Star turns – counting down the best of the best

More than your typical “G”

Over the years, each of our market-maker rankings has featured a sizeable group of executives from the major wireless licensors. Huawei’s Jason Ding took number one in 2018, while the top 10 has regularly been peppered with companies that own the largest mobile portfolios.

This year is no exception, with the top of the table once again hosting the giant Chinese telco, as well as leaders from Ericsson, InterDigital, Nokia, Qualcomm and Samsung. When you also include Apple, which is set to own one of the widest portfolios covering 3G, 4G and 5G technology once its deal with Intel closes, then our top 10 is dominated by companies that are shaping the next generation of mobile technology.

The nature of 5G, which promises to connect far more devices to the Internet than the smartphone in your pocket or laptop on your desk, means that the competitive landscape is becoming ever more complex. While this may prompt concerns of possible conflicts between rights holders and manufacturers, according to Ericsson’s chief IP officer Christina Petersson, the litigation battles that break out in the space often mask the relative peace in the sector. “Thankfully most deals are done without litigation,” she points out.

For Jenni Lukander, head of Nokia Technologies, this cooperation extends to the automotive sector. In March German manufacturer Daimler filed a complaint with the European Commission over Nokia’s licensing practices for its SEPs, signalling that attempts to license the car industry may be running into some familiar litigation problems. That dispute, Lukander insists, is atypical, as the company has also seen “more than 10 automotive brands become licensed to our cellular SEPs”.

“It’s not unusual in the early stages of a new market to see some friction,” she continues. “But I am confident that with time there is more to be achieved if we all work together.”

While automotive is shaping up to be one sector in which 5G supports an even greater use case for mobile connectivity, the application of 5G in other industries where wireless technology is largely yet to penetrate will become one of the distinguishing marks of mobile’s new generation. Even among experts it is not yet clear how far 5G’s reach will go. “We don’t know all of the different use cases yet, so we don’t know who some of the customers are going to be,” Petersson explains. This means, she says, that the company needs to be flexible, ensure that its timing is right and be transparent with potential new customers. In light of this, it is notable that several of the largest SEP owners – including Ericsson, Nokia and Qualcomm – have announced their 5G royalty rates for mobile devices. This may not be what users in other sectors end up paying, but it does reflect a recognition that licensors need to be upfront about their demands.

It is too early to determine who will emerge, in IP terms, as the 5G leader. Over the past year there has been a growing volume of data detailing which companies are making the greatest contributions to the new standard – and some of this has been given a misleading slant or simply been over-hyped. However, it appears safe to assume that Ericsson, Huawei, Nokia, Qualcomm, Samsung and possibly now Apple will own the leading portfolios and are likely to see the biggest returns. For Ericsson, Nokia and Qualcomm, that should mean billions of dollars in licensing revenue.

For the time being, much of the focus is on the roll-out of the technological infrastructure that will power new 5G devices. As Lukander points out: “Typically, licensing deals lag behind the commercial launches of networks for any new standard.” Nevertheless, as those deals are struck, you can be sure that mobile’s IP leaders will continue to feature prominently in our top 40.

Trade war casts long shadow on deals market

A technology and business story as wide ranging as the US-China trade war is bound to affect the patent deals market, especially with IP rights being used as a political football between the two great powers. A look at the IP deal market in Asia over the past year turns up some interesting transactions involving China, but market experts indicate that these pale in comparison to the deals that are not happening.

Rather than export restrictions or political edicts, much of the challenge is raised by the economic burdens that the trade war has placed on Chinese tech companies – a major licensing constituency. “The economic uncertainty makes it harder to do deals with Chinese companies,” confirms one market maker with a track record of deals in the country. “Now would be an almost impossible time to do a deal with them.”

Greater regulatory attention is having an impact too. “We’ve had six different deals that died because of China or because of the Committee on Foreign Investment in the United States,” says Houlihan Lokey’s Elvir Causevic, referring to CFIUS, the US body empowered to scupper technology deals on national security grounds. He adds that only some of the slack is picked up by European corporates still willing to do China-bound tech and IP deals.

