Friday 28 February 2014

Reduced Federal Funding and the Decline of University Research in the US

I previously wrote about the so-called innovation deficit in the United States, here.  The innovation deficit is defined as, "The widening gap between the actual level of federal government funding for research and higher education and what the investment needs to be if the United States is to remain the world's innovation leader."  The Chronicle of Higher Education has released the results of a study of over 11,000 "researchers holding current grants from the NIH [National Institutes of Health] or NSF [National Science Foundation]" in a recent article by Paul Basken and Paul Voosen titled, "Strapped: University Scientists abandon studies and students as funds dry up."  Some of the most disturbing results of the study include: 

Nearly half [of the responding researchers] have already abandoned an area of investigation they considered central to their lab's mission.  And more than three-quarters [of the responding researchers] have reduced their recruitment of graduate students and research fellows because of economic pressure.

The article also notes that:

36 percent [of the researchers who responded] said they expected more student[ researchers] to seek jobs [outside the United States], and 21 percent have advised them to do so.  Close to half, 42 percent, have advised student[ researchers] to seek careers outside academe.  Several researchers described intentionally seeking foreign partners for their work to help prepare for an eventual move overseas. 

One question in the survey was "In response to financial pressures, have you done any of the following?"  In response to that question, 62% noted they "[r]educed lab staff," 78% noted they "[r]educed the number of graduate students and fellows," 67% noted they "[r]educed travel," and 47% "[a]bandoned an area of planned investigation that you considered central to their lab's mission."  The article does note there could be a bias because of "a selective response from aggrieved researchers" and "questions skewed toward problems, not benefits. . .."

The future is not looking bright for university research, particularly research concerning basic science, in the United States.  And, this could be damaging to the U.S. economic recovery.  What do you think?

Wednesday 26 February 2014

The branding challenge when Aerosmith meets cup of joe

Entertainers, musicians and other public personalities have usually found it to be tough going when they try to promote products under their name and personality. Not everyone can enjoy the commercial success of the Olson twins, Mary-Kate and Ashley, here. More typical are the failures that have befallen most celebrities who have attempted to market themselves through consumer products. But hope springs eternal-- witness the venture being championed by Joey Kramer, here, the legendary drummer of one of the most successful musical bands of all time, Aerosmith, here. No, Kramer has not sought to launch a new line of casual wear or perfume. That would be so “not Aerosmith”. Instead, he has launched a coffee—called “Rockin’ and Roastin'”. Not any old coffee, mind you. In the words of the company website, here, “Rockin’ and Roastin’" is mean to be “some of the finest, purest kick-ass coffee on the planet comprised of organic, custom-roasted Arabica brews in three varieties sure to please the palate of any “coffee-sseur.”

In a recent broadcast on Bloomberg radio (also available as a Bloomberg podcast), Kramer described his efforts to further the “Rockin’ and Roastin’" brand coffee. As summarized by, here:
“The story of Joey Kramer's Rockin' & Roastin' organic, custom-roasted coffee blends begins in the field. Unlike "sun grown" coffee that's cheaper to produce but requires chemical fertilizers and pesticides and leads to the destruction of native rainforests, Rockin' & Roastin' coffee is lovingly cultivated using the traditional "shade grown" method, under a canopy of indigenous trees. This sustainable practice supports a wide diversity of plant and animal life, provides food and shelter to migrating birds, and helps to filter carbon dioxide from the air, reducing the danger of global warming. There is currently a trio of international blends offered: two Dark roasts, from Sumatra and Ethiopia; and, a Dark-Medium, hailing from Guatemala.”
Having regard to the summary of this interview (and listening once again to some vintage Aerosmith music as well), I could not help but ask this question: what exactly is the branding message being sent by "Rockin’ and Roastin’" coffee? For this blogger, there are at least four distinct branding messages being conveyed.

1. The “edgy” message—First and foremost, the coffee is an extension the edgy image that Aerosmith has developed over the years. Kramer has chosen not to use his own name in branding the product. Nevertheless, as can be seen from an inspection of the company’s website, Kramer is aggressively identifying himself (and by extension the band itself) with the coffee, both by name and picture. Calling coffee “kick-ass” may convey little about coffee per se, but it certainly conjures the public view of the group (not by accident were they called “the Bad Boys from Boston”). Moreover, Kramer made it clear that there would be no decaffeinated option (“you may as well drink tea”). Given all of this, calling the coffee product “Rockin' and Roastin’" seems almost pre-ordained.

