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More foreign patents needed

By Li Jing (China Daily)
Updated: 2006-04-13 06:04

China should acquire more foreign patents to protect its products that are exported into the world market, according to a Boston Consulting Group report released yesterday.

David Michael, senior vice-president and director of the group, said the world's second-largest exporter has dramatically increased its investment in research and development (R&D), as "innovation" has become a catchword sweeping China.

However, the vast majority of patents filed by Chinese companies and inventors are within China, and do not cover the major export markets such as Europe, Japan and the United States, said Michael, who is co-author of the report "Strategies for Building Innovation and Intellectual Property."

China had less than 2,000 patents filed in the United States in 2004, compared to the 300,000 patents filed in the mainland. The numbers in Europe and Japan were much lower, standing at 400 and 250 respectively in 2004, according to statistics from the Organization for Economic Co-operation and Development.

As a result, Chinese companies and industries selling products such as flooring, batteries and consumer electronics are facing more intellectual property (IP) challenges in their key export markets, achieving significant sales but having little international IP rights to defend themselves.

"If Chinese companies lack international IP rights, they may have a very hard time developing competitive advantage," Michael said.

He said Chinese enterprises may be squeezed to the margin in major export markets if IP owners refuse to offer them licences, or they may have to pay a sizable portion of their export profits to foreign companies through royalties.

However, filing patents in foreign countries can be expensive for Chinese companies, especially small and medium-sized ones.

Ralph Eckardt, leaser of the consulting group's IP strategy global topic team, said he had heard complaints from Chinese businesspeople about the expense of acquiring foreign patents.

"But the key point is, companies do not need to file every innovation but just select some important ones that have close connections with their exporting products," said Eckardt, another co-author of the report. "Chinese companies should learn to be mature in using IP to protect their innovations, such as what kind of inventions should be patented in different foreign countries."

Besides internal investment in innovation and R&D, which usually need a relatively long period of time to yield benefits, Chinese companies may, in the short term, seek partnerships with foreign companies to get access to IP, or look for mergers and acquisitions (M&A) of foreign companies to acquire IP, Michael said.

But as Chinese companies recently tried to tap M&A opportunities in the world market, criticism surges for fears of the so-called "China threat."

"Such criticisms are unfair," Michael said. "Actually, Chinese companies only made 82 M&A deals between 2000 and 2004, while the number is 89 for Malaysia, 169 for South Africa and 201 for India over the same period of time."

Michael also gave some suggestions to Chinese companies on how to dodge possible barriers from foreign interest groups and governments during M&A procedures.

The full text of the report will be made public in two weeks, according to the consulting group.

(China Daily 04/13/2006 page10)