Friday 27 February 2015

Amazon, Kindle and book pricing in France

IP Finance is pleased to welcome the following guest post from Catherine Pocock (Research Assistant, Queen Mary University of London and Assistant Editor, Queen Mary Journal of Intellectual Property) on the repercussions in France of the launch last year of Kindle Unlimited, particularly with regard to its Loi sur le prix unique -- 'law of one price'):
Amazon’s ‘Kindle Unlimited’ found incompatible with French Law 
Following the launch of Amazon’s ‘Kindle Unlimited’ service in the summer of 2014, Fleur Pellerin, the French Minister for Culture commissioned a Report on the compatibility of subscription services which allow unlimited access to books with the Loi sur le prix unique.  The mandate for the Report was to determine the status of subscription services by answering two key questions:
  • Does the 2011 Law of one price apply to subscription services?
  • If yes, are subscriptions offering unlimited access to books compatible with the Law?
The expert Report by Laurence Engel was handed to the Minister on 9 February 2015 and published here on 19 February 2015. It found that such services were indeed within the remit of the 2011 Law, and that they were incompatible with its requirements.
In her press release (here) and in an exclusive (and extensive) interview to Le Figaro (here), Ms Pellerin called for Amazon and similar service providers to ensure the compliance of their services with the Law.

The Law; What Law? 
Law n. 81-766 of 10 August 1981 concerning the price of books was extended in 2011 by Law n. 2011-590 of 26 May 2011 concerning the price of digital books and its implementing Decree n. 2011-1499 of 10 November 2011 (see here for more details).
This Law was designed to enhance market diversity and growth by maintaining a stable economic environment. Article 2 of the 2011 Law gives the publisher control over the price of digital books within his repertoire. 
The appearance of subscription services allowing unlimited access to books has raised concerns over the publisher’s enshrined ability to determine the price of books, and its consequences over the remuneration of authors and valuation of books. 
Subscription Services 
In her Report to the Minister, Ms Engel heard evidence from over 30 organizations (all listed in Annexe 2 of the Report) and compared subscription services available in France to those available internationally. Annexe 3 sets out an interesting overview of these subscriptions worldwide, including those in the Germany, the UK and the USA.
As mentioned above, the Report concludes that service providers such as Amazon, Youboox, Izneo, Youscribe are not compliant with the 2011 Law. Further, the Report points out that subscriptions neither provide for digital market growth, nor do they fight piracy as they do not enhance cultural diversity, and completely ignore the question of fair and equitable remuneration of authors. 
Having said that, the Report notes that in principle streaming and subscriptions services are not incompatible with the Law. Indeed it highlights three types of subscription which would be legal provided the publisher can determine the price:
  • A collection from a single publisher’s repertoire: this would be a subscription where a single publisher offers a subscription for works from his own repertoire, and where he would determine the price of the subscription and consequently the price of books; e.g.: subscription by genre from a single repertoire.
  •  A credit system: a monthly subscription where the credit would entitle the user to a certain number of books. The publisher would be in control of quantifying the credit to book ratio and consequently the price of books.
  •  The bundle system where the user would select one of a number of bundles. The publisher would determine the grouping of books for each bundle (e.g.: by theme) and again remain in control of the price.
Next Steps 
Ms Engel, now Mediator, will set up a mediation group within the next month where government experts will consult with the service providers to assist them in the remodelling of their services in view of achieving legal compliance. Following this mediation, service providers (including Amazon) will have a maximum of three months to comply with their legal obligations (see here). 
The Bigger Picture 
In its conclusions, the Report praises the strong market regulation which prevails in the French publishing industry and is intended to preserve – not stifle – innovation. Indeed France is so far the only European country to have taken any formal steps with regards to such subscriptions. Significantly, Le Monde sets such statements in the European context where Brussels has already issued warnings to France regarding its overly protective market rules (see here).
So as well as asking WWAD (What Will Amazon Do), I wonder: WWBD (What Will Brussels Do)?

Thursday 26 February 2015

Living next door to Alice patents

There’s been a lot of discussion about the US Supreme Court’s ruling in Alice Corp v. CLS Bank which apparently put into place limitations on software patents. IAM Magazine reported some research back in Spetmebr 2014 that indicate that a number of companies would lose valuable patent portfolios and some applicants (see Infosys here) appear to be re-thinking their patenting strategies. However, six months on, it is interesting to look and understand how the case will actually affect software patents and their value.

Dennis Crouch over on the PatentlyO blog has done a valuable service by looking at the fate of a number of applications that had actually been allowed by the USPTO, but were later withdrawn based on the Supreme Court’s decision. These were patents that had been found to ne novel and not obvious, but were then rejected on the basis that they were directed to an abstract idea, and thus ineligigble for patent protection.

Dennis has found that 93% of the patents are still pending. Most are on a so-called second round final which presumably means that the applicants have had the opportunitiy to express their views and are awaiting a final decision from the USPTO. Most interestingly 7% of the patents have actually been granted and only 1% rejected. It’s clearly too early to say how many of the 93% will actually be granted in the end. However, the ratio of grants to rejections is looking fairly healthy. And seems to suggest that the fear that many patents would be held invalid and lose their value may not be entirely justified.

Luxury goods: where price matters more than ever

How does one know if a product is a luxury brand? In the old days, the test was easy--
Customer: "How much is that"?

Clerk: "Why do you ask?"

Customer: "So I can determine whether or not I can afford it."

Clerk: "If you have to ask, then you can't ...."
In point of fact, the sale of luxury brands is a lot more nuanced than that. The Economist captured well the tension around modern luxury brands in a piece published last December entitled "Exclusivity for everybody." The truth today is that the question "how much is that?" is now part and parcel of the dynamics of luxury goods. Price matters. As such, factors that can systemically affect prices bear close attention, especially when they becomes intertwined with exchange rates and changes of central bank policy. One need only consider the recent events that have taken place in rich, expensive Switzerland.

Many readers probably noticed the January 15 announcement that the Swiss National Bank (SNB) would no longer maintain a fixed cap between the Swiss franc and the euro. This cap, which had been in operation for several years, had the effect of keeping the Swiss franc artificially low versus the euro, but maintaining required intervention by the SNB, so when euro began declining in value, the cost of intervention became impracticable. Without warning (indeed, contrary to pronouncements by the SNB a few days before), the cap was removed; almost immediately thereafter, the Swiss franc appreciated nearly 30% versus the euro. For this bloggers' friends working for various international agencies in Geneva, but who lived just across the border in France, the result was they suddenly had 30% more euros to spend for each Swiss franc that they received in wages.

