Monday, 31 August 2009

Branded Generics; did The Economist Get It Right?

Once again the quality press seems uncertain about intellectual property, and in particular the role of trade marks in the drug business. This time it is The Economist. In an article from its August 8 issue, entitled “Friends for Life: Big Drugs Firms Embrace Generics”, the magazine described the intertwining of Big Pharma with generic manufacturers as the impending expiry of blockbuster-protected patents and apparently thin patent pipeline for drugs are forcing both sides to rethink the nature of their relationship/interrelationship.

What caught my attention was the discussion in the article about the issue of “branded” versions of drug products that are being sold by Big Pharma after patent protection has expired. So is this a good or bad thing? It is a difficult to fathom from the article. Let’s consider how the issue is treated. First, the article observes as follows: In order to combat the expected decline in revenues, Big Pharma is “peddling “branded” (but not patented) versions of their original drugs for higher prices than unbranded equivalents. Illogical though it may seem, such is the power of brand loyalty and inertia among doctors and patients ….”

Here we find Big Pharma as “peddlers” of generic brands, and both doctors and patients as acting in an “illogical” manner. Nothing is seemingly new about the negative tone given to the role of trade marks. From the debates in Parliament 150 years ago at the dawn of the first English trade mark law, through the skepticism towards trade marks expressed by the US Justice Department and others prior to the enactment of the Lanham Act in the 1940s, and up to Naomi Klein's polemic No Logo here, there has been a view that trade marks have the power to compel people to buy at a premium what they rationally would not purchase, i.e. a branded product.

But the article then seems to change direction. Moving on, it later observes that “[t]he real action now is in branded generics, which command a premium in many emerging markets due in part to the fear that unknown products might be fake or of dubious quality.” Note that here trade marks serve a potentially useful purpose for “emerging markets” (not the developed world, who presumably know better) in assuring that the drug products are genuine. I must confess that I don’t quite understand the point here. If I want to sell a counterfeit drug product, it seems to me that I will simply imitate the proprietary brand. As a policy matter, if I want to prevent the counterfeiting of drugs, it seems that the better way is to ban the use of the mark after the expiry of the patent protection period. In this way, the counterfeiter cannot exploit the name recognition and goodwill developed in connection with the drug during its proprietary period.

But all is not lost for Big Pharma, even in developed countries. The article concludes by referring to Charles-Andre Brouwers of the Boston Consulting Group, who notes as follows: “[B]rand loyalty laziness--or laziness--is something drug marketers can tap to keep a premium in their prices." As he puts it: ‘The secret about this industry is that patients taking a red pill don’t really like switching to a blue pill’. “While consumers are no longer “illogical”, they are “lazy”, and this consumer slothfulness can be exploited to the commercial advantage of Big Pharma.

Not too much doubt here: except for developing countries (even the basis for the argument is questionable), branded generics [read: trade marks] are cast in a negative light. However, before we condemn “branded” generics” to the Dark Side, we might consider the following observation by Nassim Nicholas Taleb in his irreverent best-seller, Fooled by Randomness here (fooled you if you were expecting The Black Swan).

In discussing what he calls “the path dependence of beliefs”, and what economists call, in a somewhat different context, the "endowment effect”, Taleb observes “[t]hat there are reasons to believe, for evolutionary purposes, we may be programmed to build a loyalty to ideas in which we have invested time…. Researchers found that purely rational behavior on the part of humans can come from a defect in the amygdale that blocks the emotions of attachment, meaning the subject is, literally, a psychopath.”

If these observations can be applied to trade marks, perhaps “branded” generics are an expression of evolutionary make-up. Instead of being "illogical", a sign of "laziness", or worse, the relationship of doctors and consumers to branded generics reaches deep into our human psyche. At the least, it suggests that the issue of trademarks in connection with branded generics is far more textured than the article suggests. In truth, when one thinks about trade marks, that is not such a surprising, or radical conclusion--is it?

Saturday, 29 August 2009

Who owns Unix? SCO rises like a phoenix out of the ashes of the Appeal Court


Theres a fascinating report over at ComputerWorld which re-opens the argument about who owns the copyright to the Unix code. The whole case is many moons old - and seemed to have been settled by a 2007 decision that the copyright in the code was owned by Novell. The 10th circuit court of Appeals has now concluded that in fact SCO owns the code.

What struck me most in the report is that the case is clearly being funded by a private equity company, Stephen Norris Capital Partners, who have invested in the company according to the ComputerWorld story. SCO - according to the same report - is obliged to aggressively continue its litigation against Novell, IBM and Autozone.

Somewhat confusingly - but maybe somebody can provide some answers here - SCO is still in bankruptcy, according to the SEC filing on 3 August 2009. It seems that the investiment in the company by Stephen Norris Capital Partners may have only paid for the on-going trial. The remainder is at a high interest rate - which SCO could presumable now draw on to move the cases against IBM, Novel and Autozone ahead. Fascinating - do we now have a copyright troll on the loose?

Thursday, 27 August 2009

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).

Securitization of IP: Urban Legend, or Playing Soon in a Theatre Near You?

Probably no word in the finance world has taken on a less flattering connotation in recent times that the word "securitization" (unless it is the word "leverage", but the two go hand in hand). With the collapse of the sub-prime securitization market, and the financial carnage that followed, the term has come to represent, rightly or wrongly, the nefarious excess of financial alchemy running amok in the name of pure greed.

I am too far-removed from the daily life of Wall Street and the like to have any reliable clue to what extent the securitization of assets will play as the financial world climbs out of its current economic malaise Against that backdrop, I read with interest a piece that appeared on July 31, 2009, in iddmagazine.com. Entitled "A Starring Role for IP", the article addresses the issue, as set forth in the caption preceeding the text of the article, of whether,
"[a]s the securitization market comes back to life, [and] private-equity firms are finding deal flow in intellectual property, [w]ill the structured finance market support IP deals"?
The heart of the article is expressed in the following paragraph from the article:
"The predictable income streams derived from song royalties, paid year after year, along with licensing fees collected from the use of trademarked brands, underpin private equity interest in IP. Beyond the scope of capitalizaing on regular streams of income, IP also offers another incentive for financial buyers. It has the potential to be securitized or packaged into bonds that are backed by royalty payments as collateral. The bonds can then be used to refinance existing debt of portfolio companies--an attractive option for overleveraged private-equity-owned-companies--or conversely as acquisition financing."
The article discusses in some detail what is described as the succcessful securitization of the Dunkin' Brands in 2006 (pre-the Great Recession, I note). By sucesssful I assume means that the financial arrangements secured by the IP (read: trade marks, not donuts) were more favourable to the borrower than the other financial alternatives that were considered. In truth, however, the article reaches back and forth in time to bring merely a few examples of successful securitization of IP rights, with no reference to even the legendary Bowie bonds. The impression one receives is that this is still a marginal activity.

