The patent systems of China and Japan - A comparative approach

Part 1: The strategies for patent development

After becoming a member of the World Trade Organisation in 2002, China has become the world’s second largest economy, surpassing Japan. According to the most recent WIPO study (2018), China is the country with the highest number of patent applications.

Despite these impressive numbers, China has long been seen as the “world’s factory”, producing low-quality manufactured goods and imitating products and business models from abroad. China has also suffered from a rise in the violation of intellectual property rights, with more than 213.000 infringement cases in 2017.

As a consequence, the country’s relationship with its primary trade partners, the US and the EU, has plummeted because of the mutual distrust. Nevertheless, over the past decade, China has demonstrated a serious resolve to enforce an effective intellectual property rights regime. It has evolved from a produce-and-copy economy, which turned a blind eye to copyright infringements, to one that is focused on high-quality development. By doing so, it has caught up to its two main competitors: the US and Japan.

In January 2017, the China Daily celebrated a peculiar event. The steel giant TISCO had just developed a new precision machine that allowed to create the rotary ball, an essential component of ball-point pens. This event has marked the end of China’s dependency on the export of rotary balls from foreign countries and has shown how China progressively made up for its deficiencies in the area of research and development.

Recently, it has caught up to Europe in terms of the percentage of gross domestic expenditure on R&D, even though it is still far behind from Japan.

This increase is followed by a rise in the number of ICT (Information and Communications Technology) patents, which shows that China has committed to technological excellency.

China’s strategy is to promote successful technological industries, such as semiconductors (microchips) and electric batteries. Microchips in particular, are the core component of many devices such as mobile phones, tablets, laptops, connected objects and cars. However, China has not yet caught up to the leaders in this industry which are the US, South Korea, Japan and Taiwan. This is mainly because of the 1996 Wassenaar agreement, which has restricted the export of microchips and their technologies. Nevertheless, China has made significant investment efforts with a 10-year national plan for transforming China’s manufacturing, called “Made in China 2025”, which would allow it to become independent in the area of electronic integrated circuits.

Nevertheless, it remains difficult for China to acquire technology from foreign companies, as the foreign governments are increasingly trying to protect themselves from Chinese investors. The approach is both offensive and defensive: attracting foreign innovation while making sure that strategic information does not end up in the hands of foreign actors.

According to China’s nationwide 13th Five Year Plan for 2016-2020 (part II, chapter 6), the encouragement of “innovation based on import and assimilation” is a fundamental approach to foreign firms’ patented products. Since 2006, China has relied on “indigenous (independent, self-reliant) innovation” and the registering of Chinese patents on foreign technologies. A National Medium-and Long-Term Science & Technology Program for 2006–2020 (part. VIII, chapter 3) aims to achieve a majority of indigenous patents in 2020. As such, the modern rise of China as a world economic power is directly supported by a cultural ideology that looks to outside sources for technological innovation.

Meanwhile, Japan is the world’s third largest economy, behind China and the US. With massive investments, Japan is in first place in terms of the percentage of gross domestic expenditure on R&D. However, it ranks third in the world’s total patent applications in 2018.

The strategy behind its research and development relies on a combination of three key actors: the state, universities and industries. In particular, the funding provided by the government and the know-how provided by the private sector enabled the thriving of academic start-ups and the superior quality of public research. In Japan, most of the investments in R&D are made by big tech companies such as Toshiba. Furthermore, Japan is a leader in key sectors, especially cutting-edge technology, ICT, energy, environment and disruptive technologies. However, the country’s status as a technological and economic superpower is increasingly threatened by the rise of China.

Part 2: The patent granting procedures

China grants two types of patent which are the patent of invention and the utility model. Article 42 of the Patent Law of the People’s republic of China explains that the patent of invention allows a protection for 20 years from the application date, whereas the utility model only allows for a protection of 10 years. It is possible to apply for both the patent of invention and the utility model at the same time. While the utility model’s procedure is lighter because it is only a formal examination, it allows for a faster protection. Nevertheless, after the substantive examination and the obtention of a patent of invention, the utility model will no longer exist. This special procedure enables a fast and long protection for Chinese inventors.