How did all of this impact on the luxury goods business in Switzerland? As described in an article in the January 24 issue of The Economist, entitled "Switzerland's economy: Shaken, not stirred" and with a byline from Geneva, the answer depends upon what kind of goods we are talking about. Let's focus on perhaps Switzerland's leading consumer export product--watches. The chief executive of Swatch, characterized as the "world's biggest watchmaker", lamented that the impact was simply to make their exported products much more expensive. Unlike the customer in the iconic dialogue above, price is important for Swatch products and the appreciation of the Swiss franc might significantly affect sales abroad of Swatch watches, leaving the company with two unpalatable choices. Reduce the price to customers, hoping to increase sales volume at the expense of per unit profit, or maintain the price and hope that enough units are still sold to maintain profitability.

But it can be argued that a Swatch watch is not exactly a luxury brand. What about those Swiss watches that regularly appear on full-page glossy advertisements and constitute more of an aspirational good? For the denizens of Geneva, the appreciation of the euro should not make much difference, since the local price remains denominated in Swiss francs. "If you have to ask, then you can't"-- applies in equal measure, both before and after appreciation. But as anyone who has strolled the streets of Geneva will know, the retail watch trade depends to an significant degree on the tourist purchaser. Woe to him, especially if he comes armed with depreciated euros to buy a luxury Swiss watch denominated in Swiss francs. Sales to tourists may well plummet unless some repricing takes place. Indeed, something like this seems to be happening, where it is reported that "expensive watch brands are offering hefty discounts."

How about the luxury product that originates from a euro zone country and is then sold into Switzerland? After all, each Swiss franc should go a lot further in buying such a luxury product that is euro denominated. It comes as no surprise, therefore, that it is reported that Mercedes-Benz Switzerland has announced a discount of 18% on the price of all models. The upshot is that in a world where sharp currency fluctuations can significantly impact on the prices of products, luxury goods are not spared. "Exclusivity for everybody" now runs up against "how much is that?", and the answer to that question may well then determine whether a purchase will be made.

Wednesday 25 February 2015

That IP Finance webinar: the deliverables ...

A little while back, IP Finance posted this item on the IP Finance webinar organised by Oxfirst, for which the presenter was UK Intellectual Property Office Chief Economist Tony Clayton. To refresh readers' memories, the webinar addressed the following issues:
So why is it that the banking sector is unable to connect with the main value creating – and fastest growing – form of business investment in developed economies – Intellectual Property? And what can we do about it?

Is it true that that patents cannot be valued for sale in transparent markets?

Do they have intrinsic features to prevent the establishment of secondary markets for innovation? Or is it that investors are rather ignorant about patents, brands, software and are not well informed on their risk and reward structures?

Technology entrepreneurs seeking to commercialize their patents often may not have necessary skill sets to communicate the value of IP. Current accounting standards that only partially reflect the value of intangible assets do not make things easier. This leads to market failure, where valuable technology either can’t be exploited, or can’t be scaled up to create competitive global enterprises, while investors miss out on attractive financial opportunities.

Against this background, this talk discusses how we can develop financial markets which support 21st century knowledge businesses.
Tony has kindly agreed to make both his PowerPoint presentation and his speaking notes available, for which we are all truly grateful. Thanks, Tony!

The Merger of ipCreate and Article One Partners

Earlier this year, ipCreate and Article One Partners, perhaps best known for enabling crowd sourcing of prior art, announced a merger.  Here is part of the announcement about the merger:

Founded in 2012, ipCreate will continue to provide industry leaders in the US, Europe and Asia with on-demand patented inventions at the chokepoints of disruptive market change, with the patents themselves and related landscape opportunity systematically vetted by AOP’s global network of prior art researchers adding to quality assurance.  With poor quality patents a growing burden on business and the subject of mounting challenges by the courts and the U.S. Patent and Trademark Office (USPTO), the integration of patent quality control processes early in the invention process is expected to fill a vital customer need.
“One of the lessons my three-and-a-half years as head of the Patent and Trademark Office taught me is that businesses benefit greatly from a systemic approach to improving the quality of their patents — and the earlier in the innovation process, the better,” said David Kappos, ipCreate advisor and former Director of the USPTO. “With this merger, ipCreate has now put all the pieces in place to provide clients with high-value innovation on demand backed by unusually high-quality intellectual property.”
. . .
John Cronin, CEO of ipCreate, was also instrumental in the merger. “When I was IBM’s top inventor and ran its ‘patent factory’ in the 1990s, some people thought it was just a numbers game — about having the most patents. That was never what it was about,” he explained. “Our goal was to develop high-quality patented inventions in disruptive technologies. That’s how IBM invented the future. With Article One Partner’s help, that’s what we intend to do again. Only now we plan to invent “on demand” to suit the specific needs of our partners and to the highest standards of quality.”

Article One Partners brings much to the table. "The merger is expected to provide a number of strategic benefits including the ability to leverage AOP’s existing customer base, strong “white-hat” branding, enhanced patent intelligence, patent quality services and increased depth in executive leadership through the addition of Marshall Phelps and the AOP management team."
The board of directors and the advisory group is impressive, including Marshall Phelps, Jr., John Cronin, Peter Holden, Robert Armitage, Ruud Peters, David Kappos and Mike Brochu.  The leadership team is also a distinguished group. 
So, the game is not so much about amassing patents, but strategically acquiring one or a small set of quality patents (read Alice) “at the chokepoint[].”   True enough, most agree that quality patents are not so much a problem; however, litigation “abuse” is something that I am sure others will complain about.  But, I think this group will “work around” that problem with sensible licensing practices. 
Here is a blurb about the philosophy of ipCreate:
Our mission is to forecast the direction of innovation in the fastest-growing new product markets and then create strategic patent portfolios in the disruptive high-value technologies driving that growth. We know first-hand that the greatest value in the IP asset class belongs to a small minority of foundational patents. By working with select leaders in industries undergoing rapid technological disruption – whether dominant players in the market or visionary startups – we will employ ipCreate’s proprietary tools and resources to identify promising innovation areas and rapidly create foundational patents at the chokepoints of looming market change.
With major financial backing, we expect to fund and execute more than 100 strategic invention and IP creation projects and produce thousands of foundational patents by the year 2017. By restoring the historic link between patents and invention (rather than litigation), ipCreate also hopes to strengthen a patent system that is crucial to U.S. competitiveness.
I think the merger with Article One Partners is a pretty damn good idea.  Who doesn't want to wear a "white hat?"  I do wonder how many of the researchers will go along with the new venture.  [I have to say that I also like how they put “ip” in lower case letters and capitalize the “C” in create.]  What do you think?

