Monday, 22 September 2014

CIPA Congress: patent attorneys target IP commercialisation

CIPA Congress can be fun -- but there's
a thoroughly serious side to it
"The Lifecycle of Intellectual Property: Intellectual Property From Cradle to Grave" is the impressive title of this year's CIPA Congress. Since this event is run by the Chartered Institute of Patent Attorneys, one might mistakenly think that Congress is all about a load of patent attorneys getting together in order to talk shop and exchange grumbles over patent offices (particularly the European one), patent examiners, courts and clients. Fortunately nothing could be further from the truth: Congress gives the profession a chance to look beyond the daily trials and tribulations of patent practice and discuss topics that require a far greater degree of vision, commitment and understanding. An example of this can be found in Session 7, as Dominic Forsyth and Greg Corcoran explain to this blogger:
"A full and diverse panel has now been confirmed for Session 7, which addresses a range of important issues facing actors in the world of licensing and commercialisation. Experienced in-house attorney Greg Corcoran of ASML chairs the session and will coordinate talks from three very different perspectives.

* Dr Kevin Scott (Royal Philips) will share his experience and expertise from the perspective of a large, innovative multinational, discussing various ways that licensing and open innovation models can be used to achieve effective collaborations and extract value from innovations. He will provide insight on how a multinational can leverage its IP to obtain the best return on investment.

* Dr Hayley French will provide views from a dynamic young biotechnology firm, Apitope International, which has used licensing agreements to forge partnerships with investors and pharmaceutical companies worldwide. She will discuss the techniques employed by a young biotech firm to use its IP to survive in a highly competitive market.

* Dr Adam Stoten will share experience gained over 25 years by Isis Innovation, one of the UK's leading university tech transfer organisations. Having executed more than 1,000 commercial licences and supported the creation of more than 80 new companies, Isis has had the opportunity to see over the long term how agreements really stand the test of time. He will share ideas about how an established tech transfer organisation translates academic discoveries into real products and services which benefit society."
If you can get there, Congress takes place on 2 and 3 October at the Lancaster London Hotel, London W2 2TY.  For further information and registration details, click here.

Sunday, 21 September 2014

China’s Changing Copyright Attitude

At a time when attitudes towards investing in China veer from the cautious and cynical at one extreme to the ambitious and optimistic at the other, it's always good to hear from people who have some experience of current conditions in that vast and complex market.  In this guest post, we feature the view of Michael Laridan, consultant to Shanghai and Beijing-based market research company Daxue Consulting.  Michael, focusing mainly on copyright but also touching briefly on other IP rights, raises an issue of particular significance to readers of this blog --  the repatriation of IP-driven earnings from China.  Michael writes:

"China has a reputation for lax attitudes towards protecting intellectual property rights, especially those held by foreign companies. As a signatory of most international copyright standards agreements, it is obliged to investigate and pursue cases of infringement, but in the past, foreign companies have found it difficult to defend their copyright in China. The process is complicated and enforcement is often difficult. In the rare cases where a domestic court has found in favour of a foreign company, the compensation has been much lower than in international courts.

That trend is changing. Enforcement and legal groundwork have been developing quickly. In the past four years, China has consistently had the highest number of resident patent applications in the world, with the gap between it and competitors like Japan and the United States growing every year. As it moves towards a design and innovation driven economy, a robust copyright dispute settlement process will increasingly become a priority for domestic companies and therefore the legal system. This pressure will be the driving force behind China's changes in IPR legislation in the future. In 2010, Beijing courts alone handled almost 8,000 IP cases. In 2012, 2,150 patent disputes were handled by the State Intellectual Property Office, twice as many as those handled the previous year. So while there is still uncertainty in their copyright landscape, there good reason to be optimistic about the state of China's IPR enforcement laws going forward.

This should be good news for foreign companies. Companies afraid of losing their trade secrets should feel more secure about entering China in the future. However, they should also be aware that filing a patent or registering copyright or trade marks in China doesn't just protect their IP, it ensures their competitors can’t hamper their efforts through the bureaucracy. Since Chinese arbitration procedure places great emphasis on definite proofs of ownership and original documentation, Chinese companies seeking to block foreign competitors may register their copyright, creating an additional hurdle for foreign companies who have not taken this step as they then have to prove in court that they are the original owners. Although trade mark regulations have improved substantially in the past decade, trade mark squatting and piracy are still serious problems, affecting even foreign brands with a strong local presence, such as when Proview challenged Apple over the name Snow Leopard in China. Most importantly, though, is what Jack Perkowski pointed out in 2012; it's essential to defend IPR in China to stop a local competitor from developing to the point where it can challenge a foreign company's own domestic market.

