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IP finance

"Where money issues meet IP rights". This weblog looks at financial issues for intellectual property rights: securitisation and collateral, IP valuation for acquisition and balance sheet purposes, tax and R&D breaks, film and product financ

Updated: 2018-04-21T10:44:18.337+01:00


Free webinar on "IP Valuation for Wealth Creation"


OxFirst is pleased to host a free webinar, to take place on April 24th at 3:00 pm UK time, on the topic of “IP Valuation for Wealth Generation”, and(image) why IP valuation can play a crucial role in every step necessary to generate wealth on the grounds of intellectual capital. The speaker will be the internationally noted IP expert, Dr. Guriqbal Jaiya. Dr. Jaiya will discuss various ways to value IP and will weigh the strengths and weaknesses of each method. As well, he will address how IP valuation can be leveraged in corporate finance, strategy, litigation, licensing and tax.

As readers of IP Finance are well aware, IP valuation is playing, or at least has the potential to play, a fundamental role in corporate strategy, helping maximize profits and attracting investments. The valuation of the portfolio of pending and granted patents, trademarks, trade secrets, copyrighted works and designs of a firm remains often the best guess of the firm’s value and its investment potential. As such, the valuation of IP can be crucial to realize the business potential of a company. Yet, despite this, IP valuation is still often underutilized.

About the Speaker

Dr. Jaiya is an internationally recognised expert on intellectual property and intangible asset management, with a special focus on entrepreneurship, start-ups and innovative small and medium-sized Enterprises (SMEs).

For 24 years, he served with notable distinction as a senior officer at WIPO. While at WIPO, he worked closely with a wide variety of multilateral institutions, including the WTO, UNDP, World Bank, UNESCO, UNIDO, WHO, ILO, ADB, AfDB, IADB, UNCTAD, Asian Productivity Organisation, ESCAP, UNECE, ESCWA, ECA, ECLAC, FAO, ITC, OECD, as well as over 150 national and regional IP offices. [This blogger wonders whether OXFirst will give a prize to anyone who can recite without consultation the full name for each of these acronyms.]

Dr. Jaiya has conceptualised, authored or co-authored numerous articles and book chapters on IP as well as some 15 books and 13 multimedia modules on different facets of IP management in business. He has delivered lectures, made public presentations and conducted training events on different facets of IP asset management in business for diverse audiences in regional and international events for participants from some 175 countries. [This blogger still cherishes the half-day that he spent with Dr. Jaiya at WIPO a decade ago, in which we discussed a wide variety of IP issues.]

Dr. Jaiya serves as a senior advisor to OxFirst.

For details about registration, see here. Please note that OxFirst cannot accept registration from private email accounts.


Fixing Facebook


Facebook has seen better times for sure.  The reviews on Facebook’s reaction to the recent Cambridge Analytica disaster have been far from glowing.  Can Facebook address consumer concerns with privacy, particularly when a good part of its business model is based on the commodification of user data?  If its profit center is primarily selling data, what can Facebook do to better protect privacy.  Should it obtain “more” consent?  How much “consent” is enough?  One potential fix (and practically I don’t know how this would be implemented) would be to change Facebook to a B Corp—a public benefit corporation.  Facebook could become a corporation that is not primarily driven by maximizing shareholder value, but instead also by the public interest.  Here is a description of the Delaware B Corp:

A public benefit corporation (PBC) will be formed in the same manner as any other corporation formed under the Delaware General Corporation Law. However, in order to be a PBC, the corporation’s certificate of incorporation must identify one or more specific public benefits and must have a name that clearly identifies its status as a PBC. Public benefits for which corporations may be formed include, but are not limited to, those of an artistic, charitable, cultural, economic, educational, environmental, literary, medical, religious, scientific or technical nature.

At least once every two years, a public benefit corporation must send its stockholders a statement with respect to its promotion of the public benefit(s) identified in its charter, as well as its promotion of the best interests of those materially affected by the corporation’s conduct. 

This is not a “perfect” fix, but maybe it is a move in the right direction. 

Chinese National Convicted of Conspiracy to Steal Trade Secrets in Kansas


Recently, Newsweek has published an article titled, “A Chinese Scientist Stole American Rice and will Spend a Decade in Prison,” by Max Kunter.  The article explains how Mr. Zhang worked for a biotechnology company, Ventria, around Manhattan, Kansas (the location of Kansas State University) and genetically modified seeds from that company were found in the baggage of Chinese research visitors from a Chinese crop research institute on their way back to China.  Mr. Zhang is Chinese national and a legal permanent resident. He has been convicted of conspiring to steal trade secrets.  He will serve 10 years in prison. 

Interestingly, the article notes:

FBI Director Christopher Wray has also warned about China. Asked during a Senate intelligence committee hearing in February about the counterintelligence risk from Chinese students in the U.S., Wray said, “The use of nontraditional collectors, especially in the academic setting, whether it’s professors, scientists, students we see in almost every field office that the FBI has around the country…. They’re exploiting the very open research and development environment that we have.”

Here are a couple of observations.  First, there could be an argument that this activity is not sponsored by the government in China.  Mr. Zhang may be acting illegally, but on his own accord.  He may realize that this seed is very valuable and that by passing the seed on to co-conspirators he may be entitled to a piece of a new company started in China selling the same seed in other markets.  The people starting the new company may similarly be operating without government approval or sponsorship.  However, it is interesting that he passed the seeds on to a Chinese crop research institute.  I wonder who sponsors the work of the research institute.  Mr. Zhang was also defended by public defenders, but I imagine that if this was state sponsored the government of China is likely not going to pay for his defense—that would look bad.  Second, I am curious to learn more about data substantiating Mr. Wray’s comments about “every field office . . . around the country.” 

