Black swans, deals on the rise, an Oil States straw poll, and a whole lot of China: Day One of IPBC Global 2017

The first full day has come to an end at IPBC Global 2017 in Ottawa, and the Molson and Labatt are beginning to flow at the Shaw Centre as delegates unwind after an intensive schedule of sessions, networking and meetings. Bringing you the highlights of what took place in the plenaries and breakouts, as well as all the gossip from the conference fringes, are IAM’s North America editor Richard Lloyd (RL), Asia editor Jacob Schindler (JS) and senior reporter Sara-Jayne Clover (SJC).

Broker bounceback – Although it’s a tough time to be an intermediary in the patent business, for brokers there are some signs that the market might be improving. Over a glass of wine at the opening reception, one respected market player revealed that after a tough 2016, activity had picked up so far this year. That is being driven primarily by operating companies as they look for freedom to operate in new markets and by large, rapidly growing start-ups who need to quickly build a patent portfolio. A lot of that interest, the broker added, is emanating from Asia. It’s not exactly the heady days of 2011 and the Rockstar auction but it’s at least one bright spot in what has been a deal-making desert. (RL)

Way to go – Laura Quatela has been a China-watcher for a good while, having spent time at Beijing’s Peking University as an undergraduate and later completing a year of law school in Shanghai. Her relatively new role as chief legal officer at Lenovo gives her a front row seat to observe and react to the major shift taking place in country’s patent environment – a maturation underscored by the fact that Hong Kong-based Lenovo tapped an IP executive of Quatela’s calibre to head its legal function. In her keynote address this morning, Quatela compared the prevalent IP strategy in China to one that used to be common in Japanese enterprises – quantity over quality “I see a lot of the same old behaviour: lots of patents stacked up on a table, and IP executives saying we’ll find something somewhere, but maybe with less conviction than the rest of us showed back in the day,” she observed. But Quatela is convinced that a new mode of IP value creation will emerge soon enough, combining lessons learned in the US and Europe with China’s own unique experience. The major theme of Quatela’s presentation was IP in the boardroom, and when it comes to her own experience in Lenovo, she said that she is working to increase executives’ insihgts into the IP environment. “The board at Lenovo doesn’t know what an inter partes review is – we’re building that understanding,” she said. As a matter of policy, her consulting firm Quatela Lynch McCurdy insists on reporting directly to the CEOs of its clients, but Quatela noted that that’s not the arrangement she has as CLO of Lenovo. IP functions in China have a ways to go in terms of their prominence in the corporate hierarchy, but few executives are better positioned than Quatela to help that slowly change.  (JS)

The stuff of nightmares – A fear that individual inventors will shy away from filing patents due to a loss of faith in the patent system is what keeps Philips CIPO Brian Hinman up at night, he revealed in the morning plenary ‘Where IP meets Innovation’.  Focus, he argued, needs to be placed on improving the quality of the patents being granted in order to assure innovators that seeking protection is worthwhile. The sentiment was echoed by Philip Johnson, who insisted that giving reliable advice on the validity and enforceability of any given patent is increasingly difficult, summing up: "It’s a risky thing to invest in transformational change and it’s made even riskier if patent protection is uncertain." (SJC)

Better than nothing – While participants in the afternoon boot camp on patent sales agreed on most practical tips for companies looking to divest IP assets, the question of metrics provoked some disagreement. Russell Binns, the CEO of Allied Security Trust, is not a fan of the ‘average price per patent’ benchmark; “everyone wants to know average price per patent, but it’s a terrible metric”, he lamented. An audience member agreed, arguing that the very concept of average price per patent had contributed to erasing a huge amount of IP value over the years as it has been misused to drive the sums involved in deals down. Although moderator Kent Richardson conceded that the data point is prone to misinterpretation and is by no means a perfect tool, he maintained that it is better than no information at all, a state of affairs that characterised the patent transactions market for many years. The conclusion seems to be ‘use with caution’ – if you can get the average price per family or more granular data like average price in a single, specific technology area, so much the better. (JS)

