IAM benchmarking survey 2018

The US fightback, revealed in last year’s IAM benchmarking survey, may have come to an end. While 2017’s results revealed a favourable swing in sentiment towards the US patent regime, this year’s responses suggest that gloom may be descending once more – even before the Oil States judgment became known.

Though the US court system was the destination of choice for patent litigation in 2017, it suffered a sharp decline in approval from corporate respondents this time around, falling below Germany in the rankings; while other European jurisdictions, such as the United Kingdom, also gained ground. The Supreme Court’s TC Heartland decision, continuing concerns about the Patent Trial and Appeal Board (PTAB), uncertainty over the Trump presidency and delays in appointing a new director for the US Patent and Trademark Office (USPTO) – along with ongoing patentability gripes – may all be factors behind this mood change.

This year’s survey results make clear that perceptions of the current US presidency – and its approach to patent issues – have altered significantly in the past 12 months. The proportion of respondents who believe the president to be more pro-patent than his predecessor is smaller than the share who expected a patent-favourable shift in 2017.

Across the Atlantic, the future of the proposed Unified Patent Court (UPC) system has been thrown into even more uncertainty by a German constitutional challenge, while the survey results came in before the UK government went ahead and ratified the UPC Agreement. Though few doubt that the pan-European patent litigation regime will come into being in the long term, IP professionals are now less inclined to believe that this will happen in 2018 or 2019 – the smart money is now on a delay until after Brexit.

However, one thing that can be relied upon is the IP community’s confidence in the quality of patents issued by the European Patent Office. Once again, this received the highest overall approval ratings of any of the five leading patent offices in the world (the so-called ‘IP5’), with only a tiny percentage regarding the patents it issued as poor.

Methodology

In February and March this year, IAM undertook its yearly benchmarking survey to gauge our readership’s views on the big issues facing IP professionals – and how these perceptions have changed year-on-year. Among the subjects covered in the survey were:

• the state of the IP market;
• the performance of leading patent offices and patent quality in general;
• leading jurisdictions for litigation;
• the prospects for the European unified patent system;
• the Trump presidency and the need for US IP reforms; and
• threats to IP value creation.

In seeking to understand the differences of opinion within the IP community, we designed two separate questionnaires – one for professionals working within IP-owning businesses and one for those in private practice. Though these two categories do not encompass all of IAM’s readership, they do allow us to compare and contrast the two largest groups of IP professionals. Due to the dwindling number of non-practising entities (NPEs) in the market, we decided to stop running a separate survey for respondents from such organisations.

We received just under 900 responses – more than in any previous year – largely from IP professionals in senior positions. The largest contingent of operating company respondents were based in North America, although European participants were almost as numerous this year. European law firm professionals outnumbered their US counterparts again in 2018; while Asian professionals also made a good showing, comprising 19% of private practice participants and 24% of in-house respondents. All, of course, were guaranteed full confidentiality.

In the following pages, we present the most interesting findings from this year’s questionnaires, organising these into the following categories:

• demographics;
• IP management;
• IP market – buying and selling;
• IP market – licensing;
• quality and procurement;
• litigation;
• the unitary patent and UPC;
• President Trump and US patent reform; and
• threats facing rights holders.

Our analysis focuses chiefly on the responses we received from professionals at operating companies, but also draws contrasts with those we received from private practice respondents. It also seeks, in particular, to highlight year-on-year trends, in order to give the reader a dynamic – rather than merely static – understanding of the IP marketplace.

Of course, the data we have collected represents the views of the IAM readership in particular, rather than the IP community in general. As such, the subsequent analysis reflects the opinions and observations of those segments of the IP world that are most concerned with intellectual property as a commercial asset and a source of value creation – so handle with care!

