Source: http://illinoisjltp.com/timelytech/tag/china/
Timestamp: 2019-04-23 18:33:37+00:00

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The Chinese government has strongly encouraged patent application and patent protection in the past decade. As a result, China contributed 89% of the worldwide growth in patent applications in 2014, whereas the United States contributed 6%. Statistics from the World Intellectual Property Organization (WIPO) show that China has received the most patent applications since 2012 and that Chinese domestic patent applicants are filing more applications than applicants from any other country. This Paper introduces how third parties, referring to various types of patent service providers, are involved in the increasing patent market of China.
The WIPO statistics show that only a fraction of Chinese patents were filed abroad and that most of the patents only enrolled one foreign country, which indicates that the patents filed by China’s domestic applicants do not have a very wide geographical coverage. This may also imply that the average quality of Chinese patents is still low.
Empirical evidence confirms this inference of low quality; still, some scholars believe there is a trend of Chinese patent applicants improving the quality of the patents. This Paper discusses the difficulties, such as moral hazard, created by the different quality of patents in innovation commercialization, especially in patent transactions and patent financing, and how Chinese patent law exacerbates the difficulties. The goal of this Paper is to encourage third parties to rethink their service for overcoming these difficulties.
Section II introduces the main categories of patent services provided in China. Section III discusses the problems of the patent service and the paradox of promoting patent transaction and patent financing by policies and patent law. Section IV suggests the opportunities for patent service providers in China.
Most patent applicants are represented by a registered patent agent when they apply for patents. Patent agents facilitate patent applicants by drafting patent applications and dealing with patent prosecution, such as conducting a prior-art search, drafting and filing patent applications, and answering examiners’ questions. As the number of patent applications increases in China, the demand for patent procurement also increases.
The State Intellectual Property Office of the People’s Republic of China (SIPO) received 6.06 million (utility) patent applications from domestic applicants in 2016. The statistics by the All-China Patent Agents Association (ACPAA) show that China had 1,457 patent agencies and 14,795 patent agents in 2016. One patent agent deals with an average of eight new patent applications every month, which is much higher than the rates in the United States, Japan, and Korea, which suggests an insufficient supply of patent procurement in China.
At the same time that the number of patent agents has been increasing in China, the average level of their education has also been increasing. In 2013, 29% of Chinese patent agents held a master’s degree and 3% of them held a Ph.D. degree. In the first-tier cities of China, such as Beijing, Shanghai, and Guangzhou, most patent agents held a master’s degree. Peking University Law School even established a graduate training program for patent agents.
After patents are granted, they can be deployed to secure financing as intangible assets. For example, patentees can invest their patents for firm shares. Statistics by SIPO show that 34.3% of patents produced by universities are assigned to firms as investments in 2013.
It is also common to use patents as collateral for loans in China. Loans of 25.4 billion RMB were collateralized by patents in 2013 and increased to 48.9 billion RMB in 2014. Moreover, China’s patent market also provides patent insurance in more than fifty cities. Even though some international insurance carriers, such as AIG, IPISC, and Willis, have developed some mature patent insurance policies, the patent insurance policies provided in China do not exactly follow those carriers since patents are “jurisdiction-specific.” Two major types of patent insurance provided in the Chinese market are patent-infringement liability insurance for firms, as potential patent infringers, and patent-enforcement issuance for patentees. However, patent insurance has not been completely accepted by the market: the insurance coverage accumulated only 0.27 billion RMB between 2012 and mid-2015.
Innovators expect monopoly rewards for their innovation. However, some scholars argue that innovators cannot be directly rewarded or compensated enough because their trade secrets related to the patents are more likely to be explored by their rivals through reverse engineering when they disclose the technology of the patents. More scholars believe that innovators have strong perspectives on commercializing and improving their innovation after the monopoly rights exist. In addition to selling the patented products and generating revenue, licensing patents for expanding commercialization of products or co-inventing is also a critical measure that patentees use. Meanwhile, firms can license universities, public research institutes, or other firms for joint-R&D to share risks and profits, rather than independently develop technology. The statistics by SIPO show that smaller firms are more likely to license or transfer patents.
