Branding A Necessary Evil: Insurance

Benjamin Franklin once wrote that the only certainties in life are death and taxes.  If he had lived in 2015, he might have added a third inevitable evil:  insurance.

Virtually no responsible, self-sufficient adult in America can function without buying some form of insurance policy at some point in their life.  Whether it is private medical insurance, "umbrella" fire and theft insurance for one's home or apartment, life insurance, vehicle or boat insurance (mandatory if you want to register an automobile or motorcycle), business interruption insurance, professional malpractice insurance, the list of available policies goes on and on...

The ostensible purpose of all insurance is to spread risk.  That is, rather than take the risk that your new house might burn down and lose everything, you fork over a few thousand dollars a year, so that if such a horrendous calamity ensues, at least you can buy a new wardrobe.

It is virtually impossible to imagine an adult successfully prospering in our modern society, fully exposed to all attendant economic risks without insurance.

Driving a car into a tree or hitting a pedestrian can easily bankrupt anyone.  Giving birth to a healthy baby in a public hospital without health insurance could now cost well over $10,000.  That is not to even mention catastrophic illnesses.

Fortunately, ever present are private insurance companies, ready to sell you a blanket policy for a reasonable annual premium.

But how do these "necessary evils" brand themselves to differentiate themselves from one another in the marketplace? By credibly advertising that they will pay all reasonable claims without becoming adversarial?  No, not exactly.

Through kitschy commercials, of course.

The GEICO gecko has become ubiquitous.  The redheaded, apron-wearing Flo, as portrayed by actress Stephanie Courtney, has become a mainstay of television.  Cavemen, babies, puppy dogs and talking pigs have all become iconic representatives of an industry that isn't otherwise very popular.

Data provider SNL Financial found Geico had spent about $994 million on advertising in 2011. That was fully 22 percent more than next-largest spender State Farm, even though State Farm’s ad spending grew at nearly three times the rate Geico’s did.

The goal is to grab the attention of consumers who would rather not think about insurance. Experts say most people only ponder policies when they have an accident, buy a new car, move, or renew their existing agreement, which usually happens twice a year, at most. 

Today there are about 187 million insured privately owned vehicles on the road. Turnover is relatively low from year to year — 11% of consumers switch their policies while an additional 20% shop but don’t switch, according to J.D. Power. But that still means more than 20 million people are in the market each year.

But the insurance companies' advertising isn't winning many fans among existing customers.

Ask anyone who has had a claim for storm damage denied by their house insurance company.   In New York, four U.S. Senators accused flood insurance companies of mishandling claims for Hurricane Sandy-related damage, by hiring engineering companies expressly to  underestimate damage from that storm.

Or ask anyone who has had their doctors' bills denied, because a health insurance company has come up with a byzantine set of pre-notification rules that weren't adhered to strictly at 3 a.m. when their child had an asthma attack.

They will wish you good luck trying to collect from the carrier.  

As soon as a claim is filed, some of these same insurance companies that were so cutely advertising their products with ice cream and puppy dogs will hire a team of savvy adjusters and professional litigators to nickel and dime a claimant to death.

But, for now at least, such negative reviews don't seem to be reaching consumers amid the din of talking lizards.

Borrowing and Branding: Loyalty and Expansion Through Debt

What do borrowing money and creating an established brand have to do with one another?  It turns out, quite a bit.

Here is a simple case study of retail electronics and appliance stores in the United States.

The very first P.C. Richard store opened on September 26, 1909 in Bensonhurst, Brooklyn.  This particular store sold hardware and was run by Peter Christiään Richard, an immigrant from the Netherlands. 

The first appliance the store sold was an electric iron.  Peter's son, Alfred, would spend all of his time helping his father, as he quit school at the age of fourteen for the sake of the store. 

Within time, A.J. would become the head of the store, and would prove to be highly successful in persuading people to buy appliances. 

As the years progressed, his sons would aid him with the business, as they expanded to a few other locations. To this day, the chain is still run by the Richard family, as A.J. himself would serve as chairman well into his 90's. On December 28, 2004, A.J. Richard died at the age of 95.

Today, P.C. Richard & Son have 57 showrooms in the New York Tri-state area and make more than $1.5B in annual revenue.  It is the largest privately-owned appliance and electronic retailer in the nation.

