Shanghai sensations

IPBC Asia 2018 took place in front of a sell-out crowd of over 400 at the Ritz-Carlton Shanghai Pudong at the start of December. As well as spectacular views, delegates enjoyed in-depth discussions on a range of subjects, including China’s move to the heart of the global patent market, corporate IP value creation strategies and the state of play in transactions

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December’s IPBC Asia 2018 conference saw more delegates hailing from the host region than any previous edition of the event. In the sell-out crowd of well-over 400 attendees, 70% of all delegates operated out of Asia-Pacific countries. This confirmed what has been apparent for a while – that Asia is a hugely important IP market and that top-tier Asian companies are now focused on IP value creation as a core business goal.

China to lead the world

Given the event’s location – and the rapid pace of change in the country – developments in China were a major source of discussion throughout the three days of IPBC Asia.

Lenovo’s vice-president of intellectual property, Ira Blumberg, was clear that his company’s home had every chance of becoming the world’s number one patent litigation venue in the near future. There were a few reasons for this, he explained.

First off, it is a simple question of size: not only are there more than 1 billion, increasingly affluent, Chinese consumers, there is also the sheer number of patents – filings and grants in the country dwarf those elsewhere. Then there is the emergence of specialist IP courts, including the recent announcement of the creation of a central IP appeals court to be housed in the Supreme People’s Court in Beijing. On past performance, Blumberg stated, these can be considered as being broadly pro-patentee. Next into the mix are the remedies available to successful plaintiffs: damages awards are growing and, crucially, injunctive relief is a regular part of the equation.

Finally, the slam dunk: almost 100% of high-tech products are either manufactured or assembled in China. Thus, as an asserter you can go to one court in one country and hit any potential defendant very hard indeed in the knowledge that if you win you can basically shut it down and get a decent-sized pay-out to boot. What is there not to like?

Well, for Blumberg, there was one potential fly in the ointment. If damages go too high, he claimed, and if paralysing injunctions are handed down with growing frequency, then high-tech companies will start to vote with their feet by moving their operations to other countries where the regimes are friendlier – read less pro-patentee.

It is a fine line for the Chinese authorities to navigate: a strong patent regime makes investing in R&D and innovation more attractive but could make building and maintaining factories to put innovative products together far less enticing. A rapidly growing economy such as China’s, with untold mouths to feed, needs both. The positive for the government is that upping sticks and heading to pastures new is neither easy nor cheap, so there is some wriggle room. Alternatively, it could be that the easiest way to avoid any problems is for companies to be more careful about infringing in the first place.

Jacob Zhang of Lung Tin Intellectual Property reminded delegates of the extent to which the environment in China has changed in recent years. Annually, the country now has by far the most first-instance civil patent cases in the world (16,010), compared to fewer than 3,000 in the United States (which is in second place) and 1,000 in third-place Germany. In addition, this figure is increasing rapidly, up 29.56% from 2016, and several times greater than the 4,074 total of a decade ago.

Aerial view of the opening reception of IPBC Asia 2018

Aerial view of the opening reception of IPBC Asia 2018

Aerial view of the opening reception of IPBC Asia 2018

There has been good news for foreign litigants in recent years, Zhang said, with perceived unfair treatment no longer being an issue. Last year, 87% of decisions involving a Japanese company ended in a win for the foreign litigant, while European litigants won 88% of their cases, and 75% and 55% of court decisions went in favour of US and South Korean firms respectively. As Zhang suggested, this partly reflects the cautious approach international rights holders adopt when prosecuting and litigating patents in China, as well as their disproportionate tendency to make use of the country’s most elite private practice IP lawyers.

Change continues apace. Statutory damages, Zhang pointed out, are set to be increased with the reform of the country’s Patent Law in 2019, while punitive damages will be introduced for malicious infringement. In addition, the Supreme People’s Court of China is set to serve as the appeal court for first-instance civil and administrative disputes from 1 January 2019. These reforms, Zhang insisted, will bring about further improvements in the quality and impartiality of litigation decisions.

