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IPEG Intellectual Property Expert Group is an IP consultancy based in Europe

Although not limited to software, open source is dominated by this particular technology and by the open source software community. Open source software does not just mean access to the source code. The distribution terms of open-source software must comply with the following criteria:

  • There must be free redistribution.
  • The program must include source code, and must allow distribution of the source code along with the compiled form.
  • The license must allow modifications and derived works, and must allow them to be distributed under the same terms as the license of the original software.
  • The license may restrict source-code from being distributed in modified form only if the license allows the distribution of “patch files” with the source code for the purpose of modifying the program at build time.
  • The license must not discriminate against any person or group of persons.
  • The license must not restrict anyone from making use of the program in a specific field of endeavour.
  • The rights attached to the program must apply to all to whom the program is redistributed without the need for execution of an additional license by those parties.
  • The license must not be specific to a product.
  • The license must not place restrictions on other software that is distributed along with the licensed software.
  • The license must be technology-neutral.

There are many different variants of open source licenses (Apache, GPL, Lesser GPL, Eclipse, etc.) with some subtle and not so subtle differences between all of these variants.

It’s free:

Open source software is software that is freely licensed to use, copy, study, and change the software in any way, and the source code is openly shared so that people are encouraged to voluntarily improve the design of the software.

This is in contrast to proprietary software, where the software is under restrictive copyright and the source code is usually hidden.

This has made open source software very attractive to many companies.

Open source software is free, which is good. But is it really free?

Total cost ownership:

Total cost of ownership is a financial estimate intended to help buyers and owners determine the direct and indirect costs of a product or system. It is a management accounting concept that can be used in full cost accounting.

The average price of a new car in the USA tops $33,000, according to car-buying site Kelley Blue Book, so buying a vehicle is a major financial move. While many consumers may focus on the sticker price or the monthly payments, that overlooks many other costs. You have license fees, registration fees and taxes. You need to buy insurance, fill the gas /petrol tank, have regular maintenance, etc. And your car loses value from depreciation every day you own it. The total cost of ownership of a new car is not the same as the sticker price.

The same applies for a software product. The total cost of ownership is the purchase price of the software product plus all of the additional direct and indirect costs associated with taking the software product into use.

When choosing among alternatives in a purchasing decision, one should look not just at the software product’s short-term price, which is its purchase price, but also at its long-term price, which is its total cost of ownership.

The software product with the lower total cost of ownership is the better value in the long run.

The purchase price of the open source software product is zero, but what is its long-term price or total cost of ownership?

The components:

In order to calculate the long-term price or total cost of ownership of a software product, one needs to identify all of the different components associated with taking a software product into use.

I suggest that these include at least the following:

  • The initial license fee for the software product (zero in the case of an open source software product).
  • Any costs associated with hardware or software tools to develop or test the software product.
  • Any costs involved with customising or configuring the product.
  • Any associated hardware costs to deploy the software product.
  • Any hosting costs.
  • Any maintenance costs.
  • Any support costs.
  • Any additional software license costs.
  • Any costs associated with feature or functionality updates.
  • Any license costs to access other 3rd party software.
  • Any insurance costs.
  • Any direct or indirect costs associated with future updates / upgrades.
  • Any training costs.
  • Any warranty costs.
  • Any direct/indirect liability costs.

This list is not exhaustive and there may be other components to consider.

Costs associated with open source software risks:

Of course, total cost of ownership is an issue for both proprietary software products as well as open source software products.

However, some additional components may need to be consider when trying to calculate the total cost of ownership of an open source software product, namely the costs associated with managing the risks involved, which divide out into the following categories

  • Legal issues
  • IP issues
  • Operational issues
  • Security issues
  • Business issues

(These additional components are explored in more detail in another paper already published).

The bottom line:

When you are comparing cars you like, you should go beyond sticker price. You should research the ongoing costs of driving and maintaining each model, so that you get a true understanding of affordability. A realistic estimate of a vehicle’s total cost of ownership is crucial in helping you choose a car that fits your budget. The same applies to purchasing a software product, regardless of whether it is an open source software product or a proprietary one.

Donal O’Connell

Author: ipeg 3 months ago

The formal definition of the word “Innovative” as taken from the Collins English Dictionary is to invent or begin to apply new methods or ideas, to renew or make new.  Also, it is worthwhile taking a look at some other words of similar meaning. “Creative” means having the ability to create, characterized by originality of thought, having or showing imagination, designed to or tending to stimulate the imagination, showing by sophisticated bending of the rules or conventions.  “Inventive” means to be skilled or quick at contriving, ingenious, resourceful, characterized by inventive skill and related to an invention.  Although there are some similarities between these words, they are not identical.

