Issue #27-2 | August 15, 2013

The administration’s veto of an ITC ban on importing some Apple products has a valuation ripple effect

The International Trade Commission (ITC) determined that Samsung had bargained in good faith with Apple over licensing its standard essential patent having to do with connecting to a wireless network and that Apple was infringing on the patent. One of the remedies available is a ban on importation and sales of offending products, which the ITC invoked. A couple of weeks ago, U.S. Trade Representative Michael Froman, representing the Obama administration, vetoed the ban. In a letter explaining the veto, Froman said he considered the potential harm the sales ban would cause to consumers (limiting consumer choice) and the U.S. economy. The decision surprised some, but it is totally consistent with the FTC’s opiniondiscussed previously in IP Value Wire.

The ramifications of the veto on patent value are significant. And there are political ramifications. On Aug. 9, 2013, the International Trade Commission (ITC) found that Samsung infringed on parts of an Apple patent that covers elements of swiping a finger across the device’s display and parts of another patent “related to headphone jacks.” These are items Samsung claims have been designed around in newer phones. The only way the ITC ban can be overturned is if the Obama administration vetoes it, and it has 60 days to decide. Samsung and its partners will argue the anticompetitive issues brought up by Froman when the administration lifted the ban on Apple products just a week ago. Apple will argue the difference between standard-essential patents (those that Samsung sued over) and non-standard-essential patents (which Apple sued over). For those not familiar with the nuances of the difference between standard-essential patents and non-standard-essential patents, the administration’s allowing the ban to proceed will appear to be favoritism.

If Froman’s concern with consumer choice is the prevailing philosophy, it’s difficult to imagine a situation where any product ban would be the appropriate remedy. Which brings us back to value.

Part of a patent’s value is the availability of remedies against an infringer. Those remedies encourage good-faith bargaining for licenses. The more certain those remedies, the more comfortable one is of a valuation. If courts go one way, ITC goes another, and the executive branch, in effect, becomes the ultimate arbiter, it is impossible to know the worth of a technology patent.

Why do economists decry software patents?

Economists seem to be universally against the concept of software patents. An iEconomy article in the New York Times in 2012 explained with a specific case study how the present system stifles innovation (albeit it’s a sample of one). The article argued such patents are overly broad and vague.

As reported in IP Value WireMark Lemley of Stamford offered a solution to this:
“[B]y applying the rules of means-plus-function claims to software, we could begin to get a handle on the software patent issue. Indeed, ending functional claiming may be the only way out of the software patent morass. As long as patentees can claim to own the problem itself—not just the solution—defining better boundaries and invalidating obvious patents won’t do much to make the patent mess go away.”

Why haven’t economists lined up in support of Lemley’s solution? Eric Maskin, a professor of economics at Harvard, suggests that if the problem were simply the way the claims are written, Lemley’s solution would work. Rather, for innovation to work the way it should in software development, the patent process should not apply at all. Maskin’s letter to the New York Times explains why.

With software, innovation “is highly sequential: progress is typically made through a large number of small steps, each building on the previous ones.” Running into a patent barrier at any step requires license negotiations, additional fees, and/or litigation plus additional time. In short, a patent holder can delay progress and make it prohibitively expensive to move to the next step.

Perhaps there is a step between no patents, with inherently less incentives, and where we are today. As an example, for the most part (with a few notable exceptions), there appears to be goodwill among software innovators in the world of standard-essential patents, with its nominal licensing, lack of litigation, and air of respect. Is there a model there to consider?

Don’t forget these intangibles when performing a valuation

Charles Grigsby, of Grigsby & Castro, responding to a comment in LinkedIn, hinted at a brief but helpful checklist of the types of “non-financial” factors valuators look for. In addition to brand identity, customer relationships, proprietary processes, talent, and vendor relationships, he suggests other intangibles and factors:

  1. Favorable lease(s) and location(s);
  2. Remaining useful lives of the IP;
  3. Risk of the client infringing on others’ IP;
  4. Risk of others infringing on the client’s IP; and
  5. “Favorable or unfavorable international, federal, state or local laws or regulations that enable the enterprise to create value in its business niche.”

