Please see my guest post — “The Smart Phone Patent Wars: What are FRANDs For?” – on IPWatchdog.com.

The following is a guest post by Elaine de Beer a patent attorney at Edward Nathan Sonnenbergs (ENS) – Africa’s largest law firm.  Enjoy!

 The thought of Africa may conjure up images of disease, poverty, wars, famine and downwardly progressing economies. Indeed, Africa is sometimes regarded as a dark continent attracting only those in search of precious metals and hidden gems. It is, therefore, no wonder that outsiders at times find it difficult to make a positive association between this image of Africa and the progressive intellectual property rights system actually present on the continent. With the supposed lack of infrastructure and market-awareness in Africa, there is often a perception that Africa has no role to play in the global economy and there is, therefore, no incentive for companies and multi-national organisations to enter the African marketplace to begin with.

However, the true state of affairs on this continent could not be further from the truth.

What outsiders often miss is that sub-Saharan Africa is widely considered to be the world’s second fastest growing region, after Asia with a GDP forecast of 5.8 percent for 2012, and a foreign direct investment that has increased from $9 billion in 2000 to $88 billion in 2008. In fact, the economies of Africa enjoy a GDP which increases year-on-year and there is a burgeoning middle class together with a rapidly growing technology and telecommunications sector.

In the interest of full disclosure, it should be pointed out that most African countries have very small intellectual property professions, which means that there is little or no economic incentive for any publisher to assume the financial burden of launching and selling specialist law journals, law reports and practitioners’ reference works for most of these countries. For the outsider, this generally means that information relating to the filing of a patent, an opposition to a trade mark, or a defence to an action for copyright infringement is not easy to come by.

A second problem often faced by practitioners trying to navigate the world of intellectual property protection in Africa is that there is often great difficulty in communicating – both within Africa and between Africans and the outside world. Indeed, levels of telecommunication penetration and, particularly, the lack of broadband internet access have placed greater importance on slower and less reliable communications media such as the fax and regular postal service. This means that information which, in many developed countries one simply gathers from an official website, is far more difficult to access in Africa.

As such, the apprehension regarding obtaining IP protection in Africa may stem more from the IP practitioners tasked to handle matters in Africa than from the companies themselves. This lack of information often results in progressively difficult matters, where time-consuming effort needs to be put into the completion of the simplest of tasks, with frustrating and undue delays often being the end-result.

And so, South Africa is rising to face the African challenge. Many South African law firms are strategically positioning themselves as key-role players on the continent with an impressive and growing presence in Africa.

These law firms are providing an African solution to an African problem by fostering strong relationships with key personnel at each of the African intellectual property institutions as well as local law firms in each of the African countries. In addition, they have built up expert knowledge on the inner-workings of the local and regional intellectual property systems in Africa.

This enables them to obtain information on intellectual property matters with minimal effort and no undue delays.

From an intellectual property perspective, clients seeking to do business on the African continent can rely on their trusted advisor in the form of a leading South African legal firm that has an in-depth knowledge and understanding of the laws, practices, customs and procedures in each African region, as opposed to having to seek and develop a new advisory relationship in each territory.

In conclusion, it should be borne in mind that Africa is expected to continue enjoying substantial economic growth and increased economic activity, and as such, obtaining intellectual property protection and maintaining and enforcing these rights should be at the top of any checklist of a company seeking to obtain a dominant position in today’s global economy. This is where South African law firms have a key role to play and are coming into their own quite remarkably.

Puzzled?

As we approach the April 17, 2012, tax filing deadline, it is only appropriate that I talk patents and taxes.  I was recently asked by a client if it is possible to deduct patent-related costs for tax purposes? Hmm…well believe it or not, this is the first time I have been asked this question in over 15 years of practicing intellectual property (IP) law!  So, with as much as 80% of the value of a U.S. publicly-traded company coming from intangible assets, whether an enterprise may write off expenses associated with creating or acquiring these intangible assets (especially patents) seems to me to be an important question to address.

Before addressing this important question, one caveat: I would never recommend getting IP advice from a tax lawyer.  Thus, I surely am not suggesting that you take tax advice from an IP lawyer.  With this in mind, here are some knowledge tidbits that you can use to burden your tax advisor.

First, you need to determine what category of patent you are dealing with when you are determining whether expenses in acquiring the patent are deductible (i.e., whether these costs may be “written off”).  The categories include newly-created patents and acquired patents:

• Newly-Created Patents:  The costs of obtaining patents (i.e., perfecting a patent application into an issued patent) may typically be deducted as research or experimental expenditures under IRC 174.  These costs include attorneys’ fees (yeah!).  Such newly-created patent costs are typically deducted as current business expenses.

