Three days in Tokyo

In November 2015 Tokyo’s Palace Hotel played host to the third annual IPBC Asia. In attendance were over 500 senior delegates from Asia-Pacific and beyond. What became clear over the three days of the event was that while other parts of the world may currently be in the IP doldrums, in Asia the mood is upbeat as intellectual property takes centre stage and strategies for managing assets grow ever more sophisticated

Representatives from IAM Asia IP Elite companies with the awards they received at the event’s gala dinner (from left to right): Ganapathy Nathan, Wipro; Ashutosh Kumar Singh, Reliance Industries; Hideo Goto, Fisher & Paykel Healthcare; Christine Emmanuel, CSIRO; Chao-Hsiung Wang, TSMC; Wei Fu Hsu, Mediatek; Yoshihiko Takebe, Tata Technologies; Kimikazu Matsumoto, NEC; Masahiro Asami, Fujifilm; Hiroshi Okumura, Casio; Chih-Yuan Liu, ITRI; Anindya Sircar, Infosys; Min-Sheo Choi, ETRI; Wilaiporn Chetanachan, Siam Cement Group; Santosh Mohanty, Tata Consultancy Services; Joo Sup Kim, LG Electronics; Ira Blumberg, Lenovo; Tatsuya Misawa, Seiko Epson; Seung-Hyun Youn, Hyundai Motor Group; Michael McCreary, E-Ink Holdings; Hee Jung Youn, SK Hynix; Anan S Sivananthan, Creative Technology; Marco Tong, ZTE; Yoshihiro Endo, Honda; Roger Tu, Hon Hai Precision Industry; Yoshiaki Tokuda, Panasonic; Koshiro Itakura, Funai; Fumiko Tsuneki, Kao; Maki Ohmizu, Fujitsu

Japan has had a National IP Strategy coordinated at cabinet level since the beginning of the 2000s. Hidehori Yokoo – the secretary general of the IP Strategy HQ in the Cabinet Secretariat, who delivered the welcome address at IPBC Asia – talked delegates through some of the current priorities. Notably, he highlighted 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 issues that Yokoo specifically addressed were how to reduce the burden of proof for plaintiffs and modification of the damages regime to reflect more accurately what he called “business realities”. He gave a strong impression that Japan wants to become a more plaintiff-friendly jurisdiction. This mirrors the trends emerging in other Asian jurisdictions – such as Korea, Taiwan and China – where specialist IP courts are proving to be a lot more attractive to patent owners than their general predecessors.

Japan is also seeking to appeal to patent owners by enhancing the output of the Japan Patent Office (JPO). In his keynote address, JPO Commissioner Hitoshi Ito focused on recent initiatives which have reduced pendency times and lowered applicant costs at the agency 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.

There’s always time for a group selfie

Examiner burdens

Looking at filing trends, Ito stated that while the number of patent applications that the JPO receives continues to fall, grants are on the rise. This is thanks in no small part to the Herculean efforts of the examiner corps. According to statistics shared by Ito, at the end of financial year 2014 some 1,702 patent examiners were employed at the JPO. On average, each of them handles 234 first actions annually. Compare that to the figures for a couple of the other major IP5 offices: at the US Patent and Trademark Office (USPTO), 8,466 examiners take on an average of 82 first actions each; while the 4,221 European Patent Office (EPO) examiners – whose trade union vociferously and continuously complains of inhuman working conditions – handle an average of 52 each.

Also of note is that while China’s State Intellectual Property Office (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 suggested that the falling application rate 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.

Moderator Toyotaka Abe of TMI Associates introduces the participants in the opening “Asia market wrap” plenary session (from left to right): Min Sheo Choi, director of the IP business team, Electronics and Telecommunications Research Institute; Hiroshi Miyauchi, chief fellow, technology and innovation, Toshiba Corporation; Ganapathy Nathan, general manager and head of open innovation and intellectual property, Wipro; Marcus Woo, vice president and general counsel, HTC; Bin Sun, director and head of patents, BOE Technology Group; and Guy Proulx, chairman and CEO, Transpacific IP

Going global

One of the key themes of the event was the ongoing internationalisation of the IP market, and specifically the increasing attraction or threat – depending on your viewpoint – of jurisdictions outside the Untied States. Although IPValue’s Murali Dharan found little disagreement with his assertion that US patents remain the de facto reserve currency for global intellectual property, there was plenty of discussion as to whether they will remain so.

The panellists who took part in the “Asia market wrap” plenary seemed to agree that change might be 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 United States these are now harder to obtain 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 injunctions as a serious threat and said that they have a definite impact on patent values; while Marcus Woo – vice president and general counsel at HTC, a company that has experience of these things (though Woo, like Bin Sun, emphasised that he was speaking in a personal capacity) – stated that their availability in Germany makes 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, should push patent values in Korea higher.

Masanobu Katoh of Intellectual Ventures Japan makes a point during the “IP, venture capital and the start-up ecosystem” breakout. To his right: Adrienne Huesca of Jawbone. To his left: Ichiro Nakatomi of NanoCarrier

The event was formally opened by Hidehiro Yokoo, secretary general of the Japanese Cabinet Secretariat’s Intellectual Property Strategy Headquarters (top) and Hitoshi Ito, commissioner of the Japan Patent Office (bottom)

Deal making in China and beyond

A slide shown by Sun 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 static (although according to Sun, the vast majority of such agreements are not recorded in China). Nevertheless, there are reasons for optimism.

Of all the delegates at IPBC Asia, few had as incisive a view of the patent deals market in China as Zhigu’s Paul Lin. In the “Quality is king” breakout session, Lin shared some practical tips for getting a patent deal done in the country. Finding the right agent is crucial, he stated; while deals valued in the range of $1 million to $8 million have the best chances of closing. If the portfolio you are selling has encumbrances, be transparent about them; and don’t believe the hype about standard-essential patent (SEP) values, for hype is what it is. Finally, never believe a deal is done until the money is in the bank account.

