[Ip-health] NFTC, a US trade association, asks USTR to sanction China for issuing and enforcing "junk patents" (2014 submission)

Claire Cassedy claire.cassedy at keionline.org
Mon Feb 10 06:21:20 PST 2014


NFTC, a US trade association, asks USTR to sanction China for issuing and
enforcing "junk patents" (2014 submission)

A February 7, 2014 Special 301 submission [1] from the National Foreign
Trade Council (NFTC) asks USTR to bring trade sanctions against China for
granting and enforcing "junk patents." The NFTC also wants patent
enforcement to be strickly a private civil remedy (Contrast to the USTR
demands that countries implement linkage between drug registration and
patents), and complains about China rules that would require employers to
more fairly compensation the Chinese inventors they employ.

1625 K STREET, NW, WASHINGTON, DC 20006-1604
February 7, 2014
The Honorable Michael Froman
United States Trade Representative
Executive Office of the President
600 17th Street NW
Washington, DC 20508

RE: 2014 Special 301 Review: Identification of Countries Under Section 182
of the Trade
Act of 1974: Request for Public Comment and Announcement of Public Hearing
(Docket number USTR-2013-0040)

. . .

Fourth Amendment to the Chinese Patent Law/"Junk Patents": China's patent
system includes the issuance of IP assets, including utility models and
design rights, without examination of the substance. Unlike other rights
like invention patents, the quality of unexamined assets is unknown,
regularly resulting in the granting of "junk patents." The vast majority of
these unexamined rights are held by Chinese domestic companies and
individuals. Since no substantive review of unexamined assets is required
prior to their assertion, they represent a significant business risk to
innovation-driven American (and Chinese) companies.

China issued a draft Fourth Amendment to its Patent Law in August 2012. In
the draft amendment, there is a significant focus on administrative
enforcement of unexamined rights. As such, one of the effects of the draft
Fourth Amendment will be to allow primarily Chinese domestic entities or
individuals to assert their "junk patents" more effectively, and to disrupt
foreign-owned patents and the activities of their owners or licensees.

Rather than further extend the problem of unexamined "junk" patents,
China's patent system should be reformed so as to prevent the granting of
utility models and design patents without effective substantive review. To
be more effective, China's patent system should further allow for recourse
to civil litigation for patent infringement to the exclusion of any
administrative enforcement remedies, which are often political,
unprofessional or commercial and discriminatory in nature. Doing this would
help rights holders who can actually demonstrate the innovative nature of
their patent or other rights to address, inter alia, the problem of junk
patents before competent (and less political) adjudicators and courts.
Finally, China's patent system should be reformed so as to ensure that
infringement litigation that is based on unexamined rights cannot proceed
until the validity of the utility model and design involved is finally
determined through the Patent Reexamination Board's examination and
judicial review.
. . . .

NFTC is also one of several US trade associations (including IPO and
US-China Business Council) criticizing China rules requiring employers to
pay reasonable remuneration to Chinese inventor employees, including a
share of the returns from patents when they are the inventor. (More context
here [2]).

Chinese Service Inventions: China has been developing a new regulation on
"service inventions" that are created during an inventor's employment. The
draft regulation, if passed, will negatively affect the ability of U.S.
companies to make commercial choices about how to exploit IP assets derived
from Chinese inventions and will increase legal and financial risks. For
example, under Article 19.2, the Regulations could take away an employer's
ability to contract around SIPO's default rules and replace the current
autonomy that an employer has with extremely onerous regulations. . . .
.Moreover, the draft regulation also applies to technical secrets, which
will greatly disadvantage the technical secret owner, should there be any
disputes between the inventor and the technical secret owner.

A few other trade associations are raising the China "Service Inventions"
issue in their 2014 Special 301 submissions. This is from the U.S. based
Intellectual Property Owners (IPO) Association:

China's State Intellectual Property Office has been developing a new
administrative Regulation intended to increase employer payments for
"service inventions" that are created during an inventor's employment,
apparently in the belief it will increase innovation. The draft Regulation,
if passed, will negatively affect the ability of companies to determine how
best to incentivize innovation by its own employees and will increase legal
and financial risks of conducting R&D in China. For example, under the
second paragraph of Article 19, any agreement or policy reasonably
implemented by an employer regarding inventor remuneration could be subject
to repeated challenge as somehow "limiting" an inventor's rights and could
be retroactively supplanted by SIPO's onerous default rules.


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