When is the right time to call in the strategists?

Circulated this morning under cover of BrandChannel is a short paper (5 pages, of which pages 2 to 4 carry the meat) entitled "Your Brand is an Asset? Show me the money" by Stuart Leo, Director of a "boutique strategic marketing company" in Australia with the splendidly attention-grabbing name of Blirt! The thesis is that, in a downturn, your brand can bring you money.

Hoping for the revelation of some deep truths, I opened the document and was, as ever, a little disappointed. Literature such as this is part-exhortatory and part promotional. It seeks to goad the brand owner into action. There seems to be a huge disconnect between this sort of material and the usual reality, when the exciting idea (in this case (i) sell, (ii) license, (iii) co-brand or (iv) promote) hits the buffers. In most cases the medicine is better than the patient: the brand is poor, the goods or services to which it is attached are not thriving, and so on. By the time the brand owner starts seeking external advice, he has often tried and failed to do one or more of the four things which the author suggests, which narrows options still further.

If there is a moral to all this, it's that the best time to call in anyone -- brand gurus, marketing and advertising experts, business consultants -- is early, when the going is good and a business can afford what many regard as a luxury. It's also the time when the most options remain open.

Trade Secrets: Front and Center?

Permit me to add a few additional thoughts to the post of 3 April by Jeremy Phillips, "Research circles: new and useful"? Jeremy reported on what Jonathan Murray of GE Healthcare describes as a new innovation model called "a research circle." I found Jeremy's skeptical conclusion to be of most interest, in which he observed that "I hadn't realised that the concept was new, and it's certainly not inventive. The real challenge, though, isn't conjuring up the 'research circle' as a new model but in creating the right atmosphere of trust and respect that will enable it to function successfully, not just when it's achieving positive results but when the collaboration is doing no more than eliminating the negatives."

One view of the Open Circle

I would like to push Jeremy's comment further. In my view, one of the biggest failures of the legal education of IP is that it has largely ignored the "trust and respect" scheme of trade secrets as an integral part of IP thinking. This means that IP legal education focuses on the "traditional" forms of IP protection--patents, trademarks and copyright--which can be roughly characterized by disclosure and transparency, elaborate statutory schemes and international structures, and, in part, systems of registration. As such, the focus is proprietary in the purest sense in that these rights are presumably good against the entire world (at least as bound by the relevant territory) and the relationship between parties is morally neutral. If anything goes wrong between the parties, they look first to contract and in a lesser degree to tort to seek remedy.

In such a world, there is no sustained place for trade secrets (or whatever synonym you choose to call it) protection, which is characterized by lack of public disclosure and the centrality of trust between discrete persons, where the right can be lost forever by either disclosure or independent invention, where there are only rudimentary forms of statutory protection and virtually no international structures. In a word, trade secrets is a form of protection of human invention and creation which is in many ways diametrically opposed to the traditional IP rights.

The neglect of trade secrets carries over into MBA and management education, despite the fact that the best evidence that we have seems to show that trade secrets may be no less important than the traditional IP rights as a way of protecting inventions and creations. Anyone on the ground knows this, but those few courses that attempt to genuinely integrate IP into an MBA setting for the most part are driven by the categories of analysis and discourse borrowed from the law school treatment of IP. Indeed, my own MBA teaching experience shows that the students find my treatment of trade secrets and trust to be the most unexpected, and in many ways, most useful part of the course.

Seen in this light, it less perhaps less surprising that the report on "a research circle" seems to have neglected an emphasis on the trust aspect of innovation and development. Without any meaningful legal discourse on IP and trust in legal eduction, and only sporadic treatment of the subject in MBA education, it will take a rare person indeed to successfully integrate the concept into the analytical structures that he or she may have learned in law or business school. There is hope, however. The current economic crisis may well force both legal and management education to a long, hard look at themselves. If so, one result may be that the treatment of the trade secret and trust paradigm will be front and center in such curricular changes.

Trade secrets: secret no longer?

