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Tao Zhang interview: Looking for diamonds in the rough

Michael Loney, New York

The path from invention selection to patent monetisation is not kept in mind by enough people, believes Tao Zhang. She has co-authored a book looking at this topic and contrasting the US and China IP systems

Far too many people invent ideas and write patents with no concept of how it will lead to a return on investment. So believes Tao Zhang, who was at Hewlett-Packard for 23 years before joining Huawei in 2012. "When you generate an idea and when you file patents, you have to keep in mind what it is for eventually. If you can't use it later on, what is the point of filing?" she asks, emphasising that she is speaking in a personal capacity and not reflecting the views of her employer or past employer.

"A lot of these patent lawyers and inventors don't keep the end point in mind," she says. "They file like a routine. It's just their job. For me, it is completely different: you don't file unless there is something concrete from it. Otherwise you are just wasting time and money. Why bother? Why don't you spend your valuable time somewhere else?"

Zhang says regardless of whether a company's IP strategy is offensive, defensive or IP revenue generation, a portfolio needs to be built consisting of negotiation grade or litigation grade quality patents. She examines this subject in depth in a book she co-authored with Jingui Fang called "Mining Ideas for Diamonds: Comparing China and US IP Practices from Invention Selection to Patent Monetization". The book was partly inspired by feedback received from her presentations on the topic in the past few years at events such as the Intellectual Property Office of Singapore's IP Week.

The book is pitched at inventors, patent drafters and prosecution managers, portfolio managers, IP transaction practitioners, and IP transaction lawyers – and includes specific chapters aimed at each of these.

Diamonds are an inventor's best friend

The book's diamond analogy – representing quality with long-lasting high intrinsic value – came from three beliefs.

Firstly, diamonds are a valuable tool but, depending on the task at hand, the biggest diamond is not necessarily needed. Similarly, a patent does not need to be the most innovative invention or biggest technology breakthrough to have value. Many patents with narrow-scoped minor improvements have delivered high value. For example, a patent that has been successfully used to sue another party and survived litigation is generally viewed as a high-quality patent.

"On the other hand, if an IP practitioner skilfully uses a patent to persuade a licensee to pay royalty fees to the patent owner, this patent should be considered a high-quality patent as well, even if the parties never litigate in court," Zhang and Fang note in the book. "In fact, if a party is able to use a patent to deter third parties from a potential patent suit, such a patent should also be viewed as a high-quality patent. Similarly, if a patent seller is able to develop a good claim-chart and convince the patent purchaser to pay a reasonably high amount of money for the patent, it is a high-quality patent. Therefore, quality means high success rate in IP transactions (or can be referred to as IP motions, since some are preparatory work without consummating any IP transactions), regardless of whether the IP motion is offensive or defensive in nature."

Secondly, the diamonds do not necessarily come from inventions that initially appear to be blockbusters. The book notes that often an idea at the time of the patent filing was not a breakthrough idea, but only presented a small improvement in a feature. Or maybe it was an alternative approach that was not necessarily considered the best solution.

Lastly, even after finding a "diamond in the rough", some patents must be polished to take their roughness away. "[P]atent drafters are like the alchemists for diamonds," say Zhang and Fang. "They need to carefully contemplate the specifications, embodiments, drawings, claim language and structure to bypass prior arts, minimize potential defects so to make the patent most effective in litigation and negotiation."

Put simply, the book argues, a high quality patent is one that is useful and effective.

"To generate such high quality patents, you need to recognise the right idea (not necessary the most innovative one), and motivate skilled patent drafters to work on the case while constantly keeping your ultimate objective in mind," say the authors.

Contrasting China and the US

The authors also share their experiences and knowledge about the differences between China and US law and procedure. One of the aims of the book is to help readers to more quickly reach their IP goals by highlighting potential issues faced in the two systems. These were two of the top three countries in terms of the number of international Patent Cooperation Treaty patents filed in 2015, together making up 40% of the global share, according to WIPO figures.

The book compares the practices in the two countries side by side. The authors note a large demand within the US IP business, legal and technical communities to better understand China IP practices versus US IP practices. IP is attracting much more attention in China than before.

When you generate an idea and when you file patents, you have to keep in mind what it is for eventually. If you can’t use it later on, what is the point of filing?

