is.

I thought about this question in reading an article that appeared on 3 November on nyt.com. Entitled "Vegemite Contest Draws Protests", under the byline of Meraiah Foley, the article describes a chain of events that began in July 2009 in connection with finding a name for a new variety of Australia's most distinctive food product--Vegemite. This product is described by the article as "salty, gooey yeast beloved millions of Australians", akin to that icon of the English breakfast table--Marmite. Akin perhaps, but in the eyes (palate?) of millions of Australians, Marmite is clearly inferior to their beloved Vegemite.

I have to admit--I have never understood the culinary attraction of Marmite, which means that I would probably also find Vegemite difficult to swallow. Perhaps the secret of Vegemite is a mix of culture and timing. As observed in the article, well-known Sydney chef Bill Granger observed that "Australian food was really bad until the 1970s: boiled meat and vegetables without any butter or salt. Vegemite was one of the things that actually had any flavor, and that's why it became so incredibly popular It is one of the only foods that is unique to Australia, and people see it as being quintessentially Australian." Whatever the reason, it seems that Vegemite has itself become an icon of Australian food products.

So what does any of this have to do with trade marks? It seems that the producer of Vegemite, Kraft Foods Australia, sought to launch a new variety of the Marmite product (mixed with cream cheese) by means of a contest to find a name for the gooey delight. To this end, Kraft caused jars and jars of the new product to appear on Australian supermarket shelves, with the words "Name Me" on the label. Weeks passed, and more than 3 million jars were sold (1 jar for nearly each 7th denizen of Australia), the product still remaining nameless. On 26 September, Kraft announced the winner via an expensive ad slot that appeared on the televised finals of the Australian football league--"Vegemite iSnack 2.0".

Now I would have thought that with the naming of the new product, the Vegemite business would return to normal. Au contraire. Anger poured in from all directions, inlcuding Facebook, Twitter, and a dedicated website (called "Names that are better than iSnack 2.0"). One online commentator called for the 27-year old designer who had come with the winning name to be "run naked through the streets of Sydney 'as retribution for his cultural crime' ". Another commentator simply said that the name was "un-Australian".

Kraft's reaction (or retribution) was soon to arrive. Four days later it announced that it was putting the name up for a re-vote. The ultimate winner, selected from an online and telephone poll, was --"Cheesybite." Product with the new name will appear on the shelf in a few months, after all of the jars with the "iSnack 2.0" name are sold.

Where Did You Hide the Cheesybite?

A public relations and marketing disaster for Kraft, no? Well, it it is not clear. As for the impact on Kraft's bottom line, the results were in fact spectacularly good. Sales for the "iSnack 2.0"-branded product rose 47% during the first two weeks of sales, while the sales of the original Vegemite product remained unaffected. In other words, Kraft actually increased sales for the Vegemite line. As well, the fact that the product had reached approximately 15% of all Australian households was a marketing achievement that brand managers usually only dream about.

There are those, especially with a conspiratorial bent, who seem convinced that Kraft planned the entire operation as a way of getting the consumers' attention amidst a cluttered and competitive supermarket environment. I rather doubt that, although Kraft's rapid response to the public outcry and subsequent revetting of the name must be applauded as an especially market-savvy move.Getting back to the question I raised at the beginning of this blog post--is there such a thing as a bad trade mark? I guess the answer, based on the Vegemite 'iSnack 2.0" experience, is both "yes" and "no."

On the one hand, the original mark per se seems to have been a bad marketing ploy, taking Australian culture and sensibilities into account. On the other hand, the trade mark issue was quickly resolved, the issue quickly disappeared, and Kraft does not seem to have suffered any harm to its business. So does, or does the mark, not matter? For the last word, I bring the words of Professor of Marketing, Paul Harrison, from Deakin University in Melbourne: "If people like the taste of it, they'll keep buying it--if they don't, they won't. Ultimately, you don't want people thinking too much about your brand, you want people to become habitual about it."

Funding and the Fortunes of IP Litigation: forthcoming event

2009-11-06T12:57:00.012Z

There's an attractive event coming up on 9 February 2010: it's "Funding and the Fortunes of Intellectual Property Litigation", another in the series of 11am to 3pm seminars held under the auspices of barristers' chambers Hardwicke (Lincoln's Inn, London, which is where the event will be held).

