Nortel Bonds

It's not often that this blogger reads the Toronto Globe and Mail - despite that newspaper's reputation - but he was intrigued by the little story that appeared in one of his webzines last Friday which clearly emanated from that newspaper. It's a report about Nortel bonds. In March 2009 - just after Nortel filed for bankruptcy - these were fetching 10c on the dollar. In other words, investors were not expecting that Nortel's assets would actually cover much of the debt. Last week the bonds were up to 88c on the dollar - that's an 880% rise in just under two years. So - how did that come about?

Well, the Globe and Mail adds, it's at least partly due to the potential from the still unsold patent portfolio, which we've already reported on here. It's fascinating to see how sophisticated investors are now pricing in potential returns on IP sales into the valuation of bonds.

IP litigation, insurance and game theory: an opinion

IP Finance is hosting this little opinion piece from Bob Knock (Consultant, FirstAssist Legal Protection).  Do please feel free to comment on it.  For the record, Bob is an enthusiastic believer in litigation as an insured risk and in the delicious pleasures of game theory.  He writes:

"Fuel consumption statistics are a key consideration when purchasing a car -- presumably because a driver wants to understand how much it will cost to make practical use of the car. Are such considerations made when a party is obtaining an intellectual property right? For example, how much it would cost to enforce a monopoly in the case of a patent or exploit and defend a reputation if a trade mark is obtained? How much protection do intellectual property rights provide? Without the ability to litigate are they a toothless lion?

It was suggested in Lord Justice Jackson’s Review of Civil Litigation Costs in England and Wales that SMEs could enjoy access to justice by subscribing to before-the-event (BTE) legal expenses; BTE was an active consideration in the impact assessment pertaining to the Patents County Court consultation.

There are a small number of providers of specialist IP legal expenses insurance. These policies can indemnify legal expenses if a party needs to pursue an infringer. Having BTE in place demonstrates that the custodians of a company have risk management strategies in place and obviates the need to hold large cash reserves or seek finance to pay legal fees.

If SMEs can litigate more easily by virtue of BTE, will this change behaviour and attitudes towards intellectual property rights? House prices are a frequent reference in some journalism. It is, however, interesting to consider that these prices are set by the > 1% of housing stock which may be on the market at any one time. Are there parallels with commercial behaviour and the extent to which IP strategies could be influenced by the small number of cases which are litigated or the likelihood of litigation?

In many income-based IP valuation models, litigation support is a factor. Measures could be taken of how well protected a market is and how difficult it is for competitors to encroach or the likelihood of damages being recovered if there is an infringement. Calculations made, allowing for different levels of litigation protection, could quantify the benefits of a legal protection policy in terms of the value of the company, much of which may vest in intangible assets secured by IPRs.

Insurance should allow SMEs to pool resources so that, when a potentially catastrophic event occurs, they can be afforded protection. This involves the insurer maintaining a reserve of funds that will be used to indemnify the legal expenses of whichever businesses’ IPRs are infringed. In order for a fund of appropriate size and containing appropriate risks to be maintained, membership of the pool, or purchase of a policy, must be attractive and commercially rational. To achieve this end it is important for underwriters to understand the views of IP owners and practitioners.

Burton Malkiel, in his book A Random Walk Down Wall Street, hypothesised that share prices follow a random walk. If an analogy can be supported between a share becoming popular and going up in price and an IPR becoming popular and then being infringed it may be erroneous to price a book of IP protection business on claims histories. We are, therefore, influenced in our underwriting approach by game theory.

It is interesting to note that game theory can be used to demonstrate that the chances of a response being posted to a blog article should diminish if there is an obvious response".

Comments, anyone?

EU Commission looking at Generics and Patents

There's a detailed report emanating from Bloomberg Businessweek which explains a little bit about the EU's current investigation into the branded and generic drug markets. The European Commission has been looking into the market place and is worried - just like the US government - that major branded pharmaceutical companies are misusing the patent system to ham consumers (and at least in Europe the government, which ultimately pays for much of European health care directly or indirectly through the tax system). The concern is of course, that pharmaceutical companies file invalid and follow-on patents to prevent their generic competitors bringing out substitute drugs.

The EU commission has now - following unannounced inspections - also called raids- on drug companies last year - started a so-called monitoring exercise to review the activities of the branded pharmaceutical companies. The report quotes Joaquin Almunia, the EU's competition commissioner in stating that patent settlements “are an area of particular concern because they may delay the market entry of generic medicines,” Joaquin Almunia, the EU’s competition commissioner, said in the statement.

Over in Germany, the VFA - the German Association of Research-based pharmaceutical companies has been active in arguing the case for branded medicines. The message is directed at the current reforms to the German health system being promoted by the Federal Ministry of Health. In many ways the issues are the same: how to ensure adequate and affordable health care whilst providing sufficient funds to research companies through the health system to incentivise research. It's clear that no pharmaceutical company can live on grants from the government alone - and the health care, whilst it is by no ways perfect, provides a mechanism to ensure that successful innovative products are rewarded. Patents play a crucial role here in protecting and defining the bounds of the innovation. On the other hand there is a need to reduce the costs of the health care system and clearly generic drug producers have a major role here - this author will normally ask his local (German) pharmacist for "ASS" tablets or wait to stock up on the generic aspirins when he is in the US (note: Aspirin (R) is a registered trademark in Germany). Where are the boundaries between efficient innovation and cost-effective health care? There's almost certainly non "one-size" fits all - the control through the European Commission is probably the only way of policing the marketplace to ensure that there is a fair playing field.

