Trouble with Chinese IP? You bet!

It is a fairly common fear of those whose businesses rely on intellectual property rights: the worry that the Chinese manufacturing juggernaut will thumb their nose at their IP rights and ride roughshod over them by sheer weight of numbers, unencumbered by the need to respect IP rights or the responsibility of doing their own research and development.

Looking to the future, I think Chinese companies will continue to present serious IP challenges, although perhaps of a different kind to those of the past.

There is no doubt that enforcing IP rights against Chinese companies, especially in China, has been difficult in the past. However, it would be wrong to think that China is akin to a lawless land, inhabited by IP cowboys.

Some interesting facts to consider:

• There are over 697,000 valid Chinese patents, and 351,000 of these are owned by Chinese companies. For the first time, more than 50% are owned by Chinese companies.

• In 2009, over 30,000 lawsuits were filed in the Chinese IP courts (absolutely dwarfing the number of cases filed in Australia).

• Approximately 90% of IP lawsuits in China involve Chinese companies suing one another.

• China is ranked 4th behind the USA, Japan and Germany in the number of international PCT patent applications filed, and they are growing more rapidly than any other country.

• Chinese companies ZTE and Huawei are ranked 1st and 3rd on the list of top PCT patent applications published in 2011, having had 4,657 PCT applications published between them – that’s over 12 patents filed for every day of the year!

So what does this mean? Chinese companies are filing, and will be granted, a massive number of patents at home and around the world; they are used to IP litigation and they won’t be afraid to use it, especially in the more established Western legal systems.

So what does this mean for you? The real problem you will have with Chinese competitors and IP rights is that soon they will be enforcing their rights against you, in your backyard. So you need to be prepared, not caught thinking about how it used to be.


by Adam Hyland

Patent Harmonisation – what is it all about?

History
Patent law is a public policy instrument to encourage innovation. It has been employed over hundreds of years by many countries. Each country historically imposed its own rules, restrictions and processes around patent law, and operated its law in isolation. This was very problematic for early inventors, and the likes of Colt, Watt and Edison famously spent large sums of money to protect their inventions outside their home countries. As is the case today, significant inventions were not confined to the country of the inventor – they have international application, and the inventors therefore require protection throughout many different countries.

The Paris Convention of 1883 established some minimum requirements on signatories. Each country agreed to provide a right of priority to applications filed in other member countries, provided they were filed within a year of the first application. Another important requirement imposed by the treaty is national treatment – nationals and residents of member countries must be treated by the national laws no less favourably than nationals of that country.

The Paris convention has been expanded and updated several times, and other agreements have governed areas such as formal requirements for patent applications (Patent Law Treaty), a common filing and preliminary search and examination process (Patents Co-operation Treaty), and deposits of micro-organisms to support patent applications (Budapest Treaty). Over the years, more and more countries have joined these agreements, so that the major agreements are operative in over 140 countries, including all developed countries and major emerging economies such as China, India, Brazil, and Indonesia.
Even more significantly, an intellectual property agreement, TRIPS, is a key component of the international trade system established and regulated by the World Trade Organisation. This allows countries to use the dispute provisions of the WTO when IP standards are not being honoured, and this has been used on several occasions.

In parallel, there has been a gradual trend towards national laws being amended so as to reduce unnecessary differences. Recent major amendments in the United States and Australia are illustrative of this trend. Hence, the core features of patent legislation are not greatly different between most countries, particularly developed countries, and most of the formal requirements can be met in most cases by following appropriate common standards. This also applies to emerging economies such as China, Indonesia, Thailand, and Malaysia.
Further substantive patent law harmonisation at the international level has been slow, but there are recent signs of progress.

So where is the problem?
‘Black letter’ patent law being harmonised is important, and carries great advantages for technology developers. However, the law is administered by a patent office in each country, which examines and grants patents. Patents are enforced by courts, which apply the law through the filter of their own national constitution, other fundamental laws, and underlying practices and principles.
As I will explain in more detail below, even if the same laws are in place and the same patent application is filed, completely different practical outcomes in different countries will be achieved if the administrative authorities operate different rules and practices. Similarly, if the courts apply different approaches to interpreting and enforcing patents, then even the same law and the same patent will produce different outcomes.

Patent Examination
In the past, each country has conducted its own search, examination and grant processes, in isolation from all other patent offices. A patent filed in 10 countries will be examined on similar grounds by 10 different Examiners, and this is a waste of resources. This is hugely inefficient on any objective analysis. This is particularly the case for the search component of examination, where often the same search is repeated in each country. While different patent offices will search somewhat differently – for example, the Japanese Examiner will often search Japanese material better than anyone else – there is a large degree of duplication. On the other hand, even where law appears similar, patent examination can be very different. It is not uncommon for the same patent have few objections which are readily overcome in one country, and have significant difficulties in another, based on the same prior document.

A form of harmonisation is taking place at many levels to improve co-operation between patent offices and remove duplication. One approach is a regional patent office, which examines for all the countries in a region, at least when the applicant decides to use that path. This exists in Europe, as the European Patent Office (EPO) and in parts of Africa.

Another form is the increased co-operation between patent offices, particularly in sharing their Examiners’ work. There are even proposals to have the Examiners from different countries discuss a particular invention which has been applied for in both countries, in some circumstances. The largest patent offices – the United States, China, European Patent Office, Japan, and South Korea - have all invested large resources in working to allow recognition and understanding of each other’s work products. This ranges from making translations of their national filings available in search databases, to working groups of Examiners examining the same applications and comparing the results. This is likely to eventually bear significant fruit.