Should an enterprise secure IPR within China, it still faces the issue of remittance out of the country. Royalty payment from a Chinese subsidiary for relevant IP, for example, can only be transferred after it has has passed tax clearance. Since the taxes imposed for royalties can amount to less than the taxes imposed on dividends paid directly to a parent company and don’t need the annual tax audit to be completed, some companies have expatriated funds using artificially inflated royalty payments. Consequently, the tax administration has tried to impose stricter regulations for royalty remissions. Companies are encouraged to approach the relevant tax bureau in advance, and present their case for the amount of the royalty payment. The final decision often relies on the individual judgement of the bureau and tax officials on whether the royalty fee is “reasonable.” Although variable royalty rates may be preferable, they require a new justification whenever a change occurs. Depending on the company, this could mean that charging fixed royalty rates would be preferable, as they are easier for tax authorities to investigate and ultimately authorise.

As China's entrepreneurs begin to focus increasingly on innovation, the legal system will put more emphasis on IPR protection. As IPR protection increases, it will drive the market even further towards design and innovation. It should no longer be a surprise to foreign companies that China is capable of building products that can compete on an international level; as they continue to grow, they will begin to focus on international markets. Foreign companies should be viewing IPR protection developments in China with cautious optimism, and most importantly, with a plan for dealing with the repercussions of a China with robust copyright law".
Sources and further reading here, here and here

Friday, 19 September 2014

Stacking the Deck in Analysis of Smartphone Patent Licensing Costs

Estimates of patent licensing costs for smartphone manufacturers are greatly exaggerated. Allegations of excessive fees paid and resulting harm to manufacturer profits, incentives to invest and compete are faulty and unsupported by the facts -- which show much to the contrary.

Allegations of excessive royalties
 and harm pile high in smartphones
A "working paper" entitled The Smartphone Royalty Stack: Surveying Royalty Demands for the Components Within Modern Smartphones has been published by one in-house lawyer at Intel and two outside counsel from WilmerHale. Intel Vice President and Associate General Counsel Ann Armstrong and WilmerHale's Joseph Mueller and Timothy Syrett argue that aggregate patent licensing fees including SEPs and non-SEPs are excessive at around $120 per $400 smartphone. They conclude that “few suppliers are meeting the basic goal of selling devices for more than the costs incurred in supplying them,” imply that this is due to the alleged royalty stack, and state that “those costs may be undermining industry profitability—and, in turn, diminishing incentives to invest and compete.”

The paper’s economic and empirical analyses are deficient and defective. In contradiction to its findings, evidence shows that licensing fees:
  • Are not undermining profits and are not preventing manufacturers from covering more than their costs. According to Credit Suisse, handset manufacturer operating profits since 2007 have tripled to $51 billion on $326 billion revenues in 2013.
  • Are not excessive. There is no basis for arbitrary price caps on smartphone patent fees, or limits based on chip manufacturing costs. The latter are unrelated to patented technologies and the value they generate more broadly in the entire device, its use in mobile networks, or across the broader ecosystem including services and applications. Methods of determining charges follow well established principles and benchmarks in bilateral negotiation. Patent licensing fees are analogous to licensing fees for book, music, movie or software publishers, which typically exceed greatly the cost of the physical mediums on which they are published and distributed.
  • Are nowhere near $120 in aggregate; and there is copious evidence actual payments are much lower than purported. The Paper inexplicably and erroneously disregards fundamental offsets in cross-licensing which greatly reduce or eliminate fees paid to many patent owners. This figure is also systematically biased and inflated by including rates demanded by licensors, even where there is no evidence anybody—including those who have little or nothing to cross license —actually pays such rates. And, where there is, instead, copious evidence that rates actually paid, if at all, are substantially less—orders of magnitude less in some instances. For example, court-adjudicated rates were much lower than “demanded” rates in various cases, and yet the higher figures were used in calculating the above total.
  • Are helpful, not detrimental, to the highly competitive and flourishing smartphone ecosystem. By every measure the patent system and the risk-reward balance it strikes—spurring innovation, market entry and competition while not overburdening licensees—is unmistakably working very well. 
My full and detailed analysis, in a pdf document, of this working paper by Intel and Wilmer Hale includes copious evidence countering the latter's findings.

