Innovation is a primary source of a national power. A country’s ability to develop new products or methods of production enables it to produce goods desired by others. In turn, innovation creates wealth, leads to new technology, and fosters further innovation through the development of derivative products. When measuring China’s growing international influence, it is essential to consider sources of Chinese innovation.
Triadic patent families
One way to measure innovation is through intellectual property (IP) protection in the form of patents. Patents secure exclusive rights to an invention, and thereby offer insight into key areas of innovation. This question assesses the relationship between patents and innovation by exploring trends in patent applications by Chinese inventors at various patent offices, examining the recent surge in domestic patent applications in China, and considering the relative value of patents in terms of the frequency of citations.
Why do patent families matter when comparing countries?
In 2014, China’s State Intellectual Property Office (SIPO) processed 34.6 percent of all patent applications in the world. With over 920,000 total applications, China processed 160 percent more application than the United States and 285 percent more applications than Japan.
When you look at China you have very high patent numbers. Patent filings are reaching two million a year at the Chinese patent office . . . they are certainly filing a lot of international patent applications as well. But how you value that volume of patents is less clear and more subjective.
– Esther Lim
While the explosion of domestic patent applications in China is impressive, this growth does not necessarily correspond with dramatic advances in innovation. Comparing patent applications and grants between countries does not take into account differences in government policies and the domestic regulatory environment. In the case of China, SIPO’s National Patent Development Strategy explicitly equates patent generation with innovation and calls for government incentives to bolster the number of domestically filed patents. The strategy has resulted in SIPO patents being awarded to small design tweaks and incremental innovations.
Given the nuances of domestic filing procedures, it is necessary to examine how Chinese patents fare internationally at the world’s top patent offices. Patent families offer a means to assess patent quality across borders and explore what patents reveal about innovation. In general, patent families consist of a collection of documents filed at different patent offices around the world for the same invention. Although a number of different patent families exist, the triadic patent family is widely recognized as the gold standard. Triadic patents are filed jointly in the largest global technology markets: the Japanese Patent Office (JPO), U.S. Patent and Trade Office (USPTO), and the European Patent Office (EPO). Joint filing guarantees broader intellectual property protection and offers greater opportunity for a specific technology to generate revenue for its inventor on the global market. These incentives come at a cost. Triadic patent applications are considerably more expensive than domestic applications; they are harder to obtain, and in some cases, triadic patent applications can take up to five or six years to process.
In 2014, Chinese residents filed 801,135 domestic patent applications, while, Chinese nationals only filed around 36,762 patent applications abroad. According to the Organization for Economic Cooperation and Development (OECD), China only filed 1,896 triadic patents in 2013. By comparison, the United States in the same year filed 14,211 triadic patents, with Japan filing 16,196. The United States has had at least 10,000 triadic patents granted every year since 1990. China has never had more 2,000 triadic patents granted in a calendar year. This data suggests that while China now processes the greatest number of domestic patent applications annually, these patents do not hold up under the more stringent requirements of the international patent system.
Another important avenue for international patent filing is through the Patent Cooperation Treaty (PCT), which is a multilateral framework that facilitates joint filing for patents in a number of countries. China signed the treaty on January 1, 1994. According to the OECD, Chinese applications for PCT patents increased from 128 in 1994 to 1,558 in 2000 to 20,451 in 2013. China has now surpassed Germany and South Korea in application volume but is still well behind Japan (41,898 in 2013) and the United States (59,082).
I cannot imagine in this knowledge-based global economy that people would invest as much money and resources into research and creating new ideas if there was no intellectual property protection.
– Esther Lim
While China may lag behind other countries in terms of global IP reach, it is possible that the standard U.S.-EU-Japan triad could shift to include SIPO as a leading patent office. A 2009 study notes that a considerable number of patents are filed at different patent offices within the triad region.1 These findings reveal that telecommunications patents filed jointly in both China and Japan receive about 20 percent more citations than those filed only at one of the two offices.1 Furthermore, while in 1994 about two-thirds of telecommunications patents were registered only in Japan and not in China, by 2002 only one-third of such patents were solely filed in Japan.1 This suggests a need to reconsider the importance of the standard triadic patent family for certain technological sectors.
Who is filing patents in China?
Much like China’s economic growth rate, the number of patents filed in China has sustained a high growth rate throughout much of the last two decades. A large percentage of this growth in patent applications stems from a flood of domestic applications. However, despite impressive growth in domestic filing, this growth does not necessarily reveal a wealth of innovation in China. An Oxford University study suggests that China’s patent explosion is primarily driven by a small subset of extremely successful firms within the electronics industry. This trend corresponds with innovation guidelines established by the Chinese government, which state that China will “make arrangements in advance in some key technological fields and master the patent rights of a number of core technologies” in order to support emerging Chinese industries.
