Monday 30 May 2016

US Securities and Exchange Commission Rules on Crowdfunding Effective

The U.S. Securities and Exchange Commission (SEC) rules on crowdfunding became effective on May 16, 2016.  The rules are a hefty 685 pages long and are available, here.  The Investor Bulletin issued by the SEC Office of Investor Education and Advocacy provides an overview of the rules and the JOBS Act tailored to potential investors, here.  The Investor Bulletin explains that anyone can make a crowdfunding investment, but that there are limitations based on net worth and annual income on the amount that can be invested.  The Investor Bulletin explains: 

If either your annual income or your net worth is less than $100,000, then during any 12-month period, you can invest up to the greater of either $2,000 or 5% of the lesser of your annual income or net worth.
If both your annual income and your net worth are equal to or more than $100,000, then during any 12-month period, you can invest up to 10% of annual income or net worth, whichever is lesser, but not to exceed $100,000. 

Additionally, crowdfunding investments can only be made through a portal and not through other direct means.  "The broker-dealer or funding portal—a crowdfunding intermediary—must be registered with the SEC and be a member of the Financial Industry Regulatory Authority (FINRA)."  The Rules provide numerous requirements for intermediaries to protect investors.  The Investor Bulletin also provides numerous warnings to potential investors concerning the risks associated with crowdfunding.  The Rules provide that, "An issuer is permitted to raise a maximum aggregate amount of $1 million through crowdfunding offerings in a 12-month period." 

Notably, the Rules also state that: 

Certain companies are not eligible to use the Regulation Crowdfunding exemption. Ineligible companies include non-U.S. companies, companies that already are Exchange Act reporting companies, certain investment companies, companies that are disqualified under Regulation Crowdfunding’s disqualification rules, companies that have failed to comply with the annual reporting requirements under Regulation Crowdfunding during the two years immediately preceding the filing of the offering statement, and companies that have no specific business plan or have indicated their business plan is to engage in a merger or acquisition with an unidentified company or companies.

Offering documents must disclose: 

Information about officers and directors as well as owners of 20 percent or more of the issuer; • A description of the issuer’s business and the use of proceeds from the offering; • The price to the public of the securities or the method for determining the price, the target offering amount, the deadline to reach the target offering amount, and whether the issuer will accept investments in excess of the target offering amount; • Certain related-party transactions; • A discussion of the issuer’s financial condition; and • Financial statements of the issuer that are, depending on the amount offered and sold during a 12-month period, accompanied by information from the issuer’s tax returns, reviewed by an independent public accountant, or audited by an independent auditor. An issuer relying on these rules for the first time would be permitted to provide reviewed rather than audited financial statements, unless financial statements of the issuer are available that have been audited by an independent auditor. 

Happy investing!

Thursday 19 May 2016

IP3—The Industry Patent Purchase Program: Google and Friends Want to Buy Your Patents (Maybe, Again)

This blog recently covered Google’s Patent Purchase Program, here and here.  Google basically offered to consider purchasing submitted patents.  The Program is back, but this time expanded with a new group of players under the title, “IP3 by Allied Security Trust.”  Here is the announcement:

Calling all patent owners – some of the world’s largest companies including Google, Apple, IBM, Microsoft, Facebook, Adobe, SAP, Ford, Honda, Hyundai, Kia Motors, Verizon, Cisco and Arris want to buy your patents!

IP3 is a marketplace that offers patent owners a quick and easy way to access the secondary market and receive fair value for their patents.

For a two-week period, patent owners with great patents can submit their patents for consideration by leading multinational companies representing more than $2.5 trillion in combined enterprise value.

Starting May 25, 2016, through June 8, 2016, patent owners can submit their patents to the IP3 portal at a price they set. AST will then review the submissions, and if one or more of the participating companies are interested in funding the purchase, submitters will be notified by July 29, 2016.

Participants in IP3 include a wide array of industries including enterprise software, automotive companies, cable providers, networking communications equipment, semiconductor manufacturing, information technology and location-based services.

