• Guest Post: Intellectual Property, Finance and Corporate Governance
    in: Corporate Governance, denoncourt, Disclosure, Elizabeth holmes, Finance, fraud, Intellectual Property, misrepresentation, Patently-O, sec, Theranos, transparency, valuation  | 

    Guest Post: Intellectual Property, Finance and Corporate Governance

    We are pleased to publish this guest post by former IP Finance contributor and Senior Lecturer in Law, Dr. Janice Denoncourt, at the Nottingham Law School at the Nottingham Trent University. 

    The emergence of IP rich companies is the new corporate governance challenge. This is because IP is largely invisible, not only in the financial accounts, but also more generally in corporate law theory and the legal framework.  The research in my new bookIntellectual Property, Finance and Corporate Governancedemonstrates why companies need to communicate more about how they manage corporate intellectual property (IP) rights portfolios and their strategy for delivering shareholder value. Depending on their business model and corporate objectives, companies add value via their corporate IP assets in different ways to achieve their goals.   In the modern era, all companies, large and small, have intellectual property (IP) rights, sometimes across multiple jurisdictions.  They are corporate IP owners.  At the same time, the shift to intangibles and IP assets as the major driver of value in business is clear and unstoppable.  Since the Global Financial Crisis ten years ago there has been a renewed interest in our current understanding of capitalism.  As a result, shareholders, business people, stakeholders and the public, seek more relevant, accurate information about IP-dependent business models and their impact on commercial value.    

    Dr. Janice Denoncourt
    In the aftermath of the Theranos ‘misleading investors’ scandal, this is an increasingly important modern corporate governance issue.  Theranos, Inc. is an American consumer healthcare technology company based in Palo Alto, California founded in 2003 by inventor and Managing Director Elizabeth Holmes. In 2018 Holmes was subject to civil charges by the United States Securities and Exchange Commission (SEC) for massive fraud in excess of $700 million USD for having repeatedly yet inaccurately assured shareholders and regulators that the company’s patented blood testing technology was revolutionary (see https://www.sec.gov/litigation/complaints/2018/comp-pr2018-41-theranos-holmes.pdf).  Theranos’ 200 plus US patent portfolio is public information via the United States Patent and Trademark Office (USPTO) portal and a significant corporate investment in IP. Holmes co-invented more than 270 of the company’s patented innovations. While patents do not equate to innovation or commercial success, they do act as business indicators of inventive activity as well as a commitment to protect the results of innovation.  Holmes, of all people, was well placed (if not best placed) to understand the capability of the blood testing technology. The alleged misconduct, namely misleading investors and government officials, has generated a new global regulatory discourse about what companies need to tell us about their IP.  Arguing that it needed ‘to protect its IP’ to excuse material omissions and misleading disclosures is not acceptable according to the SEC.  In the SEC’s press release on 14 March this year, Steven Peikin, Co-Director of the SEC’s Enforcement Division stated:
                Investors are entitled to nothing less than complete truth and candor from companies and their executives… The charges against Theranos, Holmes, and Balwani make clear that there is no exemption from the anti-fraud provisions of the federal securities laws simply because a company is non-public, development-stage, or the subject of exuberant media attention.

    Stephanie Avakian, Co-Director of the SEC’s Enforcement Division further confirmed:
                As a result of Holmes’ alleged fraudulent conduct, she is being stripped of control of the company she founded, is returning millions of shares to Theranos, and is barred from serving as an officer or director of a public company for 10 years…This package of remedies exemplifies our efforts to impose tailored and meaningful sanctions that directly address the unlawful behaviour charged and best remedies the harm done to shareholders.

    Key corporate governance principles of transparency and disclosure are being more rigorously applied to corporate ownership of monopolistic IP rights that protect innovation and creativity.  In the US, SEC disclosure law Regulation S-K requires disclosure of the importance, duration and effect of all patents, trademarks, licences, franchises and concessions that a company holds.  The standard for ‘material’ corporate IP asset disclosures will continue to evolve in the US and other IP-rich jurisdictions.  The civil legal action brought by the SEC against Holmes is the catalyst highlighting a void in corporate practice.   IP-rich companies like Theranos will continue seeking corporate finance which falls under the corporate governance regulatory umbrella.   IP rich companies need to ensure they reflect on disclosure and transparency rules and take into account the growing magnitude of their corporate intangibles, IP assets and IP business models that potentially generate future wealth for their shareholders and potential investors.  

    Closer to home, in 2017 the UK implemented the EU Non-Financial Disclosure Directive which requires large and listed companies to include additional disclosures of non-financial information in their annual reports, similar to the disclosure requirements in the Strategic Report.  The Non-Financial Reporting Regulations insert sections 414CA and 414CB into the Companies Act 2006, supplementing the existing strategic report requirements as set out in section 414C.  These new company law equirements potentially increase the reporting of non-financial information, better business and IP strategy reporting through the mandatory requirement to report the company’s business model.  This EU-wide reform highlights the growing importance of disclosure of non-financial information.

