China's IP ascent is not written in stone

The rise of Chinese patents has been one of the key storylines in the IP world over the past decade. High hopes have always been caveated with concerns about examination quality, judicial independence and the country’s close association with trade secrets theft. However, the rapid pace of change in the patent sphere has been undeniable, making it hard to bet against China’s IP ascendance.

The huge leaps in Chinese patent filings and the country’s now-entrenched numerical dominance over the patent universe are well understood. But what was more interesting to foreign IP executives was the transformation in perceptions about civil IP litigation.

Statistical samples of the Chinese courts’ absurdly busy dockets, based on the limited data available, showed time and again that judges in IP cases were mostly handing down pro-patent owner decisions and that foreign companies were even more likely than local ones to benefit.

Moreover, this came to light at a time when there was much sceptism over the US litigation environment post-PTAB and post-Alice. China offered the possibility of powerful injunctions that, in most cases, were unavailable to plaintiffs state-side. Legal analysts pointed out that, compared to other jurisdictions, the China National IP Administration (CNIPA) was more favourable to applicants in areas such as software. China was seen as a promising litigation venue – provided that the politics were right and you were smart.

In many ways, this is still true. I know for a fact that licensors big and small are profiting from Chinese patent enforcement, despite the trade stand-off with the Trump administration. That includes foreign companies and NPEs, including those that are going after local Chinese companies.

That said, it seems that the trade war has shaken up the narrative about China’s IP rise. Circa 2015, it was pretty common to hear a licensor say that it was shifting its focus from the United States to Germany and China. Now, it seems that people are more likely to talk about the twin hopes of Germany and the United Kingdom.

Two years into the trade war, and perhaps near a momentary peak of CNIPA filings (domestic applications did not grow year on year in the first half of 2019, but foreign ones did), it is a good time to reassess the idea that China’s IP environment will keep getting bigger, better and fairer.

One place to start is to ask whether China’s plaintiff-friendliness and foreign-friendliness ever matched the hype. There is vast quantitative evidence that civil plaintiffs do well, particularly in the Beijing IP Court.

However, the first caveat to this is that not all cases are published in China, so it is hard to know how robust those statistics are. The second is that this figure says nothing about the validity stage, which is where many unsuccessful plaintiffs actually lose (and where it is hard to get good statistics).

The trade war also raises immediate questions about high-profile cases where it looks as if US chipmakers may have come in for ‘irregular’ treatment and bigger questions about the future direction of China’s industrial development. That is because the country’s efforts to become a leading patent power seem to have brought it zero goodwill when push comes to shove.

Consider how important open source technologies may turn out to be as a greater number of Chinese companies face export restrictions that threaten their supply of semiconductors and other components. It might make more sense for China to become a world leader in open source and de-emphasise patents – just as many sophisticated corporates in the West are doing.

I also wonder what will happen should the majority of Chinese companies that are not global patent powerhouses suffer serious setbacks in their own country as a result of patent lawsuits. If China has numerous patents, high-quality rights and a legal system that does not bias towards large firms, that is sure to happen.

We already see up-and-coming companies facing litigation around the time of an initial public offering. The domestic NPEs that have emerged in China shade toward the opportunistic end of the spectrum and could give rise to a patent troll narrative. Given the sheer number of active patents, you can see why the authorities may be hesitant to make enforcement more threatening, especially as the economy slows.

Layer on top of this a healthy dose of uncertainty relating to politics and the legal system, which will remain even after trade tensions have cooled.

Of course, it is possible that China’s leaders are genuinely committed to building an innovation-based economy and too far-sighted to abandon such efforts in the face of current headwinds. But while they will undoubtedly keep talking the patent talk, there is no guarantee that the realities of quality, enforceability and fairness will match the promises. That is why IP stakeholders need to stay engaged with policymakers regardless of the trade situation.