Wednesday, 20 July 2016

Redistribution of Wealth Through Giving and the Bayh-Dole Act

A couple of years or so ago, I wrote a post on philanthropy and its impact on the creation of intellectual property.  This appears to be an under-researched area and deserves some additional review. 

The Bayh-Dole Act (and general U.S. federal policy) operates to redistribute wealth from tax payers to universities, non-profits and companies through their ability to take title to government funded inventions.  Essentially, tax payers pay money to the government.  Instead of that money getting redistributed through social programs or other means, the money is distributed in the form of grants for research to universities, non-profits and companies.  The Bayh-Dole Act then allows those entities to take title to any inventions developed from that money.  Part of the rationale for the Bayh-Dole Act, along with the incentive to commercialize theory, is to ensure that private industry has the incentive to bring government funded technology to market--to cross the so-called "valley of death".  As the story goes, prior to passage of the Bayh-Dole Act, many government funded inventions "languished" on the shelf of the government. Many believe the Bayh-Dole Act is an inspired piece of legislation.  Indeed, many countries around the world have passed similar laws to harness the power of government funded invention. 

Interestingly, the Association of University Technology Managers (AUTM) pointed to a potential silver lining, of sorts, in the Great Recession.  Universities continued to spin out companies (and apparently create good paying jobs) based on university developed technology during the Great Recession.  If not for the Bayh-Dole Act, the Great Recession might have been much worse for the United States. 

I was listening to National Public Radio (NPR) the other day and noticed that the Lemelson Foundation was supporting NPR.  The Lemelson Foundation was started by Dorothy Lemelson, the famous inventor Jerry Lemelson's wife.  The Foundation supports invention and commercialization efforts primarily through education in the United States and in other countries.  Specifically, the Foundation appears to focus on college-aged possible inventors and addressing the needs of the poor through invention.  The Foundation reached its 20th anniversary this year and there is an interesting list of its achievements and activities, here

Notably, Jerry Lemelson was well-known for his patenting/invention activity--over 600 patents.  He was also well-known for his assertion of patents (submarine patents as they were known) against practicing companies, particularly for his "scanner" technology.  Interestingly, Wikipedia notes that he extracted about $1.3 billion in licenses from companies.  When examining the merits of a particular practice--let's say so-called patent trolling, perhaps we should also look to the uses that some monies made from that activity are used, including voluntary redistribution. 

Saturday, 9 July 2016

Sanofi and Boehringer Ingelheim swap units: a new model for pharma deals to come?

M&A activity in the pharma space has focused on seeking mega-mergers structured as a tax inversion, where the surviving company is domiciled in
the lower tax rate jurisdiction. This structure has come under vociferous criticism, especially in the U.S., where the claim has been made that U.S. companies are seeking to flee the US solely for achieve tax benefits. The poster child for this kind of transaction was the proposed $160 billion deal between Pfizer and Allergan, which called for Pfizer to relocate to Ireland and to reap tax benefits of $1 billion a year. The deal was scrapped in early April, after new tax regulations made the transaction less unattractive.

But if mega-deals with a sizeable tax consequence, such as the proposed Pfizer and Allergan merger, are now less likely to occur, this does not mean that pharma transaction activity will come to end. An illustrative example of what such future deals may look like can be found in the announcement at the end of June that the French pharma company, Sanofi, will hand-over its Merial animal medicines business (estimated to be worth $14.4 billion euros) to Boehringer Ingelheim, in exchange for the latter’s non-China over-the-counter medicines’ business (estimated to be worth 6.7 billion euros), plus the payment to Sanofi of $4.7 billion in cash. Stripped to its essentials, the deal harkens back to the most ancient form of transaction, namely barter. For those readers who seek a more contemporary analogy, view the deal as the exchange of one sports player for another, plus the payment of some cash by one of the teams. However one views this deal, it is far-removed from the world of mega-deal tax inversions.

A recent interview on Bloomberg radio suggested several advantages to this type of transaction:

First, there is less or no risk that the regulator will turn down the transaction. Not only is the mere risk of regulatory rejection deleterious to the business plans of the companies involved, but the failure to consummate the agreement may well obligate one company to pay the other a break-up fee.

