IP Evolution: a chance to talk

This morning, in The Andaz Studio (a rather smart and revamped meeting room in what used at one time to be a station hotel next to London's Liverpool Street Station), a group of IP enthusiasts, administrators, owners, practitioners and monetisers came together at the invitation of AISTEMOS (on which, see earlier post here) to discuss the evolution of strategy for dealing with IP as an asset class while eating a sumptuous buffet breakfast.

With AISTEMOS CEO Nigel Swycher in the chair, Sir Robin Jacob (head of IBIL, UCL) opened the discussion by asking whether IP monetisation and its treatment as an asset class is actually such a new topic, adding some critical comments concerning the "toxic mixture" of factors that make not just patent litigation (a major driver of IP monetisation) but all litigation such big business in the United States. These comments triggered a variety of responses. Larry Cohen (Latham & Watkins) thought it easier now to raise money on the strength of ideas, though it's still true that those who need the money don't know where to go for it while those who have the money have too little idea as to how to evaluate the worth of an idea-based loan. This lack of knowledge of IP on the part of lenders, if excusable since the banking community has more to deal with than merely IP, was emphasised.

Tony Clayton (Chief Economist, UK Intellectual Property Office, which published its Banking on IP report last November) then spoke of the problem he had identified, which is not one of starting up new innovation-based businesses but one of scaling them up. In the Far East we've seen state-sponsored capital being made available, but the preference of the UK was for private sector finance. Topics raised here included the presentation of information at the point at which a loan was sought, the difference between one-patent-per-product industries and those which are more complex. The use of Big Data to unravel these complexities was advocated -- bearing in mind that machines can deal with data, but they can't understand it. Should people who make decision on the basis of data analytics be fired? That's an overstatement, but those self-same analytics can take away jobs by doing the unintelligent tasks and leaving only the intelligent tasks to IP decision-makers.

Following a short break for the purpose of replenishing empty plates and then not-so-empty stomachs, the discussion resumed, opened  again by Sir Robin.

Could we ever imagine a free market for IP, just like art, precious commodities or pork bellies? Businesses like Ocean Tomo were founded on the assumption that there could be, but the occasional auction sale or publicised transaction hasn't yet been scaled up?

Tony Clayton pointed out that this is already being done for the copyright industries with the Digital Copyright Exchange: so far, things have gone slowly [this blogger wonders whether there should be some reference to the Copyright Hub here], but the trick is to persuade people who own the copyright that there is a market for their copyright properties. By taking a non-transparent, short-term position, they are hampering the growth of the market.  Roger Burt added that there are two very different types of market for IP: one is for IP that people want to use, like essential technologies governed by FRAND terms, and one is for IP that people don't apparently want to use.

Risk: a game for some, but a matter
of life or death for an IP-owning business

The discussion then turned to the strategic use of patents in litigation, and the vulnerability of single-patent and one-patent-per-product businesses to legal threats to the validity of their registered right. The role of insurance was raised here, with some actual figures being bandied around in place of the usual generalisations about how cheap or expensive IP insurance is.  The insurance industry hasn't been reacting too well to IP, largely because of the lack of reliable data: when any IP insurance premium is calculated, much effort goes into enumerating and evaluating the many risk factors; added to this is the cost of running a due diligence exercise on an insurable prospect. With better data, insurance companies can offer better value in their policies.

Is there any catalyst that might spark a sudden IP revolution in terms of valuation and funding decisions? No, said Tony Clayton, the process will be evolutionary, as demonstrated examples of successful IP-backed loans and ventures will encourage more lenders to commit their funds.  Robert Sumroy (Slaughter and May) added that one of the problems is that we love complexity: our law is not unlike the Babylonian Talmud in its complexity, and it's enjoyable to discuss and analyse that complexity -- but that's something that has to be overcome when selling the notion of IP to those who need to know about it but do not practise it.

Tony Clayton next observed that banks are more interested in getting money back after they have lent it than in gaining a security which they can dispose of if the loan is not repaid. The quality of the patent and an understanding of it are not much use in this regard. Roger Burt supported this: the borrower's business plan is key and (as Larry Cohen observed) it's not merely the quality of the business plan but the quality of its execution that counts.

Sir Robin closed the breakfast by saying he'd never participated in a meeting quite like this. Neither had we, and a good time was had by all.

Death of a Travelling Patent Box

Blogger Jeremy's recent report on the first birthday of the UK patent box system lead to one commentator noting that the Irish had given up their system. This blogger was intrigued by the report, since he knew that at least one patent aggregation entity had set up in Ireland and assumed that this was because of the favourable tax regime. Setting up in the UK was probably not an option since the UK's scheme contains a development condition and an active ownership condition that were designed to stop PAEs from exploiting the British system.

The abolition of the Irish patent royalty relief scheme was one of the conclusions of the Irish Commission on Taxation set up in 2008 to review the appropriateness of the Irish taxation system. The committee was tasked to consider how the Irish tax system can best support economic activity and promote employment and prosperity in the country. It seems therefore strange that the UK government is promoting the patent box as a means of promoting economic activity.

The Irish scheme was a great deal simpler than the UK scheme. Basically any royalty income derived from a "qualifying patent" was exempt from income tax and corporation tax. A qualifying patent was a patent made on an invention for which the R&D work was carried out in a country in the European Economic Area.

