China’s lead patent filing does not make it an innovation star

No Patent law existed in China until 1985, and the country has a deserved reputation for trampling on intellectual-property rights. But that could be changing. Anxious to promote domestic innovation, the Chinese government has created an ecosystem of incentives for its people to file patents (1).

Professors who do so are more likely to win tenure. Workers and students who file patents are more likely to earn a hukou (residence permit) to live in a desirable city. For some patents the government pays cash bonuses; for others it covers the substantial cost of filing. Corporate income tax can be cut from 25% to 15% for firms that file many patents. They are also more likely to win lucrative government contracts. Many companies therefore offer incentives to their employees to come up with patentable ideas. Huawei, a telecoms-equipment manufacturer that craves both government contracts and global recognition, pays patent-related bonuses of 10,000-100,000 yuan ($1,500-15,000).

Such incentives produce results. In 2008 Huawei filed more international patents than any other firm in the world. China’s overall patent filings grew by 26% a year between 2003 and 2009, says a new report from Thomson Reuters, an information service. Growth was much slower elsewhere: 6% in America, 5% in South Korea, 4% in Europe and 1% in Japan.

Extrapolating, Thomson Reuters concludes that China will become the world’s largest publisher of patents next year. Straight-line projections are not always reliable. But Dave Brown, president of the intellectual-property division at Thomson Reuters, says he is confident that this is indeed the way things are going. If China becomes the world’s top patent-generator, the world’s press will go wild.

Yet there are reasons for scepticism. The bureaucrats in Chinese patent offices are paid more if they approve more patents, say local lawyers. That must tempt them to say yes to ideas of dubious originality. And the generosity of China’s incentives for patent-filing may make it worthwhile for companies and individuals to patent even worthless ideas. “Patents are easy to file,” says Tony Chen, a patent attorney with Jones Day in Shanghai, “but gems are hard to find in a mountain of junk.”

A cottage industry has sprung up to produce patents of suspect value. On Taobao, the Chinese eBay, patent writers and filers advertise their services for as little as 700 yuan for individuals or 2,000 yuan for corporations. Most of these patents are probably filed with the expectation that they will be ignored.

Some of this flimflam is captured by Thomson Reuters, which distinguishes between “invention patents”, which require an examination to see if an idea is really novel, and “utility-model patents”, which may be registered without an inspection and which confer lesser rights: only ten years of protection rather than 20. In recent years the number of utility-model patents has been growing particularly fast in China, and now equals the number of invention patents. Only a fifth of professionals working with patents surveyed by Thomson Reuters believed that Chinese patents were of high quality, a lower proportion than in any other region in the study.

Yet despite all this, it is clear that China really is growing more innovative. And the fact that the government now takes intellectual property seriously can only help. In the past year a German company has won a settlement of $3m in Beijing for infringement of its design for a bus, a British company has sued successfully over the heating element of a kettle and a firm from Wuhan has won $7m in a case against a company from Fujian and its Japanese supplier over the use of a process to clean sulphur. If ideas are protected, Chinese people will produce more of them.

(1) This article was published The Economist of October 14, 2010, (c) The Economist, 2010

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