Southeast Asia – navigating the innovation landscape

The technology sector is booming in Southeast Asia. Although patent filings by local players remain relatively thin on the ground, it is not for lack of IP strategy

Visit any country in Southeast Asia and you cannot miss the signs of increasing technological competition. Home to a rising middle class, the region is a commercial battleground for tech majors from China, Japan and the West looking to boost growth. Meanwhile, venture capital money is pouring into local start-ups.

But what does all of this mean for homegrown innovation and what impact might today’s tech upstarts have on the IP world of the future? To take the region’s temperature, IAM asked data provider Parola Analytics (which is based in New York but does much of its work out of the Philippines) to compile a landscape of patents filed by Southeast Asian entities. After a brief tour of the region’s patent landscape, this article examines the broader context of innovation within the Association of Southeast Asian Nations (ASEAN) community and analyses how and why local companies are using non-patent means to protect their IP rights.

What the data shows

One thing that is immediately clear is that patents do not even come close to providing a clear picture of what the overall innovation environment looks like. This is true everywhere, of course, but it is particularly salient in a region where many patent systems remain at an embryonic stage and where even the most developed patent offices are handling around 10,000 total applications annually.

Despite these low numbers, there are valuable insights to be gained from the information that we do have to hand. The sample for this article covers patents and applications with priority dates between 2013 and 2018. All of the patents in the sample have applicants or assignees who listed a Southeast Asian country as their domicile. The total dataset includes 20,801 patents and applications from around the world, of which around one-third are granted rights. Note that falls in numbers for the two most recent years will be because of the 18-month delay in the publication of applications.

With that in mind, the following are the top countries of origin for Southeast Asian patent assignees or applicants in the sample. Some of the patents were assigned to multiple entities – as you can see, patents jointly assigned to Singapore and US-based owners outnumbered all applications by Thai and Philippine applicants in the sample.

Figure 1. Total patent applications (direct and PCT national phase entries), selected countries

Source: WIPO

Figure 2. Priority year distribution

Source: Parola Analytics

Figure 3. Assignee/applicant country

Source: Parola Analytics

Singapore – innovation centre for global firms

The data for Singapore shows that the city-state owes a great deal of its top position to the activity of foreign companies that assign patents to legal entities domiciled there.

It is difficult to parse how much of this is down to R&D that occurs locally and how much may be related to tax or other business purposes – in other words, whether Singapore is an innovation factory or an innovation warehouse.

Lenovo, for example, is the top overall patent owner in the sample, but Singapore is not home to any of the nine locations listed on the company’s website as research centres. On the other hand, foreign chipmakers – including Taiwan’s Mediatek and US-based GlobalFoundries – have significant design and research facilities in Singapore, which probably account for their strong showings.

In 2018 Singapore began to exclude IP income from certain of its existing tax incentive schemes as part of a global movement to address tax planning practices known as base erosion and profit sharing (BEPS). The government says that the move could incentivise overseas companies with significant IP holdings there to shift more substantial business activities to Singapore.

The overwhelming majority of patents in the sample with Singaporean assignees are overseas rights.

Top patentees with local roots include government R&D organisation A*STAR and chipmaker Avago, which is now owned by US firm Broadcom (run by Malaysian businessman Hok Tan). The importance of the life sciences and medical devices to Singapore’s innovation ecosystem is demonstrated by the presence of local universities as well as Sivantos, a Singapore-headquartered spin-off of Siemens that makes hearing aids.

Figure 4. Top patent assignees domiciled in Singapore

Source: Parola Analytics

Figure 5. Jurisdictional breakdown of patents with Singapore assignees

Source: Parola Analytics

Figure 6. Technology breakdown of patents with Singapore assignees

Source: Parola Analytics

Vietnam on the rise, but focus is local for now

Domestic patent filing is one area in which there are two ASEAN stories: Singapore and the rest. The next tier from a technology and IP perspective is usually thought of as comprising Malaysia, Thailand and Vietnam. But some might be a bit surprised to see Vietnam with a healthy lead in patent applications over the other two countries. After all, the latter two are home to companies that are better known in the IP space globally (Siam Cement Group, PTT Global Chemical, Sime Darby, Petronas and Proton Motor).

