#10 Mark Cohen | SEPs and the law in China

03/15/22 • 51 min

“China is a much more complex and a much less transparent environment than many think it is. If you do not have a governments relation person on your team and if you can’t mine the docket data you can’t win a Chinese SEP litigation.” -Mark Cohen on this episode.
Mark Cohen(柯恒} is a Distinguished Senior Fellow and Director of the Berkeley Center for Law and Technology at the University of California, Berkeley. He has served as the Senior Counsel, China for the USPTO. Formerly, he was Director of International Intellectual Property Policy at Microsoft Corporation. Prior to that time, he was Of Counsel to Jones Day's Beijing office. Before then, he served as Senior Intellectual Property Attaché at the U.S. Embassy in Beijing and as Attorney-Advisor in the Office of International Relations at USPTO. In total, he has nearly 30 private, public sector, in-house and academic experience on IPR issues in China.

Mark has over the years conducted several empirical analyses of the Chinese legal system and SEP litigation cases have drastically increased. SEPs are of the highest importance in China and very often relevant and on the agenda of board room decisions. Courts are efficient and, in some cases, often faster than US or European courts. However, still, the legal system lacks transparency as not all decisions are public, and the litigation dockets are incomplete. As to the publicly available data it looks as if SEP decisions with Chinese companies involved do not rule in favor of the local Chinese companies. However, if rulings and decisions are not all public it’s very difficult to confirm that with the given data. Also, while judges have access to the dockets and other do not, we see decisions that reference nonpublic court rulings which creates confusion and makes it difficult to win a case.

Despite the incomplete data China has however gained importance as being an international venue for SEP litigation. This may not be surprising given that most worldwide sold smartphones are manufactured in China and that the Chinese single market is the biggest in the world for SEP relevant products such as phones, tablets, smart watches, TVs and so on. SEP owners one the one hand find it adventures to litigate in China as injunctions are much more frequently granted. However, on the other hand damages are much lower compared to Europe and the US. China is not the country of unlicensed products anymore and Intellectual Property enforcement is taken much more seriously. However, Mark stresses again cases matter and if not all of them are public we have a problem as lawyers and judges need to be able to reference and consider decision from past cases.

Mark also worries about the increasing cases of anti-suit and anti-anti-suit injunctions. The Chinese legal system should not be underestimated, and its power and influence will grow. So are the increasing number of internationally active patent owners. Indeed, the IPlytics data confirms that Chinese companies have had the highest growth rates in SEP declarations and standards contribution submissions over the past 5 years with increasing numbers of patent filings not only in China but also granted in the US and Europe. Mark believes that the WTO (World Trade Organization) should help in aligning international rules and guidelines and should be much more recognized not only by China but also the US and other countries.

Mark also discusses the trade war between China and the US and the ban of some Chinese companies on the US market. A company such as Huawei that is banned from selling products in the US but is one of the largest SEP holders in the world with a large valid US portfolio creates a risk for US operating companies. If there is no need to cross license Huawei acts like an NPE in the US and may enforce patents much more aggressively. Also, to recoup its R&D investments and missing income from the product market.

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#9 Ran Xu | Xiaomi’s market entry to SEP licensing

“Xiaomi will not proactively monetize its SEPs now or even in the future. SEPs are rather means to decreasing Xiaomi’s royalty burden through cross-licensing.” -Ran Xu
Ran Xu is the Head of Licensing at Xiaomi. He earned his PhD in wireless communications at the University of Bristol and worked as a chip designer at Cambridge Silicon Radio and Samsung. In 2013 Ran came back to China and joined a start-up company called Zhigu. During his years with Zhigu was the time when Ran entered into the IP world and where as an inventor he created more than 100 patentable inventions which turned into more than 100 granted patents today. In early 2016, the team at Zhigu was acquired by Xiaomi and became the IP strategy team within Xiaomi taking care of Xiaomi’s patent licensing and acquisition business. Today a lot of the licensing matters are related to SEPs and have become a major focus of Ran’s daily job at Xiaomi.

Ran says that Xiaomi aims- to become the world's number 1 handset manufacturer in 3 years’ time. Ran believes that one key factor behind Xiaomi’s success is the company’s mission which is to build amazing products with honest prices. Xiaomi also sells other smart devices such as tablets, wearables, smart TVs, robot vacuum cleaners, and electric bikes. Even more, Xiaomi CEO Lei Jun said that is Xiaomi is expecting to mass-produce its own electric vehicles in the first half of 2024.

