Monday, September 26, 2011

Although the seminar which takes place on the afternoon of Thursday 3 November, 5.00pm to 6.30pm, is officially an IPKat event, its subject matter is one which may appeal to many readers of this weblog too. The speaker is Dr Galit Gonen (head of European patent litigation at Teva Pharmaceuticals) and the title of her paper is "Linkages between legal and marketing theories regarding secondary patents for pharmaceuticals". The venue is the London office of Olswang LLP, 90 High Holborn, where incidentally the IP Finance weblog held its first meeting in January 2008.

A panel of experts will comment briefly on the paper (which is based on Galit’s PhD thesis) before it’s thrown open to the floor for general discussion. Mr Justice Arnold (Patents Court, England and Wales), Professor Jo Gibson (Intellectual Property Institute and Queen Mary Intellectual Property Research Institute) and Chris Stothers (IBIL and Arnold & Porter) will be there and it is hoped that the Intellectual Property Institute's Economics Unit will also be represented.

Refreshments will be provided and registration is free. If you'd like to attend, please email Jeremy at the IPKat here and tell him. He will acknowledge your email when he can.
Category: articles

Saturday, September 24, 2011

The challenge of creating durable brands, especially those with traction outside of one's home territory, is not unique to Chinese companies. But the sheer size and potential international reach of Chinese companies makes their branding potential a matter of particular interest. It is against this backdrop that I found some intriguing insights in an article that recently appeared in the September 3rd issue of The Economist ("Privatisation in China: Capitalism Confined") here. The focus of the article, based on a study by Professors Jie Gan, Yan Guo and Chenggang Xu, is a typology of privatisation of Chinese companies. The first category contains massive infrastructure and utlility providers (such as banks, transport, energy and telecoms). In effect, these companies still remain largely within the purview of government ministries. Branding appears to be a minor or non-existent consideration.

Of more interest are two other categories: (i) joint ventures, comprised of a private (usually a foreign entity) together with a firm backed by the Chinese government; and (ii) companies that are largely in private ownership, but over which the government still exercises various forms of influence. At the risk of generalization, it appears that the second category of company is more attuned to branding matters than the first category. Even with that distinction, certain types of industries appear more likely to be concerned with branding issues than others, for instance, the automobile industry. Let's expand those thoughts.

Joint ventures--As has been often described (and sometimes decried), in the joint venture arrangement, the private, usually Western partner, seeks to gain access to the Chinese market in exchange for sharing its know-how with its Chinese partner. Criticism of this arrangement has centred on the charge that either by premeditated design or by later developments, the foreign partner is pushed aside or even squeezed out.

With respect to branding, most attention has been drawn to the car industry. As attributed to Michael Dunn, a car-industry consultant, the Chinese government has pushed the foreign company "to form "indigenous brand' joint ventures with intellectual-property and export rights." However, the article goes on to observe that "the efforts of the Chinese joint-venture partners to develop their own brands have yet to produce much success, despite their access to Western technology, vast resources and political pull."

The reason seems to be that, although the Chinese partner is interested in the economic well-being of the company, there is an absence of the long-term commitment that is required to build a brand. In particular, the Chinese representative is more likely to be tied to the government (indeed, that may well be the reason that he was chosen) and therefore it is also likely that he will return to a politically-related position. Under such circumstances, the chances that a joint-venture arrangement will successfully develop a strong brand appear weak.

Largely Private Company--Here the Chinese government appears to have less, or no direct involvement (indirect involvement and financial incentives are a different matter, but perhaps not so different than the situation with Western car companies as well). Again, focusing on the automobile industry, it is here that Chinese car companies have been most successful in brand development, pointing to the BYD, Chery and Geely brands. Further afield, the same situation is said to apply to ZTE and Huawei in the telecoms industry, Lenovo, the PC maker, and TCL, an electronics manufacturer. The common denominator for this has been ascribed to the different type of Chinese management in such companies--"[t]he bosses are not political appointees but charismatic businessmen in pursuit of commercial goals."

