Gio Wiederhold Follows the Intellectual Property Money

Emeritus Stanford Computer Science Professor Gio Wiederhold provides in the January 2011 issue of Communications of the ACM (1) (the monthly journal of the professional society for Computer Scientists) an article titled Follow the Intellectual Property. The theme of his paper is that the offshoring of IP (actually domiciling the IP for sheltering royalty purposes in an off-shore tax haven such as the Cayman Islands) works to the disadvantage of US employees. Profits sheltered are not repatriated, but instead are used to seed and hire other offshore developments for the patent owners. Wiederhold explains that taxing these profits would support domestic (Computer Science) education, R & D and infrastructure.

The problem described is real, but it isn’t as simple as he explains. For example, not mentioned are patent holding companies that may be domiciled overseas whose profits, in the alternative, one would not expect to be reinvested into new R&D.

This principal offshoring and sheltering has its risks such as prejudicing a jury, as reported by Michael Smith regarding the recent case of O2 Micro v Bitek:

‘… at jury selection last week, counsel
 for one of the defendants BiTEK, John David van Loben Sels, after noting that the plaintiff was a Cayman corporation - which was permitted - asked the following question of the jury panel, “now, are there any of you who have a problem with a company that puts its headquarters offshore on a Caribbean island in order to avoid paying U.S. taxes?”…’

‘Judge Everingham wrote. "In light of the court’s ruling on the motion in limine, it is no answer that the question was phrased in the hypothetical. By design, the question was intended to prejudice the jury against the plaintiff, which had been introduced as having its headquarters in the Cayman Islands. Moreover, the question directly related to tax motives, clearly within the scope of subject matter the court had excluded by the order in limine."’

1) Also appearing in the January 2011 issue of CACM is fellow Fellow Stefan Bechtold writing on Google Adwords and European Trademark Law.

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