Worth investing in: IP services

Intermediate Capital Group (ICG) has now acquired a significant minority stake in legal information and services operation CPA Gobal. The terms of the transaction are not disclosed. According to the available information,

"Founded in Jersey in 1969, originally to manage patent renewals, CPA Global has expanded over the years to become a multinational company that is the clear market leader in the global intellectual property (IP) services market and one of the world's leading providers of broader legal services outsourcing, including litigation support, document review and contract management. The legal services outsourcing sector is expected to grow rapidly over the next few years, with estimates of the potential market value in the tens of billions of dollars".

It would be lovely to know the details. Does anyone know?

Addendum: Thanks, Ron Laurie (Inflexion Point Strategy), for news that the deal is worth £400m (€443.7m), a sum that is predicted to result in windfalls for many of CPA's 230 partners.
Several other buyout firms, including LDC, are apparently interested in acquiring CPA, which is thought to be contemplating the sale of at least 25% of the group.

The Costs of Confidentiality

As previously noted by Neil Wilkof on this blog, IP is only one aspect of a company’s competitive advantage, sometimes more crucial, sometimes less crucial to the success of a company’s activities. This was highlighted in Wednesday’s edition of The Times, which reported the measures taken by Air New Zealand (ANZ) to secure a first-to-market advantage for its lie-flat bed for economy passengers. “Such was the secrecy of the programme”, the newspaper notes, “that simulated flight tests were conducted on actors sworn to silence. Aviation seating is a cut-throat business.”

However, a role for IP in ANZ’s activities is also apparent from the comment of ANZ’s long-haul boss that he expects to license the seat design to other airlines. Such a business model was the subject of the 2009 litigation between Virgin Atlantic and Premium Aircraft Interiors, first in the Patents Court for England and Wales and subsequently in the Court of Appeal. According to the Patents Court decision, Virgin were successful in licensing their “Upper Class Suite” flat-bed seat design to Air New Zealand for a “substantial fee”. Air Canada were also interested in taking a licence but found it difficult to justify the Virgin fee, buying instead an alternative “Rock” flat-bed seat design from Virgin’s seat manufacturers, Premium Aircraft Interiors. Virgin then sued Premium for infringement of patent and unregistered design rights.

The Patents Court decision provides an interesting insight into the measures taken by Premium both to maintain the confidential status of information received from third parties (in this case Virgin and its seat designer) and to prevent that confidential information from contaminating its own work for other customers such as Air Canada. Premium initially claimed that they operated a “clean room” approach that employed different teams for different projects, the design data for different projects being kept securely on different parts of Premium’s server. However, as noted by the Patents Court judge, Mr. Justice Lewison:

“The position as it eventually emerged was rather more complex. First, there are at least two kinds of design data. Design data known as CATIA, which are three dimensional modelling data, are stored in a digital file. It can be sent to a manufacturer who can use the file to make a mould or tool in order to manufacture the required component. These data can be kept securely. In addition there are two-dimensional design drawings. These could not be kept securely once UCS had gone into production in the autumn of 2003. Second, once Virgin Atlantic had entered into a licence with Air New Zealand in about June 2004, the UCS had to be modified in order to fit onto Air New Zealand's aircraft. A separate design team was created in order to deal with those modifications. That design team (as well as the original design team) had access to the UCS design data (including CATIA). Third, contrary to the pleaded case there were at least two people at Contour (Simon Allen and Bruce Gentry) who had roles to play both in UCS and Rock/Solar Eclipse. Indeed, since Contour employ a large number of short term contract designers, it has not been possible to identify all the designers and engineers who worked on the UCS project, or whether some of those short term contract staff worked on other projects within Contour. Accordingly, Contour now admit that their relevant employees had the opportunity to copy both UCS itself and also UCS design data.”

For non-IP managers, there is a temptation to view protection by trade secret/confidentiality as a cost-free option. Certainly, there are no patent office fees to pay. However, as illustrated by the cases above, the measures necessary to ensure that confidential information is properly managed are far from being without cost.

When Harry Met Sally: The Propietary/Generic Courtship Continues

I want to add a sequel to my "When Proprietary Harry Met Generic Sally" post of earlier this week, here. The bad news, for all of you who worship this movie icon, is that there is nothing in about what I am about to write that has any connection with Billy Crystal or Meg Ryan. The good news is that, quite by chance, I ran across an article in the Israel business daily, The Marker, entitled "Teva Fires 28 Employees in its Patent and Research Department", the very day after my post. This article well illustrates the dynamic and complex tension taking place at Teva Pharmaceutical Industries, the world's largest generic pharmaceutical company, in its efforts to enter the proprietary drug space.

The gist of the article is that 28 employees were being dismissed from the Teva "patent" department. Most of them were being offered reassignment within the company, with a small number being offered early retirement. A number of students working part-time for the company were also being let go. The article attributed the reason for the down-sizing of the patent department to over-hiring in 2008. More particularly, 50 new employees were added that year, 35 of whom had a Ph.D. degree, thereby doubling the number of staff in the department.

At the time, the move was described as fitting in well with the strategy of the company, "wherein Teva was meant to be increasing its outlay for R&D from 6.2% in 2007 to 7.5% in order to increase sales revenue from $5.2 billion in 2007 to $11.5 billion in 2012. But this strategic goal was, in the words of the article, "rendered irrelevant to some extent" when the company acquired Barr in December 2008 for $7.4 billion here. The result was an overlap of R&D capability between Teva and Barr, which enabled Teva to reduce its R&D budget to less than 6% in 2009. As a consequence, a portion of the R&D staff hired in 2008 "were no longer essential". Hence the downsizing of the department.

I have no special information about the state of Teva's R&D capabilities. Nevertheless, the report does suggest that the company is finding it difficult to ramp up R&D internally in a way that can deliver proprietary products in a way that meets the company's financial goals. Instead, the company seems to prefer to look elsewhere for this, either by licensing-in the technology (which was the secret of its highly successful Copaxone product), or acquiring existing R&D technology. If my observation is correct, it suggests that the transition from generic to proprietary products, as described in A. David Cohen's article, is a challenging exercise for even the most successful of pharmaceutical companies.

In this connection, I am reminded that when Pfizer acquired Wyeth in 2009 here, one of the major reasons given was that Pfizer was interested in acquiring some of Wyeth's R&D capabilities. If Pfizer, which is a proprietary drug company par excellence, sees the strategic benefit of acquiring existing R&D capabilities, what can one say of a generic drug bohemoth like Teva showing a similar tendency. Moreover, I wonder to what extent that decision to downsize has more to do about the short-term company bottom line rather than any long-term plan for sustained proprietary R&D. This consideration, magnified for public companies facing the difficulties of the current economic environment, surely needs to be taken into account whenever one seeks to understand the challenges of moving into proprietary drug activities.

