AMD' s license deal in China: the start of something big?

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AMD' s license deal in China: the start of something big?

The potential for a single technology license to change the fate of a public company is not a usual occurrence. For sure, there are companies,

such as Qualcomm, whose business model has a major licensing component. But what about companies whose main business has been selling products? A striking instance where a technology license could make all the difference took place late last week, when it was announced that Advanced Micro Devices (AMD), the perennial also-ran to Intel in the chip world, announced that it had entered into a transaction with Tianjin Haiguang Advanced Technology Investment Company.

As reported by the Wall Street Journal (WSJ), the companies will establish a new venture company (the WSJ article describes AMD's partner as “an investment consortium under the guidance and led by the Chinese Academy of Sciences”), whereby AMD will license its x86 chip technology to develop server systems intended to be sold only in China. AMD is expected to ultimately receive $293 million dollars in licensing fees plus a royalty payment for sales on chips that are developed by the venture. Thus far, the company has received $52 million dollars from this deal and recognized $7 million on its Q1 2016 income statement. Upon making the announcement, AMD’s shares rose a whopping 23% on after-hours trading on the Nasdaq Stock Market.

One way to appreciate the multi-faceted nature of this transaction is to consider it from several different perspectives.

1.AMD-- According to AMD Chief Executive Lisa Su, “Our new licensing agreement is a great example of leveraging our strong IP portfolio to accelerate the adoption of our technologies more broadly.” That said, one presumes that companies are always looking to better monetize their IP portfolio. Here, the deal allows AMD to try and gain some traction in the server chip area at the expense of Intel and also to gain access to the China market.

2. China— For every licensor, there also needs to be a licensee. The deal will potentially enable China to develop what the WSJ describes as “chips with home grown security circuitry to ease fears that foreign spies will penetrate computers in China”. Seen more generally, it is yet another step by China to try and lessen its dependency on non-Chinese technology.

3. Intel—The WSJ notes that Intel and AMD in 2009 entered into a cross-licensing agreement that is reported to provide that neither party may transfer rights to licensed technology to third parties. Intel has yet to respond on this point while AMD, for its part, has stated that because of the structure of the deal, the 2009 agreement is not being breached.

4. Chip manufacturers—Intel, IBM and Qualcomm have all reportedly entered into their own joint venture agreements in China in the area of chip manufacture and/or development.

5. United States government—US law has in place export control restrictions that limit the transfer of technology abroad if the transfer might affect national security. AMD has stated that the transfer contemplated under the agreement meets all US export rules and regulations.

Circling back to the beginning of this blogpost, the most immediate result will be the potential upside for AMD. Will it be the precursor to additional transactions for monetizing its IP or is the deal uniquely tied to the specifics of the Chinese market and national policies? Close attention should be paid to how this ultimately works out for the company.

Collateralization of Intellectual Property in Singapore and China

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Collateralization of Intellectual Property in Singapore and China

The efficient collateralization of intellectual property is a way for small and medium size enterprises to obtain financing for continued expansion, and additional research and development.  As reported by Ellie Wilson on the IPKat blog, a loan with IP as collateral was recently approved in Singapore. The Press Release from the Intellectual Property Office of Singapore states: 

While using tangible assets such as machinery and inventory to apply for loan financing is a common practice for companies, using intangible assets in the form of patents is a recent development.

3.      Singaporean entrepreneur, patent owner, founder and Group Chief Executive Officer of Masai Group International, Mr Andy Chaw, shared, “We are honoured to be the first company in Singapore to have successfully obtained the IP financing to unlock the value of our intellectual property. With the financing, we will continue to invest and strengthen our global IP portfolios and brand marketing, as well as continue our research and development efforts in new technologies and products development.”

4.      The IP-financed loan was supported by DBS Bank (DBS), one of the scheme’s three participating financial institutions (PFI). DBS’ Group Head of Small-and-Medium Enterprise Banking, Ms Joyce Tee, said, “As the principal banker for the Masai Group, we recognised that the patents acquired would essentially translate into future earnings. We are very pleased that the collaboration with IPOS to monetise these intangible assets, recognising the patents as an alternative security, has worked well. With this as the first successful case of an IP-backed loan in Singapore, we will continue to build a sustainable capabilities platform so that we can help our SMEs unlock the hidden wealth in their intangible assets and convert into cash for their business growth.”

5.      UOB, another of the scheme’s PFI, has a strong pipeline of IP financing cases to help companies capitalise on the value of their intangible assets. Mr Eric Tham, Head of UOB’s Group Commercial Banking, said, “As businesses evolve with the changing times, intellectual property will increasingly form a significant part of an enterprise’s value. We welcome IPOS’ forward-looking enhancements to the IPFS, as more companies in Singapore would be encouraged to innovate and help create the ‘Silicon Valley of the East’.”

More PFI, IP Valuers and Qualifying IP Asset Classes for IPFS

6.      Effective 1 July 2016, IP owners can look forward to monetising other IP asset classes such as registered trade marks and copyrights through IPFS. The addition of new IP asset classes, over and above patents, is aimed at spurring an intellectual property and innovation-driven economy in Singapore.