There are patent agencies, such as CHOFN, and specialized patent transaction platforms that supervise patentees to transfer or license patents. Gaohangip is the largest intellectual property transaction platform, which is like Amazon, where patentees can put their patents up for sale. Patentees or Gaohangip lists the patents along with their prices, which are available to be searched by interested licensees for potential patent transactions. Gaohangip functions as an agent and provides legal services for the patent transfer.
However, the statistics by SIPO show that in 2015 only 8.2% of patents were licensed by patentees and 5.2% patents were transferred, suggesting an insufficiency in the business of patent transaction and patent transfers, as discussed in Section III.
Out of the total firm patent owners surveyed, 62.1% believe that the major restriction of their profitability is that they cannot effectively prevent others from imitating the patents. On one hand, regardless of the arguments over the strength of patent protection in China, this relates to the low quality Chinese patents that are less competitive. On the other hand, this concern suggests a mixed culture of copycat and innovation in China, in which the competition increases as the follow-on innovation and downstream innovation raises in the market. In this increasingly competitive market, moral hazard of patent transactions arises and grows too big to ignore because those licensed patents and any potential patents from the patentees are more likely to be circumvented.
As a result, when the innovation ability of the licensees is high, patentees are less likely to transfer their valuable technology to avoid increased competition. Patentees may agree to transfer core technology only if the license includes a grant-back clause so that patentees are allowed to freely use further inventions by the licensees. However, given the low transaction rate, the moral hazard issues are not successfully mitigated in practice.
As a result, only 9.4% of the surveyed firms license patents or buy patents from domestic or foreign inventors. Out of the total number of firms surveyed, 19% invest R&D mainly in digesting the existing technology, while 54% invest R&D mainly in technology transformation. Even though firms are interested in purchasing technology instead of investing in learning, in this moral hazard scenario, licensing patents per se are not enough to learn core technologies from the patentee. This is also a challenge for third parties to successfully bridge the parties in patent transactions when both sides do not have strong incentives to make a deal given the high cost of moral hazard.
While it is convenient to purchase and sell patents through an agency or a platform like Gaohangip, the agency or platform usually does not facilitate licensing. Those agencies and platforms usually only facilitate drafting legal documents after parties enter into a patent transaction; they do not help with bargaining for the agreement. Bridging the parties of patent transactions through those platforms with basic legal services effectively decreases the searching costs, but they cannot fill the moral hazard gap in patent transactions.
Patent validity in China is stable: SIPO only received 3,724 invalidity petitions including utility patents, utility models, and design patents. With regard to litigation, the district courts in Shanghai decided 526 patent cases between 2002 and 2015. Only 15.97% of plaintiffs argued patent invalidity, while only 2.85% of third parties argued patent invalidity. Even though 20.7% of the plaintiffs in Beijing argued patent invalidity, for 487 patent cases between 2004 and 2015, only 2.04% patents were invalidated by courts.
Nevertheless, this low invalidity rate does not provide patent owners strong incentives to purchase patent insurance. They try to avoid litigation when they claim the insurance and when they do not have strong confidence in their patents’ validity.
Therefore, the low patent invalidity rate does not mean a high quality of patents in China. Indeed, lenders still hesitate to adopt patents per se as collateral. Bank lenders usually ask for a loan guarantee in addition to patent collateral, and they even prefer a combination of patent collateral, insurance, and guarantees to minimize risks. A loan guarantor in this circumstance is usually provided by the government or a government-funded mutual fund or incubator.