Sun Tzu and the patent trolls

David Wanetick (Managing Director, IncreMental Advantage) has written a little piece for IP Finance which readers may enjoy. He explains:

"Black Operations. Scorched Earth Campaigns. Preemptive Strikes. Fomenting Internal Unrest. Coalition Defenses. Trench Warfare.

These are not terms typically used in discussing patent strategy. However, they are strategies discussed in my article entitled “How Sun Tzu Would Outflank Patent Trolls”. Other articles have postulated that patent trolls are merely an illusion of paranoid patent managers. Some authors have praised patent trolls for providing a market for inventors to monetize their inventions. Other articles have lambasted patent trolls for levying taxes on innovation. This article provides a thorough analysis of how operating companies can respond to demand letters issued by patent trolls".

Offshore IP holding companies - UK discussion document

HM Treasury has published the discussion document on the future of taxation of controlled foreign companies. Of particular interest for companies with IP are the questions (pages 15-19) on how they should treat overseas companies with IP, proposing to distinguish between those that actively manage the IP and those that passively receive it. The document is part of an ongoing process to establish tax rules that ensure UK parent companies are not taxed on the profits of IP holding subsidiaries in certain circumstances (circumstances to be defined!)

A controlled foreign company is an overseas company which is (generally) majority owned by a company in the UK and, generally, is in a location with a low tax rate. Tax authorities tend to be wary of such companies because they could be used to divert profits from a higher tax country (such as the UK). The portability of IP means that tax authorities are particularly concerned when such companies are used to hold IP and receive royalties. The introduction of a tax exemption for dividends received from overseas brought this issue into sharp focus because such companies could receive royalties, pay little tax on them, then dividend the profits to the UK company - which would not pay tax on the dividend. HM Revenue & Customs is, perhaps understandably, concerned that (without any checks in law) UK companies would simply put all profitable IP activity into non-UK companies and minimise their tax costs.

The discussion document simply asks questions at this point, rather than suggesting any particular line of thought. In particular, it seeks responses on what constitutes active management of IP - this is likely to be an interesting area of discussion, as many of the characteristics of active management would seem to reflect well-managed investment IP activities as well.

When Proprietary Harry Meets Generic Sally

I recently had lunch with a UK colleague with a distinguished background in patent litigation matters, in general, and pharmaceutical-related litigation, in particular. During the conversation he confirmed my understanding that, as far as client representation was concerned, you either represent proprietary pharmaceutical companies or generic manufacturers, but not both. The thrust of the position is that there is a type of IP Continental Divide, where the headwaters either flow in a proprietary or a generic direction, but never come together under the same corporate roof.

His comment led me to recall a chapter published over a decade ago by my late colleague, A. David Cohen, entitled "The Intellectual Property Characteristics of a Generic Company", in Intellectual Property in the Global Market Place (2nd ed. 1999), edited by M. Simensky, L.G. Bryer and (full disclosure) N.J. Wilkof. A. David Cohen served as the Manager of the IP Department at one of the world's largest companies in the generic patent protection industry.

The particular focus of the chapter was an effort by Cohen to describe how this company, despite its historical commercial raison d'etre in manufacturing and selling "plant protection chemicals initially developed by a different (usually) research-based company, but after the plant patent has expired," was in the process of evolving into a research-based plant protection company. As set out by Cohen, it is worth noting the salient differences in IP protection during each of these stages in maintaining the company's the patent protection business.

Generic Stage

1. The company focuses primarily on assessing the validity of patents to avoid infringement and assessing the extent to which use can be made of the patents.
2. If the company does file patents, it is usually for processes; only later might patents also cover formulations.
3. The company is active in oppositions of patents and will seek compulsory licences when possible.
4. The company is also involved in invalidation proceedings regarding patents that cover products that the company wants to commercialize, oftentimes with an eye towards obtaining a license.
5. The company has a strong interest in taking full advantage of the experimental use exception, if applicable, for existing patents.
6. The company vigorously challenges patent term extensions.
7. The company at a later stage of its generic-focused activities will engage in a "picket-fence" strategy to block the proprietary product beyond its basic stage (the company will run experiments "and file one or more patent applications covering either a new process to prepare the product, a new process to prepare a key intermediate, selected mixtures, new formulations and/or new uses").

When the Picket Fence Strategy is Breached

Interim Stage

1. The company faces the prospect of declining market share, as more companies enter the generic space and the larger multinationals acquire smaller generic companies.
2. To maintain sales, the company shifts from selling not only its own technical material but also its formulated material, leading to patenting of the formulations.
3. Because of the distinctive nature of agribusiness, the company obtains agricultural registration for its products on a country-by-country basis.
4. The company is less active in seeking compulsory licences, engaging in invalidation actions, or in challenging patent term extensions.
5. The company begins to view patent protection as a means for protecting its commercial interests.
6. The company strengthens its patent validity activities and the implementation of its picket fence strategy.

Proprietary Company

1. The company engages in fully-fledged R&D to develop proprietary products and/or licensing-in proprietary technology for product development.
2. The company maintains a patent registration program to protect its own proprietary products.
3. In so doing, the company must decide on whether to include in the first basic patent, as well as the product itself, all known uses, alternative processes and synergistic mixtures.
4. This requires the company to consider both patent prosecution costs and up-front research costs as well as to weigh the risk that a comprehensive patent whose filing is delayed to assure its comprehensiveness may allow a competitor to sneak in with its own prior application.
5. The company begins to find ways to counteract the picket-fence strategy of others.
6. The company actively supports patent term extensions to provide additional protection for its products.
7. The company seeks the optimal way to balance the existing generic business with the emerging proprietary emphasis and to maximize the joint revenue from both.

What arises from Cohen's discussion is the dynamic nature of these processes. In his own words,

"... the generic company's attitude toward and its experiences with intellectual property may both prepare and push it toward becoming a research-based company."

If that observation was true a decade ago, it is even more so now. Even the world leader in the generic pharmaceutical business, Teva Pharmaceutical Industries, is also an active participant in the commercialization of proprietary products.

The upshot is that the generic/proprietary divide in the pharmaceutical industry seems less and less germane, if it all. Unless, of course, you are engaged in patent litigation. There, even as your client is constantly searching for ways to achieve the right generic/proprietary mix for its own business, the approach to litigation, perhaps out of necessity, perhaps out of legacy, continue to take a Manichean view of the pharmaceutical world.

Collaboration and IP Rights: But What About Those Transaction Costs?

