Dateline San Francisco for IP’s global elite

Sitting on his own in the Palace Hotel bar, eating a sandwich and scrolling down his tablet, he cut an unassuming figure the night before IPBC Global 2018 got underway. But as delegates greeted old friends and made new ones over a few beers and sometimes something stronger, Andrei Iancu could reflect on the fact that he had made quite an impact since he was appointed USPTO director in February. In fact, he has electrified the US patent community and led many to believe that after so many false dawns, this time the pendulum really has started to swing back.

Talking to event attendees that evening it was obvious that Iancu had impressed just about everyone who matters since he accepted a pay cut and took the USPTO helm. This was confirmed the following day when Iancu used his plenary address at IPBC Global to address one of the meatiest and most problematic issues facing the US patent system head on.

The spectacular Garden Court was the scene of the AON-sponsored Monday evening reception

Rethinking eligibility

As any market observer knows, determining what is patentable subject matter under Section 101 of the US statute has been the focus of constant review by the US Supreme Court and the Court of Appeals for the Federal Circuit. Both, according to many stakeholders, have only added uncertainty to the eligibility debate. Iancu had hinted several times previously that he believes that there are major issues with Section 101 and eligibility. At IPBC Global he put his cards squarely on the table and made clear that he does not believe that the current state of affairs is sustainable.

In his keynote, Iancu asked whether Thomas Edison’s original phonograph would have survived the kind of patentability analysis that applications are subject to today at the USPTO itself and in the courts. Although Edison’s truly groundbreaking invention did receive a patent back in 1878 – and in under three months – Iancu suggested that these days a similarly disruptive technology might have trouble getting through the two-step Alice test.

“For many modern technologies,” he warned, “we are nowadays going through a tortured exercise that asks as a threshold question: Do we want to prevent a patent even if the invention is perhaps entirely novel, completely non-obvious, enabled and well-claimed?” Iancu went on to point out that that question is proving extremely difficult to answer: “Inventors and their lawyers, examiners, district court judges and Federal Circuit judges are all struggling on a daily basis trying to figure out what is in and what is out.”

To help solve some of these struggles, Iancu suggested that the approach should be simplified. “In the end, as we go through the process under the current statute, we should not overcomplicate, and we ought not to twist ourselves into a pretzel on every single case,” he insisted.

USPTO Director Andrei Iancu shook a lot of hands in San Francisco

While much of the recent focus by the courts and stakeholders has been on the state of Section 101, Iancu pointed out that there were other sections of the statute – namely Sections 102, 103 and 112 – which were designed to filter out questionable patent applications. To that end, he argued that the patentability analysis should return to its original filter: “Is the patent merely on a defined building block of scientific or technological work, or is it instead on a practical application of it?” To help make his point he referred back to Justice Thomas’s decision in Alice, which urged that the Supreme Court’s ruling should be narrowly construed “lest it swallow all of patent law”.

While there are growing calls for Congressional action to rewrite Section 101 and several IP groups – including the IP Owners Association, the American IP Law Association and the American Bar Association’s IP section – have proposed possible changes to the statute, it was notable that Iancu used his speech to emphasise that the tools to fix the problem already exist. It was a message that was greeted with many nodding heads among the delegates and meant that this year’s IPBC started with an undoubted buzz about a shift in the US patent market.

Networking in and around the conference is an integral part of every IPBC Global

End of an era

While Iancu is at the start of his assignment, the keynote address on the final day of IPBC Global was given by Benoît Battistelli, who was seeing out his final month as president of the EPO before he handed over to Antonio Campinos on 1 July.

Battistelli was in charge at the EPO for eight years and while he gave his keynote presentation it was hard not to think that we were watching and listening to a man keen to cement his legacy. Seen from afar Battistelli’s achievements are significant: he has transformed working practices at the office, improved efficiency, put the agency on a firmer financial footing and increased Europe’s international influence – all while maintaining the EPO’s reputation as the issuer of the highest quality patents among the IP5.

