Injunctions, trolls, booming markets, award winners and much more on IPBC Asia 2016 Day Two
The second day of IPBC Asia 2016 in Shanghai has just come to an end and the event is over – with delegates enjoying a final networking opportunity in the closing drinks reception. Once again, the IAM editorial team – Editor Joff Wild (JW), Asia-Pacific Editor Jacob Schindler (JS) and North America Editor Richard Lloyd (RL) - has been monitoring events. These are some of the highlights …
Injunction insights – The preliminary injunction is a powerful weapon in Chinese IP litigation, but don’t expect to get one without a lot of hard work and a strong story to tell the judge. Speaking in the day’s first plenary on China’s emerging battleground, Philips’ head of IP in China Daniel Yan and Ant Financial chief IP counsel Benjamin Bai talked delegates through the process. In the abstract, the rules that pertain in China are pretty much as you’d expect. According to principles laid down by the People’s Supreme Court in 2001, a rights owner has to prove standing, demonstrate actual or imminent threat of irreparable harm and be able to post the required bond. The court will also make a public interest call before handing down a decision. So far, so simple. The devil, though, is in the detail. Proving standing will not be a problem if you are the owner or an exclusive licensee, but being a non-exclusive licensee is more problematic and could necessitate getting sign-off from the rights owner in advance. You’ll also need to show that the right in question is “stable”, in other words is substantially valid. For invention patent owners that is not an issue as their right will have been granted after a substantive examination. For non-examined utility models and design patents, it’s much more troublesome and will require going to the State IP Office for an evaluation report that is essentially a full-scale examination and that can take two to three months to secure. As for actual or imminent threat and irreparable harm, if there is any question over validity (a pending re-exam or a declaratory judgment case, say) then you can forget it; likewise, any case that relies on the doctrine of equivalents or is based around complex technology is a no-no. There is no point, either, in relying on an argument based solely on price erosion – there has to be more than that to get the judge’s attention. A loss that could not be compensated for just by money is key – whether that be a loss caused to the owner itself or one inflicted on a third party. Then there is the bond. It needs to be available immediately and can be a considerable sum (Bai mentioned that a Beijing court once required one of Rmb 40 million, or approximately $5.8 million), so preparations should made in advance. Despite all the hurdles, though, both Yan and Bai made clear that it was possible to persuade Chinese courts to issue preliminary injunctions and that with them a rights owner is in a very strong position. Getting them obeyed can be a challenge; but, said Bai, there are many more law abiding companies in China than there used to be (which is encouraging!); while even without them there are other tools available to quickly force an infringer into line, such as administrative actions and measures at customs. With permanent injunctions widely available to successful plaintiffs at the end of cases, too, this is just one more way in which China is on the side of IP owners. No wonder so many of them are interested in what is on offer here. (JW)
A patent pool made in China – Wang Huaibin of Baidu gave delegates an inside look at how China’s major search engine is adapting its IP strategy to the changing landscape of tech in the Emerging patent battleground in China plenary this morning. At the end of 2015, Baidu was a major force behind a patent alliance formed by more than 20 Chinese businesses aimed at pooling voice technology patents and making them free to use for members on a royalty-free basis. Baidu has filed over 400 applications related to voice input, and selected about 100 of them to contribute to the pool. The range of companies involved – ZTE, BOE, Haier, BAIC Motors, JD.com – is a great illustration of how convergence is making it necessary for businesses in different industries to explore IP deals with partners far outside their own field of technology. Yesterday we wrote about how China risks becoming a “technology island” if more of its companies do not engage with global standards setting processes around IoT and other fields. This initiative shows that plenty of companies are thinking about how the ecosystem will develop within China. Perhaps it will lead more companies to follow Avanci member ZTE’s lead in engaging globally as well. (JS)
