Apps on the iPhone: The Search for a Business Model (Once Again)

So here we are again: How does one monetize in the world of increasingly ubiquitous connectivity? The latest variation on this theme is the world of applications for the iPhone. Apps for the iPhone abound, but opinions differ about to translate these apps into revenue, either directly or indirectly.

An article by Stephanie Clifford that appeared in the August 10, 2009 online edition of The New York Times ("There's an App for That/But a Revenue Stream?") reflects the commercial uncertainty among media companies with respect to the role that apps for the iPhone may play in their businesses. Among the most notable examples of the uncertainty, as described in the article, are those summarized below [the captions are mine]:

1. It Time for the Herd--""The iPhone has really been a phenomenon, so I think most media brands, at least the national one, are thinking it's a place to be," said Matt Jones, vice president for mobile strategy and operations at Gannet Digital-USA Today."

2. But How do Build a Revenue Model?--As noted by Mr Jones, maybe we charge a subscription, maybe we rely on advertising, maybe we settle for a one-time payment, maybe maybe we seek recurring periodic revenues? Unsurprisingly, the current evidence does not bode well for subscriptions however.

3. Maybe All We Are Concerned With is a Public Mission--One public LA radio station--KCRW--has introduced three applications: (i) the station's programming; (ii) videos about food: (iii) videos showing in-studio musical performances. The purpose of the apps is to fulfill a public mission. "Our mission has always been to get our content out there--it was just part of who we are as public broadcasters," noted the director of new media for the station.

4. Maybe All We Are Interested in are Eyeballs--MSNBC.com has come up with applications for the"Today" show as well as "Rachel Maddow" . As explained by the manager of Todayshow.com, "[m]y opinion is it's mainly a branding and content play, getting our content out in additional platforms ....I do believe that you get a circular effect: someone interested in you in mobile is exposed to the brand and to your great content. They may then be more likely to tune in to the show or go to the Web site."

Rachel Maddow (I Think)

5. Then Again, Revenues May Not Be All That Bad-- The VP for business and finance brands at CBS Interactive, Stephen Howard-Sarin, pulls no punches. "We do mobile user experiences to make money, so we have no interest in funding mobile as a loss leader just for some intangible brand benefit." Mr Howard-Sarin went on to note that "i]t is experimental ....We have a lot of oars in the mobile water because we think there's money there."

6. And Then There Are the Audio Apps-- Audio apps are in principle simpler. If ad rates are based on the number of listeners, and the streaming of audio content via apps lead to an increase in listeners, ad rates in principle can be raised. As noted by AdMob, which serves ads on applications, "[a] lot of terretial radio stations have their reach extended, and they already have advertisers, so this has given the business a huge boost in that they can get a national reach."

I have to be honest, in rereading this list, I come away with a bout of strategic vertigo. So what do I do recommend: Content for free, content as a revenue generator, content to atract eyeballs to strengthen my brand across mulptile platform, some combination of the foregoing, or some other model? I can hardly wait for my next MBA class to begin in October to explore these questions. After all, who is better placed to provide guidance, than students who straddle the managerial/consumer divide. Check back with me in November to hear their views.

And Jimmy Stewart Thought He Suffered from Vertigo

The Questionable Notion of the National Brand

I have to admit: I have never been a big fan of the notion of "national brands”. The reasons are both analytical and political. Even the most socially and culturally homogeneous countries are composed of many “moving parts”. As such, any attempt to encapsulate the national ethos in a few chosen descriptive words, much less to rank nations on the basis of their “brand” strength, seems to me an analytically futile task. At the political level, my concern is darker. National branding too easily slides in national stereotypes, which itself can slide in national demonization, if not worse. The last century has shown us the tragic consequences of this process, if left unchecked.

That said, in recent times we have seen increasing efforts to turn national branding into a respectable activity. One interesting effort is that of a consultancy called Future Brand, which has for several years produced a report which they call the “Country Brand Index” here. Based on interviews with 2700 travelers, supplemented by expert opinions and some statistical analysis, the most recent report for 2008 found the 10 leading national brands to be, in order--Australia, Canada, America, Italy, Switzerland, France, New Zealand, Britain, Japan and Sweden.

