The new wealth of nations?

Borrowing the (in my mind bold) theme from CIP Forum 2011 and tying on Johan's previous post on patent filing, I'll try to give an my angle at this.

Johan touches upon a very interesting point, not only tied to IP but I assume business in general - when (or maybe if) will Asia (China) become the new epicenter. And that's of course where CIP Forum predicts that it will be the epicenter of intangibles rather than manufacturing. These are big question, but I'm a simple economist who likes graphs - so here's my stab at it.

Quantity - YES

Johan shows one strong indication of IP becoming more important to Chinese companies and this is probably another strong sign of China trying to move away from "made in China" to "invented in China". Two Chinese tigers are ZTE, now the worlds 4th largest handset company, and of course Huawei. But besides their business success, they are also the 2nd and 4th top PCT filers.

So it's clear - Chinese have understood IP and are going after it massively. And as Johan showed, so have the Koreans, while US, EU and Japan keep a fairly steady state.

Quality - Hmm.. let's find out

So let's try and look at whether this seems to be quality. And of course this is the million dollar question.

Trying to answer the modest "wealth of nations" question, I've at least found one proxy which feels objective, namely the World Bank. Diggin through their data I've found data for royalty and license payments and receipts, on an annual country basis.

As with any model or data - it's not perfect, but let's have a look at some results. I will present payments, income and balance for US, Germany, Japan, China and Korea. This will hopefully be a decent proxy for US, EU, "Old Asia", "Booming Asia", "Next Gen Asia".

Data Analysis - Royalty and License; payments, receipts and balance, 1997 - 2009.

This first picture will show us that all countries are receiving incomes but that it's very unevenly distributed with the US as the clear leader. With a very large order of magnitude, Japan (2nd largest) still 4x smaller than USA.

The second picture tells a slightly different story, showing that all count

ries have increasing payments. Again the US have largest payments.

Two interesting aspects of this would be that a) IP is a global asset b) the trade of IP is growing.

Looking closer at Japan, Korea and China we can see that the trends look quite similar. But let's take the analysis one step further and look at them on a country by country basis.

Starting with China - the outlook is quite dismal. Although there are some receipts, the annual licensing/royalty deficit is close to 10 Billion USD.

Looking now at Korea - seen as many as the real tiger and truly booming in the business space (especially in consumer electronics and telecom) lead on by Samsung ,LG, Hynix, Hyundai. Still the annual deficit is close to 4 Billion USD. And sure, royalty incomes are increasing fast, but payments even faster as the deficit is growing year-on-year.

Now ending on a hi-note with Japan currently with a positive balance of approximately 5 Billion USD. But although looking strong now, "break even" was reached less than 10 years ago.

Trying now to tie it all together, let's look at the all countries and perhaps the most important metric of all - payment balance.

This picture really says it all in my mind. The US are just miles ahead whereas the others are struggling and actually only Japan having an annual surplus.

I'd also like to highlight 2009 as an "odd" year in the data, where many changes happened. Maybe it's a freak thing or maybe it's tied to the financial climate, who knows. But before that the analysis was simple - everyone is paying Japan and US more and more money every year.

Closing thoughts

What I wanted to show with this exercise was that although Asian countries (mainly Korea and China) are booming in terms of patent filings and general corporate growth - they are still very much trailing in terms of IP royalty payments.

It could be tempting to draw the "simple" conclusions and say that their IP is worse or likewise saying that in terms of patent holdings - they are still miles behind the likes of Sony, Panasonic, Siemens, IBM, HP etc.

And maybe the truth is somewhere in between, i.e. that what you don't have in quality you make up for in quantity. I.e. when big IBM (with tens of thousands of patents) knocked on little ZTEs door - you'd pay up, regardless of quality.

I guess what you can say is that even if Asia seems to be catching up in the administrative arena (i.e. filing patents) they still seem to be losing the battle in the business arena.

Marcus Malek

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Ford and Geely closer to agree on Volvo IPR

The talks between the Chinese car manufacturer Geely and Ford seems to have gotten a step closer to actually closing the deal on Volvo Cars. According to a press release on November 27 the key issue about how and in what form the technology is to be part of the transfer has been solved.

For acquired Volvo Cars from the Swedish automotive company Volvo some 10 years ago. Volvo AB still manufactures trucks and heavy vehicles under the same brand name.

