The Many Faces of Innovation – Day 2

Ono Academic College

The second day of this two-day conference was hosted by the Jerusalem campus of Ono.

The purpose of academic conferences seems to be to enable academics to present their ideas and to receive feedback. Academia in general should be about exposure to new ideas. Apparently this is no longer the case. Ono has segregated programs and different campuses. The Jerusalem campus seems to be designed to enable Ultra-Orthodox students to study Law and other subjects without exposure to students with different religions or philosophical perspectives. To be fair to the Hareidi men, I note that when I studied at the regular ONO campus, the female student fashion was thong knickers with low-cut tight trousers, leaving acres of buttock on display and not leaving much for the imagination.  In addition to bum-cleavage, necklines were also fairly low. I can appreciate that the dress code is distracting. Furthermore, at that time, the canteen at ONO was not under supervision, and there was a Christmas tree on prominent display but no mention of Chanucka. Nevertheless, I’d like to think that higher education is an environment where one can mix with people of different philosophies to the mutual enlightenment of all.

The campus is in Malcha and the seminar was held next door to the Israel Patent Office. Apart from Dr Bitton’s husband, Examiner Markowitz, no patent office staff attended any of the lectures. We suspect that unless they are allowed to attend and are paid as if working, the patent office staff are not interested in what academics have to say. The same can be said of employees of the two nearby patent offices. As a means of disseminating ideas and obtaining feedback, the conference did not seem to have much going for it.

The second day had three panels:

  • Panel 4 titled Copyright, Regulation & Innovation
  • Panels 5 titled “Innovation in Certain Industries” and
  • Panel 6 titled “Innovation and Different Fields of the Law”.

To me, the term panel implies speakers with different perspectives interacting. This did not happen. Perhaps plenum would be a better word. A moderator introduced each speaker who presented his or her paper. There was no interaction between the presenters. Often though, their papers took opposite positions.

Lior Zemer

The moderator of panel 4 was a Dr Lior Zemer. I’ve not come across him before. He had a nice British accent though, and apparently hails from Leicester. Although not obviously religious, and possibly not religious, he made constant reference to his Rabbi and synagogue whilst growing up.

Looking at the second day as a whole, I think it could be summarized as follows:

It seems that where a government wishes to advance a certain policy, it may use regulations to do so.  However, regulations do not always achieve the stated aims. Believing themselves able to predict future developments, governments sometimes regulate new industries, but it is often the case that such regulation is less than optimal and does not achieve the desired results.

Dr Neta Sagi looked at Innovation in Education.She concluded that there was never a  stated ministerial policy to further innovation.

I would go one stage further. I would argue the standardized syllabuses (syllabii?), centralized education policy, teachers being employed for similar salaries in different schools, not having elitist schools or streaming based on ability and mainstreaming special needs pupils may have all sorts of sociological advantages but the output of the system is a standard product with a high level of ignorance and poor learning skills.

One of the presenters had a rather elegant bat wing pullover. I found myself thinking that women with bat wings shouldn’t flap their arms about. On reflection, I think it is probably more correctly stated that lecturers who wave their arms about shouldn’t wear bat wings.

Dr Yafit Lev-Aretz noted that PayPal and others were stepping into international banking but as they were not banks, they were not subjected to the regulations that traditional banks have. It was clear that companies such as PayPal and Google can access a tremendous amount of material regarding potential customers and one should be very careful with what one posts on-line.

Dr Hanan Mandel discussed serendipity, noting that many innovations came about by accident rather than design. This is certainly true of the viagra patent which was discussed the previous day, with the drug being developed for treatment of hypertension, particularly in menopausal women, and its effect on men being a useful side-effect.

Some of those presenting on patent related subjects seemed unsure of the difference between innovation and invention. This led to a repetitive confusion about whether inventor-innovators are companies or individuals.

KatyaAssaf

Dr Katya Assaf of the Hebrew University discussed the Cobra Effect which is simply another way of saying that government intervention and regulation sometimes achieve the opposite effect to that which is intended.

