Asia’s elite navigate the new normal

Top in-house IP managers are largely carrying on with business as usual, minus the packed travel schedules. While some face increasing budget pressures, others spy big opportunities ahead

Since the beginning of the year, East Asia has provided the rest of the world with a preview of what to expect next in the covid-19 pandemic. The virus’s rapid initial spread was followed by lengthy shutdowns, then gradual reopening processes, which in some places have been set back by a frustrating re-emergence of the disease.

But although most of Asia’s major economies have a good handle on the outbreak at the time of writing, allowing office-based professionals such as IP managers to resume a mostly normal daily routine, uncertainty still reigns in the broader business environment. For most IP owners, that means sticking with existing long-term strategies while keeping an eye out for new threats or opportunities that may emerge.

The health crisis has added complications, but it certainly has not stopped major IP business from taking place. Top Asian corporates launched new competitor lawsuits in the United States, China and even Japan during the first half of 2020. We have also seen some highly consequential licensing agreements inked remotely, along with plenty of sale transactions in which portfolios are on the move.

For almost every company, the major long-term questions are how the economic uncertainty created by the virus will affect their main operating business, and what knock-on effects that will have on the IP function. Consequences will vary drastically based on country of origin and industry. A Japanese automaker, an Indian pharmaceutical company and a Chinese social media firm will all be in very different situations. What they have in common is a lack of certainty about what their environment will look like in a few years’ time. That is a particular challenge for a function such as corporate intellectual property, which is meant to be a forward-looking part of the business.

Work habits die hard

The day-to-day changes wrought by lockdowns have varied widely by locality and company. The headquarters of LG Chem in Seoul have remained largely operational throughout the pandemic, despite South Korea being one of the first countries outside China to deal with a major outbreak. Vice president and head of the IP centre Ryan Min says that he has not had to work from home at all so far, and that the company’s R&D units have largely continued work in their labs.

Ryan Min, Vice president and head of IP centre, LG Chem

Other teams have embraced the shift to remote working. Tatsuya Yamamoto, senior manager for IP licensing and legal at Japan’s Maxell, spent April through to June working from home, but now heads to his Tokyo office about once a week. “I think it can be a regular working style, at least for my department,” he notes, adding that team meetings have been less likely to extend past an hour when conducted remotely.

Tatsuya Yamamoto, Senior manager IP licensing and legal, Maxell

Biocon’s global head of IP rights, Arshad Jamil, has been working from his home in Bangalore as well. However, he admits that it is sometimes a challenge, because communication among the team lacks the spark that comes from having everyone in one room. “Intellectual property involves a lot of arguments,” he remarks. “That’s how we come to some of our conclusions when preparing, for example, for an important invalidation.”

Arshad Jamil, Global head of IP rights, Biocon

In other parts of the region, professionals are returning to company headquarters, including in China, where the initial nationwide lockdown provided a blueprint for the drastic measures needed to control the virus. While some Silicon Valley tech companies, most notably Facebook, are using the opportunity to consider permanently shifting the deployment of their workforce, the idea has gained little currency in this part of the world. Instead, most companies are eager to revert to the ‘old normal’ of office-based work as soon as possible, and appear to be doing so successfully.

That is, of course, except for business travel. Of particular concern is the loss of access to the United States. For many Asian companies, US district courts and the International Trade Commission are the sites of their most business-critical IP litigation disputes. Min, who has been overseeing a crucial Section 337 case, says that the adjustment to steering the matter via telephone and videoconferencing was difficult at first: “Most people are not used to working in that way.”

Yamamoto, who also has multiple US patent cases on his docket, agrees that the biggest impact for his team has been the inability to attend court hearings. Maxell can rely on its outside counsel, Yamamoto notes, but this is not ideal: “We can contribute many things. We should be there.” Nevertheless, the Japanese company has doubled down on a litigation campaign against Apple, filing a new suit in July.

Biocon’s Jamil, whose team prevailed in a key US litigation against originator Sanofi in March, warns that in future cases, both trial preparation and settlement prospects could suffer as a result of the difficulty of holding face-to-face meetings in cross-border disputes. “In the mock trials we do, lots of ideas are generated spontaneously there,” he says. “If I’m attending trial preparation virtually, it might not be quite as effective.”

Chinese companies have also faced some of the same issues in their domestic matters. Beijing, which is home to the patent office, the busiest IP court and the national IP appeals court, is the most critical site for domestic IP disputes. But it has also been a hotspot for subsequent small-scale recurrences of the virus, prompting additional clampdowns that have complicated domestic travel. For non-Beijing residents, even gaining access to the private buildings where external counsel have offices can be difficult.

But elsewhere in the country, many district-level courts are open for business. And in Beijing, hearings are being scheduled as well. Yixiong Zou, chief IP counsel for appliance maker Midea, says that while key courts experimented with remote hearings during the closures, “I think people treated it as an emergency method to handle certain cases, but I don’t think it is going to be a normal way to conduct cases”.

