Wednesday 26 August 2015

IP rights in Europe: a follow-up study

Intellectual Property Rights and Firm Performance in Europe: An Economic Analysis is the title of the 100-page report produced by the Office for Harmonisation in the Internal Market (OHIM). According to the Foreword:
The study on the contribution made by IPR-intensive industries to the EU economy carried out in 2013, in partnership with the European Patent Office, demonstrated the importance of those industries. It showed they support directly or indirectly 35% of jobs, almost 39% of the EU’s GDP and 90% of external trade. 
OHIM, through the European Observatory on Infringements of Intellectual Property Rights, has now carried out a follow-up study delving deeper into the influence of these rights at the firm or company level. This study, based on official public financial data from more than 2.3 million EU firms, covers companies which own patents, trade marks and designs at both national and at EU level. 
The study shows that large companies are four times more likely to own IP rights than smaller companies - 40% of larger firms have registered rights, compared with 9% of SMEs [this raises a popular debating point: do companies have more IP rights because they're bigger -- or are they bigger because they have more IP rights? Neither, probably ...]. It also shows that companies that own IP rights perform better than those that do not [again, there is a correlation v causation issue here]. This is a particularly significant finding for the 1.8 million SMEs that have registered IP rights, since they represent such an important part of the EU economy. 
The results demonstrate that businesses that own Intellectual Property Rights generate more revenue per employee than those that do not, have more employees and pay higher salaries to their workers and that this relationship is particularly strong for SMEs.
These conclusions are interesting and entertaining, but they are only a snapshot of a very large picture and it is still necessary to look beyond them. For example, some of the businesses that have the largest concentration of low-paid workers, such those in the fishing, agricultural and distribution sectors, and in security, construction and healthcare, are likely to have a lower concentration of IP rights too. 

Thanks to Chris Torrero for the link!

Tuesday 25 August 2015

IP and Finance: are there any courses?

A reader has written to ask if we know of any courses or training programmes on Intellectual Property and Finance. Off-hand this blogger cannot think of any, though he feels that there is bound to be one somewhere.

If you know of any degree or diploma course, or any professional training, that is specifically aimed at IP and finance, can you post the details -- or at least a link to them -- in the Comments section below this post on the IP Finance blog web page?

Monday 24 August 2015

The Value of the Trump Brand: “What is the Brand’s Message”

In the United States, the race for the presidency is heating up.  Donald Trump, the upstart candidate with very little to no political experience, is the front runner for the Republican Party nomination.  Trump has been well known for his real estate holdings and his appearances on the television show The Apprentice, but now is also known for his divisive views concerning immigration in the United States.  In June, Trump made numerous comments concerning immigrants from Mexico, including stating that some of them were “rapists.”  The backlash was fast and severe (rightly so).  In a July 2, 2015 article in The Atlantic, titled, “Is Running for President Donald Trump’s Worst Business Decision,” the author, David A. Graham, reviews some of the response from the business community as does the blog, The Gawker.  Univision quickly refused to show Trump’s Miss USA Pageant.  NBC Universal made the same decision and noted that Trump would not appear on its show The Apprentice.  Macy’s decided to end a line of Trump clothing.  Serta similarly decided to end a Trump branded mattress.  NASCAR, ESPN and the PGA will not hold events at Trump branded golf courses/hotels.  The League of United Latin American Citizens (LULAC) issued a press release condemning Trump and applauding Univision and NBC Universal’s actions. 
In The Atlantic article, Mr. Graham notes that Trump is supposedly worth around $9 billion—according to Trump.  According to a Slate article authored by Jordan Weissmann, about $3.3 billion of that $9 billion is supposed to be the value of the “Trump brand.”  Wow!  That is quite a valuation.  I wonder what it was based on.  Mr. Weissmann notes that some hotels will pay Trump to use the Trump name on the hotel—Trump actually doesn’t own the hotel itself.  Forbes puts the brand closer to around $125 million.  That is still quite a high valuation.  And, it is not entirely clear how Forbes arrived at that number.  (The branding deals with Serta, Macy's and hotels?)
In recent weeks, Trump has maintained his lead as the Republican front runner.  Notably, The New York Times, in Why Donald Trump Won’t Fold: Polls and People Speak, recently examined polling data and concluded:
A review of public polling, extensive interviews with a host of his supporters in two states and a new private survey that tracks voting records all point to the conclusion that Mr. Trump has built a broad, demographically and ideologically diverse coalition, constructed around personality, not substance, that bridges demographic and political divides. In doing so, he has effectively insulated himself from the consequences of startling statements that might instantly doom rival candidates.
In poll after poll of Republicans, Mr. Trump leads among women, despite having used terms like “fat pigs” and “disgusting animals” to denigrate some of them. He leads among evangelical Christians, despite saying he had never had a reason to ask God for forgiveness. He leads among moderates and college-educated voters, despite a populist and anti-immigrant message thought to resonate most with conservatives and less-affluent voters. He leads among the most frequent, likely voters, even though his appeal is greatest among those with little history of voting.  . . .
His support is not tethered to a single issue or sentiment: immigration, economic anxiety or an anti-establishment mood. Those factors may have created conditions for his candidacy to thrive, but his personality, celebrity and boldness, not merely his populism and policy stances, have let him take advantage of them.
Tellingly, when asked to explain support for Mr. Trump in their own words, voters of varying backgrounds used much the same language, calling him “ballsy” and saying they admired that he “tells it like it is” and relished how he “isn’t politically correct.”
Trumpism, the data and interviews suggest, is an attitude, not an ideology.
I am sure that some of his comments have not helped the value of his brand as I believe corporate sponsors will likely continue to run from him.  I am not even sure what his brand will stand for after this is all over—not just opulence for sure.  However, his general popularity is growing in certain circles—how many of those folks will play golf on Trump’s courses?  For more on the “math” behind Trump’s valuation of himself, see Forbes here. 

