TT-433 -- 10 best inventions, ebiz news from Japan

* * * * * * * * * T E R R I E 'S T A K E * * * * * * *
A weekly roundup of news & information from Terrie Lloyd.
(http://www.terrie.com)

General Edition Sunday, August 12, 2007 Issue No. 433

+++ INDEX

- What's new
- News
- Candidate roundup/Vacancies
- Upcoming events
- Corrections/Feedback
- News credits

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+++ WHAT'S NEW

As happens around this time every year, the UN's World
Intellectual Property Organization released its figures on
who placed the most patent filings around the world, a
coveted status symbol for nations promoting their
engineering prowess. And as usual, Japan scored the top
position for the number of international patent
applications, at 427,000 filings, followed by the US with
391,000, and China with 173,000.

So does this mean that Japan is the world's most inventive
nation?

Unfortunately probably not. More likely it means that
Japanese corporations have figured out that filing patents
en masse is a good way to strike it lucky occasionally,
with an innocuous filing that turns out to control the
future of an entire industry, as well as to play the "law
suit shuffle" in the USA of trading overlapping patent
licenses.

In talking to foreign scientists working inside private
Japanese research labs, we hear stories of how researchers
are set patent quotas and are encouraged to file on any
minor improvement. Indeed, it's considered a learning
exercise, and rather than creating breakthrough
technologies which typically entail high risk and expense,
the emphasis appears to be on refinements of someone else's
original concept.

We say this reluctantly, because we do in fact believe that
Japan has more than its fair share of genuine garage
inventors. You don't have to dig far to find them. They're
typically middle aged or older, married, stuck in a
salaryman job, and bored silly. In our own magazine, Japan
Inc., we document in each issue a number of such people who
have gone on to create quite remarkable inventions later
in life. Take, for example, the 67-year old CEO of Nikko
Inc., Masatoshi Shiota, with his brush-on quartz glass
compound that extends the life of concrete from 20 years to
200 years. (See www.japaninc.com/tt426.)

The "patent everything" frenzy of major companies is not
unique to Japan and at least the USA, China, and Korea have
the same level of patent filing machismo. There is,
however, the troubling matter of an apparent lack of
genuine breakthrough patents emanating from this country.
By this, we don't mean successful commercializations, but
rather, successful original inventions that have since
been brought to successful commercialization.

Thus, we decided to do some research of our own, and have
come up with a list of 10 modern inventions, not just
improved products, that we think lend some evidence that
the Japanese do have what it takes. If you know of other
inventions that merit listing, please do let us know
(terrie.lloyd@japaninc.com). We'd like to make this a
feature on the www.japaninc.com web site.

[Continued below...]

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-----------------------------------------------------------

[...Article continues]

Terrie's Take Top 10 Japanese Modern Inventions

1. Instant Ramen
Invented by Momofuku Ando, the founder of Nissin Food
Products, in the 1950's and first marketed in 1958. This
amazing product is estimated to be served 65,000,0000,0000
times a year. While a technical marvel, especially when
you consider the range of reconstituted flavorings now
available, we find it ironic that the makers have not yet
figured out how to make the product nutritious. After all,
what good is it if your best customers (students)
subsequently die of malnutrition?

2. Blue LED
Invented by Shuji Nakajima in 1989. Originally his employer
privately-held Nichia Ltd., wanted him to abandon his
research, but Nakajima stubbornly stuck to his program,
working around the lack of resources available in the
then-small outfit to produce a revolutionary breakthrough
in high-output LEDs. His discoveries now form the basis for
all high-capacity optical media, and Nichia has been
earning about JPY80bn a year from licensing and production.
Nakajima sued Nichia for proper compensation and won a
JPY840m award in 2005.

3. Floppy Disk
Invented by the irrepressible Dr. Nakamats in 1952 and
subsequently licensed along with a dozen other storage
devices patents to IBM in 1979. Over the intervening 50
years since the invention, there have been at least
70,000,000,000 floppy disks of various sizes and capacities
produced, and rumor has it that he receives a royalty on
each one!

