What is a "sample"? CJ opinion next month

The Advocate General's Opinion in Case C-581/08 EMI Group Ltd v The Commissioners for Her Majesty's Revenue & Customs, a reference to the Court of Justice for a preliminary ruling, will be delivered on 15 April. The reference is not a copyright issue, since it turns on the interpretation of Sixth Council Directive 77/388 (on the harmonization of the laws of the Member States relating to turnover taxes - Common system of value added tax: uniform basis of assessment). However, it relates to the manner in which recorded materials have been used-- the giving of samples of recorded music that are not generally available to the public in order to boost sales and to promote artists --and to the tax liability for such forms of marketing. The questions before the court are as follows:

"How is the last sentence of Article 5.6 of the Sixth Directive to be interpreted in the context of the circumstances of the present case?
In particular, what are the essential characteristics of a "sample" within the meaning of the last sentence of Article 5.6 of the Sixth Directive?
(c) Is a Member State permitted to limit the interpretation of "sample" in the last sentence of Article 5.6 of the Sixth Directive to-
(i) an industrial sample in a form not ordinarily available for sale to the public given to an actual or potential customer of the business (until 1993),
(ii) only one, or only the first of a number of samples given by the same person to the same recipient where those samples are identical or do not differ in any material respect from each other (from 1993)?
(d) Is a Member State permitted to limit the interpretation of "gifts of small value" in the last sentence of Article 5.6 of the Sixth Directive in such a way as to exclude-
(i) a gift of goods forming part of a series or succession of gifts made to the same person from time to time (to October 2003),
(ii) any business gifts made to the same person in any 12-month period where the total cost exceeds £50 (October 2003 onwards)?
(e) If the answer to question (c)(ii) above or any part of question (d) above is "yes", where a taxable person gives a similar or identical gift of recorded music to two or more different individuals because of their personal qualities in being able to influence the level of exposure the artist in question receives, is the Member Stale permitted to treat those items as given to the same person solely because those individuals are employed by the same person?
(f) Would the answers to questions (a) to (e) above be affected by the recipient being, or being employed by, a fully taxable person, who would be (or would have been) able to deduct any input tax payable on the provision of the goods consisting of the sample?"

Tommy goes to PVH for $3bn

It has been widely reported (see eg brancchannel here) that Phillips-Van Heusen has paid somewhere in the region of $3 billion in cash and stock for fashion brand Tommy Hilfiger.

Is this money well-spent? Phillips-Van Heusen is no stranger to investment in fashion and clothing brands since its portfolio already contains Arrow, Calvin Klein and Izod, and the company's judgment appears to be backed by a respectable track record. However, there is always a risk that 1 + 1 will not always give you 2 and that the success of one brand in the stable may be at the expense of other brands held by the same owner. In a resurgent market, where consumer spending is on the rise, there is less danger of this happening -- but the market is not conspicuously buoyant at present. Likewise, where brands are geographically complementary, one is less likely to tread on the toes of the others -- but as globalisation and e-sales continue to shrink the world into an increasingly unitary marketplace, the benefits of geographic complementarity diminish. Let's watch and see what happens next.

Art as Art; Art as Income Stream; Art as Collateral

It is unusual when a photography collection becomes the focus of a publicized debt workout. It is for that reason that we have been following for some time the financial woes of the well-known photographer Annie Leibovitz. Leibovitz is perhaps most famous for the picture that appeared in Vanity Fair magazine of a largely exposed and pregnant Demi Moore, and that of John Lennon and Yoko Ono in a conjointly curled position, apparently only hours before the singer's tragic death. The story itself makes for interesting reading regarding the interplay between art and finance.

In July 2009 the artist was sued by Art Capital, whom she owed a large sum of money in repayment of a loan. In particular, the artist had allegedly refused to cooperate in the sale of certain of photographs (as well as various pieces of real estate), which presumably had been offered as collateral for the loan. That segment of the legal saga was resolved in September 2009, when Leibovitz paid an unspecified amount in exchange for regaining control of these assets, in exchange for which the lawsuit was dropped and the loan was extended.

