W3C investigating Apple’s patent

by Rob Harrison on 24 June 2009

There’s a rather interesting report on the UK ZDNet website about Apple’s refusal to licence royalty-free a patent for use in a proposed web standard. US Patent No 5,764,992 relates to a method for automatically updating software programs on a computer.

W3C Icon

Web standards are set up by the World Wide Web Consortium. Their website states that Apple have apparently noted that this patent applies to the Widets 1.0 specification and have exluded all claims from the royalty-free license commitment of the W3C Patent Policy. The W3C is now asking for prior art to be submitted for review by the patent advisory group for the Widgets
specification.

Clearly the W3C group is taking this issue very seriously and its call for prior art to be submitted in an effort to at least potentially invalidate the patent is the first time known to this author that such a procedure has been valid. The patent policy of W3C is, however, different than that of many other standard-making organisations. The patent policy states clearly that any licence may not be conditionable on payment of royalties, fees or other consideration (see section 5 No 3 of the patent policy). Most standard-making bodies seem to state that it is adequate to be prepared to grant licences on FRAND (fair, reasonable and non-discriminatory) terms.

So what will be the outcome? At least a highly interesting discussion – and wouldn’t we all like to be a fly on the proverbial wall during those discussions. Potentially the patent could be declared invalid – if somebody files a request for re-examination at the US Patent Office. It is also possible that companies may choose to license the patent from Apple directly (if Apple is willing to license). In the extreme, the attempts to standardise the widget updating process may fail – since W3C may chose not to adopt any standard at all, rather than a standard which requires a license.

Potentially, of course, the Europeans (or Japanese or Chinese) don’t need to worry – Apple do not seem to have filed the patent outside of the US. However, the moment those updating bytes fly into US territory they could be served with an injunction by nasty Apple bug.

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The Orange Book: The relationship between patents and standards

by Rob Harrison on 11 June 2009

The relationship between patent protection and standards is fraught with problems. Most standard setting organisations require participants in standards development to either renounce their rights to patent protection or, more commonly, to agree to license any intellectual property on a FRAND basis (fair, reasonable and non-discriminatory) basis. But what happens when a company produces a product, which complies with the standard but does not have a licence to use the intellectual property?

The German Federal Court faced the issue recently in a case (KZR 39/06 of 6 May 2009) concerning CD-Rs. CD technology was developed many years ago jointly by the Dutch company Philips and Sony. The technical parameters were laid out in several different documents with various colours on the cover, including for CD-Rs in the so-called Orange Book. Philips and Sony agreed to license the IP (patents) on which their technology was based. Neither Sony nor Philips were interested in exclusive exploitation; their aim was to have CDs adopted widely. In this they clearly succeeded.

Image credit: CC-BY-SA Bobbiemac on Flickr

Image credit: CC-BY-SA Bobbiemac on Flickr

There are, however, a number of producers or blank CD-Rs who have made no effort to obtain a licence and Philips, at least, has regularly pursued such manufacturers in the courts and through the customs authorities. One company defended itself to the hilt and maintained that its products did not infringe the claim and, if they did, then it was entitled to a compulsory licence since Philips’ behaviour amounted to an abuse of its dominant position (in the CD-R market). This defence – sometimes called the Euro-Defence – is founded in Art 82 of the European Treaty that prohibits anti-competitive practices.

The German Federal Court in the end decided that the patent was indeed infringed and also that the defence of anti-competitive behaviour did not apply. In doing so they made a number of interesting observations, which will be relevant in future, cases.

Firstly the Court clearly accepted that there was a potential defence and therefore supported the arguments of some lower courts in Germany. The Court rejected an argument that the provisions of the Agreement on Trade Related Aspects of Intellectual Property (TRIPS) on compulsory licences prohibited the raising of the defence. The Court clearly noted that the safeguards foreseen by TRIPS to prevent the arbitrary grant of compulsory license were clearly upheld here – the Court was not making an administrative decision but a judicial ruling that could be challenged in an appeal.

