IP Potential in eSports

Sports play a big role in entertaining people around the world. The variety of sports brings a significant amount of fans, amounting to tens of billions. Each sports market involves some form of intellectual property. For instance, the football market has many patents. Football patents exist for helmets, trousers, the ten-yard line, artificial turf, shoes, and more. Trademarks exist for Super Bowl logos, specific team names, taglines, and much more. And of course copyrights exist for televised games. Without intellectual property, these markets would not make near the revenue that they do and there would be no entitlement to the pieces that make up the markets. For instance, without copyrights, any fan could sell or copy televised events, merchandise, or tickets without repercussions. At that rate, the sport would not be able to make a profit to pay the team players or other personnel that make events happen. In turn, the markets would fold and billions of fans would be in mourning.

While traditional sports command big followings, another type of sport is receiving great interest, eSports. eSports is hitting the market by storm. In 2017, eSports drew 258 million unique viewers with $1.5 billion revenue, with an expected reach to 299 million viewers this year and $2 billion revenue by 2021.

eSports is the sport of video gaming on a professional level. It typically involves a team. Popular eSports include League of Legends, Dota 2, Counter-Strike, and Overwatch. Fans can watch via online or at special venues such as arenas. Prize pools are in the millions of dollars, with an expected rise as eSports continues to garner more interest. Just like traditional sports, eSports advertises, endorses, and brands its events. Therefore, obtaining intellectual property to protect the eSports market is a necessity.

What makes eSports so enticing and exciting to so many people is that it does not take extraordinary athletic ability, a specific body build, or an exorbitant amount of money in training, equipment, and apparel to make it in the sport. The average person could make it in the eSports world with lots of practice in front of a video screen at home. Honing one’s skills still takes commitment, but the costs of getting there are not quite as high as traditional sports. Furthermore, the average person is more likely to relate to eSports competitors because he or she can also be a participant, making it even more exciting to watch others at the professional level. In contrast, most average people can only dream of having the skills, knowledge, and build to make it to a traditional sports level. For all of these reasons, the eSports market is expected to soar in the coming years. As a result, it is likely that intellectual property surrounding eSports will increase.

In the past ten years, patent grants for “digital gaming” have reached nearly 160,000, according to a search in ipAnalytx, an IP analytical database. Companies involved in the market include technology giants such as Samsung, Google, Microsoft, Intel, and many others. However, patents are just one type of intellectual property that will experience an increase in the eSports market. Gaming companies that broadcast or hold events must file for copyrights to avoid piracy. Teams and their players must invest in trademarks to protect their identities, market their brands, and gain sponsorships. Therefore, the IP potential for eSports may be enormous.

China’s IP Changes and Their Impact

China is a big contender in the innovation world. According to the WIPO, China was closely on the heels of the United States in 2017 for the most international patent applications. The United States filed 56,624 PCT (Patent Cooperation Treaty) applications, while China filed 48,882 PCT applications. In 2016, China received more overall patent applications than any other country with more than 1.3 million applications. In comparison, the United States paled with a little more than 605,000 patent applications.

Given the sheer size of China and the number of patent filings, China will remain a big contender in innovation for years to come. While competing with the volume of innovation coming from China is cumbersome, the United States also faces billions of dollars in IP theft from China. The exact number is not known, but estimates range from $225 billion to $600 billion annually. Furthermore, inconsistent protection of foreign patents and various rules make it challenging to solve IP infringement cases fairly. In addition, China typically offers damages awards at the low end of the spectrum, making litigation exceptionally expensive due to the time, effort, and loss in sales during the process.

In order for the United States and other foreign parties to feel that they are getting a fair shake, the treatment of IP via China must conform to higher standards. Fortunately, albeit slowly, China is showing signs of improvement resulting in fairer outcomes. For instance, in late 2017, China awarded New Balance $1.5 million in damages for trademark infringement. This was a significant win for New Balance as it previously had little luck winning counterfeit arguments in China prior to this point. Also in 2017, the Motion Pictures Association of America (MPAA) won a copyright infringement case against a large online Chinese video company, indicating China’s effort to crack down on piracy. Furthermore, according to a 2016 study, foreign companies won more than 70% of patent infringement cases in China.

