Firms' attention to patents is still not enough

While the number of patent applications in China has hit new heights in recent years, insiders suggest local firms' attention to patents is still not enough.

As of December 24, the State Intellectual Property Office (SIPO) had approved more than 4 million patent applications, SIPO spokesman Yin Xintian said during a recent media briefing. Chinese applications have increased 20 percent annually for eight consecutive years.

The country received more than 153,000 domestic invention patent applications last year, up 25 percent over 2006, SIPO statistics indicate.

Statistics from World Intellectual Property Organization also showed that patent applications in China increased eight times during the past 10 years. The country has become the third largest in terms of patent quantity, next to Japan and the United States.

However, many of the patents applied for in China are not from local companies. "Merely 1 percent of Chinese companies apply for new patents. Only 3 out of every 10,000 domestic enterprises possess their own intellectual property rights," Huang Shuhe, vice-director of the State-owned Assets Supervision and Administration Commission (SASAC), points out at the 2007 China High-Level Forum on Intellectual Property Rights Protection.

"In 2006, among the top 50 enterprises applying for patents in China, except for four domestic ones such as Huawei Technologies, a leading telecommunications equipment manufacturer in China, the majority were foreign-owned or joint ventures," he adds.

The increasing gross quantity does not cover up the fact that Chinese enterprises lack patents, experts suggest. Chinese enterprises face a greater challenge to advance the quality of their patents.

Patent applications from Chinese enterprises about designing or improving product appearances have topped the world for many years. In 2007, such applications were nearly 2.7 million, accounting for 66.9 percent of the total patents applied for in the country.

However, such patents contain little science and technology content, and can hardly enhance enterprises' core competitiveness.

By comparison, the patents applied for by foreign countries such as Japan, the US, South Korea and Italy focus on telecommunication, electronic technology, genetic engineering and pharmaceutical chemistry.

According to a recent survey conducted by SIPO, only three out of every 10,000 Chinese enterprises possess core technologies in their products. About 86.3 percent of hi-tech firms in China do not have a single patent, according to a survey conducted by the Beijing Intellectual Property Office.

A report by Xinhua News Agency last February said that all the large civil airliners in China are imported from the US and Europe; the high-end medical equipment, semiconductors and manufacturing equipments for integrated circuit and optical fiber are mostly imported; 80 percent of petrochemical equipment and 70 percent of computer numerical controlled machine-tools and advanced textile equipment rely on imports; over 50 percent of key technologies for color TVs and mobile phones are dominated by foreign companies.

Chinese enterprises lack the ability to transfer patents to production. The conversion rate of a patent into a productive force last year was less than 10 percent.

Many local companies lack knowledge about patent functions, such as the patent for core competitiveness and the patent for possible defense against competitors.

Experts point out that Chinese enterprises still fail to attach enough importance to patents. As a survey conducted by SASAC reveals, 34.9 percent of domestic enterprises have not established effective incentive systems for patent invention. Therefore it is quite normal that these enterprises suffer patent losses due to talent flow.

Hi-tech patents generate handsome profits. As reported by the Beijing Morning Post, Intel's profit margin after tax reaches 20 percent for its possession of the technology to produce the central processing unit (CPU) of computers; Microsoft's profit margin reaches 40 percent for its domination of the technology of computer operating system. In comparison, the average margin of many Chinese computer manufacturers is less than 5 percent.

Lack of money is another reason. There is a huge gap between Chinese and foreign enterprises in terms of investment in research and development (R&D).

Generally, enterprises in developed countries invest 5-10 percent of their sales revenue in R&D, while the percentage of Chinese state-owned enterprises is less than 1.5, according to a Guangming Daily report.

As Market News reported in 2006, IBM puts US$5 billion every year into R&D, while Lenovo Group's annual sales income was merely 30 billion yuan.

This situation has forced domestic enterprises to buy patents from foreign companies.

However, there is still hope.

According to a survey by SASAC, Chinese enterprises increased R&D input by 24.5 percent each year from 2001 to 2005. China's R&D expenditure was at US$37.7 billion in 2006, ranking fifth in the world after the US, Japan, Germany and France, according to a Xinhua report.

"From 2003 to 2006, the approval of patent applications from the 157 state-owned enterprises increased over 35 percent each year," says Huang, SASAC's vice director.

Besides the increase in quantity, quality has also improved steadily. In 2006, SIPO received 210,000 hi-tech patent applications.