The draft amendment contains several controversial provisions, which were the subject of much debate and lobbying in 2008. Fortunately, the final version is much more balanced between domestic and foreign interests. There are several notable changes which are of particular relevance to foreign companies doing business in China.
Before the amendment, China employed a "relevant novelty" system. Under this system, unpublished technologies or products were not deemed as prior art for the purpose of assessing novelty in China, even though they had been publicly used or on sale outside of China. As long as they were not publicly used or sold within China, anyone could apply for patents in China with regard to these technologies or products without worrying about novelty objections. Such patents are referred to as one type of "junk patent". Such patents are considered to lower the quality of Chinese patents and frequently cause headaches for foreign businesses in China.
After the amendment, China has raised the standard to "absolute novelty". This means that a Chinese patent cannot be granted if invalidating prior art was publicly available before the application date. No differentiation is made between prior publications and prior use. This change effectively sweeps away the junk patents referred to above and brings China into line with the practice of most developed countries. It is therefore beneficial to western companies accustomed to higher standards of patent quality.
Before the amendment, where any Chinese entity or individual intended to file a patent application in a foreign country for any invention developed in China, an application had first to be filed at the Chinese Patent Office.
With the intention of encouraging Chinese companies to file patents abroad and to facilitate the process, the "first filing in China" rule has now been lifted by amendment. The amended article specifies that where an entity or individual intends to file a patent application in a foreign country for an invention developed in China, he no longer needs to first file the application in China. However, he does have to apply in advance for a confidential examination conducted by the Chinese Patent Office for national security clearances. Failure to do so can result in severe consequences. If a patent application is filed in a foreign country in violation of the above procedure, no patent will be granted if a patent application is later filed in China.
Prior art litigation
A further measure has been introduced aimed at reducing another type of "junk patent". Some applicants, for various reasons including "bad faith litigation", apply for patents, usually utility models which are not substantially examined in China, based purely on existing prior art. The reasons for doing so are various, including accumulating a great number of patents just for winning government funding, or to threaten other companies for infringement. In the past, a company threatened with infringement often had to go through invalidation proceedings before the Patent Re-examination Board of the Chinese Patent Office in order to revoke such a "junk patent", in order for the court to issue a judgment of non-infringement. The invalidation proceedings, however, were lengthy, sometimes taking up to three or four years. So the "junk patent" holder had substantial leverage to press innocent companies into a settlement.
The amended patent law now specifies that: "In a dispute over patent infringement, if the accused infringer has evidence to prove that the technology or design it or he exploits is an existing technology or design, no patent infringement is constituted." This will be a useful and convenient tool for foreign companies to fight against "junk patents" in China.
Enforcement of Intellectual Property (IP) in China is frequently considered to be inadequate by foreign companies. One important reason is that the damages granted in a patent infringement lawsuit are widely considered to be too low, thus having no real deterrent effect. The amended patent law seeks to increase damages and allow judges more power to issue higher monetary compensation. Statutory damages for patent infringement have been increased from RMB 500,000 to RMB 1 million ($73,000 to $147,000). Fines in administrative proceedings have been increased to four times the amount of the illegal gain.
Of particular relevance to pharmaceutical companies, another amendment introduces a further exception to infringement similar to the Bolar exception in the United States. The following is no longer to be regarded as infringement; "producing, using or importing patented medicine or patented medicinal equipment for the purpose of providing the information as required for administrative examination and approval, and producing and importing the patented medicine or patented medicinal equipment exclusively for the said purpose". This article is favourable to generic drug manufacturers as it is would allow them to put their products on the market right after a pharmaceutical patent expires.
China has realised its rich genetic resources and is seeking to protect them. The previous patent law and its implementing regulations had no reference to the protection of genetic resources. The amended law, however, states that: "For an invention based on genetic resources, the applicant shall state the direct source and the original source of the genetic resources in the application documents. If the applicant is not able to state the original source, it or he shall state the reasons." Such disclosure is now compulsory for inventions relying on genetic resources. This newly introduced article is thus of importance to pharmaceutical companies which exploit genetic resources for drug discovery. Failure to comply with the disclosure rule could result in the patent being invalid.