China claims more patents than any coun­try, but most are worth­less

Business Standard - - WORLD - LULU YILUN CHEN BLOOMBERG

For nearly a decade, China has taken great pride at fil­ing the largest num­ber of do­mes­tic patents. It’s prov­ing less keen on keep­ing them.

De­spite huge num­bers of fil­ings, most patents are dis­carded by their fifth year as li­censees balk at pay­ing es­ca­lat­ing fees. When it comes to de­sign, more than nine out of every ten lapses — al­most the mir­ror op­po­site of the US.

The high at­tri­tion rate is a symp­tom of the way China has pushed uni­ver­si­ties, com­pa­nies and back­yard in­ven­tors to trans­form the coun­try into a self-suf­fi­cient pow­er­house. Sub­si­dies and other in­cen­tives are geared to­ward mak­ing patent fil­ings, rather than mak­ing sure those claims are use­ful. So the vol­ume doesn’t trans­late into qual­ity, with the coun­try still de­pen­dent on oth­ers for in­no­va­tive ideas, such as mod­ern smart­phones.

“It means these patents re­ally aren’t as valu­able as peo­ple thought,” said Lu Jun­feng, a patent at­tor­ney at Shang­hai-based JZMC Patent and Trade­mark Law Of­fice. “If the re­ten­tion rate is so low for de­sign patents, then it calls into ques­tion whether there’s a big­ger sys­tem­atic prob­lem.”

China over­took Japan eight years ago to be­come the big­gest hoarder of do­mes­tic patents and has re­mained in the lead ever since, ap­prov­ing 1.8 mil­lion last year alone. Pres­i­dent Xi Jin­ping’s Made in China 2025 pro­gram — now at the cen­ter of ten­sions with the US — aims to make the coun­try a global leader in tech­nol­ogy, and de­vel­op­ing a hoard of in­tel­lec­tual prop­erty has be­come a cen­tral el­e­ment of achiev­ing that.

To get a clearer pic­ture on the coun­try’s patent history, it’s im­por­tant to un­der­stand that not all of them are equal. In China there are three dif­fer­ent cat­e­gories: in­ven­tion, util­ity model and de­sign.

In­ven­tion patents, as the name sug­gests, are for new ideas that rep­re­sent “notable progress” in ad­vanc­ing a tech­nol­ogy. This cat­e­gory rep­re­sents what most peo­ple un­der­stand about patents, a break­through in de­sign, process or con­cept. It ac­counted for just 23 per­cent of the patents granted in China last year.

Just like in the US, they face a chal­leng­ing path to approval in a process that can take 18 months and ex­poses them to test­ing and scru­tiny. Suc­cess­ful ideas are pro­tected for 20 years.

It’s the two other cat­e­gories, which both have a 10-year life, that swell the head­line num­bers but are prov­ing far less valu­able. An ex­am­ple of a de­sign patent would be the shape of a soda bot­tle, while a util­ity model would in­clude some­thing like slid­ing to un­lock a smart­phone. Nei­ther is sub­ject to rig­or­ous ex­am­i­na­tion and can be granted within less than a year.

As of last year, more than 91 per­cent of de­sign patents granted in 2013 had been dis­carded be­cause peo­ple stopped pay­ing to main­tain them, ac­cord­ing to JZMC Patent and Trade­mark data com­piled for a Bloomberg query. Things aren’t much bet­ter for util­ity models with 61 per­cent laps­ing dur­ing the same five-year pe­riod, while in­ven­tion patents had a dis­posal rate of 37 per­cent. In com­par­i­son, main­te­nance fees were paid on 85.6 per­cent of U.S. patents is­sued in 2013, ac­cord­ing to the United States Patent and Trade­mark Of­fice.

“The fact that de­sign patent dis­posal rates are so high is as­ton­ish­ing,” said JZMC’s Lu. “Peo­ple have such a low de­sire to keep them.”

While the Chi­nese gov­ern­ment pro­vides an in­cen­tive for new ap­pli­ca­tions, that’s not the case once a patent is granted, and hold­ers must pay ever-in­creas­ing fees just to keep them.

It costs 900 yuan ($131) a year to own an in­ven­tion patent, a price that rises to as much as 8,000 yuan later in its life. For the other cat­e­gories, tolls rise from 600 yuan to 2,000 yuan an­nu­ally in the last two years.

A lax approval process for the less in­ven­tive cat­e­gories has led to a flour­ish­ing of fil­ings, where peo­ple lit­er­ally copy a patent in the U.S. and seek approval in China, of­ten with the in­ten­tion of par­lay­ing that into a set­tle­ment fee, said Wang Xiang, head of law firm Or­rick’s China IP prac­tice.

Some com­pa­nies have also been ex­posed as frauds, seek­ing to use patent fil­ings to get tax and res­i­dency ben­e­fits for em­ploy­ees. Since 2008, as part of China’s na­tional pol­icy to en­cour­age in­no­va­tion, com­pa­nies cer­ti­fied as “high-tech firms” have won sig­nif­i­cant tax cuts and an­nual sub­si­dies of 500,000 yuan in prov­inces like Hainan.

“There’s prob­a­bly a lack of mo­tive to strictly vet these com­pa­nies,” Wang said. “Un­for­tu­nately un­der the ex­ist­ing ju­di­cial sys­tem, there is no ef­fec­tive de­ter­rence against fraud­u­lent fil­ing or fal­si­fy­ing ev­i­dence.” Chi­nese reg­u­la­tors are only just start­ing to no­tice some of the sus­pect prac­tices. The Min­istry of Sci­ence and Tech­nol­ogy re­voked high-tech li­censes for at least 14 com­pa­nies this year, with­out cit­ing spe­cific rea­sons.

REUTERS

In­ven­tion patents, as the name sug­gests, are for new ideas that rep­re­sent ‘notable progress’ in ad­vanc­ing a tech­nol­ogy

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