AND INTELLECTUAL PROPERTY PART I A RADICAL DISRUPTION European - - PowerPoint PPT Presentation

NEW ECONOMICS OF INVENTION AND INTELLECTUAL PROPERTY PART I A RADICAL DISRUPTION

European Commission 17th October 2013

Patrick Terroir, general manager, CDC Propriété Intellectuelle Email : pterroir@noos.fr patrick.terroir@caissedesdepots.fr Internet : www.innovation-economie.com

CONTEXT : THE KNOWLEDGE TRANSFER STRATEGIC PARTNERSHIP

• Signed in Rome - 16 June 2010
• Creation of joint Working Group between:
• EIF/EIB
• Caisse des Dépôts et Consignations (CDC – France)
• Cassa depositi et Prestiti (CDP – Italy)
• Centro para el Desarrollo Tecnológico e Industrial (CDTI - Spain)
• Innovationsbron (Sweden)
• KfW-Bankengruppe (Germany)
• Veraventures (Finland)
• AWS (Austria)
• Scottish entreprises
• Aim of like-minded Partners with Long Term perspective is to:
• Support the emergence of European and national Knowledge Transfer Infrastructures
• Accelerate transfer of European research and technology to the market
• Facilitate a well functioning Knowledge Transfer and Intellectual Property economy
• Encourage more open and transparent marketplaces for Intellectual Property
• Exchange best practices and potentially to analyse investment opportunities jointly

WHY CDC ?

Caisse des dépôts (CDC) is a public-owned holding company that makes long-term investments in pursuit of public policy

• bjectives, economic general interest and to foster economic

development e.g. CDC invest mostly in economic and social infrastructures. Since 2000 CDC take several initiatives to support competitiveness and innovation: venture capital fund of funds, digital infrastructure, industrial competitive cluster, alternative energy… Creation of two patent economy subsidiaries in 2010 : France Brevets, CDC PI

THE PROBLEMATIC

The aim of patent system is to reconcile private interest with collective interest by accepting privatization of knowledge (IPR) to reward and encourage innovation which in turn benefits the whole society, in particular through diffusion of knowledge. But many evidences show that it this delicate balance is threaten by the transformation of invention landscape and by the absence of a new system of IPR framework adapted to this transformation, but also by some misuses of IPR. So the question now asked to the world community is how to put in place a renewed legal and economic infrastructure for invention diffusion that match the challenge of the economy of knowledge for the 21st century.

THE CHALLENGE : TRANSFORMATION OF PATENT FRAMEWORK From a protection net and a legal redress Toward a technology transfer instrument and a valuation and transaction asset

AGENDA

• Necessity for a real market for patents and licensing

is no longer challenged

• What must be the goals to be reached ?
• Projects and experiments are surging but in narrow

territories

• Proposal for a new framework and new tools : EPLF
• Introducing the new system : the constraint of a pilot

project, the eventuality of European initiative and support

THE NEEDS FOR DIFFUSION AND EXCHANGE IN INVENTION PLANET

• Explosion of inventive capacities all over the world
• Innovations are now the result of aggregation of

inventions (the Key Enabling Technologies)

• Innovation applications of an invention could be diverse

and enterprises don’t develop all inventions they produce

• High volume of “unused patents” meaning exchange

potential are obvious reasons to diffuse inventions in the whole economy, offer possibility to match supply and demand of inventions, facilitate the acquisition and licensing of IPR.

CITATIONS :

“Knowledge has become the most important factor in economic life. It is

the chief ingredient of what we buy and sell, the raw material with which we work. Intellectual capital – not natural resources, machinery

• r even financial capital – has become the one indispensable asset of

corporations,” “Intellectual capital is useful knowledge that is packaged for others. » « Structural capital is knowledge that doesn’t go home at night”. (T.A. Stewart, Intellectual capital, The wealth of konwledge) “Facilitating the mobilisation, sharing, or exchange of patents is increasingly important to promote innovation in this globalised and well-networked world, where the circulation of ideas and technologies is essential to innovation. In the context of open innovation, patents are expected to play a role as a means for transferring ideas and technologies from one entity to another”(Guellec, Yanagishawa, OCDE, 2009)

CHINA TOMORROW

IP school books

TRANSFORMATION OF INNOVATION PROCESS

“Technology has become so complex

that it is impossible for a single business to be the source of every invention that comprises a single product”

(THE EVOLVING IPMARKET PLACE, Federal Trade Commission report,2011)