7.     The scheme will also be extended for another two years till 31 March 2018, as applications are expected to increase. The all-time high IP filings in Singapore is a testament of the current buoyant innovation climate. To meet the anticipated surge in demand for IP loan financing, IPOS has appointed a fourth PFI and expanded the panel of IP Valuers from three to seven. This move will allow companies to work with a larger number of PFI and competent IP Valuers for successful loan applications.

8.      Mr Daren Tang, Chief Executive of IPOS, said, “As Singapore’s economy becomes more innovation-driven, IPOS is stepping up our efforts to help local companies and entrepreneurs realise that IP is not just about protection of their legal rights; it is about using it to grow their business. He added, “IPOS will continue to work with more partners to provide opportunities for companies to go beyond IP protection to monetisation. The IPFS is one such scheme and we hope that local companies with valuable IP will take full advantage of it, as we continue to look for new ways to help them succeed in the global innovation market.”  

Lexology reports that:

Recently, the State Administrations of Industry and Commerce (SAIC) made an announcement that, after July 1, 2016, 25 local Administrations of Industry and Commerce (AICs) may receive pledge applications of trademark rights on behalf of China Trademark Office. Applications filed through the local AICs are free of charge.

Are there any other developments concerning collateralization of IP in Asia?  

Beijing Regulator Issues Injunction Against Apple iPhone 6

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Beijing Regulator Issues Injunction Against Apple iPhone 6

Ali Qassim authored an article titled, "Expect Frequent Fast Injunctions in China, Says US Lawyer," on June 7, 2016 published in Bloomberg BNA.  The article reported on the remarks of a Beijing based-US attorney at a conference concerning the availability of remedies, including injunctions in China [behind a pay wall]. Today, June 17, 2016, Eva Dou of the Wall Street Journal has reported in an article titled, "Beijing Halts Sales of iPhone 6, Citing Patent Infringement" that a regulator in Beijing has issued an injunction against the sale of the iPhone 6 for infringing a design patent of Shenzhen Baili.  The article notes: 

It wasn’t immediately clear what impact the order would have. Some mobile-phone stores in the city said they had already stopped selling the two models months ago, switching to newer models. Apple will soon end production of both models, according to a person familiar with the production plans.

According to The Street, shares of Apple are falling.  Should we expect more investment in research and development, and patenting in China given the reported easy availability of remedies in China's huge market?  

 

China's state-led innovation model: does it really work?

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China's state-led innovation model: does it really work?

From our friends at Oxfirst comes another free webinar. This one is entitled "How China’s state-led model is harming innovation and growth". The basic proposition behind it is that China wants leading technology industries, driving Beijing’s strategy to escape the ‘middle income trap’. However, Radomir Tylecote’s PhD research on Chinese solar photovoltaic (PV) patenting suggests that (i) the Chinese system is not be producing the innovation required, that (ii) and Beijing’s attempts to drive innovation are actually hindering it. As the webinar-blurb explains:

Beijing’s strategy involves investing in tech firms through shareholding and R&D funding. By comparing patenting output and quality among Chinese solar firms, Radomir’s research establishes that firms with more state backing – in shareholding and funding – see innovative capabilities fall.

Meanwhile, firms with central government ownership are especially likely to waste R&D funding. But private entrepreneurs often cannot protect their IP from infringement by state firms, and take on state shareholding to do so. Radomir will discuss how majority state-ownership leads to the registration of ‘junk’ patents in less ambitious technological fields, as employees respond to the government’s incentives to patent. But private entrepreneurs face challenges protecting their innovations in court from infringement by state-owned competitors, and in obtaining funding.

The webinar takes place on Friday 27 November 2015 3:00 PM - 4:00 PM GMT.  To sign up for participation, click here.

Subsidized IP Litigation Insurance in Japan and Increased Enforcement in China

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Subsidized IP Litigation Insurance in Japan and Increased Enforcement in China

As reported by Ellie Wilson on the IP Kat blog, the Japanese Patent Office (JPO) has announced a program whereby half of the premiums for IP infringement insurance will be covered.  The program is a partnership between the JPO, the Japan Chamber of Commerce and Industry, The National Federation of Small Business Associations, and three insurance companies.  Specifically, the subsidy is directed at making affordable IP infringement litigation insurance for SMEs that are operating in countries outside of Japan. The announcement appears to cover both the need for the SME to fund IP infringement litigation against alleged infringers and to defend litigation.  Notably, the announcement explicitly mentions China as a market of concern; although my guess is that a concern with so-called patent trolls in the United States is also an issue. 

This announcement comes close in time to reports of increased enforcement of intellectual property rights in China, particularly as China reportedly is attempting to move toward an innovation and services based economy.  Interestingly, the official website for The Supreme People's Court of the People's Republic of China published an article by Ma Si (China Daily) concerning the move of smart phone wars to China titled, "Chances high for more patent cases."  The article discusses the recent stayed injunction against Apple and the prospects for more patent cases given actions in the United States concerning Huawei.  Huawei and Samsung are also embroiled in litigation in China.

Given the importance of SMEs to economic growth and job creation as well as the general high cost of litigation, it will be interesting to see if more countries move to subsidize IP litigation insurance.  Are there any other countries subsidizing IP litigation insurance?  Instead of regulating against so-called patent trolls, is this where government should intervene--helping insurance markets develop and lowering the cost of insurance, particularly for SMEs?  Should government back insurance funds for IP litigation?