17 Jun
2015

A new approach to the reform debate; China's IP future; the European tide; and much more at IPBC Global Day 3

IPBC Global in San Francisco is now finished, but only after another compelling day of sessions, networking and discussion. Here, IAM’s editorial team – Joff Wild, Richard Lloyd, Jack Ellis and Sara Jayne Clover – pick out a few of the highlights:

Civilised debate - Add three major industry players – Allen Lo of Google, BJ Watrous of Apple and Kurt Kjelland of Qualcomm; stir in two outspoken, highly-regarded legal academics – Mark Lemley of Stanford Law School and John Whealan of George Washington University; season with feisty former chief judge of the Federal Circuit, Randall Rader; put the spoon in the hands of mischievous, enquiring CIP Gothenburg Deputy Director Bo Heiden; give them all a brief to discuss the major challenges now facing the US patent system; and what you have is a recipe for 90 minutes of highly-informed, in-depth debate from individuals who clearly respect each other, but sometimes profoundly disagree.  Looking at areas such as SEPs and FRAND, US patent reform, IPRs, recent court decisions and whether the US now offers enough incentives to innovate, the opening “End of an era” plenary was a stand-out session that had delegates’ full attention from first to last. Lo and Watrous disagreed on how far further reform is needed, but were both content that as things stand the protection pendulum was about where it should be; while Kjelland worried that it had gone way too far towards disenfranchising patent owners,  a concern that Whealan shared. Lemley surprised a few people by stating he thought it was too early for further reform given the full impact of the America Invents Act and recent Supreme Court cases had yet to be felt; while Rader observed that the world no longer sees the US as its patent leader. Throughout, though, the exchanges were courteous, civilised and constructive. That is the way it should always be; and the shrillness of the reform debate taking place in Washington DC, with its name calling, political cynicism and closed agendas seemed a long way away. Maybe a few more of these kinds of conversations and a little less grandstanding from all sides might actually end up producing far better outcomes.  It would be nice to think so. (JW

The long march – There was no doubt among the panellists in this morning's 'IP Market 2.0' session that China is continuing on its path to becoming a major patent market player. However, the point at which the country currently is on that journey was more open to discussion. Ericsson chief IP officer Kasim Alfalahi praised the achievements of China's State IP Office (SIPO) over the past few years, stating that his company has seen a marked improvement in the quality of the assets being issued in the jurisdiction. Erich Andersen, vice president and deputy general counsel for IP at Microsoft, was cautious though. "Don't bet everything on the continuous exponential growth of patenting in China," he said, underlining that the efficacy of the country's IP enforcement infrastructure remains an open question. Grant Philpott, principal director for information and communications technology at the European Patent Office (EPO), looked at the issue from a slightly different angle. While the number of filings handled by SIPO has shot through the roof in recent years - making it the world's largest patent office by volume – he noted that Chinese residents still constitute a conspicuously small proportion of applicants in foreign jurisdictions. "I am not so sure we will see a flood of Chinese patents coming our way any time soon," he forecast, suggesting that Chinese companies' relatively small patent holdings outside of their own country is perhaps indicative that they have some way to go in terms of IP sophistication. For Laura Quatela - head of IP at Alcatel-Lucent, as well as a member of the board at Technicolor – that implied that we will see even more of a phenomenon that has become increasingly apparent over recent years: the acquisition of foreign patent assets by Chinese entities. (JE)

Gulf gold - The Qataris have made quite a mark over recent yeas as they seek to build an economy that is based on a lot more than oil and gas. The Qatar Investment Authority – a sovereign fund – has been building a presence across a number of industries and has also agreed many partnerships; while at home, a collection of big name US universities have established campuses in and around the capital city, Doha. Notably, 80% of graduates coming out of these institutions are women – many of the men being too busy spending the vast energy wealth their families have accumulated. It now seems as if the country has its eye on IP as a lever of development. Conversations with IPBC delegates from the country reveal a strong desire to get more actively involved in the development of IP and intellectual assets – especially those which can help solve problems in Qatar relating to water harvesting, energy generation and health issues. Stay tuned on this one folks, IAM understands that serious money could be soon made available to facilitate IP-based alliances, partnerships and projects not only in Qatar itself but also in centres across the world. (JW)

