Royalty rate guides: how helpful are they?

Technology Transfer Tactics has excitedly trumpeted the release of the 5th edition of Royalty Rates for Technology, some four years after the publication of its predecessor. This volume is stated to contain over 575 licence agreements, an increase of some 25%. In respect of each featured transaction the publishers offer:

• A description of the licensed technology

• Compensation terms including royalty rates and licence fees

• Identity of the licensor and licensee

• Market analysis and benefits of the licensed technology

This blogger has mixed feelings about the value of data of this nature.  Judicial resolution of both licence and infringement disputes often demands that the tribunal seised of the dispute ascertain the quantum of damages or royalty payments on the basis of the reasonable sum which would have been paid by a willing licensee to a willing licensor.  To the extent that compendiums of licensed technology reflect the consensual conduct of cooperating parties, they are bound to  influence findings based on that elusive formula.

The publication of historical instances of technology licensing rates may also exercise influence on businesses seeking a specific level of payment or resisting attempts to make them pay it.  While these may not quite be self-fulfilling prophecies, this blogger suspects that the mere fact of their publication and availability is to some extent self-reinforcing.  Thus, where licensor A is seeking a royalty from licensee B, it might be expected that the agreed royalty will be higher, irrespective of external criteria, where historical examples of royalty rates range from 20-30% of the base figure on which they are calculated, than where the historical figure is 2-3%, and that the agreed rate would be somewhere between the two where it is evidenced that parties comparable to A and B have struck royalties in the range of, say 12-15%.

There is another factor to consider.  Unlike some areas of intellectual property such as fashion clothing and fast-moving consumer goods, where substitutability of competitors' products can lead to a clearly identifiable range band of norms within which royalties are fixed, this is not so often the case with technologies -- particularly those protected by patents -- where by definition the licensed technology is unique and where there may be complicating issues such as essential facilities doctrine and FRAND-based arrangements in which the establishment of royalty norms may be the result of a conflict of consensual negotiation and pressure from the competition authorities.

What do readers feel about royalty rate guides? Do let us know.

Details of the 5th edition can be found here.

Against the Odds: How the Bar Code Has Become Part of Everyday Life

His passing away on December 9, 2012, at the age of 91, attracted some media attention, including in The New York Times on December 13, 2012 here and in Bloomberg BusinessWeek, in its most recent edition. The "he" is N. Joseph Woodland, and he was a co-inventor (along with Bernard Silver) of one of the fundamental technological building blocks of modern commercial life -- the bar code. A retrospective on the history of their invention and its ultimate adoption provides a fascinating view of how the time line for exploitation may sometimes transcend not simply years, but even decades.

The article in Bloomberg BusinessWeek, "How the Bar Code Took Over the World", by Drake Bennett and Jim Aley, here, describes how in 1948 a supermarket executive approached the Drexel Institute of Technology (now Drexel University) in Philadelphia here with a request: could they develop a technology that could encode information about his products. As the story goes, graduate student Silver overheard the request and told his fellow graduate student friend Woodland about it. The two of them then took up the task.

Woodland, in particular, became so involved that he dropped out of graduate school, went down to his father's apartment in Florida, and sought to find a solution. He found it, it is told, while sitting on no less than Miami Beach, literally dragging his fingers through the sand. And then-Eureka--he found the solution, a series of lines of different widths, which functioned like a form of Morse Code, but with lines of different lengths rather than dots and dashes. As Woodland is reported to have observed, "I just extended the dots and dashes downwards and made narrow lines and wide lines out of them." And so the bar code is said to have born.

A U.S. patent application was filed in 1949 in the name of Silver and Woodland (entitled "Classifying Apparatus and Method". Bearing the number 2612994, it was registered in October 1952. The patent here is summarized on Wikipedia here as "describ[ing] both the linear and bullseye printing patterns, as well as the mechanical and electronic systems needed to read the code." Woodland went on to IBM in 1951 and tried to interest the company in the invention. The company's was response that while the idea was both feasible and interesting, the hardware requirements were too far advanced for the company to make a material investment. Silver and Woodland ultimately sold the patent in 1961 to Philco for $15,000. It appears that this amount was all that the two inventors ever earned from the invention (Silver passed away in 1963).

Widescale commercial application for the bar code only occurred in the 1970s. Before then, there had been some up-take by the railroad industry, but no real exploitation by the retail and produce industries, despite the fact that it was they who had approached Drexel two decades before with the original idea. In fact, the first item ever scanned was a packet of chewing gum in a Ohio supermarket in my state of Ohio in 1974. From then and until now, the use of the bar code has become well-nigh ubiquitous for all items except raw produce. It is said that currently five billion items are scanned each day.

In addition to this historical narrative, interesting in its own right, the question is raised whether the bar code saga has insights for the process of invention, up-take and commercialization in our own time. After all, a preoccupation of those who study invention and innovation is how good ideas are ultimately translated into commercial reality. While neither Silver nor Woodland enjoyed much of the monetary fruits of their invention (indeed, the current ubiquity of the bar code suggests something to the fate of Tim Berners-Lee here and his contribution to the development of the world-wide web), does the ultimate success of the bar code offer any guideposts for similar developments today?

The authors of the Businessweek article suggest that the answer is "yes". In particular, they point to its success in becoming a dominant standard and attribute three main reasons for this:

1. "Simplicity and reliability that overcomes habit"--In other words, the bar code technology is considered simple; moreover, it works in a way that overcomes the inertia to stay with the then current technology (in this case, entering information on the supermarket cash register).

2. "A governing body to establish standards"--A single barcode system, selected by a consortium of retailers and manufacturers, namely the UPC system by IBM, was selected. It probably did not hurt that Woodland had helped develop the IBM system.

3."An extravagant, surprising, and often expensive effort to seed the market"-- The example given was the so-called Fresno Drop in 1958 here, where all residents of that

California city were sent a credit card. It is claimed that the seeding of the bar code followed the rise of Walmart and its use of bar codes to build its legendary distribution system.

4. "Openness"--While not as "essential" as the first three elements, openness may definitely help. The idea here is to allow everyone to develop their own specific version of the technology (à la Google enabling Asian phone manufacturers to adopt the Android system by providing an open-source version that could be altered).

I am not fully convinced that these elements flow from the bar code experience or are being grafted on to them, which would thereby retrospectively validate their significance. In any event, given the enormous success of the bar code, it seems that more research is merited to explain more fully how it was that the patent-protected invention enjoyed little success during its own time, but led to a later explosion of applications.

Any takers?

