Argyle Executive Forum

Oil Weighs Heavy on Backs of Consumers; Argyle to Hold Related Conference Call

New York, June 30, 2008 — Consumers just can’t catch a break these days. Saddled with mounting debt and a steep erosion in the value of their houses, shoppers are now changing their overall spending habits in the face of higher energy costs, according to an Associated Press-Yahoo! News poll released this morning.

The survey revealed that 73 percent of those polled have reduced the amount of driving they do as a result of higher energy costs. Meanwhile, 75 percent said they have cut back on overall expenses. Sixty four percent said they have turned down the heat or AC as a result of skyrocketing energy costs.

The impact is already being seen. From the first quarter to the second quarter, “Real Personal Consumption Expenditures” on gas and oil fell 1.3 percent in chained dollars, according to the Bureau of Economic Analysis, a division of the U.S. Department of Commerce.

Consumers are also facing inflationary price trends in other commodities, especially food and related segments. Nearly two thirds of America’s GDP is driven by consumer spending.

Addressing some of these topics will be keynotes on a conference call scheduled for July 15, titled: “Tempest in a Barrel: Oil Prices, Operating Costs and Consumer Spending.”

As part of this conference call, Argyle is conducting an anonymous and confidential survey on fuel prices. The results of which will be released on the conference call.

To take the survey, copy & paste the following link into your web browser: http://www.surveymonkey.com/s.aspx?sm=6eADhO1aXKtPvDNxEHU55A_3d_3d

An Inside Look at the Public Policy Debate on Tuition, Financial Aid and Endowments- Martin Dorph, Senior Vice President for Finance and Budget, New York University

New York, May 14, 2008.  Martin Dorph, Senior Vice President for Finance and Budget of New York University spoke at Argyle Executive Forum’s 2008 Chief Financial Officer Leadership Forum.

Dorph addressed the ever increasing price of tuition for colleges and universities.  Dorph discussed how this is a point of contention for both Republicans and Democrats and how each side blames the other.  He then discussed the survey that was sent to 132 universities by Senator Chuck Grassley.  The survey aimed to understand how much tuition has gone up and how much money comes from the school’s endowment to pay for aid.  For the fiscal 2008 year the price for one year of education at NYU, tuition and room and board was $48,000, approximately $3,000 more than similar research driven private universities.  The average price at NYU has risen 4.7% each year over the last ten years. 

This has led Congress to examine why the cost of going to a university has risen so much and some of this is attributed to paying professors, the addition of new buildings on campus.  Dorph discussed how universities are labor intensive and while there has been some call for distance learning, the majority of students prefer face to face interaction.  NYU in particular costs more due to the high costs of Manhattan.  In Dorph’s previous experience at Temple University, building a new dorm cost roughly $50,000 per bed.  At NYU the amount rises to $250,000 per bed. 

According to Dorph, many of the rising costs have been masked because a variety of ways exist to delay paying for college.  The average federal loan has doubled over the last 20 years.  While loans were increasing roughly 2.4% per year, student charges increased 5% year, so the gap was widened considerably.  With private universities, in terms of constant dollars, the disparity between tuition and money awarded has gone up about $12,800 over the last 20 years.  This refers to money that individuals must pay for out of pocket.  There is expected to be approximately $90 billion borrowed for 2008-2009 to pay for colleges, $70 billion from federally funded programs and the rest from private loans.  The average amount taken out per year for a private university is $7,300 against a public university where the average is $5,400.

The current credit crunch has created some concern over whether there will continue to be support available for students.  Though these fears still exist, they have been assuaged somewhat by banks’ commitment to stay in the marketplace. 

Dorph then pointed out how the amount of borrowing that takes place is not income sensitive.  There is roughly the same amount of borrowing taking place on both sides of the socioeconomic spectrum.  For the upper tier schools, the borrowing average is roughly $20,000 per year per student.  The survey also found that most full-time undergraduate students work while attending school, with 10% of them working 35+ hour work weeks. 

In terms of which students are attending which schools, students from the highest income bracket account for 37% of the total student population at the most expensive universities.  The next highest percentage however, comes from the lowest income bracket, as they receive generous financial aid to defray the costs.  What is being seen is that students in the middle are not being offered as much aid and as a result are unable to attend these universities. 

Regarding NYU in particular, Dorph showed that roughly 60% of freshman receive some sort of aid.  However, the average amount given to them is $18,600 per student which is far lower than the national average of $23,000 per student. 

In answering Senator Grassley’s question, each university’s endowment accounted for roughly 18% of the amount funded, translating in to roughly $3,400 of the $18,000 each student received at NYU.  The questions become why is there such little money coming out from the endowments to help pay for students and why is it so expensive per student when 76 universities have over a billion dollars in the endowment.  However, the 80/20 rule applies here in that roughly 80% of total university endowments are controlled by 20% of the universities. 

