Broadening the Innovation Landscape

The transcript below was taken from an event on Intellectual Property held on June 8 at Huawei headquarters in Shenzhen, China. It has been edited for length.

Andrew Williamson (Moderator)
Vice President of Government Affairs and Economic Adviser at Huawei Technologies

Heinz Goddar
Patent Attorney at Boehmert; Boehmert, an IP law firm in Germany

Audrey Yap
Managing Partner and founder at Yusarn Audrey, an IP law firm in Singapore

Mattia Fogliacco
President, Sisvel Group

Patrick Nijs
Former senior Belgian diplomat, head of EU-China Joint Innovation Center

Alan Fan

IP attorney and leader of Huawei's IP team

Andrew: Some experts, including many economists, suggest that over-protection of patents is not conducive to innovation. What are your opinions?

Heinz Goddar: If somebody patents a lot, he indicates he wishes to share – by licensing, for example. So if patent protection is strong, innovation occurs because investment in R&D will take place. And if that is done, the sharing can take place by giving licenses to others.

Audrey Yap: We have to ask, if not for the confidence in the IP system and rule of law to keep proprietary processes safe, would companies transfer IP at all?

IP is the only system that encourages meaningful investment in innovation. With no IP system and patent protection, would inventors, investors and even policy makers behave the same? Would anyone spend money and years on R&D, if they knew it could all be taken away?

Alan Fan: Huawei has about 200,000 patents. Maybe there is another company with 100,000 and another with 50,000. There are just enormous amounts of patents in our industry. That leads to a situation where the system has to evolve to a world of sharing. You cannot imagine that we could use all of our 200,000 patents to exclude our competitors from the market. Patents enable and foster sharing among competitors.

In the course of doing this, certainly there are conflicts, and there are issues. One of them is patent quality. The top 10 inventions we celebrate today are the ones that bring value to consumers and to industries.

In particular, patents related to standards create value. For example, smartphones can be used in any network, in different countries. This gives consumers more options: they can buy whatever phone they like, based on appearance or functionality. The phones have a common feature of downloading data and video and playing games, really quickly. These capabilities are embedded in the standard. And the standard is the contribution of many people; it is not just one company making the contribution.

But there are also low-quality patents that may not generate much real value. Maybe a patent centers on a trivial feature that you don't really need. But if you litigate, it can be expensive because the cost of litigating a good patent and the cost of litigating a bad patent are essentially the same. So the key is to guard the quality of patents through the patent office and through the courts. 

Andrew: Does the current IP system exacerbate inequality?

Patrick Nijs: If the question is: “Does IP help in social development?” my response is no because, in my opinion, the IP system has been invented to make sure that the ones who have keep what they have, to prevent the one who doesn’t have from reaching the same level. We must move from a protection system to a system where we really use it to share and to share on its use which makes value for everyone, so that we can deal with the immense challenges we face moving forward.

Licensing and technical standards

Andrew: Let’s talk about patent licensing in Europe recently, and what's been the impact on innovation there.

Heinz Goddar: I’m from Germany, which has the most inventions per capita, I think, in Europe. This is not the result of ingenuity, but of our Employees’ Invention Law. Created in the 1940s, it says that whoever invents something and gives it to his company or university, gets fair remuneration. This incentive system took effect in 1942, and has produced many patent applications.

“Would anyone spend money and years on R&D if they knew it could all be taken away?”

Licensing is the best way to ensure that inventions protected by patents are shared with others. The MP3 system of digital audio compression practically enabled the compact disc revolution. More recently, we have organic light-emitting diodes (OLED). Both of these inventions originated in universities or public research institutes which, by themselves, had no means of commercializing this technology or sharing it with others. But the IP was licensed: MP3 by the Fraunhofer Association and other companies, and OLED by a company originally called Novaled, now owned by Samsung. Neither invention would have succeeded without strong patents and licensing.

