Tuesday, 26 August 2014

Singapore's IP ValueLab: ambitious, but can it deliver?

Singapore's IP Week @ SG 2014 event is seeking to showcase the city state as a model base for cultivating and developing IP projects.  A media release issued from that event this morning focuses on, among other things, an extremely ambitious project, the IP ValueLab. According to the relevant extract from this release, which summarises a keynote announcement made by Mr K. Shanmugam, Minister for Foreign Affairs and Law:
IP ValueLab

5. Developed as a subsidiary of the Intellectual Property Office of Singapore (IPOS), the IP ValueLab will promote and develop IP management and strategy, IP commercialisation and monetisation, and IP valuation in Singapore [these being skills that are not normally found among technically qualified examiners and administrative staff that make up the bulk of most IP offices' labour force -- and for which IPOS will presumably have to compete with the private sector when it comes to recruitment and salaries].

6. For companies and investors, the IP ValueLab will provide them valuation advice to monetise their IP assets [this involves a bit of a shift in focus too: national IP offices are generally preoccupied with the point at which concepts are turned into rights, whereas valuation usually kicks in at a later point in time, where IP rights are protecting products and processes in the marketplace and there is more of a clue as to how the valuation can proceed]. The lab will enable companies to put IP at the core of their business strategy, providing services to help them better understand and tap on IP in their growth and expansion plans.

7. For practitioners and academics, the IP ValueLab will provide a platform for them to collaborate on research and provide thought leadership in IP valuation methodologies [and not before time!] and best practices, with a focus on generating industry-relevant and practicable insights. This will raise the level of confidence and trust in IP transactions, and support and stimulate international transactions. The lab will also deliver training and accreditation to raise competency within the industry.

8. To deliver on its goals, the IP ValueLab will partner the Singapore Accountancy Commission (SAC) to develop and promote IP valuation guidelines, methodologies and best practices, as well as to develop curriculum for the training of IP valuers. SAC will also be represented in the advisory panel of the IP ValueLab, to provide strategic guidance [given that Singapore does not operate in a vacuum but trades with the rest of the world, it will be important to ensure also that its valuation methodologies are transparent and intelligible to businesses and entrepreneurs based in its trading partners; this will no doubt require some marketing and advocacy skills]. ...
How serious is the IPOS about delivering on all of this? Pretty serious, if you take a look at some of the vacancies which it is currently seeking to fill.  IP Finance will keep an eye on how things progress.

IP ValueLab fact-sheet: read it here or download it here

Ireland supports Commission review of patent boxes

Is the patent box an unfair
way of saving on tax payments?
An article by Ciarán Hancock, which appears in The Irish Times, reverts to the vexed question of Ireland and the Patent Box. Readers of this weblog will recall that, in July, this blogger listed Ireland as a country that already had a patent box tax break, only to be told by a reader that the Emerald Isle had scrapped its patent box regime back in 2010.  Well, the topic appears to be back on the table again, this time within a wide European Union context, in the hope that some sort of consistency of approach can be achieved.  The article, in relevant part, reads as follows:
Review of patent tax regimes in EU has Irish support

Ireland supports the EU review of all patent box regimes – under which certain member states offer tax breaks for intellectual property – and has decided to take a “wait-and-see approach” on the issue until guidance is provided by the European Commission. This has emerged from briefing documents provided recently by the Department of Finance to its newly-appointed Minister of State Simon Harris.

A patent box is a special tax regime offering a rate that is lower than a country’s standard corporation tax rate. Questions have been raised as to whether it breaches state aid rules, with the UK’s scheme being closely scrutinised by the commission.

The Ecofin council of EU finance ministers recently requested that the commission carry out an assessment of all patent boxes by the end of 2014. It is examining schemes in the UK, Belgium, Cyprus, Spain, France, Hungary, Luxembourg, Malta, the Netherlands and Portugal.

The briefing note to Mr Harris states that 
“Ireland is supportive of the . . . decision to look at patent boxes. There has been a lack of clarity around the issue of patent boxes for some time, and therefore we believe there should be a thorough analysis of these measures. In particular, given the persistent calls on Ireland to introduce a patent box, it would be helpful to get guidance from the commission. Ireland can adopt a ‘wait-and-see’ approach on this issue.”
Harmful competition

The briefing note adds some EU countries consider the patent box to be a “form of harmful tax competition, with Germany’s finance minister Wolfgang Schäuble making comments to the effect that they are contrary to the European spirit”. ...
Our thanks go to Chris Torrero, for spotting this link.

