Guest Post: IP Services going Global

We’re pleased to bring our readers an extremely interesting guest post by Manoj Pillai that brings a very important perspective that’s been missing from our blog – the direction in which the patent infantry is headed. Manoj lives in New Delhi and does IP work. He co-founded LexOrbis, an IP firm, and co-promoted Clairvolex, an IP solutions provider.

IP services is going global and soon it is going to be global IP Solutions

A convergence of two significant developments in the global IP space is about to happen. The globalization of IP services and the radical shift in the mindset of treating patent as a “status asset” or at best as ‘negative monopolies” to a “trade-able asset”. With this, the services space around IP is going to go global. And soon, it is going to change the very paradigm of servicing IP assets. Responsive to these changes in the global IP space, a new IP solutioning model is beginning to emerge. The convergence of these two compelling developments is going to change the rules of the game in the global IP market. It is expected that two key aspects will stay on in the conventional format:(a) Patent litigation; and (b) Core patent prosecution. Both are territorial; hence localized, and driven by legal professionals and national laws. Let’s examine this more closely. To begin with the first big change that is happening, that is the globalization of IP services.

Invention production has gone global

Research & Development (R&D) has been getting globalised with its pace set by China & India. R&D’s globalization is made inevitable by manufacturing moving to the East. With China leading the manufacturing boom, there has been a tectonic shift in global R&D. A similar movement, but at a scale significantly less than what China has seen, happened in tech R&D to India. Globalization of R&D has a number of advantages: proximity to local markets, access to talent wherever available, and cost arbitrage are some of them. The R&D spend of US companies in China in the past 10 years has exponentially grown. As a result, Chinese originating patent filings for US R&D has significantly increased. The Graph below shows US-China comparative patent publication trends over 5 years ending 2011.

An article in the R&D-mag predicts that China’s commitment on R&D investments will surpass that of the United States by about 2022, when both countries are likely to reach about $600 Billion in R&D. An OECD report says China’s average annual real growth in R&D spending has been close to 20%, making it the world’s second largest R&D performer and ahead of Japan since 2009. In the decade between 2000 & 2010, R&D intensity in China almost doubled, increasing from 0.90% to 1.77%. The world expected India to compete with China neck to neck in these growth indicators. Owing to an economic slowdown in the past 10 years, India now lags way behind China in R&D investments, innovation intensity and production of real-world inventions.

The US-China statistics on R&D investments shows a trend. Globalization of manufacturing has resulted in globalization of R&D. That has in turn led to the globalization of IP, and in particular the production of inventions. So, invention production is becoming increasingly globalised.

Implications for the IP services space

IP services space in its traditional form has been very geographical. IP rights are territorial. Hence, IP services has also been territorial, with IP law firms offering professional legal services in relation to obtaining IP rights for an inventor or an assignee company. In the more complex world of patents, it also included building patent portfolios for large filers, mostly in conjunction with in-house patent operations which are often lead by a Chief IP Counsel. This matrix of an IP firm working in conjunction with in-house patent attorneys has significantly changed with the points of production of inventions shifting elsewhere – to China, India, Taiwan, Malaysia and other Asian geographies. This has made US and European companies to place as expats, patent attorneys at their Asian R&D facilities to manage the IP produced locally. And this necessitated them to source in services locally. As local law firms in the Asian counties, like in the US or in the European countries, were wired to render professional legal services in the traditional format, a new servicing model had to emerge. Globalization of IP services has thus become an inevitable by-product of globalization of manufacturing and in turn the globalization of the production of invention.

Cost arbitrage has been one of the key triggers for manufacturing space to go global. Cost advantage has also been a trigger for companies to source in IP services from low-cost destinations like India. But over time, industry has started looking for value arbitrage than cost-arbitrage. Responsive to this, a brand new global IP solutions space that delivers value first and then cost advantages is fast emerging.

IP solutions is the future & and the traditional way of servicing IP assets is passé

Traditional IP servicing model creates sourcing bottle-necks in a globalised R&D environment. Take the case of a large, US-based maker of construction equipments whose manufacturing has shifted predominantly to China. It was natural for them to set up an R&D center as well there. As a result, their inventions started originating from China and they were to be send to a US law firm for drafting patent applications, filing and prosecuting them until grant, maintain them post grant (unless that piece is outsourced to an annuity company), and inevitably handle any litigation coming out of the portfolio. Does it make better sense for their expat patent attorney living in China and working at the China facility of this US company to get their cases locally drafted, and filed away as PCT first filings or if required obtain foreign filing license and do first filings in the US? The obvious answer is yes. The same applied to searching, right a quick and dirty screening search to knock-off a non-novel invention to a more comprehensive patentability search. A logical next step was to do patent mapping and technology landscape analysis and similar complex patent analytics to support the R&D strategy. And with all that, the value chain moved onto patent portfolio management. But, with China or other Asian countries having its own constraints in terms of English speaking skills, and a limited engineering talent pool that can operate in English, India became a preferred market for sourcing such niche services. An industry emerged out of this.

Cost-arbitrage driven servicing to value-added patent solutions

Now let’s look at the second big wave that hit the US patent space. There has been a radical shift in the way patent has been viewed as an asset type. Patent was always perceived as predominantly a defensive mechanism. The emergence of Non-Practicing Entities (NPEs) and numerous licensing deals around patent portfolios worth several hundreds of millions of dollars made companies to look at patents differently. Today, patent is treated as a revenue stream by many companies, especially in the Tech space. From a bundle of legal rights that can be wrapped around products or services to keep off the completion in the market place, patent is now viewed as an asset type, almost trade-able. Proactive licensing required extremely deep analysis of technologies and patent portfolios. Claim charts, evidence of use studies, portfolio analysis to do high, medium or low ranking of patents in terms of its relevance to a technology or as a build up to a licensing deal and assimilating reverse engineering studies with the outcome of such analytics are all functions that require significant expertise. This now forces the industry to move from services to solutions.

Solutions implies problem-fixing. In the IP space, problems can vary from scarcity of deep domain expertise to operational bottle-necks due to the sheer size of a patent portfolio. Traditional servicing formats, to begin with, offer statute-driven legal functions. Solutions involve tailor-making atypical processes, often automated to make in-house IP operations leaner, cheaper and faster. This when bundled with value added, expertise-driven delivery of deeply domain intensive functions, it becomes an altogether different servicing model. This unique, globalised solutioning model is thus a by-product of the convergence of the two developments in the patent space – globalization of IP production; and the transformation of patents as a trade-able asset type.

IP Asset management

A recent acquisition of patent assets of Research in Motion (RIM) brought in some new dynamics. The acquirer wasn’t an active player in the space, but a Private Equity (PE) Company. A PE player who has no operating company equipped to service a patent portfolio. This may mark the beginning of financial players entering the patent acquisition space. If this trend picks up, a new need will emerge – of independent IP asset management Companies. Envisage a situation where a large patent portfolio of an IP owner company is bought by a private equity player who has no resources in-house to manage it until the assets are flipped to another entity. If continued, this trend is likely to take the global IP solutions business to the next level of ‘asset management’, independent of ownership changes. An early learning in this direction was large IP owner corporates entrusting worldwide patent maintenance to annuity companies such as CPA Global or Master Data Corporation (MDC). What instead if the whole patent portfolio is entrusted with an IP asset management company that will in turn hire services of law firms and other intermediaries to service the assets, and continue to do so irrespective of change in ownership for subsequent acquirers?

In conclusion:

These are interesting times to be in the global IP space!