Will LSIP do the trick?

Earlier this month Intellectual Property Strategy Network, Inc. (IPSN) and the Innovation Network Corporation of Japan (INCJ) announced the establishment of Japan’s first intellectual property fund, LSIP. As this acronym suggests, LSIP is to be a fund that invests in life-science-related intellectual property, focusing on biomarkers, ES/stem cells, cancer and Alzheimer’s disease.

The idea is that the fund will traverse the boundaries of universities, public research and other institutions to bundle together IP, add value to it, then license it so that the life-science sector may develop through the application of revolutionary new technologies and the creation of venture businesses. According to the announcement,

"To date, the utilization of patents by Japanese universities has mostly been carried out by the TLO (Technology License Organizations) at each university or by the intellectual property departments within universities. However, the TLOs face numerous financial difficulties and some are closing down. Two main reasons are cited for this: (1) Even though the companies seeking the patent licence from the university want a group of intellectual property that has been sorted and bundled to a certain extent, each university has tended to market its own patents without any coordination, making the patents much less attractive to the companies. (2) University patents tend to be made simply on research results and so the data backing the patent is insufficient, which reduces their value as intellectual property because peripheral patents are not filed. Not only are public research institutions in Japan faced with similar problems, it is also likely that some companies have dormant patents that cannot be put to practical use.

To overcome these problems, the LSIP will collect and bundle intellectual property from universities, the Japan Science and Technology Agency (JST) and other public research institutions, companies and other groups in the four areas described above. The LSIP will carry out supplementary research to fill the insufficiency of the data, and will acquired peripheral patents. This will lead to the formation of attractive bundles of intellectual property and will better enable intellectual property licensing to pharmaceutical and other companies, and the creation of venture business. Even within these four areas alone, it is estimated that there are some 3,000 patents in Japanese universities and research institutions that are worthy of consideration as candidates for inclusion in the fund. The LSIP will carefully study these, and either buy them or acquire the patent rights to use them. The JST, which owns some 5,700 patents, is considering working in partnership with INCJ and is expected to work together with the LSIP.

LSIP will be managed by Intellectual Property Strategy Network, Inc. (IPSN), whose core members have accumulated broad experience as specialists in the front line of the intellectual property strategies of major pharmaceutical companies. IPSN will manage the LSIP with the assistance of outside advisers with knowledge of life-science fields, intellectual property, patents, law, management and other areas. There will be a thorough review of LSIP business after three years of operation, at which point a decision concerning the future of the intellectual property fund will be made. Intellectual property funds are a new field that are only just beginning to emerge globally".

It will be interesting to see how this approach fares. In particular, do the solutions which are outlined in the second and third paragraphs above both address the problems identified in the first paragraph, and may the sheer volume of costly expertise lead to both further delay in implementing target technologies and the need to recover a larger quantity of overheads?

Taxation of royalties between associated companies: time to give your views

The European Commission has launched a consultation on extending the scope of Council Directive 2003/49 on a common system of taxation applicable to interest and royalty payments between associated companies of different Member States (the Interest and Royalties Directive). According to the Commission:

"The Directive on a common system of taxation applicable to interest and royalty payments between associated companies of different Member States aims at solving double taxation problems linked to cross-border payments. In these cases, the State from which a payment is made (source State) charges a tax on its recipient company. Additionally, the recipient company is subject to tax on the income derived from this same payment in the Member State of its tax residence. The Directive provides for tax exemption in the source State. The exemption also applies when the payment is made from a permanent establishment (i.e. a branch) of the company place in a third Member State or received by such business centre.

The objective of this initiative is to clarify existing legislation while extending its benefits to a wider range of companies by: including other legal forms of companies enjoying the Directive; reducing the threshold to be considered associated company; taking account of indirect shareholdings to compute the total holding; alternatively, extending the exemption to payments between unrelated parties. It will also be proposed to solve a potential technical problem derived from the requirement that the payment be a tax deductible cost for the permanent establishment making it by stating that the directive covers payments linked to the activity performed by such an establishment".

If you want to have your say, you've got until 31 October to tell the Commission what you think.

By the way, Article 2(b) of the Directive defines "royalties" as

"payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work, including cinematograph films and software, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience; payments for the use of, or the right to use, industrial, commercial or scientific equipment shall be regarded as royalties".

The explicit omission of any reference to rights in sound recordings, broadcasts and transmissions and plant varieties rights may itself raise a comment or two.

"Mac" as Rorschach

With all the talk about the importance of the so-called Apple ecosystem (the interrelationship between the company's various mobile devices and its controlled app sites), we sometimes forget that role that trademarks still play for the company. In the main, the company's marks are unambiguous ambassadors of the company's goodwill and reputation. Thus "Apple" still presumably serves as the company's house mark, with branded devices "iPod", "iPhone" and "iPad" each clearly identifying a distinct mobile device as part of an expanding family of such "i"-branded products..

And there is the "Mac" (or its full name at its heraded 1984 baptism--"MacIntosh"). From its promotional inception via the legendary advertisement aired as part of the Super Bowl in the U.S. here, "Mac" has come to symbolize the iconic personal computer product made and sold by Apple. Unlike other company marks, however, it appears that the "Mac" mark no longer connotes a clear and unambiguous product message. This was suggested in a brief report ("Why the Mac is Still a Rock Star at Apple") that appeared in the June 28th issue of Bloomberg Businessweek.

