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.

100 Priority IP Projects for 2020


What does the recently released CNIPA document listing “100  Projects in 2020  to Deeply implement the National Intellectual Property Strategy to Accelerate the Construction of the Intellectual Property Powerful Country Promotion Plan” (2020年加快建设知识产权强国推进计划提出 100项具体措施) (the “100 Project List”) (May 28, 2020) add to the discussion around where China is headed on IP?

The projects reveal much more than its lengthy, bureaucratic-sounding title might indicate. There are several  themes worth noting:

  1. It is ambitious. It includes doing many things over a short period of time, including reducing patent examination time for “high value” patents to 16 months and trademark examinations to 4 months (Projects 55-56).
  2. China is paying attention to its IP quality vs quantity dilemma. This document calls for ending local subsidies for utility model and design patents, as well as trademark (task 59).  It also discusses problems with incentives that are intended to encourage high quality patenting in universities and research institutions, SOE’s, and major government projects (Projects 3, 4, 5, 12, 55, 60 -61, 66, 77-79, 93, 96-97).
  3. There is increased attention to defense patenting. The word “defense” appears 17 times.  Defense patenting also occupies a greater role than in prior plans of type (Projects 6-10, 25, 80).
  4. Trade secrets as well as improving the criminal IP process play important roles (Projects 24, 44, 49, 51-54).
  5. We can expect some important developments in plant variety protection (Projects 26, 47, 57, 92).
  6. There is no attention to innovative pharma IP challenges. There are tasks related to generic medicines and traditional Chinese medicine (Projects 38, 73).  Patent linkage does not appear in this list of tasks.  These omissions could suggest a lack of CNIPA commitment to Phase 1 pharmaceutical IP reforms.
  7. There is a big focus on improving IP-related services (Projects 1, 2, 62, 72, 74, 77, 86).
  8. China reiterates its commitment to plurilateral IP policy (Projects 82, 87).
  9. The drafters are committed to the  Phase 1 Agreement.  China is also doing a lot more on IP than what the Phase 1 Agreement requires (Projects 24, 49, 51, 83, 87, and others).

The word cloud above is drawn from a machine translation of the 100 Project List.

Further background: I have been blogging about China’s national IP plans for years now, including in  2014,  2015 , 2016 as well as in my discussions on the National IP Strategy.  Readers may wish to compare this document with some of the prior strategy documents.


The Good Faith Elephant in the IP Trade War


It is impossible to talk about structural issues in China’s IP regime and its impact upon foreigners without addressing the lack of a comprehensive approach to “bad faith” activities in all its forms in China.  This issue has likely undermined more of  the credibility of the Chinese government than any other in IP, and it has affected the greatest number of US companies.  Chinese officials may not realize it, but every medium to large sized company I have met in the US has been affected by it.

Any lawyer who has counseled a US company on doing business in China knows the drill: before you enter the market there are likely to be trademark squatters, bad faith patent registrants, difficulties in protecting trade secrets used by trusted employees, amongst others.  Even the President has been a victim with squatting on the Trump mark.

China has generated its own vocabulary around bad faith activity.   “IP theft”, a term that has been promoted by the Trump administration, reflects an overarching concern about Chinese tolerance of state-sponsored or willful infringement.  Another similar concept is “forced technology transfer.”  The history of these terms goes back decades.   “Patent hijacking” refers to behavior before 2008 of misappropriating designs and other inventions based on China not requiring absolute novelty as a condition for patent grants.   A “Naked Bolar” regime refers to a regime which grants an exemption from certain forms of patent infringement without providing a counterpart benefit to an innovator for the erosion of its patent rights (this may be corrected in the proposed patent law revisions).  “Ambush marketing” and “trademark squatting” may  not be new to China, but China remains a focus of these concerns.  China also has some vocabulary of its own which often do not make it into English, such as  “旁名牌” (saddling along famous brands) and patent “cockroaches” (instead of patent trolls).

China has also created global precedent over willful (bad faith) behavior in DS/362, the WTO case involving China’s criminal IP enforcement regime.  As the WTO panel indicated in that case:

“[T]he word “wilful” … precedes the words “trademark counterfeiting or copyright piracy”. This word functions as a qualifier indicating that trademark counterfeiting or copyright piracy is not subject to the obligation in the first sentence of Article 61 unless it is “wilful”. This word, focussing on the infringer’s intent, reflects the criminal nature of the enforcement procedures at issue.”

Good faith may be an underperforming concept in China, but it is also a low-hanging fruit for trade negotiators. It is in Article 4 of the General Principles of the Civil Code as well as Article 6 of the Contract Law.  It was incorporated into Article 7 of the revised Chinese Trademark law.  The Supreme People’s Court recently found that warehousing trademarks without intent to use is a basis for invalidating marks, albeit not under Article 7.  It is part of the Guangdong High Court Rules on SEP disputes in telecommunications (good faith in negotiations).  It is also part of the guidance from the Beijing High Court for handling of patent validity matters.

The problem isn’t that good faith doesn’t exist in China’s IP regime, but that it is selectively applied.  In addition to the examples already cited, it is under consideration in the proposed Patent Law revisions in terms but only for good faith litigation, and it is an underlying concept in punitive damage provisions in the Trademark Law and the proposed Patent Law Revision. The concept has not yet appeared in substantive copyright or trade secret law.  Companies like Taobao are using a determination of “good faith” in facilitating take-downs

Selective application of “good faith” concepts is evident from its inconsistent application across various IP laws.  Why must trademarks be prosecuted in good faith, but not patents? Why is bad faith patent litigation a concern in the proposed patent law revisions, but why not trademark, trade secret, copyright or other IP-related litigation? The concept needs to be utilized to address such difficult issues as the epidemic of low quality patents and bad faith trademarks.  It should not be used to resolve other, easier challenges such as extracting more rents from foreigners in patent litigation as in the Guangdong rules on SEP disputes.  In fact China back-slid in applying good faith concepts while this trade war was brewing.  The removal of “employee” as a covered party (经营者) in China’s revised trade secret law (Anti Unfair Competition Law) facilitates bad-faith employee behavior.

Adjudicating what constitutes good faith need not involve inquiries into subjective attitudes.  Courts and agencies can rely on objective indicia from China’s data-rich environment: companies that file multiple trademarks that they don’t use  them; trademark registrations than use others’ prior rights; on-line merchants  that routinely infringe IP rights; serial violators of injunctions; patents that are routinely invalidated and/or filed based on others’ designs; comprehensive data that shows foreigners that are being treated fairly drawn from China’s new judicial databases;  willful violators of non-compete agreements, and others.

Bringing good faith into full play would be a triple win: good for China’s IP system, good for US rights holders, and good to help re-establish trust between China and other countries.  Trade negotiators may wish to consider it being a part of any “structural” commitment from China in the current trade dispute  It can be implemented by China’s National People’s Congress as a legislative interpretation or as an amendment to China’s civil law, and in specific laws now under consideration (patent law, copyright law).  The SPC at an appropriate time might prepare a judicial interpretation articulating its application in specific circumstances.  It also has the added advantage of being easily monitored, as data analytics can be harnessed to determined if real progress is being made in a wide range of areas.

It is time to bring good faith more directly into China’s IP system.