Know your patent pit­falls

Be­fore ven­tur­ing into the global mar­ket, HK’s in­no­va­tion-based star­tups need to se­cure their prod­uct against in­tel­lec­tual prop­erty theft and other is­sues. Wang Yuke re­ports.

China Daily (USA) - - HONG KONG - Con­tact the writer at jenny@chi­nadai­

What’s bug­ging Hong Kong’s startup sec­tor? The city is home to some very fine tech­no­log­i­cal brains, and creative ideas do not seem to be in short sup­ply ei­ther.

Eric Ye­ung Chuen-sing, ex­ec­u­tive vice-pres­i­dent of the Hong Kong Gen­eral Cham­ber of Small and Medium Busi­ness, has an ex­pla­na­tion. He points to the fact that while many star­tups can boast of a highly evolved re­search and de­vel­op­ment cul­ture they of­ten fail to ap­ply com­mon sense-based mar­ket­ing wis­dom that might turn a highly orig­i­nal idea into a sus­tain­able re­turnori­ented ven­ture. Most busi­nesses, he says, can’t be both­ered with fig­ur­ing the in­tri­ca­cies in­volved in ob­tain­ing fool­proof patents to pro­tect the in­tel­lec­tual prop­erty rights of the prod­ucts they mar­ket. It’s a vi­tal as­pect of do­ing busi­ness that en­trepreneurs wish­ing to com­pete in the in­ter­na­tional mar­ket would not want to ig­nore.

Ye­ung, who is also a mem­ber of the Ad­vi­sory Com­mit­tee on In­no­va­tion and Tech­nol­ogy, says some­times lo­cally suc­cess­ful star­tups are jolted out of their com­pla­cence once they be­gin con­sid­er­ing ex­pand­ing into the in­ter­na­tional arena. The hard re­al­ity kicks in when they dis­cover they are not fully aware of the nitty-gritty of ex­e­cut­ing such a move.

Vi­tar­gent, a bio­science com­pany that uses ge­net­i­cally en­gi­neered fish to de­tect tox­i­c­ity in food and cos­met­ics, might make for a typ­i­cal case study. The com­pany has held a patent for their prod­uct right from 2010 when they started the ven­ture, and yet has spent the bet­ter part of the last six years try­ing to work out how to deal with in­ter­na­tional patent is­sues.

De­vel­oped at City Univer­sity of Hong Kong (Ci­tyU), the Vi­tar­gent method en­tails tak­ing green flu­o­res­cent pro­tein from jel­ly­fish, mod­i­fy­ing its DNA and in­ject­ing these into em­bryos of the medaka fish or ze­bra fish. Once ex­posed to harm­ful tox­ins, like es­tro­gen com­pounds, the ge­net­i­cally en­gi­neered fish re­lease pro­tein, cre­at­ing flu­o­res­cence.

Com­pany co-founder Eric Chen pitched the tech­nol­ogy in a busi­ness pro­posal com­pe­ti­tion in 2010. The pro­posal picked up sev­eral awards. After some hard slog­ging and many re­buffs from po­ten­tial in­vestors, Chen put to­gether about HK$10 mil­lion. With match­ing funds from the In­no­va­tion and Tech­nol­ogy Com­mis­sion and a rental ex­emp­tion from the Hong Kong Sci­ence and Tech­nol­ogy Park, Vi­tar­gent went into busi­ness.

The first few years went well. The lack of for­ward plan­ning be­came a prob­lem when Vi­tar­gent de­cided to go global. They were look­ing to break into mar­kets in Europe, the Chi­nese main­land and Tai­wan, but the in­vestors there were scep­ti­cal. “They said there were a few other tech­nol­ogy com­pa­nies in their lo­cal­i­ties hold­ing sim­i­lar patents. They didn’t want to get em­broiled in a suit over patent in­fringe­ment,” lamented Jimmy Tao Wai-le­ung, chief ex­ec­u­tive of­fi­cer of Vi­tar­gent.

“The orig­i­nal patent was owned by the univer­sity (Ci­tyU), as the in­ven­tor of the tech­nol­ogy. It turned out, to our dis­may, that the patent was not widely rec­og­nized,” com­plained Tao.

Lawyers spe­cial­iz­ing in patent work are ex­pected to run a search for sim­i­lar in­ven­tions to help pro­tect clients from get­ting sued. Ev­i­dently, the lawyer who had re­viewed Ci­tyU’s patent fil­ing failed to carry out a thor­ough re­search. Tao de­scribed hav­ing to fly to the home coun­tries of ev­ery po­ten­tial Euro­pean in­vestor, meet­ing with prospec­tive clients’ lawyers and try­ing to con­vince them that Vi­tar­gent held an orig­i­nal patent. Vi­tar­gent lost a huge chunk of cap­i­tal, amount­ing to mil­lions of Hong Kong dol­lars, in the process.