Innovation can take many forms.  It can be disruptive, transformative, radical, breakthrough, incremental or step improvement in nature.  It is most important to recognise and appreciate all these different forms as often the simple step or incremental form has a tendency to get overlooked.

Innovation inside a Factory

A factory or manufacturing plant is an industrial site, usually consisting of buildings and machinery, or more commonly a complex having several buildings, where workers manufacture goods or operate machines processing one product into another. Most modern factories have large warehouses or warehouse-like facilities that contain heavy equipment used for assembly line production. Factories may either make discrete products or some type of material continuously produced such as chemicals, pulp and paper, or refined oil products.

Innovation and creativity is not the sole preserve of the R&D function within an organization. The ability to mass produce products within a factory environment takes tremendous skills, competence, knowledge and experience.

The ability of one factory in China to mass produce half a million iPhones per day takes some innovation and creativity. Over 60 million cars passenger cars were produced last year by all of the car companies, some achievement given the complexity of the modern car. Over 225 million TVs were mass produced by various companies last year at a time when there is great turmoil in that industry sector with technology changing rapidly.

Although I have spent most of my career inside R&D or IP functions, I was most fortunate to spend time working inside factories in Brazil, China and Texas. I must admit that I was in awe of the skills and competencies of the great people I met there, and I learned much from my experiences there.

Know-how

Know-how is defined as practical knowledge or skill or expertise. Know-how is a term for practical knowledge on how to accomplish something. Know-how is also an intangible asset and a form of intellectual property.

Some examples of the know-how that exists within a factory environment include:

  • Chemical processes
  • Thermodynamic processes
  • Physical processes
  • Control diagrams
  • Manufacturing systems
  • Internal components of manufacturing systems
  • Mean time between failure analysis
  • Problem resolution procedures
  • Quality assurance information
  • Special product machinery
  • Test plans
  • Test records

I should stress that this list above is not exhaustive by any means.

Protecting know-how

Some factory Manager’s however fail to consider how best to protect these valuable intangible assets. Having a security guard at the gates of the factory or an IT person with a firewall around the IT network in use across the factory will simply not suffice.

Legal and IP protection mechanisms should also be seriously considered.

However, registered forms of IP like patents are oftentimes not suitable. The subject matter may not qualify for patenting. Even if patenting is an option, detection of infringement by 3rd parties may be extremely difficult.

The inherent proprietary value of know-how lies embedded in the legal protection afforded to trade secrets in law. As know-how qualifies as a trade secret in many cases, I strongly suggest that trade secrets, trade secret protection and trade secret asset management should be of the agenda of the Factory Manager.

Trade Secrets

A trade secret is defined as any information that is:

  • Not generally known to the relevant business circles or to the public. The information should also not be readily accessible.
  • Confers some sort of economic benefit on its owner. This benefit must derive specifically from the fact that it is not generally known, and not just from the value of the information itself. It must have commercial value because it is a secret. Commercial value encompasses potential as well as actual value.
  • It must have been subject to reasonable steps by the rightful holder of the information to keep it secret. What is reasonable can vary depending on the specific circumstances.

Broadly speaking, any confidential business information which provides an enterprise a competitive edge may be considered a trade secret.

The Defend Trade Secrets Act passed earlier in 2016 greatly enhances US federal protections to curb trade secret theft and secure the value of trade secrets. The EU also recently pass the Directive on Trade Secrets to harmonize the existing diverging national laws on the protection against the misappropriation of trade secrets.

What should a Factory Manager do?

I recommend that the following steps be taken:

  • A trade secret policy should be created
  • A top level trade secret process should be defined – identification; analysis; review; protection; and on-going monitoring.
  • A trade secret asset management system should be taken into use as technology can greatly help underpin the process
  • A section on trade secrets should be added to the existing training for all employees within the factory
  • A governance structure should be put in place

An exercise should be conducted to attempt to gather information on the various trade secrets existing within the factory. A phased approach should be adopted:

  • identifying trade secrets within the factory and owned by the company itself
  • identifying any trade secrets belonging to others but entrusted to the factory (e.g. belonging to key suppliers or partners)

The goal of the Factory Manager should be to

  • Install a confidentiality culture across the entire factory with respect the trade secrets it possesses
  • Ensure key functions within the factory work together to manage these assets going forward
  • Have comprehensive metadata available on the trade secrets within the factory

All factory managers like having data at their finger-tips. Good quality data enables a Factory Manager to run an efficient and effective factory, and to make informed decisions if and when needed. Such data may include  – cycle time; time to make change-overs; throughput; yields; pass fail rates at different test stages in the production process; utilisation of staff within the factory; overall equipment effectiveness; incoming supplier quality; inventory; etc. etc.

