Who Cares About Japan?

Part Two of a Three-Part Series

Part One of this series examined several significant changes to both Japanese and U.S. IP-related laws and regulations that have helped empower Japanese firms to effectively utilize IP. This second installment discusses corporate strategies Japanese firms are starting to employ to capitalize on their intellectual capital.

In the past, Japanese firms heavily relied on a defensive approach; specifically, they developed technology and managed their IP portfolios to exclude others from the market. Today, however, they are beginning to focus their efforts in monetizing their IP through strategies such as patent pooling, IP trusts, focused IP inventory management, exploiting IP foreign services, and integrating IP into their high-level corporate strategies through a Chief IP Officer. Each of these is examined in turn.

Corporate IP Management

Patent Pooling

One potential problem with lucrative new or niche high-tech markets is that competitive players vigorously strive to fortify their positions through IP protection. This is done through patenting in an effort to build as large a 'fence' as possible around a particular technology area. When numerous companies are fighting for dominance in a single area, it can be difficult to efficiently obtain licenses for all required IP. For example, the Federal Trade Commission mentioned that more than 90,000 patents generally related to microprocessors are held by more than 10,000 entities.

For several years now, the tool used to solve this problem was the creation of a patent pool. By providing uniformity and 'one-stop shopping,' patent pools often become de facto standards for certain industries. In Japan, standard building has become one of the major strategies corporations employ to develop, build, and control new markets. Some of the most prevalent patent pools are the DVD6C, MPEG 2, and the new standard competition brewing between Sony's Blu-ray and Toshiba's HD DVD technology.

While both the DVD6C and the MPEG 2 pools have been successful, the DVD6C patent pool exemplifies Japan's influence in the field. The pool was started by a group of primarily Japanese companies that together own roughly 90% of the essential patents listed in the pool. Furthermore, only 10% of the licensees come from Japan while Asia (not including Japan) and the Americas make up about 70%. This demonstrates that Japanese firms have and can essentially dominate and control core technology that is utilized worldwide.

The Blu-ray DVD versus HD DVD struggle between Sony Corp and Toshiba, respectively, is a current example where two pools are vying to standardize the market. Competition between the two demonstrates an important fact: that Japanese firms are the ones developing core technology; however it's the user who has the power to determine which format succeeds. A recent figure shows that Blu-ray has captured 70% of the hi-definition movie sales, which is in part due to its exclusive support from five major studios ' two of which are owned by Sony Pictures ' while HD DVD is only exclusively supported by two studios.

This example shows that Japanese firms don't always work inclusively together, but it proves that they are willing to risk investing in core technologies and aggressively fight competitors.

IP Trusts

Generally speaking, a trust is created where one entity (trustor) relinquishes its rights in an asset to another entity (trustee), giving the trustee the right to manage the asset for the benefit of the trustor under agreed-upon terms. IP Trusts are trusts where the transferred asset is intellectual property.

As far back as 1995, the Develop- ment Bank of Japan ('DBOJ') allowed the use of intellectual capital as collateral for loans, showing the government's early involvement in recognizing IP as a credible asset. This also showed the willingness of the DBOJ to help Small and Medium Sized Enterprises ('SMEs'). In 2004, an amendment to the Trust Business Law allowed the securitization of IP, as well as the authorization for non-banking entities to establish trust firms. The result was an influx of new trust firms, increasing the supply of services (and therefore decreasing costs) offered in the market.

A major problem SMEs are facing today is properly valuing their IP for either selling or licensing purposes, coupled with the fact that these companies have historically not actively enforced their IP. IP Trust companies could provide valuable services for these firms by enforcing unused patents and seeking out licensing opportunities with non-competitors.

Typically, regional and local firms in Japan would not affect U.S. companies; however, with the cost of obtaining IP-related services decreasing and the supply and types of services increasing through the Patent Prosecution Highway (see the first article in this series), smaller firms along with individual inventors now have the opportunity to apply for U.S. patents and have IP Trusts handle the international enforcement. This could stimulate competition from literally thousands of firms that would have otherwise been unknown in the market.

IP Inventory

More and more, Japanese businesses are willing to license their non-core patents to both domestic and international firms. Some firms like Mitsubishi Electric post on their Web site patents they wish to sell while organizations like the National Center for Industrial Property Information and Training ('INPIT') list about 60,000 patents available for licensing from more than 1000 companies and 1500 individuals.

On the development side, the Japanese government has been pushing for both Technology Licensing Organizations ('TLOs') and private companies to work closely with universities to develop and patent new technologies. This collaboration allows universities a means to reap economic benefits from their efforts while the TLOs gain access to the human and physical capital needed to develop core technologies.

Foreign Services

As firms expand their reach into foreign markets and as competitive pressure between international companies grows, Japanese companies have begun to exploit the use of foreign expertise. Specifically, Japanese firms are looking toward the United States, even over firms in their own country, in order to capitalize on their IP. As proof, many large firms (such as Matsushita) have already sent their IP personnel to live in the United States in order to survey and collect new trends in IP corporate strategies along with changes in patent law and litigation. This is where foreign service companies are essential for Japanese firms, since most companies are able to recognize a need for a change but are uncertain how to act.

