Saturday 26 December 2009

The Holiday E-Card: What has Happened to the User Experience?

The weekend holiday is upon us. Before I close the office door, however, permit me to comment on one lamentably disappearing feature of the season. I am referring, of course, to the holiday greeting card.

One of the holiday joys has always been the receipt and display of cards from near and far. Sadly, the number of holiday greeting cards received is much reduced this year, replaced by email-delivered greeting cards of various sorts. I recognize that e-cards are kinder and gentler to the forest environment. As well, snail mail delivery requires airplanes and vehicles for moving the inventory, which in turn means consumption of fossil fuel. Here, too, holiday e-cards certainly contribute to the environment.

Nevertheless, from the vantage of this blog, the transition impacts on the way that visual and textual creativity is brought to bear on the social experience of reaching out and connecting (or reconnecting) with people though the exchange of cards, to be opened, grasped, read, and read again, before finding their ultimate resting place for display. More generally, the move from traditional holiday cards to the e-card variety raises an interesting twist on the way that contents are related to distribution and the user experience.

When we set out the copyright paradigm to students, we describe the triangular interrelationship between the content creator, the distributor or publisher of the contents, and the public interest. When I think about the traditional holiday greeting card, I realize that this paradigm may be inadequate. Distribution of contents is not merely finding new ways to package and deliver them more efficiently and economically. Depending upon the circumstances, it may also be about the user experience. If the means of distribution does not provide a superior (or least a satisfactory) user experience, presumably it will not gain traction with the user.

Think about both online distribution of contents, as opposed to the hard-copy delivery, or reading a full-length tome on an e-book device. In both cases, these distribution platforms are preferred because of the experience connected with the use of the platform. True, the attraction of online contents may also be function of the fact that it has largely been (at least up to now) free, and that the e-book devices promise savings in the purchasing of the books. There may also be a generational divide--my kids will be more likely to prefer the online experience than I do. But even taking these factors into account, it remains the case that on-line distribution and e-book devices are preferred means of content delivery because of the user experience.

Assuming that this is true, then I find the transition to the holiday greeting card a bit of a mystery. Simply put, I find the user experience far inferior to that of the traditional greeting card. I start with the size and shape of the envelope, which is usually different from that of the business letter. When I encounter such an envelope, there is already an expectation that a holiday card awaits inside. Once the envelope is opened and the card is removed, there is the feel of the texture of the card and the encounter with the aesthetics of the artwork. Moving on to the interior of the card, there is the text, perhaps personalized, perhaps not, usually a combination of the two. The experience in opening and reading a holiday e-card pales by comparison. In a word, the e-card has impoverished the holiday greeting card experience.

E-Card: Share the Holiday Experience

Permit me to conclude with an anecdote. For several years, I would commission a photography student at a local arts school to provide me with a portfolio of pictures suitable for use on the holiday greeting card that I wished to send out that year. Once the preferred picture was selected, I entered into a licence and royalty agreement with the student for the use of the photo. My entire family would then assist me in gluing the picture on the front of the many hundreds of cards that were to be sent. This was followed by the signing of each of the cards, most of which with personalized text. Recipients would mention, later on, about the uniqueness of the card. That, dear readers, is a genuine holiday card experience.

Wednesday 23 December 2009

A sad if salutary tale

I've just been speaking to a friend, who had developed a rather attractive website for her specialist business -- a small local business which looked promising but never developed and is now defunct. A fotnight ago she told me excitedly that she had been approached by a prospective purchaser, who was interested in buying the domain name together with the six or seven pages of text and artwork that comprised the website.

Now, somewhat crestfallen, my friend tells me that she has not heard from the prospective purchaser since. I expressed my sympathy and asked her why. She had no idea. How much did the would-be buyer offer, I asked her, and was told: "She didn't offer anything. I told her I wanted £5,000 and wouldn't take a penny less". Now, the cost to my friend of acquiring and populating the site, plus some expensive and totally unsuccessful search engine optimisation, came to a good deal more than £5,000 -- but I found it hard to explain to her that what a website costs and what it's worth are not the same thing. Bearing in mind the facts that the domain name was long, easy to mis-spell, unmemorable and descriptive, as well as the existence of websites of competing businesses with not entirely dissimilar names, a realistic selling price might have been rather lower if an outright sale were the only option. A lease of the site and its intellectual property furniture might have been a better option.

