China led the world in blockchain patent filings in 2019, according to the World Intellectual Property Organization, by filing 58,990 applications versus 57,840 patent applications in second-place U.S. When it comes to blockchain technology, China also outwardly seems to be a leader. According to the China National Intellectual Property Administration, approximately 10,000 blockchain-related patents have been filed in China to date — compared to a mere 2,100 in the U.S.
But in a country that’s home to 35,000 self-described blockchain companies — most of them with either grossly exaggerated or non-existent blockchain credentials — how many of China’s blockchain patent filings are of any sort of quality or even real?
Not many, according to Taipei-based patent lawyer John Eastwood. Eastwood, who heads up Eiger Law’s “Greater China” intellectual property law practice, explains that local governments in China heavily incentivize firms to file for patents by providing grants and other subsidies to cover the cost of the application.
“The PRC does not have a patent process that has substantive review of the technologies in the claim language, so there’s an incentive for companies to file even for technologies that might not actually work or using claim language that treads on prior art,” Eastwood told Forkast.News. “I once had an American client who found out that a Chinese competitor had filed for and registered patents in China that used my client’s American patent illustrations.”
Given the fact that there’s no cost to file for patents in China, companies in-country would be at a business disadvantage if they don’t file for patents — particularly if they are looking to go public or be acquired.
“For smaller companies and start-ups in the blockchain space, filing for and holding patents gives them an aura of legitimacy that can help them attract investors or acquirers,” Eastwood said.
As blockchain technology hasn’t yet met a point of maturity, “smoke-and-mirrors and overblown claims by companies” are still common in the industry — both in the East and West, Eastwood said. He adds that “holding a few patents really helps companies at least appear to have their situation in hand.”
‘A brutal growth phase’
Focusing on the raw number of blockchain patent filings is inadequate for another reason. Firms can file all the patents they want, but only a fraction actually gets issued — even in China.
According to the 2020 Blockchain Global Patent Authorisation Report, Chinese firms come in at 19% of all blockchain patents awarded globally since 2014. That makes China third in the world — after the U.S. at 39% and South Korea representing 21% of the world’s blockchain patent holders.
The report also notes that non-resident firms in China (which are not eligible for government-provided patent subsidies) have a much higher success rate for patents being awarded than resident firms. Within China, non-resident companies were awarded 68% of patents filed, versus subsidy-eligible resident firms, which succeeded in getting an actual patent only 26% of the time.
Within the United States, it’s even more difficult for firms to be awarded blockchain patents. Software-related applications are some of the most heavily scrutinized by the U.S. Patent and Trademark Office — which accounts for why U.S. firms tend to do well when applying for overseas patents.
This very conservative outlook on software patents in the U.S. comes from an often-cited case in patent rulings, Alice Corp. Pty. Ltd. v. CLS Bank International: abstract ideas and natural phenomena are not patentable, the courts upheld, because they are the “the basic tools of scientific and technological work.”
Given the reliance of new blockchain technology on already existing algorithms and code, the high threshold for what the USPTO considers to be novel and patentable means only 10% of blockchain patents that are filed in the U.S. are actually awarded.
A recent report from the Taiwan Institute of Economic Research, a government-funded think tank, analyzed the quality of Chinese patents and categorized the country’s patent sector as being in a “brutal growth phase” with low standards, compared to the “strict identification of technology” found in USPTO-awarded patents.
“Beijing believes that blockchain technology is an important opportunity for China to overtake its technological leadership in the world,” the authors wrote. “But in reality, all countries’ developments of blockchain technology are in the early stage, no country showed absolute advantage.”