Editorial Note: An abbreviated version of this article was first published by China Law & Practice.
Much has been said and written about China’s “low quality” and “junk” patents both domestically and internationally, but no one agrees what this means – what exactly constitutes “junk” and “low quality”? For that matter, what is “high quality”?
Unfortunately for the Intellectual Property industry, there is no single accepted or consistent measure for patent quality. Some say “low quality patents” refer to Chinese Utility Models because they are not examined, while others also include Chinese Design Patents as well. Others define low quality or junk patents to encompass all Chinese Invention Patents, Utility Models and Design Patents. However, a lack of in-depth analysis risks dismissal of the entire Chinese Patent System as being “low quality” or “junk”; such a rough stereotype is a grave mistake.
Note that among patent attorneys, “patent quality” has a different nuance from “patent strength”. Typically a patent’s strength is more indicative of patent validity with respect to the prior art, as opposed to quality, which is a broader concept. Like personalized concepts of “beauty” and “value”, the concept of patent “quality” is subjective and depends on one’s perspective, each case, and even changes over time.
The subjectivity of quality
Patents may be used for a variety of both offensive and defensive purposes. Therefore the context of the question “Is this a high quality patent?” is critical. The context may be, for example:
- An investment fund considering whether or not to invest in a startup;
- A CFO or Chief IP Officer deciding whether or not to pay a maintenance fee;
- A company deciding whether or not to sell or license a patent;
- A competitor deciding whether or not to enter a product area;
- A CMO determining whether the market exclusivity was sufficient;
- A CEO deciding whether to sue a competitor for patent infringement;
- An individual deciding whether or not to oppose a newly-granted patent;
- A technical team considering whether their filing adequately covers their invention;
- A patent attorney distinguishing an invention from the prior art;
- A Non-Practicing Entity buying a patent;
- An IP valuation expert analyzing a patent for a contentious/non-contentious matter;
- An in-house patent attorney determining how much trouble a patent causes to competition, or whether or not it has caused the competition to alter their plans.
Each of the above situations would require a unique, if not radically-different, definition of what is intended by “high quality”, even for the same patent. Many focus on value drivers such as the monetary, commercial, licensing, litigation, and/or economic value of the patent. Others judge quality according to the technical contribution, how well-written / understandable the patent is, the coverage vs. the prior art, and/or defensibility of the patent.
The value drivers should weigh the intended use, the chances of invalidity, the industry, the commercial strength, the technical strength, prior art, and other factors. The question also asks for a cost-benefit analysis as to whether the patent was worth the money and effort spent so far, as well as some calculation of the net present value.
Chinese Patent Types
To better understand the Chinese Patent System, I first explain the three different types of Chinese Patents: Invention Patents, Utility Models, and Design Patents.
An Invention Patent is a new or improved technical solution for a product or a process. A Utility Model is a new technical solution for the shape and/or structure of a product fit for practical use. In order to be valid, Chinese Invention Patents and Utility Models must be novel (i.e., new to the world), creative/inventive (i.e., surprising in some way) and of practical use (i.e., may be produced). However, there is a difference in the level of creativity/inventive step needed; an Invention Patent requires “prominent substantive features” and is a “remarkable advancement”in the technical art, whereas a Utility Model requires “substantive features” and is an “advancement” in the technical art.
A Design Patent is considered more narrow than the other classes and covers a new design of the shape, pattern, or the combination thereof, or the combination of the colour with shape and pattern rich in aesthetic appeal and fit for industrial application. A valid Chinese Design Patent must be “distinctly different from the existing designs or the combinations of the features of existing designs”.
Chinese Patent Filing Processes
Once an application for an Invention Patent is filed, it is formally examined for compliance with the basic administrative requirements, such as format, type of claims, and whether the Applicant is listed. It then enters the Examination queue for substantive examination for novelty, creativity/inventive step, and practicality. Substantive examination takes 2-5 years and significantly increases the acquisition cost of Invention Patents as the Applicant and the SIPO negotiate the scope and language of the patent right. Once the Invention Patent Application satisfies the substantive requirements, the Examiner grants the Invention Patent. This process is similar to that of, for example, Patents in the EPO, Japan and Australia, and Utility Patents in the US.
Once a Chinese Utility Model or Design Patent application is filed, it is formally examined for compliance to minimal administrative requirements; it is not substantively examined to determine whether it is novel, creative or of practical use. Instead, it is granted after 8-12 months with minimal cost and hassle. The Chinese Utility Model process is THUS similar to the Japanese and German Utility Model systems and the Australian Innovation Patent system. The US and EPO completely lack Utility Models.
A Chinese Design Patent Application may consist of merely a few pictures, a brief claim statement and the Applicant’s information. The Chinese Design Patent process is different from the US, Japanese and Australian Design systems which require a substantive examination prior to grant, but is similar to the OHIM Community Design system.
However, Chinese courts recognize the lack of substantive examination and when enforcing a Utility Model or a Design patent, Article 61 of the Chinese Patent Law states that “the people’s court or the administration department for patent-related work may require the patentee or the interested parties to present a patent right assessment report prepared by [SIPO] through searching, analyzing, and assessing the relevant utility model or design, which shall serve as evidence for trying or handling the patent infringement dispute.” Accordingly, there is no US-style presumption of validity for Chinese Utility Models and Design Patents.
Does Quality Depend on Patent Type?
