China’s Patent System
Since 2000 alone, Beijing has also undergone massive reforms of its IP system, including four major revisions to its patent law... China’s patent office, CNIPA, has hired tens of thousands of examiners and has expedited time-to-grant for patent applications. Specialized IP courts in China provide rapid rulings and readily issue injunctions. In fact, US companies often now sue in PRC courts when they have a choice of jurisdictions in order to obtain the injunctive relief no longer available in the United States.
~ The Hoover Institution’s 2023 “Silicon Triangle” report, pp. 178-179
Nicholas Welch: Let’s talk about China. China has their own patent administration system called the China National Intellectual Property Administration (CNIPA).
A talking point we hear all the time is that they grant a lot more patents than the USPTO does — and that’s true. The US has a test for patents based on abstractness, whereas the Chinese authority reviews the invention as a holistic whole and focuses on the technical solution. In 2023, there was a study that said more than 12,000 cases had been granted in China and Europe but denied in the United States on statutory subject matter grounds.
Should we care that China grants a lot more patents than the US, and is there anything we could learn from how China runs their patent system?
Andrei Iancu: Yes, we should care. It is a concern to me that somehow, they’ve created a patent system that seems to be more robust than ours in some respects. China continues to steal IP at extremely high rates in many different ways, but on top of that, they also have their own innovation ecosystem, and they’re maximizing it to the extent possible for their economy. One of the things they’ve done over the past couple of decades is systematically improve their patent system, and in some ways they’ve overtaken us when it comes to some of these protections.
You touched on one of them — the Chinese laws when it comes to subject matter eligibility. In other words, what technologies are subject to patent and which ones are not. Their system is more clear and more robust than ours, which, as I said at the beginning of this conversation, has not been legislated since 1793. The Chinese system, when it comes to subject matter eligibility, is new and fresh.
That absolutely has an impact, particularly for our economy. If we want to maximize innovation in the United States and maximize investment in that innovation in our free market system, we need clear laws. We need to know the rules of the road and make sure that industry believes its investment will be protected by the rule of law. Right now, on things like subject matter eligibility, the rules of the road are unclear. You’re making all these investments and you just don’t know if it will be protected down the road, if it’s in or out of the patent system, or how it will be interpreted. That uncertainty, at least on the margins, is depressing our ability to invest at scale in these risky new technologies. That puts us at a disadvantage with China.
If you look at the number of patents Chinese companies have versus the United States and graph it out, it should be frightening to anyone in the United States that cares about these issues. If you start graphing 20 years ago, the Chinese were at the bottom, barely registering on the scale of patent grants worldwide, and the United States was at the top or among the top. But take that out to the present day — about 10 years or so ago, there’s a hockey stick effect that comes into play with the number of Chinese patents or patents granted to Chinese companies.
The United States is basically flat for the last 20 years — by and large, the numbers of patents to US companies are growing pretty much 2-4%, in line with GDP growth. The Chinese numbers show a hockey stick effect about a dozen years ago. It rises and then overtakes the United States about a decade ago, and now they’re blowing us out of the water. They’re blowing us out of the water across the board, but more importantly, in the technologies that really matter. For example, they’re getting six times as many patents in deep machine learning as the United States. This relative positioning applies in almost all the new areas of technology, and that should be a significant concern.
Jordan Schneider: When I see charts like that, my first mind goes to Goodhart’s law — what kinds of incentives are being set up here? It really comes down to a question of patent quality. To what extent is the amount of patents issued at the national level a good proxy for innovation? Is it better to look at the market cap of Baidu versus Meta to address that point?
Andrei Iancu: It’s a very good point. I don’t think you should just rely on the number of patents to make a definitive determination as to who’s winning the race in a particular area of technology. But it is one indicator, and it’s a really good leading indicator of where the technology will be in a little while.
Regarding patent quality — that’s the talking point that people who want to weaken the United States patent system make, which is, “Okay, they’re getting a lot more patents, but they’re weak patents, they’re bad quality patents.” I say, what’s your evidence for that? Show me the study that on average the Chinese are getting weaker patents worldwide compared to United States companies getting their patents worldwide.
I don’t think there is a reliable study out there that shows that. It’s not like all of our companies are getting the best patents in the world, either.
Jordan Schneider: With seven thousand a week, you’ll get a lot of duds too, you know.
Andrei Iancu: The Chinese are now getting three times as many patents as the United States. If you just eliminate two-thirds of those — okay, we’re even. Are there that many really terrible patents that Chinese are getting? Where’s the evidence for that?
