Chinese businesses need to prepare for patent wars

By Liu Yuanju Source:Global Times Published: 2016/12/19 23:33:39

Illustration: Luo Xuan/GT

Illustration: Luo Xuan/GT

As Chinese smartphone brands work to carve out a spot in the major-league global smartphone industry, they are increasingly being dragged into an international patent war with foreign tech firms.

The latest case saw San Francisco-based audio tech firm Dolby Laboratories lodge a lawsuit against Chinese smartphone companies Oppo and Vivo in India, accusing them of infringing on its patented technology. Back in 2014, Chinese tech firm Xiaomi was barred from selling phones in India after Sweden-based Ericsson filed a complaint with an India court alleging patent infringement.

The legal setbacks Chinese smartphone manufacturers have experienced are partly due to their lack of patent awareness. Following reform and opening-up, China has been a recipient of technological diffusion and has succeeded through copying those tech inflows. A low emphasis on intellectual property (IP) rights has helped with the country's rapid economic growth. But that has also made Chinese firms insensitive to IP. But Chinese firms are quickly catching up to their foreign peers technologically and can even beat them in some areas. Innovation has become a key driver of China's economy and is greatly endorsed by the top leadership. That means stricter IP protection is required to promote economic growth and motivate Chinese firms to map out their own IP strategies. 

For example, Chinese telecom giant Huawei licensed 769 patents to Apple in 2015, while the latter licensed 98 patents to Huawei. Additionally, Huawei filed 3,898 patent applications in 2015, making it the world's top patent filer for a second straight year, followed by US chip-maker Qualcomm and Chinese tech firm ZTE. However, a high number of patent filings are not enough as Chinese companies extend their global footprints.

Patent systems are complicated and patent or copyright coverage is usually confined to the particular territory that issues it. Patent law varies from country to country, putting companies that sell products globally in a difficult situation. Even global tech leader Apple has been challenged with patent suits. In June, the Beijing Intellectual Property Office ruled against Apple in a patent case after Shenzhen-based Baili sued Apple for copying the exterior design of its 100C phone on its iPhone 6 and iPhone 6 Plus. An appeal with a higher court is currently pending. Although the chance for the suspension of iPhone 6 and iPhone 6 Plus sales in China is small, the company will have to pay claims to Baili if it loses on appeal.

Patent wars are a common tactic in the global phone market. Usually companies collect intelligence and apply for patents extensively in areas that will become competitive. After competitors launch their products in the market, they can claim compensation by suing for patent infringement or make money by collecting patent fees or selling their patent rights. When it comes to patents, even Apple will fight over the smallest trifle in its own interest. Its long-fought patent battle with Samsung over design similarities is a typical example of the situation.

However, it seems now is the right time to reform the existing patent system in order to promote global technological progress and to save on transaction costs. To a large extent, patent law has become a jungle that inhibits innovation. More often than not, fledgling start-ups face veteran patent filers, big companies or patent attorneys are coaxed to settle frivolous patent infringement disputes after they are found to not have patents for all features of their invention.       

The US Government Accountability Office has said that many patent lawsuits in recent years are related to low quality patents. Usually the ownership of these patents is too blurry or the protection scope is too extensive. This is especially true for software patents where the scope of patent protection is rather vague. Given these problems, the US government is working to reduce a practice known as patent trolling where individuals or businesses abuse the system by deliberately obtaining many patents from different sources and profiting through patent infringement claims.

International patent systems cannot change overnight. As such, Chinese firms exploring overseas markets must prepare and have their own patent strategy in place as early as possible to respect IP rights. They should also familiarize themselves with the rules and tactics of patent wars, work out their own system and employ legal professionals in order to cope with any possible patent challenges.  

The author is a research fellow at the Shanghai Institute of Finance and Law.


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