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IP: Virtual Walls to Protect Virtual Values

Intellectual property (IP) has increasingly become companies’ most important asset as tech innovation and the diffusion of the digital economy become embedded in operational and productive processes. These IP assets are dynamic, reflecting not only the pace of technological evolution but often also the acquisition of third-party IP assets as companies invest, expand and grow.

It is well understood that a first step in protecting these vital assets is having an accurate picture of their scale and scope, but the actual task is more wide-ranging. In structuring their long-term IP portfolios, especially in an environment where there is a very active IP litigation cycle, boards need to secure their “patent space” by ensuring IP portfolios are current and clearly set out, defenses are robust, and there is a well-established supervisory system. Prioritization of these defenses involves understanding what the important geographies are—not only where they are located now, but in future. It is also important to look at the competitive landscape and see what can be learned from the actions of industry cohorts. And boards need to be open to the fluidity of the modern IP landscape. 

For example, many companies didn’t bother to file patents in China; now it is essential given China’s importance as a market, as a manufacturing center, and as a driver of innovation. This underlines that companies need to look at their IP protections “in the round” and with the understanding that the IP they are protecting is not just what they currently have, but what is in the pipeline. Similarly, they need to review their strategic objectives and consider which geographies will be driving their business five years down the road.

Companies organize management responsibility for IP in a variety of ways, and there is not one “correct” answer. A small company may manage with a single person or board member with the requisite expertise. Larger companies must ensure IP management is sufficiently well staffed to cover sectoral and geographic exposures. I have seen a variety of models and feel it is critical that whoever leads this team must be extremely close to, or on, the management board and have the ear of key decision makers. Larger teams should have members appropriately located in the different regions where they operate. A very critical market probably needs an IP representative who is a member of that board team and on the ground to deal with issues. Less critical markets can be served by someone with the requisite expertise within the company or outside counsel that can serve as an interested adviser to the company.

Five years ago people would think of the U.S. and certain European countries, such as Germany and the United Kingdom, as setting the norms and standards for IP protection. Nowadays, while those countries remain major players, attention has shifted to emerging markets—including China, Taiwan, and India—as especially important geographies within the sector. It is vital, therefore, when companies have potential IP exposure in these new tech powerhouses that they have the appropriate prosecutorial and defensive mechanisms in place.

IP litigation is also on the rise, and it is important for boards to be alert to the reality of the size of litigation taking place outside the U.S.; this not only reflects the growing geographic diversity of patent holders, but also changes in the U.S. legal system and at the Patent Trial and Appeal Board. A growing number of non-practicing entities mount cases outside the U.S. because the latter has become a problematic jurisdiction. The internationalization of the industry and the growing diversity of potential legal threats mean that companies and board members must be prepared to deal with a much broader canvas of litigation and enforcement actions.

The countries that stand out as offering best practice in IP litigation and protection link closely to those jurisdictions hearing the largest volume of cases. In particular, Germany has become a busy venue, as patent infringement and validity proceedings are handled separately there.  A company that wants to gain a lot of leverage will sue in a German court and have invalidity proceedings heard separately. The United Kingdom is another popular venue for invalidity proceedings. I would say both are among the most active, and therefore building up a good corpus of case law.  Of late China is building its strengths to claim a place in the jurisdictions active in the enforcement arena, but it will take time for it to establish this position.