Key Points:

  • Novelty of inventions and designs must be absolute
  • Bar removed to first filings abroad for inventions “completed” in China
  • Invention and utility model patent applications may be filed simultaneously
  • Co-applicants and co-owners free to individually use or license patents
  • New compulsory licensing provisions
  • Stricter requirements for patents on inventions using genetic resources

The National People’s Congress (“NPC”) Standing Committee in China recently took another step toward strengthening China’s intellectual property (IP) system by amending its Patent Law, originally adopted in 1984, for the third time in just under 25 years. The Third Amended Patent Law, passed at the end of December 2008, is scheduled to take effect on October 1, 2009.  

The first two amendments, made in September of 1992 and August of 2000, mainly consisted of changes enacted to accommodate the requirements of international laws and China’s World Trade Organization obligations under the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (“TRIPS”). The latest amendments are in line with China’s mission to continue advancing its economic development and the National Intellectual Property Strategy issued by the State Council on June 5, 2008, improve IP protection and enforcement and foster IP innovation. The most noted and welcomed changes provide evidence of China’s intent to promulgate laws capable of ushering in its transformation from a low-tech manufacturing base to an innovation and technology center. This transformation requires laws that facilitate protection and enforcement of rights to innovation and technology.

Changes in the new Patent Law include those that relate to novelty of inventions, location of first filings, co-ownership, double patenting and prior art defense, as well as increased damages awards and a larger role for the State Intellectual Property Office (SIPO) in IP cases. The new law also includes additional provisions for compulsory licensing and a reference to anticompetitive behavior.

Among the changes:  

Novelty

The new Patent Law requires that the invention or design for which a patent is being applied be absolutely novel; in other words, the subject matter of a patent application must not have been known, disclosed or used publicly anywhere in the world before the filing date in China. This contrasts with the current Patent Law, under which patents may be granted despite an invention or design having been used in another country prior to the PRC filing date. This feature is the subject of much criticism for providing an opening for the proliferation of “junk patents,” and is frequently a source of unpleasant surprise for patent owners outside China.  

First Filings

The bar to first filings abroad for inventions “completed” in China has been removed. After October 1, an owner of an invention “completed” in China may first file an application abroad to secure a patent for such an invention, provided the applicant first submits the invention to the Patent Office for a confidentiality and security review and receives approval.  

This provision, however, neither indicates the criteria for deeming an invention approved for filing abroad nor does it provide guidance on measures for dealing with rejections. Moreover, the absence of a definition of “complete” poses the question, especially relevant to PRC-located R&D centers of companies based outside China, of how the PRC government will determine when an invention is “complete.”  

Simultaneous Filings for Utility and Invention Patents

The new Patent Law clarifies that an applicant may file invention and utility model patent applications simultaneously for an invention and allows for the applicant to file a declaration to terminate the utility model patent (more commonly approved first) prior to its termination date as a prerequisite to obtaining the invention patent. This indicates the Patent Office is comfortable with the practice of inventors filing both types of applications at the same time, using the utility patent as a type of insurance policy to protect the invention or design until the more substantive and stronger invention patent is granted.  

Co-Applicants and Co-Owners

Co-applicants and co-owners of a patent will be free to individually exploit the patent or grant a non-exclusive license to a third party in the absence of any agreement or other provisions for exercise of these rights. Actions regarding other rights will require the consent of all co-applicants or co-owners. This freedom to individually exploit an invention creates a need for entities, especially R&D entities in collaborative relationships in China, to perform thorough due diligence and include clear language ensuring that intentions regarding exploitation of the invention are reflected in any agreements governing a partnership or joint venture. Although the new Patent Law provides that royalties from individually exploited rights belong to all owners, an owner is required to be vigilant and actively exert control over the invention to prevent loss of competitive edge.

Compulsory Licensing

Articles of the new Patent Law regarding compulsory licensing include provisions for the government to grant such a license in situations in which exercise of the patent rights has been deemed anticompetitive in accordance with the law. This appears to refer to the PRC Anti-Monopoly Law (including Art. 55 regarding IP abuse), but clear guidance in the article as to implementation and enforcement is missing. Conditions that could warrant a compulsory license include semiconductor technology and public health reasons including distribution of pharmaceuticals to countries in need (in accordance with TRIPS and the Doha Declaration on TRIPS and Public Health). It is very likely that implementing regulations will be issued to add clarity to this and other areas of the new Patent Law.

Pharmaceutical manufacturers, aside from concerns raised by the freedom to exploit a patent individually and restrictions on use of genetic material, must also contend with the mandate that patent applicants for inventions using genetic resources either establish the origin of the material or explain why its origins are impossible to ascertain. Also, under the new law, the Patent Office will reject any invention employing genetic material used or obtained illegally. As a result, the law heightens the need for thorough due diligence and vigilance to protect inventors’ rights and competitive edge.

The new Patent Law also vests SIPO with the power to inspect and seize records and products and spells out that courts have the authority to issue preservation orders in cases in which evidence is likely to be lost before a trial or a preliminary injunction.

Parties who prevail against a patent infringer can also look forward to increased fines for the infringer and clearer guidance regarding damages determinations. Though PRC courts have been criticized for issuing awards that are typically less than what might be expected in a court outside China, signs of change are appearing. On January 14, Germany-based bus manufacturer Neoplan received more than RMB40 million when it prevailed against Zhongwei Bus & Coach Group and its parent, Zonda International, in a claim that the design patent for Neoplan’s Starliner Bus had been infringed. PRC plaintiffs have also prevailed with large awards recently, including an RMB50+ million victory for Holley Communications over Samsung in patent infringement litigation in January; CHINT Group’s RMB334+ million patent infringement win over Schneider Electric in 2007, which was appealed to Zhejiang Intermediate People’s Court; and a patent validity challenge and initial loss by Pfizer Inc. related to sildenafil citrate used in its prescription drug Viagra (the patent rights were subsequently granted to Pfizer by the Beijing court).

These patent infringement challenges, lawsuits and awards provide an indication of how parties in China are asserting their right to innovations. As actions typical of worldwide innovation hubs, they are reflective of the increased importance of IP rights to both global and China-based companies.