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

 

Withering Problems in China’s Patent Drive? – The Latest from SIPO

SIPO’s six month report on patent filings, available on line in China shows some surprising data for the first six months of 2014.

Regionally, Jiangsu and Beijing are in the number 1 and 2 slots in terms of patent applications.  Both regions showed continued growth (slide 3).  Guangdong, however, showed a slight decline.  Anhui, Guangxi and Guizhou showed the most increase in patent applications in percentage terms (70-90%).  Interestingly, while invention patent applications increased by about 4% from domestic applicants, foreign applications were down about 11% (slide 9).  In general, increases in  Chinese-origin invention patents applications in China were not offset by decreases in utility model and design patents, with an overall decrease of 8 percent for Chinese versus a 2% overall increase for foreigners.

In terms of patent grants, amongst foreign countries, the United States showed an increase of 12% from the same period last year, while Japan and Germany (number 1 and 3, respectively amongst foreign filers), both showed declines of about 4.5%, as reflected in the following chart:

foreignpatentrates

In this chart, the orange and blue bars represent 2014 and 2013 respectively.  Japan, the USA , Germany, Korea and France are the first countries listed to the far left on the x axis.    The y axis reveals the number of granted invention patents in 2014.  The chart shows that patent grants were down for all three top foreign applicants for the first half of 2014 (by the percentages at the top of this graph). However, this could be due to drops in applications from several years prior.

The problem of low maintenance rates for Chinese-source patent applications also remains acute.  As I have previously blogged, China already shows lower patent maintenance rates than other IP-5 jurisdictions.  This report makes it clear that Chinese filers appear to be the predominant parties in China who prematurely curtail patent protection (p. 15).

patentmaintenance

The green line represents domestic patent filers; the orange line is foreign patent filers.  The x axis shows the year of the patent, through its 20th year, while the y axis shows percentage of patents filed.  The close-up image in the upper right corner is of SIPO’s own preparation.

The report also identifies Beijing as the city with the highest density of patents per capita (nearly 5,000 per million people).  Shanghai and Tianjin follow.  This further underscores that innovation is an urban phenomenon (page 17).  Guangdong also remained the main filer of PCT applications with nearly 6,000 applications — outpacing second place Beijing with about four times the number of applications (p. 25).

Some of the more dramatic changes are in utility model patents and design patents.  UMP applications from China dropped by 7.5% and design applications dropped by 28%.  The most dramatic drops were in non-service applications for UMP’s and in service inventions for designs (24.5% and 34.9% respectively).  However, foreign applications for UMP’s and designs continue to grow from a modest base (p. 29).   Non-service inventions still play a large role in China’s domestic utility model and design patent application portfolios (about 26.4% and 50.7% respectively).

 

In summary, the data shows continuing dramatic changes in China’s patent system, including shifting trends amongst domestic and foreign filers.  My guess is that the report shows the impact of an increased focus on invention patents by the government, and a decline in subsidies for utility model and design patents in key patenting regions.  The increase in service inventions for UMP’s is significant as it may show a shift to patenting in UMP’s for enterprises that actually practice the invention.   The rapid increase in regions like Anhui may be due to active government support in those regions.  The drops in patent filings for foreigners are surprising considering China’s continuing economic growth.  The report also underscores a predictable rise in China’s cities as centers of patenting activity.  Although individual PCT filers are not identified, the growth in PCT filings is probably to continued growth of companies like Huawei and ZTE from Guangdong.

December 11 in Beijing – International Program on Utility Model Patents

On December 11, SIPO, USPTO and other patent offices (Japan, EPO, Germany and Korea)  as well as companies and their counsel will be participating in an exciting international utility model program at the Changfugong Hotel in Beijing.  The free-of-charge program will cover both the protection and enforcement of UMP’s.  China’s UMP system has been the subject of some controversy due, in part, to its exponential growth, the vast predominance of Chinese ownership of UMP’s,  and the large damages that have sometimes been awarded in favor of Chinese patentees. This program will help shed light on the use (and abuse) of UMP’s, and compare China’s systems with those in other countries.