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Tuesday, 6 August 2013

French sovereign patent fund shows muscle: FB spearheads patent litigation in Germany

The role of the state in the economy of innovation remains an endless debate. Besides creating a balanced system that could give enough incentives for inventors to create while not restraining information, the state sometimes has a role to play to help with the monetization of IP rights of its citizens and companies.

Nothing new here, as these kind of mechanisms are used in diverse situations. From a liberal paradigm, pragmatism sometimes prevails on the state to get involved in the economy in different ways, such as regulation, the creation of specific structures, tax strategies, and much more. These interventions are made for different reasons, for instance to help with the development of a new industry or to avoid structural issues in an old one such as the tragedy of the anticommons.


France recently made an interesting move regarding the role of a public body in the economy of intangible assets. The state-owned patent fund named France Brevets (FB) has commenced litigation before a German Court in Duesseldorf against a private company for patent infringement. Before detailing this case (this should not take too long, as very little information is currently available), this Kat will try to reveal what France Brevets is about and why it differs from a classical private patent assertion entity.

The monetisation of public research has been quite a hot topic in France over the past 40 years, with many laws, mechanisms, and structures being created to develop it. As a result, it is today difficult to find any overall coherence in this overlap of rules. In 2010, a deal was struck between the state and the national agency for research (ANR) to create a 1 billion Euro fund to help French companies with IPR monetisation. The major part of this fund was set to create specific companies (SATT); the rest (100 millions Euros) was used to create a national investment patent fund named France Brevets (FB).

The creation of FB was made in consideration of two failures regarding the technology market. The first failure was caused by the growing fragmentation of this market and the “atomisation” of invention sources. Regarding the increasing complexity of research process, it is common today that one technology to be protected by many patents owned by many different actors, making it difficult for a company to get all the required licences before producing goods or services incorporating such technology.

The other reason is the difficulty for French companies, apart from large corporations, to monetise their patent portfolios through licensing, especially outside France. FB was created reduce those two boundaries and help with the acquisition and sale of French patent rights.

FB seeks to build relevant patent portfolios mostly from French public research centres and SMEs, then license them to operating companies from France and abroad. FB thus acts as an intermediary in the licence market between patent owners and operating companies. The investment fund does not produce any goods or services and is involved in neither the activity of research nor patenting. Merpel wonders if this is not the same as a Non Practising Entity(NPE), Patent Assertion Entity (PAE), Patent Monetisation Entity (PME), Patent troll or any other name or acronym that has been the source of extensive debate over the past few years (for a complete overview of NPEs, check these three Katposts from Stefano Barazza: part 1, part 2 and part 3).

Most NPEs claim to be intermediaries between inventors/SMEs and big corporations and that their function is to bring transparency and more liquidity into that complicated market. Just like FB.

One could argue that the main differences between a “bad” and “good” NPE is the way they use the weapon of litigation. What is criticised is the situation in which a patent owner aggressively proposes a licence agreement under the threat of costly litigation, often in respect of a dubious patent. These unmeritorious lawsuits appear to be a sort of cancer in the patent market and the keypoint when arguing about a NPE.

For those who believed that FB would not bring any case before a patent court but would stick to its role, letting companies handle litigation by themselves, the fund recently made the opposite move. At the beginning of July, FB commenced legal proceedings against an operating company before a patent court in Duesseldorf. Therefore if FB uses litigation as a weapon for negotiation against an operating company, what's the difference between it and a troll?

I have had the chance to speak with Jean-Charles Hourcade, FB managing director. We had a very pleasant chat and he explained to me the vision he had for FB, highlighting the differences between this public entity and a traditional aggressive NPE. However he refused to talk in detail about the ongoing litigation to avoid any interference with possible negotiations with the defendant.

Based on the discussion we had, and a briefing paper from FB itself, what I know so far about the litigation is this:

* This is the first time FB has decided to assert its patent rights before a court.

* This case concerns a patent or group of patents owned by FB regarding smart home technologies that have already been licensed to others operating companies.

* The route to litigation was taken by Jean-Charles Hourcade, and approved by the FB board, composed of representatives from the French government and the CDC.

*  The location of Duesseldorf was made in consideration of efficiency and legal certainty. Merpel wonders how French Judges should consider this. Is there something wrong when a Public entity based 20 minutes far from the Paris patent court chooses to litigate abroad because of such motivations?

