China IPR

Uses and Misuses of Chinese Patent Data to Assess Emerging Technological Challenges from China

Chinese patent data presents unique challenges to individuals who wish to mine the data.  The data potentially provides data-driven insights into  China’s approach to innovation, China’s technological competitiveness in different sectors, the use of state planning in intellectual property, the effect of subsidies on patenting, regional strengths in China’s innovation system, China’s role in standards-setting activities, and other areas.  The data is also frequently misused or misinterpreted in large part due to the multidisciplinary demands placed on researchers.

Below are my own general observations on how to interpret Chinese patent data:

Patents are published documents.  They do not represent a complete picture of a technological power:

Individuals with political science or non-intellectual property backgrounds may often be unaware that patents are public information.  Patent data has limited value in assessing the value of proprietary technology held by a company or research enterprise.  Assessing competitiveness based only on published documents such as patents or scientific literature skews results in favor of technologies that are more dependent on collaboration and open exchange of information.  In an era of increased technology controls, policymakers using patent data to make decisions to restrict access to technical information should utilize the data with other inputs.   Prohibiting Chinese investment in the United States based on patent portfolios of a proposed acquisition can lead to inaccurate assessments of the strength of a company’s technology and motivations for a foreign party to acquire technology.   Moreover, patents are also territorial.  A US patent has no direct application in China.  Once a patent is disclosed by a patent office, individuals outside of the countries of registration of the patent are free to use the information disclosed by that patent without fear of infringing the patent.  Overseas patents and the location of inventors in foreign countries can be useful in determining where technology is being developed or exploited, but also can have little bearing on whether a company develops that technology in the United States.

Not all patent types are equal; patents need to be disaggregated by patent type:

China has three types of patents: invention patents, utility model patents, and design patents. Invention patents are most similar to US utility patents.  They are examined by professional examiners and have a longer duration than utility model patents.  The United States lacks a utility model system.  Generally speaking, comparing US utility to Chinese invention patents is more of an “apples to apples” comparison.  Nonetheless, utility model patents are granted quickly and can be useful in providing protection in rapidly emerging technologies with early onset values.

In China, patent grants may have greater value than patent applications; Relying on patent application data to discuss China’s innovative prowess is likely to lead to inflated and unreliable results;

In recent years,  the Chinese government recognized that relying on patent application data, rather than grant data, papered over the problem of low-quality patent applications which did not mature into patent grants.  Another indicator of patent value is the extent that the patent is being maintained throughout its 20-year life.  When patents are abandoned, they have no prospective value whatsoever.  Chinese subsidies for patent applications rather than grants and maintenance have also distorted the use of patent application data.  In general, patent application data is not a useful metric for innovation.  Patent maintenance may be a more useful measure of patent quality in China than in other countries without patent application subsidies. Due to the change in policies in late 2020/early 2021, obtaining reliable data on patent applications may also have become more difficult.

Not all patents have commercial utility; Chinese patents often need to be benchmarked against China’s commercial activities to determine the commercial value of an innovation:

Companies and research institutions may file patents with no intention to exploit them.  One of the earliest efforts I made at understanding whether China was patenting in commercially valuable areas occurred about 20 years ago.  It involved correlating patent class with tariff schedules for Chinese exports.  At that time, I noticed that many Chinese organizations were applying for patents in the  USPTO in technologies that had little significance in bilateral trade  I also noticed that a very large percentage of applications were from research organizations.  Government patent incentives may result in filings of patents with no real intended commercial use.  Generally aggregated patent data may unnecessarily elevate concerns about technological competition with China.  It is also important to understand the importance of the relevant technology in assessing any sector-specific challenges.  Using concordances that link cooperative patent classifications with tariff schedules can also help in assessing whether there is a close linkage between what China produces and where China innovates.   A more recent example of this research was a project I undertook with Phil Rogers to analyze the IP intensity of goods made over extended supply chains.

Licensing data, when available, can assist in determining patent values:

Licensing and patent assignment data, when available, can also be useful in determining the value of patent portfolios or commercialization trends.  Companies like ktMINE extract data from a range of sources, including Customs data on intellectual property “assists,” patent assignment data, and inbound payment data.  Licensing data may also be published in securities filings of companies when they materially affect a listed company.  Unfortunately, US data on inbound royalty payments to the United States could be greatly improved through greater granularity and incorporation of data sources such as foreign court judgments or settlements that result in a de facto license agreement, and tracking of payments made to US rights holders via third countries, such as Ireland or Luxembourg. By contrast, Chinese royalty payment data is more opaque although theoretically, it may be more comprehensive in reflecting payments made to American entities.