Come together – A growing feature of the patent market in recent years has been the emphasis that many companies are putting on collaborative deals in which a licence or transfer of assets might be part of a transaction focused on a broader business relationship. The multi-faceted deal announced by Microsoft and Xiaomi last summer is perhaps the leading example, but it’s noticeable how more and more patent owners are placing less emphasis on deals that simply revolve around extracting royalties from potential licensees. In one part of Laura Quatela’s opening speech this morning she discussed how patents should be used in a different manner.  “It’s clear to me that using patented assets to exclude, to shut down, to behave singularly rather than collaboratively is an increasingly risky enterprise,” she said. She likened that risk to Nassim Nicolas Taleb’s concept of a ‘black swan event’ and cited her experiences at Kodak - where she was head of IP and then company president - as an example. A growing sense of collaboration was something that was also addressed in the panel after Quatela’s keynote. Phil Johnson, formerly of Johnson & Johnson and an inductee this year into the IP Hall of Fame, discussed how companies like J&J are increasingly tapping into a much bigger ecosystem including start-ups to drive their innovation rather than simply keeping everything in-house. Incremental improvements to a product might still be kept within a company but transformational change is increasingly driven by a more collaborative approach. That was echoed by Marvell Semiconductor’s Kelvin Vivian who said: “We have new management open to seeing whether there are IP solutions that can be purchased rather than developed in-house.” Together, not alone, seems to be spreading as a concept among leaders in patent-owning businesses - other kinds of leaders might usefully take note. (RL)

Age = flexibility – Having the luxury of pruning your IP portfolio is something that only comes when it has matured, noted director of IP at Marvell Semiconductor Kelvin Vivian in his morning plenary.  When a collection is in its infancy, the opportunity for selectivity is not there, he stated.  Rather, it is essential to have a sufficient number of patents to ensure that your competitors respect you and know you mean business.  Quality is something that comes with time; in the early days, quantity is king. (SJC) 

Guanxi guidance – When it comes to closing a transaction in China, there is no instant pudding, said Don Merino, speaking in the Meeting the China challenge afternoon breakout. As veteran operator in the country's market, Merino spoke with authority when he stated that you need to have a plan, do your homework and be consistent in order to enjoy success there. He said there are two key things overlooked by many would-be dealmakers – transparency and guanxi. That latter means personal connections. “If you think you can fly in once a quarter and do a deal, you are wrong,” he warned. Rights owners should expect to work for at least a year before signing up their first licensee: “It means being in the guy or gal’s office every month for 10 months and letting them know you’re persistent, trustworthy and operating in good faith.” Conversant’s Boris Teksler said negotiating with industry associations and litigation are both viable paths to a licence deal with a Chinese company, but added another that he calls “shmuck insurance” – a Most Favoured Nation style agreement that gives the Chinese party assurance that they’re getting the best possible deal. (JS)

Going nowhere – On my table at the lunch on Sunday to welcome the new inductees into the IP Hall of Fame, we did a quick straw poll on the likely outcome of the upcoming US Supreme Court case in Oil States Energy Services, which challenges the constitutionality of inter-partes reviews (IPR). Although some were too catious to opine, a clear majority maintained that the nine justices weren’t about to undo a process that has become such a prominent feature of the US market in the last five years. That seems to be the prevailing view among most delegates here in Ottawa, although many have expressed surprise that the court granted cert at all. One view being espoused is that SCOTUS, having refused to hear several cases addressing the constitutional question, is keen to offer patent stakeholders a clear answer on the matter. In a market where there is still much uncertainty, a definitive opinion would be welcomed by most. In many of its previous patent-related decisions the court has actually ended up muddying the water; but as Oil States is essentially a constititional issue, rather than a technical one, the justices may feel that they are on more comfortable ground and able to be unequivocal in their judgment. (RL) 

