Biodiversity protection

For those of you who are interested, the Intellectual Property Watch blog has a posting on biodiversity protection, especially how Brazil (and other developing countries) see the issue – “Brazil Fights To Make Case For International Biodiversity Protection”:

Brazil has arguably the earth’s richest source of biological diversity, and it is fighting to get help at the international level to protect those natural resources from what it says is unfair exploitation through patents by companies and others in and outside Brazil.
While industry argues that the Brazilian law regulating the use of genetic resources is sufficient to safeguard against misuse, the government argues that people – mainly foreigners – are still disrespecting the law and there is a need for an international regime regulating the use of genetic material.

I won’t summarize the rest of the article. But, if you want to understand this topic, the posting is a good review of where the issue stands today.

Auditioning for a trademark

This quick note from the world of trademarks. ‘Juan Valdez’ is hanging up his poncho – Yahoo! News:

Juan Valdez is retiring. Long live Juan Valdez! The ambassador to the world for Colombian coffee, Carlos Sanchez, is hanging up his trademark poncho after four decades of playing the role of “Juan Valdez.”
Now the national federation of Colombian coffee producers, owners of the Juan Valdez trademark, is searching for a man to inherit that poncho.
Sanchez and his trusty mule Conchita have promoted Colombian coffee since 1969 with a leather bag, bushy mustache and straw hat typical of rural Colombia. That Juan Valdez trademark has become one of the world’s most recognizable, and the fictional figure has become one of the most famous Colombians of all time.
. . .
In searching for a replacement, the federation sent teams across the streets, farms and — of course — cafes in the coffee region in the west of the country. With the help of U.S. consultants, they narrowed down 400 contenders to 10. It will announce the new Juan Valdez, the third incarnation, by the end of June.
“Of course he must have a mustache,” joked Gabriel Silva, the general manager of the federation. Sanchez nodded in approval and stroked his own impressive mustache.
“This is not a beauty contest,” said Silva.
This was quickly confirmed when images of the casting call showed dozens of mustached men, some with notable paunches, doing their impressions of Juan Valdez.

Anyone out there interested in the role? Better act quickly – it is not often you get the chance to be a living legend.

Seeing the future – using information

We are told that we live in an Information Economy. “Business intelligence” is now the life-blood of a competitive enterprise. But, it appears that having current information is no longer good enough. The next wave of using information is to predict the next wave. According to InformationWeek “Businesses Mine Data To Predict What Happens Next”:

Real-time information, once a competitive differentiator that produced more timely and relevant business decisions, is now a commodity. Even midsize companies process transactions as fast as the New York Stock Exchange, while decision makers communicate and collaborate over broadband networks as if they were in the same office. Sheer speed isn’t the advantage it once was.
So what’s next? What’s next is what’s next–the ability to forecast where events are heading, then make informed decisions based on that assessment. Predictive analytics, the scientific name for using a data warehouse as a crystal ball, is where business intelligence is going. It involves running historical data through mathematical algorithms–neural networks, decision trees, Bayesian networks–to identify trends and patterns and predict future outcomes. Will product demand surge? Will a patient relapse? Will a customer take his business elsewhere? Our ability to make such educated guesses is key to improving service, cutting costs, and exploiting new market opportunities.

Much of this is what is now old-fashioned data-mining:

Alumni donations to the University of Utah’s David Eccles School of Business increased 73% last year after the school used predictive analysis software from Kintera to determine which of the 300,000 people in its alumni database were most likely to respond to its annual appeal for donations. “It’s always a question of who do we want to reach given the limited resources we have,” says Erika Marken, development research director at the university.

