LES Leading Edge Series Speaker Interviews

LES partnered with the Silicon Valley USPTO Office in San Jose, California for a single-day meeting that explored the hot topics in licensing and intellectual capital management. An audience of almost 70 attendees learned from the speakers highlighted below.

By Jessie Hennion

Q&A with David J. Kappos
Partner, Cravath, Swaine & Moore, and Former Director of the USPTO

LES: You delivered the keynote titled “Behavioral Issues in Licensing of SEPs and other IP—Defining Acceptable and Best Practices through Voluntary Standards.” In a few short sentences, describe the presentation’s focus.
Kappos: This presentation tried to do something that I haven’t seen done before. I explored the behavioral issues involved in negotiating IP licenses, including licenses for standard-essential patents (SEPs). Issues included hold-out by licensees, hold-up by licensors, global royalties, provision of infringement proof-packages and timeliness of responses, among others. The idea was to synthesize practices that we are aware of that could be characterized as acceptable practices or, in some cases, even best practices, that licensors and licensees of SEPs can employ to reach an agreement. These best practices could be the beginning of a framework that can guide participants on all sides of IP licensing transactions. It’s something I believe is sorely needed.

LES: Can you provide some examples of such acceptable or best practices, for both the licensor and licensee?
Kappos: Of course. An acceptable practice or a best practice as a licensor would be a requirement for the licensor to identify, early in the negotiations, the standard that’s implicated, its patents that are involved, and what about the licensee’s activity has informed the patent holder that the licensee is implementing the standard and even the patent. Another best practice for the licensor might be to include in its licensing approach a document that explains how one or more of its patent claims reads on the standard that it believes the prospective licensee is implementing.

A requirement placed on the licensee would be that once it has received that information, the licensee would be required to respond with any counter-arguments that it has, such as that it is not implementing the standard or not implementing a particular part of the standard. Or, the licensee could respond that the patent is invalid and provide the basis for that assertion. If the basis is that the invention is not novel or that it is anticipated or obvious given the prior art, then the prior art should be identified, along with how the prior art invalidates the claims and which claims those are. The licensee could also believe that none of these apply. The response by the licensee should be provided within a reasonable period of time, generally three months or less.

LES: What are the advantages of defining these acceptable or best practices in advance? And the opposite question: what happens if you don’t?
Kappos: I’ll start with the second question. If you don’t define acceptable practices in advance, you get the world as we know it, which is a world in which agreement can’t be reached, resulting in excessive litigation and disputes that wind up having to get resolved by many courts worldwide. We’re living in a pretty unpleasant place in this regard.
But if we make significant improvements, we will get standards set more quickly; we will get products in the marketplace more efficiently; and we will get innovators who are paid for their innovations and can go on to create further innovation. So there are upsides for the implementers, upsides for the innovators and upsides especially for consumers.

LES: What are some of the main challenges or opportunities related to this topic?
Kappos: Within the scope of this topic, the biggest opportunity going on right now is the opportunity to avoid the patent wars that we’ve experienced, which have had the unfortunate effect of casting aspersions on the value of the intellectual property and the importance of innovation. Avoiding those patent wars is also the biggest challenge because they have become so prevalent.

LES: What did you look forward to the most at the event?
Kappos: I enjoyed learning from the other speakers, and actually hearing the other panel discussions and talks. This community is a very unique place in the world where people have extremely well-informed views about commercial outcomes and advancing technology into the marketplace.

Q&A with Bill Elkington
LES Past-President and Chair

LES: You gave LES opening remarks titled “Introduction to Standards in Intellectual Capital Management” with John Cabeca, Director, Silicon Valley USPTO. In a few short sentences, what were attendees expected to learn?
Elkington: We explored the importance of standards in intellectual capital management and the diversity of areas in which the standards approach may provide value in managing intellectual capital assets. As with quality management standards, intellectual capital management standards will help reduce the cost and uncertainty of achieving beneficial outcomes. Delegates learned what LES is doing in the field, what progress LES is making and who the thought leaders are in this important new area. They also learned how to get involved at a couple of different levels, working with a diverse group of professionals who are determined to provide valuable tools for improving how intellectual capital is managed across the innovation ecosystem.

