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.

The End of Year Hook in Administrative Patent Enforcement?

Along with Prof. Zhen Lei of Penn State, I have previously blogged about the late autumn surge in patent filings in China, in 2012, as well as in prior years.  This autumnal hook likely arises in response to subsidies, quotas or other support that must be exhausted before year end.

During a recent visit to China, I had an opportunity to talk about similar trends in patent administrative enforcement.   For the past two years, there appears to be a year-end uptake in patent enforcement:

  Infringement Disputes Other Disputes Patent Passing-off Total
2004 1414 66 1689 3169
2005 1360 132 2409 3901
2006 1227 43 966 2236
2007 986 27 713 1726
2008 986 27 713 1726
2009 937 26 578 1541
2010 1077 18 728 1823
2011 1286 27 1704 3017
2012 2225 268 6512 9005
2013 (mid-year) 1074 129 2633 3836

Here is what it looks like in graph form, with data ending at September 2013, on an annualized basis the totals would be 19,118:

Image

Why has there been such a sudden uptake in year-end administrative enforcement?  One explanation is an end of year rush to accept or resolve cases to show increased efficiency and impact.  On the converse side, the data also shows a significant drop in activity around holiday seasons, especially spring festival in January/February.    These factors may apply across the board to many forms of Chinese government activity.

Looking to policy factors, on June 28, 2011, SIPO announced a special campaign involving patent administrative patent enforcement.   However, the campaign did not immediately result in a significant uptake in administrative actions.

What may be more significant is the  August 2012 publication by SIPO of proposed patent law amendments, which provide for an expansion for administrative enforcement and greater involvement by SIPO with IPR as an instrument for “market order”.  These new policies may have precipitated a major uptake in administrative patent enforcement actions, on the assumption that “if you enforce it, they will legislate it”.  In fact, October 2012 was one period of high rapid increase – with enforcement actions increasing 112% from September 2012, followed by a drop in November 2012.

The rapid increase in patent “passing off” (counterfeit patent) cases similarly may also be timed with the patent law amendments.  The amendments contemplate an increased role for SIPO in policing “market order”. Since such cases may be initiated by self -initiated by parties other than the infringer, they may also be more responsive to policy changes by SIPO.  Local governments, such as Guangzhou, may also offer rewards for reporting these activities.  Moreover, the change in the mix of administrative enforcement actions is striking.  From 2006 to 2011 infringement cases dominated. Now patent passing off cases are approximately twice infringement cases.

There may be other factors contributing to this rapid increase, such as enhanced authority of local enforcement agencies.  In addition newly empowered agencies may now be engaged in rent-seeking behavior, such as by seeking revenue from filing fees. Indeed, Premier Li Keqiang identified excessive fee taking as a potential issue in IP administrative enforcement (http://www.gov.cn/ldhd/2013-11/20/content_2531230.htm).

One comparison that does not appear highly relevant is with overseas trends.  An influential article by Zhao Meisheng of SIPO Management Division Enforcement Administration Department  “An Analysis on the Trend and Reasons That US Government Agencies Strengthen Intellectual Property Rights Enforcement” ( 试析美国政府机构加强知识产权执法的态势与原因 – 赵梅生 (国家知识产权局管理司执法管理处)电子知识产权 (Electronics Intellectual Property) (2013, 4)  suggested that administrative patent enforcement is on the increase globally, including the United States.   Comparing “civil” or “administrative” actions in one country to another is often an “apples to oranges” type comparison, nonetheless, “Section 337” actions in the United States, which involve US administrative procedures, are only a very small fraction of Chinese patent administrative enforcement actions, and have been relatively constant over the past several years.
chart3

The growth in administrative litigation does not seem to be linked either with Chinese domestic IP litigation, which has shown steady growth over the past several years.
chart5

(The preceding was adapted from a presentation I gave at the recent Asia Pacific IP Forum sponsored by Renmin University in Suzhou.  The opinions in this blog are my own).