Transparent truth -  IP professionals often profess a wish that patents be treated more like physical property. One step in that direction, suggested an audience member during the afternoon patent sales bootcamp, would be requiring the recordal of any patent assignment, and possibly the disclosure of pricing information as part of that process – just as real estate transactions are a matter of public record in many places. The panellists, led by moderator Kent Richardson, largely agreed that more transparency is a good thing, and most would be happy with a requirement to disclose patent assignments. Requiring price information, however, could produce information that doesn’t tell the whole story, cautioned Ray Strimaitis (formerly of Yahoo), given that most transactions contain a few key valuable patents combined with others that are essentially free. You’re not going to hear any complaints from IP journalists about a proposal for more transparency in the patent deals market, but the powerful tech companies that hold sway with the USPTO may be a different matter. (JS)    

SEP danger –Sisvel CEO Mattia Fogliacco raised strong concerns in this afternoon’s ‘Standard futures’ session over the impact that incremental changes to the standards system could have on innovation. “We are wrecking standards-based innovation,” he lamented, and argued that unless innovators are offered sufficient rewards from licensees, everyone will lose out. People are failing to declare SEPs or opting out of the SEP system altogether for fear that they won’t get fairly remunerated, warned Fogliacco.  He pointed to statistics which attribute almost 40% of UK productivity growth to standards, as well as sharing with the audience that the contribution of standards to economic growth in Germany between 2002 and 2006 was more than €16 billion. “Why,” he asked, “are we trying to take a model that works and ruin it?”. (SJC)

Under pressure – Corporate IP managers continue to face great pressure to generate return on massive investments made in patent assets, delegates heard at several sessions today. It comes from the board during times of financial stress and reaches a fever pitch when an activist investor gets involved. Laura Quatela, who had first hand experience with activist shareholder Vector Capital as a member of Technicolor’s board, said that such a peril now comes with the territory for a publicly-traded company that holds major IP assets. Talking of the Technicolor experience, she exaplained: We needed to shift the attention of analysts following the company away from patent licensing, which by its nature is unpredictable, or lumpy.” In the afternoon’s discussion of the Chinese patent market, moderator Joe Siino of Via Licensing pointed towards ZTE’s recent deal with NPE Longhorn IP as a milestone for the market. Panellist Eeva Hakoranta of Nokia observed that financial circumstances had compelled the Finnish company to make similar deals in the past, saying: “When boards start to understand IP, they’ll start asking questions about why companies are spending so much money on IP assets.” The fact that the board of a Chinese company is presumably beginning to think this way is a very big development indeed. (JS)

Looking far and wide – The extent to which the patent deals market is still focused on the US and, more specifically, on US assets was one of the questions posed in the ‘State of play’ session at the start of the afternoon. “Global assets are critical, the US doesn’t drive the market anymore,” insisted Jaime Siegel, CEO of Cerebral Assets and global director of licensing for the Open Invention Network. That means that patent owners are increasingly placing an emphasis on developing portfolios that include significant numbers of filings in Europe and Asia, he said. In his opening comments, Kudelski Group's Subash Krishnankutty revealed that around 10% of the company’s portfolio is comprised of US assets and that a global footprint is crucial when they’re looking to make an acquisition. But before patent owners start looking to shift all of their US assets, Siegel explained there’s still a lot of deal activity around American patents - it's just that more value is increasingly derived from overseas grants. The US may still be a key part of the patent dealmaking, but it’s undoubtedly part of a multi-polar global market. (RL)    

