Thursday, 28 December 2017

The parlous state of national champions: the sagging fortunes of Teva

One of the darker aspects of hi-tech is the fate of national champions in smaller countries. When we say "fate", we typically mean the rise and fall of such companies in the face of global competitors from the U.S. Nokia in Finland and Nortel in Canada come to mind, both world class competitors, at least for a while, and in Nokia's case, the world leader in an earlier generation of cell phones. To this list the name of the Israeli company Teva Pharmaceutical Industries should be added; in some ways, Teva's story may be the most emotional of all.

For readers who might not be familiar with Teva, the company became the world's largest producer of generic drugs and the undisputed national hi tech champion of Israel. Unlike so many of the vaunted Israeli start-ups that have gone from creation to exit in less than a decade, leaving their founders with millions, if not hundreds of millions of dollars, but adding little to the overall macro-employment situation in Israel, Teva maintained (either organically or by acquisition) multiple plants in Israel, as well as keeping the company an Israeli entity with its headquarters in a suburb of Tel-Aviv. Yet, on December 14th, the company (with a new CEO, Kåre Schultz, formerly of Novo Nordisk) announced that it would eliminate a quarter of its employees world-wide, including 1,700 in Israel.

This number may not seem like the cause for national economic mourning, but in the Israeli context, there is no other way to describe the impact of the cut-backs on the national psyche. The New York Times (" 'Nobody Thought It Would Come to This': Drug Maker Teva Faces a Crisis", December 17, 2017) described Teva as the "corporate version of a national celebrity", the one genuine instance of a home-grown company that became a world leader in its field. Indeed, there are few pension funds in the country that do not hold Teva stock, such that it became, again, in the words of The New York Times, "the people's stock".

It is the company’s long-time roots in the country that strike a particular chord, dating back to the early 20th century, when the predecessor to what is now Teva began to distribute--via camels and donkeys-- drugs and like products in what was then Turkish Palestine. This blogger recalls being told the story of those early days by a third-generation descendant of founders, a source of continuing family pride, but a story also recounted fondly by broader swathes of the Israeli population.

But behind this romanticism is a medium-sized pharmaceutical company, by international standards, which had everything go right for it— for a while. In the 1960's, certain national legislation enabled the company to enter the market for generic drugs and hone the management and execution skills needed to successfully compete in this market. At that time, the company was blessed with a larger-than-life chief executive, Eli Hurvitz, who drove the company's international expansion in the area of generics while continuing to keep the company Israeli-focused to the extent possible throughout his tenure at the company (he retired as CEO in 2002). This included establishing plants in the country's periphery, long a backwater in the country's economy. Further, the company enjoyed oversized success as a patent licensee (from the Weizmann Institute of Science in Israel) of the branded drug—COPAXONE, used to treat multiple sclerosis, the sales of which came to constitute nearly 40% of the company's operating profits in some years.

So what happened? First, starting in about 2010, the economics of the generic drug market significantly changed, especially in the U.S., where large retail pharmacy chains joined with so-called pharmacy-benefit managers to create purchasing giants with the market power to force down prices. With margins narrowing as a result, Teva, at least with respect to the plants in Israel, found itself in an inferior position vis a vis competitors in lower cost countries, both from established generic competitors in India and more recently in China.

Second, the company is facing a patent cliff regarding the COPAXONE product: the brand name is not likely to be of commercial consequence post-patent as competitors enter with lower-cost alternatives. Teva thereby faces the double whammy of not having a proprietary block-buster product to replace COPAXONE plus a declining competitive position in the generic market.

Third, the company's declining fortunes in the generic drug area was exacerbated as a result of its acquisition in 2015 of the Actavis generic products division from Allergen. The purchase price was $40.5 billion. Debate in the Israeli business press has raged over whether Teva overpaid at the time, given the state of the generics market, or whether the wisdom of hindsight rules. Whatever is correct, the company has $35 billion in debt and is facing a cash squeeze. Cutting costs is the only short-term strategy. The announced restructuring is expected to save the company $3 billion by 2019.

This blogger previously discussed ("When a company's future is caught in the generic drug/proprietary drug crosshairs") the particular challenge of a pharmaceutical company of the size of Teva, with 2016 revenues in the amount of $21.9 billion, and a market capitalization that has declined nearly $20 billion during 2017. How to right the ship with respect to its generic products, while also ramping up the necessary R&D to support a viable proprietary drug business, is daunting for even the largest pharmaceutical company. However Teva responds to this challenge, it is difficult to imagine that it will keep its status within Israel as the undisputed national industrial champion. There is no one else to replace it.

By Neil Wilkof

Monday, 25 December 2017

Improving the Digital Marketplace for Copyrighted Works

The Department of Commerce Internet Policy Task Force is holding sessions on improving the digital marketplace for copyrighted works at the United States Patent and Trademark Office.  The sessions are open to all and available via webcast.  The next meeting is January 25, 2018.  Here is a description of the meetings and future agenda:

Topics likely to be covered include: (1) initiatives to advance the digital content marketplace, with a focus on standards, interoperability, and digital registries and database initiatives to track ownership and usage rights and facilitate licensing; (2) innovative technologies (e.g. blockchain, artificial intelligence) designed to improve the ways consumers access and use photos, film, music, text, and other types of digital content; (3) international initiatives, including the role of government in facilitating such initiatives and technological development. Members of the public will have opportunities to participate at the meeting.

In the previous public meetings, the Task Force heard from stakeholders that the government can play a useful role by facilitating dialogues between and among industry sectors. Based on this feedback, the Task Force has organized this meeting to build on the work of the December 2016 meeting and facilitate constructive, cross-industry dialogue among stakeholders about ways to promote a more robust and collaborative online marketplace for copyrighted works.

I think wide participation from stakeholders from around the world is welcome.  The distribution of content on the Internet is changing soon.  
Happy Holidays!

Tuesday, 12 December 2017

IP Valuation in Early Stage Investments - Webinar Today - sign up!

