China post Covid: figures and resilience

In the midst of the post-COVID health crisis, China is sweeping the market overall and within the Intellectual Property market in particular. We point out in which IP form it stands out and the level of growth behind.

Last April, several media echoed China’s resounding growth in 2020 and the growth forecast for 2021 in the midst of the post-Covid crisis. In the first quarter of 2021, both Reuters and the New York Times pointed to 19% growth compared to 2020 (in the first quarter of 2020 GDP fell by 7%). Even so, the forecast for 2021 is 6% for a steady increase. A show of figures and resilience.

The Asian giant continues its trend of vertiginous rise not only in its economy in general but also in Industrial Property (“IP”). In terms of both trademarks and patents, China continues to outstrip the United States as the world’s leading registrant of IP rights. COVID has affected China, of course, but it does not mean that its ability to continue exporting its patents and trademarks in markets other than its home market has diminished.

Some numbers. For each of the classic IP legal forms, let us take a look at the statistics:

In Inventions, if we compare 2018 with 2017, China grew by more than 11%. However, in 2019 it decreased by 9%. Despite this drop, 2019 will be known as the year in which China overtook the United States as the largest filer at WIPO. There have been almost 59K from China compared to almost 58K filings from the USA.

In 2020, overall, PCT applications have continued the growing trend. Again, it was the United States and China that gave the boost. China with 68,000 and the US with 59,000. This time, the overtaking has been exaggerated: 16% for China compared to 3% for the Americans. Next on the list are Japan with more than 50,000 applications, South Korea with +20,000 and Germany with +18,000.

China’s numbers are sobering to say the least. Even so, proportionally with the “pursuers” countries of all PCT applications, China still trails as one of the countries that exports the most patents outside its borders.

At the domestic level, the numbers have been maintained between 2019 and 2020. April 2020 was a month where global activity was notably lower due to the Covid outbreak. However, China grew by 8% (according to figures from the China National Intellectual Property Administration). There were 98,000 applications in April 2019 and more than 106,000 in April 2020.

Utility models have been the main character in 2020 being above 75% between 20219 and 2020. Perhaps this is due to the government incentives offered directly through the national programme that aims to boost Intellectual Property in the country. This aid has an expiration date, so an adjustment should be reflected in the comparison between 2021 and 2022.

Asia becomes the continent that contributes the most PCT applications with 53% of the total. If we look back 10 years ago, Asian countries accounted for 35%. The potential behind is undeniable. The moment China decides to invest in other markets through patent protection, the Asian continent becomes dominant in that market.

Latin America is a clear example of an emerging market where Chinese companies have turned their attention. The top 5 applicant lists in countries such as Brazil, Mexico, Argentina and Chile include mostly companies of Chinese origin. The names and their industrial sector are already familiar to the average consumer: manufacturers of mobile phones, networks and telecommunications in general.

Who have been the usual suspects? Huawei (CHINA) leads the table with 5464 PCT applications followed by Samsung (Korea), Mitsubishi (Japan), LG (Korea) and Qualcomm (USA). Noteworthy is the growth of LG, which in 2019 was in 10th position and has now moved up 6 places. OPPO is the second Chinese company in the top 10 with 1800 PCT in 2020.

The entity/corporation profile is comparable to previous years. Asian countries are consolidating their position as leaders in terms of PCT users. When the applicant is a university, China re-emerges in the same way with 5 centres in the top 10 of Universities using the PCT treaty the most.

Technologies related to software, electronics and telecommunications are again in the spotlight.

With regard to the EPO, the picture is different. It is still companies based in Member States that have filed the most applications with the EPO, 45% of the total compared to 7% filed by companies of Chinese origin. As a benchmark, Germany has 14% and the US 25%. However, while the top countries filing patents with the EPO have fallen in 2020 (compared to 2019), China is the one of the few countries that raised with almost 10%. This is followed by Korea and Italy with 9% and 3% respectively. All others are in negative growth.

In Trademarks, one would expect the pandemic to affect the statistics to a greater extent. Among other reasons, because the launch of a new product on the market is paralysed. According to WIPO’s figures, this is the first time from one year to the next that the number of trademark applications has not increased (-0.6 %). Such a standstill has not been seen since the crisis of 2008.

Chinese companies are (still) number 3 as users of the Madrid System. However, one must look at the growth compared to the other world powers in the trademark sector. China is the only country with double-digit percentage growth. Again, one of the big perpetrators of these numbers in China is by companies like Huawei, Xiaomi, ZTE, Oppo.

