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A shifting landscape: patenting in the Chinese

include the output of semiconductor ‘fabs’ After a decade of growth at home, operating in that produce integrated Chinese semiconductor companies circuits (ICs) for other ‘fab-less’ companies, are poised to take a larger share which is substantially greater. Chinese of the global market. They are also government estimates indicate that total rapidly increasing their patenting production of semiconductor products in China stood at 7.1% of the world total activities. Multinationals should sit in 2010, or approximately US$25 billion. up and take note – not just in China, Under the government’s current five- but in their own jurisdictions as well year plan, China is looking to increase its worldwide share to 15% by 2015. By Howard Curtis, Gordon Holstead If one measures the Chinese share of the and Jinwei Wu world market not by the output of Chinese- domiciled semiconductor companies, but by The Chinese semiconductor industry has consumption of semiconductor products in enjoyed rapid growth, and now accounts China, the picture is starkly different. For for over 7% of global production of example, a PricewaterhouseCoopers (PwC) semiconductor products and up to 40% of study entitled Continued Growth – China’s worldwide consumption. Patenting activity Impact on the Semiconductor Industry – in China in the semiconductor sector has 2011 Update (November 2011) revealed increased even more rapidly, with domestic that consumption of semiconductors Chinese semiconductor companies now in China amounted to as much as 40% outstripping international firms at the of the world total, demonstrating the patent office in both patent applications impact of China’s vast electronic product filed and patents granted. assembly business. Chinese consumption In this article we review growth in the of semiconductors has shown a compound industry over the last decade, discuss trends annual growth rate of almost 25% over the in patenting in China over the same period, last decade, with growth of fully 30.4% in describe the methodologies and findings of 2010 to US$132 billion. a study conducted by UBM TechInsights, The Chinese market for end products in and take a closer look at the Chinese the electronics sector is also growing rapidly. semiconductor companies that are leading According to the PwC study, the aggregate the way. value of semiconductors consumed in China – which are then integrated into end Semiconductor industry growth products that are also sold in China – rose According to data released by Gartner in from approximately US$10 billion in 2003 to 2011, China accounted for just 1% of sales US$46 billion in 2010. in the global semiconductor industry. By The growth in China, in both comparison, the United States stood at semiconductor consumption and domestic 52%, Japan at 18% and South Korea at 13%. sales of downstream electronic products, However, the Gartner estimate does not creates a significant opportunity for future www.iam-magazine.com Intellectual Asset Management May/June 2013 49 Moving out

growth among Chinese semiconductor applications for so-called ‘invention companies – not just in broader global patents’ rose by 24% from 2010 to 2011, markets, but domestically as well. Such to 653,000. During 2011 SIPO granted marketplace factors, together with 217,000 invention patents. SIPO experts government incentives for investment in consider trends in the filing and granting of intellectual property and growing awareness invention patents to be a better barometer of worldwide IP trends in the technology of advances in innovation than utility sector, are now driving rapid growth in model and design patents, which the agency patent filings throughout the domestic also handles. SIPO Commissioner Lipu Tian Chinese semiconductor industry. is quoted in the report as saying: “China is now at a key stage of changing its economic Patenting trends development model, which gives IP work According to a recent web-based historic opportunities.” summary report issued by the Chinese Figure 1 compares trends in the total State Intellectual Property Office (SIPO), number of patents granted in China and the

Figure 1. Trends in granted patents in the United States (by the USPTO, to both US and non-US companies) versus those in China (by SIPO, to both Chinese and non-Chinese companies) 400,000

US China 350,000

300,000

250,000

200,000

150,000

100,000

50,000

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Source: TechInsights, 2012

Figure 2. Patents granted worldwide to the 30 leading Chinese semiconductor firms, by priority year

1,600

1,400 1367

1,200 1145 1089 1,000 822 800 778

600 566 407 400 357 356 # of patents (total)

200 124 54200040042 20 11 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Priority year Source: TechInsights, 2012