During the 100+ years that P.C. Richard & Son have been in business, many, many of its competitors have come and gone.  Just a few memorable ones include:

• The Wiz (founded in 1977, defunct by 2004)

• Circuit City (founded in 1949, defunct by 2009)

• Computer City (founded in 1981, defunct by 1998)

• Crazy Eddie (founded in 1971, defunct by 1989)

• Lechmere (founded in 1913, defunct by 1997)

• Polk Brothers (founded in 1935, defunct by 1992)

• CompUSA (founded in 1984, defunct by 2012)

and now...Radio Shack (founded in 1921).

What did each of these defunct (and soon to be defunct) electronics companies do differently than P.C. Richard & Son?  

At least two things stand out:  they apparently never formed a customer base that was truly loyal to their brand, and they took on too much debt to finance unfettered expansion.

Over the decades, P.C. Richard & Son became the "go to" place in New York City for appliances.  The company expanded slowly, buying and building stores over the course of generations, rather than leasing them from commercial landlords.

Such a philosophy of glacial growth over 100 years seems anachronistic today.  In an age where the federal discount rate remains under one percent, banks and investors appear eager and willing to finance companies' expansion plans.

As a result of refusing to accept this type of financing, P.C. Richard & Son does not sell refrigerators in Iowa or toasters in California.  It deliberately chose to stay local and close to its roots.

In contrast, the 94-year old Radio Shack will now shutter 1,100 stores littered across the nation after losing profits quarter after quarter for a decade.

Radio Shack is certainly a more well-known national brand than P.C. Richard & Son, but apparently it does not have a loyal enough customer base to keep it afloat.

And so, the perpetual question that faces every brand is whether their core customer will always return, and whether that perception of brand loyalty ever justifies borrowing tens of millions of dollars to find out.

The BigLaw Gap Widens: Winners and Losers

As I have previously noted, one of the most controversial topics of debate and discussion among both lawyers and non-lawyers alike (for various reasons) is law firm profitability, and how many lawyers are perceived as overcharging their clients to engage in legal work.

An interesting article was published on Above the Law which discusses the current state of affairs in the American legal marketplace, among "AmLaw100" law firms.  It is aptly titled "The Imminent Capitulation of Many Big Firms."  This article comes on the heels of recent articles discussing how DLA Piper apparently shortchanged its associates on annual bonuses.

For readers not immersed in the terminology, the American Lawyer magazine publishes lists each year showing America's largest 100 law firms, based on gross revenue, as well as lists of the same firms broken out by average annual profits per partner.

Headcount of total lawyers is one easy to measure variable, so a local New York City-only law firm that has 500 lawyers and boasts $1B can be ranked "higher" on some lists than a law firm with 1,000 lawyers located all across the globe that reaps $500M in annual revenue.  Both firms would probably still be on these lists, but the lower grossing law firm would be ranked "lower."

A few "elite" firms, such as Wachtell, Lipton, Rosen and Katz have only 260 lawyers, including 79 equity partners, making $5M each.  Another such elite firm is Sullivan & Cromwell, which has 800 lawyers, with each of its equity partners making $3.5M each year.

These interesting metrics show that these top 10 "elite" law firms based on profits are pulling away from the rest of the pack, leading to a very, very short list of highly paid lawyers.

However, the rest of the large law firms are struggling to compete effectively for the day to day routine legal work of the large corporate clients.  The American lawyer calls these firms the "Giant Alternatives."  These firms are enormous but not hugely profitable: although they house almost 20 percent of the Am Law 100’s lawyers, they generate less than 14 percent of the revenue.

A big law firm in this vein is DLA Piper, which has approximately 4,200 lawyers practicing in more than 30 countries.  It has total revenue of $2.48B, but profits per partner placing it 54th on the list, with $1.3M in average profits per equity partner.  The world's largest law firm based on both revenue and headcount is Baker McKenzie, which has 4,200 lawyers in 78 offices, reaping over $2B per year.  However, its profits per partner place it 63rd on the profitability list.

Above the Law sums it up perfectly:

So the world seems to agree:  The super-rich firms will become even more superbly rich, and the merely rich firms will lose ground. Where does that leave many big firms?  In a world of hurt.