Proper trade secret asset management provides the Factory Manager with data about the know-how within his/her factory.

Of course, the Factory Manager and his/her management team will need help and support from Legal & IP professionals (either in-house or external) in order to achieve all of the above.

Final thoughts

Trade secret asset management is an area I believe has been somewhat neglected in the past by many Factory Managers. However, it is an area which cannot be ignored going forward. Trade secrets are a very important form of IP, and most likely will increase in importance going forward given the legislative changes taking place in key jurisdictions. Most factories are awash with know-how and trade secrets.

Donal O’Connell

Author: ipeg 3 months ago

In general terms, a case study is an account of an activity, event or problem that contains a real or hypothetical situation and includes the complexities one would encounter in the workplace. The IP Firm in this particular case study is an established and reputable IP Firm with offices in a number of jurisdictions. It employs almost one hundred attorneys and paralegals, and it has clients spread across a diverse range of industry sectors. This IP Firm has received a number of awards and accolades over the years. The IP Firm was anxious to deploy a range of new service offerings to its clients, and trade secret asset management was one selected, as it saw some new business opportunities here.

Trade secrets

A trade secret is defined as any information that is:

  • Not generally known
  • Confers some sort of economic benefit on its owner.
  • It must have been subject to reasonable steps to keep it secret.

Broadly speaking, any confidential business information which provides an enterprise a competitive edge may be considered a trade secret.

Trade secret asset management

Trade secret asset management is about the policies and procedure, processes and systems, education and governance defined and taken into use to help manage such assets. Trade secrets are fragile so they require some TLC. Simply deciding to keep something secret is not sufficient!

Trade secret asset management includes:

  • Awareness & education
  • Trade secret policy
  • Trade secret management process
  • Trade secret asset management system
  • Metadata
  • Access & access controls
  • Protection mechanisms
  • A culture of confidentiality with respect to trade secrets
  • Governance

Forces at play

The IP Firm recognized that there are a number of forces which together mean that trade secret asset management is now becoming a business critical issue, and one which companies must address.

These forces include – legislative developments; finance & tax developments; increased network security & cyber-crime concerns; IP reform in key jurisdictions; the growing importance of corporate governance; more and more companies embracing openness; and the changing nature of employment.

This IP Firm also recognized that almost all of their clients possess trade secrets but many are failing to properly manage such assets.

Trade secret asset management assessment

The IP Firm’s service offering begins with an audit or assessment of their operating company client.

Such an exercise is conducted in order to provide independent assurance that an organisation’s trade secret asset management, governance and internal control processes are robust, fit for purpose and operating effectively.

It is an evidence gathering process. The criteria include policies, procedures and requirements. Evidence includes records, factual statements, and other verifiable information. Findings evaluates evidence and compares and contrasts it against the criteria. Findings show those criteria that are being met (conformity) or those that are not being met (nonconformity). The exercise can also identify best practices or improvement opportunities.

The assessment criteria

The IP Firm developed a comprehensive assessment checklist. At a very top level, it consists of the following:

  • Awareness & education
  • Definition of trade secret in use
  • Qualification
  • Classification of trade secrets
  • Ownership of trade secret policy and procedures
  • Trade secret asset management process
  • Access & access controls
  • Protection mechanisms
  • Sharing trade secrets with 3rd parties
  • Entrusted with trade secrets belonging to 3rd parties
  • Valuation of trade secrets
  • Trade secret asset management system
  • Other metadata associated with trade secrets
  • Audits / audit trails
  • Governance

Much more details sit behind each of the items listed above.

Steps or phases in such an assessment

The IP Firm typically follows a six step process when conducting such an audit or assessment. They recognise that there is not one size fits all, so they are flexible and can adjust to suit the specific needs of the client.

  • Scoping of the audit / assessment
  • Request for information
  • Open meeting(s)
  • Field work
  • Drafting the report (findings & recommendations)
  • Closed meeting

Current status

The IP Firm reached out to a limited number of its operating company clients to inform them about this new service offering at the beginning of the summer of 2016, just after the Defend Trade Secrets Act was passed in the US and the EU Directive on Trade Secrets was passed in Europe.

A number of pilot projects were started with a handful of their clients in order for the IP Firm to stress test the service offering in a small-scale implementation. The IP Firm wished to prove the viability of this new service offering and to gather insights on various things such as their assessment methodology, the project phases, the skills and competencies of their team, the time taken to complete such assessments, the costs involved, their fees and fee structures, etc. etc. plus of course client reactions.

