AmCham arrow Publications arrow Topics Archive arrow Topics Archive 2004 arrow Vol.34- No.4 arrow Behind the News: Raising the Quality of Taiwan's Patents
Behind the News: Raising the Quality of Taiwan's Patents PDF Print E-mail

Ranking fourth in the world in the number of U.S. patents is a major achievement. Now the challenge is to elevate the value of the patent portfolios.

 

When government officials give briefings on Taiwan's economic competitiveness, the large number of international patents registered from this country is invariably cited as an indication of Taiwan's innovativeness and technological prowess. The briefers refer to the records of the United States Patent and Trademark Office (USPTO), where since 1999 Taiwan has consistently ranked in fourth place -- following the United States, Japan, and Germany -- as the main country of origin of new patents. On a per capita basis, Taiwan comes in second, next only to the United States.

But the analysis generally stops there. To get a better sense of what the quantity of patents really means about the comparative advantages of Taiwan industry, TOPICS spoke with scholars, businessmen, and government officials with a background in this subject.

One point that the experts stress is that despite the impressive record of patent registrations, Taiwan continues to record a huge technological trade deficit. In 2000, companies here earned US$120 million from ¡??exporting¡¨ technology, while spending US$1.2 billion to buy technology from abroad. In 2001, the corresponding figures were US$339 million in royalty income and US$1.5 billion in payments to foreign patent-holders. These figures (2002 statistics are not available yet) show that the large number of patents from Taiwan has not yet turned into a major source of profits for Taiwan's industry. At the same time, the more rapid growth in export income compared to import cost offers hope that the gap will be steadily narrowed in the years ahead.

As to the quality of the patents, a measure commonly used is the frequency of citation of the patents in scientific journals. In 2003, Taiwan's patents stood at only 0.24 on this index, considerably lower than the 4.62 of the United States, 1.08 of Japan, and 0.86 of South Korea. That ranking is not wholly surprising since the majority of Taiwan's patents cover improvements in manufacturing processes rather than cutting-edge innovation. To elevate the patent quality, argues Paul Liu, director of the Graduate Institute of Intellectual Property at National Chengchi University, three types of talent all need to be cultivated -- qualified engineers to beef up capabilities in basic research, experienced patent lawyers to write well-rounded patent claims, and astute corporate executives to map out strong patent strategies. ¡??You won't make money out of [patents] if you can't integrate these fields and work out a total solution to the problems,¡¨ he says.

Another kind of talent does seem to be present in Taiwan in abundance -- individual inventors who come up with new products and processes on their own. These innovators have brought numerous awards back to Taiwan from their participation in international invention competitions and exhibitions. About one-third of Taiwan's annual total of U.S. patents are held by individuals, a much higher percentage than for any other leading patent-holding country, and their role is thought to be the main reason why traditional products still make up a sizeable proportion of Taiwan's patents.

Taiwan has been gradually moving toward its goal of transformation into a knowledge-based economy. But the pace of progress has been held back by a lack of greater strength in R&D capabilities. ¡??Taiwan's businessmen tend to be short-sighted,¡¨ says Cheng Chung-jen, dean of the Shih Hsin University law school. ¡??They aren't willing to invest on R&D because it requires a lot of time and money, without guaranteeing any success. They want a quick return.¡¨

An example at the other end of the scale is Royal Philips Electronics of the Netherlands, which owns some 100,000 patents, the most in the world. The company has at least 20,000 R&D engineers on its payroll, with one-tenth of them engaged in basic research. Philips is willing to take a long-term view; it started research on CD-R products in 1968, for example, but did not turn a profit in that area until 2000.

Taiwan industry, in contrast, tends to play the role of follower, not leader, says Cheng -- usually entering the market only when products invented in technologically advanced countries are well along in development or already launched. Taiwanese companies then grab the idea and try to come up with ways to improve the manufacturing process, enhance the product's appearance, make the size more compact, or reduce the cost. ¡??Although many patents can be obtained during this process, they aren't fundamental breakthroughs and are therefore not so valuable,¡¨ notes Cheng.

Of the two types of U.S. patents -- invention patents and design patents -- most of those issued to Taiwan applicants belong to the design category. The government two years ago decided to try to foster a shift toward more creative and basis innovation, for which the nurturing of human talent is regarded as the key.

