How do LED companies respond to patent “encirclement and suppression”?

China is a big LED manufacturing country. Many LED companies form a huge industrial chain, but there are only a few LED companies with real technology research and development capabilities. Compared with the number of products manufactured in the LED industry, the number of LED patents obtained is really pitiful. Against this background, faced with the patent "encirclement and suppression" of foreign LED companies, it is often a headache. So how should domestic LED companies respond to patent “encirclement and suppression”?

Recently, Shenzhen company Jufei Optoelectronics announced a supply chain strategic cooperation with Japan's Tododa Gosei and obtained its LED white light patent authorization. Subsequently, Essence Securities stated in a research report on Jufei Optoelectronics: "The company signed a white LED licensing agreement with Toyoda Gosei to more effectively expand overseas customers in the future." It also predicted that "the company will move from LED packaging to upstream materials for display devices, and the industry chain will move upstream of the smile curve."

With patents in hand, you won’t have to worry about overseas business. The secretary of the chairman of Jufei Optoelectronics said in an interview that this cooperation has established a full range of patent protection from chips to LED white light applications, which will better support the international expansion of the company and customers.

Sui Shirong, chairman of the China LED Industry Patent Alliance, said that patents are an industrial development issue that Chinese LED companies cannot avoid; due to the existence of patent barriers, it is difficult for domestic LED products to enter the mid-to-high-end international market. Domestic companies can obtain patent authorization, which is indeed good news for them to go global. However, Chinese LED companies still have a long way to go to overcome patent issues.

Although there are many patents, the “gold content” is not enough

This looks to be a booming market. Data show that in 2014, the overall scale of my country's semiconductor lighting industry reached 350.7 billion yuan, of which the scale of downstream applications reached 285.2 billion yuan; from January to November 2014, my country's LED lighting product exports totaled nearly 7.9 billion US dollars, a year-on-year increase of 104.52%, and "emerged as a new force" in emerging markets such as the BRICS, the Middle East and Southeast Asia.

But behind the beautiful data, there is also some "embarrassment" hidden. my country's LED industry is large-scale, but it is still mainly concentrated in the middle and lower reaches of the industrial chain, that is, areas with low added value. "According to industry division habits, the LED industry is generally divided into LED substrates, epitaxial chips, packaging and applications." Gong Weiwei, a researcher at the Institute of Electronic Science and Technology Information of the Ministry of Industry and Information Technology, said that by the end of 2013, mainland my country had applied for a total of 36,595 patents in the LED field, mainly in packaging, applications and driving, while there were relatively few patents in epitaxial chips and substrates. Moreover, in terms of patent types, utility model and design patent applications account for a large proportion, while invention patents are relatively insufficient; even among invention patents, patents in the fields of chips and raw materials upstream of the industry chain are hard to find.

"The homogeneous competition among enterprises in the downstream field is relatively serious, mainly based on price wars, resulting in 'bad money driving out good money', and shoddy companies may gain a foothold in the market." Gong Weiwei analyzed. The barriers to entry in the downstream areas of the LED industry are low and competition is disorderly. Some powerful companies have simply set their sights on overseas markets. However, due to patent issues, overseas, these companies can only focus on downstream links with thin profits, or purchase chips from abroad to avoid patent risks.

What does it mean that Juguangfeidian has obtained the white light LED patent authorization this time?

White LED patents mainly focus on two aspects: chips and phosphors. Wang Junxi, director of the Semiconductor Lighting Center of the Chinese Academy of Sciences, explained that many of the core phosphor patents related to white LEDs are indeed in the hands of LED manufacturers such as Nichia and Toyoda Gosei. The five major foreign LED giants - Japan's Nichia Chemical Company, Toyoda Gosei Company, American Cree Company, Philips Lumen Company and Germany's Osram Company - have earlier laid out LED R&D patents. Therefore, they have a large number of patents in the entire LED industry chain, and they have cross-authorized each other to form a protective network. Only by obtaining patent licenses can companies expand overseas markets, especially the European and American markets; otherwise, "domestic LED companies will still face great risks of infringement when going global."

Patent crackdowns have hurt Chinese companies

Industry insiders describe the patent issue in the LED industry as the "Sword of Damocles", which hangs high and may fall at any time.

What is still fresh in my memory is the "337 investigation" in the United States. Since 2008, my country's LED companies have been subjected to "337 investigations" many times. "337 investigation" refers to the practice of investigating unfair import practices and taking sanctions according to Section 337 of the U.S. Tariff Act of 1930. It is considered an important means for the United States to use intellectual property disputes to prevent or restrict foreign companies or their products from entering the U.S. market. "Once the U.S. International Trade Commission issues a general or limited exclusion order for the products involved, the products involved produced by the relevant companies will not be exported to the U.S. market." Gong Weiwei said.

"We have very few patents in upstream technology, and industrial development is controlled by others. Internationally, it is difficult to enter the European, American, Japanese and Korean markets, unless you spend a lot of money to buy other people's chips and light sources, but in this case, your price competitive advantage is gone." Sui Shirong, chairman of the China LED Industry Patent Alliance, said in his tone There is some worry, "As your industry matures, developed countries will use patent issues to make a fuss and suppress you. This is also a strategy they have always used." The establishment of the LED Industry Patent Alliance is precisely for enterprises to collaborate on innovation, work together to stay warm, and cope with the patent war that may come at any time in the LED industry.

Carry out patent layout to add weight to international competition

"If we want to go further abroad, obtaining patent authorization is a more effective and faster way. However, while obtaining authorization, we must also speed up the digestion and absorption of foreign technologies, do our own patent layout and patent avoidance design, and ultimately realize the development of foreign markets under the protection of independent intellectual property rights." Wang Jun said happily.

In addition to "buying, buying, buying" if you have money, you also need to rely on "research and development" to truly "climb" the patent wall. Gong Weiwei pointed out that how to break through the technical difficulties in the industry is a key issue that domestic enterprises must face. In terms of concepts, domestic enterprises need to be aware of intellectual property rights and use intellectual property rights as a means of self-protection; the government or industry alliances need to guide the domestic LED patent layout at a macro level and help companies supplement patents in a targeted manner. "Integrate resources and strengthen the upstream and downstream linkage of the industry to deal with domestic and foreign patent risks."

Patents can be bought at a high price, or you can exchange them with your own patents. Sui Shirong explained that companies can try to develop new technological routes in the upstream chain of the LED industry, such as phosphors and substrates, or keep up with some new and disruptive technological development trends in the LED industry to seize opportunities in the new situation and gain the upper hand.

Wang Junxi also noticed that the protection period of some core patents in the LED field, such as two-step epitaxial growth method, chip structure and YAG phosphor patents, has expired or is about to expire. "If domestic enterprises can develop their own technical routes based on these core patents that are difficult to avoid and do a good job in patent layout, they may be able to open up a new situation." Regarding this, Gong Weiwei maintains a "cautiously optimistic" attitude: Although some of the opponents' patents have expired, these giants still have multiple patents, and the process for domestic enterprises to achieve "breakout" is still long.

But no matter what, with only a few domestic companies obtaining upstream patent authorization in the LED industry, patent issues must be faced head-on. Sui Shirong called on relevant national departments to pay attention to patent restrictions in the development of the LED industry, provide support in the formulation of macro policies and the allocation of scientific research funds, and allow enterprises, non-governmental organizations and the government to form a joint force. In this way, domestic companies will be more confident when exploring overseas markets.