IP Valuation Courses: some responses

Last Friday, in "IP Valuation Courses: a reader asks ...", this weblog posted this request for information:

"A reader has emailed IP Finance to ask if it knows of any courses on intellectual property valuation that are (i) general, in the sense of not being specific to any one type of IP right or market sector, and (ii) general, in the sense of being at a high enough level to be understood by someone who is not an accountant or a financial whizz-kid but who needs to be able to identify the main issues and thus be equipped to follow the general thread of what accountants and whizz-children tell him.

If you know of any such courses, please let me know. Also, if you think you could help in putting such a course together, please say so."

From Chris Bartlett, until recently Senior IP Valuation & Contracts Manager at Glasgow-based ITI Techmedia and currently Chair of the Education Committee of the Licensing Executives Society (Britain & Ireland), comes this response, which both poses a question and provides some information:

"I do know that there are a number of dedicated IP valuation courses available in the UK, but in my experience these can be very sector specific, typically healthcare and pharma, and also generally assume an audience sufficiently experienced in the general IP field that they now have a wish to look at valuation methodologies as a fairly detailed specialist area.

I am not aware of any single course which fits your criteria though I would certainly be very interested in working with others to create one - indeed building such a course fits within my present strategy for new LES courses in the UK.

In the meantime, perhaps you may like to inform your readership of the forthcoming LES Fundamentals of Intellectual Asset Management course at Cranfield in June, in which valuation at precisely the pitch your reader desires is presented within a broader context of intellectual property and asset management as a whole. Details can be found here.

I would welcome, perhaps through the medium of your blog, proposals from suitably qualified practitioners to provide both content and their presentation skills for provision of a one day course-cum-workshop targeting IP valuation for non-IP specialists, managers and IP newcomers".

If anyone wishes to contact Chris regarding his invitation, can he or she please email him here.

The IP Finance weblog has also received details of this course from the Business Development Academy which, we learn, has been taught all over the US, UK, Europe and Israel and that over 200 representatives from Fortune 1000 businesses have attended the course.

$20 million award to Versace: any details?

News broke last week of a damages award of $US20 million to Italian fashion house Versace by a court in Los Angeles in a vast counterfeiting and trade mark case in the United States.

According to Versace, investigators moved in on 72 retail stores in southern California and Arizona in 2003 and charged 110 people with selling counterfeit goods bearing brand names owned by the company. The company said the compensation was "the highest ever obtained by an Italian company in a case brought abroad in defence of their brand name".

I've received emails asking me if I know any more about this case and about the make-up of the huge cash award (which I don't). Do any readers have anything to add, since all the news items on the internet seem to be based on the same press release.

IP valuation courses: a reader asks ...

A reader has emailed IP Finance to ask if it knows of any courses on intellectual property valuation that are (i) general, in the sense of not being specific to any one type of IP right or market sector, and (ii) general, in the sense of being at a high enough level to be understood by someone who is not an accountant or a financial whizz-kid but who needs to be able to identify the main issues and thus be equipped to follow the general thread of what accountants and whizz-children tell him.

If you know of any such courses, please let me know. Also, if you think you could help in putting such a course together, please say so.

Being on FRANDly terms with friendly trolls.

The famous patent battle opposing NOKIA to German IP asset management firm IPCOM illustrates well the lack of practical understanding as to what fair, reasonable and non-discriminatory (or FRAND) licensing terms practically means in Europe.

The conflict started at the end of 2006 when IPCOM, a company founded by Bernhard Frohwitter and Christoph Schoeller, acquired the patent portfolio developed by BOSCH in the late 80s and 90s for its mobile and in-car telephone systems. This portfolio comprises 160 patent families and 35 of them are said to be essential to the GSM and UMTS communication standards. The acquisition of a license from IPCOM is thus a necessity for all firms manufacturing and selling products conforming to the new technological norms. Meanwhile IPCOM must accept to license these essential patents under FRAND conditions.

