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by James Woudhuysen
Chinese patents are burgeoning. But how ‘Chinese’ are they? Of the millions of patents China has filed, how many are original and how many owe much to the assistance and investment of foreign or multinational companies? GIS guest expert Professor James Woudhuysen sheds light on the complex world of patenting and outlines the prospects for Chinese innovation.
What a difference seven months makes. In May 2014, The Economist lauded China’s patents. Endorsing an upbeat report by the World Intellectual Property Organisation (WIPO) on China’s international patenting, the magazine ran the headline, ‘Ever more inventive’.
Fast-forward to December 2014. Now, on the same subject, the same publication wrote the headline, ‘Patent fiction’. The Economist was attacking a second upbeat report on China’s patents – this time, from Thomson Reuters.
It accused Chinese bureaucrats of imposing targets which led China to go ‘merely churning out patents’. That kind of approach, it concluded, ‘does little to advance innovation’.
Clearly, Chinese patents are a tricky issue. So what is the true picture?
Market share
First, take patents filed domestically. Between 2000-2012 they multiplied 10 times, getting on for 2.5 million filings. Over the same period, China’s world market share of patents rose from four to 28 per cent – chiefly at the expense of Japan, whose share fell from 31 to 15 per cent.
China’s State Intellectual Property Office (SIPO), with 6,000 staff, has been the largest in the world since 2012.
China’s domestic patenting is not all froth. SIPO says, 869,000 of the applications it received in 2014 were for ‘utility model’ patents, which relate only to novelty in shapes and structures, and which are taken out to gain short-term protection. About 600,000 other applications were for design patents, which again rarely feature genuine breakthroughs.
Nevertheless, ‘invention’ patents, which protect real inventive leaps for 20 years, were 12 per cent up on 2013, at 928,000 applications.
About 800,000 came from Chinese sources – more than 80 per cent from companies, rather than lone inventors or universities. Foreign firms, however, took an unmistakable 70,000 of 223,000 invention patents actually granted.
Triple output
Neither China’s patents statistics nor its invention patents are perfect. But which country can fairly claim such laurels? Yes, China’s government subsidises invention patents… just as the UK, the Netherlands and Spain will go on giving new patenting firms tax breaks until June 2016.
And yes, since 2012, Chinese-owned firms, rather than the subsidiaries of multinationals, have filed four in every five applications in China – zealously pursuing, no doubt, directives laid down in the 12th Five Year Plan.
In December 2014, the Chinese State Council’s Action Plan for Deepening the Implementation of National IP Strategies announced that it wanted China to triple its patent output, taking the number of invention patents per 10,000 inhabitants from four in 2013 to 14 in 2020.
This prompted some derision. So, too, have those Chinese convicts, or those Chinese about to go to jail, who have cut their jail terms by developing patents, or even by buying them from other people.
Yet if derision sometimes attends patents registered in China, firms based there now win foreign patents, which are often weightier than domestic ones, in numbers that, though small, are rising fast.
Rapid growth
The WIPO found that China applied for about 25,000 patents abroad in 2012, more than half of them in the US. In 2009, nearly 90 per cent of China’s 10,000 foreign-orientated patent families – sets of interrelated patent applications filed to protect the same invention in both China and one or more other countries – were in the exacting ‘invention’ category. And in 2009, too, nearly 40 per cent of China’s international patent families covered more than one office overseas.
The rise in Chinese patenting abroad needs putting in perspective. China’s US patents have enjoyed rapid growth, but in 2013 they still lagged significantly behind the big players.
The number of Chinese patents in the US is dwarfed by its rivals
Given China’s vast population, its US patenting still has a long way to go. Its more broadly international patent families could also be much more numerous.
China filed only five per cent of its patent families abroad in 2008 against a German figure of 57 per cent – uncharacteristically low, for Germany – and a US figure of 50 per cent.
Promising inventions
China’s international patenting is not all about first steps. As Neil Wilkof has perceptively written on the intellectual property website IPKat, ‘Perhaps the low percentage of foreign filings might signal that only more promising inventions are being pursued abroad.’
