Patent Litigation, the ITC, and Hardship in the Chip Industry

One of the verities of IP law and practice is "Wilkof's Law". For those of you (probably all of you) who have never heard of "Wilkof"s Law", it goes like this. Question: "How do you know when there is economic slowdown?" Answer: "There is an increase in patent litigation."

A clear example of this principle was described recently on Bloomberg.com (23cDecember 23) under the title--"Chipmakers Hire Armies of Lawyers to Boost Revenues Amid Slump." The report described the efforts of chip (of the computer and not the confectionery kind) manufacturers to make increasing use of patent litigators to try and make up for the expected severe downfall in profits for the industry during 2009. The anticipated drop in revenue for 2009 is indeed grim. According to the report, 2008 witnessed a 4.4% decline in sales, and a 16% crater-like decline in sales in forecast for 2009. Never has the industry experienced back-to-back declines in overall annual sales.

The list of current and possible patent litigation activity is broadly based in the industry. Thus it is reported that Qimonda, LSI and Spansion have all brought patent infringement actions before the ITC. Such actions tend to take much less time than a court action, and they may lead to a settlement with payment made into the patentee's coffers. Particularly notable is Spansion, which is reported to have not recorded a profit since going public in 2005. Licensing fees from defendants is one way to remedy this situation, if only in part.

When licensing fails, going forward with the suit is always a possibility. In one such high profile court filing, Spansion has recently sued Samsung for patent infringement in the area of flash memory chips. As well, Qimonda is reported to crossing patent swords with Seagate Technology, and LSI has commenced patent litigation matter with Freescale Semiconductor and Elpida Memory.

The pros and cons of bringing an ITC action with the intention of reaching a licensing arrangement were described by Robert Krupka of Kirkland & Ellis as follows. On the one hand, an ITC proceeding might actually be more expensive than a regular court proceeding (this is due to the procedural requirements of such action), with costs in the area of $5 million or more. On the other hand, for the target, settlement might be the better part of valor, especially since such an arrangement ensures the target's continuing right to sell in the U.S. market. It would seem that there is a bit of the patent-troll mind-set in all of this, although I suspect that none of the plaintiffs to such an action would so characterize themselves.

Your friendly patent trolls in action

In considering this expected flurry of chip-related patent litigation during 2009, we bring you the following comment from from the Bloomberg article. As noted, "Jerry Sanders, the founder of AMD, used to say, "Real Men own fabs", said Craig Berger.... That's kind of changed. Now it's, "Real men have huge armies of lawyers."

Or, stated otherwise, Wilkof's law is alive and well.

"Real men own fabs"--that is so yesterday ...

Tax incentives for Belgian R&D

IP Finance is pleased to host this short article by Tom Swinnen (Thompson Hine LLP, Brussels) on tax incentives for research and development in Belgium:

TAX INCENTIVES FOR R&D IN BELGIUM

Over 170 biotech companies operate in Belgium, generating more than 16% of the European turnover in the sector, making Belgium one of the most important countries for R&D in the European Union. Belgium has taken several measures to promote investments in Belgium and to create a favourable environment for R&D activities. For the 2008 tax year, a new tax incentive for patents has been introduced which leads to a maximum effective tax rate of 6.8% on patent income. The newly adopted Patent Income Deduction (PID) results in the lowest effective European tax rate on income derived from the licensing of patents or the use of patented products, making Belgium a highly favoured location for foreign investment.

The PID allows Belgian companies as well as Belgian branches of foreign companies to deduct from their Belgian taxable basis 80% of the royalties received from patents resulting from R&D activities. This is intended to encourage all R&D activities in relation to the development or improvement of patents. The main characteristics of the PID and other R&D tax incentives are as follows.

PATENT INCOME DEDUCTION

Eligible taxpayers

The PID is available to all corporate taxpayers in Belgium, in essence all Belgian resident companies and Belgian permanent establishments of non-resident companies. No tax ruling is necessary and the PID applies automatically. The compliance formalities are minor and consist of fulfilling a specific form enclosed with the tax return.

Qualifying patents

The PID only covers patents and supplementary protection certificates, but not any other intellectual property rights. The company must hold a patent right; the PID does not apply before the grant of the patent and is no longer available after the patent's expiry. The patent may be (i) self-developed or (ii) acquired and further developed.

 Self-developed: the patent is totally or partially developed in its research centre(s) in Belgium or abroad.

 Acquired and further developed: the company either acquires the patent from or is granted a licence to the patent by a third party, provided the company further develops the patent in the company's research centre(s) in Belgium or abroad. However, it is not required that the further development results in an additional patent.

The research centre that developed or improved the patent must constitute a branch of activity of the company, i.e. a division of an enterprise that constitutes an independent business unit, and can be located in Belgium or abroad.

The PID is not restricted to Belgian patents but extends to patents valid in other jurisdictions (e.g. U.S., Japanese or German patents). Also, the company does not need to be the sole and full owner of the patent rights -- it can hold a patent together with other companies and the patent can be held on the basis of other property rights, such as usufruct rights.

For the PID to apply, it is essential that the patent has not been commercialized anywhere in the world before 1 January 2007.

Qualifying income

The patent can be licensed to one or more third parties or can be used in the manufacturing process by or on behalf of the company.

 If the patent is licensed, the income consists of licence payments such as royalties, milestone payments and upfront fees. When the parties are related, the royalties must comply with the arm's length principle in order to avoid abuse. To the extent that the remuneration also relates to non-patent intellectual property, only the portion that relates to patents qualifies for the PID.

 If the patent is used in the manufacturing process by or on behalf of the company, it is important to determine how much of the turnover income can qualify for the PID. This will typically be calculated as that portion of the derived income that the company would have received for licensing the patent to an unrelated third party in an arm's-length transaction.

In order to avoid abuse and double deductions, remuneration paid to third parties on acquired patents and the deprecation on these patents must be deducted from the basis of the PID if these costs are already deducted from the taxable result in Belgium. This anti-abuse provision is not applicable to self-developed patents. The R&D expenses associated with self-developed patents should not therefore be deducted from the basis for the PID.

The Belgian PID is not capped.