Huawei v ZTE: a competition perspective

"Huawei ruling: bad news for SEPs?" was an IP Finance guest post from Colm Ahern (Elzaburu) on the Court of Justice of the European Union (CJEU) ruling in Case C-170/13 Huawei v ZTE, in which the CJEU clarified the law relating to the enforcement of standard-essential patents.

Our friends in the field of competition law have also been interested in this decision, as the Editorial in the latest issue of the Journal of European Competition Law & Practice (JECLP) shows. Nicholas Banasevic's piece, "The Implications of the Court of Justice's Huawei/ZTE Judgment", can be found in JECLP) issue 7 at pages 463-464 (extract available here).

Friday 21 August 2015

"Innovation to Investment": a question of priority, or of timing?

"Innovation to Investment – How to capitalise on your IP" takes place at the Barclay Escalator's London Innovation Loft on Friday 25 September. According to the organisers:
"Intellectual Property should be at the forefront of the mind of start-ups working in the Fintech/digital space.  Whether it is the importance of IP for access to funding, or understanding how to protect innovation and manage risks, a well thought-out IP strategy is essential to capitalising on your innovation".  
In this blogger's view the truth of the matter is that IP is at the forefront of the mind of practically every start-up these days, both in the Fintech/digital space and outside it -- but the difficulty faced by most start-ups is that of having IP in their minds at the right time and for the right reasons. This difficulty is compounded by the fact that, the smaller a start-up is, the greater is the demand for multitasking skills and for getting the timing right when cash flows, IP fees and deadlines and the need to engage with an ever-changing market are all competing for attention, and indeed for priority.

A cynic might be forgiven for commenting that IP is more at the forefront of the mind of start-ups than of many funders, for whom (i) getting their money back (ii) with interest and (iii) without risk are front, centre and indeed practically everywhere else in their consciousness. It would be great if this were no longer so and this blogger looks forward to the time when this happy end will come to pass.

This seminar should ideally be attended by start-ups themselves but in reality it is likely to be attended mainly by those who advise them. IP Finance hopes that the speakers -- Nigel Swycher (CEO, Aistemos), Julius Stobbs (Stobbs IP) and Ash Von Schwan (Cleary Gottlieb Steen & Hamilton) -- will bear this need for perfect timing in mind when making their presentations.

Click here for a comment on the event from Aistemos, and here for full information, registration and a map showing where you can find the venue. Registration is free.

Wednesday 19 August 2015

Cumulative mobile-SEP royalty payments no more than around 5% of mobile handset revenues

As indicated in the recent IP Finance guest posting about the US Court of Appeals judgment in Microsoft Corp. versus Motorola Inc., by Kevin Winters, in some cases there can be a massive difference between what a licensor asks for and what a licensee ends up paying in fees and royalty rates for standard-essential patents. My latest blog posting assesses cumulative royalties paid on SEPs in mobile phones, including multiple licensors, by adding up what is actually paid and what is conservatively the maximum likely to be paid, where actual payment figures are not publicly available. This total is far lower than that calculated by simply piling-up every licensor's rate demands. Expressed as a yield on total mobile handset sales revenues, it is a much smaller percentage than this speculative and defective "royalty stack" calculation.
Cumulative mobile-SEP royalty payments no more than around 5% of mobile handset revenues
Vested interests including leaders at the mobile operator-dominated NGMN Alliance promote the notion that patent licensing fee rates are “perceived” to be too high in mobile technologies; but without substantiation for such claims. Speculation that patent fees, largely for mobile SEPs, may total 30 percent of smartphone costs are projected by Intel and others.[1]  This grossly inflated figure is based on theories of hold-up and royalty stacking that lack empirical support and it ignores marketplace realities including cross licensing and discounting rates for other reasons in patent-licensing agreement negotiations, as I have already noted here and here.  That percentage would equate to more than $110 billion being paid per year in patent fees based on total global handset revenues estimated by Morgan Stanley and IDC to be  $377 billion in 2013 and $410 billion in 2014.
Actual payments are much smaller than such perceptions and projections. The following table summarizes fairly exhaustive analysis of significant mobile-SEP licensing costs based on reported licensing revenues from the audited financial reports of major licensors and other public sources including patent pool rate-card charges.  Based on these figures, it is implausible that total royalties actually paid, including lump sums and running royalties, for standard-essential 2G, 3G, and 4G technologies, amount to more than approximately $20 billion per year. This figure represents a cumulative royalty yield for licensors of around five percent on mobile handset revenues.
Mobile SEP Licensing Fee Revenues and Royalty Yields on Global Handset Market