Nespresso - or nothing

The German Handelsblatt newspaper is reporting that the German Federal Patent Court based in Munich has declared invalid "Nestlé’s patent for the Nespresso coffee system”. It’s part of a long-running dispute between the former CEO of the Nespresso division, Jean-Paul Gaillard, and his former employer. Mr. Gaillard started up a rival company the Ethical Coffee Company offering biodegradable capsules.

Given that Nestlé has, apparent 1,700 patents on its system (at least according to this New York times article), the revoked patent probably only represents one of aspect of the Nespresso system, but probably a key one for competitive capsules. The market for such coffee capsules is apparently EUR 13 US billion dollars annually, of which Nestlé apparently have a CHF 4 US billion (according to the Handelsblatt). Clearly the loss of any key patents could dent significantly Nestlés share of the market.

It’s not the first time that Nestlé have lost against the Ethical Coffee Company, since the Düsseldorf Regional Court had already refused an emergency injunction in 2012 (reported in the Financial Times) on the grounds that purchasing a machine gave the user a right to use the device. Nestlé were reported to have abandoned their complaint in 2014

This blogger regularly deposits into his rubbish bin a bag-full of capsules and would certainly be keen to buy ecologically friendly capsules instead of filling up the local rubbish dump. To date his local supermarket - just outside of Munich - has not offered any alternative capsules and so he has not had any choice. It’s not clear whether he will get that choice in the near future, because Nestlé can still appeal to the German Federal Court in Karlsruhe. 

Tuesday 24 February 2015

World's Powerful Brands

Most parents know the value of the Lego brand. It’s the toy of choice to give children and keeps them happily amused for hours, with only the occasional interruption as an unhappy child asks you to help her take apart something that was put together wrongly or intepret the pictorial instructions. It was therefore great to see that the London-based company BrandFinance have now identified the Lego brand as one of the most powerful in the word - apparently overtaking Ferrari.

Powerful is, however, not the same as valuable, the report by BrandFinance concludes that Apple’s valuable trade mark is apparently worth USD 128 billion. The authors of the report (available here) note that Apples ability to monetize its intellectual property really sets the company apart.

Anyone wishing to review the full table of brand values can find it here.

BSA Software Piracy Bounty -- Would It Work for Patent Infringement Generally?

A couple of years ago, I wrote about the Business Software Alliance's bounty system.  Essentially, you may be entitled to a reward if you turn in a software pirate, e.g., your employer.  The amount of the bounty depends on the ultimate settlement.  Today, I was listening to the radio and there was a great advertisement about BSA's program.  The advertisement stated that you could have an awesome vacation--just turn in a pirate!  For some entertaining ads, see the BSA Facebook page.  (they have a lot of likes!)  How successful are they?  TorrentFreak reports that BSA in Czechoslovakia gets about "30 leads a month."  BSA's website notes that in 2012 it "investigated over 15,000 piracy reports around the world."  Are there any other reports on the success of BSA's program or similar programs?  BSA has offered this program for quite a few years, so I imagine it must be somewhat successful in nabbing pirates and bringing in funds.  Although I guess success could be judged based on general deterrence and education grounds.

I wonder if a similar system would work for patent infringement generally.  For sure, one of the reasons the IP system has worked relatively well in the past is the large amount of "leakage" allowed by the IP system.  Indeed, there are rumors (and at least one report) of potential patent infringement occurring because researchers often ignore patents.  Moreover, it can be hard to detect infringement.  So, why not patent infringement bounties (or other copyright type bounties)?  My guess is that this has been tried before or at least proposed.  Vacation is after all vacation.

Here is a blurb from the BSA Facebook page along with a photo:

"A little extra cash can help get you to where you want to be. If you know a company using unlicensed business software, file a report today to be eligible for a cash reward and go on that much needed vacation."

'A little extra cash can help get you to where you want to be. If you know a company using unlicensed business software, file a report today to be eligible for a cash reward and go on that much needed vacation.'

Saturday 21 February 2015

Commercialising an innovation - BBC on the Inventors

One of the UK’s British Broadcasting Services eclectric programmes is Radio 4’s The Bottom Line, presented by Evan Davies, which is a business discussion programme. This week’s episode, which can be found here, was dedicated to  inventors and included an interview with Mandy Harbermann, who is best known as the inventor of a non-spill Anywayup baby cup (which this author knows from personal experience is valuable for man new parents). Mandy acknowledged how the current patent system was key to licensing and commercialising her intellectual property. She did not have the resources to bring the product to market herself, and had to face a copy-cat product produced by another company to whom she had shown the designs. She won the infringement action in the British High Court as Paul Cole discusses here. Mandy has been quite a supporter of strengthening the IP system as she has seen it to be vital to her, as a sole inventor, in commercialising a product.

One of her other guests on the programme unfortunately seemed to be advocating the filing of design rights (as they are cheaper) than patents. He was very critical of the „IP industry“, as he called it. 

There was also a highly pertinent comment from someone that too many inventors assume that they have „patented product“ but in fact the patent only covers one aspect of the product. This latter point seems to be a common misconception of many small inventors - and sometimes they do not seem to be well served by their advisors who fail to point out that it’s rare that a patent can cover all of the innovative features in a product and that an inventor should focus on one or two key points. Indeed any patent covering all of the features is likely to have such a narrow focus that a copycat product is easy to produce merely by minor design alterations.