OTHER TAX INCENTIVES

The PID can be claimed in addition to other already existing tax incentives, such as:

Notional interest deduction

Together with the PID, Belgian resident companies as well as permanent establishments of foreign companies paying taxes in Belgium, can benefit from the Notional Interest Deduction. The deduction equals a percentage fixed on a yearly basis (e.g. 4.307% for tax year 2009) of the equity shown in the balance sheet of the annual account.

Investment deduction and R&D tax credit

Investments in patents and fixed assets used in Belgium to promote R&D are eligible for an increased investment deduction of either 13.5% on the acquisition value or 20.5% of annual depreciations permitted for tax purposes

As an alternative to the investment deduction, a R&D tax credit is granted on qualifying R&D-related investments. The taxpayer must opt for one of the two methods (Investment deduction or R&D tax credit).

Partial payroll withholding tax exemptions

Companies active in R&D can benefit an exemption from payroll withholding tax for researchers (PhD, engineers and master degrees). Recently, the maximum exemption has been increased from 50% to 65%.

Future President Obama and Generic Drugs and Biologics

Investment analysis website Morningstar.com has an interesting article on Yahoo pointing out the effect of one of future President Obama's policies on the finances of pharmaceutical companies. Barack Obama has gone on record as wishing to encourage the use of generic drugs, including generic biologics. His advisors have gone on record as  wishing to speed up approvals of generic drug approvals with the US Food and Drugs Administration (FDA) and also to introduce a new legislative pathway for generic biologics. 

Speeding up the approvals of new generic drugs and biologics is likely to lead to substantial reduction in the value of the patents. The current lethargic FDA approval process in fact leads to effective patent term extensions as generic companies have difficulty in obtaining approval for sale of their drugs on expiry of the patent protection. The value of such patents are therefore enhanced compared to the value that would be expected if products could be put onto the market on expiry of the patent.

Currently the approval process for generic biologics is not yet established. The characteristics of biologics means that the FDA demands full testing, rather than relying on data already on file. This hurdle means that few (if any) generic biologics have been approved - and that it will be some time before generic counterparts to brand name drugs appear. The new administration will continue the work done by the previous Bush administration to put a new procedure in place during 2009. Morningstar point out that this will mean that . Israeli generics company Teva has already welcomed the initiative in a press release before christmas.

Politically the lure of cheaper drugs by increasing the supply of generics once the brand name drugs have come off patent is tempting. The other side of the coin is, however, the reduction of the return on the investment made by the pharmaceutical companies. These depend on the cash flowing in from successful drugs to fund their future research and development. Pushing for greater use of generic off-patent drugs may mean that the US government may have to increase funds for health research to counteract the reduction in R&D dollars spent by pharmaceutical companies.  

Madonna seeks giant privacy payout in UK litigation

The Guardian has reported that pop icon Madonna is claiming more than £5 million in damages from the Mail on Sunday newspaper, which admitted a breach of privacy and copyright infringement following its publication of private photographs of her wedding to film director Guy Ritchie. If Madonna succeeds, she will have created a new UK record for a pay-out in a privacy case (the current record is the £60,000 recently awarded to Formula One boss Max Mosle after revelations concerning his sex life were published in the News of the World).

The singer had accused the Mail on Sunday of breaching her privacy and copyright by publishing pictures of her wedding in the Scottish Highlands, eight years after the event, following news that her marriage to Ritchie had broken down. The wedding was said to have been "wholly private" though the photos were said to have been surreptitiously copied by an interior designer at Madonna's home in Beverly Hills.  The paper is said to have paid just £5,000 for them. A decision from Mr Justice Eady is expected in the New Year.

[Thanks, Birgit Clark, for supplying this information].

Hungary IP valuation conference: the papers

On 27 to 28 November 2008 the Hungarian Patent Office hosted its first Intellectual Property Valuation in Practice Symposium. More information concerning the event can be found here and various presentations can be downloaded too. These are:

Session 1: The demand for IP valuation
"Biotech start-up case study - spin-off company formation and IP" Dr. Imre Kacskovics, Immunogenes, Hungary
"IP valuation and management at Finnish universities" Veijo Ilmavirta, Helsinki University of Technology, Finland
"Managing IP portfolios" Ernő Duda, SOLVO Biotechnology, Hungary
"IP valuation for investors" Alois Peham, Siemens, Austria
"Introduction to IP valuation for transfer pricing" Edgar Ahrens and Eszter Sager,
PricewaterhouseCoopers, Hungary

Session 2: Practical Methodology Best Practice
IP Valuation Methods
"Introduction to IP valuation" Peter Kaldos, Hungarian Patent Office
"Valuation in life sciences: An introduction to the Risk Adjusted Net Present Value method" Ralph Villiger, Avance, Switzerland
"Technology/patents analysis and market factors" Jim Asher, Coller IP Management, United Kingdom
"Patent evaluation for (high-tech) start-ups:An introduction to the relief-from-royalty method" Thomas Schwingenschlögl, TPA Horwath, Austria
"IP Valuation and M&A" Kelvin King, Valuation Consulting Ltd.: a BNP Paribas company, United Kingdom
"IP valuation methods used for litigation and infringement" Rainer Engels, Federal Patent Court, Germany
"Licensing-fee approach for patent evaluation" Peter Pawlek, Austria Wirtschaftsservice

Session 3: IP Valuation Services
IP valuation services presently offered and in the pipeline
"Working with valuers, instructions and due diligence" Kelvin King, Valuation Consulting Ltd.: a BNP Paribas company, United Kingdom
"IP valuation at Avance Gmbh" Ralph Villiger, Avance, Switzerland
"IPSCORE" Nils Omland, PatentSight, Germany
"IP valuation at the Hungarian Patent Office" Peter Kaldos, Hungarian Patent Office
"Market based methods and IP valuation at IP Bewertungs AG" Dr. Ulrike Rehn, IP Bewertungs, Germany
"IP valuation at Coller IP Management" Jim Asher, Coller IP Management, United Kingdom

Session 4: IP Valuation for Taxation, Accounting for IP and IP Valuation standardisation
"Introduction to taxation and accounting standards for IP" Eszter Sager, PricewaterhouseCoopers, Hungary
"General principles of proper patent valuation: The forthcoming European standard" Dr. Alexander Wurzer, Steinbeis-Hochschule, Germany

Thanks, Birgit Clark, for supplying this link.