INNOVATIONS RESULTS OF COMBINATION OF KEY TECHNOLOGIES INVENTIONS

Source : HLG report on KETs, EC

PATENT COMMERCE IS BOOMING

• Patent licensing is officially raising
• Different surveys shows that the patent commerce increase
• Spectacular transactions have also modified the vision the

value of patents

• But this « market » is reserved or for cross licensing or for big

companies – or for doubtful operations

INCREASING PATENT LICENSING

In WIPO 2011, report

SOME SPECTACULAR TRANSACTIONS : THE PIT OF THE ICEBERG

4,5 Bn$, : Acquisition of Nortel –bankrupted- patent portfolio by a consortium of IT firms June 2011 12,6 Bn$ : acquisition of a Motorola patent portfolio by Google September 2011

Expert : “The secondary marketplace for patent sales is likely to grow at a compounded rate of 20% to 30% or more a year for the next few years »

BUT ESSENTIAL ECONOMIC FUNCTIONS ARE MISSING

• The market for patents is fragmented and still forming. No systematic

information is available,

• Generally speaking, it is not possible to know if a patent is up for sale
• r opened to being licensed,
• Understanding under what procedures and under what conditions a

patent can be acquired or licensed is difficult,

• Information on actual patent possession does not exist because patent

transfer are not required to be registered. Thus it is impossible to know who holds a patent at any given point in time,

• Similarly, there is neither a register for patent licenses granted nor on

the conditions for these licenses.

UNCERTAINTY AND INSECURITY PREVAIL

• There is no recognized valid method for the assessment of patent “quality,”

both from a legal perspective as well as in regards to industrial use. The assessment rests strictly on individual expertise that generally does not give any commitment on its validity. Valid patents are not easily identifiable, since patents are only filed in certain countries and it is difficult to know for sure if the maintenance payments have been made

• The exact content of the transferred rights when transferring or licensing is
• ambiguous. This is because it is nearly impossible for a seller to guarantee the

absolute validity of the patent (especially since the transfer of patents often happens on portfolios or groups of patents), the absence of litigation, or the nature of the encumbrances on the patents – notably when the patents were the subject of a previous transaction, and when the seller is not the first

• wner).
• The matter of representations and warranties (given and received) is thus an

essential concern of every transaction concerning patents. The lack of standardized and valid contractual clauses, the high costs of legal counsel, and the fragmented nature of the procedural aspects makes each transaction a very long and costly process that is only accessible to the largest actors.

SOME PARADOXES OF KNOWLEDGE ECONOMY

• In a knowledge economy all innovative ideas are supposed to be

treated according to their utility, but the situation is in fact rather unequal and depend on the financial means of companies, a variable that has no link with innovation .

• The private monopoly conferred on the filer by a patent had its

counterpart in the publication of information and diffusion through license of the invention. In practice buyers and sellers of intellectual property rights (sale or licensing) must conduct lengthy and uncertain appraisals, engage in difficult research, and pursue lengthy negotiations, all of which are very costly.

• Despite the organizational systems implemented by every country,

intellectual property rights, that have been subject to long assessments by patent offices, turned out in fact to be very fragile and of little use.

THE INEFFICIENT PATENT MARKET, AS DEMONSTRATED BY THE

AVERAGE BROKERAGE COMMISSIONS (US)

SOURCES: ITG, REAL TRENDS, CDC GROUP

0,06% 0,19% 5,3% 25%

0,0% 0,1% 1,0% 10,0% 100,0%

Large cap equities Small cap equities Residential real estate Patents

THE GREAT PARADOX : TOOL OF PROGRESS BECOME A BLOCKAGE FACTOR

• Capacity to “prevent to make” granted by a patent is not

balance by the possibility to access and the obligation to use (Yet historic international convention on patent (Paris Convention) provide that

compulsory licensing could be ordered to prevent abuse of right, eg in case of no exploitation of invention

• Complementarity between inventions is used as blockage :

patent thicket (overlapping property right prevent possibility of use by one) is the battle field for trolls, instead to be a space for cooperation.