Thursday 19 February 2015

Buying and selling a music publisher: a mock negotiation

"Once in a lifetime: a mock negotiation of the sale and purchase of a music publishing company" is the intriguing and imaginative title of an event which the University of Westminster's Centre for the Study of Law, Society and Popular Culture is running on 18 March from 5 to 7 pm. This is a brainchild of Robert Allan (a Research Fellow of the Centre and long-time collaborator with Westminster Law School). According to the information we have received,
Robert has gathered together the entertainment law 'dream team’ -- there is no more prestigious and knowledgeable team in this area of law that could have been assembled. All of the participants have worked with each other over many years on transactions totalling billions of dollars, and Westminster Law School is thrilled to be able to host them for this groundbreaking event.
The participants, in order of their appearance, are

  • Fred Wistow, formerly Executive Vice President and Chief General Counsel of Time Warner’s Music Group
  • Evan Medow, originally a US attorney and then, having been General Counsel at A&M’s publishing division, CEO of Windswept Pacific Music
  • Chris Ancliff, General Counsel (International) Warner Music Group and former Chief General Counsel at EMI
  • John Frankenheimer, the current co-chair of law firm Loeb & Loeb in Los Angeles
  • Charles Bradbrook, senior partner at the accountancy practice SRLV and formerly head of the media practice of Deloittes
  • Robert Allan, one of the very first UK entertainment lawyers, and a pretty seasoned one at that. 
Westminster claim:
We do not think this is likely to happen ever again, anywhere in the world, and we are not exaggerating. So in the words of the 1940s - 1960s idiom (highly appropriate for the Portland Hall), be there or be square. 
How is a price placed on a music publishing company? How should payment be structured? Should the deal be funded by taking a gamble on the company's projected income? These are among the questions that may interest readers of this weblog.  Click here for further details of this free event.

Wednesday 18 February 2015

Acquiring and sublicensing film rights not a "trade"

Still on the subject of UK tax and its impact on the creative industries, the Court of Appeal (Sir Terence Etherton (Chancellor) and Lords Justices Christopher Clarke and Vos) gave a ruling yesterday in Eclipse Film Partners No 35 LLP v HM Revenue and Customs [2015] EWCA Civ 95. In July 2012 the First-Tier Tribunal held, on the facts before it, that a partnership's activities in acquiring film rights and then sublicensing them to a distributor did not amount to carrying on a trade [see earlier IP Finance blogpost here]. This being so, the partnership's members were unable to obtain tax relief on interest paid on the borrowings which they had made in order to finance the partnership's activities under the Income and Corporation Taxes Act 1988 sections 353 and 362.

Supply of commercial research: Imperial College VAT recovery claim upheld

This blogger will not even pretend to understand the subtleties of Imperial College of Science, Technology & Medicine v Revenue & Customs [2015] UKFTT 0033 (TC), a United Kingdom First-Tier Tax Tribunal decision of 22 January 2015 which has recently come to his attention. Is looks, however, as though it might be of interest to the research and development side of the British IP sector, since it involves a claim for repayment of Value Added Tax that had been paid by leading academic research institution Imperial College, London, as long ago as 1973 and as recently -- if that be the right word -- as 1994. According to the short summary in the subscription-only Lawtel note,
The Revenue had approved a retrospective partial exemption special method with a university outside its agreement with the Committee of Vice-Chancellors and Principals Guidelines regarding interpretation of the law concerning VAT within the university context. The exemption method was in respect of claims for repayment of residual input tax as a proportion of overhead costs incurred by the university's academic departments on the supply of commercial research. The approval was not ultra vires and the Revenue was bound by the exemption method to repay the university's claim, subject to the university satisfying the appropriate evidential burden.
Knowing how precious is any sort of revenue to research institutions, this blogger wonders whether other colleges may also be able to avail themselves of this ruling, or whether it is so fact-specific to Imperial that it will be of little assistance to anyone else.

Sunday 15 February 2015

EU giving up investigation into patent box schemes - Hola!

Flamenco DancerBloomberg reported on 5 February that the European Commission will be giving up its investigation into patent box schemes in the European Union. Apparently it has found that it's hands are tied by a 2008 decision to approve Spain's system. The agreement reached last Autumn/Fall between the UK and German governments (reported here) to modify the UK's scheme to restrict the tax break has probably also contributed to the commission's desire to stop the investigation.

Basically the UK has agreed to modify its scheme so that only patents based on activities in the UK can contribute to the tax break (the so-called nexus approach) with some provision for expenditure which has not been directly incurred by the UK company (hence the term "modified nexus approach"). The discussions continue in the context of the OECD's discussion on harmful tax practices.

The message coming from the commission seems to be clear: if the OECD will approve the patent box, then the European Commission can and will have no objection. In the meantime, the current UK scheme will be wound down and it remains to be seen whether the next UK government will put a replacement scheme into place, as the opposition labour party has been critical of the scheme.

Friday 13 February 2015

Closing time for open standards and patents consultation

The European Commission’s DG GROWTH (formerly DG Enterprise) is running a public consultation with the stated objective of gathering information and views on the interplay between standardisation and intellectual property rights such as patents. It was opened on 14 October 2014 to 15 February 2015 and is about to close. The initial deadline for comments of 31 January 2015 was extended by two weeks to 15 February.
Demands for change lack evidentiary support
Prior to this in 2013, DG GROWTH commissioned a fact-finding study on the issue of patents and standards upon which it has centred this consultation. Research presented in this is largely based on a small number of 37 interviews, many of which are outside the industry sectors where interoperability standards are most commonly used. 
The Report’s findings are very subjective and speculative. It makes the introductory statement that “[t]o ensure that Europe is well positioned in today’s global competitive environment, unnecessary barriers in the market for IPR licensing need thus to be removed." However, quantitative data from desk research such as that on the extent of patenting and disclosures neither measure any of the purported problems, such as allegedly excessive transaction costs, nor measure the effects they have in the marketplace, for example, on market entry costs or market shares. There is no overall empirically-based assessment of information costs, transaction costs or overall costs in licensing SEPs, or how these are actually trending in the market.
Unintended and undesirable consequences
DG GROWTH should be cautious when discussing and proposing changes to rules and practices, including disclosures and licensing for patented technologies in interoperability standards. Changing the dynamics of standardisation, participation in which remains voluntary, may impair innovation and reduce contributions to standards setting. This is particularly true if policy recommendations or changes undermine the evidently well-functioning aspects of standardisation processes.
As I have explained in several of my IP Finance blogs including my most recent on IEEE’s proposed patent policy changes, which has now been approved by the IEEE board of directors, alleged problems and harms in standard-essential patent (SEP) licensing remain unsupported with evidence. Nor have the impact of proposed “remedies” on R&D, investment or long-term innovation been assessed in any meaningful way. The danger of proposing reforms that do not address quantifiable harm is dire unintended consequences. Standard-setting Organization (SSOs) participation is voluntary with rules and procedures determined by members in accordance with the law. Imposing change could have adverse effects such as discouraging members to invest in R&D, contribute patented technologies to standards or outright departure from SSOs with reversion to more proprietary implementations.
Facts and figures show market is working well
The system of licensing interoperability standards is working remarkably well, as exemplified in mobile phones, to the benefit of consumers with vibrant competition which has resulted in extensive innovation, increasing product choice, falling prices and massive adoption with 7 billion connections worldwide. It has attracted large and increasing R&D expenditures which have grown 50 percent since 2008 to $42 billion in 2013. Licensing fees paid for mobile SEP royalties remain below 5 per cent ($19 billion) of Morgan Stanley’s estimated $377 billion in 2013 handset sales. And these figures are dwarfed by the $1.1 trillion in mobile operator service revenues which are also very dependent on mobile 2G, 3G and 4G technologies.
Submission to DG GROWTH
I have just submitted my lengthy consultation response to DG GROWTH. It is also available in pdf form here. You have two more days to get yours in!

