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Retail Law Advisor

The Evolution of the Shopping Experience: Heard at ICSC Dealmaking 2014

Posted in Retail

Despite a terrible Nor’Easter that hit the first day of the conference, nearly 9,000 attendees – a record-breaking number and 26% increase over 2013 – joined the International Council of Shopping Centers (ICSC) for the 2014 Dealmaking Conference at the new venue, the Jacob K. Javits Center in New York. With a larger, better laid-out conference space and many participants displaying shiny new booths, conference attendees enjoyed the increased networking space and then settled in to hear from industry experts on what trends are impacting the industry.

Donald Trump, the keynote speaker, set up the crowd with the following soundbite that made its rounds on Twitter throughout the conference: “… to be successful in your chosen occupation you need to love what you do.” All it took was one lap around the exhibit hall to see the level of engagement and focus from all participants, including developers, retailers and the myriad of service providers. This year, we came away from ICSC with a few interesting observations, as follows:

A Very Good Year, According to Predictions

The important holiday shopping season, often viewed as an indicator for the upcoming year, trends upward. According to ICSC, the season starts earlier and earlier and is projected this year to hit 4% growth over last year. This year, 35% of shoppers started before Halloween and by Black Friday, 86% of shoppers had completed at least part of their shopping. Analysts believe based on consumer habits, we have nearly returned to pre-recession levels.

There’s also been a resurgence of traffic in leasing in the retail industry; last year’s tire-kicking has moved into next phase of execution as retailers get serious about expansion. During the economic turndown, discounters were typically the only anchor tenants shopping for space. Now, industry analysts are seeing more activity of this nature in the sporting/outdoor/lifestyle category.

The Evolution of the Consumer Experience

It was clear from hallway chatter and panel presentations that we are in the middle of a redefinition of the customer experience. Shoppers are active participants in their experiences, and they are, more than ever, driving some of the change. The retail cycle is changing, and analysts are seeing the typical holiday shopping season extending beyond traditional time boundaries of Black Friday to the end of December. Some retailers are seeing active “holiday” shoppers all the way through mid-January, which means stores will be working at the same pace for several weeks beyond the traditional slowdown to satisfy consumer demands. If this trend continues, shopping centers and their retail and hospitality tenants will need to maintain peak staffing and inventory levels for extended periods of time.

The ever-present debate over brick-and-mortar and e-commerce continued to make its way around the hallways. While it can be an impassioned debate, the consensus now is that technology enhances a shopper’s experience but does not necessarily replace it. Many now believe that the successful retailers will be those who embrace the omni channel experience. Whether it be e-retailers such as Bonobos or Warby Parker who move into the bricks-and-mortar world to enhance their virtual business or bricks-and-mortar retailers, such as discount store Dollar General and off-price clothing and housewares retailer TJ Maxx, who expand their presence online in order to enhance their traditional bricks-and mortar business, it’s all about providing the customer with multiple options to look, buy and strengthen their connection with the brand.

The customer experience does not stop with the retailer, however. Shopping center owners also realize that they must embrace this online experience in order to differentiate their centers from others and remain relevant. This means bringing entertainment and new, trendy restaurants to their properties but it also means investing in marketing technology to enhance the customer experience. Many shopping centers feature holiday e-mail and text campaigns to drive shoppers into the stores and manage various loyalty programs. Mobile apps are being developed to help shoppers navigate around the stores, toward available parking, and point them to flash sales at various stores during their visits.

What’s Hot

In the coming year, international brands will continue to expand in the U.S. due to their confidence in the health of the economy and low unemployment numbers. Sears’ recent deal with Primark, a U.K. based department store, is just one of many examples. Under the terms of this deal, Sears will lease more than 500,000 square feet of its current space to Primark to help fuel its expansion into the U.S. Currently, Primark operates in the U.K., Ireland, and France. In addition, Primark will lease on its own the space occupied by former U.S. retailer Filene’s, in downtown Boston, to create its flagship U.S. store.

Other “hot” sectors both domestically and internationally are men’s apparel, fast food, and grocery stores. Analysts have noted that European food store Lidl will copy Germany-based ALDI for its plans to enter the U.S.