But some applications do have real predictive capabilities:

Tom Wicinski, managing director of customer marketing analytics at FedEx, will happily take the 65% to 90% accuracy rate he says the package-shipping company’s predictive analysis system is providing. FedEx uses SAS Institute’s Enterprise Miner and other tools to develop models that predict how customers will respond to price changes and new services, which customers are at risk of jumping to a competitor, and how much revenue will be generated by new storefront or drop-box locations. Accuracy, Wicinski says, depends not just on a problem’s complexity and the number of variables, but also on the amount and quality of the supporting data.
FedEx began using predictive analytics for customer prospecting in the 1990s. But the company has broadened its use of the technology, applying it to more complex business problems. Applications, including the customer-at-risk system, are relatively new. “It’s becoming a more mainstream business process,” Wicinski says.
FedEx next will deploy predictive analytics in real-time operational settings such as call centers, he says, helping customer service reps identify at-risk customers and take the necessary steps to make them happy. Today, FedEx call-center agents and other front-line personnel must alert a sales rep when red flags go up–and that process may not be fast enough.

The article notes other, somewhat more controversial applications – like predicting when someone’s health is too risky to fly an airplane or predicting where the next crime wave will occur. While such applications have a large public benefit, they raise potentials for abuse of information and questions of privacy. These are issues we will have to work through as all of public life becomes more data intensive.
But on the company-side, look for more and more usage of these predictive analytics.
Staying one step ahead your rivals has always been the competitive advantage of good information.
Staying one step ahead of your customers’ needs is a superior competitive advantage in the I-Cubed Economy. After all, isn’t that what innovation is all about?

Investing in intangibles – at tale of two cases

Here are two of the latest twists concerning investing in intangible assets: movies and universities.
First, movies. Hollywood has always attracted people willing to invest in that most intangible of intangibles – the “Hit” – just like Broadway (remember the plot of “The Producers”?). But as Steven Pearlstein writes in the Washington Post – “Big Deals Are Sequels to Tradition In Hollywood”,

over the years, J.P. Morgan’s office in La-La land has painstakingly built a $7.5 billion portfolio of movie loans with the help of a computer model that has been remarkably prescient in calculating box-office success and failure based on genre, actors, directors, target audience and the season of the year. By spreading its risk over scores of different films, imposing tight covenants on production spending and syndicating 80 percent of the loans to other banks, J.P. Morgan has enjoyed a steady stream of above-average profits for its movie-lending business.

That is intangible asset investing the old fashioned way.
But, according to Pearlstein, new money has come to town:

Now, in the latest remake of “The Carpetbaggers,” hedge funds and private-equity boys have arrived noisily in Hollywood. Having already bid up the price of stocks and junk bonds, real estate and commodities, and with cash pouring in at the rate of $12 billion a month, they are about to create another bubble, this time in “entertainment assets.”

Pearlstein is skeptical of this new wave of investment:

by the time the movie theaters take their 50 percent of ticket proceeds, and the studios take their 15 percent distribution fees, and the banks get their loans back with interest, and the insurance companies are paid 3 percent of production costs to insure against cost overruns, and the studios are reimbursed the $150 million it takes to produce and market the average film — and once the big-name actors and directors and their agents take their “points” off the top — there’s not a whole lot left over for the equity partners.
It will take years before the last of the DVDs is sold and the last check received from Showtime to determine how it all comes out. But my guess is that when that day is reached, the returns on these movie investments will turn out to be rather mediocre, and that the flood of hedge fund and private-equity money will have simply bid up the incomes of Tom Cruise, Steven Spielberg and their agents.

The big lesson I take away from this is that it is not the intangible which is risky; it is getting caught in the wrong deal.
But, then again, isn’t the ability to structure the deal the real intangible asset here?
The second example of investing in intangibles is universities. As the Economist – “An education in finance” relates, universities have been more comfortable hitting up rich alumni than going to the bond market. But this is changing:

Poor schools were worried about being unable to service debt. Rich schools with huge endowments ($25 billion at Harvard, $12 billion at the University of Texas, $4 billion at Cornell) may have seen no need. And college administrators may not have considered that their institutions’ primary assets—reputation, inspiration and insights—were suitable as collateral.
So much for an academic perspective. A growing number of investors saw things differently. Those lovely buildings on rolling campuses, the better universities’ reputations, taxpayers’ backing of state-owned institutions: all this looked to them like a deep pool of assets against which lots of money could be borrowed. The money raised could be used to attract more customers, who are choosy about the product and whose demand varies little with the price (loudly though they may complain).
The idea has flourished. Colleges throughout America are building classrooms, stadiums, theatres, climbing walls and whatever else it takes to hold teenagers’ imaginations. This costs a lot and much of it is financed by debt. So far, credit quality has been excellent.