The thrust of this short article was to describe the place of the "Mac" product line to the overall commercial success of the company. Thus, in Q1 of 2009, the "iPhone" accounted for 27% of company sales, while the "Mac" accounted for 33%. In comparison, in Q1 of 2010, the figures were 40% for the "iPhone" and 28% for the "Mac". But sales of the "Mac" are particularly profitable. At an average price of $1,300, it enjoys a gross margin of 30%. Compare that with Windows-based machines, whose average price is $687. Looked at from another angle, each one-half point of market share that "Mac" gains boosts sales in the amount of $3 billion.

One analyst, Charles Wolf, expects nearly 13 million "Mac" computers to be sold in 2010, and these sales numbers represent a continuing upward trajectory since 2004, when the company sold only 3.29 million units for the entire year. These are certainly impressive sales figures and it would seem to argue that the "Mac" product remains central for the company.

Well--maybe not exactly. In his June 7th launch of the new version of the "iPhone", Steve Jobs mentioned "Mac" only twice. As well, the company's "I'm a Mac" television ads no longer appear on the company's website. There does not seem to be any campaign which is specially planned to promote the "Mac." Indeed, the opposite is suggested. Thus Wolf observes that the line of "i"-based moible devices may well draw customers to consider the "Mac".

But drawing the customer to the "Mac" based on the aggregate goodwill of "Apple" and the "i"-based mobile devices is not enough. The company apparently believes that it needs to continue to add bells and whistles to the "Mac" computer (such as an apparent patent filing for an invention that will embed a projector into the computer and thereby enable it to turn every wall into a potential screen) to maintain its attractiveness.There is no suggestion that, as a strategic matter, the opposite is true, namely, attracting a "Mac" purchaser to add one or more "i"-based mobile products of the company.

If this is true, the "Mac", as profitable as it appears to be, is on its way to becoming an increasingly niche product for the company, being more served by the reputation and goodwill of the company's other brands, rather than being the driver for such reputation and goodwill. Stated otherwise, the treatment of the "Mac" mark provides a tantalizing insight into the strategy of the company for the foreseeable future.

Oh yes--I own an 'iPod", but no "Mac", 'iPhone" or "iPad". That may be my own form of hi-tech Rorschach.

More on the Rorschach test here.

If you're small and do other people's R&D ...

The UK's Intellectual Property Office has just published a note on the relaxation of R & D tax rules in the current issue of its IP Insight e-magazine. The current rules for claiming additional tax relief on research and development (R&D) are due to be relaxed. Small and medium-sized enterprises (SMEs) carrying out R&D will be able to claim the additional relief on their activities, even if they don’t own the intellectual property that will result from their R&D.

The new regime will apply to any expenditure on R&D which falls within an accounting period ending on or after 9 December 2009. This shift should help subcontractors carrying out research for larger companies. At present, to be eligible for the additional tax relief on R&D, SMEs must own any intellectual property created by their R&D activities.

The SME Scheme is open to organisations with fewer than 500 employees, an annual turnover of less than 100 million euros and a balance sheet not exceeding 86 million euros, so long as they have an annual spend on R&D of at least a token £10,000. There may be more to come, since public consultations on IP taxation are promised for later this year.

You can find further detail on R&D relief for Corporation Tax on the HM Revenue & Custom website here.

Monetising IP in the 21st century: some reading

Two bits of interesting reading: the first, "How are we gonna pay these musicians?", can be found on Music Think Tank (here); it's by musician, writer and business model enthusiast Matthew Hiscock. The second, "A Copyright Battle for the 2010s", was first published by Information Today and is now available online here on AllBusiness.com. This piece, by Michael Baumann, discusses the current challenges faced by publishers in monetising and controlling their intellectual property, presenting some technology solutions.

I've not had time to write anything thoughtful on either of these, and invite any reader with a little time on his or her hands to offer some comments.

Valuing Patents and Litigation

Patent valuation has always been an art rather than a science. The value is often more dependent on the eye of the beholder than an "objective" value. And probably rightly so. A company that can exploit a patent is prepared to pay much more for the rights, than one that needs to invest substantially in the means to exploit the idea.

Rob's been intrigued to hear recently about a case in which a substantial deduction was applied to the value of IP rights because they "had not been tested in litigation". This seems to be crazy and almost encouraging litigation. It's probably true that a patent that has survived litigation and had the whole weight of a defendant thrown at it is probably more valuable - it becomes almost impossible to challenge the validity. That might justify a premium. Most such patents, however, tend to be narrower in scope than the original grant. It's almost inevitable that some prior art emerges from unknown sources that will limit the scope of the original patent. So litigated patents tend to offer a smaller degree of protection, but are certainly future proofed against further prior art attacks. Their ultimate value could have changed either way - a reduction in claim scope can also mean a reduction in value.

So what's the conclusion? It looks to me that whoever carried out the valuation has not really considered the implications. When a court case in the US can cost upwards of USD 1 Million it does not seem to be a terribly good idea to apply a general reduction in value because the application had not been through litigation. Any good valuation expert should be in a position to at least instruct a prior art search to be done on a patent to see whether it is likely to be substantially litigation proof and that would generally be a much better approach than merely discounting the value because something "might be found". Certainly the search is going to cost an awful lot less than the court case.