Yixiong Zou, Chief IP counsel, Midea

R&D impact

Inconveniences aside, in-house counsel agree that day-to-day patent work is pretty well suited to remote working. But that is not necessarily true of the corporate R&D that IP executives are charged with protecting. In reopening its facilities after a period of closure, Canon attempted to minimise disruption to its technical teams. “Company-wide, we prioritised R&D to give them space so that core engineers could come to work much quicker,” reports Canon executive Kenichi Nagasawa.

Biocon, too, has asked its R&D function to operate at full throttle as it races to develop both biosimilars and new molecules. “We have planned for them to return in a phased manner to facilities that have been divided into different zones,” states Jamil.

In companies more geared toward electronics hardware or industrial products, research output – and perhaps patent generation – might be expected to suffer from extended lockdowns. We will have a better idea of the extent of this once sufficient time has passed, but in more software-intensive fields, some say the opposite is true.

“During the lockdown we saw more patent disclosures,” says Benjamin Bai, vice president at Ant Group, the company behind Alipay. “Working from home, the R&D folks had more time to think about inventions and put them on paper,” he explains, since coding and software lend themselves well to remote work.

Benjamin Bai, Vice president, Ant Group

In China, where Ant Group is based, the government is already referring to a ‘v-shaped recovery’ for patent generation. The number of new applications for invention patents handled by the China National IP Administration (CNIPA) cratered in February, at the height of the country’s lockdown. But from March onwards, the monthly totals have picked up some of that slack, to the point where the country is now on pace to receive more patent applications in 2020 than in 2019.

Zou is not surprised by the resilience shown so far by Chinese patent filing numbers: “The overall environment here regarding patent protection is still growing very strong, and there are still very strong incentives from the government side.” Those incentives – which are not necessarily money-based but increasingly take the form of support agencies that help SMEs with filings – could enable smaller companies to keep building their patent presence despite economic headwinds. For China’s major tech champions, patents are unlikely to come in for cuts, except as part of pre-existing initiatives to increase the quality of filings.

By way of comparison, Japan has seen application numbers drop every month this year compared with 2019 (see Figure 2). But the decline was steepest in April – the most recent month for which statistics are available. This could mean that we are only starting to see the effects of the economic downturn as companies potentially reconsider some of their patent filing strategies.

Figure 1.CNIPA patent applications

Figure 2. JPO patent applications

Doing more with less… or more with more

In a survey of more than 100 corporate patent executives conducted by IAM in May and June, 37% said that they expect to face budget cuts amid the difficult economic climate, while 34% thought that their resources would stay about the same.

Even in less turbulent times, budget is never far from the minds of most in-house counsel. “When you are facing a crisis, or a lot of uncertainty, companies will try to maintain a conservative policy,” Zou says, “which could include reduced spending on every aspect of the business and strict hiring policies.”

For some of Asia’s largest patent owners, especially conglomerates in maturing industries with massive patent portfolios to maintain, this kind of budget pressure is not a new feature of a post-covid-19 world; it has been a fact of life for years. For companies in that position, the portfolio is the greatest component of IP costs – and the first place to look for savings.

“We are being asked to do more with less,” Yamamoto muses. Maxell is a major player in vehicle batteries and the automotive sector is under significant pressure. Fewer inventions coming through the pipeline, with many inventors away from their labs, may provide a starting point, but the company will also be taking a hard look at its jurisdictional choices. “We regularly file patents in Japan, the United States and China,” Yamamoto says, “but for the United States and China we will postpone the filing as long as possible.”

That strategy was already becoming popular with some companies before the pandemic struck. The USPTO’s deferred examination programme, under which applicants can defer many of the costs associated with prosecution for up to three years, exploded in popularity between 2017 and 2019. It would not be a surprise to see another record number this year.

Min agrees that IP departments are under pressure to find ways to cut costs. LG Chem is also exposed to the auto business as a top supplier of batteries for electric vehicles. The company instituted a hiring freeze for the first half of the year. While tough choices still need to be made, where IP filing is concerned, the company is seeking to avoid cuts that could deprive it of valuable assets down the line. “We need to deal with a strict budget situation, but still we do not hesitate to file patents in the United States,” Min says. “The United States would be the last venue where we would reduce.”

Reducing the size of patent families through fewer overseas counterparts does not necessarily mean reducing the number of inventions patented. Min notes that most of LG Chem’s patents stem from a South Korean application, and the low cost of filing in the company’s home country is such that it is not a place where LG looks to cut back. Bai makes a similar point about China: “We’re lucky that China is our home country. It’s relatively inexpensive to file and prepare patents in China, so we file lots of them. We’re more judicious about filing in the United States and overseas.”

According to Zou, China’s policy-level push for greater patent quality should give some companies in the region an opportunity to do more with less by filing fewer overall applications. But getting real quality, he warns, may well entail spending more on each individual filing. Quality, Zou says, “is not 100% a money thing, but money is a huge part of it”. Applicants need to engage the services of high-quality patent agents; for smaller firms, the challenge is ensuring a sustainable volume of work for them.

Bigger concerns such as Midea, which filed nearly 11,000 applications last year, can also find savings by adjusting their relationships with outside counsel. The company has started to directly instruct patent attorneys in the United States and some European countries, and plans to explore doing so in other jurisdictions as well. This will become an increasingly viable strategy as more overseas firms hire Chinese-speaking attorneys.

