A Comparative Analysis of Patent Law Reforms in the United States and China

By Alex Liang, Foley & Lardner LLP

The year 2009 is on course to be one of change for patent law. Each of the two largest countries by GDP (PPP) is preparing to reform its patent law system. The reforms of both countries would result in patent law systems more consistent with other countries. It is extraordinary because 1) neither country is shy about deviating from the rest of the world, and 2) even major countries like the United States and China have felt the need to adopt prevalent international standards in response to the rapid changes in innovation, including the globalization of technology.

Adopting International Measures
The United States is on its track to approve the Patent Reform Act of 2009 (Act), Leahy S.515. Once enacted, it would move U.S. patent law into harmonization with the rest of the world in several respects. For example, U.S. patent law has long insisted on a first-to-invent system. The Act would change first-to-invent to a system similar to first-to-file, a system used in almost every other country. Further, under the Act, domestic and foreign public use or knowledge will be treated the same, which is similar to European law.

The Third Amendment to Chinese Patent Law will take effect on October 1, 2009. Interestingly, China made a move similar to the United States by eliminating different treatments of domestic and foreign public use or knowledge, adopting instead an absolute novelty requirement in patent applications. Under the new Patent Law, no invention is patentable if it is treated as current technologies, which are defined as technologies known to domestic or foreign public before the filing date. In addition, the Third Amendment adds a provision addressing co-ownership issues similar to the provision of U.S. law. The added provision states that where there is no agreement between co-owners, each may practice the patent or grant non-exclusive licenses with all license fees being shared among the co-owners. Further, the Third Amendment eliminates the requirement that application for foreign patents can only be filed after the Chinese application filing and only requires inventions to be reviewed by patent authorities. The requirement under current law applies to only Chinese inventors, while the Third Amendment would apply to any inventions in the territory of China. The Third Amendment, thus, adopts the same requirements as U.S. law in foreign filing.

Shrinking the Gap
On a more general level, the Act is designed to weaken the property right that a patent imparts, for example, by reducing the damages the patentee can claim from a patent infringer. It seems to reverse the leadership for strong IP rights that the United States has long played on the international stage. For example, the United States has pushed for the adoption of TRIPS and has insisted on stronger IP rights for protection in many bilateral trade negotiations.

In contrast, the new Chinese Patent Law significantly strengthens enforcement of patent rights. The Third Amendment prohibits offering to sell infringing products, limits a defense of unintentional infringement, provides a patentee the right to seek preliminary injunction, and clarifies the method of calculating damages. The strengthening of patent rights is equally interesting because China has been accused by foreign countries of lacking respect to IP rights. In fact, throughout the development of its IP laws, China has been pressured by the United States to create and enforce IP rights more vigorously. For example, the creation of Chinese Patent Law and both of the prior amendments were directly related to the demand from the U.S. government or the requirements for joining the WTO. Other Chinese IP laws have been similarly created or amended in response to foreign demand or international treaty as well. (Andrea Wechsler, Intellectual Property Law in the P.R. China: A Powerful Economic Tool for Innovation and Development, pp 35-40). Remarkably, however, there is no foreign demand or international treaty related to the Third Amendment to Chinese Patent Law. The lack of foreign pressure only makes this amendment more notable.

The Economic Cause Behind the Reforms
The relative change of attitude toward patent rights is not a sudden move in either country, but a reflection of recent trends. For example, recent U.S. case law tends to weaken patent rights (for example, eBay, KSR, Bilski, and Microsoft v. AT&T). On the other hand, the strengthening of patent rights is manifested in recent Chinese cases (for example, Chint v. Schneider Electric and Holleycomm v. Samsung).

In the United States, some prominent high-tech companies have repeatedly lobbied the U.S. Congress to harmonize U.S. patent law with the rest of the world and to reduce patent litigation damages. Two economic factors may motivate these companies for the intense lobbying. First, major players in the U.S. technology market, like Microsoft and Google, as innovative as they are, no longer rely on patents to maintain their market dominance. Rather, more often they find themselves on the defendant side of patent litigation. Second, the majority of patents approved by the USPTO are from foreign countries, and the share of foreign patents are increasing. (See USPTO report: http://www.uspto.gov/web/offices/ac/ido/oeip/taf/reports.htm#by_geog). Thus, domestic large companies are feeling an increasing need to curb litigation costs and damages while relying less on patents to compete with domestic and foreign companies.

The globalization of innovation may affect Chinese legislation more directly. The expenditure on research and development in China is increasing rapidly, from 0.9 percent of GDP in 2000 to 1.49 percent in 2007, even outpacing China’s double-digit growth of GDP. (See Organization for Economic Co-operation and Development Factbook page: http://titania.sourceoecd.org/vl=2990793/
cl=18/nw=1/rpsv/factbook2009/07/01/01/index.htm). Patent law protection, which in the past was primarily demanded by foreign governments on behalf of foreign companies, now proves to be in the interest of domestic companies too. For example, in 2008, the Chinese company Huawei filed more PCT applications than any other company in the world. In addition, patent law will definitely influence investment decisions of foreign companies, whose investments are actively solicited by China to improve employment and increase the country’s technological base. The Chinese government also realizes the positive role that patent law can play in encouraging domestic innovation, which is consistent with the Chinese government’s long-held policy of developing science and technology. Hence, the burgeoning innovations in China call for better-designed and better-enforced patent law, and prompt Chinese government to learn from foreign countries.