How East Asian companies can stand up to pressure from US protectionist IP policies

A turbulent IP and trade environment has Asian tech firms caught in the crossfire. They need to use every tool at their disposal to protect their businesses

Since the enactment of the Trade Act of 1974, the United States has investigated and imposed trade restrictions on several countries and numerous companies in East Asia, starting with Japan in the 1970s, Taiwan, South Korea and Hong Kong in the 1980s and China in the 2000s. Increasing exports from East Asia led to the United States making allegations of unfair trade practices against Japan, South Korea, Taiwan and Hong Kong for IP infringement and counterfeiting, and against China for the theft of intellectual property and trade secrets.

With the introduction of Section 301 of the Trade Act and Section 301 of the Omnibus Trade and Competitiveness Act of 1988, IP rights began to play an increasingly significant role in world trade, prompting countries and their leaders to promote legislation and judicial administration to protect intellectual property. Nonetheless, US companies continue to rely on the International Trade Commission and federal courts – under Section 337 of the Tariff Act of 1930 and 35 USC Section 271 – to ban imports and sue for payment of damages against imported goods from East Asia. In addition, with the Economic Espionage Act of 1996 and the Defend Trade Secrets Act of 2016, more companies and individuals in East Asia are facing accusations of criminal and civil liabilities in the United States.

Although such IP and trade protection measures come from legislation implemented within the United States, their extraterritorial effects stretch beyond US trade practices, forcing East Asian companies to implement responsive measures. These companies have increased investment in R&D, global patent and trademark deployment and brand development to avoid counterfeiting and infringement. Accusations of unfair trade practices have since become more challenging to assert. As a result, the US IP litigation system has transformed into a mechanism for US and East Asian companies to eliminate competition and gain market dominance. While China continues to improve its legislation and judicial administration to promote IP protection, few companies in China have the capacity or professional resources to defend themselves from attacks in the highly competitive IP litigation arena.

Since the early 2000s, East Asian countries have developed national IP policies to aid their companies in global competition. Japan’s IP legislation began when the government declared its intention to create an “IP-based nation” and the publishing of the Basic Law on Intellectual Property in 2002. Similarly, China released its Framework of National Intellectual Property Strategy in 2008, South Korea published its Strategies in Strengthening Intellectual Property in 2009 and Taiwan released its National Intellectual Property Strategy Programme in 2012. Although the announcement of these governmental policies may seem like monumental strides towards the development and protection of intellectual property, they were mostly based on US programmes, which do not cater to the needs of East Asian companies. This approach has yet to show itself effective in tackling the crux of the IP issue and as a result, East Asian companies will continue to face the threat of patent litigation and will need to cough up large royalty fees to US companies. Most East Asian companies lack the necessary breakthrough in IP strategy to free themselves from the heavy burden of pay-to-play in the US market.