Due to the high and complex thresholds, patent owners still have material difficulties in securing finance through loans. The survey by SIPO shows that 45.3% of the firms that own patents rights complained about cash flow problems that can lead to a failure to finance patent commercialization. This could also be a result of the inevitable high cost of moral hazard in the loan market for patents. Weak patent enforcement in this litigation-averse society exacerbates moral hazard issues. These issues cannot even be mitigated by an emerging market of patent valuation in China, in which lenders can estimate patent value through economic analysis by patent valuation institutes.
In order to encourage patent applications and minimize the transaction costs in patent transactions and patent financing, both the central government of China and the local governments have adopted various favorable policies for patent applicants, patent holders, and patent service providers,  such as the patent transaction platform—Shanghai United Assets and Equity Exchange.
Patent issuance in China was initiated by SIPO and the People’s Insurance Company of China (PICC). Meanwhile, local governments subsidize patent insurance to encourage the innovation firms to purchase the insurance. For patent collateralization, local governments actively provide interest subsidies or guaranties to facilitate innovative firms to acquire loans.
The government also actively intervenes in patent applications and patent management by firms. SIPO supervises local governments’ training for firms on patent management and patent strategies. Local governments provide subsidies and grants to fund firms to apply for patents and establish a patent management department. Many local governments also subsidize patent agents to improve the quality of patent applications.
Most of the policies are enacted through economic instruments to decrease the transaction costs in patent applications, patent transactions, and patent financing. However, even though the government can subsidize the application cost with SIPO, those current economic instruments cannot fully offset the cost of moral hazard that arises from the issues like low patent quality, weak patent enforcement, and the copycat culture. Indeed, Chinese patent law is designed to prohibit patent transaction and patent financing to some degree.
I am the first to argue that there are two main articles in Chinese patent law that could impede innovation commercialization, including patent transaction and financing. First, Article 24 limits the scope of publication before the effective filing date of a claimed invention: the six-month grace period for novelty is only for the inventions that are disclosed in the exhibitions hosted or approved by the Chinese government, published at a specified academic or technological conference, or divulged by a person without consent by the applicant.
The exceptions of lack of novelty in 35 U.S.C. 102(b) regulating the one-year grace period does not restrict the manner of publications, including patentees’ sales and uses before the filing date, so inventors can test their market and consumers at an early stage. Moreover, Japan even has an Extensive Experimental Use Doctrine, which is not limited by a grace period, which helps with the understanding of the advanced technology and assisting with faster investing decisions.
By contrast, Article 24 does not only provide a shorter term for inventors understanding the advancement of technology, but also does not provide a chance for inventors to test the market and consumers. Therefore, it is not surprising to observe deficiencies in innovation commercialization in China. Some patents may not have commercial value at all, but the law does not allow patentees to understand the practice before they file the applications.
Second, Article 69(2) defines broad prior user rights. While western scholars often argue that trade secret owners should have relatively narrow prior user rights to promote innovation, prior user rights are relatively broad in China. “Prior” means the time prior to the patent filing date rather than the publication date or the beginning of the grace period as under U.S. patent law. The scope of “user” is also vague, which could suggest a person who has manufactured identical products, utilized identical methods, or is fully prepared to do so. Article 69(2) does not mention a person who conducts an arm’s length sale or other arm’s length commercial transfer or uses with respect to the technology, which confuses many judges and legal scholars in China. Accordingly, Chinese patentees, most of whom are follow-on inventors rather than initial inventors, may be unwilling to enforce their patents since they do not know whether the infringers are excluded from patent infringement for prior user rights that may also threaten their patent validity for lack of novelty.
Overall, these two articles include an underlying notion that patents should be filed at an early stage. As the government provides many subsidies and grants to encourage patent applications, it is not surprising to observe a dramatic increase of patent applications and a strengthening mechanism of patent agencies in the recent years in China. However, the law may also raise the cost of patent commercialization, patent transaction, and patent financing. In this patent regime, it is hard to accurately estimate the patent value, so lenders cannot completely rely on patent valuation reports to adopt patents per se as collateral. Firms also hesitate to license patents or conduct joint-R&D with potential licensees.
