Asian tech com­pa­nies are tak­ing patents more se­ri­ously

▶ Govern­ment-backed firms seek fees in the U.S. and else­where ▶ “We only li­cense patents of the high­est qual­ity”

Bloomberg Businessweek (Asia) - - CONTENTS - Bruce Ein­horn and Pavel Alpeyev

For most of its six years, Xiaomi didn’t worry much about patents. The Bei­jing com­pany built its busi­ness sell­ing cheap smart­phones in China. But as the coun­try’s econ­omy slows and ri­vals nip at its mar­ket share, Xiaomi is try­ing to ex­pand overseas, giv­ing it a greater in­cen­tive to grab hold of in­tel­lec­tual prop­erty. In June it bought about 1,500 wire­less, cloud, and mul­ti­me­dia patents from Mi­crosoft for an undis­closed price. “If we find our­selves in lit­i­ga­tion,” says Hugo Barra, Xiaomi vice pres­i­dent of in­ter­na­tional, “we will use our IP port­fo­lio to de­fend our­selves.”

Xiaomi is among a grow­ing num­ber of Chi­nese com­pa­nies—PC maker Len­ovo, screen maker BOE,

ap­pli­ance maker Midea—“look­ing to get their hands on good, solid IP that can be used against multi­na­tion­als,” says Guy Proulx, chief ex­ec­u­tive of­fi­cer of ad­vi­sory firm Tran­spa­cific IP Group. “Used against” often means ex­tract­ing fees via an­gry let­ter, ne­go­ti­a­tion, or law­suit. It’s a shift for Chi­nese com­pa­nies, which have more often been the de­fen­dants in patent suits. They’re catch­ing up with a trend in Ja­pan and South Korea, where govern­ment-backed funds are fight­ing on be­half of big tech com­pa­nies’ IP.

The big­gest is Ja­pan’s IP Bridge, founded three years ago with 90 bil­lion yen (about $900 mil­lion) from the In­no­va­tion Net­work Corp. of Ja­pan, a govern­ment-spon­sored pri­vate eq­uity firm. IP Bridge also re­ceives fund­ing from com­pa­nies whose patents are among the 3,500 it de­fends, in­clud­ing NEC, Pana­sonic, and Hi­tachi. In the U.S. it’s su­ing Chi­nese phone maker TCL, al­leg­ing in­fringe­ment on three patents; Sin­ga­pore chip­maker Broad­com, over six; and Cal­i­for­nia imag­ing com­pany Om­niVi­sion, over 10. The rel­e­vant patents came from ei­ther Pana­sonic or NEC. The three de­fen­dants said in court fil­ings that they’ve done noth­ing wrong.

IP Bridge’s re­sults have been mod­est so far—about 100 mil­lion yen in li­cens­ing fees for its part­ners. Govern­ment-backed funds “are ef­fec­tively im­ple­ment­ing an oper­a­tion tax for tech com­pa­nies,” says Matt Lar­son, a lit­i­ga­tion an­a­lyst with Bloomberg In­tel­li­gence. Chief IP Of­fi­cer Hideyuki Ogata says that IP Bridge’s se­lec­tiv­ity makes it dif­fer­ent from patent trolls. “We only li­cense patents of the high­est qual­ity,” he says. “It takes about a year of due dili­gence to fig­ure out if the IP is good.”

Law­suits are a last re­sort, says IP Bridge Pres­i­dent and CEO Shige­haru Yoshii. (The TCL suit was IP Bridge’s first.) Govern­ment sup­port re­mains im­por­tant, he says, be­cause many Ja­panese com­pa­nies are still re­luc­tant to seek fees from their IP or even ac­knowl­edge a patent’s use­ful­ness against ri­vals. In their es­ti­ma­tion, he says, “the patent is tied to a prod­uct and has no value in and of it­self.”

In South Korea, tech com­pa­nies need help to pro­tect them­selves, says Kwang Jun Kim, CEO of state-backed In­tel­lec­tual Dis­cov­ery. Like IP Bridge, the Korean fund has about 3,500 patents in its port­fo­lio. Kim says that’s noth­ing next to U.S. fee-seek­ers like Aca­cia and RPX. “It’s like a go­rilla vs. a puppy,” he says. “We have a long way to go.”

As Asian com­pa­nies be­come more ag­gres­sive, they’re start­ing to run up against one another. Huawei, China’s lead­ing phone maker, sued Sam­sung in May. The suit, filed in fed­eral court in San Fran­cisco, ac­cuses Sam­sung of in­fring­ing on as many as 11 Huawei patents re­lated to 4G mo­bile de­vices. Other Chi­nese com­pa­nies will likely fol­low Huawei’s lead, says Nin­gling Wang, a part­ner in Shang­hai with the law firm Fin­negan, Hen­der­son, Farabow, Gar­rett & Dun­ner. The goal, she says, is to “ex­tract value from high­qual­ity patents,” wher­ever they may be.

The bot­tom line Chi­nese, Ja­panese, and Korean tech com­pa­nies are start­ing to use their patent stores more ag­gres­sively against ri­vals.

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