As this particular case study is still in its infancy and only recently been deployed by this particular IP Firm, I do not yet have much real data to share. However, it is a very interesting business development case study in my opinion, at a time when there is tremendous pressures on many IP Firms to be more creative and innovative and bring new service offerings to market.

Donal O’Connell, Intellectual Property Expert Group (Donal is the author of a special software program for managing trade secrets, please send inquiries to info@ipeg.com)

Author: ipeg 3 months ago

In May 2015, IAM Magazine wrote: ”In the last couple of years there have been several attempts to stymie privateering – the model by which operating companies sell patents to an NPE which then seeks to monetize them, usually through an assertion campaign.”

This model will now face its most severe test when the Hon. Mr. Justice Birss takes up the question – remanded to him by the UK Court of Appeals – of whether or not Ericsson violated its FRAND obligations by transferring SEPs to Unwired Planet.

When Unwired Planet annonced its transaction with Ericsson on January 10, 2013 investors were promised a ”conscientious and sustainable long-term IP licensing program” from the 2,815 patent assets acquired from Ericsson covering ”fundamental communications technology” so-called ”telco DNA”.

The basic theory is straightforward: Ericsson has too many patents – and in particular standard-essential patents (SEPs) – and these assets are undervalued in Ericsson’s portfolio licensing agreements, especially by Ericsson’s need to negotiate reciprocal rights for its infrastrucre business. By carving out some of these patents and selling them to a non-practicing entity for some up front cash and retaining a back-end interest in royalty revenues, Ericsson can realize full value from these assets.

There is nothing wrong with this theory. From a finance point of view; it makes perfect sense. As Samsung explained ”the aggregate of the licence fees they can now demand is higher than the fees that Ericsson could have demanded before it entered into the MSA agreements.

The problem arises when Ericsson’s FRAND commitment is taken into consideration. As Samsung explained ”Ericsson’s object in entering into the MSA arrangements was and remains to allow it to maintain a continuing involvement in UP’s licensing strategy and to benefit on an ongoing basis from the increased royalty rates that UP, a PAE, is able to charge for the SEPs now they have been stripped from the rest of Ericsson’s patent portfolio.”

Hon. Mr. Judge Birss is now handed the unenviable task of deciding whether or not the division by Ericsson of its patent portfolio in this way was precluded by Article 101.

This is an interesting question and one which will have a massive influence on the value of SEPs divested by Ericsson, Nokia, and many others.

Eric Stasik (Avvika AB)

see also on FRAND: http://bit.ly/2bHf8BD

Author: ipeg 5 months ago

After Britain’s public vote to leave the EU, the question comes up – in as far as intellectual property is concerned – what effect the Brexit has for the Unitary Patent (also referred to as “UPC”) project that finally seemed to have picked up steam.

It is likely that the UK leaving the European Union will have material effects on the UPC, either for the Unitary Patent as such or for the time the UPC will come into effect. Firstly it is important to make a distinction between the EU Regulation  whereby the Unitary Patent was established and the Agreement (an international Treaty) establishing a UPC Court.

A Brexit means that the UK will no longer be bound by,  nor party to Regulation (EU) No 1257/2012 of 17 December 2012 implementing enhanced cooperation in the area of the creation of unitary patent protection. However, the UK is also signatory to the UPC Agreement (“UPCA“) , an international  treaty to establish the Unitary Patent Court(system), so not the patent itself, but the judicial part of it( deciding on infringement and validity for example). Although the UK has not yet ratified the Agreement, the question arises whether a Brexit means that Britain can no longer be part of the UPC court system either. For sure, Brexit will have the consequence that the Unitary Patent, once into effect, will not cover Great Britain anymore. So a judiciary system establishing 3 Central Courts  -among which London – would make no sense if a London based Court would have jurisdiction over an EU unitary patent to which the UK is no party. A non-EU Member State cannot take part in the UPC. That is true for Switzerland, Norway and as a result of Brexit, also for the United Kingdom.

In addition, according to article 89 UPCA  the Agreement can only come into force if at least “three member states in which the highest number of European patents had effect in the year preceding the year in which the signature of the Agreement takes place” ratify the Agreement/Treaty. The UK is one of those “three member states”.

A further complication would be for patentees to decide which route to choose after their patent application has been granted after a European examination process.  According to the Unitary Patent Regulation a patentee has one month after grant to file a request for unitary effect at the EPO. After a Brexit however even a choice for a Unitary Patent would mean that this would not cover an important market like the UK anymore. In this case the UP route may become a lot less interesting for the patentee and force him to choose the European Patent route[1]. In that case the patent would also cover the UK (once validated).  An alternative is to still choose the Unitary effect after grant an file for a UK national patent on top of that.

