Thomson Reuters just released a new report on China’s Innovation Quotient  (Trends in Patenting and China’s Trends in Global Innovation).  This is the fourth in a very useful multi-year series on Chinese patenting trends.

The report looks at Chinese domestic patent data to conclude that China has “risen in patent dominance” and, hence, innovation.  The report also notes that pharma is driving the patent boom.  China has nearly 80 percent of world share in patents for alkaloid/plant extracts, and around 60 percent of global share of pharmaceutical activity – general patents. However, the plant extract filings are held by thousands of individual inventors with a handful of patents each, rather than portfolios maintained by universities or corporate entities that would be seen stateside.  Many of these patents may also involve traditional Chinese medicine (TCM).  Low service invention rates, such as may be reflected in these patents,  may also reveal problems in patent quality.  A deeper analysis would need to correlate new patents with marketing approvals and actual patent maintenance and utilization rates.

The report also notes increasing numbers of forward-looking citations to Chinese data processing patents (1.17 times each).  This is far behind the United States (6.72 times forward looking citations), but exceeds South Korea and is close to Japan and Europe (p. 9).  To me this useful data suggests that the United States remains the source of pioneering innovations and corroborates Chinese notions that it has yet to achieve any breakthroughs in IT technology, despite it having become a manufacturing powerhouse and an overall increase in Chinese patenting activity.

The key weakness with this report is that it equates increases in patenting activity with “surge[s] in innovation.” (p. 6).  That assumption may apply in other countries, but it is less clear in China due to a number of factors including: low patent maintenance rates, patent subsidies and other government-supported market “distortions” such as awards to localities or enterprises, lower quality associated with the large number of non-service invention patents, lack of correlation with commercialization data, and the apparent disparity between low quality domestic patents and high quality overseas filings, amongst other factors.

The report also analyzes patent litigation data from the Ciela database (www.ciela.cn).   It properly notes that “Foreign plaintiffs in patent litigation win materially more often against domestic defendants than domestic plaintiffs do: a 75 percent win rate against a 63 percent win rate sinc 2006.”  However, the report does not underscore that this data – like the patenting data – needs to be treated critically. Foreigners are a disproportionately small percentage of the civil IPR docket.  Indeed, foreigners may only be filing a small share of cases out of concern for other risks of litigation, including low damages, government relations “costs,”difficulties of enforcing judgments, and difficulties in sustaining judgments on appeal.  This information might also be compared with data from the United States on foreign “win” rates .  In fact, the initial data that I collected showed that foreigners due worse on appeals in China than they do in the United States, and then they also do worse on appeal than they do in trials of first instance in China.

In an important but unrelated event, IPKey posted the presentations from its recent conference on IP and innovation.  The conference addressed many of the topics I outlined above, including the role of subsidies in China’s innovation strategies.