The results of this strategy can be seen by examining corporate patents from a global comparative lens. According to the World Intellectual Property Organization (WIPO), the two Chinese electronics giants ZTE and Huawei rank 18 and 21 respectively in total patent family applications since 2000. In terms of PCT patents, Huawei ranks 5th and ZTE 8th globally in the number of filed applications between 1995 and 2014. The global emergence of these companies is recent, as neither company ranked in the top 100 for worldwide corporate patent applications in the 1980s or 1990s. Furthermore, while Chinese spending on research and development (R&D) reached 2 percent of GDP for the first time in 2013, Chinese expenditures remain well behind those of the U.S. in terms of nominal and per capita spending.
While patent data provides insights into comparative levels of innovation across borders, there are limitations to this approach. This is due to the fact that China grants patents based on a different set of characteristics than other countries. Chinese patents are subclassified into highly innovative “invention patents” and lower quality “utility model” and “design” patents. The latter two categories require a much lower standard of innovation than invention patents. According to SIPO’s data, just 20.9 percent of all patents filed in China between January and December 2015 were classified as “invention” patents.
Furthermore, a lack of substantive technological improvements in patents may, in part, be incentivized by government policies that emphasize quantity over quality. By filing for patents, Chinese companies can receive cash bonuses, subsidies, and even lower corporate income taxes from the government. In many cases these incentives trickle down to the company level, with firms like Huawei offering patent-related bonuses to employees.
Although Chinese firms are largely responsible for the increase in utility model and design patents, foreign firms are disproportionately producing invention patents. According to the National Bureau of Statistics of China, in 2014, 30.25 percent of the 233,228 invention patents granted by SIPO went to non-residents. This number fell to around 27 percent (roughly 9600) in 2015. U.S., Korean, German, and Japanese patent filers accounted for 79.65 percent of these 2015 grants.
By breaking down Chinese international patent filings by sector, it is clear that China has not yet equaled the innovation level of other leading economies. In 2011, approximately 63 percent of all Chinese triadic patent applications were in information and communications technology (ICT). This figure rose to 71.7 percent in 2012. However, Chinese patent applications only accounted for 4.17 percent of world applications in this sector in 2011 and just 5.21 percent in 2012. By comparison, South Korea accounted for 5.83 percent in 2011 and 8.62 percent in 2012, the United States 27.52 and 21.61 percent, and Japan 35.74 and 43.7 percent. In biotechnology, China submitted 1.48 percent of triadic patent applications in 2012, while the United States led with 41.53 percent. In nanotechnology, China had 2.86 percent of applications in 2012, while Japan had 24.86 percent and the United States had 33.27 percent.
How can patents be compared to one another?
Not all patents are equal. Even in cases where the legal framework to acquire and maintain patents is similar, differences exist among the value of patents, the representation in select industries, and the propensity to acquire patents. One metric that gauges the “value” of a specific patent is citations.
Patents include citations to relevant scientific data and previous patents that are deemed “important” to the newly patented product. As a secondary effect, patent citations reveal the relative influence and reach of individual patents. As such, how much a specific patent influences the development of other technologies can be extrapolated from the frequency of citations. For example, a patent for a new toothbrush might be cited by its derivative successor, or by no one, while a patent for a semiconductor used in a variety of electronics might see citations in hundreds of different patent papers. In this case, the number of citations suggests the relative importance of the product in terms of contributing innovation within a specific market.
A Conversation with Esther Lim
0:06 - How strong is the link between the number of patents filed and innovation?
9:53 - How effective are intellectual property rights in China? Do you think China's transition to a value-added growth model will lead to greater IP protection?
14:27 - How important is IP protection in the promotion of innovation? Could a country encourage innovation without the use of patents as a legal protection?
17:09 - What type of patents are most crucial for technological innovation? Are there any identifiable points in the innovation process where a new patent has particular value?
Some argue that the age of the industry is critical in evaluating the value of its patents. Hall, Jaffe, and Trajtenberg argue that, based on U.S. patent data alone, 50 percent of citations are made to patents at least 10 years older than the citing patent, 25 percent to patents 20 years older or more, and 5 percent of citations to patents 50 years older or more. Resultantly, as a market or industry segment matures, it places new importance on certain patents. This indicates a value that may only be evident when considering the long-term influence patents have on innovation. While China was the number one applicant for domestic patents in 2013, citations for Chinese patents are relatively sparse. For example, Chinese forward citations for data processing inventions received only one-sixth the average number of citations that U.S. patents do. This may indicate that Chinese patents only have a limited impact on global innovation.
A second measure of patent value can be ascertained by looking at how patent owners seek to protect their intellectual property in international markets. A study by Eberhardt, Helmers, and Yu examined whether Chinese firms have sought patent protection with the USPTO as well as the SIPO. USPTO protection requires a greater degree of confidence in both the strength and uniqueness of an innovation to pursue protection, thereby revealing whether a patent filed domestically in China would stand up to international standards. Furthermore, foreign patent recognition indicates market ambitions beyond the domestic sphere, which also indicates the relative value of a product. The small number of Chinese patents filed with the USPTO are held by a few large, export-oriented firms in the computer, communication, and consumer electronics industry.