One might be tempted to treat these findings in a rather cavalier manner (despite the 64 power point slides in the 2008 report), especially since the focus of the rankings is the perception of tourists. But there may be a more serious aspect to the exercise. In commenting on these rankings, a blog posted under the auspices of Economist.com (called Gulliver, I believe) noted in a posting on November 10, 2008, as follows:

“… [T[he brand experts are very definite that theirs is a science that countries need to take seriously:

“ "Countries are becoming more aware of the importance of defining how they want to be perceived and the need to improve and leverage their assets. While tourism is often the most visible manifestation of a country brand, it is clear that the image, reputation and brand values of a country impact its products, population, investment opportunities and even its foreign aid and funding."”

Is that true? Are investors and funders really swayed by national branding? Surely their decisions are too rigorous to be swayed by marketing campaigns? Gulliver awaits conversion.”

Gulliver From Another Time

I thought about Gulliver’s comments as I was recently reading a piece in the July 4, 2009 issue of The Economist entitled “Courting Disaster: Russia’s Dismal Investment Climate.” The piece recounts several examples of the unfavorable business climate for foreign investors and the like in Russia. One paragraph particularly grabbed my attention:

“The clearest indictment of Russia’s investment climate came a few days ago from IKEA, a Swedish retail chain, whose local operation has grown quickly since it opened it first store near Moscow in 2000. On June 23 IKEA said it was suspending its investment in Russia because of the “unpredictable character of administrative procedures”, a euphemism for graft. A symbol of Russia’s economic rebound from the 1998 financial crisis has become an emblem of its dire investment climate.”

My point here is not to enter into the debate about whether or not Russia’s investment climate has deteriorated. Rather, it is consider briefly the notion of the “national brand” issue when juxtaposed against the power international private brand of IKEA. Maybe the reported action by IKEA (I am not certain what the article means by “suspending its investment’) is a straight-forward business decision to scale-back its activities in Russia; maybe it is a tactical ploy to pressure the Russian authorities in order to obtain more favorable conditions for the retailer.

Either way, there is a Manichean tone to The Economist’s description of the situation. IKEA is the retail white knight, whose very presence in Russia once served to validate a positive image of Russia, but whose white-knight image is now threatened by the gathering storm clouds of public perception about the nature of Russian administrative and commercial practice. The constant here is the IKEA brand, the variable is the national Russian brand. Seen in this way, the call by Gulliver for taking the notion of the national brand more seriously seems to be more siren than prescription. The notion of the national brand still has a long way to go.

IKEA--Ever the White Knight

Recent publication

The July/August issue of Intellectual Asset Management has been out for a while now, but I've only just had a chance to review it and -- with most of August still to come -- it's still technically current. Features in this issue include

* an interview with the photogenic Horacio Guttierez (Microsoft) on the shifts in IP policy which he has overseen during his three years as Chief IP Officer;

* A sponsored piece, "IA metrics for the other IP market", on risk and reputation management (not recommended for people who don't like figures and diagrams);

* A report by finance editor Nigel Page on what Intellectual Ventures is up to, given (i) its brimming war chest and (ii) improving market conditions in the innovation investment sector;

* IAM journalist Sara-Jayne Adams writes ("Time for Big Pharma to be loud and proud") on the steps taken by GSK, in particular, to defend its record in terms of all-round positives and not merely profits.

You can see the contents of this issue here.

Artists and brands

CD outfits are bound to become more interesting – superstar Mariah Carey is leading the way into ad-supported CD releases.

Her album release Memoirs of an Imperfect Angel scheduled for 15 September will come with a 34-page mini-magazine co-produced by Elle magazine, full of lifestyle ads from luxurious brands such as Elizabeth Arden, Angel Champagne and the Bahamas Board of Tourism.

The idea behind this? More profits of course, for everyone involved, as Billboard reports:

"The idea was really simple thinking: 'We sell millions of records, so you should advertise with us,'" said Antonio "L.A." Reid, chairman, Island Def Jam Music Group, a unit of Universal Music Group. "My artists have substantial circulation - when you sell 2 million, 5 million, 8 million, that's a lot of eyeballs. Most magazines aren't as successful as those records."

