Pandemic Can’t Stop the Growth of IP Filings in China

IP Law

 

 

 

Japan, the United States, and Germany topped the list of the most patent filings in China last year, according to China’s National Intellectual Property Administration (NIPA).

The country granted 530,000 patents for inventions in 2020. It brought the total number of valid invention patents on the Chinese mainland to 2.21 million, said Hu Wenhui, spokesman for the National Intellectual Property Administration.

 

According to China Daily, since 2019, China has promulgated a series of laws, regulations, and IP protection guidelines, including the Foreign Investment Law, to create a fairer, more transparent, and predictable business environment for foreign investors.

 

“This continued growth of foreign IP applications shows the confidence of foreign investors in the Chinese market as well as China’s progress in IP protection and business environment,” said Dong Tao, a law professor at Beijing International Studies University.

For the third consecutive year, China-based telecoms giant Huawei Technologies, with 4,411 published PCT applications, was the top corporate filer in 2019. It was followed by:

 

  • Mitsubishi Electric Corp. of Japan (2,661)
  • Samsung Electronics of the Republic of Korea (2,334)
  • Qualcomm Inc. of the U.S. (2,127)
  • Guang Dong Oppo Mobile Telecommunications of China (1,927)

 

Filings are supported by generous subsidies provided by local governments.  For example, Shanghai city provides 50,000 RMB in subsidies (~$7,100 USD) for each foreign patent granted (up to five) through a PCT application.  Further, the Pudong District of Shanghai and the Zhangjiang Hi-Tech Park each provided 100,000 RMB in rewards for foreign patent grants (the policies have since been removed from their respective websites).

 

WIPO’s head, Francis Gurry, told a news conference China’s success was “down to a very deliberate strategy on the part of Chinese leadership to advance innovation and to make the country a country whose economy operates at a higher level of value.

The “extraordinary volume” of IP applications reflects the importance of intellectual property in the contemporary economy, he said. IP applications are mainly driven by innovation and globalization, by the policy focus on innovation around the world, and the fact that innovation is increasingly the battleground for economic advantage, he explained.

Figures from the China Semiconductor Industry Association show that China’s IC industry recorded double-digit growth in the first nine months of 2020. The industry’s sales topped 590.5 billion yuan ($91 billion) during the period, up 16.9 percent year-on-year. More than 40 percent of sales came from the IC design sector.

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China’s Encryption Law & Its Key Features

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China’s National People’s Congress passed the Encryption Law. Consistent with prior drafts, the Encryption Law defines “encryption” as “technologies, products, or services applying specific transformations to information to effect encryption protection or security authentication” (Article 2).

 

According to DLA Piper, the new encryption classification: encryption products, technologies and services will now be categorized into three tiers: “core”, “ordinary” and “commercial”. The first two tiers will be used to protect “state secrets”, and so will be more heavily regulated than the latter (i.e., state-monitored security assessments and audits may take place during the development, implementation and maintenance of such technologies; and it appears that only local PRC vendors may be entitled to sell and provide such technologies). It is anticipated that most businesses will only be dealing with “commercial” encryption, but organizations will need to check this is the case.

Key features of China’s encryption law for foreign companies

  • Foreign companies can participate. The law requires local governments not to discriminate against foreign-funded players and encourages cooperation on commercial encryption.
  • Local authorities are to include encryption in economic and social development plans and fiscal budgets. While the law does not state specific amounts, it could help local encryption startups.
  • Commercial encryption services must pass checks and obtain certifications if they involve national security and public interest.
  • Those that fail to use commercial encryption in accordance with this law and refuse to correct their actions will be fined between RMB 100,000 and RMB 1 million.

 

Under the new law, commercial encryption is no longer considered a state secret. This is a significant change from the current regulatory position and lays the foundation for liberalizing the production, sale and use of commercial encryption.

To ensure compliance, China will set up a system to “test and authenticate” commercial encryption products to ensure they comply with technical specifications and regulations, with the Office of State Commercial Cryptography Administration (OSCCA) charged with conducting inspections.

China regularly conducts mass surveillance on digital conversations and can force companies to both store data locally as well as turn it over on request. It likewise has the power to shut down services or entire products in response to security incidents.

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