10 Nov
2015

Buying strategies for growing companies; the great "troll" debate; US hope & more at IPBC Asia 2015 Day Two

The plenary and breakout sessions of IPBC Asia 2015 have now come to an end, although many of the 550 delegates are now enjoying one final networking opportunity at the closing drinks reception. Before joining them, IAM’s team of reporters covering the event - Jack Ellis (JE), Richard Lloyd (RL), Jacob Schindler (JS) and Joff Wild (JW) - have put together bullet points on many of the key issues discussed today, as well as some of the topics being mulled over on the conference fringes:

The business of buying - “One of my main jobs is to protect the company as far as possible from patent assertions,” said Ira Blumberg, Lenovo’s VP of IP, during today’s first plenary session, “Reducing patent vulnerability, enhancing market reach”. An important part of doing this, he said, is through the development of a high-quality patent portfolio. Building one, though, is complicated and requires multiple approaches. First off, of course, is the internal generation of assets based on the R&D a company undertakes itself; but that will probably not do the job completely – especially if you are a relatively young business operating in high-tech. That’s because not only do you have to ensure that your own inventions are protected, but you also need to anticipate what other companies might do in order to ensure you have rights to counter-assert against them should they accuse you of infringement. This is where acquisitions come into play. These can take the form of direct patent purchases or of M&A deals in which patents are a component. Lenovo has done both over recent years. It is all about balance, Blumberg explained; and that is always about judgement. While keeping a close eye on direct competitors – in Lenovo’s case companies such as Apple, Dell and HP – to see what they are doing and to divine what they may do in the future, you must also be aware of companies that might work tangentially to you – Cisco was the example Blumberg gave. You then have to decide how much coverage you can develop internally and how much you need to bring in from outside, and what form that will take: patent applications are relatively cheap to buy ($20,000, say), but they are very risky; while SEPs are like winning lottery tickets, but are much more expensive as a result (anything up to $5 million). Alternatively, you might acquire patents as part of a larger deal. When Lenovo bought Motorola from Google, Blumberg stated, the company did not get many prize IP assets, but it did get a few. However, sometimes it may not be about direct ownership: sometimes companies will have licence deals in place that remain in force when you acquire them – these create significant value, Blumberg stated. In short, it’s complicated. Lenovo’s journey is one that countless other Asian companies are also undertaking, while even more will have to do the same in future as they expand into new territories and sectors. Without the ability to marry sophisticated IP understanding with business acumen, these businesses will be vulnerable to attack. And that’s why savvy CIPOs, such as Blumberg, are going to be so in demand in Asia and elsewhere over the coming years. (JW)

Mission creep – One subject of an engaging back-and-forth in the opening “Reducing patent vulnerability, enhancing market reach” concerned whether patent offices could potentially take a more direct interest in the IP marketplace. In a discussion about patent value, Grant Philpott, the principal director of information and communications technology at the EPO, was asked whether patent offices might be able to play a greater role in the transactions market as neutral evaluators of asset quality. Philpott (with the caveat that he often envisages roles for his office which his boss does not approve of) said that that question was a not infrequent topic of coffee corner conversation around the EPO buildings. However, he suggested that overriding concerns of neutrality would be likely to prevent any such ideas from being realised, saying: “We can look at anything and everything, as long as it does not touch our impartiality.” EPO aside, given that one constant undercurrent of this week’s event has been the havoc caused in patent valuations by recent trends at the USPTO, it is hard to imagine that dealmakers would welcome more formal involvement of any patent granting institutions in the transactions space. (JS)

