Thu, Jul 08, 2004 page9

• Japan turning to patents to keep competitive edge

  • By Daisuke Wakabayashi and Nathan Layne / REUTERS
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  In the early 1980s, a copyright suit filed by IBM against Japanese firms Hitachi Ltd and Fujitsu Ltd symbolized the US' efforts to protect its intellectual property against a rising economic threat.

  Two decades later, it is Japan Inc that is taking the offensive with a string of lawsuits against Asian rivals that could determine whether the world's second-largest economy can maintain its technological edge in the digital era.

  Whether Japanese firms can hold on to their technology is also seen as a key litmus test for success in the lucrative Chinese market, where piracy is still a hot issue.

  "If Japan can make sure its technology doesn't get out, then there is a lot of untapped competitiveness," said Fumiaki Sato, an analyst at Deutsche Securities.

  "Part of the reason why Japanese companies lost out to Asian firms during the 1990s is because they gave away their technology to Asia for virtually nothing," he said.

  Fujitsu's spat with South Korea's Samsung SDI Co Ltd over patents on plasma display technology and Sharp Corp's dispute with Taiwan's AU Optronics are the tip of the iceberg, lawyers and analysts said.

  Earlier this month, Samsung SDI and Fujitsu dropped lawsuits filed against each other, but Deutsche's Sato said Samsung SDI was likely forced to recognize Fujitsu's patents and estimated a payout to its Japanese counterpart of up to ?8 billion (US$75 million).

  Because surging sales of flat-panel televisions and other digital electronics have played such a key role in boosting corporate profits and the domestic economy, analysts say the Fujitsu case sets an important precedent for Japan.

  "I expect to see in the coming years Japanese firms becoming more and more aggressive about protecting their rights, because by doing so, they are essentially protecting their profits," said Peter Godwin, a partner at law firm Herbert Smith in Tokyo.

  One of Japan's most profitable companies, Canon Inc, has been aggressively defending and promoting its intellectual property rights for years.

  Canon, which spends more than US$2 billion annually on research and development, ranked No. 2 in US patents received and raked in US$200 million from patent royalties last year.

  "It is a very obvious thing to do," said JP Morgan analyst Hisashi Moriyama. "[But] Japanese manufacturers until now have generally not been as aggressive as they could have in safeguarding their patents."

  Japanese firms saw first-hand the power of intellectual property rights in January, when the Tokyo District Court ordered chemical firm Nichia to pay a record ?20 billion to a former engineer for his invention of blue light-emitting diodes.

  The lessons learned from Japan's technology outflow in the early 1990s, when it monopolized the DRAM and LCD markets before losing ground to the likes of Samsung Electronics, have prompted electronics firms to build new factories at home.

  Elpida Memory Inc, Japan's last DRAM manufacturer, announced this month it planned to build one of the world's biggest chip facilities in Hiroshima, while Matsushita Electric Industrial's upcoming plasma display plant will be based near Osaka.

  Sharp, which started production of LCD televisions at a new facility in western Japan, has taken some of the most extreme measures to prevent the outflow of technology.

  The company bans factory visits at its Kameyama plant, keeps the identities of its key engineers private and does not allow employees to have camera-equipped cellphones inside the facility.

  It even chooses not to patent certain products, fearing that the procedures and paperwork for doing so would give competitors clues on the technologies it seeks to keep to itself.

  "We are trying to make it very difficult for someone to walk into the Kameyama plant and walk out with information," Sharp's LCD business head Zempei Tani said in an interview in March.

  custom equipment

  In fact, companies often customize manufacturing equipment once the machines get onto the factory floor to ensure that their products cannot be easily copied by simply buying the same piece of gear and studying its insides.

  "Even if someone were to look at the equipment, I'm not sure they would be able to recognize it," Kaneo Ito, president of leading plasma TV maker Pioneer Corp, said this month.

  Allegations of corporate espionage are not new in Asia.

  Taiwan Semiconductor Manufacturing Co is in a heated patent battle with Chinese rival Semiconductor Manufacturing International Corp over its allegations that SMIC stole its trade secrets and used them to design chips.

  This and other high-profile patent lawsuits will be on the minds of Japanese technology companies as they invest millions to build up production capacity in China, where protecting intellectual property (IP) has always been a challenge.

  Sony Corp announced this week that it planned to spend US$200 million this fiscal year to boost production in China, but would continue making certain key components in Japan such as the chip for its PlayStation 2 game console.

  This is partly to protect its technology, Sony said.

  "The Chinese have been masters at copying intellectual property for many, many years," said Herbert Smith's Godwin.

  "Probably the biggest headache of high-tech companies investing in China is how to protect IP," he said.
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