IAM benchmarking survey 2017

If last year was all about coming to terms with the implications of the US Supreme Court’s decision in Alice and wondering about patent eligibility in general in the United States, this year appears to be one in which senior operating company IP executives, their counterparts in non-practising entities (NPEs) and their advisers in private practice are finding renewed reasons to give the US market a chance. The 2017 IAM benchmarking survey finds sentiment heading back stateside – although serious doubts remain about the quality of the US Patent and Trademark Office’s (USPTO) output.

However, while more players appear willing to give the United States a chance, it is also clear that the long-hoped-for resurgence in deal making and pricing has yet to materialise. That said, this year’s findings reinforce those of last year: we have probably reached as low as things will go and there may even be the start of a slight upswing.

The renewed confidence in the United States means that fewer are looking to European courts and markets for salvation – especially given the uncertainties caused by the United Kingdom’s Brexit vote last June. Where Europe undoubtedly leads the way, though, is in the quality of the patents issued by the European Patent Office (EPO). Despite its widely reported troubles, respondents to our survey still feel that the EPO is way out in front of the other IP5 agencies: the Japanese Patent Office, the Korean Intellectual Property Office, China’s State Intellectual Property Office (SIPO) and the USPTO.

For six weeks between mid-February and late March 2017, IAM conducted its annual benchmarking survey in order to find out what our readership thinks about a range of subjects, including:

• overall corporate awareness of IP issues;
• the relationship between NPEs and operating companies;
• patent values and valuation;
• the state of the IP market;
• the performance of leading patent offices;
• leading jurisdictions for litigation;
• the potential impact of the unified EU patent system;
• the reform process in the United States; and
• the biggest threats to IP value creation.

To understand how readers’ opinions differ depending on their position in the IP ecosystem, we created three bespoke questionnaires, each tailored to a specific demographic. The first was for those managing IP portfolios in operating companies; the second was for NPEs; and the third was for private practice lawyers and attorneys. Clearly, these categories do not cover everyone who reads IAM, but we had to draw a line somewhere.

We received more than 800 responses, primarily from individuals in senior positions ‒ the most responses we have ever received for one of these surveys. North American respondents were the number one source of replies from operating companies and NPEs; while Europe provided most respondents for the private practice survey. Replies from Asia have increased significantly year on year from operating company and NPE representatives, but have fallen slightly on the private practice side. All respondents were guaranteed full confidentiality. Over the following pages we have selected many of the most interesting findings and broken them down into the following categories:

• demographic;
• IP management;
• IP market – buying and selling;
• IP market – licensing;
• quality and procurement;
• litigation;
• the unified patent and the Unified Patent Court (UPC);
• US patent reform; and
• the threats facing rights holders.

In each area we looked primarily at the responses from operating company respondents and compared them with those of their NPE and private practice counterparts. Some of the results may well be unexpected, but what will come as no surprise is that an individual’s opinion on the IP market is heavily influenced by his or her position in it.

Perspective is everything; and with that in mind, remember that this is an audience of IAM readers. These are people who see intellectual property as a business asset and who work at the cutting edge of IP value creation; their views are thus not necessarily representative of those prevalent in the wider IP universe.

Demographic

Figure 1. Your job title (operating company)

Figure 2. Your job title (NPE)

Figure 3. Your job title (private practice)

Figure 4. In which industry does your company operate? (operating company)

Figure 5. Your office location (operating company)

Figure 6. Your office location (NPE)

Figure 7. Your office location (private practice)

IP management

As with last year, the prevailing opinion among respondents from operating companies is that IP portfolio valuation remains an essential part of any IP strategy, with one-third favouring the creation of an industry standard. After all, if you do not know the value of what you have – and cannot demonstrate it convincingly – how can you begin to communicate on IP issues in any meaningful way with senior management?

Finding ways to make money from intellectual property and create that value is still the number one priority for IP managers in operating companies, as was the case in the two previous benchmarking surveys. However, it is again important to bear in mind that respondents are most likely to be IAM readers who, by definition, are acutely aware of the value to be found in their IP assets and the opportunities to monetise them. In other words, this statistic may not be an accurate reflection of the wider IP-managing community.

The importance of monetisation is on a par with 2016, with almost half of respondents stating that they feel under increasing pressure from senior management to do this. This pressure is likely a reflection of ever-increasing C-suite interest in intellectual property, with 90% of those surveyed either strongly agreeing or agreeing that leadership appreciates its value and importance – up from 85% last year.

Meanwhile, the proportion of respondents who strongly agree or agree that their company’s leadership is actively involved in strategic planning of intellectual property has risen by 10 points from last year to 79%. This trend is reinforced by the lack of executive management support falling from mid-table in the list of challenges facing respondents last year to penultimate place this year.