No evidence of stifled innovation in smartphone patent battlefield

IP Finance thanks its market-friendly friend Keith Mallinson (WiseHarbor) for permission to reproduce his latest piece for cellular industry trade publication FierceWireless.

"No signs of collateral damage in smartphone patent wars

Yet again, industry analysts are forecasting blow-out holiday season sales for smartphones and tablets, with extremely upbeat forecasts for 2012 overall and beyond. How could this be the very same, allegedly broken industry sector that is set to suffer innovation-stifling harm, as various prophets of doom have scare-mongered, and with what the ITU also describes as "an unwelcome trend in today's marketplace to use standards-essential patents to block markets?" Instead, according to David J. Kappos, director of the United States Patent and Trademark Office, "[t]he fact is, the explosion of innovation--and follow-on litigation--that we see across consumer electronics hardware and software is a direct reflection of how our patent system wires us for innovation." This will be most evident in our Christmas stockings this year.

Patent crisis or patent nonsense?

Crisis, what crisis? Just look at the facts, figures and industry analyst predictions. No market is more successful, and yet also based on standards-essential patents and other patented technologies, than that for these smart devices including various wireless technologies with 2G, 3G, 4G, WiFi, Bluetooth and NFC. The marketplace and competition are in rude health and going from strength-to-strength. Handset vendors benefiting from this boom include those most entrenched in patent and other intellectual property litigation, including Apple and Samsung Electronics. This is despite a $1 billion jury damages award in favour of the former and against the latter in the United States, and numerous other actions pending worldwide between these and among other parties. That award looks like a large amount but it is quite modest, in comparison to Apple's third-quarter device sales of 45.8 million at an average selling price of $744, and Samsung's 66.1 million at an ASP of $434, according to IDC. Apple derives stellar profit margins on device manufacturing by others, and Samsung profits from a vertically-integrated business model including semiconductor, display and assembly manufacturing.

IDC is particularly upbeat about the market and prospects for these litigants this holiday season. The research firm thinks that Samsung and Apple will continue to lead smartphone and tablet sales this quarter as part of an estimated 362 million mobile devices shipped worldwide, worth $169.2 billion. Both figures are industry records.

The predictions, which also include estimates for PCs in its broader "connected devices category," reflect the expectation many people are going to receive devices as presents this month. Tablet shipments are expected to leap 55.8 percent over this season last year. Smartphone shipments are expected to increase 39.5 percent year-over-year as well.

"The consumerization trend has hit IT as an unstoppable force, as 821 million smart devices (smartphones and tablets) will be purchased worldwide in 2012 and pass the billion mark in 2013," according to Gartner, "[s]mart devices will account for 70 percent of total devices sold in 2012."

Most significantly, consumers are also doing very well with vendor competition, choice and are embracing what's on offer, as above figures show. Vigorous competition and extensive choice is illustrated by Apple's rise from cellular-handset market entrant in July 2007 to value-share market leader, and with the total redefinition and invigoration of the formerly-lacklustre tablet device category with the launch of the iPad and various Android devices—largely based on smartphone hardware and software technologies—from 2010 onward.

Virtuous circle upon virtuous circle

The popularity of smart devices is their powerful capabilities, convenient sizes, and with wide ranges of products and prices to suit user needs and purchaser constraints. Retina displays, multi-core application processors and GPUs, LTE, the iPad mini and larger phablet smartphones are just some examples of how performance and choice are increasing. Small and light enough to fit in one's pocket or purse, and with battery performance that sheds umbilical dependency, even with intensive consumption such as watching entire movies, these highly-portable tablet and smartphone handsets have the form factors that can be used sitting down, standing up, two-handed, one-handed and hands free. This has transformed utility by expanding where, when and how applications and services can be used. The widening range of applications and their integration with each other, and with the other devices we use--at home and away--and with the cloud, has created personal network effects that further reinforce the value of these new handset device acquisitions.

You'll find no evidence of stifled innovation or market blocking in smart devices under the Christmas tree this year".

Thanks, Keith - we look forward to hearing more from you in the coming year.

That Kodak patent sale: a look at the transaction

Here's a third guest post from Mike Mireles who, we are pleased to say, will be joining the IP Finance team as a full-time member within the next few days.  Just to show his versatility, Mike's post below proves that he can tackle subjects that are unrelated to the Bayh-Dole Act, which featured in both his earlier posts (here and here).

Kodak Patents Sell for $527 Million

After an auction with four bidders, the bankrupt Kodak accepted a bid and sold its two portfolios of digital imaging related patents for $527 million to Intellectual Ventures Fund 83 LLC, apparently comprised of a group of companies organized by Intellectual Ventures and RPX. The sale is discussed here, here and here.

Originally, Intellectual Ventures and RPX represented separate groups of companies, but because both of their individual bids were judged to be inadequate the two groups consolidated to make the accepted bid.  The represented companies include some of the most well recognized technology companies in the world including HTC, Google, Amazon Fulfillment Services, RIM, Huawei Technologies, FUJIFILM, Shutterfly, Apple and Samsung. The transaction is relatively complicated and the eventual monetization of the portfolios required settling several patent litigation disputes.  The transaction included: a sale of the patent assets, a license of the patents, the assumption of patent cross license agreements with Fujifilm and the settlement of claims involving some of the patents. The motion for authorization of the sale provides:

(a) Kodak will grant licenses to the Assigned Patents (as defined in the Sale Agreement) to each consortium member pursuant to the Bidco DC/KISS Patent License Agreements; (b) IV [Intellectual Ventures Fund 83 LLC] and Apple (in its capacity as designee under the Sale Agreement; IV and Apple in such capacity, together, the "Purchaser/Designee”) will acquire the Assigned Assets subject to the Kodak Retained Rights and the Permitted Encumbrances, including the Bidco DC/KISS Patent License Agreements and Kodak’s rights under the Grant-Back License Agreements; (c) under the Grant-Back License Agreements, Kodak will retain a license to the Assigned Patents; and (d) pursuant to the Retained Patents License Agreements and subject to the exceptions therein, Kodak’s remaining patents (the non-Assigned Patents) will be licensed to the consortium members and Kodak and each Licensee will release their respective patent claims against each other (or as to certain Licensees, their respective intellectual property claims).