In terms of private universities, NYU ranks 21st out of 50 universities that have endowments over a billion dollars, with $2.1 billion.  This equates in to $62,000 per full-time student.  NYUY ranks 202nd out of 516 private universities in terms of giving from the endowment per student.  Out of the top 50 private universities, NYU ranks 48th.  NYU spends approximately 5% of its endowment per year.  The donors dictate the amount of the endowment that can be spent, so of the $77 million that was made last year, only $30 million was allowed to spend. 

There are very few universities, only Yale, Harvard and Princeton, that can afford to give out the amount of money that they do.  Dorph concluded that while Grassley is asking important and relevant questions, it is far more complex than merely spending more of the endowment.

Utilizing creativity within finance & accounting- Wade Miquelon, Executive Vice President & Chief Financial Officer, Tyson Foods

New York, May, 14, 2008. Wade Miquelon, Executive Vice President & Chief Financial Officer of Tyson Foods was interviewed by Vince Ryan, Senior Editor of the CFO Publishing Group at Argyle Executive Forum’s Chief Financial Officer Leadership Forum.

Miquelon started off his session by discussing his topic of creativity in finance and accounting. He expanded upon this idea by stating how training tools and coaching to help young leaders lead and influence in a creative manner is sorely missing from finance and accounting. While the recent focus on governance is not a bad thing, it has hindered it has taken creativity backward.

He continued on by talking about how though they may not admit it, every CEO wants a strategic partner. Someone who will help them think through strategies, the changing world and changing contexts. There exists a wing-walk as he called it, referring to people who can succeed at both the fun and intriguing tasks like portfolio analysis and M&A and the more mundane governance topics like closings and consolidations.

Miquelon further expanded on his definition of creativity by discussing how it includes leading and driving strategies that change the game. Included in this is reengineer controls rather than just creating more and developing a better organization by finding unique talent and keeping people energized.

The first root cause for the lack of creativity in the financial and accounting profession, according to Miquelon, is that many people take finance and accounting to be the same thing. Finance involves looking forward and figuring out what’s going to happen, while accounting is looking in the rearview mirror and working with what has already taken place.

The second root cause is a failure to recruit, recognize and promote a group of individuals with a balanced skill set. The next root cause Miquelon touched upon is the lack of teaching future leaders how to have others follow him or her. The final root cause Miquelon discussed was the lack of education recruits receive in college. Very few individuals with accounting backgrounds receive a background in finance and vice versa.

The first solution Miquelon offered to overcome these problems is to hire more diverse people. By this he is referring to individuals that are innovative, structured and logical thinkers that are good at analytics and can be objective. The second solution is to teach the softer skills in addition to the technical skills. The softer skills include leadership, comfort in making a presentation, the ability to think creatively and to influence others. Developing a career model which includes rational paths and principles is the third solution. Included in this having rotational opportunities to keep people energized. This always their batteries to be recharged and their spirits reinvigorated because familiarity breeds contempt. The fourth solution is to divide everything in to three buckets. The first bucket is governance and stewardship, the second bucket being organizational development and the final bucket being business leadership. This last bucket includes strategies to lead the company, the ability to allocate resources more efficiently and to influence general management.

With that Ryan joined the discussion and asked Miquelon to discuss what happens when an individual works for an organization that does not want any creativity and simply wants things to be done in a straight-forward manner. The best way to overcome this according to Miquelon is to offer them a sample. There is no way to convince them overnight, insights and analyses can be provided, which can mold their way of thinking. An example of this is capital allocation, examining value- where has it been created in the past, where is it going to be created in the future.

Ryan then asked Miquelon if he has followed his own example and hired individuals with a more diverse skill set. To this Miquelon responded that when he has brought individuals on board he has hired both those with a hardcore background in accounting and those individuals with a more diverse background and has had very positive results. Miquelon also touched upon the need to incorporate this thought process in to recruiting. The sex appeal needs to be sold to individuals that want to make a difference.

Miquelon then shifted to discussing work culture. The goal of every company is to create value, both internally and externally. A company will create a model for how it is supposed to work, including the roles, structure, tasks and rewards. However, how the company operates defines the culture. The model must incorporate the culture in order to be successful and create value. Miquelon personally tries to mentor a lot of junior level employees. While it is beneficial to them, it is also beneficial for him as he gains an understanding of how the company is viewed by employees as they move through the ranks. The important thing to take away is that innovation is everyone’s function and responsibility and should not be limited to just one department.

