Private Equity and the Media

The credit crunch is the issue dominating the news these days – but what is its impact on the UK’s creative economy?

You have a chance to find out on 7 October 2008 when Westminster Media Forum most timely organises a seminar on equity buyouts and their impact on creative output, editorial risk-taking and audiences.

The seminar will bring together policy makers from Parliament, Government and regulation, with stakeholders from the financial and media sectors, in order to assess whether private equity is good for the UK’s creative economy.

The seminar will look inter alia at the benefits and challenges of private equity backing for a media organisation and explore the issues specific to financing the media.

Key note addresses will be given by Peter Bazalgette, Media Investor and Consultant; and Jon Moulton, Managing Partner, Alchemy Partners. Other speakers are confirmed from 7digital, August Equity, BDO Stoy Hayward, Pact, Private Equity News, Clifford Chance, and Human Capital.

More information on the seminar can be found here and the booking form here.

WIPO Magazine special focus

The October 2008 issue of the WIPO Magazine carries a special focus on intellectual property finance, written with a view to making the subject more accessible to the wider IP community. This focus is in the form of four features:

* "Intellectual Property Financing – An introduction" by Beatrice Renggli,

* "IP Financing: the Ten Commandments", by Jeremy Phillips

* Ben Goodger's "IP Financing - Implications of the UNCITRAL Process" and

* "The Challenge of IP Financing", by Lorin Brennan.

The IP Finance blog is thrilled that WIPO should have taken this initiative and is delighted that the organisation has provided an effective agenda for debate in the IP community as to what effect the finance community's requirements and anxieties have on IP rights owners and their transactions.

Royalty rate survey

IP Finance has received a request from Technology Transfer Tactics relating to a survey conducted by Eureka! Ranch. Readers may wish to participate in it. The Request runs as follows:

"We're looking for your opinion on what is the FAIR MARKET VALUE when licensing innovations.

In exchange for 5 minutes of your time we'll send you a copy of our findings, which you can use to help you estimate the relative value of prototypes, patents, etc.
The survey is being conducted by Eureka! Ranch International in partnership with the Kauffman Foundation, and you can access it by simply clicking on this link.

This data will be used to set a NATIONAL REFERENCE STANDARD for royalty rates in connection with a set of interconnected NATIONAL INNOVATION MARKETPLACES being developed in the USA, CANADA, UK and EU. Recently the Wall Street Journal and New York Times did feature stories on the initiative (click here for links to the articles).

By way of background - Eureka! Ranch International is a 30 year old innovation consulting firm that works with the likes of Nike, American Express, Ford, Procter & Gamble, and Hewlett Packard as well as industrial firms like Schlumberger, Dow Chemical and others. The USA National Innovation Marketplace is an alliance between Eureka! Ranch and the Manufacturing Extension Partnership Network (a Federal & State initiative).

The value of the survey depends on how many responses we get, so your help is greatly appreciated. In fact, please forward the survey to other people who have experience buying and/or selling innovations and the data will be even more useful".

IP Finance will do its best to keep up with subsequent developments concerning this initiative, and would like to hear from any readers who are actively involved in it (email here).

When is a digital book a book?

Risbey's Photography Ltd and Digital Albums Ltd v Revenue & Customs Commissioners, VAT & Duty Tribunal, Manchester, 22 August 2008 (noted on the Lawtel subscription service), is a decision on the tax status of so-called 'digital books' in the United Kingdom.

Risbey's digitally produced wedding books which were created from photographs taken by it. Those books were supplied to customers as part of a general 'wedding package'. Risbey's also designed wedding books for outside photographers, who commissioned it to produce the book using photographs which hey supplied. The books displayed selected images of the wedding day, accompanied by text appropriate to the occasion. Once bound, the books could not be altered.

Risbey's submitted that the wedding books had all the physical characteristics of a book and met the zero rating requirements in the Value Added Tax Act 1994 Sch.8 Group 3. The VAT Commissioners disagreed. In their opinion the wedding book did not share the physical characteristics of a book and did not fall within the meaning of book in sch.8 at all. Rather, Risbey's was supplying a single photographic service, which was standard-rated for VAT purposes.

The Tribunal upheld the assessment of the Commissioners that the supply of Risbey's wedding books attracted VAT at the standard rate. In its opinion

* the wedding book did not fall within the ordinary meaning of a book, even though it shared many of the physical characteristics of a book. This was because it was not an object which had the characteristics of being read or looked at. Instead it was a pictorial record, of interest only to persons immediately connected to the event, and the text used had no value in its own right.

* the wedding book was, to all intents and purposes, a wedding album. To restrict the meaning of "wedding albums" to traditional forms would be contrary to the Community principle of equal treatment, which ensured that similar goods in competition with each other were not treated differently for VAT purposes.

* the restriction of the meaning of "wedding albums" to the traditional format would be a failure to acknowledge advances in digital photography--the mere fact that the wedding book could not be altered after publication did not alter its function as a wedding album. Accordingly Risbey's supply of wedding books was standard rated for VAT purposes.

* Risbey's principal activity was the supply of photographic services. The supply of the wedding book was ancillary to, and a means of better enjoying, those services and was entirely dependent on the photographs being taken in the first place.

* Risbey also made a single supply of photographic services when it applied digital photographic processes to the photographs supplied by outside photographers when producing the wedding book.

