Thu, Jul 08, 2004 - Page 9 News List

Japan turning to patents to keep competitive edge

By Daisuke Wakabayashi and Nathan Layne  /  REUTERS , Tokyo

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.

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