Who Cares About Japan?

As corporations expand their market reach and product/technical information becomes readily accessible, potential risks and safety measures should be assessed and action, if warranted, should be undertaken in order to ensure ongoing business vitality. Japan, the world's most innovative economy per capita according to The Economist Intelligence Unit, has taken the 'innovate or die' approach. This approach is commensurate with Japan's former Prime Minister's (Junichiro Koizumi) vision of Japan built upon a foundation of IP. As a result, the safety of Japan's intellectual capital is critical to its economic environment, and this has led Japan to take active measures in protecting its citizens' IPR through both government and non-governmental organizations. In contrast to the United States, Japan manages to develop and strengthen IPR in developing countries primarily by engaging those countries on an individual level. Consequently, Japan has become a progressive leader in developing IPR within developing countries, making Japan well informed and capable of handling international IPR problems specifically within Asia, thus creating a competitive edge for the Japanese.

Importance of International IPR

With increasing competition through globalization, corporations around the world must contend with international firms. This forces companies to utilize international resources such as cheaper labor and materials to maintain and grow market share. With the exception of Europe, Asia yields the greatest direct foreign investment at around USD 165 billion as of 2005, with Japan investing about USD 9.3 billion or 7% in 2004.

A major problem corporations have with investing in developing countries is the potential for IP theft. According to the Organisation for Economic Cooperation and Development ('OECD'), Asia is the most egregious in violating IPR, representing about 70% of the world's total offenders with China (32%), Thailand (13%), Korea (9%), Hong Kong (8%), and Taiwan (4%) rounding out the top five spots. The OECD has estimated that international trade in counterfeit and pirated products, not including non-tangible pirated digital products, may have reached USD 200 billion in 2005, while the International Chamber of Commerce puts total damages at USD 600 billion.

In another study by the Japanese Patent Office ('JPO'), China alone cost Japanese firms more than USD 85 billion in the same year due to counterfeit and pirated goods; on a per capita basis, this is roughly 30% more damaging than what U.S. companies suffer. Furthermore, companies with overseas operations, such as manufacturing facilities, in countries that are prone to violate IPR are likely to suffer increased damages by over 6% for counterfeits related to patent/utility models and are also twice as likely to be damaged as compared with firms without overseas operations.

Foreign investment and the dependence on international relationships have become a necessary tool for a growing number of corporations worldwide, and as a result, the realm of international IPR has been an ongoing and principal issue between developed and developing countries.

Japanese Government Involvement

In response to the threat of developing countries violating Japan's IPR, the Japanese Government has been at the forefront educating, creating and implementing working solutions with developing countries to engender acceptable IP protection. Table 1 is a sample of government organizations and NGOs which work with the government that are actively involved in international IPR.

[IMGCAP(1)]

Other developed countries such as the United States also have a great deal at stake if they cannot protect their citizens' IPR. However, the United States has focused on a different approach in handling IPR where it primarily protects its rights domestically, i.e., through customs and general awareness programs. The Japanese have also approached this problem by strengthening their domestic rights from international violators, but they further strive to develop and improve international IPR within developing countries on a one-on-one basis. The latter approach is what allows Japan to exploit and mitigate potential IP-related risks.

The United States' Focus

One of the United States' most prominent programs in regards to IPR is the Strategy for Targeting Organized Piracy ('STOP!'), which was established in October 2004. STOP!'s five objectives are to: 1) empower American innovators to protect their rights at home and abroad; 2) increase seized counterfeit goods; 3) pursue criminal enterprises; 4) work together with U.S. industries; and 5) convince other countries to join their efforts. While these efforts are important to protect the rights of U.S. citizens, the approach itself focuses on strengthening IPR domestically, rather than enhancing IPR abroad. Through established multinational meetings such as the WTO, OECD, and WIPO along with organizing multinational symposiums, the United States has dabbled in developing international IPR, but is found wanting when compared with Japan.

Japan's International Focus

Japan, which also participates in STOP! and many other programs established by the United States, focuses on strengthening IPR both domestically and internationally; however, what distinguishes it from other developed countries, such as the United States, is that Japan focuses on fixing the problem of piracy and counterfeiting through training, education, and development toward strengthening and establishing IPR in developing countries on an individual basis.

The JPO dispatches experts and seminar instructors annually to developing countries through the WIPO Funds-in-Trust/Japan and JICA for human resource development, patent examination training, and IP infrastructure conception. While the U.S. government also sends IP personnel to developing countries, according to the Intellectual Property Rights Training Program Database, it has only sent experts to five individual countries in the past three years with only China and India having consecutive and repeated visits. By contrast, at least 12 countries have had the opportunity for individual training sponsored by the JPO, most with repeated visitations. See Table 2.

[IMGCAP(2)]

Dispatching IP personnel to individual countries has a greater influence in developing international IPR over large multinational symposiums because of the unique and individual requirements each country has in regards to both domestic and international IPR. Developing countries typically opt for less protective regulations in order to 'borrow' ideas to stimulate economic growth; however, Japan is educating these countries that tighter IPR enhances prospects for
foreign investment, which could yield faster, sustained, and stable growth. For example, The Ministry of Foreign Affairs of Japan ('MOFA') has developed bilateral agreements with Indonesia, Vietnam, the Philippines, Singapore, Thailand, India, Korea, and China, among others, where it stresses the importance of IPR in regards to viable trade opportunities with Japan.

