Registering copyrights

A good article on the state of play of copyrights by Hal Varian this morning — Copyrights That No One Knows About Don’t Help Anyone – New York Times. As Varian points out, there is no longer a need to register your copyright with the Copyright Office. Copyright is automatically given when the work (such as this blog posting) is created. Some of us voluntarily have adopted the Creative Commons copyright — but we don’t register our works with Creative Commons, just our general conditions for reuse.
The article discusses both the Copyright Office’s orphan copyright project (to track down owners) and Larry Lessig’s idea of requiring a positive act of registration after 14 years to continue a copyright. I support both of these ideas.
Varian also highlights the notion of creating a copyright registry:

Creating a registry is not that difficult from either a technological or a business perspective. The Copyright Clearance Center (www.copyright.com) was established by a group of publishers in 1978 to provide rights clearance for printed works. The Harry Fox Agency (www.harryfox.com) serves as a clearinghouse for those who want to make recordings of songs, and there are plenty of Web sites devoted to image search to ease the sharing of photographs.
But would the creators charge excessive fees if rights clearinghouses became widespread? I would argue that just the opposite would occur. An easy-to-use, efficient and competitive marketplace tends to push prices down. Reducing the transactions costs of acquiring reproduction rights potentially makes both creators and users of information better off.

Here I have to begin to disagree. I think there is a case for a public/private partnership in creating such a registry, not simply a competitive market. Basic access to information on who owns a copyright should be a governmental function — just like basic information on who owns a piece of property. But the bells and whistles of a search and data analysis process should be a private undertaking (“value added” is the phrase). The model is the EDGAR system of SEC filings. Anyone can get access to the basic EDGAR — it is public information. But a host of private value-added services have sprung up, such as EDGAR Online, to provide the additional analytical capability. The partnership works well: the government collects the basic information and the private sector competes to provide the best analytical tools.
(For more lessons learned from the EDGAR system, see our paper Creating A System For Reporting Intangibles — available as part of Appendix 9 in the EU study on an intangibles reporting registry.)
Having the basic data available to any vendor is the key to fostering the competition Varian talks about. But to do so means the registry system itself need to be an open public system. That sound like a job for the Copyright Office to me.

Growth?

This just in from the BEA: News Release: Gross Domestic Product and Corporate Profits

Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 0.6 percent in the first quarter of 2007, according to preliminary estimates released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 2.5 percent.

0.6% ???? That is a major revision downward from the advanced number of 1.3% issued last month. It appeared that greater imports, lower government spending and a decline in housing. Of those three, that last two seem to be temporary downturns. As the Washington Post quotes:

The latest report “overstates the weakness of the economy,” said Nariman Behravesh, chief economist with the Global Insight consulting firm. He estimated that a rebound in exports and a rise in business spending mean growth for the current three-month period could be as high as 3 percent.

I’m less optimistic. But, the good news is that business investment seemed to pick up. Investment in equipment and software was up 2% after declining 4.8% in 4Q 2006.
And yes, you read that correctly — software is now counted as a “tangible” investment just like equipment. Of course, what those e GDP numbers don’t show are the real investment levels if you counted spending on other intangibles (like R&D and training) as investments. One step at a time.

The changing organization

Check out James Surowiecki’s talk on the future of the organization (based on his book, the Wisdom of Crowds) — at Power: 2012: Online Only Video: The New Yorker. Going back to the Theory X versus Theory Y, he argues that too many organizations are still run on the command and control model. But, new organizational models are emerging where work is self-organized. While more traditional organizations are trying to utilize better motivation devices, this new non-hierarchy type of organization may be the wave of the future. This new self-organization model runs up against deep seated positive response to power and status — and our faith in leaders and experts. That faith is often misplaced as “deciders” end up in a situation where their self-confidence results in bad decisions. Reconciling these factors will determine how organizations are managed in the future.
Very interesting.
You might want to also look at the other discussion in the 2007 New Yorker Conference “2012: Stories from the Near Future”.