What We’ll Be Talking About Next Year

Hopefully next year, we won’t be toting umbrellas and rain boots. Led by conference chair David Firestein, in 2015 we’ll be looking forward to seeing more record-breaking crowds, hearing inspirational keynotes and learning more about how the consumer continues to shape the industry’s future. Please take advantage of the momentum from this year’s must-attend event and join us in New York again in December 2015!

 

MAPIC 20th Annual International Retail Property Market Conference Impressions: Increased Focus on the U.S.

Posted in Real Estate, Retail

The week prior to our Thanksgiving, from November 19-21 , MAPIC (le marché international professionnel de l’implantation commerciale et de la distribution) hosted its 20th annual international retail property market conference at the Palais de Festivals in Cannes on the fabulous French Riviera. There were more than 8,400 participants from 75 different countries in attendance this year. Of the attendees, more than 2,400 represented retailers, 2,300 represented developers and 340 represented investment companies. At least 1,500 different brands were represented. The presence of approximately 520 new retail brands has been touted as a reflection of increased confidence in the retail market.

This year’s MAPIC conference offered more U.S. focused sessions than prior years. The USA panel discussion, moderated by G&S’s David Rabinowitz, “This Land Is Your Land: Tips from the Experts for Expanding Retail Into the USA,” was jam-packed, leaving standing room only for those later to arrive. The attendees who were lucky enough to squeeze in were treated to a robust discussion on different strategies for entering into the retail market here in the USA – ranging from initial occupancy of retail space on “High Street” of a large metropolis (namely, Manhattan), to entry by way of presence in U.S. malls.

The two primary considerations that appear to be driving foreign retailers’ decisions with respect to the preferred point of entry are:

(1) who is the U.S. customer; and (2) what is the strategic purpose of the first few U.S. stores?

The first issue is one that every retailer, be it domestic or foreign, must consider in deciding where to either set up shop or expand geographically. The central factors are where is the U.S. customer located (i.e., is the customer an urban or suburban dweller) and what is the customer’s price point. Is the U.S. customer willing to pay the higher prices that retailers need to charge to justify a location on “High Street” or, instead, is he or she more economically conservative or even a bargain shopper, which would lead retailers more toward a suburban mall entry plan? The second issue is more a consideration of foreign retailers that are already established in their own country (or continent). The question boils down to whether such a foreign retailer wants to enter the U.S. market for purposes of growing revenues or, instead, to “make a splash” by expanding its presence to the U.S. market. In other words, is the entry strategy more about marketing than direct economic aspirations? If so, our sense is that a foreign retailer will favor the showier “High Street” entry location over a mall. Alternatively, if the move is instead revenue-driven, suburban malls seem to be the favored entry point.

One general observation was that European retail professionals generally appear to view Manhattan as the preferred initial port of entry into the USA, while Asian retailers appear to prefer Los Angeles. Another observation, which is consistent with what we were hearing at year’s conference, was that many of the smaller retailers seem to prefer to enter the U.S. using a local operating and/or financial partner. European retailers are familiar with this model because they use it when expanding into neighboring European countries, fueled by an already “proven concept” (albeit not yet proven to the consumers in the newly entered nation). Help in finding domestic (i.e., U.S.) operating partners was often high on the list of topics that European retailers wanted to discuss with the U.S. retailers in attendance at the conference.

Each year, one of the countries represented at MAPIC is the “featured nation,” meaning the retail issues, projects and development sites specific to and/or within such country are highlighted and addressed in a number of presentations and panel discussions during the conference. The United States will be the “featured nation” at next year’s conference, so MAPIC 2015 promises to be even more U.S. focused than was this year’s conference. S’il vous plait, take advantage of the excitement surrounding U.S. retail felt by your international counterparts and join us next year in Cannes from November 18-20, 2015!

Consumers Looking For Deliveries at the Speed of Light

Posted in Holiday, Retail, Retail sales

With the holidays fast approaching, and sales during November and December accounting for an estimated 30% of retailers’ annual revenue, retailers are pulling out all the stops in the ongoing fight for customer dollars, with multiple retailers offering overnight and same-day delivery options and free shipping and one online retailer even offering a shipping guarantee backed by a credit reimbursement. As a result, retailers are in fierce competition for more and more demanding customers, who now expect purchases to arrive on their doorstep by a specified date and time, with little to no added cost for shipping. GeekWire, a technology news website, even went so far as to have a shipping competition among Google, Amazon and Postmates, an online delivery/courier service, to inform its readers which same-day delivery service was best.