An individual was only entitled to the royalty income if he or she were an inventor or a co-inventor. An annual limit of EUR 5 million was placed on the relief.

Dividends paid by a company our of patent income were also tax exempt. The commission concluded that the relief had not resulted in any increase in R&D activity - although they provide no data to back up their statement. It was also noted some companies were using the scheme as a taxi avoidance device to remunerate employees.

Intriguingly the commission concluded that the patent income exemption is a "windfall gain" after a successful invention, and not an incentive to encourage research and development. This is definitely an interesting claim and it would be highly useful to have some statistics to back it up. It would also seem to contradict the view of the British government that the tax savings would put more money into the innovation ecosystem. The Commission did conclude that R&D tax credit incentivises research and development activity more directly than the patent royalty scheme.

So how much did the Irish government actually save by eliminating the tax exemption for patent royalties? A mere EUR 84 million per annum in 2006. Certainly nothing like the millions that the UK scheme is supposed to release for R&D. On the other hand the Irish corporation tax rate for trading income is 12.5%, which is not significantly higher than the 10% headline rate that patent box is supposed to bring - and in practice is higher because of the need to deduct marketing assets and routine returns.

So do the Irish regret scrapping their scheme? Maybe - a discussion recently featured in the pages of the Irish Times.

Consumer electronics and IP: it's about management, stupid

It remains the great unknown: to what extent does IP contribute to the success or failure of a

company (or even an entire industry)? In truth, the possible answer to the question will depend upon the circumstances—pharma will certainly yield a different analysis to that of a media company. Even recognizing the diversity of the context, however, this blogger has had the long-felt sense that we are still far away from generalizable analytical structures that will allow us to reach reasonable conclusions across multiple settings. Against this background, I read with great interest an article that recently appeared (July 12th) in The Economist. Entitled “Eclipsed by Apple”, here, the article sought to explain the fall of the Japanese consumer electronics industry. Wherever one turns, decline in this industry is noticeable, whether it be Sony, Hitachi, Panasonic, Sharp, or lesser-known Japanese companies, with the likes of Apple and Samsung taking their place. This fall from commercial grace is particularly puzzling if one considers the various IP assets that these companies appear to possess.

Let’s begin with the power of the strong brand. I remember having lunch with a senior official of a major international IP organization who said categorically, “at the end of the day, it is not about patents or copyright. The only really valuable IP asset is brands and the goodwill that is embodied in one’s marks.” So what about the role of branding in the consumer electronics business? The Economist observes: “A strong brand is no longer enough to justify a sharply higher price” (pointing to Samsung’s recent decline in operating profits). The article attributes this in part to the fact that the consumer electronic business “is an impossible business for nearly everyone.” But that proves too much. In a cut-throat market, one might reason that a strong brand can help one stand out, even if the brand does not have the power to command as premium a price as might be desired. But that does not seem to be the case. As strong a brand as Sony once was (think of the Sony Walkman or Triniton TV), the brand seems to have been (and is) only as formidable as its latest product. A strong brand can perhaps continue to command a premium price for a while, but ultimately it is coming up with new products that matter. (Apple and Samsung, are you listening?)

If a powerful brand does not provide a sure-fire, long-term anchor for success, what about the products themselves? On this, the article had this to say:

“If their chief executives were visionary leaders willing to take risks, Japanese electronics firms could do much to regain their lost lustre, says Roderick Lappin, who heads the Japanese operations of China’s fast-rising Lenovo. Their unrivalled engineering, though often in excess of customers’ needs, is still an advantage, he says. They sit on a trove of intellectual property in the form of patents. Much of this could prove invaluable in the field of “wearable” technology or the much-hyped “‘internet of things’ …“.

It would appear that these companies have great engineering know-how and a lot of patents, particularly in a couple of emerging fields. That sounds like a great double-dose of valuable IP. But the engineering know-how seems to be detached from customer wants. As for the patents, they appear to own a lot of patents for wearables and the internet of things. But we are not really told why this “trove of patents” will make a difference for these companies in these emerging industries. Moreover, to the best of my understanding, some of these companies possessed patent troves for past and present technologies, without these patent portfolios necessarily being translated into oversized commercial success. Why will the current patent trove be any different? Or will the value of these troves be measured only if the companies do not enjoy significant success in the field of wearables and the internet of things? If so, this will be redolent of, e.g., Nortel and Kodak, both of which sold their patent portfolios because they had no other choice.

At the end of the day, perhaps the most encouraging thing said in the article about the industry was in connection with Sony, where its smartphones and tablets are enjoying some success due to “one simple, customer-centered innovation—making them waterproof.” But this does not seem to be the stuff of high-level engineering or massive patenting, but simply a shrewd management decision to give the client what it wants (or needs). If so, neither the woes nor the possible solutions to the crisis of Japanese consumer electronics rest primarily with IP. While IP and what it embodies are not unimportant, ultimately what matters is enlightened management, including, but in no way limited to, the effective creation and utilization of IP. But our understanding of how IP fits into the broader picture of successful management still has a long way to go.