The Court emphasised, however, that for the defence to apply two conditions had to be fulfilled. The first condition was that the potential licensee had to approach the licensor for a licence and make an unconditional offer. Secondly the potential licensee had to behave as if it were paying the licence fee. This would mean, for example, that the potential licence would have to pay a reasonable fee into a trustee account and renounce its right for return of the funds. Interesting the Court did not seem to think that merely making provision for possible payment of the licence fees in the company accounts was sufficient – it was necessary to actually deposit the money in an account.

The Court emphasised that the offer had to be unconditional and reasonable. It had to be an offer that the patent holder could not otherwise refuse without discriminating against the potential licensee. In the case in hand the manufacturer of CD-Rs had indeed made an offer, but it was conditional on a Court holding that the products did in fact infringe the patent. This was not sufficient to be able to assert the defence.

Interestingly the Court made little comment about whether the patent in question was an essential part of the standard or not. The decision of the lower court was accepted that the patent in question would need to be worked by anybody producing CD-Rs in accordance with the Orange-Book standard. Nor did the Court go into any detail about the submissions concerning the alleged lack of enforcement by the patent holder. The Court noted that these allegations were not relevant to the case in question, since the defendant could not assert the defence for other reasons. It remains to be seen whether these facts could be used against the patent holder in future.

So what does this mean in practice? The decision is, of course, a decision by a German court based in part on German law and is therefore only directly relevant to Germany. However, the discussion of the effects of Art 82 of the EU Treaty will be at least of interest to other courts in the European Union. Clearly the Court is saying to users of standards that if you want to use intellectual property associated with a standard, you must make an attempt to obtain a license. Only if you are offered unreasonable terms can you assert the defence. It is probably also advisable to pay the money into an escrow account, rather than merely building accruals in the company’s books.

Case Reference: KZR 39/06 of 6 May 2009; Appeal on a point of law from a decision of the Upper District Court of Karlsruhe.

Image credit with links: CC-BY-SA bobbigmac and available on Flickr.

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ipVA in the IAM 250

by JS Hatcher on 1 June 2009

This is pretty cool. Not least because ipVA made it on to the list, but also because I note that the list includes Tangible IP friends Jackie Hutter and Duncan Bucknell. IAM Magazine has created a new list of 250 of The World’s Leading IP Strategists, the IAM 250.

In creating the list, IAM went through a process of interviews (phone, in-person, and emails), and to get on it, IP professionals had to have three recommendations and then be confirmed through independent research on their level of contribution. IAM says about the need for the list:

The IAM 250 is a major and unique new publication. There are any number of guides that claim to identify leading trademark, patent and copyright litigators, or IP experts in a particular field of industry. But to our knowledge, no research has previously been done specifically to identify consultants, intermediaries and financiers, as well as lawyers and attorneys, whose primary skill set is focused on helping IP owners to increase the value of their rights portfolios.

In short, this listing looks at the wider IP ecosystem rather than the narrow band of IP legal professionals, which I’ve been loosely calling the “IP services market”.  Frequent ipVA collaborator and consultant Tom Ewing and both of our co-founders (and fellow Tangible IP bloggers), Andrew Watson and Rob Harrison, have all made it on to the IAM 250,

Out of Andrew’s original post on IAM’s search (back in October) and his recommendations,  Duncan Bucknell,  Severin de Wit, and Craig Opperman all made it on to the list.

The focus of the listing on IP strategy can only mean good things for this growing group of professionals as we figure out the models, partnerships, and strategies behind the IP strategy sector.

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IPReader links for 28 May

by JS Hatcher on 28 May 2009

New and noteworthy links from around the web:

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Accounting, intangibles, and the balance sheet

by JS Hatcher on 19 May 2009

We had a really interesting conversation with an accounting practice the other week about our approach to IP and their work on reporting within corporates on intangibles.  This was one of a series of conversations we’ve been having from people who see IP from the outside –> in,  while we here at ipVA are IP professionals seeking the broader IP context, and thus go inside –> out.