Retailers generally only offer same-day delivery service in select urban areas, with the rest of the country relying on FedEx, UPS or similar delivery services, which can be delayed due to poor weather and overloaded systems, as they were last holiday season. FedEx and UPS stated that only a small percentage of packages were delivered late last year, but already there is some concern that FedEx and UPS will again be unable to handle on-time delivery of online orders during the upcoming holiday season. With intense competition for each sale, retailers cannot afford to have dissatisfied customers. As a result, some larger retailers have begun utilizing stores as mini-warehouses during the holiday season, shipping items from local stores, rather than from the retailers’ larger but more remote warehouses, in an attempt to both shorten delivery times to customers’ homes and also to decrease the possibility of weather-related delays.

Many retailers also offer customers the option to shop online and then schedule a time to pick up purchased items from a local store. Having a purchase and pick-up option can be attractive for repeat customers who know the retailer’s product, customers who do not have time to peruse a store but do not want to wait for delivery, and for customers who have procrastinated so long that they are unable to wait out even the greatly abbreviated delivery times being offered by retailers. However, as today’s time-stressed customers continue to push retailers to provide faster service than their competitors, it seems possible customers could eventually refuse to be inconvenienced by any visit to a bricks and mortar store.

Nevertheless, the high cost of free and same-day delivery service has been off-putting to some retailers, and the current competitive market may be providing customers with only a fleeting opportunity to demand that purchases be immediately available at low cost in the final days before the holidays. Smaller businesses are often unable to pay the upfront costs required to create shipping algorithms similar to those being utilized by the big box chains to calculate delivery routes that ensure packages arrive on schedule, and they also do not have the luxury of being able to ship items to other stores to shorten delivery or pick-up times for customers. Several local and regional malls are attempting to circumvent these disadvantages by collaborating with online delivery services such as Deliv to provide same-day delivery of merchandise in order to offer customers the opportunity to inspect or try on merchandise in a store and then have purchased items delivered directly to their homes. Customers can determine which size pants or shirt they need while at the store, and if certain sizes or colors are not in stock, they can order those items online when they arrive home–confident that they are ordering the correct size and any additional purchases will be delivered to their home later that day. Returns should be greatly reduced, and demands for efficient service would be appeased by customers not having to either make a second trip to the store to return items or contend with a multi-step return process on a website. Retailers also should see a commensurate reduction in return shipping costs. This type of collaboration could be a valuable weapon for brick and mortar malls as they continue to battle online retail giants–since time-constrained customers likely will continue to demand faster, cheaper and more convenient delivery options until that convenience results in additional costs to retailers that are substantial enough to compel an increase in prices.

What is abundantly clear is that consumers have now grown accustomed to fast and inexpensive delivery service, and that is unlikely to change. What remains to be seen is how retailers will meet these expectations and still maintain their profit margins.

Happy Thanksgiving!

Posted in Holiday, Retail

Thanksgiving is a time when many of us pause to reflect. We value the trust you have put in us as a resource for the fast paced retail industry. Thank you for reading our blog, the Retail Law Advisor.

Our wish for you and your families this Thanksgiving is simple. May the good things in life be yours in abundance, not only at Thanksgiving but throughout the coming year.

Warm Wishes,
The Retail Law Advisor editorial board

Are Plastic Shopping Bags Being Sacked?

Posted in Compliance, Green, Retail

No plastic bagsIn earlier blog posts, we reported on the growing trend in U.S. cities to pass bans on single-use plastic shopping bags and impose fees for traditionally free bags provided in store checkouts, including the status of legislation proposed by Los Angeles, Chicago and New York to ban free shopping bags as of last November.

A year later, we are pleased to report that the trend continues. While Los Angeles’s single-use plastic shopping bag ban went into effect as of January 1, 2014 for large supermarkets and big box stores that sell groceries (such as Target and Wal-Mart), it was expanded to include drug stores, convenience stores, as well as all markets and groceries on July 1, 2014. In LA, both large and small grocery markets and other affected stores can no longer offer free plastic carryout bags to customers, and recycled paper bags may be offered at a cost of $0.10 per bag.

