At a forum in 2009, China IP met Samson G. Yu, managing partner of Kangxin Partners, P.C. (hereinafter referred to as Kangxin) and listened as he elaborated on how to use the ISO9001 management tool in the intellectual property (IP) agency industry for the first time.
With the development of Chinese enterprises, Kangxin, whose clients are predominantly Chinese enterprises, has grown rapidly over the years, not only in the number of cases and professionals, but also in the firm’s strategic planning and refinement management plans for the future.
During talks with Mr. Yu, China IP was repeatedly impressed by his ideas about business operations and planning, which might have been closely related with his work experience in foreign law firms.
In 1989, Mr. Yu was assigned by CCPIT Patent and Trademark Law Office to work in Germany for one year. He then worked for a U.S. firm for nearly five years, during which he was licensed to practice as a patent attorney in the U.S.. He returned to China in 1995. Mr. Yu said that the work experience in the U.S. was very helpful to him. “I started the job in the U.S. firm basically as a secretary, then as an assistant and later as an attorney. Therefore, I was able to discover first-hand how the firm’s owner operated the firm. Personally, I became familiar with almost every aspect, from copier repair to case documentation. As a result, I became adept at doing virtually everything, from simply repairing a fax machine, installing computer software, organizing files all the way up to writing patent applications. This is very useful in managing a firm. Particularly when a small firm goes operational, at which point every skill plays an important role in improving efficiency and saving costs. The owner of the small firm is thus required to be able to do things, and must be able to take into account all aspects of specific jobs.”
After his return in 1995, Mr. Yu worked in a law firm for three years. In 1998 he joined Kangxin and in 2000 began to serve as its managing partner. After more than 10 years of development, Mr. Yu has led Kangxin to keep pace with the high-speed growth of the Chinese economy, and made remarkable achievements that should not be underestimated. China IP obtained an exclusive interview with Mr. Yu to learn about and report on his business ideas and views on the future development of the industry.
Chinese Enterprises Determine Our development
China IP: You worked for a U.S. IP firm in 1989. How did your work experience from that period help benefit you now as a managing partner of Kangxin?
Mr. Yu: It was a relatively small firm with only about 10 people. I understand through personal experience that the smaller a firm is the more comprehensive skills a manager is required to have. The manager should be able to do anything and solve any problem, and is required to understand every detail of the firm’s operations and balance every job in the firm. The manager has the final say in decisions, so such of the work and management demands comprehensive and strong skills from the manager.
As the firm was relatively small, many communication steps may be omitted. High efficiency and strong execution capabilities should be advantages for the firm’s development. However, this will not necessarily continue to be the case as the firm grows to a certain size and extent. During the firm’s period of high-speed development, rapid decision making is clearly a distinct advantage and can ensure high efficiency. But to a certain extent, collective leadership should be a better choice. Firstly, new situations and environment have rendered it difficult to have a relatively strong leader; secondly, in no way can the wisdom of an individual match the cumulative strength of collective leadership, particularly in the strategic decision-making process. Once a wrong decision is made, it may affect not only the immediate interests, but also the long-term development and survival of the firm.
In the U.S., I learned the criteria used by some successful firms in their client selection process. During communications with foreign peers, I also familiarized myself with how certain large U.S. or UK firms came to have a serious impact on local firms as they entered countries with open legal service markets. In fact, these foreign firms all brought along with them their own clients, capital, management, talents, and experience to open and emerging markets. Then they hired the best local lawyers and took over directly the legal services previously rendered by local firms for their clients. So I think competition between local and foreign firms, from a higher level, is competition between enterprises. If we have enough domestic clients behind us, each having several hundred patent applications, we may well reverse the effects. In this sense, the strength of Chinese enterprises determines the development of Kangxin, the agency industry and the nation as a whole.
Shift to the Chinese Market
China IP: When did Kangxin shift its main services to domestic enterprises?
