Tuesday, January 29, 2013

Good News for Crowdfunding for Start-Ups? President Obama nominates Mary Jo White to head Securities and Exchange Commission.

Late last week, President Obama nominated Mary Jo White as the head of the Securities and Exchange Commission (SEC).  Her appointment awaits confirmation by the U.S. Senate. Hopefully, this is an indication that the new SEC rules implementing the JOBS Act will become effective soon and thus, the legal landscape concerning crowdfunding for startups in the United States will be clarified.  Apparently, part of the hold-up relating to approval of the rules has revolved around concerns with inadequate investor protection in the rules and questions concerning the identity of the new member of the SEC.   A description of the issues concerning crowdfunding is provided by startup guru Yoichiro“Yokum” Taku here.   

Monday, January 28, 2013

Dutch sandwich in danger, but most of the pie remains untaxed

From Mary-Ellen Field (Chairman, Brand Finance), via Mark Colvin, comes news of "No more “Dutch Sandwich”? The Netherlands reviews its role in tax avoidance" by Cyrus Farivar, posted on Ars Technica last week (here). According to this post, in relevant part:
"In recent years, governments have become increasingly aware of the fact that lots of major corporations -- notably tech companies including Apple, Google, Yahoo, Dell, and many others -- are using shady, albeit legal, techniques to shift income in ways that drastically minimize a company's tax burden. A trick known as the “Dutch Sandwich,” in which companies move money through the Netherlands, has become one of the preferred ways of reducing a firm's financial liability. ...

Here’s how it works: as Bloomberg also reported in 2010, a company sells or licenses its foreign rights to intellectual property developed in the United States to a subsidiary in a country with lower tax rates. That means that in many cases, companies will license their own IP to one of their own foreign subsidiaries (often based in Ireland), whose profits then stop over in the Netherlands. In turn, those profits finally settle in Bermuda, a British overseas territory in the North Atlantic, and a notorious tax haven. ...".
Last Wednesday, however, a Dutch parliamentary committee met to consider the fairness of its own tax system and to re-evaluate its role as part of a legal financial chain that allows companies to reduce the amount of tax they pay. Other European countries, including the United Kingdom, Ireland and France, are also looking more closely at the tax arrangements of international IT and online businesses, which either pay little tax of any description or, when they do pay tax, they tend not to pay it in European countries in which they have been profitably trading.

 It seems to this blogger that European countries will have to sort out their priorities before they can individually get to grips with the problem of international companies which earn megabucks and pay little or no tax in the EU.  This is because real and meaningful taxation is only going to be raised when all 27 (soon to be 28) Member States have identical tax rules, while each EU Member State would like to be seen to be that bit more attractive in tax terms than its neighbours, in order to attract foreign businesses to base themselves and their IP portfolios locally.  The businesses themselves will naturally wish to exploit any tax differentials and pay where tax is at the lowest rate, thus encouraging a race to the bottom.

Double Irish Dutch Sandwich explained here

Friday, January 25, 2013

Crowdsourcing against "Bad" Patents and Patent Trolls: But Not All Black and White

The notion that there are "bad" patents, which I take to mean that the patent should never have been granted -- or that even if it was granted, the scope of the claims are too broad -- is widely expressed. There is a parallel Darth Vader patent notion, namely, the deleterious effects of the patent troll. Here, it is presumed that some little-known and, more or less, penurious patentee, is the owner of an over-broad patent, which he has transferred to the patent troll, who then seeks to terrorize multiple persons acting within the industry covered by the patent.

It is not my purpose here to focus on the correctness of the claim that there are "bad" patents and that such patents are sometimes abused by patent trolls. Rather, let's assume for purposes of this discussion that there is a basis for such views. As such, the question becomes: how can persons who perceive themselves threatened by bad patents and patent trolls combat this challenge?

One particularly interesting response was described in an article in the January 17, 2013 issue of Bloomberg BusinessWeek as "Crowdsourcing the Fight Against Tech Patent Trolls" here. Written by Olga Kharif, the article focuses on the activities of a company called Article One Partners here, which is described as "a website where more than 27,000 researchers sift through obscure public domain materials including scientific papers, Ph.D. theses, and even product manuals to poke holes in legal claims—and possibly earn thousands of dollars."

