China poised to overtake US and Japan in patents

China’s patent system has developed significantly in the past years, but the sheer number of patent applications will put it to a more rigorous test, with Chinese companies becoming increasingly aware of the importance of intellectual property protection.  

In 2007, 62.4 per cent of all (20-year) patent applications were filed by domestic companies. The year-on-year increase of these filings is 25.1 per cent for domestic companies and 4.5 per cent for international companies, indicating the rising awareness of Chinese companies in the importance of intellectual property.

There has been a 20 percent annual increase in patent application filings over the last fifteen years and in 2007, the State Intellectual Property Office (SIPO) received 694,153 applications. The country is currently third in the world behind the US and Japan in terms of number of filings per annum. Evalueserve forecasts that if patent filings in China continue to grow at the current rate, SIPO will overtake the US by 2012.

Although China is still struggling with the image of being a safe haven for intellectual property counterfeiters, during the last two decades it has developed its patent system significantly, and incorporated an online and searchable patent database, a robust appeal mechanism, and a hierarchy of courts for handling intellectual property disputes.

As a result, more than four million patent applications were filed from early 1985 to December 2007. The first million applications were filed over 15 years, but the last million took only 18 months.

The measures also resulted in a substantial increase in lawsuits relating to patent infringement. In 2005, 2,947 cases were filed, representing an increase of 15.6 per cent from 2004. In contrast, the number of patent-related lawsuits in the US decreased from 2,973 in 2004 to 2,812 in 2006.

Centre of litigation

The difference in the number of legal cases related to all forms of intellectual property, that is, patents, trademarks, copyright, and trade secrets is even more significant: in 2005, 13,424 cases were filed in China, whereas 10,905 were filed in the US.

Patent-related lawsuits in China involving international companies including Pfizer, Honda, Philips, and 3M increased by 77.5 per cent over the past year. The number of closed cases in which at least one of the parties was a non-Chinese company reached 268 in 2005.

Contrary to popular belief, the playing field within the intellectual property system seems to have become more level. According to the No. 1 Intermediate People’s Court of Beijing, foreign parties won 60 per cent of these cases.

Hence, it is now more important than ever for international companies to develop their China-specific patent strategies.

Research conducted by Evalueserve also indicates that 99 percent of all utility model patents (10-year patents) are filed by domestic Chinese companies. Since these 10-year patents do not undergo substantive examination, Chinese companies use them to their advantage, whereas international companies largely neglect them.

Evalueserve suggests that even if international companies operating in China do not file 10-year patents, they should at least obtain help from local patent professionals and regularly review all such granted patents in their domain, and even work proactively to invalidate some of them.

And, warns Evalueserve, international companies need to realise that simply importing intellectual property strategies from their home countries may not be effective and specific strategies may be required to deal with the system in China.