China’s Holiday Gift For Foreign Patent Agents and Agencies

In furtherance of the August 20  Notice of the Ministry of Commerce on “Issuing the Overall Plan for Comprehensively Deepening the Innovation and Development of Service Trade” (商务部关于印发全面深化服务贸易创新发展试点总体方案的通知) (商服贸发)〔2020〕(165号), CNIPA issued two notices on December 25, 2020 further liberalizing its IP services market: one notice concerns the eligibility of foreign patent agents with long residence in China to sit for the patent agents qualification exam (外国人参加专利代理师资格考试试点工作实施要点); and a second concerns the eligibility of foreign patent agencies to open offices in China (外国专利代理机构在华设立常驻代表机构试点工作实施要点).   

The first notice permits foreign patent agents to sit for the patent qualification exam in certain trial implementation localities: Beijing (Zhongguancun), Suzhou and Nanjing. The foreign patent agents would additionally need to fulfill four basic qualifications including: complete civil qualifications; a long-term residence permit in China; patent agent qualifications from another country or region; and the ability to use Chinese to take the patent qualifications exam.  The duration of the trial period is three years.  However successful trial periods are often extended and expanded.

According to the second notice, foreign patent agencies are also now permitted in these localities to open representative offices.  Authorized work includes: IP training; IP licensing and assignment; overseas IP investment and “warning” services; and emergency assistance for overseas patent disputes; and counseling on overseas disputes, including mediation services.

These are welcome developments and are small but important steps towards greater market liberalization.  One issue that limits their impact is the differing role of patent agents who are not attorneys in countries throughout the world. For example, USPTO Rules of Ethics and Professionalism, provide that non-attorney patent agents activities may not provide an “opinion of validity of another party’s patent when the client is contemplating litigation and not seeking reexamination” because such activity “could not be reasonably necessary and incident to the preparation and prosecution” of a client’s patent.  The Chinese patent agency rules permit a wider scope of activity, particularly in terms of patent-related litigation emergencies and may authorize a US patent agent to provide more extensive pre-litigation services than in the United States. 

For United States patent agents, the initial impact of this rule is likely to be especially limited.  There are only 46 registered US patent practitioners that list China as their address with the Office of Enrollment and Discipline at USPTO.  This includes eight practitioners who identify themselves as patent agents rather than attorneys.  If they fully qualify, these individuals may wish to sit for the patent agent exam.   These numbers of mainland China-based patent agents enrolled at USPTO is also small in relative terms.  There are 836 Canadian patent lawyers and agents enrolled at the USPTO, 69 from Germany, 50 from Japan, and 47 from Taiwan. 

Another limiting factor is that foreign patent agent offices will be treated as representative offices.  They may be subject to the same disadvantageous tax treatment of foreign law offices who operate as representative offices of their parent office in China, rather than as Chinese-registered legal persons.   With a scope of work limited to advising on foreign patent matters, they may also suffer from the same inequitable treatment as foreign law firms who cannot advise on Chinese legal matters and must require that their China-licensed agents suspended their license while employed at their representative office.  As I have previously noted, the rapidly changing nature of legal practice in China, including the numbers of US-admitted lawyers in Chinese firms, calls into question the scope and fairness of those earlier restrictions imposed on foreign law firms practicing in China.

These efforts may also be construed as part of a gradual liberalization of legal services in China, which included earlier efforts to permit the establishment of joint venture law firms in foreign trade zones.  It also reflects the increasingly international nature of IP practice.  The Chinese government also has openly stated that it intends to increase the global influence of its approach to IP, whether through RCEP or in transnational litigation.  Market liberalization will no doubt assist in China’s efforts to increase its IP influence.   These changes also reflect the priority that China has long placed on the development of IP-related talent and services. 