Demographic

Figure 1. Your job title (operating company)

Figure 2. In which industry does your company operate? (operating company)

Figure 3. Your office location (operating company)

Figure 4. Please indicate the number of employees at your organisation (operating company)

Figure 5. Your office location (private practice)

Figure 6. Your job title (private practice)

Figure 7. The size of your firm’s IP practice? (private practice)

IP management

In line with the results from the two previous years, IP portfolio valuation continues to be seen as an essential part of any IP strategy by IAM readers. It is promising, then, that 44% of respondents from operating companies reported an increase in their IP department budgets over the last year. However, this is unlikely to be the start of a broader trend, as only 35% believe that their budgetary allowance will increase again this year.

Although portfolio valuation is still clearly a priority, there has been a decline in the number of those who have found it helpful. This year, only 18% had their portfolios valued and found it to have been a helpful exercise, compared to 24% last year; meanwhile, the proportion of respondents who said that it was not as helpful as they had expected has doubled from 6% to 12%.

Finding ways to make money from intellectual property remains the top priority among respondents, increasing in importance even further this year. Enforcement of IP rights has shot up from sixth place last year to become the second most important issue, while assessing out-licensing opportunities has moved from seventh to third place. While this could indicate a more proactive enforcement and licensing market, it is worth remembering that for this year’s survey we did not include a separate category for NPEs. The difference compared to last year’s results may be partially explained by this.

This year, the number of participants who either agree or strongly agree that their company’s leadership is actively involved in strategic planning has fallen from 79% to 71%, despite NPE responses being mixed in. We can expect senior management of an NPE to be heavily involved in strategic IP planning; therefore, this overall downwards shift in perception may indicate that leadership has been less involved for operating companies compared to last year.

Figure 8. In the past year, has the budget of your IP department: (operating company)

Figure 9. In the coming year, do you expect that the budget of your IP department will: (operating company)

Figure 10. What is your opinion on IP portfolio valuation? (Please select a maximum of three options) (operating company)

Figure 11. My company’s leadership appreciates the value and importance of intellectual property (operating company)

Figure 12. My company’s leadership is actively involved in strategic planning related to intellectual property (operating company)

Figure 13. The IP function is coming under increasing pressure from senior management to monetise the company’s IP portfolios (operating company)

Figure 14. We are putting less emphasis on IP monetisation than we did in the past (operating company)

Figure 15. How aligned is IP strategy with business strategy in your organisation? (operating company)

Figure 16. Which of the following areas of work is the most important to your firm’s business model? (private practice)

Market – buying and selling

Between 2016 and 2017, the proportion of operating companies selling patents dropped from 27% to 24% and it was believed that the market had likely bottomed out. However, we saw a further decline this year to 22%. Similarly, on the buying front, the percentage of corporates that had bought patents over the last year plummeted by nine points to 25%.

Corporate respondents are still reporting a fall in values, with 24% saying that patents are cheaper than a year ago. Although this is not as drastic as the previous year’s figure of 36%, sellers will still be disappointed to see that no more than 4% of respondents said patent prices had risen.

As to why prices remain low, the inter partes review process and the Supreme Court’s Alice decision remain the top reasons in the view of our respondents. The increased difficulty in enforcing standard-essential patents (SEPs) has moved up the table of key drivers of the fall in values; meanwhile, corporate respondents attached far less importance this year to the greater availability of patents in the marketplace.

For companies still buying patents, though, monetisation has grown in importance as a motivation: the percentage of those who bought patents to secure freedom to operate is down from 40% to 24%, while the figure for those who purchased patents to develop monetisation opportunities is up from 18% to 23%. However, it is important to factor NPE responses here.

Regarding the jurisdictions thought to be the most important for purchasing patents, there have been some major shifts in priorities. US patents are still seen as the most crucial, although there has been a slight dip in the numbers naming them.

At the same time, a clear Brexit effect is in play as Germany and France leap above the United Kingdom. Notably, the United Kingdom has dropped two places despite potentially becoming a more favourable location to bring disputes as a result of the landmark Unwired Planet decision. However, Korea’s decline was even more pronounced: its perceived importance dropped by a considerable margin, resulting in a fall of four places on the table.