Japan had intended to reduce both periods of protection. Indeed, until 1995, the duration of the patent of invention was of 15 years from the date of issue reaching a maximum of 20 years from the application date. Nevertheless, from the 1st of January 1995, the patent of invention benefits from a duration of 20 years from the application date. As for the utility model, the protection was limited to 6 years in 1994, then was brought back to 10 years from the date of application by a revision of the Japanese law on patent on the 1st of April 2005. Thus, the duration of the Japanese and Chinese patents of invention and the utility models got aligned. This would reflect a will of both countries to align their systems according to the European one.

China joined the Patent Cooperation Treaty on the 1st of January 1994. It allows the inventors to present an application of patent in English and not just in Chinese, following the usual procedure. Thus, the Chinese government has encouraged the possibility of patent application for foreigners. Japan has also joined the PCT long before China, as it was done on the 1st of October 1978. We can see a will of the Chinese government to ease the international patent applications in order to attract inventors from abroad and thus, to compete with Japan.

China has enlarged the scope of the protectable inventions through directives of the Chinese office for patent (SIPO) on the 1st of April 2017. Article 5 of the Patent law of People’s Republic of China states that “Patent rights shall not be granted for inventioncreations that violate the law or social ethics, or harm public interests.” Article 25 adds that :

Patent rights shall not be granted for any of the following:

- (1) scientific discoveries;

- (2) rules and methods for intellectual activities;

- (3) methods for the diagnosis or treatment of diseases;

- (4) animal or plant varieties;

- (5) substances obtained by means of nuclear transformation; and

- (6) designs that are mainly used for marking the pattern, color or the combination of the two of prints.

Despite the absence of protection for methods of intellectual activities, the SIPO’s directives emphasize that “a claim relating to commercial methods comprising simultaneously the law and commercial methods and the technical characteristics does not exclude the possibility of patentability according to the article 25 of the law on patent.” (II.I -4.2). As a consequence, this directive allows for the protection of commercial methods by the law of patents, which represents an easing to the patentability in China. This reflects a will of Chinese authorities to favour the access to a protection by the law of patent, because in the numeric field, the commercial methods have beneficial effects for the consumer via a pro-competitive effect. It is an improvement of the user’s experience, an improvement of the efficacy in the distribution of resources and a diminution of social costs.

Furthermore, those directives have permitted to recognize a protection by the law of patent to a computer program. In reality, the computer program cannot be protected itself, but the invention relating to a computer program can be. That means that the program could be part of the devices’ components, like a video game that works with a special program. We use the form “media + process of a computer program”.

In the field of chemistry, the directives precise that the experimental data relating to the inventions could be provided after the application for a patent, at the condition that the technical effect provided by the data can be obtained by a skilled person from the divulgation of the demand (II.X – 3.5).

Regarding Japan, the article 32 of the Japanese law on patent states that “An invention that is likely to disrupt public order, corrupt public morals or harm public health may not be patented”. The directives of the Japanese office for patent (JPO) relating to the examination of applications for patent and utility models exclude from the scope of inventions things such as : the laws of nature, the mental activities, the personal competences etc. However, since a modification of article 2(3) of the Japanese law on patents in 2002, the computer program is patentable. This is logical move coming from a precursor in the field of new technologies. Japan wishes to protect its inventions. However, the commercial methods are still excluded as part of inventions that do not use the law of nature. As a consequence, the patentability in Japan is stricter than the one of China which may enable China to attract more inventors.

Part 3 : The infringement of patents

China abolished its opposition system in 2001. From now on, the only way to attack a patent is to initiate an invalidation procedure before a specialized court: the State Intellectual Property Office (SIPO). These requests can be made at any time, even after the expiration of the patent. This was followed by an amendment in 2012: the 4th patent law. It would allow the modification of multiples articles concerning the review and invalidation proceedings. However, the adoption of the amendment was postponed multiples times. To this day, it has yet to be implemented.

The Supreme Court of China issued, on March 22 of 2016, its second interpretation of the laws applicable to patent infringement disputes. It came into effect on April 1st, 2016 and has the status of a legal precedent. Its purpose is to reduce the length of patent litigations, reverse the burden of proof for a better estimation of damages, and introduce infringement through the provision of means or by inducing third parties. This confirms the position of the Chinese government, which for several years has taken measures to encourage innovations while strengthening the protection of intellectual property rights in order to update its legal system on counterfeits.

