China: CNIPA Reforms Set to Make the Country an Attractive Venue to Innovate

In summary

This article summarises the latest developments in the Chinese patent industry, including the reform of the CNIPA, patent filing statistics, litigation and awarded damages, the growth of Chinese patent agencies, the latest legal changes including the amended patent law, and Hauge international design applications. The shortened examination period and its benefits and drawbacks are also discussed. Some reminders for joint R&D activities are proposed. These developments make China more attractive for innovation and make Chinese patents more valuable.

Discussion points

• Reform of the CNIPA
• Statistics of patent filing, litigation and damages
• Growing number of Chinese patent agencies
• Amended Chinese patent law and its Interim Measures
• China has joined the Hague System
• Shortened examination period

Referenced in this article

• China National Intellectual Property Administration
• Chinese Patent Law (revised and effective as of 1 June 2021)
• Announcement by the CNIPA on the Interim Measures for Examination related to the Implementation of the Revised Patent Law (Announcement No. 510)
• Interim Measures of Related Provisions after China’s Accession to the Hague Agreement Concerning the International Registration of Industrial Designs (Announcement No. 511)
• National Intellectual Property Agency Industry Development Status (2022)

Although China suffered due to the covid-19 pandemic over the past three years and experienced difficulties caused by strict countermeasures stemming from the pandemic, global economic depression, global inflation and the Russia-Ukraine conflict, the intellectual property industry in China has demonstrated robustness and resilience. Various patent developments in the past year mean that China is more attractive for innovation and Chinese patents are more valuable. Most notable developments are summarised below.

Reform of the CNIPA

The Chinese Patent Office was originally established in 1980. It was then renamed as the State Intellectual Property Office (SIPO) and became an entity directly under the State Council of China in 1998, mainly responsible for patent administration and coordinating intellectual property matters with other countries.

In 2018, following another institutional reform of the State Council, SIPO absorbed the Chinese Trademark Office and was renamed as the China National Intellectual Property Administration (CNIPA), and also became an entity under the State Administration for Market Regulation. The CNIPA realised the centralised and unified management of patents, trademarks and geographical indications, as well as the comprehensive administrative enforcement of trademarks and patents, which is an important method of enforcement in addition to judicial enforcement via the court system.

According to the latest institutional reform of the State Council on 20 March 2023, the CNIPA once again became an entity directly under the State Council, marking another big step in Chinese intellectual property development. The CNIPA is responsible for improving the creation, application, protection, management and service of intellectual property, including patents, trademarks, geographical indications and layout designs of integrated circuits. At the same time, the duty of carrying out administrative enforcement for trademarks and patents will be undertaken by the State Administration for Market Regulation, but will be guided by the CNIPA.^[1]

According to the current reform, we can expect that the CNIPA and the State Administration for Market Regulation may play better roles in the future. The CNIPA may focus on improving the management of patents and trademarks to improve the quality of patents and trademarks, while the State Administration for Market Regulation, with its 600,000 enforcement personnel, may try to provide stronger guarantees for IP protection.

Increasing growth of high-quality patents

China’s patent system provides protection for three types of patents: invention patents, which correspond to standard patents with a 20-year term; utility models, which protect only the improvement of the structure and configuration of the product and have a 10-year term; and design patents, which provide 15 years’ protection for applications filed on or after 1 June 2021 (old design applications and design patents filed before 1 June 2021 still have 10 years’ protection).

As shown by Table 1, even though during the pandemic the global economy was under high pressure, innovations in China and other countries were still growing. The CNIPA in particular, as a leading patent filing and granting office and part of IP5 (the CNIPA, USPTO, EPO, JPO and KIPO), maintained a stable growth in the number of granted invention patents, from both Chinese applicants and foreign applicants from 2019 to 2022. We currently only have the amount for the first six months of 2023, but we can expect the granted patents amount will exceed that of 2022.

