LICENSING EXECUTIVES SOCIETY

Britain and Ireland

NEWS EXCHANGE
Issue 68: August/September 1999

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Trevor Hunter took over from Fiona Nicolson as President of the Society at the Annual General meeting in Glasgow on 8th July. He is succeeded as Vice President by the former Secretary, Christopher Goodman, who is in turn succeeded by Council member Dr John Roe.

Trevor, who in his first Presidential diary pays a generous tribute to Fiona for a splendid year in office, is an independent technology transfer consultant operating from Leeds.

He spent the early part of his career in research with ICI, the Water Research Centre and notably eight years at the Atomic Weapons Research Establishment at Aldermaston.

Trevor then headed north to Bradford and Allied Colloids, where he later became manager of the patents and licensing department.

John Roe, who is business development manager for Cambridge-based Mundipharma International, part of an international group of privately owned companies, also has experience of Bradford.

He graduated from university there and started his career as a pharmacist. After short spells in community and hospital pharmacy he returned to Bradford to complete a PhD in pharmaceutical technology before moving into the pharmaceutical industry with Beechams at their biosciences research centre in Epsom, Surrey.

His interest in licensing developed during his time as registration manager for Napp Pharmaceuticals in Cambridge. When the opportunity arose nine years ago, he joined the company’s business development department where he is involved in the licensing and business development activities of the European business. Napp was renamed Mundipharma International to reflect the company’s wider European role.

Vice President Christopher Goodman is a partner with Eric Potter and Clarkson of Nottingham. We will include a profile in the next issue.

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President’s Diary and people

There was brilliant sunshine and a great deal of good spirit at the Society’s 26th annual conference in Glasgow this year. On behalf of the membership I would like to congratulate and thank Fiona Nicolson and the committee chairs for bringing together some excellent speakers who, despite an unusually hot spell, held the attention of the conference throughout.

We cannot let Fiona sit back and take a well earned overview of LES Britain and Ireland’s activities this year as immediate Past President without remarking on the considerable success of the Society during her time in office.

As Vice-President, Fiona led the organisation of the LES International conference in Edinburgh last year which was very well attended, judged excellent for its content and ensured the financial security for LES B&I for some years to come.

A full programme of meetings in London and several of the regions, topped up by the annual lunch with Trevor Bayliss, has ensured a steady influx of new members, further encouraged by Barry Quest’s organisation of the LES B&I web-site.

Despite the absence of some familiar faces in Glasgow, it was good to see a lot of support from local members and we were delighted to have LESI President-elect Heinz Goddar speaking about the role of LESI. The international flavour was maintained by presentations by Ingebord Voelker from Hamburg, Mark Litton and Mauricio Flores from the USA, Ronald Vles from Holland and Furio Ghezzi from Milan. Gordon McConnachie was back on his home patch from Germany. We were delighted that Alison Brimelow, Chief Executive and Comptroller General of the Patent Office, and Tony Bowdery of DERA, made time available to address us in Glasgow, and are grateful for all our presenters from near and far for contributing to another great success north of the border!

This year we are pleased that Chris Goodman, formerly Secretary of LES B&I, has accepted office as Vice-President, and John Roe as Secretary. Both have already done much good work for the Society, and I am looking forward to working with them. Christopher Hyatt remains in charge of the money, and Renate Siebrasse, as our Consultant Director of Administration, as well as making it happen, continues to charm us all into staying on track. Regrettably, we will be losing, by retirement from Council, two members who have given long and valuable service – Michael Burnside, President of LES B&I in 1980/81, who has provided much valuable advice to members through his leadership of the Laws committee over many years, and Jeremy Brown, President of LES B&I in 1992 and President of LESI in 1996. Also leaving Council after making valuable contributions are Peter Hanna and Ian Traill. We thank them both for their services and know that they will continue to support the Society in Ireland and Scotland respectively. We are glad to welcome Alastair Neil as a new member of Council and Tony Bowdery, who has agreed to serve as a co-opted member.

With the conference over, there will be time now for members of Council to take note of, and act on, proposals that we, as a Society, should step up efforts to attract more members from industry. We were given a useful impetus for this by a proposal at the Annual General Meeting and, as it happened, workshop and plenary speakers also remarked on the need to make industry more aware of the importance of their intellectual property. What better way than through membership of LES?

Apart from industry in general, we must also consider the IP management needs of small to medium sized businesses. I look forward to reporting on progress during the months to come.

