Themes: the impact of IP on trade, the economy, and innovation; challenges facing UK businesses in regard to IP in China; why the UK should continue to engage with China despite these challenges.
Concise commentary on complex issues from different points of view.
The UKNCC Guest Contributor Programme offers contrasting ‘short, sharp reads’ for those seeking a fuller exploration of key questions. This June 2021 edition explores the question:
“How is China’s approach to IP developing?”
Authors, alphabetically by surname:
- Dr Dawei Li, Senior Research Fellow, Chinese Academy for Macroeconomic Research & Dr Dapeng Chen, Research Fellow, Chinese
Academy for Macroeconomic Research - Samuel Stone, IP Attaché to China, UK Intellectual Property Office, British
Embassy Beijing
Contact us at:
perspective.ukncc@pm.me
How is China’s approach to IP developing?
Dr Dawei Li, Senior Research Fellow
Dr Dapeng Chen, Research Fellow,
Chinese Academy for Macroeconomic Research
January 2022
The UK National Committee on China (UKNCC) Guest Contributor Programme highlights contrasting responses, by leading authors, to key questions posed by the UKNCC. The programme is designed to stimulate a deeper exploration of China related issues; drive curiosity; and test conventional wisdom.
Contact us at:
perspective.ukncc@pm.me
Intellectual property protection is of great significance to the high-quality development of China’s economy. An economy that has shifted from a stage of high-speed growth to one of highquality development.
The traditional development mode which relies on large-scale input of factors to achieve economic growth is no longer sustainable. Improvement of total factor productivity has become the major pillar of the high-quality development of China’s economy, as a growing contributor to overall economic growth.
As technological progress is a fundamental driving force for the improvement of total factor productivity, China attaches great importance to the building of innovation capacity. In the outline of the 14th Five-Year Plan, it is clearly stated that innovation should remain at the core of China’s modernization to make China a strong power in science and technology at a faster pace.
Global historical experience shows that high-level intellectual property protection is a necessity for the improvement of innovation capacity. With uncertainties regarding the future evolution of technologies and innovations, disruptive technological innovations can be both costly and risky. Only when companies have the ability to secure the potential benefits of their innovations will they be incentivized to make such investments. Intellectual property protection guarantees a fair return for companies with successful innovations, thus enhances their incentives to innovate, especially when a new round of technological revolution unfolds That is the reason why economies with higher-level intellectual property protection are better positioned to take advantage of new technological revolutions. Research shows that the improvement of intellectual property protection in the US with modifications to the Patent Law incentivized US companies and researchers to conduct original innovations, which contributed to the US’s leading position in electric power and internal combustion engine technologies. China has shifted from imitative innovation in the early stage of the Reform and Opening up to high-level integrated innovation and original innovation, with a rapidly increasing number of international patents applications. In 2020, Chinese applicants submitted 69,000 applications through the Patent Cooperation Treaty (PCT) mechanism, 3.8 times the level in 2012. China’s contribution to global innovation keeps rising, especially in areas such as 5G and artificial intelligence. In 2020, Huawei, a leading global provider of information and communications technology (ICT) infrastructure and smart devices, applied for 5,464 PCT patents, ranking first in the world for four consecutive years.
According to data company IPLytics, as of November 2021, Huawei holds 16% of all valid patents in the ICT industry, higher than LG Electronics (11%) Samsung Electronics (11%), Qualcomm (10%) and Nokia (10%) Besides Huawei, BOE, a LCD panel manufacturer, and OPPO, a smartphone manufacturer, also ranked among the top ten in the world in terms of PCT patents applications. The 2020 comprehensive score of Artificial Intelligence Innovation Index, published by the Chinese Institute of Scientific and Technological Information and Peking University, reveals that China now ranks second in the world in terms of AI innovations, with the largest number of research papers published and patents applied as well as the second largest number of AI-related companies. Only by further strengthening intellectual property protection can China translate innovations into the upgrade of production processes and the improvement of management level, which in turn makes substantial contributions to the steady growth of total factor productivity and new impetus for high-quality economic development.
China has made great progress in protecting intellectual property rights. In recent years, with the long-term goal of becoming a top scientific and technological innovation power in the world, China has been constantly improving its intellectual property protection system and raising the overall level of protection.
During this process, intellectual property protection demands and claims from all kinds of innovationoriented entities including transnational enterprises are fully understood and respected, which can be seen from the process of several important amendments to the Patents Law.
Government agencies conducted multiple rounds of communications with different types of companies before finalizing the text. For example, many companies claimed that most innovations are based on design improvement and upgrade in some parts of the product, rather than complete disruptive innovations. The idea was incorporated into the law through a partial design protection system following advanced economies such as the US and Japan to better protect this particular type of innovations.