Panasonic perspective - In the secondary patent deals market in recent years Panasonic has become a major player, disposing of assets through straight sales and through privateering deals with the likes of Inventergy, Conversant and WiLAN. With a global portfolio of just over 100,000 patents the Japanese tech giant certainly has much to sell. During the opening plenary session of the day – The emerging patent battleground in China - Feng Ren, chief IP specialist in Panasonic’s IP strategy department, gave an insight into what has been driving many of the company’s sales. As it has moved from a B2C model to putting more emphasis on B2B, Panasonic has seen the number of patents in its portfolio that it is simply not using grow substantially. The transition means that it has increased its disposals, mainly in the US and Europe, so that since 2010 it ranks ninth in patent sales worldwide, while since 2014 it has been the second most active seller behind only IBM. Of course, in the some circles any operating company or organisation that sells its patents, particularly to NPEs, is looked down on; but Ren’s presentation underlined one of the reasons why businesses turn to the secondary market to monetise their IP. As companies evolve and move into and out of sectors they can find themselves with unused but valuable patents on their hands. If you rule out NPEs then you are inevitably going to reduce the value of what you hold and your ability to seal transactions. With process already depressed, making life even harder for yourself does not seem like a great idea. (RL)
Don’t sleep on utilities – Many outside observers tend to write off utility model patents in China, particularly when thinking about statistics like the 1.1 million patent applications filed in the country last year, most of which were not full invention patents. After all, these rights last for just 10 years, are not subjected to substantive examination by SIPO and must meet a lower threshold for inventive step. SIPO’s numbers show that foreign companies are just not very interested in owning utility models: 10% of Chinese invention patents are filed by foreign entities, but for utility models that figure drops to just 1%. But in today’s discussion of patent litigation in China, both Benjamin Bai of Ant Financial and Daniel Yan of Philips warned that anyone who overlooks utility models does so at their own peril. In a discussion of preliminary injunctions, Bai noted that “if you can convince the judge that validity is beyond doubt, it’s treated as if it’s a real patent”, meaning that utility model owners could have a very strong remedy at their disposal. Feng Ren of Panasonic added that once a utility model has undergone examination, it is very difficult to invalidate because of the low bar for inventive step. That’s a big deal in a place where a major concern for patent plaintiffs is an invalidity rate that’s estimated by Bai at about 40%. “One man’s junk is another man’s treasure,” Bai added; “but that’s why you have patent trolls”. Given that utility models must be available at a fraction of the price of Chinese invention patents, they could be a pretty high value for money acquisition. (JS)
Fighting fakes - It turns out that there are plenty of things that keep those running the IP functions at Asia’s major companies awake at night and in the second plenary of the day, expertly led by Philips chief KIP officer Brian Hinman, we found out what a few of them are. As Alibaba’s technology and patent chief counsel Amy Xu explained to Hinman and the audience, there are a couple of issues that have her tossing and turning when the sky is dark. And they are probably related. The first is that as a young business with a 40,000-strong workforce that has an average age of 27 there is no deep-seated, corporate IP tradition to draw on. A major task for the IP team, therefore, is to ensure that employees understand why respect for IP rights is so vital for Alibaba’s long-term future. As anyone who works in the trademark field will tell you, Alibaba is known as a platform through which large numbers of fakes are sold, while many believe that it could be doing a lot more to tackle the problem. Xu was adamant that significant efforts were being made. Alongside staff education initiatives, the company is investing a lot of money in developing technology and big data driven solutions to track down fakes and counterfeits in order to ensure they are removed from the platform. As a company that is listed in the US, Xu stated, not to mention one that depends on the support and confidence of those who use it to buy goods, it is vital that Alibaba is not only seen to be doing the right thing, but also that it is successful. (JW)
