Tuesday 22 February 2011

Updating IP tax book - what would you like it to include?

The 3rd edition of Taxation of Intellectual Property has been commissioned and will be appearing in all good bookstores later this year – in the meantime, I have to write it. Let me know what you’d like to see covered – I plan to expand the international section, to add more in about specific IP-related professions/industry sectors and their tax quirks, and to add more on IP law and the interaction between practice and tax.

Anything else you’d like to see expanded/covered? Comment on this post or over at http://www.ip-tax.com (or via twitter - @iptax) or email me (via http://www.linkedin.com/in/annefairpo).

Monday 21 February 2011

High Life loyalty scheme: the sky's the limit for damages?

In "Lawsuit Claims Miller High Life Loyalty Program Infringes Patent", Techdirt features the news that Carlson Marketing Worldwide is suing beermaker MillerCoors over the latter's "Miller High Life Extras Loyalty Program." The US patent in question, 6,039,244, relates to a "method of building up a data bank containing customer data and/or for the organization of a rebate or coupon system".

One wonders whether a patent owner suing in respect infringement of a loyalty scheme patent has its eyes on a reach-through claim to the profits and/or the accrued goodwill created through the operation of the programme.  Any thoughts?

Sunday 20 February 2011

Wu Is To Us: Does Apple Have a Monopoly?

Circumstances have conspired to keep me away from the blogosphere for the better part of the last month. With this blog post, I am pleased to be returning to IP Finance. What has particularly captured my attention of late is the multi-polar contest between Google, Facebook, Apple (and perhaps a revitalised Microsoft). What makes this struggle particularly interesting is that each of these companies seeks to gain and maintain a formative position in the online world from a different set of competitive strengths.

It is against this backdrop that I read a published interview by Charlie Rose with Professor Tim Wu of the Columbia Law School (Bloomberg Businessweek, January 3, 2011). Wu is best-known for coming up with the term "net neutrality" with respect to access to digital carriers, but I have encountered him in other circumstances as well. He is outspoken and direct in his words, even if a bit ideological in his underlying thoughts. In his interview with Charlie Rose, he considered in particular what was described "how Web heavyweights are cornering digital markets." Of particular interest are the following comments by Wu:
"Well, this is what's so interesting--you have seen the same cycle repeat itself. Radio in the '20s, it was the new tech, and anyone could start a radio station. Film in the 1910s opened up. So these industries, once there's this new invention, go through incredible, exciting periods. The Internet had the same thing in the last 20years ... anyone who starts a company becomes the next billionaire.

But what history shows is, over time, what was once a young, exciting new media becomes consolidated, increasingly closed , dominated by a monopolist or an oligopoly. And the question is whether that's happening again; whether, in subtle ways, the Internet itself is slowly becoming monopolized....

If you look at most of these networks, social networking, Facebook; search engines, Google; downloading content, basically Apple. In most online content, Apple's iTunes has a monopoly. So we're getting to an age where you can talk about a sort of Big Three or Big Four."
Even given Wu's formidable intellect, I remain unconvinced. Let's drill down a bit. As part of the published interview, Charlie Rose observes that Wu argues in his new book, The Master Switch, that the iPhone and iPad [and one wonders--the iPod before that] represent a business model similar to the Bell System. To which Wu replies--"Right ....". With all due respect, I simply don't see how the iPad is, or can ever be the monopolistic equivalent of the Bell System.

We have alternative proprietary operating systems, as well as the open Android system, in the smartphone space. The tablet world, which overlaps the smartphone product line to some extent, also has its open source operating system challenge as new tablet entries continue to come on to the market. In truth, it seems that Apple's major concern is how it will continue to be dominant in the light of Steve Job's illness (not to speak of the fact that in the 1980s, it was Apple's closed system approach to its PC line of computers that nearly brought the company down in competition with the WinTel "monopoly" in the non-Apple desktop world).

Indeed, if I were asked to make a forced choice between the greater risk--Google as
the "gatekeeper" for information via search, and Apple as the "gatekeeper" for creative contents to be used on various platforms, I would worry more about the former than the latter.

Maybe the ultimate problem here is one of language. Many years ago, Richard Posner tried to teach me Antitrust Law in law school. Whatever I remember from that experience, one thing still stands out--"monopoly" is a term not to be used easily. Wu may have a legitimate concern about the centrality of Apple, Google and others in the online world, but I simply don't see how his concerns, even it taken at their collective most severe, give rise to the kind of monopoly enjoyed by Ma Bell in the U.S. The online world seems to be to be fundamentally different and our lexicon should reflect those differences.

