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04

JUL

2019

Conversation between Linda and Mr. NAGASAWA, Canon Inc. (Abridged)

NAGASAWA KENICHI -- Managing Executive Officer and Head of the Intellectual Property and Legal Headquarters Canon Inc.

LINDA LIU -- Founding Partner, Patent Attorney Linda Liu & Partners

Highlights

Negotiation: Business Strategy First

Negotiating in the Global Context: Grasping the Characteristics of Foreign Parties

Litigation: Defense and Offense

Addressing the Developments in Technology: Proactively Reaching Out in the IoT Age

Foreword from Linda

I always believe the most important thing to live a fresh life is, for each and every one of us, to hold onto vibrant creativity, undamped enthusiasm, and glowing confidence.

I have always been touched and inspired by my conversations with Mr. Nagasawa (the IP head of the 3rd largest U.S. patent owner), and have acquired from our conversations the strength to try and embrace new things again. Dear readers and beloved friends, I sincerely hope that the following conversation, which happened on December 2 last year, will touch you as well.

We would never give up our pursuit of creativity and continue to have hope for our futures to discover better selves.

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Linda: Good day, Mr. Nagasawa. It is truly an honor to have this conversation with you. I would like to extend my sincere gratitude for your kindness to agree to my invitation to have this conversation, despite being so busy during your business trip. As you recall, we made two agreements many years ago. The first was based on my personal fondness of Kyoto. I was eager to know what Kyoto would become in the future as you saw it. And the other is just what happens today: to have an interview with you, when the opportunity arose, to talk about intellectual property. Years have passed; and finally, one of our agreements is to be fulfilled today. I’m so excited and happy about it. I’m also looking forward to the fulfillment of our other agreement together, which is to see the Kyoto as you expected it to be a few years later.

Nagasawa: You are being very kind, Linda. I, myself, also have been looking forward to today’s conversation.

Negotiation: Business Strategy First

Linda: So, let’s start. My first question is, as I recall, you entered the field of intellectual property around the 1990s. In the past three decades, surely you have gained much experience in international negotiation and litigation and witnessed milestone events. How do you make good use of your wider experience of international negotiation and litigation and how do you adapt the internal production and business strategies in the light of negotiation and litigation results? You may share with us just the non-confidential contents.

Nagasawa: Well, I have to say that I may not be able to give a valuable answer. Because, from my personal perspective, it is, in some sense, wrong to adjust our own business strategies according to the results of negotiations and lawsuits. Our company goes through a series of preparations long before a negotiation commences just to avoid such bad decisions. Moreover, a negotiation or bargain should be premised on avoiding any changes to the business strategy of the company. In the light of this, a negotiation must be conducted based on an understanding of our developments for the next 5 years, and is aimed to guarantee the smooth development of our business. It is absolutely not intended to adjust the production and business strategies according to an IP negotiation.

Putting litigation and negotiation with patent trolls aside, companies usually try their best to end disputes by negotiations and agreements. Being sued and fighting back and starting a “court battle”— cannot lead to a win-win situation for both parties. Therefore, it is commonplace that Canon sticks its requirements or compromises during a particular negotiation depending on the conditions. But we have almost never changed our strategies during a negotiation. At the company level, considerations are usually given to what the business will be like in three to five years; but I look at the business development for the next decade and base negotiations with the opponent thereon.

For example, Canon once had negotiations with another company which took over three years. During that period, neither of us used the weapon of litigation. We tried again and again to communicate and negotiate with the opponent. What we were thinking was that, looking into the background of the era of IOT arriving faster than we could imagine, and that our opponent currently didn’t engage in commercial competition with Canon, tension and confrontation are not better than cooperation so that the patents of both parties can be applied in our future products, the latter being far more beneficial for both parties. I felt that the two parties of the negotiations agreed to a silent consensus that a court battle was never to be started no matter what the outcome became. Adjusting business directions according to the results of litigation and negotiation would be a distortion of priorities. When a business principal considers arrangements for the next three to five years, he/she needs to predict five years, even ten years ahead. If the prediction fails, the company strategy will change accordingly. In such case, it may be essential to change the IP strategy of the company. I myself may be better in adjusting IP strategies according to the changes in the company strategy. Since 2010 when I was appointed as Head of the Intellectual Property and Legal Headquarters, I have handled a great deal of IP-related negotiations and lawsuits. Not even once have I changed the business strategy of our company according to the results of these negotiations and lawsuits.