Last April, with “self-congratulation but no debate,” Chicago also passed legislation banning single-use plastic shopping bags, with exceptions for restaurants and small “non-franchise” independent retailers. In Chicago, the timing of the law’s effective date depends on the size of the store. Stores larger than 10,000 square feet have until August 1, 2015 to comply, while stores 10,000 square feet or less have until August 1, 2016. Unlike LA, the Chicago legislation does not require a 10-cent per bag charge for paper bags.

A group of New York City Council members continues to push a bill, introduced last March, which would impose a mandatory 10-cent per bag charge for single-use plastic and paper bags provided by grocery stores and restaurants. As of September, supporters were six votes shy of passing this proposed legislation. This legislation was slated for review by the New York City Council again on November 19th, but was laid over by the Council’s Committee on Sanitation and Solid Waste Management for further consideration, so stay tuned.

Earlier this fall, California became the first U.S. state to pass legislation prohibiting stores from providing free, single-use plastic shopping bags. The new law goes into effect for large grocery chains and pharmacies starting July 1, 2015, and will be extended to convenience stores and liquor stores July 1, 2016. Similar to LA’s shopping bag ban, under the state law, affected stores will be required to offer customers recycled paper bags or bags made of compostable material at a cost of at least 10 cents.

If this current legislative push continues, single-use plastic shopping bags may soon achieve the same status as lead paint or McDonald’s polystyrene foam sandwich containers – they will become a product of our past.

A “New World” of Fashion and Food

Posted in Landlords, Real Estate, Restaurants, Retail, Retail sales, Tenant

In a world of Instagram, Facebook and SMS text marketing, being fleet of foot in an ever-changing world of retail advertising and sales is the name of the game. As retailers and restaurateurs navigate the treacherous waters of effective advertising, an amplified sense of haste has motivated these proprietors to explore additional means of creating a buzz around their products and food. These days, retailers are embracing and realizing the value of pop-up stores in providing a fresh and exciting approach to reverse the trend of retail ennui among consumers. Like a jack in the box, pop-up stores burst on to the scene – typically in small retail spaces – for a few days, weeks or months and sell merchandise with an ephemeral shelf-life. In many respects, pop-up stores serve as a prudent and business savvy way to test a product, a special dish, or a new clothing line in hopes of making a cannon ball like splash in a particular retail market.

Coupled with a well-tailored marketing campaign on social media, retailers and restaurateurs can generate fanfare and excitement around their brand. Given the palpable and increasing thirst among consumers to readily learn about and stay on top of in vogue brands, pop-up stores are a cost-effective means to build brand awareness and check the pulse of consumers. The concept of pop-up stores has evolved over the past few years. What was once considered a desperate attempt at advertising has now been widely accepted as the “New World” of retail marketing, bridging the gap between the “Old World” of big brick and mortar stores and online retail. One of the main virtues of pop-up stores is that they are much less expensive than your run of the mill television ads, which do not engage the customer in the same fashion and can fall on deaf ears. Pop-up stores, however, inject a certain spark into the brand and allow consumers to interact with the brand and its products in an innovative manner.

But before we sing paeans in full support of pop-up stores, we should mention that it’s not necessarily easy to set up a pop-up store. First, the lack of unoccupied retail stores in vibrant markets can be one of the biggest impediments for retailers looking for viable locations. Another inherent issue is finding landlords willing to lease space to retailers on a short-term basis. To assuage these concerns, there is a burgeoning market of online start-ups – for instance, Storefront – that connect store owners and landlords who wish to rent retail space for short terms to retailers, restaurateurs and artists. The true beauty of Storefront is that it allows retailers to dip a toe in a particular location without the pressures that come with a long-term lease. The other potential benefit of pop-up retail is that it may provide first-hand proof that a vacant space can become viable and profitable again. This certainly proved to be true in Buffalo and Detroit where numerous pop-up stores have sprung up and revitalized these once deserted downtown areas.

For small retailers who are just getting started, opening a pop-up store is an innovative approach to growing the business and increasing brand awareness. Although big box department stores will forever have a place in the retail market, these large retail spaces may be better suited for more established brands. For the up and coming retailers and restaurateurs, who must count every penny that comes in, leasing too much space may be fundamentally inefficient and too onerous from an inventory standpoint. A pop-up store is a happy medium that gives retailers and restaurateurs an opportunity to operate a retail or restaurant establishment, gauge future demand, and engage their customers with an intriguing approach.

