06 February 2013

Junk Patents Dumped on Australia as Chinese Subsidies Rorted

Red EnvelopeA Chinese government scheme providing financial incentives for small and medium sized enterprises, public institutions or scientific research institutions appears to be resulting in abuse of the Australian patent system, and the 'dumping' of numerous low-quality innovation patents on the Australian Register.

These ‘junk’ patents are not being examined or certified.  They therefore represent no more than potential enforceable rights.  Even so, they generate costs to companies operating legitimately in Australia, which may need to obtain advice on the likely scope and validity of these patents in order to avoid possible infringement.  In extreme cases, the existence of junk patents could result in an Australian business choosing not to take the risk of bringing a new product to market, even though the Chinese owner of a patent is not itself offering any products or services in this country.

The new Chinese patent filings, which increased significantly in number after introduction of the Chinese government ‘Measures for the Administration of Special Funds for Subsidizing Foreign Patent Applications’ in April last year, appear mainly to be handled by Australian ‘agents’ who are neither Australian, nor persons authorised under the Australian Patents Act 1990 to apply for or obtain patents on behalf of other parties.

A number of these agents have been operating in Australia for some time, although with the commencement of the Chinese subsidy scheme, business looks to be booming!  One particularly enterprising operator appears to have established two credible-looking business fronts, and has commenced development of a new, and highly professional-looking, web site for one of those businesses.

This phenomenon is already resulting in distortions of Australian patent filing and grant statistics.  I recently reported on the top Australian patent recipients of 2012, and noted that, for the first time, a Chinese company appeared in the top 10.  It turns out that every one of the 97 patents granted to Hengdian Group Linix Motor Co last year is an innovation patent filed by a single dubious agency.

Chinese Government Subsidies

The ‘Measures for the Administration of Special Funds for Subsidizing Foreign Patent Applications’, issued by the Chinese Ministry of Finance on 14 April 2012, replaced the ‘Interim Measures for the Administration of Special Funds for Subsidizing Foreign Patent Applications’, which had been in effect since 2009.

The basic idea of both the interim and final schemes is that, subject to satisfying certain conditions, qualifying Chinese companies can be paid to file for foreign patents.  Details of the schemes are hard to come by in English, however it appears that funds of up to RMD100,000 (A$16,000) are available for each one of up to five countries or regions per ‘patent project’.  The funds can be used to cover:
  1. statutory fees to a foreign patent examination agency during the prosecution stage and within three years from the year the patent is granted;
  2. patent search fees to patent search agencies; and
  3. service charges to patent agencies when a foreign patent application is filed.
Changes in the final measures appear to made the subsidies more readily available by removing a restriction that the foreign application must be derived from a international (PCT) application filed with the Chinese State Intellectual Property Office (SIPO), and including foreign applications claiming priority under the Paris Convention from Chinese applications filed within the preceding 12 months.

On the other hand, the Measures require that a patent actually be granted before the subsidies become payable. 

Innovation Patent Filings

Prior to 2011, it appears that Chinese companies had not yet caught on to the possibilities presented by the Australian innovation patent system.  Taking, as an indication, the top three agents providing innovation patent filing services to Chinese companies, only 18 applications were filed up until 31 December 2010.

In 2011, 77 innovation patent applications were filed by the three agents, mostly between May and August.

In 2012, business skyrocketed for the agents, which together filed 229 innovation patent applications, again mostly between May and August.

It is not clear why the months of May to August should be prime patent-filing season.  However, it is perhaps notable that 122 of the applications filed in 2012 (including all 97 of those in the name of Hengdian Group Linix Motor Co) were filed in May, i.e. the month following the announcement of the new ‘Measures for the Administration of Special Funds for Subsidizing Foreign Patent Applications’.