LES: Technologists and IP professionals face many challenges and opportunities today. What one challenge do you hear about the most? What one opportunity?
Elkington: The challenge that I hear about most often is the lack of understanding throughout most operating companies concerning best practices in intellectual capital management. A high percentage of people in IP-centric operating companies put an appreciable effort into managing intellectual capital as part of their work responsibilities, but there is often little awareness of how to perform this work well. Often, people in operating companies have difficulty identifying intellectual capital and the value of the company’s intellectual capital, once it is identified. Without this basic capability, it is hard for senior operating company leadership to have confidence that its most important asset class is being managed well. The opportunity here is to help educate enterprises on how to manage their intellectual capital better, so that better financial outcomes are more likely.

LES: What did you enjoy the most about the event?
Elkington: I got together with old friends, with whom I’ve been working on LES standards over the past few years, and got to make new friends who are interested in joining in the LES standards work. There is much important work to do, and so far, the friendships that I’ve developed in the context of the effort have made a real difference. It’s exciting to engage in a ground-breaking project like LES standards with thought leaders who genuinely care about the vision, the innovation ecosystem, and one another.

Q&A with Sanjay Prasad
Prasad IP, PC

LES: You moderated the panel titled “IP Management for Startups.” In a few short sentences, what was the focus of your presentation?
Prasad: IP is critical to startups, as it is one of the few assets that a startup will have. Yet, obtaining patent protection can be expensive for a startup, particularly early on when funds are scarce, and the cost of capital is very high. The goal was to provide answers to questions such as “What are various strategies that startups can use to protect their IP?” “What are the consequences of not obtaining early protection on the key IP?” “How is IP viewed by venture capitalists and angel investors?” The discussion benefited from the panelists’ broad range of expertise.

LES: Technologists and IP professionals face many challenges and opportunities today. What one challenge do you hear about the most? What one opportunity?
Prasad: Certainly a major challenge is prioritizing what needs to be done -- best practices for a startup for generating and managing its intellectual property, and carefully prioritizing it all because, of course, funds can be scarce in a startup. Often we get the question “What are the consequences of not doing it early and not doing it right?” Or if they have limited funds, understanding what a startup’s principals should do first, given that patent protection requires expenditures. Or, they may ask “What are the different options for paying for the work early on?” If they’re inexperienced, the number-one question generally is, “What should I do about IP protection?” If they’re experienced, the question generally is round funding it.

The opportunity comes if you do it right: there is a tremendous amount of value to the business with respect to attracting capital, attracting talent and marketing the business, and also just in the ease that it gives you in interacting with others, because once you have the patent application, it is easier to talk to people. Otherwise you’re always worried about people taking your IP. I do nondisclosure agreements and such regularly, and having the patent application done just makes it a lot easier.

LES: Can you give me an example of what startups typically look to manage with respect to IP? Is it their business process idea?
Prasad: Well, it will vary depending on the industry, but it will be their technology. Whatever technology they’ve developed, how do they protect that? Then it will be the business name, and the product name or the slogans, filing for trademark protection for those. Then there is the confidential information, the “secret sauce” type of material, which is their trade secrets.

LES: What were you looking forward to at the event? You’ve got all these great panelists. What did they bring to the table?
Prasad: We had a really good discussion around best practices for IP in startups. We had a diverse set of panelists, with two people who work regularly in venture capital—working with startups, helping them with funding, and the early stages of advising them. We had a patent attorney who works a lot in the tech industry (as do I), and a general corporate lawyer, who brings the corporate law experience. We had an expert who has spent her career doing technology licensing, how companies actually transfer their technology in and out. One venture capitalist works a lot in the life sciences, the other is very active in LES in Silicon Valley. You couldn’t have a better set of experts.
Sanjay Prasad’s panel included:

• Jeff Bartholomew, Attorney, Robinson Waters & O’Dorisio
  
• Katharine Ku, Chief Licensing Advisor, Wilson Sonsini, Goodrich & Rosati
  
• Nola Masterson, Managing Director, Science Futures, Inc.
  
