Saturday 27 February 2016

ChemChina, Syngenta and ADAMA: the new wave of Chinese acquisitions?

Chinese acquisitions of companies abroad have been a contentious issue for at least a decade, with business and state security concerns often intertwined. The result has been that potential Chinese purchasers have received less than a cordial welcome in many circumstances. The question that was raised in a piece that appeared in last month’s The Economist (“Better than barbarians: Chinese acquisitions abroad”) is whether this is changing. The focus of the piece was on ChemChina and the manner by which it has expanded through foreign acquisitions (including most notably the deal to acquire the Swiss agribusiness giant Syngenta for $43 billion dollars). The article speculated on the reasons for the increasing interest of Chinese companies to go abroad:

(i) President Xi Jinping’s anti-corruption campaign is an incentive to “park assets abroad” (but “there are easier and quieter ways to get yuan through China’s porous currency controls”);

(ii) Investment opportunities are drying up in China (but even if the growth rate in China is slowing, “it would still be stronger than in the rich countries where Chinese firms are buying”).

Instead, the piece concludes that—
“The main reason for Chinese firms’ buying spree is to get the brands, technologies and talent they lack, to capitalise on future waves of growth at home. That is not new in itself; what has changed is the warmth of the welcome they get. In the past, ruthless mainland firms, gobbling up resources firms, caused a backlash in the countries they entered. Today’s Chinese globalisers, says Klaus Meyer of the China Europe International Business School, are more sophisticated and hands-off with their acquisitions.

ChemChina could be a good owner” of Syngenta, agrees Jeremy Redenius of Sanford C. Bernstein, a research firm, pointing to the success of its earlier acquisition of Adama, an Israeli firm. Some rich-world firms may now find Chinese ownership more attractive than suffering the rules of Western stockmarkets or the meddling of private-equity firms. The marauders from the Middle Kingdom may be more welcome than the barbarians at the gate.”
What is most interesting is the reference to the transaction with ADAMA. However, the article does not further explain why the ADAMA acquisition is potentially a bell-weather example of how Chinese companies interested in expanding abroad should act. Let’s take a closer look.

ADAMA Agricultural Solutions Ltd. is an Israeli-based manufacturer and distributer of branded off-patent products in the area of crop protection, including herbicides, insecticides and fungicides. In October 2011, ADAMA was acquired by China National Agrochemical Corporation, a subsidiary of China National Chemical Corporation (ChemChina). In January 2014, the company, previously known as Makhteshim Agan, re-branded itse4lf as ADAMA (which means “earth” or “soil” in Hebrew). ADAMA sells its products in more than 120 countries, with revenues of over $3.2 billion in 2014.

ADAMA then declared its intention to acquire several companies in China in order to secure a foothold in the Chinese market. On December 7, 2015, it issued the following announcement:
“ADAMA Agricultural Solutions Ltd. today announced that it is to enter into a commercial collaboration with five Chinese crop protection entities which are part of the ChemChina group, to progressively become the exclusive domestic sales platform for their formulated crop protection products. Such products are estimated to generate sales of approximately $90m in 2015.

This move will allow Adama to accelerate its entry into the Chinese market, by providing it with access to hundreds of product registrations. Under the collaboration, Adama will meaningfully expand its commercial network and customer reach by having more than 170 sales, marketing and registration employees, who have until now been employed by the five entities, join Adama's sales force.

In the beginning of 2016, Adama will launch its Chinese domestic market branded sales platform, which will be strengthened in an incremental manner by the exclusive distribution business. This will allow Adama to capitalize on an established commercial infrastructure to bring its wide portfolio of advanced crop protection solutions to the vast Chinese agricultural market, the third largest in the world and one of the fastest growing.

The five entities – Hubei Sanonda, Jiangsu Anpon, Shandong Dacheng, Anhui Chemical Group and Jiamusi Heilong Agrochemical – are controlled by the China National Agrochemical Corporation (CNAC), a strategic business division of ChemChina and the controlling shareholder of Adama.”
When considering these arrangements in light of the goals described above, there seems to be more than a bit of idiosyncratic circumstances at work. In particular, ADAMA’s primary business is making and selling off-patent products, rather than its own IP-protected products. This suggests that there may be less of a concern that IP will be lost (as well, one wonders whether to what extent, in the long-run, ChinaChem will continue need to reply on ADAMA to serve as the product anchor of its off-patent business). Also, it is not clear to what extent there is brand value being contributed by ADAMA in addition to the local Chinese distribution channels being utilized. When one sets these considerations against the possible acquisition of a multinational giant such as Syngenta, one wonders just how much of an example the ADAMA transaction really is.