Innovation patents seem to fit the Chinese subsidy scheme perfectly.
  1. They are cheap to file.  The online filing fee is just A$180.  Additionally, the applicant bears the cost of translating an original Chinese document into English. but it is quite likely that there are translators in China who would handle this for no more than a few hundred dollars.
  2. They are granted within weeks, without substantive examination.
  3. A patent certificate is issued which, aside from being headed ‘Innovation Patent’, looks no less impressive or official than a standard patent certificate.
With up to A$16,000 on offer, which includes coverage for service charges to patent agencies, there is no particular reason why agents should offer a low cost service to companies that qualify for the subsidies.  Of course, I do not know whether any agents are offering cash-back incentives or similar, to encourage Chinese companies to make use of their services…

Providing Patent Attorney Services

Australia law prohibits unqualified persons from providing paid services in relation to a range of patent matters.  Section 201 of the Patents Act 1990 sets out specific services that can be provided on a paid basis in this country only by a registered patent attorney or a legal practitioner:
  1. to apply for or obtain patents in Australia or anywhere else;
  2. to prepare specifications or other documents for the purposes of the Australian patent law, or the patent law of another country; and
  3. to give advice (other than advice of a scientific or technical nature) about the validity, or infringement, of patents.
Legal practitioners are constrained by their own regulatory regime, codes of conduct and disciplinary processes not to practice in areas outside their areas of competence and qualification.  Due to the complexity of patent law and Patent Office procedures, along with the very specialised, and technical, nature of the work involved in drafting patent specifications, lawyers (who are not also patent attorneys) for the most part do not provide services in the above areas.

Dubious Operators?

Through my own investigations, I have uncovered two major operators, and a number of minor operators, who appear to be providing unauthorised services applying for and obtaining patents in Australia.  I say ‘appear to be’ because although I have been unable to establish any connection between these agencies and any registered Australian patent attorneys, it is more difficult to determine whether or not they employ legal practitioners to handle dealings with IP Australia.

As explained above, the Patents Act permits all legal practitioners to provide patent attorney services.  If a practitioner without the relevant competence does so, that is not a matter for the patent law, it is an issue for the disciplinary processes of the legal profession.

The major alleged ‘offenders’ are Admiral Trademarks & Patents Services and Atkinson IP, both of which seem to be fronts for the same operator, along with one Mr Shengyang Yu.  Admiral, in particular, is single-handedly responsible for filing the 97 innovation patent applications that catapulted Hengdian Group Linix Motor Co into the top 10 patent recipients in Australia in 2012. 

These two operators are together responsible for 231 applications filed in 2012, i.e. 229 innovation patent applications, and two standard patent applications.

Admiral and Atkinson

Admiral has a website at www.smartiac.com/adtrademark.  It also seems to own www.admiraltrademarks.com, which provides the same contact details, but is marked as being ‘under maintenance’.  Admiral operates a PO box in Sydney, but IP Australia’s records show a street address at Suite 228, 9 Crofts Avenue Hurstville NSW [Link to Google StreetView].  The only telephone number provided is a mobile phone (if I were a journalist, not a patent attorney, I would call).

Atkinson has a website at www.atkinsonip.com, which again is just an ‘under construction’ placeholder.  The address given for Atkinson is the same street address as Admiral.  A different mobile phone number is provided.

However, Atkinson appears to be preparing to launch a significantly more professional-looking website.  A staging site is currently publicly-accessible at atkinsonip.wix.com/home.  Since this may not continue to be the case, a capture of the home page is shown below, alongside a corresponding page of the current Admiral website (click on the images to see an enlarged version).  Text has simply been copied and pasted from one to the other.

Atkinson staging siteAdmiral homepage

Admiral has been careful not to hold itself out, on its English-language web site, as providing any of the patent attorney services defined in subsection 201(7) of the Patents Act.  Its patents services are stated to be:
  1. commercialisation of national patents and international patents
  2. organizing defending and opposing patents in opposition proceedings
  3. organizing advice in relation to the validity of patents
  4. patent searching
  5. renewals for patents
Apparently, then, Admiral ‘organizes’ patent attorney services, but only actually provides services that are not the exclusive domain of registered patent attorneys and qualified legal practitioners.  Filing applications and obtaining patents are not mentioned, however it plainly provides these services, and must somehow be promoting them to the Chinese companies and individuals who are named in the many applications Admiral has filed.  Interestingly, Admiral publishes rates for trade mark searching and applications (which under Australian law may be filed by anyone as agent for the applicant), but asks that prospective clients ‘please enquire’ about patents and other services.

For the most part, with electronic filing systems in place, Admiral and Atkinson do not need to identify an individual person in any of their filings.  In some cases, however, documents have been filed with named signatories, e.g. Admiral’s request for entry into the national phase of application no. 2009343727 was signed by one ‘Emma Taylor’, while a response to an examination report filed by Atkinson on application no. 2006307792 was signed ‘Victoria Dennison’.