More importantly, it’s one indicator. We need to look at all the other indicators, and all the other indicators point in the same direction, with no exception. Chinese scientists and engineers are authors of more peer-reviewed scientific and technical journal articles than American authors. The Chinese are graduating many more scientists and engineers every year than the United States — not close, many more. The Chinese are beginning to take leadership roles in standard-setting committees at extremely high rates.
Every indicator points in the same direction. We can start to dismiss one or the other for one reason or another, but I don’t think the United States should lose sight and shrug its shoulders and say it’s just fiction numbers.
The evidence bears that we are in a tremendous technological race, and they are making tremendous progress.
We better attend to it right away and pull every possible policy lever to incentivize the maximum innovation output in the United States. Otherwise, we’re going to wake up in a year or two or five, and it’s going to be too late.
Nicholas Welch: Another indicator that supports what you were saying — this is from a Hoover Institution report in 2023 — PRC courts provide injunctive relief in nearly 100% of all successful patent cases. Specialized IP courts in China provide rapid rulings and readily issue injunctions. In fact, US companies often now sue in PRC courts when they have a choice of jurisdictions in order to obtain the injunctive relief no longer available in the United States. That blew me away — if American companies are choosing to sue in Chinese courts over patent infringements or to obtain injunctive relief, maybe we could start reforms and have people sue in United States jurisdictions. That’s huge.
Andrei Iancu: That is right. It’s yet another way we have weakened our intellectual property system. It is very difficult to obtain injunctions for patent infringement in the United States. If you think about what a patent is fundamentally, a patent, like any property right, is the right to exclude. If I have a house, I have the right to have a front door with a lock and exclude people if I don’t want them to come in. It’s a fundamental right of any property right. If I have a field, I have the right to put a fence around it and exclude other cows from coming to graze on my grass if I want it, or I have the right to charge people to come in and graze on the grass or do whatever I would like with my property.
Same with intellectual property. In fact, as I said at the very beginning, the Constitution says that patents and copyrights are meant to give inventors and authors their exclusive right, which means the right to exclude and the right to an injunction. But since the eBay decision from the Supreme Court about 15 years ago, that has been very difficult to obtain in the United States. Whereas in China, for example, or in Germany, it’s almost automatic, the way it used to be in the United States all along, until recently.
That basically diminishes the value of American intellectual property. It makes it less valuable and therefore less useful to inventors and investors as they contemplate what to work on and what to devote their energies to. That is very detrimental to our innovation economy. There is a bill out there, bicameral, bipartisan, called the RESTORE Act, to fix this issue. But again, it was introduced late last Congress and it hasn’t moved yet.
Nicholas Welch: In US courts, when you say it’s harder to get injunctive relief because of eBay, does that mean the alternative is just money damages? A company could say the cost of litigating and even losing would be cheaper overall — as long as a court can’t actually force me to stop using the patent, I may as well just go through the litigation. Is that what we’re referring to here when you talk about weakening patent rights?
Andrei Iancu: Yes, exactly. If you don’t have the right to exclude and all you have is the ability to charge a fee, then you are into what’s called a compulsory licensing system. That’s not really a property right.
Imagine you have your house, Nicholas. The law says in your town that you can have your house, God bless, but you can’t kick anybody out. Then along comes Jordan, and he says, “I’m setting up in your back bedroom. You can’t kick me out, but you know what? I’ll pay rent. I’m going to just live with you. I’m going to come in with my wife and my three kids and my mother-in-law and we’ll just live in your house and we’ll pay rent.”
How valuable is that house? You’re most likely going to move from that town if that’s the rule. Most likely you’re not going to buy that house or make that investment if people can come set up in your house, even if they want to pay rent. No, thank you! If I want to rent it out, I will, but you can’t force me to rent it out.
This is such a fundamental principle for real estate, real property, or personal property. Same thing with personal property — like a watch. I’m going to come and just take your watch, but I’ll give you ten bucks a month and I’ll just take your watch and wear it wherever. Who even thinks about these things? It’s laughable.
But when it comes to intellectual property rights, the American courts recently don’t have a problem saying you don’t have the right to exclude. It makes no sense, and as a result, on the margin it devalues that property right. It’s irrelevant that you can also charge rent on it. Sure, it’s helpful — it’s better than nothing, definitely better than nothing. But it is such a humongous devaluation of that exclusive right that the Constitution contemplated.