China’s government is highly concerned with increasing the country’s innovativeness and transforming China into an innovative nation by 2020 and, furthermore, a world leader in science and technology by 2050 (Serger/Breidne 2007). Consequently, the current Science & Technology Development Plan (STDP) identifies the creation of indigenous innovation as imperative to advance China’s innovation capacity and thus secure the country’s future economic growth. The emerging patent system plays an important role in the overall process. However, the standardized design of the patent system does not come without criticism. Further, patent laws that work well in developed countries can show detrimental effects in developing countries, where strong patent laws are only beneficial if they encourage technologies that differ from those invented in developed countries. Consequently, the introduction of uniform patent laws across the world, as triggered by TRIPS, may reduce rather than increase variation of innovation among developing and developed countries (Moser 2005). To provide a more thorough understanding of the emerging Chinese patent sytem, in the following I briefly summarize advances in the Chinese patent system – from its origins until today.
After the first patent law was enacted in 1984, three sets of amendments were carried out in the years 1992, 2000 and 2009. While the first round was a response to foreign pressure to improve patent protection, and the second round was required by China’s WTO commitments, the third round was driven by China’s ambition to increase clarity of its patent law and the enforceability of judicial and administrative decisions on the one hand, and to secure China’s interests in terms of national security issues on the other. The final result is a Chinese patent system which moves closer to the system of the European countries, and to a lesser extent the United States, but still keeps some characteristics of its own.
Patent Regulations before 1984
There is no strong historical record for granting of patents before the founding of the People’s Republic of China in 1949. Patent-like privileges were granted for certain industries in the early Han dynasty (206 BC – 8 AD). The term “patent” appeared in the 19th century for the first time and was called zhuanli (exclusive benefit). In 1898 the first patent rules were enacted by emperor Guangxu of the Qing dynasty. After the downfall of Imperial China patent rules were enacted by the Republican Government and the Guomindang, but only became relevant in application as the first patent acts of Taiwan (Ganea/Pattloch 2005).
In 1950 new interim regulations concerning the grand of rights over inventions and patent rights were enacted. The regulations introduced a dual-track system in which inventor’s certificates and exclusive patent rights could be granted. In case the invention resulted from occupational duties at a state-owned organization or was of significant public interest, only an inventor’s certificate was granted to the inventor while the patent remained with the employing organization. However, the practical significance of the rules was marginal. No more than four patents and six inventor’s certificates were granted between 1950 and 1963. In 1963 the regulations concerning awards for inventions and the regulations concerning awards for technical improvement proposals were initiated. These regulations permitted free use of all results of innovative endeavor. Finally, all rules and intellectual property rights became obsolete during the years of the Cultural Revolution. Thus, the importance of patents continuously diminished until 1984 (Ganea/Pattloch 2005).
The Patent Act of 1984 and Subsequent Amendments
China’s economic transformation process from a command- towards a market-driven economy has been initiated in 1978. Already during the early years it had been accompanied by the promulgation of several laws, most essential the Trademark Law in 1982, the Patent Law in 1984, the Technology Contract Law in 1987 and the Copyright Law in 1990 (Mu 2010). In the following the development of the patent law is briefly summarized. Supported by the World Intellectual Property Organization (WIPO) and the German government, the first patent law was enacted in 1984 (Ganea/Pattloch 2005). The Patent Act of 1984 contained all basic elements of a modern patent system (Yang 2008). Based on the first-to-file principle, inventions are protected by so-called innovation patents, China’s patent type for protecting technological inventions. Additionally, the Chinese patent system allows filing of utility models and design patents. However, several relicts of the command economy remained within the first act, together with a generally weaker protection standard.
During the three subsequent amendments, most of the relicts were altered. The amendment of 1992 introduced a general replacement of holdership by ownership patents and an extension from 15 to 20 years of protection as well as a broadening of the scope of patentable inventions. In 1994, China joined the Patent Cooperation Treaty (PCT) and the Chinese patent office became qualified to receive and process international patent application (McGregor 2010). However, according to Article 14 of the Patent Law of the PRC, the conditional approval of the State Council still granted the government the right to exploit inventions belonging to any state-owned enterprise, institution, Chinese individual or entity under collective ownership, if considered of great significance to the interest of the state or to the public interest (Patent Law of the PRC 2000).