Open innovation and overpropertization: a new article

"Open innovation's answer to the challenges of patent overpropertization" is an article by W. Wesley Hill, who has recently completed an LLM in Information Technology and Intellectual Property at the University of East Anglia. This article is now available online, to e-subscribers of Oxford University Press's Journal of Intellectual Property Law & Practice (the print version will be published in due course; JIPLP's website is here). According to the abstract:

In 2003, Henry Chesbrough introduced the concept of open innovation to the study of research and development (R&D). Open innovation teaches that technology advancement is best fostered through inbound and outbound R&D investment and the exchange of innovative knowledge. Patents, often the subject of technology transfer, are characterized as a bargain between the inventor and the State. Without propertization through the patent bargain, it is argued, market failure occurs.

Despite their close ties, the relationship between open innovation strategies and the patent bargain is best described as both friendly and adversarial at the same time. Propertization of innovative knowledge through the patent bargain has, paradoxically, had the effect of blocking future innovation. Due to overpropertization, patent trolls and patent thickets have arisen that threaten to stifle advancement in new technologies.

This article discusses open innovation strategies that offer answers to the challenges of overpropertization. Where rent-seeking behaviours threaten future technologies, defensive pooling manages risk; where innovation-blocking thickets arise, private sharing regimes cross-license patents; and where innovative knowledge is best protected as confidential information, trusted intermediaries can facilitate exchange. In each case, open innovation is at work.

If any readers of this blog happen also to get hold of this article, it will be good to know what they think, particularly with regard to the author's conclusion:

Open innovation emphasizes the character of the IPR as a tradable good, rather than a mere exclusionary right. As Chesbrough documents in his open innovation theory, a shift toward openness in inflows and outflows of knowledge is occurring. Perhaps the closed innovation paradigm has given way to market behaviours that are best viewed through the lens of open innovation: where rent-seeking behaviours threaten future technologies, defensive pooling manages risk; where innovation-blocking thickets arise, private sharing regimes cross-license patents; and where innovative knowledge is best protected as confidential information, trusted intermediaries can facilitate exchange. In each case, open innovation is at work, enabling technology transfer and responding to the challenges of overpropertization.

Global Innovation

Last Friday saw the Australian launch of the Global Innovation Index in Sydney. The massive 400+ page tome is co-publshed by WIPO in association with INSEAD and Cornell University. It's packed with metrics about the innovation process, ranging from R&D spend and other inputs to outputs such as the number of patents. The data is divided into country sections and it's a useful tool to identify best practices. No doubt the headline data will relate to the overall index and the placing of individual countries. The headline ranking index shows tiny Switzerland out in the lead, followed closely by the United Kingdom, Sweden and Finland. The US occupies sixth place (just in front of Singapore) and German is back in 13th place. Togo and Sudan are bottom of the list (at places 142 and 143 - not all countries are covered). Whilst Switzerland has remained global leader for a number of years. the rise in the UK position (from 10 in 2011 to second position in 2014) is fascinating. This is partly due to the country's improving economy but also due to the open markets in the UK which enable access by non-agricultural products. The report also looks at total R&D spend. Spending has rebounded back in most countries since the global financial crisis, but the amount of public (as opposed to private) R&D spend has begun to fall off. There are still countries in which the spend is lower than before the financial criss, but the message is that spending on innovation is still increasing. Hong Kong and Singapore are the only two countries in the top ten and their relative positions have changed. Singapore has overtaken Hong Kong (which has been slipping continuously over the past few years). Reports like this represent only a snapshot of economic activity and compare current performance only. A more detailed review will show that in most cases, countries improve their performance from year to year. This probably shows the main value of the reports - to highlight best practice and to encourage countries to learn from each other. The overall rankings depend, of course, on the weightings given to the various factors that make up the global index and need to be treated with some degree of scepticism, but the message is clear. Innovation leads to economic growth - as economist Robert Solow showed - and that leads to increased GDP. How that wealth is shared is then a matter of controversy, as Thomas Pitketty illustrated in his recent work, Capital in the 21st Century.

YUM Brands has Trials in China: A “Social Ideology” Fix to the Problem?

YUM Brands (YUM), the owner of KFC and Pizza Hut, has generally enjoyed enormous success in China for a “foreign brand”.  The success has been attributed to a strong first mover advantage.  And, the brand is, of course, critical to that first mover advantage.  However, YUM has struggled with issues concerning “trust,” first because of “excessive antibiotics and hormones,” which led to around a 40% drop in sales.  According to several news outlets, here and here, foreign brands are at a disadvantage to “home grown” brands in China because the news media in China is supposedly more inclined to criticize foreign companies.  So, the issue has been how to effectively rebuild trust with consumers in a foreign brand after a scandal in China.  YUM Brands became a model of success after the “antibiotics scandal” by taking immediate action:

Promis[ing] to test meat for banned drugs, strength[ing] oversight of farmers and encourag[ing] them to improve their technology. It said more than 1,000 small producers used by its 25 poultry suppliers have been eliminated from its network.

