Update on Research on Technology Protectionism and the Chinese Patent System

Prof. Gaétan de Rassenfosse and Dr. Emilio Raiteri (both at EPFL, the Swiss Federal Institute of Technology in Lausanne, Switzerland) have recently offered interesting statistical evidence for preferential treatment of domestic applicants and a potential issue with national treatment in patent applications in China. Their work shows that inventions by foreign firms were less likely to be granted patent protection, after adjusting for a range of other factors. However, their study of more than half a million patent applications reveals that only applications in “strategic” technology areas faced negative discrimination. More precisely, the probability that strategic patent applications by foreign firms will be granted is 5 to 15 percentage points lower than expected in the absence of discrimination.

Strategic technologies were identified using the ‘‘National Medium and Long-Term Program for Science and Technology Development 2006–2020’’ (citation to plan or to my blog) (“MLP”). The MLP, issued by the State Council, seeks to make China an innovation-driven nation by fostering indigenous innovation in selected technologies, including telecommunications, biotechnology and energy. Regarding telecommunications, the authors (with the co-authorship of Rudi Bekker of the Netherlands) find in another article that discrimination against foreigners was particularly strong among standard essential patents, an issue that was recently discussed by Professor de Rassenfosse in a recent webinar.

For background, one useful comparison of the MLP with other macro innovation/industrial policies has been prepared by Prof. Scott Kennedy.

There has been many complaints related to unfair treatment of foreign rights holders in the judicial system, and there has been some recent scholarship and support in analyses of newly launched databases, that suggests that China made significant progress in the area. Some of the sociological studies suggest that larger companies in China (as elsewhere), however, generally fare better in court.

The current paper focuses on consideration of disparate treatment and its causes in the patent system. However, the reason(s) for the effect are unclear and the authors are cautious not to infer that discrimination is intentional. They have ruled out a large number of possible explanations (such as differences in patent quality or in the quality of the translation into Chinese), but they suggest more work is needed to fully understand the source of anti-foreign outcomes for applicants.

The authors are not alone in looking at differential treatment by national patent offices.  Using data on about 50,000 patent applications granted by the USPTO and filed in the years 1990–1995 at the EPO and the JPO, Prof. Elizabeth Webster and colleagues (then at the University of Melbourne, Australia) had found that domestic applicants were more likely than foreign applicants to be granted patent protection, after certain normalizing adjustments. The authors in another paper noted that despite the efforts then subsisting of the trilateral offices (and other supporting efforts under the umbrella of patent harmonization), there is significant disharmony in the patent application outcomes across the trilateral patent offices. For instance, the overall rejection rate for patent applications which have been granted by the USPTO was 25 per cent for the JPO and 5 per cent for the EPO.  Webster and her co-authors note that there are numerous reasons why patent application outcome may vary with priority country status.  In light of recent changes in US practice due to Supreme Court decisions, one may also wonder whether differences in examination in certain areas, such as software-enabled inventions and biotechnology can also skew results in favor or local companies who have more up to the date information, are focused on the domestic market and may even have attracted capital upon the expectation of a local patent grant.

The papers on Chinese patent applications however are notable in that they (a) utilized a larger cohort of patent applications, (b) made comparisons in treatment by one office (SIPO) and (c) analyzed such treatment in light of articulated national industrial policies, and in comparison to treatment where no such national industrial policy is implicated.   The papers may suggest that political pressure, when it exists in China, may be more likely where there are clear national interests at stake rather in any matter in which a foreigner is involved.  Indeed, litigation data suggests that foreigners do well in Chinese courts; there is limited research on litigation outcomes when the subject is a matter of an articulated national industrial policy, such as these studies might suggest.

Written by Gaetan de Rasenfosse, edited by Mark Cohen.

The views expressed herein are the author’s own.

Forthcoming Webinar on Developments in SEP Prosecution and Injunctive Relief in China

The Federal Circuit Bar Association and USPTO announced on July 17, 2017 that they are hosting a webinar on the latest research and developments in standards essential patents (SEPs) in China on July 25, 2017 from 9:00 to 11:30 AM, EST.  The draft agenda and suggested reading materials are available via the link here.  Registration is free and is required to participate in the program.  Some of the speakers will also be discussing live at USPTO, for which registration is also required.  The focus of the program is on developments and research in patent prosecution and injunctive relief for SEPs.

