China's Shifting IP Landscape And It's Profound Impact On Shareholders

December 17, 2019by S.L.Soujanya0

Off late there has been a lot of attention on the China’s shifting IP Landscape. In relation to this a series of round table discussions was held at the USPTO headquarters on the 20th of November, 2019. The participants were from law schools, American Intellectual property law Association, the USPTO, Law firms, Business Schools and Business council amongst others.

China’s shifting IP Landscape

China's shifting IP landscape and the consequences for rights holders

Picture source:- https://www.uspto.gov/about-us/events/chinas-shifting-ip-landscape-and-consequences-rights-holders

 

A webinar related to a similar topic was hosted on December 3rd by IP Watchdog titled: How China is Changing the IP System. [With Gene Quinn and Robert Stein]

The write up is a combination of excerpts from both the events.

The round table discussion was held in three phases with the same set of participants:

  1. China’s changing economic, political and technical development needs: Implications for Intellectual property.
  2. Developments in securing IPR in China: Tinkering at the margins of real reform?
  3. Developments in the enforcement of IPR in China.

The opening remarks were by the Under Secy of Commerce, Andrei Iancu.

Introduction:

A robust innovation ecosystem is responsible for the success of any economy. It’s worth noting that any country which is rich is supported by a strong IP system.  Every IP office is expected to be reliable and must be in a position to predict the rights needed for the sustenance of one’s economy.

It has been studied that an IP intensive industry has wages nearly 50% higher than those offices and industries in the non-IP sector. This fact is applicable globally.

As per a report released 2017, the loss which the US economy incurs due to counterfeit goods from China is 600 billion $ annually. China and Hong-Kong are particularly accused of being primary infringers, hackers, responsible for online piracy, impedance to pharmaceutical innovation to name a few.

Though the statistics favor increased IP filings in China, but it may be noted that the filings are mostly domestic. Which means that it is strictly in accordance with conditions and rules conducive to Chinese requirements.

The filings in Chinese Patent office have increased ten times in 13 years, where the USPTO filings have increased by 1.7 times in the same time period. The cumulative filings at the USPTO, EPO, JPO, and KIPO are less than that of the filing with the Chinese patent office alone.This has led to a major argument about massive flooding of global prior art. [Source: A write up by Robert Stein]

Enforceability is a major problem with the China’s Shifting IP system. Adherence to rules and procedures of any global platform (to which China is a signatory) is questionable. Transparency is also an issue with china. For example: How are the evaluation of IP applications done, how court proceedings take place are not known until an applicant or litigant has had a personal experience. Restricted media and dissemination of content is a major deterrent to transparency.

The USPTO has a China team which has its IP attaché in Beijing, Guangzhou and Shanghai and also have an in-house Chinese lawyer to guide the USPTO with local requirements and procedures.

  1. China’s changing economic, political and technical development needs: Implications for China’s shifting IP

Current view point on China:

The statistics is directed towards a huge gap in public policy and industrial policy and huge Export control issues. The industrial policy is top down and china being is a very large country thus has huge spill over effect thus sinking the stocks and affecting the economy of other countries.

Forced technology transfers have been a major grievance of major companies setting up their operations in China. Chinese economic policy is not about growth but is more about dominance.

It needs to promote enforceability in both National and International basis. Semiconductors, AI and other highly advanced and fairly recent technologies should be additionally scrutinized. Also, the profits generated by US companies in China should be used for domestic innovation. The Chinese 2025 strategic plan is being studied closely.

(http://joebarkai.com/made-in-china-2025-and-intellectual-property-protection/).

https://www.ipwatchdog.com/2018/04/23/made-in-china-2025-initiative-ip-tensions/id=95762/

 An example by one of the panelists: Europe is good with machines, US with software and robotics but, China wants to excel everywhere. 

As pointed by Robert Stein the Chinese are “pushing rapidly forward with their Belt and Road initiative (BRI), linking China with Europe through Asia and Africa”. China is deeply studying the IP aspects if all the countries on the way of the belt.

On the contrary there is also an observation that the Chinese companies have become quite competitive too.

The current perception of china is that of Manipulating Master. 

China’s shifting IP Landscape- Why China Wants to Dominate?

 

Before getting into the pointers, a reference to one of the panelists who referred to the history of China’s feudal system and the impact it has on its current system.

  • China believes not only in home grown products but also wants to keep its policies from foreign control. As a matter of fact, most of the patents issued by China are non-enforceable.
  • Even if Chinese Patent office wants things right the authorities don’t want. Abuse of official discretion and ignoring invariably the terms and conditions are some of the observations.
  • Many companies are leaving China because of increasing costs and threat.Environment is not at all favorable for innovation. The policies look good on the paper but are not executed well.
  • Chinese social credit system is a major threat to the future trade laws. [The Social Credit System is a national reputation system being developed by the Chinese government. It was initiated in 2014 and by 2020, it is intended to standardize the assessment of citizens’ and businesses’ economic and social reputation, or ‘Social Credit’] This approach has led to major trust deficit with the Chinese system. The Chinese have some legitimate strategies but many illegitimate strategies.
  • Chinese way of walking away from core strategy by taking foreign knowledge but will neither display nor share data. Foreigners should be really careful about filing early as they may end up losing the priority
  • They believe in repetitive argument rather than overcoming deadlocks.
  • Another major accusation has been that they try to enter the big market by going under the belly of small markets.
  • Expertise availability is an issue.
  • An important observation was that Chinese firms choose settlements over going to courts as they know they are going to lose. Also, the litigation timing is of a very short duration as the price involved is low.

A WORD OF CAUTION! 

It is strongly advocated to pre-assess the risks involved while going to China and be alerted on high risk areas.

For example: Big cities like Beijing, Shanghai favor fair, genuine trial proceedings as they aim to become globally accommodating cities. It is very important to try and choose the right and liberal jurisdiction. 

The infringers are like mafia! They are very good at record keeping and hence stands a good chance for foreign inventors’ invention to be stolen.

Also, an observation of the panelists in the webinar was that the Chinese Patent professionals and attorneys have comfortably overtaken the language barrier. They are well versed in communicating at least in 2-3 languages like Korean, Japanese etc. thus giving them an added advantage in comprehending multiple prior arts and patent systems collectively.

Chinese are power hungry and are working towards expansion aimlessly! 

What is China doing?

  • They recently amended patent Examination guidelines
  • Their Patent law is in the draft stage
  • 2018-Patent rules by supreme People’s court

What China is not doing and is supposed to do?

  • Promote enforceability nationally and internationally.
  • Need to address Systemic problems.
  • Need to establish an accommodative attitude towards the western method of problem solving.
  • Should be able to address the procedural delays.

On the whole China’s shifting IP landscape is moving at a faster pace and it is important for the economies looking up for a strong IP system to become pro-active in analyzing the movements and tactics of China. Rather than completely backing off from filing in China it is important to adopt a strategic filing approach to have a leverage in the China’s shifting IP market.

Read More :- https://www.prometheusip.com/ipr/nirf-role-of-intellectual-property-rights/

S.L.Soujanya

S.L.Soujanya

Ms. S.L. Soujanya is a registered Patent agent with an academic background in Pharmaceutical sciences. She holds a Bachelor’s degree in Pharmacy from the Osmania University, Hyderabad and holds a Post Graduate Diploma in Intellectual Property Rights Law from NLSIU, Bangalore.

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