Current Problems and Countermeasures in an Enterprise’s Patent Work

By Deng Yao, Director of the Beijing Lifang & Partners Law Firm, Guangzhou Branch,[Patent]

I. Preamble
The enterprise is the cornerstone and carrier in implementing national intellectual property (IP) strategies and its independent innovation plays a vital role in strengthening the national core competitiveness. How to implement the national and local IP strategies to help enterprises enhance their independent innovation capabilities has become one of the urgent issues to be addressed by all levels of governments, and has also raised new challenges for IP intermediary services.
In order to fully understand the actual situations of enterprises with respect to IP, particularly patent applications, on the basis of which to trace its sources and find solutions, and in order to provide quality and tailored IP intermediary services, our law firm has, for the past year, organized special forces to conduct in-depth surveys into matters related thereto in the Pearl River Delta, Yangtze River Delta and other areas. We handed out a total of 220 questionnaires, among them 162 were returned and the response rate was 73%, providing important information. Our researchers held 19 meetings regarding training, two meetings in the nature of seminars and more than 300 enterprises participated. We also made contact and communicated with more than 200 enterprises and individuals through different channels, and launched in-depth investigations in nearly 100 enterprises to understand their positions on patent work. We provided suggestions and guidance for the enterprises regarding how to establish patent application strategies, properly use patents, strengthen IP protection and enhance their core competitiveness, and we also made preliminary proposals specific to the situations.
II. Problems in enterprise patent work
How to synchronize growth in quality and quantity of patent applications and strengthen IP management of enterprises has been not only a concern by competent government departments at different levels, but also a thorny issue Chinese enterprises face in their operations. In the surveys we found the problems in patent applications and other IP work in various regions can be generally summarized as “governments are very anxious and enterprises are very negative.”
1. Main reasons behind “governments are very anxious”
a. Heavy pressure on target tasks and lack of new growth points
It has been a short-term 5-year goal of the national IP strategy to improve independent IP levels and increase ownerships. It has also been one of the specific goals of provincial and municipal IP strategies to maintain sustained growth in patent applications. The number of patent applications has been one of the indicators in the assessment of governments at all levels in their IP work. The assessment requirements have placed considerable pressure on the patent management at grass-root levels. As enterprises are constrained by the relevant industries and characteristics of economic development of various towns, many township enterprises are short of sustained innovation capacities. For 20 years, processing trade has been the main pillar in the industrial economy and foreign trade of Guangdong Province, in recent years, has become a very common trade pattern across China. Generally, the industries do not have a high level of technological advancement. This is due to the fact that economic characteristics of the industry have determined the innovation capacity of the majority of enterprises, including poor innovation in height and breadth, and how to meet the growth target in the annual number of patents has become a headache for township patent management departments. For example, a town in Guangdong Province has in recent years, transformed into a service-oriented regional economic development model, though some of the remaining large manufacturing enterprises are preparing for relocation due to limitations on land development, thus putting increasing pressure on the patent management department over the growth of patent applications within its jurisdiction.
Since early 2008, due to increasing uncertainties in the external economic environment, the number of orders for enterprises has decreased over the previous years and business growth has been slowing. Moreover, the global financial crisis, domestic price increases, the corporate credit crunch and other factors have had adverse effects on the enterprises, diminishing domestic sales and exports of products to a certain extent. The above factors have resulted in restrictions on new product development and introduction in various towns since 2008, thereby losing a lot of new growth points in patent applications.
b. Grass-root patent management functionaries lack professional expertise and assume multiple roles
It was learned during the investigations that very few patent management functionaries in each town have a legal background, or any systematic patent training. As for the relevant issues enterprises encounter in patents, most can only engage in simple supervision, organization of reporting materials and other similar work, and are unable to provide direct guidance or replies, to say nothing of making a thorough in-depth analysis of patent issues enterprise face, relaying and reporting the same in an expeditious manner.
Guangdong Province has been leading in its township economy in China with many enterprises, thus putting a heavy burden on patent work in towns. However, the township patent management departments have a number of higher-level counterparts, “many lines on top and only a needle underneath,” a patent management functionary needs to simultaneously deal with multiple higher-level departments and must balance responsibilities in patent, trade, statistics and archives. The miscellaneous and multiple threads of the work make it difficult for patent management functionaries to concentrate steadily and continuously on patent applications. Additionally, patent management staff frequently change positions, which to some extent affects stability and sustainability of work on patent applications. Disposition of township patent management staff is extremely out of accord with its level of economic development. Particularly in the current situation of building an innovative country, it is extremely urgent and necessary to staff towns with specialized patent personnel.
c. Patent applications: governments’ “business”? enterprises’ “non-business”?