The business model seems to be as follows. The company charges prospective clients either a one-time fee (the range of which was not indicated) or an annual membership fee (the cost of which was also not indicated). Corporate client include companies such as Philips (which asked Article One in 2011 to examine 33 patents), Microsoft and Sony. The company pays an amount ranging from $3,000-$5,000 to the researchers who come up with what is described as "the best research". Since the creation of the company in 2008, it has paid $3.69 million to researchers; half of this amount was paid for studies carried out in 2012. It is reported that 8% of the approximately 27,000 researchers earn more than $50,500 per annum.

The Company uses an algorithm to winnow research submissions in order to find materials deemed most germane to the client's matter. Five members of the company's staff then further narrow the search results and the client itself is able to refine the search through tools available on the company's website. Gerard Pennekoek, CEO of a start-up called International Property Exchange International here, observed that ""crowdsourced model works better than any grouping of staff that you bring in-house" (although, to be balanced here, two of the members of the board of directors of International Property Exchange International are listed on the company's website as Ruud Peters, the chief intellectual property officer of Philips and an apparent source of the information about Philips Electronics' use of the services of Article One described below, and Marshall Phelps, formerly head of intellectual policy and strategy at Microsoft and a reported investor in Article One Partners). The article describes how Philips Electronics paid Article One approximately $100,000 to find conclusive prior art that convinced a would-be plaintiff to back down from a threat of filing an action for infringement. Philips had turned to Article One because, according to the report, its own in-house lawyers had found it difficult to come up with "a viable defense."

While all of this sounds jolly good, I have a some concern about discussions concerning this crowdsourcing-based business model have been bolted onto a form of IP morality play (who can be against rooting out "bad" patents and tempering rapacious patent trolls). In particular, the article does not bring any example of a small company, with limited resources, which has been able to deflect a claim for infringement by relying on research results from Article One. I agree that patent litigation, especially in the U.S., can be ghastly expensive. However, the real victim in the cost structure of patent litigation is not the multinational company (who may well be tomorrow's infringement plaintiff), but the small entity who cannot afford to defend, and as a result, often will seek an early, usually unfavourable settlement or engage in all-out capitulation, even when the legal basis for the case is flimsy. Until Article One and like companies can be shown to provide an effective and cost-effective service to such small entities, the morality play dimension of their activities must be taken with a proverbial grain of salt.

Wednesday, January 23, 2013

A New Kind of University? Merging Industry and Academia (with help from the Government) from the Ground Up (almost).

The NY Times recently discussed the admission of the first class of graduate engineering students in computer science at Cornell NYC Tech.  Cornell NYC Tech is an ambitious graduate school designed to foster entrepreneurship through innovative curriculum and a close—even intertwined—relationship with industry from the get go.  Here’s a description of its academic structure: "Research at Cornell Tech is organized around flexible and dynamic interdisciplinary application hubs instead of traditional academic departments. This model serves as a focal point for the campus, accelerating existing sectors of New York City’s economy and driving the formation of new technology businesses through close ties to customers and unique domain knowledge. The first three hubs – Connective Media, Healthier Life and Built Environment – reflect the frontier of the information economy today and where it’s going."

Physically, classes will be located amongst innovative companies.  And, employees of the companies will work hand-in-hand with students and faculty.  Fridays are apparently devoted to lectures by people from outside academia.  Students have industry advisors for their master’s project—someone from a company, from a nonprofit or who is an early stage investor.  Professors are strongly encouraged to devote time working for industry.  You may be thinking: what about all of the intellectual property disputes that are bound to happen?  Don’t worry—they’ve thought of that as well: “[I]nstead of protracted legal battles with the university over intellectual property rights to those projects, the companies that oversee them will get a contract designed to facilitate frictionless collaboration.”  And, government, industry and academia have “skin in the game” so to speak.  First, Cornell (Cornell’s academic partner is Technion -- Israel Institute of Technology) has set aside $150 million to invest in New York’s technology sector.  Second, the City has awarded $100 million and $300 million in real estate to the new school.  Third, Google has donated space at its $2 billion headquarters in NYC for the first class until the permanent campus is completed.   Other companies and nonprofits have signed on to participate as well.  To top this off, the United States Patent and Trademark office will have an onsite representative—an innovation and outreach coordinator—to help with any intellectual property issues and federal government aid. 

What does this all mean for the “traditional” university?  Will private funding for research gravitate toward this particular type of “new” school?  What about government funding?  Is this school really that different from what is already happening?  Is basic research a thing of the past?  Academic freedom, anyone? 

