Ruling shows why foreign companies need a patent strategy for China

Out-Law Analysis | 26 Aug 2009 | 9:15 am | 2 min. read

OPINION: When France's Schneider Electric faced a patent battle in a Chinese court recently it had reason to feel confident. It thought it had a solid prior art case for invalidating the patent being used against it by Chinese firm Chint, and foreign companies win 95% of patent cases in the Chinese courts.

But when the Wenzhou Intermediate People's Court rejected its arguments and awarded damages of $23 million against it, that was not the only shock. The most astonishing thing about the case to foreign eyes was that the patent in question had been granted with only a cursory examination and had cost just $70.

The patent, which referred to a circuit breaking system, was what is called a utility model patent. China has three kinds of patent: invention patents, which last for 20 years; design patents; and utility model patents, which last for just 10 years.

Utility model patents, or 'petite patents', exist only in some countries. You find them in Germany and France but not in the UK or US (though, confusingly, the US uses the term 'utility patent' to refer to its regular patent). They are issued for new technical solutions relating to a product's shape or structure, or a combination of the two, where it has a practical use.

The patent requires less inventiveness and is awarded quickly and cheaply. Full invention patents can take four years to be granted, while a utility model patent is typically granted in just one year.

This can be crucial for inventions in electrical or electronic fields. By the time four years have passed and your invention is finally protected by a fully-enforceable patent, technology may have moved on. Your invention could be irrelevant.

Perhaps the most crucial thing to know about utility model patents in China is that they are awarded with no substantive examination. Only preliminary examination is required, meaning that you can get one easily. But this means they are also easy for your business rivals to acquire.

If you do business in China you may have no choice but to get to grips with these unusual patents. Between 1986 and 2007 half of all patent requests in China were for the utility model patents. Full invention patents only accounted for 19.9% of applications, and 87% of those applications were by foreign businesses.

Multinational companies, then, have clearly not switched their focus yet in China from more familiar full invention patents to the utility model patents. That must change.

Though the protection they offer is weaker than companies might be used to, utility model patents can play a very important role. They can give you fast protection for your inventions. Some Chinese companies apply for both kinds of patents at once, cancelling the utility model application when their invention patent is granted after four years, giving them more protection while they wait.

Like Scheider Electric, foreign companies will surely increasingly come up against the utility model patents. But companies should not just react to them, they should make them part of their own patent portfolio if they are serious about doing business in China.

By Dr Kening Li, a partner in the Shanghai office of Pinsent Masons, the law firm behind OUT-LAW.COM, and head of the firm's intellectual property team in China.

Editor's note, 14/09/2009: This story was originally entitled 'Beijing ruling shows why foreign companies need a patent strategy for China' and said that the ruling was made by the High People's Court of Beijing. In fact the ruling was made by the Wenzhou Intermediate People's Court. We apologise for the error.