Case Studies

A survey was conducted from March-June 2007, using questionnaires to assess companies’ R&D strength, innovation and experience in IP application as well as their response to IP reforms. The idea was to corroborate the findings in Chapter 4, particularly in relation to the links between IP-based reforms and IP filings. The survey instrument was followed up by personal visits and interviews.

The companies selected were from among the top players in the relevant industry as listed in the MIDA Report on the Performance of the Manufacturing and Services Sectors 2006(Malaysian Industrial Development Authority - the principal agency of the Ministry of International Trade and Industry for the promotion and coordination of industrial development in Malaysia). This list was then cross-checked with the list of the top ten applicants provided by the Malaysian IP Office. Where possible, the final choice of companies was based on their importance in the relevant field and their level of patenting activity. This was not, however, always possible: one major constraint being the unwillingness of the target companies to be involved in this survey, despite their fulfilling the desired parameters.

The study was subject to certain limitations and constraints. Although a particular sector may have many sub-sectors, the choice of sub-sector was based on the recommendations of MIDA. Second, though in some sectors companies were quite active in IP applications in both the IT and machinery sectors, it was found that the top industry players, particularly local companies, were not necessarily active users of the IP system. Not all the companies taking part were willing to disclose data such as sales or licensing fees which they considered to be confidential. Because of this, analysis of the impact of the IP-based reforms on the companies’ revenue and licensing trends could not be made. Further, individual company’s experience with IP reforms could not be taken as representative of the whole industry. This section only highlights the main observations of the respondents in the four sectors surveyed. Lastly, use of the IP system was not consistent overall.

Among the companies approached, a total of nine agreed to participate in the survey. From the IT

industry; data was obtained from one local company involved in the computer, peripherals and IT software sub-sector, i.e. FTEC System Sendirian Berhad, with two local companies from the telecommunications sub-sector, i.e. Telekoms Malaysia Bhd and Motorola. From the manufacturing and equipment industry, Fig. 12.Nominal GDP (RM million) and Patent Applications, 1976-2006

[Impact of the Intellectual Property System on Economic Growth ]

data was obtained from Favelle Favco Berhad (FFB) and Cooper Cameron Sdn Berhad. These companies, 101 one local and one foreign, are major players in the oil and gas sub-sector. For the automobile industry data was obtained from Proton Berhad and Perodua Sdn Bhd, two major companies in the car industry.

For the pharmaceutical and chemical industry; data was obtained from Hovid, one of the top ten local pharmaceutical companies. We also obtained data from the Malaysian Palm Oil Board which operates mainly in the chemical industry and is one of the major players in the palm oil market.

In the IT industry, technology mostly comes from abroad and R&D undertaken by some companies is only confined to product packaging or customization to suit the needs of local clients. Most of the local companies are assemblers. Components are sourced in the open market and thus no payment of license fees is involved. Patents are not as relevant to them as the technology involved is rapidly outdated.

Moreover, customization of products could hardly be considered so novel as to be patented. Therefore, for companies like FTEC, trademarks are more important (see Table 2). Copyright, however, is essential.

Thus copyright piracy campaigns run by the government have in many ways indirectly benefited the IT sector. Trade secret laws are also essential, particularly relating to the development of new software.

In the telecommunication industry, although there was substantial creation of intellectual property by companies such as Telekoms, heavy reliance was placed on foreign technology. Efforts at innovation have mostly been focused on developing technology for use within the company’s group and rarely licensed to outsiders. Being the main player in a robust telecommunication industry, Telekom conducts continuous R&D to maintain its lead. In terms of numbers of IP applications, the company outperformed other local companies, not only in relation to patents, but also in trademarks and industrial designs (see Table 3).

Table 2. Trademarks Owned by FTEC

Table 3.IP Applications by Telekoms

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102 For the oil and gas industry, IP protection and trademarks were found not to be particularly relevant.

This is due to several factors, the first of which is the entry barrier to competitors. The oil and gas industry is highly regulated and any activity pertaining to oil drilling and manufacture of components and equipment for the industry requires licensing from PETRONAS (Petroliam Nasional Berhad, the state-owned holding company for Malaysia's oil and natural gas concerns). The design and development of cranes requires a high degree of expertise and few companies could copy or compete. Cranes are considered as capital expenditure. Their high value results in customers’ favoring established companies to ensure that the cranes purchased meet safety and quality standards. The strict safety standards laid down for cranes and oil and gas drilling equipment discourage small companies from entering the market.

A longer gestation period for projects only favors companies with strong financial resources. Most equipment and components (wharves, cranes, etc.) are specifically designed to meet each customer’s needs; therefore the top local companies found that patenting was unnecessary. Copyright and trade secrets are, however, important to maintain competitiveness: heavy reliance on confidentiality is placed on contracts for the supply of equipment. Trademarks are important in relation to branding.

In the automobile industry, the companies surveyed reported heavy reliance on basic technologies acquired through joint ventures with Japanese companies which owned the intellectual property, thereby incurring substantial expenditure in royalties for the use of the technology. The two companies surveyed conduct R&D on all cycles of innovation, including the development of new technologies such as the Proton “campro engine”. Despite this, one of the companies felt that patents were relatively unimportant.

The company would rather keep the technology secret than reveal it through patents since it is continually being refined. Proton has made several applications for patents both locally and overseas. However, it has made vastly more applications in relation to trademarks and industrial designs, both inside and outside Malaysia (see Table 4).

Trademarks were considered important as distinguishing a brand and offering an indication of quality.

Industrial designs were also considered to be particularly important. However, both companies lamented the state of the current industrial design law which, to them, is unfriendly to the industry. The current law contains exceptions for spare parts (must-fit and must-match) and considers functional designs non-registrable. The companies also mentioned their problem with enforcement against counterfeited oil filters and spare parts. Because of this, they have had to take extra measures to educate their vendors on the importance of intellectual property, e.g. by embossing trademarks on spare parts. Another major complaint was on the speed in which IP disputes are resolved by the courts: litigation is frustratingly slow.

Unfamiliarity with the law on the part of the judiciary resulted in decisions in the industry’s disfavor.

To make things worse, law reforms are very slow and do not respond to the industry’s needs.

Table 4. IP Applications by Proton

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For the company surveyed in the pharmaceutical industry, Hovid Berhad, the most advantageous reform 103 has been the introduction of the “Bolar” exemption. This enables a company to apply for regulatory approvals early instead of waiting for the patent to expire. It has been active in filing patent applications inside and outside Malaysia (see Table 5). However, the manner in which the Drug Approval Authority processes such applications is sometimes inconsistent with the spirit and intent of the provision and this has led to some dissatisfaction among generic drug producers.

IP ownership is a new “culture” for local companies. Pioneering companies in this area are those corporate bodies originally set up by the government such as Telekoms, the Malaysian Palm Oil Board and Proton Berhad. As it stands, the mindset of most companies is on registration not commercialization; with the exception of statutory bodies set up by the government specifically to focus on R&D and commercialization such as the Malaysian Palm Oil Board. This study found that different industries relate differently to the various IP reforms. Therefore it was not possible to identify a single IP reform that would meet the needs of all four industries surveyed.