2. The “quality product” message—The coffee is not just about Kramer and Aerosmith; it is about the coffee itself. Kramer went to great length in his interview to proclaim his passion for coffee and his hands-on approach to every facet of the sourcing, selection, manufacture and distribution of the product. Coffee from Sumatra, Ethiopia and Guatemala are not selected because they are “exotic” locations but rather because they are world-beating coffee beans. At the end of the day, you will drink "Rockin’ and Roastin’" coffee because it tastes better than its competition. As Kramer said:
"The problem is in order to build a brand, you've got to be pretty much hands-on and you've got to be able to do the work yourself and not be afraid of it. I'm the CEO of this company, it's my baby; I'm not just another one of those celebrities that's putting my name on something and expecting to make millions of dollars off it. I'm into the coffee in the same way my band is into the music; you know, we're into it because it's about the music and I'm into this because it's about the coffee. I'm the CEO, I cup the coffee myself, the beans are roasted to my specs, I'm hands-on all the time."
3. The “socially conscious” message—By purchasing "Rockin’ and Roastin’" coffee, you are also making a social statement. The “shade grown” method for growing the coffee beans is good for the forest, the larger ecosystem and reducing carbon dioxide emissions. Go ahead and indulge yourself, not merely for the quality of the product but also for the collateral social benefits connected with it. As such, "Rockin' and Roastin'" is a win-win situation for all concerned.

4. The coffee is “organic”-- While Kramer and Aerosmith may connote ”edgy”, the "‘Rockin’ and Roastin’" product is also presented as organic. Thus, in the interview, he made an emphatic point that, at least in some of the chain stores carrying the coffee, the product is not found in the “coffee” section, but rather in the “organic foods” section (whatever exactly that means). As such, for a customer to make a purchase, he or she must be aware that the coffee product is found in the organic section. "Rockin’ and Roastin’" is not alone in this approach and traditional food brands are struggling a bit to keep the attention of their customers against challenges such as this, here. How far this approach of positioning "Rockin' and Roastin'" as an organic coffee will take Kramer remains an open question.

When all is said and done, Kramer and his company have sought to employ multiple banding messages in marketing and promoting the "Rockin’ and Roastin’" product. Whether has Kramer and his company have succeeded in their branding message and product placement are questions that I leave for the reader to decide.

More on cup of joe here.

Friday 21 February 2014

A Sensible Approach to the "Patent Troll" Debate in the US

Professor Timothy Holbrook of Emory University Law School has written a very sensible Op-ed titled, "Not all patent trolls are demons," that is published by CNN, here, in light of the "shotgun approach" to fixing the "Patent Troll" issue by the United States Patent and Trademark Office (USPTO), Congress, and the US courts.  Indeed, on February 20, 2014, the White House announced three new executive actions: 1) crowd sourcing prior art with the USPTO; 2) more robust technical training at the USPTO; and 3) pro bono and pro se assistance coordinated through the USPTO.  (Although I do think all three of these actions are wise.)  Professor Holbrook states:

What is lost in this mudslinging is that much of what PAEs do is laudable — paying inventors. Patents don't grow on trees. Someone came up with the invention and incurred considerable expense to obtain the patent. Many inventors can't bring their invention to market themselves, however, so selling the patent may be the only way for them to make money. By buying these patents, PAEs compensate inventors, one of patent law's objectives.  

Patents give their owners the right to seek compensation for unauthorized uses of the invention, so there is nothing wrong with a PAE enforcing a valid patent.

The key word, though, is valid. Problems arise when PAEs sue on improperly issued patents, ones that never should have gotten out of the US Patent and Trademark Office.

For example, many patents on software and business methods -- areas where PAEs often operate -- are not sufficiently different from earlier technology to justify the patent, or are too vague to discern what they legitimately cover. Even though companies can knock these patents out in court, most parties settle. But, if they aren't legitimate patents, why do parties settle? Simple: to avoid the expense.

According to a 2013 American Intellectual Property Law Association survey, median litigation costs are $3.3 million when $10 million to $25 million is at stake. Discovery -- the process of looking for evidence relevant to the case --is responsible for much of the expense. Defendants must wade through voluminous records and e-mails to find anything relevant to the case. For a case worth $10 million to $25 million, the survey estimates that the median cost through discovery in defending a PAE suit is $1.5 million.

A PAE doesn't face these expenses. Discovery is easy for it because all it has is the patent. Plus, its lawyers usually take these cases on contingency, taking a percentage of whatever money they bring in, so there are no upfront attorney costs. When manufacturing companies face these costs, many simply settle, leaving the invalid patent in place.

But these are not troll problems; they are litigation and patent quality issues. Scapegoating trolls risks disrupting the useful compensatory purpose they serve and may cause unintended consequences in non-troll litigation.

