IPBC Global 2015: Conference report III

For a conference session on IP and
business, held in the Gold Ballroom,
what could be a better symbol?

"Small, but perfectly formed" was the title of the first post-prandial breakout session of the IPBC Global 2015 event [for the two morning sessions, click here and here]. 

Moderator Jack Ellis, Asia editor, Intellectual Asset Management, opened the session by apologising for the loss of Erin-Michael Gill, CEO, Synthos Technologies, who was billed to speak, and then introducing Gerard Eldering (InnovateTech Ventures). Gerard's company has been involved in the launch of 17 start-up companies. Five have failed (three through lack of funding during the recession), while the other 12 are still going strong.  Less than one percent of high tech companies actually get venture capital support. Some don't need it or manage without it -- and almost all don't understand patents very well, he added. Most start-ups are "IP-ignorant" and don't think heavily about patents; even if they know about patents, the building of a patent/IP portfolio tends to lurk at the back of their minds.  Other start-ups are "IP-crazy" and are so focused on their patent filing that market research and product development get left behind and their capital is absorbed in patent filing. 

Speaking in general terms, Gerard indicated that the number of start-ups that successfully emerge from the university sector is relatively low when compared with the large number of patents filed, maybe around 250 start-ups a year. Few if any emerge with the profile of the "ideal start-up", with a good balance in terms of time, effort and commitment in furthering their research, developing products and protecting their IP. The emergence of a start-up creates a good opportunity space in which support can be offered.

Recruitment is still competitive, but a bit
less controversial than it used to be ...

Next up was Christopher Adamson (Managing partner, Adamson & Partners Ltd), an IP recruitment specialist who has taken an interest in recruiting not merely lawyers but all IP talent, including IP managers and development team members. Said Christopher, what's needed is a combination of the right team and the right strategy, which poses both commercial and other challenges for small companies. Skills that a small or medium sized business must be able to access include

• IP creation: technical skill, knowledge of the technical field of application
• IP commercialisation: business development and people skills
• Litigation: this does not exclude people skills
• IP policy and standards: this includes an ability to deal with regulatory issues.

IP professionals like stability and prefer it to change, which can make it difficult to recruit them. People who already have good and interesting jobs in secure niches can be hard to shift.  However, small companies offer attractions too: diversity of workload, the speed at which a business grows, more responsibility and a greater chance to own part of the company, and the satisfaction of feeling that you have really made an impact.

Promising to keep us all awake, Michael Gulliford (Founder and managing principal, Soryn IP Group) told us how he left legal practice to found an IP management company, implementing patent management strategies for the today's ever-changing world. What does it take to succeed today, he asked. The answers are as follows:

Alternative fee structures
are attractive for clients,
but not always for lawyers

• Sound portfolio construction: portfolios mustn't be allowed to take on a life of their own. It's important for businesses to make sure that their patents protect their own technology. Often a company's interesting IP doesn't fit its actual activity, but good tangential ideas from the technical staff should be monitored and evaluated. It's helpful to know where your IP lies in relation to your competitors' activities and how much you are spending on it. A realistic balance should be struck between quality and quantity in a patent portfolio;
• Sound portfolio management: selling, licensing and litigation are the three ways of gaining value from one's IP. 99% of patents on sale are of little interest to anyone, and friendly licensing is rarely an option for smaller entities. In today's environment it's very tough, especially for small software companies. Are there alternatives to sale, licensing and litigation? IP-based debt financing is one; royalty monetisation (ie selling royalty streams) is another;
• Building the right team: small companies will need the input of (i) IP strategists, (ii) entrepreneurial counsel [ie happy to accept contingency fees or "alternative fee structures", if "happy" is the right word ...] and (iiii) financial partners/litigation funders. The size of settlements is contentious here, since low settlements and licensing deals, bad litigation finance deals and poor lump-sum settlements can have long-term adverse consequences.

Filling in for Erin-Michael was Anders Arvidsson (GN Store Nord), who spoke on his own company's history as a telegraph cable laying company (going back to 1869) and strategy. The company has diversified into many communications-related markets, being the world's fourth-largest maker of hearing instruments. Anders outlined GNSN's strategy for innovation and sustainable growth, which has benefited from small, incremental innovative steps where there is less of an attempt to create new markets and more of a focus on better, cheaper manufacture. This approach is profitable but ultimately vulnerable to disruptive innovations which undermine a long-established product. This in turn suggests that a broader scope of technological focus is required, whether developed by the company or placed on its shopping list for acquisition from others.

IPBC Global 2015: Conference report II

The second full session of this year's IPBC Global 2015 Intellectual Property Business Conference addressed "Inventor insights" -- an innovation in itself, since the IPBC has not previously organised a session on this topic. Its participants, moderated by David Kline (Principal, David Kline Associates) were European Inventor Award-winning inventors: Charles Hull, (Founder and chief technology officer, 3d Systems Corp), Carles Puente  (Co-founder and chief scientist, Fractus SA), Jean-Christophe Giron (Vice President, R&D and product development, SAGE Electrochromics Inc) and Laura van't Veer (Co-founder and chief research officer, Agendia).

