Huawei files patent infringement lawsuits against Verizon Communications

Huawei has filed two patent infringement lawsuits against Verizon Communications in U.S. District Court.

The Chinese telecommunications equipment giant wants Verizon to compensate it for the use of technology it says are covered by 12 Huawei patents, including ones related to networking, security and video communications. Before the lawsuits were filed, Huawei claims it negotiated with Verizon in a series of meetings from February 2019 to January 21, but was unable to reach a license agreement.

(Disclosure: TechCrunch is owned by Verizon Media, a division of Verizon Communications).

Huawei technology is used by telecommunication companies around the world. In a press release about the lawsuits, it says it puts about 10% to 15% of its revenue into research and development each year, and has spent about $70 billion on R&D over the last decade, including about $15 billion in 2018 alone.

This resulted in Huawei receiving more than 80,000 patents around the world, including 10,000 in the U.S.

In its filings, Huawei claims Verizon has “profited greatly” from infringing on its patents, noting that Verizon Communication’s total revenue for its wireline division in 2018 was $29.8 billion.

Huawei maintains a close relationship with many other tech companies, including some competitors, through licenses. It says that it has received more than $1.4 billion in patent license fees since 2015 and in addition to providing access to its own technology, has also paid over $6 billion for licensing patents from other companies, with more than 100 license agreements signed with vendors in the U.S., Europe, Japan and South Korea.

In its press release, Huawei’s chief legal officer Song Liuping said “Verizon’s products and services have benefitted from patented technology that Huawei developed over many years of research and development.”

“For years now we have successfully negotiated patent license agreements with many companies. Unfortunately, when no agreement can be reached, we have no choice but to see a legal remedy,” Song added. “This is a common practice in the industry. Huawei is simply asking that Verizon respect Huawei’s investment in research and development by either paying for the use of our patents, or refraining from using them in its products and services.”

TechCrunch has contacted Verizon Communications for comment.

The patent infringement lawsuit is taking place against the backdrop of Huawei’s legal entanglements with the U.S. government, which claims it is a national security threat, a charge Huawei denies.

Huawei has been on a U.S. trade blacklist since the last May and is suing the government over what it says is an unconstitutional ban on the use of its products by federal agencies and contractors. Huawei’s technology is used by many telecom companies around the world, however, and its close ties with U.S. supply chains were underscored last month when the Defense and Treasury Departments reportedly put pressure on the Commerce Department over the ban.

US patents hit record 333,530 granted in 2019; IBM, Samsung (not the FAANGs) lead the pack

We may have moved on from a nearly-daily cycle of news involving tech giants sparring in courts over intellectual property infringement, but patents continue to be a major cornerstone of how companies and people measure their progress and create moats around the work that they have done in hopes of building that into profitable enterprises in the future. IFI Claims, a company that tracks patent activity in the US, released its annual tally of IP work today underscoring that theme: it noted that 2019 saw a new high-watermark of 333,530 patents granted by the US Patent and Trademark Office.

The figures are notable for a few reasons. One is that this is the most patents ever granted in a single year; and the second that this represents a 15% jump on a year before. The high overall number speaks to the enduring interest in safeguarding IP, while the 15% jump has to do with the fact that patent numbers actually dipped last year (down 3.5%) while the number that were filed and still in application form (not granted) was bigger than ever. If we can draw something from that, it might be that filers and the USPTO were both taking a little more time to file and process, not a reduction in the use of patents altogether.

But patents do not tell the whole story in another very important regard.

Namely, the world’s most valuable, and most high profile tech companies are not always the ones that rank the highest in patents filed.

Consider the so-called FAANG group, Facebook, Apple, Amazon, Netflix and Google: Facebook is at number-36 (one of the fastest movers but still not top 10) with 989 patents; Apple is at number-seven with 2,490 patents; Amazon is at number-nine with 2,427 patents; Netflix doesn’t make the top 50 at all; and the Android, search and advertising behemoth Google is merely at slot 15 with 2,102 patents (and no special mention for growth).

Indeed, the fact that one of the oldest tech companies, IBM, is also the biggest patent filer almost seems ironic in that regard.