4. Karaoke
Invented by Daisuke Inoue in the early 1970's, but sadly
not patented. Instead, a similar invention and one which
is earning its creator global revenues was subsequently
registered by Roberto del Rosario of the Philippines in
1983. Karaoke is a big business and the largest seller of
machines in Japan is Daichikosho, with about 50% of a
JPY100bn market.

5. Solid-state Electronic Calculator
Invented in the early 1960's by Sony and first displayed as
a desk-top unit, the Sony MD-5 was the world's first
solid-state electronic calculator. While Bell Punch of the
USA had a valve version, it was not practical for use in
ordinary business offices, whereas the Sony unit was. The
MD-5 included a number of features that today are standard
on electronic calculators, such as disappearing zeros,
floating decimals, rounding, percentages, and reciprocals.
Sony eventually quit the calculator business in the late
1960's.

6. Compact discs
Although the person who invented the original concept of
storing music as data on an optical medium was American
inventor James Russell, it is commonly acknowledged that
the current CD standard and viable player system were
"co-invented" by a large development team from both Sony
and Phillips of Holland, in 1980 (the group started the
project in 1979). The CD went on to become the standard for
all new music for 20 years and will probably continue for
another 20. No one knows how many CDs have been produced
globally, but extrapolating from RIAA shipments in the USA,
one can guess the global number to be at least 1.5bn units a
year.

7. Digital Cameras/Camcorders
The first true digital camera was the DS-1P developed by
FujiFilm and released in 1988. The unit used a removable
16MB memory chip to receive CCD images. The camera was not
a commercial success, and it took efforts by Kodak in the
USA to bring digital cameras into the mainstream. Today,
Japanese digital camera makers are churning out more than
100m units a year. The first electronic camcorder was
created by Sony as a demo unit called the Mavica, shown in
1981.

8. Pocket Monsters
It's hard to say whether Pokemon qualify as an invention
or not, since anime videos and collector's cards have been
around for a some time. However, what creator Satoshi
Tajiri of Nintendo did in 1995 that was unique was to take
a set of compelling characters and simply continue to add
on new ones to create more revenue -- knitting the whole
lot together with a loose story line. This is quite unlike
baseball cards, which are clearly limited in content
volume. Nintendo was paid a backhanded compliment for its
infinitely extensible Pokemon concept when Disney created
a similar open-ended set of characters for its Lilo and
Stitch cartoon series. An estimated 155m Pokemon videos
have been sold, and some billions of trading cards and
other paraphernalia.

9. Convenience Store Onigiri
Onegiri are supposedly a 17th century invention created for
Samurai armies on the move. However, it took decidedly
smart modern inventor, Kisaku Suzuki, to come up with
the idea in 1986 to separate the nori covering from the rice
ball (triangle) with plastic, and to create an unwrapping
process to allow the consumer to enjoy dry nori with
moist rice and wet fillings. Convenience store onigiri have
not yet spread to 7-Eleven's overseas yet, but we think it's
only a matter of time. Currently, 7-Eleven sells about 1bn
onigiri a year in Japan.

10. Kumon Study Method
If you have kids that don't like school that much, you'll
know about Kumon -- now a global self-study phenomenon.
Toru Kumon's system is the antithesis of modern Western
education, in that it teaches child confidence and
concept learning through repetition. Kumon created the
system in 1954 for his son and despite what progressive
educationalists might say about Kumon, if it didn't work,
parents around the world wouldn't be sending their kids
there to polish up their maths and science. There are
now 22,000 Kumon learning centers around the world
serving about 3.5m kids each week.

"Hmmm, OK," you might say, "What about the Walkman,
digital watches, and Nintendo Wii?" Aren't those
Japanese? The fact is that while these have been runaway
successes, they were not invented by the companies that
commercialized them. For example, it surprised us to
learn that the concept of a personal music player with
headphones, the main value proposition of the Walkman,
was patented by German inventor Andreas Pavel in 1977,
two years before Sony released the Walkman in 1979.
Sony eventually paid Pavel off to gain IP rights.