You are invited to join OxFirst for a webinar today at 3pm - 4pm GMT for talk on IP Valuation in Early Stage Investments presented by John E. Dubiansky: 
What this talk is about
The adequate valuation of patents plays a crucial element in vital markets for technology, while at the same time allowing investors to make an educated investment decision.  In spite of that, investors lack adequate knowledge on how to value patents. The major challenge does not seem to be that patents cannot be valued for financial purposes, but rather that investors are quite ignorant about patents and are not well informed on their risk and reward structures. Against this background, this talk helps shed light on IP valuation and demystify a concept crucial to building markets for intellectual property.

About the Speaker
John is an attorney advisor in the Federal Trade Commission’s Office of Policy Planning. His work focuses on the intersection of intellectual property and competition law and on issues such as patent assertion entities and standard essential patents. Prior to joining the Commission, John practiced as a patent litigator at law firms in the Washington D.C. area including Howrey LLP and Kirkland & Ellis LLP. John holds a degree in mechanical engineering from Cornell University and received his J.D. from the Harvard Law School.

How to Join
You are requested to please sign up with your professional email account as they don’t accept registrations from personal email addresses. 

Tuesday, 5 December 2017

Tide turns in US and EU agencies’ policies on SEP licensing

The new US Department of Justice antitrust leader says antitrust enforcers are too accommodating to IP implementers when in dispute with standard-essential patent owners. Instead, patent owners should be allowed to decide how they want to exercise their property rights: “under the antitrust laws, a unilateral refusal to license a valid patent should be per se legal” – he also reminds us “the right to exclude is one of the most fundamental bargaining rights the patent owner possesses.”

New European Commission guidelines on SEP licensing respect patent owners’ rights to benefit from “fair and adequate return” from “value added of patented technology” contributions and “rewards are needed to continue to invest in R&D and standardisation activities.” Standardised technology “should be available to any potential user of the standard” and “with smooth and wide dissemination of standardised technologies,” but the guidelines do not oblige SEP owners to license to anyone who asks for a license.

This is important news: the new head of the US DoJ antitrust division is reinforcing a trend that shifts the balance between IP rights and antitrust restrictions.[1] But significant harm has already also been done internationally with contagion from prospective or actual policy positions that were previously more hostile or equivocal on IP owners’ rights.  For example, some Asian antitrust agencies have welcomed, for reasons of industrial or protectionist policy, previous attempts in the ‘West’ to weaken rights of SEP owners. Actions have included seeking to reduce royalty returns, imposing chip-based licensing and reducing the availability of injunctions. Getting the Asian authorities also to reverse their positions in IP policy, for example, on antitrust enforcement, is a daunting task.

US U-turns

In a major reversal to the stance of Renate Hesse, the former head of the DoJ’s Antitrust Division, her successor Assistant Attorney General for Antitrust Makan Delrahim really hit the nail on the head in his speech at the USC Gould School of Law's Center for Transnational Law and Business Conference in Los Angeles on 10th November 2017 by warning that:
“enforcers have strayed too far in the direction of accommodating the concerns of technology implementers who participate in standard setting bodies, and perhaps risk undermining incentives for IP creators, who are entitled to an appropriate reward for developing break-through technologies.”

He explained that:
“[t]oo often lost in the debate over the hold-up problem is recognition of a more serious risk: the hold-out problem.  Standard setting typically occurs against the backdrop of negotiations between innovators, who develop technologies through private investment and own IP rights, and implementers, who hope to market and use the technology through a license and pay the IP holder a royalty.  The hold-out problem arises when implementers threaten to under-invest in the implementation of a standard, or threaten not to take a license at all, until their royalty demands are met.”

Delrahim went on to opine:
“I view the collective hold-out problem as a more serious impediment to innovation.  Here is why: most importantly, the hold-up and hold-out problems are not symmetric.  What do I mean by that?  It is important to recognize that innovators make an investment before they know whether that investment will ever pay off.  If the implementers hold out, the innovator has no recourse, even if the innovation is successful.  In contrast, the implementer has some buffer against the risk of hold-up because at least some of its investments occur after royalty rates for new technology could have been determined.  Because this asymmetry exists, under-investment by the innovator should be of greater concern than under-investment by the implementer.”

In conclusion, he said:
“Every incremental shift in bargaining leverage toward implementers of new technologies acting in concert can undermine incentives to innovate.  I therefore view policy proposals with a one-sided focus on the hold-up issue with great skepticism because they can pose a serious threat to the innovative process.”

I agree, as I have argued repeatedly. For example, in my August 2016 IP Finance posting entitled "Patent holdup" allegations encourage SEP free-riders, I wrote:
“Whereas alleged “patent holdup” supposedly results in excessive royalties, “patent holdout” is undermining licensors attempts even to achieve FRAND terms or to complete any licensing at all in many cases. Licensors are therefore losing their ability to make a fair return on their investments in SEP technologies. This discourages ongoing investments in standard-essential technologies, participation in SDOs and contribution to the standards.

Free-riders who are not paying for the IP they use are gaining an unfair advantage over other implementers who are paying FRAND royalties as well as stealing property rights from technology developers. There is significant evidence of some infringers flourishing while avoiding paying patent licensing fees on their manufactures and product sales for many years. They can, for example, typically challenge FRAND offers in lengthy litigation before paying any royalties. In some jurisdictions, even the royalties ultimately awarded can be derisorily low. In particular, various Asian OEMs accounting for a substantial proportion of global smartphone sales remain significantly unlicensed for at least some of the many SEPs they implement in the devices they manufacture or sell.”

European Commission also seeks fairer balance in its approach to SEPs

The EC has been pondering SEP licensing policy issues for at least a few years, including an extensive consultation process with workshop discussions. I pitched in a couple of times, myself, here and here. On November 29, 2017, the European Commission issued a Communication to the European Parliament Setting out the EU approach to Standard Essential Patents.” Thankfully this strikes a rather better balance, as all the above indicates is required, than some proposals that more resemble the one-sided “clarifications” endorsed by the DoJ’s business review of IEEE’s 2015 patent policy “update,” as discussed below. The guidelines in the EC Communication significantly represent EU policy but they are non-binding.