The most solid business of patent service in China is patent procurement, which assists inventors in drafting and applying for patents. Both the market demand and the government support are great in this area. Even though the government heavily funds patent commercialization, patent transaction, and patent financing, the limited technology value, the culture of copycat and litigation-aversion, the strength of patent protection, and the design of some articles in patent law are the main barriers to conquer. These barriers increase the cost of moral hazard in patent transactions and financing when the government instructs inventors to file more patents, and manage and commercialize their patents through subsidies and grants. While there are agencies or platforms bridging patentees and potential buyers or licensees, the decrease in the transaction costs does not effectively eliminate the high cost of moral hazard when bargaining for an agreement.
Also, this cost cannot be reduced when the government directly or indirectly provides guaranties for patent loans. These guaranties from third parties are used as substitutes for patent collateral rather than as supplementary to the patents. Loans are offered for those guarantees or other financing packages in the name of patents, which shifts the risk burdens to those third parties. Even though there are institutions evaluating patents’ economic value and even though SIPO provides patent evaluation reports for patents’ validity, lenders who ask for financing packages in addition to patent collateral do not completely rely on these reports. Then, we cannot conclude that these reports are enough to eliminate the risks for those third parties.
Even though China has emerged as the country with the largest number of patent applications, there are material difficulties for Chinese patentees to commercialize, transfer, license, or finance their patents. As the business of patent procurement and other supplementary service of patents grows, the market demands more third parties to fill in the gap effectively reducing the moral hazard to promote patent transaction and patent financing, such as promoting joint-R&D, facilitating inventors to improve patent quality, educating patentees to license their patents at an early stage, establishing reliable patent quality evaluation mechanisms, efficiently managing patent licenses, or monitoring the follow-on activities of licensees or patentee lenders.
* Post-Doctoral Research Associate & J.S.D., University of Illinois College of Law. I thank professor Thomas S. Ulen and Professor Jay P. Kesan for cultivating the ideas of this Paper, Carlos Delvasto Perdomo for his suggestions, and Zishu Wang and Samuel Branum for the editing.
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 Wei Xiaoyun (韦晓云), Zhuanli Qinquan Zhong Xianyong Kangbianquan Wenti Yanjiu (专利侵权中先用权抗辩问题研究) [A Study of Prior User Rights Argument in Patent Infringement], 12 Renmin Sifa (人民司法) [People Judicature] 52 (2003).
 He Huaiwen (何怀文), Jingwai Zaixian Zhuanli Shenqing Qike Zhunyong Dichu Shenqing Kangbian (境外在先专利申请岂可准用抵触申请抗辩) [Prior Use in Foreign Countries Cannot Argue for Prior User Rights], 109 Zhongguo Zhishi Chanquan (中国知识产权) [China Intell. Prop. Rights] (2016), http://www.cnipr.com/yysw/qqyd/201604/t20160408_196114.htm.
To encourage innovation, Chinese investors increasingly invest in U.S. technology researchers. Meanwhile, U.S. investors also invest in the technology market in China. Recently, Intel Capital invested $67 million in eight Chinese startups, and Dell Inc. pledged $125 billion in investments in Chinese businesses, including technological component purchases and manufacturing expenses. When entering a market in a developing country, investors in high-technology industries must consider IP protection, especially patent protection, so they should understand what a utility model is and how that patent system can be efficiently used in the developing countries that have a utility model patent regime.
This article focuses on explaining the utility model regime in China and helps investors in developed countries, especially U.S. investors whose home country does not have a parallel regime, to avoid relative legal risks in the Chinese market, so they can adjust to and survive in that market. This article includes three sections. In this section, I will introduce the utility model patent system and compare the Chinese utility model regime to other utility model regimes, as well as general utility patent regimes, to help investors from developed countries understand the inherent characteristics in the Chinese utility model regime. In the second section, I will analyze the efficiency of utility model regimes from economic and technological perspectives and explain why the U.S. does not have a utility model patent system. Based on the comparative analysis of the Chinese and other utility model regimes, I will make recommendations in the last section as to how investors can avoid relative legal risks and maximize their benefits in the Chinese market through this particular regime.