When the brand becomes a lock in

Wal-Mart is running into a problem as it tries to go upscale — itself. According to an internal report (as reported in Is Wal-Mart Too Cheap for Its Own Good? – New York Times), the Wal-Mart model is hindering its growth:

A confidential report prepared for senior executives at Wal-Mart Stores concludes, in stark terms, that the chain’s traditional strengths — its reputation for discounts, its all-in-one shopping format and its enormous selection — “work against us” as it tries to move upscale.
As a result, the report says, the chain “is not seen as a smart choice” for clothing, home décor, electronics, prescriptions and groceries, categories the retailer has identified as priorities as it tries to turn around its slipping store sales, a decline likely to be emphasized Friday during Wal-Mart’s shareholder meeting.
“The Wal-Mart brand,” the report says, “was not built to inspire people while they shop, hold their hand while they make a high-risk decision or show them how to pull things together.”
The document, prepared in October 2006 by the company’s former advertising agency and based on interviews with scores of consumers, offers a candid, wide-ranging explanation for why Wal-Mart, the No. 1 seller of everything from laundry detergent to underwear, has stumbled badly when it comes to higher-end merchandise like silk camisoles and shag accent rugs.
The report contends, for example, that “our low prices actually suggest low quality” for products like high-definition televisions.

Brands have power. They convey certain meanings — whether you like it or not. Changing that meaning is very hard – if not impossible. Wal-Mart is just the latest to learn that truth. It took the Japanese decades of sustained effort to move “Made in Japan” from meaning “cheap” to “high tech” — and now they are embarked on an arduous shift to “fashionable.” We will see how Wal-Mart responds.

Update on Chrysler

Two articles on the future of Chrysler and design:
First, there is James Surowiecki latest column Car Trouble: Online Only: The New Yorker saying what many of us have been saying about Chrysler:

Cerberus, then, is going to have to do more than run a tight ship; it’s also going to have to figure out how to anticipate and react to fluctuations in consumer taste. That’s especially challenging in the auto industry, where change generally does not happen quickly: designing and building a new model takes years, retooling factories is complicated and expensive, and union contracts make it hard to shut down or trim back operations. In other industries, like steel, private-equity firms have restructured companies, cut back on (or, via bankruptcy, eliminated) pension and health-care obligations, and watched profits soar. But brand identity and cool design are not factors in the steel industry, so reducing costs and increasing production solves most problems.

And then there was this announcement in Business Week Shake-up at Chrysler Continues;

Following the recent acquisition of a majority stake in the Chrysler Group by Cerburus comes the announcement that there will be a reshuffling at Chrysler’s North American design offices. Joseph Dehner and Brandon Faurote will be taking over Vice President positions at the product design offices in Auburn Hills, replacing Thomas Tremont and David McKinnon.

Maybe something is happening? Or maybe not. Time will tell.

Return of old-line companies?

According to Business Week’s list of top 100 small business’s (The Shock Of The Old), old is new:

This year’s list, however, is dominated by Old Economy businesses: metal benders, defense contractors, and others that measure their history not in decades but in centuries.

But don’t let that misnomer “old economy” fool you. These aren’t your grandfather’s companies. Take for example the BW story’s poster child – Wabtec Corp. Wabtec is the spin off of Westinghouse’s locomotive part’s business:

A lot has changed since George Westinghouse dreamed up the idea of pneumatic locomotive brakes. Wabtec—still on Air Brake Avenue—mirrors the history of American business. It was bought by conglomerate American Standard Cos. (ASD ) in 1968, taken private in a management-led leveraged buyout 12 years later, and went public in 1995. Since then the company (No. 97) has grown by acquiring other railroad equipment makers, focusing on international markets, and reinvesting some $30 million a year in research and development. One result of that R&D: a cleaner-burning diesel locomotive that helps municipal transit authorities meet federal air-quality standards.
Wabtec Chief Executive Albert J. Neupaver can look out the window of the company offices and see the ornate stone castle that once served as Westinghouse’s headquarters. It’s now a museum devoted to George Westinghouse. The days of vertically integrated manufacturing are over. The foundry, which once cast steel parts, is a parking lot. Assembly lines where each employee added one bolt have been replaced by a single worker assembling an entire compressor or brake directly from a customer’s order. Employee empowerment is in. Several times a year, management and line workers hold brainstorming sessions in keeping with Japan’s kaizen philosophy of continuous improvement.

