Trade and foreign relations are rarely out of the headlines, with the EU and UK about to begin negotiating the terms of their future relationship, and US President Donald Trump promising to make everyone pay for access to the US market, including China.
The US-China relationship, as it has played out in the patent arena, acutely identifies changing dynamics as domestic and foreign actors bid to carve out a share of the US market.
At the heart of this is China’s rise to global prominence, particularly in innovation.
Chinese inventors filed more than a million patent applications in 2015, pushing global patent filings to a new record high. According to the latest World Intellectual Property Indicators report from the World IP Organization (WIPO), 2015 saw nearly 2.9 million patent applications, with more than a million attributed to Chinese inventors.
The next most prominent filers were US-based, with 526,296 patents filed in 2015, then Japan with 454,285.
Chinese patent applicants filed mainly within their own borders, however, with only 42,154 filed outside of China, though this has risen steadily over recent years. Comparatively, US inventors filed 237,961 patent applications abroad.
Further, China’s patent office received 1,101,864 patent filings in 2015, including Chinese natives and overseas inventors, making it the first office to achieve more than a million applications in a single year.
These new stats represent a 7.8 percent increase in global patent applications filed since 2014, indicating a rising demand for patent protection, particularly from Asian inventors. WIPO director general Francis Gurry said late last year: “As policymakers seek to invigorate growth around the world, it is encouraging to report that intellectual property filing activity saw healthy progression in 2015. While China continues to drive global increases, IP use grew in most countries in 2015, reflecting its increasing importance in a globalised knowledge economy.”
This demand for protection, particularly from China, has come at the same time as Chinese companies have increasingly encroached into the US, inviting the wrath of established players.
Semiconductor company Qualcomm turned to the US International Trade Commission (ITC), which has the power to block imports of infringing products, and complained about four mobile technology companies. The ITC agreed in November to launch an investigation into electronic mobile devices produced by the companies that include hardware and software components, such as integrated circuits, cameras, capacitors and system-on-chips.
Complaints aren’t only coming from the semiconductor market, however, with the commission launching an investigation, also in November, into the unlawful importation of an artificial sweetener after a complaint of patent infringement from technology and specialty materials company Celanese.
China is proving a prime target for US patent owners and, as Duane Morris of counsel Richard Thurston explains, innovation and China’s increasing interest in the US are why.
Sticking with the semiconductor example, Thurston says: “Overtime, Chinese semiconductor competition will grow in its ability to compete for larger market share with non-Chinese companies outside of the mainland China market. As the Chinese semiconductor manufacturers enhance their manufacturing knowledge and efficiencies, and strengthen their original innovation base (protected by growing patent portfolios), they will become very formidable.”
“Thanks to heavy Chinese government investment and favourable government market assistance in their domestic market, the Chinese semiconductor manufacturers are developing the skill sets necessary for global competition,” Thurston says.
“The competitiveness of Chinese semiconductor manufactures will also benefit directly from the expansion of product and service companies, such as Huawei, ZTE and Haier, as they manufacture more integrated circuit devices themselves.”
“Finally, the Chinese will ultimately succeed in their acquisition of both fabless and fab-lite foreign semiconductor companies, which will enhance their ability to become more competitive globally.”
Commenting on the effectiveness of the ITC in dealing with this issue, Thurston points out: “It can be very useful only if the US petitioners move for and obtain injunctive, exclusionary judgements and do not settle for broad cross-licences.”
Thurston warns that US companies in the semiconductor space cannot rest on their laurels if they want to maintain their dominance.
He says: “If US companies continue to use patents solely for generation of licensing revenues and allow the licensing of all semiconductor manufacturers to their entire portfolios, those patents will not protect market share over time.”
“US market share will continue to erode unless and until the US companies either start to use their patents to block competitors (without licensing them) or are able to stay ahead of their foreign competitor with significant development of new patented innovations and license only portions of their patent portfolios.” IPPro
“A greater problem is that Chinese and other foreign companies are also becoming adept at using their own US patents to litigate against US competitors in the US market.”