Spring festival

This April, top IP executives, investors and strategists from around the world convened in Beijing for IPBC China. The focus was on the latest developments in this most exciting of emerging IP markets

More than 250 delegates gathered at a packed-to-the-rafters IPBC China 2015, which took place on April 21 and 22 at the Shangri-La Hotel in Beijing’s tech hub, the Haidian district. Well over two-thirds of attendees came from China itself, with the remainder hailing from Europe, North America and the rest of Asia.

Although many Chinese rights holders are still in the early stages of their IP value creation journey, one thing very quickly became clear as the event progressed: their sophistication in terms of IP awareness and strategic nous has evolved at breakneck speed since the last IPBC China was held in 2012. The country is attempting to transition from a focus on pushing up the number of IP filings to creating and exploiting valuable IP assets – and patent quality was one of the items at the top of the agenda for this event.

Following a VIP cocktail reception on the preceding evening, the series of plenary sessions taking place on April 22 opened with a keynote speech from Lipu Tian, former commissioner of China’s State IP Office and a member of IAM’s IP Hall Of Fame. Addressing delegates, Tian noted that just 30 years have passed since the Chinese government enacted its first modern patent law. “In those three decades, we have made great efforts to enlarge the scale of intellectual property in China,” he said. “Today, we own more patents than any other country; but the challenge now is to proceed from the simple pursuit of numbers to focus on higher quality.” Emphasising that the issue of patent quality – and hence, value – is not lost on the Chinese authorities, the ex-commissioner underlined the fact that the vast majority of Chinese invention patents are abandoned long before their full 20-year term is up. “If it has any value in the market, then a patent will be maintained even until the end of its life,” Tian said. “At the end of the day, applicants want to see their applications approved. But that’s still not enough. What we need to see is commercial results.”

 

Buying time

While Chinese companies are more IP savvy than ever before, they still have plenty of work to do to catch up with the international competition. Speaking in the first session of the day, entitled “Building a world-class patent portfolio”, Jianguang Du, group IP director at Shenzhen-based medical devices manufacturer Mindray, explained that more than just a highly sophisticated organic patent development programme is needed for his company to cater for all of its strategic IP needs. As a result, said Du, Mindray’s IP team is always on the look-out for both acquisition and in-licensing opportunities. And, based on conversations with both corporate executives and brokers during the refreshment breaks, it is not alone. China’s appetite for patents is undiminished. In fact, as more Chinese companies seek to expand beyond their domestic markets, it is probably increasing. For US sellers, in particular, the Chinese are proving to be a saving grace; while European assets are growing in strategic importance. Germany, in particular, is already emerging as a serious alternative to the United States for many licensors that need to litigate in order to force licensees to do deals; and if the European Union’s Unified Patent Court gets up and running, the continent will only become more attractive – especially to Chinese businesses keen to extend their footprint there.

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The opening cocktail reception gets underway

 

However, as alluded to by Tian in his keynote address, quantity is not everything. In fact, an overabundance of patents may even end up negatively impacting on the business, as Du’s co-panellist, Google patent counsel James Maccoun, explained. At Google – which did not even apply for a patent until 2003 (though it did have an exclusive licence to the famous Stanford patent well before that) – it was having to settle an expensive suit just before going public that got management thinking for first time about the company’s need to build an IP portfolio. Just 11 years after filing that first application, Google found itself ranked at number seven in the table of US patent recipients, with 2,566 granted in 2014. It has also made any number of patent acquisitions in that period, most famously from Maccoun’s previous employer Motorola Mobility. Google has learned that patents are vital, Maccoun stated, because, among other things, they help to guarantee freedom to operate and underpin cross-licensing deals. The company is not interested in assertion – having only sued once in its entire existence – but even so, it now knows that it needs a high-quality portfolio and will do whatever it takes to ensure that it has one.