International markets? R&D intensive? Highly automated assembly lines that make parts to customer order? Employee empowerment? That sound a lot like a number of “high-tech” companies now days (can you say “Dell?”).
Here are some other examples:

Ceradyne Inc. (CRDN ) (No. 17), which makes ceramic plates for body armor, and Emergent Biosolutions Inc. (EBS ) (No. 27), whose products include a vaccine for anthrax. . . .
Genesco Inc. (GCO ), founded in 1924, once was one of the largest shoe manufacturers in the U.S. As low-cost imports flooded the market, the company became a retailer.

So, can we drop the misleading and distracting mindset of “old economy/new economy”? There is no such thing – at least not based on industry or product. There are companies that are leading edge and there are companies who are lagging behind. Often they are found in the same industry.
The public policy lesson is clear: our job is to help all sectors adapt to the I-Cubed Economy, not write off portions of the US economy as “old” and concentrate only on the trendy “new”. That may be a good strategy in the fashion world. But even there, it often pays to stick with the basics. So it is in economic policy. Too bad we often forget that and go chasing after the next big thing or the latest fad (can you say “nanotech”?). The new and the old — as in many things, balance is important.

Protecting the brand reputation

We all know that corporate reputation is a major intangible asset. Here is a great example of how corporate governance works as a part of that reputation — Allan Sloan – Aflac Looks Smart on Pay – washingtonpost.com:

When the public face of your company is a duck, you can’t afford to foul up your reputation. (Yes, you can groan now.) Take Aflac Insurance, best known for its ubiquitous quacking commercials.
Something funny happened at the company’s recent shareholder meeting: nothing. That’s because, unlike any other U.S. company with publicly traded stock, Aflac has been smart enough to voluntarily offer its shareholders a “say on pay.” Giving in to social-activist shareholders, as Aflac did, doesn’t make you popular among the CEO set. But boy, was it the smart thing to do.

Why did Aflac take this course? As Sloan explains:

despite being a big company ($1.6 billion of annual profits, $25 billion in stock market value), it prides itself on holding upbeat, family-type annual meetings. [Chairman Don] Amos told me that the company, founded in 1955 by his father and two uncles who went door to door seeking investors, has never had a dissident proposal on its proxy statement and didn’t want one this year.

But more than that was involved. Aflac’s top management knows that its reputation is built on more than a duck. The product it sell — disability insurance — depends on its reputation for delivering. Disability insurance is not something high on the priority list. If Aflac had a reputation of nickeling and diming its claimants, the reaction might well be “why bother.” But the ads stress how well the company takes care of people. Getting into a messy fight over CEO pay could undercut that reputation (by making them look like just another big greedy company). A whole flock of ducks couldn’t undo that damage.
And speaking of the duck, top management knows a good thing when they hear it:

“The duck’s the cheapest guy we’ve got working for us — and the most valuable,” Amos said.

So, when do shareholders get to vote on the duck’s pay raise?

Twist in the patent wars

I recently ran in to this interesting twist in the patent war — how patents and FDA approval can work to knock out the competition. The story involves Adams Respiratory Therapeutics. They make the cold medicine Mucinex – and run the ads featuring Mr. and Mrs. Mucus who take up housekeeping in your nasal passages.
As SmartMoney relates:

Adams has patented the ability of Mucinex to deliver that 600mg dose over a 12-hour period, and relied on favorable regulatory rulings to push the product’s growth. After the company gained Food & Drug Administration approval for its extended-release guaifenesin product in 2002, the agency ordered all competing drugs off the market. Now, however, the U.S. patent office is reexamining one of Adams’ patents, an action requested by an undisclosed third party.