The employment status of the named inventor(s) can provide a rough estimate of patent values:

China has a relatively high incidence of non-service patenting.  Non-service patents are filed by inventors in their own name, outside of the “service” of an employer.  These inventions may on average be of lower quality than service inventions.  China has also generally had a high incidence of academic patenting.  Nonetheless, the low commercial quality of academic patenting in China has frequently been of concern to the Chinese government.  Chinese data also reveals that academic patents are not maintained for as long as enterprise patents, which may be an indicator of their commercial value. Moreover, universities may encourage patent applications by faculty or students for graduation or promotion, regardless of their commercial value.  An even more extreme example of employment status affecting patent quality may be found in prison patent filing.  Patents may be filed by Chinese prisoners in order to obtain an early release from jail.   The employment/status of the inventor may affect her motivations for patenting and the resulting quality or value of the patent application or grant.  The USPTO also makes data available on patents derived from US government-funded research, which can also be a useful measure of bilateral cooperation in applied technology.

Patent quality metrics remain a necessary tool for valuing patent portfolios:

Many observers of China’s innovation system have sought to use various qualitative metrics to assess whether China is innovating.  There are numerous measures of patent quality that can be used, many of which entail varying degrees of research. Forward citations to Chinese patent applications, particularly by subsequent non-Chinese patent applicants, may be an important indicator.  Citations that a Chinese applicant makes to prior patents in its application may indicate the extent to which the patent is disruptive in nature or a follow-on innovation.  Citations to patents in peer-reviewed academic literature can also be an indicator of quality. Collaborative, cross-border joint patenting can suggest higher quality as well as deepening research links.  The numbers of patent claims and length of patent claims can also be indicators of quality.  As patent applications, as opposed to patent claims, may be subsidized, the effect may be to increase the number of applications and reduce the average number of patent claims.

Be aware of possible misuse of international filing data:

Another important qualitative metric may be the filing of a Chinese patent overseas, particularly in key markets such as Japan, Korea, the United States, and the European Union.  These overseas filings may be done via the Patent Cooperation Treaty administered by WIPO or they may be filed directly in a counterpart patent office.  International filings have been a well-established measure of higher quality patents, as the patents benefit from the examination of multiple patent offices, which can result in higher quality examinations.  In addition, they can be an important indicator of the value that the applicant itself perceives based on its willingness to expend funds for multiple applications.  However, care should be exercised in reviewing international filings.  China does subsidize PCT filings, often with a limitation placed on national phase examinations.  A PCT filing that does not include multiple national phase examinations may have little value as an indicator of quality compared to a patent filing that undergoes multiple examinations directly from different patent offices.  Surveys that extensively rely upon application data or utilization of PCT procedures to benchmark innovation may exaggerate China’s technological advances and should be read critically.

Consideration should be given to patent-based market entry procedures:

 Various government regulatory authorities and private actors that consider patents in their regulatory procedures may also impact the competitive value of a patent.  Patents for new chemical entities that are marketed as pharmaceuticals in key markets and approved by local food and drug agencies may be highly valuable.  A similar analysis applies to regulated pesticides and agricultural chemicals.   Another valuable indicator can be the incorporation of Chinese patents into international standardization activities.  However, there are also significant reasons why caution should be exercised in using standardization data to evaluate quality.  First, there are non-market factors affecting Chinese participation in standards activities, including subsidies and rewards for patents that are incorporated into standards, as well as subsidies for participation in standards-setting bodies.  Second, a patent that is declared to be part of a technical standard is not reviewed by the standards-setting body itself; essentiality will typically need to be determined by a court in a licensing dispute, or during the course of private negotiations. Contributions of patents to open-source ecosystems or to patent pools may also be important indicators of quality or commercial value.  These contributions may demonstrate the willingness of the patentee to seek greater recognition for its contribution to enhancing its role in developing global standards or increasing interoperability.

Cross-jurisdiction / cross-sector comparisons can provide additional insights:

A useful and time-consuming approach to determining the quality of patent examination involves comparing patent grants for a given invention over multiple jurisdictions. China is a member of the IP-5, consisting of the five largest patent offices in the world. The IP5 has often taken a leading role in harmonizing patent examination practices.   Comparing the activities of the Chinese office with those of other offices can help in determining whether foreign applicants are disadvantaged in the Chinese market.  This approach was used with positive effect in evaluating China’s handling of pharmaceutical patent grants from Western countries.  Useful studies can also be conducted comparing China’s grant rates and activities in different technological areas to determine if the Chinese office is less inclined to grant patents in a certain technological area.  Studies have also shown that the United States is engaged in self-inflicted harm with its progressively more stringent standards of patentability compared to China.  Cross-jurisdictional studies can also be helpful in evaluating the impact, if any, on Chinese industrial policies on patent office grant rates, as Gaetan de Rasenfosse and others have done.  In evaluating the success rate of applicants in a given field, it is also important to discount other factors such as the quality of the legal representation, self-selection by foreign applicants of lower-quality patents, and different approaches to patent eligibility of different offices.