The EC Communication addresses four areas: transparency on SEP exposure; principles for FRAND licensing terms for SEPs; enforcement of SEP rights (e.g. including injunctions); and open source.

Significantly, with respect to FRAND licensing, the EC is not seeking to prescribe how or where in the value chain SEPs should or can be licensed. In other words, licensors will not be obliged to license at the chip level, whether that might be regarded as a “smallest salable patent-practising unit” or not. The requirement is that standardised technology “should be available to any potential user of the standard” and that there is “smooth and wide dissemination of standardised technologies,” not that any implementer can insist on being licensed.

The guidance that allows “fair and adequate return” from “value added of patented technology” contributions is also consistent with standards developing organisation patent policies such as ETSI’s.  It therefore recognises the need for SEP holders to be incentivised to continue to invest in R&D and their standardisation efforts.

Unsurprisingly, the Communication significantly relies on Huawei vs. ZTE jurisprudence, notably with respect to the fundamental importance of availability for injunctive relief. The Communication also recognises the problem of patent holdout. For example:
“With respect to the security to be provided by the SEP user as protection against an injunction, the amount should be fixed at a level that discourages patent hold-out strategies. Similar considerations could apply when assessing the magnitude of damages.”

Of course, there is an important distinction between the EC as a policy-maker versus the DoJ as an antitrust enforcement agency saying antitrust agencies should back off from imposing or guiding SDO policy. The EC guidance correctly notes that the Communication “does not bind the Commission as regards the application of EU rules on competition.” Such rules are relevant and their application is fact-specific. The Communication clearly establishes that European policy should strive to create fair balance between different interests (and with industry-led solutions), rather than prescribing action and imposing SEP policy through EU antitrust enforcement.    

Policy guidance passé

In marked contrast to all the above, by 2012, the previous head of the DoJ’s Antitrust Division publicly beckoned SDOs to weaken patent owners’ rights with her disregard for considerations of patent holdout. In a 2012 speech entitled Six “Small” Proposals for SSOs Before Lunch she suggested that SDOs include terms in patent policies that make injunctions harder to obtain, restrict cross-licensing and “explore setting guidelines for what constitutes a F/RAND rate.” She also encouraged SDOs to overcome any concerns they might have about antitrust actions against their revised patent policies by “seek[ing] ex ante review through [DoJ’s] business review procedures.” This was presumably to reassure any SDOs that might adopt her proposals would not find adverse antitrust actions being formulated against them subsequently.

A couple of years later, IEEE-SA (responsible for the 802.11 WiFi standard among many others) changed its patent policy in line with some of these proposals; which was duly blessed by DoJ with a Business Review Letter.

The new patent policy, ratified in 2015, was touted as “clarification” and an ”update,” but it actually sets out various wholly new terms that are restrictive and harmful to patent owners. In the face of significant resistance by IEEE members who were technology contributors, and via a highly controversial and secretive process, the new patent policy significantly restricted flexibility in the RAND commitment with the following conditions, the first three of which significantly correspond with the three among Hesse’s six proposals I identify above:
  • SEP holders must waive their rights to seek any injunctions until they have successfullylitigated claims against unlicensed implementers to conclusion in a court of appeals;
  • Reciprocal cross-licensing cannot be required, except for patents reading on the same standard;
  • Royalty charges “should” be calculated based on the “smallest saleable” implementation of any portion of the standard and comport with a reasonable aggregate royalty burden of the relevant standard; and
  •  Only licenses for which SEP holders have relinquished the right to seek, enforce, or even threaten, an injunction can qualify as “comparable licenses” for determining RAND royalties.
The policy “update” also obliged patent holders to be bound by the IEEE RAND commitment to license their patent to any “Compliant Implementation,” meaning that a patent holder making such a commitment cannot opt to license its patents for using the IEEE standards at only certain levels of production.

As indicated by the title of my September 2017 report on the effects of IEEE’s new patent policy, [d]evelopment of innovative new standards [is] jeopardised by [the] IEEE patent policy. Instead of creating greater clarity or transparency of licensing terms (as ‘predicted’ in the IEEE BRL), the patent policy change has actually caused confusion and uncertainty to implementers about licensing terms because nearly half of the major contributors to IEEE standards have been unwilling to pledge their IP under this new and one-sided IEEE patent policy that guts technology value. Up to nearly three quarters of ‘Letters of Assurance’ (LOA) submitted to IEEE by all companies contributing essential technology (i.e. for the 802.11 WiFi standard), are now negative LOAs, which means that the patents identified on those forms are not subject to RAND terms as defined under any patent policy. The unhappy experience of IEEE patent policy change cautions antitrust agencies to be wary of getting involved in IP policies.

Despite the DoJ being an antitrust agency, endorsing the collusive agreement among predominantly licensees to prescribe how and where SEPs are licensed always appeared to me like approving price fixing by a buyers’ cartel. This blow to patent owners’ pricing is exacerbated by the previous total disregard for the plight of licensors subject to patent holdout. Renate Hesse once told me that nobody had alleged collusive price fixing, and that holdout is not an antitrust issue. However, her successor points out that a two-sided approach is required on the issue of patent holdup versus patent holdout, and this is what he had to say about “clarifying” how rates are determined:
“SSO rules purporting to clarify the meaning of “reasonable and non-discriminatory” that skew the bargain in the direction of implementers warrant a close look to determine whether they are the product of collusive behavior within the SSO.”

This two-sided approach is supported by the Europe Court in Huawei v ZTE which established obligations on both parties, non-conformity to which could result in either the possibility of an injunction being granted or the raising of an antitrust defence to defeat a request for an injunction.

Curing and reversing the contagion

The detrimental effect of the patent policy change and supporting BRL is possibly even more severe outside of IEEE standards in some jurisdictions. The 2015 IEEE patent policy change, endorsed by a BRL from the previous DoJ antitrust head, is dangerously serving as a template for antitrust enforcers worldwide – not only with respect to IEEE standards, but also for other standards such as 3GPP’s mobile communications standards. This is like pushing at an open door in nations where antitrust enforcement is being used as an instrument of industrial or protectionist policy to support manufacturing-oriented companies who would like to pay less for the IP they are reliant upon that is developed in other nations, significantly including the US and Europe.