The success of the strategy (along with some tasty chicken and a better economy) appears to have helped sales bounce back 11% at KFC the past year, as reported by the BBC.  However, YUM is facing troubles again.  News has just broke about another scandal concerning the use of “expired” chicken.  What can YUM do to fix its brand?  One possible strategy was discussed in a Forbes article by Avi Dan on the information age and brand loyalty:

Do well by doing good: Marketing is no longer an economic function alone, but a social force as well. Within minutes of the Haiti earthquake, donations requested on Twitter started flowing in via text messages in coordination with the phone company. Pepsi bypassed the Super Bowl for the first time in 23 years, and instead of buying $3 million spots in the game, announced on its Facebook page that it will donate $20 million to worthy causes. Social ideology increasingly reinforces brand loyalty.

I don’t know if this strategy worked well for Pepsi, but YUM may need some new ideas.  Has this strategy worked well for other companies in dealing with a scandal?  For sure, brand owners carefully manage their image.  And, the first mover advantage is helpful, but it relies on a strong brand and if the brand fails (again), then what do you do to maintain a competitive advantage. . . . 

Education to combat piracy: great idea, but is there a metric?

I received this media release from the UK Government yesterday. I'm puzzled as to why it is embargoed till 00:01 on Saturday morning [if you're wondering, I wrote this piece yesterday afternoon and timed it to go off at 00:01] and intrigued as to what the word "today" means in the first line of the text. Presumably the Government's welcome must have happened some time in the 59 seconds available.  Anyway, this is what is says:

EMBARGOED: NOT FOR PUBLICATION OR BROADCAST UNTIL 00:01 SATURDAY 19 JULY 2014 

NEW EDUCATION PROGRAMME LAUNCHED TO COMBAT ONLINE PIRACY 

Government today welcomed a new industry scheme, Creative Content UK, which will promote legal entertainment online and warn Internet users whose connections are being used to illegally share films and music. 

Business Secretary Vince Cable and Culture Secretary Sajid Javid revealed the UK’s creative industries and internet service providers (ISPs) have agreed the joint scheme. This will aim to raise awareness of copyright by informing those whose internet connections have been used to illegally share copyright material and help them find compelling, legal alternatives. 

The Cabinet Ministers also revealed the scheme would be supported by a joint creative industry and Government three-year education campaign towards which the Government is contributing £3.5 million. 

The campaign will help to reduce online copyright infringement, raise awareness of the benefits that copyright brings and promote the use of legal digital content.

This new initiative follows a similar partnership between the movie and music industries and ISPs in the United States. The  Center for Copyright Information was established to help direct consumers to the growing array of legitimate online creative content and send out alerts to ISP subscriber accounts that have been used to illegally share films and music.  

Speaking at the Spotify offices in London, Vince Cable and Sajid Javid outlined the importance of tackling infringement and intellectual property crime and working together with businesses to crack down on online piracy which is estimated to cost the global music industry alone more than £7 billion. Business Secretary Vince Cable said: 

“The creative industries in the UK are one of our brilliant global success stories. We have unrivalled creativity – from record breaking musicians to box office films - that excite and inspire people all over the world. Yet too often that content is open to abuse by some who don’t play by the rules. That is why we are working with industry to ensure that intellectual property rights are understood and respected. Education is at the heart of this drive so people understand that piracy isn’t a victimless crime - but actually causes business to fail, harms the industry and costs jobs.” 

Culture Secretary Sajid Javid said: 

“Copyright is one of the foundations the UK economy is built on.  Our creative industries contribute £8m to the UK economy every hour and we must ensure these businesses can protect their investments. The alert programme shows industry working together to develop solutions to this threat to our creative industries.  It will play a central role in raising awareness of copyright and pointing people toward legal ways to access content, and I welcome this effort." 

Commenting on the announcement of the programme, Chris Marcich, President and Managing Director EMEA of the Motion Picture Association (MPA) said: 

"It is fantastic that the UK creative community and ISPs have come together in partnership to address online copyright infringement and raise awareness about the multitude of legitimate online services available to consumers. We are also grateful to the UK Government for backing this important new initiative. This is just one piece of the overall approach to tackling illegal online infringement and promoting the importance of copyright. This will enable consumers to receive the best possible user experience and sustains the UK’s creative community and economy, incentivising the creation of new movies and other creative content.” 

Geoff Taylor, Chief Executive of the BPI said: 

"It's a wonderful time to be a music fan - you can listen to almost any song ever released, instantly, wherever you are. But not everyone is familiar with all the different ways to do this - whether for free or from a paid service - while at the same time making sure the artist is also fairly rewarded.  This landmark initiative marks the first time that entertainment companies, broadband providers and the Government have come together in a major campaign to engage consumers through their passion for music, film, TV and other content and to support them in enjoying it safely and legally online. It should mark a real step forward for digital entertainment in the UK." 

The creative industries sector contributes £71.4 billion towards the UK economy and is estimated to support around 1.68 million jobs.

Against the contribution of £8 million per hour by the creative industries, a Government contribution of £3.5 million over three years does not sound hugely generous, particular if one surmises that online piracy is likely to drill a far larger hole in the public purse through loss of revenue in respect of income tax, corporation tax and value-added tax.

It would be great to know how the costing of this programme has been calculated, and how its cost-effectiveness will be measured.

