Issue #28-2 | September 26, 2013

IP Value Wire Header

NPEs: More cautions for Congress against hasty action

Jon Dudas and David Kline, writing in Forbes, have invoked the research Zorina Khan of Bowdoin conducted, which was reinforced by a Yale faculty white paper, opining that Congress should tread lightly when trying to regulate a major, historical, well-planned, and heretofore working part of the U.S. patent system.

The legislative history, such as it is, of the nation’s first patent law, enacted in 1790, suggests the Founding Fathers debated and rejected the British system of high patent fees and the requirement that patent owners had to work their patents, a system that confined innovation to a small cadre of well-healed individuals who had the wherewithal to manufacture. There was no room for entrepreneurs and disruptive technologies.
Here’s what the early Congress decided upon:

  • It set patent fees at a level an ordinary citizen could afford;
  • It decided against imposing working requirements on patentees. Prof. Khan explains, “The Senate suggested requiring patentees to make products based on the patent or license others to do so, but the House rejected this as an infringement of patentee rights”; and
  • It wrote the patent law so that it created tradable assets, patent rights, thus opening the door to patent licensing and greatly expanding patent value.

Currently no less than six attempts to legislate against nonpracticing entities (NPEs) are before Congress right now. The Administration has weighed in heavily with its own proposal to curb the power of NPEs that, in the president’s words, “don’t actually produce anything themselves.” Senators Patrick Leahy (D-VT) and Mike Lee (R-UT) outlined the argument against “patent trolls” in Politico.

One example is the SHIELD Act, introduced by Representatives DeFazio (D-OR) and Chaffetz (R-UT), which would insulate patent owners in some way if they could prove they had made a substantial investment in trying to bring the patent to market—exactly what the Founding Fathers were trying to avoid.

Court’s denial of Jim Brown’s Lanham Act claim ironically boosts the value of ‘publicity rights’

Electronic Arts (EA) owns one of the best computer game franchises in sports, Madden NFL. Part of its appeal is realism, and creating realism depends upon using well-known character images as players, even if they are not identified by name. Jim Brown, arguably the greatest and certainly one of the most recognizable running backs to ever play in the National Football League, reasoned another’s capitalizing on his well-known image without his permission or compensation surely couldn’t be legal. His attorneys sought remedy under the Lanham Act for false endorsement.

When EA identifies National Football League players by name, it is covered under a license with the NFL and the players’ union. Versions of the games that use famous historical players use only their likenesses; many are easy to identify, such as the likeness of Jim Brown. EA does not compensate Brown for that use.

The U.S. Court of Appeals for the 9th Circuit (Brown v. Elec. Arts, Inc., 9th Cir., No. 09-56675, July 31, 2013) affirmed a lower court decision and denied Brown’s claim, reinforcing reliance on the Rogers test to determine whether an expressive work deserves First Amendment insulation from the Lanham Act.

The two prongs of the Rogers test (adopted by the 9th Circuit in Mattel, Inc. v. MCA Records, Inc., 296 F.3d 894, 63 U.S.P.Q.2d 1715 (9th Cir. 2002)) state that the Lanham Act should not be applied to expressive works:

  • “Unless the [use of the trademark or other identifying material] has no artistic relevance to the underlying work whatsoever; or
  • “If it has some artistic relevance, unless the [trademark or other identifying material] explicitly misleads as to the source or the content of the work.”

The artistic relevance was clear. “Given the acknowledged centrality of realism to EA’s expressive goal, and the importance of including Brown’s likeness to realistically recreate one of the teams in the game, it is obvious that Brown’s likeness has at least some artistic relevance to EA’s work.” The key to the second prong of Rogers is “that the creator must explicitly mislead consumers.” That was not proven.

In analyzing other cases, Bloomberg suggests a better avenue to take is seeking protection of the “celebrity” through state right-of-publicity actions. The court has rejected arguments that the Rogers test should be extended to right-of-publicity claims, reasoning that the Rogers test was developed in the Lanham Act context to balance the public’s interest in free expression with the public’s interest in being free of consumer confusion. “The right of publicity protects the celebrity, not the consumer.”

If auditors determine there is no carrying value to a brand, does that mean it is without value?

Billabong International Limited describes its core business as the marketing, distribution, wholesaling, and retailing of apparel, accessories, eyewear, wetsuits, and hard goods in the board sports sector under the Billabong, Element, Von Zipper, Honolua Surf Company, Kustom, Palmers Surf, Xcel, Tigerlily, Sector 9, and RVCA brands. The company has approximately 6,000 employees worldwide, and its shares are publicly listed on the Australian Securities Exchange. Billabong International’s products are licensed and distributed in more than 100 countries and are available in approximately 11,000 doors worldwide. Products are distributed through specialized sports retailers and the company’s own branded retail outlets. The majority of revenue is generated through wholly owned operations in Australia, North America, Europe, Japan, New Zealand, South Africa, and Brazil. The company’s brands are marketed and promoted internationally through association with high-profile professional athletes, junior athletes, and events.

A couple of days ago, its stock finished at $0.45 on the Australian exchange. And, in its annual report for the fiscal year ending June 30, 2013, it reported a net tangible asset backing per ordinary security of $0.11—presumably allowing for some value of its intangibles.

