Micro-Payments for On-Line Contents: Is the The Long Tail No More ?

I almost let pass the recent announcement that the Wall Street Journal (read News Corp) plans to introduce micro-payments for individual articles. What I read is that the micro-payments will apply for readers who choose not to pay a $100 annual subscription fee. Reports have noted that Financial Times is also considering a form of micro-payments for its contents.

These announcements are the latest salvo in the Armageddon drama in which the print media seeks to find a business model that can offer some type of economic viability in an age of promiscuously available free on-line content. The old mainstays for supporting contents in the print era--subscriptions, want-ads and other forms of advertising--appear to be inadequate by themselves in the on-line environment (e.g., Craig's List makes the want ads service a virtual online non-starter for such news organizations).

I recognize full-well that the drama that is unfolding for a business model for online news contents still has a number of scenes, if not full acts, to go. In particular, I recognize that cultural mores are such that there is an aversion to paying for heretofore free contents. Don't get me wrong, I am as an avid a user of free online contents as anyone. Still, there is a deep-rooted residue of the Old Media within me that rationalizes that subscription support for online content is part and parcel of a vibrant press. But when I tell this to my kids, I tend to get a bit of a glazed reaction. Acculturated to wholesale access of free contents, the learning curve towards an alternative conception of content availability is a daunting, uphill, battle.

Against this backdrop, I still hold out a lingering hope that a business model for online news contents will take root based on something other than nostalgia for the print media. I see this hope as based on a marriage of copyright and trademarks, where the latter is the driver to monetize value in the former.

By this I mean that a smallish number of strong news brands will succeed in being able to charge for their contents primarily due to the fact that such contents are made available under the brand. In a rough analogy to brands in the bricks and mortar world, just as a strong brand succeeds in extracting monetary benefit for goods that would otherwise not enjoy this pricing advantage, so to will the strong news brands succeed in monetizing contents that would otherwise be sought for free. Stated otherwise, a strong brand will always be able to monetize value, even in the exaggerated case where the value of the non-brand (content) product will approach zero.

If that be correct, then one wonders how Chris Anderson's "long tail" will fit in. As readers will recall, Anderson posits that the on-line world frees up both supply and demand at the speciality tails of a product category in comparison with the limited offerings that are inherent in a bricks and mortar world of distribution. Instead of a small number of mega-winners, the "long tail" promises a potentially large number of niche winners.

That view may be correct for the sale of widgets in an online environment, but it would seem to have less currency in the micro-payment world for online contents, as I have suggested. The reason is clear: If the model succeeds, there will be a few winners, able to monetize their contents, and a large number of other content providers that will struggle or simply be unable to monetize their products. How such a bi-bifurcated world, bereft of the long tail and with only a few winners will impact on the nature and quality of the contents themselves, is worthy of a separate posting.

Spotify mobile app -- will it spread from Android to Apple?

Readers of this blog might not yet have seen this -- but Spotify (see previous IP Finance posts here, here and here) have demo'd a hotly anticipated mobile application at Google IO 2009 on Google's Android mobile operating system. Video on YouTube here.

The market penetration won't be particularly high as long as it remains on one device, but there has been some indication that it is coming to other mobile devices. Spofity apparently posted an advert for a developer for Nokia's s60 platform, so there is a good chance a similar application will be on its way for high-end Nokia phones. It remains to be seen whether they will manage to get an iPhone application through Apple's fortress. I can imagine Apple coming up with any excuse to block it from the app store.

In any event, it certainly represents a threat to iTunes. It will probably also help Spotify sell more Premium subscriptions, but there has not been any information yet about what the pricing will be for the mobile app. It will almost certainly be data-intensive, so if its being used on the move the mobile operators will want a piece of the action.

Also interesting it the 'offline sync' feature which raises copyright and licensing issues. Details are few and far between, but it seems like something of a download/streaming hybrid, being neither download-to-own nor streaming in the conventional sense.

Written by Andrew Logie, to whom IP Finance offers its thanks.