Spot the Securitized Asset

And so to the question: will we see an uptick in IP securitization as a sanitized alternative to the media-discredited investments in sub-prime mortgages and the like? From where this simple-minded IP practitioner sits, I am skeptical. The article suggests at least two interrelated reasons. First, the likelihood of getting a triple-A rating "without a monoline wrap" (I think that means a default swap or some other form of insurance) is not high, which means that the borrower will have to pay a higher interest rate for its bonds, thereby defeating the purpose of the exercise. Second is the "esoteric" and sui generis nature of IP rights. Valuation, both for the present and over the life of the bond, poses difficult problems, and the ability to assign a market value for the IP assets must certainly be a daunting challenge.


IP Securitization Made Simple

That said, I wonder whether there is some further room for interaction between the finance and IP worlds in exploring the potential for securitization of IP assets. When I spoke last month in India on trade mark valuation, one of the co-speakers on the programme represented the accountancy-valuation side of the profession. I came away with the feeling that I had too little an appreciation for the accountancy-valuation side, and my colleague had too little an appreciation for the IP-legal perspective.

There are two possibilities here. Either it does not really matter for valuation that our perspectives are so unconnected, because the IP-legal side has so little to offer, or it does matter, with the result that valuation is not being carried out as well as it might be. If the latter is true, then what is needed is a hightened dialogue to take advantage of the potential cross-fertization between the financial and IP-legal worlds. Something similar might well apply in connection with IP securitization. Investment houses, private equity funds, and banks--are you listening and are you interested?

National IP Office in RSA implicated in identity theft

A quick warning to all those with investment interests in South Africa. Two recent developments mean that investors need to ask their local advisors to audit the company names register to check a.) if their identity has not been stolen through fraudulent changes to directors of local companies by alleged corrupt officials and b.) that their brand has not been diluted or used to form so-called "counterfeit companies" which are then used for a variety of criminal activities. Afro-IP has produced a summary of the worrying developments here. This blogger received further information late yesterday from an Afro-IP subscriber that CIPRO (the RSA Company and Registration Office) is taking the situation very seriously and is doing a thorough internal investigation. Let's hope so.

Tuesday, 25 August 2009

If an NDA is Not a Licence, Then What Is It?

I have been doing IP licensing for over 25 years and perhaps the most elusive part of the practice for me is trade secrets. My uncertainty is well-captured by the sub-title of an article by my learned colleague and friend John Hull entitled "Trade Secret Licensing: The Art of the Possible" (Journal of Intellectual Law and Practice, 4 (3) 2009). In the article, the following sub-title appears "Is a Non-disclosure Agreement a Trade Secret"? Hull frames the question as follows: "Broadly speaking, making available one's trade secrets takes one of two commonly adopted forms--non-disclosure agreement (sometimes called a confidential disclosure agreement"

Hull goes on to explain the difference thus:

"A non-disclosure agreement has few of the characteristics of a license. The scope and purpose of disclosure is usually limited. It seems reasonably safe to assert that the intention of most parties to a non-disclosure agreement is not to engage in a licensing transaction."
To further support this claim, Hull brings a form of clause which is frequently found in a non-disclosure agreement as follows:
" No licence is granted to the Recipient hereunder and no licence shall be deemed to have arisen or be implied by virtue of the parties entering into the Agreement."
In truth, it is this clause, in its various forms, which continues to perplex me and I have never really understood it. If a non-disclosure agreement is not a licence, then what is it? Granted, the classic understanding of an IP licence does not easily apply to the grant (read: disclosure) of one's trade secret to a third party. After all, a trade secret is not a negative right, such that a trade secret licence is not the grant by the disclosing party of a right of use, in the absence of which the disclosed party would be in breach. As we all know, it is the negative right aspect of IP rights that constitute the basis for IP licensing.

But if that is true, then the observation should apply in equal measure to both a non-disclosure agreement and to a so-called "real" trade secret licence. Neither is a licence in the classical sense. Few, if any, however, seem willing to stake out such a radical position. In its stead, two possibilities suggest themselves. The first is that both the non-disclosure agreement and the "real" licence are both licences of a sui generis kind. Both rest on the willing disclosure by the trade secret to a third party, even though the terms, scope, purpose, and consideration will likely differ. That seems to me to be the more natural interpretation.

But that appears to be the minority position. More commonly, it seems, a distinction is made, whereby the non-disclosure agreement is deemed not to be a licence, and the contractual provision set out above is intended to give explicit effect to that distinction. However, no effort is made to explain exactly (i) what is the legal nature of the non-disclosure agreement, if it is not a licence, or (ii) what are the implications of this "non-licence" status. After all, the fact that an agreement sets forth a declaration--such as that no licence is created--does not necessarily resolve the issue. It is the relationship between the parties, and not a mere contractual declaration, that is ultimately determinative. And so the question remains: If a non-disclosure agreement is not a licence, then what exactly is it?


NDA- I Found It, But What Is It?

Friday, 21 August 2009

A new Chapter, but not for the readers

As an IP-driven business model, Reader's Digest once looked as though it was assured of eternal success. But times are tough, readers' habits mutate and technology is unforgiving. Now Reader's Digest US has filed for Chapter 11 bankruptcy protection. Says the Reader's Digest Association, the deal will protect its US business and reduce its $2.2bn debt. In doing so, it buys itself a 30-day grace period to continue discussions with its lenders over its debt restructuring plan.


While the filing does not apply to Reader's Digest operations in Canada, Latin America, Europe, Africa, Asia and Australasia ("international operations are expected to have "adequate funding" to continue publishing"), the news will do little to encourage advertisers, or indeed contributors, that its homey blend of stories of courage and bravery, practical lifestyle tips and victimless humour has a future.

