Best in class
Running down the patent market’s finest in this year’s top 40 market markers
They are at the centre of all aspects of the global patent market, overseeing thousands of assets, closing multi-million-dollar licensing deals and driving IP strategy for some of the world’s largest companies. Together they comprise the leading 40 individuals who, in our assessment, shape so much of the market that IAM covers on a daily basis.
Drawing on the collective wisdom of our team of reporters across Washington DC, London and Hong Kong, this year’s top 40 remains dominated by operating companies from the United States, Europe and Asia, and includes a familiar monetisation player at number one. Together the market makers continue to drive huge value from their patent portfolios – whether through royalty-bearing licensing deals, cross-licensing agreements, assertion campaigns, technology licensing transactions or simply from a defensive perspective.
As in previous years we have included a brief write-up for each member of the ranking and have included a select number of expanded interviews with six of the leading players. No doubt you will have your own views on who should and should not have made the list, but as a group this year’s selection underlines why now more than ever intellectual property continues to move up so many corporate hierarchies.
With the recruitment of former McKool Smith and Rovi dealmaker Bryan Yearwood as its new director of licensing, Blackberry made a significant addition to its IP expertise in Summer 2020. General counsel Randall Cook remains in charge of what the company refers to as “IP guardianship” and with annual licensing revenues of around $250 million, it is clear that Yearwood has plenty to work with.
The Philips licensing team – led by Jako Eleveld – is looking across a range of industries for revenue generation. Building on deals with Microsoft and Samsung, the Dutch company has launched wide-ranging litigation against TV makers, while a high-profile campaign involving smartwatches ticks along. In SEPs, the company is the latest to apply pressure to vendors in China using its Indian patent portfolio.
LG Electronics has been fairly quiet about its IP strategy since SG Jeon took the helm in 2018. But the company’s actions have said plenty. LG, which owns one of the largest portfolios of wireless SEPs including 5G rights, has been particularly active of late in leveraging its patents against competitors from China – including through assertions against TV brand Hisense and smartphone maker TCL.
Former Uber exec John Mulgrew took over from Ira Blumberg as Lenovo’s head of intellectual property in late 2019. The new role comes with access to a large portfolio, but also puts him at the heart of some highly consequential licensing disputes over SEPs. IP veteran Laura Quatela remains the company’s chief legal officer, meaning that Lenovo continues to be a Chinese company with an uncommon amount of IP deal-making firepower.
It has been a relatively quiet period for Facebook on the patent front. Having overseen an initial ramping up of the social media giant’s portfolio through a series of acquisitions on the secondary market after he joined in 2018, Jeremiah Chan and the patent team have focused more on organic growth of late. With a track record of using cutting-edge data analytics, few patent executives are as proficient in demonstrating the return that they generate for their company.
A data-driven approach to diversity and inclusion
John Mulgrew took the top IP job at Lenovo near the end of 2019 after two years steering Uber’s IP strategy. At the time, Mulgrew told IAM that the Chinese-owned tech giant provided a bigger platform in terms of IP portfolio size – and therefore a great opportunity to deploy the data-driven management techniques that he has been honing over the years.
“We can use data and measurement to make better decisions and make them more efficiently, and that applies to everything that the IP practice does,” Mulgrew explains. But there is one data-driven project that Mulgrew is particularly passionate about – assessing and figuring out how to improve the company’s diversity and inclusion efforts through patent metrics. Studying how Lenovo’s IP portfolio created value for the business in the early days of his tenure, Mulgrew heard from some company leaders that metrics on patenting activity play a key role in competing for talent and cultivating group culture. “In one part of the business, a manager told me: ‘It matters to me that our portfolio represents the ideas of my team as much as possible,’” Mulgrew recalls. That means striving to ensure that Lenovo’s patent filings reflect the diversity of its R&D staff.
Mulgrew takes me through some of the demographic data on patents originating from Lenovo’s US R&D efforts. While women make up over 30% of technical staff at the company, they account for just 11% of granted patents. White and Asian inventors earn patents at rates in line with or exceeding their numbers in the workforce, but Black and African-American employees are underrepresented on patent certificates (accounting for 4% of researchers but 2% of patentees). Those basic numbers are just the beginning. Mulgrew’s team is putting together thousands of data points to get a more holistic view of Lenovo’s inventor base and study where bias might be introduced at every stage of the patenting process, from hiring through to invention, disclosure and even the way in which his team makes filing decisions. “We’re not afraid of what the numbers show,” Mulgrew states. “No matter where we stand right now, it will allow us to know where we want to go.”
The reason for undertaking these efforts is simple: “It’s just the right thing to do,” Mulgrew emphasises. “I have a daughter in college and I want her to be given the same opportunities that men get, so it matters to me at a personal level.”
But there are numerous ways in which increasing representation among patentees – if it works – will add value to the portfolio and the company as a whole. “If we can get more engagement in the filing system, we’ll get better quality,” Mulgrew states. And if better representation can be achieved when it comes to patents, Lenovo can tell that story when recruiting a diverse R&D talent pool, creating a virtuous cycle.
Company leaders including chief legal officer Laura Quatela and the firm’s top HR executives are fully behind the effort.
“If we get this right, people will look at Lenovo and say: ‘Here’s a company that I want to work at, here’s a company that will give me a fair shot,’” Mulgrew says. Research-based companies that ignore this issue could see some of their most important intellectual assets walk out the door, he warns. A huge increase in tech-sector remote working means that “you need to compete way more aggressively to attract talent to your team”.
