China is on the way to becoming a world leader in international patent filings.

A recent report published by the World Intellectual Property Office (WIPO) has revealed a rapid increase in innovation activity in China. Based on data for 2017, China was in second place as a source of international patent applications at almost 49,000, with the US claiming first position at 56,000. The Chinese government hopes to reach 60,000 applications by 2020, and at the current rate of growth in patent filings, this seems within reach. China was the only country to achieve double-digit growth (13.4%) in patent filings in 2017 and there has been an average annual increase of more than 10% per year since 2003.

According to the report, China was the biggest source of patent filings related to digital communications in 2017, with 19.7% of patent applications originating in China falling into this sector and highlighting the country’s desire to be recognised as a global hub of tech innovation.

Commenting John-Paul Rooney, a partner and patent attorney at intellectual property firm, Withers & Rogers said: “China has had a reputation as a nation of ‘reverse engineers’ who copied the proprietary technologies and know-how of Western businesses. Then, China saw IP rights as a hindrance, something that would slow the pace of technological development.

“In the past five years, significant inroads have been made to create a nation of innovators and encourage IP ownership. Spurred on by the Chinese government, businesses have been challenged to develop an offering that instead of simply being “Made in China” was “Designed in China” too.”

As Rooney explained, the Chinese government has introduced some generous subsidies and inventor incentives.

“Inventors receive personal recognition for their work and could gain urban ‘hukou’ status in key cities, giving them access to incentives, such as subsidised housing, government jobs, education and healthcare.”

“Instead of simply being ‘Made in China’, products are being designed there too.” - John-Paul Rooney

Patent owners are now able to monetise their innovations by licensing them to third parties in exchange for royalty payments. This is an important incentive for innovators to file more patents, wherever they are in the world. Recognising its potential value to the Chinese economy, it is part of the government’s five-year plan to increase the value of royalty payments generated by Chinese companies from $4.4 to $10 billion by 2020.

“The global success of companies like Huawei and BOE Technology Group suggests that these subsidies and incentives are working. Huawei has extended its market share in Europe and other Chinese telecoms businesses are collaborating with Western businesses in the delivery of 5G networks. BOE Technology Group makes curved-edge and bendable display screen technologies for a variety of industrial and commercial applications, including dashboards for Tesla cars. The enhanced global reputation of these Chinese businesses is encouraging others in the domestic marketplace to follow in their footsteps,” explained Rooney.

The availability of subsidies and incentives for innovation activity is not wholly positive, however. There are still some anti-trust issues that need to be addressed in relation to patent subsidies and joint ventures, and Western businesses should seek advice if they are considering a form of collaboration in China.

“Chinese courts are doing what they can to tackle corruption and uphold IP rights where they exist. As a result, Western businesses are far more likely to be able to successfully enforce their rights in China, if there is reason to do so.At the end of last year, Jaguar Land Rover invalidated a patent owned by a Chinese company relating to the Range Rover Evoque at the Beijing High Court.”

Because things have been changing quickly in China and significant progress has been made in raising awareness of international IP rights and their role in unlocking global markets and collaborations, “Western businesses can be more confident, with the correct advice, that their IP rights will be respected in the Chinese IP Courts,” said Rooney.

“For those seeking to collaborate or otherwise join forces with Chinese businesses, they can now do so on a more predictable and level playing field.”