Benchmarking Asia’s IP leaders
For the past few months, IAM has been carrying out a survey of the Asia-Pacific entities that are at the forefront of IP value creation in the region. Our findings highlight what they see as their key challenges and opportunities
In the lead-up to IPBC Asia 2013 in Singapore, IAM conducted an extensive research project to identify companies, research organisations and other entities from the Asia-Pacific region that consistently put intellectual property at the very heart of their commercial decision making and, as a result, substantially enhance their overall business strategies. The result was the inaugural Asia IP Elite – a select club featuring what we believed to be the region’s IP value creation trailblazers.
This year, we have undertaken that process again to identify the 54 members of the 2014 Asia IP Elite, which will be honoured and presented with commemorative trophies at a special gala dinner to be held on December 8 at IPBC Asia 2014 in Shanghai. The full list of organisations – 44 of which are listed for the second year in a row, alongside 10 new entrants – can be found on the page opposite.
In the run-up to IPBC Asia 2014, IAM also conducted its first-ever benchmarking survey of Asia IP Elite members in order to identify key trends and developments in the region and gauge opinion on the sophistication of the IP marketplace. The survey findings also highlight what rights holders from Asia-Pacific regard as their key opportunities – as well as the major challenges they face.
The data provided by the 2014 Asia IP Elite members provides fascinating insight into the mindsets of the continent’s savviest IP owners. All of the individuals who participated in the exercise – whether online, over the telephone or in person – come from the senior management of their organisations’ IP divisions, ensuring that the views reported here reflect the highest levels of strategic IP thought in the Asia-Pacific corporate world. About one-third of respondents had either ‘general manager’ or ‘director’ in their job title, with another fifth holding the title of ‘vice president’ and around 10% acting as their organisation’s general counsel.
A majority of the Asia IP Elite organisations participated in the survey and the group was broadly representative of the list as a whole. Nearly one-third of respondents hailed from Japan, which had no fewer than 21 companies selected for inclusion in the Elite this year – no surprise, given the country’s long-established patenting tradition and rapidly developing ecosystem for IP transactions. Next up were Taiwanese organisations, whose consumer electronics manufacturers and chipmakers are well represented among the Elite (alongside new entrant Hon Hai/Foxconn); and mainland China, which saw its representation on this year’s list increase to nine entities with the arrival of Xiaomi. The other jurisdictions represented in this survey data are Australia, India (whose presence in the Elite doubled to four compared to last year), New Zealand, Singapore, South Korea and Thailand.
While a wide array of industries is represented in the Elite again this year, there is no doubt that high-tech enterprises lead the way in terms of innovation and rights protection in the region. It is worth noting, though, that many of the organisations on the list are active in multiple sectors: in the survey, about 40% listed more than one. The most commonly cited industries were consumer electronics, semiconductors and information technology, followed closely by software, telecoms and imaging.
Alongside traditional corporates, numerous R&D organisations made the cut and also feature in the survey data, accounting for 15% of the responses. This year, Japan’s RIKEN joins five other research institutions (CSIRO, Tsinghua University, ETRI, A*STAR and ITRI) in the Elite. Together, they represent the region’s best practices in technology transfer. Other key industries in the survey pool included computer hardware, automotives, internet/e-commerce and medical devices.
One myth which the results of the survey persuasively dispel is that size matters. You do not need a huge IP team in order to have a world-class department
Figure 1. How many people make up your dedicated IP team?
Evolution of corporate IP function
One myth which the results of the survey persuasively dispel is that size matters. You do not need a huge IP team in order to have a world-class department – although more manpower will not necessarily hurt. There is a vast difference in scale between the smaller companies – such as Fisher & Paykel Healthcare, which has around 3,000 employees and makes its debut in the Elite this year – and titans such as Panasonic and Samsung Electronics. But although their day-to-day challenges may be different, all have consistently found forward-thinking ways to make the most of their IP assets. In all, about 28% of respondents had fewer than 10,000 employees, while 30% had over 100,000; the rest fell somewhere in between. In terms of IP division size, about half employed fewer than 50 people and half more than 50 – including the 20% boasting over 250 full-time IP specialists.