During the survey, we found that patent application seems to some extent, to have been a “business” of the relevant government departments, and a “non-business” for some enterprises. On the one hand, enterprises lack awareness and enthusiasm in patent applications; on the other hand, the number of patent applications has been one of indicators in government assessment. In the face of this conflict, government staff in each town will naturally consider patent applications as their own task. Most economically developed towns promote patent applications by way of increased funding within the area; some towns convene meetings with enterprises and require enterprises to give a helping hand in accomplishing the task of increasing patent applications; some township staff have to exploit personal relationships and ask the enterprises to “help to apply”. Some economically developed towns have a lighter burden in patent applications due to the large number of applications over the previous years; therefore, they are not enthusiastic with patent applications.
Although the number of patents reflects a country’s economic development, in some sense, “patent competition is equal to competition of national economic security”, a patent, after all, is a private right and its owner remains its applicant. At present, if the patent application has been a business of governments and a non-business of enterprises, it will have significant adverse effects. First, if enterprises do not take the initiative in patent applications, it will be difficult to rid themselves of independence on governments. Second, if enterprises do not factor patent investment into the basic cost in their development now, in the event of the loss of government funding, it will be difficult to improve their innovation capacity, to say nothing of improvement of patent quantity and quality.
d. Each town does not make good use of intermediary agencies in its patent work
Grass-root governments, in their promotion of enterprise patent work, do not make good use of counseling and helping roles of intermediary organizations in patent applications. Where enterprises conduct technical innovations, and there is a need for patent applications as their technology projects enter the initial stages, if, at this stage, professional staff from intermediary organizations intervene on time, make full use of their professional advantages and help enterprises dig for and summarize inventive concepts and improvements in the new technologies, a multiplier effect will sometimes ensue, helping to urge enterprises to speed up patent applications and file patent application documents as soon as possible. The governments should also pay attention to increasing and nourishing recognition and trust between enterprises and intermediary organizations, giving priority support to those with a high-level and good services, rather than acting as a presenter or an intermediary.
Meanwhile, government departments cannot simply rely on services of intermediary agencies, but should monitor, assess and evaluate professionalism and services of intermediary organizations through certain means and in accordance with certain standards.
2. Main manifestations of “enterprises are very negative”
Enterprises are major forces in technological innovation and main applicants in patent applications; therefore, patent applications meet their development needs and should be a voluntary act beneficial to them. However, the in-depth investigations showed that decision makers in enterprises do not quite understand the importance of patent protection and have poor awareness in patent applications. Furthermore, they have some outdated ideas and excessively rely on the governments in the patent work. Specifically, there are several main manifestations:
a. “Patents are useless” leads to loss of enthusiasm by enterprises in patent applications
Certain enterprises believe that patents have no direct effect on the improvement of their efficiency, and patent applications cost time, money and effort, thus not worth the candle. Some think that examination of patents last too long, but the major products of the enterprises are upgraded so quickly that patents will not be able to offer protection. Some enterprises are dissatisfied with the current remedial environment of patent infringement and lack confidence in China’s IP protection system. They think that patent infringement lawsuits are too lengthy, cost too much in rights protection, and the current enforcement is insufficient in protection of their rights. For example, some lighting enterprises had actively applied for design patents and defended their rights with patent laws. However, due to fast updates on lighting products, the high cost of rights prevention and their inappropriate methods in using patent protection, they did not receive a satisfactory result. As a result, they were increasingly frustrated over patent applications and did not continue to file active applications.
“Patents are useless” causes many enterprises to believe that the certificate of patents is an unprofitable act and devoid of any economic benefits, therefore, they have completely lost any enthusiasm for patent applications. If there is any, the application is meant to meet rigid target requirements for high-tech enterprises.
b. Inadequate understanding pushes enterprises to prefer “closed-door development”
A number of enterprises previously thought that technologies they developed were easily imitated and plagiarized, once applications were filed, the new technologies were publicly available or disclosed which would put them in a more disadvantageous position. As a result, they preferred the closed-door development mode of “avoiding peers and developing behind closed doors”. A large-sized lightning enterprise in one city, in order to prevent imitation and bootlegging by its peers, moved out of the area where lighting products gathered and refused to display their new products at international lighting exhibitions.
Other enterprises, in the absence of a standardized protection system and measures for their technical secrets, adopt indiscriminately protection of their innovative technologies as commercial secrets.