As with previous years — the last 27, to be exact — IBM has continued to hold on to the top spot for patents granted, with 9,262 in total for the year. Samsung Electronics, at 6,469, is a distant second.

These numbers, again, don’t tell the whole story: IFI Claims notes that Samsung ranks number-one when you consider all active patent “families”, which might get filed across a number of divisions (for example a Samsung Electronics subsidiary filing separately) and count the overall number of patents to date (versus those filed this year). In this regard, Samsung stands at 76,638, with IBM the distant number-two at 37,304 patent families.

Part of this can be explained when you consider their businesses: Samsung makes a huge range of consumer and enterprise products. IBM, on the other hand, essentially moved out of the consumer electronics market years ago and these days mostly focuses on enterprise and B2B and far less hardware. That means a much smaller priority placed on that kind of R&D, and subsequent range of families.

Two other areas that are worth tracking are biggest movers and technology trends.

In the first of these, it’s very interesting to see a car company rising to the top. Kia jumped 58 places and is now at number-41 (921 patents) — notable when you think about how cars are the next “hardware” and that we are entering a pretty exciting phase of connected vehicles, self-driving and alternative energy to propel them.

Others rounding out fastest-growing were Hewlett Packard Enterprise, up 28 places to number-48 (794 patents); Facebook, up 22 places to number-36 (989 patents); Micron Technology, up nine places to number-25 (1,268), Huawei, up six places to number-10 (2,418), BOE Technology, up four places to number-13 (2,177), and Microsoft, up three places to number-4 (3,081 patents).

In terms of technology trends, IFI looks over a period of five years, where there is now a strong current of medical and biotechnology innovation running through the list right now, with hybrid plant creation topping the list of trending technology, followed by CRISPR gene-editing technology, and then medicinal preparations (led by cancer therapies). “Tech” in the computer processor sense only starts at number-four with dashboards and other car-related tech; with quantum computing, 3-D printing and flying vehicle tech all also featuring.

Indeed, if you have wondered if we are in a fallow period of innovation in mobile, internet and straight computer technology… look no further than this list to prove out that thought.

Unsurprisingly, US companies account for 49% of U.S. patents granted in 2019 up from 46 percent a year before. Japan accounts for 16% to be the second-largest, with South Korea at 7% (Samsung carrying a big part of that, I’m guessing), and China passing Germany to be at number-four with 5%.

  1. International Business Machines Corp 9262
  2. Samsung Electronics Co Ltd 6469
  3. Canon Inc 3548
  4. Microsoft Technology Licensing LLC 3081
  5. Intel Corp 3020
  6. LG Electronics Inc 2805
  7. Apple Inc 2490
  8. Ford Global Technologies LLC 2468
  9. Amazon Technologies Inc 2427
  10. Huawei Technologies Co Ltd 2418
  11. Qualcomm Inc 2348
  12. Taiwan Semiconductor Manufacturing Co TSMC Ltd 2331
  13. BOE Technology Group Co Ltd 2177
  14. Sony Corp 2142
  15. Google LLC 2102
  16. Toyota Motor Corp 2034
  17. Samsung Display Co Ltd 1946
  18. General Electric Co 1818
  19. Telefonaktiebolaget LM Ericsson AB 1607
  20. Hyundai Motor Co 1504
  21. Panasonic Intellectual Property Management Co Ltd 1387
  22. Boeing Co 1383
  23. Seiko Epson Corp 1345
  24. GM Global Technology Operations LLC 1285
  25. Micron Technology Inc 1268
  26. United Technologies Corp 1252
  27. Mitsubishi Electric Corp 1244
  28. Toshiba Corp 1170
  29. AT&T Intellectual Property I LP 1158
  30. Robert Bosch GmbH 1107
  31. Honda Motor Co Ltd 1080
  32. Denso Corp 1052
  33. Cisco Technology Inc 1050
  34. Halliburton Energy Services Inc 1020
  35. Fujitsu Ltd 1008
  36. Facebook Inc 989
  37. Ricoh Co Ltd 980
  38. Koninklijke Philips NV 973
  39. EMC IP Holding Co LLC 926
  40. NEC Corp 923
  41. Kia Motors Corp 921
  42. Texas Instruments Inc 894
  43. LG Display Co Ltd 865
  44. Oracle International Corp 847
  45. Murata Manufacturing Co Ltd 842
  46. Sharp Corp 819
  47. SK Hynix Inc 798
  48. Hewlett Packard Enterprise Development LP 794
  49. Fujifilm Corp 791
  50. LG Chem Ltd 791