Major SEP owners with licensing programs: Alcatel-Lucent, Ericsson, Nokia, InterDigital, Qualcomm
$10.6 billion
Patent Pools: SIPRO (WCDMA), Via Licensing (LTE), Sisvel (LTE)
<$4 billion
Others: including Apple, Huawei, RIM, Samsung, LG
<$6 billion
Cumulative maximum:  fees and yield for mobile SEPs
~$20 billion

* Yields are total licensing fee revenues including lump sums and running royalties as a percentage of $410 billion in total global handset revenues
The majority of mobile-SEP licensing fees are earned by five companies with licensing programs who have collectively contributed most patented technologies to 2G, 3G and 4G standards.  Alcatel-Lucent, Ericsson, InterDigital, Nokia and Qualcomm altogether generate $10.6 billion per year in licensing fees for these and other technologies. Also collectively, this represents a yield of significantly less than three percent of total global revenues for mobile handsets including smartphones.
Cumulative mobile-SEP fees paid also include less than around one percent of total handset revenues to the three mobile-SEP patent pools plus, at most, one percent or so more to other companies licensing mobile SEPs bilaterally. Patent pools lay out their prices and so these indicate the maximum they might be able to collect with willing and responsive licensees and a lot of licensing effort on the part of the pool administrators. The remaining significant mobile-SEP owners are predominantly handset manufacturers who mainly cross-license to reduce royalty out-payments rather than generate royalty income, and so their royalty fee revenues are relatively small. With each percent of royalty yield on total handset revenues now representing more than $4 billion per year in patent fees, there is insufficient evidence and no justification to conclude that opportunists not included in any of the above categories, including so-called patent trolls, patent-assertion entities and other non-practising entities, yield more than a fraction of a percent of total handset costs.
As a percentage of all consumer charges, including handset costs and $1.13 trillion in mobile operator services (GSMA Wireless Intelligence figures), which are also highly dependent on SEP technologies, the cumulative royalty yield shrinks to 1.3 percent.  Deriving this lower percentage yield figure from the broader revenue base is also applicable because it is the innovative and relatively new SEP-based technologies including 3G HSDPA/HSPA and 4G LTE which enable and drive mobile broadband data service growth. Operator revenues in mobile data services (other than basic SMS text messaging) grew from single-digit percentages of total service revenues until the introduction of HSDPA a decade ago, to around 40 percent across the entire Vodafone Group with many different national operators, for example, in 2015, according to the company's annual reports.
My more detailed and much lengthier analysis is in a pdf here.
[1]  A working paper entitled The Smartphone Royalty Stack: Surveying Royalty Demands for the Components Within Modern Smartphones was published by one in-house lawyer at Intel and two outside counsel from WilmerHale. Intel Vice President and Associate General Counsel Ann Armstrong and Wilmer Hale's Joseph Mueller and Timothy Syrett argue that aggregate patent licensing fees including SEPs and non-SEPs are excessive at around $120 per $400 smartphone.

Tuesday 18 August 2015

Did Motorola breach its good faith obligation to offer RAND licences to its patents in good faith?

IP Finance welcomes the following guest post from Kevin Winters on a recent US decision that has attracted a good deal of attention among IP strategists and investors. Here's the story:
Did Motorola breach its good faith obligation to offer RAND licences to its patents in good faith? 

This question was recently determined in Microsoft Corp. v Motorola, Inc (here) by the United States Court of Appeals for the Ninth Circuit.  In her judgement for the court Judge Berzon affirmed the judgment of the district court in favour of Microsoft that Motorola had breached its obligation to offer RAND licences to its patents in good faith.

The background

In late 2010 both Motorola and Microsoft sued in the U.S. International Trade Commission (ITC) and the Western District Court of Washington, alleging infringement of smartphone patents.  During this litigation the parties entered into discussions about a cross-licensing agreement that would grant Motorola licences to Microsoft’s smartphones in exchange for licences to any of Motorola’s patents Microsoft’s products may have been infringing. 