And the wonderful Wii remote controller from Nintendo was
the product of an investment and cross-licencing agreement
with a US electronics company called Gyration.

But even though both of these products were licenced from
the inventors, we think that way the ideas were
commercialized also represent a high level of
inventiveness. For example, Sony had to develop many
special components and design solutions to cram everything
into the Walkman's profile. In the case of the Wii
"remo-con," inventing company Gyration only imagined their
spatially-sensitive device would be a sophisticated mouse.
With Nintendo it's now a bat, a golf club, or a weapon.

As a closing comment, we'd note that the person in history
having registered the most inventions is not Thomas Edison,
who had about 1,093 patents. Rather, it is Dr. Yoshiro
NakaMats, who works just down the road from our office, in
Omote Sando (Tokyo). At 78 years old he is still going
strong and now has more than 3,200 patents to his name. You
can read more about him in Japan Inc.,
www.japaninc.com/article.php?articleID=653.

*********************

Next, and on a different topic, we received some great
(but critical) feedback on our article about the Bull-Dog
vs. Steel Partners showdown in TT430. For more on
the feedback and our response, scroll to the bottom of
the newsletter.

Lastly, it's now Obon, and this coming week we'll be on
holiday trying to escape the heat of Tokyo. We'll be back
on August 26th. Happy holidays to our readers living in
Japan.

...The information janitors/

***------------------------****-------------------------***

--------------- Niseko Cricket Tournament -----------------

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15-17 September 2007

This is your invitation to three days of fun at an
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Cricketing legend Dennis Lillee will be attending the event
which is being co-hosted by the Higashiyama Prince Hotel
and includes two days of cricket, a golf match and charity
dinner dance and auction. For more information, and the
chance to win a dinner with Dennis,

Please visit www.ridgerunner.jp/cricket
or contact Simon Jackson
(simon@rad-development.com, 011-876-3704)
-----------------------------------------------------------

+++ NEWS

- BOJ pumps cash into money market
- New type of artificial blood vessels
- SESC to curb hedge funds
- Goldman invests into Ardepro
- Visto-PTS partnership

-> BOJ pumps cash into money market

Looking to reign in speculation on the Japanese interest
rates, the Bank of Japan pumped JPY1trn into the money
market to relieve upwards pressure on interest rates.
Overnight call rates were running at 0.53%, higher than the
0.5% rate set by the BoJ. Analysts say that the move came
over concern about the US sub-prime mess. ***Ed: The BoJ's
move was notable in that pressure on money flow usually
comes when companies are closing their books and need
significant amounts of cash. This time around it was
pressure from the U.S. subprime mortgage loan problem,
giving a clue to the extent of the problem. Looks like there
are a lot of worried investors out there.** (Source: TT
commentary from nikkei.co.jp, Aug 10, 2007)

http://www.nni.nikkei.co.jp/AC/TNKS/Nni20070810DA0J8101.htm

-> New type of artificial blood vessels

A team from Osaka University Graduate School of Medicine
and Senko Medical Instrument have come up with a novel
method of repairing blocked arteries with artificial blood
vessels. In conventional surgery, blocked arteries are
bypassed at either end with veins taken from elsewhere in
the body (usually the leg). However, this places a heavy
load on the patient's body, and sustituting veins from
donors or animals carry the risk of rejection. The new
method involves sewing in an artificial vein made of a
special substance that self-disintegrates after about 18
months. During the period the new vein is in place, not
only is blood re-routed around the diseased artery but the
new material also promotes the growth of new cells which
eventually form a new vein in place of the artificial one
before it disintegrates. (Source: TT commentary from
nikkei.co.jp, Aug 10, 2007)

