A Proposal for the U.S. to Adopt the Patent Box

In a recent article published in the Stanford Journal of Law, Business and Finance titled, It is Time for the United States to Implement a Patent Box Tax Regime to Encourage Domestic Manufacturing, Bernard Knight, current partner at McDermott, Will & Emery and former General Counsel to the United States Patent and Trademark Office (USPTO), and Goud Maragani, Senior Counsel at the USPTO, advocate for the United States to adopt the Patent Box.  The article argues that a loss of domestic manufacturing leads to the loss of “future follow-on innovation.”  Basically, out-sourcing is hurting the U.S. economy in more ways than just the loss of manufacturing jobs.  The article reviews the literature concerning “the link between domestic manufacturing and research and development (R&D) and explains why domestic manufacturing is critical to innovation.”  The article notes a Brookings Institute study which demonstrated that:  “within the United States, regions with higher patenting activity have higher productivity and lower unemployment.”  The article further reviews the patent box regimes of Belguim, Luxemburg, the Netherlands, China, France and the United Kingdom.  In concluding that the U.S. should adopt a variation of the patent box, the authors note:

For the reasons discussed below, it is unclear from the available data whether patent boxes are serving their intended purposes of attracting R&D and increasing the commercialization of innovative products. The available data is limited because of the newness of patent box tax regimes.  Although data about the efficacy of patent box tax incentives is limited, there is some evidence that patent box policies induce firms to patent more in countries with a patent box.  In addition, the GSK example discussed earlier demonstrates that a properly designed patent box--even one without a requirement for domestic R&D or manufacturing--can attract new manufacturing facilities.

Despite the limited evidence about the effectiveness of patent box regimes, it may be possible to predict what type of impact a patent box regime could have by looking at the relationship between the R&D tax credit and the amount of research conducted domestically by companies. The United States implemented an R&D tax credit in 1981, which only applies to research performed domestically. Studies have found that every dollar of foregone tax revenue attributed to the R&D tax credit leads to between $1.10 and $2.90 in additional domestic R&D spending by companies. A lower tax on profits from domestically-produced patented products may have a similar impact on investment in factories in the United States (i.e., investment in factories will increase).

Some observers believe there is evidence that “links patent box policies to increased patent activity, but not necessarily to job growth.” Part of the reason for this finding may be that each of the European patent box regimes does not require that some, or even all, of the R&D or manufacturing occur in the nation with the patent box regime. “The reason for this seemingly obvious shortfall is simple: The European Union prohibits member nations from conditioning commercialization incentives on the performance of R&D within that nation.”

As a result, under all of the regimes considered in this Article, a company could theoretically purchase patents from a third party, contract with a R&D company in a foreign jurisdiction to have the patents marginally developed and, then, hold the patent in the patent box country and license it to other companies for subsequent manufacturing. In doing so, the hypothetical company would be able to take advantage of a patent box regime without conducting any R&D or participating in any manufacturing activities in its domestic country.

As this hypothetical demonstrates, because the European Union nations cannot require domestic R&D and/or production, they “are not reaping the full benefits of their patent box policies.” In other words, the potential of innovation to drive economic growth and job creation higher appears tied to the amount of the innovation that is manufactured or developed locally. There is no equivalent law that would limit the United States' ability to require a company to engage in domestic production to avail itself of the lower tax rate in a patent box tax regime.

Hat tip to Professor Paul Caron’s Taxprof Blog.  The full article is available on LexisNexis, Hein Online or Westlaw. 

Interbrand Releases 2014 Brand Value Rankings: The Technology Brand Rules

CNN reports that Interbrand recently released its 2014 Brand Value Rankings.  Notably, two brands have a valuation of over 100 billion dollars: Apple (almost $119 billion) and Google (over $107 billion).  In 2013, Apple was valued around $98 billion and Google around $93 billion.  Also, the 2013 valuations were about 28% higher than the prior year for Apple and 34% higher than the prior year for Google.  Eleven of the top 20 are “technology sector” companies.  Coca-Cola and McDonalds are the only two food service companies in the top 20.  Four of the top 20 are from the automobile industry and Gillette, Louis Vuitton and Disney are also in the top 20.  Interestingly, HP, Louis Vuitton, GE, IBM and Gillette, all members of the top 20, dropped in value from the prior year.  The highest riser for the top 100 brands is Facebook—at a whopping 86% increase in value.  Audi, Volkswagen and Nissan also had double digit increases in value.  Barely making the list, Nintendo dropped 33% and Nokia dropped 44%.  The rankings are available, here.  The methodology is here. 

