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14
March 2003
Ministry of Economy, Trade and Industry
This pilot model
has been formulated in line with the aims of the Intellectual Property
Policy Outline, whose goal is to promote companies' intellectual property
strategies be incorporated into their business strategies as the source
of their competitive advantage, to make intellectual property-strategies
be evaluated properly in the market through the effective information
disclosure, and to increase companies' profitability and corporate value.
As a part of this goal, it is recommended that an Intellectual Property
Report (Research and Development Activities Report) be formulated when
disclosing information on patent and technology strategies including
research and development activities.
The significance
of the pilot model
Patent and technology
information is required from various perspectives. Amongst others, it
is required for investment and financial decisions, technology policy
making by the government, pending legal matters, and rewarding inventions
by corporate employees. The nature of information sought on these respective
occasions will be different.
From the standpoint
of a company's industrial competitiveness, patent and technology information
is necessary for institutional investors when making investment decisions
, that is to predict future cash flow, its timing, cost of capital,
and the duration of the company's competitive advantage. However, because,
in some cases, information disclosure by companies is not adequate,
corporate value is sometimes over- or under-estimated in the market.
This leads to misallocation of resources in the market, that can be
one of the reasons behind a standstill in innovation.
On the other hand,
intechnology policy making by the government, information is required
for estimating future growth in the technology sector and its social
and economic impact. This perspective overlaps with medium- and long-term
investment decisions in the market.
In light of this
situation, the pilot model aims at editing a best practice of disclosure
so that investors can evaluate companies intrinsic valueappropriately
in the market, that ease investors' long-and mid-term investment decisions
and companies' sustainable growth.
The main issues are, what is the most appropriate vehicle of such information,
what items are to be disclosed, and how such disclosure should be regulated.
The present pilot model indicates thevehicle and items desired to be
disclosed, that are generally accepted as effective, even if they are
not necessarily enforced by law. In considering such nature of this
pilot model, our policy regarding each of the points at hand is as follows.
The existing vehicles
that include patent and technology information are annual reports, explanatory
materials for for investor relations, announcements of the most recent
financial statements at the end of the financial year required by the
stock exchange rules, "outline of business" in financial statements
prescribed by the securities law, and business statements prescribed
by the commercial code. Among these, the release of annual reports is
not enforced in Japan.Briefings are prepared by the companies on a voluntary
basis. And a high number of companies already prepare these documents.
Furthermore, a
number of these enterprises not only provide patent and technology information
in briefings, but also carry out quantitative and qualitative disclosure
in the Management Discussion & Analysis (MD&A), Research and
Development (R&D) and Segment Information sections of their annual
reports. However, at the present stage disclosure is being practiced
in a piecemeal fashion in all areas.
Enterprises are
encouraged to establish a disclosure policy to determine the vehicle
for and extent (overview or detailed) of disclosure. At the same time,
for the sake of usefulness for information users, the METI recommends
that an Intellectual Property Report be prepared in cases where companies
disclose intellectual property information including research and development
activities.
As for regulatory
forms, we should notice that the US Securities and Exchange Commission
(SEC) recommends that show executives' analysis of future events including
technology and R&D strategies be shown in MD&A of the Form 10-K
and annual reports, and prescribes to show "the importance to the
industry segment and the duration and effect of all patents, trademarks,
licenses, franchises and concessions held" as the narrative description
of business .
In Japan, disclosure
regulations equivalent to the MD&A do not exist. However, there
is already an accumulation of practice concerning disclosure of technology
information, including those disclosed in annual reports, explanatory
briefings for investor relations, and Technology Reports. From now on,
it is desired that such disclosure be made to increase corporate value
and to enable sustainable corporate growth.
It may be generally
said that Japanese companies disclosure lacks risk information. The
SEC demands patent and technology information that impacts the duration
of competitive advantage. It is thought that these requirements by the
SEC demand not only analyzing the impact of a patent overdue on the
enterprise's future cash flow, but also analyzing the future prospects
of the executives' strategy. Then, the risk information is not necessarily
of a nature that would discourage the company to disclose it. Thus,
it is decided that information disclosure, including operational risk
information, according to this pilot model be made on voluntary basis.
