China’s next five year plan – what does it mean for patent litigation?

China, the world’s manufacturing centre, is still considered by many as the Wild West for intellectual property infringement. But things are changing and indeed have already changed, according to He Fang, of Rouse's Shanghai Office. Chinese electronics company Huawei Technology became the world’s biggest filer of PCT applications in electronic engineering in 2008. And domestic Chinese companies have begun to sue their overseas competitors for patent infringement in China, claiming large sums in damages, a significant departure from what used to be the case. In the well known example of Chint vs. Schneider Electric in 2008, Schneider had to pay tens of millions of RMB to Chint, a Chinese manufacturer, for infringement of a utility model patent.

More recently, in October 2010, in Corun vs. Vale Inco, Vale Inco was ordered by the Hunan Provincial High Court to pay a similarly large amount in damages, nearly RMB 55 million (about £5.3 million) to the local nickel foam manufacturer for infringement of a process patent .

These awards reflect a change in the whole patent landscape in China, and also a growing trend – actions by local patentees to protect their own innovation. But how has this come about? It is informative to understand why.

China has taken an individual approach on its path to innovation. Beginning with Deng Xiaoping’s market reform in around 1978, the Chinese government has set up a series of “Five-Year” Plans. The most recent 11th Five-Year Plan, which concludes by the end of 2010, had innovation as a key element and will by its conclusion have led to a significant advance in independent innovation in China, as well as enhanced R & D competitiveness. President Hu Jingtao, China’s leader, and respective government policies, have clearly indicated China’s eagerness to become a superpower in patents and technology. During the most recent Five-Year plan, however, China paid over 36 billion US dollars in royalties or licensing fees to overseas patentees. While this massive figure reflects the improvement of patent protection in the jurisdiction, it also shows China’s level of dependency on foreign technology. The Chinese government wants this to change and is directing policy towards that.

The next (12th) Five-Year plan commences in 2011 and will be in place when Xi Jingping is likely to succeed President Hu Jingtao as president. The plan is likely to set the following patent-focussed objectives for 2015, according to government publications: the whole patent legal structure will mature ensuring compatibility with other codified laws and regulations; patent filings are expected to exceed 2 million per annum (including invention, utility model and design patents); the number of granted patents filed by Chinese applicants will rank in the top two worldwide; the quality of patents will be improved by increasing the quality of patent examination and the number of examiners; substantive examination for an invention patent will be speeded up to 22 months and the examination period for utility models and designs will benefit from an additionally shortened period of 3 months. These changes will improve enforcement of patents significantly - as Chinese courts do not have jurisdiction over validity issues and may stay an infringement action pending the outcome of a validity challenge, all improvements at the State Intellectual Property Office will help to expedite civil infringement proceedings.

It will be no surprise if these objectives are met within five years as China’s innovation burgeons. And with that, it seems inevitable that there will be an increase in litigation, and more cases like the Schneider and Vale Inco.