Friday, 31 July 2009
The South African Exchange Control Regulations stipulate that the payment of royalties by a licensee residing in South Africa under an IP licence agreement to a non resident licensor requires exchange control approval from the South African Reserve Bank (SARB). If the terms of the IP licence provide that goods may be manufactured in RSA the SARB will look to the Department of Trade and Industry (DTI) for advice in assessing such approval. In reality this means that a typical licensee resident in RSA must submit an application to the DTI for its consideration. If the DTI approves the agreement, a Certificate of Approval will be issued to the licensee that will enable them to approach their banker directly and instruct the transfer of the royalties. Such a requirement may also be necessary where a licence covers RSA even though the licensee is based elsewhere eg the UK. Beware, licenses without exchange control approval may not be recognized by the RSA courts.
Where the licence agreement also contains clauses that stipulate down payments (eg Signature Fees), minimum payments (eg Minimum Guaranteed Royalties) and once off payments or to the extent the manufacture of products may take place offshore (to RSA), the DTI will make a recommendation to the SARB who would then consider whether or not to approve the payment(s). In practice though approval for agreements with these sorts of payments is often very difficult to obtain because the very nature of the clause may mean that it is possible for a situation to occur in which the flow of capital (in this case the royalty or down payment) out of RSA is greater than the value of the IP licensed into RSA. The very purpose of exchange control is therefore defeated. For similar reasons agreements that include Minimum Sales Targets or excessively high royalty rates (see below) are also often rejected.
Structuring to seek as few approvals as possible
In the event that approval is not granted reasons are provided by the DTI/SARB and one then has an opportunity to re-submit the application with the suggested amendments or otherwise contest the decision. If approval is granted such approval is for a maximum period of five years at a time whereupon the extension requests (up to a further five year period) would need to be made. It is obvious therefore that one should structure a licensing regime to as seek as few approvals as possible especially where multiple licensees are contemplated. Often this requires the establishment of a local business who acts as a master licensor who collects royalties and then makes one application to remit the payment or, where possible, pays out a dividend.
In all instances where a resident licensee enters into a new or a substitute agreement or the extension of an existing agreement with a non resident licensor they must submit an application. Applications are in the form of a completed questionnaire/explanation submitted in duplicate together with four copies of the draft/signed agreement and amendments/addendum, if applicable.
• Changes in the name of the licensee and/or licensor (submit the relevant "Certificate of change of name of company issued by the Registrar of Companies"); and
• Changes in the local bankers or branch with whom the SARB may communicate regarding the transfer of payments under the agreement.
The guidelines for the SARB/DTI application state that royalty rates for trade marks of up to 4% on consumer goods will be approved. This often means that is necessary to structure the royalty clause so that each of the different types of IP is separate eg for a logo trade mark one may need to carve out the royalty for the copyright in the artistic work and that pertaining to the trade mark to ensure that one comes under the threshold. In addition threshold royalty calculations for subsidiary licensees create lower thresholds on the basis of this calculation: R = A(115-.5B)/100. For a 100% wholly owned subsidiary (B) charged a 5% royalty (A) the adjusted royalty rate (R) is calculated as = 5(115 - 50)/100 ie 3.25%. For a 50% subsidiary licensee (B) charged a 5% royalty (A) the adjusted royalty rate (R) is calculated as = 5(115 - 25)/100 ie 4.5%.
The rationale behind exchange control is frequently the subject of heated debate and adding to the arguments for those that favour less/the abolition of control will be the time it takes to get approval. Despite the DTI promise of an assessment of the exchange control application within 10-14 days, most experience a two month waiting time for feedback from the SARB. In the context of the fast moving commercial world such a waiting time is ridiculously long. Take for instance a simple transaction involving the assignment of a trade mark to a non RSA resident – one needs to get a valuation (and incur the cost) and then wait for two months before approval is/is not granted. I have sat in meetings where local RSA IP advisors have simply said “do not transfer your IP assets to RSA because it is such a schlep if you ever want to get them back out” – a subject for another article perhaps!
Thursday, 30 July 2009
And so--I turn to the readership of this blog. It is my wish to review relevant academic and professional articles on a regular basis. Indeed, I am working on the first post in this series. To do this well, however, I need your suggestions about appropriate articles. All suggestions are welcome (please email me here). The benefit will be both yours and mine.
Wednesday, 29 July 2009
Passing sentence, Judge Martin Beddoe said: "The evidence suggested tens of thousands of burnt counterfeit material was being produced each week in so-called factories [above, right]] where vulnerable immigrants from China were patently [sic] being exploited for substantial financial reward". During the trial the court heard the gang ran a "sophisticated" operation, importing equipment from the Far East to copy new film titles that included Ice Age 2, the Da Vinci Code and Iron Manm to the "best industry standards possible".
Operating fake DVD "factories" from various properties the Sheikhs, who mainly employed illegal Chinese immigrants, produced hundreds of thousands of DVDs which were then sold on the street for as little as £3 before they were released. The father and sons, who were in receipt of state benefits, also produced pornographic and bestiality films to such an extent some sex film shops were driven out of business.
The jury was told that, while their employees were forced to work "round-the-clock in conditions of virtual slavery", the gang took first-class flights on luxury holidays and spent money in lap-dancing clubs. They also bought a £658,000 warehouse in Essex and made it the headquarters of their operation.
Police believe most of the "vast" ill-gotten gains of the scam have been smuggled out of the country. However, regarding such assets as still may be recoverable, a confiscation hearing will take place at a later date.