There is a potential darker side to these developments. The article goes on to decribe other types of "largely private" companies, most of which are in industries that are characterized as "strategic", such as energy, medical equipment and drugs. Here, industrial policy is more blatant, with protection against foreign challengers, liberal R&D support, and subsidized government purchasers. The jury is still out about whether such companies will able to develop their brands overseas successfully, once they venture out of their supportive local environment.

In this context, it would be instructive to learn whether any research has compared the trajectory of these companies with the success of both Japanese and Korean companies to create world-famous companies with powerful brands spanning the globe. More generally, it will be interesting to track the success of Chinese brands as a function of the degree that such companies are more, or less, privatised.
Category: articles
NY Times OfficeThere's a little article over on the New York times about potential buyers renewing their interest in Yahoo. The company's investments in the Chinese e-commerce group Alibaba as well as its 35% stake in Yahoo Japan are often seen as potentially valuable assets. Indeed an investment group has already begun a USD 1.6 billion tender offer for shares in Alibaba (see here) which would value the company at USD 32 billion and Yahoo's stake at around USD 13 billion.Alibaba Logo Nobody has yet focussed on the IP rights in Yahoo. ThomsonInnovation are today recording 3051 individual patent families and currently 657 granted US patents - as well as a huge number of patent applications currently in process. The range of patent rights is fairly wide and a brief review shows that it covers many aspects of Internet technology. This author has not yet reviewed the portfolio in any detail, but given the volume of the portfolio, it would be surprising if there was not at least some golden nuggets in the bag.Yahoo logo The recent Google/Motorola Mobility and Nortel deals showed the value of patents in the telecommunications sector. Much of their value has been due to the development of standards using patent technology. This has been encouraged by the telecommunications standards bodies who accept that stakeholders in the standards development process want to receive rewards based on licensing of their patents. On the other hand the Internet community has been much more reluctant to adopt standards on patent technology requiring payment of licenses. There's still nothing to stop a company from patenting its technology, but the W3 consortium wants to see royalty-free licenses as its patent policy clearly states. This means that patents may have a lower value than otherwise (as there is no mechanism to obtain royalties).W3C Consortium Logo
Category: articles

Tuesday, September 20, 2011

In this, the seventhin his series of posts for IP Finance, Keith Mallinson (WiseHarbor) reviews the recent history of software patent protection and the challenges made against it, concluding that the patent system is here to encourage investment in innovation by helping enable inventors to make a return on their risky investments and arguing that there is no evidence that patent systems are stifling innovation where inventions are implemented in software.

