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Weekly UpdatesSUMMARY
Based on a survey of more than 2000 enterprises and the case analysis of a typical enterprises, this paper attempts to explore the characteristics of patenting development and the factors influencing patenting in Zhejiang in China. The paper proposes that patenting in Zhejiang enterprises is mainly affected by the technological capabilities of the enterprises and legal regime for IPR. A survey of these enterprises reveals that the technological capabilities of most are still at the stage of imitation and the number of the patents is rather small, compared with the large number of enterprises, though some leading enterprises are climbing the evolutionary ladder from primitive to creative imitation and becoming active in patenting. During the past 20 years the environment for IP protection has been greatly improved with the innovation of IP systems in Zhejiang, which encourage enterprise innovation, patent application and patenting management. The paper finally gives some suggestions on how to improve both technological capabilities and the environment for enterprise innovation.
KEY WORDS
intellectual property rights (IPR); enterprise patenting; technological capabilities; legal regimes; Zhejiang cases
INTRODUCTION
Patents are an important legal instrument for protecting intellectual property rights (IPR). Nordhaus (1969) deemed that a patent, by granting innovators temporary monopoly power, would stimulate the innovator to more effort in research and development (R&D) and innovative activities. Meanwhile, the patent encourages technology transfer through circulation of the technological information contained in the patent files.
In recent years, there has been a worldwide surge in interest in patenting, in academia, in policy circles and in the business community. This heightened level of interest has generated a vast body of research focusing on patenting, in contrast to other means of intellectual property protection. Analysis of the research covers patent strategies and decision-making, and the mechanisms in which patents are employed and patented rights are enforced (Cohen, Nelson and Walsh 2000; Hall and Ziedonis 2001; Lanjouw and Schankerman 2001; Lanjouw and Lerner 2001). Research works in this area have considered whether patents play an prominent role in stimulating invention in developed countries (Scherer et al. 1959; Taylor and Silberston 1973; Mansfield 1986; Levin et al. 1987; Schankerman 1998; Cohen et al. 2000). There has, however, been little work, to our knowledge, that analyses the influences of intellectual property rights in a developing country such as China.
This paper aims to fill the hole by studying factors that promote patenting firms and commercialize new technology in China. Based on a survey of patenting at firms in Zhejiang Province, the paper shows that the technological capabilities of enterprises and legal regime are among the factors that affect enterprise patenting.
Zhejiang Province is located on the southeast coast of China, where the most market-oriented economic life and flourishing private companies have developed in the past twenty years. For example, in the list of the Top 500 private enterprises and Top 100 rich businessmen in China, Zhejiang Province holds one-third and one quarter respectively. Zhejiang was not, however, a magnificent place before the market reforms. Under the planned economy, it received the least central investment and therefore established few modern industries. Since China began to engage in market reforms and opened to international trade and technology, provincial development in Zhejiang has relied largely on private initiatives. The private enterprises that gradually gained competitive advantage in several industries are the subjects of this paper.
The paper is organized as follows. Section 2 discusses the characteristic technological capability building of enterprises in Zhejiang, and the relationship between technological capability building and patenting. Section 3 studies the development of the legal systems for IPR. Legal systems, which compose the environment where the enterprises manage their IPR, have been changing in the economy reforms. Section 4 concludes the discussion.
TECHNOLOGICAL CAPABILITIES AND PATENTING
The firms' patenting development is, from the perspective of internal resources, related to their technological capabilities and their ability to apply acquired and developed technologies in the production of goods and services with novel utility, high quality or low price to be competitive in the marketplace (Hiroshi Ota 1992). Technological capability is one of the main factors that underpin the growth and competitiveness of firms.
Utterback and Abernathy (1976) show a sequence of product and process innovation, in which during its life cycle, product innovation occurs frequently in the beginning, and process innovation follows after a dominant design is developed from competition and selection. Their work is based on observation of firms in developed economies, especially the United States. In developing countries, due to differences in political institutions, education systems, national resources endowments, as well as technological infrastructures, the nature and pattern of technological innovation is very different. Kim (1997), Kim and Nelson (2000) and Zhao and Xu (2002) argue that firms in developing countries begin their technological efforts with imitation, gradually moving to creative imitation, and finally to indigenous innovation. In line with thoughts like this, we analyze firms' patenting in different stages of technological capability development (see Table 1).
At the first stage of 'imitation', relatively simple technological activities, such as reverse engineering of existing outside-sourced technologies, are involved. This stage does not require specialized investment in R&D. Learning is relatively simple; firms do not produce essentially new technologies entailing anything that can be granted a patent; they therefore possess few patents. However, even simple reverse engineering rarely occurs in a vacuum. Reverse engineering involves activities that sense the potential needs in the market, and knowledge or techniques that will meet the market needs, and infuses these two elements into a new project (Kim and Nelson 2000).
In the stage of 'creative imitation', firms begin engaging in assimilation and incorporation of immature technologies or making improvements on mature technologies. Enterprise patenting comes into being. Nevertheless, since the acquisition of key technologies still depends largely on external sources, patenting frequency remains relatively low.
At the advanced 'indigenous innovation' stage, pioneering activities in technological innovation become indispensable. These activities should have roots in a firm's internal competencies; whether the firm is capable of development and introduction of new products or services into the market (Kim and Nelson 2000). At this stage, the firm has to assimilate essential technologies and establish its core technological capabilities, through indigenous R&D or integration of technology, often with the help of a broad network of knowledge. Firms at this stage become active patentees in order to protect their innovation property.
Our empirical survey proves that firm's patenting behavior corresponds to their technological capabilities, and that development of technological capability brings an evolutionary process - from imitation to creative imitation and innovation.
The survey on which this paper is based was mainly conducted in 2002. In support of the Intellectual Property Bureau of Zhejiang Province and Zhejiang Statistic Bureau, our investigation covered all 363 enterprises which, on the official record, have already entered patenting activities, in addition to an analysis of the general patenting trend. In terms of the general trend in patenting of firms in Zhejiang (Figure 1), patent applications were very rare in the period from 1985, when the patenting system commenced operation in China, to the mid-1990s. The number of patent applications increased slowly compared with the total 600,000 firms in Zhejiang (mostly small or medium-sized). In 2000, there were some 3000 applications, of which 2500 were granted. Patent applications increased to about 3500 in 2002. Considering the total number of 600,000 firms in Zhejiang (mostly small or medium-sized), we can say with no risk that they were only in the primitive imitation stage of development until the mid-1990s. It is difficult to estimate if firms in the province have moved out of the first stage, since the 3500 patent applications in 2002 is trivial in comparison to the large firm population. This general estimation does not deny the fact that some leading enterprises are becoming active in patenting. The Zhengtai Company, to which we refer below, is climbing the evolutionary ladder from primitive imitation to creative imitation.
[FIGURE 1 OMITTED]
With regard to the 363 patenting-active firms, a further survey was made as to the type of patents applied for and granted, the sources from which they developed their patents and so on. The results are summarized in Table 2. By 2002 the patenting-active firms cumulatively made 2807 patent applications, among which slightly less than 10 percent, or, 263 cases, were 'invention patents'. The number of granted patents were 2446, in which an even less proportion, i.e. 142 were invention patents. The typology of patents indicates that the dominant proportion of patents that were generated in leading firms is located in less novel areas of innovation. On average each of the leading firms produced less than half of inventive patent. It is clear that the leading group of firms can be estimated at best in transition becoming from primitive to creative imitators.
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