Professions such as patent and trademark agents had largely escaped the attention of the West as an area of market liberalization in China.  For example, China made no commitment at WTO accession to open up IP-related services apart from general legal services  Patent agents, however, are likely included within the scope of legal services as “legal advisory and representation services in statutory procedures of quasi-judicial tribunals, boards, etc.” (Classification 86120) and may arguably have been subject to the same market liberalization commitments as law firms that China made at WTO accession.   To the extent that patent agency services are liberalized to permit foreigners to sit for the patent qualifications exam, it is also a small sign that other commercial legal services may be liberalized over time.

Patent Data in a Pandemic

CNIPA’s 10-month patent data may be an early indication of how a complex patent regime responds to the pandemic, including the role of China’s utility models in providing an alternative means of patenting with less expense.

Domestic filings of utility model patents (UMPs) increased for the first 10 months at a dramatic 33.6% compared to the same period in 2019.  China’s domestic UMP filings were also more than double its domestic invention patent filings (2,386,837/1,105,860).  By comparison, invention patent filings increased by 12.8%, and design patents increased by 7.4%.   

In contrast to those increases, foreigners applications declined by 4% across all categories between the first 10 minths of 2019 and 2020, after having mostly increased between 2018 and 2019. Foreigners constituted a scant 0.3% of the total UMP applications in China and about 5.1% of invention patents in 2020. At the same time, Chinese applications continue to increase in all areas, thereby further expanding the dominance of Chinese domestic filings in China.

USPTO data for FY 2020 makes for an interesting comparison.  According to a recent report from the Patent Public Advisory Committee, FY 2019 saw a slowdown in the growth of filings relative to FY 2019 to 0.7%, compared to 4.9% for FY 2019. Provisional filings showed an increase to 2.9% from the 2019 baseline of 0.6%  Design filings increased by 4.1% compared to 0.8% in FY 2019.  

Might the increase in provisional filings at the USPTO be analogous to the increase in utility model patents?  Provisionals and UMP’s demand relatively less of the applicant and the examiner.  They are low-cost and they establish a priority date.  A key difference is that a UMP is a valuable patent in its own right, with a 10-year duration, compared to a one year USPTO provisional.  Considering the high absolute number of Chinese UMP applications and their annual increase in the middle of a pandemic, UMP’s may be an efficient mechanism to insure flexibility in patent prosecution strategies and priority of rights. Of course, there is always the possibility that the Chinese filing numbers may have been affected by domestic subsidies or other incentives. Nonetheless the lesson for foreigners seems clear: if foreigners more actively used the UMP system in China, they might also be benefit from more diverse patent options.

There is typically an increase in domestic patenting activity that occurs at year end in China.  Let’s see what the final data shows before reaching any final conclusions.

The Cart Before the Horse in China’s Patent Linkage Regime

Since China’s legislature amended the patent law on October 17, 2020 and China’s National Medical Products Administration (NMPA) and  its National IP Administration (CNIPA) published the Implementation Measures for the Early Resolution Procedures for Drug Patent Disputes (Trial) (Draft for Comment) ( 国家药监局综合司 国家知识产权局办公室公开征求《药品专利纠纷早期解决机制实施办法(试行)(征求意见稿)》意见) (the “Rule”) on September 11, 2020, several people have written to me who are bewildered about the sequence of rules being proposed on patent linkage in advance of the enactment of patent linkage into law.  This post analyzes whether this “cart before the horse” scenario should be a concern for US pharmaceutical companies, and what this counter-intuitive sequencing may suggest for China’s new patent linkage regime.  

This is indeed an unexpected circumstance.  There was no advance word that the Rule was being prepared for public release. CNIPA and NMPA’s parent agency, the State Administration for Market Regulation (SAMR), did not include a patent linkage rule in its 2020 legislative work plan.  CNIPA also had not included a patent linkage rule among its top 100 IP projects for 2020.  However both SAMR and CNIPA did include the more general Implementing Regulations for a revised patent law in their anticipated legislative work for 2020.   By contrast, the Beijing IP Court issued a research report on Patent Linkage (中国药品专利链接制度研究) in late September, which advocated judicial reforms to support a linkage regime.  In addition, the Supreme People’s Court in its 2020 annual plan announced its intention to draft a judicial interpretation (JI) for patent linkage cases.  They have not yet released their draft JI.