Standard fare - One theme that stretched across both morning plenary sessions was the current position of standard essential patents and their likely future value. SEPs have been in the headlines in recent months thanks to the IEEE’s decision to change its terms for licensing patents deemed essential to a piece of technology and because of a number of court cases, such as Microsoft v Motorola, that have thrust the question of what is fair and reasonable firmly into the spotlight.  The Microsoft case was brought up in the first panel by Mark Lemley, who pointed to the huge difference in expectations between the software giant and Moto on how much the former should ultimately pay for a licence. That gap, Lemley maintained, was an illustration of the breakdown of FRAND terms. “We don’t have a reasonable framework on what you should pay for a licence,” he stated. It was cases like Microsoft v Motorola that led the IEEE to change its equation for determining the value of an SEP’s contribution to patented technology and reduce the availability of injunctive relief for patent owners. All of those on the first panel insisted that injunctions should still be available but the prevailing view was that it must depend on owners acting in a fair and reasonable way. But, as with anything, there are two sides to the argument; Randall Rader made the point that while there is both the threat of hold-up over SEPs there is also the prospect of hold-out, where potential licensees refuse to take a licence and opt instead for litigation.  That was echoed in the second panel of the day by Kasim Alfalahi chief IP officer of Ericsson, a business which has made plain its opposition to the IEEE’s new licensing terms. Despite the changed conditions, however, Alfalahi insisted that the value of SEPs would rise over the next five years. So far, a lot of the developments have been in the US. But the reality that this is in fact a global challenge was highlighted in the afternoon session on standards which focused specifically on the issue of SEPs. Both Monica Magnusson of Ericsson and Cindy Faatz of Intel agreed that it needed a multinational response. Given the opposing views of those two companies in this ongoing debate, that was a rare point for them to agree on. (RL)

Value proposition – One thing on which most interest groups within the IP business community can probably agree is that the lack of widely recognised valuation methods is a major obstacle to the realisation of patents' potential as an asset class. But an exercise in subjectivity – backed by plenty of objective data – may in the end prove to be the best way of attaching a monetary figure to these rights. Speaking in this afternoon's 'Value conundrums' session, ABB chief IP officer Bruce Schelkopf suggested that unrealistic expectations and overly simplistic valuation practices are partly to blame for IP owners' inability to value their portfolios. "I am excited that IP is getting more attention in the boardroom… what doesn't excite me is the $750,000 per patent that Google paid for Motorola, or the $1.2 million per patent that Microsoft paid AOL," he said. "These set expectations the wrong way." For Schelkopf, such approaches to valuation are probably useless to rights holders and, at best, are not going to be right for the majority of companies. Instead, IP valuation should be less influenced by external events and the high expectations they lead to, and more by the IP owner's own business strategy and commercial goals. "Don't just use other people's benchmarks," he said. "That can only give you average figures in a broad context. You need to measure against your own objectives too." (JE)

Board insight – Throughout 2014 and in the early part of 2015 French business Technicolor – a European pioneer in communication and media innovation, as well as licensing – was engaged in a high-profile dispute with activist shareholder Vector Capital about its future direction. Both Laura Quatela, a board member, and Unwired Planet’s CEO Boris Teksler, until recently the head of technology licensing at the company, took part in the second plenary of the day and gave an insight into events. Vector wanted to create two distinct businesses – one based on products, the other based on IP licensing – and this, Quatela explained, caused a lot of division among board members themselves. She explained that she had strongly argued against the plan on the basis that so many licensing deals spring from opportunities and relationships created on the product side. Teksler clearly agreed. Although not talking directly about his experience at Technicolor, he stated that company boards very often struggle to understand the connect that exists between product businesses and licensing businesses, and that thinking only of patent licensing is very often extremely limiting: no-one ever “wants” to buy a patent licence, he observed; technology licensing, on the other hand, is far more collaborative. (JW)

Keeping on an even keel - In the second session of the day, Grant Philpott of the European Patent Office succinctly summed up the challenge facing patent offices around the world. As filing rates remain high, technology continues to proliferate at ever increasing speeds and case law shifts the goal posts, issuing authorities are faced with the challenge of responding to changes while remaining a stable, predictable bedrock for the innovation community. As we have seen in the US with the uncertainty around the jurisprudence concerning section 101, that is quite a challenge as the USPTO is forced to issue guidelines on a case that most legal experts struggle to make sense of. Philpott, to his credit, did not appear daunted; although it seems unlikely that many in the room wanted to swap places with him. (RL)

