By Park Si-soo
A growing number of domestic companies face threats of patent disputes — unsavory yet unavoidable they are part of today’s corporate world where complicated technologies and spaghetti-bowl cross licenses cause heads of even experts to spin.
Adding to concerns are brisker cross-border deals between companies after Korea’s free trade deals with the world’s top economies — the United States and the European Union — went into effect.
Yet, critics point out that the government is still ill-prepared to unfold a protection umbrella and many tech companies, excluding a handful of cash-rich conglomerates, stay vulnerable to the growing threat.
The Korean Intellectual Property Office said there were 41 cases of intellectual property wrangling involving Korean firms in 2004. But the figure has increased nearly 25 percent each year and marked 159 last year.
The fields of industries suffering frequent patent standoffs have become more diverse. Semiconductor and information technology firms were an easy target of disputes, but these have grown to include technology essential to produce light emitting diodes (LED), hybrid cars, steel and textile among others.
Hynix Semiconductor, which was acquired by SK Group and renamed SK hynix, has been engaged in a patent lawsuit against U.S.-based technology licensing company Rambus for almost 12 years.
LG Electronics is embroiled in legal battles with German lighting company Osram over the use of key LED technologies. POSCO is involved in a patent lawsuit raised by Nippon Steel Corporation, which claims the Korean steel maker used the latter’s technology without permission to make high-end steel products. The Japanese company is demanding that POSCO pay 1.4 trillion won ($1.2 billion) in compensation.
Analysts and market insiders said more patent rows will be raised against Korean firms in line with free trade agreements (FTAs).
“More patent lawsuits are likely to be raised by technology licensers overseas. The number of patent disputes is expected to show a steep increase this year because of the effectuation of FTAs with the EU and the U.S.,” said Jeon Jong-hak, vice chairman of the Korea Patent Attorneys Association.
His rationale was taken to note that the free trade contracts would end up jacking up interactions companies in Korea have with ones in partner companies so that the risk of patent struggles rise.
With little sign of recovery of the world economy in sight, a growing number of companies try to generate profits by sharing their patented technologies. They try to improve their bottom line by increasing licensing fees. They also take legal action against clients complaining over soaring fees.
As of March, 43 patent lawsuits involving Korean firms were pending in U.S. courts, according to statistics from the U.S. Patent and Trademark Office. Thirty-one cases have been raised against LG Electronics; 11 against Pantech, Korea’s smallest mobile phone manufacturer; seven against Hynix; and six against Hyundai Motor, the office said.
Analysts warn that a high dependence on borrowed technology takes a toll on profitability. For that reason, major Korean companies have tried to hedge the risk by sharing their patented technologies in a scheme of cross-licensing.
But the majority of medium and small-sized companies are vulnerable to the risk since they have few attractive technologies to share.
Experts say many small firms went bankrupt or lost their competitiveness to a great extent due to snowballing licensing fees.
Adding to the woes are high legal fees for patent litigation, they said. Each patent lawsuit costs the plaintiff and defendant roughly 3 to 4 billion won on average to reach a settlement.
Big companies and overseas technology licensers are rich enough to run multiple cases at the same time, but most small businesses here can hardly afford such fees.
Against this backdrop, experts are calling on the government to establish protection policies for small businesses.
“It (legal fees) can pose a great threat to small companies,” said Yoon Seon-hee, a professor at Hanyang University law school. “The government should establish systematic and pragmatic countermeasures for them.”
The Korea Electronics Association said 36 percent of small and medium-sized enterprises here don’t have an in-house patent attorney or staffer specialized in intellectual property issues.
Nearly 60 percent of them tapped into foreign markets without advanced research on possible patent disputes against their products, the association said.
The government is stepping up efforts, though dubbed belated by critics, to offer systematic protection programs. It launched the Presidential Council on Intellectual Property in September last year, giving the council the right to map out the country’s patent dispute strategy.
The council opened an intellectual property management company called Intellectual Discovery early this year. The company has an affiliate, Idea Bridge, which financially supports small companies stuck in patent lawsuits.
“We will continue to expand the scope of services,” said Ko Ki-seok, secretary general of the presidential council. “In this high-tech era, patents will become a decisive factor in national competitiveness.”
On top of this, the Korea Intellectual Property Protection Association offers consulting services on a pro bono basis.