Figure 2. Over the past year, how has your IP team changed?
Figure 3. Over the next year, how do you expect your team to change?
When we asked about changes to IP departments over the past year, and anticipated changes for the year to come, it became apparent that outsourcing is on the rise. Twenty-three percent of respondents said that they had outsourced more in the past year, while one-quarter expect to call on external help in the next 12 months. In follow-up interviews, several respondents confirmed that they are relying more on law firms for activities such as patent filing and coordination of foreign counsel. Non-legal third parties are also increasingly in demand for services such as portfolio analysis, competitive intelligence and valuation.
One might wonder whether this outsourcing trend indicates a movement towards smaller, leaner, more cost-effective IP departments; but the data says otherwise. Of the organisations that outsourced more work last year, none cut staff, while 30% expanded recruitment. In the survey pool as a whole, 34% plan to hire more staff in the next year, with just 6% looking at downsizing. Indeed, the prospects for IP professionals in Asia seem favourable. One Taiwanese general counsel remarked that his biggest challenge was finding and retaining the right talent: professionals with both strong technical backgrounds and the language and communications skills necessary for US-centric negotiations and disputes.
Figure 4. Who does the head of your IP department report to?
Figure 5. Over the past year, has your IP department’s budget:
Figure 6. In the next year, do you expect your budget to:
Figure 7. Please estimate the percentage breakdown of your IP budget spent in the following areas:
However, the biggest trend in IP team organisation among the Elite relates not to size, but to structure. Twenty-nine percent of respondents have re-engineered their teams in the past year, while another 16% plan to do so in the coming year. From our discussions with practitioners around the region, we found that there are almost as many different organisational structures as there are members of the Asia IP Elite. Some IP units are fully integrated into the R&D function; others remain part of the general legal division; while quite a few are staunchly independent.
Nevertheless, if there is one common factor – apart from increased outsourcing – it is a move towards centralisation. One senior IP manager told IAM that he had executed a number of structural changes to his company’s IP function in order to bring everything together under one roof. Previously, responsibility for IP matters had resided with individual product and service teams. “We have created a single IP group featuring a number of verticals, such as prior art searching, drafting, valuation and so on,” he explained. “Each team member then splits their time between several verticals. That means that they get exposed to the different areas and they pick up new skills and improve. This also means that there is more interaction throughout the whole group, and it keeps individual team members enthusiastic and interested in their role. In other organisations, I have seen people who are just doing drafting for the whole of their career.”
Top of the tree
Regardless of their structure, it is clear that most of the IP divisions which we surveyed and interviewed enjoy a relatively elevated status within their organisations. This is a key contributor to why organisations are selected as members of the Elite in the first place – the value and attention accorded to intellectual property. The survey found that the most common job title for the department head was some form of ‘manager’ or ‘general manager’ (about 38%), while 22% opted for ‘director’ and 22% ‘vice president’.
Of course, the meaning of job titles varies widely among companies; what is more interesting is the reporting line for the head of intellectual property (half of whom come from a non-legal background). In this sample, nearly 39% of respondents said that their head of intellectual property reports to the CEO or president, with a further 26% reporting to another board-level officer (often the chief technology officer (CTO) or chief operating officer). In fewer than 20% of cases, the head of intellectual property reports to the general counsel. This is a clear indication that for the majority of the Elite, intellectual property is viewed as a business asset rather than purely a legal function, and there is a direct line of communication to the highest levels of management. Moreover, the fact that almost two-fifths of IP department heads report directly to the CEO suggests that more Asian companies may be creating a board-level role analogous to what Western companies might call ‘chief IP officer’.