Mr. Yu: Kangxin has been advising domestic enterprises since was founded, but few people are aware of this. As early as 1998, when domestic enterprises were not in the practice of commonly filing patent applications, we had begun to advise enterprises such as Haier and Hisense on trademark prosecution in the domestic and international markets. We were very concerned about the domestic market, but we had to explore the international market because of the small number of patent applications filed by domestic enterprises at that time. We began to provide sizable patent application services for Chinese enterprises in 2008.
China IP: As Kangxin has domestic enterprises as its main clients, what are the differences you observe between advising domestic clients and advising international ones? Does the client change any requirements for the firm?
Mr. Yu: Advising domestic clients also requires experience, team building, process management, personnel training and client interaction, experience accumulation and cost control. If domestic clients have special requirements, we must act quickly and communicate smoothly with them, though the quality of cases may not reach the international level. Domestic clients generally have a high demand for efficiency. I think Chinese enterprises should, first of all, make a breakthrough in the number of patent applications if they desire to make a breakthrough in innovation. Then the quantitative change will translate into the qualitative change, which is a necessary road taken by countries without the first mover advantage.
Japan and South Korea took the same step by step road. I think it is also the case in the patent agency industry, which should conform to requirements of clients and the national development, and emphasize the principle of prioritizing efficiency with due consideration to quality, then the quantitative advantage will turn into the qualitative advantage. Quality, according to my understanding, should be a “comparative advantage” for the time being. We might have gaps with European and U.S. peers, but we must make daily progress, manage knowledge, strengthen the team’s capacities in the study, accumulation and inherit of knowledge, take advantage of the late development, make sustained progress and catch up with rivals. As regards the service industry, we must serve clients’ needs and should not place our so-called expertise above all else; aiming to transform our professional knowledge into valuable assets for clients’ survival and development. In this regard, quality must not be ignored, because in the long run, say, five or ten years, the value of quality will naturally emerge.
China IP: We know the majority of Kangxin’s clients are Chinese enterprises. What changes have taken place in the enterprises in recent years?
Mr. Yu: We have cooperated with many Chinese enterprises from big names such as ZTE to those which have just begun to file patent applications. Firstly, the most apparent change is the rapidly rising number of patent applications. In the past an enterprise could only file about a dozen patent applications a year, but now the number has quickly jumped to over 100. The country has also released very favorable policies and guidance in the area. I believe the general direction is no problem, as I mentioned before, it is an inevitable process from quantity to quality.
I personally think that we cannot make a simple comparison between China and the U.S. or Europe. For example, the U.S. is itself an innovation-oriented country with childhood education encouraging innovation and distinctiveness. While China’s education system is pushing everyone to be the same and all problems have standard answers. Such an education system does not encourage creativity and reforms are required if we want to turn China into an innovative country, through the joint efforts of several generations.
In most cases, we are more like Japan and South Korea, and thus we can learn from their development and success experience. As a matter of fact, Japan and South Korea also began with the pursuit of large numbers of patent applications. The large number of patents is equivalent to insurance in the short term, and will become assets in the long term through accumulation. The transition from quantity to quality is a process which may be harrowing and lengthy, but is inevitable. I think Chinese enterprises are very good at learning. If the government releases proper guidance, the transition will not take very long. Chinese enterprises, such as ZTE and Huawei, have a very strong ability to learn. They have had, in three to five years, achieved the capabilities in strategic planning and management equal to the levels Korean and Japanese enterprises had achieved within a decade. So I think it is necessary for patent applications to reach a certain number, and then enterprises can have the capital to compete.
Chinese Enterprises Have Promising Prospects
China IP: Some of China’s major enterprises, Huawei for example, already have their own professional IP teams and talents to file patent applications. As regards this phenomenon, will the agencies modify their service direction to adapt to market changes?