Patent boxes, the European Commission and harmful tax practices

Writing in Reddie & Grose's Monthly Bulletin, Paul Loustalan reminds us that the United Kingdom's Patent Box has just had its first birthday.  The Patent Box lets companies reduce the amount of corporation tax payable on profits attributable to a granted UK, or other qualifying, patent.  He adds a note of warning:

"... The referral of the UK Patent Box to the EU Commission ... was seemingly put into the long grass, but it looks like interest by the Commission has now been rekindled. The HM Treasury’s recent report on tackling aggressive tax planning shows that the UK Government believes that the UK Patent Box is not in violation of the EU code. Nevertheless, as the report states, the Government is seeking:

“a better understanding of what constitutes substance … so as to effectively address those instances where preferential regimes do present an opportunity to shift profits. This will give certainty to the operation of legitimate tax regimes, such as the UK’s Patent Box, which is currently under consideration in the FHTP [Forum for Harmful Tax Practices], and the Government believes that most of the activities currently qualifying for the UK Patent Box would meet any such substance test.”

The “substance” refers to the substantial activity that must occur in a jurisdiction by a company to legitimately benefit from a preferential tax regime. Clearly, the Government is still set to defend the Patent Box ..."

The European Commission's interest is not confined to the UK: patent boxes are reported to be offered in one form or another in nine European countries but this blogger can name only eight (seven of which are in the EU and therefore legitimate targets for the Commission): Belgium, France, Ireland, Luxembourg, the Netherlands, Spain, Switzerland and the UK. Can anyone let us know the ninth? (China also has them, but it's not in Europe ...)

IP data aggregation and analytics: introducing AISTEMOS

It is with no little personal pleasure that this blogger can write a word or two about AISTEMOS, which so far as he can tell is the first IP business intelligence tool to aggregate, analyse and visualise the criteria that driver patent risk and value for the wider business community.

AISTEMOS launched a Beta version of its first product, CIPHER in June [there's a short video of the launch here]: this was recently demonstrated at Intellectual Asset Management (IAM) magazine's IP Business Congress 2014 event in Amsterdam, which was timed to coincide with the publication in IAM of an article, "Big Data solutions to determining IP risk and value", by AISTEMOS CEO Nigel Swycher (a one-time student of IPKat blogmeister Jeremy).

Early progress has so far been impressive. The company has assembled a Pilot Group which includes many organisations that have never factored into their considerations the vast amounts of publicly available information that is available about IP assets and related events, such as litigation and licensing. This group includes major companies, banks, accountants, law firms, patents attorneys, consultants (you can check out the full list here).

There are many reasons why it is inly now that a product of this sort has been developed. These include the significant increase in and the availability of data and the reduced cost of the computing power necessary to analyse the data. Supply of data and low-cost computing was a necessary condition, but not however a sufficient one: there also had to be market demand, plus the increased recognition that IP is a vital and valuable asset class means that access to fast, comprehensive and comprehensible data is essential.

CIPHER is built on the belief that all patent data has an impact on either risk or value, and that risk and value are relative and not absolute measures. When depicted graphically, this enables any company to be plotted relative to other companies that own similar IP. Here on the right is a representation of the CIPHER Grid. AISTEMOS refers to CIPHER as a big data solution. By this, they seek to convey that the strength of their product is its ability to aggregate a number of large and varied datasets, including Derwent (from Thomson Reuters), ktMINE (patent licences), Lex Machina and Patent Freedom (IP litigation), not to mention other specialist datasets relating to corporate ownership and patent strength. So while it is right to be sceptical about any company that claims to be first at anything, it's easy to see the significant challenge that AISTEMOS has taken on.

Disclosure: this blogger is a member of the AISTEMOS advisory board.

Changes to the Bayh-Dole Act by the American Invents Act—Too Soon to Tell if They are Successful?

The U.S. Leahy-Smith American Invents Act (AIA) made some changes to the Bayh-Dole Act.  First, the AIA modified the Bayh-Dole Act to conform to the AIA’s new 102(b) “grace period provision.”  For a discussion of that and implications for Bayh-Dole compliance, see Eric W. Guttag, Bayh-Dole ComplianceObligations Meet American Invents Act on the IP Watchdogblog. 

Another change involves the amount of royalties or income retained and used by a contractor using a Government-owned-contractor-operated (GOCO) facility.  What is a GOCO facility and why do they exist?  Here is a discussion of U.S. Department of Energy GOCO facilities:

DOE’s national laboratories are “Government-Owned, Contractor-Operated” laboratories, managed under a unique legal relationship by a Management and Operating (M&O) contractor. Under this management model, which had its origins in the Manhattan project and was formalized by the Atomic Energy Commission, national laboratories are owned by the federal government and operated by university, non-profit or industrial contractors. The M&O/GOCO model was specifically selected because the “arm’s-length” relationship it created afforded far greater flexibility than other, more traditional contracting mechanisms in managing scientific institutions that must be able to attract world-class scientific talent and adapt quickly to changing national research priorities and advances in science and technology. The M&O/GOCO model allows the contractors to bring the best private sector personnel and research management practices to the national laboratories, and provides the laboratories with the flexibility necessary to broadly engage academia and the private sector.