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Figure 3. Chinese semiconductor product companies – total patent holdings, including trends have emerged within the Chinese patents held outsideIngenic China Semiconductor Co Ltd 2 semiconductor sector. Of the approximately HiSilicon Technologies Co Ltd 11 161,000 semiconductor-related patent Giantec Semiconductor 13 applications filed by both domestic and Tianjin Zhonghuan Semiconductor 14 international companies between 2001 Chengdu Sino Microelectronics Systems Co Ltd 29 and 2011 in China, 25,000 were filed Beijing Huada Zhibao Electronic Systems Co Ltd 32 in 2011, as against 3,194 in 2001. Our Beijing Sigma Jinghua Microelectronics (SigmaChip) 38 work at TechInsights indicates that in GalaxyCore Inc 54 2011, domestic Chinese semiconductor Beijing Tongfang Microelectronics 62 companies held just over 23,500 active, RDA Microelectronics 63 granted patents related to semiconductors. Shenzhen State Microelectronics Co Ltd (SSMEC) 66 Figure 2 shows the growth trend over FuZhou Electronics Co Ltd 69 time in patents held by the 30 leading Solomon Systech 86 Chinese semiconductor companies Hangzhou Silergy Semiconductor Technology Co Ltd 88 worldwide (in all jurisdictions), based on Shanghai Fudan Microelectronics Co Ltd 119 patent priority year. An upward trend from China Resources Microelectronics 121 2001 to 2008 is clear, followed by a fall-off Beijing Huahong IC Co Ltd 121 in 2009. Due to processing backlogs for Shenzhen Netcom Electronic Co Ltd 170 patent applications, the totals for recent Co Ltd 174 years will increase as SIPO processes BCD Semiconductor Manufacturing 180 additional applications to completion. Shanghai Belling Co Ltd 196 Nationz Technologies 196 TechInsights study – methodology Shanghai Huahong IC Co Ltd 202 In researching its study entitled IP Hangzhou Silan Microelectronics Co Ltd 213 Landscape and Analysis of 30 Chinese CEC Huada Electronics Design Co Ltd (HED) 214 Semiconductor Companies, TechInsights Datang Microelectronics Technology Co Ltd 217 first compiled a list of over 50 candidate 337 Chinese semiconductor companies and then SpreadTrum Communications 913 selected from these based on the following Vimicro (Beijing Vimicro Co Ltd) 2445 criteria, in order of priority: 5000 1000 1500 2000 2500 3000 • Total annual revenue. • Total patents granted. • Key semiconductor technologies Source: TechInsights, 2012 (eg, analogue or wireless). • Key partnerships or ownership structures. United States from 2000 to 2011. Data published by SIPO indicates that Candidates for inclusion in our total filings of patent applications in China final list are semiconductor product increased more than eightfold during companies operating either as integrated this period. Filings by domestic Chinese device manufacturers or as ‘fab-less’ IC companies grew even more dramatically, design companies with no fabrication from 30,038 in 2001 to 415,829 in 2011. arm. Companies that operate primarily While marginal applications filed in as foundries and those specialising in response to government incentives discrete components or light-emitting account for some of this increase, overall diode production were excluded from our economic growth in China and a movement analysis. Also excluded were international towards a more knowledge-intensive, companies with operations in China. Some innovation-dependent economy are also of the companies profiled are actually the important factors. semiconductor subsidiaries of much larger The dramatic increase in filing rates corporations with business presences in has also created demand for more people various different sectors. with specialist knowledge of intellectual The result was a list of 30 companies, property. SIPO reports that five new which we researched further using public training centres for patent agents were set sources such as annual reports and up in 2011. The number of applicants who company websites, as well as investigations took the national patent agent qualification conducted by members of the TechInsights exam that year stood at 16,800, up 21% research team in Shanghai. from 2010. In performing patent analysis for each Data published in 2012 by China’s company and across our top 30 list in Ministry of Industry and Information aggregate, we gathered information from Technology indicates that similar patenting publicly available reference sites, such as www.iam-magazine.com Intellectual Asset Management May/June 2013 51 Moving out

Figure 4. 4. US US patent patent holdings holdings of Chinese of Chinese semiconductor semiconductor product companies product companies