But, of course, there is another side to the story. Battistelli’s reforms have been severely criticised by a significant part of the examiner corps. Wide media coverage has been given to regular strike action, the firing of union officials and complaints made to the International Labor Organisation over recent years. It is undoubtedly the case that a section of the agency’s workforce feel that their concerns about the pace and nature of change have not been listened to and that Battistelli sought to pummel them into submission rather than to build consensus.

Both sides could probably have played things better. However, when it comes to Battistelli’s legacy, this controversy will matter little if in two or three years’ time the EPO is still regarded as the leader in quality, with a healthy balance sheet and a growing number of applications to handle. Should it also be issuing unitary patents which are found valid by the UPC system, then everything that the combative Frenchman set out to achieve when he started his job back in 2010 will have been accomplished and all the negatives will be forgotten. For good or ill, that is how these things work.

As in previous years, the 2018 IAM annual benchmarking survey revealed that the EPO enjoys the highest approval rating among our readers, being perceived as granting the highest quality patents of any of the IP5 offices. Battistelli’s IPBC speech set out how the EPO has achieved this: it has not only built the examiner corps up to 4,400, but also introduced a two-year training programme for new recruits. In addition, it is the only major IP office not to outsource any of its key functions. The office’s patent database is larger than any other, while it offers access to 50 million original patent documents from Asia. It is also the first major office to achieve ISO 9001 recertification for the whole patent process.

All these measures – as Battistelli pointed out – have contributed to the office’s improved productivity, with patent grants increasing at a faster rate than applications between 2010 and 2017, while unit costs decreased over the same timeframe. He concluded that further digitalisation of services and a commitment to being at the forefront of developments in artificial intelligence would help the EPO to maintain the quality and efficiency of its services.

All the plenaries at IPBC Global 2018 filled the main conference room

C-suite view

The third keynote at IPBC Global this year was delivered by someone from outside the IP world. In her presentation Sue Siegel, the chief innovation officer at GE, gave the audience an excellent overview of how a company as diverse as GE uses its intellectual property as part of broader business deals – and how companies must adapt IP strategies to fit a world in which technological innovation is growing ever faster. She made the very telling point that the pace of change “will never be as slow again as it is today”. For any rights holder that throws up considerable challenges.

GE is in the midst of a bold experiment in terms of where licensing sits within the organisation; according to Siegel, this novel approach is paying dividends. It was only five years ago that the company set up its GE Ventures arm with an eye towards investing in start-ups. It added a team aimed at spinning off new businesses a little later, despite some within the company warning that this would be challenging because it is a break with how GE has done business in the past.

An even bigger challenge came when GE Ventures was asked to take on the licensing team. Siegel reports that at first the patent types and equity types were like oil and water. However, the team eventually gelled, the experiment forcing both sides to think about value creation from another perspective.

Interestingly, in the Q&A after her speech Siegel explained that she thought it was the licensing pros who had to work harder to understand their new counterparts – the venture capitalists (VC) came in with a deep appreciation for intellectual property. Lawyers can be creative, but as Siegel put it, they also have guardrails. However, when you get IP licensing specialists incorporating VC principles and given the freedom to take VC-like risks, look out: Siegel described the licensing vertical as “our most exciting business across the board”.

While it may be clear that we are in the middle of a digital revolution, it is difficult to delineate and categorise the economic trends which have emerged from this – and which are creating new opportunities for IP value creation. Siegel’s session was particularly timely for shedding light on some of these trends.

The evolution from static and dumb to connected and smart devices was one of the trends she highlighted, as was the movement from manual to autonomous products. Siegel also argued that we are witnessing a decentralisation of distributive models, as reflected in the development of banking from in-branch services to ATM use and eventually to smartphone banking.

