IN Shanghai, innovation is the current buzzword for industries, researchers and start-up entrepreneurs. Those who come up with pioneering ideas for new products, processes and systems naturally want to attract investment and enjoy any financial benefit that accrues.
That’s where patents come into play. But experts say that too few Chinese companies are developing comprehensive patent strategies.
“Very few Chinese companies have tried their best to secure as many patent rights as possible in every potential market, as American companies are doing,” said Lu Guoqiang, director of the Shanghai Intellectual Property Administration. “They don’t seem to fully understand how patents can help them restrict the development of possible competitors and ensure that they enjoy the benefits of what they create.”
The administration last year received 81,664 patent applications, a 5.5 percent decrease from the previous year due to a change in subsidy policies. However, the number of patents approved rose 3.7 percent to more than 50,000. Forty-four percent of those patents are related to new inventions.
“Mayor Yang Xiong has listed intellectual property development as one of this year’s major tasks in the latest annual report,” said Lu.
Checking claims
In China, patents are available in three categories: new inventions, new utility devices, and new artistic creations.
Patent applicants include companies, colleges, research institutes and individuals, but the bulk of them — 70 percent — are companies. They submit their applications to the Chinese National Patent Division of the State Intellectual Property Office via its branch office in Shanghai.
Office experts vet the ideas, checking databases to see if an invention is really new and checking whether claims about patent products are valid.
Foreign companies wishing to extend patent rights in China have to submit applications to Chinese authorities directly or via the counterparts in their own countries under the Patent Cooperation Treaty. Foreigners and foreign subsidiaries without business offices in China, as well as people from Hong Kong, Macau and Taiwan, are required to file applications to patent agencies appointed by the Patent Granting Office under the State Council, China’s cabinet.
Patents disputes are usually handled by local intellectual property administrations and courts, instead of the state office. Last December, the Shanghai Intellectual Property Court opened in the Pudong New Area.
China’s first patent law came into effect in April 1985, as the nation was embarking on major economic reforms and opening its markets to the world. The forerunner of today’s Shanghai Intellectual Property Administration was established that same year.
Its job is to process applications, collect patent fees and provide services, including mediating patent disputes.
The number of valid invention patents has increased from one in 1985 to 56,515 at the end of last year. That translates to 23.7 invention patents for each 10,000 permanent residents in the city.
Lu said the mayor’s plan calls for increasing that average ratio to 26.
“With a population of over 24 million and low intellectual property awareness in many companies, the target of 26 is a challenge,” he said.
The fees for patent applications and examination ranges from 800 yuan (US$128) to 4,500 yuan, and annual fees to retain patent rights are between 600 and 8,000 yuan, depending on categories they belong to and years they have been possessed. Under former policy, all applicants were eligible to receive subsidies that covered nearly all the costs of application and annual fees for the first three years after a patent was granted. That policy changed in 2012 to apply only to those who had successfully received patents.
Lu recently asked district governments in the city to adopt incentive policies for patent holders, especially in technological innovation.
The changes have been welcomed by companies.
“Some patents require less investment in research and can bring less revenue to the government, so it is unfair to treat all patents alike,” Tony Chuang, vice president of Semiconductor Manufacturing International (Shanghai) Corp, said.
SMIC spends about US$200 million on research and development each year, and it has nearly 5,000 patents across the world. It spends US$1-2 million every year on applications for new patents and retention of granted ones. It received approval for 244 patents in China last year, topping other companies in Shanghai.
Lu said Chinese companies hold their invention patents, on average, for six years, compared with nine years overseas. Invention patents are available for 20 years, and patents in the other two categories can be granted for up to 10 years, as long as holders pay annual retention fees and there are no challenges to the validity of the rights.
“Many invention patents held by Chinese are not sought for other business purposes,” Lu said. “Some are simply sought to enrich individual resumes and improve the chances of career promotion, or to create eligibility for other work-related subsidies. Once those goals are achieved, the patent holder stops paying the annual fees and lets the patent rights lapse.”
In fact, less than 10 percent of all the patents granted in Shanghai have been applied industrially, he said.
SMIC’s Chuang said his company has never dropped any of its patents since 2000. It spends US$5 million in annual fees to keep patents active.
He recalled the time when a foreign company alleged that SMIC had infringed one of its patents in the US. Chuang discovered that the foreign company had actually infringed SMIC’s patent rights in China. Negotiations resulted in a small amount of compensation.
Patent tending is such complicated work that SMIC contracts that responsibility to a patent agency. There are at least 90 such agencies in the city.
Tang Guohua, a partner of Watson & Band law firm, said the quality of patent agencies in Shanghai varies.
“Some agents only help submit application documents, filling in required forms from information provided,” he said. “Others, like us, study the inventions or innovative ideas closely and seek additional information where necessary to do a perfect application.”
Fees for service also vary, he said.
“Some charge several hundred yuan, while we charge 10,000 yuan for each application,” he added.
Documentation requires technical skill and industry experience.
“When applicants don’t list enough claims for rights protection, they may lose the opportunity to seek redress for infringements,” said Tang, “Patent agents need to know the law, technology and patent procedures.”
Lu agrees. The document seeking patent rights for Chinese companies usually contains seven to eight pages, but in foreign countries, it can run to 20 pages.
His administration provides training sessions for people dealing with patents, and all patent agents are required to hold professional licenses, Lu said.
Wang Xiao, from Evalueserve, a global consulting firm offering research, analytics, and data management services, said the patent services market in China is not adequately developed or utilized.
“Many transnational companies entrust us to research patent information before making decisions on technological research,” Wang said. “But few Chinese companies have come to us yet. Most still focus on applications for patents, rather than on developing patent strategies.”
Lu said he is gratified so see companies like SMIC and telecommunications giants like Huawei Technologies and Zhongxing Telecommunication Equipment Corp making full use of patents. His office is developing new strategies for patent services, he added.
