Tuesday, December 28, 2010

Studios, Theatres and Premium VOD Contents


The relationship between the movie studios and the channels for the distribution of their contents has been a leitmotif of the film business from the inception of movies as a commercial activity. There was a time, a half of a century ago, when the matter was primarily framed (at least in the US) as a question of antitrust law. Thus, in the seminal Supreme Court case of United States v Paramount Pictures, Inc., 334 US 131 (1948), the Court required the studios the divest themselves both of ownership of theatres and of maintaining exclusivity rights regarding which theatres would be allowed to show their films to the consuming public. In so doing, the decision hastened the demise of the old studio system as well as giving rise to new arrangements for the production, distribution and exhibition of movies.

Much of the antitrust doctrine underlying this decision has been either called into question or outright overturned by later Supreme Court jurisprudence. What remains is the continuing love/hate relationship between the providers of celluloid content and the various platforms by which these contents are made available to the public. An excellent summary of the current state of this tension appeared in the Los Angeles Times article of 23 December, under the byline of Richard Verrire and Chaudia Eller and entitled "Theatre Operators Fight Studios' Plan to Release Movies in Homes Earlier", here.

The gist of the revenue share between studios and theatres is that threatres keep about 50% of revenue from ticket sales, while the studios keep the remaining portion. With each development in distribution technology, the studios seek to leverage their contents to earn additional revenues, following a multiple distribution trajectory from theatre to DVD sales, to video on demand (VOD), to cable broadcasts.

The genesis of the current tensions between studios and theatres derives from the declining sales of DVDs for home viewing. For studios, DVDs have been the main driver of non-threatre exhibition income, but DVD sales are declining. The challenge is how to maintain a home viewing market as the consumer slows his purchasing of DVDs, especially when the size and quality of home screens continue to develop. One strategy, and the immediate bone of contention, is for the studios to shorten dramatically the period of time in which a theatre enjoys a monopoly in the exhibition of a movie before it is made available for home viewing (the so-called "theatrical window"). In the DVD world, the theatrical window has been 130 days from the time that the movie is exhibited in the theatre to the time that the movie is first available in DVD form.

The suggestion is reduce the theatrical window to 30-60 days for premium priced VOD, with the price ranging from $30-$60, depending on how soon the movie is made available. The pros and cons of such a move are not unexpected. Movie theatre groups see such a step as a direct threat to their revenue potential by shortening the waiting period for home viewing and thus giving consumers less of an incentive to rush to their local movie house. Even a producer or two shares this view, most notably James Cameron of Avatar fame: "We don't make movies for the small screen, we make movies for the big screen. Television is a great art form, but it's an oxymoron to say that we're giving you a premium experience on TV."


In response, the studios point to the challenge of the changing economic climate. Notable in this regard are the words of the Chairman of Universal Pictures, Adam Fogelson, who observed that '[w]e are exploring every conceivable additional revenue stream there. The facts are irrefutable that our business models are under an extraordinary amount of pressure. In order for the studios to remain healthy, we need to find ways to recapture that revenue." Some analysts see the issue from another angle, namely that risk is overstated. It is observed that fewer than one-half of US consumers view movies via VOD and only a small proportion of those consumers can be expected to fork over $30-$60 to watch a movie at home, no matter how fancy the screen.

The long-term future of movie theatres has been the focus of media eulogies more than once in the past, with this or that claim that technological developments for content delivery and display will render theatres decreasingly important for the distribution of movies. While there has been a small decline in movie attendance this year, revenues have held up due to increased ticket prices. More importantly, only a commercial manichean would see theatre owners and the studios as being engaged in a zero-sum game. As the article itself points out, there is and has always been a symbiotic relationship between the two. The mix may change at the margin, but the demise of the theatre seems premature.

Tuesday, December 21, 2010

EU Commission on FRAND

Connoisseurs of European Union legislation will be delighted with the latest Commission tome which is imaginatively entitled "Guidelines on the Applicability of Art 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements". This magnificent 94-page opus replaces the 2001 version of the guidelines and will no doubt be welcome Christmas reading to aficionados of EU competition law. The work is dedicated to providing guidelines on "horizontal cooperation agreements", which are defined as being those between agreements entered between actual and potential competitors. The EU appreciates that such horizontal agreements can lead to substantial economic benefits, in particular if the participants in the agreements combine complementary activities, skills or assets. The guidelines are intended to provide indications of safe harbors in which such agreements are or would be valid and would not lead to problems in competition law.#alttext#

Readers of the IP Finance blog may well find the discussion on FRAND commitments in standardization agreements to be highly relevant, since the EU has given some insights into its thinking on how a FRAND definition might operate. The guidelines note that FRAND commitments are designed to ensure that technology protected by intellectual property rights (IPR) are accessible to users on Fair, Reasonable And Non-Discriminatory terms (hence the FRAND acronym). FRAND commitments can prevent IPR holders from making implementation of a standard difficult by refusing to license or requesting unfair or unreasonable fees.

The Guidelines notes that the assessment of fees should be based on the economic value of the IPR - which seems highly reasonable and certainly not revolutionary - and several methods are available to make this assessment. The cost-based methods are not well-adapted. The Guidelines states that this is because of the difficulty in assessing costs attributable to the development of the patents or group of patents. In this author's view, the major downside with the cost-based method is the fact that any figures about historic costs obtained bear little or no relevance to the commercial implementation of the IPR.

The Guidelines suggest that one way of assessing FRAND terms would be to compare the licensing fees charged by the IPR holder for the relevant patents in a competitive environment before the industry has been locked into the standard with those charged after the industry has been locked in. This, of course, makes the assumption that the relevant data is available. It's also possible that the relevant patents have, prior to the adoption of the standard, not been licensed. Indeed in some sectors, many IPRs have been developed and filed with the aim of being incorporated into the standard - and those rights may well be dropped if they are not incorporated.

#alttext#Finally the Guidelines suggest that an independent expert assessment be obtained about the centrality and essentiality to the standard of the relevant IPR portfolio. This is the author's knowledge, the most common way of assessing FRAND terms at present. An examination is made about the portfolio in question and its relation to other relevant IPR portfolios. It still fails to address the question of the level of fees. And for this the Guidelines suggest two alternatives: public disclosures made by IPR holders in the context of the standard setting process and/or comparison with the rates levied in other comparable standards. Both methods are currently used in practice and it is good to see the EU Commission giving its "badge of approval" even if it does wand that "nothing in these Guidelines prejudices the possibility for parties to resolve their disputes about the level of FRAND royalty rates by having recourse to the ... courts".

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Monday, December 20, 2010

Auctions and the Trademark Troll: A Coda


On 8 November ("Meet the Trademark Troll") here, we reported on the contemplated auction by Brands USA Holdings of various trademarks and corporate names that are no longer in use. Exactly one month later, the auction went ahead as scheduled at the Waldorf-Astoria hotel in New York. As reported by Stuart Elliott of the New York Times ("From Retired Brands, Dollars and Memories" here), 170 properties were put up for sale in front of a room of 50 people (additional bidders participated online).

The result: over a one-hour period, approximately 12 bidders purchased around two dozen marks and names. Viewed otherwise, the total take was $132,000, whereby the highest bid went for the Shearson mark (a financial company), followed by $32,500 for Meister Brau (not surprisingly a beer) and $30,000 for Handi-Wrap plastic wrap (I was surprised that this mark is no longer in use; I remember as a child the daily challenge of separating the plastic wrap from the sandwich that was trapped inside.) At the low end, marks such as General Cinema and Allied Signal were each sold for approximately $1,000 each. I do not know the details of the expense side of this auction, but one can assume that advertising, rental of the room, the cut owned to the auctioneer entity (Racebook Marketing Concepts), and the cost of filing and maintaining the various intent-to-use U.S. applications must certainly have eaten a healthy percentage of the take from the auction.