6. Further, as a necessary and integral part of the Transaction (as defined below), all litigation between Kodak and each of Apple and FlashPoint in respect of Kodak’s patents, including the ongoing Adversary Proceeding (as defined below), will be dismissed pursuant to the FlashPoint Settlement Agreement and the Retained Patents License Agreement between Apple and Kodak. Pursuant to the Conditional Sale Order, the Sale of the Digital Imaging Patent Assets would be subject to the adequate protection requirements of section 363(e) of the Bankruptcy Code with respect to Apple’s and FlashPoint’s claims to the Disputed Patents. The Transaction resolves Apple’s claims by virtue of Apple’s participation as a purchaser of certain Assigned Assets (in its capacity as designee under the Sale Agreement) and a licensee; and resolves FlashPoint’s claims under the FlashPoint Settlement Agreement between Kodak, FlashPoint, Apple and IV. The resolution of all pending claims by Apple and FlashPointeliminates litigation risk and provides a substantial benefit to the Debtors’ estates and stakeholders.

7. Finally, Kodak and FUJIFILM, one of the twelve Licensees, will enter into a separate compromise, pursuant to which Kodak will assume certain Cross License Agreements (as defined in the Fuji Letter Agreement), as amended to grant Kodak the right to assign the agreements to its successor in bankruptcy and sublicense its rights thereunder to the Debtors’ divested businesses.

Notably, the $527 million sale amount is much lower than previous estimates of the value of the portfolios. 

CIRM grants, Bayh-Dole and stem cells: should one size fit all?

Last Thursday IP Finance welcomed a guest post by Mike Mireles on the current performance of the United States' Bayh-Dole Act.  Today we are happy to host a follow-up from the same author, also on Bayh-Dole but this time addressing the conflict between the opposed values of flexibility and certainty when funding R&D in the field of stem cells  Mike writes:

California Institute for Regenerative Medicine funding and the Bayh-Dole Act

In addition to federal resources, state funding in the United States may also be available to support the development of intellectual property.  In 2004, the voters of the state of California voted by proposition to allocate $3 billion to finance stem cell research.  The funding is distributed by the California state agency, the California Institute for Regenerative Medicine or CIRM.  After hearings concerning the administration of the funding, regulations were adopted to govern CIRM grants that generally follow the Bayh-Dole Act, but include some changes such as revenue-sharing with the State of California, the requirement of the creation of "access plans" for Californians that cannot afford the CIRM funded drug, and pricing for drugs developed from CIRM funding through the California Discount Prescription Drug Program.  

After funding many projects (see here), a recent Institute of Medicine of the National Academies report has called for numerous changes to regulations concerning CIRM grants including suggesting that the regulations are modified to follow the Bayh-Dole Act more closely -- apparently for reasons associated with consistency that will lead to more certainty.  Should concerns with certainty trump the interest in experimenting with modifying Bayh-Dole Act type legislation, perhaps leading to a Bayh-Dole Act that better benefits the public?  Shouldn't local conditions and concerns warrant changes in Bayh-Dole type legislation?  Does a one-size fits all approach make sense -- let alone for states, but even for different countries adopting Bayh-Dole Act type legislation?  

Brands as indicators -- or as investments?

IP Finance welcomes the following guest post from fellow MARQUES Class 46 blogger Nikos Prentoulis, a Greek IP attorney whose current thoughts are running along the following lines:

Nike sells UMBRO… and perhaps asks us to revisit the boundaries of trade marks as origin indicators

The news that Nike has struck a deal to sell UK sports brand UMBRO to Iconix Brand Group for $225m (hereand here) would, at first glance, look like a nice opportunity to discuss brand valuation and growth, or even false hopes. For me however, it is the identity of the buyer that makes this matter interesting. For those, like me, who wonder who or what Iconix is, Iconix is neither a sports apparel or footwear manufacturer, nor a large retailer. And it will probably not bid (even disguised as UMBRO) for the sponsoring a major football (or soccer if you like) event. Iconix does not make apparel, it licenses apparel brands. A very honourable trade, mind you, but the questions lie elsewhere:

·         What if UMBRO were licensed to adidas? Impossible? I think “Impossible is nothing”, right? Although, one cannot know of any non-compete post-sale conditions, UMBRO is a football brand, so it should end up back in the same pitch.
·         What if one of the competitors in the athletic apparel market devaluates UMBRO to a sub-brand, tying it with a particular product?
·         What if UMBRO becomes the subject of a non-exclusive licence?

You can get some idea of Iconix here

The questions are not so much for the prospective licensee, but more for the image and, allow me the drama, the integrity of the brand. I think it would be fair to say that UMBRO is very much a classic British football brand. So then, does this sort of (perfectly legitimate) disassociation of the brand from the business (particularly in the case of brands which find themselves at the hands of licensing businesses) draw the line of the limits of our 'modern' trademark systems? Because, as much as one may support the autonomous economic life of brands, the term 'origin indicator' does not really seem to fit quite right in this matter. Or is the advertising function of trademarks growing to consume its sister functions?     

Ceres Power Revisited

Recent press releases suggest that fuel-cell boiler manufacturer Ceres Power, discussed here and here, will not be wound up after all: IP Group plc is investing up to £1.25m, injecting new management and changing the business model to earning revenues “from a combination of development licenses, on-going fees for services and royalties on partners' mass market product sales”.  The task of manufacturing and selling complete fuel-cell boilers will now lie with OEM licensees.

When Should a Start-Up Seek Patent Protection?

In carrying out due diligence, how many times have I heard this refrain from a start-up: "Oh yes, we have a couple of a patents or patent applications, but they don't really address our current activities." And so I ask--"so what about seeking patent protection for the current activities?" The answer tends to be: "We have not gotten around to it" or "it is not really within our current budget." Being told that the company can always try to sell the patent, especially if things don't go well, is beside the point. Suggesting that the patents can be licensed looks good on paper, but less so in the marketplace for technological transfer. The problem is that the patent no longer matches the start-up.

I thought about this disjunction between the patent position of a start-up and the nature of its current business activities while listening to a recent podcast about a survey conducted at Stanford University on the impact of the university and its graduates on the world of entrepreneurship here. One of the salient points made was that around 60% of start-up ventures alter their business model [Jeremy notes: Neil asked me to guess how high this figure was: in my own experience it has been very much higher, possibly because I only get to speak to start-ups after they have hit a problem] and around 80% change the definition of their target audience. Since these are aggregate figures, the correlation between the change of a business plan or a target audience and the ultimate success of the start-up will differ, depending upon the specific industry involved. However, generally speaking, these results mirror those that I have frequently heard in connection with entrepreneurial activity.