This episode might seem a little trivial, but it reflects a number of truths that are found in the bigger world. One is that it is easy to over-value an intellectual asset; a second is that one's opening gambit should not be one's final shot; a third is that it's usually better to encourage a prospective purchaser to speak about pricing than to place a tag on an asset and await a dialogue that never comes.

Software licences: better than IP rights?

The Software License Unveiled: How Legislation by License Controls Software Access is a short, vibrant book by Douglas E. Phillips (Vice President and General Counsel, Promontory Interfinanciary Network). The web-blurb makes some big claims for it, describing it as follows:
"* First title to combine a practice-oriented survey of "clickwrap" law with a theoretical treatment of legal and economic theory;
* Written by a visionary legal practitioner with extensive experience in software licensing;
* Includes discussion of today's software licenses from both practical and conceptual vantage points, including analysis of license examples, discussion of key judicial decisions, and consideration of theoretical perspectives;
* Explains how the terms of "clickwrap" agreements and other software licenses give rise to a largely unread and unseen law of software, which often displaces intellectual property law;
* Discusses digital rights management ("DRM") and the Digital Millennium Copyright Act ("DMCA") and how these critical developments are and are not related to software licensing;
* Discusses the new version 3 of the General Public License ("GPL"), which applies to Linux and other free software programs;
* Includes a brilliant new perspective on the proliferation of open-source software licenses that will help to frame the ongoing debate within the free and open-source software communities.
Nearly every use of a computer is subject not only to public intellectual property law, but also to the privately-written law of the software license. Although the United States has only one Copyright Act and one set of patent laws, there exist thousands of different licenses - to which millions of computer users legally bind themselves by the click of a mouse, usually without reading anything but the word "agree." How do these proliferating but largely unread licenses affect access to software, one of the economy's most valuable resources? In The Software License Unveiled, visionary practitioner Doug Phillips aims to illuminate the unseen law of software to which the software license gives rise".
Words like 'brilliant' and 'visionary' tell us less about the author and his book than they do about the fact that this work is published from Oxford University Press's New York office rather than from the genteel and discreetly understated grandeur of its Jericho headquarters. American purchasers of IP books are presumably more habituated to hyperbole than are their European brethren and may be disconcerted by its absence.

The phenomenon of the software licence, in its shrink-wrap, web-wrap, browse-wrap and click-wrap guises, has been well known to software lawyers and their clients since the dawn of mass-market PC time (the facts of the early shrink-wrap litigation in ProCD v Zeidenberg took place in 1994, when dinosaurs ruled the information highway and most people still used DOS), though it has been rediscovered with great regularity: as recently as 2007 the prophetic Cory Doctorow could still persuade readers that shrink-wrap licences were "an epidemic of lawsuits waiting to happen".

Doug Phillips has not invented, nor re-invented, concerns regarding software licences of this nature. What he has done, however, is to explain lucidly and enthusiastically, why contract law -- if allowed free rein -- is a far more effective way for a business to protect its rights, control the use of its products and manipulate its relationships with users of its products than are the intellectual property rights that vest in it. Patents can be invalidated and are horrendous to litigate, copyrights can be worked around, trade marks are no serious hazard -- but if you can point to an obligation that you wish to press upon someone else and say, "Look, you've agreed to this and you can't deny it", you are in a far more powerful position. Doug Phillips has not lifted the veil on software licences but he has enabled readers to see clearly through it. In doing so, he has given some clear background to the reasons why you-must-have-agreed licensing provides so much comfort and security to those who invest in new software products.

Bibliographic details: xxi + 204 pages. Hardback. ISBN 978-0-19-534187-4. Price: £55. Book's web page here.