Peter Zura's 271 Blog on Patent Litigation Statistics here.

Denis Crouch's chart on litigation reported here.

IP Bewertung - RIP

It's disappointing to hear of the apparent demise of the German Patent exploitation company IP Bewertung run by Guido von Scheffer from Hamburg. The company filed for bankruptcy in July and had made a name for itself for taking ideas and attempting to convert them into marketable technologies. Unlike many patent exploitation companies, IP Bewertung - which means Intellectual Property Valuation in English - realised that it was going to be difficult to take and market patents by themselves. The ideas needed nurturing into marketable technologies and they used to pride themselves in such investments in developing the technology.

The strategy seems not to have paid off since both IP Bewertung AG and the holding company IPB Holding AG have filed for insolvency in the local court in Hamburg.

It'll be interesting to see what becomes of the Deutsche Bank Patent Funds set up in 2006 and 2007 and reported here (in German). The funds still exist - and no doubt have some potential. The universities and research institutes who entrusted the commercialisation of their ideas to IPB will also be wondering whether they will ever receive a return..

The Technology Transfer Office: Start-Up Help or Hindrance?

The question of how university research is commercialized stands front and centre in most discussions about the impact of policy on innovation. Ever since the tectonic shift brought about by the Bayh-Dole Act in 1980, which enables American universities to own the fruits of federally-funded research, the link between university research and commercial innovation has preoccupied scholars and policymakers alike.

Perhaps the most frustrating aspect of this phenomenon is the search for durable research results and policy prescriptions when there is so much diversity across countries. The risk is that, while presuambly everyone/everywhere is in favour of more innovation and the ability of universities to contribute to this effort, being overly Bayh-Dole-centric may mask the fact that other countries arrange the relationship between government funding, university research and commercialization in materially different ways.

This tension between the search for durable findings amidst the swirl of national diversity came to mind in reading two accounts of a recent article by Audretsch and Aldridge, "Does Policy Influence the Commercialization Route: Evidence from National Institute of Health Funded Scientists," Research Policy June 2010. The two reports are "Audretsch on the Results of the University Research" (Indiana University, School of Public and Environmental Affairs, June 17, 2010) here and "Indiana-U Study Suggests TTO Undercounts Start-Up Activity" (The TechTransfer Blog, June 23, 2010) here (sorry, but when the online service wants to charge $31.50 for a copy of the 6-page article, I will limit myself to these reports).

One outcome of the Bayh-Dole revolution has been the rise of the Technology Transfer Office (TTO) in many universities and research facilities.The gist of the study was to examine how good a proxy TTO acitvity is for determining the commercial success of university research. Focusing on a sample of particularly successful scientists who have received patents for NIH-funded research, the gist of their findings is as follows:

1. 70% assigned their patents to their respective TTOs for further commercialization;

2. 30% elected not to assign at least some of their patents to the TTOs, preferring to seek to commercialize their inventions through so-called "back door" means.

3. As a result, "[s]cientists choosing the backdoor route for commercialization, by not assigning patents to their univeristy to commercialize research, tend to rely on the commercialization mode of starting a new firm ... By contrast, scientists who select the TTO route by assigning their patents to the university tend to rely on the commercialization mode of licensing."

4. Moreover, scientists who choose the backdoor route are more likely to have their work cited in subsequent patent applications, suggesting that perhaps the backdoor route is itself attracting a "better" type of research result than are the TTOs.

5. In any event, TTO data materially understates the commercial activity following out of university research and the link between entrepeneurship and the fruits of government-funded science need to be better understood.

While these are interesting results, I am bit surprised that anyone ever entertained the notion that TTOs are a good proxy for measuring commercialization of government-funded research. Maybe in the U.S. it is indeed an open question--hence the research. However, my own experience in Israel has made it clear for years that, in a "start-up nation" environment, the name of the game for some commercially inclined scientists has long been how to remove your research from the TTO framework.

Indeed, the real struggle is the tension between the claims of the government and the scientists how to divide the share of the commercial fruits of successful innovation. As such, it would not occur to anyone in Israel that its highly acclaimed TTOs are a good proxy. I have only the vaguest notion how this issue plays out in other settings with active government involvement in this area, such as Gemany and Australia. In any event, before we rush too quickly to the realm of policy prescription, we first need to get a much better idea of how the issue plays out in multiple jurisdictions. Only then might we be in a position to offer (or refrain from offering) really meaningful policy proposals.

IP Finance: a conference and a competition

Intellectual Property and Finance 2010: exploring and explaining the financial dimensions of IPRs is the title of a one-day conference, organised by CLT Conferences and scheduled to be held in Central London on 20 October. The day is chaired by IP Finance blogmeister Jeremy, and the speakers include three IP Finance team members past and present -- Anne Fairpo ("Taxation of IP: where do I start?"), Ian Hartwell ("Risk Management in IPR Ventures") and Louise O'Callaghan ("Insolvency: what does it mean for IP owners and those who do business with them?").

As is so often the custom these days, there's a competition attached to this conference, the first prize being complimentary admission to the conference, inclusive of a tasty lunch (thus saving you the trouble of forking out £495 + VAT for registration).