Building world class technical competencies for finance- Roy Templin, Executive Vice President & Chief Financial Officer, Whirlpool Corporation

New York, May 14, 2008. Roy Templin, Executive Vice President & Chief Financial Officer and J.D. Rapp, Global Director, BPM & Organizational Capability, of Whirlpool delivered a joint keynote session at Argyle Executive Forum’s 2008 Chief Financial Officer Leadership Forum. Templin and Rapp centered their session around the development and implementation of a competency system for the worldwide Whirlpool financial team. The genesis of this system was about four years ago when the company was in a war for finding and retaining the best talent, especially when some of the individuals that were slated for a promotion left the company. In order to rectify this, they went back to the intern HR team and asked for the candid responses that the individuals who left the company gave in their exit interviews. Calls were also placed to trusted recruiters and the same questions were posed. The top two reasons were that individuals did not understand the career paths at Whirlpool Corporate as they went through the interview process and they did not understand the potential development once they joined the team. These responses were internalized and then, as a finance department, they took it upon themselves to build a competency system that would be used around the world. The competencies needed were determined and the gaps between these competencies were determined. From here, the training necessary to close these gaps were examined and targeted against. U.S. gap knowledge outside of America was a key area as was SAP financial skills. Rapp went on to explain that the first component of the process is to define the competencies, the technical financial and accounting skills. Following this, the levels of proficiency need to be defined, with Whirlpool having three levels of proficiency. While most companies stop at this step, Whirlpool created a performance based diagnostic tool, which is administered as a self-test, filled with “I can” statements. The tool is used by Whirlpool because it adds clarity as the employee expressly says what he or she can and cannot do. Further, it works as a development plan in which the employee can see the areas that he or she is deficient in and work towards improving them. Once these levels have been determined, they are then mapped out to the different roles. The one nuance that Rapp pointed out was laying out all levels within the organization. The reasoning behind this is that it may increase the skills of the non-exempt employees and when it is seen across all levels of the organization, the tool is given creditability because everyone in the organization goes through the process. Whirlpool has the employee fill out the self-assessment and has the manager fill out the same evaluation for the employee. Both are then given to a third party that examines the differences and similarities between the two. It is then sent back to both the employee and the manager who then meet face to face to discuss. Doing this forces the manager to think about the strengths and weaknesses of each individual employee rather than blindly agreeing with the self-assessment. What was found in the independent assessments was that the employee was underrating and overrating themselves as often as the manager was underrating and overrating them. Having a face to face discussion eased out these biases as it was known they would be discussed. As for tracking the status of skills, Whirlpool created a straight forward Access database. It allows an employee to look at what their target proficiencies are and how to achieve them. The database can be run to see what skills are most lacking across the entire company. With everyone knowing the rules going in, it allowed for a real focus on talent around the world as the finance leaders all over the world were brought in to the process. Six sigma was found to an area with a large gap and this is now being addressed internally within Whirlpool to narrow it. Other items, such as offering eLearning classes in multiple languages has helped close the gap in each of the deficiencies. The entire process was created internally by Whirlpool and is obviously Whirlpool centric. Items such as closing the gap on SAP has been done through eLearning courses that take an individual from the very basic of SAP through very detailed training. The entire process was created for under half a million dollars. The annual engagement survey done by the company showed a 10 point increase in engagement scores after the program was first installed. Given the success of this program within the finance team, it is now also going to be expanded out to the rest of Whirlpool Corporate in hopes of making the company more efficient.

A Case Study from the CFO Office- John Feehan, Chief Financial Officer, Virgin Mobile USA

New York, May 14, 2008.  John Feehan, Chief Financial Officer of Virgin Mobile USA, delivered a keynote talk at Argyle Executive Forum’s 2008 Chief Financial Officer Leadership Forum.

In his talk, Feehan took a different approach by describing himself as someone who is a switch hitter in that he can wear many different hats, thereby being the best all-around athlete.  To further his analogy, Feehan pointed to Larry Bowa, a switch hitting shortstop who played for the Philadelphia Phillies.  Bowa consistently put up quality offensive numbers and was an excellent defensive shortstop, therefore the best all-around player. 

Feehan went on to discuss how in order to be the best CFO means performing strongly everyday in a number of situations.  The job requires more than merely counting the money, handing out checks and subtracting expenditures.  While those must be done, it is also about filling in the gaps and providing support and finding solutions for problems that did not exist six months ago.

Though he has known for a long time that he wanted to be a CFO, Feehan’s first love was baseball.  An All-Star shortstop, he was forced to give up his playing dream after tearing up his knees.  Feehan was taught early on, by both of his parents, to watch the ebb and flow of money.  Following his college graduation, his father took out a loan in his name, putting him in to debt and forcing him to learn to sink or swim.  He continued to receive lessons in money management and accounting from his sister, and second mentor, Marbo. 

