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Chinese Patent System: Problems and Best Practices

Written by on Wednesday, May 14th, 2008

The Chinese patent system has come under increasing scutiny in the biotech and pharmaceutical industries as China has taken on a more important role in the world market.  In this week’s IP Frontline, Thomas Babel examines the Chinese patent system and answers the question: does the system really protect inventions?  He also offers some best practices for protecting inventions in China.

Babel describes a key problem with the Chinese system as follows:

China, unlike the United States, is a first-to-file system. This means that if two inventors file a patent application for the same innovation, the first to file the application with SIPO will be granted the patent even if the other inventor was the first to invent. In addition, unlike the United States where an inventor has one year from the date of the first public disclosure of the innovation to file for patent protection, public disclosure prior to filing in China is an absolute bar to the grant of a patent on the disclosed innovation, except in very limited circumstances. . . .

The combination of a first-to-file system with a system where a patent may be granted with little or no investigation results in the obvious: patents granted to non-inventors. It is a relatively easy matter, at least as to utility model and design patents, for an interloper to file for and be granted a patent on an innovation created by another person or which has been afforded protection in another jurisdiction, such as the United States. For instance, if a foreign entity has a United States patent but fails to file or register that patent in China, a Chinese company can easily take the innovation and get a utility model patent in China in its own name. The Chinese company then can use its utility model patent to prevent others, including the foreign entity, from producing products in China that incorporate that innovation.

According to Babel, another problem is the full investigations are often not conducted on patent filings.

Babel explains as follows:

Since, realistically, a full investigation has not been made by SIPO, the presumption flowing from the Chinese process presents an unfair advantage to those who improperly obtain patents. Since the burden of proof is on the person challenging a patent to show that the innovation in question is that person’s property, the various evidentiary and procedural hurdles found in the Chinese court system can make it very difficult, and perhaps impossible, to overcome the presumption and prove that an innovation was stolen by a Chinese company.

So what are some best practices to follow when trying to protect inventions in China?

Babel recommends the following:

[C]ontractually prohibit any Chinese company with which the United States inventor is dealing from filing a patent application related to any innovation found in the product it is producing for its United States customer, and/or to obligate such Chinese company to recognize that any innovation found, discovered, and/or created during the parties’ relationship is the property of the United States customer. This language can help if the Chinese company tries to seek protection of an innovation owned by a United States company. Chinese courts do have a relatively good record of enforcing contracts.

Another alternative is to require arbitration of patent disputes. The Chinese court system recognizes and will enforce arbitration decisions. Arbitration allows parties to adjudicate their disputes without having to adhere to the archaic and problematic evidentiary rules of the Chinese court system. There are a number of organizations located in Beijing and Hong Kong which can render arbitration awards that will be enforced by Chinese courts. Two of the more recognized organizations are the China International Economic and Trade Arbitration Commission in Beijing and the Hong Kong International Arbitration Centre. Many of the arbitrators employed by these organizations are Western trained, which helps to further avoid many of the archaic evidentiary and procedural rules found in the Chinese court system. Therefore, it is advisable to insert an arbitration provision in any contract with a Chinese company.

While I have not handled many transactions in China to date (although several of my clients are in the process of moving into the Chinese market, so this is likely to change in the near future), Babel’s advice is in line with what I typically advise clients who are doing business in Asia.  It is important to contractually protect intellectual property in any business relationship, and in doing business overseas, it is always a good idea to provide for the resolution of disputes by binding arbitration to the extent possible.  I typically try to steer clients toward arbitration in countries where the system of law is based on the English system, since the U.S. legal system is similarly based on the English system of law, but in the alternative, I like the idea of using Western-trained arbitrators.

Category: Biotech Patents, Practical Tips, Private Sector  |  Comments Off on Chinese Patent System: Problems and Best Practices

China Set to Compete in Generics Market

Written by on Tuesday, May 13th, 2008

China is in the process of positioning itself to compete in the major world generics markets, according to a report by Reuters.  The Chinese move is expected to drive down generics prices below current market rates.

 Reuters reported on the Chinese strategy as follows:

Pharmaceutical information group IMS Health Inc said last year’s first okay from the U.S. Food and Drug Administration for a Chinese generic — a copy of AIDS drug nevirapine — was a sign of things to come. . . .

Zhejiang Huahai Pharmaceutical Co Ltd won a U.S. green light last July to sell generic nevirapine, once the patent held by Germany’s Boehringer Ingelheim expires in 2012.At least 10 other Chinese companies are set to follow suit with other generic products, according to IMS. Some could be available as early as this year. The result will be increased competition in a generic drugs industry that is already struggling with tumbling prices.

"In order to ensure their success in the market, the Chinese manufacturers are likely to undercut all others on price," IMS said in its annual Intelligence.360 report.

According to Reuters, the one potential roadblock that Chinese companies are likely to encounter is the fact that they do not have a good reputation for quality, particularly in light of the recent heparin scandal.  This may give Indian companies, which are also trying to enter the generics market, a competitive advantage.

As a consumer, I welcome the additional competition, which will ultimately result in lower prices at the drugstore.  With all the recent Chinese safety scandals, however, I cannot help but wonder if the increased presence of Chinese generics companies in the marketplace is going to end up generating even more safety problems for American consumers–and perhaps even more legal problems as well.  Hopefully the FDA is following what is happening in China and responds accordingly to better ensure that U.S. consumers are not purchasing unsafe Chinese products.

Category: Biotech Industry News  |  Comments Off on China Set to Compete in Generics Market

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