IP service providers including Ocean Tomo have departments specifically catered to provide IP analytics, risk management, and general consultation to Japanese businesses. Armed with current IP information and the specialized IP services needed to exploit market opportunities, Japanese firms are effectively in a strong position to utilize their IP in the United States against American firms.

Chief Intellectual Property Officer

With diverse IP tools available such as patent pools, IP trusts and securitization, and focused IP analytics, Japanese firms are beginning to focus their efforts on building an internal body dedicated to handling the firm's IP management.
The most prominent position is a Chief Intellectual Property Officer ('CIPO'). The CIPO's general duty is to provide high-level direction for the firm's IP strategy.

One of the most significant changes a CIPO can bring about is the development and distribution of IP personnel across major departments. One example is the marriage between IP analytics and internal patent attorneys with R&D. Analytics can evaluate the firm's overall market position and can define a narrow field where R&D should focus its efforts, thereby minimizing unnecessary research and contributing to cost-cutting strategies. Patent attorneys can help R&D draft strong patent applications that will help build the firm's market position in Japan and possibly the United States through the PPH.

While the successful collaboration between IP and different departments through the management and leadership of a CIPO could lead to efficiencies and other value adding dimensions, the process of implementing strong IP governance may bring significant bureaucracy within a firm due to high crossover between departments. However, the potential behind such a position is immense and could change how Japanese firms employ new business strategies to strengthen their market position.

Conclusion

Japanese businesses are beginning to employ sophisticated and efficient means to capitalize on their IP in domestic and international markets, making them more solid international competitors. Specifically, patent pooling is helping them grow and control new markets while IP Trusts allow smaller firms the ability to capitalize on their IP. IP inventory management provides an insightful look into Japanese companies' strengths, weaknesses, and redundancies in terms of their IP market positions. Foreign services are helping Japanese firms either mitigate potential risks or exploit market opportunities. Lastly, the CIPO helps companies incorporate high-level IP strategies.

The final installment of this series will explore Japan's continual and active involvement in the international community in regard to IP and its relevant effect on both Japanese and U.S. firms.

The authors are employees of Ocean Tomo, an Intellectual Property Merchant Banc specializing in the monetization of Intellectual Property assets. Andrew Carter co-founded the firm and serves as its chief operating officer and managing director of the Expert Services practice. Suzue Fujimori is the director of Ocean Tomo's Japan Services practice. Mark Rollins is an analyst in the firm's Expert Services practice in the Chicago Office.

Part Two of a Three-Part Series

Part One of this series examined several significant changes to both Japanese and U.S. IP-related laws and regulations that have helped empower Japanese firms to effectively utilize IP. This second installment discusses corporate strategies Japanese firms are starting to employ to capitalize on their intellectual capital.

In the past, Japanese firms heavily relied on a defensive approach; specifically, they developed technology and managed their IP portfolios to exclude others from the market. Today, however, they are beginning to focus their efforts in monetizing their IP through strategies such as patent pooling, IP trusts, focused IP inventory management, exploiting IP foreign services, and integrating IP into their high-level corporate strategies through a Chief IP Officer. Each of these is examined in turn.

Corporate IP Management

Patent Pooling

One potential problem with lucrative new or niche high-tech markets is that competitive players vigorously strive to fortify their positions through IP protection. This is done through patenting in an effort to build as large a 'fence' as possible around a particular technology area. When numerous companies are fighting for dominance in a single area, it can be difficult to efficiently obtain licenses for all required IP. For example, the Federal Trade Commission mentioned that more than 90,000 patents generally related to microprocessors are held by more than 10,000 entities.

For several years now, the tool used to solve this problem was the creation of a patent pool. By providing uniformity and 'one-stop shopping,' patent pools often become de facto standards for certain industries. In Japan, standard building has become one of the major strategies corporations employ to develop, build, and control new markets. Some of the most prevalent patent pools are the DVD6C, MPEG 2, and the new standard competition brewing between Sony's Blu-ray and Toshiba's HD DVD technology.

While both the DVD6C and the MPEG 2 pools have been successful, the DVD6C patent pool exemplifies Japan's influence in the field. The pool was started by a group of primarily Japanese companies that together own roughly 90% of the essential patents listed in the pool. Furthermore, only 10% of the licensees come from Japan while Asia (not including Japan) and the Americas make up about 70%. This demonstrates that Japanese firms have and can essentially dominate and control core technology that is utilized worldwide.

The Blu-ray DVD versus HD DVD struggle between Sony Corp and Toshiba, respectively, is a current example where two pools are vying to standardize the market. Competition between the two demonstrates an important fact: that Japanese firms are the ones developing core technology; however it's the user who has the power to determine which format succeeds. A recent figure shows that Blu-ray has captured 70% of the hi-definition movie sales, which is in part due to its exclusive support from five major studios ' two of which are owned by Sony Pictures ' while HD DVD is only exclusively supported by two studios.

This example shows that Japanese firms don't always work inclusively together, but it proves that they are willing to risk investing in core technologies and aggressively fight competitors.

