Chinese Companies Getting Savvy to the Power of US Patents

Wealth of Ideas Newsletter, August 2009

The “cheap Chinese knockoff” is a stereotype that isn’t going away anytime soon, and with cheap labor and often questionable quality control practices, the reputation of Chinese goods is unlikely to improve unless major changes are made.

But Chinese manufacturers are beginning to turn from imitation to innovation. They’re applying for United States patents in droves – and, in an interesting twist, they’re starting to sue each other and the US retailers that sell the infringer’s products in US courts.

Case in point: Changzhou Asian Endergonic Electronic Technology Co., based in Changzhou, China, is suing US retail giants Best Buy, Wal-Mart, Target, Office Depot, Radio Shack, Staples and TomTom for selling products that the company alleges infringe its patent on dashboard mounts for navigation devices.

Changzhou Asian is also suing the Chinese manufacturer of the allegedly infringing product, known as Nav-Mat mounts, in China. Another interesting twist is that the lawsuit against Best Buy, Wal-Mart et al. was filed in the Eastern District of Texas, the most popular jurisdiction for patent infringement lawsuits. The venue that was once feared by foreigners is now their venue of choice…when they are plaintiffs, that is.

Chinese patent applications rise dramatically

Hurt, as everyone else, by the world financial crisis, Chinese companies are trying to move past their reputation as the world’s sweatshop – primarily producing cheap clothing, shoes, toys and electronics – to a world-class company like Japan’s Sony or South Korea’s Samsung. And some of the most innovative Chinese high-tech companies are beginning to wake up to the need for patent protection now that they find their own intellectual property infringed.

One such Chinese company is Huawei Technologies Ltd, which has filed over 1,100 US patent applications and has over 100 issued US patents. By 2005, Huawei’s total patent applications had reached 8,000 in 20 countries. In 2008, Huawei filed more patent applications than any other company in the world, with 1,797 applications filed under the Patent Cooperation Treaty (PCT) in 2008 alone.

Meanwhile, overall filings of US patent applications by residents of mainland China reached 5,129 in 2008. The number of patents issued to residents of mainland China have more than tripled, from 551 in 2004 to 1,684 in 2008.

And in 2008, mainland China and Hong Kong (largely self-governing, but a territory of China nonetheless) had a combined total of 2,422 issued US patents. That puts Chinese residents in seventh place in terms of US patents issued to residents of foreign countries last year.

Clearly, the Chinese are on track to become an IP powerhouse – and they’re increasingly adept at using the US patent system to their advantage.

Implications of a more innovative China

Chad Nydegger, Changzhou Asian’s attorney, commented on their patent infringement case. "My client's view is [that] China is starting to emerge as a first-world country,” Nydegger said. “There's been a significant influx of technology, and they are starting to make improvements. They are becoming innovators, not just copiers."

If that proves true and Chinese companies become a leader not just in technology, but also in US patent filings and patent infringement lawsuits, the implications could be staggering for the US Patent Office – which is already overworked, undermanned and underfunded. (Just ask David Kappos, confirmed on August 7 by the Senate as Director of the Patent Office amid high hopes that he can run the USPTO as efficiently as he ran the IP department of IBM.)

Will we see a surge in Chinese companies suing other Chinese companies as well as American retailers in the US? Only time will tell, but much depends on the outcome of the Changzhou Asian lawsuit. In the meantime, we, at General Patent, are taking lessons in Mandarin.