While in many North American and European corporates IP strategy remains embedded within legal, it would appear to be more often linked to R&D, technology management and product development in Asia. This perhaps reflects the late development of the corporate IP function in the region’s companies, as opposed to the more longstanding IP teams elsewhere in the world. “Reporting to the CTO might be beneficial for managing our IP portfolio because it means we are working very closely with our R&D members, who are actually creating our intellectual property,” says one head of intellectual property at a major consumer electronics company. “In that regard, it gives us an advantage in establishing a qualified, high-quality patent portfolio.”
Financing would appear to be an area where most Elite IP departments enjoy plenty of support, with 44% of respondents reporting increased budgets over the past year and fully half expecting a rise next year. By contrast, 13% of those surveyed suffered a reduction last year and just 9% anticipate a drop again next year. The reasons given for bigger budgets included a “need to be more commercially focused”, “continuing increases in NPE litigation” and a greater number of filings. We also asked respondents to estimate the proportion of their budgets spent in different areas. Filing came out as the top cost, accounting for 57% of IP budget on average, although responses ranged from as low as 10% to as high as 95%. Perhaps surprisingly, litigation seemed less of a cost burden: over two-thirds of respondents spent 10% or less of their budget on it. Answers to this question ranged from 0% to 50%, with an average of 14%. By comparison, the average proportion of IP budget spent on licensing was almost the same, at 15%, with answers ranging from 0% to 80%.
Figure 8. Do you agree with the following statements?
NB: The chart above shows the average of all responses.
Table 1. For your organisation, rank the most important reasons for owning IP assets.
Reason for owning IP assets
Freedom to operate
Protection of products/services
Defence from lawsuits
Enabling collaboration with third parties
NB: Respondents were asked to rank options from first to eighth in importance. The rating average is the mean of all respondents’ rankings for each option.
Reasons for owning IP assets
Figure 9. Have you had your IP portfolio valued?
As these figures confirm, the focus for Asian IP functions is clearly on obtaining and maintaining IP rights, reflecting the rapid growth of the region’s businesses and their expansion into overseas markets. IAM asked Elite members to consider the different strategic purposes for owning IP assets and rank them in order of importance. “Freedom to operate” was most frequently selected as the main reason for owning intellectual property, while “protection of products and services” came second. Bearing in mind that the vast majority of Asia IP Elite members are operating companies that develop, manufacture and market goods and services, these indications are to be expected. As one IP manager put it: “Unless we protect our R&D, we don’t hold that technology as an asset.”
The third most important reason for owning IP assets identified by the Asia IP Elite was to defend against lawsuits. “Once we have protected our technology as an asset and commercialise it into real products, our technology will be disclosed to the public and our rivals can then assert their own patents against us,” continued the IP manager. “So we often have to use our patents to counterclaim, for defensive purposes.”
Figure 10. What is your opinion on IP portfolio valuation?
Figure 11. If your organisation is currently a defendant in patent litigation, who are the plaintiffs filing suits against you?
Figure 12. Do you believe that NPEs are becoming more active in Asia?
Far from being a major driver, licensing revenue was the fifth most cited reason for owning IP assets (with “excluding competitors” the fourth). Like many of their Asian contemporaries, many Elite members are still growing their businesses and looking to enter new markets. Therefore, they are typically in a phase of IP development concentrated on building and rationalising their portfolios for worldwide operations. That said, the survey responses would suggest that the next phase – extracting additional value from those portfolios through licensing, sale and financing, or augmenting portfolios through acquisitions and licensing-in – may be getting closer. “Freedom to operate and protection of market share are for sure the primary reasons for owning IP assets among the majority of Asian companies,” said one senior executive. “Licensing and other forms of monetisation are not that important yet, but they are certainly coming.”
Putting a price on technology
To make sense of how IP assets can achieve these objectives – and as they become more interested in monetisation and M&A – rights holders in Asia-Pacific are finding it increasingly necessary to carry out valuations of their portfolios. Forty percent of respondents have done this in one form or another, with a further 10% planning to do so in the near future and 33% stating that they would consider it. “The primary benefit for us is to work out what kind of influence intellectual property has on whatever business we are doing and try to see what kind of figure, what investment return, the IP brings in,” explained one head of intellectual property.