Surely one of the main themes of the past decade has been the rise of collaboration in R&D and innovation. Whatever one's slogan--"You collectively is smarter than you individually" or "No more 'not invented here'", both popular and and academic literature are replete with accounts of the challenges and rewards of collaboration as opposed to go-it-alone development. Aided by the universal reach of online communications and infrastructure, as well as the global movement of ideas, resources and manpower, collaboration is championed on both substantial and process grounds.

Against the almost epiphanic adulation in favour of such collaboration, however, there remains a dirty little secret: it is often times devilishly difficult to find a workable arrangement for the allocation of IP rights in such circumstances. Just one example --the mind-numbing exercise of distinguishing between "Background IP" and "Foreground IP" has become a common nightmarish staple in fashioning collaboration agreements. More generally, the challenge of establishing a workable framework for determining ownership of IP rights, both individually and jointly, is daunting under the best of circumstances and is a potential show-stopper in less favourable situations.

It is against this backdrop that I recently read an account in the December 7, 2009 issue of Business Week ("Can Roche Leave Genentech Alone?") of the efforts by Roche to implement its acquisition of the 44% of Genentech that Roche did not previously own (in early 2009, we discussed the Roche-Genentech acquisition on this blog here.) One comment in the piece particularly caught my attention: the observation that the acquistion will finally allow the two companies to work together in an effective manner on what is termed "personalized medicine", with the goal of developing "diagnostics", namely the development of the technologies used by doctors to ascertain better which drugs work with which patients.

What exactly was the reason that the development of these "diagnostics" did not take place before the acquisition, even though Roche already owned over 50% of Genentech? According to the article, the reason centred on the issue of IP rights. "When they were separate, Genentech and Roche rarely tried to codevelop diagnostics, because it took too long to work out patent rights and other legal logistics. 'Now there's no intellectual property discussion, there's no negotiation -- we're the same! ... You wouldn't believe how much easier it is.' "

At first glance, this observation seems to be a testimony to the frictions created by transaction costs with respect to IP rights in collaboration arrangements. In particular, as noted by Wikipedia, "Bargaining costs are the costs required to come to an acceptable agreement with the other party to the transaction, drawing up an appropriate contract and so on." Here, the argument seems to be that the bargaining costs in arranging for the disposition of IP rights in a collaborative relationship were, at least with respect to the Roche-Genentech relationship before the full acquisition, prohibitive. The result was that wide collaboration regarding diagnostics did not appear to take place.

There is something disturbing in all of this. Can it be that the transaction costs in bargaining the disposition of IP rights in a collaborative arrangement between two separate parties are so daunting that the only feasible solution is for the two parties to merge, thereby eliminating the friction in the contractual bargaining? Think about it: If the answer is "yes", then it calls into question the ability of lawyers to fashion arrangements for collaboration, other than an outright acquisition of one party by the other (was not Oliver Williamson the co-recipient of the 2090 Nobel Prize in Economics for studying this kind of thing?)

Surely (at least I would like to think "surely"), however, lawyers and their clients engage all the time in reaching an arrangement for the disposition of IP rights in collaboration agreements in situations other than an outright acquisition. Sometimes the negotiations over which party will own what IP rights in a collaboration are less rocky, sometimes more so. As the report on Roche and Genentech indicate, sometimes the collaboration dies a legal stillbirth.


Given this range of possibilities, it seems to me that the better question is how we should understand the parameters for effectively bargaining this disposition of rights in the more typical collaboration arrangement, when acquisition of one party by the other is not on the table. Against this background, we can then perhaps better understand what were the particular factors in the pre-acquisition relationship between Roche and Genentech that seem to have paralyzed any effective bargaining of IP rights between them, at least with respect to diagnostics. There may be an interesting MBA case study here to explore these questions. Any takers?

How do you quantify loss of goodwill in the right to use a generic term?

What happens when the owner of a well-established brand (SMIRNOFF) as used in relation to a generic product (vodka) succeeds in an 'extended passing-off'' action against a defendant whose product is branded (VODKAT) in such a way as to cause confusion with and erode the distinctiveness of the generic product? How are damages to be assessed? We may soon find out, now that Mr Justice Arnold has held this morning in Diageo v Intercontinental Brands [2010] EWHC 17 (Ch) that Diageo had indeed suffered such a loss. Said the judge (at paras 231-235):

"The third main issue I have to decide is whether Diageo have suffered, or are likely to suffer, damage as a result of the misrepresentation. Diageo contend that they have suffered, or are likely to suffer, damage under two heads. The first is loss of sales of SMIRNOFF. The second is erosion of the distinctiveness of the term "vodka".

Loss of sales

Diageo accept that: (i) sales lost due to mere competition between VODKAT and vodka, as opposed to sales lost due to confusion, are irrelevant; (ii) most sales lost due to confusion will be sales of brands of vodka other than SMIRNOFF; and (iii) Diageo cannot rely upon lost sales of other brands. Nevertheless, Diageo contend that they have lost some sales of SMIRNOFF to VODKAT due to confusion.

In the on-trade something like 85% of the vodka sold on Optics is SMIRNOFF. ... VODKAT could have a significant effect on the sales of SMIRNOFF in this sector. The majority of these losses must be discounted as being due merely to competition from a cheaper product. Nevertheless, I am satisfied that there will have been some sales lost due to confusion. What I have in mind in particular is the scenario where a pub or bar stocks SMIRNOFF as its main vodka and VODKAT as the "house double" vodka. A customer who is confused will accept the VODKAT, whereas a customer who is not confused may well insist on the real thing.

As to sales through off-licences, no doubt most lost sales will be of other brands. Nevertheless in 2007 A.C. Nielsen estimated that 3% of VODKAT sales were made at the expense of SMIRNOFF. Again, some of these will be due to mere competition, but I am satisfied that others will be due to confusion. This is particularly so in convenience stores where the price differential is often much less than in supermarkets. Even where there is a price differential, ... consumers may decide to buy two bottles of VODKAT rather than one bottle of SMIRNOFF. This is particularly likely in the case of consumers who are under the impression that VODKAT is a weaker version of vodka.

Erosion of distinctiveness

Even if there was no evidence of lost sales, I consider that it is clear that ICB's marketing of VODKAT is likely to erode the distinctiveness of the term "vodka". It will cease to be a term reserved for 37.5% ABV spirits, and will come to be seen as a term applicable to lower strength products which include fermented alcohol. Indeed, I think there is some evidence that this is already starting to happen. The advent of the me-too products like VODKOVA is likely to accelerate this trend if it is not checked".

HMRC on the attack on image rights?