OxFirst webinar on "IP indicators for business performance"


OxFirst has announced a webinar on the always challenging topic of “IP indicators for business performance.” The webinar will take place on April (image) 12, 2018, 15:00 British Standard Time and the speaker will be Mr. Terry Adams, former Assistant Vice President of Intellectual Asset Management at Nestle.

The topic-- Connecting intellectual property metrics and key performance indicators (KPI’s) to business relevant metrics and KPI’s is critical to gaining and holding the attention of executives within an organization. The relevant information typically exists within disparate systems, but data are rarely properly integrated to generate meaningful perspective.

The speaker--Terry Adams has vast experience across numerous product categories, including food, beverages, home care, and personal care in the fields of scientific research and product development. He began his career at Procter and Gamble, where he became a Group Leader in 1991. In 1994, Mr. Adams joined the Dial Corporation (now a company of Henkel), where he eventually was appointed Manager of International Technology Coordination, covering all of Dial’s product categories. In 1998, Mr. Adams joined the Kimberly-Clark Corporation, where he was eventually appointed the Senior Research Manager of the Global Intellectual Asset Management Team, providing strategic coordination of Kimberly-Clark's 3500 patent families and other global intellectual assets. Mr. Adams joined Nestlé in July 2006 as Assistant Vice President and head of the Technology Intellectual Property function, a matrix network across 28 technology centers in 10 countries.

For registration, see here. OxFirst notes that the number of places is limited and that only registrations undertaken from professional email addresses are accepted (no registrations from Yahoo, Gmail or similar private accounts will be accepted).

By Neil Wilkof

Photo by Robert Cutts and is licensed under the Creative Commons Attribution 2.0 Generic license. (image)

Some Worst Case Scenarios as the Trade War with China Escalates


As the trade war and tension with China escalates, I am thinking about some worst case scenarios—particularly in the academic context concerning intellectual property/valuable information.  At least one commentator has made the allegation that the Trump Administration may attempt to restrict students from China.  This will greatly hurt some universities who are deriving a substantial amount of revenue from Chinese university students—and will benefit universities in other countries without such a restrictive policy such as Canada.   It is not too much of a jump to think the Trump Administration may also attempt to restrict Chinese professors and researchers from visiting academic institutions or being hired by academic institutions.  There have been quite a few interesting allegations raised concerning Confucius Institutes at U.S. universities.  I am wondering whether the United States and other countries will attempt to restrict the travel and employment in China of their academics who are citizens of their respective countries.  For example, let’s say a top researcher who is a U.S. citizen at Stanford University is offered a position at a major university in China or another country.  Could the U.S. government attempt to restrict the academic from moving (or even giving academic presentations)?  Does that happen already?  Certainly, we do have U.S. export control laws that would restrict certain technologies from being disclosed to a national of another country even in this country.  Perhaps a distinction will be made based on whether the research is funded by the government.  What about publication?  Will the Trump Administration also attempt to restrict academics from publishing certain research--there are some rules concerning national security and publication of patents?  Ultimately, does it matter if we do not have adequate cybersecurity protections?  

The Importance of an Accurate Assessment of Patent Valuation and Potential Market


A recent article in the Saint Louis Post Dispatch by Christopher Yasiejeko describes a patent-related dispute between two academic institutions.  Two major research universities, University of Wisconsin (through its technology licensing arm, Wisconsin Alumni Research Foundation (WARF)) and University of Washington, Saint Louis (WUSTL) are engaged in litigation concerning royalty payments over a jointly invented patented invention that was licensed to Abbott Laboratories.  The inventors included a researcher from Wisconsin and one from WUSTL. 
One of the issues with university developed technology is who will cover the patent prosecution costs.  Here, WARF apparently agreed to cover the costs for a higher royalty rate.  The dispute concerns apparent representations made by WARF concerning the value of the patent—allegedly representations were made that the value was not very high by WARF.  WUSTL appears to assert that WARF made representations to others that the patent was actually quite valuable and eventually important to the pharmaceutical, Zemplar, which according to the article “generated $409 million in sales in 2011.”  This appears to be a case where fraud in the inducement in entering the contract is relevant.  However, it seems strange that WUSTL was unable to arrive at their own valuation or understand the potential market for the invention—perhaps they did not have the resources at the time invested in technology transfer.  WARF was likely well financed at that time and certainly experienced.

Recording Industry Association of America Reports Revenues are Up in 2017


The Recording Industry Association of America (RIAA) reportsthat revenues are up for a second year in a row.  The RIAA states that:

In 2017 revenues from recorded music in the United States increased 16.5% at estimated retail value to $8.7 billion, continuing the growth from the previous year. At wholesale, revenues grew 12.6% to $5.9 billion. Similar to 2016, these increases came primarily from growth in paid music subscriptions to services like Spotify, Amazon, Tidal, Apple Music, Pandora and others, which grew by more than 50%. This is the first time since 1999 that U.S. music revenues grew materially for two years in a row. At $8.7 billion, the industry has taken a decade to return to the same overall revenue level as 2008, and is still 40% below peak levels as the growth from streaming has been offset by continued declines in revenues from both physical and digital unit based sales. 

Notably, “[s]treaming music platforms accounted for almost 2/3rd of total U.S. music industry revenues in 2017, and contributed nearly all of the growth.”  Interestingly, digital download revenues slipped 25%.  Also, “[s]hipments of physical products decreased just 4% to $1.5 billion in 2017, a lower rate of decline than in recent years.”  This is good news for the industry; although we are talking about returning to 2008 revenue levels. An earlier WIPO report noted that positive revenue growth in prior years was attributable to two causes: streaming (new business models) and an expansion into new markets (mostly developing countries).  

Where is 5G communications technology IP coming from?