Monday, 25 August 2014

A Race to the Bottom? Inter-State Competition and Tax Incentives in the Entertainment Industry

The competition between states in the U.S. for companies and jobs is very intense (and between countries).  In California, it is hard not to hear about how Texas and its governor Rick Perry are offering a great deal for companies to move from California to Texas.  And, he and Texas have been somewhat successful in getting companies to relocate although some argue that the success with respect to poaching jobs is a bit overblown.  One of the carrots that Texas uses to attract California companies is tax incentives.  California also uses tax incentives to keep companies (and work) in California (the incentives are offered by the state as well as local government such as cities). 

In the entertainment industry, particularly film and television, in California, it is not Texas that is the main competitor in the U.S.—it is New York.  According to a recent Milken Institute report titled, “A Hollywood Exit: What California Must Do to Remain Competitive in Entertainment—and Keep Jobs,” and authored by Kevin Klowden, Pricilla Hamilton, and Kristen Keough, California lost around 16,000 jobs between 2004 and 2012 in the film and television industry while New York gained around 10,000 jobs.  These are relatively high paying, middle class jobs.  The authors note how California and New York both have “high wages, regulation and high cost of doing business,” but California is losing jobs and New York is gaining them.  The authors point to the tax incentive systems of both states to shed light on the reasons for the difference. 

In describing the California tax credit system concerning films and television, the authors state:

The Credit Lottery: Unlike most states, which operate based on individual applications, California requires productions that wish to qualify for tax credits to apply at the beginning of June for a drawing at the end of the month. These incentives are in high demand: In 2012, 27 projects out of 322 applicants received credits through the lottery. In 2013, the state received 380 applications. Because the demand for credits far outstrips supply, the lottery serves to maintain fairness by not favoring any particular kind of production over another. Pinched for revenues and lacking the necessary staff, the state does not assess candidates for incentives based on potential economic benefits.

The main drawback of a lottery is its lack of predictability. Production companies will often submit multiple films in the drawing in the hope that one will wind up a winner while also making backup plans to shoot in another state. . . . Further, when films and television shows are locked into a set schedule, they often cannot wait for the results of the lottery, choosing instead to relocate.

The authors describe the New York tax incentives program:

New York offers a generous incentive that has attracted productions. With an annual cap of $420 million, the Empire State offers productions shot within New York City a 30 percent refundable tax credit and those shot outside the city a 35 percent refundable tax credit. . . . One of the biggest policy advantages in New York is its postproduction credit, which now matches the state’s production credit. In 2012, Governor Andrew Cuomo signed legislation that raised the postproduction credit from 10 percent to 30 percent in the New York City area and the surrounding commuter region (see appendix for details).  Additionally, the tax credit was raised to 35 percent for postproduction work completed in upstate New York.  

The governor went a step further in 2013 by extending the postproduction credit until 2019, lowering the threshold for visual effects and animation from 75 percent to 20 percent of the total special effects budget, or $3 million (lesser of two). This means that large films or animations can do a portion of postproduction visual effects in New York even if the state does not have the current capacity to do the full project.  New York is also allowing productions shot outside the state to qualify for the postproduction credit. In January of this year, the governor announced a $4.5 million grant to Daemen College and Empire Visual Effects to create 150 new postproduction and visual effects jobs in Buffalo, hoping to grow the state’s overall postproduction capacity.

To compete with New York, the authors make several recommendations.  Here are some of them.  The authors address uncertainty in the current California system by “Rais[ing] the total amount of available annual funds in the state’s filmed production credit to a level that allows for the elimination of the annual lottery. . ..”  The authors recommend “dedicat[ion of] a portion of the fund to hour long dramatic television.”  The authors propose including movies with budgets over $75 million to be “eligible for filmed production incentives.”  The authors also state that, “Digital visual effects and animation expenditures should be made explicitly eligible for filmed production incentives at the 20 percent rate.”