HiSilicon Technologies Co Ltd 1

FuZhou Rockchip Electronics Co Ltd 1

Giantec Semiconductor 2

Shanghai Fudan Microelectronics Co Ltd 2

Hangzhou Silan Microelectronics Co Ltd 4

GalaxyCore Inc 5

Beijing Sigma Jinghua Microelectronics (SigmaChip) 7

Shenzhen Netcom Electronic Co Ltd 10

Beijing Huahong IC Co Ltd 13

Actions Semiconductor 17

Hangzhou Silergy Semiconductor Technology Co Ltd 25

Solomon Systech 34

BCD Semiconductor Manufacturing 63

Vimicro (Beijing Vimicro Co Ltd) 103

SpreadTrum Communications 131

200 40 60 80 120100140 Source: TechInsights, TechInsights, 2012 2012 those of the US Patent and Trademark • Smartcards, RFID, security – Office (USPTO), the World Intellectual 12 companies. Property Organisation, the European Patent • Wireless – nine companies. Office’s Espacenet and SIPO. We also made • Micr ocontroller, microprocessor substantial use of the Innography patent and graphics processor – seven search tool in the conduct of this study. companies. • Discrete components – TechInsights study – summary six companies. observations • Although they are among the leaders in Among the findings of the study were: the domestic semiconductor industry, • The three top Chinese patent holders most of the companies surveyed are among the semiconductor product small by global standards, with as many companies surveyed were Beijing as 50% having annual sales of less Vimicro Company, SpreadTrum than US$100 million. The two largest Communications and Actions companies surveyed, on the basis of Semiconductor. revenue, are HiSilicon Technologies • By technology domain, the largest (owned by ), with revenues of two groupings of companies were approximately US$704 million in 2011; found in the analogue/mixed signal and Spreadtrum Communications, and smartcard/radio-frequency at US$674 million, according to data identification (RFID)/security sectors published by Gartner. – 28 of the companies profiled offered • In the late 1990s China instituted products in one of these two market an industry-neutral nationwide segments. The overall breakdown by programme, Project 909, to encourage technology domain among the surveyed increased investment in patenting and companies was as follows: intellectual property. Although patent • Analogue/ mixed signal – filings did not really begin to increase 16 companies. until the early 2000s, by the middle

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Figure 5. 5. US US patents patents by priority by priority date held date by heldthe Chinese by the semiconductor Chinese semiconductor companies profiled companies in the TechInsightsprofiled in surveythe TechInsights survey (patents per source, per priority year) Patents per source per priority year 80 US applications US grants 70

60

50

40

Patents 30

20

10

0 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Year

Source: TechInsights, 2012

of the decade the rate of both patent patents), SpreadTrum Communications filings and patents issued had risen (913 patents) and Actions Semiconductor dramatically, with total granted patents (337 patents): in China exceeding those granted by the • Beijing Vimicro Company was USPTO by 2005. founded in 1999 by several Chinese • The Chinese semiconductor industry entrepreneurs with ties to Silicon Valley saw an initial peak in patenting in 2007, and some initial financial support from with a decline during the subsequent the Chinese Ministry of the Information global financial downturn. Despite Industry. Its core product line consists this modest fall in patenting activity, of video, audio and multimedia applications by Chinese companies in processors for desktop computers, the United States continued to increase notebook computers and mobile devices. through the second half of the decade These ICs are integrated into products (although they still represent just a that support applications such as video small proportion of the US total). conferencing, video chat, interactive • The study indicates that the leading gaming and multimedia entertainment. Chinese semiconductor product Vimicro also offers specialty chips for companies still file approximately 90% use in security and surveillance cameras. of their overall patent applications in The company was accepted for listing China. This suggests both a strong on Nasdaq (ticker symbol VIMC) in commercial focus on the domestic the United States in 2005 – the first Chinese market and a lack of maturity in Chinese semiconductor company developing global IP strategies. with no fabrication arm to appear on Nasdaq. However, some analysts in The top 30 China question whether the quality of One objective of the TechInsights study Vimicro’s portfolio is commensurate was to identify the leaders among Chinese with its size, and whether its current semiconductor companies with regard commitment to R&D is sufficient to to the number of patents granted. The keep it competitive in the long term list of the top performers was generated • SpreadTrum Communications provides through searches using the Innography low-cost baseband processors to patent search tool and is based on counts handset makers, primarily in the of patents granted, as opposed to patent domestic Chinese market. ZTE is a families. The counts include both Chinese major customer. SpreadTrum started off patents and those granted in other making baseband-processing chipsets jurisdictions, including US patents. The top for GSM handsets, but now also 30 are listed in Figure 3. Leading the pack offers devices that support the home- are Beijing Vimicro Company, Ltd (2,445 grown Chinese TD-SCDMA protocol. www.iam-magazine.com Intellectual Asset Management May/June 2013 53 Moving out

