Tuesday, April 05, 2005

A NEW ERA OF PEACE BETWEEN JAPANSE AND KOREAN TECH COMPANIES? Yesterday's settlement between Matsushita and LG have pundits speculating whether the cessation of recent hostilities among Japanese, Korean and Taiwanese companies is a precursor to a larger spirit of cooperation for companies currently battling it out for a leading position in the burgeoning market for digital electronics.

Frankly, I quietly suspected that this was the case all along. Most practitioners that have represented clients (both large and small) in competitive markets have seen this situation all too often. Typically, the story plays out like this:

Company A, which holds a number of important patents, runs some numbers and determines that company B, which also holds a number of important patents, also has access to technology that would be beneficial to A.

Not wanting to "show its hand," company A tries to communicate to company B that company A's patents are important in the industry, and that company B would benefit by licensing these patents, or otherwise partnering with A in a related venture. Of course, company A at this point desires company B's patents more than the other way around, but A's negotiating position would likely be compromised if A just came out and said what it really wanted.

Company B, who reacts with suspicion to company A's communication, either drags its feet or otherwise ignores company A's offers.

Company A gets impatient with company B and starts getting more aggressive in its letters to company B - ultimately A files a complaint against B.

Company B, not to be outdone by company A, files a counterclaim of patent infringement on one of its patents against company A (along with an assertion of nvalidity) . Company A answers that company B's patents are invalid as well.

Companies A and B exchange pleadings for a while, perhaps conduct a bit of discovery, and both sides weigh the potential pros and cons of each claim.

Company A contacts company B (or vice versa) and proposes that "you give me access to patent X, and I will you access to patent Y - whaddaya say?"

The wraggling and dealing begins, and cross-licenses are eventually drafted. All is soon forgotten.
Of course, things don't always turn out this way, but it happens more often than not. In the case of Matsushita and LG, they were apparently in tie-in negotiations 4 years ago, and some of the terms of the settlement indicate that the settlement is simply a furtherance of previous negotiation attempts. For example, as part of the settlement both companies agreed to exchange parts and materials for air conditioner compressors, as well as swapping patents related to microprocessors used in PC's as well as those involved in making DVD-related products.

LG was the world’s leading supplier of plasma panels in the final three months of 2004, with a market share of 23.6 per cent, according to DisplaySearch. Samsung SDI was second, with 22.8 per cent, and Matsushita third with a 21.7 per cent slice of the market.

One could easily conclude that Matsushita is currently making a push to increase their share in the lucrative plasma display market. One could also conclude that LG had plasma technology that Matsushita was greatly interested in, while Matsushita had other technologies that were of interest to LG. And through age-old techniques of business negotiation tactics (and with a little help from the lawyers), both sides presumably obtained a benefit that was mutually agreeable.

Is this a new age of cooperation? Perhaps. The electronics markets are very competitive right now, so parties may be better off negotiating, rather than fighting it out in court. Or perhaps companies are taking a page from Homer Simpson's negotiation with Ned Flanders in house-sitting Ned's beach house for the summer: "Deal! See, Flanders, you give a little, you get a little."

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