Koninklijke Philips Electronics (Philips) is a giant international company whose products and services can be found in over 100 countries around the world. It enjoys a 121 year history and has been doing business in China for nearly 90 years. It has become a well-known international brand in China.

 

Thoughout the history of Philips t has maintained its focus on R&D and innovation. This is especially true in recent years when Philips’ annual investment on R&D exceeded 1.6 billion Euros, amounting to over 7% of its operating revenue. Meanwhile, as a world leader in healthcare, lifestyle and lighting, Philips integrates technologies and design into people-centric solutions, based on fundamental customer insights and the brand promise of “sense and simplicity”.

 

By the end of 2011, Philips had obtained 54,000 invention patents, 70,000 design patents, 39,000 registered trademarks and 4,400 domain names. Such strong IP portfolio makes a full presentation of Philips’ inner nature of innovation. Philips carries out the strategy of “open innovation”, and works closely with academic and industrial partners on a global scale to bring more innovations to the market more effectively and quickly.

 

The man who lead Philips toward such success in the IP field is the Executive Vice President and Chief Intellectual Property Officer of Philips—Ruud Peters.

 

Mr. Peters joined Philip Intellectual Property & Standards (Philip IP&S) in 1997, and became the director of licensing in 1990. He is a member of many standard setting organizations such as the International Organization for Standardization (ISO) and the European Telecommunications Standards Institute (ETSI), etc., and participated actively in laying down relative IP policies. Since 1999, Mr. Peters has served as the Chief Intellectual Property Officer of Philips IP&S (now referred to as the Chief Intellectual Property Officer of Philips), and is in charge of creating and extracting values from IP assets globally. He is also responsible for the technical and formal standardizations in lifestyle, healthcare, lighting, technology R&D and other fields. Mr. Peters also acts as the board member of three technology and IP license/exchange companies. His educational background is in physics and he was included in the “IP Hall of Fame” by Intellectual Asset Management magazine.

 

Recently, as Mr. Peters came to Beijing to attend an international IP conference, the journalist of China IP took the opportunity to interview him.

 

 

 

Mr. Peters: Philips has a long history in IP. The company was established in 1891, we got our first patent granted in 1905 and have an IP department since 1923. This year, we will file about 1500 patents. Besides, Philips enjoys high rankings for PCT patent applications with the World Intellectual Property Organization (WIPO). We rank No.3 for industrial design, No.6 for trademark and No.9 for patent. In addition, we also rank the second place for patent applications with the European Patent Office (EPO).

 

 

Mr. Peters: Philips has a world leading IP asset management team. We have a centralized IP organization Philips IP&S that builds, manages and exploits the IP portfolio on a worldwide range. Its goal is to create IP solutions to support the businesses in their growth, profitability and competitiveness. It addresses the full spectrum of IP ranging from patents, trademarks, designs, domain names, copyrights, trade secrets and technical and formal standards and regulations.

 

Philips IP&S has strong global service capability. It has more than 400 employees, who spread over 11 countries in the major regions of the world (North America, Europe, India and Asia) and has more than 300 IP professional staff and 95 support staff, including IP administrative, financial, business intelligence, human resources and legal staff.

 

The main tasks of IP&S are (i) to build a strong IP portfolio and capture maximum value from that for Philips businesses, (ii) to manage the risk related to IP owned by third parties and seek to solve those risks at most favorable conditions for Philips’ businesses, (iii) to safeguard the interest of Philips’ businesses in all kind of transactions with third parties, like mergers and acquisitions, joint ventures, research and development co-operations with universities, research institutes and companies and all kind of commercial relationships, and (iv) to participate in standardization activities to support and defend the interest of Philips businesses.

 

 

Mr. Peters: We are well connected and closely cooperating with the product sectors, research and development departments, corporate strategy department and other departments at both managerial and operational level.

 

At the highest level, we report our performance results on a monthly basis to the Executive Committee and to the product sectors. The Chief Intellectual Property Officer and the Financial Controller of IP&S have quarterly meetings with the Executive Committee to discuss business and performance issues. The managers within IP&S responsible for a specific product sector have quarterly meetings with senior management of the product sectors and business units thereof to discuss business and performance issues relating to that sector and business unit, respectively in detail. We have similar meetings with the senior management of the research organization. At working level, IP&S professional staff has contacts with inventors at R&D departments, product development departments, design departments, marketing & sales departments to discuss invention disclosures for patents, proposals for trademarks, design and domain names in order to be able select the most valuable ones for obtaining IP protection. They also discuss third parties’ IP risks which may exist in the product which is going to be developed or being sold.

 

The IP awareness throughout the company is relatively high and the management group of the company does understand the important role that IP plays in today’s business and the potential value it may bring to their businesses. Although keeping the awareness at a high level demands continuous efforts, the IP&S organization doesn’t have to defend or prove its existence within Philips. Across the company people at different levels are willing to work with us in the understanding that a good and smooth cooperation is to the benefit of their business and thus Philips.

 

 

 

Mr. Peters: IP is an important commercial asset to Philips, which can bring in both cash and non-cash profits. In our philosophy, IP strategy has to be an inseparable part of the company’s commercial strategy. A commercial strategy which neglects IP strategy is not a true strategy. Philips adheres to a comprehensive IP strategy, the contents of which include patent, trademark, design, domain names, etc. We also leverage the value of IP assets though measures like licensing and cross-licensing.

 

Meanwhile, I also think that the quality of patents is more important than the quantity. There are many companies which are filing more and more patent applications just because their rivals are applying for more patents or simply because they want to have a good ranking on the annual patent application or grant list. However, Philips does not follow this trend blindly. We attach great importance on high quality patent portfolios and make profits from them. We seek to create the highest values though the most cost-effective ways.