IP Finance notes the vast scale of the operation. Whether the £7 million was gross rather than net profit, the number of DVDs selling at £3 per unit must have been extremely large. It is not surprising that some sex shops were put out of business; what is more surprising is that the operation did not make more ripples in the local market for DVDs. It would be interesting to know what proportion of the sales was accounted for by internet trade and what other commercial manifestations of the operation could be detected in the course of unlawful commercial activity which the police apparently investigated for three years. This blog hopes that further details of the family's financial arrangements will be made available, to give a valuable insight into the risk v profit calculations which the infringers must have made before opting to counterfeit DVDs rather than engage in any other lawful or unlawful activity.
This apparently has upset Canadian company RIM and a number of politicians in Canada would like to see the bid overturned on grounds of national security. The Dow Jones Newswire reports, however, that the Canadian industry minister has yet to make a decision.
Our post quoted JPMorganChase who apparently had valued the patent rights at USD 2.9 billion - although a more realistic value might be USD 950 million. If we look at the USD 480 million difference in Ericsson and NSN bids and do a net present value analysis it does look as if those LTE patents would be worth around USD 950 million over their lifetime.
Ericsson have, of course, got their own portfolio of LTE patents. So they probably don't need any more to "swap" with other players. A cynic might suggest that the main reason for purchase would be to ensure that the IP rights remain in safe hands and don't get snapped up by a "troll" who wishes to extract cash from the telecommunications companies.
Tuesday, 28 July 2009
This blog has already already reported on the possible separation of Opel from General Motors and the IP ramifications.
The latest news - reported in yesterday's edition of the Financial Times Deutschland - is that one of the bidders for the company has pulled out from the bidding process because it could not agree with GM on access to the patent rights. The FT Deutschland states that Chinese automobile company BAIC could not bridge their differences with GM.
This reminds me of the sale of Rover's patents a few years ago to the Chinese Shanghai Automotive Company. The later sale of the assets to another Chinese company Nanjing then unleashed a dispute in the press about who had the patent rights.
Just to add to the confusion - the trade mark ROVER was apparently sold separately to Tata motors, as reported here.
So where does this leave Opel? The German government are desparately trying to find a buyer to keep as much production in Germany as possible. However, the moral of this story seems to be that the rights to the intellectual property may be the most important assets that the company has (or rather does not have, as they are owned by GM). Ultimately any deal that happens is going to need to take into account not just the saving of jobs in an election year in Germany, but also the access to the IP to allow Opel to continue to make cars.
Attention has increasingly been paid as to how IP should be best communicated within an organization. Reduced to its most basic form, the issue is whether IP can be/should be/must be reframed into more general managerial terminology, or whether the terms and concepts are well-enough known to permit the language of IP to be free-standing within corporate communication.
Permit to me elaborate by presenting two exemples: the Direct and Indirect Approaches. The Direct Approach is taken from Subramaniam Vutha, “IP Savvy”. Vutha is an experienced Indian attorney with extensive corporate and high tech experience, including a stint in that mysterious (at least for me) position under Indian company law known as the Corporate Secretary. The Direct Approach goes something like is:
Business Strategy Manager (BSM): “I heard you speak to the management convention on the value of patents. I thought patents were ways to exclude or block rivals. But you said something different.
Prof IP Savvy: “I did say that the role of patents has changed dramatically, Earlier they were stored—and deployed only when needed—to blow up rival plans. Like ICBMs. Now they are used for all forms of co-operation as well.
BSM: Yes, you did mention patent pooling. What is that?
Prof IP Savvy: ….[I]t is only the ability to compete and block your rivals with your patents that gets you invited into a patent pool. Or that empowers you to make an attractive invitation to rivals for a patent pool.”
What is most notable about this discourse is that both the management and IP person use the language of IP as the common denominator. The role of the IP person is to clarify and sharpen the understanding of the business manager, but the assumption is that the business manager has a working knowledge of the operative IP concepts. This approach recognizes that more effective communication may require greater diversity in the language of managerial discourse, which in turn puts additional pressure on managers to gain at least a basic mastery of the IP lexicon.
The Direct Approach: A Schematic
The Indirect Approach can be seen from this excerpt based on Blaxill and Eckardt, “Putting the IAM Function at the Heart of Corporate Strategy”, IAM, July/August 2009. Blaxill and Eckhardt, former senior members at the Boston Consulting Group, are now managing partners at 3LP Advisors. Their comments can be seen as representing the managerial perspective of corporate communications. A portion of their hypothetical discussion can be summarized thus:
IP Language (“Patent/trade mark prosecution; filing fees”).
Management Language (“Asset Investment”)
IP Language (“Negative right/injunction”)
Management Language (“Market power”)
IP Language (“Licensing Expense”)
Management Language (“Cost of Goods of Sold”)
IP Language (“Infringement”)
Management Language (“Negotiating Leverage”)
The driver here are concepts taken from the business management world. It is presumed that the manager does not have the background to manipulate the IP terms without having those terms first translated into managerial language. The risk is that there will be something lost in the translation; the presumed advantage is that the manager is able to fit the IP concepts more easily into its overall managerial lexicon.
The Indirect Approach: Follow the Flow
The challenge in bringing IP to bear to management education is whether we should prefer the Direct or Indirect Approach, thereby including one approach in the classroom to the exclusion of the other, or rather fashion a curriculum that exposes the student to both approaches. In truth, however, the resolution to this question is currently more theoretical than practical, because the typical MBA program has not even begun to recognize the importance of the issue. As such, it’s time to move the issue from the theoretical to the practical, and then to move on the second-order question of which approach to prefer. For me, at least, it has become one of my central pedagogical activities.
Qualcomm is currently facing an EU Commission investigation into its licensing practices, as reported here.