Although, in the
future, there will be issues concerning the assurance of the patent
and technology information's authenticity, disclosure of patent and
technology information is already carried out in the current corporate
practices. Moreover, such information is used in the current investment
decisions in the market (see the results of the questionnaire survey
to institutional investors in the Japanese market). The present Pilot
Model on the following pages contains items of patent and technology
information disclosed in the current disclosure practices in the Japanese
and the US.
It is recommended
that companies prepare the Intellectual Property Report based
on the Pilot Model on the following pages, when they disclose, if any,
intellectual property information including research and development
activities.
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Intellectual
property report form
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Existing
MD&A
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Existing
R&D
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Existing
Segment information
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Expected
effects
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| 1.
Core technology and business model |
O
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O
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Recognition
of mechanism for obtaining profit |
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|
|
|
Estimates
of future cash flow sources, growth potential |
| 2.
R&D segment and strategy direction |
|
O
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Estimates
of future cash flow sources, growth potential |
|
|
|
|
Estimates
of future cash flow and its growth potential |
| 3.
R&D segment and intellectual property overview |
|
O
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Recognition
of enterprise's future direction |
| 4.
Analysis of technology marketability, competitive advantage |
|
O
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|
Estimate
of soundness of enterprise's business process |
|
|
|
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Confirmation
of realized Cash flow , estimation of cash flow stability |
| 5.
organizational chart including R&D and Intellectual Property
divisions, R&D alliances |
|
O
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Coordination
of market view and corporate view |
|
|
|
|
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Expected
reduction of opportunity cost |
| 6.
Policy (including incorporating f Guidelines prepared by the METI
in company terms ) on intellectual property management, management
of business secrets, and technology leak prevention act |
O
|
O
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Confirmation
of duration of sustained competitive advantage |
| 7.
Cost and revenue involving intellectual property |
|
O
|
|
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| 8.
Administrative policy or its results of administrating (specific)
patent group in a quantitative approach |
|
O
|
O
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Confirmation
of source of competitive advantage |
|
|
|
|
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Estimates
of corporate growth and direction |
| 9.
Policy on intellectual property portfolio |
|
O
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Estimates
of corporate growth and direction, confirmation of mechanism for
obtaining profit |
| 10.
Risk information |
O
|
|
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Recognition
of future cash flow sources, estimate of growth potential |
| -
Examples and types of disclosed information - |
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Estimate
of future cash flow growth potential |
| 1.Core
technology and business models |
|
|
|
|
| -
Disclosure of core technology |
|
O
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|
| -
R&D investment by segment |
|
O
|
O
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Estimate
of duration of competitive advantage |
| -
R&D vision and business models |
O
|
|
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Estimates
of future cash flow, timing, growth potential |
| 2.
R&D segment and strategy direction |
|
|
|
|
| -
Outline of strategy and direction of each R&D segment |
|
O
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Confirmation
of future direction of corporate growth, strategic intellectual
property administration |
|
|
|
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Expectations
for the speed of transition from R&D to products and services |
| 3.
R&D segment and intellectual property overview |
|
|
|
|
| -
Main intellectual property types, uses or untapped uses |
|
O
|
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Estimate
of soundness of enterprise's business process |
| 4.
Analysis of technology marketability, market advantage |
|
|
|
|
| -
Information indicating accumulation of intellectual property and
technology in competitive advantage area |
|
O
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|
Confirmation
of realized cash flow, stability estimate |
| -
Technology uses, potential clients, and market growth potential |
O
|
O
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|
|
| 5.
Organizational chartincluding R&D and Intellectual Property
divisions, R&D alliances |
|
|
|
|
| -
Systemic diagram of R&D and intellectual property administration
organization |
|
O
|
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Coordination
of market and corporate views of economic value |
| -
Strategic R&D alliances |
|
O
|
|
|
| 6.
Policy (including incorporating Guidelines prepared by METI into
companies terms) onintellectual property management, management
of business secrets, and technology leak prevention act |
|
|
|
|
| -
fact that a company incorporates Guidelines prepared by METI intoits
termsin light of business strategy |
O
|
|
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Expected
reduction of opportunity cost and creation of economic value |
| 7.
