Tuesday, 30 July 2013

Does Carsharing Threaten the Centrality of Design?

With Apple products leading the popular vanguard, the centrality of design has become a common theme in contemporary product development. As it says on the back of my Apple Nano, "Designed by Apple in California. Assembled in China." Let there be no
mistake—the added value (and presumably the reason that I paid more for the product than for a competing MP3 player) is in the design of the product. And let there further be no mistake—the design is that of Apple, in the heart of design heaven, namely California. As for "assembly" (what happened to "manufacture"?), that takes place anonymously (Foxconn?) somewhere in China. When it comes to the Apple Nano product (and presumably other Apple products), it is the design that makes the difference.

After all, didn't Apple's success last August in its California-based litigation against Samsung rest mainly on a finding of infringement of several of its design patents (even if the award of damages was later cut back by the court)? Further, didn't the European Union recognize a protectable right in an unregistered design, emphasizing the importance and prevalence of valuable product design in the modern world? Utility patents, with their steep costs and long and complex procedures for registration, might not be the regal pinnacle of IP rights, but the need for good product design (and presumably legal protection) is seemingly everywhere.

The importance of design did not begin with Apple or the consumer electronics industry. Generations before that, the automobile industry had turned design into the calling card of their products. Design, when intertwined with car performance, became the nexus between the brand and the customer. What better proof of the importance of design than the anti-design aura of the Volkswagen. At the end of the day, for the Volkswagen Beetle as for the General Motors's Cadillac, vehicle, the consumer was believed to put design (or anti-design) at the heart of his purchase decision. It was only when the U.S. auto industry decoupled design from acceptable vehicle performance that it began to lose the race with its German, Japanese and later Korean competitors.

Given the centrality of design in product generally, and the car industry in particular, it is hard to conceive of a situation in which car design might become less important. But such a possibility is being suggested by the increasingly popular phenomenon of carsharing. "Carsharing" is not "car pooling", the rite of passage that any parent goes through in getting their children to soccer/football practice or choir rehearsal. Carsharing (or "car clubs", in the UK), as defined on Wikipedia, "is a model of car rental where people rent cars for short periods of time, often by the hour. They are attractive to customers who make only occasional use of a vehicle, as well as others who would like occasional access to a vehicle of a different type than they use day-to-day. The organization renting the cars may be a commercial business or the users may be organized as a company, public agency, cooperative, or ad hoc grouping".

The Carsharing Association, here, describes "carsharing" further at carsharing.org as follows:
"Carsharing is defined by its environmental and social purpose, rather than business and financial objectives.

Carsharing is designed for local users in support of community transit and environmental goals. Its mission, vision and values lead to actions aimed at decreasing personal car ownership, reducing vehicle distance travelled, improving urban land use and development, providing affordable access to vehicles for all constituencies, as well as motivating residents to walk, cycle and take buses and trains, and decreasing dependence on fossil fuels while reducing the emission of greenhouse gases.

Carsharing is a membership based service available to all qualified drivers in a community. No separate written agreement is required each time a member reserves and uses a vehicle. All CSOs offer members access to a dispersed network of shared vehicles 24-hours, 7 days a week at unattended self-service locations.

Carsharing is primarily designed for shorter time and shorter distance trips as an extension of the transportation network, providing a public service designed to enhance mobility options. Longer trips may be available to further discourage car ownership. CSOs help members save money over the cost of individual car ownership by encouraging members to drive less often, plan trips more, use other modes of transportation more, and share fuel efficient vehicles when a car is needed."
What stands out from this description are the societal, communal and environmental underpinnings of the carsharing movement. These characteristics are almost antipodean to the notion of individual expression and identification with one's car, which serves as the heart of car design. "You", not someone else, "is what you (own and) drive". What happens, however, where the car becomes a commodity item, for use on "a need to need basis"? In such a situation, will those who become active members of the carsharing movement eschew design in favour of other considerations? This question was recently asked on Bloomberg radio of a former senior GM designer. His brief response was "no"; people will continue to place a priority on car design, even if their use is largely in a carsharing environment. Maybe yes, maybe no, with downside in the event that the answer is "no". If that occurs, we might see a potentially tectonic change in the relationship of car owners to car design, at least in those markets where carsharing reaches a critical mass.