Another example lies in the increased intensity of punitive damages with the upper limit of compensation raised to five times of the illicit gains, which effectively addresses the concerns of multinational enterprises on low patent infringement costs.
In terms of intellectual property applications, the average examination period for invention patents has been shortened to 20 months from 22 months at the beginning of the 13th Five-Year Plan period, which significantly improves the efficiency of intellectual property applications. For highvalue patents, examinations can even be done in 14 months. More importantly, the Chinese government has been actively addressing the problem of low compensation for different types of infringements. The latest revision of the Patent Law explicitly introduced provisions on punitive compensations for malicious infringement. Shenzhen Special Economic Zone has taken the leading role in forming the judicial operating rules and practice modes of intellectual property punitive compensation system, with accelerated promotion all over China.
In terms of intellectual property law enforcement, four special courts for intellectual property rights protection have been set up in Beijing, Shanghai, Guangzhou and Hainan, which vigorously promotes the integration among civil, administrative and criminal trials and greatly improves the efficiency of intellectual property protection enforcement.
The Chinese government attaches great importance to the protection of intellectual property rights in international trade. During 2020, the Customs seized 61,900 batches or 56.2 million items of goods with suspicions of intellectual property infringement, an increase of more than 20% yearon-year, safeguarding the legitimate rights and interests of nearly 1,000 intellectual property rights holders in 45 countries and regions. According to the survey data of the State Intellectual Property Office of China, in 2020, the total social satisfaction score of China’s intellectual property protection exceeded 80 points for the first time, reaching 80.05 points, an increase of 16.36 points compared with 2012. The Chinese government will continue to align domestic intellectual property protection rules with international high-level standards.
With in-depth development of crossborder trade and investment cooperation in various high-tech products and services, intellectual property protection rules have become a vital part of the global rules for international trade and investment. The Chinese government has always focused on strengthening international cooperation in intellectual property rights. For example, China formally signed the China-EU Geographical Indications Agreement; finalized the negotiations of intellectual property chapter in RCEP, which is ready for execution, and implemented intellectual-property-related provisions in the First Phase of the China-US Economic and Trade Agreement in an orderly manner. Moreover, the Chinese government has applied to join CPTPP and decided to further align with the high-level intellectual property protection rules in CPTPP.
China will keep improving domestic laws and regulations, enhancing law enforcement capabilities, as well as strengthening the protection of all kinds of intellectual property rights such as copyright, trademarks, geographical indications and experimental data. Taking full advantages of the vast domestic market potential, China will better match scientific and technological innovation with domestic demands, and further inject long-lasting impetus into innovation activities in both China and the world.
About the Author
Born in February 1981, Dawei LI received his master’s degree in economics from the Central University of Finance and Economics in 2004 and Ph.D. degree in management science from the Institute of Mathematics and Systems Science of the Chinese Academy of Sciences in 2008. He is currently a senior research fellow at the Chinese Academy of Macroeconomic Research. With expertise in case studies and quantitative analysis, he researches intensively in international trade, cross-border investment, global value chain, multilateral free trade agreement, among other fields. He has been awarded more than 10 prizes and published more than 70 academic papers in leading Chinese journals such as China Soft Science and International Trade.
Dapeng Chen received his Ph.D. degree in economics from Tsinghua University in 2019. He is currently a research fellow at the Chinese Academy of Macroeconomic Research. His research interests cover corporate finance and international finance. He has published more than 10 academic papers in leading Chinese journals such as International Economics Review, China Soft Science and Nankai Management Review.
About the UKNCC
The UKNCC is designed to help the people of the UK make clear sighted decisions on their engagement with China. In an era of an exponential rise of misinformation and uninformed debate, our aim is to differentiate ‘the noise’ from robust, evidenced and well constructed information. We highlight high quality commentary and research and support those who are already, or could become Britain’s leading talents on China.
The current debate on China in the UK is too often dominated by ‘hawks’ and ‘apologists’. This can lead to over simplification and poor decision making.
The UKNCC seeks to promote a broader, nuanced debate without entertaining extreme views or perpetuating false silos.
Disclaimer:
The views expressed in the UKNCC Guest Contributor Programme are of each author and do not
represent those of UKNCC as an organisation or of any individual associated with it.
Copyright © 2024 UK National Committee on China CIC (Company number 13040199) All Rights Reserved.
Follow UKNCC on Twitter:
@UkCommittee
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How is China’s approach to IP developing?
Samuel Stone
IP Attaché to China
UK Intellectual Property Office
British Embassy Beijing
January 2022
The UK National Committee on China (UKNCC) Guest Contributor Programme highlights contrasting responses, by leading authors, to key questions posed by the UKNCC. The programme is designed to stimulate a deeper exploration of China related issues; drive curiosity; and test conventional wisdom.
