China's intellectual property landscape is changing at an ever-increasing pace. Key drivers include the growth of the domestic market and the government's vision of an innovation-based economy. One dimensional, infringer-driven IP strategies focused on reactive enforcement are becoming inadequate. The market now demands a multi-dimensional, competitor-targeted strategy with litigation at its heart. And as the case studies on Mars and Diageo demonstrate, a sophisticated IP outlook is key to creating and maintaining a real advantage over tomorrow's competitors.
The shifting IP landscape
For many foreign businesses, China was long seen as having just two types of IP threat: domestic infringers and foreign competitors. Each required a strategy, but never would the two meet. Administrative enforcement worked for everyday infringers and business-to-business negotiation behind litigation posturing worked with fellow international competitors.
But domestic Chinese companies are developing at a pace never seen before. With their increasing levels of IP awareness and investment, failure to distinguish the everyday infringer from tomorrow's competitor and deal with them accordingly will leave foreign businesses licking their wounds in a few years time as their competitive advantage and profit margins disappear.
The infringer-turned-competitor phenomenon has already been seen among former OEM manufacturers for international rights owners, but with the developing sophistication of Chinese companies the infringer-turned competitor route will be open to all. No longer will the former infringer depend on using a foreign rights owner's know-how, gained as a manufacturer or supplier, as the launch pad.
Domestic companies will move up the value chain and, as they do, foreign businesses need to move from looking at the infringements themselves to understanding the companies (tomorrow's competitors) producing them. Simple IP enforcement strategies must become multi-dimensional IP establishment and enhancement strategies, led by litigation, that strengthen rights and produce real long-term deterrents to create competitive advantage.
China's vision and the policy drivers
That Chinese companies will become serious competitors, and rapidly, is inevitable. It has already happened in some industries. The growing domestic market produces real competitive forces that drive innovation. The Chinese government's mission is to turn the economy from a manufacturing-based one to one based on independent innovation by 2020. From the 11th Five-Year Plan endorsed in 2006 by the National People's Congress and the State Council's Medium- to Long-Term Plan for Science and Technology Development issued the same year, through the State Council's National IP Strategy published in 2008, to the never-ending stream of opinions and directives at a more local level that have followed, the Chinese government's will to achieve this mission cannot be underestimated. The impact of these policies can be seen in the statistics.
China, as a country of origin, is already the sixth largest filer of PCT applications globally. The number of Chinese originating applications has nearly quadrupled since 2004. At this rate China will overtake France and Korea by 2012 to stand fourth behind only the US, Japan and Germany, the traditional powerhouses. In 2008, for the first time ever, the single largest filer of PCT applications was a Chinese company, Huawei, the telecoms company. And in 2009, for the first time, domestic companies overtook foreign companies as grantees of Chinese invention patents. This switch will not be reversed.