China’s Innovation Fetish

December 25, 2013

Merry Christmas everyone! This is one of my favorite “holidays.” I put that in quotes because I always work on the 25th, so it is technically not a holiday for me. However, I love it when things slow down and I can catch up on all the work that has piled up over the past weeks heading into the end of the year. I’ve spent a good chunk of today, in fact, wrapping up some longstanding projects and doing some training for newby lawyers on my team. Long discussions about contract templates should be part of everyone’s Christmas tradition.

Most bloggers out there are silent at the moment, but you can always count on us folks of the Jewish persuasion to chime in with an opinion, even when most of the Western world is otherwise occupied. Case in point Mr. David Wolf, consultant to the stars and author of the Silicon Hutong Blog, who penned a post on innovation in China earlier today.

I’ve written about innovation a lot over the years, from both a policy and legal perspective. However, I’ve rarely thought about a definition or the purpose of innovation itself. David goes there, so I think I should attempt to follow.

On the definition, David boils it down to this:

A good working definition of an innovation, then, is something that is novel, useful, and relevant to a given audience.

Old IP lawyer that I am, this language looked very familiar to me. Consider Article 22 of China’s Patent Law:

Inventions and utility models for which patent rights are to be granted shall be
ones which are novel, creative and of practical use.

Is that cool or what? At the very least, we’ve got novelty and usefulness overlapping here. What’s missing from David’s definition that would be important for patents is language relating to advancements and substantive features, and the patent law language does not specifically address commercialization, which is what David was driving at when he used “relevant to a given audience.”

Why is this interesting? Because China, and many other countries, substantially equate innovation and patents, going so far as to measure success in innovation by the numbers of invention patents granted.

But just because a country files a lot of patents, does that necessarily lead to innovation? I would say no, and the reason goes back to commercialization. What are patents after all but a State-granted monopoly allowing an inventor to recoup investment? Without commercialization, patents are meaningless.

Innovation without commercialization? That’s different.

What would happen if there were no patents? Would folks still come up with new ideas? Absolutely, it would just be much harder for them to get paid, and therefore a certain percentage of that creative activity, in the absence of commercial motivation, would never be initiated in the first place.

Society doesn’t need patents per se. Indeed, if folks were motivated to creativity without commercial rewards, then information could flow freely. Unfortunately, the real world doesn’t work that way (sorry, Corey Doctorow and friends), and a great deal of R&D only takes place when there’s cash to be had at the other end.

But to close the loop on the discussion of these two terms, what would we call that creative activity that now leads to patents if there was no patent system? I suppose we could just call it innovation.

That doesn’t mean to say though that such activity necessarily leads to where the government thinks. Equating patents, or other indicia of innovation, to economic activity presupposes quite a few things, which I suspect vary considerably by country.

For example, that patent you’ve just been granted may not be very useful if it cannot be enforced or if you have no access to credit or investment. It’s not like there is a Commercialization Fairy lurking outside the door of the State Intellectual Property Office who showers start-up funding on anyone walking out with an invention patent.

And by the way, even if that innovation leads to a patent, and if that patent leads to commercialization, does that mean that the country where that innovation took place will benefit?

To some extent yes, but probably much less than it used to. If I’m Thomas Edison living in 2013, I would set up my global HQ in a tax haven somewhere, hire folks as needed to do R&D in places like China and India, consolidate my IP portfolio in that tax haven (to the extent possible), and license the hell out of my innovation. Which country benefits from those innovative steps? Very hard to say. China’s innovators are mostly focused on the home market these days, but they are trying very hard to go global; one result of this effort will be to disperse the gains of future innovation to other countries.

All this makes me wonder whether the usual questions about which country is innovating the most even make sense anymore. Perhaps it’s better for nations to think about what their end game is (higher standard of living, full employment, clean environment) and then figure out whether, to what extent, and specifically how innovation will contribute to those ends. Assuming, for example, that a lot of R&D spending will lead directly (some day) to a lot of jobs is taking quite a leap of faith.

