Tomorrow's UK budget

Tomorrow UK tax-payers of all types will be turning their attention to the Chancellor, George Osborne, who will be presenting his 2011 Budget. This year the emphasis is likely to be on tackling the UK's not insubstantial budget deficit, not to mention tax avoidance, while simultaneously delivering on promises of stability and simplicity.

The Government is expected to confirm the outcome of several consultations on tax reform proposals -- including the review of tax reliefs and the reform of the corporation tax system. The IP Finance Blog is particularly keen to see whether there will be any announcements in relation to R&D tax credits and whether further details of the patent box will be set out following the consultation which closed last month.

This member of the IP Finance team will be following developments on Olswang LLP's Budget Blog here for the latest developments. IP buffs will also be keeping an eye on Anne Fairpo's Intellectual Property Tax blog, here.

Patent costs under the microscope again

Thanks to a Tweet from Axel Horns I discovered this link to an invitation from the European Commission to tender for yet another patent-focused research project: "Patent costs and impact on innovation: international comparison and analysis of the impact on the exploitation of R&D results by SMEs, universities and public research organisations".

No doubt the research will be rigorous and will deliver plenty of data -- but this blogger has a hunch that he and probably many of the readers of this blog could fill a blank piece of paper with a list of main findings and conclusions that would not fall far short of the real thing.

The Crisis in the Drug Industry: Where Do Patents Fit In?

The headline from the article that appeared in the 6 March issue of the New York Times had the clarion ring of crisis: "Drug Firms Face Billions in Losses in '11 as Patents End" here . The immediate problem is the spectre that patent expirations in 2011 will mean that drug companies will lose exclusivity over more than 10 major medicines with combined sales of nearly $50 billion, thus exposing, it is claimed, the reliance of the industry on blockbuster products.

At a more systemic level, the drug industry faces a whole set of daunting challenges, including "a drought of big drug breakthroughs and research discoveries: pressure from insurers and the government to hold down prices; regulatory vigilance and government investigation and thousands of layoffs in research and development." Finding the solution for any one of these factors is difficult enough; finding the right mix of solutions for these various factors taken together, can only be described as herculean in difficulty.

Taking Pfizer as an example, the industry is talking about "reinventing itself", "fixing our innovative core", and "refocusing on niche products rather than blockbusters, including branded generics". All of this, at least in Pfizer's case, is to be carried out while reducing R&D spending by 30%, so that R&D is directed only "on the most potentially profitable prospects".  The U.S. Government, on its part, through the National Institute of Health, dissatisfied with the pace of current drug development, is talking about the establishment of a billion-dollar centre dedicated to drug development -- this, despite the question why NIH will be able to do a better job of drug development than the companies themselves. In any event, the article then goes on the describe various aspects of the factors, described above, that amount to a potential perfect storm that will challenge the long-term prospects for the industry.

In reading this article from the IP perspective, one thought kept running through my mind. On the one hand, the expiry of more and more patents key to protecting blockbuster drugs is apparently a material proximate cause to the woes facing the industry. On the other hand, the article does not explicitly mention any measures regarding the patent function that might improve the industry's position.

At a certain level, this seems a bit odd. If the patent function is so central, why is there no explicit consideration of that function when considering the steps that the industry can take to reestablish itself. Better R&D--yes; better innovation--yes; but as for better patent strategy, the article is largely silent.

Several thoughts occurred to me:

Linguistic Alignment-- The thinking here is that, when the industry uses terms such as "rediscovery" and "renewed innovation", these notions inherently fold into them proper patent practices. Under this view, patents are an exogenous result of successful execution of these strategic measures. As such, there is no need to consider patents per se separately.