Regarding the reduction of the duration of disputes, the Chinese government intends to allow the SIPO to reject infringement proceedings without having to wait for the final conclusions on the validity of the titles from the patent examination chamber. The SIPO thus becomes the preponderant authority in infringement litigation vis-à-vis the review chamber, which in turn becomes a mere supervisory body.

As for damages, these are generally low for infringement litigation. This is because it is difficult for the patentee to prove the amount of actual losses suffered and the real profits of the infringer. Judges therefore apply legally established amounts. The reform therefore obliges the counterfeiter to provide all the necessary information for the definition of damages, in relation to counterfeiting. This allows the increase of the repair.

In addition, the amendment provides for the introduction of punitive damages to punish counterfeiting. For example, in the case of wrongful infringement, the pecuniary penalty may triple the amount of the usual damages. In addition to increasing the penalty, punitive damages would increase the average amount of compensation awards, hitherto insufficient.

Therefore, the reform allows for the widening of the modes of proof of a counterfeit. This will of the Chinese legislator is observed in particular in a decision of the Hangzhou Court of 28 June 2017. In this decision, the judges admit the admissibility of the blockchain as evidence. This decision proves the will to widen the modes of proof and thus to facilitate the counterfeiting actions.

Finally, the amendment could allow for the introduction of indirect counterfeiting by means or incentives. This notion did not exist originally and distinguishes two types of counterfeits:

- if a person, having knowledge of the fact that products are materials, equipment, parts for the exploitation of a patent, provided these products, without the consent of the owner and for production and exploitation purposes, to another person who subsequently infringed those products, the court may conclude, at the request of the holder, that such an act is an act of counterfeiting.

- if a person knows that a product or a method is protected by a patent and has actively incited a third party, without the consent of the patentee and for production and exploitation purposes to perpetuate counterfeiting action, the court can rules, on the request of the patentee, that such an act is an act of incentive counterfeiting.

The introduction of this concept into Chinese laws allows the scope of counterfeiting to be broadened. This is beneficial for patent owners. This results in the protection of investments (financial, human and intellectual), thereby promoting innovation

In Japan, the only way to attack a patent was to initiate invalidation proceedings between 2004 and 2015. However, the country reintroduced the opposition in 2015, so there are now two procedures of counterfeiting action.

Applications to invalidate one or more claims are formed only by the interested parties, after the grant of the patent, even if it is expired.

Opposition proceedings may be instituted by anyone within six months after the publication of the granted patent. The opposition will then be processed by the Japanese Patent Office (JPO). The opposition has the advantage of being cheaper and simpler than a procedure in invalidation, which remains possible in case of failure of the opposition. The existence of two procedures is a considerable advantage for litigants who can choose which of the two procedures is best suited to their needs.

Compared to Chinese law, it looks like litigants can be well protected against counterfeiters, but it is indisputable that Chinese laws evolved a lot to facilitate counterfeiting actions. Even so, the Chinese system does not have two different procedures. The existing procedure guarantees the protection of the patentee.

Part 4: The rights of employees

China and Japan have one of the most favorable system for employee innovation. This increased protection can be explained by the desire to innovate. The legislation of China and Japan on employee inventions tend to get closer with time.

Article 6 of the Chinese Patent Law provides that employee inventions include inventions made by a person in the performance of the tasks of the entity to which he belongs as well as inventions made mainly using technical and material means. As such, and unless the inventor and the company have agreed otherwise, the right to file a patent application belongs to the company, which will also be the patent holder after delivery.

Japanese law defines employee invention as an invention which, by its nature, falls within the scope of the business of the said employer, and was achieved by an act categorized as a present or past duty of the said employee. Until 2015, contrarily to China, the right to the invention belonged initially to the inventor (employee). However, when the employee had received a patent for the employee invention, the employer had the right to a nonexclusive and free license (1959 Patent Act, s.35 (4).). Yet, in the case where the right to obtain the patent was collective, a co-owner could not transfer his own part of the right to obtain the patent without the consent of the other co-owners. In order to solve the problem of instability in the acquisition of the right by the employer, the law was revised in 2015. Nowadays, the right to obtain the patent can be attributed initially to the employer or to the inventor according to the choice of the employer.

