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?

GM and Chrysler: What about the Brands?

Living as I do on the Eastern littoral of the Mediterranean, I have become an avid listener of podcast programs on my iPod. The juxtapose of two podcast programs last week on Bloomberg radio raised some interesting questions about the role of product brands in light of the continuing economic troubles at GM and Chrysler.

In the first podcast, Edward Altman, professor of Business at NYU and a recognized expert on distressed companies, argued in favor of GM declaring for bankruptcy under Chapter 11 of the U.S. bankruptcy laws. The purpose of chapter 11 is to allow a company to enjoy court protection under a detailed code of statute and regulation with the ultimate goal of enabling the company to get back on its economic feet. In Altman's view, Chapter 11 would serve GM well because it would allow it to continue to operate its business and to take advantage of certain provisions in the law that would make it easier for GM to raise financing during the bankruptcy process.

In the second, John Casesa, an authority on the automobile business, opined on the fate of brands in the event of a GM-Chrysler merger. He suggested that if such a marriage takes place, the combined company will likely jettison certain brands while leaving on the most robust brands in tact, such as JEEP from Chrysler and CHEVROLET from GM.

GM AND CHRYSLER: A SHOTGUN WEDDING?

The comments of Altman and Casesa put me to thinking. Let's say that GM does seek chapter 11 protection (the possibility of which was vigorously rejected again this weekend by the CEO of GM). How likely is it that GM could come out of the proceedings with at least its most valuable brands in tact? Are the two companies better-positioned to preserve at least the most valuable brands as a combined company?

A couple of initial thoughts. I note that many of the major U.S. air carriers have been in chapter 11 proceedings at one time or another, but they seem to have maintained their primary brands, more or less in tact. Once the public got over the fear that the airline ticket that they bought today would not be honored tomorrow, they continued to offer their custom to the airlines without much hesitation. That said, a service brand, especially in an industry with a limited number of options (at least for most hub airports), should be easier to maintain in bankruptcy, unless there is an absolute panic about the likelihood that the service will be halted immediately. That would seem to make it easier to preserve the quality of the brand.

Less so, it would seem, for a product-oriented company. Do I risk buying even the most robust car brand, if I am not certain that there will be any entity around to support it in a year (or two or three)? Maybe the answer is yes (after all, some other company will surely buy the rights to that brand of auto, because of the strength of the brand--witness JEEP). But maybe the answer is no (to paraphrase Captain Nemo from 20 Thousand Leagues under the Sea", when asked about the fate of the Nautilus submarine --"If GM goes down, the CHEVY goes down with it.") The answer to this question may go a long a way to determining the ultimate fate of the companies and their product lines.

CAPTAIN NEMO IN EARLIER TIMES

Of course, it might not make much difference at the end of day if GM chooses chapter 11, but the public remains unconvinced of its ability to come out of the proceedings, or if it merges with Chrysler, but the public remains unconvinced that two failing companies are no better than one. Brands are, at the end of day, intertwined with public trust and faith. Yesterday's killer brand is today's pariah. Just ask anyone who used to swear by Lehman Brothers.

Auditude piracy-profit technology to be trialled

In "MySpace, MTV test piracy-profit plan", Andrew Wallenstein (Reuters) tells of a new technology that enables IP content owners to profit from piracy: it's about to get a high-profile test from MySpace and MTV Networks. The idea is that,

"Instead of triggering the usual take-down notices, copyright-infringing footage of select MTV Networks programing uploaded by MySpace subscribers would be automatically redistributed with advertisements that would generate revenue for the companies".

Tech firm Auditude has developed the technology, using a combination of patented assets: a sophisticated ad-serving platform with a video-fingerprinting system that cross indexes billions of seconds of TV and online footage in seconds. For the trial, MTV Networks is allowing Auditude to track only a mix of a handful of current and archived materials. The Auditude technology is said to be similar to that employed by YouTube.

This would not seem a risk-free strategy. Presumably the technology that enables copyright-infringing footage to be replaced with advertising material will equally enable advertising material to be replaced with pirated programmes.

Latest Ocean Tomo auction figures released

Yesterday Ocean Tomo announced the results of its 30 October Fall 2008 Live IP Auction. Cumulative sales, including buyer’s premium, totalled $12,842,500. Of particular note are the following:

* 11 NASA-owned patent assets relating to the Hilbert-Huang transform (HHT) signal processing technology fetched $55,000 plus an ongoing royalty stream.

