China Passes the One Million Patent Milestone — Is it Yesterday’s News?

patentfilingchart

Several news outlets have reported on the recent WIPO World Intellectual Property Indicators 2016 report on IP filings, noting that China’s surpassing a milestone of one million patent applications in 2015, and that this may, according to WIPO reflect “’extraordinary’ levels of innovation.”

There are two significant problems with the reporting.

The first is that the news of one million invention patent filings is about one year old.  SIPO publishes its patent filing data on a monthly basis, which is available to all, at no cost.  The chart at the top of this blog is from the SIPO website statistics web page  as of November 27, 2016 and covers patent filings through the end of September 2016.  In other words, the news about China surpassing the one million benchmark was probably available sometime in the first quarter of 2016 – making it hardly news.

The second point though is the more troubling one:   Bigness does not mean “strength”, as China has itself noted in State Council documents.  Moreover, bigness does not necessarily mean innovation.

Let’s tease apart five of the hidden data of what the WIPO:

  1. WIPO Contradicts Itself on China’s efforts to Innovate: Some studies show China lags considerably on its efforts to innovate.  While WIPO’s Francis Gurry notes that “Innovators in China powered global patent applications to a new record in 2015”  another WIPO-commissioned Global Innovation Index looking at a broader range of factors, suggested that China is number 25 in global innovation, and number 72nd in technology payments, despite holding a top position in high tech exports.  The data suggests that what is made in China is disproportionately not innovated in China.  Indeed some would argue that the large overhang of unexamined utility model and design patents in particular is making it more difficult to innovate, by making it difficult to conduct freedom to operate analyses in China’s market.
  2. The Rising Tide Is Not Raising All Boats: China’s rapid increase in patent filings are overwhelmingly from Chinese domestic filers only. For example, according to the more up to date SIPO data above only 10.6 % of the invention patents filed through end of September 2016 were from foreign filers.  For design and utility model patents, the foreign numbers are even lower: about 3% for designs and about 1% for UMP’s.   Possible reason: subsidies for domestic patent filings may be more generally available than subsidies or other incentives to file overseas.
  3. China’s Patent Tide Stops at its Boundary Waters: China is not a major international filer. As the WIPO report notes:  “around 96% of total applications from China are filed in China and only 4% of the total are filed abroad. In contrast, filings abroad constitute around 45% of the total in the case of applicants from Japan and the U.S.”  As I have detailed elsewhere, when China does file overseas – such as at the USPTO – the quality of the patents is high.  However these overseas-filed patents still are a limited cohort of China’s domestic filings, even if it may represent its most innovative and high quality patents.
  4. China Is A Big IP Country, But Not Necessarily A Strong One = Particularly When Other Comparative Data is Introduced.     When patents per capita or patents per unit of GDP are compared or patents in force are calculated, China does not come out on top.  Japan, Korea, Switzerland,  the United States and other countries all have their strengths when comparative data is introduced. In fact, the United States has 2.5 million patents in fact, and China is behind Japan in the number three slot (1.4 million patents in force), despite the rapid growing number of its invention patent applications.
  5. Is China “Pulling out the Stalks to Make the Plants Grow”: A system that is overly geared to easy metrics? No less dramatic than the 1,000,000 patent benchmark are the areas where China so outstrips other countries as to suggest that there may be fundamental problems in the value proposition of its IP system. China’s 1.1 million utility model applications are about 127 times second-ranked Germany’s (chart A55).   China’s design patents constituted nearly 94% of global filings (p. 127)   The data suggests that China is indeed strongest where the government can most actively support registration activity.  Quantitative data also works to the disfavor of economies that have strong pharma sectors, which are dependent on fewer patents, and industries that rely on proprietary/unpatented technology. This blog has also repeatedly reported on both these SIPO filing data, and some of the distortions that have accompanied this dramatic ramp-up in patent filings, including  subsidies, “get out of jail” free subsidies, and end of year acceleration in patent filings to take advantage of incentives.   These incentives have helped increase patent quantity, but their impact on quality is harder to measure.

