[Editorial] Reality check on patents

Korea is widely recognized as a powerhouse in many high-tech manufacturing fields, including IT, automobiles and shipbuilding. Each year, Korea posts a large surplus in manufacturing trade. Yet a recent OECD report has given Korea a painful reality check about its technological competitiveness.

In 2010, Korea earned $3.35 billion through technology exports. But its technology import bill was three times larger than that ― $10.2 billion. As a result, Korea posted a deficit of $6.9 billion in technology trade.

Korea’s ratio of technology exports to technology imports in 2010 was 0.33. According to the OECD report, it was the lowest among the 25 member countries surveyed. Japan led the group with 4.6, followed by Sweden (1.96), Britain (1.81), the United States (1.46) and Germany (1.21).

In terms of absolute value of technology exports, the United States led with $96.4 billion, followed by Germany ($55.4 billion), Britain ($43.7 billion), Ireland ($41 billion) and Japan ($27.8 billion). The U.S. figure is about 30 times larger than Korea’s.

Korea has suffered chronic deficits in technology trade. In recent years, they have tended to snowball. In 2008, the gap between technology exports and imports topped $3 billion for the first time. Yet it further swelled to $4.86 billion in 2009 and gained another $2 billion in 2010.

The deficit growth was in tandem with the rapid rise in Korea’s exports of such mainstay items as mobile phones, displays, semiconductors and automobiles. As Korean companies import core technologies of these products from abroad, any increase in their exports is bound to trigger a corresponding increase in foreign technology imports, thus widening the nation’s technology trade deficits.

As such, the key to curbing Korea’s technology trade deficits is to secure fundamental technologies that can generate royalty income. For this, domestic companies need to shift the emphasis of their patent activities from quantity to quality.

Patent filings by Korean companies are brisk. In 2011, patent applications in Korea approached 180,000, not small in relative terms compared with 343,000 in Japan and 504,000 in the United States.

Yet the quality of the patents they pursue is not high. This is evidenced by the small number of “essential patents” they have secured.

An essential patent refers to a patent that is indispensable to produce a product based on a technical standard. If a patent is essential to the standard, there is no way to design around it and still meet the industry standard.

Holders of essential patents can expect a steady stream of royalty payments from licensees, which will help improve their country’s technology trade balance.

Data compiled by the Korea Institute of Patent Information show that Korean companies account for a very small share of the patents that have made their way into the standards adopted by international standard-setting organizations.

For instance, Korea’s share of the patents incorporated into the standards set by the ITU-Telecommunication Standardization Sector and the ITU-Radiocommunication Sector are 3.1 percent and 5.2 percent, respectively, much smaller than those of the U.S. and Japan.

The low ratio of essential patents to total patent filings suggests low R&D productivity in Korea. Korea’s ratio of R&D spending to GDP is the world’s third highest. But productivity improvement has not matched the rapid growth in R&D investment.

Hence, the government needs to devise measures to enhance R&D productivity, especially at state-funded research institutes that tend to turn out patents with little commercial value.

Another task for the government is to shift the focus of its R&D policy from development of applied technologies to intensive research in basic sciences. In May, the government opened the Institute for Basic Science in Daejeon. It needs to allocate more of its R&D budget to the institute.

Straightening out the nation’s technology trade balance requires a change in people’s perception of patents and, more broadly, intellectual properties. Korea still has much room for improvement when it comes to protection of intellectual property rights.

In January, the government launched the Presidential Council on Intellectual Property based on the Framework Act on Intellectual Property. One responsibility of the council is to create a social environment that values IP.

Since its inauguration, however, the council has made no visible effort in this direction. It should work more proactively to make Korea a patent powerhouse and facilitate Korea’s transition from a fast follower to a first mover.