Monday, 21 July 2014

YUM Brands has Trials in China: A “Social Ideology” Fix to the Problem?

YUM Brands (YUM), the owner of KFC and Pizza Hut, has generally enjoyed enormous success in China for a “foreign brand”.  The success has been attributed to a strong first mover advantage.  And, the brand is, of course, critical to that first mover advantage.  However, YUM has struggled with issues concerning “trust,” first because of “excessive antibiotics and hormones,” which led to around a 40% drop in sales.  According to several news outlets, here and here, foreign brands are at a disadvantage to “home grown” brands in China because the news media in China is supposedly more inclined to criticize foreign companies.  So, the issue has been how to effectively rebuild trust with consumers in a foreign brand after a scandal in China.  YUM Brands became a model of success after the “antibiotics scandal” by taking immediate action:

Promis[ing] to test meat for banned drugs, strength[ing] oversight of farmers and encourag[ing] them to improve their technology. It said more than 1,000 small producers used by its 25 poultry suppliers have been eliminated from its network.

The success of the strategy (along with some tasty chicken and a better economy) appears to have helped sales bounce back 11% at KFC the past year, as reported by the BBC.  However, YUM is facing troubles again.  News has just broke about another scandal concerning the use of “expired” chicken.  What can YUM do to fix its brand?  One possible strategy was discussed in a Forbes article by Avi Dan on the information age and brand loyalty:

Do well by doing good: Marketing is no longer an economic function alone, but a social force as well. Within minutes of the Haiti earthquake, donations requested on Twitter started flowing in via text messages in coordination with the phone company. Pepsi bypassed the Super Bowl for the first time in 23 years, and instead of buying $3 million spots in the game, announced on its Facebook page that it will donate $20 million to worthy causes. Social ideology increasingly reinforces brand loyalty.

I don’t know if this strategy worked well for Pepsi, but YUM may need some new ideas.  Has this strategy worked well for other companies in dealing with a scandal?  For sure, brand owners carefully manage their image.  And, the first mover advantage is helpful, but it relies on a strong brand and if the brand fails (again), then what do you do to maintain a competitive advantage. . . . 

Saturday, 19 July 2014

Education to combat piracy: great idea, but is there a metric?

I received this media release from the UK Government yesterday. I'm puzzled as to why it is embargoed till 00:01 on Saturday morning [if you're wondering, I wrote this piece yesterday afternoon and timed it to go off at 00:01] and intrigued as to what the word "today" means in the first line of the text. Presumably the Government's welcome must have happened some time in the 59 seconds available.  Anyway, this is what is says:
Government today welcomed a new industry scheme, Creative Content UK, which will promote legal entertainment online and warn Internet users whose connections are being used to illegally share films and music. 
Business Secretary Vince Cable and Culture Secretary Sajid Javid revealed the UK’s creative industries and internet service providers (ISPs) have agreed the joint scheme. This will aim to raise awareness of copyright by informing those whose internet connections have been used to illegally share copyright material and help them find compelling, legal alternatives. 
The Cabinet Ministers also revealed the scheme would be supported by a joint creative industry and Government three-year education campaign towards which the Government is contributing £3.5 million. 
The campaign will help to reduce online copyright infringement, raise awareness of the benefits that copyright brings and promote the use of legal digital content.
This new initiative follows a similar partnership between the movie and music industries and ISPs in the United States. The  Center for Copyright Information was established to help direct consumers to the growing array of legitimate online creative content and send out alerts to ISP subscriber accounts that have been used to illegally share films and music.  
Speaking at the Spotify offices in London, Vince Cable and Sajid Javid outlined the importance of tackling infringement and intellectual property crime and working together with businesses to crack down on online piracy which is estimated to cost the global music industry alone more than £7 billion. Business Secretary Vince Cable said: 
“The creative industries in the UK are one of our brilliant global success stories. We have unrivalled creativity – from record breaking musicians to box office films - that excite and inspire people all over the world. Yet too often that content is open to abuse by some who don’t play by the rules. That is why we are working with industry to ensure that intellectual property rights are understood and respected. Education is at the heart of this drive so people understand that piracy isn’t a victimless crime - but actually causes business to fail, harms the industry and costs jobs.” 
Culture Secretary Sajid Javid said: 
“Copyright is one of the foundations the UK economy is built on.  Our creative industries contribute £8m to the UK economy every hour and we must ensure these businesses can protect their investments. The alert programme shows industry working together to develop solutions to this threat to our creative industries.  It will play a central role in raising awareness of copyright and pointing people toward legal ways to access content, and I welcome this effort." 
Commenting on the announcement of the programme, Chris Marcich, President and Managing Director EMEA of the Motion Picture Association (MPA) said: 
"It is fantastic that the UK creative community and ISPs have come together in partnership to address online copyright infringement and raise awareness about the multitude of legitimate online services available to consumers. We are also grateful to the UK Government for backing this important new initiative. This is just one piece of the overall approach to tackling illegal online infringement and promoting the importance of copyright. This will enable consumers to receive the best possible user experience and sustains the UK’s creative community and economy, incentivising the creation of new movies and other creative content.” 
Geoff Taylor, Chief Executive of the BPI said: 
"It's a wonderful time to be a music fan - you can listen to almost any song ever released, instantly, wherever you are. But not everyone is familiar with all the different ways to do this - whether for free or from a paid service - while at the same time making sure the artist is also fairly rewarded.  This landmark initiative marks the first time that entertainment companies, broadband providers and the Government have come together in a major campaign to engage consumers through their passion for music, film, TV and other content and to support them in enjoying it safely and legally online. It should mark a real step forward for digital entertainment in the UK." 
The creative industries sector contributes £71.4 billion towards the UK economy and is estimated to support around 1.68 million jobs.
Against the contribution of £8 million per hour by the creative industries, a Government contribution of £3.5 million over three years does not sound hugely generous, particular if one surmises that online piracy is likely to drill a far larger hole in the public purse through loss of revenue in respect of income tax, corporation tax and value-added tax.