Thursday, January 17, 2013

Times are Tough for Universities: What is the Future of University Online Education and IP

The University of California (UC) system has invested millions of dollars in marketing the offering of some of its courses online.  The courses are not only offered to current UC students, but also are offered to non-UC students.  The courses are not offered to non-UC students for free and the hope, in a relatively difficult financial time for most universities, is that the lure of UC classes will lead to extra revenue for the UC system.  Unfortunately, after spending 4 million dollars on marketing, only one student signed up for an online course who is not a current UC student.  That’s right—one student.  The San Francisco Chronicle and the Sacramento Bee both discuss the issue.  Is the future a grim one for online education--at least at most universities? 

Again, times are tough for universities and looking for outside revenue by offering courses to people who aren’t current students for a fee is one way to make money.   So, don’t expect universities to stop trying and they probably shouldn’t because making education available for more is not such a bad thing.  There is a question of how aggressive university administrators (or others) are going to get in pursuing online education—and IP has a part to play.  Generally speaking, in the United States, professors will own the copyright in their teaching materials or other published materials, usually so-called traditional scholarly works—because of university policy (but, see below).  They also likely won’t have an obligation to share royalties with the university.  However, with the advent of online education, administrators may decide they want the university to own the copyright in any materials created for use in the online course (and that course may be subsequently offered in the future without that professor but using that professor’s materials).  The administrator may also start scratching his or her head and wondering well, why don’t we just own any textbooks or other books produced by the academic--well, we should!  Yikes!  That would be a very unpopular decision for an administrator to make—at least with faculty.  What do you think?  Should faculty own the copyright in their course materials and other published materials, including traditional scholarly works?  What about academic freedom?  Should faculty own all of the materials they created for online courses?  For an excellent discussion of copyright ownership and online education, see Professor Roberta Kwall’s article. 

In a 2006 study concerning university policies and copyright ownership in the United States, the authors of the study found:

[M]ost Universities are writing intellectual property rights policies to delineate the rights of faculty to their works.  Although 93% of these policies designated that professors should have control of their traditional scholarly works; 71% of these universities specifically listed exemptions to this policy. Most universities (95%) claimed some faculty works, especially if the works required substantial use of university resources (83%). On a positive note when the university did claim rights to the intellectual property of a faculty member, 95% offer to share a percentage of the royalties.

Our research also revealed some areas of concern. Although half of the universities gave control of syllabi, tests and notes to faculty, only 31% of these institutions also included materials posted to the web and 36% of the universities claimed ownership of courseware and distance learning materials. A substantial majority of universities claim the intellectual property rights for materials that faculty are given specific assignments to produce (76%), are specifically hired to produce (76%), or are commissioned to produce (67%). Another area of concern is the increase in the number of universities that make some claims in their policies to works developed within the scope of employment or according to the Copyright Law for works-for-hire or (currently 57%).

Does anyone know of a more recent study of university policies concerning copyrighted materials in the United States?  Are there similar studies of policies in other countries?  As a side note, for a simple and helpful guide for intellectual property issues (United States) for professors offering online courses, see UC Irvine’s website. 

Wednesday, January 16, 2013

Venture Capital-- Future Perfect? Future?

As we enter 2013, it is worthwhile to consider the state of venture capital. A succinct summary was contained in a piece by Peter Cohan, entitled "What's Ahead in 2013 for Venture Capital", which appeared on January 3, 2013, in entrepreneur.com here. I suppose that there are many of you who were nurtured, as I was, over a decade ago, to treat the venture capital world in almost mystical terms. But the ravages of the dot.com bubble in 2001, the virtual disappearance of the IPO market since 2005, and the Great Recession of 2008 have all left their mark.

As for the venture capital world, Cohan concluded as follows:
"Simply put, VC has been underperforming the average stock index since venture returns peaked in 1999. In the decade ending in 1999, the average VC generated a whopping internal rate of return of 83.4%. By 2010, the typical VC fund was a big money-loser, generating an internal rate of return of -5.2%. But by the mid-2012, the typical VC fund had recovered to generate a positive internal rate of return of 5.3%."
While at least pointing in the right direction, these kinds of returns hardly presage any return to the glory days of the 1990s. Moreover, the expectation for investments in 2013 is not evenly divided across sectors. Business and healthcare IT are seen as most likely to enjoy increased investment, while investment in medical devices, clean-tech and biopharmaceuticals are expected to crater. There is something disheartening in the apparent fact that these areas are being viewed with disfavour as a matter of return on investment. Moreover, given that all three of these areas are frequently accompanied by active patent filing programmes, any precipitous decline in investment may well have repercussions for patent practitioners with an oversized position in these areas.

