04 December 2016

Appeals Court Throws NPE Upaid a Lifeline in Patent Claims Against Telstra

Life ringBack in March this year I wrote about an interlocutory (i.e. provisional, or interim) decision of Justice Yates in the Federal Court of Australia, in which he described claims of patent infringement made by Upaid Systems Ltd against Australia’s largest telecommunications carrier, Telstra Corporation Ltd, as being everything from ‘untenable’ to ‘confusing and embarrassing’.  (As a quick recap, Upaid is a ‘non-practising entity’ (NPE) – or, less flatteringly, a ‘patent troll’ – which sued Telstra back in August 2013 for the alleged infringement of two Australian patents relating to making online purchases of goods and/or services from mobile devices.)

Specifically, Justice Yates found, in relation to Australian patent no. 2008203853, that Upaid failed to particularise, or argue, any tenable case for infringement at any time, while in relation to Australian patent no. 770646, it had failed to particularise a tenable case for infringement, but that its submissions at the hearing departed from the particulars in ways that left unclear whether or not it might be in a position to present an arguable case.  His Honour thus proposed to strike out Upaid’s case on infringement of claim 1 of the ‘853 patent, but generously offered it a further opportunity to amend its particulars of infringement in relation to the ‘646 patent.

Had the court proceeded with these orders, it would, in all likelihood, have eviscerated Upaid’s case against Telstra.  In reporting an earlier ruling in this dispute, I suggested that the reason for Upaid’s extremely poor performance may be that, as an NPE, not itself mired in the business and technology of providing services competing with Telstra’s, it may well have a reduced understanding of the technical operations of a major national telecommunications carrier, and may therefore be reliant upon inference and observation of end results as a basis for its allegations.

Unwilling, it seems, to accept almost certain defeat, Upaid applied for leave to appeal to a Full Bench of three judges of the Federal Court.  The matter was heard before Justices Perram, Jagot and Beach on 14 and 15 November 2016, and judgment handed down on 22 November 2016: Upaid Systems Ltd v Telstra Corporation Limited [2016] FCAFC 158.

The Full Court has delivered a glimmer of hope to Upaid, partially granting leave to appeal, and allowing the appeal in relation to the primary judge’s order in relation to the ‘853 patent.  Instead, the court has ordered that Telstra’s application for summary dismissal of Upaid’s infringement claims against it be dismissed, and that Upaid be given an opportunity to file and serve further and better particulars of its infringement case in relation to the ‘853 patent (albeit that the scope of this opportunity remains to be determined by Justice Yates).

This ruling is undoubtedly a lifeline to Upaid, for which all hope had appeared to be lost.  Indeed, it now seems quite likely that the case will proceed to a full trial, unless it is settled in the meantime.

25 November 2016

A Quarter of Australia’s Patent Attorneys to be ‘Publicly Owned’ By February 2017

Mega DealPublicly-listed company Xenith IP Group Limited (ASX:XIP) announced on 25 November 2016 that it has ‘entered into a binding agreement to acquire Griffith Hack, one of Australia's leading specialist IP firms.’  The acquisition, for an upfront consideration of A$152 million, is scheduled to be completed on 1 February 2017.

Regular readers of this blog will be aware that this is just the latest in a series of public listings, acquisitions and consolidation in the Australian market for IP services.  As I have written previously, this brave experiment in capital-raising is the result of increasingly challenging market conditions.  Public listing can provide firms with the capital they need to make the significant investments necessary to achieve efficiency and productivity gains through deployment and use of new IT infrastructure, and to address the limited growth in demand for traditional IP services through acquisitions and /or diversification, e.g. into a range of new services or into other markets, such as south-east Asian countries.

Upon completion of the acquisition of Griffith Hack, and assuming no staff movements in the meantime (far from a certainty, it must be said), an astonishing 305 of Australia’s 1187 registered patent and/or trade marks attorneys will be employed by firms held by the three publicly listed companies Xenith IP, IPH Limited (ASX:IPH) and QANTM IP Limited (ASX:QIP).  That is 25.7% of members of Australian-based registered attorneys!

I would also note that one other characteristic of the changes sweeping the attorney professions in Australia has been generally poor communication with many affected stakeholders (i.e. employees).  In the case of the Griffith Hack acquisition, rumours that something was afoot have been circulating for some time.  The Griffith Hack staff with whom I happen to have spoken in recent weeks have generally known no more or less than the rest of us about what has been going on.  I learned of the acquisition plans not from Xenith’s ASX announcement, but via the Australian Financial Review’s Street Talk column (paywalled, sorry) on the preceding day.  I expect that this is also how many at Griffith Hack also initially heard the news.  It was only the next morning that a trading halt was called, and the official announcement published.

