On the heels of a technology innovation campaign that launched on JDSU.tv today, I spoke to Jeremiah Chan, director of Intellectual Property at JDSU, to get his perspective on how patents support innovation.
Q. What is it like to be a patent attorney for a tech company in Silicon Valley?
A. It is absolutely wonderful. Silicon Valley is a hotbed of innovation, and many of the biggest IP disputes and deals involve valley companies. The world of IP specialists is fairly small, so the chances are high that you'll be able to get the scoop on significant IP transactions. I feel fortunate to work for a tech company that innovates every day and places a very high priority on IP protection.
When 60-70% of your company's revenue comes from products that are 2 years old or less, you can be sure that the pace of innovation is extremely fast, which also means that the process to ensure IP protection needs to be incredibly efficient and responsive. I love being busy so it's the perfect union.
Q. How many patents does JDSU have? What are they for?
A. JDSU has nearly 2,300 patents worldwide. The number in and of itself is impressive, especially when you take into account the fact that we've divested or pruned hundreds of patents that are no longer relevant to our business. It's also well above the benchmark of 1,600 patents (for companies with similar annual revenues).
Our portfolio of patents is incredibly valuable to our company, and it gives us the freedom to operate without fear of being shut down by one of our competitors. We have used many of our patents as a shield to prevent other companies from coming after us. We have fundamental patents that are relevant to the many innovative technologies that we continue to develop and provide to our customers.
As a technology leader with a diversified product portfolio, we have fundamental patents that relate to a variety of technologies, including amplifiers, VCSELs, tunable lasers, wavelength switches, optically variable pigments, coatings, holograms and test and measurement applications. These patents are critical to our business.
Because JDSU has such a diversified portfolio, it requires a customized IP strategy for each product group. We recently completed a series of IP strategy sessions for each of the R&D teams within the CCOP segment, and in collaboration with our engineering teams, we developed comprehensive IP plans to protect the future roadmap.
Q. You mentioned to me that other entities have recognized the JDSU patent portfolio?
A. For several years in a row, the Wall Street Journal has published patent rankings that have recognized JDSU's patent portfolio as one of the strongest portfolios in the telecom sector. JDSU has also been included in two popular equity indices that were assembled on the basis of patent portfolio strength. The Ocean Tomo 300 Patent Index and the IPX Composite Index both include JDSU.
Q. There are debates going on about whether patents are fostering or curtailing innovation because of all the lawsuits and costly patent acquisitions going on at tech companies like Motorola, Google and Nortel. What is your perspective?
A. The U.S. patent system was created to promote and facilitate innovation pursuant to Article 1 of the U.S. Constitution. For the most part, I think the patent system has accomplished that goal. However, over the years, people have begun to abuse the patent system in ways that were clearly never intended.
The main culprits are known as patent trolls or NPEs (Non-Practicing Entities). These companies acquire patents for the sole purpose of monetizing them, usually by asserting them against companies in litigation. Today, patent trolls are everywhere, and law firms, banks, and VCs are all getting into the act. Many of the trolls operate covertly, so you don't know who they or who is funding them. NPR did a recent segment that described the patent troll phenomenon (see ‘related reading’ at the end of this post).
Tech companies have been hammered by patent troll lawsuits incurring hundreds of millions of dollars every year in litigation defense. As a result, companies have been forced to buy large amounts of patents or join patent pools as a defensive measure - to keep patents out of the hands of patent trolls.
The billions of dollars that companies are spending to keep patents away from trolls is money that would otherwise be invested in R&D and innovation. Patent troll abuse has imposed a tax on innovation.
Q. Many think it’s time for an overhaul of the US patent system because it hasn’t changed much since the 1980’s. Do you think that changing to a ‘file first’ approach instead of staying with a ‘first to invent’ approach is the right way to go? Is it unfair to small businesses?
A. Patent reform has been in the works for quite a while with several reform bills being proposed and killed over the last decade. It seems clear to me that the U.S. patent system is broken. When you've got widespread abuse of patent litigation and 50% of U.S. patents being overturned in court, something is wrong with the system.
The push for patent reform really tried to address the abuse by patent trolls, but over the years, reform legislation has become more and more watered down. The ‘first-to-file’ (FTF) issue is one of the less controversial provisions being debated. I think FTF is the right way to go. The US is the only system based on ‘first to invent’ (FTI). Moving to an FTF approach would harmonize the US patent process with the rest of the world. It would streamline and simplify the patent filing process.
Some argue that FTF would result in a system that improperly awards patent rights to people who steal ideas and claim them as their own. While this argument appears to have some merit, it falls apart when you begin to look at the data. First, a FTF system would have the same protections in place to prevent theft or copying that exist today. Second, the data shows that subsequent patent filers almost never win priority. Under our current system, we have a process called an "interference" in which 2 inventors argue for priority and ownership. Our interference data shows that the first person to invent something is usually the first person to file the patent application
Although, a FTF system generally favors companies/individuals who can file more quickly, I don't think it puts sole inventors or small companies at a significant disadvantage.There are many low cost options for inventors to file provisional applications that will give them priority with the Patent Office. There are many service providers that will draft and file an application for as little as $75.
Q. Do you think the tech industry is in a ‘patent bubble’ and that it will eventually burst?
A. I do. The secondary market for patents has continued to evolve over the last few years, but I think we are still trending toward an equilibrium state. Prior to the recession, patent valuations appeared to be climbing.
A company called Ocean Tomo holds patent auctions several times a year. Their 2008 Spring auction generated $20M in patent sales with most patents selling for more than $50K per patent. In 2009-10 auctions, patent sales plummeted and the demand for patents dried up.
This year, patent sales not only returned, but exploded. The two most recent deals involved a $4.5B purchase of Nortel patents and a $12.5B purchase of Motorola's Mobility business and its patents. Both prices were magnitudes greater than the valuations performed by patent specialists, but my suspicion is that financial service providers got involved and delivered valuations that drastically overvalued both portfolios.
As a result, both deals created "comps" that are way too high, and they will set the stage for future patent deals. I’m guessing that most companies are thinking that their portfolios are worth much more than they thought. This will likely result in a misalignment of patent valuations between the seller and buyer, and I expect the market to correct itself over time.
Q. What are you most proud of at JDSU?
A. As technology leader, we live and breathe innovation. I see it every day. Collaborative innovation is one of the JDSU’s mantras and I am proud to be a part of a company that is dedicated and committed to its employees. Every idea starts with an inventor and his/her team. If we fail to capture and protect the ideas that are happening behind JDSU doors, then we will no longer be able to sustain our technology leadership.
During the economic recession, many companies were scaling back their IP budgets and R&D investment. JDSU remained focused on innovation. JDSU has a long-term vision for innovation and for protecting that innovation.
I am also proud of the collaborative spirit, drive, and work ethic that I have observed in people throughout the company. Personally, I feel privileged to work with so many bright people working toward a common goal.I take great satisfaction in helping to foster the culture of innovation that we have created together.