Contributing technology to standardisation efforts and making a FRAND commitment is voluntary. If antitrust agencies construe IEEE’s patent policy as only a “clarification,” and therefore impose it on holders of SEPs to various SDO’s standards the effects could be severe. They might bind patent holders to new conditions that they were never willing and never agreed to accept— for IEEE standards and for other standards. The latter would include standards such as 3GPP’s where some technology developers’ business models, development of standards and their success are much more dependent on payment of royalties than with IEEE standards. 3GPP standards account for much more in total royalties than IEEE standards. Delrahim rightly states that “[w]e should not transform commitments to license on FRAND terms into a compulsory licensing scheme.”

Antitrust agencies including NDRC (China), KFTC (Korea) and TFTC (Taiwan), as well as many other organisations and individuals have been swayed by or receptive to policy positions of US and European government agencies that were against or ambivalent about upholding patent rights in interoperability technology standards including those of many SDOs including IEEE, 3GPP (including regional partners such as ETSI).

Except for IEEE, SDOs have reaffirmed longstanding IP policies that uphold the rights of patent owners. For example, major European SDOs CEN and CENELEC state that SDOs should not provide guidance on, or impose compliance with, FRAND pricing, valuation, and rate-setting methodologies, and they “firmly believe that pricing should be determined by patent holders and implementers outside of SSOs in the context of bilateral negotiations.” 

Notwithstanding strong signs of a reversal of policy at US DoJ antitrust from its leadership, the moderate and balanced position recently announced in the EU supported by strong statements by the European Court, and the overwhelmingly consistent pro-IP position of the SDOs themselves, it remains to be seen if other antitrust authorities can also be persuaded not to pursue policies that undermine the fundamental rights of patent holders and the incentives they have to invest in innovative new technologies that, through contributions to SDOs, can be readily accessed and exploited by all.  

As China and some emerging nations are increasingly becoming SEP innovators as well as implementers, perhaps self-interest might ultimately make these nations recognise that upholding IP rights is in their interests, even in the short term, as licensors themselves, as well as it being in everybody’s long-term interests to maximise development and dissemination of innovative new technologies.

[1] The new trend was already being set by other actions including: (i) dissenting statements of US FTC Commissioner Maureen Ohlhausen in the matters of (a) Robert Bosch, (b) Motorola Mobility and Google and (c) Qualcomm; (ii) the CJEU’s judgement in Huawei v ZTE establishing obligations applying to both sides of an SEP-licensing agreement. The European court also stated that the FRAND commitment ‘cannot negate the substance of the rights guaranteed to the proprietors by Art. 17(2) of the European Charter of Fundamental Rights.’

Monday, 27 November 2017

If Uber turns to self-driving vehicles, what is to become of its brand?

Think of the sharing economy and Uber is usually the first company that comes to mind. What could be more appropriate than providing the infrastructure for the service, while the drivers supply their own vehicles. As the middleman, Uber simply brings together customers and drivers, taking a cut from the transaction. Even given the various legal issues and boardroom intrigues that have been plaguing the company, the fundamentals of the business model have remained unaltered, at least until now. But change may be on the horizon, as the company seeks to get ahead of the potential disruption posed by self-driving vehicles.

That is the gist of an article by Shira Ovide, published on November 20th as a Bloomberg Gadfly column. Ovide describes an announcement made earlier of last week, according to which Uber has agreed to buy from Volvo 24,000 SUV’s, meant to serve as the foundation for a future fleet of self-driving vehicles. The value of the transaction is approximately one billion dollars, with delivery to take place between 2019-2021. To some extent, the deal complements an earlier partnership transaction between Uber and Daimler, whereby Daimler will make its own self-driving vehicles available to the Uber network.

The upshot of the Uber-Volvo transaction is that Uber goes from being a mere middleman to the owner of substantial physical assets in the form of DUV vehicles. This carries with it all the obligations that come with owning a fleet of cars, such as readying them for daily use and maintaining such necessities as tyres and the interiors, all the while that the vehicles themselves will be subject to capital depreciation. According to the report, there are few details about how Uber ultimately plans to integrate these vehicles into its business.

In effect, the overarching question is: what kind of business model will emerge? It is true that a direct result of self-driving cars, if they take hold as a preferred means of transportation, will be that human drivers will be made redundant (although this blogger suspects that the transition to self-driving vehicles will be gradual and a certain sub-group of customers will continue to insist on human drivers). As Ovide has observed, will the company then seek to—
“make money by continuing to be a middleman for drivers and riders and for other categories including restaurant orders?”
Or will it simply—
“collect[] fees from rides, that looks more like Hertz than a traditional two-sided market place consisting of matching supply and demand?”
If the purchase of the Volvo vehicles presages (or even more, mandates) that the company will sooner or later need to reformulate its business strategy, then what does this say about Uber’s brand? Even within the current shared economy model, Uber has seen its operations effectively taken over in China by Didi Chuxing, while in some Asian jurisdictions, it is playing second fiddle (or no fiddle) to local competitors, such as Grab in Singapore. As for the US, competitors such as Lyft seek to nip at Uber’s heels.

But perhaps another way to view it as a bold attempt by the company to get ahead of the curve and remake its business model in light of the changes that will be wrought by self-driving vehicles. What comes to mind is Netflix, which began in the 1990’s as a DVD sales and rental business, before soon moving on to the DVD by rental business. When that model faced obsolescence due to the rise of video streaming, the company embraced the video streaming space that is identified with it today.

During each of these remakes, the company managed to enjoy the continuity of the Netflix brand as the badge of the company to the consumer public. Based on Uber’s current high valuation (Ovide indicates it is 68 billion dollars), there is both promise and risk in maintaining the value of the Uber brand in the face of a remake of the company’s business strategy. Stay tuned.