IP Finance announces "IP Finance" ...

IP Finance's friends at Oxfirst are running a free webinar under the title "IP Finance" on 24 February 2015, 2 pm BST (British Standard Time). The speaker is another friend, Tony Clayton (right, Chief Economist of the UKIPO). Tony's "previous" includes a stretch as Director of Economic Analysis at the Office for National Statistics, focusing on the economic impact of technology and innovation, productivity, and on measuring software and other intangibles in the ‘knowledge economy’. He also represented the UK on OECD’s Working Group on ICT measurement, chairing it from 2005, and served on NSF’s ‘Science of Science’ panel in 2009.

What is Tony talking about this time?  This is the webinar blurb:
So why is it that the banking sector is unable to connect with the main value creating – and fastest growing – form of business investment in developed economies – Intellectual Property? And what can we do about it? 
Is it true that that patents cannot be valued for sale in transparent markets? 
Do they  have intrinsic features to prevent the establishment of secondary markets for innovation?  Or is it  that investors are rather ignorant about patents, brands, software  and are not well informed on their risk and reward structures? 
Technology entrepreneurs seeking to commercialize their patents often may not have  necessary skill sets to communicate the value of IP. Current accounting standards that only partially reflect the value of intangible assets do not make things easier. This leads to market failure, where valuable technology either can’t be exploited, or can’t be scaled up to create competitive global enterprises, while investors miss out on attractive financial opportunities. 
Against this background, this talk discusses how we can develop financial markets which support 21st century knowledge businesses.
To sign up, click here.  The organisers have informed us that they only accept registrations undertaken with professional email addresses (i.e. they can’t accept registrations from Yahoo, Gmail or similar private accounts).  That's a shame, since it means that this blogger, for one, has no means of registering for it. He hopes that this bar will be rescinded.

Intellectual Ventures versus Symantec: when a troll is not a troll, and a victory is not a victory?

In case you missed out, Intellectual Ventures (IV) reached a milestone of sorts last Friday, when a jury in Delaware ordered Symantec, the computer security giant, to pay IV $17 million in damages for infringing two US patents. It marked the first time that IV had received a favourable jury verdict. Remember the days when Intellectual Ventures talked about litigation as the least desirable business alternative? That may have been true before 2010, but since then the company is reported to have filed more than 50 lawsuits. So is IV changing business course, with greater emphasis placed on litigation to complement its on-going licensing business? Probably not.  After all, IV claims that it has received $3 billion in licensing revenue, while the jury verdict amounted to "only" $17 million. Still, this jury verdict is significant enough to warrant further comment.

As reported by, the case at issue involved three US patents, two of which were found by the jury to have been infringed, while a third was not. The infringed patents are #6,073,142, filed by Utah's Park City Group in 1997 and #6,073,142, filed in 1999, and which later found its way to AT&T before being purchased by IV. A third patent, #6,460,050, was held not to be infringed. Winning on two out of three patents does not seem too bad. But consider that IV is reported to have asked for $299 million in damages, which means that IV was awarded less than 6% of the amount sought in the complaint. Moreover, the jury declined to award IV ongoing royalty payments. Against this backdrop, did IV really win? It depends who you ask. The head of litigation at IV, Melissa Finocchio, after thanking the jury for its verdict, stated:"We remain committed to defending inventor rights and protecting the interests of our investors and customers." To the contrary, a spokesperson for Symantec said in an email that "[w]e are pleased the verdict came back for substantially less than the amount that Intellectual Ventures was seeking, and are considering our options to reduce the damages even further." Stated otherwise, both sides seem to have been satisfied with the verdict.

When considering this jury verdict in light of the broader IV patent litigation context, one gets the feeling that, whatever the award that IV ultimately banks from Symantec, there is something "oh so yesterday" about IV's litigation strategy. Recall that IV filed suit against Symantec and other defendants in late 2010. Some major companies, such as Check Point and Intel's McAfee division, are reported to have settled with IV. Symantec refused to do so and it received the jury verdict finding the company liable for infringement. Another company, Trend Micro, will have its day in court in May 2015. To round off the picture, the case against Motorola Mobility ended up as a mistrial when the jury could not reach a unanimous verdict. A retrial is set for next month. The upshot is that IV has won some cases and lost some cases in seeking to enforce these patents, but the amounts appear to pale in comparison with the amounts that it has has allegedly obtained by non (or less) litigious means."Oh, so yesterday", unless the increased interest in litigation is a signal that IV's business model resting on non-litigious means is faltering.

Moreover, one wonders just who much IV wishes to be portrayed in the media as exploiting its huge patent portfolio via litigation. Notably, reported that the judge barred Symantec from using the term "patent troll" in the context of the case, showing just how toxic the term has become. This is so, despite the fact that mass-scale patent aggregation per se is not equally decried. One can point to defensive patent aggregators, such as RPX, which buy up patents and then announces that it will not assert those patents against the company's member subscribers. Litigation is (at least up to now) not part of the business model of the defensive patent aggregator. Also, some respectable commentators have suggested that patent aggregation may have value as a means for reducing transaction costs in the context of commercial transactions. IV probably cannot remake itself (back to the future?) as a defensive patent aggregator. But perhaps it can try to take steps whereby it becomes better known as a facilitator of IP transactions than patent litigation -- if, of course, IV ultimately cares.

