UNCITRAL Guide: the Supplement on Security Rights in IP

The UNCITRAL Legislative Guide on Secured Transactions: Supplement on Security Rights in Intellectual Property was officially released this month. Long-term readers of this weblog will need no reminder as to its provenance, this the launch of IP Finance was a response to an earlier stage of the UNCITRAL initiative which caught the IP communities badly unprepared. New readers can catch up on the history of this Guide by keying 'UNCITRAL' as a search term in the little box at the top left-hand corner of the IP Finance home page.

According to the United Nations, which is the publisher of this Guide,

"The overall objective of the UNCITRAL Legislative Guide on Secured Transactions ... is to promote low-cost credit by enhancing the availability of secured credit. In line with this objective, the Supplement on Security Rights in Intellectual Property ... is intended to make credit more available and at a lower cost to intellectual property owners and other intellectual property rights holders, thus enhancing the value of intellectual property rights as security for credit. The Supplement, however, seeks to achieve that objective without interfering with fundamental policies of law relating to intellectual property".

If you want to buy your own copy, the ISBN is 13: 9789210547406. You can pick it up from the UN's online bookshop for US$15. In keeping with the UN's new discount structure, effective 1 July 2011, purchasers from a long list of developing countries and territories are eligible for a 50% discount, making the price US$7.50. Or if you key the Guide's title into your search engine, your top search search result will be the Guide itself, which you can access and enjoy to your heart's content at no charge whatsoever.

Protection of IP and international investment treaties: a new book

Even if it is a serious IP book,
based on a PhD thesis, Kluwer
could have put a pretty picture
on the cover ...

Simon Klopschinski (Hoffmann Eitle, Munich) writes to tell IP Finance that his German-language PhD thesis "Der Schutz geistigen Eigentums durch völkerrechtliche Investitionsverträge" (The Protection of Intellectual Property under International Investment Treaties) has recently been published by Carl Heymanns Verlag, an imprint of Kluwer.  German-speakers can click here for details of this title.

Simon has kindly provided this note, so that English-speakers will know what he has been working so hard on:

The Protection of Intellectual Property under International Investment Treaties  

There have long been international treaties that protect intellectual property, such as, for instance, the Paris Convention for the Protection of Industrial Property (1883) or the Berne Convention for the Protection of Literary and Artistic Works (1886). The many multilateral efforts to strengthen international protection of intellectual property rights over the decades have now culminated in the TRIPs Agreement that is one part of the WTO legal order. This Agreement stipulates that the member states must implement a minimum standard of protection for intellectual property rights in their national legal systems. In addition to IP-specific treaties for the protection of intellectual property rights, other international treaties have also come into being over recent years which protect intellectual property along with other property rights. These also include: (a) Art. 1 of the First Protocol to the European Convention for the Protection of Human Rights and Fundamental Freedoms (ECHR) and (b) various international investment treaties.  

International investment treaties oblige the contracting states to grant private investors of the other state and their investments adequate treatment. If the host state violates the provisions of such a treaty a number of these agreements provide for a dispute settlement mechanism, which enables the private investor to sue the host state before an international arbitral tribunal under international law without requiring the participation of his home state. Many investment disputes are decided by arbitral tribunals set up under the auspices of the International Center for the Settlement of Investment Disputes (ICSID), which is part of the World Bank group. In contrast to the national laws of the host state the investment treaty can only be amended with the consent of the other contracting state. Therefore the investment treaty not only provides the investor with the opportunity to pursue his claims before an extraterritorial tribunal, but it also allows him to rely on provisions which are detached from unilateral activities of the host state. Since 1990 the number of treaties has increased enormously and there were 2,750 treaties of this kind in 2009.

