The Asian perspective on IP’s global realignment
The IP market’s centre of gravity appears to be shifting inexorably from the United States to Europe. But what do Asia’s IP owners make of this trend? We sat down with them to find out
On November 9 last year, before an enthusiastic crowd at a gala dinner hosted during IPBC Asia 2015 in Tokyo’s suitably imperial Palace Hotel, 57 Asia-Pacific-based IP owners were inducted into a very exclusive club.
The 2015 Asia IP Elite are operating companies and research organisations from across the region that IAM’s editorial team identified, following a detailed research process combining qualitative and quantitative metrics, as trendsetters in terms of strategic IP management and value creation. Six companies entered the Elite for the first time last year; they are profiled in box-outs that appear throughout this article.
IAM launched the Asia IP Elite three years ago, with the first cadre of inductees honoured at IPBC Asia in Singapore in December 2013. The idea is to recognise those select few entities which consistently and demonstrably put intellectual property at the very heart of their commercial decision making, and which have substantially enhanced their overall business strategies as a result. This can include both operating companies which leverage their IP assets to compete in the product and service markets and R&D-oriented organisations such as universities and research institutions which create business value from their intellectual property through patent monetisation, commercialisation, technology transfer and IP-based industry collaboration.
An awful lot has changed in those three years. In Singapore, discussion centred on large-scale patent acquisitions, high-stakes litigation and the possible entry of non-practising entities (NPEs) into the Asian market. Back then, multibillion-dollar deals such as those involving the Nortel, Motorola Mobility and AOL patent portfolios were still fresh in the memory; the publicly traded patent licensing company model was at its zenith; and the full effects of the America Invents Act reforms were yet to be felt, with inter partes reviews having been introduced just a year ago. This was the landscape facing Asia’s high-tech players as they began getting to grips with the strategic potential of their considerable IP holdings.
Fast forward to last December’s IPBC Asia in Tokyo and the United States’ apparent decline as a patent powerhouse, the imminent launch of the European Union’s unitary patent regime and the rapidly evolving storyline surrounding industry standards and fair, reasonable and non-discriminatory (FRAND) licensing were among the hot topics.
When IAM launched the Asia IP Elite in 2013, many of its first inductees – particularly those from China and India – were taking their first tentative, though nonetheless bold, steps on their IP value creation journeys. Others – such as many of those from Japan – already had long and sophisticated histories when it came to exploiting intellectual property, but were deftly deploying their patents and other IP assets to transition into new competitive markets.
To discuss these tectonic changes and to understand just how critical they are to the business activities of the Asia IP Elite, IAM brought together a panel of heads of intellectual property from five entities that were among the 2015 inductees. They are:
- Hideo Toyoda, director, IP centre, Panasonic, Osaka, Japan;
- Wei-Fu Hsu, corporate vice president and general counsel, MediaTek, Hsinchu, Taiwan;
- Joo Sup Kim, vice president, IP centre, LG Electronics, Seoul, South Korea;
- Anubhav Kapoor, general counsel and company secretary, Tata Technologies, Pune, India; and
- Min-Sheo Choi, director, IP business team, Electronics and Telecommunications Research Institute (ETRI), Daejeon, South Korea.
The panellists shared their personal insights on the topics under discussion; their views do not necessarily reflect those of their organisations.
Q: From your organisation’s perspective, what would you say has been the single most important IP-related development worldwide in the past year?
Hideo ToyodaDirector, IP centre, Panasonic
“If recent trends suggest that the US patent system is leaning towards the devaluation of US patents… we see that as an undesirable effect”
Hideo Toyoda: It is difficult to say what was the single most important development, but an interesting one we saw recently was in India, where the Delhi High Court issued an interim injunction against an operating company under standard-essential patents [SEPs], and also the various actions of operating companies filing complaints to the Competition Commission of India. We will continue to monitor judicial and regulatory trends both in India and across the world.
Wei-Fu HsuCorporate vice president and general counsel, MediaTek
“The United States has moved in the right direction by giving proper value to patents”
Wei-Fu Hsu: Closely related to that, I would say that the antitrust enforcement actions against certain SEP holders in some jurisdictions have been among the most important developments.