This is just one example of how Mulgrew wants to deploy data-focused thinking across all areas of IP strategy. You can bet that everything from maintenance decisions to potential patent acquisitions and licence negotiating positions are being analysed in the same rigorous and data-intensive way. But if Lenovo can make progress on the diversity issue, you can be sure the company will show its work.
High-profile IP litigation clashes with Sonos and Oracle may have stolen the spotlight throughout 2020, but the deal-making machine helmed by Michael Lee has continued humming in the background. Google acquired patents through a new Allied Security Trust ‘buy it now’ initiative and a one-off deal with Provenance. Most intriguing, though, may have been an aggregated licence deal with InterDigital and others organised by a broker of unknown identity.
Allied Security Trust
There are few operators as close to the patent deals market than Allied Security Trust and its CEO Russell Binns. While the defensive operator has slowly grown its membership ranks, this year it also unveiled a new, rapid fire ‘buy it now’ platform, which saw the likes of Google, Microsoft and Oracle spend $1 million on six portfolios.
Almost two years into the role and Immersion CEO Ramzi Haidamus has been forced to juggle growing revenues and developing new growth opportunities for the haptics technology leader, with an investor base that has appeared to be not totally convinced by the company’s direction. In March, after a months-long public spat with Viex Capital Partners, Immersion announced a truce with the activist investor, freeing up Haidamus and his team to pursue growth in sectors such as auto and gaming.
It is hard not to see 2020 as anything other than a triumphant year for Access Advance and its head Pete Moller. At the start of the year the pool operator saw a steady stream of licensors sign up to its HEVC platform, giving it a dominant share of assets in the market. Then, in August, it unveiled a new programme for the VVC video codec and a rebrand from HEVC Advance. All and all quite a 12 months for Moller and his team.
A global licence with Ericsson was a milestone event for Xiaomi, wrapping up one of its longest-running IP disputes. But from wireless to video, the work never ends; the Beijing-based maker of handsets and Internet of Things products is still engaged in negotiations with a range of mid-sized players. As well as heading up IP strategy for the company, Paul Lin also negotiates non-IP deals, including agreements with telecoms carriers.
An NPE on the hunt for deals, assets and new capital
Like many businesses in early 2020, faced with a growing wave of lockdowns around the world in response to the covid-19 pandemic, Dominion Harbor opted to play things safe.
“We were skittish about how this was all going to play out in February and March,” CEO David Pridham admits. The concern from a licensor’s perspective was that prospective licensees might simply pull back from the market, shut down their in-licensing efforts or partnerships with the likes of Dominion on the IP services side and make 2020 something of a lost year.
“So we made the strategic decision to focus on mining the 12,500 assets we have, coming up with licensing verticals and getting communications out there to dozens more companies so we could have a good pipeline for when the pandemic started to wane,” Pridham explains.
And, so far, this strategy appears to be paying off. The giant NPE started closing more deals and by early October, Pridham reveals, it had already surpassed last year’s revenues of $40 million.
The deep focus on mining Dominion’s portfolio helped to drive that growth and took advantage of the NPE’s own tech platform to analyse licensing oppportunities.
That analytics offering is also part of a small (roughly 5% of revenues) services arm, which Dominion is increasingly pitching to the market in areas such as licensing. One function, for instance, comprises a cross-licensing tool so that a company can put its portfolio up against a rival’s to help determine the terms of any licence.
Pridham admits that he would like the services side to be larger – somewhere between 10% and 15% of revenues – and with the profit margins eclipsing those from licensing, he reports that Dominion’s board of directors is pushing him to make it happen.
Possibly the only area where Dominion had not hit its annual target by early October was an acquisition to add to its already extensive portfolio. “Our target was to be over 20,000 patent assets by the end of year,” Pridham concedes. Although that is still doable, he says, adding that his team is working on a new fund with a large company in the space, which “would give us access to tens of millions of new capital to deploy on large portfolios from blue-chip companies”.
And if current trends continue, the Dominion team should not be short of buying opportunities. “A lot of companies were remote and it was tough to make a decision in the first six months of the year but now we’re seeing more and more opportunities come up,” Pridham outlines. In the past, he says, Dominion would have funded those itself, but the possible new fund will enable it to tap new sources of capital and potentially hit that 20,000 target by the end of the year.
Of course it helps anyone looking to buy assets that, from a valuation perspective at least, the patent market is still in a recession. According to Pridham, that is unlikely to change any time soon. “I don’t see anything that’s going to change judicially or legislatively in the United States that’s going to drive up the value of some of these larger portfolios,” he maintains.
Meaningful change, he adds, could come in the form of the Supreme Court’s decision in eBay being overturned or Congressional action on patentable subject matter. “I’d love to see that happen, but I don’t think it’s going to,” he admits.
Amid continued consolidation in the chip sector, TSMC has acted decisively to acquire key patent portfolios when the opportunity arises. The team, led by deputy general counsel Billie Chen, made chip patent deals with AMD and RPX, among others, this year. The leading fab is also taking advantage of a unique seven-year deal with WiLAN that gives it a right to participate in the NPE’s acquisitions.
Oppo has continued its patent acquisition drive over the past year, but may be shifting focus somewhat. A recent deal with a Korean lab revealed that it is looking at video assets and is not averse to rights that have not yet matured into grants. Importantly, the team spearheaded by Adler Feng has also made initial steps towards monetising the rights that it has acquired in an SEP buying spree over past year, signing up as a licensor through the Avanci platform.
