How do European SMEs Optimize Their Patent Layout in China?
Do European SMEs need to apply for patents in China? As one of the European SMEs, how to avoid competitors abusing the patent system to compete in China? The development of the Chinese patent system has provided a path for European SMEs to transform their technological advantage into their competitive advantage, while also provides their opponents with a variety of patent competition tools. If European SMEs do not master the strategy in patent layout and infringement litigations in China, they may encounter huge hidden legal risks in their own development.
In a typical case that a prominent Finnish professional company represented by Beijing Wis & Weals Law Firm against its Chinese competitor in the utility model patent invalidation case regarding marine oil spill recovery equipment, we successfully cleared the patent barriers in development for our clients. Based on this typical case, we make an in-depth discussion on how European SMEs carry out patent layout in China.
I. European SMEs should strengthen their patent portfolio in China
1. China has become a big manufacturing country in the world, and competition in the Chinese market is inevitable for industrial products.
2. Given the continuous improvement of China's patent system and the huge stock of patents in China, patent competition is inevitable.
The number of patent applications in China ranks first in the world and has far exceeded that in the United States, Germany, and Japan. In 2016, a total of 3.465 million patent applications were accepted in China. By the end of 2016, 1.772 million invention patents remained valid. At the same time, China also witnessed an increasing number of civil disputes over patent infringement. In 2016, a total of 12,357 new patent cases were accepted by the people's courts at all levels, up 6.46% year on year. In addition, China also saw an increase in the amount of compensation for patent infringement. For example, in December 2016, Beijing Intellectual Property Court issued a judgment of first instance in the case of Beijing Watch Data System Co., Ltd. v. Hengan Co., Ltd. for disputes over patent infringement, ruling a compensation of RMB 50 million.
3. Given China's huge market and increasingly fierce patent competition, European small and medium-sized professional enterprises are in urgent need to strengthen their patent portfolio in China.
We searched the number of patent applications filed by enterprises in German, British, French, Italian and Finnish in China in 2016. The research results showed that in 2016, 13,823 patent applications were submitted by 2,295 German enterprises (applicants), 4,124 by 1,087 French enterprises, 2,274 by 970 British enterprises, 1,519 by 780 Italian enterprises, and 635 by 179 Finnish enterprises. Patent applications from these five countries were concentrated in a few multinational enterprises. For example, 1,467 patent applications were submitted by Bosch (Germany), 816 by Siemens (Germany), 322 by BMW (Germany), 268 by Farreo (France), 236 by Michelin (France), 124 by ARM (Britain), 103 by STMicroelectronics (Italy), and 146 by Nokia (Finland).
Compared with the patent applications filed by multinational corporations, European small and medium-sized professional enterprises are large in numbers but filed very few patent applications. On average, only 1-5 patent applications were filed by 1,983 German enterprises, 985 French enterprises, 889 British enterprises, 732 Italian enterprises and 161 Finnish enterprises. The number of patent applications filed by enterprises from five European countries is far less than the total 3,465,000 patent applications in China, indicating that European SMEs need to attach more importance to the Chinese market and the competitive situation of intellectual property rights in China.
II. Patent portfolio strategy of European SMEs in China
1. To apply for a patent in China should be the basic option for enterprise patent protection.
China is not only a huge consumer market, but also a big manufacturing country. The necessity to apply for patents in China even outstrips the traditional markets such as the United States. On the one hand, applying for patents in China can transform the traditional technological advantages of European SMEs into the intellectual property competitive advantages. On the other hand, applying for patents in China can prevent competitors from producing and exporting patented products, and impact the competitive advantages of European SMEs in the international market. In the target market, whether in China or in any other country, European SMEs are recommended to apply for patents in China first.
2. To protect their own core products to the greatest extent.
Most of the European SMEs have long history, profound technological precipitation, and unique technological and product advantages. For a core product, they are expected to apply for patents and form a patent group for the entire product from its core parts to the final product itself, setting the patent threshold for entering the field of this product, and preventing competitors from acquiring the technology of the core product at no cost. Industrial products sold publicly in the market usually have the risk of being reverse engineered. Patent protection is the best choice for such products.
3. Make full use of the characteristics of the Chinese patent system.
Chinese patents are divided into three categories: invention, utility model and design. The invention patent systems are similar around the world. Similar to that of Europe and the United States and it is necessary to apply for invention patents to protect core products. Utility model patents have the advantages of fast authorization and low cost and are suitable for products with short life cycle. Design patents have the advantages of easy evidence collection and infringement judgment. In the case of Panasonic v. Zhuhai Kingdom Electric Appliance Co., Ltd. for disputes over design patent infringement in 2016, Beijing Higher People's Court fully supported Panasonic's claims for compensation of RMB 3 million in the judgment of second instance, which also reflects the market value and competitive advantages of design patents.
4. To launch patent prosecution in China in good time.
The timing of patent prosecution depends on the business strategy and product type of the applicant enterprise. The commonly used strategies include planning in advance and tag-along. Planning in advance refers to patent prosecution for core technology and components in the early stage of research and development when the final product has not been completed, in which case a number of patent groups has been accumulated when the product is launched. Tag-along refers to patent prosecution on the eve of the product's entry into the market, which can maximize the duration of patent protection and prevent competitors from understanding the technological development route of the enterprise and the technical features of the product. No matter which application strategy is adopted, it is essential to ensure that adequate patent prosecution work has been done before the product enters the market.
III. To better understand China's legal environment and make full use of China's patent system
1. New changes in China's patent system during 2018-2019.
Since 2018, great changes have taken place in China's patent system from the aspects of administrative and judicial organs and the law. In terms of administrative organs, the former State Intellectual Property Office, Trademark Office and General Administration of Quality Supervision, Inspection and Quarantine integrated their responsibilities for the management of geographical indications of origin in March 2018, re-established the State Intellectual Property Office and put it under the management of the State Administration for Market Regulation. In terms of judicial organs, the Supreme People's Court has set up an intellectual property court to hear second instance cases of disputes over patents with distinct professional and technical features from January 1, 2019. In terms of the law, the executive meeting of the State Council adopted the Amendment to the Patent Law of the People's Republic of China (Draft) on December 5, 2018.
2. To make active use of the patent system in market activities.
In bidding, advertising, corporate image building and other market activities, enterprises can make full use of the patented technology to build their competitive advantages.
3. To actively protect the patents of enterprises.
Patent protection in China adopts a dual-track system of administration and justice, under which local patent offices can handle patent infringement complaints and investigate and punish the illegal acts of patent counterfeiting. Administrative protection has the advantage of convenient procedures, while judicial protection is the main approach.
4. To actively participate in various forms of patent and technology transfer activities.
European SMEs possess outstanding patented technology and products. Even if they do not enter the Chinese market, they can consider licensing their Chinese patents to Chinese enterprises for returns, to effectively limit the business activities of potential competitors. In these respects, European enterprises can take more active measures such as technical licensing, wholly owned enterprise, and joint venture, and engage domestic and Chinese professionals to form a supervisee and verifiable governance structure for their intellectual property.