Wednesday 11 February 2015

From tax break to breaking the box: an article

Via Chris Torrero comes a link to this item posted on Economia last week. Entitled "Closing the loophole: Tax breaks on IP and patents", by Liz Loxton, it discusses winding down the current Patent Box regimes in countries that have adopted unacceptable and market-distorting regimes for patent-based tax breaks and draws attention to an issue that this blogger had hitherto overlooked: the potentially damaging effect of reform on whichever countries are first to dismantle their Patent Box systems while other jurisdictions still have theirs in place.

Monday 9 February 2015

Fiscal incentive schemes supporting film and audiovisual production in Europe: a new title

Impact analysis of fiscal incentive schemes supporting film and audiovisual production in Europe has just been published by the European Audiovisual Observatory (motto: "Transparency through information").

At 132 pages and costing €85 (in print) or €98 (PDF), it claims to be a fresh analysis of the impact of fiscal incentive schemes – tax shelters, tax rebates and tax credits – which aim at stimulating investment in the production of film and audiovisual works. According to the publishers:
This report addresses the issues surrounding the impact of fiscal incentives currently operating in Europe, taking a comparative approach, analysing schemes from the individual perspectives of the national markets in which they operate, and evaluating their impact at a pan-European level. 
The report considers:
-       The landscape for fiscal incentives targeting film, television, and video game production, including where they operate and what structures they use; 
-       What trends exist within the European fiscal incentive system; 
-       The impact, in particular the economic impact, of fiscal incentive schemes, including questions such as
·         Have incentives influenced the production levels, employment prospects, and direct funding systems within their own countries? 
·         What is the impact of fiscal incentive structures on neighbouring countries through production flows and movement of employment? 
·         Have incentives altered the business model for European independent production companies? 
·         What is the fiscal impact for the States offering such incentives?
-       How such incentives have been evaluated by the countries in which they operate, and how the conclusions of these evaluations compare with one another; 
-       Recommendations on future assessment of fiscal incentive schemes in Europe.
As part of this analysis, the report looks in greater detail at eight selected schemes presently operating in Europe.
You can get further details of this publication here.

If any reader is going to be reading and using this title and would like to let IP Finance have a short review, that would be greatly appreciated.

The European Audiovisual Observatory publishes a new analysis of the impact of fiscal incentive schemes – tax shelters, tax rebates and tax credits - which aim at stimulating investment in the production of film and audiovisual works. The analysis identifies, describes and categorises the schemes in place across Europe and evaluates their impact in attracting foreign investment, both from within Europe and from other countries too. It then compares the various schemes according to their advantages/disadvantages and examines how they work alongside other economic and political measures. The report concludes by evaluating the impact of these systems in the international context.

Key questions addressed by this report This report addresses the issues surrounding the impact of fiscal incentives currently operating in Europe, taking a comparative approach, analysing schemes from the individual perspectives of the national markets in which they operate, and evaluating their impact at a pan-European level. In doing this, the report considers: The landscape for fiscal incentives targeting film, television, and video game production, including where they operate and what structures they use (Chapters 5 and 6); What trends exist within the European fiscal incentive system (Chapter 7); The impact, in particular the economic impact, of fiscal incentive schemes (Chapter 8), including questions such as Have incentives influenced the production levels, employment prospects, and direct funding systems within their own countries? What is the impact of fiscal incentive structures on neighbouring countries through production flows and movement of employment? Have incentives altered the business model for European independent production companies? What is the fiscal impact for the States offering such incentives? How such incentives have been evaluated by the countries in which they operate, and how the conclusions of these evaluations compare with one another (Chapter 9); Recommendations on future assessment of fiscal incentive schemes in Europe (Chapter 10). As part of this analysis, SPI have looked in greater detail at eight selected schemes presently operating in Europe where the most substantial amount of comparative data is available; these schemes are more fully described in an Annex, chapters 11 to 18.

As well as the direct impact on the film and audiovisual industries, it is possible to look at the indirect impacts on output and employment – arising from the industries' supply chain – and the induced impacts – arising from those directly and indirectly employed in these industries using their earnings to buy other goods and services. The indirect and induced impacts can be described as the film industry multiplier – the ratio of the total economic impact of the film industry to the direct impact.

This analysis was carried out by one of Europe’s leading screen sector development consultancies, Olsberg•SPI, providing specialist, high level advice for over 20 years to public and private sector clients in the creative industries, focusing on film, television and digital media.

Friday 6 February 2015

IEEE will jeopardise its attractiveness as venue for standards development if proposed new IP policies are adopted

The IEEE board of directors is imminently expected (probably on 9th February 2015) to vote on whether to adopt proposed changes to IP policies which will significantly diminish the future attractiveness of IEEE as a venue for standards development. Proposals are fundamentally flawed and have not been properly reviewed in accordance with IEEE principles and procedures to the point that the European Commission has publicly expressed its concerns.

In response to a question by the regulatory newswire MLex, the EC issued this following statement: “The Commission is closely following the developments at the IEEE. We are very mindful about the need for a careful balance between guaranteeing full access to standards at the same time as ensuring appropriate remuneration for intellectual property. Standards bodies should ensure that their rules comply with competition law so as to ensure that the benefits of standardisation can be achieved without anti-competitive outcomes. We are currently running a public consultation on Standard Essential Patents to gather information and views on the interplay between standardisation and intellectual property rights (IPR). The consultation deadline has been extended to 15 February and it would be premature to draw any conclusions.”

IP policies are pivotal to standard setting organisations. They determine whether or not technology developers have sufficient commercial incentives to contribute their patented technologies and engineering resources in development of interoperability standards such as IEEE’s 802.11 (WiFi).   

Striking a balance between the interests of developers and implementers of standard-essential patented technologies is therefore vital. This has been achieved remarkably well by many SSOs to date including IEEE, ITU and ETSI. WiFi, H.264 video and GSM/WCDMA are prime examples of successful global standards from these three SSOs respectively. The proposed rule changes would likely undermine this success at IEEE.

