A special anniversary at a time of rapid change
From June 18 to 20 2017, the 10th IPBC Global took place in Ottawa, with more than 500 senior IP leaders in attendance. Over the three days of the event a wide range of topics came up for discussion under the general theme of intellectual property in the age of convergence. The conference confirmed that the IP market is changing. The US-based confrontations which were once such a feature of the landscape have given way to a more collaborative approach to value creation, on a much more international stage. Business models and attitudes are evolving rapidly – and come 2020 it could all look very different again
The first IPBC took place in Amsterdam back in 2008 and featured a full-scale Ocean Tomo patent auction on the afternoon of the second day, which generated $12 million in sales. Another auction played a significant, though unseen, role at the 2011 get-together in San Francisco, as delegates kept half an eye on the seemingly endless rounds of bidding in the Nortel patent sale in New York. Just a few days after the event finished, it was announced – to general astonishment – that the rights in question had been bought by the Rockstar consortium for $4.5 billion. It is hard to imagine any patent portfolio selling for as much again.
Although the first IPBC took place in Europe, back in 2008 the IP market was almost exclusively focused on the United States. That is definitely not the case anymore. Developments in the United States – legislative and judicial – have combined to significantly reduce the value of patents there; while elsewhere the opposite has happened. Globalisation has also played a big role, with rights holders building new markets and seeking to ensure freedom to operate within them. When countries such as China came under discussion at the IPBC 10 years ago, the conversation was all about piracy and counterfeiting. This is no longer the case as companies and governments across Asia embrace the power of IP value creation.
As IPBC Global celebrated its first 10 years in Ottawa, it was clear that while the IP market has changed, it remains as dynamic as ever. Collaboration and convergence may have replaced confrontation and exclusion as key drivers, but only because immensely talented, forward-thinking individuals working in all kinds of fields have determined this should be the case. That buzz on the first morning as the big names assemble in the plenary room for the opening session, and the constant hum of activity as contacts meet to talk business in the breaks and at the receptions, remain a constant feature of IPBC Global. Long may it continue.
Lenovo’s chief legal officer Laura Quatela delivers the keynote address, launching IPBC Global 2017
The drinks reception on the Monday evening was hosted by country sponsor TechInsights
The panel for the “Internet of Things” boot camp. From left to right: Ian Maclean, TechInsights (moderator); Micky Minhas, Microsoft; Michael Pierantozzi, Hewlett Packard Enterprise; and Joseph Sommer, AT&T
A question from the floor during one of the plenaries. Delegates were active contributors to all the sessions throughout the event
The “Meeting the China challenge” breakout attracted a large audience
A break from networking to catch up with calls and emails
When the sun shone, the view from the Shaw Convention Centre onto downtown Ottawa was spectacular
Special keynote insight
This year’s event began with a keynote address from Laura Quatela, who was appointed chief legal officer at Lenovo in December 2016. There are few more experienced operators at the top end of the IP market than Quatela, who as head of intellectual property and then president of Kodak, was intimately involved in the 2012 patent sale which subsequently enabled the company to escape bankruptcy. From Kodak, Quatela moved to Alcatel-Lucent where she reported directly into its CEO and was a key player in the company’s merger with Nokia; while all this was happening, Quatela was also a member of the Technicolor board.
In a wide-ranging presentation, and in a subsequent Q&A with IAM’s North America editor Richard Lloyd, Quatela called on all her experiences to explain how company boards engage with intellectual property and what this means for IP professionals. With regard to Lenovo, she described how she is working to increase executives’ insights into the IP environment. “The board doesn’t know what an inter partes review is – we’re building that understanding,” she explained.
Quatela also shared a conversation that she had more than two years ago with the chief operating officer of a major Chinese consumer electronics business. When asked about the IP risks it faced in its planned expansion overseas, the executive pointed towards the company’s goodwill among customers as a potential tool, commenting: “Our consumers in our own geography love us and follow us every minute.” Any litigation launched against the company, he suggested, would generate bad publicity and potentially even boycotts of the plaintiff’s products. It sounded, Quatela recalled, a lot like Steve Jobs’ attitude before the iPhone launched. However, as everyone has since learned, the popularity of a product cannot protect it from patent wars. The unnamed company apparently has taken that lesson on board – Quatela said that its progress on the IP front since that conversation has been truly impressive.
