Autumnal Hook

Recent Research of USPTO

This is the first in a series of blogs on recent research.

The USPTO just released its report on Trademarks and Patents in China, The Impact of Non-Market Factors on Filing Trends and IP Systems (the “Report”).  The Report focuses on non-market factors in filing trends in trademarks, with an emphasis on “suspect trademark applications filed in the United States from China.”  It documents the rapid rise in trademark and patent filings.  The Report states that there are several factors contributing to this increase from China including: subsidies, numerical targets for IP filings set by the government, bad-faith registrations, and unused registrations that may have been filed for defensive purposes.  While the Report focus on the impact of these factors on the USPTO, it also helps advance understanding the impact of these factors on such issues as IP prosecution strategies, valuation and licensing.

The Report usefully cites to much of the Western literature on China IP subsidies, particularly with respect to patents.  The Report notes that the subsidies provided often exceed the cost of applying for the IP right.  While subsidies and national targets have caused a surge in patent filings, they also motivate “strategic filing behavior” including “the practice of splitting a single patent application into multiple applications in an effort to reach specific innovation metrics.” The Report cites to an OECD Report on end of year seasonality in patent filings written by Zhen Lei, Zhen Sun and Brian Wright (2013, fn. 37), which was based on observations first made in this blog (2012 and earlier).  The report also discusses the low level of IP commercialization (p. 9), an issue that I have also written about.

The Report is not a complete compilation of non-market factors affecting Chinese patent filings and their impact on China’s innovation ecosystem. There are numerous indirect subsidies provided for IP filings.  For example, China’s High and New Technology Enterprise and similar tax incentives also led to a surge in patent filings. In terms of impact upon government IP offices,  IP rights may also not be maintained if there is an insufficient subsidy to support that activity.  Among non-monetary incentives for IP filings,  Courts have offered to commute sentences or parole prisoners who filed for patents, and localities such as Shanghai offered a precious residency permit or hukou if one obtained patents. Incentives for international standards essential patent filings or participation in standards setting organizations may also result in over patenting of SEP’s or over-declaration of SEPs in technical specifications.  Incentives also extend to academics at universities and in research institutions, who might receive promotions, obtain tenure and be awarded a graduate degree based on patent filings.  The consequence, according to CNIPA in a policy announcement made with the Ministry of Education, has been that academics emphasized quantity and ignored quality “重数量轻质量.”

According to the Report, “Chinese inventors seek foreign patent protection less frequently than U.S. inventors do.” It is true that China has a relatively low level of foreign filings relative to its domestic filings, when compared to the United States.  China is not however wildly lower than Korea or India  (WIPO Patent Cooperation Treaty Yearly Review 2019, p. 32, “WIPO Report”).  One distinguishing element in this analysis is the high number of domestic filings.  Another issue with China’s PCT filings that is not discussed is the low level of national phase examinations (NPE’s) per PCT filing, which may be related to the lack of adequate subsidies for NPE’s.  According to the WIPO Report, in 2017, applicants residing in the United States of America initiated 183,532 NPE’s.  China was fourth with 35,289, or about 20% of the United States (p. 59).  China has on average one national phase entry per PCT  application, the lowest of any major patent filer.   For researchers into patent quality, China’s low level of NPE’s also calls into doubt previously unexamined assumptions that PCT filings as one indicator of patent quality due to the lower level of multi-country national phase examinations that may be used to justify an assessment of higher quality.

This is a welcome addition to existing research from a respected government agency.  The USPTO will be speaking during a session on empirical research at the forthcoming Berkeley – Tsinghua Transnational IP Litigation Program, along with ktMINE, a database on licensing transactions.  Both speakers may be able to provide further background to the Report at that program.

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