A new amendment to China's patent law became effective on Oct. 1. There are several significant changes to the country's patent law brought out by this third amendment to the original patent law of 1984.

For example, this new amendment includes tough disclosure rules for inventions relying on "genetic resources" in China.

China is rich in genetic resources, and the Chinese government supports and encourages research to lawfully develop intellectual property derived from these assets.

Genetic resources

For inventions that rely on genetic resources, the amendment for the first time imposes a requirement that the patent applicant disclose in the application the direct source of the genetic resources.

In addition, the applicant must disclose the original source of the genetic resources or provide a reason explaining why he is unable to do so, if the original source cannot be identified.

The prospective patentee must also prove that access to such genetic resource was lawfully obtained.

The amendment also stipulates that no patent shall be granted to inventions that rely on genetic resources if the acquisition or use of the underlying genetic resources violated Chinese law or regulations.

These changes reflect discussions held at the Convention on Biological Diversity (CBD) and were adopted after consultation by the Chinese government with other biologically diverse countries, as well as discussions with the United States and other countries that were concerned about introduction of CBD-related concepts into patent examination.

The impact of these provisions will largely depend on how "reliance" on "genetic resources" is defined and what constitutes illegal acquisition and use.

Genetic materials

The amendment does not provide a definition of "genetic resources," nor does it limit "genetic resources" to those in China only.

According to the CBD, "genetic resources" means genetic material of actual or potential value. And "genetic material" refers to any material of plant, animal, microbial, or other origin containing functional units of heredity.

China's interest in protecting genetic resources needs to be balanced with its interest in providing certainty in patent grants, encouraging development of a biotech R&D sector, and pursuing cooperative arrangements with other countries that reflect the risks involved in biotechnology research.

Until the scope of these provisions is clarified in the "implementing regulations" and examination guidelines, the revision of which is under way at the time of this writing, prudent companies will want to make sure that the genetic resource on which the completion of the invention relies is subject to proper access and benefit-sharing mechanisms.

Biotechnology companies need to pay close attention to this disclosure requirement, because failure to comply could result in either the denial or invalidation of a Chinese patent. It should be noted that there is no equivalent requirement in the patent laws of Europe, Japan or the United States.

On foreign filings

As international companies establish research and development centers in China, they need to consider where first to file patent applications for inventions completed in China.

Today, Article 20.1 of the patent law requires that a Chinese patent applicant for an invention completed in China must first file a patent application in China before any foreign filing.

However, the current law is silent about what a foreign applicant is required to do in the same situation.

Consequently, some foreign-owned research labs in China circumvent the first-to-file requirement of the current patent law by assigning patent applications for inventions completed in China to one of its foreign entities, and then having the patent applications filed outside of China first in the name of that foreign entity.

The new amendment provides that patent applications for inventions completed in China can be filed directly outside of China (i.e., in the United States) without the need of first filing in China, as prescribed under the current law.

However, prior to filing outside of China, applicants should submit the invention to China's State Intellectual Property Office (SIPO) for review for the purposes of protecting State secrets. Violation of the review requirement will result in loss of patent rights in China.

SIPO is drafting "implementing regulations" for the new patent law amendment, and it expects that the procedure for the State secret review would be set out in the regulations. However, it is expected, based on current discussions, that the submission for the review would not involve disclosure of the invention to the degree required for patent filing.

Finally, although there is no statutory definition for inventions "completed in China", the understanding is that inventions jointly made in China by Chinese inventors and non-Chinese inventors are subject to this requirement.

Joint ownership rights

As multinational companies enter into research collaborations with Chinese universities and companies, they need to understand how Chinese law governs the commercialization of jointly developed and owned patent rights.

In that regard, the new amendment to China's patent law includes provisions that govern unilateral exploitation of the patent rights without the consent of joint owners.

Specifically, the amendment states in a new Article 15 that unless otherwise agreed upon, a joint owner can individually exploit or allow another to exploit the patent by means of a general license, but must share the royalties obtained thereof with other joint owners.

The amendment does not stipulate how the royalties are to be distributed. Consent by all joint owners is required for other means of exploiting the jointly owned patent.

Under such rules, multinational companies should draft collaborative research agreements in ways to ensure that commercial use of the patent rights arising from the joint research efforts will not be blocked by the default veto power of the joint owner(s).

The authors are lawyers for the US law firm Jones Day. The opinions expressed are their own

(China Daily 11/16/2009 page9)