Thursday, 23 November 2017

Tickbox TV: Concerns for Content Owners, Cable, and Silicon Valley

Tickbox TV provides a set top box, which allows users to access content on the internet.  Apparently, the device can be used to access and display copyrighted content, such as movies and television shows, through the use of Kodi (an open source media player) and add ons. Many content owners, represented by Munger Tolles & Olson, have filed a complaint for inducement and contributory infringement.  The case is somewhat similar to the classic Sony, Napster and Grokster type cases.  Joe Mullin of Arstechnica provides a very nice description of the case, here.  The Los Angeles Times recently reported on the ownership of Tickbox TV in an article titled, “How an Atlanta Power Couple’s Business Has Heightened Silicon Valley’s Piracy Anxieties.” 

I can understand the anxiety of content providers and some Silicon Valley companies.  As the Los Angeles Times article points out, Tickbox TV (with the software) is dangerous to some content owners (including those in Silicon Valley) because it operates similar to devices that some users may be more comfortable using—so, think of your technology adverse grandparents.  It is like plugging in a VCR.  This may also be a group of consumers who are paying “full price” for content and do not ordinarily illegally access material.  This should make cable and satellite services companies very concerned.  From the perspective of some in Silicon Valley, the case may lead to increased lobbying from content owners concerning stronger copyright protection depending on how the case turns out.  It appears that Tickbox TV is now receiving some counsel and is attempting to insulate itself from liability through the use of disclaimers. 

We are celebrating Thanksgiving in the United States today.  Happy Thanksgiving! 

Wednesday, 22 November 2017

Evolution and Survival: Technology Transfer Offices

The Association of Land Grant and Public Universities has released a November 2017 report titled, “Technology Transfer Evolution: Driving Economic Prosperity”.  The report identifies numerous opportunities for technology transfer offices as the system matures.  Importantly, technology transfer offices should focus on general regional economic development.  In reviewing opportunities and providing examples of successful programs, the report also highlights obstacles.  In particular, the report examines, “Redefining Expectations of Technology Transfer Offices,” and identifies obstacles to a successful, revisioned technology transfer office that serves to promote local and regional economic prosperity.  The Report states:

• Many senior administrators, faculty, trustees, and alumni are primarily focused on the revenue generation potential of technology transfer operations and less on the societal benefits that can be reaped by moving intellectual property of all kinds into the marketplace, even those that may not result in immediate, high revenue returns.  

• For many institutions, economic development and engagement as a central mission component is new and has led to confusion regarding the roles and responsibilities of individuals and units involved, including technology transfer offices and related professionals. New outreach duties often require coordination across multiple campuses, schools, departments and units, which makes collaboration and reporting a challenge. Many technology transfer offices lack the adequate staff, training, or resources necessary to meet the evolving expectations placed on them in the context of economic engagement.  

• Institutions sometimes face difficulty in giving credit where credit is due, for instance, when technology transfer offices are sharing partnership development responsibilities with other units. On many campuses, technology transfer offices used to be the main externally facing office for the university in the realm of business and industry. This is often no longer the case, and the new reality requires a level of coordination that is not typical practice. Moreover, reporting lines and measures of success are not consistent across different kinds of university offices, and it becomes very difficult to execute strategic, campus-wide partnerships involving external audiences.

I’ve previously written on redefining goals of technology transfer offices, here.  In redefining technology transfer offices, I would focus on their role in promoting the education of students within the university.  It is important to remember that the primary method of university knowledge transfer is teacher to student--for sure, patents are important, but let's keep our eye on the ball.  The technology transfer office, in collaboration with faculty, can play an important role in providing valuable experiential opportunities to students--leading to potential employment opportunities.  This places technology transfer offices squarely within the "core" mission (and "business") of the university and fits them nicely with partnerships in academic units that run business clinics, for example.  It may even lead to fundraising.  

Tuesday, 14 November 2017

China Changes Policy on Transfer of Technology for Market Access?

As previously discussed, China has been criticized for outright theft of trade secrets as well as requiring the disclosure of trade secrets to do business in China.  Keith Zhai, Bloomberg Technology, has reported in an article, “China Says Foreign Firms won’t be Forced to Turn Over Technology,” that a senior Chinese official has stated that market access in China will not require disclosure of trade secrets.  Notably, the article also states that China “pledged . . . to treat all companies equally" and the timing of the announcement came “close in time” to Trump’s exit from China.  It will be interesting to see if there are meaningful changes. 

Wednesday, 8 November 2017

A pioneer in the world of university tech transfer to share his insights in a free webinar

IP Finance has been informed of an exciting free webinar that will take place next Wednesday, November 15, at 3:00 PM- 4:00 pm British Standard
Time. The topic of the program, under the auspices of OxFirst, will be "Academic Entrepreneurship & IP Management in Universities" and the speaker will be the distinguished Professor Graham Richards. Prof Richards was a founding member of Oxford University’s tech transfer office and a successful inventor, whose IP formed the foundation of a multi-million publicly traded company. He will talk about the core elements of turning science into business.

About the Speaker

Professor Graham Richards is a pioneer of British technology transfer. The university spin out that he established -- Oxford Molecular Group, was the first university spin out after the UK introduced a regulatory change that attributed the IPR generated in a university context to the university itself. Under the leadership of Professor Richards, Oxford Molecular Plc grew from a £350,000 start-up to a £450 million public company. He is also a founding member of the Technology Transfer Office of the University of Oxford and he was a director there for over 20 years. Another flagship project is the publicly traded company IP Group Plc. Originally created out of the necessity to attract further funding for the chemistry department of the University of Oxford, it is nowadays one of the most important investors in technology generated by universities. IP Group Plc is a FTSE 250 company with a market cap of £1 billion.

How to Join

Please sign up here with your professional email account. The program organizers will not accept a registration from a personal email address.