Second, the challenges of integration, as each company seeks to absorb the unit acquired, should be significantly reduced in comparison with the full-fledged merger of companies, as in the current transaction, where only one dedicated unit from each company will be involved. Presumably, there will be less disruption to the activities of these units, each of which can continue to carry on as usual, Management teams will also largely be left intact, although not entirely, as Boehringer announced, only days after the deal had been announced, that it was cutting 50 positions at his headquarters in Ridgefield, Connecticut.

Third, tax consequences would appear to be taking a back seat to the issues of product strategy. Each company is presumably strengthening itself in an area what it hopes to reap competitive advantage. Here, as well, the risk of success or failure for each company in exiting one drug area while entering another is less cosmic than the ultimate risk of a full company merger gone bad. Indeed, the modularity of the transaction may portend a different focus for pharma companies. Big may be good for its own sake, but if the regulator puts its foot down on such moves, company management will need to find alternative forms of transactions to improve company performance.

One also wonders whether this kind of transaction will be better for the R&D and the IP position of the companies involved. Much has been written about the patent cliff facing pharma as block-buster drugs are coming off patent. The question is whether R&D can come up with replacements, even if this means more specialized drugs in place of these block-busters. From this perspective, the transactional focus on discrete units, rather than on entire companies, might assist pharma, especially Big Pharma, in coming up with a new generation of successful products.

Friday, 24 June 2016

Brexit and IP Practice: What does it mean?

As we all know, Brexit happened yesterday (I guess depending on your time zone).  I am disappointed by the vote, but that is democracy.  It was relatively close, but over 17 million voters unhappy with the status quo is significant.  I am not a European IP attorney, but I thought it might be helpful to collect some of the links to advice concerning the IP fallout from Brexit.  Here are a few: 

Freshfields Bruckhaus Deringer

Carl Oppendahl

Afro IP via Darren Olivier (Brexit implications for Africa)

Fashion Law Blog


Foley & Lardner via National Law Review

Kluwer Patent Law Blog

Shepherd Wedderburn

Bird and Bird

World Intellectual Property Review

Collateralization of Intellectual Property in Singapore and China

The efficient collateralization of intellectual property is a way for small and medium size enterprises to obtain financing for continued expansion, and additional research and development.  As reported by Ellie Wilson on the IPKat blog, a loan with IP as collateral was recently approved in Singapore. The Press Release from the Intellectual Property Office of Singapore states: 

While using tangible assets such as machinery and inventory to apply for loan financing is a common practice for companies, using intangible assets in the form of patents is a recent development.
3.      Singaporean entrepreneur, patent owner, founder and Group Chief Executive Officer of Masai Group International, Mr Andy Chaw, shared, “We are honoured to be the first company in Singapore to have successfully obtained the IP financing to unlock the value of our intellectual property. With the financing, we will continue to invest and strengthen our global IP portfolios and brand marketing, as well as continue our research and development efforts in new technologies and products development.”
4.      The IP-financed loan was supported by DBS Bank (DBS), one of the scheme’s three participating financial institutions (PFI). DBS’ Group Head of Small-and-Medium Enterprise Banking, Ms Joyce Tee, said, “As the principal banker for the Masai Group, we recognised that the patents acquired would essentially translate into future earnings. We are very pleased that the collaboration with IPOS to monetise these intangible assets, recognising the patents as an alternative security, has worked well. With this as the first successful case of an IP-backed loan in Singapore, we will continue to build a sustainable capabilities platform so that we can help our SMEs unlock the hidden wealth in their intangible assets and convert into cash for their business growth.”
5.      UOB, another of the scheme’s PFI, has a strong pipeline of IP financing cases to help companies capitalise on the value of their intangible assets. Mr Eric Tham, Head of UOB’s Group Commercial Banking, said, “As businesses evolve with the changing times, intellectual property will increasingly form a significant part of an enterprise’s value. We welcome IPOS’ forward-looking enhancements to the IPFS, as more companies in Singapore would be encouraged to innovate and help create the ‘Silicon Valley of the East’.”

