Ending Patent Subsidies in China
| Author | Stephen Yang |
| Pages | 10-62 |
Published in Landslide, Volume 14, Number 2, 2022. © 2022 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion
thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the
American Bar Association.
10
Since China’s patent law came into effect on April 1, 1985, the
number of patent applications led each year with China’s
patent authority, the China National Intellectual Property
Administration (CNIPA), has increased dramatically. Over the
years, the Chinese government has implemented various legisla-
tive changes, policies, and directives to improve and direct China’s
patent system toward the government’s goals at any given time.
Such changes, policies, and directives have signicantly impacted
how the perception of patents and intellectual property (IP) gener-
ally has evolved within China.
One of the most signicant policies has been the provision of
direct nancial subsidies to patent lers, in addition to tax breaks
and other social benets that stem directly from being a patent
owner or ler. These subsidies have been an important driver in
jump-starting the Chinese patent system, including driving an
enthusiasm and interest in patents that did not exist before. A
negative consequence of China’s patent subsidies has been the
proliferation of junk patents and abnormal patent application
behavior, with applicants ling patents—with the help of a cottage
industry of patent agencies—not to protect valuable innovation,
but to prot from subsidies that can exceed patent ling fees.
The Chinese government has long been aware of the unintended
incentive system created by its patent subsidies, and has for years
attempted steps at remedying it. Finally, the Chinese government
has announced the complete phasing-out of all existing patent
subsidies. This change comes within what appears to be a larger
By Stephen Yang
Ending Patent
Subsidies in China
Image: Getty Images
Published in Landslide, Volume 14, Number 2, 2022. © 2022 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion
thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the
American Bar Association.
11
Stephen Yang is a Chinese patent attorney and managing
partner at IP March in Beijing, China. His practice covers
patent prosecution and litigation in mechanics, electronics,
energy, and high-tech areas. He can be reached at yyang@
ipmarch.cn.
shift in China’s IP policy. For over a decade, China’s stated policy
goal has been to improve both the quantity and quality of its
domestic patent holdings and commercialization. The govern-
ment’s subsidy incentive structure favored quantity, perhaps at the
expense of quality. Now, policy changes around China’s incentive
structures signal a concerted effort to refocus on quality rather
than quantity, where the central and local governments may use
incentives to drive the direction of IP development rather than the
speed of its growth.
Chinese Patent Rights
China provides three types of patent rights: invention patents
(equivalent to utility patents in the U.S.), utility model patents
(called “petty patents” in some countries), and design patents
(similar to U.S. design patents). Figure 1 shows that beginning in
2003, invention patent lings with the CNIPA from Chinese appli-
cants overtook those from foreign applicants. The gap between
domestic and foreign lers continued to grow steadily through the
late 2000s, until beginning to grow exponentially after 2009 or
2010. Figures 2 and 3 show a similar growth in utility model and
Published in Landslide, Volume 14, Number 2, 2022. © 2022 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion
thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the
American Bar Association.
12
design patent lings, although unlike invention patents, domes-
tic lers of utility model and design patents always outnumbered
foreign lers. Figures 1, 2, and 3 show that the growth rates for
domestic lings of all three types of patents appear to speed up
around 2009 (although design patent lings begin to plateau).
The Chinese government’s policy plays a key role in the amazing
increase of lings.
Origin of Patent Subsidies
On June 5, 2008, China’s State Council issued the Outline of
the National Intellectual Property Strategy,1 the rst time that
IP was regarded strategically on a national level in China. The
long-term strategic goal in the outline was that by 2020, China
would “become a country with a comparatively high level in terms
of the creation, utilization, protection and administration of [IP
rights].”
2
The outline set a national policy objective to get the
annual number of Chinese invention patents granted to domestic
applicants to rank among “the advanced countries of the world”
within the next ve years.3 The 12th Five-Year Plan (2011–2015)
for National Economic and Social Development
4
included patent-
related objectives for the rst time, targeting 3.3 invention patents
per 10,000 people.5 The 13th Five-Year Plan (2016–2020) aimed
for 12 invention patents per 10,000 people by 2020.6
To execute the National Intellectual Property Strategy and
achieve the specic quantitative goals of the ve-year plans,
China’s central and local governments, and even high-tech parks,
deployed patent-ling incentive programs.
