Among the many trends currently influencing the practice of patent law, the growing commercial and economic appreciation of IP rights is particularly influential. A highly competitive knowledge-based global economy has led to an increasingly sophisticated attitude towards the importance of securing and protecting inventions, which is driving positive governmental policymaking and patent activity, particularly among multinational companies.
In the last few years, China, the world’s second-largest economy, has been championing IP rights, which is beginning to change the face of the global patent market.
Patent activity throughout the world continues to rise. An annual survey released by the World Intellectual Property Organization (WIPO) reported in 2016 that the number of patent applications has been increasing for the past six years, rising to 2.9 million in 2015. Most patent offices recorded an increase of applications, including rises of 4.8 per cent and 1.8 per cent at the European Patent Office and the United States Patent and Trademark Office (USPTO) respectively. However, the exponential growth of patent applications in China’s patent office (SIPO) accounts for over 80 per cent of the global increase, as the country continues its drive towards innovation.
China’s government has placed innovation and IP rights at the core of its policymaking and has supported the patent boom with subsidies and incentives. The government’s motivation is clear in this regard: China’s National Patent Development Strategy (2011-2020) reasons that the patent system plays “an increasingly important role in economic, technological and social developments of a country”. The focus of its energy is the technology sector, which has fostered the growth of multinational tech giants such as Huawei and ZTE. The patent boom is not just motivated by local filings either. Statistics garnered from the use of Patent Cooperation Treaty (PCT) applications, a multilateral framework that facilitates joint filings for patents in consenting countries, helps reveal a growing appetite among Chinese firms to manage patent rights on a global scale. According to WIPO, Chinese applications for PCT patents increased from 128 in 1994, when it signed the treaty, to 20,451 in 2013. Individual patent offices also support the trend that Chinese companies have a greater part in global filings; the USPTO, for instance, reported that the number of patents granted to Chinese applicants more than doubled between 2010 and 2014, while the EPO recorded a 22 per cent increase in patent filings by Chinese firms in 2015 alone. In 2014, China surpassed Germany and South Korea in PCT application volume, although it is still some way behind Japan (41,898) and the US (59,082). Overall, the latest WIPO “PCT Yearly Review” reported that PCT applicants grew by 1.7 per cent in 2015, marking the fifth consecutive year of growth – an indication that a global attitude to patent strategies are on the rise.
As one of two possible methods for filing patents in foreign markets, multinationals have been the driving force behind the growth of PCT applications – the top 50 PCT users account for 18 per cent of applications filed between 1995 and 2014. What is more, the majority of the top 50 applicants increased their published applications in 2014. It is particularly telling that even though Huawei and ZTE started using the PCT system several years after its competitors, they still rank fifth and eighth out of the top PCT applicants globally. Overall, the number of Chinese PCT applicants in the top 50 doubled from 2013 to 2014 – signifying that an inflection point has been reached in the position of large Chinese firms in relation to global patent portfolios.
Hauwei and ZTE are the foremost examples of Chinese multinationals’ growing presence in the world’s patents market. However, they represent one type of approach to patent portfolio management, which is more R&D focused – Huawei invested $9.2 billion into R&D in 2015. Chinese patent expansionism is also visible in the acquisition of IP rights. Last year, for example, Xiaomi bought the rights to over a thousand of Microsoft’s smartphone inventions paving the way for the Chinese smartphone maker to expand globally, obtaining crucial leverage when negotiating licensing transactions and simultaneously minimising the risk of patent infringement actions.
The strengthening of Chinese companies’ patent portfolios has started to translate into an increasingly aggressive approach to asserting their patent rights. Although US and European multinationals have been filing for infringement against Chinese companies for years, it is far rarer for Chinese companies to go after their foreign competitors. However, this may be about to change in earnest. Last year, several Chinese tech companies filed infringement lawsuits in the US, including Huawei against Samsung and Hangzhou Chic Intelligent against Razor. A number of commentators see this as a major step towards Chinese companies playing a truly active role in the international IP stage, suing foreign companies in Europe and the US over high-value mobile phones and telecoms standards, as well as suing each other in foreign courts.
Meanwhile, multinationals from developed nations are increasingly seeking protection in China to mitigate future infringement risk in the second largest consumer market in the world. China currently ranks third among PCT member states, which reflects the growing attractiveness of the Asian market. China is also an increasingly appealing venue for patent disputes for non-Chinese entities. The Chinese government has rapidly reformed the previously ineffectual system for enforcing IP rights, streamlining court procedures for cases involving IP rights and creating three specialised IP courts. An analysis of the Beijing IP Court, one of the three, reports that the average dispute was concluded in 125 days, compared to 18 months in Europe.
Chinese courts are now looking like a more strategically prudent place to file claims. Even though damage awards are relatively low, this is mitigated by the value of obtaining an injunction in such an important consumer market and manufacturing base. Last year, Canadian firm WiLan, a non-practising entity, filed a suit against Sony in a court in the eastern Chinese city of Nanjing, alleging that the Japanese company’s smartphones violated its wireless communication technology patent. If successful, an injunction against Sony would prevent it selling LTE-standard smartphones in China and, even more critically, prevent the Japanese tech company from exporting the model from its manufacturing base in the country – providing WiLan with valuable leverage in a licensing negotiation. At the beginning of 2017, Apple filed a lawsuit against Qualcomm in Beijing’s IP Court, alleging that the chipmaker abused its dominance with its patent licensing practices and failed to license standard essential patents at a fair market price. The complaint follows a similar suit filed by Apple in the Southern California District Court, which now means that the US chip manufacturer is being challenged in two of the biggest consumer markets in the world. If the respective courts side with WiLan and Apple favour, it may encourage others to file similar infringement actions, opening up a key IP battleground for non-Chinese entities.
These developments point to an increasingly open market for patent disputes both in general and in relation to the world’s second largest economy. Up until recently, Chinese companies have struggled to expand globally and foreign entities have found it similarly difficult in China due, in part, to inadequate patent rights. However, the patent application figures published by WIPO and national patent offices indicate that this is beginning to change. Observers will also be looking closely at the results of key impending court decisions in regards to Chinese enterprises and in the country’s courts, in the belief that this will signal China’s true arrival on the global patent scene. In an era that may be defined by increasing US protectionism, China’s role maybe even more pivotal. Market commentators suggest that if these developments go further it will have a profound effect on how global IP portfolios are managed. Ultimately, for both law firms and their clients, it is increasingly important to have an international outlook as IP becomes a more valuable commodity to multinational enterprises and the global economy continues to change.