Characteristics of litigated patents in weak intellectual property rights regimes : Evidence from China

This paper investigates characteristics of patents involved in infringement lawsuits in weak intellectual property rights (IPR) regimes. Weak IPR regimes usually feature weak patent enforcement, such as relatively low level of compensation to infringement loss or damage awards being capped by an upper bound. I build a dynamic model to show how these low-enforcement features lead to patterns of litigated patents that are not documented in the Western countries. I compile a new dataset comprising 17,331 Chinese litigated patents and their counterparts- 306,898 non-litigated patents. I find that valuable patents are less likely to be litigated than patents with lower values among invention patents while this pattern does not hold among utility models- the type of patents inferior to invention patents. I also document that China’s patent infringement litigation rate is extremely low by international standards, and it has been decreasing sharply over time. Litigated patents tend to concentrate in technological areas and industries in which litigation rates are relatively low in Western countries. These empirical patterns suggest that weak IPR regimes might create a “lemon market” for patent protection in which truly valuable patents are “crowded out” by their counterparts with lower value. Enhancing patent enforcement by eliminating the cap to damage awards might be a feasible solution