New Risks – and 3 Tips – for Patent Holders in China: Chinese companies have aggressively grown their portfolios

Monday, June 26, 2017 - 22:19

The Chinese intellectual property sector has been changing and growing for years, but few people would tell you so. The country has long been labeled as an IP rights violator and generally carries a bad reputation in its handling of copyrights. But Chinese companies are becoming more aggressive in building patent portfolios.

In fact, according to the World Intellectual Property Organization, Chinese-based inventors filed the most patent applications of any country in 2015. Filing more than a million applications, they clearly outpaced the United States (526,296) and more than doubled those filed in Japan (454,285). An article in Chinadaily.com notes that Chinese companies also filed 7,150 patents with the European Patent Office (EPO) in 2016, a nearly 25 percent increase from 2015.

While Chinese companies were initially filing primarily in the information and communications technology sector, the same Chinadaily.com article suggests they are now increasingly filing patents in many other sectors, including engines, turbines, sports, automotive and biotech. The growth in filing and change in focus reflect China’s new, global IP trajectory.

To support and encourage inventors and their corporate sponsors, the Chinese government built a court system to resolve patent disputes. The Library of Congress explains that, as a civil law country, Chinese judges make rulings based on statutes without deference to other court decisions – unlike the U.S. common law system, which is based on judicial interpretations.

One benefit of this system is that the Chinese courts are faster and less expensive than most other jurisdictions. IPWatchdog recently reported that the average time from filing a suit to a verdict in the Beijing IP Court was 125 days compared with 18 months in Europe and 2.4 years in the United States, where an injunction is not automatically available.

The Chinese legal system also provides for damages to be awarded when infringement is found based on the patentee’s actual losses, profits of the infringer and royalties. There was little evidence of any significant damages awards until December 2016, when, according to White and Williams LLP, the Beijing IP Court ordered defendant Hengbao Co., Ltd. to pay $7.1 million in damages for infringing a single data encryption patent owned by Watchdata System Co. Ltd. The court also awarded attorneys fees based on hours and rates. 

Based on this changing environment, and the potential benefits for U.S. companies, what should they do? Here are three tips to jump-start your thinking.

1. Perform detailed research on the patent and product activities of Chinese competitors.

U.S. companies should have their patent counsel work closely with their research and business development teams to identify where across the globe Chinese companies are filing patents and selling related products. Doing so will help inform filing, licensing and litigation strategy related to Chinese competitors.

2. Consider China as a venue for patent litigation to resolve global infringement disputes.

In December 2016, Qualcomm reached a global settlement for a 3G- and LTE-standards case after initiating an infringement suit in China against Chinese electronics-maker Meizu. This win proves that U.S. companies can successfully pursue litigation in China.

3. Companies doing business in Germany should know that Chinese companies are initiating patent litigation there.

U.S. companies have long been familiar with the benefits of bringing infringement actions in German courts. These cases are also tried before judges and provide injunctive relief with a faster timeline and lower costs than are generally available in U.S. courts. U.S. companies that compete with Chinese companies in Germany should anticipate the risk of being sued in German courts.

Ultimately, China’s rapid progress in patents and litigation makes Chinese companies a much greater competitive threat than they used to be. To meet this challenge head-on, U.S. companies should consider engaging Chinese counsel and technical experts to fully consider the risks and opportunities associated with these new competitors.

This should include assessing opportunities to pursue a more aggressive licensing strategy that could even involve – surprising to some – litigating in China. 

David Yurkerwich is a managing director and the leader of the Navigant’s intellectual property team – Navigant IP. He operates from offices in New York and San Francisco. He and the Navigant IP team of seasoned experts assist clients with the challenges and opportunities associated with assessing, valuing and managing IP assets in today’s global innovation economy. He can be reached at david.yurkerwich@navigant.com.