Plug­ging the loop­holes

Ho Wai-hung is an in­tel­lec­tual prop­erty lawyer with the Hong Kong branch of global law firm Dechert. He spe­cial­izes in work­ing with star­tups on patent is­sues. Ho said he found that on many oc­ca­sions patent fil­ings made on be­half of uni­ver­si­ties are dan­ger­ously scant on de­tails. In one case, for ex­am­ple, a lo­cal bio-tech com­pany cre­ated a chem­i­cal com­pound in­tended to be used in cancer treat­ment while si­mul­ta­ne­ously de­vel­op­ing an in­no­va­tive ap­proach to man­u­fac­tur­ing the chem­i­cal.

The patent ap­pli­ca­tion listed the chem­i­cal pro­cesses for cre­at­ing the com­pound and out­lined the ba­sic tech­nol­ogy. De­tails about the prop­er­ties of the chem­i­cal com­pound, its struc­ture, variations, and for­mu­la­tion, were omit­ted. The ap­pli­ca­tion did not men­tion the prod­uct’s ap­pli­ca­bil­ity to any­thing other than med­i­cal care.

Ho sug­gested to the client that the patent should elab­o­rate the po­ten­tial ap­pli­ca­tion of the chem­i­cal as a ba­sis for op­ti­cal fibers and lubri­cants. He also sug­gested men­tion­ing in the ap­pli­ca­tion that the man­u­fac­tur­ing tech­nique was unique and sim­ple and the fi­nal prod­uct was pure and cheap to process.

He said fail­ure to take note of a prod­uct’s po­ten­tial other than those spec­i­fied in the patent ap­pli­ca­tion can cre­ate night­mares for a startup com­pany. The ap­pli­ca­tion ac­tu­ally may serve up vi­tal clues that ri­val com­pa­nies could adapt to de­velop com­pet­i­tive prod­ucts or even new prod­ucts, based on the orig­i­nal patent. Com­peti­tors may copy an orig­i­nal in­no­va­tion, tweak it a lit­tle and mar­ket it in a dif­fer­ent form, thereby evad­ing li­a­bil­ity for in­fringe­ment on the orig­i­nal patent.

Ho said in this case the orig­i­nal ap­pli­ca­tion had failed to note po­ten­tial al­ter­na­tive uses for the newly in­vented chem­i­cal. Other com­pa­nies could adapt the prod­uct for other uses, with im­punity, as a re­sult.

A high-value in­no­va­tion patent should stip­u­late the tech­nol­ogy’s com­mer­cial val­ues, ex­plic­itly list­ing its uses in ev­ery con­ceiv­able in­dus­try. Ho sug­gested that patent ap­pli­ca­tions for biotech com­pa­nies should cover “ev­ery­thing” in­clud­ing the struc­ture, for­mu­la­tion, variations of chem­i­cals, the man­u­fac­tur­ing process, rec­om­mended dosages for ev­ery pos­si­ble use etc. The more com­pre­hen­sive the patent the lesser the chances of the tech­nol­ogy get­ting copied by com­peti­tors.

The way the patent is writ­ten can help the en­tre­pre­neur mon­e­tize an in­ven­tion, said Ho. “Uni­ver­si­ties in Hong Kong and the Chi­nese main­land are care­less about the qual­ity of patent ap­pli­ca­tions be­cause their in­ven­tors can’t even bother to patent their ideas. They’re too busy churn­ing out re­search pa­pers. They are short of vi­sion for the fu­ture of the tech­nol­ogy they’ve cre­ated and don’t spare a thought for the sur­vival of the star­tups (when sell­ing the in­no­va­tion).”

Uni­ver­si­ties tend to pour their lim­ited re­search fund­ing into re­search and de­vel­op­ment and don’t in­vest much in draft­ing patent ap­pli­ca­tions, re­marks Ho. It is left to the star­tups to bear the con­sid­er­able ex­pen­di­ture of ap­ply­ing, some­times more than once, to ob­tain patent rights.

If Vi­tar­gent ended up fac­ing a law­suit over copy­right in­fringe­ment in Europe, the le­gal fees would be astro­nom­i­cal, ar­gued Tao. To pre­empt such an even­tu­al­ity, he de­cided to ap­ply for a fresh patent. Even that proved dif­fi­cult. “Sil­i­con Val­ley has a high con­cen­tra­tion of top­notch lawyers. A startup like ours couldn’t af­ford them.” Tao also had a feel­ing high-pro­file lawyers may not be in­ter­ested in fight­ing a case on be­half of a small en­ter­prise.