South Korea is in a particularly difficult position. It had not adopted the GSM standard and instead went for CDMA technology - on which Qualcomm owns the basic patents. The Wall Street Journal reports that the South Korean Fair Trade Agency has fined it USD 208 Million for anti-competitive practices. The agency alleges the Qualcomm abused its dominant position on the South Korean market place to offer discounts. Apparently Qualcomm holds 99.4% of the South Korean market for chips (as reported on a German website here)
Just to add to Qualcomm's woes, the Japanese Fair Trade Commission have apparently issued yesterday a negative decision - as reported by Qualcomm itself on its website.
Friday, 24 July 2009
Thursday, 23 July 2009
While there is no single circumstance in which a so-called “pass through” licence is granted, the typical situation in my experience involves a software product, the right of use of which goes from software developer to middleman/OEM/distributor to end user. In such a situation, we sometimes find that the developer grants to the middleman a “pass through” licence, the ultimate recipient of which is the end user.
So what is the problem? From the pure licensing vantage, the issue is clear—there is no such legal relationship as a “pass through” licence. Legally speaking, the party granting the licence can either do so directly to the licensee, or indirectly via a right of sublicense to the middleman. The “pass through” licence does not fit well within either possibility. It is not a direct licence from the manufacturer to the end user; rather it is the authorization of the manufacturer to the middleman to “pass” the licence right on to the end user (whatever that means). There is no privity between the manufacturer and the end user. Further, it does not appear to be a proper sublicence. This is because the “pass through” licence usually lacks the back-to-back grant of rights, first from manufacturer to middleman, and then from middleman to end user, as required under the basic principles of sublicensing law.
“Wait a minute”, you may ask. The grant of rights embodied in the licence, and the sublicence respectively, do not need to be identical. All that is required is that the licensee/sublicensor be authorized by virtue of the main licence to grant the rights that the sublicensor then grants to the end user.
True enough but, even under that test, the “pass through” would seem to fail to satisfy the requirements for a valid sublicence. That is because (again, based on my experience), the grant of rights from the manufacturer to the middleman are different than those that the middle purports to pass on to the end user. Stated otherwise, the grant of the “pass through” licence runs afoul of the principle that one cannot grant to a third party a right that it has not previously been granted by the original grantor. As such, it cannot be viewed as a proper sublicence.
But Is There a Valid Licence?
If the foregoing is correct, the following points then come to mind:
1. Is the “pass through” a valid licence?
2. If so, who can enforce it, and under what grounds?
3.Even if it is not a valid licence ab initio, does the conduct of the parties create a valid licence de facto, or the least provide a valid defence, in equity or otherwise, against a claim of infringement?
Dear readers—the floor is now yours. All comments are welcome.
Wednesday, 22 July 2009
Chris Anderson, the editor of Wired magazine, has just published a new book, entitled Free!, which attempts to shed light on the changing countenance of monetization in the digital world. I have not read the book yet but, based on an interview with
As I understood from the podcast, because the marginal cost of each item of content is zero, or nearly so,
In the digital world, however, the circumstances are reversed. Because the marginal cost of production and distribution is so low, the appropriate strategy is to distribute a large quantity of the product for free, and then ideally to recoup by sales of relatively small number of units, where the after-cost-of-sales-of-goods profit for each unit sold is large. It appears that the book is available for free in a limited fashion for online reading (it was in fact blocked in my geographic area), and there is a form of variable pricing for hardback and soft back versions.
What particularly grabbed my attention, however, was
If so, the day may not be too distant where the publisher for the three-dimensional copy will become increasingly irrelevant to the book business. Once promotion and distribution of book titles on the internet are perfected, the publisher’s role is severely diminished. Revenues are garnered by differential pricing for on-line reading, Kindle-like downloads, and permission to make a single copy from the on-line text. For the really successful books, the author and his ancillary activities may become the prime source of revenue. The publisher is irrelevant.
In such a case, we will have a reversal of the balance of interests in book publishing from the model that prevailed in the 16th-17th century, in the run-up to the Statute of Anne. In that period, publishing was largely about regulation and censorship by the Crown, and profits for the guild-protected publisher. The author, to the extent that author-based contents were published, was largely irrelevant. By contrast, in the Free! World of Anderson, the public’s interest is directed supported by the author only, who acts both as content creator and distributor (not to mention personal celebrity, if the book enjoys success). Like the author in the pre-Statute of Anne days, the publisher of the not-to-distant future becomes largely irrelevant.
With such an eventuality lurking, I am compelled to express a word of caution. Being a hopeless romantic about books and publishing, I still believe that a three-way relationship between the public, the author and the publisher is in the best interests of all three. If so, and if the ancillary book-related activities of the author become a material part of the book’s revenues, I would suggest that the better arrangement is to provide for a sharing of these revenues between the author and publisher with respect to revenues received by the author in connection with the author’s book-related ancillary activities. In this way, the publisher will have a greater incentive to carry out its distribution and sale function, while taking into account that the on-line world will likely materially alter the nature of the publishing business and the sources of publishing profits.
For a review of the book Free!, see here
For a review of the book Free!, see here
Tuesday, 21 July 2009
Right: with IP, lots can be shared: risks, profits, opportunities ...
If you have any comments you'd like to share with James Lyons-Weiler you can email him here. If you'd like to engage in a more public debate, you can post your comments below.
"Time for an IP Share Market?
Direct investment in market-valued intellectual property could drive translational success.
Thirty years of investment in the pharmaceutical, biotechnology and life sciences industries have yielded returns that fall short of their potential. The prognosis is even worse: Investors' confidence rests on massive consumption of products and services made available by today's investments, but it is impossible to predict where the winners will arise.
Investors take myriad risks. They do not know the future value of the company's stock or how their investment capital will be used, and while they may believe forward-looking statements about the priorities and direction of a company, they have no real idea whether the use of their investment will match their motivation to invest, or be used to take the company in another direction.
Such risks would be lessened by investment in IP (Intellectual Property) rather than in companies. There are no significant technological barriers to the development of a highly granular, information-rich IP Share Market.
