By Ram Deshpande

Building an effective system for the protection of Intellectual Property Rights (IPRs) has become essential for China. Consequently, the Chinese government has worked hard to establish a world-class patent-protection system during the past 20 years, and during the past 27 years, China joined the major international IP Organizations and Treaties:

International IP Organizations and Treaties that China has Joined
Year of Joining:
1980 - World Intellectual Property Organization (WIPO)
1985 - Paris Convention for the Protection of Industrial Property
1992 - Berne Convention
1993 - Geneva Convention (Unauthorized Duplication of Phonograms)
1994 - Patent Co-operation Treaty (PCT)
1995 - Budapest Treaty – the International Recognition of the Deposit of Microorganisms for the Purpose of Patent Procedure
1997 - Strasbourg Agreement Concerning the International Patent Classification
1996 - Locarno Agreement Establishing an International Classification of Industrial Designs
2001 - The Trade Related Aspects of Intellectual Property Rights (TRIPS) Agreement of the WTO

The Patent Law took effect in 1985 but was subsequently amended in 1992 and again in 2000. The objectives of these amendments were to ensure that the Chinese Patent Law was made consistent with international practices and to support economic development in China. A third revision of the patent law took place in 2006. The main purpose of this revision was to propose amendments to improve the mechanism of examining 10-year patent and design applications, and to weed out “junk” patents, i.e. by making patentability requirements for design patents stricter and better define novelty and inventiveness criteria.

The changes proposed in 2006 are likely to be implemented in 2008, i.e., eight years after the previous amendment in 2000.

Level Playing Field for Foreign Companies

The Chint Group versus Schneider Electric case received a great deal of attention, probably because of the unprecedented compensatory damages that were awarded. In fact, such suits relating to patent infringement have been on the rise in China. In 2005, local courts across the country accepted 2,947 civil cases related to patent rights, which is a 15.6 percent increase over the previous year. In comparison, US courts received a total of 2,973 cases in 2004 and the number fell to 2,812 in 2006. Similarly, a total of 13,424 intellectual property disputes (including disputes relating to patents, trademarks, copyrights and other forms of intellectual property) were filed with Chinese courts in 2005, whereas only 10,905 cases were filed in the United States. Does this mean that China is more litigious than the US? If the answer is no, it definitely looks like China is getting there.

The reasons for this increase in patent litigation can only be speculated. One major driving factor seems to be the general level of awareness of IP issues in China, which has partly been fueled by the aggressive enforcement of patents by multinational companies.

Cases involving international companies have increased in China. For example, the number of cases where at least one of the parties was a non-Chinese company reached 268 in 2005. This is an increase of 77.5 percent over the previous year. If The Chint Group versus Schneider Electric case were to be reviewed in isolation, it might seem that it is harder for foreign companies to win in patent litigations. However, according to the records of the No.1 Intermediate Court of Beijing, foreign parties won 60 percent of the cases, thereby demonstrating that foreign firms seem to have a level playing field. These are some examples of other landmark cases relating to foreign entities:

- In 2006, 3M won a lawsuit against the Shanghai Dasheng Health Products Manufacture Company for infringement of its patents (relating to dust masks) that were granted by the SIPO in 1997 and 1999. The court ordered the infringing company to pay around CNY 250,000 (around US $35,000) to 3M as damages.

- Philips has established 15 research and development centers in China. More than 11,000 Chinese patents have been assigned to Philips and these serve as the basis of Philips’ operations in China. In 2001 and 2002, Philips filed nearly 20 patent invalidation requests, all relating to a design patent dispute pertaining to an electric shaver, to the Patent

Reexamination Board of the SIPO, and won all but one of them. In that one case, Philips appealed the SIPO’s decision to the Beijing No.1 Intermediate People’s Court in 2002, and subsequently won that case as well.

- In 1997, Honda accused two Chinese companies, Shanghai Feiling Motorcycle Co. and Zhejiang Huari Co., of infringing its Chinese design patent for a “mini-scooter” that was granted in 1994. The two defendants filed an application for invalidation in 1998 on the grounds that a similar design patent had been granted earlier and another one had been published earlier in magazines. After the hearings, the Patent Re-examination Board made a decision in 2001 and declared the design patent invalid. Not satisfied with this decision, Honda filed an administrative lawsuit against the Board in the Beijing No.1 Intermediate People’s Court. In 2002, the Court upheld the decision of the Board because it agreed with the Board that the Honda design was visually similar to the previous design. Honda appealed this judgment to the Beijing High People’s Court. The High Court reversed the Intermediate Court’s decision and ordered the Board to withdraw its invalidation decision (in 2004). The entire process took several years and Honda expended a lot of effort to defend its patent, but was finally rewarded with a ruling in its favor.

The growing number of patent applications and patent infringement disputes in China indicates positive development within the Chinese intellectual property system. However, it remains to be seen whether the country’s system can effectively cope with the pressure of exponential growth. At least for now, the Chinese government seems to have taken the right steps in setting up a fairly strong infrastructure, which includes (a) a searchable patent database that is available online, (b) an appeal mechanism and a hierarchy of courts for handling intellectual property disputes, and (c) a fairly clear distinction between the administrative and judicial processes. Various amendments made to the Chinese patent law, as well as their implementation, seem to have ensured a level playing field for entities operating in China. The challenge for the Chinese government is now to make sure that these amendments are effectively implemented throughout the country, and not only by a limited number of courts.

Meanwhile, foreign companies entering China are becoming more aware of China’s patent-protection system. The case between Schneider Electric and The Chint Group highlights the need for them to increase their awareness and understand the importance of incorporating 10-year patents into their overall IP strategy. While doing so, such organizations must keep the fact in mind that simply importing “best practices” from their home countries may not work in China. The challenge for multinational companies is to adapt themselves to the realities and culture of China and formulate strategies – with respect to patent preparation and prosecution as well as patent litigation – that will work for years to come.

Ram Deshpande, Senior Manager Intellectual Property at Evalueserve.