Intellectual property (IP) issues are key to the development of Chinese companies, especially for enterprises that manufacture traditional products.

Yunnan Baiyao Group Co has learned this lesson over the past several decades, says Qi Taiyun, party secretary and company director.

Like many other domestic companies, the traditional Chinese medicine (TCM) manufacturer only became aware of the significance of IP protection a few years ago.

The company started developing an IP strategy and building an IP management system in 1999, Qi says.

"The IP strategy greatly contributed to the company's rapid growth over the past six years."

Yunnan Baiyao's business grew over ten times from 1998 to 2004.

In 1998, the company's turnover was only 170 million yuan (US$20.99 million) and its net profits were 18.21 million yuan (US$2.25 million).

Sales reached 1.8 billion yuan (US$222 million) last year, with net profits at 171 million (US$21.1 million).

Patented products accounted for about one-tenth of total sales in 2004.

The Chinese name, "Yunnan Baiyao," means "white powder drug from (Southwest China's) Yunnan Province." The medicine is widely known for treatment of traumatic injuries, bleeding, muscle pain, rheumatism, and broken bones.

A practitioner of Chinese medicine in Yunnan developed the drug in 1902. It was then called "Baibaodan", or "a drug that could cure many diseases," and it was quite expensive.

In 1935, pharmacist Qu Huanzhang registered a trademark using his own image. This was Yunnan Baiyao's earliest attempt at IP protection.

Qu's wife Liao Lanying donated the drug recipe in 1956 to the government. Large-scale production of Yunnan Baiyao began.

The Yunnan Baiyao Factory was established in 1971, but the company did not focus on IP protection until the late-1990s, when counterfeit products began hurting the company's business.

"We found that fake Yunnan Baiyao was being sold, but we had no solution," Qi says. The company started to become aware of the importance of IP protection.

It registered a series of similar trademarks, including "Yunfeng" and "Yunnan Baiyao."

Last year, the brand was valued at 2.18 billion yuan (US$269 million), ranking 263rd in the World Economic Forum and the World Brand Lab's list of the top 500 Chinese brands.

Patent achievements

Over the past few years, the company spent nearly 1 million yuan (US$123,300) on patent registration, industrialization of patent products and technological innovation, says Qi.

The company applied for only three invention patents in 2002. The total hit 14 last year.

The company has now applied for 36 invention patents and 40 design patents.

In June 2001, the company launched a new patent for Yunnan Baiyao Wound Plaster.

After marketing it for three years, the company sold more than 40 million yuan (US$4.9 million) worth of bandages last year. Famous brand Band-Aid previously dominated the domestic market.

Qi says that plaster sales in 2004 equalled one-third of Band-Aid's sales. Johnson & Johnson saw it as a major rival.

"Sales of Yunnan Baiyao Wound Plaster are expected to reach 150 million yuan (US$18.5 million) this year," Qi says.

Yunnan Baiyao Aerosol contributed more than 80 million yuan (US$9.88 million) to company revenues last year, and Gongxuening Capsules over 50 million yuan (US$6.17 million).

The company also collect patent information to facilitate research and development (R&D) of new products and avoid unnecessary effort and losses.

It searches for relevant information through the paid Wanfang Data system and the official website of the State Intellectual Property Office, Qi says.

At the end of 2003, for example, the company planned to develop a beer product containing Sanqi, a type of ginseng that is quite healthy.

The company finally gave up the programme when the IP management team found many similar patents.

Like other TCM manufacturers in China, Yunnan Baiyao has had trouble with overseas expansion.

"Most foreigners do not recognize TCMs," says Dong Ming, director of the company's technology and quality department.

He says that producers applying for market approval must provide clear descriptions of effective ingredients and what they do to human bodies. This is difficult to do with TCMs, especially compound drugs.

Many TCMs are now exported to foreign markets under the category of health care products or food, rather than medicine.

The recipe of Yunnan Baiyao is also under national administrative protection and cannot be published, further complicating foreign expansion efforts.

It is still one of Yunnan Baiyao's future development goals, however. The company is looking for ways around these obstacles.

Its products are currently sold in Hong Kong, Macao, Southeast Asia, Japan, Europe and the United States, but overseas sales are less than 1 per cent of total sales.

"We started to prepare for overseas expansion two years ago," Dong says.

Between 2002 and 2004, the company spent over 700,000 yuan (US$86,400), registering over 40 trademarks in other countries and regions including the United States, Europe, Russia, Australia and Canada.

It also applied for five patents in Japan, the United States, England, Germany and France, with an initial investment of nearly 200,000 yuan (US$24,700).

The company had spent more than four years registering the "Yunnan Baiyao" trademark in the US pharmaceutical sector. It is the only Chinese TCM manufacturer to own a pharmaceutical trademark in the United States.

It is also applying for market approval from the Therapeutic Goods Administration (TGA), Australia's regulatory agency for medical drugs and devices.

"All these preparations will pave the way for future overseas development," Dong says.

"We will also develop other single TCMs to cater to the foreign market," he says.

(China Daily 10/08/2005 page9)