The negotiations between NOKIA and IPCOM turned sour very quickly, as IPCOM asked for 5% of NOKIA’s mobile phone sales in all countries covered by its portfolio and for each year of use. This represents a cost of 600 million euros per year for NOKIA, that is to say an astronomic total of 12 billion euros over 20 years. The Finnish company stopped negotiating with IPCOM and accused the German firm of not honoring the FRAND commitment that previous patent holder BOSCH made to the ETSI (European Telecommunications Standards Institute) as well as to all companies that participated to the establishement of the 2G/3G telecommunication standards. This accusation has been vehemently rejected by IPCOM. According to Frohwitter IPCOM has always been dealing with potential licensees on FRAND terms, the amicable settlement found with Siemens AG, Motorola Inc., Philips Electronics and Alcatel-Lucent amongst others being an irrefutable proof of IPCOM's willingness to cooperate on a fair and reasonable basis. There is a wide divergence between the two firms on the meaning of FRAND and proceedings of patent infringement/invalidation are now in progress. NOKIA took an advantage as the two most contentious patents have been recently invalidated in UK (see here). Regrettably for those (like me) who were hoping for some guidance, the meaning of a FRAND commitment has not been debated in court.

The best solution to find the meaning of FRAND is to delve deep into IT and legal resources. However the literature addressing this topic is already consequent and the opinion of specialists on this “hot” topic is diverging. It is difficult for a FRAND neophyte like to discern the truth from lies. Fortunately for beginners, Roger G. Brooks and Damien Gerardin recently published an excellent piece (that you can download here) breaking all myths commonly held on this tricky subject. For some, the fact that both authors are partners have been representing chip manufacturing company Qualcomm Inc. in many FRAND-related issues in the past might call their impartiality into question. However the arguments developed in this paper are unbiased, simple and quite convincing (to a certain extent).

In a nutshell Gerardin and Brooks refute many commonly accepted statements, notably that in order to satisfy a "fair and reasonable" commitment, a patent holder "must set his royalty rate based on a mathematical proportion of all patents essential to the practice of a standard or that a patent holder is not entitled to seek injunctive relief against a standard implementer should they fail to agree on licence terms. Both statements are not supported by economic or legal evidence and are in contradiction with the actual behaviour patent owners in a standard-setting context. Numerical proportionality in the calculation of a royalty rate is not a sign of fairness, since it tends to ignore the real value of a specific patent in favour the average value of all patents used to comply with a technological standard. The statement that a FRAND commitment should be construed as a waiver of injuctive relief from the patentee is according to both authors equally as misleading, because this assertion is contradicted by hard facts found in the history of the IPR policy of many standard-setting organizations (or SSOs) such as the ETSI, as both authors demonstrate.
All things considered, the plain truth about FRAND commitments is that they are the result of a voluntary contract between essential patent holders and SSOs to negociate in good faith about the terms and conditions of a licensing agreement. As Brooks and Gerardin observe, “fair and reasonable” are on their face flexible terms the specific content of which is substantially left to the negotiation between the parties. All economic interpretations of FRAND commitment proposed till now are thus restrictive limitations, whose validity cannot be verified against the IPR policy of SSOs.

The simple definition provided by Brooks and Gerardin is very compelling and hardly refutable. However in the very specific context of the IPCOM case, which does look like an ex-post hold up to me, it does not provide the helpful guidance one could have hoped. The balance between the two actors in the licensing negotiations is skewed from the beginning because IPCOM finds itself outside the telecom market. NOKIA cannot use its own patent portfolio as a bargaining chip to negotiate the terms and conditions of a license (and above all the price of such a license), like it certainly does with other market players. Indeed NOKIA's competitors de facto need those patents in order to operate on the market, whereas IPCOM simply does not. Given this initial distortion giving much leeway to IPCOM, it is not surprising to see NOKIA withdrawing from the negotiations. This case shows the importance of the context in which the negotiations are taking place and to my mind Brooks and Gerardin's bare definition is hardly useful here, because it fails at taking this context into account.