Chinese patent office data can also be mined to determine whether US technology has been misappropriated by the unauthorized filing of a patent in China.  This data has occasionally been used in US court cases, including criminal disputes, to prove an alleged trade secret theft.  Chinese patent procedure facilitates this procedure through the availability of anonymized granting of patents.

External benchmarks can be used  to evaluate the success of Chinese economic or IP policies:

External, non-IP benchmarks have been used to critically evaluate Chinese patent filings.  For example, the rapid increase in patenting activity in China is significantly greater than in other economies that have gone through similar economic growth spurts,  This may due to more extensive government intervention and it could result in lower patent quality.  China’s patent royalty payments are also disproportionately low compared to China’s share of production in ICT or other IP-intensive products, as measured by data on trade in hi-technology goods or trade in goods governed by the WTO Information Technology Agreement.  Low commercialization of IP rights has been a negative factor in the WIPO’s Global Innovation Index assessment of China’s Ip regime.  China also has had a relatively low share of new pharmaceutical products introduced despite having a huge pool of PhD-level life scientists, which may suggest difficulties in patenting in this area or low efficiency of Chinese research talent in developing new life science products.  Seasonal variations in patent filings, with a massive increase at year-end, have been used by me and others to suggest that Chinese patent filings at year-end are more responsive to external non-market factors, and may suffer from lower quality at year-end. Recently, there have been several studies that have highlighted the rapid increase in Chinese scientific publications, as well as a shift in research collaboration by Chinese R&D institutions.  Data that refers to external benchmarks are most helpful in addressing the innovation outcomes of IP-related policies, but may not necessarily prove that patents are of lower quality.  Other qualitative assessments need to be undertaken to judge the impact of these policies on patent quality.

Chinese patent data should be cross-checked against other government sources:

Comparisons between different government ministerial data on related areas can also be used to assess the completeness of different data sets. The Ministry of Science and Technology (MoST) and the Chinese patent office, for example, both publish data on patent filings. MoST or Ministry of Finance data on tax incentives for patent filings may be useful in demonstrating the effect of tax-related subsidies on patent filings.  Chinese ministry annual reports, including annual reports on IP or the development of the legal system or the educational system, can provide useful information on filings, litigation, and talent.  MoST annual reports on High and New Technology Enterprises also provide data on patent filings for foreign and domestic enterprises, including by technology type.  Outside of the patent area, comparing data on IP criminal investigations by the Chinese police force and IP prosecutions by the procuratorate and criminal court cases can provide a more comprehensive overview than relying on one single agency’s data set regarding the extent of criminal IP cases in China.  Chinese domestic data on overseas patent filings can also be checked against receiving office application data, which is typically a more authoritative source on both receipt of the application and any attendant grants.

Chinese patent data is generally not a good source of IP-theft or forced technology transfer losses:

Generally, information on losses due to “IP theft” focuses on losses to an industry or a country rather than infringement or misappropriation of an individual patent.  Criminal data to identify IP theft is not as relevant to patents as civil remedies only are required to protect patents.  Difficulties in determining whether patents are valid and infringed also make it difficult to assess the extent to which valid patented technology is in fact being misappropriated.  Even if the technology is misappropriated, there may also be additional challenges in measuring losses attributable to the misappropriation.  Data on forced technology transfer, where available, may be more useful in determining whether Chinese government intervention is responsible for losses of US-based technology,

We need to develop better patent utilization data:

Comparatively little attention has been paid by foreign scholars to how foreign entities use the Chinese IP system, including low numbers of patent applications and apparent reluctance to litigate.  American companies in particular are insignificant users of China’s design and utility model patent systems and are less than 1% of the litigation docket.   Low utilization has also deprived the US government of useful information regarding the experience of China’s IP regime by foreigners.  As the US government increasingly focuses on IP as a tool to improve competitiveness, it would also be worthwhile to consider why US companies tend to underutilize the IP systems in China and why foreign companies play a comparatively outsized role in the US system.  Utilization data of the Chinese patent system can also reveal how much foreign-owned enterprises contribute to Chinese innovation, including whether restrictions on outbound investment are in the US national interest.  Chinese-invested enterprise utilization of the US system can similarly show how much Chinese investment is contributing to the US economy.  Collecting this type of data may become increasingly useful in judging the role of technology sanctions in technology investment and patenting decisions.