IP Finance suspects that RD is facing problems on all fronts. Online advertising is more focused and increasingly reckoned to be more effective by many spenders; sales of all printed media are dented by free, instant and largely relevant reader-selected online material; also, the lower-to--middle-class family oriented readership which was its home territory is itself eroded by the forces of social and cultural change.

The question is, can RD pull itself up again? An internationally well-known and instantly recognised trade mark is only an asset where its goodwill brings in customers, and it's not immediately apparent where brand extensions might avail the title. The subscribers' database is probably worth a great deal more -- but with a diminishing interest in the title it is natural that this asset will be shrinking too.

Thursday, 20 August 2009

When Nostagia Meets Business Reality: The Case of Baseball Cards

What happens when the nostalgia of youth is refracted by the lens of legal and commercial reality? I recently had occasion to confront this question after a London colleague drew my attention to an article that appeared on nytimes.com on 6 August. Entitled "Topps Gets Exclusive Deal with Baseball, Landing a Blow to Upper Deck," the article reported that the Topps Company will next year become the exclusive maker of trading cards for Major League Baseball in the US. As a result, Upper Deck, will apparently no longer be able to compete with Topps in this business.

For a baby boomer like me growing up in the American Midwest in the 1950s, the very mention of Topps and baseball cards evoke memories that go the very heart of my boyhood experience. In those days, Topps was the only purveyor of such cards. We would take our weekly allowance (5 or 10 cents, I don't remember), sneak out of the house, race to the corner confectionery store, and buy a new packet of cards, anchored in its wrapping by a slab of rigid chewing gum whose main role, I assume, was to protect the cards in the packet until it was opened. I don't remember how many cards there were in each packet. No matter--we would eagerly open the packet, quickly view the new the player cards, compare them with the cards already in my collection, and then plot my trading moves for the week.

For some of us, fascinated by baseball numbers, there was also the studied inspection of the back side of the card, which contained valuable information about the player not readily accessible in other fashion. (I have heard that Ben Bernanke, the Chairman of the US Fed, when not trying to save the financial world, is a great fan of baseball statistics. Perhaps this interest also was fuelled by his boyhood exposure to baseball cards).


Another Satisfied Baseball Card Fan?

The frequency of the cards available in the packages was apparently rationed by Topps so that in the aggregate there were a small number of cards containing the genuine superstars (such as Mickey Mantle, Willie Mays, and Stan Musial, if the reader remembers), and a seeming endless supply of copies of forgotten players (like Willie Miranda and Hal Griggs, who have been consigned to the most arcane of baseball trivia). The name of the game was to wheel and deal with your friends, to induce them to part with that card of Willie Mays for some combination of the near great, the merely average and the already forgotten.

The cards were about the thrill of the deal, the joy of having a piece of the persona of the player embodied in the card, and the challenge of committing yet another set of data to memory. Sometime during the late 1950's, my interest in baseball cards waned, and I gave no more thought to all of the time and money I had invested in maintaining my collection--no more thought, that is, until I was sent the link to the New York Times article. Nostalgia is irreparable, even it is vulnerable. Nevertheless, I decided to take a dispassionate look at the baseball card industry once again, through the prism of the deal reported between Topps and Major League Baseball. And here is what I found.

1. IP--One key to the new arrangement is exactly who has the right to use what intellectual property rights. Upper Deck is reported to have renewed its licence agreement with the Major League Baseball Players Association. Presumably, this licence is for rights of personality and the like. This means that Upper Deck can use the likeness (and name) of the ball players. (I do not know if the Players Association merely represents the rights of personality of the individual players, or somehow takes a proprietary interest, itself an interesting question.)

But this licence does grant any right in the names , logo, or other marks of the baseball teams themselves, which appears be controlled by the Major League Baseball, meaning the clubs themselves. As the article notes, it is Major League Baseball that has entered into the agreement with Topps. How this dual set of licences will work out is not clear.

2. Competition and Exclusivity--Major League Baseball has enjoyed a privileged position under the U.S. antitrust laws for nearly 90 years. The question is whether the grant of exclusivity to Topps is anticompetitive. The article points out that Major League Baseball has entered into a number of exclusivity arrangements. Thus, there is an official car (Chevrolet-- although it is a good thing that the US government bailed out GM to keep this arrangement in tact); credit card (MasterCard--does that mean I cannot use my Visa card to buy a pricey tee-shirt for my grandson?); soft drink (Pepsi--and not the other guy); and cap (New Era--does anyone really care who brands the cap?)

To the best of my knowledge, none of these exclusivity arrangements has been challenged on competition grounds. The question is whether the arrangement with Topps should be treated any differently? If nostalgia is a valid consideration, then the anwer is clearly "no". Exclusivity is what made collecting baseball cards so special 50 years ago. Exclusivity and the Golden Age seem to go hand in hand.

And so the adult in me, the IP lawyer and blogger in me, says, let's wait and see how these IP and competition issues play out, whether or not it is back to the future.

Find the Exclusivity Vectors

Oh, I almost forgot the mention: The current owner of Topps is Michael Eisner, the legendary CEO of the Disney company. What drove Eisner to acquire Topps and to seek to recapture its glory days of the past? In Eisner's own words:
"This is redirecting the entire category towards kids ....Topps has been making cards for 60 years, the last 30 in a non-exclusive world that has confusion to the kid who walks into a Wal-Mart or a hobby store. It's also difficult to promote cards as unique and original."
Eisner is about my age, I think, so I suspect his interest is a combination of nostalgia and business. At a certain level, that is not much different from mine.

Want to create a mega-research project? Call ERIC

The text of the Regulation 723/2009 setting out the Community legal framework for a European Research Infrastructure Consortium (ERIC) was published earlier this month on the website of the Official Journal of the European Union.

Right: in case the European Commission is feeling mischievous, here's someone else's logo for it to use ...

The Regulation, wehich comes into force on 28 August 2009, follows the European Commission's 2008 proposal which explained that the need for a new type of entity arose as existing legal structures are inadequate to deal with the complexity of large-scale research projects involving contributions from several different countries. While the text of the Regulation largely follows that of the proposal, there are some differences.

