TAIPEI, Taiwan Thirty-seven-year-old Weng Tsu-tseng is an ideas man. With six United States patents to his credit and more pending, he is keenly aware of the power of intellectual property and the desire to protect it from abuse. By most accounts, however, he is still among the minority of Taiwan's technology CEOs.
But innovators like Weng are what the island desperately wants, and which it is in short supply of in top management. The president of a private biotechnology firm, Asia Bioinnovations, Weng is the type of entrepreneur with a healthy respect for intellectual property (IP) that will help Taiwan transition away from being the factory floor for many of the world's OEMs. "Most of the bosses a generation ahead of me aren't changing that much," he says. "Just like most Asian developing countries, they see innovative technology that is marketable and they replicate it and sell it domestically. Then they start to export and that's when the y experience issues."
Last month, Taiwan was upgraded to the U.S. Trade Representative's (USTR's) Special 301 Priority Watch List, which tracks countries that flout IP. In a report detailing IP abuses in Taiwan, the trade representative highlighted "optical media" piracy as a special concern and said Taiwan "remains a haven for pirates." At home, Taiwanese officials say they have stepped up enforcement, yet the U.S. Customs Service seized $6 million dollars' worth of pirated goods made in Taiwan in the year ending September 2000, according to the American Chamber of Commerce. Only China eclipsed Taiwan during the same time period.
Such groups as the Software and Information Industry Association and the Semiconductor Industry Association filed complaints with the USTR. And doubt lingers over the island's sincerity toward upholding IP rights, with naysayers noting it shows interest only when its 301 status is reviewed.
This represents a frustrating step back for Chou Tien, one of the key government figures in Taiwan's fight to ditch its nefarious reputation as technology IP abuser. In his office at the Science and Technology Law Center, Chou smiles politely when the island's 301 status is mentioned. "People need to be educated. They need to learn lessons," he says. "I think some of the local companies have had their lessons. They have been sued and now they worry about it happening again. So it's a learning process. You fall, you learn, and then you get up. We are much better than before, but we still have a very long way to go."
And to get there may mean an evolutionary transition where patent attorneys reap the most short-term benefits. Because with few exceptions, industry executives and analysts believe that Taiwan needs to build up its patent portfolio before it can ever be regarded as a technology leader instead of a fast follower.
Through 1998, Taiwan owned a mere 2 percent of patents filed with the Information Products Division of the U.S. Patent and Trademark Office, compared to the 2 1 percent owned by Japan and the 54 percent owned by the United States. Yet in many of the areas where these patents are held, such as PC notebook technology, Taiwan actually manufactures more than 50 percent of the world's supply. "In any technology-oriented business, Taiwan has a basic problem of not being able to own a lot of the fundamental patents," says K.C. Chen, senior vice president and general counsel for Taiwan Semiconductor Manufacturing Co., the world's top chip foundry.
"Whether it's computers or semiconductors or biotechnology, all these technologies were not originated in Taiwan, so for anybody to enter this business there is always the danger, and the helplessness, that you will have to step on certain fundamental patents," Chen says. "So either you take out a very expensive license, which some do, or some who cannot afford it will just have to try to dodge it."
The semiconductor industry, Chen says, is one of the better examples of a technology sector in Taiwan that has generally se t a good example for IP's sanctity. From time to time, there are high-profile cases of alleged IP infringement; for example, Atmel Corp. has accused Winbond Electronics, a Taiwan-based DRAM and logic IC maker, of infringing its flash memory technology, which recently resulted in shipments being held up by U.S. customs. But, in general, she says she is comfortable with the mentality and conduct of the semiconductor industry here. "Now as to how much further it goes from there, I think the line becomes blurred," she says. "I'm sure there are companies out there who still play as if the whole other world doesn't exist."
A catch-22 seems to drive Taiwan in circles instead of toward its goal of being a design-oriented island. It lacks a substantial patent portfolio, but that's because it doesn't stress R&D because of the high cost and lack of short-term return. That means it won't beef up its patent portfolio, which could trim licensing costs or actually earn revenue from licensing.
The root of the probl em is often traced to the island's history as a cheap producer of OEM products. With efficient manufacturing and, above all, a costs-down environment, the island has made itself highly attractive to U.S. and Japanese manufacturers. However, that costs-down mentality, once its competitive edge, is slowly becoming a ball and chain. Even more so as the global downturn settles in and fewer firms are willing to splash out on R&D. "Most of the CEOs are not able to recognize the true value of the creation," says Fan Chien-te, director of the Institute of Law for Science and Technology at National Tsing Hua University in Hsinchu. "So when they are planning their bonuses or promotions, frequently they tend to ignore the people who have great ideas that were put into the stream of the company. Rather, they still care more about who worked hard up until midnight and who sold more products for the company."
