Nov 1, 2011Business
China'€™s shift from imitation to innovation

The United States has always been a leader when it comes to innovation and invention.  However, the United States Patent and Trademark Office (USPTO) has become overworked and backlogged in recent years, resulting in a slow patent approval system and the granting of some questionable patents in the process. 


One result has been the rise of patent trolls and increased litigation.  In response, the US  recently passed the Leahy-Smith America Invents Act (the “Act”), bringing some dramatic and possibly needed changes to the US patent system. The passing of the Act may kickstart efforts needed to reshape and revitalize our patent system, and in turn encourage innovation.   


One of the biggest changes from this Act was a move from a “first-to-invent” system to a “first-to-file” system, joining the rest of the world already patenting under this system, including China. If we look to our fellow nation to the east, China has undertaken an unusual approach to try to gain the advantage in the innovation sector.  China has long been known as the center of manufacturing and undercutting costs (usually through imitation) but has recently undertaken a very broad, long-term future plan to become the world’s leader in innovation.


Late last year, the State Intellectual Property Office (SIPO) of China released a paper entitled the “National Patent Development Strategy (2011-2020).”  This paper was not a one-off document.  China has been working on a long term strategy for quite a few years.


In 2006, the Chinese State Council issued The Guiding Principles of Program for Mid-to-Long Term Scientific and Technological Development (2006-2020). These policies required that innovation be made the most important aspect of all science and technology related work.  In 2008, the Chinese State Council issued The Guiding Principles on Intellectual Property Strategy. These principles pushed progress in the innovation, management and use of intellectual property (IP).


The current Patent Development Strategy not only discusses increasing the amount of patents China will produce, but also details plans to produce a more innovative society overall.  Specifically, the paper states that China’s goal for annual patent filings by 2015 is two million.  The patents would include invention patents, design patents and utility model patents, the last category which does not exist in the US.  Utility model patents cover items such as engineering features in a product and are less extensive than invention patents.


What this means in real numbers: Patent filings in the US totaled slightly more than 480,000 in the 12 months prior to September 2010. In 2009, about 300,000 applications for utility model patents were filed in China, almost equal to its total of invention patents. Of the 1.22 million patents filed in China in 2010, the SIPO granted 815,000 patents, a 40% increase from the year before.


China’s strategy is completely guided and sponsored by the state. The Chinese government encourages patenting by offering incentives such as cash bonuses, better housing for individual filers and tax breaks for companies that are prolific patent generators.  China also wants to double the number of patents that its residents and companies file in other countries.  We should expect to see Chinese companies become more aggressive in using their financial backing to try to purchase core global patent portfolios in new technology areas.


In addition to increasing patent filings, China will increase its number of patent examiners to meet the increased demand, roughly doubling the number of its examiners to 9,000 by 2015. The US currently has approximately 6,300 examiners, and this number is failing to meet our own demand in the patent office.


The Chinese strategy has been called extremely ambitious by analysts, and the real impact of the plan in China or in the world will not be felt until the year 2020.  But with such a focus on numbers, China’s vision might be based more on quantity than on quality. As The Economist states "Lots of patent filings do not mean more products or techniques that are useful or demanded."


Here in the US, the granting of dubious patents has led to increased potential for litigation. It can also lead to the potential creation of patent thickets, an overlapping set of patent rights which require inventors to reach licensing deals for multiple patents from multiple sources. 


However, analysts also point out that a strengthening of the Chinese IP system and office may lead to more strict enforcement against counterfeiting and pirating activities and increased damages for IP infringement, regardless of who infringed or who owned the IP.  This would be a benefit for foreign individuals and corporations who choose to bring their IP to China. 


In the meantime, China will hold its annual Patent Week from Nov 9-15 this year across the country in an effort to increase IP awareness and create a favorable environment for inventions and IP protection. China’s approach of fostering a national environment conducive to innovation may be the right one.  Only time will tell whether the US’s changes are enough to remain the top innovative country or whether China’s approach will pole-vault it into the number one position, at least in terms of number of patents.

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