The motivations for the purchase of these marks were for the most part opaque. For example, when asked by the purchaser of the Collier's mark (a respected magazine that once published the likes of J.D. Salinger, but ceased operations in the 1950s) what he planned to do with it replied: "You'll have to ask my father [who] owns a publishing firm in Philadelphia".

On the face of it, there may be concrete plans in store for the purchasers of the
Meister Brau mark, namely, as reported by Matt Creamer in Advertising Age ("Meister Brau, Handi-Wrap, Braniff ...Going, Going, Gone"). There, the thinking seems to have been that the acquirer of the brand would "sign an manufacturing agreement with a contract brewer, put together an advertising plan, and then market it to younger (legal) drinkers." At least there is some semblance of precedent here, namely Pabst Blue Ribbon beer, a blue-collar brew of the past, which seems to have made a modest return from the grave based on nostalgia, effective advertising maintained on a shoe string, and a low price.

It seems to me that, despite the media hype, this planned auction of defunct brands, no matter what the presumed nostalgia value, was a dud. We more or less anticipated this result in our earlier blog. What troubles me more is the question of whether the media, including the blogosphere, was guilty of being part of the over-hyping what turned out to be a non-event, at least from the commercial vantage-point (the legal questions about what rights exactly are being sold under such circumstances remain interesting at the conceptual level).

Part of me says "yes", we were victims (yes "victims") as well as aiders and abetters of this hype. On the other hand, in a world where the identification of trends (and micro-trends) has become a widespread phenomenon, it is difficult to dismiss out of hand such a promotional initiative. Confronted with hesitatingly embracing the next big idea (especially when it resonates with existing cognates--here, the auction of patents and reference to an IP troll) and summarily rejecting it, there is certainly a strong tendency to adopt the former. After all, each of us wants to be seen as riding the crest of that next big wave, as opposed to being a stodgy, unimaginative naysayer. Perhaps this is the most important cautionary point that can be taken away from the auction.

Wednesday, December 15, 2010

Security interests in IP: a new article

Available online, though not yet in print, is an article "Security interests over intellectual property", by up-and-coming IP expert Andrea Tosato.   Recently appointed as Lecturer in Law at Bournemouth University, he holds a PhD from the University of Pavia, an LLM from the University of Cambridge and -- more significantly from the point of view of this weblog -- is a member of the Italian Delegation to UNCITRAL Working Group VI.

This article is to be published in the Journal of Intellectual Property Law & Practice (JIPLP), published by Oxford University Press.  While it has been online since 13 December the printed version comes out next year.  The abstract reads as follows:
"The development of new technologies and the viral spread of communication networks have both rendered possible the rise of businesses that own very few tangible assets and owe their success almost exclusively to their intellectual property. Within this new socio-economic environment, often described as the ‘information society’, the ability to use intellectual property rights (IPRs) as the object of security interests is gradually being recognised as an attractive prospect, rather than a mere eccentricity.

This article does not aspire to paint a comprehensive picture of this topic, but rather focuses on certain specific legal issues arising from the interaction between intellectual property and security interest law. First it looks at the different real consensual security devices known to English law, and evaluates their compatibility and efficiency when used in conjunction with IPRs. Secondly, it focuses on the difficulties associated with the conveyance necessary for a mortgage, and the manners in which they have been addressed by the case law. Thirdly, it examines matters of registration and priority for security interests created over trade marks and patents, paying particular attention to the provisions regulating the specialist registers and their interaction with ss. 860, 861 and 869 of the Companies Act 2006. Fourthly, this article considers the specific difficulties that copyright raises due to its unregistered nature, analysing possible solutions within the existing legal framework. Finally, it outlines some observations on the existing proposals for legislative reform of English security interest law and, more particularly, on the employment of IPRs as collateral".
Non-subscribers to JIPLP can use the publisher's pay-to purchase short term access facility by clicking here and scrolling down to "Purchase Short-Term Access".

Monday, December 13, 2010

Bayh-Dole: framework, straitjacket or something in between?

A little while ago, Chris Torrero kindly sent me this link to this interesting piece from Genome Web News entitled "US Supreme Court to Hear Case on Universities' IP Rights on Federally Funded Research". It touches on the much-admired US Bayh-Dole legislation and reads, in relevant part,
"The US Supreme Court ... agreed to review a case over who owns the rights to discoveries paid for with government funding. The case involves Stanford University, which sued Roche in 2005 alleging it infringed on three patents covering PCR technologies. The technologies were developed by Mark Holodniy and others and are directed at measuring HIV viral loads.

[explanation of the facts and history of the litigation omitted]

In appealing to the Supreme Court, Stanford argued that Bayh-Dole supersedes an individual's rights to grant ownership to an invention. The Obama Administration agrees and is siding with the university. In a brief to the Supreme Court, it said that the appeals court "erred in holding that an individual inventor may contract around the Bayh-Dole Act's framework for allocating ownership of federally funded inventions." The Bayh-Dole Act gives ownership over an invention to a contractor, in this case, the research institution, and an individual inventor may "obtain title in a federally funded invention" only if the contractor declines to claim ownership, which Stanford did not, the administration said in its amicus brief.

... the case has broad implications for federally funded research and the government's role in supporting such research and making them available for the public good.

"The Bayh-Dole Act reflects Congress' considered judgment about the best way to ensure that federally funded inventions are made available to the public and to encourage further science and technology research and development in the United States," the administration said. "The funds at issue are substantial: the federal government spends billions of dollars per year on science and technology research at United States colleges and universities, small businesses, and nonprofit organizations.

"By upending the Bayh-Dole Act's hierarchy of rights, the court of appeals necessarily made the government's rights, like the contractor's rights, depend on the actions of an individual inventor," it said.
The "Policy and objective" provision of Bayh-Dole read as follows:
"§ 200 It is the policy and objective of the Congress to use the patent system to promote the utilization of inventions arising from federally supported research or development; to encourage maximum participation of small business firms in federally supported research and development efforts; to promote collaboration between commercial concerns and nonprofit organizations, including universities; to ensure that inventions made by nonprofit organizations and small business firms are used in a manner to promote free competition and enterprise without unduly encumbering future research and discovery; to promote the commercialization and public availability of inventions made in the United States by United States industry and labor; to ensure that the Government obtains sufficient rights in federally supported inventions to meet the needs of the Government and protect the public against nonuse or unreasonable use of inventions; and to minimize the costs of administering policies in this area".
The Act reflects "the best way to ensure that federally funded inventions are made available to the public and to encourage further science and technology research and development in the United States", but surely what it was intended to do was to free up publicly funded innovations so that they could be turned into wealth-creating assets by the private sector, not to determine the subsequent course that the private sector activity takes? Comments, please.

Saturday, December 11, 2010

Nortel's Patent Assets

#alttext#We've reported from time to time on the planned sale of Nortel's patent assets which have attracted the interest of a number of companies, particular the portfolio related to the sale of the assets related to the forthcoming LTE (long term evolution) and SAE standards. Reports indicate that Nortel may have seven patents of the 105 declared relevant patent families.

#alttext#An exclusive report in Reuters indicates that the sale should be completed in the next few weeks. Front runners include both Apple and Google who are probably looking to build up their telecommunications-related patent assets as a bargaining chip to gain access to patent essential to the operation of mobile telecommunications. InterDigital is apparently also interested, whilst Reuters could not elicit a comment from Canadian telecommunications company RIM which had apparently previously a view that the patents were a national asset to Canada.