These enterprises do not quite understand the nature of patents and lack professional knowledge to make use of patents to restrict competitors; additionally, they are exaggerating and very superstitious about protective effects of commercial secrets, and fail to grasp and plan their IP strategies in its entirety. They blindly pursue ways of maintainin secrets, considering that as the only way to ensure business development and competitive advantage, but ignore the complementary strengths between protection measures for patents and trade secrets. In some cases, innovative technologies which may be gained easily through “reverse engineering” are extremely easy to be “reduced to ashes”, and technologies short of effective security measures might be leaked, causing huge losses.
c. Over-reliance on governments
Some enterprises believe they should focus their main efforts on the production and sales of products, and that patent application and protection should be a soft environment provided by the governments to attract investment. Various bosses of Hong Kong enterprises have even said, “the government has asked me to come here and should take the initiative to help me clear infringements and I don’t need to bother to think about such things.”
Other enterprises rely heavily on the government’s preferential policies, lack independence and innovation, thinking that the government should “do everything” from helping find technical inventive concepts to providing human resources support and financial assistance. They completely rely on the government, paying no attention to the internal potential transformation, and ignore the systematic and long-term basic work in establishing patent applications planning departments and nurturing professional personnel from within.
d. Lack of protection awareness and application strategies
The investigations found, that due to lack of voluntary protection, the majority of enterprises lag in their patent applications, thus having varying degrees of impact on their patent protection afterwards. The first is the lag in the time of applications. Many enterprises fail to consider applications in the development stage, but begin to file applications once the products hit the market, thus leading to delayed protection. The second is the mistaken belief. Enterprises do not evaluate their products on the market in advance to test the benefits. Then on the basis of such benefits, they decide whether or not to apply for patents. Such a practice, in fact, has revealed the technology to the public. Third, application strategies are simple. The applicant and patent agents or IP lawyers lack communications and do not consider application strategies at all.
e. Large enterprises are not enthusiastic and small ones don’t understand
Some large enterprises were once big patent applicants and the majority of their applied patents were designs. But with accelerating product updates, many enterprises have gradually abandoned their patent applications over previous years. The result of the large number of applications earlier and abandonments later has made them less enthusiastic about patent applications promoted by governments and some did not “appreciate” the governments’ preferential policies.
The vast majorities of small and medium-sized enterprises have a weak foundation in their patent work and have few specialized departments and personnel. The personnel responsible for external communication are purely technical or administrative staff, basically without any patent knowledge. Most enterprises do not know where to start in patent applications, and investigations found that many enterprises have never filed a patent application. So how to identify technologies from within, and even how to summarize the full application documents needs demonstrations of intermediary professionals to complete.
f. Enterprises are devoid of professional expertise and incapable of identifying intermediaries
Surveys found that most enterprises lack professional knowledge in patents primers, patent presentation and IP litigation. Many enterprises wish to upgrade their IP strength, but do not have the ability to select and oversee the relevant intermediary agencies and guarantee their quality of service in IP acquisition, maintenance and operations. Many enterprises have even commissioned unqualified intermediary organizations or agents, causing either failure of the obtained patents to reflect true technical inventive concepts or no protective effects at all. There were even cases of loss of patent rights due to improper payment of annual fees.
g. IP management is in chaos, and interests of inventors have not been effectively protected
Either teaching and research organizations or companies and enterprises are very chaotic in IP management. Many problems exist in connection to the rules on invention ownership: first, schools do not provide for ownership of IP achievements. If school teachers and students file a certain number of patent applications, schools cannot tell service inventions from non-service inventions. Second, enterprises lack express rules on ownership. As inventors are in a weak position in enterprises, the majority of employees are not able to exercise the right of attribution as inventors. Third, in patent applications, enterprises consider ownership of the achievements mostly from the perspective of application fees, but they do are not based on the facts per se to weigh pros and cons comprehensively. Fourth, though the hierarchy in enterprises do not participate in development and design, all the inventors and applicants are the bosses. Employees are dissatisfied, but can do nothing. Fifth, the majority of enterprises fail to grant awards for service inventions in accordance with national laws.