Tony Bowdery, director of the intellectual property department at DERA, was a plenary speaker at the conference. His presentation aroused so much interest that we invited him to contribute this article on DERA’s background and in particular the agency’s relationship with industry.

Building IP links with industry

Attempts to transfer technology from defence research establishments date back at least 50 years to the formation of the National Research Development Corporation. There was a view that “Golden Nuggets” of technology were available for a simple transfer. For a period of 30 years all inventions were offered to NRDC to exploit.

With the ending of the NRDC monopoly came Defence Technology Enterprises, a company backed by venture capital. This sent “ferrets” into the establishment to find the nuggets.

These experiments ended about 1990. There were some successes, but basically there was failure for a number of reasons.

Firstly the technology was not so much nuggets as raw ore. In other words the ideas were a long way from market and often showed a poor appreciation of production problems.

Secondly the exploitation was seen by inventors as someone else’s responsibility and gave little benefit to the inventor. Hence reporting inventions was seen as a duty or even a chore. Finally political or financial pressures led both organisations to attempt to cover too many technologies and spread their effort too thinly.

DERA’s principal role today is as technical adviser to MOD. It seeks to maintain this role with a research expenditure which is reducing by half over 10 years and in a climate where MOD seeks greater reliability and economy through use of Commercial Off-The-Shelf (COTS) technology.

In addition, government initiatives such as the Wider Markets policy and the Defence Diversification Agency are placing ever greater emphasis on technology transfer to industry, both civil and military.

DERA realises it lacks the production, distribution and sales skills which need to be added to intellectual capital to achieve successful innovation. It therefore seeks to use its IP exploitation to expose its scientists to the needs and priorities of manufacturing industry. At the same time the emphasis is in putting the technology on the shelf for MOD.

DERA was engaged in the early 1990’s on active pursuit (including legal action) of infringers of its patents. Although this had some negative effects it gave the agency credibility as a source of technology and a commercial partner.

This led on to the so-called “royalty reinvestment” scheme, where some of the royalties were spent on research guided by the licensor with him getting an option to a licence on fair and reasonable terms. This in turn led to full collaborations. All these activities exposed DERA scientists to the needs and constraints of the commercial market and so guided our thinking and advice to MOD.

Whilst DERA has been engaged in a number of contractual joint ventures it was only in April this year that Treasury gave the final go-ahead to equity joint ventures, and DERA is currently negotiating its first such deals.

A vital link with SMEs
The Defence Diversification Agency, which started operations in January this year, is forming a vital link to enable civil industry, especially SMEs, to deal with the complex DERA structure. The DDA works in close collaboration with existing regional innovation organisations and looks to both transfer DERA technology to industry and bring civil technology to the defence market.

To DERA, technology transfer is very much a two-way process which helps us to understand and solve industry’s real problems as well as enhance our service and bring new technology to our MOD customers. We are anxious to form further, mutually beneficial links with industry through our intellectual property.

DERA is a trading fund agency formed from the former MOD research and trials establishments. It has a turnover of about £1b with 12,500 staff and 14 main laboratory sites. It filed 111 patents last year and granted 64 licences.

Despite the heat and rival attractions, Council member Stephen D Powell attended several lively workshops and gleaned much about Ireland’s ‘raging’ economy and the growth of direct Electronic Data Interchange in commerce.

‘Open Electronic Data Interchange is comparable to a one night stand; here, there is no history of dealing and an unknown status, so that the terms and conditions and applicable law need to be established, and contemporaneous payment is required’

Mary Swords, a solicitor with Arthur Cox of Dublin, provided a fascinating insight into recent dramatic changes in Ireland while providing an overview of the favourable tax regime in Ireland, including details of the Shannon Free Zone.

This was followed by a lightning tour through the change of the Irish economy from being purely agricultural to becoming Europe’s “raging tiger”, conducted by Yvonne McKeown, patent and trade mark attorney with McLachlan & Donaldson.

We heard that the economy was expanding at an annual rate of between 7 and 10%. The “brain drain” of the 1960’s and ‘70’s had been reversed; only 28% of the population was over 45 – by 2001, 40% of the population would be under 25, which was a crucial statistic for future labour availability.

The third member of the team – Emma O’Neill of BioResearch Ireland – then highlighted some of the measures which the Irish government had implemented to encourage the economy.

Initially, the computer sector was targeted. This was so successful – Ireland is now the second largest exporter of computer software in the world – that a similar approach is now planned for the biotech sector. In addition a technology transfer/business partnership programme had been set up by Enterprise Ireland.