While I appreciate the need for confidentiality around price-sensitive announcements in relation to public companies, I do not imagine that too many people would attempt to deny that a stock market scuttlebutt column is a terrible way for employees to learn the details of the acquisition of their employer.  While some of the partners and principals of the firms involved so far appear to be in denial about the impact on staff, the murmurs I have been hearing around the traps indicate a fair degree of disgruntlement among employees – particularly those who perhaps envisioned being on a path to equity ownership themselves, and have now seen that future evaporate.

Oh, wonder!
How many goodly creatures are there here!
How beauteous mankind is! O brave new world,
That has such people in ’t!
          - The Tempest, Act 5, Scene 1

20 November 2016

Patent Offices in Crisis? Application Pendency Alone Does Not Tell the Full Story

Panic ButtonAn article posted on 24 October2016 on the IP Watchdog blog caught my attention.  It is by Mark Schultz and Kevin Madigan who have recently authored a report for the Center for the Protection of Intellectual Property (CPIP), The Long Wait for Innovation: The Global Patent Pendency Problem [PDF, 1MB].  Their thesis – and it is a sound one – is that the growth in numbers of patent applications throughout the world over the past decade or so is stressing the resources of many patent offices, and is resulting in a growing backlog which is resulting, in turn, in excessive pendency (i.e. the delay between filing an application and a patent actually being granted).  This, say Schultz and Madigan, is a problem, because in some countries patents are taking so long to issue that, by the time they do, they may be of little value to their owners.

The Long Wait looks, in particular, at the pendency of patents granted by a representative sample of 11 offices, between 2008 and 2015.  The results place South Korea, China, Australia, USA and Japan in a ‘low pendency’ group (application to grant in under four years).  Egypt, the European Patent Office (EPO), Argentina and India fall into a ‘medium pendency’ group (between four and eight years).  Bringing up the rear, in a ‘high pendency group’ (eight to 12 years) are Brazil and Thailand.

Schultz and Madigan’s conclusion that patent offices with longer pendency are struggling, while those with the lowest pendency are doing fine, is broadly valid.  However, there are a couple of limitations to their approach, as a result of which they miss some subtle – and not-so-subtle – points regarding the performance of a number of the patent offices in their study.

First, using pendency as a measure of performance is inherently backward-looking. For the offices in the ‘high pendency’ group, in particular, the applications in question were filed, on average, a decade prior to the year in which they were granted.  But what does this mean for applications filed since 2005?  Can they expect a similar, shorter, or longer pendency?

Second, the assumption underlying the methodology – that pendency is primarily a result of patent office delays resulting from an existing backlog of applications – is not entirely valid in relation to a number of the patent offices considered.  Applicant behaviour and specific legal and regulatory provisions are also significant factors in some jurisdictions.  Indeed, in Australia and Japan in particular the impact of changes in laws and/or regulations are clearly visible in the results, and dominate over patent office examination delays.

By looking at filing and grant behaviour in the 11 offices selected by Schultz and Madigan, in conjunction with their pendency data, it is possible to obtain further insights.  For example:
  1. the Brazilian and Thai patent offices are in very serious crisis (the term ‘basket case’ would not be inappropriate) – in the absence of major intervention the pendency of applications in these offices will continue to grow (and the apparent reduction in pendency in Thailand between 2012 and 2014 appears to be an anomaly);
  2. although the EPO falls into the ‘medium pendency’ group, it appears to have its workload under control, and is at low risk (along with Australia, the USA, Korea and Japan) of developing a growing backlog;
  3. within the ‘medium pendency’ group, the Indian Patent Office appears to be at greatest risk of joining Brazil and Thailand in the ‘high pendency’ group, with every indication that the growth in pendency observed in Schultz and Madigan’s study will not just continue but, without action, accelerate; and
  4. China, despite falling in the ‘low pendency’ group is, on other measures, on par with Argentina, and may be starting to develop a growing backlog of applications.