As I explained in IP Finance last week, following President Trump's blocking of Broadcom’s hostile bid to acquire Qualcomm, by remaining independent the cellular technology leader will be able to maintain its long-term commitment to high levels of R&D investment (at 23 percent of sales recently), most significantly including that in 5G communications standard-essential IP.Use Cases for 5G International Mobile Telecommunications5G is strategically important to the entire mobile ecosystem and to many nations for economic as well as for national security reasons.  The 5G standard will support many complementary technologies and market developments. Total estimated value is $12.3 trillion in 2035.5G is a new standard that significantly embodies cumulative technology developments from previous cellular standards including 3G UMTS and 4G LTE. Many more innovative new technologies will also be added to 5G over the next decade or so. Transformation and growth with 5GMobile communications has improved in leaps and bounds since the introduction of analog phones in the early 1980s. After cellular was only significantly used for voice calling for a couple of decades, network traffic from voice was surpassed by data communications in 2009 with demand for the latter at least doubling every 18 months ever since. This is no mean feat. It resulted from major investments in technology R&D as well as in network facilities and new devices.Exponential growth in mobile dataWith the first commercial 5G deployments from around 2019, the new standard promises to be transformative and facilitate further growth with:Enhanced mobile broadband—even more of the above, with higher speeds and increased capacity to support that and additional usersUltra-reliable and low-latency communications for applications such as self-driving carsMassive Machine Type Communication in the Internet of Things (IoT) to connect tens of billions of sensors and other devices worldwideWhile market opportunities are wide ranging and will include numerous technologies, they are most significantly underpinned by the mobile communications technologies developed and contributed to the 5G standard, including IP protected by standard-essential patents. Building on the shoulders of giants5G is substantially based upon previous cellular technologies. For example, whereas previous advances from 1G to 2G, from 2G to 3G and from 3G to 4G where largely defined by a totally new “air interface”, both 4G LTE and 5G “New Radio” are predominantly based on OFDMA wireless technology. 5G is also capitalizing on many other technologies that were already introduced in previous standards. Examples include QAM modulation, MIMO space division multiplexing and multi-carrier aggregation technologies. This short paper of mine explains in greater depth how seminal and foundational technologies are initially contributed to the standards and are then also very valuably reused in later standards. As standardization progresses, many more companies get involved in the process, including some who supplement these foundational technologies with additional contributions of varied worth.As declarations begin to be made—of patents that owners believe are essential to the 5G standard—it will soon become apparent that a clear majority of these will have already have been declared essential to previous standards including various 3G standards and 4G LTE. Technology-IP leaders in 3G and 4G will therefore also tend be the leaders in 5G. It is still very early for 5G SEP declarations because declarations are usually made several months after the setting of standards. The first standardization of 5G was not until December 2017 in 3GPP Release 15.[1]Following this initial 5G standard release, there is substantial additional and ongoing development work including trials,[...]

Trump Administration Moves Against Iranian Institute for Theft of University Information


US Department of Treasury and US Department of Justice charge Iranians and Iranian research institute with theft of intellectual property from universities throughout the world.  The press release from the US Department of Treasury names the Iranians.  Specifically, the press release states:

Today’s action designates one Iranian entity and 10 Iranian nationals pursuant to E.O. 13694, as amended, which targets malicious cyber activities, including those related to the significant misappropriation of funds or economic resources, trade secrets, personal identifiers, or financial information for private financial gain.

The Mabna Institute is an Iran-based company that engaged in the theft of personal identifiers and economic resources for private financial gain. The organization was founded in or about 2013 to assist Iranian universities and scientific and research organizations in obtaining access to non-Iranian scientific resources. The Mabna Institute also contracted with Iranian governmental and private entities to conduct hacking activities on its behalf.  

The Mabna Institute conducted massive, coordinated cyber intrusions into computer systems belonging to at least approximately 144 United States-based universities, in addition to at least 176 universities located in 21 foreign countries:  Australia, Canada, China, Denmark, Finland, Germany, Ireland, Israel, Italy, Japan, Malaysia, the Netherlands, Norway, Poland, Singapore, South Korea, Spain, Sweden, Switzerland, Turkey, and the United Kingdom.  The exfiltrated data and stolen login credentials acquired through these malicious cyber-enabled activities were used for the benefit of Iran’s Islamic Revolutionary Guard Corps (IRGC), and were also sold within Iran through at least two websites. The stolen login credentials belonging to university professors were used to directly access online university library systems.  

Today, OFAC is also designating nine Iran-based individuals who were leaders, contractors, associates, hackers for hire, and affiliates of the Mabna Institute for engaging in malicious cyber-enabled activities related to the significant misappropriation of economic resources or personal identifiers for private financial gain.

According to a Reuters article, this type of action was relatively rare under the Obama Administration. 


