9 Nov
2015

US market dominance under serious threat and much more from IPBC Asia 2015 Day One

The plenary and breakout sessions of IPBC Asia 2015 got underway today at the Palace Hotel in Tokyo. Over 550 delegates are in attendance, with a very strong showing of senior corporate IP managers working in Japanese companies and those based in other parts of Asia. As ever at the IPBC, IAM has a team of reporters covering events. Following are a few of the highlights, as well as some observations on what has transpired, from Jack Ellis (JE), Richard Lloyd (RL), Jacob Schindler (JS) and Joff Wild (JW):

Competition - Japan has had a National IP Strategy co-ordinated at cabinet level since the beginning of the 2000s. Hidehori Yokoo, the secretary general of the IP Strategy HQ in the Cabinet Secretariat, delivered the welcome address and talked delegates through some of the current priorities. Notably, he spoke about the recent creation of a review team to look at patent litigation in Japan and how it might be improved from the perspective of patent owners. Two areas he specifically addressed were exploring how to reduce the plaintiff’s burden of proof and modifying the damages regime so that it reflects more accurately what Yokoo called “business realities”. In short, he gave the very strong impression that Japan wants to become a more plaintiff-friendly jurisdiction. This mirrors moves that are taking place in other Asian jurisdictions - such as Korea, Taiwan and China - where specialist courts are proving to be a lot more patent-friendly than perhaps the general courts they are replacing were previously. Another area where Japan is seeking to court patent owners is in the output of the Japan Patent Office (JPO). In his keynote address, JPO Commissioner Hitoshi Ito focused on recent office initiatives which have reduced pendency times and lowered applicant costs while, he claimed, also increasing quality. Ten years ago, of course, Japan had no serious rivals in the Asian IP stakes. That has now changed. And it has led the country’s decision-makers and administrators to ask themselves hard questions about the system they oversee. For patent owners, that can only be good news. (JW)

Google, IV and the perfect blend – If you’re an IP market watcher, you may have heard of Coffee Flour, a food ingredient derived from discarded coffee cherries. Last year, the company that produces it, CF Global, became the first spin-out from Intellectual Ventures’ Invention Development Fund, which partners with inventors to identify and commercialise commercially promising innovations. Masanobu Katoh of IV told attendees that he had hoped to offer samples of the product to IPBC delegates; sadly, though, the Palace Hotel’s policies on outside food and drinks had put the kibosh on that. But, if you want to enjoy Coffee Flour beverages in Tokyo, said Katoh-san, you can find it in perhaps the unlikeliest of places: the canteen at Google’s Tokyo headquarters! (JS)

Busy, busy, busy –In his keynote address, Japan Patent Office (JPO) commissioner Hitoshi Ito said that while the number of patent applications the office receives continues to fall, grants are going up. That is thanks in no small part to the Herculean efforts of the examiner corps. According to statistics shared by Ito-san, at the end of financial year 2014 there were 1,702 patent examiners employed at the JPO. On average, each one of them handles 234 first actions annually. Compare that to the figures for a couple of the other major IP5 offices: at the USPTO, 8,466 examiners are taking on 82 first actions each, while the 4,221 EPO examiners – whose trade union vociferously and continuously complains of inhuman working conditions – are handling 52 each. Also of note is that while China’s SIPO (8,457 examiners) and the USPTO have both significantly expanded their examiner corps in recent years, the size of the team at the JPO has barely changed – room for manoeuvre being limited not only by fewer applications, but also by a 10% reduction in official fees. Ito-san suggested that the falling application rate in Japan may be best explained by a shift in focus from patent quantity to patent quality; but when you consider the massive workload of Japanese examiners as compared to their counterparts elsewhere, you begin to marvel that the JPO is consistently ranked by IAM readers as second only to the EPO in terms of the quality of its output. (JE)