The data shows that the patents filed by Vietnamese entities in the sample are overwhelmingly local, in stark contrast to Singapore’s output.

The Vietnamese patents are also focused on distinct fields, notably civil engineering and other special machines (this includes agricultural machinery). The country’s top local assignee is the Urban Drainage and Development Company, which is followed by several universities and research institutes, as well as mobile carrier Viettel.

Although Vietnam is on the smaller side when it comes to both local (Figure 3) and total (Figure 1) patent filings, it has become a locus for patent litigation involving overseas companies, so far mostly in the pharmaceutical sector. Thomas Treutler, the managing partner for Vietnam at regional law firm Tilleke & Gibbins, says that his team has handled between 15 and 20 pharmaceutical patent cases and one in the medical device sector. He guesses that this accounts for around 85% of all the patent litigation so far in the country.

Patent owners face a host of challenges. “Enforcement is slow, it’s difficult to seek a preliminary injunction and generally damages are not that high”, Treutler explains. “So the main hope is to get the infringer to stop infringing.”

One big trend in Vietnam is an influx of high-tech manufacturing, driven in part by increased labour costs in China. There are early signs that this too could have some impact on the local patent space – Treutler’s firm is acting in what it believes to be the country’s first electronics case, involving mobile phone components. “With the big players all coming to do production in Vietnam, many of the supporting components makers have come into the country as well”, Treutler observes. “They are all competing for business from the big manufacturers and it looks like they are taking the first steps to sue each other.”

There are other signs that local firms are paying more attention to intellectual property. Vingroup, the nation’s largest privately owned company, has unveiled ambitious initiatives in the smartphone and automobile sectors. Vinsmart, its mobile subsidiary, agreed to a patent licence deal with Qualcomm including 5G rights at the end of 2018. As a private company among many state-run firms, Vingroup is a potential candidate to try to make a regional breakthrough.

Figure 7. Jurisdictional breakdown of patents with Vietnamese assignees

Source: Parola Analytics

Figure 8. Technology breakdown of patents with Vietnamese assignees

Source: Parola Analytics

Indonesia – sleeping giant?

While Indonesia is the largest economy and most populous country in the region, Indonesian patentees barely registered in the sample compiled by Parola Analytics. This is despite the fact that the country is home to several tech unicorns flush with venture capitalist money.

To be sure, IP owners in general face steep challenges in the market. Indonesia remains the only Southeast Asian country on the US Trade Representative’s Priority Watch List for intellectual property. Some of the key hurdles for patentees include a requirement that obliges patent owners to manufacture their inventions in Indonesia (although a 2018 measure allows patentees to delay the requirement) and compulsory licensing rules that give the government a relatively free hand.

Resident patent filings by Indonesian applicants have increased, according to WIPO statistics.

According to Jakarta-based Nick Redfearn, deputy CEO of Rouse, this rise is largely driven by university filings, but may not amount to much. “No one knows whether it is going to turn into anything because corresponding foreign filings are almost zero.” This suggests that while there may be an impulse for greater IP activity in the country, patent commercialisation is not well understood.

Figure 9. Patent filings in Indonesia, resident and non-resident

Source: WIPO

What is not in the data – booming platform start-ups

The patent data from the last few years (see Figures 11-15) feature some of the strong regional players across the more traditional science and research-based technology fields – SCG Chemicals, PTT GC, Razer, Creative, Mimos, Aslan Pharmaceutical and the Malaysian Palm Oil Board, to name a selection from around the region.

What they do not show – or at least not yet – is the huge impact of venture capital on the region over the last few years.

“Southeast Asia has a number of well-publicised unicorns – Razer and VNG in gaming, Traveloka and Tokopedia in e-commerce, Grab and Go-Jek in ride-sharing,” Redfearn explains: “None of these rely on patents, and they’re allegedly the most innovative companies in the region.”

This is no surprise. Platform-based start-ups such as Uber, Alibaba and Facebook have not traditionally been major patent players until well into their growth stories, when in many cases they had to start thinking seriously about intellectual property as they approached initial public offerings. “In the digital sector,” Redfearn argues, “most of these firms’ intangible assets are things like copyright, software, graphical user interfaces, apps, brands and trade secrets.”