China’s score remained identical to last year’s, which might come as a surprise given its increasingly pro-patent environment. It is worth noting, though, that the number of Chinese respondents on our survey is relatively low and Chinese patents are primarily purchased by Chinese companies and individuals. In any case, the results seem to demonstrate that the hype around China has failed to influence international sentiment.

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

Figure 18. In the past year, has your company sold patents to an NPE? (operating company)

Figure 19. In the past year, has your company bought patents? (operating company)

Figure 20. If you have bought patents in the past year, has it primarily been to: (operating company)

Figure 21. In terms of pricing, do you believe that: (operating company)

Figure 22. Which of the following describes your firm? (private practice)

Figure 23. In the past year, IP lawyers and attorneys have come under increasing pressure from clients to advise how best to monetise IP portoflios (private practice)

Figure 24. Which services does your firm offer? (private practice)

Figure 25. There is less interest among our clients in IP monetisation (private practice)

Market – licensing

Based on this year’s results, it would appear that the licensing market can now be characterised by a greater sense of security, with 18% of corporate respondents – an increase of three percentage points compared to last year – noting that deal flow remains steady. Simultaneously, a much lower proportion of participants report increased difficulties in initiating negotiations prior to filing suit – this figure dropped by six points to 14% this year.

On the other hand, there has been a surge in those reporting that they have done fewer deals than a year ago. This figure has jumped from 7% to 13% between 2017 and 2018. In addition, there has been a bump in the number of people from operating companies who are reporting a fall in royalty rates: from 8% last year to 11% this year.

Regarding the impact of uncertainty around SEPs, there has been a more balanced spread of responses this year. The most notable difference compared to last year’s results is that far fewer corporate respondents are reconsidering their relationship with standard-setting bodies – down from 14% to 8%. This issue has evidently become less of a worry since no other bodies have changed their patent policies since the IEEE did back in 2015.

Although the proportion of participants from operating companies who said they had worked with an NPE last year rose by 5% this year, the figure for those who said they may do so in the future has dropped by 6%. So, rather than demonstrating an increase in collaborations with NPEs, it is more likely that those who were already planning to work with an NPE last year have now followed through.

Figure 26. Have you worked with an NPE in the past year? (operating company)

Quality and procurement

Despite the controversy that has surrounded it in recent years, the EPO continues to garner by far the best approval ratings of any patent office from IAM’s readers. As in the last two years, it ranked highest in perceptions of patent quality among participants in both private practice and operating companies; significantly higher proportions of respondents regard its patent quality as excellent or very good (59% of corporate respondents) than any other office listed, with only a slither regarding the quality as poor – 1% of those in operating companies.

The USPTO, by contrast, continues to divide opinion. While more operating company participants regard its patent quality as excellent or very good than any other office except the EPO, it is also seen as poor by more respondents than any other office. Though 18% of people in operating companies think the USPTO’s patent quality has improved in the past year – the joint highest with China’s State Intellectual Property Office (SIPO) – it also had by far the highest proportion of respondents who perceived its quality to be worsening.

SIPO remains bottom in terms of the proportion of respondents who regard its patent quality as excellent or very good. It also compares unfavourably to other offices in terms of its service ratings. However, the Chinese office may be on the fast track to improvement: a significant proportion of survey participants believes the quality of the patents issued by SIPO has improved in the past 12 months – 18% and 17% of those from operating companies and private practice respectively.

Patent quality is clearly a concern for our private practice respondents, with 61% saying they believe that there is a problem with quality in general – up six points from last year. And the proportion of private practice participants whose firms have initiatives in place to improve patent quality has also jumped year-on-year from 56% to 67%.