Dolby remains a licensing powerhouse thanks to both the quality of its technology and the IP rights that underpin it. It is a testament to the strength of its IP licensing team – managed by Heath Hoglund – that more often than not Dolby can agree deals without resorting to litigation. The company clearly likes to let its tech – and its patents – do the talking.
Dominion remains one of the new-breed NPEs that have aggressively built patent portfolios that stretch into the thousands, made better use of technology to identify new opportunities and developed the kind of backing to take a longer view on monetisation projects. Overseeing it all is David Pridham, who has built a reputation as one of the shrewdest monetisers in the market with a keen sense of how to get a deal over the line, often without resorting to litigation.
Kenichi Nagasawa has run the IP department at Canon for some time, but the company’s IP strategy is not written in stone. Nagasawa recently stated that the imaging giant, which owns the third-largest patent portfolio in the United States, has long employed the strategies of a leader, but will increasingly need to act more like an upstart challenger. Canon was also instrumental in the creation of the Open Covid-19 Declaration earlier this year.
Toshimoto Mitomo is one of a handful of Japanese IP executives who have taken on a broader business role within a large tech company. In addition to leading IP efforts, the executive vice president serves as the Sony Group’s China representative and the head of the company’s start-up acceleration division. A long-term strategic view is necessary for crafting an IP strategy that balances the needs and risks of businesses from a strong business-to-business image sensor division to consumer-focused entertainment and gaming divisions.
Acacia’s resurgence as a leading force in the licensing world has continued apace under CEO Clifford Press. In May the NPE announced that it was acquiring the former Yahoo! patent portfolio from ExcaliburIP, as well as a smaller collection of assets from aerospace and defence business L3Harris. Then, in June, it made an opportunistic acquisition of a collection of biotech shareholdings, which were previously owned by a UK fund manager. The deal was the first to make use of a financing agreement with activist Starboard Value, highlighting that Acacia is well positioned to continue its refocused monetisation push.
Hilco IP Merchant Bank
There are few teams in the IP world that combine access to capital, investment smarts and IP savvy as well as that helmed by Michael Friedman at Hilco IP Merchant Bank. With the climate for IP owners slowly improving in the United States, Friedman and his people are well placed to capitalise on new opportunities, which they source from operating companies eager to tap into their collective expertise.
IPValue has built one of the biggest portfolios in the chip space and put together a solid licensing record in past years under CEO John Lindgren. A recent highlight was a deal to license around 500 semiconductor processing patents to a sub-set of RPX members. The pairing of large-scale patent aggregators (IPValue owns around 7,000 assets) with aggregated licensee groups points toward a potential for deal-making efficiency in the NPE sector.
Over the past few years, Intellectual Ventures (IV) has been in the news more for the scope of its patent sales than new licensing deals or other new monetisation plays. Those sales continued into 2020 but IV and Mathen Ganesan, head of the giant NPE’s Invention Investment Fund (IIF), were back in the headlines in July when it was announced that former TiVo chief IP officer Arvin Patel was joining the IIF as chief operating officer. His hire, Ganesan said, would be “a huge benefit as we look to take our commercial activity to the next level”.
I buy with a little help from my friends
Consolidation continues apace in the semiconductor industry, with big names merging and companies that have fallen behind exiting the business. Those business conditions have meant that plenty of chip-sector patent portfolios have become available on the open market. At the same time, consolidation among NPEs has resulted in the creation of huge patent aggregators – and many have gravitated towards chip tech because of its perceived strength in the face of validity challenges.
What is a massive operating company in the semiconductor space to do? TSMC chief IP counsel Billie Chen says that her team spends most of its time day-to-day contending with NPE threats. So it may come as a surprise that one of TSMC’s tactics over the past couple of years has been to join forces with one of the biggest chip-sector NPEs and make common cause in the transactions market.
TSMC entered a seven-year IP framework agreement with WiLAN at the start of 2018. It is only over the past year that it has become clear how much this may affect TSMC’s portfolio. The deal starts, of course, with TSMC taking a licence to WiLAN’s portfolio of semiconductor process technologies. But it also provides an opportunity for TSMC to obtain a portion of any future rights that WiLAN buys in that technology area.
“We have an option to obtain licence rights to patents acquired in the future by WiLAN at a predetermined price,” Chen explains. “And we also have an option to acquire ownership of a certain percentage of those portfolios.”
For example, in February TSMC received more than 150 patents from Alsephina Innovations, as well as around 40 US patent assets each from Columba Technologies and Achlys Technologies. All three are WiLAN vehicles. The Alsephina deal allowed TSMC to acquire about 17% of a portfolio that the NPE had earlier acquired from its rival GlobalFoundries. The Achlys portfolios, meanwhile, represented around 60% of a portfolio that WiLAN had acquired from Rohm. The Columba patents originated with DB Hitek.
“We are leveraging WiLAN’s capabilities and experience to acquire as many patents as possible from the open market in this area at a predetermined price,” Chen says, adding: “It’s been very successful.”
One question is whether there is any misalignment between the portfolios that WiLAN is interested in buying and the rights that TSMC would look to acquire on its own. “Of course WiLAN are looking for patents not only to satisfy TSMC’s requirements but those rights they have the potential to monetise, to enforce against the industry,” Chen says. Ultimately, though, patents that are highly monetisable are patents that TSMC want the rights to, or even ownership of. “It’s a kind of patent insurance programme. The goal is to protect TSMC’s freedom to operate with low costs.”