* the ERIC was originally going to be an ERI (European Research Infrastructure).
* Anyone wishing to set up an ERIC must include a declaration from the host member state that it will recognise the ERIC as an international body in the sense of the directives on VAT and excise duties.
* Member States are no longer required to give ERICs the most extensive exemption from other taxes.

By Article 7(2) of the Regulation,

"An ERIC shall have in each Member State the most extensive legal capacity accorded to legal entities under the law of that Member State. It may, in particular, acquire, own and dispose of movable, immovable and intellectual property, conclude contracts and be a party to legal proceedings".
Article 10(g) requires the statutes governing each individual ERIC to include

"the basic principles covering:
(i) the access policy for users;
(ii) the scientific evaluation policy;
(iii) the dissemination policy;
(iv) the intellectual property rights policy;
(v) the employment policy, including equal opportunities;
(vi) the procurement policy respecting the principles of transparency, non-discrimination and competition;
(vii) a decommissioning, if relevant;
(viii) the data policy".
IP Finance watches with interest. Will ERIC be a dynamic entity for harnessing the continent's research resources and for arrangeing their effective deployment, or will it be a stately European-law-sanitised patent troll?

Wednesday, 19 August 2009

What price brands on the balance sheet?

A report published last week by the Institute of Practitioners in Advertising (IPA) shows that, whatever lip-service is placed by leading companies on the value of their brands, little of this is reflected in their books. The report is based on research carried out on the reports of

"those companies around the world with the highest consumer marketing spend and
whose business models are largely based around the successful development and
maintenance of brands".
According to the IPA's website,
"Best practice in narrative reporting: an international perspective analyses 50 reports from the 2008- 2009 financial year, including the top 10 consumer marketing spenders from the USA, Europe and Asia, as well as a further 20 UK reports, representing top media spenders in the UK. Even though most of the companies state the importance of their brand they fail to provide enough information or analysis on why their brands are successful, highlighting a relatively untapped resource for marketers to show their credentials [Could they be coy in disclosing reasons for their success in case their competitors, unable to work the reasons out for themselves, suddenly realised them when reading their annual report?].

Just two reports out of 50 are the exception to this: Reckitt Benckiser in the UK and Procter & Gamble in the US.

Reckitt Benckiser gave a great deal of coverage to its brand outlook and the strategy it has adopted to exploit its numerous brands, all of which brilliantly linked into the company’s overall strategy. It also distinguished itself by its use of KPIs [= "key performance indicators"] to explore its branding strategy. It had KPIs, over two years, on its media investment (media investment as per-cent of net revenues), on its brand positions (percent of net revenues in No.1 or No.2 brand positions), and the revenue from its top branded products. These KPIs offered metrics that provided strong factual support to the rest of the brand reporting narrative.

Procter & Gamble’s marketing strategy is incorporated into the chairman’s message and throughout the report into the overall strategy. They also explain on a brand by brand basis how their focus on innovation, and understanding of consumer needs delivers value; for example, enabling them to create a flexible product and brand in Bounty, which offers sub-brands for different needs (cost, absorbency [how apt, for the company that brought us Baby Dry Pampers]), each of which can then be successfully marketed to different groups.

By drawing on current best practice, this report provides insights, hints and tips for marketers generally, about how to provide more effective communication to shareholders about the role and impact of marketing ...”
A copy of the report will be sent to each IPA member agency, with further copies available at £10. Non-members can purchase the report for £25.

IPVision briefing - strong IP positions to success

IP research and analytics company IPVision will on 11 September 2009 host a briefing on the correlation of strong Intellectual Property positions to success in early-stage firms. Together with the National Knowledge & Intellectual Property Management Taskforce, they will look into the crucial linkage between innovation, entrepreneurship and corporate value.

The presentation will be lead by Joseph Hadzima, of IPVision and Senior Faculty Member of the Sloan School of Management, and Alexander Butler, of IPVision, in a web based briefing for the members and friends of the Taskforce. As Business Wire reports, IPVision has completed research and assessments rating the intellectual property position of more than 9,000 venture capital backed companies. This research shows that early-stage companies with strong patents, patent strategy and patent ratings consistently provide a 20-25% higher success rate than commercial peers.

For an earlier post on the National Knowledge & IP Management Task Force’s book Business Power - Creating new wealth from IP Assets, see here.

Monday, 17 August 2009

Are There Brands in Wal-Mart's Future?

One of the most talked-about retail events of the summer (other than the dismal retail sales figures being chalked up) is the Wal-Mart initiative called Project Impact. The idea seems that Wal-Mart needs to enhance its customer experience in order to bring into the stores more so-called up-scale customers. Such customers, as described in a June 15th article in Business Week ("Wal-Mart's Magic Moment") are viewed as having household incomes of over $50,000, and spend 40% more per visit than the typical Wal-Mart customer.

Or, as said on a Bloomberg podcast of last week, low food prices in the face of the recession have attracted these customers into Wal-Mart, but what will induce them to continue to seek the Wal-Mart experience after the recession comes to some kind of end. Surprisingly, at least to me, part of the answer seems to be--the custom of trade marks. I say "surprising", because the common wisdom is that the distribution clout of Wal-Mart had put paid to the role of trade marks: low prices and and the unparalleled retail excellence of Wal-Mart management, and not the draw of product brands, has been the centerpiece of the chain's success. What was crucial is whether your brand enjoyed a presence on a Wal-Mart shelf. The drawing power of the brand itself was far less important, if not largely irrelevant.

Against that backdrop, I was fascinated to read in the Business Week article about how brands may now play a potentially more crucial role in the success of Project Impact. While Wal-Mart will not be making a mad dash to become the preferred source of "aspirational goods" that so characterized up-scale retailing during this decade, it appears that the chain is paying closer attention to the brand mix of their products, under the view that the products themselves will hold and increase custom in the stores, at least for some product lines. Where once the only brand that really only mattered at the chain was the "Wal-Mart" service mark and brand, there is now a more balanced view of the relationship, at least for certain product categories.

This more balanced role of third-party manufacturing brands was described in the Business Week article as follows:

"The spruced-up aisles provide a more inviting home for brands that previously had little exposure in Wal-Mart but are now desperate to find customers. Newer offerings range from Danskinapparel to gadgets from Dell, Palm, and Sony .... The home department now features brands such as KitchenAid and Dyson, and a new line of products endorsed by celebrity chef Paul Deen."
This does not mean that Wal-Mart will suddenly become the advertising vehicle for these brands. As the article points out, Wal-Mart will be "putting pressure on manufacturers to advertise more in stores ..." But such increased advertising by manufacturers makes sense only if there is pereceived mutual benefit for both the brand owner and the retail chain itself. It remains to be seen how this will all play out. "Podcast-land" has weighed in both pro and con on the likelihood of success of this strategy.