¡??The problem is that [positions in] colleges and academic institutions are still the first choice for the top-tier researchers,¡¨ says Hwang Jung-chiou, director general of the Department of Industrial Technology under the Ministry of Economic Affairs (MOEA). ¡??Except for a few highly rewarding jobs, especially in the electronics field, most positions in industry as researchers are very unattractive to them.¡¨ One reason for that phenomenon is the high prestige attached in Taiwan to academic appointments, but another is thought to be the failure of industry to devote enough attention and budget to R&D activity.

In 2001, among the 19,200 researchers in Taiwan holding doctoral degrees, 68.9% were employed by universities, 20.6% by research institutions, and only 10.5% by industry. In most leading economies, Hwang notes, an important function for researchers in academia is to help support the needs of industry, but in Taiwan the educational institutions are not concentrating on the disciplines of greatest concern to the private sector. For example, the booming flat-panel-display industry desperately needs more engineers trained in optics, material science, and chemical and electrical engineering. However, the number of fresh graduates -- particularly the fewer than 2,000 turned out each year by optics departments -- is far lower than the demand from prospective employers.

At the same time, the government has introduced initiatives to encourage multinational corporations to establish research centers in Taiwan as a means of elevating the level of R&D conducted here. So far, 22 foreign companies including HP, Sony, IBM, and Microsoft have set up research centers in Taiwan. Hwang said that the presence of these centers in Taiwan will also benefit local industry, as interaction between the foreign R&D centers and Taiwan companies will help local researchers to upgrade their skills.

Balancing quantity and quality

It is generally agreed that a critical mass has to be attained in terms of the quantity of patents before the quality can be assured. ¡??One can't talk about patent management and patent strategy if the patent portfolio isn't big enough, and so far, most of Taiwan's companies are still at the stage of adding up numbers,¡¨ says Michael Wu, general counsel of computer-maker Wistron Corp., an affiliate of the Acer group. Of the Taiwan applicants that received U.S. patents in 2003, Hon Hai Precision Industry Co. had the most with 483, followed by 428 owned by Taiwan Semiconductor Manufacturing Co., , and 211 by the Industrial Technology Research Institute (ITRI), the large government-backed research organization, and 186 by United Microelectronics Corp.

In terms of frequency of citation as an indicator of the value of the patents, the ranking was quite different. Hon Hai is not among those at the very top, whereas Powerchip Semiconductor Corp., even though it does not hold a large volume of patents, emerged as number one. ¡??Patents are of no use if they can't be commercialized or can't make any impact in the industry,¡¨ says James Yuan, vice president of Mitac International Corp., a leading computer products company. ¡??95% of Taiwan's patents are of this kind. They are more for defensive purposes. What we really need is to get more powerful patents to [enable us to] attack rivals, claim royalties, or engage in cross-licensing with foreign companies.¡¨

Financial concerns also enter into the equation. When the number of patents keeps rising, maintaining the portfolio can become a great burden. It can cost tens of thousands of U.S. dollars to obtain and maintain a patent (a fee has to be paid each year until the patent enters the public domain -- a period of 10 to 20 years, depending on the type of patent). Companies therefore have to make regular adjustments in their patent strategy, dropping less useful patents to save cost -- considered the reason for last year's drop in Taiwan's U.S. patent approvals. Acer, for example, used to have more than 2,000 patents but now maintains only half that number. ¡??What really counts is the quality,¡¨ says Michael Wu. ¡??We've passed the stage of pumping up the numbers.¡¨ Acer was the first Taiwanese company that succeeded in cross licensing with mega-enterprises such as IBM and Intel, gaining a discounted rate on royalty payments.

Taiwan's semiconductor industry has been one of the main sectors responsible for gaining patents, but some other fields -- particularly the flat-panel display, biotech, and digital-content industries -- are expected to hold high potential for increased numbers of patents in future. Considering Taiwan's manufacturing power, the government has sought to infuse new energy into R&D to upgrade industry and raise the country's international competitiveness. Launched in 2002, the ¡??two trillion, twin star¡¨ project aims to raise the annual production value of two industries -- semiconductors and flat-panel displays -- to more than NT$1 trillion (US$28.5 billion) each within in a few years, as well as to promote the growth of the two emerging ¡??star¡¨ industries of digital content and biotech.

