An Important Webinar: Are Patent Assertion Entities Responsible for the Rise in Patent Suits?

Neil Wilkof in a recent post, What are we to make of the Defensive Patent License?, raises excellent questions about the supposed problem of patent trolls and their impact on innovation.  In a recent paper, Professors Christopher Cotropia, Jay Kesan and David Schwartz, carefully study some aspects of the “Patent Assertion Entity.”  The abstract of their paper, Patent Assertion Entities (PAEs) Under the Microscope: An Empirical Investigation of Patent Holders as Litigants, states:

There is tremendous interest in a certain type of patent litigant — the often-called non-practicing entity ("NPE"), patent assertion entity ("PAE"), patent monetization entity ("PME"), or simply patent troll. These NPEs are the subject of a recent GAO report, a possible FTC investigation, pending legislation before Congress, and even comments from the President of the United States. All of this commentary and activity centers on whether NPE participation in patent litigation, and the patent system in general, is detrimental or beneficial to society. But the fundamental barrier to understanding the current debate is the lack of granular and transparent data on NPE litigation behavior.

Accordingly, we personally hand-coded all patent holder litigants from calendar years 2010 and 2012, and we are releasing this data to the public. In our coding, we drill down and finely classify the nature of the litigants beyond the simple NPE or non-NPE definitions. Releasing this data to the public that unpacks the definition of NPE can provide better illumination to policy makers, researchers, and others interested in the patent litigation system.

The data reveals a much lower percentage of litigation brought by patent holding companies than other studies, finding no explosion in NPE litigation between 2010 and 2012. Instead, we find that most differences between the years — an increase in the number of patent holding companies and individual inventor suits — is likely explained by a change in the joinder rules adopted in 2011 as part of the America Invents Act.

The paper also has an accompanying website, where the data is available:  http://npedata.com/.

On Thursday, February 6, 2014, from 12:00 pm – 1:00 pm (US Eastern Time), The Patent Litigation Committee of the Federal Circuit Bar Association is sponsoring a panel, Are Patent Assertion Entities Responsible for the Rise in Patent Suits, featuring the authors of the study as well as David Kappos, Partner at Cravath, Swaine & Moore, and former Director of the United States Patent and Trademark Office.  The moderator is Eric Cohen, Partner at Katten Muchin Rosenman. The description of the panel states:

Proponents of proposed patent reform legislation have assumed that there has been a dramatic recent increase in patent infringement actions filed by patent assertion entities (“PAEs”), also pejoratively referred to as ‘patent trolls.’ A study by professors Cotropia, Kesan, and Schwartz of patent infringement data refutes this assumption. In this program, the authors of the study and David Kappos, former director of the United States Patent & Trademark Office, explore whether there has, in fact, been an upsurge in patent infringement cases filed by PAEs, and whether the data from the study suggests a more cautious approach to legislation that would affect the manner in which courts manage patent litigation.  (emphasis added).

Additional information about the panel, including registration details, can be found here.

Ingestion without indigestion: a good year for Rightscorp

2013 seems to have been a good year for Rightscorp, Inc., which in a recently-received press release describes itself as "a leading provider of monetization services for artists and holders of copyrighted Intellectual Property". The company reported revenues for its fourth quarter which, at $155,381 were up 194% over $52,739 in the same period last year. Revenues for the full year 2013 were $324,000, up a remarkable 236% from $95,565 for the full year 2012. Explains the company:

"The growth in revenues was driven by the Company’s ability to increase the amount of copyrights in its automated system by 135% from approximately 17,000 in the fourth quarter 2012 to more than 40,000 in the fourth quarter of 2013".

According to Robert Steele, COO:

“... We currently have over 1 million copyrights under contract and we are loading thousands more every month. Our operational model is proving its ability to scale into a large and successful business as we help collect on behalf of artists and copyright holders. The increase of our ingestion rate will be our primary focus as it is a direct revenue driver in hand for 2014. We can expect our $750,000 annual revenue run rate to accelerate as we are at 4% of our copyrights under contract ingested. Additionally, increases in the number of ISP’s forwarding our notices should further drive our growth rate and increase revenues. 

