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China is source of 43% of world’s patent applications; 60% of trademark apps

China may not yet be on an equal footing with the leading industrialized nations in terms invention quality and brand recognition, but according to a recent study by the World Intellectual Property Organization, it is feverishly trying to show it is.

In 2017 China filed more than twice the number of U.S. patent applications globally; more than ten times the number of trademarks; and about 14 times the number of design patents.

China was responsible for 43.5% of all patent applications and about 60% of trademarks filed worldwide. It is responsible for 90% of the growth in trademark filings. It also filed about 70% of the industrial design patents.

This is according to a report published by WIPO, the UN-supported World Intellectual Property Organization, “World Intellectual Property Indicators 2018.”

IP rights have become something of a numbers game in China, encouraged by the government, which is eager to compete in technology and commerce and willing to offer attractive incentives.

IP quantity can only take businesses so far, and there are many weak or questionable patents and trademarks held by Chinese entities, including universities, that never should have been issued. However, it is clear that China no longer wants to be considered a “copycat” nation and is taking what it believes are the right steps to assure that. It means to catch up with global leaders and quickly.

According to the Council on Foreign Relations: “The Chinese government has launched ‘Made in China 2025,’ a state-led industrial policy that seeks to make China dominant in global high-tech manufacturing. The program aims to use government subsidies, mobilize state-owned enterprises, and pursue intellectual property acquisition to catch up with—and then surpass—Western technological prowess in advanced industries.”

Chinese companies and universities are likely to have at least some quality patents and marks and, unlike Japanese IP holders which were high active U.S. filers starting in the 1980s, are more likely to enforce them.

Asia Tops Global IP Activity

According to the WIPO report, China recorded the highest application volume for both patents and trademarks inside the country, as well as among other nations, and seeks to protect and promote their work in one of the world’s fastest-growing major economies.

Asia has strengthened its position as the region with the greatest activity in patent filings. Offices located in Asia was responsible for 65.1% of all applications filed worldwide in 2017 – a considerable increase from 49.7% in 2007 – primarily driven by growth in China.

While China claims more patents than any other nation, Bloomberg News says that “most are worthless.” The lapse rate is extremely high, with more than 50% of the five-year old utility patents abandoned and 91% of design patents.

“The high attrition rate,” says Bloomberg, “is a symptom of the way China has pushed universities, companies and backyard inventors to transform the country into a self-sufficient powerhouse.”

Subsidies and other incentives are geared toward making patent filings, rather than making sure those claims are useful. So the volume doesn’t translate into quality, with the country still dependent on others for innovative ideas, such as modern smartphones.

Still Learning

Bloomberg’s analysis may not be entirely fair. IBM, for example, consistently the top annual U.S. patent recipient, permits a huge number to lapse. Many of those that remain are quite valuable. Some patent strategists in tech believe that it is effective to patent broadly to prevent some inventions from becoming proprietary and then pare back as sectors and products evolve.

A handful of great patents can be more valuable than thousands of mediocre ones, as the pharmaceutical companies have proven. It takes a lot of work – and some luck – to identify them. China is still learning what IP is and how to use it. Japanese companies patented very aggressively in the U.S. in the 1980s and 1990s when they were being sued by American tech companies, sometimes with the threat of injunction. Many of the patents were said to be of questionable quality but they were able to generate more IP respect for Japanese companies and made them somewhat less vulnerable to U.S. enforcement.

China Foreign Filing Up 15%

China reported a 15% growth in filings abroad, which is far above that of Japan (+2.1%) and the U.S. (+2%). Both Germany (-0.6%) and the Republic of Korea (-4.1%) had fewer filings abroad in 2017 than in 2016.

 

Total patents in force worldwide grew by 5.7% to reach 13.7 million in 2017. Around 2.98 million patents were in force in the U.S., while China (2.09 million) and Japan (2.01 million) each had around 2 million.

No data was provided about the percentage of foreign patent applications in China.

The IP office of China had the highest volume of trademark filing activity with a class count of around 5.7 million, followed by the U.S. (613,921), Japan (560,269), the European Union Intellectual Property Office (EUIPO; 371,508) and the Islamic Republic of Iran (358,353).

The top 10 patent applicants worldwide, based on total number of patent families from 2013 to 2015 were Canon (Japan); Samsung Electronics (South Korea); State Grid Corporation of China; Mitsubishi Electric (Japan); International Business Machines (US); Toyota Jidosha Kabushiki Kaisha (Japan); Huawai Technologies (China); Toshiba (Japan); LG Electronics (South Korea); and Robert Bosch (Germany).

The World Intellectual Property Organization (WIPO) is the global forum for intellectual property policy, services, information and cooperation. A specialized agency of the United Nations, WIPO assists its 191 member states in developing a balanced international IP legal framework to meet society’s evolving needs.

For the full WIPO report, World Intellectual Property Indicators 2018, go here

For the summary, interactive charts and key facts and figures, go here.

