On the Fast Track

(Interview with Li Yong, General Manager of China Patent Agent (H.K.) Ltd.)

Once considered the world's greatest factory, China looks set to become its next great innovator. It's a rapid development for a country that didn't have a patent system until 1984, as Li Yong from China Patent Agent (H.K.) Ltd tells Emma Jones ----

Like many of China's intellectual property (IP) professionals, Li Yong didn't set out to be a patent attorney. The country adopted its first patent law and began to train the first generation of patent attorneys only in 1984. Yong was an electrical engineer at the time, but recognised the opportunity that patent law would afford both him and his country. 'I could see that the IP system would become more and more vital to China and its economy,' he explains. 'I thought it would be a good career – and it turns out that I was right.'

After retraining in patent law, Yong joined one of China's pioneering IP firms, becoming director of its Electrical Division by 1988, head of its US practice by 1994, and president of the firm by 2001. He moved to take up his current role of general manager in China Patent Agent (H.K.) Ltd, China's biggest IP firm, in 2009. Yong is an active and well-recognised IP professional. He is vice chairman of the All China Patent Agents Association, the China Intellectual Property Society and the Chinese Group of Licensing Executives, and vice president of AIPPI China.

China's patent system has had to work similarly quickly to catch up with some of the more mature IP systems in the West. Although, arguably, there is still some way for it to go, Yong believes that China's late adoption of patent law has also allowed the country's legislators and firms such as his, the luxury of being able to step back and develop more efficient ways of working than perhaps those in more mature systems might be able to. 'In this, China's IP system is often underrated,' says Yong, although he understands the emphasis that companies can often put on the risks associated with IP protection in the country.

Huge opportunities

Many international companies are, of course, prepared to pursue their rights despite these risks, as China Patent Agent's client base makes clear: 'Our clients include multinational companies, some of which are Fortune 500, research institutes, academic establishments, law firms, small- and medium-sized enterprises, as well as sole traders in more than 180 countries and regions,' says Yong. 'Many of our clients in China are long-standing; for example, multinationals such as GM, GE, AstraZeneca, Siemens, Saint-Gobain, Sharp, Sinopec or Tsinghua Tongfang.

'All our clients want to seek the best protection for their IP Rights and assets in China, and anchor their presence there,' he adds. 'However, due to the unbalanced economic and social development of different regions in China, some Chinese citizens, especially in the less-developed regions, still do not have a good awareness of IP and why it's important.

'That means that, in the short run, IP protection in China is still facing many challenges, including counterfeiting, infringement and other problems related to the defence of IP Rights.'

But, despite these challenges – and the frustrations and expense that they can cause to companies seeking to operate in the country – China is an important and rapidly growing market with huge development potential. And Yong argues that any company that is serious about its future should have accepted by now that 'the protection of IP Rights in China is an issue far too vital to be overlooked'.

Yong also believes that implementing IP protection efforts in the country doesn't have to be as challenging as it's outwardly perceived to be: 'For a start, China's IP legislation is mainly in alignment with international practice and fully satisfies the requirements of international treaties, such as the Trade-Related Aspects of IP Rights (TRIPs) Agreement,' he says.

'Even though its patent system did not come into existence as early as those of other countries, such as the US, Germany or Japan, China's IP legal framework is, nevertheless, sound and well constructed, thanks to continuous exposure to its foreign equivalents.'

Just as importantly, the system has been supported at government level, with huge investment in IP education in recent years. The country's 'National Patent Development Strategy 2011-2020', released in November 2010 by the State IP Office of China (SIPO), sets out the nation's aim for annual patent filings to reach two million by 2015. That's not too unrealistic a goal. According to SIPO's latest statistics, 1.22 million applications were filed in 2010. But, perhaps worryingly for the West, more than 90% of those granted came from Chinese companies.

Shortfalls and benefits

The country is also happy to put its money where its mouth is. In order to achieve its two-million objective, SIPO intends to double the number of patent examiners to 9,000 by 2015 – that's an enormous investment in recruitment and training when you consider that the US Patent and Trademark Office has only 6,300 examiners. This provides huge opportunities to companies both in China and elsewhere in the world; although, there are still a number of hurdles to overcome.

'For some overseas patentees, there are certain stipulations in China's patent system that can prove cumbersome,' says Yong. 'For example, there is a heavy focus on administration and procedure, particularly as applied to the import, export and licensing of IP.' But, once understood, Yong says that these bureaucratic challenges are easily accommodated. 'There is no good reason why they should impede overseas owners' attempts to protect or exploit IP Rights.'