In my opinion the concept of “FRAND terms of agreement” has been included to the SSOs' IPR policies, so as to help negotiating parties to reach an agreement satisfying them both. I agree with Brooks and Gerardin that the meaning of such a concept cannot be too specific, but if you dry up its meaning, this concept will not fulfill its primary purpose, and this would be a failure as well.

IP and Tax: a reminder

With many people predicting a change in government in the UK and, with it, shifts in taxation rules, speculation as to the impact of predicted fiscal austerity measures on IP -- whether from the point of view of the individual as vendor or royalty earner or from that of the business as purchaser or licensee -- is rife. To this end, the seminar being held next week by Hardwicke, in association with Gray’s Inn Tax Chambers, should offer a useful summary of the main issues to bear in mind when deciding how to respond to proposed amendments to the law or which way to jump once they're in place.

The half-day seminar, IP and Tax, takes place next Wednesday, 12 May, the venue being Hardwicke Building, New Square, Lincoln’s Inn (London). Speakers include Mark Engelman (Barrister, Hardwicke); Laurent Sykes (Barrister, Gray's Inn Tax Chambers) and Edward Morris (Director, Deloitte LLP). In the chair is IP Finance blog team member Jeremy Phillips (IP Consultant, Olswang LLP).

The seminar is priced at £50 plus VAT per person. Those lucky enough to attend will get 3 CPD points, a pleasantly tasty lunch and, if all else fails, a decent sleep in warm and protective surroundings. The seminar will take place from 11am-3pm; 10:30am registration.

You can view the full programme here. Booking arrangements here.

Brand Recalls: How Can We Measure Their Effects?

Product recalls are a common enough feature of modern life. More rare, however, are those product recalls that seem to pose a risk to the value of the underlying product brand. In this vein, the most notable recent product recall is the multi-sourced recalls of certain Toyota vehicles that took place over the last few months. Marketing and branding pundits in legion have expressed their view on the possible impact of these recalls on the Toyota brand and name.

The ink is still not yet dry on the potential fall-out of these recalls, but another recall, in quite a different industry, hit the headlines late last week, namely the recall by the FDA (U.S. Food and Drug Administration) of certain Johnson & Johnson products, including children's Tylenol. One account of this recall was published by Barry Silverman under the title "Latest Tylenol Recalls Past Crisis" on the brandchannel.com site here. The recall was occasioned by certain "manufacturing deficiencies" that could result "in potency, purity or quality" problems.

Fast-backward to 1982, and to the granddaddy of all recalls, namely the Tylenol crisis of that year, when the product was found to contain cyanide, due to tampering by third parties, resulting in the death of several people. The response of J&J is considered the textbook example of how to deal with a consumer product recall, including transparency, responsiveness, and a meaningful set of actions, including the widespread recall of the product from the shelves at a cost of $100 million dollars (a lot of money at the time, remembering that this was nearly 30 years ago) and the development of the tamper-proof bottle.

It does not appear that any material harm has occured to consumers of the products subject to the current recall. Still, the current scorecard by the pundits of the J&J response reveals a more mixed assessment than the tragic recall of 1982. Let's consider several observations in this regard as reported in the "brandchannel" article.

1. "This time, it seems, Johnson & Johnson's McNeil Consumer Healthcare unit, which makes children's Tylenol, has been less responsive. 'The recall quickly became a flashpoint for some parents,' reports The New York Times. 'Some people said they felt frustrated in their efforts to obtain more information from the company. Others said they had lost confidence in the products. This is at least the fifth recall for consumers of McNeil products in less than a year because of quality control issues.' "

[How does The New York Times know that J&J has been less responsive this time? Did they have some baseline to evaluate this, or what? Also, how many consumers knew that this is the fifth recall in less than a year? What evidence did they have for this loss of consumer confidence?]