If proving successful, it won’t take long time that also lesser known artists will try out this unprecedented form of advertisement. Let’s hope they will stay in tune with their fans and pick the right brands…

"You will never get the licence agreement your technology deserves"

"You will never get the licence agreement your technology deserves. You get the licence agreement you negotiate. With this in mind, it is important for inventors, licensing professionals and intellectual property lawyers constantly to hone their negotiating skills". So begins "Strategies for Negotiating Licenses", as good and readable a piece of advertorial as you will find anywhere. The author is David Wanetick (Managing Director at IncreMental Advantage) who teaches Valuation of Early-Stage Technologies and Negotiating Licensing Agreements at The Business Development Academy.

You can read the full text here (it's over 5,500 words long but doesn't feel like it). The challenge to readers is this: can you add any key points to those the author makes? If so, please feel free to post them below. If you can't get the Comments facility to work (usually because your software has disabled all pop-ups), then email me here instead and let me know: I'll post the comment for you.

Hindsight going forward: taking the risk factor into account

Last Friday Mr Justice Arnold delivered a monumental judgment (312 paragraphs) in Lilly Icos, Pfizer Enterprises, Merck, AstraZeneca and others v 8pm Chemists and others [2009] EWHC 1905 (Ch). In earlier proceedings the various claimants, all proprietary pharma manufacturers, secured interim injunctions in trade mark infringement proceedings that were ultimately unsuccessful (you can read a note on the issue of liability here: in short, this was a scheme to supply US patients with Turkish drugs, ordered from Canada, repackaged and labelled, then freighted through the UK -- it came about as close as you can get to being an infringement without actually infringing).

Having given cross-undertakings to compensate the defendants in the event that the infringement proceedings failed, the claimants were now called upon to pay up. The defendants maintained that they suffered losses running into millions of pounds, while the claimants maintained that the defendants had suffered any loss at all and that, even if some loss had been suffered, it was irrecoverable in law.

The Court of Appeal directed an inquiry under the cross-undertakings in the orders in the Lilly action. Subsequently it was agreed that there should be inquiries in the other three actions, and that all four inquiries should be heard together. On 26 March 2009 Warren J ordered that the inquiries be heard in two parts. This judgment is only concerned with the first part (the second being due for trial in December 2009).

Paragraphs 207 to 249 of the judgment deal with the issue of quantum, which is dealt with in more detail than this preliminary posting can adequately represent. Of note is the judge's statement of principle as to the direction from which compensation should be balanced against the risk factor:

"In projecting the lost profits which the Defendants' Turkish fulfilment business would have made but for the Injunctions, it is necessary to take account of the risks to which that business was subject. These include the risk of the Defendants' customers going out of business, the risk that one or more of those customers might transfer their business elsewhere and so on. It is common ground that it is appropriate to allow for this by applying an annual percentage risk factor to the calculation of future profits, representing the risk that the business would come to an end within that year" (para 237).

But how does one do this?

"I consider that the correct approach is to assess the compensation with the benefit of hindsight. Hindsight is not available looking forward, and it is appropriate to reflect the contingencies to which the Defendants' business was subject by the application of a risk factor" (par 243).

For the period in question, the judge considered a risk factor of 10% appropriate.

Is there a fiduciary claim in relation to licences?

The following piece, by IP Finance blog team member Neil J. Wilkof, was first published in World Trademark Review.

Is there a fiduciary claim in relation to licences?

Besides the usual, already daunting rights and obligations involved in a licence agreement, a recent decision revisits the claim that a fiduciary relationship may exit between licensors and licensees

The interweaving of proprietary and contractual considerations can be daunting for anyone seeking to explain the rights and duties of the licensor and licensee to a trade mark licence. On occasion, however, attempts are made to impose additional types of legal duties on the parties. The argument being made that, in some circumstances, a fiduciary relationship is created between the parties to the licence. This claim was recently revisited in the Canadian case of Bluefoot Ventures Inc v Ticketmaster (Ontario Superior Court of Justice, 2007). There, in addition to allegations of infringement, passing off and breach of the licence agreement, the plaintiff argued that the licensee had violated its fiduciary duty to the licensor.