End of the affair – The day’s second plenary session was all about where the panellists saw the IP market being in 2020. During the afternoon's 'Value conundrums' session, Aistemos CEO Nigel Swycher made a bold prediction of his own. "In five years' time, the term 'NPE' won't appear on the IPBC programme," he said. Basing his foresight on the premise that the IP transactions marketplace will have grown more transparent and, as a result, more efficient by 2020, Swycher argued that labels such as 'NPE' and 'troll' will have become largely irrelevant – as will the business models to which they are normally attached. "We don't have equity trolls or real estate trolls," he added, pointing out that a truly efficient market in patents should resemble other ones for established financial assets. "By then, IP transactions will happen more and more often at a corporate level and will be mainly strategic [as opposed to revenue or defence-focused]." It will be interesting to see if Swycher's prediction does come true. After all, five years is an awful long time in IP. As Ericsson’s Kasim Alfalahi said at the end of that second plenary, the big IP movers and shalers of the third decade of the 21st century may not even exist yet. (JE)

Moving east - This IPBC has provided plenty more evidence that the patent pendulum may be swinging towards Europe over the coming years. Speaking in the IP Market 2.0 plenary, the EPO’s Grant Philpott noted a developing trend for American companies to give much greater attention to redrafting their US applications to comply with EPC requirements. Though Philpott did not say it, this correspondent could not help wondering whether this reflected a realisation that in future Amercian entities realise that their EPO granted rights are going to be much more important to them. Meanwhile, just about every corporate speaker in both morning sessions – including Microsoft’s Andersen, Ericsson’s Alfalahi, Apple’s Watrous and Unwired Planet’s Teksler – predicted more patent litigation in Europe once the UPC is up and running, with Andersen also talking of a “spike” in European patent values. I am still not sure that enough Europeans have grasped what may be coming their way and is going to be upon them sometime within the next five years. They had better be ready. (JW)

Passionate voices - A few years back one of the biggest issues facing members of the IP community was getting their voice heard by corporate leadership.  Clearly this situation has come on leaps and bounds since then and any CEO who reads a newspaper will appreciate that these assets can be of considerable corporate value.  However, all too often the main takeaway for those outside the bubble is that IP = litigation.  Ask anyone here at the IPBC, though, why they embarked on a career in intellectual property and you can guarantee that the answer won’t be because they wanted to become embroiled in expensive, protracted lawsuits.  Rather, there are a significant number of idealists in this industry who are genuinely excited by the prospect of being able to play a part in bringing innovations to market that can make the world a better place.  It is just these sorts of individual that wind up in the IP Hall of Fame.  Last night 400 people came together at a gala dinner to honour this year’s inductees and listen to four of these great men make humorous, humble and thought-provoking speeches about the industry they love. Among the many highlights of the evening’s speeches was IP Kat Jeremy Phillips’ impassioned call for everyone in the IP community to listen to the inventors and creators who make all of our jobs possible. It is they, he stressed, that the IP world is there to serve, and they who are developing the technologies that have a truly profound impact on the world. Amen to that. (SJC)

A deal in the making - While there has been evidence of the volume of patent transactions increasing in the last year or so, it is generally accepted that patent values remain depressed. In one light-hearted moment in the second session of the day, however, Ericsson’s Kasim Alafalahi raised the prospect of a blockbuster deal between the Swedish telco and Microsoft. While Alfalahi insisted that the value of standard essential patents would rise over the next five years, Microsoft’s Erich Andersen offered the opposing view, forecasting that values would decline thanks to industry convergence and increasing scrutiny from regulatory authorities, particularly in Asia. Spying a deal opportunity, Alfalahi indicated he was ready to move in to take Microsoft’s SEPs off its hands if Andersen would agree to a sale. That’s obviously not about to happen, but how the market would love a blockbuster deal between two clear patent leaders. (RL)

Visca Barcelona! – IPBC Global 2015 is now done and dusted; many thanks to all attendees, speakers and sponsors for helping to create a fantastic break. Our thoughts now turn to IPBC Asia, which takes place in Tokyo in November and, after that, it will be full steam ahead for IPBC Global 2016, which takes place at the Arts Hotel in Barcelona next June. Full details will be announced after the summer break. (JW)

Joff Wild

Author | Editor-in-chief

[email protected]

Joff Wild