DEMPE is not complicated – It is simply IP substance

For those who cared then, there was a lot of panic when the first drafts of the OECD BEPS (base erosion and profit shifting) action items were circulated.

The Action Plan had implications that were not limited to taxation and economic development. In later drafts it became more evident that intellectual property would receive extensive attention. Action Items 8 to 10 address the aspects of intangible assets with respect to preventing base erosion and profit shifting.

DEMPE, The Elephant In The Room For Multinationals

Background

At the 2012 G20 Summit in Los Cabos, participants raised concerns about multinational corporations (MNCs) using tax avoidance structures to exploit inconsistencies and gaps between different legal systems in order to shift profits to low-tax (or no-tax) jurisdictions. The G20  charged the OECD with the responsibility of coming up with an action plan to avoid Base Erosion and Profit Shifting (BEPS).

The resulting Action Plan was adopted at the 2105 G20 Summit in Antalya.

On June 7th 2017, ministers and officials from 76 countries and jurisdictions signed a multilateral instrument (MLI) that will allow rapid implementation of the BEPS actions into more than 1,100 bilateral tax treaties already in existence among the parties.

The only 3 OECD members to not yet sign are the USA, Brazil and Saudi Arabia.

What does this mean for IP owners?

Because IP accounts for the majority of enterprise value for MNCs, a simple shift in IP ownership can have a large impact in transferring profits (and therefore taxes) to other jurisdictions. The Action Plan paid special attention to the role of IP in base erosion and profit shifting.

The ramifications for IP ownership could be profound.

Multinational Subsidiaries - The Four Bridges

When you are running a multinational subsidiary, you start it, staff it and scale it. Day-to-day activities occupy the bulk of your attention. It is absolutely correct that you should concentrate on this – it is what you were tasked to do.

You can enhance this single-minded focus by addressing the other aspects that are crucial to the long-term sustainable success of your enterprise. I call them “The Four Bridges”.

Why the European Commission Apple decision IS significant for policy and behaviour

In August 2016, the European Commission issued a final decision in its investigation into the way Apple paid tax in Ireland. The sheer scale of the decision was dramatic and made headlines around the world. In the aftermath, analysts said that the ruling was limited to the specific facts around the Apple case and would not apply to other international companies in Ireland.

This may be true, but the reality is that this case is a significant wake-up call. It is an indication of a much larger issue.

Monetising the Internet of Things

A lot has been written about the Internet of Things (IoT) with Gartner predicting that the number of connected devices will grow to 20.8 billion by the year 2020. This figure compares with 2.1 billion smartphone users in 2016 and 3.4 billion internet users. I believe the actual number will far exceed those estimates.

Because of the term "Internet of Things", most of the focus to date has been around the “things” that make up IoT. Clearly there is a huge potential market for suppliers of the devices that are connected, switches, networks, cloud storage, etc.

Aside from that tangible value in hardware, the real potential of the IoT is how the “things” interact. As they exchange information, value is being created in the data. This is a new development. Among lawyers, it is just beginning to open new questions. Historically, the laws around data protection, privacy and ownership assumed that a human was doing something with the data. The laws were designed to regulate how those humans would behave and did not envisage scenarios where humans might not be involved at all.

No, Silicon Valley doesn’t like failure!

I often hear that Silicon Valley celebrates failure. This is a clear oversimplification. What Silicon Valley really likes is success. Huge success! If there are failures along the way, they are accepted as part of the experience.

Yes, I get it. If you always punish failure, nobody is ever going to try something new. Small failures can be a sign that you tried an experiment that didn’t work. 

Innovation is not about Beanbags

In the 1980s, Japan was hailed as an “economic miracle”. There were best-selling books such as Ezra Vogel’s “Japan as Number One: Lessons for America” and SONY President Akio Morita’s “Made in Japan”. American electronic and automobile manufacturers were caught by surprise by the success of Japanese manufacturers.

One thing that became apparent on visits to Japanese factories was that they used impressive manufacturing robots. American manufacturers raced to catch up. They invested in expensive robotics. This was done without looking at any of the less-visible aspects of the Japanese miracle. The investment in robots was an increased expense that did not yield the ultimate competitive benefits in terms of quality or productivity that justified the expense incurred.

I attended a conference in China where one keynote speaker from a large Western multinational corporation described their approach to innovation. We heard about the more than 100 years of history, the thousands of employees and the billions spent on R&D. Then we heard about the big plan for innovation. A team would be given 5 weeks to focus on bringing innovative projects. They would be given beanbags.

Still underestimating China?

The Economist magazine has a piece this week entitled "Patent Fiction". They take issue with the findings in a Thomson Reuters' report "China IQ (Innovation Quotient)" that looks at the latest data on the growth of invention patent applications.