The picture, however, is more complicated still – for China’s patenting in the US and Europe is not as Chinese as one might think.
Looking at patents granted to China by the US patent office in 2010, Leo Branstetter and his colleagues at Carnegie Mellon university found that just a quarter were purely Chinese-invented and assigned to indigenous firms.
However, 30 per cent were Chinese-invented, but assigned to foreign multinationals; and a dominating 37 per cent were assigned to foreign multinationals, but were the product of ‘international co-invention’ – the Carnegie term for intra-firm collaboration, across borders, in patents.
Mixed origins
Much of this collaboration is aimed at bringing innovations not just to China, but also to global markets. A similar, global complexion to Chinese patents is registered, according to the Branstetter team, among the patents Europe grants China.
As the Carnegie Mellon academics note, the mixed national origins of China’s US patenting effort mark it off from Japan, Taiwan and South Korea, whose international patents have long been both produced and owned on a purely indigenous basis.
Branstetter’s team says, ‘China opened its borders more completely to foreign companies and did so earlier in its economic development than did many of its Asian forebears.
‘Second, China’s vast size and rapid growth motivated multinationals to establish research and development centres in China at an early stage, to ensure their success in this key emerging market.
‘Third, the internet made it possible for engineers based in China to collaborate on research projects with colleagues all over the world in something approaching real time.’
Foreign firms
This account is convincing. It brings out how China has nothing to be ashamed about over that part of its US patents which derives from international divisions of labour established inside foreign-based multinationals.
If Chinese firms closely participate in patenting efforts which are so clearly international, the suggestion is that they can sometimes, if not always, punch their weight in innovation as much as the West.
In an earlier, 2013 paper again using data up to 2010, Branstetter and colleagues add that Taiwanese and US firms are behind most of China’s US patents. By undertaking R&D in China, where science and technology graduates and PhDs are plentiful, they can get innovations to global markets at low cost, and can adapt them to Chinese and other emerging markets.
However, co-invented and multinational-sponsored patents are more sophisticated and lucrative than indigenous ones, and ambitious Chinese researchers prefer to work at foreign firms rather than indigenous ones.
Leadership positions
Despite the non-Chinese component of China’s US patents, the Carnegie Mellon evidence up to 2010 suggests that China still benefits from multinational subsidiaries performing R&D there.
It is true that, among those which are allowed to do their own thing in R&D, it was those Chinese staff possessing extensive educational and work experience in the US which were often in leadership positions. But multinational companies’ patents in China were as good as those they generate at home.
More significantly, after doing R&D in China for 10 years, the quality of a multinational’s patents there, in terms of subsequent citations, is actually higher than that which it achieves in its home country.
That many multinationals’ laboratories are near China’s elite universities is also more about the scale and quality of China’s human resources rather than their cost, even if junior Chinese engineers – though not senior ones – still come cheap.
Aggressive funding
The prospectus is not completely rosy. Foreign multinationals’ orientation to university patenting is also aided by the Chinese state, and by what the Branstetter trio calls that state’s ‘aggressively-funded efforts to promote collaboration between Chinese universities and industrial enterprises, including foreign firms’.
In addition, the Chinese government has subsidised some of the costs of international patenting – whose quality, according to Branstetter, has been ‘limited’.
And yet… things have already changed.
Both domestic and international patents taken out by China began to soar after 2000. Changing legislation on IP helped. The 1984 Patent Law was amended in 1993, and patents rose; changed again in 2000, to allow accession to the World Trade Organisation (WTO) in December 2001, and substantially strengthened in 2008 in terms of the novelty demanded of inventions and the damages for infringement.
By 2008, however, other forces beyond legislation and policy began to accelerate Chinese patenting. For one thing, both private firms and state-owned enterprises (SOEs) were intrinsically more interested in patents – the latter, after all, had for 10 years been forced to face the market, where they had not been privatised outright.