IP security and an absurdly tight deadline for response

An email has been sent today by the UK's Intellectual Property Office to an circular list named as "Policy". It reads as follows [with my comments in red]:

"UNCITRAL - Security Interests Working Group

Dear Interest [am I alone in not liking to be called 'Interest'?], 

A working group of The United Nations Commission on Trade Law (UNCITRAL) was established in 2002 to develop "an efficient legal regime for security rights in goods involved in a commercial activity". The Commission subsequently noted that intellectual property rights were increasingly becoming an extremely important source of credit and should not be excluded from a modern secured transactions law. The Working Group on Security Interests has held a number of sessions to discuss the issue [one of which resulted in the establishment of this weblog] and is developing an Annex to the UNCITRAL Legislative Guide on Secured Transactions dealing with security rights in intellectual property [an internal search of this blog will reveal numerous items and documents related to this initiative]. The Annex will discuss how the principles of the Guide apply where the encumbered asset consists of an intellectual property right. The latest draft to be discussed at the next Session beginning on 27th April 2009 in New York can be found here. [No it can't. Readers have complained that this link doesn't work. All the papers relating to the IP Annex to the Guide seem to be available here]

If you would like to comment on the draft Annex before the 15th session or require further information, please e-mail policy@ipo.gov.uk no later than Friday 17th April [this means just 14 days, inclusive of two weekends one of which is a major holiday, to get one's head round the complex issues and then articulate some sort of response; not much time, is it?]."

I'm going to be effectively out of action between 8 April and 17 April, but I do hope that readers of this blog will be able to coordinate some sort of response.  Can I suggest that readers who want to be involved, but who have not yet identified themselves, should post their names and email addresses as contacts below this post, so that someone can contact them or they can at least contact one another.

'Research circles': new and useful?

Under the heading 'Research circles' tech transfer model speeds IP commercialization', this week's Technology Transfer E-News circular writes that Jonathan A. Murray (general manager, Cross Business Programs, GE Healthcare) is successfully using a new innovation model he calls ‘research circles’. A research circle is

“a group of people who have agreed to collaborate together and agreed to follow a set of rules of how to work together as a society”.

Participants, often with different education and research backgrounds, can share information under an umbrella (non-disclosure agreement) NDA, allowing them to tap into IP and expertise from the best minds in a particular field without regard to typical boundaries. Details can be found in an article on the research circle model of university-industry research cooperation in the March issue of Technology Transfer Tactics. 

I hadn't realised that the concept was new, and it's certainly not inventive. The real challenge, though, isn't conjuring up the 'research circle' as a new model but in creating the right atmosphere of trust and respect that will enable it to function successfully, not just when it's achieving positive results but when the collaboration is doing no more than eliminating the negatives.  It will be good to learn how GE Healthcare is doing this, since the company has probably gained a good deal of experience and know-how if it's got the point of going public on the 'research circle' notion.  One further thought: circles of this nature may prove socially, emotionally and politically more comfortable than just looking to buy in or outsource the sort of

Horse race sponsorship: what is central to centralised deals?

Earlier this week BrandRepublic published a piece by Ed Kemp entitled "Horse-racing industry targets centralised sponsorship". I'm not usually interested in horse-racing, but I'd never heard the term "centralised sponsorship" before.

According to the article, written from London, England:

"Key players in the horse-racing industry have called for a radical shake-up of its sponsorship structure to allow it to compete with other mainstream UK sports.

Football, rugby and cricket have all benefited from centralised marketing functions, in which the sport's governing body sells league or competition sponsorship packages, and clubs seek individual deals.

Speaking at an industry event, ... experts argued that the ability to offer sponsorship packages across multiple events would help prevent the loss of blue-chip backers. Last year, Vodafone ended its long-standing title sponsorship of the Derby, leaving the event struggling to secure a partner for this year's festival.

Peter McNeile, director of racing at Cheltenham Racecourse, said he believed that individual courses should always be able to negotiate their own sponsorship deals, but added that the industry needed to be 'bold enough to offer bundled rights'. He also warned that courses may have to suffer initial setbacks to implement a different sponsorship structure. ...

