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January 01, 2009 (Vol. 29, No. 1)

Update on Patent Law Revisions in China

New Amendments Predicted to Affect Intellectual Property Protection

  • Patent Infringement

    Article 74 proposes to add “parallel importation” as an exception to infringement. This amendment would clearly jeopardize the rights of patent holders in China. For example, if a product patented in China is sold outside of China and then imported back into China by another party, the Chinese patent rights are deemed to be exhausted.

    What would prevent individuals or companies from targeting particular Chinese patented products in a troll-like manner, waiting for them to be exported from China, and then immediately importing them back into China with no penalty? Where is the incentive for foreign businesses to patent and manufacture their product in China knowing that exportation of the product would likely lead to future patent exhaustion based on acts of others that are out of their control?

    An additional amendment to Article 74 provides an exception to infringement similar to the U.S. Bolar exception. It would allow the use of a Chinese-patented invention without running the risk of an allegation of infringement, if the otherwise infringing use is shown to be “related to providing information required to obtain regulatory approval.”

    Similar to the situation in the U.S., this would also allow a generic drug manufacturer to prepare for product launch once the brand-name drug patent expires. This amendment would certainly make it more attractive for generic drug companies to begin to set up manufacturing facilities in China.

  • Filing in China First

    The current patent law in China requires Chinese individuals and entities to first file applications in China for inventions made in China. The amendments propose to extend the requirement to non-Chinese individuals and companies or “any individual or organization” such that an inventor must file a patent application in China first if “an invention is made in China.”

    The controversial aspect of this amendment is that when a patent application is filed outside of China for any invention made first in China (including improvements of existing inventions) without permission from the Chinese patent administration, a patent application filed later in China based on the same subject matter and/or claiming priority to the foreign filed application, will be denied approval in China.

    These proposals are found in amended Articles 4, 20, and 76. This new rule will prevent a foreign parent or partner company from having a choice as to where the patent application is to be filed first, regardless of the citizenship of the inventors.

    How will this affect investors or potential partners doing deals in China for research and development? In the U.S., having a patent portfolio including at least one if not more filed patent applications in the United States Patent and Trademark Office is sometimes critical to tip the scales toward investment or a pass on an opportunity. Will investors and potential development partners be swayed by the existence of patent applications filed only in China where the patent laws and their application through the SIPO are much less predictable? This lack of clarity and fear of inability to obtain valuable patents in China could greatly affect the desire of companies to do business in the country.

    As the laws and court system in China slowly develop and evolve, foreign companies should be diligent in weighing the risks and benefits of doing business in China. A combination of language and cultural differences initially make it more difficult for foreigners, especially since guanxi, which is the basic dynamic of personal and social relationships, ultimately prevails in doing business in China.

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