Mr. Yu: It is an inevitable trend for large enterprises to have their own professional IP teams, but I do not think all companies will accomplish this task within the next three to five years. From the international perspective in general, if these enterprises are all able to directly handle patent applications, two critical issues will reveal themselves. Firstly, the market is more mature and the enterprises have a deeper understanding of IP, in other words, they have a higher demand for IP services. Secondly, the problem of man power supply and demand will surface. On the basis of what has been experienced abroad, at that time innovative small and medium-sized enterprises (SMEs) will generally take a larger market share, and their demand for IP, in the long run, will be the most important driving force of innovation. And these SMEs are also targets we seek to serve. Although China has not yet reached that stage for the time being, if we have grown to the present situation of the US, chances are many firms will be more willing to advise SMEs. Since they likely will have only three to five inventions, these inventions will be the key to their sustainable development and they will pay more attention and be more willing to invest. These SMEs typically do not build their own teams to do this job, and outsourcing is their best choice. In general, professionals working in a firm will have a stronger ability than corporate professionals, because they are more professional and specialized and receive more training. But corporate personnel have relatively more diversified services and jobs.
China IP: It is learned that Kangxin currently has large enterprises as main clients. In terms of client selection, has Kangxin considered SMEs as main clients?
Mr. Yu: Sure, our domestic clients are mostly large companies, but we also consider providing services for SMEs prioritizing IP protection. We often hold professional trainings for enterprises. As a firm’s manager, I agree with the view expressed by Vanke chairman Wang Shi: a non-profitable enterprise is unethical. Our firm’s values are client satisfaction, shareholder return, employee growth and social harmony. If we don’t make a profit, these values will all be hot air and none of those values will be accomplished. In this regard, it is a must for an enterprise to be profitable, either for its own development, the future of its employees or the social responsibility.
The Industry Needs Entrepreneurs, Regulation
China IP: From 2008 to 2010, the industry y has been concerned about problems of available talent, vicious competition and service quality. What do you think are the most significant problems now facing the agency industry?
Mr. Yu: The industry has two problems. The first is the view that professional skills can make money, which, I think, is misleading. It is far from enough for an enterprise to have professional skills only. This is just a foundation and a set of system appropriate for its operations should also be put in place. The second is competition by slashing prices to solicit clients. I think they are two extremes. People often classify bosses in the industry simply as businessmen and good agents, which is very debatable in my view. Personally I think the industry should have three types of bosses, a good agent, a businessman and an entrepreneur. However, I think the industry needs an entrepreneur most. Good agents can be nurtured in large quantities and there has not been any scarcity of businessmen. But, entrepreneurs, especially those who understand the profession and management, including professional managers, are very scare in the industry.
I think the current job of the government should be helping establish a set of game rules to ensure the survival of the fittest, so that some of the best firms are able to grow up. At present, Chinese enterprises have not had a good enough climate for growth. The IP industry has grown very fast over the past decade, but few people are considering how to develop IP is beneficial to the industry. The current phenomenon is that firms in the industry are basically ranked in the order of the time of founding, which, as a matter of fact, is not normal. In a fully competitive industry, the TOP 10 rankings should include at least four latecomers catching up, which will be able to demonstrate the full competitiveness of the industry, so that clients may enjoy a reasonable price and high quality service. So I think the agency industry has not become fully competitive yet. When such competition does arise, it will be very harrowing in the absence of high quality and pre-established game rules and the old large firms will be definitely hardest hit.
China IP: What mode do you think is most beneficial to the sound development of the agency industry?
Mr. Yu: I think a commonly accepted view is that a firm’s development lies in the apprenticeship system. But I beg to differ. We ought to have the apprenticeship system, but we cannot do everything under instructions of a mentor; besides, mentors differ and will surely have inevitably different mentees. As a result, the firm will turn into a hodgepodge of different qualities and varied styles. The reason for the blind adoption of the apprenticeship system, I think, mainly lies in the fact that many people have not found universal management rules applicable to their firms. Kangxin, after years of exploration and practice, has found some basic rules, on the basis of which I think standardized operations should be put in place to ensure the result is controlled by the process.