Investing in “reputation, inspiration and insights”? What a novel idea.

Future of books

One of the things I did read on my mini-vacation was the now-famous New York Times Magazine article by Kevin Kelly – “Scan This Book!”. In it he lays out the case for the end of the physical copy as the dominate feature of what we call the “book”:

Authors and publishers (including publishers of music and film) have relied for years on cheap mass-produced copies protected from counterfeits and pirates by a strong law based on the dominance of copies and on a public educated to respect the sanctity of a copy. This model has, in the last century or so, produced the greatest flowering of human achievement the world has ever seen, a magnificent golden age of creative works. Protected physical copies have enabled millions of people to earn a living directly from the sale of their art to the audience, without the weird dynamics of patronage. Not only did authors and artists benefit from this model, but the audience did, too. For the first time, billions of ordinary people were able to come in regular contact with a great work. In Mozart’s day, few people ever heard one of his symphonies more than once. With the advent of cheap audio recordings, a barber in Java could listen to them all day long.
But a new regime of digital technology has now disrupted all business models based on mass-produced copies, including individual livelihoods of artists. The contours of the electronic economy are still emerging, but while they do, the wealth derived from the old business model is being spent to try to protect that old model, through legislation and enforcement. Laws based on the mass-produced copy artifact are being taken to the extreme, while desperate measures to outlaw new technologies in the marketplace ”for our protection” are introduced in misguided righteousness. (This is to be expected. The fact is, entire industries and the fortunes of those working in them are threatened with demise. Newspapers and magazines, Hollywood, record labels, broadcasters and many hard-working and wonderful creative people in those fields have to change the model of how they earn money. Not all will make it.)
The new model, of course, is based on the intangible assets of digital bits, where copies are no longer cheap but free. They freely flow everywhere. As computers retrieve images from the Web or display texts from a server, they make temporary internal copies of those works. In fact, every action you take on the Net or invoke on your computer requires a copy of something to be made. This peculiar superconductivity of copies spills out of the guts of computers into the culture of computers. Many methods have been employed to try to stop the indiscriminate spread of copies, including copy-protection schemes, hardware-crippling devices, education programs, even legislation, but all have proved ineffectual. The remedies are rejected by consumers and ignored by pirates.
As copies have been dethroned, the economic model built on them is collapsing. In a regime of superabundant free copies, copies lose value. They are no longer the basis of wealth. Now relationships, links, connection and sharing are. Value has shifted away from a copy toward the many ways to recall, annotate, personalize, edit, authenticate, display, mark, transfer and engage a work. Authors and artists can make (and have made) their livings selling aspects of their works other than inexpensive copies of them. They can sell performances, access to the creator, personalization, add-on information, the scarcity of attention (via ads), sponsorship, periodic subscriptions — in short, all the many values that cannot be copied. The cheap copy becomes the ”discovery tool” that markets these other intangible valuables. But selling things-that-cannot-be-copied is far from ideal for many creative people. The new model is rife with problems (or opportunities). For one thing, the laws governing creating and rewarding creators still revolve around the now-fragile model of valuable copies.

Kelly has got it right – but many will dismiss, criticize and misinterpret his central point. Apparently at last weekends BookExpo America conference here in Washington, the backlash had already begun. According to the Washington Post – “Explosive Words”:

The clash is between what you might call the technorati and the literati. The technorati are thrilled at the way computers and the Internet are revolutionizing the world of books. The literati fear that, amid the revolutionary fervor, crucial institutions and core values will be guillotined.