The IP Share Market would be a public investment market for direct investment accounts in specific IP. Investors would be able to search a database of IP opportunities that would list applications and advantages over existing IP and track the value over time, allowing decisions to be based on standard investment criteria. This type of market is substantively different from existing IP Markets, where individuals and companies list their IP for licensing or sale. Companies participating in this market would be bound to apply the revenue to the development and translation of the specific IP in the proposed application areas.
While the democratizing of investment revenue use might be anathema to existing corporate dogma, it does make sense. Companies would generate revenue for their best ideas, and would benefit from embedded free market research on which programs are perceived to be most important and valuable. Potentially, they would have input from thousands of consumers on their ideas and technologies, well before bringing the product to market. Knowledge of the market value of their IP would also enable value-based licensing.
The IP market could change the relationship between consumers and companies, for example, the dialog on drug prices might be affected by mass investment in the most promising specific IP. Companies could measure rates of returns on specific projects even as they are developed, turbo-charging programs towards profitable translation, and possibly reducing the price of the final product. Contrast this with current R&D funding decisions, which are uninformed and speculative, or based on expensive market research.
Acquisitions and mergers are violently transformative processes. Knowing the market value of specific pieces of IP will allow companies to engage in processes that, in the past, seemed impossible. With an IP Share Market, companies with capital could more easily license or purchase outright missing pieces of their strategic integrated product because the market value of the IP would be established. Combinations of orphan IPs could be brought together to generate new approaches.
Relatively painless, outright equitable IP swaps can be envisioned. An IP Share Market would counter divisive forces that prevent synergy by allowing companies to compete for collaborations, via licensing, or outright purchase, of market-valued IP. Overall, an IP Share Market would dramatically increase the rate of development and tech transfer in a revenue-driven manner.
The biotechnology and pharmaceutical sectors could serve as a model for all IP-rich technology sectors, generating wealth and placing it in the hands of individuals with the ideas and visions to drive their programs forward, and securing a healthier future for us all.
Friday, 17 July 2009
My last talk was at the Indian Institute of Management in Bangalore (IIMB as it is known). Many of you may well recognize the campus; it is the picture that it is often shown of a Indian campus set in the midst of a small forest, a cross between Silicon Valley and New England. After the never-ceasing cacaphony of the city, it was almost surrealistic to have the chirping of birds (and not the shrill of a car horn) awake me in the morning.
My was talk was on "IP as a Management Tool." Without boring readers about the substance of the lecture, my final topic was whether there will be a distinct form of Indian IP arising out of the particulars of the Indian experience. The way I framed my comments was in terms of "jugaad". And what is "jugaad"? Here is what Wikipedia has to say here:
"Jugaad ... are locally made motor vehicles that are used mostly in small villages as a means of low cost transportation inIndia. Jugaad literally means an arrangement or a work around, which have to be used because of lack of resources. This is a Hindi term also widely used by people speaking other Indian languages, and people of Indian origin around the world. The same term is still used for a type of vehicle, found in rural India. This vehicle is made by carpenters, by fitting a diesel engine on a cart.
.... They are known for having poor brakes and cannot go beyond 60 km/h. They operate on diesel fuel and are just ordinary water pump sets converted into engine.The brakes of these vehicles very often fail and one of the passengers jumps down and applies a manual wooden block as a brake. ...."Jugaad" is also colloquial Hindi word that can mean an innovative fix,often pejoratively used for solutions that bend rules, or a resource that can be used as such or a person who can solve a vexatious issue. It is used as much for enterprising street mechanics as for political fixers. In essence, though it is a tribute to native genius, and lateral thinking. Even though in everyday life, a Jugaad can be a solution, in context of Management, Jugaad is essentially a person who has some special capability or access to a resource or even access to another Jugaad that can be useful under extreme or special circumstances."
I mused whether this orientation runs more generally through the world of Indian technology and innovation and, if so, whether it will result in a distinct form of patent immediately recognizable as "Indian". If so, attention will likely be made to the role of traditional knowledge as part of the Indian experience. As has been observed in the "basmati" rice episode here, the technology of the past still bears on the technology of the present. In that episode, a U.S. patent was originally obtained in connection with "basmati" rice, considered a long-standing type of rice identified with its Indian source. Ultimately the patent and trade mark issues were resolved to the satisfaction of the Indians.
I wish to conclude with a personal anecdote about "jugaad". I was leaving from a meeting with IP people at a well-known Bangalore company. Somehow the frame of my spectacles brushed up against the interior of the cab and the plastic cord holding the right lens in place was torn. I faced my last days in India with the prospect of wandering about in sun glasses (trust me, grandfathers are not cool in sun glasses). My driver, who had been with me throughout my time in Bangalore, did not hesitate. He proceeded directly to a storefront along the strip, entered and came out 30 seconds later with something in hand. He smiled and said--"I fix it"--and so he did. He had somehow come up with an adhesive that he applied to the cord and lens. The lens is still in place. I am becoming a believer in "jugaad".
Wednesday, 15 July 2009
* Australia has instituted a system by which Smartnumbers, these being the numerical bases for alphanumerical telephone numbers, are auctioned to the highest bidder, subject to minimal conditions and limitations (thus a bid may be made for 13-473462623, which is the numerical equivalent of 13-IPFINANCE);The event was both pleasant and informative -- and there's more to come. Julian's paper is likely to be published towards the end of this year in the Journal of Intellectual Property Law & Practice (JIPLAP). If you want to be notified when it comes out, email me here and I'll let you know.