In considering these results, the question crossed my mind: what is the relationship between the likelihood that a start-up will alter its business plan and the capacity of the company to plan an effective patent strategy? A useful way to understand this interaction is in terms of David Teece's influential notion of "dynamic capabilities". Teece describes "dynamic capabilities" ("Dynamic Capabilities & Strategic Management", Oxford University Press), as follows:

"For analytical purposes, dynamic capabilities can be disaggregated into the capacity (1) to sense and shape opportunities and threats, (2) to seize opportunities, and (3) to maintain competitiveness through enhancing, combining, protecting, and when necessary, reconfiguring the business enterprises's intangible and tangible assets. Dynamic capabilities include difficult-to-replicate enterprise capabilities required to adopt to changing customer and technological opportunities. They also embrace the enterprise's capacity to shape the ecosystem it occupies, develop new products and processes, and design and implement viable business models" (p. 4).

In a more pithy form, as set out on page xi of the Preface to the paperback edition to the book, it is "the managerial capacity to engage in sensing, seizing and transforming ..."

As described by Teece, managing "dynamic capabilities" in general, and in particular, "reconfiguring the business enterprises's intangible ... assets", is a tall order for any company, no matter how established. A fortiori, given the likelihood of a substantial (and often early) pivoting of the business plan of a start-up, the challenge is dramatically increased. Here, the question is how to align any potential patent program with the likelihood that the overarching business model of the company may well shift. here seems something fundamentally at odds between the swirl of the entrepreneur's "sensing, seizing and transforming" and the (presumably) more measured process by which an invention is identified and a corresponding patent application is then drafted and filed.

Under such circumstances, should the start-up even consider engaging in any type of patent registration programme, at least until the company has a relatively firm notion of what its ultimate business is likely to be? Whatever the inventor's imagined clairvoyance about his or her ability to comprehensively embrace all the possible preferred embodiments in the patent, the likelihood of successfully doing so seem daunting. Or should the patent applications wait until it is more clear whether the start-up will need to change its business plan and, if so, in what direction? Guidance from readers who can point to empirical studies that have sought to analyze the connection between the especially dynamic nature of a start-up and the nature and timing for seeking patent protection would be most welcome.

Bayh-Dole and AUTM's 2011 Licensing Activity Survey

The IP Finance weblog welcomes this guest post from Mike Mireles on the latest quantification of the effect of that classic piece of U.S. legislation, the Bayh-Dole Act.  This post concludes with three questions on which readers' responses are sought.  Please feel free to post your comments below or to email them to us. 

Bayh-Dole and AUTM's 2011 Licensing Activity Survey

There are various ways to aid the development of intellectual property. One way to do so is government funding. However, there is always the question of who owns the intellectual property developed from that funding—some choices are the government, the public, or the recipient of the funding. The Bayh-Dole Act specifies who owns most government-funded patentable invention in the United States—usually the recipient of the funding such as a university subject to conditions. And, the Bayh-Dole Act's simple change in ownership from the government to the grant recipient has been lauded as brilliant because it has arguably led to an increase in patenting, licensing and other related economic activities in the United States.  Indeed, numerous countries have attempted to replicate the Bayh-Dole Act’s purported success by enacting similar legislation. 

Every year the staunch supporter of the Bayh-Dole Act, the Association of University Technology Managers (AUTM), releases an annual licensing survey that sets forth the impact of recent university licensing in the United States—some of which is presumably the result of the Bayh-Dole Act. A description of the most recent survey released December 10, 2012 provides that:

• 591 new commercial products were introduced
• 4,899 licenses were executed
• 1,152 options were executed
• 416 executed licenses contained equity
• 38,600 was the total number of active licenses and options
• 670 new companies were formed, 487 of which had their primary place of business in the licensing institution’s home state
• 3,927 startup companies were still operating as of the end of Financial Year 2011

The Press Release for the 2011 Survey also notes that: 

In the case of product sales, 58 institutions (31 percent of the 186 respondents) reported that 2,821 of their licenses paid $662 million in running royalties based on $37 billion in product sales, implying an average royalty rate of 1.8 percent. Only 65 of these licenses yielded more than $1 million in royalty income.

Total income for all U.S. institutions from running royalties was $1.5 billion, so if it were assumed that all licenses generating running royalties resulted in the same 1.8 percent average royalty rates, total product sales by all licensees of U.S. institutions would have been approximately $80 billion.

The press release also states that the release of the survey coincides with the 32nd anniversary of the Bayh-Dole Act.  The numbers are impressive, but there are always the questions: would this activity have occurred without the Bayh-Dole Act, can the Bayh-Dole Act be modified to better achieve its purpose, and what are the costs of the Act?

Autumn Statement & IP

Not a lot in last week's Autumn Statement for IP, but I thought I'd cover what was there:

• removal of income tax relief for individuals paying non-trade patent royalties (s448 ITA 2007). This has been taken out because the Treasury felt it was being misused for tax avoidance – it only applied to individuals who paid patent royalties otherwise than in the course of a trade, so it wasn't often claimed in any case.  It affects any individual holding patent licences as an investment – it won't affect anyone owning patents outright, as they would not generally be paying royalties where they own the patent outright.
• £600m towards Research Council infrastructure and facilities for applied R&D – this seems to be new money, although it's not quite clear from the documents released so far.
• And finally, the proposed reduction in corporation tax to 21% in 2014 will benefit any profitable IP companies, although it's not specifically aimed at the sector.

The draft Finance Bill (due to be published tomorrow) should also have details of the proposed 'above the line' (ATL) R&D credit which will replace the current large company R&D tax relief – the key feature of the ATL credit is that it will be repayable to loss-making large companies (at least, in theory – the draft Bill should reveal whether companies are actually likely to get repayments in practice).

Exxaro Linc typical of an African IP deal

Exxaro Limited, the South African resources group, has signed a Term Sheet with Australian technology company, Linc Energy, to pursue underground coal gasification (UCG) for energy solutions in Sub-Saharan Africa. However, moving from Term Sheet to fully executed agreement is not without careful attention and some detailed negotiation about the IP.

IP NB 4 UCG

According to the press release key aspects of the deal are that:

"• Exxaro will pay an agreed upfront licence fee and ongoing royalties for the synthesis gas produced for the access to Linc Energy's UCG technologies for application in Sub-Saharan Africa (the Region).
• Exxaro will be granted a non-exclusive licence to use Linc Energy's UCG intellectual property in the Region.
• Exxaro will have conditional access to Linc Energy's UCG intellectual property to jointly develop UCG commercial opportunities on their coal resources outside the Region.
• Linc Energy will hold a minimum of 15% equity in the first project and have the option to participate up to a 49% equity position in all UCG projects which Exxaro develops."