h. Ineffective patent rights protection further dampens enthusiasm for applications
At various forums and during visits to enterprises, the frequent concerns raised by science and technology offices at each town and enterprises are inadequate protection of rights after patent applications and little chances of winning lawsuits. The reasons behind are mainly four-fold as follows: Firstly, approaches to protect rights are too simple. Most enterprises only adopt civil proceedings to protect their rights and seldom make, in partnership with lawyers, rights protection plans through a variety of legal means, such as cease and desist letters, Customs recordation, administrative complaints and criminal charges. Secondly, the targets are hit too directly. In the event of IP infringement, selection of infringers either in production, sales or use phases is the key factor to be considered in achieving the best protection results. However, according to enterprises, their rights protection generally does not take into account the selection of infringers. The third is inadequate use of IP legal measures. IP litigation, compared with other general civil litigations, has much difficulty in evidence gathering, cease of infringement, compensation and other aspects. Therefore, it is highly necessary to make full use of such legal measures as evidence preservation, pre-litigation injunction and property preservation to enhance effectiveness of the proceedings as a whole. An enterprise’s failure in rights protection has much to do with the litigation strategies established by lawyers. Fourthly, some urban areas are short of influential and typical cases, failing to effectively stimulate enthusiasm for IP rights protection.
i. Public transport falls behind, thus affecting efficiency of public and professional services
The Pearl River Delta and Yangtze River Delta are economically developed, but rural public transport facilities are extremely inadequate. The traffic inconvenience has a serious impact on communications and contacts between enterprises, enterprises and governments, enterprises and intermediary agencies. The investigations found that the majority of enterprises do not have the ability to independently identify patents and prepare full technical documents, therefore, face-to-face talks and direct contacts of inventions between technical staff and patent agents are of great importance to Chinese enterprises in their initial IP stages. Presently, public transport is not directly accessible to industrial zones densely populated with enterprises, causing great inconvenience to enterprises and patent agents. Enterprise engineers do not want to talk with patent agents in urban areas and it would also be costly for patent agents to visit enterprises. As a result, enterprises have only two alternatives: First, they may find the nearest intermediary offices in the town, but the office staffs are often limited in quantity, technical fields and levels, thus affecting application quality. Second, they may find high-level patent agents in Guangzhou, Shanghai, and Beijing, but due to the distance, they can only communicate via e-mail and telephone and are not able to hold face-to-face talks.
j. “Blindly fearless” acts of many enterprises in the international market
Many enterprises cherish a great ambition to explore the international market, and products of a considerable number of enterprises are all or mainly for export, but their patent applications do not keep pace with the development. Many exporting enterprises do not recognize the importance of IP rights in the international market and lack the sense of “patent comes first in market exploration”. Therefore, they lag far behind in international patent applications, demonstrating to a certain extent, that Chinese enterprises have not realized the importance of patent protection in entering the international market. The surveys also found that the vast majority of enterprises, before their entry into the international market, have not investigated as to whether their products are infringing IP rights in the target country, nor taken into account application for IP protection in the target country. They arrived at the international trade front defenseless, completely unaware of the international IP war looming ahead, “blindly fearless”. Once they suffer attacks from others making use of their IP rights, the relevant enterprises will surely go unprepared. Meanwhile, in the face of preemptive applications of IP rights related to exported products, we have no alternative but to serve a “free lunch”.
III. Proposals to improve patent applications and other related IP work by enterprises
1. Continually ratcheting up publicity and training to enhance enterprises’ awareness of patent application and protection
In recent years, in order to enhance the public awareness and consciousness of IP rights, government departments at all levels have always attached great importance to publicity and training of patents and other IP knowledge, and invested a lot of manpower, material and financial resources therein. For example, IP bureaus in some areas, particularly in the context of the current worsening economic environment, have organized a variety of trainings, lectures and seminars for the purposes of improving IP protection awareness of enterprises, promoting IP work and helping enterprises learn to make use of IP rights to “keep warm”. Considerable achievements have thus been made. The latest statistics also show that the speed of growth in the number of patent applications is significantly higher in towns where patent lectures and seminars have been held. Based on the above, it remains to be a major measure for enterprises to strengthen publicity and training, and further popularize and promote knowledge of IP rights with the view of effectively raising their level of IP protection.
In order to successfully strengthen IP training and publicity, we suggest governments set up local IP lecturing groups, develop training programs, select appropriate training instructors in accordance with varying levels of patent administrations, patent intermediaries, universities, enterprises and individuals in each town, and launch larger-scale and more in-depth publicity and trainings for the purpose of popularizing IP awareness, strengthening emphasis of township governments on IP rights, pushing forward IP management of enterprises and improving service levels of local intermediaries.
2. Developing and improving intermediary services to provide quality professional services
Excellent intermediary service organizations play a vital role in promoting regional patent applications by enterprises and other IP rights. Based on the current fact that economically developed small and medium-sized cities have a relatively small number of patent intermediary organizations which only provide simple services, lack high-end professionals and are weak in overall strength, they should, therefore, introduce vigorously large-scale patent intermediary agencies with high professional standards, stimulate and revitalize the local IP service market to foster healthy competition and jointly improve service levels and quality.