Tell me what’s your flavour – Today’s “Great monetisation debate” plenary will hopefully have provided some food-for-thought to those observers who tend to see the patent market as a bipolar world with valiant operating companies on the one side and ‘troll’ NPEs on the other. The panel included three representatives from entities that do not, technically speaking, practise their patents or sell products and services based on them. However, none were archetypal NPEs focused on acquiring and asserting patents. As panellist Kwang-Jun Kim of Intellectual Discovery put it, there are a host of different NPE “flavours”. His own organisation was set up by the Korean government in 2010 with a mix of public and private funding. In addition to aggregating assets and managing the country’s first sovereign patent fund, ID also offers consultancy services, venture capital investment and a range of IP-backed financing options. Then there is Australia’s state-funded R&D institution CSIRO which, according to its executive manager for IP and investment Christine Emmanuel, has spun-out over 150 companies based on technologies it has created through its own R&D efforts. The panel also starred Takafumi Yamamoto, president at TODAI TLO, the commercial arm of the University of Tokyo’s tech transfer operation, who remarked that Japanese universities and their faculty members have become increasingly keen on licensing their innovations and getting returns on them since he started out in the IP field in 1996. Three different entities, each with different mission statements, and every one of them an NPE. It just goes to show that the patent market, like so many things, cannot be explained in terms of black and white. (JE)

Watch your language – Discussing Dolby’s patent acquisition efforts in the “Putting a price on your portfolio” breakout, chief patent counsel Heath Hoglund revealed that purchase agreements are increasingly coming with a proviso that prohibits Dolby from selling the assets on to so-called “trolls”. Ironically, some of those same contracts would classify Dolby as a troll because it gets most of its revenue from licensing. Yet another example of the problem with much of the current and very simplistic (or is that just downright dishonest?) “troll” narrative. (JS)

Different directions - Part of the focus in “The great monetisation debate” plenary today was on distinguishing between the different types of NPE that have emerged around the world. But of just as much interest was the very different approaches of the three operating companies on the panel – Ericsson, Google and Japanese corporate KDDI – have to selling patents. The latter’s approach is to never do it, with Hiroshi Kawana, general manager of the IP department, insisting that the use of patents should reflect the purpose of the law, which is that they should contribute to the development of industry. Google is not a prolific seller either, though it is now making a limited number of patents available to the right buyers. Much of the company’s caution lies in the concern that such assets can often end up in the hands of NPEs that then assert them against operating companies. Tim Kowalski, a senior patent counsel at the company, cited data which indicates that over 80% of NPE-owned patents originate from operating companies and used his presentation time to make a pitch for the License on Transfer Network (LOTNet) as a way of reducing the risk of NPE assertions. For Ericsson, explained the company’s chief IP officer Kasim Alfalahi, the perspective is different. It has entered into privateering-style deals with NPEs such as Unwired Planet, and Alfalahi made it clear that he is more interested in behaviours rather than whether a company is practising its inventions. As Alfalahi pointed out, bad behaviour in patent assertion is not something confined to NPEs; operating companies can and do play dirty too. That’s worth remembering as the NPE sector continues to come under attack, particularly in the US. (RL)

Moving on –Another IPBC event may have come to an end, but, fear not, there are plenty more on the way. We are already planning next year’s IPBC Global, which takes place in Barcelona from 5th to 7th June, while 2016’s IPBC Asia will be held in Shanghai in December. We are also organising IPBC Taiwan and IPBC Korea, both of which will take place during the week beginning 11th April. But that’s not all; there are three IAM one day conferences on the near horizon – Patent Law and Policy, taking place in Washington DC on 17th November; Inside Europe’s New Patent Market, being held in San Francisco on 18th February; and NPE 2016, which is back in New York on 22nd March. We hope to see as many of you as possible at some, if not all, of these over the coming months. (JW)

Nickeled and dimed – At the heart of Google’s argument in today’s “Great monetisation debate” was the assertion that the economics of selling to PAEs just don’t add up for operating companies. Because the cost of patent litigation in the US is much greater than the average sale price of the patent, in aggregate, said senior patent counsel Tim Kowalski, PAEs pay just 25% or even 10% of the total costs of PAE suits to operating companies. This results in a net loss of value for the overall ecosystem of product companies. Kowalski put it this way: “It’s like operating companies are selling their patents for a quarter, and turning around to pay a dollar to license them back.” Ericsson chief IP officer Kasim Alfalahi agreed that the present system does create inefficiencies, but suggested that better alternatives for creating a return on R&D investment are not yet available to companies with patent assets they cannot otherwise extract value from. “Maybe less than 25% goes back to the patent owner, but if they simply hold on to those patents, the return will actually be zero,” he observed. It’s hard to argue with that. (JS)