In the flat-panel display sector, especially for TFT-LCD technology, Taiwan has been quite strong in developing new technology, with an average annual growth rate in U.S. patents of 11.3% since 1999. Taiwan's young biotech industry, given its limited capital and relative inexperience, has not yet made any major breakthroughs. But many believe that it can prosper in the niche area of Chinese herbal medicine because that ¡??is a part of our traditional heritage,¡¨ says Paul Liu. ¡??Plus, it will be different from most other industries where it's up to Western countries to decide how the [patent] game should be played. In this field, we can set up our own rules of the game. We've got the upper hand.¡¨

In May 2002, the Department of Industrial Technology established an office to promote research in traditional medicine. The center aims to bring in technology and research talent from overseas to help local industry apply modern techniques to developing new products. A major challenge is trying to identify every compound found in a Chinese medicine to facilitate the patent application process, says Leah Lo, director of the Technology Transfer Office at the National Health Research Institutes. She remains optimistic that this can be done, however, as clinical trials for some herbal medicines have already gained Food and Drug Administration acceptance in the United States.

The field of digital content, such as computer games, software, multimedia, and animation, is considered to have even more potential in Taiwan than biotech because it is not as costly and time-consuming. One of Taiwan's leading specialists in this area is Wang Film Productions Co., which has served as a production house for customers among the leading international animation companies. It has worked on some of the world's most popular cartoon characters, including Aladdin, the Little Mermaid, the Lion King, and Mulan, gaining invaluable experience over some two decades. Last year Wang Film announced a project to develop its own film, taking the famous Western traveler to China, Marco Polo, as the theme.

According to MOEA, the production value for animation in Taiwan came to US$ 26.8 billion in 2002 and US$29 billion last year, and is expected to grow at a rate of 9.7% annually. ¡??After Taiwanese build up greater consciousness regarding intellectual property rights protection, the [digital content industry's] earnings from copyrights, trademarks, and patents will be very profitable,¡¨ says Lu Wen-hsiang, deputy director-general of the Intellectual Property Office (IPO) under MOEA.

Another area of potential for Taiwan is considered to be agricultural research. The Council of Agriculture is set to establish an institute of agricultural technology to coordinate R&D efforts in this sector and help educate farmers on how to protect any intellectual property they develop.

How to develop the talent

The shortage of patent professionals in Taiwan, including patent engineers, patent reviewers, and specialized judges, is often cited as a major problem. Patent engineers play an important role in helping companies to write a good patent application -- providing effective protection without being either overly broad (making it too easy to be designed around) or too narrow to block would-be copycats. Acer and Wistron each employ only ten patent engineers, while Mitac has seven. With regard to patent reviewers, who need to possess a wide range of technical knowledge, the staff of 160 such officials at IPO has been criticized as being too few to ensure sufficient quality in the examination process. And in the courts, since there are no judges with technical or engineering backgrounds, verdicts are usually handed down based on investigations conducted by outside organizations.

¡??Patent professionals are required to be equipped with both scientific and legal knowledge, but Taiwan's educational system doesn't provide such training,¡¨ says Cheng Chung-jen, the law school dean. Unlike the U.S. system, where law is taught at the graduate level, with students coming from a variety of educational backgrounds, students in Taiwan enter law school directly from high school and have no opportunity to gain professional knowledge outside the legal field. Similarly among students with engineering background, few engineering majors consider patent engineering as a possible future career choice.

Gradual reforms being undertaken in the educational system may help to redress the problem. Graduate programs in technology management, for instance, have been launched by three universities -- National Chengchi University, National Tsinghua University, and National Chiaotung University. In addition, a number of graduate institutes have added courses on intellectual-property management to their curricula.

In response to criticism that IPO lacks enough qualified reviewers in the field of biotech, IPO three years ago received a government subsidy of NT$27 million (US$818,000) to train personnel and to establish a more complete database for the biotech sector. Next year IPO is set to begin operating an ¡??IP Virtual Academy.¡¨ The idea is that IPO will act as a ¡??central kitchen,¡¨ supplying instructional materials and training university teachers and corporate staff who can then impart the knowledge to others in their organizations. In addition, MOEA has initiated a program to train technology managers across various disciplines as a future source of patent specialists. Coordinated by National Chengchi University, the nine-month session aims to provide students with a solid foundation, after which they may have opportunities for further study in the United States.

Another area of increased attention for Taiwan IPR-holders is China. As China grows in importance as an economic power, many manufacturers here have competed to obtain patents in China, despite the fact that enforcement remains quite weak there. Media reports have said that the number of P.R.C. patents owned by Taiwanese is next only to that of domestic Chinese applicants. Taiwanese manufacturers ¡??are trying to compete for the space -- whoever gets there first is the winner,¡¨ says James Yuan of Mitac. ¡??It will be too late if you wait until the enforcement is improved.¡¨
 
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