Luck­ily, Vi­tar­gent’s largest in­vestor, Nan Fung Group, a Hong Kong real es­tate con­glom­er­ate, has close con­nec­tions with some of the world’s top law firms. They helped Tao reach out to some le­gal heavy­weights. “We paid a hefty price, more than $2,000 per hour for con­sul­tancy, shelling out mil­lions of dol­lars to han­dle patent is­sues alone,” said Tao.

Lengthy ne­go­ti­a­tions

An en­tre­pre­neur mar­ket­ing a tech­no­log­i­cal in­no­va­tion-based prod­uct needs to ac­quire patent li­cens­ing author­ity from the orig­i­nal patent holder, such as a univer­sity.

“The ne­go­ti­a­tion process with the univer­sity is cum­ber­some and lengthy. It would nor­mally take six months just to get the univer­sity’s ap­proval,” be­moaned Tao, sug­gest­ing that the univer­sity would rather sit on a patent than see it put to com­mer­cial use, which takes away some of its ex­clu­siv­ity.

Uni­ver­si­ties and in­sti­tu­tions in Hong Kong are sim­ply sat­is­fied with hold­ing a lo­cal patent. It’s rare for them to reg­is­ter for an in­ter­na­tional patent of­fer­ing global pro­tec­tion. The process is time con­sum­ing and of lit­tle im­port to the in­no­va­tors them­selves as their fo­cus is more on com­plet­ing re­search and pub­lish­ing pa­pers, said Ed­mund Lau Kin-on, vice-pres­i­dent of the Hong Kong As­so­ci­a­tion for the Ad­vance­ment of Sci­ence and Tech­nol­ogy. He said an in­ter­na­tional or a Euro­pean patent would en­sure greater pro­tec­tion for the en­tre­pre­neur, the rea­son why it was vi­tally im­por­tant for a startup wish­ing to ex­pand its busi­ness glob­ally to ob­tain these.

Ye­ung points out there are no in­cen­tives for schol­ars at Hong Kong uni­ver­si­ties to want to patent their in­ven­tions. In other de­vel­oped coun­tries and re­gions, patents ac­cu­mu­lated by an aca­demic add to his prospects, giv­ing him a rea­son to ap­ply to get his work patented. In Sin­ga­pore, for ex­am­ple, the gov­ern­ment pro­vides both fi­nan­cial and lo­gis­ti­cal sup­port to aca­demics dur­ing the ap­pli­ca­tion process. Sin­ga­pore’s Patent Ap­pli­ca­tion Fund cov­ers 50 per­cent of le­gal, of­fi­cial and other re­lated fees. In Hong Kong pro­fes­sors have to reach into their own pock­ets if they want to ap­ply for an in­ven­tion patent, re­marked Ye­ung. Also uni­ver­si­ties don’t like to share the ben­e­fits of the in­no­va­tive prod­ucts cre­ated in their labs, even with the schol­ars who helped in de­vel­op­ing these, he added.

In the US and Europe, how­ever, gov­ern­ments en­cour­age uni­ver­si­ties to dis­trib­ute the net in­come gen­er­ated from tech­nol­ogy trans­fers back to the sci­en­tists who in­vented it, the depart­ment sup­port­ing its de­vel­op­ment and the in­sti­tute to which it be­longs, pub­lish­ing a break-up of how the money was shared. At the Univer­sity of Florida, 40 per­cent of net in­come up to $500,000 is dis­trib­uted among aca­demic de­vel­op­ers. Stan­ford Univer­sity ap­por­tions net roy­al­ties equally among in­ven­tors and the in­ven­tors’ de­part­ments and col­leges.

Lau, how­ever, says, although “to com­mer­cial­ize an in­no­va­tive tech­nol­ogy is a com­plex mat­ter, in­volv­ing peo­ple from var­i­ous ar­eas to brain­storm and work to­gether”, it’s not as if Hong Kong in­no­va­tors are obliv­i­ous to the im­por­tance of get­ting their work patented for a global mar­ket. It’s all about team­work, he says. “The pro­fes­sors or a re­search team be­hind the in­ven­tion pro­vide the re­search the­o­ries and prin­ci­ples. Spe­cial­ists from en­gi­neer­ing in­dus­try un­der­stand how to op­er­ate the new tech­nol­ogy. Peo­ple hav­ing ex­pe­ri­ence in busi­ness ar­eas come up with mar­ket­ing strate­gies. In­tel­lec­tual prop­erty at­tor­neys weigh in to han­dle patent is­sues.”


Chen Xueping (in pic­ture) is co-founder and chief tech­nol­ogy of­fi­cer of Vi­tar­gent. The bio­science com­pany wanted to ex­pand over­seas, but patent is­sues held the am­bi­tion back.

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