Of course, these are of no doubt when our company is making a profit. However, when the company goes into the red, it is not unnecessary to change the way of thinking and to act on a completely different IP strategy. For example, when a company loses hundreds of billions, there is no other choice other than to earn money with its intellectual property. However, at present, we need to study the future direction of our company business earlier than the business segments and need to formulate a corresponding strategy so that our company is free to use patents forming potential barriers to our development. If a company out there happens to own such a patent portfolio, we can create a negotiation strategy to negotiate with this company for cross-licensing.

Among the cases where we used such a negotiation strategy, there was this M&A which really caused a headache. It is a typical case where Canon took over a relatively big corporation which runs businesses in a completely different technical field from Canon. As these businesses appear in the overall business framework of Canon, dramatic adjustments are necessary in the IP strategy and the litigation and dispute settlement strategies of Canon.

Negotiating in the Global Context: Grasping the Characteristics of Foreign Parties

Linda: That’s so Canon-style. And indeed that is you! You really have foresight, which I admire very much. Thank you so much for your sharing.

Here comes my second question. You certainly have sensed cultural differences in way of thinking and behavior in your negotiation and litigation with European and American companies. How do you deal with these differences? In view of these differences, how can we direct things to a favorable situation, or know our enemy as well as we know ourselves in order to remain undefeated?

Nagasawa: This is a tricky one. I did not sense such great differences among ordinary companies. But as I think it through, there indeed are slight differences. They can be roughly divided into two types, one easily understandable, such as the differences noted in American, Korean and French companies, and the other not so easy to comprehend, such as those of German, Japanese, and Chinese companies.

For example, when the negotiation opponent is an American, I can feel it that he/she pays more attention in individuals and is more intended to fulfill their own self-worth. Therefore, facing an American, it will not be enough to propose conditions solely benefiting the counterpart company. Some facilitating conditions should be offered for the individual person you are talking with. The case is the complete opposite when our opponent is Japanese. In this case, we may only consider whether our offers are beneficial for the counterpart company. A Korean, on the other hand, especially someone with a chaebol, impresses people with a strong will to protect his/her company. Therefore, during the bargaining with a Korean, it will gradually become clear to us what conditions are desired, how to realize a win-win situation, and where to stick to our conditions or to compromise. To me, the difference between a Japanese opponent and a Korean opponent is that the Japanese will not give the information that the company benefit is of top priority. While in the negotiation with a Chinese, I can sense the influence of Chinese traditional culture on the individual which makes a person reserved and ambiguous when expressing ideas. This is also what a foreigner such as me finds confusing.

Germans have the same characteristics. They seem to adhere to laws and regulations and obey every rule. But it is not unusual that a German holds back his/her thoughts. Germans may state that they cannot accept a negotiation but are unwilling to directly explain that it is some certain conditions that they cannot accept. In particular, a German is extremely reluctant to have a settlement negotiation when there is no precedent to refer to. Frenchmen, on the other hand, are easier to understand because they clearly state what they really feel.

From the respective of the priority between “private interest” and “group interest”, Japan, China, and Germany have a culture emphasizing the latter. Japan, in particular, might be the country valuing company and group most. Chinese attach greater importance to “group interest” on the whole, but with exceptions. German seems moderate, at a position between Chinese and Japanese. Americans, Koreans and Frenchmen are people easy to understand. Americans and Frenchmen values individuals more while Koreans think more of the company and the group.

Linda: Your classification is very fun and inspiring. I feel the same. What is Canon’s strategy for tackling the differences between countries? What can we do to lead negotiations and litigations in a favorable direction?

Nagasawa: It is not a strategy, actually. Japanese companies and Japanese always give the impression that one can hardly understand their objectives and what exactly they want from their negotiation opponents. So I would negotiate in an understandable manner. This not only shortens the time needed for the negotiation but contributes to an increase in the success rate of negotiations. Though we may sue our opponent if we discover that the opponent tries to conceal facts, or, in particular, makes unreasonable demands. Often, a large-scale corporation will seek for enforcement by litigation when the goal of the opponent cannot be seen. But when smooth communication is possible, a middle ground can be easily reached through negotiations, which makes litigation unnecessary.

Generally speaking, the best strategy for me is no lawsuits. Since I became the head of the headquarters, except in the case of those companies obviously and intentionally producing or selling infringing products, Canon seldom brings a suit before the court as the plaintiff. However, from the year before last, lawsuits filed by Canon increased because increasingly our opponents demand absolutely irrational conditions, or we cannot figure out their true intentions. From our point of view, we have proposed a solution which is enough compromise for both parties while our opponents only cared about their own interests, which led to litigation.