Tuesday, 7 November 2017

Chemical Company Joins the LOT Network Against Trolls

Covestro, a chemical company which uses digital technologies to build better products, has joined the LOT Network.  As previously discussed, the LOT Network was started to thwart patent trolls.  Essentially, each member agrees to provide a license to the other members of the network if their patent is transferred to a patent troll.  Covestro’s press release states:

“With the convergence of the chemical industry and digital technologies, our sector has increased exposure to PAE litigation,” said Gilbert Voortmans, Vice President, Head of Intellectual Property Rights at Covestro. “Innovation is core to our business, and we feel it’s important to take a stance against anything that could interfere with the fair use of intellectual property.”

Interestingly, this is the first chemical company to join the LOT Network, according to the press release.  We’ll have to see whether other companies in industries generally thought not to be subject to troll suits will join the network, particularly as digital technologies influence almost all industries.  Moreover, I count around 170 members listed on the LOT Network website, including companies ranging from Alibaba to Crate and Barrel to Wells Fargo to Uber to Target to Honda. I wonder if universities should create something like the LOT Network to protect themselves from future suits by university based patents.  

Tuesday, 31 October 2017

Ending Soveriegn Immunity for Tribes from Inter Partes Review

U.S. Senator McCaskill has introduced a Bill that would remove sovereign immunity as a defense against Inter Partes Review of patents for Indian Tribes.  The Bill is refreshingly short.  It states:


To abrogate the sovereign immunity of Indian tribes as a defense in inter partes review of patents.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. Abrogation of tribal immunity in certain patent claims.

(a) Definition.—In this section, the term “Indian tribe” has the meaning given the term in section 4 of the Indian Gaming Regulatory Act (25 U.S.C. 2703).

(b) Abrogation of immunity for purposes of inter partes review.—Notwithstanding any other provision of law, an Indian tribe may not assert sovereign immunity as a defense in a review that is conducted under chapter 31 of title 35, United States Code.

As previously discussed, the Bill is directed at Allergen’s recent attempt to use sovereign immunity of Indian Tribes to insulate patents from Inter Partes Review at the PTO by transferring its patents to the tribe in exchange for cash.  Notably, Judge Bryson (of the Federal Circuit), sitting at the trial court level, recently asked Allergen to demonstrate that its transfer is not a “sham."  Judge Bryson further found the Allergen patents to be obvious.  

Saturday, 28 October 2017

When naming the company after yourself might make good business sense

For trademark professionals, dealing with a name usually means encountering an objection to registration on the ground that the surname is not inherently distinctive. The name of the game, at least from the point of view of trademark registration, is to either argue that the mark is not in fact an objectionable surname, or, even if it is, to show the name has acquired sufficient distinctiveness. But in so doing, we tend to ignore the threshold question: why adopt a surname as a trademark at all, especially if we know that it will likely encounter difficulties in registration? A brief report in The Economist, published on August 19th, discussed an article by Sharon Belenzon, Aaron K. Chatterji and Brendan Daley, entitled “Eponymous Entrepreneurs” and published in the American Economic Review, offers some interesting economic insights regarding eponymously-named entities, i.e., entities named after their owner (think of an enterprise such as Bloomberg).

In their article, the authors argue that eponymously-named enterprises result in better performance as measured by the return on assets (3% percent greater). The authors develop an explanation for this finding, centering on what they call signaling, noting that--
“[s]pecifically, eponymy creates a stronger association between the entrepreneur and her firm that increases the reputational benefits or costs of having the market hold a favorable or unfavorable impression of her ability (or of the quality of her firm). Consequently, high-ability entrepreneurs are more drawn to eponymy than are low-ability ones.”
Contrary to common perception—
“Our key assumption is that greater levels of the signaling activity (i.e., a stronger association between the firm and the entrepreneur herself) are not directly costly, but instead increase the reputational impact of successful or unsuccessful outcomes.”
Lying at the heart of their results is what kind of person is more likely to choose to put his or her name on an enterprise. An eponymous company name puts at stake the reputation not only of the entity, but the person behind it. This may especially so when a start-up is involved. What seems to be suggested is a bit of self-selection. People of higher ability are more likely to select an eponymous name for their company, and customers are likely to understand the signal in this manner, thereby viewing the company more favorably (at least for the intermediate term, although it seems to leave open the question of the long-term value as a positive market signal).

A second aspect of the study deals with the impact of whether the surname is common or unusual. Here, the authors found that while the link between performance and eponymy will be greater when an uncommon name is used, entrepreneurs with uncommon names will be less likely to adopt an eponymous naming strategy. It seems that having an uncommon name serves as “a barrier to entry” with respect to adopting the name for one’s company, but those who do so will be more likely to show even greater levels in the performance of their company. In effect, their signal to the market is stronger than that which is received from an eponymous company with a common name.

One further point merits attention, even if it is less central to the heart of the study. The authors find that 19% of the entities studied (consisting of a database of approximately 1.8 million firms) adopted an eponymous name. Interestingly, the authors are of the view that this is a “relatively uncommon” event. To the contrary, this blogger was surprised about how large this number is. From his anecdotal experience in the trademark registration world, the percentage of companies that seek to register an eponymous mark is much lower than 19%. It suggests that entrepreneurial companies are less likely to seek trademark protection of their eponymous company name. if that is the case, perhaps trademark practitioners need to do a better job of alerting their clients to the potential value of an eponymous company name.

Photo on lower left by Keith Cooper licensed under Creative Commons Attribution 2.0 Generic license

By Neil Wilkof

Friday, 27 October 2017

Another Case of Pharma Weakening the Patent System (and University Technology Transfer)

The LA Times recently published an article, "UCLA’s Efforts to Patent a Costly Patent Cancer Drug in India Hurts the Poor, Critics Say,” concerning Pfizer’s drug, Xtandi.  Xtandi, which is used to treat prostate cancer, was developed (with U.S. government funding) and licensed out by University of California, Los Angeles.  Recently, in a royalty securitization deal, UCLA received more than $500 million in exchange for future royalty rights from Royalty Pharma.  Notably, UCLA is now seeking patent rights for Xtandi in India, which it states it has a contractual obligation to do.  The article states:

“What’s special about this case is the fact that the University of California is going against their own licensing policy by aggressively seeking a patent in India on this drug,” KEI Director James Love said.