One of the biggest stories of 2019 was the Intel 5G patent auction. In times past it may have been an opportunity for a deep-pocketed Chinese upstart to make a big splash, but although some China-based companies were reportedly taking part in the process before it was called off, a Chinese takeover of the whole portfolio was never going to happen.

Nevertheless, the fact that Oppo was able to nab a few Intel SEPs before the sale to Apple shows that smaller deals – and those based on so-called ‘naked’ patent portfolios – are still possible between US and Chinese firms. Even Huawei’s post-entity listing has added small patent portfolios from third-party US sellers.

It could be that some deals involving patent transactions to China are being kept relatively low profile. Ericsson got a huge result for its business when it licensed Oppo in February 2019 and has subsequently transferred hundreds of wireless patents to the Chinese company. Yet both companies’ official announcements mentioned the licensing aspect only.

YP Jou, whose firm MiiCs represents not only Foxconn but also other companies looking to do transactions in China (notably, Japanese firms), thinks that the appetite for foreign patent acquisitions among Chinese companies is relatively undiminished. “Most Chinese clients ask us to evaluate US and European rights, especially German patents,” he observes.

Licensors give mixed reviews on how the tensions are affecting day-to-day talks. Xiaomi’s Paul Lin reports that his team is engaged in negotiations on multiple fronts and is as willing as ever to make smart licensing deals on a pragmatic basis. What matters for Lin is that a portfolio is “high quality, proven in the marketplace and tested around the world by various parties”.

While some negotiators may be dealing with delays and uncertainties in the short term, there are longer lasting questions that could have substantial effects on the future of licensing. For example, will Chinese companies become more focused on the domestic market? Foreign licensors find it much more difficult to make money off of Chinese products sold in China, so that would be a significant setback. Are Chinese courts a viable enforcement option for foreigners? The answer could affect monetisation entities that made big bets on Chinese patents.

“China became the number one patent holding country and it is now trying to improve quality, but at the same time a lot of open innovation and open source is going on,” observes Sony’s Toshimoto Mitomo, who recently represented his company in a meeting between Japanese industry leaders and Chinese premier Li Keqiang. He believes that both trends are important going forward and may call for some kind of combined licensing play tailored to the Chinese market. Mitomo also sees firms increasingly adopting customised strategies for different major regions such as China, India and Southeast Asia.

When dismay over the US patent environment peaked a couple of years ago, it was common for monetisation entities to announce new focuses on China and Germany (or Europe as a whole). While some of those firms have made money in China, few are still touting it as their big growth story or initiating extensive assertion campaigns in Chinese courts. The shifting dynamic of the past few years shows that diversified portfolios remain a good bet in interesting times such as these.

Hail to the chief

The rise of the chief IP officer (CIPO) has been one of the leading trends of the past 20 years in the global patent market. It comfortably pre-dates our first market makers top 40, but each year our rankings have reflected the extent to which the IP heads at the world’s largest patent-owning businesses have extended their reach and influence.

This has been a logical development. The largest operating companies boast R&D budgets that stretch into the billions of dollars, they sit on the biggest patent portfolios churning out thousands of new grants every year and, while they pursue infringement claims relatively rarely, when they do turn to the courts those cases tend to have huge strategic significance.

But has the role of CIPO made the kind of leap up the corporate hierarchy that some hoped or predicted in the mid-2000s? The answer to that depends on what your initial expectations were.

In a 2007 IAM cover story titled “The CIPO manifesto”, IP strategist Ron Laurie and Robert Sterne of Sterne Kessler Goldstein & Fox made the case for an IP leader to be given the kind of internal sway befitting the rise of intellectual property and, more specifically, patents as an asset class. That included reporting into the CEO or another senior member of a company’s leadership team.