High quality and professional services require intermediary organizations to provide, on the basis of convenient information flow between enterprises, enterprises with proximate and comprehensive services which are not limited to patent applications but including helping enterprise to improve management and protection of IP rights. The governments should adopt measures to support and nurture the newly introduced intermediaries, lead the local intermediary organizations to excellence, professionalism and standardization, and gradually raise the level of the local intermediary services industry.
Simultaneously, the relevant government departments should also strengthen supervision over the patent intermediaries, standardize intermediary services, and enhance their credit. The governments may set up in due time a regional patent agents association or similar organizations and follow some standard management practices of lawyers associations. For example, they may require certain continuing education credits each year to get practice qualifications next year to improve the service level and professional quality of patent intermediary organizations and agents.
3. Integrating various resources to build a patent information network platform
The investigations also found that providing convenient, expeditious, low-cost and full-range IP public services by governments and professional intermediary services has been an effective measure to push enterprises to strengthen their IP protection and enhance their innovation capabilities. Enterprises need to reduce costs in patent research and development, applications and protection, know government patent policies, get information and updates on their domestic and foreign competitors, and get help of patent agencies to provide on-demand and high-end professional services. Local governments need effective and efficient implementation and enforcement of patent policies and measures, make public government patent affairs, improve transparency and credibility, and strengthen management, supervision and regulation of qualifications of patent intermediary organizations. Intermediary organizations need to increase interaction with enterprises, understand their needs, broaden areas of patent services, and build their own brands in patent services. Therefore, establishment of a “one-stop” patent service platform, which has local economic characteristics and meets different-level and different-type requirements of enterprises, will fully mobilize and combine the social resources from governments, enterprises, universities, intermediaries and software companies, launch online patent offices and services in a bid to better promote patent applications and other patent services.
4. Building an IP alliance to strengthen regional competitive advantage
The IP alliance cannot only enhance the technological advantage and strength of individual enterprises, more importantly, it can also boost contacts and communications between members, strengthen the value chain, make full use of the collective powers of members, raise thresholds of the industry, accelerate industrial upgrades and economic restructuring, thus overhauling the overall competition situations within the industry. For example, the industrial economy has rapidly grown into special industries and pillar industries in some cities in the Yangtze River Delta and Pearl River Delta and has a broad market prospect. The alliance will unite enterprises with independent IP rights to make up deficiencies in funds, equipment, and personnel for individual enterprises. Through certain combinations or pools of patents, the alliance aims to achieve shared interests, avoid duplicate development and effectively lower risks and costs for enterprises. In the shortest possible time, the IP or patent alliance within a certain industry will be upgraded into an authoritative organization within the area, in a bid to settle increasing domestic patent disputes and respond to increasing patent lawsuits brought by multinational corporations against Chinese enterprises. The alliance may also take this opportunity to go global, compete with multinationals and win international market shares for their products through patents and other IP rights.
5. Implementing recordation of major IP cases to improve an enterprises’ ability to solve IP disputes
The special economic development model in the Pearl River Delta and Yangtze River Delta has made IP conflicts bear hallmarks of “a product affects an industry and an enterprise affects a town”. In response, government departments may establish a recordation mechanism of IP cases within their jurisdiction in a bid to strengthen administrative supervision and maintain regional economic safety. As for the thorny and complex IP cases, which involve a huge amount of money, a number of enterprises, a wide range of products, have great impact on competitive industries, and demand technical expertise, and for the important IP cases which involve collective infringement, repeated infringement and serial infringement, enterprises involved should timely file for a recordation of the cases before the township patent departments which will then report the same to the municipal level counterparts. For cases of significant importance, experts and enterprises may be organized to hold discussions. Relevant government departments or industry associations can also make briefings on IP cases, report IP cases that are locally concerned or influential both at home and abroad analyze the cases to understand rules, train enterprises over litigation skills, improve the level of local enterprises in their rights protection and create a positive climate for IP rights protection.
6. Developing model IP enterprises to reshape their core competitiveness
Government departments can take the approach of “focusing on pilot enterprises to serve as models” and guide enterprises to learn from experiences of advanced enterprises in IP rights. For example, high-tech enterprises with strong innovation capacity can be selected as targets in fostering IP models. Governments should provide support in policies and funding, and assist enterprises in hiring experts to reshape their core competitiveness, provide guidance in conducting IP operations, improve their internal IP management and outline their patent strategies. By following typical models and drawing on successful stories, the IP management level of enterprises within the industry will surely be facilitated, and a sound and healthy IP climate will be put in place on the basis of the popularization of advanced experiences, thus encouraging more enterprises to improve their internal IP management.

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