* the successful bidder for a Smartnumber acquires no more than a licence to use that number in any alphanumerical form, but this licence is transmissible even, it seems, to parties that are disqualified from bidding from it initially;
* there is no clear guidance as to whether the use of a Smartnumber in which the alphanumerical form incorporates a trade mark or trade name constitutes a trade mark use which can be prohibited by the trade mark owner;
* there are no provisions for the interplay between (i) Smartnumbers, (ii) trade marks, (iii) domain names and (iv) company names, though particular problems arise where a word which is a generic term for some products is a well-known trade mark for others (eg APPLE)
* there appears to be no accepted basis for the calculation of the value of a Smartnumber at its point of acquisition or disposition, nor has any practice yet developed with regard to the place of the Smartnumber within the balance sheets.
Tuesday, 14 July 2009
Many companies will be in possession of a list of clients and this client list will normally be in the form of a computerised database. This database is potentially an asset, which can be sold or licensed for the benefit of the insolvent company.
Because such databases contain personal information the seller usually will run into difficulties under the Data Protection Act 1998 (“DPA 1998”) if the individuals included in the database were not told in the first instance that their information could potentially be passed on to other organisations. However the DPA 1998 will not prevent the sale of such a database, provided that certain requirements are met. Some of these requirements are detailed below.
For what purpose was the information originally collected?
When personal information is collected from individuals (“data subjects”), the DPA 1998 requires it to be made clear to the data subjects what the data will be used for. When a database is sold, the Official Receiver should make sure that the buyer understands that it can only use the information for the purposes for which it was originally collected. Selling it to a business for a different use is likely to be incompatible with the original purpose and therefore go beyond the expectations of the data subjects. Although this means that your number of potential buyers for the information is reduced, it also means you have a unique selling angle as the information is by default ‘tailored’ for your prospective clients’ needs.
The buyer of a database will often seek to use it to send marketing material. Whether it will be able to do so will depend on the basis on which the personal information concerned was originally gathered. The general rule is that unsolicited marketing can be sent to data subjects where they have agreed to this or where this is nevertheless likely to be within their reasonable expectations.
The buyer should also establish whether data subjects would only expect to receive marketing via a particular medium, for example via the postal system. Particular care should be taken when there is an indication the data will be used for telephone or email marketing and the special rules governing electronic marketing should be complied with. Unsolicited marketing emails should only be sent to individuals who have consented and buyers should not assume consent if an individual does not respond.
When they have established that they can use the personal information for marketing, the buyer should only market products and services which are similar to those that the information has been used to market previously. Before selling databases to potential buyers the Official Receiver should point out any restrictions imposed by the DPA on the use of marketing material.
The Official Receiver has a responsibility to ensure that the personal information being sold on is used properly. As a result any potential buyer should be notified they can only use the personal information contained within the database for the purposes it was originally collected. In doing so, the Official Receiver will need to inform any buyer what these purposes were. If the buyer then expresses a wish to use the personal information for a new purpose, the Official Receiver should advise the buyer that it must gain consent from all the individuals concerned before it can use it in any other way.
This is not the only circumstance in which the new owner of the information will have to contact the individuals contained within the database. If the database is sold it is then the responsibility of the buyer to ensure all individuals contained within it are informed of the details of the new owners and should receive confirmations that the information will only be used in the same way as before. This is not as daunting a task as it first seems, as it is highly likely all the contact details needed to meet this task will be within the database itself. Before selling the database, the Official Receiver should ensure that the buyer undertakes to inform all individuals that it now holds the information.
Can information be held on databases indefinitely?
Any personal information held should be adequate, relevant and not excessive, and it should not be kept for longer than necessary. The Official Receiver should inform the potential buyer that it is required to decide how much of the information supplied it needs to keep and any unnecessary personal information should be deleted. It is important that personal information is not held in the hope that it one day might be useful.
What happens if the database cannot be sold?
If no potential buyers can be found for a database or if the Official Receiver so orders, the information held should be deleted and/or destroyed immediately.
"...signs of renewed interest in the bespoke deals could be the latest signal that the wider market is waking up once more [to deals backed by intellectual property]."
The article seems to have been spurred by the Vertex deal which involved the planned sale of rights rights to future milestone payments. Joff Wild's IAM blogpost is cynical:
"This is one area in which fortune really could favour the brave. I will be watching with interest. Just as long as none of my pension pot goes anywhere near any deal."
The blogger, disappointed with the apparent distressed sale of Ocean Tomo's IP auction business (see link here) because he saw the organisation as promoting confidence in IP (and future royalties) as a stand alone asset capable of being bought and sold, hopes there is truth to the FT article. His own experience, is that bad economic times force companies to look harder at ways of using and explaining their IP and the actual/potential revenue that can come from the IP. If those risks and rewards can be be better understood (eg though educational blogs like these and the [now forced] attention of owners of that IP) and better explained, perhaps more deals will come to fruition.
Monday, 13 July 2009
On the matter of telecom royalty rates, even more interesting than the announcement by Nortel is the recent revelation by Qualcomm:
"Qualcomm COO, Len Lauer revealed on the occasion of a Merrill Lynch Global Technology Conference on June 03 that the company normally charges 4%-5 % as royalty for 3G shipments. The COO further revealed that the company had put royalty rate at 3.25 % when it was asked by European standards group to submit a rate for LTE."
The European standards group referred to is NGMN presently under the auspices of ITU.
In addition to Nortel's 1% we have Ericsson (http://www.ericsson.com/technology/licensing_programs/index.shtml) who earlier announced an LTE royalty rate of 1,5%.
If you take 3,25% + 1% +1,5% you're already at 5,75%.
Now add to this Nokia + Motorola + InterDigital + another score (or more) of essential patent holders and you arrive at a number much larger than the "single digit royalty" which Ericsson and Nokia are talking about with regard to LTE. I would be surprised - indeed stunnned - if any ex ante exercise on 4G/LTE produced a number less than 20-25%. A "single digit royalty" is simply not credible.