As ever, networking was a key part of the event

Aftermath of the Innovation Chain plenary, with Anna-Maria Lagerqvist Gahm, senior IP counsel at the Volvo Cars Group, sharing a joke with a delegate

Does the data really say that?

Beer and wine!

New engagement with intellectual property

One of the reasons that China is developing into such an important litigation venue is that its own businesses are becoming much more focused on intellectual property. As they invest more in R&D and become more innovative, IP protection is a lot more important to them. During IPBC Asia, delegates heard from two local companies at very different stages of development about their approaches to patent strategy.

Although Chinese entities have usually appeared in court as patent defendants, we are going to be seeing a lot more of them on the plaintiff side, according to Nancy Zhang, chief IP officer at Coolpad. And, she made clear, the Shenzhen-based company will be one of them. The patent assertions it launched against Xiaomi during 2018 stand as a relatively rare example of domestic competitor litigation within the country’s mobile phone industry.

Coolpad was previously a large player in Chinese smartphone sales and although it is no longer near the top of the leaderboards, it has always been ahead of the curve when it comes to patents. This has left it with a significant portfolio. It seems that the company is looking to get a licensing programme up and running as its products business transitions towards the Internet of Things (IoT), wearables and other smart devices.

Zhang acknowledged that launching offensive suits can be a risk, particularly for a firm such as Coolpad that is publicly traded. But her message was clear: “Companies focused on R&D and the protection of intellectual property may appear more aggressive, but by resorting to litigation they show their attitude of respecting innovation and R&D.” We have heard this many times before from US and European company IP chiefs, but rarely from someone heading up a Chinese IP operation. It is another sign that change is in the air.

By contrast, iFlytek is at the beginning of its IP journey. The Hefei-based company may not yet be a household name overseas, but it is the leader in voice-recognition technology in China.

It was founded in 1999 by Liu Qingfeng, who turned down an offer from voice-recognition pioneer Kai-Fu Lee to work for him at Microsoft Research Asia because he was determined to start up on his own. If you look at the patent landscape in speech recognition, iFlytek is a blip in a field that is headed by specialist firm Nuance Communications and big tech players such as Microsoft and Google. But its technology has outperformed that of western rivals in high-profile natural language processing competitions, and the Shenzhen-listed business is now worth $7.5 billion – one-and-a-half times the market cap of Nuance.

IP manager Yuping Qiao told delegates that the company is now working to bolster its patent position. She maintained that for an outfit at iFlytek’s stage of growth, the patent world’s ying and yang are not in conflict, they are complementary. “For us now, quantity counts as much as quality,” she argued. iFlytek is competing on technology, not IP portfolios, for the moment; but as its core technologies are applied to more fields, such as healthcare, education and even the judiciary, there will be plenty of avenues through which it can grow its patent collection in the future.

The opening plenary of IPBC Asia 2018 in full flow, watched by a packed room

5G and trolls

China also looks set to become one of the first countries to see a major roll-out of 5G technology. In Shanghai, Qualcomm senior vice president of engineering and legal counsel, Liren Chen, revealed that the company’s 5G licensing programme is already up and running. The US chipmaker has signed up more than 20 5G licencees worldwide, according to its latest investor guidance and, as Chen explained, a “fairly large portion” of these are Chinese firms.

Qualcomm’s rates, which are 2.275% for single mode 5G handsets and 3.25% for multimode handsets, were first reported by IAM in November 2018. One reason for the strong uptake in China so far might be that the company has, as Chen espoused, essentially taken the terms of its settlement agreement with China’s National Development and Reform Commission and expanded them to be available worldwide.

In May, Qualcomm announced that it would add 5G patents to that package at no additional cost. “What we’re doing is including more technology in the offering without increasing the price,” Qualcomm Technology Licensing president Alex Rogers said at the time. Qualcomm’s policy shows the increased influence of Chinese regulators on the global licensing market. With seven of the 10 biggest mobile vendors based in China, it makes sense to orientate its policies around the country’s rules. The question is whether that is enough to pacify the likes of Apple and Huawei.

