Patent Quality and Innovation in China: 5 myths

 

[Benjamin Piwei Liu]

The European Chamber of Commerce recently released a comprehensive snapshot of innovation and patenting in China, entitled Dulling the Cutting-Edge: How Patent-Related Policies and Practices Hamper Innovation in China.  It is a must-read for all those working in the area, both for the amount of scattered information it gathered in one place and for the depth of analysis based on close analysis of the data.  We invited Dan Prud'homme, the author of Dulling the Cutting-Edge and the Manager of the Shanghai-based IPR Working Group and R&D Forum at the European Union Chamber of Commerce in China, to share his thoughts at the end of the project, and he kindly offered to reflect on and dispel five myths in a way that nicely captures a flavor of this important study.
 
 
Dan Prud’homme
 
It is my pleasure to accept Professor Liu’s invite to write an entry on this blog. The European Union Chamber of Commerce in China (European Chamber) recently published a study I wrote entitled Dulling the Cutting Edge: How Patent-Related Policies and Practices Hamper Innovation in China, which we will use to lobby the Chinese government for reform of aspects of China’s patent quality and larger innovation-related institutional and regulatory system. During the course of researching for and writing the study, I came across a number of common assertions that turned out to be myths. In the entry below, I briefly debunk just a few of these:
 
Myth #1: Patent filing statistics show China is a global leader in innovation.
 
In 2011, China overtook the US and Japan to become the world’s top filer of domestic patent applications. Some have pointed to this statistic to argue that China is a global leader in innovation.
 
However, there are several reasons why this assertion is a myth. First, not all patents filed turn into patents granted. Second, detailed statistical analysis provided in Dulling the Cutting Edge shows that China in fact has what could be called a “patent quality problem”: the ubiquitous filing of low-quality patents (basically defined in the study as patents that do not meet statutory requirements for patentability and are not ultimately transformed into something useful). Low-quality patents, through a number of means, can hamper the innovation capacity of a variety of entities and an economy. (For context, China is not the only country with patent quality problems.)
 
Third, and more generally, patent filings alone are not anywhere near a robust enough metric to determine a country’s innovation abilities. Dulling the Cutting Edge uses a number of innovation-relevant metrics to investigate if China is indeed a “global leader” in innovation. The results show such an assertion is in fact a myth, as China has a way to go to become more saturated with innovation capacity let alone actual innovation. For example, according to even the most complimentary rankings, there are at least 20 countries that are more innovative than China at present.
 
Myth #2: China is not “genuinely” innovating.
 
On the other end of the spectrum from the idea that China is leading the world in innovation, comes the idea that China is not “genuinely” innovating. In fact, China is indeed “genuinely” innovating in several ways, albeit this is not well spread across all companies and other entities in China, all industries, nor all types of innovation. There are indeed some innovative Chinese companies, and certainly some foreign companies are innovating in China.
 
Myth #3: All utility model patents in China are “junk.”
 
I’ve heard this statement from several IP professionals in China. However, it is extreme and untrue.
 
As a quick backgrounder: China has three types of what it calls “patents”: invention patents, utility model patents (utility models), and design patents. Invention patents have the highest threshold for inventiveness, as verified by a Substantive Examination, and enjoy protection for 20 years if maintained. Utility model patents have a far lower inventiveness threshold, which is not verified through an in-depth assessment during the normal examination procedure. Utility models enjoy protection tantamount to invention patents, although for 10 years if maintained.
 
As explained in Dulling the Cutting Edge, the utility model patent system has enabled a number of once developing countries, including Germany, South Korea, and Japan, amongst others, to stimulate technological diffusion, innovation and competiveness in a way the invention patent system could not necessarily also do. In China, the utility model system has also likely somewhat encouraged technological diffusion and the awareness of the usefulness of patents. This is because it is easier and cheaper to get utility models vs. invention patents in China. And this is in part because certain entities in China are skilled at making small improvements on existing inventions, and the utility model system allows protection of these inventions whereas they otherwise might not have been able to meet the higher inventiveness threshold for invention patents.
 
This said, Dulling the Cutting Edge suggests there may be reason for concern about the proliferation of utility models in China in recent years. First, it is worth questioning if the fact that utility model filings in recent years have notably outpaced invention patent filings (and design patent flings) is just part of the healthy economic transition of a developing country, or if utility models are being increasingly filed more so or only because a number of Chinese policies and practices are providing perverse incentives for the filing of “low quality” and “less than-highest-quality” patents (terms that include not only certain utility models, but also certain invention patents and design patents). Second, several rules and procedures need to be revised in order to prevent proliferation of low-quality utility models. While some I’ve spoken to advocate raising the inventiveness threshold for utility models (for example as Germany has done for its utility models), and this suggestion is mentioned in the Annex of Dulling the Cutting Edge, I think in due time China may revise the patentability requirements for utility models to fit its own development model. However, there are a number of other rules and procedures pertaining to utility models that need revising in order to discourage proliferation of low-quality utility models and to mitigate the negative consequences of such proliferation. Third, given the two aforementioned concerns, it is worth questioning how the proliferation of utility models in China if sustained or magnified might reflect a less-than-optimal balance in the country between “incremental innovation” and “breakthrough innovation” capacity.
 
Myth #4: The Chinese government does not realize China has a patent quality problem.
 
Some have made this allegation; however, it is very clear that the Chinese government is trying to transition to stimulating more quality patents. For example, there are over 80 specific references to initiatives to boost the “quality” of IPR, patents inclusive, in the measures reviewed for Dulling the Cutting Edge – and this does not count the numerous other provisions reviewed for building patent quality but which simply do not use the word “quality.”
 
Myth #5: Quantity first, quality will then naturally follow…there’s no need to be critical of this strategy.
 
I’ve heard from several officials that used to work in the Chinese government that it is China’s strategy to encourage quantity of patents first, in an effort to build awareness of patents, and then focus on quality. In some respects, I think this strategy makes sense.
 
However, what I fear is that it is not going to be an easy transition to build patent quality in China – and current policies and practices should be reformed in order to better enable this transition. Building an innovation economy is not like building and export-led economy: one cannot force innovation in the same way you might be able to steer an export-led economy. And I have found little to no evidence that it is prudent to try and build innovation in a way that intentionally excludes a wide variety of companies for the sake of trying to build up certain domestic enterprises. Herein, Dulling the Cutting Edge shows that a variety of relevant Chinese policies and practices containing patent-related elements, many of which also impact innovation at large, deserve to be rethought.
 
Dan Prud’homme is the Manager of the IPR Working Group and R&D Forum at the European Union Chamber of Commerce in China, based in Shanghai, and author of Dulling the Cutting-Edge: How Patent-Related Policies and Practices Hamper Innovation in China.
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