Ford has for some time had negotiations with the Chinese car manufacturer Geely about selling Volvo, a deal estimated to be worth some USD 2 billion. Even though the brand itself probably adds up to a great deal of that price the actual technology to build up the cars have been one of the key issues in the negotiations. For one, Volvo has been tightly integrated in to Ford and as such most likely shared technology, and IP, across both companies. This has been an issue in the negotiations, since Chinese companies are not as highly regarded when it comes to respecting IP. The current integration in to Ford has therefore created some issues, now when it is assumed Volvo will operate independently as an own entity.

The press release yesterday stated that a solution might be close at hand.

"Volvo will retain ownership over key technologies and IP that it has developed and will retain access to all Ford IP that Volvo plans to use to implement its business plan," and that by owning Volvo Geely would get "access to a significant suite of IP, including Volvo's safety and environmental IP."According to Reuters.

I think this is interesting for two reasons.

1) The automotive industry is to a large extent driven by innovations and the IP portfolios and teams of engineers are key assets that Chinese companies have had a hard time keeping up with. By acquiring Volvo Geely will get access to many interesting technologies, possibly both to be deployed in vehicles with the Volvo brand but also in other brands.

2) That the IP owned bu Volvo will come with the purchase might not come as a total surprise and will possibly be quite easy to handle in the long run. The issue which to me is a bit less clear is that Volvo will get access to IP for the planned implementation of the business plan. What is included, for how long and to what extent. They will possibly/hopefully define it in a better way in the final contract, though one can not be too sure.

I recollect the now settled dispute between eBay and Joltid around the fundamental technology for Skype. It turned out that it was not included in the purchase of the company. I might not see as fundamental technology retention in this case, but there might be some core IP kept in Ford's control to surface in a couple of years time when the cars not planned in the business plan are a reality. Perhaps impeding Volvo and it's owner in efforts challenging established US companies (read Ford).

Johan Örneblad
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Book Review – Trading TV Formats

Trading TV Formats – The EBU Guide to the International Television Format Trade by Christoph Fey



The book is published by the European Broadcasting Union (EBU) in an attempt (I reckon) to somewhat formalize and establish best practices for a trade, which almost dates back as early as the first TV programs. But it is as vital as ever, with international format licenses on smash hits such as “Survivor” and “Who wants to be a millionaire?”. The international format business is worth some €2.4bn.

The book
It is outlined in three distinct parts with the aim to help licensors in packaging and pitching their ideas to producers or broadcasters. The parts cover how to package a format, how to protect the format, and an overview of several different court cases.

The part that deal with the package and how to strategically arrange for the license deal is quite hands on with straight on suggestions for clause constructions. It also discusses hoe to relate to the IP in the deal, both so you do not transfer more than you intended but also from a protective perspective.

The part on protection provides a good overview over issues to be thought of not to unintentionally let go of your potentially valuable asset.

Takeouts
The part of the book which I found most interesting is the one that discusses the rights of the buyer; what is it he is licensing? It all comes down to the issue of that TV formats as such is an unknown concept for copyright legislation. There have however been attempts to actually award the creator of a format some sort of protection for her work. Either if this is through copyright or through different types of unfair competition legislation.

To me the issue of TV format protection shows the sometimes inaccurate or at least inflexible way IP legislation can behave. Formats have been licensed for half a decade with, I guess, quite good rate of success. But the more valuable the formats become, both in themselves for TV production but also for external merchandizing, the greater efforts are taken to circumvent the established practices. One other factor might be that the TV broadcaster market have gone from almost only state owned public service companies to a greater breath in broadcasters today.

I think this is an interesting area and will get back to it here at Intangitopia in the future. Especially since it in such clear way shows many of the interesting characteristics of IP; intangible but defined by a tangible transactional object (compare the “Format Bible” to a patent for instance), value driven by transactions and transactional structures can be custom made in almost any way.

Johan Örneblad
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The Future of Books and Why Access is the Key

Yesterday I visited the Blackwell book store at Charing Cross Road in London, to have a firsthand look at their new Espresso Book Machine. It is said to revolutionize the book distribution and give readers access to out-of-print books. As Blackwell’s Andrew Hutchings puts it:

"It's giving the chance for smaller locations, independent booksellers, to have the opportunity to truly compete with big stock-holding shops and Amazon.”
"If you could walk into a local bookshop and have access to one million titles, that's pretty compelling."