http://www.nni.nikkei.co.jp/AC/TNKS/Nni20070810D10HH853.htm

-> SESC to curb hedge funds

As part of the fall-out over the failed Murakami Fund, the
Securities and Exchange Surveillance Commission (SESC) has
said that it will start regulating some hedge funds from
September. The SESC will require funds with 10 or more
Japanese investors to register with the FSA and to be
subject to inspections. Those with less than 10 Japanese
investors, or where those Japanese investors don't make up
more than 30% of the fund, will be exempt -- as they are
now. ***Ed: We see this as the thin edge of a wedge to push
funds out of the mainstream markets if they won't play by
Japanese rules. We predict that the next piece of
legislation will target registratoin of those funds
theoretically based outside Japan, but which have a
substantial presence (such as research teams) here.**
(Source: TT commentary from ft.com, Aug 10, 2007)

http://www.ft.com/cms/s/995441a2-4687-11dc-a3be-0000779fd2ac.html

-> Goldman invests into Ardepro

In a sign that Japanese real estate management firms are
coming of age, Goldman Sachs has announced that it will
invest JPY29.9bn (US$253m) into Ardepro. The Ardepro
company buys up old apartment buildings and renovates them
for resale. ***Ed: Japan Inc. did an article on Ardepro in
October 2005 (www.japaninc.com/article.php?articleID=1470),
and we found that the company's canny ability to buy
multi-residence buildings that allowed mass-scale
renovations while their competitors were struggling with
"onesies" and "twosies" has been a key contributing factor
to the success of this firm.** (Source: TT commentary from
reuters.com, Aug 10, 2007)

http://www.reuters.com/article/newIssuesNews/idUST14567420070810

-> Visto-PTS partnership

Two firms well known to JI magazine readers have announced
a strategic partnership to deliver push-based email to
large and medium-sized Japanese companies. Concurrent with
the tie-up was an announcement that the first client will
be Universal Music, pushing content out to its millions of
fans. ***Ed: Universal just last week announced that
"Aiuta," a single from a new act called GreeeeN, has become
the first full-track mobile download to sell a million
copies -- so they have good reason to want to use the
Visto-PTS product.** (Source: TT commentary from visto.com,
Aug 8, 2007)

http://www.visto.com/news/releases/07.08.08_japan.asp

NOTE: Broken links
Many online news sources remove their articles after just a
few days of posting them, thus breaking our links -- we
apologize for the inconvenience.

***------------------------****-------------------------***

+++ CANDIDATE ROUND UP/VACANCIES

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+++ UPCOMING EVENTS/ANNOUNCEMENTS

No events this week.

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IT events announcements are priced at JPY50,000 per week.
For more information, contact sales at japaninc.com

***------------------------****-------------------------***

+++ CORRECTIONS/FEEDBACK

In this section we run comments and corrections submitted
by readers. We encourage you to spot our mistakes and
amplify our points, by email, to editors@terrie.com.

-> In Terrie's Take 430, we posted a commentary on the
outcome of the Bull-Dog versus Steel Partners showdown and
made the point that whether it represented value
destruction or not, the shareholders of Bull-Dog had every
right to vote against the Steel Partners offer and to enact
a poison pill to eject the fund.

*** Our reader states:
I usually enjoy your commentary but was a bit troubled by
your conclusions regarding the Bulldog case. Having lived
in Japan for the past twenty years, I fully understand the
need to be aware of local sensitivities when conducting
business here and try to avoid the typical Western
knee-jerk reaction of saying that everything Western is
good and everything Japanese is somehow backward. However
in this case I think you are wrong to side with the courts
which have branded Steel Partners as an "abusive investor"
which has a poor understanding of the need to build a close
relationship with a target takeover company.