 As of yet not much literature has been published regarding the protection of intellectual property rights under international investment treaties [Quite right! It seems to be a remarkably neglected subject, one which even this weblog has not yet covered], nor has an arbitral tribunal issued a decision addressing the question of the extent to which intellectual property rights enjoy protection under such treaties. These topics are not just of academic interest since in the past there have been several attempts by enterprises to protect their intellectual property rights by using the mechanisms offered by international investment treaties. The most recent example is the ICSID arbitration case Philip Morris Brand Sàrl (Switzerland) et al. v Uruguay in which the Philip Morris tobacco company alleged that the anti-smoking legislation of Uruguay interferes with Philip Morris’ trademarks and that this is in contravention of Uruguay’s international obligations under the investment treaty between Uruguay and Switzerland (ICSID Case No. ARB/10/7). 

Furthermore, a number of intellectual property cases have also been decided by the European Court of Human Rights under Art. 1 of the First Protocol to the ECHR, e.g. the case of Anheuser-Busch, Inc. v. Portugal in 2007. A recently published German-language study by Simon Klopschinski has attempted to explain the relevance of international investment treaties for intellectual property rights as well as the relationship between investment treaties and IP-specific international treaties for the protection of intellectual property rights, e.g. TRIPs. This study, which was published under the title “Der Schutz geistigen Eigentums durch völkerrechtliche Investitionsverträge” [“The Protection of Intellectual Property under International Investment Treaties”], is divided into eight chapters and covers a number of issues which may be of relevance in arbitration proceedings involving an intellectual property right that has – in view of its owner – been affected by a state measure in contravention of an applicable investment treaty.  

The first chapter introduces recent legal, economic and political developments in the fields of international investment protection and international protection of intellectual property.  

The second chapter deals with the question of the role IP-specific treaties generally play in arbitral proceedings regarding the protection of intellectual property rights under international investment treaties. This chapter also especially analyses the role of the second sentence of Art. 1 (1) TRIPs for the application and interpretation of international investment treaties in relation to intellectual property rights (“Members may, but shall not be obliged to, implement in their laws more extensive protection than is required by this Agreement, provided that such protection does not contravene the provisions of this Agreement”).  

The third chapter attempts to answer the question of how far TRIPs and the WTO legal order in general allow investment arbitration regarding intellectual property rights (see Art. 4 TRIPs and Art. 64 (1) TRIPs in conjunction with Art. 23 DSU). Furthermore, this chapter explores the relationship between IP-specific proceedings on a national level and the “fork in the road” clauses in international investment treaties.  

In its fourth chapter the study handles a variety of questions involving the issue of under what circumstances and to what extent intellectual property rights constitute an investment within the meaning of investment treaties as well as Art. 25 (1) of the ICSID Convention.  

In how far national treatment provisions as well as most-favored-nation-treatment provisions in investment treaties offer protection to intellectual property rights is analyzed in the fifth chapter. The author also uses the facts and circumstances of the WTO case Canada – Term of Patent Protection (WT/DS170/AB/R) to illustrate what legal issues might come up in arbitration proceedings regarding the protection of intellectual property rights under national-treatment and most-favored-nation provisions of investment treaties.  

 The relevance of “fair and equitable treatment” and “full protection and security” clauses for intellectual property rights is assessed in the sixth chapter. On the basis of, inter alia, the European Commission’s Trade Barrier Regulation case Chinese Taipei – Compulsory Licensing of CD-R Patents, the study explores the following topics: The “fair and equitable treatment” standard and compulsory licenses under patents, the impact of WTO law on the “fair and equitable treatment” standard. Furthermore, the sixth chapter analyses in how far the “fair and equitable treatment” standard can be used by intellectual property owners to combat counterfeiting and IP piracy on a large scale. 

 The seventh chapter explores whether compulsory licenses under patents constitute an expropriation within the meaning of international investment treaties. Furthermore, the chapter tries to answer the question of whether anti-smoking legislation expropriates tobacco companies’ trademarks. In this context the study analyses what instruments international investment law offers to balance the interests of individual investors against the public’s interests.  

