The Road from Quantity to Quality in Chinese Innovation

Innovations in China

By Dr. Jili Chung and ashley clark

Intense pressure from the US-China trade war has started a transformation in Chinese innovation: shifting the focus from sheer number to higher quality. The promulgation of China’s 14th 5-Year Plan seals the trajectory of this movement.

China approved the first patent securitization deal on July 31, 2019. It was a breakthrough, which demonstrated that the development of the financial industry, the quality of patents, and the market appetite for IP securitization have reached a new level in China.

Much of this industry upgrading stems from the US-China trade war and is doubly pushed forward by the covid-19 pandemic and a global trend of countries shifting inwards, domestically.
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Bloomberg cites China Economist, David Qu, that the new five-year plan “requires significant enhancement in the quality of the economy, reflected in innovation, more advanced industrial fundamentals, and a more modern economic system. To achieve these, it emphasized tech innovation, supply-side structural reform, dual cycle.”

One can easily see that government subsidies are behind this growth, but it is hard to see how strong their effect is. The observations to follow provide some insight.

With government subsidies, in some situations, patent creation may generate a net income for companies with access to various incentive programs. Namely, IP being monetized “at birth.”

Of course, certain tips help to make a project or company eligible for such incentives, such as being located within certain high-tech zones and working in certain “encouraged industries.” The size of a grant varies according to a patent’s category and according to which countries are involved. The incentives are available to Chinese legal entities, including those established in China by foreign investors.

Although the incentives are generally available, to generate a net income still requires careful planning by weighing these incentives with the costs of finding an agent to assist in the application process.

Luckily, at the current stage in China, an IP manager can find adequate service at attractive prices to assist in the goal of income generation.

As a result, the Chinese government has turned its focus to quality instead of quantity. Beginning in 2018, patents began to face a higher threshold of quality to qualify for such a grant, but it is still feasible for companies dedicated to genuine research and innovation that result in high-quality patents.

Those seeking to monetize IP in China learn the ropes quickly. For example, Mi, a first-tier brand name maker of mobile phones in China has made the most use of it. With these incentives (and of course other business reasons), Mi’s patent application volume reportedly grew from 35 in 2013 and 4,702 patents in January 2016 to more than 28,000 patents as of 20 March 20th, 2020.

This practice of “monetizing the IP at its birth” has been criticized because it seems to be focused on the volume rather than the quality of patent applications. Two observations are worth mentioning.

First, thanks to the incentive programs, the IP service industry is forming an effective “production line.” Numerous service agents with their respective niches are emerging. They are nourished by the abundant flow of casework.

Second, professionals, such as lawyers, patent agents, and valuation professionals, etc., are accumulating hands-on experience in handling monetization. They are learning about models that are novel to China, such as the patent pledge or copyright securitization. 

In this environment, the knowledge and experience of IP professionals and related service providers are accumulating quickly. This may be the “qualitative change” the government hopes to see when adopting such aggressive means for promoting IP monetization.  Meanwhile, the term “high value patent cultivation” is gaining traction and is also fueling this reaction, causing unprecedented changes to this innovation ecosystem. 

Interested? Connect with us and read more about developments in China’s IP ecosystem by visiting our blog at ictiger2020.com – e.g., “The Blossoming of New IP Business Models in China.”

Or find us on Facebook at ICTiger2020 for regular news updates on related topics.
 
Sources:
Our very own, Innovation’s Crouching Tiger.

https://news.cgtn.com/news/2020-04-23/China-makes-inroads-in-high-quality-IP-development-Senior-official-PUXoJSjm8g/index.html

https://www.bloomberg.com/news/articles/2020-10-30/here-s-what-economists-are-saying-about-china-s-new-5-year-plan
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https://www.greyb.com/xiaomi-patents/#Key-takeaways-from-the-analysis

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