This deal is typical of those that have dominated the African deal landscape for many years - a local resource company effectively partnering with a foreign based technology company to commercialise and exploit opportunities on the continent.  In this case, the local South African entity is also a so-called “black empowerment” company evolved out of transformation initiatives and laws in South Africa post the 1994 elections designed to uplift previously disadvantaged people through economic ownership. The formation and deal making around these companies has also dominated the local landscape for at least the last decade. Some of the IP aspects of this deal that need to be considered include:

1.      Typically, a technology firm’s main interest is to further its technology whereas a resource firm’s is to mine or work with resources and not develop IP as a main function. This can lead to differences over strategy and implementation, and disagreement. This needs to be thought through.

2.      The technology that is being transferred, in this case through a non-exclusive licence, is often a mixture of know-how, copyright and patents. This means that careful analysis and documentation of the background IP (of both parties) is crucial. More often than not, the local company will believe that it does not own any IP! This misdirection may lead to a misunderstanding of the licensee's value in the transaction or that IP may in fact be exported through the deal which may need exchange control approval.

3.      The practical effect of the transfer of technology needs to be taken into account to ensure that the know-how remains proprietary, particularly in a non-exclusive environment.  This is also of interest to the licensee who is paying a royalty for information that may easily end up in the public domain if other licenses are not strongly controlled. Furthermore, access to training and adequate facilities to enable to tech transfer need to be set up.

4.      From a patent perspective, the usual period of protection (20 years) may not be a particularly long period for a mining project and that effect needs to be considered. Patent protection needs to be obtained (assuming that to be important to the Licensor) and a clear understanding of its enforcement in Sub Saharan Africa is important for both licensor and licensee. In any event, the IP strategy (eg patenting v know-how) of the Licensor needs to be formulated, protected and clear and the licensee should be assured that its position in protected  (from copyright infringement too) if an infringement occurs as that is one of the reasons why they are paying a royalty. And yes, there have been reports of counterfeit power stations.

5.      Undoubtedly, foreground IP i.e. IP developed though the collaboration process is also of primary importance. For the licensor this IP may contain valuable improvements to the existing technology which will sit in the joint venture vehicle and may need to be licensed out if the Licensor is to make use of those improvements elsewhere. If the foreground IP is developed in collaboration with external consultants then agreements need to be set up. At the very least an IP manager needs to be appointed within the local company.

6.      There are some practical problems to splitting jointly owned know-how and IP generallly if there is ever a termination of the license. Unscrambling an egg is not easy and so the termination clause requires thought.

7.   There may also be exchange control considerations for IP that is to be exported (and I say this in the widest sense possible). This (and other reasons) may require upfront valuation of the IP or consideration as to the domicilium of the joint venture company.

       As a final thought, this deal involves gasification technology to produce alternate green energy solutions that are good for the planet. It is interesting and perhaps even ironic that although in this instance the technology appears to have been developed in Australia, there are local companies using gasification for green projects where the technology was developed in Europe during World War 2 under more sinister conditions.

Roller Coaster Day for Myriad Genetics

It was a bit of a roller coaster day for US biotech Myriad Genetics as it share price plunged 9% on news that the US Supreme Court would be reviewing it '782 patent directed towards the BRACA1 and BRCA2 genes. The court wants to look at the questions of whether isolated genes should be patentable or not under US Patent Law.

The share price regained - presumably as other traders picked up "bargains" - and lost only 1.4% at the end of the day. Nonetheless it's an informative lesson to see how IP-based businesses, such as Myriad Genetics, react to changes in patent law and decisions of courts on their basic patents.

The background to the case is fairly simple. Myriad Genetics was founded by Walter Gilbert (1980 Nobel Prize winner) and Mark Skolnick of the University of Utah, who had performed the sequencing of the BRACA1 gene. This gene had previously been linked to an increase in breast cancer. A subsidiary of Myriad Genetics markets test kits for testing for breast cancer. A number of plaintiffs filed for revocation of the patents and the suit was demised in the Southern District of New York. The Court of Appeals for the Federal Circuit decided in favour of the patent holders and the American Civil Liberties Union filed a petition for a writ of certiorari (review) with the US Supreme Court.

Much of Myriad's revenue is derived from selling kits for testing for breast cancers and ovarian cancers and the patents held by Myriad are clearly important for maintaining the price of the tests (and thus justifying the share price). Any decision by the Supreme Court rejecting the notion that even isolated genes should not be patentable will impact on Myriad's revenues since it would open up the cancer testing market to competition.

Myriad argue strongly that their tests are fairly priced and that this has been demonstrated by independent economists. The ACLU (and others) argue that the market would be better served by having greater competition. There is certainly a moral argument to be made - but that should be in the realm of competition law and (possibly) compulsory licences. The role of the patent system is to support innovation and ensure that companies invest in research and development stimulated by the opportunity to obtain a limited degree of monopoly. In Myriad's case this is reflected by the company's expenditure in 2012 of almost 10% of revenue (and about 25% of profits) in R&D.

Myriad are careful to explain the impact of the suit in their 2012 Annual Report. They explain that they do not think that an adverse judgement would be issued and, even if it did, they do not believe that others will be able to commercialise genetic tests. Their 10-K filing with the SEC notes correctly that that there could be a material adverse impact on the company from an adverse opinion. It's difficult to discuss the statement without going into great detail about what the patents might and might not cover. Sales of the BRACAnalysis test comprise 82% of the company's revenues and so any competition is likely to impact.

On the other hand, the dispute only relates to protection in the US. Myriad have already prevailed over an opposition in Europe filed by a number of interested parties. Their patents on isolated DNA has been upheld (but limited in scope than the original request). aWhilst still at least theoretically open to challenge in national courts, the patent is presumably much stronger having survived the challenge and thus the risk of revocation is much less than the uncertainty prevailing in the US.

Given this background, it's not surprising that the share price dipped on announcement of the review. It's going to add to uncertainty in revenues which needs to be considered by investors. The long-term effect on the stock price will ultimately depend on the Court's decision expected in 2013.

Fine Art: The Oddest Market of Them All?

It's not like the market for selling a large patent portfolio for many tens of millions of dollars. Still, the market for fine art is idiosyncratic and it is like no other market. From the copyright point of view, the market for paintings goes against most of what we are accustomed to believe about copyright. Thus we are wont to say that what makes copyright valuable is that the right does not reside in any single exclusive tangible item. The text of a book can be reproduced ad infinitum; there is no special value in any given tangible copy. The value is in the mass reproduction and distribution.