At £50 plus VAT, this is a very reasonably priced way to pick up some useful information, do a spot of networking, enjoy a tasty lunch and acquire 3 CPD points. Speakers are Elizabeth Gutteridge (Deloittes) on , financial remedies, Mark Engelman (Hardwicke) on third party funding arrangements before and after the Jackson Review and Mick Smith (Calunius Capital) on the risks and mechanics of IP insurance. IPKat team member Jeremy is in the chair. For full details and registration click here.

Open Source and Biotechnology: Whither or Whether Ideology?

2009-11-04T05:50:00.002Z

I venture to say that most of us are well aware of the fault lines between proprietary and open source software. Proprietary software is characterized by keeping source code secret together with contractual restrictions on the use of the software, plus a reliance on the negative right aspects of copyright and other relevant IP law. Open source, to the contrary, rests on collaborative development and disclosure of source code, subject to various terms and conditions.

Less well-known is the effort to adopt the open source model to subject matter other than computer software. A particularly interesting effort in this regard is the use of open source principles in connection with biotechnology. A useful summary can be found in an article by the prolific and distinguished Professor Robin Feldman (left) of the University of California Hastings College of Law and Kris Nelson (a member of the Class of 2009 of the same school) that appeared in the Fall 2008 issue of the Northwestern Journal of Technology and Intellectual Property, "Open Source, Open Access, and Open Transfer: Market Approaches to Research Bottlenecks."

The authors discuss what they call Open Source Technology and Open Science. While the proponents of these variations of open source software are aware of the differences between the underlying subject-matter of software and biotechnology respectively, there appears to be a belief that that there is enough common ground to speak of both areas in a roughly similar fashion.With respect to Open Source Technology, there are two general categories. The first is described as focusing on bioinformatics ("the application of computer software and methodologies to solve biological problems"). The second category is marked by a move from the specific focus of the software interface to an effort "to ensure that the biotechnology tools required for research and innovation are openly available."

In particular, this second category centres on solving biotech-related problems in what the authors call "underserved communities." By this the authors mean communities with limited financial resources, with the result that there is an inability "to navigate the maze of patent rights and licensing necessary to engage in the targeted research." Stated otherwise, this approach intended to enable projects to deal successfully with the daunting problem of patent thickets.

Examples of projects of this kind are: (i) the HapMap Project here (a multi-country project researching genetic differences, with the goal of a certain mapping the human genome); (ii) CAMBIA here (expanding access to biological research, with a focus on disadvantaged communities); and (iii) the Public Patent Foundation here (aimed at solving the problem of patent thickets by establishing patent pools with open accessible patent rights to the participants of the program).

The authors point out several salient differences between Open Source licensing and the biotech variety:

1. Open Science is based on patent rights, which will sooner or later become public knowledge at some point. The same cannot be said of software under Open Source.

2. The resource requirements of Open Science, with an emphasis on sophisticated lab equipment, favor large organizations.

3. The very fact that Open Science is based on patent rights, while Open Source is based on copyright, means that each arrangement will reflect that particular aspects of the underlying legal right.

The authors conclude, with perhaps a tinge of understatement, that "Open Science Systems have not always matched their initial expectations." Perhaps the problem lies in the expectations themselves. When one considers the history of open source software, one is struck by the unique combination of ideology and technology that came together to forge "the movement". It is not at at all clear that this combination exists with respect to biotechnology, with the possible result that ideology may be the driving force, sometimes in an exaggerated and less than helpful fashion. That said, I have virtually no direct experience with open source arrangements in the biotech context. Perhaps my own views on the subject are themselves driven by my own ideological predilection on the subject.

Will the sci-fi franchise continue?

2009-11-02T09:59:00.002Z

Will we yet see more Terminator movies? The Financial Times reported on the weekend that the rights to the Terminator film franchise will be auctioned this month. The rights are being sold by Halcyon, the production company behind Terminator Salvation, the latest instalment in the Terminator series which grossed $380m worldwide. For more information, see also here.

Disney: Is It about Contents, Distribution, or Branding?