TSMC also makes its own acquisitions independent of WiLAN. In the last year it bought patents directly from AMD and RPX. “Whether we acquire through the framework model or through RPX, group buying reduces the cost to do the deal”, Chen says.
TSMC’s successful relationship with WiLAN does not mean that the chip company is unconcerned about the increase in rights on the open market. “We see more and more large companies divesting patents to NPEs,” Chen observes. “We are not just sitting and waiting, we monitor the industry and take pre-emptive actions to block patent trolls,” she confirms.
Before and after forming the buy-side relationship with the Canadian NPE, TSMC has occasionally transferred portfolios of its own to NPEs. According to Chen, the company will typically do this only as part of a settlement or licensing deal, not as a routine form of monetisation – although she adds that given the trend of the market, they do not rule anything out: “We receive a lot of interest from third parties in acquiring or monetising TSMC’s patents. We believe our portfolio is very, very valuable and we are flexible in using that as leverage.”
The other major component of TSMC’s strategy for dealing with NPEs is to establish a good record in the courtroom. While the company is clearly willing to form productive relationships with some of the bigger players in the space, there are plenty of patent owners that will take a litigate-first approach. “Even if the settlement price is pretty low, we’ll fight to the end to establish example cases,” Chen insists, adding that the company boasts a 100% win rate in the final written inter partes review determinations at the PTAB.
It is a highly pragmatic strategy focused on preserving freedom to operate and one well suited to an industry where risks are high and companies win or lose based in large part on their reliability.
The restructuring of tech giant Panasonic reached a milestone this year when the Japanese company sold off its last semiconductor manufacturing unit, along with around 1,400 chip patents. But the IP centre led by Yoshiaki Tokuda has plenty of other assets at its disposal in other areas, including wireless. Closely linked licensing vehicle Sun Patent Trust filed its first lawsuit this year, nearly five years into its monetisation efforts.
In terms of intellectual property there have been few M&A deals of late as consequential as Xperi’s takeover of TiVo. The latter may have continued to face a stern challenge in its courtroom battle with Comcast, but with thousands of assets stretched across sectors such as TV streaming and semiconductors, and licensing revenues of more than $500 million, the combined business is an IP force to be reckoned with.
It may not have rivalled the 2019 mega patent deal in which Intel sold its smartphone business, including around 8,000 patent rights, to Apple, but the chip giant remained active into 2020 after it put a portfolio of patents related to connected devices up for sale – a sale that upheld director of the licensing, trademarks and standards group James Kovacs’s prominent position in the market.
Mark Terrano has ensured that Broadcom’s extensive patent portfolio is one that every player in the chip sector should be well aware of and prepared for. Through sales to NPEs and its own patent licensing and litigation efforts, Broadcom has one of the most aggressive IP strategies of any operating company. Streaming and gaming platform operators are among the latest tech firms to be put on notice by the San Jose-based chipmaker.
While Sisvel remains a key player in the wireless licensing space, Mattia Fogliacco’s tenure as CEO has seen it significantly expand its pool offerings in other spaces too. Big names such as Ericsson, Dolby and InterDigital have been enlisted in the company’s video codec pool, while Samsung, Nokia and InterDigital agreed to make their portfolios available alongside Sisvel’s WiFi pool in certain cases. The latter development particularly shows that new deal structures are on the table for one of Europe’s most experienced licensing teams.
Xiaomi confronts a new phase
You could say that the first big milestone for Xiaomi’s IP department was the injunction in December 2014 that, for a time, allowed Ericsson to imperil the Chinese company’s smartphone sales in its critical growth market of India. It was a very public wake-up call that major patent owners were knocking at the door and expecting to be paid.
In 2016 the company brought former Intellectual Ventures (IV) executive Paul Lin in-house, after a period in which he had advised the company through his patent fund Zhigu. When Xiaomi finally closed a deal with Ericsson in October 2019 – to go with the Qualcomm, Microsoft and Nokia licences that Lin had negotiated in the meantime – it was another breakthrough moment for the company. “In wireless, we dealt with all the big ones,” Lin acknowledges in a recent interview from his home in Seattle. “But it’s a never-ending game.”
Having the likes of Qualcomm, Ericsson and Nokia out of the way for the time being still leaves some formidable SEP owners on the agenda. Xiaomi now finds itself litigating against two of those companies: Sisvel and InterDigital. The latter dispute has landed it back in the familiar environs of the Delhi High Court.
Lin is Xiaomi’s vice president of global business development and IP strategy. In his business development capacity (a responsibility that he held for years at Microsoft before joining the IP world with a move to IV), Lin negotiates the five-year master agreements that govern Xiaomi’s relationships with telecom carriers, as well as corporate strategic partnerships with the likes of Google, Amazon and Netflix.
“I don’t get into the weeds of individual IP litigation campaigns,” Lin comments. That would include the anti-suit injunction that the Chinese company secured in Wuhan against InterDigital this September or the company’s efforts to have a Chinese court set a FRAND rate to the Sisvel portfolio. But Lin does say that China’s judiciary is ready to play a greater role in global SEP matters. “Courts need to step up and play a vital role in setting the right guidelines for how people will conduct licensing in China with Chinese players.” In addition, he does not think that Chinese judges will show bias toward implementers now that Chinese companies have built up sizeable SEP portfolios of their own.
While the SEP dispute with InterDigital and the anti-suit injunctions in that case are soaking up all the headlines, Lin reports that it is actually the codec space (another front in the Xiaomi-InterDigital battle in India) which is keeping him awake at night. Xiaomi also faces German litigation from owners of HEVC patents.