The UK is a major contributor to the UPC system, both in the preparatory stage as well as in the current stage where Judges apply to become member of the “poule” of EU Judges who ultimately will decide the cases being brought before them once the UP becomes a fact of life (which was planned to happen around spring 2017). Experienced UK Judges have applied to become members of the UPC court.  They would have brought a vast load of expertise and experience into the new Court. I

It is likely that this must be reviewed as it is hard to understand how UK Judges can be part of a court deciding on a EU Unitary Patent to which their country is not part and which patent will not cover the UK.

The UPC Agreement makes no provision for what would happen to the London Central Division of the Court in this event. Some have speculated that it might be moved to the Netherlands, others that it might even stay in London, although English judges would presumably be unable to apply as only nationals of the UPC Member States can act as judges (see Allen & Overy Memorandum).

An interesting overview on the current state of play of European IP rights, including EU Trademarks (for which the Brexit may also have a profound impact) and how to deal with a Brexit e.g. for existing licenses and enforcement of other IP rights is given by the law firm Freshfields Bruckhaus Deringer. With their consent we publish this overview below:

Current state of play

  • EU member states benefit from a range of pan-EU intellectual property regimes. These include pan-EU IP rights, like EU Trade Marks and Registered Community Designs, and central administration schemes, like the European Patent Office (which also extends beyond the EU). These systems create economies of scale for owners of multinational IP portfolios.
  • A new EU unitary patent system is due to be introduced in the next few years.
  • Many domestic UK IP rights stem from EU law. UK courts must interpret those rights in line with decisions of the EU Court of Justice.
  • National courts in the EU can, in some cases, issue pan-EU injunctions against IP infringers.

 What should I be thinking about now?

  • Portfolio management – Do I need to make any changes to my filing and management strategy to ensure my unitary EU IP rights (including any new unitary patents) would be protected in both the EU and UK post-Brexit?
  • Enforcement – Would I still be able to rely on any existing injunctions to protect my rights – in the UK or in the rest of the EU – post-Brexit? Which courts should I be applying to in any litigation I am currently planning in order to get the most effective remedies?
  • Licensing – Are my existing licensing arrangements ready for a Brexit? If the UK leaves unitary schemes, will my existing licences cover transitional or successor national rights in the UK? Should I be thinking about including special provisions in any new licences to cover transitional or successor national rights?
  • IP diligence – If I am buying or selling a business, what would be the potential impact of a Brexit on the target’s IP licences and on security over the target’s IP rights?

What could the position be following a Brexit?

The answers to many of the above questions would depend on the nature of a post-Brexit UK/EU relationship.

To give an idea of the range of possible outcomes, we have considered what the position would be under the ‘Norwegian option’ and the ‘World Trade Organisation (WTO) option’ – on the basis that these are at opposite ends of the spectrum of existing models for an alternative relationship with the EU.

What if the UK left the EU, joined the European Free Trade Association and remained a member of the European Economic Area (EEA)? (the Norwegian option)

  • The UK would continue to participate in the European Patent Office.
  • Unitary EU IP rights, eg EU Trade Marks and Community Designs, would not continue in the UK. Parliament might introduce new ‘successor’ IP rights. However, this could cause issues with existing IP licences, security over IP rights, and judgments and injunctions in IP proceedings.
  • National rights based on or influenced by EU directives, eg copyright, supplementary protection certificates, national trade marks and national designs, would continue. It is likely that they would remain aligned with EU law as most relevant directives apply to the EEA.
  • Exhaustion rules prevent trade mark and design right owners from using their IP rights to restrict the sale of goods that have been put on the market in the EEA with their consent. These rules apply EEA-wide, and so would be unchanged from the present position.
  • The new unitary patent system would be vulnerable to a Brexit. Not only is the new system limited to EU member states, but the UK must also ratify the agreement for the new system to come into effect. A Brexit would require the existing agreement to be re-written, and the new unitary patent rights to be extended to the UK as a non-EU jurisdiction.

What if the UK left the EU without any form of free trade agreement? (the WTO option)

  • The UK would continue to participate in the European Patent Office.
  • Unitary EU IP rights, eg EU Trade Marks and Community Designs, would not continue in the UK. Parliament might introduce new ‘successor’ IP rights. However, this could cause issues with existing IP licences, security over IP rights, and judgments and injunctions in IP proceedings.
  • National rights based on or influenced by EU directives, eg copyright, supplementary protection certificates, national trade marks and national designs, would continue. The UK would be unlikely to diverge quickly from existing EU law without repealing existing domestic legislation.
  • Current exhaustion rules would mean that trade marks and design rights could be used to restrict imports from the UK into the EU. New rules would need to be agreed with the EU to maintain the present position and avoid price differentials arising between the UK and the EU.
  • The new unitary patent system would be vulnerable to a Brexit. Not only is the new system limited to EU member states, but the UK must also ratify the agreement for the new system to come into effect. A Brexit would require the existing agreement to be re-written, and the new unitary patent rights to be extended to the UK as a non-EU jurisdiction.
  • UK courts would no longer be required to interpret UK IP law in light of EU rules. This could result in a gradual divergence of UK and EU IP law.

