China patent flood stifles foreign filer freedom

Corporate concern is growing over freedom to operate capability in China after a surge of domestic patent applications into the country’s IP office, according to in-house counsel.

Eight in-house lawyers from medical device, telecoms, manufacturing, confectionery and automotive companies say the increasing number of design patents and utility models being filed at China’s National Intellectual Property Administration (CNIPA, formerly known as SIPO before a restructure last year) by Chinese companies is making it difficult to keep up with potentially important prior art in the region.

“We file everything in China and are very proactive there but we do not know what to make of this enormous surge of applications,” says the patent counsel at an automotive company.

The chief IP counsel at a global manufacturing firm explains that the filings are so numerous that, even excluding utility models, it would take a long time to figure out if they had relevant claims – particularly because most are only available in a Chinese language.

The risk that companies run by refusing to undertake this exercise is being sued. Establishing freedom to operate in China has largely become a matter of weighing up the expense of wading through the patent flood against the risk of missing an important piece of prior art.

The manufacturing chief IP counsel adds that the company also runs the risk that the effort was a waste of time and money if it turns out that none of the analysed patents issued with the relevant claims or if none of the claims could be valid. And invalidating utility models is particularly difficult in China.

Even companies in niche areas with few Chinese competitors are keeping an eye on the situation. The head of IP at a factory tech manufacturer says: “So far, we have not experienced any problems because we are active in a very specific area and because patents filed by Chinese companies often have a narrow scope.

“But FTO could potentially be a concern, particularly the large number of design patents and utility models being filed by Chinese companies. The hardest part is keeping up with the volume of documents.”

According to figures reported by the China government’s Science and Technology Daily last week, 1.6 million domestic invention patent applications were filed with the CNIPA in 2018, compared to just 55,000 Patent Co-operation Treaty international applications.

One source says that this surge has been at least partially driven by subsidies provided by that Chinese government that are based on filed patent applications.

That figure does not even take utility models into account, which are much trickier to deal with than invention patents. Unlike invention patents, utility models applications are only subjected to novelty assessment and formality examination. They are only fully examined after an owner begins proceedings to enforce them.

Perhaps the biggest challenge for foreign filers wading through this flood of domestic patent rights is that most applications only exist in a Chinese language such as Mandarin or Cantonese.

A patent attorney for a Swiss confectionery company points out that the language barrier adds another frustration to the mix, because even after trawling through these applications, a company may not be able to sufficiently identify whether a claim is relevant or even if it is valid.

The medical device senior IP counsel agrees, and adds: “The vast number of domestic Chinese patents is not such a big a problem for us as it is for the Apples and Googles of the world because we’re so diversified and we’ve been making devices for much longer, and it is much more likely that we will sue one of these Chinese companies then they will sue us.

“But I do not read Chinese, so if or when there is a need to look at these applications, I cannot help in those situations.”

The automotive patent counsel adds he often cannot tell what subject areas these patents are being filed in – whether they’re just for electronics or across the board.  

Instead of searching through these patents either completely or partially in-house, foreign companies that are unfamiliar with Chinese are forced to rely heavily on Chinese law firms patent trawling.

Xuting Huang, patent counsel for the ZF Group, points out that the less familiar companies are with the Chinese language, the more heavily dependent they will be on Chinese law firms and the more expensive the process will tend to be. He adds that for some companies, unfamiliarity with Chinese may also make it difficult to find the right law firm for the job.

But the struggle doesn’t stop once the patent flood has been crossed. Not only do businesses run the risk that they have missed something, they may have to contend with thousands of mostly unexamined utility models that should be invalidated.

Maaike van Velzen, head of IP portfolio at Philips, says she is not as concerned by invention patents – because of China’s increasingly sophisticated and reliable examination system – as she is with utility models that are difficult to assess in terms of the final scope of rights they will bestow.

Daniel Maier, head of IP transactions at Siemens, adds that utility models are a particular pain for companies in industries where such rights are filed. To invalidate such a right, he says, it is often difficult to prove that the company was the invention owner before the respective priority date.

The medical device senior IP counsel says it is also difficult to prove that an application is not valid in sufficient time when it has not undergone a full examination.

“How do you clear something like a utility model?” he asks. “If you see a utility model with a claim that never got a substantive examination and you do not think it is valid, it is a lot of work to document why you believe it is not valid.”

The manufacturing chief IP counsel adds that when you couple those challenges with the relative speed of Chinese infringement proceedings and availability of injunctions, this can cause a real headache for foreign filers.

And should a business miss a relevant patent or dismiss a utility model as invalid, it runs the risk of being sued by Chinese patent owners, who some sources have said tend to be more aggressive in enforcing their rights.

“My company was sued under several utility models and a patent that we were not aware of,” says the manufacturing chief IP counsel. “Ultimately, we resolved it and invalidated applicable claims, but the whole process was expensive and resource intensive.

“We had the bigger burdens to carry in the litigation and invalidity trials because we needed to introduce a foreign publication as prior art and it had to be translated and legalized.”

The number of domestic patents being filed at the CNIPA is unprecedented – and given that the office saw a year-on-year increase in 2018 of 18.1%, it’s unlikely that that number will slump anytime soon. It may be that expenditure on Chinese speakers, wading through patent filings and dealing with the frustrations of utility models will be the price of having patents in China – at least for a while.