Is China Safe for Patents?

China patent law

On Tuesday one week ago, the Financial Times’s Beyondbrics blog published a very interesting piece by China First Capital’s Peter Fuhrman on innovation in mainland China as compared to Taiwan. The piece focused on the push-back Fuhrman experienced after an article he co-wrote holding up a Taiwan-based company (Largan Precision) as an example of a high-tech, high-net-profit business of the kind mainland China has yet to produce. The thrust of Fuhrman’s piece — that innovation is something that cannot be simply created overnight by government mandate — is something with which I heartily agree, but some of the things he says about China’s patent system bear further discussion.

First there’s this:

There are specialist patent courts now to enforce China’s domestic patent regime. But, the whole system is still weakly administered. Chinese courts are not fully independent of political influence.

And anyway, even if one does win a patent case and get a judgment against a Chinese infringer, it’s usually all but impossible to collect on any monetary compensation or prevent the loser from starting up again under another name in a different province.

Though it’s generally true that China’s courts (and the courts of many other countries) can be subject to political influence, at least in my experience, in 95%, maybe 99% of cases this will not be an issue for anyone attempting to enforce patent rights in mainland China. If this were truly a common factor, one would expect China court decisions to show a bias against foreign litigants, but studies have failed to find any such bias. Yes, it is possible for low-level patent infringers to simply abscond, avoid paying damages, and set up elsewhere — I would say this is especially an issue for trademark infringement — but this is rarely an issue for the much larger companies that are typically the subject of patent infringement cases. Though it’s difficult to make hard-and-fast judgments about which countries are better at enforcing IP rights, I have not found any major difference between Taiwan and mainland China in this regard. If Taiwan is better, it is not overwhelmingly so.

Then there’s this:

Another troubling component of China’s patent system: it awards so-called “use patents” along with “invention patents”. This allows for a high degree of mischief. A company can seek patent protection for putting someone else’s technology to a different use, or making it in a different way.

There are two ways to view this statement, to both of which I take exception.

The first is that Fuhrman is talking about so-called “new use” patents, that is patents that claim a new, inventive use of a known article. A classic example of this would include using a known lubricating oil to treat a disease. I think most people would agree that discovering such a new use, where it would not have been obvious (Chinese law is stricter in this regard than say, US law), is exactly the kind of innovation patent systems exist to protect and encourage. It is also possible to patent such inventions in Taiwan and (as far as I know) every other country in the world with a functioning patent system. The same is true of new ways to make a known article. Where the new way is inventive/non-obvious and advantageous, why shouldn’t you be able to patent this improvement?

The second is that Fuhrman is talking about so-called Utility Model patents or innovation (as opposed to invention) patents. Though laws vary between countries that grant Utility Model patents, they are typically designed to protect innovations that do not fulfill the requirements for patent protection (e.g., they may be obvious/non-inventive), but which are still new. The rights granted by such Utility Model patents usually are much more narrow, and the monopoly period is shorter, and they are not examined. Though Utility Model patents can be controversial, particularly because they theoretically can lead to someone being able to file something that, on the face of it, could even cover the wheel (and did, in Australia) utility models exist in many countries that have thriving tech industries, including Taiwan. The fact that so-called “paper-tiger” applications have been filed that appear to cover well-known technology, but which are in fact completely unenforceable, hasn’t deterred innovation in countries with Utility Model systems.
Finally there’s this:

It’s axiomatic that countries without a reliable way to protect valuable inventions and proprietary technology will always end up with less of both. Compounding the problem in China, non-compete and non-disclosure agreements are usually unenforceable. Employees and subcontractors pilfer confidential information and start up in business with impunity.

China Law Blog has written at great length about how to craft enforceable non-compete/non-disclosure agreements so as to protect your business and its IP in China, so I’m not going to say much except that in my experience Fuhrman is only correct about such agreements being “usually unenforceable” in as much as people are using agreements that simply aren’t written so as to be enforceable in China. The same is true of issues with employees and subcontractors; it comes down to the contracts you have had them sign and how you’ve decided to work with them and how you’ve gone about your due diligence.

Bottom line: yes, China does have a patent system that you can use to protect your inventions. No, if anything is holding back innovation in mainland China relative to Taiwan, it is probably not mainland China’s patent system.

* The above is a guest post from Gilman Grundy, a Senior IP Specialist for Kenwood Ltd, which is part of the De’Longhi Group.

Leave a Reply

Your email address will not be published. Required fields are marked *