The value of the patents to newcomers in the telecommunications field, such as Apple and Google, is clear. Apple will be budgeting for licensing fees for access to essential patents to be able to implement telecommunications standards. Any patents they obtain can then be thrown into the pot to reduce the payments. Google are presumably currently relying on HTC for the IP rights - but would no doubt welcome access to a larger telecommunications portfolio in the mid-term to reduce any payments for cross-licence agreements to which they might need to sign up. No doubt a number of patent trolls or NPEs will sniffing around to see whether the portfolio has sufficient value to be able to make a return on the investment, as Joff Wilde has reported here.

Reuter's reports that Nortel's 4000 patents have been split up into different packages covering different technologies, including wireless handset and infrastructure, as well as optical networks, Internet advertising and computers. Given the need for interoperability in the telecoms field and Nortel's possession of seven highly relevant patents, it seems that these seven patents may be highly valuable. However, purchasers may be disappointed if the patents are ever litigated, as there may be potential prior art not considered by the patent office which could severely damage the value of the patents as both IP.COM and InterDigital have had to learn over the years. Both have had to live with patent rights that have been limited after a court action.

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Friday, December 10, 2010

Valuation of untested technology: what do European courts say?

This blogger thanks Swiss scholar Jacques de Werra for drawing his attention to a note entitled "North Carolina court validates IP valuation methods" which explains the ruling in Vernon v Cuomo, 06CVS8416 (N.C. Super. Ct., March 15, 2010). According to this note, the case, which concerned a statutory buy-out, demonstrates “the extreme difficulty” in valuing an early-stage company with no other assets than untested technology. One of the issues addressed by the court was how to protect majority shareholders from reaping a windfall if the patented portfolios prove to be highly valuable, without requiring them to overpay should the market fail to adopt the technology. Michael Pellegrino, the court-appointed expert in this case, has written a Guide to Intellectual Property Valuation (details here).  In this case he deployed "statistical models (simulation algorithms and Monte Carlo simulations) to calculate fair value based on discounted future income" and his approach is said to be “appropriate for this type of business and clearly in the mainstream of IP valuation methodologies".

Writing from my little corner of Europe, I envy the United States for the sheer width and variety of IP valuation issues that get an airing in court and then trickle through into the IP community.  Do any of this blog's European readers know of any reported decisions in which judges have passed comment on the acceptability of simulation algorithms, Monte Carlo simulations to calculate fair value based on discounted future income?

Thursday, December 9, 2010

The (bad) luck of the Irish: patent tax exemption bites the dust

Back to the dark ages for Irish
patent royalty taxation?
IP Finance has just learned that, in the Summary of 2011 Budget Measures, (See p B7 here), delivered to the Irish Dail yesterday, the provision for tax exemption for patent royalties was removed. Until now, income derived from patents was exempt from taxation (up to a cap of €5 million). The statutory basis for this relief is Section 234 of the Taxes Consolidation Act 1997.

This exemption has been removed with immediate effect (in fact, if the Budget Measures document is to be believed, the exemption vanished two weeks ago, on 24 November). This is an extraordinary measure to introduce out of the blue and it lends no thought to companies (especially start-ups) which may have based some of their cash projections on their (already meagre) royalty incomes.  IP Finance's source, Andrew Waldron, comments:
"Perhaps it seemed like something easy to dispose of, but it is an especially curious measure given that the Irish Government's line over the last number of years has been to champion R+D and the creation of IP in the economy. Plus, I would have imagined that they should have maintained any measure that offered even a glimmer of the possibility of job creation".
Andrew would be curious to know readers' thoughts on this and he asks if we know of other such exemption schemes in other countries? Have they succeeded in fostering innovation/luring large R+D companies? Could the UK benefit from the removal of the Irish exemption?

The feeling of this blogger is that it is indeed extraordinary. I have no direct data, but I had imagined that the tax exemption for royalty income was a useful carrot to dangle in front of small businesses but not one which would often be nibbled, given the arduous task of turning innovations into patent-protected streams of royalty income.  Anyway, responses to Andrew's questions are very much welcome. Please post them below if possible.

Tuesday, December 7, 2010

More thoughts on the UK's IP tax reform document

Now back in the UK, and with a functioning computer again, I’ve been digging a little further into the other IP proposals in the HM Treasury Corporate Tax reform document, and looking at the review of the intangibles tax regime published by HMRC – see earlier post for the patent box proposals.

CFC reforms:

Finance Act 2011 will include some interim reforms to the controlled foreign companies* rules and, in particular, a new exemption for CFCs meeting certain conditions. In particular, the conditions include the requirement that the CFC must receive at most an incidental amount of IP income, where “incidental” ≤ 5%.

Secondly, FA 2011 will include a specific exemption from the CFC rules for a CFC with main business of IP exploitation; provided that the IP and CFC have minimal connection with the UK (ie: this is intended to exempt CFCs that do business almost entirely outside the UK). No specific thresholds are given, but when considering whether the IP has a minimal UK connection, the business should review whether the IP was ever held in UK, and whether any R&D was done in the UK. When considering whether the CFC has a minimal UK connection, the company should consider the extent/nature of any UK equity funding, whether there are any receipts from the UK, and what expenses have been incurred in the UK.

*CFC: for the non-tax specialists – a controlled foreign company is a subsidiary of a UK company that is located in a low/no tax jurisdiction. The CFC rules are intended to ensure that UK companies don’t dump profits into these subsidiaries to divert taxable income from the UK – they achieve this by taxing the UK parent on the profits of the CFC, unless an exemption is available. At present, the rules are rather more restrictive than is competitive or compatible with modern multinational business, and so reform is being considered as part of the corporate tax reform package.

IP tax regime review

HMRC commissioned a review of the IP tax regime, introduced in 2002, from Ipsos Mori. The conclusions aren’t wildly startling:

  • The intangibles regime was considered important to decision making, in so far as intangibles were often felt to be vital to business success. However, it was not influential on what decisions were made - it influenced how deals were structured, rather than whether or not they took place at all.
  • The UK regime was therefore typically felt to be of little consequence in acquisitions
  • Ultimately, the UK regime was viewed as neither favourable nor unfavourable – taxation of intangibles was seen as part of doing business, rather than a direct influence on the decision making process.
  • While the tax regime introduced in 2002 was appreciated by companies for making the law clearer, most did not believe that decision making regarding intangible assets would have been any different before this time.

Thursday, December 2, 2010

Saints, sinners and 'disgrace' insurance

Can you guarantee that your celebrity
remains a Saint till the brand endorsement
deal comes to an end?
In "Celebs Behaving Badly? Brands Turn to Disgrace Insurance", posted here last month on Brandchannel, Barry Silverstein reviewed the nightmare scenario faced by a number of businesses that pay large sums for famous people to endorse their goods and services -- the damage done to the brand when the celebrity's fame is for all the wrong reasons.  Silverstein cites the examples of errant golfer Tiger Woods and English soccer star Wayne Rooney and writes about the concept of 'disgrace' insurance:
"... No surprise, brands want their backs covered when their ambassadors don't keep theirs covered. 
"There has been an uptake in interest in this type of insurance," says Mark Symons, an underwriter with Beazley, the Lloyd of London's insurance group, to The Independent. "We have probably seen an increase of about 30% in the last couple of years. Either you lose the money [invested in a celebrity endorsement] or you get a policy that will pay the cost of you restarting a campaign."

Brand marketers taking out such policies generally pay between half and one percent of the sum insured, according to a spokesperson for Lloyds. The premium could be lower for someone who "seems unlikely to cause a scandal." ...

Some branding experts think the damage to the brand is questionable, however. Stephen Cheliotis, CEO of Britain's Centre for Brand Analysis, also tells The Independent, "It's difficult to quantify how much damage a scandal has caused. It would require a robust tracking method of the brand performance before and after the scandal, and proof of a direct causal link." ...".
A premium of between half and one percent seems trivial in relation to the cost of celebrity sponsorship, and a business might consider it worth expecting the celebrity to foot the bill for it too, given that the sort of event insured against lies in the hands of the celebrity rather than the insured.  In the event that no brand-damaging scandal arises, the cost of the premiums might be reimbursed.