Strategic Potential-- To the contrary, it might simply be that patents are a less exogenous output, but rather an additional source for renewed strategic considerations. One way to think about this is as follows. Much attention has been devoted lately to the fashioning of a new corporate position--Chief Intellectual Property Officer--with high-level C-Suite responsibility to promote and enhance the role of IP (especially, but not exclusively patents) within the company. The CIPO is intended, presumably, to release IP from the silo of the corporate IP department, which more often than not provides patenting services for the company, but without much input at the more strategic level.

And so my question: would such a CIPO (or other form of restructuring of the patent function within corporate strategy) contribute to the efforts of the drug industry to improve its position in the current circumstances? One answer is that this is already taking place, even if these considerations were not discussed in the article. But another possible answer is that patents, as a strategic consideration, need to be reconsidered together with the other factors discussed above.

Pinewood pledges a four-a-year habit

Following the decision to abolish the UK Film Council, a major source of funding for British film projects, it seems that th private sector is stepping in. Leading British studio and film service provider Pinewood Shepperton plc is reportedly promising to target films with production values upward of £2m, pledging to invest equity up to 20 per cent per film. According to its press release:

...  In addition to any expected return from this investment Pinewood will also benefit from these films using latent studio capacity at its sites and the expected take-up of ancillary services at the studios. This arrangement will also bring fiscal benefits to the Company in its role as a supporter of British film productions. It is anticipated that Pinewood will invest in four productions annually, which will be selected by industry partners on behalf of the Company. 

This move by Pinewood is consistent with the Government’s stated aim to create a sustainable long term British film industry. 

... Rt. Hon. Jeremy Hunt, MP, Secretary of State for Culture, Olympics, Media and Sport added:
“We are delighted that Pinewood is showing its support for smaller British film productions. As the recent success of The King’s Speech demonstrates, smaller British films have the potential to become smash hits globally and any support that the industry can offer producers, we welcome. This new private sector investment is a sign of confidence in the Government’s film policy. Pinewood has a long heritage as a centre for film making excellence and with this announcement, demonstrates that it continues to sit at the heart of the British film industry.”

IP Finance is delighted to see money being invested in the film sector, particularly at a time when so many commentators have, quite reasonably, questioned the continued vitality of a business model that is prey to competition from counterfeits and file-sharing as well as the threat of diminishing returns in an increasingly global, and therefore crowded, market that has been wallowing in the trough of a recent recession.  But is it true to say that this investment is a sign of confidence in the Government's film policy? Perhaps some elucidation is needed here.

Source: "Pinewood Studios To Invest Millions In The British Film Industry" by Craig Sharp, Filmshaft, 9 March 2011

The cost of IP crime -- but how do we know?

Last month the UK's Cabinet Office published a notice proclaiming its report, "The cost of cyber crime", about which it says

"The overall cost to the UK economy from cyber crime is £27bn per year, according to the first joint Government and industry report into the extent and cost of cyber crime across the UK, launched today by the Office of Cyber Security & Information Assurance in the Cabinet Office and information intelligence experts Detica.

With society now almost entirely dependent on cyber space, developing effective strategies to tackle cyber crime requires a better understanding of its impact. Its breadth and scale have been notoriously difficult to understand and past attempts to set cyber crime policy or develop strategies have been hampered by a real lack of insight into the problem.

"The Cost of Cyber Crime" report reveals that whilst government and the citizen are affected by rising levels of cyber crime, at an estimated £2.2bn and £3.1bn cost respectively, business bears the lion’s share of the cost. The report indicates that, at a total estimated cost of £21bn, over three-quarters of the economic impact of cyber crime in the UK is felt by business. In all probability, and in line with worst-case scenarios, the real impact of cyber crime is likely to be much greater".

The summary records as follows with regard to IP theft:

"With the exception of the well-understood and documented copyright theft issue, the
types of IP most likely to be stolen by cyber criminals are ideas, designs, methodologies and trade secrets, which exist mostly in tangible form and add considerable value to a competitor.

But calculating the impact of this type of less-publicised IP theft is complex. Our approach produced three-point estimates for the economic value of IP by taking published figures for the value added to the economy per year in each sector and estimating the fraction attributable to IP.