Joo Sup KimVice president, IP centre, LG Electronics
“We welcome the UPC and the EU unitary patent system. It is a more effective way to protect and enforce IP rights in the EU”
Joo Sup Kim: We think that it is how FRAND issues have been challenged by recent patent litigations in Europe. More specifically, I would highlight injunctions, and whether injunctions are allowable based on SEPs; FRAND rates, including discussion of the requirements for a willing licensee qualification; and the European Court of Justice (ECJ) guidelines related to FRAND defence.
Anubhav KapoorGeneral counsel and company secretary, Tata Technologies
“There is increased awareness about standards now among Indian businesses”
Anubhav Kapoor: In my opinion, it is technological developments in cutting-edge areas, such as wearable technologies, 3D printing and big data, that will continue to have a transformative effect on the IP landscape.
Q: There has been much upheaval in the US patent system in recent years. The impact of America Invents Act reforms (eg, the introduction of inter partes reviews) is now being felt in earnest, and a number of significant decisions have been handed down by US courts (eg, Alice, Mayo, Myriad and Octane Fitness). Which US developments have had the most impact on your business operations, your R&D activities and your IP strategy, and why?
Min-Sheo ChoiDirector, IP business team, Electronics and Telecommunications Research Institute
“In general, you do not have to worry about inter partes reviews, as long as you have quality patents”
Min-Sheo Choi: All of those have collectively affected our IP strategy. First, we are becoming more cautious about how to draft patent specifications and claims in terms of patentability and damages potential, among other things. Second, US litigation is now considered only once alternative efforts have been nearly exhausted.
AK: In my opinion, these will certainly have an effect on us, but it is still early days. Attention to detail while filing and claim management will become even tougher, with more pressure on budget to handle the ever-increasing cost of litigation.
JSK: After the America Invents Act, we believe that inter partes review is one of the hottest issues. It is being used increasingly frequently by many operating companies as a defence measure, because it is one of the most effective defensive strategies against NPEs in light of its success rate.
WFH: The changes to the US patent system have had virtually no impact on our business and R&D activities, as we are still competing fiercely against many competitors globally. The changes did, however, bring us slight relief with regard to our concerns about US patent litigation. We are also more selective about filing patent applications, though this is mostly because of business profit pressure and not so much due to the changes in the United States.
Q: Many market commentators argue that these legislative and case law developments are lowering the value of US patents. Do you agree that US patents are less valuable than they were five years ago? Do you consider this to be a positive or a negative trend for your organisation?
JSK: No, we do not agree. We believe that US patents are still very valuable to their owners, whether they are operating companies, NPEs, universities or other types of entity. However, I would say that patent enforcement has developed in a more troublesome way in light of NPE litigation.
AK: The United States remains an important market for us. However, we also see increased focus on emerging markets that are important for sales and growth. Given the R&D spends, purchasing capacity and trends in the adoption of new technologies, US patents – in my opinion – will continue to be valuable. However, we also see increased budget allocation to file patents and protect intellectual property in other countries as well, such as China, Japan and Brazil. Some part of it also has to do with the outsourcing of R&D activities to low-cost countries and R&D organisations becoming global to meet the cost and talent pressure.
Q: Has your organisation made use of inter partes reviews to challenge the validity of third-party patents? What is your view of the system?
WFH: Yes. I believe this is a good system – it is low cost, you get a quick resolution and good technical expertise is available.
JSK: Yes, we believe it is an effective way to defend against litigious NPEs.
AK: We have not used it yet, but I see this development positively. It will help improve quality and ultimately will be good for innovation.
HT: Currently, we have not made much use of inter partes reviews, but in the future we would like to make use of this system where necessary.
MSC: Some of our patents happened to be subject to inter partes reviews. In general, you do not have to worry about inter partes reviews, as long as you have quality patents. I feel, however, that the new system is often abused – for example, as an attempt to delay pending litigation or to burn out shallow-pocketed patent holders.