Now, as reported in Bloomberg.com on March 13, under the title "How Leibovitz Found New Partner for $24 Million Debt, Archive", a new financial actor has come on stage to assist Ms Leibovitz. According to the report, an LA-based private equity firm called Colony Capital reached agreement on March 8 with Art Capital. In its place, the artist has entered into a new agreement with Colony Capital. The details of the new arrangement were not revealed, but the report suggests that Colony could see income from both the sale of the artist's current photographs as well as enabling Leibovitz to renew her artistic endeavors and thereby to get a cut from revenues received from sales of such future photographs.

One can only speculate how much pressure there might be on Leibovitz to create a new portfolio of photos, sooner rather than later, that can attract purchasers in an amount that is consistent with the financial arrangements between Colony and herself. After all, as noted in the article, "Colony is the business of making money .... They've got to structure it in a way that they are compensated." Will she be more creative, or less creative, than usual, or will not not matter?

If so, it gives rise to that question the question of how financial exigencies will affect the creative impulse of the artist, especially if there is a misalignment between the artistic and the financial timelines. Moreover, one wonders how the market for her photos might be affected by this news. The artist's dealer claims that her individual photos sell for between $8,500 and $50,000. If so, can those prices be maintained in a situation where there is a perception that their sale is driven by external factors framed by the restructuring arrangement?

After all, while the commercial world has its own dynamic, it is still a market. When one adds to that the overlay of the financial restructuring of the artist's debt, as reported in the article, the way that the market for her photographs, at least for the near term, will play out can hardly be predicted.

Prices Go Up; Prices Go Down

How much is the use of "Lindsay" worth?

"Lindsay Lohan wants $100M over E-Trade ad" is the headline of an article by Kieran Crowley in the NY Post (thanks, Miri Frankel, for the link). The article reports that actress, model, singer and general purpose celebrity Lindsay Lohan is commencing legal proceedings against financial company E-Trade before the Nassau County Supreme Court. Ms Lohan maintains that a boyfriend-stealing, "milkaholic" baby in its latest commercial -- who happens to be named Lindsay -- was modelled on her. Damages of $100 million are sought for her pain and suffering.

The advertisement in question is part of a series starring babies who play the stock market. It depicts a boy apologizing to his girlfriend via video chat for not calling her the night before.
"And that milkaholic Lindsay wasn't over?" the baby girl asks him suspiciously. "Lindsay?" the boy replies, just before a baby girl sticks her head into the frame and slurs, "Milk-a-what?"

According to Stephanie Ovadia, the attorney acting for Ms Lohan, her client has the same single-name recognition as Oprah or Madonna: "Many celebrities are known by one name only, and E-Trade is using that knowledge to profit".

Without prejudice to the issue of liability, the interesting issue is the claim for damages and the basis of its assessment. While it is stated that "since the spot was seen by hundreds of millions of people watching the Super Bowl and Winter Olympics finals, the firm has garnered great profits". It does not appear however that an account of profits is sought. It would be good to see a judicial inquiry into damages, given Neil Wilkof's thoughtful piece on this blog earlier on the changing face of Super Bowl advertising. Maybe we would then get some guidance as to the quantification, in terms of profit, of advertising which both boosts immediate sales and -- to the extent that it still does so -- enriches the brand's equity.

In any event, the convenient and arbitrary figure of $100 million is sought, this being made up of $50 million in exemplary damages, plus another $50 million in compensatory damages. IP Finance looks forward to the next developments.

The brand cameo matrix

Writing for brandchannel ("Product Placement In 2009 Oscar-Nominated Films: An Approval Matrix", here), Abe Sauer comes up with this a-picture-is-worth-a-thousand-words diagrammatic representation of the fluctuating fortunes of those brands whose strategic product placement in Oscar-nominated movies was designed to provide market-positive exposure to the right sort of consumer. What it would be good to know next is how much was paid for each brand cameo and what sort of return one might expect on one's investment in product placement in even the more successful of the year's films.