In short, this corporate reporting practice has been looking at moves to put IP on the balance sheet from the angle of accountants, while we examine ways to make IP more relevant to the business from the perspective of the legally trained. Each approach takes into consideration the other (we look at ways to move IP assets on to balance sheets and they consider the impact of the different IP rights, for example), but I think it is safe to summarize the approach in this way.

Some thoughts and questions that came out of this conversation:

  • Often the view is that if not in the financial statements then not important – both a part of the reason IP gets ignored and a reason to find ways to move it onto the balance sheet.
  • In small cap companies, the relationship is often more “personal” and so people will be looking beyond a “I-Capital statement” anyway.
  • How do you build confidence (internally and externally) around the forecasts in an I-Capital statement?

Incidentally, through this conversation I was made aware of World ICI (WICI), which with my other hat on, specifically sparked my interest in data.  They are working on, in part, data frameworks for corporate reporting through XBRL frameworks. XBRL stands for eXtensile Business Reporting Language and is way to, put simply, make business reports machine readable so that machines can do all sort of neat stuff with them.

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5 steps for the IP world to take the press seriously

by A Watson on 14 May 2009

This post came out of a response to Joff Wild in his blog at IAM (itself a response to Neil at ipfinance), particularly this section:

If journalists do not get IP and report it badly – or not in the way IP professionals would like (sometimes the two are not the same) – I would argue that it is because those inside IP do not make it accessible enough. If IP professionals are not able to make IP relevant to senior management or to journalists or to anyone else, it is no good blaming anyone but themselves. That may sound harsh, but there you go. To get journalists to take IP seriously, you need to explain it to them in a way that they will understand, find interesting and relevant to their readerships. If you don’t do this, they will just not listen - why should they?

Firstly I’ll state that I agree with all of the above. IP is a potential/emerging asset class but the IP world that believes this so passionately seems to find it hard to communicate this to the business world that does not.

Why is this? I don’t find it too hard to understand (when I can listen, definitely with a few raised eyebrows) to Stephen Hawking telling me about quantum physics and the dawn of time. So where are we going wrong?

To widen out the debate, with some thoughts on how to make IP more understandable:

1. The need for a common language. IP in its narrowest sense (ie the various classes of specific legal rights such as patents) is how the business world sees IP – a set of legal rights and rightfully the domain of lawyers. But when one listens to the excellent Mary Adams of i-Capital Advisors or to Kelvin King of Valuation Consulting, you get to a whole new language and perspective. Its about “intangibles” or “intellectual capital” not just the much narrower IP. It’s about humans and what they create.  It’s about the relationships that a business creates and sustains. I think the IP community needs to embrace this wider perspective. And to create a new and common standard language that applies to it.

For me I’d follow the accountants. “Intangibles” is pretty well defined in that market already.

2. The need for perspective. I do think that the IP community over-emphasises IP’s importance and thereby damages its own credibility. It is important but too often we hear the over-emotional exaggeration of its importance to every business, or the apparent importance as greater than other business fundamentals. It is not.

3. The need to educate. Duncan Bucknell and I agree on this. In the widest possible context those that don’t get it need to experience it so that they can. At a basic level. Remember that IP or intangibles are not taught at many business schools beyond the very basics. We need to pitch ourselves into education.

4. The need to de-emphasise the litigation effect. I think that the earliest evolution of our market over-emphasises the link between IP value and litigation. We are moving away from this, but with most of the prominent IP success stories being linked to litigation, the move cannot come fast enough.

5. The ability to clearly communicate. I agree with Joff’s point that many journalists have literally minutes to grasp a whole topic, and that getting a clear IP understanding in that time is hard. We’ve tried it in the last 6 months with a PR program at ipVA. Its hard but after 6 months you do learn what works and what does not. Jordan and I also had a great call with a major accounting firm a couple of weeks ago about the emerging areas of corporate reporting of intangibles. If we can find ways of drawing out comparables between good “IP” companies and bad, we would begin to bridge the communication gap. But it is not just in talking to journalists that we need this – it is about also talking to markets. CEO’s, banks, funders, chairmen, and so on in a non-legal, stimulating and relevant way.

