HTC Corp has bowed to arch-rival Apple in a patent lawsuit that has hit the local smartphone maker’s shipments to the US, the largest of its export destinations, because of weaknesses in its patent portfolio and also because of a lack of government support.
This makes HTC the latest victim of intellectual-property rights disputes as it has become the norm for large global technology companies to wage patent wars to deter their rivals from catching up.
It is true that HTC can now focus more on inventing new products and redirecting resources to promoting its products to win consumers over from Apple and Samsung, as company chief executive officer Peter Chou (周永明) had always hoped.
However, the concern is how much HTC will have to pay Apple in royalties for the next 10 years. Will the royalty payments become a burden to HTC at a time when it needs to spend heavily on global marketing as well as on research and development (R&D)?
Taiwanese companies are particularly vulnerable to these patent disputes and have rarely won. Many are also tight-fisted regarding investing in R&D, as well as slow to develop their own patents.
HTC only spent 5.1 percent of its total revenues, about NT$3.43 billion (US$118 million), on R&D in the first quarter of this year. During that period, it made NT$67.79 billion in revenue. Apple spent about US$700 million on R&D, accounting for 2 percent of its revenue of US$35 billion in the quarter ending June 30 alone. Samsung allocated 6 percent of its revenue to R&D during the same period, about the same US dollar amount as Apple.
HTC registered 264 new patents locally last year, according to the Intellectual Property Office’s records, ranking 10th and lagging far behind the No. 1 patent inventor, Hon Hai Precision Industry Co, which has 3,968 patents. HTC was not even in the top 20 in 2009.
Besides, the lawsuit is taking place in the US, which puts Apple in an even more advantageous position because of patriotism. In the fourth quarter of last year, HTC’s new 4G handsets were temporarily stopped from entering the US by the customs agency, a very rare event.
Dogged by patent disputes and accelerating competition, HTC is on the brink of swinging into loss this quarter as the company forecasted that its profit margin would plunge to just 1 percent from 14.9 percent last quarter, after reporting the smallest quarterly profits in seven years for last quarter.
The government seems to have little influence in this sector, but should allocate more resources to help companies collect information about the dynamics of the world of patents. In the absence of such state aid, corporate executives should shoulder their responsibilities and reconsider their investment strategies to minimize the potential damage of patent litigation.
However, there is much more the government can do to protect local technology firms’ intellectual property and help companies safeguard competitiveness.
Proposed punishments for corporate espionage offenders are not enough to curb growing trade secrets thefts by Chinese companies. The Cabinet gave the go-ahead two weeks ago to a proposal to impose stricter punishments on corporate spies after AU Optronics Corp filed a lawsuit against two high-ranking former executives for stealing company secrets. Prior to that, revision of the Trade Secrets Act (營業秘密法) had been suspended by the government for about six years.
The Ministry of Economic Affairs has proposed a maximum five-year jail term for those convicted of corporate espionage, as well as a fine of up to NT$50 million. The current law does not mandate prison sentences for violators.
In the US, punishments are much heavier and jail terms can be as much as 10 years in similar cases.
The government should do much more to protect local companies because the technology sector remains a central pillar of Taiwanese exports.