WFH: I also disagree with the argument that these developments are lowering the value of US patents. Before these changes, I believe that many patents were greatly overvalued. Indeed, I believe that the United States has moved in the right direction by giving proper value to patents. I also believe the overall developments are generally good for high-tech industries. In our industry, the vast majority of patents are only small or minor improvements over the prior art, and very few are of fundamental or breakthrough value; although the situation in other industries such as biotech may be different. In addition, there are many low or questionable-quality patents that probably should not have been issued at all. Prior to the recent changes, people saw the mega damage awards together with other tactical or procedural advantages, such as automatic injunctive power, low opportunity costs and so on, in the US litigation system. This meant that some people were encouraged to game the system.
HT: At this moment, I cannot say that US patents are less valuable than they were five years ago. However, if recent trends suggest that the US patent system is leaning towards the devaluation of US patents, up to the point where it is too anti-patent, we see that as an undesirable effect.
MSC: Overall, the observation that they are declining in value may be right. This naturally generates some negative impact for patent holders, at least temporarily. In the long term, however, it may not necessarily be the case. Maybe we just need to adapt to the changing environment and develop more sophisticated IP strategies.
What today is known as E-Ink Holdings began life in 1992 as Yuan Tai Technologies, a subsidiary of Taiwan’s leading papermaking and printing group YFY. Years of sustained investment in next-generation ‘e-paper’ technologies culminated in 2009, when it splashed out $215 million to acquire US-based E-Ink Corporation, whose technology underpins the products of the e-reader market’s biggest players, including Amazon’s Kindle and Barnes & Noble’s Nook. It adopted the E-Ink name as its own the following year. As part of the purchase, it also acquired an industry-defining patent portfolio relating to electrophoretic display technology, which included assets that had previously belonged to Philips. This was not the first prescient IP acquisition made by the Taiwanese outfit; in 2008, it took over ailing Korean LCD panel manufacturer BOE Hydis. After six straight years of losses, E-Ink Holdings returned Hydis to profitability in 2010 – partly because it had managed to license out its fringe field switching (FFS) LCD technology to the likes of Sharp, AU Optronics, Chunghwa Picture Tubes and Innolux, among others. This proactive commitment to generating revenue through patents will allow E-Ink Holdings to create value even as its core product market of e-readers continues to falter.
Funai Electric is an original equipment manufacturer (OEM) which for years has produced televisions, video cassette recorders and computer printers under licensed brands including Philips, Magnavox, Emerson and Sanyo. The company is one of the pioneers of the trend which has seen Asian OEMs seek to expand their businesses and build their own brands, and patents have played a key role in that process. In 2012 Funai bought 360 patents from IPG Electronics – originally owned by Philips – and followed this up the next year by paying $202 million to acquire the Dutch company’s entertainment lifestyle division outright. Funai inked another big deal with a manufacturing client when it paid Lexmark $100 million to obtain over 1,500 patents and other assets relating to the US company’s inkjet printing technologies. But while expanding product offerings and promoting its house brand may have been the primary reasons for acquiring those patents, the Osaka-based firm has also sought to extract additional value from its IP assets through monetisation. Last year it became the latest Japanese operating company to partner with WiLAN, transferring a portfolio of microphone-related patents to the Canadian NPE.
E-commerce; internet services
A relatively young company founded in 1997, Rakuten has grown at breakneck speed to become a major global player in the internet business industry. It operates Rakuten Ichiba, Japan’s largest e-commerce platform, and has been expanding into foreign markets through acquisitions and joint ventures since 2005. Over the past five years, it has also been one of the world’s most prolific patent buyers – a distinction that makes it a rarity among large Japanese companies. According to data from Allied Security Trust (AST), Rakuten was on the receiving end of 27 transactions which saw it take possession of 659 patents in total between 2010 and 2014. Only one other US operating company – Korean behemoth Samsung Electronics – did more deals during that period, and Rakuten came in ahead of major IP players such as Microsoft and Intel in AST’s analysis. The company kept up the momentum last year too, having been assigned patents from the likes of JVC Kenwood, NEC, IBM, and AT&T, among others. It is a common model for internet companies to amass patents through acquisitions quickly after gaining a big market share and Rakuten has shown itself to be more than capable of using that strategy.
Q: What action has your organisation been taking in advance of the likely launch of the European Union’s unitary patent and Unified Patent Court (UPC) next year? Would you say that your organisation is prepared for the new regime?