"Companies in China and western companies, who want to operate in China in the future, will need to figure out how to manage IP in China," say Zhang and Fang. "Due to the fact that the IP industry is new to the Chinese market, IP professionals as well as inventors will face similar situations as the United States did 10+ years ago." The book includes comprehensive IP checklists comparing China and US IP practices, from idea generation to patent monetisation.

The authors identify "a disturbing phenomenon" that is often detected when exchanging opinions with those in the IP industry who manage portfolios in the US and China: "Most of the patent prosecution teams file patents with a 'passive activity' mentality, i.e. treating patent filing as a mere by-product of R&D programs rather than part of strategic planning."

Zhang and Fang say 10 years ago most people were conducting IP licensing deals through trial and error. This meant they were conducting IP transactions without fully understanding the purchaser's needs. They say there is an urgent need for inventors and patent prosecution teams to understand the ultimate goal of patenting so that their time and effort are spent on the most critical portion of the process.

"US companies, compared with their Chinese counterparts, are usually more experienced at utilizing patent portfolios for offensive purposes in protecting their business market share," say Zhang and Fang. "There are various offensive IP motions and associated behaviours. The more aggressive motion involves suing competitors for patent infringement and seeking injunctive relief to prevent competitors from selling products in the patent protected jurisdiction. As a result, it disrupts the competitor's business operation and limits its revenue generation."

Chinese companies are more likely to use their patent portfolios for defensive purposes. This can include: negotiating cross-licensing patent agreements with other operating companies to gain design freedom; simply accumulating patents in target geographies as preparation to enter those markets; and using portfolios as shields to stop other operating companies from suing them for fear of countersuit.

This mindset in China is slowly changing, however.

"More and more Chinese companies are becoming strategic and proactive in leveraging their patent portfolios," write Zhang and Fang. "It will soon become a common phenomenon to see sophisticated IP strategies being practiced by both US and Chinese companies."

Speaking to Managing IP, Zhang adds: "China and the US are very different, and a lot of people don't leverage this part as much. Everybody is globalised but they don't seem to pay enough attention to the differences between China and the US."

One example is the utility model in China. "People always say that is low quality because it doesn't go through substantial examination, but you don't need to make it low quality," notes Zhang. "In six months you can get a granted patent and you can use it in exactly the same way as an invention patent." Some recent damages awards in China have been based on the utility model.

In addition, Zhang pushes back on the perception that foreign companies are disadvantaged in China. "Chinese courts treat foreigners very fairly but the problem is a lot of foreign companies don't understand the local procedure very well. So they miss chances by not following the local procedure, and missing a certain date or missing some filings," says Zhang. She says the situation is the same the other way round: Chinese companies coming to the US need to understand how the legal procedure works precisely.

Another indication of the increasing maturity of Chinese IP enforcement is that non-practising entities are beginning to look at opportunities there.

A world-class strategy

The book also takes a wider look at companies' business strategies, and how having a world-class patent portfolio will be a benefit. "If its goal is to expand globally into most countries in the world, you should make sure to build a high-quality worldwide patent portfolio to protect your company's market share in those countries," the authors advise. "This is the so-called offensive IP motion … to prevent others from practicing your invention."

A world-class patent portfolio has three main benefits:

  • It enables your company to capture innovative ideas from research and development investments. These could be reflected through invention disclosures, patents, trade marks and trade secrets.
  • It protects existing and future product or business market share. These could be through patent cross-licensing agreements, defensive assertion or litigations in response to other's offensive assertion or litigations.
  • It can contribute company's profits. This could be realised through technology transfer, licensing through a standard pool, patent sales, patent licence or trade mark licence.

Talking to Managing IP, Zhang stresses again the importance of ensuring a patent maps onto some products. She says without this, people cannot even talk about value.

"Some of the methods today are like beating round bushes, looking at whether a patent is valuable today through whether somebody cited it or whether it was litigated," she says. "It is almost like looking at the shadow of the object to guess what the object is. It doesn't look at the object itself."

She adds: "Why are we beating round bushes? Just look at the patent itself – does the patent read onto some product? If a patent doesn't read on to a product at this time it doesn't have value. I don't care how well written it is – it is not valuable."

"Mining Ideas for Diamonds: Comparing and US IP Practices from Invention Selection to Patent Monetization" can be ordered from Amazon and World Scientific (the first chapter is available for free download from World Scientific). 



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