Table 1Sample patent analytics

5434776

6252589

6738618

7072336

7289673

7577305

8046000

13/729679

5517257

6252610

6748481

7072461

7295522

7577305

8060064

13/752717

5579517

6256642

6782422

7080404

7317680

7583220

8065282

13/754003

5634192

6269403

6785865

7082114

7337389

7590720

8090574

13/861721

5648824

6298461

6791536

7089415

7356836

7593466

8155624

13/875386

5652913

6298463

6791536

7093031

7369850

7593466

8155624

13/901997

5664133

6321275

6799047

7093136

7376122

7596760

8166390

13/923134

5673401

6324515

6819315

7099689

7383460

7613426

8214759

13/946732

5677708

6339780

6822664

7110783

7383460

7644376

8224295

14/074257

5758352

6339780

6822664

7111039

7411582

7644376

8230359

14/075525

5778372

6356956

6826762

7120197

7411582

7646710

8239783

14/099307

5778372

6360364

6826762

7120197

7421666

7646816

8243340

14/139301

5784628

6363251

6832273

7133909

7421666

7646816

8244051

RE40989

5813013

6370566

6868551

7137117

7427941

7650431

8255379

US-2006-0200524-A1

5813013

6370566

6880088

7142855

7433936

7650493

8264996

US-2008-0189355-A1

5845077

6374276

6891551

7145889

7436834

7668537

8270965

US-2010-0082759-A1

5864337

6374276

6891551

7149247

7440433

7671782

8320549

US-2010-0093379-A1

5877765

6374277

6897853

7149247

7441204

7673325

8321416

US-2010-0145932-A1

5889522

6411629

6897853

7159188

7451180

7685116

8321439

US-2010-0281127-A1

5889522

6421694

6901559

7162091

7454718

7685305

8351716

US-2010-0281136-A1

5905890

6430174

6909910

7162091

7454718

7689649

8358975

US-2011-0035758-A1

5982298

6438369

6909910

7162466

7486735

7692629

8364732

US-2011-0142334-A1

5982324

6449766

6912584

7181072

7490003

7707197

8386558

US-2011-0185068-A1

5982324

6526129

6912584

7181072

7493130

7734821

8423621

US-2011-0197151-A1

6052735

6549771

6920564

7187660

7493130

7743408

8433677

US-2011-0218963-A1

6058309

6563953

6947483

7191159

7493130

7773106

8433747

US-2012-0172007-A1

6065003

6563953

6947490

7200611

7499942

7777648

8452729

US-2012-0198053-A1

6073137

6578054

6957233

7202893

7499942

7831547

8478300

US-2012-0209928-A1

6088578

6578054

6957233

7203463

7505485

7839895

8504694

US-2012-0258687-A1

6091409

6594682

6968179

7209740

7505485

7839895

8527563

US-2012-0266214-A1

6091952

6604144

6993715

7213048

7505756

7840032

8559350

US-2012-0275697-A1

6094679

6621746

6996770

7221331

7519900

7865924

8583708

US-2012-0284351-A1

6189146

6621746

7016705

7228133

7529197

7868786

8606830

US-2013-0031482-A1

6209011

6628641

7024214

7230933

7533352

7873356

11/229485

US-2013-0054835-A1

6212676

6654733

7024214

7245936

7539508

7873596

12/052594

US-2013-0060886-A1

6223028

6657625

7039801

7263232

7545766

7962585

12/052603

US-2013-0086226-A1

6226367

6694335

7042858

7263232

7554529

7969954

12/493172

US-2013-0268685-A1

6240360

6735345

7050408

7284062

7558851

8010997

13/292346

 

6240360

6735345

7050408

7289673

7577125

8015152

13/685018

 

Source: Chinese Ministry of Commerce, 2014

Licensing negotiation: retake the initiative

Companies in East Asia often face threats of patent litigation and unfair licensing terms. Rather than blindly submitting to such practices, companies should develop strategies and mechanisms to analyse data in order to assess the quality and value of a patent portfolio. Patent quality, value and price are distinct qualifiers in evaluating a portfolio. IP professionals would likely agree that quality is the foundation of patent assessment and this is based on satisfying the requirements of 35 USC Section 101 (utility and eligibility), Section 102 (novelty), Section 103 (non-obviousness), Section 112 (adequately described) and considering the lack of prior art referenced during the prosecution of the patent. All granted patents are deemed to have met these requirements by USPTO and presumed to be valid. If a claimed invention comprises eligible subject matter, is useful, novel, non-obvious and described with clarity, the patent will at the very least possess a baseline quality. This quality increases if the claims are carefully crafted to ensure accuracy and logic while maximising the claim scope and increasing the difficulty for competitors to design-around. It is essential to precisely summarise the technology within its technical field and respective industry, determine the claim scope and use a combination of independent and dependent claims to maximise the patent coverage to include all foreseeable alternative embodiments. In certain circumstances, multiple filing of related patents is necessary.

Patent value extends beyond the extent of the patent and considers its commercial viability, the market conditions and industry position. Whether the covered invention has market demand determines whether the patent has any value. A heavily researched and well-written patent may meet the various patentability requirements; however, it may have very little value because the covered invention is outdated or for an obscure technology that interests only the inventor. This is the reason why most patents fail to hold any market value. Patent value can be reflected in:

  • industry position, value proposition and physical evidence;
  • commercialisation activities associated with the patent, the degree of industrialisation and the profit generated;
  • patent licensing and other monetisation activities;
  • the amount invested in the development of the patent; and
  • patent infringement activities and the amount of compensation from these activities.

An evaluation of 300 patents in a portfolio revealed that the majority of the patents were of average quality and value (see Tables 1 and 2).

The value of this portfolio would be negatively affected if the few quality patents it contains could be invalidated. Valuable insights for invalidating a patent can be revealed through the analysis of a patent’s prosecution history (see Tables 3 and 4).

During the prosecution of these patents, the patent prosecutor raised non-final rejection issues with certain claims and identified potential prior art references. Such information can be useful in evaluating the patent’s quality.

An overview of the estimated expiration date of the patents in this portfolio showed that most will expire by 2023 (see Figure 1).