IP3 builds on the innovative approach taken by Google with their successful 2015 Patent Purchase Promotion (PPP), offering patent owners access to a well-funded buying consortium with no haggling. We created IP3 to try an innovative way to simplify patent owners’ access to the secondary market by eliminating the common hassles associated with it – like the need to prepare claim charts.

In short, patent sellers need to only identify the patent family and price at which they are willing to transact, IP3 does the rest!

There are several buying categories: Computers and Software; Consumer Electronics, Communications; Semiconductors & Components; Healthcare/Medical; Automotives; Lighting; and Financial Services.  The submission form will be available, here.  The terms and conditions sheet is available, hereThe license agreement is available, here.  And, if you miss the deadline, you can always contact Allied Security Trust—“Trust in Us -- Minimizing Threats from Adversarial Patents.” It will be interesting to see how much information is disclosed about the outcomes of the program.  Notably, the license agreement has “Confidential” stamped all over it.  I wonder what valuations may look like post-Enfish.  I am also curious to see IP Draughts Mark Anderson’s analysis of the agreement. (I thought his analysis of the prior license agreement was very helpful.)  [Hat tip to Professor Lucas Osborn of Campbell University Norman Adrian Wiggins School of Law]

Monday 16 May 2016

NIH and licensing startups

There's an interesting critique on the website of the Regulator Affairs Professional Society concerning the US National Institute of Health's policy of providing exclusive licenses to start up companies in a range of technologies. The author of the article refers to a lobbying group Knowledge Economy International who have complained about the lack of transparency in granting such licenses. Apparently, little is known about the terms and conditions under which the licenses are granted and some of the companies to which the licenses have been awarded appear to lack office space and indeed a website.

This blogger has only had limited dealings with the NIH over the years, but has dealt extensively with other technology transfer organisations. Most are only too glad to even find one company interested in taking a license to a technology developed with public funds. It's rare that several companies compete with each other to get access to the technology. In some cases it would be interesting to know more details about the final agreement, in order to compare it with other agreements, but there seems to be little benefit to be obtained when there is no other alternative.

The NIH system does have one safeguard to prevent abuse of the system. The institute is obliged to publish in the Federal Register details of the company applying for the exclusive license and other companies are invited to express their interest. It is apparently rare for any company to do so. On the other hand the time frame for expressing interest is a mere fifteen days and it would be a rare group that could put forward a detailed business plan in that short time frame.

There is always a concern that taxpayer's funds are not being used properly. The reality is, however, in technology transfer that there are a large number of potential opportunities for exploiting government-funded research, but few companies prepared to take on the risk. It would seem unproductive to suggest that a greater administrative burden be placed on those few companies prepared to take such risks.

Tuesday 10 May 2016

Will Minnesota Keep Prince's "Purple Rain" Coming? Minnesota Rushes to Pass Post-Mortem Right of Publicity

In a recent blog post, I discussed the post-mortem right of publicity in connection with the Michael Jackson and Robin Williams estates.  As has been widely publicized, Prince recently passed away with apparently little to no estate planning.  While he was supposedly a savvy musician and businessman, he was like many—likely unwilling to contemplate that he may die and, thus failed to do any estate planning. 

Interestingly, the State of Minnesota (Prince’s domicile) is a state that does not have a statutory right of publicity.  Ordinarily, the right of publicity protects a person’s right to commercially exploit their likeness, name, or image.  The right of publicity is grounded in a right to protect a person’s privacy and to encourage people to develop valuable personas.  The Minnesota legislature is rushing to pass a statutory post-mortem right of publicity before the end of their legislative session (in two weeks). 

The interesting question is why the legislature is moving so fast.  The stated reason appears to be that this is prompted by Prince’s death, and more generally that a post mortem publicity right needs to be recognized.  The legislature could be moving quickly because they want Prince’s heirs to keep operating in Minnesota.  Related to that issue is the fact that Minnesota is apparently one of the few states in the United States to have a state estate tax. 