The current state of start-up funding is also characterized by what seems to be an odd, if not corrosive, situation in how funding is taking place. As stated by Cohan, certain
"wealthy investors have been pouring seed capital into start-ups at the earliest stages of development without sufficient discipline. These investors expect only one in 10 of these companies to succeed. But the availability of the seed capital is driving up the salaries of top technical talent." 
 As a result, however, there is a tendency for less funding to be available for Series A funding (investments of between $5,000,000 to $10,000,000). This means, perhaps perversely, that unless the start-up can become cash-flow positive already at the seed capital stage, it will find it difficult to attract next-stage funding. Such a state of affairs, if widespread, will make it even more difficult for enterprises in medical devices, clean-tech and biopharmaceuticals to obtain the funds needed, especially given their more lengthy time-line for product development.

Voices are increasingly heard about how the current form of venture capital is broken (see, for instance, the report by the Kauffman Foundation-- “WE HAVE MET THE ENEMY… AND HE IS US” here). How the modest positive signs seen in 2012 will affect this discourse on the present and future of venture capital bears watching. At the more modest level, as an IP practitioner, these developments bear attention as they potentially affect the nature of IP practice.

Tuesday, January 15, 2013

Time to put the dog down?

Nipper: fit for resuscitation
-- or ripe for a merciful release?
News that HMV was calling in administrators from Deloitte was greeted with sadness by many recorded music lovers from the vinyl era, but with little surprise. The retailer's trading difficulties have been no secret in recent times, and the continued drift of music purchasers from its 250-strong chain to the ever-accessible online music sector was not going to be reversed by tweaking the chain's High Street ethos.

According to the Guardian, restructuring company Hilco might be interested in buying the group out of administration, having previously bought HMV Canada from its UK parent in 2011, achieving target-beating Chistmas sales of $65.4m (£40.5m). At this stage there are no other strongly-fancied bidders.

Most commentators agree that the HMV brand itself has iconic status. It is indeed iconic, in that it triggers in consumers of "His Master' Voice" products a generally Proustian recall of times gone by: the flagship Oxford Street shop in which customers could sit in sound-proofed cubicles and listen to even an entire side of a long-playing record; the smell of freshly-minted vinyl; the nod to high fidelity reflected in the Nipper logo [it's difficult now, in the digital era where reproduction is uniformly perfect, that the fidelity of a retail record to the master of a original performance could ever have been an issue], the hint of luxury in a time of post-War austerity.  However, this blogger doubts that there is a meaningful one-to-one correlation between the power to trigger nostalgia and the ability to persuade a consumer to put hand to wallet and spend cash on a product. Some brands, such as Studebaker or Panhard for cars, had a better chance of cashing in on the power of nostalgia since they not only reflected style but also related to a product that people still use -- motor vehicles.  The subsequent revival of Panhard as an international brand for light tactical and military vehicles proves the point.  However, HMV's nostalgia attaches largely not only to an older market but also to products which are increasingly seen as part of recorded music's heritage rather than its future.  It would take a brave investor to resuscitate Nipper now.

Monday, January 14, 2013

The Controversial Mark: Is Image Everything and is all Publicity Really Good?

One of the most famous American football teams in the United States is the Redskins based in Washington DC.  And, perhaps the most famous case involving potentially scandalous or disparaging trademarks in the United States, is a number of decisions involving the Redskins trademarks—the Harjo v. Pro-Football, Inc. case.  In that case, the plaintiffs, a group of Native Americans, attempted to cancel the federal trademark registrations of the Washington Redskins football team.   And, as many know, the case ended with a less than satisfactory result for some—basically the Plaintiffs are unable to proceed because they unreasonably delayed in asserting their claim to the prejudice of the Defendants. 