New USPTO Guidance May Clear Path for More Technology Patents

On January 4, 2019, the United States Patent and Trademark Office (USPTO) released new Patent Examiner Guidance (“the Guidance”) for subject matter eligibility. The updated guidance could benefit any technology patent applicant who has a computer-related invention – from smartphones to artificial intelligence – and who has previously had difficulty acquiring patents under the USPTO’s procedures for determining patent subject matter eligibility.

This Guidance represents the current methodology for analysis of patent claims under 35 U.S.C. § 101 in view of Mayo v. Prometheus, Alice v. CLS Bank Intl., and subsequent cases, and is intended to provide a more concrete framework for analyzing whether patent claims, as a whole, are merely “directed to” an abstract idea.  The Guidance will supersede certain analysis methods articulated in previous guidance, particularly the Examiner’s “Quick Reference” that previously sought to categorize abstract ideas.

The Alice/Mayo Test

The Guidance acknowledges that applying the Alice/Mayo test to analyze claims under § 101 has “caused uncertainty in this area of the law” and has resulted in examination practices that prevent stakeholders from “reliably and predictably determining what subject matter is patent-eligible.” As such, the Guidance attempts to remedy this uncertainty by revising the USPTO’s analysis under the first step (Step 2A) of the Alice/Mayo test:

Startup Law A to Z: Regulatory Compliance

Startups are but one species in a complex regulatory and public policy ecosystem. This ecosystem is larger and more powerfully dynamic than many founders appreciate, with distinct yet overlapping laws at the federal, state and local/city levels, all set against a vast array of public and private interests. Where startup founders see opportunity for disruption in regulated markets, lawyers counsel prudence: regulations exist to promote certain strongly-held public policy objectives which (unlike your startup’s business model) carry the force of law.

Snapshot of the regulatory and public policy ecosystem. Image via Law Office of Daniel McKenzie

Although the canonical “ask forgiveness and not permission” approach taken by Airbnb and Uber circa 2009 might lead founders to conclude it is strategically acceptable to “move fast and break things” (including the law), don’t lose sight of the resulting lawsuits and enforcement actions. If you look closely at Airbnb and Uber today, each have devoted immense resources to building regulatory and policy teams, lobbying, public relations, defending lawsuits, while increasingly looking to work within the law rather than outside it – not to mention, in the case of Uber, a change in leadership as well.

Indeed, more recently, examples of founders and startups running into serious regulatory issues are commonplace: whether in healthcare, where CEO/Co-founder Conrad Parker was forced to resign from Zenefits and later fined approximately $500K; in the securities registration arena, where cryptocurrency startups Airfox and Paragon have each been fined $250K and further could be required to return to investors the millions raised through their respective ICOs; in the social media and privacy realm, where TikTok was recently fined $5.7 million for violating COPPA, or in the antitrust context, where tech giant Google is facing billions in fines from the EU.

Suffice it to say, regulation is not a low-stakes table game. In 2017 alone, according to Duff and Phelps, US financial regulators levied $24.4 billion in penalties against companies and another $621.3 million against individuals. Particularly in today’s highly competitive business landscape, even if your startup can financially absorb the fines for non-compliance, the additional stress and distraction for your team may still inflict serious injury, if not an outright death-blow.

The best way to avoid regulatory setbacks is to first understand relevant regulations and work to develop compliant policies and business practices from the beginning. This article represents a step in that direction, the fifth and final installment in Extra Crunch’s exclusive “Startup Law A to Z” series, following previous articles on corporate matters, intellectual property (IP), customer contracts and employment law.

Given the breadth of activities subject to regulation, however, and the many corresponding regulations across federal, state, and municipal levels, no analysis of any particular regulatory framework would be sufficiently complete here. Instead, the purpose of this article is to provide founders a 30,000-foot view across several dozen applicable laws in key regulatory areas, providing a “lay of the land” such that with some additional navigation and guidance, an optimal course may be charted.