Contrast that with a valuable painting. True, a copy of a painting, such as series of lithographs, can be made and sold, but the unique value of the work is in the "original painting". It is the market for the purchase and sale of "original paintings" that makes the art market special (not even the most treasured first edition of a book can command the price of a desired piece of "original" art). As such, the commercial market for fine art is a world unto itself, with its own economic rules. But these rules seem to be under increasing challenge.

These tribulations are well-described in an article that appeared in the November 24 issue of The Economist. Entitled "Collectors, artists and lawyers" here, the article recounts how concerns over litigation about the authenticity of paintings is putting a damper on the market for works of fine art. The article centered on the challenges facing so-called authentication boards, which serve to certify the authenticity of paintings created, or allegedly created, by the artist under their watch. The commercial value of such boards is clear, as stated in the article: "Authentication reassures buyers, which stimulate sales."

However, the future of authentication boards as a major cog in the fine art industry is under threat. The problem is that any alleged mis-step in the process of authentication is increasingly likely to met by a lawsuit from either a disgruntled collector or dealer. In response, the various bodies for whom the boards work have taken our larger and larger liability insurance policies. More drastically, some have decided to disband the authentication process entirely. As a result, there is no longer an authentication board for such famous modern painters as Roy Lichtenstein, Andy Wharhol and Jackson Pollack.

The particular angst over authentication centres on the so-called catalogue raisonne, here, which purports to set out a list of paintings by a given painter whose provenance has been authenticated. While the commercial value of the list is obvious, it also provides grist for the litigation mill. If you are a collector and you have paid a hefty sum for a painting, it can be very distressing to find that the painting that you own does not appear on the catalogue list. The absence of that painting from that list will inevitably mean a lower price of that painting. The collector's response--file a lawsuit alleging negligence on the part of the board.

But the collector's victory, if he wins and collects (usually from the insurance company), may well have a deleterious result on the industry as a whole. Too many law suits filed, and the decision may then be made to disband the authentication board and, with it, the publishing of the catalogue. If that happens, it may well be easier for counterfeiters to hawk their wares (especially for modern art, classical art apparently being more difficult to counterfeit), which will have the effect of depressing prices across the industry.

Carried to an extreme, the result might be that only paintings by living artists, the authenticity of which the artist himself can vouch, will attract attract top dollar (or yuan). That is what is reportedly happening in China, where the view of so-called art experts is is frequently ignored, since such experts are perceived as being "in cahoots with a dealer or seller." An art market where artists themselves are the only reliable source of provenance for their works would be a far different market to that to which we are all accustomed.

That said, permit me to engage in a bit of musing. First, it seems spectacularly odd that the role of authentication can play such a potentially influential role on the pricing dynamics of the industry's product, especially since the downside to the authenticator's role is put into motion by the consumers for the product themselves. But if that is the current situation, maybe it is time to rethink the issue of allocation of risk. As anyone who engages in transactions between a buyer and seller knows, uncertainties about the transaction mean that the parties often need to reach agreement on the allocation of risk. Here, the risk centres on the genuineness of the painting at issue.

Since it is the consumer who puts the authentication process at legal risk, perhaps it is he who should bear the risk for the process. Due diligence by purchasers is a daily occurrence; why not put the ultimate burden for such on the purchaser of fine art? Or perhaps this suggestion is borne of equal amounts of naivety and outright ignorance about the workings of the fine art market. A unique, odd market indeed!

Standards, Essential Patents and Antitrust

"Standards, Essential Patents and Antitrust" is the Editorial in the current issue of the Journal of European Competition Law & Practice (JECLP), Authored by Jorge Padilla (Senior MD and Head, Compass Lexecom), it visits a subject that has frequently been addressed in this weblog: the unhappy relationship between patent incentives and competition rules when it comes to FRAND ("fair, reasonably and non-discriminatory") licence terms. IP Finance thanks Oxford University Press, publishers of JECLP, for permission to reproduce it here:

"Standard essential patents (SEPs)—patents that read on a standard and are declared essential to practising that standard by their owners—have attracted the attention of competition authorities all over the world. The alleged abuse of the market power conferred by SEPs was the core issue investigated by the US and EU competition authorities in relation to Rambus's conduct; it was the chief concern behind DG Comp's investigation of Qualcomm's licensing practices; it was considered by the US and EU competition authorities when reviewing the merger between Google and Motorola and the recent patent aggregation mergers involving, among others, Nortel's patent portfolio; and, of course, it is centrestage of the ongoing reviews of Samsung's and Motorola's licensing practices.

What explains the recent popularity of SEPs with the competition agencies? First, standardisation plays a key role in several industries; most prominently in the telecoms, software, and hardware industries. Second, the number of patents in some standardised industries has grown very significantly. Third, many of those patents have been declared essential to practising standards. Fourth, some competition authorities have concluded that (a) standardisation restricts competition and thus creates market power and (b) SEP ownership automatically confers dominance. And, lastly, standardised industries are populated by asymmetric companies: some of them have SEPs while others don't; some of them are pure innovators while others are pure implementers and yet others are vertically integrated. Asymmetry engenders dispute and dispute attracts regulatory attention when regulators are persuaded, as some appear to be, that commercial courts are likely to be unable to deal effectively with the complexities of SEP pricing and non-pricing disputes.

In short, there are many SEP cases because there are many SEPs, SEPs are regarded as sources of market power, licensing SEPs give rise to bitter commercial disputes with potential exploitative and exclusionary implications, and some companies and competition authorities regard antitrust intervention as the most effective and efficient route to solving those disputes. It is considered most effective because the deterrent effect of antitrust precedents is thought to be considerably higher than that of court decisions, and it is considered most efficient because competition authorities have considerable investigative resources that need not be available to courts. More importantly, competition authorities may be keen to intervene in SEP matters because they are sceptical about the ability of private enforcement to produce desirable outcomes from a public interest or consumer welfare viewpoint.

These cases are highly complex because they involve a difficult trade-off. On the one hand, patent protection may lead to excessive prices and may also be used to exclude competitors anticompetitively. On the other hand, the raison-d'être of patents is to promote innovation. So these cases are difficult because they can cause both type I and type II errors. They are also complex because they involve difficult questions that have been hitherto insufficiently researched by lawyers and economists. For example, what is a FRAND royalty rate? There is no consensus. Are preliminary injunctions in patent disputes involving SEPs anticompetitive and/or inconsistent with FRAND commitments? There is no consensus on this question either.