Professor Holbrook is not supportive of some of the legislative proposals; however, he does seem to think the President’s recent executive actions are solid.  Do you agree? 

Tuesday 18 February 2014

Music Export Growth Scheme: no strings attached?

"Music Export Growth Scheme opens for second round" is the big headline of a somewhat triumphalist media release from the British government's Department for Business, Innovation & Skills in conjunction with UK Trade & Investment.  It reads as follows, in relevant part:
"Fourteen talented UK-signed acts will today receive financial support to help market themselves around the world, Trade Minister Lord Livingston announced today. The successful applicants from the first round of the Music Export Growth Scheme were revealed after last night’s BRIT Awards celebrated some of the world-beating UK artists who have helped accelerate British music exports to over 13% of the global market.

The Music Export Growth Scheme has been established by UK Trade & Investment (UKTI) and the British Phonographic Industry (BPI) to help small and mid-sized independent music companies promote their artists overseas as part of wider Government efforts to get another 100,000 businesses exporting. The music companies and acts receiving the grants span the genres of rock/alternative, pop, dance/electronic, urban, classical, jazz and world music and are from London, Glasgow, Sheffield, Wiltshire, Leeds, Nottingham and Monmouth (Wales).

Trade Minister Lord Livingston said:
“...  50 years on from the Beatles arriving in the America, the Music Export Growth Scheme will give more talented young British artists the chance to be successful on the international stage. This scheme is just one of a number of ways UK Trade & Investment helps music businesses to get into the rhythm of exporting."
The artists are: * Afrikan Boy * Beth Jeans Houghton * Catfish and the Bottlemen * Drenge * Filthy Boy * Fred V & Grafix * George Benjamin * Holy Mountain * Melt Yourself Down * Public Service Broadcasting * The Crookes * The Temperance Movement [no relation of The Temperance Seven] * Throwing Snow * Zara McFarlane ...

The scheme, funded by UKTI, will make up to £2.5 million of grants available over a two and a half year period. Further application rounds will take place periodically over the next two and a half years, with the next round now open for submissions until 17 March 2014. Applications are open to all UK music companies meeting the application criteria. Full details can be found at ..."
In an earlier post on the 1709 Blog, this blogger was speculating about the absence of the word "copyright" from the information on the Music Export Growth Scheme's web page. Does anyone know whether this government support comes at a price and, if so, what that price might be?

Stock Market Reactions to Patent Litigation -- can you help?

I have had a request from Nam Nguyen (TU Darmstadt, Germany) who is currently writing a Bachelor Thesis on the topic "Stock Market Reactions to Patent Litigation".

Nam already knows of the information available from an 18 September 2013 blogpost on PatLit, "Patent litigation and stock market reactions: evidence from a recent study" -- but Nam wonders what further information on this subject can be recommended. Readers -- it's up to you!

Wednesday 12 February 2014

Books, Berkeley and Brazil--even after 500 years, it is still all about distribution:

Let’s begin at the risk of being trite—modern copyright began with the invention of the printing press and the ability to make multiple copies of a single work. Sometimes, however, we forget that mere mass production of content was not enough to transform the book into a commercial proposition. In addition to production, the book had to be distributed in some manner. Without effective distribution, the printing press and its aftermath would have been of little commercial importance. It is popularly observed that the digital online environment has brought together production (or at least reproduction of content) with distribution, whereby content can be reproduced and then digitally distributed in a seamlessly connected manner. While this is of course true, there is an element of over-simplicity in viewing digital online distribution in such a stripped down fashion. The reality is often more nuanced, as evidenced in two recent news items, the first about distributing science research contents and the second about the commencement of the sale of Kindle readers in Brazil. Let’s look at each in greater detail.

“The way scientific journals are run” was the focus of an article, entitled “What’s wrong with Science”, that appeared in the December 14, 2013 issue of The Economist, here. The gist of the piece is that Professor Randy Schekman, of the University of California, Berkeley, and a co-winner of the 2013 Nobel Prize in Medicine, here, has announced that he will henceforth “boycott” what he terms “luxury journals”, such as Cell, Nature and Science. Sheckman’s dissatisfaction with these journals is two-fold. First, he claims that they ‘artificially” limit the number of papers that they accept for publication in order to stoke demand by creating false scarcity, à la “limited-edition handbags”.

In so doing, this false scarcity serves the interests of the journals by enhancing journal subscriptions, but at the social cost of not necessarily publishing the best current research. Second, these journals help distort the enterprise of science by perpetuating the “tyranny of the ‘impact factor’ ”, which is a value that purports to show how “important” a given journal is (emphasizing “hype and faddishness”, and rewarding “who is first” rather than “who is thorough”).