    IP rights have evolved from being “a little pool to a big ocean” of corporate value and that corporate governance needs to respond to society’s rising expectations of directors and boards.  The astonishing lack of quantitative and qualitative public information about the growing magnitude of corporate IP assets makes it difficult to assess strategic value (“the IP value story”) and directors’ stewardship of those assets.  More relevant, accurate and ‘joined up’ corporate IP information (mostly known to internal management) is needed to triangulate intangibles financial data through cross verification with narrative disclosures and actual events.  The SEC stated that Theranos engaged in “elaborate, years-long fraud in which they exaggerated or made false statements about the company’s technology, business and financial performance.”  This is a new frontier in corporate governance thinking and practice. 

    My research evaluates how corporate boards can ensure an appropriate level of transparency and make voluntary and mandatory ‘true and fair’ disclosures about a company’s corporate IP assets such as patents and trade secrets in traditional formats such as the accounts and the annual report.   The philosophies and principles that underpin debates on disclosure and transparency suggest that more ‘open’ disclosures about innovation, whilst preserving competitive advantage, are necessary so we have something to read, evaluate, react to and question. Countries including the US and the United Kingdom have mandatory obligations to report on gender balance, climate change and more, but not expressly corporate IP.  Patents, mini-case studies and an original business triage-style model for assessing corporate IP information, strategy and disclosures illustrate the gaps corporate governance theory needs to address.  Companies need to tell us how their corporate investment in R&D and IP rights contributes to the bottom line and regulators need to ensure boards of directors are accountable for IP management and strategy decisions, an important underside of the intangible economy.  


    Intellectual Property, Finance and Corporate Governance contributes to the legal and economic literature for readers interested in what lies behind the headlines.  The foreword is written by Professor Nicolas Binctin, Universite of Poitiers. As for the future of the Silicon Valley biotech company Theranos, Inc., the company has since made hundreds of staff redundant to avert becoming insolvent.

    Dr J Denoncourt, Nottingham Law School

  • USPTO Issues Guidance on Effects of Supreme Court’s Decision in SAS Institute on PTAB Trials
    in: Administrative Patent Judge, America Invents Act, David Ruschke, inter partes review, IP News, IPR Petitions, IPWatchdog Articles, IPWatchdog.com Articles, Leahy-Smith AIA, patent claims, patent trial and appeal board, patents, PTAB Trials, SAS Institute, US Supreme Court, USPTO, webinar  | 

    USPTO Issues Guidance on Effects of Supreme Court’s Decision in SAS Institute on PTAB Trials

    On Thursday, April 26th, the U.S. Patent and Trademark Office issued new guidance regarding the effects of the U.S. Supreme Court’s judgment in SAS Institute Inc. on America Invents Act (AIA) trial proceedings held before the Patent Trial and Appeal Board (PTAB). Along with the new guidance, the USPTO also announced a webinar with PTAB […]

    The post USPTO Issues Guidance on Effects of Supreme Court’s Decision in SAS Institute on PTAB Trials appeared first on IPWatchdog.com | Patents…

  • USPTO Guidance for Dealing with SAS Decision
    in: Patently-O  | 

    USPTO Guidance for Dealing with SAS Decision

    by Dennis Crouch

    The US Supreme Court recently decided SAS Institute Inc. v. Iancu (U.S. Apr. 24, 2018), holding that USPTO has been improperly issuing “partial-institution” and holding AIA trials on only a subset of challenged claims. The USPTO has now issued a one-page introductory guidance memorandum for procedure moving forward.  According to the Memo:

    1. The PTAB will institute as to all claims or none. Thus going forward, “if the PTAB institutes a trial, the PTAB will institute on all challenges raised in the petition.”
    2. For pending trials associated with a partial-institution decision, “the panel may issue an order supplementing the institution decision to institute on all challenges raised in the petition. . . . [and] may take further action to manage the trial proceeding” to take into account the shift. “For example, if the panel has instituted a trial and the case is near the end of the time allotted for filing the Patent Owner Response, the panel may extend the due date for the Patent Owner Response to enable the Patent Owner to address any additional challenges added to the proceeding.”
    3. “It is expected that the parties will work cooperatively … to resolve disputes and propose reasonable modifications to the schedule.”
    4. Questions: Trials@uspto.gov or “Chat with the Chief” webinar on Monday, April 30, 2018, from noon to 1 pm ET to discuss the SAS decision.

    Continue reading USPTO Guidance for Dealing with SAS Decision at Patently-O.

  • Motion For Sanctions Granted-in-part for Violation of Unentered Protective Order IPR2015-01750

    Takeaway: The Board will not excuse conduct constituting breach of a protective order simply because the protective order had not yet been entered, particularly when the parties had agreed to operate with the understanding that it was in place. In … Continue reading

    The post Motion For Sanctions Granted-in-part for Violation of Unentered Protective Order IPR2015-01750 appeared first on PTAB Trial Blog.

