Patent Incentives in China - A Changing Focus

Like many countries China provides support for its innovative sector. As part of the wider ‘Made in China 2025’ policy to move China’s economy from a manufacturing to an innovation base, this has included direct financial incentives to file for patent protection locally and internationally. Perhaps unsurprisingly, Chinese companies have caught on quickly.

Like many countries, China provides support for its innovative sector. This support has been provided in a variety of forms, from financial to legislative, and includes direct financial
incentives to file for patent protection. This forms part of the wider Made in China 2025 (MiC2015) policy to move China’s economy from a manufacturing base to an innovation base in 10 years. To achieve this, a fundamental change to the way businesses were run was needed. It was not enough to have access to foreign technology, the businesses needed to want to innovate. Part of that process involved understanding and using the patent systems that were in place to promote innovation. To assist this, Chinese companies were provided with incentives to use those systems. This included the direct financial incentives to file for patent protection locally and internationally.

Chinese companies caught onquickly. In 2017 CNIPA received a total of 1,381,594 patent applications (invention/design/utility model). Of these, 1,245,709 were from Chinese applicants (90.2%). WIPO reported that in 2018 China filed 53,345 PCT applications (second only to the US at 56,142). To put this in some perspective, in 2007 China only filed 5,470 PCT applications. However you read the numbers, there is no doubt that Chinese companies have learnt to use the patent system. From China’s MiC2025 perspective, the provision of incentives has been a success. It may not have been efficient, but it has been effective.

Part of the inefficiency of any incentive system is the potential for it to be abused. This has undoubtedly happened in China, but it has probably been accepted as a necessary risk of promoting a wider use and understanding of the patent system. The open nature of the incentives and the acceptance of those risks involved have now both changed.

 

Part of the inefficiency of any incentive system is the potential for it to be abused. This has undoubtedly happened in China, but it has probably been accepted as a necessary risk of promoting a wider use and understanding of the patent system.

SIPO (now CNIPA) issued a Notice in September 2018 which directly addressed this issue (http://www.ipraction.gov.cn/article/xxgk/difang/difangfg/201809/20180900200354.shtml)

This Notice starts by noting that the 19th National Congress of the Communist Party of China had pointed out that China’s economy had shifted from a highspeed growth stage to a high-quality development stage and in line with that said:
• Only granted patents will be funded
• The total amount of funding received by the patent grant recipient shall not be higher than
the official fees and the total patent agency fees actually incurred.
• Funding for patent agency fees will only be provided for fees from agents with patent agency qualifications.
• Repeated or multi-level access to subsidies is not allowed.
• Patent agencies and applicants who file abnormal applications will be dealt with seriously.

The clarification of funding of patent applications is clearly intended to ensure that excessive subsidies are not able to be accessed. The potential for sanctions has appeared before in documents of this type. This time the combination of clarification and sanction has been linked to the move to China’s high-quality development stage and the option for sanctions has been acted on.

In March 2019, CNIPA published a list of patent agencies that had been sanctioned
(http://114.247.84.107:8080/ogic/view/index.jhtml) for their involvement in filing abnormal applications. Filing practices included:
• Filing 126 patent applications between November 2017 and March 2018 of which 74 applications were clearly the same
• Filing 75 apparently identical patent applications between April 2017 – July 2018
• Filing 88 patent applications for simple replacement of different parts in IoT cases on
September 20, 2017
• Filing 123 invention patent applications with obvious technical effects from March to May 2018

Some patent agencies had their licences removed, and one agency’s licence was suspended for 12 months. An “Apologize and Rectification Statement”from the agency whose licence was suspended has also been released (http://www.iprchn.com/cipnews/news_content.aspx?newsId=114927). It is clear from the text of this apology statement that Chinese patent agencies will need to be more diligent in ensuring that patent applications are not filed without adequate content review to meet their obligations to CNIPA.
We have also heard of patent applicants being required to undertake a self-examination process for incorrect filing of patent applications. Withdrawal of incorrect applications/patents is being allowed to be made voluntarily and without punishment.

Internationally this change in emphasis will be welcomed. It should result in improved trust in the Chinese patent system and, while FTO searches will still be needed, more certainty around product release. From China’s perspective, the changes reflect a growing confidence in its innovation sector. The quality aspects of the sector are being recognised and will continue
to be supported. Enough businesses in that sector now understand the need to innovate and are using the local and international patent system effectively to benefit from that innovation. China’s ambitions under the MiC2015 policy will benefit as a result.

 

This article was first published in The World Financial Review in June 2019.