“The metrics are clear. As we continue to ramp up our copyright inventory, we expect our revenues to increase proportionally. To date, we have closed on more than 50,000 cases of copyright infringements, and we have paid the owners of those copyrights for their work. We are currently in talks with the owners of millions of additional copyrights. Rightscorp is pleased to offer a technology and an operational system that enables the creators and owners of intellectual property to be rightfully compensated for the use of their assets.” 

This blogger notes that neither IP Finance nor the copyright-oriented 1709 Blog has featured Rightscorp before and he is also slightly embarrassed to confess that he cannot recall having come across it before. Do any readers have experiences of it, whether from the perspective of rights owners or from that of being on the receiving end of its attentions? If so, do let us know.

A Nice and Not So Naughty List of Top US IP “Wins”

The month of January is quickly becoming a memory and publishers are still putting together their top 2013 Intellectual Property lists.  Not to be left out, Corporate Counsel recently published: “The Big IP Wins [US] of 2013: An admittedly subjective guide to the patent and copyright hits of the year.”   The list includes: Apple v. Samsung; the Washington and Illinois FRAND cases; FTC v. Activis; Myriad; United States Patent and Trademark Office inter partes review; the Google Books decision; Wiley v. Kirtsaeng; and the Aereo decision.  I particularly like the inclusion of the FRAND cases and the US PTO inter partes review.  Here is the discussion of the FRAND cases:

What's FRAND?

First, the U.S. District Court for the Western District of Washington stepped up to become the first U.S. court to set fair, reasonable and nondiscriminatory (FRAND) royalty rates for standard-essential patents. The Northern District of Illinois was quick to follow. The first case stems from a lawsuit in which Microsoft sued Motorola, claiming the telecommunications company was charging an excessive rate for a standard-essential patent, saying the amount violated Motorola's promise to license the patent on FRAND terms. U.S. District Judge James Robart held a bench trial, and in April took it upon himself to decide the FRAND rate for Motorola's patents—an amount markedly lower than the price Motorola had demanded. This was the first time a judge had ever made such a FRAND determination, and his 207-page opinion has set its own standard. Six months later, Judge James Holderman in the Northern District of Illinois followed Robart's lead. He determined a FRAND rate for licensing a portfolio of standard-essential patents owned by Innovatio IP Ventures, a patent assertion entity that had sued coffee shops, hotels, restaurants, retailers and other commercial users of wireless Internet technology. His rate was drastically lower than what Innovatio had demanded, making it a win for the manufacturers whose products were actually at issue, including Cisco Systems, Netgear and Hewlett-Packard. "It appears there is now a developing trend for district court judges to decide a FRAND rate," says Bart Showalter, a partner at Baker Botts.

Do you think they missed any other notable US IP developments?  Do you know of a solid non-US 2013 IP developments list?  Please share!

Bitcoins & VAT - mostly confusion

Bitcoins have been in the finance news again, this time with regard to VAT in the UK. Although HMRC have not (yet) produced a definite policy statement on Bitcoins and VAT, it seems that they have for some time regarded them as 'vouchers' – so, something like a book token, in that you buy them from one person and can use them to buy things from anyone else who will take Bitcoins.

With most vouchers, there's no VAT on issue (unless the voucher can only be used for something for which the VAT treatment is identifiable on issue of the voucher), so that VAT gets accounted for on the eventual purchase for which the vouchers is used.

The wrinkle is that, if you buy a voucher from someone other than the issuer (i.e.: an intermediary), that someone is making a VATable supply (if they make supplies over the VAT threshold, currently £79k in twelve month - again, simplified – or have registered voluntarily). The question, of course, is who's the issuer of a Bitcoin? Arguably, it's the software used to generate the things, and not a VATable person. So, anyone selling a Bitcoin is likely to be an intermediary for these purpose.