The regulatory areas highlighted here include: (a) Taxes; (b) Securities; (c) Employment; (d) Privacy; (e) Antitrust; (f) Advertising, Commerce and Telecommunications; (g) Intellectual Property; (h) Financial Services and Insurance; and finally (i) Transportation, Health and Safety.

TiVo prepares to split its business into two as it pursues sale

DVR maker TiVo is preparing to split its company into two businesses: one, focused on its products like its Bolt family of DVRs, and the other on its licensing and intellectual property businesses. The move will help to address some of the complexities with those businesses, TiVo Interim CEO Raghu Rau, explained, which may make it more attractive to buyers.

By splitting the company into two, TiVo may be able to “facilitate strategic transactions,” with interested parties, Rau said, on the company’s Q4 earnings call this week with investors.

The CEO also noted that TiVo was in active discussions with parties who were interested in each its product and its IP businesses, but the overall strategic review process – which began a year ago – was taking longer than TiVo had anticipated.

“So we do agree that this process has taken longer than we had hoped particularly because of the complexity and uniqueness of our two businesses,” Rau told investors. “We’re hoping that we’ll give you another update the next quarter based on the ongoing discussions that we are having. But beyond that, I’m not willing to put a time limit on when this will happen because the interest of the Board and the management is to ensure that we get the best outcome for the shareholders and that’s what this whole review process has been focused on,” he said.

The issue seems to be that potential acquirers may want either the licensing business or the products business, but not both.

According to a report from LightReading, that’s definitely the case with potential buyers, sources told them. In addition, TiVo was described as being reluctant to move forward on anything significant until it knew more about the outcomes of its legal battles with Comcast over licensing and patents.

Rau noted that TiVo hadn’t actually announced that TiVo is separating, only that it’s now working on the various logistics issues that have to be addressed in order to separate the business, like the preparation of historical financials, audits and understanding of tax implications.

The company also said it ruled out a “transformative acquisition” a couple of quarters into its ongoing strategic review process, which began in February 2018.

TiVo itself was acquired by Rovi Corp. for $1.1 billion in 2016, and the combined entity kept the name TiVo. The deal enhanced TiVo’s patent portfolio, and today 9 of the top 10 pay TV service providers in the U.S. license its portfolio of IP, except for Comcast, whose license lapsed (which is why it’s in the courts.)

Given the relative recency of that merger, TiVo’s decision to now split the business again strongly hints that it’s had trouble finding a deal for the company as it stands today.

TiVo remains a household name, thanks to its line of TiVo branded DVRs which cater to pay TV subscribers and cord cutters alike. But the company has made some missteps along the way, as it tried to keep up with the increasingly competitive market. For instance, in an effort to differentiate itself, its newer Bolt DVR adopted an odd, angled shape that some found aesthetically displeasing. That matters, of course, because these DVRs have to be on display in your living room. (Unlike, says, Amazon’s new Fire TV Recast which can be hidden away in a back room of the house.)

In addition, TiVo’s model which relies on monthly subscriptions (or a larger “lifetime” fee) are harder for consumers to stomach at a time when there’s so much choice among media devices.

Combined with the larger shift away from pay TV and consumer adoption of players like Roku and Amazon Fire TV – even among pay TV subscribers – TiVo’s business is not what it once was.

The company in its earnings reported this Tuesday brought in a loss of $2.33 per share to end fiscal year 2018. In the year-ago quarter, TiVo had posted a profit of 28 cents. Its revenue for the period was $168.46 million, 21 percent down from Q4 2017, and under analysts’ estimates of $173.85 million.

BlackBerry sues Twitter for patent infringement

BlackBerry, the former smartphone maker, is suing Twitter for alleged patent infringement. If this sounds familiar, it may be because BlackBerry filed a patent infringement suit against Facebook last year.

In its complaint, BlackBerry alleges Twitter has infringed and continues to infringe on six of its patents, which cover things like push notifications, silencing notifications for a message thread and mobile advertising techniques.

