China: The rise of IP in China

Last Updated: 31 May 2013
Article by Ceri Wells

Is it worth getting IP rights in China? Ceri Wells tracks the change of thinking towards intellectual property that's rapidly taking hold in the world's second-largest economy.

Opinions are frequently offered about the difficulty of obtaining IP1 rights in China, and how they are likely to be ignored and are next to impossible to enforce.

I shouldn't be surprised therefore when clients question whether it is worth getting IP rights in China, but I am.

Why wouldn't anyone with intellectual property2 rights to exploit, want to do so in China? China offers so much opportunity now, and greater opportunities in the future:

  • China is the second largest economic power in the world and it will shortly eclipse the United States
  • The growth alone in China's economy in the last twelve months is equivalent to that of Italy's entire economy
  • Average wages have more than doubled since 2007
  • China's household income is forecast to grow 50% by 2015
  • Dairy demand will double every five years
  • There are 18 millions babies born every year
  • New Zealand has a free trade agreement with China

Given that patent3 rights last twenty years and trade mark rights are perpetual, it doesn't seem sensible to ignore that kind of potential now – especially as the IP system in China is improving rapidly.

While China has had a reputation for producing cheap copies of Western products with apparent impunity, that reputation is becoming outdated.

China's economy has shifted focus, moving away from traditional agriculture and manufacturing, towards an innovation oriented economy. The Chinese Government's science and technology plan has set a goal of becoming an innovation oriented society by 2020. This is an all encompassing plan. China intends to increase R&D expenditure to reach 2.5% of GDP by 2020.

Greater and easier tax deductions for R&D expenses are becoming available and there will be increased Government-backed lending and discounted interest rates for R&D investments.

The Chinese Government understands that core technology cannot be bought, and only through strong innovation and by obtaining its own IP rights can China promote the country's competitiveness and win respect in the international community.

China's science and technology policy encourages local innovation in order to reduce reliance on foreign technologies, and encourages patenting of that local innovation to ensure royalty payments come into China (for local inventors) rather than leave the country.

Subsidies and reimbursements of fees for patents are provided to stimulate patent applications and ensure that innovators in China receive true financial returns for good new technology. In some regions, inventors receive funding for 100% of their patent costs.

As a consequence, China is experiencing rapid growth in the rate at which local businesses patent new technologies, far outstripping the rest of the world. Chinese companies are amongst the highest patent filers in the world. Fairly soon China will be the source of more patented technologies than any other country.

Greater respect for IP

As China moves from an economy based on cheap manufacture, copying or importing foreign technologies, to a country founded on innovation and licensing out technologies, it is inevitably becoming more respectful of intellectual property rights. This is necessary if China expects the intellectual property rights it is investing in, to be respected and of value.

This has been seen in the support the Chinese Government is giving to cracking down on the manufacture of counterfeit product and the abuse of foreign intellectual property rights. Many areas of China now provide for specialist Courts which deal only with intellectual property rights.

While it must be accepted4 that China is a very large country and respect for, and the enforceability of intellectual property rights will vary from region to region, my experience is that it is becoming easier and easier to prevent IP infringement5, with the main difficulty now being the sheer size of the market.

The reality is that with a population of over a billion people, it is difficult to stamp out the abuse of all rights, but then that holds true for many cities in the world, including New York, where itinerant street vendors will still try to sell you counterfeit watches and sunglasses on busy streets.

Intellectual property rights are not difficult to obtain in China. There is no unwillingness on the part of the Chinese Intellectual Property Office6 to grant those rights. There is however a lack of experience on the part of examiners and the Chinese attorneys you must use as agents, many of whom don't yet appreciate such things as the complexities of patent claim drafting or who for cultural reasons are reluctant to challenge official assessments of the validity7 of an application8. It is important to know your IP agents well in China to ensure you are obtaining strong enforceable rights.

New Zealand businesses with products or technology which could be manufactured and/or sold in China, will miss huge opportunities during the life of their intellectual property rights if they do not own and control those rights in China. New Zealand companies will find it difficult to licence9 the manufacture of a product without some IP rights, and even more difficult to do so without getting ripped off. Businesses who question the value of obtaining IP rights based on old prejudices, need to think again.

The importance of IP is rapidly being appreciated in China and this is being matched by a Chinese IP community which is just as quickly growing in size and competence. This growth is enabling local and foreign companies doing business in China to more easily identify, capture, protect and exploit their new ideas and innovative products and services. Expert IP advice from a specialist IP firm with proven experience in China is essential to help businesses develop their IP strategies to gain maximum advantage from what will be New Zealand's most important market in the future.

Footnotes

1Refers to the ownership of an intangible thing - the innovative idea behind a new technology, product, process, design or plant variety, and other intangibles such as trade secrets, goodwill and reputation, and trade marks. Although intangible, the law recognises intellectual property as a form of property which can be sold, licensed, damaged or trespassed upon. Intellectual property encompasses patents, designs, trade marks and copyright.

2Refers to the ownership of an intangible thing - the innovative idea behind a new technology, product, process, design or plant variety, and other intangibles such as trade secrets, goodwill and reputation, and trade marks. Although intangible, the law recognises intellectual property as a form of property which can be sold, licensed, damaged or trespassed upon. Intellectual property encompasses patents, designs, trade marks and copyright.

3A proprietary right in an invention which provides the owner with an exclusive right for up to 20 years to make, sell, use or import the invention. In exchange for this monopoly the patent is published so that others can see how the invention works and build on that knowledge. The patented invention may also be used by the public once the patent lapses.

4Refers to the status of a patent application which has been examined by the receiving office (in New Zealand, the Intellectual Property Office of New Zealand or IPONZ) and given conditional approval. The application will then typically be advertised in the Patent Office Journal for a brief period to enable third parties to lodge an objection to grant (known as an opposition).

5Refers to the commission of a prohibited act with respect to a patented invention without permission from the patentee. In New Zealand, the Deed of Letters Patent confers on the patentee a monopoly to make, use, vend or exercise the invention in New Zealand. Performing any of these acts without the permission of the patentee will amount to an infringement if the patent is current and in force. Permission will typically be granted in the form of a license. Remedies for infringement can include an injunction to restrain further infringement, payment of damages suffered by the patentee as a consequence of the infringement or payment by the infringer of any profit he/she/it made by virtue of the infringement, and legal costs.

6The Intellectual Property Office of New Zealand. IPONZ (formerly called the Patent Office) is a Government agency that is part of the Ministry of Economic Development and is responsible for the examination, granting/registration and administration of registrable intellectual property rights such as patents, designs and trade marks.

7A patent is valid if it is legally enforceable. This means that it must fulfil the criteria of patentability and not be able to be invalidated by a patent revocation proceeding. It is possible that a granted patent may not be valid, or at least its validity could be questionable. Ultimately, only the Courts can judge the validity of a granted patent.

8In most jurisdictions patent applications are subjected to an examination process to determine whether the subject matter is novel and inventive. The terms "application", "pending" or "patent application" are used to describe the status of the application up to grant.

9A legal document granting another party permission to use an invention that is the subject of a granted patent. The details of a licence depend on the arrangement agreed by the parties, but normally a licence fee and/or royalties will be payable.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

James & Wells Intellectual Property, three time winner of the New Zealand Intellectual Property Laws Award and first IP firm in the world to achieve CEMARS® certification.

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