China's image in protecting intellectual property rights (IPR) is less than flattering. Seizures of China-originated IPR-infringing products at the U.S. border are about 80 percent of all such seizures. China remains the top IPR violator in the 2010 Annual Special 301 Report by U.S. Trade Representative. However, under external and internal pressures, China is rapidly improving its IPR systems. Its new Patent Law, effective Oct. 1, 2009, and other recent changes reflect China's efforts toward better IPR protection.
China's new patent system is a mixture of European and U.S. patent systems, with unique Chinese characteristics. Like Europe, China has a first-to-file patent system and requires absolute novelty on an invention so that a public disclosure of the invention will cause loss of patent rights in China. On the contrary, the United States has a first-to-invent system and provides a grace period up to one year for patent filing. China and Europe severely restrict patenting surgical or diagnostic techniques directly performed on a person, while such techniques are generally patentable in the United States. China follows Europe by imposing restrictions on patenting software and business methods, while U.S. patent rules are more open and permissible. China has a utility model patent like Germany, while the United States lacks the equivalent legal instrument. China's new patent system also includes provisions that can cause significant issues for U.S. companies, such as compulsory license provisions and inventor compensation provisions.
China has adopted certain U.S.-like rules, such as claim construction based on a person of ordinary skill in the art and intrinsic evidence of the patent, prosecution history estoppel, and doctrine of equivalents. Deviating from Europe, China adopts the U.S. rule that limits functional claim language to specific embodiments in the patent description and their equivalents. Like the United States, China imposes foreign filing licenses for filing foreign patents on inventions made in China, and thus forces U.S. companies to, with significant difficulty at times, comply with both Chinese and U.S. foreign filing license requirements for inventions made by R&D activities in both countries.
Patent enforcement in China is uniquely Chinese, and has three components: a European-style civil law court system with limited discovery; administrative IPR enforcement mechanisms via provincial and municipal agencies and Chinese Customs; and criminal enforcement by police and prosecutors. With enhanced awareness and improvements of China's IPR enforcement, both domestic and foreign parties are increasingly taking IP disputes to Chinese courts. In fact, China currently handles more IPR disputes than the United States and is rapidly becoming a litigious country.
Created in 1984, China's patent system is still in its infancy and has been steadily making remarkable progress. China's proliferate education system generates a significant portion of engineers and scientists for the world. Separate from the external pressures, this skilled labor pool and economic needs of China demand strong IPR protection. U.S. companies can use China's existing IPR systems to achieve business objectives in ways similar to how U.S. companies have been benefiting from China's manufacturing capabilities, low cost R&D labors and abundant natural resources for decades.
Submitted by Bing Ai for Perkins Coie LLP