That policy, as UCLA summarized in a statement to The Times, is “intended to facilitate all populations having access to medications and other products and services made possible by UCLA innovation.”

But UCLA also noted the “concerns about prescription drug pricing” among the activists and others and said it was willing to explore the problem further.

The school said “we are convening a working group to evaluate our approach to technology licensing in ways that benefit California, the nation and the developing world” while also continuing to give drug companies enough incentive to commercialize its discoveries, just as Medivation did with Xtandi.

In the meantime, the activists contend that a daily dose of Xtandi is selling in India for roughly 40 times a person’s daily income in that nation, which they called “excessive and shamefully unaffordable.”

Notably, the University of California is a signatory to the In the Public Interest: Nine Points to Consider in Licensing University Technology White Paper.  Point 9 of the White Paper states:

Consider including provisions that address unmet needs, such as those of neglected patient populations or geographic areas, giving particular attention to improved therapeutics, diagnostics and agricultural technologies for the developing world

Universities have a social compact with society.  As educational and research institutions, it is our responsibility to generate and transmit knowledge, both to our students and the wider society.  We have a specific and central role in helping to advance knowledge in many fields and to manage the deployment of resulting innovations for the public benefit. In no field is the importance of doing so clearer than it is in medicine.  

Around the world millions of people are suffering and dying from preventable or curable diseases.  The failure to prevent or treat disease has many causes. We have a responsibility to try to alleviate it, including finding a way to share the fruits of what we learn globally, at sustainable and affordable prices, for the benefit of the world’s poor. There is an increased awareness that responsible licensing includes consideration of the needs of people in developing countries and members of other underserved populations.

The details involved in any agreement provisions attempting to address this issue are complex and will require expert planning and careful negotiation.   The application will vary in different contexts.  The principle, however, is simple.  Universities should strive to construct licensing arrangements in ways that ensure that these underprivileged populations have low- or no-cost access to adequate quantities of these medical innovations. 

We recognize that licensing initiatives cannot solve the problem by themselves.  Licensing techniques alone, without significant added funding, can, at most, enhance access to medicines for which there is demand in wealthier countries.   Diseases that afflict only the global poor have long suffered from lack of investment in research and development: the prospects of profit do not exist to draw commercial development, and public funding for diseases suffered by those who live far away from nations that can afford it is difficult to obtain and sustain. Through thoughtful management and licensing of intellectual property, however, drugs, therapies, and agricultural technologies developed at universities can at least help to alleviate suffering from disease or hunger in historically marginalized population groups.

This appears to be another case of a company making a decision based on pricing that will likely undermine confidence in the patent system, particularly undermining technology transfer from universities.  Universities should exercise care in licensing to ensure that they have the final word on enforcement as well as patenting in other countries (see follow-up patenting noted by Professor Lisa Larrimore Ouellette).  Let’s not kill the "golden goose."  Perhaps UCLA can use part of the $500 million for a fund for people who need access to the drug in India. 

Wednesday, 25 October 2017

OxFirst again: Free webinar on open source software, defensive patent pools and innovation

OxFirst is putting together what looks like yet another excellent free webinar, this time on the topic of "Open Growth: The Contribution of Open Source Software and Defensive Patent Pools to Innovation" The presenter will be Mr. Keith Bergelt, CEO of Open Invention Network, and the program will take place on October 31, 2017 at 2:00 pm, British Standard Time (make sure to check when your jurisdiction changes to winter time!).

There are few topics in the world of innovation and technology that are as dynamic as open source software and defensive patent pools. Open Source Software (OSS) is well-established in sectors as diverse as aviation, health, telecommunications, finance, publishing, education, and government. As nations increasingly rely on knowledge assets to grow, the adoption of OSS will have profound economic consequences. This talk identifies the mechanisms inherent to OSS that help fuel innovation in knowledge-based economies. In doing so, it conceptualizes the role of patents from an Open Innovation Paradigm and looks at the role that defensive patent pools can play in fostering collaborative exchange and open growth.

About the Speaker

Keith Bergelt is a pioneer in intellectual property finance. He is currently the CEO of Open Invention Network (OIN), which is a defensive patent pool and community of patent non-aggression enabling freedom of action in Linux. At OIN, Mr. Bergelt is responsible for coordinating the establishment and maintenance of a patent ‘‘no-fly” zone around Linux. As such, he is responsible for safeguarding an open and competitive landscape in key technology markets, such as back-office transaction processing and mission critical IT.

Prior to his extensive private sector experience, Mr. Bergelt served for 12 years as a diplomat with postings at the United Nations in NY and the American Embassy in Tokyo, Japan, where he was involved in the negotiation of IP rights protection in Asia. He holds a BA degree from Duke University, a JD from Southern Methodist University School of Law and a Masters of Business Administration degree from Theseus Institute in France.

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Friday, 6 October 2017

New report commissioned by UKIPO on IP valuation market: Observations by the authors

In September 2017, the UK Intellectual Property Office (IPO) published a 148-page independent report, entitled “Hidden Value: A Study of the UK IP Valuation Market” that it had commissioned, and which was authored by Mr. Martin Brassell, Chief Executive, Inngot Limited and Dr. Jackie Maguire, Managing Director, Firm Advantage Limited. Mr. Brassell and Dr. Maguire have kindly provided IP Finance with a number of key observations based on the report. Interested IP Finance readers are invited to consult the report in its entirety (see below).

“Our study has provided an opportunity to investigate some important issues in the area of IP valuation. Why don’t more companies havean awareness of what their intangible assets are worth? What drives them to find out? What methods can they use to understand their asset value, and who helps them? Lastly, what can be done to encourage more firms to take IP value seriously?

We were unsurprised to discover that few, if any, managing directors wake up in a cold sweat at night worrying about how much their IP is worth. As previous research has indicated, many companies do not think of intangibles as being assets at all in the conventional sense. Even if they decide to capitalise the cost of developing or acquiring intangibles, their accounts sometimes appear to suggest that these assets are declining in value as they are being written down, even if their business contribution is in fact growing.