IP Finance thanks Angus Bujalski (Michael Simkins LLP) for the following post:

Amid the general outcry over Manchester United’s proposed £500 million bond issue, one of the many risk factors listed seems to have received undeservingly scant attention. The club noted that it was under investigation by Her Majesty's Revenue & Customs (HMRC) for payments made in relation to players’ image rights. These structures, common in top-flight football, typically involve a player assigning all rights in the exploitation of his image to a company, often offshore. Unlike most civil law jurisdictions, since there is no single concept of an “image right” in English law, the agreements typically include a broad assignment of all rights to use a player’s name, image, likeness, voice, even shirt number, and so on. The club then pays a licence fee to the company for the right to exploit these rights.

Crucially, the clubs argue that these payments should be viewed as capital sums, and therefore not taxed as income, since the payments are made under genuine arm’s length transactions under which the club gets real value for the money paid to the players. HMRC’s position, however, is quite the opposite, arguing that image right structures are artificial schemes designed to avoid tax. Specifically, payments made in this way are not subject to UK income tax or national insurance in the hands of the player, so the clubs can therefore incur less expense to ensure the player receives the same net amount as if the payments were paid as wages. Second, it means the club does not incur the National Insurance costs on the payments it would have to make, were the payments made as wages.

The legality of image rights structures has long been problematic even after the courts first ruled such payments legal in the cases involving Dennis Bergkamp and David Platt. It has been suggested that HMRC have been aching for the opportunity to bring a case to court as a means of overturning these decisions. Indeed, the fear of the courts reversing the Bergkamp decision is one reason why several Premier League clubs do not use these structures.

Now, with public finances stretched, it may be that HMRC are more actively pursuing this opportunity. Any judgment overturning the Bergkamp decision would have serious consequences for many Premier League clubs. The prospectus for Manchester United’s proposed bond issue suggests that the club could be liable for up to £5.3 million in past National Insurance contributions. Of greater concern to clubs, however, would be the increased wage costs, since there is little doubt that players would request their wages be grossed up to leave them in the same net position, particularly as they will be subject to the new higher rate income tax of 50%.

Coincidentally, it was reported last week that the annual profits of Beckham Brand Limited, the company set up to exploit the image rights of David and Victoria Beckham, grew 60% after his first season with the LA Galaxy. Beckham’s return to Manchester United with AC Milan in the Champions League will no doubt serve as a reminder of the real value of the rights to a high profile player’s image.

The Bullring

The Bidvest Wanderers Cricket Stadium, affectionately known as the "Bullring" because of its intimidatory atmosphere, is a relatively small ground with steepish stands capable of accommodating 35000 passionate cricket fans in the heart of Africa’s commercial capital - Johannesburg. Add to this, dramatic thunderstorms, the final test against the English in a must win for the host country, 30 degree heat, some controversy, a fast bouncing pitch and it is very difficult to avoid getting a ticket if you have an opportunity to watch a late afternoon session, like this blogger had on Saturday.

The advantage of a five day cricket test, even in a late afternoon session, is that there is time to observe. If you think that advertising space on the back of a toilet door has value, it is nothing in comparison to the opportunities for marketers to exploit the thinking time of a captive during a cricket test and somewhat healthier for the captive too!

Apart from the RSA ambush of three slips, a gully and short leg to thwart England’s attempt to launch their rearguard action that evening, Investec were taking on Standard Bank (Africa's largest bank) in their own form of aggression - competitive advertising. An electronic billboard flashed relative newcomer Investec every so often conveniently against the backdrop of the impressive Standard Bank hospitality suite. Not only did Investec get the space, the flashes managed to mimic the white on blue colours of the market leader.

Not to be outdone, the food and beverage industry was raging its own battle. Coca-Cola, no stranger to competitive marketing, was doing its best to upstage local market leader in the sports drink category (Energade) with its Powerade billboard alongside. Meanwhile, Nando’s, probably RSA’s most successful international food franchise brands and well known for its opportunistic marketing, found itself selling its food alongside a Nino’s eatery adorned in a similar white and green. It is when you see what happens in sports stadiums that you consider the impact of (and some argue, reason for) the controversially restrictive Metcash ambush marketing decision ahead of the Fifa World Cup 2010 or why the 2003 Rugby World Cup was not offered to New Zealand in 2003, over stadia contractual disputes.

Moving away from competitive marketing, it may be interesting to note that despite the efforts of Steyn, Morkel and/or Parnell, whose bowling caused havoc that evening, their success is unlikely to ever be as commercially valuable to a sponsor as the batting scalps they claim, simply because the advertising space on a batsman’s bat is more prominent for television viewing. There was also a notable absence of law firm advertising. Perhaps this is because of budgets cuts or because sports box hosting is passé for legal service firms?

Finally, during one of the rain/bad light breaks, the electronic scoreboard lit up with a message. It was not a New Year’s message but an order that all spectators “shall not discriminate” described in about 20 words, which included “acts“ which might “intimidate” those of a different “national origin”. Plainly, it did not stop the partisan crowd cheering the fall of an English wicket or the intimidatory marketing on display. It was hardly intended to either.

When Branding Comes to the Rescue of J.P. Morgan Chase

There were three highlights in the financial world during the past week. One was the testimony given on Capitol Hill by the chairmen of several of America's leading financial institutions. Blame, responsibility, contrition and political gamesmanship were all wrapped into a riveting questions-and-answers extravaganza. The second was a speech given by Paul Volker, the former legendary Chairman of the Federal Reserve Bank. The third were the quarterly earnings reported on Friday by the bank J.P. Morgan Chase.

An IP angle to these three events came to me almost by accident, upon listening to a podcast broadcast interview with David Malpass, formerly the Chief Economist of Bear Stearns. During the interview, the question arose about the future of banking and the discussion turned to whether there should be a return to a two-bank structure. The first type of bank is the retail or utility bank, an institution that takes deposits and makes loans, all with presumed low risk. The second type is the investment bank, one that takes much greater risk by engaging in financial trading and the like. Such a division had been roughly mandated by the Glass-Steagall Act, a piece of US legislation crafted in the early 1930s and repealed in the late 1990s.

What does this have to with IP? The answer is found in an observation made by Malpass into question asked about whether it was feasible to conceive of a return a Glass-Steagall world. His reply, at least with respect to J.P. Morgan Chase, was fascinating. He observed that the bank was in some sense preparing for such a possible eventuality. It was doing so by branding it services. Namely, the bank branded its retail services under the "Chase" name, while it branded its investment services under the "J.P. Morgan" name.

Just to put the bank in perspective. As noted by Wikipedia,

"JPMorgan Chase & Co. is one of the oldest financial services firms in the world. It has operations in 60 countries. It is a leader in financial services with assets of $2 trillion, and the largest market capitalization and third largest deposit base U.S. banking institution behind Wells Fargo and Bank of America. The hedge fund unit of JPMorgan Chase is the second largest hedge fund in the United States with $32.893 billion in assets as of 2009. Formed in 2000, when Chase Manhattan Corporation merged with J. P. Morgan & Co, the firm serves millions of consumers in the United States and many of the world's most prominent corporate, institutional and governmental clients."

