More Chinese Companies Are Joining U.S. Firms to Fight Patent Trolls

Some of China's largest companies have banded together with major brands in the United States and elsewhere to neutralize "patent trolls," an indication that the country's firms are becoming increasingly concerned about patent infringement litigation.

More than two dozen Chinese businesses, including Alibaba Group Holding Ltd., Ant Financial Services Group, Meituan-Dianping and Yamaha Corp., are now members of the LOT Network, an international nonprofit group created in 2014 to ward off litigation from patent assertion entities. Half of those companies recently joined the group.

"The Chinese in particular are realizing that if they want to be successful selling their products globally, they have to have a global IP strategy," LOT Network CEO Ken Seddon said in a phone interview with our ALM sibling Corporate Counsel last mionth while attending an intellectual property conference in Nanjing, China.

Global patent systems are becoming more robust, and the convergence of technology in myriad products, from smart TVs to cellphones and vehicles, has elevated the risk of patent litigation for companies throughout the world.

"If you look at China, the patent system is maturing, patents are becoming stronger and more valuable. Maybe 10 years ago companies could ignore the Chinese patent system. Nowadays you can't ignore it. I think that's fueled in part by the trade wars. People are realizing IP is going to be a component of that," added Seddon, former senior IP counsel for Apple Inc. and Intel Corp.

LOT's more than 540 members, which include Amazon Technologies Inc., Facebook Inc., Microsoft Corp., The Walt Disney Co. and Uber Technologies Inc., have entered into a legal agreement that provides them with immunity from patent infringement lawsuits brought by patent assertion entities that obtain patents from any member of the group.

"The number of companies participating in the LOT Network has increased rapidly recently," Naohiro Kosugi, general manager of Yamaha's IP division, wrote in an email. He noted that Yamaha is not facing many patent lawsuits now, but he believes that the future "risk is very high."

The LOT Network also has seen membership growth in Germany and Japan, according to Seddon. He said the group has members in 37 countries.

Toshiaki Tarumi, manager of the legal and IP division for Japanese video game maker Square Enix Holdings Co. Ltd., which is a LOT member, wrote in an email that "emerging industries like blockchain are joining the community, which means that members will have strong protection against PAE [patent assertion entity] suits involving new and evolving technologies."

He added, "PAEs don't always rely on legitimate claims, and we wanted to mitigate our risks so that the company can save its resources and put it toward our primary business of developing great products for our customers."

While stateside companies are traditionally wary of IP theft in China, they have a strong business incentive to join with Chinese companies to defend against patent assertion entities, according to Seddon.

"Just like Chinese companies want to participate in the U.S. market, U.S. companies want to participate in the Chinese market," he said. "These patents are there. And if your U.S. company wants to participate in the Chinese market, you're going to need to get access to that IP."

At the moment, "patent troll" litigation is far more prolific in the U.S. than in China. But Seddon said China, where more patents are filed annually than anywhere else in the world, is ripe for an explosion of litigation.

"As these Chinese patents age they will become more expensive to maintain with the maintenance fees and so the companies are going to be looking to sell their assets," he said. "Then you could have strong, enforceable Chinese patents coming out into the market. The environment is rich. The factors are there."

*****

Phillip Bantz is a reporter for Corporate Counsel, an ALM sibling of The Intellectual Property Strategist. Follow him on Twitter @PhillipBantz.