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02.10.18

China’s Patent Policy Helps Chinese Oligarchs and Creates a Large Litigation ‘Industry’ Which Protects the Oligarchy

Posted in Asia, Patents, Samsung at 10:43 am by Dr. Roy Schestowitz

Oligarchs in China

Summary: An analysis of the latest news and views from China, where patent protectionism is on the rise not in the name of innovation but protectionism for colossal state-connected firms such as Huawei

THE UNITED STATES is quite likely the most powerful country in the world in terms of military might and economic might. Sure, China’s military is bigger by some criteria and its growing GDP (not per capita) is a growing threat to US dominance. China now yields more academic papers than the US and there’s a plethora of other measures by which the US is declining compared to China (as well as many other countries). What we do not like, however, is how patent maximalists blame US decline on patent rationality and a much saner patent policy. They try to latch onto reports about US demise and frame these as ‘evidence’ of patent law needing a change. There’s a lot more to the US than this; the USPTO isn’t the pillar on which the US was built. In fact, the US as a powerful country predates the USPTO.

Yesterday at IP Watch Steven Seidenberg wrote about the case of WesternGeco (WesternGeco LLC v ION Geophysical Corp. to be more specific). “On January 12,” he explained, “the US Supreme Court agreed to hear a case that could produce a major change in US patent law, with effects reaching far beyond America’s borders. At issue in WesternGeco LLC v. ION Geophysical Corp. is whether and when a US patent owner can collect infringement damages on a global basis.” The headline, “US May Extend Its Patent Damages Worldwide,” is a good outline as it’s all about damages, not scope. Our prediction is that this will be a split decision. As we explained before, it barely matters to us because we have always been focused on patent scope. A lot of patent pundits use this case for China-baiting. We have actually grown rather disgusted by their obsession with China as they often use China as the catch-all excuse for any lobbying agenda they may have. They have been doing it for over a year. Intellectual dishonesty for one’s wallet is so commonplace that Richard from IAM wrote a few days ago: “The emergence of a professional IP class in China is going to have a big impact on IP value creation in the coming years – i suspect we’ll be learning a lot…”

“What you mean by “professional IP class” is a bunch of patent lawyers enabling ruin in China,” I told him. I actually meant it. Another patent maximalist who links to IAM said: “The Chinese IP market continues to grow! http://www.iam-media.com/blog/Detail.aspx?g=8798408e-b309-456f-b5ab-9d81e42e2c2b …”

“You mean Chinese LITIGATION ‘market’ (that you profit from),” I told him. He is already based in China. Watch what IAM published some days ago: “China’s continued trademark reforms”

The patent microcosm, including patent extortionists such as Microsoft, links to IAM quite a lot. IAM is like their lobbying group or propaganda mill.

Found via the above person (from China) was this new report about how China suppresses Korean phone giants using patents. “Samsung understands the power of injunctions in China patent cases,” he said, “and Samsung does not respect the Chinese courts.”

LG recently left the country, which leaves only one South Korean giant in China. To quote the report:

Samsung asked a California federal judge Thursday to block Chinese smartphone maker Huawei from enforcing an injunction it won in China last month ordering Samsung to stop making or selling devices that infringe two Huawei patents found to be essential to industry standards for 4G wireless technology.

The Chinese injunction, Samsung said, is nothing more than an improper attempt at gaining leverage to force it to license standard-essential patents, or SEPs, on Huawei’s preferred terms.

We wrote about it roughly a week ago; what we’re seeing here is China using patents just like it uses its censorship policy. It’s a convenient pretext for sanctioning/blocking foreign companies — a subject which received plenty of press coverage last year. Here is what IAM wrote about it:

Samsung Electronics is asking a federal judge in California to stop Huawei from enforcing an SEP injunction it won in China earlier this year. In doing so, the Korean company has given an indication of when that order might actually come into effect – and revealed the significant business disruption that it could entail inside and outside of China.

The Shenzhen Intermediate People’s Court announced an injunction against Samsung on 11th January. It found that two patents asserted by Huawei were infringed, essential to the 4G standard and that Samsung had violated FRAND principles by “maliciously delaying talks”. The two cases were filed on 25th May 2016. One day earlier, Huawei had sued Samsung over some of the same SEP families in the Northern District of California. That is where Samsung is now trying to put the brakes on the Shenzhen injunction.

As we showed some days ago, the lion’s share of patent litigation in China comes from Chinese companies; it’s very different from what we see in other large economies. What’s also interesting is the extent to which this patent policy helps Chinese giants — not small companies — and thus enriches Chinese oligarchs (typically connected to the CPC).

Watch what just happened to Wuxi Shangji Automation: Just what a relatively small business needs? More litigation? “Meyer Burger goes to Chinese court for patent infringement,” the headline says. It’s from 3 days ago:

The Swiss PV equipment manufacturer has filed a patent infringement lawsuit in China against Wuxi Shangji Automation Co, Ltd. for the protection of its patented wire winding system for the cutting of solar wafers, the Diamond Wire Management System (DWMS).

It’s one of those rare cases where a lawsuit is filed in a Chinese court by a foreign company.

We are still trying to figure out the logic behind China's relatively new patent policy, which is a full embrace of patent maximalism. Dennis Crouch recently cited this new paper titled “A Half-Century of Scholarship on the Chinese Intellectual Property System” in which, according to Crouch, the author “offers excellent guidance by focusing more on flow and transition rather than a snapshot.”

The abstract mentions RCEP (a Trojan horse for software patents) and gives some historical perspective:

The first modern Chinese intellectual property law was established in August 1982, offering protection to trademarks. Since then, China adopted the Patent Law in 1984, the Copyright Law in 1990 and the Anti-Unfair Competition Law in 1993. In December 2001, China became a member of the World Trade Organization, assuming obligations under the TRIPS Agreement. In the past decade, the country has also actively participated in bilateral, regional and plurilateral trade negotiations, including the development of the RCEP.

The above is just a short outline of some of the latest information we have about China. A lot of it is actually misinformation from patent maximalists who, as we shall show in the next post, seek to exploit China to justify an expansion of patent maximalism in the US. They already lobby Iancu along those lines.

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