Together they painted a picture of the traditional IP function buried within an in-house legal team, maintaining a company’s patents, trademarks, copyright and trade secrets. For the relatively small cohort of businesses that might try to commercialise those assets, the task would lie elsewhere in the legal function.

Against that backdrop, TiVo CIPO Arvin Patel points out: “We’ve come a long way.” As he describes it, the role has expanded considerably to encompass areas such as IP policy and even advising management on which areas of technology to invest in. At TiVo, Patel is responsible for a licensing function that brings in several hundred million dollars in revenue each year, giving him considerable influence internally.

However, there are relatively few IP heads in Patel’s kind of position (although you can find many of them in the upper echelons of our top 40) and as licensing conditions remain tough, particularly in the United States, that group is set to stay relatively small. Launching a royalty-based licensing programme is challenging and when many companies consider the disruption that it may cause to a supply chain or customer base, they tend to walk away from building one.

Creating value from intellectual property is about more than just generating licensing dollars but being responsible for a revenue-generating business can make it far easier for an IP head to win the ear of company leaders. Of course, in some sectors (eg, life sciences), businesses derive so much value from their intellectual property – with a handful of patents possibly protecting billion-dollar products – that senior management can easily appreciate the importance of having IP experts in its ranks. But for many others, intellectual property can appear a peculiar asset class that is more closely associated with costly litigation than value creation.

For those who question just how much influence the typical modern day CIPO has in the corporate world’s upper levels, a key problem is that the role is typically reserved for lawyers or that intellectual property remains a function of the legal department. This, they claim, means that IP heads do not get the necessary perspective on a company as a whole and fail to understand the main concerns of senior leadership.

Reflecting on what Laurie and Sterne wrote in 2007, it seems clear that the CIPO role has progressed but, if anything, it may have plateaued in terms of its position in the typical corporate hierarchy. The good news is that the current crop of IP leaders is gaining the kind of analytics tools that could give them a serious edge over their predecessors. Portfolio evaluation and identifying where the true value lies among a company’s thousands of patents will become increasingly automated.

New tools should also help the IP heads of tomorrow to identify and mitigate IP risk. As data becomes increasingly important to modern businesses, CIPOs have the opportunity to interject on how it is managed and possibly commercialised. While they will no doubt continue to feature prominently in our top 40, the challenge remains to what extent they can further progress up the corporate pecking order.

Market makers eye new platform approaches

Over the past 12 months, there have been several deals between members of this year’s IAM Market Makers, but one of the most interesting was the SEP licensing agreement announced in January by RPX and Sisvel.

The structure of this, with Sisvel representing 11 patent owners and RPX acting as a syndicator on behalf of implementers, underlines a strong demand from both sides of the licensing market for more efficient, alliance-based solutions to licensing.

However, to push this past the line, Sisvel had to depart from the traditional licensing administrator model, securing itself a broader mandate to negotiate than pool operators have typically had in the past. What is more, the model has come into question in other tech areas – notably, high-efficiency video coding (HEVC), in which a fragmented pool environment has caused frustrated industry players to go back to the drawing board, with a new alliance aimed at creating a better solution for the next generation of video.

Few fields are currently more contentious than automotive. Avanci’s efforts to license wireless SEPs to OEMs through its platform built up significant momentum over the past year, as the firm brought Nokia on board as a licensor and scored a second major European deal with Volkswagen. But it has also set off an enormous cross-jurisdiction litigation battle, pitting supplier Continental and OEM Daimler against Avanci and several of its members.

Sharp is one of the Avanci licensors now asserting SEPs against Daimler in German courts. YP Jou – founder of IP consulting firm MiiCs and head of ScienBiziP Japan, the Foxconn-owned company’s spun-out IP function – tells IAM that it will take some time for OEMs to accept this model, especially in Sharp’s home country of Japan. In Jou’s analysis, “automaker CEOs are still very resistant to negotiating”, forcing the hand of patent owners. However, he is optimistic that all parties will be sitting down and negotiating in six months to a year’s time.

