Tag Archives: the Wall Street Journal

Tax Cuts and Jobs Act: Some IP holders may benefit, most won’t

The Tax Cuts and Jobs Act of 2017 places some IP rights holders squarely in the sights of the tax collector, while providing others with an opportunity to license overseas without having to resort to international asset transfers to maximize returns.

Patent, trademark and copyright owners of all sizes would be wise to revisit the nature and tax implications of their transactions, including direct patent sales, as well as where their IP assets are best located. This is a direct result of the Tax Cuts and Jobs Act of 2017 (TCJA), the impact of which on IP holders is starting to be understood.

The new law is partly a response to businesses that hold massive amounts of revenue-producing assets outside the United States in so-called ‘patent boxes’ – devices which allow revenue on assets held within them to escape most local and all domestic taxes derived from IP-related revenue.

Like Wildfire

“Patent boxes have spread like wildfire,” Edward Kleinbard, former chief of staff of the US Congress’s Joint Committee on Taxation, now a law professor at the University of Southern California told the Intangible Investor. “Their success was doomed from the start. The international environment for intangibles and tax has evolved. With more products to license from sources worldwide and more revenue derived from them, these devices, which originally were restricted to a handful of nations, have become diffuse.”

The most famous (or infamous) product of the IP asset tax avoidance schemes, known as the “double Irish,” has been used by large corporations, including Facebook Inc, Google parent Alphabet, Inc and drug maker Allergan PLC.

The TCJA aims to lure IP locations back to the US, but whether the benefits are sufficiently attractive is still unclear. The Wall Street Journal coverage of the TCJA can be found here. For the American Enterprise Institute take on the Act, go here.

Rana Foroohar, a journalist who reports for the Financial Times, says in a video that a growing “tech-lash” (backlash) against the imbalance of power generated by U.S. tech giants extends to how they use proceeds from overseas licensing revenues to buy foreign bonds. Curtailing this activity has the potential to cause disruption in the bond market and interest rates, she says. Foroohar’s video clip on the potential ramifications of tax increases can be found here.

Self-Licensing

Rather than licensing to themselves (or the entities they control) to generate income that avoids taxes and use those proceeds to invest in corporate bonds, techcos might consider generating genuine IP revenues, as well as taking, and paying for, licenses they need from other holders.

For the full Intangible Investor story, “Identifying the impact of the US tax act,” in the May IAM magazine out this week, go here.

Image source: brodyberman.com

Validated Merck patents could mean a $3B+ windfall, after appeals

While many high-tech patents are suffering from devaluation the value of some pharmaceutical patents is soaring.  

Merck & Co. won a legal victory over rival Gilead Sciences Inc. on Tuesday when a California jury upheld the validity of two patents it has been attempting to enforce. Merck believes that its upheld patents should entitle it to a portion of the $19.1 billion annual global sales of Gilead’s blockbuster hepatitis C drugs.

MRK-GIL-3B-2016The patent trial began earlier this month in federal court in San Jose, Calif., where Gilead argued that it shouldn’t have to share any of the sales of its hepatitis C drugs Sovaldi and Harvoni with Merck, reports The Wall Street Journal. Last year, combined U.S. sales of the two drugs were $12.5 billion.

Havoni costs $1,125 per pill before discounts, or $94,000 for a 12-week regimen.

In 2013, Merck proposed to license its patents to Gilead in exchange for a royalty of 10% of U.S. sales of products containing Sofosbuvir, according to Gilead’s lawsuit against Merck. Gilead countered in a court document that a 10% royalty is a “prohibitive demand.”

Gilead Acquisition

Pharmasset Inc., the company that developed Sofosbuvir and was acquired by Gilead in 2011 for more than $11 billion.

A jury has yet to rule on past damages award for Merck and its co-owner of the patents, Ionis Pharmaceuticals Inc.  A judge will rule separately on future royalties. 

Merck has demanded more than $2 billion in damages and 10% of Gilead’s sales of the products going forward.

Should the jury rule in favor of Merck and agree to a $2 billion in damages, Gilead would not have to pay this amount until multiple likely appellate options are exercised. There is also a possibility that the companies may choose to settle the dispute before the jury decides damages and the judge rules.

Image source: shearlingsplowed.blogspot.com

Quinn: Patent PERPs are the real bullies of the licensing world

A disturbing article by IP Watchdog’s Gene Quinn asks “Who are the real bullies of the patent world?” It’s not patent trolls. They are far less of a problem than Patent PERPs – Practicing Entities that Refuse to Pay.

The founder and editor of IP Watchdog, one of the leading IP blogs, pointed a finger at reluctant patent licensees today in “A Patent Owner Defending Property Rights is NOT a Bully,” an article that attempts to reveal who are the real villains of patent licensing.