In other words, while the bank in principle maintained both retail and investment banking under one corporate roof, in effect it was using a dual branding strategy that seems to address two goals. The first is to send separate and distinct messages to two quite distinct types of banking customers. One is the retail customer, who can find comfort under the venerable Chase name, long identified with retail banking services. The other is the institutional customer seeking investment services and who feels equally at home at the bank, relying on the J.P. Morgan name that hearkens back nearly a century to its eponymous founder.

The second goal is to hedge the bank's bet against the possibility of a return to a Glass-Steagall regime. In such a situation, a bank that tries to brand both its retail and investment services under a single brand will find it quite difficult to disentangle the two services in the public eye, should it be required to do so. The beauty of the branding strategy of J.P. Morgan Chase is that it seems to address this problem head-on in a promising way, if the bank is ever required to split into two.

J.P. Morgan Chase has been widely praised for its resilience during the Great Recession and its chairman, Jamie Dimon, has been well-nigh iconized for his leadership. Add, perhaps, to the enlightened management of the bank during these troubled times the adoption of branding strategy attuned to the bank's needs.

The Saga of Automobile Brands--Then and Now

There are few subjects in branding more interesting that the changing nature of brand identity within an industry over time. Few industries have a sufficient historical half-life to allow one to step back and contemplate how the message conveyed by the brand has developed and how it has been transformed. Of those few industries that do fall within this category, none spans a broader swath of time and contains within it a more engrossing branding saga than the auto industry.

I was reminded of this in listening recently to a radio interview with Paul Ingrassia, the Pulitzer-prize winning journalist from the Wall Street Journal. The occasion was the annual North American Auto Show, held each year in January in balmy Detroit, in which the leaders of the (troubled) auto industry gather together to exhibit new models and technology, and to exchange pearls of wisdom with the assembled press corps.

More particularly, Ingrassia was interviewed in conjunction with his new book, Crash Course: the American Automobile Industry's Road from Glory to Disaster, published on Jan. 5, 2010. What was particularly interesting for me was Ingrassia's comments on the changing nature of the message conveyed by the dominant auto brand. Ingrassia described four different branding periods.

First, there was Henry Ford nearly a century ago, offering the legendary Model T in a single color for the emerging American middle class. The emphasis of the Ford brand seems to have been about manufacturing efficiency and product availability.

Second was the radical reformulation of the auto industry orchestrated by Alfred Sloan of GM during the period from the 1920s to the 1950s. The brand became the paramount focus, whereby Sloan carefully cultivated a hierarchy of brands, from most modest to most luxurious, designed to mirror a customer's increasing affluence and success. The message was clear--you are what you drive, the various brands carefully calibrated to convey the branding message to the public, while at the same time turning one's vehicle at any given point in time to an emotive love-fest between man/woman and the machine.

Third, there was the ascendancy of the Japanese car industry in the 1980s, most notably Toyota and Datsun/Nissan. Brands were rationalized from the hierarchy of the GM days to a small number of brands, all tied together by manufacturing prowess and a customer perception of quality superior to that of their U.S. competitors. One loved his Toyota because it was the perfect combination of styling, price and quality. By concentrating this coherent and consistent message in a very small number of brands, the Japanese car manufacturers were able to prevail over the more scattered message of the plethora of GM (and equivalent) brands.

Fourth, we have the rise of the Korean car industry and in particular Hyundai, which Ingrassia describes as the current star of the auto industry. In comparison to Toyota's documented manufacturing difficulties over the last 6 months or so, Hyundai has been able to convince the public that its brand stands for value, quality and reliability, without the frills, but perfectly attuned to the expectations of the consumer against the backdrop of the global recession. People may have a love affair with their Hyundai, but it seems to be a romance of convenience rather than passion.

There you have it. It will be interesting to interview Ingrassia in another decade and to hear whether the current dominant brand will then be coming from India or China and, if so, what is the message conveyed by that brand.

Patents - Do Guys Think You’re Worthless?

Hidden away in Vienna, the European Patent Office (EPO) has a Directorate of Databases and Promotion that offers IPScore, a “free-of charge tool to support the patent strategy of companies, mainly SMEs, and to steer the volume of applications by eliminating potentially “worthless” applications.” Intrigued, the Licensing Executives Society Britain & Ireland recently arranged for the EPO’s Johannes Schaaf to give an afternoon workshop on the tool.

IPscore®

Perhaps not surprisingly given its name, the tool is a scoring system of the kind familiar to many of us from women’s’ magazines (try e.g. cosmo_quiz_do_guys_find_you_intriguing). For each of forty questions about the target patent, the user is asked to choose one of five responses, each response having a different score. The questions fall into five groups covering “legal status”, “technology”, “market conditions”, “finance” and “strategy”.

On completion of the questionnaire, the user is provided with a radar plot illustrating the eight or so responses for each group of questions. As is usual with such plots, these can be used to highlight strengths and weaknesses of the patent. The tool also prepares a “quick and dirty” monetary valuation of the patent.

Using the tool on a portfolio of patents also generates a 4x4 grid illustrating the relative risk and opportunity of each portfolio member. This allows “worthless” high risk/low opportunity patents to be culled. Readers may recognize similarities here with the new product portfolio management work of Cooper and Edgett.

Herr Schaaf took pains to stress that IPScore was primarily a qualitative tool that provides a guide for locating potential gains / cost savings. Given that the tool demands answers from legal, technology, marketing, finance and strategy departments, he also suggested that it was a means for promoting dialogue about patents within the company.

Unfortunately, the limited time available did not allow discussion of the theory and data underlying the tool, which was apparently developed by the Copenhagen Business School in collaboration with the Danish Patent Office. In particular, it was not clear whether all forty questions were given equal weighting or whether some, e.g. “what is the market growth in the business area where the patented technology is utilized” were weighted more heavily than others, e.g. “what is the status of the patent”. As often noted by Neil Wilkof on this blog (see e.g. here), IP is sometimes more crucial, sometimes less crucial to the success of a particular company and its activities.

The EPO are also targeting the tool at SMEs. Again, there was no time to explore the EPO’s reasoning for this: Does the EPO believe that large companies do not require help with patent strategy? Do large companies not have potentially worthless applications? Or does the EPO believe that large companies have better ways of managing their IP, in which case should not such techniques be made available to the IP managers of small technology companies, where IP may in fact be more important than in large companies?

