Friday, June 22, 2007

Samsung targets IBM, but with a squirt gun?

There is an interesting dichotomy between the US and Korea in one area. For the past 14 years the only way it was guaranteed that the word "patent" would be mentioned in a newscast was an offhanded comment to wrap up the business or technology segment with a line like "IBM was ranked first by the US patent office for the most applications last year…"
The annual story is mirrored in Korea, but takes the form of two stories. One, "Samsung ranked second [or third, or fourth] in the number of patent filings in the United States, just missing the leader IBM by….". The local focus is understandable, but then there is the second article that reliably pops up sometimes before the next ranking. This one usually goes "Samsung plans to be the top US patent applicant in two [or three, or ten] years…"
The Korea Times has translated this year's version of the second story into English for the world to see:
Samsung Electronics has set an ambitious goal of ending IBM's 14-year dominance as the United States' top patent holder within two or three years, its patent manager said. 

The versatile electronics maker was the closest rival to IBM last year, receiving 2,453 U.S. patents against IBM's 3,651. And it won't take too long to take IBM down from the throne, said Lee Dong-geun, general manager of Samsung's intellectual property strategy group. 


"We will soon be competing with IBM for the top place. In two or three years, we will produce more patents than IBM,'' Lee said in a recent meeting with reporters in Seoul…The number of U.S. patents is one of the most frequently used indicators of a firm's technological competence.
That last one is the key to why all this ink in spilled about Samsung's plans. It's a product of the economic nationalism in Korea and the need to be seen as number one. In this case the assumption is, if you lead in patent applications you lead in innovation. If only that was the case.
Consider this line from Mr. Lee, Samsung's patent head, in the same story above:
"We still pay more royalties than what we receive. I think we will be able to break-even around 2015,'' he said, adding that a single laptop PC, for example, is built on more than 1,000 patents that needed to be paid royalty
A line like that really makes me question what is the VALUE of the patents Samsung has been filing. To boil this down, who would you consider more innovative, the guy who has 100 patents and gets US$1 in royalties for each, or the guy who has 1 patent worth US$100 in royalties? I would lean toward the latter.
In addition to this, consider this 2004 interview in Managing Intellectual Property by one of Mr. Lee's predecessors, Han Kap-tae. This is the way he spells out Samsung's patent strategy:
At one time, when we received a patent claim from another company, we did not have any idea how to deal with the situation. It was quite natural that our strategy was focused on how we could pay less. But now we have a relatively good patent portfolio. This means that we can counter-claim against other companies, which leads us to have more cross-licenses. We changed our strategy to become more aggressive. We think that having good patents is the best strategy.
So Samsung's definition of a "good" patent portfolio is not one lucrative in royalties, but rather one that serves as a good defense against competing patent claims brought against it.
A bit of circumstantial evidence indicates this is still Samsung's model. In the past few years Samsung signed a number of bilateral patent pools with companies around the world, such as Sony and Microsoft. These pools can easily be interpreted as a defense similar to what Mr. Han was describing.
Finally, consider the recent Business Week "Innovation" cover story. In one of the articles they discuss the use of patents, and how applicable they are to measuring how innovative a company actually is. To its credit, Samsung actually ranks very high in a cited Boston Consulting Group survey measuring how often other patents cite the patents.
This is good news for Samsung, but a detail gives me pause:
Even though technology patents, which protect functions, are far more common in number, the five most-cited patents for the top two companies on our [2006] list—Samsung Electronics and Nike—were all "design" patents. Design patents only cover an item's look or form.
Now this may seem like a denial of some pretty strong evidence in Samsung's favor, however Nike is pretty far from the top of the USPTO "biggest filers" list, which reinforces my initial reaction that being on the top of the list is a hollow achievement. More over consider Samsung's actual target…IBM.
IBM was never known for its design prowess. Yet it is consistently recognized for being one of the most innovative companies in the middle to late 20th Century, and even arguably today. One of IBM's cornerstones was technological innovation, yet design innovation was relegated to boxy vs. angular. Even today, IBM's patents are more technical in nature than design, not to mention their actual physical product line-up is almost laterally a shadow of itself.
So if Samsung does unseat IBM, I expect the local press to crown Samsung as "World's Most Innovative". However given that effort was based on design patents and technological patents with limited market value, I will need a mine, not a grain, of salt to swallow it.


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