IP Trusts

Generally speaking, a trust is created where one entity (trustor) relinquishes its rights in an asset to another entity (trustee), giving the trustee the right to manage the asset for the benefit of the trustor under agreed-upon terms. IP Trusts are trusts where the transferred asset is intellectual property.

As far back as 1995, the Develop- ment Bank of Japan ('DBOJ') allowed the use of intellectual capital as collateral for loans, showing the government's early involvement in recognizing IP as a credible asset. This also showed the willingness of the DBOJ to help Small and Medium Sized Enterprises ('SMEs'). In 2004, an amendment to the Trust Business Law allowed the securitization of IP, as well as the authorization for non-banking entities to establish trust firms. The result was an influx of new trust firms, increasing the supply of services (and therefore decreasing costs) offered in the market.

A major problem SMEs are facing today is properly valuing their IP for either selling or licensing purposes, coupled with the fact that these companies have historically not actively enforced their IP. IP Trust companies could provide valuable services for these firms by enforcing unused patents and seeking out licensing opportunities with non-competitors.

Typically, regional and local firms in Japan would not affect U.S. companies; however, with the cost of obtaining IP-related services decreasing and the supply and types of services increasing through the Patent Prosecution Highway (see the first article in this series), smaller firms along with individual inventors now have the opportunity to apply for U.S. patents and have IP Trusts handle the international enforcement. This could stimulate competition from literally thousands of firms that would have otherwise been unknown in the market.

IP Inventory

More and more, Japanese businesses are willing to license their non-core patents to both domestic and international firms. Some firms like Mitsubishi Electric post on their Web site patents they wish to sell while organizations like the National Center for Industrial Property Information and Training ('INPIT') list about 60,000 patents available for licensing from more than 1000 companies and 1500 individuals.

On the development side, the Japanese government has been pushing for both Technology Licensing Organizations ('TLOs') and private companies to work closely with universities to develop and patent new technologies. This collaboration allows universities a means to reap economic benefits from their efforts while the TLOs gain access to the human and physical capital needed to develop core technologies.

Foreign Services

As firms expand their reach into foreign markets and as competitive pressure between international companies grows, Japanese companies have begun to exploit the use of foreign expertise. Specifically, Japanese firms are looking toward the United States, even over firms in their own country, in order to capitalize on their IP. As proof, many large firms (such as Matsushita) have already sent their IP personnel to live in the United States in order to survey and collect new trends in IP corporate strategies along with changes in patent law and litigation. This is where foreign service companies are essential for Japanese firms, since most companies are able to recognize a need for a change but are uncertain how to act.

IP service providers including Ocean Tomo have departments specifically catered to provide IP analytics, risk management, and general consultation to Japanese businesses. Armed with current IP information and the specialized IP services needed to exploit market opportunities, Japanese firms are effectively in a strong position to utilize their IP in the United States against American firms.

Chief Intellectual Property Officer

With diverse IP tools available such as patent pools, IP trusts and securitization, and focused IP analytics, Japanese firms are beginning to focus their efforts on building an internal body dedicated to handling the firm's IP management.
The most prominent position is a Chief Intellectual Property Officer ('CIPO'). The CIPO's general duty is to provide high-level direction for the firm's IP strategy.

One of the most significant changes a CIPO can bring about is the development and distribution of IP personnel across major departments. One example is the marriage between IP analytics and internal patent attorneys with R&D. Analytics can evaluate the firm's overall market position and can define a narrow field where R&D should focus its efforts, thereby minimizing unnecessary research and contributing to cost-cutting strategies. Patent attorneys can help R&D draft strong patent applications that will help build the firm's market position in Japan and possibly the United States through the PPH.

While the successful collaboration between IP and different departments through the management and leadership of a CIPO could lead to efficiencies and other value adding dimensions, the process of implementing strong IP governance may bring significant bureaucracy within a firm due to high crossover between departments. However, the potential behind such a position is immense and could change how Japanese firms employ new business strategies to strengthen their market position.

Conclusion

Japanese businesses are beginning to employ sophisticated and efficient means to capitalize on their IP in domestic and international markets, making them more solid international competitors. Specifically, patent pooling is helping them grow and control new markets while IP Trusts allow smaller firms the ability to capitalize on their IP. IP inventory management provides an insightful look into Japanese companies' strengths, weaknesses, and redundancies in terms of their IP market positions. Foreign services are helping Japanese firms either mitigate potential risks or exploit market opportunities. Lastly, the CIPO helps companies incorporate high-level IP strategies.

The final installment of this series will explore Japan's continual and active involvement in the international community in regard to IP and its relevant effect on both Japanese and U.S. firms.

The authors are employees of Ocean Tomo, an Intellectual Property Merchant Banc specializing in the monetization of Intellectual Property assets. Andrew Carter co-founded the firm and serves as its chief operating officer and managing director of the Expert Services practice. Suzue Fujimori is the director of Ocean Tomo's Japan Services practice. Mark Rollins is an analyst in the firm's Expert Services practice in the Chicago Office.