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  • The USTR Special 301 Report 2016 – Africa in review

    Afro-IP regularly reports on how Africa fares in the Special 301 Report issued annually by the USTR (see links to some previous posts below). The 2016 Report was released at the end of April 2016. The generation of the report through a unilateral US process and its goal have been protested by several countries. For instance, as noted by Mike Palmedo in his post on the 2016 report, both India and Chile have registered their displeasure. Palmedo writes:

    • Indian Commerce Minister Nirmala Sitharaman gave a statement to the Lok Sabha (Lower House of the Legislature): “The Special 301 Report issued by the United States under their Trade Act of 1974 is a unilateral measure to create pressure on countries to enhance IPR protection beyond the TRIPS agreement. Under the WTO regime, any dispute between two countries needs to be referred to the Dispute Settlement Body of the WTO and unilateral actions are not tenable under this regime.”

    Similarly, some law professors and civil society groups have sounded the same caution about the listing of WTO member states  being a probable violation of  “either the WTO’s dispute settlement understanding or GSP enabling clause.” Following the filing of their Joint Special 301 Comment by Law Professors and Civil Society Groups, several scholars and activists participated at the Special 301 hearing (see here for a post hearing report by Sean Flynn and here for the transcript of the full hearing).

    Two African states are listed in the priority watch list  (Algeria) and the watch list (Egypt) and several others are mentioned in the 2016 report as summarized, in alphabetical order, below –  

    • pp 23 and 45: Algeria‘s promotion of local pharmaceutical products and medical devices is cited as the reason why she remains on the Priority Watch List.  For a contrary view, see the AU’s comments on Algeria’s approach in its Pharmaceutical Manufacturing Plan for Africa: Business Plan at p41. 
    • p9: Burundi’s becoming party to the WCT is noted.  
    • p53: Egypt remains on the Watch List because of her “failure to combat reportedly widespread usage of pirated and counterfeit goods, including software, music, and videos, and the failure to implement a transparent and reliable patent registration system.”
    • p9: Kenya receives praise for boosting her anti-counterfeiting efforts and preparing draft trademeark and copyright amendments which “strengthen IPR protection and enforcement” (see here for commentary).
    • p9: Nigeria and  other Sub-Saharan states are encouraged to “similarly to address the factors that undermine effective IPR protection and enforcement.” Nigeria is also mentioned at p 15 where it is noted that she is “reported to have [an] ineffective or inadequate IPR enforcement system”. She is also mentioned at p20 in relation to her government procurement regulations and their impact on the trade secret protection of source code. Her final mention is at p22 where her 2013 Guidelines for Nigerian Content Development in Information and Communications Technology (ICT) are cited, with disapproval, for their promotion of local production or the utilization of Nigerian material and labor across a broad range of ICT goods and services “at the expense of of foreign firms, investors, and multinational enterprises.”
    • p10-11: South Africa‘s participation with the US and Brazil in the WIPO Re:Search Consortium is lauded as enhancing access to medicines. (For fundamental reform suggestions to enhance access to medicines see here for a post on the UN’s High Level Panel on Access to Medicines (HLP) hearings on Johannesburg).   A note is also made of US-South Africa engagement on GI-related concerns at p24. 
    • p9: Tanzania‘s joining of UPOV 91 is noted with approval. For a robust discussion of the merits this development see Chidi Oguamanam Breeding Apples for Oranges: Africa’s Misplaced Priority Over Plant Breeders’ Rights (2015).
    The USTR’s views are not the last word on what is appropriate for African IP regimes and each state would do well to consider other views and its own context in arriving at its response, if any, to the above US Special 301 statements. In the words of South Africa’s Minister of Trade and Industry at the WIPO International Conference on Intellectual Property and Development in April:
    • “While generalized conclusions can offer insightful guidance, it may not be applicable at all         times to all countries … it is vital that research is undertaken in a manner that context specific,   taking into account the level of development of the country under consideration, with a clear     focus on its industrial profile and capabilities.” (For a full report on his comments see W New    South African Trade Minister Opens WIPO Conference With Call For Appropriate IP  IP-          Watch, 7 April 2016.)

    ————————————————
    The U.S. is watching you…. Monday, 3 June 2013
    USTR Special 301 Report – Monday, 4 May 2009
    African Countries Suggested for the USTR Special 301 Report – Saturday, 21 February 2009

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  • Private space race continues between Musk’s SpaceX and Bezos’s Blue Origin

    A space race has been heating up in the private commercial sector and it involves some of the biggest names in high tech industries. Right now it would seem to most observers that SpaceX has the lead in the private space race, although that lead may not be insurmountable. Blue Origin hasn’t been able to send a rocket into orbit and then land it successful back on the Earth’s surface. For its part, SpaceX just landed its Dragon capsule successfully in the Pacific Ocean yesterday, delivering more…

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  • How Patents Can Have a Multiplying Effect on a Startup Company

    The best patents are those that multiply an investment and actually generate money on their own… Standards essential patents are the holy grail of patents in today’s business landscape. Most startups are focused on getting a product to market quickly, getting validation, and starting a revenue stream. Once there, the startups begin to scale. If there is any chance that a startup’s technology – even a piece of it – could be incorporated into an industry standard, the patent needs to be…

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