Japan is not there yet, but a change of approach in IP value creation is on its way 14 Apr 14
Slowly, but certainly, the corporate patent landscape in Japan is beginning to change. Established ways of operating - honed and followed successfully over many years - are now being questioned; the old model of patent accumulation and defensive use only is coming under pressure; what was once unthinkable is now starting to happen. Whisper it softly, don’t expect anything to happen quickly, but it could just be that a very Japanese revolution is about to get underway.
Last week I made my first ever trip to Japan and had a number of meetings with senior managers in corporate IP groups, intermediaries, leaders of industry and government-backed organisations, academics and officials at the patent office. They were generous with their time and with the information they shared. All of them seemed to agree that as the country finally emerges from a long period of economic stagnation, it is being forced to look at IP – and patents in particular – in a very different way.
Put simply, Japan grew into the IP superpower it is today on the back of establishing an unrivalled reputation for incremental innovation and high-quality manufacturing at comparatively low cost. No-one else could produce goods to the top class specifications that the Japanese could at the prices they charged. From electronic products, through automobiles and photocopiers to chemicals, Japan held sway from the 1960s right through to the early 1990s. From an IP perspective what this led to was the use of patents to protect positions in the market and nothing else – and that meant building the biggest possible portfolios for cross-licensing purposes should the need arise. Then things started to get trickier. Not only did the economy stall, but rivals appeared – Taiwan and Korea, followed by mainland China – able to do much of what Japan could do and at even lower cost.
For the country’s decision makers in government, in institutions and in industry, the challenge now is to respond and to find new ways of competing. And, for many, that means looking again at innovation and becoming much more ambitious and blue sky in the way that is approached; as someone told me - moving to a much more US-style model. Alongside that comes a new, US-style way of looking at patents. That involves going beyond seeing them as an enabler of freedom to operate to thinking much more carefully about all the ways in which IP can create value: as a tool to foster collaboration, to underpin open innovation platforms, to access the financial markets and, yes, even as something to monetise.
Don’t get me wrong, though; this does not mean there is some headlong rush towards embracing a new IP culture in the offing. Japan is a long way from that. But it is clear that a serious discussion has begun among the members of the close-knit circle of the country’s corporate IP elite. A few companies – some of which we have written about on the blog before – have already taken something of a leap and others are watching to see what happens. A large number, it must be said, remain to be convinced that anything much has to change, while some are outright hostile – in particular to aggressive monetisation, something which they think equates to trolling and which they believe is far more trouble than it’s worth.
While it is, of course, true that in many ways Japan is different, it struck me that a lot of the conversations around IP now happening in the country are ones that are being repeated elsewhere too. After all, it’s not as if there are thousands of US companies, let alone European or Asian ones, that have embraced the full potential that there is in IP, which have decided that they should be spending a lot more time in turning their IP directly into cash, or which are completely comfortable working with intermediaries and NPEs. Across the world, things are at an early stage and in terms of the need to make the most of assets and to ensure they are contributing as much as possible, imperatives in Japan are the same as they are everywhere else.
What is significant is that conversations about IP strategy options are now happening in Japan. They weren’t a few years ago. Companies may not feel they are ready to re-engineer their approaches to IP, or may have decided that for now they do not want to, but at least they are thinking about it. And in Japan, because everyone seems to know everyone else (most of the big corporates have their IP operations in and around either Tokyo or Osaka) and organisations such as the Japan Intellectual Property Association have such a deep reach into industry, discussions between in-house IP managers can happen frequently and in some detail. This also means that should the likes of Sony, Mitsubishi, Fujifilm, Honda and other IP strategy pioneers reap palpable rewards from the models they are pursuing, others will pick up on this relatively quickly – though, of course, as is the case elsewhere, in the end it will be up to senior corporate management to make the calls here; the IP people cannot do it alone.