Wednesday 16 February 2011

An open approach to IP risks

A posting back in June 2010 flagged a detailed disclaimer in a press release from the parent company of Cambridge nanotech company Owlstone. As noted by one commentator, “the depressing thing is that companies need to keep issuing statements like this, which are there (it seems to me) more to reduce the risk of legal action for negligent misstatement than to educate and inform the investor”.

How refreshing then to see the “intellectual property” page of smart metering company Onzo, which clearly sets out their approach to IP. On the question of third party rights, not only does the page contain the standard statement regarding “not knowingly infringing third party IPR”, it actively requests any third party who “is aware of any of their IPR being used in an unauthorised manner in connection with Onzo’s business” to contact Onzo’s Commercial Director who "will investigate the situation and will, if appropriate, unilaterally suspend relevant activities”.

Tuesday 15 February 2011

Tax allowance for cost of acquiring right to use software

Via this blogger's friends on the UKSC Blog comes this link to the news of a forthcoming hearing by the United Kingdom's Supreme Court. The case is Commissioners for Her Majesty’s Revenue and Customs (Appellant) v Tower MCashback LLP and another (Respondents).  According to the UKSC Blog,
"The Supreme Court will consider ... a substantive issue (whether expenditure on the acquisition of a right to use software, which was funded by non-recourse loans from the owner of the software, can qualify for an allowance under section 45 of the Capital Allowances Act 2001 (the “CAA”))".
The two-day hearing in this case will begin on 21 February 2011.

Sunday 13 February 2011

Theft of trade secrets: pinning down a reasonable assessment of the damage

Sometimes this is what
it feels like ...
The 2010 U.S. Intellectual Property Enforcement Coordinator Annual Report on Intellectual Property Enforcement, U.S. Intellectual Property Enforcement Coordinator, February 2011 (here) will take a little reading. One point that immediately caught the observant eye of Chris Torrero was this little paragraph:
"Over the last six months, we have heard repeated concerns about enforcement of patents and trade secrets, particularly in China. This year, DOJ and the Federal Bureau of Investigation (FBI) have increased their investigations and prosecutions of corporate and state-sponsored trade secret theft. For example, in July, two defendants were indicted for stealing General Motors hybrid-vehicle technology trade secrets that caused more than $40 million of harm to GM and, in November, a defendant was convicted of stealing Ford trade secrets that caused between $50 to $100 million of harm to Ford. This focus will continue. In addition, the U.S. Patent and Trademark Office (USPTO) will lead an effort this year to thoroughly assess the patent enforcement landscape in China and recommend steps that the U.S. Government can take to improve patent enforcement there."
This weblog very much hopes that the US Department of Justice and the Federal Bureau of Investigation will share with our readers the secrets of its methodology for evaluating the quantum of harm caused by theft of trade secrets in these situations.  Some of us, well, struggle to pin a figure on these hugely valuable but amorphous assets which are generally of no value unless they can be tagged to specific products or processes in specific markets at or between specific points of time. This blogger hopes that the two agencies were relying on something more precise than the easy-to-come-by victim self-assessment figures from which we in Europe have struggled to break our dependence.

Any thoughts?

Thursday 10 February 2011

Changing business models: JV evolves into non-exclusive licence

UK automotive licensing plc Torotrak have recently stepped out of their “Infinitrak” joint venture with US lawn mower manufacturer MTD. According to a January press release:

“Infinitrak’s exclusivity rights in the 0-45 kW power band have been terminated and replaced with a non-exclusive licence from Torotrak to MTD Products Inc. This new non-exclusive licence is restricted to the 0-25 kW power band and is applicable solely for lawn and garden products that MTD will itself manufacture for its own demand.”

The press release goes on to suggest that:

“these new arrangements play best to the respective strengths and strategic interests of both MTD and Torotrak. MTD will focus on its own branded products and manage future development of transmissions based on Torotrak’s technology tailored to its own needs and cost requirements. Torotrak will benefit from MTD’s success through initial licence payments (of US$1.6m) and future royalties. In addition, Torotrak is now free to develop commercial relationships with other OPE (outdoor product equipment) manufacturers and suppliers and to develop the 25-45 kW licensed field that can extend beyond OPE products.”

Torotrak is apparently also relieved of responsibility going forward for funding tooling or manufacturing investment at Infinitrak.

Infinitrak was formed in November 2005, a press release at the time indicating that the joint venture was expected to maximise Torotrak’s ability to generate earnings in the major new market of outdoor power equipment. The plan was that Infinitrak would initially supply transmissions exclusively to MTD, supplying other companies a couple of years later.