I’m sure that there are other issues missing from the list but these are some of our thoughts at ipVA. Valuation is another key element for sure but I’m not a valuation specialist. All we do know from those who are, is that it is less nebulous than it was, and becoming more accepted.

Pick your own date by which these factors will merge and evolve sufficiently to be a part of business mainstream.

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The IP ecosystem in Europe: IP generation, utilisation and anti-utilisation

by JS Hatcher on 12 May 2009

This is a guest post from David Jones and Benoit Guerts of Exponent IP. Their discussion on the “IP ecosystem” as part of Benoit’s presentation in the European Catalyst webinar has generated quite a bit of interest, and they’ve kindly followed up with more.

The IP ecosystem in Europe: IP generation, utilisation and anti-utilisation

We recently took part in a webinar, organised by Jordan on behalf of ipVA, where we showed a slide outlining the current state of what we called the “IP ecosystem” in Europe, with a particular focus on patents, and we just wanted to add a little commentary as to how the European IP ecosystem has developed in the way it has.

The US: generation, and utilisation

It would be fair to say that in the dynamic world of IP, the development of the IP ecosystem in Europe lags some way behind similar developments in the US.  There are many well-documented reasons for this, not least the fact that since the USPTO opened its doors in the nineteenth century, the US has possessed a plethora of both enthusiastic IP generators:

  • Universities,
  • Inventors,
  • Large Corporations,
  • SMEs, and
  • specialised R&D labs

and also equally enthusiastic IP utilisers:

  • Large Corporations,
  • SMEs,
  • new ventures, and
  • strategic aggregators.

This dynamic interdependency between IP generators and IP utilisers in the US has of course also benefited from an inherent cultural acceptance of commercial opportunity – something of which the US can rightly be proud.

Europe: generation, utilisation, and…

Whilst Europe can be said to have broadly similar sets of generating and utilising organisations (albeit spread over different nations and jurisdictions), we believe the key difference is actually a lack of awareness and/or motivation by IP generators (with a few notable exceptions) in Europe as to the opportunities that their IP holdings give them; IP generation is thus not an issue, whereas utilisation most definitely is.

exip_ip_ecosystem1

Traditionally, European organisations will utilise the IP they have generated either by making products based on that IP or else by licensing that IP to another party, or a combination of the two. Beyond that, other notions of utilisation are scant, and will often, in any case, be met by the immovable object of a “family silver” policy: no IP should ever be sold, to anyone, under any circumstances.

We have even come across large, IP-intensive organisations in Europe who routinely audit their IP holdings and then, with any group marked ‘non-core’, simply abandon them rather than sell or licence them. This is a very peculiar stance for a commercial organisation to take: generating IP is, after all, an extremely expensive business. We call such policies anti-utilisation.

… Anti-utilisation and misuse

In a public company, it seems to us that this kind of policy – in view of a company’s duties to its shareholders – is something very akin to wilful misuse of company assets. Having said that, there is some merit, of course, in such a policy as a defensive strategy, but the efficacy of such a policy does in very large part depend on the quantified defensive qualities of the IP in question, particularly if that IP has been quantified in view of its opportunity cost as a potential candidate for sale or licence.

Such anti-utilisation attitudes are changing, albeit slowly.  The growth of interest in IP from institutional investors, combined with the economic downturn and the downgrade of traditional “property” assets, means that there is now a growing awareness in Europe that within an organisation’s IP holdings there may be valuable, saleable assets (buried treasure, if you like) that will either never be otherwise utilised, or worse, abandoned or lost by mismanagement.

From anti-utilisation to utilisation

European companies who do have a good understanding of their IP holdings should therefore be considering what exactly is the optimum utilisation of that property: is it enabling the company to make product, to protect an existing line of business, to generate income from licensing or selling or to simply retain the IP for future development or as a general defensive instrument?