No forgetting Texas - While there has been much discussion over the last two days about the growing patent litigation threat in China, particularly as the relatively new specialist IP courts become more established, there was a reminder for two Chinese companies on Monday that the greatest risk remains in the US, at least for now. Both Xiaomi and Hisense, two giants of the Chinese tech sector, had infringement lawsuits filed against them in the Eastern District of Texas, the former by General Access Solutions (GAS) and the latter by MyMail. Relatively little is known about GAS, although the patent in question - entitled ‘wireless communication system and device for coupling a base station and mobile stations’ - was originally developed by Raze Technologies. According to its website, MyMail “develops IP that it then offers for license to provide secure internet-related services and efficient web page interaction”. Hisense has a fair amount of experience of litigating in US courts, but Xiaomi is a relative newcomer having previously seen just one suit filed against it by the NPE Blue Spike. As the Chinese company’s business grows in the US, it can presumably expect to be making a few more trips to the courtrooms of Eastern Texas. (RL)
How to get big damages in China – Damages are often an afterthought for foreign companies considering litigation in China – figures presented this morning in the Emerging patent battleground in China plenary revealed an average award of just Rmb 80,000 (approximately $10,000). But according to Jun Qiu, of Liu, Shen & Associates, one reason is that plaintiffs simply don’t produce any evidence. It can be difficult to get access to a Chinese infringer’s accounting books, but Qiu suggested a few alternatives: sales information can be obtained from a company’s own annual reports, and local Chinese customs offices can often be persuaded to turn over export data. Once you have that, a third party accounting firm can do an audit to estimate a reasonable profit rate. Though Daniel Yan of Philips cautioned that many such awards based on broad financial data are lessened on appeal, a big initial award goes a long way to producing a quick settlement. With an increasing number of foreign corporates and NPEs filing patent infringement cases in China, it would not be a surprise to see them come up with other creative ways of convincing the courts to issue bigger monetary rewards. (JS)
Lost lead - In China it is happening deliberately, in Europe it is uncoordinated and occurring almost accidentally, but in both places the trend is clear and to the benefit of patent owners. In the US, by contrast, the drift has been in the other direction, as both the courts and legislators have spent the last few years working hard to make it tougher to secure and then effectively enforce patent rights. Over the last two days we have heard how litigation reforms (including the creation of specialist IP courts), changes to the damages regime and new rules on the patentability of software issued by the State IP Office have all been about providing support to innovation-based companies in China. In Europe, meanwhile, the relatively low cost of litigation, the expert courts and the availability of injunctions combine with the balanced approach to FRAND licensing espoused by the Court of Justice of the European Union in Huawei v ZTE and high quality rights issued by the European Patent Office to create an attractive proposition that will only become more alluring once the Unified Patent Court is up and running. Compare and contrast with the US, where we have seen the injunction all but disappear, the arrival of the PTAB and multiple IPRs leading to so many claims and even whole patents being struck down, the eligibility uncertainty caused by the Mayo/Alice line of Supreme Court decisions and the dramatic fall in the value of patents. For patent owners the message from US judges outside the Eastern District of Texas and from lawmakers is clear: you are a problem and we want to make life as tough as possible for you. By contrast, they are made to feel much more welcome across the Atlantic and the Pacific. It is probably too early to make any judgements about the long-term consequences of this, but it is hard to conclude that it will end well. There has been talk of a pendulum swing back in the US at this IPBC Asia, just as there was at the previous event in Tokyo, as well as the last two IPBC Globals in San Francisco and Barcelona. There is real evidence now that it may just be happening and hope that a Trump administration could lead to further gains. The problem is, though, that the US has let its patent lead slip. It will be very hard to win it back again. (JW)