Jon Stainer, business development manager at Sports Marketing Surveys, explained how cricket had capitalised on a centralised set-up. 'In cricket, the ECB's Commercial Partners programme promoted loyalty, while title sponsors received reciprocal rights across competitions. It also helped raise consumer awareness of these competitions, according to our research,' he said.

... McNeile claimed that Cheltenham Racecourse, along with horse-racing regulator The Jockey Club, would be ideally placed to lead the process of developing a centralised body to sell bundled sponsorship rights. He added that he hoped other racecourse operators would embrace the concept".

This generated a couple of random thoughts:

1. Not much has been said about the sponsors. The notion of "he who pays the piper calls the tune" is something that brand owners are pretty comfortable with -- and it is their money. While some sponsors may be motivated by a deep affection for equestrian sports, others are moved by issues such as value for money, profile-raising for corporate and goods/services brands, co-branding synergies etc. Why should they want to change> The notion that a change might be a bumpy ride in the first few years suggests that there may be some sponsor resistance.

2. Centralisation of sponsorship functions may just have a competition issue. If particular types of deal are only available from one source, there may be a dominant position which leads to market abuse. And if centralisation is effective as a result of the concerted activity of the different segments of the horse-racing industry, the competition authorities may be tempted or induced to investigate.

The WIPO Information Meeting on IP Financing: some notes

The IP Finance weblog would like to offer its sincere gratitude to Baskut Tuncak for preparing the following notes. Baskut is a fellow with the Center for International Environmental Law (CIEL) in Geneva; he works in the IP, Trade and Sustainability department, looking at Tech Transfer of Environmentally Sustainable Technologies. Baskut writes:

"WIPO held an information meeting on IP Financing on 10 March, 2009 in Geneva, Switzerland. Director-General Francis Gurry began the conference by identifying what he believed to be the principle reasons for considerable difficulty in developing IP Financing: (1) the lack of a clear connection between the security and the underlying asset, and (2) the complexity and lack of transparency in the IP system results in distrust for the intangible economy.  

Mr Lorin Brennan (of Grey Matter LLC) further elaborated that, in the context of UNCITRAL’s efforts to harmonize international secured transaction laws, considerable difficulty is presented by legal systems utilizing a pledge-possession based property system. Specifically, Mr Brennan noted that, without IP filing mechanisms in place, IP financing is impossible in nations with pledge-possession based property system. 

Mr Brennan identified several areas requiring further development to develop a robust, global IP Financing system: (1) Draft a generic law of financing that is applicable for all types of IP under all current international IP related conventions; (2) Coordinate priority systems in IP financing with priority systems in debtor financing; (3) Refine IP valuation methods from the Basel 2 method currently used; (4) Increase the strength of IP laws and the reliability of registries; (5) Integrate underwriters and title insurers to help increase confidence in IP securities. 

Responding to Mr Dalindyebo Shabalala’s request for clarification, Mr Brennan explained that he was not advocating for, or against, harmonization of global IP laws.
Professor Neil Cohen, author of the IP Annex to the forthcoming UNCITRAL Legislative Guide on Secured Transactions, explained that the Guide takes a functional approach and will have a broad scope, applying to both tangible and intangible property. For both types of property, the Guide will cover the relevant conflicts of law issues. However, according to Prof. Cohen, it is presently unclear to the drafters as to whether the law of State in which the asset is located (as is the case with tangible property), or the law of the State in which the grantor is located (the case with intangible property) ought to apply to IP, due to the geographic limitations of IP laws.

Sprios Bazinas, Secretary of UNCITRAL Working Group VI, spoke of the need to have robust valuation methods in place. He also explained the need to harmonize insolvency laws along the way to developing a viable IP Finance market. Accordingly, the Guide’s IP annex will have a section devoted to insolvency issues. However, harmonization of insolvency laws requires coordination of two different UNCITRAL working groups.  