Tuesday 22 December 2009

India Frees Up Foreign Payment of Royalties

When I began my career in tech transfer in the 1980s, one of the most challenging aspects was the restriction placed on the payment of royalties and the like. In particular, many countries, particularly in South and Central America, placed severe restrictions on the amount of royalties that could be paid to a foreign licensor. Creative solutions abounded in those days to play the system in a way that was mutually beneficial to the local licensee and its foreign licensor. Some time in the 1990s I think, these restrictions were relaxed. While I have not followed the issue closely since that time, it is my impression that these restrictions have been relaxed in that region.

Fast forward to 2009 and a December 18th post by Swaraj Paul Barooach on the iconic SpicyIP Blog. Entitled "Liberalization of Foreign Technology Agreement Policy, the blog reported on the December 17 Press Release by the Government of India Press Note No. 8 (2009 series), which effectively provides that no longer will government approval of royalty payments be required above certain defined thresholds here. In short, the prior policy
"freely allowed payments and remittances up to a lump sum fee of $2 million and payment of royalty of 5% on domestic sales and 8% on experts. In addition, where there is no technology transfer involved, royalty up to 2% for exports and 1% for domestic sales ... on use of trade marks and brand names ...".
Payments above these limits required the prior permission of the Government of India (Project Approval Board, Department of Industrial Policy and Promotion).

These limitations have now been scrapped, at least in material part. Lump sum payments and/or royalty payments for technology transfer or for the use of trade marks or brands no longer require Governmental approval, no matter, it appears, is the amount of the payment. There is one restriction, namely, the Foreign Exchange Management (Current Account Rules, 2000. What exactly are the contents of these rules is not further specified in the Press Release. As well, "[a] suitable post-reporting system for technology transfer/collaborations and use of trade mark/brand name will be notified by the Government separately."

There seem to be at least three related factors at work here. First, the amount of foreign direct investment (DFI) in India continues to increase apace (over $25 billion in 2008). At least a part of that DFI would also see to require collaboration agreements with foreign entities for the use of technology within India. As well, technology is increasingly licensed-in to India for the purpose of use and commercialization within the Indian national market. Restrictions on the amount of royalties that can be freely paid abroad would only serve to reduce the optimal use of this technology within India.

Second, there might be a connection between the new policy and the increasing liberalization of capital flows out of India. Think of Tata and its recent spate of acquisitions over the past several years. It would seem that such capital flows go hand in hand, at least conceptually, with the scrapping of approval requirements for royalty payments above a certain amount.

Third, much talk has made lately over the notion of reverse innovation, where India serves as the foundation for innovation, which is then transferred to the developed world: see here. It seems that if India is to benefit from royalty streams from abroad for the use of such fruits of reverse innovation, it behoves it to allow unfettered payments of royalties by Indian entities abroad.

All in all, the provisions as set out in the Press Release point to a liberal Indian market for tech transfer, something which could have even been dreamed in the 1980's.

Bullish about Liberal Royalty Payment Policy

Friday 18 December 2009

Do the Movie Studios Have a Strategy for the Online World?

I recently paid my annual visit to what is reported to be one of Borders' most successful stores, located in an upscale suburb of a Midwestern US city. When I reached the CD department, I had to do a double-take to confirm what I was witnessing. It seemed to me that the department had been downsized by probably over one-half since February 2009, both in terms of floor space and stock. The feeling that I had entered into a CD ghost town ran through my thoughts.

The recurring theme of the movie industry, and more specifically the DVD business, is that it will do (or try to do) whatever it takes to ensure that it will not suffer the fate of the CD music business. This struggle was well-summarized in an article that appeared in the Strategy & Competition section of the October 19th issue of Business Week. Entitled "Squeezing Every Dime from DVDs", the article discussed the efforts by the content providers to garner greater profits from DVD products. The reality is there for all to see--DVD sales are declining and there is little or no expectation that this trend will be reversed. In the words of Peter Chernin, the former president of News Corp., "[t]he days when you [could] get anyone who wants to see a movie to pay $15 at a Blockbuster, Best Buy or Wall-mart are in significant decline."

Against this backdrop, Hollywood is reported to being taking the following steps to improve its position in the dwindling CD market:

1. Cooperation between studios to combine certain activities, such as distribution and the back-off, in order to cut costs and improve CD margins ("Those talks have since bogged down because hoped-for savings might not materialize quickly enough.")

