Patent Strategies for China
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Patent Strategies for China
Currently China is the third largest patent filing jurisdiction in the world. If the current growth rate of patent applications (20-year patents) continues in both countries, China will overtake the US by 2012. In 2007 there were 245,161 20-year patent applications filed in China, of which more than 62.4 percent were domestic applications. The year-on-year increase in the filing of domestic 20-year patent applications was 25.1 percent, whereas that of foreign filings was only 4.5 percent. This is a clear indication of the increasing awareness of the need for patent-application filing among domestic Chinese companies.
The domestic Chinese company
181,324 10-year patent applications were filed in 2007 – a 12 percent increase over the previous year. In 2006, 99.2 percent of all 10-year patent applications were filed by Chinese companies. Domestic companies prefer this type of patent, as the grant is easier and faster than that of 20-year patents. The Chinese 10-year patent is similar to that of many other countries including Germany, Japan, South Korea, France, Australia, and Russia. Like most of these countries, the SIPO grants 10-year patents for inventions that are deemed new, although their novelty is usually not examined before they are granted. The lack of substantive examination is also the reason why the strength of 10-year patents is considered lower than that of 20-year patents.
The foreign company in China
Foreign companies operating in China have only recently started to recognize the importance of 10-year patents and are actively formulating their IP strategies around such patents in China. Their change in mindset may partly be a result of the outcome of the litigation between the Chint Group (China) and Schneider Electric (France). The Chint Group alleged that Schneider Electric infringed on one of its 10-year patents. The Wenzhou Intermediate People’s court ruled in favor of The Chint Group and awarded damages worth CNY 330 million (approximately USD 45 million). Schneider Electric has since appealed to a higher court, but regardless of the outcome, it would have accrued considerable expense and trouble that could have been probably avoided had it invalidated this 10-year patent before The Chint Group filed its lawsuit.
The importance of the 10-year patent in China
Some Chinese companies have adopted a strategy that involves filing 10-year patent applications and 20-year patent applications for the same invention on the same day, thereby ensuring the same priority date with the SIPO. Since a 10-year patent application is granted within a year (without substantive examination), the company can start producing, marketing and selling its ‘patented’ product in China. If the corresponding 20-year patent is granted by the SIPO, the Chinese company can simply abandon the 10-year patent and enjoy a longer period of protection. If the corresponding 20-year patent application is not granted by the SIPO after a substantive examination, then the Chinese company can still continue producing and marketing its product on the strength of the utility model it owns, unless it is challenged by another party and the 10-year patent is re-examined by the SIPO. Note that the only deterrent for Chinese companies using this strategy is the possibility of the SIPO invalidating the 10-year patent itself. Competitors need to be aware of such 10-year patent grants, and if necessary, file invalidation requests with the SIPO even before the companies that own such patents begin to enforce them.
The effects of this strategy have been weakened in the latest version of SIPO’s “Guidelines for Examination” that was implemented on July 1, 2006. According to Chapter 3, Section 6.2.2, Part II of ‘Handling of One Application and One Patent’ of the Guidelines for Examination, when an invention patent is going to be granted, the assignee needs to submit a written declaration to abandon the corresponding utility model application from its filing date (as though the utility model application was never in existence). With this modification, the period between the grant of the 10-year application and the publication of the 20-year patent (usually 8 to 12 months) is no longer protected under the rights of the 10-year application.
A possible loophole in the utility model (10-year patent) system is the lack of substantive examination, which can enable an applicant to copy a patent owned by another company in another country, and then enforce this 10-year patent against any other company in China (including the foreign company that owns the original patent in the other country). The amendments proposed in 2006 include a provision for penalizing patentees that are found to be indulging in such “patent counterfeiting”. This amendment will help in reducing, if not eliminating, the copying of prior art.
Conclusion
The case between Schneider Electric and The Chint Group highlights the need for foreign companies to increase their awareness and understand the importance of incorporating 10-year patents into their overall IP strategy. While doing so, such organizations must keep in mind that simply importing ‘best practices’ from their home countries may not work in China. For example, searching the vast Chinese database for prior art is a challenge that should only be undertaken with the help of proficient Chinese professionals and not done in English language or by using abstracts alone. Hence, the challenge for multinational companies is to adapt themselves to the realities and culture of China and formulate patent strategies that will work for years to come.
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