Researchers show that foreign companies are less likely to have their patent applications granted in China than their Chinese counterparts, and point out that this discrimination occurs in technologies of strategic importance to the Chinese government: the telecommunication and biotech industries.
With an investment agreement between China and the European Union awaiting to be ratified by the European Parliament, European companies are hoping to open markets in China without being forced to share technology with their Chinese counterparts.
The agreement comes at a time with marked trade tensions with China. There is rising technology protectionism between the United States, Europe, and China.
"Press articles have reported cases of industrial espionage conducted by Chinese university students in the UK and Belgium," notes EPFL researcher Gaétan de Rassenfosse. "The Chinese telecommunications giant Huawei, suspected of industrial espionage by the United States, has recently set up a branch in St-Sulpice, 2 km away from EPFL’s campus, raising keen interest and also speculation about its technological interests." These elements motivated the researchers to delve into this topic from their area of expertise, namely the patent system.
Discrimination against foreigners by the patent office in China
Regarding the patent system, the US International Trade Commission states in a 2010 report that "... some non-Chinese firms reportedly find it more difficult to obtain patents in sectors that the Chinese government considers of strategic importance."
Eager to move away from anecdotal evidence to a fact-based analysis of this heated debate, de Rassenfosse and Emilio Raiteri (who has since moved at TU Eindhoven) decided to quantify how many patents are granted in China, to locals and foreigners. Do the allegations of discrimination hold when examining the data carefully?
"It’s not enough to just compare the grant rates between foreigners and locals, because many factors may explain a difference in these rates, like the quality of the invention, or even the prestige associated with certain patent attorneys," explains de Rassenfosse.
"As we take into account more and more of these factors, we find that grant rates between foreign and local patent applications are statistically about the same, suggesting no discrimination. There is a notable exception for areas of strategic importance for China, however, where clear discrimination does become apparent," explains de Rassenfosse.
The researchers find that telecommunications and biotech are two industries with evidence of discrimination against foreigners trying to set up a market in China, based on patent applications filed in the years 2001-2009. According to the research, foreign companies are up to 7% less likely to have their patent applications granted in China than their Chinese counterparts. Also, de Rassenfosse explains, "Patent applications by foreigners are more extensively amended, meaning that the patents have a reduced reach." The research has been accepted in the Journal of Industrial Economics.
"Discriminating against foreigners violates several international IP treaties, of which the TRIPS agreement administered by the WTO is one," continues de Rassenfosse. "However, China may not be alone: patent offices worldwide may be favoring their nationals. Lack of enforcement of IP treaties is harmful to the knowledge economy that we so highly praise. We are witnessing the closing of technology borders across nations, and that is a worrying trend."
Note: The original news report has been modified following remarks from the CSSA Lausanne.
de Rassenfosse, Gaétan and Raiteri, Emilio, Technology Protectionism and the Patent System: Strategic Technologies in China (September 1, 2020
Available at SSRN: http://dx.doi.org/10.2139/ssrn.2803379