Foreign Direct Investment (FDI) in China is transforming from solely manufacturing FDI to FDI in technology development. It is not difficult to recognize that, under the trend of financial globalization, the bright line between traditional FDI and international portfolio investment, which focuses more on capital mobility rather than on technology transfer, diminishes.
FDI is important for technology transfers and spillovers. Most developing countries rely on inward FDI to effect technical change and structural transformation, which could increase economic growth. Moreover, FDI may also directly facilitate the growth of a country’s economy in many other ways, such as creating new jobs, improving access to new and advanced technologies, increasing productivity, and strengthening management strategies.
Besides the benefits of FDI to receiving economies, the benefits to originating economies are also important in international trade and financial transactions, because levels of FDI are driven by factors in originating economies. The technology transfers and spillovers through FDI trigger concerns regarding IP protection, another factor driving the levels of FDI; so, scholars and international institutions usually suggest that developing countries strengthen their IP protection to attract FDI. For example, one of the main obligations of the World Intellectual Property Organization (WIPO) is to assist developing countries in preparing IP laws and in promoting the overall protection of IP rights.
Statistics of several developing countries show an uneven distribution of FDI among developing countries and among their industrial regions, but not among their IP laws. However, even though strong IP protection alone is not sufficient to attract foreign firms to invest in a country, some scholars, including Maskus, believe that a weak IP system would deter foreign firms from investing in a developing economy.
Can this theory of the relationship between FDI and the strength of the IP regime in a developing country be used by developing countries to attract U.S. capital investors and technology investors if those countries strengthen their IP protections? WIPO and the TRIPS Agreement do not require IP regimes in developing countries to be as strong as those in developed countries to avoid a “development dilemma.” Because there are no rigid restrictions on the strength of developing countries’ IP regimes, how should U.S investors evaluate the strength of an IP regime in a developing country? Under the trend of financial globalization, what concerns would U.S. investors have regarding the patent regime and the technology market in China?
In practice, statistics show that the venture capital market could be over-developed so as to become uneven in developed countries, including the U.S, thus decreasing the incentives of investors to invest in the domestic financial market. Hence, regardless of the concerns regarding the costs of production or labor, it seems to be inevitable that there will be more U.S. investors involved in the financial and technology markets in developing countries, especially in China.
A. What is Utility Model?
“Utility model” is a generic term that refers to the subject matter falling between patent law and sui generis design law. However, there is no global consensus on the term’s meaning due to fundamentally different concepts from one country to another, such as “innovation patent” in Australia, “utility certificate” in France, “short term patent” in Belgium, and “utility innovation” in Malaysia. Thus, it is necessary to review the nature of these systems through the characteristics of some typically designed utility model regimes.
Some of these systems define utility models as intangible subject matter like technical concepts; other systems relate their definition of utility models to three-dimensional forms; still others consider utility models tantamount to utility patents without examination and for a shorter duration (usually seven to ten years). Classical utility models are usually recognized by these characteristics: cheap, quick, and easily accessible protection for inventions or innovations, many of which cannot gain protection under the utility patent regime.
The earliest classical utility model regime appears to be the United Kingdom’s Utility Designs Act of 1843. It protected designs for the shape or configuration of useful articles of manufacture, which were literally remote from utility patent protection. However, because of its narrow protection only for external appearance or “form,” not for function or principle, many commentators argued to extend its scope to functional equivalents of the embodiments that the drawing illustrates. In 1919, the act was reduced to insignificance by a series of judicial and legislative actions.