TSMC chief IP counsel Billie Chen says that clearing her team’s normally busy travel schedule has freed up significant bandwidth for individuals to take on more work in tasks that are normally outsourced, such as legal and technical research. “We don’t have rigid budget issues, but that does provide a kind of natural cost saving.”

Billie Chen, Chief IP counsel, TSMC

Indeed, TSMC has posted encouraging results, and its shows no signs of slowing down research funding. “Our portfolio plans are based on R&D investment,” Chen explains. “This year we will file more patents than last year because our R&D spending is also increasing year by year.” And the company is sticking to its jurisdiction-based filing strategy: “Our filing focus is based on our manufacturing sites and also the major market countries.”

For a handful of already fast-growing companies in internet and e-commerce services, the lockdowns caused by the pandemic have been an additional boon. Ant Group, which runs one of China’s biggest e-payment platforms, is in that position. “The amount of work is going up faster than I can hire,” Bai admits, adding that the company is also investing in technology solutions to support its IP activities. Doing more with less is not an imperative that the outfit currently faces. “What my CEO constantly asks me is whether I am doing the right thing – creating customer value. As long as those are the goals, we don’t have a budgetary issue with it.”

For Ant Group, one of the right things for now is to continue to build its cutting-edge position in the blockchain-related patent space. “We are leading the world in terms of patent filings and grants in blockchain,” Bai points out. “This is one of the focal areas for business growth, and we file in probably a broader scope of jurisdictions than any other company in the world, not just in China.”

Watching risks, taking opportunities

For many of Asia’s top tech companies, NPE litigation in the United States remains a key risk area. “We spend the majority of our daily lives dealing with NPEs,” Chen notes. Although NPE litigation levels have fallen somewhat in recent years, some of the changes favourable to operating companies (eg, the Oil States decision) do not apply.

As such, the spike in US litigation during the second quarter of 2020 and the ascendance of the US District Court for the Western District of Texas as the country’s top venue are developments that corporates are watching closely, even if they remain unsure as to whether a new economic crisis will light a fire under the monetisation-driven part of the patent market.

“I see elevated risks in general because we’re facing a crisis, and people will use whatever ways and means they can find to try to maintain their business,” observes Zou. That is not unique to patents and licensing, but something that will affect contracts and other business disputes as well. “We do see a little bit of an uptick overall in the use of all kinds of legal means to protect someone’s interest.”

The flip side is that companies already tasked with monetising their assets could see that pressure increase further. A similar situation has led companies based in Japan, South Korea and Taiwan with large portfolios and struggling businesses to institute their own licensing programmes or sell portfolios to firms that can exploit their value.

Maxell is one such company that has built an active in-house out-licensing programme. The mandate to make money is not going away, Yamamoto says, but on the other hand, remote negotiation has proven easier to schedule and coordinate than face-to-face meetings. “It is easier for us to find time to talk over the phone,” he shares.

One of the most significant cross-border licence deals so far this year has been the one that ended the litigation dispute between wireless licensor InterDigital and China’s Huawei. Shortly after the agreement was signed in May, InterDigital CEO Bill Merritt cited both the travel situation and the economic downturn as key factors. “The pace of negotiations that we’re having is as good as it’s ever been,” Merritt told IAM, adding that a decline in handset sales volumes reduced the gap between the two parties’ positions.

Chen brings up another factor that could weigh in licensors’ favour: “There’s no excuse for not meeting now.” Companies have “more time for internal study and research”, which can help them make their best case. Remote negotiations also require more thought about what information to share with the other side, since it is not always possible to present materials without providing them in full to counterparts.

Another hypothesis, yet to be tested, is that the downturn could fuel more transactions as large patent holders look to cut costs by selling off swathes of their portfolios. Although we are yet to see it, there seems to be demand for value-priced patents. Chen says that monetisation through sales is not TSMC’s priority, but it has received overtures from both operating companies and NPEs recently.

Life sciences is another area in which an obvious upside has been created for IP deal making. Biocon recently received approval for its psoriasis treatment Itolizumab to be used for the emergency treatment of covid-19 in India. Although it has already out-licensed the molecule to a US firm, Jamil says “companies across the world are trying to seek a licence from us to run trials in their countries”, creating plenty of work for the IP team.

However, just about every IP owner maintains that it is sticking to long-held plans with the support of management. As Min puts it: “Covid-19 is a short-term challenge to our long-term strategy.” The new normal, for now, is more about process than substance.

Action plan

Asia’s in-house IP managers have seen no shortage of work amid shutdowns and gradual reopenings. Most are sticking to their long-term strategies, but some are pursuing smarter ways of executing them.

For most firms, office life has resumed, with the biggest headache being an inability to travel overseas for key court appearances.
Priority has been given to getting R&D functions back to work and inventions flowing. China is on pace for patent growth in 2020, while Japan is heading for a decline.
Mature businesses with large portfolios already faced budget pressure, which is now intensified; for some faster-growing high-tech and internet firms, business and budgets are booming.
Asian operating companies are wary about a downturn producing greater NPE risk, but some are also seeing more opportunity to do deals.