Terrie's Take 407 -- Dead dogs and Canon IP troubles, ebiz news from Japan

Mon Feb 5 07:41:17 JST 2007

* * * * * * * * * T E R R I E 'S T A K E * * * * * * * *
A weekly roundup of news & information from Terrie Lloyd.
(http://www.terrie.com)

General Edition Sunday, February 4, 2007 Issue No. 407

+++ INDEX

- What's new
- News
- Candidate roundup/Vacancies
- Upcoming events
- Corrections/Feedback
- News credits

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+++ WHAT'S NEW

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 this week, when Canon was
ordered by the Tokyo District Court to pay JPY33.52m
(US$274,750) 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
JPY850,000 (US$6,970) for his discovery demanded JPY1bn
(US$8.19m) in compensation, on the basis that Canon made at
least JPY1.146bn (US$9.39m) on licence 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 3 key
optical disk processes that have allowed Hitachi to earn
licence revenues around the world. In Yonezawa's case, the
courts awarded him JPY163m ($1.37m) -- but not before
Hitachi took the case to the Supreme Court on two appeals!

Yonezawa's award was Japan's second highest, after a
JPY600m (US$4.9m) 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.

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[...Article continues]

We'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 licence 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 US-based lawsuit over its SED (Surface-conduction
Electron-emitter Display) TV technology by US 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 80m flat-panel
TVs will be sold worldwide in 2007, this is big business.
Canon licenced the technology from NP back in 1999 for a
one-time fee of US$5.6m.

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 j/v with Toshiba,
technically it was the senior partner and could consider
the j/v 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 j/v agreement and pointed
out that Canon's supposed control of the j/v had in fact
been emasculated. We 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.

Readers may recall that last year, Japan Inc. assisted a
specialty IP firm from California, called Knobbe Martens
Olson & Bear LLP, or KMOB for short, to do an interesting
seminar -- a mock deposition -- to Japanese corporate IP
specialists in Tokyo. Judging from the response of
participants, litigation indeed looms large in the minds of
corporate counsels these days, and we expect that the KMOB
presentation is the start of a trend for Japanese firms to
try to get a better handle on their IP dealings in key
overseas markets.

*** This week's FEEDBACK section is about the Monkeypod
tree that Hitachi paid US$4m for the rights to use in its
advertising.

...The information janitors/

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===========================================================

+++ NEWS

- Rents up 15 months in a row
- Exporters sell dollars
- Hangings resume
- Diamond imports down almost 5%
- Sharp doubles solar cell production in Europe

-> Rents up 15 months in a row

If your office rent hasn't gone up recently, it probably
will. According to Tokyo realtor Building Kikuku Company,
the median rent in December 2006 for large downtown office
buildings was up 3.2% over November, increasing for the
15th straight month to JPY26,133/tsubo (3.3 m2). At the
same time, the vacancy rate also rose for the second
straight month, suggesting that equilibrium between supply
and demand has been reached for the time being. (Source: TT
commentary from nikkei.co.jp, Feb 2, 2007)

http://www.nni.nikkei.co.jp/AC/TNKS/Nni20070202D02HH222.htm

-> Exporters sell dollars

While currency trading professionals may be selling yen on
the basis of a likely soft landing for the US economy and
continuing low interest rates in Japan, Japanese exporters
disagree. It appears that they expect the yen to strengthen
to 114 to the dollar over the coming months, and are
therefore buying record numbers of forward contracts to buy
yen and sell dollars. It seems that the exporters are
worried that the weak yen will become a political football
and that the EU and USA will demand the BOJ to either
increase interest rates or for the government to do
something about strengthening the currency. Last year at
around the same time, the yen suddenly rebounded from 121
to the dollar in December 2005, to just 114 in mid-January
2006. (Source: TT commentary from nikkei.co.jp, Feb 2,
2007)

http://www.nni.nikkei.co.jp/AC/TNKS/Nni20070202D02HH213.htm

-> Hangings resume

Japan, like the USA, is one of the few OECD countries still
invoking capital punishment, and it typically hangs its
criminals. Authorities put to death four death row inmates
last Christmas day, one of whom was 75 and confined to a
wheelchair. These are the first death sentences to have
been carried out since September 2005 because the previous
Justice Minister was a Buddhist and wouldn't sign any of
the execution orders. Unfortunately for those on death row,
he was replaced last November and the new guy has no such
compunction. (Source: TT commentary from
washingtontimes.com, Feb 2, 2007)