Germany, comparatively, introduced a utility model regime, Gebraucbsmuster, firmly and essentially remaining a creature of design protection in 1891, a prototype of classical utility model regime. It features lower standards of inventiveness, no pre-grant examination, limited subject matters only for movable articles having three dimensions, and a very short term of protection.
Progressively, the utility model regime in Germany departed from the classical utility model originating in design protection concepts to a modern second-tier patent regime as a complement to its utility patent regime. In 1990, Germany enacted reforms to abolish the requirements of a three-dimensional configuration and to permit protection of electronic circuit designs, chemical substances, foodstuffs, drugs and immovables. Thus, this regime is no longer only a close cousin of design protection, but has transformed into a longer and stronger regime, providing patent-like protections of small inventions generally for a relatively short period of time. The qualified protected inventions are less strictly tied to three-dimensional, functional shapes of tools or everyday implements.
Another vital characteristic of a utility model regime in many countries is the lack of substantive examination to register. The registration process hence is often significantly simpler and faster than that in a patent regime in testing for non-obviousness, and it expands a temporary protection for pending applications of patents.
Similar to patents but with lower standards of non-obviousness, utility models require novelty, even if the level of the novelty standard could vary in different countries’ utility model regimes. The Commission of the European Community (“The Commission”) suggests that restricting novelty to the territory of a particular Member State might run counter to the objective of a single market.
Therefore, based on their common characteristics, utility models are fairly defined by Pager as subpatentable innovations combined with early disclosure of patent applications and narrow interpretation of claims to allow local firms to invent around foreign innovations. This series of rules for favoring surrounding inventions is excluded from the restriction of TRIPS Article 31 for dependency patents to favor developing countries.
The contents of the patent laws show that utility models in China acquire a second-tier patent protection. The Guide requires that the subject matter of utility models be attached to products. Measures can only be protected under utility patents. Moreover, utility patents are protected for twenty years after the filing date; utility models are protected for ten years after the filing date. In addition, the qualifications of both types of rights demand novelty, inventiveness, and utility, but the standards to grant rights differ between them.
The State Intellectual Property Office of the P.R.C. (SIPO) conducts a preliminary examination to determine conformity with proper procedures and qualifications for the requirements of utility and novelty. When a utility model application passes this preliminary examination, it should be published and issued on the same day. Only utility patents require a substantive examination as a condition to issue. However, for enforcement, courts or administrative authorities can ask for a patent examination report as evidence in a dispute concerning utility model infringement. The report is made by SIPO after searching, analyzing, and judging the technology from the request of the patentee or an interest-related party.
Moreover, the Rules require that the scale of protection and the remedies or punishments, such as injunctive relief, be basically similar between utility patents and utility models. The requirement of a patent examination report for utility model disputes is the only distinctive term to regulate how utility patents and utility models get protected through litigation. The rules of compulsory licenses and the rules of the six month grace period for utility patents and utility models are not differentiated. In addition, both of them must satisfy the same standards of novelty, which requires a “prior art” search, and have practical applicability to meet the standards of utility.
The requirement of prior art for both utility patent and utility model is an important notion to judge their novelty and creation. The prior art in “Patent Law” refers to any technologies known to the public in the country or abroad before the date of filing. It should be a statement in which the knowledge and information concerned are disclosed to the public, and the technicians in the field can obtain the knowledge and information from public domains through normal channels. Thus, it includes both the local prior arts and the existing arts in any other countries.
Filing both a utility model and a utility patent for an identical invention on the same day is permitted. However, only one patent right shall be granted, so an applicant shall be granted a utility patent only if the applicant agrees to abandon the previously obtained utility model that has not ended.
From 2006 to 2010 in China, there were merely around 21.5 percent utility model applicants who were rejected in the preliminary examination for lacking utility, but more than 97 percent of these failed applications were individual applicants rather than “work for hire.” Hence, investors who are interested in investing in Chinese startups or established firms rather than individuals need to understand that the fundamental difference between registration of utility model and registration of a utility patent is substantive examination, the core of which in China is the standards of non-obviousness.