“Brands and the Cost of Corporate Conscience”: a special event

“Brands and the Cost of Corporate Conscience” is the title of a special IP Finance seminar to celebrate World Intellectual Property Day, Monday 26 April. The speaker is the dynamic and thought-provoking Marjolijn Vencken (Trouble in Paradise, The Hague, The Netherlands), whom some of you may have heard speak at the MARQUES Conference last autumn in Brighton. The venue is the London office of Olswang LLP, 90 High Holborn. Doors open at 12.30pm and Marjolijn speaks at 1pm. Chairing the event is barrister, author and Appointed Person Amanda Michaels (Hogarth Chambers), whose new book -- A Practical Approach to Trade Mark Law, co-authored with Andrew Norris -- is coincidentally published by Oxford University Press this week.

We have the use of the venue till 2.30pm, so there's plenty of time to stay and discuss the talk afterwards. Refreshments are provided. If you'd like to attend, admission is FREE but can you please email Emma Killick here to let her know you're coming, making sure your email has the subject title "Brand Conscience". The room holds 100 but, in the event that we're oversubscribed, we'll have a ballot!

For those of you who don't yet know Marjolijn, here's a brief biography. Having obtained a law degree from Radboud University Nijmegen, she trained at the Institute for Policy Analysis (IFPA) in Washington D.C. where she monitored European government policy and analyzed its impact on companies operating in the United States. She was responsible for the brand strategies of different multinationals such as Heineken, Sarah Lee, Mars, KPN, Toyota and Delta Lloyd Group. At Trouble in Paradise she develops sustainable strategies within the brand by letting companies combine their organisational goals, their consumers’ lifestyle and communication in order to achieve economical performance with large societal profit. What are the issues and strategies used by experts in terms of filing trade marks and improving brand image? How do you revitalize a well-known brand without damaging its reputation? How do you create and maintain a sustainable brand? Marjolijn advises companies in their journey towards doing more responsible business.

The IP Finance weblog wishes to thank Olswang LLP and Hogarth Chambers for their part in making this lovely event possible.

E-books and the Challenge of Price

The Apple announcement of the iPad tablet has raised the question whether the hardware portion of the e-book market will be dominated by a dedicated reader or a multi-purpose device with e-book functionality. In addition to Apple, the sheer diversity of entrants into the e-book space, ranging from device manufacturers such as Sony, online purveyors such as Amazon, and book retailers such as Barnes & Noble, indicates the extent, to which the e-book platform is viewed, correctly or incorrectly, as a likely staple of how people will receive and read books and other contents in the near future.

No matter who wins, however, there still remains the question of how the e-book platform will impact on the traditional stakeholders in the publishing business, i.e., authors and publishers.The view is often taken the e-book is inherently a less costly production and distribution platform than the traditional book. The reason would at first glance appear to be obvious: with no printing, storage or shipping costs, the cost of an e-book must surely be set for a downward trajectory, with the result that books will become less expensive for publishers and therefore for consumers. This is supposedly true, even after one factors in the initial outlay for the reader device.

In truth, however, the situation is not so clear, as explained by Motoko Rich of the New York Times in a article that appeared on March 1 entitled "Math of Publishing Meets the e-Book". Rich notes that, while it appears that e-book titles will cost less their traditional counterpart, "... publishers also say consumers exaggerate the savings and [more importantly--NJW] have developed unrealistic expectations about how low the prices of e-books can go." Against this background, Rich goes on to consider the cost implications of producing and distributing an e-book and reaches some interesting conclusions.