Do any readers of this blog have direct knowledge or experience of how the insurance works and what sort of criteria (i) trigger payment and (ii) fix its quantum?  It would be good to know.

IP and Business Growth

In 1999, the London-based Equity Research Unit of investment bank Credit Suisse First Boston issued a report entitled “Technology Licensing – Intellectual Property Rights and Wrongs”. The report considered the prospects for long-term growth of five small IP licensing companies listed on the London Stock Exchange.

A recent working paper from the Engineering Intellectual Property Research Unit at Cranfield University considers the progress of one of the companies, Xaar plc, in the ten years since the report was written. Using information from public annual reports, the paper investigates the extent to which IP has contributed to Xaar's income and the significance of other, non-IP factors (see Neil Wilkof’s recent post in this regard).

A full copy of the paper is available here.

Tuesday, November 30, 2010

A Mini Case Study: The Matter of Skyhook Wireless


I face a constant challenge in trying to find case study materials that are appropriate for my MBA course on IP Management and Strategy. Rarely to never do I find materials that are ideally suited for my teaching needs. Against that backdrop, let me share my toughts about an item that appeared in the September 27 issue of Bloomberg Business Week here and its potential value in building materials of this kind.

The article is entitled "Don't Be Evil (or Commit Tortious Interfence)". It recounts the story of Skyhook Wireless and its suit against Google, filed on September 15 in a state court in Massachusetts. The background to the suit was a deal between Skyhook and Motorola, whereby Motorola would use Skyhook's software, designed to pinpoint the location of Motorola smartphones, instead of adopting Google's version of this technology. It is noted that Motorola makes use of Google's Android operating system in its smartphones.

By using Skyhook's technology, Skyhook, and not Google, would be able to take advantage of data on the location of users. In principle, Google makes the Android available without cost in order to reap the benefits of such services as providing users on ads geared to the user's location. Under Skyhook's arrangement with Motorola, Google would presumably be deprived of this business opportunity.

According to Skyhook, senior persons at the Android unit of Google advised Motorola that the Skyhook technology raised issues of compatability with Android, a claim that Skyhook alleges had never been raised previously. Skyhook alleges that Google advised Motorola that a Motorola smartphone phone using Android also had to contain Google's location technology. Ultimately, it appears, Motorola sold the smartphones without any Skyhook code. Skyhook followed with an action for tortious interference. It also filed an action for patent infringement in a federal court.


I have no idea whether or not Skyhook has valid claims against Google, as described in the article.What is interesting for my purposes is a series of IP-related questions that arise based on this account, whatever the result of the litigation.

1. The role of Android as an open system-- Let us assume that the attraction of Android, as an open system, is that any person may make use of the operating system to develop compatible products. But Skyhook claims that Google has sought to exploit the system to promote its own products and services. This raises the issue of potentially multiple flavors of open source platforms from the commercial point of view.

Questions-(i) What should the potential user of an open source program for application development purposes consider, when choosing to adopt an open source platform? (ii) What happens if the purveyor of the open source program is also a commercial actor, even a potential competitor, in related applications? (iii) Does this differ from the position of an open source purveyor such as Linux? (iv) What happens with the licensed availability of open source under the copyright laws runs up against private or semi-private arrangements for compatability and specifications?

2. How far can superior technology take you?--Skyhook, since 2003, has developed a means for identifying the location of a phone by reference to proximity to Wi-Fi hot spots. Skyhook claims to have built a database of 250 million hotspots world-wide. Wi-Fi, and not GPA tracking, is apparently the superior technology for dense urban settings. It is mentioned that Google and Skyhook discussed a possible licensing deal, but ultimately Google developed its own technology. Skyhook charges 50 cents per device (and claims that the cost reflects certain technological advantages for its product), while Google gives its product away for free. Further, while Skyhook has contracts with Dell, Hewlett-Packard and Samsung, it has recently lost its major client, Apple, which also has developed a tracking technology of its own.

The CEO of Skyhook laments that "entrepeneurs are taught to pick something important to focus on. But maybe we chose something too important." Perhaps. But perhaps the real issue is the recurring phenomenon whereby the pioneer of a technology fails to reap long-term commercial benefits. As David Teece explained nearly 25 years ago, it is only where the pioneer's IP is so strong that it allows no viable imitators will the IP itself confer a decisive competitive advantage. Otherwise, superior manufacturing, marketing, distribution and the like (so-called "complementary assets") may ultimately prove to be more important.

Questions--(i) Did Skyhook properly evaluate the strength of its IP and technology as the source of its competitive advantage? (ii) How easy is it for the functionality of Skyhook's technology to be imitated without running the risk that any claim by Skyhook for patent infringement would effectively block competitors? (iii) Would Skyhook have been better off seeking to keep confidential more of its technology (if feasible)? (iv) Or should Skyhook have sought to partner its technology with someone who could who parlay Skyhook's technology with competitive capabilities in the relevant complementary assets?

In short, an interesting series of questions, focused on various aspects of IP, are raised in these events. They might well serve as a fruitful basis for discussion.

Monday, November 29, 2010

IP departments feel pressure of economic downturn

The in-house patent team wished they'd asked for new computers instead of a pay rise
It presumably isn't a big surprise, but it's good to know that someone is quantifying it: according to US metrics men ipPerformance
"IP Operations have been dramatically affected by the economic downturn and as a result, companies are reporting staff, professional personnel, outside services, and fee expenditure cuts. These are some of the findings revealed in Intellectual Property (IP) Law Department Operations and Metrics Benchmark Report, a survey conducted by ipPerformance Group, an intellectual property management advisory and benchmarking firm that conducts research on intellectual property operations best practices.

The study reports on feedback from intellectual property leaders from 50 companies, representing 11 major industry sectors.

“Our study confirms that while companies’ IP departments – which include attorneys and staff – have stabilized, the workload has slightly increased,” reports Rob Williamson, president, ipPerformance Group. “With continued economic pressures, IP Departments are continuously evaluating their operation costs, practices, staffing for efficiency and effectiveness improvements.”

Survey participants were questioned on a range of topics including department expenses, professional and non-professional staffing, patent attorney workload, outside counsel trends including costs, and usage of innovation driven companies.

Among the findings that emerged from this research are the following:

* Patent attorneys experienced an increased workload. In this study, companies reported a 21% increase in the median research and development expenses to patent attorneys.

* Outside counsel spending in proportion to all IP Expenses was down 23%. The median company spent $40 million on IP expenses.

* Nearly half of the companies indicated that they are filing patent applications on less than half of the submitted invention disclosures.

* While there is a reduction in overall patenting activity in the past two years, the use of law firms versus in-house attorneys for patent application preparation and prosecution did not change significantly from 2009.

* The median average salary for Patent Attorneys is $180,000 and additional bonus is $15,025.

* The median number of Patent Attorneys in-house is 3 [The Departmental Christmas party must be fun ...]".
A full report of the survey findings is available from ipPerformance Group here.

UK: reform of IP taxation - consultation underway

HM Treasury have published the consultation document on IP tax reform, including R&D tax credits – quick thoughts below, more details when I get back from the US next week.

There are some interesting points around the proposal that the patent box will cover “embedded” royalties in the profits from products manufactured using patents. How the Govt proposes to define those is a good question – they are suggesting using a formula, but that seems to have the potential to be riddled with problems.

The patent box will also apply to net profits, after expenses (so that these, in effect, get relief at 10% and not 28%/24%)- including “pre-commercialisation expenses” but not, apparently, including R&D tax relief qualifying expenses (as there’s a commitment to retaining full rate relief there) which seem to remain deductible from regular rate profits rather than patent profits. How this is all supposed to work is a bit of a mystery – businesses wanting the patent box rate are going to have to keep very detailed records if they want to ensure that they get full rate relief for certain expenses. I’m not surprised that the patent box will be optional – the cost of compliance is not going to be cheap, as far as I can see.