Heading up the literati was John Updike who “heaped scorn on Kelly’s notion.”
While I understand the fear and concern by authors and publishers, these critics dismiss the transition at their peril. For authors, the states are not as high as it may seem since for them the important feature is the words, not necessarily their physical embodiment. Publishers are much more vulnerable, since they have a huge stake in the form in which the words are disseminated. Literary forms have followed the type of published materials (for example, short stories thrived in the heyday of magazines) and authors have adapted. For authors to link themselves to a particular media seems to me to be creatively short-sighted.
The “book-as-copy” will always be with us – it will be one of many physical embodiments of ideas and words. But there will be other forms of “books” – such as the ones I already carry around with me in my laptop.
So let the cry go forward – the book is dead, long live the book!
And as Kelly points out, we will all have to adjust to the new regime.

Why immigration reform

One of the other hot items of debate last week, and this week, is immigration reform. I’ve already commented on the need for legislation that facilitates, not retard, the development of the I-Cubed Economy. A story in today’s Washington Examiner – “Woman works to keep others in the U.S., even if she has to leave” reinforces that need:

Immigration reform might not occur in time to prevent Marie Gonzalez from being deported, but she hopes to convince lawmakers that they can save other undocumented students who have grown up in the United States.
Gonzalez, 20, a freshman at Westminster College in Missouri, will be one of about 100 students who will lobby members of Congress today and try to put a face on the immigration issue that has divided the country.
The Senate is debating a bill that would give some of the estimated 11 million illegal immigrants here a chance to become U.S. citizens, while the House passed a version that would make felons of them.
Gonzalez immigrated to America legally at age 5, but her family’s visas ran out while they thought they were in the process of becoming citizens, she said. She’s scheduled to be deported to Costa Rica six weeks from now. Her parents were deported in July after opening a restaurant in Jefferson City, Mo., and living in the U.S. for 14 years.
“It’s been tough seeing them start over, seeing them sacrifice what they had come to this country for,” said Gonzalez, who was named a Woman of the Year by Latina magazine in 2004.
Even if Congress passes a law to give citizenship to illegal immigrants who have lived here for longer than five years, the law likely won’t be enacted by July 1, Gonzalez’s deportation date, she said. She is trying to get an extension. If she is deported, she said, she will be barred from returning for 10 years.

Let me see if I got this right:
    • entered the country legally?
    • parents owned and operated a small business – and were then deported?
    • Women of the Year?
    • barred from returning for 10 years?
And we are trying to compete in a global economy where one of the key factors is talent????
Talk about shooting ourselves in the foot.

Attention Economy

One of the other hot discussions I missed last week concerned the Attention Economy. For those of you whose might not remember, the concept first arose in an article by Michael Goldhaber in 1997- The Attention Economy: The Natural Economy of the Net” in the online journal First Monday:

If the Web and the Net can be viewed as spaces in which we will increasingly live our lives, the economic laws we will live under have to be natural to this new space. These laws turn out to be quite different from what the old economics teaches, or what rubrics such as “the information age” suggest. What counts most is what is most scarce now, namely attention. The attention economy brings with it its own kind of wealth, its own class divisions – stars vs. fans – and its own forms of property, all of which make it incompatible with the industrial-money-market based economy it bids fair to replace. Success will come to those who best accommodate to this new reality.

(FYI – click here for additional information on the Attention Economy on the web.)
Apparently, attention was drawn to the Attention Economy (pun intended!) by Esther Dyson. John Hagel’s blog –
“Edge Perspectives with John Hagel: Paying Attention” has a good summary of the discussion:

An interesting discussion surfaced over the past week among some bloggers, precipitated by comments from Esther Dyson in a debate with Vint Cerf in Wall Street Journal Online.
Esther reminded us that recent references to the attention economy are heavily influenced (directly or indirectly) by a seminal article on “The Attention Economy and the Net” by Michael Goldhaber on the subject many years ago. In the process, she made the great point that many of the recent references focus on only half of Michael’s attention economy.

