Earlier this week, the United States Patent & Trademark Office granted 30 new patents to Canon.
What Canon's IP troubles mean
As Japanese electronics manufacturers rediscover their place in the consumer electronics world, competing with Chinese, Taiwanese, and Korean companies by introducing innovative and high-end products, intellectual property (IP) is increasingly becoming the point of leverage that defines success or failure. As a result, the pressure is on for firms to bring both their invention processes and IP legal capabilities under control.
One company in the middle of the inventions and IP maelstrom is Canon Inc, probably the best-run and most financially successful major consumer electronics maker in Japan at present. Firstly on the inventions front, Canon like many other companies is having to adjust to the idea that it needs to pay its engineers more than a small bonus for creating world-changing technologies worth billions to the company. The gap between management's perception of how to reward talent (and not just hard work and loyalty) and the changing stance of the Japanese courts is now being brought into stark contrast through a series of inventor-employer lawsuits.
The latest such episode was last week, when Canon was ordered by the Tokyo District Court to pay 33.52 million yen to former researcher Kazuo Minoura, for his invention of a technology which stopped ghosting problems in laser printer print-outs and thus ushered in the era of high-quality office and consumer printing. The former researcher, who was originally paid a paltry 850,000 yen for his discovery demanded 1 billion yen in compensation, on the basis that Canon made at least 1.146 billion yen on license income, as well of course as having superior products which resulted in billions more in sales. The courts assessed the researcher's contribution as being 3% of the overall provable profit.
Probably the Canon researcher was hoping that he would get more of a windfall, as a collegue did in October last year. Seiji Yonezawa, a former Hitachi employee, took Hitachi to court for fair compensation over his invention of three key optical disk processes that have allowed Hitachi to earn license revenues around the world. In Yonezawa's case, the courts awarded him 163 million yen � but not before Hitachi took the case to the Supreme Court on two appeals.
Yonezawa's award was Japan's second highest, after a 600 million yen payout made in January 2005 to Shuji Nakamura, the inventor of the blue LED, by his former employer Nichia. We covered this case in detail (prior to the final ruling) in the November 2002 issue of the Japan Inc magazine (http://www.japaninc.com/article.php?articleID=936).
I'd have thought that companies of the pedigree of Canon and Hitachi would by now be understanding the huge value that they gain from their researchers and that improving the treatment and level of cash awards is an act of self-preservation, not something to fight over tooth and nail. Certainly, paying one's own researchers good money is MUCH cheaper than having to license the technology off someone else.
Furthermore, a grateful researcher is more likely to stay with the business and keep pumping out excellent products.
Indeed, as Nichia has found after their parsimony with Nakamura, they have created an enemy who has now aligned himself with the Americans and is getting ready to potentially pitch Nichia out of business. Just a couple of days ago, Nakamura's UC Santa Barbara lab announced that they have successfully fabricated and demonstrated the world's first non-polar blue-violet laser diode. If brought to commercialization, now very likely, the new diodes will be lower power and and have longer service life than existing Nichia products. Given that every HD-DVD and Blue Ray DVD uses one of these diodes, this could have serious ramifications for Nichia in the future.
Next, on the IP litigation front, Canon is once again an interesting study. Late last year, the company was subject to a U.S.-based lawsuit over its SED (Surface-conduction Electron-emitter Display) TV technology by U.S. IP holder Nano-Proprietary (NP). If you didn't know, SED TVs are being touted as the new standard in large flat panel TVs.
Apparently the quality and responsiveness of SED screens will pose a serious challenge to slower and somewhat "ghosty" plasma units, and may take over the high end of the consumer market. Since approximately 80 million flat-panel TVs will be sold worldwide in 2007, this is big business. Canon licensed the technology from NP back in 1999 for a one-time fee of $5.6 million.
Anyway, NP alleged that Canon, by virtue of forming its SED subsidiary in Japan in conjunction with fabrication partner Toshiba, was breaching the terms of the licence, which requires Canon to keep the IP in-house. Canon argued that since it had 50.002% of the shares in the joint venture with Toshiba, technically it was the senior partner and could consider the joint venture as a fully-controlled subsidiary. And there the story may have ended, until NP discovered that Canon had signed an agreement with Toshiba saying that in the event of a dispute, it would not vote its extra share.
As Digitimes.com reported last week (http://www.digitimes.com/print/a20070126VL200.html), Judge Sam Sparks took a dim view of the joint venture agreement and pointed out that Canon's supposed control of the joint venture had in fact been emasculated. I just love the Texas judge's comments when he wrote his final opinion � it's a classic: "Dead fish don't swim, dead dogs don't hunt and Canon's dead voting rights don't give it a majority of SED."
Ah, yes, Canon's IP department has discovered the reality of not following IP contracts to the letter. Now, their faux pas may cause them to not only have to pay NP a royalty on every TV made in the future, but also they may miss the market window for SED technology all together, given that next-generation LCD and Carbon Tube (CNT) TVs are just around the corner.
The lesson to be learned here is that as companies such as Canon move upstream from their basic manufacturing roots, the stakes climb and they have to get more sophisticated in managing their own and licenced IP. Possibly they may need to change their IP law firm and to educate their in-house team in the process.
Terrie Lloyd writes a weekly newsletter for entrepreneurs and business