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China's patent EXPLOSION could leave West behind

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Analysis No one should be in any doubt that patents are a key part - if not the key part - of any strategy to gain or hold market share in tech industry.

Google is scrambling to cover its arse with hauls of patents from IBM and Motorola Mobility, as the smartphone and fondleslab patent wars scale new heights in courts in Europe and the US.

Nokia, a company many commentators have already written off in the mobile phone world, managed to win a patent case settlement from the litigating juggernaut Apple, which is otherwise gunning for Android manufacturers. Although figures have never been confirmed, Nokia's quarterly report that followed the case in July had a settlement income of €430m, widely assumed to be mostly an Apple contribution. And the iPhone maker will continue to pay royalties to the Finnish former phone leader every time a panting fanboi gets their hands on a Jesus mobe.

Nokia is not out of the woods yet, as that same quarterly report showed, but right around the corner is the lovely LTE standard for 4G phones, a standard that will give the firm 1.5 per cent to 2 per cent royalties on each FRAND (fair, reasonable and non-discriminatory) licence of the technology, according to a press release in 2009 (which is now mysteriously missing from Nokia's website, but is quoted in a number of papers, including this one).

Whether or not it is making handsets, Nokia's going to be making money from phones, along with companies you may recognise from other patent litigation, including Qualcomm, Motorola, Ericsson, Huawei and ZTE.

But it's not just high-tech companies that are watching the patent wars with avid attention. Countries are waking up to the economical advantages of patent ownership as well, and one in particular is looking to fill up its arsenal, fast.

China: enter stage left

China, traditional home of the cheap knock-off, is moving from copycat to innovator, according to statistics (PDF) from the World Intellectual Property Organisation, which collects data from the Patent Cooperation Treaty (PCT).

In 2010, East Asia overtook North America and Western Europe to become the subregion accounting for the most PCT filings, while the economic downturn caused a slowdown in the traditionally patent-prolific West:

From 2002 to 2010, the average annual growth rate of East Asia was 15.1 per cent, compared to 1.1 per cent for North America and 3.1 per cent for Western Europe.

Indeed, since the economic recovery that followed the dot-com recession, the major East Asian Filers – China, Japan and the Republic of Korea – experienced particularly rapid growth in applications. They continued to increase their filings even during and after the most recent economic downturn – unlike North America and Western Europe.

And these stats might not even reflect the half of the patents China is accumulating:

East Asian countries still rely less on the PCT system for their filings abroad than do the US and Germany. China’s participation in the PCT system is still relatively young. As China’s economy further develops and applicants gain experience with the international patent system, its PCT filings may well generate more national phase entries.

Recent reports have speculated that China is losing its crown as the low-cost king of manufacturing, with rising wages and an ageing population combining to make outsourcing companies start looking in other Asian economies for their cheap labour.

But China is holding on to its reputation for producing consumer electronics, and the shift from general manufacturing to high-tech is all part of the plan - the Five-Year Plan of the government.

In the 12th iteration, China's government has laid out its intention to turn its coastal regions from the "world's factory" to hubs of research and development and high-end manufacturing.

The Chinese are interested in high tech, they're interested in green tech and the government is putting up the renminbi necessary to encourage innovation, according to a presentation by Gordon Harris, a partner at international law firm Wragge & Co. Harris heads up intellectual property at the firm's China office.

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