Big Day for Judge Lucy Koh: Federal Circuit Judge Dyk Overturns $119,000,000 judgment and President Obama Nominates Judge Koh to the Ninth Circuit

Wow!  Talk about a big day for U.S. District Court Judge Lucy Koh of the Northern District of California.  First, the Federal Circuit issues an opinion in the famous U.S. Apple v. Samsung case reversing the judgment of infringement of the 647 patent, and the judgment of no invalidity as to the 721 patent and the 172 patent.  That essentially knocks out the over $119,000,000 judgment.  Apple was awarded $98,690,625 for infringement of claim 9 of the 647 patent.  Apple was awarded $2,990,625 for infringement of the 721 patent and $17,943,750 for infringement of the 172 patent.  I found the obviousness discussion of the 721 patent particularly interesting.  I have to say that this is one of the cases where I think hindsight bias can play such a huge role with essentially a combination invention (but is it really a combination invention?).  The 721 patent covers the slide to lock feature of the iPhone.  Yes, it appears that the features in the claim are in the prior art.  However, as with some combination inventions, if this is so “obvious” to do then why didn’t someone else do it.  As a wise person once told me, everything is obvious once someone shows you how to do it.  And, that throws us back into an analysis concerning teaching, suggestion and motivation to combine the references.  Here, there was arguably evidence of a teaching away from combining.  I don’t know if we ever are going to get to a standard that works well; particularly if you take a very stringent approach to secondary considerations of non-obviousness. If you come up with something no one has combined and is so new, how is anyone going to know that there was a problem.  The very lack of knowledge of the existence of the problem demonstrates that this was something radical and nonobvious!  Arguably, this point was not well-developed by Apple's counsel, but c'mon! The analogous art inquiry was also very, very important in this case. I am a fan of the Haberman v. Jackel case—better facts on secondary considerations for sure. 

Second, President Obama announced that he has nominated Judge Koh to the U.S. Court of Appeals for the Ninth Circuit.  A press release from the National Asian Pacific Bar Association states:

Today, President Barack Obama announced the nomination of Judge Lucy H. Koh to serve on the U.S. Courts of Appeals for the Ninth Circuit. If confirmed, Judge Koh would become the first Korean American woman and the second Asian Pacific American (APA) woman to serve on a federal appeals court, and would become the fifth active APA federal appellate judge.

“We applaud the nomination of Judge Koh to serve on the U.S. Courts of Appeals for the Ninth Circuit,” said Jin Y. Hwang, president of the National Asian Pacific American Bar Association (NAPABA). “Judge Koh has demonstrated her ability as a fair and adept jurist in her almost six years on the federal bench, and we strongly encourage the Senate to confirm her to the Ninth Circuit.”

In 2010, Judge Koh was unanimously confirmed to the U.S. District Court for the Northern District of California by a unanimous 90-0 vote. Her nomination received bipartisan support from California Senators Barbara Boxer and Dianne Feinstein, California Governor Arnold Schwarzenegger, former Massachusetts Governor William Weld, and Viet Dinh, former assistant attorney general under President George W. Bush.

Previously, Judge Koh served on the Superior Court of California for Santa Clara County, having been appointed to the bench in 2008 by Governor Arnold Schwarzenegger. She has been a partner at the law firm McDermott Will & Emery in Silicon Valley and an assistant U.S. attorney in the Central District of California. She also has held positions in the U.S. Department of Justice, notably as a special assistant to the U.S. deputy attorney general. Judge Koh is a graduate of Harvard University and Harvard Law School.

