Any company worth a hoot these days has to begin giving consideration to protecting their intellectual property within China. Patent applications filed last year in China grew by an enormous 24% to 391,000. Roughly 130,000 of those patent applications were granted. China is now the world's second largest market for the filing of patent applications (Japan is in third position). Of course the United States remains the world's largest market for patent applications, but China is rapidly gaining.

So what accounts for the dramatic spikes in patent applications in China? The State Intellectual Property Office (SIPO) in China attributes the growth to increases in the innovative ability of the country and increased recognition of the importance of intellectual property protection to business growth. About 74% of patent applications in China are made by domestic Chinese companies. Also the increase is driven by the policy steps taken to strengthen intellectual property laws in China (increasing the value of registering a patent). Beijing is intent on transforming China from a manufacturing based economy to an economy driven by innovation. Beijing has expressed plans to increase annual patent filings within the country to two million by 2015. Such an increase would likely make China the world’s largest market for patent applications.

The laws protecting IP in China have evolved much since the 1990s. In 2001 China took steps to bring its IP laws in line with the Agreement on the Trade-Related Aspects of Intellectual Property Rights (TRIPS). The country's IP policies have also evolved after various trade disputes with the United States. In 2008, the State Council of China in its “National IP Strategy” called for a specialized IP court to deal with all civil and criminal IP cases. In 2009, the Supreme Court in China released guidelines directing the structure of tribunals that deal with intellectual property disputes.

China has also ramped up its capacity to enforce intellectual property rights. SIPO has dramatically increased the number of patent examiners on its staff. There are now hundreds of well trained examiners examining patents. This has increased the speed and quality of the examination process for patents in the country. Additionally, the traditional costs for patent applications are lower in Chins than in the United States or Europe.

In China intellectual property rights are protected through two systems that operate in a parallel manner. Their exists an administrative system through which minor infringements tend to be solved. Then their exists a judicial system through which the more serious IP disputes are resolved. While tremendous improvements have been made, each system continues to have problem areas. The administrative system is sometimes inefficient because local authorities may not be motivated to move against infringers because of the contributions the infringers make to the economy. Another problem with the administrative system is that it is highly fragmented with too many decision makers. The judicial system also has its problems. Judgments in the lower courts and their quality vary and are inconsistent across regions. Additionally, the influence of local governments stretch into the judicial system and there are problems with corruption in the court.

With time the above mentioned problems can be resolved in China. There seems to be a strong push from the Central government to increase intellectual property rights in the country. Many recent steps have been taken to strengthen protection of IP and companies have responded with increased patent applications.

Interestingly enough, many of the domestic Chinese companies registering patents their also have taken a strong interest in registering their patents in the United States and Europe. Chinese companies are now looking to create global brands with deep IP reserves. This trend definitely provides an additional incentive for the Chinese government to strengthen domestic intellectual property rights so as to secure reciprocal rights for rapidly expanding Chinese companies.