The Redskins issue and the general controversy has resurfaced again for at least a few reasons.  At least one university has attempted to reintroduce and use some Native American imagery with its football team—the Eastern Michigan University marching band recently sported their previously spurned Native American imagery at a football game.  There is apparently a new group of plaintiffs going after the Redskins federal trademark registration.  And, the Washington Redskins have been thrust back in the national spotlight because it had an unbelievably good season and an equally unlikely good season behind its incredibly talented first year quarterback, Robert Griffin the III, also known as RG3.  This good season came to an abrupt halt a week ago when RG3 was injured and the team lost in the playoffs.  After the loss and with it the inevitable Monday morning quarterbacking, a columnist for the Washington Post took a different approach to criticize the team and used the publicity and popularity of the game to redirect attention to the Redskins trademark controversy.  He took an unusual approach though.  He basically asserted that the Redskins lost because of “karma” based on the retention and use of their asserted offensive trademark—something like "the universe has spoken superstitious sports fans and you deserve this loss and the possible loss of RGIII because you continue to refuse to put enough pressure on owner Dan Snyder to change your insulting name."  Ignoring other important issues, if you were attempting to value this mark, how would you discount the unpopularity of the mark with some people—particularly those people who are not Redskins football fans?  Does that even matter?  Does this hurt the Redskins in its or its’ players ability to sponsor or endorse other brands (or receive sponsorships—apparently not with some like FedEx)?  (RGIII also endorses Subway sandwiches.)  What if you knew some Redskins fans refused to buy merchandise sporting the Redskins name and logo because they thought the name and logo were in “poor taste?”  Do you think the Redskins would be more or less popular (or the mark more or less valuable) if they changed their name to something like the “Presidents?”  Would the existing fans have to go out and buy updated merchandise?  In considering these issues, do sports teams raise different issues than say blanket manufacturers?

One of my favorite decisions is Sporting Kicks Ltd’s Application involving the attempted registration of the words “Inter City Firm” in connection with clothing, badges and other items (well, it involves Football, aka soccer, raises all sorts of interesting issues, and involves a trademark).  The decision concludes that the mark is not registrable because its registration would be contrary to public policy—the mark references a group of football hooligans (If you haven’t seen the movie Cass, I recommend it).  The decision includes some very interesting language: “Such a sign falls within a category of marks that may be described as “anti-social branding.”  Is the mark "Redskins" a form of “anti-social branding?”  Not of the team, its players and fans, but of the people it may be perceived as referencing?   How important and/or reinforcing is a consistently presented image through a mark?  Have you seen this video—it is worth well more than a few minutes of your time.  Should the Redskins federal registration be cancelled because the United States shouldn’t stand behind such a mark, as others have raised—apparently giving it a stamp of approval?  The Smithsonian will confront some of these issues at a symposium in February titled, “Racist Stereotypes and Cultural Appropriation in American Sports.”

Friday, January 11, 2013

Incentives to Collaborate: WIPO Article and the US DOJ/USPTO Guidance Letter

In the December 2012 WIPO Magazine there is an excellent brief article concerning patent pools and standards titled, “Collaboration in Intellectual Property: An Overview,” by distinguished Harvard Business School Professor Josh Lerner and doctoral student Eric Lin.  The article describes the increase in patent pools in the last 15 to 20 years after a period of regulatory distrust of such collaborations since the 1940s.  The article notes that many questions remain for research relating to collaborations and makes suggestions for future research, but also states that some lessons can be learned from the existing literature, such as “requiring patent pools to engage in independent licensing.”  The article also argues that regulatory agencies should “actively encourage socially beneficial collaborations” instead of focusing on the potential anticompetitive consequences of such collaborations.  Specifically, the authors note that France, Germany and the United Kingdom provide benefits to participants in certain collaborations.  Moreover, the authors caution that US regulators may be too zealous in prohibiting discussions of price by standard setting organizations and this may waste time.  The authors suggest a “temporary safe-harbor status to firms that wish to explore the feasibility of collaborating.” 

The United States appears to be taking some steps towards ensuring that the International Trade Commission does not act in a way that creates a disincentive to participate in or create collaborations.  In a January 8, Joint Statement by the United States Department of Justice, Antitrust Division (DOJ) and the United States Patent and Trademark Office, Office of the General Counsel (USPTO), the DOJ and USPTO provide guidance to the International Trade Commission concerning whether exclusion orders should issue in all cases if standards essential patents offered on F/RAND terms are infringed.  The DOJ and USPTO clearly explain the benefits of patents as well as the benefits of voluntary licensing such as F/RAND licensing, and ultimately caution that exclusion orders in particular cases could result in providing disincentives to participate in F/RAND licensing.  The Intellectual Property Watch provides a description of the report here and a copy of the report is available here.   A good first step? 