2009-11-01T14:24:00.003Z

Way back, in the 17th century, when proto-copyright regimes were beginning to take shape, authors and publishers groped with finding models that could successfully marry the creation of contents with the means of distribution and sale of such contents. The struggle between contents and distribution remains unabated to this day.

I was reminded of this when I read a brief piece that appeared on October 25th in FT.com. Entiltled "Disney boss tells Hollywood to rewrite script", the article summarized an interview conducted by the Financial Times with Bob Iger, the chief executive of Disney. Iger's message was stark: the film business, i.e., the business model on which the film business rests, is "changing right before our eyes". As a result, "if we don't adapt to the change there won't be a business." In particular, the sale of DVDs, the mainstay of the film business over the last decade, has been on a steady decline and no alternative platform, including digital distribution, has yet emerged to take its place.

That said, Iger listed the following measures that Disney was taking to steady the Disney film business. They include the following:

1. Cost-cutting--A the direct Disney level, a reexamination of costs at both the production and marketing level, with an emphasis on R&D and risk-taking, together with a cut-back at Miramax studio.

2,. Outsourcing--Entering into a distribution agreement with Steven Spielberg's DreamWork studo, whereby DreamWork would apply the content and internalize the costs of film production.

3. New technologies -- For instance, next month will launch Keychest, a technology that will enable a person to store digital copies of films in a remote location with the capability to move the digitized film across multiple platforms, such as smart phones and games consoles.

4. Acquisitions--In early September, Disney announced agreement to purchase Marvel Entertainment, including its successful stable superheros, for an amount of $4bn, thereby seeking to reach out a different type of film viewer than is currently likely to view at Disney film, as well to possibly to expand the themes offered at the Disney entertainment parks.

5. Cultivating non-American Tastes-- Next week will see the launch of the movie Book of Masters, a film made explicitly for Russian a audience. ("We would not be able to grow the Disney brand ... if we just created product in the US and exported it to the rest of the world", said Mr. Iger).

I think that I need to have a word with my MBA students about all of this, because I am having a bit of difficulty finding a coherent alternative business model in the steps that were described. The "cost-cutting", "outsourcing" and "acquisitions" activities suggest that Disney is viewing itself less as a home-grown content creation company and more of an aggregator of contents developed both in-house and increasingly by third parties.

Plenty of Room for Contents

"Cultivating non-US tastes" certainly seems sensible, since the consensus is that the major drivers of growth will be developing national markets, such as Russia. But cracking such markets will involve making the right choices of content about foreign tastes and finding the appropriate price points for the various overseas markets. Here, as well, it seems that these contents will not likely be home-grown, putting further pressure on Disney's ability as a content aggregator.

The development of "new technologies" seems interesting, but no more. Enabling remote access to a plurality of delivery platforms sounds like an effort to take advantage of the cloud computing model. Disney, however, does not seem to be a likely candidate to be a leader in the cloud environment, such that exactly how much the Keychest technology will mark a sea-change (or even a mild sea-ripple), remains uncertain.

When I think about all of this, it seems to me that in truth Disney is going back to its most basic strength--its brand. While the article focuses on the classic challenge of contents versus distribution in monetizing works of creation, what really lies behind the measures described in a strategy to find various ways to strengthen the overall Disney brand. After all, it is the Disney brand that gives the company its unique position in the entertainment world. And of course, it is the brand that is Disney's to lose, if they get it wrong.

"Ten tips for start-up valuation"

2009-10-28T09:50:00.001Z

Intellectual Property Marketing Advisor has just circulated this feature entitled "Ten tips for start-up valuation", penned by Martin Zwilling (CEO & founder of Startup Professionals, Inc., and Managing Partner of Southwest Software Ventures & and Consulting). The theme is that, when selling a start-up to potential investors, it's important to get them excited about your team, your product, and your company. Once they're hooked, they cut to the chase and ask the key question: “What is your company’s valuation?” That's when the tips come into play. As a sucker for lists, I found myself drawn almost magnetically towards them. According to Martin:

"* Place a fair market value on all physical assets (asset approach). ... New businesses normally have fewer assets, but it pays to look hard and count everything you have. Be sure to include computer equipment, office equipment, furniture, tools, and the value of inventory or prototype products [So far, so good ...], including development costs [... but I'm not convinced that 'development costs' lie comfortably within 'fair market value', particularly for prototypes that do not fit within the R&D template of a well-established technology].
* Assign real value to intellectual property. The value of patents and trademarks is not certifiable, especially if you are only at the provisional stage. A “rule of thumb” often used by investors is that each patent filed can justify a $1M increase in valuation [I hope that a 'Ten tips for investors in a start-up valuation' will caution against such an arbitrary and extravagant rule of thumb. The patent may be useful or useless, valid or invalid; the existence of a market, and the projection of a product or process (whether patented or not) into that market, may prove more useful guidance].
* All principals and employees add value. [How true, particularly if they're (i) nailed down by decent contract terms, (ii) happy to stay put and (iii) not claiming the IP rights for themselves] Assign value to all paid professionals, as their skills, training, and knowledge of your business technology is very valuable. Back in the “heyday of the dot.com startups,” it was not uncommon to see a valuation upped by $1M for every paid full-time professional programmer, engineer, or designer [But look what happened to most people who invested in doc.com start-ups and gave up their day jobs ...].
* Early customers and contracts in progress add value. [Another good point] Every customer contract and relationship needs to be monetized, even ones still in negotiation. Assign probabilities to active customer sales efforts, just as sales managers do in quantifying a salesman’s forecast. Particularly valuable are recurring revenues, like subscription amounts, that don’t have to be resold every period. [The formal accounts and public trading statements of customers can enhance the start-up's value: if your early customers are the Procter & Gambles or the GEs of this world, it might by worth leveraging this]
* Discounted Cash Flow (DCF) on projections (income approach). In finance, the income approach describes a method of valuing a company using the concepts of the time value of money. The discount rate typically applied to start-ups may vary anywhere from 30% to 60%, depending on maturity and the level of credibility you can garner for the financial estimates. [This is the point at which the tips allude to factors that make a business look less valuable -- but it's important to be realistic and to appreciate that investors are buying a risk as well as an opportunity]
* Discretionary earnings multiple (earnings multiple approach). If you are still losing money, skip ahead to the cost approach. Otherwise, multiply earnings before interest, taxes, depreciation and amortization (EBITDA) by some multiple. A target multiple can be taken from industry average tables, or derived from scoring key factors of the business. If you have no better info, use 5x as the multiple. [the investor will probably have his own guidelines for selecting a multiple and, particularly if familiar with the sector, may be hard to shift]
* Calculate replacement cost for key assets (cost approach). The cost approach attempts to measure the net value of the business today by calculating how much it could cost for a new effort to replace key assets. [This is a tricky one: a key patent may be irreplaceable if the start-up is built around it. But that doesn't mean that the start-up is worthless]
* Find “comparables” who have received financing (market approach). Another popular method to establish valuation for any company is to search for similar companies that have recently received funding. This is often called the market approach, and is similar to the common real estate appraisal concept that values your house for sale by comparing it to similar homes recently sold in your area. [I'm not enthusiastic about this. Unlike real estate, where comparators are relatively easy to find and the criteria for their evaluation are stable and predictable, IP-based start-ups rarely have such good comparators, except for low-risk brand- or design-based start-ups like a new burger franchise or teen-driven fashion house]
* Look at the size of the market, and the growth projections for your sector. [As indicated above, I think this is really important] The bigger the market and the higher the growth projections are from analysts, the more your start-up is worth. For this to be a premium factor for you, your target market should be at least $500 million in potential sales if the company is asset-light, and $1 billion if it requires plenty of property, plants and equipment [No comment, but many readers will not find it hard to read my mind ...].
* Assess the number of direct competitors and barriers to entry. Competitive market forces also can have a large impact on what valuation your company will garner from investors. If you can show a big lead on competitors, you should claim the “first mover” advantage. In the investment community, this premium factor is called “goodwill” (also applied for a premium management team, few competitors, high barriers to entry, etc.). Goodwill can easily account for a couple of million dollars in valuation". [Being second on to the market is also useful in a sales pitch. The innovator has had to educate the market as to the desirability, functionality etc of a new product or process at its own expense, but second-timers have no such inconvenience].

I'm sure that readers of this weblog will have some comments of their own, so I hereby throw this feature open for debate. Please feel free to post your responses below.