Sony executive Toshimoto Mitomo – whose company is also an Avanci licensor – echoes the idea that certain industries just need more time to adapt to the new licensing paradigm, pointing out that the same transition happened when consumer electronics converged with information technology. Asked why Sony endorses the model, he replies: “We’re an operating company, not an IP company, so at the end of the day, my agenda is how we can scale the business. We try to be collaborative because if the whole industry grows, my business grows as well.”

Moreover, Jou sees a platform approach to licensing as part of the future for his transactions advisory firm. “My plan is from next year, MiiCs will go into operating patent pools,” he says, maintaining that the firm can compete with existing operators through his company’s patent analytics prowess and extensive connections throughout Asia – especially mainland China, which has proven a formidable challenge for most overseas pools.

Of course, the HEVC experience suggests that an influx of new operators could actually dent the appeal of patent pools if none are able to lock down a significant enough share of the patents in a certain technology. Still, the pool model has enduring appeal to those who have seen it work.

Ramzi Haidamus, who founded Via Licensing during his long tenure with Dolby and now heads up Immersion, would like to see his firm’s relatively young technology move in that direction. “I think haptics is something that needs to be standardised,” he says. “We should start levelling the playing field with equal access and reasonable pricing so that haptics becomes democratised.” For Haidamus, a pool would be the next logical step.

Pools, platforms and alliances may well be the future, but transactions from the past year suggest that individual deal makers will continue to play a key role in creating industry buy-in around more efficient licensing structures.

New entrants illustrate diverse monetisation strategies in today’s patent market

This year’s edition of the IAM Market Makers contains nine executives who have never been named among the top 40 before. What is more, three of these represent companies making their first-ever appearance as well. The firms – Dolby, Immersion and Houlihan Lokey – have three distinct strategies, illustrating the varied ways that savvy businesses profit off the back of patents in today’s market.

Let us start with Heath Hoglund of Dolby, an operating company that takes an all-of-the-above approach to IP value creation. It sells products (eg, cinema speakers) that are protected by patent and trademark rights in the most traditional model of corporate IP protection, but also has a branded technology licensing division, which sells bundled solutions (eg, software, trade secrets, know-how and engineering support) to other product makers.

Hoglund’s team comes into the monetisation picture through the company’s patent licensing business. The firm’s R&D efforts leave it with a substantial number of rights – often SEPs related to audio and video codecs – that are not included in branded tech deals. This means that Hoglund’s team sometimes negotiates for patent royalties from a company that is already a customer of Dolby’s branded tech business.

For this and other reasons, the outfit has a strong preference to work through patent pools and avoid litigation. Not only did it establish subsidiary pool operator Via Licensing, it also participates in platforms run by HEVC Advance and MPEG-LA. As more industries gravitate towards platform-based licensing models long favoured in audio video, a growing number of high-tech companies are going to be studying the Dolby model.

Immersion is also a company with a strong R&D function, but by contrast it has operated more as a pure-play patent licensor. Royalty revenue is fundamental to its business – a fact underlined by its appointment of licensing veteran Ramzi Haidamus in early 2019. Having spent 17 years at Dolby (founding Via during that time) before a two-year stint leading Nokia Technologies, Haidamus is showing signs of bringing in key tenets of the company’s philosophy.

The San Jose-based developer of haptics technologies has been celebrating a strong set of results in licensing. This year it announced new mobile deals with Samsung Electronics and Google, which followed a 2018 pact with Apple. The company also sealed a pivotal agreement in the gaming sector with Sony, which will see its technologies implemented in the next generation of the PlayStation console.

But Haidamus, whose first move was to initiate settlement talks with Samsung, makes clear that Immersion is going to be about much more than litigation on his watch. “The company was in heavy litigation mode when I took over… and it became clear that that path wasn’t sustainable,” he tells IAM. That meant going back to its roots and re-engaging the engineering team so that Immersion could sell its product as a technology solution, not just a set of patent rights.