According to the Bluefoot Ventures court, there exists a fiduciary duty “where the other party is entitled to expect that the fiduciary will act in the other person’s interests, or in the interests of both parties (where those interests coincide), to the exclusion of the fiduciary’s own interests (where those interests are opposed), and where the fiduciary has the power to affect the other party’s interests in a legal or practical sense, giving rise to a position of vulnerability in the other party.”

On this basis, the court established the following three-part test:
• The fiduciary can exercise some discretion or power.
• The fiduciary can act in a unilateral manner, affecting the interests of the beneficiary.
• The beneficiary is vulnerable or at the mercy of the fiduciary.

In most circumstances, no fiduciary relationship will arise in a mere commercial relationship. In the case at hand, no fiduciary relationship had been created since, according to the court:
• the relationship between the parties was defined solely by the commercial terms of the licence;
• there was no special duty of loyalty or trust; and
• there was no inequitable exercise of discretion of power or authority.

Well and good – up to a point, because its seems reasonable that the court should not deviate too far from the commercial foundations of a trade mark licence. Nevertheless, the court’s decision left me with a certain unease, because it recognized that there are circumstances in which a fiduciary duty may arise in connection with the registration or use of a trade mark. Specifically, the court refers to another Canadian judgment in which an exclusive distributor registered the mark on its own behalf, apparently to enable the distributor to combat unauthorized “flow of the product” into Canada.

In that case, while the court dismissed the action as having not been timely brought, it did suggest that a fiduciary relationship might have existed between the parties. This was so because “of the duty owed by a ‘distributor or agent to its foreign principal’". The suggestion was, therefore, that in certain circumstances, a fiduciary relationship might exist.

Three points can be made. First, it is a bedrock legal principle that merely characterizing a party in a certain way does not ipso facto create a legal relationship or status. Thus, calling a distributor 'an agent' does not necessarily make it so nor does it create a fiduciary duty.

Second, there are cases in various common law jurisdictions that have held that a local distributor is entitled to register the foreign manufacturer’s mark in the distributor’s local jurisdiction, even when challenged by the manufacturer. Usually, such a result follows from a finding that the mark has come to be identified with the distributor in the local jurisdiction. If, however, a distributor/agent has a fiduciary duty, as suggested above, then it is difficult to see how the court can permit the distributor to register the mark. These two lines of decisions cannot be readily reconciled.

Third, the court did not address the special characteristics of a trademark licence and especially quality control. Focusing on common law jurisdictions, the development of quality control was to accommodate the source theory of trade marks. More recently, common law jurisdictions have taken more diverse views, culminating in the English decision in Scandecor, which points to uncoupling the quality control requirement from the source theory of trade marks.

Use of the mark by the licensee may be deemed to be use by the licensor, thereby defeating a cancellation claim for non-use. Where quality control is more strictly required – for example, in the United States – the failure to establish the requisite quality control can lead to cancellation. Whatever the scope of the quality control requirement, from the point of view of the integrity of the mark, commercially – if not necessarily for legal reasons – the licensee can be expected to exercise quality measures with respect to the goods or services under the licensed mark.

If this is true, the relationship between a trade mark licensor and licensee differs from that between the parties to a patent or copyright licence. Assuming that there are circumstances, despite my reservations, in which a distributor can be said to have a fiduciary duty to a foreign manufacturer and the distributor can be found to have breached that duty when it registers the mark, even to prevent “the illegal flow of the product”, there seems to be no less reason to recognize such a fiduciary duty by the trade mark licensee in carrying out the quality control function. This is especially so when there are consequences for the value and even validity of the mark by virtue of the quality control requirements.

Or perhaps the opposite conclusion is true. That is, based on the foregoing, all judicial attempts to impose a fiduciary duty on a distributor, agent, or licensee with respect to use or registration of a mark are ultimately artificial and bound to lead to inconsistent and unsatisfying results. Under this view, since it is already difficult to describe the legal metes and bounds of a trade mark licence and the relationship between the parties, it is surely preferable to refrain from venturing into the unchartered legal terrain of a fiduciary duty in a trade mark licence relationship.