This is a guest post from Gilman Grundy. Gil is a senior IP advisor for Tieto. I know Gil from his many years before that as an IP advisor in China. The views expressed in this post are Gil’s own.

When I received Dan’s invitation to write an “in the trenches” piece on intellectual property in China I was a bit hesitant. Given all the commentary already out there on IP in China written by folks older and wiser than me there wasn’t anything left to write about on the subject.  Then I read this article at China Debate comparing China’s current patenting boom to the Mao-era Great Leap Forward, where Mao attempted to transform China almost overnight into a leading steel producer by mandating the production of steel in small furnaces at workplaces, schools, and hospitals, most of which turned out to be of very low quality:

According to the Wall Street Journal article, “China as an Innovation Center? Not So Fast,” China’s “impressive volume of patent filings conceals serious challenges to Beijing’s R&D aspirations”:

At first blush, data on “outputs” also look impressive. According to the World Intellectual Property Organization, Chinese inventors filed 203,481 patent applications in 2008. That would make China the third most innovative country after Japan (502,054 filings) and the U.S. (400,769).

Yet there’s less here than meets the eye. Over 95% of the Chinese applications were filed domestically with the State Intellectual Property Office. The vast majority cover Chinese “innovations” that make only tiny changes on existing designs. In many other cases, a Chinese filer “patents” a foreign invention in China with the goal of suing the foreign inventor for “infringement” in a Chinese legal system that doesn’t recognize foreign patents.

So how is it working? According to John Kao, “an innovation consultant to governments and corporations” and former professor at Harvard Business School, as quoted in the New York Times article, “When Innovation, Too, Is Made in China” China is right now using “a brute-force approach at this stage, emphasizing the quantity of innovation assets more than the quality.”

Sort of like instantly increasing steel production by running lots and lots of backyard furnaces.

There are a few basic issues that need dealing with here, most of which come from the WSJ piece on which the New York Times article is based:

  1. Just like every other country of which I am aware, China requires that you apply for a patent before it will grant you one. You cannot enforce a United States patent in China, or a Chinese patent in the United States. Sovereign states are funny about that.
  2. Just like every country of which I am aware, with the exception of New Zealand, China does not grant patents for inventions which have been published in another country before the priority date. Sure, you might be able to slip one past the examiners occasionally, but that’s one of the reasons for invalidation proceedings.
  3. Many of the filings referred to in the article are not for “invention patents.” They are for what are called “utility models” –- that is, “mini patents” for improvements to known technology that do not meet the requirements for an invention patent and which give fewer rights than invention patents. China is not the only country with this system –- Germany and Japan also allow for registering utility models.

This said, there is also a lot here which coincides with my experiences.

Firstly, many large multinationals with extensive facilities in China are growing their patent portfolios in China. Some of these multinationals have what amounts to a production line for patents and they are making thousands of applications per year.

How has this been achieved? In the companies with which I have worked, this was done by setting ever increasing internal targets for patentable ideas and by instituting reward schemes for inventors. Because these patent applications are often made only to reach a target (and not so much for the inventive subject matter that they are designed to cover) these can be of low quality.

Secondly, may of China’s patent applications have been by academics, lone inventors and small enterprises. Many of these applications have been fuelled by Chinese government incentives for registering intellectual property and by patenting targets for research institutes. In other words, China’s national strategy for increased patenting mirrors the carrot approach used in-house by large companies. These are often simply done to fulfill quotas or for prestige reasons, and can also often be of low quality.

So what’s my “trench-level” view on how to cope with this changing environment? Basically, if you are working in areas where patent infringement is an issue, you should focus on the following three things:

  • An  increasing number of patents out there means you should be increasing your emphasis on doing FTO (freedom to operate) work on any product or method you intend to supply, offer, make, use, or import into China to determine whether your product or process might infringe on any existing patents. I know that some people are inclined to be fatalistic about the possibility of infringement, but speaking from my own experience, this is the wrong attitude — even in software it is almost always possible to avoid a patent if it is known about early enough. This is particularly true where the patent is of low quality.
  • Where possible, try to develop your own patent portfolio to use in retaliation against any company that tries to sue you for infringement.
  • Companies give away a lot of information about themselves in their patents. Their patents can reveal who their most innovative workers are, on what technology areas they are concentrating,  etc. The more they patent, the more you can learn about how to compete with them. This is as true in China as anywhere else.

I am interested to hear what you think.