China’s Utility Model Patent System: Innovation Driver or Deterrent

Foreword and Commentary by Thomas Pattloch

This U.S. Chamber report fulfils an urgent need for more analysis of developments in Chinese patent law. China has made remarkable progress in developing its intellectual property (IP) laws, most notably the patent law. It has profited from experiences in other countries and has thoroughly studied the various systems around the globe. It has designed its own system, which during past years has taken a spin of its own. This emancipation from foreign law stems from the desire to deliver a set of laws tailored to the needs of the Chinese people. The approach chosen is very much a policy approach. Laws, administrative regulations, and court decisions alike are screened for policy coherence and are measured against policy benchmarks, such as the five-year plans issued by the Chinese government.

The rapid development of the Chinese economy and the Chinese legal environment has broad challenges of its own. The utility model system has quickly become one of the most used elements of patent law. As Thomas Moga’s report shows, many Chinese companies and applicants actually prefer the utility model over invention patents. Most Chinese experts would argue that the active use of the utility model is a positive development and exactly the reason for which the utility model system was adopted. The indigenous innovation approach mandates that a large number of patents be filed by Chinese companies. The rationale is that as Chinese companies become used to the system, they will learn step by step how to employ it and will start to innovate and defend their innovations. The utility model system seems ideal, as utility model patents are quickly granted and inexpensive.

In principle, one can agree with such an assessment. The picture changes slightly once the effects of the Chinese government’s industrial policies of recent years are taken into account. On the policy side, the dominant view is that China must enter a race for innovation. Benchmarks have been defined to show when an increase in innovative activity in each province and in China as a whole has taken place. This race to the top does not focus so much on quality or validity of rights but rather on achieving a predefined number of patent applications.

Policymakers seem to be aware that there may be collateral damage from the development of the patent system. This includes the deteriorating reputation of utility models, increased costs for businesses to determine freedom to operate, more legal conflicts, and more costs for patent offices and stakeholders to deal with waves of newly claimed rights. However, this patent system is seen as a necessity for the current stage of development in China, whose detrimental effects can be remedied later on. First reach the goal of a certain number of patents, and then worry about consequences.