While China is showing marked improvements in its treatment of IP, the standards do not rival those of the United States. Treatment of IP in China will likely be challenging for years to come as the country works to define its standards and policies. However, the good news is that the country is working on the issue. Therefore, a positive outlook for fair treatment of IP may strengthen U.S. and China business relationships.

2017: A Year in Review

The year 2017 was a great one for Pellegrino & Associates. We worked with a number of repeat clients and enjoyed working with many new ones. All of these clients bring interesting concepts from a variety of industries. Among these industries, the law industry increasingly seeks our services. In fact, nearly half of our engagements in 2017 involved law firms. As a result, we provided our expertise to two of the biggest IP litigations in the country last year! Also, one of the rulings on Mike’s opinions made headlines on Docket Navigator. Our firm’s experience as expert witnesses continues to prove valuable in many cases related to intellectual property.

Throughout the year, we attended a variety of conferences and were invited by several organizations for speaking engagements. These organizations and conferences included the following: Global IP ConfEx, ICLEF webinars, Financial Poise webinars, LES webinars, USPTO Global Intellectual Property Academy, and IAM’s 3rd Annual Patent Licensing.

Via our projects and speaking engagements, we have traveled all over the country. For instance, we traveled to Baltimore, Battle Creek, Chicago, Columbus, Dallas, Los Angeles, Philadelphia, San Francisco, and Washington, D.C., to name a few. Not only do we get to travel to some interesting places for our projects and speaking engagements, but we get to learn about interesting topics daily. Some of our project topics in 2017 included the following: airlines, battery technology, bicycle crank systems, biotechnology, cardiovascular innovations, catheterization, chain drive systems, customer service, electronic health record systems, face protection market for both industrial and extracurricular activities, medical, monoclonal antibodies, system and methods for allocating resources in a network, and women’s handbags.

Other highlights include the publication of Mike’s article, “Flawed System Leaves Innovators Without Fair Patent Protection” in the Indianapolis Business Journal. Click the article title to read Mike’s perspective on the topic of patents and asserting patent rights. Mike was also nominated as one of the world’s leading IP strategists on IAM’s Strategy 300, which lists the top 300 people in the intellectual property world. Check out Mike’s bio at the following link: http://www.iam-media.com/strategy300/directory/Detail.aspx?g=eb47c05b-eac0-4f8a-a182-4e292d59c7a4&q=P. In addition, Mike is working on a new version of BVR’s Guide to Valuing Intellectual Property. This third edition will feature updated content, as well as new chapters. Examples of new chapter content will include information on Monte Carlo simulations, the intersection of big data and patent valuation, ways to build models to account properly for time variance, and others.

While we love what we do, we also find great value in taking time every quarter to regroup and connect as a team. This past year, we enjoyed some friendly competition at former racecar driver Sarah Fisher’s go kart facility. We also took some opportunities to take in some fresh air for a hike in beautiful Brown County and another adventure in southeastern Indiana for a peaceful kayak trip. We finished the year collaborating on an island in the Breakout Game room. All of our adventures as a team outside the office give us a moment to appreciate each other and a chance to regroup. And every adventure is so much fun!

As you can see, we’ve had a productive year filled with fun adventures, interesting projects, great business relationships, new speaking engagements, and educational conferences. As we enter our 15th year in business, we look forward to learning more about innovations and working with former and new clients in 2018!

Tax Reform and Its Effect on IP

Tax reform typically has many implications for businesses and people in general. In terms of the 2018 tax reform specifically, the new changes will have positive effects for a lot of businesses and people as tax rates will be lower. This reform presents a positive outcome for intellectual property (IP) owners as well. Since many valuation analysts use the income-based approach for determining IP value, the tax reform changes the value of IP for the better. Read more to understand how the tax reform changes IP value for IP owners.