Regrettably, very little attention was placed to two key issues. First, an in-depth discussion of how the current financial crisis is impacting both current and future efforts to securitize IP assets was sorely missed. Second, and perhaps on a related note, while numerous commentators acknowledged the difficulty in valuing derivatives, no discussion was devoted to current IP valuation methods, auctions or otherwise".

The presentations of the various speakers may be accessed here.

G20 IP debates

Reports emerging from Downing Street over the weekend underlined that Britain would like to get tougher on tax havens by making them "increasingly unacceptable and costly to operate". The reports focus on virtually the entire list of abuses identified in the Guardian's recent Tax Gap investigation which revealed how companies are now alleged to be shifting valuable intellectual property such as patents and consumer brands into tax havens. A key reform the government is reported to be pressing for is to tighten up the rules on transactions with tax-haven companies. Obama, before he became president, famously said that an office block in the British-controlled Cayman Islands acted as headquarters for 12,000 companies. (The Guardian).

One wonders how increasing measures to tax IP rights (be making tax havens less attractive) stimulates innovation and hence helps nurture the growth needed to kickstart global and UK economies. On the other hand, Mr Brown's government has embraced a knowledge based economy for many years now and perhaps it is legitimate that they may see IP rights transfers to tax efficient economies as theft?

Right: An IP Lawyer's empty beach chair on a haven beach

And, according to reputable IP Watch, leaders of the world’s largest economies struck a closed-door deal late Tuesday to create an international court for intellectual property litigation in a move sources said they deemed a contribution to the global economy. IP Finance contemplates how costs and damages would be awarded in such a court?

The cost of biodiversity -- a fascinating business model

Watching paper-based periodical publications struggle with shrinking markets and declining enthusiasm for paper delivery (high production cost, slow delivery, uncertainty of arrival etc), I was wondering how their electronic cousins fare. Earlier this week I came across something that gave me an acute insight into their prospective profitability. This was a notice on the Agrobiodiversity Grapevine that read as follows:

"We would like to bring to your attention the launch of a new international peer-reviewed journal called International Journal of Biodiversity and Conservation.
...

You will see that to submit a paper to this journal there is a handling fee of $550.00. It is a very small amount compared to other STM publishers that request a fee of $3000 - $5000 to make a research paper “open access”".

 The publisher's instructions to authors are quite specific:

"Copyright: Submission of a manuscript implies; that the work described has not been published before (except in the form of an abstract or as part of a published lecture, or thesis) that it is not under consideration for publication elsewhere; that if and when the manuscript is accepted for publication, the authors agree to automatic transfer of the copyright to the publisher [this appears to be unlimited in time, geographical extent or means of exploitation -- and the point at which 'automatic transfer' takes place, assuming that such assignment is valid,will be known to the publisher before it is known to the author. There appears to be no indication of the law governing disputes between author and journal, or any designation of forum].

Fees and Charges: Authors are required to pay a $550 handling fee. Publication of an article in the International Journal of Biodiversity and Conservation is not contingent upon the author's ability to pay the charges. Neither is acceptance to pay the handling fee a guarantee that the paper will be accepted for publication. Authors may still request (in advance) that the editorial office waive some of the handling fee under special circumstances.

The journal will be launched in May 2009 and the publisher is Academic Journals; a publisher whose mission is to provides free access to research information to the international community without financial, legal or technical barriers. This publisher works with the open access model, and strongly supports the Open Access initiative. Abstracts and full texts (usually in PDF format) of all articles published by Academic Journals are freely accessible to everyone immediately after publication".

Compared with these terms, the oft-criticised deals struck by recording companies with rock groups, or by music publishers with composers, no longer look quite so outrageous.

The fall of DRM and the rise of digital rights manipulation

This article has been written for IP Finance by Rebecca Chong (Morgan Cole).