Another indicator of China’s growing significance as a litigation venue is the appearance of NPEs. Not only are there multiple foreign and domestic licensing operations seeking to assert patents through the Chinese courts, but common or garden trolls are also getting in on the act. During a session one questioner explained that her company – a pharmaceutical business based in Wuhan – is battling NPE litigation and asked Kong Xiangjun, the former chief judge of the Supreme People’s Court’s IP Rights Tribunal, how courts should differentiate between NPEs and other patent owners.

Kong stated that recent criminal charges against a patent troll in Shanghai demonstrate a need for clearer procedures for dealing with potentially abusive or frivolous cases. “I don’t think criminal measures are a good way to go, but we should improve civil procedures and civil laws to close this gap,” the judge concluded.

Making the distinction between different behaviours is something to which the courts will need to pay a great deal of attention. As Eeva Hakoranta, the head of intellectual property at Nokia Technologies noted, just because a company does not make a product does not mean it does not innovate. Courts in other parts of the world sometimes forget that. In China, it is to be hoped that they will not.

IPBC TV in action

Delegates absorbed in a plenary session debate

Beyond China

It was not all China talk over the three days of the event, though. Other parts of Asia also came under the microscope. For example, delegates were given a glimpse into some of the patent system developments and key IP challenges in South and Southeast Asia by panellists from Singapore, India, Malaysia and Thailand.

Korada Supat of PTT Global Chemical Public Company explained that the Thai government is currently seeking to reduce the backlog at the country’s patent office, with the prime minister recently approving plans to recruit more examiners. However, she lamented that the patents that are granted rarely end up underpinning new products. This is because innovation often takes place at a pace that is too slow to keep up with business trends; while there is a lack of commercial support for researchers and academics at universities and potential patent buyers are in short supply. Her company, she said, is seeking to work with more universities to overcome these challenges.

Liren Chen of Qualcomm speaking in the Mandate to Innovate plenary

For her part, Elaine Tan of Razer in Singapore commented that many inventors in Asia are too conservative and assume that their innovations will not be patentable unless they are truly ground-breaking. As a result, her company is actively working to encourage and incentivise its R&D staff to seek patents. All the panellists noted that the IP teams at their companies have grown quickly in recent years and that the number of dedicated IP professionals at universities in the region has also increased exponentially.

There was also a deep dive into the IP litigation landscapes of several key Asia-Pacific jurisdictions. Koichi Kishada of IP Bridge challenged perceptions that Japan is not a good place to assert intellectual property, especially for patent owners. Such a view is based on a misunderstanding, he insisted, pointing out that – when settlements are factored in – 44% of cases end favourably for plaintiffs (in 30%, they secure beneficial settlements, while 14% of disputes produce favourable decisions). That said, 48% of cases involve a loss by decision, while 8% end up with unfavourable settlements. Japan also has the third-highest median damages award in the world at $220,000, which is higher than in Germany.

Judges in South Korea are distinguished by high levels of technical expertise, Albert Lee of LG Display assured delegates. The jurisdiction is becoming more pro-patentee, with historically low damages awards rising gradually and punitive damages being handed down more often. The country hosts Asia’s oldest specialist IP courts and the prosecutors’ office has also recently hired more IP experts. But inventiveness standards are very demanding in South Korea, Lee cautioned.

A less optimistic tone was struck by MediaTek‘s Steven Liu, who outlined some of the difficulties faced by litigants in Taiwan. Patent owners have only a 16% chance of winning in first-instance proceedings, he pointed out, with IP courts often declining to make a judgment on a case; significant damages awards are also rare and border seizures are not a realistic option, he added.

The Asia IP Elite gala dinner gets underway

Volvo’s new leaf

IP management and strategy issues were also prominent during the event. Two speakers from outside Asia gave fascinating insights into how their companies had developed their IP functions to align them with overall business goals.

According to Anna-Maria Lagerqvist Gahm, senior IP counsel at the Volvo Cars Group, until recently the company had not got much right on the IP front. She painted a picture of a dysfunctional situation in which a business with a long history of innovation also had a long history of failing to safeguard it, so that it was suppliers, rather than Volvo Cars itself, that largely reaped the benefits of its R&D.