Great Selection, Quite Old Though
I like the idea of having my local bookstore stock “all” books. Just pop down on a Saturday and order a book I fancy reading. This was what I tried yesterday. The book machine was all in place but what surprised me was the fact that there was no possibility for in store searching of which book I would like to get printed. I could ask the store attendant to find a book for me. But I could not browse around as I usually do in a book store, trying to find a good read.

The Blackwell book machine has access to some 500.000 titles of which most is out of copyright and therefore free for all. I was told that I could search myself at archive.org for books to be printed. Sure, it is a good way to do it. But in the same way as mp3 is a good format for music and most mp3 players are capable of playing the files in a acceptable way. It is the Apple iPod that has won in the market place. I believe that it will be somewhat the same in the book market in the, hopefully, near future. The service which offers the best integrated search and distribution model will have a great advantage.

The Long Tail
The concept of the long tail is based on that you can offer an almost unlimited range of content with electronic distribution. No shelf space to consider. When looking at the sales number of this content a curve with just a few top sellers and an unlimited tail of titles selling less and less. It has of course been a typical problem in the book store business that you only have a limited shelf space and to prioritize between titles have been hard.

My prediction of the future is that the distribution method of the content will be of declining importance. If it is a tangible book as the ones we are used to, or if the written text is distributed to a reading device will be a choice of preference by the reader. The relevant part is the content database and the size of it. In a long tail distribution model the key is the amount of titles offered and the ability to make it attractive to look through and easy to find what you were looking for, or did not know you were looking for.

This is also what was lacking in the Blackwell store. A way to actually browse through the extensive content they actually have access to. I believe that this will be even more imminent when they add titles still in copyright to the database. Especially since they most likely, to some extent will compete with the already printed books on the shelves.
Licensing Model
To be able to use the book machines I do not believe that there is that much needed to be changed in the contracts with the rights holders. The end product is still the same, even if it is produced in store instead of in larger quantities. From the knowledge I have of royalty models in publishing, it could perhaps be some other models needed to be negotiated. Especially since the risk element is somewhat limited without any large quantities printed. Differentiation between the first and the rest of the sets of printings might be of declining importance. Perhaps the first step is to introduce a clause offering a flat rate of sharing the revenues from this form of distribution.

Business Model
In the future there are several possible licensing models for this type of distribution of content. For example:

• Pay per copy
• Full access and limited prints of each

I guess that the most probable in the in bookstore book machine case will be something which have close resemblance to how you buy books today. Pay per copy will therefore be the most likely option.
Since the book content in most cases already exists in an easy to access pdf format there are initially probably no direct intellectual property issues, especially since the tangible carrier of the content is the same. Just another form of distribution.

The Future
The publishing industry is about to enter in to the stage where the music industry were some 10 years ago. The carrying media is challenged and you need to be thinking ahead and question your current business- and distribution models in order to survive. But the future looks bright and with some interesting, but also frightening creatures emerging.
Just think of the Google Book Project will reach its goal of scanning all books there are. This source of information and content will create interesting new business opportunities. Both for distributors and aggregators. Perhaps Google and the publishers need to get to an end with the current licensing issues first though.



What did I then end up buying? Well one of the books which they knew to print out fine was “Sonnets and other poems” by William Shakespeare. I picked it up still warm from the printer and paid £7.99 and went out in to the London sun to get me some culture.

Johan Örneblad
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Who Licenses out Patents and Why?

I resonantly read a report on patent licensing from OECD called “Who Licenses out Patents and Why?”. The report is based on a study made on patentees in Japan and Europe and focuses on if they are licencing out their patents and if so why.



Main Findings
One of the main findings in the report is that it only is a limited number of the patent holders which actually license out their patents. The number is around 20% for European ones and 27% of Japanese companies license their patents to unaffiliated partners.

When it comes to what companies that license the report find that it is an U shaped curve with higher licensing with smaller and larger firms. This might be explained by that larger companies produce complicated products needing to license in technology and enter in to cross-license deals. Whereas the smaller companies need to outsource their technology to different manufacturers.

This might however not be totally consistent since the main reason for out licensing is to get revenue from the patents the company holds.

Johan Örneblad
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The report can be found here.
IAM Magazine Blog and The 271 Patent Blog have also written about the report.

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Attribution and noncommercial
We have decided upon the license which requires the licensee to attribute us as individual authors and where appropriate also refer back to Intangitopia. We have also decided to use the limitation that the licensed content only can be used for non-commercial purposes. But as always, we can also waive this at any time by request from the licensee.

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Johan Örneblad