Monday, May 27, 2013

Samsung's new U.S. display patents firm designed to satisfy the ITC's domestic industry requirement

Over this holiday (Memorial Day in the U.S.) weekend a growing number of commentators talked about last week's Korea Times report on Samsung Display's confirmation that the display-making part of the Samsung Group "invested $25 million to launch [a wholly-owned subsidiary named] Intellectual Keystone Technology (IKT) in Washington D.C. in a move to beef up its patent-related business". The Korea Times says "IKT bought display-related patents previously owned by Japan's Seiko Epson on April 30".

I saw articles and tweets suggesting that Samsung was creating a "patent troll". I don't think so. To me this appears logical and legit, and I'll explain below.

There has also been speculation about whether this is another move in the world-spanning patent chess game Samsung Electronics, another member of the Samsung Group, is playing with Apple. While Samsung has undoubtedly learned a lot from that dispute and I can't rule out that display technologies might play a significant role in it at some point, I believe the creation of IKT is a long-term strategic initiative and not specific to any particular litigation. I'm not saying Apple would never be asked by IKT to pay license fees, or be sued, but it's a credible explanation that Samsung Display wants to monetize patents. Apple can probably avoid any direct conflict with IKT by buying its displays from companies that have cross-license agreements in place with Samsung Display.

So far Samsung is being quite transparent about IKT. There are no signs of this entity serving the purpose of concealing ownership of certain patents. It's a wholly-owned subsidiary of Samsung Display. It's not a shell company. Hopefully U.S. Congress will pass the proposed End Anonymous Patents Act to ensure that everyone will always know which patents IKT owns, and since it's known who owns IKT (Samsung Display), this company can't operate like a "troll" in the sense of a company that can't be countersued for infringement because it doesn't make products. IKT won't make products based on what's been reported so far, but if another display technology company holds patents and wishes to bring them to the bargaining table, it can always sue the parent company, Samsung Display.

From my vantage point the most logical explanation is that Samsung Display wanted to build a licensing business that will be able to satisfy the United States International Trade Commission's domestic industry requirement. There are two ways to prove the existence of a domestic industry to the ITC (which is a mandatory requirement for the ITC to be able to issue an exclusion order, i.e., import ban):

  1. The traditional way is to sell products in the U.S. that implement a given patented invention. The domestic industry requirement has a technical prong and an economic prong, so a complainant has to prove that its products implement the relevant patent claims (technical prong) and show investments in the U.S., which can relate to development, marketing, manufacturing etc. (economic prong).

  2. Not only non-practicing entities but also operationg companies asserting patents they don't implement in their own products increasingly rely on a domestic industry theory based on licensing. With respect to the ability of an ITC complainant to satisfy the domestic industry requirement through licensing, I'd like to recommend this January 2013 article by Patently-O, NPEs Solidify Enforcement Jurisdiction at USITC.

By setting up a patent shop in the U.S., Samsung Display strengthens the enforceability in the world's largest market of the patents IKT will hold. This gives it leverage against unwilling licensees because the ITC is one of the fastest patent litigation fora in the U.S. and, which may be even more important, also a patent holder's best chance to obtain injunctive relief in the post-eBay environment. Apple could at some point be one of the companies against which Samsung would leverage IKT, but as I wrote further above, Apple can avoid such problems by ensuring that the displays it purchases come with a license to relevant third-party patents.

If Samsung Display built the same licensing business out of Korea, or some offshore tax haven, it would hardly be able to satisfy the domestic industry requirement.

I congratulate Samsung on its focus on licensing. Licensing is a two-way street. Samsung does inbound licensing and it now seeks to bolster its outbound licensing, which makes strategic sense.

I generally don't have a problem with companies creating patent licensing subsidiaries as long as they're transparent. I tend to be more concerned about the implications of governments setting up patent assertion entities. I appreciate certain governments's desire to lend support to local innovators' worldwide enforcement efforts, but I'm afraid this could influence patent legislation and make it harder to pass new laws designed to curb NPE litigation.

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