This post was guest-blogged by Ian P. Hartwell

The Long Tail, fashion design and collectables

I don't make a point of cross-referring my own posts, but there's very little overlap between the readerships of IP Finance and Fashionista-at-law, and my piece there this morning ("Does my Long Tail look big in this outfit?", here) is arguably as relevant, if not more so, to readers of this blog than that one. The piece draws attention to the imbalance between the windows of opportunity for deriving revenue as between fashion designers on the one hand, whose markets are often ephemeral creatures of a single season, and sellers of collectable dolls on the other. Enjoy!

An Anlysis of IP Licensing: The Empirical Challenge

Research on IP licensing tends to be of two types--either anecdotal or empirical. The strength of each is also its weakness. Anecdotal research, while it drills down into the specifics of a given licensing situation, lacks the ability to support broader generalisation; empirical research, while it provides a broader overview of licensing, usually lacks any guidepost for the practical implications of the results.

With that in mind, I finally had an opportunity to review a study published last year as a Working Paper of the OECD Directorate for Science, Technology and Innovation (DSTI/DOC(2009)5)). Entitled "Who Licenses Out Patents and Why? Lessons from a Business Survey," the study was carried out by Maria Pluvia Zuniga and Dominque Guellec. As described in the Abstract, "[t]he goal was to investigate the intensity of licensing to affiliated and non-affiliated companies, its evolution, the characteristics, motivations and obstacles met by companies doing or willing to license." To this end, responses were studied from 600 European, and 1700 Japanese, corporate patent holders.

The first point is the unique nature of technology transactions. The authors mention a number of factors that make IP licensing a challenging activity: (i) markets for technologies are seen as less efficient economically than product markets; (ii) the incorporeal nature of IP rights, whether registered and disclosed, as with patents, or tacit, as with trade secrets, makes both valuation and deal structure uncertain; (iii) a license arrangement requires the licensor to find a satisfactory way to share the fruits of its innovation with a third party, with both commercial and psychological implications; (iv) the mixed nature of an IP license, having both proprietary and contractual aspects, makes the structure and drafting a license agreement a non-trival and often times costly activity; (v) the licensor runs the risk that the licensee may become a competitor, lawfully or otherwise; and (vi) the characteristics of a license are industry-specific with significant differences across industries.

Let's go now straight to the statistical findings:

1. About 20% of companies in Europe and about 27% of their Japanese counterparts license-out at least one patent to an unrelated party.

2. The probability of a company licensing-out patents is U-shaped, namely, small and large companies are more likely to license-out than mid-size companies.

3. In Europe, UK companies, followed by Nordic companies, are most likely to license-out.

4. Revenue is the major driver of licensing-out, followed by the sharing of technology (i.e., cross-licenses) and "constrained licensing" (an alleged infringer is compelled to accept a license).

5. About 24% of European companies holding patents, and about 53% of their Japanese counterparts, expressed the unrequited desire to license-out, due to the failure to locate a partner.

6. The use of patents in connection with fund-raising is most notable for young firms, i.e., venture capital (31%) and private equity (40%).

The authors then state as follows:

"The survey shows that licensing markets are less developed than they could be, in view of the willingness of patent holding companies to license more of their portfolio. Helping suppliers to find partners would substantially increase transactions in patent markets. Both market and government solutions exist which could alleviate obstacles and reduce transaction costs. Market-based mechanisms have recently emerged (technology brokers, internet platforms, patent funds, auction houses, IP consulting companies, etc.)."

I have a number of comments about this.

1. It has always seemed to me that the greatest threshold obstacle to getting our empirical arms around IP licensing is the quality of the data. Most IP licenses are private arrangements and the kind of (self-) sampling described in this study seems dicey as a statistical matter. Until we solve this problem, whatever the results are, they must viewed with a healthy degree of skepticism.

2. It would have been helpful if the authors had suggested the reason for the U-shaped probability curve for who licenses-out. Is this a robust result or an artifact of inadequate data? If the former, it strikes me as having significant implications for policy and practice, but only after a plausible explanation is offered for it.

3. I remain wholly puzzled by the geographical focus of licensing-out on the UK and the Nordic countries. Once again, is this simply the result of inadequate data, or does it represent a significant difference in the way that IP is commercialized in these countries, as contrasted with such jurisdictions as Germany, France and Benelux? I think that there the empirical jury is still out on this point.

4. As for the search for better licensee identification and reduced transaction costs through market mechanisms, there is a "quest for the Holy Grail" aspect here. More ink seems to have been spilled at positing the possibility of promoting such markets, as contrasted with identifying such markets on the ground. I really want to be proved wrong here. If so, research should begin with evaluating the effectiveness of the market alternatives suggested by the authors.

More generally, I wonder just how useful empirical studies of IP licenses can really be. This unease about the entire enterprise has not been allayed by this study, despite some tantalizing findings and suggestions.

It May be Easier to Find Transaction Costs After All

What price Gourmet?

Writing for BrandChannel, Vivian Manning-Schaffel ("Condé Nast Considers Licensing To Mitigate Losses", here) explains that, in its quest for fresh revenue streams, publishing house Condé Nast may opt for brand licensing in an attempt to leverage income from titles such as Vogue, or even to resurrect dead titles like Gourmet -- which died last year along with Cookie, Modern Bride, Elegant Bride and Domino.

Manning-Schaffel is sceptical as to whether this strategy will yield fruit:

"Those same luxury publications (well, maybe not Gourmet) met their demise last year because their target audiences could no longer afford their contents.

So now consumers are expected to shell out money for products that are literally, in Vogue? To wit, one source ... said, "DO WE REALLY need Vogue handbags? Gourmet kitchen mitts?"".

The question, it is submitted, is not what consumers can afford, nor what they need. There are two elements to a brand: its allure and its goodwill. The allure is a magnet that attracts first-timers who want to look like Kate Moss, smell like Britney Spears drive like Jensen Button or exude the couldn't-care-less cool of Diesel. This applies in respect of both new and established brands.

Goodwill, in contrast, attaches to an existing product, being the attractive force which brings customers back for more; this is however lacking in any case of brand extension by the original owner or the licensing of the brand to another. You can't simply say, as Cadburys did many years ago, that if consumers like their chocolate bars they will purchase their instant mashed potatoes. Anyone paying licence royalties for non-core uses of Vogue, Gourmet or Domino is taking a big risk, since a brand that doesn't have sufficient gravity to retain custom in the sphere in which its goodwill was initially developed can't be expected to perform strongly in other markets.

Monetizing Online Contents: Is It a Qualitative or a Quantitative Matter?

I admit--I am a podcast freak. Every night I dutifully download from iTunes to my iPod the most current podcast broadcasts from a pre-selected list of sites. I then spend the better part of an hour in the morning (in conjunction with my morning walk), and a similar amount of time on the bus ride home, listening to these broadcasts. At the top of my list are the economic and business-focused podcasts offered by Bloomberg Radio, orchestrated by the dynamic force of its primary interviewer. While most of these podcasts are shortened from the full-length version of the original radio broadcast, sufficient content and elegant editing made the offerings a perfect fit for my morning and evening listening habits.