The competition is a simple one. We all receive scam emails Some are from people purporting to be in possession of funds which can only be released once the recipient has himself paid some cash over to the scammer, or which require the recipient to part with his confidential online login and password details. Your task, in entering this competition, is to compose a plausible scam email which seeks to entice recipients to invest money in an imaginary IP-protected business venture of your choosing. Entries should not exceed 500 words unless they're very good ...

Entries should be emailed to Jeremy here, with the subject line "IP begging letter". The competition ends at close of play on Sunday 3 October and the winning entry will be published on this weblog shortly thereafter.

You can read the conference programme in full here.

An Oil Slick of Legal Proportions

On August 2, a California-based class-action lawsuit was filed against a number of manufacturers, distributors and retailers of various brands of extra virgin olive oil. According to the complaint, the International Olive Council (IOC), an “intergovernmental organization that brings together olive oil and table olive producing and consuming stakeholders,” sets high standards for the determination of whether an oil can be called “extra virgin.” When tested by the UC Davis Olive Center [Note: this is part of the College of Agricultural and Environmental Sciences at the University of California, Davis campus, known less formally as UC Davis] these standards were not met by the defendant companies’ oils. The full report can be read here. [Note: There is no relation between this blogger and report co-author Dr. Edwin N. Frankel]

A quick primer in case you are not familiar with what qualities make an olive oil “extra virgin":

This oil, as evaluated numerically by the mean of a certified taste panel, contains zero (0) defects and greater than zero positive attributes. In other words, more than half of the [trained and IOC-recognized] tasters indicated that it is not defective and has some fruitiness. Extra-virgin oil also must have a free acidity percentage of less than 0.8 and conform to all the standards listed in its category. This is the highest quality rating for an olive oil. Extra virgin olive oil should have clear flavor characteristics that reflect the fruit from which it was made. In relation to the complex matrix of variety, fruit maturity, growing region, and extraction technique, extra virgin olive oils can be very different from one another.

According to reports, consumers spend $700 million per year, paying premium prices, on extra virgin olive oils based on the representation that extra virgin olive oil is of a better quality and taste than inferior virgin olive oils or olive oils. But the UC Davis study found that 69% of foreign extra virgin olive oils and 10% of California-produced extra virgin olive oils failed to meet the IOC’s standards for “extra virgin” classification. As such, the complaint alleges that California consumers have been defrauded by the misrepresentations of the defendant companies.


Popeye's girlfriend Olive Oyl, right, just learned that her favorite olive oil isn't truly extra virgin.

Defendant olive oil brands include Bertolli, Filippo Berio, Carapelli, Colavita, Mezzetta, and Pompeian. However, also among the brands named in the complaint are Rachel Ray and Safeway SELECT. Rachel Ray is a Food Network television celebrity chef whose star power generated a line of cooking-related consumer products. Safeway is an American grocery chain that, in addition to selling global grocery brands’ products, has developed its own in-house brands, which include the premium product brand Safeway SELECT. Given that Rachel Ray is a television personality and Safeway is a grocery store, the products sold under these brand names are most likely not produced in-house directly by their namesakes. They are presumably manufactured on behalf of the brands by third parties that operate under license agreements, manufacturing agreements or some such other contractual arrangement.

I’m not privy to the arrangements through which Rachel Ray’s EVOO [Note: EVOO is Ms. Ray’s famous on-camera identifier for extra virgin olive oil] or Safeway SELECT’s extra virgin olive oil bottles are produced. But I think the UC Davis report and the subsequent class action complaint are good reminders of the importance of including quality control measures and indemnification obligations in such agreements. Licensing is often a beneficial method for a brand to expand its product offerings; consumers who trust the brand’s core offerings seek out new ways of experiencing the brand through new products, whether manufactured in-house or through licensing arrangements. Even if this complaint is ultimately dismissed, all defendant brands may experience some damage to their consumer good-will, but for the licensed brands, this damage was essentially out of their hands. Whether they may have recourse against their manufacturers and/or licensees will depend in significant part on the strength of their contractual agreements.

Contents versus Distribution: Nothing New Under the Copyright Sun

Why is it that the current issues facing Sony are simply another instance of the basic challenge that has characterized the commercialization of contents since the emergence of the printing press and the rise of the autonomous author over 500 years ago? The reason is simple--then and now, the ultimate questions are (i) whether to be on the creation or distribution side of contents; and (ii) if one wants to be on both sides of the content equation, how to successfully coordinate between them?

Then, the struggle was between the publishing guilds and the interests of creators of independent contents. Now, the struggle is between the creators of contents and the platforms for their distribution and delivery. Despite the distance in time and the advances in technology, the basic issue remains the same--how are contents commercialized and who profits from such commrecialization?

These questions came to mind in reading a report in the June 21st issue of Bloomberg Businessweek entitled "TVMakers Move into Online Content." Generally, the article discussed how hardware manufacturers are about to "introduce a new generation of Web-connected televisions and servicess that will stream movies, TV shows, and music over the Internet and onto those sets." The goal is to enable you and me to bypass cable, and thereby to disintermediate cable as a content delivery vehicle. The ultimate dream is to enable the user to use these new tv-like devices so as to enable one to create his/he own personal set of television channels.

How does Sony fit into this? (The ultimate answer is hardly trivial, given that
the company is reported to have lost $1.4 billion during the last two years.) According to the article, Sony is about to introduce "the prototype of a TV that will deliver video and music over the web in partnership with Google." Earlier this year, Sony unveiled Qriocity, a so-called video-streaming service. Qriocity will link the Sony high-definition Bravia tv sets and Blu-ray players, both of which have internet connectivity. The service will also be available to the reported 35 million owners of a Sony PlayStation3 game console, which also enjoy internet connectivity.