• Acquired Patents:  The costs of obtaining (i.e., purchasing) patents may typically be written off only by amortizing these costs over a 15-year period. (This period is fixed, and therefore the life of the patent has no effect on the amortization time line.)

See IRS Publication 535, and when that’s totally confused you, seek professional tax advice!

Please see my guest post — “The Smart Phone Patent Wars: What the FRAND is Going On?” – on IPWatchdog.com.

Many of my small- and medium-sized enterprise (SME) clients who have filed U.S. trademark applications have been contacting me lately about “invoices” they have received in the mail.  All of these official-looking “invoices,” however, have turned about to be scams.

Trademark-related solicitation (“trademark spam,” if you will) has become an increasing concern of the US Patent and Trademark Office (USPTO).  In fact, the USPTO added a warning notice last month to its trademarks homepage.  Why is this happening?  Well, the USPTO’s databases are public.  Thus, solicitors have been using trademark registration and application data to send letters and emails to applicants offering phony legal and registration services.  In order to fool even the most spam-conscious applicants, such solicitors adopt corporate names that include “United States” or “U.S.” in an attempt to fool their targets.  Unlike the spam we are all accustomed to, however, trademark spammers format their misleading messages to resemble official government notices.  With an emphasis on application data and filing dates instead of a smiling monkey and congratulatory balloons, many trademark applicants are paying the requested fees before realizing they are being scammed.

What do you do?  Read all your mail and emails carefully.  Be especially wary of those that ask for money.  All official USPTO mail will be sent from Alexandria, Virginia, and emails will be sent from the “uspto.gov” domain.  If you do mistakenly fall victim to trademark spam, file a report with the Federal Trade Commission at www.FTC.gov.  The USPTO would also like to hear about such trickery.  Thus, also send an email to TMfeedback@uspto.gov detailing the spammer and whether the requested fees were paid for the phony, offered legal and registration services.

A global museum of such scam notices (both patent and trademark) can be found here.  Stay vigilant!

During the course of my practice, I am continually amazed at the contents of IP and technology-related agreements I receive from opposing counsel who happen to be “good” lawyers at “good” firms.  While not getting into all the “strange,” “sloppy,” or downright “wrong” legal verbiage I see, I do have one thing that has been bothering me lately.  What’s that, you ask?  Well, it’s the use of numbers and those silly parentheticals.

I am sure all of you have seen language in agreements such as:

• “In consideration of the license rights granted herein by Licensor to Licensee, Licensee shall pay to Licensee a one time, up-front, non-refundable license fee of one million United States dollars (US$2,000,000.00).”

• “In consideration of the license rights granted herein by Licensor to Licensee, Licensee shall pay a flat royalty based on two and one-half percent (2.0%) of Gross Revenues received from the sale of Licensed Products.”

• “Licensee shall pay any deficiency, plus interest thereon from the date each payment was due, within thirty (20) days of the date of any notice of such discrepancy.”

Now, for those of you paying attention, you will notice that the spelled out numbers do not match the digits appearing in parentheticals.  Why do attorneys do this?  What class in law school do they teach this? I’m told this is a practice that dates back to the days of carbon copies and “old school” telefax machines, where parties needed two chances to be able to discern the figures in legal documents.  But, in today’s world of TrueType fonts and portable document formats, why continue this practice?  Which number governs if after reviewing a twenty (20) page license agreement, both sets of lawyers and clients did not catch the discrepancy!?  (Wasn’t that “twenty (20)” annoying!?)  Well, different jurisdictions have different rules of contract construction!  Why leave it to chance?  Do people realize that over the course of an already complex IP agreement, such practice may add one or more pages to the document’s length!?

 So, for everyone’s sake, I propose the following simple rule:  If the number is from zero to nine, write it out in words, else write it in Arabic digits!  If it works for college essays, it should work for IP agreements (and all other contracts) too!

As I have often pointed out on this Blog, small- and medium-sized enterprises (SMEs) that overlook their intellectual property assets (i.e.,“IP” or patents, copyrights, trademarks and trade secrets) do so at their own peril.  As IP accounts for a vast majority of SMEs’ value, the key to their exit strategy – be it an IPO or sale – is the IP that they control or potentially control.

Last month, the World Intellectual Property Organization (WIPO) released its annual report of IP statistics from around the world.  While there is most certainly a dizzying amount of data, I’ve taken the liberty to provide a snapshot of such data to help SMEs (and those who counsel them) understand what is happening in the world around them.  This should help in making long-term, non-myopic IP management decisions.