You can follow Keith on Twitter @WiseHarbor.
Software Patents – a Convenient Misnomer for those who Seek to Expropriate IP 
It makes no sense to disqualify innovative technologies from patentability or limit the rights and remedies associated with those patents on the basis they can be implemented in software on general purpose processors rather than only on dedicated hardware. The “software patent” debate is largely a battle of ideology and business models between those who develop patented technologies that can be implemented in software and implementers who would rather not pay for the privilege of using others’ IP. I focus exclusively on technologies in this article because a large and rising proportion of manufactured products are increasingly software defined. Patentability for “business methods”, such as financial trading algorithms, while also contentious, is an entirely different matter. 
Generosity at others’ expense 
Google has made itself popular from the promise of free software with its Android smartphone operating system (OS) and WebM project with VP8 coder-decoder (codec) for video and Vorbis codec for audio. This promise is as in free beer (i.e., something for no payment) rather than merely free speech (i.e., being allowed to say what you like). The proposition obviously seems very appealing to many implementers, including software developers and device manufacturers, who like the idea of getting something for nothing. 
However, this proposition is tricky because many software programs infringe the unencumbered rights of IP owners who justifiably do not wish to give away the fruits of their labour for nothing. In Free and Open Source Software (FOSS) the “free” refers to the freedom to copy and re-use the software, rather than to the price of the software. A fundamental requirement with Open-Source Software (OSS) is that “licenses shall not require a royalty or other fee”. 
Whereas these licences generally require licensees to contribute their patented and copyrightable works royalty free, that is far from sufficient to ensure (F)OSS implementations will actually be completely free of charge to licensees. FOSS licenses are private contractual orderings that have no impact on the obligations of those IP holders outside any given contract’s reach.  Many IP owners decide not to sign away their rights in (F)OSS licenses and others may be oblivious for a long time that specific (F)OSS software programs are infringing their rights. Despite efforts to prevent (F)OSS programs infringing un-liberated IP (that is, IP held by third parties outside the reach of the FOSS license), it is impossible to ensure this will not occur – particularly with respect to patents. 
 (F)OSS licensees may be found by courts of law or agencies such as the U.S. International Trade Commission (ITC) to be wilfully or otherwise infringing IP, with resulting legal costs, financial damages awards and even injunctions or exclusion orders preventing them from selling their products. Some of these licensees might not have expected this due to misleading statements from (F)OSS proponents and given that patent infringement was typically not a problem with packaged software, sold under license from the likes of Microsoft, that has prevailed for decades on PCs and elsewhere. Indemnities – derived from cross-licensing among various IP owners and commonly provided to licensees of proprietary software – are rarely available or as extensive with (F)OSS.  In fact, attempts by either IP owners or FOSS distributors to enter into license agreements with third party IP holders have often been deemed antithetical to the FOSS movement (or event in conflict with the terms of FOSS licenses) and so they have, until recent months, been the exception rather than the rule. 
 Until very recently, Google appears to have provided little or nothing more than rhetorical support for its beleaguered Android licensees who are signing patent licenses or being sued for infringement or by proprietary software providers Apple with its iOS, Microsoft with Windows Phone and others. On the receiving end of the onslaught are HTC, Samsung and others implementing this open source OS. Perhaps Google will assist in various counter-suits following its recent purchase of 1,000 patents from IBM and acquisition of Motorola Mobility with a trove of 17,000 patents. 
 Free riders infringe 
Tensions are running high between IP owners and those who shun paying patent fees for anything implemented in software including standards-based technologies. Already 12 patent owners have joined discussions to create a pool to collect royalties from those that implement the VP8 video codec standard. VP8 is based on technology developed by the Google acquisition On2 for its WebM project. This is purported to be completely royalty free (5th September 2011):