The amendment of 2001 was required by China’s WTO obligations. Important adjustments were the adoption of the Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement and the harmonization of China’s patent system with international standards. The new standards implemented by TRIPS requirements included, first, standards to compute statutory damages and, second, guarantee that state and non-state enterprises enjoy equal treatment in obtaining patent rights (Hu 2009). After an adjustment period China’s patent system is regarded as basically consistent with the TRIPS requirements.
Latest Amendment of Patent Law in 2009
The latest amendment of the patent law took effect in 2009. The focus is on increased transparency for judicial interpretation and subsequent enforcement of judicial and administrative decisions (OECD 2007). The applicability of Article 14 of the Patent Law of the PRC was reduced to state-owned entities (Patent Law of the PRC 2008). Additionally, a number of other revisions were made. Previous versions of the patent law required Chinese applicants and foreign-invested companies registered in China to file an application in China, in case the invention had been completed in China, before filing in another country. Provided that the invention was completed in China, the new version of the law requires no longer first filing in China, but requires that Chinese and foreign applicants report to the State Intellectual Property Office (SIPO) for a confidentiality examination before any foreign patent filing takes place.
This also applies to PCT filings with a foreign receiving office. If the applicant submits a PCT application to SIPO, the patent office treats the submission as a request to file a patent application abroad (Clark et al. 2010). The stated goal of the confidentiality examination is to protect China’s national security and the interest of the public (Clark et al. 2010). If SIPO believes that the application for a patent or utility model involves content related to state security or any major interest, it can decide that the underlying invention has to be kept secret. If the applicant does not receive a notification four month after applying for the confidentially examination the entity is allowed to file applications abroad. In case of notification, SIPO has to decide to keep the invention secret within six months after submitting the request (General Introduction to the Third Revision of the Patent Law of the PRC 2010). In case SIPO decides that no secrecy is required, the applicant can still file an application with foreign patent offices within a one-year period after the priority application in China. However, if the applicant does opt for a priority filing within legislation the application process is possibly delayed by a maximum of 10 months. This regulation is likely to affect the applicant’s behavior. If an applicant aspires to obtain an early priority date and plans to apply with patent offices of other countries, the applicant presumably considers a PCT application with China being the receiving office.
Another fundamental change is the re-interpretation of prior art which automatically translates into an enhancement of the threshold of patentability. Previously, prior art was limited to what has been regarded as “known in China”. The new reading establishes an “absolute novelty” requirement, in line with the European Patent Convention. The new law also specifies a range of circumstances under which SIPO can grant compulsory licenses for an invention after receiving an application from a third party. Compulsory licenses may be granted if the patentee fails to sufficiently practice the following three years after it is granted or four years after application. The implementing regulation specifies that insufficient practice applies to a situation in which the patentee and licensees do not meet domestic demand. Also in the situation in which the patentee’s enforcement of the patent right is deemed a monopolistic conduct a compulsory license can be granted to increase competition in China’s domestic market (Clark et al. 2010). It should be noted that by June 1, 2010, none compulsory license had been granted by Chinese authorities (General Introduction to the Third Revision of the Patent Law of the PRC 2010).
In a broader context, the amendments of the patent law are only one aspect of an overall policy mix which includes tax policies, amendments in the procurement law, and technological standard setting which ultimately aims at improving China’s capacity for creating indigenous innovation. In contrast to a welfare-maximizing approach the overall goals of the STDP are consensual with an increase of the frequency of innovation, the output, and support of own technology standards. Therefore, stronger IPRs and a corresponding development of China’s patent system can help to reach these goals. However, the possible negative effects of these policies can be decreasing social welfare, decreasing productivity, and decreasing indigenous innovation if the development of own standards fails.