Major player leaves IV to take advantage of maturing Asian IP market 08 Apr 13
Don Merino, senior vice president of licensing at Intellectual Ventures and one of its major deal-makers, is to move to Transpacific IP, where he will run his own advisory and consulting business, in Taipei.
Merino has been working regularly in Asia since joining IV in 2004. Initially splitting his time with the US, he slowly began staying longer. “As you start to spend the weekends here, you see a different world opening up to you,” he told me in an exclusive interview. “Your relationships with general counsels and senior business management get deeper. Face time, continuity and trust are totally underestimated here. People are willing to give you more time and more trust if you are willing to learn the language, stake your claim and your future in the region.”
Merino’s new firm is to be known as Transpacific Advisors and has been created to be “an Asian IP-based investment banking business”, focusing on advising clients on short-term and long-term IP strategies, as well as buying, selling, brokering and licensing patents, primarily in the consumer electronics space. Transpacific IP is based in Singapore, with a team of over 100 and seven offices in the region.
Backed up by Transpacific’s due diligence and technical teams, Merino believes he has the facility to “go off and do the whole transaction”. He believes that there is a gap in the Asian marketplace for brokers that can actually handle such a level of transactional detail. “People that are out there right now don’t have the platform to do ownership and technical due diligence work that we have at Transpacific. So the idea of partnering is that we are going to leverage off those capabilities,” he says.
In addition to traditional and developing consumer electronics, Merino believes a growing area of interest could be the life sciences sector and how it interacts with the area he knows best. Medical equipment tends to be large, he says, and the opportunity lies in how to get that technology onto smartphones and/or tablets: “The question is: could there be a tie-in between the expertise that Taiwanese companies have in designing computer level products and other international innovators in the medical equipment diagnostic area? Can they marry them together and get a more efficient design?” Much of this diagnostic equipment innovation is currently happening in Hong Kong and Singapore, centres that have vibrant medical communities with a strong entrepreneurial spirit.
As for IV, Merino states that the firm is a “great business model and hugely important to the industry”; however, there are some itches that an organisation operating on its scale just can’t scratch. “My feeling is – and this is what IV never was – is that companies need dedicated personal attention and advice,” says Merino. The bigger the organisation, the larger the pool of investors, something that could lead to increased conflicts in the marketplace. A smaller set-up can be more nimble and have the ability to get closer to the client. However there is a trade-off: primarily that of scale. It’s unlikely that Merino will pull in the massive amount of funding that was available at IV - “no one is going to give me $5 billion,” he says - and so the sandbox has been downsized.
IV has been in Asia since 2007 and although it says that it has made good progress, things have not always been smooth running in the region. Commenting on Merino’s departure, IV’s Director of International Marketing, Nick Gibson states that he is leaving on very friendly terms and that he will remain a consultant to the firm: “He’s an expert on Asia so we look forward to continuing to work with him on relevant deals. There isn’t a hard and fast plan to replace him just yet.” Gibson further points out that it’s another example of senior executives leaving IV to pursue other opportunities that IV isn’t structured to handle. “This was the case with the executives that left for RPX,” he says. “Don could be pursuing many things that weren’t the best fit for IV but hopefully are opportunities that we can collaborate on in the future.”
Asked about the Asian market in general, Merino responds by outlining a humped intellectual property curve for the world. On the left side he benchmarks strength of products, while the right side measures patent savviness. He places Europe over the hump. “All they have left are IP portfolios. They have a ton of patent savviness but they don’t have a lot of robust product offerings,” he explains. On the other hand, the US is at the top of the hump. “It’s a mix,” Merino says. “You have companies that have robust sales as well as those with strong patent strategies.” Japan is inching up the curve towards the top, with Korea right behind. “In a year or two, I would place Japan and Korea at the same spot, but what’s interesting is that Japan may go over the hump very quickly and bypass the US. From a patent standpoint, they are playing the game a lot more like European companies, who may not have the product, but have the patent.” Behind Japan and Korea, come Taiwan and, finally, China.
Although small in scale, Taiwan could be said to punch above its weight. A hotbed of intellectual property work, especially increasingly sophisticated patent acquisitions and litigation, some of the world’s largest semiconductor, consumer electronic and computer manufacturers are based on the island. In 2012, the Taiwan Patent Office received 85,073 patent applications, an increase of 2.5%. As the market has grown in sophistication, so has the desire for stronger IP management. “There’s a growing need here as more and more people are looking at licensing deals and are having discussions with Taiwanese companies,” Merino says.
Every company has defensive issues, but in Asia these are less focused on NPEs and much more on larger operating concerns. “Nobody knows exactly what HTC paid Apple in royalties and settlement, but I will bet that the one year’s worth of payment that it makes to them is more than HTC will spend on NPEs in the next 10 years. So it’s a 10 to one problem,” Merino says. He will be focusing on building IP strategies for Taiwanese companies by obtaining both US and Asian-generated patents. “The US is still a third, or even a half of the IP market,” Merino states, “so you have a large number of potential users and relatively predictable patent laws. Admittedly there is uncertainty, but the market for patents is mostly a US market as it’s the single largest one.”
In 2011 Taiwan launched a state-funded IP bank to assist Taiwanese manufacturers in the acquisition of patent portfolios as well as the development of IP strategies. The impact has been shaky to date, however, with Merino citing a lack of funds as a major problem. “I am pessimistic about state sponsored entities being successful,” he says. “They don’t have the right set of incentives. You want to create a situation where everybody has something to gain, and the ultimate goal is something measurable, like making money. It will be interesting to see if any of these big state sponsored entities will move heavily in the marketplace or not.”
Companies such as Apple and Microsoft are noted for spending large amounts of time in Taiwan, licensing their portfolios. Now Korean and Japanese companies are also arriving, a move that many Taiwanese companies – and now Merino – are going to be keeping a close eye on.
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