With thanks to: Walter Hart, EP&C Patent Attorneys,  Eelco van der Stok, Freshfield Bruckhaus Deringer

[1] P.S. please note the difference between a European Patent and a EU Unitary Patent. A European Patent is a patent granted according to the existing system whereby an examination process is undertaken by the European Patent Offices (Munich/The Hague) which can lead to a grant of the patent right, which then results in a bundle of national patents for all countries member of the EPO.
Author: ipeg 8 months ago

Today as well as on June 23, patent attorney’s firm EP&C together with Bas Berghuis van Woortman of Simmons & Simmons organize a seminar on the European Unitary Patent and the Unified Patent Court (UPC).

Topics include:

  • What is the unitary patent and how does it work?
  • What is the Unified Patent Court and how does it work?
  • What are the strategic options?
  • What do I have to do?
Author: ipeg 8 months ago

Yesterday the “Startup Fest Europe” had its kick-off meetings and formal opening in Amsterdam with innovators from large companies from US and Europe. Start up festival is an European festival of events that help startups grow faster by bringing together founders, investors, business leaders and developers around specific themes (or verticals). It is held in various Dutch cities from 24 – 28 May 2016. The program can be found here.

Not usually high on the agenda of start-ups is intellectual property. Most of them can only think of patenting their innovation, be it as a prerequisite of investors for safeguarding their investment or as a intended “protection” from competition. However Intellectual Property Management is more than just that. We blogged about the subject many times on the IPEG blog.

We offered StartUpDelta when it as still in its infancy to assist start-ups in their initial stage with intellectual property issues for free. Unfortunately this offer was never followed up. This seems to be the place to reiterate this offer.

IPEG offers a max. of three hours for any technology-start-up in The Netherlands that has issues, questions or ideas on intellectual property at no costs during the StartUp Fest and one month thereafter.

Please contact us at info@ipeg.com.

Author: ipeg 9 months ago

The International Chamber of Commerce (ICC) has published a report on the adjudication of intellectual property cases worldwide, providing a snapshot of the structures and practices of specialised intellectual property jurisdictions (SIPJs) in a group of geographically and economically diverse countries. The report was launched in Moscow on April 29 during a session organized by ICC and ICC Russia at Russia’s largest IP-event, the International Forum on Intellectual Property – 21 Century.

The newly published study is based on the practical experiences of IP litigation experts in 24 countries, 19 of which have SIPJs – defined as a tribunal or court, or a permanent division or a chamber within a civil or commercial court or administrative body, having exclusive authority to hear IP disputes or a particular kind of IP dispute.

Daphne Yong-d’Hervé, Chief Intellectual Property Officer at ICC said: “The increasing use of the IP system means that the number of disputes related to intellectual property is set to grow. Both users and holders of IP rights need well-functioning and efficient mechanisms to resolve these disputes. The establishment of SIPJs by many countries is a positive trend which can help improve the efficiency and quality of the adjudication of IP cases.”

Increasing effectiveness of IP rights enforcement

The report reviews various aspects of SIPJs, including their structure and competence, the composition of judicial tribunals, their procedures, and their rules of representation.

The new ICC report also examines the reasons why policymakers choose to establish specialist IP jurisdictions, with “developing IP expertise in specialised judges” and “improving the consistency and predictability of court judgments” cited among the five primary motivations. The report concludes that SIPJs are considered by practitioners and litigants in all surveyed countries to increase the effectiveness of IP rights enforcement, with proper trial mechanisms and judicial expertise being crucial to a well-functioning SIPJ.

Despite a general convergence in the reasons for establishing SIPJs, the report identifies a large diversity in the structures and mechanisms of specialised IP jurisdictions – with respect to their form, their competence, the appointment of judges and experts and the representation of parties – while underscoring the importance of the specific social, economic and legal needs of a country in influencing the creation and design of SIPJs.

A helping hand for business and governments

Hao Ma, President of the China Council for the Promotion of International Trade Patent and Trademark Law Office, and Chair of the ICC Task Force on Specialised IP Jurisdictions, said: “Through this report, ICC aims to contribute to a better understanding of the current landscape of SIPJs around the world. We hope that the study will help businesses and governments better understand how SIPJs around the world function and provide information that countries can draw upon when considering how to establish or improve their own systems for resolving IP disputes.”