Pole to pole - In his opening comments in “Big markets, big changes”, one of the first afternoon breakout sessions, IPValue CEO Murali Dharan detailed the increasingly multi-polar nature of the world economy. As the US share of global GDP has declined, he stated, so other countries have become far more important economic players. However, the global IP market remains dominated by the US. In this unipolar world, patents issued in America are still the de facto reserve currency. To what extent that changes in the coming years may well turn out to be the guiding macro level topic in the world’s IP market. Many of current trends – such as the growing popularity of European litigation, the pending introduction of the Unified Patent Court and the growing sophistication of Asian entities – suggest that the global IP market is also going to become far more multi-polar. That is by no means a certainty, but with reform legislation still looming in Congress and dismay in some quarters over recent court decisions, the US is certainly not helping its cause. (RL)

Top of the board – As many delegates have discovered in the past two days, you can do a lot more with the IPBC Asia app for Android and iOS than you could with the old printed programmes. One of the new functions is a leader board that awards points to those who notch the most activity on the app. At the time of writing, IAM’s own Bryce Leung is perched atop the list with 36 points, but to avoid giving our own organisation a pat on the back, we’ll give the top honours to the man currently in second place: Kurtis MacFerrin, patent counsel at Google. Kurtis, if you can find us at the hotel bar tonight, drinks are on us. (JS)

Injunctions rule – Most people would agree with IPValue’s Murali Dharan when he says that US patents remain the de facto reserve currency for global IP, but whether that will continue is another matter. Listening to panellists on the opening “Asia market wrap” plenary, it seems that change is in the air: US patent values are down, while those covering Asian and European jurisdictions are up. The reason is simple: injunctions. Whereas in the US they are now harder to get than ever before, in Asia they are becoming more accessible, while in countries such as Germany they remain the powerful weapon they have always been. Bin Sun, director and head of patents at China’s BOE Technology Group, described them as a serious threat and said they have a definite impact on patent values; while Marcus Woo, vice-president and GC at HTC, a company that has experience of these things (though Woo, like Bin Sun, emphasised he was speaking in a personal capacity), stated that their availability in Germany made patents covering the country potentially very threatening and disruptive. For his part, Min Sheo Choi, director of the IP business team at Korea’s ETRI, explained that the creation of specialist IP courts in the country, combined with higher damages awards and automatic injunctions, would push patent values in Korea higher. The US is clearly bucking the global trend when it comes to patents. Time will tell how well that works out. (JW)

Ssshhh, don’t tell – As this event is already making clear, it’s tougher today to be a US patent owner than it has been at any time in the recent past, with inter partes reviews, a host of Federal Circuit and Supreme Court decisions and what many perceive to be a general anti-patent climate in the country all causing headaches. Amid this, there is talk that some corporates are increasingly looking at trade secrets as a viable alternative for protecting innovations that, in times gone by, they would have sought patents on. Speaking in this morning’s opening “Asia market wrap” plenary, HTC general counsel Marcus Woo said that trade secrets are often “treated as the flipside of patents”, when in reality the types of innovations that can be protected by either overlap in many instances, and that therefore that trade secret protection can play a bigger role in high-tech corporate IP strategies. However, as Woo pointed out, such an approach brings with it limited value creation opportunities; and it would be wrong to suggest that patents have in any way lost some of their usefulness from a strategic perspective. Speaking in the afternoon’s “Beyond patent protection” breakout, China-based Simon Schuster of Audi highlighted this, explaining: “We see a lot of our technology being reverse engineered, and if we don’t have patent protection it is hard for us to take any action against that.” Then again, if it is not possible to identify and demonstrate infringement of your invention due to its technological nature, then a patent won’t be of much use. “If it can’t be reverse engineered and if infringement can’t be verified, then it may be best to keep it as a trade secret,” he suggested. While patents will always have their place, you can expect trade secrets and other forms of IP protection to feature in the conversation much more often at future IPBCs. (JE)