Will the same fate befall Torotrak’s recent “Rotrak” joint venture with Danish supercharger manufacturer Rotrex? Rotrak's market would appear to be greater – according to a May 2010 press release, “Rotrak will exploit opportunities associated with the downsizing of engines, which Torotrak views to be a material and growing trend in the automotive sector”. Also, Rotrak would not appear to be tied to one particular customer. Finally, there would not appear to be the same requirement for manufacturing investment – the May 2010 press release indicates that, whilst Rotrex is well equipped to satisfy low-volume demand from automotive manufacturers, the plan is for Rotrak to sub-license or otherwise contract with third parties.

Monday 7 February 2011

Latest IPM focuses on IP finance topics

The February 2011 issue of Informa's Intellectual Property Magazine (IPM) carries a set of short features on IP finance topics. In this issue are the following:
* "Considering intellectual property in acquisition pricing" (Rachael Schwartz, ipCapital Group)

* "Brand valuation: the methodologies" (Sophie Roberts, staff reporter)

* "IP valuation: venture capital investing and biotech funding" (Catherine White, staff reporter)

* "The value of efficiency and transparency in IP licensing: let the market decide" (Ian David McClure, IPXI)

* "Ten things every IP lawyer should know about tax" (Ed Denny, Norton Rose)

* "Taxing question" (Michael Knapper and Dominic Stuttaford, Norton Rose)

* "IP planning and the creation of value" (Rohan Massey and Peter Nias, McDermott Will & Emery)
If you want to take a peep but don't subscribe, IPM offers a free three-day trial if you fill in the form here.

Thursday 3 February 2011

Latest on the Nortel bidding war

#alttext#The deadline for submitting bids for the Nortel patent portfolio is clearly drawing near and "informed" leaks are appearing. Presumably intentionally to drive up the price. The latest leak is reported on the fierce wireless website and lists Apple, Google as well as the Chinese companies Huawei and ZTE as potential bidders. Nothing surprising there. The Nortel portfolio includes a number of gems which any company operating in the wireless space would love to have - if only to act as a bargaining chip in licensing and negotiating deals. Neither Apple nor Google have an extensive telecoms patent portfolio and so they would love to build the portfolio. Huawei and ZTE are starting to build massive portfolios, apparently subsidized by the Chinese government. Indeed Huawei is now one of the bigger PCT patent filers and ZTE claims to hold 10% of the essential LTE related patents. However, whilst they have many pending patents, their granted portfolio is much smaller.

Intriguingly two consortia including patent licensing firms are also in the running. One consortium apparently consists of Intellectual Ventures and InterDigital. IV is known for its accumulation of patents, whilst InterDigital possesses several patents that are relevant to mobile telecommunications standards (but has also lost some court disputes). The other consortium includes RPX - a patent aggregator that acts on behalf of several major companies to take patents "out of the market". RPX is currently planning its IPO as reported here and here. Will it be using some of the proceeds to purchase the Nortel portfolio. #alttext#

These two consortia could clearly push the price of the portfolio up tremendously. Neither has much interest in cross-licensing since they do not actually make any products as such. RPX is aiming to buy up problematic patents to support their membership base (as explained here). No doubt having a ripe bag of telecoms patents will "encourage" a few more companies to sign up and help the IPO on its way. IV has until recently not been known for enforcement of its patent rights, whereas InterDigital has been active. So it will be interesting to see how that works out if they win the pot of gold. Both companies will have an interest in "monetarising" their new assets.

The sheer sums of money here are just mind-boggling. The size of the mobile telecommunications market is clearly massive, but it is also going to take a major investment for any company to justify the figures that are being talked about. It will not be unnoticed that none of the established players such as Nokia, Ericsson or Alcatel figure among the potential acquirers. They all have substantial portfolios of relevant patents - but then Nokia is known to be a backer of RPX and Ericsson purchased the LTE assets of Nortel some months ago and presumably got a license to the relevant IP thrown in with the deal. So they don't need the rights. Has this all been factored in? The IAM blog was sceptical about whether the bond purchasers who have pushed up the value of the Nortel bonds really understood the process.

Let's hope nobody has to see his car because of his Nortel patent portoflio.#alttext#

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Wednesday 2 February 2011

Farewell Sandwich

In the midst of discussions about the future of IP tax and incentives in the UK comes the news that Pfizer is closing its UK R&D facility at Sandwich in Kent, after about 50 years of R&D at the site. The pharma group will no longer have any UK R&D operations.

It's part of a restructuring that will move more of Pfizer's R&D to the US, and reduce the amount of R&D that the group does, moving away from 'high-risk R&D' and eliminating altogether a number of areas of R&D. That said, a move to the US does suggest that they aren't being enticed by tax incentives, as the US incentives for R&D are not the most attractive. The project seems to reflect its description as a cost-control exercise overall, unsurprising given the group's cuts in sales forecasts, reflecting issues such as Lipitor coming out of patent protection in November.