The contrast could not be more stark: Xi Jinping, the first president of China to attend the World Economic Forum in Davos in January, leading the largest Chinese contingent ever and pledging enduring support for free trade and open markets, versus newly inaugurated President Donald Trump promising to “make America First” and threatening renewed trade barriers, especially with China, and dumping the TPP.
Mr. Xi was treated like a rock star by the Davos capitalists, and while never mentioning Trump (or, for that matter, Britain’s protectionist Brexit withdrawal) by name, he unmistakably took aim against them. Taking on a mantle of global leadership, Mr. Xi said “[n]o one will emerge as a winner in a trade war,” and compared protectionism to “locking oneself in a dark room.” It’s not clear anything in the meeting between President Xi and President Trump last week adjusted these positions.
These radical paradigm shifts should be of utmost importance to Silicon Valley, particularly companies whose models and profits are based on proprietary intellectual property.
China is not only taking the spotlight in strong defense of global markets and free trade, filling a vacuum left by retreating Western capitalist democracies, China is quickly becoming a (if not the) global leader in intellectual property protection and enforcement. And there too, just as Western democracies (especially the United States) have grown increasingly skeptical of the value of intellectual property and have weakened protection and enforcement, China has been steadily advancing its own intellectual property system and the protected assets of its companies and citizens.
A few surprising facts:
- Chinese companies and innovators filed more than 1 million patent applications in 2015, more than one-third the total number of patents filed globally and roughly double the number filed by innovators in the United States.
- China’s various courts accepted an astounding 109,386 civil intellectual property cases in 2015 (6 percent growth over the prior year), including more than 11,000 patent cases. By comparison, the number of patent litigations filed in the United States in 2015 was 5,830 (down from the high-water mark of 6,114 in 2013), where U.S. IP-related litigations as a whole totaled around 14,500 cases (including about 5,000 copyright and about 3,500 trademark actions). In other words, total litigations filed in the U.S. are only about 13 percent of the total filed in China.
- China is increasingly being selected as a key venue for patent litigation between non-Chinese companies. Why? Litigants feel they are treated fairly. Reports indicated that in 2015, 65 foreign plaintiffs won all of their cases against other foreign companies before Beijing’s IP court. And even foreign plaintiffs suing Chinese companies won about 81 percent of their patent cases, roughly the same as domestic Chinese plaintiffs.
Stereotypes die hard. China has long been seen as the land of copycats, with open market bins of bootleg DVDs, counterfeit fashion and blatant technology infringement. But Silicon Valley and the new administration ignore the changing landscape in China to their peril.
While China continues to have significant problems of IP theft (industrial espionage, counterfeited goods and services, trademark squatting, etc.), its leadership and government agencies have made concerted efforts to propel their intellectual property systems into the 21st century.
Companies with long-term vision must place bets accordingly.
In 2014, China began opening specialized intellectual property courts in Beijing, Shanghai and Guangzhou. For some time, China’s People’s High Court (itself with a surprising 340 judges) has had divisions especially focused on IP issues. And although China’s patent laws are only about 30 years old, last year China published its Fourth Amendment to its IP laws, increasing statutory damages five-fold (to 5 million RMB, or US $727,000) and expanding a number of patent and enforcement provisions.
Indeed, given legislative amendments and administrative and judicial decisions, some commentators have noted that it is easier to protect cutting-edge software, business-method and biotechnical inventions in China than the United States.
Bottom line: China is becoming an IP powerhouse in every sense of the word.
Those of us who’ve met with China’s intellectual property policymakers, judges, administrators and enforcers over the last few years have been struck with the coordinated seriousness of their actions and efforts. International pressure, but more importantly domestic demand from Chinese companies, has driven this furious pace of change.
Leading Chinese companies, like Alibaba, Xiaomi, Huawei and HTC have sophisticated IP business departments focused on protecting their own advanced research and development. China’s journey from piracy to protection models the journeys of other Western and Asian countries. While building its industrial economies, the U.S. and major European powers violated IP laws with no consideration. As reported by the Guardian, Doron Ben-Atar, a history professor at Fordham University, has noted that “US and every major European state engaged in technology piracy and industrial espionage in the 18th and 19th century.” It took Western economies a hundred or more years to change that behavior. China’s mind-whipping change is happening over decades, not centuries.
So what are U.S. and other non-Chinese firms to make of all this? Any company focused on global expansion must factor China, vying with India for the largest domestic market, into its strategies. (And that’s all Valley companies. It’s said that every company is a global concern; they just don’t know it yet.) China will be a key market for products or services and a source of manufacturing and design. More importantly, it may nurture your competitors. This makes a focus on IP critical as never before.
Protecting your valuable brands and innovations, through trademarks and patent applications in China, can’t wait on the back burner. Protection strategies can no longer be “check-the-box” or “nice-to-have” approaches. Companies must focus IP protection in China strategically, making it a centerpiece of a global approach, not an afterthought.
Yes, this takes focus, time and resources. But long-term thinking must become short-term thinking. Intellectual assets are long-term assets: patents last 20 years from filing; trademarks and copyrights far longer.
China today is light years from the China of the 1990s. Given China’s determination to advance its IP systems and stature, China may well eclipse U.S. and Europe as the global center for intellectual property in just a few decades. Companies with long-term vision must place bets accordingly.