Taiwanese companies are being dealt a one-two punch as weak market demand and intellectual property rights (IPR) disputes with global competitors cut into their bottom lines. Weak patent portfolios make local electronics manufacturers appear to be easy targets for their bigger rivals because such legal battles have proved to be an effective way to deter competitors from playing catch-up.
In the latest of a slew of IPR disputes, HTC Corp said on Saturday that it had reached a settlement with Nokia Ojy to pay an unspecified sum of royalties and to extend collaboration to cover Nokia’s 4G Long-Term Evolution (LTE) patent portfolio.
The announcement came after the US International Trade Commission found HTC had infringed upon two of the Finnish company’s patents. The settlement could avert the ban Nokia sought on sales of HTC’s older-generation phones and tablets in the US, which could have curtailed HTC’s handset sales to its telecom partners.
The royalty payments will burden HTC’s already precarious bottom line, due to intensifying competition from Apple and Samsung Electronics as well as Chinese rivals and weak end demand. HTC said it will see a loss of between NT$1.77 billion and NT$2.19 billion (US$58.3 million and US$72.3 million) in the current quarter after posting a second straight operating loss in the previous quarter.
Allocating just over 5 percent of its revenue to research and development (R&D) in 2012, HTC has lagged behind its rivals in developing patents. HTC received 225 invention patents in Taiwan last year, compared with Apple’s 410, according to statistics released by the Intellectual Property Office yesterday.
HTC’s situation reflects a general trend among Taiwanese firms that weak profitability has led to less investment on patent portfolio expansion and left companies vulnerable to IPR lawsuits as a result. In the LCD industry, AU Optronics Corp has fewer invention patents than South Korea’s Samsung Electronics, even though AUO leads Taiwanese manufacturers in such patents. Intellectual Property Office statistics show AUO has 342 patents compared with Samsung’s 425. AUO just returned to the black last year from years of chronic losses.
The world’s two largest smartphone makers, Samsung and Apple, were the most aggressive foreign firms in applying for new patents last year, with 78 percent and 50 percent annual growth respectively, which also placed them far ahead of local rivals, the office said. Local firms filed 50,714 patent applications last year, 3.43 percent fewer than in 2012 and the first decline since the global financial crisis hit in 2008, the office said.
Taiwanese firms also face a growing threat of trade secret theft by former executives, some of whom have tried to procure those secrets for Chinese competitors. AUO and Innolux have accused former top executives of stealing key information on advanced technologies after they quit to join Chinese competitors.
To protect its patents and technologies, MediaTek, the nation’s biggest mobile phone chipmaker, has sued former mobile phone chip business division head Yuan Di-wen (袁帝文) amid speculation Yuan is planning to move to Chinese rival Spreadtrum Communications, which was delisted after being acquired by China’s state-run Unisplendour Corp in July last year.
A court in Taiwan yesterday issued an initial ruling barring Yuan from disclosing any trade secrets about MediaTek, working for any MediaTek competitor or trying to recruit the firm’s research and development staff for rival companies. The injunction is expected to remain in place for three to five years.
To safeguard their competitiveness, Taiwanese manufacturers have to allocate more resources to developing new technologies and patents, and to boosting employees’ loyalty.