The intermediary is then required to account to HMRC for VAT on the sale of the voucher (there's no actual requirement to charge the VAT to the purchaser - HMRC mostly just cares that the vendor pays the right amount to HMRC). This seems to be what has bothered people selling Bitcoins, with cries of anticompetiveness etc (i.e.: they have to account to HMRC for 20% of the sale price of the Bitcoin, apparently biting into their profits). However, under usual rules, intermediaries can reclaim VAT on the sale of vouchers – even where the issuer (software or otherwise) didn't actually charge them any VAT – so there should be balancing input tax for the output tax. Not sure whether the Bitcoin sellers have worked that one out, or whether HMRC is being sticky about it, as there's nothing official from HMRC on the point and the virtual currency articles aren't wholly clear about it either.

Some of the press have also suggested that retailers accepting Bitcoins face a double tax on transactions -- probably because it may be regarded as barter, with VAT on both sides (but, see above for the reclaim available).

All of which confusion basically suggests it's about time HMRC actually had a published coherent policy on virtual currencies that can be used to acquire actual goods and services – I doubt they're worrying too much about in-game purchases using World of Warcraft gold …

HMRC considers changing Bitcoin taxes, here, in The Telegraph
UK Weighs How to Tax Dealings in Bitcoin, here, in the Wall Street Journal

Infringement risk in copyright-intensive industries: It's not what you might think

Copyright and data protection lawyer extraordinaire Jonathan Band, of Policybandwitdth, in Washington, DC., here, recently published a fascinating post on the CyberProf listserve entitled "Report on Infringement Risk in Copyright-Intensive Industries". Jonathan's post engendered a vigorous and wide-ranging exchange among listserve members. Because the subject discussed is so interesting for IP Finance readers, we are pleased that Jonathan has consented to reprint his blogpost below.

"Notwithstanding the challenges of quantifying the impact of copyright infringement on particular companies or industry sectors, there is a useful neutral source of qualitative information on the likely impact of infringement: the reports prepared by investment advisors concerning publicly traded companies. These equity research reports make investment recommendations (e.g., buy, hold, or sell) based on the companies’ performance and the risks they face.

We have reviewed the equity research reports issued over the past 90 days for eight leading companies in copyright-intensive industries: two software firms (Microsoft and Adobe); two publishers (Pearson and Reed Elsevier); the owners of two major motion picture studios (Disney and Viacom, owner of Paramount); and the owners of two major record labels (Sony, owner of Sony Music Entertainment, and Vivendi, owner of Universal Music Group). In addition to Sony Music Entertainment, Sony owns Sony Pictures Entertainment (which in turn owns Columbia Pictures), while Vivendi also owns the Canal+ motion picture and television production and distribution company.

We found that the overwhelming majority of the equity research reports did not mention copyright infringement as a possible risk factor. [Maybe it means that lawyers would seem to have a very different notion of what is a possible risk factor when it comes to copyright.]

* None of the 14 reports for Reed Elsevier and 18 reports for Pearson identified copyright infringement as a risk factor.

* Only 13% of the 15 reports for Sony and 22% of the 23 reports for Vivendi mentioned copyright infringement as a potential risk.

* Just 8% of the 26 reports for Viacom and 27% of the 26 reports for Disney referred to copyright infringement as a risk factor.

* 26% of the 19 reports concerning Adobe and 41% of the 27 reports concerning Microsoft identified copyright infringement as a risk factor.

* Cumulatively, only 19% (32) of the 168 reports referred to copyright infringement as a possible risk; 81% did not.

The equity research reports that did not list infringement as a risk factor did identify a wide range of other possible risks, both specific to the industry and of more general applicability. In other words, these equity research reports were by no means superficial; they just did not consider copyright infringement as important a risk factor as the other threats confronting the companies under review.

Interestingly, the annual reports for 2012 for six of the eight companies (all but Reed Elsevier and Sony) did identify infringement as a potential risk. This suggests that the analysts writing the equity research reports gave little weight to the companies’ concerns about infringement. [That sure seems to be telling something about the value of annual reports in genuinely describing a company's activities.]

