Although the number of patents filed in China has exploded in recent years, resulting in China becoming the world’s top patent filer in 2011, a new report from the European Union Chamber of Commerce in China (European Chamber) takes the position that “the overall strength of China’s actual innovation appears overhyped,” and that China’s policies designed to encourage innovation may in fact hamper innovation.   The policies identified by the report include quantitative targets for patent applications, financial rewards for use and development of Chinese-owned or “indigenous” intellectual property, and state-funded megaprojects.  The European Chamber asserts that China’s “Soviet-style” emphasis on quantity, incremental innovation, and large-scale projects may actually hold back China’s innovative capacity, since “[o]ne cannot drive or ‘force’ creativity, but only nurture it.”

The European Chamber assessed China’s ability to innovate by using a variety of statistics to analyze patent quality, including:

            1.  Types of patents filed. China recognizes three types of patents:

•           Invention Patents, which must meet a standard for novelty, inventiveness, and practical use.  Before an invention patent is granted, the application must go through a detailed substantive examination.  Only invention patents are considered by the European Chamber to be “highest-quality patents.”

•           Utility Models, which may be granted on the shape or structure of a model, and need not undergo a substantive examination.  Although utility models must be novel and have practical use, they need not meet the same standard for inventiveness as an invention patent.  In recent years, the filing of utility models has outpaced the filing of invention patents.

•           Design Patents, which are granted on the visual features of the product that makes it distinct and recognizable, such as shape, color, and pattern.  Design patents need not undergo a substantive examination or meet any technical or functional requirements.  However, they must be distinct from prior designs.

            2.  Patents granted.  The European Chamber notes that many patent applications in China are withdrawn or invalidated, and approximately 45% of all patent applications in China are ultimately not granted.

            3.  Patents invalidated.  Although patent invalidation rates in China are currently the same or lower than in developed countries, the European Chamber states that the rate of invalidation would likely be higher if China’s adjudication system were improved.

            4.  Patents in-force and life span of patents.  According to the report, the life span of patents in China is relatively short, due to abandonment and invalidation.

            5.  Patent citations.  The number of times that a patent is cited in other patent applications and literature is another indicator of its significance and quality.  Patents filed in China are cited relatively infrequently.

The European Chamber concludes that patent quality in China has not kept up with the number of patents filed and makes a number of recommendations to improve patent quality and foster innovation in China, including reforming the patent application process and enforcement process. 

The European Chamber is not the only foreign entity that has recently expressed concern about China’s patent regime.  In July, the U.S. Patent and Trademark Office released a report summarizing patent enforcement issues that U.S. businesses have faced in China.

It bears emphasis, however, that the Chinese government is working to reform its intellectual property legal regime and has recently announced several initiatives to strengthen enforcement of intellectual property rights in China.  For example, earlier this month, China’s State Intellectual Property Office  released a draft fourth revision to China’s Patent Law to address patent enforcement issues and is accepting public comments on the draft law until September 10.