“HEVC is creating chaos in the industry that’s harmful to both licensors and licensees,” Lin warns. The last generation codec, AVC, was marked by a single pool and a relatively low rate. For HEVC, there are multiple pools (HEVC Advance, MPEG-LA and Velos), as well as sizeable independent patent owners like InterDigital. Lin contends that the rates being demanded for HEVC cannot be justified by the technology’s advantages over AVC.
“The idea that just because a new technology is better it warrants a higher price is nonsense,” Lin argues. He sets out an analogy: products such as high-end automobiles and even smartphones like those sold by Xiaomi get more technologically advanced every year – car engines become more efficient, while smartphones gain faster processors, more memory and superior battery life. Yet for all these improvements, the consumer price of such products tends to increase only with inflation.
“HEVC is a better technology, but it’s not a paradigm shift,” Lin continues. He thinks that a sub-set of patent owners have decided that they are entitled to a return on investment that flies in the face of normal industry practices. “We all know investing in innovation is a risky proposition,” Lin concedes, “but nobody’s going to give you a guaranteed result”.
Lin also feels that the companies on the server side of video delivery – streaming companies such as Netflix – are not paying their fair share for a technology that allows their highly profitable business models to exist.
The solution? Implementers need to work together more closely, just as technology developers do, says Lin. “Why not sit down and have a rational conversation between device makers and video streaming providers to figure out which standard to adopt is for the best interest of consumers by considering cost and benefit of available standards?”
That is a big question as several next-generation standards are being readied to take the mantle from HEVC. Not all implementers share the same interests and promoting greater cooperation among them would be no easy task. In fact, Lin says that in the wireless space it would be too complex – only in video are the conditions right. One wonders whether it is an avenue that Lin himself will explore as Xiaomi enters a new phase.
With former IP chief Erich Andersen departing to become general counsel of TikTok, Microsoft appointed IP litigation chief Jennifer Yokoyama as his replacement, just two years after she joined the software giant from Apple. The hire underscored the esteem with which Yokoyama is clearly held internally as she took the tiller at what is considered one of the biggest jobs in corporate intellectual property. And with US litigation trending back up through the first three quarters of 2020, her background in fighting lawsuits may well come in handy.
AT&T’s valuable patent trove continues to be both a major business asset and a steady source of revenue under the direction of Joe Sommer. The biggest names in tech remain customers through the IP3 programme, as well as dedicated deals. The team is also finding buyers among some of the up-and-coming stars of the software-as-a-service world, including Shopify and Atlassian.
Foxconn, the key client of YP Jou’s several IP advisory businesses, reached a deal with Microsoft in September that not only ended a contentious licensing lawsuit, but also had the pair talking about deeper collaboration in hardware manufacturing. Equally – if not more – important is the campaign that Jou has been leading to monetise the portfolio of panel maker Sharp. A component-level auto deal with Huawei paired with a licence to Huawei customer Daimler showed that Sharp’s stewards are willing to work flexibly and independently.
Apple may not have seen quite the year in intellectual property as in 2019, when its acquisition of Intel’s smartphone business – including a large collection of IP rights – made Jeff Myers our number one market maker, but there is no denying the important role that the iPhone manufacturer continues to occupy in the market. In late 2019, armed with those recently acquired patents, the tech giant released a statement spelling out its position on the licensing of SEPs on FRAND terms. There were few surprises in the missive; nonetheless, it underlined the even greater influence that Apple now enjoys in the market.
This year has had plenty of highlights for InterDigital, including a new licensing deal with Huawei. The SEP wireless business also recruited former Nokia dealmaker Eeva Hakoranta as chief licensing officer, replacing industry veteran Tim Berghuis. But 2020 has also highlighted the challenges that InterDigital continues to face in monetising its IP rights, as news emerged of a high-profile licensing spat with Xiaomi. The dispute saw the US business file an infringement suit in India, while the handset manufacturer waged its own courtroom battle asking a Chinese court to set a FRAND rate and then stymying InterDigital’s India litigation through an anti-suit injunction. “Licensing is all about momentum and we certainly have a good amount of that now,” Merritt told analysts in August. Whether that continues into 2021 may come down to the courtrooms in Delhi and central China.
Behind Big Blue’s big year
Our number one market maker this year is the head of IBM’s global IP business, William LaFontaine. As the company continues to extend its reach far and wide across the patent market, he agreed to answer some of IAM’s questions on monetisation, a healthy sales pipeline and the state of the US market. Here is what he had to say:
IBM has a long track record of receiving the most US patents annually. How important is that to your focus on closing licensing deals and patent sales?
At its core, IBM is an innovation company – from the disk drive, personal computer and relational database to Watson and quantum computing. That innovation, and the researchers and developers responsible for it, are the fuel for our strong pipeline of patent applications. IBM continues to believe in utilising the patent system to protect our innovations and generate a return on our R&D investment through our products, services and patent portfolio.
Licensing and sales help IBM to use its patent portfolio to accomplish its business objectives. For example, freedom of action for IBM’s products and services is a top priority; however, merely owning a patent portfolio does not achieve freedom of action. IBM has a strong culture of respecting others’ intellectual property and expecting others to reciprocate. These objectives of freedom of action and mutual respect for intellectual property are best accomplished through a programme of cross-licensing, something to which IBM has been committed for years.
