Patents protect innovation as the price of intellectual property rises

ZTE president Shi Lirong writes for GTB about the remarkable rise in the price of patent portfolios in 2011. ZTE, which invests 10% of its revenues in R&D, takes IPR seriously, says Shi The subject of patents has developed recently into one of the most talked about matters in telecommunications. Disputes about intellectual property rights have made occasional headlines in the past, but were viewed by most commentators as being the preserve of the legal departments. Patents have now become a boardroom matter. Yet, for those of us deeply involved in telecoms, patents are entwined through the historical and technological DNA of communications. If necessity is the mother of invention, patent law becomes its protector. Without patent law, the costs and risks of research and development would deter serious investment, consequently few could innovate and the industry would stagnate. Patents, like standards, form the bedrock of our industry. The concept of a patent, being a documentary proof of invention providing its creator with the legal recourse to impose a demand — usually a fee — on its use by others dates back as far as 500 BC. The codification of patent law can be traced back as far as the 15th century, but it had to wait until the late 20th century before it became truly international. Typically, nation states grant inventors the right to hold a patent. However, steady globalization of business and the development of the truly borderless corporate enterprise, due to mass, rapid, affordable transit, in combination with huge progress made in communications, has resulted in the creation of international treaties such as the Patent Cooperation Treaty administered by the World Intellectual Property Organization, a UN agency, which covers more than 140 countries, centralizing some portion of the filing and examination procedure of patents. Cooperation and teamwork The success of telecoms, cellular communications in particular, is as a result of interoperable standards. Cooperation and teamwork in a competitive environment have seen mobile connections jump from effectively nothing to approaching six billion in 20 years. The benefits of globalization in combination with improving education and a shifting workforce means ideas are more easily shared. In communications technologies there is a necessity for ideas to be shared, in fact, without collaboration the industry would be completely fragmented. We would have pockets of barely interoperable communities. Of course, ideas cannot simply be given away and recent developments on the world stage show the financial lengths some companies will go to in order to protect their position in the market. Earlier in 2011, for instance, Microsoft, Sony, Ericsson, EMC and Research in Motion clubbed together to spend $4.5 billion for about 6,000 patents owned by Nortel Networks, a bankrupt former telecoms equipment competitor. The patents covered a wide variety of technologies in cellular, including 4G wireless, data networking, optical, voice, internet and semiconductors. Naturally, the most prized assets relate to mobile broadband technology used in 4G LTE standards. Google, meanwhile, had very publicly been in the running for the Nortel patents, with reports of intriguing bids such as $1,902,160,540 and $2,614,972,128 before apparently placing a bid of $3.14159 billion — all of these numbers represent mathematical constants: Brun’s constant, the Meissel-Mertens constant and the more familiar pi. For many, when Google missed out on the Nortel patents, this was seen as a victory for the more wily established players in the market. In August, however, Google acquired the assets of Motorola Mobility for $12.5 billion. Why would an online software giant whose business model is based on advertising want to buy a device manufacturer at a 63% premium on its market value? Some speculated that the acquisition would see Google channel its considerable resources away from the Open Handset Alliance and more fully behind Motorola. However, recent events — that saw Taiwanese handset maker HTC using Google’s freshly acquired patents to counter-sue Apple on an IPR issue — demonstrated the reason for the Motorola acquisition. Android ecosystem partners Google and its partners in the Android OS ecosystem are now able to fight fire with fire in the patent arena. It’s easy to see now why patents have become so interesting to the media since they represent a billion dollar industry integral not only to survival but to long term success. Unfortunately, patent lawsuits have become an unavoidable challenge for every player in this industry. ZTE is not immune from patent disputes, but we are committed to preventing unnecessarily aggressive competition and we reserve the right to take legal action to protect our own and our customers’ interest. Thanks to more affordable operating conditions and a highly educated, motivated, workforce, China has become one of the world’s leading manufacturers. Certain unfair prejudices remain regarding Chinese innovation. Yet with 313,854 patents registered China was the third highest filer of patents in 2010, just behind the US, which registered 326,945 and Japan at the top with 337,497. Japan has been the leading patent filer in the world for the past decade but its lead is narrowing, with its filings volume down 12% since 2006. China on the other hand is up 83%. As of first quarter of 2011, ZTE had been awarded membership of over 70 standards organizations and holds over 16,000 international standards proposals, with over 35,000 patents applied and over 6,500 international patents. Since December 31 2010 ZTE has held a total of 1,863 international patent applications as registered with WIPO, ranking the company second in the world in terms of international patent applications. ZTE’s innovative technologies in the fields of LTE, SDR, CRAN, 10G-EPON, PTN and solar-powered phones have been widely deployed around the world, creating fantastic market value for operators worldwide. Patent protection ZTE always complies with local laws and always takes IP protection very seriously. As a publicly listed company ZTE has consistently invested 10% of revenues into research and development, and has over 30,000 employees dedicated to R&D. ZTE’s IPR strategy is in line with the company’s globalization strategy and market forecast. In support of the company’s developments in high-end markets, ZTE will continually invest in the field of IPR and keep up the momentum in international patent applications. Our strategy will not rely on making acquisitions to secure IPR. Our strategy is to drive innovation. In addition to the 10% of revenues that we return every year to research and development, this year we announced an additional $15.5 million venture capital innovative fund created with the intention of driving innovations from within the company. You never hear a business leader saying its biggest asset is its patents. Patents cannot create, only people can create. At ZTE our biggest asset is our people. That’s why we’re actively seeking technology solutions, business models and management processes from our 80,000-strong employee base, including 30,000 research and development personnel. Anyone in the company can bid to receive part of the innovative fund to build their dream. That is true empowerment. The venture capital fund is part of ZTE’s ongoing efforts to stay ahead of changes in technological trends by seeking out investment ideas that will drive both the company and the telecom industry forward. To that end, we will support innovations in operations, strategy and management models, with the intention of creating a testing ground for ideas that break with tradition. Mobilization of our employees as creators of ideas for investments for the fund is one part our strategy to create bold new concepts and products in the telecom industry. The fund is just one way for ZTE to test the innovation waters and accumulate new ideas and management experiences. International innovation Externally, ZTE announced its plans to team up with several global telecommunications giants to create 10 international innovation centres in Europe and South America. The 10 centres will be established through cooperation with telecoms operators around the world. The centres will be comprised of location-specific cooperative operations including laboratories and operations and testing centres. Their focus will be to produce innovative technologies, products and business operations models. The new ideas and products produced will be applied to ZTE and its partners’ market and research and development strategies. The new innovation centres are not ZTE’s first efforts in collaborative research. The company also has demonstrated its commitment to joint projects by partnering with world-leading scientific institutions and universities. In early July 2011, ZTE signed a memorandum of understanding with Technical University Dresden with the purpose of opening a research and development centre in Germany. In China, ZTE has established collaborative research institutes with four research institutes and 19 universities including Peking University and Tsinghua University. The telecommunications industry is undergoing a critical period as much of the technology used by the industry is shifting from voice-based to data-based services. This technological shift has resulted in tremendous changes within the industry, including changes in traditional business models related to development and implementation of telecom technologies. It also has created opportunities for investment in the industrial landscape. The opportunities presented by the coming LTE era and ZTE’s latest breakthroughs in the US and European markets have become a driving force for ZTE to take the lead in international patent applications. ZTE owes its rapid growth and the stable expansion to the constant innovations and innovation has become the theme of the company’s development. GTB