IP protection in China – continuing improvements…

01 October 2015

Figures released earlier this year show that there were more patents filed in China in 2014 than in any other country in the world. Of these, around one third were filed by foreign (non-Chinese) applicants and the remaining two thirds by Chinese applicants. And it is this significant increase in the take-up of patenting by Chinese companies that seems to be driving change throughout the Chinese IP system at last.

The Chinese government has been promoting the importance of IP rights and encouraging the take up of patents, trademarks and design rights by Chinese businesses for many years now. This has been driven partly by international pressure but mainly by an ambitious agenda designed to move the Chinese economy away from manufacturing and reverse engineering towards the development of its own innovative products and services.

In recent years, innovation awards and patent grants and subsidies have pushed up domestic demand for patents and there has been a corresponding increase in patent litigation as Chinese companies use their patents to defend their technology and innovation against both domestic and foreign competitors. This in turn is leading to improved resourcing of the court system and to gradual reforms and improvements, most noticeably with the introduction of three specialist IP courts in Beijing, Shanghai and Guangzhou in 2014. The increased salary and training for the judiciary, and continuing improvements to court administration efficiencies, have led to initial positive feedback. However the enforcement regimes remain highly variable across China as a whole. But while damages awarded for patent infringement are still relatively low, and are therefore an insufficient deterrent and there are still pockets of inefficiency in the judicial system particularly outside the areas of the three specialist IP courts. There is however some talk of expanding the new IP courts to other regions following a full evaluation in 2017.

But while patent protection may be improving, we are not yet seeing the other elements of patent use that we would associate with a more innovative culture in Western economies. Commentators both inside and outside China have observed that Chinese companies, encouraged by government policies, may be putting too much emphasis on obtaining patents and not enough on patent acquisition and licensing. This presents the risk that the patent system creates blocks to innovation rather than making and enabling contribution.

The Chinese government is looking to stimulate innovation though the private sector, but culturally this is a massive shift, and at present much of China’s R&D remains state funded. The absence of venture capital makes it hard for private enterprises to access IP for collaborative projects. Venture capital funds have been made available and major financial institutions including insurance companies have now been authorised by the Chinese government for this type of lending. But all of this takes time – although the pace of change in China should never be underestimated.

So what does all of this mean for Western companies looking to protect their technical innovation in China? Here are a few thoughts and observations.

  • There is still more counterfeiting and infringement in China than anywhere else in the world and the need to protect those elements of your innovation, your supply chain and your competitor activity that take place in China is key. The well-worn lottery slogan “you’ve got to be in it to win it” is apposite here. If you don’t have registered IP rights in China then you can’t claim the improving protection that the regime offers.
  • The cost of obtaining patent protection in China is generally in line with or cheaper than that of many Western jurisdictions. For sophisticated technology products and pharmaceuticals, it may pay to create clusters of inter related patents to protect the overall product and individual components. For simpler goods this may not be possible, you may need to rely on one patent, perhaps with some design protection around it.
  • In clear cut infringement or validity cases your chances of a successful outcome in litigation are improving all the time, especially in the regions of the new specialist IP court (Beijing, Shanghai, Guangzhou).
  • On the down side there are now a lot more Chinese national patents to navigate your way around and Chinese companies are more likely than ever to use the court system to challenge their international competitors.
  • If you are trying to operation collaboratively with the holders of Chinese IP rights you may still find it difficult to structure licenses, assignments and other forms of cooperation.

While there is undoubtedly still a long way to go to create a patent protection and enforcement regime that is in line with those in the US and Europe, giant strides are being made and as the IP regime matures in China it seems likely that the improvements will continue and a closer alignment with Western systems will be attained.

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