As noted above, some believe that Chinese Utility Models and/or Chinese Design Patents are junk patents due to the lack of substantive examination prior to grant. Furthermore, it is beyond doubt that many Chinese Designs and Chinese Utility Models are filed with little, or no, attempt to ensure they are novel or different in any way from pre-existing items/devices/designs.
Likely all Chinese patent practitioners have encountered cases where a Utility Model or Design appears identical to something in the prior art (i.e., in existence before the filling date). In once case I remember reviewing no less than 7 identical Design Patents from different applicants; all filed with a few months of each other and all from the same town. Are these the perfect examples of low quality or junk patents? Many would answer “yes” and assert that such patents “are not worth the paper they are printed on”.
However, this is based on the assumption that a patent that lacks novelty must be a junk or low-quality patent and presumes that the Applicant even cares about the novelty. Foreigners tend to presuppose that the filing of a patent is to protect a new technology or product. However, this may not always be the case in China. Instead, assuming that the filer is a rational actor, and is even aware of the lack of novelty, then this all begs the question: why would they spend the money to file this “piece of junk”?
Perhaps the Applicant never intends to assert the patent and therefore the novelty of the patent application is irrelevant. For example, maybe it is merely desired for marketing reasons. Many companies place patent numbers on their packages so consumers believe that the product contains some high technology. Alternatively, the patent may be filed for tax reasons. In China, a tax benefit may accrue if a X% of a company’s products are covered by a patent. Furthermore, academics may file the patent to gain tenure. It is said in China that 1 patent = 3 publications when awarding tenure. And last, but not least, the patent may be filed for political purposes. Chinese cities, provinces, etc. are ranked according to the number and type of patent applications filed by their residents. By filing many applications (whose cost are often supported by the government), companies gain face for themselves and the local politicians.
Thus, the mere filing of an application may already have achieved the goal, and enforcement may be an afterthought, or even undesirable. While many people would label such applications as junk or low quality, as they are likely to be invalid and possess no technical merit, such a view is a myopic, ignoring the possibility that the mere filing likely has already served the business purpose.
And lest we forget, the highest patent award ever in China was for US $44 million, over a Utility Model in Chint vs. Schneider Electric, Wenzhou Intermediate People’s Court, 2007. Was this a low quality patent? Some would argue “yes”, based on the very close prior art. Others would argue “no”, as a December 2009 article in Les Nouvelles indicates the Utility Model withstood an invalidation challenge and an appeal – and the ROI was >620,000 times the US $70 filing fee.
Regardless, not all Chinese Designs and Utility Models lack novelty, are of low quality, or are junk. In fact, certain very smart Chinese and foreign companies apply for high quality Chinese Utility Model and/or a Design Patents because they are relatively cheap and quickly granted. In a very fast product cycle, Utility Models and Designs granting within 1 year may be better than an Invention Patent which grants in 2-5 years. Utility Models and Design Patents are perfect for protecting a few narrow, highly-preferred embodiments. Also, in an unintended twist, due to the lower inventive step threshold, a barely novel Chinese Utility Model is arguably harder to invalidate than a comparable Chinese Invention Patent; maybe a barely-novel Chinese Utility Model is of a higher quality than a comparable Invention Patent?
Quality vs. Quantity
China’s SIPO is the fastest growing and largest patent office in the world. Regardless of the patent type, China now handles the most applications per year. But does this translate to patent quality?
In certain industries where patent pools operate (electronics, computers, communications), there is an incentive to file high volumes of patent applications so as to gain a greater proportion of the patent pool, especially for standards-essential patents. Thus, many applications may be filed for small variations of a single invention. In such a case, each patent application may arguably be relatively insignificant in value. Other industries such as Pharma, are structurally different and the opposite happens where a single application is often filed covering thousands of potential compounds. However, a single patent may be worth tens of billions of US dollars per year.
So where does this leave us – what is the determining factor for real patent quality? Taking the typical lawyerly cop-out: “It depends.” Judging the overall patent quality requires a broader view than simply looking at a single patent in isolation and actually requires multiple questions as discussed herein. The ultimate answer requires an knowledge of the industry, business, and the relevant technical arts as well as a very clear understanding of why the question is being asked in the first place.
Applying this to the question of the quality of Chinese Patents, I would say that the claims of Chinese Invention Patents, as granted by the SIPO, tend to be stronger in that they are likely valid (i.e., novel and inventive) due to the rigorous Chinese Examination system. However, in may cases the claims will be more narrow in scope than their international counterparts.
Chinese entities are already shifting from filing Utility Models to filing more Invention Patents – partly due to the shifting of tax incentives and political goals. This will lead to the SIPO weeding out those that lack novelty and/or an inventive step. At the same time, increasing numbers of domestic companies and a few foreign companies are recognizing the advantages of the Utility Model system, and are filing both novel and inventive applications. Thus, it seems reasonable the overall quality of Chinese Utility Models should gradually increase over time.
Finally, Design Patents, as the cheapest and easiest form of patent protection are also the most subject to abuse and criticism. There is no real movement to change the current system and thus the quality debate will continue. Those filing Designs that lack novelty will continue to do so for their own business and personal reasons, so this is unlikely to change. The good news is that Design Patents are narrow in scope being strictly limited to what is shown in the figures or pictures. As the courts understand this, and as the specialized IP courts increase in China, the enforceability of such non-novel Design Patents will decrease and should be seen as less of a business risk.
Utility Models and Design Patents can complement other types of intellectual property as part of a comprehensive IP portfolio. Companies who understand this will continue to file high quality Chinese Design Patents and Utility Models while taking advantage of the lower costs to help manage the budget.