Generally, the income-based approach is a common and accurate approach for determining value of IP. A valuation analyst using the income approach bases his or her opinion on the intellectual property owner’s business plan, marketing and operational inputs, and other external references. Using this method, the valuation analyst projects the economic income generated solely from the intellectual property over a discrete period, known as the remaining economic life (REL) as well as any residual value after the REL.

To determine economic income, the valuation analyst projects the revenue (or cost savings or other economic benefit) generated from the intellectual property over the REL, and then offsets that revenue with costs related directly to the intellectual property’s exploitation such as labor, materials, required capital investment, and any appropriate economic rents or capital charges.

With cash flows for each discrete year in the REL and a calculated residual value, the valuation analyst discounts the cash flows and the residual value using an appropriate discount rate to the present value. The present value becomes the intellectual property’s value before the valuation analyst applies any applicable value adjustments.

As indicated, a valuation analyst has to discount cash flows to determine the present value of IP. The tax reform directly affects the value of IP as income tax places a direct burden on cash flows. Since the tax reform now has a lower tax rate, the value of the cash flow is higher. For instance, if a patent owner has an asset that generates $1,000 and $100 in profits, the owner will now pay a lower percentage in taxes. For instance, the owner may have paid 40% of the $100 in 2017 versus 20% of the $100 in 2018. Therefore, the patent owner generates more cash flow as they pay fewer taxes, making their IP worth more.

Five Reasons Musicians Need Registered Copyrights

The digital age makes copyright infringement easy today. In fact, musicians suffer daily from piracy. In 2015, 53 million Americans pirated music. According to one statistic, the music industry loses approximately $5 billion yearly due to worldwide music piracy, with $1 million per day in the United States alone for just physical products! Needless to say, these exorbitant costs affect musicians and their ability to make a profit on their livelihood. Unfortunately, the music industry is rife with copyright infringement. Even famous musicians are not exempt as such artists as Ed Sheeran, Led Zeppelin, Pharrell Williams, and many others have been accused of copyright infringement. While copyright infringement may be hard to control, musicians can better protect their creations by registering their copyrights and enforcing them. The following identifies five reasons musicians need registered copyrights.

1. Control performance. Musicians who have registered copyright material have full control over who legally gets to use or perform their music in public. Without a registered copyright, it would be much harder to keep others from publicly performing or using music.

2. Reproduce the work. Countless musicians have reproduced versions of famous songs, such as the Beatles Yesterday song. However, creating a new version of a song still requires permission. Only the copyright owner of a song can grant that permission.

3. Make changes. On occasion, musicians may want to update old songs, adapt them for soundtracks, or add new effects.

4. Distribute, display, and/or sell copies of the work. This perk keeps counterfeiters from making money on the music owned by others. Only the copyright owner has a say in how his or her music is distributed, sold, or displayed.

5. License the work. A copyright owner has the ability to license his or her work to another company or individual who then may have rights to the other options listed above.

While a work is essentially copyrighted the minute it is composed, copyright owners do not have as much power to protect their work unless they register it. For instance, a registered copyright gives an owner the ability to enforce the copyright to seek damages and pay for attorney fees in the event of infringement. With today’s technological advancements and easy access to published works, registered copyrights are critical for musicians.

When Rebranding Makes Sense

Rebranding is a risky endeavor, especially for an extremely popular brand. Consumers trust brands because they know what to expect. For instance, if a customer were to eat at a McDonald’s in Indiana and then at a McDonald’s in Florida while on vacation, that customer already knows what to expect. The food will taste the same no matter which McDonald’s restaurant he chooses, and the menu choices and prices will also be the same. The customer has explicit trust in this brand. However, if McDonald’s were to change its name after nearly 80 years in business, it would cause a tremendous amount of confusion among tens of millions of people who frequent the establishment daily. Most people do not like change. Therefore, a change in a beloved brand could create a negative effect. However, there are cases in which rebranding makes sense.