Patent term

Following Tuesday night's IP Finance seminar on patent and copyright term, I've now obtained a copy of the full set of PowerPoint slides on the financial significance of the duration of the patent term from Anna Feros (Shepherd & Wedderburn). You can peruse them at your leisure here.

Social media websites enhancing goodwill?

Initial findings of a US research study trying to find out more about the power of online word-of-mouth have recently been published.

The study, entitled “The Impact of Social Media on Purchasing Behavior”, commissioned by DEI Worldwide and conducted by OTX, reveals that consumers rely on various types of social media websites (such as blogs and chat rooms) as much as on company websites for product and brand information.

According to the study’s findings, 70% of consumers have visited social media websites in order to get information on a product; 62% of consumers find the information received from a brand representative more valuable than advertisements. The study concludes that companies using social media have a greater opportunity to not only reach more customers, but also to increase their likelihood of making a purchase. Companies should integrate “social media marketing” into their marketing mix in order to successfully engage consumers online and to influence their buying choices.

Online word-of-mouth is also an issue dealt with in a new book by Richard Owen and Dr. Laura Brooks that looks into how to increase customer loyalty. “Answering the Ultimate Question” follows up on the 2006 bestseller “The Ultimate Question” and sheds light on how to improve the overall customer experience.

Innovation and transformation are among the critical components which the metric tool “Net Promoter Score” uses in order to analyse a company’s performance through its customers’ eyes. This includes continued innovation of the customer experience to create competitive differentiation - and activating positive word-of-mouth.

Lego is mentioned as an example of a company that successfully used feedback from its online community to help creating and launching a new product.

More on this book and on “what works” here and here. More on the DEI Worldwide study here. More on word-of-mouth marketing (“buzz marketing”) earlier discussed on this blog here. For some quotes on the value of word-of-mouth click here.

Damages for observing patent injunction

From the 3rd edition of LECG's UK Newsletter comes this little insight into the deployment of a financial consultancy in intellectual property litigation, in Les Laboratoires Servier and another v Apotex Inc and others [2008] EWHC 2347 (Ch), heard on 9 October by Mr Justice Norris and briefly summarised here and here:

"... Our UK case highlights include being instructed by Taylor Wessing to calculate Apotex UK Limited’s damages as a result of an injunction they had observed. For a period of 11 months, Apotex was injuncted from selling a particular generic drug, because of claims of patent infringement brought against it by Servier, which manufactured the branded version of the drug. Apotex had always contended that the patent was invalid, and when this assertion was subsequently validated by the Court, Servier was liable for the damages suffered by Apotex as a result of the injunction.

Apotex won a substantial damages figure of £17.5M. ... The amount of interest awarded was also a matter of contention, and in a separate hearing, Norris J awarded a further £2.1M in interest. In respect of the interest calculation, Norris J deemed the Apotex parties ‘substantially right’.

Of particular interest in this case were the market dynamics, which were specific to the industry in question. The interaction between ‘branded’ drugs, ‘generic’ drugs and ‘authorised generic’ drugs (sold as generics under authorisation of the original patent holder) played a part in the formation of the ‘but-for’ scenarios. The market dynamics were important to every aspect of the case, but in particular (i) the role of potential market entrants, in the (hypothetical) absence of the injunction and (ii) the extent to which the injunction affected Apotex in perpetuity".

This looks like a great victory for LECG, but it should not be forgotten that the calculation of damages for failure to be allowed into a market still remains a largely conjectural exercise. As the judge said at para. 60:

"Recognising the imprecision inherent in the exercise but the precision of some of the assumptions used I have then stood back and compared that sum with the £74 million Servier earned during the period of the injunction to which it was found ultimately not entitled, to the £11 million which it paid to AG2 to keep it out of the market, and to the $20 million paid to G4; and I have asked myself whether in the round this sum overcompensates Apotex for the loss that it has suffered, reminding myself that the jurisdiction is compensatory not punitive. The range of figures presented for my consideration went from £400,000 (Servier) to £27 million (Apotex). I am satisfied that my figure is broadly right, though I would propose to round it down to £17.5 million to underline the fact that one can only do broad justice where there are so many significant variables. £17.5 million is accordingly the figure which I award as compensation on the enquiry".

How much is public performance of a sound recording worth?

A post on the IPKat weblog earlier today deals with the valuation of copyright in Australia. Professor David Brennan (University of Melbourne, Australia) has made available some very helpful and revealing slides that deal with two Australian Copyright Tribunal cases -- Audio-Visual Copyright Society (t/a Screenrights) v Foxtel [2006] ACopyT 2 and Re PPCA [2007] ACopyT 1 (which deals specifically with public performance rights in sound recordings). In both cases, survey evidence of consumer valuation of copyright was adduced, with wildly)varying results! You can read the slides here.

The Big 3 and green innovation

With the discussion on how to rescue General Motors, Ford and Chrysler still ongoing on Capitol Hill – although some short-term loans apparently are already secured (check out news here and here) - James E. Malackowski,
CEO of Ocean Tomo LLC, warns that top consideration should be given to the significant potential of the “Big Three” technologies for stimulating economic and job growth.

These technologies are not only vital for the automobile industry; they also influence other sectors, such as the advanced battery industry, or fuel cell production vital for military applications.

Malackowski warns that the bankruptcy of any or all of the Big Three would create a historically unique opportunity for foreign competitors to acquire a vast amount of US “crown jewel technology” for a fraction of their true value. A look at key patent portfolios of the Big Three (e.g. patents for hybrid and electric vehicles) makes this clear: Ford and GM together hold approximately a third of all green technology patents; GM alone holds 70% of the patents in the emerging technology category.
Like no other industry sector, the Big Three have the resources (and the incentives) to invest in required R&D. Losing these (green and clean air) technologies would also mean a serious setback in addressing climate change and energy efficiencies.