Friday, 10 July 2009
"" 'Patent trolls' pose another problem. These are firms that buy up patents, not to turn them into products but solely to sue firms that may have infringed them. Since the United States Patent Office grants patents freely and courts enforce them zealously, every inventive company lies in fear of trolls. If one cannot convince a court that a billion-dollar product incorporating hundreds of patents infringes only one of his, he can an injunction to stop it being sold. The victim typically settles. Michale Heller, author of "The Gridlock Economy", argues that vaguely defined property rights stifle innovation and cost lives."Let me see if I have this right. Within the heart of the most thicket of the most regulatory issues facing American business, e.g., the tax system, products liability, the drug approval process, byzantine financial regulation, lies the patent troll. It is true that patent trolls were apparently viewed as a significant enough issue to warrant a decision several years ago by the U.S. Supreme Court in the eBay case, here. But in that judgment, the Supreme Court significantly cut back on the ability of a so-called patent troll to obtain an injunction.
Contrary to what is asserted in the Survey, a party that sues on a patent that he purchased and of which it does not make any commercial will now have a difficult time if it seeks to obtain an injunction. Moreover, in the post-eBay world, courts are reluctant to grant an injunction if the patent in question covers only a small portion of the overall product. In a word, the account in The Economist does not reflect the current legal position regrading patent trolls, and patent trolls do not constant a systemic threat to the well-being of US business.
Moreover, it is unclear what the reference to the Heller book has to do with patent trolls. mystery. In particular, it is not clear "what vaguely defined" rights are intended in the Survey, and how this relates to patent trolls. There is no evidence that the patents owned by patent trolls are less clearly defined that other patents. Heller's concern is in another direction, namely the threat posed by what he has called "the tragedy of the anticommons", where the transaction costs to reconcile multiple property rights becomes prohibitively expensive. But that, as noted, is a different issue from the claims made against patent trolls. Someone seems to have conflated the two issues, with the result that neither of them is properly dealt with in the Survey.
Thursday, 9 July 2009
"Over the past several years, patents have come to be recognized by the financial community not just as a bundle of legal rights, but as an independent commercial asset class, like real estate and corporate securities. Innovative new models for monetizing patents have emerged based on the creative adaptation of existing models used with more traditional asset classes such as asset-backed securities and more traditional strategic models.You can read the chapter in full here.
“This shift in perception about the uses and the value of patents,” says Ron Laurie, an IP investment banker and former patent attorney who focuses on transactions, “has spawned a proliferation of market makers, intermediaries, and service providers, including patent aggregators, enforcers, investors, financiers, brokers, exchanges, and auction houses. “New business models are emerging every day. More recently, institutional investors, in the form of private equity firms and hedge funds, have come to see investing in patents, or in patent litigation, or trading public company shares based on patent-related information, as a natural expansion of their existing business.”
Laurie contends that the shift in perception regarding IP assets has until now had little, if any, impact, on corporate mergers and acquisitions. The reasons are both structural and environmental, and derive in large part from the problem of corporate valuation, especially when it involves intangible assets. IP was traditionally viewed in M&A transactions as a possible “deal-breaker,” effectively an afterthought that IP
lawyers attended to. When it came to consummating a transaction, these professionals were much more likely to regard all news as bad news.
Today, IP in M&A is starting to be seen as an important deal facilitator that the bankers, private equity capital providers, and others need to understand from the start".
And here’s a link to Ron's half-hour video interview on the subject of IP-driven M&A.
Wednesday, 8 July 2009
Jackson was also the most popular artist on Nokia's Comes With Music service last week: seven of the top ten downloaded songs were by Jackson, with the popularity rate going up from 21st most popular the week before.
This of course has also an effect on the royalty income streams which will now benefit the (debt-laden) estate. Melbourne’s The Age reports on the king’s most valuable assets:
Jackson's most valuable asset is his 50 per cent share in the Sony-ATV Music Publishing catalogue, which people with knowledge of the partnership value at between $US1.5 billion and $US2 billion. The partnership has about $US600 million in debt, one person said. In what is recognised as the shrewdest business move of his career, the singer bought the catalogue in 1985 for $US47.5 million. In the early 2000s, he borrowed $US300 million against it. That makes the value of Jackson's share, accounting for the debt, worth between $US150 million and $US400 million.
The so-called "Beatles catalogue" is famed for music written by John Lennon and Paul McCartney. It administers nearly all of the Beatles' greatest hits. Sony-ATV also oversees the publishing of performers as varied as Elvis Presley, Eminem and Bjork and is reportedly the fourth-largest music publisher in the world.
The catalogue generated between $US13 million and $US20 million for Jackson annually, said people close to the singer.
A second catalogue, Mijac Music Publishing, includes Jackson's music as a solo artist as well as songs by other acts, including Sly & The Family Stone, Curtis Mayfield and Ray Charles. People close to Jackson estimated its worth at $US100 million, but it is difficult to place a current value on it because of the tremendous sales of Jackson's music since he died.
It is reported that the superstar used to over-record for every album he produced throughout his remarkable career – so fans can live in hope that there will be many more records, books and movies coming out. Long live the king.
That seems to this review to be that the wily authors say. but what does the Wiley publisher say?
"At the start of this decade, Microsoft was on the defensive—beset on all sides by anti-trust suits and costly litigation, and viewed by many in the technology industry as a monopolist and market bully. How was it going to survive and succeed in the emerging new era of "open innovation," where collaboration and cooperation between firms, rather than market conquest, would be the keystones of success?This web-blurb is probably a good reflection of the style of the book as well as its content. It is unashamedly didactic and justifiably proud, but with the occasional leavening of humility and self-deprecation to prevent the reader loathing Phelps for his success. It is carefully crafted to deliver a persistently upbeat note, leading the reader to recognise that he or she too can succeed in turning around a company the size of Microsoft by tugging at the reins of its IP. I enjoyed it enough to devour it all at a single sitting, but doubt I shall either want or need to repeat the process.