Potential licensees of this portfolio should take this information into consideration when considering a licence. Arming themselves with such information puts companies in a better position to negotiate against threats of patent litigation and unfair licensing terms.

Licensors often combine a small number of patents with evidence of use with a large number of inconsequential patents as part of a portfolio licensing programme. The licensee may be prejudiced by this type of licensing scheme if the ratio of the patents relevant to the licensed product is nominal (eg, if the ratio of patents that cover the licensed product’s dominant country is relatively small compared to the rest of the portfolio). Without transparency and tools to analyse a patent portfolio, licensees may be paying large amounts of royalties for a portfolio that offers little to no value. Armed with such IP management and analytics capabilities, the licensee is in a better position to negotiate a fair licensing fee.

Table 2Quality and value analysis on patents in a portfolio

 

Patent quality

AAA

AA

A

B

C

D

Patent value

AAA

2

 

 

1

1

 

A

 

 

1

3

1

1

B

1

3

3

12

15

1

C

5

4

21

22

9

 

D

19

27

44

31

5

 

Source: Patentcloud

Playing catch-up: how to build a quality portfolio

There are few East Asian multinational companies with the resources and IP prowess to professionally manage quality patent portfolios. This lack of investment to develop quality patents opens the door to criticism by the United States and allegations of technology theft, despite the fact that theft is only legally applicable to trade secrets – patents, copyrights and trademarks are publicly accessible. Technology theft is less likely to be an issue if a company’s business culture cultivates an ethical responsibility against counterfeiting, plagiarism or theft of trade secrets. Even with invested resources, most companies have mistakenly placed their focus on the quantity of US patents, rather than quality. As a result, many East Asian companies’ patent portfolios are of poor quality and low value, which means that they cannot compete with their US counterparts. With the aid of government funding during the past decade, Chinese companies have significantly grown their patent portfolios in China; however, the majority of these patents are still lacking in quality.

Table 3US patent 7,418,472 may have issues under Sections 101, 102, 103 and 112

Descriptions

Party

Date

Legal basis

Claims

Patent prior art

Non-final rejection

USPTO

13 June 2006

35 USC Section 101

Claims 8, 10, 16, 18, 22 and 23-33

 

 

 

 

35 USC Section 102(b)

Claims 1, 2, 6-10, 22-24 and 28

US20020109718

 

 

 

35 USC Section 103(a)

Claims 3, 4, 11, 12, 14-18, 25, 26, 29, 30, 32 and 33

US20020109718

 

 

 

35 USC Section 103(a)

Claims 5 and 27

US20020109718

 

 

 

35 USC Section 112

Claims 9 and 17

US20020075301

Source: Patentcloud: Quality Insights

Table 4US patent 7,433,714 may have issues under Sections 102 and 103

Descriptions

Party

Date

Legal basis

Claims

Patent prior art

Non-final rejection

USPTO

29 October 2007

35 USC Section 102

Claims 1-5, 9, 12, 14-17, 23-24, 25, 30, 34-35, 37 and 38

US6917373

 

 

 

35 USC Section 103(a)

Claims 6-8, 26 and 36

US6917373

US6459440

US20030142201

 

 

 

35 USC Section 103(a)

Claims 10 and 11

US6917373

US5974135

Source: Patentcloud: Quality Insights

The lack of development in quality patents remains an issue among East Asian companies. Development of quality patents requires investment in R&D and professional expertise in areas such as IP law, translation of technology into patentable expressions, language translation and a standard operating procedure management system. Priority and resources for patent applications should be allocated to markets or countries with the highest value or risk (eg, the United States) a company’s home country is not necessarily the best place for a first patent filing. Certain East Asian companies should consider an initial filing in foreign countries such as the United States and utilise a Patent Cooperation Treaty application in English to file in their home country.

Since 2010, Taiwan Semiconductor Manufacturing Corporation Limited (TSMC) has climbed the charts in its patent filings in the United States. Since 2005, TSMC has shifted its focus from filing patents in its home country to the United States (see Figure 2 and Table 5). This strategy adjustment became apparent in 2010 when the company’s US patent filings grew exponentially, while its filings for Taiwan patents remained stagnant.

Similarly, since 2007, Samsung Electronics has invested more resources in its patent applications in the United States (see Figure 3).