With over 3 million worldwide applications in 2009, trademark protection is the most sought after form of IP protection in the world.  That is, trademark applications represent the highest percentage of overall IP protection applications, apart from a few exceptions such as the IP offices of Japan, the Republic of Korea, and U.S.  where patent applications make up the largest share.

Globally, residents file the majority of their IP applications at their respective IP offices.  This reflects a preference for seeking protection within respective domestic markets.  For example, 42.7% of global patent applications were filed abroad.  This shows that patent applicants have a greater appetite for seeking international protection for this form of IP than for any other form of IP rights.  By contrast, only 25% of total trademark applications are filed by applicants outside their country.

With respect to patent filings abroad in 2009, applicants choose the Patent Cooperation Treaty National Phase Entry route 53.4% of the time, versus directly filing in a foreign jurisdiction.

The world’s top 10 IP offices accounted for approximately 87% of total patent applications filed globally, with the top 3 – the U.S., Japan and China – filing about 60% of the total. Together, the top 20 offices filed 94% of all patent applications.

Between 2008 and 2009, of the top 3 offices, there was a 10.8% decrease in the number of patent applications filed in Japan, while the U.S. remained practically unchanged and China saw an 8.5% increase in the number of applications.

In 2009, one quarter of all trademark applications were filed at the Chinese Trademark Office. When combined with the shares held by India, Korea and Japan, these four Asian offices accounted for 37% of world’s total number of trademark applications.

As start-ups and small- and medium-sized enterprises (SMEs) begin to realize that IP accounts for a vast majority of their value and key to their exit strategy, large companies begin to use IP as a driver for strategic business decision making, and investors begin to realize that IP is an asset class capable of producing significant returns, more patent sale transactions are bound to occur. Yet, I have often commented that there is a crucial lack of widely-accepted valuation models and techniques which hampers the patent marketplace. That is, unlike real estate where brokers and agents can “run comps” using the MLS, the opaque patent marketplace makes it difficult for buyer and seller to quickly arrive at a selling price. This further adds to the illiquidity of the patent marketplace. Further complicating matters is the fact that a potential buyer (or licensee) can easily spend US$20,000 or more performing due diligence on a single patent (or patent family). Thus, when a large patent portfolio becomes available, how do you practically determine a price!? (Remember, as Warren Buffet famously stated: “Price is what you pay. Value is what you get.”) Well, I recently came across an observation that may reveal a useful metric for such large transactions:

• When Novell sold a portfolio of 882 patents for $450M to CPTN Holdings (a consortium of Microsoft, Apple, EMC and Oracle) in December of 2010, the price per patent = US$510,204.08.
• When Google acquired Motorola Mobility Holdings, Inc. – and its 17,000 patents – for US$12.5B on August 15, 2011. After netting out other assets and liabilities, the price per patent = US$510,204.08!

Coincidence!!??  Hmm…  Does that mean when ADC Telecommunications sold 133 patents to HTC for $75M in April of 2011, where the price per patent = US$563,909.77, they overpaid?  Are we in a “half a million and change per telecom patent” bubble period!?  We’ll see.

I recently came across the following blog post, and while it is a bit simplistic and ignores the basic fact that a strong patent system fuels innovation, it does show how some in the tech world feel about patents.  So, enjoy!

Recently, it has struck me that many business folks who “negotiate tons of IP, Software and Technology agreements” fail to understand the difference between covenants, representations and warranties that are “standard” in many such agreements.  Not surprising.  What is surprising is that many of their lawyers fail to appreciate the difference as well!  So, for those of you tired of faking the funk, here is some (either fresh or refresher) “Contracts 101!”

Covenant = a promise of the parties by which one pledges that something is either done or shall be done.

Representation = a statement of fact induces a party to enter into the contract.  The statement, made before or at the time of making the contract, regards a past fact or existing circumstance related to the contract which influences such party to enter the contract. 

Warranty = an undertaking or stipulation that a certain fact in relation to the subject of the contract is or shall be as it is stated or promised to be.

Upon a false representation the defrauded party may elect to void the entire contract, and recover any sums paid, whereas upon a breach of warranty or breach of a covenant, the contract remains binding and damages only are recoverable for the breach.  With respect to breach of covenants, whether that breach is “material” (i.e., a breach that destroys the value of the contract for the non-breaching party) and excuses the non-breaching party’s performance can be subjective and expensive to prove.  Thus, the more specificity drafted into a contract (i.e., listing the specific, most-likely events that trigger a termination event), the better that contract protects the parties.  

Happy contract drafting and reviewing!