• Soody Tronson, Founding Managing Counsel, STLG Intellectual Property Law Firm; Founder & CEO, Presque
  
• Larry Udell, Founder/Chairman, Silicon Valley Chapter, LES

Q&A with Ron Laurie
Executive Chairman, InventionShare

LES: You moderated the panel titled “Intangible Assets in the Boardroom.” In a few short sentences, what was the focus of the panel presentation?
Laurie: Corporate directors are legally responsible for protecting, and optimally for maximizing, shareholder value, which increasingly involves appropriate oversight of a company’s intangible assets, including its intellectual property. However, except in rare cases (e.g., patent licensing firms), a significant language barrier exists between a company’s in-house and external IP advisors on the one hand, and its board, and the shareholders they represent, on the other. This communication gap is created by the fact that intellectual property professionals typically don’t know how to express the value of a company’s IP holdings in terms that are meaningful to investors and financial analysts, who are laser-focused on financial performance metrics such as EBIDTA (Earnings Before Interest, Depreciation, Taxes, and Amortization), Free Cash Flow, Earnings per Share, etc.

This language disconnect has become increasingly troubling as intangible assets represent a larger and larger percentage of overall corporate value in the digital economy. Many of today’s disruptive business models no longer depend on tangible assets, e.g., Uber doesn’t own automobiles and Airbnb doesn’t own hotel rooms or apartments.  And even in the case of product companies as opposed to service providers, a 2017, WIPO (World Intellectual Property Organization) report concluded that intangible assets add twice as much value to products as tangible capital, across 19 identified global value chains.

LES: Technologists and IP professionals face many challenges and opportunities today. What one challenge do you hear about the most? What one opportunity?
Laurie: For me, as a director in a public company, the biggest challenge is overcoming, or at least reducing, the communication gap between IP professionals and investors, which results from the fact that traditional accounting systems (like GAAP and IFRS) are not set up to reflect the true value of intangibles. I believe that the IP professionals should be responsible for closing this communication gap by learning how to express IP value in terms that are more meaningful to the financial community, and to investors in particular, but this is by no means an easy task.

The LES IA in the Boardroom standard is an important first step in that direction.
Ron Laurie’s panel included:

• Edgar Baum, Founder and CEO, Avasta Incorporated
  
• Phil Hartstein, President and CEO, Finjan Holdings Inc.
  
• Paul Roberts, Vice President of Commercialization, GE Ventures

Q&A with Matteo Sabattini
Director IP Policy, Ericsson Inc.

LES: You moderated the panel titled “Innovation, Interoperability and Efficiency through Standards.” In a few short sentences, what were attendees expected to learn?
Sabattini: I had the privilege to moderate a stellar panel of experts that led us through a journey around technical standards and FRAND (Fair, Reasonable and Non-Discriminatory): How has the licensing of standardized technologies evolved historically? Given that different verticals are relying more and more on technical standards, and entire industries are being disrupted and transformed by technology, what are the challenges and opportunities for stakeholders in this time of technology convergence?

The panel benefited from a broad range of expertise, including the views of regulators. The conversation about what is the right balance between government intervention and self-regulation in the FRAND domain has never been so highly visible and debated: Can the industry get together, as the LES FRAND Licensing Standard Committee is currently doing, to enhance the efficiency of licensing on FRAND terms through standardized processes?

LES: Technologists and IP professionals face many challenges and opportunities today. What one challenge do you hear about the most? What one opportunity?
Sabattini: Technological convergence is changing industries and society. The Internet of Things is creating a living network of interconnected persons and things, and 5G is poised to impact society in ways we cannot even fully anticipate. Financial institutions are transform ing themselves into technology companies. Artificial Intelligence will pose ethical and existential challenges we need to tackle today. Federal agencies and governments around the world rely more and more on technical standards, not only as regulators but as users.

Many industries impacted by this transformation are not necessarily familiar with licensing on FRAND terms, and both technology developers and technology users face the challenge of learning more about different business models. This transformation represents a great opportunity for LES and LES Standards: How can we help the ecosystem? How can business process standards created by practitioners for practitioners help close that knowledge gap?

LES: What were you looking forward to the most at the event?
Sabattini: As the co-chair of the FRAND Licensing Standards Committee, I got to hear from the panel what we could do to make their licensing practices easier and more efficient. I also appreciated getting suggestions on ways to enhance discussions within the Committee itself, especially around thorny issues. Lastly, I got to hear from participants—both in the panel I moderated as well as all other panels—about how a business process standard can help with the practical aspects of IP management.

Matteo Sabattini’s panel included:

• Christian Hannon, Patent Attorney, USPTO Office of Policy and International Affairs
  
• Bowman J. Heiden, Center for Intellectual Property
  
• Luke McLeroy, Vice President of Business Development, Avanci
  
• Rob Yost, Intellectual Property Counsel, Visa

Start-ups panel moderated by Sanjay Prasad.