Patent sales augment IBM’s licensing activities in a variety of ways. For example, companies that share IBM’s respect for intellectual property may find the combination of a patent sale and a cross-licence significantly more attractive than the cross-licence alone. In contrast, companies that refuse to license IBM’s patent portfolio are likely to find former IBM patents moving through the secondary patent market, creating risk on multiple new fronts.
Finally, patent licensing and sales generate income for IBM, supporting R&D and continued investment in our patent portfolio. It is a virtuous cycle – innovation, protection, freedom of action and income, and reinvestment. It is the purpose for which the US Constitution authorised Congress to create the patent system, of which IBM has been and remains a strong proponent.
You appear to have been particularly active selling parts of your portfolio in the past 18 months/two years. Why have you been so active and what are some of the key factors to closing successful sales on the secondary market?
IBM was a pioneer in the patent market, we have been selling patents for more than 15 years. During that time our patent issuances increased threefold. We have sold patents every year for the past decade, often over 1,000 assets per year. Patent sales are now an integral part of our innovation cycle, allowing IBM to make full use of our innovation engine and the resulting surplus in our patent portfolio while generating return on investment (ROI) directly, and indirectly by supporting our cross-licensing programme and freedom of action objectives.
There are many reasons for IBM’s success selling patents, through the secondary patent market or otherwise. For example, IBM enters many technology deals with other companies, opening the doors to IBM Research. These deals often include patents. Patents are often a component of larger deals, such as the cross-licences combined with patent sales previously discussed and divestitures, among other things. Including patents in these deals enables IBM to establish broad, strategic partnerships. Standalone patent sales are most successful when we are able to show the client how IBM’s patents will solve their business problems, such as patent threats from others or early-stage innovators in need of a patent portfolio ‘jump start’ to attract investors or counter competitive threats.
Selling IBM’s patents into these situations supports openness, by helping to foster innovation beyond IBM. Our patent sales carry IBM’s open commitments, such as the Open Invention Network, our Linux and other patent pledges, and the License on Transfer (LOT) Network.
How would you describe the general state of the US market for patent owners?
The US patent market is still weakened by the state of our patent system, and the biggest single contributor to this is subject-matter eligibility. This, combined with other factors, has created a patent system that is out of balance, leading to a disturbing trend often called ‘efficient infringement’.
Efficient infringement is an attempt to make infringement seem appropriate. Let me be clear – it is not. It is infringement, and practising efficient infringement is inconsistent with corporate policies such as IBM’s that respect intellectual property. Unfortunately, not all companies share this view today.
Keep in mind that most of tomorrow’s innovations are built upon today’s.
Also, while efficient infringement is infringement, it is not efficient – not for the companies that practise it or the market in general. In general, when mutual respect for intellectual property was the dominant market view, once a patentee demonstrated infringement, the infringer took the matter seriously and negotiated a licence in earnest. Efficient infringers simply refuse to negotiate, or sometimes refuse to communicate at all. This is the fallacy of efficient infringement – by refusing to negotiate in earnest, patentees are forced to resort to more aggressive actions, including litigation more often. Litigation drives the infringers’ costs up for several reasons. In addition to the infringers’ litigation costs, the patentee incurs costs and waits longer for settlement – both factors demand higher returns for the patentee to support the same ROI as a licensing deal. Companies that force patentees to litigate will, in the end, spend far more than if they negotiated to obtain the rights necessary to continue operating their businesses.
Efficient infringers who ignore the risks of litigation and the resulting large settlements are not thinking strategically.
Of course, companies can and should avail themselves of legitimate defences to claims of infringement, and abusive tactics should never be condoned. But neither should the market condone wilfully ignoring an established claim of infringement.
To what extent have conditions improved for patent owners over the past few years?
The state of patent law has improved a bit thanks to reforms implemented by the USPTO, but these reforms are not binding on the courts and have done little to alter the attitude of efficient infringers.
What impact have you seen from the covid-19 pandemic on closing new licensing agreements and getting other patent deals done?
The pandemic has affected all businesses, some more than others, with a few seeing a positive impact but most seeing varying degrees of headwinds. On the opportunity side, the inability to travel has reduced in-person meetings, sometimes making it more difficult to create new partnerships and conduct negotiations, among other things. The conservative economic environment creates new headwinds for closing deals with licensees and buyers, as companies scrutinise all spending. From a risk perspective, more financially challenged companies could decide to sell their patents on the secondary market, potentially moving those patents to owners posing a higher risk to the industry.
On the positive side, innovation may be more important than ever. The world will emerge from this pandemic, but not every business likely will. Some will emerge stronger, and new business models will appear. Innovation will be a critical factor in determining which companies thrive in the new normal.
IBM joined the LOT Network earlier this year – how has that affected your deal activity?
IBM remains committed to our traditional uses of patents and fostering open innovation today and in the future.
A little over two years since he became CEO of RPX, Dan McCurdy has in many ways played it simple at the defensive aggregator. After several years of turmoil culminating in a buyout by private equity player HGGC Capital, McCurdy has returned the defensive patent pioneer to its knitting of “aggregate licensees, don’t do other stuff” as he told IAM in February. This has led to a steady stream of deals (an average of around one a week since McCurdy took charge) and more than $500 million spent in securing new licensing agreements. Among the headline transactions were those with IPValue, Sisvel and Excalibur. But it has not all been about deal making for RPX’s CEO, as he has also overseen the rollout of a new version of the company’s Insight analytics platform and revealed plans for a new tool to enable RPX members to perform in-depth analysis of any patent portfolio. Those platforms, McCurdy revealed to IAM in August, would add to the company’s core offering and did not signal a change of direction. “There are still thousands of companies that have somewhere between intense and sporadic patent risk that benefit from us, so I don’t see any reason to go wildly beyond that,” he said.