In 2006, China has realized the need to innovate. In 2008, in its goal « Design in China », intended to outreach the « Made in China » by 2020, China set up a profit sharing scheme for the benefits of innovation for employees of Chinese firms. According to Article 16 of the Patent Law, an “entity that is granted a patent right shall award to the inventor or creator of a service invention-creation a reward and, upon exploitation of the patented invention-creation, shall pay the inventor or creator a reasonable remuneration based on the extent of spreading and application and the economic benefits yielded.”

NB:

Science & Technology law 1993: allows to reserve a certain percentage of the profits generated to reward those who have achieved a technological achievement.

Law on promoting the transformation of scientific and technological achievements 1996: allows to: - reserve at least 20% of the net income from the sale of a technical realization to a third party, to give a bonus to those who have contributed significantly to this achievement. - reserve at least 5% of the profits generated by the exploitation of scientific and technological achievements, for three to five years, to pay those who have contributed to these achievements.

In the case of a contract:

The principle of contractual freedom implies that the amounts of remuneration and reward are fixed by an agreement between the employer and the inventor. Employers use this with regard to the concept of “reasonable remuneration” and draft regulations have in turn tried to specify it. It was initially proposed to invalidate “agreements removing or reducing the rights of inventors”, in relation to the amounts of Implementing Regulations, which were faced with negative reactions from industrialists. It was envisaged to invalid “agreements that remove the rights of inventors or impose unreasonable conditions on those rights or their exploitation”. The “reasonable” character should therefore reappear with the difficulties associated with its interpretation. It will be necessary to wait for the final version of the reform to know if additional clarifications will be made.

In the absence of a contract:

The Implementing Regulations will rule only when there is no such contract or consensus. In that case, a minimum amount of reward and a minimum percentage of remuneration must be respected.

The “sum of reward for a patent for invention shall not be less than three thousand Yuan; the sum of money prize for a patent for utility model shall not be less than one thousand Yuan”, and after exploiting the patent for invention-creation, the enterprises shall “draw each year from the profits from exploitation of the invention or utility model a percentage of not less than 2%, and award it to the inventor or creator as remuneration. When any entity to which a patent right is granted authorizes any other entity or individual to exploit its patent, it shall draw from the exploitation fee it receives a percentage of not less than 10% and award it to the inventor or creator as remuneration”.

One of the most important aspect of the draft regulation proposed by the SIPO is the increase in the minimum amounts. Indeed, if the draft regulation is adopted as it stands, the amounts currently applicable would double on average.

Therefore, the amounts are indicated only in percentages of the profit or turnover which means that an employee could be entitled to receive systematically this percentage, therefore substantial sums, even when the contribution of his invention in the success of the product exploited is low. Nevertheless, that could change with the draft regulation, which intends to take into account in the assessment of remuneration the contribution of each invention to the total benefit of the product and the contribution of each inventor to that invention. The draft regulation also plans to impose more transparency on the part of the employer. For example, the inventor would have the right to know the profits obtained from the exploitation, the license of exploitation and the transfer of the invention.

As in China, in Japan the employee is entitled to receive reasonable remuneration (1959 Patent Act, article 35 (4)) upon transmission to the employer the right to obtain the patent or the patent right. The amount of the remuneration is calculated on the basis of the benefit that the employer will receive for this invention , its contribution to the achievement of this invention and other circumstances. Since 2015, Japanese’s employees are entitled to receive a reasonable economic benefit which must be based on the incentive policy of the employer and the procedure of discussion between employer and employee inventor.

Part 1: Daria Putilina

Part 2: Chloé Ribeyre

Part 3: Aurélie Alcaraz

Part 4: Chloé Le Bihan

Bibliography

Part 1

WIPO Publications, « WIPO IP Facts and Figures 2018 »

https://www.wipo.int/publications/en/details.jsp?id=4382

OECD Website

https://data.oecd.org/

China’s nationwide 13th Five Year Plan for 2016-2020, part II, chapter 6, Translated by Compilation and Translation Bureau, Central Committee of the Communist Party of China Beijing, China, available on http://en.ndrc.gov.cn/

Sarah Guillou, « Doit-on s’inquiéter de la stratégie industrielle de la Chine ? », OFCE, Sciences Po Paris, policy brief, 30 janvier 2018

Sharon Thiruchelvam, « How China became a leader in intellectual property », Raconteur, Risk Management / Intellectual Property, April 20, 2018