Monday, 29 July 2013

Differential IT taxation, geoblocking and the 'Australia Tax': proposals for reform

Earlier today, Parliament of Australia's Standing Committee on Infrastructure and Communications tabled its report on the inquiry into IT pricing entitled "At what cost? IT pricing and the Australia tax".  The Foreword, reproduced below, gives a good idea of what it covers:
The importance of IT products to every sector of Australian society can hardly be overstated. IT products are woven into the fabric of our economy and society, and have driven rapid change in the way Australians communicate, the way we work, and the way we live. 
Australian consumers and businesses, however, must often pay much more for their IT products than their counterparts in comparable economies. In many cases Australians pay 50 to 100 per cent more for the same product. 
Consumer and business concern over IT price differences prompted the Minister for Broadband, Communications and the Digital Economy, Senator the Hon. Stephen Conroy, to refer the question of IT pricing in Australia to the House of Representatives Standing Committee on Infrastructure and Communications for an inquiry and report. 
Evidence presented to this inquiry left little doubt about the extent and depth of concern about IT pricing in Australia. Consumers are clearly perplexed, frustrated and angered by the experience of paying higher prices for IT products than consumers in comparable countries.
High IT prices make it harder for Australian businesses to compete internationally and can be a significant barrier to access and participation for disadvantaged Australians (in particular Australians with a disability). 
Based on the evidence received over a 12 month inquiry, the Committee has concluded that in many cases, the price differences for IT products cannot be explained by the cost of doing business in Australia. Particularly when it comes to digitally delivered content, the Committee concluded that many IT products are more expensive in Australia because of regional pricing strategies implemented by major vendors and copyright holders. Consumers often refer to these pricing strategies as the ‘Australia tax’. [European, and particularly UK, readers will recall a similar phenomenon with regard to the price differential for downloads from iTunes. Not for nothing was the UK called 'Treasure Island'.  This blogger also recalls a good deal of resentment against regional technological bars that prevented the playing of legitimately purchased product in the 'wrong' continent]
While the Committee recognises that businesses must remain free to set their own prices in a market economy, it has nonetheless made a range of recommendations that are intended to sharpen competition in Australian IT markets. The Committee hopes that these measures will increase downward pressure on IT prices and improve the access of Australian businesses and consumers to cheaper IT products. 
Given the ever-increasing importance of IT products to Australian society and the economy – in driving innovation, reducing isolation in regional and rural Australia, or improving the lives of Australians with a disability – it is essential that Australians get a fair deal.
The Standing Committee comes up with 10 recommendations, of which the following are of particular note:
Recommendation 4
The Committee recommends that the parallel importation restrictions still found in the Copyright Act 1968 (Cth) be lifted, and that the parallel importation defence in the Trade Marks Act 1995 (Cth) be reviewed and broadened to ensure it is effective in allowing the importation of genuine goods. 
Recommendation 5
The Committee recommends that the Australian Government amend the Copyright Act’s section 10(1) anti-circumvention provisions to clarify and secure consumers’ rights to circumvent technological protection measures that control geographic market segmentation. 
Recommendation 6
The Committee further recommends that the Australian Government investigate options to educate Australian consumers and businesses as to:
* the extent to which they may circumvent geoblocking mechanisms in order to access cheaper legitimate goods;
* the tools and techniques which they may use to do so; and
* the way in which their rights under the Australian Consumer Law may be affected should they choose to do so. 
Recommendation 7
The Committee recommends that the Australian Government, in conjunction with relevant agencies, consider the creation of a ‘right of resale’ in relation to digitally distributed content [this recalls the EU litigation in UsedSoft], and clarification of ‘fair use’ rights for consumers, businesses, and educational institutions, including restrictions on vendors’ ability to ‘lock’ digital content into a particular ecosystem. 
Recommendation 8
The Committee recommends the repeal of section 51(3) of the Competition and Consumer Act 2010
Recommendation 9
The Committee recommends that the Australian Government consider enacting a ban on geoblocking as an option of last resort, should persistent market failure exist in spite of the changes to the Competition and Consumer Act and the Copyright Act recommended in this report. 
Recommendation 10
That the Australian Government investigate the feasibility of amending the Competition and Consumer Act so that contracts or terms of service which seek to enforce geoblocking are considered void.
This blog will watch with interest to see how things progress.