Assembly Bill 1839 has been passed by the Assembly and is before the California Senate.  If it is passed by the Senate, Governor Brown must still sign the bill--which he may choose not to do.  The bill adopts several of the recommendations of the Milken Institute in some form such as including movies with budgets over $75 million as eligible for incentives.  Notably, the bill quadruples “production tax incentives” (from $100 million to $400 million).  The bill and analysis can be found, here.  Now, what will other countries do to react to this bill if passed? 

Living dangerously? Reporting of copyright litigation risk

"Infringement Risk in Copyright-Intensive Industries" is the title of a recent article by Jonathan Band and Jonathan Gerafi of policybandwidth. According to the abstract:

We have reviewed equity research reports issued in 2013 for eight leading companies in copyright-intensive industries: two software firms (Microsoft and Adobe); two publishers (Pearson and Reed Elsevier); the owners of two major motion picture studios (Disney and Viacom, owner of Paramount); and the owners of two major record labels (Sony, owner of Sony Music Entertainment, and Vivendi, owner of Universal Music Group).

We found that the overwhelming majority of the equity research reports did not mention copyright infringement as a possible risk factor. None of the 14 reports for Reed Elsevier and 18 reports for Pearson identified copyright infringement as a risk factor. Only 13% of the 15 reports for Sony and 22% of the 23 reports for Vivendi mentioned copyright infringement as a potential risk. Just 8% of the 26 reports for Viacom and 27% of the 26 reports for Disney referred to copyright infringement as a risk factor. 26% of the 19 reports concerning Adobe and 41% of the 27 reports concerning Microsoft identified copyright infringement as a risk factor. Cumulatively, only 19% (32) of the 168 reports referred to copyright infringement as a possible risk; 81% did not.

The vast majority of the reports written by sophisticated analysts simply do not consider copyright infringement a significant enough threat to the subject companies’ financial health to merit mention to potential investors. If the analysts with expertise in these industries are not concerned about the possible impact of copyright infringement, perhaps policymakers should not be either.
This article was posted on 20 August on SSRN; you can access it here. Coincidentally, on the same date, IP Finance hosted this piece by Janice Denoncourt which mentions the question of the non-reporting of litigation risk. Presumably the nature of the risk -- and the value of disclosure in corporate reporting or in equity research reports -- will not be the same where registered rights such as patents are concerned as where unregistered rights such as copyright or confidential information are concerned, since the existence of registered rights is at least detectable, even if their immediate relevance isn't, while possibly infringed unregistered rights are an unknown unknown.

Thank you, Chris Torrero, for the link.

Damages for passing off and interfering with website: some calculations laid bare

Harman v Burge [2014] EWHC 2836 (IPEC) is a 29 July 2014 decision from Judge Richard Hacon in the Intellectual Property Enterprise Court for England and Wales that throws further light on how to set about an inquiry into damages following the successful conclusion of an action for passing off and unlawful interference in trade.

Harman sued following interference by Burge with a website, http://www.doonevalleyholidays.co.uk (since shifted to http://www.exmoorcoastholidays.co.uk/), which fronted a holiday business that he had initially bought from Burge. The court awarded Harman damages for lost profits -- but how were they to be calculated? The judge's 68-paragraph judgment reduced the sum awarded by taking into account the fact that Harman had twice relocated his business after the infringing acts and that he had also discontinued a Google AdWords campaign which had been designed to recover the profile of the website, suggesting that there was no need for the campaign after the disruption to the website had been reduced. The court however also awarded Harman the cost of mitigating the damages he suffered, including the cost of Harman's AdWords campaign and the fees which he paid to an IT consultant in order to regain control of the website.

The initial calculation relating to Harman's damages claim of £122,562, reproduced above, was compiled by Thayne Forbes (chartered accountant and director/co-founder of Intangible Business Limited), whom the judge found to be "a witness doing his best to assist the court. His evidence was a mixture of careful detail and quite significant assumptions, but [he] freely acknowledged where he had made those assumptions".

Following the court's analysis, it was whittled down to a more modest but presumably still rewarding £39,701.

On the plus side, it's good to see a junior court such as IPEC get to grips with the financial issues and deal with them so efficiently.  On the down side, it's sad that this order was made more than two years after a consent order of June 2012 disposed of the issue of liability, and that it took two days of hearings to get through the issues raised here -- a long time in relation to the tightly-timetabled court.