The last chapter compares the protection of intellectual property rights offered by international investment treaties with the protection offered by IP-specific instruments, e.g. proceedings before national courts and authorities, the EU’s Trade Barrier Regulation, the USTR’s Special 301 proceedings as well as WTO proceedings. 

 The aforementioned instruments are specifically designed for intellectual property rights and their impact is generally well known, but the specific advantages of protection of intellectual property rights under international investment treaties over other instruments should not be disregarded: International investment treaties allow investors to sue the host state before an international tribunal on the basis of an international treaty and the host state cannot abrogate this unilaterally. By contrast, if the owner of an intellectual property right uses one of the afore-mentioned instruments, said owner will be dependent on either its home state or the courts and/or authorities of the host state, and this may be a constraint on the successful enforcement of said owner’s rights".

Judge decides royalties -- and rules on the cost of drafting an IP licence

A news flash from Anti Copying in Design -- ACID -- reports that one of its members, Temple Island Collection, scored an early victory against New English Teas in the first of a two-part intellectual property case heard in the Patents County Court, England and Wales, which readers can find at [2011] EWPC  21. ACID says:

"Having settled the original dispute about the infringement of its iconic "Red Bus" image a dispute arose about the exact scope of settlement. ...

The first [issue for Judge Birss QC to settle] was the Royalties due under the settlement. New English had agreed to pay 5% of the trade sale price of all past and pending sales of the first image. Later, New English attempted to reduce the royalty on "multi-packs" by 66% on the basis that of the three items in the multipack only one featured the first image. Temple disagreed, saying that it was clear that the parties had in mind a 5% payment on the sale price of the product sold which included the image. Judge Birss QC agreed with Temple, the parties had not invented some complicated mechanism to decide the royalty and Temple's reflected the parties' intentions when viewed objectively.

The second issue was the amount of costs payable (by New English) for drafting a licence agreement, the rival figures being £500 and £2000. Judge Birss QC accepted Temple's submission that the time taken to draft the licence was not the only factor but that other factors, such as expertise and the value of the document to the parties, were relevant and awarded £1500.

The third issue was as to whether or not the settlement required New English to enter into a formal licence, and whether that licence should include an 'open book' accounting term. This depended upon Judge Birss QC analysing correspondence between the two parties' representatives, and he ruled there was no requirement to enter into a formal licence. The Judge however indicated that he would have included an open book term had he found a licence was required.

New English have had to pay over £14,000 to Temple Island for royalties and the licence agreement as well as a previous unpaid amount in costs ..."

It's good to see a trial judge getting stuck into the financial details so decisively, particularly in what was effectively a case management conference. This blogger can't recall a previous occasion in which a judge had to consider the cost of drafting a licence, either.  Can readers, particularly those from other jurisdictions, comment the cost of drafting on the facts of this case?

What future for Hewlett-Packard?

Leading computer manufacturer Hewlett-Packard has made the headlines over the past few days following its decision to discontinue the production of webOS-based devices Touchpad and Pre 3 smartphone.



This early exit of smartphone and tablet computer business segment is surprising since HP's acquisition of smartphone manufacturer Palm for $1.2 billion dates of July 1st 2010. At that date (and until a few days ago) HP was determined to succeed on the smartphone and tablet market by building an complete WebOS-based ecosystem that could compete with Apple's iOS and Google's Android.



But after 13 months and the Touchpad's commercial failure (in spite of a hefty marketing investment) HP plans to operate a complete turnaround and to exit the mobile and the PC industry altogether, in order to focus on software and IT services, much like IBM did in 2005 when it sold its PC division to Chinese Lenovo. This strategic move coincides with the purchase of British software developer Autonomy for $10.2 billion, another move which did not convince many professionals in the field since HP has never been a major player of the software industry.