Action plan A

Chinese semiconductor companies of electronic end products that are growing more rapidly. The demand should: seeking to increase profitability. These for semiconductor products in China • Reassess the importance of securing opportunities can help to shape IP makes it a critical market for many patents in foreign jurisdictions. strategy for China. global semiconductor companies. With few exceptions, Chinese • Review IP strategies for regions such • Consider developing joint ventures with semiconductor companies file most of as India and the Middle East. As Chinese partner companies to secure their patent applications in China. As most Chinese (IC) existing contracts and market access. they seek to expand their presence in companies sell primarily to domestic • Proactively establish connections international markets, these companies Chinese electronic product makers, and with Chinese government agencies will need to place more emphasis on thus have not had their ICs exposed and programmes to ensure that their foreign filings and portfolios. outside the Chinese market, they have interests are heard by the Chinese • Make filing in the United States a managed to avoid IP disputes and risk. government and that they have a seat priority, particularly if they intend to However, their client product makers at this important table. make products destined for the US are now beginning to develop markets • Design and manufacture more products market. in India and the Middle East as well. in China to secure a lower-cost • Compete locally in the Chinese structure in order to compete more market with global semiconductor International semiconductor companies effectively in the huge and growing players. Chinese companies have an operating in China should: Chinese semiconductor market. Until opportunity to cut into the Chinese • Allocate resources to analyse recently, most Chinese operations market share of large, international patenting trends and the portfolios of of global semiconductor companies semiconductor companies that sell potential competitors among Chinese consisted of sales and field application products for integration into systems semiconductor companies, as well engineering offices. With the growth being assembled in China. Where as of global competitors active in in the Chinese market, the increasing Chinese companies can produce the Chinese market. While global sophistication of the IC design and sell at a lower price than their technology companies continue to resources available in China and the rise international competitors, they will secure numerous patents in China, in patenting activity by multinationals, have a competitive advantage in selling applications by and patents granted the nature of an optimal presence in to original equipment manufacturers to domestic Chinese companies are China is shifting.

SpreadTrum has developed enabling ICs A second important metric in evaluating for China’s mobile television standards the size and potential importance of Chinese TD-MBMS and CMMB. SpreadTrum is semiconductor companies’ patent portfolios currently listed on the Nasdaq as SPRD. is to compare their patent holdings in the • Headquartered in in Guangdong United States. Figure 4 presents patents Province, Actions Semiconductor granted by the USPTO to the companies was founded in 2001 and specialises selected in the study. SpreadTrum in system-on- designs for such Communications and Beijing Vimicro remain applications as digital audio players, the leaders, although their positions are portable media players and televisions. reversed. However, BCD Semiconductor In January 2013 Shenzhen Ramos Digital Manufacturing is ranked third, with 63 of Technology – a consumer electronics its worldwide total of 112 patents issued by company based in Shenzhen – announced the USPTO. Solomon Systech and Hangzho a 9.4 inch tablet personal computer based Silergy Semiconductor Technology Company on Actions’ ATM 7029 multicore system- also demonstrate strong positions in US on-chip, the first in the company’s OWL patents held, as against their holdings series of IC products designed for tablets. of Chinese patents. At the other end of Actions Semiconductor is listed on the the spectrum, fully half of the Chinese Nasdaq as ACTS. semiconductor companies surveyed in the TechInsights study hold no identified As noted, the study did not include patents issued by the USPTO, demonstrating semiconductor companies that primarily a singular focus on the domestic market. provide fabrication services. One important The overall numbers of patents player thus excluded is Semiconductor issued by the USPTO to the Chinese Manufacturing International Corporation semiconductor companies analysed, (known as SMIC), China’s largest provider organised by priority date, are presented of fabrication services. The company holds in Figure 5. Again, there is a clear upward a substantial portfolio of over 5,400 patents trend in activity beginning in 2002, with a worldwide. levelling-off emerging around 2008.

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Financial aid and encouragement rapidly over the last decade. Domestic from the Chinese government have been Chinese semiconductor companies significant factors in the trend for Chinese now apply for and are granted more IC design houses to file for more Patent semiconductor-related patents in China Cooperation Treaty and US patents, and than international companies. International some boutique IC design companies in semiconductor companies should take China are now filing out of proportion notice, potentially add resources and take to their business scale. Our subjective active steps now to expand and secure their judgement is that the average quality of IP positions in China. the patents filed by these companies is relatively low – but it is improving. Such small operations are unstable; the list of the top 10 IC design companies in China is constantly changing and bankruptcies are common. As the patent quality of these companies’ US filings improves, this could Howard Curtis is vice president, strategic also lead to a new source of ammunition for partnerships at UBM Techinsights, Austin, non-practising entities. Texas ([email protected]) Gordon Holstead is senior analyst at UBM Growing importance Techinsights, Ottawa, Ontario (gholstead@ As measured by production, and even more ubmtechinsights.com) significantly by domestic consumption, the Jinwei Wu is professional services semiconductor market in China is taking consultant at UBM Techinsights, Shanghai on increasing global significance. While ([email protected]) patenting activity in the semiconductor sector is still in its early stages, it has grown www.ubmtechinsights.com

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