As described by Rich, in order to understand the cost structure for the publisher, let's use a hardback book at a retail price of $26.00 as our baseline. The bookseller will pay the publisher half of that amount-$13. From that sum, the publisher pays $3.25 for print, storage and shipping (including returns). Printing and production functions such as cover design, typesetting and copy-editing, costs the publisher another 80 cents. Marketing will amount to a $1.00 or so, going up or down depending upon the title. Economies of scale on a per unit of book basis will also kick-in.

Let's not forget the author, of course. Assuming a royalty rate of 15%, the publisher must expend another $3.90. If an advance to the author has also been agreed-upon, there is a front-end outlay that may, or may not, be recouped against against royalties. This brings the net amount for the publisher to $4.05. From that the publisher still has to pay for office space and utilities. Based on the foregoing, it is easy to see why, for the traditional retail publishing business, blockbusters are crucial for financial success.

Will it always have a price?

And what about e-books? According to Rich, using the reported agreement with Apple, the following price scenario applies. The publishers will fix the price (although there have been some tension on this point), and the e-book retail platform then serves as an agent, with a commission of 30% per sale. Using a $12.99 baseline price (though there is no firm notion of what the price point range will be), the publisher is left with $9.09, from which he has costs of approximately 50 cents for file conversion and digital typesetting, plus an additional 78 cents. The author's royalty will a matter of negotiation, of source. Rich posits a 25% royalty on either gross revenue or the consumer price. All of this leaves the publisher with an amount in the realm of $4.56 to $5.54, to which overhead and related expenses must then be covered.

This looks like a good deal with the publisher. Not so fast though. C0ntrary to my impression, Rich suggests that publishers recoup costs and make material profits in the paperback segment of the book business. That argues in favor of a mixed model, where both the traditional book
industry and the e-book business will co-exist. However, if the price for the e-book product is similar to the price of a paperback book, the result may be that the paperback industry is severely hurt, eroding the profit potential for the traditional book industry. Whether the hardback market will itself then survive is a question.

Based on the foregoing, we can think of a number of less than socially desirable outcomes in an e-book world. First, there may well be a "e-book reader/computer tablet" divide between the haves and have-nots of the hardware device. Second, it remains to be seen whether the e-book space will allow for the kind of marketing and distribution that allow the traditional book business to introduce authors as well as provide the socio/tactile experience that only takes place in a bricks and mortar bookstore. If the traditional book business shrivels, the combined upshot may be fewer with the resources and access to books, and less choice for those lucky enough to have both the resources and ready access to book contents.

This may be nothing compared with the e-book divide

One thing is clear--we are only in the infancy of the e-book world, with consequences both benign and malign, socially beneficial and socially harmful, intended and unintended, before us.

Valuation of copyright in drawings and equipment manuals

A correspondent has written to ask the following:

"I have a question relating to valuation of copyrights in drawings and instruction manuals of plant and equipment (e.g. machinery).

Is the value of the copyright separately identifiable from the plant and equipment or is the value inherent in the value of plant and equipment?

If it is separately identifiable, then how does one value the copyright if there is no market for these drawings and instruction manuals?"

I suspect that readers of this weblog may have some useful guidance for our correspondent. Please post your comments below, if possible, of email them to me here.

Does download dip denote disaster?

In his article for FT Online, "Demand Dips for Online Films", Matthew Garrahan observes that recent research shows a decline in US consumer demand for movies online -- the business model on which the movie industry was pinning its hopes as an income replacement scheme to deal with plummeting sales of once-popular physical DVDs. While sales of digital films rose sharply in 2007 and 2008, media research group Screen Digest reports that 2009 sales, predicted to hit $360m for 2009, crept in at a modest $291m. Whether (as Screen Digest suggests) consumers have been deterred by an array of competing online platforms that prevent viewers from watching digitally downloaded films on the devices of their choice, or whether some other factor is at play -- P2P, pirate products or just download fatigue -- is unclear to this writer. Adds Garrahan (and this is perhaps the worst news):

"The private equity and hedge fund money that poured into the industry fuelling a production boom has evaporated following the financial crisis, leaving the studios desperate for new revenue sources".