Today’s launch session was opened by the head of the Russian Intellectual Property Court and the Russian Ministry of Justice and brought together judges, litigators and litigants from Russia, China, France, Germany, Switzerland and the United Kingdom to exchange experiences on the various aspects of SIPJs identified in the report.

Author: ipeg 9 months ago

Intellectual property assets (IP Assets), primarily patents and software, have been the driving force behind high tech companies, but often times investors fail to understand their unique value as strategic business assets.  Investors tend to focus on the defensive value of IP Assets, as it relates to protecting the company’s own products, but that is a very narrow point of view that entirely misses the full value of these assets for investors.  This problem gets exacerbated as more and more startups turn to leverage their IP Assets for funding, as we are often seeing in our Silicon-Valley based IP valuation practice.

In order to improve the IP valuation understanding and communications between startups and their investors, we have developed the Startup IP Valuation Model, which is presented in Chart 1 below.  This model establishes four types of investor/investment combinations, and identifies the main source of value that IP Assets can bring investors in each of these situations.  IP value is contextual, as it largely depends on the IP holders and the uses they find for the IP Assets.  Our model highlights the association that the investment type creates with the asset, as well as the types of investors and what sets of capabilities they have to leverage the IP Assets in conjunction with other assets that they hold.

Chart 1.    The Startup IP Valuation Model Kasznik_afbeelding

The Startup IP Valuation model is best illustrated through an example, which is taken from one of our client engagements (all identifying details have been modified).  Our client, which we will refer to as CoolData, was looking to raise a large Series A round of funding of $25 million, which it was planning to invest in its data center cooling technology that required massive upfront capital investment.  CoolData created some IP Assets that it was trying to leverage for fundraising, including: a patent portfolio of about 20 US patents, mostly issued and some pending applications, as well as a set of fully developed data center management software tools that have been in use by several data centers.  We turn next to apply the IP Valuation Model to this example.

IP Valuation and Financial Investors

CoolData could approach a financial institution that engages in early stage funding, such as a venture capital (VC) fund or banks that specialize in venture lending. The investment by such institutions is financial in nature, and can take on one of two forms: Equity (investment for stock) or Debt (collateralized loan).  The type of investment is critical to the association between the investor and the company’s underlying assets, which, in turn, determines what type of value they can generate from the IP Assets.

Equity investments are done in return for shares (usually preferred shares) of ownership in the company. Based on data from the National Venture Capital Association (NVCA) and PwC MoneyTree report, VC investment in the US has grown from $24 billion in 2010 to $59 billion in 2015. As shareholders, VC funds and other financial investors are participating in the growth of the company: as the company’s assets grow, so does the value of their share in those assets.  In that regard, they are less concerned with the immediate liquidation potential of the IP Assets, and more concerned with the IP Assets’ potential to serve as a platform for innovation and growth, not only for the company’s current products, but for future products and markets as well.  In our Startup IP Valuation Model, this is referred to as the Growth (Pivot) Value. The word “pivot” is used in the startup world to represent a shift in business model.  It is not uncommon for a startup to fail with the first iteration of its product, or it could be targeting the wrong market.  While IP Assets should provide exclusionary rights as those relate to the current product, these assets should be created in a way that covers a wider range of ideas, encompassing future product iterations regardless of the market.  That gives the company the ability to “pivot” into other products or markets while leveraging on the same IP foundation.  In the case of CoolData, the Pivot Value lies largely in the patents, not so much in the software.  Code is particular to one implementation and deteriorates in value quickly. Patents, on the other hand, cover more conceptual methods and processes; with well-written claims and some vision, those could lend themselves to additional implementations so they could serve the company in entering new markets, or could be licensed to others.

Venture Debt is more difficult to obtain, as only a handful of banks or funds offer this type of funding to startups that are looking to use IP Assets as a collateral.  Some of the financial institutions that offer Venture Debt lending include Silicon Valley Bank and Fortress Investment Group.  Venture Debt is a senior secured loan that has liquidity preference above all other debt or equity holders.  The note will most likely be secured by 100% of the assets of the business, and the lender will typically lend 25%-75% of the fair market value of assets.  Lenders (debt holders) are mostly concerned with operating cash flows, and the ability of the company to pay back the loan and accrued interest.  The company’s IP Assets serve as a collateral securing the loan; should the company default on its loan payments, the debt holders can take over the assets and liquidate them.  In our Startup IP Valuation Model, this is referred to as the Liquidation Value.  Debt holders don’t participate in the growth of the company’s assets, as their return is fixed in nature (pre-determined interest rate).  Not all IP assets have a strong liquidation value; in the case of CoolData, it was actually their software assets that carried more liquidation value than the patent assets.  The patents were forward looking, not covering technology that is widely deployed in the market yet, a factor that determines a lot of the current market value of patents.  The software, on the other hand, has already been used and could have been easily licensed to additional data centers, and therefore much of the Liquidation Value in that particular case came from the software.