HT: Our company has only begun to investigate the pros and cons of the UPC and its potential effect on our IP strategies.
WFH: We have taken no real action yet, except to increase our European patent filings. However, we are currently studying the changes and considering our response.
MSC: We are still reviewing it in order to be well prepared for the new regime.
AK: The current preparation is more towards increased internal awareness and portfolio scrutiny and analysis.
JSK: We are trying to prepare for it in various ways. For example, we are educating our team members using the EU IP training programme. At the same time, we are learning about similar processes to those of the UPC by experiencing several litigations in Germany, the United Kingdom and other European jurisdictions. This means, of course, that we are working with EU outside counsel more closely than at any other time – and that is another way for us to find out more about the new EU system and to understand how well prepared we are for it.
Q: Do you welcome the introduction of the UPC and the EU unitary patent, or do you think they are a negative development from your organisation’s perspective? Will you be opting out of the unitary patent?
MSC: We generally welcome such change, as we want to have more cost efficiency there.
JSK: We welcome the UPC and the EU unitary patent system. It is a more effective way to protect and enforce IP rights in the European Union.
HT: Generally speaking, we believe it is a good development that the European Union is becoming more united. We are at too early a stage to assess the impact of the UPC and EU patent; but from what we understand, we believe there are both negative and positive sides.
WFH: I’m not sure, as there are still things that are not yet clear to us about the system.
Kyoto-based semiconductor company Rohm is notable for being one of the first major Japanese corporates to stick its head above the parapet and enter into a privateering-style arrangement with an NPE. In 2014 it signed an agreement with Canada’s WiLAN which saw it transfer full ownership of a patent portfolio covering semiconductor packaging to the NPE, in a deal that reportedly gives the Japanese firm a share of any licensing revenue. In bucking the trend which has seen many Japanese companies eschew monetising patents through third parties, Rohm has made clear in its statements to the press that WiLAN’s professional approach as a publicly traded entity and its commitment to R&D activity were among the reasons why they chose it as a licensing partner. Beyond that deal, Rohm has been no stranger to monetising its patents through other means; it and its affiliates have also sold IP assets outright to other operating companies, including to compatriot and fellow 2015 Asia IP Elite inductee Rakuten.
Tata Consultancy Services
A keystone one of India’s signature export industries, IT services, Tata Consultancy Services (TCS) is also one of the country’s most astute IP owners. In a market where domestic patent filings remain very low, TCS stands out. During 2013-2014 it filed more than twice as many applications as its next-closest domestic rival. And being among the nation’s top resident patent filers is no mean feat given India’s tough restrictions on patents in TCS’s core offering of software. Like other Indian companies, it also engages extensively with the open source community. The decision as to whether to make a product element open source is made by a centralised committee based on business imperatives, and TCS’s offerings include a judicious mix of proprietary and open source components. Of late, India appears to have backtracked on recent liberalisation to its software patent eligibility guidelines. However, TCS has already shown that it has the IP expertise to ride out the vicissitudes of such an unconducive environment; and if the Indian IP system does return to broader acceptance of patents on computer-related inventions, then expect TCS, with its skilful IP function, to be one of the biggest beneficiaries.
Q: Do you think that the European Union will become a more important jurisdiction, from a patent strategy perspective, than the United States in the years to come?
AK: I cannot say at this point in time. The European Union itself, I believe, is going through a transformative phase right now.
JSK: It is difficult to say ‘absolutely’, but we think the importance will become much greater than in the past. Partially, the European Union will lead and encourage the IP market in the near future.
MSC: Obviously the European Union will get more attention than ever before. It will, however, take some time to be sure whether it may really surpass the United States.
WFH: I doubt it.
Q: Do you believe that NPEs and similar businesses are becoming more active in the Asia-Pacific region? Do you view the entry of NPEs into Asia-Pacific markets positively or negatively overall?
WFH: I believe they are trying hard to play a more significant role in Asia-Pacific. How much impact they can have remains to be seen.
AK: I see this development negatively in a broad sense, but certain aspects of it can be useful to promote investment and create alternate IP protection and enforcement mechanisms.
JSK: In answer to the question, I would say: partially, yes, it is more attractive now to NPEs. This is because there are potentially more operating company targets in Asia-Pacific. Also, China, Japan and Korea are now in the process of reconsidering and revising damages awards and the models used to calculate damages.
