While Japan Inc remains sceptical about working with intermediaries, new realities are softening attitudes
Issue 76 of IAM – which is now available online for our subscribers – features highlights from a roundtable discussion I had with several senior IP executives at some of Japan’s major companies. You can view the full article here. We covered such a wide range of topics that it would have been unwieldy to include them all in the published feature, so - regretably - certain subjects were left out.
One of these was the perenially thorny subject of the Japanese corporate world’s relationship with NPEs, brokers, defensive aggregators and other third-party players in the patent eco-system. But the good thing about having the IAM blog is that it provides a second bite of the editorial cherry; and as corporate Japan's embrace of the IP market is hugely important to its development, I thought I'd share some of the views expressed by my interviewees on this subject with you here.
First off, I think it is fair to say that Japan’s in-house IP managers have generally taken a sceptical and on occasions even a hostile view of intermediaries. While some of the largest operating companies do work with the likes of AST and RPX, they will often see their participation as more a result of necessity than anything else. “Many Japanese companies, particularly in the consumer electronics and automobile fields, are annoyed by patent assertion entities [PAEs],” Kenichi Nagasawa, head of IP at Canon, said. “Although there are many favourable decisions from our perspective, such as Alice, in order to handle PAE issues in costly US litigation, some Japanese companies are still willingly or unwillingly working with defence service companies such as RPX or AST.”
In the past couple of years a few Japanese corporates have struck up licensing partnerships with NPEs/PAEs. In some cases, it would seem, this has happened through first being exposed to them as opponents in litigation. “For Japanese companies doing business in consumer electronics in the United States, the answer [as to whether they would be willing to work with NPEs] would be ‘yes’ as it might be an inevitable way to deal with NPEs,” explained Toshimoto Mitomo, senior vice president at Sony. “We presume the automotive industry will be in the same situation very soon as they are deploying more and more information technology.” In general, though, NPEs are still largely viewed as a nuisance at best, and as despicable ‘trolls’ at worst. The idea that at least some of them are legitimate actors that are the product of an increasingly mature and fluid market in IP assets is one seldom voiced.
Nevertheless, upheaval at the top of the country’s high tech sector is leading some of its IP executives to reappraise the role that intermediaries might play. Glance any day at the headlines in the business newspapers, and you will see the evidence of an industry in flux – with foreign entities looking for investment and M&A opportunities among the fallen giants of Japanese industry, while other long-established players seek to create efficiencies, cast off moribund units and reposition to focus on new growth areas. “As many Japanese companies restructure their businesses, valuation of IP assets may become more important in measuring the value of transactions,” said Minoru Kato, vice president of IP and R&D at Kao. “For companies having worldwide patent portfolios, working with such intermediaries will more frequently be seen as one of the practical options.”
If there is an increased need to value IP portfolios, then the obvious place to turn will be to intermediaries capable of offering such services. Furthermore, placing a monetary value on IP assets should in itself serve to change corporate mindsets about the ways in which IP can be deployed strategically – including through sales and licensing.
There is also a growing recognition among Japanese IP managers – just as there is with their counterparts elsewhere – that a worldview characterising the IP marketplace as a dichotomy between operating companies on the one hand and NPEs on the other no longer makes sense. Novel and innovative business models are emerging on both sides, blurring the distinctions between them and creating new definitions altogether. The movement of some NPEs into product offerings and business venturing, and the continued growth in areas such as IP-backed lending, litigation finance and patent-shorting hedge funds, is evidence of this.
“Japanese companies will oppose working with the intermediaries who are just out to seek outrageous amounts of royalties,” said Takashi Komoro, general manager of the IP department at NTT Docomo. “However, now there are a variety of intermediaries, including publicly funded ones, so we can’t flatly deny them all.” As Komoro alluded to, the arrival on the scene of what are effectively state-sanctioned NPEs – the ‘sovereign patent funds’ including France Brevets, South Korea’s Intellectual Discovery and Japan’s own IP Bridge, which launched its first assertion campaign against TCL in July last year – is further serving to challenge traditional corporate attitudes towards the intermediary space.