Better late than never to do the right thing for SEP owners


Winston Churchill once said you can always count on Americans to do the right thing — after they have tried everything else.At last, American authorities are also beginning to do the right thing for owners of standard-essential patents. Under the previous administration of President Barack Obama, America’s agencies did the wrong thing by seriously undermining standard-essential patents in various ways. For example, this existentially threatened the independence of Qualcomm, which relies substantially on its patent-licensing business to fund long-term R&D including that in upcoming 5G mobile communications. Thankfully, President Donald Trump’s administration has recognised the important need to support, not undermine, the nation’s technology innovators, and uphold their patent rights, as enshrined in the US Constitution. President Trump’s blocking of Broadcom’s attempted hostile acquisition of Qualcomm brought allegations of protectionism and some discontent among shareholders; but no such intervention would ever have been called for if Qualcomm’s licensing business model had not been so wantonly attacked at home and abroad by antitrust actions including large fines and by royalty payments being withheld by Apple. This all took significant toll on the firm’s stock price. US agencies and major companies from various nations were widely complicit in the onslaught. In the absence of all that skulduggery, Qualcomm’s stock price would never have been within Broadcom’s acquisition reach.Countermeasures requiredThe presidential intervention prompted the writing of several business newspaper leaders on matters of industrial policy, national security and merger control in the IP-rich technology sector, including 5G communications. While the order was made ostensibly for reasons of national security, protectionism is pejoratively alleged. Either way, the legitimate concern was that the prospective change of ownership and control would curtail Qualcomm’s long-term R&D investments – from high levels of 20-25 percent of sales over many years – jeopardizing its technology leadership and strong position versus China including its national champion Huawei.Even before President Trump's order, the US Treasury's Committee on Foreign Investment in the United States (CFIUS) had already expressed concerns about the transaction in a letter addressed to Broadcom and Qualcomm lawyers.The Financial Times recognizes ‘Qualcomm is no ordinary company. In an era when mobile technology is ingrained in every kind of economic activity, it develops key intellectual property underlying wireless communication. All mobile networks are built on standards developed with Qualcomm’s leadership. In a sense, Qualcomm’s technology touches all the data on all mobile devices, everywhere. Most people may not know it, but the company is as ubiquitous as the air.’However, Chinese competitors benefit from strong industrial policies, private or state ownership and government subsidies which enable them to be more patient and less risk averse about obtaining returns on R&D investments. As noted in IP Finance, with recent figures from the EPO, Huawei (China) is now the top patent applicant in Europe. Also with focus on mobile communications technologies, Qualcomm and Ericsson are in fifth and tenth positions respectively. Patent counts are only part of the story where patent quality is most important, but these numbers at least provide an indication of the desire and intent of the Chinese to surpass their western competitors in IP ownership.The Economist identifies the ascendancy of China. ‘“DESIGNED by Apple in California. Assembled in China”.For the past decade the words embossed on the back of iPhones have served as shorthand for the technological bargain bet[...]

White House Releases Memorandum on Actions against China


President Trump has released his directions to the United States Trade Representative concerning China.  In the Presidential Memorandum on the Actions by the United States related to the 301 Investigation, the President states: First, China uses foreign ownership restrictions, including joint venture requirements, equity limitations, and other investment restrictions, to require or pressure technology transfer from U.S. companies to Chinese entities.  China also uses administrative review and licensing procedures to require or pressure technology transfer, which, inter alia, undermines the value of U.S. investments and technology and weakens the global competitiveness of U.S. firms.Second, China imposes substantial restrictions on, and intervenes in, U.S. firms’ investments and activities, including through restrictions on technology licensing terms.  These restrictions deprive U.S. technology owners of the ability to bargain and set market-based terms for technology transfer.  As a result, U.S. companies seeking to license technologies must do so on terms that unfairly favor Chinese recipients.Third, China directs and facilitates the systematic investment in, and acquisition of, U.S. companies and assets by Chinese companies to obtain cutting-edge technologies and intellectual property and to generate large-scale technology transfer in industries deemed important by Chinese government industrial plans.Fourth, China conducts and supports unauthorized intrusions into, and theft from, the computer networks of U.S. companies.  These actions provide the Chinese government with unauthorized access to intellectual property, trade secrets, or confidential business information, including technical data, negotiating positions, and sensitive and proprietary internal business communications, and they also support China’s strategic development goals, including its science and technology advancement, military modernization, and economic development.It is hereby directed as follows:Section 1.  Tariffs.  (a)  The Trade Representative should take all appropriate action under section 301 of the Act (19 U.S.C. 2411) to address the acts, policies, and practices of China that are unreasonable or discriminatory and that burden or restrict U.S. commerce.  The Trade Representative shall consider whether such action should include increased tariffs on goods from China.(b)  To advance the purposes of subsection (a) of this section, the Trade Representative shall publish a proposed list of products and any intended tariff increases within 15 days of the date of this memorandum.  After a period of notice and comment in accordance with section 304(b) of the Act (19 U.S.C. 2414(b)), and after consultation with appropriate agencies and committees, the Trade Representative shall, as appropriate and consistent with law, publish a final list of products and tariff increases, if any, and implement any such tariffs.Sec. 2.  WTO Dispute Settlement.  (a)  The Trade Representative shall, as appropriate and consistent with law, pursue dispute settlement in the World Trade Organization (WTO) to address China’s discriminatory licensing practices.  Where appropriate and consistent with law, the Trade Representative should pursue this action in cooperation with other WTO members to address China’s unfair trade practices.(b)  Within 60 days of the date of this memorandum, the Trade Representative shall report to me his progress under subsection (a) of this section.Sec. 3.  Investment Restrictions.  (a)  The Secretary of the Treasury (Secretary), in consultation with other senior executive branch officials the Secretary deems appropriate, shall propose executive branch action, as app[...]

The Coming Trade War with China: More Posturing by the Trump Administration


According to Fox News, the Trump Administration will soon take and propose action against intellectual property theft by China.  Notably, the Fox News article focuses on the entertainment industry and movies.  White House Director of Trade and Manufacturing, Peter Navarro, is quoted as stating: “We are going to move forward with some recommendations for the president. And I tell you what, there’s nobody who is going to oppose that in this country.”

In the article, Horizon Investments Chief Global Strategist Greg Valliere states “he expects the Trump administration to “hit them hard” with anti-China tariffs on imports that include Chinese investments and visas for students who want to study in the U.S.”  The article notes that the EU is “on board.” 


EPO Releases Annual Report on 2017 Patent Activity: Interesting Stats


The EPO has released its annual report for 2017 patenting activity.  Notably, patenting and patent filings are trending up at 3.9% and 4.4% respectively.  In the electrical engineering field, patenting is up in the audio visual space by 10.6% and semiconductors by 13.5%.  In instruments, patenting is up in optics by 15.6% and analysis of biological materials by 12.5%.  In chemistry, biotechnology is up 14.5%, but micro-structural and nanotechnology is down by 12.6%.  Interestingly, US nationals as first inventor lead patent applications in the EPO with a 26% share.  The EU member state inventors as a whole have more nationals as first inventor (47% total).  However, Germany, the leader in the EU, has a 15% share.  Japan has 13%, and China has 5%.  The top three technical fields in patent applications are 1) medical technology; 2) digital communication; and 3) computer technology.  The top ten applicant companies are: 1) Huawei (China); 2) Siemens (EU); 3) LG (Korea); 4) Samsung (Korea); 5) Qualcomm (US); 6) Royal Phillips (EU); 7) United Technologies (US); 8) Intel (US); 9) Robert Bosch (EU); and 10) Ericsson (EU).  Sixty-nine percent of the total applicants are large entities.  Twenty-four percent are SMEs/individual inventors.  Seven percent were universities/public research.  Interestingly, SMEs/individual inventors share is down from 28% in 2016.  Universities/public research is up 1 percentage point from 2016. 