Litigation: Defense and Offense

Linda: Your sharing is really useful and inspiring for me. Thank you very much. It’s true that a negotiation with complicated matters simplified and the conjectures of both parties left aside will be unexpectedly efficient and forthright. It would be best that the two parties reach an agreement and achieve a win-win solution. Otherwise, litigation can be a good means for upholding our rights.

And here comes my next question. As a corporation well-known worldwide, Canon should be both traditional and innovative, which means that the IP strategy of Canon should be both aggressive and defensive. As you mentioned, Canon seldom brings suit. But, as an international corporation, Canon must have been competing with other corporations while endeavoring to enhance your innovation. How do you balance the two, and get a balance between aggressiveness and defensiveness?

Nagasawa: Aggressiveness and defensiveness are both indeed of great importance for the development of our business. However, being defensive is not limited to the simple mode of charging royalties for the use of our patents by other companies. Actually, being aggressive or defensive is not limited in the area of intellectual property. It is the result of the flexible use of intellectual property rights. What it brings to our company, how we act to gain profits: we take these questions into consideration in negotiations and are guided by them to contemplate which business is to be attached more significance, even to abandon a business in particular circumstances, as well as making profits by patent licensing and adjusting the gains of our corporation.

On the other hand, being defensive, or to maintaining our business, does not mean not to attack other companies, and does not mean to protect our product only by patents. On the contrary, being defensive is to take an aggressive action by striking first to gain the initiative so as to protect our business, as the old says goes: “retreat to advance”. Which company to attack and how to attack are questions needing continuous contemplation. Things are the same for negotiations. In my opinion, the negotiation generally favors the party that takes action first, as people say to “gain the initiative”. Once a warning letter is received, a defensive corporation in the traditional sense which usually takes the initiative to attack has to first study the contents of the letter and then study the related patent. On the contrary, if a party sends a warning letter to a suspected infringing party before the suspected infringing party does, then the suspected infringing party will certainly spend a great amount of time and energy to deal with the letter, during which period the party taking the initiative has control and is free to make preparations for the next-step. Even if the opponent finds a good way of responding, the party taking the initiative will still have no fear, because it is ready for the next movement.

What are these actions all about? It is obviously to bring profit to the corporation. The whole meaning is to take money from the opponent’s company and from the competitors in particular. If the product of the opponent requires certain costs, we may improve our competitiveness by lowering the costs of our products. If the opponent has better technology or patents than us, we may consider how to convert the technology or patent of the opponent to our own. If our licensed range is wider than the range covered by our license to the opponent, our product may be designed more freely than the product of the opponent, which improves the competitiveness of our product by crosslicensing. The true maintenance of business is to keep profiting from the business of our corporation.

Basically, the strategic objective of intellectual property is to safeguard the business of the corporation and to enable the corporation to make a profit. Therefore, I think it beneficial to take actions first no matter, whether in negotiations or as a strategy. …

Addressing the Developments in Technology: Proactively Reaching Out in the IoT Age

Linda: It must be satisfying for the young people working with you to have a senior colleague like you. Indeed, I always discover new faces beside you each time I meet you at international conferences. Each one of them is high-spirited. I can tell that they are feeling, learning, and communicating attentively. I will learn from you and create more opportunities for my younger employees to grow on business trips. There is another question I want to ask. You visit China not infrequently. You must have noted that China is experiencing violent changes as Internet technologies have been forging ahead. How does this era of changing international circumstances and IT technologies evolving with each passing day affect Canon’s IP strategy?

Nagasawa: When Mr. Tanaka, former Head of the IP Headquarters, passed his responsibilities to me, one urging problem confronting me was to make a response to the upcoming IT era. Throughout the years that we were led by Mr. Tanaka, we had been focused on competition with the direct competitors. But when I became the head of the IP headquarters in 2010, I had no clue how to deal with the first-class ICT (Information Communications Technology) corporations which I call IT giants. After some time I tried to contact these companies, because we predicted highly improved Internet technologies would be the next stage. We expected that all products would interconnect in some way in ten years, which would be around 2020. When such a time comes, it would be far less than enough to rely on merely the machines of Canon. We thought to establish communication with the IT giants to learn from them.

