A Thorny Issue: Improving the Quality of your Patent Portfolio
【Conor Stuart／IP Observer Reporter】
Patent application numbers have been soaring in China over recent years, but quantity is really only half the picture. If you’re not using a patent, whether that use is direct, as in you are using it in product or as your product, or indirect in the form of licensing or other forms of monetization, it becomes a liability as renewal payments mount up. Part of the reason this has been less of a problem for China, are the large incentives companies have been receiving for applying for patents and paying renewals, as well as the incentives for taking part in patent related insurance and financing schemes.
Although China is also making moves to improve patent quality and compensation in patent cases is rising there, there is still a lot of room for improvement.
In other countries which lack the scale of incentives that China can muster, patents that aren’t being utilized quickly turn into a liability and take the place of potentially more useful patents in budgetary terms. This can sometimes also be influenced by government policy and goal-setting, as companies tend to take advantage of government incentives designed to boost innovation, while this may not be the best way to actually improve innovation.
“There are no shortcuts to improving patent quality,” this was the resounding message of a recent conference on patent portfolio optimization held in Taipei. There are also limits on how much you can license a patent for in the domestic market given that the compensation in patent cases has remained low over recent years and the likelihood of winning a suit is also quite low.
Taiwan’s government has been investing in innovation, however, and Taiwan ranked 14th overall and 4th in Asia in the WEF Global Competitiveness Report 2016-2017, as well as ranking 14th overall and 3rd in Asia in the IMD World Competitiveness Report 2017. It was also ranked highly in key subcategories (See Table 1).
As part of Taiwan’s Intellectual Property Strategy Program, six emerging and four IP-related industry fields were chosen for the establishment of 25 patent portfolios with potential for technology development internationally.
The Industrial Technology Research Institute (ITRI) has worked towards completing a range of different patent portfolios surrounding different technologies, including three-dimensional integrated circuits (3D ICs), roll-to-roll (R2R) manufactured touch screen displays, low temperature die bonding processes for LEDs, next generation high-level application processors ESL and flexible AMOLED displays. As part of this scheme, the Department of Industrial Technology (DOIT), under the Ministry of Economic Affairs, has already built 26 patent portfolios, with eight of these obtaining licensing deals in the tens of millions range (See Table 2.), according to Liu Chi-yuan, the vice director of the ITRI’s Technology Transfer and Law Center.
Liu stated that there are three main stages in the ITRI’s R&D process, starting from making an assessment of demand on the global market to look for opportunities, then a second stage in which one analyzes the global patent holdings and key patents in these patent fields to develop a patent strategy, and only then does the institute move on to the technology R&D stage.
Another speaker at the event, Lin Hsin-Hsuan gave the example of Australian research institute Commonwealth Scientific and Industrial Research Organization (CSIRO), which holds patents key to the WiFi standard , claims to have licensed the patents to 90% of the WiFi-enabled device market and has emerged from litigation victorious, winning a US$229 million dollar settlement in a suit with tech firms including Lenovo, Sony, AT&T, Verizon and T-Mobile. Lin attributes the success of the patent in question to good due diligence by the organization at the time. They drafted airtight claims for their patents, using a legal team who were cognizant of the possible risks in future litigation. This means that hardly any of the original claims have been invalidated.
Greg Hsu, a partner with Birch Stewart Kolasch Birch LLP asserted the importance of different parties in the process of R&D and patent utilization sticking to their roles in order to carry out the job correctly. He suggested that businesses with in-house patent engineers should ensure that those engineers play the role of “treasure hunter” and “gatekeeper”, rather than just being a conduit between R&D and management. They need to be able to pick out projects with potential, according to Hsu, as opposed to leaning on R&D to suggest projects with potential. The patent engineer should be able to mine projects with patent potential and tailor them to your company’s needs, he added.
He also suggested that patent firms are essentially “make-up” artists, in that their job is to make your technology presentable, they can’t make a useless patent useful.
His oft-repeated advice, however, was to be reasonable in your expectations and be willing to pay a price that is in line with your expectation and to budget your patent funds wisely, and focus them on your key areas of technology.
Ming-tao Yang, a partner with Finnegan, Henderson, Farabow, Garrett & Dunner LLP, drew attention first to alternatives to patents. He said that although trade secrets are increasingly a risk in an age when employees are likely to change companies several times throughout their career, keeping your technology as a trade secret has an advantage over patented technology in that it does not become a liability when not utilized.
While an underutilized patent portfolio serves as a liability, Yang also drew attention to the potential cons of utilizing your patent portfolio, in that you draw attention to your portfolio which could attract litigation or inter partes reviews. Utilization of patents necessarily diverts resources away from elsewhere in your company.
If you do decide to utilize your portfolio he suggested different options that you can look at:
- Licenses and Cross Licenses
- Business Leverage/Options/Ventures
- Patent Pools & Other Alliances
- Standard Setting Organizations
- Standard Essential Patents
- Donation for Tax Credits
- Other Options
Ultimately, he urged business owners to be creative in their approaches to patent utilization, citing the example of Microsoft’s deal reached with Immersion when Immersion sued both Microsoft and Sony for patent infringement relating to the vibration of video console controllers. Microsoft agreed to pay US$26 million on the condition of getting a specified percentage of any settlement payments won in Immersion’s suit against Sony. The sublicense agreement only came to light when Immersion refused to pay Microsoft after agreeing a US$150 million settlement with Sony.
Yang also praised the creativity of Allergan in attempting to take advantage of the sovereign immunity of the St. Regis Mohawk Native American tribe to prevent its patent from being made subject to an inter partes review. Although in a recent development the patents have been thrown out in district court, which makes sovereign immunity a moot point.