Figure 1. Analysis of estimated expiration year of patents in a portfolio

Source: Patentcloud: Patent Search

Figure 2. TSMC’s patent filings in the United States compared to Taiwan

Source: Patentcloud: Patent Search

Table 5TSMC’s first patent filing within same patent family by country (2010-2016)

United States

China

Japan

814

5

1

Figure 3. Samsung’s patent filing in the United States compared to South Korea

Source: Patentcloud: Patent Search

Avoiding patent minefields

Even if a company has no intention of infringing a patented technology, it is not uncommon for it to unintentionally fall victim to patent mines. East Asian companies should arm themselves with patent infringement and invalidity action professionals and actively file litigations in the United States or China. More than 60% of patent claims involved in infringement litigation may be invalidated or deemed unenforceable. With artificial intelligence (AI) Big Data analytics technology, global patent portfolios can be quickly evaluated and prior art references quickly identified. In one example, a semantic prior art search revealed possible global prior art references that may affect the validity of essential patents (see Tables 6 and 7).

A prior art search is a task that traditionally requires a skilled team of IP experts several days to perform. With recent advancements in AI and Big Data analysis, prior art searches can now be completed within a fraction of the time. Such information cannot only aid companies in East Asia against pressure from US counterparts, but it can also be used to strengthen patent portfolios. Developing litigation-quality patents and robust portfolios requires Big Data analysis for patent application and deployment.

Table 6A semantic prior art search on US patent 7,493,567 revealed possible global prior art references that may affect is validity

Patent number

Title

Eligibility

EP1235137

Method for flagging and relating information in a computer system

Pre-AIA 102(a), Pre-AIA 102(b), Pre-AIA 102(e)(1)

US6683631

System and method for selecting and deselecting information in an electronic document

Pre-AIA 102(a), Pre-AIA 102(e)(1)

JP20040054958

Graphic visual indication of number of remaining characters in edit field of electronic device

Pre-AIA 102(e)(1)

US5446838

Floating highlights on a computer program code display

Pre-AIA 102(a), Pre-AIA 102(b), Pre-AIA 102(e)(1)

Source: Patentcloud: Quality Insights

Table 7A semantic prior art search on US patent 6,826,762 revealed possible global prior art references that may affect validity

Patent number

Title

Eligibility

WO2001/046822

Session initiation protocol servlet application programming interface

Pre-AIA 102(e)(1)

USH1837

Generic telecommunications system and associated call processing architecture

Pre-AIA 102(a)

KR1020000034944

Radio communication device using application programming interface (API) for telephony applications

Pre-AIA 102(a)

EP994614

Radio communication device using API for telephony applications

Pre-AIA 102(a), Pre-AIA 102(e)(1)

JP20010513962

パケット・ベース通信網内でのリダイレクト方法

Pre-AIA 102(e)(1)

US6407995

Independently switched voice and data calls using a single public switched telephone network line connection

Pre-AIA 102(e)(1)

CN1237057

Telephony equipment, telecommunications system and caller identification method

Pre-AIA 102(a), Pre-AIA 102(b), Pre-AIA 102(e)(1)

Source: Patentcloud: Quality Insights

East Asian governments should create their own strategies for IP deployment, protection and monetisation rather than implementing a system tailored for US companies. Adopting IP policies based on foreign systems may inadvertently protect foreign companies more than East Asian companies. Therefore, to compete and excel in the global market, East Asian governments and their companies must create innovative IP strategies separate from the US equivalent.

Action plan

East Asian companies need to use every tool at their disposal to ensure they are not at a disadvantage in the global IP market.

  • Allocate priority and resources for patent applications to markets or countries with the highest value or risk. East Asian companies may initially file in foreign countries such as the United States and utilise a Patent Cooperation Treaty application in English in their home country.
  • Incorporate US patent litigation and transactional practices into patent application and portfolio deployment strategies to develop litigation-quality patents and ensure their quality and value.
  • Utilise data analysis AI software to quickly identify global prior art references and invalidate patents allowing companies to defend against improper licensing and the threat of patent litigations.
  • Monitor and analyse patent quality and value to develop insights into patent activities in the United States.
  • Utilise data analytics to monitor and manage the lifecycle of patent portfolios.
  • Utilise AI Big Data analysis for global patents to better understand the technology of competitors.
  • Push for new legislation against disproportionate patent transactions and licences to prevent unreasonable royalty payments.
  • Develop capabilities and strategies for patent litigations or invalidity actions in the United States or China.

YP Jou is president of ScienBiziP Japan Co Ltd and chief managing partner of Wispro Technology Consulting Corporation, Taipei, Taiwan

Warren Chan is attorney at law of Wispro Law Offices of International Commerce, Taipei, Taiwan

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