At first, the lessons were hard as Feehan struggled with the fundamental rule of accounting, in order to be sustainable, more money must come in than goes out.  He eventually learned this, after his sister helped him buy his first house and after taking on roommates to help defray the costs.  He was able to sell the house for a profit and garner his first homerun. 

Feehan was forced to work his way up as his first job out of college was at Pricewaterhouse Coopers where he would make copies, fetch lunch, and run audit reports back and forth between offices.  While this sounds menial, it further instilled in Feehan the need to wear many hats and do whatever is necessary for the company.  His first CFO job was with Sage Biopharma, and through a co-worker was introduced to Dan Schulman, the current CEO of Virgin Mobile USA. 

Feehan teamed up with Schulman and worked with him in creating Virgin Mobile USA.  The company is, self-admittedly, irreverent and customer focused.  Feehan knew he was in store for a different type of company when he went for his interview, arriving in a suit and tie, to find Dan in cowboy boots and a leather jacket.  The initial stages of the company were so shaky that Feehan was paid a salary six months in advance, because they did not believe the company would still exist in that time.  Of course, it is this start-up mentality that allows a CFO to take greater risks because there is less to lose. 

Working at a start-up required a lot of little things to be done that are normally taken for granted by a CFO, such as choosing a bank, opening a checking account and getting insurance.  Though times were lean, eventually Sprint and Virgin signed on board and this has allowed the company to grow to a billion dollar, 450 employees and more than five million customers. 

About half of the first run of phones that was released nationally were faulty in that the keys were pushed in, making the phone inoperable.  Not wanting to ruin relationships with both the retailers and customers, every company employee was sent out to various Target stores across the country and literally squeezed every phone in the store to see if it worked, and those that did not were sent back.  Though it set the company back a lot of money, the goodwill it created with customers has paid off more handsomely. 

One of the roles of the CFO is to worry.  Feehan pointed to a survey done by cfoasia.com about the top ten worries of a CFO, and the list, as expected, pointed to cost of labor, the credit markets and interest rates, and the cost of healthcare.  Not surprisingly, the number one worry listed was consumer demand, and given that Virgin Mobile USA is in the retail sector, it is one of Feehan’s biggest worries as well.

His biggest worry, staying involved in the company’s overall operations, however, was not listed.  Given that the company is now public, Feehan devotes a lot of his time to dealing with outside companies, addressing investor concerns and meeting with banks.  This has caused him to lose some of the flexibility he had previously enjoyed in that he now must focus more on filling in the gaps, though he is still involved in different areas of the company such as the development of new handsets and phone plans. 

There has been a big increase in the number of competitors, however, as Feehan pointed out Virgin Mobile USA remains at the head of the pack. 

An analysis of NASDAQ's role in the economy- David Warren, Chief Financial Officer, The NASDAQ Stock Market

New York, May 14, 2008.  David Warren, Chief Financial Officer of The NASDAQ Stock Market delivered a keynote presentation at Argyle Executive Forum’s 2008 Chief Financial Officer Leadership Forum.

Warren started his talk by discussing how the current economic challenges make the Chief Financial Officer role even more difficult.  He said how he is the company’s chief worrier in that CFOs must fly at 50,000 feet all while avoiding crashing in to treetops.

Warren continued his talk by discussing how NASDAQ is more than a verb and acronym.  It is a publicly traded company that has experienced thirteen straight quarters of top line growth.  The decision was made to go public in order to be subject to the same market forces as the companies that choose to list with them.  Additionally, it was necessary in order to have access to capital markets in order to acquire technology and skill sets to maintain leadership in world markets.  NASDAQ has experienced a tremendous amount of activity in the past few years, acquiring OMX, an exchange operator and technology company.  Additionally, NASDAQ took a one-third stake in the Dubai International Financial Exchange, purchased the Boston Stock Exchange and the Philadelphia Stock Exchange, as well as announced a plan to introduce a Pan European trading platform.

While many of these exchanges started as mutualized corporations, they demutalized and listed themselves on their own market, similar to NASDAQ.  This brought expanded access to capital and provided equity currency for mergers and acquisitions.  However, it also marked a shift from a non-profit organization to a for-profit company and brought a new degree of economic rationality to behaviors and actions.  NASDAQ looks to generate revenue by adding more transactions and volume.

Exchanges that have demutalized have had to rethink their business model to understand the competitive landscape and the advantages within it.  Technology has been a tremendous influence here as without it, there would essentially be no reason to merge and no reason to grow as there are very few, if any, synergies that exist when two floor-based exchanges come together.