This is certainly true. She went on to discuss the US patent system and noted that the current inventive structure does not work. She noted that NPEs were gumming up the system and concluded that the courts should discourage frivolous law suits by awarding costs against the plaintiff if unsuccessful. Nothing she said was wrong. The problem was that she was advocating what the courts are already doing.

In her defense she noted that she was based in Israel and not in the US, and that her frame of reference was a paper by Mark Lemley. In my opinion this is not a defense but an indictment.

In some academic disciplines, a familiarity with the academic literature is adequate. When looking at a problem affecting commerce and the court system, it seems to me that one can and should look into recent court decisions. This seems to be a useful field in which to compare and contrast the US system and that elsewhere.

Two or three years ago, IP professionals were suggesting that the problems with IP litigation in the US are:

  1. The cost of litigation is high due to broad discovery
  2. Since costs were not awarded against plaintiffs, they – particularly NPEs – have little to lose by filing and prosecuting weak law suits
  3. Damages were calculated on the basis of turnover of an infringing product instead of the delta attributable to the patent being infringed
  4. The East Texas rocket-docket whereby one could file suit in Texas and be fairly sure of the case reaching trial quickly before a patentee favoring judge
  5. Jury trials are expensive and patent infringement is too technical for a jury to deal with.

The US courts have taken this criticism on board and are making appropriate changes.

Dr Assaf’s paper is not wrong. It is simply passe. The problem is a lack of awareness of what is happening. If she had followed court decisions, attended professional conferences, listened n to the IP blogosphere or kept an eye on what was being reported in the business newspapers and noted the drop in the value of patents, she would have realized that her research lacked an inventive step over the prior art.

Dov Solomon

Dr Dov Solomon presented some research he has been conducting together with conference organizer Dr Miriam Bitton. The research looked into Securitization as a model for fast recompense for patent innovation. The authors seemed to be advocating that patentees could receive a lump sum in-lieu of royalties from investors.  The example given to support this model was a deal negotiated back in 1997, when rock and roll investment banker David Pullman made a $55 million bond deal with David Bowie.

The Bowie Bond is a celebrity bond. It is a commercial debt security issued by a holder of fame-based intellectual property rights to receive money upfront from investors on behalf of the bond issuer and their celebrity clients in exchange for assigning investors the right to collect future royalty monies to the works covered by the intellectual property rights listed in the bond.

Bowie Bonds are asset-backed securities of current and future revenues of the 25 albums (287 songs) that David Bowie recorded before 1990. Issued in 1997, the bonds were bought for US$55 million by the Prudential Insurance Company of America. The bonds paid an interest rate of 7.9% and had an average life of ten years, a higher rate of return than a 10-year Treasury note (at the time, 6.37%).

Royalties from the 25 albums generated the cash flow that secured the bonds’ interest payments. Prudential also received guarantees from Bowie’s label, EMI Records, which had recently signed a $30m deal with Bowie. By forfeiting ten years worth of royalties, David Bowie was able to receive a payment of US$55 million up front. Bowie used this income to buy songs owned by his former manager. Bowie’s combined catalog of albums covered by this agreement sold more than 1 million copies annually at the time of the agreement. However, by March 2004, Moody’s Investors Service lowered the bonds from an A3 rating (the seventh highest rating) to Baa3, one notch above junk status. The downgrade was prompted by lower-than-expected revenue “due to weakness in sales for recorded music” and that an unnamed company guaranteed the issue.

David Bowie was not an unknown entity when the securitization deal was worked out. Most of the deal related to future incomes from albums that had reasonably predictable revenue streams. Due to technological progress changing the audience’s music listening habits, the investors lost out.

The model is not one that has been much copied in the entertainment industry. It is not clear to me that it has any relevance whatsoever to patent technology. Patents are either bought out right or are licensed. Licensing and investment in technology based industries is usually on a royalties basis since it is impossible to predict future revenue. If a third-party is willing to make a global offer for patents, it will typically be well below the expected income as that party is taking the risk and the uncertainty.