Wednesday, January 9, 2013

An Interesting Idea: Business Software Alliance Bounty System for Policing and Enforcing IP

The Business Software Alliance wants you!  BSA is offering an End User Reward Program.  Basically, if you report “software piracy” to the BSA, and the BSA investigates and determines piracy exists then you may receive an award.  The BSA defines piracy as: “Unauthorized copying or distribution of copyrighted software; Purchasing one single copy of software and installing it on multiple computers; and Copying, downloading, sharing, selling or installing multiple copies onto personal or business computers is software theft.”  If you submit a piracy report to the BSA, your information is apparently kept confidential.  If you plan to participate, I suggest you read the terms carefully.  Here is the data on award fees which is apparently calculated based on settlement amount:
Reward Payment Guidelines
Settlement paid by Company
Potential Reward payment
$15,000 - $100,000
Up to $5,000
$100,001 - $200,000
Up to $10,000
$200,001 - $400,000
Up to $20,000
$400,001 - $600,000
Up to $30,000
$600,001 - $800,000
Up to $40,000
$800,001 - $1,000,000
Up to $50,000
$1,000,001 - $2,000,000
Up to $100,000
$2,000,001 - $3,000,000
Up to $150,000
$3,000,001 - $5,000,000
Up to $250,000
$5,000,001 - $10,000,000
Up to $500,000
$10,000,001 - $15,000,000
Up to $750,000
Over $15,000,000
Up to $1,000,000


Is this a good idea?  Are there other similar programs? 


Monday, January 7, 2013

Junk -- or a valuable asset? Time to re-evaluate secondary protection

Junk ... in the best
sense of the word
Writing for Business Insider, Beijing-based IP/IT Professor Stan Abrams ("The Economist Pops the China Patent Bubble") has some strong words to say about a phenomenon that has alternately fascinated many Western IP commentators and held them in thrall: the vast quantity of patents generated by China. After discussing the proposition, articulated by the Economist, that many Chinese patents are "iffy", he observes:
"... The reason why many granted patents are “iffy” stems from the fact that they do not undergo substantive review during the application process. This is true for two types of patents, utility models and industrial designs, but not for invention patents. “Substantive review” includes a check for prior art, necessary to determine whether a patent is indeed novel, which is one of the basic requirements set forth in the Patent Law.

Therefore a design or utility model patent application simply does not have to go through the same procedure than is the case for an invention patent; this is what the law stipulates and is wholly unrelated to the specific actions of individual patent examiners. The result is a whole lot of patents out there that may be fundamentally weak and subject to an invalidation challenge by a third party. These are commonly referred to as “junk patents.” However, this has nothing to do with whether the applicant was foreign or domestic, and it is incorrect to suggest that the Patent Office is somehow engaging in preferential treatment. This is the way it’s supposed to work, folks.

I’ll give the Economist a B+ on this one.... They got the numbers right and are correct in being at least somewhat skeptical about the boom in patent filings. However, China should be given some props for the positive trends, and the problems with junk patents are built-in to the system and not evidence of a conspiracy between patent examiners and the folks in charge of China’s innovation strategy.
This blogger has been in IP since 1973 and he has never heard utility models or industrial designs described as "junk".  They are an effective means by which businesses, particularly small and insecure ones, can procure protection at a reasonable cost and that is why secondary protection for innovations through devices other than carefully and expensively examined patents has proved so popular in Germany, South Korea, Japan and a surprisingly large number of countries for which WIPO keeps annual statistics.

For those who are both interested and open-minded, there's a free seminar on secondary protection in London on 22 January.  Details are available here.  Surprisingly, given the cost, strategic significance of such protection within a marketing plan and attractiveness to the SME sector, the buoyant registration figures for this event contain few from the financial sector and no-one at all from government.

Sunday, January 6, 2013

Rules of Thumb and Standard Royalty Rates: wrong, or just misunderstood?

On the cards ... royalty rules OK
The IPKat recently posted an item expressing a state of less-than-happiness about the utility of rules of thumb in calculating IP royalty rates ("Rule of thumb, rule of paw: royalty fix or something more?", here). The same author expressed similar sentiments on IP Finance too, at the end of 2012 ("Royalty rate guides: how helpful are they?", here).

I'm pleased to say that there has now followed an excellent post by Mark Anderson on IP Draughts ("Standard Royalty Rates? Ain't No Such Thing", here) and the ever-helpful Mary-Ellen Field has pointed me towards two pieces which are well worth reading:

  • "The Classic 25% Rule and the Art of Intellectual Property Licensing", by the rule's grandfather, Robert Goldscheider (Les Nouvelles, September 2011)
  • "Simply Wrong: the 15% Rule Examined" by Douglas G. Kidder and Vincent E. O'Brien (Les Nouvelles, December 2011)

Readers are invited to draw their own conclusions.