Figure 8. What is your opinion on IP portfolio valuation? (Select a maximum of three options) (operating company)

Figure 9. My company’s leadership appreciates the value and importance of intellectual property (operating company)

Figure 10. My company’s leadership is actively involved in strategic planning related to intellectual property (operating company)

Figure 11. The IP function is coming under increasing pressure from senior management to monetise the company’s IP portfolio (operating company)

Figure 12. How aligned is IP strategy with business strategy in your organisation? (operating company)

Market – buying and selling

After a sharp drop in the number of operating companies purchasing patents from 2015 to 2016 (55% down to 32%), things seem to have stabilised this year, with the percentage of buyers rising slightly to 34%. That said, the number of selling operating companies has fallen again, from 27% last year to 24% this year. However, these are only marginal changes; in terms of demand, the market has likely bottomed out ‒ at least for now.

However, the same cannot be said for values. Last year, 48% of corporate respondents stated that prices had fallen; this year, 36% are reporting further falls, with 51% of NPEs saying the same (compared to 71% in 2016). That the 2017 numbers are lower than those in 2016 will be scant consolation, given that just 6% of operating company representatives and 7% of those from NPEs say that prices have gone up.

As for the reasons behind this, last year’s top choice heads the lists again: the inter partes review regime. Operating companies and NPEs agree that the other big factors are the Supreme Court’s Alice decision (second) and greater availability of patents in the market (third). Last year, both put Alice third, while disagreeing about what was second: operating companies went for greater difficulty in enforcing standard-essential patents, while NPEs opted for greater availability.

Another area of operating company and NPE agreement is that US patents are the most desirable. But then they diverge. For operating companies, the next most important countries are the United Kingdom and Korea (a change from Germany and the United Kingdom in 2016); while for NPEs they are Germany and Korea (from Germany and France in 2016). While the United Kingdom’s rise might be explained by the need for more certainty of coverage post-Brexit, the reasons for Korea’s appearance are less clear cut. It may have something to do with greater purchasing activity from Korean corporates and patent funds; in any case, it is one to keep an eye on.

Figure 13. In the past year, has your company sold patents? (operating company)

Figure 14. In the past year, has your company sold patents to an NPE? (operating company)

Figure 15. In the past year, we have seen the number of corporate IP owners selling patents to NPEs increase (NPE)

Figure 16. What best describes your approach to patent acquisition? (Select up to three options) (NPE)

Figure 17. In the past year, has your organisation bought patents? (operating company)

Figure 18. If your company has bought patents in the past year, has it been primarily to: (operating company)

Figure 19. In terms of pricing, do you believe that: (operating company)

Figure 20. In terms of pricing, do you believe that: (NPE)

Market – licensing

The picture is very mixed for operating company licensors if the results of this year’s survey are anything to go by. On the one hand, far fewer than in 2016 report that royalty rates have fallen (8% now compared to 16% then). On the other hand, the number reporting that royalty rates have risen has also decreased – and that from an already low percentage (4% in 2016 to 2% in 2017).

Another interesting change from last year is that fewer operating companies say that they are seeking opportunities outside the United States in 2017 – 9%, compared to 13% in 2016. The decline on the NPE side has been even more dramatic: while in 2016 30% of NPEs told us that looking beyond the United States was part of their strategy, that figure has now fallen to 17%. It could be that continued uncertainty over the fate of the UPC and Brexit has led US patent owners to look closer to home, or that lack of resources is making it harder to enter overseas markets.

However, these findings do stand in contrast to anecdotal evidence about Germany, in particular, which is attracting more NPEs than ever before. Another explanation, of course, is that many NPEs may have discovered that the leverage they might enjoy in the United States, in terms of extracting licensing payments from target companies that are lower than the cost of defending a case in court, simply does not exist in other jurisdictions.

Figure 25.Have you worked with an NPE in the past year? (operating company)

Figure 26.Accused infringers have been less willing to settle cases in the past year than they have previously been (NPE)

Quality and procurement

In previous years, the EPO has been ranked top for quality of patents issued by all three groups surveyed. And that trend continues just as strongly in 2017. Recent rumours of trouble within the EPO – including accusations that service levels have suffered due to mounting pressure on examiners – do not seem to be reflected in the results of this year’s survey: its performance in this area is still rated excellent or very good by more respondents than any of the other offices listed.

There are mixed signals about Michelle Lee’s initiatives to improve the USPTO. Just under one-quarter of respondents from operating companies state that the quality of USPTO-granted patents has improved in the past year, with 19% of NPE respondents and 13% of private practitioners in agreement. Meanwhile, the percentage of operating company respondents reporting that the service offered by the USPTO is excellent has nearly doubled – from 7% in 2016 to 13% in 2017.