Pesky patents? – One of the striking things to come out of the morning’s opening “Reducing patent vulnerability, enhancing market reach” plenary was the frank view offered by some of the operating company representatives on the panel that patents are, ultimately, a barrier to market and are not much more than a cost of doing business. Ira Blumberg, Lenovo VP of IP, said: “I find patents more of a problem than a solution, since it’s my job to reduce the drag that patents have on our products.” This standpoint was echoed by co-panellist Wei-Fu Hsu, general counsel at MediaTek, when he suggested that aspects of a system that was set up nearly two centuries ago are not entirely fit-for-purpose in today’s world of complex and patent-stacked high-technology. “Back then, a product had one patent, and if someone copied your product then you could sue them and get an injunction,” he said. “I’m not saying the patent system is bad – absolutely not, it provides a great service to society and ensures the progress of science – but the situation has changed so much over time.” Naturally, for operating companies which are focused on selling products and services in the consumer and business markets, patents can seem like a distraction at best, and as more than an annoyance at worst. However, one can’t help but think that the idea of patents as ‘more of a problem’ is not going to be shared by every single business out there. For a company at a different stage in its lifecycle to Lenovo or MediaTek, patents can indeed be a solution, or at least part of one, with their potential to be licensed, sold, collateralised and asserted. Patents are ultimately a right to exclude – but looked at in a different light, that ability can also be interpreted into a whole variety of strategic options that can add value to businesses in one way or another. Seeing them as a problem may mean you fail to end up making the most of the strategic opportunities they can offer. (JE)

Dividing lines - The issue of licensing standard essential patents under FRAND terms has been one of the defining trends of the last few years in the patent market. Exactly what fair and reasonable means has occupied the minds of regulators, judges and a large number of corporate IP professionals, and yet we appear no closer to a resolution. The split was clear in one of the afternoon’s opening breakout sessions, “Getting to grips with SEPs and FRAND”. Cindy Faatz, director of Intel’s standards group, spelt out the concern among some companies that patent hold-up on the part of IP owners can give them excessive power over a standards-based technology. But Eeva Hakoranta, head of patent licensing at Nokia, countered that too little attention in the ongoing debate has focused on the issue of patent hold-out, whereby potential licensees drag out licensing negotiations with a patent owner. “We’ve had licensing negotiations that have lasted 10 years. I think that’s excessive,” she stated. This split has come into sharp relief thanks to a number of recent court decisions, such as Huawei v ZTE at the European Court of Justice, and the introduction of a new patent policy by the standards setting organisation IEEE. It’s still not clear how some of these deep divisions will be resolved, but one option could be the use of arbitration to help sort out disputes. Of course, that’s by no means a fail-safe solution, but it would certainly provide one way of finding a potential middle ground. And with hundreds of millions or even billions of dollars at stake, it would also make the arbitrators extremely powerful men and women. (RL)

The polls are in – We have a confession to make: we have been running an experiment trialling live polling using our nifty new IPBC Asia app. And we got enough responses to get interesting insights from delegates on some of the major topics that we have been discussing at this year’s event – so expect to see live polls at future IPBCs. Keeping with the regional theme, we asked attendees which Asia-Pacific market was the most important to their organisation in terms of IP strategy. China came out as the clear leader, with 62% of the vote; India and Japan took joint second place on 15%, with the ASEAN bloc receiving 8%. Turning to the United States, we asked delegates for their opinion on the overall impact that the America Invents Act and recent jurisprudence from the Supreme Court and the Federal Circuit have had on the US patent system. While 63% stated that they believed US patent rights are now weaker, a significant 31% believe that they have improved the system. We also put the motion at the centre of this morning’s “Great monetisation debate” plenary to our delegates: “Ultimately, it is bad for industry and the wider economy if companies sell their patents purely for financial gain.” A whopping 95% of respondents disagreed – but perhaps we were asking a slightly biased crowd! (JE)

