Over the years patent build up could go without repercussions for the patent “market”. Let us say the market for supply and demand for patent rights. Initially, during the 1980s and early 1990s this was because Japanese, Taiwanese and Korean companies took licenses from European and US patent owners. Then the Korean powerhouses came up, well  placed to take over the consumer electronics market but low on IP.  Taiwan had its own policy but was not afraid of buying strategically, be it a lot less then Korean companies.  Especially Samsung did some catching up by buying rather large portfolios and paid a lot of money over the years. Now, after topping the patent ranks with a large portfolio, Samsung nor any of the larger Korean companies are big strategic buyers anymore. Demand has shifted from strategic buying into much more focused demand, much smaller and mostly driven by legal (that is: US litigation) needs.

Meanwhile the patent built up (as in numbers of granted rights) went on, year after year we see WIPO patent statistics to show an increase in number of patents issued. As long as the demand is still out there an ever increasing supply of patents causes no real danger to the “price” for patents, as demand is there so the market allows adequate pricing of patent portfolios offered for sale. This was especially true when also non-operating companies like NPE’s and patent aggregators (the Intellectual Ventures of this world) piled up patents, so the ever increasing supply of patents in US, EU, JP KR and China did have no negative effect on the “tradability” of patents as demand was real and sound.

Not surprisingly, this accumulation of patent rights is, for a great deal, due to what we would like to call defensive MAD reasons (Mutually Assured Destruction): “If the competition increases numbers, so do we” as a logical measure to protect own R&D developments, to make sure one has a say in standard meetings and other reasons. However that driver for demand for patents has passed: if every player is well armored with sufficient patents, nobody is daring to attack the bigger players anymore. The smaller players, traditionally focused on grabbing market share but underexposing their activities to IP, became small patent buyers. This buying, unlike the size of the Asian companies and the patent aggregators, is unimportant in size to make a market difference and is scrutinized by lawyers to see if the patent bought gives the kind of “counterweight” those companies look for in patent litigation. Not quantity counts but (litigation) quality. A totally different “type” of patent demand.

Things seem to change dramatically.  The market has all the characteristics of a Patent Bubble.

Now production shifted to China and became the next Asian power player, everyone expected the Chinese to basically emulate what their brothers in Japan, Taiwan and Korea did in the eighties and nineties of last century and early 2000. Not so. China, rather then building up their own armory of international patents, relies on domestic patent pile up and shrewd political power play to prevent buying in large patent positions from the West and Japan/Korea to cover their production and new R&D in China and export to the West the US.

In politics Western companies trying to impose IP restrictions, requiring license payments under their IP portfolios and other IP assertions in China were pictured as “neocolonial” behavior, quickly showing that those engaged with these acts would find few sympathetic supporters of getting their products sold on the Chinese market. Alternatively China engaged in clever J/V plays to prevent large patent acquisitions or license programs.  Recently they started to build their own barriers in the form of “standards”, domestic, that is.

Now that expected demand from China for  patents of industrialize countries is not materializing, the supply of patent portfolios becomes a problem where buyers keep out of the market.  For the last few years this potential patent bubble was not seen as a big problem as non operating companies but rather investors bought patent portfolios, filling the gap in demand operating companies and China created.

So what will bee the remedy against this Patent Bubble?

[to be continued]