That means that while patents may not be important, IP strategy certainly is. Redfearn is not sure that investors active in the region appreciate the distinction. “Venture capitalists might not be putting quite the level of oversight, resources and sophisticated analysis into their investments”, he says. “There’s a bit of a gold rush going on.”

So what should investors be looking for?

Michelle Tan, director of intellectual asset management at Deloitte Southeast Asia in Singapore, helps companies around the region to position their overall intangible asset portfolios for the next phase of growth. She says that one of the big questions facing start-ups in the region is whether they can develop products to truly call their own. “Are these companies building technologies that can push the frontiers, or are they looking at technologies already available in the West and adapting them to local conditions?”

Redfearn advises looking beyond patents and trademarks. “You’d be looking at making sure these companies have strong awareness of intangible assets and that they’re maximising the value”, he warns. “Because that’s where their moats will exist.” Taking the example of e-commerce, this encompasses areas as diverse as merchant programmes, consumer branding and data capture and collection.

Table 1. Key Southeast Asian unicorns (and former unicorns)

Name

Headquarters

Industry

Valuation

Grab

Singapore, Malaysia

Ride-sharing

$10 billion

Go-Jek

Indonesia

Ride-sharing

$10 billion

Tokopedia

Indonesia

E-commerce

$7 billion

Traveloka

Indonesia

Travel booking

$4 billion

VNG

Vietnam

Internet/gaming

$1 billion

Razer

Singapore

Gaming

Initial public offering

Lazada

Singapore

E-commerce

Initial public offering

Figure 10. Top patent assignees – semiconductors

Source: Parola Analytics

Figure 11. Top patent assignees – audiovisual technology

Figure 11

Source: Parola Analytics

Figure 12. Top patent assignees – telecommunications

Source: Parola Analytics

Why more patents might not be the answer

Whether you are talking about platform start-up unicorns or more traditional industrial players, it is not clear that ramping up patent filings is desirable for most Southeast Asian tech companies.

“We do see tech companies not filing patents”, observes Tan. One reason may be that firms see the some technology areas changing so quickly that they fear the technologies they are working on could be obsolete within a short period – and after all, not all of the region’s patent offices are known for speedy examination.

Cost is another major factor. Start-ups are typically focused on burning through money to acquire customers, while more established businesses without a history of patenting may find it hard to get the budget to build a global portfolio. Just protecting a patent across the region could entail filings in five or six countries – some of which require translations that impose additional costs.

“It’s an expensive proposition, so you have to be strategic”, argues Patrick Desmond, special counsel to SCG Chemicals. Cost is one of many factors that go into regional filing decisions for the Thai company. “When we look at places like Vietnam and Indonesia we look at things like transaction costs, the deterrent value of a patent, and if you do take it to litigation, which is expensive, how much you think you’ll really get out of the courts.”

Tan adds that companies need to think about whether they can detect infringement, as well as whether it is aligned with their company strategy and culture to enforce their rights. Overall, she says, there is no one answer: “We advise clients to look at the whole business model and build a portfolio of different forms of intellectual assets such as copyright, trademarks and know-how.”

How patents add value in small jurisdictions

It might well be that most tech companies in the region just do not see sufficient patent risk to their business to justify increasing what they already invest in their portfolio. However, that does not mean there are not opportunities to be had.

Desmond explains some of the considerations that have gone into SCG Chemical’s filing programme. First, as a company with a global business, it wants to attract partners from overseas – demonstrating that strong IP management can be a significant confidence-building mechanism. “We have seen some of those ‘soft’ benefits where certain other technology companies have reached out to us”, he recalls. “Or we’ve reached out to them and they’ve been receptive because they see we’re a serious player in the R&D field.”

Customers might also want to know that a vendor is providing the product of internal R&D. Desmond notes that marketing departments in chemicals and other industrial sectors are often eager to label their products as patented technology, especially in markets where not every company can make that claim.