It’s a deal, eventually - At any IPBC event there’s always a lot of comment on the state of the patent deals market and this year’s IPBC Asia is no exception. In the “Big markets, big changes” breakout session Mike McLean, a senior VP at TechInsights, provided his analysis. Not surprisingly, he reported that there’s a lot of caution from buyers, meaning that assets are thoroughly test before any deal is done. For operating companies that due diligence happens at the start before talk moves onto valuation or deal structure. For financial buyers, however, the reverse is true – they want to know what sort of structure a deal will take before looking at the patents in detail. The greater uncertainty means that investors who a few years ago were sniffing around for opportunities are now on the sidelines, leaving the field open to sophisticated buyers. Those buyers are increasingly placing an emphasis on broad portfolios which are diverse across both technologies and geographies. Deals are still being struck but just not with the kind of headline valuations we were seeing a few years ago. (RL

I forgot my mantra – During the morning’s opening “Asia market wrap” plenary, Marcus Woo of HTC injected a note of caution as to buzzwords and industry jargon, which he says was inspired while reading company descriptions on the IPBC Asia app. “We live by mantras, not that we believe in all of them: some are descriptive and some are aspirational,” Woo noted. “A lot of these phrases talk about contributing to an invention economy and building a currency of innovation, and that we can talk about IP as an independent asset class like any other property.” But Woo suggested that the IP market ask itself “are we really building this currency of innovation, or just living in an opportunistic environment where anything goes?” Woo’s remarks echoed those of David Kline in the cover story of IAM issue 74, which can be found all over the venue this week. Using the same key word as Woo, Kline wrote: “Perhaps we were blinded by our mantra that patents are a ‘discrete asset class’ and failed to see the danger in them losing their connection to the invention of new products and services and becoming disembodied weapons of litigation instead.” Japan, a centre of Zen Buddhism, is already proving a good place to do some soul-searching. (JS)

Moving up, spinning out – The day’s second plenary session  - “The elite: corporate structures for maximum effect” - gave us fascinating insights into the set-ups that some of the Asia-Pacific’s leading tech businesses have put in place to manage and exploit their intellectual property. Two of the companies represented on the panel – Japan’s Panasonic and Taiwan’s Foxconn – have spun-out their IP functions in recent years. In both cases, this has given the IP team greater independence to develop and pursue effective strategies; but perhaps even more importantly, it means that the management companies concerned have become businesses in a real sense, with their own profit-and-loss considerations. Roger Tu, vice president at MiiCs – the firm that now manages patent monetisation for Foxconn – explained that spinning out the IP function in 2013 has helped to foster more of a start-up culture within the team. Moreover, as echoed by Panasonic IP Management president Hideo Toyoda, this is challenging the traditional corporate mind-set of intellectual property as a cost centre. The logical extension of this is that, with their own revenue targets to hit, these spun-out IP departments will begin to offer their services to third-parties as well as to their parent companies. Tu revealed that MiiCs and ScienBiziP – another firm with its origins in Foxconn’s IP function – are already working with a range of clients in China and Taiwan; while Toyoda-san finished his presentation with a well-placed plug for his outfit’s services. (JE)

Using the conditions - Lawyers - in-house and private practice – are not known for their fondness of uncertainty, but it can create opportunities. Speaking in the “Big markets, big changes” breakout, TechInsights senior VP Mike McLean (not a lawyer) talked about the multijurisdictional approach some of his firm’s clients are now taking to enforcement. They use the US system for the extensive discovery it offers, then use the information uncovered to help build cases in other jurisdictions where discovery is limited or non-existent, but injunctions are available. It’s smart, but doubtless pretty pricey; which probably tells you a fair bit about the TechInsights customer base! (JW)