Friday, January 4, 2013

OECD 2012 Updated Biotechnology Indicators: Funding for IP and Other Interesting Stats

The OECD recently released its updated 2012 Biotechnology Indicators here. Some of the statistics are updated and others are not. On the number of biotechnology firms in 2011: Germany, 678; United Kingdom, 488; Ireland, 237; New Zealand, 369; Sweden, 129; Poland, 91; Finland, 157. The latest numbers for the United States are from 2009 with 6,213 biotechnology firms. My guess is that this number has dropped. The Biotechnology Industry Organization has around 1,000 members (many of them universities) and most of those are based in the US. According to this 2011 BIO report, "the number of public biotech companies in the U.S. has decreased by 25% since January of 2008."

According to the OECD Biotechnology Indicators, the total biotechnology R&D expenditures in the business sector in 2011 includes (in millions of US dollars): Germany, 1,221; Sweden, 534.7; Ireland, 380; and the Russian Federation, 137. In 2009, the United States spent 22,030. The total public (Government and Higher Education sectors) biotechnology R&D expenditures in 2011 includes (in millions of US dollars): Russia, 763.4; Poland, 241.5; and the Czech Republic, 146.9. For 2010, Germany spent 5,972 and Korea spent 2,468. The percentage of share of biotechnology PCT patents from 2008-2010 included the United States at 40.76%, Japan at 11.49%, Germany at 6.77%, United Kingdom at 3.92%, Korea at 3.74% and China at 3.12%.

Educating and Informing Investors

A posting back in June 2010 regarding a detailed disclaimer in a press release prompted one commentator to note that “the depressing thing is that companies need to keep issuing statements like this, which are there (it seems to me) more to reduce the risk of legal action for negligent misstatement than to educate and inform the investor”.

Those looking to educate and inform investors could do worse than to refer to the recent IPO prospectus from SolarCity, a US company in the field of solar panels.  The company is chaired by Elon Musk, who also chairs Telsa Motors, previously discussed here and here.

The headline statement  - ‘Our business may be harmed if we fail to properly protect our intellectual property’ - reads like standard IP-wash.  What follows, however, is a welcome dose of realism:

‘We believe that the success of our business depends in part on our proprietary technology’: an acknowledgement that IP is far from being the sole determinant of success.

‘We cannot be certain that we have adequately protected or will be able to adequately protect our proprietary technology’and, candidly,

‘We cannot be certain that our patents provide us with a competitive advantage’.

Rather than highlighting weaknesses, SolarCity’s statements indicate realism and, thus, strength.

E-readers, Subscription Models and the Dumbing-Down of Reading

Let's start with a bromide: content owners, be they of music, film or text, continue to search for the Holy Grail of an online business model. One such model is the
subscription, and it has been applied to a variety of content, most notably music. And so the question: can a subscription model work for other forms of content and, in particular, for books? For the Polish start-up Legimi,the aspiration, if not the definitive answer, seems to be a qualified "yes." But there may be a social price being paid here. It may be that. for Legimi to succeed, it needs to rely on, if not encourage, a dumbing-down of reading habits. For those who believe that e-readers might lead to an uptake in reading, this is a matter of potentially substantial concern.

This scenario is conjured up by the December 31, 2012 edition of TechCrunch, in an article by Steve O'Hear, "Legimi Wants To Be The ‘Spotify For Ebooks’ With A Business Model That Relies On You Reading Less" here. In particular, Legimi believes that it can commercially succeed, without altering the pay-per-download framework, on the assumption that people will read less. As reported,
"[p]ut simply, Legimi aims to be the ‘Spotify for ebooks’ in which for a monthly subscription, users get access to a potentially infinite library of reading material, all accessible via the cloud." 
Instead of starting with the assumption that people want to read books on their e-reader from virtual cover to virtual cover, the premise underlying the Legimi subscription model is that people are more likely to be interested in reading only a snippet of a book's contents on their electronic reading device. As explained in the TechCrunch article,
“we [Legimi] pay the whole price of an ebook [only?--NJW] once an end-user exceeds its free sample (approximately 10 percent of the book),” Legimi co-founder and CEO Mikolaj Malaczynski tells me [Steve O'Hear]in an email. The premise being that most readers never make it past the free excerpt, but if they do, the company pays the full wholesale price to publishers. 'We have statistically calculated the average consumption for tablet users and smartphone users, which is lower than one book per month,' he says".
The article continues:
"As long as the number of books read past the free sample remains in line with the overall economics of a monthly subscription, then the model could work, or at least act as a bridge until such time when publishers are more willing to embrace the idea of a subscription model." 
Stated otherwise, at least for the moment, the Legimi business model seem to work only because it relies on "dumbing down" the reading experience in the e-reader environment.

