Are Patents Indicative of Chinese Innovation?

Innovation is a primary source of national power. A country’s ability to develop new products and methods of production enables it to produce the goods desired by others. In turn, innovation creates wealth, leads to technological advancement, and fosters further innovation through the development of derivative products. When measuring China’s growing international influence, it is essential to consider the sources of Chinese innovation.

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 feature 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 2016, China’s National Intellectual Property Administration (CNIPA, formerly the State Intellectual Property Office) processed 42.8 percent of all patent applications in the world. With over 1.3 million total applications, China processed 121 percent more applications than the United States and 320 percent more applications than Japan that year.

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, the CNIPA National Patent Development Strategy explicitly equates patent generation with innovation and calls for government incentives to bolster the number of domestically filed patents. This strategy has resulted in CNIPA patents being awarded for small design tweaks and incremental changes versus entirely new inventions.

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 these 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.

Number of Patents Filed by Country (2016)
Country	Percentage (%)	Total
China	42.8	1,338,503
United States	19.4	605,571
Japan	10.2	318,381
South Korea	6.7	208,830
Germany	2.2	67,899
Rest of World	18.8	588,716
Source: World Intellectual Property Organization

Although several 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 Japan Patent Office (JPO), the United States Patent and Trademark 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. However, this protection comes at a cost: triadic patent applications are considerably more expensive than domestic applications. They are harder to obtain, and in some cases, can take up to five or six years to process.

In 2016, 96 percent of patent applications from Chinese residents were filed domestically, with only 4 percent filed abroad. In contrast, filings abroad account for 43 percent of total applications from both Japan and the US in the same year. According to the Organization for Economic Cooperation and Development (OECD), China only filed 2,889 triadic patents in 2015. By comparison, the United States filed 14,886 triadic patents, with Japan filing 17,361 in the same year.

The United States has had at least 10,000 triadic patents granted every year since 1990. It was not until 2013 that China had more than 2,000 triadic patents granted in a calendar year. This suggests that while China now processes the greatest number of domestic patent applications annually, many of these patents do not hold up under the more stringent requirements of the international patent system. This trend might be changing, however, particularly in the US. Over the last decade, Chinese companies have achieved a tenfold increase in their share of US patents. China became one of the top five US patent recipients for the first time in 2017, behind the US, Japan, South Korea and Germany.

Another important avenue for international patent filing is through the Patent Cooperation Treaty (PCT), a multilateral framework that facilitates joint filing for patents in a number of countries. China signed on to the treaty on January 1, 1994. According to the World Intellectual Property Organization (WIPO), Chinese applications for PCT patents increased from 782 in 2000 to 48,899 in 2017, overtaking Japan for the first time. China’s application volume is also ahead of Germany and South Korea, and only remains behind the United States’ 56,680.

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 other countries in global IP reach, it is possible that the standard US-EU-Japan triad could shift to include CNIPA as a leading patent office. In 2016, The CNIPA alone received more applications than the combined total for the USPTO (605,571), JPO (318,381), EPO (159,358), and the Korean Intellectual Property Office (KIPO, 208,830). Among the top ten IP offices for patent applications, only China’s office saw double-digit growth between 2016 and 2017.

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. This extraordinary growth corresponds with Xi Jinping’s Made in China 2025, which aims to upgrade key domestic industries to compete with advanced economies in high-tech sectors.

The outcome of this strategy can be seen by comparing corporate patents from a global perspective. According to WIPO, the two Chinese telecom giants Huawei and ZTE have been the top PCT applicants since 2015, followed by Intel, Mitsubishi, and Qualcomm.  The global emergence of these Chinese companies is recent, as neither ranked in the top 100 for worldwide corporate patent applications until the 2000s. Furthermore, Chinese spending on research and development (R&D) has surged significantly. In 2016, China’s nominal R&D expenditure surpassed that of Japan, Germany, and South Korea combined.

While patent data provides insight into comparative levels of innovation across borders, this approach has limitations. 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 do invention patents. According to CNIPA, just 19 percent of all patents granted in China in 2017 were classified as “invention” patents. This number suggests that China’s large volume of applications may not accurately represent an increase in its level of technological innovation.

Chinese Patent Applications & Grants by Category (2017)
Category	Filed	Filed (%)	Granted	Granted (%)
Invention	1,245,709	35.2	326,970	19
Utility Model	1,679,807	47.5	967,416	56.2
Design	610,817	17.3	426,442	24.8
Source: China National Intellectual Property Administration

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.

Foreign firms are also disproportionately producing invention patents while Chinese firms are largely responsible for the increase in utility model and design patents. According to the National Bureau of Statistics of China, 25.25 percent of the 404,208 invention patents granted by CNIPA in 2016 went to non-residents. American, Korean, German, and Japanese patent filers accounted for as much as 97.68 percent of the invention patents granted.

By breaking down Chinese international patent filings by sector, it is clear that China has not yet matched the innovation level of other leading economies. In 2013, approximately 58 percent of all Chinese triadic patent applications were concentrated in information and communications technology (ICT). However, Chinese patent applications in this sector only accounted for 8.73 percent of the world total. By comparison, the United States accounted for 33.7 percent, and Japan made up 26.73 percent. In biotechnology, China submitted 2.43 percent of triadic patent applications in 2013, while the United States led with 47.7 percent. In medical technology, China only had 1.51 percent of applications in 2013, while Japan had 17.23 percent and the United States had 42.43 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 in the value of patents still persist. Notably, the proliferation of low-quality patents may hinder innovation as it increases barriers to entry. One metric used to gauge the value of a specific patent is its number of citations.

Patents include citations to relevant scientific data as well as previous patents that were deemed important to the creation of 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 its 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 its contribution to innovation within a specific market.

A Conversation with Esther Lim

While China has the largest number of domestic patents in the world, 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 US patents received in 2013. This may indicate that Chinese patents only have a limited impact on global innovation.

A second measure of patent value can be derived by looking at how patent owners seek to protect their intellectual property in international markets. A study by Eberhardt, Helmers, and Yu examined how many Chinese firms have sought patent protection with the USPTO as well as the CNIPA. 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 signifies market ambitions beyond the domestic sphere, which can also indicate 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.

Chinese patents have noticeably shorter shelf lives compared to those of advanced economies. In general, patents with longer lifespans are considered to be more valuable, as holders only choose to pay recurring maintenance fees if the patent is still worth upholding. According to Bloomberg, roughly 91 percent of Chinese design patents, 61 percent of utility patents, and 37 percent of invention patents granted in 2013 had been discarded by 2017. In comparison, less than 15 percent of US patents were disposed of during the same period. The low retention rate of Chinese patents implies that despite the large volume of patents being granted in China, most are being awarded to comparatively less-valuable innovations with limited staying power.