Technorati Tags:
European Union, Patent, Generic Pharmaceuticals

Do you believe in retainer fees for IP work? If so, read on

Do you believe in retainers
for IP legal work?

Neil Wilkof's post on the IPKat last week, "Retainer Fees and IP Practice: Questions, Questions Everywhere" (here), suffered the fate of many a fine piece of blogwriting that gets posted on a Friday -- it got lost in the lead-up to the weekend and was then submerged under other posts.

Since so many of the money-related issues in Neil's post speak directly to readers of this weblog, it seems a good idea to draw it to the attention of those IP Finance subscribers who either don't see the IPKat at all -- and, yes, there are many of them -- or who may simply have missed it in the rush to get out of the office for the weekend.

Readers' comments are particularly appreciated.  Unbelievably there's just one so far ...

French damages: a frank response

Last Tuesday, in "Damages in France: is there a sign of an upward trend?" (here), I ventured to suggest that a recent French damages award in a trade mark dispute indicated that the French courts were becoming more generous in their awards.

Not so, says my good friend Richard Milchior (Granrut), who assures me that French infringement damages have already been generous for some time, even before the coming into force of the EU's IP Enforcement Directive. Richard has even helpfully pointed me towards this useful table compiled by the PIBD, with some details of actual awards -- so you can believe him!  As Richard says:

"As I told you, more or less the international community thinks that the French court are not awarding damages ( obviously there is an assimilation between damages and big amounts);
The truth is:
(1) this is wrong
(2) if bigger damages are not awarded it is often due to the fact the plaintiff refuses to provide information which is (rightly or wrongly considered as business secrets) to the court, they do not understand that it is needed , they are to lazy to do the necessary work or their lawyer and /or trade mark agent does not do what it needs to do. ...

Be aware that often in France the amount awarded for unfair competition or parasitism could cover damages to well known marks since we had the habit of using tort law for this even before the CTM Regulation and the trade mark directive".

Thanks, Richard, for taking the effort to let us know.

Valuation of Emerging Technologies Seminar comes to town

IP Finance understands that the Business Development Academy (BDA)'s Valuation of Emerging Technologies Seminar, developed in the United States, is on its way to Europe.  This is an unusual seminar in that it explains and analyses the applicability of over a dozen valuation methodologies including the following:

• Total Value Extraction
• Probability Weighted Expected Return Method
• Monte Carlo Analysis
• Real Options
• Binomial Lattices
• Decision Trees
• Market Method

For those who like to sink their teeth into something substantial, this seminar will be treating its European participants to the unveiling of the Patent Valuation Gauntlet.  This reputedly consists of more than 400 issues which, the seminar's architects maintain, should be included in patent analysis. The categories to be discussed will include the "usual suspects" such as Citation Analysis, Prosecution History, Claims Analysis, Investor Profile and Sustainability in Opposition, and lots more besides.

This course is one of the four courses required to earn the Certified Patent Valuation Analyst designation. The London course will be held on March 14 and in Amsterdam on March 17.  The venue of the London seminar is the offices of Holborn-based law firm Collyer Bristow. More information about this course—including registration details—is available here.

Shadow boxing the LTE Patents

There's a tremendous amount of shadow boxing going on in the telecommunications patent space relating to ownership of patents essential to the operation of the LTE standard. The :Rethink Wireless website reports that "chinese vendors are determined to increase their share of patents as well as equipment sales at the 4G stage" and that the Chinese telecommunications company ZTE is claiming to own "7% of the essential patents in LTE" which is apparently only "just behind" compatriot Huawei and Ericsson.

Looking through the patent databases what struck this author is that many of the so-called "essential patents" have not yet been actually granted. So whilst ZTE may be claiming that they have actually 7% of all granted patents, it probably means that they have 7% of the filed patent applications potentially relevant to the LTE standards. The value of the patents can really only be determined when they have been granted - and experience shows that many of them will not be granted. Ultimately the test of a decent patent grant is whether the patent will actually stand up in litigation. And the German litigation relating to IP.COM's portfolio as well as InterDigital's UK and US litigation shows that may patents may either be held to be not valid or the granted claims do not actually read onto the standard. What struck this author when looking through the ZTE's patent portfolio is that many of the documents are rather short and contain sometimes the barest of details about the invention. It's only a first impression - but it will be interesting to see how many of the documents actually withstand the challenges of litigation. Compare that to the substantially longer disclosures of Nokia, Ericsson and others and it may well be that these companies longer experience of drafting patent specifications for litigation will be crucial.

Rethink Wireless correctly goes on to point out that the important issue for LTE vendors and buyers is not who owns a patent, but how much the proprietor (patent applicant) will charge other vendors and buyers for the right to use the patents. Attempts are being made to set up one-stop shops or patent pools, but there are at least three competing operators. Some holder of relevant IP rights, most notably Qualcomm have been reluctant to join such pools and apparently intend to stick with the bilateral licensing agreements. These generally favour the largest patent owners who own significant IP rights and operate a system of cross-licensing with balancing payments.

The main interest is the rise of newer companies like ZTE and Huawei which to date have had very little IP rights, for example for the GSM or UMTS networks. ZTE's analysis suggests that InterDigital is the leading holder of essential patents in LTE, with its Patent Holdings arm controlling 13% and its Technology unit 11%. Next comes Qualcomm with 13%, Nokia and Samsung on 9% each, Ericsson and Huawei on 8%, ZTE at 7%. LG, with 6%, and NTT DoCoMo with 5%, bring up the rear, while the remaining 11% is held by 'others'. Whatever the basis for the establishment of the list - patent applications or granted patent - it certainly indicates the stronger weighting towards IP holders coming from Asia than for earlier telecommunications standards.