Patent litigation data can provide additional insights into the competitive challenges posed by China’s IP regime:

The rapid increase in China’s IP litigation docket can provided useful insights into the workings of Chinese courts and the fairness of China’s IP enforcement regime. This data has also been helpful in planning litigation strategies for law firms and rightsholders.  However,  large numbers of cases are not published, or even withdrawn from publication.  Government intervention in data collection necessarily raises selection bias concerns.  Low utilization of the Chinse litigation regime by foreigners may make it especially difficult to address foreign “win” rates in litigation.  China also lacks a “PACER” type system found in the US courts, making it difficult to determine how pre-judgment decision-making is undertaken by the Chinese courts.  Many administrative agency decisions are also not published.  In addition, cases involving trade secrets may not be published.  A better understanding of Chinese legal database regulation could be helpful in better understanding the limitations of Chinese IP litigation databases. 

Some of the better scholarship on the limitations of databases is not based on IP-related disputes.  Scholars such as Prof. Ben Liebman at Columbia have tried to address what information is missing from databases and why.  Litigation data can also provide comparative insights on the value of different rights in China, by analyzing data on such issues as the relatively high success rates in copyrights and trademarks, and comparatively lower rates in invention patents and trade secrets.   Data drawn from wenshuwang, the China Judgments Online Database can also be compared to statistical reports of the Supreme People Court and lower peoples courts to help determine the extent of any missing cases, or supplement official narratives. I also co-authored one article on patent case publishing with attorneys from Rouse.

Where possible, research should assess the impacts of the pandemic trade war frictions and IP reforms:

The trade war, pandemic, decoupling initiatives, changes in the patent law, and other IP laws have made current information more critical to understanding recent China’s competitive challenges.  While there have been some recent studies, additional work is needed to determine if there are durable changes in Chinese approaches to patenting and innovation from recent changes, and to better assess their impact on foreign users of the Chinese IP system.

Conclusion: Don’t be too dismissive of Chinese data

Many foreign observers who are new to this area are dismissive of Chinese data.  In some instances, such as data on litigation, there is no alternative to Chinese data other than even less reliable anecdotal information and surveys.  Chinese data may not be perfect, but it is much better than no data.  In addition, Chinese data has values that are often different from those in the United States.  One of the important reasons is that, as a planned IP economy, Chinese data is a core component of how the government and the communist party “speaks to itself.”  Despite selection bias concerns, the curated nature of Chinese legal databases enjoys distinct advantages over US legal databases in their close connection to government policies.  Moreover, although specific data sources are more suspect than US data, China had numerous, often redundant sources of data which can be compared to ensure greater reliability.    A major disadvantage of Chinese data is that its unreliability and instability also make it much more difficult and time-consuming to conduct research. 

Because of its inherently different nature,  it is also important for researchers to compose the right team to analyze China’s patent data. An effective research team utilizing Chinese patent data will likely require a combination of individuals with different backgrounds: social scientists, such as economists, are critical to developing sound research analytics.  Individuals with a Chinese legal background may be critical to understanding government political incentives that could influence the completeness or reliability of data.   Individuals who are familiar with non-Chinese sources such as WIPO or USPTO data can be important sources of comparative information.  Individuals familiar with non-patent data sources, such as using bibliometric scientific data, can be useful for drawing comparisons with non-patent developments.  For highly sensitive information involving large quantities of data, teams may wish to consider downloading and storing relevant data in light of the possibility of data later being altered or removed from their Chinese sources. 

In the current environment, some Chinese students and scholars have also become reluctant to participate in projects that are likely to reach critical conclusions. I usually try to be candid about the possible risks of developing information that may be critical of the Chinese government and ask at an early stage if participants from China are willing to be committed for the duration of such a project.

Government agencies may also wish to consider creating similar teams to develop sound policies towards China’s increasingly complex Ip environment.  An example of such an effort is the work done by the Office of the Chief Economist at the USPTO on China’s SEP practices, or the USPTO’s China Resource Center, both of which attempt to develop data-based approaches to China’s IP environment. 

Despite its challenges, effectively utilizing Chinese patent and IP data are rewarding areas to research.  These projects have also become increasingly more important both to bilateral relations and to America’s own domestic innovation policies.  By effectively using a wide range of available skills and tools,  Chinese patent IP data can be mined for the benefit of all. Individuals interested in how Chinese patent data can be applied may be interested in participating in the forthcoming discussion at CSIS on August 30 regarding “US Technology Leadership and Patents: What Can Data Tell Us?.”  If you are interested in patents, data and China’s technological advancement, I encourage you to join this important program!

Categories: China IPR

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