What is Likely to Drive Chinese Patent Filings in the Coming Years?

Chinese companies have filed the most number of patents in 2020 at the European Patent Office.

Pharmaceuticals and biotechnology patents had the biggest jump in filings last year, which is unsurprising given the global health concern brought on by the coronavirus. Most research and development (R&D) projects undertaken last year targeted a cure for the coronavirus.

With 3,113 applications, Huawei was again the most active patent applicant from China at the EPO, followed by Guangdong Oppo Mobile (715), Xiaomi (603), BOE Technology (556), and ZTE (458).

The number of patents coming from Chinese companies has been aligned with the government’s bid to become technologically self-reliant. At present, Chinese companies have to partner with foreign companies in order for its technologies to become viable in the market.

Despite the number of Chinese patents getting approved in various jurisdictions, there are two glaring weaknesses in China's patent situation. First is poor conversion to commercial applications, and second is the presence of too many ‘junk’ patents.

China's National Audit Office noted that the government's spending for R&D has translated to poor commercial applications or in other words have not been monetized. In fact, only 8.4% of approved patents from educational institutions converted into commercial applications.

As for ‘junk’ patents, most of them came from universities. This is aligned with their bid to meet performance assessment targets. One university official agreed that the rise of ‘junk’ patents were a result of meeting numbers even when these so-called inventions have little to no real commercial value. In other words, universities need to churn out a certain number of patentable inventions in order for them to continue receiving government subsidies.

Subsidies are likely a major factor in the growth of Patent Cooperation Treaty (PCT) applications, in which China was the top filer in 2020. For example, the city of Shanghai provides a patent subsidy of 50,000 RMB (~$7,700 USD) for each foreign patent granted via the PCT versus 40,000 RMB for each foreign patent grant that was filed directly (e.g., via Paris Convention). However, the subsidy for the grant of Chinese patents is only 2,500 RMB.

To change the current patenting landscape, China will have to adopt several initiatives that could drive patent filings in the coming years.

Eliminate Government Subsidies and Curb ‘Junk’ Patent Filings

The Chinese government plans to put more stringent measures in place to curb patent filing subsidies. To this end, the China National Intellectual Property Administration (CNIPA) released the 2021 budget in March.

The budget contemplates (1) eliminating patent subsidies for filing patents; and (2) crackdown of irregular patent applications. Because of these initiatives, the patent office expects a potential drop in patent filings by about 1 million patents a year moving forward.

CNIPA also defined irregular patent applications that include simultaneously or successively submitting multiple patent applications that are obviously the same invention, and applications that are fabricated, forged or altered inventions. This definition would make it easier for examiners to reject multiple filings that contemplate the same inventions or creations.

Domestic companies race to file patents to get subsidies and preferential treatment from the government. A company that obtains a patent can get “high and new technology enterprise” status. This status is beneficial to the company because it will be qualified to pay a 15% corporate income tax that is substantially lower compared to the regular 25% income tax that corporations pay.

They also exploit the "lack of substantial examination" when filing. This means that they can submit applications without undergoing a thorough pre-approval process. Worse, they can force foreign brands to enter into licensing agreements with local Chinese companies. The latter reason creates an atmosphere of mistrust as Western companies may not find it appealing to file for patent protection in the country.

In the long run, the Chinese government plans to totally eliminate all patent subsidies by 2025.

Accelerate Commercialization of University Research

Chinese universities are among the biggest recipients of government funds for research. As a result, Shenzhen University ranked third worldwide with its 252 patent filings, next only to the University of California and the Massachusetts Institute of Technology. Despite the large number of filings, only 10% of university patents are successfully commercialized.

Some factors that prevent Chinese patents from getting converted commercially are restrictions on technology transfer, lack of payment for patents, and the intricacies associated with guanxi, which means connections or networks that affect business transactions in China.

China's latest five-year economic development plan lays out the strategy on how it can capitalize on its vast research potential to reach new heights. It is likely that Chinese universities will be granted more leeway in terms of IP management. This suggests that universities can determine the projects they want to pursue instead of merely following what the government wants. They will also be given rights to their inventions even when they are government-funded.

It will be interesting to watch the various initiatives that will be adopted by China over the next few years, which in turn will have a dramatic impact on global patent filings.