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Tuesday, 13 January 2015

China’s IP journey: from ‘bad guys’ to ‘good guys’ to patent superpower

The purpose of this post is look at the development of the Chinese patent system and how China has made the transition from being a ‘pirate’ nation to a ‘protector’ of patent rights, acquiring a functional modern patent system in three decades. This post also considers whether other countries can learn any lessons from China’s story.

A few days ago the Katpost ‘China patent targets for 2020: what do they say about China and the rest of us?’ described China’s aim of tripling the number of patent applications it files by 2020. Critics of China refer to the fact that most of the patent applications it files are for domestic ‘utility model’ patents which are arguably for relatively trivial inventions. In addition, whilst in recent years Chinese companies are filing many more patent applications abroad there continues to be the general perception that Chinese-originating patent are of low quality. However, it has been argued that what Chinese patents lack in terms of quality can be made up by the huge numbers of filings that are happening.

Once upon a time the
spinning wheel was novel
A transition to being the ‘good guys’

In the recent case Vringo Infrastructure Inc v ZTE (UK) Ltd [2014] EWHC 3924 (Pat) (see Katpost here) the Chinese company ZTE was sued by the US company Vringo for infringement of its patent. It has been noted that in this dispute the Chinese company is the ‘good guy’, being an innovator company, and the US company is the ‘bad guy’, allegedly a patent troll. This is a reversal of roles from the usual perception that China is the ‘bad guy’ when it comes to IP protection.

The Chinese journey

As described by the academic Peter K. Yu, the Chinese opened up to foreign trade in the late 70’s, at the same starting a modernisation drive based on science and technology. The establishment of a modern patent system was seen as an essential part of this. Early versions of the patent system were driven by obligations in International treaties, and had severe limits to the protection that could be attained. Protection was not, for example, available for foodstuffs, medicines and chemicals. Further, while rights could be ‘granted’ to individual inventors, they were in practice ‘held’ by the state enterprises they worked for rendering them largely insignificant.

The 1984 Patent Law is seen as the first step towards the development of the present modern Chinese patent system. This was amended in 1993 and again in 2000 to comply with acceding to the World Trade Organisation (WTO) in December 2001. During this time China’s private sector expanded rapidly in a system in which state-owned enterprises had previously dominated.

In 2008 the patent law was amended again to help develop a knowledge-based economy. This was the first time the Chinese patent system had been changed based entirely on its own needs rather than International obligations. The patent system was improved in many ways including adopting an absolute novelty standard, increasing levels of damages and providing a Bolar exemption.

What is the Chinese patent system like now?

Chinese Examiners were very relaxed in the old days
when nothing was patentable
While the Chinese patent system is not perfect, many would argue it is very advanced in terms of granting rights to domestic and foreign companies, and enforcement of patents is comparable to most developed countries. It has been suggested that the Chinese are trying to create a domestic patent litigation system which is comparable to the US, forcing Chinese companies to acquire the expertise which will allow them to engage in patent battles with foreign companies. As part of this specialist IP Courts are being developed (see Katpost here).

China continues to feature in the US government’s ‘Special 301 Report’ as being on the ‘Watch List’. In this annual report the US looks at the IP systems of its trading partners and identifies issues it is unhappy with. However at the moment Canada, Finland and Greece are also on the ‘Watch List’ and it could be argued the report is written from the perspective of US interests.

What is clear is that China has made the transition from a ‘pirating nation’ to a nation respectful of IP rights, just as the US, Germany, Japan, Singapore and South Korea did in their own time.

Can other less developed nations replicate China’s success?

Academic studies have listed the following characteristics of the way China developed its patent system that could be useful to other countries:

* at each stage the patent system was in line with Chinese local needs and national interests

* it was an incremental process that was done at a pace which reflected China’s technical development

* patent laws had public interest exceptions, such as for public health.

Treaty obligations are serious matters
However the ‘Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) countries, which most countries have signed up to, will now limit the extent to which a country can implement the above suggestions. It must also be recognised that the development of the Chinese patent system is a unique story very much tied in to the resources China was able to devote to technical development. Other countries will not be able to replicate that. As discussed in this Katpost setting up a successful innovation ecosystem requires a ‘holistic’ approach in which a country’s political, regulatory, business environments, infrastructure, institutions and economic and human capital all contribute. That means it is difficult to do, even though China has provided an example of how to do it.


Anonymous said...

I find examiners in China very reasonable. They have a good level of technical understanding and are responsive to the arguments one files. I think they have realised that good quality fair examination to levels comparable in Europe and the US will suit their interests best in the long run.

Perhaps also the rise of China will allow everyone to benefit from Confucian values.

Anonymous said...

I prefer to prosecute an application in China than Europe. The standard is high, arguments are listened too, and patents of reasonable/fair/appropriate scope are granted with garbage being rejected.

Can't say the same about the EPO any more, unfortunately.

The standard in the US always seemed variable and highly examiner-dependent, but I'm finding the standard high across the board these days. I just wish they'd put the boiler-plate stuff in a separate attachment, which we can read if desperate.

Anonymous said...

Judge Radar seems to have got upset about China's large number of patent filings:

chinaipr said...

Not so sure I agree with the assumptions being made in this posting - yes China is filing more patents, and that it is granting rights to foreigners. I am less optimistic about the impact of quantitative goals on China's patent environment, and think the article misses the point: the fundamental challenge that China faces is how to patent and innovate consistent with market demands. Subsidies to file patents, numerical quotas for bureaucratic advancement, etc., are more likely to bring self-induced frustration than innovation. Moreover, foreigners play a very, very small role in this environment - less than 5% of the litigation, and less than 5% of the utility model and design patent grants. This has become a very inward focused IP environment, where the market may be playing a less important role. Certainly, there has also been much progress - but now the brave thing to do is to let the market play a more decisive role.

Suleman Ali said...

In response to chinaipr, yes, I agree with a lot of what you say. However I think the Chinese are serious about getting to a fully functional innovative patent and litigation system. It takes time though to achieve that. They have only really been building an IP system over 30 years, which is not a long time. In regards to the fact few foreigners play a role in the Chinese IP system I would say that partly this is their own fault. They need to file more cases in China. I think the Chinese sense that in the long run they don't do their domestic innovator companies a favour by protecting them, and I think China has the confidence to try to compete with Europe and the US at all levels of innovation and IP.

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