Brexit concerns - Like many other speakers at this year’s IPBC Asia, Kwang Jun Kim was clear that Europe’s role as a venue for major patent litigation is about to become a lot bigger and more important. Speaking in the second plenary – “The great monetisation debate” – the president and CEO of Korea’s Intellectual Discovery stated that as the situation in the US becomes more difficult, so patent owners are looking at alternative jurisdictions for solutions – a process that will only accelerate when the Unified Patent Court system is up and running. If that does turn out to be the case, top British patent litigators should be among the biggest beneficiaries. But there is a shadow on the horizon. Either next year or the year after, the UK will have a referendum on whether to remain a member of the EU. If the polls are correct, the result will be a close vote to stay in; but if they are wrong, the UK will leave and will not be within the UPC’s jurisdiction. That will have no impact on the court’s existence, but British practitioners will not be able to represent clients before it, as only lawyers and attorneys qualified to practise in EU member states enjoy that right. While Brexit might make the UPC itself a less attractive forum, it would definitely have a significant impact on the incomes of London’s litigation elite. So if the British patent lawyers you come across seem a little jumpy these days, that’s probably why. (JW)

Meet the Elite – At last night’s gala dinner in the Palace Hotel, IAM named the 2015 Asia IP Elite – those operating companies and research organisations from the Asia-Pacific region that we have identified as consistently putting intellectual property at the very heart of their commercial decision making, and which have substantially enhanced their overall business strategies as a result. In other words, these are the IP owners that we really consider to be region’s trendsetters in terms of strategic IP management and value creation. By country and in alphabetical order, they are: Cochlear, CSIRO, CSL and ResMed, from Australia; Alibaba, Baidu, Haier, Huawei, Lenovo, TCL, Tencent, Xiaomi and ZTE, from China; Infosys, Reliance Industries, TCS, Tata Technologies and Wipro, from India; Canon, Casio, Fujifilm, Fujitsu, Funai, Hitachi, Honda, Kao, Mitsubishi Electric, NEC, Nissan, Panasonic, Rakuten, Renesas Electronics, Ricoh, RIKEN, Rohm, Seiko Epson, Sharp, Sony, Takeda, Toshiba and Toyota, from Japan; Fisher & Paykel Healthcare, from New Zealand; A*STAR and Creative Technology, from Singapore; ETRI, Hyundai Motor, LG Electronics, Samsung Electronics and SK Hynix, from South Korea; Acer, Asus, E-Ink, Hon Hai/Foxconn, ITRI, MediaTek and TSMC, from Taiwan; and Siam Cement Group, from Thailand. Congratulations to them all! (JE)

American hope - The US’s relative decline as a patent power has been one of the major themes of the last two days, not only in sessions but also in conversations over lunch and coffee. The sizeable American contingent could be forgiven for being pretty downbeat, but relatively few of them are. Hope is one of their country’s great commodities and there has been plenty of it on tap here in Tokyo. First off, there is a recognition that while opportunities may be declining at home, elsewhere they are on the rise; and this sits beside a widespread belief that at some stage the pendulum is going to swing back in favour of patent owners at home. Some see signs that it is already happening – citing Congress’s decreasing appetite for further reform and the Supreme Court’s recent decision to hear the Halo and Stryker cases relating to wilful infringement to back their view - while others are still waiting, but with optimism. One senior NPE executive that I spoke to said he thought the bounceback would be Scotus inspired and would come when the court took a case that allows it to react to Alice and define what kinds of software patents it does like. Others I spoke to concurred. The timeframe, though, could be anything up to five years – which is a long time to allow the attractions of other places to bed in – and no-one is predicting a return to the good old days. They have gone forever. (JW)

