As is often the case in China, a critical change in the IP system has taken place without the publicity of a new law but with an internal administrative document hidden on a government website. With an administrative Circular issued on January 27, 2021, the China IP office is rewriting the rules that led to the massive surge in low-quality patent filings (a/k/a junk patents) by Chinese firms during the last decade, while subtly changing the scope of the statutory rules on the examination of utility models and design patents. The ultimate goal is another implementation of an old Marxist rule, namely, the transformation from quantity to quality.

On January 27, 2021, the China National Intellectual Property Administration (CNIPA) issued the “Circular on Further Strictly Regulating Patent Applications” (关于进一步严格规范专利申请行为的通知, 国知发保字[2021]1号), which entered into force on the same day. The Circular is the updated version of “Several Provisions of the State Intellectual Property Office on the Standardization of Patent Application Activities” (关于规范专利申请行为的若干规定), originally adopted in 2007 and revised in 2017 (hereafter the “2017 Provisions”).

The Circular is one of the recent regulatory initiatives from the Chinese government aiming at moving China from a country dependent on “imported” patents (i.e. patents filed by foreign entities) to a country with great autochthone creativity. The stated goal of the Circular is that of reducing or eliminating fraudulent and low-quality patent applications, while enhancing the quality of the patent filings. Although just an internal administrative document, this Circular could have groundbreaking effects on the practice of examination of national filings for utility models and design patents.

Content of the Circular

Expansion of Categories of Irregular Patent Filings

The Circular provides a list of so-called irregular filing behaviors that the CNIPA intends to monitor in order to incentivize genuine and good filings. With this purpose in mind, the Circular broadens the list of irregular filings provided by the 2017 Provisions.

The 2017 Provisions listed three major cases of irregular patent filings that were subjected to revocation actions and fines: (1) the same applicant submits multiple patent applications of obviously similar content or instructs others to submit these applications; (2) the same applicant submits multiple patent applications involving obviously plagiarized and existing technologies or designs or instructs others to submit such applications; (3) applications described in (1) or (2) which are submitted by patent agencies as the applicants.

The Circular adds the following six new types of irregular patent applications:

• the applicant deliberately submits related patent applications in separate filings;

• the applicant submits patent applications that are obviously inconsistent with its research and development capabilities;

• the applicant abnormally resells the patent application(s);

• patent applications submitted by the applicant have technical solutions that implement simple functions with complex structures, or use conventional or simple combination of features, and other behaviors that are obviously not in line with the common sense of technological improvement;

• other acts that violate the principles of good faith stipulated in the China Civil Code, and not in compliance with the relevant provisions of the Patent Law, which disrupt the order of patent application management.

The first case seems to address design patent filings for multiple designs. The third concerns the practice of patent squatting, or so-called preventive filings without intention of use. The second and fourth cases seem to further elaborate on these issues, and address multiple patent applications involving obviously plagiarized and existing technologies or designs.

According to the Circular, the CNIPA will continuously monitor, assess, and identify the irregular patent applications, and inform the local intellectual property bureau about these applications. The latter will then request the applicants to withdraw the applications. Upon refusal of the applicants, the local intellectual property bureau will transfer the relevant information to the market supervision administration (MSA), the public security bureau (PSB) or credit monitoring department for their further handling, which may include administrative and/or criminal prosecution.

The Circular takes stock of the current filing practice by local Chinese applicants, which tend to use the patent-filing online services at the local IP offices in their province and county, rather than filing with the central Beijing office of CNIPA. The provision also takes stock of the fact that most of the filings that would fall under one of the listed irregular filings are utility models and design patents, which are not examined as to their substance according to the Chinese Patent Law.

The monitoring power and the enlargement of the types of irregular filings in the Circular gives to the CNIPA, at least on paper, a full supervising function that could be running along or even before the application is assigned to an examiner. Looking at the list of irregular filings, it could be argued that CNIPA could exercise a “quasi” substantial examination of utility models and design patents filed after January 27, 2021. Although CNIPA examination and order of removal of the irregular application does not legally bind the later examiner, the latter will be inevitably influenced by a finding of irregularity, especially that concerning an application plagiarizing or copying prior art.

Questions remain. Will CNIPA monitor the applications before their assignment to an examiner? Will the monitoring include novelty searches? If patent searches were allowed, CNIPA could then carry out a substantial examination of utility models and designs against the provisions of the patent law which only provide for formal examination.

Importantly, is this a harbinger of an upcoming amendment to the patent law in the matter of design and utility model examination? A lot will depend on the technology that the CNIPA will be able to employ in order to sift through many thousands of utility model and design patent applications. AI technologies may increase the analytical capacities of CNIPA, making the implementation of the Circular of great practical importance.

Additional Measures Against Irregular Patent Filings

In addition to ordering the removal of an irregular patent filing, CNIPA can also issue orders that will affect the value and marketability of the irregular patent. Such orders can exclude the application from eligibility to obtain reduction or waiver of the patent fees, or from receipt of awards or being counted in official statistics. Most importantly, the irregular filing can be deprived of the right to obtain financial assistance and subsidies or obliged to return those previously received. In cases where financial assistance or incentives were obtained through fraudulent activities, where circumstances are serious enough for this to constitute a crime, the applicant will be reported to the public security bureau for criminal investigation.

It is evident that this vast range of sanctions, added to the main revocation power, can constitute a welcome filter against junk patents. It remains to be seen whether and how the CNIPA will implement this in a consistent and effective manner.

Phase-Out of Patent Subsidies

Already before the rise to power of Xi Jinping, previous leaders and governments had introduced subsidies and tax rebates to encourage Chinese firms to become familiar with and file for intellectual property. Most subsidies were handed down at provincial or even more local levels, allowing those administrations to tailor them to their local development needs.

The vast majority of such policies favored filings by local Chinese entities. Foreigners could at most enjoy such benefits only by transferring or licensing their IP to their Chinese subsidiaries. In most cases, foreign right holders were reluctant to transfer their IP to their Chinese subsidiaries for a number of tax and management reasons. Also, and more importantly, patent subsidies incentivized a flood of junk patent filings and low-quality filings, carried out by Chinese companies with the sole intent of enjoying such subsidies.

Aware of the low quality of most patent filings, and responding to the demand from the Central Committee of the Communist Party to transition China from a quantity- to a quality-oriented patent filing system, CNIPA used the same Circular to initiate a phase-out of the current system of patent filing incentives for Chinese applicants.

In particular, the Circular requires the central and the local governments to:

• Fully eliminate the financial assistance to patent applications before the end of June 2021;

• Fully eliminate the financial assistance to the granted/registered patents by 2025;

• Amend the Implementation regulations for the China Patent Law in order to include the irregular patent applications in the intellectual property credit-monitoring system;

• Enhance the supervision and regulation on patent transactions in China, including strengthening the monitoring on recorded patent assignment and license; and

• Strengthen inter-departmental information communication and, in particular, require the local intellectual property bureaus to report the irregular patent applications to the technology management departments to ensure these applications will not be used to obtain national preferential policies such as the status recognition of high-tech enterprises.

Conclusions

If consistently implemented, the Circular will help promote higher quality patent filings and reduce the phenomena of junk and stolen patents in China. This will be to the benefit of foreign right holders, who will not need to invest time and money to remove such junk patents through invalidations, and who will not be subjected to trolling and blackmailing actions by patent thieves. Also, the substantial monitoring by CNIPA of utility model and design applications may be the harbinger of yet further change – including a desirable overhaul of the mere formal examination system for patent applications and a switch to a full substantial examination as in most Western countries.