January 1, 2010

Changes in the IP Environment in China

Dr. Hava Caner Ercegovic, Patent Attorney
Dr. Hava Caner Ercegovic

Patent Attorney

Reinhold Cohn & Partners
Dr. Ilan Cohn, Senior Partner
Dr. Ilan Cohn

Senior Partner

Reinhold Cohn & Partners

China1 is the fastest growing economy in the world and is on its way to becoming the second largest economy, offering extensive business opportunities. With the aim of encouraging investment in China, the Chinese Government is recognizing the importance of Intellectual Property Rights (IPRs) and is placing great emphasis on adopting new approaches for protecting entrepreneurs holding IPRs in China. Recent developments, including some high profile, often important precedent-setting, court cases and some recent changes in IP law and practice, are a big step in the direction of making China a world hotspot of an IP-based economy.

Following China’s accession to the World Trade Organization’s TRIPS (trade related aspects of intellectual property rights) agreement2 in 2001, the Chinese government has been taking serious measures to protect and enforce IP rights. To bring its IP framework into compliance with TRIPS, China began a comprehensive revision of its laws and regulations in relation to IPRs, trying to balance the interests of IPRs holders and consumers. 

Patent policy in particular has been a key issue on the Chinese Government’s agenda. For example, in hosting the 2010 World Expo, the Shanghai Municipal Government and related departments have formulated a series of supporting policies to strengthen IP protection of the World Expo with some immediate and longer term measures.

Over recent years the Chinese Government has also made extensive efforts to educate judges in the relevant courts on patent matters, among others sending many of them overseas to study from their peers in other countries. Indeed the quality of judicial decisions issued by Chinese courts has risen dramatically over recent years. In parallel, recent years have seen a dramatic increase in the number of Chinese and foreign companies that battled their patent rights in Chinese courts. Some such cases are discussed below.

The filing of patent applications by Chinese companies outside China is also on the rise; and Huawei, a Chinese telecommunication giant, filing about 3,000 applications annually, is the World’s leading filer of PCT applications. In order to further encourage innovation, reinforce patent positioning in the world and to implement the National IP strategy, the Chinese Government provides substantial grants to small and medium-sized enterprises that would like to protect their innovations worldwide.

Under Chinese Patents Law, three types of patents may be granted: Invention Patents, Design Patents and Utility Model Patents.

China’s Patents Law was recently revised, these revisions, which came into effect on October 1, 2009, introduce some changes relating to the three types of patents. Among the revisions, are changes in some novelty standards, replacing the old related novelty standards with absolute ones. The old novelty standards did not consider public use or knowledge outside China to be novelty destroying; consequently occasionally facilitating “patent hijacking”; by way of example, patenting in China another’s invention observed outside China (such as in a trade show). The “prior art” is now defined as art publicly known anywhere in the world before the filing date.

China has experienced a surge in patent filings since 2001. In 2009, almost 1,000,000 patent applications3 were filed at the SIPO with over 80% of all patent applications being filed by domestic Chinese companies. There are currently more than 1.4 million active patents in China.

The total number of invention patent applications ranks China as the third-largest patent filing jurisdiction, after the USA and Japan.

Litigation statistics suggest that Chinese companies are increasingly becoming more aggressive with patent enforcement and non-Chinese companies, operating in China, have started to feel the heat. The number of litigations relating to all types of Intellectual Property in China was over 20,000 in 2008, which is a 35% increase over 2007. In 12% of these litigations, a foreign company was either the plaintiff or the defendant, which is more than triple the number in 2006. A study conducted by one of the leading IP companies in China, shows that in 2007-2008, foreign IPR holders won more or less the same percentage of cases as domestic IPR holders did, both amounting to about 70%.

Some recent very high profile cases were in the spotlight worldwide and illustrate the importance IPRs play in modern China. These include the Viagra case, where Pfizer fought against 12 domestic generic pharmaceutical companies and eventually maintained its exclusive patent rights in this best-selling pharmaceutical; the German Neoplan Bus company (a subsidiary of MAN) that successfully defended its rights in a bus design against the Chinese Zonda Industrial Group; the case of Chint vs. Schneider in which the latter French electronic company was ordered to pay the astounding sum of about 48 million USD for infringing the Chinese Company’s utility models and eventually settled before a verdict, in an appeal hearing for 23 million USD; and Microsoft vs. Tomato Garden where the US software company placed a complaint before the China Copyright Administration resulting in an injunction, a jail sentence to the controller of the Chinese Tomato Garden website and a significant fine. 

In conclusion, the rapid economic development in China is paralleled by the increased importance of IP as a main economic driver. This is manifested by a dramatic rise in the IP-related activity in this country by locals and foreigners alike and an increase in legal battles over IPRs settled in court or at the patent office. At the same time, there is an increase in the interest of Chinese companies to protect their IPRs worldwide, motivated to some extent by Government incentives.

All these factors combined put China on the road to becoming a world hot spot for IP activity.

1 All mention herein of “China” refers to the People’s Republic of China.
2 The TRIPS agreement sets minimum standards of protection and enforcement for IPRs internationally in respect of administrative, civil, criminal and border measures. 9.0pt;text-align:left;text-indent:-9.0pt; direction:ltr;unicode-bidi:embed’>All mention herein of “China” refers to the People’s Republic of China.
3 Including all three types of patents that exist in China.

 

 

This article is provided for general information only. It is not intended as legal advice or opinion and cannot be relied upon as such. Advice on specific matters may be provided by our group’s attorneys.

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