China’s “Patent Island” Deserves a Second Look

2015-09-11
John F. Martin
Innography  ————————————————

After increasing eight-fold in the decade between 2001 and 2011, patent applications in China passed those in the U.S. Patent filings in China have continued to rapidly rise, averaging 21% annually over the last three years—much faster than any large economy. In addition, invention-patent growth are the millions of “utility models” that have been filed in China for smaller product improvements, and for which there isn’t a corollary in the U.S. patent system.
 

What is driving the surge in patent applications in China?  

China’s government has stated its objective to become an innovation economy, and patents are viewed as a key component. China’s National Patent Development Strategy set a target of quadrupling yearly patent applications to over two million by 2020, and multiple levels of government agencies put incentives in place for patent filings to drive toward that goal.

 

Much of the increase in China patent filings has been driven by R&D initiatives at universities in China, as this was a key component of the National Patent Development Strategy. The share of patents applications submitted by universities increased from 6% of all applications in 2000, to 16% in 2010, as university R&D grew 22% each year as a result of “one of the largest sustained increases of investment in university research in human history,” according to a researcher in Beijing, Han Zhang.
 

Almost all growth in China patent filings has been for Chinese inventors who represented over 85% of patent filers in China in 2013, and this number has been rising as domestic filings have surged. Chinese inventors also generally don’t file patents internationally—only 0.5% of filings for Chinese inventors are outside of China, compared to almost 50% for U.S. and EU inventors—leading some observers to characterize China as a “patent island.”
 

As a result, there’s significant innovation reflected only in China patent filings. Monitoring U.S. and EU patent filings isn’t enough anymore—inventors and companies around the world should actively monitor China patent filings for relevant innovations and potential partners or competitors.
 

Why aren’t foreign inventors filing in China?  

Historically, patent enforcement has been a challenge in China. With its inquisitive court system—rather than the adversarial court system practiced in the U.S.—there are significant limits on pretrial discovery and court power. Large monetary judgments are rare, and enforcing any judgments and injunctions often require additional court requests and time delays.

 

However, trials in China are relatively fast—frequently six to 12 months—and relatively low cost, with the winning party often able to recover some fees from the losing party. According to some observers of patent infringement cases, foreign claimants have a surprisingly large chance of success.
 

Even more importantly, enforcement trends are moving in the right direction for patent owners in China. China-based product innovators are getting more involved in the patent system and are enforcing their intellectual property (IP) more aggressively against local infringers. Late last year, China also set up three specialized regional courts in Beijing, Shanghai and Guangzhou to hear only IP court cases, which is expected to drive more consistently and expertise in patent infringement cases. In addition, the proposed Fourth Amendment to China patent law—currently in the public comment phase—will increase ceilings for damages awards, and increase court power for discovery and enforcement.
 

These trends of patent enforcement in China give confidence to all patent owners that, down the road, enforcement in China will be easier and surer. Even with the surge in domestic patent filings, foreign patent applicants own a large portion of the resulting granted patents, with 30% of granted patents in China going to foreign filers last year, and almost half of information technology patents.
 

Why should product innovators take a new perspective on China patents?  

With the difficulties of enforcement, some product innovators may be tempted to think obtaining patents in China isn’t worth the investment. However, this a short-sighted perspective for several reasons:

 

  • As the second-largest economy in the world, and the second-largest trading partner of both the U.S. and the EU, China represents a very large and quickly growing market for many products.
 
  • The opportunity to license or purchase patents down the road may not be realistic because these practices are quite nascent in China. A study by researchers in Wuhan last year concluded the heightened focus by the Chinese government on patent filing and protection means other patent practices, such as licensing and patent sales, are much less developed.
 
  • Furthermore, if an innovation isn’t patented in China, but is in other countries, after a year, the invention becomes public domain in China for any company to practice. In addition to not having IP protection over the innovation, Chinese inventors may build on the invention and, down the road, you won’t have an asset for negotiations if they claim infringement by your product.
 

Patents in China are becoming more numerous, more enforceable and more valuable. Enforcement in China is trending in the right direction and, as a result, the value and return on investment on patents filed in China is bound to increase. Because of a patent’s long life, the underlying enforcement trends in China and the huge and quickly growing market there, product innovators and inventors around the world should participate in the China patent system more than today’s enforcement limitations would justify.