BlackBerry, which refers to itself as a pioneer in mobile messaging, alleges Twitter “created mobile messaging applications that co-opt BlackBerry’s innovations, using a number of the innovative user interface and functionality enhancing features that made BlackBerry’s products such a critical and commercial success in the first place.”

As noted above, BlackBerry sued Facebook last year alleging patent infringement. At the time, BlackBerry cited seven patents that relate to security, user interface features, battery-efficient status updates, mobile messaging in games and, similarly to its issue with Twitter, silencing notifications. A few months later, in September, Facebook filed a suit of its own against BlackBerry alleging the company infringed on five of its patents. Both of those suits are still in litigation.

BlackBerry was once a smartphone giant but stopped manufacturing its own hardware in 2016. Then, in 2017, BlackBerry revealed the KEYone smartphone, manufactured by TCL, under the company’s new strategy to focus on software.

Both Twitter and BlackBerry declined to comment.

Apple is selling the iPhone 7 and iPhone 8 in Germany again

Two older iPhone models are back on sale in Apple stores in Germany — but only with Qualcomm chips inside.

The iPhone maker was forced to pull the iPhone 7 and iPhone 8 models from shelves in its online shop and physical stores in the country last month, after chipmaker Qualcomm posted security bonds to enforce a December court injunction it secured via patent litigation.

Apple told Reuters it had “no choice” but to stop using some Intel chips for handsets to be sold in Germany. “Qualcomm is attempting to use injunctions against our products to try to get Apple to succumb to their extortionist demands,” it said in a statement provided to the news agency.

Apple and Qualcomm have been embroiled in an increasingly bitter global legal battle around patents and licensing terms for several years.

The litigation follows Cupertino’s move away from using only Qualcomm’s chips in iPhones after, in 2016, Apple began sourcing modem chips from rival Intel — dropping Qualcomm chips entirely for last year’s iPhone models. Though still using some Qualcomm chips for older iPhone models, as it will now for iPhone 7 and iPhone 8 units headed to Germany.

For these handsets Apple is swapping out Intel modems that contain chips from Qorvo which are subject to the local patent litigation injunction. (The litigation relates to a patented smartphone power management technology.) 

Hence Apple’s Germany webstore is once again listing the two older iPhone models for sale…

Newer iPhones containing Intel chips remain on sale in Germany because they do not containing the same components subject to the patent injunction.

“Intel’s modem products are not involved in this lawsuit and are not subject to this or any other injunction,” Intel’s general counsel, Steven Rodgers, said in a statement to Reuters.

While Apple’s decision to restock its shelves with Qualcomm-only iPhone 7s and 8s represents a momentary victory for Qualcomm, a separate German court tossed another of its patent suits against Apple last month — dismissing it as groundless. (Qualcomm said it would appeal.)

The chipmaker has also been pursing patent litigation against Apple in China, and in December Apple appealed a preliminary injunction banning the import and sales of old iPhone models in the country.

At the same time, Qualcomm and Apple are both waiting the result of an antitrust trial brought against Qualcomm’s licensing terms in the U.S.

Two years ago the FTC filed charges against Qualcomm, accusing the chipmaker of operating a monopoly and forcing exclusivity from Apple while charging “excessive” licensing fees for standards-essential patents.

The case was heard last month and is pending a verdict or settlement.

AR glasses startup North picks up Intel’s Vaunt patents

Intel’s loss, it seems, is North’s game. As first noted by The Verge, the startup has picked up the “technology portfolio” behind Vaunt, the AR glasses shuttered by the chipmaker in April year after a couple of glowing previews.

North (nee Thalamic Labs) debuted its own take on the category around six months after Intel abandoned its efforts. Focals have been positioned as a kind of Warby Parker-esque take on the category. They’re essentially customizable glasses with a built-in head’s up display looking to finally deliver on the unfulfilled promise of Google Glass.

Intel’s own tech works in a similar matter, reflecting a laser projection back into the wearer’s eye. For Intel, however, Vaunt always felt like a pet project from a company that generates most of its revenue supplying components for other brands. Notably, Intel Capital has invested in North, so this deal could finally help some of its own vision finally come to fruition.