Figure 27. What best describes your clients’ approach to patent procurement? (please choose up to three options) (private practice)

Figure 28. Do you believe that there is a problem with patent quality in general? (private practice)

Figure 29. If you do feel that current patent quality is a problem, what do you consider to be the main contributing factors? (Please tick all that apply) (private practice)

Figure 30. 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

In our previous two benchmarking surveys, the United States and Germany vied for first place in the list of countries with the most thorough litigation ecosystems. While last year’s survey was defined by the sudden rise in the preference of the United States over Germany, the reverse is true this time round: confidence among corporates in the US litigation system has plummeted by 15 points to 33%, while the rise in the confidence in Germany has pushed it up into pole position.

In a similar vein, Germany has overtaken the United States in the eyes of operating companies in terms of value. However, this change has not been precipitated by a greater appreciation of the German courts; instead, it comes because of the United States’ dramatic fall in perceived value. This year, only 29% of corporate respondents designated the United States as the country offering the best value for money for patent disputes, compared to last year’s figure of 43%.

It is not all bad news for the United States though. Private practice professionals are demonstrating a renewed appreciation for the US litigation system, as the percentage of those who saw it as offering the best value for money rose from 26% in the previous year to 34% this year.

From an operating company perspective, the United Kingdom has become a far more attractive jurisdiction for IP disputes, with scores up across the board. Perceptions of the United Kingdom have no doubt been influenced by the ground-breaking Unwired Planet ruling.

Meanwhile, the number of those with the most confidence in China’s litigation system remains at a tiny 3%; however, the value of its courts as venues for IP litigation is on the ascendant with 8% choosing China for the country offering the best value, in contrast to last year’s measly 1%.

Figure 31. Which of the following countries offers the best value for money for IP litigation? (operating company)

Figure 32. Have you seen a decline in the number of NPE assertions that you are experiencing? (operating company)

Figure 33. Which of the following countries has the most thorough litigation system? (operating company)

Figure 34. In which of the following litigation systems do you have the most confidence? (operating company)

Figure 35. Which of the following countries offers the best value for money for IP litigation? (private practice)

With the United Kingdom’s imminent departure from the European Union and an ongoing German constitutional court challenge, the future of the UPC system is clouded by uncertainty – and this is reflected in our survey results, which were finalised before the United Kingdom’s surprise announcement on April 26 that it had ratified the UPC Agreement.

Just over half of respondents from operating companies believe that the UPC will not get up and running until the United Kingdom has left the European Union – a significant increase from the 29% of respondents that believed this last year. And, while 30% of last year’s corporate respondents believed the court would come into being in 2018, only 3% of this year’s participants now believe this. A similar trend is in evidence among private practice professionals, 54% of whom do not expect the UPC to be ready before Brexit, compared to 35% last year.

Few doubt the long-term prospects of a pan-European patent court, though, with a very low number of respondents saying they thought the UPC would never happen: 10% of private practice respondents and 8% of those in operating companies.

There is also uncertainty in the views of respondents regarding the prospective UPC regime: 44% of participants from operating companies said that it was far too early for them to tell what their views are – more than any other answer, and up one percentage point from last year; while 26% said it would make Europe a much more important centre for global patent litigation (down from 32% last year) and 33% said it will provide a cheaper and more efficient way to litigate patents in Europe, up 3% from 2017.

Among operating company respondents, 31% said they are actively planning for the UPC regime, but in a cautious manner. This was the most popular answer, as it was last year. Meanwhile, only 9% reported that they were actively preparing for it with enthusiasm and 13% had not yet thought about it at all. These results were mirrored by respondents in private practice, 40% of whom said they are preparing actively, but cautiously, for the UPC – up 10% from 2017, with only 6% responding that they were actively planning for it with enthusiasm (a slight decline from last year’s 10%).