It has to be noted that Schekman also edits eLife, here, an open-access journal (which means inter alia that readers are not charged) that seeks to compete with the glitzy likes of Cell, Nature and Science. The eLife journal is being supported by a number of established science charities. The premise of the journal is that scarcity of publication space is no longer limited by the number of pages in a physical copy. Freed from commercial distortions, it is claimed, eLife can better serve the scientific community by making available more quality research papers.

The second item appeared on February 7, 2014, on Entitled “Amazon tests Brazil’s retail jungle with its Kindle”, here, the article describes how Amazon has begun to sell Kindle e-readers online. Note carefully, we are not speaking about the contents of the Kindle e-reader, which continue to be delivered digitally online, nor bricks and mortar stores, where a customer can purchase a Kindle reader. Rather, what Amazon seeks to do is take online orders for the sale and distribution of the device itself. This means that Amazon must find a way of delivering the e-reader to customers throughout the vast territory of Brazil, 200 million residents strong. Interestingly, shipment of the Kindle will be free and customers will be able to pay off the e-reader in up to 12 instalment payments (though the mark-up, if any, in paying for the device on an instalment basis was not specified). In so doing, Amazon is taking head-on the challenges posed by the well-known logistical and transportation problems in Brazil, not to mention high labour costs and rigid labour law provisions as well as an oppressive tax regime. Indeed, unlike in the U.S., where Amazon relies on its own distribution network and warehouses, in Brazil, Amazon will rely on distribution of Kindle devices through what are described as “external partners”. No further details were provided about the identity of these external partners.

So what do we make of these items? As for Professor Schekman and the eLife journal, we see an attempt to break the alleged privileged position of the elite science journals and the false scarcity that they allegedly create in publishing science research, while at the same time “democratizing” the distribution of worthy scientific research. Lurking behind this effort, however, is really a tale of trade marks and goodwill. The “impact factor” is both a cause and result of the goodwill enjoyed by the elite commercial journals. The challenge of Schekman and his associates is to neutralize the goodwill enjoyed by these journals, or at least to create sufficient goodwill in the eLife journal so that it can effectively compete. Aiding this effort is the reputation that Schekman enjoys by virtue of his Nobel Prize award. Seen in this light, what appears to be a matter of finding a better way to distribute the contents of scientific research becomes a battle over establishing viable goodwill in the online publishing project.

As for the sale of the Kindle online in Brazil, the focus is not directly on the distribution of the contents per se, but the distribution of the device necessary to read online content that is accessed and stored on the e-reader. The centrality of the device in the distribution of literary content can be seen, in some sense, as an extension of the home computer (and later the laptop and the tablet). However, none of these devices, being general purpose computer machines of various kinds, is solely dedicated to accessing stored literary contents. Moreover, the special challenge of distributing content digitally is joined with the long-standing problem of physically distributing the e-reader to far-flung customers Seen in this way, Kindle’s initiative in Brazil constitutes a new form of distribution of content, reaching back to the dawn of the age of the printing press and the challenge then, and now, of how to get this content into the hands of readers.

Thursday 6 February 2014

Does -- or should -- expensive rebranding add value to the brand?

According to recent news pieces here and here, United Biscuits is relaunching its McVitie’s biscuit brand in what is a £12 million marketing project. The campaign “aims to evoke ‘the emotional role biscuits play in our lives” and means that all United Biscuits sweet products (with the exception of Go Ahead!) will be brought under the McVitie’s brand. This will include Penguin Bars and Jaffa Cakes.

An interesting aspect of this is that 90% of UK households purchased the company’s branded biscuits in 2012 and it currently holds 40% of the market.

So, what we have is the expensive rebranding of an already hugely successful brand. From a trade mark valuation perspective, a thought-provoking (it is hoped) question pops up: Does or can such rebranding add monetary value to the trade mark?

Readers of this blog are well aware that IP valuation is very much a subjective exercise, dependent significantly on the purposes of the valuation. While most of the valuation methods rely significantly on the market performance of the branded goods, some others attach significant importance on the investment placed on the brand, i.e, entail a cost approach. Within this prism, a significant investment on the brand should inevitably add to its value.

Truth be told, the cost approach is not typically relied upon when determining a brand’s value, but it is mostly regarded as a tool to inform or even validate other approaches. But even then, the amount of money poured in to freshen up the brand will still be part of the equation leading to its value determination. Therefore, expensive rebranding does add value to the brand, from an IP valuation perspective. But should it really? Isn’t investing a risk? And what if loyal consumers of the McVitie’s brand don’t ‘bite’? After all, they are already loyal and the brand does extremely well in the UK. Could this be an example “exposing” the artificial nature of IP valuation?