Brands Desperate For Customers?

If the more up-scale customers desert Wal-Mart at the end of the recession, there may be a mis-match between the chain's typical customer and the product mix available at the stores. On the other hand, if the availability of these brands, especially under the tight price controls for which Wal-Mart is famous, helps to keep these customers in the stores, there may be a "win-win" situation. I say "may" and not "must", because I presume that Wal-Mart will seek to impose its pricing power on the cost of these branded goods to the chain.

Will the Apples and Sonys of the world be prepared to submit themselves to the purchasing dictates of Wal-Mart; if so, how will these pricing arrangements affect the relationship of these manufacturers and their brands to their other channels of distribution; will these brands ultimately reap a net benefit by their presence at Wal-Mart, or will the arrangement redound primarily to the benefit of Wal-Mart? Given Wal-Mart's clout, the answer to these questions will be carefully scrutinized in the years to come.

Saturday, 15 August 2009

Spotify goes China

Spotify, the UK-based streaming music service launched last October, this week surprised its growing fan community with news that it will launch in China.

The launch will be made in partnership with Chinese media company TOM Group, a subsidiary of Hutchison Whampoa with reportedly some 300 million users in China. It might be backed by an investment injection of up to $50m from high-profile investors including the charitable foundation of Hong Kong tycoon Li Ka-shing, valuing Spotify at $250m, as the Financial Times reported earlier this month.

Instead of conquering more Western countries (most notably the US) first, Spotify decided to tackle the far more difficult market of mainland China, where internet users are already very familiar with free online streaming portals offered by main telecom operators, as well as a whole range of illegal music download websites, such as search engine Baidu.

While Spotify is praised by users for its tremendous offer of music, for the Chinese market it will have to ramp up its Chinese artist portfolio. If it gets more Chinese labels to sign up, its free advertising-supported service could become as successful as in Europe. However, Chinese users might be even less willing to sign up for its premium subscription service for which they have to pay a monthly fee to receive the service without advertisements.

So the US market has to wait for the time being – maybe one of the reasons for this is that Spotify is still busy negotiating an iPhone application with Apple? Meanwhile in Sweden, The Local reported that Sony BMG Sweden confirmed that in terms of monthly revenue, proceeds from Spotify now exceed iTunes.

More information on Spotify’s China launch is available here and here.

Friday, 14 August 2009

Innovation, IP and Medical Services

How should we, in the IP world, view innovation? After all, one cannot help but notice the ever-increasing concern over the parlous state of (particularly US) innovation. The issue was well-captured in the cover story by Michael Mandel in the June 15th edition of Business Week entitled, "Innovation, Interrupted: How America's Failure to Capitalize on Innovation Hurt the Economy--and What Happens Next." In a more sustained fashion, the laureate Edmund Phelps of Columbia has made the issue of innovation the media centerpiece of his public comments since being awarded the Nobel Prize in 2006. Gloom about the future of innovation pervades the comments of Mandel, Phelps, and numerous others preoccupied by the question.

Permit me to share one aspect of the innovation issue: does innovation always mean creating the better and the bigger (or the smaller) and the newer? That seems to be Mandel's view. Mandel surveyed what he described as a "decade of disappointments", based on the lack of success in commercializing an "astounding number of technological breakthroughs across a range of fields" in 1998. And what are these fields? Mandel lists them as follows: cancer treatment, cloning, fuel-cell-powered cars, gene therapy, improvement drug development, miniaturized silicon-based machines, satellite-based intranet, speech technology, and tissue engineering. "Citius, altius, fortius" would seem to be the innovation motto here.

Mandel suggests various reasons for the lack of commercial success for each of these technologies, but the overarching point of his article is that more and better technology is the ultimate foundation for successful innovation. This view of innovation would seem incontrovertible, even if the precise reasons for the lack of commercial success of these innovations can be debated. Not so fast, however. It may be the case that in our preoccupation to make things better, bigger (or nano-smaller), and newer, i.e., innovating, at least in the bricks and mortar sense, we are actually doing a disservice to the role of innovation in propelling society, at least in some contexts. Let's take, for example, medicine and the provision of medical services

On the one hand, we find constant innovation in medical devices and equipment ; on the other hand, we encounter findings where the differences in the quality of medical treatment may not be directly related to these innovations. Think of the medical tourism phenomenon, where the claim is that what accounts for success of the medical tourism is in fact successful implementation of the principle that "less is more". This seems particularly true of the Indian medical tourism industry, and the suggestion that that industry can even be successfully exported into other countries.

More generally, I am drawn to the observations of the notable physician-writer Atul Gawande. Gawande describes a visit to India, the birthplace of his parents, as he views close-up the strengths and weaknesses of the Indian medical practice. Based on this experience and other observations, Gawande listed three "virtues" which he claims account for success in providing medical services: diligence, doing right, and ingenuity. Innovation is notably absent.

I recall listening to a podcast interview of Gawande in which he particularly expressed admiration for the ability of the Indian doctor to adopt himself to the demands of fewer resources and less specialization by maximizing his ability to meet the demands of the particular situation. Indeed, as I remember, Gawande suggested that too much innovation might sometimes even get in the way of providing quality medical services. based on these three delivery-based virtues.

Technology and Medicine: How Far Have We Really Come?

So what does this mean for IP? At the least, it suggests that IP may have a more ambiguous relationship to innovation than we would like to admit. Certainly better medical devices and equipment have made it possible to provide better medical treatment, and patents provide a role in that process. But patents, and IP more generally, may have little or nothing to offer at the point at which medical innovation is more about execution than invention, whereby IP is uncoupled from innovation at potentially mission-critical points.

And if it is virtue of which we speak, does the patent professional have an obligation, moral or otherwise, to take into consideration the possible impact of his client's invention based on the Gawande view of what is required to provide better medical services? Or is the patent professional's role limited to the legal protection of inventions, whatever the effect of the invention on the delivery of medical services? Legitimate questions or foolish musings--I wonder which.

