China's patent EXPLOSION could leave West behind

Encouraging patent filing

Speaking at the International High-Tech Patent Litigation Conference in London this week, Harris said China was "filing a lot more patents, with increasingly strong products and processes behind them". And the government is encouraging individuals and companies to do so by paying them when they do.

"The government's Five-Year Plan looks to increase filings from 1.75 per 10,000 people to 3.3 per 10,000 people," he said, adding that when you thought about the population of China (1.3bn), that was a lot of patents.

As well as stocking up on its own patents, China has been dipping its toe into the world of international litigation, with one of its top Guangdong province powerhouses, Huawei, taking Motorola to court in the US, and winning.

China itself has adopted its patent litigation procedures mostly from the German system, so they're well-equipped to deal with IP-infringement issues at home and abroad.

But litigation is not the main aim of the game for China's patent pile-up, in fact around 90 per cent of the IP cases in the country are Chinese companies duking it out amongst themselves, according to Harris.

China doesn't want to be winning patent cases, it wants to be the inventor.

"The first question I get asked about patents in China is how to protect against non-practising entities (NPEs*)," said Harris. "The second question I get asked about is standards."

Shenzhen's titans Huawei and ZTE aren't litigating their way to lolly, they're getting involved in the basic technologies that all devices will have to use. In fact, you might recognise their names from the list of tech firms that already stand to benefit from the licence for LTE.

Right now, China's playing with the other kids and getting involved in worldwide standards that feature US and European companies as well. But "Made in China" could soon take on a whole new meaning as the country pours its resources into the research and development that Western governments can ill afford and making its companies a more attractive prospect for corporate investment.

An example of this is BYD Company, also from Shenzhen in Guangdong, the major manufacturer of rechargeable batteries that has a keen interest in the automobile industry. The company is one of the top four rechargeable battery manufacturers in the world and in 2009 the acronym for its Chinese company name got a new meaning – Bring Your Dollars – when Warren Buffett's investment vehicle Berkshire Hathaway bought 10 per cent of it for $230m.

So why was Buffett interested in an at-the-time obscure Chinese tech firm? Electric cars is why.

BYD Automobile is looking to take its battery know-how into producing all-electric cars that go for more than a few miles and take less than a few millennia to recharge, and it has the investment at home and abroad to have a more-than-decent chance of succeeding.

For consumers, all of this is great. As long as you don't mind who makes your electronics or where, any and all competition is a good thing because it can only lead to better products. But China's shift into high-tech R&D and its patent pile-up should give Western governments pause for thought.

A large part of the West's former economic supremacy lay in its technical superiority and the investment in innovation that ensured it stayed on top. It is no coincidence that the last Western economic superpower was America, birthplace of the internet.

In the most recent downturn, one of the few industries to escape relatively unscathed was the technology sector. Not every company survived and some are much reduced from what they once were (we won't point fingers), but technology was nevertheless an important prop to ailing economies.

Sure a lot of Western companies' manufacturing happens in China already, but the products, and the profits, return to the original company and thereby the home economy. If Asia is doing all the manufacturing and China is coming up with all the technology, while the Middle East uses its oil money to invest in financial centres, you have to wonder what exactly US and European firms are going to be doing. ®

Bootnote

* NPEs (non-practising entities) are companies that hold patents but don't manufacture anything that uses these patents. In some cases, these companies come about because they get squeezed out of, or voluntarily leave, the market for the device their patent is for, but their patents still get used by other manufacturers. The situation also occurs when companies sell their intellectual property assets to get some readies or when firms go bankrupt and their assets go on firesale.

Recently, some NPEs have earned the new and uncomplimentary moniker of patent troll. This is basically a firm that only acquires or files for patents so that it can sue for infringement and royalties. The company targeting mobile app developers – Lodsys – is a recent famous example of a firm accused of this.