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Interview: Brian Hinman, chief IP officer, Royal Philips

Brian Hinman, chief IP officer with Philips, speaks with Managing IP about the developments in the IP monetisation market that have caught his eye, why he expects there to be more FRAND disputes in the future and what sort of patent reform is needed in the United States

Brian Hinman of Philips

Hinman (right) will be speaking on a panel on the global IP landscape along with fellow panellists Francis Gurry of WIPO, Hitoshi Ito of the JPO and moderator Geoffrey Yu of the National University of Singapore. The panel is part of IP Week@SG hosted by the IP Office of Singapore, taking place August 25 - 27.

What are your responsibilities at Philips?

I am the chief intellectual property officer for Royal Philips in an organisation known as Philips Intellectual Property and Standards. As such, I have overall global responsibility for defining and executing a broad, integrated intellectual property strategy for the entire company. This includes all aspects of IP from its generation to its eventual use to provide freedom of action for each of Philips' businesses, and also through use in licensing engagements with third parties to leverage the R&D investments used to generate this IP.

There has been a lot of talk about the importance of IP as monetisable assets. What are some of the biggest changes that you have seen in the market?

When we talk about IP as monetisable assets, this really involves seizing the opportunity to license, sell and/or spin off as much good intellectual property as possible before it loses most of its value in the marketplace. Obviously, one of the big changes that has occurred is the amount of big transactions involving IP such as: Google's acquisition of Motorola; the birth of the Rockstar Consortium which resulted from a group of large operating companies purchasing the former Nortel telecommunications patent portfolio; the sale of the large Kodak and InterDigital patent portfolios, etc. I think other such transactions are likely, given the heightened awareness in investor circles of the potential value of intellectual property.

Another change has been using IP as securitisation, such as when Alcatel-Lucent used its extensive patent portfolio as partial security for $2.6 billion in senior secured financing, announced in December 2012. It's very clear that IP has become a valuable and highly monetisable asset.

"There are still too many differing opinions on defining what the issues [concerning patent reform] really are"

You have worked at both traditional companies that manufacture products, like Philips and IBM, and also non-practising entities such as InterDigital. From your perspective, what are the biggest differences between a traditional company and an NPE in terms of IP monetisation and IP management?

There are lots of variations of the term NPE. People often use the term patent trolls, which are entities that amass large numbers of patents with the intention of launching patent infringement suits against companies and individuals that they maintain are infringing these patents. Further, in the United States, the Federal Trade Commission (FTC) uses the term patent assertion entities (PAEs) to distinguish patent trolls from non-practising entities that have different motives. Other types of non-practising entities include universities and other research organisations and individual inventors lacking the resources to further develop something they have designed or created.

I will only refer to the terms operating company and non-operating company rather than get into the debate concerning the differences between these other types of entities. The goal of any company (operating or non-operating) when conducting IP monetisation is very simple: to make money.

In an operating company like Philips, there is a balance among the different strategic IP goals of: using our IP portfolio for defensive purposes; to provide freedom of action for our businesses; as a means for competitive advantage in the marketplace; and as a means for monetisation through licensing and/or patent sales. For a non-operating company, the strategic IP goals are far fewer, given that they have no intention to sell products based on these patents. With respect to IP management, both operating companies and non-operating companies have patent assets that they need to protect, maintain, and at times divest when necessary. Both types of companies may acquire patents as part of an overall asset management strategy, to augment the strength of the portfolio and/or to fill gaps in patent coverage.

FRAND is clearly a very important issue for companies like Philips. What are your thoughts as to how FRAND obligations should be interpreted?

There has been tremendous debate on the issue of FRAND. I am referring to technology covered by patents and when the owners of these patents agree to license the patents on fair, reasonable and non-discriminatory terms (FRAND) as part of the standard-setting process. While some discrepancies have arisen over the scope of an IP owner's (licensor's) duty to disclose IP, the commitment to license a standard essential patent (SEP) on FRAND terms has led to an increasing number of litigation claims alleging that one party or another has failed to comply with its FRAND obligations. Even though SEP owners commit to license SEPs on FRAND terms, the typical standards setting organisation's patent policy mandating that a royalty be FRAND gives little guidance for royalty determination because reasonable can mean different things to a licensor and a licensee. As a result, many failed licensing negotiations result in litigation between an SEP owner and a party that nevertheless implements the standard in a product. This has led to some major litigation cases (such as Samsung v Apple) involving SEPs and the FRAND debate is becoming a major issue in the court systems worldwide. This debate is only going to get worse.

What are your thoughts on the recent (though largely stalled) efforts at patent reform in the US? What changes, if any, would you like to see?

The various US efforts aimed at patent reform have indeed stalled, and I think one of the main reasons is that there are still too many differing opinions on defining what the issues really are. Until you really have a consistent view of what the problem is, then there will never be a solution that works. There has been no consistent definition nor understanding of the term NPE, and the efforts should instead be focused on dealing with patent quality.

Patent quality continues to be a major concern to operating companies like Philips. Philips has been very active in the various worldwide patent offices, stressing the real importance of promoting good quality patents, which is essential for the health of the patent system overall. Simply put, the various worldwide patent offices have to institute actions which increase the likelihood that claims granted are legally valid and which reduce the likelihood that valid claims are not improperly rejected.

Several jurisdictions in Asia such as Singapore and Hong Kong have talked about their goal to become IP monetisation hubs. What should these cities do to improve their positioning as centres for IP monetisation?

Singapore and Hong Kong both have huge potential as centres for IP monetisation. One of the things that such jurisdictions should continue to focus on is strengthening their intellectual property laws and protection. Through providing an effective and enforceable set of IP laws, such countries are better able to attract investments in IP and to create opportunities for IP monetisation.

In addition, both regions should continue to try and attract quality IP talent. Indeed, in Singapore for instance, more than 300 new IP positions have already been added since April 2013, according to the Intellectual Property Office of Singapore (IPOS).

One significant initiative that Philips has been engaged in for nearly 10 years now is to work directly with select Chinese universities in conducting IP education courses, in an effort to increase the knowledge base of IP issues in China for pending graduates, and also to enhance the great relationships that Philips has built with these universities.

How does Philips manage and monetise its IP in markets that have a lot of potential, like China or the various ASEAN jurisdictions, but still have a reputation for uneven IP protection?

Philips secures patent protection in high-sales, high-growth regions like China, despite its reputation for uneven IP protection, as you call it. Philips, like other large operating companies, takes advantage of the growing commercial relationships it fosters in the region, while also increasingly seeking to protect and enforce its intellectual property rights in China. China's judicial and administrative patent enforcement systems are still maturing, and there are continued problems that rights holders have experienced within these systems. But as these issues are addressed and remedied, it will become easier for companies like Philips to more effectively work within the China patent system.

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