The Hindu Business Line : Patent lessons from China

Patent applications and intellectual property, in the Chinese context, sound more like an oxymoron, right? That’s the mistake French automation management company Schneider Electric did in 2007 and could potentially end up paying heavily.

As it happened, the Chint Group, a privately-owned leading manufacturer of low-voltage electric equipment in China, was granted a 10-year patent, titled “A Miniature Circuit Breaker,” from the patent office in March 1999.

Schneider Electric, which not only claims to be using the same technology from early 1990s but also holds a 20-year patent in China titled ‘Electrical Circuit Breaker with Safety Shield’, was aghast when the Chinese Patent Re-examination Board upheld the validity of Chint’s patent.

The double whammy came in form of the Wenzhou Intermediate People’s Court order in September 2007, as it told Schneider Electric to stop selling five products and destroy the corresponding product models that were based on the technology ‘owned’ by the Chinese company. Schneider was also ordered to pay a compensation of CNY 330 million (approximately $45 million) at that time.

Mr Ram Deshpande, Senior Manager in the Intellectual Property division of Evalueserve China, feels underestimating Chinese companies in the intellectual property space could be a mistake. Business Line caught up with him over the e-mail and quizzed him on Evalueserve’s whitepaper on ‘Patenting Landscape in China’.

Excerpts from the interview:

China, as you say, has seen a 20 per cent increase in patent application filings over the last 15 years. How did India and the US fare?

India has seen around 20 per cent annual growth in recent years. The US has seen an annual growth of 7 per cent.

Could you throw some light on the number of patent approvals that have been received in China during the same period?

Here are some numbers regarding patents (all three types) granted between 2005 and 2006. In 2006, the growth rate of patents that were approved was at 25.2 per cent with 2,68,002 grants.

Last year, this growth rate jumped to 31.23 per cent to 3,51,782 patents being granted in the process. Patent grants have also increased at a similar rate though not consistent. Patent grants are tricky business.

There is a lot of subjectivity and one should be guarded in deriving conclusions out of grant statistics.

You mentioned about three patent types…

In China, the State Intellectual Property Office (SIPO) grants three types of patents: invention patents or 20-year patents, utility model or 10-year patents, and design patents.

As we have indicated in our whitepaper, the grant of 10-year patents and design patents is easier and faster than that of 20-year patents.

Ten-year patent applications do not require any substantive examination and the low cost of filing makes them more popular with the Chinese domestic companies.

Does the Chinese patenting authority also have a major role to play in this kind high-growth scenario, where so many applications are coming in?

The Patent Office’s role is probably the most important. Growth, managed well, leads to more growth.

In the past, the Chinese patent office took a number of initiatives to boost its reputation and also to create awareness for IP issues among Chinese companies.

The Chinese Government, on its part, gives grants to research institutes and universities to file more patent applications.

This is also seen as one way to reward research work of academics.

Tell us about the average time needed for a company (local/MNC) to get a patent approved (without objections) from application stage to final approval.

The average duration of examination cycle (that is, time from filing to grant) in 2007 for invention patents was 26 months, 6.8 months for utility model patents and just 6.6 months for design patents.

Does India lag behind in having a fast-track mechanism such as those in China?

In India, the average time for patent grant is 3-5 years. However, a fast track mechanism has recently been introduced under which it is possible to get a patent granted in less than two years (provided no pre-grant opposition is filed).

Aren’t these Chinese companies actually sitting on land mines if some patents are awarded with less substantive examination?

Yes. These utility models or 10-year patents have a very high chance of getting revoked, if challenged.

These can be potential landmines if these 10-year patents form the basis of the business of the Chinese companies.

However, I would not call them ‘landmines’ because it will be rare for any company to bank completely on one or few 10-year patents. Moreover, invalidations are generally reactive.

The re-examination procedure will typically take place if they assert these patents against their competitors.

Fair enough. How does the patent system of India and China differ?

The major points of difference are: Online patent database, more awareness among local Chinese companies, absence of 10-year patents in India, huge difference in the number of universities and research institutes engaging in the patent filing activity.

Plus, there are more local patentable activities (service industry vs manufacturing). India may have a huge private sector, but a lot of investment is in sectors that are either patent-free or non-patentable. Additionally, there is greater pressure on the Chinese Government due to pre-existing bad image.

Are there any sectors — in both the Indian as well as MNCs context — which should be taking the developments of China fast emerging as a top jurisdiction with more seriousness?

There is no clear statistical data available regarding which sectors have a relatively larger share in the patent application filing. The IPC class based statistics reveal that pharma, telecom and data processing systems (computers etc) have seen the highest number of 20-year patent applications in 2007.

In the case of 10-year patents, storage containers, household or table equipment (knives, spoons etc) and electrical components like switches, fuses etc lead the way.

Which sector is most active for China?

It is evident that manufacturing is leading the way in China. Most of the patents in these classes would be either systems/machines or composition of matter (in case of drugs). As has already demonstrated in the Chint vs Schneider case, makers of electrical equipment are at risk of infringing the 10-year patents.

Nevertheless, each company will have to have its own specific patent strategy in China. Sourcing and manufacturing in China can lead to patent infringement. China as a market will also open the possibility of getting sued on account of infringement of a Chinese patent. Sectors that fulfill these criteria match the ones listed above in terms of highest patent application filing.

Are cost costs associated with patent filing and approval process in China cheaper compared with other places such as India, the US?

China and India are much cheaper than the US for filing and maintaining a patent. However, if the US is your market, you have no option but to file a patent application at the USPTO.

Attorney and/or agent fees vary, but India and China definitely have cheaper alternatives than the US. This also explains the outsourcing of patent application drafting to India.

Lastly, why do you feel that local companies of a country, which has chronically suffered from a poor image related to IP, suddenly ramped up the patent applications?

If you look at the statistics, the local companies do seem to have woken fairly recently in China. This had to happen since China became a part of WTO in 2001. The TRIPS agreement ensured that the patent law was more in line with the Western laws. This was also seen in India.

Patent filing can be taken as an indication of increased R&D spending. China’s rapid growth has resulted in more money going towards increased research. Universities are flush with funds. This, no doubt, has an effect on the number of patent applications. The effects remain to be seen. Litigations are on the rise, licensing is fairly commonplace, but the patent office is stretched though it is managing to hold its balance.