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USB flash drive patent expiration brings doubts over future of Chinese company Netac Technology

Nearly 70% of Netac’s incomes are from its patents.

Photo source: shutterstock.com

The future of Chinese flash disk drive maker Netac Technology, which claims to have invented the USB flash drive back in 1999, is in doubt after its USB (Universal Serial Bus) flash drive patent has expired last week after 20 years.

Two decades ago, Cheng Xiaohua and Deng Guoshun developed their first USB flash drive in Shenzhen, and filed in China for the first patent of “electronic flash memory external storage method and device for data processing system,” which was granted later in 2002, according to China National Intellectual Property Administration’s website. Soon afterward, the two founded Netac Technology and started to market flash memory drives and other products based on the storage patent.

USB flash drives are a combination of two different technologies: flash memory and USB, and many companies have also claimed to be the creators of such technologies. Among them, firms such as Israeli M-System, American IBM and Singaporean Trek Technology have filed for similar patents over the years and asked for invalidation of Netac’s patent.

In addition, Netac has been involved in different IPR (intellectual property right) battles against an array of US companies including USB flash-data storage card maker Sandisk, and PC makers like Dell or Hewlett-Packard, China Daily reported. The Shenzen-based firm also had litigations with Japanese Sony and local rival Beijing Huaqi Information Digital Technology.

The company, which went publicly traded in Shenzhen Stock Exchange under code 300042 in 2010, has also registered 263 patents in various countries such as China, the USA, South Korea, and Singapore, the company says on its website.

After 20 years, the expiration of this core patent for flash-disk drives could be a crushing blow for Netac, who depends heavily on revenues from its patents.

From 2009 to 2018, patent ownership brought RMB 205 million (USD 30 million) to the firm’s coffers, making up nearly 70% of its income, according to the financial reports Netac disclosed. The gross margin of this sector is 100%, while that of its other products has plunged to 6.88%.

The company recently announced that it doesn’t have effective measures to fundamentally solve the financial hit caused by the expiration, but added that it has been trying to explore the potential of other patents it has obtained and is considering introducing and applying for more innovations in a bid to diversify its pool of patents.

Earlier in October, Netac announced two patents related to digital currency. The first patent is an industrial design for a “cold wallet,” an offline wallet for storing cryptocurrency, while the other one is for “digital currency wallet, transaction method and system, and computer storage medium,” which is still pending approbation.

The announcement saw the company’s stocks soar 34%, partly due to the optimistic attitude that Beijing has recently shown toward the blockchain sector.