To be fair, there is not even a consensus on the degree of complexity of these matters. Some commentators are convinced that intervention against SEPs entails no welfare downside. They believe that FRAND royalties should always be kept low or very low. They believe that the bargaining power of SEP owners should always be limited and, therefore, no preliminary injunctions should ever be awarded in SEP disputes. Those who argue in this way justify their claims on the widely held view that patent systems, and in particular, the US patent system, produce too many weak patents (ie, patents which should never have been granted in the first place) and that, as a result, they chill rather than foster innovation. These commentators seem to believe that the sins committed by the Western patent system can only be atoned for with the help of the competition authorities.

I have some concerns with this view, which in my opinion is extreme. Most importantly, not all patents are identical. Some, possibly too many, patents may be weak but there are other patents that are deservedly awarded. Such strong patents do protect and promote innovation. FRAND royalties for those patents should not be constrained by competition rules designed for a world of weak patents. Likewise, there is in my opinion no justification for adopting a per se rule against preliminary injunctions for SEP owners, because that rule would inefficiently shift bargaining power away from holders of strong SEPs. It is not true that intervention in SEP cases entails no risk of false positives. Both those who question the right of competition authorities to intervene when intellectual property rights are involved, and those who maintain that patents necessarily do more evil than good, are outside what I consider the reasonable spectrum of opinion. Competition agencies reviewing licensing practices in standardised industries should steer their way so as to avoid those extremes. They have a daunting job ahead: ensuring that antitrust and IP law complement each other to the ultimate benefit of consumers".

This blogger is pleased to see this call for moderation and common sense in dealing with standard-setting patents coming from an economist on the "other side", as it were, rather than from the serried ranks of do-or-die pro-IP apologists.

Iliffe - the tax stuff

To follow up on Jeremy's post, the tax stuff on the Iliffe case has some useful points buried in it (but don't forget it's all obiter as the decision was actually that the assignments were void as they were assignments of unregistered trademarks in gross so the whole thing fell apart from the start):

Capital or revenue?
The decision confirms that the treatment of receipts from IP assets is not significantly different to that of receipts from other assets; where there is a significant reduction in value of an asset as a result of a transaction, that transaction is likely to be viewed as a capital transaction and any receipt will be a capital receipt.  In this case, the grant of a 5 year licence over the IP asset was held to constitute a significant reduction in value of that IP asset.

The capital/revenue distinction is less important for companies without capital losses as the tax rate is the same – it matters more to individuals, who pay different rates of tax on capital and revenue receipts.

One useful point that arises from the judgement is the confirmation that, simply because a payment arrangement is not typical for that type of transaction, it does not necessarily affect the tax treatment – HMRC had argued that trademark licensing arrangements are usually based on periodic payments, not a lump sum, and that the lump sum here simply relieved the subsidiaries of having to pay periodic payments. As such, they argued that the lump sum should be regarded as revenue. The judgment noted that this was not how the transaction was structured – the lump sum was not based on royalties, or any use of the IP assets, and the fact that this was atypical was not "of much significance".

Creating IP - licences and other implications
The tax rules for company IP assets depend on whether the asset was created or acquired before or on/after 1 April 2002 – the rules for post-1 April 2002 assets are more generous and so there are rules to stop related parties getting benefits by transferring IP assets between themselves. Basically, you can't turn a pre-1 April 2002 asset into a post-1 April 2002 asset by transferring it from one related party to another.

Unfortunately, the related parties rules don't really take licences into accounts – in this case, the parties tried to create post-1 April 2002 assets by creating licences from the trademarks. Licences are qualifying IP assets within the tax rules.

The judgement accepts that the licences of the trademarks were created after 1 April 2002 but finds that, in this case, there was no expenditure on the creation of the licences after 1 April 2002. The only expenditure in respect of the licences was on their acquisition. If there's no expenditure on creation of an IP asset after 1-April 2002 then it's not a post-1 April 2002 asset, under the tax rules. Even if it's actually created after that date.

As a result, the judgement finds that the licences can't fall within the corporate intangible tax rules because they are acquired from a related party – for the acquirer to get beneficial tax treatment, the IP asset must have been a post-1 April 2002 asset for the related party.

There was no discussion as to creation expenditure in respect of the licences and particularly the legal fees and the management time that are usually involved in the creation of the licenses. It seems unlikely that the licences sprang fully formed from the licensees and the licensor's only involvement was signature – particularly as it's clear from the background facts in the judgement that the licensor's directors were involved in discussions on the matter.

If time and legal fees incurred in creating licences don't count as post-1 April 2002 creation expenditure then there could be an argument that time spent by an author in creating a copyright work equally doesn't count as expenditure on creating an IP asset as copyright can be created without more identifiable expenditure. It's unlikely that HMRC would take the point, but it's arguably a logical conclusion from the judgement.

The decision was fairly clearly signalled by the point (in para 250-251) that there must be some limitation on licences counting as IP assets, otherwise all that would be needed to get around the related party rules would be to licence a pre-1 April 2002 asset, rather than transfer it. It's a pity that the judgement has to be a bit contorted in trying to get to this point – it's a point that should be properly dealt with in legislation.

It should be noted that the decision doesn't affect licences acquired from third parties – all that's required in such cases is that expenditure on acquiring the licence is incurred on/after 1 April 2002: the pre/post-1 April 2002 status of the licence with respect to the licensor doesn't matter.

IP mini-GAAR
There's a section in the IP tax rules for companies that effectively denies beneficial treatment if one of the main purposes of a transaction is to get a tax benefit (a mini-general anti abuse rule). The judgement findings here aren't specifically related to IP tax – they have wider implications for other mini-GAARs and the main GAAR that's anticipated in 2013. In particular, the judgement found that:

• it could take the tax adviser's intentions into account in deciding whether a tax advantage was a main purpose, as the taxpayer company directors didn't fully understand the structure
• it could compare the transaction to a hypothetical transaction that achieved the commercial objectives more effectively

Both these points are a bit of a departure from previous interpretation of mini-GAARs and have implications well outside the realms of IP tax law.

Overall
It's unlikely that there will be an appeal given that the defeat was on a basic point of IP law, so the IP tax points will stand as obiter dicta for the time being – the main points to note are:

• get the IP law right!
• make sure the taxpayer understands the structure
• trying to get around the rules will probably not be favourably looked upon by the Tribunal

Tax schemes and assignment of unregistered trade marks in gross

Iliffe News and Media Ltd & Ors v Revenue & Customs [2012] UKFTT 696 (TC), a United Kingdom First-Tier Tax Tribunal decision, bears all the hallmarks of the sort of ruling that you make a mental note to read one day, then spot that it's 335 paragraphs long and determine to leave the reading of it to a happy day when you are paid to read it for the sake of a client. This blogger hasn't read it in full -- and he's not sure that he'd want to even if he were paid to do it -- but he felt that readers of the IP Finance weblog should at least be aware of it.