2. Improve their business terms with the rental company Netflix, whereby the studios want to increase their share of subscription revenues and/or to furnish Netflix with releases only several weeks after they go on retail sale at Wal-Mart et al.

3. Improve their business terms with Redbox, which specializes in $1 DVD rentals at kiosks located in supemarkets, by threatening to withhold titles unless Redbox agrees to certain restrictions, such as limiting the number of titles available at a given kiosk, sharing rental fees and imposing a 45-day wait period from the commencement of retail sales (Not surprisingly, Redbox has filed suit to challenge such restrictions.)

CD as a Dodo Bird

There seems to be a two-pronged approach of sorts going on here, against the backdrop that the studios have internalized that sooner or later there will be a future without DVDs. First, in at least the short-term, squeeze more income out of the existing, if ultimately declining DVD market. Secondly, figure out a way to monetize movies in a non-DVD world.

Experiments abound. For one, Warner is trying to roll out a small number of online rentals in a test market, whereby the in-store sales will take place only four days later. The thought is that the online capability will encourage in-sale purchase of the DVD (though in my humble opinion that reminds me of the failed rationale for making music available on-line.) For another, Fox is offering a three-disk package for the movie X-Men Origins: Wolverine, containing a Blu-ray disk, traditional DVD, and one that can be stored in a computer hard drive. And then there are the online subscription experiments. ranging from Disney, with its proprietary list, to YouTube, with its platform open to all content providers.

I have several thoughts here:

1. For 300 years, content providers have migrated from distribution platform to distribution platform as technology changes. Thus, the effort to increase studio revenues from CDs is an attempt to make the financial best of a bad (and getting worse) situation. Here, the studios are seeking to earn a bit more change while in transition. For the distributors, however, such as Netflix and Redbox, there is the potential double whammy of a declining revenue share and ultimate obsolescence as a distribution platform.

2. The studios (and potential distribution platforms) are far from formulating a successful strategy in the post-DVD world. One advantage of movies over music is the commercial advantage of the movie theatre over the concert and music halls. But the revenues from movie theatres is not enough. Despite a half a decade of talk, the jury is still out whether the movie studios will fare any better commercially than their music colleagues in the online space. In the words of Barton Crockett of Lazard Capital Markets, "They've been practicing for some of these dance steps for a long time. It's time they hit the dance floor."

3. The strategic options available to the movie industry should take into account the wider world of emerging markets. Hardly a day goes by without a business pundit observing that emerging markets will be the focus of economic growth for the foreseeable future. Hollywood, Bollywood, and Nollywood may each have its own core market, and the DVD market is hardly the same for all of them. Indeed, I am not sure the extent of the DVD market for emerging market film industries. But down the line, all will have confront the challenge of online distribution. I, for one, would like to see more discussion of the challenges of online distribution in this broader context.

It's Time to Hit the On-Line Dance Hall

Friday 11 December 2009

RSA as an IP outsoucing destination

This blogger has been promoting RSA as an IP outsourcing destination and returns from a short trip to Europe where he visited a beauty packaging business in Paris for whom two firms in RSA do patent outsourcing work, and then addressed an audience at RSA High Commission in London on outsourcing IP services. The feedback he received was very encouraging. The Paris based business, lead by IP advisor Anca Condrea, enjoyed cost effective services and was impressed by the quality of work, whilst over 55 people RSVPed for the London event representing the who's who of the top 40 London law firms.
Opportunities exist for the big four law firms in RSA who are able to offer the highest economies of scale in a safe and reliable environment. However, boutique firms offering a bespoke skilled service are also well placed to take advantage of the recessionary pressure on law firms to look for creative ways of cutting costs (which may be more than 50% of their current spending). But there is some way to go.
In 2010 the recession is expected to ease and that means less pressure on firms. In addition those who have been laid off are offering cost effective services to their previous employers from their homes or are otherwise happy to accept a lower pay. Firms in RSA concerned about upsetting reciprocity relationships are also not keen to be visibly taking advantage of the opportunities, notwithstanding that outsourced services are capable of enhancing an overseas law firm's offering to its own clients. Perhaps the biggest driving factor though will be how the legal market reacts to Baker and Mckenzie and Clifford Chance's outsourcing moves. As explained to me by one management consultant "law firms will need to react". This blogger has a keen interest in monitoring just how.