Talking trolls - While the debate around ‘patent trolls’ using poor quality patents to extract low value litigation settlements has dominated IP policy discussions in the US, there has been relatively little focus on it in China. To what extent that might change was brought up in the second plenary session today by Lenovo’s head of IP Ira Blumberg. Asked by session moderator Brian Hinman, the chief IP officer of Philips, to identify the things that keep him up at night, Blumberg said that his long-term concern was that if patent damages awards continued to increase, the number of patents available to buy continued to grow as a result of widespread filing and with preliminary and permanent injunctions available, then ‘patent trolls’ could become a major problem in the Chinese market. “If handled in the wrong way China could be beset by trolls,” he commented. As well as the prospect of higher damages and the growing threat of patent owners obtaining injunctive relief, the real threat to the Chinese market stems from the fact that it is such a large manufacturing hub. That gives patent owners great scope to disrupt a company’s production facility or its supply chain and might mean foreign and local businesses start to look to other jurisdictions to make their products. “If courts give out big awards then the natural reaction will be for companies to relocate their manufacturing,” Blumberg warned. “China needs to be very careful about how its patent system develops.” Once of Intellectual Ventures, Blumberg has become a vocal critic of trolling over recent years. As we have seen in the US, though, the problem with focusing on finding solutions to combat the perceived threat this business model poses often ends up causing a lot of unintended harm. The Chinese authorities would do well to consider that when they hear the kinds of dire warnings issued by Blumberg this morning. He does have a point, but careful, nuanced policy-making is perhaps the best way to solve any problems that arise. Looking to Europe, rather than the US, and finding out why there is no real troll problem there may also be a good idea. What is clear, though, is that as the Chinese patent litigation market does become more high-profile and more high-stakes, the troll debate is going to have to take place in the country. (RL)
Broker opportunities - Times may be tough for brokers that focus their efforts on the US, but in Asia things seem to be a lot more positive for those who are prepared to do the hard yards. Conversations on the fringes of this year’s conference have revealed businesses having their best ever years and others making preparations to bring more staff in to handle the work that is being created. And the expectation is of further growth to come – especially if the Chinese market develops in the way most expect. It’s not easy and a lot of preparation has to be done to get families and portfolios to a sellable stage, but the buyers are there. Asian companies light on both US and European assets need patents in order to reduce their exposure and to secure freedom to operate as they plan to enter new markets. Increasingly, the same will apply to China, too. Asia, though, is not a market you can just jump into and expect to earn rewards. Those who succeed have spent time getting to know companies and their requirements, and they have done it face to face. That is the Asian way. (JW)
The winners - Last night’s Asia IP Elite Gala Dinner was a spectacular success as we once again honoured a group of companies and research organisations from around the region that have demonstrated a sustained commitment to building best-in-class in-house IP functions. This year the ranks of the Elite companies grew to 62 entities across nine jurisdictions; and, for the first time ever, IAM presented additional awards in 10 team categories and one individual award. Selected by IAM’s editorial staff, these are the executives and IP departments that merit special recognition for the work they have done over the last year. Some of the recipients were very active in the IP transactions market, others achieved successful licensing deals and yet more entered new commercial markets based on IP-driven M&A; but all of them showed that they use patents as a strategic business asset. Congratulations to all the winners. (JS)
- Automotive Team of the Year: Hyundai
- Electronics Team of the Year: Hon Hai/Foxconn Group
- Healthcare Team of the Year: Fujifilm
- Internet Team of the Year: Rakuten
- R&D Institution Team of the Year: ETRI
- Semiconductor Team of the Year: TSMC
- Start-Up Team of the Year: DJI
- Telecommunications Team of the Year: Huawei
- Asia Individual of the Year: Jason Ding, Huawei
- Asia Team of the Year: Hon Hai/Foxconn Group
- Asia IP Deal of the Year: Microsoft and Xiaomi
- New members of the Asia IP Elite for 2016: Biocon, DJI, KT Corporation, LG Chem, Softbank
All done – And that is that. It’s been a fascinating two days in Shanghai, with IPBC Asia delegates left in little doubt that China, in particular, and Asia more generally is where the IP heat is currently being created. We’d like to extend huge thanks to all those who attended, the wonderful speaking faculty and all our valued sponsors, without who this event would not have been possible. The next big event for us is IPBC Global 2017, which takes place in Ottawa from 18th to 20th June. The next IPBC Asia will be held in Tokyo later in the year. Stay tuned to the IAM website and to this blog for further details closer to the time.