This item was picked up via a Tweet from the excellent Matthew Rimmer (@DrRimmer).

Saturday, 27 July 2013

How “Deep” is the Connection with the Brand: Harris Interactive’s EquiTrend® Rankings

Harris Interactive has released its EquiTrend® Rankings of brands.  The rankings attempt to ascertain the connection between a brand and the consumer—in other words, “how deep is the connection between the brand and consumers.”  Harris Interactive EquiTrend®:

examines the predictors of in-market performance: Brand Equity, Consumer Connection, and Brand Momentum.
We capture and analyze the opinions of over 38,000 Americans on 1,500+ brands from 150+ industry categories and break responses down by 28 demographic attributes to help corporations target consumers, generate quality media coverage, support communication efforts, and inform future business strategy.
The capstone of the study is the Equity score, a snapshot of a brand’s strength, derived directly from consumer responses. Brands that are ranked highest in their categories receive a Harris Poll EquiTrend “Brand of the Year” award and the option to promote the award among their customers.    

The rankings are essentially broken down by industry and then product or service category.  The leading computer brand is Apple, which is followed by HP, Dell, and Sony.  The leading computer tablet is the IPad.  The next best are Kindle Fire, Google Nexus, Samsung Galaxy, and HP Slate.  In the consumer electronics category for cameras, the ranking is Canon, Nikon, and Sony.   And, in the food category for chocolate candy, Reese’s Peanut Butter Cups is first followed by M&Ms Peanut, M&Ms Milk Chocolate, Hershey’s Kisses, Hershey’s Milk Chocolate, Snickers, Kit Kat, and Reese’s Pieces.  For household products in the vacuum category, the ranking is Dyson, Hoover, Kenmore and LG.  The leading brand in telecommunications for mobile phone is Apple and is followed by HTC, Samsung, and LG.  There are over 23 "industries" and over 150 product or service categories.  Looking for a partner for branding purposes?  Enjoy! 

Saturday, 20 July 2013

The B Corp—A Big Change Coming for IP Investment and Practice or What Would Myriad do?

On July 17, 2013, the Governor of one of the most, if not the most popular state to incorporate, Delaware, signed into law the B Corp (or public benefit corporation).  What is the B Corp?  According to the press release by the Governor’s office, the B Corp is “a new kind of socially conscious for-profit corporation intended to operate in a responsible and sustainable manner.  Their affairs are to be conducted for the benefit not only of stockholders, but also for public interest and those affected by the corporation’s activities.”  The press release also states:

A public benefit corporation (PBC) will be formed in the same manner as any other corporation formed under the Delaware General Corporation Law. However, in order to be a PBC, the corporation’s certificate of incorporation must identify one or more specific public benefits and must have a name that clearly identifies its status as a PBC. Public benefits for which corporations may be formed include, but are not limited to, those of an artistic, charitable, cultural, economic, educational, environmental, literary, medical, religious, scientific or technical nature.

At least once every two years, a public benefit corporation must send its stockholders a statement with respect to its promotion of the public benefit(s) identified in its charter, as well as its promotion of the best interests of those materially affected by the corporation’s conduct.

Here is an article by Chrystia Freeland in The New York Times (July 18, 2013) titled Capitalism, but With a Little Heart about the B Corp.  How will this impact new companies (and existing companies) in the technology sector?  (any comments from the tax experts?)  Would you be more willing to invest in a company if you knew it was a “B Corp?”  Will “B Corps” use IP differently than other types of entities?  If Myriad was a “B Corp” would its actions be different? What do you think? 

Myriad—Enforcement Continues and Now March-in Rights to Protect the Public?

Immediately after the U.S. Supreme Court issued the Myriad opinion, numerous competitors to Myriad announced that they would offer genetic testing for breast cancer at a much lower price than that offered by Myriad before the decision.  One of those competitors was Gene by Gene who offered the possibly noninfringing test for a price that was about one third of Myriad’s price before the U.S. Supreme Court’s decision.  Myriad responded with several patent infringement suits alleging infringement against some competitors including Gene by Gene.  Here is the Gene by Gene complaint filed on July 10, 2013. 

