China patents a must-have -- Foreigners, locals cope with country's spotty IP rights record

Mike Clendenin, EE Times
(02/06/2006 9:00 AM EST)

Hong Kong -- A few years ago, Austin-based SigmaTel Inc. focused much of its patent strategy on the United States and Europe. Since cash was limited, CEO Ron Edgerton reasoned, it made sense to concentrate on markets where people were snapping up MP3 players--products that drove sales of SigmaTel's chips.

But at the same time, a little-known company from Zhuhai, China, Actions Semiconductor, started planning its own attack on the MP3 market, reckoning the Chinese would also be big buyers of the popular music players. Its bet is paying off, as the company racks up enviable sales growth and basks in the success of a recent Nasdaq IPO.

Actions' meteoric rise has drawn the attention of SigmaTel, and a lawsuit. In Edgerton's view, Actions is succeeding on the back of SigmaTel technology, and is costing the U.S. company sales. Consequently, protecting the company's intellectual property (IP) in China by applying for local patents is quickly taking on greater importance, especially as analysts predict that annual sales of MP3 players in China will outstrip global growth in the years to come. Moreover, nearly half of the world's MP3 systems makers are in China.

SigmaTel's experience is part of a wider trend that finds technology companies aggressively patenting innovations in China, even if they experience mixed results when it comes to enforcement. The outcome has been a patent explosion in China during the past five to six years that shows little sign of slowing as foreign corporations increasingly see China not only as a cheap place to assemble gadgets, but also a growing end market in which to sell them.

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