Valley talk – Adrienne Huesca of Jawbone brought the Silicon Valley perspective to the afternoon breakout on IP, venture capital and the start-up ecosystem. An adviser to numerous venture funds and accelerators, Huesca said that when it comes to the Valley’s always-evolving attitude towards IP, it is not all doom and gloom. While a good portion of software-focused techies are assigning IP less relevance, that is only half the story: “There is still a lot of value in patents for hardware-based companies, and it is something that VCs are looking for in potential investments – especially in the consumer goods category.” For those investors who do make IP rights a central consideration in deciding what companies to back, the post-Alice environment has caused them to be much more demanding in terms of quality, Huesca stated. It is no longer enough to tell a prospective funder only that you have patents, while entrepreneurs can bet their assets will come under close scrutiny. (JS)    

Changing priorities – Much has been said about the decline of the US NPE market and the resulting impact this has had on patent values. Although deals are still being done State-side, the prices involved are far lower while the work the seller must do to get to completion is much more extensive. That much pretty well everyone knows. But according to one prominent broker I spoke to today, less remarked upon is the type of patent now attracting buyer interest. Back in the day, he explained, NPEs often favoured older patents – ones that may have been around for 10 or even 15 years; these were attractive because of all the developments that would have taken place after they were granted, all the technologies that they might read on and, therefore, the wider range of possible licensees they might deliver. Nowadays, though, with operating companies leading the way as buyers it’s all change. More often than not, their priority is to acquire patents that might cover future product launches, or which may give them leverage in cross-licensing negotiations with rivals. That generally means newer patents. What’s more, there is an increasing demand for patents plus – that is, not just the assignment itself, but also knowledge of how to work the asset to maximum effect. For sellers, that presents a whole heap of new challenges; but ones that they are going to have to face up to if they want to make their money. (JW)

Still waiting for the boom – One of the much-discussed stories here in Tokyo so far has been Qualcomm’s revelation last week that it has not yet managed to sign patent licences with some major Chinese smartphone companies, including Lenovo and Xiaomi. Reacting to the news, investors sent the firm’s shares sharply downward - a signal that they had expected more progress to be made nine months after Chinese regulators imposed a $975 million fine on the company; the line at the time was that the conclusion of the probe would clarify the rules and allow Qualcomm to get down to business. But a slide shown by BOE Technology Group’s Bin Sun in this morning’s first plenary session, “Asia market wrap”, showed that while patent sales in China have soared – more than doubling between 2009 and 2013 – the number of licensing deals has remained more or less stable (though according to Sun, the vast majority of such agreements are not recorded in China). Nevertheless, there are reasons for optimism. Guy Proulx, chairman and CEO of Transpacific IP, observed that there were probably more eight or nine-figure transactions in Asia last year than in North America or Europe. These might not have been in China, but they do suggest that the region as a whole could also be fertile ground for licensors. And, as Proulx pointed out: “Licensing is a longer cycle; the work and preparation that goes into it takes a lot of time.” A number of delegates have told me they feel the licensing market in China is getting ready to take off. They – and Qualcomm investors – would do well to remember that patience is a virtue. (JS)

Investors love IP – Speaking in the opening “Market wrap” plenary, Transpacific IP chairman and CEO Guy Proulx made a telling observation that clearly indicated just how far Asia has progressed on the patent front in recent years. His firm, he said, is doing more valuation work around IPOs and fundings than it has ever done before. These days, before splashing the cash Asian investors want a proper understanding of the patent positions of IPO candidates and companies looking for first, second or third round financing. Ten years ago, he stated, that just did not happen. What’s more, companies that have properly protected their technologies have much better exit and funding opportunities. These are exciting times, Proulx said. And he clearly meant it. (JW)

Read all about it - With so much uncertainty in the world’s major IP markets, Anan Sivananthan of Singapore’s Creative Technology was asked how he can possibly keep up with all the changes. His answer? Subscribe to IAM which he described as the world’s best IP magazine. You certainly won’t get any disagreement on that here, and we didn’t even pay him! (RL)    

Joff Wild

Author | Editor-in-chief

[email protected]

Joff Wild