False Friends (形似神异): Comparing US and Chinese Administrative Patent Enforcement

The China Patents and Trademarks journal has now made publicly available the article I wrote late last year with former USPTO Director David Kappos and former Chief Judge Randall Rader (ret.)  “Faux Amis: China-US Administrative Enforcement Comparison”, in both  English, and Chinese (形似神异:中美专利行政执法制度对比).  Kevin Lu 吕行 of USPTO also assisted in researching the article.

The article discusses the differences between administrative enforcement of patents in the United States International Trade Commission (Section 337) and by SIPO in China and notes that the comparisons of China’s administrative patent system to the USITC system are misleading, as the two systems are different both qualitatively and quantitatively. 

The opinions in the article are of course strictly the authors’ own.

A Taste of China IP In The New Year

There continue to be various thrusts and feints in these early days of the Trump administration on Chinese IP related matters.  Here’s  a quick rundown.

Tim Trainer, a friend and former colleague, who is also the President of Global IP Strategy Ctr, P.C. & Galaxy Systems, Inc. has  drawn attention to several China IP-related developments including a Trump executive order that involved IP theft, a bill introduced by Congressman Steve King of Iowa that targets China’s theft of intellectual property (February 14, 2017), and the effect of TPP withdrawal on China’s free trade agenda.

The Executive Order notes the following:

It shall be the policy of the executive branch to:

(a) strengthen enforcement of Federal law in order to thwart transnational criminal organizations and subsidiary organizations, including criminal gangs, cartels, racketeering organizations, and other groups engaged in illicit activities that present a threat to public safety and national security and that are related to, for example:

(ii)  corruption, cybercrime, fraud, financial crimes, and intellectual-property theft . . . .

This order from February 9 clearly puts IP theft on the radar.  While China is not singled out by name, it is worth reflecting that the term “theft” appears 7 times in the text of Dr. Peter Navarro’s book Death By China.  Of these seven times, “intellectual property theft”  appears  twice, and technology theft appears three times.  The term “intellectual property theft” is specifically indexed. Navarro, of course, is a leading advisor to the President on trade policy.

Continuing the theme of IP theft, Congressman King’s bill would, according to Trainer “require the imposition of duties on Chinese origin goods in an amount equal to the estimated losses from IPR violations suffered by US companies if enacted into law.”  This early stage bill is found here

Regarding TPP withdrawal and its effect on IP and China China’s Regional Comprehensive Economic Partnership agreements,   a recent Congressional Research Service report has noted that the RCEP agreements are “unlikely to include commitments as strong on issues from intellectual property rights to labor and environmental protections”.  As I have previously noted, “China’s  FTA  experience has thus far focused on a limited range of issues, most of which are not ‘core’ IP.”

Apart from Tim Trainer’s blog, the media has also reported extensively recently on several trademark decisions in China in President Trump’s favor.   However, China’s trademark examination standards contain provisions that prohibit use of the names of political leaders.   Moreover, unlike most other presidents, Trump was not a political leader until he was elected president.  The Chinese trademark examination standards prohibit trademarks that hurt social morality or have other ill political effects.  Amongst the enumerated bad political effects are trademarks that are identical or similar to a country, region or international organization’s leader’s name.

九、有害于社会主义道德风尚的或者有其他不良影响

二)具有政治上不良影响的

1.与国家、地区或者政治性国际组织领导人姓名相同或近似的

Postscript February 20, 2017:

While  I have no opinion on the merits of any case, I hasten to note that the great grandson of Teddy Roosevelt, Tweed Roosevelt, might have an opinion on whether rooseveltpolitical officials should be granted trademarks.  His company, Roosevelt, Tse and Company, owns several trademarks, many of which involve his eponymous restaurant in Shanghai, and some of which include the family crest (see below).   He also seems to have been the victim of some individuals filing using the family name.

Living political leaders have also had their names misused.  Three trademarks applications with the name of Barack Obama in 2008 by a company in Wuhan, China were refused registration by 2010.  There are several trademarks and trademark applications of varying status with the name Merkel.   A quick database search also showed up 7 applications with the Reagan name in English, one granted as recently as 2015 (Registration Number: 13981276) (for electrical goods).  There is one registration for Fidel Castro for use on travel bags, filed  by a natural person in Hebei 于锁群 (6792546).   Did Fidel authorize this?