It should be mentioned that one hybrid financial instrument that is common to early stage investments is the Convertible Note, which starts out as Debt and could convert into Equity. Convertible Notes are usually issued to avoid the need to assign a valuation to the company’s common stock at a very early stage (Seed or Angel stage) with the creation of a bridge loan that can be converted to equity at the price of the next large round of funding.  Convertible notes are popular with Angel and other early stage investors, not so much for $25 million Series A investments as sought by CoolData; nevertheless, for purposes of our model, we are treating them as Equity instruments, as most of these end up converting into equity.

IP Valuation and Strategic Investors

CoolData could also approach strategic investors, such as corporate venture arms of large corporations (also known as corporate venture), which have grown in prominence in recent years. According to Forbes, in 2015 corporate venture funds have more than doubled their share of venture investments over the past five years. In aggregate, corporate venture groups invested $5.4 billion across 775 deals in 2014.  Leading the way are companies like Google, Intel, Microsoft, Dell and Qualcomm, all of which have very active corporate venture arms.

Equity investment by corporate venture arms is carried out using investment models that are very similar to VC investments, with the main exception being that the money invested is that of the corporation itself.  Another key difference is that the corporate venture group has ties to the corporation’s complementary business assets (manufacturing, marketing, customers, infrastructure), which could provide for synergies with the IP Assets of the startups in which they invest.  In CoolData’s case, it would make a lot of sense to approach corporate venture arms of companies that are either heavy users of data centers and could benefit from the cooling technology (Google) or ones that make networking equipment for data centers (Cisco).  In our Startup IP Valuation Model, this is referred to as the Synergistic Value, which represents the value-add that the a corporate investor brings, as opposed to a financial investor, which cannot provide that type of value.

Corporate lending is less frequent than corporate equity investment, but could be structured as part of a proof-of-concept (PoC) collaboration, as an example, which is a common way for large corporations to participate in the development of startup products.  Those types of agreements could include a line of credit or some other type of lending, as well as access to equipment and engineering resources.  IP Assets are often time the only assets that a startup could have to secure the corporate loan.  Should CoolData default on its loan and the corporate lender were to take over its IP Assets, the corporate lender could generate more than just the liquidation value that the financial lender could generate.  This is due to the fact that the corporate lender has IP Assets of its own, such as patents, that could be aggregated with CoolData’s own IP Assets and monetized (through licensing, as an example).  In our Startup IP Valuation Model, this is referred to as the Monetization Value.  Even if the corporate lender taking control of the collateralized asset does not find much synergistic value with its own products or resources, it can still monetize them better than the financial lender, which at best can sell them in a liquidation sale.

Conclusion

CoolData ended up raising the requested $25 million using a combination of debt and equity investments from private equity and other financial investors.  Differentiating between the Liquidity Value (which resided largely in the software assets) and the Growth Value (as reflected in the patent) helped communicate the right value premise to each type of investor.  The model has worked really well in many other instances, as it is based on the contextual nature of IP valuation and applies it across four common combinations of investors and investments.  As IP Assets fill an increasingly larger role in startup funding, and as more types of investors and financial instrument show up in the market, the understanding of IP valuation becomes more important than ever before for successful investment.

Efrat Kasznik, President, Foresight Valuation Group LLC (Palo Alto, CA)

Author: ipeg 10 months ago
Tomlinson’s legacy: the ubiquitous @
Letters and numbers are for words and figures, both important to humans. But computers need more abstract instructions, requiring coders to reach for their % and their *, the { and the ], to tell machines what to do. In 1971 Ray Tomlinson, who died on March 5th, invented a way to send e-mails from one mainframe computer to another (previously, e-mail only worked between users of a single machine). He picked one of the remaining rarely used symbols. Since then @ has conquered the globe: a character that might well have been left off keyboards (it replaces a word of merely two letters in English) is now universal. Speakers of other languages have chosen more creative names than “at”. Greeks call it a papaki (“duckling”, for a purported similarity to comic-book ducks); in Italian it is the chiocciola (“snail”); in Danish, snabel-a (“elephant-trunk A”). With lives around the world governed by e-mail, Mr Tomlinson’s legacy is secure.

The Economist Espresso, Saturday March 12, 2106
Author: ipeg 11 months ago