Propensity to Patent, Competition and China’s Foreign Patenting Surge

What determines the decision of an inventor to seek patent protection in a foreign jurisdiction, particularly one where intellectual property rights protection is weak? This paper focuses on competition as a determinant of the patenting decision in the context of the recent foreign patenting surge in China. Using a database that comprises of all patents granted by China’s State Intellectual Property Office and the U.S. Patent and Trademark Office, I examine the industry distribution of Chinese and foreign patents and the potential interaction between them. I find that foreign patenting in China is driven by other foreign inventors’ patenting in China as well as by domestic Chinese patenting. Using data on China’s bilateral trade with other countries at the industry level, I then relate foreign patenting in China to foreign exports to the Chinese market and Chinese domestic patenting. A foreign country’s own export to China has an insignificant effect on the number of its Chinese patents, however, the sum of other foreign countries’ competing exports weighted by each of the latter’s technology proximity to the foreign country concerned has a positive and robust effect. The estimates imply that competition between foreign imports can account for 36 percent of the annual growth of foreign patenting in China. ∗I thank for their helpful comments and discussions Wes Cohen, Adam Jaffe, Gary Jefferson, Lucio Picci and Liu Xielin. I am particularly indebted to Alessandro Nicita for providing the ISIC rev3 version of the World Bank Trade and Production database and to Lim Kwang Hui for help with retrieving the latest USPTO patent data from the NUS Patent Database. Li Jia provided superb research assistance. Financial support from the NUS Academic Research Grant (R-122000-091-112) is gratefully acknowledged. Part of the paper was written during the author’s visit to the International Business School of Brandeis University, 2006-07. I am grateful to the host’s hospitality. The usual caveat applies.