Patent Alliances in China – Interview with Oliver Pfaffenzeller
Jean-Claude Alexandre Ho, LL.M.
IP Knowledge Enhancer, I help people to increase their IP knowledge and skills | Developer and Organiser of mostly IP training (also mining law and gambling law) | IP Manager | Lawyer
Oliver Pfaffenzeller has recently spoken at the China IP FORUM at Munich which I organized.
Oliver heads an IP team in charge of the Siemens business units Low Voltage Products and Control Products. He is also responsible for reporting on Chinese patent law within the Siemens patent department. In this function, he advises on patent strategy for China, provides training to German and Chinese employees, and deals with language issues. He qualified as a European Patent Attorney and a German Patent Attorney.
Here is an interview I have conducted with him.
Jean-Claude Alexandre Ho: Thank you for agreeing to this interview, Oliver. You have recently spoken on patent alliances in China at the China IP FORUM in Munich. How were these alliances inspired?
Oliver Pfaffenzeller: The inspiration for IP alliances were patent pools. From 1999 onwards, the Chinese DVD industry was almost ruined by license payments to the DVD6C and 3C DVD patent pools. In 2004, almost one third of the price of a Chinese DVD player consisted of royalties. So by 2004, the number of manufacturers in Shenzhen Bao'an district had fallen from about 140 to approximately 30 to 40.
Jean-Claude Alexandre Ho: Were there also other industries affected?
Oliver Pfaffenzeller: We had a similar situation in the telecommunications industry where Chinese manufacturers had to pay high sums to pools with standard-relevant patents. This raised the Chinese’s awareness of the concerted use of patents.
Jean-Claude Alexandre Ho: So the situation in 2004 was difficult. Could you retrace the origins of the patent alliances in China?
Oliver Pfaffenzeller: IP alliances in China began at a regional level. Initially, IP alliances were formed at technology locations. Thus, the Beijing City Focal Point Industrial Intellectual Property Alliance was formed in June 2007. Then Shenzhen followed in April 2011 with its New Energy Standards and IPR Alliance and in 2014, published guidelines for the management of IP alliances. This included funding and financial support.
Jean-Claude Alexandre Ho: So when the patent alliances in China became a national strategy?
Oliver Pfaffenzeller: The year after the publication of the Shenzen guidelines, the Central Committee of the Communist Party of China (CPC) and the State Council issued several opinions on the ‘Deepening the Reform of Systems and Mechanisms to Accelerate the Implementation of Innovation-driven Development Strategies’. This is interesting as it is so far the only publication with the participation of the Central Committee of the CPC, in which the direction of developments in industrial property rights, including software patenting. Anyhow, in the same year, the former State Intellectual Property Office, now China National Intellectual Property Office (CNIPA), reacted with a corresponding notification by which industrial alliances and IP alliances as a special form of industrial alliances were to be established and promoted.
Jean-Claude Alexandre Ho: So what does this mean in detail?
Oliver Pfaffenzeller: Following said notification, CNIPA published national guidelines for the establishment of IP alliances. In these guidelines, IP alliances are defined as alliances for the development of industry based on IP rights and its shared use. IP Alliances have a pool of IP rights that are made available to alliance members - typically licensing -, a common management for the IPR pool is installed. The IP alliances must adopt internal rules for the management of the joint pool. The aim is to improve IP work, e.g. IP generation of IP, portfolio management, use of IP. The overall goal is the mitigation of IP risks caused by third party rights.
Jean-Claude Alexandre Ho: How are IP alliances registered, and how many IP alliances have been registered by now?
Oliver Pfaffenzeller: The 2015 guidelines describe the process and contain the application form for national registration. As of 2018, 105 IP alliances have been registered.
Jean-Claude Alexandre Ho: Initially, you have mentioned the creation of IP alliances as a reaction to patent pools. What are the main differences?
Oliver Pfaffenzeller: While patent pools are formed by their members on their own initiative, Chinese authorities are involved in the creation of IP alliances which consist of members exclusively from China. What is more important to take in consideration is that the IP positions of alliance members can differ substantially. Finally, IP alliances are less focused on license revenues, but on defending against patent pools and thus on mitigating IP risks.
Jean-Claude Alexandre Ho: So in times of increased standardization, what is the role of IP alliances?
Oliver Pfaffenzeller: Well, one of the missions of the IP alliances is to combine standardization and patent pool generation. For patent pools with a focus on national standardization are intended to generate standard relevant patents for a patent pool. You have for example the Shenzhen New Energy Standards and IPR Alliance. Standard relevant patents are considered as a strong weapon against international companies that are active in China.
Jean-Claude Alexandre Ho: Have there already been cases where patents on Chinese standards are used against international companies?
Oliver Pfaffenzeller: Indeed, the decision Xidian Jietong against Sony provides a model for the use of patents on a local standard against an international company.
Jean-Claude Alexandre Ho: Alright, that means that IP alliances are used as a defense on the domestic market. Do they also have an impact when Chinese companies go abroad?
Oliver Pfaffenzeller: Indeed, IP alliances are a part of China’s international strategy, they are to support China's foreign strategy. For instance, IP alliances have a role in the ‘go global’ strategy. We see that specifically with the Chinese high-speed train technology. IP alliances play also a role in the Silk Road strategy. Furthermore, IP alliances should also lead Chinese companies to act in a concerted manner and not fight each other in foreign markets.
Jean-Claude Alexandre Ho: From the perspective of non-Chinese companies, this sounds at least problematic.
Oliver Pfaffenzeller: That is correct. Transparency for western competitors is largely lacking. The formation of such a pool may be subject to antitrust law or unfair competition law.
Jean-Claude Alexandre Ho: What should non-Chinese companies do about that? What would you recommend?
Oliver Pfaffenzeller: Well, a long-term strategy could be to lobby for more transparency. You could immediately search for information on alliances relevant to your own company and vet Chinese partners for alliance membership.
Jean-Claude Alexandre Ho: Oliver, thank you for your advice and your time.
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