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Dragons in the East


1st Nov 2016

Intellectual property is a fairly new concept in China. A still developing patent system, combined with a lack of awareness of IP amongst some Chinese technology firms, has meant that it has been historically very difficult for companies to protect their products in this vast market.

However, China’s growing ambition to develop home-grown technology that can compete on the global stage has resulted in a recent change in attitude towards IP. As we reported here, the State Council (China’s chief administrative authority) has placed a greater emphasis on developing the Chinese patent system, pushing through reforms in IP enforcement as well as encouraging domestic companies to file patent applications both nationally and internationally.

These reforms may come as welcome news to western companies who have been eagerly awaiting a more robust patent system which they can use to protect their ideas. However, improved enforcement is by no means the only consequence of this national IP drive; as China’s IP system advances, it is inevitable that so too will Chinese companies’ understanding of patents and their potential uses.

This can be seen most clearly in China’s ‘tech giants’. Firms such as Huawei, ZTE and Xiaomi, who traditionally showed little interest in IP, have started amassing large patent portfolios of their own. In fact, according to filing statistics recently released by the World Intellectual Property Organization (WIPO), Huawei was the world’s most prolific filer of international patent applications in both 2014 and 2015. ZTE came in third place in 2015, behind a U.S. tech giant. Huawei also now owns 25 percent of the world’s 4G-related patents, says a report by ADF China, an IP firm. Xiaomi, who came into the patent game slightly later than Huawei, has also upped its patent filings significantly in the past few years, and recently signed a deal with Microsoft to purchase 1,500 of the U.S. firm’s smartphone related patents.

This will make worrying reading for the likes of Apple and Samsung, who currently dominate the western market for smartphones; a company gathering large numbers of patents in a particular jurisdiction is generally a precursor for them entering that market. It seems, therefore, that by filing, or otherwise accruing, large numbers of international applications, the Chinese giants may each be planning a move into western markets.

To further the market leaders’ concerns, Chinese companies, who have traditionally been on the receiving end of IP disputes, are becoming increasingly able to fight back, both in China and abroad.

For example, in May of this year Huawei filed a patent suit against Samsung in China and the U.S., alleging infringement of its 4G related patents. In the same month, another Chinese tech company named Hangzhou Chic sued an American company – Razor USA LLC – for importing an infringing product into the United States.

Many western companies have been waiting for IP reforms in China. However, these reforms may bring with them innovative, heavily funded and patent savvy Chinese tech firms that are capable of competing on an international stage. Who knows, such companies may even challenge the likes of Apple and Samsung.

Dragons are stirring in the East; it may not be long before the global market for smartphones becomes rather crowded. Watch this space.

This article is for general information only. Its content is not a statement of the law on any subject and does not constitute advice. Please contact Reddie & Grose LLP for advice before taking any action in reliance on it.

Author
Alex Cope
Associate
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