National laboratory contractors are selected competitively, under a procurement policy designed to support robust performance management, and balance DOE’s interests in obtaining best value with the benefits of long-term relationships and stability for which the M&O/GOCO model was designed. The success of the M&O/GOCO model is demonstrated by the fact that the DOE laboratories, and the small number of major laboratories managed by other agencies using similar approaches, have been recognized as among the world’s leading research institutions, with records of sustained scientific excellence and critical contributions to the Nation’s security for as long as sixty years.

The Bayh-Dole Act, before the AIA change, essentially provided that the U.S. Treasury was to be paid 75% of the royalties or income from a government funded patented invention developed at a GOCO in certain circumstances.  This obligation to pay 75% to the U.S. Treasury arises if after paying “patenting costs, licensing costs, payments to inventors, and other expenses,” the remaining royalties or income “exceeds 5% of the annual budget of the facility.”  The remaining 25% “shall be used by the contractor for scientific research, development, and education consistent with the research and development mission and objectives of the facility, including activities that increase the licensing potential of other inventions of the facility . . ..”  The AIA changes the percentages from 75% to the U.S. Treasury to 15% to the U.S. Treasury, and the 25%  to the contractor to 85% to the contractor (for the above stated purposes).  This is a substantial shift in the allocation of revenue for apparent “blockbuster” type developments paid for by public funding at a GOCO facility.  Why the change?  The House Judiciary Committee Report on the American Invents Act provides the answer.  It states, in pertinent part:

The Senate Judiciary Committee considered testimony that the requirement to repay the government 75 percent of the excess on royalty payments may be causing a disincentive for universities and small businesses operating under the GOCO provisions to commercialize products.  Based on these concerns, the Act maintains the essence of the agreement GOCOs made with the taxpayers when they received funding that they would reimburse the taxpayer if they are sufficiently successful in commercializing a product invented with taxpayer dollars, but which reduces the burden on universities and small businesses, thereby encouraging commercialization.

The effective date of the AIA for these changes was September 16, 2011.  Has there been increased demand for GOCOs facilities and patented inventions?  Has it been easier to find commercialization partners since the effective date of the AIA for these changes?  Is it too early to find commercialized inventions arguably arising because of the changes? (probably so).   

  

Authors' earnings: some depressing data, but is there hope ahead?

With apologies for an element of cross-posting to readers of the copyright-focused 1709 Blog, this blog also reports on the survey on authors' earnings commissioned by the Authors' Licensing and Collecting Society (ALCS) in the United Kingdom from Queen Mary, University London's Phillip Johnson, Johanna Gibson and Gaetano Dimita).

The survey, What Are Words Worth Now? A Survey of Authors' Earnings, gives a non-too-encouraging picture of what an author might expect if he or she decides to live on income comprised of royalty revenue. You can read the report (12 pages) here. Among its findings, the report confirms that earnings derived from the digital commercialisation of authors' works are on the increase, but that overall incomes are coming down: the proportion of professional authors who earn a living solely from writing has fallen from 40% in 2005 to just 11.5% by 2013.

This blogger suspects that this figure may pick up a bit as more authors opt for self-publishing models and online delivery, while more readers use the internet for finding, selecting, buying and reading works, but there is a limit to the extent to which these efficiencies will compensate for the traditional ways of bringing books and their purchasers together, and entire categories of work such as interactive children's books and coffee-table books are unlikely to see any meaningful benefit at all.

A Promising Conference focusing on "Common Ground"

As we all know, IP is a hot (and important) field and there are more interesting conferences concerning IP than any one person could attend.  However, here is one that has piqued my interest as it holds the promise to focus and build on what brings two groups together.  The conference is titled, "Common Ground: How Intellectual Property Unites Creators and Innovators" and is sponsored by George Mason University School of Law (October 9-10, 2014).  Here is a description of the theme of the conference:

This groundbreaking conference will explore the common ground shared by the innovation industries and the creative industries, where intellectual property secures bold risk-taking and revolutionary ingenuity by artists and inventors alike.

 

We will take a long overdue, fresh look at the relationship between these two central parts of the U.S. economy.  Stale conventional wisdom says that the creative industries and innovation industries are inevitably and irreconcilably in conflict.  The story goes that creators’ rights are “obstacles” to innovation, and that technological innovation harms creators.  This conventional wisdom is wrong.

The true story of innovation and creativity is a virtuous circle.  Technology gives artists and creators the tools to create entirely new mediums and the ability to reach worldwide audiences. Creativity, in turn, fuels the video, music, and games that make smartphones, iPads, and even the entire Internet so well-loved.

Innovation is creative and creativity is innovative.  Both industries engage in brilliant intellectual work to bring new products and services into the world and both take great risks to commercialize their work. Both also depend on intellectual property, which secures their work and investment, thus promoting the virtuous circle of creativity and innovation.

Notably, Professor Richard Epstein is the keynote speaker for the event.  I have two hopes for the conference.  The first is that it is available via webinar.  The second is that it takes an "international viewpoint" and is not solely U.S. focused. 