Of course, trademarks are not only the names of people.  Several marks “In God We Trust” have been refused by the Chinese Trademark Office.  One is still pending (21508789).  It was filed by a company from Zhejiang.

A recent Washington Post article,  noted that China is a country where “faking foreign brands has long been a profitable business practice.”  The article refers back to the Qiaodan case as one important milestone in changing practices.  As any reader of this blog knows, there have been several important steps in recent years to address  abusive trademark practices. 

tweedroose

2017 Opens with More Positive Trademark Developments

The SAIC has announced that it has  amended its TM review and examination standards (“Trademark Review and Examination Standards”).  The revised standards, with a date of December 2016, are available here. The revisions incorporate revisions to Articles 19, 50, 15.2, 1and 10 of the Trademark Law.

In addition, the Supreme People’s Court published a judicial interpretation on Certain Issues Related to Trials of Administrative Cases Involving the Grant and Confirmation of Trademark Rights 最高人民法院关于审理商标授权确权行政案件若干问题的规定.  A public comment draft of the JI was circulated as early as 2014; the final version was released at a press conference on January 11, 2017.   The JI clarifies the application of “adverse influence” in Article 10(1)8 and “other improper means” in Article 44(1) of trademark law and provides details on prior rights of Article 32  including copyright, naming right, trade name,  amongst other provisions.   The Financial Times has suggested that the JI is linked to the Qiaodan case , although as the Chinese media as noted, Qiaodan may also be seen as one of a series of cases providing more expansive relief against abusive registrations and recognizing more extensive related rights, such as naming rights and even merchandising rights.  In an unrelated development, the SPC on January 7, 2017 listed the Qiaodan case  as one of the top 10 civil and administrative cases for 2016.

 The 2016 JCCT obligated China to “take further efforts to address bad faith trademark filings”, according to the recently released Joint Fact Sheet. The amended examination guidleines, JI, and related case developments, including the development of case law in IP,  should help implement this commitment. 

Beijing IP Court Awards 50,000,000 RMB in Patent Damages

Continuing the trends in higher damage awards that rely less on statutory damages and more on actual damages, the Beijing IP Court on December 8 awarded damages of 50,000,000 RMB in favor of the holder of a “USB Key” patent  According to deputy chief judge Chen Jingchuan 陈景, this is the highest damage award of the court to date.  The damages included 49 million RMB in civil compensation plus 1 million RMB in legal fees. The case is Watchdata vs Hengbao (北京握奇数据系统有限公司 vs 恒宝股份有限公司), two Chinese domestic companies, for patent number ZL200510105502.1.  The plaintiff is a Beijing-based company involved in digital authentication and transaction security.

The patent in suit relates to USBkeys distributed by banks to customers for security. The court found infringement of both its product claims on a USBkey itself and its method claims for authentication when users perform an online money transfer.  The damages were based on a calculation of defendant’s sales and profit for patented products.  In addition, when three of the fifteen  infringing banks and the defendant refused to provide evidence of their sales, the court used evidence provided by the plaintiff. The basis for the court’s reliance on this evidence was  a judicial interpretation on refusals to supply evidence (My guess: 《最高人民法院关于民事诉讼证据的若干规定》 (20011221) article75 第七十五条 有证据证明一方当事人持有证据无正当理由桓不提供,如果对方当事人主张该证据的内容不利于证据持有人,可以推定该主张成立。)

Commentators have also noted that this may be the first time that the court has awarded legal fees to a prevailing party based on the time spent on the matter, which is also positive news for prevailing parties in Chinese commercial litigation.  

Update January 24, 2017: Here’s another useful blog from the comparative patent remedies blog from Yijun Ge, a student of both Prof. Cotter and Fordham.  This blog goes into greater detail on the methodology for calculating damages.

China Passes the One Million Patent Milestone — Is it Yesterday’s News?

patentfilingchart

Several news outlets have reported on the recent WIPO World Intellectual Property Indicators 2016 report on IP filings, noting that China’s surpassing a milestone of one million patent applications in 2015, and that this may, according to WIPO reflect “’extraordinary’ levels of innovation.”