Lenovo likes LOT look - During the opening plenary session of the day (“Reducing patent vulnerability, enhancing market reach”), one of the topics of conversation was how operating companies can protect themselves from NPE assertions, given that the traditional counter-assertion strategy is not available. Defensive aggregators such as AST and RPX were mentioned, as was Unified Patents and new kid on the block, the License on Transfer Network (LOTNet). Ira Blumberg, vice-president of IP at Lenovo, revealed that the Chinese company was in talks with Google to join the LOTNet, which was launched in early 2014 as a coalition of companies who agree that if they sell patents to an NPE then the other members of the network automatically receive a licence to those assets. Blumberg described the LOTNet as an interesting concept and one that, in principle, he strongly agrees with. Talking in “The great monetisation debate”, the day’s second plenary senior Google patent counsel Tim Kowalski revealed that the LOTNet’s membership now stands at 47. They include Canon, Ford and Uber as well as Google, and the search giant is clearly keen to grow it further. As part of its recent Patent Starter Program, which saw it gave a way two patent families each to 50 start-ups, free two-year LOTNet membership was also thrown in. Given Lenovo’s size and its recent activity, which has seen it grow its portfolio through a number of acquisitions, if the PC maker does decide to sign up it will be quite a boost to those plans. Of course, the Chinese company recently bought Motorola Mobility from Google and it may be that its decision to join the LOTNet is part of a broader IP agreement between the two businesses. At this stage, that’s pure speculation but as Blumberg and his team have proved time and again in recent years, they’re not scared of striking a deal or two. (RL)

Quality is a many-splendoured thing – In the US patent system, the burden has shifted from alleged infringers having to disprove infringement, to the alleger themselves having to prove the validity of their asset. As a result, there is an awful lot of talk about patent quality nowadays. But pinpointing precisely what a high quality patent actually is can be a difficult task. Speaking in the afternoon’s “Quality is king” breakout, John Veschi, CEO at Marquis Technologies, pointed out that no two patents are realistically comparable when it comes to adjudging their quality. In addition to the specification and the claims, there are a whole host of other factors that can come into consideration – including the pedigree of the inventors, assignees and the attorneys that drafted the application; the story behind the invention; the wider portfolio it is a part of; and the forum in which it will be litigated or have its validity tested. Moreover, we need to think about the people who will be making decisions about a patent’s quality, and why they will do so – are they a judge, jury, arbitrator, economist or a standards body? Yep, it’s a tricky one! (JE)

The monetisation debate rolls on – The frank exchange of views on the merits of patent monetisation were not confined to this morning’s “The great monetisation debate” plenary panel featuring three NPEs and three operating companies. Embracing the possibilities of the new IPBC Asia mobile app, several attendees took the opportunity to weigh in with public posts during the session. Much of the talk centred on the License on Transfer Network, which speaker Tim Kowalski of Google put forward as a solution to what he argued were the problems caused when operating companies sell patents to PAEs. Pascal Asselot, with a wink, thanked Google for lecturing the world on good and evil, while Jeremy Ben-David weighed in that the LOT Network sounded idealistic and much like other solutions. There followed an exchange with Google counsel Kurtis MacFerrin – a parallel debate playing out on smartphone screens in the same room. IAM looks forward to continuing to facilitate the discussion on patent monetisation well into the future. (JS)

Patent deals in China - Of all the delegates at IPBC Asia few have as good a view of the patent deals market in China as Paul Lin of Zhigu. Speaking in the “Quality is king” session in the afternoon, Lin gave his insights into what now constitutes a high quality portfolio from his perspective. Here were his main thoughts: (1) the portfolio must include Chinese and US assets; (2) German counterparts are nice to have; (3) there’s still good appetite for standard-essential patents (SEPs) but prices are declining; and (4) there is increasing demand for semiconductor related patents driven by Chinese government investment in the industry. Lin also gave his tips for getting a patent deal done in China. Here’s his advice: (1) finding the right agent is the most important thing; (2) a deal valued in the range of $1 million to $8 million has a much higher chance of closing; (3) don’t blindly believe in big price tags for SEPs; (4) be transparent about encumbrances; (5) and never believe a deal is done until money is in the bank account. (RL)

Many thanks – Finally, all of us at IAM would like to thank all the delegates, speakers and sponsors who made IPBC Asia 2015 such a huge success. As ever, we are sincerely grateful for the wonderful support you give the IPBC events – it is a privilege to work with you. And on a personal note, I’d like to thank the great editorial team we have in our Hong Kong office for developing an excellent conference programme and recruiting a top class faculty of speakers. Jack, Jake and Bing – you are superstars! (JW)  

Joff Wild

Author | Editor-in-chief

[email protected]

Joff Wild