A second factor is how securities are exchanged electronically and almost instantaneously around the world.  It is now possible to sit at your desk and within a second get an execution around the world.  This is a tremendous upgrade of having to make a phone call in order to do this, as was standard practice not all that long ago.

This is beneficial because today billions of dollars can be exchanged around the world in an instant.  Investors can now come to you, rather than being sought out.  Warren pointed to NASDAQ’s investment in Dubai as an example of this.  An opportunity was seen to act as a gateway to U.S. assets across the world.

Warren then shifted the focus of his talk to discuss how we are in the middle of a very interesting time that presents some unique opportunities.  Looking at what has happened recently, with the credit crisis and the collapse of Bear Stearns, questions now exist about whether or not bilateral trading actually works.  However, if a step is taken back and past financial crises are examined, opportunities to move forward are seen.

As an example, Warren pointed to the formation of the Fed, which resulted from a series of banking panics, particularly a sever panic in 1907.  The FCC was formed in 1934 as a result of the stock market crash in 1929.  NASDAQ was also formed in the context of a needed change.  In 1963 a special study of the securities market conducted by the FCC criticized the fragmentation of non-listed securities.  It declared that automation had the potential for removing some fundamental problems.  As a result, in 1968 the basic technology and technology needed for NASDAQ was set.

Secretary Paulson has come through with a fundamental reform package of the financial services industry.  He started on this as soon as he assumed office and while it was put in to effect before the current crisis; Warren views it as a positive opportunity. He views it as a chance to review some of the acts passed in 1933 and 1934 and to take a close look at regulation of markets in the U.S., and to shift from a rules-based regulation to a more principles approach. 

Warren then went on to discuss how the IPO market has become scarce.  March was the first month, in approximately five years that did not have a single IPO.  There is a strong pipeline however, as NASDAQ had over a hundred companies that want to do an IPO.  Many executives are feeling confident about their companies and are waiting for the markets to open up so they can go public. 

In responding to a question about how he views the landscape five years from now, Warren noted that right now it feels like a big land grab.  There will be more consolidation because technology calls for it.  However, he does feel there is a limit to how far it can go, as smaller exchanges in Europe will need to become regional in order to stay relevant.  Warren also feels that there will be more worldwide legislation and policy directives aimed at opening up trading, so established exchanges will no longer have a protected monopoly.  The importance of technology cannot be underscored, however as most consumers do not care who owns the exchange or where it is headquartered.  Instead they care about the trading experience and by having a common network, such as NASDAQ, available for use, will only increase customer satisfaction. 

As to whether we are moving towards a 24-hour trading day, Warren responded by saying that it is something the customer will dictate.  The technology is available to do it, and if it is something that the customers want, given that companies and the market already want it, it may happen, however, Warren does not see it as needed any time soon.

There was a question that asked while the stretched out trading day benefits large cap companies, given more liquidity, is there an increased risk of manipulation on stocks for smaller cap companies.  To this Warren responded that a stock needs a certain amount of liquidity to work for the investor and for the company to feel like it is getting the right access to the markets in both the primary and secondary level.  He believes the structure is starting to evolve such that liquidity will be able to find its own level, so that the stocks that are traded a lot can be traded and stocks that are not can find liquidity in a smaller part of the world. 

Warren was then asked about the technology platforms and how robust they are and whether NASDAQ invests heavily in it, such that if any center were to go down the system would continue to work.  To this Warren responded that there is a lot of oversight from the FCC in terms of technology and that NASDAQ is currently handling about 250,000 transactions per second.  In order to assure there are no problems, NASDAQ conducts tests all the time and has backups and they intentionally fail it every week to make sure it still works.      

An Exploration of Major League Baseball's IP Challenges- Robert Manfred, Executive Vice President Labor & Human Resources, Major League Baseball

April 30, 2008,

New York

.  Robert Manfred, Executive Vice President, Labor and Human Resources gave a keynote talk at Argyle Executive Forum’s 2008 Leadership in Intellectual Property Forum.

Manfred began his session by stating that since the product in baseball is the players and that everything revolves around the relationship between the players and the collective bargaining agreement. Manfred then went on to detail the structure of Major League Baseball which includes Major League Baseball Properties, the profit generating arm of the commissioner’s office. One of the functions of MLB Properties is to protect and exploit the numerous trademarks of MLB. The trademarks include the silhouette batter that represents MLB as well as the individual club marks.  The revenue generated from any of these trademarks is split evenly amongst all 30 teams.  Other marks that are owned include

Fenway

Park

and the Green Monster.

The MLB Players Association also has a group licensing program.  As a condition of being in the union all players sign a group licensing agreement.  This allows the union to exploit the likenesses of every player in any activity where three or more players are featured.  As a result of this licensing program every player receives the same share of revenue from it. 