Few high-tech firms in Taiwan truly understand how to reengineer the structure of their company into a knowled ge-based economy model, Fan says. This will be the bane of Taiwan for years to come, because these are the same CEOs who determine budgets for research and development, if they decide to have one at all. A patent attorney who asked not to be named illustrates the shortsightedness of many top managers with the quip of a PC company president here. "He said, 'Taiwan doesn't have R&D, it has R&B; not research and development, but research and bug fix.'"
Business is good these days for patent attorneys. "The litigation follows wherever things are actually being produced," says the attorney. "In this last year or last year and a half, so many companies have been approached here. It's just crazy what's going on. Everyone is trying to get some money from Taiwan."
And that has sent many heads plunging, ostrich-like, into the sand. When the mailbag brings a letter of "cease and desist" with it, company presidents get spooked. Terry Garnett, a U.S. lawyer who recently advised a group of Taiwanese on patent law, says, "I've had a few Taiwanese clients that received a complaint and ignored it. Their rationale was 'Because I am in Taiwan, it does not affect me.' But that is not the case, because the company can get a default judgement against you and have your products restricted from importation" into the United States.
Hard as it may seem, Fan says that if U.S. and Taiwanese technology companies cannot work out these infringement cases without letting attorneys take the front seat, then things will get worse in the future. "I would suggest that the high-level management in foreign companies needs to seriously think about the logistics of royalty collection in Taiwan, because this is supposed to be the premier experience that could determine your future success in royalty collection in mainland China," he says. "If you are not able to work out things with Taiwanese people, then trust me you will not be able to collect a penny in China."
The Taiwanese government and private universities are increasingl y putting greater emphasis on IP awareness and development. The government's Science and Technology Law Center (STLC) offers frequent seminars on IP law and offers grants to small and medium-sized companies the backbone of the tech industry here that are willing to set up IP management departments. Chou, the center's director, says more than 140 companies have participated in the last five years. He also said the Institute for Information Industry, the STLC's parent group, has changed its attitude toward filing patents for its research away from a quota-based quantity system.
In universities over the past several years, more courses have also been offered on IP, and there has been more interest, too. In 1993, one year after Taiwan first appeared on the USTR's 301 list, Professor Liu Shang-jyh remembers only 20 to 50 students per semester being interested in his IP courses. Since 1997, he has had 300 to 500 people who want to take the course every year.
It seems the very definiti on of asset is taking on new meaning in Taiwan, says TSMC's Chen, who once represented U.S. clients against Taiwan in IP-infringement cases. "Asset now definitely includes intangible assets, of which the most valuable is IPR," she says. "The high-tech industry not only looks at IPR as an asset but they also use it to gain further freedom of action internationally. Because if you have very strong patents, then you are able to enjoy cross-licenses with other IP owners and thereby gain better access to technology that in the past you may have had to buy a license to use. That concept is settling in and I find that to be the most gratifying part, because it represents a new phase in the Taiwan economy."
But the transition needs additional catalysts, says Liu, who is also director of the Institute of Technology Law at National Chiao Tung University, Hsinchu. To some extent, he believes Taiwan has learned to respect the intangible assets of IP, yet he feels that the IP system still leaves a huge divide between the haves and have-nots.
Even though Taiwan is increasing the number of patents it files with the United States annually, he says most of these simply improve upon existing technology. He urges technology leaders in foreign countries to be more reasonable with licensing fees and cites IBM as an example of a company more open to negotiation. "If the technology leaders use a strong-arm approach to exclude others, then the system in the developing countries or lately, developed countries will face a serious problem as to whether we can protect intangible assets to a great extent," he says.
The challenge is already serious enough, if conclusions are to be drawn from comments made last month by Yen Da-ho, Taiwan's vice minister of justice. "To a great extent, the country's intellectual property initiatives have been driven by the pressure from the Special 301," he said. But results, he added, are hindered by personnel shortages and inexperienced regulatory agencies.
With the cur rent state of affairs, evolutionary change seems to be the most likely scenario. To foreign firms tired of IP infringements, progress may seem downright glacial in pace, said one industry observer. But it is moving along several fronts, none perhaps more important than that comprising the young entrepreneurs percolating into the elite ranks of the island's tech industry.
In his small, crowded Taipei office, the president of Asia Bioinnovations is probably one of them. Aided by a patent attorney, Weng screens the ideas of his engineers to make sure they don't fall within the claim of an existing patent. In part, he does this because of personal experience, after being part of a year-and-a-half investigation that focused on an infringement allegation against his former employer. Screening ideas costs money, he says, "but I always remind them that if we get involved in any patent infringement, it is more expensive than you think. And it is a long process that you never, never want to be involved in."