Auto licensing platform Avanci has a lot riding on ongoing litigation in Europe involving its patent-owning members, auto brands and suppliers. But it got a big boost on the regulatory front when the US Department of Justice gave the green light to its new 5G licensing programme. There have been wins on the deal-making front too; Volvo Cars is the latest marque to opt for Avanci’s flat royalty rate covering a large share of wireless SEPs. It is not all auto for Kasim Alfalahi, who heads the Marconi Group, of which Avanci is just one part. Blackberry recently told investors that a $100 million-plus licensing quarter was driven largely by the efforts of Marconi-administered licensing vehicle Teletry. Alfalahi is also adding talent to the team, having hired Microsoft veteran Micky Minhas to join a group that already includes Ilkka Rahnasto and Kirk Dailey. With a roster like that, this is clearly an IP business with broad ambitions.
Under Yosuke Iida, Toyota is working like never before to get the technology that it has developed into the hands of other companies. Last year – Iida’s first as general manager of the automaker’s IP department – Toyota announced royalty-free licensing of around 24,000 patents related to hybrid engine technology. This year the company launched Toyota IP Solutions – an effort to be more pro-active about out-licensing that targets sectors beyond auto and aims to increase the company’s return on its million-dollar-a-minute R&D spend. On the other side, Toyota’s status as the world’s top automaker means that it is no doubt playing a role in the far-reaching discussions and negotiations over SEP licensing in the sector. And you can be sure that Iida and his deputies have a prominent place at the table as Japanese industry and government discuss related policy initiatives.
While it remains one of the heavyweights of the wireless licensing world, recent business conditions have proved tough for Nokia. In the second quarter of 2020 revenues from its licensing business dipped to €341 million – down from €383 million year on year. This came as long-time CEO Rajeev Suri handed the reins over to Pekka Lundmark and, while ensuring that Nokia makes the most of the opportunity presented by the roll out of 5G is at the top of his priority list, the fortunes of Nokia Technologies, home of the company’s licensing business, will no doubt also be on his mind. Having been appointed in Summer 2019 Jenni Lukander is still relatively new to her role as Nokia Technologies’ head and under her leadership the Finnish telco continues to confront a number patent challenges. Top of that list is an ongoing fight with Daimler, which is part of a broader dispute between car manufacturers and suppliers on the one hand and mobile operators on the other, over where in the auto supply chain SEP owners should license their rights. As of mid-October that fight appeared to be going Nokia’s way and a final decision in favour of the company would hand a timely boost to Lukander and the company overall.
Fortress already loomed large over the patent space thanks to years of acquisition activity, but the investment company’s June deal to acquire Finjan signalled that the market’s foremost mega NPE is not done growing. The $44 million acquisition of the cybersecurity-focused former PIPCO will net the investment company a patent portfolio as well as a management team led by Phil Hartstein. The deal is just one example of the sorts of opportunities that might present themselves to the well-backed team of IP dealmakers captained by Eran Zur as economic conditions remain highly uncertain. One thing that the market does know for sure is that Fortress is willing to back up its negotiating positions with litigation. Recent court manoeuvrings have shed light on the fund’s ties to Uniloc, one of the most prolific asserters of US patents. Companies fielding an offer from Zur’s team are likely to give it careful consideration.
The man at the head of a licensing juggernaut
In August Qualcomm CEO Steve Mollenkopf gave a rare public shout out to the company’s licensing chief Alex Rogers. “Alex and the QTL team have done an outstanding job in executing over 100 agreements covering 5G and building by a wide margin, the most extensive licensing programme in mobile,” he told analysts on a call to discuss the company’s third-quarter results.
Rogers has been the head of Qualcomm Technology Licensing (QLT) since 2016 and was immediately plunged into high-profile litigation fights with the Federal Trade Commission (FTC) and Apple over the chipmaker’s licensing practices. That came after years of scrutiny for those same practices by various regulators in Asia.
Before he officially took on his current role, Rogers was involved in those Asian negotiations in major markets like China and, as a former litigator, he knew all about high-stakes patent fights when he took to job.
“The company was facing a lot of challenges in that environment and I would say it was roughly six years of just laser focus of working our way through those challenges,” Rogers recalls. “For me personally I probably spent as much time as anybody else on the planet sitting down with competition authorities, trying to explain the pro-competitive aspects of our business to them.”
Following Qualcomm’s successful appeal of the district court decision in its suit with the FTC, the company’s litigation risk looks as low as it has for years (although the FTC has indicated that it will launch its own appeal). That has enabled the business to remain focused on closing new licensing deals and in 2020 notched up new agreements with Oppo, Vivo and, most significantly, Huawei.
The trio underlines how important the Chinese market has become for Qualcomm’s business as a steady stream of device manufacturers have emerged from the world’s most populous country.
“One of the things we’ve learned from doing business in China is that you need to have a strong presence there and we do both company-wide and within QTL,” Rogers reflects. “We also know that relationships are very important in China – you have very many companies that are extremely entrepreneurial and focused not only from the product side but from licensing as well.”
This means, Rogers adds, that you have to understand their strategic priorities and that any successful relationship with Chinese licensees relies on some give and take. “For us it’s not just a transactional matter, we want to see our licensee succeed.”
