GM and Chrysler: What about the Brands?

Living as I do on the Eastern littoral of the Mediterranean, I have become an avid listener of podcast programs on my iPod. The juxtapose of two podcast programs last week on Bloomberg radio raised some interesting questions about the role of product brands in light of the continuing economic troubles at GM and Chrysler.

In the first podcast, Edward Altman, professor of Business at NYU and a recognized expert on distressed companies, argued in favor of GM declaring for bankruptcy under Chapter 11 of the U.S. bankruptcy laws. The purpose of chapter 11 is to allow a company to enjoy court protection under a detailed code of statute and regulation with the ultimate goal of enabling the company to get back on its economic feet. In Altman's view, Chapter 11 would serve GM well because it would allow it to continue to operate its business and to take advantage of certain provisions in the law that would make it easier for GM to raise financing during the bankruptcy process.

In the second, John Casesa, an authority on the automobile business, opined on the fate of brands in the event of a GM-Chrysler merger. He suggested that if such a marriage takes place, the combined company will likely jettison certain brands while leaving on the most robust brands in tact, such as JEEP from Chrysler and CHEVROLET from GM.

GM AND CHRYSLER: A SHOTGUN WEDDING?

The comments of Altman and Casesa put me to thinking. Let's say that GM does seek chapter 11 protection (the possibility of which was vigorously rejected again this weekend by the CEO of GM). How likely is it that GM could come out of the proceedings with at least its most valuable brands in tact? Are the two companies better-positioned to preserve at least the most valuable brands as a combined company?

A couple of initial thoughts. I note that many of the major U.S. air carriers have been in chapter 11 proceedings at one time or another, but they seem to have maintained their primary brands, more or less in tact. Once the public got over the fear that the airline ticket that they bought today would not be honored tomorrow, they continued to offer their custom to the airlines without much hesitation. That said, a service brand, especially in an industry with a limited number of options (at least for most hub airports), should be easier to maintain in bankruptcy, unless there is an absolute panic about the likelihood that the service will be halted immediately. That would seem to make it easier to preserve the quality of the brand.

Less so, it would seem, for a product-oriented company. Do I risk buying even the most robust car brand, if I am not certain that there will be any entity around to support it in a year (or two or three)? Maybe the answer is yes (after all, some other company will surely buy the rights to that brand of auto, because of the strength of the brand--witness JEEP). But maybe the answer is no (to paraphrase Captain Nemo from 20 Thousand Leagues under the Sea", when asked about the fate of the Nautilus submarine --"If GM goes down, the CHEVY goes down with it.") The answer to this question may go a long a way to determining the ultimate fate of the companies and their product lines.

CAPTAIN NEMO IN EARLIER TIMES

Of course, it might not make much difference at the end of day if GM chooses chapter 11, but the public remains unconvinced of its ability to come out of the proceedings, or if it merges with Chrysler, but the public remains unconvinced that two failing companies are no better than one. Brands are, at the end of day, intertwined with public trust and faith. Yesterday's killer brand is today's pariah. Just ask anyone who used to swear by Lehman Brothers.

Auditude piracy-profit technology to be trialled

In "MySpace, MTV test piracy-profit plan", Andrew Wallenstein (Reuters) tells of a new technology that enables IP content owners to profit from piracy: it's about to get a high-profile test from MySpace and MTV Networks. The idea is that,

"Instead of triggering the usual take-down notices, copyright-infringing footage of select MTV Networks programing uploaded by MySpace subscribers would be automatically redistributed with advertisements that would generate revenue for the companies".

Tech firm Auditude has developed the technology, using a combination of patented assets: a sophisticated ad-serving platform with a video-fingerprinting system that cross indexes billions of seconds of TV and online footage in seconds. For the trial, MTV Networks is allowing Auditude to track only a mix of a handful of current and archived materials. The Auditude technology is said to be similar to that employed by YouTube.

This would not seem a risk-free strategy. Presumably the technology that enables copyright-infringing footage to be replaced with advertising material will equally enable advertising material to be replaced with pirated programmes.

Latest Ocean Tomo auction figures released

Yesterday Ocean Tomo announced the results of its 30 October Fall 2008 Live IP Auction. Cumulative sales, including buyer’s premium, totalled $12,842,500. Of particular note are the following:

* 11 NASA-owned patent assets relating to the Hilbert-Huang transform (HHT) signal processing technology fetched $55,000 plus an ongoing royalty stream.

* Carlson Wireless Technologies secured more than US$1 million from the aggregated sales of two lots.

The linked document also includes a lot-by-lot chart that shows how well the various intellectual properties did. The lowest lots were knocked down for US$11,000.

The best value for your dollar

A recent survey by YouGovPolimetrix shows that the economic downturn is having a significant impact on how consumers perceive brand value.