For Malackowski on the Big Three see here. More on the current rescue plan negotiations here and here; more on high-mileage vehicles here; and more on (Ford) green collar jobs here.

Life sciences and valuation -- a new book

Via Technology Transfer E-News comes a report that the co-founders of Avance, a life sciences valuation firm with offices in the US and Switzerland, has published a guide to life sciences valuation that contains useful information for business development and licensing professionals as well as TTOs, researchers and investors.

Boris Bogdan and Ralph Villiger, in Valuation in Life Sciences: a Practical Guide (Springer, 2008, 334 pp.), explain how to translate characteristics of drug and medical device development into valuation, also furnishing industry data. The authors emphasise the utility and realistic outcomes of proposed methods of valuation by including many practical examples, including some complex licensing and company structures. More details of the book can be viewed here.

European TM dilution and economic analysis

An email circular released today by Deloitte and authored by Elizabeth Gutteridge reviews the economic consequences of last week's European Court of Justice ruling in Intel v CPM (for details of the decision see here and here). This was the ruling in which the ECJ ruled that Intel could not automatically prevent third parties applying identical or similar trade marks to dissimilar goods (in this case INTELMARK for telemarketing services): Intel could only succeed in its trade mark dilution claim by furnishing evidence of injury or serious risk of injury to its mark. According to the court, in order to prove dilution, the mark owner must show evidence of a change, or serious likelihood of a change, in the economic behaviour of the average consumer of the goods or services for which its mark is registered. In terms of the economic implications of this ruling, the circular states (with good cause):

"As a result, clients and their legal teams will be faced with a series of potential evidentiary and analytical challenges .... Mark owners wanting to demonstrate dilution will need the support of robust financial and economic analysis. Consideration may need to be given to the following:

• Market analysis to define the competitive markets within which each party operates;

• Assessment of the hypothetical economic behaviour that would have occurred absent the third party’s use of the mark, compared with the actual position;

• Sales data analysis to understand the extent of market penetration of both marks and

• Identification and isolation of the impact of third party use on brand values".

The cost and effort that will go into this are awesome, particularly in the case of Community trade marks where the characteristics of the parties' respective markets may differ substantially between EU Member States (for example, beers and lagers in Northern/Southern Europe) and where the claimant's mark is not used alone but in combination with one or more additional trade marks (impact assessment for dilution of the Coca-Cola word mark and the distinctive curvy bottle would demand different parameters).

On the facts of INTEL/INTELMARK the assessment of the impact of changes in consumer behaviour is even more complex because Intel's mark attracts consumers on three levels: makers of computers that contain its microprocessors, retailers that choose to stock it and the purchasers of the ultimate product. There are other costs too, particularly the establishment costs of hours spent in non-profit-generating discussions with lawyers, economists, market survey consultants and business experts. Would it be too much to guess that the situations in which the cost to the trade mark owner of bringing a dilution claim will not exceed the benefit of that uncertain course of acton must be few and far between.

Patent Insurance: a financial prescription for neglected diseases?

IP Finance is hosting a guest posting from Itaru Nitta (Chair, Green Intellectual Property Project (http://www.greenip.org/), Geneva, Switzerland). It is titled "Patent Insurance: a financial prescription for neglected diseases?" and it runs as follows:

"On November 19th, the World Health Organization appointed the expert working group as a response to the Global Strategy and Plan of Action on Public Health, Innovation and Intellectual Property (IP) adopted at the World Health Assembly this May. One of the group's main tasks is to find new funding mechanisms fostering needed medical research on neglected diseases and ensuring unimpeded access to necessary meditations irrespective of commercial profitability for developing nations.
The working group would likely find an answer with the Patent Insurance scheme being proposed by Geneva-based IP consulting group Green IP Project to impose an extra official fee on patent applicants and holders as a form of insurance premium, and to establish a trust fund that would finance the compensation of technology transfer costs, particularly royalty assumption, and other subsidies for purchasing patented medicines in developing counties, as well as a wide variety of funding proposed for need-based research for public benefit rather than profit motive, including medical grants, prizes, treaties, public-private partnerships, advance market commitments, market exclusivities (orphan drug schemes) and tax credits.

These financial assistances would convince society of the wisdom of patent, resulting in upholding the efficiency of the patent regime against recently growing the global criticism over the patent protection of essential medicines and resultantly diminishing societal trust over patent. In other words, the extra fee would serve as a "premium" for defending patent rights against the risk of compulsory license and other safeguard flexibilities which the worldwide anti-patent protest has increasingly justified, and resultant erosion of the entire patent system. Consequently, the dual benefit of the premium not only for developing nations in the financial aids but also for developed nations in ensuring patent rights would readily build consensus by developed nation patentees on their burden of paying the patent premium.

Such premium would be an additional weight for patentees in the traditional balance of public interest (innovation disclosure) and private right (patent monopoly as a reward for the disclosure) in the patent legitimacy. In the sense of economics, the patent premium would serve as a kind of "green taxation" to facilitate market incorporating its failure that patent protections generate in society, while maintaining the major function of patent to enhance knowledge pie in society through innovation disclosure, suppression of corporate secrecy and capital concentration for further innovations.

Since the Patent Insurance scheme would be embedded in the existing patent system, the scheme would possess a substantive and sustainable financial scale (possible annual revenue: up to several tens of billions in US dollars) due to enormous amount of both quantity (e.g., filing number) and quality (e.g., subject matter) in the present patent system worldwide.

The scheme would also equip to prevent the burden of paying the premium from inflating the price of patented medicines by two measures: the translation waiver and reduced price of official fees.

Under the translation waiver, patent applicants would no longer need to file an application translation with a local patent office once they paid the patent insurance premium. This waiver of translation would compensate or even outweigh the financial load of the premium because application translation accounts for a significant proportion in the costs of obtaining a foreign patent (roughly speaking, the total cost for a single foreign application is US$10,000 and its translation costs usually US$3,000 or more). The translation waiver would be supported by considerable improvement in computer translation, allowing a patent office to examine an application without a human-conducted translation or even by utilizing such translation of limited portions (e.g., only claims and relevant descriptions in a specification).