So What Will Branding Look Like in a Small Car World?

2009-10-26T16:03:00.006Z

One of the most interesting aspects of trade mark practice is to deal with the relationship between trade marks and brands. When I had the pleasure to speak last July in India on branding, I dutifully attempted to set out the differences between trade marks and branding. Characterizations of this distinction abound and we did our best to distill them down for the audience. It was all most entertaining, until--during the Q&A afterward-- a person from the trade mark department of a major multinational was asked to what extent she was involved in brand activities at the company. The answer was simple and direct: "Not at all".

Her comment reminded me how both close, yet how removed, trade mark practice is from branding. Trade mark lawyers deal with issues such as likelihood of confusion, source identification, and inherent distinctiveness of trade marks. At the end of the day, however, the trade mark profession is apparently there to serve the further interests of the brand. What the brand manager wants is the assurance that all is quiet on the trade mark front, so that the she can get on with the task of developing and sustaining value in the brand.

I was reminded of this when reading an article that appeared in September 19th issue of The Economist, entitled "Small Isn't Beautiful: The Car Industry." The article described the continuing challenges confronting the automobile industry. From my IP perspective, one particular portion of the discussion caught my attention. There, the article, citing analyst Max Warburton, explained one major set of reasons why small vehicles are less profitable for car companies than are large vehicles, by comparing the small-car Fiat 500 with the sports utility Audi Q7 as follows:

"...[T]he fixed costs are nearly identical, whereas the variable costs of making the Q7 (labour, raw materials, and so on) are only about 10,000 Euros higher for the Audi. Yet the Fiat sells for as little as little as 10,000 Euros, compared with a sticker price of at least 40,000 Euros for the Audi."

The article went on to list three factors that augur in favour of a permanent trend in favour of small vehicles:

(1) The sale of more pricey cars has been encouraged in part by the availability of cheap leasing credit. In addition, there was an anticipation of a high post-lease sales price, which is depressed if too many such high-price vehicles are leased and later put into the secondary resale market.

(2) Baby boomers will more more likely to purchase smaller cars in their later years, because they will require less seating capacity.

(3) Stronger emissions standards will favour small vehicles.

Find the Killer Brand

I have several thoughts on all of this.

1. The article emphasized in bas-relief the relationship between branding and profitability, and the branding potential to leverage variable costs several times over the ratio of variable costs to fixed costs. It is no wonder that branding at the high end of a product line is so coveted. That said, the article also revealed the difficulty of leveraging brands in an environment with a clear (at least to The Economist) trend away from a consumer preference for high-end car products.

2. If it is true that smaller cars will be increasingly preferred, and that the margin on the sale of each such car will be materially less than that earned on the sale of a branded high-end vehicle, then the challenge is how to restructure a successful branding stratgegy in such an environment. In such a situation, there will be in increasing emphasis on unit sales to make up for the loss of profits from decreased high-end brand sales.

3. From the branding point of view, the trick would seem to be to find the right branding for a lower-priced product offered by a company that had previously emphasized a higher-end product in its high end/low end product mix, and had calibrated its brand accordingly. This rebranding effort will need to compete with current brands that are perceived as identifying smaller cars of high value. How this competition of rebranding cars to emphasize smaller vehicles at the lower price range, both at the house mark and model name level, will play out may go a long way to determining the long-term viability of at least some of the companies in the auto industry.

IC Knowledge Center

2009-10-26T09:13:00.007Z

IP Finance doesn't do reciprocal links with other websites, but it's always happy to draw the attention of readers to interesting sites with which they may not be familiar. Last week, following a podcast discussion with Mary Adams, I came across IC Knowledge Center: Information and Ideas on Intellectual Capital, which you can access here. There's a weblog here, but it's part of a more complex site which is maintained on behalf of the international IC Rating Community and is an example of a rather interesting international cooperation between experts in the US and Sweden in the evaluation of the dynamics of an IP portfolio in terms of a business's human capital, relationship capital and structural capital (click here for an explanation of terms) rather than as, eg, a set of dry legal monopolies.