* The identity of the defendant has not been revealed yet, in order to make the negotiation easier, but it seems that the defendant is an American operating company.

This is all the information that is available at the moment. It is not much, but it surely demonstrates something. A message is being sent by FB to operating companies. Even if FB is not a private player, the public entity will act in consideration of economic interests, using the same weapons and negotiation tools that are offered to private patent players. It seems that the NPE structure made FB perfectly shaped to go for litigation, rather than the operating company that was previously, or may still be, the owner of the patent(s) opposed in Germany. As stated in the FB briefing paper: 
"France Brevets, aka FB, follows a licensing strategy that is both amicable and determined. As such, France Brevets offered to enter into discussions with the defendant in order to present why FB believes the defendant needs a licence. As no signal of cooperation have been received, FB sees no other remedy than to enter the litigation route. These rights have already been successfully licensed in the past to other industry players. 
Procrastination is a very common strategy in licensing, says Jean-Charles Hourcade, Managing Director of France Brevets. It is important to demonstrate how serious we are about protecting the rights we defend".

Considering the comparison between FB and a classical patent troll, Jean-Charles Hourcade identified four main principles that govern the fund:

* The entity has adopted a long-term strategy, with little consideration for short-term revenues.

* The aim of FB is to maximise the revenues to refinance R&D in France.

* FB spends time and effort making sure of the quality of the patents acquired. The due diligence process is therefore very long when buying a patent to consolidate a portfolio. Mr. Hourcade emphasised this, to point out the distinction between FB and a classical patent troll.

* Finally, FB aims to give priority to negotiation rather than litigation.

Therefore few statements can be made regarding the role and function of FB. This entity is an NPE, there is no doubt about it as it does not produce any goods, does not invent anything and acquires licence rights or patent ownerships in order to monetise them with operating companies. 

This entity respects what the function of IP law is about. If the traditional justification for a patent system is to allow the patentee to get revenues on its investments in R&D, then FB clearly aims for this.

The fact that it is a public entity is to me a solid point to distinguish it from bad behaviour. The deal signed between the State, ANR and CDC made it clear that this structure does not work as a purely private player but will also act in consideration of broader interests. For instance, Article 1.2 states that the royalties obtained from the licence agreements shall return to the patent owner (the inventor) after reimbursement of FB's expenses.  Concern about quality and the connection with public research centres are other reasons to look at FB like a real intermediary, not a short-term gold digger.

Some questions however remain unsolved: would a litigation process be engaged against a French company? What is the future for this public patent fund? Could this move be considered as a state aid? Does this fund has enough resources to litigate? Even in the US?

This Kat wonders how readers consider an entity like FB. Does it appear as a curative on the patent market or is it the same old NPE story disguised under the shadow of the state?

Here is another idea: while the unitary patent is finally becoming a reality, what about developing a similar structure on a European scale? I guess it would not take 40 years to be created, right? Ho wait…

13 comments:

Anonymous said...

A French form of BTG then?

MaxDrei said...

Why Duesseldorf? The English would say: Bifurcation.

The Germans would not agree. They would say: Speed, value for money and a decision from a Panel of experienced judges that will be of such high quality and persuasive reasoning that every other jurisdiction will follow it.

The Americans might say: Because nobody will believe for one minute that any decision of a court in France is impartial.

I was once asked by a German client who would win if the issue were to be litigated in England. He had won in Germany against his French competitor. However, his competitor had won in France. He wanted to know which of them would win in neutral England.

Suleman said...

This sounds like a government funded patent pool now deciding to become a patent troll. Any NPE has the advantage of not needing to negotiate for crosslicencing since they are not practicing the invention, and this distorts the marketplace and must be unfair. The present situation seems to represent anticompetitive behaviour.

Also there are parallels with the first part of Mike Mireles' article in IP finance about universities acting as trolls (http://ipfinance.blogspot.co.uk/2013/08/a-need-for-trademark-bullies-or-at.html) See also a related list of problems associated with commercialising university research (http://hollyip.blogspot.co.uk/2013/08/problems-of-patenting-and.html)

Anonymous said...

Suleman at 11:00 states "and must be unfair" and I have to wonder, why?

