South Korea’s deficit in intellectual property rights not only remained in the red in 2017, but widened compared to the 2016, new figures from the Bank of Korea show. But its largest surplus in IP payments was still with China - totalling $ 1.98 billion.

Last year, South Korea imported $14.06 billion of intellectual property and exported $12.07 billion. The deficit grew to $1.99 billion from $1.66 billion in 2016. The United States remained the largest recipient of Korean IP payouts, netting a total of $4.66 billion compared to $4.94 billion the year before. Korean media indicated the rise of the overall IP deficit was primarily attributed to the increasing deficit in the industrial property field that jumped to $2.31 billion from $2.28 billion in 2016, which suggests that Korean industries have paid more in-bound IP licensing fees and royalties than out-bound.

The Korean government is very concerned about the national deficit in IP, and it takes great pride in the shrinking of the IP deficit since 2012. China and Vietnam contributed greatly to South Korea’s IP surplus. However, we need to be very cautious while examining the numbers and reasons – the surplus might have not been brought by direct licensing stream; instead it was mainly due to companies increased exporting patent rights to their overseas subsidiaries in China and Vietnam.

Korean conglomerates own some of the world’s largest patent portfolios. Recent data shows Korean companies took three seats of the 2017 top 10 US patent recipients - Samsung Electronics, LG and Samsung Display. Other entities including SK Hynix, LG Display and ETRI were among the top 100. The nation still spends more on importing IP than exporting its own. Korean patent owners have traditionally used patents primarily for protecting technology and production in order to profit from manufacturing.

Even if Korean companies wanted to change their approach to focus on licensing revenue, there would be major hurdles. In China, Korean firms are typically faced with bigger problems than patent infringement – first and foremost, maintaining or gaining market share amid fierce competition with foreign and local vendors. They might take a cautious approach in enforcing IP rights or collecting royalties in China, mainly to avoid being aggressive assertor or licensor who meanwhile need to win Chinese customers’ and government’s approval.

Although data shows Korea has continued to achieve IP surplus with China, big Korean companies seem to be going through a rough patch in the country. Most recently, this blog reported Huawei’s victories in Chinese IP office and courts against Samsung Electronics, as well as LG Chem’s difficulty in licensing battery to Chinese companies. There are few examples of Korean companies asserting patents in China.

Without a doubt, the China market carries weight for Korean industries in terms of the size of market and patent license revenue. This two factors, in Korean major electronic makers’ perspective, might not go hand in hand in China; and it might even be mutually contradictory.

This may be a case where the national political agenda might not reflect industry’s real priorities. If South Korea wants to reduce its royalty deficit, ultimately it can’t be achieved by collecting fees from overseas subsidiaries, or setting up entities like Intellectual Discovery to enforce and license rights transferred from Korean companies. As we have argued in the past, conglomerates and SMEs alike need to develop technologies that have broad commercial uses. Only then can they effectively deploy IP strategies like patent licensing to achieve commercial returns - particularly in a markets where patent rights are threatened and diminished.