More PFI, IP Valuers and Qualifying IP Asset Classes for IPFS
6.      Effective 1 July 2016, IP owners can look forward to monetising other IP asset classes such as registered trade marks and copyrights through IPFS. The addition of new IP asset classes, over and above patents, is aimed at spurring an intellectual property and innovation-driven economy in Singapore.
7.     The scheme will also be extended for another two years till 31 March 2018, as applications are expected to increase. The all-time high IP filings in Singapore is a testament of the current buoyant innovation climate. To meet the anticipated surge in demand for IP loan financing, IPOS has appointed a fourth PFI and expanded the panel of IP Valuers from three to seven. This move will allow companies to work with a larger number of PFI and competent IP Valuers for successful loan applications.

8.      Mr Daren Tang, Chief Executive of IPOS, said, “As Singapore’s economy becomes more innovation-driven, IPOS is stepping up our efforts to help local companies and entrepreneurs realise that IP is not just about protection of their legal rights; it is about using it to grow their business. He added, “IPOS will continue to work with more partners to provide opportunities for companies to go beyond IP protection to monetisation. The IPFS is one such scheme and we hope that local companies with valuable IP will take full advantage of it, as we continue to look for new ways to help them succeed in the global innovation market.”  
Lexology reports that:

Recently, the State Administrations of Industry and Commerce (SAIC) made an announcement that, after July 1, 2016, 25 local Administrations of Industry and Commerce (AICs) may receive pledge applications of trademark rights on behalf of China Trademark Office. Applications filed through the local AICs are free of charge.
Are there any other developments concerning collateralization of IP in Asia?  

Tuesday, 21 June 2016

How long can cable television support the business of professional sports?

This is a good basketball time to be from Northeastern Ohio. This blogger, having grown up in the Cleveland, Ohio area, is basking in the victory of the hometown Cleveland Cavaliers in the finals of the National Basketball Association playoffs. The final game of the series on Sunday evening attracted one of the largest television viewing audiences ever for a basketball
game. Lebron James, the leader of the Cavaliers, makes Croesus-like amounts of money. While others do not earn his gargantuan sums, the compensation being paid to professional athletes is such, that it raises the question: is this sustainable?

Based on a recent piece by Louis Menand (“Show Them the Money: Is the sports business a bubble?”) about the financial structure of professional sports, which appeared in the May 16, 2016 issue of The New Yorker magazine, the answer may be “no”. Relying on the analysis set forth by Matthew Futterman in his book, “Players: the Story of Sports and Money, and the Visionaries Who Fought to Create a Revolution”, Menand describes how this salary cost structure, with its overreliance on broadcast-based revenues, may be leading professional sports to a deep and painful fall.

The principal reason for this dystopic vision of professional sports going forward is, according to Futterman, that the industry has overshot the scope of its audience. In Futterman’s words, “One of the great illusions of the sports industry is mass fascination.” The intention is not the Olympics or the World Cup, or even Euro 2016, all of which still attract a large audience for a short period. But what about the rest of the time? It is claimed that the day-by-day audience for most sports is in fact, “tiny”. Thus, far from the spotlight of the playoffs, the NBA attracts an audience of less than 3% for its local games.

The only exception to this is that National Football League, which is distinguished by the fact that its games are broadcast via television networks, which means that it is possible to get a reasonably accurate indication of actual viewership. For most other sports, however, broadcasts of games are provided through arrangements with cable companies, and in that lies the nub of the problem. Why is this so? It all has to do with bundling. As anyone who pays a monthly bill for cable (at least in the U.S.) knows, a viewer is offered a bundle of programs, many of which the viewer has no interest in ever watching. No matter—the bill is then split according to a formula among all the channels provided by the carrier.

It transpires that approximately 20% of the average cable bill goes to the channels that broadcast sporting events, which then pays out to the various sports teams a certain (and substantial) amount for the right to broadcast their games. These amounts are paid whether or not any given viewer actually is watching a game, with the result that the sums paid out to the teams bear no direct relationship to the actual number of viewers. In the words of Menand, this “means sports are currently enjoying a very large subsidy from a public that doesn’t watch them.”

But this subsidy may be coming to an end. According to Menand, the cable industry may be on the way to “disaggregation”, which means that viewers will then pay only for the programs that they actual view. If this comes to pass, the sums being paid will reflect the small numbers of viewers for all sports except for American football, and these amounts will not be able to support the current salary structure. What will happen to the sports teams in a post-subsidy world is a matter of various speculation, none of which is positive for the sports industry.