In addition to computer translation, another technical progress in examination of patent applications would offer a discounted official fee for those who have already paid the premium. This lowering would be brought about by streamlining examination by means of emerging technologies for identifying and measuring innovations. These tools would include information & communication technologies, highly-evolved patent-mappings and other intelligent methodologies.

Besides the scheme's original functionality of insuring patent, the financial advantage of the translation waiver and discounted official fees would further facilitate an agreement by patentees and industries in developed countries on paying the patent insurance premium.

The Patent Insurance scheme would no longer regard the patent as a mere innovation protector, but rather as more like a pro-active financial driver of funding for the largest overall benefit in society".

If you'd like further information about Green Intellectual Property or want to make any comments on this piece, you can email Itaru here.

The Music World: More than Copyright and Licenses

In thinking about the music world, we usually divide it into two parts. There are the lofty heights of musical creation (aka copyright), on the one hand, and the less elegiac world of commercial exploitation (aka licensing), on the other. Listening today to a podcast on the life and works of Duke Ellington, the legendary US composer and orchestra leader, reminded me that there is an essential space in the music world that bridges copyright and licensing, in which neither copyright law nor unabashed commercial considerations prevail.

The podcast about Duke Ellington was one in a regular series--"Jazz Profiles"-- produced by the U.S. National Public Radio, and it took me back 40 years to a smallish hall in New Haven, Connecticut, where this author, as a college student arriving from the wilds of the American Southwest, somehow found himself at a concert given by the Duke Ellington Orchestra. It was one of the unforgettable experiences where musical legend was melded with the musical experience of the moment, and the memory of that evening provided the impetus for my jazz odyssey from that time to the present.

What struck me in the podcast was a brief description of two aspects in connection with Ellington's musical creations, particularly in the 1930s and 1940s. The first aspect was an observation that, at that time, Ellington preferred not to reduce at least some of his musical compositions to writing, for fear that it would ease the task of would-be imitators. So he urged his orchestra members to memorize the musical work at hand.

In other words, Ellington had turned copyright on his head, seemingly using trade secrets to try and protect at least some of his musical works. What an interesting notion--musical as artistic confidence. Reverse engineer my musical creation, if you like!

Try to reverse-engineer this!

The second aspect addressed the complex relationship between Ellington and his orchestra members about their role in the composition of his works. Apparently, Ellington made liberal use of the musical input of his musicians, usually without adding them as "co-composers" of the resulting work. According to the podcast, some grumbled, some settled for monetary compensation, and some seemed to receive credit of some kind.

We can teach students all we want about copyright ownership and attribution, but the reality of how ownership and attribution play out reveals a degree of complexity that pure law cannot capture. This is especially so when music becomes more of a collective activity, where the composer is also the arranger and also the orchestra leader. The genius of 18th and 19th century composer gives way to more complicated relationships between multiple actors in the creation and performance of music. In that space, neither copyright nor licensing is fully informing.

Over-defended IP action -- who pays the costs?

Who pays for the cost of intellectual property litigation (here, copyright) where the successful defendant in what might be regarded as a test case effectively "over-defends" by unnecessarily raising several issues each of which went against the otherwise successful defendant? In Peer International Corporation, Southern Music Publishing Co and Peermusic (UK) Ltd v Editoria Musical de Cuba [2008] EWCA Civ 1260 the Court of Appeal for England and Wales (Arden LJ, Lloyd LJ, Moore-Bick LJ) held yesterday that the trial judge had been correct in deciding to make no costs order at all. Although his decision was described as "unusual", it was supported by the judge's reasoning.

The costs of the case were no doubt increased by the need to argue the various issues for two days before the Court of Appeal itself.

Recession...what recession?

A quick review of the trade mark filing statistics in the US and EU illustrates that there is not (yet) evidence of a slowdown in the investment in trade mark filings. The USPTO 2008 Annual Report reflects that over 300,000 trade marks were filed in the US for the financial year ending 30 September - another record year. The EU stats released by OHIM and accurate to 12 November 2008 reflect that Community Trade Mark filings are on course to match last year's figures - a record year too.

Of course, it is difficult to discern filing trends over the past six weeks from these figures and there will inevitably be a lag period if filings drop in the face of adverse economic conditions. However, it is not as if there has been upbeat financial news over the past 12 months, particularly in the States, leading one to think that filings are quite robust. If this growth continues despite the poor economic outlook for 2009 then perhaps it is a sign that companies are preferring to spend their money on defensive filings (as opposed to litigation) or that brands are being squeezed into new categories (requiring news filings) to generate revenue or that simply, the trade mark business just keeps growing. That said, as GDP growth levels drop (even into negative territory) one cannot help but feel that trade mark filings (traditionally symptomatic of growth) will do so too. The dot com crash, for example, saw a 15% drop in filings in the EU which took a three full years to recover, between 2000 and 2004.

DHL and Tiger Woods; Sport Sponsorships in Turmoil

What happens when when globalization meets sports sponsorship meets economic turn down? The recent announcement of DHL regarding its continuing sponsorship of Major League Baseball in the US (what we call "MLB") is an interesting case in point.

According to a November 18th article in Bloomberg.com ("MLB Holds Talks with DHL over Sponsorships After Exist from U.S."), the discussions between MLB and DHL arose after DHL, a unit of Deutsche Post, announced that it was withdrawing from the U.S. express delivery market. It was reported that DHL fired 14,900 employees and shut down 3/4 of its outlets due to a lack of commercial success in competing with UPS and FedEx in the U.S. market. As a result, DHL will focus only on international deliveries from the U.S.

It appears that DHL sponsors a number of baseball teams--including Cincinnati, Los Angeles, San Francisco, (my beloved) Cleveland Indians, New York (Mets) and Atlanta for various periods through the year 2010. DHL also sponsors an award for excellence for a particular position of baseball, namely the relief pitcher (for you non-U.S. readers, you can find more about that position here). DHL also highlighted baseball players in its commercials, with a thematic tie-in between the players and the ad contents that only a U.S. native could appreciate.