An example of Japan's influence to individual countries is the Advanced Industrial Property Network ('AIPN'), organized by the JPO and available to 30 countries, which distributes its patent examination results with participating countries to show how and why applications are either approved or rejected. This helps to enable countries to mirror the results of the JPO. As a product of the JPO's active involvement, developing countries' IPR systems are not only being influenced by the Japanese system but are also, to a degree, emulating and functioning as an ancillary unit to the JPO. As a result, Japanese corporations are likely able to more readily pass through IP-related applications in these developing countries, due to the similarities in IP protection systems.

Conclusion

From the basic law of intellectual property, with the purpose of helping to realize a dynamic economy based on the creation of new intellectual property, to the Intellectual Property High Court, which handles all IP-related trial proceedings, Japan has developed, reorganized, and spearheaded monumental and hundreds of policy changes in order to create a strong and forward-thinking foundation for the protection and utilization of its intellectual property.

On a corporate level, Japanese firms are becoming more aggressive in generating active value in their IP as opposed to maintaining a purely defensive position. Standard building through patent pools is becoming a forte of larger firms, allowing them to control new markets. Pooling also uncharacteristically engenders Japanese firms to work together to diminish risks and pursue legal action against counterfeiters. IP Trusts have allowed SMEs to pursue profit-generating means for their entire IP portfolio and have given them a reach into international markets.

As described in this article, Japan has done remarkably well in establishing longstanding relationships with developing countries within Asia to further strengthen its IPR abroad. All things considered, the Japanese have reinvented their nation's IP policies, which have successfully translated into corporations becoming more confident and aggressive in utilizing their IP. Japanese firms are also in a strong position to successfully mitigate risks involved with foreign investment and to counter international IPR violations. As a result, Japan has positioned itself not only to maintain its designation as the world's leading intellectual economy, but also possibly to become the world's leading economy.

The authors are employees of Ocean Tomo, an Intellectual Property Merchant Banc specializing in the monetization of Intellectual Property assets. Andrew W. 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 S. Rollins is an analyst in the firm's Expert Services practice in the Chicago Office.

Part Three of a Three-Part Series

By Andrew W. Carter, Suzue Fujimori and Mark S. Rollins

In the first article in this series, we established that the Japanese government has taken a keen interest in rebuilding its regulatory foundation to help strengthen the country's intellectual property rights ('IPR'). The second installment explored the evolving strategies Japanese corporations have and are beginning to employ to leverage their intellectual capital. This final installment focuses on Japan's leading role in developing and enforcing international IPR, specifically within Asia.

As corporations expand their market reach and product/technical information becomes readily accessible, potential risks and safety measures should be assessed and action, if warranted, should be undertaken in order to ensure ongoing business vitality. Japan, the world's most innovative economy per capita according to The Economist Intelligence Unit, has taken the 'innovate or die' approach. This approach is commensurate with Japan's former Prime Minister's (Junichiro Koizumi) vision of Japan built upon a foundation of IP. As a result, the safety of Japan's intellectual capital is critical to its economic environment, and this has led Japan to take active measures in protecting its citizens' IPR through both government and non-governmental organizations. In contrast to the United States, Japan manages to develop and strengthen IPR in developing countries primarily by engaging those countries on an individual level. Consequently, Japan has become a progressive leader in developing IPR within developing countries, making Japan well informed and capable of handling international IPR problems specifically within Asia, thus creating a competitive edge for the Japanese.

Importance of International IPR

With increasing competition through globalization, corporations around the world must contend with international firms. This forces companies to utilize international resources such as cheaper labor and materials to maintain and grow market share. With the exception of Europe, Asia yields the greatest direct foreign investment at around USD 165 billion as of 2005, with Japan investing about USD 9.3 billion or 7% in 2004.

A major problem corporations have with investing in developing countries is the potential for IP theft. According to the Organisation for Economic Cooperation and Development ('OECD'), Asia is the most egregious in violating IPR, representing about 70% of the world's total offenders with China (32%), Thailand (13%), Korea (9%), Hong Kong (8%), and Taiwan (4%) rounding out the top five spots. The OECD has estimated that international trade in counterfeit and pirated products, not including non-tangible pirated digital products, may have reached USD 200 billion in 2005, while the International Chamber of Commerce puts total damages at USD 600 billion.

In another study by the Japanese Patent Office ('JPO'), China alone cost Japanese firms more than USD 85 billion in the same year due to counterfeit and pirated goods; on a per capita basis, this is roughly 30% more damaging than what U.S. companies suffer. Furthermore, companies with overseas operations, such as manufacturing facilities, in countries that are prone to violate IPR are likely to suffer increased damages by over 6% for counterfeits related to patent/utility models and are also twice as likely to be damaged as compared with firms without overseas operations.

Foreign investment and the dependence on international relationships have become a necessary tool for a growing number of corporations worldwide, and as a result, the realm of international IPR has been an ongoing and principal issue between developed and developing countries.

