Beyond Piracy: Managing Patent Risks in the New China

By TAP Guest Blogger

Posted on April 26, 2011


The maturing Chinese patent system was the focus of a conference organized by the Berkeley Center for Law & Technology on March 10, 2011. The conference, entitled “Beyond Piracy: Managing Patent Risks in the New China” brought together experts on Chinese patent law and innovation policy. The Chinese government has recently set goals to increase domestic patent filings and reduce China’s dependency on foreign technology. Speakers at the conference addressed the impact that China’s increased focus on indigenous innovation and building patent portfolios will have on the United States and U.S. corporations in the future.

Sharon Barner, the former deputy director of the United States Patent & Trademark Office, was the conference’s first speaker. Barner said that many corporations that conduct business in China view China’s innovation policies as the largest threat to business, overshadowing China’s lax patent infringement enforcement and widespread counterfeiting. China has begun providing subsidies for indigenous patent filings with the goal of achieving two million patent filings annually by 2015. Many of these patent filings are in the form of utility and design patents, which often are of lower quality than invention patent filings. Innovative companies have complained that along with the flood of worthless patents, China’s innovation policies require foreign companies to transfer valuable intellectual property to Chinese partners in order to gain access to the Chinese market. While Chinese officials deny that foreign companies will be forced to reveal their technologies in the future, the “actual implementation of th[e] policy over the next several years” will reveal the extent to which China will permit foreign technologies to remain outside of Chinese control, Barner argued.

Katherine Linton of the U.S. International Trade Commission (ITC) and Richard Suttmeier, Professor of Political Science, Emeritus, at the University of Oregon, provided further details about China’s indigenous innovation policies regarding  technical standards, government procurement, and tax incentives. Linton discussed the findings of the first of two reports prepared by the ITC for the U.S. Congress that analyze the effect of Chinese policies on U.S corporations. 

China’s changing culture of IP protection includes a new focus on IP enforcement. China has recently made alterations to its IP enforcement laws in order to comply with the World Trade Organization’s TRIPS agreement. Elaine Wu, of the USPTO’s Office of Policy and External Affairs, said that China’s “substantial” alteration of its laws is the “good news” for innovative entities in China. China has significantly improved its patent office and has streamlined the manner in which it processes trademark filings. The Chinese patent office now employs around 5,000 patent examiners who handle over 1.2 million patent applications annually. The “bad news”, according to Wu, is that enforcement of IP in China is “still a problem and it will remain.” Furthermore, the bulk of the patent applications are design and utility models which are not examined. Wu also noted that China wants to double its overseas patent applications. Such an increase would likely have a large impact on the workload of the United States PTO.

Mark Cohen, the director of International Intellectual Property at Microsoft, discussed patent litigation in China involving foreign companies.  He noted that many companies choose to ignore the Chinese intellectual property legal structure, but argued that they do so at their own peril. The number of civil cases that involved intellectual property increased from 43 in 2001 to over 1,300 in 2009. While much of this increase in litigation involves enforcement of domestic Chinese copyrights, Cohen cautioned the practicing attorneys in the audience to take care in the future not to ignore the “complicated” but “increasingly transparent” Chinese IP regime. China now has the most active civil dockets for IP in the world, with patent cases commanding the highest damage awards.

In delivering the keynote address at the conference, Ambassador Charlene Barshefsky picked up on Cohen’s point about IP enforcement. She encouraged U.S. corporations to use a multi-prong approach in protecting their IP in China while managing the risks of being sued.  Barshefsky’s tips for U.S. corporations include vigorously enforcing one’s IP by monitoring competitors and early filing of invalidation actions. Furthermore, Barshefsky encouraged U.S. actors to engage in the Chinese market by investing in Chinese startups, creating joint ventures with Chinese corporations, and purchasing potential competitors. Ultimately, Barshefsky concluded, when it comes to IP enforcement in China, “you don’t get brownie points for being weak.”

Conference summary provided by Jonas Anderson, Microsoft Research Fellow, Berkeley Center for Law & Technology at Berkeley Law School.