In the ongoing battle against piracy, balance sheets in the entertainment industry are still being bruised by a growing force of consumers using digital tools to enjoy and share creative content. The industry's defence against illegal use of digital media; of filtering access to content by recruiting the assistance of Internet Service Providers (ISPs) to stop users from accessing peer-to-peer networks, armouring content such as DVDs and games with copyright protection, has largely proved unsuccessful; the culture of sharing continues to thrive. A 2009 report by the International Federation of the Phonographic Industry (IFPI) states that 95% of music downloaded is obtained illegally. Now, businesses are being slowly led by the wallets of their consumers towards a new age of cooperation, in which access to digital media may no longer come with as heavy a financial, or legal, price.

The increasing availability of compression technology, high-bandwidth, and high-levels of storage space at affordable prices has enabled the sharing of digital media both off and online on a mass and global scale. A study commissioned by Fujitsu Siemens Computers in 2008 revealed that an estimated 1 million UK homes possess one terabyte of digital storage. One terabyte of data according to Fujitsu, is equivalent to shelves of books stretching for 6.5 miles.

To the new generation of consumer, the sharing of content, whether legal or not, has become far more convenient and cost-effective than searching for a CD or DVD on the shelves. Some file-sharers have also attempted to justify their activities as being necessary and helpful to the entertainment industry. In 2007, outraged fans of Japanese cartoons (anime) reported to have received letters threatening legal action from Odex (a Singaporean anime distributor), explained that they chose to download episodes of anime that had been copied and subtitled by fans because the subtitles provided by fans were superior to those of Odex and were available long before Odex offered their videos for purchase; by implication, any sales loss incurred by Odex was self-inflicted. Fan sites which provide subtitles for anime shows, it is argued, help generate fans for series in foreign-speaking markets that may otherwise never have been reached. Nikolai Nolan, who assists with leading Anime-Faith, a group that translates and subtitles Japanese cartoons for downloading, stated in a February 2005 report by CNET that some Japanese companies " really appreciate fan subbing", citing the example of a director of a series called Battle Programmer Shirase who apparently thanked fans including "those outside the broadcast area who took special measures to watch the show on their PC monitors, and to everyone who watched it subtitled overseas without permission" in a final episode of the show.

Until recently the entertainment industry's response had been to scare the average consumer away from illegal file sharing by holding specific individuals to account. That tactic resulted in mixed success. The Recording Industry Association of America (RIAA) filed a succession of lawsuits against alleged users of networks including KaZaA, and Grokster, which led to payments being made in some cases, but also to public relations disasters that included the law suits against 13 year old Brittany Chan, and deceased grandmother Gertrude Walton. As if in a show of defiance to the entertainment industry's heavy handed approach, illegal downloads of music have continued to soar. According to the IFPI, more than 40 billion music files were illegally shared in 2008, compared to 1.4 billion legal single track downloads. The RIAA's new focus this year is to work with ISPs to identify individuals engaged in illegal activity and not target individuals itself (essentially 'passing the buck'), but the value in this strategy is questionable; even as ISP's increase monitoring, it is inevitable that this will not discourage hardened individuals who may simply improve their encryption methods and migrate between ISPs to evade capture.

The industry's attempt to prevent their products from being illegally copied and adapted, by using digital rights management (DRM) and embedding copy protections in music, film and games, has also proved to be relatively ineffectual on the increasingly technologically sophisticated consumer. Fans of the computer game Spore swiftly circumvented the SecuROM program that installed itself with copies of the PC game, and produced cracked versions to be made available on the internet; only last year Antigua-based company SlySoft announced that it had produced new software for cracking the Macrovision copy protection technology in Blu-ray and DVD-High Definition discs. Not long ago, the distribution of the so named 'Messiah' mod chips attracted the attention of Sony which eventually brought a successful action in the UK to prevent the importation of the chips. The chip enables an owner of a Playstation 2 console to play region locked official games produced in other countries like Japan and the US. However, it also enables an owner to by-pass copy protection in all games, and make and play pirated copies of games. Although the Messiah chip can be used for legal purposes, the fact that it can also be used to enable the make and play of pirated copies of games, was held to be enough to make selling, advertising, possessing for commercial purposes, and using the chips, illegal. The decision unusually contrasts with that made in the House of Lords 1980s Amstrad case, which involved twin cassette deck machines that enabled the speedy copying of cassette tapes. In that case, more consideration was given to the fact that the twin deck cassette players could be used for perfectly legal purposes as well as used for illegal copying of cassette tapes. It was decided here that merely supplying the machines was not enough to make a supplier an infringer of copyright. The harsher line taken in the Messiah case may well have been due to the fact that as it is now much easier than it was at the time of Amstrad for the average person at home to copy and distribute pirated goods swiftly and on a larger scale.

