China to Pave Way for Patents on Disruptive Business Models

Business Method Patents in China? Software Patents in China? These are on the Horizon. The new “New thing” in China now for everyone from lean-start-ups, to lumbering state owned enterprises, is obtaining patents. China’s large tech focused private companies and state owned companies alike are now thinking “Patent or Perish,” and the government is taking new measures, such as patent reform, to stimulate innovation. Encouraging new patents is part of its quest to pump up the economy.

Patents typically have been a legal way to prevent others from using, and so to profit from a unique or disruptive invention or idea. In patents, “God protects the protected” and those who are protected have a monopoly on their unique invention or process within the jurisdiction granting the patent.

Like politics, all patents are local. I have been working as a foreign intellectual property professional in mainland China for 30+ consecutive years. I have noted that most of the big intellectual property mistakes in China are really “self inflicted wounds” by foreigners who do not understand the China legal or Intellectual Property system. SMEs, maybe on a tight budget and focused primarily on their home market will often tell themselves (or our China patents experts) something along the lines of this: “We have our patents filed in the United States, so we must be protected in China (or just don’t think we need protection in China).” On the other hand you will have bean-counting MNC’s who have the budget but are under the guidance of a “pennywise, pound foolish” cynic that refuses to spend money for IP protection in China based on a preconception that there is no protection in China. This then becomes self-fulfilling prophecy, based on lack of true understanding of conditions and the legal system in China. My dearly departed mother used to say, “God is in the details,” and this is certainly true with the protection of intellectual property rights in China.

(I am constantly amazed some foreign lawyers I encounter here, so-called “China legal hands” or some such, who in giving a seminar on intellectual property clearly do not know a patent from copyright… but I guess that is neither here nor there.)

Lace up your cleats and get in the game! Intellectual property protection is a fast moving and fast changing area of law in China, with many trends point to tighter more effective laws, better more specialized IP courts, and stronger and more capable enforcement. One sign of this is the expected new ability to patent both software and business methods which will be implemented soon in China.

I learned of these important changes as I was covering the National People’s Congress (NPC), and the CPPCC meetings as the China Legal Commentator for the newly re-branded CGTN (China Global Television Network; formerly CCTV), the undisputed public flagship media in China and “mouthpiece” of the ruling Party. I have done “color commentating” as a legal expert over the past 16 years now, but this one I found particularly interesting. The new proposals and initiatives announced at these “Two Meetings” offer China watchers opportunities to “read the tea leaves” as to what is important for the leadership over the coming months. China’s NPC meets only for a couple of weeks each year; the engine that writes and shapes the laws, policies and regulations considered by and then hopefully passed by the NPC is the State Council which sits all year round. Protection of intellectual property has been on the State Council’s minds for some time now, not to protect foreign multinational’s, but to better cultivate and protect the local inventors and innovations which is both a short term goal to give a gradually slowing economy a kind of boost, as well as a long term effort to transform the Chinese economy.

In an effort to further enhance protection of Intellectual Property Rights (IPRs) and to promote implementation of the new “innovation-driven” economic development strategy, the State Intellectual Property Office (SIPO) of China has issued a revised set of Examination Guidelines for Patents which will come into force on April 1, 2017. This is no April Fool’s joke, but a genuine effort by SIPO to make intellectual property protection rules easily understood, practical, and available to IP-experts and non-experts alike.

Are you still paying attention? or have I lost you? Well, one of the most significant changes in new version of the Guidelines confirms that software and business methods are to be patentable. Yep, did you get that? This will mean new property rights will be granted over software and business methods which have never in the past been available for patent in China. The importance of this change should not be underestimated. Take for example recent disruptive start ups such as Uber or Airbnb, which have used a mobile software platform to implement a new business method, which has propelled each of these companies to household name status around the world.

Now imagine the opportunities which might arise when new disruptive companies seek to perform a similar feat with the added protections a China patent would grant to their software platform, and, critically, their business model. First movers stand to rake in the Benjamins… or should that be “Maos”?

SIPO’s new Guidelines: What the heck will change?

The new Guidelines will loosen the standards for obtaining business method patents if there is a technical element to the novel business method.  Heads-up Poindexter, as someone doing this for 30+ consecutive years, this is the time to take note, these inventions were previously denied patentability on the basis that they were intellectual rules or methods under Article 25 of the Patent Law.

With brandy snifter in hand, you might try glibly mentioning this little fact at your next professional networking function just to see how many of the attendees will be impressed, “Did you know that the new SIPO proposed Guidelines state: “Claims related to business methods that contain both business rules and methods and technical characteristics, shall not be excluded from the possibilities of obtaining patent rights by Article 25 of the Patent Law.?

You may go on to say the SIPO guidelines also appear to loosen the standards for obtaining software enabled inventions, and that the second line of Part II, chapter IX, section 5.2, paragraph 1, the third sentence of the Patent Examination Guidelines is amended from, “and describe in detail which parts of the computer program are to be performed and how to perform them” to provide that: “The components may not only include hardware, but may also include programs” (I read this stuff so you do not have to). If you see too many blank faces, you can go on to point out that this change may allow an innovator to obtain a business method patent in China and so become as famous as, I don’t know, say…Mark Zuckerberg. You heard it here first!

Think about your business methods & software. Get patents. Grow rich.

In my very humble opinion, act now! Do not wait; he who hesitates is losing, but heck, it’s your business, I am just a well-educated service guy with a lot of fancy titles. I say the new Patent Examination Guidelines will be implemented at start of April this year as scheduled. I have no doubt, due primarily to the current state of the China economy. As with most countries, that is the answer. The issue here in China is how does the Party improve the China economy, which has seen steadily slowing official growth rates for the past several years now. One key is to have clear IP guidelines in place and to promote innovation and disruptive technologies. Not many other patent professionals will write this as bluntly as I, the economy here needs a boost, and come hell or high water this is going to be the standard. Not because China is bowing to pressure from foreign companies, chambers of commerce, or governments of China’s trading partners… the Party needs these and other reforms for China, its own companies and would-be entrepreneurs. This is part of a trend of new signals to Chinese enterprises to generate new intellectual property, and to protect it in China, and overseas. It is “Patent or Perish,” but it is not just the act of filing a patent that is needed, it is the underlying innovation in technology, software, or business methods which officials seek to cultivate.

China is about to become friendlier to patents on business methods and on software. And more generally, patent owners will find relief in reductions to the complexity of prosecution procedures and by efforts to make more information on registered patents publicly available. Other new developments in the new Guidelines include the acceptability of post-filing experimental data for chemistry related inventions, and changes to the rules for amending a claim during patent invalidation procedures.

Do you want to apply for a (software) or business patent in China?

Then we should get to know each other! The China Patent Attorneys at our partner firm would be happy to will guide you through the procedures before other economic disrupters can figure out what is happening over here! Email at elehman@lehmanlaw.com  for more information!

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