12 January 2014

Chinese Junk Patents Revisited: 2013 Filings Update

Chinese JunkCompanies in China are continuing to apply for Australian innovation patents – which are not subject to substantive examination before being granted – in order to take advantage of generous subsidies offered by the Chinese government to small and medium sized enterprises (SMEs) for obtaining foreign patents. 

I previously wrote about this phenomenon last February, after it came to my attention that an unusually large number of innovation patent applications had been filed by Chinese companies in 2012, via a number of agents who appeared to conduct no other Australian patent filing or prosecution work.  I far as I have been able to ascertain, none of these agents employ (or are) registered Australian patent attorneys.  It is unclear whether they have other relevant legal qualifications which would enable them to provide patent filing or acquisition services under the Australian law.

I thought it would be worthwhile to investigate innovation patent filings by Chinese companies in 2013, to see whether the practice was continuing.  I have found that it is, although at a reduced level of activity.  I have identified 110 innovation patent applications filed on behalf of Chinese companies during 2013 which appear most likely to have been obtained primarily in order to receive the government payment, rather than because of any genuine interest in obtain valid, enforceable Australian patent rights.

Some of the agents responsible for ‘Chinese junk patent’ filings in 2012 and earlier are continuing to do so, while others appear to have ceased (or, possibly, may be continuing to operate under other names).

Additionally, I have recently received reports confirming my belief that the purpose of Chinese companies in obtaining innovation patents is to claim financial benefits from the government, and not because of any genuine business interests in Australia.

‘Junk Patenting’ Activity in 2013

As noted above, there was a reduction in the filing of suspect innovation patents by Chinese companies in 2013.  For 2012, I had looked at the activities of a small number of agents, and identified 229 innovation patent applications filed by three of those agents.  For 2013, I have identified just 110 innovation patent filings that were almost certainly made for the purpose of collecting the Chinese government subsidies.

This is something of a relief, considering that there had been significant growth in the previous two years, and the fact that China is a country of around 1.4 billion people undergoing massive economic expansion!  However, my fear remains that more companies will catch on to this loophole, and Australia will be swamped with low quality innovation patents cluttering up the register and creating uncertainty for legitimate businesses operating in Australia.

The top three agents in 2012 were Admiral Trademarks & Patents Services, Atkinson IP, and a Mr Shengyang Yu.  Admiral remains the leading conduit of Chinese junk patents, having filed 61 in 2013.  This is, however, a significant reduction over its 2012 contribution.  Atkinson appears to have abandoned this line of business, but has continued to file and prosecute a small number of standard patent applications.  Shengyang Yu also appears to have exited the Australian market (unless he is now operating under one or more aliases).

Other continuing operators are Mr Alfred Lei (seven innovation patent filings in 2013) and Mr Semeny Yang (with four).

Other filing agents in 2013 were Ms Suke Aibing (five filings), Ms Qing Huang (one filing), Dr Shung Show (three filings), the slightly suspiciously-named Dr Juepou Juepou (eleven filings), and the very suspiciously-named Ms William William (18 filings).  Based on patterns in certain fields of the patent request forms, I suspect – but cannot prove – that ‘Dr Juepou’ and ‘Ms William’ are one and the same entity. 

Also curious are the names of some of the inventors on applications filed by ‘Dr Juepou’ on behalf of Yiwu City Jipu Stationery Co., Ltd, eight of which name David Wenham and two Anthony Waller.  It could, of course, be coincidence that David Wenham is also the name of an Australian actor perhaps best known internationally for his roles as Faramir in The Lord of the Rings and Carl in Van Helsing.  Continuing the supernatural theme, Anthony Waller is also the name of a British writer, producer and director responsible for, among other things, An American Werewolf in Paris.  But perhaps Yiwu City Jipu Stationery simply employs a small contingent of western product developers.

Chinese Companies Targeting Other Countries

I have recently heard from associates in other jurisdictions that they have received enquiries from Chinese companies regarding costs of obtaining various IP rights in their countries.  The persons making these enquiries have been quite open about the fact that they are not concerned about obtaining patent rights as such, but only about obtaining certificates of grant for the purpose of claiming financial benefits in China.  They have thus expressed a preference for types of IP rights (such as utility models) for which a certificate can be obtained without a substantive examination procedure.