 

Image source: wipo.int

Can the U.S. compete with China without a focused innovation policy?

More nations today have an innovation policy than do not – that is except for the U.S. 

The U.S. not only has no centralized innovation and intellectual property policy, it has no real strategy for making IP rights more meaningful and American businesses more competitive in the wake of initiatives from China.

Some believe it is not the job of policymakers to tinker with free-markets or favor certain industries. Well, that may have worked in the past, but with China committed to dominating global innovation – and with unlimited capital – the U.S. must reexamine its strategies.

What it is not supposed to do is assume that it is business as usual.

The United States has a tendency to repeat past mistakes, such as in the case of so-called “Japan, Inc.,” which devastated the auto and electronics industries with more advanced products. It is currently contending with China, which has approximately ten times the population of Japan and has quadrupled its investment in technology over the past decade.

“US innovation policy: Time for a makeover,” a fresh take on dealing with competition in the Intangible Investor, can be found in the July IAM magazine, out this week, here.

Innovation policy in the United States is mostly a series of suggested strategies and directives from several government agencies and industry organisations primarily designed to address foreign IP infringement (i.e., theft). It is often tied to science and economic policy, and is typically reactive – not proactive.

“Better innovation policy not only permits established industries to compete,” says the Intangible Investor, “it facilitates success for the next generation of inventors, authors, designers and software developers. It also helps to supply context for a confused and wary public susceptible to false media narratives – intellectual property is not the enemy, nor are rights holders and lawyers.”

Enforcement is Not Policy

Trump’s anger about China IP violations, justified or not, does not constitute an innovation policy. Innovation policy is not just about enforcement or supporting the science, technology, engineering and math (STEM) curriculum for the next generation of inventors. It is about understanding the current economic and political context and responding as a nation.

“The FAANGs, and others, who dominate the competition and monetize their customers’ information, often without permission, realize they are increasingly symbols of bad business behavior,” Bruce Berman wrote recently in IP Watchdog. “The heat they feel from regulators in Europe and the U.S. will continue to rise.

“IP infringement will come to be seen as an increasingly important part of their bad behavior. The timing is perfect for them to step back and step up and show the leadership they heretofore have ignored regarding IP rights. Movement toward a responsible IP middle ground – a less entrenched position that recognizes others’ rights and actively conveys a greater willingness to share successes, not only defend them, will help to inform a meaningful IP policy.”

Quick-Reading Guide

For further background on U.S. innovation policy, read a timely and insightful perspective on U.S. innovation policy from James Goh, a young Wharton student from Singapore, “Primer: Innovation Policy in the United States.” 

For a linked quick-reading list about innovation and IP policy from the Center for IP Understanding, go to page 4.

Image source: q3research.com; breakinggap.com

 

 

China’s growth in European patent apps was three times the U.S. in 2017

The European Patent Office (EPO) 2017 annual report, recently published, revealed several surprising patent filing trends, including the rapid growth of China .

The People’s Republic of China filed 16.6% more applications last year than in 2016, three times more than the U.S., which filed 5.8% more.

The five most active patent filing companies were Huawei (China), Siemens (Germany), LG (Korea), Samsung (Korea) and Qualcomm (U.S.).

The U.S. comprised 26% of all European applications submitted in 2017; Japan 13%. German was the lead European filer with 15% of those coming from Europe and about 7% overall.

2017 European Patent Office Annual Report

Infographic with highlights of the EPO Annual Report 2017

 

After European patent filings dropped slightly in 2016 from 2015, they were up overall by 3.9% in 2017.

Top fields were Medical Technology, up 6.2%, and Digital Communication, up 5.7%. Transport was down 4.2%.

SMEs, individual inventors, universities and research institutions, comprised 31% of applications; larger enterprises 69%. Grants were up 10.1%. Among European nations, Denmark experience the greatest application growth, 13.1%

For the full 2017 EPO Annual Report, go here.

Image source: epo.org 

44% of top U.S. patentees for 2017 are U.S. companies; 50% are Asian

Many companies received more U.S. patents in 2017; IBM, the perennial leader, was number one for the 25th year. However, there were some notable declines in patent grants.

Canon, Qualcomm and Google were down 10%, 9% and 13% respectively. It is difficult to determine if it is as a result of poor company performance or a shift toward higher quality. Toshiba 20%, Philips 15% and Brother Industries 24%. The grant results were provided by IFI Claims. They also were reported in Law 360. Facebook at number 50 was up 49%, but on a much lower base; Toyota was up 36%, an indication that the automobile companies may be positioning themselves in autonomous vehicles and batteries for electric cars.

(Click on image for the entire list or go to IFI Claims at the link above.)

What does it mean?

Interpreting this data is not simple. Clearly, more is not necessarily better, and some patent recipients, like IBM, up 12% in 2017, frequently do not hold their grants to term. (Samsung, the largest U.S. patent holder, is a much larger active holder than IBM.)