Despite the post-prandial timing of the workshop and the relentless heat of the Glasgow summer, the session was lively and highly-interactive; it is now planned to hold workshops on other Irish topics in future years.

Best practice
e-centreUK is the company responsible for the development of best practice in all areas of electronic commerce in the United Kingdom and the development and support of standards. Its director Dr Roger Till explained that it had nearly 16,000 organisations as members, 85% of which are SMEs.

Although e-commerce could be classified by the nature of the medium used, e.g. PC and the internet, digital tv and the set-top box, mobile phone etc, a more revealing classification related to the parties involved, i.e. business-to-business, business-to-consumer, government-to-business, or government-to-citizen.

For example, several supermarkets now employed direct Electronic Data Interchange with their suppliers to allow the latter to plan manufacture and deliver without the need for individual orders to be placed. ASDA even gave seminars to their small suppliers and arranged leasing deals for the necessary equipment.

Regarding legislation, a bill has been awaited for some time and immediate government action is needed if it is to meet the stated aim of effecting 90% of public sector procurement by e-commerce by 2001.

Roger concluded by displaying some excellent web-sites; that of Hampshire County Council had received praise from Bill Gates – no less.

Potential legal problems
David Marsh, a solicitor at Needham and Grant, then outlined the potential legal problems associated with electronic commerce. These were: the ease of reproduction and the difficulty of detecting alteration, confirming originality and uniquely identifying the source.

General solutions were the use of encryption, external validation, agreed forms of signature and trusted third parties, but the nature of the electronic communication often determined the actual solution used.

David identified the Closed Electronic Data Interchange as a relatively easy scenario, such as the supplier-customer link mentioned above. This is typified by interchange agreements establishing a long-term relationship, repeated data flows (e.g. relating to stock control), secure payment processes and a call-off mechanism.

Contract formation
The various aspects of contract formation were then discussed. The question of the time and place of acceptance took many listeners back to their first days of studying contract law; does a web-site constitute an offer or an invitation to treat?

The basic law relating to signatures is simple, it is intention which is important; David invited all those who doubted the validity of artificial signatures to hand him their £10 notes. As a final point, it is important to distinguish between encryption of a signature and encryption of an entire message.

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Christi Mitchell, chair of the LES Healthcare committee, reports on a workshop at which small pharmaceutical concerns discussed how best to attract the interest of major players

Partnering with giants, no less

Gavin Clark, manager of global licensing at GlaxoWellcome, set the scene by describing how his company’s licensing division could receive about 500 technology approaches a year, but of course it was not a simple process to take any one of these through to a closed deal.

Talking about major companies in general, he and other speakers outlined the potential pitfalls and what steps the small company or university should take prior to the approach and during the discussions in order to simplify the process.

It was considered very wise to study the anatomy of the big pharma company – get to know the beast. Be fearful of what it may drop – never forget that it is an elephant!

Get to know the real internal structure, read the annual reports, wise up on the pecking order, find out whom to approach. There will only be one opportunity.

At the same time, understand your company’s own technology, have the right person to promote it and discover all you can about the competition.

Time to dance
Once the approach has been made and if you gain entry, it is time for the Dance to begin. During this phase the small partner needs to

• understand what personally drives the negotiators – does the bonus relate to the number of deals done?
• help the big pharma team sell your technology to their superiors – what do they need and what is the approval process and its timelines?
• save time by finding the product champion from their side;
• be conscious of M+A ‘spoilers’. In these days of intense merger and acquisition activity, changes of ownership on the big pharma side may cause a deprioritisation of the licensed product or technology with the potential for serious knock-on effects on the small partner.

Time to act appropriately
All the speakers agreed that big companies had a duty to act appropriately by realising the need for small partners and for the survival of these concerns.

They should bring in the ongoing project team as soon as possible and establish the strategy of the prospective small partner. Was this his exit gambit or a long-term venture?

All observed that the whole market area had shown considerable recent change. The number of big pharma companies was decreasing, the universities were bringing more skills to the party and the number of small biotech companies was continuing to increase.

Buyers’ market now
It was also noted that with the increase in available technologies, it had become a buyer’s market. At the same time, the pharma licensing executive function had changed. With a high staff turnover, there was now seldom one person able to make a quick decision.

The truly independent licensing executive was no more. Different structures abound, but it was noted that where licensing reports via R&D, there is greater tendency for delays.

