Many people think of China as a copy-cat country where patents and copyrights are flagrantly infringed. But this caricature ignores the seismic shift in intellectual property (IP) that has been taking place in China.
China is on the verge of becoming a major technology and IP generator, creating a tidal wave of patents to wash over the shores of United States and Europe in the next two decades, enabling China to dominate significant technology areas.
This stems from the recognition inside China of the fundamental importance of IP to economic growth, as well as the natural creativity and inventiveness of the Chinese.
Most foreign observers look at the still-imperfect state of IP enforcement in China and miss the profound changes that have taken place over the last 20 years.
Consider the three components in an effective IP regime: the underpinning law; the cost and quality of the patent “right” acquired; and the effectiveness and cost of enforcing that right.
IP law in China is of a high quality by global standards. The quality, cost and timeliness of the “rights” (patents and trademarks) granted to foreign firms under Chinese law compare well with the rest of the world. The IP laws are based on civil law (similar to most of Europe) as opposed to common law (Britain, the US). The German Justice Ministry played an instrumental role in providing advice and support for this process over the last 20 years.
IP “rights” for foreigners are generally of good quality, reasonable cost and timely. The 20-year lifetime cost (US$20-50,000) of a Chinese patent is about 10 per cent of the total cost of patents for the G8 countries. The time to grant of a patent is usually less than the EU and Japan and slightly longer than the US.
Enforcement of patent rights is much cheaper and faster than in most developed countries, but varies across China – just as it does across Europe. The best courts, including the IP Tribunal of the Supreme Court, are handing down some very sophisticated judgements. IP rights enforcement has improved substantially and a patent or trademark generally can be enforced through the Chinese courts or administrative system.
Countering the all-too-common view that foreign patents cannot be enforced in China, 90 per cent of patent cases brought by foreigners to court are decided in their favour, compared with 30 to 40 per cent in front of a US jury.
Many foreign companies have successfully litigated against products which have infringed their patents or trademarks.
The Chinese government appears to be aware of most of the unresolved problems and has been addressing them.
When China had a major shortage of patent examiners around 2005, the Chinese Patent Office (SIPO) began recruiting and training annually about 500 patent examiners (many more than Britain’s total number). Through this massive programme, it has closed much of the gap. Similarly, many judges lacked IP skills but this has also improved, with the EU and UK helping train both judges and examiners.
Corruption is recognised as a problem, but structural changes to counter this include the central payment of judges, limiting the time judges spend in any one jurisdiction and in their home area.
Chinese universities now file over four times as many patents in China as do US universities in the US, and over 20 times of British universities in the UK. Chinese companies today view their IP as important, worth defending and that their judicial system is worth using.
Many (though not all) of the alleged IP “problems” faced by Western companies in China are “self-inflicted wounds”, such as companies failing to file for patent or trademark rights in China – as they must in each country where they want protection.
There are many examples of foreign companies that have been successful in China. Philips (Electronics) has a €7b profitable business with 35 companies, 15 research centres and 20,000 employees in China.
It is planning for half of its global inventions to come from China, up from 15 per cent now. It already has four IP centres and supports “IP Academies” in three universities.
At the other end of the size spectrum, the German cutlery manufacturer Zwilling-Henckels had a major problem with Chinese-origin counterfeits during the early 1990s.
Today, there are no infringements and Henckels has its own factories in Yangjiang as well as 10 distributors, six sales offices and 130 points of sale across China. Its IP head now speaks someChinese.
Meanwhile, the “constructive engagement” and practical support being followed by the EU will help China and in the long term establish good relations in a country where long-term relationships are important. Although the past few election months have seen a reversal, the Obama Administration has generally moved the US towards a similar more constructive engagement.
China’s leadership appears to have a deep understanding of IP’s role in a knowledge-based economy. Its actions suggest that China is intent on having a world-class IP legal and enforcement system which is both understood and used. Prime Minister Wen Jiabao has said on many occasions “competition in the future is competition in IP”.
China has said it aims to increase R&D spending to 2.5 per cent of GDP (currently 1.4%) and be in the top five countries receiving triadic patents by 2015.
China shows signs of regaining its historical creative and innovative position. Most recently, the world’s first genetic therapy (for a cancer) was invented, developed and approved in China. Criticism from the West – that the regulatory process must have been flawed – recognised neither the excellence of much Chinese science nor the high quality and standards of some clinical medicine in China.
Chinese companies and universities are realising that if they can invent the next generation of high definition television or mobile phones, they can be setting global standards with these patents. Although there are still problems, the current situation is far better than many foreign observers appreciate.
So China is both a threat and an opportunity for Western business. The threat is that its strong manufacturing base will increasingly draw on its own technology, to the detriment of foreign business.
The opportunities are that this technology is accessible and where patent protection is beginning to be as important as in any developed country.
So what is Europe’s response to the changes in China? Generally inadequate so far, although there are wide variations. In corporate UK, for example, China is not taken seriously except by a small number of large companies. British companies in aggregate file fewer patents in China than Dutch or Swiss ones, one quarter those of Korean companies and one fifth those of German companies.
Companies’ responses should be to patent and trademark in China; to establish a Chinese IP base; to look for new technologies in China; and establish relationships with Chinese technology partners who value expertise and resources.
For politicians and policymakers, it reinforces the importance of turning Europe into a knowledge-based economy with technologies protected through strong patents in global markets. Both the UK and the EU need to have greater focus for developing IP policy. Unless they do so, Europe and other developed regions will be beaten at the knowledge-based IP game which they invented.
The writer is a former chairman of the British government’s Intellectual Property Advisory Committee, of the Intellectual Property Institute in London and former CEO of BTG plc.
Article first appeared in The Straits Times