IP Industry Changed by Financial and Other
Benefits
The January 11, 2007, Interim Administrative Measures for
Beijing Patent Application Supporting Fund is an example of the
types of incentive programs established across China around the
time of the Outline of the National Intellectual Property Strat-
egy. According to the measures, a Beijing entity could receive up
to ¥5,000 (about $770) for each invention patent application
and ¥500 (about $77) for each utility model or design patent
application.7 The incentives increase as more patents are led
and granted. For each entity, starting with the 101st invention
application led in a year, an additional ¥1,000 (about $154) is
available per application led, and an additional ¥1,500 (about
$231) per patent granted. A Beijing entity may also receive up
to ¥500,000 (about $77,000) each year for ling foreign patent
applications, including Patent Cooperation Treaty (PCT) appli-
cations. Most of the nancial support is not conditioned on the
patent being granted.
8
Lesser subsidies are available for utility
model and design patent applications, but these applications are
not substantively examined. Similar nancial incentives exist in
provinces and cities across China, inevitably enticing domestic
applicants to le patent applications, not to protect any inventive
discovery, and even for obviously ineligible subject matter, just to
collect government subsidies.
In addition to direct subsidies, patent lings help businesses
across China enjoy the reduced tax rate for “high-tech compa-
nies.” According to China’s Corporate Income Tax Law (effective
January 1, 2008, shortly before the Outline of the National Intel-
lectual Property Strategy), a high-tech company enjoys a reduced
corporate income tax rate of 15%, down from the normal corpo-
rate tax rate of 25%.
9
Patent lings are an important factor in the
weighted scoring system used to determine whether a company
qualies as a high-tech company.10 Companies must recertify as
high-tech every three years, incentivizing even more patent lings.
Patent applications and grants have other business, social,
and legal benets in China. Businesses use patent certicates
to promote their products as patented. Technical persons and
academics can use patent certicates to help them apply for
academic titles. Patents are even valuable in grade school. Patent
lings and grants can help elementary and junior high school
students when applying to higher levels of school, and having a
patent grant enables Chinese high school graduates to apply to
university through independent enrollment programs,
11
bypass-
ing extremely competitive entrance exams. Patents can also benet
criminals. The Provisions of the Supreme People’s Court on the
Specic Application of Law in Handling Commutation and Parole
Cases,12 issued by the Supreme People’s Court on November 14,
2016, prescribe that a criminal being granted an invention patent
during their sentence counts as a “major meritorious service,” for
which a commutation not exceeding a xed-term imprisonment
of 18 months can be granted.
The multiple benets and advantages patents bring to appli-
cants, and the corresponding enthusiasm around patent lings,
stimulated growth in the IP service industry. In 2010, there were
796 patent agencies legally established.13 This number became
2,691 by 2019, among which 45.2% of the agencies were estab-
lished between 2017 and 2019.14 It is an open secret that the
subsidies for patent applications and grants can be greater than
applicants’ ling expenses. This calculus factors into the business
of the IP service industry, driving the increasing number of lings,
and helping the Chinese government meet the quantitative objec-
tives set in 2008.
By the end of 2020, there were: (1) 3,057,844 maintained and
valid invention patents in China, of which 74.5% (or 2,279,123)
were owned by domestic applicants and 25.5% (or 778,721) were
owned by foreign applicants; (2) 6,947,697 maintained and valid
utility model patents, of which 99.3% (or 6,895,886) were owned
by domestic applicants and 0.7% (or 51,811) were owned by
foreign applicants; and (3) 2,187,356 maintained and valid design
patents in China, of which 94.3% (or 2,061,859) were owned
by domestic applicants and 5.7% (or 125,497) were owned by
foreign applicants.15 At the end of 2020, there were 15.8 patents
per 10,000 people in mainland China, exceeding the goal of 12
patents per 10,000 set in the 13th Five-Year Plan.16
Crackdown on Junk Patents
The open secret of applicants and agents ling patents solely to
obtain government subsidies has garnered criticism from China’s
IP practitioners, academic community, and media. The criticism
focuses on the large number of junk patents as a result of the
increased lings.
As early as 2007, the CNIPA (known at the time as the State
Intellectual Property Ofce (SIPO)) issued Several Provisions
Regarding the Regulation of Patent Application Behavior to
prevent the ling of abnormal or irregular patent applications.17
The provisions dened “abnormal patent application behavior”
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