Elevating Standards: China’s Newly Amended Patent Law

China's National People's Congress recently adopted a new amendment to it's Patent Law, which will take effect on Oct. 1, 2009. The Patent Law of China was formulated in 1984 and took effect on April 1, 1985. It has been amended three times: first in 1992, second in 2002, and most recently on Dec. 27, 2008. This article provides an overview of major changes under the third amendment (“New Law”).

Heightened patent-granting threshold

The 2002 amended Patent Law (“Current Law”) adopted a relatively low threshold for patent applications that has been criticized as a “relative novelty threshold.” In China, as in most other countries, patents are divided into three categories: invention; utility; and design (“creations”).

A patent can be granted in China for creations that (i) have not been “publicly disclosed in publications” worldwide and (ii) have not been “publicly utilized or otherwise made known to the general public” in China. Put another way, a creation used or known in foreign countries can still be granted a patent in China so long as it is neither used nor known in China and is not publicly disclosed worldwide.

This low threshold is widely considered in China to impede application and improvement of existing foreign creations in China and has arguably resulted in some low-quality patents. The New Law thus elevates the threshold for granting a patent by replacing the relative novelty threshold with a stricter threshold. This threshold, commonly referred to as a “complete novelty threshold,” requires that a creation not be publicly disclosed, used or known worldwide before a patent application is submitted.

It has been reported that the purpose of the amendment is to enhance Chinese patent quality in the long run.

Cross-border issues

The Current Law requires that patent applications for an achievement realized in China be filed there before being filed abroad. The New Law eliminates this requirement. As of October 2009, patent applications can be directly filed overseas. It is noteworthy, however, that applications will be subject to “security review” by China's patent office before being submitted overseas. We understand this review is intended to protect China's national security. Failure to comply with this procedure will result in no Chinese patent being granted. The detailed procedure of the review remains to be formulated by China's State Council.

Under the Current Law, transfer of contract for patent (or patent application) to a foreign party must be approved and registered. The New Law leaves this requirement to China's rules on technology application, the Administration Rules on Technology Import/Export Contract, which were also recently amended and will take effect in March 2009. Under the New Law, transfer of patent (or patent application) that falls within the “freely import/export technology” classification is only subject to online registration. Approval is still required for patent (or patent application) that falls within the “restricted import/export technology” classification.

Under the Current Law, foreign applicants are required to use patent agencies designated by the Chinese authorities. The New Law has no such restriction. Foreign applicants will be free to choose any legally established patent agency.

Restraining counterfeits

The New Law indicates that China is taking a tougher stance on restraining counterfeits. Where the Current Law fails to spell out expressly the powers relating to inspection of counterfeits, the New Law fills in the blanks: Powers include conducting inquiries, on-site inspection, review and reproduction of relevant documents, inspection of relevant products, and containment or seizure of products when there is evidence they are counterfeit.

China is pressing further by increasing the fine imposed for patent violation from three times any illegal gain made through a counterfeit to four times the illegal gain, and from ¥50,000 to ¥200,000 when there is no illegal gain.

Facilitating defense

The New Law focuses on helping patent owners halt and prove patent infringement. It also emphasizes the adequacy of compensation to patent owners.

The Current Law gives patent owners the right to apply for injunction to stop infringement before filing a lawsuit. However, a court is required under general Chinese civil procedure law to decide within 48 hours whether to grant the injunction. In practice, courts seem rarely able to make decisions so quickly regarding patent infringement. A commonly applied injunction is to halt production.

However, courts have often been reluctant to grant a timely injunction given the possible large-scale impact of a halt in production. The New Law extends the decision time to 96 hours. Hopefully, this extension will allow courts ample time to make injunction decisions and avoid rejecting applications due to time constraints.

The New Law also enables plaintiffs to be compensated for reasonable expenses incurred in stopping patent infringement.

Freedom of technology use

On one hand, the New Law strengthens protection for patent holders. On the other hand, it seeks balance, so that the rights of patent owners do not unduly hamper overall technology development in China.

Creators often face legal challenges for using “low-quality” patented technology. When accused of using such technology, creators need to spend much time and energy proving their innocence. To do so, they must nullify the “infringed” patent through administrative procedure before submitting their case to a court. This mandatory procedure often causes disputes to go unsolved, dragging on for considerable lengths of time, sometimes up to 10 years.

The New Law appears to recognize this issue and provides a practical solution: As of October 2009, if it can be proven that a patented creation is an “existing technology or design” (i.e., that such technology or design was publicly available before the application date of the patent), use of the technology will not be deemed as patent infringement. It seems that a time-consuming procedure to nullify a patent will no longer be necessary before fighting a patent infringement accusation.

Co-developed creations

The Current Law lacks guidance on exercising rights for licensing a patent developed by more than one creator when the creators cannot reach a licensing agreement. This has resulted in a substantive number of co-developed patents being left unused. The New Law aims to balance rights among patent owners by allowing individual owners of a co-developed patent to use the patent themselves or exercise non-exclusive license (unless agreed otherwise in advance by the creators). This change will likely reduce the number of collaborative patents left unused in absence of unanimous consent. All the creators are required to share any profit from the application or licensing of a co-developed patent.

One patent per creation

The New Law introduces a principal that only one patent will be granted for one creation. The time allowed for review and approval of an invention patent is longer than for a utility patent. The practice has been that applicants apply for both invention and utility patents for the same creation so that it is protected by the utility patent while the invention patent is approved. The New Law does not obstruct this practice. Applicants can still apply for both invention and utility patents, but they must relinquish the remaining term of a utility patent to obtain an invention patent for the same creation.

Restriction on inherited patents

The New Law demonstrates that China is paying more attention to the protection of inherited patents. Where a patent is acquired through inheritance, the New Law requires the patent applicant to either show the source of the patent or to provide a satisfactory explanation. No patent will be granted if the acquisition of an inherited patent is not in full compliance with the New Law.

Design patent and “offer for sale”

The Current Law only prohibits the manufacture, sale and import of products that infringe upon a protected design patent. The New Law enhances design patent protection by prohibiting the use of products that infringe upon design-patented products in offers for sale. This revision should end patent infringement in many forms by further prohibiting unauthorized uses in advertising, store sales, exhibition displays, etc.

Other changes

The New Law adopts international practices. It provides that China can grant mandatory licensing for manufacture and export of patented medicines according to international conventions. This amendment is China's codification of its obligation under the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) to create mechanisms to address public health problems in developing and underdeveloped countries. It also introduces foreign experience in the pharmaceutical field to China, further exempting the use of patented pharmaceutical products from patent infringement for the purpose of administrative approval.

Conclusion

Although the number of patent applications in China may fall after the amendment goes into effect, the New Law promises to better restrain counterfeiting, facilitate IP dispute resolution, and improve overall Chinese patent quality. While these changes bring Chinese patent law into conformity with international practice and agreements, its larger effect may be to encourage home-grown creativity.