Why is that?  Look at it from the perspective of a corporate client facing any Intellectual Property legal issue.  If that issue involves facing down Boies Schiller or Ted Olson in the U.S. Supreme Court, the client will need to hire the best lawyer available, whether she charges $1,500 or $1,800 an hour.

However, the vast majority of clients' day to day legal activities in the Intellectual Property arena are relatively routine, such as sending and responding to cease and desist letters, monitoring trademark filings, handling copyright licensing arrangements, etc.

These specialized but routine activities do not warrant paying $1,000 an hour for a partner whose firm maintain dozens of glitzy offices all around the globe.  These clients can look to small, boutique firms with the same experience and specialization but much lower overhead and billing rates to substantially undercut the Giant Alternatives.

And that is just one of the reasons why Giant Alternatives and their ilk are in for a world of hurt ahead.

Katy Perry Dubiously Claims to Own Copyright in Shark Costume from the Superbowl Halftime Show

During singer Katy Perry's performance at the halftime show at the 2015 Superbowl, a variety of amusing costumes depicting sharks and palm trees were used.  It is unclear who specifically designed these particular costumes.  Katy Perry has reportedly utilized Jeremy Scott as her costume designer.

However, Katy Perry's lawyers at Greenberg Traurig have apparently claimed that she is the individual "owner" of all the intellectual property depicted or embodied in connection with the shark images and costumes portrayed and used in her Super Bowl 2015 half-time performance.

Greenberg then fired off a formal cease and desist letter to Shapeways.com, which had offered to sell shark figures that were based upon Katy Perry's costume design:

So let's scrutinize Katy's copyright claim a bit more...does U.S. intellectual property law really protect this shark costume?

Potentially, no.  The costume itself may very well be a "useful article" under U.S. Copyright law, and not protectable in the abstract, since its ornamental elements are not clearly "separable" from it.  Copyright protection is generally not available to articles which have a utilitarian function.

Under the Copyright Act, the only copyright protection available to these items is for "features that can be identified separately from, and are capable of existing independently of, the utilitarian aspects of the article."  Unfortunately for Ms. Perry, this test is inherently ambiguous when deciding the scope of copyright protection for certain useful articles, such as shark costumes.

Some distinctions are clear.  For instance, a painting on the side of a truck is protectable under copyright law even though the truck is a useful article. The painting is clearly separable from the utilitarian aspects of the truck.  The overall shape of the truck, on the other hand, would not be copyrightable since the shape is an essential part of the truck's utility.

Another commonly considered example is that of clothing.  The print found on the fabric of a skirt or jacket is copyrightable, since it exists separately from the utilitarian nature of the clothing. 

However, there is no copyright in the cut of the cloth, or the design of the skirt or jacket as a whole, since these articles are utilitarian.  This is true even of shark costumes; no copyright protection is granted to the costume as a whole.

That is because costumes, in addition to covering the body, serve a “decorative function,” so that the decorative elements of clothing are generally “intrinsic” to the overall function, rather than separable from it.  See Whimsicality, Inc. v. Rubie's Costume Co., 891 F.2d 452, 455 (2d Cir. 1989) (observing that garments' decorative elements are “particularly unlikely to meet [the] test” of conceptual separability); but see Chosun Int'l Inc. v. Chrisha Creations, Ltd., 413 F.3d 344 at 329 n. 3 (2nd Cir. 2005) (expressing skepticism that Halloween costumes that permit wearer “to masquerade” have a utilitarian function other than to portray appearance of article).

The idea for an upright “shark costume" is not an original copyrightable element, standing alone.  General character types are not protectable by copyright law.  See Hogan v. DC Comics, 48 F. Supp.2d 298, 310 (S.D.N.Y. 1999).

Further, as for a potential claim of "trade dress" or the tort of commercial "misappropriation," Ms. Perry would need to show that she is uniquely associated with this particular shark costume in consumers' minds.  While that is possible given the immense publicity and viewership that the Super Bowl halftime show receives, there are functionality issues there, as well.