“Some video codecs require content distributors and manufacturers to pay patent royalties to use the intellectual property within the codec. WebM and the codecs it supports (VP8 video and Vorbis audio) require no royalty payments of any kind. You can do whatever you want with the WebM code without owing money to anybody.”
Whereas there is no reason to prevent VP8 being developed free of any copyright or patent fees to any of its developers who agree to such terms, the codec is most likely infringing the patents of these 12 and many others. Non-assert provisions in VP8 licensing anticipate that Google has essential patents --and licensees might too. Different, independently developed, programs will likely not infringe software copyrights, where code is not copied, but all codecs implementing a given standard will infringe the same set of patents that are essential to that standard. Software developers, by definition, cannot design around essential patents when implementing a standard. Similar (or “competing”) standards may well have common technologies among them which are also covered by the same patents. This is particularly the case in Codec algorithms, which represent cumulative technological developments made over many years, including many players and at substantial costs. Different codec standards setting organisations (SSOs) can try to design around patents in formulating their standards. While this is possible to some extent, it is difficult, and impossible to eliminate all infringements while also seeking to achieve high-performance functionality exploiting latest technologies. In some cases, SSOs might not even be aware of some patents their standards are infringing.
 MPEG LA licenses the H.264 video codec extensively. More than one thousand licensees have agreed royalty terms compensating 28 different licensors through a patent pool. These fees are due even where the software program implementing the codec is subject to royalty free copyright licensing, as is the case with the x264 – “a free software library and application for encoding video streams into the H.264/MPEG-4 AVC format, and is released under the terms of the GNU GPL [a royalty free licensing agreement]”.
 With other codecs reading on hundreds of patents and significant similarities among codecs, it is also most likely VP8 infringes some of the patents that are also infringed by other video standards including H.264. The question is simply how many patents and which of them are infringed? 
 Changing the rules  
Meanwhile, the patentability of any technologies and algorithms implemented in software are being significantly challenged with lobbying to policy makers around the world. 
Those who argue against “software patents”, including some absurd and unsubstantiated claims, seek to invalidate issued and pending patents associated with, for example, smartphone features and video codec standards. Others have suggested that the perceived problems with “software patents” could be remedied by requiring that those patents be licensed on a royalty free basis in certain contexts (i.e., in standards). The fact that many standards-essential and other technologies implemented in software infringe numerous different patents, rather than typically just a few patents in a drug or simple mechanical device, is no justification to deny any patent rights at all. A combination of bilateral (i.e., cross licensing) and multilateral arrangements (i.e., with patent pools) can be used to negotiate rates and collect payments efficiently. The average aggregate royalty for video codecs on a DVD player is just a few dollars and aggregate standards-essential patent licensing on mobile phones rarely costs more than 10% of the wholesale product price. Moreover, the unsubstantiated claim that FOSS developers are prohibited by the terms of FOSS licenses from paying these royalties has been debunked and shown to be little more than an attempt by certain implementers to gain business model advantage. 
Processors and software in everything  
The products and services we all use every day are increasingly software defined and computer-intensive as microprocessors are included in many different manufactured items. Software predominantly implements the innovative algorithms for a wide variety of technological functions; from touch screen scrolling and bar code reading to turn-by-turn navigation. Just a few of numerous and varied examples also include anti-lock brakes, eco-friendly air conditioners, medical equipment, programmable lathes and toys. 
The existence of microprocessors and computers over the last 30 years has fostered a marketplace for downstream development of computer programs performing a wide variety of functions with relatively low barriers to entry. For example, there are thousands and thousands of smartphone application developers.  Many of these set themselves up with just a computer and a few software tools in their sitting rooms or dormitories. 
Computer technologies with general purpose processors are increasingly substituting for application-specific designs. In some cases, state-of-the-art general processors make it possible to implement technologies (e.g., radio interference reduction, video compression or touch screen gesture recognition) significantly in software, in comparison to the more hardware-specific implementations such as with Application-Specific Integrated Circuits (ASICs) that were once required.  Mobile communications protocols including GSM, HSPA and LTE can now be implemented in Software Defined Radios (SDR)s. SDRs are already commonplace in network equipment and increasingly in terminal devices such as phones and dongles. Similarly, whereas older codec implementations were significantly in hardware with dedicated signal processors and hardware accelerators, it is now possible to implement these in general processors with customised hardware and accelerators being used mostly for high-end devices. 