Whether HP's new business strategy will prove successful or not, its purchase of Palm was probably a clever move given the number of patents it acquired in the deal: roughly between 1600 and 4000 according to a Breakingview/Zdnet's estimation. As Larry Dignan of Zdnet notes, 'given the patent price benchmarks set by Google’s $12.5 billion purchase of Motorola Mobility (and its portfolio of 17000 patents) and the Nortel $4.5 billion auction of 6,000 patents (acquired by the the Apple consortium, it’s possible that the unit formerly known as Palm may fetch a sum to offset some of HP’s losses.'



Whereas the outright sale of its IP portfolio seems unlikely for now, since HP did not announce the complete demise of WebOS. HP might look first at licensing its IP portfolio in order to make for the loss incurred due to the desastrous Touchpad launch. An auction sale à la Nortel is however not to exclude in the future. We should know very soon, which road will Hewlett-Packard take.

Coca Cola and Air Brakes

The recipe for Coca Cola has famously been kept confidential since its initial formulation in 1886. An example of the long-term value of confidential information in engineering comes from a recent dispute between Faiveley and Wabtec in the field of air brakes for trains on the New York subway.

In the 1970s, Swedish company SAB Wabco developed a brake system for trains and, nearly two decades later in 1993, granted a licence to its US sister company, Wabco, to use its patents and confidential manufacturing drawings to supply brake systems for trains on the New York subway.

Ten years later, SAB Wabco was acquired by French company Faiveley which decided not to renew the licence with Wabco (since renamed “Wabtec”) but which instead sought to have itself substituted for Wabtec in a contract with the New York City Transit Authority for overhaul of subway trains.

When the Transit Authority refused to transfer the contract, Faiveley launched a legal action in the US courts, alleging that Wabtec was continuing to (mis)use the confidential manufacturing drawings provided under the now terminated licence. Faiveley sought an injunction preventing Wabtec from using the drawings in the overhaul contract together with financial compensation.

On 29th July this year, nearly forty years after the brake system was first conceived and long after the expiry of any patents, Faiveley were awarded damages of nearly $20 million.

As an aside, this matter previously went to appeal in 2008 where it inspired one of the judges to note in his decision that:

To the parties in this case, subway brakes are known as “Brake Friction Cylinder Tread Break Units” (“BFC TBU”). For the rest of us, BFC TBU are “that loud squeaking, sparking braking system that so reliably stops the New York City Transit subway system.” ... Twenty-four hours a day and 365 days a year, the City’s subway cars safely stop at 468 passenger stations—and, as any straphanger knows, many times in between—depositing riders of all classes and descriptions at homes, workplaces, ballparks, and every other destination imaginable. See generally MacWade v. Kelly, 460 F.3d 260, 264 (2d Cir. 2006) (“The New York City subway system … is an icon of the City’s culture and history, an engine of its colossal economy, a subterranean repository of its art and music, and, most often, the place where millions of diverse New Yorkers and visitors stand elbow to elbow as they traverse the metropolis.”). The subway is an indelible feature of the City’s culture. Its legend and lore fascinate locals and visitors alike. See, e.g., Carrie Melago, It’s the Rail Thing: Subway Ride Record is Official, N.Y. Daily News, Aug. 8, 2007, at 24 (reporting that six alumni of Regis High School set a new world record for stopping at all 468 stations on a single fare: 24 hours, 54 minutes, and 3 seconds). A point of personal pride for many New Yorkers, the City’s subterranean transit has appeared in song, on stage and screen. See, e.g., Leonard Bernstein, et al., “New York, New York,” from On the Town (“New York, New York—a helluva town, / The Bronx is up but the Battery’s down, / And the people ride in a hole in the ground; / New York, New York—It’s a helluva town[!]”), as quoted in The Oxford Dictionary of Humorous Quotations 329 (Ned Sherrin, ed., 1995) (attributed to Betty Comden and Adolph Green, lyricists). The subway’s rhythm and sound have also rumbled into the canon of American literature. See, e.g., Tom Wolfe, The Bonfire of the Vanities 36 (Farrar Straus Giroux 1998) (1987) (“On the subway, the D train, heading for the Bronx, Kramer stood in the aisle holding on to a stainless-steel pole while the car bucked and lurched and screamed.”). Moving forward, our next stop is the trade secret dispute concerning the distinctive brakes used by the New York City subway system.

