Innovation. Chinese President Xi used the word some 25 times in his speech before the Communist Party congress in Beijing in October 2017. For many, the more apt term to be associated with the products of China has long been “imitation,” with the Far East nation very literally and very consistently holding the title of the counterfeit capital of the world.
According to a 2016 report from the Organization for Economic Co-operation and Development and the European Union's Intellectual Property Office, over 60 percent of the counterfeit goods in global trade originate from China. Yet, reports seem to suggest that the landscape in China is in the midst of a significant shift, and that innovation – as opposed to imitation – is on the rise.
For instance, as the World Intellectual Property Organization (“WIPO”) reported in March, China filed the second most international patent applications in 2017, inching even closer to long-time leader, the United States.
Last year, U.S.-based applicants filed 56,624 international applications for patents, legal protections that secure exclusive rights to new inventions. Chinese residents filed 48,882 international applications last year, after making headlines the year prior for filing more national patent applications than any other country in a single year. Yes, in 2016, the number of domestically-filed patent applications in China topped one million for a total that was greater than the combined number of national patent applications filed in the U.S., Japan, Korea and the European Patent Offices, according to the WIPO.
Experts are split on what these striking numbers actually mean. According to Francis Gurry, the Director General of the WIPO, this “rapid rise in Chinese use of the international patent system shows that innovators there are increasingly looking outward, seeking to spread their original ideas into new markets as the Chinese economy continues its rapid transformation.”
China Power, a project of the Center for Strategic and International Studies, maintains that “while the explosion of domestic patent applications in China is impressive, this growth does not necessarily correspond with dramatic advances in innovation,” at least in part because China’s National Patent Development Strategy, which is aimed at bolstering the number of domestically filed patents, “has resulted in patents being awarded to small design tweaks and incremental innovations.”
In short, China Power argues that not all patents are created equal. For example, the U.S. Patent and Trademark Office “requires a greater degree of confidence in both the strength and uniqueness of an innovation to pursue [patent] protection” in comparison to the requirements set forth by China’s State Intellectual Property Office, thereby giving rise to questions as to whether “a patent filed domestically in China would stand up to international standards.”
On the trademark front, China – which is notorious for its first-to-file system, which contrasts with the U.S. system of file-to-use – found itself in a third-place position, following the U.S. and Germany, in terms of filing the most international applications in 2017. (Trademarks, as distinct from patents, protect brand names, logos, and other branding-specific elements). Additionally, China topped the list of the fastest growing countries in terms of trademark filings last year, its second consecutive year of double-digit growth.
The meteoric surge in intellectual property filings by Chinese nations, which coincides with the reign of President Xi, underlies the growing significance of China not just as a domestic market, but as a major player in the world economy.
Its growing reliance on intellectual property is particularly striking since it was not all that long ago that intellectual property served as something of an alien concept in Chinese society. Remember: It was not until 1985 that the first Chinese patent law was enacted, and not until the 1990’s (or as some could argue, not until 2018) that China started to improve the quality of its intellectual property protections and the standard of its intellectual property enforcement.
Critics, including the U.S. Trade Representative, routinely argue that these relatively novel protections and various Chinese policies related to intellectual property distinctly favor Chinese development, while actively discriminating against foreign intellectual property.
Nonetheless, one thing that is perfectly clear is that as China continues to be the home for more than half of the world’s counterfeit products, at least some commercial entities in China are exporting products that have been born from significant investments in R&D, for which they are seeking protection by way of both national Chinese protections and international ones.
As a result, this sees them actively pursuing patent protection of their technology and locking down trademark rights in their names and logos as part of their plan to expand outside of the Chinese market.
* This article is part of a larger series focusing on the state of manufacturing, innovation, and consumer behavior in China.