The resources at stake are considerable - for example, the USPTO employs over 6,800 Patent Examiners, and has 644,387 applications (as at April 2012) that it has not yet examined. The statistics of the other large offices are similar in dimension. The economic drivers for improvement and co-operation are clear.
Despite some regional success with the EPO, there are many political barriers to any formal, legal recognition system for granting patents. However, from hearing speakers from all of the major patent offices over the past year, it is clear that they are all moving to recognise each other’s work, which in turn will tend to remove unnecessary differences in practice and approach between the different patent granting authorities. This is a project which all the large patent offices see as essential. The advantages for an Australian applicant are that this should reduce the cost of obtaining international protection.

The Courts
In the final analysis, the value of a patent is the ability to enforce it against an infringer. The underlying court processes of each country differ considerably, and this inevitably affects the enforceability of a patent in each territory. I am not referring here to patent law as such, but to issues such as the availability and quantum of damages, the availability of injunctions pending trial and final injunctions afterwards, the ability to compel the production of documents and witnesses, the time to reach a decision and the cost of proceedings. These are all matters of carefully protected national sovereignty, and not likely to change in a hurry.

Within the specific scope of patent law, one of the best examples is the Remington lady shaver case. This was a granted European Patent, with identical claims and (in principle) harmonised law in each country, and an identical infringing product. However, enforcement of European patents is a national activity. Out of seven cases in different countries, three went in favour of the infringer, four in favour of the patentee. This illustrates the complexity of practical harmonisation. Unless the patents are interpreted in the same way, differences will persist in outcomes even in a system of common administrative processes and closely harmonised law.
Judges in different countries who try patent cases do hold conferences, talk to each other, and reference each other’s judgements. There is a lot more scope for judge made harmonisation, but it is as yet embryonic.

Conclusion
From the perspective of the patent owner, in an ideal world, one authority would grant patents which would be granted internationally, and enforced internationally at a single court. This is not going to happen any time soon.

Gradual measures to harmonise the law, and remove formal and procedural differences between jurisdictions, have been occurring and are likely to continue. Patent offices are working together more than ever, with improved tools and a new determination from the administrators in each country. Judges are also talking to each other and this can only help to achieve improved consistency and understanding.
However, a grand, complete harmonisation is nowhere on the horizon. Improvements will come, but don’t hold your breath.

The only practical strategic approach is to try and draft patents to ensure that the specific requirements of the target countries are all considered in preparing the specification.

by Peter Franke

Innovation, Change and IP

It is a common refrain from business commentators and government – businesses must become more innovative. ‘Innovation’ can sometimes be a handy piece of jargon, thrown in to any address or policy paper in order to appear modern, up to date with trends and economically responsible.

So what is innovation, and why does it matter?

Innovation is a word which is not in itself well defined, and so it is important to be clear what I mean by innovation. One useful definition of innovation which has been developed by the OECD (the Oslo manual) is:

An innovation is the implementation of a new or significantly improved product (good or service), or process, a new marketing method, or a new organisational method in business practices, workplace organisation or external relations.

That is, innovation is a much broader concept than just product and technological innovation. It extends to business practices, business process and how businesses interact, both within the organisation and external to the organisation. In one sense, it is the adaptive changes that a business makes in order to adapt to the changing markets, technologies and general business environment. It is possible to run a business which has a little or no innovation. However, any such business is vulnerable to the inevitable shifts in the market and changes in competitor behaviour. With few exceptions, businesses which fail to innovate fail to thrive, and often die.

From an overall economic perspective, it is useful to consider the role of innovation in increasing productivity. A variety of studies have indicated that the major component of productivity growth in organisations and in the economy at large is innovation.

What implications does increasing the level of innovation within an organisation have for their IP strategy and risk profile?

Firstly, a simple statement. If you keep doing exactly what you have been doing for the last 20 years, then you have no real IP risks, and you have no IP opportunities. Of course, you are completely vulnerable to all changes in technology, and if you want to change to match the actions of competitors, you may not find the world so simple.

The more complex part is that as any organisation increases its level of innovation, then it also increases both the opportunities for IP protection, and the risks of infringing another party’s IP.

The first part is fairly intuitive – if you are doing something new, you will inevitably be producing new IP. This can range from copyright in new artwork, software, packaging and manuals, through trade marks for new brands, and patent and design protection for new products or processes. If you are investing in innovation, then to ensure you maximise the benefits of it, you need to be able to control the innovation. This can mean making sure that agreements with employees and contractors transfer the IP to your company, that there are effective processes to record and capture IP, and that there are incentives and rewards for those who are doing the innovating in your company. It is never just about the IP in isolation – it is always about how the IP serves and supports your business strategy.

Why do risks increase? Well, if you are doing something new, there is a risk that someone else has already established rights. A competitor may have a trade mark, or sometimes a party in another industry may have a broad trade mark registration which your new product name infringes. If you broaden your product offering, you will have a whole new set of competitors. Competitors may have broad patents over platform technologies that you need for your new product.

Innovation also encompasses doing something new in your business which competitors are already doing, and the risks are fairly clear in that case. Failure to check a competitor’s rights in such a situation is akin to walking into a wall.

The message is that as you innovate more, so your exposure to IP – both as a protection for your business and a potential intrusion into the rights of others – will increase. Asking questions along the way, anticipating possible issues and managing the risk, with the help of your IP advisors, will ensure that innovation is more of an opportunity than a risk.



by Peter Franke