In late October Motorola provided Microsoft with letters offering to license two patent portfolios, 802.11 and H.264 HEP, at 2.25% of the price of the end product incorporating the patens, regardless of the manufacturer: Microsoft was to pay Motorola 2.25% of the sale price of an Xbox game console or of any computer using Microsoft Windows.  Both letters which were identical in material terms represented that the offer was in-keeping with Motorola’s reasonable and non-discriminatory (RAND) commitments.  After Microsoft received the letters it filed a diversity action in the Western District of Washington, alleging that Motorola had breached its RAND commitments to the IEEE and ITU.  It alleged that Motorola’s letters constituted a refusal to license Motorola’s standards-essential patents (SEPs) on RAND terms.  The next day Motorola filed suit against Microsoft in an attempt to enjoin Microsoft from using its H.264 patents.  The cases were consolidated in the Western District of Washington.

Motorola also filed patent-enforcement suits with the ITC, seeking an exclusion order against importing Microsoft’s Xbox products into the USA, and with a German court, seeking an injunction against sales of Microsoft’s H.264-compliant products.  To avoid the economic loss it would suffer if an injunction against the use of Motorola’s two German H.264 patents was granted – Microsoft’s European distribution centre for Windows and Xbox products was in Germany – Microsoft moved its distribution operations to the Netherlands.  It also obtained an anti-suit injunction barring Motorola enforcing any injunction it might obtain in a German court against Microsoft’s use of Motorola’s 1h.264 SEPs until the district court could decide whether an injunction was an appropriate remedy for Motorola to seek.  The Court of Appeals upheld the anti-suit injunction in 2012, while the German court ruled that Motorola was entitled to an injunction.

In the district court Microsoft altered its complaint to allege that Motorla’s filing of injunctive actions constituted a breach of contract, owing to the fact that the obligation to offer RAND licences to all seekers prohibited Motorola from seeking injunctive relief for violations of patents subject to that obligation.  In response the court granted a joint motion to stay all patent-infringement claims in the consolidated cases until the RAND issues were resolved.

The district court issued a range of orders that, among other things, recognised that RAND commitments create enforceable obligations between Motorola and the SSO concerned and that Microsoft – as a standard user – could enforce those contracts as third-party beneficiary.  It also issued orders that Motorola’s commitments to the ITU and IEEE required initial offers by Motorola to license its SEPs to be offered in good faith, but needn’t be on RAND terms provided a RAND licence is eventually issued.  Furthermore the court decided that Motorola was not entitled to an inunction on its H.264 or 802.11 patents.

In November 2012 the district court conducted a bench trial to determine a RAND rate and range for Motorola’s H.264 and 802.11 patents.  It concluded that the RAND royalty for Motorola’s H.264 portfolio was .555 per cent end-product unit, with an upper bound of 16.389 cents per unit, and the 802.11 portfolio was 3.71 cents per unit, with a range of .8 cents to 19.5 cents.

The case was then the subject of a jury trial on the breach of contract claim.  While Motorola objected, Microsoft introduced the RAND rate’s determined at bench trial, along with testimony that Motorola and its parent company, Google Inc, had previously been investigated for failing to licence patents relating to smartphones, tablets and videogame systems on RAND terms.  Microsoft sought damages in the form of attorneys’ fees, costs in defending the injunction actions that Motorola had raised and in relocating the distribution centre from Germany to the Netherlands.  

In September 2013 the jury returned a verdict in favour of Microsoft for the amount of $14.52 million.  The verdict form asked jurors the general question of whether Motorola “breached its contractual commitment[s]” to the IEEE and ITU and, the specific question, in determining damages, whether Motorola’s “conduct in seeking injunctive relief, apart from Motorola’s general course of conduct,  violated Motorola’s dut[ies] of good faith and fair dealing with respect to Motorola’s contractual commitment[s].”  The jury answered “yes” to all questions unanimously. 

Motorola sought judgement as a matter of law both at the close of evidence and at the close of Microsoft’s case-in-chief.  Having heard the jury’s verdict, the court denied Motorola’s motions concluding that (i) the evidence was enough for the jury reasonably to conclude that Motorola breached its duty of good faith and fair dealing by seeking injunctions against Microsoft, and (ii) the damages award was proper.  Microsoft’s motion for entry of final judgement on the breach of contract jury verdict was granted. 

Motorola appealed the judgement on the breach of contract claim to the Federal Circuit which, on Microsoft’s motion, transferred the appeal to the Court of Appeals for the Ninth Circuit.