No company has been more central to the patent-private equity nexus than Houlihan Lokey, the leading investment bank to the private equity sector, since it acquired Black Stone IP in 2017. The firm’s IP+tech advisory practice, which is captained by Elvir Causevic, brings an approach that is informed by investment banking and traditional M&A advisory to transactions of patent portfolios, licensing programmes and IP-related businesses.

This has already led to a diverse flow of deals. In the past year, Houlihan Lokey was engaged by Microchip Technology on a patent portfolio sale, advised private equity fund HGGC on its takeover of RPX and worked with Intellectual Ventures on the sale of its third Invention Investment Fund.

Private money is only going to play a bigger role in the IP market over the next few years, Causevic says, pointing to recent deals such as GCM Grosvenor’s investment in Provenance and Brevet Capital’s purchase of PanOptis. “Living, breathing, healthy licensing programmes are what they’re looking for,” he enthuses. That could make for another year of deal-making highlights for all 40 of the executives on this list.

Five years of market makers

When we started to compile the first IAM Market Makers back in 2014, one of our driving motivations was to cast more light on an IP market that remains, in parts, stubbornly opaque. Some of the names and companies to include were obvious; leaders from Microsoft, Qualcomm and IBM featured prominently in our first top 40 and continue to be well represented in the upper echelons of this year’s list. Others have come and gone – most notably, various members of the NPE community which featured in our early rankings.

Here are three of the biggest takeaways on how the top 40 has chopped and changed.

The decline of the NPEs

Although this was in motion in 2014, it was arguably in 2015 and 2016 as inter partes reviews started to really hit patent owners and the full effects of the Supreme Court’s Alice decision became apparent that the serious decline of NPEs set in. Our leading names in 2014 included Intellectual Ventures co-founder Peter Detkin at number two and IPNav founder Erich Spangenberg rounding out the top five. Overall, there were seven NPE executives in the top 20 of our first ranking, plus Fortress’s Eran Zur, who was on the way to effectively becoming one of the largest players in the licensing market. NPEs may still return in force as conditions improve and several feature in our top 40 this year, including the reappearance of Acacia in the IP space, but for now it is operating companies that dominate.

The rise of Asia

The IP markets in China, Japan and South Korea were already hugely influential when we compiled our first Market Makers, but Asian-based businesses have only grown their reach in the global patent system since then. This is in large part down to the rapid evolution of the Chinese market, which has shone the spotlight on a new crop of companies and IP executives, making them far more influential in value creation terms. In 2014 Lenovo’s Ira Blumberg was the highest placed executive from an Asian-headquartered business at number 23. Last year Huawei’s Jason Ding became the first IP leader from the continent to take top spot as our leading market maker; while he has slipped back to number three here, our top 20 includes six individuals who work for companies with an Asia HQ. The extent to which that constituency grows may be one of the key themes over the next five years of market maker rankings.

A different herd of bulls

In 2014 the market was still close enough to its deal-making high of 2011 and the Nortel patent auction for it to remain of interest to the investor and investment advisory communities – and our initial top 40 reflected that. Yoav Roth from hedge fund Hudson Bay Capital, which had backed the formation of several public IP companies, was at number seven; Jeffrey Smith, head of activist investor Starboard Capital, which had used its leverage at several companies to argue that they make better use of their intellectual property, was at 13; and Naveen Nataraj, who had advised on several IP deals at investment bank Evercore, featured at number 16. The investors or investment advisers on this year’s list – namely, Eran Zur from Fortress, Hilco’s Michael Friedman and Elvir Causevic from Houlihan Lokey – are arguably far more closely entwined with the IP system and with patents as an asset than the original crop. Marrying an understanding of Wall Street with knowledge of the IP system is a rare skillset but their numbers may grow as market conditions for monetisation improve.