Relief Pitcher: Vermeer style

So we have an interesting marketing question. As DHL withdraws from the U.S. marketplace, what is the value in being associated with a quintessential U.S. sport? DHL did not indicate that it intends to take any current steps to refashion its promotion relationship with MLB, if for no other reason that to avoid the potential damage to its goodwill that might follow from a midstream unilateral change in its sponsorship. Still, one wonders how much bang for its buck DHL can get from promoting overseas delivery services via sponsoring baseball games for the denizens of say Cleveland (my home town, by the way), Cincinnati or St. Louis? Do I detect a possible renegotiation of sponsorship rates?

If Kodak will apparently cease to sponsor the Olympics after the current Beijing Games, it is difficult to imagine how DHL will find much benefit it continuing to sponsor MLB in various forms after the current agreements come to an end. However, views have been expressed that seem to suggest that DHL might be well-advised to refashion its relationship with MLB, but not terminate it in its entirety. We can only wait and see.

Less complicated to understand is a short item that appeared today, also on Bloomberg.com. Entitled "GM, Tiger Woods to End Nine-Year Endorsement", the gist of which is clear from the title. In fact, while Wood's contract was set to run through 2009, the relationship will conclude at year's end. Two quotes from the article say it all:

"We began speaking with Woods earlier this year," Ternes [ a spokesman for GM] said in an interview. "He expressed an interest in growing his own Tiger brand and we have been looking for market savings."

Or, as noted by an advertising executive: "This is something you kind of expected that they had to do."


The Tiger on the Prowl for a New Sponsorship

Inherited IP: benefits and burdens

TMG Strategies ran an article earlier this month, "Bequeathed IP: The gift that keeps on giving", which asks "much money can IP earn after the inventor has passed away?" The article focuses on the case of the late, great Albert Einstein, whose bequeathed IP earned a reported US$18 million for the Hebrew University of Jerusalem last year. It also mentions what can be regarded as a substantial downside, in that the beneficiary receives not only the chance of a long, strong income stream but also -- at least in the case of image rights and copyright -- an ongoing need to police and enforce those rights. The cost of this should be factored into any budgeting before the licensing royalty income is carved up and allocated to worthy causes, if the IP is not to cause internal accounting problems and possible shortfalls at a later stage.

No interim relief for "non-urgent" collecting societies

On 14 November, in Cases T-398/08 R Stowarzyszenie Autorow ZAiKS v Commission Competition, T-401/08 R Saveltajain Tekijanoikeustoimisto Teosto v Commission, T-410/08 R GEMA v Commission Competition; T-411/08 R Artisjus v Commission Competition and T-422/08 R Sacem v Commission the Court of First Instance of the European Communities dismissed an application by several national copyright collecting societies to suspend the effect of a European Commission order pending their appeal against it. The applicants, music-royalty collecting societies from France, Germany, Hungary, Finland and Poland, failed to convince the Court that there existed any urgent need to lift the order before the court rules on their appeal. It was in July that the Commission ordered that songwriters should be allowed to choose which collecting society manages the licensing of their copyright works. Broadcasters may benefit if large collecting societies, such as France's Sacem, have to cut royalty charges in order to compete with smaller agencies. While the Court phrased its decision in terms of lack of urgent need for relief, it also had this to say (in Artisjus -- the cases are available in a variety languages: Artisjus is available in English):

"The applicant for its part has not produced any figures ... to demonstrate in any other way the seriousness of the alleged financial damage by showing that the ‘online’ field represented the great majority of its income. Such detailed figures, which were within the applicant’s power, should already have appeared in the application for interim measures itself. Such an application must be sufficiently detailed in itself to enable the defendant to prepare his observations and the judge hearing the application to rule on it, where necessary, without other supporting information, and the essential elements of fact and law must be apparent from the application for interim measures itself".

This indicates that the burden faced by any IP-based business that seeks to suspend a Commission order relating to its business operations is a substantial one: actual financial damage must be shown. This stacks the odds against the business itself, since figure[based evidence is always historical while the damage which the business seeks to prevent, through suspending the order, is going to be felt (assuming it exists) in the future. Where the market is a dynamic one that is subject to rapid and sometimes unpredictable changes, the evidential burden will presumably be rarely met, if at all.

Liability for off-patent drugs made by others: an insurable risk?

"Liable For Generics? You Are Now!", posted on Corante, discusses the recent legal ruling in California in Conte v Wyeth. This case involved metaclopramide, sold by Wyeth as Reglan before going off-patent in 1982. Conte was prescribed the generic version of the drug, contracted a rare and serious neurological side effect and sued Wyeth, the original producer of the drug, rather than the drug's manufacturer. The Court ruled:

"We hold that Wyeth’s common-law duty to use due care in formulating its product warnings extends to patients whose doctors foreseeably rely on its product information when prescribing metoclopramide, whether the prescription is written for and/or filled with Reglan or its generic equivalent. The risk of harm to such a patient is foreseeable to Wyeth. To hold otherwise in this case would ignore the reality of the breadth and effect of Wyeth’s representations in modern commerce and depart from firmly established principles of fault based tort liability".

Plenty has been written about this decision and even more is likely to be, but I'm just confining myself to one small point: is liability of this nature the sort of product liability in respect of which original drug manufacturers would be insured under existing policies and, if not, would it generally be regarded as an insurable risk -- and at what cost?

ECJ hearing on royalty payment reference

There was a hearing today before the Court of Justice of the European Communities in Case C-533/07, Falco Privatstiftung and Thomas Rabitsch v Gisela Weller-Lindhorst, a reference for a preliminary ruling lodged just over a year ago by the Oberster Gerichtshof (Austria). The questions referred are as follows:

"1. Is a contract under which the owner of an incorporeal right grants the other contracting party the right to use that right (a licence agreement) a contract regarding 'the provision of services' within the meaning of Article 5(1)(b) of Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (the Brussels I Regulation, OJ 2001 L 12, p. 1.)?

2. If Question 1 is answered in the affirmative:

2.1. Is the service provided at each place in a Member State where use of the right is allowed under the contract and also actually occurs?

2.2. Or is the service provided where the licensor is domiciled or, as the case may be, at the place of the licensor's central administration?

2.3. If Question 2.1 or Question 2.2 is answered in the affirmative, does the court which thereby has jurisdiction also have the power to rule on royalties which result from use of the right in another Member State or in a third country?