Some European utility model regimes have no requirements of non-obviousness. These regimes are similar to classical utility regimes and usually are called three-dimensional regimes, such as the regimes in Italy, Denmark, Finland, Greece, Portugal, and Spain, and they only examine for formalities. Because of their standards of local novelty that only prohibit using local prior arts, the three-dimensional form requirement could be abolished. Some scholars, such as Janis, believe that a second-tier patent system could be a gap-filler to utility patent regimes.
The U.S. has a trend of increasing the strictness of patent requirements through the standards of non-obviousness. Australia applies the same standards for obviousness to both utility patents and utility models. Comparatively, while Germany has amended its utility model regime several times, its procedure, which has a soft obviousness standard rather than requiring substantive examination, has not been changed, and Germany has experienced a softening of the non-obviousness standard for patents to be less strict. Therefore, the soft obviousness standard makes the utility model regime primarily different from a utility patent regime with a shorter term. In the European Union, apart from the European Patent Convention, other conventions, such as the Strasbourg Convention on the Unification of Certain Points of Substantive Law and Patents for Inventions, left the standards of registration of utility models unclear, so member countries can flexibly design and adjust a proper system for their local economy.
Utility model regimes provide exclusive rights to inventions or innovations, similar to utility patent regimes. Compared to utility patents, utility models usually provide a shorter duration of protection. Utility models are cheap, quick, and easy for inventors to gain exclusive protection for their inventions. Hence, more technologies and inventions can qualify for protection under a utility model regime than for protection under a utility patent regime. However, examination under a utility model regime is much less strict than that under a utility patent regime. Utility model claims do not have to meet the same non-obviousness standards as utility patents. Therefore, it is difficult to simply conclude the utility model regime in China is weak or strong. In the forthcoming part, I will explain the efficiency of utility models in addressing the concerns of FDI investors from developed countries, particularly U.S. investors, whose home country does not have a parallel system.
*Runhua Wang. University of Illinois College of Law, J.S.D Candidate, Class of 2016. Special thanks to my parents. Many thanks also to Professor Paul Heald and Professor Jay P. Kesan (University of Illinois College of Law), and JLTP editor Iman Naim (Class of 2016) for their instruction and help.
 See Jason Lange, Chinese Firms Pour Money into U.S. R&D in Shift to Innovation, Reuters (June 21, 2015, 9:17 AM), http://www.reuters.com/article/2015/06/21/us-usa-china-investment-insight-idUSKBN0P10KD20150621.
 Eva Dou, Intel Capital Invests $67 Million in Eight Chinese Startups, Wall St. J. (Sept. 17, 2015, 8:27 AM), http://www.wsj.com/articles/intel-capital-invests-67-million-in-eight-chinese-startups-1442492847.
 Bob Stembridge, Chinese Utility Models – A Lesser-Known IP Strategy, Indus. Insight, July-Aug. 2010, at 9, available at http://www.iam-media.com/Magazine/Issue/42/Industry-insight/Chinese-utility-models-a-lesser-known-IP-strategy.
 Foreign Direct Investment – the China Story, World Bank (July 16, 2010), http://www.worldbank.org/en/news/feature/2010/07/16/foreign-direct-investment-china-story (last visited Oct. 26, 2015).
 Christine Greenhalgh & Mark Rogers, Innovation, IP, and Economic Growth, 258 (2010).
 Beata S. Javorcik, International Technology Transfer and Foreign Direct Investment, in The Evidence and Impact of Financial Globalization 311-319, (Gerard Caprio ed., 2012), available at http://www.sciencedirect.com/science/article/pii/B9780123978745000439.
 Carsten Fink & Keith E. Maskus, Why We Study Intellectual Property Rights and What We Have Learned, in Intellectual Property and Development: Lessons from Recent Economic Research 6 (Carsten Fink & Keith E. Maskus eds., 2005).
