Why Your Deep Tech Patenting Strategy Should Include China

“Don’t bother patenting in China, because you won’t be able to enforce your IP.”

So goes the common refrain. In the past, this was solid advice. Today? Not so much. In fact, today your patents in China could conceivably be more valuable than your US patents!

If this bold claim comes as shock to you, hopefully this article will explain why.

China Starts Taking IP Seriously

Over the last decade or so, China has made a concerted effort to improve its patent system. This effort paid off in 2019 when China became the biggest source for international patents, toppling the US from its perch at the top. A perch which the US had held since the Patent Cooperation Treaty was established over 40 years ago.

So, what has China done to transform itself from an IP backwater to leading the pack in terms of protecting the IP rights of innovators?

• China now takes punishing patent infringers seriously. While damages are not as high as the US, the Chinese legal system is more likely to issue preliminary or final injunctions compared with the US (and often within a year of the initial case being brought). Further, unlike most countries, these injunctions extend to banning the exporting of infringing products. With China’s place as the world’s manufacturing hub, an injunction against exporting a product is effectively a global injunction.
• China has made it more efficient for patent holders to enforce their patent rights. China has established courts that specialise in IP litigation, leading to an efficient processing of cases. Indeed, coming to a final judgement on a patent infringement case can often happen in less than a year! On the other hand, in the US it can take several years or more to resolve a patent litigation case.
• China appears to prioritise the cost-effectiveness of bringing a patent lawsuit, with costs of approximately a couple of hundred thousand. On the other hand, in the US it usually costs millions to bring a patent infringement lawsuit.
• Perhaps most notably, Chinese litigation statistics prove that China actually takes IP seriously. In recent years, over 80% of patent holders won their cases against infringers. More relevant to you and your deep tech company, foreign entities are winning their patent infringement suits at an even higher rate! This includes being granted an injunction, which prevents the infringer from exporting the relevant product.

China, to their credit, recognises that a strong patent system incentivises innovation and investing in early-stage innovation. China recognises that innovation is key to economic growth…and world domination.

The US Commits Multiple Patent System Own Goals

While China has been busy strengthening and transforming its patent system, the US has been focused on progressively weakening its patent system over the past decade. The inglorious decline of the American patent system really began with the introduction of the America Invents Act (AIA) in 2011. Now, the AIA wasn’t all bad: it instituted the Track One system, which provides the opportunity to secure a US patent within 12 months (I was grateful for Track One when securing my own US patents).

Nonetheless, on the whole, the AIA was – and is – bad news. The AIA put in place a new USPTO tribunal (known as an inter partes review) that patent infringers can use to challenge the validity of a US patent. Previously, a patent infringer’s usual mode for challenging a granted US patent was as part of an official court proceeding. Trying to overturn a granted US patent (which is supposed to have the “presumption of validity”) through the court system also costs a lot more than via the USPTO “tribunal”. However, the most egregious aspects of the inter partes review system include:

• The fact that an incredibly high percentage of US patents are ruled as invalid, even when they have been previously upheld as valid by an actual court of law (see the cases involving the Bunch O’ Balloons invention for just one of many examples: https://ipwatchdog.com/2017/07/16/real-staggering-cost-getting-patent-ptab/id=85639/). Indeed the inter partes review has colloquially become known as a “patent killing field”.
• Even if a patent survives these “patent killing fields”, there is little to prevent the patent from being hit with another inter partes review (unlike a proper court system, which prevents such re-litigation)!
• The PTAB judges can rule on cases involving a former employer – such as a multinational corporation. Or a PTAB judge can rule in favour of a particular corporation and then accept a job offer from that same corporation. Clearly, this has conflict of interest implications.
• Oh, and Chinese companies are now utilising the inter partes review system to invalidate patents in technologies considered critical to China’s international competitiveness.

If you want to explore just how harmful the inter partes review system can be to startups and inventors, I recommend reading Blood in the Water: America’s Assault on Innovation by Kip Azzoni Doyle and Scott Burr.

So, just why has the US embarked on this concerted effort to undermine its patent system…and make it harder for deep tech startups and venture capitalists?

The fundamental reason is because politicians have been bamboozled by the myth that a strong patent system has led to the rise of “evil patent trolls” that “prey” on innocent innovators and exact an “innovation tax” by suing all these innocent innovators with patents of “dubious quality”. These so-called patent trolls are termed as such because they don’t actually make any products themselves.

Yes, there are bad faith actors in the patent system that do “prey” on small companies. However, the cold, hard truth is that – as a deep tech startup – you are more likely to be confronted with the prospect of a major corporation infringing your IP than a “patent troll”. Indeed, if you ever need to enforce your patents against a major infringer, one of these “patent trolls” might become your company’s best friend and enforce your patents against a major infringer on your behalf (including, most importantly, taking on the considerable financial burdens that can extend well into the millions of dollars).

Essentially, the “patent troll” is a straw man argument invented by anti-patent lobbyists acting on behalf of select major corporations who would rather be free to infringe on your patents than pay you a royalty or acquire your IP outright for a fair price.

So, Are US Patents Worthless?

Far from it! The benefits to your deep tech company of having a portfolio of US patents that are tied to specific business goals far outweigh the negatives discussed here. The weaknesses of the US patent system have simply been highlighted in order to really convince you that China is no longer the IP backwater that it once was. As the world’s manufacturing hub and with an increasingly middle-class population of over one billion people, obtaining patents in China should be given serious consideration when designing your company’s international patent strategy.

It Sounds Like China’s Patent System is “Hunky Dory” Now?

Well, not quite. There are still some risks with pursuing IP protection in China, such as how geopolitical tensions between “the West” and China over Taiwan will negatively impact Chinese IP rights by foreign companies in the future. The unknown is if geopolitical tensions heat up over the next decade or so, will China use the patent system to punish foreign firms?

Despite this, in my opinion, pursuing patent protection in China outweighs the risks posed by these hypotheticals.

Action Steps:

• With your IP team, consider the advantages and disadvantages of pursuing patent protection in China.

So, what do you think? Are you convinced that China has improved its patent system in leaps and bounds, while the US patent system is perhaps sliding the opposite way?

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This article is for education purposes only and should not be construed as legal advice.

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