Another function of the digital revolution, she said, is the movement from buying assets to purchasing their use – what she termed the shift from CAPEX to OPEX (eg, buying a ride from an Uber taxi, rather than purchasing a car).

Siegel also claimed that the commercial focus on the consumer is set to give way to a greater interest in improving the services available to business customers. The quality of customer experience in general is increasingly the key to differentiation in the marketplace – she suggested that this has been a major cause of Apple’s success. These trends, Siegel emphasised, are disrupting enterprises across all industry sectors and jurisdictions. Those businesses which embrace them will find paths to greater productivity and ongoing success.

In closing, Siegel offered a few key takeaways. “You have to think beyond patents (although we love them),” she said. “We have to think of them as a truly powerful creator, beyond the typical model of licensing and royalties. We can do this by utilising different types of business models to create value.” Then she addressed partnerships and strategy: “In this world – where innovation and the pace of change is happening so fast – trying to do it all on our own is fraught with dangers. Partnerships are the name of the game.” With the IP market far more contentious these days and at a time when convergence is bringing previously diffuse technologies and industry areas together, her comments certainly struck a chord.

The participants in the plenary debate: “This house believes that despite recent negative developments, the United States remains and will continue to be the driving force of the global patent market”. From left to right: Ami Patel Shah, managing director and head, IP analysis group, Fortress Investment Group and Heath Hoglund, chief patent counsel, Dolby Laboratories (speaking for the motion); Jacob Schindler, Asia-Pacific editor, IAM (moderator); Wayne Sobon, vice president, IP, JUUL Labs; and Dan McCurdy, CEO, Provenance Asset Group (speaking against)

The Monday CIPO scenarios panel; from left to right: Daniel Videtto, president, IP, Clarivate Analytics (moderator); Gustav Brismark, chief IP officer, Ericsson; Amar K Mehta, deputy general counsel and head of IP, Waymo; Phyllis Turner-Brim, vice president and assistant general counsel, IP and technology, Starbucks; and Stephan Wolke, head, corporate IP, ThyssenKrupp AG

Great debate

The keynotes were not the only plenary sessions at this year’s IPBC Global, of course, and following on from Iancu’s session on the Monday morning, delegates were treated to a debate between two teams on the motion: “This house believes that the United States remains and will continue to be the driving force of the global patent market.”

Arguing in favour, Ami Patel Shah of Fortess Investment Group claimed that the stability and predictability that the US legal system provides to patent owners – along with its respect for property rights – are unparalleled. And, given the size of the US consumer market, she said, US patents would remain a must-have for innovators. Seconding the motion, Dolby’s Heath Hoglund cited the US Chamber of Commerce’s most recent International IP Index, which ranks the US patent system as a world leader in terms of commercialisation, enforcement and systemic efficiency.

Their opponents, Wayne Sobon of JUUL Labs and Provenance Asset Group’s Dan McCurdy, did not deny that the United States had for many years been top of the tree, but argued that in seeking to fix the perceived NPE problem, legislators and the Supreme Court had tarnished the system from the mid-2000s onwards. Inter partes reviews had diluted the power of credible IP rights, they said, and key areas of innovation had effectively been rendered unpatentable by Alice; while improvements in Chinese and European patent systems had made the United States increasingly less of a world leader in IP dispute resolution.

While Patel Shah expressed confidence that any weaknesses in the United States could be solved through legal and administrative tweaks, McCurdy stated that for as long as the IP community itself was divided about patent reform, Congress would be unable to remedy the problems being faced by the system. “There’s no question that the United States has been gold standard for patents,” he said. “But the question I reflect on is why have so many of us in the industry worked so hard to tarnish it?” McCurdy suggested that in attempting to tackle a perceived NPE problem, the US patent system had effectively over-corrected and the IP community had “thrown the baby out with the bath water”.

