If these patent granting and litigation trends continue, we could be left with the rather mind-numbing conclusion that China… has a more robust innovation protection regime than the United States…
In early November, Canadian intellectual property licensing firm WiLAN (NASDAQ:WILN) filed a patent infringement suit against Tokyo, Japan-based electronics developer Sony Corp. (NYSE:SNE). WiLAN’s suit reportedly alleges that smartphones marketed by Sony infringed upon wireless communications technology owned by WiLAN. Of major interest in this case is the choice of legal venue. WiLAN brought its suit against Sony in China, a market which is foreign to both companies.
The fact that two foreign entities would be fighting out a patent dispute in Chinese courts points not only to the strength of the consumer market in that country, but the reality that the United States is losing favor as the jurisdiction of choice for patent owners seeking to resolve matters of alleged infringement.
In November 2014, the Chinese government announced plans to open a series of intellectual property courts in response to accusations from foreign firms that the country was lax in protecting IP rights. And the plan appears to be working. The message is being received by patent owners around the world, including those with large U.S. patent portfolios, that China is a reasonable and fair place to resolve patent disputes. Indeed, patent owners are increasingly becoming more comfortable choosing China as a venue, with some saying off the record that they would have no reservations whatsoever about bringing a patent infringement case in China so long as the infringer is not a Chinese corporation. In fact, given the long standing hostility and distrust between the Chinese and Japanese, there may be significant strategic reasons for patent owners to specifically bring patent infringement lawsuits against Japanese corporations in Chinese courts.
Aside from any anecdotal evidence and cultural bias theories, it is also hard to ignore the reality playing out inside the Chinese IP courts. Foreign patent holders have been having a great deal of luck in China’s IP courts, at least at the courthouse situated in Beijing. This July, Intellectual Asset Management reported that foreign plaintiffs won 100 percent of lawsuits at Beijing’s IP court, claiming victory in a total of 65 cases. Indeed, although the Chinese government is often seen as protecting domestic interests, a 2016 report on patent litigation in China released by the Santa Clara University School of Law concluded that “our findings tend to suggest that, to the extent Chinese leaders hoped that stimulating the national patent system would result in widespread protectionism, their hopes were misplaced.” The Santa Clara Law researchers found that foreign firms filed 10 percent of the patent litigation suits in China and won 70 percent of those actions.
Although foreign firms make up a relatively small percentage of the plaintiffs, patent infringement suits in China have been growing in the few years since the country established dedicated IP courts. In 2015, Chinese civil courts saw a 22 percent increase in patent infringement filings, which grew past 13,000 such cases. This was a far faster rate of growth than Chinese courts saw in 2014, when patent infringement filings increased by 5 percent up to 9,648 lawsuits.
China might also be a preferred venue for patent infringement litigation based in large part upon the speed with which verdicts are returned by its IP courts. An article published this April by China Daily reported that the average time from suit filing to verdict at Beijing’s IP court was 125 days. By comparison, European suits take an average of 18 months for a patent lawsuit to be resolved. In the United States, the median time to trial in patent litigation cases is 2.4 years and this figure has been increasing in recent years according to a 2015 patent litigation study released by consulting firm PwC.
Yet there continues to be great concern over the fairness of the Chinese market to those holding U.S. IP rights. The USPTO’s report on patent enforcement activities in China identified a number of concerns voiced by U.S. patent owners, such as instances of Chinese firms obtaining utility patents covering technology already sold by U.S. rights holders to assert against U.S. companies. The report also identifies inefficiencies at China’s food and drug agency affecting the ability to market pharmaceuticals and Chinese law which prevents infringement suits from being filed against manufacturers who are producing for export; Chinese law requires proof of sales in China to bring a patent infringement suit.
One American company experiencing this conflict between enforcing patent rights and dealing with Chinese protectionist activities is San Diego, CA-based semiconductor developer Qualcomm (NASDAQ:QCOM). Qualcomm has actually been sued by the Chinese government over the company’s patent licensing activities involving mobile handset technologies. In February 2015, Qualcomm was ordered to pay $975 million in antitrust fines for violating the country’s anti-monopoly law. Part of Qualcomm’s settlement with the Chinese government included a rectification plan which governs how Qualcomm can negotiate licenses with Chinese firms and how much it can obtain in royalties based on the net selling price of mobile devices. Recent news of Qualcomm filing patent infringement actions against Chinese smartphone maker Meizu with the U.S. International Trade Commission and a pair of European courts could be an indication that Qualcomm is pushing back against China’s government-ordered licensing arrangement.
The number of patents being issued by China’s patent office is on the rise right alongside with the amount of patent litigation in that country’s courts. A report issued in December 2015 by the World Intellectual Property Organization indicated that an increase in global patent filings through 2014 was largely caused by increased filings in China, which received 928,177 patent application filings that year. In second place was the United States, where 578,802 patent applications were filed. China’s also saw the second-fastest increase in patent application filings, a growth of 12.5 percent over 2013.
Patent filings in the United States have been increasing, but not nearly at the pace being seen in the Chinese market. Utility patent applications filed with the USPTO from both domestic and foreign entities grew from 578,802 in 2014 up to 589,410 in 2015. This marks a rise from 490,226 patent applications filed with the USPTO in 2010. In 2005, the USPTO saw 390,733 utility patent applications filed, so over the past decade, U.S. patent applications have increased by about 100,000 per year every five years. Of course, if China’s patent application filings continue to increase by double digits and they’re already seeing more than 900,000 such filings per year, the size of its market will continue to blow past the U.S.
