July 18, 2019
Innovativeness is an advantage of Finnish companies. However, there is a risk that we could become a subcontractor for R&D as technology giants, such as China, start to take over the same markets and strengthen their IP competence. In intense competition, it helps to have a carefully crafted IPR strategy and the challenging market can be regarded, above all, as an opportunity, writes Kolster's expert.
According to the Bloomberg Innovation Index 2019, Finland is the third most innovative country in the world. The index lists economies of various countries on the basis of R&D funding, high-tech companies and the number of patents, among other things. This is an excellent starting point for Finnish companies in order to expand their operations to new markets.
However, innovativeness alone does not guarantee any market shares. According to a study we commissioned from Taloustutkimus, Finnish corporate decision-makers do not regard China as a threat. The outcome of the study is truly surprising and even alarming from the perspective of an IP expert, as our CEO states in an announcement:
”China has already taken the role of a patent engine in the world economy, and it is a real threat that Finland will become a subcontractor like India. We are an innovative country, but going forward, will others only buy product development from us, while the true value of the company, i.e. intellectual property rights in the form of patents and copyrights, are transferred to foreign owners?”
There are more than a million patent applications filed in China a year, which is three times the number in the whole of Europe. In addition, patenting is subsidised by public funding by granting various kinds of tax reliefs and allowances for patents. For example, the Bank of Finland Institute for Economies in Transition, BOFIT, states that even though there are sometimes concerns about the quality of Chinese patents, China’s R&D is strong and its technological development should not be underestimated.
The Chinese mainly apply for patents in China but the number of Chinese patent applications continued in Europe is continuously increasing. Naturally, this means that Chinese companies will have patents in Europe in the future, which will also restrict the freedom of operation of companies that only operate in Europe.
Corporate leaders should in fact look ahead a couple of years, even though China does not appear to challenge their business at the moment. It is clear that China wants to become the technology leader in several sectors and it is doing its utmost in order to reach that target. One of the targets is to become the superpower of AI technology by 2030.
Chinese companies wish to enter the European market and the trade war with the US is further accelerating that trend. Over the next couple of years, we will surely see extremely solid brands in the fields of electronics, vehicles and software in which the IP rights belong to a Chinese company.
However, potential lies in intense competition. China’s great ambition will force other countries to invest in R&D. The innovation competition can be won by well-protected IP rights.
Fortunately, Finnish companies have several tools that they can use in the IP environment in order to protect the results of R&D and innovation. As our economy is increasingly based on knowledge, it is important to understand how technological competence can be made visible and how to control its use. Patents are an important tool in that respect.
Basically, a patent is a mechanism that enables control over the use of a technology. Chinese companies are in a key position in terms of the number of patent applications related to artificial intelligence and 5G networks. Therefore, it is natural to assume that the Chinese will also have notable power to control the use of these technologies as they hold the patents. Naturally, this will also impact the freedom of operation of Finnish companies.
Companies can prepare for the future by protecting their own technology and thus maintaining control over it. Patents indicate the ownership of technology: Through the ownership of IP rights, a company can either deny others the use of a technology or sign licence agreements, which means that the company determines how others can use the technology in their own operation and for what kind of a compensation.
The IP environment in China has only existed for around 40 years. Massive development has taken place during this period of time. China has cooperated closely with the European Patent Office among others and aims to continuously train IP authorities and adopt best practices. Even though China can easily be considered an apprentice in terms of IPR, its IP environment has quickly evolved towards the level of global standards.
It would be naive to claim that China is an easy market for foreign companies. China is home to a large number of IP infringements and local legislation is not entirely in line with European IP systems. It may be challenging to rectify IP infringements and the rectification process may have shown signs of protectionism. However, the market can be entered with confidence through careful preparations and an appropriate IPR strategy. The Chinese administration has a clear message: IP rights must be respected. The development of the legal system will also help foreign companies operate in the Chinese market.
It is essential to be familiar with local operating methods and environment. We at Kolster have had a good network of cooperation partners in China for a long time. In addition, our local office Kolster (China) Ltd that was established last year, and our Kolster China Desk™ have increased our understanding of the special characteristics of the IP environment in China.
Article updated 24.5.2024