Cost and revenue involving intellectual property |
|
|
|
|
| -
royalty arising from the use by others of enterpriseintellectual
property |
|
O
|
O
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Estimate
of duration of sustained competitive advantage |
| -
Costs of obtaining and maintaining intellectual property |
|
O
|
O
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|
| 8.
Administrative policy or its results of administrating (Specific)
Patent group |
|
|
|
|
| -
Overview and basic data on managerial quantitative targets |
|
O
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|
| -
Assurance of authenticity of technology information and financial
information |
|
O
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| 9.
Policy on intellectual property portfolio |
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|
|
|
| -
Legal measures to combat infringement of intellectual property rights
(attack & defense) |
|
O
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| 10.
Risk information |
|
|
|
|
| -
Legal measures to combat infringement of intellectual property rights
(attack & defense) |
O
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|
|
|
| -
Impact of patent & license agreements and changes in related
legal regulations on cash flow, and response |
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Example of disclosure
- Core technology
and business model
This company's core technology is material science from process to
product.
With material science as the core, we aim to expand into the electronics,
pharmaceutics and healthcare sectors.
We provide sophisticated membrane exchange systems that combine organic
compounds and membrane materials with electrochemistry.
A look at the main items in our R&D breakdown reveals medium to
long-term new technology developing costs as 3XX billion yen spent
on the electronics sector, etc., with semiconductors and networks
accounting for X% of the electronics sector costs.
- R&D segment
and strategy direction
Among our chemical products, pouring our efforts into process development
that has cost competitiveness in R&D segment XXX, and greater
added value and specialization in R&D segment YYY.
- R&D segment
and intellectual property overview
XXXTM is the brand name of XXX. Refined XXX is the raw material for
XXX. After this is hydrolyzed into particles, it is refined and dried,
becoming fine particles. It is used mainly as XXX for hardening tablet
pharmaceuticals. The distinguishing feature of XXXTM lies in XXX technology.
Since tablets of miniscule volume but good hardness can be made, amid
the growing popularity of small tablets, demand is growing for XXXTM,
which can make tablets smaller.
Sales of YYYYTM this fiscal year marked XX million yen, an X% increase.
A similar or greater increase is expected next fiscal year.
- Analysis of
technology marketability, market advantage
ZZZTM is a blood purifying machine expected to help in the fight against
the intractable disease X. This product's distinguishing feature is
its powerful absorption rate. Since it can eliminate ---, it was able
to markedly improve the effectiveness of treatment. Since its release
the year before last, sales have steadily increased. The increase
is still maintaining double-digit growth.
There are an estimated --- --- patients nationwide. It is estimated
that X million patients nationwide have still not received treatment.
- R&D and
intellectual property organizational chart, R&D alliances
In the X Group, in order to make swift business decisions and conduct
decision-making that are closer to the market, an internal company
system is being introduced from this financial year, and the --- and
X segments consist of the ---'s five companies.
The composition of our research laboratories is as follows:
Research laboratory ---: Research and development on advanced materials
technology represented by nanotechnology. Research laboratory ---:
Research on knowledge information processing technology. Our company
and X company have formed an alliance in the Z field, and as --- and
Z have special characteristics different from existing multi-purpose
synthetic fibers, --- is expected.
- Policy (including
incorporating Guidelines prepared by the METI into a company's terms)
on intellectual property management, management of business secrets,
and technology leak prevention act
In the light of our business strategy, our company is implementing
management with reference to the guidelines on management of business
secrets.
- Cost and revenue
involving intellectual property
Time series analysis of royalties arising from the use by others of
enterprise intellectual property
- Administrative
policy or its results of administrating (Specific) Patent group enumeration
General outline of the main basic data that ease to understand the
competitive advantage of the technology in the market, and time series
analysis of such data.
The outline of research and development management according to some
quantitative approach, general outline of the enumerated data
Assurance of the information's authenticity
- Policy on intellectual
property portfolio
In light of our business strategy, our company manages intellectual
property in a portfolio.
- Risk information
The basic patent in the XXX field is almost overdue, however, we are
already taking countermeasures.
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