Multi-sided platforms: making money, spending money and watching out for the competition folk: an event

"Multi-Sided Platforms: Business, Economics & Competition Policy" is an event organised by the UCL Faculty of Laws this coming Wednesday, 29 October 2014 from 13:00 to 19:30 GMT. According to the event's publicity material:

Old-style multi-sided platforms:
but the IP-driven variety are
more flexible -- and profitable 

Multi-sided platforms are businesses that act as intermediaries between several interdependent groups of customers. They are central to many industries including payment systems, financial exchanges, advertising-supported media, much of online, and various kinds of marketplaces including shopping malls. Some of the largest IPOs in recent years have involved multisided platforms such as Facebook and, soon, Alibaba. They are also often at the centre of debates concerning competition policy and sectoral regulation. Google and Uber are two that are making headlines in the European Union.

This course will cover the unique business models followed by multi-sided businesses; the economics of multi-sided platforms and the industries they anchor; the applications of competition policy to multi-sided platforms; a survey of key competition policy and regulator matters involving these platforms; and tools and techniques for competition policy analysis.

The course will include presentations from several executives of platform startups including Will Page (Chief Economist at Spotify [and the person who tipped us off about this event]) and Alain Falys (Founder and CEO, Yoyo).

The course will consist of three segments:

• The Business and Economics of Multi-sided Platforms.
• Market Definition, Market Power, and Merger Analysis for Multi-sided Platforms
• Abuse of Dominance and Coordinated Practices for Multi-sided Platforms

The course will draw extensively on examples of multi-sided platform cases involving online businesses and payments.

More details and registration here.

If any readers of this blog are in attendance, can they let us know of any interesting bits that they can share with us?

T4J: a new business model for journalists?

This blogger has just unearthed an item that arrived a few weeks ago, only to be buried beneath an avalanche of incoming correspondence.  It relates to T4J, or Translators for Journalists if you want to be formal about it.  T4J's rubric runs like this:

Faced with digitization and a daunting task only they can do, professional journalists in every country must overcome the same problem: reporting the facts despite increasingly limited resources. T4J is a high-quality, low-cost means for journalists to obtain content, credit [corresponding to the author's moral rights -- not easy in jurisdictions like the UK in which works written for the purpose of reporting current events or to works published in a newspaper, magazine or similar periodical: see the Copyright, Designs and Patents Act 1988, s.79] and income [corresponding to the author's economic right]. Translators for Journalists (T4J) is a multilingual marketplace allowing professional journalists to buy and sell content, translated by expert linguists at local prices.

It is backed by a network of professional translators in 181 countries with long-standing experience in translating press articles in 67 languages.
... 

T4J translators monitor on-line media in their working language for articles of potential interest to foreign journalists. Exclusively with the copyright owners’ permission, T4J linguists translate and publish relevant excerpts, free of charge, allowing foreign journalists to decide whether to purchase and publish the full translation. The translator and copyright owner are paid a commission on each sale, maximizing the credit and income they gain from their work.

What it costs

The price of each article depends on the volume of text and the location of the translator: T4J linguists specify translation prices according to their domestic market, thus optimizing costs for buyers.

On average, it costs 50% less to translate an article than to write it (Sources: Journalist rates, JuriTravail Aug. 2014; Translation rates, Inttranews Aug. 2014).

What you get

- T4J articles written by fellow journalists, for trustworthy content.
- T4J articles written by foreign journalists, for different content.
- T4J articles unindexed by search engines, for new content.
- T4J articles for sale worldwide, for a new source of revenue.

The role of a proactive licensing agent-cum-translator looks like an interesting emerging business model that is ideally suited to the internet era.  Do any readers have experience of this kind of work?