China has a huge number of granted utility models, accounting for almost 97 per cent of global utility model filings. This huge number has received lots of complaints in recent years since a large amount of these obviously lack novelty, which increases the burden on enterprises and society to challenge their validity. Since 2021, the CNIPA has tried to use an AI-based search system to do an automatic prior art search and sort out those utility models that lack novelty. As a further, upgraded measure, the CNIPA is considering carrying out a non-obvious inventive step examination against utility models, which is expected to be implemented later this year or early next year. Good results have been shown from these steps – the granted number of utility models has decreased significantly in 2022 and the same trend would likely continue in 2023. However, the value of a Chinese utility model should not be underestimated. In a patent infringement litigation, Zhuhai Gree Electric Appliances sued Ningbo Aux Air-Conditioning Co, LTD for infringing a utility model ZL200820047012.X. Zhuhai Gree Electric Appliances was awarded 40,000,000 yuan (about US$5,550,000) as damages by Guangzhou Intellectual Property Court, the first instance court, and this was upheld by Guangdong Higher People’s Court, the second instance court.^[2]

As with utility models, the CNIPA also now holds a stricter preliminary examination for designs and sorted out a good number of design applications that were the same as or very similar to prior designs. This is one reason why the number of granted designs dropped in 2022. Another reason for the lower number of granted design patents might be the delayed examination for certain design applications, especially for those applications involved in partial designs. Since the Implementing Regulations of the Patent Law and the Guidelines on Examination of Patents (1 February 2010) have not yet been revised, the examination of partial designs has been suspended for a while. Likewise, the CNIPA is also considering carrying out an obvious distinctiveness examination on designs in the near future.

Since 2021, the CNIPA has put lots of energy into cracking down on abnormal patent applications that are not for the purpose of protecting innovation. In 2022, about 955,000 patent applications were categorised as abnormal applications. This is also a reason why the number of patent filings and granted patents dropped in 2022.

Surge of patent agencies in China

According to the ‘Development Status of the National Intellectual Property Agency Industry (2022)’ issued by the CNIPA in May 2023,^[6] the number of patent agencies kept consistently rapid growth in the past decade, as shown in Chart 1. In 2022, 645 new patent agencies were established and the total number of patent agencies in China (except agencies located in Taiwan, Hong Kong and Macau) reached 4,520. Moreover, in 2022 the number of registered patent attorneys reached 31,347, and 63,311 people passed the Chinese patent attorney qualification examination.

Among the 4,520 patent agencies, there are only 397 agencies that have been established for more than 20 years, as shown in Chart 2, and there are only 46 agencies that have more than 51 patent attorneys, as shown in Chart 3.

On one hand, the surge in patent agencies corresponds well to the increase in patent filings in China. On the other hand, those large numbers of newly established small agencies may face a severe challenge of survival due to the fierce quality and price competition in the Chinese market.

In 2022, the CNIPA continued to push forward the ‘Blue Sky Initiative’, aiming to crack down on the illegal behaviour and misconducts of patent agencies. 1,489 agencies were interviewed, out of which 923 were ordered to rectify and 238 were punished. In recent years, administrative regulation has become an important measure to reduce low quality or abnormal patent applications, and is a strong guarantee for promoting the healthy development of the Chinese IP industry that will benefit not only China but also the world. In the current circumstances, high-quality patent attorneys and high-quality agencies are still in short supply.

Amended Chinese patent law and its Interim Measures

The fourth amendments to the Chinese Patent Law came into force as of 1 June 2021.^[7] These amendments mainly:

1. introduced punitive damage for serious intentional patent infringement, which may be up to five times the amount determined by actual losses suffered by the patentee, or benefits obtained by the infringer or multiple of the licence fees;
2. increased the statutory compensation from previously 10,000 yuan (about US$1,400) to 1 million yuan (about US$140,000), to currently 30,000 yuan (about US$4,100) to 5 million yuan (about US$700,000);
3. improved burden of proof, for which the infringer may be ordered to provide the account books and materials relevant to the infringement, or will have to bear the adverse consequences;
4. introduced partial designs, extended the protection term of designs from 10 years to 15 years and made it possible for designs to claim domestic priority;
5. introduced patent term adjustment to compensate for unreasonable delays caused by the CNIPA;
6. introduced patent term extension to compensate for a delay of administrative approval for a new drug;
7. introduced a drug patent linkage system to solve the potential dispute between a branded drug company and generic drug company in the early stages of administrative approval for a new drug;
8. further improved the patent administrative protection system;
9. introduced a good faith principle to stop bad faith patent applications and abuse of patent rights;
10. revised the service invention mechanism, according to which inventions made by a person in the execution of tasks of the entity employing the person or made mainly by taking advantage of the entity’s material and technical conditions, will be regarded as service inventions;
11. introduced open licence system, which allows patentees to easily licence their patent to any potential person or entity;
12. introduced one circumstance in which an applicant may enjoy a six-month grace period for novelty if the applicant disclosed their invention in the public interest; and
13. revised the rules for requesting patent evaluation reports for utility models and designs, which are necessary for judicial or administrative enforcement – according to the revised rules, the alleged infringer may request for the CNIPA to issue such a patent evaluation report.

Unfortunately, the Implementing Regulations of the Patent Law and the Guidelines on Examination of Patents (1 February 2010) are still in the process of revision and approval, and have not been officially released yet. There is no concern for the court system to carry out the above points (1) to (3); these points were actually carried out by courts before the revision of the Patent Law. For the other points, which relate to administrative procedures carried out by the CNIPA, more detailed rules and guidelines are still necessary.

In order to guarantee the smooth practice of the amended Patent Law, and especially to fulfil the need for examination of partial designs and domestic priority of designs, the CNIPA made Announcement No. 510^[8] stating some Interim Measures for handling examinations on 4 January 2023, which were put into force on 11 January 2023. There are two important points in this Announcement that should be noted:

• when applying for a partial design, the applicant shall submit the drawings of the whole product, and the part to be protected should be indicated by a combination of dotted lines and solid lines or other methods; and
• a design application may claim priority from previously filed Chinese design applications, invention patents or utility models, if the product to be protected by the design was shown in the drawings of an invention patent or utility model.

China has joined the Hague System

China has joined the Hague System, becoming the 94th contracting member on 5 February 2022. This means non-Chinese residents may have another option to get design protection in China from 5 May 2022.

The World Intellectual Property Organization (WIPO) Hague System is an international design system that provides a unique international mechanism for securing and managing design rights simultaneously in more than 90 countries through one application, in one language with one set of fees. However, since China has made a couple of unique declarations to be in line with the Chinese Patent Law, special attention must be made when filing an international design via the WIPO Hague System. WIPO’s website^[9] and the CNIPA’s website both list these declarations and interim measures for the Hague Agreement.^[10]

Based on recent refusals issued by the CNIPA with respect to international designs, we would like to remind readers of the following points, which might be overlooked but are irreparable:

• The requirements for drawings are different from European practice, where only formal requirements need to be met. According to Chinese requirements, for a three-dimensional design, it would be better to provide six orthographic views and one perspective view of the product, unless some of the orthographic views are symmetric or are not seen in use. Supplementing new drawings after the filing is not allowed, and in most situations like this, there is no way to save the case.
• The unity requirement is different from European practice, where one community design application may include several designs if these designs belong to the same class of the Locarno Classification. According to Chinese requirements, one application may only contain one design, unless several, up to 10, designs are similar designs for the same product, or several designs are incorporated in a set of products that are customarily sold or used at the same time. When the international application does not meet the Chinese unity requirement, the applicant may request to split multiple designs into divisional applications.
• Where priority is claimed in an international application, the CNIPA requires the submission of a priority document – failing to submit this will result in loss of the priority, which is not remediable. The priority document should be submitted when filing the international application via WIPO or submitted directly to the CNIPA within three months from the date of publication of the international registration in the International Designs Bulletin.

Considering the very different practice of China and the high risk of loss of the rights due to inappropriate submission, we strongly recommend that the applicant carefully review all of the guidelines provided by WIPO’s website, or consult Chinese patent attorneys before formally filing an international application.