Notably, some of the patents held by Myriad were funded by the federal government and thus, are subject to the provisions of the Bayh-Dole Act.  The influential U.S. Senator Patrick Leahy of Vermont has sent a letter to the Director of the National Institutes of Health urging the exercise of “march-in rights” under the Bayh-Dole Act.  March in rights can be exercised by the federal government in certain circumstances:

(a) With respect to any subject invention in which a small business firm or nonprofit organization has acquired title under this chapter, the Federal agency under whose funding agreement the subject invention was made shall have the right, in accordance with such procedures as are provided in regulations promulgated hereunder to require the contractor, an assignee or exclusive licensee of a subject invention to grant a nonexclusive, partially exclusive, or exclusive license in any field of use to a responsible applicant or applicants, upon terms that are reasonable under the circumstances, and if the contractor, assignee, or exclusive licensee refuses such request, to grant such a license itself, if the Federal agency determines that such--

(1) action is necessary because the contractor or assignee has not taken, or is not expected to take within a reasonable time, effective steps to achieve practical application of the subject invention in such field of use;

(2) action is necessary to alleviate health or safety needs which are not reasonably satisfied by the contractor, assignee, or their licensees; . . . .

March in rights have never been exercised by the federal government even though there have been several requests.  What good are the rights if they are never exercised?  As a deterrent?  How good is the deterrent if the rights aren’t going to be exercised?  The prior requests have mostly involved claims concerning reasonable pricing—a theory which has been rejected by some.  Is this the perfect case for a change (at least for federally funded patents)?  Can Myriad price its tests in such a way that allows it to recover its alleged $500 million in developing the patented inventions, earn a “reasonable” profit and provide relatively wide access? What do you think? 

Friday, 19 July 2013

"A Great Story about Patent Trolls or How to Make an Offer You Can't Refuse": It's Not What You Think

Thanks to fellow blogger Mike for bringing to the attention of our readers the article by David Segal, "How a Typical Patent Battle Took an Unexpected Turn", which appeared in the 13 July 13 issue of the New York Times, here. The article recounts the tale of a Chicago entrepreneur, Peter Braxton, whose app, "Jump Rope", which enables users to pay a fee to jump to the head of a queue, fell afoul of a law suit filed by an arguable patent troll, Smart Options. Braxton prevailed in the action (at summary judgment no less), but he was then threatened with an appeal and the filing of another first-instance patent infringement suit. Braxton, facing financial ruin even as he was prevailing at the legal level, ultimately joined forces with the (for some) notorious patent troll Erich Spangenberg and his company, IPNav. The upshot was that patent troll IPNav became a form of venture capitalist, putting in $200,000 in capital, and agreeing to handle Braxton's legal issues with Smart Options, in exchange for a 40% equity stake in company.

For Segal, the black and white hues of the actors seem pretty clear, as he concludes his piece with following observation: "…Peter Braxton's story suggests that there is really only one way to deal with a patent bully: team up with a bigger bully." While this summary makes for a good sound bite as the sardonic dénouement of a morality play, I think it does a bit of a disservice to the more nuanced context in which patent trolls operate. In particular, Segal seems to view the world of patent trolls as a closed lake (with apologizes for the metamorphosis of "trolls") in which defenceless entrepreneurial fish are preyed upon by sharks of various sizes. Under such an approach, the only strategy available for the entrepreneur is "the enemy of my enemy is my friend", under the assumption that the only thing that a patent troll may enjoy more than preying on a defenceless entrepreneur is to best a competing troll for the patent prize.

It seems to me, however, that the better way to understand what took place in the New York Times piece is to view it in terms of shifting marketing dynamics. I spoke several months ago with a veteran of the IP commercialization world in Silicon Valley. She recounted how disheartened she was in encountering twenty-something investors, with or no IP background, who are seeking to create funds of tens of millions of dollars in support of what seems to be straight-up troll-like activity. This is the kind of disconnect between the traditional purpose of patent system to encourage innovation and invention, on the one hand, and the lucrative opportunities to game the litigation system to reap potentially large pay-outs from vulnerable defendants, on the other, that has led to the current furor against not only so-called patent trolls, but the patent system itself.