The decision

After having dealt with claims that the Court of Appeals lacked the jurisdiction to hear the appeal, the court moved to consider the substantive challenges to the district court’s judgement:

  1. The district court lacked the legal authority to decide the RAND rate issue in a bench trial, severing it from the ultimate breach of contract issue tried to the jury.
The Court of Appeals was not persuaded by this argument.  In its judgment the Court of Appeals pointed out that Motorola expressly consented to a bench trial on the RAND rate at a status conference on 14 June 2012.  During those proceedings, Motorola’s counsel was identified as having informed the court that “…the court [will] decide all the material terms of the RAND license.”  Despite Motorola’s counsel repeating this statement after Microsoft’s counsel confirmed the agreement, Motorola argued that its counsel’s statements were “taken out of context” and didn’t amount to consent.  Motorola’s counsel on appeal argued:
“We agreed that the court could set the terms of a [RAND] license.  The court later abandoned the quest to set the terms of the license…[H]e changed the basis on which he was finding the RAND rate.  He said , ‘I’m not going to set a license; I now think it’s necessary for the fact-finder to know the true RAND rate in order for us to decide breach.’  That is a change of litigation parameters.  We are no longer setting a license, which is all we conceivably could have agreed to.” 
The Court of Appeals was not persuaded of this version of events.  First it pointed out that there was no evidence that Motorola had been misled regarding the connection between the determination of the RAND rate and the breach of contract trial, nor did Motorola restrict its consent to licence-setting.  It was found that there were several instances prior to the status conference on 14 June 2012, where the parties were reminded that a resolution of the RAND rate would be used “as guidance” in deciding the breach of contract claim.  Secondly the court took the argument that Motorola only agreed to the determination of RAND for a court-created licence to be opposite to what it had argued before the district court. 

Based on this the Court of Appeals found no evidence that Motorola was ever unaware that the RAND determination would be used in order to facilitate a breach of contract trial.  Further it was not convinced that Motorola ever withdrew is willingness to engage in a bench trial to do so, and was satisfied that the district court had the authority to determine the RAND rate.

  1. The district court’s legal analysis in determining the RAND rate was not in-keeping with Federal Circuit precedent.
It was the view of the Court of Appeal that the district court had not erred in its determination of the RAND rate.  Motorola argued that the district court had failed to observe US patent law under the Patent Act, 25 U.S.C 25 U.S.C. § 284, which provides that a court shall award damages “adequate to compensate for the infringement, but in no event less than a reasonable royalty rate for the use made of the invention by the infringer.”  Motorola also cited Federal Circuit jurisprudence where damages were calculated under that provision. 

The Court pointed out that the matter before it was not a patent law action, but conceded that the Federal Circuit’s approach to patent law was useful in contract cases involving issues of patent valuation.  Motorola’s challenge was on the district court’s interpretation of Georgia-Pacific Corp. v U.S. Plywood Corp (here) where a ‘hypothetical agreement framework’ for calculating infringement damages had been endorsed by the Federal Circuit.  Georgia-Pacific provided fifteen factors for the courts to consider in calculating the royalty rate that parties could have agreed on in a hypothetical negotiation.  Motorola argued that the district court failed to follow factor fifteen of Georgia-Pacific which guides courts to view the hypothetical negotiation at “the time the infringement began”.  The Court of Appeal acknowledged that certain components of the district court’s judgment had regard for the present day value of the patents.  However this was not sufficient for the Court to find the district court’s RAND calculation invalid given that, amongst other things:

    1. There was no evidence that the Federal Circuit deemed the Georgia-Pacific factors as “…a talisman for royalty rate calculations.”  Furthermore the Court cited evidence that certain factors, including factor fifteen would need to be adapted in the context of RAND contracts.  The Court of Appeal agreed with the district court’s use of the present day value of the patent in determining the RAND rate-and-range for use in the breach of contract proceedings, considering that Motorola was breach of its obligations was ongoing;
    1. Motorola did not specify the date that the district court was to employ in its calculations.  The Court of Appeals acknowledged that Georgia-Pacific  framework pointed to the date of a manufacturer’s unlicensed use of patented technology.  However the case before the court was one where the “infringement” was Motorola’s breach of contract and not Microsoft’s use of Motorola’s patents.  The court commented that Motorola’s suggesting that the date when it sent the offer letters, or the time before Microsoft began proceedings of the first patent infringement were of little use, as it did not mention either of them in presenting its hypothetical negotiation analysis to the court.  The court took the view that a jury could find a breach of contract either based on Motorola’s letters; its seeking various injunctions; or from its overall conduct; and
    1. Motorola hadn’t shown – or argued – that it was prejudiced by the district court’s analysis.  The Court of Appeals described the job of the hypothetical agreement approach as being to “…take account of the situation of the parties and of the value each places on the patents in question.”  The court could find little that had changed in the parties’ positions since the dispute began.  Furthermore the district court acknowledged the fact that Google had acquired Motorola in 2012, and consideration was given to both Motorola’s and Google’s commercial interests in determining the benefits from inclusion in the patent pools – as part of its RAND-rate analysis.  Motorola was even shown, on arguments made by Microsoft, to have benefited from the courts treatment.
  1. The district court gave too much consideration to the rates charged by two patents pools as indicators of the RAND rate, and too little of Motorola’s licences. 
The Court of Appeals took the view that the district court was not wrong in its approach to determining the RAND rate.  It agreed that there is authority that the royalties a patent owner enjoys in licensing agreements for patents can be useful in calculating a hypothetical royalty agreement.  However it was not convinced that the district court had acted erroneously in dismissing Motorola’s past licences as “…too contextually dissimilar” to be of use in determining the RAND rate:

    1. Motorola’s licence with VTech communications was not probative of a RAND rate for the 802.11 and H.624 patents as they were licensed as part of a broader agreement for settling infringement claims Motorola held against VTech .  The licence was found to be a mechanism to avoid a potential infringement suit, resulting in Vtech paying ‘trivial’ royalties to VTech.  The Court of Appeals agreed with the district court that these licences were not reliable indicators of the RAND royalty rate;
    1. Motorola’s Rim agreement for the 802.11 and H.624 patents included a royalty rate, but this was a “…blended rate for all the Motorola patents included in RIM products…”  The Court of Appeals pointed the impracticality of attempting to apportion the value of the two specific patents at issue; and
    1. The licence agreements Motorola had with Symbol Technologies were not relevant.  The court pointed out that two agreements had been formed under the threat of litigation, whose licences would have expired before Motorola’s and Microsoft’s hypothetical agreement would have arose.  Further, the court pointed out that the third agreement concerned patents that expired prior to the end of October 2010 which required a total payment that was less than what Motorola would have obtained in pursuing a 2.25% royalty rate from Microsoft.      
  1. The district court erred in denying Motorola’s motions for judgment as a matter of law on the breach of contract issue.
In considering the denial of a motion for judgement, the Court of Appeals reviewed the judgement afresh, but pointed out that it had to affirm where there was significant evidence to support a  verdict “…in favour of the non-moving party.” 

The Court of Appeals was of the view that there was substantial evidence on which the jury in the district court could have based a verdict in favouring Microsoft:

    1. The jury in the district court was told that an injunction against Microsoft’s use of Motorola’s patents would have severe consequences as no customer would buy a smartphone lacking Wi-Fi, or a computer that could not play high-definition video;
    1. The time that Motorola sought injunctions was also found to be demonstrative of bad faith.  The Court of Appeals agreed with the argument that because Motorola sought injunctions immediately following the expiry of the acceptance period provided in its letters to Microsoft, this was merely a prelude to a suit;
    1. There was evidence that Motorola knew that by pursuing injunctive action it could breach its good faith and fair dealing obligations.  The court drew attention to the fact that Motorola had been investigated by the FTC, who found some of its activities to be questionable in respect of allowing an SEP holder to obtain an exclusion order against a license seeker as inconsistent with RAND commitments.
  1. The district court erred in awarding Microsoft attorneys’ fees as damages in connection with Motorola’s pursuit of injunctions against infringement
Motorola argued that the Noerr-Pennington doctrine precluded the district court from awarding attorney’s fees and litigation costs to Microsoft, and that Washington law more generally prevented the recovery of attorney’s fees for defending a separate lawsuit as a component of damages. 

The Court of Appeals was not convinced on either front of Motorola’s argument.  In respect of the Noerr-Pennington doctrine, the court acknowledged that it shields individuals from liability for engaging in litigation.  However it pointed out that the doctrine does not protect parties from actions for a breach of contract.  Moreover the court highlighted the fact that, based on the ruling in Apple, Inc. v Motorola Mobility, Inc (here), the Noerr-Pennington doctrine does not protect a patent holder from liability for pursuing infringement actions that violate its promise to negotiate with a RAND-rate licence seeker.  It commented:
“Enforcing a contractual commitment to refrain from litigation does not violate the First Amendment; if it did, every settlement of a lawsuit would be unenforceable as a Noerr-Pennington violation.”
Turning to the recovery of attorney’s fees under Washington law, the Court of Appeals acknowledged that Washington courts only permit the recovery of attorney’s fees in limited circumstances.  However the court did point out that amongst other things, the fees at issue were incurred not in the breach of contract action, but in defending the action for injunction which was found to violate the RAND agreement.  The court added:
“As losses independent of the current litigation and triggered by the contract-breaching conduct, they are best characterised as recoverable consequential contract damages…”
  1. The district court abused its discretion in two contested evidentiary rulings
In determining whether or not the district court abused its discretion in admitting evidence, the Court of Appeals had to be satisfied by Microsoft “that it [was] more probable than not that the jury would have reached the same verdict.” Motorola argued that the district court had abused its discretion in admitting findings from its RAND order, on the basis that those findings were not relevant, prejudicial and a violation of the Seventh Amendment right to a jury trial. 