Players also participate in straight endorsement deals, in which their likeness is featured but no MLB marks appear.  Whatever money a player makes from an endorsement deal is independent of both MLB Properties and the MLB Players Association. 

There are a large number of products and services, as Manfred discussed, that feature a combination of a mark and a player’s likeness.  These instances are governed by the uniform player’s contract, which is signed by every player.  There are two sections in this contract that are dedicated to intellectual property and the provisions include the player participating in promotional activities related to the team, and they receive no further compensation.  Another aspect of this agreement is that the team owns pictures and video that it takes of the player and the player must receive consent from the club to sponsor commercial products. 

Baseball cards and jerseys are other areas that combine the players’ likeness and name with marks owned by MLB Properties.  There are a small number of companies that are worked with and they must obtain licenses from both MLB Properties and the Players Association. 

While all of this seems obvious, as Manfred pointed out there are instances where disagreements arise between the two entities.  These mostly result from when one of the two makes an agreement with a third party.  An example of this is seen with the numbers they players wear.  Under the collective bargaining agreement, the clubs issue the numbers and uniforms to players and have the right to request them back at the end of the season.  In the case of teams that do not put last names on the back of jerseys, MLB Properties believes it owns the intellectual property associated with the jerseys.  As an example, MLB Properties believes it can license and sell a Yankees #2 jersey without having to share the revenue with the Players Association.  Though the Players Association argues that it owns the intellectual property rights to the jersey because everyone understands it is associated with Derek Jeter, MLB Properties takes the stance that others have worn that number as well and since there is no name on the back of the jersey to identify which player it specifically refers to, the Players Association does not own the intellectual property rights to it. 

Most of these issues are able to be settled with each side making concessions to one another.  However, there was litigation over the Yankee pinstripes in relation to Beanie Babies.  Though there was no use of the Yankees mark or the interlocking NY, the Beanie Babies were pinstriped and said Derek Jeter on the back with a number 2 on the front.  There was litigation over which side owned the pinstripe pattern, which was eventually settled.

Issues between MLB Properties and the Players Association arise when it involves third parties.  For instance, depending on where the name of the sponsor is in relation to the likeness of the player, the Players Association argues it implies an endorsement.  The players’ likeness is distinguished by color as a way of avoiding this sort of issue.  The name of the sponsor is more closely associated with MLB’s mark.

There is another issue which Manfred refers to as the “cheap t-shirt problem”.  Given that they are very protective of their marks and the image associated with them, MLB Properties only allows a select group of companies to license them.  However, the union will occasionally work with a lower-end company and produce products at a lower price point.  They will be careful not to use any mark owned by MLB Properties, though the implication is very obvious.

The biggest issue that arises between the Players Association and MLB Properties is over endorsement deals.  As part of the Uniform Player’s Contract, any player must receive consent from the club before taking an endorsement.  For example, the Atlanta Braves had a sponsorship agreement with Home Depot and there was signage all over the stadium.  Lowe’s signed an endorsement deal with Chipper Jones, a player for the Braves, and put up billboards of Chipper up in what was obviously a Braves uniform except the marks had been airbrushed out.  This problem arises frequently with companies such as Coke and Pepsi and Vitamin Water and Gatorade.  While they try to avoid situations such as these the inevitably happen and must be worked through.

Manfred then discussed how MLB employs four lawyers that go to the markets where the playoffs are taking place and ride around with the local law enforcement looking for individuals selling unlicensed products.  This is a crucial operation because of the prestige that the licenses carry.       

The Rise of Invention Capitalists- Gregory Gorder, Founder & Vice-Chairman, Intellectual Ventures

New York, April 30, 2008.  Gregory Gorder, the Founder & Vice-Chairman of Intellectual Ventures was interviewed by Daryn Grossman, Partner at Proskauer Rose at Argyle Executive Forum’s 2008 Leadership in Intellectual Property Forum.

Grossman began their session by asking about the business model at Intellectual Ventures.  Gorder responded by saying that when the company was first started its focus was getting the most value out of an invention.  The idea was to put capital behind an invention to try and make it better.  The distinction between the invention in the product and the invention of the services must be noted. 

In looking at Intellectual Venture’s funds, each one is looked at as a project.  The company does not constrain itself to one type of investing or invention.  They have identified three ways in which more value can effectively be created from an invention.  They do a build, a buy and a partner approach, where inventors are brought in and work with the company to address current problems or areas that they feel will be problems in the future.  The company also buys inventions from a variety of places including universities and Fortune 500 companies. 

