Taiwanese to Form Patent Bank to Defend Local Companies

6 October 2011—The ongoing patent infringement war between Apple and Taiwanese smartphone giant HTC—and the increasing number of entanglements involving Taiwanese LCD panel makers—has prompted the Taiwanese government to accelerate plans to retune its patent system. Draft guidelines for a national intellectual property (IP) strategy are set to be finalized in November and are expected to include a controversial item: a "patent bank," partially sponsored by the government, which would back Taiwanese multinational manufacturers facing patent disputes from foreign companies.

The quasi-government agency, the Industrial Technology Research Institute (ITRI), announced plans for the IP bank on 1 September, saying that it could be similar to existing defensive patent aggregators such as RPX Corp. and Allied Security Trust. Such patent-aggregation companies aim to buy out all the patents that might be asserted against their members.

According to Xiangsheng Xie, director of ITRI, the IP bank will assist Taiwanese manufacturers with the creation of patent portfolios and patenting strategies during the manufacturers’ R&D periods and later assist in defending them from suits and in expanding their market share. Should a Taiwanese firm face a patent-infringement lawsuit filed by its competitor or a patent troll, it can turn to the IP bank for either useful patents for its defensive actions or other strategies. In addition, the company, by way of the ITRI, can use other funds to tap into the intellectual property of Taiwan’s universities and research institutes as the industry’s backup.

ITRI was inspired to create the IP bank in response to the actions of other Asian nations. Intellectual Discovery, in South Korea, was established in 2010 to help protect domestic manufacturers against foreign patent trolls. Intellectual Discovery buys out patents that might be asserted against Korean firms, and it is creating a fund to help universities and research institutes generate patents and file patent applications overseas. ITRI also looked to Japan, which formed the Innovation Network Corporation of Japan (INCJ), a public-private partnership, in 2009 to provide similar services to Japanese firms.

To show a degree of detachment from the government, the IP bank will be 100 percent funded by private capital. So far, ITRI has raised NT $50 million (US $1.63 million) for the preliminary operation of the new company and another NT $200 million ($6.53 million) to be used as a guidance fund to draw more investment from the industry. According to ITRI, within six months of its establishment, the IP bank is expected to raise its first counterclaim fund, on a scale of NT $500 million ($16.3 million). Meanwhile, another fund, roughly NT $1 billion ($32.7 million), will be used to devise better international IP strategies for Taiwanese technology firms.

Shang-Jyh Liu, professor of the Graduate Institute of Technology Law of National Chiao Tung University, says that collective action like the IP bank is needed for Taiwanese firms facing IP disputes with foreign firms. Liu and his research team analyzed 136 U.S. lawsuits from 2002 to 2010 involving LCD companies and found that 81 percent of cases were related to Taiwanese firms.

According to Liu, foreign patent trolls have targeted many Taiwanese companies. These trolls, which do not themselves use patents to produce anything, threaten to file lawsuits against firms in the hopes of receiving settlement money without going to trial.

 Setting up an IP bank is a good idea, says Liu. But obviously the defense will have to be scaled up. "If the IP management company, which is already a latecomer, doesn’t have a deep pocket, I don’t think competitive Taiwanese multinational companies will need its assistance in counterclaims," he says.

Liu stresses that buying patents defensively is not a long-term solution for Taiwanese high-tech firms. Instead, they should strengthen R&D capacity and eventually possess their own core technologies, which many now license from U.S. and Japanese firms.

Liu expects foreign competitors to be concerned that a quasi-government agency such as ITRI is involved. Premier Wu Den-yih sought to ease those fears during a press conference on 9 September. Wu stressed that the government would not interfere if Taiwanese firms violate foreign laws in other countries. And he said that the government would never get involved in the operations of the IP bank’s clients. Wu also pointed out that ITRI has already assisted Taiwanese LCD companies in a patent dispute with South Korea’s Samsung Electronics and LG Display. "[ITRI] is just doing what it should do," Wu said.