Thursday, 26 February 2015

Living next door to Alice patents

There’s been a lot of discussion about the US Supreme Court’s ruling in Alice Corp v. CLS Bank which apparently put into place limitations on software patents. IAM Magazine reported some research back in Spetmebr 2014 that indicate that a number of companies would lose valuable patent portfolios and some applicants (see Infosys here) appear to be re-thinking their patenting strategies. However, six months on, it is interesting to look and understand how the case will actually affect software patents and their value.

Dennis Crouch over on the PatentlyO blog has done a valuable service by looking at the fate of a number of applications that had actually been allowed by the USPTO, but were later withdrawn based on the Supreme Court’s decision. These were patents that had been found to ne novel and not obvious, but were then rejected on the basis that they were directed to an abstract idea, and thus ineligigble for patent protection.

Dennis has found that 93% of the patents are still pending. Most are on a so-called second round final which presumably means that the applicants have had the opportunitiy to express their views and are awaiting a final decision from the USPTO. Most interestingly 7% of the patents have actually been granted and only 1% rejected. It’s clearly too early to say how many of the 93% will actually be granted in the end. However, the ratio of grants to rejections is looking fairly healthy. And seems to suggest that the fear that many patents would be held invalid and lose their value may not be entirely justified.

Luxury goods: where price matters more than ever

How does one know if a product is a luxury brand? In the old days, the test was easy--
Customer: "How much is that"?

Clerk: "Why do you ask?"

Customer: "So I can determine whether or not I can afford it."

Clerk: "If you have to ask, then you can't ...."
In point of fact, the sale of luxury brands is a lot more nuanced than that. The Economist captured well the tension around modern luxury brands in a piece published last December entitled "Exclusivity for everybody." The truth today is that the question "how much is that?" is now part and parcel of the dynamics of luxury goods. Price matters. As such, factors that can systemically affect prices bear close attention, especially when they becomes intertwined with exchange rates and changes of central bank policy. One need only consider the recent events that have taken place in rich, expensive Switzerland.

Many readers probably noticed the January 15 announcement that the Swiss National Bank (SNB) would no longer maintain a fixed cap between the Swiss franc and the euro. This cap, which had been in operation for several years, had the effect of keeping the Swiss franc artificially low versus the euro, but maintaining required intervention by the SNB, so when euro began declining in value, the cost of intervention became impracticable. Without warning (indeed, contrary to pronouncements by the SNB a few days before), the cap was removed; almost immediately thereafter, the Swiss franc appreciated nearly 30% versus the euro. For this bloggers' friends working for various international agencies in Geneva, but who lived just across the border in France, the result was they suddenly had 30% more euros to spend for each Swiss franc that they received in wages.

How did all of this impact on the luxury goods business in Switzerland? As described in an article in the January 24 issue of The Economist, entitled "Switzerland's economy: Shaken, not stirred" and with a byline from Geneva, the answer depends upon what kind of goods we are talking about. Let's focus on perhaps Switzerland's leading consumer export product--watches. The chief executive of Swatch, characterized as the "world's biggest watchmaker", lamented that the impact was simply to make their exported products much more expensive. Unlike the customer in the iconic dialogue above, price is important for Swatch products and the appreciation of the Swiss franc might significantly affect sales abroad of Swatch watches, leaving the company with two unpalatable choices. Reduce the price to customers, hoping to increase sales volume at the expense of per unit profit, or maintain the price and hope that enough units are still sold to maintain profitability.

But it can be argued that a Swatch watch is not exactly a luxury brand. What about those Swiss watches that regularly appear on full-page glossy advertisements and constitute more of an aspirational good? For the denizens of Geneva, the appreciation of the euro should not make much difference, since the local price remains denominated in Swiss francs. "If you have to ask, then you can't"-- applies in equal measure, both before and after appreciation. But as anyone who has strolled the streets of Geneva will know, the retail watch trade depends to an significant degree on the tourist purchaser. Woe to him, especially if he comes armed with depreciated euros to buy a luxury Swiss watch denominated in Swiss francs. Sales to tourists may well plummet unless some repricing takes place. Indeed, something like this seems to be happening, where it is reported that "expensive watch brands are offering hefty discounts."

How about the luxury product that originates from a euro zone country and is then sold into Switzerland? After all, each Swiss franc should go a lot further in buying such a luxury product that is euro denominated. It comes as no surprise, therefore, that it is reported that Mercedes-Benz Switzerland has announced a discount of 18% on the price of all models. The upshot is that in a world where sharp currency fluctuations can significantly impact on the prices of products, luxury goods are not spared. "Exclusivity for everybody" now runs up against "how much is that?", and the answer to that question may well then determine whether a purchase will be made.

Wednesday, 25 February 2015

That IP Finance webinar: the deliverables ...

A little while back, IP Finance posted this item on the IP Finance webinar organised by Oxfirst, for which the presenter was UK Intellectual Property Office Chief Economist Tony Clayton. To refresh readers' memories, the webinar addressed the following issues:

So why is it that the banking sector is unable to connect with the main value creating – and fastest growing – form of business investment in developed economies – Intellectual Property? And what can we do about it?

Is it true that that patents cannot be valued for sale in transparent markets?

Do they have intrinsic features to prevent the establishment of secondary markets for innovation? Or is it that investors are rather ignorant about patents, brands, software and are not well informed on their risk and reward structures?