The Govt has speeded up access to the patent box – it only applies to profits earned after 1 April 2013, but the proposal is that it wiull apply to patents commercialised (another definition nightmare) after today (Nov 29th) rather than patents granted after Royal Assent 2011 (the original proposal).

The focus is very much on patents – they are registrable and clear (copyright/trademarks etc are more nebulous and easier to acquire) – so this will be rather limited by comparison to (eg) Luxembourg and the Netherlands. Interesting, given that the UK has a good film/sound recording/video game industry. We are already well ahead with pharmaceuticals, which seems to be one of the main beneficiaries of this approach. It’s questionable whether encouraging specialisation like this is all that helpful.
There will be the usual anti-avoidance – the patent box seems unlikely to apply to passive IP holding structures. This may be tied to a requirement to have ongoing R&D, for example, or manufacturing activities.

Otherwise it all seems a bit early stages to tell. Vaccine research relief may be for the chop – only 10 companies a year claim it (presumably the same 10 each year).

R&D tax relief does not seem to be for the chop, though – that had been rumoured to be in the firing line, but there is a statement that the Govt “is committed to retained full rate relief – not just patent box rate relief – for the additional deduction available from the R&D tax credit regime”. There are requests for ideas for structural changes to make the scheme more attractive (without, presumably, costing anything).

On CFCs and IP, the idea to introduce an earn-out charge on exports of IP has – thankfully – been dropped. The CFC rules appear to be focussing on what the Govt considers to be three high-risk areas:

1. IP developed in the UK and then transferred to a low-tax jurisdiction
2. IP held offshore but actively managed in the UK (or further developed in the UK)
3. IP developed with UK funds, where the UK doesn’t get a return on the investment

#2 seems to be the most contentious aspect of this: where UK activity increases the value of IP held overseas. There could be transaction scenarios where this may be an issue, which are not an attempt to divert profits overseas.

There’s also whiff of retrospection about the idea that IP affected by changes to the CFC rules could include IP that has been transferred out of the UK in the past decade - if carried through, this will not be helpful for those who have undertaken reorganisations and restructuring.

"User" basis available for assessment of trade mark damages

A week or so ago IP Finance reviewed a Scottish decision on assessment of damages inflicted on a brand ("Damages for damaging a brand: Tullis Russell v Inveresk", here). Now here's news of another brand damages assessment exercise, this time from England and Wales, in National Guild of Removers & Storers Ltd v Silveria (t/a C S Movers) [2010] EWPCC 15 (12 November 2010), a Patents County Court decision of Judge Birss QC.

In this case, a trade association sought damages for trade mark infringement by four defendants in separate actions, which were joined on the issue of an inquiry into damages.  According to the judge, there was no reason in principle why damages should not be available, calculated on a "user" basis for trade mark infringement and for passing off, as they were for patent infringement.  It was unnecessary for a trade association to show that it had suffered any lost sales. In reaching a fair assessment of the damages awarded against each of the defendants, including one which had never been a member of the Guild, the judge looked at the post-termination provisions in the Guild's rules which applied at the time of the infringement.  Taking them into account, he considered that a fair assessment was that each defendant should pay £200 per week for the unauthorised use of the Guild's marks (this figure was slightly lower for one defendant, where different versions of the rules were applicable).

Judge Birss QC set out the legal basis for his reasoning as follows:
"In General Tire v Firestone [1976] RPC 197 Lord Wilberforce set out two essential principles in valuing a claim for damages for patent infringement, first that the claimant has the burden of proving its loss and second that the defendants being wrongdoers, damages should be liberally assessed but that the object is to compensate the claimant and not punish the defendants ... Plainly these principles apply to registered trade mark infringement and passing off.

In each of the four cases before me the infringement consists of the unauthorised use by the defendant of the claimant's name and/or one or more of the claimant's marks or logos. In many trade mark cases the infringer's use of the infringing mark will lead to sales of the relevant goods which are lost to the claimant. In such a case damages can be calculated by assessing the profit lost as a result of losing those sales. In these cases however the claimant's business does not work in that way and the defendants have not caused that sort of loss to the claimant.

The kind of damage suffered by the claimant in these cases in financial terms can be regarded as the loss of the royalty which they should have been paid in return for use of their trade marks by the defendants. This remains so even though the defendants' use did not result in any lost sales of goods to the claimant. As a preliminary matter I need to decide whether such damages are recoverable in a trade mark and passing off case. ...

In patent cases there is no doubt that such damages can be claimed .... Such damages have been described as being assessed on a "user" principle, i.e. as a reasonable royalty for the unlawful use of the claimant's property even though there has been no sale lost to the claimant. In Dormueil Freres v Feraglow [1990] RPC 449 Knox J was unwilling to award an interim payment in respect of damages calculated on this basis in a case of trade mark infringement and Knox J's decision is cited by the authors of Kerly's Law of Trade Marks and Trade Names (14th Ed, paragraph 19-133) for the proposition that it has been doubted that the user principle is applicable to trade marks. The authors point out however that Knox J did not decide that such damages were not available at all, he simply refused them on an application for an interim payment.

In the copyright case Blayney v Clogau St Davids Gold Mines [2002] EWCA Civ 1007, [2003] FSR 19 (see pp 369-370) the Vice-Chancellor (Sir Andrew Morritt) (with whom Rix and Jonathan Parker LJJ agreed) rejected the submission that damages on the user principle could not be extended from patents to other forms of intellectual property. The Vice-Chancellor dealt with Dormueil Freres on the basis that Knox J's reluctance to apply the principle in a trade mark case was understandable given the nature of the application before him.

Finally in Irvine v Talksport [2003] EWCA Civ 423 [2003] FSR 35 the Court of Appeal consisting of Jonathan Parker LJ (with whom Schiemann and Brooke LJJ agreed) considered a passing off case about celebrity endorsement. The claimant was a famous motor racing driver who earned substantial sums endorsing various products and services. The Court of Appeal upheld the judgment of Laddie J that the defendant had falsely represented that the claimant had endorsed its radio station by using the claimant's image and thereby committed acts of passing off. The Court of Appeal also dealt with damages, holding that the principles in the patent cases General Tire, Meters and also A.G. fur Autogene Aluminium Schweissung v London Aluminium Co Ltd (No. 2) (1923) 40 RPC 107)) were applicable (paragraphs 97-104) such that the damages represented a reasonable endorsement fee on the facts of the case, assessed by asking what was the fee which the defendant would have had to pay in order to obtain lawfully that which in fact it obtained unlawfully. ... It is notable that Dormueil Freres does not appear to have been cited to the Court of Appeal in Irvine v Talksport but it seems to be to me absolutely plain that if it had been, the Court of Appeal would have come to the same conclusion. It would be wholly bizarre to find that unlicensed celebrity endorsement of the kind arising in that case was indeed an act of passing off but to then find that no damages were available for it, when an endorsement fee was precisely how the claimant operated his business in this respect. Moreover to say that the lost fee for the endorsement depended on whether the action was about a lost sale (i.e. a lost endorsement which the claimant would have accepted (for a fee)) and that no damages would be payable at all if Eddie Irvine would never have endorsed the radio station (so no lost sale of an endorsement) seems to me to be unreal.

In my judgment, as a matter of principle, where a defendant uses a mark without permission and thereby infringes a registered trade mark or commits an act of passing off, that act is capable of damaging the claimant's property in the mark (see s14(2) of the Trade Marks Act 1994) or property in the goodwill attaching to his business. That is so whether or not a lost sale has taken place. It is the same kind of damage as the damage to a patent monopoly caused by an infringing sale which is not a lost sale to the patentee and for which a reasonable royalty is payable. It is an invasion of a (lawful) monopoly. Thus there is no reason in principle why damages should not be available, calculated on a "user" basis for trade mark infringement and for passing off. Of course it will be a question of fact in any given case to decide the amount of such damages".