Unwarranted changes

Standard setting IP rules determine the basis upon which implementers inside and outside SSOs must pay for – in money or in kind – the extensive standard-essential patented technologies embodied within the standards.  

The proposed policy changes include measures which are dysfunctional, unfair, shun universally accepted practices or are highly contentious. These include some measures that undermine IP rights which I have argued against in my previous IP Finance postings:

·         Defining a ‘reasonable’ royalty using controversial and unworkable valuation methodologies—including tying a royalty rate to the ‘smallest saleable component’ of a standard-compliant device—all of which are intended to minimize licensing fees for SEPs.  As I explained in my IP Finance blog posting entitled Stacking the Deck in Analysis of Smartphone Patent Licensing Costs, a chip-based royalty scheme incorrectly and unfairly associates royalties to costs, process economics and competitive outcomes in the silicon chip foundry manufacturing business that have nothing to do with mobile technology development costs and the market value generated from these investments in the broader ecosystem.  Similarly, in Commonwealth Scientific and Industrial Research Organisation versus Cisco Systems, Inc. Judge Leonard Davis ruled that ”It is simply illogical to attempt to value the contributions of the ’069 Patent based on wireless chip prices that were artificially deflated because of pervasive infringement. Basing a royalty solely on chip price is like valuing a copyrighted book based only on the costs of the binding, paper, and ink needed to actually produce the physical product. While such a calculation captures the cost of the physical product, it provides no indication of its actual value.”
·         Severely limiting injunctive relief available to SEP owners, requiring them to engage in costly multiyear litigation against infringers who refuse to license an SEP on reasonable and non-discriminatory terms, and providing them an advantage over their competitors who are licensed. As I explained in my IP Finance blog posting entitled Plunging into a Safe Harbour from SEP Injunctions, reducing the availability of injunction relief for SEPs infringement, under the threat of antitrust sanction, will unfairly shift the balance of negotiating power from patentees to licensees. There is no proof that injunctions unbalance negotiations – especially given that injunctions are very rarely granted and in the U.S. can be counted on the fingers of one hand. This shift could undermine royalties and consequently deter further investment in standard-essential technologies while harm to consumers and licensees is unproven. Some of the latter are already extremely profitable by exploiting SEPs in conjunction with their own IP and other competitive strengths.

Violating values and procedures

In violation with IEEE principles, the proposed IP policy changes were apparently created by a closed ad-hoc committee that consistently rejected the repeated and detailed objections, alternative suggestions, letters of complaint, and appeals of some thirteen respected technology companies. That is not consistent with openness, due process, collaboration with all stakeholders, and consensus-based decision making that SSOs including IEEE purport to uphold. Nor is it consistent with the WTO criteria that underpin the European standardisation policy. The US Department of Justice inexplicably glossed over such exclusion in its recent business review letter.
In March 2013, the IEEE-SA Patent Committee (“PatCom”) undertook significant substantive changes to the IEEE-SA Patent Policy. The Ad-Hoc Committee expressly disclaimed its obligation to respect consensus, and PatCom made no effort to move the comments and objections toward consensual resolution. Ad Hoc Committee participation was limited to individuals with an established position of diminishing the rights of technology holders and requests to participate from individuals with contrary views were expressly rejected. There has been no attempt to justify why changes to the Patent Policy are needed and how the proposed changes would actually address any purported problems or improve standard-setting. The fact that there exists no legal, regulatory, or economic requirement to make any changes to the Patent Policy, instead relying on vague and unidentified ‘concerns’ of U.S. and European regulatory officials, has been ignored.
Over approximately fifteen months, the Ad Hoc Committee published four versions of a revised Patent Policy for comment, but it has systematically rejected many hundreds of substantive comments and objections to the proposed Patent Policy changes, often with rote, non-substantive explanations. It has expressly disclaimed its obligation to respect consensus, and PatCom made no effort to move the comments and objections toward consensual resolution. Any deliberations on the comments and objections were closed and no substantive amendments to the proposed Policy changes were made from the initial draft.
Prejudicial proceedings

Such is the grave concern that the IEEE board might actually approve the proposed policy changes, the European Commission (i.e. the EC overall, not a specific directorate or two therein) at the last minute (4th February 2015) has issued a formal “Statement.”  The EC makes it as clear, as this kind of official statement ever does, that it is unhappy with developments within the IEEE by:
·         Stating the EC is ”very mindful” of “the need for a careful balance” between ‘access to standards” and “ensuring appropriate remuneration for intellectual property”– it is concerned the draft IEEE rules will not achieve this.
·         Demanding respect for competition law – with the implication the proposed rules may raise issues of compliance with European competition Articles. This is presumably on the basis of the PatCom’s exclusionary conduct and the substantive policy rules that are reminiscent of a buyer cartel, as well as a forthcoming ruling from Europe’s Supreme Court on the availability of injunctions.
·         Requesting the IEEE should not presuppose or prejudice the outcome of the EC’s own reflection on standardisation and IP (the EC’s public consultation is currently underway with public comments due on 15th February 2015) that could well go in the opposite direction to the proposed changes at the IEEE.
Be careful what you wish (or vote) for

Periodic policy reviews of SSO rules are desirable and necessary. In the case of ‘open standards’ it is particularly important that these are undertaken by SSOs in a transparent manner in which the full range of interests and views are reflected. Compliance with the law and established SSO principles and operating procedures is also essential. The best place to start is by asking the question: are existing policies satisfactory?  If changes are to be made, they should be on the basis of clear evidence of harm or failure with existing policies and with proof that change will produce better overall outcomes with fair treatment for various parties who may have different interests. If not, the rules will impact negatively on those pro-competitive activities, and will significantly diminish the attractiveness of SSOs, including IEEE, as standardisation forums.

Tuesday 3 February 2015

An Energetic, Engaging and Balanced Symposium on Patent, Copyright and Trademark Trolls PART IV

The final panel was entitled, “Copyright and Trademark Trolls: Fable or Fact?”  The panelists included: Chris Arledge, Co-founder and Managing Partner, One LLP; Tom W. Bell, Professor of Law, Chapman University Fowler School of Law; Brad A. Greenberg, Postdoctoral Research Scholar in Intellectual Property, Columbia Law School; Lindy Herman, Senior Associate, Fish & Tsang LLP; and Michael S. Mireles, Professor of Law, University of the Pacific, McGeorge School of Law.  The moderator was Professor Mary Lee Ryan, Chapman University Fowler School of Law.  The following is a partial description of the panel discussion.

