How Government Subsidies Changed the Patent Landscape in China?

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(Author: He Jing; Source: ZY Partners)

It is now public knowledge that Chinese government, at the national and local levels, gives funding to local technology firms for patent filings. For example, according to a recent press report, Zhongguancun Technology Park, often referred to as the Silicon Valley of China, the local government provided a total of RMB 100 million in the last four years; which benefited about 600 local companies.  In 2010, roughly 185 companies shared funding of RMB 21.7 million for the filing of 2,063 patents.

Some commentators have been disputing the actual value of such subsidies for China.  Apparently, the local government has tried to rebut such doubts through several case studies.

Reportedly, a local security technology firm FEITIAN completely outpaced its foreign peers in patent filings due to the governmental subsidies.  In 2005, FEITIAN was sued by its competitor Aladdin Knowledge Systems in a US court for patent infringement.  The case ended up with a settlement that barred Feitian from selling its products in the US market.  The Chinese firm, which only had 1 patent back in 2005, quickly started up its patent filing game. Feitian was then able to greatly increase its number of patents filed after receiving a subsidy of RMB 1 million from the local government in Beijing.  In 2009, Feitian was able to build a portfolio of 247 patents in China, while its foreign competitor had only a mere 59 patents.  According to the Chinese press report, this increased patent strength helped Feitian obtain a new settlement with its competitor, and Feitian was eventually able to return to the US market.

This example might not represent the whole picture, but it is clear that some sophisticated local technology firms are able to take advantage of these government subsidies and expand their patent portfolio quickly in the Chinese market.   Foreign competitors will have to be very mindful of the shift of “patent power”, which will impact on business deals, negotiations, settlement discussions from the background.

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