Alongside the corporate conversations that are taking place, intermediaries are beginning to appear. The likes of Intellectual Ventures, Acacia and Conversant all have offices in Japan now (IV has been there for a while and seems to have a much bigger operation than the other two) and local outfits are also springing up. For the non-Japanese outfits the challenge is to frame their offerings in a way that does not put off what remains a very wary, conservative and sometimes hostile potential client base, especially as they often first introduced themselves through the assertion of patents. It is noticeable that IV, Acacia and Conversant have recruited high-profile figures from in-house IP departments at big Japanese corporates to run their operations. The local intermediaries include the likes of Syndefense and IP Bridge (no website). Both are developing models which stress concepts such as collaboration and open innovation, but which also recognise that there is money to be made from licensing. Another organisation to look out for is the government-backed Innovation Network Corporation of Japan, which along with both Mitsui and Panasonic is an investor in IP Bridge.
Change is also underway at the JPO. Under the leadership of a new Commissioner, the office is seeking to reach out beyond Japan’s borders far more pro-actively than it has in the past. In the face of increasing competition from other granting authorities in Asia –especially SIPO and KIPO – and as filings from domestic applicants fall, the JPO’s leadership is aware that it needs to explain how it works, the benefits of filing in Japan and the Japanese regime generally more effectively to an international audience. And it has a good story to tell. For example, having set itself the goal of getting to first office action within the space of 11 months, the JPO achieved this in March. It now moves onto to its next target; this is to reduce the entire application process from submission to final decision to just 14 months, while also ensuring the highest possible level of quality. If it manages this, the JPO will put itself way ahead of the other two Trilateral authorities.
To finish off, then, a few 50,000 feet observations:
A corporate conversation on IP strategy and value creation has begun. This has been inspired by a few things, including: rising competition from other Asian countries, the realisation that Japanese corporate culture has to adapt, especially when it comes to innovation, and that as a result approaches to IP will need to change too; on top of that, the country’s companies have traditionally spent a lot of money on patent procurement – some senior managements are putting pressure on IP departments to do all they can to recoup as much of that as possible. Others are bound to follow.
Change is happening, but slowly. Many of those running corporate IP departments in Japan are conservative, cautious and very wedded to traditional management models based on defence. They are wary of unintended consequences relating to monetisation programmes and do not wish to be seen as trolls. Change also requires in-house advocacy as senior managers will need to be persuaded – culturally that can prove very difficult. However, if those pioneering companies that have embraced IP achieve sustained and demonstrably positive results, that might make a few others sit up and notice. Sometimes all change may require is a new person in charge of a corporate IP function. That has happened in at least one major company and the subsequent difference in approach has been marked.
The legal system in Japan is not geared towards inculcating an appreciation of IP value. People talk about the Japanese being reluctant to litigate culturally and there is certainly something in that, but it is also the case that when suits do occur the plaintiff loses more often than it wins, while even when successful damages are low (the biggest sum ever awarded equates to something like $30 million). Basically, domestic Japanese patents are not worth very much – even the very good ones underpinning highly significant products. To realise the full value of their IP, Japanese rights owners are going to have to look overseas.
Intermediaries are beginning to appear and are very focused on developing services specifically tailored for Japanese clients. Approaches that might work in the US, Europe or even elsewhere in Asia just do not pass muster in Japan. Monetisation, for example, is viewed suspiciously by many, who see it as potentially counter-productive and as something that is done by trolls. Those entering the Japanese market need to understand this, or they will fail.
However, the Japanese IP community is close-knit and people talk to each other. If something works, others will find out quickly and may be inclined to follow suit. Government and government-backed bodies also have the potential to play a role in encouraging change. What Japanese corporates have to learn is that there is a lot more to a fully-rounded IP strategy than assertion. My guess is that in time they will: we are talking about globally important businesses here, run by very smart people and a country with a long patent tradition. I expect the Japanese approach to IP will slowly but surely evolve along lines similar to those in the US over the coming years. It will happen in a very Japanese way, but there is just too much value in patents owned by the country’s corporates for it not to happen. These are very exciting times in Japan. I cannot wait to go back to learn more.
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