This follows a previous my previous IP Finance posting on alleged royalty stacking entitled Theories of Harm with SEP Licensing do not stack up in which I responded to papers co-authored by Mark A. Lemley and Carl Shapiro in 2006 and 2013, and my posting entitled Absurd (F)RAND licensing-rate determinations for SEPs that analyses some U.S. court judgments which have relied on these economists in their royalty rate determinations. 


 



Patents as assets: just like bullets

Yesterday's Aistemos launch [on which see earlier blog post here] produced lots of food for thought which this blogger is still digesting. However, he couldn't resist publishing Sir Robin Jacob's point about single patents when compared with bundles of them.

In short, it is generally accepted that -- for whatever reason -- around 70 per cent of patents are invalid.  This means that, if you hold a single patent, the odds are on it being invalid and therefore incapable of enforcement and not very attractive to anyone who is contemplating an advance of funds on the security of it.  

The situation is however entirely different if you hold a portfolio of, say, 100 patents covering a single technology.  Even if each individual patent is more likely than not to be invalid, the chances are that around 30 of them will have legal force. This means that they will provide the means of controlling the market for at least part of the products and services covered by them and that they will accordingly make a more attractive prospect for a cautiously-minded lender.

It's just like bullets, Sir Robin explained.  If you just have one, it may hit the target but may also miss it. However, if you have 100, even if your aim is not very good there's a far better prospect of hitting the target -- and you only need one bullet to do the job.  So too with patents: however many of a bundle of patents turn out to be ineffective, you only need one that works properly in order to provide the requisite protection.

Thursday, 18 September 2014

The trillion dollar tipping point: a report, and a product launch

Not just "a" Westbury ...
Later today this blogger will be wandering down Mayfair to London's (The) Westbury Hotel to join the formal launch event for CIPHER, described by its creators at AISTEMOS as "the world’s first intellectual property analytics tool for the business community".  This launch coincides with the release of The trillion dollar tipping point: Exploiting the untapped value in patents, a report [edited by this blogger, who is a member of the company's Advisory Board] assessing the barriers and solutions to the monetisation of the intellectual property assets which are now said to account for up to 70% of enterprise value. 

Not all data is digestible --
nor can everyone digest it
The origins of CIPHER are quite interesting: it is the fruit of a pilot project involving over 60 organisations, which include BAE Systems, Marks & Clerk, GE, PwC and Slaughter and May. Their objective was to develop a business intelligence product that could aggregate, analyse and visualise data relating to patents and related events including litigation and licensing.  This data was already available in one form or another -- but it could be indigestible or hard to assess in the hands of people who needed it in order to take business decisions.  Using databases licensed from Thomson Reuters, Lex Machina, Patent Freedom, ktMINE, 1790 Analytics and Relecura, the CIPHER tool has the capacity to search across 30 million patent families and all the world’s patent-owning organisations in real time.

This shouldn't be the standard response
to a request for a patent-backed loan
This post does not seek to promote CIPHER: if it is any good, people who try it out and find it useful will continue to use it; it will become successful and no doubt breed competitors, as is only natural.  Rather, this post seeks to draw the attention of readers, particularly those in the financial sector, to something mentioned in The trillion dollar tipping point and which has become increasingly a matter of concern: there seems to be a disjunction between the high value of intangibles such as patents in court and in transactions, on the one hand, and their relative lack of appeal as security for loans on the other. Faced with a request for finance backed by such intangibles, banks sometimes appear to behave as though the choice before them lies between taking a bad risk and making no loan at all. This is not the result of malice or wilful blindness, but stems from the paucity of information on which banks can assess the nature of the risk they take in lending on intangible securities. CIPHER is one way in which banks can better calculate risk and make their loan decisions with confidence based on understanding, not caution based on ignorance.

If anything interesting is said at the launch, this blogger will do his best to relay it to you tomorrow.

The trillion dollar tipping point: Exploiting the untapped value in patents [which also contains a Foreword from Professor Sir Robin Jacob] can be accessed here
If you are too busy to read the whole report, there's a short summary of it here
If infographics are your scene, there's one here for you