NORTEL's LTE Patents

There's a lot more going on about Nortel's patents and a lot of confusion about whether they have been sold or not. The latest message is that they have not been sold. The author erroneously picked up the story from another source and has since been corrected. The auction that took place after NSN's initial approach. The approach from Nokia Siemens Networks was a stalking horse and under US bankruptcy law any other bidders must bid for the same "package of assets" - which did not include the patent rights, as NSN did not want them.

There's a report over on seeking alpha that Canadian company Research in Motion are arguing that the LTE patents are a national treasure and should be kept in Canadian hands.

There's more about stalking horse bidders in US Chapter Bankruptcy over here.

Thursday, 13 August 2009

Seminar on UNCITRAL and security rights in IP: advance notice

As previously reported on this weblog (see here, with links to all the previous articles on this topic), work has been continuing on a Draft Supplement to the UNCITRAL Legislative Guide on Secured Transactions dealing with security rights in intellectual property, as revised further to the April-May 2009 session of the UNCITRAL Working Group VI (Security Interests) and the approval of the insolvency discussion by the UNCITRAL Working Group V (Insolvency Law) at its May 2009 session. This Draft Supplement forms the basis for discussions at the next session of Working Group VI (Vienna, 2-6 November 2009).

As an aid to better understanding of the proposed Supplement and the practical issues which it raises for both lenders and IP borrowers, this weblog is pleased to announce that a seminar has been arranged for the afternoon of 14 October 2009 in Central London. Spiros Bazinas (Senior Legal Officer, UNCITRAL's International Trade Law Division) has kindly agreed to address the seminar, following which a panel comprising both financial and IP interests will comment. There will then follow a question-and-answer session in which all participants will be invited to seek explanations and clarification. To aid the smooth running of the seminar, all who attend will receive two 4-side memos, one written from the perspective of the lender, the other from the perspective of the IP sector, which will crystallise the issues.

Professor Graham Penn, a banking partner in Sidley Austin LLP with particular expertise in securitisation, will chair the seminar. Membership of the panel is still being finalised. As soon as further details are available, they will be announced on this blog. If you hope to attend, please mark the date in your diary now. If you want to read up, all the publicly available UNCITRAL documents on the subject can be accessed here.

Monday, 10 August 2009

Apps on the iPhone: The Search for a Business Model (Once Again)

So here we are again: How does one monetize in the world of increasingly ubiquitous connectivity? The latest variation on this theme is the world of applications for the iPhone. Apps for the iPhone abound, but opinions differ about to translate these apps into revenue, either directly or indirectly.

An article by Stephanie Clifford that appeared in the August 10, 2009 online edition of The New York Times ("There's an App for That/But a Revenue Stream?") reflects the commercial uncertainty among media companies with respect to the role that apps for the iPhone may play in their businesses. Among the most notable examples of the uncertainty, as described in the article, are those summarized below [the captions are mine]:

1. It Time for the Herd--""The iPhone has really been a phenomenon, so I think most media brands, at least the national one, are thinking it's a place to be," said Matt Jones, vice president for mobile strategy and operations at Gannet Digital-USA Today."

2. But How do Build a Revenue Model?--As noted by Mr Jones, maybe we charge a subscription, maybe we rely on advertising, maybe we settle for a one-time payment, maybe maybe we seek recurring periodic revenues? Unsurprisingly, the current evidence does not bode well for subscriptions however.

3. Maybe All We Are Concerned With is a Public Mission--One public LA radio station--KCRW--has introduced three applications: (i) the station's programming; (ii) videos about food: (iii) videos showing in-studio musical performances. The purpose of the apps is to fulfill a public mission. "Our mission has always been to get our content out there--it was just part of who we are as public broadcasters," noted the director of new media for the station.

4. Maybe All We Are Interested in are Eyeballs--MSNBC.com has come up with applications for the"Today" show as well as "Rachel Maddow" . As explained by the manager of Todayshow.com, "[m]y opinion is it's mainly a branding and content play, getting our content out in additional platforms ....I do believe that you get a circular effect: someone interested in you in mobile is exposed to the brand and to your great content. They may then be more likely to tune in to the show or go to the Web site."

Rachel Maddow (I Think)

5. Then Again, Revenues May Not Be All That Bad-- The VP for business and finance brands at CBS Interactive, Stephen Howard-Sarin, pulls no punches. "We do mobile user experiences to make money, so we have no interest in funding mobile as a loss leader just for some intangible brand benefit." Mr Howard-Sarin went on to note that "i]t is experimental ....We have a lot of oars in the mobile water because we think there's money there."

6. And Then There Are the Audio Apps-- Audio apps are in principle simpler. If ad rates are based on the number of listeners, and the streaming of audio content via apps lead to an increase in listeners, ad rates in principle can be raised. As noted by AdMob, which serves ads on applications, "[a] lot of terretial radio stations have their reach extended, and they already have advertisers, so this has given the business a huge boost in that they can get a national reach."

I have to be honest, in rereading this list, I come away with a bout of strategic vertigo. So what do I do recommend: Content for free, content as a revenue generator, content to atract eyeballs to strengthen my brand across mulptile platform, some combination of the foregoing, or some other model? I can hardly wait for my next MBA class to begin in October to explore these questions. After all, who is better placed to provide guidance, than students who straddle the managerial/consumer divide. Check back with me in November to hear their views.


And Jimmy Stewart Thought He Suffered from Vertigo

Wednesday, 5 August 2009

The Questionable Notion of the National Brand

I have to admit: I have never been a big fan of the notion of "national brands”. The reasons are both analytical and political. Even the most socially and culturally homogeneous countries are composed of many “moving parts”. As such, any attempt to encapsulate the national ethos in a few chosen descriptive words, much less to rank nations on the basis of their “brand” strength, seems to me an analytically futile task. At the political level, my concern is darker. National branding too easily slides in national stereotypes, which itself can slide in national demonization, if not worse. The last century has shown us the tragic consequences of this process, if left unchecked.

That said, in recent times we have seen increasing efforts to turn national branding into a respectable activity. One interesting effort is that of a consultancy called Future Brand, which has for several years produced a report which they call the “Country Brand Index” here. Based on interviews with 2700 travelers, supplemented by expert opinions and some statistical analysis, the most recent report for 2008 found the 10 leading national brands to be, in order--Australia, Canada, America, Italy, Switzerland, France, New Zealand, Britain, Japan and Sweden.