* Carlson Wireless Technologies secured more than US$1 million from the aggregated sales of two lots.

The linked document also includes a lot-by-lot chart that shows how well the various intellectual properties did. The lowest lots were knocked down for US$11,000.

The best value for your dollar

A recent survey by YouGovPolimetrix shows that the economic downturn is having a significant impact on how consumers perceive brand value.

To examine the value of brands for its BrandIndex survey, YouGovPolimetrix collected data for two months, between 1 September and 27 October, sampling responses from an online panel of over 1 million consumers.

The time frame was chosen specifically to examine the impact of the economic crisis on brand perception: it revealed a focus among consumers on “bargain brands” (such as Wal-Mart or Old Navy), as opposed to more expensive, high-fashion brands.

The five brands with the highest consumer perception value were Craftsman, History Channel, Discovery Channel, Google and Rubbermaid. Maybe unsurprisingly, financial services firms have dropped significantly during this period, reflecting a loss of consumer confidence.

More information on the results of the survey can be found here and here – and more information on Polimetrix here.

iPhone, G1 and the IP Angle

Those of you who been called upon to teach IP to MBA students come to understand, sooner rather than later, that the preferred course offering is not simply Introductory IP Lite. The challenge is to find a way of connecting between IP and the broader business concerns of the MBA curriculum.

With that in mind, I draw your attention to Stephen Wildstrom's article entitled "Nipping at IPhone's Heels", his Oct. 6th contribution to his weekly column in Business Week under the name of "Tech & You." The article is a review by Wildstrom about challenges to Apple since its summer 2007 launch of the iPhone. In particular, Wildstrom points to the announcement of the T-Mobile G1 in September 2008, based on Google's Android operating system (see my blog of October 15th, "Android Takes Form"), and new product offerings by Research in Motion, aka the purveyor of the BlackBerry.

In short, Wildstrom described the Apple-Google combat as follows:

"Apple set this whole competition in motion by building a single, excellent smartphone within an ecosystem that it controls totally, including the right to approve all third-party software. In contrast. Google is pushing an open platform, meaning any handset manufacturer can design hardware that runs Android."

Mortal Combat of Another Kind

Having an initial look at the G1, Wildstrom concluded that the hardware is a bit of a disappointment. The software, on the other hand, is the object of praise. He attributes this to the attempt by developers "to tear down the walls that divide applications." Not surprisingly, the notion of "search" plays a central role in the design of the G1. Thus, the notion of "search", which lies at the heart of the Google enterprise, appears to be brought together with a tendency of software developers to be responsive to users' need rather than providing a top-down approach that dictates the user experience.

I really cannot evaluate to what extent Wildstrom's observations are on point. More interesting for me is the question of whether the features of the G1 described by Wildstrom are a function of the IP, open source model adopted by the Android? Or, stated otherwise, is the design of the iPhone, hardware or software, a function of the IP model adopted by Apple?

G1 and the Android Platform: Does IP Matter?

I am trying to work out responses to these questions before I take to the podium in January for my next foray into the realm of MBA teaching. If any of you out there has any suggestions, I would be most welcome to hear them.

Reasonable royalties: do they smell right?

Via Technology Transfer E-News comes an article in the Journal of Accountancy, "How Reasonable Is Your Royalty?" by Glenn S. Newman (Pincipal, Parente Randolph LLC’s Forensic & Litigation Services Practice) and his colleagues Richard J. Gering and Jeffrey N. Press. According to the article's executive summary,

"In recent years, focus has shifted to the increased value of intangible assets. As such, competition, sometimes unlawful, has resulted in extensive litigation and/or negotiation between parties for the use of intangibles.

Methodologies to quantify a reasonable royalty are consistent with general valuation approaches–market (other licenses), income (profitability), and cost (design–round).
The Georgia-Pacific dispute [Georgia-Pacific v United States Plywood Corp. (318 F. Supp. 1116)] is the seminal case that identified 15 factors to consider in estimating a hypothetical reasonable royalty.

Be careful in determining an appropriate royalty base—consider what the market considers important, and the functional relationship between patented and unpatented products sold together.