However, those days may be coming to an end. Starting at the beginning of this week, Bloomberg seems to be offering one of two choices. Either subscribe to a so-called "premium" service, which entitles the listener to access to the original, full-length broadcasts in exchange for a yearly fee, or be satisfied with only a series of short snippets, a mere fraction of not only the length of the original broadcast but the typical length of the edited item prior to the introduction of the premium service as well. (The "premium" service also promises a number of additional contents, presumably available only to podcast subscribers.)

In so doing, Bloomberg appears to betting that it has found a winning formula for that most elusive of challenges--how to monetize contents available online. Bloomberg is seeking to so by changing the behaviour of its listeners, whereby it is attempting to induce people to pay for contents that were previously available free of charge. While I can sympathize with Bloomberg's desire to find new sources of income, particularly in the online space, nevertheless, permit me to voice my reservations about this scheme.

My reservations do not derive so much from the prospect of being asked to now pay for online contents (I would prefer not to pay, but I am prepared to do so if I believe that I will receive a commensurate benefit.) Rather my puzzlement centres on the why Bloomberg believes it can attract me to sign up for contents which, in the aggregate, are less attractive for my personal use than were the contents prior to the change.

Think about it: the attraction of the contents in the old regime were not simply that they were available for free, but that they were edited in such a way that made them a perfect fit to my morning and evening schedules. In other words, I was drawn to the podcasts precisely because they were a shortened form of the original radio broadcasts. Recalling the old saying, "I did not have enough time to write you a short letter so I wrote you a long one", it was the editing function that turned these contents into a desirable user experience. Without wishing to sound trite, the fact that "less was more" was crucial.

Where Did That User Experience Go?

The new premium podcast service has turned the user experience of these broadcasts on its head. In so doing, has taken the position that monetizing contents online, by moving from a free to a subscription model, is a quantitative, rather than a qualitative, matter. Speaking for myself, I don't get the commercial logic.

After all, if I want to listen to the full-length broadcast (which, crucially, I do not), I can do so for free by listening to the original radio broadcasts. No special effort is required by Bloomberg to enable me to do store and listen to these broadcasts on my MP3 player. As I noted, the value-added experience under the previous arrangement lay in the editing of the contents. I would have thought, therefore, that Bloomberg's challenge would be to convince me to begin to pay for this user experience.It may come as a surprise, but I so much valued this user experience that I would have been willing to pay for it, even if had been previously offered for free. But I was never given this opportunity.

Instead, Bloomberg is trying to convince me to sign up simply because they offer me more contents that were previously available. If before, "less was more", as a qualitative matter, the current offer is that "more is less", as a quantitative matter. I assume that Bloomberg has done its marketing homework and that it is convinced that it will commercially succeed in this move. If so, it will may mark a major turning point in the monetizing of online contents. Perhaps--but not for me, I suspect.

Fallen angels?

Via Technology Transfer Tactics comes Marty Zwilling's "Eight Angel Investors to Avoid", a provocative little article from his Startup Professions Musings blog which might make some investors feel a little less comfortable about themselves -- though I doubt that many of them will be reading it. "Most angels are pure", he writes, "but there are some exceptions that may cost you more than an investment". Investors to watch out for are:

"Shark angels. This is the ultimate bad guy whose sole intention of getting involved in early-stage investing is to take advantage of what they believe is the entrepreneur’s lack of financial and deal-making experience. If the term sheet process turns to pure torture, it may be time to respectfully bow out [It might be too late at this point. It's worth asking for, and taking up references -- if any can be found -- from previous early-stage investments].

Litigious angels. The litigious investor will look for almost any excuse to take you to court. This type of investor never really focuses on the returns your company can deliver, but instead tries to make money by intimidation, threats and lawsuits. They know you won't have the resources to fight them, so they count on you "caving.” Keep your attorney close by your side [I never thought these existed till I had personal experience of one. They're sometimes difficult to detect, particularly at the early stages of their careers].

Superior angels. A number of successful business people, some of whom become angels, develop the belief that they are destined for greatness because of their clear superiority over everyone else. These are usually overbearing, negative people who are hypercritical of every decision you make. Don’t be intimidated into bad decisions [If you can't avoid them, try flattery or distraction ...].

Control freak angels. This angel starts out looking like your new best friend. Once you are funded, he waits until you hit your first pothole and then points out “gotcha” clauses in your agreement that give him more control. This escalates into a requirement that he must step in to run your company himself. Only your Board can save you here [Easy to avoid if you just keep missing those pot-holes].

Tutorial angels. The tutorial investor is not after control, but wants to hold your hand on every issue. The mentoring offer always sounds good up front. But after they write the check, it soon becomes apparent that their desire to be helpful 24 hours a day is a nuisance at best. Initially, your gratitude for their investment may prompt tolerance, but eventually the burden wears you down. Keeping your distance is the best solution [or ask for more advice, particularly if it involves market research and competitors' product development prospects, since that can wear them down].

Has-been angels. These tend to appear with every perturbation in the economy. They are usually high-flyers with a liquidity problem. They are still at the country club every day, but are now running up a tab. They will meet with you, and ask a thousand questions, but never get around to closing the deal. Learn to ask the closing questions [Closely related to Wannabe angels, whose habits are sometimes strikingly similar].

Dumb angels. Wealth is not synonymous with business savvy. You can spot dumb angels by the questions they ask (or don’t ask). If they ask superficial questions or don’t understand business, a successful long-term relationship is not likely. But don’t forget that people with wealth usually may have some savvy friends to meet [Careful, you might be in danger of taking them for a ride].

Brokers posing as angels. These people are all over the place, often posing as lawyers and accountants. They have little intent to invest in your company, and will eventually solicit you to sign a fee agreement to pay them to introduce you to actual investors. Brokers are often worth the fee, but don’t be misled about who is the angel [this category may overlap with Control Freak angels]".

Does Manufacture Have a Place for Small Country Hi-Tech?

Can small countries with a dynamic tech sector successfully translate technological prowess into commercial success? The question bedevils all of us who live in such locales and who are engaged in the local high tech business. Should our mindset be to invent, develop and sell the resulting technology, usually for the benefit of a small number of persons with an equity or like interest in the company? Or should we view the development of the technology as the only the first step in the building of a long-term commercial venture?

Stated otherwise, are the likes of Nokia (in Finland) and Teva (in Israel), the high tech rule or the exception for small countries located at the periphery? These thoughts ran through my mind when I read about the fate of deCODE Genetics, an Iceland- based pioneer in genetic research, which filed in mid-November 2009 for chapter 11 bankruptcy in the U.S.