One might be tempted to treat these findings in a rather cavalier manner (despite the 64 power point slides in the 2008 report), especially since the focus of the rankings is the perception of tourists. But there may be a more serious aspect to the exercise. In commenting on these rankings, a blog posted under the auspices of Economist.com (called Gulliver, I believe) noted in a posting on November 10, 2008, as follows:

“… [T[he brand experts are very definite that theirs is a science that countries need to take seriously:

“ "Countries are becoming more aware of the importance of defining how they want to be perceived and the need to improve and leverage their assets. While tourism is often the most visible manifestation of a country brand, it is clear that the image, reputation and brand values of a country impact its products, population, investment opportunities and even its foreign aid and funding."”

Is that true? Are investors and funders really swayed by national branding? Surely their decisions are too rigorous to be swayed by marketing campaigns? Gulliver awaits conversion.”

Gulliver From Another Time

I thought about Gulliver’s comments as I was recently reading a piece in the July 4, 2009 issue of The Economist entitled “Courting Disaster: Russia’s Dismal Investment Climate.” The piece recounts several examples of the unfavorable business climate for foreign investors and the like in Russia. One paragraph particularly grabbed my attention:

“The clearest indictment of Russia’s investment climate came a few days ago from IKEA, a Swedish retail chain, whose local operation has grown quickly since it opened it first store near Moscow in 2000. On June 23 IKEA said it was suspending its investment in Russia because of the “unpredictable character of administrative procedures”, a euphemism for graft. A symbol of Russia’s economic rebound from the 1998 financial crisis has become an emblem of its dire investment climate.”

My point here is not to enter into the debate about whether or not Russia’s investment climate has deteriorated. Rather, it is consider briefly the notion of the “national brand” issue when juxtaposed against the power international private brand of IKEA. Maybe the reported action by IKEA (I am not certain what the article means by “suspending its investment’) is a straight-forward business decision to scale-back its activities in Russia; maybe it is a tactical ploy to pressure the Russian authorities in order to obtain more favorable conditions for the retailer.

Either way, there is a Manichean tone to The Economist’s description of the situation. IKEA is the retail white knight, whose very presence in Russia once served to validate a positive image of Russia, but whose white-knight image is now threatened by the gathering storm clouds of public perception about the nature of Russian administrative and commercial practice. The constant here is the IKEA brand, the variable is the national Russian brand. Seen in this way, the call by Gulliver for taking the notion of the national brand more seriously seems to be more siren than prescription. The notion of the national brand still has a long way to go.

IKEA--Ever the White Knight

Recent publication

The July/August issue of Intellectual Asset Management has been out for a while now, but I've only just had a chance to review it and -- with most of August still to come -- it's still technically current. Features in this issue include

* an interview with the photogenic Horacio Guttierez (Microsoft) on the shifts in IP policy which he has overseen during his three years as Chief IP Officer;

* A sponsored piece, "IA metrics for the other IP market", on risk and reputation management (not recommended for people who don't like figures and diagrams);

* A report by finance editor Nigel Page on what Intellectual Ventures is up to, given (i) its brimming war chest and (ii) improving market conditions in the innovation investment sector;

* IAM journalist Sara-Jayne Adams writes ("Time for Big Pharma to be loud and proud") on the steps taken by GSK, in particular, to defend its record in terms of all-round positives and not merely profits.
You can see the contents of this issue here.

Tuesday, 4 August 2009

Artists and brands

CD outfits are bound to become more interesting – superstar Mariah Carey is leading the way into ad-supported CD releases.

Her album release Memoirs of an Imperfect Angel scheduled for 15 September will come with a 34-page mini-magazine co-produced by Elle magazine, full of lifestyle ads from luxurious brands such as Elizabeth Arden, Angel Champagne and the Bahamas Board of Tourism.

The idea behind this? More profits of course, for everyone involved, as Billboard reports:

"The idea was really simple thinking: 'We sell millions of records, so you should advertise with us,'" said Antonio "L.A." Reid, chairman, Island Def Jam Music Group, a unit of Universal Music Group. "My artists have substantial circulation - when you sell 2 million, 5 million, 8 million, that's a lot of eyeballs. Most magazines aren't as successful as those records."

If proving successful, it won’t take long time that also lesser known artists will try out this unprecedented form of advertisement. Let’s hope they will stay in tune with their fans and pick the right brands…

"You will never get the licence agreement your technology deserves"

"You will never get the licence agreement your technology deserves. You get the licence agreement you negotiate. With this in mind, it is important for inventors, licensing professionals and intellectual property lawyers constantly to hone their negotiating skills". So begins "Strategies for Negotiating Licenses", as good and readable a piece of advertorial as you will find anywhere. The author is David Wanetick (Managing Director at IncreMental Advantage) who teaches Valuation of Early-Stage Technologies and Negotiating Licensing Agreements at The Business Development Academy.

You can read the full text here (it's over 5,500 words long but doesn't feel like it). The challenge to readers is this: can you add any key points to those the author makes? If so, please feel free to post them below. If you can't get the Comments facility to work (usually because your software has disabled all pop-ups), then email me here instead and let me know: I'll post the comment for you.

Monday, 3 August 2009

Hindsight going forward: taking the risk factor into account

Last Friday Mr Justice Arnold delivered a monumental judgment (312 paragraphs) in Lilly Icos, Pfizer Enterprises, Merck, AstraZeneca and others v 8pm Chemists and others [2009] EWHC 1905 (Ch). In earlier proceedings the various claimants, all proprietary pharma manufacturers, secured interim injunctions in trade mark infringement proceedings that were ultimately unsuccessful (you can read a note on the issue of liability here: in short, this was a scheme to supply US patients with Turkish drugs, ordered from Canada, repackaged and labelled, then freighted through the UK -- it came about as close as you can get to being an infringement without actually infringing).

Having given cross-undertakings to compensate the defendants in the event that the infringement proceedings failed, the claimants were now called upon to pay up. The defendants maintained that they suffered losses running into millions of pounds, while the claimants maintained that the defendants had suffered any loss at all and that, even if some loss had been suffered, it was irrecoverable in law.

