In 2006, the Chinese government pledged to foster future innovation in China by promoting science and technology development in key fields and enhancing innovation capacity. In the National Medium- and Long-Term Plan for Science and Technology Development (2006-2020) published by the State Council, China pledged that by 2020 research and development (“R&D”) investment will exceed 2.5% of China’s total GDP, and that progress of science and technology will contribute at least 60 percent to the country’s development.

As part of the effort in achieving these considerable goals, China has turned its focus towards increasing intellectual property filings with the State Intellectual Property Office (“SIPO”) for the Peoples Republic of China (“PRC”) and increasing intellectual property filings by Chinese businesses and inventors. While the quality of patents and the corresponding ability to enforce in China and abroad is a concern, in 2010, the SIPO for the PRC published the National Patent Development Strategy projecting that annual Chinese patent filings will reach 2 million by 2015. In support of this projection, SIPO published data indicates that growth in Chinese patent filings from 2005 to 2010 has been approximately 20%. Additionally, it was reported that the number of patent applications filed in China exceeded 300,000 in 2009.

As further evidence of China’s commitment in the international arena, the government now subsidizes Chinese corporation foreign and Patent Cooperation Treaty (“PCT”) filings. As a result, in 2010 and 2011 China was among the top four countries in PCT filings and in 2009 and 2010 two Chinese companies, ZTE Corporation and Huawei Technologies, were among the top five applicants using the PCT to obtain patent protection.

Also, as of November 2011, the SIPO of the PRC and the United States Patent and Trademark Office (“USPTO”) extended the Patent Prosecution Highway Pilot Program between the two nations. Under the Patent Prosecution Highway, “an applicant receiving a written opinion or an international preliminary examination report from either the SIPO or the USPTO that at least one claim in a PCT application has novelty, inventive step, and industrial applicability may request that the other office fast track or expedite examination of corresponding claims in corresponding applications.”

Moreover, China amended the Patent Law of the PRC in 2009 to revamp the Chinese national patent system. The impact of the amendment to the Patent Law is two-fold. First, it enhances China’s position to meet the goals highlighted above. Second, it attempts to align Chinese patent practice with much of the rest of the world. For example, in the recent amendment, China has retained a utility model patent, which is available in many countries worldwide with the United States being one exception. The utility model patent provides protection for a product’s shape or structure or combination thereof with a 10-year term from its filing date. Utility model applications are favorable to establishing rapid patent rights because they are cost effective, there is no substantive application examination, and rights are normally granted within one year from the filing date. The 2009 amendment to the Patent Law also provides rules and regulations for exploiting these utility model patents both alone and in conjunction with a more traditional invention patent. While traditionally not exploited by foreign filers, the utility model is utilized by many Chinese entities. For example, a Chinese patent infringement case based on a utility model patent granted to Chint Group resulted in a 335 million yuan ($45 million) verdict in a court of first instance against rival Schneider Electric of France. Thus, a foreign corporation considering entry into China should take into account the advantages of a utility model patent, especially for important products.

In addition, many changes were made to the Patent Law to assuage the fears of foreign corporations in conducting technology focused business with China. For example, China is a first to file system, and a recent amendment changed its patent law to one of absolute novelty. Thus, often feared patent hijacking, whereby a third-party could theoretically seek patent protection in China for another’s invention first disclosed outside China is now illegal under Chinese law. Overall, the 2009 amendments to the Patent Law have augmented China’s position as a trade partner and provide a basis to encourage foreign investment in technology and innovation in China.

In sum, China is driving its intellectual property system to grow at an astounding rate. While this presents great opportunity, the relative newness, complexity, and evolving nature of Chinese intellectual property laws, rules and regulations may create certain risks. In the next 10 to 20 years the Chinese intellectual property system will likely undergo substantial development and change. Thus, when evaluating whether to invest its technology and intellectual property in the Chinese market, a foreign entity should not only consider the current state of China’s intellectual property laws, rules and regulations, but should also take into account likely future evolution of the Chinese intellectual property system. The challenge is to help clients become competitive and successful in doing business in China by developing a solid intellectual property strategy that assists navigation of the Chinese legal, regulatory and business environment.

John J. Cahill is an Associate in the Gibbons Intellectual Property Department.