Over the years, Admiral has filed a total of 239 patent applications in Australia, while Atkinson IP has filed 127.

Shengyang Yu

As for Mr Shengyang Yu, he provides the details of a serviced office in Brisbane as his contact address in Australia.  However, in the XML documents containing the details provided by Mr Yu when filing applications, he has also provided a postal address in Jinhua, China.  I assume that he actually resides, or works from, the Chinese address.

Over the years, Mr Yu has filed 99 patent applications.

Other Operators

The next most prolific of the apparently unauthorised Chinese agents is Mr Alfred Lei, who has filed 22 applications over the years, and provides his address as that of Gordon Serviced and Virtual Offices in Sydney.

Other suspect agents include Taiky Ong (six applications), K Y Chow (three applications) and Mr Semeny Yang (two applications), all of whom appear to be operating out of residential premises.  The most recent of Mr Yang’s two filings is registered in the name of Beijing Normal University, so this phenomenon does not seem to be restricted to corporate ventures.

Unregistered?

Needless to say, there is no ‘Shengyang Yu’ on the Register of Australian Patent Attorneys [PDF].  Nor is there any ‘Emma Taylor’, ‘Victoria Dennison’, ‘Alfred Lei’, ‘Taiky Ong’, ‘K Y Chow’ or ‘Semeny Yang’.

No registered patent attorney claims to be contactable at the ‘firms’ of Admiral Trademarks and Patents Services or Atkinson IP.  No registered patent attorney provides any of the addresses used by the above operators in his or her contact details.

All the evidence suggests that these people have nothing to do with the patent attorney profession in Australia.

What Can Be Done?

There are two separate issues in all of this.  Firstly, what can be done about the abuse of the Australian innovation patent system by Chinese companies looking to take advantage of hefty subsidies made available by the Chinese government?

A few ideas come to mind.  At an intergovernmental level, Australian officials could seek to educate the Chinese authorities about the innovation patent system, and point out to them that paying their subsidies for granted, but uncertified, innovation patents does not meet their policy objectives.  Additionally, they might want to look to see whether Chinese companies, and other individuals, are rorting the system.

Secondly, innovation patent certificates could be designed to be less ‘impressive’, less like standard patent certificates, and to state very clearly that they do not represent that a patent has been substantively examined for novelty and innovative step, or that the patent is enforceable.

Abolishing innovation patents would also work, but that would seem to be contrary to the policy intentions of the Australian government, and would largely punish Australian SMEs in order to address a problem that is, in fact, created by a Chinese program which lacks sufficient oversight.

The second issue is what can be done about unauthorised operators?  The fact is, perhaps very little.  The patent attorney profession is regulated in Australia by the Professional Standards Board.  However, the Board only has authority over registered attorneys.  It has no power over unregistered operators.

The new Code of Conduct will (I understand) require registered attorneys to satisfy clients that they are, in fact, registered before providing services.  This does not help address an issue with clients who are not concerned that they are not dealing with a qualified practitioner!

Action could be taken under the provisions of subsection 201(1) of the Patents Act 1990.  Presumably this would be the responsibility of IP Australia.  However, with the penalty being a fine of only A$3000, this provision does not have many teeth against the likes of Admiral and Atkinson IP (unless it can somehow be argued that the A$3000 fine should apply to each and very individual unauthorised act).  The situation is made more difficult by the fact that the actual individuals behind these operations are probably not even resident in Australia.

One solution that would work is to introduce a numbered registration system, such as exists in the US, where only practitioners with a registration number are able to act on behalf of clients.  Presumably all registered attorneys would receive a number as part of their registration, while lawyers who wish to practice before IP Australia would have to apply for a number.  My understanding is that this type of system has been rejected in the past, because of its potential to lessen competition in the provision of patent services.  That might well be so, but then who is protecting the system as a whole, and by extension the interests of the Australian public, against these types of abuse?

Conclusion

The dumping of junk patents on the Australian register, so that Chinese companies can collect cash from their government, does not in any way serve the interests of this country.

The presence of large numbers of such patents on the register creates an additional burden to businesses concerned about mitigating infringement risk.  This is a direct cost to those businesses, and to the Australian economy.