Looked at otherwise, Sony seems to be seeking two different sources of income. First, it wants to increase hardware sales of the so-called Google television, which seems like a pure hardware play. Down the line, but way, way down the line, it hopes to get a chunk of revenues from the contents themselves. In 2010, online video revenues will earn $180 million revenues, compared to the reported $51 billion (!) to be earned this year by cable and braodcast companies for advertising alone. Second, Sony seeks revenues through its Qriocity service, whereby a charge of $2.95 or more will be assessed each time a person clicks to view a movie.

All of the above seem to be versions of providing delivery platforms for copyright contact. Don't forget, however, that Sony is also one of the major Hollywood studios, which puts Sony in an interesting position, at least with the timing of the showing of their movies. That is because movies are first shown at movie theatres and only later displayed via other means and devices. While the time gap between the showing of a movie at a theater and later distribution through other means is decreasing, the basic point remains. Movie theaters want to have the first bite at the apple.

This means that for Sony, the movie studio, it has to walk a tight rope between satisfying the demands of movie theatres and those of other means of content distribution, so as to maximize its revenues from the display of its contents on multiple platforms. For Sony the television manufacturer, however. with aspirations to link televisions with internet delivery, the goal is to make these products as attractive as possible at the expense of other means of content delivery. Obviously, one of the key elements here is the ability to show movies as soon as possible after their initial release, even if this might jeopardize the relationship of Sony studios with the movie theatres.

In other words, Sony has to navigate between being a contract provider and being a distributor of contents. The question is whether, in being challenged to find the golden mean between content provider and content distributor, it is not putting itself ultimately in a competitive disadvantage in comparision with competitors who are focusing one of the two sides of the content equation. Ecclesiastes was so right--there is nothing under the proverbial copyright sun, even for those in the Land of the Rising Sun.

Welcome, IAN the Intellectual Asset Network

The Intangible Assets Network ("Helping the public sector make the most of their intangible assets") is a new initiative from the UK's Intellectual Property Office, an initiative which -- if it can be developed and its momentum sustained -- might be expected to draw some tangible benefits in its wake. From its website here we learn the following:

"Intangible Assets (IA) encompass a broad range of assets, for example, data, software, knowledge management systems, business processes, goodwill, licences and intellectual property rights. Intangible Assets have similar characteristics to tangible assets in that they can be owned or controlled by an organization and may have a monetary value [It's depressing to realise that, even in the year 2010, it is necessary to state what should by now be a matter of general knowledge].

The National Asset Register [see here and here] indicates that the value of the public sector IA base is substantial, amounting to several billion pounds.

This website aims to

• Help you learn about intangible assets;
• Help you manage intangible assets and create value from them;
• Highlight the risks to your organisation if you don't manage IA effectively.

It is directed particularly at finance officers, information officers and project managers as they are likely to hold some level of responsibility for the management of IA.

... policies have been developed for the re-use of public information. While the commercialisation of public sector intangible assets might be a legitimate activity these policies and the relevant legislation must be considered.

The content has been developed by a project team comprising:

The Intellectual Property Office;
Environment Agency;
Ministry of Defence;
Intellectual Assets Centre, Scotland;
Foreign and Commonwealth Office Services
The National Archives; and
Department of Health and NHS National Innovation Centre

If you would like to be involved in this work, please contact us".

The side bar links to FAQs, procurement issues, finance reporting and other relevant topics.

IP Finance wonders whether similar initiatives have been launched in other countries and, if so, how they have fared. The blog will also be pleased to receive readers' comments concerning IAN.

The Times Square Factor

In New York City’s Times Square, tourists wander amidst theme restaurants and Broadway theaters, all under the glow of bright lights, electronic tickertapes, video advertisements and huge spot-lit billboards. Years past have seen globally-recognized brands plant their flags in the Times Square area in the form of flagship retail shops: Toys-R-Us opened a Times Square location to rival Fifth Avenue’s F.A.O. Schwartz (the U.S. equivalent of the U.K.’s Hamley’s, perhaps?); chocolate and candy confectioner Hershey’s opened a child’s fantasy land filled with every imaginable treat created by Hershey’s; and after the success of the movie Forest Gump, a chain restaurant called Bubba Gump Shrimp Co. (licensed by Paramount Pictures) appeared very near to the New York City outpost of Hard Rock Café. Major brands view Times Square both as a marketing tool and a retail opportunity to connect with consumers.

Take, for example, Charmin brand toilet paper. During the 2006 holiday season, Charmin launched the toilet equivalent of a “pop-up-shop” right in the middle of Times Square: temporary mens’ and womens’ restrooms stocked with Charmin brand toilet paper. According to its website, nearly 400,000 people stopped in to use the facilities during a single season. That means that almost 400,000 people experienced the Charmin brand first-hand during just a few weeks of the year.

