In the second blog in our China IP series, Matt Luby, Director of Analytics APAC, discusses the effect increased filing has had on the country’s patent quality.
The China IP boom
China is investing heavily in patent portfolio development, issuing a set of incentives to encourage increased innovation and filing. These include: underwriting innovation and invention; subsidising patent prosecution fees and filing fees inside and outside of China; and underwriting select litigation expenses, including encouraging local lawyers to take cases on an alternate fee structure basis. These motivations have successfully increased patent activity, generating a new record in 2015 of more than a million patent applications filed within a single year.
By using cash subsidies to encourage patent filing, the Chinese government boosted IP uptake but this has caused concern about patent quality and patent office resources.
Patent quality is defined by: chances of invalidity, the industry, its commercial strength and technical strength, prior art, and ultimately - whether a patent provides a net benefit to its holder or not.
Until IP courts in China award damages at a high level – similar to countries such as the US - and policy is put in place to encourage more commercialisation, the economic importance of Chinese patents will remain comparatively low.
Legislation driving innovation
However, law and legislation in China has been making moves to improve its growing IP landscape. As far back as 1996, the law entitled - “Promoting the Transformation of Scientific and Technological Achievements”- allowed state universities and research institutes to retain income on IP that was transferred or licensed out. As well as enabling royalty rates for scientists to increase from 20% to at least 50%.
While in 2014 China established a number of specialised IP courts in Beijing, Shanghai and Guanzhou. The introduction of these courts sparked an increase in IP litigations, but also helped to develop the jurisprudence that now distinguishes China as an emerging legal battleground for IP.
A 4th proposed amendment to the patent law then introduced several highly progressive IP reforms, such as: automatic employee-inventor IP ownership if there is no standing agreement; and the affirmative duty to disclose standard essential patents by national standard-making participants - or face serious risks. Additionally, statutory damages for patent infringement are being proposed to increase from between RMB 10,000 to 1,000,000 to RMB 100,000 to 5,000,000. Practitioners have expressed feelings of being under increased scrutiny too, experiencing tougher prior art challenges for both novelty and inventive steps during patent examination.
Last autumn China’s State Intellectual Property Office released guidelines for patent examiners that confirmed software and business methods are patentable. This direction, post-Alice - is likely to provide more confidence in the Chinese IP market and its processes, than what is currently being provided by US IP examiners.
Monetising IP
In August 2016 the Chinese government issued its 13th Five-Year Plan on Scientific and Technological Innovation. Improving IP quality and exploiting the value of IP were the two areas discussed for building a more innovative patent landscape. State Intellectual Property Office (SIPO) commissioner Shen Changyu emphasised the importance of improving the quality of innovation and examination to generate valuable IP assets which can be used effectively. More specifically China has introduced a goal that $8bn in export income from royalties and franchising fees should be accrued from Chinese IP by 2020.
China has had the opportunity to watch developments in the US and European IP landscapes and adapt the best practices fit for their own economy and society. Following more investment in IP activity, a slowed pace of patent filing will greatly improve the quality of China’s future IP portfolios. While the enhanced quality of assets – alongside a more experienced legal system – will increase the value of Chinese IP in a wider, global market.
Read the first blog from our China IP series here.
