Intellectual Property Trends and Developments with China

Deputy Under Secretary of Commerce for IP Teresa Stanek Rea

Fordham Law School China Event

January 28, 2013

Prepared Remarks

Good morning, everybody. It is a pleasure to be here at Fordham Law School, in a room of bright legal minds, from students to professors to IP practitioners.

I would like to discuss some trends we are seeing in China related to intellectual property, or IP, and how the USPTO is engaged in these developments, operating on behalf of U.S. rights holders and innovators. I would also like to outline the USPTO's vision on future engagement with China. I view this as a dialogue, however, not an address. When we get to the question and answer session, I would love to hear your thoughts and suggestions on what I have laid out. We all bring value to the discussion.

To start with, let us briefly review China's IP landscape. When China became a member of the World Trade Organization, or WTO, a little more than a decade ago, it was required to do significant work to ensure that its laws were compliant with the WTO's Trade-Related aspects of Intellectual Property rights obligations, known as TRIPs. Some of those commitments were in fact ones that China originally negotiated with the U.S. back in the early 1990s. One I am well aware of, as someone who has worked extensively in the pharmaceutical space, is China's commitment to offer pharmaceutical patent compound protection.

So these were IP enforcement obligations imposed upon China in exchange for gaining certain trade benefits. However, there were indications beginning around 2006 that China began seeing IP protection as being in its own self-interest. That was a significant development for the world economy.

China developed a Medium and Long Range Science and Technology Plan; a National IP Strategy; and a National Talent Strategy. It also undertook a number of other efforts to transform China from a country where products are merely "made" to ones where they are innovated, designed, and branded. Now-about 12 years after China joined the WTO-it is continuing to shift toward IP protection. It has launched several significant and comprehensive amendments to its IP laws.

All of China's IP laws are being transformed-patent, trademark, and copyright laws-as well as numerous other IP-related regulations, including standards measures; antitrust enforcement; service invention regulations; and regulations related to criminal enforcement. In addition, other more general laws have been amended or are under reform with important implications for IP. The civil procedure law was recently amended, with potentially important repercussions for IP rights holders, particularly in terms of provisional measures for trade secrets. These important changes are occurring as China once again reshuffles its senior leadership. The changes will reach down to the individual government agencies in charge of IP, and will also impact local legislation and practices.

We know that IP enforcement remains a serious problem for U.S. companies, as trademark counterfeiting and copyright piracy continues. As the number of Internet users in China continues to increase, infringers are increasingly using the Internet to sell counterfeit and pirated materials, including counterfeit pharmaceuticals. Companies continue to complain about bad faith trademark filing, the practice of intentionally filing for another party's trademark to take advantage of the first-to-file trademark system in China. And we cannot overlook the increasing global influence from one of the largest and most influential patent offices in the world, the State Intellectual Property Office of China, or SIPO.

SIPO received more than 1.6 million patent applications in 2011, and issued more than 961,000 patents that same year. The vast majority of these patents were granted to domestic applicants. In 2012, the number of "invention" patents filed in China exceeded those in the U.S. Most of the inventors were Chinese. It is worth noting that there are now more Chinese-origin patent filings in China than there are U.S. origin patent filings in the United States.

I mentioned earlier China's National Patent Strategy. That was released by SIPO last year to guide China's creation, use, and administration of its patent system for furthering economic development. More recently, SIPO released its Plan for Promoting the Strategy for the Development of National Patent Undertakings in 2013. It contemplates an active role for SIPO in legislation, enforcement, development of IPR-related services, and a more active role in international patent affairs.

SIPO's strategy includes ambitious targets: filing 3.3 patents per ten thousand people, or about two million patents per year; increasing the capacity of patent filings to reach two million applications every year; and doubling the number of overseas patent applications filed by Chinese applicants by 2015. This massive growth presents unique problems for U.S. rights holders, who have complained about patent quality, particularly of the unexamined utility model/design patents that SIPO grants. For example, there is concern surrounding the examination guidelines for pharmaceutical and biotechnology patent applications. We understand that SIPO revised its examination guidelines in this area in 2001, 2006, and 2010 to remove the ability to supplement the patent application with data post filing.

As a result of these changes, companies that have filed for patent protection of pharmaceutical compounds at SIPO have had their applications denied, while corresponding patent applications in other patent offices, such as the Japan Patent Office, the Korean IP Office, the European patent office, and others, have been granted. That is troublesome.

Finally, right holders continue to complain about China's civil judicial enforcement system. For example, companies tell us that they have to go through burdensome legalization requirements in order to introduce evidence from outside of China into court proceedings. We have also heard about many cases of decisions being made based on local protectionism and bias towards local companies, as well as concerns about transparency of judicial proceedings, and particularly the non-reporting of important decisions. Enforceability of court orders and judgments is also problematic. The USPTO is not standing idly by as these developments occur. We have had a number of exchanges with national and local Chinese courts on a range of IPR-related issues.