2015 saw China take the crown from the United States in terms of patents granted each year. In that year, China granted 359,000 patents while the U.S. only issued 298,407 patent grants, making China the top nation in the world in terms of patents granted. While Capitol Hill continues to debate the merits of patent system reform, which would only increase the difficulties of enforcing patent rights, Beijing has pivoted towards a position of promoting IP rights and enforcement mechanisms.
If these patent granting and litigation trends continue, we could be left with the rather mind-numbing conclusion that China, a country ruled by a communist government, has a more robust innovation protection regime than the United States, an ostensibly capitalist country that doesn’t seem to see the virtue in protecting the rights of innovators.
 A report on patent enforcement published by the U.S. Patent and Trademark Office notes that in 2010, exports from the U.S. to China grew to $113 billion in goods, an increase of 33 percent over 2009’s totals.
Join the Discussion
11 comments so far.
AnonNovember 15, 2016 08:43 am
Recourse against the makers of fake products has long been more sure and more consistent in the US as compared to China.
One aspect of China’s evolution (along well recognized historical lines) is the strengthening of recourse against the “fake makers.”
We are not yet at parity, but the trajectory is welcome.
Jeff LindsayNovember 15, 2016 03:35 am
China makes a large fraction of the world’s products, including the biggest fraction of the world’s fake products, so the fakes you are thinking of might have origins here. But fakes are made in a variety of other nations as well, including in the US.
Simon SmithNovember 14, 2016 04:11 am
Just a question, can I ask is China where they make all the fake Samsung’s?
Jeff LindsayNovember 14, 2016 04:06 am
Thank you for an excellent article. While there are still major gaps here in China’s IP system, its trajectory has been generally toward increased IP rights and stronger enforcement, while the US patent system is being devastated. I’ve been in China for 5 years now and the growth in IP here has been amazing. Many companies are now beginning to pay more attention to IP quality and are realizing that they need to protect their IP. That includes protecting it from the West. My first IP experience after coming here to work for an Asian manufacturer was learning of a clever invention from some Chinese engineers in one of our mills that was essentially stolen from us and then patented internationally by a Western partner.
The risk of IP theft is not all one way, and with its serious investment in many technical areas, China will increasingly have genuine treasures to protect from the West.
It’s quite exciting to be in this land that is returning to its historic leadership role in innovation and leading the world in IP, at least by some measures.
Bob ZeidmanNovember 12, 2016 06:17 am
Steve and Gene: I would be careful quoting any statistic evidence from Professor Brian Love at Santa Clara University. If you recall my critique of his earlier paper on patenting at universities (http://ipwatchdog.com/2014/07/15/sloppy-misleading-yale-paper-challenges-university-patenting), he either has an extremely poor understanding of basic statistics or he purposely manipulates his numbers to get the results he wants.
staffNovember 11, 2016 03:41 pm
‘Patent filings in the United States have been increasing’
But as result of AIA and similarly as with suits filed, the number of patent applications filed in the US is now largely immaterial. It’s not about the number of applications filed, but rather how many original applications are filed. Because of first to file, applicants are now forced to file multiple applications in process of developing their invention as opposed to the past under first to invent where inventors were more likely to wait until the invention was complete before filing. We are not aware of any credible study that indicates the size of the affect and from what we can tell the PTO has no such data publicly available on their web site, but even if applicants now file only twice as many applications per invention which would seem to be underestimated, the number of original applications filed would have dropped by almost half. Worse yet, if the small entity portion of issued patents is a reliable gauge, small entity original applications may have fallen to one tenth of what they have been historically. However you slice it, thanks to AIA, case law and administrative changes, the patent system is in crisis.
For our position and the changes we advocate (the rest of the truth) to truly reform the patent system, or to join our effort, please visit us at https://aminventorsforjustice.wordpress.com
or, contact us at [email protected]
Gene QuinnNovember 11, 2016 12:49 pm
From your lips to the Trump Administration’s ears!
It has been astonishing that all three branches of government have been complicit in unraveling what Lincoln and so many other great leaders understood was the American advantage.
Bob TaylorNovember 11, 2016 10:19 am
Gene and Steve, thanks for another well thought out discussion.
The multi-faceted efforts to weaken the U.S. patent system over the past decade reflects one of the most mindless and short-sighted economic phenomena of our lifetime, and one of the most dangerous. It is understandable (deplorable but understandable) that large companies whose primary form of “innovation” is to copy innovative technologies and purchase innovative companies would find it in their self-interest to make it difficult for inventors and small companies to enforce patents. What is astounding, however, is the extent to which all three branches of our government — the judiciary, executive and legislative branches — have become willing collaborators. Let us hope that the new Administration recognizes that without patents that are enforceable with reasonable certainty and at reasonable expense, investment dollars will continue to flow into other countries and into short-term opportunities that are less dependent on long-term economic stability.
US patent counselNovember 11, 2016 07:48 am
Years ago, I predicted to my colleagues that China would become a preferred venue over the US due to deterioration of enforceability of US patents (AIA, poor quality examination, various court decisions, and other factors). The (Chinese) government incentives for filing applications has resulted in the growth of Chinese entity patents and subsequent challenges by Chinese entity vs. (often) Chinese entity, resulting in precedents that can be applied to multi-national/foreign entity against ____ (name your defendant) to support winning a patent enforcement suit. In addition, we learn where to file the patent enforcement suit (Beijing), etc. We are well on our way to that “mind-numbing conclusion”. Oh, to be a Chinese patent attorney these days!
AnonNovember 11, 2016 06:51 am
China has been evolving its treatment of patents along a well-recognized historical path (even the US had followed that same path).
Simon SmithNovember 11, 2016 05:25 am
Well that is an interesting concept! From the outside world it seems that China does not express any respect for any Patent whether it be in the US or not!