The TPP’s IP Challenge for China

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The release of the TPP text on November 5, 2015 has caused many friends in Chinese IP colleagues to wonder what implications, if any, there are for China’s development of its IP system.

China’s recent experience of bilateral investment or free trade agreements has not prepared it for a major regional  IP-related agreement such as the TPP.  China’s  FTA  experience has thus far focused on a limited range of issues, most of which are not “core” IP.   As one academic researcher noted “the majority of China’s RTAs [Regional Trade Agreements] focus… on specific categories of IPRs, namely GIs and genetic resources and traditional knowledge or border measures, often omitting any reference to other categories, i.e. copyright, patents, trademarks or IPRs enforcement.”    The last comprehensive IP agreement that China entered into was its accession to the WTO  with  adherence to the TRIPS Agreement (2001).  The TPP is however more comprehensive and forward looking than TRIPS.

The China-Swiss FTA (2013) calls for some important, but limited improvements in China’s IP regime, particularly in areas involving designs, customs protection and plant variety protection.  To take plant varieties as one limited example, the TPP requires all member countries to sign on to UPOV ’91.  This was a step that Switzerland, a member of UPOV ’91 since 2008, did not secure in its bilateral FTA with China despite Switzerland’s having a flourishing agroscience sector.   By any measure the demands that would be placed on China by acceding to the TPP would be greater than most of the developed world, particularly for countries like Singapore, Chile, and Australia that have concluded free trade agreements with significant IP chapters with the United States in the past several years.

Despite these challenges, it would be difficult for China to stay outside of a regional trade agreement that includes such important regional trade partners.  Leaving China outside of the TPP may also not be the most desirable IP strategy.  China is the second largest global economy with the largest IP system in the world, and with rapidly growing innovative sectors and global business models (including in e-commerce).   The TPP and the global trading system could also be greatly strengthened if China were to play a constructive role, conform to and join TPP, and if reformers in China were empowered to bring China in adherence to TPP to spur another effort at market-reform.   As Amb. Holleyman recently noted in discussing the TPP: “the rules that China adopts to promote IPR protection directly impact our economy.  If IPR protection in China were improved to a level comparable to the United States, U.S. net employment might increase by 2.1 million jobs and American companies would benefit from an estimated $107 billion in additional annual sales, according to U.S. International Trade Commission estimates.”

A further systemic challenge is that the TPP appears to be based in part on its members experience on the difficulties in engaging China on IP.  As one former senior diplomat recently noted before a Japanese audience:

Rampant violations of intellectual property continue, state-owned enterprises are advantages over private competitors, and U.S. companies invested in China have become increasingly disillusioned by China’s unique standards and preference for “indigenous innovation”—not to mention evidence of large-scale cybersecurity violations…

TPP allows the U.S., Japan and our partners, to offer a high-standard, rules-based alternative to China’s state capitalism.

China has already acceded to all the major treaties enumerated as required for TPP accession with the exception of UPOV ’91 — namely the Madrid Protocol, Budapest Treaty,  Singapore Treaty, WCT. WPPT, as well as the Patent Cooperation Treaty, Paris and Berne Conventions, and of course the TRIPS Agreement.    I believe that most of the challenges to China are likely not in the form of adherence to required treaties, but in the more granular implementation of those treaties and in commitments that are not found in any current treaty that China is a part.  For example, in the pharma sector, the TPP contains extensive provisions on patent linkage, patent term restoration, and data exclusivity which go beyond the TRIPS Agreement.  In addition to these substantive IP issues, there are significant challenges in non-IP area chapters that affect commercialization and utilization of IP, such as in market access for lawyers, restrictions on state owned enterprises, e-commerce, and investor-state dispute resolution.