The patent system is intended to provide a balance – the interests of society in encouraging innovation, by rewarding investment in R&D (which also provides a private benefit to the individual business) versus the cost to society of limiting competition by granting limited monopolies to innovators.  Junk patents contribute nothing to this balance.

As for the presence of unqualified operators, it seems that this might be less of a problem if they were not such major contributors to the plague of junk patents.  Legitimate innovative business, with financial interests in the Australian market, do not for the most part have any desire to deal with incompetent representatives.  They need genuine expert professional advice and assistance that adds real value to their business.

Without a market for patents that lack any commercial utility, other than to collect subsidies or meet other government KPIs, there would be very little work for opportunistic unqualified operators, and they would be largely starved out of the system.  Prior to 2011, the number of applications filed annually by suspect operators was small enough to be ignored as a lesser cost to the system than would be any efforts to address the issue.

That is no longer the case, and if the current trend is allowed to continue there is a risk that the problem may become entrenched.

Postscript

I contacted IP Australia prior to preparing this article, primarily as a courtesy to ensure that they would not be wrong-footed by any response it may generate.  I can confirm that I received an equally courteous reply, however for perfectly legitimate reasons IP Australia does not wish to make any comment on these issues at the present time.

Finally, I am indebted to my colleague Grant Jacobsen at Watermark Intellectual Asset Management for initially bringing my attention to the very large number of Chinese innovation patent filings being made by certain agents.

Image Copyright (c) 123RF Stock Photos

10 comments:

Pete said...

PS: Probably because of what has happened with the changes of staff on ACIP!!!!!

Mark Summerfield said...

I can't quite see what that has to do with Chinese economic policy. The issue of Australian economists taking over the IP system (and it's not just ACIP) is another topic for another day!

Pete said...

I was commenting on why you may not have gotten a reply on what IP Australia was doing. But I thought it was a good article. Our system allows the Chinese to take the approach they did, good on them for being smart enough to. The innovation system was intended to support Australian SME's, but, you know, why can't we support Australian SMEs taking their inventions to the world. Was a good article Mark. My PS was just to pick up on your PS ;-)

Mark Summerfield said...

As I said in the postscript, I did get a reply. And while I endeavour to report without fear or favour when possible, I am a patent attorney not a journalist, and the Code of Conduct legally obliges me to place certain matters above the general public interest. In other words, for better or worse, there are always going to be certain things I am not at liberty to publish.

If you think about it, you will realise that whatever IP Australia may or may not be doing in this area, there are potential legal consequences if they comment prematurely.

Pete said...

I know they did, my comment was tongue in cheek, but this is most likely why there was the extra review last year to quickly change the threshold. Not sure what happened with that review - didn't seem to go anywhere.

Mark Summerfield said...

Ah, I see the source of confusion now. However, IP Australia's proposal to eliminate the separate innovative step test would not solve the junk patent problem. The issue here is that you can get a granted patent without any substantive examination. We do not know if these patents are novel, let alone innovative or inventive. You could set the highest standards possible, and still these Chinese companies could obtain innovation patents and never seek certification.

The IP Australia review is still officially ongoing. I doubt they have much time for it at the moment though -- they are really up against the 15 April deadline to get everything in place for Raising the Bar.

As for the ACIP review, there was supposed to be an interim report/options paper by October last year. Obviously that one is running a little behind, and changes of staff cannot be helping.

arachne said...

So make a request for examination of at least some of the alleged junk patents under s101A(b). If these test patents are indeed certified, this perhaps lessens the significance of the other issues you have raised.

Mark Summerfield said...

Are you offering to pay the $250 per patent fee for making a third-party request? :)

There is no question that if I had a client who was concerned about any of these patents, I would recommend requesting examination before expending money on any kind of detailed analysis or advice on the patent. My guess is that the patentee would not pay the second part of the fee, and the patent would cease. Of course, if they did pay the fee, the patent would be examined. Either way, the client ends up with greater certainty.

But this all begs the question. The problem remains that whatever action is to be taken in relation to 'junk patents', the burden falls on legitimate businesses operating in the Australian market.

arachne said...

Just because you allege the patents to be junk does not make it so. Even a single data point (at the cost of $250) would support (or diminish) your allegation.

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