MSC: We see some increased NPE activity in this region. I think this will create more positives than negatives. If they are successful, then it means that innovation-centric SMEs may also be successful with their IP-protectable innovations in the region, which proves that the region has a very sound IP ecosystem.
HT: We have seen NPEs becoming more active in the Asia-Pacific region. However, we cannot tell whether this will have a positive or negative effect on our company, because it will most likely depend on whether our company is on the other side of the table or on the same side as an NPE.
Q: Can NPEs and Asia-Pacific operating companies be good business partners in your view?
HT: Yes, we think so, if we think of NPEs as one option for business partners.
JSK: Sure. There is lots of high-tech R&D in Asia-Pacific operating companies. And these companies secure lots of valuable IP rights. Thus, if they work together with NPEs, they can create more value than they could through their own separate activities.
WFH: They could be good partners, if they can find the right partners and can set out clear and workable business goals.
Q: Is your organisation paying more to acquire and/or license-in patents, or charging less to sell/license-out patents, today compared to five years ago?
AK: Yes. We are spending more on licences.
WFH: We paid slightly more to acquire or license-in patents compared to five years ago. We have not been in the business of selling or licensing out patents in the past, but this may change in the future.
MSC: For selling and licensing out, we are not charging less compared to five years ago.
Q: Have you been pleased or disappointed with recent developments in FRAND policy and case law (eg, the Institute of Electrical and Electronics Engineers’ (IEEE) revised patent licensing policy)?
WFH: Generally speaking, yes.
Consumer electronics; home appliances
Headquartered in Huizhou, in China’s Guangdong province, TCL is a multinational company which designs, develops, manufactures and sells an array of consumer electronics products. As it expands internationally, it is filing a growing number of Patent Cooperation Treaty (PCT) applications; its China Star Optoelectronics affiliate has been one of the most prolific applicants at the global level for the past few years, being the fifth-highest placed Chinese entity according to WIPO’s most recent PCT filing statistics for 2015. TCL is also becoming increasingly active on the M&A front. It bought Alcatel’s mobile phone manufacturing unit in 2004 and 2005, deploying the widely recognised Alcatel OneTouch brand to market some of its own mobile phones. In 2014, it acquired the famed Palm brand from HP, again for use in marketing smartphones. The company similarly appears to be upping its game in terms of pure patent transactions, having acquired a portfolio of 31 US patent assets relating to mobile telecommunications from Mitsubishi Electric in April 2015; it is also one of the initial corporate investors – alongside Kingsoft, Xiaomi and IP consultancy firm Zhigu – in Chinese patent aggregation fund Ruichuan. Recently, TCL entered into a 3G and 4G Chinese patent licence agreement with Qualcomm which allows it to manufacture and sell 3G WCDMA and CDMA2000, and 4G LTE subscriber units.
JSK: Partially yes and no. Yes because we think the FRAND concept based on SEPs has developed fairly in view of operating companies. But the FRAND rate to be qualified as willing licensee has become more difficult. Thus, we understand some developments in FRAND policy, but we are not pleased with all FRAND policy. It is difficult to say more than that with certainty.
MSC: I am not pleased with the new IEEE patent policy. Clearly, they did something that we do not normally expect a standard-setting organisation (SSO) to do. The change is unreasonable, unnatural and even forceful. Just to give one example, they stipulate that the smallest saleable patent-practising unit should be considered as a proper basis for a reasonable royalty rate, and that royalty stacking issues should always be considered. However, the reasonable royalty, its basis or its calculation method should not be determined by the SSO so effortlessly in a way that may either oversimplify or even contradict potentially relevant court cases; besides lack of proper authority, it seems that they do not have proper expertise and discretion.
HT: Because the recent FRAND policy and case law are different from country to country, we cannot say overall whether we are pleased. However, we can say that we are against any decisions which place a disproportionate emphasis on one side of the party. We believe that the decisions regarding FRAND policy and case law must be well balanced.
Q: Is your organisation more or less likely to participate in industry standards today than it was five years ago?
MSC: I do not see any substantial change in that regard.