New Frontiers in Open Innovation

IP Finance's friends at Oxfirst are running a free webinar on Monday 3 November 2014 at 16.00 pm GMT, under the title "New Frontiers in Open Innovation" [which coincidentally happens to be the name of a new book ...].  The star performers are (i) Henry Chesbrough (organizational theorist, academic and the man who coined the term "open innovation"), (ii) Wim Vanhaverbeke (fellow academic co-founder with Henry Chesbrough of the European Innovation Forum) and (iii) Joel West, who co-edited Open Innovation: Researching a New Paradigm as well as this new book with the first and second named participants.

So what's this event about?  Oxfirst explain:

"Companies have to innovate to stay competitive, and they have to collaborate with other organizations to innovate effectively. Although the benefits of "open innovation" have been described in detail before, mechanisms underlying how companies can be successful "open innovators" have not be understood well. A growing community of innovation management researchers started to develop different frameworks to understand open innovation in a more systematic way.  In the spirit of an open approach to innovation, the editors have engaged other scholars and practitioners (Oxfirst included) to contribute some of their interesting insights in this book".

Register here (nb space is limited)
System details here

Smartphone app developers:maybe it is not only the birds who should be angry

I recently considered elsewhere the challenges of succeeding as an app developer for the smartphone space. The immediate occasion was the announcement of staff redundancies at Rovio, the Finnish developer of the popular Angry Birds game. In that connection, I raised three points with potentially wider application:

1. How far can viral success of one’s mobile app take a developer commercially?
2. Will positive network effects regarding one’s app improve the likelihood of success?
3. Is it possible to build a mobile game “franchise” that can transcend a one-off success?

Thinking about these questions further, I realized that I had perhaps not fully appreciated the scope of the challenge posed for developers of entertainment and games apps on the smartphone platform. The more that I pondered the matter, the more it seems possible that the smartphone environment simply offer limited opportunities for the creators of original entertainment and game content to enjoy sustained and durable success. This is not to say that users do not make use of their smartphone in a variety of ways by which the user is engaged in content that is accessed on the device. But this content is for the most part matters of news, search, transactions, social media interactions, and other forms of content that cannot be described as original entertainment or games. In reading and listening to commercial discussions of the smartphone ecosystem, nearly all the talk is about who will dominate the market for the device itself, with some consideration about which platforms and content delivery services will successfully layer themselves onto the device. The creators of original entertainment and game content are seldom, if ever mentioned.

For instance, I recall the discussions a while ago about whether Facebook could successfully manage the move from the computer to the smartphone. The answer seems to be “yes”, and the extent that this migration of Facebook to the smartphone enables the user to access original content, the smartphone does provide a platform for entertainment and games. But such possibilities are the exception rather than the rule. Moreover, the big commercial winner in this situation is the intermediator—Facebook---rather than the content creator, who is in some sense at the mercy of Facebook. Indeed, studies seem to indicate that the typical user may have tens of applications stored in his smartphone, but that he or she uses only single-digit number of these apps on a regular basis. This as well puts a premium on the ability of a platform with the potential to distribute original content to users, rather than the accessing of off-off game (even a game that has successfully created multiple entertainment apps under a single brand).

Moreover, there is the question of just how attractive the smartphone screen can ever be for displaying entertainment contents for consumption by users. My anecdotal impression is, at the moment, that tablets are much more popular than smartphones for this purpose (although that impression is tempered by my observations of the manner of smartphone use by teens and young adults on the subways of such cities as Hong Kong, Singapore, Shanghai and Beijing). With smartphone screens getting larger, tablet screens getting smaller, and hybrid categories such as the phablet appearing, the stark distinction between smartphones and tablets may become less relevant. Still, as a general matter, the smaller the screen, the less likely, it would seem, that the user will view entertain content on it. If this be true, then the lot of the apps developer of entertainment or game content for the smartphone may well be facing limited opportunities, at least if the goal is to develop a franchise brand on the smartphone platform. This may not be just Rovio’s problem, but that of the entire industry.

"Patents and Telecoms": a forthcoming symposium

"Patents in Telecoms" is a fascinating area for contentious and non-contentious IP experts and practitioners alike. As  the title of a conference, however, it doesn't give away very much information.  A symposium with that very title is however soon to be held in the lovely facilities of the George Washington University's Jack Morton Auditorium, under the joint auspices of leading academic institutions IBIL (the Institute of Brand and Innovation Law, University College London) and George Washington University -- with active support from the European Telecommunications Standards Institute (ETSI) and  the Groupe Speciale Mobile Association (GSMA).