This was the challenge facing Microsoft founder and Chairman Bill Gates. But "like Cortez burning his ships at the shores of the New World," Gates decided to embrace the change that was needed. He recruited Marshall Phelps—the legendary "godfather" of intellectual property who had turned IBM’s IP portfolio into a $2 billion-a-year gold mine—out of retirement and into the cauldron of controversy that was Microsoft. Only this time Phelps’ mission was infinitely more challenging than simply making money from IP. It was to help reform Microsoft’s "man the barricades" culture, encourage the company to abandon its fortress mentality around its technology and share it with others for mutual benefit, and use intellectual property not as a weapon of competitive warfare but as a bridge to collaboration with other firms instead.
Here, for the first time (and 500 collaboration deals later), is the inside story of what one analyst has called "the biggest change Microsoft has undergone since it became a multinational company."
In this book, authors Marshall Phelps and David Kline take the reader inside the dramatic struggle within Microsoft to find a new direction. They offer an extraordinary behind-the-scenes view of the high-level deliberations of the company’s senior-most executives, the internal debates and conflicts among executives and rank-and-file employees alike over the company’s new collaborative direction, and the company’s controversial top-secret partnership building efforts with major open source companies and others around the world. Nothing was held back from this book save for information specifically prohibited from disclosure by confidentiality agreements that Microsoft signed with other companies. Indeed, the degree of access to Microsoft’s inner workings granted to the authors—and the honest self-criticism offered by Microsoft leaders and employees alike—was unprecedented in the company’s 34-year history.
There are lessons in this book for executives in every industry—most especially on the role that intellectual property can play in liberating previously untapped value in a company and opening up powerful new business opportunities in today’s era of "open innovation." Here is a powerful inside account of the dawn of a new era at what is arguably the most powerful technology company on earth".
Bibliographic detail: hardback, xxii (I can't imagine that the Latin numbered pages at the beginning were the authors' choice) + 186 pages. ISBN 978-0-470-43215-0. Price £19.99/€25. Book's webpage here.
In brief, Friedman assigned his rights to royalties payable by Canadian copyright collecting society SOCAN to his music publisher, as security for loans advanced to him from the publisher. He subsequently became bankrupt, owing the publisher some $3.2 million. When the publisher sought payment to it of the royalties payable to Friedman from SOCAN, Freidman applied under the Bankruptcy and Insolvency Act, s.68(1) for a ruling that those royalties were effectively post-bankruptcy wages which, as such, could not be the subject of an attachment.
Holding for the publisher, the Court considered that the royalties in question had been earned from activities which Friedman had completed before the starting date of his bankruptcy. Accordingly s.68(1) did not apply.
Source: note by Miller Thomson LLP
Tuesday, 7 July 2009
UDRs are saleable assets but do not subsist in designs made before the commencement of the CDPA 1988. UDRs are similar to copyright in that they exist automatically when a new design is created. However, unlike copyright, the length of protection is much more limited. The right lasts for 10 years after the date that an item made to the design is first marketed, or up to a limit of 15 years from the creation of the design and is only exclusive for the first five years. A licence of right to make and sell articles copying the design is available during the last five years of the UDR's life (s. 237 CDPA 1988).
UDRs differ from RDRs in that they do not give a total right of design ownership; instead giving a simpler form of protection against copying. This makes the subject of maintaining licences very important for an insolvent company who has an interest in UDRs. Further information regarding copyright and insolvency can be found at my earlier post accessed from this link.
Once a design is registered the RDA 1949 makes clear that RDRs shall vest by operation of law in the same way as any other personal property. Therefore RDRs owned by a company subject to a winding up order will belong to the company in liquidation. By registering a design the owner of the right will have exclusive use of a design in the territory in which it is registered. In the UK and EU this period is 25 years and design registrations are renewable every 5 years. Any disposition of RDR’s must be made in writing and signed by all parties to the transaction. The UK IPO has a database of RDRs which can be accessed here.
RDRs may also be subject to a secured loan by way of a mortgage and enquiries should be made to establish whether there are any licensees or mortgagees of the right in order that they can be informed of the making of the Insolvency Order and asked to note the Official Receiver’s interest. Instead of contacting the Land Registry the way you would to check if land was subject to a mortgage, the Official Receiver should contact the UK IPO. Information may also be found in the insolvent company’s accounting records and/or by searching at the UK IPO.
Exceptions to RDRs
There are many exceptions to protection offered by RDRs, which include, but are not limited to: parts of a design necessary to connect to another article (“must fit” designs), to methods and principles of construction or to those parts of a design which are dependent on the appearance of another article, or where that article and the article that the design right applies to is an integral part of the second article (“must match” designs) and to surface decoration. RDRs also don’t apply if a design is not original, and a design is essentially defined as not being original if the object so designed is already commonplace. If a right is not covered by RDRs, it may be still be subject to other forms of IP protection such as copyright and UDRs.
Ownership of DRs
S.215 CDPA 1988 stipulates that the first owner of a UDR is the designer, except in the circumstances that the design is created under a commission or in the course of employment, in which case the commissioner or employer is the first owner. In the case that the owner of a UDR is also the owner of a RDR, it is assumed that any assignment of the UDR also includes an assignment of the RDR, unless a contrary intention is shown.
The Official Receiver should establish ownership of any RDRs from the insolvent’s records and/or by carrying out a search of the information held at the UK IPO (whose database can be found here). Where RDRs vest in the company in liquidation they may be sold with the assignment being signed by the liquidator as assignor. In such a case the UK IPO should be informed of the change in ownership (s.19 RDA 1949).