The First day’s program at Bar Ilan was catered by Greg. The second day at ONO was catered by their catering subcontractor. Whoever it is makes delicious almond croissants, but apparently does not do small sizes. Instead, the full size croissants were simply cut up. There were also miniature quiche type things, and sliced vegetables and baguettes that were also cut up into quarters rather than the small rolls that Greg-Bar Ilan offered. I wondered whether this reflected the salami approach to academic publishing?

Lunch was in an Italian style restaurant next door that served pizza, shakshuka, salad, pasta with mushroom sauce and pasta with tomato sauce.  It was very good. Greatly appreciated was the cappuccino style coffee which made the afternoon program easier to keep awake in.

שלומית יניסקי רביד

Dr Shlomit Yanisky Ravid reviewed the Israel Supreme Court decision regarding service inventions in Barzani vs. Iscar. Readers of her book IP in the Workplace were not surprised that she was highly critical of the court giving value to a standard clause in an employment contract waiving rights to compensation for inventions and that she felt that the court had lost an opportunity to come to a more equitable sharing of the profits.

She noted that recent Chinese legislation rewards inventors of inventions for which patents are filed with a bonus of three months salary paid for by the state, and noted the enormous jump in Chinese patent filings and that suddenly several of the most prolific patenting corporations are Chinese companies. She couldn’t understand why Israel companies do not voluntarily give equitable shares to employee inventors and suggested that the sort of percentages given by universities were appropriate.

I noted that when comparing China with other countries, particularly Israel, one should normalize the numbers in terms of population, number of inventors or the like. Shlomit retorted that she didn’t think that the relevant sizes of the population was the explanation! I was aware she didn’t. She’d given her explanation. My point is simply that to convince an objective listener one can’t look at absolute numbers.

My second criticism goes to the central confusion of the conference in that the word innovation and invention were used interchangeably and people got into a muddle. Innovation is what companies do, bringing a new product to market. The patentable invention is only part of the story. Some R&D staff do dream up patentable inventions. Others, generally a team, develop the idea into a marketable product. R&D is where the product begins. Mass producing it requires manufacturing engineering, quality control, marketing and sales. If inventor employees are awarded enormous sums this will create internal friction within the company. International companies that do R&D in Israel will pull out. Universities do not employ people to invent. University salaries are generally lower than in industry, but the title ‘professor’ does to some extent compensate. One result of high compensation levels for university inventors is that the policy encourages applied rather than basic research. Whether a country the size of Israel can afford to invest in basic research or should prefer applied research is beyond the scope of this summary.

The above photo of Shlomit is from the Internet. Her current hair style has the hair extending arcing upwards and outwards and then falling away in a style reminiscent of the late UK Labour Leader, Michael Foot. As their views on labour are not dissimilar, the comparison is rather appropriate.

The conference finished with a visit to Jerusalem Venture Partners (JVP), and the participants were exposed to the venture capital scene and to some innovative start-ups. There was also free beer from a Jerusalem micro-brewery.

I enjoyed the conference, but an academic conference looking at innovation that was sponsored by two Israel colleges (Bar Ilan and ONO) in January, when there is a further conference looking into innovation sponsored by the AIPPI and a third university (Hebrew University) two months later, raises issues of duplication.

 

2 Responses to The Many Faces of Innovation – Day 2

  1. You are making the standard confusion between basic and applied research. Like most others, you confuse two orthogonal dimensions. The first dimension measures basic versus applied research; the second, pure versus impure research. Research is pure if it’s motivated entirely by intellectual curiosity, without regard to what it might yield. Impure research is undertaken to respond to a specific problem. Whether research is basic or applied is a judgment made after the fact, since once cannot tell in advance whether a result will be fundamental or merely a variation on what’s already out there. The best example I know of in which impure research yields a fundamental result is the discovery of anaphylactic shock on board one of the research yachts of Prince Albert I of Monaco when dogs were injected.

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