Xiaomi was considered a new market entrant a few years back and with regards to SEPs had yet a small patent portfolio. There are two ways to build your SEP portfolio, either from your own patent filing or via patent acquisition. So, in the early years, the patent acquisition was a more efficient way to build the portfolio. Xiaomi, however, started to actively participate in standardization in 2016 and the IPlytics data also shows that the number of standards contributions e.g. for 5G has been sharply increasing with about 1,500 contributions in 2021 alone. Through all these years of R&D efforts, Xiaomi has built a sizeable 5G portfolio.

Well negotiated cross-licensing SEP deals will allow Xiaomi’s users to enjoy the products and innovative technologies at a better price, which makes the investment in standardization and SEPs worthy.

Ran believes that there are a lot of factors that make SEP licensing negotiations challenging. One of them is that sometimes the negotiation lacks transparency. For example, when you encounter a licensing proposal from your counterpart, for most of the cases and even if you have made your request, you cannot obtain sufficient information from your counterpart to make your own evaluation. Another challenge is the different perspectives on FRAND terms.

And Ran believes FRAND royalties will be very different for IoT devices as IoT devices in comparison to handsets use connectivity standards technology very differently. A fitness wearable for example transmits much less data compared to a handset. One idea was that the royalty rate for SEPs is based on how much data is transmitted from standard-compliant devices. That could be one approach to understand how much value the patented technology brings to the product.

Finally Ran comments on Xiaomi’s strategy to yet not enter the US handset market. While Xiaomi was once on a US ban list a US court decision took Xiaomi off that list and yet none of the Xiaomi products were banned. Even more, a look at the Xiaomi patent portfolio shows that just after China, Xiaomi files most patents in the US. Ran believes that if at some point Xiaomi handsets become available in the US, which is one of the most attractive markets in the world, Xiaomi’s best quality at honest price products will be welcomed and loved by the US users.

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#11 Johanna Dwyer | How to make SEPs the core asset of your business?

“We would see much more deals and less friction with SEPs and FRAND if people were to do things with more rigorousness and transparency!”

Johanna Dwyer is the founder and CEO of QipWorks, a global IP consultancy business that partners with companies, innovators and investors to build, manage and utilize IP portfolios. Before QipWorks Johanna spent 12 years at BlackBerry, originally designing radios as a cellular wireless engineer and later participating and then leading a global radio standards team active among others, in 3GPP and the IEEE. She worked closely with licensing teams developing processes for identifying, evaluating, managing, validating, and monetizing investments in intellectual property.

Johanna and her QipWorks team provide extensive expertise in IP strategy and patent portfolio development and management as well as litigation support and standardization advice. Johanna realized that many small and medium-sized businesses yet do not treat patents as their core assets. Such assets must be explainable and have a purpose for the business. QipWorks helps with developing patent portfolios and here in particular for companies that conduct research and development close to the development of standards such as 4G/5G or Wi-Fi technologies.

Johanna was part of the team that developed the BlackBerry patent portfolio that was just in January 2022 sold for $600M to Catapult IP Innovations Inc.. The BlackBerry patent portfolio includes many SEPs for standards such as 2G, 3G, 4G, 5G, Wi-Fi, AVC/HEVC/VVC and others.

Patents that read on a standard are of high value as SEPs can be used to join or create SEP licensing programs or as bargaining chips in FRAND cross-licensing negotiations. In any case, owning SEPs ensures the owner a seat at the table when the next generation of connectivity is developed. But filing patents that later become standard-essential is a challenging process. R&D teams, IP patent boards, and prosecution teams must closely work together. Here claims must be compared to the current standard versions early on, which is challenging as standards evolve and claims change in the prosecution process before they are granted. Johanna and her team make sure that such patents are not only essential but also valid and enforceable. Johanna says: “With SEPs a near miss is worthless. If your patent claims miss the final standard you may as well abandon those patents as they have no value”. Standards development and being able to contribute to technology is much more time and budget-consuming as many people think. An engineer that goes to standards meetings must prepare for the meeting, must be active at meetings but also be able to take the learnings from the meetings to again prepare the next one. That is a full-time job with the focus on submitting high-quality standard contributions that others agree and accept in the process. That engineer has no time to sit with patent attorneys. At Research in Motion (Blackberry) Johanna explains, they had so-called standards coaches whose job it was to “own” the patent in the prosecution process, aligning patent filing and standard development strategy. All that is very labor-intensive, and experts need to know both the technology and at the same time must have knowledge of the patent prosecution process.

But owning SEPs is just the beginning, one must also have the right strategy in place to sell, license, or further develop SEP portfolios in the market. Johanna believes that such a process can only be installed in companies that realize that patents are core assets and that patents must have value for the shareholder. Patent strategy therefore should be introduced and play a core role for board room decisions.