However, while the numbers are relatively low, the USPTO has received more poor ratings for its service than any of the other IP5. It also has the greatest number of critics stating that the quality of patents issued has deteriorated in the past year, with nearly as many private practitioner respondents claiming that quality has declined (12%) as those maintaining that it has improved (13%).

All of this is good news for China’s SIPO, as ‒ for the first time since the IAM benchmarking survey began ‒ it is no longer the office considered to be issuing the poorest-quality patents, having been bumped up by USPTO. Six percent of operating respondents state that USPTO patents are poor, compared with 5% for SIPO; 8% of NPEs rank USPTO patent quality as poor, versus the 6% who give SIPO that same ranking; and an equal 6% of private practitioners consider the USPTO and SIPO to be issuing sub-standard patents. Finally, cumulatively, more respondents consider the quality of patents issued by SIPO to have improved in the past year than any of the other offices listed: 19% operating respondents, 24% of NPEs and 17% of private practitioners.

Unsurprisingly, quality remains of great importance to respondents, with one-third (33%) of those from operating companies stating that they are focusing more on this as an issue and allocating extra resources to maintain or increase application rates. While 55% of private practitioners surveyed consider that there is a problem with patent quality in general, that figure is down from 61% last year. These respondents cite pressure to carry out examinations more quickly as the number one reason for poor quality, followed by patent office staffing.

Figure 27.What best describes your approach to patent procurement? (Select up to three options) (operating company)

Figure 28.What best describes your clients’ approach to patent procurement? (Select up to three options) (private practice)

Figure 29.Do you believe that there is a problem with patent quality in general? (private practice)

Figure 30.If you do feel that current patent quality is a problem, what do you consider to be the main contributing factors? (Please select all that apply) (private practice)

Figure 31.Does your firm have any initiatives in place to improve the quality of patent applications that you submit on behalf of clients? (private practice)

Litigation

The battle between Germany and the United States which became so apparent in our 2016 survey continues to rage, according to this year’s responses. However, the United States is fighting back. For operating companies, the country remains out in front on all counts – with a significant widening in the US lead on the question of which jurisdiction’s courts respondents have most confidence in. Last year, 38% of operating companies preferred the United States, while 36% went for Germany; this year, those figures are 48% to 33%. Is that something to do with the fact that more patents are being targeted in German courts? Perhaps; but it is also noticeable that while Germany remains the jurisdiction in which NPEs have most confidence, the United States has closed the gap – from 53% versus 29% in 2016 to 42% versus 32% in 2017.

It could be that both US operating companies and NPEs are getting to grips with the doubts caused by a string of decisions on patent eligibility from the Supreme Court, as well as with the general uncertainty of dealing with the Patent Trial and Appeal Board. Having banked another 12 months of experience and knowledge, perhaps both groups feel more confident about how things are working on the home front – especially as some concerns around the enforcement of software patents now seem to have been eliminated by the Federal Circuit.

Figure 32.Which of the following countries offers the best value for money for IP litigation? (operating company)

Figure 33.Which of the following countries offers the best value for money for IP litigation? (NPE)

Figure 34.Which of the following countries offers the best value for money for IP litigation? (private practice)

Figure 35.Which of the following countries has the most thorough litigation system? (operating company)

Figure 36.Which of the following countries has the most thorough litigation system? (NPE)

Figure 37.Which of the following countries has the most thorough litigation system? (private practice)

Figure 38.In which of the following litigation systems do you have the most confidence? (operating company)

Figure 39.In which of the following litigation systems do you have the most confidence? (NPE)

Figure 40.In which of the following litigation systems do you have the most confidence? (private practice)

Figure 41.Have you seen a decline in the number of NPE assertions that you are experiencing? (operating company)

Figure 42.Which country is the most welcoming to litigation from an NPE? (NPE)

Unitary patent and Unified Patent Court

Since last year’s survey, voters in the United Kingdom have thrown something of a spanner in the works of the unitary patent system as a result of the Brexit vote on June 23 2016. Although the UK government has stated that it still intends to ratify the UPC Agreement despite the decision to leave the European Union, many of this year’s respondents appear sceptical that things will be up and running by the end of 2017 or even 2018. In fact, 57% of operating companies believe that we will not see a functioning UPC until 2019, when the United Kingdom is due to leave the European Union; 64% of NPEs feel the same, as do 59% of private practice lawyers and attorneys.

In terms of preparations, 34% of operating companies say that they are cautiously planning for the UPC – the same percentage as last year; while the number of enthusiastic preparers has climbed one notch from 10% to 11%. Once it is up and running, 32% of operating company respondents believe that the UPC will make Europe a more important centre for global patent litigation – down from 41% in 2016. It’s a similar story for NPEs, with 25% saying that the UPC will make Europe more significant for patent litigation – a fall of five points on last year’s figure of 30%.