• Patent right system that should be a protection for small

economic actors become a powerful tool for protectionism and conquest, and aggressive competition between big companies

SMEs MOST OF THE TIME HAVE NO ACCESS TO INVENTION AND PATENT MARKET :

• they cannot acquire complementary ideas and technology

that complete their own invention to develop innovation or secure their freedom to operate to avoid litigation

• they cannot licence their inventions, when they can’t (or

don’t want) exploit by themselves

• they cannot find benchmark for their banker and investor

to express their intangible value

SME : LITIGATION PREFERRED TARGET

NPE/PAE litigation has reached in US a wholly unprecedented scale :

• litigations become a macroeconomic problem (5,842 defendants

in 2011 and fast growing, hence law projects on study)

• Much of the burden falls on small and medium-sized
• companies. The median company sued had $10.8 million in annual revenues. 82% of

the defendants had less than $100 million in revenue and these accounted for 50% of the

• defenses. “The direct cost from NPE disputes, Boston university school of law, Bessen and Meurer,

june 2012”)

• European SMEs are protected by judicial fragmentation, but

unitary patent court will facilitate litigation (“a pathway for trolls” ?)

Patent economy as it is taught

INEFFICIENT BATTLE FIELD INCREASING LITIGATIONS MORE « TROLLS » A PARADOXICAL SITUATION : PATENT WAR AND LITIGATION ARE CONSIDERED AS NORMAL AND UNAVOIDABLE

HUGE ECONOMIC AND SOCIAL LOSSES

• The core of innovation, university, SMEs, have

paradoxically the greatest difficulty to access to the invention exchanges and monetization

• No synergy between inventions coming from

different sources or different domains, thus result to duplication of scare resources.

• High proportion of unused patents.
• Loss of social externalities as inventions are kept

in a single usage

SOME IDENTIFIED LOSSES

Some studies like ”who licenses out patents and why ?” M. P. Zuniga et

• D. Guellec, OCDE, 2009, or in Oseo survey (2011) show that between 25

et 50% of enterprises declare that they wish to license their patents but they don’t find the way to do it. Insufficiencies of public research valorisation is all the more preoccupying as it concern public finance, as it means that all the initiatives and considerable financing allocated result for a very small part in society improvement and return on social investment. For example we could calculate that if European universities have the same monetization rate than American one, they would earn 2 or 3 billions more.

EMERGING MARKET SOLUTIONS

• Pools
• Patent funds
• Aggregators, syndicated patent deal (cf Nortel)
• Ebay patent
• Growing ambitions : IP Hub Singapore, market

experiments in Asia and especially China (Shenzen, Tianjin Binhai International IP exchange…), INCJ : initiative to open a patent fund for unused patents…

POOLS

• USPTO said, “A patent pool allows interested parties to gather all the

necessary tools to practice a certain technology in one place, e.g, ‘one-stop shopping,’ rather than obtaining licenses from each patent owner individually.”

• But each of the patent pools was organized in response to a

particular set of policy objectives and circumstances. Their purposes were heterogeneous. Some were organized in order to promote the interests of monopolists or cartels. Others were organized to promote competition and benefit the users of patents. There are pools that manage the patents on standards for new information technologies, that enhance R&D for new biomedical or biotechnology agricultural products, or that seek to promote other objectives. Some pools are organized by patent

• wners, others by manufacturers, and yet others by non-profit institutions,

including governments

BENEFICIAL POOLS AND HARMFUL ONES

Patent pools comprising complementary patents can be welfare enhancing, because they solve the coordination problem. On the other hand, patent pools containing substitute technologies are not, since their main objective is to soften price competition among pool members.(WIPO, 2011) One way to differentiate beneficial pools from harmful ones is to look at the detailed provisions governing them. Two types of provisions are relevant: so-called grant backs and independent licensing rules Lerner, J. & Tirole, J. (2004).

Efficient Patent Pools. The American Economic Review, 94(3), 691-711.

• Grant backs commit pool members to offer future patents to the pool at no fee if such

patents are deemed relevant to the patent pool.

• Independent licensing rules allow any pool member to license their patent outside of the

pool (In anticompetitive pools, the freedom of members to license their technology independently

would break the pool’s ability to fix prices above the competitive rate).

RENAISSANCE OF PATENT POOLS

WIPO REPORT 2011

« Patent pools can be seen as a market-based solution to the patent thicket problem. » Wipo Annual report, 2011

HISTORY OF PATENT POOLS (1856-2006)

EXAMPLES OF POOLS

• MAA, 1917 : Wright brothers held most of the essential patents on airplane manufacturing components. They

were charging high royalty rates, and the time and expenses involved in litigation was causing stagnation in the airline industry at a time when the United States needed to increase its aircraft production for the war effort. To that end, an advisory panel headed by then-Assistant Secretary of the Navy Franklin D. Roosevelt recommended the formation of a patent pool.

