IP in China: From Imitation to Innovation

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The Greater Bay Area’s – and in particular, Shenzhen’s – prowess in life sciences manufacturing and development must also be attributed to the decades of experience and expertise gained from acting as OEM/ODM to global companies, in line with China’s overall positioning as the world’s factory floor. One of the clearest indications of this can be seen in the fact that GE, Phillips and Siemens all have significant manufacturing operations in Shenzhen – and in fact, these three companies rank in the top ten medtech companies in Shenzhen by manufacturing output. In fact, these global giants all entered Shenzhen through the acquisition of local companies.

 

However, emerging from the proliferation of run-of-the-mill colour Doppler ultrasound machines and various diagnostic platforms companies content to simply capture the low-hanging fruits of the booming domestic Chinese market are a few frontrunners determined to develop truly innovative products.

Ever since our establishment, we have decided to make innovation a strategic priority

Xue Yuihui, Lifetech Scientific

Xue Yuehui, Chairman and CEO of Lifetech Scientific, an interventional cardiovascular medtech company established in 1999, proclaims, “Ever since our establishment, we have decided to make innovation a strategic priority. This is reflected in our annual R&D investment, which has exceeded 20 percent for the past ten years or so. Today, Lifetech may not be one of the largest companies in Shenzhen but we are certainly one of the most innovative. Many of our products are often first or best in class in China and even globally.” A great example is their most recent product, the LAmbreTM left atrial appendage (LAA) closure system, the first and only LAA closure system from China to receive the CE mark.

 

Xue is eager to dispel lingering myths about the lack of IP protection in China. He stresses, “China as a country is increasingly realizing that to become the innovative, high-tech, advanced country we aspire to be, we need to strengthen our IP regime. The Chinese government has made tightening IP regulations a priority. For instance, the CFDA plans to look at IP protection in its market registration and approval process, such as designating a window where a product under approval cannot be sued for IP infringement, or it will be rejected.” Coming to Lifetech specifically, he affirms, “Lifetech has already advanced so far in front of our peers, we have strong innovation capacity and high R&D expenditure, so we are of course not interested in copying other people’s products. We have the ability to create our own novel products. Now that China is talking about ‘Made in China’, we need to remember that manufacturing is not just copying or processing, it is about creating and producing.”

Industry veteran, Shine Liu Xiancheng, founder and CEO of Lifotronic, who started his career at Mindray in 1993 when it was still a start-up of 27 people, concurs wholeheartedly with this approach to innovation and IP. He remarks, “When I was at Mindray, the strategy was to follow what was called the international “GPS” – where GPS here stands for General Electric, Philips, and Siemens – follow their products and imitate their strategy. On the contrary, when I established Lifotronic, while I wanted to learn from the best practices of international companies like Medtronic and J&J, I was also committed to innovating and creating new products as a company.”

 

He encapsulates his philosophy thusly: “It boils down to the concept of ‘creating real value’. Of course, ‘creating real value’ is a very difficult concept. It is also a huge risk because when you are investing in these new technologies and products, you have no idea whether they will succeed or fail until a few years later.” Nevertheless, he is quick to reassure, “I am not a gambler. I have spent a significant amount of time analyzing and investigating the market to understand this concept of ‘real value’. My job as CEO is to know the market extremely well – and I want to do this because I do not see any future in simply copying other companies’ products! That would be a very boring job.”

 

He illustrates the practice of this concept with the example of Lifotronic’s C-reactive Protein C (CRP) system, used in the diagnostic process to evaluate whether antibiotics are an appropriate treatment, explaining, “China restricts the use of antibiotics, so healthcare practitioners need to test before they can prescribe antibiotics. What we have done is to produce a fully automated CRP system. This has won international recognition, because, in January 2016, we signed a strategic supplying cooperation agreement with leading Japanese diagnostic company, Sysmex, who will act as our exclusive distributor in China. What is even more impressive is that Sysmex is selling this CRP product under the Lifotronic brand itself, not under their own brand! This is a huge achievement. almost all the top-tier hospitals in China are now using this product.”

 

US President Donald Trump’s 2018 lambasting of China’s alleged IP violations and theft amidst the furore surrounding an escalating trade war between the US and China reignites the tired argument about China’s weak IP protection regime and an army of copycat companies.

Scott Liang, President of Apex (Guangzhou) Tools and Orthopaedics, which is also a member of US-based Colson Associates, is well-positioned to offer an incisive and balanced perspective. He muses, “IP is a global issue. Even within Silicon Valley, we can see that many of the tech companies like Apple often have conflict over IP rights with their peers, and the same is true with American pharma and medical devices companies.” He adds, “What I have noticed is that US companies use the word ‘reverse-engineering’ for product improvement and development. Indeed, there is a difference between simply ‘copying’ and ‘reverse-engineering’. No one can invent something from nothing. The medtech industry is built on a technological base and innovation is often incremental based on the current state-of-the-art technology. 99.99 percent of new products are developed by reverse-engineering, a real disruptive invention can only be found every 20 years. The reality is that the US is the most innovative and technologically advanced country in the world. Many countries in the world, not just China, are learning from American technology and innovation.”

 

Nevertheless, Liang is sympathetic towards such concerns. “Apex has had our own products copied by other Chinese companies so I understand the frustration. At Apex, we do everything legally. We have in fact invested a lot of money and time in learning and acquiring new technologies. This is how we have been able to enter the US market ourselves and manufacture for US companies, who would not work with us if they would be worried about their IP being taken. Apex has had our own products copied by other Chinese companies so I understand the frustration.”

 

Chairman and CEO of Considering Group Sheng Sitong philosophises, “I think it is useful to differentiate between incremental and breakthrough innovation. What you need for economic growth and industrialization, and what you need for true breakthrough innovation, are very different. While China can now move very quickly to build and scale up a productive industry, for highly innovative, breakthrough inventions, I do think the US still has a much stronger advantage in this respect, because it is also a matter of culture. In China, the system emphasizes more purpose-driven, focused innovation.”

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