A Call for Your Favorite (Or Least Favorite) IP Clauses

The real "plumbing" of any commercial IP practice is the nitty-gritty of contracts terms. I, for one, as I approach almost 25 years in the practice, still find IP-based agreements, especially licensing agreements, to be a continuing challenge to both my analytical and drafting skills. That said, something that I heard in preparing for the bar exam of the State of Ohio about the time that Ronald Reagan was getting elected president: "When it comes to knowledge, you collectively is always smarter than you individually."

And so--I am reaching out to all of you. I would like to devote periodic posts to issues of IP contract drafting and construction. To do so, I would be most grateful if the readership (whether lawyer or otherwise) would share his/her thoughts. What kinds of IP clauses do you most like, what clauses are most problematic, what kinds of IP contract issues are most troubling, and so on? I will then fashion your comments into posts for the readership. The benefit will hopefully redound to all of us.

Russian roulette as 2% of Facebook stock goes for $200m

The Chicago Tribune reported a couple of hours ago that Facebook is to receive a US$200 million investment that values the social networking company at US$10 billion -- even though it has yet to turn a profit. The investment, by Russian company Digital Sky Technologies, is in return for a stake of just under 2 percent of Facebook's preferred stock. This is in addition to the US$400 million or thereabouts in equity investments which Facebook has received from Microsoft Corp., Peter Thiel's Founders Fund and venture capital firms Accel Partners and Greylock Partners.

To IP Finance this looks like a risky punt. While Facebook is admittedly hugely popular, its portfolio of IP rights doesn't appear to pose particularly high barriers to market entry; the more highly the brand is valued, the greater is the incentive to competitors to emulate it and to throw money into close competition. Further, while Facebook has 200 million users, around 70% of these are from outside the US. This means that the market reached by advertisers is relative diverse in cultural and geographical terms -- and many of its users are children whose financial spend and nagging power is relatively limited. There seem to be so many advertising-driven websites and online services these days and, with tough market conditions ahead, the seemingly endless rise in internet advertising spend is bound to come to an end, possibly causing the equivalent of the dotcom crash.

Content Industry v SABC

South of the equator almost an entire content industry is taking on a national television channel by staging a mass protest on 4 June 2009 over alleged unpaid fees and unfair business practices and terms, some relating to IP ownership. The South African Broadcasting Corporation (SABC) finds itself portrayed as a dysfunctional non paying bully by the Television Industry Emergency Coalition (TVIEC) a coalition of content providers who have banded together to address a problem they say threatens their very existence. Depending on which news source you read (egs here, here and here) the total amount allegedly unpaid ranges from $5 million to $7 million. The TVIEC and SABC have asked the government to intervene. Afro-IP's comments on the IP aspects of the TVIEC's open letter to government may be found here.  Since then news of the mass protest has surfaced. It seems that government has little choice but to intervene because a defunct SABC (SA's equivalent of the BBC) has significant implications for the South African public. One hopes that a bail out does not come at the expense of an independence the SABC has done well to achieve to date.   

Smelling like roses

Call a rose by any other name and it may not smell as sweet; but manage the transfer and sale of a company name in liquidation properly and you could come up smelling like roses.

According to The Insolvency Service, in Q1 2008 there were 3,210 liquidations in England and Wales, an increase of 4% from Q1 2007. By comparison in Q1 2009 there were 4,941 liquidations which, by the Insolvency Service’s calculations, is an increase of a massive 56% on the same period in 2008 (although according to my calculation it’s marginally lower at 53.9%).

As almost every commercial entity owns intellectual property of some description it does not take a rocket scientist (or the lawyer protecting his patents) to realise that legal practitioners dealing with valuable assets such as IP rights are much more likely to come into contact with insolvency practitioners than in previous years. And, in order for insolvency practitioners to maximise the potential assets from insolvent companies they should pay heed to fully exploiting such assets.