Japanese Government Involvement

In response to the threat of developing countries violating Japan's IPR, the Japanese Government has been at the forefront educating, creating and implementing working solutions with developing countries to engender acceptable IP protection. Table 1 is a sample of government organizations and NGOs which work with the government that are actively involved in international IPR.

[IMGCAP(1)]

Other developed countries such as the United States also have a great deal at stake if they cannot protect their citizens' IPR. However, the United States has focused on a different approach in handling IPR where it primarily protects its rights domestically, i.e., through customs and general awareness programs. The Japanese have also approached this problem by strengthening their domestic rights from international violators, but they further strive to develop and improve international IPR within developing countries on a one-on-one basis. The latter approach is what allows Japan to exploit and mitigate potential IP-related risks.

The United States' Focus

One of the United States' most prominent programs in regards to IPR is the Strategy for Targeting Organized Piracy ('STOP!'), which was established in October 2004. STOP!'s five objectives are to: 1) empower American innovators to protect their rights at home and abroad; 2) increase seized counterfeit goods; 3) pursue criminal enterprises; 4) work together with U.S. industries; and 5) convince other countries to join their efforts. While these efforts are important to protect the rights of U.S. citizens, the approach itself focuses on strengthening IPR domestically, rather than enhancing IPR abroad. Through established multinational meetings such as the WTO, OECD, and WIPO along with organizing multinational symposiums, the United States has dabbled in developing international IPR, but is found wanting when compared with Japan.

Japan's International Focus

Japan, which also participates in STOP! and many other programs established by the United States, focuses on strengthening IPR both domestically and internationally; however, what distinguishes it from other developed countries, such as the United States, is that Japan focuses on fixing the problem of piracy and counterfeiting through training, education, and development toward strengthening and establishing IPR in developing countries on an individual basis.

The JPO dispatches experts and seminar instructors annually to developing countries through the WIPO Funds-in-Trust/Japan and JICA for human resource development, patent examination training, and IP infrastructure conception. While the U.S. government also sends IP personnel to developing countries, according to the Intellectual Property Rights Training Program Database, it has only sent experts to five individual countries in the past three years with only China and India having consecutive and repeated visits. By contrast, at least 12 countries have had the opportunity for individual training sponsored by the JPO, most with repeated visitations. See Table 2.

[IMGCAP(2)]

Dispatching IP personnel to individual countries has a greater influence in developing international IPR over large multinational symposiums because of the unique and individual requirements each country has in regards to both domestic and international IPR. Developing countries typically opt for less protective regulations in order to 'borrow' ideas to stimulate economic growth; however, Japan is educating these countries that tighter IPR enhances prospects for
foreign investment, which could yield faster, sustained, and stable growth. For example, The Ministry of Foreign Affairs of Japan ('MOFA') has developed bilateral agreements with Indonesia, Vietnam, the Philippines, Singapore, Thailand, India, Korea, and China, among others, where it stresses the importance of IPR in regards to viable trade opportunities with Japan.

An example of Japan's influence to individual countries is the Advanced Industrial Property Network ('AIPN'), organized by the JPO and available to 30 countries, which distributes its patent examination results with participating countries to show how and why applications are either approved or rejected. This helps to enable countries to mirror the results of the JPO. As a product of the JPO's active involvement, developing countries' IPR systems are not only being influenced by the Japanese system but are also, to a degree, emulating and functioning as an ancillary unit to the JPO. As a result, Japanese corporations are likely able to more readily pass through IP-related applications in these developing countries, due to the similarities in IP protection systems.

Conclusion

From the basic law of intellectual property, with the purpose of helping to realize a dynamic economy based on the creation of new intellectual property, to the Intellectual Property High Court, which handles all IP-related trial proceedings, Japan has developed, reorganized, and spearheaded monumental and hundreds of policy changes in order to create a strong and forward-thinking foundation for the protection and utilization of its intellectual property.

On a corporate level, Japanese firms are becoming more aggressive in generating active value in their IP as opposed to maintaining a purely defensive position. Standard building through patent pools is becoming a forte of larger firms, allowing them to control new markets. Pooling also uncharacteristically engenders Japanese firms to work together to diminish risks and pursue legal action against counterfeiters. IP Trusts have allowed SMEs to pursue profit-generating means for their entire IP portfolio and have given them a reach into international markets.

As described in this article, Japan has done remarkably well in establishing longstanding relationships with developing countries within Asia to further strengthen its IPR abroad. All things considered, the Japanese have reinvented their nation's IP policies, which have successfully translated into corporations becoming more confident and aggressive in utilizing their IP. Japanese firms are also in a strong position to successfully mitigate risks involved with foreign investment and to counter international IPR violations. As a result, Japan has positioned itself not only to maintain its designation as the world's leading intellectual economy, but also possibly to become the world's leading economy.

The authors are employees of Ocean Tomo, an Intellectual Property Merchant Banc specializing in the monetization of Intellectual Property assets. Andrew W. 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 S. Rollins is an analyst in the firm's Expert Services practice in the Chicago Office.