Professor Margaret Kyle on Whether Pharmaceutical Innovations are Rewarded


Our friends at Oxfirst are hosting another interesting webinar on March 14, 2018 at 15.00 BST and 16.00 CET.  The webinar is titled, “Are Important Innovations Rewarded?  Evidence from Pharmaceutical Markets.”  The presenter is Professor Margaret Kyle.  Here is a description of the presentation: This research focuses on the relationship between therapeutic value and different measures of market rewards (the number of patents, price, market share, and total revenues) of a new treatment. Using an assessment of therapeutic value provided by the French Haute Authorité de Santé (HAS), I find a weak relationship between most measures of rewards and this assessment of therapeutic value, suggesting that the returns to developing a “me-too” product are not very different from developing treatments with greater therapeutic effects. One interpretation is that the HAS score is a poor assessment of therapeutic value, in which case the use of similar health technology assessments by governments and other payers should be re-examined. Alternatively, if the HAS score is informative, the results suggest countries are spending too much on less innovative products, and that a re-balancing of innovation incentives may be worth considering if therapeutic value is highly related to social welfare.Here is Professor Kyle’s biography: Prof. Margaret Kyle (MINES ParisTech and CEPR) currently holds the Chair in Intellectual Property and Markets for Technology at MINES ParisTech. Her research concerns innovation, productivity and competition. She has a number of papers examining R&D productivity in the pharmaceutical industry, specifically the role of geographic and academic spillovers; the firm-specific and policy determinants of the diffusion of new products; generic competition; and the use of markets for technology. Recent work examines the effect of trade and IP policies on the level, location and direction of R&D investment and competition. She also works on issues of innovation and access to therapies in developing countries. Her papers have been published in various journals of economics, strategy, and health policy, including the RAND Journal of Economics, Journal of Public Economics, Review of Economics and Statistics, Journal of Public Economics, Journal of Law and Economics, Antitrust Law Journal, Management Science, and Health Affairs. Margaret holds a PhD in economics from the Massachusetts Institute of Technology and is an associate editor of the International Journal of Industrial Organization. She previously held positions at Carnegie Mellon University, Duke University, London Business School, and the Toulouse School of Economics, and is a visiting professor at the Kellogg School of Management, Northwestern University. She has also been a visiting scholar at the Center for the Study of Innovation and Productivity at the Federal Reserve Bank of San Francisco and at the University of Hong Kong. Registration is available, here.  Space is limited and you must register with a professional email address. [...]

U.S. Antitrust Division Chief Makan Delrahim: Making Patents Great Again?


Makan Delrahim, the leader of the Antitrust Division of the U.S. Department of Justice of the Trump Administration, has made several interesting comments concerning patents and the antitrust interface.  In a recent post on the Patently Obvious Blog, Professor Dennis Crouch discusses some debate concerning Mr. Delrahim’s positions as to when patent holders may create antitrust issues: “[Delrahim] explained that the DOJ’s historic approach has been a “one-sided focus on the hold-up issue” in ways that create a “serious threat to the innovative process.””  Professor Crouch includes links to documents concerning Delrahim’s positions as well as some responses.  A few days ago, Mr. Delrahim spoke to the College of Europe in Brussels.  His speech is titled: “Good Times, Bad Times, Trust Will Take Us Far: Competition Enforcement and the Relationship Between Washington and Brussels.”  Most of the speech concerns the successes of cooperation between the DG Competition and the US DOJ Antitrust Division.  However, he does note some divergence in approach concerning intellectual property: In the intellectual property area, we each have licensing guidelines; DG Competition’s guidelines were revised in 2014; ours just last year.  Both sets of guidelines highlight the benefits of robust IP protection, the importance of innovation incentives, and the risk that certain hardcore conduct poses to competition.Intellectual property rights and innovation are topics I have cared about for a long time.  Intellectual property rights are enshrined in the U.S. Constitution, and I believe that strong protection of these rights drives innovation incentives, which in turn drive a successful economy.A deep-seated concern for protecting incentives to innovate underlies many of the changes in U.S. antitrust law over the past several decades, and it is no coincidence that we have enjoyed a period of staggering innovation over that time.  But in an ever-evolving marketplace, success is not a static outcome.  We must continue to think critically about how best to calibrate our enforcement decisions to promote competition and innovation.As you may know from what I have said publicly, a particular concern of mine is how we use antitrust enforcement in the context of standard setting.  In particular, I worry that we have strayed too far in the direction of accommodating the concerns of technology licensees who participate in standard setting bodies, very likely at the risk of undermining incentives for the creation of new and innovative technologies.  We continue to better our understanding of this important field.The dueling interests of innovators and implementers always are in tension, but the tension is best resolved through free market competition and bargaining.  And that bargaining process works best when standard setting bodies respect the intellectual property rights of technology innovators, including the very important right to exclude.  To the extent a patent holder violates its commitments to a standard setting organization, remedies under contract law, rather than antitrust remedies, are more appropriate to address licensees’ concerns.I am aware that there may be some distance between my position and that of some of my European counterparts.  If that is the case, however, we can look to our long history of effective and productive collaboration for guidance about how to proceed.  I will make every effort to work with our counterparts at DG Competition to narrow any gap between Brussels and Washington in this area.  We must maintain our close dialogue on the cu[...]

