New Proposals on Science and IP Cooperation with China

I previously blogged about several China-oriented proposals released after the November elections here. Three additional proposals have recently been released that involve how the USG engages China on IP and innovation issues.

1.The Day One Project has released a Transition Document for the US Patent and Trademark Office [USPTO].   There are several recommendations that directly or indirectly affect USPTO engagement with China. The recommendations include: establishing a USPTO bureau of economics; developing an interagency China task force on innovation and IP policy where PTO plays an active role; raising the rank of the IP Attaches (which to a degree has already been accomplished);  engaging the new Administration on what PTO’s role should be on China IP policy, including the role of outreach initiatives: and establishing a new Deputy Under Secretary for International Affairs. Note that I contributed to this report.

2.On January 15, 2021, President-elect Biden wrote an appointment letter to his new Science Adviser, Dr. Eric Lander, of the Broad Institute. Paragraph three of that appointment letter sets forth the President’s concerns about science and technological competitiveness with China.  The focus is on American domestic competitiveness. The letter asks Dr. Lander: “How can the United States ensure that it is the world leader in the technologies and industries of the future that will be critical to our economic prosperity and national security, especially in competition with China?”  The letter further notes: “Other countries—especially China—are making unprecedented investments and doing everything in their power to promote the growth of new industries and eclipse America’s scientific and technological leadership. Our future depends on our ability to keep pace with our competitors in the fields that will define the economy of tomorrow. The right strategy for the United States will necessarily differ from that of our competitors, but it will also likely differ from our own past playbook. What is the right level of national investment, and what are the pillars of a national strategy that will rapidly propel both research and development of critical technologies?….” 

This letter does not mention how Dr. Lander could be tasked with more deeply integrating IP, trade, export controls, CFIUS,  visa policies and other areas with our science and competitiveness strategies.  These issues demand a more effective inter-agency  approach.  Nonetheless Lander will bring the rich experience  that the Broad Institute already has in IP and licensing in the US, China and other countries.  This experience can help in engaging the US government in integrating science policy more deeply into trade and IP issues.

3. Ambassadors Earl Anthony Wayne and Shaun Donnelly have recently written an article in The Hill, “Biden’s Trade Policy Needs Effective Commercial Diplomacy.“ The article advocates for an interagency approach to better support US companies overseas, including by advancing greater market access.   Apart from advocating for more diplomatic intervention in technology norms, it does not discuss how commercial diplomacy should advance the ability of US companies to commercialize technology and technology-intensive products.  Technology-related commercial diplomacy involves a more challenging skillset than many other areas. It has long been inadequately staff by the US commercial service, due to its legal and technical complexity, and the lack of familiarity of commercial officers with how deals are done. Without understanding how companies conclude individual deals on genetic editing, video compression technology, or a new plant variety, or how United States universities commercialize their technology overseas, it can be very difficult to understand market barriers that need to be raised “wholesale” in a trade context. Commercial diplomacy on technology is critical to understanding how the US should raise technology concerns. To paraphrase an earlier blog: “Are there any foreign commercial service officers posted overseas that have technology promotion as an export goal? Has the US census changed its antiquated reporting system where it reports technology transfer as exports of ‘industrial processes’– whatever that means… the US [sh]ould at least take steps inside our own government to improve  our knowledge and engagement on these issues.”

The forthcoming Berkeley-Tsinghua Transnational IP Litigation Program is likely to strongly endorse more data-driven approaches to bilateral IP issues, including the use of negotiation and collaboration as diplomatic tools to advance IP protection and mutual understanding.  In addition to the many speakers that will be addressing practical issues, Prof. Zhang Yuejiao (formerly of MofCOM and the WTO Appellate Body) is expected to keynote about the role of trade negotiations and cooperation in promoting IP protection.  Dr. Yang Guohua served as China’s first IP Attaché to the United States and was also part of the pioneering cooperative mechanism between the EU and China.  ktMINE will look at cross-border licensing flows and the impact of the trade war.  Their presentation will be part of a data-oriented panel on the impact of the trade war.  Dean Erwin Chemerinsky of Berkeley Law, a leading constitutional law expert, has expressed concern in a statement filed in the Wechat litigation about the US government being motivated by  “anti-Chinese animus” in its sanctions effort.  Susan Finder and Judge Jeremy Fogel (ret) will also be talking about the steps that courts need to take to make their IP systems more attractive for resolution of international IP disputes.  Judge Fogel has been involved in WIPO projects involving IP judges.  Both of these speakers will likely be addressing the role of enhanced international judicial cooperation.

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.

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.