It is funny how they trot out the old quantity-versus-quality cliche. I predicted that response 4 years ago when this shift was becoming apparent. It indicates a dangerous level of complacency.

Ireland to host local division of Unified Patent Court

BREAKING NEWS:

Richard Bruton, the Irish Minister for Jobs, Enterprise and Innovation, has announced that Ireland will host a local division of the Unified Patent Court (UPC).

The UPC is a key part of the Patent Package that is currently in the process of being ratified in Europe. Its adoption depends on ratification by 13 Member States.

Ireland's proposed Knowledge Development Box

The 2015 Budget speech by the Irish Minister for Finance mentioned that Ireland is taking steps to develop a "Knowledge Development Box" (KDB). Most people took this as meaning that it would be implemented in 2015. This is not exactly what the minister said.

The Hazard of Phenomenal Success

Previously, we have seen how even some large firms do not have a formal IP Strategy.

We have looked at how entrepreneurs can plan for success by making provision for IP rights they will need even if they do not develop them along the way to success.

But what if you are wildly successful?

 What could go wrong?

 Well, plenty actually.

Progress report on UPC preparations

Last week the Preparatory Committee of the Unified Patent Court (UPC) issued a revised roadmap.

The report outlines the significant activities to date in preparing for the UPC as part of the broader Patent Package.

What entrepreneurs forget

The history of entrepreneurship is replete with tales of failure. Failure followed by dusting yourself off, getting up and trying again.

It may not be catastrophic failure. Sometimes it is trial and error ... testing what works and what doesn't ... changing the mix ... until the recipe for success reveals itself.

What are the implications for IP? Well, I mentioned in the previous post that few firms - large or small - have broad awareness of IP strategy.

Consider what this means for entrepreneurial firms who eventually make the grade.

IP Strategy and awareness in the UK

The UK Intellectual Property Office has invested a lot of effort into raising awareness among UK firms. The primary focus has been on micro, small and medium sized firms on the assumption that larger firms have a higher level of awareness.

A survey published in 2006 confirmed the assumption. IP awareness increased with the size of firm. The same research was repeated in 2010 and yielded similar results about awareness as well as marking an increase in the overall awareness in the intervening period.

This didn't surprise me. I have commented previously about the prevailing climate that promotes such awareness.

What really surprised me was the low level of firms with an IP strategy.

Graphene - lessons for British innovation

Today's Financial Times has an article with the headline "Asia ahead in race to develop graphene". This is a technology that the British Chancellor of the Exchequer described as a "great British discovery". However, the UK has only filed 101 of the 11,372 patents and patent applications filed worldwide in the field of graphene - a mere 0.9% of the total. Asia has filed 7,318.

On the move

Announcement

I must apologize for the gap in postings. From the end of March, I have started working for Intellectual Ventures - the World's foremost invention capital company - as Vice President of Global Licensing in Europe.

It will be very busy as we build the team over the next few months to grow our business.

I would like to thank everybody who has stopped by this blog, especially those who have contacted me to give comments and feedback.

For more information about Intellectual Ventures in Europe, click here.

Newsworthy week in European IP

What a week for IP in Europe!

Big news 1: Rejection of EEUPC

First the European Court of Justice (ECJ) rejected the proposal to form a new European and European Union Patent Court (EEUPC). It seems to be a polarizing decision.

Emigration

Martin Murphy, managing director of Hewlett Packard in Ireland had an important opinion piece in the Irish Times newspaper today. It prompted me to comment with the following rant.

I agree with almost all of this opinion piece apart from the opening premise. There is a broadly-held view that emigration is a bad thing for Ireland.

In some ways it is true. Splitting up families and tearing people away from their roots is always a huge personal sacrifice. When people are forced to emigrate because of lack of options at home, it is tragic. Similarly, it is a huge waste of national funds and effort to educate our young if the result is that other economies will benefit unilaterally from Irish investment.

However this misses out on some important questions.

Economic policy - IP commercialization as a stand-alone discipline

Below is my opinion piece from Innovation Magazine published by the Irish Times, reproduced with permission:

We need to develop a specialised competency in commercialisation to build this route to the market

HOLLYWOOD has perpetuated the myth that any inventor with a patent is on the road to great riches.

In the UK, James Dyson is a poster-boy for inventors. Many see him as the man who struck it rich with a vacuum cleaner that he started manufacturing in 1993. The romantic image is one of overnight success.

Innovation Dublin 2010

Last week, as part of the Innovation Dublin 2010 festival, I was invited to give a lecture to the MBA class at Michael Smurfit Graduate Business School.

I spoke on the topic of IP commercialization with the title "Invention or Innovation?"