2. "Obviously, when recalls are conducted because of a quality problem on the part of the manufacturer, it can shake consumer confidence. The recent spate of highly publicized Toyota car recalls is proof enough that such actions can do a lot of damage to a brand's image."

[Actually, I heard a Bloomberg podcast late last week that suggests that Toyota vehicle sales have held up quite well recently, despite the recall. If so, how exactly has the damage to Toyota's image manifested itself?]

3. "The interesting side effect of the children's Tylenol recall is that the maker 'will have to work to counter increasing consumer skepticism about whether they should pay more for name-brand children's medicines when there are lower-cost drugstore brands available'. Michael Braun, an assistant professor of marketing at the M.I.T. Sloan School of Management, told The New York Times, "They are going to have to go to greater lengths. The greater the harm to the reputation, the more expensive it is to fix it."

[This is an interesting point, if true, which certainly distinguishes the J&J situation from that of Toyota. That said, I wonder how much evidence, other than anecdotal evidence, is there to show a migration from a branded product to a generic substitute in such a situation. Is the move brand/product-specific, or can it have a more general effect on consumer preferences for drugstore products?]

4. "With the recall spreading to Canada (and still spreading confusion in the U.S., judging by comments on Twitter and Facebook), the company may want to be more proactive to reassure parents that their children aren't at risk."

[Meaning what exactly?]

In reading this report, so close to the time of the actual recall, I have two final observations. First, to what extent does the radical difference in ease of communications now, as compared to 1982, create a hightened danger of a self-fulfilling prophesy about the relative success of the current J&J recall campaign? Second, how can pundits get their analytical arms in real time around the impact of the current recall on the J&J brands? Stated otherwise, does the immediacy of the reporting moment give undue evidence to the weight of anecdotal evidence on the success of the J&J recall and the effect on its brands? I suspect we may need the perspective of time to get a proper answer.

Qimonda's Patent Sale

It's intriguing to follow the fate of bankrupt German semiconductor Qimonda and its intellectual property. The administrator, Michael Jaffe, proudly notes on its website that Qimonda has over 11,000 patents and 4,000 individual patent families. This would seem to suggest a massive value being held in intellectual property. Once you start actually understanding the technology and marketplace, it's not so clear that the patents have much value at all.

The DRAM space has been dogged over the years by a number of patent infringement suits. At issue is the fact that most of the DRAM companies require access to other company's intellectual property in order to be able to make DRAMs. The semiconductor industry has traditionally cross-licensed its patents and much of the dispute has in effect been to work out the value of the balancing payments that need to be made. Thus the main value of the patent rights to a company like Qimonda is not so much the value from licensing in the patents, but rather access to other company's technologies and relief from royalty payments. Now it might seem that if you no longer have a manufacturing company, there would be no need to have cross-licensing arrangement. However, Qimonda presumably concluded its licensing agreements on the basis that it was not going to go bankrupt and many of these agreements are still no doubt in force and might bind potential purchasers of the patent assets (although what the effect a change-of-control has on the agreement is unknown).

Added to that many of the most valuable patent rights in the Qimonda portfolio probably came from the joint development with IBM and later with Toshiba on various DRAM architectures. Many of these patent rights are (were) jointly held which meant that IBM has also presumably been able to license them to other players in the market place.

So what are we left with? Any potential purchaser will have in essence a large portfolio of patents (and patent applications) which it needs to maintain. The potential licensors would be limited, since many of the big players no doubt already have licenses to the technology. This might leave a number of smaller fish, but the revenues are likely to be limited.

There's no doubt one or two juicy bits around the place as the announcement that a licensing company was to be set up indicates. And the rest? Well probably not worth much more than the paper that they are written on - at least for a non-operational company. It's of course possible that a DRAM company wanting to acquire IP to strengthen its own position might be interested - but then many of the potential deals will have already been done by Qimonda. It's hardly surprising that no sale has been made and that the administrator is having difficulties finding a potential purchaser.

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