Speaking with great frankness, Lagerqvist Gahm described a situation in which the R&D department itself, as well as the procurement function, often let intellectual property slip through the net by sharing information too readily, by failing to insist on non-disclosure agreements or even to secure lower prices. “It was,” she lamented, “a nightmare”. And the IP department did not help matters by being too distant, adopting a top-down approach and failing to align with overall business priorities.

Something had to give and in March 2018 it did. It was then that an entirely new strategy was implemented, which was designed to ensure that intellectual property became embedded in all parts of the company’s innovation chain.

panel

The panel for Meet China's IP Business Leaders plenary. From left to right: Linda Chang, Rouse (moderator); Xuefei Liu, IP director, Beiqi Foton; Effie Xu, senior manager, IP and legal division, BYD; Haisting Li, head IP monetisation, Huawei; and Yuping Qiao, IP manager, iFlytek.

The key principle underpinning what Lagerqvist Gahm described as a new bottom-up approach is consistent interaction between intellectual property and R&D at all levels. To that end, an annual review meeting between the IP team and the vice-presidents of every technology area in Volvo Cars is now mandated with the aim of creating annual plans that are aligned with company strategy.

On a monthly basis, IP executives meet with engineers in order to provide support, brainstorm ideas and generally be present. The R&D process also now has specific IP gates. These are checkpoints at which every project stops in order to ensure that all IP issues have been taken care of before progress to the next gate can get underway.

Another important decision was to move an innovation leader in the R&D team to intellectual property. She has acted as a bridgehead between the two groups, ironing out problems that may arise and helping IP professionals to communicate with their engineering colleagues in non-legalistic, accessible language.

There is always time to meet new friends at IPBC Asia

Visibility in the organisation is a priority, so IP workshops are held on a regular basis, while a high-profile dinner to honour Volvo inventors, with senior management in attendance, has become part of the calendar. A new inventor remuneration policy that prioritises the filing of invention disclosures over the receipt of a final patent grant has also been introduced.

Although it is early days for the new plan, Lagerqvist Gahm reported that the initial signs are good: as of September 2018 disclosures were increasing, while there has been a lot of positive engagement. “The organisation is responding well,” she said.

World-class IP value creation strategies do not appear out of thin air – they take time to devise and then implement. Volvo Cars only changed tack once it had accepted that things were going wrong. That is not an easy thing to do. Sometimes failure is the best route to success, but it is a truth only the brave are prepared to accept. There is a lesson there.

Representatives of the Asia IP Elite companies with their trophies

Driving innovation

Speaking on the same panel as Lagerqvist Gahm, Donna Suchy, managing IP counsel at Rockwell Collins, shared the company’s IP strategies designed to help drive innovation. Everything starts with START, she explained:

  • S (strategy – live and breathe strategy);
  • T (time – management makes sure that engineers are given enough time to craft and master innovation);
  • A (attention – pay attention to the innovation world);
  • R (reward – capturing and protecting innovation is different from having the idea. The company has a well-established awards programme and awards should not be given to recognise patentable ideas only, but all forms of innovation that can be protected in different ways (eg, trade secrets)); and
  • T (team – “We believe in teamwork and we also believe innovation must be fun otherwise no-one wants to talk about it,” Suchy said).

On the subject of working with external counsel, Suchy extolled the importance of effectively communicating goals and expectations, but also the significance of an analytics-centered approach to evaluation.

Rockwell Collins deploys a point system for every patent attorney with which it works. Those that dip below an average of 80% after a defined period will be stood down from writing patents for the company. But, as Suchy said, it is not enough to evaluate the attorneys, you also need to evaluate external partner firms based on quality, service, timeliness and cost-effectiveness. The company decides the top 10 firms to keep each year using those criteria.

Innovation incentivisation was the subject of an in-depth plenary discussion. It raised several interesting suggestions on how to lead R&D departments to focus more attention on IP creation and protection.