Contact us at:
perspective.ukncc@pm.me
Intellectual property: essential to innovation and trade
Intellectual property (IP) is the bedrock of innovation and creativity. The system of interconnected IP rights – in trade marks, patents, copyright, designs, and trade secrets – provides rights holders with carefully defined monopolies that protect brands, new technologies, and creative works. A strong IP system therefore rewards and incentivises innovation, in turn helping to drive economic growth. IP protection in other markets is therefore critical to UK interests abroad. For that reason, the UK Intellectual Property Office (UK IPO) has a network of attachés across the globe, engaging with governments on IP and providing on-the-ground support to UK businesses in-market. [1]
For more than ten years, the UK IPO has posted an attaché team to China, based in the British Embassy. Looking to the UK from a vantage point in Beijing, it’s clear there is a perception that protecting IP in China can be challenging.
This view isn’t unreasonable; historically there have been significant issues with IP infringement that have impacted UK businesses. There are plenty of anecdotes – of prototypes shared with a potential manufacturing partner that later turn up on the market; of trade marks registered by a third party that look alarmingly like an established brand – which will have roots in direct and unwelcome experiences for UK firms.
IP in China: a fluid landscape
Some of these issues persist, and it would be wrong to pretend otherwise – we will return to the ongoing challenges below.
However, there have also been rapid improvements in the registration and enforcement of IP rights in China, and this part of the story is possibly less well-known. With such a fast-moving IP landscape in China, it is important to understand what changes are happening, why they are being made, and how this impacts UK companies that want to do business with, and in, China. The last three or four years alone have seen major revisions to China’s IP laws and judicial guidance. As a result of ongoing reforms, it has probably never been easier to register IP rights in China.
It may often surprise UK firms that once IP rights are granted, enforcement of those rights is less challenging than expected. Accordingly, in the last few years British firms in China have reported that IP protection is becoming less of a relative concern. [2] From a broader comparative perspective, China has steadily moved up the rankings in the Global Innovation Index, rising from 25th place in 2016 to 12th in 2021 (the UK is fourth). [3]
The broader context to these changes is important and again, may not be that well recognised by UK businesses. Firstly, while the Chinese IP system was initially strongly shaped by international norms, it primarily serves current domestic needs. Of the 9.3m trade mark applications made in China in 2020, only a fraction (2.5%) were by foreign parties. [4] Secondly, at the macro level, China’s IP reforms are part of its long-term plan to become a more innovative economy and a world-leader in many fields of science and technology. This ambition requires a stronger IP system to incentivise and reward domestic innovators and increase competitiveness globally.
In September 2021, China’s State Council published a roadmap for becoming a “Powerful Intellectual Property Nation (2021–2035)”, in which IP was described as a strategic resource for national development and a core element of international competitiveness. [5] China has also made recent international commitments to undertake a number of changes in respect of IP rights and technology transfer – some of these had already been in train for a while.
But overall, China is increasingly explicit that strengthening its IP system is perceived to be in its own interests, both at home and abroad.
Improving IP protection: China’s interests, but UK benefit?
While the primary motivation for China strengthening its IP system may be to support its own domestic enterprises, UK companies and rights owners also benefit from these improvements to the business environment. However, significant challenges remain. Firstly, while counterfeit and pirated goods originate from virtually all economies in all continents – and have been linked to wider illicit trade [6] – China and Hong Kong continue to be by far the biggest sources. [7] Counterfeiting and piracy not only impact UK firms operating in China, but also British businesses in other global markets, and in the UK itself (imports of counterfeit and pirated goods from all sources to the UK accounted for as much as £13.6bn in 2016). [8] Secondly, there remains a systemic challenge with “bad-faith” trade marks – when a third party with ill-intent registers a trade mark for another company’s brand in China first, leaving the brand owner in the unenviable position of either negotiating for ownership of the mark, or having to rebrand for a Chinese market. While the Chinese government has taken significant steps to try and tackle the issue, bad-faith trade mark concerns are the problem most frequently reported by businesses to the UK IPO attaché team in Beijing. Thirdly, although China has made sustained efforts to build capacity and capability in IP enforcement (not least in the establishment of specialist IP tribunals across the country, and the IP tribunal of the Supreme People’s Court), ensuring consistent enforcement across the three channels of civil, administrative and criminal enforcement, and also between regions and cities, is an ongoing challenge for authorities and therefore for rights-holders. Finally, enforcement of trade secrets has been particularly challenging, due to factors that include lack of a disclosure process, and high evidence burdens.