In the short term (or likely even in John Maynard Keynes famously elusive "long term"), nothing will be done to address the main sources of the inefficiencies in the patent system that have enabled patent trolls to flourish. In particular, I refer to the widespread claims that too many "bad" patents are being granted and later exploited by patent trolls (although the New York Time article does not indicate that the patent at issue was a "lousy" one, but only that Mr. Braxton's business method and system did not infringe). As well, the inefficiencies derive from the crushing cost of funding a defence in a patent litigation action, with virtually no opportunity under U.S. law to receive an award of costs (see my blog post of October 25, 2012 "Patent Litigation Funding: What About the Underfunded Defendant?", here). In such a circumstance, the opportunity to game the patent system to the benefit of the patent troll is clear.

As Arthur Levitt, the former head of the U.S. Securities and Exchange Commission, intimated in a radio interview this week, the opportunity to make millions of dollars on the back of arguably (or palpably) illegal conduct means that illicit behaviour will likely always be part of Wall Street, human nature being what it is. In the case of patent trolls, at least, there is little or no accusation that they are acting in an illegal matter. To the contrary, the story of Mr. Braxton, Smart Options, Mr. Spangenberg and IPNav suggests that at least some of the actors in this world are increasingly behaving like main-stream (at least in a context akin to venture capital) investors. Accordingly an opportunity is identified and an agreement is reached that arguably benefits both parties: the investor and the entrepreneur. True, the latter may be able to dictate the terms, but that is often the case in a garden-variety investment in a start-up. At the end of the day, the deal still has to enable the start-up to achieve its commercial goals for the mutual benefit of the parties.

Seen in this way, Mr. Spangenberg is simply being quicker off the mark in spotting the business opportunity, given his familiarity with the circumstances involved. There is nothing that precludes others for investing in a similar fashion. Not quite David Segal's morality play, but rather a more promising outcome for trying to mitigate the damages caused by the deep-rooted inefficiencies in the patent system.

Tuesday, 16 July 2013

A Great Story about Patent Trolls or How to Make an Offer You Can't Refuse

The NY Times published a fantastic (and very troubling) piece, How a Typical Patent Battle Took an Unexpected Turn, about a start-up and its fight with a “patent troll” with some great twists.  I experienced a wide range of emotions in reading this article and the story will continue to evolve.  Here is the article.  Who are the winners (if any)?  Who are the losers (if any)?  I hope the "trolls" don't start colluding--protection anyone?  What do you think? 

Monday, 15 July 2013

The Patent Box Coming to the United States Soon?

Congresswoman Allyson Schwartz recently introduced a bill in the House of Representatives to establish a patent box similar to that adopted by some European countries (she previously introduced the bill in 2012 and here is the press release for that bill).  The bill provides a lower tax rate on profits from the exploitation of patented technology developed in the United States.  The patent box is designed to lure entities to the home of the box and thus, create jobs.  The effective tax rate for qualifying profits appears to be 10%.  Here is a link to the proposed legislation and links to several news articles about the 2012 and 2013 proposed legislation here, here and here.  In a helpful 2012 article by Pricewaterhouse Coopers, Is it Time for the United States to Consider the Patent Box, the authors state:

According to the most recent OECD data, as of 2009 the United States ranked 24 out of 38 countries (including 32 OECD members plus Brazil, China, India, Russia, Singapore, and South Africa) in the value of tax incentives provided per dollar of R&D. Because the U.S. research credit expired December 31, 2011, the U.S. incentive provided for R&D is now even lower than indicated by the OECD ranking.

Moreover, according to 2011 OECD data, the combined federal and average state statutory corporate tax rate in the United States (39.2 percent) is second highest among OECD countries, and more than 14 percentage points greater than the average for the other countries (25.1 percent). Therefore, royalty and license income earned from U.S.-held IP is taxed at a 50 percent higher rate than IP held in the average OECD country. The disparity in taxation of IP is even greater when compared with countries with patent box regimes, where qualified IP typically is taxed at rates between 5 and 15 percent.

The time appears to be closer.  What do you think?  The article also has a useful chart comparing patent box legislation in Belgium, France, Luxemburg, Netherlands, Spain and the U.K. 

Wednesday, 10 July 2013

Is the U.S. changing its focus on Chinese recognition and enforcement of IP?