Nevertheless, opinion was divided on the efficacy and usefulness of IP valuation. “Unless there is a specific reason for tax or business purposes – such as relocating assets to a tax shelter, an M&A or a spin-out – I wouldn’t spend the effort and money,” said one executive. “To me, the idea of a portfolio valuation doesn’t have strategic value in and of itself. Rather, it has to be all about the business justification that makes it worthwhile.”
While 33% of respondents agreed that valuation is an essential component of IP strategy, 37% also said that industry needs a standard valuation methodology for it to be a worthwhile practice. “Typically, we decide the value of the intellectual property by price negotiation – what price has been offered, what has been counteroffered and so on,” said one corporate IP manager. “But these days, we really need to find a common ground for patent valuation. And we need several different valuation tools in order to get anywhere close to an objective view. If each company has its own valuation method, we can only get a very subjective view, so to drive and activate the IP market standardisation is very important.”
The Asian marketplace has seen the development of state-backed sovereign patent funds (SPFs), such as Japan’s IP Bridge, South Korea’s Intellectual Discovery and a number of planned but yet-to-launch vehicles in Taiwan (the single example of such a European fund, France Brevets, is also expanding its operations in the region). With a significant slice of their financing coming from government, SPFs have multiple and varying objectives that go beyond the pure returns sought by private sector non-practising entities, including boosting domestic industry, increasing employment, improving the environment for small and medium-sized enterprises and providing protection against patent assertions by foreign IP owners. Nevertheless, these entities also draw capital – and patent assets – from operating companies; 22% of the benchmarking survey respondents indicated that they had invested in an SPF.
These funds are still a relatively recent phenomenon and the survey findings suggest that their impact on the wider market remains to be determined. Twenty-six percent of respondents opined that SPFs are beneficial to the IP ecosystem, while 22% said that they pose a threat; but a majority of 52% simply stated that they were uncertain as to the potential upshot of their arrival on the scene. One senior IP manager at a leading electronics company expressed scepticism at state involvement in the IP marketplace, saying that government policy will always direct the actions of SPFs and that may not always be in the best interests of industry, whatever the intentions. “We can make money based on a corporate business model,” he said. “But for government-supported organisations, they can earn money or lose money, maintain their salary increase every year, and it doesn’t matter for them, because they’ve got taxpayer money.” Another executive told IAM that transparency as to who will ultimately run the funds and call the shots – and some guarantee that they will remain adequately financed – is vital to assessing their success: “It is hard to say how much of an impact they will have – it depends on how big the fund is and who runs it. Subject to those factors, you could get very different results.”
IAM’s benchmarking survey of this year’s Asia IP Elite members reveals some key trends in the regional marketplace. Here are a few of the most notable findings:
- For a relative majority of Asia IP Elite members, budgets have risen over the past year and in many cases are expected to rise further in the coming 12 months.
- As the regional marketplace continues to grow in sophistication, IP teams and reporting structures are also evolving, with a general trend towards centralisation of IP functions.
- The relationship between the IP and R&D functions may be somewhat more pronounced among Elite members. A significant number of IP managers in the Asia-Pacific region report to chief technology officers or equivalent executives, rather than to general counsel.
- While focused on securing freedom to operate and protecting market share, defence from lawsuits and the creation of revenues from licensing and sales are increasingly important aspects of IP strategy for Elite members.
- One of the greatest challenges facing the Asia IP Elite is non-practising entity (NPE) litigation. However, a significant number of the Elite are also transacting with or partnering NPEs in order to further their own IP monetisation objectives.
New Elite entrant – Fisher & Paykel Healthcare
Founded in 1934 as an importer of household appliances, New Zealand’s Fisher & Paykel split in 2001 into separate white goods and medical device businesses. The predecessor company had a clear track record when it came to repurposing core intellectual property for new markets; collaboration with the public research sector in the 1960s led to the implementation of its humidification technology in respiratory care solutions. As a standalone company, Fisher & Paykel Healthcare continues this tradition today with an active patenting programme aimed at protecting fundamental technologies in the areas of respiratory health, sleep apnea treatment and surgical equipment – as well as innovations around those that could have applications in adjacent fields.