I was the first presenter and discussed my forthcoming paper which explains why “trademark trolls” are not a problem in the United States.  First, I explained that I was not proposing a practice requirement for patents, that trademarks are critical to our capitalist economy, that there are arguably problems with trademark enforcement--such as trademark bullies, and that a “troll-like” problem can develop in the trademark sphere because of changing law.  Second, I noted that the defining characteristic of a patent troll is failure to practice the invention.  Since U.S. trademark law has a use requirement, the trademark troll problem is effectively mitigated.  Further, failure to use can result in abandonment and the use requirement underlies the prohibitions against naked licensing and assignments in gross.  Next, trademark law has well-established inter partes proceedings such as opposition and cancellations actions which protect a producers ability to control related markets.  Third, policymakers have reacted well to potential troll-like problems in the domain name space by enacting the Anti-Cybersquatting Act and ICANN’s dispute resolution policy.  Policy makers have also learned from prior issues in the trademark field.  For example, ICANN was very thoughtful and proactive in making sure that the same cybersquatting issues would not arise in the new top level domain name space.   Fourth, I noted that U.S. Supreme Court case law directed at patent trolls may make a troll problem less likely to develop.  eBay v. MercExchange has been applied to trademark cases removing the categorical rule that a demonstration of a likelihood of confusion means that irreparable harm is proven.  The Octane Fitness case lowering the standard for attorney fees in patent law cases has also been applied to trademark cases.  Moreover, the same strategic advantages available to patent trolls are not available in the trademark field: layering defendants; asymmetrical discovery; availability of counterclaims; forum shopping; and intent is a factor for determining trademark infringement and dilution. 

Mr. Greenberg provided a very thoughtful discussion of copyright trolls.  He stated that there is an estimate that “41% of all cases filed were filed by copyright trolls.”  He states that some scholars argue that trolls are attracted to copyright trolling because of the low level and cost of obtaining a copyright, and the attractiveness of statutory damages.  He also states that scholars agree that copyright trolls are bad.  He has argued that we should have a presumptive fair use requirement that only applies to copyright trolls.  First, he looks to what is a copyright troll.  There are many definitions.  He identifies a copyright troll as someone who “acquires a copyright to enforce them,” “invests in a work based on litigation value not commercial value,”  “lacks a good faith licensing program” and “exploits statutory damages for settlement on often weak claims.”   He discussed the Righthaven litigation.  He noted that Righthaven recovered over 100 settlements.  He also discussed copyright porn trolls.  He explained how they use shame in litigation, but without making a clear connection between the IP address and the actual user.  Second, he looked at what makes trolls bad.  He thinks trolls “screw up” the incentive/access balance.  He discussed potential positive contributions of trolls, including: “they may increase compensation to authors;”  “free authors from having to monitor infringement” and deter infringement by making enforcement more likely.  The bad is that they encourage litigation and “compensate for litigation value instead of commercial value.”   He noted that copyright trolls can “chill speech.”  He states we survive because of “tolerated use” as Professor Tim Wu has noted.  Trolls do not tolerate uses.  He notes that the question “is what form will trolls take next.”

Professor Tom Bell provided a fascinating discussion of copyright as privilege.  He states that we have an “uneasy feeling” about copyright.  He believes that the problem is that we are treating copyright essentially stronger than other property.  He notes that we should be skeptical of calling copyright and taxi medallions “property.”  He notes that copyright porn trolls “engage in mass extortion” as a District Court Judge has stated as well.  These plaintiffs are using remedies that are stronger than common law remedies for other forms of property—property in the tangible.  He notes that law and economics scholars recognize that transaction costs are low with respect to enforcing rights in real property, so markets work there.  That is not true in copyright and particularly with porn suits.  The transaction costs include the difficulty of determining what is protected by copyright and there is also an issue with identifying the correct infringers.  The problem is the very large amount of statutory damages.  He thinks the solution is not to think about copyright as a “right,” but as a privilege.  He further discusses taxi medallions that can be very valuable, at least until Uber.  Uber reduces the value of taxi medallions.  He states that taxi medallion holders believe that they essentially have a “property” right and are protesting against the loss of their right.  However, he thinks that a better view is to look at taxi medallions as privileges.  He thinks that we have “market legal failures” with respect to copyright trolls and taxi medallions.  Since transactions costs are too high, then property type remedies are not appropriate.  We should view them as privileges instead that can be “tinkered” with “as long as due process requirements are met.”

Mr. Arledge provided a compelling argument concerning copyright enforcement.  He states that we need to think about copyright trolls from the perspective of understanding how attacking trolls will impact content creation.  He provides a very nice example of a paparazzi photograph and the erosion of the market for those photos because of mass infringement on the internet.  A solution may be obtaining licenses, however, the problem with trying to get licenses from the folks posting the photos is the usage of the DMCA “safe harbor.”  However, the issue is that once you use the DMCA process is that the value of that photograph is lost.  He notes that “the market is fundamentally broken.”  He believes courts are “stretching” the DMCA “safe harbor” beyond what he believes Congress intended.  He also discusses an example of a Russian website that is an “infringement mill” and a court has held that it falls within the “safe harbor.”  He further critiques the attractiveness of statutory damages to trolls.  He makes several points, including that many defendants do not have money and cannot pay, and are not worth going after.  The folks with money may not cave because of statutory damages.  He believes this is because a jury is unlikely to grant statutory damages for a weak copyright claim, so he would not bring the suit.  Finally, he asks what is the value of a paparazzi photograph offered for licensing—it has a very low value.  He encourages caution when proposing reform without empirical data especially when people are losing their livelihoods. 

Ms. Herman made several helpful comments.  She stated that you are unlikely to get statutory damages against defendants—you will get what they can pay for.  She does note that the threat of statutory damages can be helpful.  She believes what matters ultimately is the business decision.  She notes that frivolous litigation occurs in other areas of law and that, perhaps, some activity or entities do not necessarily need the label of troll.  She thinks the copyright “porn troll” problem concerns tactics—such as shaming the user.  That is the problem. 

The full discussion via webcast for the panels is available here.