The focus in the TPP on treaties that support greater IP office to IP office cooperation in the TPP (e.g, PCT, Madrid), also underscores that this is a treaty that not only aims to raise substantive norms, but also aims to facilitate greater utilization of IP in the TPP region among its members to facilitate economic integration.   It would be wrong of critics to characterize this agreement as solely a North-driven effort to impose its IP norms on the South.  In addition to cooperative commitments, there are also provisions on genetic resources, access to medicines (aligning with the Doha Declaration), traditional knowledge and capacity building that reflect the interests of developing countries.

China’s recent past has shown that China can enter into WTO plus commitments on IP.  The most notable are China’s  joining the WIPO Internet Treaties, and thereafter hosting and ratifying the Beijing Treaty on Audiovisual Performances.  However, there are also important areas that have not been specifically addressed in recent trade-related agreements, such as trade secrets, have generally shown little norm setting progress since China first enacted its trade secret law in 1993, which had arguably been undertaken in response to US pressure in 1992.

The history of the past several decades of foreign engagement with China has, however, generally shown that linkage-based diplomacy, where trade concessions may be extended or removed in exchange for / or due to violations of IP-related commitments, has likely been the most effective single factor in driving IP-related changes in China.   Many of the key IP-related commitments  evolved in response to normalization of US-China trade relations, as well as WTO accession.

With modern China’s professed interests in becoming an innovative economy, will the TPP spur additional changes that are in China’s long term interests?  What kind of challenge does the TPP set for China’s own economic plans, including the revisions to the current five year plan, the National IP Strategy and China’s efforts to become a strong IP country?

While TPP members were negotiating the final text of their agreement, China’s state planners were drafting a new five year plan, which will further underscore China’s commitment to developing an innovation-oriented economy (see chart below, prepared by Barclays on frequency of ‘innovation’ in the current five year plan).  China will need to look at what it gains in TPP accession in exchange for IP commitments which China may believe it is not yet prepared for, but that in the long run will clearly benefit in the Chinese economy and enable it to become more innovative.  Hopefully, Chinese reformers will seize on the TPP as a way to drive a new era of economic reform, prosperity and IP harmony.

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Top picture: Amb. Robert Holleyman noted at a November 8, 2015 US Chamber event discussing TPP.

China’s Upward Path In Innovating: What Global Patent Data Shows

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Thomson Reuters/Derwent has just published its 2014 State of Innovation Report. This report analyzes 12 key technology areas, and offers some interesting observations about China’s growing global role in patenting and innovation. Here are some results:

In most fields China did very well compared to other Asian economies. In some fields, China is a global leader. Many of these fields have also been a focus of China’s efforts to build a more innovative economy, or are considered a “strategic emerging industry.” In many cases, research institutions rather than companies continue to play a dominant, role.

In the Automotive Sector, there was no Chinese company amongst the top ten patent filers in Asia. The field was dominated by Japanese and Korean companies. Similarly, for Alternative Powered Vehicles, no Chinese company made the top 10 of Asia Pacific assignees. In Space Vehicles and Satellite technologies, seven Chinese institutions made the top 10 of Asia Pacific assignees.

The Computing and Peripherals technology area showed the most overall innovation of all sectors analyzed, with more than 300,000 unique inventions, more than twice as many inventions as Telecommunications, the next largest category. However, the subcategories reported didn’t reveal many Chinese stars. For example, In Smart Media, State Grid and Peking University made the top 10 of Asia Pacific assignees.   No mainland Chinese company made the Asia Pacific top 10 in Semiconductor materials and processes. In Mobile Telephony, Guangdong Oppos Mobile Telecommunications made the number six Asia Pacific slot.

Amongst Asia Pacific Kitchen invention assignees, Midea and Haier made the Asia Pacific top 10.  In the Beverage Fermentation area, SIPO Commissioner Shen’s alma mater, Dalian University of Technology, ranked number 5 among Asia Pacific assignees. China Petrochemical and South China University of Technology were also amongst the top 10.

