China And Intellectual Property Rights: On The Same Page?

Posted on June 22, 2012 in GlobeScope

By Nivedita Rao:

The dragon strikes again. According to a report by information giant -Thomson Reuters, China has surpassed U.S. and Japan in patent filings in 2011. This domination is expected to continue with China targeting an astounding 2 million domestic patent applications annually by 2015, and wants to be one of the top two patent owning countries by 2020.

This clearly marks a departure from its record of highest counterfeit thefts, which paradoxically exists today as well and is the biggest bone of contention in its international trade. The rest of the world could hope the new Chinese patent hunger shows greater respect for intellectual property rights in the country, which a US Commerce Ministry advisory has described as having “the most serious counterfeiting problem in world history”.

This comes particularly at a time when Intellectual Property (IP) rights and their implementation in many sectors including small businesses have taken a prominent place in public debate. It also being looked as an effective method to protect innovation and in turn lead to further incentives to innovate( as their protection would be guaranteed) which would lead to employment generation in the troubled times the world economy is going through.

The World Intellectual Property Organisation (WIPO), which administers the global patent pact in its figures showed the United States, Japan and Germany, the long-time leaders in total applications, accounted between them for 58 per cent of total filings, but China, with a rise of 33.4 per cent on the previous year, led the way. The global Patent Cooperation Treaty (PCT) that WIPO supervises showed a geographic shift in innovation activity from North America and Europe to Asia.

WIPO also notes that spending on research and development has risen even faster than patent applications. Most of the growth in applications has come from second and subsequent filings, reflecting a growing demand for protection in more than one country. This implies how a domino effect of patent fillings can be spread across the world through a similar trend. This could prompt a culture of respecting innovations cutting across different societies potentially leading to better trade relations on the way.

The Chinese commitment to protection of IP rights was reiterated by President Hu Jintao in his speech on the 10th anniversary of China’s accession to the WTO. Intellectual Property experts hail this as a promising sign yet many developed countries view this as a protectionist measure still as it just makes the probability of joint ventures with local Chinese manufacturers far more complicated as China views the patents more as a competition tool to get ahead of the competition and place itself for higher growth rates in the future through inland innovation moving ahead from its dominating manufacturing sector.

Road map for China

Remarkable in its planning and scope of targets for patents, the latest strategy document from China’s State Intellectual Property Office of China (SIPO) is part of a first-of-its-kind intellectual property mission from any government.

China’s new patent policy documents assure improving its global intellectual property rights image. Two “Special Campaigns” that China plans to enforce would particularly interest foreign stakeholders: “Campaign Thunderstorm” to fight against patent infringement and counterfeiting and “Campaign Sky net” against patent fraud.

By 2020, China aims to quadruple both patent applications in foreign countries and domestic patent applications for every one million people.

“Mind-blowing numbers,” David J Kappos, director of the United States Patent and Trademark Office was quoted in the New York Times as saying on China’s patent strategy for the decade.

Reasons for attaining the top spot

China cannot continue to grow at its current pace forever (and surpass America as the world’s largest economy) without innovating. After a while its low rate of population growth will become an issue, so it must rely on doing more with less to support its aging population. And there appears to be a large-scale industrial policy underway, designed to turn the Chinese into innovators.

While innovation by domestic entities is driving China’s patent boom, China is also expanding its IP protection overseas. Government innovation incentives, R&D tax deductions, Chinese premier Wen Jiabao’s commitment to make China an innovation-centered economy, and unique patent types (such as utility models; one must give credit to China for innovating in the kinds of patents too ! ) contribute to China’s acceleration to the top innovator spot. As the Chinese economic landscape changes, a major shift are occurring in patent filings: agri-centered innovation related to food production is growing much more slowly than high-technology innovation. Utility models are also a potentially valuable strategy for foreign filings in China. By tracking the ratio of patent applications to granted patents among full invention patents in China, the analysis finds that patent quality is trending up. Clues to the Chinese approach emerge from a recent government document containing goals for drastically increasing the nation’s production of patents. It offers a telling glimpse of how China intends to engineer a more innovative society.

In China’s case, this also heralds the increase in innovation away from low-cost manufacturing to make their own global brands. This has simultaneously been accompanied by huge investments in R&D over the years. China has indeed led a strong comeback in the number of patent and trademark filings worldwide, signs of businesses setting the stage for growth despite global financial turmoil. The rise in innovation also ties in with the multi dimensional economic growth it aims for in the future cementing its position as one of the global giants.

To boost domestic patents, China offers incentives of cash rewards, houses and tax breaks to scientists and innovators. The patent master plan promises infrastructure for quicker filing, examining and granting of patents, funding patent holders, and integrating new patents into the economy.

Questions persist

According to Chinese law experts, spurt in filings have not been mirrored one to one in the quality of these applications. Serious concerns can be raised about the correlation between increase in patent filings and path breaking innovations. “It is a brute-force approach at this stage, emphasizing the quantity of innovation assets more than the quality,” said John Kao, an innovation consultant to governments and corporations.
This is due to its loosely defined patent laws with more registrations being for utility models as previously mentioned can be innovations for existing products, and low filing fees with overzealous local governments offering to pay the registration fee for many companies.

A demand for a new product or a new, better technique for making an existing product frequently serves as the muse for most successful innovations. But based on which we cannot establish a direct correlation between patent filings and more products or techniques that are useful or demanded. Especially from an IP infringement tainted country like China.

Concerns may also be raised whether china can make a successful journey from being one of the cheapest manufacturers of the world to one of the greatest innovators. Maybe yes, but that will be hard to accomplish before it develops its own consumer culture towards its own indigenous ideas. It will be very hard to anticipate what new products or techniques a foreign culture’s market will demand. Taking an existing product and making it cheaper is one thing, but coming up with a new one–especially when the direction of innovation is determined by the government ( expected in a Communist regime).

But even if China does become the centre of innovation, does that make other countries worse off? American innovations have long enriched other countries and created employment opportunities abroad. There’s no reason Chinese innovation couldn’t have the same effect on the American economy.

Significantly, China’s patent proliferation plan conspicuously does not address enhancing patent dispute settling mechanisms, a necessity for a country targeting millions of patents a year.

More nervousness could arise from the China Patent Office strategy document promising to “encourage enterprises to acquire patent rights through innovation on the basis of digesting and absorbing imported patent technology”.

Conclusion

Chinese patent filings have increased aggressively since its first patent law was put in place in the 1980’s, as a conscious policy of the government to spur innovation in sectors like technology and automobiles by providing many incentives. A case in point would be Apple losing the Ipad patent battle in China recently.

However, the word “innovation” holds a place of respect in the vocabulary of the world’s fastest growing economies such as India and China. Closer home, addressing the 98th Indian Science Congress in Chennai, Indian Prime Minister Manmohan Singh asked his country’s scientists to “unleash a decade of innovation”. This mirrors China’s strategy which is guided and sponsored by the state. Simply increasing R&D spending will not guarantee innovation however. And taking a leaf out of their book, India must an institution that would help with patent filings for research institutions and develop a culture of protecting one’s intellectual property before the product or idea’s proliferation.

Inconsistencies and contradictions apart, China describes the patent hunt as urgent part of enhancing its “core competitiveness”. Economists have mixed opinions about how much increase in patents registration translates to more jobs and growth from innovation.

It’s certainly difficult to gage the quality of innovation, but perhaps in the Chinese case, quality will catch up with the rising quantities.

It certainly seems like the year of rabbit for China has ended on a happy note as innovation assumes a renewed importance albeit the loopholes. And slowly and steadily it seems to set all its growth puzzle pieces right.

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