Our results show that several business sectors are likely to be affected by IP theft because they either generate large volumes of IP or their IP can be exploited with relative ease. However, although no business sector is likely to be entirely immune from IP theft, the impact of cyber attacks is likely to be much smaller in sectors where relatively low volumes of IP are created".

IP Finance would like to understand more about the mechanism for assessing the cost of cyber crime and IP theft.  If any reader has the time and the inclination to read through these documents and would like to write them up for this weblog, he or she should please let me know.

You can download the summary here and the full report here.

South Korea's Deficit in Patent Royalty Payments

The Korean firm of C&S Patent has just sent around its regular newsletter which included a reference to a report by The Bank of Korea in which , the amount of royalties that S. Korean companies paid as fees to "access intellectual property rights" (presumably as royalties) in 2010 was a total of 5.8 billion dollars. This was apparently an increase of approximately 2 billion dollars as compared to the figure of 3.9 billion dollars paid out in 2009 and compares to 2.6 billion dollars paid as royalties in 2006.

C&S Patent report this in the context of a licensing payment of 550 million dollars from  Samsung Electronics to Kodak and 400 million dollars from LG Electronics for the use of a patent relating to mobile phone imaging technologies (reported here). This patent has now been held by the US International Trade Commission as being invalid (although Kodak announced that they are appealing the case).

Whatever the merits of the Kodak patent, the case shows the effect that royalty payments can have on the balance of payments of a country. It's no wonder that many national governments in Asia are encouraging their domestic companies to become more active in formulating standards and also to patent aspects of those standards.

IP commercialisation: a matter of standards?

Pressure of time has so far prevented this blogger from delving deeply into the arcane mysteries of the British Standards Institute's "BS 8538:2011 Specification for the provision of services relating to the commercialization of intellectual property rights" (here).  If you want to buy it, the price is £130 (£65 for BSI members). However, it would be amiss of IP Finance not to draw its existence to the attention of its readers.  According to the British Standards Institute's shop website,

"BS 8538 is the British Standard that sets out for the first time good practice and principles of ethical behaviour for organizations providing services to inventors.In recent years there has been a substantial increase in the number of organizations offering services to inventors and other originators and developers of ideas. 

These organizations include the Intellectual Property Office (UK-IPO), Business Link , commercial service providers, universities that specialize in invention and product design, and inventors’ clubs. The UK-IPO has long promoted the need for individuals and organizations to take stock of their own novel creations and to secure the commercial rights to them, by way of patents , registered designs, trade marks, etc.

BS 8538 would also help inventors understand what to expect from a provider when seeking to secure the intellectual property rights for an idea. 

Success in securing the legal rights can positively influence the business success for the idea. However, the law concerning intellectual property (IP) can be complex and the UK-IPO recommends that the creator of a new idea should always consider seeking advice from a firm of chartered patent attorneys or trade mark attorneys (who are legally qualified and independently regulated), or other advisers with the skills needed to assess whether the idea is appropriate for patent protection, trade mark registration or design registration, and who can prepare an application for the creator seeking potential legal rights. 

As well as these practitioners there are other advisers, consultants, invention brokers and inventor-support organizations who offer help and advice covering the commercialization of these novel creations.

It follows that if every UK individual and organization secured the intellectual property (IP) to which they are entitled and then used it to commercial advantage, the UK would gain in the long term. 

BS 8538 specifies the requirements for the provision of services to the originators of intellectual property with a view to their commercialization. ..."

Other standards have been, or are being, developed for IP, notably the ISO standard for brand valuation (here), the Austrian standard for trade mark valuation (here) and the German standard for patent valuation (here). These are events that are bound to have an impact on IP business activity, yet few people in the IP community appear to be even remotely interested in them.  Is there anybody out there who would like to write for IP Finance on the establishment, take-up and impact of standards, and their impact on the real world?

