By Jia Hepeng and Yuan Yue for Intellectual Property Watch
BEIJING – China’s newly revised patent law could create a more favourable environment for foreign companies to do research in the country, though measures are still needed to implement the law more effectively, according to some legal experts. The updated law also strengthens the government’s ability to use compulsory licences to produce patented products without permission and to protect the nation’s genetic resources from piracy.

The Standing Committee of the National People’s Congress – China’s legislature – passed the revision on 27 December. The revision will take effect on 1 October of this year. This is the third amendment of the law, since it debuted 1984.

“The new patent law has made it easier for our clients, enabling them to do more research in China,” said Lewis Ho, consultant to the law firm Simons & Simons’ Shanghai office.

While the previous two revisions, in 1992 and 2000, were aimed mainly at enabling China to absorb foreign technologies and to abide by international rules, the new effort has been focussed on improving independent innovation, Chen Guangjun, director of the standing committee’s science and technology office, told a press conference on the law revision.

The new law adopts the “absolute standard for novelty” principle to authorise patents rather than “relative novelty” stipulated in the previous law texts.

Under “relative novelty,” as long as an invention or technology is new in China, it can be patented in the country. But with the new “absolute” principle, a Chinese patent can only be given to an invention or technology that is totally new worldwide.

Meanwhile, the law encourages Chinese people and firms operating in the country to obtain international patents by deleting the previous stipulation that Chinese citizens or companies must first apply for Chinese patents before they file for foreign patents.

Previously, those filing applications in China could get an international patent through the Patent Cooperation Treaty (PCT) – an international system overseen by the World Intellectual Property Organization that allows patent applicants to obtain multinational patents while filing an application in only one country. Now they also can file under the PCT through other countries like the United States or Europe.

“In the past, even if you can obtained patents authorised by many other countries, the most original one on which they are based is in China and recorded in Chinese,” Ho said. “So if there is a lawsuit in which the patent is involved, it is very inconvenient to deal with. Translation alone could be a problem.”

In addition, he said, in the past, because the foreign patents authorised via the PCT were based on the original Chinese one, toppling the Chinese one could cause all other patents to be invalid. But given the green light, Chinese entities can now obtain more reliable US patents first, so that then all of the PCT patents could be more secure.

Long Road to Implementation?

Although the new regulation could benefit international research-based companies in China, they may not necessarily prompt Chinese filers to apply patents overseas.

China has become the world’s largest producer of internationally indexed engineering papers – which are often close to patentable technologies – but the patents granted in the United States to Chinese entities are only one-eighth of those obtained by South Koreans, according to leading Chinese financial magazine Caijing.

The fact that Chinese people seldom file international patent applications is decided by many factors, including the lack of incentives and particularly their low patent quality, said a patent reviewer at the State Intellectual Property Office (SIPO) who declined to be identified.

He added that the reason some people apply for international patents is simply to obtain government prizes. The government often provides subsidies or tax reductions to companies who have owned international patents as incentives to promote their innovation.

This view is echoed by Lin Xiaodong, director of the patent management office of Peking University Health Centre.

“Because the higher costs of applying for foreign patents, Chinese scientists would rethink the application if their patents do not have markets in foreign countries,” Lin said. Domestically, the effect of a higher patent standard proposed in the new patent law has to be further observed.

It is difficult for a worldwide novelty standard for patent applications to improve patent quality because the reviewers may struggle find evidence on whether a patent has been authorised [correction: should say "widely used"] in other countries, the SIPO reviewer said.

China Gains Compulsory Licensing Strategy

Another significant amendment for the new patent law is the newly added stipulation on mandatory patent licensing [clarification: on patented drugs] – such as for HIV/AIDS drugs in time of public health crisis when lower-priced treatment is needed. In South Africa and Thailand, the compulsory licensing of HIV/AIDS drugs already is an issue for international disputes.

But this is rarely possible in China.

Zhao Chen, a patent reviewer at the State Intellectual Property Office said that previously, China had government rules, but not laws, covering the compulsory licensing. This is the first time the compulsory licensing is written into a law passed by legislature.

Just as in the past, having the rule itself does not mean the Chinese government is likely to use it. “It is more possible that the government will use the new stipulation to negotiate with international pharmaceutical companies on their drug price, rather than directly licensing their drugs,” Zhao said.

Ho agreed, saying that given huge foreign investment in China and the country’s keen desire to absorb more, the government would be highly cautious in using the licensing clause.

Yet another aspect of the new law is stipulated articles to protect genetic resources in China from being pirated.

The new law stipulates that when people apply for patents originating from genetic resources, they should state the source or the patents would not be granted. Previously, there was no article in the patent law concerning this.

Jia Hepeng and Yuan Yue may be reached at info@ip-watch.ch.