Judy Yee of Microsoft explained that the software giant has sought to create a culture celebrating innovation, not only encouraging the filing of invention disclosures but incentivising inventors based on their degree of engagement with the process of acquiring intellectual property. Microsoft also rewards innovators with unique patent cubes when they file for patent protection and again when an application is granted. These cubes come with medallions, Yee explained, coloured either bronze, silver or gold to reflect the amount of value that the company ascribes to the invention. This, she said, had been effective in engaging inventors – who are keen to know how they can get a gold, rather than a silver or bronze cube – in IP commercialisation issues.

Yee explained that LinkedIn – which Microsoft acquired in 2016 – has encouraged its innovators with inventor t-shirts developed specially by the company’s designers. Ericsson’s Gustav Brismark said his organisation holds a gala dinner each year for inventors engaged in the IP process. The inventors’ spouses are invited too, which is a good way for them to see their partners’ contributions being recognised.

The 2018 IAM Asia IP Awards

On the evening of Monday 3 December at the Asia IP Elite gala dinner, a number of Asian IP teams and individuals were honoured for outstanding achievements during 2018. They were:

Automotive team of the year – Honda

The company is by no means a frequent plaintiff but in February one of the most respected IP teams in Japan went on the offensive, taking action in China against a Beijing-based automaker that it accuses of infringing its invention patents.

Electronics team of the year – Panasonic

The electronics giant has been a prolific patent dealer for years, but one of its biggest moves came this past October when it disposed of a portfolio of more than 3,500 patents to Dominion Harbor Group.

Healthcare and biotech team of the year – ResMed

The Australian maker of sleep apnoea masks remains embroiled in a knock-down drag-out competitor dispute with trans-Tasman rival Fisher & Paykel Healthcare – 2018 saw it notch up a key win in Germany.

Industrials team of the year – Hitachi

IP strategy is at the core of a massive re-engineering of industrial conglomerate Hitachi – by divesting from non-core businesses it has generated a lot of patent transaction activity and even spawned new, independent members of the Asia IP Elite.

Internet and software team of the year – Tencent

The internet firm is best known for dominating Chinese social media, but some of its other valuable business units – like China Literature, which was floated publicly in Hong Kong this year – are built entirely on monetising IP assets.

Mobile and telecoms team of the year – Huawei

See Asia team of the year.

R&D institution team of the year – ETRI

The South Korean government-funded research organisation has carved out an influential role in the development of wireless technologies and it was also the region’s most active player in enforcement last year, launching several US litigation campaigns.

Semiconductor team of the year – TSMC

The world’s biggest chipmaker has continued to grow its patent arsenal over the past year by means of both an industry-leading filing programme and secondary market deals, sometimes tied in with licence agreements.

Asia deal of the year – Tencent and Google

There were numerous important cross-licensing deals involving key Asian firms in 2018, but the agreement between Google and Tencent was one that few predicted. We know the pact is long term, that it covers “a wide range of products and technologies” and that the parties say it will open the door to further collaboration. Beyond that, the details are sparse. However, the circumstances of Tencent’s first big cross-border licence and Google’s first major China deal suggest that it is highly strategic in nature.

Asia team of the year – Huawei

Huawei was one of the year’s biggest stories, not just in intellectual property but in the entire global technology world. Under a glaring international spotlight, the IP team led by Jason Ding has continued to position itself as a significant power in all facets of patent practice – filing, buying, selling and licensing. While the company is no stranger to collaborative deals, 2018 will likely be remembered as the year that Huawei held its own in major cross-border disputes; earning China’s first SEP injunction against Samsung and leaning on Qualcomm in the midst of a big industry-wide FRAND fight.

Asia individual of the year – Kenichi Nagasawa, Canon

One of the world’s most esteemed IP executives, Kenichi Nagasawa has been a long-term driving force in the regional IP community. Serving as a board member and managing executive officer at Canon, one of the world’s biggest IP owners, he is a major voice on IP policy matters in Japan and has been instrumental in the creation and growth of important cross-industry IP organisations such as the LOT Network.

