23 Apr
2015

Buying time, quality over quantity, the gathering litigation storm and more from IPBC China 2015

There were over 250 attendees at a packed-to-the-rafters IPBC China, which took place this week at the Shangri-La Hotel in Haidian, Beijing. Delegates, mostly local IP professionals working inside major Chinese businesses, participated in a series of plenary sessions addressing various key IP value creation issues and attended a gala dinner on the evening of 22nd April at which this year’s China IP Elite was named. Here are a few of the highlights of a memorable event, as brought to you by IAM’s editor Joff Wild (JW) and its Asia-Pacific editor Jack Ellis (JE):

Purchase power – Mindray is China’s biggest medical devices company and one that spends around 10% of its sales income each year on R&D; and with sales increasing at a rapid rate that adds up to a lot of money. Patent-wise, though, there is still plenty of work to do to catch the international competition, explained Jianguang Du, the company’s group head of IP, in the day’s opening ‘Building a world class patent portfolio’ session. A highly sophisticated organic patent development programme is helping, but more is needed on top; so, Du explained, the company is always on the look out for both acquisition and in-licensing opportunities. It is not alone. Talking to brokers, representatives from Chinese businesses and from foreign companies, it is clear that the country’s appetite for US patents - and, increasingly, German and other European ones - is undimmed. In fact, as more Chinese companies look to expand beyond their domestic markets, it is probably increasing. For US sellers, in particular, the Chinese are proving to be a saving grace as buyers back home decrease. While for their part, many European companies may well remain blissfully unaware that they are possibly sitting on assets that many in China (and other parts of Asia) are keen to take off their hands. Already, Germany, in particular, is emerging as a serious alternative to the United States for many licensors that need to litigate in order to force licensees to do deals; and should the Unified Patent Court regime ever get up and running, then Europe is only going to become more attractive. For buyers, such as the Chinese, that means now is a good time to be doing deals. Sellers, on the other hand, have a bit more thinking to do. True, they could probably make decent money now, especially if they offer packages that feature US patents too, but in a year’s time, with the UPC signed off, they might make a lot more. Over the coming months, reputations in the IP market will be won or lost on the calls that are made about the best time to get European-centric transactions done. JW

Next steps IAM was honoured to have Tian Lipu, former commissioner of China’s State IP Office, deliver the opening keynote of IPBC China 2015. He noted that it has been 30 years since the country’s government implemented its first IP law. “In those three decades, we have made great efforts to enlarge the scale of intellectual property in China,” he said. “Today, we own more patents than any other country; but the challenge now is to proceed from the simple pursuit of numbers to focus on higher quality.” Emphasising that the issue of patent quality – and hence, value – is not lost on the Chinese authorities, the ex-commissioner underlined the fact that the vast majority of Chinese patents are abandoned long before their full 20-year term is up. “If it has any value in the market, then a patent would be maintained even until the end of its life,” he said. “At the end of the day, applicants want to see their applications approved. But that’s still not enough. What we need to see is commercial results.” JE

High-rolling royalties - When patent licensing becomes a significant source of income for an operating company, you can be fairly sure that it has reached a high level of sophistication in its approach to IP strategy. Speaking during Wednesday afternoon’s ‘IP equals money’ session, Huawei’s head of IP monetisation Haitsing Li shared a few figures which revealed that, across the board, China’s top patent owners have been ratcheting up the contribution that licensing makes to their overall revenues. In 2012, he said, Chinese companies collectively made around $500 million from licensing out their patents. By the end of the following year, that had increased to $1.36 billion. While the patent royalties figures for 2014 are not yet available, Li estimated that they would be in excess of $2 billion based on the previous years’ rate of growth. When you consider that Huawei itself is one of just a handful of companies in China that owns large, international patent portfolios, then it does not take a wild leap of the imagination to think that quite a vast chunk of that $2 billion-plus in licence payments could be making its way into the coffers of the Shenzhen-based telecoms giant. JE

Sleepless nights – They have a word for it at Unilever, kind of. In his presentation during the morning litigation session, the company’s head of patents in China, Ben Wang, talked about the Chinese environment being ‘VUCA’; that is, Volatile, Uncertain, Complex and Ambiguous. Here you have a country of over one billion increasingly affluent people that has become the world’s number one patent filer. There are serious issues around quality, there is a notorious utility model regime, judges and counsel are relatively inexperienced and there have been any number of major changes to the law in the last five years. Put all that together with a slowing economy and a government that is actively encouraging companies to maximise the value of their intellectual property, and what you can expect to see a whole lot more of over the coming years is patent litigation. That’s on top of the large amount (certainly more than the United States) that is already taking place; and this in a jurisdiction in which winning plaintiffs are routinely entitled to injunctions (though ZTE’s Simon Wang, speaking later in the day, suggested that injunctions may not be as easy to get in China as many of us think). No wonder Wang talked about sleepless nights; and no wonder some people believe that Chinese patents (or the good quality ones, anyway) are seriously undervalued. JW

Turn up for the books – Think Asia and research-based pharmaceutical companies and you do not tend to find yourself contemplating a series of benign, hospitable IP regimes. Instead, compulsory licensing, strict regulation and unfriendly courts are what spring to mind. But maybe that’s just being lazy. Speaking in the ‘Litigation boom’ session, Novartis IP head Paul Fehlner told delegates about two cases that went the company’s way recently – one in China centred on a method of treatment and the other in India relating to a compound. In both, it was granted an injunction – yes, even in India. “We were pleasantly surprised,” said Fehlner, perhaps understating it slightly. JW

