Elgar Intellectual Property and Global Development series
Edited by Nari Lee, Niklas Bruun and Mingde Li
Chapter 15: The emergence of non-practising entities in China
Non-practicing entities (NPEs), entities known for building business models solely around the exploitation and enforcement of patents to generate revenues mainly through licensing agreements and sometimes litigation, have become increasingly important actors in the patent litigation landscape. Yet, what is conspicuous of the NPE phenomenon is that it does not seem to significantly occur in jurisdictions anywhere outside of the US and Europe. However, the US and European patent enforcement landscapes appear to be becoming increasingly difficult jurisdictions for NPEs to operate in. Several significant patent reforms and judicial decisions in the US are making it more difficult for patent owners to enforce patents, while Europe’s fragmented enforcement landscape of country-to-country litigation increases patent enforcement costs and raises legal uncertainties of patent assertions. As a result, NPEs may soon find it necessary to look beyond the US and Europe to other markets for opportunities to exploit and enforce patents to generate revenues. Looking to the East, China may be able to provide such patent enforcement opportunities. Given the steadily increasing amount of patents available for potential assertions in China and the government’s evolving profit driven approach to patents, the focus for many patent owners in China, in the future, may be on the exploitation and monetization of patents via licensing and litigation. The vast Chinese market undoubtedly holds potential patent licensing opportunity for Chinese and foreign entities alike, while China already is the most litigious country in terms of IP. The Chinese government may be interested in NPEs emerging in China, in order to help establish a patent marketplace where technology transactions and IP investments may be undertaken to further promote innovation. China has recently established its own government backed NPE called RuiChuang IPR Funds to aid Chinese technology companies in acquiring strategically valuable patents and for defensive purposes in foreign patent disputes. In light of these developments, this chapter further considers the emergence of NPEs in China using a conceptual framework of three drivers of NPE success in the context of China; NPEs and the Chinese patent enforcement landscape, the economics of patent enforcement for NPEs in China, and patent enforcement culture in China. A better understanding of these drivers of NPE success, in the context of China, may help to determine whether NPE business models succeed in China in the near future and may also provide useful insights for Chinese policy makers and companies that own and use patents in China. The chapter concludes that while some of the drivers of NPE success may be applicable in the context of China, insufficient legal remedies in Chinese legal practice such as low damage awards for infringement and an apprehension towards court ordered injunctions, coupled with a Chinese culture that is yet to embrace strong patent enforcement, indicates that it will likely be difficult for NPEs to emerge in China at this time in the development of the nation’s patent system.
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