It was stated as essential for the small company to

• target but not over focus;
• enter the negotiation knowing what deal structure it wanted to achieve;
• never assume that this technology would ever be as important to another as it was to the source;
• plan for success (and identify the exit route should it be required)
• recognise that the deal was only the start of a very long partnership and that to be successful it would require nurturing and management throughout the project’s lifetime.

Those taking part in the workshop included Alison Hood of Freshfields intellectual property department and Paul Pay of Lisco Technologies.

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LES goes underground

No, not the name of a new, subversive chapter of the Society but the title of the tour of Glasgow 1999, UK City of Architecture and Design, taken by members of the Education committee on the Saturday following this year’s conference in the city.

Members, friends and families including Kurt and Sheila Deutsch, Trevor and Janet Hunter, David and Wendy Veasey, Christopher and Sybil Goodman, Stephen Powell and family, Mary Swords and Yvonne McKeown were guided on a “hurl aroon ra toon” by Ian Traill, whose local knowledge inspired the use of Glasgow’s very own train set – the Subway or “Clockwork Orange” as it is affectionately known - as the main mode of transport.

The group surfaced to visit The Lighthouse, recently opened by the Queen as the centre for the festival year with exhibitions on Charles Rennie Mackintosh and Glasgow’s other great architect, Alexander “Greek” Thompson.

Three stops later, this was followed by a visit with an educational theme – the Scotland Street School designed by CRM – where the group were fascinated by the displays of school in days gone by perhaps some aspects triggered fond memories in older heads!

Popping up again at Hillhead, the educational theme continued after a convivial lunch at the famous Ubiquitous Chip restaurant in Glasgow’s West End with a walk around the Gilmorehill buildings of Glasgow University . The final underground journey completed the circle to the Cowcaddens station.

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Reducing confusion and making legislation user friendly

We are reviewing proposals from the European Commission on (a) fundamental reforms to the way in which the notification procedure is to operate and (b) its treatment of vertical agreements - agreements such as those covering supply and distribution between entities at different levels in the supply chain.

There is considerable overlap here (including potential inconsistency) with measures the UK Government is taking to implement the Competition Bill, and we are also liasing directly with the Government on this.

Our aim is to minimise the level of confusion that the new measures are likely to cause for LES members, and, as with our work on the Technology Transfer Regulation, to try to make the resulting legislation as user friendly as possible.

We will also be actively reviewing proposals to amend the research and development and specialisation block exemptions, both of which are due to expire at the end of next year.

There are also moves afoot to amend the European Patent Convention.

The proposals being considered include the abolition of the prohibition on software patents and the introduction of a grace period. Again, we are monitoring these proposals carefully.

Tax on IP rights
Finally, we are considering the potential impact on our members of the consultation paper published by the UK Government earlier this year on proposed reform of UK taxation of IP rights.

We are being assisted here by Adrian Gregory of PriceWaterhouseCoopers, with whom we were put in touch by LES member Andrew Mainz. Adrian has kindly agreed to the publication here of a brief summary of the document. If any readers would like to help prepare our commentary on these proposals, or require more information, please contact me.

Proposals for IP tax reform
The consultative document on reform of the taxation of intellectual property was issued by the Inland Revenue in March of this year. It was prompted by recognition of the need to move away from the current fragmented position whereby the tax treatment of different types of IP varies significantly according to the nature of the asset. The intention is that the consultation process should result in proposals which can be brought forward in the 2000 budget.

The main areas covered are

• What should remain outside the scope of the reform?
• The definition of intellectual property
• Whether deductions for purchased intellectual property should be given as capital allowances, or whether an account based approach should be adopted.
• The transition from the present rules to the new rules.
• A proposal to extend the withholding tax regime applying to royalties.

In most cases the document puts forward a number of options and outlines some of the advantages and disadvantages attaching to them, often with a bias in favour of one particular option. Where a proposal is advanced (for example, to extend the scope of withholding tax on royalties) a number of ways in which this could be achieved are considered. It should therefore not be viewed as a single proposal which has been put forward by the Revenue for comment.

It should be noted that the intention is that any reform should be revenue neutral; the document states explicitly that it is therefore inevitable that there

Ireland Report

Presenting her report at the Annual General Meeting of the Ireland region, President Mary Swords looked ahead to next year when it was hoped to extend the programme to include presentations to universities and industry groups, Also in the pipeline was a visit to Belfast for the annual dinner.