3. If Question 1 or Questions 2.1 and 2.2 are answered in the negative: Is jurisdiction as regards payment of royalties under Article 5(1)(a) and (c) of the Brussels I Regulation still to be determined in accordance with the principles which result from the case-law of the Court of Justice on Article 5(1) of the Convention of 27 September 1968 on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters (the Brussels Convention)?"

Does any reader know what this dispute is actually about? It's rare for cases involving IP licences to reach the upper echelons of European jurisprudence unless they concern market division, abuse of dominant position or some other competition-related issue. But this case looks as though it's about something to do with a licensor suing for his royalties and finding that jurisdictional/enforcement problems are barring his path. Any information, particularly from this blog's Austrian readers, would be welcome.

IP management and UK universities -- aims, objectives, incentives

Right: university researchers try to create a new policy for IP exploitation under laboratory conditions

IP Finance has received this note from Professor Ruth Soetendorp, Associate Director of Bournemouth University's Centre for Intellectual Property Policy & Management (CIPPM):

"Prof Paul Wellings reported last week on IP management and UK universities. His report, which examines intellectual property and universities, is one of a number commissioned by John Denham, Secretary of State for the Department of Innovation, University and Skills. The successful creation, management and (commercial) use of intellectual property created by members of the academic and research community are goals shared by government and institutions. Wellings identifies barriers to achieving that goal:

(a) an overemphasis on IP when universities and businesses work together on collaborative research projects;

(b) a lack of clarity on the primary aims of collaborative research (i.e. is it to generate income for the university, or a wider benefit for the economy?) and

(c) a rather variable implementation of good practice in negotiation.

His suggested means of surmounting those barriers include:

* DIUS to make a clear statement about the purpose of research commercialisation;

* Her Majesty's Treasury to continue the 'Roberts Funding' for postgraduate students and post-doctoral researchers to acquire additional transferable skills, including commercialisation of research, which covers IP awareness and competence;

* Universities to ensure their IP policies do not act as a disincentive for enterprise development.

Other recommendations highlight the importance of good working relationships within universities and research institutions, between their senior management and their knowledge (or technology) transfer offices, including

* Identification, exploitation and protection of IP to be promoted with a view to maximising socio-economic benefits;

* Appropriate incentives to be provided to help staff play an active role in IP creation and exploitation;

* IP management procedures to be published;

* Resources to be pooled at local or regional levels to build knowledge transfer critical mass.

Of concern to this writer is that the report contains the recommendation that "students to be properly informed (about intellectual property concepts) before assigning IP ownership to their institution", while falling short of suggesting exactly HOW students might be 'properly informed' on IP matters".

My concern is that different IP rights should be recognised as being of quite a different nature and that they should not be lumped together. For as long as policy-makers persist in talking about IP rather than sector-specific creation and exploitation of legally unique rights, they will continue to miss the mark.

Non-reliance clauses in UK franchise agreements: how effective are they?

Intellectual Property Office carried a recent article by UK solicitors Richard Little and Vanessa Smith (Eversheds), "Franchise Agreements: How Effective Are Non-reliance Clauses?". This item explains that, should the relationship between franchisor and franchisee break down, the failing franchisee often alleges that the franchisor mis-sold the franchise by understating the risks of the business:

"This can trigger an examination by both parties of what exactly was said by the franchisor to the prospective franchisee in pre-contractual discussions, on the basis of which the latter decided to enter into the franchise agreement. The franchisor should be confident that the information given to the prospective franchisee at that stage was entirely accurate. However, in the event of any doubt, a franchisor may well point to any non-reliance clause in the franchise agreement. Non-reliance clauses are commonly used to seek to limit the franchisor’s liability for any representations made to a prospective franchisee except those expressly contained in the contract, and may state that the franchisor makes no representations or guarantees as to the profitability or any other aspect of the franchise business".

The article then goes on to discuss, among other things, the ruling of Deputy Judge Richard Seymour QC, the High Court for England and Wales, in Peart Stevenson Associates Limited v Brian Holland, a case arising out of a franchise for The Power Service.

I found myself thinking that the representation by the franchisor that a franchise can be expected to generate a specific range of income is not merely a representation of probability with regard to the earnings of a business format -- it's also a form of self-assessment intellectual property valuation, placing a value in terms of earnings on the combination of brand name, know-how and other IP elements that may be combined with the rest of the business proposition. Do any readers of this blog have any special interest or expertise in business format franchise-related IP valuation, either in respect of the value of the franchised brand as a whole or in terms of the value to the franchisee of buying into an existing branded franchise rather than investing in its generic equivalent?

IP and the credit crunch: hot topics for the financial freeze

Here's a little list of hot topics that was put together by someone doing a little research into one of my favourite topics -- the impact of the current credit freeze on various aspects of IP. The list

1. Technology: Open Source reduce upfront costs; outsourcing creates savings -- so both those sectors should fair well in recession.

2. Intellectual property transactions: there will be a continued focus on IP liquidity, i.e. buying, selling, licensing and litigation of IP (in particular patent assets).

3. R&D: tax credits will make R&D attractive -- but will R&D budgets be cut? In many sectors, e.g. pharma, this may be the last thing to go, but might others look to reduce overheads by "pruning" their patent portfolio?

4. Venture capital: Many IP generative businesses depend on external finance and funding to bridge the time between creation and exploitation. The economic climate will restrict that funding and make it difficult for many of these young businesses to survive -- which will have a major impact on the innovation pipeline into the future.

5. Managing risk: everyone is looking to maximise the potential of what they have. For all IPRs (especially patents and brands) this commonly depends on a range of third party contracts, i.e. licences, franchise agreements, collaborations, sponsorships. All these agreements are scrutinised for issues such as royalties, change of control and insolvency. Those companies with robust agreements will be better placed to weather the storm.

If you'd like to comment on these, or add your own, please feel free to do so.

Copyright valuation -- any good reading materials?

I've received an email from a student who writes:

"I am currently doing an academic research on the subject of Intangible Assets Valuation. I could find a lot of information regarding this subject, but I barely found any information related to Copyright Valuation. The only article that I found was in Willamette website: http://www.intellectualpropertyanalysis.com/article3.html

Could you tell me if there is more bibliography on this particular subject? I would be very appreciative. Thank you in advance".