Substituting software for hardware implementations of a given radio or codec technology is a design decision driven by considerations on feature performance, power consumption, heat dissipation, semiconductor die size, time-to-market and fixed versus variable manufacturing cost structure.
The speed, ease and low costs of coding in software— rather than having to design and fabricate dedicated hardware— does not negate the innovative steps, substantial costs and risks entailed in developing new ideas and technologies, regardless of their means of implementation. For example, development of anti-lock brakes requires lab work and drive testing under various conditions and medical instrumentation techniques (e.g., measurement of oxygen saturation in the blood) requires lab work and extensive clinical trials. Algorithms are first conceived, then modified and refined to improve performance, reliability and safety on the basis of this work. Software just happens to be an efficient and effective way to implement.
What is patentable?  
So-called “software patents” do not actually depict software per se: instead they describe algorithms and processes that can be performed by a programmed computer. It is such computer-implemented techniques— not the software itself—that can be eligible for patent protection. 
 In Information and Communications Technology (ICT), it is the underlying useful, novel and non-obvious techniques that can be implemented in hardware or software to perform real world functionality—such as in radio communication, audio noise reduction, video encoding, and touch screen operation—to name just a few possibilities —that are potentially patentable. To be patent-eligible in the U.S., generally, a claimed method must involve a machine or a transformation of an article—that is, it must describe a series of steps that use physical means to produce a result or effect in the physical world. All the above examples and many other technical processes do just that – whether they are, or could be, implemented in hardware or software. 
  In 2002, the European Commission proposed a Directive on the patentability of computer-implemented inventions, but the European Parliament rejected the final draft with the result that national laws were not harmonised. The European Patent Office, which generally adapts its regulations to new EU law, has no reason or incentive to modify its practice of granting patents on certain computer-implemented inventions, according to its interpretation of the European Patent Convention and its implementing regulations. 
 Copyrights protect software owners from having their programs duplicated, but this does not prevent reverse-engineering of software-implemented innovations. Similarly, it is increasingly possible to implement previously hardware-based functions such as radio modems and video codecs on more general processors such as SDRs and with software-based rather than hardware-based graphics accelerators. It would be nonsensical to disqualify patented innovations from protection, simply because independent advances in processor and software technology make the former implementable on general purpose processors as well as dedicated hardware. 
 Openness and patents in standards 
Whereas some assert that open standards should be royalty free, the International Telecommunications Union defines open standards, among other factors, as follows: 
"Open Standards" are standards made available to the general public and are developed (or approved) and maintained via a collaborative and consensus driven process. "Open Standards" facilitate interoperability and data exchange among different products or services and are intended for widespread adoption. 
Intellectual property rights (IPRs) – IPRs essential to implement the standard to be licensed to all applicants on a worldwide, non-discriminatory basis, either (1) for free and under other reasonable terms and conditions or (2) on reasonable terms and conditions (which may include monetary compensation). Negotiations are left to the parties concerned and are performed outside the SDO [standard- development organisation]. 
There are numerous open standards. However, IP policies differ widely among standards-setting organisations (SSOs). A relatively small number of SSOs have IPR policies that require participants to license essential patent claims on a royalty-free basis, but this can only bind those who elect to join those organisations and so standards implementers can be exposed to IP infringement claims by non-members. Most SSOs including those for mobile communications, video and audio codecs accept that patent owners can license their IP on a (Fair), Reasonable and Non-Discriminatory basis, including a royalty. 
For example, H.264 is open in the sense that the specifications are freely available from a copyright perspective. One can distribute an implementation of H.264 freely as long as one abides by certain terms. However, implementers of the H.264 standard are required to pay patent royalties. 
Software is no exception 
There is no good reason to abandon the widespread practice of allowing patents on technologies that are implemented in software. The patent system is there to encourage investment in innovation by helping enable inventors to make a return on their risky investments. There is no evidence that patent systems are stifling innovation where inventions are implemented in software. On the contrary, innovation continues apace in ICT, as illustrated by the rapid development and extensive adoption of smartphones and video encoding technologies, to name just two from among numerous examples, as I have explained in my previous articles with IP Finance.
Category: articles