Walgreens says licensed properties are in demand for back-to-school

What kind of value attaches to a merchandise license? At Walgreens, it’s considerable. According to Walgreens, more than half of K-5 students (57%) want cartoon-character-themed school supplies this year, as do 50% of middle schoolers and 22% of high schoolers. Just over half of K-5 students (51%) want movie-themed supplies, as do 41% of middle school kids. Forty-three percent of middle schoolers want pop-singer-themed supplies, as do 29% of high schoolers.

To learn what back-to-school trends portend for the fourth quarter, join The Licensing Letter’s August 21 webinar, Back-to-School: Bellwether for Licensing’s Q4. Learn about current shopping trends and examine the degree to which back-to-school is a pacesetter for the all-important holiday shopping season. Click here to sign up for the live event or to preorder a recording of the session if you can’t participate that day.

Costco blasted for unauthorized and misleading use of Michael Kors trademark in an online ad

Imagine the surprise marketers and designers from Michael Kors LLC had when they saw an April Costco advertisement that pictures a Michael Kors handbag when Costco is not an authorized Michael Kors dealer. Without much delay, designer label Michael Kors LLC filed a lawsuit for false advertising.

As reported by Mandour & Associates, APC, the fashion company claims Costco deliberately misled customers by including prominently featured photos of Michael Kors handbags in an online advertisement despite having no intention to sell them. The bags pictured were offered at a substantial discount from what authorized dealers are selling the bags for. Michael Kors wants the court to bar Costco from any future marketing of Michael Kors products and is requesting unknown monetary damages.

The value of co-branding can be elusive

Back in March, Ira Mayer and Mike Pellegrino addressed the concept and process of valuing brands. One of the factors to look at to get the sense of the overall brand strength is collaborations or co-branding initiatives.

Marketing specialist Debbie Laskie has put together a Pinterest page showing examples of co-branding. The objective of any co-branding arrangement is to somehow capture the gestalt of the two brands to increase the premium consumers are willing to pay for a product or service. Valuators will look at the strength of co-branding partners as part of their analysis.

Laskie warns of the downside as well. “If one brand experiences a crisis, the negative events or negative publicity can damage the second brand—even if it was not involved directly. This is why it is critical to carefully evaluate the goals and objectives for a co-branding partnership in advance.” Since publicity makes up a large portion of a celebrity brand, when a celebrity falls, brand owners that are attached to that publicity have strategic decisions to make on the overall impact of that fall.

In fact, an article at Brandstroke suggests a brand’s ties to celebrity are not worth the risk. Citing a study by Ace Metrix, the article suggests celebrity endorsement may actually depress an ad’s response. As a leading example, even before the current baseball doping scandal, Nike has had to deal with crises surrounding Michael Vick, Oscar Pistorius, Joe Paterno, Marion Jones, Lance Armstrong, and Tiger Woods (they retained Tiger Woods).

Kraft Foods convinces court that Cracker Barrel Old Country Stores’ attempt to move into grocery stores will confuse shoppers

Two holders of a “cracker barrel” trademark have peaceably co-existed for years because they were used for different goods and services. Kraft Foods carved out cheeses, sold in grocery stores. Cracker Barrel Old Country Store represented restaurants and, well, simulated old country stores.

Cracker Barrel Old Country Store Inc. then licensed the use of its name to a Smithfield Foods subsidiary to use on a line of meat products to be sold in grocery stores—presumably right next to the cheese section.

Kraft thought that move would “confuse” consumers, as did U.S. District Court Judge Robert W. Gettleman, who granted Kraft Food Group Inc.’s request for a temporary injunction barring the Cracker Barrel Old Country Store-branded food products from grocery stores across the U.S.

This strategy is not for the faint of heart. Kraft was asked to post a $5 million bond—in case the court ultimately finds granting the temporary injunction was wrong.

Fox hints new ‘Simpsons’ syndication deal may approach $1 billion

Reuters is reporting the next syndication of “The Simpsons” may be a $1 billion deal. Last syndicated to TV stations in 1998, the new deal will license reruns to cable stations as well. Speculation is that, in addition to Fox’s own FX cable channel, other interested parties will be Viacom (with its Comedy Central and Nick at Nite channels) and Turner Broadcasting.


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