From a state taxation perspective, the death of a wealthy individual is fascinating.  The New York Times recently published an article about how one wealthy taxpayer moved his personal and business domicile from New Jersey to Florida.  According to the article, this one billionaire’s move would “put the entire state budget at risk.”  So, what happens when a very wealthy individual dies, particularly a person whose livelihood is based on the creative arts with substantial remaining value (As the Wall Street Journal notes, Prince died young so he didn't outlive his biggest fans who may be willing to pay--and pay for a longer time.)?   Of course, that person’s business interests will likely continue, but the question is who gets to tax it.

Thursday 5 May 2016

Philanthropy’s Purple Rain – Brand Building for Non Profits

The front page headline in the Wall Street Journal a few years ago stated boldly “Charity Brawl: Nonprofits Aren’t So Generous When a Name’s at Stake” referring to the stinging criticism received by a celebrated charity for enforcing their rights over part of their name.

The palaver prompted a retort from Dan Pallotta, renown philanthropist who is evangelical about the need to change the mind-set about how we see charity and for charities to change their perception of themselves (see his post in Harvard Business Review entitled “Is it Wrong To Sue a Charity? and his fabulous Ted Talk here). His post was followed by an insightful article published in Boston College Law Review by Lauren Behr entitled Trademarks for the Cure: Why Nonprofits Need Their Own Set of Trademark Rules.

In short, the WSJ and its commentary illustrate the difficulties of protecting a brand name built up through sheer hard word in the philanthropic space, both from a legal and PR point of view. Without the brand, the philanthropic’s ability to communicate, mobilise and ultimately do good, can be severely compromised. Yet protecting it could ultimately threaten the integrity of the philanthropic altogether.
“To say that public reaction was vitriolic would be an understatement. To give you a flavour one anonymous critic wrote to me that I was evil, adding, “No wonder your partner killed himself.” (My partner had committed suicide a year and half earlier.)”
Dan Pallotta (left) in his post in HBR, referring to reaction when his business decided to take legal action against another charity.
It’s not just an issue in the States, last year the UK IP court adjudicated on who had rights in the name OPEN COLLEGE NETWORK and OCN between two educational charities. Prof Jeremy Phillips on IPkat emotively describes the spat as
“..the most perfect example of a disgraceful waste of utter stupidity in branding and squandering of charitable funds for no constructive purpose this Kat has yet to see it.   While this Kat is a keen supporter of charities in general and educational charities in particular, he would be most reluctant to see so much as a penny's worth of his hard-earned cash go to any charity that adopted a logo as confusingly similar to that of another charity, whatever its alleged reason or justification”
The lethargic but acrimonious fight between the WWF (wrestlers and the wildlife fund) over the last decade (and more) has been well documented and in Romania recently an international charity offering guidance and assistance in the areas of religion and relationships had to step in and protect its ALPHA trade mark against ALPHA CLINICS. In Israel, a recent decision not to recognise the goodwill in a charity because it was not “in business” illustrates some of thinking that Dan Pallota is guarding against and closer to my own home the position is no different.
Not long ago, it was not possible to register a trade mark in South Africa for a charity because trade marks had to be capable of being used in trade, and a charity was not considered a trade. This has changed but there still exists a responsibility for the charity to police and protect the trade mark. The National Lottery Board’s failures to manage the use of their trade mark by others lead to a Supreme Court of Appeal decision in 2009, invalidating their LOTTO trade mark for becoming generic (see Afro-IP here). The repercussion of this decision may well be that someone gaming with a different lotto on the assumption that some of their funds are going to a charity.

This is why Behr in her article advocates for greater protection for trade marks in the non-profit sector “because the work of these organisations affects the greater public as well as both potential donors and recipients”. I would agree with that.
So how exactly does one protect a brand in the philanthropic space?