Does more than one person own the RDRs?
Joint entitlement to ownership of RDRs will usually arise in two situations; either where there are co-designers or if a share of the design is sold. Where a design is registered to two or more persons they are entitled, unless there is agreement to the contrary, to equal undivided shares. The interest of each would survive his death as part of his estate. Importantly, joint owners may not sell their interest to a third party without the consent of the co-owners. Therefore if the Official Receiver is able to establish any RDRs, they should also be aware of other interested parties and ensure that they do not breach their rights by attempting to sell or license the design.
In addition to the sale of the rights themselves, royalties may be paid by a third party to the owner of RDRs in exchange for exploiting that right. The royalties may be payable under the terms of a licence, with the owner retaining the RDRs. Where a winding up order is made against the owner of a registered design, the Official Receiver should contact the third party paying the royalties and ask it to pay any royalties due to the liquidator.
If the company in liquidation holds any licences, those licences are also saleable property and any assignment of such a licence should be in writing and signed by the parties. In such an instance the UK IPO should be informed of the transfer.
It may be the case that a liquidated company is in receipt of royalties as a condition of the sale of RDRs. In this case the royalties cannot be claimed as an asset as the right does not vest in the company in liquidation. Instead, the royalties should be treated as income and can be claimed under an income payments agreement or an income payments order.
How to Protect RDRs
If an insolvent company owns RDRs, the UK IPO should be informed of the winding up order and asked to note the Official Receiver’s interest in the design. The UK IPO should also be asked to provide details of the remaining “life” of the registration as this could materially affect the value and details of any renewal fees outstanding.
Enquiries should always be made to establish whether there are any licensees or mortgages of the right in order that they can be informed of the making of the insolvency order and asked to note the Official Receiver’s interest.
European Community RDRs
The rules governing the procedures, processes and requirements for European Community (EC) design registration are largely the same as those relating to the UK registration process. The guidance above can be followed in respect of an insolvent that owns any EC design registration, with the exception that the relevant authority will not be the UK IPO. It will instead be the Office for the Harmonisation of the Internal Market (OHIM), which maintains a searchable online register which can be accessed here.
Valuation of DRs
The valuation of intellectual property is a complicated and sometimes controversial area and the value will very much depend on the circumstances. It is unlikely that the Official Receiver will have experience in this field and should exercise discretion as to whether to employ specialist advice such as forensic accountants. A specialist in designs may be contacted through The Chartered Institute of Patent Attorneys.
"Organisations pay handsomely (sometimes millions of dollars) for phonewords because they believe that the phoneword will help increase telephone communications with their business (and hence increase sales and their goodwill with customers). However, the rights of use conferred by the issuing authority in the country in question are limited to the specific underlying telephone number itself and the purchaser’s proprietary rights in the phoneword (if any) will depend on the phoneword in question and, in particular, whether
a. the purchaser owns a trade mark (registered or unregistered) which corresponds to the phoneword (or the key word in the phoneword) or
b. conversely, another organisation owns a trade mark (registered or unregistered) that corresponds to the phoneword (or the key word in the phoneword).
I plan to review a number of recent cases, including some very recent WIPO domain name decisions involving phonewords, and advise that a purchaser of a telephone number that is a phoneword needs to be acutely aware of a number of important factors if it is to maximise the potential return on its investment, namely
a. the scope of the rights of use that it has acquired (and those that it hasn’t acquired);
c. the steps that it should take to further protect its investment".McDermott Will & Emery have kindly agreed to provide us with a venue in their City office at 7 Bishopsgate (here). If you're coming, please email me here and let me know so I'll have a rough idea of how many bodies will be putting in an appearance.
Monday, 6 July 2009
Nortel is, of course, bankrupt and has just sold much of its business to Nokia Siemens Networks, but according to Light Reading not the rights to its patents (see here). Light Reading reports that ChaseMorgan have calculated that the rights to the patents could end up being up to $950 million
Friday, 3 July 2009
Thursday, 2 July 2009
When one drills down further to learn more about this job category, more often than not it turns out that this position has a patent registration/prosecution focus. Sometimes the job category includes a patent strategy function, sometimes that task is either shared with or is the responsibility of another person within the organization. Be that as it may, trade marks trends to get "second chair" (or no chair) status under the patent counsel or IP counsel job category. Thus, while patent counsel interfaces with engineers, product development managers, and the like, in-house trade mark counsel will interface with a quite separate and distinct part of the company, such as marketing, advertising and corporate communication.
The second is the staffing of trade mark matters in a start-up situation. There, where the organizational structure tends to be flatter, we find a particularly interesting combination of functions that are brought together to deal with trade mark matters: a person from marketing or corporate communication together with the company's CFO or the equivalent. This combination makes for a particular challenging environment for the company's outside legal counsel, particularly outside trade mark counsel, in trying to manage the application and registration process.
This is so because it is the CFO, and not the marketing person, who usually has the last corporate word on the subject vis-à-vis outside counsel. The main driver for the CFO is, not surprisingly, usually the expense dimension of the process. This puts the marketing person in a delicate position. On the one hand, the CFO's preoccupation with the expense side means that the marketing person will have to toe the line on expenses as well. On the other hand, the marketing person will want to carve out her own identify in the process, particularly vis a vis outside counsel. A certain tension follows, particularly if the marketing person is unschooled in the trade mark registation.
Both in the brand manager situation and the corporate communication/CFO situation, one common denomonitor stands out. Both positions tend to be ignored when discussing how IP is organized and managed within the company (unless, of course, one is talking about a Dior-like company). Why this is true is less clear (perhaps it is a simple as the old adage that "real men do patents"). Whatever, the handling of trade marks within a company poses its own distinct organizational characteristics.