To be sure, one could argue that the analysts did not understand the industries they studied. Nonetheless, these reports are issued by the world’s most sophisticated investment advisors to their clients, the world’s most sophisticated investors. Both the investment advisors and their clients believe that the analysts have expertise in these industries. And the vast majority of the reports written by these analysts simply do not consider copyright infringement a significant enough threat to the subject companies’ financial health to merit mention to potential investors. If the analysts with expertise in these industries are not concerned about the possible impact of copyright infringement, perhaps policymakers should not be either." [But then those who engage in policy-making might be out of a job?]

The full report is at http://infojustice.org/archives/31827

The Controversial Mark is Back in the News and a Bad Example to Boot

I’ve written about the infamous mark, here.  Miri Frankel just wrote a very nice post at the IPKat about how the United States Patent and Trademark Office has refused to register a mark with that you know what word in it.  And, the Washington Post recently published this article, “[football team] owner Dan Snyder makes visits to Indian Country amid name-change pressure.”  Apparently, Dan Snyder has been making secret trips to Indian Country to get a first-hand look at the living conditions of some Native Americans.  What?  Really?  I am very surprised I had not heard about this and some media outlets have covered some of the visits—although it is supposed to be a “secret.”  I am encouraged that Mr. Snyder is making this effort.  Here is a Snyder friend’s account:

A friend of the Snyder family explained it this way: “Why is he making these trips, and why so secretly? Certainly it’s been triggered by all the attacks on him as a racist for loving the name ‘Washington [].’ So there is no question there is a link. But his feelings about the pain and depression — depression is the word he has used with me — of Native Americans who have no jobs, who have obesity issues, whose children are suffering, is profound and real.”

The Snyders have made large charitable donations in the past, contributing millions to Children’s National Medical Center and the National Center for Missing & Exploited Children in Alexandria.

The friend, who asked not to be identified because the team did not authorize him to speak on the matter, said he told Snyder that he should let people know about these trips.

“And his answer to me was: ‘Don’t you dare. They will falsely accuse me of doing this for material reasons, and I don’t want to give them that satisfaction when, in fact, I know that’s not true.’ ”

One very interesting part of the article is a discussion about the power of social media and how “public relations issues” just don’t go away anymore--welcome to the Internet.  The article notes that issues take on a life of their own and may not be pushed away by a nice check.  Of course, this highlights the importance of carefully considering a mark before adopting it—and I suppose you should consider how the mark may be perceived in the future in an evolving society, to the extent you can.  Ultimately, I don’t think Mr. Snyder will be able to find an easy middle ground.  And, he will probably change the name—that may be all that is acceptable to those who will continue to push and push because this isn’t going to go away for him.  And, the fact that Mr. Snyder doesn’t change the name may provide “bad" inspiration for others not to change their troubling team names, such as the Arabs high school football team in California. (discussion here, and see their "design" here—top left of the page).  What do you think of that mark (word and design)?

Philanthropy and Funding for the Creation of IP

I bet gifts play a large part in the funding of the creation of knowledge (directly or indirectly).  The Bill and Melinda Gates Foundation is notable.   “Ordinary Joes” may get in the game through crowd-funding platforms.   And, heck, even the U.S. government participates through the National Institutes of Health along with the Bayh-Dole Act.   As the year closed, the Sacramento Bee as well as other media outlets published articles about the top ten charitable gifts noted in the Chronicle of Philanthropy.  

Almost all of the gifts are to universities.  At least two of the gifts are notable for readers of this blog.  (I am curious about them all.)  The first is the $133 million pledge to Cornell NYC Tech.  I have written about the “start-up” university Cornell NYC Tech, here.  Apparently, the pledge will be used to fund the Joan and Irwing Jacobs Technion-Cornell Innovation Institute.  The Institute:  

plays a key role within Cornell NYC Tech, by offering interdisciplinary dual degree programs in the applied information-based sciences, and by bringing a global perspective to research and education with an emphasis on technology transfer, commercialization and entrepreneurship.

The second gift is the $100 million pledge to the University of California, San Diego Sanford Stem Cell Clinical Center:

The Sanford Center will accelerate development of drugs and cell therapies inspired by and derived from current human stem cell research; establishing, promoting and disseminating clinical trials and patient therapies that will help more quickly transform promise into reality.