Well, traditional forms of IP protection should be considered not only in protecting the brand but also the creativity and innovation within the non profit. Care should be taken in deciding where to house the IP because of the possible tax and structural challenges and advantages in using a non profit or trust. Vigilance and deftness should be key in communicating, licensing and enforcing IP both from a legal and PR point of view. One needs to remember that the philanthropic may be in the business of giving but that does not mean it’s for others to take.

It’s time for the non profit brands especially in the philanthropic space to step out from the purple rain.

This blogger sits on the CEO SleepOut Trust in South Africa. Africa’s Pallotta – Ali Gregg - launched her 2016 event recently following the record breaking 2015 drive.

Tuesday 3 May 2016

Patent Monetization Entities Generally Asserting Ordinary "Meritfull" Claims?

The Recorder has published data and conclusions concerning a study of district court awards of attorney fees post-U.S. Supreme Court decisions Octane Fitness and Highmark.  Both Octane Fitness and Highmark concerned the availability of attorney fees.  In the United States, parties generally bear the cost of their attorney fees absent an exception.  For patent infringement, there is a statute specifically allowing for the award of attorney fees for “exceptional” cases.  The U.S. Court Appeals for the Federal Circuit interpreted that statute to require a very high standard for proving attorney fees.  Some believed that this high standard did not provide a strong enough disincentive to prevent so-called “patent trolls” from bringing weak nuisance suits for licensing fees.  In the Octane Fitness case (2013), the U.S. Supreme Court rejected the Federal Circuit’s high standard and ruled that “exceptional” merely meant a case that was out of the ordinary with respect to substantive litigation strength of position or how the case was litigated.

The study apparently finds that about half of the awards of attorney fees apply to competitor cases and the other half to non-practicing entities.  Interestingly, the awards against non-practicing entities “have often been against small individual inventors, not Intellectual Ventures, Round Rock Research, IP Nav and other 800-pound gorillas that monetized patent litigation.”  The article does discuss how Acacia Research Group, a supposed NPE, is exceptional with four awards against it for a total of around US $1.8 million.  The article appears to speculate that the awards against small individual inventors were cases where the small individual inventors (inexperienced players) apparently perhaps overvalued their case based on the law and facts. There appears to be a difference in awards based on the district in which the case was filed. It does, however, seem to make sense that in the current climate sophisticated monetizers would only bring relatively strong cases (maybe in the E.D. of Texas).  The article also notes that district court judges are mixed in considering the practicing status of the party in awarding fees. Finally, the article discusses a recent US $7.8 million award of fees in the Northern District of California against the Alzheimer's Institute to Eli Lilly and Elan Pharmaceuticals. Unfortunately, the data is behind a paywall; however it is not too expensive to access it. 

Monday 2 May 2016

Costs of New Pharmaceutical Development Approaching US $3 Billion

The Tufts Center for the Study of Drug Development (“Tufts Center”) has recently published a study estimating the cost of new pharmaceutical development approaching US $3 billion.  The Tufts Center at Tufts University "provides strategic information to help drug developers, regulators, and policy makers improve the quality and efficiency of pharmaceutical development, review, and utilization."  The Tufts Center notes that:

The $2.558 billion figure per approved compound is based on estimated average out-of-pocket costs of $1.395 billion and time costs (expected returns that investors forego while a drug is in development) of $1.163 billion.
When post-approval R&D costs of $312 million are included, the full, product lifecycle cost per approved drug, on average, rises to $2.870 billion, according to Tufts CSDD. Post-approval studies, required by the U.S. Food and Drug Administration as a condition of approval, assess new indications, new formulations, and new dosage strengths and regimens, and monitor safety and long-term side effects in patients. All figures are expressed in 2013 dollars.
The Tufts CSDD estimate also accounts for expenses incurred for product development efforts that did not reach fruition, which Joseph A. DiMasi, director of economic analysis at Tufts CSDD and principal investigator for the study, said reflects the full cost of winning marketing approval for a new drug.
The press release concerning the study attributes the rising costs of drug development, in part, on the “higher failure rates for drugs tested in human subjects.”