North is certainly viewing the application purchase as more a partnership than anything, referring to it as such in a tweet. “So proud to grow our business with such a great partner,” the company writes. “Stay tuned, this is just the beginning.”

Details of the deal haven’t been disclosed, but North notes that it contains “hundreds of patents and patent applications.” Given how closely the two companies appear to be working here, it seems like a pretty safe bet they got a sweetheart deal for the portfolio.

China is funding the future of American biotech

Silicon Valley is in the midst of a health craze, and it is being driven by “Eastern” medicine.

It’s been a record year for US medical investing, but investors in Beijing and Shanghai are now increasingly leading the largest deals for US life science and biotech companies. In fact, Chinese venture firms have invested more this year into life science and biotech in the US than they have back home, providing financing for over 300 US-based companies, per Pitchbook. That’s the story at Viela Bio, a Maryland-based company exploring treatments for inflammation and autoimmune diseases, which raised a $250 million Series A led by three Chinese firms.

Chinese capital’s newfound appetite also flows into the mainland. Business is booming for Chinese medical startups, who are also seeing the strongest year of venture investment ever, with over one hundred companies receiving $4 billion in investment.

As Chinese investors continue to shift their strategies towards life science and biotech, China is emphatically positioning itself to be a leader in medical investing with a growing influence on the world’s future major health institutions.

Chinese VCs seek healthy returns

We like to talk about things we can interact with or be entertained by. And so as nine-figure checks flow in and out of China with stunning regularity, we fixate on the internet giants, the gaming leaders or the latest media platform backed by Tencent or Alibaba.

However, if we follow the money, it’s clear that the top venture firms in China have actually been turning their focus towards the country’s deficient health system.

A clear leader in China’s strategy shift has been Sequoia Capital China, one of the country’s most heralded venture firms tied to multiple billion-dollar IPOs just this year.

Historically, Sequoia didn’t have much interest in the medical sector.  Health was one of the firm’s smallest investment categories, and it participated in only three health-related deals from 2015-16, making up just 4% of its total investing activity. 

Recently, however, life sciences have piqued Sequoia’s fascination, confirms a spokesperson with the firm.  Sequoia dove into six health-related deals in 2017 and has already participated in 14 in 2018 so far.  The firm now sits among the most active health investors in China and the medical sector has become its second biggest investment area, with life science and biotech companies accounting for nearly 30% of its investing activity in recent years.

Health-related investment data for 2015-18 compiled from Pitchbook, Crunchbase, and SEC Edgar

There’s no shortage of areas in need of transformation within Chinese medical care, and a wide range of strategies are being employed by China’s VCs. While some investors hope to address influenza, others are focused on innovative treatments for hypertension, diabetes and other chronic diseases.

For instance, according to the Chinese Journal of Cancer, in 2015, 36% of world’s lung cancer diagnoses came from China, yet the country’s cancer survival rate was 17% below the global average. Sequoia has set its sights on tackling China’s high rate of cancer and its low survival rate, with roughly 70% of its deals in the past two years focusing on cancer detection and treatment.

That is driven in part by investments like the firm’s $90 million Series A investment into Shanghai-based JW Therapeutics, a company developing innovative immunotherapy cancer treatments. The company is a quintessential example of how Chinese VCs are building the country’s next set of health startups using their international footprints and learnings from across the globe.

Founded as a joint-venture offshoot between US-based Juno Therapeutics and China’s WuXi AppTec, JW benefits from Juno’s experience as a top developer of cancer immunotherapy drugs, as well as WuXi’s expertise as one of the world’s leading contract research organizations, focusing on all aspects of the drug R&D and development cycle.

Specifically, JW is focused on the next-generation of cell-based immunotherapy cancer treatments using chimeric antigen receptor T-cell (CAR-T) technologies. (Yeah…I know…) For the WebMD warriors and the rest of us with a medical background that stopped at tenth-grade chemistry, CAR-T essentially looks to attack cancer cells by utilizing the body’s own immune system.