Here is a list of the top 10 gifts:

1. Mark Zuckerberg: $992.2 million to the Silicon Valley Community Foundation

2. Phil Knight: $500 million pledge to the Oregon Health and Science University Foundation

3. Michael Bloomberg: $350 million pledge to Johns Hopkins University

4. Charles Johnson: $250 million pledge to Yale University

5. Stephen Ross: $200 million pledge to University of Michigan

6. Muriel Block: $160 million bequest to Yeshiva University

7. John Arrillaga: $151 million pledge to Stanford University

8. Irwin Jacobs: $133 million pledge to Cornell NYC Tech

9. Charles Munger: $110 million pledge to University of Michigan

10. David Koch: $100 million pledge to New York-Presbyterian Hospital

Frank McCourt: $100 million pledge to Georgetown University

Ronald Perelman: $100 million pledge to Columbia Business School

T. Denny Sanford: $100 million pledge to University of California at San Diego

Stephen Schwarzman: $100 million pledge to Tsinghua University in Beijing

Deborah Joy Simon: $100 million pledge to Mercersburg Academy

Do you know of a recent study of the role of philanthropy and the creation of IP?  Please share, if you do.  I am sure there must be one out there. While not exactly what I am looking for, I do know of this very nice 2006 paper titled “Giving Intellectual Property” by tax and IP experts Professors Xuan-Thao Nguyen and Jeffrey A. Maine.  Happy New Year!

The easiest questions to ask aren't always so easy to answer ...

A fairly distinguished and senior member of the European IP fraternity has emailed me to ask a short, simple question:

"Sorry to bother you, but could you please recommend a book about the economic evaluation of IP rights, in particular trade marks and designs?"

My immediate answer was "no". While I have spent many pleasant hours in the company of people who make a living either from valuing IP assets or, I suspect, from writing about it, I hesitate to make any recommendations at all. My particular concerns include but are not limited to the following:

* the absence of generally accepted methodologies that can be consistently applied by members of the valuation so as to reach the same valuation on the same data; 

* the fact that the valuation of an IP asset seems to be so strongly influenced by the reason for seeking it: fixing a purchase price for parties at arm's length or for inter-group transactions, securitisation, boosting a business's asset value, or anything else; 

* the reluctance to take account of the fact that different markets behave in different ways and are bounded by different legal regimes both for intellectual property rights and for accountancy; 

* the risk of double accounting where the IP is part of an ongoing business and of speculation where the IP is not currently used in the course of commerce.

However, putting all prejudices aside, I'm happy to invite readers' recommendations -- preferably with reasons. Do please post them below, if possible, or email me at jjip@btinternet.com with your suggestions (even if you've written it yourself).

Cinema Economics and the Changing Fortunes of the Movie Theatre "Experience"

These are not the best of times to be in the movie theatre business. True, movie theatres are not (at least yet) going the way of the buggy whip, but the movie screening business has certainly seen better days. For instance, Americans and Canadians are reported to have reduced their average movie outings from five times to four times per annum over the past decade (when is the last time you went, dear reader?). How is the industry seeking to cope?

First, a bit of history: copyright laws came into existence when it became technically feasible to reproduce and distribute a work in a commercially valuable manner (a.k.a. the printing press). The legal challenge was how to provide adequate protection for both the author of the work and the new kid on the block, the publisher, whom together with the book retailers became the intermediating party between the author and the market of end users (a.k.a. the reader). This paradigm of the tripartite relationship between and among the author, the publisher and the reader still holds true to this very day (though online self-publishing suggests that some change is on the way, at least for certain kinds of content).

However, the paradigm is not apt in all of its particulars for all forms of copyright-protected content. Perhaps the best example of this is the commercial rise of the movie. Here the production house, unlike the lone author, served as the creator in the aggregate of the movie. Until the 1970s, the primary form of distribution was the movie theatre (which may have also been related to the movie production house itself, unless local competition laws stepped in). The movie theatre differed from the book publisher primarily because it not merely distributed the movie by screening it to patrons, but it also provided a certain kind of viewer experience in doing so. The attraction of the viewer experience enabled the theatre also to reap attractive margins from the sale of concessions to the captive patrons.

