Patent Protection and Enforcement in China

by Amy B. Goldsmith
Cleantech Asia Online
1 August 2009

Although 81% of the infringing goods seized by US Customs in 2008 originated in China, China’s membership in the WTO and its accession to TRIPS (Agreement on Trade Related Aspects of Intellectual Property Rights) may indicate that its government understands the need to better protect and enforce intellectual property rights.[i] Chinese companies are raising capital from government and private sources to pursue clean tech. In 2008, Hunan Joyfly New Material raised $4.3 million dollars to develop environmentally friendly materials, and Advanced Battery Technologies received $10 million dollars to fund research into lithium-ion batteries.[ii] These Chinese companies have a strong interest in filing patent applications in China and elsewhere and pursuing infringers, even if those infringers are other Chinese companies. Indeed, China’s Ministry of Commerce proudly relies on a Thomson Reuters report that between 2006 and 2008, US patent applications for solar, wind and marine energy by Chinese-based companies exceeded that of companies originating from the US, Japan and Germany.[iii] However, the statistics are somewhat suspect since they may include inexpensive provisional applications (which must be followed within a year by complete filings).

China is one of the 141 members of the worldwide Patent Cooperation Treaty (“PCT”), and its patent system is similar to that of the Western nations.[iv] Three types of patents are issued in China: design, invention and utility. Design patents protect “any new design relating to the shape, pattern, color or their combination, of a product, which creates an aesthetic feeling and is fit for industrial application.”

Invention patents protect “any new technical solution relating to a product, a process or improvement.” The State Intellectual Property Office (SIPO) reviews applications for formalities and for compliance with novelty, inventiveness and usefulness requirements. The patent term is 20 years from the filing date. Utility patents protect “any new technical solution relating to the shape, the structure, or their combination, of a product which is fit for practical use.” SIPO conducts an investigation to ensure compliance with formalities but there is little analysis of whether novelty is shown; the patent is typically issued 1 year after filing, and the patent term is 10 years from the filing date.

Clean tech filings, for example, those relating to solar, wind, and geothermal energy generation and environmental remediation, are more likely to be made in the “invention” category since these patents are the ones which undergo the more stringent examination and are more commonly the basis for priority filings in other nations (once a patent application is filed by a Chinese-based company in China, the PCT provides that the filing date outside of China is the same as that of the original application; the same priority concept applies if the application is first filed in the US and then in China). It is crucial to note that the invention must be kept secret before filing: if the invention is disclosed anywhere in the world prior to the filing of the application in China, the inventor/owner has lost its rights to file for patent protection in China. Public disclosure is an absolute bar and there are no grace periods. Moreover, it is the one who was first to file the invention who has the rights to it, not the first to invent, and it is very difficult to prove that an invention was stolen.

Many clean tech companies are filing patent applications in China. A few months ago, Worldwide Energy and Manufacturing USA, Inc., a US company which manufactures its solar panel technology via related companies in Shanghai, announced that it had filed eight applications in China[v]. Tairui Windpower Co.,Ltd owns Chinese invention patents related to its wind turbine generators.[vi]

Patent litigation has been increasing steadily in China, with Chinese companies suing each other, and multinationals and Chinese companies on both sides of the cases. Patent owners can bring an infringement action either before an administrative authority or in the Intermediate People’s Court in the geographic area where the infringer maintains a business or where the infringement has occurred. Multinationals typically avoid the infringer’s home court and look for courts in areas where the product has been sold or where the product’s distributors are headquartered. There are 50 intermediate courts throughout China which have been designated for patent cases. Preliminary injunctions can be requested but issuance is very rare. Monetary remedies are limited to an election among the patent owner’s damages, the infringer’s profits, or a reasonable royalty. If the monetary amount in dispute is more than $12 million dollars, then the Higher People’s Court is the proper venue. There is a 2 year statute of limitations from the date of actual or constructive knowledge of the infringement so policing the market is important. Lastly, there is a “prior good faith use” defense.

The procedure in litigation is quite different from civil litigation in the US; there is no “discovery,” where documents are disclosed to the opposing party. The Court can question the witnesses directly, demand production of documents, and conduct inspections. The Court also has the power to seize any evidence of infringement during the proceeding. Since challenges to the validity of the patent are not heard in Court but by SIPO’s reexamination board, in some cases the Court will stay its proceedings pending the reexamination. Stays are more common in design and utility model infringement cases than in invention patent cases. Litigation typically lasts for 2 to 4 years. Since there is no provision for the loser to automatically pay attorney’s fees and costs, these amounts are included within the plaintiff’s damages request. Criminal investigations can also be requested and if allowed, will occur at the same time as the civil suit.

Although enforcement actions are uncommon in comparison with the frequency of patent litigation in the US, some cases have reported results. For instance, Neoplan, a German company, applied for and received a Chinese design patent in 2004 for the design of its Starliner bus which was manufactured and sold in China. A Chinese company, Zhongwei Bus & Coach Group, built buses with the same design as Neoplan’s, and a design patent infringement lawsuit was filed before the Beijing Number 1 Intermediate Court. In January of 2009, the Court held that there was no evidence of independent creation by Zhongwei and awarded damages of 21.16 million RMB ($3 million). This offers some hope to those in the clean tech field that a Chinese patent will protect their inventions in China.

Most scientists believe that global warming won’t be remediated without the development and implementation of clean tech. But there has been speculation that patents may act as a barrier to developing nations’ implementation of the technology if license fees are too high, and that compulsory license provisions will be used to officially ignore patent rights. The Trade Directories General of the European Commission recently commissioned a report entitled “Are IPR a Barrier to the Transfer of Climate Change Technology?” The report concluded that patents are not a barrier for developing nations since clean tech patents are not filed in those nations. With respect to China, the report found that patents were more likely to be a force for domestic innovation and cross-licensing since multinationals and Chinese businesses have been filing clean tech patents.[vii] Although the report’s conclusion is promising, China’s new Patent Law, scheduled to go into effect in October of 2009, contains a compulsory licensing provision which could prove troubling.

Since the implementation of China’s patent law in 1984 and its accession to the WTO and TRIPS twenty years later, the Chinese patent process has steadily become more sophisticated. Clean tech industries will continue to benefit in the future if China continues to recognize that a strong patent prosecution and enforcement system provides more financial and political benefits than counterfeiting and protectionism.

Amy B. Goldsmith is a patent attorney and partner at the New York based law firm of Gottlieb, Rackman and Reisman. She has a specialized background in genetics and is a member of the New York City and American Bar associations. She served as co-managing editor of the Cardozo Arts & Entertainment Law Journal. Ms. Goldsmith is a frequent lecturer on intellectual property topics in various universities in New York City and for Lawline (www.lawline.com).

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