A Five-Point Checklist for the Holiday Shopping Season

Posted in Employment, Holiday, Retail, Technology

The Halloween costume pop-up stores are gone, and they’re starting to be replaced by other seasonal attractions. Before long the snow will by flying, and shoppers will be ready to hit the stores before work, on their lunch hours, and late into the evening. The very brave will hit the doorbusters. Is your business ready for the onslaught?

By now you’ve already employed your seasonal hires and the inventory is waiting in the warehouse. But just in case you haven’t reviewed your to-do list lately, our Retail Practice Group has assembled a five-point checklist to help your operation run smoothly at year end, whether you’re a retailer, landlord or service provider. And it may just give you a head start on 2015.

Technology and Infrastructure

IBM predicts a record year for mobile shopping, in some cases replacing the rush to stores on Thanksgiving. If the trend continues, companies will need to invest in ongoing infrastructure upgrades to support the increased online traffic. This is a good time to check with your IT department to ensure that all necessary vendor agreements are in place and that you have sufficient capacity and data security measures. In addition, learn what measurement systems are in place so you can monitor the traffic and plan ahead for necessary upgrades.

Employing Seasonal Workers

The outlook is good for seasonal workers and not just in retail. Many companies seeking to close out the year will look to bolster their permanent staff with temporary resources. If your company has extra hands on deck this winter, check to be sure that your human resources policies and procedures for this category of employee are up-to-date. Also, with the elections just behind us, be sure you are prepared to comply with state minimum wage increases and any other changes to employment laws.

Supply Chain Management

As frazzled retail workers try to keep the warehouses full of the “it” toy every year, check on your supply chain. How tight is it? Be sure that all goods – whole or component parts – are legitimate. Ensure that all your business partners commit to genuine, top-notch service and supplies, just as you do.

Facilities

Although we know foot traffic continues to wane, there are still places shoppers will frequent during the season. Some outlets, such as quick-service restaurants and coffee shops, are using mobile applications to drive foot traffic. If the ground floor of your office tower or the corner of your mall has that all-vital java stop for tired shoppers, be sure that your IT infrastructure can handle the mobile technology. Once shoppers are in the store, provide a safe and secure customer experience by making sure your facilities team complies with all health and safety requirements. Busy season is no time to slack on these items.

Advertising

And finally, there’s nothing like a disgruntled customer during the holiday rush. It puts stress on the floor employees, burdens your customer support department, and damages your brand. So take a moment to make sure your advertising claims (not just advertisements, but fliers and direct mail too) are not only compliant but easy-to-understand and welcoming to the customer.

You may have addressed most if not all of our checklist items much earlier in the year. But it’s not too early to think about 2015 and make sure that the foundations you have in place now set you on an even better path for next year. Happy retailing!

ICSC 44th Annual US Shopping Center Law Conference Recap: Something for Everyone

Posted in Retail

Last week, the International Council of Shopping Centers hosted its 44th annual U.S. Shopping Center Law Conference in Orlando, Florida from October 22nd – 25th. It saw an incredible turnout of approximately 1,430 attendees and included over 75 sessions and 100 roundtables, along with several networking opportunities and receptions. The sessions covered a wide range of topics from financing to joint ventures, mixed use projects and risk management. While the retail industry remains in a state of change, topics focused on issues related to the impact of the internet on bricks and mortar retailing, redeveloping or de-malling, and creative re-use of anchor boxes. Saturday featured the leasing symposium, which included many hot topics in the retail leasing world.

ICSC tapped over 155 industry speakers, from in-house counsel to consultants in the industry to practitioners in private law firms. Many of the sessions offered opportunities for discussion with the panelists. In particular, the peer to peer sessions present a more in-depth look at a topic and are therefore attractive to the more experienced practitioner. Another favorite for most attendees are the breakfast roundtables-too bad they start so early!! This year the roundtables covered practical topics, such as issues in conforming leases, as well as more general topics on SNDAs and exclusives. Because the roundtable format is conducive to group discussion, it offers a great opportunity to meet and learn from other attendees’ experiences.

