China’s Patent vs. Innovation Dilemma

China’s Patent vs. Innovation Dilemma

With a well-deserved reputation for counterfeiting and knockoffs, we have rarely looked to China for innovation and invention. Nevertheless, as an ever-growing giant on the world’s economic stage, China has taken steps to remedy this deficiency. About a year ago, Thomson-Reuters released their second report on the nation’s patent prowess, suggesting that China’s patent will outpace Japan and the United States in 2011, a year earlier than their initial prediction in the first edition of their study in 2008. Although the United States was still the leader in patents by a wide margin in 2010, responsible for over a quarter of all applications, its growth is slowing while China’s is surging. China filed 1.2 million patent applications in 2010, 56% more than the previous year while the number of American applications dropped for the third consecutive year.

Thomson-Reuters’ forecast is supported by the People’s Republic of China State Intellectual Property Office’s National Patent Develop Strategy (2011-2020) (the Strategy), a document that was published November of last year containing tactics to significantly increase the nation’s patent production. The Strategy aims to reach 2 million patent filings per year by 2015 and to double both domestic and overseas applications. The document outlines approaches to achieve this, such as increasing patent examination and approval efficiency by cutting waiting times down to as little as 3 months and doubling patent examiners to 9000, as well as enhancing benefits of utilizing patents and protecting the rights of patent holders by improving patent law and regulations.

The Strategy is certainly ambitious, especially considering that China did not even have a patent law system in place until 1985. Many have noted their skepticism towards this pending patent explosion, expressing concerns that there may be a major quantity versus quality discrepancy.

Firstly, there are three types of patents in China: invention, utility model, and design. Chinese patent law allows double patenting where an applicant is able to simultaneously apply for an invention patent and a utility model patent. The utility model patent, which provides protection for a product’s shape or structure, requires no substantive examination and is typically granted very quickly. In some sense, it acts as a placeholder “mini-patent” before the invention patent, which does involve a potentially lengthy examination, is granted. A utility model patent must be abandoned before the invention patent is granted for the same product. These utility model patents are also often used to protect new ideas applied to pre-existing products. Hence, China’s numbers may have been artificially inflated. Three years ago, a legal expert proclaimed that the standard is so low that “at the moment, you could patent a wheel in China, and get it through”. Since then, amendments have been made to the law in an effort to raise the quality of Chinese patents to meet international standards but we have yet to see evidence of a genuine technical innovation burst.

The second issue with patent quality is the use of state incentives for filing patents,including cash bonuses, residence permits, tenure, fee waivers, substantial tax breaks, and government contracts. These inducements then trickle down companies to its individual employees as well as to the patent office workers who are paid more if they approve more patents. While these strategies technically work to aggressively increase numbers, they are misleading in painting China as an inventive nation. The problem is that these incentives are granted for patents, and not innovation.

The Strategy suggests that China is aware of these concerns, promising to enhance patent quality, as well as “improve examination efficiency and quality”. The approach they appear to be taking is to establish themselves as global patent leaders in numbers first and then gradually refine quality. It is possible that what China will end up with is a mountain of useless patents but some experts believe that China is on the right path to innovation. For example, Chinese technological companies increased their research and development spending by 25-45% in 2009 while American companies made cuts to their budgets.

Nancy (Meng Xiao) Situ is a JD candidate at Osgoode Hall Law School and was enrolled in Professor Mgbeoji’s Patents class in Fall 2011. As part of the course requirements, students are asked to write a blog on a topic of their choice.