Yes, you read that right, once Mucinex was given FDA approval, all other competitors became illegal. The Adams 2006 SEC 10-K report goes into further detail:

In 2002, the FDA approved our 505(b)(2) application for Mucinex SE as an OTC long-acting guaifenesin product. Prior to our 505(b)(2) application for Mucinex SE, only short-acting guaifenesin products had been marketed OTC, while long-acting guaifenesin products were marketed as prescription drugs, despite their lack of formal approval by the FDA. Under the Durham Humphrey Act of 1951, the FDA established that no drug may simultaneously be sold as a non-prescription product and as a prescription product at the same dose for the same indication. Any products that violate this rule are subject to FDA regulatory action and removal from the market.
On October 11, 2002, the FDA issued warning letters to 66 manufacturers, distributors, marketers, and retailers of single-ingredient guaifenesin extended-release products. The letters stated that such prescription products require FDA approval, and without FDA approval, they could no longer be marketed legally. A number of the manufacturers and distributors that received a warning letter from the FDA filed a “Citizens Petition,” which is similar to an appeal, with the FDA requesting that the agency either elect not to enforce existing regulatory policies requiring removal of the drugs from the market or delay such enforcement. On February 25, 2003, the FDA issued a letter in response to the Citizens Petition to the 66 recipients of the original warning letter, reiterating that following the FDA’s approval of Mucinex SE in July 2002, all other single-ingredient guaifenesin extended-release drug products may no longer be marketed legally. The FDA decided, however, to allow a grace period for the manufacturers and distributors to remove such drugs from the market as follows:
• the FDA required that the warning letter recipients cease manufacturing unapproved single-ingredient guaifenesin extended-release products no later than May 21, 2003;
• no distribution (including distribution by secondary wholesalers or other distributors) could occur after October 23, 2003; and
• no retail sales could occur after November 30, 2003.
Historically, long-acting prescription guaifenesin products and, according to the FDA, several thousand other drugs were marketed without FDA approval. Resource limitations prevented FDA enforcement actions against many unapproved prescription and OTC drugs. In October 2003, the FDA published a draft compliance policy guide articulating its existing informal policy regarding drugs marketed in the United States that do not have required FDA approval. In June 2006, the FDA announced that it had finalized its policy, under which the FDA will exercise its discretion in taking enforcement action against unapproved drugs once the FDA has approved a similar drug, whether the similar drug is prescription or OTC. In publishing the policy guide, the FDA publicly affirmed the actions it took relating to long-acting, single-ingredient guaifenesin products. As of this date, however, the FDA has only taken regulatory action to remove from the market single-ingredient, extended-release guaifenesin. The FDA approved Mucinex DM and our maximum strength, long-acting guaifenesin and dextromethorphan combination product, as well as Mucinex D and our maximum strength, long-acting guaifenesin and pseudoephedrine combination product, pursuant to Section 505(b)(2) NDAs. We are hopeful the FDA will take similar action on extended-release guaifenesin combination products. However, we can offer no assurance that the FDA will do so or when any such action may take place.

The company’s November 2006 SEC 10-Q filing had this to say about the result:

The FDA’s removal of competitive long-acting, single-ingredient guaifenesin prescription products in November 2003. This removal resulted in Mucinex SE being the only long-acting, single-ingredient guaifenesin product available in the United States. Based on data from IMS Health—NPA TM , we estimate that, for the 12 months ended June 30, 2003, there were approximately 10.5 million prescriptions filled for long-acting, single-ingredient guaifenesin products. After November 2003, we believe that a majority of prescriptions written for long-acting, single-ingredient guaifenesin resulted in OTC sales of our Mucinex SE product. Humibid SE is now also available to meet this demand in a maximum strength formulation.

But, the saga isn’t over. As the SmartMoney story pointed out, the patents are in re-examination. And the company points out in its SEC filings, another company is seeking FDA approval for a similar drug.
All in all, as I said, an interesting twist. It is also an interesting insight into the competitive nature of businesses built around intangibles and intellectual property.

