Inside Microsoft's big deal with Xiaomi and much more from Day One of IPBC Asia 2016

The first full day of IPBC Asia 2016 in Shanghai has just come to an end. A crowd of over 400 have enjoyed a challenging programme of both plenary and breakout sessions, as well as many networking opportunities. 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 … 

Getting personal - In the opening plenary of the day, featuring Xiaomi’s Paul Lin and Microsoft’s Micky Minhas, the ground-breaking deal announced in May between the two companies was, not surprisingly, the first topic for discussion. IP was a major driver of the agreement, as the Chinese smartphone maker acquired 1,500 patents from the software giant; but the transaction was premised on a much broader collaboration between the pair, with Microsoft applications now set to be included on Xiaomi mobile devices. Minhas, recently appointed as Microsoft’s head of licensing,  revealed that the deal had taken a year to unfold after a senior Xiaomi executive had expressed the Chinese’s company’s desire to grow its IP portfolio. He added that one of the key drivers in making it all happen was the relationship between some of the key executives involved in the negotiations. Minhas, Microsoft head of business development Peggy Johnson and Xiaomi’s head of strategic cooperation Wang Xiang, all previously worked at Qualcomm, so there was a level of familiarity; while a face to face meeting between the respective company CEOs in March 2016 largely resolved outstanding issues and advanced the negotiation to the point where it became a matter of getting the contractual terms refined. But what really mattered more than anything, it seems, is that both companies had taken the time to understand each other’s perspectives and needs, and that both were fully focused on finding a win-win outcome. Goodwill, rather than good friendships, are the key to successful IP deal-making. Though, of course, it also helps to get along. (RL)

China licensors beware – As Xiaomi’s head of IP strategy and licensing point man, Paul Lin entertains his share of approaches from licensors. This morning he shared with the audience a misstep he feels a lot of global companies are making when they negotiate with Chinese implementors on a FRAND basis. Responding to a question about the European Court of Justice’s decision in the Huawei v ZTE case, he said it provides a good reference point, but that some companies seem to think it’s “the Bible” and can be applied wholesale everywhere. Not so, says Lin: “If you think you can take an EU framework and apply it in China, that’s a mistake”. Gaining an appreciation for the local Chinese rules and regulations – including reference points like the NDRC’s Qualcomm penalties – will get you a lot further, Lin suggested. Bringing your licensing programme to China is no small undertaking. It takes sustained, China-specific engagement, but the rewards could certainly make it worth the effort. (JS)

Watching WiLAN - You don’t visit Shanghai for a couple of years and on your return you notice that the second tallest building in the world has appeared next door to the hotel you always stay at. It’s something similar with patents – big things happen here so quickly. China is not yet a mature patent market, the consensus at IPBC Asia seems to be, but it is getting there at a rapid rate of knots. The advances made in the last decade have been little short of astounding. In conversations during networking breaks, the message coming through loud and clear is that not only have there been major improvements in the quality of the patents being issued by the State IP Office, but also that the policy-makers inside the agency are keenly aware of how they can facilitate the growing number of innovation-based companies that are emerging in the country: recently issued new guidelines on the patentability of software – which may be more generous than anything found in the US or Europe – being one example of this. As patent quality improves, so will comfort levels around deal-making and, should worst come to worst, around using the litigation system too. The creation of specialist IP courts in Beijing, Shanghai and Guangzhou is a major step forward on this front; but maybe the greatest indicator of the rising levels of faith in the Chinese regime is not a case being heard in one of these fora, but in Nanjing just to north of here. It’s in that city that WiLAN has filed suit against Sony in what is thought to be the first such action initiated by a foreign NPE in China. Talking to delegates from operating companies, this is not viewed as a bad thing. Instead, it is seen as a confirmation that China is becoming a serious player and one whose system can be trusted. WiLAN is no troll and would not have embarked on this course of action if it did not have confidence in the way its case would be conducted. There is no doubt that a lot of people will be watching how events now play out. They could presage not only further NPE activity in China, but also more plaintiff-side action from operating companies, too.  (JW)

Nothing is new under the sun – Technological convergence was a big theme of both plenary sessions this morning, but like many buzzwords it can be difficult to define. As Nokia’s Eeva Hakoranta put it: “No one is really clear on what IoT is, but everyone agrees it will have a profound impact.” Perhaps that explains why several speakers reached for historical analogies to try to make sense of what is happening today. Microsoft’s Micky Minhas noted that both the “sewing machine war” of the 1850s and the Wright Brothers patent war bore similarities to later conflagrations in the smartphone space, presaging the arrival of NPEs and patent pools. But Hakoranta reached back even further into the past, saying that the Internet of Things could fulfil Aristotle’s dream of a world where “spindles could weave of their own accord, and plectra strike the strings of zithers by themselves”. As Minhas conceded, it’s hard to see the historical parallels until the corresponding modern trends are already well underway. The few people able to spot them early will have a big advantage. (JS)