10 challenges to valuing IP: a webinar

"Why it is so difficult to Value IP: Overcoming the 10 Challenges of Valuing Intangible Assets" is a free webinar coming up later this month, organised by Oxfirst (the consultancy driven by our one-time blog colleague Roya Ghafele). The star turn is the experienced Douglas Graham (currently Oxfirst-Iddex Director; formerly CEO and Chairman of Circle Trust, a bank administering $8.5 Billion in assets and a senior partner for Security and Financial Services at KPMG, among other things). The thrust Douglas's talk is this:

Intangible assets represent a major share of today’s businesses. The IP rights associated with those assets are the legal underpinning in that innovation. Yet, despite their fundamental importance, there is a lack of understanding of the economic worth of IP. There is a clear need to increase market actors’ understanding and certainty in IP valuation methods as a way to stimulate IP transactions, to support IP based financing and to give companies the tools to provide information about their IP [one man's opinion? No, it's the view of the IP Valuation Expert Group, European Commission, 2014].

This talk explains what the 10 major challenges of IP valuation are and what can be done to overcome them.

This webinar takes place on 18 July 2014, at precisely 14.30 pm (U.K. Time). To join, just email your name, affiliation and email address to info@oxfirst.com in order to receive an invitation containing login details.

This blogger loves lists and wonders how many challenges to valuing IP the readership of this blog can notch up.  Please email your list of challenges to jjip@btinternet.com and they'll all be listed ahead of the webinar if possible.

Creative industry tax reliefs: have you checked out the HMRC website?

In the UK, Her Majesty's Revenue and Customs has recently revised its web page on Creative Industry Tax Reliefs. According to the rubric:

"Creative industry tax reliefs (CITR) are a group of 5 Corporation Tax reliefs that allow qualifying companies to claim a larger deduction, or in some circumstances claim a payable tax credit when calculating their taxable profits.

These reliefs work by increasing the amount of allowable expenditure. Where your company makes a loss, you may be able to 'surrender' the loss and convert some or all of it into a payable tax credit.

Film Tax Relief (FTR) was introduced in April 2007 and 2 additional reliefs were introduced in April 2013. These are Animation Tax Relief (ATR) and High-end Television Tax Relief (HTR). A fourth relief for Video Games Development was introduced from 1 April 2014. A fifth relief for Theatre Tax Relief is to be introduced in Autumn 2014".

This web page, which is full of links and useful information, explains who can claim the reliefs, and how and when to claim. If you are creative, pay UK tax and either run at a loss or are a big spender, it might be worth taking a careful look ...

Cleantech Group 2014 national Index: will cleantech's future always be ahead of it?

There is hardly a dearth of rankings for various hi-tech fields, whether based on companies or countries. Nevertheless, this blogger has not encountered an abundance of such rankings in the area of cleantech. It was with particular interest that his attention was drawn to the Global Cleantech Innovation Index 2014, published in partnership between the Cleantech Group, here and World Wildlife Fund (WWF), here, with the cooperation of The Swedish Agency for Economic and Regional Growth (Tillväxtverket), here. This is the second such report, the first having been published in 2012. Forty countries were included in the report (readers interested in reading the full report may subscribe for a free download, here.)

The study conceives of “clean tech” broadly, noting as follows:

“The term has been used interchangeably with ‘resource innovation’, ‘industrial efficiency’, ‘sustainable technology’, but all essentially have the same meaning – doing more with less (e.g. fewer materials, less energy expenditure, reduced water availability),while making money doing so.” 

The ranking (called “index scores”) for each country is based on the “the average between inputs to innovation and outputs of innovation”, where “inputs” address the “creation of innovation” by a country, while “outputs” relate to the ability to commercialize such innovation. Generally speaking, inputs to innovation considered both a country’s “general innovation drivers” and “cleantech-specific innovation drivers.” Outputs to innovation considered what was called “evidence of emerging cleantech innovation” as well as indicia for commercializing this innovation. Further refinement of the methodology is set out in the report.

Based on this methodology, the results found that the top ten countries for cleantech innovation are as follows: Israel, Finland, United States, Sweden, Denmark, United Kingdom, Canada, Switzerland, Germany and Ireland. Israel’s ranking at the list was attributed in material part to its “outperformance of start-up companies per capita”, together with an especially fertile environment for start-up activities (as captured in the best-selling book about Israel, Start-Up Nation, here). The Report noted that, while such countries as China, India, and Brazil are not yet in the top rung, it can be expected that their rankings will rise given their research capabilities and commercial needs. The Report further observed that so-called laggards, such as Russia and Saudi Arabia, can be expected to show improvement in the cleantech area (that said, one wonders whether such prognostications may not have a whiff of political sensibility.)

From the point of view of patent activity, the Report noted a 100% increase in activity among the 40 countries between 2008-2011, with the United States and Japan leading the way. On a GDP basis, South Korea leads in the number of cleantech patents. In that connection, South Korea was mentioned for its implementation of fast track examination of in “green innovation” (Canada, the UK and Israel were also mentioned in this regard). For further discussion about fast tracking of “green” patents, see Antoine Dechezleprêtre , “Fast-tracking Green Patent Applications: An Empirical Analysis”, published by International Centre for Trade and Sustainable Development (ICTSD), here. It is unfortunate that more recent information about patent filings was not included and it is hoped that future reports will update patent filing data.