As alluded to in IAM Magazine, the company has reported an impairment charge that wiped out the residual value of the Billabong brand carried on the books. (It had a large impairment charge the previous year as well.)

The value-in-use calculations were based on a four-year business plan projecting forecast profitability and cash flows prepared by management and approved by the board. A terminal value was calculated for subsequent years referencing the terminal growth rates.

Billabong-branded products are still being sold, related websites are up and running (see example), and the name of the holding company is Billabong. What this means in accounting-speak is that the company has determined that from this point forward it will generate $0 in recovery of the Billabong brand. If there is no carrying value to a brand, does that mean it is without value? As there must be ongoing costs associated with the brand, would the company be willing to give it away—then perhaps license it back to satisfy current uses? Of course, if the answer is yes, then a relief-from-royalty perspective would assign the brand a value, one presumably different from what the auditors have decided.

BEA revises second-quarter economic data

Ken Jarboe of Athena Alliance points out disturbing news in the data released by the U.S. Bureau of Economic Analysis (BEA) at the end of August. The new GDP category of “intellectual property products,” which includes R&D, software, and “entertainment, literary and artistic originals,” declined by 0.9% in the second quarter. No analysis accompanied the new data, but, if IP is supposed to be the driver of the new economy, we either don’t know how to measure it, or it is bad news indeed.

New resources for managers of IP

Raymond Millien, of the PCT Law Group, PLLC, compiled a directory of intermediaries for players in the U.S. patent marketplace. From private equity investors to lenders, from auction houses to IP insurance advisors, the directory comes with names, phone numbers, and URLs. There are over 100 entries, including the main nonpracticing entities. The directory is misnamed (“IP”), as it narrowly focuses on patents. Also, though the description is of the U.S. marketplace, the directory rightfully includes contact information at European houses that affect that marketplace.

IAM Magazine has published three free-to-view guides for those responsible for global IP management:

DHX/Ragdoll deal is emblematic of IP dealmaking

DHX Media has acquired “Ragdoll Worldwide” from BBC Worldwide and Ragdoll Ltd. Ragdoll Ltd. founder Anne Wood is the creator, along with Andrew Davenport, of Teletubbies; also included in the £17.4 million deal is Davenport’s “In the Night Garden,” which was produced by Wood, and 10 other series. Wood and her son Christopher will continue to run their own company, Ragdoll Productions.

The DHX/Ragdoll deal is just the latest in a series of IP-based mergers and acquisitions across the licensing community. Examples have included other mergers of licensors, e.g., Disney and LucasArts ($4.05 billion), as well as acquisitions of licensors and their intellectual property by investment companies (e.g., Authentic Brands’ purchase of Judith Leiber, Adrienne Vittadini, and other fashion labels earlier this year).

But also increasingly common are mergers and acquisitions involving licensees with less prominent profiles, which are occurring across several categories. Click here for Karen Raugust’s TLL blog RaugustOnLicensing for eight examples encompassing ConAgra, Lids Sports Group, Concept One, and others.

Dish Network can still offer its ad-skipping Hopper

The Wall Street Journal reports Dish Network won a legal skirmish last week as ABC attempted to outlaw features of Dish’s “Hopper,” a digital video recorder (DVR) that automatically records primetime TV broadcasts and allows users to skips ads during replay.

ABC and other major networks contend Dish is violating their copyrights and unfairly competing with its licensees. This is not a ruling on the copyright infringement claims, which the major networks are litigating. Rather, the courts are being consistent in not allowing preliminary injunctions.

How do universities share in the income from faculty and student inventions?

An article in the Duke Chronicle earlier this year reported on several schools and their patent-revenue sharing policies, starting with Duke.

At the time, the Duke University Policy on Inventions, Patents and Technology Transfer, found in the Appendix of the faculty handbook, requires all faculty inventions to be reported to the Office of Licensing and Ventures, where they are categorized: inventions created independent of university resources; inventions that resulted from the use of some university resources; and inventions that relied heavily on university resources.

Category 1 inventions see all proceeds go to the inventor. In Categories 2 and 3, the university first gets reimbursed for the resources used, and then a royalty is paid to the school: “For the second, Duke has the right to collect a royalty of 10 percent of the gross income. The third category, which most University inventors usually fall under, gives Duke ownership of the invention and 50 percent of net earnings for inventions that earn anything less than $500,000, 67 percent for income between $500,000 and $2 million and 75 percent for anything over $2 million.”

At the University of Virginia, the university is entitled to 50% of royalties, regardless of the amount of patent income.

Stanford University and several others put proceeds into three buckets: one-third for the inventor, one-third for the inventor’s department, and the final third to the university.

The article ascribed a different governing philosophy to the Massachusetts Institute of Technology, suggesting it takes a much lower royalty on faculty inventions to stimulate innovation.


Contact Us:

Business Valuation Resources, LLC
1000 SW Broadway
Suite 1200
Portland, OR 97205
(503) 291-7963

Ask the Editor

Valuation of IP

Share This!
Share on LinkedIn
Share on Twitter

Licensing Letter




This email was sent to: %%emailaddress%%. 
To ensure this email is delivered to your inbox, please add to your email address book.
We respect your online time and privacy and pledge not to abuse this medium.