But for how long? Even Legimi is not certain. As the company itself recognizes, the ultimate goal is "to find the sweet spot in terms of what to charge....Legimi is planning to launch in two additional European markets next, likely Germany and the UK. It’s at this point when the licensing ‘loop hole’ and assumptions about consumption will really be tested." The ultimate goal, it seems, is to convince publishers to come up with a pricing framework that may enable Legimi to jettison is primary reliance on the so-called loop hole based on de minimis consumption of book content in a subscription context.

Whatever arrangement is ultimately reached between Legimi and the publishers, the basis for the cloud-based subscription model is that money can be made on the assumption that people will read less, rather than more. Indeed, for the TechCrunch article, such a result is well-nigh a given. “In the end, a ‘Spotify for ebooks’ seems inevitable, as consumer habits find themselves ahead of the market once again. It’s probably more a case of when not if." If the ultimate result is a dumbing-down of reading habits, such a result is a matter of concern, however successful the Legimi business model may turn out to be.

Thursday, January 3, 2013

Geography Matters for Funding of the Creation of IP? The Most Inventive States and the Most Entrepreneurial States.

The University of Nebraska-Lincoln Bureau of Business Research has published the 2011 rankings (here and here) for the most inventive states in the United States as well as rankings for the most entrepreneurial states. CNN recently reported on the inventiveness rankings (here) and the CNN article includes some interesting information about the drivers of patenting in each state.

The most inventive states are ranked by number of patents per thousand people. The leading state? Not California, but Vermont—the home of a large IBM plant as well as the University of Vermont. Vermont has a whopping 3.51 patents per thousand people. Vermont also likely benefits from its proximity to Massachusetts, the 2nd ranked state, which is home to Harvard University and MIT. Other highly ranked states close to Massachusetts include New Hampshire (8th) and Connecticut (9th). Delaware (10th) is home to DuPont. California, the home of Stanford, Cal Tech and the University of California system, is 3rdand the nearby top ten states include Washington (5th) and Oregon (7th). Notably, Washington boasts the patentee Microsoft. The states that are perhaps not as close to Massachusetts and California that rank in the top 10 are Minnesota (4th) and Idaho (6th). Minnesota hosts 3M and Idaho is home to Micron Technology. States that have well known technology sectors that are not in the top 10 are Texas (21st) and North Carolina (22nd). The states at the bottom are Alaska (50th), Mississippi (49th) and West Virginia (48th).

The State Entrepreneurship Index ranks states by the following factors: “Percent growth in employer establishments; Percent growth in employer establishments per person; Business formation rate (i.e, establishment births per person); Patents per thousand persons; Average income per non-farm proprietor.” The top ten entrepreneurship states are: 1. Massachusetts; 2. North Dakota; 3. California; 4. New York; 5. Minnesota; 6. Oregon; 7. New Jersey; 8. Texas; 9. Illinois; 10. New Hampshire. The states at the bottom are Louisiana (50th), Michigan (49th) and South Carolina (48th).

Wednesday, January 2, 2013

Intangible capital: 2013 welcomes smarter-companies

Today the IP Finance weblog's friend Mary Adams (see earlier posts here and here) has excitedly announced the launch of smarter-companies, which seeks to become a marketplace of consulting tools that help optimize the intangible capital that makes up 80% of the value of the average business today.  As Mary explains:
"... for many years we have had a great interest (some would say obsession!) about the role of intangible capital in the growth and competitiveness of companies. With the help of our clients and our broad network, we worked to develop tools and methodologies to support this thinking. And we created a web community to share our learnings because we felt strongly that one person or one company could never have all the answers. Until now, the community was known as the IC Knowledge Center.

The community attracted an international audience. 60% of the members are consultants. 20% are academics (many of whom also consult). The remainder includes attorneys, companies, non-profits, governments and solutions providers. Members' areas of specialization include intellectual/intangible capital, knowledge management, human capital, innovation, finance, information technology, marketing, performance management and intellectual property.

In short, our community looks like a map of the intangible capital of the organizations we serve. Yet the potential of our community's IC, like that of many organizations, has not been fully developed. That's why I made the decision to re-name the community and create a business model around it.

Going forward, we will be offering the products and methodologies that we've developed over the last seven years (some as open source and some as paid products) under the ICounts name. But we hope that our products will be surrounded by products from other consultants and service providers. Our goal is for the smarter-companies site to become a place of continuous learning about how to create smarter companies--and also a marketplace of solutions that help consultants and companies apply that learning ...".
This blogger is quick to recognise a fellow-enthusiast, and Mary certainly fits that description. He wishes Mary and this venture the best of luck.