Finally, below are photographs of a few similar shark costumes that appear to have been created and sold long before Katy Perry's costumes were created.  It is unknown if any of these designers successfully have claimed copyright or trade dress rights in their designs.  However, it would appear that the scope of Ms. Perry's intellectual  property rights, if any, would probably be quite narrow, if they exist at all:

National Parks Battle Over Trademark Rights to Souvenirs and T-Shirts

Yosemite Valley, 2013
Tuxyso / Wikimedia Commons / CC

According to USA Today, the National Park Service has become embroiled in a bitter and unusually public trademark dispute with the two private companies that run most of the hotels, restaurants and stores located inside the Grand Canyon and Yosemite National Parks.

At Yosemite National Park in California, longtime concessionare Delaware North is demanding that anyone who takes over the contract pay it tens of millions of dollars to use the names that it has trademarked, including "Yosemite National Park," in connection with souvenirs and clothing.  Delaware North is competing to keep the contracts.

The National Park Service argues that a new concessionaire could simply give those iconic places new names if it wins a new concession contract.  The park itself wouldn't be renamed, but the trademarks apply to any souvenirs and clothing sold to promote the locations.

At the Grand Canyon, concessionaire Xanterra has been similarly competing for the contract rights to run the park's South Rim lodges and restaurants. 

Scott Gediman, a ranger and spokesman for Yosemite National Park, reportedly told USA Today:  "We feel Half Dome and El Capitan and the Ahwahnee Hotel (and other trademarked names at Yosemite) are part of the national park's fabric. We feel those names are inextricably linked with Yosemite … and ultimately belong to the American people."

Delaware North officials say their original contract required them to buy the intellectual property owned by the previous concessionaire, and they're asking for nothing different should they lose out to a competitor.

Observations on IP Lawyer Billing Rates

No law-related topic generates more controversy and debate than lawyers charging money for their services.

Needless to say, private practice law firms are not charities, they are businesses. And like all successful enterprises, there is a particular business model at work.

Simply put, private practice lawyers must find a way to charge clients for their activities to generate profits. Putting aside "flat fee" arrangements or contingency fees, the standard billable model is based on how a lawyer's daily diary reflects time spent handling various matters.

Therefore, the only real debate is whether particular lawyers tend to charge their clients excessively, as compared to their professional peers.

To evaluate the legal marketplace for specialty services such as intellectual property and brand protection litigation or counseling, it is often helpful and illuminating to assess reliable information about what various IP law firms are currently charging their clients.

Such information can help a prospective client compare lawyers, and will help give a client insight into whether she is satisfied with the value that she is receiving from her particular lawyer and his law firm. 

Further, it can be helpful to understand how much of a lawyer's legal fees are eaten up by overhead costs, and how much is pure profit.

Here are same basic benchmarks for consideration.

Overhead Expenses:  As with all service professionals, a large chunk of fees collected by a lawyer is consumed by overhead expenses such as office rent and administrative support personnel's salaries. Some examples are:

• Office Space for large law firm located in New York City:  $375,000 / month

• Office Space for small law firm located in New York City:  $25,000 / month

• Office Space for large law firm located in Raleigh, NC:  $24,000 / month

• Office Space for small law firm located in Raleigh, NC:  $3,000 / month

It is worth noting that even a law firm that is not located on Park Avenue in Manhattan can incur more than 10x the rent of a smaller law office in New York City, and 125x(!) the overhead rent of a small law firm in Raleigh, North Carolina.

Further, let us consider the administrative salaries of support personnel such as experienced paralegals in various markets:

• Experienced Paralegal Salary at large global law firm in New York City: $70,000+
• Experienced Paralegal Salary at small law firm located in Chicago, IL: $60,000
• Experienced Paralegal Salary at small law firm located in Pensacola, FL: $47,000

Therefore, an IP lawyer located in a posh office on Park Avenue in New York City assisted by a paralegal is likely to incur $1M a year more in overhead than his small firm counterpart located elsewhere in the United States.

Consequently, taking into account the effect of office geography alone, it is clear why a large law firm with its primary office in Manhattan feels it appropriate to charge its clients $1,000 an hour or more.

One study noted that even those lawyers working at law firms located in other major metropolitan areas such as Boston, Chicago, Los Angeles, San Francisco or D.C. add $161 per hour for rent alone.

Profits:  Even taking the expenses of high rent and high support staff salaries into account, the very "top" large law firms are still minting money. The very pinnacle of the legal marketplace, that is, the largest and most prestigious law firms in America, consistently charge their clients hourly rates over $1000 for their top IP lawyers.

