The Sinking of the United States Electronics Industry within Japanese Patent Pools

By Taylor, David S. | The George Washington Journal of International Law and Economics, January 1, 1992 | Go to article overview
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The Sinking of the United States Electronics Industry within Japanese Patent Pools


Taylor, David S., The George Washington Journal of International Law and Economics


I. INTRODUCTION

The electronics industry is the largest manufacturing industry in the United States, employing three times as many people as the U.S. automobile industry and contributing significantly to the major trade imbalance between the United States and other countries, most noticeably Japan.(1) Ironically, it is not American-owned companies that reap the benefits from this industry. In fact, American-owned consumer electronics companies have all but disappeared over the past few decades.(2) Several American-owned companies, which once dominated the world electronics market, have been forced out of business or have merged with Japanese companies over the past few decades.(3) As a consequence, U.S. presence in the consumer electronics market has been virtually eliminated.(4) Japanese-owned companies now dominate and control the consumer electronics market within the United States.

The Japanese dominance over the consumer electronics market has helped create the enormous trade imbalance between the United States and Japan.(5) The U.S. trade deficit with Japan totalled $59.6 billion in 1991.(6) Japanese investment in the U.S. market has grown substantially over the past two decades, while U.S. investment in Japan has remained insignificant. Between 1980 and 1988, Japanese direct investment in the U.S. market increased by more than 1000%.(7) Yet, total U.S. direct investment in Japan totaled only $17 billion in 1990, which constitutes roughly one-fifth of the amount of Japanese direct investment in the United States.(8) This considerable imbalance is exacerbated by the fact that the U.S. economy is twice the size of Japan's.(8) If this trend continues, it is estimated that Japan will become the largest foreign investor in the United States by 1995, and by 1999, "Japanese investors will hold more American assets than Britain, Holland, and Canada combined."(10)

The influx of Japanese consumer electronics imports into the United States has greatly contributed to the trade imbalance between the two countries. In 1989 electronics contributed $20.5 billion to the trade imbalance.(11) The video cassette recorder (VCR) industry is responsible for $5 billion of the annual trade deficit.(12) This trend is likely to continue over the next few years. In the past decade, Americans have purchased 80 million VCRs and are now buying VCRs at the rate of 33,000 per day, none of which are manufactured in the United States.(13)

Because Japan maintains a profound position in the U.S. consumer electronics market, it plays a critical role in influencing the policies that will determine the survival of U.S. industries, the growth of the economy, and the security of American jobs. Japanese companies have been accused of questionable business practices for the tactics which they have employed to dominate the U.S. consumer electronics industry. These business practices have prompted allegations of antitrust violations and other unfair trade practices.(14)

This Note examines the most recent technique employed by Japanese companies to gain control over the U.S. consumer electronics market--the pooling of patents by Japanese cartels over critical components of electronic products. Section II of this Note outlines the structure of the Japanese business market and the keiretsu companies that dominate that market. Section III reviews allegations of antitrust violations asserted over the past few decades against the dominant Japanese consumer electronics firms. A case study of the most recent of these allegations, involving a dispute over a dual-deck video cassette recorder, is examined in section IV. Section V of this Note provides an over-view of applicable U.S. antitrust and patent laws. Section VI discusses the different types of patent pools, their economic impact, and the implications of U.S. antitrust law on patent pools. Section VII analyzes alleged unfair trade practices by Japanese companies and discusses whether such practices violate U.

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