I am hopeful that the U.S. Senate decides to hold a hearing to confirm Ms. Koh. She is well-qualified and well-respected.  Another IP-savvy judge on the Ninth Circuit would be welcome; although I’d like to see her on the Federal Circuit.  I have to say that the Obama Administration is shrewdly positioning itself for a Democratic win for the presidency and a takeover of the Senate with judicial appointments (think of the fundraising and getting the base out!).  Winner-take all! [hat tip on the Apple v. Samsung decision to Professor Thomas Cotter's Comparative Patent Remedies Blog]

Friday 19 February 2016

Are there innovation cracks in "start-up nation"

Israel as a high-tech and innovation powerhouse has been one of the leading economic success stories of the last two decades. Reference is frequently made to the number of lucrative exits by Israel start-ups and the disproportionate number of Israel-based companies that have been listed on the NASDAQ in New York. The tale of Israeli high tech became the centerpiece of an improbable 2009 bestseller by Dan Senor and Saul Singer, Start-up Nation, which sought to account for the reasons why the country seemed to live and breathe innovation. The book reached canonical status among the entrepreneur community world-wide. This blogger remembers lecturing about the book in Singapore before more than one hundred people (“what there was to learn and not learn, from the book”); everyone in the audience seemed to have a copy of the book and know its contents nearly by heart.

However, those closer to the Israeli hi-tech scene have been aware for some time that there have been cracks in the “start-up nation” edifice. The extent of this decline was brought home earlier this week in a report published this week (in Hebrew) by the Israel Finance Ministry. The report points out that since 2010, the growth in hi-tech has been only about one-half of the growth rate of the overall economy and its contribution to overall national exports has stalled. The report states that the biggest problem may be the supply of appropriate skilled manpower. Start-up Nation stressed the importance of the Russian immigration to Israel in the 1980’s-1990’s, which provided the country with a large reservoir of highly trained, relatively inexpensive manpower. Israeli universities have witnessed a decline in students matriculating in the relevant science, math and engineering programs, which means that the Russian immigration and its contribution to hi-tech manpower was a one-time event that may not be replicated by the country, left to its domestic resources.

Also, in recent years, hi-tech manpower costs are rising more quickly in Israel than in the US, making Israel a less attractive R&D option for foreign companies, which heretofore have made abundant use of Israel-based R&D, either by setting-up a local subsidiary or acquiring a local company for their technology. Moreover, domestic R&D spending has stalled and it is less than a decade ago (although it is still ranked number two on a relative basis, only behind South Korea). Two major rankings of national innovation do not place Israel in the top ten (WIPO ranks Israel the country no. 22 while Bloomberg places the country at no. 11).

The Israeli business daily, The Marker, wrote in connection with the report that—
“…while the local start-up scene is still vibrant and attracts many venture capitalists, national investment in infrastructure necessary for the continuation of the Israeli innovation industry is insufficient.”
The Marker also referred to a study produced by the Technion, which is Israel’s main institute of technology (and which has produced several Nobel prize winners). It concluded that Israel must improve in six areas to maintain its position in world innovation, namely—

1. Ease in setting up a new business;

2. Tax relief;

3. Education;

4. Political stability;

5. Appropriate investment;

6. More robust competition at the local level.

None of the foregoing is intended to leave the impression that Israel’s challenges are unique. For instance, falling enrollments in science, technology and math programs is a problem for many other countries as well. But Israel is a small country with a population of only eight million people, which means that it has a smaller margin for error. There was nothing inevitable about the emergence of start-up nation in the 1990’s, that there would be an influx of skilled immigrants and that public-private funding and supportive overseas investors would take hold. What happens in start-up nation over the next few years bears close watch.

Tuesday 16 February 2016

Associate Justice Scalia, IP and His Potential Successor

Like I am sure many, I was shocked to find out on Saturday that Associate Justice Antonin Scalia died.  I felt a number of conflicting emotions on hearing the news.  For one, I admired the general thrust of some of Justice Scalia’s intellectual property law opinions.  As co-blogger Neil Wilkof noted in an excellent post on the IPKat blog, the Walmart v. Samara Brothers opinion certainly stands out.  One of my favorite parts of the opinion is how Justice Scalia noted the argument of counsel essentially that shifting the analysis to a determination of whether something is product design or packaging would lead to difficult factual questions.  Justice Scalia, skillfully avoiding the consumer motivation trap in trademark law, simply basically says, “fine,” now we will presume product design in close cases.  I imagine him giving that famous Scalia gesture while creating that presumption and favoring competition over expansive and potentially vague intellectual property claims—“Wanna use my argument against me—take that!”  Another opinion that stands out is the DaStar v. Twentieth Century Film Corp. opinion.  Once again, Justice Scalia reigns in a potentially expansive intellectual property law claim and does so using wonderful language: “species of mutant copyright law.”  My favorite language from one of his intellectual property opinions, though, is his concurrence in the famous patent eligible subject matter Myriad Genetics decision.  In that case, Justice Thomas wrote the majority opinion, but Justice Scalia wrote this paragraph in his concurrence:

I join the judgment of the Court, and all of its opinion except Part I–A and some portions of the rest of the opin­ion going into fine details of molecular biology. I am unable to affirm those details on my own knowledge or even my own belief. It suffices for me to affirm, having studied the opinions below and the expert briefs presented here, that the portion of DNA isolated from its natural state sought to be patented is identical to that portion of the DNA in its natural state; and that complementary DNA (cDNA) is a synthetic creation not normally present in nature.  (Mayo?)


I am not so excited about some of his other opinions in other fields.


Interestingly, almost immediately, the media and pundits began to speculate about his successor.  The first name to rise to the top was U.S. Court of Appeals for the D.C. Circuit Judge Sri Srinivasan.  Judge Srinivasan has worked for both the Bush Administration and the Obama Administration.  He also served as a partner at O’Melveny and Meyers, the famous Los Angeles based law firm.  Judge Srinivasan was born in Chandigarh, India and has an MBA and a JD from Stanford University.   Notably, in the U.S. Supreme Court IP Stanford v. Roche case, the counsel of record for the amicus National Venture Capital Association was Sri Srinivasan.  The brief essentially argued for overturning the Federal Circuit decision because it could lead to “discouraging private investment in the development and commercialization of federal funded research ideas” and stifling “of cooperative efforts between universities and industry.”   More specifically, the brief states:

First, the Federal Circuit’s decision would tend to discourage venture capitalists and established companies from committing the “risk capital necessary to develop [federally funded] inventions to the point of commercial application.” H.R. Rep. No. 96-1307, pt. 1, at 3 (1980), reprinted in 1980 U.S.C.C.A.N. 6460, 6462. The Bayh-Dole Act has facilitated such investment because it has long been understood to create a clear and predictable ownership framework. The decision below undermines that framework, however, leaving in its place a regime under which venture capital firms cannot easily determine who holds the rights to a federally funded research idea. This uncertainty would discourage the commitment of the risk capital needed to develop and commercialize raw research ideas.

Second, the decision below would tend to stifle cooperative efforts between the business community and university faculty. If, as the Federal Circuit held, individual researchers (faculty, post-doctoral students, or other graduate students) may assign away the rights to future inventions, universities might restrict and police the activities of those researchers in order to protect the ownership of the patents, instead of encouraging technology transfer through faculty-industry interaction contemplated by the Act. Moreover, the decision could discourage successful former startups and established companies from funding research and development in academia through sponsored research agreements. Companies’ participation in these cooperative ventures is contingent on the integrity and clarity of their licensing and assignment arrangements with universities.

Notably, there is not an Asian-American on the U.S. Supreme Court.  Moreover, Judge Srinivasan recently received a unanimous Senate vote to the DC Circuit making it hard to challenge him now.  Of course, there are some “ugly” politics going on right now—particularly with gaming a pick and opposition to one to rile up either the conservative or liberal base of voters.  It bites both ways.  The next appointee will likely be there for a very long time.  As a side note, I recently heard a statistic that more than 5% of all startups in Silicon Valley are founded by Indian Americans.

Monday 15 February 2016

The Push and Pull of the Biotechnology Startup on the Academic Researcher: A Case of Altering The Traditional Norms of the Republic of Science

In a fascinating story published by the Sacramento Bee authored by Cathie Anderson titled, “UC Davis Cancer Researcher Weighs Risk of Leaving Campus Against Reward of Cutting-Edge Startup,” Ms. Anderson discusses some of the pros and cons of leaving a researcher position at a public university to pursue a high level position at a startup.  The article discusses how Mr. Degregorio, a UC Davis researcher, has been involved in the development of promising drugs to address cancer in the immunotherapy field.   Mr. Degregorio is receiving pressure from his investors in the company and his research partners to completely disengage from the university and essentially work full-time for the startup.  Apparently, the pressure stems from a desire to have Mr. Degregorio fully invested in the startup and fully assuming the associated risk.  From Mr. Degregorio’s, who is 60 years old, position, he has apparently worked long enough to retire from UC Davis with a full pension which seems to cover his full current pay and his family will have medical benefits.  Why is he concerned with staying on at UC Davis? He apparently believes that:

Academia, however, offers . . .  the freedom to study potential drug treatments without worrying about whether his research delivers dividends. In the private sector . . . failure could mean that he loses a high-profile position at the company he founded.