Can One Contract Around a Trade Secret?: Further Comments

2009-10-22T12:51:00.004+01:00

I do not usually follow up a blog post. I will make exception, however, in connection with the blog post of Monday, "Can One Contract Around a Trade Secret"? The Comments received (8 at last count) have been thoughtful, indeed instructive, about the uncertainties surrounding trade secrets and their treatment under various laws. In particular, there appears to be significant divide between the US position (or at least one view of the position), on the one hand, and the English legal tradition on the other.

I urge readers who have not followed these Comments to have a look at them. I would also encourage additional readers to add their Comments to the discussion. I am especially interested in comments from readers who practice under the civil law tradition. Is the position under the civil law more like the US, or English position, or does it stake out a "third way" to understand the nature of trade secret rights?

One thing has become clear: there are many aspects of trade secrets law that do not yield a single answer. We hope to consider further several of these aspects in future blog posts.

Irish make IP-friendly amendments to Finance Act

2009-10-20T10:21:00.006+01:00

In "Tangible Tax Relief for Intangible Assets", written for International Law Office by Aoife Murphy and Robin Hayes (WhitneyMoore), the authors welcome changes in the Irish tax set-up that will benefit intellectual property rights owners.
They explain:

Right: Ireland is taking steps to improve the position of IP rights exploitation

* the Finance Act 2009 introduced wide-ranging tax relief on capital expenditure incurred by companies on the acquisition of intangible assets in order to enhance Ireland's appeal as a location for the development and exploitation of intellectual property; a wide range of IP now falls within the scope of Ireland's tax incentive regime for the acquisition of intangible assets, enabling companies previously not entitled to tax relief on intangible assets to avail themselves of a tax write-off.

* the definition of an 'intangible asset' which qualifies for the relief has been extended and now includes (i) patents and registered designs, design rights and inventions; (ii) trade marks, trade names, trade dress, brands, brand names, domain names, service marks and published titles; (iii) copyright and related rights within the meaning of the Copyright and Related Rights Act 2000; (iv) certain plant breeders' rights; (v) know-how generally related to manufacturing or processing; (vi) sale authorizations in relation to medicines or products of any design, formula, process or invention; (vii) rights derived from research prior to authorization, on the effects of items covered directly above; (viii) licences in respect of such intangible assets referred to above; (ix) any 'non-Irish' right similar to those outlined above; and (x) goodwill which is directly attributable to the items set out above.

The authors then detail how the relief works, explaining that where a specified intangible asset is held for more than 15 years and then sold, there is no clawback of capital allowances unless the asset is sold to a connected company which subsequently claims allowances in respect of the capital expenditure on the asset. They also mention new provisions relating to Stamp duty and the restrictions and (sadly necessary) anti-avoidance measures that seek to prevent abuse of the relief.

The authors' final word on the reforms is this:

"The absence of a wide-ranging tax relief for the acquisition of intellectual property (except for certain cases such as patents and software) was considered to be a problem for some years. It is anticipated that the changes to the tax regime will encourage more companies to develop and exploit intangible assets from an Irish base and should help to increase Ireland's portfolio of overseas investors".

Can One Contract Around a Trade Secret?

2009-10-19T05:42:00.000+01:00

I begin a new teaching term next week and that means two sessions with my MBA students, setting out the basics of IP law, before we delve into the challenges of the IP-managerial interface. I have been teaching IP for a long time and that should mean that there is very little angst connected with this part of the course. Sadly--au contraire! There is one segment of the presentation--trade secrets--that I always approach with the "fear and trembling" usually associated with more existential issues.

Put briefly, at some time during the treatment of trade secrets there is always at least one thoughtful, attentive student who asks the ultimate question--"So why do we need trade secret protection as a separate and distinct right? Surely it can be subsumed into other rights--such as contract and tort--that handle the subject matter." Over the years, I have worked up an answer that seeks to point the advantages of having a separately protectable right for valuable secrets. I was recently pleased to find that my notions about trade secrets were supported as part of a much wider-ranging article by the distinguished IP scholar Mark Lemley, in his most interesting article, "The Surprising Virtues of Treating Trade Secrets as IP Rights", Stanford Law Review, vol. 61, Nov. 2008.