• The SIG (bluetooh) does not make, manufacture, or sell Bluetooth products, but owns the trademarks and

standardization documents, markets the Bluetooth brand, and licenses to more than 7,000 member companies involved in making, manufacturing, and selling Bluetooth-enabled products.

• ETSI (European Telecommunications Standards Institute) licenses the intellectual property rights essential to the

MHP specifications. ETSI is a non-profit organization based in Sophia Antipolis, France, and established under French law for the standardization of telecommunications in Europe. The purpose of this pool is to protect patent-holders by means of a “covenant not to sue” clause, thereby promoting the manufacture of MHP-based

• products. 655 members from 59 countries in and out of Europe participate in ETSI’s activities, and ETSI is
• fficially recognized by the European Commission
• MPEG-2 is a video compression technology that was adopted as a standard by the Motion Picture Expert Group

(MPEG) International Standards Organization (ISO) in 1995. The technology reduces the number of bits in a file, thereby making videos easier and faster to transmit, and available over lower bandwith carriers. The purpose of the MPEG-2 pool is to offer “one-stop shopping” for licenses necessary to produce MPEG-2 products

EXAMPLES OF POOLS

• GE Healthcare, BioImage A/S, Invitrogen IP Holdings, Amersham Biosciences, and

ColumbiaUniversity in 2001 pooled several patents related to green florescent protein (GFP), a reporter molecule drawn from bioluminescent marine animals which allows researchers to visualizecellular proteins without using chemical dyes. The purpose of the GFP pool was to clear a patent thicket that restricted commercial use of GFPs.

• PIPRA is an initiative aimed at making agricultural technology more readily available for the

development and distribution of subsistence crops in the developing world. To this end, PIPRA promotes the management of IP in such ways that biotechnological products are made freely available for research and humanitarian projects, and is exploring the development of a patent pool to give biotech crop researchers greater freedom to operate

• The incentives to create biotechnology patent pools are similar to those in other industries.

Overlapping patent claims can block the commercialization and adoption of technologies. However, there are additional motives for considering patent pools in the life sciences. Patent pools can be created for philanthropic purposes : the UNITAID patent pool focuses on making medicines for diseases such as HIV/AIDS, malaria and tuberculosis available to countries in need.

MANAGING PATENT POOLS

OTHER MARKET INITIATIVES DO BRING LESSONS

• Auctions : Ocean Tomo, ICAP, China : a

demonstration of market matching and price fixing

• Internet platform : Yet2com, Techtansferonline,

Danish patent office : very low activity explained by passive operator, no patent validity and quality control, no bundling possibilities, no matching solution, no price fixing…

• Open innovation : Innocentive, Nine Sygma : still a

limited activity, uncertainty on quality.

PATENT FUNDS : USA PIONEERS, ASIA CATCH UP

INTELLECTUAL VENTURE RPX, AST

INNOCENTIVE NINE SYGMA COMPANIES PLATFORM

INCJ ( Japan) KOREAN INVENTION FUND TAIWAN PATENT FUND SINGAPORE IP HUB IP BANK CHINA

France Brevets

PATENT FUNDS : DIFFERENT STRATEGIES, BUT FINANCIAL RETURN EXPECTATIONS MAINLY

Various patent funds initiatives seek to provide an answer to an array of different needs :

• Freedom to operate : Give the possibility to industrial

enterprises to acquire the necessary IP Rights to produce technology-based devices and services : patent pools, licensing systems

• Litigation protection : Acquire as many IPRs as possible to

prevent attack or to counterattack : aggregators, some Asian funds

• Financial return : Acquire patents as financial assets, to extract

value from monetization and in many cases, to take an aggressive stance against industrial companies

• Aggregators : bundle patents coming from different sources :

private and public, different technological sectors, and license them to improve monetisation of inventions

THE NEW UNIFIED EUROPEAN SYSTEM MUST BE COMPLETED

The unitary patent court (European enterprises are currently “artificially” protected by the fragmentation of the judicial system in Europe; if litigation become easier, more effective and less costly, it raises the risk that “unitary patent court will be trolls’ paradise” as GSK counsel underlined recently). To complete the progress brought by the unitary patent, should Europe seriously study how to give its enterprises the possibility to acquire the license

• n the IP right they need in a transparent, secure and cost effective way?

Doesn’t the project of the creation of a “European patent licensing market” become a stringent necessity?

A macro economic solution is needed : a new single market infrastructure

38