Exhibit One in Quinn’s indictment of the twisted rhetoric that surrounds patent licensing is Colleen Chien, a Santa Clara University law professor and former senior IP adviser to President Obama. Professor Chien wrote in the The Wall Street Journal recently, “that small businesses may want to simply ignore letters they receive from patent owners alleging infringement of a patent.”

Ignore the Nuisance

“This is rather astonishing for several reasons,” says Quinn. “First, a patent is a right granted by the federal government that is supposed to imagesbe legally presumed to be valid. A recently departed senior adviser to the President who is advising potential infringers that they should just ignore notices telling them they are infringing speaks volumes about how the Executive Branch views patents and patent owners. Once upon a time patents and inventors were very highly regarded in our society, today they are seen as a nuisance that can and probably should be ignored, even by the White House apparently…”

“A patent owner that seeks to prevent another from infringing is NOT a bully, period. A patent owner that takes action to prevent infringement is merely protecting the property right they have been granted; a right purposefully granted by the federal government after a lengthy examination process. It should be self-evident to everyone that you cannot be a bully when you are standing up to protect a right you have been given. It is utter nonsense to even suggest that a patent owner seeking vindication from the trampling of rights could ever in any fair way be characterized as a bully…”

PERPs are Perpetrators 

“Frankly, if we want to be perfectly honest about the state of the industry, we would be talking about those Patent using Entities that Refuse to Pay (PERPs),” concludes Quinn. “Thanks to the confluence of patent reform and Supreme Court precedent the people who are getting bullied the most are patent owners. These PERPs simply ignore all inquiries even from those with large portfolios and valid patents that are being infringed. They engage in a game of efficient infringement, or so it is called. Efficient infringement is such a sanitary way to say – willfully stealing without paying.

“With the deck so substantially stacked against the patent owner, companies know that if they simply ignore all inquiries, both legitimate and those smaller number that are extortion, they can willfully infringe patented technology without having to pay anything. lady-justice-head-sand-ignoranceSo why pay? That is efficient infringement; a cold business calculation that results in the patent owner being screwed.”

Negative Right

Efficient infringement means that given the risk-reward of using someone else’s invention, it is economically viable for most companies, in many industries, to infringe patents at will most of the time. It’s like a parking violation. First, they have to catch me breaking the law. What are the chances? And if they do, paying the price of the ticket is often easier (and cheaper) for large companies than obeying the law.

A patent is a negative right – the right to sue to protect an owner’s intellectual property, an invention. A patent suit is a costly and time-consuming process, and defendants know that. Patents are meant to be used (enforced) where appropriate. Quinn is saying that the behavior of those refusing to pay a license (PERPs) – and who invent delaying tactics to avoid doing so – is ethically questionable, legally suspect and damaging to innovation.

For the full IP Watchdog article go here.

Image source: ipwatchdog.com

Could AOL Patent Sale Have Netted More Than $1B?

Investor Pressure May Have Triggered a “Too-Quick” Sale

It was widely reported yesterday that AOL Inc. (NYSE: AOL) on Monday agreed to sell more than 800 patents and related products to Microsoft Corp. (NASDAQ: MSFT) for $1.056 billion. It was also written that the struggling online services provider was under pressure from activist investor Starboard Value, holder of 5.2% of AOL’s shares.

AOL shares were up 43% for the day.

Experts caution the $1.3M paid per patent for the portfolio, among the highest on record, should not be the focus of this transaction or its meaning. Two experienced patent managers told IP CloseUp that they believe perhaps 25 or 30 patents generated the bulk of the immediate value to Microsoft, but which ones remain somewhat of a mystery. AOL, in business since the 1980s, is not new to the patent game. Early priority dates on some of their patents covering Internet security, communications and transactions are certain to be useful in negotiating with competitors today or down the road.

Clearly, the patents are worth more in the hands of cash-rich Microsoft than AOL. And from Microsoft’s perspective, it is important they stay out of the hands of their rivals.

According to the WSJ story patent valuation firm M-Cam, Inc. had appraised the patent portfolio at $290m, and Clayton Moran, an analyst with Benchmark said “Most on the Street viewed $300 million as the likely maximum value.” These value estimates appear to have been dramatically off.

Another View

One IP transaction expert who had reviewed some of the patents had a slightly different take on the deal. He thought that while the sale price appeared more than fair, some of the patents are truly fundamental, and a more methodical and inclusive sale process may have netted more for AOL shareholders.

“Based on the patents that I examined I thought the entire AOL patent portfolio could be worth as much as $1.79B, the entire market cap of the company,” said Rob Aronoff, Managing Partner of Pluritas, LLC, an IP transactions firm that Brody Berman Associates has advised. “At least several fundamental patents were included in the core portfolio, and my informal assessment indicated that full portfolio value of all AOL’s 1,100 patents without the business operations was probably in the area of $1.4B. Had there been more time for a marketing effort by Evercore Partners instead of a rush to sale the AOL may have gotten closer to the full $1.79B company value.”