More generally on China, Quatela compared the prevalent IP strategy there to one that used to be common in Japanese enterprises – quantity over quality. “I see a lot of the same old behaviour,” she observed. “Lots of patents stacked up on a table, and IP executives saying we’ll find something somewhere, though maybe with less conviction than the rest of us showed back in the day.” But she also stated that a new mode of IP value creation will emerge soon enough in the country – one that combines lessons learned from the United States and Europe with China’s own unique experience.
Quatela recognised that corporate IP managers face great pressure to generate returns on massive investments made in patent assets. It comes from the board during times of financial stress and reaches a fever pitch when an investor gets involved. She explained that she had first-hand experience with activist shareholder Vector Capital as a member of Technicolor’s board, and argued that such a peril now comes with the territory for a publicly traded company which holds major IP assets. “We needed to shift the attention of analysts following the company away from patent licensing,” she argued, talking of the Technicolour experience, “which by its nature is unpredictable, or lumpy.”
This kind of pressure was also addressed by speakers in other sessions. In a breakout looking specifically at the Chinese patent market, moderator Joe Siino of Via Licensing pointed towards ZTE’s recent deal with NPE Longhorn IP as a milestone. Panellist Eeva Hakoranta of Nokia observed that financial circumstances had compelled the Finnish company to make similar deals in the past, commenting: “When boards start to understand intellectual property, they’ll start asking questions about why companies are spending so much money on IP assets.” The fact that the board of a Chinese company is presumably beginning to think this way is a significant development indeed.
Bruce Schelkopf of ABB takes the mic during the “Meeting the convergence challenge” plenary, as fellow panellists listen on. From left to right: Erich Andersen, Microsoft; Courtney Quish, TiVo/Rovi; Monica Magnusson, Ericsson; Mike McLean, TechInsights (moderator)
IP Watchdog founder and editor Gene Quinn explains why he is more optimistic about the US patent system than he has been for many years, in the “US pendulum” breakout
Ray Strimaitis, former vice president and deputy general counsel at Yahoo! makes a point in the “Patent sales” boot camp, watched by fellow panellists Edmund Fish of Houlihan Lokey and Russell Binns, Allied Security Trust; and moderator Kent Richardson of Richardson Oliver Law Group
A growing feature of the patent market in recent years has been the emphasis that many companies are putting on collaborative hook-ups in which a licence or transfer of assets might be part of a transaction focused on a broader business relationship. The multi-faceted deal announced by Microsoft and Xiaomi last summer is perhaps the leading example, but it is noticeable that more patent owners are now placing less emphasis on transactions that simply revolve around extracting royalties from potential licensees. In one part of Quatela’s speech she discussed how the use of patents needs be rethought. “It’s clear to me that using patented assets to exclude, to shut down, to behave singularly rather than collaboratively is an increasingly risky enterprise,” she said.
This was a theme that continued into the following plenary, “Where innovation meets intellectual property”, a session built around the experiences of senior IP managers inside Clarivate’s Global 100 Innovator Companies. Phil Johnson, formerly head of intellectual property at Johnson & Johnson and an inductee this year into the IP Hall of Fame, discussed how businesses such as the pharma giant are increasingly tapping into a much bigger ecosystem, including start-ups, to drive their innovation rather than simply keeping everything in-house. Incremental improvements to a product might still be managed within a company, he noted, but transformational change is increasingly driven by a more collaborative approach. This sentiment was echoed by Marvell Semiconductor’s Kelvin Vivian, who commented: “We have new management open to seeing whether there are IP solutions that can be purchased rather than developed in-house.”
One of the effects of technological convergence is that many sectors are now seeing the kind of advances that have long been the preserve of the high-tech space. This shift was highlighted in the “Meeting the convergence challenge” plenary session by Microsoft’s Erich Andersen. “All of us in IT are used to dealing with computers, connectivity and interoperability,” he remarked. “But there’s a whole world out there that’s really just starting to adopt this technology.”
Fellow panellist, Monica Magnusson of Ericsson, explored some of the areas where this is happening. The Swedish telco, she revealed, is collaborating with mining companies to connect equipment so that it can be operated remotely underground and is also working on remote surgery so that doctors can carry out operations hundreds of miles from isolated areas. As her examples show, the opportunities presented as technologies come together are boundless – but they also throw up some interesting questions around IP licensing in new sectors.