Intellectual Ventures in the Wall Street Journal

This blog has already reported on the activities of Intellectual Ventures in buying up patents. The Wall Street Journal had an article on them a few days ago which can be found here. In a post early in August we noted that we had seen no publicity surrounding patent licensing deals which had been made by Intellectual Ventures. The WSJ reports deals with Cisco and Verizon. Verizon's deal includes a stake in a patent investment fund.

IBM threatens to review tech standards policy

The Wall Street Journal has reported that International Business Machines Corporation, one of the leading players in the establishment of global technological standards, is to review its membership of the bodies that set common standards within the technology industries and may even withdraw from some. Such a step could undermine both the credibility and the efficacy of the system that makes electronic equipment and software interoperable worldwide. Apparently IBM has become frustrated by what it considers the opaque processes and poor decision-making in some of the hundreds of bodies that set technical standards for everything from data-storage systems to programming languages.

It seems to me that this may be more of a political gesture than a serious threat. By announcing its intention to review existing agreements on the basis that the decision-making is poor, IBM can at the same time (i) remind fellow standards-setters of the massive value of its commitment to standards and its need to receive remuneration commensurate with its commitment while (ii) checking its exposure to allegations of anticompetitive price-fixing and cartel-mongering.

Interbrand Global Brand valuation methodology

For anyone who wants to read it -- and for what it's worth -- here's the Interbrand/Businessweek Best Global Brands list for 2008. The bit on methodology is reproduced below, so you can decide for yourselves what weight to place upon its valuation of, say, top brand Coca-Cola at 66.667 million dollars.

The Interbrand method for valuing brands is a proven, straightforward, and profound formula that examines brands through the lens of financial strength, importance in driving consumer selection, and the likelihood of ongoing branded revenue. Our method evaluates brands much like analysts would value any other asset: on the basis of how much they're likely to earn in the future. There are three core components to our proprietary method:

Financial Analysis
Our approach to valuation starts by forecasting the current and future revenue specifically attributable to the branded products. We subtract operating costs from revenue to calculate branded operating profit. We then apply a charge to the branded profit for capital employed. This gives us economic earnings.

All financial analysis is based on publicly available company information. Interbrand culls from a range of analysts' reports to build a consensus estimate for financial reporting.

Role of Brand Analysis
A measure of how the brand influences customer demand at the point of purchase is applied to the economic earnings to arrive at Branded Earnings.

For this study, industry benchmark analysis for the role the brand plays in driving customer demand is derived from Interbrand's database of more than 5,000 prior valuations conducted over the course of 20 years. In-house market research is used to establish individual brand scores against our industry benchmarks.

Brand Strength Score
This is a benchmark of the brand's ability to secure ongoing customer demand (loyalty, repurchase and retention) and thus sustain future earnings, translating branded earnings into net present value. This assessment is a structured way of determining the specific risk to the strength of the brand. We compare the brand against common factors of brand strength, such as: market position, customer franchise, image, and support.

Apart from idle speculation as to how far the values of the listed financial sector brands might have plummeted while the research results were being proofed and printed, there are plenty of points to ponder. One is the relatively poor performance of brands in the pharmaceutical and healthcare sectors; another is the relatively good showing among some business-to-business brands. A third is the reminder that a brand and a trade mark are entirely different things: BlackBerry the trade mark is in danger of being genericised to death by its admiring consumers, while BlackBerry the brand would appear to be flying high.

If you'd like to post any comments on this year's Interbrand list, please feel free to do so below.

Franchisors may be obliged to give financial information to their franchisees, rules Japanese court

Earlier this year the Japanese Supreme Court rendered a highly significant judgment in a case concerning a business format franchise. Under the terms laid down by the franchisor, each franchisee ran its own store but was unaware of the details of the franchisor's payments to the vendors from which franchisees procured products for sale. In this action the franchisees filed suit against the franchisor, demanding that it disclose certain information, including details of the products purchased for sale, payment dates and amounts and the names of the parties that received such payments. The franchisees argued that the franchisor had a duty to disclose these payment details under the Civil Code. The Tokyo High Court found that no such duty existed. The Supreme Court has now reversed the decision and remitted the action to the High Court for further consideration.

The court held that the purchase of products was essential to the franchisees' operations and that it would not have been difficult for the franchisor to inform the franchisees of the details of its payments to recommended vendors. Accordingly, although the franchise agreement did not explicitly impose a duty on the franchisor to disclose such information to its franchisees, the agreement could be interpreted as imposing a mandatory duty to make disclosures to the franchisees at the latter's request. The court added that, in general, a franchisor is subject to a duty to report information to its franchisees, but it did not specify the information that may be withheld from franchisees.

[source: Kenichi Sadaka, Aoi Inoue and Taisuke Yamamoto (Anderson Mori & Tomotsune), writing for International Law Office].

MARQUES produces IAM toolkit

MARQUES, the Association of European Trade Mark Owners, had a surprise for those attending its 22nd Annual Meeting in Noordwijk, the Netherlands, last week. Each participant received, as part of the conference pack, an intellectual asset management toolkit that includes

* a generic intellectual asset management PowerPoint presentation
* case studies
* catch phrases
* articles and
* useful links.

This is a tremendous initiative from the MARQUES Intellectual Asset Management Team, who should be warmly congratulated for their efforts. Anyone wanting to know more about this Toolkit, or who wishes to help build on the foundations laid by the MARQUES IAM Team, should contact Ben Goodger (Rouse Legal) for further details.