Patent Squatting

Shares in Eastman Kodak have risen 10% on the news that the company has persuaded the US International Trade Commission (ITC) to reconsider its patent infringement case against smartphone manufacturers Apple and Research In Motion. According to Bloomberg Businessweek, the company thinks that it can negotiate royalties worth $1 billion or more if its patent rights are recognised.

Investors have not given the news an unequivocal welcome, however. “Even if Kodak receives the $1 billion in cash, what could it possibly use it to do?” asks InvestorGuide, suggesting that “Kodak has no other game plan except to sit on its patents and sue violators to receive licensing fees to generate capital.” “There is a clear problem with the company’s current patent-squatting strategy – it simply cannot be sustainable,” it notes.

"However, if Kodak invests wisely in research and development to strike back at its currently crippled Japanese camera rivals, such as Sony, Fujifilm, Panasonic and Canon, it could reestablish itself as a formidable camera manufacturer. Kodak has a strong brand name which has been synonymous with cameras for decades, and it wouldn’t be too late to stage a late game comeback."

Does this mark a change in investor attitudes from the early noughties when books such as "Rembrandts in the Attic" and "Edison in the Boardroom" lauded the $4 billion in royalties earned by Texas Instruments (TI) from licensing its patent portfolio? Or is it an acknowledgement that, in 2010, the lion's share of TI's operating profit came from the design and manufacture of semiconductors, with patent royalties being lumped together with "smaller semiconductor operating segments", ASICs and calculators under the heading of "Other" in the 2010 accounts?

Typical Licence Fees in Germany

My attention has just been drawn to an interesting article published in the German-language IP journal "Mitteilung der deutschen Patentanwälte" by Michael Trimborn of Osborne Clarke in Cologne. Prof. Trimborn has reviewed published German court decisions and arbitration awards relating to patented products since 1995 and produced a table which has been published in the journal.

The article can be purchased here.

One point that needs to be made is the difference in the manner in which the awards are calculated. One set of figures relates to awards made against infringers. Another set is based on compensation made to inventors under the German Law on Empolyee Inventions (for more details see the German Wikipedia article).

Customs duties on royalties and licence fees

The December 2007 issue of Global Intellectual Property Asset Management Report, (published by WorldTrade Executive), carries a brief article by Ben Goodger and Stefanie Slapke (both of Rouse & Co. International), "Are New Customs Duties on Royalties and License Fees Relating to Imported Goods on the Way? The authors write:

"Recent World Customs Organization (WCO) deliberations are likely to lead to major changes in the way trade mark royalties and licence fees relating to imported goods are currently being dealt with by Customs offices around the world. The changes look set to have a serious financial impact on both brand owners and licensees.

Although precise details of the changes are not yet available, IP owners should be aware, at least in general terms, of what is being proposed.

Background

How trademark royalties and license fees should be dealt with by Customs authorities has been the subject of ongoing debate within the WCO for some time. The issue is both complex and contentious.

Two years ago, a sub-committee of the WCO Technical Committee on Customs Valuation was established to examine the various national authorities’ current practice. We understand that at a recent meeting, this sub-committee decided that certain royalty payments that are not currently regarded as part of the dutiable value of imported goods should in future be included in the dutiable value.

Many of the WCO’s earlier conclusions on this subject have already been taken up by the European Commission’s Valuation Committee in its Commentary No. 11, issued earlier this year, which deals specifically with royalties and licence fees paid to a third party. It is likely that the Commission will also take up the proposed further changes.

Proposed Changes

The outcome of the most recent WCO Customs Valuation sub-committee deliberations is expected to be documented in April 2008. Although the precise content of the changes being proposed will not be known until April, it is clear that many trade mark royalties and licence fees that relate to imported goods and are not currently included in the dutiable value for Customs purposes will begin to be so included".

The authors then add that brand owners and trade mark licensees are well advised to keep a close watch on things. They expect the latest changes to be adopted promptly by Customs authorities, at least in Europe and suggest that, if European authorities are seen to be raising significant amounts of revenue from the imposition of additional duties, other countries will probably be quick to follow.