I think I agree with John’s bottom line on this: it is not about attention for attention sake; it is about how attention drives sharing of knowledge.

We all find ourselves in a globalizing world where we must find ways to develop distinctive and rapidly evolving capabilities. That is the only way to carve out sustainable livelihoods in the face of intensifying competitive pressure.
In this context, what we know at any point in time has diminishing value. We all need to find ways to tap into a broader set of experiences and perspectives to refresh our understanding of the changing world around us. To do this effectively, we need to receive the deep and sustained attention of those who have the most to offer and we cannot do this unless we can offer compelling value in return. If we cannot build deep and sustaining networks of attention (in other words, networks of relationships), we will find it more and more difficult to remain relevant and productive.

As such, the “Attention” Economy doesn’t replace the real monetary economy – any more than open source or free software will completely replace paid-for software. Attention is part of the new I-Cube Economy where information and intangibles are major inputs to the production process. But ultimately there must be the production of something that someone will pay for. That is the trick that everyone is still grappling with.

Ebay patent ruling

I’ve been away from my computer (and the news, etc) for the past week and am just catching up. One of the more important events from last week that I missed was the Supreme Court’s ruling on E-Bay vs. MercExchange. That case involves whether an injunction is mandatory. A unanimous (but split) Court ruled that judges have discretion as to whether they grant an injunction in a patent infringement case. As the ruling states:

Held: The traditional four factor test applied by courts of equity when considering whether to award permanent injunctive relief to a prevailing plaintiff applies to disputes arising under the Patent Act. That test requires a plaintiff to demonstrate: (1) that it has suffered an irreparable injury; (2) that remedies available at law are inadequate to compensate for that injury; (3) that considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction. The decision to grant or deny such relief is an act of equitable discretion by the district court, reviewable on appeal for abuse of discretion. These principles apply with equal force to Patent Act disputes.

The Wall Street Journal – “EBay Ruling Changes Dynamic In Patent-Infringement Cases” noted:

Justice Thomas likened the justices’ opinion to a century of doctrine in the companion field of copyright, where “this court has consistently rejected invitations to replace traditional equitable considerations with a rule that an injunction automatically follows” a finding of infringement.
. . .
But two terse concurring opinions, one signed by three justices and another by four, seem to offer contrary guidance for trial judges.
An opinion by Chief Justice John Roberts, joined by Justices Antonin Scalia and Ruth Bader Ginsburg, suggests that venerable court precedents should limit the discretion of lower courts in denying injunctions. But a separate concurring opinion by Justice Anthony Kennedy, joined by Justices John Paul Stevens, David Souter and Stephen Breyer, seems to point to the future rather than the past. Justice Kennedy wrote that traditional “discretion is well suited to allow courts to adapt to the rapid technological and legal developments in the patent system.” He also cited concerns raised by critics of the system, including those that “use patents not as a basis for producing and selling goods but, instead, primarily for obtaining licensing fees.”

I especially found the Kennedy/Stevens/Souter/Breyer concurring opinion of interest, as it began to take on the issue of patents as a stand-alone asset:

In cases now arising trial courts should bear in mind that in many instances the nature of the patent being enforced and the economic function of the patent holder present considerations quite unlike earlier cases. An industry has developed in which firms use patents not as a basis for producing and selling goods but, instead, primarily for obtaining licensing fees. See FTC, To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy, ch. 3, pp. 38 39 (Oct. 2003), available at http:// (as visited May 11, 2006, and available in Clerk of Court’s case file). For these firms, an injunction, and the potentially serious sanctions arising from its violation, can be employed as a bargaining tool to charge exorbitant fees to companies that seek to buy licenses to practice the patent. See ibid. When the patented invention is but a small component of the product the companies seek to produce and the threat of an injunction is employed simply for undue leverage in negotiations, legal damages may well be sufficient to compensate for the infringement and an injunction may not serve the public interest. In addition injunctive relief may have different consequences for the burgeoning number of patents over business methods, which were not of much economic and legal significance in earlier times. The potential vagueness and suspect validity of some of these patents may affect the calculus under the four factor test.
The equitable discretion over injunctions, granted by the Patent Act, is well suited to allow courts to adapt to the rapid technological and legal developments in the patent system. For these reasons it should be recognized that district courts must determine whether past practice fits the circumstances of the cases before them. With these observations, I join the opinion of the Court.

This is the first of a number of patent cases before the Court. It is likely that before the Court recesses this summer, it will have significantly clarified the scope and operation of patent law. What that means for the on-going patent reform legislation is unclear.

March trade in intangibles

This morning’s BEA trade data confirmed what we had suspected: last month’s downturn in our intangibles trade surplus was a one time fluke. After declining to $6.5 billion in February, the intangibles trade surplus return to its normal level of $7.2 billion.
(As noted last month, the February decline may have be due to a one-time royalty payment to China for the Olympic broadcast rights).
That is the good news. The not so good news is that the intangibles surplus is holding basically constant – still below its peak of almost $7.5 billion in December 2004.
The other good news is that the overall trade deficit declined in March by 5.6% to $62 billion as imports declined and export grew. According to the Wall Street Journal “Trade Deficit Narrowed To $62 Billion in March”:

U.S. exports increased by 1.9% to a record $114.66 billion in March from $112.52 billion in February.
Exports increased by $510 million for capital goods, including industrial machines and computer accessories. Exports rose by $181 million for consumer goods, like diamonds and toys. Sales of industrial materials like fuel oil were up $1.25 billion. Exports of foods and beverages increased by $213 million. Foreign sales of autos and parts fell $377 million.
Imports fell by 0.8% to $176.66 billion.
Consumer goods imports — including pharmaceutical preparations — climbed by $884 million, and imports of capital goods like computers increased by $1.5 billion. But purchases of cars and parts made abroad tumbled $751 million. Purchases of industrial materials from overseas shrank by $3.3 billion.

But the not so good news was that the deficit in Advanced Technology Products increase in March to $2.5 billion after declining significantly in February. A surge in export of aerospace and electronics was more than offset by an increase in imports in information & communications and life sciences.

Intangibles trade-Mar06.gif

Note: we define trade in intangibles as the sum of “royalties and license fees” and “other private services”. The BEA/Census Bureau definitions of those categories are as follows:

Royalties and License Fees – Transactions with foreign residents involving intangible assets and proprietary rights, such as the use of patents, techniques, processes, formulas, designs, know-how, trademarks, copyrights, franchises, and manufacturing rights. The term “royalties” generally refers to payments for the utilization of copyrights or trademarks, and the term “license fees” generally refers to payments for the use of patents or industrial processes.

Other Private Services – Transactions with affiliated foreigners, for which no identification by type is available, and of transactions with unaffiliated foreigners. (The term “affiliated” refers to a direct investment relationship, which exists when a U.S. person has ownership or control, directly or indirectly, of 10 percent or more of a foreign business enterprise’s voting securities or the equivalent, or when a foreign person has a similar interest in a U.S. enterprise.) Transactions with unaffiliated foreigners consist of education services; financial services (includes commissions and other transactions fees associated with the purchase and sale of securities and noninterest income of banks, and excludes investment income); insurance services; telecommunications services (includes transmission services and value-added services); and business, professional, and technical services. Included in the last group are advertising services; computer and data processing services; database and other information services; research, development, and testing services; management, consulting, and public relations services; legal services; construction, engineering, architectural, and mining services; industrial engineering services; installation, maintenance, and repair of equipment; and other services, including medical services and film and tape rentals.