Monday, September 19, 2011

Perhaps it was appropriate that, shortly after buying a Kindle last week, I settled down into a transatlantic flight home, with the 12 September edition of the Wall Street Journal in hand. And there it was, staring me in the face on page 1 of the Marketplace section, an article entitled "e-Book Prices Prop Up Print Siblings." Now that I have a vested interest in the e-reader platform, the question of how e-book pricing differs from print books has become a matter of intense interest. The facts and figures as set out in the article make for interesting reading.

First, let's make a comparison between a hypothetical print book retailing at $26.00 and an e-book offering retailing at $12.99. Taking the print book first, from the $26.00 price one subtracts $13.00 for the retailer, $3.90 in royalty payments to the author and $3.25 for shipping and other handling, leaving a gross amount (don't forget returns) per unit sold of $5.85. By comparison, from the $12.99 retail price, one substracts $3.90 to the retailer, $2.27 in royalty payments to the author, and $0.90 for digital rights management, warehousing and prodution/distribution, leaving an amount per unit sold of $5.92 (returns are not a likely problem here).

These figures show that, to the extent that the e-reader publisher can increase the retail price, the greater will be its ultimate margin. Wait a minute, however! Wasn't the whole idea of the e-reader to offer the ubiquitous price of $9.99 per book. Raising the price from $9.99 seems antithetical to that pricing nirvana. What's the story here?

To appreciate these figures better, consider the major change that has taken place in the e-book industry. The starting point is described as "the wild days" of using the most popular titles as a loss leader (i.e., $9.99 or less), which days "are mostly over." In its place is an elevated e-reader price scheme anchored in what the article described as "agency pricing." As adopted by six major publishers and championed by Apple, "[p]ublishers worried about the deeply discounted $9.99 digital best-sellers promoted by Inc. agreed to set the consumer price of their digital titles. Under this model, retailers act as the agent for each sale and take 30%, returning 70% to the publisher."

The article then goes on to state that "[t]he major significance of agency pricing was that it made it impossible for a retailer to discount the price without the approval of the publisher." For discounting, read Amazon and its widespread $9.99 per book pricing policy, described as a means for building market share, even if "it actually lost money on the sale of many of the book industry's most popular titles."

Personally, I am bit disheartened because I had dreamed of using the Kindle platform to purchase book after book at that magic price of $9.99. Those dreams have been shattered. Standing back however from my disappointment, this apparently steady increase in the price of e-books is a fascinating example of a nascent industry seeking to find a workable pricing model.

On the one hand, we have the comment from an unidentified publishing executive that "'[i]f e-book prices land at 99 cents in the future we're not going to be in good shape." Certainly, the e-book platform carries with it the potential for downward pricing of books.

On the other hand, when is the difference in cost between the e-book and print versions of a book small enough to induce me to factor in the non-quantifiable tactile benefits of embracing a print version, the better to dog-ear, highlight and ultimately to place on the top row of my bookshelf? The problem is that, when I find out the answer to that question, the print version alternative may no longer be available. If so, then what will be the pressures on e-book pricing that will prevent an ever-increasing sticker price?

Don't get me wrong. As a published author, I am the last person to begrudge my publisher's bottom line. That said, as a reading consumer, I want to enjoy the benefits of the e-book platform at a reasonable (whatever that means) cost. Finding that balance remains an elusive goal. Something tells me that this so-called "agency pricing" model will not be the last word on the topic.
Category: articles

Friday, September 16, 2011

EVO Electric, a spin-out from Imperial College London previously referred to here and here, has recently ret up a joint venture company with GKN Driveline, the world’s leading supplier of automotive driveline components.

Press releases suggest that EVO has licensed its IP to the joint venture company while GKN has contributed financing, engineering and commercial resources. The new company aims to capture a share of the rapidly growing market for hybrid and electric vehicle systems and, in the words of EVO CEO David Latimer, “will be pivotal in establishing EVO as a key player in the fast-growing global market for electric drive components”.

It will be interesting to see how much value EVO realises through this joint venture manufacturing business model. Company documentation suggests that EVO could simply sell its share in the joint venture company to GKN at some point in the future: EVO has already sold 25% of its own shares to GKN as part of the deal, GKN indicating the total value of its investment at closing to be £5 million consideration in cash.
Category: articles

Tuesday, September 13, 2011

TORRANCE, California — The first official image of the redesigned Honda CR-V hints at an evolutionary styling change for the 2012 model — despite the usual public-relations hyperbole from Honda describing a "bold styling direction" and "an aggressive new stance."In fact, the fourth-generation CR-V, which goes on sale in the fourth quarter, looks remarkably similar to the current 2011 model.In May
Category: articles
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