I have reason to believe that some of these enquiries have been made on behalf of companies that have also been taking advantage of the Australian innovation patent system.  Unfortunately, however, I am unable to obtain (or reveal) any further detail because the persons making the enquiries would doubtless regard their correspondence as confidential, and any identifying disclosure to me or anybody else as a breach of that confidentiality.  I will say, however, that I am unaware of any reputable agent having responded positively to these enquiries, or having agreed to act on behalf of the Chinese companies in question.

Legal, Policy and Ethical Issues

It is not contrary to any provisions of Australian patent law to file an innovation patent for the primary purpose of obtaining a financial benefit in another country.  I emphasise, therefore, that there is nothing ‘illegal’ about the filing of these patents, at least in Australia.  It is not even clear that there is anything illicit in unqualified parties acting as agents – they are presumably not falsely holding themselves out as being legitimate practitioners, and may be doing little more than provide an Australian address to enable Chinese companies to do something that they are legally entitled to do, either with or without qualified local representatives.

How the Chinese government might feel about companies claiming subsidies for patents which do not necessarily represent a valid, enforceable right, is another matter.  An article at the China IPR blog states that the relevant Chinese regulation ‘requires novelty, inventiveness, utility, and a stable legal status of the foreign patent.’  It is therefore possible that the practice is illegitimate, although if this is the case it is clearly a matter for the Chinese authorities.

From an Australian policy perspective, it is clearly undesirable for ‘junk patents’ to be dumped on the Australian register purely for the purpose of obtain a government subsidy in another country.  They can create uncertainty and cost for companies that are actually operating in Australia, and which may need to assess whether any of these patents represent a risk to their businesses. 

The ‘junk patents’ also skew filing statistics.  While 110 applications is not a large number, it nonetheless represents nearly 7% of all innovation patent filings in 2013, and contributes to data suggesting that the use of the innovation patent system by the Australian SMEs for which it was primarily created is in (relative) decline.  This concern was raised in the options paper issued in August 2013 by the Advisory Council of Intellectual Property (ACIP) as part of its review of the innovation patent system.  In fact, the number of innovation patent filings made by Australian companies and individuals has been steadily increasing since the system was created, although the proportion of local filings has declined from 85% to 65%.  However, if one were to remove from the data the Chinese ‘junk patent’ filings, and the strategic innovation patent filings by Apple, Inc, then Australian applicants remain the overwhelming majority of users of the system.

From an ethical perspective, the propriety of the dealings between the Chinese applicants and their government is their own concern.  Furthermore, to my knowledge Chinese companies have not been approaching qualified Australian practitioners for assistance in filing ‘junk patents’.  The relatively small number of innovation patents filed by registered patent attorneys on behalf of Chinese entities appear legitimate – showing none of the patterns apparent in the filings by Admiral and the other agents identified above.  It is not clear whether Australian attorneys are simply not receiving enquiries from Chinese companies wishing to file innovation patent application in order to receive the government subsidies, or if they are receiving enquiries but are either declining to act on ethical grounds, or being undercut by cheaper unqualified agents.

Conclusion – What Can Be Done?

The problem here is not primarily with the Australian innovation patent system, which seems to be working largely as intended for large numbers of small Australian companies and individuals.  Rather, the problem is with Chinese government subsidies that are either poorly designed or inadequately policed.

As I have said before, there are two actions that the Australian government could reasonably take to address the issue.  First, it could make appropriate representations to the Chinese government, expressing concern about the potential misuse of the Australian innovation patent system, and emphasising that unless an innovation patent has been certified following substantive examination, it should not be treated as evidence of the owner having obtained a valid right. 

Second, the Australian government could make changes to the innovation patent system to discourage the filing of ‘junk patents’.  A number of suggestions were included in the ACIP options paper, of which the least disruptive would be simply to change the terminology used, such that the word ‘patent’ is only used once a registered application has been examined and certified.

Do you have any thoughts on this issue, or additional information on the activities of Chinese companies in Australia or other countries?  If so, please let me know in the comments below.

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