Trump White House Releases Biopharmaceutical Pricing Reform White Paper


The White House Council of Economic Advisers recently released a report titled, “Reforming Biopharmaceutical Pricing at Home and Abroad.” [Report]  The Report points to basically two problems: 1) overpricing in the United States; and 2) underpaying outside the United States.  The Report states: U.S. patients and taxpayers alike have mainly financed the returns on R&D investments to innovators. Unlike other developed countries with single payer systems, which nearly all impose some sort of price controls on pharmaceuticals, the U.S. drug market is less financed by the public sector and more open to private market forces. In a free market, prices of products reflect their value as opposed to prices in government-controlled markets, which reflect political tradeoffs. CEA estimates that because of the American market system, more than 70 percent of OECD patented pharmaceutical profits come from sales to U.S. patients even though the United States only represents 34 percent of OECD GDP at Purchasing Power Parity (OECD 2016). Thus, innovators across the world rely heavily on Americans paying market prices to underwrite the returns on investments into products that improve their health because governments abroad use their monopsony power to set prices below market-levels. The United States both conducts and finances much of the biopharmaceutical innovation that the world depends on, allowing foreign governments to enjoy bargain prices for such innovations. This indicates that our current policies are neither wise nor just.  Simply put, other nations are free-riding, or taking unfair advantage of the United States’ progress in this area. In addition, prices paid by Americans for many drugs are too high, particularly so when paid for in government programs. This is the result of poorly designed reimbursement policies and regulations that inhibit price competition, and it is therefore a poor use of taxpayer money.  The Report further notes that, “The U.S. market makes up 46 percent of OECD sales of brand name innovative drugs, funds about 44 percent of world medical R&D, invests 75 percent of global medical venture capital, and holds the intellectual property rights for most new medicines (BMI 2017; Moses et al. 2015; TEC 2017). Furthermore, publicly funded medical research in the United States has produced two-thirds of the top-cited medical articles in 2009, underlying the university research that often leads to medical breakthroughs (Moses et al. 2015).”The Report points to issues regarding Medicaid, including opportunity for pharmaceutical companies to game and artificially raise prices.  The Report further provides suggestions concerning Medicare as well as the Pharmacy Benefit Manager Market.  Notably, the Report fails to address biosimilars in very much detail, but notes that there may be two more years before final regulations concerning interchangeability are issued.  This delay is raised as a potential reason why interchangeability approval may be slow.This Report could drive the Trump Administration's approach to dealing with the high cost of health care.  [...]

Federal Circuit Pushes Back on U.S. Supreme Court’s Alice Decision on Procedure


In a pair of interesting software-related cases, the U.S. Court of Appeals for the Federal Circuit appears to push back on one of the supposed goals of the U.S. Supreme Court’s Alice v. CLS Bank International decision.  In Alice, the U.S. Supreme Court clarified and restated the Mayo Collaborative Services v. Prometheus decision’s test concerning patent eligible subject matter.  In doing so, the Supreme Court started a new era of U.S. patent law which made patent eligible subject matter a very important inquiry with respect to the patentability of inventions, particulary those in the software space—although Alice’s impact is felt in other technological areas.  Since Alice issued, the U.S. Court of Appeals for the Federal Circuit has clarified the Alice test and notably provided guidance to patent lawyers on how to “avoid” or “comply” with Alice.  Importantly, one of the purported benefits of Alice was to allow for the early dismissal of claims based on patent eligible subject matter.  An alleged infringer could conceivably quickly raise patent eligible subject matter and get a claim dismissed on either a 12(b)(6) motion for failure to state a claim or a motion for summary judgment.  In additional push-back to Alice, the Federal Circuit in Berkheimer v. HP (February 8, 2018) has recently held that even after claim construction a motion for summary judgment on patent eligible subject matter may be improper because of genuine issues of material fact.  While this is standard law concerning motions for summary judgment, the case provides a blueprint for how genuine issues of material fact can be created with patent eligible subject matter.  Because of this possibility of creating that genuine issue of material fact, patentees will have additional settlement leverage to realistically threaten a case through trial—a costly endeavor.  What will the effect of this case be on Alice’s attempt to curb so-called patent troll litigation?  In another recent case, the Federal Circuit in Aatrix Software v. Green Shades Software (February 14, 2018) remanded a case because the district court did not allow the patentee to amend its complaint to survive a 12(b)(6) motion on claim construction.  While the Federal Circuit was careful to note that a complaint can be dismissed on a 12(b)(6) motion to dismiss, this case cautions district court judges to carefully consider motions to amend complaints.  It will be interesting to see if the Federal Circuit’s decisions about the procedural challenge of patents based on patent eligible subject matter in the courts will have an impact on the analysis in the pending Oil States case before the U.S. Supreme Court.  [...]

Exposing Children to Innovation More Likely to Lead to Innovation than Financial Incentives?