http://tinyurl.com/2kyn2w

-> Diamond imports down almost 5%

A good indicator of just how well off the Japanese feel is
to be found in the import levels of polished diamonds.
According to importer JClub Inc., imports dropped 22.9% by
value to $61.7m last December. this is the 5th straight
month of decline. While the value was down, people were
buying larger cheaper stones and as a result 191,191 carats
of stones, about 20.4% more than normal, were imported.
This is mainly due to an increase in cheaper stones from
india. ***Ed: So people are still getting engaged, but they
are less choosey about what they buy.** (Source: TT
commentary from diamonds.net, Feb 1, 2007)

http://www.diamonds.net/news/NewsItem.aspx?ArticleID=16727

-> Sharp doubles solar cell production in Europe

Solar cells are selling like hot cakes in Europe and Sharp
is cashing in. the company has said that it spent JPY2.2bn
to double the output capacity of its UK plant, and is now
shipping 220MW of capacity yearly. Sharp is the world's
largest solar cell maker and expects 2006 sales (ending
March 2007) to hit JPY235bn, up 18% over the previous year.
(Source: TT commentary from scotsman.com, Feb 2, 2007)

http://business.scotsman.com/latest.cfm?id=174872007

NOTE: Broken links
Many online news sources remove their articles after just a
few days of posting them, thus breaking our links -- we
apologize for the inconvenience.

***------------------------****-------------------------***

======== Japan vending machine market cracked open! =======

Japan is home to the highest density of vending machines
in the world, with about 5.6m machines, or one for every 23
people. You can buy almost anything, and the Japanese do,
with about JPY6.67trn (US$56bn) being spent every year.
Yet, apart from the obvious players such as major soft
drinks companies, there have been no foreign owners of this
massive direct sales medium - until now.

Market Pioneer Japan is proud to announce that as of
December, 2006, it has built a network of 1,500 vending
machines placed nationwide, selling stickers and print
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===========================================================

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+++ CORRECTIONS/FEEDBACK

In this section we run comments and corrections submitted
by readers. We encourage you to spot our mistakes and
amplify our points, by email, to editors at terrie.com.

-> TT 406 -- Monkeypod trees. We ran a news commentary
about a Hawaiian Monkeypod tree that Hitachi has agreed to
pay the owners US$4m for the exclusive rights to use the
tree's image in Hitachi ads.

*** Our reader says: Though Hitachi will be paying much
more than the previous US$20,000/year exclusive rights fee,
it won't be burdened with the owner's US$600,000/year cost
of running and maintaining the park (not ranch), which is
open to the public. Besides being used in Hitachi
advertising, busloads of Japanese tourists visit and snap
photos of the tree daily. Maybe you should think of it as
an expensive billboard?

*** Our response: Honestly? We think Hitachi was at best
just being lazy, and at worst, there is more to this deal
than is first apparent.

Like you, we saw the maintenance fees in the article and
thought the deal was probably reasonable. But then we
started thinking: "If you wanted to simply take photos
(and remember that it's US$4m worth) of this tree, what do
you care about the rest of the grounds? You could simply do
basic maintenance on the rest, which we're sure wouldn't
cost US$600K a month. You'd just keep the field with the
tree in top shape... Surely the other 20 acres would only
take a crew of two to maintain in basic condition?

Indeed, Hitachi even has a subsidiary that specializes in
gardening, landscaping and management of facilities, so
there is little doubt that they could look after such a
facility.
http://www.hitachi-metals.co.jp/e/corp/pdf/2003/40.pdf.

Also, a second point is that even if the park did cost
US$600K a year to run, we presume that the owners also
make revenue from all those tourists. Thus, using this
as an argument for boosting the charge by 3,000% doesn't
wash with us. There's something fishy here.

Anyway, thanks again for your feedback. Do you know this
particular park? Where is it exactly?

*** Our reader's follow-up was: Yes, I know the park well
since I grew up down the street. [Ed: OK, we bow to local
expertise here...!] It's 5-10 minutes away from the
Honolulu International Airport, bordered on one side by the
H1 freeway and on another side by Moanalua Elementary
School. It's a gorgeous park: the kind of thing private
money buys.

I think you're right about there being more than meets the
eye to this deal. I could list a lot of reasons why the
property is expensive: to maintain (historical buildings,
etc.), but when the property went up for sale I wondered
myself why Hitachi didn't buy it. Anyway, it was fun to
dream of ways to make the park self supporting while it was
still on the market.

...The information janitors/

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***********************************************************
END

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+++ ABOUT US

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Written by: Terrie Lloyd (terrie.lloyd at japaninc.com)

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