One can always query to what extent a ranking of this kind, based on taking the average of various factors, reflects what is really going on within the various countries surveyed. Seen from this angle, the index is perhaps most useful in setting out the broad categories of countries at the top, middle and bottom of the range of cleantech innovation and commercialization. Moreover, the Report includes substantial discussion of the cleantech innovation situation at the country level, which helps the reader get a much better feel for the nuances of various country situations. What emerges is a dizzyingly degree of diversity among the countries surveyed.

Perhaps the biggest cause for concern that comes out of this study is the disjunction between high levels of research innovation
and low levels of successful commercialization. There is no better example than Israel. Despite its overall no. 1 ranking on the index, it ranked only in 8th place in commercialization. Even more, Israel, together with Finland and Sweden, show the largest gap between cleantech innovative activity and monetizing the results of such research. Indeed, except for Denmark, the study found that virtually all countries with high levels of innovative activity in cleantech are finding commercialization to be a continuing challenge. A famous sportscaster in the U.S., Curt Gowdy, here, would sometimes observe that athletes had "their future ahead of them.” While Gowdy was sometimes mocked for saying this (isn’t the future always ahead of us?), there is a melancholy truth in his words, especially as they apply to cleantech. It is often observed that cleantech continues to be the “technology of the future” rather than the present. How we get from here to there is still the overarching challenge, no matter which countries come out on top.

The Intangible Asset Network: will it thrive?

"Learn, manage and create value from intangible assets" is the proud boast of the UK government's Intangible Asset Network website, which you can take a look at here.  According to the GOV.UK web page that announces it,

Intangible assets encompass a broad range of assets, for example, data, software, knowledge management systems, business processes, goodwill, licences and intellectual property rights.

Intangible assets have similar characteristics to tangible assets in that they can be owned or controlled by an organization and may have a monetary value.

The National Asset Register indicates that the value of the public sector intangible asset base is substantial, amounting to several billion pounds.

The intangible assets website aims to:

• help you learn about intangible assets
• help you manage intangible assets and create value from them
• highlight the risks to your organisation if you don’t manage intangible assets effectively

It is directed particularly at finance officers, information officers and project managers as they are likely to hold some level of responsibility for the management of intangible assets.

It should be noted that policies have been developed for the re-use of public information. While the commercialisation of public sector intangible assets might be a legitimate activity these policies and the relevant legislation must be considered.

The content has been developed by a project team comprising:

• The Intellectual Property Office
• Environment Agency
• Ministry of Defence
• Intellectual Assets Centre, Scotland
• Foreign and Commonwealth Office Services
• The National Archives
• Department of Health and NHS National Innovation Centre

At present there doesn't seem to be much of substance, but there are plenty of clickables in the side bar which presumably will populate the site and the network with live, current and ideally useful information. 

Let's keep an eye on this initiative and see whether and, if so, how, it grows.

Who are the “Good” “Trolls”? Or, How to Monetize Well?

This blog, in the past, has discussed the merits of so-called “patent trolls” or patent assertion entities (PAEs), here, here and here.  For sure, some PAEs or "trolls" provide a helpful service for firms, universities and some inventors without the wherewithal to enforce their patents.  And, defining exactly what is a “troll” may be a difficult task.  But, are all PAEs and “trolls” the same?  Are there good PAEs and “trolls”, and bad PAEs and “trolls”?  How do you tell the difference?  Joe Beyers and Wayne P. Sobon (both of Inventergy) recently published an article on Corporate Counsel titled, “Do’s and Don’ts of Corporate Patent Monetization.”  The article helpfully explains why patent owners should beware the bad “trolls” or PAEs and should partner with the good “trolls” or PAEs.  Why should they be concerned?  The authors wisely state that protection of the brand is paramount.  Association with a “bad” PAE or “troll” could reflect negatively upon the patent owner.  The authors provide a list of criteria for choosing a “licensing partner”.  Here are the “Don’ts”:

1. DON’T choose a licensor with a reputation for acquiring poor-quality patents and quickly suing.

2. DON’T select a licensor with a history of settling claims for a lot less than the cost of litigation (i.e., “nuisance fees”).

3. DON’T work with a licensor that sends widespread demand letters to multiple companies with little or no evidence that its patents are being infringed.

4. DON’T use a licensor that’s been the subject of any state actions or consent decrees, or has been forced to pay an opposing party’s attorneys’ fees.

5. DON’T partner with a licensor that operates behind hidden shell companies or otherwise has a reputation for abusive patent assertion behavior.

Here are the Do’s:

1. DO select a licensor that has made a public commitment to transparency and ethical business practices—and then speak with its licensees to confirm that this commitment is genuine in deed as well as word.

2. DO work with a licensor that seeks licenses only from appropriate companies (rather than startups or small retail businesses), and that comes to negotiations with substantive claim charts and other evidence of use.

3. DO choose a licensor that selects, owns and manages high-quality patent assets developed by global operating companies with reputations for innovation, like you.

4. DO use a licensor that takes active steps and commits material resources to ensure the quality of its patents, and vets them prior to licensing.

5. DO ensure that members of the licensor’s executive team have product or service company experience, and understand the needs and concerns of companies like yours regarding patent value creation.

This brings me to my next question.  Well readers, who are the “good” “PAEs” or “trolls”?  Please name them.  

I suppose maybe there are no “trolls”--just naughty behavior.