From time to time on this blog I will consider various aspects of Lemley's analysis, because I am firm believer that trade secrets should be viewed more centrally as part of anyone's bundle of IP rights. In this blog post, I want to consider one aspect that has practical as well as doctrinal significance, namely, whether one can contract around trade secrets law (similar, e.g., to the question that arises under copyright law whether one cannot contract away the right to reverse engineer).

Thus Lemley writes:

"In trade secret law, [the question] comes up in three significant contexts: efforts to contract around the requirement of secrecy itself, whether in business disputes or in restrictive employment covenants, efforts to ban reverse engineering by contract, and the question of whether a confidential relationship can be implied absent a contract" (footnotes omitted.)

The rationale for not allowing one to contract away a trade secret right is stated in a footnote to Lemley's article, where James Pooley argues as follows:

"The law relating to trade secrets reflects a balance of public and private interests in the encouragement of innovation, the preservation of ethics and the maintenance of a free marketplace of ideas and movements of labor. The balance should not be upset in any given transaction by private understandings between the parties."

Lemley is a bit more circumspect, stating that "... my inclination is to prevent parties from opting out of particular rules of trade secret law, at least to the extent they rely on trade secret rather than contract remedies."

Sadly, there does not seem to a dispositive answer to this question. In my view, the issue of whether one can contract around trade secrets is a "big thing". I encounter one or another of the three scenarios described by Lemley on a frequent basis and I am uncertain about what to advise if the client asks about the ultimate enforceability of the "contract around" provision. The underlying difficulty is always the same--if there is a broad right to "contract around" the trade secret right, why exactly should trade secrtes be placed in same pantheon as patents, copyright and trade marks"? And while I am still stammering to give a cogent answer on that question, there then follows the ultimate query--"If so why should we be mentioning trade secrets in the same breath?"

I have less than a week to prepare myself for this year's inevitable bout with uncertainty about the answers to these questions. Sharon Sandeen has characterized trade secrets as "the Cinderella of intellectual property law". I am not sure, however, that discussing trade secrets with challenging MBA students is exactly "the ball" that Sandeen has in mind. Any advice will be welcome.

Char Girl or IP Right?

Those IP security interests again: calling all stakeholders!

2009-10-16T16:19:00.002+01:00

Following what was an extremely interesting and constructive seminar earlier this week on the UNCITRAL proposals for dealing with securitised interests in IP rights, the Intellectual Property Office (that's the operating name of the Patent Office in the UK) would like to hear further views from stakeholders on the principal outstanding issues, which we will feed into the next round of negotiations beginning on 2 November.

Right: stakeholder or steak holder? It's difficult to decide after so many 'meatings' ...

To this end the IPO has set up a dedicated e-mail address (uncitral@ipo.gov.uk) and would like to receive opinions and comments on the current draft text by 30 October -- that's pretty close, but time is of the essence. The text of the UNCITRAL proposals can be found at http://www.uncitral.org/uncitral/en/commission/working_groups/6Security_Interests.html

A very short note on the seminar appears here and a fuller report will be produced next week when time permits. Anyone wanting to read the fascinating history of the UNCITRAL proposals, as viewed through the eyes of this blog -- which was founded in response to them -- can read the whole story in reverse chronological order by clicking here.

Oops!

2009-10-16T14:26:00.004+01:00

Some of you may have already received a portion of an intended blog post. The publication of the post was in error and it has been deleted on the blog site. I hope to have the full blog post completed by tomorrow, at which time I expect to show more dexterity in the use of Blogger. Sorry to any of you who wondered whether I had stayed up too late reveling last night.

Denmark's new transfer pricing IP valuation guideline

2009-10-16T03:41:00.005+01:00

Skat's (Denmark's tax authorities) have issued new guidelines on IP valuation entitled "Transfer Pricing, controlled transactions, valuation". Google's handy translation tool will translate the lengthy download in the link for interested readers. Deloitte's summary provides the once over:

"The new guidelines significantly change the generally accepted approaches to valuing individual intangible assets, as well as entire businesses, for Danish transfer pricing purposes. The guidelines focus on forward-looking valuation approaches, which are generally in line with the methodologies followed by most taxpayers. However, the documentation requirements included in the guidelines are broad and extensive and not well-defined. Accordingly, the guidelines should be considered in detail when contemplating IP or business reorganizations involving Danish groups or entities." Deloitte