In a fascinating article titled, Who Becomes an Inventor in America? The Importance of Exposure toInnovation, economists Alexander M. Bell, Raj Chetty, Xavier Jaravel, Neviana Petkova, and John Van Reenen, argue that exposing children to innovation may be more likely to lead to innovation than financial incentives such as reducing tax rates.  The authors provocatively ask whether we are “losing Einsteins.”  Dywer Gunn’s explanation of the article appears in The NBER’s Digest and states: Children who grow up in particularly innovative geographic areas, or who are exposed to inventors via family connections, are more likely to become inventors. American inventors are disproportionately likely to be white men who grew up in financially successful families. In Who Becomes an Inventor in America? The Importance of Exposure to Innovation (NBER Working Paper No. 24062), Alexander M. Bell, Raj Chetty, Xavier Jaravel, Neviana Petkova, and John Van Reenen find that children from families in the top 1 percent of the income distribution are 10 times more likely to become inventors than those from families in the bottom 50 percent, and that over 80 percent of 40-year-old inventors are male. The study examines three possible explanations for the demographic disparities: differences in genetic ability, differences in career preferences, and differences in the financial or human capital constraints faced by different demographic groups. The researchers find that neither innate ability nor financial constraints fully explains the disparities. Using data from the New York City public schools, they find that while third grade math test scores are predictive of the probability of securing a patent as a young adult, test score differences explain "less than one-third of the gap in innovation between children from high- vs. low-income families." Among students who score well on third grade math tests, students from low-income families are significantly less likely to become inventors than their wealthier peers. While the explanatory power of test scores grows over time, the researchers estimate that only 5.7 percent of the demographic gap in who becomes an inventor can be explained by differences in ability at birth. And they find financial constraints faced during childhood likewise do not explain the gap, as students from low- and high-income families who attend colleges with large numbers of inventors become inventors at similar rates.Instead, the researchers point to a powerful causal exposure effect. Using nationwide data on where an individual grew up and patent awards in early adulthood, they find that children who grow up in particularly innovative geographic areas, or who are exposed to inventors via family connections, are more likely to become inventors. This finding applies even among technology categories. Among people living in Boston, those who grew up in Silicon Valley are especially likely to patent in computers, while those who grew up in Minneapolis — which has many medical device manufacturers — are especially likely to patent in medical devices. Moreover, children whose parents hold patents in a particular subclass, such as amplifiers, are more likely to obtain a patent in that same subclass than in another. There is also a strong gender-specific exposure effect: women are more likely to patent in a technology class if they were exposed as children to female inventors who held patents in that same type of technology. The researchers estimate that if young girls were exposed to female inventors at the same rate as young boys are currently expose[...]

US Copyright Royalty Board Significantly Raises Rates on Streaming: Is it Enough?


The Copyright Royalty Board in the United States has issued an initial determination and accompanying regulations that raise the amount of royalty available to songwriters for streaming, which will impact services such as Pandora, Spotify, Apple and YouTube.  Variety has an excellent article on the impact of the decision, which seems substantial—almost boosting royalties by 50%.  Paula Parisi of Variety explains:

The ruling effects only the mechanical license, a term that literally references the rolls mechanically cranked through player pianos – arguably the first mass distribution media for recorded music. Albums, CDs and downloads also fall under the mechanical license (the thought being that like piano rolls, these are “physical copies,” although the idea that a digital stream is concrete by virtue of being stored at various points (on a server, in a buffer) is somewhat specious; analog broadcast signals also collect at various points, and digital radio and TV in practical terms is distributed in the manner of a stream.

But broadcasts – digital or analog – are considered a public performance, and garner what is currently a higher  “performance license” rate. Songwriter Rodney Jerkins illustrated the discrepancy in September at the Recording Academy’s District Advocacy Day in Los Angeles by sharing an accounting statement for “As Long As You Love Me,” a top 10 hit for Justin Bieber in 2012. By 2013, Jerkins’ stake in the song generated $146,000 in performance royalties, while streaming revenue from the same period garnered $278 for 38 million Pandora plays and $218 for 34 million YouTube streams. “If I owned 100 of the song I would have made $1,100 from YouTube,” Jerkins said, proclaiming, “Those numbers are criminal.”

The article explains how arguments for the lower rate were justified because of the need to allow the industry to grow.  Of course, once the industry grows there are public choice issues associated with an industry’s attempt to maintain benefits or lack of regulation to allow the industry to flourish.  Even at a 50% increase, the songwriter will still only receive around $560 for 38 million Pandora plays under Jerkins' example.  It looks like we’re still trying to give the streaming business more time to mature. 

IP management and IP strategy in small and medium-sized enterprises – perspectives from the EPO


OxFirst will be presenting a free webinar on one of the most challenging IP issues-- how small and medium-sized enterprises (SME’s) can effectively engage in IP management and strategy. The webinar will take place on January 26th between 3:00 PM- 4:00 PM British Standard Time.

The focus of the program will be on the results of a series of case studies carried out on the subject by the EPO. Twelve SMEs from different countries, operating in different industries and technology sectors and applying different business models, were interviewed about their IP strategies. The resulting case studies illustrate the various ways in which patents can be leveraged to support the development of SMEs in domestic and foreign markets. They also provide detailed information and recommendations on best practices in IP strategy and IP management. The case studies can be downloaded here.

About the Speakers

Professor Yann Ménière joined the European Patent Office as Chief Economist in February 2016. He was previously a Professor of Economics at MINES ParisTech, where he led the Chair on "IP and Markets for Technology". Besides his academic publications, he has prepared policy studies for the European Commission and other public organizations relating to patents. He previously taught at Imperial College, Université Catholique de Louvain and CEIPI.

Pia Björk is Programme Manager at the European Patent Academy. She joined the European Patent Office (EPO) in 1989 as an examiner in the fields of metallurgy and general mechanics. Between 2007 and 2017, she was operational director in the cluster of Pure and Applied Organic Chemistry in directorates dealing with cosmetics and then later pharma (galenics, medical use and biopharmacy). Pia Björk has passed the European Qualifying Examination (EQE), worked in the EQE Committee for the opposition paper and has been involved in basic and advanced training of examiners in search and examination. In January 2018, she joined the European Patent Academy.

To register, follow the instructions here. Oxfirst advises that private email addresses are not recognized. (image)

KODAK BACK: Plugging Leaks in the Marketplace for Digital Photos


Kodak recently announced the release of KODAKOne and KODAKCoin.  KOKDAKOne is essentially a licensing and tracking platform for digital photographs.  Kodak states:  

Utilizing blockchain technology, the KODAKOne platform provides continual web crawling to monitor and protect the IP of the images registered in the KODAKOne system. Where unlicensed usage of images is detected, the KODAKOne platform can efficiently manage the post-licensing process to reward photographers.