Summary: Judging the extent to which China’s rapidly evolving system is contributing to China and global innovation requires more careful thought than simply looking at the explosive growth in China’s IP filings.  In addition to the problems noted, it also requires looking at other data such as commercialization, citation rates, relationship to manufacturing and exports, licensing and assignment rates, adoption by standards setting organizations, etc. Nonetheless, the quantitative curve is obvious and impressive (see below).  patentofficetrends

 

27th JCCT Concludes in DC: Many IPR-Related Outcomes

 

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The 27th Joint Commission on Commerce and Trade concluded in Washington, DC on Wednesday, November 23, 2016, in time for the Thanksgiving holidays in the United States.  Here is a link to the U.S. government fact sheet.  The following is my summery of IP-related issues –

Amongst the “core” IP issues the fact sheet notes that China agreed to “take further efforts to combat bad faith trademark filings.”  Regarding technology transfer, China advised that it is “actively conducting research on the Technology Import and Export Administration Regulations (2002) (TIER) to address U.S. concerns.”  Both of these statements are forward leaning although they admittedly lack specificity.  Regarding trade secrets protection, China agreed that “ in practice, trade secrets misappropriation may be committed by individuals, including employees, who may not be directly involved in the manufacture or sale of goods and services” , thus addressing the concern that the trade secret provisions of the anti-unfair competition law only address commercial undertakings (this issue was also addressed in the draft revisions of the AUCL that was released earlier this year).  China also announced that it plans to bolster other elements of its trade secrets regime, including with respect to  evidence preservation orders  and damage calculations.  Also on the technology side, China also confirmed that “the government has never asked the fund to require compulsory technology or IPR transfer as a condition for participation in [state semiconductor] Funds’ investment projects.”

Issues involving entertainment market access in China also got some attention.  Regarding music licensing, China committed to “issue a measure allowing foreign-invested enterprises to engage in online music distribution and revoking the requirement established by the Ministry of Culture’s 2009 Circular on Strengthening and Improving Online Music Content Examination.”  Regarding theatrical film distribution, which had been the subject of a settlement of a WTO case between the United States and China, China affirmed that it will “enter into consultations with the United States in calendar year 2017 in order to provide further meaningful compensation to the United States.”  Furthermore, the United States and China agreed that, as part of the calendar year 2017 consultations, they will seek to increase the number of revenue-sharing films to be imported each year and the share of gross box office receipts received by U.S. enterprises.

There are several outcomes which are cooperative in nature.  Regarding on-line IP issues, both sides committed to training of small and medium-sized enterprises as well as exploring the use of big data and other new information technologies to enhance the capability for combating infringement and counterfeiting online.  A program on copyright protection for live sports broadcasts is planned for 2017.  In addition, China committed to further study the feasibility of protecting the broadcasts of sporting events under its Copyright Law and the United States “welcomes further clarification” on this issue from the Chinese judiciary “at the earliest possible time.”    Other cooperative programs include ones on: “legal protections for product and service designs, and U.S. trade dress protections “; “criminal enforcement of trade secrets and counterfeit pharmaceuticals”; a joint conference in 2017 on criminal law, legislation and enforcement “to share experiences on recent trends in technologies, business models, and legal developments”; and a workshop on Judicial IPR Protection in China in 2017.

Often events happen on the margins on the JCCT which may not be fully reflected in JCCT outcomes.  There were two notable developments around the time of the JCCT affecting intellectual property rights.  One was the publication of the draft revisions of China’s patent examination guidelines, which address post filing data supplementation, software and business method patents.   Post-filing supplementation of data has been the subject of prior JCCT and bilateral commitments.  Another development involved de-linking of government procurement policies with indigenous innovation, which has been the subject of a recent State Council document that, according to the fact sheet, “requir[es] all local regions and all agencies to further clean up related measures involving linking the indigenous innovation policy to the provision of government procurement preferences….”

The JCCT has a long history, but has typically grown in scope and significance over the years as the US and Chinese economies have increasingly become interdependent.  This was the last JCCT of the Obama administration.  It will next be up to the Trump Administration to decide how to guide the JCCT to continue to play a useful role in bilateral trade relations.

The above are my personal, non-official observations.  All photos are by Mark A. Cohen.

JCCTwangyang.jpg jcctend

 

Qualcomm’s ITC Action Against Meizu Instituted

 

According to a USITC press release, Qualcomm’s Section 337 case against Meizu was initiated  on November 15, 2016 (337-TA-1029).  The products covered by this investigation are electronic mobile devices that include hardware and software components within the mobile electronic devices, such as integrated circuits, cameras, RF transmitters, capacitors, and System-on-chips.  The Federal Register notice is found here. Qualcomm had announced on October 14, 2016 that it was filing a complaint with the United States International Trade Commission (ITC), filing a patent infringement action in Germany with the Mannheim Regional Court, and initiating an infringement-seizure action in France to obtain evidence for a possible future infringement action there.  Qualcomm had previously initiated litigation against Meizu in Beijing and Shanghai.