Can anyone assist? From the email I originally received, I suspect that English is not the student's first language. So if you know of good materials written other than English, please mention them too.

University technology -- sharing the rewards

Via the often-pertinent Tech Transfer E-News comes this little piece from The Star Press entitled "Ball State royalty-sharing policy proposal worries students".

Left: there is more than an academic interest in keeping an eye on the Ball ...

In relevant part, this article states:

"A proposed policy change at Ball State University has some students worried the university will take their hard-earned money if they develop a marketable product using Ball State resources. The proposed revision to the ... school's technology and intellectual property policy, which was presented to students and faculty after being developed by a university task force, increases Ball State's share if a student or faculty member who used university resources for a project sells a property to a commercial entity.

Existing policy gives the first $1,500 to the inventor or author, then all direct costs are recouped by the university. The remaining royalty revenue is then split 50/50 between the author or inventor and the university. Under the proposed revision, 10% of revenues would go directly to the TTO. Then 30% would go to the university, 30% to the author or inventor, and 30% to the department up to a $30,000 annual cap. The amount over $30,000 would go back to the university in support of the intellectual property.

The committee making the proposal says it would bring Ball State in line with a majority of U.S. universities. Nancy Carlson, chair of the policy committee, ... [said] "someday, something's going to strike it big," ... And if someone strikes it big after they've used thousands of dollars of university equipment and resources, a fair share of royalties should belong to the university. "You've got to plan for the big one that hasn't happened yet," she said".

On 19 March 2009 CLT is hoping to put together a one-day conference on IP and the educational sector. This sort of issue, and how it's handled/ignored in Europe, should feature somewhere on the programme which I'm helping CLT to develop. If you'd like to be kept informed about this, email me and let me know.

Forthcoming meeting: IP term

The IP Finance weblog is pleased to announce the next meeting of its readers and supporters. The subject is "IP term: what it means in finance terms", a discussion on the financial implications of the duration of intellectual property protection. Anna Feros (a senior associate at Shepherd & Wedderburn) will be speaking on patent term, while John Enser (partner, Olswang) will talk about copyright term.

Right: a wallclock -- the best way to enjoy the countdown to a competitor's patent expiry

As is traditional at these events -- which are free -- the speakers will not speak for too long and there will be excellent opportunities for networking.

The date: Tuesday 16 December
The time: 5pm till 6.30pm
The venue: Shepherd & Wedderburn's London office (address and directions here)
If you're planning on coming, email Anna Feros here so that we can all be forewarned.

Russia’s 40 most valuable brands

Familiar with companies like CTC or PIK?

If not yet, read up on them in Interbrand’s fourth annual ranking of the 40 most valuable Russian brands.

Interbrand, in cooperation with Kommersant DENGI magazine, looks behind the numbers, presenting the top 40 Russian brands of 2008 arranged by their brand value, the dollar value of a brand, calculated as Net Present Value (NPV) or today’s value of the earnings the brand is expected to generate in the future.

The telecom sector tops the ranking with Beeline and MTS. From a pure value point of view, Interbrand explain that these two companies would fit in the Best Global Brands around rank 50.

From the 40 brands featured, only six come from a pre-soviet era - with two prominent new entries in the automotive sector (LADA and KAMAZ).

The ranking can be accessed at the Interbrand website.

Funding patent litigation -- do ATE and TPF really work?

The November 2008 issue of Patent World, published ten times a year by Informa, features a piece entitled "Keeping Costs Low: how to hedge the risk of expensive litigation" by James Delany. James is a director of specialist brokers TheJudge, described in the journal as the largest independent litigation risk transfer broker in the UK. After reviewing the concepts of after-the-event insurance (now usually referred to as "ATE") and third party funding ("TPF") his article concludes:

"If a client has a good case there is a good chance that client can offset anywhere from 50-100% of the cost risk, typically at no upfront cost and at no cost if the case loses. Once that's the accepted principle an exploration of what is potentially available for that particular client can be made, taking into account the client's financial position and their appetite to take risk".

I'd very much like to receive comments from readers who have direct experience of ATE or TPF -- and I'd also like to know what happens when, in terms of risk assessment, the dispute coming up for litigation is a real 50-50% call. Do let me know, by posting a comment below or emailing me here.

Disney goes for the high end

Thank you, Miri Frankel (Beanstalk), for this link to this piece in the New York Times last week on leverage of the Disney brand in terms of product merchandising.

Right: some consumers may now find Disney products a little 'deer' as compared with their former pricing

Remarkably, while the most expensive piece of clothing sold by the Walt Disney Company six years ago was a US$75 sweatshirt embossed with a mug shot of Mickey Mouse, the company now sells US$3,900 designer wedding gowns — which do not portray any Disney characters — as well as US$2,800 leather club chairs and US$6,000 chandeliers patterned after the Art Deco décor in Walt Disney’s former office. It seems that Disney has become a "lifestyle brand".

The article sets out Disney's high-end game plan. It has been working with the likes of Paul Smith, Vivienne Tam and Dolce & Gabbana, who created a US$1,400 sequined Mickey Mouse T-shirt. It concludes:

Designers say they have been impressed with the willingness of the famously guarded company to take chances. Charlotte Tarantola, a Los Angeles designer, said she decided to do a limited collection based on “Snow White and the Seven Dwarfs” in part because Disney allowed her to explore “the darker, very adult side of the fairy tale.” As the proprietor of a small company, Ms. Tarantola was eager to piggyback on the Disney name. “Anyone who is alive today has been touched by Disney in some way. If becoming partners with them can help my business, far out.”

Although this form of leverage has worked on the Disney brand, it may be difficult for other children's entertainment-based brands to do likewise. The consistency and stability of Disney's branding, across fictional and real characters, film products and leisure complexes, together with its remarkable longevity, have created an asset that is deeply embedded in the consciousness of a generation of consumers who wish to relive pleasurable childhood experiences and who fear the consequences of age and responsibility. How many equivalent brands have the same effect?