China is Active in IP Protection as It Shifts to an Innovation-based Economy

Virtually every day in 2017, around 16,000 new enterprises were registered in China, with many of them involved in innovative industries that account for a large part of the research and development being done in the country.

Together with established Chinese companies, including Huawei in the telecom field, Fosun in healthcare, Medtronic in medical devices, and BYD in autos, they are pushing the development of new, domestically created intellectual property.

In just a few years, smartphone maker Xiaomi has taken the industry by storm. And, of course, there is Alibaba, the world's largest e-commerce company.

Tencent's WeChat messaging and social media app has 1 billion users, while drone maker DJI has soared to the top of its industry. In artificial intelligence, machine learning and algorithms, Chinese companies are innovating at breakneck speed.

Their efforts and those of thousands of other State-owned and private enterprises have made China the world's biggest patent generator.

In 2016, China racked up more patent filings than the United States, Japan, South Korea and Europe combined. And trademark applications worldwide jumped by 16.4 percent to about 7 million, also driven by growth in China.

That year, according to the World Intellectual Property Organization, the world generated around 3.1 million patent applications — up by 8.3 percent from a year earlier, and with China accounting for 98 percent of the increase.

The growth is being spurred by strong economic expansion and a push to generate more domestic intellectual property, as well as better protections. Both could have significant implications for China's economic growth and its approach to development and global trade.

This combined push has been an increasingly important component of the nation's trade policy, including the strategy aiming to boost manufacturing innovation and promote homegrown products.

It has also been an important part of President Xi Jinping's message to the world about China's drive to improve intellectual property rights, or IPR, protection.

"Stronger IPR protection is the requirement of foreign enterprises, and even more so of Chinese enterprises," Xi said on April 10 in his keynote address at the Boao Forum for Asia, held in Boao in South China's Hainan province.

"We encourage normal technological exchanges and cooperation between Chinese and foreign enterprises, and protect the lawful IPR owned by foreign enterprises in China," he said.

Fiona Connell, principal counsel at the Asian Development Bank, notes that IP is a hugely valuable asset class in modern commerce. "For many companies and famous brands, such as Nike or Coca-Cola, it is the principal and indispensable asset," she says.

"Without adequate intellectual property protection — both laws and competent and empowered institutions that uniformly enforce the laws — companies don't have the confidence to expand manufacturing and R&D globally, and they certainly don't have confidence to share technology or scientific developments with other countries," she says.

China's trade partners have long worried about the quality of IP protection in the country, but those worries are seen as remnants of a system of IP development and legislation that was not as advanced as it is today. Reforms have been ongoing for almost two decades.

In 2014, China set up specialized IP courts in Beijing, Shanghai and Guangzhou. Previously, specialized divisions had presided over IP cases. The move marked an important step forward for China in dealing with counterfeiting and providing greater IP protection.

Article 4 of the Guiding Opinions on the Election and Appointment of Judges of IP Courts stipulates that judges in IP courts must have "at least six years of working experience in relevant IP trial work".

The IP courts have been busy since they were established. Supreme People's Court Vice-President Tao Kaiyuan, who is also China's leading IP jurist, recently said there was a 40 percent increase in the number of IP litigation cases last year.

But much work remains to be done. In March, during the annual meeting of China's top legislature, the government announced plans to restructure the State Intellectual Property Office, signaling a tougher stance on IP protection across China.

"China's embrace of IP rights is to be expected, and certainly aligns to current national interests," says Bryce Boland, chief technology officer for the Asia-Pacific region at cybersecurity company FireEye.

"It reflects the advances in the country's domestic research and development capabilities and a diminished reliance on foreign IP."

Global rankings underscore similar sentiments. The US Chamber of Commerce's Global Innovation Policy Center recently released its 2018 International IP Index, which showed China now ranks 25th among 50 economies. The ranking is two places higher than last year's.

The number of filings of trademarks, patents and industrial designs backs this up.

"The latest figures charting a rise in demand for intellectual property rights confirm a decadelong trend, where developments in China increasingly leave their mark on the worldwide totals," Francis Gurry, director-general of the World Intellectual Property Organization, said in December after the release of the global totals.

The report from the US Chamber indicated that China's IPR environment has substantially improved. It noted that reform in patents and copyrights has enhanced its protection and law enforcement results; that authorities and law enforcement bodies are placing more importance on IPR; and that the awareness of research institutions and individuals of IPR protections and their capability in using them have significantly increased.

"This shift will likely be welcomed in many post-industrial economies," says FireEye's Boland.

It also signals progress on the strategy to turn China into an advanced manufacturing economy. And a natural next step will be to bolster IP protection for the country's homegrown innovation.

"I wish to emphasize that with regard to all those major initiatives of opening-up that I have just announced, we have every intention to translate them into reality, sooner rather than later," President Xi said at the recent Boao forum. "We want the outcomes of our opening-up efforts to deliver benefits as soon as possible to all enterprises and people in China and around the world."

Quek Siu Rui, CEO of Singapore-based Carousell, an online consumer-to-consumer marketplace, says the direction China takes is important for the whole region. "Though we (Carousell) are not aiming at the (Chinese mainland) market at the moment, we do keep tabs on what's going on there, as it has a big impact on the rest of the region," says Quek.

There is a significant springboard for these measures to have an impact.

Last year, China spent around 1.75 trillion yuan ($274 billion) on research and development, accounting for 2.12 percent of its GDP, as the country pushes for innovation-driven development. The spending was up by 11.6 percent from the previous year, according to the National Bureau of Statistics.

At the end of 2015, China had 5.35 million people working in R&D.

During his speech at the Boao Forum, Xi emphasized a "new phase of opening-up".

"Human history shows that openness leads to progress, while seclusion leaves one behind. I want to make clear to everyone that China's doors will not be closed, but will only be opened wider," he said.

He said China will expand imports this year and will endeavor to "work hard" to import more products required by the Chinese. "China does not seek a trade surplus. We have a genuine desire to increase imports and achieve greater balance of international payments under the current account," he added.

The president mentioned plans to significantly lower tariffs on imported vehicles and other products to achieve that goal.

Foreign Ministry spokesman Geng Shuang said at a news conference in Beijing that China's announcement of major opening-up measures has nothing to do with the current China-US economic and trade conflicts. China's opening-up is free from outside interference.

(Source: China Daily USA, IPR Daily)