Past waves of biotech startups often focused on other immunologic treatments that used genetically-modified antibodies created in animals.  The antibodies would effectively act as “police,” identifying and attaching to “bad guy” targets in order to turn off or quiet down malignant cells.  CAR-T looks instead to modify the body’s native immune cells to attack and kill the bad guys directly.

Chinese VCs are investing in a wide range of innovative life science and biotech startups. (Photo by Eugeneonline via Getty Images)

The international and interdisciplinary pedigree of China’s new medical leaders not only applies to the organizations themselves but also to those running the show.

At the helm of JW sits James Li.  In a past life, the co-founder and CEO held stints as an executive heading up operations in China for the world’s biggest biopharmaceutical companies including Amgen and Merck.  Li was also once a partner at the Silicon Valley brand-name investor, Kleiner Perkins.

JW embodies the benefits that can come from importing insights and expertise, a practice that will come to define the companies leading the medical future as the country’s smartest capital increasingly finds its way overseas.

GV and Founders Fund look to keep the Valley competitive

Despite heavy investment by China’s leading VCs, Silicon Valley is doubling down in the US health sector.  (AFP PHOTO / POOL / JASON LEE)

Innovation in medicine transcends borders. Sickness and death are unfortunately universal, and groundbreaking discoveries in one country can save lives in the rest.

The boom in China’s life science industry has left valuations lofty and cross-border investment and import regulations in China have improved.

As such, Chinese venture firms are now increasingly searching for innovation abroad, looking to capitalize on expanding opportunities in the more mature US medical industry that can offer innovative technologies and advanced processes that can be brought back to the East.

In April, Qiming Venture Partners, another Chinese venture titan, closed a $120 million fund focused on early-stage US healthcare. Qiming has been ramping up its participation in the medical space, investing in 24 companies over the 2017-18 period.

New firms diving into the space hasn’t frightened the Bay Area’s notable investors, who have doubled down in the US medical space alongside their Chinese counterparts.

Partner directories for America’s most influential firms are increasingly populated with former doctors and medically-versed VCs who can find the best medical startups and have a growing influence on the flow of venture dollars in the US.

At the top of the list is Krishna Yeshwant, the GV (formerly Google Ventures) general partner leading the firm’s aggressive push into the medical industry.

Krishna Yeshwant (GV) at TechCrunch Disrupt NY 2017

A doctor by trade, Yeshwant’s interest runs the gamut of the medical spectrum, leading investments focusing on anything from real-time patient care insights to antibody and therapeutic technologies for cancer and neurodegenerative disorders.

Per data from Pitchbook and Crunchbase, Krishna has been GV’s most active partner over the past two years, participating in deals that total over a billion dollars in aggregate funding.

Backed by the efforts of Yeshwant and select others, the medical industry has become one of the most prominent investment areas for Google’s venture capital arm, driving roughly 30% of its investments in 2017 compared to just under 15% in 2015.

GV’s affinity for medical-investing has found renewed life, but life science is also part of the firm’s DNA.  Like many brand-name Valley investors, GV founder Bill Maris has long held a passion for the health startups.  After leaving GV in 2016, Maris launched his own fund, Section 32, focused specifically on biotech, healthcare and life sciences. 

In the same vein, life science and health investing has been part of the lifeblood for some major US funds including Founders Fund, which has consistently dedicated over 25% of its deployed capital to the space since at least 2015.

The tides may be changing, however, as the recent expansion of oversight for the Committee on Foreign Investment in the United States (CFIUS) may severely impact the flow of Chinese capital into areas of the US health sector. 

Under its extended purview, CFIUS will review – and possibly block – any investment or transaction involving a foreign entity related to the production, design or testing of technology that falls under a list of 27 critical industries, including biotech research and development.

The true implications of the expanded rules will depend on how aggressively and how often CFIUS exercises its power.  But a lengthy review process and the threat of regulatory blocks may significantly increase the burden on Chinese investors, effectively shutting off the Chinese money spigot.

Regardless of CFIUS, while China’s active presence in the US health markets hasn’t deterred Valley mainstays, with a severely broken health system and an improved investment environment backed by government support, China’s commitment to medical innovation is only getting stronger.