So what is this event all about? On 6 and 7 November, an embarrassingly impressive roster of participants is coming together to review key issues in this tantalisingly difficult sector. There will be a Judge’s Panel with Chief Judge Sharon Prost, Justice Bennett from Australia (who spent nearly a year trying the Australian bit of Apple v Samsung before the parties settled), Judge Deichfuss (German Supreme Court), Judge Kalden (Dutch Court of Appeal) and Lord Justice Floyd (Court of Appeal, England and Wales).  There's also a Regulators' Panel which features major personalities from the Federal Trade Commission, the US Department of Justice, and the European Commission.

In addition to the judges and regulators, there are contributions from some of the most important companies in rhe sector, with speakers from standard setting bodies, operators, manufacturers, licensors, licensees, patent assertion entities, lawyers and industry experts.

Regular readers of this weblog will need little reminding of the importance of FRAND licence schemes [a selection of our FRAND-related posts can be read here]. The symposium offers a panel session on FRAND defences to patent infringement and how to calculate FRAND royalties, moderated by Roger G. Brook (Cravath, Swaine & Moore LLP) and with Professor Sir Robin Jacob, Brian Napper (FTI), Professor David Teece (UC Berkeley) and Gregory Sidak (Criterion Economics).

Regarding patents as an asset class, and the issues involved in pricing and trading in them [a topic covered by IP Finance's recent dialogue between Joff Wild and Neil Wilkof, here], Sharaz Gill (Skepsis) is moderating a further panel on buying and selling patents, featuring Will Plut (Patent Profit International), Linda Biel (Allied Security Trust), Duane Valz (Google), Aleksander Mehrle (Sisvel) and Chris Israel (American Continental Group).

There's plenty more to stimulate the interest of the patent-and-telecom connoisseur. To see the full programme and access registration details, just click here.

Money for (old rope) new patents

The Australian Financial Review has published an article today report on an initiative by IP firm Wrays and R&D tax advisor Swanson Reed which calls on the Australian government to provide assistance to companies of up to 50,000 Australian dollars for the preparation and filing of the patents. The authors of the proposal argue that Australian companies need support and that their proposal would be cheaper than the suggested patent box initiative.

The initiative is dismissed by Rui Rodrques who is an investment manager at a Sydney venture capitalist Tank Stream Ventures who argues that online tech industries do not need patents and that the support would only go to traditional industries.

The proposal is reminiscent of Germany's SIGNO SME patent initiative which supports small companies with their first application in both Germany and internationally. This has supported between 400 and 700 companies in the past fifteen years. The last evaluation report in 2009 reported that the learn process by which start-up companies began to understand the patent process was one of the key features of the programme. However, the "innovation market" project to encourage exploitation of IP did not fulfil its potential. The evaluators recommended that the financial support nonetheless be continued. Similar schemes exist in some other countries, such as in China. This author's experience of the scheme does suggest that the financial support helps to kick-start the patenting process as it reduces some of the financial burden on the company. It also helps start the discussion of the value of a company's intellectual assets to its business strategy and the appropriate protection with intellectual property rights (and not just patents).

The objections to the proposals mentioned in the AFR article are that such schemes do not necessarily help online companies and that the patenting process moves too slowly. It's also true that it can be hard for a small company to pursue patent infringements and that the financial penalties in Australia are low. This traditional view of patenting would seem to discourage start-up companies from filing. On the other hand, patents do provide assets which can be used to strengthen licensing programmes and also provide potential purchasers with additional leverage. A recent study carried out for the France Brevets investment fund suggested that - at least in France - patent savvy companies tended to be more successful than other start-up companies in which venture capital firms had invested.

Bavarians in Brussels host imminent event on fiscal incentives for films

"Fiscal incentive schemes and their impact on film and audiovisual production in Europe" is the grand title of a presentation of a new study and round table coming up very soon. It's to be held next Monday, 20 October 2014 from 11.00 am – 1.00 pm (entry 10.30) at the Rue Wiertz 77, Brussels, Belgium, being kindly hosted by the Representation of the Free State of Bavaria to the EU.