“This transaction appears to have been rushed into the marketplace on a relative basis when compared to other major patent sales like Nortel and Motorola Mobility,” concludes Aronoff, who is based in San Francisco. “The beneficiary appears to be Microsoft. The approximately one-month sales process does not appear to have been played out to the benefit of the all shareholders.

“The call for bids was made only Friday of last week, and they have already awarded the patents, with no further rounds of bidding to Microsoft, on whose benefit Evercore had recently conducted a complex transaction regarding ADAPTIX.

“Had the process taken say three months AOL may have gotten Google, Apple and possibly others interested enough to bid higher. $1B may sound like a lot to pay for 800 patents and licenses, but for these timely rights the price may be more of a bargain than many had imagined.”

Illustration source: glossynews.com; syracuse.com

Latest SF Tech Boomlet Fuels Jobs & More

Jobs, Jobs, Jobs — & IP Deals, Too!

If a recent news article about the San Francisco economy is any indication, politicians may soon be campaigning not only on jobs creation but on IP transactions.

The Wall Street Journal writes about how SF is enjoying a mini-renaissance as a tech center. Web and digital media companies have begun to take advantage of low City rents and available talent.

Embedded in an easy to miss graph about jobs creation is an unusual statistic; something I don’t believe I’ve seen before and certainly not in the major business press. Included along with data showing an increase in more than 1700 IT jobs in 2008 and 2009: 100+ Intellectual Property Transactions.

That’s right, IP transactions. Do my eyes deceive me? IP regarded in the same context as job creation? For long-time IP evangelists it doesn’t get much better than this. (Well, actually, it can.)

WSJ’s data source is the Labor Department and the SF Office of the Controller. I wonder if the Controller is tracking transactions or WSJ added them. I doubt the Labor Department cares much about IP activity.

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This begs a question: What the heck does the WSJ mean by IP transactions? Patent licensing deals? Sales? Acquisitions? Copyright licenses on Web content? Venture capital raised?

VC Charles River Ventures is quoted in the article. They are an investor in SF-based RPX Corporation, a defensive patent aggregator that is said to be considering a public offering.

I don’t want to look a gift horse in the mouse. It’s great that a veteran reporter like Pui-Wing Tam, who has covered start-ups and VCs, had the foresight to include SF IP transactions with jobs growth. It would just be nice to know what they are.

As much as I condone their asendance, I’m concerned that “IP transactions” in general are too abstract to be linked to jobs as an economic indicator. We need to know how the term is being used and how transactions’ impact are being measured. Bravo, I think.

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P.S. – There is a reason for the accompanying scan. The soft piece, “Tech Buoys San Francisco,” at wsj.com for some reason dropped the “Growing Field” graphic that ran in the newspaper.

Pui-Wing told me that the graph was sourced to analysis that the SF Office of the Controller did of U.S. Bureau of Labor Statistics data.

Illustration source: The Wall Street Journal, 10/13/10 print edition

Patent “War” Launched by Billionaire Allen

MSFT Founder Sues Over Web Rights –

Microsoft co-founder Paul Allen is claiming in a suit filed in filed on Friday in Seattle that patents owned by a company that he once controlled, Interval Research, are being infringed by Google, Apple, Facebook and eBay and seven others, including Staples. (A link to a copy of the complaint can be found below.)

The patents cover substantial parts of basic Internet activity such as pop-up stock quotes and videos along the side of a screen. If the validity of these broad patents is upheld they are likely worth a fortune. However, it will not be easy.

The Wall Street Journal wrote on Saturday, on p.1, “Microsoft Founder Launches Patent War.” WSJ. com in the same story said “Microsoft Co-Founder Launches Patent War.” I wonder if Bill Gates’ representatives made a frantic call to Dow Jones to reassure them that he was not doing the suing this time.

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The timing is interesting. Allen, owner of  the Seattle Seahawks and Portland Trailblazers, was always an astute purveyor of patents through his investment arm, Vulcan, Inc..

Whether this action is merely a smart move from a billionaire investor having fun challenging Internet giants, or (once again) fundamental patents have been ignored by companies who think they’re too big or smart to pay license fees, except when they are forced to.

Seattle-based Microsoft and Amazon were not named in the suit.

It will be difficult for Forbes Four Hundred member Allen (37th at $13.5 billion)  to use the “poor inventor” defense because he lacked sufficient capital to develop his inventions.

The case isInterval Licensing LLC v. AOL Inc., 10cv1385, U.S. District Court for the Western District of Washington (Seattle).

Stay tuned for more on this. The fun has just begun.

Image source: wwwwery.com (Allen is the one on the right.)


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