Benchmarking Asia’s IP leaders

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 respondents

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.

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.

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.”