China’s Patent-Powered Approach to Tech Domination

“Made in China 2025” program is training China’s people to file patents, look for patentable ideas, and associate financial well-being with patents. And while there is more than a bit of chicanery going on, on the whole, Chinese tech giants are gobbling up the People’s Republic of China incentives and using them to extend their corporate reach, influence, and power around the globe.

Patents, patents, and more patents

The PRC is focused on developing ideas, technology, and patents, and it’s fighting for territory in different fields of technology. Economic and political observers know that China wants to dominate 21st-century technology, not be just another player on the field. One way to do that has been to patent the technology needed to build the next technological revolution.

As a result, the PRC is not only increasing its domestic filings, but also its international ones. It has dramatically increased the number of triadic patent families– sets of high-quality, tough-to-get patents filed and held simultaneously in Europe, Japan, and the U.S. –that it owns and/or controls. Overall, its number of international patents have grown.

One of the best barometers for measuring the PRC’s international performance is to look at the number of published Patent Cooperation Treaty (PCT) applications it has relative to other countries and companies in other countries. The PCT applications and patents are important because they focus on technology, and they’re seen as harbingers of the relative strengths and developments of different countries in different areas of technology.

Patent power by the numbers

In 2018, six of the 10 top PCT-application-filing companies came from Asia. Moreover, Asia accounted for 50.5% of PCT applications, with the European Union (24.5%) and the USA (23.1%) following second and third, respectively.

While the USA filed more PCT applications in 2018 – over 56,000 – China was a close second, falling short by approximately 3,000 PCT applications. The World Intellectual Property Organization (WIPO) director, Francis Gurry, expects the PRC to overtake the USA in PCT patent application filings within two years. Gurry also sees the increasing PCT applications from Asia as a sign that innovation is shifting from the West to the East.

In 2017, almost half of all PCT patent applications came from Asia (49.1%), with the European Union (24.9%) and USA (24.2%) following a distant second and third. In 2017, Chinese companies filed more than 48,000 PCT applications. The number of applications filed in 2017 represented a 23.1% increase per annum in applications filed since 2012 when over 18,000 PCT applications were filed.

Top 10 Countries Filing PCT Applications in 2017

Country PCT Applications Growth Since 2016 (%)
USA 56,624 0.1
China 48,882 13.4
Japan 48,208 6.6
Germany 18,982 3.7
South Korea 15,763 1.3
France 8,012 -2.4
UK 5,567 1.2
Switzerland 4,491 2.8
Netherlands 4.431 -5.2
Sweden 3,981 7.0

The top individual PCT filers in 2018 and 2017 were Chinese companies. Indeed, Huawei and ZTE have been the biggest PCT patent filers since 2015. They were followed by Intel, Mitsubishi, Qualcomm, and BOE Technology Group – another Chinese company.

Top 10 Companies Filing Published PCT Applications in 2017

Company PCT Published Applications Filed
Huawei Technologies 4,024
ZTE Corporation(SEHK: 0763) 2,965
Intel Corporation(NASDAQ: INTC) 2,637
Mitsubishi Electric(TYO: 6503) 2,521
Qualcomm(NASDAQ: QCOM) 2,163
LG Electronics, Inc. (KRX: 066570) 1,945
BOE Technology Group (SHE: 000725) 1,818
Samsung Electronics(KRX: 005930) 1,757
Sony Corporation(TYO: 6758) 1,735
LM Ericsson(STO: ERIC-B) 1,564

From 1 Jan. 2018 to 31 Oct. 2018, the top 5 Chinese companies filing PCT applications were:

  • Huawei Technologies (4,466)
  • ZTE (SEHK: 0763) (1,801)
  • BOE Technology Group (SZSE: 000725) (1,190)
  • Guangdong Oppo Mobile Telecommunications (781)
  • Tencent Holdings, Ltd. (SEHK:700)(545)

In 2018, Huawei, the world’s largest telecom company, was granted 3,300 patents, more than any other PRC company. But Huawei is not alone in developing a large patent portfolio.

Tencent Holdings, Ltd. has a patent portfolio three times larger than Facebook(NASDAQ: FB) and twice as big as Amazon.com(NASDAQ: AMZN). Alibaba Group (NASDAQ: BABA) has a bigger patent portfolio than any US corporation.

Currently, China specializes in patents for digital communication (1stplace), computer technology (2ndplace), and electrical machinery, apparatus and energy (3rdplace).

Patent Enforcement: IP Courts                                                                                                  

China can also use its patents to block the development of other technology, and to drive other players from the field via IP litigation in international courts. American companies have become infamous for doing this, and demanding tighter and tighter IP laws to secure their IP rights and de facto monopolies.

If turnabout is fair play, the American companies may find themselves crying foul when their technologies are prevented from entering markets because of IP infringement. Alternatively, the Chinese companies could, with the support of the Chinese government, effectively litigate non-Chinese companies to death. In this case, Western nations and companies may regret their insistence that China tightens its IP laws and increase its enforcement against and penalization of IP infringers.

Investor Advice

Chinese companies like Huawei and ZTE are effectively leading the charge in China’s march to global tech domination. They, along with over 100 Chinese companies, are heeding President Xi’s cry to create a more innovative China by 2025.

As an investor, you may do well by investing in innovative companies like these that show how globally competitive they are, and reap the benefits of their cutting-edge technologies

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