New Elite entrant – Hon Hai/Foxconn Technology Group
Hon Hai is perhaps better known outside Asia as Foxconn – the manufacturer contracted by the likes of Apple, BlackBerry, Google, Microsoft and Sony to build many of their mobile communications products. But Hon Hai has also become a global IP powerhouse in its own right, with founder and chairman Terry Gou highlighting the importance of IP assets to the business by centralising the conglomerate’s IP function. As well as being Taiwan’s top domestic patent applicant for the past 12 years, Hon Hai has been busy in the IP transactions market of late. Notably, it has sold patents to Google on more than one occasion; while a portfolio relating to display panel technology that it purchased from NEC in September 2012 was asserted against a host of Japanese companies in a US court earlier this year, demonstrating its dynamic approach towards IP markets in the Asia-Pacific region and beyond.
New Elite entrant – Infosys
India’s Infosys has rapidly risen to become one of the world’s largest IT and software services companies. As a result of this growth, the company’s senior management have turned their efforts towards crafting a globally focused IP strategy that is fully aligned with the company’s commercial objectives. This has driven an expansion in the size of its IP team, as well as in its filing activities both at home and abroad; while a number of strategic acquisitions have also brought more intellectual property into the Infosys fold. On top of this, the company has been active in undertaking valuations of its IP assets in order to understand better their impact on its revenues and lay the groundwork for licensing programmes in the future.
New Elite entrant – Nissan
The culture of innovation at Nissan has helped to fuel one of the most dramatic corporate turnarounds in the past two decades and the company is still pushing boundaries – particularly in the clean technology space. Nissan’s 15-year old strategic partnership with Renault (the two companies are cross-shareholders and share a CEO) has provided a model for technological collaboration in the auto industry. But Nissan is also eager to work with competitors; it has been jointly developing fuel cells with Ford and Daimler AG since 2013, and when Tesla announced it would not initiate litigation against companies that used its patents in good faith, Nissan reportedly jumped at the opportunity to discuss technology sharing. With the Leaf’s status as the top-selling electric car on the market, Nissan will surely help to shape the next generation of green automotive technology.
New Elite entrant – Reliance Industries
Fortune Global 500 member Reliance Industries is the flagship company of India’s largest private sector enterprise, the Reliance Group, which has businesses across the energy and materials sectors. With a complex web of products and processes under its umbrella – including refining, petrochemicals, textiles and retail – the group has taken the important step of centralising its IP function. In addition to patent holdings across a wide spectrum of technical areas, Reliance is responsible for 86 different brands inside and outside India.
New Elite entrant – Ricoh
Operating across the digital imaging, photography and electronics sectors, Ricoh has always moved aggressively to protect its intellectual property. According to the 2014 edition of IAM and MDB Capital Group’s US Patent 100 study, Ricoh is the 24th-largest holder of active US patents, with over 12,000 grants and 3,000 applications. In its home market of Japan, Ricoh has over 26,000 patents. While a 100-strong IP development centre works to expand the company’s arsenal, a dedicated strategy centre focuses on external negotiations and licensing. The latter group has been in high demand as the company has grown its business through numerous M&A transactions over the past decade, including the acquisition of the Pentax camera business from Hoya Corporation. As a result of these deals, Ricoh also manages a wide range of brands.
New Elite entrant – RIKEN
With a history of innovation stretching back to 1917, RIKEN remains Japan’s premier public research organisation. The group’s technology transfer office helps new technologies to find a market and generates income that can be reinvested in further research. In 2012, the most recent year for which data is available, the group licensed 680 patents and income from the division totalled ¥55 million. Examples of RIKEN inventions that have been successfully commercialised by private sector Japanese firms include the PASESA blood pressure monitor produced by Shisei Datum, numerous plant variations and even a line of sake based on a RIKEN-developed strain of yeast.