Apple now top dog on US stock market

It's intriguing to see the neck and neck race between electronic company Apple and oil company Exxon Mobil for the top dog position on the US stock market. A race between Apple's intellectual property and the raw materials of Exxon Mobil. It's true that ExxonMobil also has a large amount of patents on the extraction and production of fuels. Apple's IP position seems to be much wider comprising not only patent protection, but also software and probably equally valuable: design protection. The German Handelsblatt commented in an article today: Elektronik-Riesen: Apple stößt Exxon Mobil vom Börsen-Thron - Aktien - Finanzen - Handelsblatt
(German only). The price of the ExxonMobil shares follows broadly the oil price which suggested that stock analysts clearly use that indicator as the main element of value in Exxon Mobile.

On the other hand the article concludes that Apple's share price has a long way to go.

This author has been looking at Apple for some time. The company is filing a significant number of patents - not yet as many as IBM or Microsoft. The company is also becoming highly litigious in defending its rights.

Not only is Apple actively defending its patents but its injunction against Samsung based on design rights (see the FOSS blog report here and commented by our friendly Kats here) shows Apple's interest in retaining its rights to its "look and feel".

Anyone with a penchant for numbers can have goggle at the 10Q filing available here. Revenue from "other music-related products and service - in other words iTunes, the App Store and the iBookstore" rose 29% in the three months ending 25 June compared to the previous year and is now 5% of net sales. The cost of sales must be minimal which presumably means that the USD 1.5 Million generated in three months represents substantially profit based on intellectual property.

Based on all revenue and cost of sales, Apple is reporting a gross margin of 41.7% up slightly from the comparative period in the previous year. And what about our oil friends. The 31 March 2011 accounts show consolidated gross revenue of USD 114,004 million and net income of USD 10,650 million - a substantially lower marging which no doubt reflects the fixed costs associated with oil production.

So what does this tell us. An IP-rich business such as Apple has a much higher margin and this is now being reflected in its stock price. It does not come as a surprise for Apple fans to see their favourite company .

Tobacco brands in Australia: will there be a compensation bill?

From this ...

Current Australian plans for plain packaging of cigarettes have attracted considerable attention and have generated no little heat (for a recent example, see this piece by the British Brands Group, hosted on the IPKat, together with readers' comments).  In the contribution which follows, Christopher Pett (who has been practising as a patent and trade mark attorney in the United Kingdom for over 30 years and is now a Consultant with Dehns) looks at some of the issues, including one that will be of particular interest to readers of this weblog, the prospect of brand owners being able to secure financial compensation for discriminatory treatment under a bilateral investment treaty between Australia and Hong Kong.

"Tobacco companies fuming down under?

Recent plans announced in Australia have seen the tobacco industry 'down under' move into a frenzy. The industry is one of the most highly regulated and cigarette packaging in Australia already has to bear unpleasant images of and information about the effects of smoking. Since these were introduced, the number of smokers has dropped by a quarter. Plans are for this to continue along with television adverts, including films of smokers in distress in hospital.

What has really upset the industry are intentions to prohibit the use of logos, colours, brand imagery or promotional text on tobacco product packaging from 2012. These will require that all brand and product names be displayed in a standard colour, font style and position over a dull olive-coloured background. The policy, known as plain packaging, aims to deter an impressionable clientele by removing any glamour in smoking. Similar legislation in the UK, Canada and New Zealand is being considered, so the situation is being watched with interest.

The question arises as to whether Australia has contravened its obligations under current WTO treaties such as the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS). Art. 20 of Part II, 2 of this Agreement does say 

"the use of a trademark in the course of trade shall not be unjustifiably encumbered by special requirements, such as...... use in a special form or use in a manner detrimental to its capability to distinguish the goods........of one undertaking from those of others...". 