The Court of Appeals was not convinced by Motorola’s reasoning.  It pointed out that Motorola had waived its right to a jury trial on the RAND determination: it did not qualify its involvement in the bench trial.  Furthermore the court was not persuaded by Motorola’s argument that the jury would determine the underlying facts of the bench trial:
“The parties agreed to a bench trial in order to spare the jury from becoming entangled in complicated technical minutiae…”
Motorola also argued that the decision of the district court to allow Microsoft to admit evidence of a settled investigation between the FTC and Motorola – which did not constitute an admission of a violation of the law – was wrong. Specifically Motorola pointed to Federal Evidence Rules 403 and 408.  The Court of Appeals acknowledged the exclusionary power of Rule 403 in respect of evidence “if its probative value is substantially outweighed by a danger of…unfair prejudice.”  However the court pointed out that the inclusion of the evidence regarding the FTC investigation while potentially prejudicial did not outweigh its probative value: it was admitted merely to demonstrate that Motorola was aware that the FTC and Microsoft found its actions questionable, not to evidence any conclusions the FTC made in respect of Motorola’s activities.  The Court of Appeals also pointed out that Motorola’s reliance of Federal Evidence Rule 408 is subject to exceptions, namely to demonstrate notice or knowledge. 

Monday 17 August 2015

Google, Alphabet and the value of the Google brand

From Brand Finance CEO David Haigh comes one of the first serious appraisals of Google's Alphabet rebranding decision from the IP finance community. According to a press release from Brand Finance:
Google has a brand worth $76.683 billion, making it the World’s third most valuable after Apple ($128 billion) and Samsung ($82 billion), according to brand valuation and strategy consultancy Brand Finance. That means that this week’s announcement of Google’s restructuring and the introduction of the Alphabet brand, though seemingly superficial, could have major financial implications. Brand Finance CEO David Haigh gives his view on the likely impact.
“In the short term, Google’s brand value will drop marginally as revenues from some of the smaller branded businesses are rebranded to Alphabet or, more likely, are given independent identities [this blogger wonders whether there will be even a perceptible drop: there might even be a small increase, given the facts that the restructuring has received such vast publicity -- just search on Google for 'google' and 'alphabet' -- and that so many people will be associating Alphabet with the Google brand]. However these make up only a very small proportion of overall revenues so the impact is unlikely to be that significant.

The more interesting question is what the impact will be on Google’s image long term. On the one hand Google Fiber and in particular Google X suggest to consumers that Google is at the forefront of technological innovation, continually relevant and more than just a search engine. Remove Google’s branding from them will reduce this halo effect. Apple’s mono-brand approach has clearly served it very well, creating better recognition of services and interlinking of messaging [indeed, where emphasis has been allowed to be placed on the sub-brand rather than the house brand, the sub-brand has tended to be used generically: iPod, iPad ...]. Google seems to have decided that something closer to a ‘house of brands’ approach suits it better. Youtube and Android are already major parts of the company not bearing the Google name. The creation of Alphabet suggests this approach will be expanded [YouTube and Android are such well established brands that it is difficult to think of any benefit that might be gained by stationing them under either the Google or Alpabet brands].

The rationale for this may be more based on managerial and legal concerns than on those of branding. Our view is that the new structure is a step in the right direction in managerial terms, allowing the constituent businesses to work towards their particular goals in a more focussed way [agreed - and this point is well made irrespective of the choice of name].

From the legal point of view, Google is attracting more and more negative attention, whether as a result of lack of transparency, invasion of privacy or anti-trust concerns. Under the new structure there is likely to be more information about Google’s revenue streams, improving its accountability to shareholders and appeasing regulators. The restructuring paves the way for further subdivision to allay anti-trust fears and also means that legal issues of other kinds can be contained within that business rather than tarnishing the entire company [indeed, the word 'Google' carries a lot of unwanted baggage in terms of adverse connotations these days that this move will provide a fresh opportunity for analysts and commentators to view its various activities more dispassionately].

That point plays into branding too, if one part of the company is dragged through the mud, the risk of contagion is lessened if it is branded differently. Google has often been hoisted by its own petard over the ‘do no evil’ slogan, critics won’t be able to do the same to Alphabet or its non-Google brands.

Overall it is a sensible move that will see Google’s $77 billion brand value dip in the short term but probably grow faster and more sustainably in the longer term. We may also now see the emergence of a stable of new brands from Silicon Valley entering the upper echelons of Brand Finance’s brand value league tables in the next few years.”
A fair analysis, though this blogger wonders about the meaning and the significance of the Google brand being worth $77 billion: it's not as if the company could dispose of the brand for that price, or that its competitors could get that sort of value from it if the various businesses under the Google brand were sold to them.

Friday 14 August 2015

Drafting into reality – a US innovation box?

It's been talked about for years, but finally there's something to look at – members of the House Ways & Means Committee have produced a draft bill for an 'innovation box' for the USA (

It's a draft, and it's a proposal, by the way – it has a long way to go before it might become part of US tax law!