11 November 2016

Public Listings – Australian IP Firms’ Bold Experiment

ExperimentThe Australian IP professions – registered patent and trade marks attorneys and specialist IP lawyers – are currently engaged in what might well be regarded as a brave and daring experiment. Prior to 15 April 2013 the regulatory regime in Australia did not even permit patent attorneys to incorporate. Now, less than four years later, not only have many firms chosen to take up the option of incorporation, but Australia now has not one, but three, publicly-listed companies each holding multiple operating IP firms.

In developments to date:
  1. in November 2014, the firm of Spruson & Ferguson went public on the Australian Securities Exchange (ASX) via the listed entity IPH Limited (ASX:IPH), which has since acquired Fisher Adams Kelly Callinans (itself the result of a merger between Fisher Adams Kelly and Callinans), Pizzeys, and Cullens;
  2. in November 2015, Shelston IP went public through the vehicle of Xenith IP Group Limited (ASX:XIP), which recently completed the acquisition of my former employer Watermark; and
  3. in August 2016, Davies Collison Cave and FPA Patent Attorneys (formerly Freehills Patent Attorneys) jointly went public under the holding company QANTM IP Limited (ASX:QIP).
Most recently, on 26 October 2016 IPH announced [PDF. 298kB] that it has reached an agreement to acquire Ella Cheong (Hong Kong) Limited and its subsidiary Ella Cheong Intellectual Property Agency (Beijing) Company Limited for approximately A$27 million.

At this stage you are probably wondering whether there is something in the water in Australia!  However, there is method to this apparent madness.

The fact is that firms offering IP services in Australia are currently facing significant structural challenges.  Many transactions that were once the ‘bread and butter’ of the profession, such as payment of renewal/maintenance fees, preparation of translations of patent specifications, and filing of national applications under the Patent Cooperation Treaty (PCT) or Paris Convention, have been increasingly computerised and centralised by specialist service providers which have been able to achieve significant economies of scale.  Combined with increasing competition in the Australian market, in the face of very modest growth in demand (around four per cent) the choice for many firms is between innovation and stagnation.

Public listing can provide firms with the capital they need to make the significant investments necessary to achieve efficiency and productivity gains through deployment and use of new IT infrastructure, and to address the limited growth in demand for traditional IP services through acquisitions and /or diversification, e.g. into a range of new services or into other markets, such as south-east Asian countries.

However, this daring strategy does not come without challenges of its own.  The Australian model of public ownership has thus far produced three public companies each holding two or more firms that continue to do business as completely separate, and competing, operating entities.  This creates potential concerns about the ethical positions of these firms and their employed attorneys, including whether there may be conflicts between their duties to client and to shareholders, and/or between the clients of different firms within the same operating group.

These challenges are not, and have not been, insurmountable.  Whether the solutions are being effectively communicated to the market is a separate question.

You can read my detailed analysis of the reasons for consolidation and public listing of firms in Australia, the ethical issues that have arisen, and the ways in which these issues are being managed, in a recent article I wrote for the IP Watchdog blog: Will Australia’s Listed Firms Save the IP Profession from Stagnation?

23 October 2016

If the Patent Office is Correct, Google’s Seminal ‘PageRank’ Invention Would Be Unpatentable in Australia

SearchOn 4 September 1998 a company was founded in order to commercialise some ideas that were being developed by two PhD students at Stanford University.  The most important of those original ideas had resulted in the filing of a US provisional patent application on 10 January 1997, in the name of one of those two PhD students.  This was followed by a non-provisional application, filed on 9 January 1998, which went on to become US patent no. 6,285,999.  Ownership of the patent remained with Stanford, which licensed it exclusively to the students’ company in exchange for 1.8 million shares. 

In 2005, those shares were sold for US$336 million.

Today, a few hundred million dollars is small change to those former PhD students, and the company that they founded.  The inventor on the original patent application was Lawrence (‘Larry’) Page, and his fellow student/founder was Sergei Brin.  The invention was a computer-implemented method for determining the ‘importance’ of web pages, for ranking purposes, which became known as PageRank (a play on the inventor’s name, and the purpose of the invention).  And the little company they started was, of course, Google, Inc.

While the original PageRank application has spawned a number of further US patents, it was never filed anywhere else in the world.  There was therefore never any possibility of an Australian patent being granted.  It is nonetheless concerning that, if a recent decision by a Delegate of the Commissioner of Patents, Amadeus S.A.S [2016] APO 71, is correct, the invention that helped launch one of the biggest companies the world has ever seen would be ineligible for patenting in Australia.

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