It would be great to know how the costing of this programme has been calculated, and how its cost-effectiveness will be measured.

Friday, 18 July 2014

Patent boxes, the European Commission and harmful tax practices

Writing in Reddie & Grose's Monthly Bulletin, Paul Loustalan reminds us that the United Kingdom's Patent Box has just had its first birthday.  The Patent Box lets companies reduce the amount of corporation tax payable on profits attributable to a granted UK, or other qualifying, patent.  He adds a note of warning:

"... The referral of the UK Patent Box to the EU Commission ... was seemingly put into the long grass, but it looks like interest by the Commission has now been rekindled. The HM Treasury’s recent report on tackling aggressive tax planning shows that the UK Government believes that the UK Patent Box is not in violation of the EU code. Nevertheless, as the report states, the Government is seeking:
“a better understanding of what constitutes substance … so as to effectively address those instances where preferential regimes do present an opportunity to shift profits. This will give certainty to the operation of legitimate tax regimes, such as the UK’s Patent Box, which is currently under consideration in the FHTP [Forum for Harmful Tax Practices], and the Government believes that most of the activities currently qualifying for the UK Patent Box would meet any such substance test.”
The “substance” refers to the substantial activity that must occur in a jurisdiction by a company to legitimately benefit from a preferential tax regime. Clearly, the Government is still set to defend the Patent Box ..."
The European Commission's interest is not confined to the UK: patent boxes are reported to be offered in one form or another in nine European countries but this blogger can name only eight (seven of which are in the EU and therefore legitimate targets for the Commission): Belgium, France, Ireland, Luxembourg, the Netherlands, Spain, Switzerland and the UK. Can anyone let us know the ninth? (China also has them, but it's not in Europe ...)

Thursday, 17 July 2014

IP data aggregation and analytics: introducing AISTEMOS

It is with no little personal pleasure that this blogger can write a word or two about AISTEMOS, which so far as he can tell is the first IP business intelligence tool to aggregate, analyse and visualise the criteria that driver patent risk and value for the wider business community.

AISTEMOS launched a Beta version of its first product, CIPHER in June [there's a short video of the launch here]: this was recently demonstrated at Intellectual Asset Management (IAM) magazine's IP Business Congress 2014 event in Amsterdam, which was timed to coincide with the publication in IAM of an article, "Big Data solutions to determining IP risk and value", by AISTEMOS CEO Nigel Swycher (a one-time student of IPKat blogmeister Jeremy).

Early progress has so far been impressive. The company has assembled a Pilot Group which includes many organisations that have never factored into their considerations the vast amounts of publicly available information that is available about IP assets and related events, such as litigation and licensing. This group includes major companies, banks, accountants, law firms, patents attorneys, consultants (you can check out the full list here).

There are many reasons why it is inly now that a product of this sort has been developed. These include the significant increase in and the availability of data and the reduced cost of the computing power necessary to analyse the data. Supply of data and low-cost computing was a necessary condition, but not however a sufficient one: there also had to be market demand, plus the increased recognition that IP is a vital and valuable asset class means that access to fast, comprehensive and comprehensible data is essential.