The conference also featured a number of sessions and networking opportunities for first time attendees and younger practitioners. While the conference is large, one of its primary goals is to present opportunities to meet others working in the industry. With most communication happening through email and other forms of social media, the opportunities to meet opposing counsel, co-counsel and other players in the industry can be few and far between. While all these methods of communication can bring deal efficiency, there is often nothing more helpful to a difficult issue than a personal relationship. The law conference makes those kinds of connections possible.

Overall, the mood at this year’s conference was very upbeat. Gone were the sessions on troubled deals, foreclosure and rent relief. Sessions were filled to capacity focusing on new construction, re-purposing centers and moving forward in this new economy. This year’s law conference was a huge success, and anyone involved in the business of shopping center leasing and development understands that this venue offers a one of a kind opportunity to stay abreast of the hot-button topics in the industry, as well as allowing a wonderful environment to facilitate new and existing relationships among those that attended.

Next year’s law conference will be October 28-31 in Phoenix, Arizona. Mark your calendar. It is sure to be another great event.

What’s The Buzz Over Drones?

Posted in Retail, Technology

Technology has rendered irrelevant the longstanding debate over whether good fences make good neighbors. Authorities in New Jersey recently arrested a man after he shot down a neighbor’s drone that was flying above his property and recording pictures of his home. The law frowns on self-help, however, especially when it involves the discharge of a firearm in a residential neighborhood.

Although the Garden State all too often finds itself at the forefront of legal and cultural controversies, the growing debate over Unmanned Aerial Vehicles (UAVs)—better known colloquially as “drones”—is a nationwide phenomenon. The New Jersey incident followed an odd effort by a Colorado town to authorize drone-hunting licenses with bounties; a Montana Congressional candidate’s campaign video featuring him shooting down a government drone; and a Utah firearms company’s promotional video featuring the exploits of the eponymous “Johnny Dronehunter” character. The growing popularity and sophistication of UAVs all but guarantees future collisions of property, criminal, and privacy law issues with the application of Second Amendment rights.

These unanswered legal questions parallel the legal ambiguities with commercial UAV use. The ability to operate a relatively inexpensive aerial vehicle mounted with powerful cameras and sensors has unlimited business applications. Drones have been deployed for filming marketing and advertising videos; for inspecting land, construction sites, buildings, and other infrastructure; for agricultural purposes; for news media coverage; and for short-range deliveries of medication. Mega-retailer Amazon.com made news last year with plans to develop a drone-delivery service, and a start-up in San Francisco is working on a taco drone-delivery service called the TacoCopter. Even Martha Stewart has joined the ranks of drone owners.

Despite the growing commercial interest in UAVs, the Federal Aviation Administration (FAA) maintains the position that commercial uses of UAVs are prohibited. At the moment, so-called “Civil Operators” are limited to using UAVs for research and experimental purposes. Mostly academic institutions and defense contractors have obtained permission from the FAA under this exemption, although some commercial businesses have sought permission as well. For example, ConocoPhillips received permission to fly UVAs for mammal surveys, for ice surveys, and to aid oil-spill response teams in Alaska. This limitation to research and experimental purposes greatly limits the permitted uses of UAVs and limits the growth of innovative businesses that could otherwise incorporate UVA capabilities into their products and services.

All is not lost, but merely delayed. The FAA is working on proposed regulations for the commercial use of UAVs. These regulations were required by September 2015 under the FAA Modernization and Reform Act of 2012, but reports indicate that the FAA will miss that deadline. In the meantime, the FAA has issued cease-and-desist letters to businesses using UAVs. The FAA’s limited personnel and resources means that many businesses have decided to take the risk of using UAVs for commercial applications despite the uncertain legality.

There is an interesting case pending that may provide grounds for immediate commercial use. The FAA fined a well-known commercial UAV operator for recording aerial footage of the University of Virginia for an advertising campaign and the operator decided to fight the fine. An administrative law judge agreed with the operator’s arguments and dismissed the FAA’s enforcement action. The judge found that the UAV in question did not qualify as an “aircraft” under FAA regulations. The judge also found that the FAA did not have regulatory authority to prohibit commercial UAV use because the FAA had not followed the required rulemaking process. See Administrator v. Pirker, FAA Case No. 2012-EA-210009, NTSB Docket No. CP-217 (2013). The FAA has appealed this decision to the National Transportation Safety Board (NTSB). A decision from the NTSB in the Pirker case may provide interim permission to operate UAVs until the FAA issues formal regulations.