Coach is a well-known luxury lifestyle and fine accessory brand, known predominantly for its bags and wallets. While Coach also sells other types of products such as shoes, dresses, and accessories, its women’s handbags alone make up between 56-57% of total revenue. In business since 1941, Coach recently changed its company name to Tapestry. As in most cases, the initial response to the name change was negative among some consumers. In addition, the company’s stock fell the day of the rebranding announcement. When a popular company changes its name, there will always be people who do not like the change. Whether it is the way the new company name sounds, the mere fact that consumers don’t like change, or that consumers have a hard time relating to the new name, a new name creates a shock factor and even a confusion factor. Consumers get used to a particular name and look when it comes to a brand. Changing those things leaves consumers feeling off balance, taking away the familiar.

In 2015, Coach acquired another luxury brand, Stuart Weitzman, which specializes predominantly in women’s fashion shoes. Also, earlier this year, Coach acquired Kate Spade, yet another luxury brand specializing in handbags. As Coach incorporates the new brands it acquired, the company decided to create an umbrella name to encompass all of the company’s brands. Therefore, as of October 31, 2017, the company became Tapestry. However, the company still sells its individual brands Coach, Stuart Weitzman, and Kate Spade. Therefore, the brand names consumers are most familiar with will not change for them. So, essentially, the name of the overall company should not be a big deal among consumers. However, the umbrella name allows the company to become recognized as a company of various luxury brands, rather than just the one brand, Coach. It informs consumers and other companies that it offers much more than it used to.

Although rebranding can be disruptive as seen by the initial negative effects and expensive by changing logos and introducing the new name, in this case, the overall effect on consumers will likely be minimal. Also, in this case, the company does not have to rebrand all of the products it sells because they all keep the same familiar name. In addition, due to all of its brands, Tapestry can target a variety of demographics that it could not reach before. In this case, rebranding makes sense.

Unique Trademark Designs Provide the Best Protection

Trademarks pack a powerful punch for millions of brands around the world. Oftentimes, trademarks are seemingly simple designs that evoke strong connotations. They can be a simple letter, such as an “M” representing one of the most famous trademarks in the world, the golden arches of McDonald’s. They can be a simple mark, such as the Nike swoosh. They can be a simple word, such as the made-up word “Google” or a generic word such as “Apple” that translates to one of the biggest technological brands around the globe. While these trademarks are seemingly simple, they spark recognition and association with particular brands that make them potent and valuable. This is why companies sue when trademark designs are too similar.

Some of the most famous brands have had to fight companies that emulated logos as parodies. For instance, The North Face sued the owner of The South Butt apparel because it felt that the parody devalued The North Face brand and could cause confusion. In this case, The South Butt owner designed a logo with similarities to The North Face logo. The North Face logo uses 3 ridges, while The South Butt logo featured upside down ridges. Both used red squares and white lettering. The parties settled and The South Butt dissolved. In another parody case, Starbucks was prepared to battle Dumb Starbucks, which used a nearly identical logo, with the word “Dumb” added to it. However, the shop was a very short-lived venture and was a stunt for a comedian’s project. However, the comedian did not obtain permission from Starbucks to use the logo and likely could have faced a lawsuit.

Adidas has sued several shoe companies for offering designs that too closely resemble the Adidas three-stripe trademark. For instance, Adidas has sued Skechers, Puma, and Ecco over its three stripes. In another footwear case, Converse sued 31 companies in 2014 for selling shoes with similar rubber and black stripes as its Chuck Taylor sneakers.

Countless other trademark infringement cases have occurred over trademarks that too closely match another company’s. One of the most popular companies, Apple, has taken issue with numerous companies for logos that look like an Apple. Some of these companies include Woolworths, GreeNYC, Victoria School of Business and Technology, Poison Apple, and others. In many of these cases, the opponent relented and changed its logo to avoid confrontation with the giant technology company.

