Amendment to patent law opens way for scientific innovation

The Third Amendment to China's Patent Law is both an important legislative milestone and a turning point in the development of China's intellectual property (IP) system.

To understand its significance, it also needs to be placed in the context of other equally significant developments in the development of China's economy.

That includes the country's drive to produce more IP intensive products, and its "softer" development in services (such as research and development), culture and intellectual property.

The 15-year Science and Technology Plan (2006) stipulates that China will become an innovative economy by 2020.

The Third Amendment itself seeks to implement the more targeted Outline of the National IP Strategy (2008) regarding the development of China's intellectual property system in general.

The Third Amendment is the first major legislative development, and amendments are expected to the Trademark Law, Law to Counter Unfair Competition (which governs trade secrets) and the Copyright Law.

Other developments discussed in the National IP Strategy - such as the development of intellectual property rights (IPR) tribunals that combine civil, criminal and administrative adjudication - are already being implemented, with Beijing municipality playing an important role.

Civil litigation

Such changes are especially important, as China has emerged as one of the more active jurisdictions in the world for IP civil litigation.

The Third Amendment is also a major turning point for China's IP system.

Other laws, such as the Science Promotion Law (December 2007 revision), anticipate the drafting of the National IP Strategy and place it within a legislative framework.

Most importantly, the Science Promotion Law calls for the developing of "self-reliant innovation" in China.

The siren call of using intellectual property for China's own economic development separates this amendment from other legislative changes in the patent law.

Earlier amendments were intended to spur China's need to open its economy to market offers or to address concerns raised by trading partners, including the demands of World Trade Organization accession in late 2001.

The Third Amendment is focused on China's role in promoting science and is also likely to have a significant global impact as China seeks to recover the leadership it once held in innovation centuries ago.

The compass, fireworks, irrigation systems and traditional Chinese medicine are among the many Chinese innovations.

If the country holding one-fifth of the world's population can innovate in partnership with other countries, it can help address issues such as promoting green technology, ensuring adequate food supplies and fighting epidemic diseases.

China's renewed focus on science and IPR took wing under the dual impact of the leadership of former vice premier Wu Yi, as well as the economic realities of an appreciating renminbi and China's rich scientific human resources, which make China's labor intensive industries increasingly less competitive. The early data on the impacts of all these legislative and policy developments has been dramatic.

China's share of high tech exports continues to grow. Chinese patent filings over the past year alone have increased dramatically.

R&D investments

R&D investment from Chinese and foreign companies is growing, and citations of Chinese scientific research in global scholarly publications are also increasing.

In the next few years, the Chinese patent office is likely to become the largest recipient of patent applications in the world.

China's Huawei emerged as the largest filer in the world of "global" patent cooperation treaty (PCT) patents. As PCT patents are typically filed in multiple local patent offices, they are often viewed as an important indicator of innovation activity.

From a private sector perspective, it appears that more Chinese and foreign companies appear to be engaged in cross-licensing and cooperative research agreements.

Local governments have enacted various science and technology plans and IP strategies of their own and recognize that China's future depends on higher value, intellectual property-intensive sectors.

A recent conference hosted by Guangdong Government highlighted how far down these messages have devolved.

The conference was hosted by the Guangdong government and the US Chamber of Commerce (which my law firm represents) and attended by US Commerce Secretary Gary Locke. The conference highlighted the importance of using innovation and IP systems to revitalize Guangdong's trade-driven economy.

For now, however, the policy implications of the patent law are reasonably clear.

Meanwhile, China has taken steps to reduce the problems posed by unexamined utility model and design patents through procedural safeguards such as encompassing an "offer for sale" of design patent as an infringement, and expanding the definition of "novelty" for patent grants ("absolute novelty").

China also took steps in line with certain other international developments to expand the scope of compulsory licensing for pharmaceutical patents for public health reasons, to support foreign countries needing such products and to require disclosure of genetic resources used in patent applications. Many of these issues are of concern to innovative pharmaceutical companies.

Answering concerns

China also took steps to provide a mechanism for the patent office to support antimonopoly law decisions through compulsory licensing of patents.

For the growing R&D sector, there are concerns about inventor remuneration schemes for employee inventors and newly required "secrecy reviews" prior to applying for a patent overseas.

But there is nearly unanimous approval in the foreign-invested community of the increased transparency of the State Intellectual Property Office, the State Council Legislative Affairs Office, the National People's Congress for the numerous opportunities provided to offer formal comments or informal concerns.

Indeed, Chinese officials last month spent one week in three US cities to explain the impact of the patent law.

Many now are anxiously awaiting passage of the new amendment's Implementing Regulations, which will provide additional details and supersede transitional rules of the State Intellectual Property Office and the Supreme People's Court that went into effect on Oct 1 with the Third Amendment.

Many foreigners hope that Chinese companies and inventors will increasingly see how a patent system that is fairly enforced can help spur creativity and reward innovation.

Most observers believe that in light of China's own interest in developing a higher value manufacturing and R&D sector, additional regulatory steps now being considered will be implemented in a manner to minimize disruption and further spur China on to additional development in its high tech and research sectors to ultimately benefit everybody.

The author is a lawyer for the US law firm Jones Day. The opinions expressed are his own.

(China Daily 12/21/2009 page9)