Pot, kettle – Judging by the panel on ‘Meeting the China challenge’, a major part of the titular challenge is bridging a gap between foreign licensors and Chinese implementers when it comes to the question of what’s a fair royalty rate. As Conversant CEO Boris Teksler pointed out, patent licensing is not the market-driven process many Western executives are used to, with the government playing a role in stepping in to set royalty rates. Nokia’s Eeva Hakoranta repeated the common argument made by Chinese handset makers that their thin margins make it difficult for them to pay global market rates, saying that this disconnect needs to be solved one way or the other. But co-panellist Don Merino of the Asia Patent Group had a simple question for anyone tempted to criticise the Chinese position on patent royalties as unfair: “Does anyone think the US court system is offering fair value for patent royalties?” The tough reality for licensors, Merino contended, is that seven of the top 10 handset manufacturers are Chinese – and they’re largely going to determine what’s fair and what isn’t. The end result may not be to everyone’s liking, he suggested, but it may be more reasonble than many observers would expect. (JS)

Calling all vendors – As ever at this IPBC Global the exhibition hall is packed with sponsors drawn from the world of patent analytics. CIPOs looking for the kind of support to help analyse their own portfolio or to assess others certainly has plenty of options. On the second panel of the day Kelvin Vivian of Marvell Semiconductor admitted that he was still looking for the perfect platform which he could tailor specifically to his company’s tools. “The dream tool would be one that we would be able to adapt to fit our own internal flows and mine the data which we can get quickly to finance department or CEO,” Vivian said. With that several in the audience were presumably preparing their sales pitches. As session moderator, Clarivate Analytics’ Dave Brown, quipped: “I think you’ve made a big mistake, there are plenty of vendors out there.” (RL)

Guess who – During the question and answer portion following her keynote address, Laura Quatela shared a conversation she had more than two years ago with the Chief Operating Officer of a major Chinese consumer electronics player. When asked about the IP risks the business faced in its planned expansion overseas, the executive pointed towards the company’s goodwill among customers as a potential tool, saying: “Our consumers in our own geography love us and follow us every minute.” Any litigation, he suggested, would generate bad publicity and potentially even boycotts of the plaintiff’s products. It sounded, Quatela recalled, a lot like Steve Jobs’ attitude before the iPhone came out – but as everyone learned, the popularity of a product can’t protect it from patent wars. The unnamed company apparently has taken that lesson on board – Quatela says its progress on the IP front since that conversation has been truly impressive. (JS)

Wait and see - Delegates who limbered up and came along to the IoT boot camp this afternoon were certainly not disappointed. The panel – moderator Ian MacLean of TechInsights, Micky Minhas of Microsoft, Joe Sommer of AT&T and Michael Pierantozzi of HP Enterprises - shared their views on the current state of play (it’s very early in the game, we need to be patient, was the general consensus) as well identifying the developing challenges facing IP professionals working in the space.  Undoubtedly, one of the biggest issues the IoT presents –  and for innovators one of the greatest opportunities - is its sheer scope.  Patent pools have emerged as an attempted means to accelerate connectivity, but with such a fragmented market, involving so many different industries, the panel argued that they are not a cure-all: “Patent pools are a nice place for one stop shopping if there is one shop to stop at,” said Minhas. That may explain why certain platforms have yet to really take-off. For his part, Pierantozzi urged the IP community to reflect on the lessons learned from the smartphone wars, arguing that, due to the vast combination of platforms and markets, we could be in for another period of complex litigation – unless players came to believe that working together might be a more profitable way to proceed. Watch this space. (SJC)

Not in Kansas anymore – The Sunday evening drinks reception is an IPBC Global staple, but plans for an outdoor soiree with a view over Parliament Hill had to be scuttled as a tornado watch loomed over the Canadian capital. Instead, 500+ delegates took shelter in the Fairmont Château Laurier, riding out a potential twister that never materialised with the benefit of an open bar.  Making predictions about the patent market is even more difficult than forecasting the weather, but make sure to read our dispatch from tomorrow’s day two, as IAM’s editorial team brings you our predictions for the next year. (JS)

Twitter – Get up-to-the-minute updates on all the action in Ottawa by following the Twitter hashtag #IPBCGlobal