Clearly warming to the golden theme, McCurdy warned that if Europe’s UPC were to eventually get off the ground, the primacy of the United States would be seriously questioned; then, it would “take a lot of polish if not an alchemist to restore the United States to gold standard”. In the vote at the end of the debate, it was clear that McCurdy and Sobon had struck a nerve as they carried the day.

Keynote speaker Sue Siegel, chief innovation officer, GE

CIPO scenarios

As you would expect at any IPBC event, the chief IP officer (CIPO) class was prominently on display. Nowhere was this more evident than during two CIP Scenario sessions held on the Monday and Tuesday mornings and subtitled: “The good, the bad and the ugly”. In a new style format for the event, panellists on both sessions were asked to respond to scenarios in order to give delegates an inside look at how senior corporate IP decision makers approach challenging issues and develop solutions for them.

On the Monday scenarios plenary, panellists were asked about a situation where their company boards had asked them to generate $100 million of value from their IP portfolios from scratch. Waymo’s Amar Mehta focused on the need to think broadly and creatively. “Licensing and patent sales are ways to do this,” he pointed out. “But we also need to think of all the other ways of extracting value from intellectual property.” Cross-licensing, Mehta suggested, was a possibility to be considered, because it could open up markets and drive new business. Another option was to identify patents relating to core business assets and spin these out more broadly to new enterprises and industry sectors.

By contrast, Stephan Wolke of ThyssenKrupp AG was keen to stress that commercial value can be built simply through strong and comprehensive patent protection. He argued that expanding a company’s patent portfolio to mitigate litigation risk and the need to pay royalty fees could save a company significant sums of money and would be a good place to start when looking to create $100 million of value.

On the Tuesday scenarios session, meanwhile, panellists were put in a situation that will be familiar to many in-house operators – and one which might cause a fair few of them to break out into a cold sweat: “Your CEO asks you to appear before the company board to justify current IP spend and to demonstrate the value that the IP department brings to the company as a whole – what’s in your presentation?” It led to some very interesting comments, which demonstrated the breadth of interest and focus of the panellists and their companies: John Mulgrew from Uber, Lisa McFall of Workday, Ilkka Rahnasto from Nokia and John Han of Qualcomm Technology Licensing.

Han admitted he would have some trepidation around the topic as he would be concerned with why the board was asking the question in the first place. Qualcomm, of course, makes billions each year from its licensing (including a big chunk of its profits) giving Han’s board an easy way of assessing the value that the company’s IP team contributes overall.

For Uber, though, the situation is quite different as it has assembled its portfolio largely in order to obtain freedom to operate. However, Mulgrew pointed out that there were still plenty of yardsticks available to them. “You can look at benchmarks against peers and you can try to figure out their R&D spend and their portfolio so you can get a number for how many patents per millions of dollars from R&D they spend,” he pointed out.

Nokia is closer to Qualcomm in that it now generates more than $1 billion a year from licensing. That was not always the case and Rahnasto made the point that, as a result, the Nokia board’s interest in the company’s IP function has shifted. “When we didn’t have IP revenue it was all about IP spend,” he said. “Now no one is asking me what I’m spending and it’s all about how we manage expectations.” He continued: “There’s always the question can we deliver this quarter, next quarter, next year, can I deliver something more – and it’s sometimes as difficult as justifying your spend.” Given its string of deals over the last year or so, including a headline agreement with Apple, Rahnasto and his team have certainly been delivering of late.

Another scenario sought to put panellists in the shoes of the CIPO of an Asian mobile devices manufacturer looking to build its market presence overseas: “You have been hired by the ambitious CEO of a fast-growing Asian smartphone manufacturer to build an IP group and strategy that will enable it to start selling products into the US and European markets. What are your priorities and how long will you need?”

The United States and Europe have often proved to be challenging and hostile markets for Asian smartphone makers, especially for newly emerging Chinese vendors. Their phones sell extremely well at home, in India, Southeast Asia and elsewhere, but it is daunting for them to enter Western markets. However, Lisa McFall from Workday argued that one approach would be to not worry about litigation exposure at all as you will only be sued if your product is successful – and if that is the case, you might be willing to pay what is necessary to keep it on the shelves.