China did shine in Petroleum & Gas Exploration, Drilling Production and Processing. Six Chinese companies or institutes were amongst the top 10 Asia Pacific assignees. China Petrochemical and Petro China took the first two slots, and were also in first place globally

China is also showing a growing role in biotechnology. In Cancer Treatment, there were several Chinese institutions amongst the top 10 Asia-Pacific assignees, including Peking, Fudan and Zhejiang Universities (Nos. 7, 8 and 9). In Surgery/Diagnosis.  There were no Chinese companies amongst the top 10 Asia Pacific assignees. In the Heterocyclic Pharmaceutical area, Nanjing, Fudan, Peking and Sichuan Universities, took the Asia Pacific 1, 7, 9 and 10 slots. Nanjing was in fact in first place globally, barely edging out European and US institutions. Dr Reddy’s Lab was the topped rank Indian company, with about 1/3 the number of inventions of Peking University.

China’s efforts in biotechnology, which is otherwise showing global declines, are in a sense doubly remarkable.Globally, in all fields except biotechnology inventions showed double digit growth. Globally, Biotechnology showed a decline of 3% from last year, with the biggest being Drug Discovery related innovation, which fell by 25%. The data suggests that China’s 12th Five Year Plan for biotechnology (十二五”生物技术发展规划) which has such goals as being number three in patents globally, and developing a series of new pharmaceutical compounds is well on its way.

 

 

Innovation: China’s Top 50 Brands

Innovation continues to be an important topic and a key element in the Chinese market. WSJ China blog reported the results of agency Millward Brown and media company WPP’s annual research on the top 50 most valuable Chinese brands. So, just how have Chinese brands fared in the government’s priority to innovate?

The study analyzed the financial information of listed companies, ratio of attribution to corporate earnings from the brand(s), and paired it with data from a survey of consumers. A major factor in brand value comes from consumer perception of the brand’s progress in the area of innovation. While many brands have seen dramatic increases in brand value, others have seen declines or stagnation as a result of “a failure to innovate”. Not surprisingly, consumers in China value innovation as do their counterparts in other part of the world. Chinese brands who have had notable progress in this area include Tencent, maker of the Wechat app; Baidu, the internet giant; Hainan Airlines; and Septwolves, an apparel company selling upscale goods to China’s smaller cities.

For more discussion on China’s innovation, please see this article written by one of my students, Jae Zhou and a former colleague, Benjamin Bai.

Debating Chinese Innovation At Davos

The Chinese “Summer Davos” just ended yesterday (Sept. 12) in Tianjin with  Premier Wen Jiabao, several heads of state and senior leaders, Thomas Friedman, and many CEO’s and leading business officials attending and speaking.  The Summer Davos has a clear focus on intellectual property and innovation.    In his presentation, Premier Wen also sought to give comfort to foreign investors:  “I want to tell you that we will strengthen IPR protection and give foreign companies the same treatment in government procurement.”  The reassurance on government procurement at a high level was especially comforting. Continue reading

KPMG Survey Predicts China’s Rise As an IT Innovator

The recently released KPMG 2012 Global Technology Innovation Survey of 668 geographically distributed technology business executives suggests that technology innovation may shift from Silicon Valley to another destination, with the most likely destination being China (44%), in the next four years.

Continue reading

The Other Chinese Patent Development: China’s Autumnal Patent “Hook”

It is 2012, and China’s State Intellectual Property Office (“SIPO”) has once again released its end of the year data on patent filings for the year.  While patent data and scientific citation data suggest that China is on the cusp of becoming an innovative economy, there is another trend that has subsisted for several years:  China’s autumnal upward patent “hook.”

As I have remarked in several conferences during the past two to three years, the data suggests that if patents are a surrogate for innovation activity, one of the most significant factors in China’s innovation efforts are the time of the year:  China innovates in the fall.   February, however, appears to be a slow month for creativity, perhaps due to lack of external pressure (government subsidies, quotas), but also due to the hiatus caused by the lunar new year and the 28 day month. Continue reading