Technology entrepreneurs seeking to commercialize their patents often may not have necessary skill sets to communicate the value of IP. Current accounting standards that only partially reflect the value of intangible assets do not make things easier. This leads to market failure, where valuable technology either can’t be exploited, or can’t be scaled up to create competitive global enterprises, while investors miss out on attractive financial opportunities.

Against this background, this talk discusses how we can develop financial markets which support 21st century knowledge businesses.
Tony has kindly agreed to make both his PowerPoint presentation and his speaking notes available, for which we are all truly grateful. Thanks, Tony!

The Merger of ipCreate and Article One Partners

Earlier this year, ipCreate and Article One Partners, perhaps best known for enabling crowd sourcing of prior art, announced a merger.  Here is part of the announcement about the merger:

Founded in 2012, ipCreate will continue to provide industry leaders in the US, Europe and Asia with on-demand patented inventions at the chokepoints of disruptive market change, with the patents themselves and related landscape opportunity systematically vetted by AOP’s global network of prior art researchers adding to quality assurance.  With poor quality patents a growing burden on business and the subject of mounting challenges by the courts and the U.S. Patent and Trademark Office (USPTO), the integration of patent quality control processes early in the invention process is expected to fill a vital customer need.
“One of the lessons my three-and-a-half years as head of the Patent and Trademark Office taught me is that businesses benefit greatly from a systemic approach to improving the quality of their patents — and the earlier in the innovation process, the better,” said David Kappos, ipCreate advisor and former Director of the USPTO. “With this merger, ipCreate has now put all the pieces in place to provide clients with high-value innovation on demand backed by unusually high-quality intellectual property.”
. . .
John Cronin, CEO of ipCreate, was also instrumental in the merger. “When I was IBM’s top inventor and ran its ‘patent factory’ in the 1990s, some people thought it was just a numbers game — about having the most patents. That was never what it was about,” he explained. “Our goal was to develop high-quality patented inventions in disruptive technologies. That’s how IBM invented the future. With Article One Partner’s help, that’s what we intend to do again. Only now we plan to invent “on demand” to suit the specific needs of our partners and to the highest standards of quality.”

Article One Partners brings much to the table. "The merger is expected to provide a number of strategic benefits including the ability to leverage AOP’s existing customer base, strong “white-hat” branding, enhanced patent intelligence, patent quality services and increased depth in executive leadership through the addition of Marshall Phelps and the AOP management team."
The board of directors and the advisory group is impressive, including Marshall Phelps, Jr., John Cronin, Peter Holden, Robert Armitage, Ruud Peters, David Kappos and Mike Brochu.  The leadership team is also a distinguished group. 
So, the game is not so much about amassing patents, but strategically acquiring one or a small set of quality patents (read Alice) “at the chokepoint[].”   True enough, most agree that quality patents are not so much a problem; however, litigation “abuse” is something that I am sure others will complain about.  But, I think this group will “work around” that problem with sensible licensing practices. 
Here is a blurb about the philosophy of ipCreate:
Our mission is to forecast the direction of innovation in the fastest-growing new product markets and then create strategic patent portfolios in the disruptive high-value technologies driving that growth. We know first-hand that the greatest value in the IP asset class belongs to a small minority of foundational patents. By working with select leaders in industries undergoing rapid technological disruption – whether dominant players in the market or visionary startups – we will employ ipCreate’s proprietary tools and resources to identify promising innovation areas and rapidly create foundational patents at the chokepoints of looming market change.
With major financial backing, we expect to fund and execute more than 100 strategic invention and IP creation projects and produce thousands of foundational patents by the year 2017. By restoring the historic link between patents and invention (rather than litigation), ipCreate also hopes to strengthen a patent system that is crucial to U.S. competitiveness.
I think the merger with Article One Partners is a pretty damn good idea.  Who doesn't want to wear a "white hat?"  I do wonder how many of the researchers will go along with the new venture.  [I have to say that I also like how they put “ip” in lower case letters and capitalize the “C” in create.]  What do you think?

Nespresso - or nothing

The German Handelsblatt newspaper is reporting that the German Federal Patent Court based in Munich has declared invalid "Nestlé’s patent for the Nespresso coffee system”. It’s part of a long-running dispute between the former CEO of the Nespresso division, Jean-Paul Gaillard, and his former employer. Mr. Gaillard started up a rival company the Ethical Coffee Company offering biodegradable capsules.

Given that Nestlé has, apparent 1,700 patents on its system (at least according to this New York times article), the revoked patent probably only represents one of aspect of the Nespresso system, but probably a key one for competitive capsules. The market for such coffee capsules is apparently EUR 13 US billion dollars annually, of which Nestlé apparently have a CHF 4 US billion (according to the Handelsblatt). Clearly the loss of any key patents could dent significantly Nestlés share of the market.

It’s not the first time that Nestlé have lost against the Ethical Coffee Company, since the Düsseldorf Regional Court had already refused an emergency injunction in 2012 (reported in the Financial Times) on the grounds that purchasing a machine gave the user a right to use the device. Nestlé were reported to have abandoned their complaint in 2014

This blogger regularly deposits into his rubbish bin a bag-full of capsules and would certainly be keen to buy ecologically friendly capsules instead of filling up the local rubbish dump. To date his local supermarket - just outside of Munich - has not offered any alternative capsules and so he has not had any choice. It’s not clear whether he will get that choice in the near future, because Nestlé can still appeal to the German Federal Court in Karlsruhe.