9 February 2024

Patent Open Licensing – "Ebay" For Patents

Purplevine IP


PurpleVine IP Group, based in Shenzhen, is a China-based and internationally-oriented IP service provider. Founded in 2018, Purplevine currently has 10 offices worldwide with more than 400 full-time employees. We provide full-chain, one-stop IP services that include global prosecution, IP consultancy, IP transactions, licensing, enforcement, and dispute resolution.
China's robust growth in science and technology, coupled with the implementation of the Patent Strategy...
China Intellectual Property
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Ⅰ. Background

1. Necessity of patent commercialization to take advantages of the volume of patents

China's robust growth in science and technology, coupled with the implementation of the Patent Strategy, has resulted in a significant increase in both the quantity and quality of patents. Despite this, there remains a need for effective patent commercialization. Based on the report from the China National Intellectual Property Administration (CNIPA), China granted a substantial number of invention and utility model patents in 2023, indicating a strong demands on intellectual property (IP) commercialization. However, the overall patent commercialization rate is perceived to be low considering the high volume of granted patents. Thus, it is necessary for patentees to generate revenue from their patents, and similarly important to the industries to convert patents into products to prove the value of their inventions.

2. Data on the Patent Commercialization Rate of China

While the overall commercialization rate of valid patents in China has steadily increased from 36.3% in 2018 to 45.0% in 2022, variations exist among different patentees. Enterprises exhibit a slightly fluctuating trend, while universities and research institutions experience lower commercialization rates. Non-practicing entities, like universities, may resort to patent litigation, potentially giving rise to concerns of "patent trolls." China aims to improve the commercialization rate, especially for universities and research institutes, through the introduction of the open-licensed patent system.

3. Open licensing is a license encouraged at the national level, an opportunity for foreign companies to be licensors or a licensee.

China's introduction of the Patent Open Licensing system, coupled with the Special Action Plan for Transformation and Utilization of Patents (2023-2025), indicates a strong commitment to promoting patent commercialization. It also implies that foreign companies can utilize the system to license their own patents. Alternatively, foreign companies can also utilize the system to explore and acquire patents or technology. From previous data provided by CNIPA, universities seem to be the primary focus for open licensing and utilization. The authority has outlined specific measures to revitalize stock patents, support SMEs with patents, boost IP in key industries, and promote patent-rich products. This aligns with China's broader strategy to enhance the value of patents and foster innovation.

The specific measures taken by the authority include:

Revitalizing Stock Patents:

  • Review and revitalize stock patents in universities and research institutions.
  • Guide universities to understand market needs in their research activities.

Supporting SMEs with Patents:

  • Help small and medium-sized enterprises patent their innovations.
  • Connect SMEs with quality investment partners.

Boosting IP in Key Industries:

  • Follow international standards for managing innovation-related patents.
  • Issue guidelines for aligning standards and patents.
  • Encourage innovation entities to set global standards.
  • Explore open-source and new patent models in emerging tech fields.

Promote Patent-Rich Products:

  • Set national standards for identifying patent-rich products.
  • Promote and monitor patent-intensive industries.

Ⅱ. Current Development

Despite the creation of the open-licensed patent system in the Patent Law (effective on June 1, 2021), full operation was delayed due to ongoing revisions of related rules. In May 2022, CNIPA initiated provincial level pilot projects for open-licensed patent system in key regions to align with the new Patent Law. By 2023, the pilot projects achieved significant success, resulting in 17,000 open-licensed patent.

1. The principal of Patent Open Licensing

On December 11, 2023, China revised the Rules for the Implementation of the Patent Law (Rules), effective from January 20, 2024, focusing on detailed refinement and explanation to the open-licensed patent system. The revision aims provide specific guidelines on the application process, items ineligible for application, and requirements such as filing procedures.

2. Provisions on patent open licensing in the new Rules

In the new Rules effective on January 20, 2024, Rule 85 to 88 were added to Chapter VI, "Special License for Patent Exploitation".