European companies who do not have a good understanding of their IP holdings should of course be asking themselves exactly the same questions, having first made use of the many specialist IP service providers who are expert in this area.

So are we in the buried treasure business? Not quite – as any IP auditor can tell you, organising IP into core/non-core/unwanted is but stage one in a long and complex process that can eventually lead to a successfully concluded transaction.  And yet the rewards can be significant; significant enough, indeed, to hold the attention of any CEO (certainly when the rewards are for resources that would otherwise languish, unused, or worse, lost.) Implementing a systematic process of IP audit and exploitation can therefore not only generate income (licensing/selling) and cut costs (obviating maintenance fees); it can also allow a company to really focus on its core business.  Of which, of course, expensively generated – but fully utilised – IP is central.

An extended paper on the IP ecosystem will shortly be available at www.exponentip.com.

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When you say IP, what do you mean?

by JS Hatcher on 11 May 2009

At ipVA we often run education sessions on IP and its relevance to business.  Just last week, Andrew was discussing this with a group of CEOs as part of the European Leadership Programme.

In these sessions, we ask the businesses to rate where IP sits in relevance to their business:

Is IP a 10 or a 0?

As the sessions progress it invariably ends up that several of the participants rank the importance of IP much higher than they had initially thought (especially those below a “5″). Why?  Patents steal the show.

A surprising number of people (even at the C-level) use “IP” as a shorthand for “patents and maybe a trade secret or two”. A large part of what we do in our sessions essentially explains that the “P” in “IP” doesn’t stand for patents. Zeroing in on patents loses the point of IP: taking your intangibles – your Intellectual Capital – and making them a much more tangible business asset by plugging them into the full range of protection available.  That way, you can make “make them sweat” for your business.

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ipVA updates: IIR PE event and downloads

by JS Hatcher on 8 May 2009

Just a quick note about some of the things we’ve got going on here at ipVA.

On the article on Broken Structures, Tangible IP friends Mary Adams and Jackie Hutter have both weighed in with their thoughts. Responses and more comments to come.

There’s been quite a bit going on here and in the world of IP lately - more thoughts to come and thanks for reading.

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Patents as the wrong kind of signal

by JS Hatcher on 8 May 2009

In an earlier post I discussed having patents as a signal to external (potential) investors and analysts about the quality of a company’s IP and that they take IP seriously. This is because:

For some people, having a patent says: “We know about the IP system, we use it, and we are protected.” Conversely, if these same people expect to see patents and don’t (or don’t see “enough”), then they may feel that the company is not doing enough in the IP area with connected negative connotations.

Sometimes companies need patents because investors and analysts think that they should have them, and simply telling a great IP Story around why you don’t isn’t enough. One simple solution: get some patents.

While I still hold by that as an option, I’ve been thinking lately about the opposite situation:

When can having a patent attracted unwanted attention?

Same type of company in this example: a company that doesn’t rely on patents as part of its core commercial or IP strategy.  But this time, in a market where patents don’t play a major role in how companies are run, structured, and the risks in the marketplace.

An example could be a consumer internet company relying primarily on e-commerce. Sure there are patents, such as the famous (or infamous) 1 Click patent, that impact this area, but the primary model for this business is selling goods online. The most important IP would likely be branding, perhaps some proprietary software, and customer databases.

What happens if in the process of running this business they think of something patentable? And then go and patent it?

Having just one patent changes the ballgame from a VC/Investor perspective.  They suddenly start to think about the IP side of the business that much more carefully. The patent will likely receive quite a bit of attention. Costs won’t likely be a factor for an investor to do a pretty thorough review of the patent as there will be just the one.

The focus switches from the far more important stuff – strong brand, customer relationships, sales figures, expansion plans, market share – to the patent that’s not relevant to the business model. The patent then costs more than just the filings and renewals - it becomes a distraction for the business trying to raise money.

The lesson for companies: if you patent, do it well or not at all.

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