This “cart before the horse” Rule may trace part of its origins to the Phase 1 Trade Agreement (January 15, 2020) (the “Agreement”).  The Agreement did not explicitly require that the civil courts play the leading role for patent linkage disputes. The Agreement also failed to establish an “artificial infringement” regime for the Courts to rule that an application for marketing approval of a patent drug constitutes infringement. Instead, it required that China adopt “procedures for judicial or administrative proceedings and expeditious remedies”, and that China “may … provide” administrative remedies for resolution of linkage disputes (Art. 1.11).   In so doing, the Agreement left open the possibility that the administrative agencies would play the dominant role in a patent linkage regime.

More generally, the Agreement also authorized a leading role for administrative IP enforcement in a range of areas with its repeated references to campaign-style administrative enforcement.  The Agreement also did not acknowledge or seek improvements to China’s notable IP-related judicial reforms.   The Agreement was also immediately preceded by an important State Council/Party Central Committee plan that called for strengthening of administrative enforcement (Nov. 24, 2019), and that was considered in its time to be a high-level policy precursor to the Agreement. This policy evolution has also been accompanied by changes to all of China’s major IP laws including the Trademark law, the Patent Law, the Anti-Unfair Competition Law, as well as proposed Copyright Law Amendments, that all further commit China to strengthened administrative enforcement of IP.

CNIPA and NMPA took the next step of securing a key role for their agencies in patent linkage when they drafted and published the Rule.  I use the term “Rule” (規章) or “Departmental Rule” (部門規章) in this blog as a term of art, consistent with China’s Law on Legislation 立法法.  The nomenclature is also consistent with China’s own descriptions of its legal system  upon acceding to the WTO.  A Rule is a legislative document enacted by a departmental agency that is inferior to a Law (法律)that has been passed by the National People’s Congress or  a State Council-enacted Regulation (法規).  As set forth in the hierarchy of the Law on Legislation, it is also inferior to many types of local legislation.  As with other Rules, NMPA/CNIPA does not use the word “rule” in its September 11 pronouncement.  It instead calls its legislation “procedures” (办法). However, do not be misled! The Law on Legislation does not use “Procedures”  as a term to categorize legislation, even if regulatory agencies use this term in their own enactments.  When a Departmental Agency enacts a legislative document it is typically a “Rule” under the Law on Legislation based on the enacting agency and the legislative process. The categorization of legislation is often not immediately clear from its own wording.  Moreover, the legal status can also become murkier if sui generis or inter-agency procedures not otherwise in the Law on Legislation are involved.

In amending the Patent Law, the NPC cemented the leading role of NMPA and CNIPA by declining to legislate on linkage in detail and delegating rule-making authority to these agencies. According to Article 76,  “procedures” (or a “Rule”) will be drafted by NMPA and CNIPA to govern “pharmaceutical approvals and applications for marketing approvals.” Article 76 further requires the “procedures” to be delivered to the State Council for its approval before implementation (国务院药品监督管理部门会同国务院专利行政部门制定药品上市许可审批与药品上市许可申请阶段专利权纠纷解决 接办法,报国务院同意后实施).  By delegating drafting authority to NMPA and CNIPA and legislating that the State Council will be the final arbiter of its contents, the Patent Law has likely placed the NMPA and CNIPA Rule within that murky class of sui generis enactments.   