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 be fertile ground for licensors. “Licensing is a longer cycle; the work and preparation that go into it take a lot of time,” he said.

Another sign of how the market has developed in Asia, observed Proulx, is the growing amount of valuation work around initial public offerings (IPOs) and fundings that his firm is now doing. 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 is more, companies that have properly protected their technologies have much better exit and funding opportunities. These are exciting times, Proulx concluded.

Buying strategies

Of course, businesses are interested in acquiring and licensing patents for all kinds of reasons. In the “Reducing patent vulnerability, enhancing market reach” session, Lenovo’s vice president of IP, Ira Blumberg, talked delegates through his thought processes when looking at patent purchases.

“One of my main jobs is to protect the company as far as possible from patent assertions,” he explained; an important part of doing this is through the development of a high-quality patent portfolio. Building one, however, is complicated and requires multiple approaches. First off is the internal generation of assets based on the R&D that a company undertakes itself; but this will probably not do the job completely – especially if you are a relatively young business operating in high-tech. That is because you have to not only ensure that your own inventions are protected, but also 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 M&A deals in which patents are a component. Lenovo has done both over recent years; they are all about balance and judgement, Blumberg stated. 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 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 that Blumberg gave.

You then have to decide how much coverage you can develop internally, how much you need to bring in from outside and what form that will take. Patent applications are relatively cheap (eg, $20,000), 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, said Blumberg, 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, which can create significant value, Blumberg stated.

In short, it’s complicated. Lenovo’s journey is one that countless other Asian companies are also undertaking; 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 is why savvy chief IP officers (CIPOs), such as Blumberg, will be in hot demand in Asia and elsewhere over the coming years.

The IAM Asia Elite gala dinner gets underway

Ira Blumberg of Lenovo holds forth during the “Reducing patent vulnerability, enhancing market reach” plenary. To his right, session moderator Hisao Yamasaki of Syndefense; and to his left the European Patent Office’s Grant Philpott

Dolby chief patent counsel Heath Hoglund speaks during the “Putting a price on your portfolio” breakout

Angles on selling

For there to be buyers, there must also be sellers. “The great monetisation debate” involved a fascinating discussion of the very different approaches that the three operating companies on the panel – Ericsson, Google and Japanese corporate KDDI – have to selling patents. The latter never does it; IP department general manager Hiroshi Kawana insisted that the use of patents should reflect the purpose of the law, which is to contribute to the development of industry.

Google is not a prolific seller either, although it is now making a limited number of patents available to the right buyers. Much of its caution lies in the concern that such assets can often end up in the hands of non-practising entities (NPEs), which 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 originated from operating companies and used his presentation time to make a pitch for the License on Transfer Network as a way of reducing the risk of NPE assertions.

For Ericsson, explained CIPO Kasim Alfalahi, the perspective is different. It has entered into privateering-style deals with NPEs such as Unwired Planet, and Alfalahi made 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.

At the heart of Google’s argument was the assertion that the economics of selling to NPEs just don’t add up for operating companies. Because the cost of patent litigation in the United States is much greater than the average sale price of the patent, in aggregate, said Kowalski, NPEs pay just 25% or even 10% of the total costs of NPE suits to operating companies. This results in a net loss of value for the overall ecosystem of product companies. “It’s like operating companies are selling their patents for a quarter and turning around to pay a dollar to license them back,” said Kowalski.

Maki Ohmizu, right, gets a laugh from Marnie Williams of Unitised Building Group (centre) and Simon Schuster of Audi China

Sharing a joke at the opening reception

IAM Asia editor Jack Ellis won first, second and third prize in the Beard of the Conference competition

Alfalahi agreed that the system does create inefficiencies, but suggested that better alternatives for generating 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.

NPE flavours

Alongside the operating companies on the panel were three representatives from entities that do not, technically speaking, practise their patents or sell products and services based on them. However, none of these 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, it 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 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 featured Takafumi Yamamoto, president of 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. It was a point that was emphasised further by Dolby’s chief patent counsel, Heath Hoglund, in the “Putting a price on your portfolio” breakout session. He revealed that purchase agreements increasingly come with a proviso that prohibits Dolby from selling the assets on to “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 simplistic narrative.

A packed-out room for the “Asia market wrap” plenary session

Lights down and slides up during the “Great monetisation debate” plenary session

Acacia Research’s Hiro Seki and his fellow panellists in the “Licensing contexts” breakout talk to delegates at the end of the session

IAM’s China manager Bing Zhao catches up with some contacts at the closing reception

Setting up for success

“The elite: corporate structures for maximum effect” plenary, which focused on the IP management strategies of the IAM Asia IP Elite, provided a series of fascinating insights into the set-ups that some of Asia-Pacific’s leading tech businesses have put in place to manage and exploit their IP assets.

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. 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 finished his presentation with a well-placed plug for his outfit’s services.

Ten years ago – perhaps even just five – Asia outside of Japan was, comparatively speaking, an IP backwater. How times change. Now, an increasingly confident IP community is taking its message to the heart of business and government across the continent. What is more, distinctly Asian secondary and support markets are beginning to emerge. The journey is far from complete, but it has undoubtedly begun.

Next year, IPBC Asia returns to China, when the event takes place at the Ritz-Carlton in Shanghai. There will be plenty to discuss.

Joff Wild is editor, Jack Ellis is Asia-Pacific editor and Richard Lloyd is North America editor of IAM; Jacob Schindler is its Asia-Pacific reporter

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