In the 1970s and 1980s, when Japanese and Korean corporations first began to overtake their U.S. counterparts in the global electronics trade, a common refrain among American commentators was that, however good their products, Asian companies could only imitate, not innovate.
Today, the same Asian companies dominate the industry, with Americans left mainly to consume. But the old saw about the Asian propensity to imitate still makes the rounds. Only now it is leveled by Japanese companies against Koreans and vice versa, with both sides also trying to slap down the Taiwanese. It's not just chauvinistic trash talk; these companies are taking each other to court in patent infringement suits across the globe, including in the United States.
Korea's Samsung has been slugging it out with Japan's Sharp over patents covering LCD television technologies in lawsuits filed in Tokyo, Seoul and the Eastern District of Texas. In the plasma television category, Japan's Hitachi and Korea's LG are similarly at war and similarly fighting in Texas. Japan's Toshiba has been engaged in a long-running fight over memory chip patents with Korea's Hynix (formerly Hyundai Electronics). And last year, a patent fight between a Korean company and a Taiwanese competitor went to the U.S. Supreme Court.
All these companies boast annual revenues in the tens of billions of dollars; for Samsung, Hitachi and LG, the figure tops $100 billion. If the stereotypical patent suit pits David against Goliath, those between Asian electronics makers are Goliath-on-Goliath affairs waged by parties not exactly constrained in their ability to litigate around the world.
"It's a worldwide conflagration," observes A. Max Olson, the head of litigation in Morrison & Foerster
In a way, the strategy makes sense. Competition in the consumer electronics market is fierce and based largely on technological innovation. Companies that spend huge sums on research and development can be expected to spend even more to protect or exploit their intellectual property.
But these companies weren't always so eager to go to court. Even now, a cultural aversion to litigation common throughout Asia makes large Japanese and Korean companies much more leery of bringing most kinds of civil suits than their Western counterparts.
Today, at least in the patent arena, things are different. "The trend is for Japanese companies to become more U.S. like," says Olson. "Companies are much more willing to say that patents are patents, and business is business."
MoFo, for instance, recently represented Japan's Pioneer Corp. in a suit against Samsung over plasma display technology. Last October a Texas jury awarded Pioneer more than $59 million in damages. Kazumi Kuriyama, general manager of Pioneer's intellectual property unit, says the company prefers to work out fair licensing agreements but was comfortable litigating when it couldn't come to terms.
In fact, Asian companies' patent suits take place within a complex web of such licensing agreements. One company's flat-screen television will invariably contain memory, image-processing chips and several other internal technologies licensed from several other companies. It is when such cross-licensing deals expire and terms need to be renegotiated that lawsuits most frequently take place.
When no deal can be reached, Kuriyama says, Pioneer's approach is no different from that of Western companies.
"Litigation is not an 'Asian' or 'non-Asian' issue," he says. "It is a matter of business strategy."
Many Asian companies learned to adopt the American approach to patent litigation by being on the wrong end of it. In the 1980s, U.S. companies, most notably Texas Instruments and International Business Machines, hauled Japanese and Korean rivals into court for patent infringement and won a number of landmark cases. Patent royalties collected by the U.S. companies over the years account for billions in revenue. TI, for example, saw more revenue from licensing than it did from manufacturing for much of the 1990s. Stung by having to contribute to the Americans' coffers, the Asians learned their lesson. "The Japanese companies kind of woke up," says Hiroyuki Hagiwara, a Tokyo IP litigation partner with Ropes & Gray. "They said, 'Let's do to others what TI and IBM did to us.'"
Japanese companies' aversion to litigation, and their long history of cross-licensing, is evident in their reluctance to sue one another, says Hagiwara. But those looking for rivals to sue quickly cast their eyes on the rising giants from Korea. Once viewed as second-rate manufacturers, Samsung and LG have emerged over the past 20 years as powerful brands that have overtaken many of their Japanese rivals.
Kuriyama says Pioneer was not among those targeted by American companies in the 1980s but is following the lead of two companies that were. He cited Fujitsu and Matsushita (now Panasonic), which, respectively, sued Samsung and LG, both in 2004, claiming infringement of plasma display patents. "These lawsuits provided Pioneer with precedents for its own enforcement action," he says.
While Japan and Korea have a complex, at times strained, relationship because of Japan's colonial history in Korea, Hagiwara doesn't see that as a factor in the patent battles. "It's just a function of their relative technological developments," he says. Japanese companies had a technological edge over Korean companies until the 1990s, and saw the value of building and enforcing patent portfolios sooner.
