China’s Patent Boom

This post was originally published on The IPKat on 10 January 2017.

World Intellectual Property Organization recently published its annual World Intellectual Property Indicators report. This report states that, amid rising worldwide demand for intellectual property rights, a new record was set. Namely, with around 1.1 million new patent applications in 2015, the State Intellectual Property Office of China (SIPO) became the first patent office to receive more than a million applications in a single year. This was almost as many applications as the next three offices in the ranking combined (the patent offices of the U.S., Japan and South Korea). Some people are astonished and also confused about China’s patent boom in recent years: What drives such a strong growth in patent applications? How good is the quality of the massive applications? What impacts does the boom have on patent protection in China? This article briefly discusses some aspects of these questions.

What drives China’s patent boom?

First of all, the growth of patent applications is accompanied by China’s strong economic growth. The continuing industrialization, the rise in market competitiveness and R&D investments naturally lead to more innovations. However, the single-digit growth in R&D investments (8.9% in 2015) can only partly explain the double-digit growth of patent applications (18.7% in 2015). Apparently, other driver-factors also play a role.

As widely known, a significant part of the growth can be attributed to the Chinese government’s patent-promoting policies. Direct subsidies on patent filling fees, sometimes coupled with rewards for granted patents are regularly offered by the government. Besides, many other innovation-promoting programs, such as the certification of the prestigious High and New-Technology Enterprise (HNTE) status, which gives the enterprise a 10% deduction in corporate income tax, are also linked to the performance in patent output. These policies incentivize patent filling enormously.

Besides the direct policy incentives, it seems that a momentum has been built up among many Chinese companies that are transitioning from low cost manufacturers to creators of more advanced technologies. More and more companies are actively seeking to build up a large patent stockpile, in order, on the one hand, to establish an image of innovator, and on the other hand, to secure an optimal competitive position in patent competition.

These self-initiated attempts to accumulate patents are further fueled by low-priced patent agent services. Low-priced patent agents in China charge a flat-rate of several hundred Euros for drafting, filling and prosecuting an entire patent application. Considering that a similar service can easily cost a patent applicant several thousand Euros in the U.S., Japan or any of the major European patent jurisdictions, the cost burden on these Chinese applicants is really low and thus hardly deters them from applying more.

How good is the quality of the massive applications?

Logically, one may have doubts about the quality of the massive applications. One can at least rest assured that all of the 1.1 million patent applications filed in 2015 will sooner or later be undergoing substantive examination. However, it raises questions about the SIPO’s examination capacity. As SIPO continues building its examination capacity to meet the rapidly growing demand, the workload and the skills of examiners, particularly those newly recruited examiners, may well influence the reliability of the examination.

Even among the granted patents, quality differences exist. According to the SIPO’s statistics, by 2015, patents granted to domestic applicants have on average 7.3 pages of specification and 7.8 claims, while patents granted to foreign applicants have on average 18.5 pages of specification and 17.4 claims. This demonstrates the overall inferiority of the indigenous patents in the thoroughness of patent drafting, the extent of technical disclosure and probably also the value of the inventions.

What impacts does the boom have on patent protection in China?

A direct consequence affecting many businesses operating in the Chinese market is that the risk of patent infringement keeps increasing and may become hard to manage. A lot of resources must be spent on conducting freedom-to-operate analysis, monitoring patent activities in fields of interest, invalidating wrongly granted patents and responding to potential infringement lawsuits. This presents a difficult situation especially for foreign businesses due to the language barriers.

Also, low-quality patents can be strategically used as bargaining chips to ward off infringement lawsuits. That’s to say, a patent infringer, who itself has a large low-quality patent portfolio, can try to use its low-quality patents as threat of retaliation to defer the holder of the actually infringed patent from starting an infringement suit. As a consequence, the value of high-quality patents deteriorates.

On the positive side, China’s recent patent boom makes a great contribution to raising public awareness about patent protection and fostering the development of a large group of patent professionals, from examiners and agents to lawyers and judges. Moreover, the published patent applications become a huge reservoir of prior art documents, which facilitates future patent examination. Given that China’s first modern patent law was instituted just three decades ago, the recent patent boom surely helps lay a solid foundation for continued positive development in the future.

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