At present, I’m in touch with most of the IT giant corporations and am acquainted to the relevant persons of most of them. When we note potential cross-licensing, I’ll visit them to negotiate. We are lately considering establishing relationships with corporations having no intersecting business with us, for example, those owning patents in the fields of automobiles and even beer. We must not easily conclude that such corporations will not be connected with us in the future. I’ve always been thinking that, regardless of the fields to which two corporations belong respectively, they can always generate sparks with one another in the area of intellectual property. Therefore, it’s better for Canon to determine which corporations to negotiate with, and what objectives we have in the negotiations, and put them into practice as early as possible. If Canon is considering negotiating with a company and this company comes to us first, Canon will be in an inferior position. In other words, Canon could not take the initiative by striking first as we said before.

So, Canon should first set our own objectives and then take actions based on the objectives. This is very important. If neither the opponent nor Canon takes any action, then we will both be tired out and achieve nothing. But such an opponent is still better. If the opponent is a corporation who possibly seeks a head-on confrontation with us, it is crucial to detect its intentions at an early stage and to strike first to gain control of the circumstances. Meanwhile, we need to actively contact and pay attention to corporations going downhill even risking bankruptcy, and consider what these corporations will face next, so as to be well-prepared. Since Canon has limited personnel, the number of patents we are able to analyze by ourselves is very limited. Moreover, it is not practical to have a massive human force concentrated on this. Thus, though difficult, a decision must be made on where to concentrate the limited internal resources of Canon. Moreover, it is more likely that people working in the IP department will all diligently analyze all the patents without leaving any details behind. Therefore, I and other senior managers above the level of head of department are obligated to determine which patent of which company should be analyzed. Another aspect of my main job is to create opportunities for negotiations with noncompetitor companies.

For years, I have been considering how Canon can compete with corporations with IOT-related global standards and standard essential patents (SEP) in particular, how we arm ourselves with our own SEPs, and how to sort out the priorities in our negotiations and confrontations, and so on. Image-related global standards, wireless communications technologies such as Wi-Fi, so-called mobile communications technology of 4G, 5G, etc. have widely penetrated various aspects of social development. These technologies mingle with one another and will form novel combinations, which create more business opportunities. We must consider what weapon Canon has to contest with the other corporations when the time comes, in which aspect we can defeat our competitors, and how to balance when we defeat them. Answers to these questions are increasingly complicated.

Linda: Speaking of which, I’m very curious about what Canon thinks of IOT technologies?

Nagasawa: I can give you an example. Say that we have a digital camera which has rapidly increasing image data captured by it while it has very limited memory, generally, we will update the data to a cloud memory. This is where mobile communication terminal technology becomes crucial. I believe that the demands for accessing the Internet through mobile communication terminals will increase significantly in the future. Even today, many products of Canon need to have the function of Internet access. Even non-portable products must be capable of accessing the Internet through a local network. Therefore, there will be an increasing number of mobile communication terminal products directly accessing the Internet through technologies such as 3G, 4G and even 5G.

With the upcoming 6G technology research, the products and systems involving mobile communications technology will also continue to increase. The demands for these products will promote the continuous upgrading of technologies, for example, the information security protection technology that concerns people the most, which is likely to develop into black technology in the future. Some companies are still relying on their own internal servers, the so-called on-premises system (indoor applications), to protect their internal data. But in the future, these barriers are very likely to be smashed by hacker technology of a very different strength. On the other hand, if a large number of companies access cloud services through mobile communication terminals, the development of cloud technology will grow even faster. In the next five to ten years, cloud security will far exceed the security of on-premises system. At that time, in order to simplify the overall structure of the social infrastructure, we are very likely to be in an era where all systems will be transformed into cloud services. I’ve always been thinking about which corporation will be dominating in that area of intellectual property, and with which corporation, and for what purpose, Canon should be negotiating.

In both China and Japan, the IOT technologies are developing at an increasing speed. Cloud service becomes more common. We are embracing an era of artificial intelligence (AI). Taking an automobile as an example, all internal parts, including the navigator, the display, the camera, the automatic driving system, and so on, are directly connected to the network by mobile communication technologies. In the huge Internet tidal wave, only with a great number of patents for core technologies can Canon avoid a decline in its business due to the attack of another company or avoid the risks such as heavy losses. This is very important.

Linda: It’s true. The future is indeed a super IOT era filled with cross-boundary collaboration and cross-licensing, with unlimited possibilities. Thank for your wonderful answer.

I really spent a fantastic and meaningful time talking with you like this today. I sincerely hope to learn from you about the management of a firm, the education for partners, and many other things. You are a really good guide. I’m looking forward to seeing you next time. Thank you very much for today.

Nagasawa: Thank you for your kindness. I hope that my answers are satisfying.

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