Once a company has been wound up it is commonplace that the official receiver gives notice of the bankruptcy order to courts, sheriffs, bailiffs, HM Revenue and Customs, the Land Registry and other professional bodies; which should include IP rights’ registries. One of the most common IP rights any company is likely to hold is that of its name, and registered names can be found in the registrar’s index of company names at Companies House. This name may or may not also be a registered trade mark, but we will save trade marks for another day. Even if the company name does not have significant goodwill in the market place remember, it may have significant financial value to other persons involved with the company and should never be overlooked as a potentially valuable asset.

The insolvent company must adopt a new name if its old one is to be sold

Importantly for the practitioner dealing with the sale of a company name to a third party, it will be necessary to change the name of the company in liquidation with Companies House so that the name can actually be used by the party purchasing it. This is because by virtue of s.26(1)(c) of the Companies Act 1985 (“CA 1985”) a limited company may not have a name which is the same as another registered companies’ name.

How do you change a company’s name?

For a name change to be made possible, a company requires a special resolution of shareholders (s.28 (1) CA 1985). If the purchasers are also the shareholders of the company in liquidation, then there should be no problem in obtaining a special resolution. However for reasons discussed below, issues may arise if directors or shadow-directors of the company in liquidation plan to be involved in the management of the new company.

If purchasers are not shareholders in the company in liquidation it may be possible for them to buy shares so they can pass the necessary special resolution. But beware of s.127 Insolvency Act 1986, which states that any transfer of shares after the commencement of winding-up is void unless otherwise ordered by the court.

If the shareholders cannot be found, do not agree to a resolution, or the court does not agree to a post winding-up transfer of shares, the purchaser may be satisfied if they can simply call their company by a similar name; in fact a little re-branding signifying a change in ownership may be beneficial to the value of the brand. Again, there may be certain restrictions if the directors of the insolvent company are involved and these are discussed below. The Registrar of Companies does have the power to direct a company to change its name if it is too similar to another company name on the register, so before adopting the new name a purchaser should gain permission from the Registrar. The official receiver should be aware of any attempts to register a name which is similar to that of the company in liquidation and inform the Registrar should they become aware that such an attempt is being made. The official receiver may not actually want to block such a move, but simply to ensure that adequate payment is made for the use of that name.

Restrictions on transfer and s.216 of the Insolvency Act 1986 (“IA 1986”)

When transferring the registered or trading name of a company, the consequences of s.216 IA 1986 should be considered. S.216 deals with restrictions on re-use of company names. It applies to directors or shadow directors of a company who were practicing as such any time in the year preceding the liquidation of that company. A person who is, or has been in the 12 months prior to the date of liquidation, a director or shadow director of the company in liquidation is prohibited from using, for a period of five years, a name which is the same or similar to the registered or trading name of the company in liquidation.

If the company name embodies the whole of the company in liquidation, or if the name is being sold as part of the entire business, then the purchaser must adhere to the procedure outlined in r.4.228 of the Insolvency (Amendment) Rules 2007 (“I(A)R 2007”). If the name does not represent wholly or substantially the business then r.4288 will not apply and leave of the court will be required. In this instance prospective purchasers should then provide the official receiver with evidence that such application has been made and there should be no sale of the name until leave has been granted.

The rule itself states that prior to the sale of the business and before the purchaser is likely to contravene the prohibition, they must give notice to every creditor whose name and address is known, or potentially available through reasonable enquiries, and then publish the notice in the Gazette. The purchaser may give and publish such notice prior to the sale of the business, but must do so no later than 28 days after that sale is completed. Such a notice cannot be retrospective and must specify

* the name and registered number of the insolvent company;

* the name of the person subject to the prohibition;

* that it is their intention to act in ways which would otherwise be subject to prohibition in connection with, or for the purposes of, the carrying on of the whole or substantially the whole of the business of the insolvent company; and

* the prohibited name.

As long as this procedure is correctly followed then leave of court as required under s.216(3) is not required. This is a very important provision to adhere to and if there are plans to sell a company name a conditional provision should be entered into the contract for sale to reflect this.