Best still to come - WIPO recently confirmed that China has become the first country to receive one million patent applications in a year. That China has been catching up and is now passing the world’s other major markets in patent terms has been apparent for a while now, but questions remain over the quality of the patents being issued. According to Xiaomi’s Paul Lin, however, that is changing. In the opening plenary session, Lin revealed that a few years ago he had been part of a study of patent quality in China which found that since 2008 there had been a notable improvement.  That is still relatively recent, but as the quality improves it has significant implications. As Lin pointed out, it means that better quality patents will end up being asserted and ultimately litigated, something that will lead to the development of better case law. Microsoft’s Micky Minhas then chipped in: “What is happening in the courts is something of a trailing indicator of things that have been happening in industry here. The level of innovation has really increased in China and this bound to lead to a maturing of the patent system, which in turn will help to increase confidence in the court system.” Minhas added that it usually takes ten to 15 years for a patent to hit its sweet spot in terms of its worth. Therefore, with the quality of Chinese patents improving only in the last eight years it may still be several years yet before we see IP value creation strategies in the world’s first million patent market really hit their stride. (RL) 

Over to Europe - President-elect Trump has made it very clear that one of his priorities is to make life a lot tougher for Chinese companies seeking to do business in the US. There is much talk of tariffs, taxes and restrictions. For China’s investors and business leaders, this raises strategic issues, such as is the US worth the bother in the way that it has been up to now? On the IP front, as Chinese companies have been significant buyers of US patents over recent times, as well as increasingly important clients for law firms and service providers that has implications: less Chinese involvement in the US market will inevitably mean lower prices and fewer instructions. But bad news for the Americans could be good news for the Europeans. After all, the Chinese will still be looking for opportunities outside of their domestic market. If not the US, more Europe would make sense. With the Unified Patent Court now back on track after the UK’s surprise decision to go ahead and ratify the UPC agreement, Europe could well become an even bigger priority for Chinese IP interest. Watch this space. (JW)

Talking Trump - Shanghai may be thousands of miles from Washington DC, but the result of the recent US election is still a popular topic for conversation here. Although little is known about his IP  stance, in general Donald Trump’s victory is perceived to be a positive for patent owners in the US. In the second panel of the day, discussion turned to the US patent pendulum and whether it is swinging back towards stronger patent rights. The general sense from the panellists was that it is and Nokia’s Eeva Hakoranta added that from the European perspective the hope is that Trump will help strengthen the patent system. The Obama administration has, of course, enjoyed particularly close ties with parts of the tech sector - and Google in particular - and so the sense is that under Trump, at least initially, other industries will have a greater influence on shaping IP policy than they may have had for a while. How that unfolds will depend to a large degree on who takes the reins at the USPTO as successor to current Director Michelle Lee. One name that keeps cropping up here is Johnson & Johnson’s Phil Johnson, who was initially considered for the top job in 2014. One usually well-informed delegate went as far as to call him the “overwhelming favourite” for the job. As a widely admired member of the patent community and one who has taken a strong pro-patent line over recent years in the face of calls for much deeper reform of the US system, Johnson would certainly be a popular choice in DC and beyond. (RL)

Island building – With more and more connected devices entering the IoT ecosystem, it would seem that standardisation will become increasingly important, with the ability of various devices to “talk to” each other playing a big role in how commercially successful they become. Keith Bergelt. of the Open Invention Network, outlined a wide range of initiatives in this vein, including Automotive Grade Linux, which is building a Linux operating system for connected cars. But Bergelt warned that it is essential to see more Chinese participation in both formal and informal standards setting. If only a couple of the biggest Chinese companies, like Huawei and ZTE, engage with these processes, Bergelt said, there is a risk that the country could find itself on a “technology island” that leaves it disconnected from the rest of the world. We are accustomed to seeing impressive statistics about the share of Huawei and ZTE contributions to the latest mobile standards, but what will be even more encouraging will be when a greater number of companies get involved in global projects across a range of technology fields. On a related note, Bergelt mentioned that another IoT-focused project – Avanci – is off to a good start but still missing a couple of key players. Huawei is one of the biggest, and adding it to a roster that already includes ZTE would give the initiative a lot of traction here in China.  (JS)

