Doing Business in China: Understanding China’s Patent System

Today I am in Toledo, Ohio, at the University of Toledo College of Law. The College of Law and Professor Llew Gibbons, who is Chair of the Board of Directors for the Confucius Institute, and are the hosts for Doing Business in China. This all day program will discuss the advantages of doing business in China for small and mid-size corporations. It is hoped that the program will dispel myths and provide useful information with respect to helping businesses decide whether they should consider doing business in China.

One of the first topics discussed this morning relates to patent examination standards in China. Thomas Moga, a partner with Shook, Hardy & Bacon LLP, explained that businesses should be considering getting patents in China to keep others from using your IP, to develop a portfolio for cross-licensing and to stop counterfeiting. Moga explained that while he cannot say that enforcing rights in China isn’t without problems, but one thing is for certain — if you don’t obtain patent rights you have no chance of enforcing rights in China. “One of the reasons foreigners have in China is they don’t take advantage of the system, which is because we don’t understand the system,” Moga said.

China’s approach is different from a U.S. approach. China offers invention patents, utility model patents and design patents. It is the invention patent in China that corresponds to what we in the United States know as a utility patent. There is no real correlation under U.S. law with a utility patent in China, which is quite similar to a German petty patent. A utility model patent can cover “new technical solutions proposed for the shape and structure of a product, or the combination thereof, which are fit for practical use.”  There is no substantive examination of a utility patent in China, with protection lasting for 10 years from the earliest priority date.

The explanation China gives for not providing substantive examination of utility model patent applications and design patent applications centers around limited resources. China does not have the number of examiners necessary to give substantive examination across the board, and they lack the financial resources to hire the examiners that would be necessary to substantively examine patent applications of all types.

Utility model patents in China are still supposed to be novel, but without substantive examination this has lead many to characterize utility model patents from China as being “junk patents.” In fact, in some cases people are merely refiling to cover inventions that are in the public domain. “In a sincere effort to improve the system… the Chinese system has now changed within the past year. While not subject to substantive examination in all cases,  examiners have the latitude to substantively examine.” Moga explained that examiners perform what sounds to me to be a quick look review, seeking something that might be abnormal or out of the ordinary. Chinese examiners are also allowed to institute a substantive examination of a utility patent application if have particular knowledge that would suggest that the invention is not novel.

Still, even with the discretionary substantive examination in a utility model patent application, they are generally much easier to obtain and much cheaper to get. There may also be advantages to utility model patents in China. While the fact that they are not substantively examined might make it seem that they would be easier to invalidate, that isn’t the case in reality. Under the Chinese system a maximum of 2 references can be used to fashion an obviousness rejection. “In our industry there is rarely a silver bullet,” Moga explained. It is certainly true that obviousness is the real hurdle to patentability and it is extremely common to see obviousness rejections in the U.S. that weave 3 or more references together to provide the foundation for an obviousness rejection.

With all this in mind, U.S. applicants need to know that they may be able to get some protection in China even without a specific novelty that would be required in the U.S. “Experienced Chinese applicants know that utility model and design patents are typically easier to obtain in China than elsewhere and can be granted for a broader variety of inventions,” Moga explained.

Design patents in China are also not substantively examined, which makes them more comparable to copyrights in the United States. Furthermore, there is a greater variety of invention that can be covered than in the U.S. In the U.S. design patents protect what is ornamental, but in China things that are functional and without an ornamental appearance can still be the subject of design protection in China.

With an invention patent in China there is a substantive examination, as there would be in the United States.  Moga explained that examiner interviews are possible, as they are in the U.S., and can be quite helpful in his experience. “In my experience Chinese Examiners may not be able to speak English very well, but they can read English quite well.”

Moga explained that one particular interview was incredibly helpful because it brought to light a problem with the translation, which was causing the problem. In the United States you introduce “a member” and then subsequently you would refer to that member as “said member.” The translator apparently believed these to be different things, which was causing the Chinese patent examiners to continually reject the application as containing new matter. When the Chinese patent examiner read the U.S. claim in English the light went on and he understood the problem. It wasn’t a new matter problem at all because it was in the priority document. It was a problem with the translation.