There has been a good amount of change in the IP world since the company was founded in 2000 according to Gorder.  Though still very influenced by barter, there has been a shift to bringing more value to the invention.  This benefits all parties involved including the inventor, the manufacturer and the consumer.  Additionally, there are more inventions being offered in the auction space.  There has also been a lot of work in bringing inventions from different sectors together due to the constraints each individual sector has. 

Grossman then asked Gorder what entities are particularly compelling for him.  He answered by stating that it’s difficult to predict which inventions will be well-received.  This lack of transparency hinders the development, but it’s a necessity that cannot be readily dealt with.  He mentioned that he anticipates seeing a greater willingness by companies to look at invention rights as one of the inputs to their product’s cycle.  With this he believes there will be a greater amount of transparency and information available about invention transactions. 

Gorder sees Intellectual Ventures facing a similar challenge that many other companies must endure in that when making a change the best path is not always immediately clear.  Monetizing invention rights has traditionally has a form of assertion and litigation based licensing.  One way to work with this is to bring a lot of inventions together and start a company and build products and services from the inventions.  Another way to bring value out of inventions is to partner with an existing manufacturing product company.    The option of creating exclusivity is yet another manner in which companies can help bring out new inventions.  The best manner, however, remains to be seen. 

As to whom Intellectual Venture’s inventors are, Gorder mentioned that the company has about fifty world-class inventors working with them.  The company has offices throughout Asia to focus on the research institutions and academic communities within Asia, which are vastly underserved. 

Grossman then asked about Gorder’s predications for the economy and the IP space.  In his response Gorder mentioned that patent laws, adapted a few years after the signing of the Declaration of Independence, represent a social contract between society and invention, which has created a race to invent.  He went on to say that it will be good for the future to continue to reward an inventor for wining the race to invention.         

Exploring Intellectual Property Challenges- Jacqueline Leimer, Vice President & Associate General Counsel Global Intellectual Property, Kraft Foods Global; and Bruce Proctor, General Counsel, Intellectual Property, Diageo

New York, April 30, 2008. Jacqueline Leimer, Vice President & Associate General Counsel Global Intellectual Property, Kraft Foods Global; and Bruce Proctor, General Counsel, Intellectual Property, Diageo participated in a roundtable discussion with Arthur Zaczkiewicz, Director of Content, Argyle Executive Forum at the 2008 Leadership in Intellectual Property Forum.

In response to the question about challenges within enforcing IP rights in the global market, Leimer responded by saying that IP is enforced on a national level so for companies that operate globally, they must go in to every jurisdiction and be familiar with each set of courts and laws. The other challenge Leimer touched on was adhering to the company’s strategies and business initiatives so that the right decisions are made on a global level. Proctor added that the difference between having laws on the books and having them enforced in certain countries is a huge challenge that global companies face on a daily basis.

Zaczkiewicz then posed a question about when IP professionals insert themselves in the product development cycle. Proctor responded to this by stating he gets involved early in the process and works to let others in the company see him as a team member there to work through all challenges, rather than just a lawyer.

As to the question of the IP issues that are specific to the consumer products sector, Leimer responded by saying that the majority of time is spent devoted to the brands and patents. Proctor agreed with this assessment and stated how he views the IP office as a lighthouse guiding the many different ships such as trade dress piece, viral marketing, advertising claims, etc. A holistic image of a product is needed so that the product is adored by the consumer.

Leimer added that many of the products being produced by Kraft right now have sprung from the desire of consumers. These products largely fall in to one of two categories, healthier products that are good for the consumer and the other is convenient packaging. She noted that she is involved early in the process to help develop the IP as the products and packaging are being developed.

Both Leimer and Proctor echoed that there is largely a collegial sentiment among IP lawyers, even those that work for competitive companies. Leimer attributed much of this to the International Trademark Association and the network it creates. This network allows for possible litigation to be settled without the need to go to court.

Zaczkiewicz then asked if consumer product companies were becoming more aggressive in enforcing their IP. To this Leimer responded by saying that while she does not believe that companies have ever placed less importance on IP, they are now facing new realities such as counterfeiting. According to Proctor, when he first became an IP litigator in 1982, IP was not viewed as particularly important. However, as the internet became more prevalent, companies became more aggressive in protecting their IP.

The conversation then moved on to global brand rights and enforcement strategies in different markets. Leimer commented that there is a great amount of variance due to operating in different legal systems. As such, various enforcement strategies are needed and have to be suited to each jurisdiction. Proctor added that the distinction between civil and common law cannot be underestimated because with common law it’s a reputational right while civil law is a property right.

China serves as the most problematic market in Leimer’s view given that there is a large amount of counterfeiting and business look alikes and the enforcement varies from locale to locale. She also mentioned India and Pakistan as other markets that are challenges, as well as Brazil, which while not as challenging moves at a much slower pace. Proctor added the former Soviet Union as another market that is challenging due to slow enforcement, unclear laws and undo influence.