As well as being unaccustomed to the high levels of connectivity promised by convergence and the development of the Internet of Things (IoT), many industries are unused to sophisticated IP licensing or even any licensing at all. This poses challenges to members of the licensing community as they try to work out how to do deals with a new universe of businesses which might be reluctant to start paying royalties. Given the problems that we have already seen in some tech sectors which boast sophisticated IP expertise, a few bumps in the road seem likely. Patience, empathy and skilled negotiation will be vital attributes for big players in the IP market over the next few years.
However, the challenges posed by collaboration are not new to everyone. As Orin Herskowitz, head of Columbia University’s tech transfer office, pointed out in the “Doing brilliant licensing deals” masterclass, universities have been living with convergence for years. He noted that research typically brings together different fields of expertise to work on early-stage innovation which can lead to “some crazy mash ups”. It also means that university discoveries are often licensed to a broad range of users. In one example, Herskowitz referenced a brain/computer interface which he said had been licensed for sports analytics, as well as medical diagnostics. The challenge of this kind of multi-faceted technological application, he concluded, involves how to price the innovation or even whether you can charge a royalty at all.
Panellists in the “20/20 vision” plenary write their predictions on how the IP market will look in 2020 before handing then to moderator Marek Wernik of Techpats (standing). From left to right: Jim Skippen, WiLAN; Heath Hoglund, Dolby; Ilkka Rahnasto, Nokia; Murali Dharan, IP Value; and Kurt Brasch, Uber
Malcolm Meeks of France Brevets chats with audience members following the “Policy priorities” breakout, in which he was a speaker
The panel for the “Being a brilliant in-house IP group” masterclass. From left to right: Curtis Behmann, Borden Ladner Gervais (moderator); Roger Gobrogge, ITIP ProFiciency; Robertha Höglund, Elkem; Santosh Mohanty, Tata Consulting Services; and Michael Vladescu, WiLAN
Under pressure in-house
Back in the “Meeting the convergence challenge” session, the good news about technology convergence, observed ABB’s Bruce Shelkopf, is that “the IP department just got a lot more important”. However, this does not come risk-free. In addition to its traditional status as a cost centre in most companies, the IP function is now also potentially a “rights lost” centre. While this should drive home its importance to CEOs, it will also increase the pressure on IP managers.
That said, in the “Being a brilliant in-house IP group” masterclass, a sizeable audience was left in no doubt that when it comes to the corporate IP function one size does not fit all. For WiLAN COO Michael Vladescu, brilliance is intrinsically linked to revenue generation – and strong, sustainable revenue generation at that. For his part, Santosh Mohanty, who heads up Tata Consultancy Group’s IP team, argued that a group which integrates intellectual property into a company’s value chain is doing top work. Robertha Hoglund, Elkem’s head of intellectual property, said she sees a brilliant IP team as one which manages to communicate the importance of intellectual property to all colleagues and, most crucially, to corporate management. Finally, Roger Gobrogge – now of ITIP ProFiciency, but previously head of intellectual property at Rolls-Royce Corporation, Americas, and chief patent counsel for Dow Corning Corporation – weighed in that the best IP group has the ability to think and speak like a company’s business units and to ensure that it is well aligned with business strategy.
Changing face of transactions
As you would expect at any IPBC, the transactions marketplace was a consistent topic of discussion throughout the three days in Ottawa. One interesting issue to emerge related to metrics. Speaking in the “Patent sales” boot camp, Russell Binns, CEO of Allied Security Trust, revealed that he is not a fan of the average price per patent benchmark – “it’s a terrible metric,” he lamented. An audience member agreed, arguing that the very concept of average price per patent had contributed to erasing a huge amount of IP value over the years as it has been misused to drive the sums involved in deals down.
Although moderator Kent Richardson conceded that the data point is prone to misinterpretation and is by no means perfect, he maintained that it is better than no information at all – a state of affairs that characterised the patent transactions market for many years. The conclusion seemed to be ‘use with caution’ – if you can get the average price per family or more granular data like average price in a single, specific technology area, so much the better.