Something that is not sustainable ultimately cannot be sustained. Is this the path for professional sports, based on its current funding model?

Friday, 17 June 2016

Beijing Regulator Issues Injunction Against Apple iPhone 6

Ali Qassim authored an article titled, "Expect Frequent Fast Injunctions in China, Says US Lawyer," on June 7, 2016 published in Bloomberg BNA.  The article reported on the remarks of a Beijing based-US attorney at a conference concerning the availability of remedies, including injunctions in China [behind a pay wall]. Today, June 17, 2016, Eva Dou of the Wall Street Journal has reported in an article titled, "Beijing Halts Sales of iPhone 6, Citing Patent Infringement" that a regulator in Beijing has issued an injunction against the sale of the iPhone 6 for infringing a design patent of Shenzhen Baili.  The article notes: 

It wasn’t immediately clear what impact the order would have. Some mobile-phone stores in the city said they had already stopped selling the two models months ago, switching to newer models. Apple will soon end production of both models, according to a person familiar with the production plans.
According to The Street, shares of Apple are falling.  Should we expect more investment in research and development, and patenting in China given the reported easy availability of remedies in China's huge market?  

Wednesday, 8 June 2016

Brands and innovation: the case of health-related apps

This blogger has for some time been considering the question of how trademarks and brands are connected to innovation. From WIPO on down, the mantra has been that the connection between the two is robust. But in this blogger’s view, the relationship between them is far from self-evident. In particular, we have suggested that the kinds of innovation fostered by brands are found only in a narrow range of circumstances, where a strong brand may be leveraged to support a product
extension or, less frequently, a new product line, that rises to the level of an innovation. Moreover, this tends to occur most frequently in the consumer products space, leaving a broad swathe of product categories unaffected. If this be true, the role played by brands in innovation may be of less importance than often stated.

Against this background, this blogger was fascinated by a piece that appeared in The Economist on March 12, 2016 (“Things are looking app”). The upshot is that the relationship between brands and innovation may be more promising, at least when medical apps are involved. In terms of raw numbers, the medical apps world is exploding. According to the piece, there are now over 165,000 health-related apps that run on either IOS or Android. PwC foresees that by 2017, health-related apps will have been downloaded over 1.7 billion times. Despite these impressive numbers, the reality is that few such apps are ever used. The interesting question that arises is how an app developer in the health field can gain market traction.

One might be tempted to believe that new actors will emerge as the purveyors of successful health-related apps run on either smartphones and wearables. More likely, however, the surest way to commercial success will be through the leveraging of well-positioned health brands into the health-app business. In the words of The Economist,
“The fragmented, nascent m-health market seems likely to consolidate in time, with its most promising startups perhaps being bought by, or entering alliances with, trusted health brands. That would help it to realise its substantial potential to help patients, doctors, health insurers and researchers alike.”
The upshot is that the big health-related brands will get bigger through their health-related apps, while newcomers seeking to market an innovative health-related app will have a substantial battle in doing so. Stated otherwise, health apps are different from smartphone entertainment apps in the form of Angry Birds and Candy Crush Saga. There are at least two reasons for this.

First, the role of trust in the brand is inextricably intertwined with the health function offered by the app. True, brand gurus speak of consumer trust in the context of the strength of any brand, but when health is at issue, the role of trust is magnified. A customer losing trust in his breakfast cereal brand may have negative consequences for the brand owner as the consumer switches to a competing product, but it does not involve a consideration of health and safety. When these concerns are front and center, the strength of a trusted brand becomes more important for all concerned.

Second, the role of the strong brand may be a partial substitute for administrative regulation of health-related apps, at least in the short term, As the article itself recognizes, such regulation is still in the formative stage. As long as this is so, a strong brand can provide a degree of security for the consumer about the reliability of the product.

None of this detracts from this blogger’s s work-in-progress thesis that brands and innovation may be less important than often believed. But the potential role of strong brands in fostering innovation in the health-app business shows that the subject is more nuanced than he may have once thought.