Whichever method is used to determine a royalty, be forewarned that others will likely have an opposing point of view. Accordingly, make sure it passes the smell test".

I'm ashamed to say that I've never come across the term "smell test" within the context of IP royalties and the term doesn't seem to be explained as such in the article. Can any reader please enlighten me?

OceanTomo

I have not yet seen Ocean Tomo's comments on its recent auction held last week, but the IAM Magazine already includes a post which reports that the record number of lots on sale went for USD 12.8 Million. IAM comments that it is interesting to see that the desire to purchase patents has not (yet) dried up. OceanTomo have not yet issued a report - at least their website is not showing anything.

The purchasers of the patents probably still have funds available for spending - at least that seems to be the case for a number of funds in the VC industy. It is not suprising that money was spent at this auction. More interesting will be the developments over the next few months and year. I would not be suprised to see more patents come onto the market as companies "rightsize" their portfolio - but that the funds for purchase becoming more limited.

Financing creative businesses

As previously reported, the Westminster Media Forum (“WMF”) has organised a seminar on Private Equity and the Media which took place on 7 October 2008.

For those who were not able to attend, transcripts of the seminar have been made available by the WMF – showing that the seminar was well-attended and triggered some interesting debates on the current investment climate and the different aspects of the credit crunch in the media sector.

With the current financial services downturn affecting the real economy (“clearly going into a recession”), the audience heard that “credit is cocaine and cash is (still) king”. Despite the current lack of confidence in the financial services industry, the creative industries and the media are among the sectors which, having proved successful in the UK before, continue to offer exciting opportunities. Among the current trends the return of moneyless deals was noted: if you cannot be a king and go for acquisitions paid for in cash, you need to think of joint ventures, consortia and alliances.

Speakers seemed to agree that the media industry is one of the undervalued sectors at the moment. And this is a good thing in the current circumstances: unlike at the last dot com boom in 2000, media companies today have very low valuation - which bears potential. As keynote speaker Simon Terrington of Human Capital noted, “with intelligence the big money is made from the bottom”.

The difficulties of the valuation of media businesses were discussed. For example, it was noted that television production companies tend to be “very empty of assets”, consisting basically of people and their knowhow, relationships and talent, with little guarantee or reassurance what this will be worth in a couple of years’ time.

The area of most interest here are intellectual property assets - which now are effectively monetised on an international basis, capable of being rented out (just as in the bricks and mortar world) and generating considerable income. It was noted however that in the digital era intellectual property becomes more difficult to control and insecurities arise with entry barriers disappearing, distribution chains becoming unpredictable and the copyright and intellectual property regime continuing to develop.

So is private equity good for the UK’s creative economy?

Views differed, but overall this question was answered in the affirmative. On the positive side, private equity benefits companies by bringing in management disciplines and creative business ideas from a financing point of view. However, with private equity typically looking for a payback within three to five years’ time, it often does not leave sufficient time to actually get round to understand the media business, in particular “hits and talent businesses” which are difficult to manage and rather unpredictable. Unlike trade buyers (and it is very much a trade buyers’ market at the moment), bringing in some understanding and sympathy, private equity can stifle creativity with bringing in rigour, sound business practice to what often are immature media businesses.

In contrast to only 10 years ago, there are now a number of well-known private equity funds which are highly experienced in investing in media companies, covering all businesses of all sizes and enterprise values. “Trying to understand the media” is key. And the creative industry should be happy to cooperate, since getting an equity investor on board means increasing security which is good news for creativity…

However, not all media companies are suited to private equity investment; it is only for creatively-led businesses able to survive the loss of one or two creative members and able to adopt, at least to a certain degree, some private equity thinking, concentrating on more stable cash flow and overall predictability.

Areas of growth in the media sector in challenging times like these are predicted to lie in business and information services, “pure-play Internet” and mobile services, branded entertainment and out-of-home media. And it comes as little surprise that the real players driving the media agenda were named to be technology companies - the Googles, Apples and Nokias of this world.

So to stay on top of the game in the media sector you have to invest in technology and understand that technology, understand that the creative mix within the company is as important as the financial mix in the company, do some downturn planning, remain creative... and refrain from “cocaine”.

For a forecast on institutional and consumer media sectors click here and for information on upcoming Westminster Media Forum events click here.