Mary paid tribute to treasurer Yvonne McKeown – ‘a stalwart member for a number of years’ – and to other members. She said Northern Ireland membership had increased more than one hundredfold, bringing fresh impetus to region.

‘Indeed’, she said, ‘the active participation of members north and south is welcomed by the committee.’

From pink frilly knickers to the MCC

When in early 1986 Link House Publications was taken over by United Newspapers, 27-years old Claire Derry seized the chance of a management buy-out. The business she then started, Link Licensing, is now one of the foremost companies in the UK entertainment industry for the marketing and development of IP rights and the sale of children’s television programmes internationally.

Telling her story at a recent LES meeting in London, Claire said the first break came when Thames TV, one of the major commercial channels, approached Link to handle their biggest animation project Count Duckula – the story of a Vampire Duck with a distinct aversion to blood.

It was however Link’s appointment by Mattel Toys in 1990 to develop a licensing campaign for Barbie, now the world’s top selling fashion doll, that saw Link’s fortune start to grow.

‘Our mission’ Claire declared, ‘was to make the Barbie brand the fashion brand for little girls. The success of Barbie the doll was a result of Mattel’s introduction of new stylish fashions and innovative products each year.

‘The licensing was brought into line with this by the creation of a style guide for each season, with in-vogue colour palettes, fabric swatches, patterns and designs for fabric.

‘The look is co-ordinated from shoes to socks, underwear, handbag, inner and outer clothing, hair accessories and make-up to everything in the little girl’s world from her bedroom to what she eats.’

On the subject of growth, Claire said: ‘In 1995 United Newspapers, the company that had sold us, reinvested in the company providing funds to enable us to develop our own entertainment brands. This has culminated in Link Entertainment, a division of Link, having four TV series in production for ITV and the BBC.

‘Link Licensing is now one of the top licensing agencies in the UK, representing a broad spectrum of properties from tv and publishing characters through to major brands and art collections.

‘With brands ranging from Barbie to the Lord’s brand for the MCC, the company has them all from pink frilly knickers to the most exclusive sporting club in the world!’

Mr Man in Scotland

The Scotland region has been delighted to welcome more than 40 attendees at each of its quarterly meetings and concluded an exciting year with Mr Wealthy and the Puffin in Stirling in April. However, regional secretary Dr Caroline Sincock reports, the region is likely to attract even more people as a result of this particular meeting.

The two speakers had travelled far to talk on merchandising and branding. The evening included a competition with prizes which, as you may have guessed, were items of branded clothing distributed to the winners in an airborne fashion!

‘We have the generosity of Ian Downes, head of brand management at The Copyright Promotions Licensing Group to thank for this novel and effective way of using Mr Men branded products and warming up his Scottish audience,’ Caroline says.

‘Such a stimulating first speaker was hard to follow, but John Noble, director of British Brands Group, met the challenge. He made the often confused areas of passing off, trade mark infringement and unfair competition readily understandable and of interest to an audience very mixed in its legal experience.’

Business with pleasure

Mark Goodwin, chair of the North West region, has overseen a very active programme and hopes to have five more meetings between November and next summer.

Once a year the group attempts to visit an industrial site to discuss technology transfer issues. This year’s trip into the country, voted as the most successful event of recent years, was to EA Technology. The region aims to strike a balance between legal and practical topics and meetings are generally held at pleasant venues.

Mark recalls in particular a Christmas meeting at the restaurant Heathcotes ‘as the food there is of the highest standard’. So where will the next Christmas meeting be? Heathcotes, most likely.

Educational Brainstorming

Ideas for future initiatives were bounced around at an open “brainstorming” meeting of the Education committee. Grabbing people as they left the final plenary session at the Glasgow conference, the following suggestions were squeezed out of interested members:

• the need to attract more members from industry;
• maintaining and improving contracts with the DTI and the NHS;
• expansion of MBA programmes, especially in the South;
• making educational material a prominent feature of our web-site and then promoting it widely, and
• establishing contact with chambers of commerce.

The committee will have plenty of food for thought when it reconvenes for the next session. If you have any further thoughts, the new chair Stephen Powell would be delighted to hear from you. He would particularly like to exploit any personal contacts LES members may have with organisers of MBA courses.

Contact Stephen Powell c/o Williams, Powell & Associates, tel 0171 3294400, fax 0171 3298800, email willpower@cix.compulink.co.uk

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Editor: Reg Peplow, Business News and Features, 16 High Street, Buckden, Cambs, PE18 9XA. Fax 01480 812221 email: regpeplow@intecc.co.uk