Finally, patents can have practical use if a company does a lot of internal licensing as part of its corporate structure. When tax authorities are looking at intra-group transfer payments for intellectual property, they often want to see something more – for lack of a better word – tangible than know-how and trade secrets, which a patent can accomplish.

Often companies can benefit from patented technology that has been developed within universities, especially in Singapore where academia is eager to partner with the private sector. “Companies may be aware about the kind of technology that exists within research institutions for commercialisation”, Tan points out. She recommends that whatever their approach to in-house patenting, companies in the region make use of patent analytics to identify technologies available.

Firms such as SCG Chemical and others listed in this article may be slightly ahead of the curve, but Desmond believes that their ranks will swell. “Some of these ideas haven’t yet proliferated across Southeast Asia, but I think as the region starts paying attention more to intellectual property and getting more insights from other markets, they’re going to start embracing reasons to up their patent activity, even though it comes at a cost.”

Figure 13. Top patent assignees – pharmaceuticals

Source: Parola Analytics

Figure 14. Top patent assignees – chemical engineering

Source: Parola Analytics

Trade secrets, data and the future

When patents are not being filed – or are only being filed in a handful of jurisdictions – a lot of heavy lifting is left to trade secrets. Given the amount of high-tech manufacturing moving into jurisdictions such as Vietnam, expect a lot of attention on this topic in the years to come.

“A lot of patenting is done for manufacturing processes and I question the amount of activity around that”, observes Desmond, who has spent several years advising manufacturing companies in the region. “If you just patent in a few jurisdictions, the rest of the world can practise it.” You need a pretty compelling reason – like the potential to license out a process – to patent a manufacturing method rather than keep it secret.

Another industry-based driver of trade secret issues is the increase of outsourcing to the region in fields such as software development. “A lot of companies train Vietnamese engineers in the United States and then employ them to do software development in Vietnam, and we do see a lot of mobile employees”, reports Treutler. Both copyright enforcement and trade secrets enforcement are relatively weak, meaning that companies have to get creative.

Unfortunately, legal protection of trade secrets across the region is plagued by many of the same challenges as patent and trademark enforcement.

Treutler says that often companies need to rely on their local counsel to reach informal settlements with employees found to have misappropriated trade secrets, working to get data returned and to have offenders sign commitments not to use it under threat of civil action. In addition, he points out that “companies need to look carefully at having a suite of documents on the employment law side”. Best practices differ across the region: trade secret owners can pursue civil law remedies in the Philippines, Indonesia and Thailand but must rely on common law in Singapore and Malaysia.

Looking to the future, one of the key questions for tech companies in Southeast Asia is how they will make use of data and whether intellectual property has a role to play. It is possible that the lack of silos in the legal departments of Southeast Asian start-ups could be an advantage. For example, at both of the region’s key ride-sharing start-ups, Grab and Go-Jek, the counsel looking after IP strategy also manage the data privacy portfolio.

“The challenge is how companies will be able to monetise this data”, Tan maintains. “And for that they need to understand what data the market wants and how to go about collecting it.” However, ultimately the key is to find ways to monetise it – as Tan underlines: “Data is the goldmine these companies are sitting on.”

Action plan

Technology investment is flowing into Southeast Asia as global players contend with local start-ups to benefit from the region’s rising middle class. A look at the landscape shows that while patent filing by domestic players remains spotty, they are embracing IP strategy in other ways:

  • Singapore remains the IP hub of the region with a highly developed patent office and a friendly business environment. Many global firms have significant IP holdings through subsidiaries there for R&D and business reasons.
  • Vietnam, Thailand and Malaysia comprise the next tier of countries in terms of producing patent applications. However, many of these are largely domestically focused.
  • Indonesia, the region’s largest country, remains a challenging jurisdiction for IP ownership, but its size means it has produced some of the world’s richest start-ups and they are starting to think about intellectual property.
  • Building a large IP portfolio will not suit the business strategies of many of the region’s top technology companies. However, patents offer substantial opportunities for firms that do make them a key part of their IP plan.
  • In jurisdictions where patenting is sparse, trade secrets and trademarks need to pick up a lot of slack – but enforcement for both remains a difficult proposition in many Southeast Asian countries.


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