In its final form the State-Council approved patent linkage Rule is unlikely to be in conflict with any explicit Patent Law Amendment provisions. The State Council approval mechanism also still leaves open the possibility for additional policy interventions that are consistent with the Patent Law.  One important modification that might be considered would be to authorize the Ministry of Justice (MOJ) take a more active role in the drafting of the Rule or craft the Rule as a Regulation promulgated by the State Council itself. Pursuant to the administrative restructuring of March 13, 2018, MOJ is required to perform the legislative functions formerly performed by the Legislative Affairs Office of the State Council  (《第十三届全国人民代表大会第一次会议 关于国务院机构改革方案的决定》,批准《国务院机构改革方案》, which previously prepared Regulations.   

If the State Council were to take a leading role in drafting on patent linkage, past practice would suggest it will ensure that all agencies concerned would have an opportunity to comment.  The agencies would not only include NMPA and CNIPA but could also include the courts, trade, health, science or industrial planning and development agencies, as well as authorities responsible for personnel and budgeting.   A Regulation or sui generis Rule which involves all relevant agencies might also obviate the  failures of a prior linkage rule in 2002 which relied exclusively on administrative rule making.  As the late Prof. Benjamin Liu wryly observed at that time: “the SFDA  [predecessor agency to NMPA] does not always succeed with its gate-keeping function.”  Deputy Director Ding Jianhua of SFDA also succinctly stated the problem:   “SFDA is not responsible for IPR.” [1]

Judicial involvement in this legislation is needed to harmonize the legal complexities of patent linkage which complex issues of patent law, civil law, administrative law, and pharmaceutical regulation.  A lack of judicial involvement confounded the implementation of the 2002 rule.  This 2002 Rule (and subsequent amendments) was further stymied by later legislative changes in the patent law when China added a “Bolar exemption” to exempt pre-marketing approval efforts by generic companies from claims of infringement.  In Prof. Liu’s words, this exemption  “swallowed the rule of patent linkage.”  Bolar exemptions are well-known in international practice, being an exemption from civil infringement claims and are within the purview of the courts.  Overly-broad Bolar exemptions can raise concerns over compliance with TRIPS and other international IP obligations.

China’s vast administrative system must surmount other challenges to lead a patent linkage regime. These challenges include: a lack of administrative enforcement transparency; uncertainty regarding coordination between judicial and administrative enforcement; differing legal appeal routes and standards for litigating infringement which may lead to undermining of one system over another; concern for the systemic impacts on China’s IP regime by relying on administrative interventions rather than the civil system; limited foreign utilization of the patent administrative enforcement system particularly for high value pharmaceutical rights; and the inherent “fox guarding the hen house” fear when the administrative agencies that grant patent rights and marketing authorizations are also tasked with enforcing these important rights. 

Long-term observers may also fret that CNIPA and NMPA are an “odd couple” to administer a linkage regime  Although they are housed in the same mega-agency, SAMR, NMPA in recent years has been a leading advocate for  patent linkage, while  CNIPA had been viewed as less supportive. There are also continuing concerns over CNIPA’s excessive invalidation of pharma patents.

At this stage, the most appropriate corrective to these various challenges would be to leverage the State Council’s authority to take a leadership role in implementing Article 76 of the Patent Law, as well insure that there is conforming language in the Patent Law Implementing Regulations which MOJ will likely be coordinating in the near future.  An effective linkage regime for China will not only need to balance the interests of generics and innovators in China’s linkage regime, but also between the courts and the range of concerned administrative agencies.

Where will China go next at this important juncture on patent linkage?  Berkeley Law will be convening a webinar on China’s patent linkage regime as part of a multi-part series on food and drug law.  I will be joined by He Jing from the GEN law firm, Cui Can from Morrison and Forster, Dr. Karen Guo from Novo Nordisk and Xuejiao Hu from Beigene.  The event will take place on November 17.  Registration information is available here

[1] Benjamin Liu, ”Fighting Poison with Poison? The Chinese Experience with Pharmaceutical Patent Linkage,” 11 J. Marshall Rev. Intell. Prop. L. 623 (2012).

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