The Court of Appeal directed an inquiry under the cross-undertakings in the orders in the Lilly action. Subsequently it was agreed that there should be inquiries in the other three actions, and that all four inquiries should be heard together. On 26 March 2009 Warren J ordered that the inquiries be heard in two parts. This judgment is only concerned with the first part (the second being due for trial in December 2009).


Paragraphs 207 to 249 of the judgment deal with the issue of quantum, which is dealt with in more detail than this preliminary posting can adequately represent. Of note is the judge's statement of principle as to the direction from which compensation should be balanced against the risk factor:
"In projecting the lost profits which the Defendants' Turkish fulfilment business would have made but for the Injunctions, it is necessary to take account of the risks to which that business was subject. These include the risk of the Defendants' customers going out of business, the risk that one or more of those customers might transfer their business elsewhere and so on. It is common ground that it is appropriate to allow for this by applying an annual percentage risk factor to the calculation of future profits, representing the risk that the business would come to an end within that year" (para 237).
But how does one do this?
"I consider that the correct approach is to assess the compensation with the benefit of hindsight. Hindsight is not available looking forward, and it is appropriate to reflect the contingencies to which the Defendants' business was subject by the application of a risk factor" (par 243).
For the period in question, the judge considered a risk factor of 10% appropriate.

Is there a fiduciary claim in relation to licences?

The following piece, by IP Finance blog team member Neil J. Wilkof, was first published in World Trademark Review.

Is there a fiduciary claim in relation to licences?

Besides the usual, already daunting rights and obligations involved in a licence agreement, a recent decision revisits the claim that a fiduciary relationship may exit between licensors and licensees

The interweaving of proprietary and contractual considerations can be daunting for anyone seeking to explain the rights and duties of the licensor and licensee to a trade mark licence. On occasion, however, attempts are made to impose additional types of legal duties on the parties. The argument being made that, in some circumstances, a fiduciary relationship is created between the parties to the licence. This claim was recently revisited in the Canadian case of Bluefoot Ventures Inc v Ticketmaster (Ontario Superior Court of Justice, 2007). There, in addition to allegations of infringement, passing off and breach of the licence agreement, the plaintiff argued that the licensee had violated its fiduciary duty to the licensor.

According to the Bluefoot Ventures court, there exists a fiduciary duty “where the other party is entitled to expect that the fiduciary will act in the other person’s interests, or in the interests of both parties (where those interests coincide), to the exclusion of the fiduciary’s own interests (where those interests are opposed), and where the fiduciary has the power to affect the other party’s interests in a legal or practical sense, giving rise to a position of vulnerability in the other party.”

On this basis, the court established the following three-part test:
• The fiduciary can exercise some discretion or power.
• The fiduciary can act in a unilateral manner, affecting the interests of the beneficiary.
• The beneficiary is vulnerable or at the mercy of the fiduciary.

In most circumstances, no fiduciary relationship will arise in a mere commercial relationship. In the case at hand, no fiduciary relationship had been created since, according to the court:
• the relationship between the parties was defined solely by the commercial terms of the licence;
• there was no special duty of loyalty or trust; and
• there was no inequitable exercise of discretion of power or authority.

Well and good – up to a point, because its seems reasonable that the court should not deviate too far from the commercial foundations of a trade mark licence. Nevertheless, the court’s decision left me with a certain unease, because it recognized that there are circumstances in which a fiduciary duty may arise in connection with the registration or use of a trade mark. Specifically, the court refers to another Canadian judgment in which an exclusive distributor registered the mark on its own behalf, apparently to enable the distributor to combat unauthorized “flow of the product” into Canada.

In that case, while the court dismissed the action as having not been timely brought, it did suggest that a fiduciary relationship might have existed between the parties. This was so because “of the duty owed by a ‘distributor or agent to its foreign principal’". The suggestion was, therefore, that in certain circumstances, a fiduciary relationship might exist.

Three points can be made. First, it is a bedrock legal principle that merely characterizing a party in a certain way does not ipso facto create a legal relationship or status. Thus, calling a distributor 'an agent' does not necessarily make it so nor does it create a fiduciary duty.

Second, there are cases in various common law jurisdictions that have held that a local distributor is entitled to register the foreign manufacturer’s mark in the distributor’s local jurisdiction, even when challenged by the manufacturer. Usually, such a result follows from a finding that the mark has come to be identified with the distributor in the local jurisdiction. If, however, a distributor/agent has a fiduciary duty, as suggested above, then it is difficult to see how the court can permit the distributor to register the mark. These two lines of decisions cannot be readily reconciled.

Third, the court did not address the special characteristics of a trademark licence and especially quality control. Focusing on common law jurisdictions, the development of quality control was to accommodate the source theory of trade marks. More recently, common law jurisdictions have taken more diverse views, culminating in the English decision in Scandecor, which points to uncoupling the quality control requirement from the source theory of trade marks.

Use of the mark by the licensee may be deemed to be use by the licensor, thereby defeating a cancellation claim for non-use. Where quality control is more strictly required – for example, in the United States – the failure to establish the requisite quality control can lead to cancellation. Whatever the scope of the quality control requirement, from the point of view of the integrity of the mark, commercially – if not necessarily for legal reasons – the licensee can be expected to exercise quality measures with respect to the goods or services under the licensed mark.

If this is true, the relationship between a trade mark licensor and licensee differs from that between the parties to a patent or copyright licence. Assuming that there are circumstances, despite my reservations, in which a distributor can be said to have a fiduciary duty to a foreign manufacturer and the distributor can be found to have breached that duty when it registers the mark, even to prevent “the illegal flow of the product”, there seems to be no less reason to recognize such a fiduciary duty by the trade mark licensee in carrying out the quality control function. This is especially so when there are consequences for the value and even validity of the mark by virtue of the quality control requirements.

Or perhaps the opposite conclusion is true. That is, based on the foregoing, all judicial attempts to impose a fiduciary duty on a distributor, agent, or licensee with respect to use or registration of a mark are ultimately artificial and bound to lead to inconsistent and unsatisfying results. Under this view, since it is already difficult to describe the legal metes and bounds of a trade mark licence and the relationship between the parties, it is surely preferable to refrain from venturing into the unchartered legal terrain of a fiduciary duty in a trade mark licence relationship.