Battle of Ideas

Chinese companies are enforcing patents against foreign firms

FOR over a decade Schneider Electric of France has bombarded a Chinese firm, Chint Group, with lawsuits accusing it of copying its technology. But the tables turned on April 15th when the two companies settled an infringement case—with the French firm forking over $23m to Chint. The rich settlement against a foreign firm is a landmark. It serves as a reminder that Chinese companies are just as eager to defend patents as Western firms, and that China’s intellectual-property regime has been tightened in recent years.

Long the workshop of the world, China wants to be the brains as well. The country’s patent office leads the world in patent applications, more than 800,000 of which were filed in 2008. Most are for “petty” patents: middling technology that undergoes minimal review and receives only a 10-year term. Such patents are usually derided by research-intensive Western firms—but Schneider was stung by one that had been issued to Chint. And Chinese firms are increasingly filing “invention” patents that are rigorously scrutinised and receive 20 years of protection, as in the West (see chart). This year Chinese companies are poised to surpass foreign ones in receiving invention patents in China.

With the rush for patents has come an increase in disputes. Since 2006 more patent lawsuits have been filed in China than anywhere else, even litigious America. Most pit domestic firms against each other, but in recent years foreigners have found themselves on the receiving end too. In December Samsung, a South Korean conglomerate, was ordered to pay compensation to Holley, a Chinese telecoms firm. The recent victories and lucrative awards will open the floodgates to more suits, predicts Tony Chen of Jones Day, a law firm.

Intellectual property is relatively new to China. Patents date back to Venice in the 15th century, but Communist China did not allow them until 1985. Since 2006 it has pursued a deliberate policy of gathering as many patents as possible and developing home-grown technologies—not least because Chinese companies pay around $2 billion a year in licensing and royalties to American firms alone, according to America’s Bureau of Economic Analysis.

Chinese firms are also increasingly seeking patents abroad, a sign that they plan to protect their technology when exporting it to rich countries. They won 90 patents in America in 1999 but last year they received 1,225. That is still relatively few—IBM, an American technology giant, receives around 3,000 a year—but it is increasing quickly. Because it takes three to five years to issue a patent, the number issued to Chinese firms is expected to soar soon. The quality of patents issued in China is also improving. Revisions to the patent law that take effect in October strengthen the requirement for a patent’s novelty, bringing it up to global standards. Stronger patents are easier to enforce, opening the door to more lawsuits.

All these trends are important because countries that create intellectual property eventually enforce it as well, explains Dominique Guellec of the OECD. America, it is worth remembering, was the great copyright and patent infringer when it was a developing country in the 18th century