BQ and AQ (before and after Qualcomm) – The decision made by China’s National Development and Reform Commission (NDRC) at the close of its antitrust investigation of Qualcomm is surely the biggest IP-related news story to emerge from the country so far this year. The NDRC ordered Qualcomm – the only US company to feature among the top 10 recipients of Chinese patents in 2014 – to pay a $975 million fine, as well as imposing strict limitations on its patent and technology licensing practices. There has been plenty of speculation over what this means for both licensors and licensees operating in China; and debate as to whether it represents a protectionist tendency among China’s competition regulators, or reflects the actions of watchdogs in other parts of the world. Whatever your viewpoint may be, everyone can likely agree on one thing, said BYD IP manager Jialin Li, speaking in Wednesday’s opening session: the NDRC’s decision regarding Qualcomm proves that Chinese patents are valuable. After all, why would a foreign company file for so many patents in China – and why would so many domestic players take a licence to them, even under what have been found to be unfair terms – if all parties involved didn’t think that they were worth it? Patents put the US company in an extremely powerful position in China – so much so that the antitrust authorities felt the need to step in and take action against it. From now on, what happened to Qualcomm will no doubt be an important consideration for Chinese and foreign companies alike as they formulate their IP strategies for doing business in the country. JE

Up and down – What turns companies on to patenting was something that senior Google patent counsel James Maccoun addressed in his talk during the ‘Building a world class patent portfolio’ session. At Google, which did not even apply for a patent until 2003 (though it did have an exclusive licence to the famous Stanford patent well before that), it was having to settle an expensive suit just before its IPO that got the management thinking for first time about the company’s exposure and the need to do something about it. Just 11 years later, Google found itself at number seven in the table of US patent recipients with 2,566 granted in 2014. It has also made any number of patent acquisitions, most famously from Motorola Mobility – Maccoun’s previous employer. Google has learned that patents are vital, Maccoun stated, because, among other things, they help to guarantee freedom to operate and underpin cross-licensing deals. The company is not interested in assertion – having only sued once in its entire existence – but even so it now knows it needs a high-quality portfolio and will do what it takes to ensure that it has one. Another of Maccoun’s former employers is HP and there the drive to patent came from a very different source: former CEO Carly Fiorina. She took over in 1999 and one of her first decisions was to place the word ‘invent’ underneath the iconic HP logo. She then upped the patenting budget and within five years the company had increased its annual patent grants by close to 1,000 and Fiorina – who is now a prominent Republican voice opposing US patent reform - was boasting that the company received 11 new patents every working day. In 2005, HP was placed third in the list of US patent recipients. Soon after, though, the numbers started to decline. And therein lay another truth that Maccoun was keen to get across: patenting is expensive, and cumulatively it is extremely so. As portfolios grow not only are companies paying more for application and prosecution, but they also have to find the cash for office actions, renewals and so on. It all adds up. And so when the tough times come, often it is patenting that is the first to feel the pinch – something that happened at both HP and Moto. As Chinese companies push themselves to build ever-bigger portfolios, that is something they may want to give very close attention to. JW 

Suitable for all ages - Globalisation, particularly as it relates to intellectual property, is typically seen as a relatively recent and ongoing phenomenon. In many ways, Chinese businesses are seen as newcomers to the world of IP value creation; while foreign rights holders entering the China market are often understood to be tentatively taking their first steps into what feels, in IP terms, like uncharted territory. It was noteworthy, then, when Ericsson’s vice president of licensing John Han highlighted the fact that the Swedish company has had an established presence on the ground in China since the early 1890s. At that time, the country was still ruled by an emperor. Xiaomi – China’s biggest smartphone vendor, Ericsson’s adversary in FRAND litigation in India and one of IAM’s 2015 China IP Elite (see below) – would not be founded for almost another 110 years. Talk about perspective! JE

The Elite – At the gala dinner held on the evening of 22nd April, IAM named the 2015 China IP Elite – comprising those Chinese entities that we have identified as being at the forefront of strategic, business-focused IP management in the country. In alphabetical order, they are: Aigo; Alibaba; Baidu; BOE Technology; BYD; Chery; China Electronics Corporation; China Mobile; Datang Telecom; Founder; Geely; Goldwind; Gree Electric; Haier; Hisense; Huawei; Hutchison MediPharma; Kingsoft; Lenovo; Midea; Mindray; Netac; PetroChina; Qihoo 360; Sany; Shanda Interactive; Simcere; SMIC; Sinopec; Sinopharm; Tasly; TCL; Tencent; Tralin; Tsinghua University; XCMG; Xiaomi; and ZTE. Congratulations to each and every one of them and long may they continue to demonstrate the importance of a coherent, thought-through IP strategy as a key element of overall business success. JW  

Finally, IAM would like to extend its gratitude to all of the speakers, sponsors and delegates who took part in IPBC China 2015. Our special thanks go to the Haidian IP Office, Zhongguancun Haidian Science Park and the government of Haidian District of Beijing, whose support helped to make this year’s IPBC China the stellar event that it was. 

Joff Wild

Author | Editor-in-chief

[email protected]

Joff Wild

Jack Ellis

Writer