Adam at the IPBC 2011 in San Francisco

Having enjoyed my time in New Orleans, I spent a couple of days in Florida catching up with a number of US patent
attorney colleagues. A consistent theme in my discussions with them was the pervasive view that the US economy is in a very poor state and belts that tightened during the GFC are remaining so.

A consequence of this is that US companies who previously would have included Australia in their global patent
strategy are often declining to do so. While this isn’t good news for Australian patent attorneys who rely heavily on this work coming into Australia, it does make me wonder whether there are some golden opportunities out there
for Australian companies to exploit US technology that is not being actively protected here? It is worth spending some time and effort to investigate this if there are US technology leaders in your area of business.

Following this I attended the Intellectual Property Business Congress (IPBC) in San Francisco. This was a relatively small event (500 delegates) but there were some real thought leaders in the area of commercial use of IP in attendance, which made for some very engaging sessions.

Out of these, I made the following observations (across a number of topic areas):

  • Between now and 2015, the USPTO and the EPO expect to greatly increase ‘shared workload’ co-operation
    in the areas of searching and examination of patent applications.
  • Currently, about 90% of USPTO trade mark examiners work exclusively from home. While more difficult
    to implement due to the nature of the work, they would like eventually to have the same proportion of patent examiners working from home.
  • There was a lot of discussion about the difficulties associated with properly valuing a patent or patent portfolio. Judge Randall Rader, Chief Judge of the Court of Appeals for the 9th Circuit, challenged the IP community to achieve the type of valuation certainty apparent in the real estate market. This comment was not met with universal acclaim, mainly due to the far more limited number of IP transactions, and the limited number of ‘buyers’ likely for any given IP transaction.
  • Microsoft says that the driver of value of patents in their organisation is litigation value, especially where the paten tis nearing the end of its life. If not litigation value – the IP will be divested.
  • For the ‘non-practicing entity’ – they say that a patent that has no commercialisation within five years, the return on investment starts to look ‘ugly’, and divestment of the IP will ensue.
  • Microsoft and Alibaba Group (one of China’s leading IP owners www.alibaba.com) agree that they will NEVER settle ‘unmeritorious’ IP infringement lawsuits brought against them by trolls or competitors.
  • This year, the China Technology Exchange (CTEX) conducted the first patent auction in China. Twenty-eight Chinese patents were sold for about USD 450,000. A second patent auction, focussed on wireless communication and cloud computing will be held in Beijing in the northern autumn this year.
  • Chinese companies filed 13,000 PCT patent applications in 2010. This puts China a long, long way ahead of Australia, for example, as an international filer of patents. There may be a Chinese company’s patent in your future
  • Chinese utility models comprise about 35% of the patent applications filed in China.
  • 48,000 patent lawsuits were concluded in China in 2010. The vast majority of these were disputes between Chinese companies on each side. The patent litigation landscape in China is overwhelmingly about Chinese competitors, not about the Chinese vs Foreigner case we are more likely to hear about.
  • Also in contrast to popular belief, foreign entities suing Chinese entities over patent rights in China have a 98% win rate in court. Chinese patent courts are reportedly very good for simple and quick patent litigation, less so for more complex matters. Anecdotally, the results of enforcement of Chinese court orders are better in the industrialised north-east, than in the less developed west of the country.
  • Chinese electronics and communications company Huawei Technologies has 20 R&D centres across the globe, and have over 20,000 granted patents throughout the world, including over 500 granted US patents, and over 2000 granted European national patents.
  • Most Chinese regional governments subsidise patent applications by locals, often to the extent of covering all of the costs incurred. This accords with my view that the Chinese are on a path to become net IP exporters, much the same path taken by Japan after WWII, and faster than Japan.

“The Great Patent Debate” at IPBC pitted Prof. Michael Meurer from Boston University and Prof. Peter Menell from the Berkeley Centre for Law & Technology versus Mark Blaxill and Ralph Eckardt from 3LP Advisors as the ‘anti’ and ‘pro’ sides.

The ‘anti’ patent argument was based on the idea that for most industries, the proliferation of patents presently hinders innovation. Among other things, they argued:

  • that the patent system works well for the chemical/industries, but it is an economic drag on other industries
  • poor examination means there are too many weak patents: not used against actual copyists, but against other innovators
  • Microsoft did an enormous amount of innovation in its early years – but developed no patents

The ‘pro’ patent side countered that:

  • companies and regions heavily involved in electronics and other manufacturing industries cite economic benefits from patenting
  • the rate of patenting in the US against GDP is flat, and lower than it was in 1979, refuting the idea that companies are increasingly stuck in an IP quagmire;
  • Patent litigation is ultimately a failure of negotiation. Stronger patent rights will equate to greater certainty of outcome, which would lead to less litigation.

Ultimately, neither side of the debate argue that the patent system should be dismantled, but perhaps there is room to consider moving away from the ‘one size fits all’ system of incentives that the present patent system represents. Both sides agreed the patent system would work better if there was a better market for negotiating the value of patent rights.

The session on ‘open innovation’ explored the following points:

  • Collaborative IP sharing can drive better outcomes for the participating businesses.
  • Patent pools have the advantage of mitigating group risk.
  • Whole new businesses can be built from the shared IP of two or more companies who are willing to share IP.
  • However, some organizations have difficulty sharing their “crown jewel” IP by participating in patent pools, collaboration etc.
  • For open source collaboration to work, EVERYONE has to play ball – any hold-outs are likely to cause the collaboration to fail
  • The attitude that “We have no patents, we open-source everything” equals a non-fundable company, according to Erin-Michael Gill of MDB Capital. However, he says that if you focus on great proprietary positions – there will be real returns. He also says that open source licensing agreements are confusing, which creates uncertainty for investors.
  • Skype is a great example of reaping the benefits of keeping key IP assets close to the chest.

Finally:

  • As the number of IP trade transaction increase, proper management of ‘chain-of-title’ assumes crucial importance, because the IP value can be lost completely if this area is neglected.
  • Successful companies not only understand their own IP, but also their competitors’ and their CUSTOMERS’ IP.
  • Companies who tend to defend a lot of litigation see the value and benefit in paying for external IP.
  • As SME’s tend to get smaller, IP in some form is becoming their main asset and output. Technical IP often dominates intangible asset value early, but this leaches into brand value over time, as the brands support the IP.
  • American Express sees a future role and business opportunity as an IP market place facilitator. They
    see the hurdles to a functional IP marketplace presently as a lack of uniformity in patent claim interpretation and a lack of transparency around IP transactions (in contrast with the publicly available record of real property
    transactions). One of the issues I see with this also is that the value of IP is not necessarily intrinsic – it will vary with the situation of the purchaser/licensee.

That concludes my ramblings from IFT11 and IPBC 2011. Next year these two conferences clash with one another on the
same weekend in Las Vegas and Lisbon, Portugal respectively so I won’t be able to cover both. Happy to take suggestions on which one I should cover!

by Adam Hyland

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