Unauthorised changes and problems an official receiver may encounter

Unauthorised change of a company name can happen and when it does it often causes problems. Members of a company have been known to attempt to bypass the official receiver when transferring the registered name of a company in return for payment. This is achieved by passing a resolution to change the name of the company in liquidation without the knowledge of the official receiver and then using the vacated name for another company. In such circumstances s.208 IA 1986, which deals with misconduct in the course of a winding-up, might be relevant if an officer of the company, having knowledge of the passing of a resolution, conceals the information from the official receiver. Those making unauthorised changes should also watch out for s.207 IA 1986, which deals with transactions in fraud of creditors and is particularly relevant if the company name is valuable and the shareholders who effect the change of name are also officers of the company.

Although the directors’ powers to act in the company’s affairs cease upon the making of the winding-up order, shareholders in a company acting unanimously have common law powers to waive irregularities to achieve informally a result which would otherwise require the observance of a specified procedure. To effect the change of name without the official receiver’s knowledge the members of the company will have met, passed the appropriate resolution and had the company’s name changed by Companies House. In this instance there might be nothing the official receiver can do to halt the process as the name of the company may have already been lawfully changed. Before the application is registered, Companies House do have a procedure whereby, in compulsory liquidations, they may contact the liquidator to establish whether such a name change has indeed been proved; but they are under no obligation to do so.

In circumstances where the official receiver becomes aware that such a change has occurred, it is important that they make an application (which can be made without notice) to change the title of the proceedings and a direction that this form of title be used in the future winding up of the company. A short report explaining how the change of name occurred should be annexed to such an application and the resolution and change of name certificate should also be attached as exhibits. If this is not done the official receiver may be vulnerable to defamation claims, as from that point on they will be referring to a certain company name as being in liquidation when it is not.

If the official receiver is asked to consent to change of the company name for consideration of a sum, they should avoid entering into a contract which binds the company in liquidation to change its name because, as discussed, that can only be done by special resolution and the official receiver has no control over that process.

If the official receiver, or purchaser of a company name, adheres to the provisions and is aware of the potential pitfalls, then the sale of a company name can be a lucrative and beneficial sale for all parties concerned. And besides, everybody likes to see a familiar high street name survive liquidation!

The war on counterfeits: how much would you spend?

Quoted in a press release today, the UK's Minister of State for Intellectual Property David Lammy has emphasised the Government’s commitment to fighting counterfeiting and piracy with the launch of guidance designed to highlight the Proceeds of Crime Act 2002.

Right: at present the sums lost annually to counterfeits dwarf the sums spent in reducing or recouping that loss.

The guidance leaflet

" ... seeks to raise consumer and market trader awareness of IP crime as well as warning would-be buyers and traders of counterfeit goods of the real cost – not only in terms of economic damage but also the risks to health and safety".

Says David Lammy:

"Counterfeiting and piracy rob our economy of millions of pounds every year - intellectual property crime is worth £1.3 billion in the UK with £900 million of this flowing to organised crime. It affects people in their day-to-day lives presenting not just bad value for money but also posing a real risk to public safety.

"Legislation alone will not combat counterfeiting and piracy. Laws must be fit for purpose but effective enforcement is key. The Proceeds of Crime leaflet sends a clear message that we are all serious about tackling this problem."

The press release adds that developments in technology and communications have led to increases in intellectual property crime over the past decade, with estimates that the international trade in fake goods is worth around $200 billion - higher than the GDP of more than 150 countries.

These figures - an annual loss of £1.3 billion to the UK, and $200 billion worldwide - may be right or wrong, but it is impossible to determine them with any accuracy. Figures that can be determined with some accuracy, however, are the sums of money that are spent by the public sector specifically for the purpose of reducing or recouping this loss. Does anyone have such figures, or at least an estimate of them? Given the loss to the revenue of vast sums in value-added tax , corporation tax and income tax which results from trade in counterfeits and pirate product, it might be expected that the UK government, nationally and locally, would get a decent return on its investment if it spent something like £130 million a year on tackling it -- rather than leaving IP owners to struggle on their own initiative and at their own expense.