But being able to afford patents and obtaining them with a purpose is typically a positive among information technology companies. Only 22 of the top 50 U.S. patent recipients are U.S. companies, down from a decade or more ago. Fifteen are Japanese, five Korean and four Chinese. (One is from Taiwan.) European businesses accounted for four companies on the 2017 list – the same as the number as China without Taiwan, and one fewer than Korea.

Image source: Law360.com; IFI Claims

China is poised to overtake the U.S. as the leading patent system

A few years ago a company whose patents were violated in China had little or no chance of defending its rights. 

Determined to move beyond its role as a low-cost provider of look-alike consumer products, and establish itself as an innovation leader, China has learned from the successes – and mistakes – of other intellectual property systems, especially the U.S. The nation of 1.4 billion inhabitants has rapidly emerged as what is currently among the fairest and most patent holder-friendly systems in the world.

Chinese patent courts second only, perhaps, to Germany in quickly and fairly adjudicating disputes.

A fascinating article in the current IAM magazine, “Defending a patent case in the brave new world of Chinese patent litigation,” details China’s rapid rise from low-cost copier to a patent power, and a nation that has caught the attention of major global technology powers who are often defendants.

Damages awards are relatively small in China, with median awards currently around 35,000 Renminbi or about $5,000, but injunctions, the power to stop a likely infringing product from being sold, are now issued over 99% of the time to winning parties. NPEs, what some U.S. companies refer to as patent “trolls,” are treated fairly as long as they their patents are of sufficient quality and are the companies are generally supportive of Chinese welfare.

__________

Patent litigation win rates, according to the article, average around 80%. Startlingly, foreign plaintiffs fare better statistically than Chinese. 

__________

The U.S. effectively ended the granting of patent injunctions in 2006 with EBay v. MercExchange. Now, only operating companies can obtain them in rare circumstances. This removes most of the leverage afforded patent holders. Granted, injunction abuses are a fact of life, and dubious patents have at times been used to enjoin products, costing companies time and money. But without the power to stop a product from being sold, patents have little meaning.

Race to the Bottom

“Largely as a result of the United States’ race to the bottom in terms of patent enforcement, Germany has emerged as a go-to patent jurisdiction, with virtually guaranteed injunctions, quick time to trial and no discovery resulting in a highly efficient system,” writes Beijing-based Erick Robinson, chief patent counsel, Asia-Pacific for Rouse, a global IP strategy firm.

Patent-holder Win-Rates and Median Damages Awards 

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“Enter China. For years the laughing-stock of all things IP related, the Middle Kingdom was ridiculed for the easy availability of counterfeit handbags, software and DVDs. However, over the last 15 years, and especially in the last two to three, China has put together an extremely effective patent enforcement system. Based largely on the German system and all of its advantages, but with selected portions from US law, China has now become a top forum for patent litigation.”

Unlike most countries which enjoin making, using and selling allegedly infringed products in-country, as well as imports, Chinese law also bans infringing exports from leaving the country. So, for example, if the accused device is Apple’s iPhone, not only can sales of iPhones in China be enjoined, but also exports of the devices from China. This would enable a patent owner to achieve an effective worldwide ban, since iPhones are manufactured in China.

Slippery Slope

With U.S. patent protection significantly diminished over the past decade, and China’s on the rise, the U.S. is on a slippery slope when it comes to stimulating R&D, innovation and investment. It is well on its way to becoming a second-rate patent system, and a slip in disruptive innovation, necessary for the creation of new industries, difficult to measure in real-time, has probably started. Certainly, companies and their stakeholders are thinking twice before pursuing or relying upon USPTO-issued patent protection.

It remains to be seen if China, a continuing source of counterfeit goods that are shipped worldwide, is committed to providing its businesses, as well as those outside of the country, with a legal system that can meet the needs of all business holders, and permit fair and timely resolution of legitimate disputes.

High Win-Rates; Low Damages Awards

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China is now the second largest filer in the U.S. and, while its companies have rarely resorted to filing suits in the U.S. against U.S. companies, there is little doubt that it will do so in the future. Technology giants include Alibaba, Xiaomi, Huawei and Lenovo.

China is likely to be more aggressive enforcing its patents than U.S. frequent-filer Japan, which has been reluctant to engage in domestic or foreign patent disputes. (There are some signs that is changing.) Samsung, by far the largest holder of U.S. patents in the world, has shown a greater willingness use its patents for licensing and leverage.

China may or may not be deliberately attempting to embarrass U.S. and eventually surpass its moribund IP system, but the impact is the same. Continued lack of awareness of what IP rights achieve and for whom, and lobbying, has significantly compromised the once-exemplary U.S. patent system. The Chinese are not too new to capitalism not to see this as an opportunity to compete. For the U.S.’ sake, let’s hope it’s not too late to make invention rights a priority again.

“The brave new world of Chinese patent litigation” can be accessed here or here.

Image source: IAM magazine


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