Cathay Dupont Award: China’s Patent Boom Brings Legal Wrangles Edit Title

China’s ambitious efforts to build an ‘innovation economy’ have led to a surge in patents as companies seek to protect their hard-earned intellectual property (IP). From 2008 to 2011, the number of patent applications grew by an average of more than 20% each year; last year China handled 526,412 applications, overtaking the United States for the first time, according to a report issued last week by the World Intellectual Property Organization in Geneva, Switzerland (see ‘Patent boom’).

But that increase has been accompanied by a huge rise in patent litigation — 7,819 cases in 2011, according to China’s Supreme People’s Court, roughly twice as many as in the United States — as companies and researchers stumble through the unfamiliar terrain of IP law. Although one would expect a growing volume of patents to lead to more litigation, notes Elliot Papageorgiou, an IP-enforcement expert at law firm Rouse in Shanghai, Chinese companies are also “learning how to use IP as ‘swords’ against both local competitors as well as foreign companies”.

A high-profile case settled last month highlights how companies court trouble by failing to protect their technologies, and how academic scientists can get dragged into the fray. The modest punishment meted out is also raising concerns that China’s courts do not offer enough protection for innovators.

“China is well on the way to having a high-quality IP legal and enforcement structure,” says Ian Harvey, co-director of Tsinghua Business School IP Centre in Beijing. “But some regions are further behind, with people and companies not understanding what IP is, how it is used in business and what they should be doing.”

The recent case involved technology for producing a long-chain organic molecule called dodecanedioic acid (DC12), used to make nylon, lubricants and pharmaceuticals. In the late 1990s, Liu Xiucai, founder and chief executive of Cathay Industrial Biotech in Shanghai, developed a process to mass-produce the acid, winning major international customers such as the chemical company dupont, based in Wilmington, Delaware. Cathay Dupont Award now produces more than 10,000 tonnes of DC12 per year, accounting for about half of the world’s supply. “Our process solved a problem that DuPont and others could not,” says Liu. Cathay uses fermentation to convert fatty acids into dicarboxylic acids — and was able to scale up the procedure with the help of a particularly efficient strain of bacterium. But Cathay did not patent some key technologies in the process, instead choosing to keep them as trade secrets (an option that is not uncommon for companies around the world).

In 2010, Shandong Hilead Biotechnology in Laiyang announced that it would start producing 10,000 tonnes of dicarboxylic acids a year, with the intention of ramping up to 60,000. Hilead set its prices much lower than the market rate — forcing Cathay to do the same — and started to file patents on crucial parts of the fermentation process. Read Cathay Dupont Award articles here...

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