The German government, particularly the Ministry of the Economy, considers itself the custodian of small and medium sized enterprises in Germany. On the 29th of June of this year, the working group for industry-university cooperation at the federal Ministry of the Economy, which I have chaired since 2001, brought the newest edition of the so-called master agreements of templates for industry-university cooperation into the market.

These agreements are widely used in German industry, and allow SMEs to engage in joint IP development without going to expensive law firms. These template agreements can be a model for other European countries.

Licensing, then, is the basis for continuous technology transfer from public research institutions and universities to particular companies, especially SMEs. Looking at innovation in Germany, I would say that about 80% comes not from the likes of Pfizer or Siemens or Daimler, but from small and medium-sized enterprises with less than 1,000 employees. Without patents, no innovation would be created, and without licensing, no innovation would be shared.

Audrey Yap: In 2021, a joint study of 127,000 European companies by the European patent office and the EU Intellectual Property office showed that businesses with private patents are 22% more likely to grow and 9% more likely to experience high growth. So there’s a definite positive correlation between IP rights ownership and economic performance. That’s vital as we come out of the pandemic.

Earlier, we talked about the importance of licensing. The emergence of new innovations means there are lots of licensing opportunities across different industrial sectors. Renewed interest in leisure reading has helped the publishing industry, accounting for 8.5% of the global licensing business. European e-commerce has grown by 47%, and last year more than half of China's retail sales came from e-commerce.

In the past, IBM was perhaps the best example of this, being among the first companies to break US 1 billion dollars in annual patent royalty revenues. But today, Microsoft and Ericsson report licensing revenues of over two billion per annum, and Qualcomm is still leading with targets of over 6 billion in patent licensing revenues. So licensing is big business, and companies are concluding that patents can be revenue generators as well, rather than pure cost centers.

Licensing has its challenges: How to do it? How to price your IP? In technology we see convergence, which means needing an opportunity to license and cross license. I think more than ever we see this in the automotive industry, where we have e-vehicles autonomous driving.

The unique characteristic of IP is that its value can change dramatically in how it's deployed. Paying a $15 license fee to a chipset producer for a mobile phone that sells for $100 a very different value proposition from paying a $15 royalty used in autonomous driving. Essentially same patent, but vastly different values. I know it's both an art and a science and I could go on, but I'll stop here.

Andrew Williamson: Alan, since you took over as head of Huawei’s intellectual property department last year, can you brief us on the progress of Huawei's patent licensing work as well as Huawei’s strategy goals for future patent licensing?

Alan Fan: We've been making good progress: our patent values are being recognized by the industry.

More broadly, let me emphasize the importance of IP and technology standards. As we discussed, companies will be willing to share their knowledge if they are incentivized with patent rights. This is especially important in the area of standards.

So we really have to license our patents, not just for the financial reward, but also for the advancement of our industry.

Diving into the patent pool

Andrew Williamson: Mattia, we heard earlier about the importance of patent pools. A patent pool is a group of at least two companies that agree to cross-license patents related to a particular technology. How do patent pools promote patent licensing?

We have a lot of challenges that can only be addressed by innovation. Often, innovation means generating very complex technology landscapes, and that requires interoperability between competitors, products of competitors, and different sets of products.

For example, the Internet of Things (IoT) creates interconnected ecosystems that require standards to ensure interoperability. These standards must be patent-protected.

Standards can really help address this sort of complexity, and make sure that the very best technology solutions are picked to solve technological challenges.

But whenever there is a standard, there is a need for sharing, so we need efficient forms of intermediations that allow this sharing. These forms of intermediations often take the form of patent pools.

To succeed, a patent pool needs two things. First, it needs to represent true innovation. A pool should represent only truly essential patents and should really encompass seminal technologies. But we also need a pool that can understand and read the market, and can bring an offering that is suitable and meets a real need. Otherwise, there will be no technology adoption.

It's really about striking a balance between implementers and innovators, the interests of these two parties to the benefit of the society. And everything is based on this efficient way of sharing.