This session was disappointingly not as well attended as the first, even though it raised many interesting issues as viewed from the "other side".  The truth of the matter is this: just as many people enjoy eating a tasty lamb chop but take no interest in raising sheep, there are plenty of people who enjoy working with patents but take no interest in inventors. However, as this session demonstrated, while no sheep are involved in the supply, preparation and cooking of lamb chops, inventors may continue to be involved in the development, promotion and commercial exploitation of their inventions -- and their activities, being entrepreneurial, are directly relevant to much of the professional work that people who missed this session were busy outside the Ralston Room networking with each other about.

Opening the session, David Kline observed that people in the street now associate the word "patent" with "litigation" rather than "inventor", and that with our preoccupation with the business and legal end of innovation we are losing sight of the importance of inventors and their inventions. David then introduced Jean-Christophe Giron, who has invented electronically controlled tinted glass (made by Saint-Gobain), which has important energy-saving applications. Jean-Cristophe said that young people starting out in companies should learn how to bring their inventions to the company patent attorney so that its patentability can be assessed and the invention protected; his company now has programmes for training not only young researchers but patent attorneys too.

Chuck Hall with his Mini-Me

Charles Hall spoke next: the award-winning inventor of 3D printing, he took the audience back to the 1980s, when he had already spent nearly two decades in innovative research as an industrial chemist. After moving to a small company and taking some training in entrepreneurship, Charles cultivated an interest in 3D printing which he was allowed to pursue in his own time. Much of his work related to plastic moulding and tooling, which slow down the production cycle, ultra violet light scanning and the deposit of layer upon layer in a printing process. The first version of a working machine was made in 1983 and was ready to patent in 1986, when Charles left the company and started up a new enterprise, raising capital, peddling his business plan and eventually obtaining business from the US automotive and aerospace businesses. Threats to his company's patents came almost immediately, and they had to be defended at great expense. Prior art suddenly emerged and lots of other companies wanted to get in on the act. What might Charles have done differently? He would have liked to have got his hands on all that prior art that was cited against him, but that would not have been possible since some it was contained in unpublished patent applications.

Carles Puente was introduced next.  His interest was stimulated by discovering the limitations of conventional antennas while still a student. This led to his filing of the first ever patent for fractal antennas [note for non-technical lawyers: a fractal antenna is an antenna that uses a fractal, self-similar design to maximize the length, or increase the perimeter (on inside sections or the outer structure), of material that can receive or transmit electromagnetic radiation within a given total surface area or volume. These are the antennas you can't see inside your cellphones].  Carles actually wrote his own first patent, which he modestly described as an exercise in "how not to do it". Anyway, he detailed his subsequent career, its high spots and its disappointments, realising that his business model was unsustainable despite the success of the invention itself.  This led to Carles developing a licensing model for his patents, and then litigating in the East District of Texas to protect them. Nine out of ten defendants settled with Fractus; the tenth lost. Fractus now has a healthy patent licensing business and an active research and development capacity.

Laura van't Veer then spoke about her own US-Dutch company, which she runs and of which she is also its Research Officer. Her invention relates to breast cancer detection and examining the likely risk of recurrence by studying the patient's genes.  When the invention was made and the patent filed in 2002, no medical diagnostic or pharmaceutical companies expressed any interest, since they didn't see how the invention could work. At that point, Laura set up her own university spin-off company, which enabled her to find partners and raise capital. There was quite a bit of uncertainty at the time of the spin-off as to who was entitled to what, so an element of staff training was needed. In 2006, FDA approval for using the invention was sought, and showing how the invention worked was another learning exercise. So far, her company has not run into litigation, though it has had unanticipated problems with regulatory authorities, health insurance companies and others.

There then followed a discussion as to whether Europe valued the label "scientist" more highly than that of "inventor", and as to whether it was therefore better for them to move to the United States, where the opposite was true -- while patents were becoming less popular in the United States than they now seem to be in Europe. Further discussions addressed the extent to which the inventor panellists were also entrepreneurs (which they were) and the extent to which they felt they had been adequately remunerated for their efforts (answer: "we're not complaining, but 'no'"!)  Said Carles, too much money from patents leaks into the legal system. Politely, none of the lawyers in the room dissented ...

IPBC Global 2015: Conference report I

The IPBC Global 2015 Intellectual Property Business Conference (hashtag #ipbc15) opened this morning in the grand and glorious Palace Hotel, San Francisco.  This conference is the social and professional cutting-edge of highly regarded journal Intellectual Asset Management (IAM), masterminded by Joff Wild,  The hotel is well worth a visit, if only because it reminds you what hotels were like in the days when they weren't built around the arrangements for guests' automobiles. 

The programme for IPBC 2015 is split between plenary sessions and break-outs.  This blog will do its best to cover the plenaries and hopes to manage some reporting of the break-out sessions too, if space and facilities permit.