Even if Japanese companies struck first, the Koreans have fought back hard, filing countersuits and bringing new infringement claims of their own. LG and Samsung are now generally regarded as more aggressive litigants than Japanese companies. Samsung underlined how seriously it regards patent suits with its appointment earlier this year of Kim Hyun-Chong, a former trade minister and United Nations ambassador, as its first chief legal officer. His top priority: developing an IP strategy for the company.
Those beyond Japan and Korea are starting to feel the heat. "There's been a big surge of litigation involving Taiwanese electronics companies," says Maxwell Fox, a litigation partner in Paul, Hastings, Janofsky & Walker's Tokyo office. Taiwan's big companies (Acer, BenQ, Quanta) aren't as well-known as their Japanese or Korean counterparts, but many do lots of outsourced manufacturing. Quanta, for example, is the world's leading laptop maker, producing computers for Apple, Dell and others.
Like Japanese and Korean companies of earlier generations, Taiwanese companies were slow to detect their vulnerability to IP suits. But now they are learning quickly, says Fox, whose firm has represented many of them. Paul Hastings recently represented Quanta in a dispute with LG that the U.S. Supreme Court heard last November. Applying the doctrine of patent exhaustion, the Court ruled unanimously that LG, which had licensed chipsets to Intel, could not assert infringement against Quanta, which had legally purchased the chipsets from Intel.
The stakes are high. Damages claims on a patent used in, say, flat-panel displays can climb into the hundreds of millions of dollars. Even more worrisome: the possibility of an injunction that halts the importation of infringing products. Asian electronics companies are especially vulnerable to such injunctions because they depend heavily on selling their products overseas. "The threat of an injunction stopping sales is a tremendous hammer to hold over someone else's head," says Fox.
That may be why many big cases settle. In April 2004 Fujitsu sued Samsung in Tokyo and California over a patent on plasma displays. Pursuant to its Japanese suit, Fujitsu managed to have Japan's customs service keep Samsung TVs out of the country. By June, the companies settled.
An injunction barring imports to the United States would be particularly devastating, as the U.S. is by far the largest single export market for most Asian electronics makers. That is one reason that, though cases are also filed throughout Asia, the U.S. has become a key forum for these patent suits. The other big reason is that U.S. courts tend to act swiftly and have fewer qualms about granting either injunctions or big damages awards. The U.S. District Court for the Eastern District of Texas has emerged as one favored venue for Asian electronics companies' disputes with each other -- as it has for others filing infringement claims.
The focus on U.S. litigation has proved a boon to U.S. law firms, a number of whom have taken steps to boost their IP and litigation presence in Asia. Olson had been managing partner of MoFo's Los Angeles office before moving to Tokyo in 2006 to start working with the firm's burgeoning client list there. Fox likewise moved to Tokyo from Los Angeles in 2006, and Hagiwara recently relocated from Ropes & Gray's New York office to Tokyo, which the Boston-based firm opened in 2007.
Even when cases are heard in the U.S., Hagiwara explains, an on-the-ground presence in Asia is key. Complex discovery requests can be difficult for Japanese companies to follow, and an error in compliance can prove disastrous in the courtroom. "The devil is in the details," he says. "Providing substantive and timely advice is critical."
And while patent suits in the U.S. are usually overseen by in-house lawyers, many Asian companies place IP under the authority of nonlawyer executives. Unlike a general counsel in the U.S., who is a senior executive in close contact with the CEO, a top Asian corporate counsel is often farther down the chain. At the same time, nonlawyer executives with strong technical backgrounds must work closely with outside counsel on legal issues. The decision-making process is also quite different in Japan, says Hagiwara, with executives slowly deliberating over detailed reports from midlevel managers.
Things may be changing. Samsung's hiring of Kim, a former associate at Milbank, Tweed, Hadley & McCloy and Skadden, Arps, Slate, Meagher & Flom in New York before joining the Korean government, was widely noted throughout the region, given the company's already active IP litigation docket. In the past few years, Samsung has also hired a significant number of U.S. -- trained lawyers to handle IP matters, drawing on the large pool of Korean and Korean-American graduates of elite U.S. law schools. Taiwanese companies, Fox says, have also begun to hire a fair number of American-educated lawyers to focus on patent cases.
With Japanese, Korean and Taiwanese companies now all in the fray, the Asian patent war is already one of the biggest things going in the IP world. But it could get bigger still. All eyes are on the emerging giants, which have yet to fully awaken. "The way the trend is going," says Fox, "mainland Chinese companies are going to be in more and more of these cases."