Sunday, November 28, 2010

Brand valuation ISO

The International Organisation for Standardisation, comprised of the National Standards Institutes of 163 countries, has now developed a new international standard for brand valuation. ISO 10668. This was published on 30 September 2010 after a three-year consultation period. According to Florian Traub, Hammonds LLP ("New international standard for brand valuation introduced"), World Trademark Review (here):
"The new standard will not only help trademark owners to measure and monitor the value of their brands as an important intangible asset, it is also likely to have a significant impact on the practice of trademark monetisation (eg, measuring the price of a licence or in IP transactions). In addition, the new standard also appears to be a useful instrument for calculating damages in trademark infringement proceedings. ...
The new international standard provides a consistent, reliable approach to brand valuation, including financial, behavioural and legal aspects. It provides a framework for brand valuation, including objectives, bases of valuation, approaches to valuation, methods of valuation and sourcing of quality data and assumptions. It also specifies methods of reporting valuation results. ISO 10668 is a summary of existing brand valuation methods and intentionally avoids detailed methodological work steps and requirements. The standard can be applied to all existing brand valuation approaches, as long as they follow the fundamental requirements specified in this new meta standard".

Monday, November 22, 2010

The goods are fake, but the tax is real

Here's some news from Sweden, a jurisdiction which is known to have had a most enthusiastic view of reaping a healthy tax harvest where possible. The Administrative Court of Appeal, upholding a decision of the Administrative Court, has held that a couple who sold counterfeit goods via the internet were liable to pay Value Added tax (VAT) on all their sales.  The couple first sold fakes over the internet in 2003 as a sideline; their counterfeit stock was later seized and confiscated by the Swedish police under a joint complaint by several trade mark owners, and they were banned from selling goods on Tradera, Sweden's largest online auction site (owned by eBay).

The couple argued that they were not obliged to pay VAT on the sale counterfeit goods in Sweden since it was illegal to sell them.  After all, it was wrong for the Swedish state to profit from illegal transactions [There's a problem here: either the State profits from the transactions by taxing them or the infringers profit from them by entering into VAT-free transactions]. The Administrative Court disagreed: under Swedish case law, income derived from criminal activity must be taxable if it is part of a legal activity. Apart from their illegal activities, the couple also generated a profit from the trade of legal goods. VAT was thus payable on all income derived from the sales.  This decision has since been affirmed on appeal.

Source: article, "Online sales of counterfeit goods held to be subject to VAT", by Tom Kronhöffer and Linda Petersson (MAQS Law Firm, Stockholm) for World Trademark Review.

Sunday, November 21, 2010

Frugal Innovation: Two Titillating Tales


Perhaps the hottest notion floating through international management circles is the idea of "reverse", or "frugal" innovation.  Roughly speaking, the notion is that the time-honoured direction of innovation, namely from West to East/from developed world to developing world, is giving way to a more multi-directional approach. In particular, the idea focuses on emerging markets, such as China and especially India: these markets increasingly have the ability to hone "frugal" innovations intended for the local market, placing a premium on stripping costs while satisfying essential requirements and functionality. The best of these frugal innovations are then ripe for transfer to mature markets as well.

The notion became a particular focus of business school parlour talk after the publication of an article, "How GE is Disrupting Itself", in the Harvard Business Review here, late in 2009, by Jeffrey R. Immelt, Vijay Govindarajan and Chris Trimble. Imeldt is the CEO of GE and Govindarajan, professor at the Tuck Business School at Dartmouth College, is a leading proponent of the "reverse innovation" concept. We ourselves had an early inkling about the potential potency of this concept and already wrote about it on this blog site with great favour in the spring of 2009, here and here.

It is against this backdrop that two recent items drew my intention. The first is a
brief report in the November 13 issue of The Economist, "Tata's Nano: Nah, no." To remind the reader, the Nano is the much-heralded compact car, intended to cost around the equivalent of $2,500 plus taxes, which is meant to address the vehicular needs of the massive emerging middle class in India and elsewhere. I seem to recall that over 100 patent applications were filed in connection with the development of the Nano, which sought to merge world-beating technology in the service of producing frugal innovation at its best. Indeed, the Nano was lauded as a prime example of frugal innovation.

The problem is that there have been relatively few buyers for the car. Cumulative sales to date for 2009 are 40,467 (which seems to me the number of cars struggling to advance at a given moment at any major intersection in Mumbai). Sluggish sales are attributed to the fact that the car is marketed in only a few places in India, the higher-than-expected actual costs, and some early technological glitches in the vehicle. Whatever the reasons, and without discounting the possibility that the Nano might yet become a big success and a bell-wether for frugal innovation in the passenger car industry, its post-natal difficulties point to the dififculties that confront efforts to commercialize the fruits of frugal innovation, first in local markets, such as India, and thereafter to other emerging (and even developed) markets.

The second item was a brief report published on November 18 on Bloomberg.com and written by the prolific Scott Anthony. Entitled "Three Innovation Lessons from the Gillette Guard", it discussed one part of a webinar that will appear as part of an article in the January 2011 issue of "Havard Business Review". Anthony's article describes the efforts of Procter & Gamble to develop a double-edged razor for the Indian market that will meet the requirements of its Indian customers, but which will retail at the price of 15 rupees (about $0.33), with refill cartridges to cost five rupees (about $0.11).


Unlike a previous attempt by P&G in this area, which apparently used MIT graduate students from India, comfortably ensconsed in their Cambridge, Massachusetts surroundings, as its focus group, this time P&G seems to have reached out to actual consumers in the target market to come up with a potentially successful product. As well, P&G appears to have adopted distinctive forms of manufacturing, distribution and promotion for the product. In so doing, according to Anthony, P&G parlayed three fundamental features of product development appropriate for the Indian market: (i) go the source, (ii) delight, don't dilute and (iii) match the model to the market.

What is notable here is that frugal innovation may not be solely the purview of innovators in the emerging market. In this case, the frugal innovation seems to have been carried out by a standard-bearer of the mature market world. The interesting question is whether any of the features adopted by P&G for its Indian-focused market can be repatriated to Western markets. Paying $0.33 for a razor with limited, but satisfactory functionality, and $0.11 for replacement cartridges, sounds like something to which the Western consumer might also be attracted. Or are the economic and cultural demands of the two markets so different that there is nothing that P&G can bring back to its Western markets in connection with this product? And what happens to the P&G brand if there are substantial price differentials, based on the locus of the market, for products of the same category?

Thursday, November 18, 2010

Damages for damaging a brand: Tullis Russell v Inveresk

Thanks are due to Susan Sneddon (an IP & IT Associate with the leading Scottish firm of Maclay Murray & Spens LLP) for sending IP Finance this note on the very recent Scottish decision in
Tullis Russell Papermakers Limited v Inveresk Limited [2010] CSOH 148. Susan writes:
"The Court of Session in Scotland has recently ruled that the purchaser of a brand was entitled to recover 40% of the purchase price from the seller due to the seller’s failure to take steps to maintain the value of the brand during an agreed service period after the sale. The parties to the dispute were two Scottish paper manufacturers, Tullis Russell (the pursuer/claimant) and Inveresk (the defender). Both companies produced high quality board for use in applications such as greetings cards, phone cards and packaging.

Tullis purchased Inveresk's Gemini brand and customer information in June 2005, based on the strength of and goodwill in the Gemini brand.