Like the UK patent box, the US innovation box proposal is for a deduction from taxable profits which ends up effectively taking the relevant profits at 10% – it's not a 10% tax rate as such. Effectively, it would allow for a tax deduction of 71% of the innovation box profit for the year (or taxable income, if that's less). Given US corporate income tax rates, that gets you into 10% territory.

Following the OECD/BEPS modified nexus proposal, the draft does require that innovation box profits be tied to US R&D – the innovation profit that qualifies for the innovation box is the percentage of total innovation profit that matches the percentage of R&D expenditure compared to total costs over the previous 5 years (i.e.: if half of the company's expenditure is on R&D, then half of their total innovation profits will qualify for the innovation box).

As ever, the details will matter (and there will be a host of backup regulations going into considerable detail, if this ever sees the light of day). Calculation of R&D expenses and innovation box profits will be the least of it …

But one interesting provision currently in the draft is the proposal to allow US companies to bring back to the US foreign intellectual property tax free … that might cause some interesting shifts at an international level if it were to make it into law.

So: watch this space. The sponsors are asking for feedback on specific points, if you want to get involved –

Thursday 6 August 2015

The household 3D printer: Does it really have all its future before it?

The phrase, attributed to Curt Gowdy, a well-known US sports presenter
during the 1960s -1980s, went something like this: “He has his future all ahead of him.” While the phrase was sometimes mocked (the future is by definition always ahead of us), it captured the sense that, for a certain person or phenomenon, while the present was promising, the best was yet to come. Something like this has been said time after time regarding the potential of 3D printing to penetrate the household market. There is no image more widespread about the potential of 3D printing than the notion that, sooner or later, every household will have its own 3D printer, enabling us to function simultaneously as consumer, manufacturer and distributor.

A leader in this vision is the U.S./Israeli company, Stratasys, especially since its acquisition in 2013 of desktop 3D printing manufacturer, MakerBot, in a $403 million stock deal. The problem is that recent developments seem to call into question whether we really are at the cusp of seeing the ubiquitous presence of a desktop 3D printer complementing the traditional household printer.

Consider the 27 May report by Andrew Zaleski, ”Stratasys CEO David Reis: ‘The future of desktop printing is great”, which appeared on On the one hand, Reis stated categorically that
“I think the future of desktop printing is great.”
On the other hand, however, as reported in the piece:
“ … at the end of April, news broke that MakerBot was laying off 20 percent of its staff—roughly one-fifth of the company’s workforce—and closing its three MakerBot retail locations. A company announcement about the layoffs attributed them to an internal re-organization as the company shifts its ‘retail focus to our national partners and expanding our efforts in the professional and education markets.’ Where MakerBot noticed a downturn over the last year was in the consumer market for desktop 3-D printing. The goal now, it appears, is to use sales and momentum in professional and education markets to drive sales in the consumer market.”
According to current MakerBot CEO Jonathan Jaglom:
“MakerBot initially addressed the right market—basically the makers, the tinkerers, the DIYs—but as MakerBot grew so did the audience space, and so then the education came in and the professional came in, and that today is becoming a much wider audience than the consumer,” Jaglom told Fortune. “[The consumer market] is there; we have people that own printers at home. It’s not a negligible community, but it’s not as big as we initially perceived.”
In simple terms, Q1 2015 product and service revenues for MakerBot were down 18 percent from the comparable figures for Q2 2014. But the news only got worse when the Q2 results were announced. As disclosed by Stratasys and reported on, revenues for the MakerBot declined a whopping 57% in the second quarter on a year-over-year basis. The company pointed to continued overall market weakness together with continued ongoing challenges in carrying out the restricting announced earlier in the spring.

Two principal “challenges” to widespread household adoption of 3D printers were mentioned in the article. The first is the claim that business and medical applications of 3D printing have “more compelling use cases”, at least for now. As observed, “If you need a new plate at home, are you going to 3-D print a new one, or are you going to take a ride to the local store and buy a stack of paper plates?” Secondly, the price of even the least costly 3D printers, reportedly several hundred dollars, is “too high for mainstream consumers at this time, despite broad awareness of the technology.”

What is not clear is, going forward, why either of these factors will change to the benefit of a desktop 3D printer in every garage. Specifically, what will make household uses of a 3D printer more compelling in the future? Moreover, given a reported price point of several hundred dollars for the least expensive 3D printers, is the entry level 3D printer really out of the reach of a critical mass of households? Or is there some other reason for the slow up-take of desktop 3D printers by households?

“He has his future all ahead of him.” With respect to desktop 3D printers as a staple in every home, the question is whether this is really the future for the industry. Or will it continue to make impressive inroads primarily into various niche markets, such as business, medicine and education? While this is nothing to be ashamed of, this prospect stands at odds with the more optimistic claims being made about our 3D printing future.