China’s Innovation Metrics II: a Brief Note on Trademarks

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I posted yesterday on statistics used in China to measure progress in building the innovation society. These include R&D spending, engineers graduated, patents filed, and invention patents filed. Thanks for all the interesting comments, one of which reminded me that published academic papers is another number that is commonly thrown around.

All of this concerns patents and technology, but the World Bank stats on royalties and license fees I wrote about yesterday also include trademarks. What’s the usual way to deal with trademarks and what does the government really care about in that discussion?

First, it’s pretty obvious that trademarks are a bit less complicated than patents in several ways. For one thing, for our purposes, there is really only one kind of trademark/service mark, whereas there are three kinds of patents available in China. Therefore if we’re dealing with an official statistic from the China Trademark Office, there are only two numbers possible: applications filed, and trademarks registered. To the extent that the number is indicative of anything, I would prefer to go with registrations since many applications are rejected.

Do the number of trademark registrations mean anything? Sure, as numbers go up, that means that the economy is growing. Moreover, it does indicate that the applicants thought that this form of IP was valuable enough to pay money to secure those naming rights. I think we cannot extrapolate too much from this and say that everyone over here has therefore “bought in” to the importance of IP protection, but it is a step in that direction.

Second, why does the government emphasize trademarks, and what do they really care about? Once again, all we need to do is look to a State-run newspaper for a good example. Here’s China Daily on the subject from last week:

China needs to raise the proportion of Chinese brands in its exports, to improve the nation’s trade quality and efficiency, a senior official said here Wednesday.

Chinese brands make up less than 10 percent of China’s exports, said Fu Shuangjian, deputy director at the State Administration for Industry and Commerce (SAIC), at the 2010 China Trademark Annual Meeting, which kicked off Wednesday in Xining, capital city of west China’s Qinghai province.

Excluding overseas invested companies, less than 20 percent of Chinese exporters have registered trademarks in China, while less than 5 percent have registered trademarks abroad, said Fu.

I would argue that, just with patents, we should keep an eye on the bottom line here. Certainly the number of trademarks filed is related to overall economic activity and the acceptance of IP as a significant asset. However, just as important, or more, is the relationship between domestic brands and value added exports.

As I discussed yesterday, China’s IP trade deficit is moving in the wrong direction. For branded products, there are two ways to fix this. First, substitute foreign brands for domestic brands. Second, sell more domestic brands abroad. The article excerpted above focuses on that second possibility. The idea here is that Chinese firms should file more trademarks abroad and then, most importantly, start selling those branded products for higher prices overseas.

Moving up the value chain, a stated goal of China’s innovation society, is not just about patented technology. If a Chinese company like Li Ning can sell shoes with its own brand overseas (with a heftier markup than no-name shoes), that IP trade deficit I talked about yesterday can be narrowed and China’s GDP will continue to rise.

Looking at the number of trademarks filed alone tells us nothing about whether this export strategy, or import substitution for that matter, is actually working.

[You may have noticed I did not address the issue of how Chinese companies can develop brands for overseas markets. This is a topic for another post and is very complex. Suffice it to say that many lessons remain to be learned with respect to marketing and branding before we’ll see a significant number of Chinese consumer brands being successful overseas at the higher end.]