So to anyone who asks whether China is innovating, I would suggest taking several rhetorical steps backward before returning to that issue.

OK, lunchtime is over. And the rest of you have to attend a mass for Christ (I assume that’s what one does on this particular holiday).

Happy Holidays!

4 thoughts on “China’s Innovation Fetish

  1. D

    Stan: good to see you posting again.

    So a question I get sometimes — and one I remember a journo asked me a few years ago and I sent her to talk to Wolf for a quote — is this: “Can China innovate?” It’s a very broad and a sometimes condescending question, but it deserves being answered (sometimes). I don’t mean to fully answer it here, but rather to talk about meanings: a clear definition for the words “invention” and innovation” need to be made.

    Often the words innovation and invention are conflated and interchanged. But they are different words with different meanings. It’s important to make the definitions of these words clear, since they are used in legal and licensing documents. And they are translted back and forth to Chinese, further obscuring the definitions.

    I think a definition for invention is similar to what Wolf says: an invention is a novel and unique “thing” that is discovered.

    But a definition for innovation should be: altering or changing a “thing” to gain a breakthrough or revolution.

    So an invention comes first, and then an innovation follows. In very broad strokes, here are some examples:

    China invented gunpowder. And then countless people over subsequent generations innovated to find better ways to use gunpowder to expel projectiles in better ways.

    The first Bulletin Board System (BBS) was an invention. And then Facebook was an innovation of the BBS.

    The Apple Newton was an invention, and then the iPad was an innovation.

    Twitter was an invention, and Sina Weibo was an innovation.

    I know arguments can be made that the BBS, Newton, and Twitter were actually innovations themselves, but these are just broad stroke examples.

    You ask “So to anyone who asks whether China is innovating, I would suggest taking several rhetorical steps backward before returning to that issue.” I say, using these definitions above for online technology, China has been fantastic at innovating over the last 15 years, but poor in inventing.

  2. Steve M

    I’m not sure that “innovation,” at least in the sense of producing things that are “novel, useful, and relevant” on a global scale, is terribly important for China at this stage of its development.

    An example would be the pharmaceutical industry. Pharmaceutical production and regulation are works-in-progress in China. Currently, despite price controls and other policies aimed at expanding access and affordability, many Chinese citizens do not have ready access to any number of life-saving drugs that already exist. China’s pharmaceutical industry is extremely diffuse, its pharma distribution system is ludicrously inefficient, and drug quality and purity are real issues.

    At this stage, China doesn’t need to “innovate” in the pharmaceutical sector; it needs to copy what more developed nations have already done. It needs to bring production and distribution up to par, and it needs to ensure that generic forms of existing medication are widely available.

    Pharma is but one example, but the same holds true for many other industries (e.g., China doesn’t need to build newer and better jet engines when it still can’t hasn’t mastered existing technologies).

    I am convinced that the propaganda about “innovation” is another myth promulgated by IP-reliant multinational corporations — the same ones that relentlessly push for ever-stronger IP protection worldwide, without regard for country conditions or the needs of people in developing nations.

    1. Stan Post author

      I agree for the most part. I suppose one of the benefits the gov’t fixates on is revenue (see Bob’s comment re: royalties). The development plan is to ride up the value chain via innovation and get to the point where you get a lot of cash rolling in from license fees as well as straight product sales. This allows a nation to pay for other stuff, including cleaning up existing quality problems.

      That’s the idea anyway. Not sure it always holds true or even makes sense for a lot of countries, particularly since those royalties do not necessarily get plowed back in to spending on infrastructure, social programs, etc. To be fair, though, nations that do not go up the value chain tend to get supplanted by other low-cost manufacturers.

      Economic development isn’t so easy . . .

  3. Bob Walsh

    Might have been Chinalawblog, but someone was pointing out that the real measure is not number of patents, but rather amount of royalties brought in, -and in that regard, China has a large deficit.