With real estate in Times Square being offered at a high premium price, brands must view their presence here as part advertising and marketing campaign and part retail sales operation in order to justify the costs. And the brands keep coming. The New York Times reported yesterday that breakfast food brand Pop Tarts, a Kellogg Company brand, is joining the Times Square fray in an effort to reconnect with consumers in a way it never has before. The retail space will feature a café selling newly invented treats incorporating, of course, various flavors of Pop Tarts pastries. The café offerings will even include a curious item called Pop Tarts Sushi made from minced Pop Tarts that are rolled in a fruit roll-up (presumably not Kellogg competitor General Mills’s Fruit Roll-Ups brand version, which is fortunate, as General Mills has just been sued for false marketing relating to the nutrition information presented on Fruit Roll-Ups packaging).

There will also be a make-your-own Pop Tarts bar where customers can choose from a variety of Pop Tarts options that café chefs will whip up on demand for custom-made Pop Tarts. In addition, the store will have light shows and entertainment, product offerings ranging from apparel to gadgets to consumer-created variety packs of Pop Tarts, as well as interactive games to engage customers with the brand. Of course, the retail space also comes with a 50-foot sign visible in Times Square – a great advertising benefit. Etienne Patout, senior director at the Pop-Tarts brand, explained to the New York Times, “Our long-term hope is to strengthen the bonding between the brand and the consumer, and that has great benefits for the brand.”

The question is, can a brand that has been in decline amidst growing concerns about children’s nutritional problems and obesity struggles rebuild its consumer trust through a retail space? Generally, when a brand opens a Times Square outlet, the brand owner has focused on presenting shoppers with the core values of the brand. The owner builds good will for the brand by exhibiting the brand’s most trusted values, even if also opting to create new methods of connecting with customers within the store (for example, the whimsical Ferris wheel ride at the center of the Toys-R-Us store). Pop Tarts has, since its inception, always been marketed as a breakfast item. Whether toasted at home or eaten cold out of the package on-the-go, it is meant to be a breakfast food and was created as such. However, given the menu offerings at the new Pop Tarts Times Square café, as described in the New York Times’ article, it seems to me that Pop Tarts may come across to consumers as more of a sweet snack or a dessert than a breakfast staple food. This is especially likely considering that many passersby are likely to be foreign tourists who may be unfamiliar with the iconic American breakfast brand. Is this the beginning of a new future for Pop Tarts?

University Logos and Low-Wage Manufacture: The Branding Challenge

There are few topics that bring together the issues of branding and social responsibility more than that of manufacturing of branded products under what are described as sweatshop conditions. It is not my aim to enter generally into a consideration of the ethical, political and economic issues that drive this debate in diverse directions. Rather, my focus is on an article that appeared in the July 16th issue of the New York Times entitled "Factory Defies Sweatshop Label, but Can It Thrive?", under the byline of Steven Greenhouse here. More particularly, I was intrigued by the multi-faceted challenge to the various brand and name owners who are involved in Greenhouse's tale.

In short, a company called Knights Apparel, located in the U.S. state of South Carolina, has begun manufacturing operations in the Dominican Republic for various college-logo apparael that is then sold primarily on American college campuses. Sellling such logo-bearing apparel (such as the Harvard or Yale name or logo on a T-shirt) is one of those distinctive aspects of the American university milieu; it is also a big business. Knights Apparel is described in the article as the leading supplier of such apparel to American universities.

The factory in question is located on the site of a facility that was shuttered in 2007 (its previous owners having moved its operations to a a lower-cost country). In its place, Knights Apparel has moved in, agreed to pay three and one-half times the prevaling minimum wage and to the unionization of its work force. The products made at this facility have been rebranded under the label "Alta Gracia" (meaning "exalted grace") and will presumably also bear the logo of the various colleges and universities to whom the products are being distributed.

Taking T-shirts, as an example, it is expected that they will retail for approximately $18.00, the same as similar product lines sold under such brands as Nike and Adidas. The question will be whether students and other consumers will be willing to pay roughly the same price for logo-bearing apparel, but sold under a new brand. That is to say, will purchasers pay the same for the "Alta Gracia" mark as for products bearing the Nike or Adidas mark?
The views are mixed: "Yes", claims that CEO of Knights Apparel, noting that the company uses "high-quality fabric, design and printing." "Maybe", says industry consultant Andrew Jassin, who observes that "deft marketing" may attract consumers are committed to the social message and thus willing to pay the premium price for an unknown mark. The need for quick and effective marketing is echoed by Professor Kellie McElhaney of University of California, Berkeley, who claims that if this is done properly, "[a] lot of college students would much rather pay [i.e., their parents--NJW] for a brand that shows workers are treated well."

Time will tell whether this experiment by Knights Apparel will prove commercially successful. Already, however, we can muse about the position of the various names and brands:

1. Knights Apparel--It appears that the company also is involved in supplying apparel products in other industries, where there may not be such a pressing call for "fair labour" conditions. As such, it occupies a somewhat neutral position--while it has an interest in being identified as being outfront on this issue in the college environment, it may not necessarily seek that identification in other settings (such as, perhaps, professional sports leagues). Accordingly, the company will likely choose to emphasize the "Alta Gracia" brand more directly rather than the company name per se.

2. Alta Gracia--This appears to be an interesting attempt to create a brand that combines both a commercial and social message and which is targeted to a specific target audience. If it suceeds, it may well enable Knights Apparel to compete successfully with names such as Adidas and Nike in this market. On the other hand, it is questionable to what extent the brand will be able to be extended to other commercial markets.