However, it may be possible to have the same or similar trademarks within unrelated markets. For instance, the Infiniti moniker represents numerous products such as automobiles, HVAC systems, computer printers, hair supplies, and others. In such cases, the chance of consumer confusion is low or nonexistent. Consumers are not likely to confuse Nissan’s Infiniti trademark for automobiles with Conair’s Infiniti trademark for hair styling tools. It is also possible, but rare, to use the same trademark in the same market. Recently, two universities reached an agreement on the usage of the OSU trademark. Oklahoma State University and The Ohio State University can both use the OSU trademark under specific guidelines. Namely, the colleges can only use the colors of their respective college. Neither can disparage the other with phrases, and neither can use nicknames or mascots of the other in the use of the OSU trademark.

As you can see, trademarks are quite powerful and trademark owners will go to great lengths to protect them. However, it is also valid to have similar trademarks in unrelated markets. Yet, using a unique and new trademark creation may be easier and less likely to be challenged than using a trademark with similar traits to another, even if the markets are unrelated.

Five Reasons to Hire Pellegrino & Associates

Hiring a firm to conduct a particular service can be a daunting task. You want to choose a firm with a good reputation. One that can provide stellar service in a professional manner. One that has experience, skills, and the means to tackle the task at hand, as well as any unforeseen challenges that may arise. For IP valuations, choosing the right firm can seem especially cumbersome as it is still considered a niche market.

At Pellegrino & Associates, we offer a host of services to assist with IP valuations. The following list provides five reasons we are a trusted and reliable firm.

1. Experience. Our firm’s experience positions us among the top firms in a niche market. Our experience involves valuing intellectual property, determining royalty rates, and evaluating businesses, among others. We have performed nearly 400 engagements for more than 200 clients. Clients range from Fortune 100 companies to startups. We also have an international footprint, generating 33% of our business from companies outside of the United States.

2. Credibility. Pellegrino & Associates’ reputation and credibility is among the best in the profession. Judges, attorneys, and government entities have accepted our work product. Courts at the state and federal level, tax jurisdictions, and arbitration panels have accepted our work for issues including bankruptcy valuations, estate tax valuations, property tax valuations, income tax valuations, copyright infringement claims, trade secret misappropriation claims, patent infringement claims, breach of contract claims, and others. In addition, IAM Magazine identified our company president, Mike Pellegrino, as one of 2017’s leading IP strategists in its annual IAM 300 survey.

3. Thought Leader. Our firm’s experience positions us as a thought leader in intangible asset valuation. Our leader, Mike Pellegrino, authored the first and second editions of BVR’s Guide to Intellectual Property Valuation, which has more than 1,000 copies in circulation and reaches a variety of customers including attorneys, tech transfer officers, business valuation firms, competing IP valuation firms, and others. In addition, our finance- and software-related articles appear in internationally and nationally recognized outlets, such as IAM Magazine, Valuation Strategies Magazine, CFO Magazine, MSNBC.com, FoxNews.com, and others. Furthermore, we have had the pleasure of teaching thousands of people about valuations. Various venues around the globe, including law firms, universities, accounting firms, appraisal firms, valuation firms, state bar associations, and other organizations, frequently request our expertise at speaking engagements regarding intangible asset valuations and the tax effects of embedded application software and intellectual property.

4. Standards Setter. We also help set standards in the IP valuation industry. Our president is the chair of the patent valuation standards committee established by the Licensing Executives Society (LES), whose charter is to pursue American National Standards Institute-(ANSI) accepted standards for the valuation of patents in a variety of contexts including financial reporting, capital formation, economic damages calculations, and others. We are also a member of LES’s public policy committee, seeking to help set standards for intellectual property-focused regulatory matters with the SEC and others. We are also involved with the LES’s standards committee for IP use in the boardroom.

5. Pioneer. In addition to our valuation expertise, our president developed a state-of-the-art patent analytics tool that provides key insights and intelligence into the patent landscape. This system removes information asymmetry rampant in the patent marketplace by consolidating millions of disparate records into a user-friendly database.

