Christian Rhally reports on the progress of Chinese intellectual property rights
China’s leadership have long made clear its desire to transform China’s economy away from being the world’s workshop to instead the world’s leading innovator. Consequently, patent applications have been surging over the past decade. In 2013, invention patents jumped 26.3% over the previous year to 825,000.
“We don’t just want made in China, but we want created in China,” says Huang Haifeng, a partner at the law firm Jones Day in Hong Kong and Executive Editor of the Chinese Intellectual Property Review. Even though China’s unbalanced economic development is reflected in the patent filings being concentrated in the rich provinces of Jiangsu, Guangdong, or Beijing, Huang says that Chinese patents are now becoming more diversified in their industries. Today, Chinese patents range from mobile phones and electronics industries (think Lenovo and Haier) to the pharmaceutical industry. A key factor in China’s emergence in the pharmaceutical industry, despite the huge investments required for research and development, has been the successful use of cheaper generic drugs by the country’s companies.
According to Huang, while patents from foreign companies have increased in China, it is the huge proliferation of patents from Chinese companies that has been driving the rise in the number of patents. China has three classes of patents, all administered by the country’s State Intellectual Property Office: invention patents, utility model patents, and design patents.
Utility model patents differ significantly from patents in the United States. Although there is substantial examination for invention patents in the US, the Chinese utility model patent does not involve much examination of the patent’s quality. Many Chinese companies have taken advantage of this lack of quality control to file large numbers of utility patents with no real technical breakthroughs. This has prompted fears among some Western firms that Chinese companies could successfully obtain a patent application based on Western IP and then use that patent to block the actual innovator from competing in the Chinese market.
The Chinese government has taken several measures to develop a more innovative country. Various legal measures have been taken to make companies of all kinds – state or private – realize the importance of intellectual property rights augmentation to economic growth. For instance, the government has designated a large portion of funds as subsidies for companies that spend money on R&D and on getting a patent. In Shanghai, residents who file patent applications qualify for a subsidy of 3,000 yuan (about $490) for domestic patent application, 800 yuan ($130) per utility model application, and 300 yuan ($50) per design application. If the patent application is extended to Hong Kong or Macao, the subsidy jumps to 10,000 yuan ($1,640) and each additional application in foreign countries (up to three) qualifies for an additional subsidy of 30,000 yuan ($4,900.)
Huang points to these subsidies as a major cause for the increase in patent filings in China. The Chinese government is also discussing how to translate inventions into individual rewards for the inventors, from both private and state-owned companies. This involves a more uniform and stringent enforcement mechanism for patents, involving an integrated system of courts for IP law presided over by IP judges.
The United States has supported the Chinese government’s commitment to greater protection of intellectual property. The United States Patent and Trademark Office and SIPO have established bilateral mechanisms, including annual meetings, to increase dialogue between the two agencies. According to Xie Zhengui, Vice President of Marketing and Patenting at the Changsha office of the Beijing Lu Hao Intellectual Property Agency, this cooperation can be seen through several patent infringement cases, such as in pharmaceuticals with the Eli Lilly vs Jiangsu Stockhausen patent infringement case. The two countries’ bilateral relations in innovation also take place through education. Many Chinese students obtain advanced degrees and live in the US for years, before helping US firms conducting R&D in China.
In the private sector, several multinational companies have established R&D headquarters in Asia. Huang says that multinational companies “choose to have their R&D centers outside of their home jurisdictions because they want to tailor some products to Chinese customers.” Despite foreign companies’ willingness to apply for patents in China, government agencies still have the tendency to give preferential treatment to Chinese companies over their foreign competitors.
The surge in patents and R&D investments has been centered on China’s emerging entrepreneurial hubs. In Beijing, the Zhongguancun district provides a growing hub for techies and venture capitalists alike. Instead of turning to friends and family for seed funding, aspiring entrepreneurs can now rely on networks in the district to connect with wealthy investors. A Chinese Silicon Valley in its own respect, Zhongguancun is surrounded by top academic institutions like Tsinghua University, and boasts trendy tech cafes that host weekly guest speakers.
Beijing’s entrepreneurial culture has witnessed the emergence of numerous tech companies, such as Xiaomi, an electronics company that develops and sells smartphones. In just three years, the company has grown to sell 18.7 million phones in 2013 and is now valued at $10 billion. Despite such success, Xiaomi has suffered from the country’s (still) weak IP laws. Its chat application Miliao lost its entire market share after the tech titan Tencent launched a similar application called WeChat.
Indeed, China still has significant progress to make in IP protection. But with the government’s new commitment to innovation, Chinese companies are becoming significant players in the market, catching up to international patent filings from American or Japanese companies. “I think you will see more competition from Chinese companies and Chinese companies will make more filings with the US Patent and Trademark Office,” says Huang. “The next Samsung will be in China.”
Christian Rhally is a junior at Yale University. Contact him at email@example.com. Additional reporting by Rebecca Su.
This article appears in the April 2014 issue of China Hands.