Others suggested that patent acquisition or advanced licensing-in would be well advised – which would mean having to have a frank conversation with the CEO about the potential risks and the money needed to avoid them. Another mooted option was to talk to as many potential partners in the market as possible to build partnerships to secure maximum protection.

Benoît Battistelli, the outgoing president of the EPO, delivers the Tuesday keynote address watched by Canadian IP Office CEO Johanne Belisle

There were plenty of spaces for impromptu meetings at the Palace Hotel

Life sciences crossover

Also on the Tuesday, the only representative of a life sciences company in the Patents Plus plenary discussion – Genentech’s Atulya Agarwal – shared some fascinating insights into IP deal making in the pharma and biotech spaces.

The sky-high valuation of companies in the sector has affected how transactions are carried out, he suggested, pointing out that agreements involving early-stage drugs had become more popular as a result. In such deals, the valuation of patents is often less important than in purchases of later-stage assets, with the collaboration and know-how of the partner having comparatively greater significance. “So, the first thing to say is that when we talk about the value of intellectual property, we are not just talking about the value of patents,” Agarwal insisted. Deals struck during the development of a drug or therapy also require an IP professional to think carefully about the subject of the agreement, to understand what the eventual product will be and therefore what returns are likely.

Agarwal pointed out that the growing complexity of scientific developments in the sector means that life sciences innovations are increasingly protected by several patents – rather than one core asset. The result is that licensing professionals in the sector now need to be more creative in shaping deals, so moving the strategies they employ into closer alignment with those of other technology sectors. It’s rare to see corporate IP deal makers jump from high-tech to pharma, but if Agarwal is right maybe that is going to change.

The Tuesday CIPO Scenarios session; from left to right: Ron Laurie, co-chair, Licensing Executives Society Silicon Valley Chapter (moderator); John Han, senior vice president and general manager, Qualcomm Technology Licensing; Lisa McFall, deputy general counsel, IP, Workday; John Mulgrew, global head, IP, Uber; and Ilkka Rahnasto, head, patent business, Nokia

Afternoon delight

The breakouts, boot-camps and masterclasses scheduled for the afternoon took deep dives into a number of topics, throwing up a number of important insights. For instance, in the industry-focused “Semiconductors under the microscope” session on Monday afternoon, the conversation turned to the profound changes that a series of mergers has brought to the market and how these have transformed the competitive landscape.

How those deals have affected the main players was quickly apparent when Cypress Semiconductor’s Tim Croll detailed how all of the deal making had affected his career, enabling him to spend stints at the likes of HP, Agilent, LSI and Avago, as well as his current employer.

But change is also being shaped by a profound technological shift, as device manufacturers and their chip suppliers feel the effects of a move back to hardware. That point was stressed by Mathen Ganesan of Intellectual Ventures (IV), who explained that the software and application revolution of the 2000s has given way to a renaissance in hardware. This, he explained, is thanks to the growth of wearable devices, digital assistants and other products.

“During the software revolution a lot of the semiconductor industry was becoming commoditised, but now that we’re seeing more devices there’s a real need for new innovation again,” Ganesan argued. The IV executive posited that this should lead to more licensing opportunities for the main players in the sector – which, in turn, means that one of the busiest parts of the patent market in recent years is unlikely to slow down any time soon.

Meanwhile, a topic tackled in Tuesday’s “Towards FRAND 2.0” breakout was how modern licensing departments are going to have to adapt as the number of connected devices balloons in the era of mass 5G connectivity and the Internet of Things.