To examine the value of brands for its BrandIndex survey, YouGovPolimetrix collected data for two months, between 1 September and 27 October, sampling responses from an online panel of over 1 million consumers.

The time frame was chosen specifically to examine the impact of the economic crisis on brand perception: it revealed a focus among consumers on “bargain brands” (such as Wal-Mart or Old Navy), as opposed to more expensive, high-fashion brands.

The five brands with the highest consumer perception value were Craftsman, History Channel, Discovery Channel, Google and Rubbermaid. Maybe unsurprisingly, financial services firms have dropped significantly during this period, reflecting a loss of consumer confidence.

More information on the results of the survey can be found here and here – and more information on Polimetrix here.

iPhone, G1 and the IP Angle

Those of you who been called upon to teach IP to MBA students come to understand, sooner rather than later, that the preferred course offering is not simply Introductory IP Lite. The challenge is to find a way of connecting between IP and the broader business concerns of the MBA curriculum.

With that in mind, I draw your attention to Stephen Wildstrom's article entitled "Nipping at IPhone's Heels", his Oct. 6th contribution to his weekly column in Business Week under the name of "Tech & You." The article is a review by Wildstrom about challenges to Apple since its summer 2007 launch of the iPhone. In particular, Wildstrom points to the announcement of the T-Mobile G1 in September 2008, based on Google's Android operating system (see my blog of October 15th, "Android Takes Form"), and new product offerings by Research in Motion, aka the purveyor of the BlackBerry.

In short, Wildstrom described the Apple-Google combat as follows:

"Apple set this whole competition in motion by building a single, excellent smartphone within an ecosystem that it controls totally, including the right to approve all third-party software. In contrast. Google is pushing an open platform, meaning any handset manufacturer can design hardware that runs Android."

Mortal Combat of Another Kind

Having an initial look at the G1, Wildstrom concluded that the hardware is a bit of a disappointment. The software, on the other hand, is the object of praise. He attributes this to the attempt by developers "to tear down the walls that divide applications." Not surprisingly, the notion of "search" plays a central role in the design of the G1. Thus, the notion of "search", which lies at the heart of the Google enterprise, appears to be brought together with a tendency of software developers to be responsive to users' need rather than providing a top-down approach that dictates the user experience.

I really cannot evaluate to what extent Wildstrom's observations are on point. More interesting for me is the question of whether the features of the G1 described by Wildstrom are a function of the IP, open source model adopted by the Android? Or, stated otherwise, is the design of the iPhone, hardware or software, a function of the IP model adopted by Apple?

G1 and the Android Platform: Does IP Matter?

I am trying to work out responses to these questions before I take to the podium in January for my next foray into the realm of MBA teaching. If any of you out there has any suggestions, I would be most welcome to hear them.

Reasonable royalties: do they smell right?

Via Technology Transfer E-News comes an article in the Journal of Accountancy, "How Reasonable Is Your Royalty?" by Glenn S. Newman (Pincipal, Parente Randolph LLC’s Forensic & Litigation Services Practice) and his colleagues Richard J. Gering and Jeffrey N. Press. According to the article's executive summary,

"In recent years, focus has shifted to the increased value of intangible assets. As such, competition, sometimes unlawful, has resulted in extensive litigation and/or negotiation between parties for the use of intangibles.

Methodologies to quantify a reasonable royalty are consistent with general valuation approaches–market (other licenses), income (profitability), and cost (design–round).
The Georgia-Pacific dispute [Georgia-Pacific v United States Plywood Corp. (318 F. Supp. 1116)] is the seminal case that identified 15 factors to consider in estimating a hypothetical reasonable royalty.

Be careful in determining an appropriate royalty base—consider what the market considers important, and the functional relationship between patented and unpatented products sold together.

Whichever method is used to determine a royalty, be forewarned that others will likely have an opposing point of view. Accordingly, make sure it passes the smell test".

I'm ashamed to say that I've never come across the term "smell test" within the context of IP royalties and the term doesn't seem to be explained as such in the article. Can any reader please enlighten me?

OceanTomo

I have not yet seen Ocean Tomo's comments on its recent auction held last week, but the IAM Magazine already includes a post which reports that the record number of lots on sale went for USD 12.8 Million. IAM comments that it is interesting to see that the desire to purchase patents has not (yet) dried up. OceanTomo have not yet issued a report - at least their website is not showing anything.

The purchasers of the patents probably still have funds available for spending - at least that seems to be the case for a number of funds in the VC industy. It is not suprising that money was spent at this auction. More interesting will be the developments over the next few months and year. I would not be suprised to see more patents come onto the market as companies "rightsize" their portfolio - but that the funds for purchase becoming more limited.