3. Colleges and Universities--Presumably, their names and logos are on the apparel, since it is the attraction of being identified with a particular institution that is the primary driver in the decision to buy a logo-adorned item. To the extent that colleges and universities perceive this effort by Knights Apparel as reflecting values with which the institutions wish to be identified, they may have a double interest here--both commercial and ideological. As noted by James Wilkerson, the director of licensing at Duke University (and identified as a leader in the American universities' fair labour movement), "[t]his sometimes seems too good to be true." (It is also a lot more focused that challenging every consumer electronic item being sold on a college campus on the ground tht one or more of its compoments was made under sweatshop conditions.)

4. Book Sellers--It is reported that Barnes &
Noble, America's biggest book store retailer (and which has this week made an announcement that it is interested in being purchased, here), will being making a special effort to market "Alta Gracia"-branded T-shirts and sweats on 180 college campuses by September. As Joel Friedman of the company's College Bookstore division states, "We think that it is priced right and has a tremendous message...." In trying times, when bricks and mortar book operations have a compelling need to act as good citizens, book sellers such as Barnes & Noble have a clear commercial interest in being identified with the ideological aspects that will be embodied in the "Alta Gracia" name, at least on college campuses, if the project proves to be successful.

Let's see how these events will develop.

Patent Trolling doesn't pay, or does it.... in the long term?

An explosive tweet posted by compulsive innovator/investor Chris Dixon made the highlights of hip weblog TechCrunch last week and stirred a heated debate in the IP community. The co-founder of decision-making website Hunch found out in a report published by the University of Texas Management Company (PDF here) listing all of its private investments in venture funds and private equity funds and their results, that Intellectual Ventures – known by many as “IV” and considered by most to be the godfather of all patent trolls – has been severely underperforming notably with a negative internal rate of return (IRR) of 73% of their Invention Development Fund I and a negative IRR of their Invention Investment Fund II of 10%. As TechCrunch pointed out, this negative IRR does not necessary reflect the reality of the situation but it might suggest that the activity of patent trolling is not as lucrative as it appears to be. It also contradicts IV founder Nathan Myhrvold’s claim that his company, whose main goal is to build a large patent portfolio rather than developing new systems, is “turbocharging” the innovation process, especially when the performance of the two IV funds are compared with the ones of more traditional venture funds.

Joff Wild of IAM magazine, which has been posting regularly about IV and now certainly has a good understanding of the company’s business model, moderated the significance of Techcrunch’s claim in a recent blog entry:

"Before you can make any definitive statement on such a thing you have to know how old the funds are and what they are setting out to do. Acquired patents are rarely going to give you a quick return - they are slow boilers. So if you spend a lot of cash upfront on buying up portfolios, you may have to wait a few years before they start to pay dividends. Alternatively, if you are buying up "inventions" that have not yet even been patented - which is also something that IV does - then you have an even longer lead-in until potential monetisation can take place"

His point of view concurs with the answer of IV’s VP Finance Larry Froeber, who highlighted in a reply to Wild’s blog post that the method used by the University of Texas Management Company does not capture the true value of their business, as spending is the driving growth of IV.

I tended to agree with this view till I went through the comments of this blog entry (items posted on the IAM blog always generate a handful of insightful comments) and read what Tom Grew of Yu & Partners had to say:

"Interesting that, in current times as businesses focus more on delivering quarterly results and as a consequence reduce IP spend (and increase divestitures), we are allowed to say: It's ok, IV has a long term business model.
Will investors buy this though? Why should IV be special?
It's been running now for what, 10 years? Wouldn't you expect a ROI in that time - plenty of time to get a patent granted, and many of its investments have been already granted patents in any case. And isn't there a statistic that most patents take about 3-5 years to commercialize? This should be prime time."

In my opinion Tom Grew has a point here. A successful business strategy in the short term is a necessity to survive on capital markets and very few are the companies that managed to stand up after taking a heavy blow upfront. However it does not seem that IV lost the confidence of its investors, so does patent trolling pay and if it does when should investors expect a ROI? I guess we will only find out about it in a few years time.

'Attack Dog' buys infringed copyrights, then sues

This little piece in yesterday's ABA Journal, "‘Attack Dog’ Group Buys Newspaper Copyrights, Sues 86 Websites", looks like good news for copyright litigation lawyers. In brief,

"... A Las Vegas start-up called Righthaven has purchased several copyrights to the Las Vegas Review-Journal and sued at least 86 website owners for copyright infringement, the Las Vegas Sun reports. The suits seek $75,000 in damages and forfeiture of the website domain names.

Right: why bother to bark and bite if you can get a copyright troll to do it for you?

“When it comes to fighting copyright theft in the news industry—the piracy of stories, editorials, columns, photos and videos—there are watchdogs and there are attack dogs,” the Sun says. “The Las Vegas Review-Journal and its copyright enforcement partner, a Las Vegas star-tup called Righthaven LLC, are squarely in the attack-dog category.”

The story says Righthaven first trolls to find an infringement and then buys the copyright to the story. The next step is an infringement suit. Defendants include “mom-and-pop-type bloggers” such as the City Felines Blog and even the Democratic Party of Nevada ...

Some defendants have argued Righthaven lacks standing because it didn’t own the copyrights at the time the infringing story was posted. Other defendants who posted stories about themselves may have a fair-use defense, San Francisco lawyer Chris Ridder told the Sun.