Of course, as the head of licensing for a US-headquartered business, Rogers is acutely aware of how IP rights have shifted in Qualcomm’s home market, with many viewing the past decade or so as a period where patents have steadily lost some strength. Encouragingly, however, he says that trend is now shifting.
“I think the pendulum has swung a little bit,” he says. “When you look at some of the recent decisions in the United States and Europe people are starting to recognise that some of the arguments designed to undermine the value of intellectual property in the cellular space were specious – they had no merit.”
And, Rogers adds, it could not have come any sooner. “Because when you look at those arguments that have been made, they’ve mostly been made in the battle between SEP holders and handset manufacturers,” he remarks. “But 5G is not just about handset manufacturers; developing this technology over the next decade and then developing the technology beyond the next decade is about connecting everything else outside of the handset space.”
So, if technology is going to keep pace with this new era of connectivity, the right kind of incentives (eg, strong patent rights) need to be in place.
If the trend in the patent lines continues, few are set to profit quite like Qualcomm.
After several years of relatively rocky conditions, Ericsson has been regaining some licensing momentum of late under chief IP officer Christina Petersson. Revenues have started to grow again, in part because of new deals in 2019 with the likes of Oppo and Xiaomi, and the company’s patent portfolio has regularly been highlighted as one of the strongest in terms of 5G assets. While this has come as a boost to the company’s licensing business, in July company CEO Bjore Ekholm raised the prospect of several licensing agreements that would be up for renewal in 2021, meaning that for Petersson and her team, next year could be a very significant 12 months. “Next year, certain agreements are up for renewal and royalty payments can be temporarily affected,” Ekholm said in conjunction with the release of Ericsson’s second-quarter results. While he did not name the licensees up for renewal, it would not be surprising if agreements with Samsung, Huawei and Apple were on his mind.
No tech company is under greater pressure than Huawei right now, but the hundreds-strong IP department headed by Jason Ding has managed to close a number of high-profile deals. A patent acquisition from Microchip Technology marked its first IP agreement with a major US tech company since Huawei was slapped with tough sanctions by the US government. The controversy surrounding the company has created real questions about whether it will be able to enforce its massive patent portfolio, particularly in US courts. Perhaps in response, Ding has made some key decisions this year that signify a change in tack. Huawei joined a patent pool as a licensor for the first time ever, signing up with HEVC Advance. The Chinese company also made a significant disposal of US assets to prolific NPE IP Edge. And in concluding a component-level licence with Sharp, Huawei used its IP deal-making prowess to create value for its automotive customers. With so much uncertainty over such a large and market-leading 5G portfolio, Ding is clearly looking to keep all options open.
After 2019 saw Qualcomm settle its fight with Apple but suffer a damaging district court verdict in its lawsuit with the Federal Trade Commission (FTC), 2020 has also delivered plenty of headlines for the chip giant and its multi-billion-dollar licensing operation. When the US Court of Appeals for the Ninth Circuit reversed the lower court’s ruling in the FTC case, it handed Qualcomm a court victory that observers described as about as good as the company could have hoped for. While that was a significant win, the FTC has since said that it will appeal for the case to be heard by the court en banc. Then, in late July, the company announced that it had agreed a new licensing deal with Huawei, previously the largest handset manufacturer holding out on signing a new deal. The agreement, Qualcomm said, would bring in $1.8 billion in revenues in the third quarter alone, adding to the company’s considerable licensing momentum. The Huawei transaction added to new licensing deals with Vivo and Oppo that were agreed in April, which underline the extent to which, under its head Alex Rogers, Qualcomm Technology Licensing has penetrated the Chinese market.
Lee In Jung
Samsung Electronics remains tight-lipped about its IP strategy under its relatively new IP boss, Lee In Jung. But are there small signs that the company is shifting its approach? Some think so – including in the multimedia codec space, where the company seems to be stepping up its involvement with a range of patent pool initiatives. The company has also joined with Huawei and Qualcomm to put forward a new implementer-friendly model for licensing the next generation of video codec. Most significant, however, is Samsung’s pivot to 5G. The Korean conglomerate has seized on Huawei’s stumbles in developed markets and is making a bid to, in effect, expand the ‘big three’ of 5G network gear into a ‘big four’. What that could mean for the company’s patent strategy is a big question, but it is clear that Samsung is talking more publicly about its leadership when it comes to 5G patent rights. At the same time, the company remains a top target for licensors and continues to transact hundreds of patents a year. The world’s biggest patent owner is also one of its most influential – what more is there to say?
From its long-cherished status as the leading recipient of US patents each year to its juggernaut of a licensing operation, which brings in several hundred-million dollars annually, IBM casts a long shadow over the global patent market. But even by its own standards the past year-and-a-half has been one to remember. For one thing there has been a steady pipeline of sales as Big Blue has sold assets to operating companies including Wayfair, Pure Storage and Alibaba, as well as NPEs such as WiLAN and Daedalus. Then, at the start of 2020, as the tech giant was still bedding in its July 2019 acquisition of open source pioneer Red Hat, IBM announced that it was joining defensive patent operator the License on Transfer Network. As head of IBM’s global IP business, William LaFontaine has one of the biggest jobs in the corporate patent world with responsibility for licensing and sales, and overall IP strategy. The company’s aggressive move into the Cloud and recently announced spin-off of its managed infrastructure services business may prompt IBM to change its course when it comes to intellectual property, but in 2019 and into 2020 it was the market’s dominant value creation force.
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