Core technologies
After 2008, too, China’s R&D spending as a percentage of GDP overtook that of the European Union; inward investment relative to GDP levelled out after a decline from its pre-WTO peak, and both China’s ambitions with, and exploitation of, patents grew to embrace occupying and expanding markets, protecting new technologies from imitations, and ‘occupying a technological space, averting litigation, increasing bargaining power in IP negotiations, improving… corporate image and deriving revenues from royalty and license fee income’.
Recent moves to reform SOEs promise to add further momentum to China’s patents. Patent expert Peter Drahos notes that multinationals’ Chinese laboratories are not equipped with ‘doors leading to the secrets surrounding… core technologies’.
But as he rightly adds, ‘As more and more multinationals are lured into the Chinese market under deals struck with the central government, locating their manufacturing and research facilities in China, the black boxes of secrecy which surround their core technologies will inevitably begin to leak, as employee mobility, reverse engineering, learning by doing and social processes of informal information exchange begin to drill holes into those boxes.
It will take some time for China’s patents to walk steadily on their own, independent account – to improve in quality and to have, in the case of international patents, origins and owners that are wholly Chinese
‘Through a process of learning-by-litigating… (Chinese) enterprises will have become much more skilled at using patents against foreign competition.’
Software design
It will take some time for China’s patents to walk steadily on their own, independent account – to improve in quality and to have, in the case of international patents, origins and owners that are wholly Chinese.
Another barrier to overcome is that much of China’s rather un-Chinese international patenting has been around IT. In the shape of video-conferencing and software design tools, IT has also helped multinationals coordinate Chinese efforts with those made by their laboratories in other countries.
There is nothing wrong with any of this; but it is clear that strong, international patenting beyond the IT sector will take time, even if moves in that direction have already begun.
China’s patent system is being strengthened and not just, as Peter Drahos observes, because it hopes to have no fewer than 10,000 licensed patent agents on its books in 2015.
As Daniel Tang, of IP lawyers Winston & Strawn LLP, points out, when a firm’s Chinese employees come up with service inventions, draft legislation says their work should be better rewarded and more formally protected than in the past.
Watch List
In December 2014, a new specialised IP court in Beijing heard its first case; similar courts in Shanghai and Guangzhou are now operating, complete with judges with at least six years of experience in adjudicating IP cases.
IPKat’s Suleman Ali notes that Washington still has China on its IP ‘Watch List’. But then it is also concerned about IP practice in Canada, Finland and Greece.
The debate about IP in China has in practice moved on from the old discourse on piracy. For Mr Ali, China has even moved from ‘bad guy’ in IP, through ‘good guy’ – with handset manufacturer ZTE being harassed by a US patent troll, for example – to becoming a ‘patent superpower’.
That tag may overstate the situation, but it is one that can no longer simply be dismissed.
So how will things work out in the future?
Three scenarios
Scenario 1: Same old story. Despite new legislation, reachable targets and an official call for higher-quality patents, China’s output of them remains large but superficial, and dominated, in international arenas, by the work of inward investors – who themselves grow more nervous about local rivals’ abilities, their own leakage of secrets, and rising Chinese research costs relative to Indian ones.
Verdict: Least likely. There is too much dynamism around patenting in China to allow it just to carry on in old ways
Scenario 2: Things grow fractious. As economic and political tensions between China and America grow, inward investors find more and more Chinese court IP decisions going against them, while government procurement also tilts the playing field. IP comes back to sour Sino-US relations, but this time China complains of being ripped off by American interests.
Verdict: Most likely, by a short head. While there will always be opportunities for rapprochement between America and China, fundamental tensions divide the two and IP, long part of them, will not escape being a vexed question. Commercial and military espionage on both sides will alone do much to ensure tricky outcomes.
Scenario 3: Good news. The formalisation, fairness and speeding up of procedure in China’s patent system win it international kudos. Half of China’s international patents are now owned indigenously, and inward investors learn the hard way how wrong it is to continue to cast China as purely imitative. The burgeoning mass of domestic patents does contain, singly and in combination, more and more genuine innovation gems.
Verdict: More probable than people imagine. China has much to gain from playing by the rules of the international system, IP most certainly included.
Source: Geopolitical Information Service
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