  • Rule 85 outlines requirements for patent open licensing applications, emphasizing disclosure of patent details and license terms without commercial language.
  • Rule 86 specifies situations where Open Licensing cannot be applied, including valid exclusive rights, patent suspension, unpaid fees, and pledged patents without consent.
  • Rule 87 mandates filing of Open Licensing with CNIPA, by either the patentee or licensee, without specifying its impact on license validity.
  • Rule 88 warns against false materials or concealing facts in Open Licensing, indicating potential cancellation of annual patent fee reduction if such approaches are adopted.

Ⅲ. Pilot Work Plan for Patent Open Licensing

At the provincial and municipal levels, some regions, including Tianjin, Beijing, Hubei, Shaanxi, Guangxi, Guangdong, Fujian, Hunan, Shanghai, Jiangsu, and Liaoning, have introduced pilot work schemes for Patent Open Licensing, which are "parallel" or "competitive" to each other and can be used for reference for the details.

  • Workflow and Approval Items:

Apart from the provincial level's pilot plans, specific workflow and approval items for Patent Open Licensing have been outlined by certain provinces like Shaanxi, Hubei, and Sichuan.

  • Declaration Change, Withdrawal, and Dispute Resolution:

Details about the change, withdrawal, and resolution of disputes during the implementation of Patent Open Licensing are not consistently included in all provincial pilot programs. For example, Zhejiang Province highlight conditions under which the open exploitation declaration may be withdrawn, such as patent expiration, invalidation, or other circumstances requiring withdrawal. Dispute resolution methods involve negotiation, arbitration, and litigation, with mediation typically handled by intellectual property offices at the provincial level or above.

  • Incentives Beyond Annual Fee Reduction:

Apart from the provisions in the Patent Law and the Rules, various provincial pilot programs, like the one in Guangdong, extend incentives beyond annual fee reduction. These additional measures include collaboration with different departments to support technological transformation, talent evaluation, and financial rewards. Provinces may encourage universities, research institutions, and state-owned enterprises to establish internal incentive mechanisms for Patent Open Licensing. The incentives comprise of financial support for patent infringement insurance, public patent evaluation, and support for platform institutions exhibiting outstanding performance and significant market value during the Patent Open Licensing pilot project. These measures are beneficial for initiating and open patent licensing from the grassroots level, ensuring the smooth implementation and development of this new system.

Ⅳ. Our observation

1. Long-term Implementation of Patent Open Licensing in China:

Patent Open Licensing is an enduring program in China, introduced explicitly in the Patent Law effective from June 1, 2021, and further refined in the Rules for the Implementation, implemented on January 20, 2024. This initiative aligns with China's commitment to intellectual property, as evidenced by the National Intellectual Property Protection and Application Plan during the 14th Five-Year Plan. The comprehensive legal framework indicates a long-term commitment to the implementation of Patent Open Licensing in China.

2. Mutual Benefits of Patent Open Licensing for Licensors and Licensees:

Patent Open Licensing extends benefits to both patentees and practicing entities. Beyond benefiting patentees, the system aids practicing entities in identifying advanced technologies in early-stage development, particularly in universities and research institutes. The direct contact enabled by Patent Open Licensing enhances the effectiveness of patent licensing, providing a strategic advantage for subsequent implementation, research, and development.

3. Continuous Development of Patent Open Licensing:

Patent Open Licensing, driven by laws and plans such as the Patent Law, the Rules, National Intellectual Property Protection and Application Plan during the 14th Five-Year Plan, and the Special Action Plan for Transformation and Utilization of Patents (2023-2025), is rapidly progressing. Due to the absence of a successful and globally recognized system for open patent licensing, challenges and adjustments may arise. Nevertheless, given that the system is stipulated in China's patent law and related regulations, we anticipate its enduring operation over an extended period to evaluate its effectiveness and performance.

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.

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