All in all, these findings reinforce what we have seen in other sections of the survey: less enthusiasm for Europe than was the case in 2016. As for the United Kingdom, Brexit has left most respondents unmoved; although more from both private practice and operating companies feel that withdrawal from the European Union will make the United Kingdom a less important focus than a more important one – probably not the message the UK government wants to hear as it prepares for the serious negotiations around withdrawal.

Figure 43.Are you actively planning for the new EU unitary patent? (operating company)

Figure 44.Are you actively planning for the new EU unitary patent? (private practice)

Figure 45.When do you think Europe’s Unified Patent Court system will get up and running? (operating company)

Figure 46.What are your views on the Unified Patent Court regime? (Select up to three options) (operating company)

Figure 47.When do you think Europe’s Unified Patent Court system will get up and running? (NPE)

Figure 48.What are your views on the Unified Patent Court regime? (Select up to three options) (NPE)

Figure 49.When do you think Europe’s Unified Patent Court system will get up and running? (private practice)

Figure 50.What are your views on the Unified Patent Court regime? (Select up to three options) (private practice)

Figure 51.How will Brexit affect your European IP strategy? (Select up to three options) (operating company)

Figure 52.How do you expect Brexit to affect your clients’ European IP strategies? (Select up to three options) (private practice)

US patent reform and Trump

It will come as little surprise that the US Supreme Court’s Alice decision has had a profound effect on the IP strategies of many respondents. More than one-third of operating companies (36%) and over half (51%) of NPEs agree that the judgment’s impact has been significant. The most commonly reported effect is that rights holders – whether operating or non-practising – now file fewer software and business method patent applications. The decision has clearly been more unpopular with NPEs than anyone else and precisely zero respondents in that category claim to have benefited from Alice.

Generally, the picture painted by non-operating respondents is pretty gloomy, with the general consensus on the current US environment being that it has never been harder to be an NPE. However, there is some cause for hope. The second most popular response to this question is that opportunities in new sectors are emerging. Further, 68% of NPE respondents expect that the Trump administration will take a more pro-patent approach to patent issues than its predecessor. This sentiment is echoed by 59% of respondents from operating companies. Pertinently, however, this really is a hope rather than an expectation based in fact, as to date President Trump has said little about intellectual property; it remains to be seen whether this hope will be realised.

Figure 53.Has the Supreme Court’s Alice decision had a significant impact on your company’s IP strategy? (operating company)

Figure 54.Has the Supreme Court’s Alice decision had a significant impact on your company’s IP policy and strategy? (NPE)

Figure 55.Has the Supreme Court’s Alice decision had a significant impact on your IP practice? (private practice)

Figure 56.What are your views on calls for further reform in the United States? (operating company)

Figure 57.What are your views on calls for further reform in the United States? (NPE)

Figure 58.What are your views on calls for further reform in the United States? (private practice)

Figure 59.Do you expect the Trump administration to have a different approach to patent issues from the Obama administration? (operating company)

Figure 60.If yes, do you expect the new administration to: (operating company)

Figure 61.Do you expect the Trump administration to have a different approach to patent issues from the Obama administration? (NPE)

Figure 62.If yes, do you expect the new administration to: (NPE)

Figure 63.Do you expect the Trump administration to have a different approach to patent issues from the Obama administration? (private practice)

Figure 64.If yes, do you expect the new administration to: (private practice)

Threats

The threat of NPEs – somewhat surprisingly – takes the number one spot for operating companies this year. It replaces a lack of resources, which has slipped to second place. While NPEs are reporting that they have never had it so tough in the US operating environment, concern among operating companies is presumably far greater in other regions such as Asia and Europe, where many NPEs have been focusing their attentions of late; while Asian companies – which responded in greater numbers to the survey this year – have always been particularly vulnerable to NPE suits in the United States.

Worry about a lack of interest from the boardroom is almost negligible for operating respondents this year, although this was an acute fear last year. And despite a significant proportion of corporate respondents reporting that the US Supreme Court’s Alice decision has had an effect on their IP strategy, this is far less significant than many other considerations, including the cost of litigation, backlogs at patent offices and even anti-patent sentiment.

Anti-patent sentiment has also risen to third place in the list of concerns keeping NPEs awake at night, behind the cost of litigation and a lack of resources. And reflecting the opinions of their counterparts in operating companies – despite most NPE respondents answering earlier in the survey that Alice has had a significant impact on their IP policies and practice – in the grand scheme of threats, the decision holds little significance; certainly far less than it did a year ago, when it was ranked fourth compared to this year’s last place. As responses in other sections suggest, perhaps this is a case of people getting used to the new normal.

Joff Wild is the editor and Sara-Jayne Clover a senior reporter at IAM, based in London, United Kingdom