China and the U.S. are in the midst of their annual bilateral talks against the backdrop of accusations and counter-accusations regarding cyber theft or worse. The high profile nature of these bi-lateral accusations (in truth, initiated by the U.S., but with a notable rhetorical parry by China) regarding cyber-theft point to an interesting, if subtle,  shift that may be taking place in the nature of the U.S. position regarding alleged Chinese misappropriation of U.S. intellectual property. Where once the focus was more on allegations of counterfeiting and brazen infringement of IP rights subject to long-time international treaties—mainly copyright, trade marks and patents, today the focus of the IP narrative may be tilting increasingly in the direction of trade secrets and confidential information.

Think about it for a moment—over several decades, U.S. trade policy has aggressively centred on the alleged Chinese penchant for copying things and processes for which they do not have rights. Whether it was a CD or computer software, food or medicine, the refrain was loud and consistent: too large a percentage of U.S. goods protected by copyright or trade marks were being misappropriated in China, leading to large commercial losses for the U.S. rights owners. When food and medicine were involved, health and public safety were added to the list of grievances. Indeed, alleged Chinese violations of IP rights were invariably listed as one of the top trade issues between the countries.

Compare that with recent utterances, especially in light of the bilateral meeting taking place. Permit me to offer two examples. The first was an interview heard on a Bloomberg podcast with the head of a leading US-China trade association. What was interesting in the interview was that the interviewee did not mention IP as a pressing issue. Instead, he pointed to the continuing requirement that foreign investors cannot hold a majority interest in a Chinese joint venture as the biggest single commercial issue from the US side.

The second example is taken from an article under the byline of Paul Eckert that appeared on July 9th in Reuters.com ("Snowden affair blunts U.S. push for China to curb cyber theft"), here. The clear focus of the article are U.S. accusations of what the article calls "state-sponsored IP theft", where the intention are "thefts of trade secrets" or, as stated elsewhere in the piece, "[c]yber theft of industrial designs, business strategies and trade secrets". The previous litany of accusations about wholesale copying products and their trade marks seems to be missing. While I cannot warrant that these two exchanges are conclusive evidence, they do tantalizingly suggest that there is a changing narrative from the traditional issues of IP counterfeiting and infringement in favour of an emphasis on trade secrets and confidential information.

If this shift is indeed occurring, then there may well be material implications about the way that the U.S. will have to deal with the situation. Perhaps the best way to comprehend this difference is by considering the distinction, attributed to Donald Rumsfeld, who served as the Secretary of Defense in the cabinet of President George W. Bush. Thus, it is said that Rumsfeld distinguished between "known unknowns" and "unknown unknowns". Applying this to alleged Chinese violations of IP, one can view claims of misappropriation of patents, copyright and trade marks as "known unknowns." By this I mean that the object of the infringement could be identified (a CD, computer software and the like). The unknown was the extent to which rights holders could locate all of the infringing items and whether the Chinese administrative and judicial systems were enforcing these rights. As said, such infringement and enforcement is a "known unknown."

Much different is the situation of trade secrets and confidential information. By their nature, the very subject matter is difficult to objectify (as any lawyer who has ever tried to prepare a schedule covering trade secrets to an agreement). Thus not only is enforcement of the right in the realm of the "unknown", but so is the very object of the enforcement. Accordingly the claim is that, when trade secrets are involved, they are a form of "unknown unknown." Without the luxury of being easily able to objectify and identify the right, enforcement becomes that much more difficult.

Add to this that trade secrets are only uneasily recognized as a form of IP. (See Mark Lemley, "The Surprising Virtues of Treating Trade Secrets as IP Rights", here (SSRN version)). In that connection, I recall a recent meeting with a client who was seeking to make an investment. I was called upon to discuss the IP position of the target. I explained that the bulk of the company's IP was in the form of trade secrets. The client continued to look at me in a quizzical fashion, before he finally said—"So what you are telling me is that the company doesn't have much IP." In his view, IP did not include trade secrets. Add further to this that, when claims of trade secret misappropriation are intertwined with claims of mutual cyber-theft, the legal high ground that the US was able to take with respect to infringement of traditional IP disappears. Rhetorical ambiguity follows.