The first substantive session of this two-day event addressed "The future of patent sales and acquisitions". A panel session in two parts, interrupted by a brief Q&A (with a 30-second maximum for questions). Nader A Mousavi (Partner, Sullivan & Cromwell) moderated the session, to which Anders Arvidsson (Vice president, intellectual property, GN Store Nord), Russell Binns (Chief executive officer, Allied Security Trust), Brian Hinman (Chief IP officer, Royal Philips) Art Monk (Vice president, patent brokerage, TechInsights) and John Veschi (CEO, Marquis Technologies) contributed. Sadly, for many of us in the back of the Ralston Ballroom most of the earlier discussion was inaudible, but this blogger has done his best ...

The first focus was on the demand side and the supply side: how have things changed? In summary, while there were definitely some new faces among the buyers, there does seem to have been a drop in volume as the demand curve drops off. Some individual purchasers and patent clubs are still active. Demand for high-quality assets remains strong, but purchase patterns change in accordance with technology shifts, and there has been a post Alice v CLS effect with regard to the acquisition of software patents. This has affected subject matter as well as price: there has been a shift from software to environmental and medical patents -- and it's not just the volume of sales that has dropped; prices for patents have fallen considerably since the peak year of 2011 and it's definitely a buyers' market. 

The shape of things
to come ...?

On the sellers' side, we are seeing entities from Japan and Europe as well as the US now, 2010-2014 data reflected that 62% of transactions were from operating companies, 21% from non-practising assertion entities, around 1% from the defence sector and the rest from universities and others. Figures for early 2015 suggest that these proportions are holding more or less the same, even though transactions are fewer.  The supply of patents is definitely greater than demand now, for a variety of factors including the cost of maintaining them and for strategic market reasons. What considerations operate on the mind of sellers when deciding to whom to sell? This can be a sensitive issue, when a purchaser may be an operating company or a non-practising entity (NPE). First-time sellers tend to sell to NPEs when they first hit the market, but not when they have been in that market for a while. IP-driven mergers and acquisitions (M&A) are also an important factor, where the M&A is conditioned by prospects for selling IP assets as a means of making the transaction worthwhile. 

What message is sent out when a company holds a patent but neither uses it nor sues others for using it? Does this have to be justified? It might indicate the existence of a patent that should be sold. Right now, patent valuations are falling too -- for as little as less than US$ 100,000 per family -- as demand falls (though quality patents do continue to maintain their value). While buyers are becoming more selective, sellers are more selective too in what they sell, producing smaller portfolios for sale with less "garbage". Price is also determined by what the buyer thinks it can do with the patents, rather than any objective market valuation.

Questions from the floor: 

Q: What sort of a driver of corporate policy is the input of activist shareholders? Activists are particularly interested in litigation issue, asking questions at an executive level both about litigation that exists and about that which doesn't, but might. Every licence is also a potential litigation too. 

Q: What is the role of due diligence in patent sale and purchase?  The better documented patent portfolios are those that will rise to the top, in terms of sales and values. No-one wants to be faced with a bunch of patent numbers. Sellers are now putting much more effort into justifying sale, easing the work of buyers and making their patents more attractive. 

Q: Does the panel discussion above apply equally to standard-essential patents (SEPs)?  More or less, mutatis mutandis, yes.

Back to the panel discussion, "demand is somewhere between its peak and its trough". A lot of people who had never been in the patent space all came in at the same time, causing that peak, but the bubble burst and many of them have gone. The Alice effect and uncertainties as to where legislation is heading might make it quite attractive to buy software patents now while they're cheap and their validity is less likely to be upheld.

A tweet from @PatentTwit asked "where's the patent market analysis of Europe and Asia? Opening session largely covers US market trends?" This question was discussed briefly towards the end of the panel session, it being suggested that things might change in Europe once the unitary patent came into force and once China had got its act a bit more together.

The sifting for-sale portfolios in search of nuggets was discussed. If all you want is an arsenal of patents for defensive purposes or for licensing, bulk is more important than the quality of individual patents, but it all depends on the buyer's objective: "if you go into a shop and don't know what you want to buy, it will always take you longer". However, buyers are more likely to take a gamble on a patent that is cheap enough, so price expectations on the part of sellers are relevant to the buyer's commitment to due diligence too.

Looking ahead, where do the panellists see the patent market going in the future, in terms of demand, supply and the ecology of patent sales.  A likely fall in IP filings and grants, following Alice and in the light of better drafting following the US Supreme Court's Nautilus v Biosig ruling, more cautious examination, should see a short-term drop in rights but a higher quality of granted rights, reflected in higher prices for individual patents. "Springing licences" will also have an effect on the valuation of patent portfolios. 

More questions from the floor

Q: Valuation of portfolios: how does one factor in the uncertainties of invalidity, unenforceability and so on, and how does this affect the financial side of  licensing? "It's just a matter of where you place the value", came the simple answer. What about the decision to license rather than to sell, in the light of uncertainties? Uncertainties drive transactions more towards sale than to licensing. 

Q: What about residency requirements? They may be important for transactions where tax is an issue.

Q: What are the new and fertile fields for royalty stacking?  NPEs are looking to the medical device, automobile and energy sectors, among others, where cross-licensing is a promising business solution. 

The session then ended with the exciting prospect of coffee and cake ...