Figure 36. When do you think Europe’s Unified Patent Court system will get up and running? (operating company)

Figure 37. Are you actively planning for the new EU unitary patent? (operating company)

Figure 38. What are your views on the Unified Patent Court regime? (Please choose up to three options) (operating company)

Figure 39. How will Brexit affect your European IP strategy? (Please choose up to three options) (operating company)

Figure 40. When do you think Europe’s Unified Patent Court system will get up and running? (private practice)

Figure 41. Are you actively planning for the new EU unitary patent? (private practice)

Figure 42. What are your views of the Unified Patent Court regime? (Please choose up to three options) (private practice)

Figure 43. How do you expect Brexit to affect your clients’ European IP strategies? (Please choose up to three options) (private practice)

US patent reform and Trump

This year’s survey suggests there has been a change in perception regarding the Trump presidency and what it means for patents. The US president said little, if anything, about intellectual property during his campaign for office; but, perhaps because of Trump’s unconventional politics and radical temperament, in the early stages of his tenure many in the patent community expected to see a break with the IP policies of the Obama administration. Our 2017 results showed that 42% of operating company respondents expected Trump to take a different approach, with only 14% expecting him to pursue the same policies as Obama. Of those who anticipated change, 59% said they thought the new president would be more pro-patent than his predecessor.

However, the last 12 months seem to have dampened these expectations slightly. While 40% of respondents from operating companies still believe the Trump administration has a different approach (down only two points from last year), the proportion of those respondents who believe that the new administration is more pro-patent than the Obama administration is now 43% – still a substantial share, but 16% less than among those who expected to see change in 2017. Additionally, 45% see the Trump administration’s approach, though different, as neither more nor less pro-patent than the previous administration’s policies.

There has also been a change in the view of private practice professionals. This year, only 23% said that they thought Trump had adopted a different approach, compared to the 32% who had anticipated change last year; half of that 23% believes Trump’s difference in approach stems from his lack of interest in patents.

The president’s slow appointment of the new USPTO director will not have helped; but with Andrei Iancu now in position – and saying that the US patent system is at an “inflection point” – it will be interesting to see whether views of the Trump administration have changed again by our next benchmarking survey, when the director has had a full year to take action.

Further legislative change is supported by a significant proportion of our respondents, with 52% of people from operating companies regarding it as necessary – up from 43% last year. Only 11% deemed it unnecessary. On the private practice front, 46% of respondents believe that further reforms are necessary, up slightly from last year’s result.

However, it is worth noting that our survey does not specify what kind of reform participants believe to be necessary. It could just be that a lot of those responses were connected to growing calls for clarification of Section 101 of the Patent Statute, which deals with eligibility, rather than with further moves to make life tougher for patent owners.

While the Supreme Court’s Alice decision has plainly had a significant impact on patent filing strategies, many companies now seem to have got to grips with its consequences: the most commonly reported effect among operating companies this year is that, having acquired a better understanding of the decision, more software-related patents are being filed again.

Figure 44. What are your views on calls for further legislative reform in the United States? (operating company)

Figure 45. Do you believe the Trump administration has a different approach to patent issues than the Obama administration? (operating company)

Figure 46. If yes, do you believe the administration is: (operating company)

Figure 47. What are your views on calls for further reform in the United States? (private practice)

Figure 48. Does the Trump administration have a different approach to patent issues than the Obama administration? (private practice)

Figure 49. If yes, is the new administration: (private practice)

Threats

The cost of litigation is the most serious threat identified by both private practice and corporate respondents this year. On the operating company side, this replaces the threat of NPEs, which falls from top spot to third place. The quality of patents granted has become a relatively greater concern among those from operating companies, leaping from fifth to second position year-on-year, despite becoming less of a worry in absolute terms. In general, operating company votes were spread more evenly across the different threats compared to 2017’s more polarised distribution of results.

There is remarkable continuity in the threats identified by law firm professionals, whose top three concerns are the same in 2018 as in 2017: the cost of litigation, followed by lack of resources and backlogs at major patent offices. NPEs and decisions handed down by the US Supreme Court remain at the bottom of the table, while worry about a fall in patent values has overtaken concerns regarding anti-patent sentiment.