According to a November 1th report of scienceblog.com, deCODE was established in 1996,

"basing its business plan on its unique access to biological samples and genealogical and medical records from the small [NJW--approximately 320,000 citizens], homogeneous Icelandic population. Since its launch it has proved wildly successful as a research institute, generating an astonishing number of high-profile publications on the genetics of common traits and diseases. Unfortunately, it has also been a complete disaster as a commercial venture, hemorrhaging away over $700 million while failing to generate a single quarterly profit."

In its bankruptcy filing, deCODE listed total assets of $69.9 milli0n and total debt of $313.9 million.

The bankruptcy filing by deCODE follows the failure in April 2009 to sell Iceland's Actavis company, which was a prominent generic drug manufacturer. On top of the country's well-documented banking woes, the question that is raised is whether companies such as deCODE and Actavis, seeking to operate from Iceland, are well-nigh doomed from the outset if their business model is built on manufacturing rather than "develop and sell" (although in the case of Actavis, being a generic drug company, manufacture was at the apparent heart of the company's activities).

Focusing on deCODE, the CEO, Mr. Kari Stefansson, in explaining the need to file for bankruptcy protection, stated in a Reuters report that

"[t]he company was probably founded about five years too early. ....At the time we started out there was very substantial support for long-term investment by biotech companies. But when we were halfway through development of our first compound, the market lost patience with long-term investment like that."

As well, the company had the misfortune to choose Lehman Brothers to invest its funds; the defunct financial company invested in U.S. auction-rate securities, the market for which completely collapsed during the summer and fall of 2009. So was deCODE a victim of bad timing, or something more fundamental?

Perhaps one way to better gauge this answer is to follow the fate of the company after reorganization. It is reported that its major asset--its huge DNA biobank and database--will be sold to a group of investors as a central part of the disposition of the company's assets under the chapter 11 proceeding. If the reorganized company succeeds commercially, then the debate will center on whether deCODE should have planned to sell these assets all along, whereby the company's scientific capabilities could then have been merged in a more orderly and lucrative way with the abilities of a third party better placed to commercialize these research efforts. As part of the answer to the question, consideration would have to be given to the fact that deCODE is an Icelandic company, even to the extent that the answer might differ if the company had been located elsewhere.

There is a further social policy aspect here. Manufacturing generates more employment than most R&D, and that will most certainly be the case in a situation such as deCODE. Even for an advanced society like Iceland, there may be a conflict between the most efficient use of technological resources, namely, the development and sale of R&D, and the broader social goal of achieving maximum employment for the population. Large countries are reasonably placed to satisfy both goals; query whether the Icelands (or Finlands or Israels) of the world have the same luxury.

But Where Are the Manufacturing Jobs?

When Moribund Brand Meets Turning a Disadvantage into an Advantage

Two of the more daunting challenges in consumer marketing certainly must be: (i) successfully obtaining a moribund trademark with the intention of reviving it; and (ii) developing a campaign whereby one turns an apparent disadvantage into a marketing virtue.

Regarding the first, we are reminded of the revival of the "Packard Bell" mark. It was first used in 1926 in connection with radio products and later expanded into defense contracting work as well as other consumer electronic products, most notably television sets. In the 1980's, the mark was purchased by a group of investors for use in a newly formed personal computer manufacturing company. The latter company plus mark was sold to Acer in 2008. Presumably, at the time of acquisition in the 1980's, the investors were convinced that there was sufficient goodwill in the mark, and that this goodwill could be extended into a new product category, that made its acquisition an attractive alternative to building a new brand from scratch.

Regarding the second, the iconic corporate slogan of Avis Rental Cars--"We Try Harder", springs immediately to mind. The slogan was first adopted by the company in 1962 and conveyed the dual message that while the company was certainly a respectable number two to the industry leader, The Hertz Corporation, it would not rest on its laurels and was committed to out- hustling its principal competitor. (This promise may be put to a severe test. According to Wikipedia, "the company primarily leases General Motors (GM) vehicles, such as Chevrolet, Pontiac and Saturn within the United States, though some locations feature other popular non-GM brands, such as Huyndai or Kai.")

It is difficult enough to succeed either in reviving a moribund brand or turning a marketing disadvantage into an advantage. An attempt to do both simultaneously must certainly pose even a greater challenge. An instance where it did succeed was recounted in the November 14th issue of The Economist. The article, entitled "Salesman of the Irrational", described the fascinating success of Jean-Claude Biver in successfully reviving three Swiss watch brands ("Blancpain"; "Omega"; and "Hublot") over nearly a 30-year period. The strategy that he employed regarding each of these brands was different, and we wish to focus on his success in connection with the "Blancpain" brand.

In 1981, Mr. Biver and a friend bought the rights to the "Blancpain" mark for what seems to be the sum of SF22,000. The mark had been used by a Swiss watch company which, among other things, had once supplied watches to the US navy. The company, however, had effectively gone out of business in the 1970's. What attracted Mr. Biver to the brand? According to the article, there were two things: First, the defunct company had claimed to be Switzerland's oldest watch manufacturer; second, the company had completely missed out on the technological revolution from mechanical watches to quartz timepieces operated by a battery.

Mr. Biver parlayed these two factors into the slogan--"Since 1735 there has never been a quartz Blancpain watch. And there never will be." To appreciate the audacity of the message, consider that at the time, digital watches being manufactured in Asia were selling for $20, a fraction of the price being charged for a Swiss watch. I remember to this day the spate of publication of articles eulogizing the end of the Swiss watch industry.

Mr. Biver bet that the message of tradition, which could be seen as the antithesis to technological progress and cutting-edge prowess, would ultimately carry the day. He was right. As the article mentions, "[i]t turned out to be an industry-changing move. Last year mechanical watches accounted for 70% of the value of Swiss watch exports." The "Blancpain" mark, which had been left for dead, succeeded in reestablishing itself as a respectable and viable brand.

As we enter the third year of the world economic slowdown, we have witnessed companies, some with venerable brands, go out of business. One by-product has been an increased interest in purchasing such brands out of bankruptcy. See here for an earlier blog post on this topic in connection with "The Sharper Image" mark. Mr. Biver's success has paralleled the 20-year boom from the 1980's until the recent past, and this confluence of favorable circumstances should not be forgotten. Nevertheless, the saga of the revival of the "Blancpain" mark shows how the likelihood of succeeding in the acquisition of a brand out of bankruptcy can succeed on the back of a high-risk marketing strategy. In appropriate circumstances, it remains an instructive example.

We wish all the readers of the IP Finance blog the best for the year 2010.