Kodak also states that “KODAKCoin allows participating photographers to take part in a new economy for photography, receive payment for licensing their work immediately upon sale, and sell their work confidently on a secure blockchain platform.”  We may be moving closer to a system of “pay first use later” instead of a “use first pay later” system with changes in technology and regulation.  Additionally, the prospect of less “leakage” in the system of intellectual property that may actually benefit innovation and other values such as free speech may be at risk.  It will be interesting to see if less leakage and perhaps more payment to some creators will lead to more creativity and innovation.  That's the goal, right?  Kodak’s stock tripled on the announcement of the programs. 

Upcoming Neil Wilkof Presentations in London


The members of the IP Finance blog team from time to time venture out to the speaking arena to share their thoughts. A little bird has told me that fellow IP Finance blogger, Neil Wilkof, will soon be making an (increasingly) rare visit to London, where he will be giving two public lectures. For those readers who are in the London area, the subjects to be discussed might be of interest.

The first presentation, "Changing Commercial Circumstances, IP and the Revenge of the Common Law", will take place on January 23rd  at 18:00 at King's College (details here).

The second presentation,  "Branding and Co-Branding: How Much Do They Really Contribute to Innovation,"  will take place on January 25th at 16:30 at UCL (details here).

Whitney Houston's Tax Settlement on IP and Royalties


Accounting Today reports that Whitney Houston has settled with the tax authority in the United States, the Internal Revenue Service (IRS), concerning mostly the value of her intellectual property, particularly the right of publicity, and royalties.  The IRS's valuation was around $22 million.  The parties settled for $2 million.  Michael Jackson's estate has been embroiled in a similar problem with the IRS, here. For more on valuation of the right of publicity for estate tax purposes, see Sara Zherhi's article on the subject in Harvard's Journal of Sports and Entertainment Law (be sure to check the new tax law in the United States).  (image)

The parlous state of national champions: the sagging fortunes of Teva


One of the darker aspects of hi-tech is the fate of national champions in smaller countries. When we say "fate", we typically mean the rise and fall of such companies in the face of global competitors from the U.S. Nokia in Finland and Nortel in Canada come to mind, both world class competitors, at least for a while, and in Nokia's case, the world leader in an earlier generation of cell phones. To this list the name of the Israeli company Teva Pharmaceutical Industries should be added; in some ways, Teva's story may be the most emotional of all. For readers who might not be familiar with Teva, the company became the world's largest producer of generic drugs and the undisputed national hi tech champion of Israel. Unlike so many of the vaunted Israeli start-ups that have gone from creation to exit in less than a decade, leaving their founders with millions, if not hundreds of millions of dollars, but adding little to the overall macro-employment situation in Israel, Teva maintained (either organically or by acquisition) multiple plants in Israel, as well as keeping the company an Israeli entity with its headquarters in a suburb of Tel-Aviv. Yet, on December 14th, the company (with a new CEO, Kåre Schultz, formerly of Novo Nordisk) announced that it would eliminate a quarter of its employees world-wide, including 1,700 in Israel.This number may not seem like the cause for national economic mourning, but in the Israeli context, there is no other way to describe the impact of the cut-backs on the national psyche. The New York Times (" 'Nobody Thought It Would Come to This': Drug Maker Teva Faces a Crisis", December 17, 2017) described Teva as the "corporate version of a national celebrity", the one genuine instance of a home-grown company that became a world leader in its field. Indeed, there are few pension funds in the country that do not hold Teva stock, such that it became, again, in the words of The New York Times, "the people's stock". It is the company’s long-time roots in the country that strike a particular chord, dating back to the early 20th century, when the predecessor to what is now Teva began to distribute--via camels and donkeys-- drugs and like products in what was then Turkish Palestine. This blogger recalls being told the story of those early days by a third-generation descendant of founders, a source of continuing family pride, but a story also recounted fondly by broader swathes of the Israeli population. But behind this romanticism is a medium-sized pharmaceutical company, by international standards, which had everything go right for it— for a while. In the 1960's, certain national legislation enabled the company to enter the market for generic drugs and hone the management and execution skills needed to successfully compete in this market. At that time, the company was blessed with a larger-than-life chief executive, Eli Hurvitz, who drove the company's international expansion in the area of generics while continuing to keep the company Israeli-focused to the extent possible throughout his tenure at the company (he retired as CEO in 2002). This included establishing plants in the country's periphery, long a backwater in the country's economy. Further, the company enjoyed oversized success as a patent licensee (from the Weizmann Institute of Science in Israel) of the branded drug—COPAXONE, used to treat multiple sclerosis, the sales of which came to constitute nearly 40% of t[...]

Improving the Digital Marketplace for Copyrighted Works


The Department of Commerce Internet Policy Task Force is holding sessions on improving the digital marketplace for copyrighted works at the United States Patent and Trademark Office.  The sessions are open to all and available via webcast.  The next meeting is January 25, 2018.  Here is a description of the meetings and future agenda:

Topics likely to be covered include: (1) initiatives to advance the digital content marketplace, with a focus on standards, interoperability, and digital registries and database initiatives to track ownership and usage rights and facilitate licensing; (2) innovative technologies (e.g. blockchain, artificial intelligence) designed to improve the ways consumers access and use photos, film, music, text, and other types of digital content; (3) international initiatives, including the role of government in facilitating such initiatives and technological development. Members of the public will have opportunities to participate at the meeting.

In the previous public meetings, the Task Force heard from stakeholders that the government can play a useful role by facilitating dialogues between and among industry sectors. Based on this feedback, the Task Force has organized this meeting to build on the work of the December 2016 meeting and facilitate constructive, cross-industry dialogue among stakeholders about ways to promote a more robust and collaborative online marketplace for copyrighted works.

I think wide participation from stakeholders from around the world is welcome.  The distribution of content on the Internet is changing soon.  
Happy Holidays!