China's great wall of patents

Move over Canada, China just took your place in the patent line.

Published February 7, 2006 10:21PM (EST)

In 2005, China overtook Canada and moved into tenth place on the list of world's most prolific filers of international patents. The news should send a little chill through the spines of the American technology companies demanding greater intellectual property protection from the People's Republic. Be careful what you ask for. You might get it.

It is no secret that U.S. companies view China as the world's number one intellectual property pirate. If one is to believe the statistics, never before in the history of the world has a single nation been responsible for such a volume of counterfeiting, copying, trademark violation and patent infringement.

"The amount of intellectual property lost, according to various coalitions, is staggering, tens of billions of dollars in lost sales," says Alan Wolff, who chairs the international trade practice of the law firm Dewey-Ballantine.

A good place to get quantitative data on China's unhappy I.P. profile is the International Trade Commission, a federal agency headquartered in Washington that has immense power. The ITC has jurisdiction over any product imported into the U.S. and can instruct the U.S. Customs Agency to block entry to any item it deems illegitimate. The ITC also moves relatively quickly, which has made it an increasingly popular venue for patent infringment suits in fast-moving high-tech markets like semiconductors.

"There is a dramatic increase in the number of cases against China over the past five years," says Thomas Jarvis, a trial lawyer who heads the ITC practice of Finnegan-Henderson, a Washington law firm that represents many Chinese firms before the ITC. As either an ITC staffer or lawyer representing clients, Jarvis has been at the ITC for nearly 20 years. When he started, he says, Japanese companies were the primary target of ITC complaints filed by American companies. Ten years ago, Taiwanese companies moved into the bullseye. Today, it's China's turn, with a bullet.

"I believe the momentum of IP litigation against Chinese targets is accelerating at a far faster rate than we saw against the Japanese and Taiwanese targets," says Jarvis.

Again, not so surprising. But Jarvis offers an intriguing twist on the conventional notion that as nations develop, their early growth is categorized by a high rate of I.P. violation that then declines as the nation starts "maturing" and playing by the rules. He says there's another reason why the favored target of patent infringement law-suits keeps moving from country to country: Companies tend to file complaints against companies that they hope won't fight back too fiercely.

"They first targeted Japanese competitors who were low-cost manufacturers, without substantial I.P. rights for countersuits," says Jarvis. "Before a company files an I.P. case, you look at the patents held by the target to see if you are likely to be countersued. The Japanese didn't have many patents, but they learned quickly. Japanese companies are now the recipients of a very large number of U.S. patents."

Like Japan and Taiwan, China is now learning to register its own patents, and with the help of high-powered law firms like Finnegan-Henderson it will defend itself ever more fiercely in venues such as the ITC.

"It's now not unsuual for a startup semiconductor company in Taiwan or mainland China to dedicate up to a year's profits to defending itself against I.P. lawsuits, and that's a major change from the past," says Jarvis. "In the past they simply defaulted and sacrificed the U.S. market. But now we have on average a 50 percent probability that if they proceed to a final decision they will win. And with more rigorous litigation the probabilities are even higher."

So, the more litigation against Chinese companies, the better they get at defending themselves, and the more potent the global competitors they become.

By Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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China Globalization How The World Works Intellectual Property