Essentially, this First-tier Tribunal ruling concluded that purported assignments of local newspaper titles or "mastheads" as unregistered trade marks by subsidiary companies to a newspaper publishing group holding company were in gross -- which means that they were assigned without the businesses to which they were attached -- and were also void for mistake as to the assignability of the subject matter of the purported assignment. The titles had been assigned to the holding company and then licensed in exchange for consideration that came to more than £50 million. The Tribunal ventured back into the history of the common law rule against assignments of unregistered trade mark in gross. While the basic rule was that you couldn't do it, the Trade Marks Act 1938 section 22 allowed such an assignment -- so long as the assigned unregistered mark was used in the same business as a registered trade mark which had been assigned (i) at the same time and (ii) to the same person, (iii) in respect of goods used in that business for which the registered trade mark was assigned. The Trade Marks 1994, which repealed the 1938 Act, liberalised the assignment of registered trade marks, but provided that nothing in that Act should be construed as affecting the assignment of an unregistered trade mark as part of the goodwill of a business. In this case, the unregistered trade marks were not intended

Much of the decision is taken up with a discussion of what would have been the effect of the assignment, in tax terms, had it been valid.  But there's more there than this blogger can handle ...

Jackie Maguire (in 2D) on 3D

IP Finance's friend Jackie Maguire (CEO, Coller IP) has been interviewed by the BBC on the increasingly interesting field of 3D printing.  If 3D printing lives up to only a tenth of its hype and quarter of its technical potential, it can easily be the biggest proposition to affect the IP-finance interface since the internet and web-enabled portable devices, as it (i) absorbs increasingly large proportions of available R&D and marketing funding, (ii) forces manufacturers, suppliers and retailers of 3D print-friendly products to evaluate, amend or abandon existing business models and (iii) raises familiar issues regarding the search for industry-wide standards and the technologies of compatibility, in which the demand for return on private investment, the need for competition and accessibility of markets to new entrants, come increasingly into conflict with one another.

You can enjoy the interview here.

Big Bang in merchandising Bonanza

As a trained physicist one of this bloggers favourite TV programmes is the US sitcom "The Big Bang Theory". He's not very keen on dubbed German version and was pleased to find that the original language versions are now available on iTunes. Somehow Sheldon Cooper does not seem to come over well in German - even if the long words in that language would seem to be perfect for Sheldon to stupefy everyone else. Apparently the show has ratings of over 500,000 in the UK and is credited with the mini-boom in school students studying physics. Just shows that nerds can be role models. It seems strange, nonetheless, that the show is apparently expected to generate USD 50 million in merchandising revenue this year, according to this report in the US magazine Variety. Apparently you can now buy a model Sheldon Cooper as well as a Gazinga T-shirt (Gazinga being Sheldon's way of indicating a joke). It's probably not surprising given the nerdy nature of the show that it features a fact or fiction trivia game (obviously not licensed to the makers of Tr*v**l P*rs**t, given its name). And I'm really looking forward to a good game of Big Bang UNO with the kids. Given this volume of merchandising for the show alone, it would be intriguing to find out just how much benefit the makers of the nerdy products plugged on the show enjoy. There's no reference on the German TV version to sponsored product placement and so it might really be that DC comics enjoy substantial extra publicity for their iconic superheroes. On an intriguing note - despite the merchandising campaign, the makers of the show don't seem to be thinking proactively about their trade mark rights. US Trademark 3754655 was only filed in 2009, despite the show having been on air much earlier, and it is only registered in class 41 for entertainment services. Outside of the US no rights seemed to have been filed.

Technorati Tags: The Big Bang Theory, Merchandising

Kodak, Patents and the Deal That You Can't Refuse?

Let's start from the end: No, I am not going to let this subject disappear quietly.

Several months ago I wrote about "Patent Valuation, T.S. Eliot and the Theatre of the Absurd" here, where I commented on the steadily decreasing valuation of the Kodak patent portfolio. The saga continues. Last week it was reported by Joe Mullin on arstechnica.com here that Kodak has entered into a credit line of $793 million dollars with its bondholders, provided that the company can raise at least $500 million from the sale of its portfolio of patents. The arrangement still needs approval of the bankruptcy court, it is reported.

The names of potential purchasers remain a combination of smartphone companies--such as Apple, Google and Samsung-- on the one hand, and patent aggregators, such as Intellectual Ventures here and RPX Corp. here, on the other. The article goes on to make a number of points that are not entirely clear to me:

1. "Because such a wide range of entities is working together to buy these Kodak patents, it is unlikely that they would fall into the hands of patent trolls or be used for other types of patent attacks."--I don't quite follow this. What does it mean that these entities are "working together"? Are they allocating the patents between them? If not, what is the nature of this coordination? Moreover, depending upon on how you define a patent troll, both Intellectual Ventures and even RPX Corp can be seen as having troll-like characteristics.

2. "This deal would allow Kodak to get one big lump-sum payment rather than eke out its patent cash in court."--This seems to be a bit of false dichotomy. Did anyone really believe that Kodak's patent folio was going to earn the company aggregate recovery in the amount of many hundreds of millions of dollars? Is sale of the patent portfolio really a commercial alternative to continuing to slog it out in courts?

3. "But the endgame will remain the same: competing companies--and, indirectly, consumers--will still have to pay a hefty tax to buy out a dying, but patent-rich, business"--This is not clear to me at all. Who are the competing companies and why are they paying "a hefty tax" for the patents?

4. I do not understand the pricing dynamic that it taking place here. In particular,
what are the pressures that are being brought to bear on these potential purchasers so that they agree to pay an amount greater than if there was a free auction of the portfolio? What comes to mind is that the bondholders want to pressure the perspective purchasers to fork over at least a half-billion dollars or take the risk that the patents fall into the "wrong" hands. Maybe that is the "hefty tax" that is referred to in the article.

More generally, I would really love someone to dig into how it came to pass that the same patent portfolio was given a valuation of over two billion dollars last year. Who had in interest in championing this over-estimate? How was this supposed to translate into fees or other income for interested parties? Is there an IP equivalent here to the tawdry conduct of several major investment houses a half decade ago, who were flogging investments of the same bundles of assets that they were shorting (i.e., betting on their price decline)?

Stated otherwise, it seems to me that the time has come for at least certain elements of the patent valuation business to come clean on what happened. Greed, misjudgment, or something more sinister?