China loses $1 billion through poor intellectual property protection

China claimed that it has lost $1 billion in disputes over intellectual property rights since it joined the World Trade Organization in 2001.

Science and Technology Minister Xu Guanhua told the state-run Xinhua News Agency Thursday that intellectual property disputes have been a “devastating blow” to parts of the Chinese economy. Disputes have involved products including televisions, MP3 players and digital cameras, he said.

Xu claimed that 99% of Chinese companies don’t apply for patents for their inventions, according to the report. As a result, “Chinese firms have to pay 20% to 40% of the price of every mobile phone or computer to an overseas patent holder,” he said.

The statement may be an exaggeration. Mobile phone manufacturing royalties typically run 5% to 7% of the wholesale price.

Xu’s remarks represent the Chinese government’s first attempt to make a public case for encouraging “independent innovation,” or the development of products that do not depend on technologies from foreign companies, said David Wolf, chief executive officer of Wolf Group Asia, a Beijing-based technology consulting firm.

The call for independent innovation is included in the latest Five-Year Plan, in which China’s government outlines its goals for the coming years.

“Minister Xu is outlining China’s IPR strategy in the coming five years: research heavily, patent aggressively, use local innovations when you can, and foreign innovation only when there is no other choice,” Wolf said.

The new strategy has implications for foreign businesses. China has attempted to introduce its own technology standards in order to avoid paying royalties for foreign patent holders, including wireless LAN, optical disc formats, and mobile phone systems.

So far these efforts have been largely unsuccessful, although the TD-SCDMA (Time Division Synchronous Code Division Multiple Access) mobile system is still under consideration for adoption as a 3G technology in some markets.

“Foreign IPR holders are facing a new battle, one where they will be forced to fight harder for mere adoption of their technology,” Wolf said.