Since the 1970s, however, we have seen this commercial paradigm break down in part. First, the rise of the videocassette market enabled the viewer to replace the movie theatre with the comforts of his own home. In a cost-benefit analysis, the viewer was sometimes prepared to forego the movie theatre experience for the reduced expense of renting (or even owning) a copy of a movie, once the viewer made the initial outlay of the video player itself, especially if the entire family was gathered around to watch the movie. During the past decade, online distribution of movies to various home display devices has come to challenge the video player. But whether the video player, the computer screen, or the tablet, the result is the same for the cinema owner, namely he is being totally bypassed in the distribution function.

What is the movie theatre to do? An article in November 30, 2013 issue of The Economist (“Cinema economics: Bigger on the Inside”), here, discusses some of the industry’s most recent efforts. In the main, the industry is trying to improve the viewer experience since, at the end of the day, this is its major competitive advantage over home or other personal viewing. They are seeking to do this in two ways. First, movie houses are seeking to go beyond traditional movie screening, to create what is described as “event cinema”. For instance, the article describes how the 50th-anniversary episode of the BBC’s “Doctor Who” series was being shown at the same time on 800 wide screens in 20 countries, replete with 3D theatre-seat functionality. Event cinema experiences are being extended to sporting and musical events, such as grand opera, as well as even museum exhibitions that are no longer showing at the museum itself. Even more far afield is the proposal that theatres make themselves available during off-hours to enable video-game players to show their wares on a full-sized cinema screen (this seeking to make use of cinema down-time suggests the motivation that led companies such as Amazon to rent out its unused computer capabilities, fuelling the rise of the computer cloud industry ). As observed, “We are not trying to display contents on the big screen. All we are trying to do is make better use of the assets we have.”

Second, they are seeking to improve the physical setting at the cinema itself. Thus one chain is offering plush, reclining seats, which may in the aggregate decrease the number of seats in the theatre by up to two-thirds, but may well increase the occupancy rate by a significant percentage and increase overall revenues by charging commensurately higher prices. Others are seeking to augment the traditional fare of popcorn and a soft drink with liquor (if permitted) and full, fancy meals. Leveraging the viewer experience is a galaxy away from the early days of book publishing. Even in our own time, the efforts of the neighbourhood book store, and even the book chains, to translate the bookstore experience into a commercially viable strategy has not in the main succeeded. But the consumer experience with respect to traditional book-buying was never as central to the business model as it has been to the cinema industry. How well the industry succeeds in creating a commercially viable 21st century cinema experience may well determine the long-term viability of the industry.

Paying for the future: a new title on the financing of technological innovation

Intellectual Property Rights And The Financing Of Technological Innovation: Public Policy and the Efficiency of Capital Markets,is a recent book by Carl Benedikt Frey (right: a Research Fellow, Oxford Martin Programme on the Impacts of Future Technology), brought out by Edward Elgar Publishing. This blogger didn't know very much about the Oxford Martin Programme but, from its website here, it is apparent that its multidisciplinary approach to the impact of future technology has the potential to be of great value not just to the IP/innovation community in assisting it in finding the right focus and setting the right priorities, but also for those who finance these innovations and who bear a risk that appears to rise as the impact of each new technology -- and therefore the costs associated with its development and uptake -- become ever higher.

About this title the publishers have this to say:

"Following the transition of industrial nations to knowledge economies, the financing of technological innovation has become a central issue in public policy, corporate finance and business management. This detailed book examines the role of intellectual property rights in facilitating the financing of technological innovation as well as the role of policy makers, investors and managers in this process. The book’s central finding is that public policy plays a key role in promoting the corporate disclosure of intellectual property-related information to enhance the efficiency of capital markets. This not only reduces the costs of capital for technology-driven firms but ultimately spurs innovation and economic growth".

Further details of this book are available from the publisher's website here.