02.07.18

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China’s Patent Strategy Seems to be Driving Away Foreign Companies and Causing Legal Chaos From Within

Posted in Asia, Patents at 5:39 am by Dr. Roy Schestowitz

Chinatown

Summary: The rather bizarre strategy of spurring an avalanche of patent filings in China serves as a deterrent to foreign investors and a boon to the litigation ‘industry’, which now deals with a growing number of disputes inside China

CHINESE new year is just around the corner (and is being celebrated here). China’s influence in the world is rising (industrial/political/cultural), no matter one’s opinion on it. It’s therefore imperative that we understand it.

According to this new report, LG is leaving the Chinese market. We recently wrote about several LG patent cases; it’s not pleasant. Not to mention state-connected Chinese giants and patent trolls that now sue Korean companies, we presume in order to drive them out and make way for Chinese brands to dominate.

From the report:

LG is coming off its biggest year ever, in terms of overall revenue—it generated 64.1 trillion South Korean Won (around $55.4 billion U.S. currency) during all of 2017 and across all of its divisions, a 10.9 percent jump from the previous year. It also generated its highest profit since 2009, coming out ahead 2.47 trillion KRW (~$2.23 billion), so there is plenty to celebrate. However, its mobile division has been struggling, especially in China where LG has reportedly decided to stop selling smartphones.

A Chinese-language news report quotes a representative at LG’s Beijing office as saying that LG is pulling its “mobile phone business out of China.” While this has not been confirmed by LG in any official statement (not yet, anyway), the company did acknowledge near the end of January that its mobile division faced a “challenging marketplace and strong competition from Chinese brands” in 2017.

Some of these Korean giants (two main giants in phones, but there are others in various sectors like home appliances) rely on China for production of their goods. So this is very much noteworthy. Moreover, as we noted some days ago, giants in China are now adopting the Microsoft operandi. Yesterday, for example, we saw more evidence of that.

As a longtime observer of this market noted this week, “Samsung asks U.S. court to bar Huawei from enforcing a Chinese standard-essential patent injunction” (via). He added: “It’s Microsoft v. Motorola Reloaded, with @SidleyLaw and Quinn Emanuel having switched their roles.”

Here is what his post said:

An antisuit–or, more precisely, anti-enforcement–injunction relating to the enforcement of a foreign standard-essential patent injunction is not unheard of, much less in the Ninth Circuit. Indeed, Samsung’s motion against Huawei is, by and large, a sequel: Microsoft v. Motorola Reloaded. The only noteworthy difference is that this involves two Asian companies, not a negotiation between two U.S. companies as in the Microsoft case.

The irony of fate here is that either of the two firms that represented Microsoft (Sidley) and Motorola (Quinn Emanuel) now has the shoe on the other foot. It happens all the time that firms have to take different positions in different cases, but a role reversal like this rarely occurs. Quinn Emanuel, which unsuccessfully opposed the “Robart injunction” almost six years ago, has now brought that kind of motion on Samsung’s behalf, while Sidley, which had a spectacular success in the patent litigation arena when it barred Motorola from taking some key Microsoft products (most notably Windows and the XBox) off the German market, is now–on Huawei’s behalf–on the opposing side. Thanks to my independence as an app developer who quit consulting in 2014, I can and will take positions on the current case that are simply consistent with the ones I had back in 2012.

For those who are not aware or haven’t been keeping up, Samsung and Huawei are competing for the top OEM spot (not just among Android OEMs, they already exceed Apple’s sales). This is where the “big action” is…

We often assume that China’s resort to patent maximalism is strategic; China wants to use patents as a competitive pretext/excuse for banning foreign companies, more or less in the same way China uses censorship to that effect (a friend of mine who came back from China last week said Google had been completely blocked there).

Yesterday, IAM “engaged” the Shenzhen-based TECHVISUM. “A group of former senior IP executives at big name Chinese tech companies have got together to create a top level consultancy,” it said, in “what looks to be the first of its kind in the country.”

“IP” is a meaningless term, but if the author (Bing) means patents then yes, China lost its mind/compass because by embracing patent maximalism it’s actually causing a lot of harm to local brands that aren’t government-connected (like Huawei). The Chinese oligarchy is served best by this policy. Bing wrote :

Former senior IP executives at some of China’s biggest tech companies have come together to form a business designed to feed into the country’s growing appetite for high-level strategic IP services.

So what we have here is Chinese oligarchy shaping policy to better suit the oligarchy.

There’s meanwhile a new article (“guest post”) at Patently-O, composed by Renjun Bian. “Ms. Bian is a J.S.D. candidate at UC Berkeley School of Law,” it says, “where she conducts research on Chinese patent law and policies. Her dissertation focuses on patent litigation and valuation. Before coming to Berkeley, Ms. Bian studied Chinese law at Peking University, where she earned an LL.B. Ms. Bian also holds an LLM from Berkeley and interned at King & Wood Mallesons’ Silicon Valley office. The opinions expressed are her own.”

Here’s the part which we found most informative: In China, as it turns out, the “overwhelming majority of patent infringement cases [...] were litigated by Chinese” (93.08%, or 1,548 in total). With broader context:

Not surprisingly, the overwhelming majority of patent infringement cases in China (93.08%, or 1,548) were litigated by Chinese patent owners or licensees. Foreign plaintiffs accounted for only 6.92% (115) of 1,663 decisions included in the population. This percentage – although it seemed intuitively low – represented the ratio of patents granted by SIPO to international patent applicants. According to statistics released by SIPO, 93,285 patents were issued to foreign individuals and entities in 2014, making up approximately 7.16% of all 1,302,687 patents granted by SIPO that year.

1,302,687 patents granted in a single year. How many of these can possibly be strong patents and how many are rubbish? Either way, China’s patent policy seems to be self-destructive because it helps nobody but domestic law firms. Some are foreign or foreign-staffed, foreign-owned etc.

It’s worth taking note of this comment bashing those who warned about the US patent culture that fostered similar harm in the US. It speaks of “the entirely discredited views of Bessen and Meuer are taken as gospel by the authors of this paper. There is little of value to see here. Move along.”

Why no value? Bessen and Meuer had done some very good work and were proven right in recent years. China should definitely study their work and heed the warning. Watch the next comment from this person:

Having personally studied in China, I can tell you that the communism there has fully embraced the aspects of capitalism that are evident (now) in the STRENGTHENING of their patent system.

Granting lots and lots of patents isn’t strengthening patents but diluting or weakening them, instead adding financial strength to the litigation ‘industry’.

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