As IAM wrote when naming him one of the top 40 market makers of the IP world: “Under Nagasawa’s stewardship, Canon retains the world’s third-largest portfolio after Samsung and IBM. Though a vocal critic of much monetisation-focused patent strategy, Canon has taken an uncompromising position in enforcing its patents against infringers in the United States – this year saw it file suits against 31 separate defendants in a single day. A proponent of greater corporate cross-licensing and a fierce critic of NPEs, Nagasawa is a major voice in IP policy debates in Japan – his strong views on SEPs have been reflected in some recent policy initiatives in that area.”

Transaction trends

Deal making, too, was a major focus at IPBC Asia. A note of optimism was struck in the patent buying and selling masterclass, with expert panellists reporting an uptick in transactions following several years of poor market performance. Revealing the results of Richardson Oliver Law Group’s annual study of the brokered patent transaction market for IAM, name partner Kent Richardson pointed out that more patents are being sold overall, with greater revenue being generated – up to $353 million from $300 million – while overall prices are stable, despite a 30% drop in the average price of single asset deals.

Jim Weisfeld of Intellectual Ventures said that his organisation had been involved in more patent transactions in the past year, and he observed an increase in the levels of capital being made available for IP purchases; while Houlihan Lokey’s Elvir Causevic and Don Merino of Asia Patent Group echoed this sentiment. Causevic highlighted the growing preference of buyers for large, international patent portfolios. Purchasers increasingly insist on seeing a claim chart before buying, with UK, German and Chinese rights alongside US patents. If they are not there that is often seen as a deal breaker, he said.

On the licensing front, there was a fascinating insight into what a win looks like for a licensee. This is an issue that is particularly on the minds of many in-house IP deal makers in China. The reality is that in fields such as mobile and semiconductors, most high-tech companies in the country find themselves on the licensee side of the table and IP managers will be faced with the prospect of convincing management that a deal that involves a payout should be seen as a success.

“In a pure patent licence, a true win-win is very difficult,” conceded Nishant Jaiswal, senior manager of IP licensing at HP Enterprise. But there are still ways to justify such deals on the licensee side, he said, pointing to licences that even though they do not include a tech transfer do come paired with a patent assignment.

Wade Zhu, IP counsel at DuPont, argued that the biggest benefit Chinese companies can get from licence deals is building their company’s reputation for fair dealing. When an opportunity for a profitable tech transfer or other business partnership eventually does come along, companies that are seen to act in bad faith in IP negotiations will lose out. “Image is important. People will get the idea that you’re not a company that can be worked with long-term, and multinational companies will always worry about giving you the crown jewels,” Zhu cautioned.

Yoshihiro Endo of Honda summed up the dominant view among Japanese automakers on licensing: deal with our suppliers. But Endo, who is general manager of the company’s motorcycle and power product IP division, made clear that this position does not arise out of an unwillingness to pay for intellectual property. “At the end of the day, if suppliers pay the licence fee, they will simply pass the costs on to automotive companies, and we will bear the cost,” he said.

However, Endo suggested that suppliers are better placed to negotiate deals effectively with licensors: “It’s more appropriate for the supplier to assess SEPs and maybe identify key patents and discuss their validity.” IP departments in the sector will need more capacity if they are going to negotiate across the breadth of the technology areas incorporated into modern vehicles. “It’s almost impossible for us to deal with all components at once,” he lamented.

Thanks to all IPBC Asia delegates, speakers and sponsors from the IAM team!

Overall, IPBC Asia 2018 was probably the most successful edition of the event to date. With consistently top-quality discussions and presentations, combined with multiple networking opportunities, a very senior set of attendees and a distinctly Asian flavour, the consensus was that delegates got their money’s worth. We would like to thank all of them, as well as the speakers and sponsors for their support and contributions.

Our thoughts now turn to future events on our calendar for 2019, including: IPBC Europe in Paris on 27 and 28 March; IPBC Global in Boston from 16 to 18 June; and then IPBC Asia once more, this time in Tokyo at the end of October. For more details of these and all our other events, please visit www.ipbc.com.

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