We worked closely with the Supreme People's Court and the U.S. Court of Appeals for the Federal Circuit (CAFC) this past May to support a program on judicial enforcement of IP, which had an attendance of approximately 1,300 people, including more than 200 Chinese judges. We are fully committed to working on improving commercial rule of law and judicial procedures for U.S. rights holders, as the lead player in IP for the administration in international forums and organizations.

Within the USPTO, we have a dedicated group of attorneys in our Office of Policy and External Affairs with expertise in U.S. and Chinese IP law. Through them, we have developed important bilateral relationships with our counterpart IP offices in China. We have an excellent relationship with SIPO and good relationships with the China Trademark Office (CTMO) and the National Copyright Administration (NCAC). These relationships were formalized with several Memoranda of Understanding in 2008.

We also have three offices in China to house our IP attachés, as well as a team of five Chinese lawyers that support them. There is no other country where we have more than one attaché. These attachés are our chief liaisons with our Chinese counterpart offices, and they serve to promote and deepen these important bilateral relationships. Our attaché in Beijing is chiefly responsible for promoting relationships with the IP offices in Beijing and the Beijing consular district, while our IP attaché in Guangzhou has made great inroads in developing relationships with the IP enforcement offices in the southern region of China. Some of you may know Dr. Jared Ragland, our IP attaché in Shanghai, who has a Ph.D. in molecular and cellular biology. Along with being our eyes and ears in China, our IP attachés also work with U.S. companies that have problems protecting or enforcing their IP rights in China, making them an excellent resource for U.S. rights holders.

We have focused on developing a healthy bilateral relationship with SIPO, with an eye towards incorporating them more closely in the work that we do with other IP offices. Along those lines, a few years ago we pushed for the formation of the so-called IP5. The IP5 consists of the five largest patent offices in the world: the USPTO, the European Patent Office, the Japan Patent Office, the Korean IP Office, and SIPO. Together, these five offices receive more than 70 percent of the world's patent filings. As world patent filings continue to grow, with a corresponding increase in patent office workloads, we are always looking for new ways to alleviate the burdens to our offices.

The IP5 is no paper tiger, to borrow a Chinese metaphor. The chiefs of each agency work together directly, in conjunction with their senior leadership, toward a goal of true, global patent harmonization. One way to do this is through a work-sharing initiative called the "Patent Prosecution Highway," or "PPH," which we signed with SIPO on December 1, 2011. We've recently decided to continue it through 2013. This PPH agreement is a milestone in bilateral cooperation between the USPTO and SIPO. It permits each office to benefit from work previously done by the other office, reducing the examination workload in each office and improving patent quality.

The USPTO is also co-chair of the IP working group meeting of the Joint Commission on Commerce and Trade, along with the Office of the U.S. Trade Representative. We have had this role since 2004 when the working group was first formed. The Joint Commission on Commerce and Trade, established in 1983, is the chief bilateral mechanism by which the U.S. and China address trade-related matters and promote commercial opportunities. So we are vigorously engaged with China on IP matters, from the start of a patent or trademark application to the enforcement of issued patents and trademarks, as well as copyrights. What is clear is that there is much we do not know about what the future holds regarding China and IP.

We know SIPO is issuing more patents than ever before, and an increasing number of those patents issued are going to Chinese applicants. But what does that tell us about innovation in China? Are they threatening to surpass the U.S., the world leader in innovation? If so, what does this mean to U.S. rights holders?

We have long known that Chinese academics and the various Chinese academies are influential in developing IP policy. What are they doing in the area of IP, and how can we improve our engagement with them as they consider future IP trends?

Finally, and as importantly, what do the impending leadership changes mean for IP rights holders? While we hear reports that indicate China's new leadership may focus on improving the rule of law in China, will these changes, if implemented, have any effect on the IP environment?

We must also recognize China's increasing interests as an IP stakeholder. The USPTO and SIPO now account for approximately 50 percent of all patent applications in the world. How will that fact guide their thinking in the future?

From the USPTO's perspective, we need China and the U.S. to both be fully committed to the global IP system. Having another partner emerge who is committed to the development of the global IP system is something we will welcome with open arms. Increasingly, we must also be better informed and equipped with meaningful statistics and well-researched facts if we are to promote an effective IP policy message. At the USPTO, we have begun to develop a repository of IP information and statistics about China that we call the China Resource Center. For example, we have already gathered annual IP reports from all of China's pertinent provinces. These reports have a wealth of useful data that we can use when we engage with our counterparts in China.

In some cases, industry has more cutting edge experience or has been more deeply involved in the issues we monitor. In dealing with examination guidelines for pharmaceutical and biotech patent applications, for example, we put together a "dream team" of industry and government experts to engage China. That may be a useful "hybrid" model for future engagement on complex issues.

So the bottom line is we are working hard, we are engaged, and we are asking the tough questions. I want to thank you again for being here, and I look forward to a robust discussion. But first, I would like to hand things over to one of the foremost experts on China and IP, Mark Cohen.

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