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Microsoft chief patent counsel Micky Minhas (far right) talks filing and acquisition strategy during the “Building a world-class patent portfolio” session. Joining him on the panel are (from far left): James Maccoun, patent counsel, Google; Jianguang Du, group IP director, Mindray; Jialin Li, IP manager, BYD

 

Another of Maccoun’s former employers is Hewlett-Packard and there the drive to patent came from a very different source: former CEO (and currently one of the Republican Party’s potential candidates for US president) Carly Fiorina. She took up the reins in 1999 and had soon increased the company’s patenting budget. Within five years, the company was receiving close to 1,000 grants annually, with 11 new patents granted every working day. In 2005, Hewlett-Packard was placed third in the list of US patent recipients. Soon after, though, the numbers started to decline.

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Delegates’ questions are answered as the “Litigation boom” session comes to a close. From left are: Steve Joroff, head of Asia-Pacific IP licensing, IBM; Joo Sup Kim, vice president of intellectual property, LG Electronics; Wei Shi, vice president for IP investment and valuation, Zhigu; Paul Fehlner, global head of intellectual property, Novartis; Ben Wang, head of patents, China, Unilever

 

And therein lay another truth that Maccoun was keen to get across to his Chinese audience: patenting is expensive and, cumulatively, it is extremely so. As portfolios grow, companies not only are paying more for application and prosecution, but must also find the cash for office actions, renewals and other ongoing expenses. So when the tough times come, it is often patenting that is first to feel the pinch – something that happened at both Moto and HP. The high outlay on patenting without a clear matching return may also have been one contributory factor, among many, in Fiorina’s forced resignation as CEO in early 2005. As Chinese companies push themselves to build ever-bigger portfolios, this is something that may need very close attention.

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The panellists debate the reasonable royalty conundrum during the “FRAND, standards and antitrust” session. From left: Anman Qiu, senior adviser, Beijing East IP (moderator); Simon Wang, senior licensing counsel, ZTE; Lingfei Lei, legal policy director, China, Intel; Jari Vaario, head of patent licensing, Asia-Pacific, Nokia; Qi Zhou, senior IP counsel, Baidu; John Han, vice president, licensing, Ericsson.

 

Sleepless nights

While the majority of delegates at IPBC China were from domestic entities, hoping to do deals and prime their portfolios for overseas expansion, almost one-third of those in attendance were from foreign companies and service providers seeking to grow their own footprint in this incredibly promising, but hugely challenging market. One of the biggest issues facing foreign rights holders is their ability (or otherwise) to effectively protect and enforce their rights in China.

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Lipu Tian, former commissioner of China’s State IP Office, implores delegates to play their part to improve patent quality in the country

 

Speaking in the day’s second session – “Litigation boom” – Unilever’s head of patents in China, Ben Wang, talked about the environment there being ‘VUCA’: volatile, uncertain, complex and ambiguous. Here you have a country of over 1 billion increasingly affluent people that has become the world’s number one patent filer, Wang stated; but there are also serious issues around quality, a notorious utility model regime and a relatively inexperienced judiciary, together with the slew of major changes to the law that have taken place in the last five years. Put all that together with a slowing economy and a government that is actively encouraging companies to maximise the value of their intellectual property, he said, and what you can expect to see a whole lot more of over the coming years is patent litigation. That is on top of the large amount that is already taking place; and this in a jurisdiction in which winning plaintiffs are routinely entitled to injunctions (though ZTE’s senior licensing counsel Simon Wang, speaking later in the day, suggested that injunctions may not be as easy to obtain in China as many might think). No wonder Wang talked about sleepless nights; and no wonder that some people believe that Chinese patents – or the good-quality ones, anyway – are seriously undervalued.

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A model of a Peking opera mask greeted delegates as they entered the exhibition room

Another major factor in the development of China’s IP marketplace – and in how we evaluate the worth of Chinese patent assets – is the evolving role of competition regulation and the authorities whose job it is to enforce it. The decision of China’s National Development and Reform Commission (NDRC) at the close of its antitrust investigation of Qualcomm is surely the biggest IP-related news story to emerge from the country so far this year. The NDRC ordered Qualcomm – the only US company to feature among the top 10 recipients of Chinese patents in 2014 – to pay a $975 million fine, while also imposing strict limitations on its patent and technology licensing practices.

