Local government strongly supports patent licensing between large companies and SMEs

This reports addresses material that we received from a local government in response to our previous discussion of a patent licensing business model for large companies to license unused patents to small and medium-sized enterprises (SMEs) (for further details please see “Patent licensing business model attracts attention”). In Japan it is known as the ‘Kawasaki model’.

In 2007 Kawasaki (a city in Kanagawa Prefecture) implemented a pioneering project to revitalise local industry by successfully involving large companies in patent licensing with SMEs; eventually, it attracted the attention of other local governments.

At its core, the model transfers patented technologies from large companies to SMEs for the benefit of both parties: on the one hand, large companies wish to monetise their unused patents – over half of Japanese patents remain unused; on the other hand, SMEs require seed technologies to develop their products (which should be protected by patents) and move away from subcontractors.

Many large companies have participated in projects using this model, including:

• Fujitsu;
• Toshiba;
• NEC;
• Hitachi;
• Nissan;
• Pioneer;
• Ajinomoto;
• NTT;
• Canon;
• Chugoku Electric Power;
• Sharp;
• Kyocera;
• Fuji Xerox;
• Toyota;
• Panasonic;
• Mitsui Chemical;
• KDDI;
• Honda Motor; and
• Siemens.

Between 2007 and February 2018, 29 deals were closed and 20 new products were created using this model. Its success largely depends on strong local government support.

For example, the local government assists SMEs with:

• developing new products and business plans;
• providing matching opportunities with large companies (eg, symposiums, small meetings and one-to-ones);
• conducting contract negotiation with large companies;
• introducing development partners, public experiments and research institutes; and
• obtaining public subsidies.

As many large companies are initially reluctant to participate due to the cost of identifying seed technologies for SMEs, the local government provides them with the following services:

• screening patents for seed technologies which fit a particular SME using title and abstract searches of patented inventions;
• arranging closed meetings with selected SMEs; and
• organising one-to-one meetings when an appropriate licensee is found.

Experience shows that good-fit seed technologies for SMEs:

• have clear use applications;
• directly contribute to product development;
• easily add value to existing products;
• develop and facilitate products inexpensively and using minimal effort;
• offer prototype or experimental data; and
• are generally unfit for large businesses.

Despite the demand for such a patent licensing model, it is unlikely to succeed without strong support from local government, especially considering the costs involved and the information about SMEs owned by local governments. Its benefits seem more apparent for SMEs than for large companies (ie, the non-obviousness of expected returns) and its regional and social applications remain unexamined.