So far the 'Big Brother' steps taken by the entertainment industry to manage their intellectual property have been to little avail and seem instead to have bred discontent. Monitoring through ISPs may not only be ineffective because there are ways to evade detection, but also because as digital storage increases in size and speed it has become much easier to take trading offline to trading media by hand. Imposing restrictions in products have also led to expensive battles against a fluid community of underground hackers that appears to relish new obstacles thrown at it. Controlling without meeting needs provides little incentive for consumer loyalty, or for people who copy to mend their ways. There is also a danger both that the ordinary consumer looking for a fair deal will be driven away and that copyright infringers will be pushed out of reach; some recalcitrant infringers even see the measures initiated by the entertainment industry for protecting their intellectual property, as merely proof of big businesses flexing their muscles at the consumers' expense, which galvanises any motivation to infringe.

Having reached an apparent impasse, the entertainment industry has begun to take some interesting steps forward. Just this year, Apple announced the removal of digital rights management from its music library, enabling users to transfer downloaded music freely (previously, a song under music labels other than EMI, downloaded from their music library iTunes, could only be played on an Apple device). It is suspected that in order to secure this deal, Apple had to concede to major record labels to allow for variable pricing of songs. The move comes as no surprise, however, since competitor Amazon's MP3 store has been successfully selling digital rights management-free tracks since 2007, and this was likely taking a bite out of Apple profits.

More significantly, in a drive to find a compromise between managing rights and meeting consumer want for choice, it was revealed last year that a consortium of digital-entertainment companies which includes manufacturers, retailers, and film studios called the Digital Entertainment Content Ecosystem (DECE), will be attempting to standardise digital rights management practices. The intention is to create a DECE standard that will be used for managing digital rights, also letting consumers use digital content that they purchase on a range of devices that comply with the industry standard. Granted, the consumer will only be able to use digital content within boundaries, but the consumer will no longer be restricted by DRM to using just one device. The consortium is an impressive collaboration between big industry names including Alcatel-Lucent, Best Buy, Cisco, Comcast, Fox Entertainment Group, HP, Intel, Microsoft, NBC Universal, Panasonic, Paramount Pictures, Phillips, Samsung, Sony, Toshiba, VeriSign and Warner Brothers Entertainment. Apple is notably absent from the consortium however, and the question has been raised whether it will eventually join ranks with the large consortium, live side-by-side with it, or die trying. Assuming that the competing interests within DECE are able to work together to provide an attractive package for the consumer, it may be difficult for Apple to continue playing lone ranger.

It will probably be a long time before DECE-compliant devices hit the market, and it is not known if the industry's recent concessions will please the consumer in the long run. Jim Killock, Executive Director of The Open Rights Group remains cynical about DECE, commenting for a January 2009 report of the BBC that "Consumers don't like DRM"; implying perhaps that control to any degree will be resented. True that the consumer is unlikely to welcome being dictated to on how they may use their legitimately purchased entertainment, particularly in an age where culture is aplenty for free through platforms like Youtube where global talent is beginning to be born (Justin Timberlake signed popular Youtube singer Esmee Denters to his new record label, and the infamous videoblogger 'Lonelygirl15' succeeded in being cast in a movie). However, taking a different approach to managing their rights in recognition of consumer dissatisfaction has at least for the moment not gone entirely unnoticed; and although the entertainment industry's plans for the future involve clinging to copy protection, consumers may be appeased by an apparent long term strategy of compromise.