Looking ahead, the landscape in China continues to be fluid: the implementation of regulations for various recent legal changes remains pending, and further changes to the overarching trade secrets framework are said to be due next year As the IP rights framework becomes more sophisticated, attention is likely to increasingly focus on effective enforcement of those rights. More broadly, how these domestic improvements play into China’s role and strategic ambitions internationally will also be of interest – such as the approach of Chinese courts to disputes over licensing of Standard Essential Patents (SEPs), which underpin globalised technology standards. UK courts have been proactive in setting global licensing rates, including for Chinese businesses. How China responds and whether the response is beneficial to the UK, only time will tell. However, the UK Government’s current call for views on SEPs [9] may help draw out some solutions for both UK and Chinese businesses.
Why engage?
The above is not an exhaustive list of the challenges, so at this point it may be worth reminding ourselves of why the changing nature of the Chinese IP system matters. In short, there are implications for UK companies, and the UK as a whole. Intangible assets, of which IP is a part, play an important role in the UK economy. Investment in intangible assets grew to nearly £170bn between 2017 and 2018 -exceeding total tangible investment. [10] China was the UK’s third largest trade partner in 2020, with total trade worth £83bn. [11] The UK is considered a world-leader in terms of our IP framework and innovative capacity, and China is willing to learn from innovative economies. This opens the door for sharing expertise, to help shape the IP environment and to bring China in line with international best practice. Further, in some areas China is leading the way – not least in announced plans to legislate for new technologies and IP. The UK government’s Innovation Strategy sets out our ambition for the UK to be a science and technology superpower, and in working toward this goal, it would be a mistake to ignore what we can learn from China. This year marks the 25th anniversary of formal cooperation between the UK and China on IP. Continued engagement will allow us to pursue the UK’s interests by helping to strengthen China’s IP system and achieve greater protection for UK innovations, products, and services in China and across the globe. For advice from UK IPO about registering and protecting your IP overseas, please see: https://www.gov.uk/government/collect ions/international-ip-service.
About the Author
Samuel leads the UK intellectual property attaché team at the British Embassy in Beijing, with responsibility for intellectual property engagement in China as well as providing support to UK businesses operating in the market. Samuel has previously worked in several other UK government departments, including the Department for International Trade, where he worked on trade policy and market access in relation to China and Hong Kong. Linkedin: https://www.linkedin.com/in/samu el-s-34879192/
About the UKNCC
The UKNCC is designed to help the people of the UK make clear sighted decisions on their engagement with China. In an era of an exponential rise of misinformation and uninformed debate, our aim is to differentiate ‘the noise’ from robust, evidenced and well constructed information. We highlight high quality commentary and research and support those who are already, or could become Britain’s leading talents on China.
The current debate on China in the UK is too often dominated by ‘hawks’ and ‘apologists’. This can lead to over simplification and poor decision making.
The UKNCC seeks to promote a broader, nuanced debate without entertaining extreme views or perpetuating false silos.
References:
2.British Chamber of Commerce in China (2021). British Business IN China: Sentiment Survey 2020-https://www.britishchambershanghai.cn/content/media/2021/12/British-Business-in-China-Sentiment-Survey-2021-2022.pdf
3.World Intellectual Property Organisation (2021) Global Innovation Index 2021, 14th Edition. https://www.wipo.int/publications/en/details.jsp?id=4560&plang=EN
4.https://new.qq.com/rain/a/20210512A0AVMA00
5.https://www.cnipa.gov.cn/art/2021/9/23/art_2742_170305.html
6. OCED/ EUIPO (2019). Trends in trade in counterfeit and pirated goods: the updated picture. https://www.oecd.org/en/topics/policy-issues/anti-corruption-and-integrity.html
7.] TRACIT (2021). The Human Cost of Illicit Trade:bexposing the demand for forced labour in the darkest corners of the economy. https://www.tracit.org/human-cost-of-illicit-trade.html
8.OECD/ IPO (2019). Trade in Counterfeit Products and the UK Economy: 2019 update. https://www.oecd.org/en/topics/sustainable-and-resilient-infrastructure/risk-governance.html
9.https://www.gov.uk/government/consultations/standard-essential-patents-and-innovation-call-for-views
10.Office for National Statistics (2018). Investment in intangible assets in the UK: 2018. https://www.ons.gov.uk/economy/economicoutputandproductivity/productivitymeasures/articles/experimentalestimatesofinvestmentinintangibleassetsintheuk2015/2018
11. Exports plus imports of goods and services, not seasonally adjusted. Department for International Trade (2021). Trade and Investment Core Statistics Book. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1104678/dit-trade-and-investment-core-statistics-book.pdf
Disclaimer:
The views expressed in the UKNCC Guest Contributor Programme are of each author and do not
represent those of UKNCC as an organisation or of any individual associated with it.
Copyright © 2024 UK National Committee on China CIC (Company number 13040199) All Rights Reserved.
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