Chinese telecom companies entering patent game in a big way.
Chinese telecom companies entering patent game in a big way.
With the Chinese economy still moving along at a pace that makes the rest of the world wonder what they are doing right, it comes as no surprise that some of their larger Chinese companies have decided to get into patenting their technological advances. While it may surprise some people who remember the China from 10, or even 5 years ago, as a country that just copied what others developed, the #2 filer of international patent applications in the world last was ZTE, a Chinese telecom company. ZTE filed 1,863 patents applications, while #4 on the list, Huawei, another Chinese telecom giant, filed 1,528 applications.
Over the past ten years, Japan has traditionally led the way as the #1 filer of patent applications, with the US and South Korea bringing up the next two spots. This year, however with Chinese patent applications up 83% from 2006, China surged into 3rd place, beating out South Korea. Why the big move for Chinese companies? For one thing, Chinese innovators have become savvy to the practice of some overseas buyers of taking Chinese prototypes and filing for patent protection on the technology in their own name, then beating up the Chinese innovator on price by threatening to move to another manufacturer and holding the Chinese innovator hostage to the overseas buyer’s patent. Another factor is that in China, the market for wireless technology is maturing, and with a maturing market comes increased concern over margin. When a new technology hits the market, the manufacturers can often get high profit margins just by virtue of being one of the few companies that makes such a product, but as many other players get into the same market, it becomes more and more important to squeeze margin out of the products. Hence, being able to effectively monopolize a certain technology becomes very beneficial to a company’s bottom line.
With China emerging as both a potential market for products and a country which is actually trying to enforce intellectual property, the general strategy of IP protecting is changing. In the past, the general view of many (including this author) was that most companies should focus their IP dollars in the “retail countries” – US, Europe, Japan, Canada and Australia – where the products were sold and the courts would uphold their IP. I recall advising many clients against spending money filing for patent protection in China and other “manufacturing countries” as I felt the court systems there would not support my clients’ IP rights. China did not qualify as one of the “retail countries” because it did not import a significant quantity of goods from the US, thus there was little market there to try to protect.
Now the times are changing. China is becoming a valid market into which a variety of goods can be sold. While our trade imbalance is still substantial, China imports a significant amount of machinery, minerals, chemicals and raw materials. Lately, it appears that the Chinese are developing quite a taste for American wines, and are actively seeking American wine-makers to attend trade shows in Hong Kong and China. Thus, it is becoming more and more desirable to obtain patent (and trademark) protection in China. This holds true for both US companies wishing to prevent Chinese (and other) companies from selling into China, and those who use China as a manufacturing base and do not intend to sell into China. In the past, the general consensus was that it was not worth trying to protect yourself in China, as the knock-offs and counterfeits would be made anyway, but rather, protect yourself in the US and other retail countries with the hope that even if many companies other than the one you paid to manufacture your product copied your technology and designs, you could stop them at the US border and/or enforce your patent rights in the US. Now, with the Chinese court system getting more and more respect as an enforcer of IP, many companies are considering patent protection in China to give them two shots at preventing knock-offs and counterfeits from reaching the retail destinations.
Where will this lead us in the future? A lot will depend upon the whether the world can pull itself out of the economic downturn, minimum wage and other changes to the Chinese manufacturing scene, and on the currency relationship between the Yuan and the US dollar. Will the US economy rebound to the point where the current talk of the US returning to doing more manufacturing will be forgotten? Will China continue to implement increases in minimum wage laws and start passing and enforcing more laws dealing with environmental protection? Will the Yuan be allowed to float naturally to what many believe will be an increase of 40% against the dollar? These, along with other factors, will influence what advice we will be giving the clients at InterContinental IP in the future.