Shortened examination period

The CNIPA continues to improve the examination quality and efficiency of patents and aims to reduce the examination period for invention patents to 16 months (counted from the date when the invention patent enters the substantive examination stage) within the year of 2023.^[11]

This will be good news for those applicants who want a quick grant. For those applicants who want a slow grant, delayed examination may be used, which may delay the examination by one year, two years or three years. It should be noted that according to current practice, delayed examination cannot be withdrawn in advance once requested. Therefore, the applicant needs to plan the examination well in advance.

With the shortened examination period, we have seen an obvious trend that for those patent applications claiming foreign priority, the cases to be granted after the first office action or even without any office action has increased significantly since 2022, from 27 per cent in 2018 up to 66 per cent in 2023. At the same time, the cases rejected after the first office action also increased from 0.8 per cent in 2018 to 24 per cent in 2023. These statistics are based on the applications filed by one of the Top 10 Chinese patent firms.

According to the current trend, applicants should be more careful when preparing the response and amendment for the first office action. Strong and convincing arguments or amendments responding to the first office action may mean that the application is granted quickly – otherwise the chance of rejection increases dramatically.

Of course, after a rejection, re-examination is still available for the applicant, but it will obviously increase the cost for the prosecution. According to the annual report of the CNIPA,^[12] in 2022, out of 63,000 re-examination requests, about half of them succeeded and the rest were upheld or withdrawn.

Increased joint R&D

China remains one of the most favourable places for R&D and manufacture, and an increasing amount of joint R&D involving China is occurring. Like the US, China also has the requirement for confidentiality examination or foreign filing licence (FFL), before the applicant may apply for a patent abroad. This should be well noted by the joint R&D entities, otherwise a patent application not meeting this requirement cannot be granted a patent in China and a wrongly granted patent may be invalidated because it failed to meet the FFL requirement.

More specifically, the FFL requirement in China is based on the place where the invention is made, not the nationality of the inventors. In other words, if the invention is made primarily in China, the applicant will have the following options to get the FFL:

• the applicant may file the patent application (in Chinese) firstly in China and get the FFL from the CNIPA before the applicant files the same patent abroad;
• the applicant needs to request the FFL separately, alongside at least the Chinese specification (claims are not necessary, but it would be better if the applicant also provided claims), and then the applicant may file the application outside of China after getting the FFL from the CNIPA;
• if at least one of the applicants is a Chinese entity, the applicant may file a Patent Corporation Treaty (PCT) international application (which can be in English or Chinese) before the CNIPA, and the FFL requirement will be deemed to be fulfilled after the CNIPA issues Form 105; or
• if none of the applicants is a Chinese entity but at least one of inventors has Chinese nationality or resides in China, it is also possible to file a PCT international application before the CNIPA by indicating the Chinese inventor as the applicant for a certain contracting member and designating other company applicants as applicants for desired contracting members.

Stable increases in patent infringement litigation and awarded damages

Patent enforcement activities are increasing in China, reflecting the improved protection of IP in China. According to ‘Judicial Protection of Intellectual Property Rights in Chinese Courts (2022)’, first instance patent infringement litigation in 2022 reached 38,970 cases, an increase of 23 per cent upon the previous year.

Based on the statistics with respect to awarded damages in patent litigations,^[13] from 2012 to 2022, the median awarded damages for invention patents increased from 100,000 yuan to 200,000 yuan, while the average awarded damages increased from 220,000 yuan to 2.58 million yuan, with an especially rapid increase after 2020.

Consistently increasing litigations and awarded damages reflect, on one hand, the strong determination of the Chinese government to build a stronger IP protection system in China, and on the other hand, make China a more preferable place for patent disputes.

Liuping Song, Huawei’s chief legal officer, and lots of other professionals believe that Chinese patents will become the most valuable patents in the world. As China is one of the biggest markets and one of the biggest places for manufacture, once your patent covers China, you may get protection not only in China but also abroad. This belief is in the process of coming true.

Footnotes