A big thank-you goes to our friend Nikos Prentoulis for preparing this item for IP Finance.

Sunday 2 February 2014

From Barbarians to Beggers at the Gate: Revisiting the Kodak Patent Sale Debacle

I have on various occasions discussed the saga of the Kodak patent portfolio and how a valuation of $4.5 billion for only part of the portfolio ended up in a sale and licensing of just above $500 million. Explanations have been sought to explain this colossal drop from the multibillion dollar estimate in late 2011 to a payout of only a fraction thereof within less than a year. An interesting attempt to provide answers has been offered by Mark Harris, a journalism fellow at MIT. Entitled “The Lowballing of Kodak’s Patent Portfolio”, here, and brought to my attention by the ever-helpful Patents Analytics group on LinkedIn, the piece is well worth a full read. Permit me to provide the highpoints of the article.

Even as Kodak sank deeper and deeper in its competition with Fuji and others, it continued to engage in innovation, spending nearly $500 million yearly. In so doing, it came up with inventions such as the megapixel camera. By 2012, Kodak had assembled a portfolio of 22,000 patents in 160 countries and earned more than $3 billion in licence fees between 2003 and 2011. As bankruptcy loomed, the company saw the sale of some of its patents as the way back to reinventing the company as a commercial packaging and printing enterprise.

The anticipation that its patent portfolio would fetch a reasonable sum seemed reasonable in light of the sale of the Nortel portfolio for $4.5 billion and Google’s expenditure of over $12 billion for acquisition of the Motorola Mobility business and patents. Consultants chimed in with estimates ranging from between $1.8 billion and $4.5 billion for the Kodak portfolio, against the backdrop of what should appear obvious—“patents are unique and idiosyncratic assets.” In particular, in July 2011 Kodak hired 284 Partners, here, who had been the consultants in the Nortel transaction, to advise Kodak. Focusing on 1,730 patents, the company employed a discounted cash-flow analysis, here, to estimate their value via licensing and litigation, if required. Based on this analysis, it came up with a cash flow of $3.07 billion from 2010 to 2020, with a net present value of between $2.2 billion to $2.6 billion.

Kodak relied on that estimate and proceeded to seek purchasers for the patents via an auction against the back drop of ongoing multiple litigation. Unfortunately, two weeks before the auction was set to commence, the US International Trade Commission ruled invalidated a key patent that led to a reduction in the estimated value of its portfolio to around $1.4 billion. This downward trajectory became much more pronounced when only two bids were made, the higher of which was only $250 million dollars. This amount was less than the company needed to secure loans that it had arranged for the company.

Harris goes on to explain thus:
"The potential bidders, it turned out, had organized into two camps. In one, Adobe, Apple, Facebook, and Microsoft formed a consortium led by Intellectual Ventures. In the other, RPX mustered Amazon, Google, HTC, Samsung, and the photo-printing website Shutterfly. Each participant in such a consortium gets to keep a share of the patents and a license for the rest. The cost to each is relatively low, and all gain the protective power of the entire portfolio".
At the point, as the court allowed the auction to continue, Intellectual Ventures, here, and RPX, here, perhaps the two most prominent patent aggregators (although each with a quite different business model), put together what Harris called “a superconsortium”. The two existing consortia merged and added three additional members-- Fujifilm, Huawei and RIM, with a combined market capitalization at the time of $1.5 billion (more or less the GDP of Australia). It was November 2012 and the parties reached their High Noon, here, moment. Kodak needed more money than what was being offered to secure financing of $793 million, namely such financing being contingent on Kodak raising at least $500 million from its patent portfolio. The result—the superconsortium offered $527 million in exchange for payment of $94 million for the patents under negotiation plus $433 million in licensing fees for tens of thousands of Kodak patents that had not previously been on the negotiating table (plus the mutual dropping of legal cases against each other). To put the $94 million amount in perspective: it was 4% of the initial valuation given by 284 Partners. As Harris notes, the deal was monopsony (monopoly power by the buyer) gone wild.

The reader is invited to read the Harris piece in its entirely but, even after a careful perusal, two comments remain. First, there is the question is the role of investment banks, especially in connection with the early estimates that proved to be delusionally oversized as a matter of market dynamics (though there is some question whether this particular market was distorted by anti-competition law forces). Did the banks contribute to an environment that was conducive to bubble-like estimates in the value of the portfolio? Second, is the discounted cash-flow analysis still defensible or have we reached a stage where top financial minds need to come together with IP types to develop a more valid and reliable measure of patent portfolio valuation?

Finally, for those of you too young to remember Barbarians at the Gate, see here.