Nonetheless, Yong stresses that navigating the country's system is not just about overcoming problems; in fact, he says that there are many advantages to its processes too. 'Many of the unique features of the Chinese legal system bring about certain advantages that are not necessarily available in other jurisdictions,' he says. 'For instance, IP infringement can be stopped more speedily in China due to its administrative protection measures, and infringing goods for export can be detained promptly at customs checkpoints before departing from the country.

'In the early stage of development of the Chinese patent system, it was not uncommon for patentees to find that they were not always able to exploit their patent rights effectively,' he adds, 'mainly because the courts had limited experience and the judicial system had yet to deal with patent-related cases. However, the quality of court decisions has improved considerably in recent years as judges have accumulated considerable experience – mainly as a result of the sheer volume of cases.'

In fact, Yong says that the number of infringement cases before Chinese courts has seen a dramatic increase over the past decade as China's policymakers have become more supportive of the importance of IP Rights: 'According to China Patent Agent's own statistics, foreign companies conducting patent infringement litigation in recent years in China can expect a win rate of 70%, and damages, though modest, are awarded to 99% of the winning cases.'

The Chinese system offers IP Rights holders a number of different claims channels, including criminal prosecution, administrative actions, customs protection and trade fair surveillance, as well as civil prosecution. 'This means that the parties concerned, whether domestic or foreign, are provided with sufficient alternatives to assert their IP Rights,' says Yong.

There's always risk

'You can't own a patent right without being exposed to the risk of infringement – this is evident in China as in all other jurisdictions,' adds Yong. 'In the eyes of some patentees, China may just be the source of the world's counterfeit goods, but, in reality, patent infringement in China can be substantively deterred and losses minimised if IP Rights are asserted appropriately.'

Yong points to the recent action by drug manufacturer Pfizer against SIPO's Patent Re-examination Board, relating to a second medical use of a known chemical compound included in Viagra. 'Without the protection of a patent, that chemical compound could have been used by a great number of drug manufacturers to produce a comparable drug, thereby eroding the patent owner's interests,' he explains. 'That's why the original grant of the patent triggered invalidation by 12 domestic manufacturers. Our firm, as Pfizer's patent agency, pursued the case for nine years to assert the rights provided to the company by Chinese law, and, as a result, successfully maintained the validity of the patent, thereby helping Pfizer to safeguard its market share in China.'

Such actions can, of course, quickly eat into patent protection budgets, and, in the current economic climate where cost-cutting is key, it's natural that corporate heads may decide that the case for pursuing an action or even registering a right in China may not be worth the expense involved. However, Yong disagrees with this logic. 'Companies doing business in China should register as many IP Rights here as possible,' he says. 'In fact, as soon as you have an invention or a trademark that you're intending to launch to market, you should register it in China as quickly as possible. If you don't, you may struggle to stop imitators eating into your potential market share.'

He may well be proved correct. China is the world's fourth largest industrial producer behind the US, Japan and Germany. And, not content with becoming the world's factory floor, China looks set to redraw the global corporate landscape through the increasing competitiveness of home-grown corporations.

In the coming decade, Yong expects the result to be that the number of IP prosecution and litigation actions increases; however, he also expects companies to begin to pay more attention to corporate patent strategy, patent licensing and antitrust reviews, as well as risk management for patent infringement actions in China.

'Generally speaking, we are optimistic that by referring to the IP laws and practices in foreign countries, and by combining them with Chinese IP theories and practices, the IP protection mechanism in China will become more comprehensive, efficient and international.'

Those seeking the best IP Rights protection in China should look to make use of legal and judicial measures. 'For example, we would recommend that companies conclude non-disclosure agreements with employees in China, especially with those personnel who are actively involved in the research and development process for new inventions and core technologies,' says Yong.

'The emphasis must remain on protecting their enterprises' business and technology secrets within the parameters of the existing system.'

Some essential facts on the company
Established: March 1984, to accompany China's first patent law.
Reach: Its work is centred on mainland China and Hong Kong, but the firm operates for both domestic and foreign clients from its headquarters in Hong Kong, offices in Beijing, Shenzhen and Shanghai, and its overseas offices in New York, Tokyo and Munich.
Legal staff: More than 190 specialist patent attorneys, 51 lawyers and 40 trademark attorneys.
Practice areas: Patents, trademarks and enforcement actions. www.cpahkltd.com
This article first appeared in Legal Strategy Review, issue 7, written by Emma Jones, CPA Global, and republished online at http://www.cpaglobal.com/newlegalreview/4852/on_the_fast_track.