If, in fact, to the extent that the U.S. is altering its focus with respect to Chinese enforcement of foreign IP rights, by emphasizing trade secrets at the expense of patents, copyright, and trade marks, the challenge of making IP a compelling trade issue will be that much more difficult. Rumsfeld warned us about the difficulties of dealing with "unknown unknowns" in connection with defence and national security. The challenge may be no less daunting with respect to trade secret-driven IP.

Saturday, 6 July 2013

Biotech Hopping at Wall Street and Biotech Patenting on an Upswing--More Patenting to Come?

The Wall Street Journal reports that there have been 16 biotech IPOs (it is unclear what is defined as biotech) since the beginning of this year raising over $1.1 billion.  (for more on venture capital backed IPOs generally see here)  To put that in context, in 2004 there were 25 IPOs bringing in close to $1.17 billion.  In the last ten years, at this point, this year would be tied for the second best year and the future looks bright for more biotech IPOs.  The Wall Street Journal also speculates that the rise in IPOs along with their general success is attributable to R&D and clinical trial successes.  For example, the article states that: “Last year, the Food and Drug Administration approved 39 new drugs, according to the agency, a figure not reached since 1997. This year, the agency has approved 13 new drugs.”  With the supposed dried up pipeline of Big Pharma, this is welcome news.  Also, the surge in IPOs with more funding may mean more money for patenting efforts in the biotech space with more investors looking to biotech.

On the patenting side, Nature Biotechnology’s Bioentreprenuer reports on statistics on biotech patenting provided by IP Checkups.  It is also unclear what is defined as “biotech,” but the numbers are interesting.  There is a general upswing in biotech patents granted since 2008 from 657 to 850 in 2012 in the United States.  Interestingly, the article also notes the average number of biotech patents by university.  (it is unclear whether these numbers are for granted patents or for patent applications—or full applications or provisional--but it is more likely applications or some of the other numbers don't add up).  If you add up the average number of patents per year between 2008 and 2012 for U.S. universities listed (not all U.S. universities apparently), you get around 880 patents in the United States per year.  The article also has the numbers for patenting at the EPO.  The patenting in the United States is quite a bit higher than the patenting at the EPO.  This could be, in part, because of cost.  Any opinions on the data?   

Friday, 5 July 2013

Will dreams come true for True Drinks?

The following piece is written by IP Finance team member Neil, but posted by Jeremy for purely technical reasons.
Trade mark professionals tend to have only a partial sense of the commercial role that trade marks play. Within the context of prosecution and registration, this perception is shaped by the bedrock legal proposition of the trade mark world, viz. that a trade mark is a source indicator. This is true, but approaching trade marks in this way is likely to miss the overall picture: how do trade marks work within the broader commercial setting?  For that reason, I was  intrigued by a US company called True Drinks, Inc. (a NASDAQ-listed company). True Drinks describes its company mission as helping parents make intelligent choices about the selection of beverages for their families (and especially their children). Think soft drinks without a harmful sweetener and containing no artificial ingredients, but appealing enough in taste and container appearance to attract the most demanding young consumer. As the company declares, "True Drinks is a natural healthy beverage company focused on improving the health and wellness of our lives…"

 Let's assume that the company has met this product challenge and that it has come up with a drink that meets these requirements.  Enter the cold blast of commercial reality. How does the company successfully distribute and market its products when shelf space is restricted and competition is fierce?  The company can sing its own praises on its website under "About Us", here, and it can hope that readers will find their way to their product ("build it and they will come").  Or it can seek to use trade marks, both their own and those of third parties, to get its message out in a compact and effective way.  It seems to me that True Drinks has done a fascinating job in carrying out a trade mark-based strategy.

Consider the company's home page, here. Splashed across the upper portion are moving images of the stylized trade marks (not simply the company name)  of Disney, Marvel (the comic book and media company acquired by Disney), Safeway (a major US grocery chain), Rite Aid (a leading U.S. pharmacy chain) and the one and only Walmart. Above these moving marks is graphics highlighting the company's flagship product—known as AquaBall, all of this under the company name itself (True Drinks). What do we learn from the use of this collection of trade marks?