Financial competitiveness – part 8

From this morning’s Financial Times — Spitzer moves to update Wall St regulation:

Eliot Spitzer, New York governor, is to form a top-level panel of Wall Street chief executives, lawyers, consumer groups and regulators to modernise financial services regulation in the state.
Chaired by Eric Dinallo, the New York insurance superintendent, the group will seek to keep New York competitive with London by streamlining and modernising regulation without sacrificing the state’s tradition of strong investor protection.
The focus will be to rationalise state regulation of insurance companies, state-chartered banks and securities dealers and perhaps serve as a model for other states and the federal government.

Given Spitzer’s record on investor and consumer protection, this effort may have the credibility to actually get something done — and, I hope, determine what are the real issues.

Immigration bill

There is an interesting dynamic being played out in the immigration bill vis-a-via competitiveness and offshoring.
There is this from the New York Times a week ago — Many Employers See Flaws as Immigration Bill Evolves:

Employers, a major force in the national debate over immigration, say their discontent with the bill shaping up in the Senate has deepened over the last week because of changes that could make it more difficult for them to hire foreign workers.
High-tech companies, like Microsoft and Oracle, and employers of lesser skilled workers, like restaurants and construction contractors, already had qualms about the original version of the legislation, forged in three months of talks between the White House and a dozen senators.
But from the point of view of many employers, the bill has become worse in the last week.

And this today — Washington Wire – WSJ.com : High-Tech Companies Seek Change in Immigration Bill

Under the bill being debated this week, businesses would lose the ability to petition to keep a specific worker; instead, a merit-based system would to determine which workers would be able to come to the U.S., with workers getting points for special skills, expertise in science and math and the support of their employer.
The amendment will “preserve the ability of U.S. employers to determine the critical skill sets needed for global competitiveness and innovation,” the Information Technology Industry Council, which represents such firms as Dell Inc. and eBay Inc., wrote in a letter today to Senate leaders. It was signed by dozens of other groups that represent companies in need of high-skilled workers.

Yet, there is this from the Washington Post about how the bill changes the preferences toward business needs —
Immigration Bill’s Point System Worries Some Groups:

For weeks, U.S. senators wrestled among themselves and with White House officials over the question of what mix of skills, background and experience prospective immigrants should bring to their new country.
The answer they came up with, embodied in the immigration bill now on the Senate floor, would represent a radical shift in the philosophy of the U.S. immigration system. Rather than focus on reunifying families, the system would emphasize bringing in better-educated, higher-skilled immigrants who would help the United States compete in the world economy.

Then there is this — Immigration Fight: Tech vs. Tech:

Oracle, Intel, Cisco, and Motorola (MOT) appear to be taking a similar approach, based on a review of government documents and interviews with some of the companies. Oracle is largely hiring software specialists for work at its Redwood City (Calif.) headquarters, and many are paid more than $100,000 a year. Oracle’s Hoffman says that 90% of its H-1B workers are green card applicants. Intel often uses the visas to recruit engineers with advanced degrees from U.S. schools. “Our philosophy is that these people are the golden eggs; they’re the innovators and future job creators,” says Jenny Verdery, Intel’s director of workforce policy.
The outsourcing companies have a different approach. They frequently will bring in workers from their overseas operations to help service a client in the U.S., and then the worker will return home. While Wipro declined to comment for this story, Laxman Badiga, the company’s chief information officer, said in February that the company brings to the U.S. roughly 1,000 new temporary workers each year and rotates the same number back to India. He said the on-site training allows Wipro to serve clients better.

Lots of different tensions swirling around in this one. And this is just the first step. If the bill survives the Senate, it still has to go to the House (where it may be killed by technicality) and then conference between the two bodies (with the White House weighing in).
So, stay tuned to this one. I’m not sure what to make of all this or where it is headed. But where ever come out of the process will be an important change in the rules of the I-Cubed Economy.