A separate Las Vegas Sun article details other defense arguments. Some defense lawyers have claimed that Nevada courts don’t have jurisdiction over out-of-state defendants, or that Righthaven should have requested the offending material be taken down before filing suit.

Righthaven CEO Steve Gibson told Wired's Threat Level blog that his company has an agreement with the Review-Journal publisher to begin helping it enforce copyrights for more than 70 other newspapers in nine states. “We believe it’s the best solution out there,” Gibson tells the blog. “Media companies’ assets are very much their copyrights. These companies need to understand and appreciate that those assets have value more than merely the present advertising revenues."

The IP Finance weblog hopes to keep an eye on this development, and is particularly interested to see whether it will be a business model that will spread to Europe, Asia and elsewhere.

Thanks, Chris Torrero, for this link.

A Tax Free Zone for Every Need?

Dubai, one of seven emirates of the United Arab Emirates, is an oasis in the desert – a place that has built startlingly luxurious skyscrapers and beach front properties over sand dunes, as well as man-made islands off its coast. To develop its international reputation and bolster its revenues from sources other than oil, Dubai has tried, in essence, to rebrand itself over the years as a foreign investor-friendly locale.

Though the IP legal system is relatively new and still undergoing development, there are beneficial tax options available to owners of already-established IP. Dubai has established tax free zones that include the Jebel Ali Free Zone, Dubai Internet City, Dubai Media City, Dubai International Financial Centre (DIFC) and Dubai Airport Free Zone. Within each zone, companies enjoy zero percent tax on income with no restrictions on foreign ownership.

However, Dubai has been deeply affected by the global economic downturn and it appears to be realigning its interests with its local neighbors. This week comes news that Dubai will shut down Blackberry email and messaging services starting in October because those services are impossible for the government to monitor, thanks to Blackberry manufacturer RIM’s security features. If such communication services are indispensable to you, client representation is probably best handled from afar. It is a shame, since my trip to Dubai two years ago highlighted a warm, welcoming locale with friendly people, beautiful and luxurious coastline developments, and enjoyable restaurants and bars.

On the other hand, if you are trying to get away from work and don’t mind losing Blackberry service, The Guardian has this advice for a trip to Dubai.

Damages: links to notes on two recent UK decisions

On the question of how generous a judge should be (not very generous, it seems) when making an interim award of damages for patent infringement, Alan Nuttall Ltd v Fri-Jado UK Ltd and another, Patents Court for England and Wales, 30 July 2010, at [2010] EWHC 1966 (Pat), the analysis of Mr Justice Kitchin can be read on PatLit here.


A bigger issue -- that of how much, if any, of the blame for the total collapse of a trade mark owner's business can be attributed to the activities of an infringer -- is considered in the somewhat tortuous case of Fearns (trading as Autopaint International) v Anglo-Dutch Paint & Chemical and others [2010] EWHC 1708 (Ch), 9 July 2010, a Chancery Division, England and Wales, ruling of George Leggatt QC, serving as a Deputy Judge. You can contemplate this ruling on Class 46 here.

From the Journals of Tobias Grubbe, scribe

For those with a slightly quirky sense of humour, and for those who are curious to see how new format for the exploitation of intellectual creations can be made to work with some of the most unlikely and surprising material, this may be of interest: the talented twosome of Matthew Buck and Michael Cross combine to provide a Pepysian-style account of contemporary events, couched in terms of the language and lifestyle of three centuries ago -- so for 2010 read 1710. The diarist, "Tobias Grubbe", has taken root within the safe haven of Monday's Telegraph. Tobias Grubbe -- actually a jobbing scrivener -- sells advertising space inside his product -- "even to hard-bitten lawyers, litigators, rights managers and their firms". While the notion of exploiting copyright-protected works by making them a vehicle for advertising is not of itself new, the fact that it can be achieved with such unusual material should encourage other creators not to despair of finding a medium that will work for their creative output too.

A specimen of Tobias's writing looks something like this:

The 15th July 1710, St Swithin's Day. Weather: Mist, Rain & Fog.

Up and to Murdoch's coffee house to read the news, but the way was barred by two toughs bearing Bludgeons, demanding money, viz £1.0Sh. to enter for one day, or £1.0Sh.0d. to enter for 30 days.

Certain that the offer was a Gull, I made instead to Bridgerush's establishment, but there was too much Noise to think, a situation which did not seem to discommode Bridgerush's Hirelings, who joined in with a Shrill Tone.

On to the Seven Starres, where several Periwigged gentlemen entreated me to furnish drinks Pro Bono. I could not see Bono, who I think a Minstrel, but I took a quart of Sack with one Chancecliffe, who explained that the legal business is come on hard times. Master Halliwell is confined to the Fleet Prison, and even Mssrs Fresh & Field required to Tighten their Waistbands.

I took the Opportunity to explain that the Patrons of my weekly Article, which is displayed every Monday at the window of the most visited Quality Print Shop in the City, enjoy better fortune, and that, thanks to the latest Media Techniques, such favourable Publick Exposure is available at a very generous rate. (Mem to self : to be further informed, press Here).

Home late O'the Clock, by way of Tyburn Tree, where a wench sold me for 1d a lock of hair from the head of the Highwayman Moot.

And so to bed".

Click here for more articles and some musical accompaniment.