For a service period of five months after the acquisition, Inveresk continued to manufacture and distribute Gemini products under licence. Tullis paid Inveresk £5m for the acquisition and a further £5m for Inveresk’s services during the service period. The judge held that, on a proper construction of the contracts and the deal, the full £10 million was paid for the Gemini brand.

Inveresk agreed to waiver contractual obligations during the service period aimed at preserving the goodwill, including:

• To use all reasonable endeavours to protect the Gemini brand, maintain existing levels of customer service and promote a successful integration of the Gemini brand into Tullis; and
• Not to sell any Gemini products which failed to comply with defined quality standards and to comply with all relevant statutory and regulatory requirements;

The judge considered that the purpose of these obligations was to protect the integrity and value of the Gemini brand.

During the service period the Gemini products manufactured by Inveresk contained a much higher number of defects than usual (3 ½ times the historic average). In addition, Inveresk began dealing with customer complaints directly, without including Tullis, and adopted an antagonistic attitude towards customers who complained about Gemini products during that period.

Lord Drummond Young accepted that, in the paper industry, a certain number of quality complaints were inevitable since paper and board are largely natural products. As such, essential components of any such business were (i) a good quality control procedure; and (ii) a good complaints handling procedure.

Inveresk were held to be in breach of contract. The value of the brand and its goodwill lay in the likelihood that those who had purchased or considered purchasing the Gemini brand would do so again in future. In failing to manufacture goods of a satisfactory quality, and then dealing with customer complaints poorly, Inveresk damaged the brand and caused loss of over £4m to Tullis.

The decision demonstrates that the Scottish Court will strictly enforce measures designed to preserve goodwill and brand value. Ultimately, this may be a pyrrhic victory for Tullis, as it is reported that Inveresk has gone into receivership.
This case provides a really fascinating insight into what is in effect an assessment of the diminution of the value of a brand.  The judgment is vast (319 paragraphs), but that should not detract from its value. Of particular interest is the judge's lengthy and careful consideration of whether damage to Tullis should be assessed by taking into consideration the impact of Inveresk's breaches on either the entire portfolio of customers as a whole or by aggregating their impact of their consequences upon individual customers.

Sunday, November 14, 2010

New IP Strategists' Association being formed

Readers may already know of plans to establish the International Intellectual Property Strategists Association (INTIPSA), which are now well advanced. According to the association's LinkedIn page,
Those leading the establishment of the association are UK-based IP professionals who were named in the first edition of the IAM Strategy 250: Jon Calvert; Matthew Dixon; Simon Edwards; Ben Goodger; Jackie Maguire; Ian Harvey; John Pryor; and Mark Thompson. Anyone who has a demonstrable expertise in IP strategy will be eligible to join.

INTIPSA's aims are to:

• Establish and integrate the role and function of IP strategy within business, education and government.

• Promote excellence in the provision of strategic IP business advice.

• Serve as a means for business to locate qualified IP strategists.

• Promote best practice and act as a mechanism to share this.

• Act as a focal point for enhancing the IP capabilities of the UK economy and UK businesses.

• Share market knowledge and act as a network to members of INTIPSA.

• Provide long term IP strategic perspective.

• Provide opinion in relation to national policy.
Readers are invited to join the LinkedIn group if they want to be kept up to date with progress in the formation of INTIPSA and would eventually like to become members.

Software Patents: Are They the Real Threat to the Smart-Phone Industrry?


It is seldom that I focus on a Letter to the Editor. But I cannot resist the letter from Joshua Bloch, who is identified as Chief Java architect at Google, which was published in the November 6 issue of The Economist. The background to Mr Bloch's letter was an article that appeared in the October 23 issue of the same magazine. Entitled "The Great Patent War: Smart-Phone Lawsuits", here, the article discussed the various strands of the increasing reliance on patent litigation by the various actors in the smart-phone industry. So first a word about the article.

The article pointed to the change of the composition of patent litigants in this space, changing from patent trolls and patent owners from other industries (e.g., Kodak) to the handset manufacturers and developers of software for the smart-phone industry (e.g., Microsoft, Nokia, Apple and HTC). If all the various patentees with a possible claim with respect to the smart-phone industry check in with a lawsuit, we could reach the situation described by sometimes IP- skeptic professor Josh Lerner of the Harvard Business School, whereby '[i]f 50 people [each] want 2% of a device's value, we have a problem."

Not for the first time, Google's position would appear to be idiosyncratic, because its business model focuses on making its Android software available to manfaucturers for free, and then garnering revenues through advertising activities by users of the smart-phones. As such, Google may be a less appropriate object for suit because, in the words of the article, Google "will be hard to pin down. Google does not earn any money with Android, which makes it difficult to calculate any potential damage awards and patent royalties" -- although, as also noted, Oracle has filed suit against Google regarding the use of Java by the Android system (for more on this lawsuit, see here and here .)

My immediate interest is not to comment on the article itself, but to focus on the letter from Mr. Bloch, who wrote as follows:
"Your article on the patent wars in the smart-phone market left out one key player: the consumer ("The great patent battle", October 23). The flourishing competition among mobile platforms, devices and applications directly benefits consumers. In contrast, exploiting vague software patents to try and block open-source innovation neither helps consumers nor promotes the development of new technologies.
Innovation and competition, not ligitation, are the keys to providing the new generation of products and services that is changing the lives of billions of people around the globe."
So what do we make of these comments? Let me suggest the following:

1. Mr. Bloch's comments refer only to software patents. I am bit puzzled about this.
If Google's interest is promoting "innovation and competition [that] are the keys to providing a new generation of products and services" on behalf of consumers, should not his concern be with the applicability of the patent system generally in the context of a product and eco-system such as the smart-phone industry? After all, to recall Prof. Lerner's concern, it does not matter what party of the smart-phone device--hardware or software--is subject to the "50 times 2%" nightmare. Lockup is lockup, and 100% is 100%, whatever the source.

2. Indeed, judged by his silence, Bloch's implication seems to be that that patents are okay, and may even contribute to innovation, unless they are being employed against open-source (read Android) software. After all, doesn't Google also own patents in various areas? As long as the patent owners are suing the makers of smart-phone manufacturers and, presumably, developers of proprietary operating software for smart-phones, such as Microsoft, innovation and competition are fine. It is only when "vague software patents" are brought to bear against the open-source community that there is reason for concern.

3. We understand why Google is better off if no one person controls the smart-phone operating system in the manner in which Microsoft controlled the operating system for the PC world. With no single person able to control the operating system, the source of profts in the smart-phone industry can be enjoyed by others, including Google, it as the leading purveyor of online advertisements.

4. There is nothing wrong with Google, or any other person, earning profits in the smart-phone space. What is a bit troubling, however, is the attempt is to couch one's business model within an appeal to consumer welfare, competition and innovation. After all, even if we solve Google's problem and free its operating software from the threat of software patents, we still have the proverbial 50 other patentees, each still seeking to obtain its 2% interest in the device. If Google really wants to contribute to consumer welfare, competition and innovation in this industry, it should offer a solution for that problem.

Thursday, November 11, 2010

RSA's TIA - the resurrector of innovation

South Africa's new Technology Innovation Agency (TIA), which has been formed to support the commercialisation of local research and development, was formally launched at the end of October with a budget of R410million (approx GPB 43mill) according to this report in Creamer Media's Engineering News. The news is hot off the heels of the enactment of RSA's legislation designed to commercialise innovation from public funding.

TIA chairperson Dr Mamphela Ramphele said that the agency would strive to turn "the valley of death" between research and product commercialisation into one of "resurrection"

The legislation and TIA have high ideals but borrowing from Tennyson's account of the famous doomed charge does sound ominous:

 Half a league, half a league,

  Half a league onward,

All in the valley of Death

  Rode the six hundred.

'Forward, the Light Brigade!

Charge for the guns' he said:

Into the valley of Death

  Rode the six hundred....