Through the adoption of ISO9000, Kangxin manages to control the result by standardized operations and make the importance of it known to all. And we call it “result-oriented process control.” As the firm grows to a certain extent in scale, it will be difficult to direct everything to the result. Consequently the best way is process control to achieve the required quality. Our adoption of ISO9000 standard serves two purposes. The first is to let everyone know that Kangxin is a standardized firm, the basic guarantee for quality; the second is that our services follow standardized r rules to ensure consistency of results.
I think the industry has rules, very clear rules, to follow. Apprenticeship is needed when it comes to some advanced skills or special rules. But if apprenticeship begins at the very outset, there will be high cost and most importantly high risks. Because in China a firm/company bears legal responsibilities, while an individual lawyer/attorney does not. In the U.S., individual lawyers bear joint and several liabilities, so lawyers will work diligently for their own reputation and avoid risks. That does not mean that our agents are irresponsible, but I think there should be some basic standard manuals so that each person is required, as part of the performance, to double check his work upon completion and find solutions to 99% of the problems within his responsibilities, instead of solely turning to others for instructions.
The Future Belongs to China
China IP: You have mentioned that a good manager should have a long-term plan for an enterprise; what is your plan for Kangxin in the next three to five years?
Mr. Yu: Our plan is to focus on domestic clients and serve high-quality clients. I believe in the next two decades, the worldwide IP focus will be on China where domestic enterprises will grow bigger, and IP will be their focus.
China IP: As far as I know, Kangxin now has approximately 300 people, mostly aged around 30. What advice do you have for these young practitioners?
Mr. Yu: I think if you really want to do a better job than others, you should know there is no pie in the sky. This is a highly competitive society and your ability can be exhibited in competition. Self-confidence and ability cannot be nurtured in greenhouses. If you want to grow, you have to endure pressure and blows. You should know that pride comes from greenhouses whereas self-confidence grows out of repeated falls and resiliencies. Perseverance and patience are needed, and you also need to learn how to get enlightened.
China’s Leap Forward in a Decade
China IP: The decade of you serving as the managing partner is also the decade of China’s accession into the World Trade Organization (WTO). What do you think of the various changes in IP-related areas after China’s accession in the decade? What improvement do you think should be made in the next year or two?
Mr. Yu: I think great changes have taken place. Firstly, in terms of the general climate, we dare not say IP has been very popular, but widely known. Either in propaganda, reports or law enforcement, great process has been made. In particular, the understanding of domestic enterprises, concerns and attention from national leaders and the media, as well as emergence of some influential cases, have exerted great influence on the public and enterprises. The situation as it was ten years ago is no match for that of the present. But one regrettable thing is that the administrative power remains stubbornly strong. According to commitments China made upon accession into the WTO, judicial supervision over the administrative power should gradually play a relatively important role, therefore, cases of reviews and patent invalidation will be heard in courts. But nowadays, after the amendment, local patent administrative authorities have expanded their power, which runs contrary to the initial direction of our development.
However, in areas of legislation, development of industry associations and enterprises, positive changes have taken place over the decade. For example, agents associations have worked to build a reliable platform, regulate the conduct of firms and strengthen trainings. The overall idea is positive, i.e., survival of the fittest and standardization of the industry. I am deeply impressed that currently the government has really deemed IP as a must-have thing in China, not something we have to do under constant foreign pressure. This is a very big change. It is a great leap forward for China’s transition to an innovative country.
In addition, I think we should establish relatively independent judicial courts, such as circuit courts or greater regional courts, to hear IP cases to avoid interference from local protectionism and interests. If a court is unable to be independent, it will be difficult for it to ensure impartiality. In addition, the entire Chinese system is making the transition from a planned economy to a market economy. In the past, state-owned enterprises prevailed, and when problems arose, the public power would intervene. But it would be almost impossible for private enterprises to gain such an advantage. For example, they may encounter many difficulties in finding solutions to problems of corporate governance. According to China’s Civil Law, the infringed party has an onerous burden of proof, resulting in an extremely difficult process in rights protection. Therefore, the difficulties in proof and enforcement of IP cases are also problems of the general climate. If the problems are resolved, the IP problems will be easily resolved.
(Translated by Wang Hongjun)
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