We found that the drivers for IP valuation are very specific and heavily transaction-oriented. We identified 22 distinct reasons for valuing IP, which fell into three categories. The largest number of drivers, accounting for the majority of IP valuation activity, relate to specific needs, such as transfer pricing, post-purchase accounting, preparation for M&A activity, estimating damages in litigation or (occasionally) insolvency. There is some IP valuation activity that is done as a positive response to specific opportunities, such as licensing, collaboration or raising investment. Finally, there is a small but growing number of occasions where there are new applications for IP that require value to be better understood – and this is where a specific opportunity for improved awareness appears to lie.

From the drivers that can be measured, it is unlikely that more than a few thousand IP valuations are currently being conducted annually. The valuation providers fall into two broad categories – large accounting firms and specialist ‘boutiques’ – with a very wide variation in costs, depending upon the complexity, purpose and origin of the valuations. Cost does not emerge as a barrier, as there is a range of services being provided addressing a range of needs. However, valuation providers confirmed a high degree of reliance on introductions or referrals from other professionals, which suggests that people only tend to value their IP when someone they respect tells them it is necessary to do so.

All of this points to an insufficient appreciation of the benefits of being able to measure IP value and thereby manage it better. More educational outreach, better access to information and meaningful testimonials could all help to address this situation over time; but the obvious question that remains is, if the benefits were more compelling, would not more businesses choose to value their IP? Realistically, in the busy world of the SMEs that form the overwhelming majority of UK firms, some pretty compelling incentives will be needed to make business leaders sit up and take notice when they have so many other competing priorities.

From the research that we conducted, it seems that these incentives might come from one of two directions. The first is strategic reporting in its various forms. It has long been apparent that financial statements miss out an important source of value creation in companies (for the reasons noted above); more attention is now being paid to filling these information gaps with insights on how a company is innovating and the assets it is producing as a consequence. Also, the most recent Financial Reporting Standard applicable in the UK and Republic of Ireland (FRS 102) within generally accepted accounting principles (UK GAAP) is beginning to have some impact on accounting awareness of intangibles.

The second direction concerns access to finance, particularly debt, which remains the primary source of business funding. At present the regulations that are designed to ensure capital adequacy do not look kindly on intangible assets, because there is no accepted risk weighting for them. However, there are signs that lenders are beginning to take steps to obtain a better understanding of these assets and their business contribution. Of course, the main concern for a lender when dealing with any asset class is ultimately related to the value that it can recover if the asset needs to be sold to repay a loan. However, if the trend continues to find new ways forward to apply intangible asset value, IP assets could become more concretely associated with money in the minds of SMEs, which would certainly increase the appetite for IP valuation."

For the full results of the research and interviews with over 250 industry players see here.

Tuesday, 3 October 2017

UKIP - Political Parties, Branding and Trade Marking.

Yesterday I wrote this piece over on Afro-IP on UKIP’s new logo picking up on the weekend controversy of it being remarkably close to the English Premier league logo, and concluding that trade mark rights are probably best placed of all the potential IP rights available to the FA to stop it. To further substantiate the point I have since come across two European decisions on the similarity of lions which I wanted to share with you together with an observation that political parties ought to pay more attention to the protection of the symbols that they use.

UKIP and the UKIPO have two things in common - the similarity in their acronym and the fact that they have a bent toward national rights but that is where it ends. UKIP have no registered trade mark rights, perhaps for good reason. Their new logo would likely be opposed by the FA and depending on the current practice of the Registry their old logo may attract an objection because it features the pound currency sign so prominently. 

By contrast the Labour Party, The Conservative Party and some others have been actively registering their symbols as trade marks. Their level of activity is, however, relatively low; a few trade marks here and there many of which have been allowed to lapse. Nothing in comparison to the level of expense that their campaigning deserves. Stateside a cursory search of the USPTO Register reveals much the same. The Republicans and Conservatives are low on the polls when it comes to protecting their campaigns using trade marks. This is in stark contrast to the level of trade marking President Trump is renown for in his normal business affairs. Why is this so?

Politics is mostly about winning votes. Winning votes requires communication of manifestos and persuasion. The symbols used by politicians and their parties are incredibly important and as carefully chosen as any brand, perhaps more so given the significant potential for public ridicule or offence and on the upside, their unique ability to encapsulate their message through symbolism. Trade marks are the means of protecting such symbolism. UKIP’s adoption of a lion so close to that of the FA is a glaring admission of the value of brands to political parties, even if they deny it.

Closer to home, a decade ago, a breakaway of the African National Congress - Congress of the People (COPE) was taken to task, initially on trade mark grounds, for their adoption of what they ANC regarded as a symbol which belonged to them. You can read about that here.  This illustrated not only the importance of trade marks and symbolism but also the risk of adoption, and injury to "market share" by an incumbent. In other parts of Africa political parties have been sued for using lyrics of well known songs and even infringing patent rights in ballot boxes; not strictly a branding dispute but close enough to illustrate that political parties face the same risks as any business when it comes to intellectual property rights in general.

Another indication of the lack attention paid to brand protection for political parties is the Nice Classification search feature on WIPO’s website which shows no hits for “politic” or “campaigning”. The USPTO filings illustrate protection in class 35 for campaigning as a promotional activity for political parties whereas filings in the UK tend to focus on class 36 for fund raising and class 41 for events, together with a range of classes protecting marks applied to badges, posters and clothing. For those countries that have not adopted service marks, marks of political parties are filed in classes 9 and 16 for the usual reasons.

Getting back to UKIP, the illustrations above are those of successful lions (Lonsdale v Puhin Deng* and ING v Daniel Cekal) who have protected their market share or hunting grounds, so to speak, based in similarity. One would think that that the FA would likely be successful too against UKIP. It is worth noting though that the registration of the lion on its own i.e. not with the wording accompanying it, makes the task of the FA significantly easier. Put differently, if the FA are setting the standard for good trade mark counsel, then a political party should pay much the same attention to their branding from a governance perspective, if nothing else.

Posted by Darren Olivier

*OPPOSITION No B 1 718 249 and OPPOSITION No B 2 520 529