[The Era of Intellectual Property Surplus] The 'First Year' Opens for Making Money with Intellectual Property

①From Semiconductor and Car Exporter to Knowledge and Culture Exporter
K-pop and K-Content Exports Gain Momentum
Improvement in Industrial Property Trade Balance

[Asia Economy Reporters Kim Bo-kyung and Kang Na-hum] South Korea is beginning to see projections that it recorded a trade surplus in intellectual property rights (IPR) for the first time since related statistics were compiled last year. The IPR trade balance encompasses all types of intellectual property exports and imports, including industrial property rights (patents, utility models, franchises, designs, trademarks), copyrights (music, video, and other cultural and artistic copyrights, research and development, and software copyrights). A shift to a surplus in the IPR trade balance is evidence that South Korea is emerging as a powerhouse in science and technology (patents, R&D, and software) as well as culture and the arts (design, music, video, etc.).

Historically, South Korea has suffered from a chronic deficit in intellectual property rights. For example, in 2010, the IPR trade balance showed a deficit of $10.34 billion. Simply put, this meant an annual loss of about 13 trillion won in intangible asset trade. Fortunately, the deficit has steadily decreased since then. In 2014, the deficit was $6.17 billion, and by 2020, it had shrunk to $2.02 billion. In the first half of last year, a record-high surplus of $370 million was recorded. This indicates that South Korea is beginning to join the ranks of advanced scientific and cultural nations that earn money through intangible knowledge.

Recent indicators also suggest a high possibility of an IPR trade surplus last year. First, the Korean Wave (Hallyu) is strong. Copyright revenues are flowing in riding the wave of Hallyu. The Bank of Korea announced on the 6th that the 2022 'Sound, Video, and Related Services Balance' showed a surplus of $1.235 billion, the largest surplus since the statistics began in 2006. K-pop is resonating worldwide. K-content has captivated users of online video services such as Netflix.

South Korea's largest content company, CJ ENM, achieved exports worth 744.2 billion won in the media sector up to the third quarter of last year. In addition, the music sector recorded exports of 134.9 billion won, and the film and performance sector achieved 64.7 billion won in exports. This amounts to a total of 943.8 billion won in exports in the cultural and artistic fields alone. Compared to the cumulative results up to the third quarter of 2021, media exports grew by 327%, music by 183%, and film and performance by 305%.

Up to the first half of last year, cumulative export figures were 514 billion won for media, 78.8 billion won for music, and 26.8 billion won for film. There is a strong possibility that overseas exports in the second half of the year will exceed those in the first half.

The industrial property rights trade balance showed a deficit of $370 million in the first half of last year. This means that foreign companies received more patent royalties than Korean companies did from foreign firms. However, the deficit decreased by $640 million compared to the same period the previous year. It is also positive that domestic large corporations posted a surplus of $2.4 billion, and small and medium-sized enterprises (SMEs) and mid-sized companies recorded a surplus of $430 million.

The deficit was caused by foreign companies based in South Korea. Foreign-invested companies posted a deficit of $2.47 billion. In other words, the deficit arose from brand usage fees paid to companies like Coca-Cola and McDonald's, and money sent from Korean branches of global firms such as Apple Korea to their headquarters.

In fact, the main culprits of past industrial property rights trade deficits were Korean large corporations. For example, in 2014, domestic large corporations posted a deficit of $4.62 billion. This was because they had to pay large patent royalties to overseas companies like Qualcomm, Intel, and Nokia, which were technologically ahead. However, now Korean large corporations earn significant revenue from patents, and this amount continues to increase. Mok Seong-ho, Director of the Industrial Property Policy Bureau at the Korean Intellectual Property Office, said, "Since South Korea invests about 100 trillion won annually in research and development (R&D), we expect the industrial property rights trade balance to turn to a surplus soon."

The Bank of Korea stated that although a record-high IPR trade surplus was recorded in the first half of last year, it is difficult to definitively say that an annual surplus turnaround is possible. A Bank of Korea official said, "IPR involves many irregular factors such as one-time transactions, so it is difficult to predict whether an annual surplus will be achieved." Simply put, because patents and brands are often bought and sold in large amounts, it is not easy to declare a surplus or deficit.

For example, LG Electronics' financial statements last year included over 900 billion won in other operating income. This was one-time patent royalty income generated by smartphone manufacturers like Apple purchasing smartphone-related patents registered by LG Electronics. LG Electronics, which exited the smartphone business, sold some of the patents it had filed.

On the 24th, it will be possible to confirm whether South Korea has opened the era of IPR surplus for the first time last year. The Bank of Korea is scheduled to announce the '2022 Second Half Intellectual Property Rights Trade Balance' on that day. An era is coming when knowledge, imagination, and culture will replace semiconductors, automobiles, and ships as South Korea's representative export items.