By Brett Kensett-Smith
A lot of our clients look at me sideways when I tell them China has become a good place for foreign companies to enforce their patents. I often go further and point out that, in some ways, China’s enforcement potential is now better than in the US.
Generally, most people assume China’s intellectual property courts are weaker than US courts and that the game is rigged in favour of Chinese companies. Yet, the numbers tell a very different story.
For most of the last century, annual patent filings in the US far outnumbered those filed in China. Then in 2011 for the first time in history, more patent applications were filed in China (630,000) than in the US (580,000), making China the leader in 580,000), making China the leader in terms of locally filed patent applications. A few years later in 2019, applications from China to the Patent Cooperation Treaty (PCT) also overtook US-originating PCT applications.
Patent applications in China continue to increase at an astonishing rate. Today, they account for more than 40% of all patent applications filed globally.
There are several reasons for the rise. For a start, Beijing has focused on creating a suite of attractive incentives for local companies to file more patents which, admittedly, does mean a lot of junk patents tend to clog up the system. But it also means more patents are being filed overall.
The real question is: has Beijing also made China’s patent system more robust or weaker in terms of enforcement?
It’s hard to know. But one metric (albeit imperfect) to answer this question is to look at how well the patents hold up in court. After all, getting a patent granted by a patent office is a coarse sieve. Even after a patent is granted, it doesn’t give the patent holder an impregnable legal position. Examiners have neither the time nor the resources to assess each application thoroughly for its legal defensibility.
On the other hand, the depth of assessment in patent litigation trials is restricted only by a client’s budget. Patent trials can be enormously expensive, so a plaintiff must be certain they have a strong case.
For example, one US study estimated it can cost between $US2.3 million and $US4 million to fund a first-instance trial (by comparison, patent litigation in Australia may cost between $AU500,000 and $AU2 million),.
The US has other, cheaper pathways to test the validity of granted patents. The infamous US Patent Trial and Appeal Board (PTAB) has proven popular with defendants since its inception in 2011. It allows for post-grant patent reviews without the cost and hassle of litigation. The PTAB has so far heard about 10,000 cases at a cost of about $US100,000-$US700,000 each.
But patent owners beware – there’s a reason the PTAB is known as the “Death Squad.” Of those 10,000 cases, about 60% were either not reviewed (after one of the parties pulled out) or the patent was abandoned mid-procedure. Of the remaining 40%, only 6% were held to be valid.
How does China’s patent court system compare with the US PTAB in terms of litigation outcome?
China’s system is more streamlined than the US system. For example, China has 18 courts and four tribunals that specialise in IP matters. Interestingly, China’s patent litigation success matches the US experience. Over the last decade, about 66% of litigated patents were upheld in China’s courts, compared with a 65% success rate in favour of the patentee in US courts. And that is at a substantially lower cost than the US court process, at around 1.5% to 4% cheaper.
But these statistics can’t tell the whole story because they don’t reveal if there is any truth to the claim that China’s IP courts are biased against non-Chinese patent owners, aka foreign companies.
To answer this, it’s important to note that most patent court cases in China (over 80%) involve only domestic companies. One 2016 study looked at the breakdown of the first-instance (non-appeal) cases in which the patentee was a foreign company. But after removing the cases settled through mediation, a substantial number (78%) were upheld for foreign patentees. This should settle any questions about bias.
How about the cost of getting a patent? Is it more expensive in China?
Assuming the company has filed a PCT application, the cost of entering the national phase into China and the US and taking each application through examination to grant costs about the same in both countries.
So, is it a good plan to consider filing a patent application in China, the world’s most prolific patent producer, the largest factory base and the most populous nation?
I think the numbers speak for themselves.
As originally published on Lexology