Thursday 10 December 2009

Ireland: no change ... so far

From Naoise Gaffney (Tomkins & Co, Dublin) comes some reassuring news. For those enjoying a favourable tax position as recipients of income from patent royalties and other IP-favourable tax-breaks in Ireland, the position after yesterday's Irish Budget Speech -- delivered by my old student Brian Lenihan -- is one of "no change so far".

You can check the full budget speech via the Irish Times here. On IP taxation in Ireland see IP Finance here and here.

Wednesday 9 December 2009

IP & the Chancellor

The UK Pre-Budget Report today had a couple of IP moments - overall potentially useful, but really just not trying hard enough.

10% tax on patent royalties
Good news? Well, yes: but only if you're planning on receiving income from 'innovative industries' (broadly, it's only going to be available for pharmaceutical and biotech patents). This is very much less generous than the similar royalty taxes in the Netherlands, Luxembourg and Belgium - all of which equate to a tax rate of around 6% and are available for a much wider range of IP.

So, good news for smaller business doing research that will lead to pharma/biotech patents - although 10% is higher than the Benelux options, the costs of successfully operating a non-UK company and keeping its profits out of the claws of the UK Revenue could be more than the 4% difference in rates for a small business.

The sting in the tail (because there had to be one): this doesn't come into effect until April 2013, and will only apply to patents granted after that date [Edited to add following comment - the date from which patents will be included isn't clear: April 2013 is the backstop date, it might be earlier. Lobby to make sure it is!]. There is advance publicity, and then there are Budget announcements. Trying to be more positive, there is some time to work on the government (any government!) to expand the scope of this proposal.

R&D relief: ownership requirement removed
Of more general use is the change (effective today) in requirements for small and medium-sized company R&D relief: there is no longer any requirement that the company owns the IP resulting from the R&D. Although HMRC could be flexible on this (eg: for university spin-outs with licences) they have also been very unhelpful in some cases.

Retainers and Trade Mark Practice: How Are the Changes Being Felt?

An apology to readers of the blog--I have been on the road with virtually no access to the staples of modern online communication. That said, I take this brief opportunity to raise an issue that has troubled me for some time, namely, the role of trade mark counsel in a retainer relationship with a client.
Hardly a day seems to pass lately without some item crossing my screen on the death of the billable hour and the concurrent rise of the retainer and other like arrangements. This development has not spared my trade mark practice. More and more, I am being asked to provide trade mark services to office clients under the framework of the general retainer in place between us. I am still wrestling with myself on the best way to provide trade mark services in this situation.

There are several aspects of this arrangement that give me particular pause. First and foremost, there is the question of lines of communication and authority between the client and the office being retained. Trade marks are a speciality practice area; frequently, the client will not have anyone within it with the appropriate background to interface with our trade mark group in an efficient manner.

As I have written previously, in many companies, responsibility for trade marks will be lodged with the CFO or like person, where trade marks are viewed primarily as a cost item. Whether that is a good or bad way to view trade marks is a question for another blog post. What cannot be gainsaid is that, when a retainer is involved, the cost consideration tends to become distorted, because the immediate cost of the trade mark services is zero.

Assuming that the retainer amount remains the same, the effect is that the trade mark services have no additional discernible cost, at least from the point of view of direct corporate expense. The result may be that trade mark counsel might search in vain for an appropriate person from whom to take instructions and for whom to provide the appropriate services.

A second issue is the matter of engaging foreign associates. Here, the issue of costs re-enters the trade mark equation, but from from the back door. By this I mean that the retainer arrangement tends to assume that the retaining company can achieve greater certainty, litigation aside, about the amount and timing of payment for legal services. Given this, the retaining company will be reluctant to expend additional sums for services that are presumably covered by the retainer.