 

 

Mr. Peters: During the last decade we have seen a strong growth in the number of patent applications that have been filed and granted in the major countries of the world with China having shown the strongest growth. This growth will continue for the years to come. The patent offices in most of these countries have not been able to cope with this strong increase. This has resulted in substantial backlogs in many patent offices, amounting to more than 4 million unexamined patent applications. Of course, patent offices have been and are taking measures to reduce this backlog, but it will be difficult to eliminate this backlog as the number of local and in particular international filings will continue to increase as markets become increasingly global. It will put the worldwide patent system under pressure. It will lead to a further reduction of the overall patent quality and thus a relative high uncertainty about the validity of granted patents, which hampers the commercial use of these patents. Due to long pendencies of massive numbers of unexamined patent applications it also leads to uncertainties for businesses big and small on how the deal with this cloud of potential risks in making decisions on whether to invest in R&D for new business activities or for developing new products.

 

In my view there is only one way to solve this: we need to increase the quality of patents or stated differently we need to raise the bar for what we consider an invention eligible for a patent. We need to do this in combination with increasing the cost of patenting without creating a threshold for small and medium enterprises presenting them for using the patent system. These two measures will lead to a situation that companies will be more critical in what they will file, which over time will lead to more manageable filing numbers. It will also make it possible to deliver high quality patents in shorter period of time than today, which will not only support applicants in their commercial activities, but also reduces uncertainties with respect to the risk that third party patents may create for businesses. This is a problem that only can be solved by good cooperation between all the stakeholders involved in the IP system: law makers, regulators, patent offices and applicants.

 

 

 

Mr. Peters: Philips is active in the fields of healthcare, lighting and consumer lifestyle. In each of these fields we operate in a global market with formidable competitors, many of those are also strong IP players. We compete with them on the basis of our innovative capabilities, including both technical as well as business innovation. We invest 7% of our sales in research and development, which comes down to about 2$ billion per year. On the basis of these investments we are able to build a strong IP portfolio, which we leverage in the market place to create value for our businesses. In general we are able to come to mutually acceptable solutions with other companies, including our competitors. We are not involved in those kind of big patent wars as we know from the telecoms area.

 

 

Mr. Peters: We are making good progress with our LED licensing program. In the course of 2012 we reached the milestone of our 200^th licensee under this program. We are adding new licensees to this program on almost a daily basis. Given the high number of companies active in the LED field, it requires a huge effort to get all the companies licensed world-wide. For these types of licensing programs Philips always strives to create a level playing field. We are operating with teams of people, who operate in a certain territorial region on the basis of a standardized transparent approach to make the negotiation process as efficient and short as possible.

 

We have many licensing programs, under which we make our IP available to companies worldwide, who are interested to use our patented technologies. Main programs are in the fields of LED lighting, Optical Storage (Blue-ray, DVD), Audio/Video Coding (oa. MPEG2,4; AAC, AC3); Telecommunications (UMTS, LTE), Portable devices (Smart phones/tables), TVs and Set Top Boxes. Last year these programs generated a few hundred million dollars on a global basis.

 

 

 

Mr. Peters: The market place for IP trading is rapidly growing but still in its early phase. This market is characterized by a lack of transparency: IP assets are not validated and valuation &pricing mechanism are not clear. IPXI takes a new and innovative approach to this and aims to create a more transparent market place, where high quality IP assets with a clear market based pricing are offered in a way that is similar to trading on the stock market. We believe that there is a growing need for such a market place and we therefore have invested in IPXI to support it in building this exchange. We have also committed as a founding member to offer own IP portfolios on this exchange. We are optimistic about its success.

 

 

 

Mr. Peters: At present, China is the second largest market for Philips. In 2011, the overall results of our Chinese businesses increased nearly 20%. Philips’ business in China covers more than 600 cities. We have 26 joint ventures and sole proprietors and more than 18,500 staffs. China occupies a high status in Philips’ global operations. In 2010, Philips announced the China targeted “local market” strategy, dedicating to making China another “local market” for Philips following Holland and the US. Meanwhile, we also have strong R&D power in China with over 2,100 R&D professionals to meet the demands both in the Chinese market and the global market. The annual R&D investment exceeds 1.3 billion Euros.

 

Philips attaches great importance to IP management in China. Among our 54,000 invention patents, 1,600 were created in China. We also lay stresses on cultivating local IP talents to support the development of IP management in China. We have set up IP teaching programs in the Renmin University of China, the Tsinghua University and the Fudan University and have trained over 1,000 students.

 

 

Mr. Peters: If Chinese companies are going to expand their business internationally they should be aware that IP in developed economies, like the US and Europe, is used as a business tool to gain competitive advantages. Not having an international IP portfolio makes that these businesses are fully exposed to intellectual property portfolios from established players in these markets. This makes companies vulnerable for litigations and substantial royalty payments in order to get access to these markets. In preparing for expanding their business internationally, businesses should investigate what licenses would be required for the type of products they are going to sell in the various countries, what royalties those involve and what impact these have on their business model. Preferably they should timely build up an international IP portfolio, which inevitably comes with a cost, but having no IP portfolio will in most segments of industry cost more.

 

 

Mr. Peters: I have closely followed the developments of China in the IP field over the last decade. I am greatly impressed by the developments that China has achieved in this field. This doesn’t only holds for the solid IP legal and judicial framework that China has build and is continuously improving, but also the increased awareness and knowledge about IP among Chinese companies. Over the last 5 years I have seen an acceleration in the way Chinese companies are managing their IP portfolios, where they also start to actively use these portfolios for their own businesses, not only defensively but also more offensively. The level of sophistication in IP management within Chinese companies is rapidly increasing. This is a great achievement. China will undoubtedly become an IP powerhouse in the knowledge economy.