JSK: It is now more likely, since we believe that industry standards will be even more important in the future than in the past. Therefore, we put a lot of effort into developing such standards.
WFH: Absolutely more likely. As our company is a leader in many more areas of technological development now, as compared to five years ago, we will continue to actively participate in many SSOs.
HT: Industry standards have always been important to us and we do not think this will change. Nevertheless, as our business has drastically shifted compared to five years ago, we believe that our participation in industry standards has declined as well.
AK: There is increased awareness about standards now among Indian businesses. This is a new development as far as India is concerned. So I am very interested to see how it goes. We recently became part of an Associated Chambers of Commerce of India committee on standards.
Q: Antitrust regulators in China, Korea and India particularly have increasingly turned their attentions to patent licensing. Are you concerned about the impact of antitrust investigations and regulation on your IP portfolio? Or do you think the intervention of watchdogs is necessary and welcome?
AK: We are not concerned at a high level. In India at least, the current impact is seen more in the pharma sector. Trends are unclear at this moment in other sectors. That said, too much intervention may be harmful.
WFH: We continue to carefully watch all of these IP antitrust developments, though we don’t have any particular concerns about their impact on our own IP portfolio. We also tend to believe that these antitrust regulations, for the most part, help the industry to remove certain unfair competition practices. However, we would like to see clear, proper and transparent antitrust enforcement principles in all jurisdictions.
HT: We are somewhat concerned about intervention from the antitrust regulators if this is based on a guideline which adopts a uniform treatment for any and all cases, and leaves no room for a case-by-case approach. We believe that patent licensing negotiations should be discussed and resolved among the parties involved, and that intervention from antitrust regulators should be on a case-by-case basis.
JSK: Yes, we should respect the other party’s IP rights. But at the same time, we should keep an eye on the other party’s IP abuses or misappropriation as well.
Introducing the participants
The following panellists join Jack Ellis for this roundtable discussion:
- Min-Sheo Choi is director of the IP business team at Korea’s Electronics and Telecommunications Research Institute, where he is in charge of patent litigation, patent licensing and other types of IP-based monetisation.
- Wei-Fu Hsu is corporate vice president and general counsel at fabless semiconductor company MediaTek, where he is responsible for legal and IP policies and processes, dispute resolution, M&A matters and IP portfolio management.
- Anubhav Kapoor is general counsel and company secretary at engineering and product development services company Tata Technologies. He is responsible for the company’s global legal, IP, regulatory and corporate governance activities and policies.
- Joo Sup Kim is vice president of the IP centre at consumer electronics, home appliances and telecommunications company LG Electronics. He manages the team responsible for the company’s patent litigation, licensing, IP-related counselling and open source and copyright matters.
- Hideo Toyoda is director of the IP centre at consumer electronics company Panasonic and president of Panasonic IP Management, a subsidiary established in late 2014 which integrates all IP activities of the Panasonic group and provides IP-related professional business services.
The key takeaways from this roundtable discussion are as follows:
- The consensus appears to be that the debate surrounding standard-essential patents, and how they can be licensed on FRAND terms, is the current hot-button issue for the Asia IP Elite. Related cases in Europe and India have attracted particular attention.
- In general, the Elite do not view the value of US patents as having been significantly undermined by legislative reforms and case law developments. Overall, these are still considered to be the most crucial assets in any patent portfolio.
- Apart from closer attention being paid by some to European filings, the Elite continue to take a ‘wait-and-see’ approach when it comes to the EU unitary patent and Unified Patent Court, with no exceptional preparations being made. It remains to be seen whether this proves prudent in the longer term.
- The Elite’s views on NPEs have evolved drastically over the years, with a much more open attitude towards their presence in the market and the prospect of working with them as partners. Even those organisations that continue to harbour negative views of working alongside NPEs also believe that they can have a positive impact overall in terms of realising the value of IP assets.
- Roundtable participants report that they are typically paying more to license in and acquire patents today than in years gone by; likewise, those that are involved in selling and licensing out patents state that they are not charging any less than previously.
- The question of whether Elite companies will continue to participate in industry standards has as much to do with changes in their business models and product offerings as with developments in standard-setting organisation policy, regulations and jurisprudence.