A further theme to pop up in the same boot camp was transparency. Another audience member suggested that a way to facilitate transactions would be to require the recordal of any patent assignment and possibly the disclosure of pricing information as part of that process, just as real estate transactions are a matter of public record in many places. The panellists largely agreed that more transparency would be a good thing and most were happy with a requirement to disclose patent assignments. However, given that most transactions contain a few key valuable patents combined with others that are essentially free, requiring price information could result in data that fails to tell the whole story, cautioned Ray Strimaitis (formerly of Yahoo!).
China, of course, is an IP deal-making hotspot right now and unsurprisingly received plenty of attention. When it comes to closing a transaction there, there is no instant pudding, said Don Merino, the co-founder of the Asia Patent Group, speaking in the “Meeting the China challenge” breakout. As a veteran operator in the country, Merino spoke with authority when he stated that you need to have a plan, do your homework and be consistent in order to enjoy success. He said there are two key things overlooked by many would-be deal makers – transparency and guanxi or personal connections.
“If you think you can fly in once a quarter and do a deal, you are wrong,” Merino warned. Rights holders should expect to work for at least a year before signing up their first licensee. “It means being in the guy or gal’s office every month for 10 months and letting them know you’re persistent, trustworthy and operating in good faith,” he pointed out. This was reinforced by Douglas Naab of General Electric (GE) during the “Doing brilliant licensing deals” masterclass.
A decade ago, Naab explained, once he had finalised a deal he had little relationship with the counterparty, other than tracking their income. This situation has completely transformed – for most of transactions he has completed over the last couple of years, he still has almost weekly conversations with the other side. This comes with benefits and drawbacks. “It’s great for forming a relationship and setting up the next deal,” Naab observes. “But it’s also very time consuming. You almost need another layer in your organisation to handle it.” Naab explained that ongoing conversation is especially relevant to the agreements GE has made in China. As broad technology deals – and Chinese relationships – become increasingly common, IP executives may find themselves asking the board for more human resources to manage these complex relationships
Bridging the all-too-frequent gap between foreign licensors and Chinese implementers, the question of what is a fair royalty rate is also emerging as a major issue and garnered plenty of attention in the China challenge session. Conversant CEO Boris Teksler pointed out that patent licensing there is not the market-driven process many Western executives are used to, with the government often stepping in to set royalty rates.
Nokia’s Eeva Hakoranta took issue with the common argument made by Chinese handset makers – that their razor-thin margins make it difficult for them to pay global market rates – arguing that this disconnect needs to be solved one way or the other. However, Merino had a simple question for anyone tempted to criticise the Chinese position on patent royalties as unfair: “Does anyone think the US court system is offering fair value for patent royalties?” The tough reality for licensors, he contended, is that seven of the top 10 handset manufacturers are Chinese – and they are largely going to determine what is fair and what is not. The end result may not be to everyone’s liking, he suggested, but it may be more reasonable than many observers would expect.
The panel for the “Where innovation meets intellectual property” plenary in full flow. From left to right: IP Hall of Fame inductee Phil Johnson; Kelvin Vivian, Marvell Semiconductor; Marie MacNichol, InterDigital; Ludovic Hamon, Centre National de la Recherche Scientifique; Brian Hinman, Philips; and Dave Brown, Clarivate (moderator)
There was a big turnout for the farewell drinks reception – one more chance to make contacts
With so much talk of China, the extent to which the patent deals market is still focused on the United States – and, more specifically, on US assets – is an ever-more pertinent question. It was addressed in the “State of play” breakout session. “Global assets are critical, the United States doesn’t drive the market anymore,” insisted Jaime Siegel, CEO of Cerebral Assets and global director of licensing for the Open Invention Network. This means that patent owners are increasingly placing an emphasis on developing portfolios that include significant numbers of filings in Europe and Asia, he argued.
In his opening comments, Kudelski Group’s Subash Krishnankutty revealed that around 10% of the company’s portfolio comprises US assets and that a global footprint is crucial when it is looking to make an acquisition. However, before patent owners start looking to shift all of their US assets, Siegel explained there is still a lot of deal activity around US patents – it is just that more value is increasingly derived from overseas grants. The United States may remain a key part of patent deal making, but these days it is undoubtedly one piece of a complex global jigsaw.