Moderator Jeffrey Carter of HTS pointed out that the volume of devices and the number of companies that make them have the potential to strain IP departments, which already have plenty on their plate when it comes to addressing just terminals. Will we see in-house headcounts grow along with the number of connected products? Ericsson’s vice president for FRAND compliance, Patricio Delgado, said that the question was somewhat above his pay grade. However, he pointed out that right now, the primary concern is to ensure that these new industries take off so that the predictions about the proliferation of connected things actually come to pass.

However, as corporates eye costs, concerns about in-house capacity are already a big part of the appeal of outsourced pool efforts such as Avanci. In the near future, there will also be a lot more potential destinations for IP professionals, Kenneth Lustig of RealWear added. One thing we do know, he said, is that many manufacturers of soon-to-be ubiquitous connected devices will be relatively inexperienced and unprepared when it comes to patent licensing. That means yet more opportunity for IP pros.

A question from the audience during the Tuesday plenary sessions

China caution

Inevitably, the Chinese market was a central focus over the three days of the event – with a growing number of operating companies and NPEs looking at the country as a potential litigation venue. However, Mark Cohen – now a senior fellow at the Berkeley Center for Law & Technology, but until last year the US government’s top China IP expert – injected a note of caution in the China deal making do’s and don’ts masterclass.

Given the recent doom and gloom from major patent owners over US patent market developments, it is no surprise that China is seen by many as a land of opportunity. The combination of the world’s biggest consumer market, thriving high-tech manufacturing activity and IP laws that only seem to get more pro-patent has certainly generated excitement among licensors. Cohen noted that patent and technology licensing have never had more political attention, including within China itself. There authorities are focusing on improving local entities’ ability to commercialise their intellectual property.

But while this is reason for optimism, Cohen cautioned that “it’s a little bit early… and there are still a lot of horror stories that we remain to be disabused of”. He pointed, for example, to language in China’s Technology Import Export Regulations, which in theory greatly restrict the rights of foreign licensors, but in practice have never been litigated. In the area of SEPs, Cohen observed that recent guidelines from the Beijing and Guangdong higher people’s courts take a more generous stance than past policies toward standards developers. He described this as less a legal than an economic evolution.

But while the change has been rapid, Cohen said that he remains wary: “I hit the pause button when people say China will play by the same rules as the rest of the world.” When it comes to litigation, Cohen said that data does look good for foreign patent litigants: while the 470,000 IP cases so far published give them an opportunity for analysis and strategic thinking that was not previously there, it is also worth reflecting on all the cases that are not published – maybe 30% by Cohen’s reckoning – and why they are not published.

Lunchtime in the exhibition hall

Google loved patents

At the same time as the China masterclass was playing out, in another room the “Partnering with universities and other research institutions” session focused on some of the key issues involved in working with the academic sector. It also produced a fine anecdote from Katherine Ku, the executive director of Stanford’s Office of Technology Licensing.

She recounted part of the story of the role she and her team played in Google’s creation: “Two young kids came to us and said ‘we have the best search engine in the world’, we went ‘oh ok’. Nobody was interested in it – it was too early; all the existing search engines said ‘no we’re not interested’ and one VC said they’d pay $100,000 for it. Larry and Sergey were really insistent that this was a good search engine which they had started out of frustration.”

And so the legendary Stanford patent was born. “We didn’t make them what they are today, but we planted that seed for them – we enabled them to raise money, get venture capital and become a company,” Ku concluded. That, of course, is the power of patents – and it’s one reason why so many have been so frustrated over recent years by what they see as Google’s attempts to deny others what helped to get its business up and running.

To Shanghai and Boston

And when the masterclasses came to an end IPBC Global 2018 was done. It was a fantastic three days in San Francisco: the speakers were on top form, the discussions were fascinating, and the networking gruelling, but thoroughly enjoyable. Everyone at IAM would like to thank all the delegates, panellists and sponsors for making this year’s event such a resounding success.

Now thoughts turn to planning 2019’s get-together in Boston, as well as IPBC Asia in Shanghai at the start of December. It just never stops – thank the Lord!