It seems only a matter of time until companies are permitted to make commercial use of the exciting capabilities that UAVs offer. For the time being, however, retailers and other businesses are cautioned against using UAVs for commercial applications until the FAA issues commercial-use regulations.

Who Is Alice and Why Is She Invalidating Patents?

Posted in Intellectual Property, Retail, Technology

On June 19, 2014, the Supreme Court issued its decision in Alice Corporation Pty. Ltd. v. CLS Bank International, clarifying what it means to be patentable subject matter. With one stroke of the pen, the Supreme Court effectively invalidated thousands of patents that claim a known business method implemented by a computer. The effect of this ruling is already having a significant impact on online businesses. In the retail industry in particular, the affected patents can be found everywhere—from software running an online purchasing platform, to tracking inventory and shipping, to enabling detailed virtual product viewings, to online shopping cart functionality. Moreover, the retail industry is a target for Patent Assertion Entities (PAEs), also known as “Patent Trolls,” which own many of the patents Alice may have invalidated. In the few months since the Supreme Court’s Alice decision, courts have been invalidating patents and the number of patent cases filed compared to this time last year have decreased.

Alice Takes Aim at “Abstract Ideas”

In Alice, the Supreme Court held that a patent claiming a previously known method implemented by a computer, without more, is merely an “abstract idea” not entitled to patent protection under 35 U.S.C. § 101.

Alice Corp., a PAE, sued CLS Bank, which developed and utilized a computer system Alice Corp. claimed infringed its patents claiming a method of investment trading utilizing an intermediary to mitigate risk. The Supreme Court held that “the claims at issue amount to ‘nothing significantly more’ than an instruction to apply the abstract idea of intermediated settlement using some unspecified, generic computer,” noting that, “[u]nder our precedents, that is not enough to transform an abstract idea into a patent-eligible invention.” The Supreme Court added that “[s]imply appending conventional steps, specified at a high level of generality, to a method already ‘well known in the art’ is not enough to supply the ‘inventive concept’ needed to make this transformation.”

The Impact of Alice

Less than a week after the Supreme Court’s decision, the USPTO issued patent examination guidelines instructing patent examiners how to evaluate computer-implemented method patents in light of Alice.

Less than a month after the Alice decision, the U.S. Court of Appeals for the Federal Circuit (CAFC)—the federal court that hears appeals of all patent cases—began invalidating patents in light of Alice. On July 11, 2014, the CAFC affirmed a California federal court’s decision to invalidate digital camera patents asserted by a subsidiary of Acacia (the most litigious PAE in 2013) against several retailers, noting that “[a] process that employs mathematical algorithms to manipulate existing information to generate additional information is not patent eligible.” On August 26, 2014, the CAFC affirmed a Michigan federal court’s decision invalidating patents claiming computer management of bingo games, noting a “straight-forward application of the Supreme Court’s recent holding in Alice” mandated invalidating the patents. One week later, the CAFC affirmed a Delaware federal court’s decision to invalidate patents claiming “methods and machine-readable media encoded to perform steps for guaranteeing a party’s performance of its online transaction,” noting “[t]hat a computer receives and sends the information over a network—with no further specification—is not even arguably inventive.”

In a striking example of Alice’s impact, Lumen View Technology (a heavily litigious PAE), voluntarily dismissed an appeal on September 12, 2014 from a judgment invalidating its patent claiming a “system and method for facilitating bilateral and multilateral decision making,” noting that Alice “has provided greater clarity on patentability.” Additionally, reports indicate that the number of new patent cases filed in September 2014 dropped 40% from September last year.

Audit After Alice

The retail industry utilizes and often owns computer-implemented method patents. While audits of owned and licensed intellectual property portfolios should be a routine part of any retail business, now is a good time to conduct such an audit. Any patents being licensed by retail businesses, especially online business method patents, should be reviewed to determine whether continuing to license such technology remains a worthwhile investment in light of Alice. Moreover, any computer-implemented method patents that are currently or are being considered as part of a lawsuit or settlement should be re-evaluated in light of Alice.