The Oscar Ceremonies: Has Its Time Passed?

Another Oscar award ceremony has come and gone and, with it, even more than usual, is the media coverage and punditry about the event itself, as well as the winners and losers in an expanding list of film-related categories. As such, this is a good time to reflect on the current state of the ceremony, and what it says about the film business. Let me suggest that the Oscar awards are the functional equivalent of much of the print media--either becoming an anachronsim or irrelevant as other technologies and platforms replace it. If not for the inertia of the spectacle itself, the time might be near to bring the ceremonies to a merciful end.

The Academy Awards appear to have been, from their outset in the late 1920s, a promotional vehicle for Hollywood and the studio system (as it then was). The event merged the American fascination with winning with the aura of glamour and stardom. True, there has always been an odd feel to the entire competition. Who are the voters? (I remember a student teacher of mine in high school in the 1960s who was a voter because she was the cousin of a studio mogul.) How do such voters decide when, as I suspect, many have not seen all of the movies upon which they are voting? No matter what your view is on these points, behind it all was and is the Oscar's goal of promoting the film industry, i.e.,the large Hollywood studies, in particular.

The problem is that, if the Oscars are a promotional vehicle for the industry, the long-term prospects for carrying out this function are not bright. First, it appears that success at the Oscars shows no significant correlation with increased box office revenues. That is not such a surprise, since the ceremonies lag behind the cinema exhibition schedule at the theatres. True, a nomination announced during exhibition time might presumably assist increased box office take, but even then, with 10 movies being nominated for awards such as best film, the nomination itself is a less exclusive designation (rather like VPs of banks).

Moreover, the Oscars is a spectator TV support for those in middle age or above. A podcast report stated that the average age of viewers of the event is 50 years of age, with the figure going up each year. Stated otherwise, youngish hosts Anne Hathaway and James Franco notwithstanding, the young have largely abandoned viewing of the event. Even for those who watched it, I would wager that most viewers did not stay to the end. True, the print media is awash with hype before the event as well as extensive coverage of the Oscar results but, honestly, who remembers very much beyond best picture and best actor and actress, much less the last five winners in each of these categories?

The event itself has had the perverse result of encouraging competition with the very studios, the promotion of which the Oscars were originally estblished. Stated otherwise, the Oscars have allowed the indie (read: "independent") movie business sector (like "The King's Speech" and "Social Network") to gain enjoy mainstream support among those who cast votes for the Oscar competition. Ironically, given the modest budget for such movies, winning the Oscar might actually give them some financial lift. Once again, however, that is not why the Oscar competition was established.

The factors most affecting the movie industry include the perenial challenge of financing studio films; the rapid decline in CD sales (the lifeline of the business for much of the decade) and the uneven ability of most movies to recoup in other facets of the secondary market; the threat of unauthorized digital copying and, even when authorized, the less lucrative (for the studios) streaming business; the attentuated time period between cinema exhibition and access to the movie via various digital and on-line delivery methods; and the partial displacement of the cinema experience by multiple distribution channels at home (or even on the go).

In the face of such challenges, the Oscar ceremonies seem quaint at best and marginal to irrelevant at worst. It's time for the industry to find other ways to promote its product. I am sure that the red carpet will fetch a pretty penny at the ensuing public auction of Oscar memorabilia.

Updating IP tax book - what would you like it to include?

The 3rd edition of Taxation of Intellectual Property has been commissioned and will be appearing in all good bookstores later this year – in the meantime, I have to write it. Let me know what you’d like to see covered – I plan to expand the international section, to add more in about specific IP-related professions/industry sectors and their tax quirks, and to add more on IP law and the interaction between practice and tax.

Anything else you’d like to see expanded/covered? Comment on this post or over at http://www.ip-tax.com (or via twitter - @iptax) or email me (via http://www.linkedin.com/in/annefairpo).