[The Era of Intellectual Property Surplus] Why Are Korean Companies Aggressively Pursuing Patent Applications?

④Large Corporations That Led Intellectual Property Deficits Now Serve as Profit Drivers

"To effectively respond to disputes in the United States, we hold the most patents in the U.S."

Samsung Electronics, which holds more than 230,000 patents worldwide, is primarily motivated to focus on patent applications due to 'disputes.' While having many patents can sometimes generate substantial royalty income, the patent applications actively pursued by domestic conglomerates such as Samsung Electronics and LG Electronics mainly originate from defensive purposes.

On the 6th, among the top 10 domestic companies holding patents as compiled by the Korean Intellectual Property Office, Samsung Electronics ranked first, having filed more than 11,000 patents last year alone. As of the end of January, Samsung Electronics holds 35,052 domestic patents. LG Electronics is second with 21,307 patents. Following them are Hyundai Motor Company (17,504 patents), LG Display (17,257 patents), Samsung Display (14,266 patents), LG Chem (11,648 patents), POSCO (11,591 patents), LG Energy Solution (8,538 patents), Qualcomm Incorporated (6,518 patents), and Kia Motors (6,165 patents). These large corporations have designated advanced industries such as semiconductors, displays, autonomous driving, and AI as future growth engines and have invested hundreds of trillions of won to secure technological competitiveness.

Expanding the scope overseas, the number of patents held increases significantly. As of the third quarter of last year, Samsung Electronics had 88,966 patents registered in the United States. Including overseas regions such as Europe, China, and Japan, Samsung Electronics holds more than 230,000 patents worldwide. LG Electronics also holds about three times more overseas patents than domestic ones, with 61,599 patents.

Domestic conglomerates, especially manufacturing industries including semiconductors, were the biggest cause of Korea's intellectual property deficit just ten years ago. In 2013, Korea's trade deficit was $8.16 billion, with more than half, $6.33 billion, coming from the electrical and electronics manufacturing industry, the country's main industry. However, in the first half of last year, Korea's intellectual property trade balance recorded a surplus of $370 million, nearing the first annual surplus. The conglomerates, which once led the overall intellectual property trade deficit in Korea, recorded a surplus of $2.38 billion in the first half of last year. The electrical and electronics manufacturing industry alone posted the largest surplus of $800 million.

To respond to lawsuits from patent assertion entities (PAEs), often called 'patent trolls,' increasing patent holdings overseas is helpful. Domestic companies face more than 100 patent lawsuits from PAEs annually. The Korea Intellectual Property Protection Agency reported 89 PAE patent lawsuits against domestic companies as of the third quarter of last year. Including the fourth quarter, the number likely exceeded 100. The number of lawsuits has been increasing yearly: 90 in 2019, 111 in 2020, and 149 in 2021.

Regarding the background of patent applications, Samsung Electronics explained, "Most patents relate to smartphones, smart TVs, memory, and system LSI, used in strategic business products or planned for future use," adding, "Besides protecting the business, they also serve to check competitors in situations where similar technologies and patents proliferate." LG Electronics also stated that "patent applications play a protective role when entering new businesses," explaining the background of their active patent application activities.

Companies also use their patents in cross-license agreements to block the path to patent litigation. These agreements essentially involve withdrawing all ongoing patent lawsuits with the other party and granting mutual rights to use each other's patents. Samsung Electronics has secured a patent protection network through cross-licenses with Nokia, Google, Qualcomm, Cisco, Microsoft (MS), and others. LG Electronics also signed a broad cross-license agreement with Google in November 2014, comprehensively sharing existing patents and those filed over the next 10 years for 20 years from the filing date.

Sometimes patents become a solid source of income. LG Electronics recorded 990.7 billion won as other operating income in last year's financial statements, most of which is known to be one-time royalty income from patents held by its exited smartphone division used by other smartphone companies such as Apple. Due to this, LG Electronics added "license business of patents and other intellectual property rights" to its business objectives in its articles of incorporation at the shareholders' meeting held in March last year.

Meanwhile, since filing many patents requires corresponding technological development, the research and development (R&D) costs that companies must allocate inevitably increase. Samsung Electronics' total R&D expenditure last year was 24.9191 trillion won, a 10.3% increase from 22.5954 trillion won the previous year. LG Electronics also increased its R&D expenses by 15% to 2.3973 trillion won last year from 2.0929 trillion won in 2021.