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Chemical makers scurry to combat patent violations in China

Japanese players face tough choice between suing and losing their edge

TOKYO -- Japanese chemical producer Asahi Kasei recently made a move it would have much preferred to avoid. Late last month, it filed a lawsuit against two companies in the Chinese city of Shenzhen, alleging intellectual property infringement.

An Asahi Kasei executive said the company did not want to resort to litigation, since it only takes up time and money. But it could not sit idle while its separator technology for lithium-ion batteries was copied.

For Asahi Kasei, which commands a 17% share of the global separator market, this is only the first patent infringement lawsuit in China. Still, chemical producers are increasingly concerned about losing their proprietary technologies and competitive edge to rising Chinese rivals.

"It is no longer possible for a single company to deal with infringement of intellectual property rights on its own," said Shinji Ogawa, general manager of the intellectual property center at DIC, the world's largest ink maker. "The industry has to do something about it."

DIC's Daitac, an industrial adhesive tape, was the first product for making smartphones waterproof. But knockoffs have been circulating in China since 2017, as more smartphone makers waterproof their handsets.

"We sometimes receive complaints from our clients who happen to buy counterfeit products, worrying they might have been sold defective goods," Ogawa said.

To this point, chemical producers have had less to worry about than other companies. An annual report by Japan's industry ministry on counterfeiting and pirating, released in late June, said 52% of consultations on intellectual property infringement concerned miscellaneous goods such as knockoff luxury bags, while electronic devices accounted for 15%. Chemicals, which are generally hard to copy, made up just 2% of the claims.

Asahi Kasei has filed a lawsuit against two Chinese companies for allegedly infringing on a patent for lithium-ion battery separators like these.

If infringement in the chemical industry spreads, though, it could tip the competitive balance.

International companies are feeling increased pressure as Beijing promotes its "Made in China 2025" initiative to transform the country into a high-tech powerhouse. Developing the chemical sector, which produces innovative new materials and essentials for manufacturing, is crucial.

Armed with government subsidies and backed by measures designed to push domestic products, deep-pocketed Chinese companies are looking to wrest talent away from more established players.

Asahi Kasei's separator unit -- the unit behind the lawsuit -- in recent years has been flooded with phone calls from headhunters looking for experienced engineers for Chinese employers. Somehow, the headhunters have obtained direct phone numbers, leaving the Japanese company's executives frustrated.

"With tech companies dependent upon chemical products, engineers are greatly sought-after by Chinese players," said Fumihiro Itaki, deputy director of the Japan External Trade Organization's intellectual property and innovation department.

Leaks are a major concern. Jetro warns Chinese employees of Japanese companies in China that they could face criminal charges if they divulge information.

Another way Chinese companies seek to soak up technology is by attempting to buy facilities from global companies. Toray Industries, which controls 40% of the global carbon fiber market, has been approached by suitors looking to acquire manufacturing equipment. Toray's carbon fiber is used in Boeing's 787 passenger jet, among other products.

The Chinese government has taken action to curb infringement. In March, it integrated organizations for managing patents and trademarks. It has also increased the amount of compensation copycats have to pay.

Yet the risks and aggravation of pursuing legal action are still enough to make companies like Asahi Kasei think twice.

Consider DIC's materials for liquid-crystal displays. It is impossible to tell whether the transparent liquid in an LCD panel is genuine just by looking at a TV in a store. A company like DIC would have to buy and disassemble TVs periodically to check whether its products are being used, analyzing liquid-crystal layers down to a few micrometers.

While it is difficult to imitate chemical products, it is also difficult to spot and successfully sue the imitators.

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