One of the features of recent IPBC Global events has been a distinct pessimism in relation to patent rights in the United States. However, according to IPWatchdog’s Gene Quinn, this may be coming to an end. Speaking on the “US pendulum” panel, Quinn explained that he was “more optimistic than I’ve been at any point in the last five years”, adding that he expected the tone to be very different at next year’s IPBC Global. He provided some context for this, pointing out that there was a feeling among many delegates that things could not get much worse and he sensed that the current climate might be “the dark before the dawn”. Quinn pointed to a series of possible decisions from the US Supreme Court and the federal circuit involving inter partes reviews as one potential source of optimism.
Moderator Giustino de Sanctis of Vectis introduces the “Doing brilliant licensing deals” masterclass panel. From left to right: Marc Ehrlich, IBM; Orin Herskowitz, Columbia University; Douglas Naab, General Electric; and Stefan Tamme, Rambus
Three members of the IP Hall of Fame catching up on the gossip. From left to right: Phil Johnson, Ruud Peters and Beatrix de Russe
Quinn was not the only one making predictions. In the “IoT” boot camp, the panel – moderator Ian MacLean of TechInsights, Micky Minhas of Microsoft, Joe Sommer of AT&T and Michael Pierantozzi of HP Enterprises – shared their views on the current state of play (general consensus: it is very early in the game and we need to be patient), as well as identifying developing challenges facing IP professionals working in the space.
Undoubtedly, one of the biggest issues presented by the IoT – and for innovators one of the greatest opportunities – is its sheer scope. Patent pools have emerged as an attempt to accelerate connectivity; but with such a fragmented market made up of so many different industries, the panel argued that these are not a cure-all. “Patent pools are a nice place for one stop shopping if there is one shop to stop at,” quipped Minhas. That may explain why certain platforms have yet to really take off. For his part, Pierantozzi urged the IP community to reflect on the lessons learned from the smartphone wars, arguing that, due to the vast combination of platforms and markets, we could be in for another period of complex litigation – unless players come to believe that working together might be a more profitable way to proceed.
Kurt Brasch, who heads Uber’s patent transactions team, was bullish about the possible growth in the popularity of patent pools in the “20/20 vision” plenary. From their 2000s heyday pools have largely fallen out of favour as a mechanism for quickly and efficiently licensing a market and helping to promote widespread adoption of a particular technology; but, said Brasch, that may change. “Now is the perfect time for pools and in 2020 the licensing environment will be much more pool based,” he predicted. Brasch cited transparency and certainty over price as big pool benefits. This enables manufacturers to easily factor in the cost of licensing when pricing their products.
However, not everyone was totally sold on the idea. IPVALUE’s Murali Dharan observed that pools are by no means a panacea for everything and everyone; while WiLAN’s Jim Skippen cautioned that although pools can work well for large operating companies, for smaller players – whose rights may get lost within a pool or substantially undervalued – they can be far less appealing.
The “20/20 vision” session was planned to provoke speakers and audience members to make some bold forecasts about where they see the IP market heading. It did not disappoint. Each panellist was supplied with a crystal ball by TechPats president and moderator Marek Wernik and each wrote a prediction for the next three years, sealed it in a box and pledged to reopen it at IPBC Global in 2020. This is what the panel came up with:
- The United Kingdom will not leave the European Union and will be part of the EU unitary patent system, including the Unified Patent Court, within three years – Heath Hoglund, Dolby.
- There will be fewer US patent suits filed in 2020 than in 2017 – Jim Skippen, WiLAN.
- US patents filings will be in decline and US law school admissions for patent lawyers will be down from 2017 – Murali Dharan, IPVALUE.
- By 2020 we will see new, innovative IP business models – Ilkka Rahnasto, Nokia.
- Automotive will become the new smartphone space and the sector will have its own Nortel – Kurt Brasch, Uber.
We will see if the panel called it right when IPBC Global reconvenes for its 13th iteration in June 2020 at a venue as yet to be determined. What we can say for certain, though, is that the 11th IPBC Global will be taking place at the Palace Hotel in San Francisco from June 10 to 12 next year. If you cannot wait until then to get your next IPBC fix, IPBC Asia 2017 will be held at the end of October at another Palace Hotel– this one in the heart of Tokyo. Space at both events is limited, so if you are planning to come along, book early.