And before the EUIPO, what kind of products and their brands came from CHINA during 2020? It seems clear that face masks and medical devices (gloves, PPE equipment, etc.) have dominated the EUIPO in 2020. China overtook Germany for the first time as the largest applicant before the EUIPO last year.

As recognised by the EUIPO authorities, China has seen a quantum leap in filings from 2019 to 2020, from 15,000 to 28,000 trademarks in the pandemic year.

Domestically, it is not all good news. China has had to deal with several hundred pandemic-related brands that have tried to discredit the management of hospitals or health professionals (i.e., cybersquatters). Most of these brands have been rejected.

Little by little, we are seeing how colossus companies in the mobile phone or electronics sectors are divesting some of their business units, such as disengaging from the mother ship type of.

For example, Huawei sold one of its strongest mobile brands: Honor. This mobile phone, which carries hundreds of patents registered by Huawei, is already attracting the interest of technology companies such as Germany’s Leica, the number one manufacturer of lenses for mobile phones.

Will this enormous IP transfers create a more heterogeneous industrial spectrum?

Designs figures have “paid the price”. They have been the “losers” in this pandemic. More than 15% difference between 2019 and 2020 is what we see in the statistics through the Hague System.

Nevertheless, and once again, 2020 will be a historic milestone for China. This year is the first time that China will be in the top 5 of the countries that submitted the most designs through the Hague System. This time the protagonist of this list would be Xiaomi fighting alongside Samsung (as number 1), P&G (2), Fonkel (3), and Volkswagen in fourth position.

Resilience that becomes Innovation

Once the pandemic is declared in early 2020, China initiates a series of measures to limit contact and movement.

The Administration of Justice prioritised the most urgent matters. Deadlines are delayed or extended with the idea of avoiding travel. At least during the most acute part of the contagions.

During the months of February and March 2020, the patent litigation division of the CNIPA delayed the scheduled hearings.

The paralysis caused by the Covid extension encouraged the use of online tools. For the registration of patents and trademarks, requests for review, cancellation actions and official actions through an e-filing service.

Other tools that were already planned prior to 2020.

Online patent litigation?

Hearings, and the provision of evidence via software, have become a challenge for interested parties that look like one of those measures that, although conceived as temporary, are likely to become permanent as an option for future litigants. To ensure that the interested party is notified, all kinds of delivery methods are provided: by telephone, by email or by SMS.

These measures were not new or prompted by the arrival of the pandemic.

At the end of 2019, the Supreme Court, authorised by a congressional committee, launches a pilot programme to simplify civil proceedings. Even without the pandemic, the Supreme Court was going to launch this programme to modernise and streamline court procedures that usually required a physical presence.

And so, it happened in January 2020. An online litigation platform is opened. This does not mean that oral hearings (courts in Beijing) have disappeared. It is simply that during the pandemic, priority has been given to the online mode to avoid possible contagion. 30% of patent litigation has been conducted in virtual mode.

And how has it worked? The platform that has facilitated “online litigation” has been one of the few sectors that could not care less about COVID19. It has not only been used to initiate actions but has also been involved in the entire litigation, from mediation of the parties to the judgement. Even a WeChat channel of its own is being used in the Beijing courts offering great flexibility to users where they see that they can use only their mobile device to continue the ongoing litigation.
It seems that this tool is here to stay.

Some reflections:

China continues to climb in the number of IP applications in all its forms. It is not that the IP traditional markets (USA, US) are not growing as before, but Asia and specifically China has grown at a much stronger pace.
Whether or not this increase is due to continued government support and subsidy and many such projects end up being forgotten, the fact remains that China and its “scary” numbers are already influencing the way IP rights are managed.
Having an online platform for civil litigation seems necessary in a country of this size. Anyone who has been to China can easily understand that commuting in a city like Beijing is a waste of time. I do not even want to think what it would be like to be in a city of 24 million people with restrictions that further hinder the administration of justice.

Online litigation is going to be around the corner for us as well. However, China remains to be a traditional society at the heart of its culture and legal system. Like all other countries in the developed world, and despite the push it has had to make by urgently implementing measures such as those described above, the Asian giant will also have its challenges in marrying its tradition with technology.

We continue to follow developments in Asia in general and China in particular. For now, huge companies such as Huawei, ZTE, Oppo, Xiaomi are pushing ahead. But in the EU, we are starting to see Chinese competitors in all kinds of industrial areas. Will we see in the coming years a wide range of small and medium-sized Chinese companies exporting their IP outside China?

Borja Barrutieta

Lawyer.International Relations Department.Legal Advice Department.

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