Jacob Schindler

Longhorn IP on Tuesday announced its first patent assertion in China, a Beijing IP Court lawsuit targeting Taiwan’s HTC. The case marks the second notable NPE campaign to be launched in China in the space of a year following WiLAN’s November 2016 assertion against Sony in Nanjing. But a judge from that Chinese city told local delegates at this week's China Patent Annual Conference that now is not the time to sound alarm bells.

The Longhorn case involves its L2 Mobile Technologies subsidiary. The company didn’t specify the patents involved in the China action (I understand there are two), but the only public patent assignment to L2 involves a portfolio including 12 US rights previously owned by a Taiwanese entity called Innovative Sonic, a company which has acted as a monetisation entity for Asus in the past, IAM understands. It filed an infringement action of its own against Research in Motion back in 2011, a case that was settled according to Lex Machina records. Interestingly, one of the patents from that suit, US Patent 6,925,183 (‘Preventing shortened lifetimes of security keys in a wireless communications security system’) was part of the transfer to Longhorn. So it seems as if we have a US NPE suing a Taiwanese company in China with another Taiwanese company’s patents. In June, the NPE confirmed to IAM that it had acquired patents from Taiwan’s Asus, but did not elaborate on the deal’s structure.

NPE issues have received plenty of attention at the China Patent Annual Conference in Beijing, and with good reason. One IP manager from a Chinese device business told me that the company has been receiving more and more demand letters based on Chinese patents from foreign NPEs in recent months. What’s more, he is not optimistic that his company will be insulated from China litigation risk by its nationality. It’s only a matter of time, he thinks, before a foreign NPE sues a Chinese company in China.

But Yao Bingbing, the head of the Third Civil Court of Nanjing Intermediate People's Court, told Chinese companies in a panel focused on NPE issues that they should not be too concerned about such activity in China yet. Yao acknowledged that there are numerous factors that make the country an attractive venue for NPEs, notably the ability to get an injunction that covers exports of infringing products; but a couple of isolated cases, he reminded attendees, do not a trend make: “The statistics reflect the feeling that we don’t need to worry right now… NPEs are just trying to gauge China’s attitude.”

In terms of his own viewpoint, Yao elaborated on what he sees as the positive and negative aspects of the business model. He described NPEs as “favourable for realising the value of patented technology, which is favourable for promoting and speeding up technological progress”. At the same time, though, he said some NPEs create harm to the innovation environment, competition and the public interest.

Yao identified relatively low damages as a key factor that should keep NPE activity in China down. But this could change, he noted, as Chinese courts begin handing out bigger awards. Observing that NPEs typically receive larger awards than other plaintiffs in US cases, he suggested that greater NPE activity might even play a role in nudging damages up. Evidence collection will be crucial if licensing entities do want to earn greater sums from litigation, Yao said: “If you have enough solid evidence, the court will support you."

Increased damages, promoting patent utilisation and creating a strong incentive mechanism around innovation and patents are all recommendations Yao made that will be welcome to patent owners of all types. The dilemma, as Yao put it, is doing these things without creating “increased social costs due to the intervention of middlemen in the patent system”. This relatively balanced and public interest-driven approach pretty much lines up with what many NPE executives say they expect from the country. And it is clear that an increasing number of them see this as an environment they can make money in.