As far as counterfeiting, Proctor noted that there is typically a criminal element involved because the returns are very lucrative. It has to be accepted that it will always be a problem and must be viewed as a war of attrition. Leimer noted that there is a safety element involved in consumer products such as food and beverages given that consumers may innocently purchase products they believe to be from a certain company given the confidence they have in that company. Both Proctor and Leimer agree that an antidote to counterfeiting is to come down hard on those that try and do it so they will move on to a different company. Proctor added that some of the steps being taken by Diageo include implanting chips on bottle tops so when scanned it can be seen as real or counterfeit. Leimer also noted that many companies will also utilize a professional form of law enforcement to help deal with counterfeiters.

In response to a question concerning publicizing efforts against counterfeiting both Proctor and Leimer responded in favor of keeping things out of the public eye due to the consumable nature of their products. They both stressed the desire to not spook the public which can have an adverse effect on sales. However, there should be a very concentrated internal effort to stop counterfeiting and all employees should act as eyes and ears for the company.

Developing Theory Using IP as a Financial Instrument- William Heming, Deputy General Counsel & Chief IP Counsel, Caterpillar

New York, April 30, 2008.  William Heming, Deputy General Counsel & Chief IP Counsel discussed developing theory using IP as a financial instrument in his keynote address at Argyle Executive Forum's 2008 Leadership in Intellectual Property Forum.

Heming began his talk by discussing that patent reform is one of the most contentious issues in intellectual property.  There is a group that contends there has been no real patent reform since 1952 while others still argue that there has been no real change since 1836.  There is seemingly a new IP issue coming up everyday in the mainstream press, which is a huge departure from when Heming first entered the field. 

Heming briefly touched on patent pools, which is two or more parties getting together to pool two or more patents, in an effort to unblock patents, allowing both parties to move forward.  It must not be forgotten, however, that intellectual property is based in economics.  It cannot be lost that profiting from new knowledge and techniques requires some rights over the innovations and progressions.

Patent pools were integral at the outset of intellectual property as it allowed for more efficient exploitation of patents, though at times it was detrimental to greater society as it led to monopolies.  However, after the passage of the Sherman Antitrust Act the relationships eventually diverged enough.  The law now looks at whether patent pools are pro-competitive.  The modern patent pool is centered on a massive transfer of wealth, which effects trade, industries and the economy.

Heming describes the modern patent pool as aggregating patents for financial gain given that much pooling is centered on similar technologies.  Heming then argued that modern patent pools will not increase economic liquidity, at least not without disruption within the industry, economy and trade.  Though hard to track, there are a number of patent pools that exist and the larger ones, Heming speculates, may own more patents than most of the Fortune 100 companies. 

This means there are a large number of patents controlled by individuals that are not in the business of making things.  Heming also feels that there are efforts to collateralize patents and to create trading markets for them.  Additionally, there are market makers that are attempting to create derivative markets which will allow statistical ratings of patents to be seen, allowing investors to speculate on which one will be more successful. 

If a company fails to hold a patent it can suffer some economic difficulties.  It may risk a barrier to entry, additional R&D costs to access a patent or to design around it, and have to contend with dealing with a patent pool which is more restrictive than any one individual patent.

Modern patent pools are purposely not transparent, as many pool owners keep their ownership a secret, forcing a company to wait for the pool to approach them rather than the other way around.  While waiting for this to occur, a company may have already invested in R&D or built infrastructure to work with or around the patent pool.  Modern patent pools are built with the express purpose of reaping financial gain.  As such, mini-pools are now beginning to be seen and they are creating their own patents to fill in the gaps between existing patents.  With this, according to Heming, patents can essentially be written out of thin air as long as the idea is in hand. 

Heming went on to contend that the patent system in America is a mess and will take years to fix and this problem is exacerbated by bad patents.  Further, modern patent pools are essentially litigation proof.  The sheer high cost to bring a case against one acts as a large deterrent.  Further, Heming contends, the modern patent pools operate strictly out of concern for financial gain and pay no heed to the effect it has on the industry or society.  Given that modern pools are focused on the moment and not long term, the targets of the pools tend to adjust and act without regard for the impact the deal may have on society or the industry.  As such, there is no real liquidity within the modern patent pool. 

According to Heming the patent system should be utilized to further progress in the arts.  However, the modern patent pool separates this in his view.  In the interim years it will take for the courts to sort this out, industries will face a considerable amount of risk and disruption.  As a result, corporations will reevaluate the perceived value of acquired intellectual property.  Heming noted that he felt like this would result in increased regulation and litigation.