The Afro-IP LinkedIN Group has 99 members and is calling for its centurion. Details here.

Groggle for Google

Google has entered into a settlement agreement to stop an alcohol price comparison website from setting up as Groggle. The soon-to-be-launched Australian site will locate cheap alcohol based on a post code search. Last September, it filed an Australian trade mark registration for Groggle, which Google opposed in April.


As part of the settlement, the name Groggle has been abandoned in favour of Drinkle. Further details of the settlement are unknown, but one thing can be seen - Drinkle has had six months of publicity beside one of the world’s most valuable brands. While the company said it did not have the financial backing to fight a legal battle, it may not have got bad value out of this dispute.

Tuesday, November 9, 2010

Product placement: the case of short-termism versus longevity

Those who believe that product placement is the gold standard for subtle brand promotion may have been alarmed to read in Brandchannel this week that Dreamworks Animation has backed out of placements. In "'Megamind' Confirms Dreamworks Animation Has Abandoned Product Placement", Abe Sauer writes, in relevant part:
"The Dreamworks Animation studio's box office hit Megamind took it to the bank this weekend, taking in close to $50 million and contributing to setting a first weekend of November box office record.

Megamind also represents a landmark in product placement for animated films. Not because Megamind is chock full of product placement; but because the film is almost completely free of recognizable products. In fact, the only brand name that can be found in the whole film (Jean Paul Gaultier) is spoken in a passing joke about men's cologne.

What's more, Megamind also has no product placement "jokes," the likes of which were so prevalent in the Shrek series. That is, until the most recent Shrek film, another brand-less children's film that signaled the trend that Megamind now confirms. Product placement in animated children's films might be dead.

The last decade of Dreamworks Animation films is a perfect case study of how the popularity of product placement in children's films has waned and brought the studio back to where it began.

None too subtle: product placement in Tommy Boy (1995)
In 2001, the studio's first film, Shrek, featured zero brands. There were a few jokes about Disney, but mostly the film was clear of product placement. Three years later, that all changed with the release of the studio's blockbusters Shark Tale and Shrek 2. Both films featured only a few real product mentions, yet were packed to the gills with product placement jokes. For example, both spoofed versions of Burger King ("Burger Prince," "Fish King") and Old Navy ("Old Knavery," "Old Wavy"). Shark Tale, a movie that takes place underwater, features an improbable product placement joke about the donut brand Krispy Kreme ("Kruppy Kreme") Parents began to grumble. A year later, Dreamworks' Madagascar featured over 20 product placements, including the real Krispy Kreme. Only the "Spalding" joke on Castaway's "Wilson" was forgivable. ...

But then in 2008, something started to change. The studio released two films (Madagascar: Escape 2 Africa and Kung Fu Panda) that between them only featured one branded product (Apple). This trend continued a year later with the Dreamworks' film Monsters and Aliens with only one visible product.

Now, 2010, where all three of Dreamworks Animation studio's blockbusters, Shrek: Forever After, How to Train Your Dragon, and Megamind, share but a single product placement amongst them. Next year will prove once and for all if Dreamworks Animation has gone product-free as the studio will release both Kung Fu Panda 2 and Shrek-offshoot Puss in Boots.

Dreamworks may have transitioned its films to remove product placement as an answer to parent criticism. But there is a practical reason to keep animated films free of product placement too: Longevity.

In fact, when it comes to product placement, Dreamworks Animation's films are beginning to resemble those of the market leader, Pixar. ... Pixar's undersea film, Finding Nemo, remains a children's favorite, while Shark Tale loses relevance with each passing year ...".
There's an interesting trade-off here.  Product placement = money on the table before the movie is launched and is therefore certain income.  In the case of animations, the movie's commercial success, and therefore the value of the placement, is likely to be higher than in the hit-and-miss market for films aimed at general release or for the adult market.  By not cashing in on product placement opportunities, a studio "buys" the prospect of longevity, but income from longevity depends on the ability to keep on cashing in on sales, broadcasting and other mainly traditional business models that are struggling to deliver the cash in the new digital environment.

One technically feasible solution, if longevity is sought, is to ensure that the movie is not rendered stale by the products placed within it.  How about short-term product placements, renewable only if the placed brand fulfils criteria laid down by the studio when the film is first made?  Come to think of it, why not segment the market and release the same movie with different branded products to suit the cultural and commercial preferences of local audiences?

Monday, November 8, 2010

Meet the Trademark Troll


We have patent trolls and copyright trolls (especially in jurisdictions that provide for statutory damages). Now it is the turn of the trademark troll.

Consider the following situation. You file a trademark application on behalf of a client (when you filed, you remember well the client's instructions--"no need to do a clearance search prior to filing"). The jurisdiction in which the appliction has been filed only examines the mark on absolute grounds, i.e. whether or not the mark is too descriptive to be registrable. The mark sails through examination and it is published for opposition.

Days before the end of the opposition period, you receive a Notice of Opposition. You examine the grounds for the opposition and you conclude that the Opponent has a strong, indeed a very strong, case. One year has passed since the application was filed. During that time, your client has been using the mark on the branded product bearing the mark, supported by substantial marketing and advertising. The client is pleased with the commercial results of the product and believes that the mark has acquired brand equity. The opponent is not in the business of using the mark, but rather warehouses registrations and applications and then waits for an opposition opportunity -- such as yours.

The question is how to advise my client. Having particular regard to the inevitable "compare and contrast" with the patent troll situation, here are my first thoughts:

1. The operative assumption is that the opponent's basic goal is to extract payment in exchange for agreement to withdraw the opposition and to agree to allow the applicant to use the mark in an unimpeded fashion.

2. That said, the circumstances described above only involve the right of registration. Even if the applicant fails to register the mark, any challenge by the opponent to use of the mark must be separately brought in a civil action. In most jurisdictions, it is relatively inexpensive to maintain an opposition proceeding. To the contrary, an infringement action will likely be substantially more costly (for both parties). Unless the jurisdiction allows an award of costs, each party will have to bear its own costs with no likelihood of recovery.

3. The threat of an injunction, if an infringment action should ultimately be filed, may well less potent than in the patent troll situation (even after the "eBay" case in the U.S.). In principle, there are an infinite number of words and signs that one can choose as a mark for a given product. Unlike a patent suit, where there may not be any viable alternative if the defendant is enjoined from using the invention, an injunction regarding trademark use merely requires the defendant to choose another mark. In most situations, this will not mean that end of the product.
All of this brings me back to situation described above. I assume that neither my client nor the opponent wishes to reach the litigation stage. My client wants to continue to use the mark while the opponent seeks payment of a sum of money. However, the opponent also knows that if my client chooses to withdraw the application, the value of the mark for my client (and hence any payment to the opponent) will become zero. The challenge, therefore, is for the parties to find a way of reaching an agreement, especially where the threat of a zero payment hangs credibly over the head of the opponent.

In particular, the sum cannot exceed the amount that the applicant will reasonably be required to expend, should it choose to withdraw the application and to adopt a new mark. This is the rub -- how can we come up with a rough metric to quantify this amount? The following comes to mind:

(i) The easier part is to calculate how much has been directly spent on creating, protecting and promoting the mark. (ii) But what about indirect costs and the amount of the brand equity, if any, that might be lost if the marked is discontinued? (iii) And what about the time value of money, as the negotiations trundle forward against the backdrop of continuing costs, both direct and indirect, in connection with the use of the mark?

At least with respect to the applicant, the information that might enable it to come up with an amount that is presumably within its knowledge and control. What about the troll? True, the troll should be able to quantify its expected costs, both for the opposition and any infringement action. But unlike its patent cousin, this troll must always be fearful of the "nuclear option" of withdrawal and presumably ascribe a discounted value to reflect this risk. All of this would seem to make the trademark troll situation more uncertain than its patent counterpart.