CIPHER is built on the belief that all patent data has an impact on either risk or value, and that risk and value are relative and not absolute measures. When depicted graphically, this enables any company to be plotted relative to other companies that own similar IP. Here on the right is a representation of the CIPHER Grid. AISTEMOS refers to CIPHER as a big data solution. By this, they seek to convey that the strength of their product is its ability to aggregate a number of large and varied datasets, including Derwent (from Thomson Reuters), ktMINE (patent licences), Lex Machina and Patent Freedom (IP litigation), not to mention other specialist datasets relating to corporate ownership and patent strength. So while it is right to be sceptical about any company that claims to be first at anything, it's easy to see the significant challenge that AISTEMOS has taken on.

Disclosure: this blogger is a member of the AISTEMOS advisory board.

Wednesday, 16 July 2014

Changes to the Bayh-Dole Act by the American Invents Act—Too Soon to Tell if They are Successful?

The U.S. Leahy-Smith American Invents Act (AIA) made some changes to the Bayh-Dole Act.  First, the AIA modified the Bayh-Dole Act to conform to the AIA’s new 102(b) “grace period provision.”  For a discussion of that and implications for Bayh-Dole compliance, see Eric W. Guttag, Bayh-Dole ComplianceObligations Meet American Invents Act on the IP Watchdogblog. 

Another change involves the amount of royalties or income retained and used by a contractor using a Government-owned-contractor-operated (GOCO) facility.  What is a GOCO facility and why do they exist?  Here is a discussion of U.S. Department of Energy GOCO facilities:

DOE’s national laboratories are “Government-Owned, Contractor-Operated” laboratories, managed under a unique legal relationship by a Management and Operating (M&O) contractor. Under this management model, which had its origins in the Manhattan project and was formalized by the Atomic Energy Commission, national laboratories are owned by the federal government and operated by university, non-profit or industrial contractors. The M&O/GOCO model was specifically selected because the “arm’s-length” relationship it created afforded far greater flexibility than other, more traditional contracting mechanisms in managing scientific institutions that must be able to attract world-class scientific talent and adapt quickly to changing national research priorities and advances in science and technology. The M&O/GOCO model allows the contractors to bring the best private sector personnel and research management practices to the national laboratories, and provides the laboratories with the flexibility necessary to broadly engage academia and the private sector.

National laboratory contractors are selected competitively, under a procurement policy designed to support robust performance management, and balance DOE’s interests in obtaining best value with the benefits of long-term relationships and stability for which the M&O/GOCO model was designed. The success of the M&O/GOCO model is demonstrated by the fact that the DOE laboratories, and the small number of major laboratories managed by other agencies using similar approaches, have been recognized as among the world’s leading research institutions, with records of sustained scientific excellence and critical contributions to the Nation’s security for as long as sixty years.

The Bayh-Dole Act, before the AIA change, essentially provided that the U.S. Treasury was to be paid 75% of the royalties or income from a government funded patented invention developed at a GOCO in certain circumstances.  This obligation to pay 75% to the U.S. Treasury arises if after paying “patenting costs, licensing costs, payments to inventors, and other expenses,” the remaining royalties or income “exceeds 5% of the annual budget of the facility.”  The remaining 25% “shall be used by the contractor for scientific research, development, and education consistent with the research and development mission and objectives of the facility, including activities that increase the licensing potential of other inventions of the facility . . ..”  The AIA changes the percentages from 75% to the U.S. Treasury to 15% to the U.S. Treasury, and the 25%  to the contractor to 85% to the contractor (for the above stated purposes).  This is a substantial shift in the allocation of revenue for apparent “blockbuster” type developments paid for by public funding at a GOCO facility.  Why the change?  The House Judiciary Committee Report on the American Invents Act provides the answer.  It states, in pertinent part:

The Senate Judiciary Committee considered testimony that the requirement to repay the government 75 percent of the excess on royalty payments may be causing a disincentive for universities and small businesses operating under the GOCO provisions to commercialize products.  Based on these concerns, the Act maintains the essence of the agreement GOCOs made with the taxpayers when they received funding that they would reimburse the taxpayer if they are sufficiently successful in commercializing a product invented with taxpayer dollars, but which reduces the burden on universities and small businesses, thereby encouraging commercialization.

The effective date of the AIA for these changes was September 16, 2011.  Has there been increased demand for GOCOs facilities and patented inventions?  Has it been easier to find commercialization partners since the effective date of the AIA for these changes?  Is it too early to find commercialized inventions arguably arising because of the changes? (probably so).