This free public conference -- which will take place in English -- is set to examine the impact of tax shelters, tax credits and tax rebates on film and audiovisual production in Europe. The European Audiovisual Observatory has commissioned a brand new study from Olsberg•SPI which examines the effects of fiscal incentive schemes in Europe. The findings of this new report will be presented at this conference by its authors. Then an expert panel will focus on the long-term impact of fiscal incentives as a policy instrument in today’s European audiovisual landscape.

For further details email Alison Hindhaugh at alison.hindhaugh@coe.int before 16 October (this Thursday).

If any reader of this weblog is attending, can he or she send us a report?

Safeguarding Intangible Assets: a webinar, and a book

'Safeguarding Intangible Assets' is the title of a talk by Professor Michael D. Moberly which is being hosted as a webinar by Oxfirst on 8 October 3:00 pm BST. This event is free and you can sign up for it by registering here. By sheer coincidence Safeguarding intangible assets turns out also to be a book [boldly announced by its publishers as the "First edition" -- a claim which even the original publishers of the Bible never made] which

" ...provides strategies for preserving and enhancing a company’s intangible assets to increase its profitability, competitiveness and sustainability. Intangible assets, such as patents, trade marks or copyrights account for 80% of a firm’s value and revenue. There are many forces making it more and more difficult for managers to protect and extract value from these assets".

The talk, according to Oxfirst, presents tools for protecting these assets and offers strategies for various types of business transactions, such as mergers & acquisitions, corporate university R&D alliances, new product launches or university spin outs. It does so, by offering guidelines for establishing and maintaining a high value intangible assets portfolio

As for Mike Moberly, he is the Chair of the Intangible Asset Finance Society’s Programs and is a longtime member of ASIS International’s Information Asset Protection Council for which he was recognized as Council Chairperson of the year for 2013.

If any reader of this blog is going to be following the webinar, can he or she let us know if anything interesting, original or outrageous is said, so we can share it?

More Resources to the U.S. Patent and Trademark Office--Require Maintenance Fees for Design Patents

The U.S. Patent and Trademark Office (PTO) has been criticized for some time for issuing relatively poor quality patents.  Indeed, some may argue that the patent troll problem is an issue because of poor quality patents.  For some technical areas, the PTO has struggled with obtaining relevant prior art; however, there is also a question of adequate resources available to the PTO to hire and train more examiners.  While the PTO has hired many new examiners in the last five to ten years and has opened a couple of new offices, I believe the PTO could use more resources.  One source of additional resources for the PTO includes maintenance fees. 

The PTO requires that maintenance fees are paid for utility patents during the life of the patent.  If the fees are not paid, the patent may fall into the public domain.  Basically, maintenance fees without a surcharge must be paid:

Three to three and a half years after the date of issue for the first payment;

Seven to seven and a half years after the date of issue for the second payment; and

11 to 11 ½ years after the date of issue for the third and final payment.

Not only do maintenance fees provide additional resources for the PTO, they also provide the benefit of allowing some patented inventions to lapse into the public domain available for all to use.  Notably, Professor Crouch states that 50% of all granted utility patents fall into the public domain because of a failure to pay maintenance fees.  Interestingly, two types of patents do not require maintenance fees: design patents and plant patents.  37 C.F.R. section 1.362 provides: "(b) Maintenance fees are not required for any plant patents or for any design patents." 

In a recent article by Sarah S. Brooks and Salil Bali titled, "Design Patents--Taking a Closer Look at These Valuable Assets," published in the New Matter magazine in Fall 2014, the authors point to the increase in acquisition and litigation of design patents as well as the benefit of obtaining, "the total profits of the infringer [of a design patent] rather than the reasonable royalty or lost profits for a utility patent infringement."  Notably, the authors state that the number of design patents applications filed in 2006 were 25,853 and have steadily increased every year (except 2009) to 35,077 in 2013.  The number of design patents granted has increased from 19,072 in 2006 a year to 22,453 in 2013.  The number of design patents applied for and granted does pale in comparison to utility patents.  The number of utility patent applications applied for and granted in 2013 was 563,853 and 265,979, respectively. 

The recognition of the importance and value of design patents may explain the increase in filings.  While design patents are only available for 14 years, a scheme similar to the one for utility patents could be created for design patents.  That could result in additional revenue for the PTO.  Moreover, a maintenance fee scheme for design patents would have the potential benefit of having some designs fall into the public domain.  What do you think?