New Elite entrant – Sharp
The sixth-largest global filer of Patent Cooperation Treaty applications in 2013, Japan’s Sharp Corporation has come a long way since the company’s namesake Ever-Sharp mechanical pencil was invented in 1915. Well known for its advanced television and LCD manufacturing, the group has made canny use of patent licensing deals to gain freedom to operate, sidestep costly court battles and earn royalties. Recent years have seen the conclusion of cross-licensing agreements with E Ink, OSRAM and AU Optronics, providing all involved parties with opportunities to expand R&D and boost revenue. This is proof positive that the company is actively pursuing its stated IP strategy of using its 43,000-strong global patent portfolio to reinforce its business earning power.
New Elite entrant – Siam Cement Group
Siam Cement Group (SCG) has a long history of leveraging intellectual property to launch into new business areas. Starting out as a cement producer in 1913, the company later began to manufacture other building materials before moving into paper production in the 1970s and chemical engineering during the following decade. In the late 2000s the company reorganised its IP function, centralising portfolio management and strategy in the group’s corporate technology office. This team is focused on building a high-quality patent portfolio and has instituted several measures to that effect; and the broad R&D base built up at SCG over many years means that it is now beginning to explore options for monetisation and collaboration with third parties.
New Elite entrant – Xiaomi
It has taken just four years since its 2010 launch for China’s Xiaomi to become the world’s fourth-largest smartphone maker. Intellectual property has played a key role in this meteoric rise. The Xiaomi brand has quickly become among the most recognisable in Asia; while the company’s rapid growth in market share has encouraged it to employ a variety of strategies for securing freedom to operate and maintaining its competitive edge. Earlier this year it was one of the initial corporate investors, alongside Kingsoft and TCL, in Chinese patent acquisition fund Ruichuan. Recently, it entered into a joint venture and technology transfer arrangement with chipmaker Leadcore, thus gaining access to low-cost semiconductor technology.
NPEs: friend and foe
Working out the best way to deal with non-practising entities (NPEs) and their assertions is one of the toughest challenges facing Asia-Pacific corporate IP managers today.
Forty-seven percent of respondents stated that they felt that NPEs are becoming more active in the region; moreover, they are encountering NPEs on a much more frequent basis as they try to expand their businesses overseas, particularly in the United States. “It is a problem on the whole for every jurisdiction,” said one senior IP executive. “And it is not only in Asia-Pacific where they are going to come after you – they are going to get you everywhere! It is a challenge, and it often feels like there is nothing much we can do to address it right now.”
Digging down into the litigation statistics, NPEs are the plaintiffs faced by Elite organisations in 81% of the lawsuits they are defending, on average. However, the survey findings also underline the fact that NPEs are coming to Asia not just as adversaries, but also as partners. Industry stalwarts Acacia Research, Conversant and Intellectual Ventures, for example, have all established a permanent presence in the region and have forged some high-profile alliances with local operating companies. A number of regional players have also emerged, including established Singapore-based outfit Transpacific IP and a more recent entrant, Beijing’s Zhigu.
Despite many deep-seated reservations among Asian corporates regarding litigation, 18% of respondents to the survey indicated that they have partnered with an NPE to monetise their patents or are otherwise planning to do so, while a further 29% would be open to doing so in the future. Further, 25% have assigned patents to an NPE or are planning to do so, with another 25% considering such a transfer in the future. This question was asked separately from the question about ‘partnering’ with NPEs to try to gauge whether, when dealing with such entities, Elite companies have any preference for one-off transactions which may involve a straight sale for cash over longer-term strategic relationships between the two parties.
Despite this apparent willingness among many Elite members to work with NPEs, there is also an awareness of the downside – not least the potential negative impact on reputation and relationships with competitors and business partners. “When we have tried to sell patents in the past, often normally our rival companies will not show any interest,” explained one senior IP manager. “In that case we may sell to an NPE, but then it might use those patents against our competitors. The problem is that as we try to generate more profits from our patents, we may end up with more enemies.”