Five Major Challenges of Overseas IPR Deployment Faced by Chinese Enterprises

published on  Apr 2015

Although China encourages enterprises to expand overseas as addressed in the “Go Out Policy,” China is not yet capable of sustaining IPR deployment overseas. Once the enterprises encountered IPR-related disputes, the cost of maintenance would be extremely high, not to mention the expensive and exhaustive process of patent application prosecution and enforcement. All would challenge Chinese enterprises’ quickness to react and solve problems.

According to Qing Huang, the General Director of the SIPO Protection and Coordination Department, China is still weak in overseas patent deployment. Even though the awareness on protection of intellectual property rights has increased substantially in China, the accumulation of their overseas patents, of which only a small number of them are valuable, is still insufficient for China to confront the international market. This has become an obstacle for Chinese enterprises to “go out.”

China is greatly behind in number of oversea patents compared to some of the developed countries. The statistics of WIPO shows that by year 2013, China had filed for 29,211 invention patents overseas, which accounts for only 3.98% of the total invention patent applications filed by Chinese applicants. Whereas the United States, Japan, Germany, and Korea had filed for a total of 214,072, 201,528, 110,914, and 63,552 overseas invention patents respectively that account for 42.65%, 42.58%, 60.0%, and 28.43% of the total invention patent applications filed by their national applicants. In 2013, a total of only 10,970 overseas patents were granted to China, which is not proportionate to its total export volume of 2,210 billion US dollars in the same year. Indeed the goods of China are “going out,” but the patents cannot keep up. The number of overseas patents is still not sufficient enough to protect its products and innovations from being exploited or counterfeited, putting China at a disadvantage in the competition. Fortunately, this condition is gradually improving, for China filed 26,000 PCT patent applications, a 14.2% increase from the previous year.

China is now facing five major IPR issues as described below.

1.      Threats of overseas IPR lawsuits: The various trade and IPR dispute litigations are overly expensive in terms of cost of lawsuit and compensation fee. China faces the dilemma of either paying a great sum of money for indemnification or lawsuit expenses.

2.      Difficulty of overcoming IPR obstacles in standardization of technology: IPR obstacles inflicted by standardization of technology are most common in fields of telecommunication and semiconductor. It requires a tremendous amount of essential patents to meet the technical standards. Thus, in order to engage in this industrial chain, patent licenses and transfers are unavoidable. However, Chinese enterprises still lack the awareness and ability to counteract and overcome such obstacles.

3.      Ceaseless IPR problems to be encountered in the process of importing technologies: Chinese enterprises confront insurmountable amount of IPR issues during the process of technology importations and patentlicenses. Many contracts specify unreasonable restrictions that prohibit Chinese enterprises from further innovating or owning IP rights to re-innovation. Furthermore, the fee paid to patent license is also unreasonable: either disproportionate to the patent licensed or invalid or unnecessary patents mixed in the licensed patent portfolio.

4.      The added value to IPR cannot be realized: Because China is relatively weak in IPR arrangement, and thus the products cannot reflect the IPR added value, resulting that the profit rate is too low, making the “going out” a rough path for Chinese enterprises. For instance, in 2012 the photovoltaic companies in China were subjected to gross profit rate below 1% on exports sales. Due to the current circumstance, Chinese enterprises are oftentimes stuck in price war, which can easily lead to investigations of IPR trade and antidumping.

5.      Insufficient IPR protections: To this day, many Chinese enterprises have become victims to product counterfeiting practice and infringement during their “going out.” According to an investigation, 24% of export goods were adversely affected by counterfeit in trade, but only 29% of them fought for IP rights by bringing lawsuits to local courts where the oversea counterfeit took place. 

Due to lack of awareness to IPR, language barrier, unfamiliarity with the procedure, and weak in risk management, in addition to the difficulties of obtaining overseas information on IPR, Chinese enterprises are placed in great disadvantage. Chinese government is now designing many programs and courses to assist enterprises to “go out,” with the objectives of raising IPR awareness and knowledge among enterprises. The Chinese government has established an IPR information platform and practical guides for enterprises to access in support of internationalization development, which will be launched in 2015. Chinese government had proposed the Action Plan for In-Depth Implementation of the State IPR Strategy (2014~2020) at the end of 2014, which addresses strategies and clear goals for implementation of IPR, aiming to ensure Chinese enterprises’ path of “going out” a more smooth and successful one.

For any questions relating to this topic, please contact us at cjchen@tsailee.com.tw