VCs target a disastrous health system

Deficiencies in China’s health sector has historically led to troublesome outcomes.  Now the government is jump-starting investment through supportive policy. (Photo by Alexander Tessmer / EyeEm via Getty Images)

They say successful startups identify real problems that need solving. Marred with inefficiencies, poor results, and compounding consumer frustration, China’s health industry has many

Outside of a wealthy few, citizens are forced to make often lengthy treks to overcrowded and understaffed hospitals in urban centers.  Reception areas exist only in concept, as any open space is quickly filled by hordes of the concerned, sick, and fearful settling in for wait times that can last multiple days. 

If and when patients are finally seen, they are frequently met by overworked or inexperienced medical staff, rushing to get people in and out in hopes of servicing the endless line behind them. 

Historically, when patients were diagnosed, treatment options were limited and ineffective, as import laws and affordability issues made many globally approved drugs unavailable.

As one would assume, poor detection and treatment have led to problematic outcomes. Heart disease, stroke, diabetes and chronic lung disease accounts for 80% of deaths in China, according to a recent report from the World Bank

Recurring issues of misconduct, deception and dishonesty have amplified the population’s mounting frustration.

After past cases of widespread sickness caused by improperly handled vaccinations, China’s vaccine crisis reached a breaking point earlier this year.  It was revealed that 250,000 children had been given defective and fallacious rabies vaccinations, a fact that inspectors had discovered months prior and swept under the rug.

Fracturing public trust around medical treatment has serious, potentially destabilizing effects. And with deficiencies permeating nearly all aspects of China’s health and medical infrastructure, there is a gaping set of opportunities for disruptive change.

In response to these issues, China’s government placed more emphasis on the search for medical innovation by rolling out policies that improve the chances of success for health startups, while reducing costs and risk for investors.

Billions of public investment flooded into the life science sector, and easier approval processes for patents, research grants, and generic drugs, suddenly made the prospect of building a life science or biotech company in China less daunting. 

For Chinese venture capitalists, on top of financial incentives and a higher-growth local medical sector, loosening of drug import laws opened up opportunities to improve China’s medical system through innovation abroad.

Liquidity has also improved due to swelling global interest in healthcare. Plus, the Hong Kong Stock Exchange recently announced changes to allow the listing of pre-revenue biotech companies.

The changes implemented across China’s major institutions have effectively provided Chinese health investors with a much broader opportunity set, faster growth companies, faster liquidity, and increased certainty, all at lower cost.

However, while the structural and regulatory changes in China’s healthcare system has led to more medical startups with more growth, it hasn’t necessarily driven quality.

US and Western investors haven’t taken the same cross-border approach as their peers in Beijing. From talking with those in the industry, the laxity of the Chinese system, and others, have made many US investors weary of investing in life science companies overseas.

And with the Valley similarly stepping up its focus on startups that sprout from the strong American university system, bubbling valuations have started to raise concern.

But with China dedicating more and more billions across the globe, the country is determined to patch the massive holes in its medical system and establish itself as the next leader in international health innovation.

Microsoft adds 60,000 patents to the Open Invention Network

Microsoft announced today that it’s joined open-source patent group, the Open Invention Network in an effort to help shield Linux and other open-source software from patent-related suits. As part of the deal, the software giant is opening a library of 60,000 patents to OIN members. Access to the massive portfolio is unlimited and royalty free.

It is, as ZDNET notes, a shift away from the aggressively litigious corporation of year’s past. Among other suits, the company had previously gone after a number of different companies in the Android ecosystem. Microsoft acknowledges as much in its announcement, adding that the news should be taken as a sign that its turning over a new leaf.

“We know Microsoft’s decision to join OIN may be viewed as surprising to some,” EVP Erich Andersen writes in a blog post, “it is no secret that there has been friction in the past between Microsoft and the open source community over the issue of patents. For others who have followed our evolution, we hope this announcement will be viewed as the next logical step for a company that is listening to customers and developers and is firmly committed to Linux and other open source programs.”

The news also finds the company looking to blur the lines between Windows and Linus development, encouraging devs to create programs for both operating systems, along with .NET and Java.

Last week, Microsoft followed the lead of companies like Google, Facebook and Amazon by joining anti-patent trolling group, the LOT Network.