Jean-Baptiste PAUL, « La Chine entre dans le Top 25 des nations les plus innovantes », 4 novembre 2016, Chine PI

https://chinepi.com/chine-dans-le-top-25-nations-innovantes/

Site de l’AFEP (Association française des entreprises privées), « La nouvelle mondialisation du plan « Chine 2025 », 30 novembre 2018

https://www.afep.com/flashs-eco/la-nouvelle-mondialisation-du-plan-chine-2025/

François Danjou, « La parabole du stylo à bille », Question Chine, 25 janvier 2017

https://www.questionchine.net/la-parabole-du-stylo-a-bille

Part 2

Article 2 (3) of the Patent Act (Act No. 121 of April 13, 1959, as amended up to Act No. 55 of July 10, 2015)

Article 32 of the Patent Act (Act No. 121 of April 13, 1959, as amended up to Act No. 55 of July 10, 2015)

Article 67 of the Patent Act (Act No. 121 of April 13, 1959, as amended up to Act No. 55 of July 10, 2015)

Article 5 of the Patent Law of the People’s Republic of China (as amended up to the Decision of December 27, 2008, regarding the Revision of the Patent Law of the People’s Republic of China)

Article 25 of the Patent Law of the People’s Republic of China (as amended up to the Decision of December 27, 2008, regarding the Revision of the Patent Law of the People’s Republic of China)

Official website of the European Patent Office, FAQ China : https/www.epo.org/servicesupport/faq/searching-patents/asian/faq_fr.html

Official website of the European Patent Office, FAQ Japan : https://www.epo.org/searching-for-patents/helpful-resources/asian/japan/faq_fr.html

J. Zhao et C. Vallée, Brevetabilité en Chine, assouplissements imminents !, 30 mars 2017

Part 3

Mei TAO du cabinet LLR China, « Contrefaçon de brevets en Chine, quelques changements de la Cour suprême (Partie 1/2) », 25 janvier 2017, Chine PI

https://chinepi.com/contrefacon-de-brevets-en-chine-quelques-changements-de-lacour-supreme-partie-12/

Mei TAO du cabinet LLR China, « Contrefaçon de brevets en Chine, quelques changements de la Cour Suprême (Partie 2/2) », 31 janvier 2017, Chine PI

https://chinepi.com/contrefacon-de-brevets-en-chine-changements-cour-supreme-2-2/

Agnès PICON et Li LIANG du cabinet LLR, « Projet de réforme de la loi des brevets en Chine (Partie 1 sur 2) », 5 octobre 2016, Chine PI

http://chinepi.com/projet-de-reforme-de-la-loi-des-brevets-en-chine-partie-1-2/

Julia Peng, Kevin Xu, Stefaan Meuwissen, « China issues its fourth draft patent law, after over three years of deliberation », January 18th, 2019, LimeGreen News

https://www.limegreenipnews.com/2019/01/china-issues-its-fourth-draft-patent-lawafter-over-three-years-of-deliberation/

Hu Jintao, « Order of the president of the people’s Republic of China n°8 », December 27, 2008, World intellectual property Organisation (WIPO)

https://www.wipo.int/edocs/lexdocs/laws/en/cn/cn028en.pdf

SIPO / CNIPA national intellectual property administration

http://english.sipo.gov.cn/

JPO, japan patent office

https://www.jpo.go.jp/e/faq/yokuaru/searching.html

Part 4

Dominique Doyen, Emmanuelle Fortune, « La rémunération des inventions de salariés », Les analyses de l’Observatoire de la propriété intellectuelle, INPI, octobre 2016

Tsukasa ASO, « La réforme de l'invention de salarié au Japon », Propriété industrielle n° 3, Mars 2017, étude 9

M. Kenji SHIMADA, « Le système des inventions de salariés au Japon », JETRO Düsseldorf, Congrès de paris sur la propriété industrielle, 19 SEPTEMBRE 2014

Jing ZHAO, Clémence VALLEE, « Inventions de salariés en Chine : vers un régime pro salariés ou pro employeurs ? », Cabinet LLR, Chine PI: le blog sur la propriété intellectuelle en Chine, 24 février 2017

Li LIANG, Agnès PICON, « Projet de réforme de la loi des brevets en Chine », Cabinet LLR, Chine PI: le blog sur la propriété intellectuelle en Chine, 12 octobre 2016

Japan Patent Act 13 April 1959 - Website of CNIPA: National Intellectual Property Administration