There has been plenty of speculation over what this means for both licensors and licensees operating in China; and debate as to whether it represents a protectionist tendency among China’s competition regulators or reflects the actions of watchdogs in other parts of the world. Whatever your viewpoint, everyone can likely agree on one thing, said BYD IP manager Jialin Li, speaking in the day’s opening plenary: the case proves that Chinese patents are valuable. After all, why would a foreign company file for so many – and why would so many domestic players take a licence to them, even under what have been found to be unfair terms – if all parties involved did not think that they were worth it? Patents have put Qualcomm in an extremely powerful position in China – so much so that the antitrust authorities felt the need to step in and take action against it. From now on, what happened to the US company will no doubt be an important consideration for Chinese and foreign rights holders alike as they formulate their IP strategies for doing business in the country.

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Huawei’s head of IP monetisation, Haitsing Li, explains the growing importance of patent licensing as a source of revenue for Chinese corporates during the “IP equals money” session

 

High-rolling royalties

Though a number of hurdles must still be cleared before the value creation potential in Chinese patents can be properly realised, there are sure signs that at least some of the country’s companies are rapidly approaching an impressive, world-class level of sophistication in terms of strategic IP management. One of the clearest indications is that patent licensing has become a significant source of income for some of them.

Speaking during the afternoon’s “IP equals money” session, Huawei’s head of IP monetisation Haitsing Li shared a few figures which revealed that, across the board, China’s top patent owners have been ratcheting up the contribution that licensing makes to their overall revenues. In 2012, he said, Chinese companies collectively made around $500 million from licensing out their patents. By the end of the following year, this had increased to $1.36 billion. While the patent royalties figures for 2014 are not yet available, Li estimated that they should be in excess of $2 billion based on the previous years’ rate of growth.

When you consider that Huawei itself is one of just a handful of companies in China that own large, international patent portfolios, it does not take a wild leap of the imagination to think that quite a vast chunk of that $2 billion-plus could be making its way into the coffers of the Shenzhen-based telecoms giant.

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A question from the audience

 

Honouring the Elite

On the evening of April 22, after the plenaries had finished, delegates attended a gala dinner at which the members of the 2015 China IP Elite were named and presented with trophies. The China IP Elite comprises those Chinese IP-owning entities that, after an extensive research process, IAM has identified as being at the forefront of strategic, business-focused IP management in the country. In alphabetical order, they are: Aigo; Alibaba; Baidu; BOE Technology; BYD; Chery; China Electronics Corporation; China Mobile; Datang Telecom; Founder; Geely; Goldwind; Gree Electric; Haier; Hisense; Huawei; Hutchison MediPharma; Kingsoft; Lenovo; Midea; Mindray; Netac; PetroChina; Qihoo 360; Sany; Shanda Interactive; Simcere; SMIC; Sinopec; Sinopharm; Tasly; TCL; Tencent; Tralin Group; Tsinghua University; XCMG; Xiaomi; and ZTE. Congratulations to each and every one of them, and long may they continue to demonstrate the importance of a cogent, coherent IP strategy as a key element of overall business success.

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Representatives of the 2015 China IP Elite inductees with their trophies at the gala dinner

For more information on the 2015 China IP Elite winners and the research methodology that enabled the IAM team to identify them, please visit www.ipelites.com/China.

Finally, IAM would like to extend its gratitude to all of the speakers, sponsors and delegates who took part in IPBC China 2015. Our special thanks go to the Haidian IP Office, Zhongguancun Haidian Science Park and the government of Haidian District of Beijing, whose support helped to make this year’s IPBC China the stellar event that it was.

Joff Wild is the editor of IAM, based in London; Jack Ellis is its Asia-Pacific editor, based in Hong Kong

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