China: China Amends Patent Law

Last Updated: 27 October 2009
Article by Weishi Li

Originally published January 7, 2009

The PRC Patent Law was first promulgated in 1984 and has since been amended twice, in 1992 and 2000. Last week, on December 27, 2008, China passed the Third Amendment to the PRC Patent Law (the "New Patent Law"), which will become effective on October 1, 2009. In connection with this, a Draft Amendment to Implementing Regulations of the PRC Patent Law (the "Draft Implementing Regulations") was issued by the State Intellectual Property Office for public comments on November 4, 2008.

We highlight below a number of important changes in the New Patent Law:

  • Genetic Resources. The New Patent Law, through amendments to Article 5 and Article 26, regulates the use of genetic resources in China to develop inventions. Under the amended Article 5 of the New Patent Law, if the acquisition or use of genetic resources violates relevant laws and regulations of China, then no patent will be granted for any invention that relies upon such genetic resources. The amended Article 26 further requires that, for an invention that relies on such genetic resources, an applicant must disclose in the patent application the direct and the original source of such genetic resources, and if the applicant cannot identify the original source, he or she must specify reasons for the failure to do so. Failure to comply with such disclosure requirements could result in the denial or invalidation of a patent, as proposed by the Draft Implementing Regulations.
  • Double Patenting. The amended Article 9 of the New Patent Law now expressly provides that only one patent may be granted for a single invention. It has been common for an applicant to file for both an invention patent and a utility model patent for the same invention on the same day, and obtain a utility model patent first and an invention patent later. The amended Article 9 requires that such applicant must abandon the active utility model patent before an invention patent can be issued for the same invention.
  • Joint Ownership. The existing Patent Law is silent on the rights of joint owners of patents and patent applications. The New Patent Law now includes a new provision (Article 15) that specifies the rights of joint owners of patents and patent applications. Article 15 provides that, unless otherwise agreed upon by joint owners, a joint owner is entitled to exploit the jointly-owned patent alone or grant a non-exclusive license to a third party to exploit such patent. Any fees generated from such license must be shared among all joint owners. All other types of exploitation of a jointly-owned patent or patent application must be agreed upon by all joint owners. Therefore, under the New Patent Law, assigning or granting exclusive license to a jointly-owned patent or patent application must be agreed upon by all joint owners of such patent or patent application.
  • Inventions Made In China. Under the existing Patent Law, for inventions made in China, Chinese companies and individuals must make China patent filings first before they can make foreign filings (the so-called "first-file-in-China" rule). The amended Article 20 of the New Patent Law now provides that, for an invention or utility model made in China, any applicant (not just Chinese companies and individuals), before filing a patent application outside of China, must first submit it to the patent department under the State Council for a confidential examination in accordance with the relevant provisions of the State Council. Failure to comply with this requirement will result in the denial of any Chinese patent for the invention. This is a significant change from the current rule in two aspects: (i) under the existing rule, foreign companies and individuals arguably are not bound by the first-file-in-China rule, whereas the new rule binds everyone; and (ii) the new rule replaces the first-to-file-in-China requirement with a requirement for confidential examination by the State Council before any foreign filing can be made. This added requirement of confidential examination by the State Council creates uncertainty for applicants. The procedures and timelines for such confidential examination are not set forth in the New Patent Law, but are instead covered in the Draft Implementing Regulations, which will be subject to further changes before it comes into effect.
  • Novelty Bar. Under the existing Patent Law, prior use or prior knowledge outside China does not constitute a novelty bar for invention patents and utility model patents. The amended Article 22 of the New Patent Law elevates the novelty criteria to an "absolute novelty standard". Under the new standard, to be considered "novel", an invention must be unknown to the public both in China and abroad prior to the date of filing. In addition, under the amended Article 22, an identical invention or utility model disclosed in an earlier application by the same applicant prior to the filing date of a later application can be used as a novelty bar against any later application. Similar elevated novelty standards have also been adopted for design patents. These changes overall aim to reduce the number of frivolous patents and generally improve the quality of granted patents.
  • Compulsory License. The New Patent Law sets forth more detailed rules for compulsory licenses, as compared to the existing Patent Law. Under the New Patent Law, the government may grant a compulsory license to a third party to use the patent, if (i) a patent holder has failed, without justification, to exploit or sufficiently exploit the patent within three years after the issuance of the patent and four years after the filing of the patent application (note that this does not apply to semiconductor patents), or (ii) the exploitation of the patent is deemed as monopolistic behavior according to the law. Furthermore, for the purpose of public health, the government may grant compulsory licenses for manufacturing and exporting patented pharmaceuticals to certain countries and regions. Although no compulsory license grant has ever been reported in practice since the Patent Law was first implemented in 1984, the introduction of more detailed rules for granting compulsory licenses in the New Patent Law raises the possibility that compulsory licenses may be granted in the future.
  • Prior Art Defense. Under the current practice in China, in a patent infringement suit, a court will determine whether there is an infringement, but invalidation examination (if requested by the defendant) must be made by the Chinese Patent Reexamination Board (the "CPRB"). When an invalidation request is filed with the CPRB in a patent litigation, the court will typically wait for the CPRB decision before proceeding further, resulting in a prolonged process. The newly added Article 62 now provides that, in a patent infringement suit, if the alleged infringer can prove that the alleged infringing technology or design was already known to the public prior to the filing date of the subject patent, no infringement would be found. Therefore, under the New Patent Law, the alleged infringer may choose to defend against the infringement claim on the basis of prior art in court, thereby expediting the entire proceeding. However, the New Patent Law is silent on whether courts can in fact make invalidation decision or only non-infringement findings. Furthermore, if courts may make invalidation decisions, this rule may potentially lead to (i) conflicting results among different courts over the same patent, and (ii) if an invalidation proceeding is brought to the CPRB over the same patent, conflicting results between courts and the CPRB.
  • Regulatory Review Exemption. The New Patent Law provides an express infringement exemption for activities related to obtaining information for regulatory approval for drugs and medical devices (Article 69, clause 5), including making, using and importing a patented drug or patented medical devices. This exemption is currently available through judicial interpretation of the experimental use exception under the existing Patent Law.

Overall, New Patent Law is generally moving in the direction of strengthening protection for patents and elevating standards for Chinese patents, indicating the Chinese government's intent of encouraging innovation and creation. However, as noted above, certain areas of the New Patent Law will benefit from further clarifications, which will hopefully be provided in the upcoming amended Implementing Regulations of the PRC Patent Law.

O'Melveny & Myers LLP routinely provides advice to clients on complex transactions in which these issues may arise, including finance, mergers and acquisitions, and licensing arrangements. If you have any questions about the operation of the applicable statutory provisions or the case law interpreting these provisions, please contact any of the attorneys listed on this alert.

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