He also expresses concern about how biotechnology stocks have recently been hit hard and the timing may not be great.  The latter concern seems to be a very real concern to me.  The first concern is very interesting and, I think, highlights the divide between a benefit in academia—freedom of research agenda, even if for applied research—versus pressure to research and develop drugs that must be commercially successful.  There is still pressure though in academia to do “relevant” and “successful” research because of the need to continue to obtain research grants, but the freedom to choose remains and perhaps the thought of being fired is unbearable to some.  It is especially interesting that as a researcher he feels this tension even in light of the fact that he would not lose the security of his pay and medical benefits at UC Davis.  But, what if he was not fully vested in his pension?  I suppose that at least for Mr. Degregorio he would not make the decision to leave.  What about other researchers in a similar position?  I wonder how highly they would value their academic freedom and potential pension weighed against the opportunity to make a killing in the high risk biopharmaceutical startup field. 

Another interesting issue is the role of patents.  The article notes that Mr. Degregorio has worked closely with the UC Davis Technology Transfer Office to ensure that all necessary patents rights have been acquired.  Likely without the Bayh-Dole Act and patent protection, the possibility of this startup existing, the startup potentially receiving $6 million in venture capital funding (and the article notes they need more funding for further development and to get through clinical trials), and Mr. Degregorio having to make a tough decision for him, would not exist.  But, what if the Bayh-Dole Act did not exist?  Would we still have the invention?  Would it be cheaper?  Would it reach the marketplace eventually—crossing the Valley of Death?

Monday 8 February 2016

Oxfirst Free Webinar on IEEE Standards Patent Policy by IEEE Experts

Our friend at Oxfirst, Roya Ghafele, has let us know about another timely webinar sponsored by Oxfirst.  Dr. Karachalios, Managing Director of IEEE, and Michael Lindsay, Partner at Dorsey LLP will present “Review of IEEE Standards Association (IEEE-SA) Patent Policy”.  The talk will cover:

IEEE-SA's Attempt to Provide Greater Clarity in its Patent Policy was triggered by how the landscape was evolving (recommendations from regulators; observations by the courts; IEEE's own experiences). This led to IEEE's re-examination of its standards patent policy, and the resultant policy updates aim at providing greater clarity to all stakeholders.

Dr. Karachalios’ biography states: “Dr. Karachalios is responsible for providing strategic and operational leadership and direction to IEEE-SA and for ensuring its consistent and positive differentiation as a standards body. Prior to that he served the EPO in various functions.”  Mr. Lindsay’s biography states: “Michael Lindsay is a partner in the Trial practice and Co-Chair of the Antitrust practice of Dorsey LLP. He practices in the area of general civil litigation, with a strong emphasis on antitrust (litigation and counseling), trademark and unfair competition, commercial litigation.” 

The talk is scheduled for February 17, 2016 at 15:00 GMT.  To register please follow this link:  (Please note from Oxfirst that: “We only accept registrations undertaken with professional email addresses (i.e. we can’t accept registrations from yahoo, gmail or simiar private accounts)”)

Friday 5 February 2016

East Texas Jury Awards over $600 million to VirnetX against Apple

In a long running patent dispute generally involving internet related processes, VirnetX has been awarded over $600,000,000 against Apple by an East Texas jury.  After reviewing the history concerning the patents in suit in Westlaw, I have to say that this is quite a convoluted matter.  It looks like the stakes are high, so all of the litigation and related activity is presumably justified.  PR Newswire notes that VirtnetX previously was awarded $358 million, but the U.S. Court of Appeals for the Federal Circuit vacated that award.  Notably, the allegedly infringing technology was Apple’s “modified VPN On Demand, iMessage and FaceTime services.”  East Texas juries fail to disappoint.  Importantly, Professor Dennis Crouch at the Patently Obvious blog notes: "Interesting, after the huge verdict bump, the market cap for the company is $250.9M. That may be about right after paying for fees, costs, and taxes." (Hat tip to BNA and Professor Dennis Crouch’s Patently Obvious Blog).