As you can see, we are actively involved in the IP valuation industry. We set standards, offer loads of experience, develop state-of-the-art tools, and educate others within and outside the industry on the various aspects concerning IP valuations. Call us anytime or check us out to learn more via our website at www.pellegrinoandassociates.com. We are always happy to assist our clients

Companies Rebrand to Stay Competitive

When it comes to company value, a company’s brand can provide a host of positive aspects. A brand provides recognition, trust, reliability, consistency, and value. In some cases, as mentioned in our article “Four Ways IP Provides Value During Bankruptcy,” a brand can help a company survive a financial crisis. Some of the most famous brands in the world include McDonald’s, CVS, Apple, and General Motors. Over the years, these specific companies have had to adjust their brands in order to keep up with consumer taste changes.

Sometimes, the only alternative a company has during times of change is to try to rebrand. However, rebranding is risky. It is extremely costly as it may involve changing logos, revamping advertising methods, introducing new products, and attracting new customers as well as retaining loyal customers. For big name companies that are famous around the world, such as McDonald’s, Target, Apple, and Harley-Davidson, they have to be cautious about changing products or images that landed them a huge customer base. While consumer tastes may change, many consumers also like the tried and true.

The key for many of these companies is to retain some of the tried and true, but also introduce new products, services, or other offerings that draw new consumers in the hopes of gaining a large, loyal customer base. For CVS, it was a simple name change from CVS Caremark to CVS Health and the removal of tobacco products from its inventory. In this case, the company decided to stick to the concept of its new name, despite going against the grain. So far, the change has done no harm to the company since it rebranded in 2014. Since then, the company’s revenues grew from $139 billion to $176 billion in 2016.

While rebranding can be risky, it can also be the perfect transformation to help companies stay competitive and even come out as leaders. All of the companies mentioned in this article have proven that it is doable. In some cases, it is a matter of adding product, while other cases it can be making a statement and sticking to it.

Four Ways IP Provides Value During Bankruptcy

On occasion, companies face financial difficulties and have to file bankruptcy. Even some of the largest and most popular companies run into issues. While bankruptcy signifies the end of some companies, it is not always the case, especially for companies with strong intellectual property (IP) portfolios. For those companies, IP may still hold value in the event of financial difficulty. In fact, the IP may be the saving grace. Click Read More to discover four ways IP still retains value during bankruptcy.

1. Brands and trademarks provide recognition. Although a company may face financial challenges, if a strong brand exists, a company may have a better chance of surviving than a company that does not have a strong brand. Loyal consumers are likely to overlook a bankruptcy. Additionally, if a company provides products that are uniquely different than others on the market, it may overcome financial difficulties. Take General Motors (GM) for instance. GM filed bankruptcy in 2009, but has experienced climbing revenue since then. In fact, since it filed bankruptcy, GM experienced its largest revenue earnings last year at $166 billion.

2. Companies with strong IP have a better chance of recovering or selling. A strong brand or large IP portfolio may make it more appealing for other companies to invest in a bankrupt company. For instance, the Hostess brand was bought for the second time in 2016 since it filed bankruptcy in 2012. The new owner considers the brand “iconic” and worth the investment.

3. Patents and other IP still hold value. Patents protect inventions. In some cases, those inventions may still be valid, thus, valuable at the time of bankruptcy. For instance, telecom giant Nortel filed bankruptcy in 2009. However, its IP portfolio proved extremely valuable as a host of big name companies expressed interest in buying the IP. In the end, a consortium formed consisting of Apple, Microsoft, Sony, and RIM that bought the IP for $4.5 billion.

4. Intangible assets provide more opportunities than tangible assets. Intellectual property offers various ways to create value. For instance, with IP, an owner can license, sell, form a joint venture, or use other methods of generating revenue with IP.

As indicated, companies that own IP at the time of bankruptcy may have a better outcome than companies that do not own IP. IP provides great value in many ways, thus providing more opportunities for survival. However, many companies that file for bankruptcy are mistakenly tagged as worthless. This is why it is important to seek an IP valuation to determine the worth of IP assets.