On the contrary, patents (generally) being a negative right, and not a right to practice, and in addition I rather fancy that someone having the ability to break the large corporations' atomic bomb patent portfolio threat to competition is a feature and not a bug of the NPE phenomena.

Bertrand Sautier said...

Suleman: I believe that comparing FB to a patent troll does not reflect the reality. The main critic against trolls is that they take litigious patents and try to get the most revenues from it in a short amount of time, using litigation threat. This is not the way FB works.

Suleman said...

In response to Anonymous of Wednesday, 7 August 2013 12:04:00 BST and Bertrand Sautier, FB have already gone beyond the remit of solving the problem of 'fragmentation of the market' mentioned in the article. They've build portfolios from diverse sources which they are now prepared to use offensively, rather than defensively, in litigation. I imagine that they are in a pretty powerful position when they negotiate and they never have to worry about being infringers. Tied to the fact that they are state-funded, I would say this is a worrying situation. I would ask do we want such (potentially large) organisations to develop and be part of the research and patent ecosystem?

Anonymous said...

Suleman at 15:09,

You say in your post "in response to...," but I cannot see how your post responds to my post, as you do not discuss or even acknowledge the point that I made.

Rather, it appears that you use the line to segue into a different point that you want to make.

To this new point, I would say that to focus on the particular owner of any patent (or portfolio of patents) is very much still a red herring. A patent can only cover that which it covers. No more and no less. Who owns a patent simply does not factor into what that patent rightly covers. It matters not if the asserting entity is state-funded or not.

It appears that you sub silento are assuming that the asserting entity is wrongly asserting patents. This again should not matter as to the party asserting the patent.

Anonymous said...

As a French resident and taxpayer, I applaud every initiative of the French government to maximise its revenue without drawing it from my pocket...

Anonymous said...

There does seem to be a lot of concern out there with the concept of a government backed patent entity. South Korea have one, and China and Japan are thinking of forming them too. They are being referred to as patent trolls and Congressman Peter DeFazio has referred to their activities as as 'protectionism'. (see http://uk.reuters.com/article/2013/03/20/us-patents-nations-insight-idUSBRE92J07B20130320)

Anonymous said...

Anonymous at 11:11,

The Reuters article has the earmarks of an article written by someone who does not understand patent law.

Particularly in regards to U.S. jurisprudence, there is no "use" requirement, as the fourth paragraph of the article incorrectly implies.

Further, the article ignores the fact that patents by law are property, and protecting alienability of property has always been a critical element of government.

Further yet, the myth of litigation spiralling out of control is just that: a myth.

Further, the article takes as given the unproven assertion that patent trolls only deal with 'bad patents' that stifle innovation.

I suggest that Lemley is not a source to be trusted, and a jaundiced eye must be used whenever he is quoted.

Finally, I suggest the series of articles on Patent Trolls that debunk such unwarranted myths:
http://www.ipwatchdog.com/2013/07/29/a-fractured-fairy-tale-separating-fact-fiction-on-patent-trolls/
http://www.ipwatchdog.com/2013/07/30/probing-10-patent-troll-myths-a-factured-fairytale-part-2/
http://www.ipwatchdog.com/2013/07/31/a-factured-fairytale-part-3-more-patent-troll-myths/
http://www.ipwatchdog.com/2013/08/01/a-factured-fairytale-part-4-more-patent-troll-myths/
http://www.ipwatchdog.com/2013/08/02/patent-troll-epilogue-a-fractured-fairy-tale-part-5/

Anonymous said...

In response to Anonymous of 15:48:00, Lemley is a highly regarded commentator and expert on patent matters.

Anonymous said...

In response to Anonymous of 10:15, Lemley is a notorious commentator and NOT an expert on all patent matters. His anti-patent leanings are well known to those in the patent world, and to blindly accept his views 'because he is Lemley and says so' is an offense to critical thinking everywhere.

Bertrand Sautier said...

One could argue that patent trolls articles attract regular on-line trolls.

I must say that I am struggling to see the "offense to critical thinking" when reading an anonymous comment with such arguments. I guess the NPE topic is still provoking very animated debates.

Regarding the "myths", I do not see anything referring to a "use requirement" in the fourth paragraph. Furthermore, I do not quote Professor Mark Lemley and I believe in patent as property rights (who does not?).

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