First, take the company's name and house mark. True Drinks is a clever selection, just distinctive enough to take it out of the descriptive camp while at the same time sending the message that there is something "genuine and honest" about  the company's products. But  reliance on "True Drinks" on its own will not get the company shelf space and distribution clout: enter Disney and Marvel, which have agreed to license proprietary characters for use on the company's products (presumably these characters will change over time). The products now benefit from the widespread visual recognition that these characters enjoy (in a manner as, I think, Professor Jessica Litman coined the phrase—"Breakfast with Batman").

Not only that, but the stylized Disney and Marvel tradevmarks (not merely the word mark) are prominently splashed on the home page of the company's website, serving at least two marketing purposes. First,  the use of the marks signals that the Disney/Marvel brands are willing to be associated with True Drinks. Moreover, according to  CEO Lance Leonard in a recent Bloomberg radio interview, the company was selected as a licensee by Disney/Marvel precisely because the company has met their rigorous product standards. Disney/Marvel is not only about glitz, glamour  and excitement: it is also about trust. As we are often told, at the end of the day, a successful brand is one that inculcates consumer  trust in its products. While Disney/Marvel are not themselves the purveyor of the products, their association with True Drinks succeeds in conveying the coveted notion of trust to customers.

The company then seeks to exploit its distribution network for branding purposes. As Leonard noted,  unless a company such as True Drinks can succeed in distributing its product, it has no chance at commercial success. Based on the presence of the stylized Safeway, Rite Aid and Walmart marks on the website, the message sent to customers is that the True Drinks products can be purchased at all the right places.  Moreover, the company enjoys  positive association with  well-known third-party distributors.  The company also seeks to take advantage of the prior affiliations of its management, such as Nestle and Pepsico.  The message here is again one of trust, tinged with experience and the wisdom that comes with it. A "start up" of sorts, yes, but one with solid roots in its industry.

Against this backdrop, the company also attends to  the branding of its products, such as its naturally flavoured water drink product—which it calls AcquaBall. Disney/Marvell and Safeway/Rite Aid/Walmat can only take the company so far. Also, Disney/Marvel may not be around forever as a commercial partner and so the company needs to develop product goodwill on its own.

There we have it—the use of multiple marks, each of which serves a distinct role in sending a specific message to customers in furtherance of the company's overall branding goals. The very complexity of this branding structure shows just how difficult it is for a company to enter the drinks market successfully, even at a niche level. "Difficult', but not impossible.  

Tuesday, 2 July 2013

Royalties in publishing agreements: when expectation leads to litigation

In Morse v Eaglemoss Publications Ltd [2013] EWHC 1507 (Ch), a Chancery Division (England and Wales) decision of Mrs Justice Proudman last month, the judge who kickstarted the whole Meltwater controversy in the UK over internet browsing and copyright infringement (see various blog posts here and here) found herself once again dealing with a copyright-flavoured issue, this time involving royalties.

In short, Morse was claiming royalties from Eaglemoss, basing his claim on publishing agreements which concerned a series of illustrated wildlife publications for the Reader's Digest magazine. In effect, the agreements let Eaglemoss make use of Morse's published work, Wildlife in Britain, by packaging a series for licensed publication and mail order sale by Reader's Digest.

Morse's first contention was that there had been a binding contract even before the agreements had been entered into; this was rejected, even though the parties had been co-operating on the basis of trust and informality. Morse however had better luck with the publishing agreements themselves: on their correct construction there was a licence between the parties which entitled Morse to a proportion of the royalties in the strict sense -- but not to any elements of the fixed payments from the Reader's Digest to Eaglemoss. According to Proudman J, Eaglemoss was, on the true construction of the licence, entitled to deduct the  cost of paying third party owners of copyright in the pictures from these royalty payments, even though Morse was entitled to an account of the sums expended on them. Finally, the pleas of Morse that the agreements should be rectified for unilateral mistake or that Eaglemoss owed him fiduciary duties and should have disclosed that it would be receiving the fixed payments from Reader's Digest were also dismissed.

This is one of those curiously old-fashioned cases in which the judge actually had to decide the case on the facts before her, rather than engaging in detailed analyses of the legal principles involved.  If any moral can be extracted from this action, it is contained in the fact that, wherever money is expected by one party from another, it is best to concretise that expectation in clear and unassailable terms from the outset -- however embarrassing it may seem at the time.  Understandings and expectations based on trust and mutual respect are all very well, but in the long run they so often lead to tears.