There are two significant problems with the reporting.

The first is that the news of one million invention patent filings is about one year old.  SIPO publishes its patent filing data on a monthly basis, which is available to all, at no cost.  The chart at the top of this blog is from the SIPO website statistics web page  as of November 27, 2016 and covers patent filings through the end of September 2016.  In other words, the news about China surpassing the one million benchmark was probably available sometime in the first quarter of 2016 – making it hardly news.

The second point though is the more troubling one:   Bigness does not mean “strength”, as China has itself noted in State Council documents.  Moreover, bigness does not necessarily mean innovation.

Let’s tease apart five of the hidden data of what the WIPO:

  1. WIPO Contradicts Itself on China’s efforts to Innovate: Some studies show China lags considerably on its efforts to innovate.  While WIPO’s Francis Gurry notes that “Innovators in China powered global patent applications to a new record in 2015”  another WIPO-commissioned Global Innovation Index looking at a broader range of factors, suggested that China is number 25 in global innovation, and number 72nd in technology payments, despite holding a top position in high tech exports.  The data suggests that what is made in China is disproportionately not innovated in China.  Indeed some would argue that the large overhang of unexamined utility model and design patents in particular is making it more difficult to innovate, by making it difficult to conduct freedom to operate analyses in China’s market.
  2. The Rising Tide Is Not Raising All Boats: China’s rapid increase in patent filings are overwhelmingly from Chinese domestic filers only. For example, according to the more up to date SIPO data above only 10.6 % of the invention patents filed through end of September 2016 were from foreign filers.  For design and utility model patents, the foreign numbers are even lower: about 3% for designs and about 1% for UMP’s.   Possible reason: subsidies for domestic patent filings may be more generally available than subsidies or other incentives to file overseas.
  3. China’s Patent Tide Stops at its Boundary Waters: China is not a major international filer. As the WIPO report notes:  “around 96% of total applications from China are filed in China and only 4% of the total are filed abroad. In contrast, filings abroad constitute around 45% of the total in the case of applicants from Japan and the U.S.”  As I have detailed elsewhere, when China does file overseas – such as at the USPTO – the quality of the patents is high.  However these overseas-filed patents still are a limited cohort of China’s domestic filings, even if it may represent its most innovative and high quality patents.
  4. China Is A Big IP Country, But Not Necessarily A Strong One = Particularly When Other Comparative Data is Introduced.     When patents per capita or patents per unit of GDP are compared or patents in force are calculated, China does not come out on top.  Japan, Korea, Switzerland,  the United States and other countries all have their strengths when comparative data is introduced. In fact, the United States has 2.5 million patents in fact, and China is behind Japan in the number three slot (1.4 million patents in force), despite the rapid growing number of its invention patent applications.
  5. Is China “Pulling out the Stalks to Make the Plants Grow”: A system that is overly geared to easy metrics? No less dramatic than the 1,000,000 patent benchmark are the areas where China so outstrips other countries as to suggest that there may be fundamental problems in the value proposition of its IP system. China’s 1.1 million utility model applications are about 127 times second-ranked Germany’s (chart A55).   China’s design patents constituted nearly 94% of global filings (p. 127)   The data suggests that China is indeed strongest where the government can most actively support registration activity.  Quantitative data also works to the disfavor of economies that have strong pharma sectors, which are dependent on fewer patents, and industries that rely on proprietary/unpatented technology. This blog has also repeatedly reported on both these SIPO filing data, and some of the distortions that have accompanied this dramatic ramp-up in patent filings, including  subsidies, “get out of jail” free subsidies, and end of year acceleration in patent filings to take advantage of incentives.   These incentives have helped increase patent quantity, but their impact on quality is harder to measure.

Summary: Judging the extent to which China’s rapidly evolving system is contributing to China and global innovation requires more careful thought than simply looking at the explosive growth in China’s IP filings.  In addition to the problems noted, it also requires looking at other data such as commercialization, citation rates, relationship to manufacturing and exports, licensing and assignment rates, adoption by standards setting organizations, etc. Nonetheless, the quantitative curve is obvious and impressive (see below).  patentofficetrends