Let's address some of the points that you make below. You
rightfully point out that 80% of shareholders voted for the
poison pill defense. However how was this vote conducted?
Were they asked "who is against the barbarian marauder and
for the proposed poison pill defense"? The question was
probably along those lines and resulted in landslide
support for the proposal. What if shareholders were told
that if they voted for the proposal, it would result in
JPY2.3bn being paid to Steel Partners, another large chunk
of change going to their financial advisors and a loss of
JPY1bn for the year,
www.nni.nikkei.co.jp/AC/TNKS/Search/Nni20070807DA7J8074.htm?
Maybe the shareholders would have considered their vote a
little more closely.

Also, trying to defend the use of poison pills using Conrad
Black's case as an example was a poor choice. That guy was
a petty criminal. I would assume that private equity firms
are not. The use of a poison pill defense resulted in near
fraudulent destruction of shareholder value. Sure, the
shareholders voted for it but did they really know what
they were getting in the bargain? I think not.

The implication of your statement that "But the reality is
that Japan isn't a third world country, it doesn't like
carpetbaggers and greenmailers, and it gets to make its own
rules and retain its own social and legal values" also irks
me. You are clearly labeling private equity firms as
"carpetbaggers and greenmailers." Suppose we were
discussing crime in Japan perpetrated by foreigners. If I
were to say "Japan isn't a third world country, it doesn't
like murderers and rapists", I would clearly be labeling
foreign criminals as such despite not directly saying so.
Poor choice of rhetoric. Your statement above is just a
little too self-serving.

Did you read Warren Lichtenstein's initial letter to
Bulldog? Here it is:
http://www.spjsf.jp/pdf/070516-bulldog_e.pdf. I don't know
Warren but this sounds like a perfectly reasonable
overture, not some barbarian knocking down the gate looking
to make a quick profit. But in the end, he did make some
money from his investment due to the actions of Bulldog.
Was this his original intention? Hard to say, but I think
he could have made more over a period of years and left the
firm in much better shape than it is now if Bulldog hadn't
rebuffed him.

You well know that Japan is a dual economy with a
world-beating export sector and a domestic sector which is
still pretty much a backwater. If Japan's economy is going
to truly undergo reform resulting in higher levels of
productivity and higher potential levels of GDP growth,
then it needs to tackle the domestic sector. The private
equity firms could help with this process and I think the
economy as a whole benefit more than we can imagine at the
moment.

*** We respond:

It's great getting such well-reasoned responses. Many thanks
for this one. Several points in response:

1. Poison pills are legal overseas for precisely the reason
that they have a use. The Conrad Black example was just one
of the more egregious cases that was helped by the
invoking of a poison pill. Less obvious cases can result in
the same benefits to the other shareholders trying to
protect themselves against the predations of one major one.

2. There is little evidence to indicate that Mr.
Lichtenstein has benevolent intentions towards Bull-Dog. In
fact, one could say that the Supreme Court appeal shows it
has become personal. We'll know for sure if this is the
case if he continues to go after Bull-Dog, which of course
he can do simply by making another offer for all the shares.
Especially now that the company is weakened by the extra
legal expenses, it will be hard for shareholders to say "no".
Indeed, if he sticks at it, he may win the next round.

3. Many private equity firms in Japan are viewed as being
positive contributors rather than "abusive" ones. How is it
that they can get the job done when Steel Partners can't?
We believe the reason is because the other funds understand
how to make their approaches to management and other
shareholders in a non-confrontational way. Mr.
Lichenstein's letter may seem normal and rational, but to
the existing management he is directly criticizing them,
and of course they think they're in line to get fired if he
takes over.

While companies should be run primarily for the benefit
of the shareholders, Mr. Lichtenstein has
underestimated the depth of emotions and personal
relationships forged between the managers and the
founding family and their supporting shareholders.
While they may not be as profitable as they could be,
they like the status quo. Mr. Lichtenstein should have
tried making initial contact with the other shareholders
quietly and on a personal level. He probably would have
won the support he needed. Now he is going to have to
get back in the ring and do another 12 rounds.

***********************************************************
END

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+++ ABOUT US

STAFF
Written by: Terrie Lloyd (terrie.lloyd@japaninc.com)

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