The need to rely on foreign trade mark associates disrupts this expectation. I have to explain, time after time, why, given the retainer, these additional services are required from the various foreign associates. I am also expected to obtain reasonable legal fee commitments from these foreign associates. Here, as well, the time required to coordinate these various third-party law firms can lead to misunderstandings and even tension.

The upshot of the foregoing is a lingering sense that the nature of my trade mark practice will likely change in response to a presumed increase in the number and frequency of retainer arrangements. The exact contours of this changing relationship is still a work-in-progress, but I can already foresee disruptions between our clients and us about the way trade marks should be handled against a retainer backdrop.

Wednesday 2 December 2009

Is IP Good for Industrial Clusters?

Small-firm clustering has been championed as a strategy for enabling such companies in the aggregate to compete successfully against rivals in emerging markets. The idea is that these companies can tap the pool of manpower and resources in a local area for their collective benefit of the participants. Perhaps the most heralded example of this strategy are the many local artisan and manufacturing industries that are found in Italy. Whether it is eyeware, recycled wool, or furniture, or hundreds of other products, these clusters of industrial activity have served as a model for Italian competitive advantage.

If this be so, then an article in the October 17 issue of The Economist surely makes depressing reading for anyone with an interest in the future of the Italian economy. Entitled "Sinking Together: Italy's Business Clusters", the article describes the difficulties facing these fabled industrial clusters. As described in the article, clustering is especially important in Italy, "where firms are generally makers of traditional consumer goods, small or medium-sized, family-owned, dependent--directly or indirectly--on exports and, for reasons of geography and history, clustered together." Whether a casualty of the world economic meltdown, or due to larger factors of the rearranged industrial balance between developed and emerging economies, the situation appears to be the same: the clusters are in trouble.

Against this gloomy backdrop, can the Italian clustering model survive? The view of Giacomo Vaciago, of the Catholic University of Milan, is that it can, if it adopts the following model, as described in the piece--"... transform themselves into districts where new ideas are dreamed up, designs developed and goods finished, with most production taking place in cheaper spots abroad." If Professor Vaciago is correct, the question then arises: What is the role of IP in this remade form of Italian industrial clustering"?

Find the Design Clusters

The immediate instinctive response is to argue that focusing the activities of the clusters on creation and design must certainly mean that IP protection will become even more important. After all, creation and design must be protected to realize their full value. Not so fast, however. An argument can be made that what is needed--IP-wise--for these clusters to flourish is actually less IP protection and more the encouragement of copying and imitation. What possibly can I mean here?

There is a developing body of research that points to norm-based systems of "IP" creation and enforcement that lie outside the traditional IP framework. One notable example is the work of Von Hippel and Fauchart ("Norms-Based Intellectual Property Systems: The Case of French Chefs", 2006) here. Another example, more germane for our topic, is that work of Raustiala and Sprigman, "The Piracy Paradox: Innovation and Intellectual Property in Fashion Design", Virginia Law Review (2006), on the nature of the U.S. fashion industry.

There the argument is made that copying and imitation are forms of signaling, which alert industry participants to ratchet up their creative activities to find the next new successful fashion. Given the short-time line of fashion cyclicality, traditional IP protection and enforcement is of lesser importance. In this context, IP litigation is all about fighting the last war rather than readying the design troops to prevail in the battle for capturing the next successful fashion design. Of course, there are limits, such as blatant counterfeiting and straight-on trade mark infringement. Short of that, however, copying and imitation should be encouraged, not discouraged.

If this view is correct, it suggests that Italian clustering will succeed only if traditional IP principles do not get in the way of exploiting the advantage offered by enhanced collective copying and imitation. Secrecy will still be important--I do not assume that all of the members of the cluster will share their creative thoughts and plans on the front page of La Stampa. That said, the enhanced focusing of design and creation as the raison d'etre of the Italian cluster industry poses a fundamental challenge: How to allow pro-competitive copying and imitation, without undermining the foundations of IP protection that are the behavioural norm in the broader competitive landscape? At least in part, the vibrancy of the Italian economy may rely on its outcome.

Inspiration or Imitation?