More than patents, more than cement - The kind of innovation that has become so typical of Asian businesses was on full display in the beyond patent licensing session in the afternoon. Siam Cement Group’s Wilaiporn Chetanachan described how the company has developed three different innovative products which encompass a broad range of IP including patents, trademark, trade secrets and know-how. Among the innovations that she detailed were a new type of brick made from fly ash, one of the by-products of burning coal, a new energy saving coating for high temperature furnaces and a low weight corrugated material for making boxes. Chetanachan detailed how each involved much more than simple patent development, which also fits in with a typically more holistic approach to IP and IP licensing in Asia. It also underlined how one of Asia’s IP leaders is about much more than manufacturing cement. (RL)

Syndicated solutions - Dan McCurdy’s move to Quatela Lynch from RPX – revealed on the IAM blog first thing this morning Shanghai time - has, not surprisingly, been a subject of conversation among many of the delegates here. Speaking to McCurdy about the move yesterday I wondered whether it was an indication that the defensive patent aggregation business model is less compelling in these times of falling US patent suit numbers. Far from it, McCurdy responded. In fact, he stated, there is reason to believe that at least one of the services offered by the likes of RPX and AST is in the process of becoming even more popular. Syndicated deal-making in its different forms, McCurdy explained, is something that both firms have been involved in: AST with the MIPs purchase and more recently the Industry Patent Purchase Promotion; and RPX with purchases from Kodak and Rockstar, as well as its August 2016 sub-licensing deal with Kudelski. These kinds of transaction, he stated, bring great value to both sides, especially when the market is as tough as it is now. For IP owners, rather than seeking deals with a plethora of companies, each of which will cost money and comes with significant risk, it makes sense to use a third party to bring potential buyers/licensees together and to get a significant return in a relatively short space of time. For those on the buy-side, the equation is a similar one: less time and less expense. “The market evolves and solutions evolve with it,” McCurdy noted. Both RPX and AST have a global presence, with clients based across the world. Up to now, the focus has been on the US market because that is the only one where the big money has been. But as this year’s IPBC Asia is demonstrating all too clearly, that is no longer the case. (JW)

Trust but verify – There was plenty of interest in this afternoon’s “China boot camp” breakout aimed at preparing foreign companies to succeed in the rough-and-tumble world of Chinese IP business. The panelists broadly agreed that having a presence on the ground was crucial – China is one jurisdiction where it is hard to effectively manage challenges or exploit opportunities without capable local staff. But even once a team is in place, work has to be done to build confidence between headquarters and the China office. Jun Chen, who manages Greater China IP for German company Schaeffler, observed that “five to eight years ago, European and US companies did not trust” their local IP staff in China. He said some of his compatriots who work for other foreign companies are hamstrung by the fact that they don’t have full authorisation to access the company’s global IP database. In this state of affairs, Chen says, it’s impossible to have a fully integrated approach to IP strategy. Jessie Kang, IP manager for Switzerland’s Clariant Chemicals, agreed, saying it is up to the China team to build trust by demonstrating the value that it provides to the company. But Kang emphasised that it is important to vet external partners in China as anywhere else. Another senior corporate IP leader related a cautionary tale about one of the local law firms his company had used to file patent applications for inventions generated in China, including for crucial overseas parts of the patent family. Rather than instructing a qualified US patent agent for the USPTO portion of the filing, his company's counsel were using Chinese patent agents to do the work, and having a US shell company to register the patents. The speakers noted that even relatively well-known firms are not exempt from quality gaps, so due diligence is imperative. (JS)

Engineering the rules - In any discussion around standard essential patents (SEPs) and FRAND licensing in recent years the focus typically turns to the stark divisions that have emerged between licensors and potential licensees. But those divisions go against some of the original thinking behind standards. After all they’re designed to ensure interoperability between devices and a relatively pain-free way of sharing IP. As Ericsson’s Matthias Hellman pointed out in the session on SEPs and FRAND negotiations, it was engineers not patent litigators who originally played a key role in putting the worldwide standards system in place. Hellman said that he hoped that the 2015 decision from the CJEU in Huawei v ZTE would provide sufficient guidance to licensors and licensees in FRAND negotiations ensuring that standards could get back to their engineer-driven roots. Even some patent litigators might welcome that. (RL) 

Back tomorrow - Tonight we have the Asia IP Elite gala dinner and our first ever industry awards. The sessions get underway again tomorrow morning. We’ll be bringing immediate updates on events via the IAM Twitter feed, using the hashtag #IPBCAsia and we will have another full report on the blog at around 10.00 am UK tomorrow. (JW)