The tobacco companies argue that the new move will illegally diminish the value of their trade marks and claim that plain packaging contravenes the agreement by placing restrictions on the use of trade marks. 

The Australian government has countered by saying that they have the right to take measures necessary to protect public health and claim to have taken legal advice. The Australian Trade Minister has said that product names would still be permitted, though in a standard colour, position, font size and style and that the measures would be implemented in a way consistent with their intellectual property, trade and investment obligations. 

... to this?

Are the government requirements a justifiable encumbrance or does the industry's real problem lie elsewhere? To suggest that there will be no branding on the packaging is of course absurd. The primary function of the words 'trade mark' - to indicate origin - will remain. Choice of manufacturers will continue and branding will inevitably still be permitted to allow consumers to make choices between styles. The threat in plain packaging arises because, with all the other advertising restrictions that exist, packaging is the most important way tobacco companies seek to communicate with the consumer and differentiate their products. If all the glitz in branding were removed, consumers might well be less attracted to the more profitable premium brands. The manufacturers must also be concerned that the measure will see a further drop in consumption. Is the argument about diminishing the value of the trade marks not simply a worry about a loss of profits in disguise? 

The manufacturers are planning an advertising campaign deriding Australia as a nanny state. They will play on consumer fears by suggesting that alcohol will become the next target. BAT, one of the largest cigarette firms in Australia, has said it will challenge the proposals. Philip Morris Asia (PMA), Hong Kong-based parent of Australian company Philip Morris Limited (PML), claims the proposals will damage its intellectual property and has started the ball rolling by taking legal action under a bilateral investment treaty that Australia has with Hong Kong. The rules of this are intended to protect Asian companies against any discriminatory treatment. PMA say that the forced removal of trade marks and other valuable intellectual property is a violation of its property under the treaty and will seek compensation. 

PML has well-known brands in Australia and claims that the plans will prevent it from using these brands to differentiate from competitor brands, effectively turning tobacco products into a commodity. If the word marks can still be used, how can this be true? It has also thrown into the argument the belief that the government has failed to demonstrate that the policy will stop people from smoking. If it will not, then what is PML afraid of? 

The parties are commencing negotiations, as they have to under the treaty. If these fail, the parties must proceed to arbitration under the rules of the United Nations Commission on International Trade Law 2010. Some interesting months lie ahead".

Latest IAM

Issue 49 of Intellectual Asset Management (IAM) magazine is now available online and in digital format. According to editor Joff Wild:

"Over the past few weeks the troubles facing News International, the world’s second biggest media organisation, have been widely reported. Allegations centred on the hacking of mobile phones owned by murdered children and dead British servicemen, as well as reports of other potentially illegal activity, have caused a backlash against the company - not just in the United Kingdom, but elsewhere too. As a result, a successful newspaper has been shut down and the News Corp share price has tumbled; senior executives are now under intense scrutiny. In this issue of IAM, we look at the scandal from the reputation management perspective and explain just where News Corp went wrong and how it might begin to recover. 

This issue also features two pieces written by senior executives inside IP-owning companies. Ruud Peters, chief IP officer (CIPO) at Philips, explains why he believes the One-Blue patent pool that Philips has helped to create with five partners is such an attractive option; while Joe Sommer, the assistant vice president of AT&T Intellectual Property, explores the challenges facing people such as himself in a rapidly changing IP transactions market. 

The recently held IP Business Congress in San Francisco had a strong focus on both CIPOs and value creation. In this issue there is extensive coverage of what was discussed at the event – including a feature detailing what CIPOs think about their departments becoming full profit centres. 

Other articles explore a diverse range of subjects, from the ways in which IP performance is reported through recent developments in the US patent litigation market to a high-level discussion of IP valuation among senior members of the Licensing Executives Society USA and Canada. Look out, too, for a report on the findings of a recent survey on what companies in the United States and Europe think about IP insurance. ...".