So, if you are a sophisticated client rationally considering your various alternatives for premium quality IP legal services, you have at least two issues to think about:

1.  Am I staffing a "bet the company" case, where millions of dollars in legal fees simply do not matter, because I will risk my company's most precious assets if the case is lost? Also, do I fear that a loss in court might be blamed in part on me, because I didn't hire someone like Ted Olson of Gibson Dunn who charges $1800 an hour?  If so, hire Ted Olson. If not, don't.

2.  Is this the type of case that REQUIRES a lawyer located on Park Avenue or in Silicon Valley? If not, why should I make the lawyers' landlords or his partners any richer? Can I hire a smaller law firm with the exact same expertise, but without the fancy marble columns in the lobby, to staff this matter?

The best analogy that I have heard repeated when I was a "BigLaw" partner is that law firms are like cars.

You might want to rent a fancy Rolls Royce once in your life (for example, on your daughter's wedding day) and the price doesn't really matter that much for a short-term luxury splurge.

But on a daily basis, you choose to buy and drive a reliable, solid, comfortable car. Why? Because reliability gets you to work and home safely without the unnecessary bells and whistles.  And the same logic should apply to hiring an IP law firm for 95% of cases and matters.

After Two Disasters, Malaysia Airlines Considers Its "Re-Branding" Options

Malaysia Airlines has experienced two unbelievable tragedies in less than four months.  First, Flight MH370 completely vanished without a trace en route from Kuala Lumpur to Beijing with 239 passengers on board.  All passengers and crew are still missing and are now presumed dead.  The disappearance remains unsolved, and is widely considered one of the most bizarre modern aviation mysteries.

Then, unbelievably, two weeks ago, Malaysia Airlines Flight MH17 was shot down by a sophisticated surface-to-air missile over the Ukraine, with many blaming pro-Russian separatist rebels for the carnage.

Malaysia Airlines was apparently considering a brand overhaul after the first tragedy.  Now, some are asking whether consumers would see through a superficial name and brand change, and wondering whether the airline can even continue to exist as an ongoing concern.

The airline has reportedly lost $1.3B in the last three years.

Such a situation facing a major airline is not unprecedented.  In 1983, after Korean Airlines suffered a similar tragedy when a plane was shot down, it was rebranded as "Korean Air."  Perhaps more significantly, its planes were repainted from white to light blue, and the logo was replaced.

Have California's Likeness Laws Gone Off the Deep End?

An alleged misappropriation of Lohan's likeness

As recently noted by Professor Marc Edelman on Forbes, the civil lawsuit filed by Lindsay Lohan against RockStar games for alleged misappropriation of likeness in Grand Theft Auto V is being watched closely for its impact on the ability of video game makers to utilize public figures' images without offering them compensation.  

NFL players and their financial planners are certainly watching that lawsuit closely, as EA and other video game makers routinely distribute sports-themed games that utilize players' attributes.

Now, the latest lawsuit against Activision for its alleged unauthorized use of Manuel Noriega's likeness in Call of Duty: Black Ops reveals just how warped California's right of publicity laws are becoming, unless they are reined in.

In the 2006 case of Kirby v. Sega, the California Court of Appeals had held that the First Amendment protected Sega's incorporation of certain elements of singer Kierin Kirby into the character Ulala.

According to that court, Sega's use was transformative and thus protected. In contrast, as noted by Professor Edelman, is the same California Appeals Court's 2011 decision in No Doubt v. Activision, because that game supposedly involved "computer-generated recreations of real band members."

The distinction between the cases is not clear.

However, what is clear from the Lohan and Noriega cases is that, unless seriously circumscribed, such lawsuits will proliferate and threaten one of the fastest growing areas of cultural expression: video games.

Without a bright line rule that celebrities and video game makers can understand and apply evenly across cases, every aggrieved "celebrity" such as Noriega and Lohan can (and undoubtedly will) flock to California, and find an aggressive lawyer looking to cash in big on the developing legal theory by filing such complaints against software developers and video game makers.

Such cases are easy to file and difficult to dismiss.  Both the prior Sega and Activision cases involved years of litigation and hundreds of thousands of dollars in legal fees.