 Nagesh Kumar, Intellectual Property Rights, Technology and Economic Development: Experiences of Asian Countries, 38 Econ. & Pol. Wkly. 209, 210 (2003), available at http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.469.8086&rep=rep1&type=pdf.
 Rami M. Olwan, Intellectual Property and Development: Theory and Practice 108, 123 (2013).
 Greenhalgh, supra note 5, at 257.
 Olwan, supra note 9, at 125.
 Benjamin Coriat & Luigi Orsenigo, Public Health and the Pharmaceutical Industry: Issues in the Post-2005 TRIPS Agenda, in Intellectual Property Rights: Legal and Economic Challenges for Development 227 (Mario Cimoli et al. eds., 2014).
 Comp. Gen., Strengthening Worldwide Protection of Intellectual Property, No.132699, at 22-25 (1987), available at http://archive.gao.gov/d2t4/132699.pdf.
 See Keith E. Maskus, The Role of Intellectual Property Rights in Encouraging Foreign Direct Investment and Technology, supra note 7, at 48.
 Pager refers to this as a “damage control” policy “that seek[s] to minimize or offset the costs of having a patent system pose significant, disproportionately burdensome obstacles to local innovation.” See Sean A. Pager, Patents on a Shoestring: Making Patent Protection Work for Developing Countries, 23 Ga. St. U. L. Rev. 755, 803-04 (2006-07); see also Jerome H. Reichman, Intellectual Property in the Twenty-First Century: Will the Developing Countries Lead or Follow? 46 Hous. L. Rev. 1116, 1119 (2009). (“‘[I]f they open their domestic markets to trade, they face political and economic pressure to protect foreign IP.’” (quoting Robert L. Ostergard, Jr.)).
 Josh Lerner et al., Venture Capital and Private Equity: A Casebook 242 (5th ed. 2012).
 Uma Suthersanen, et al., Utility Models and Other Alternatives to Patents, in Innovation Without Patents: Harnessing the Creative Spirit in a Diverse World 18 (Edward Elgar ed., 2007).
 See Lionel Bently & Brad Sherman, The United Kingdom’s Forgotten Utility Model: The Utility Designs Act of 1843, 3 Intell. Prop. Q. 265 (1997); see also Tabrez Ahmad & Pratic Priyadarshi Choudhury, Law of Patents Utility Model Protection: Harnessing the Backwaters of IP, 5 (2012), http://ssrn.com/abstract=1981780.
 See Ahmad, supra note 22 at 6.
 Mark D. Janis, Second-tier Patent Protection, 40 Harv. Int’l. L.J. 151, 156 (1999).
 See id. at 158. The duration is three years from the application date, and it is renewable for an additional three-year term.
 See id. at 155, 162-63.
 Jerome H. Reichman, Legal Hybrids Between the Patent and Copyright Paradigms, 94 Colum. L. Rev. 2432, 2457 (1994).
 Id. at 165 n.73; see also Jerome H. Reichman, Charting the Collapse of the Patent-Copyright Dichotomy: Premises for a Restructured International Intellectual Property System, 13 Cardozo Arts & Ent. L.J. 475, 500 (1995).
 Janis, supra note 24, at 161.
 Robert Hart, The European Union’s Proposed Protection for Utility Models: The Implications for Computer Programs, 3 Int’l Intell. Prop. L. & Pol’y, 50-1, 50-1 (1998). Hart concludes that the characteristics of a second-tier regime are quickness, simple registration, less stringent requirements than for patents, low cost, and temporary protection pending the grant of a patent, and most of these characteristics have been covered by classical utility model regimes.
 Heather Ann Forrest, Utility Model: Widening the Economic Divide between Legacy and New EU Member States, 32 Int’l Bus. L. 216, 217 (2004).
 Pager, supra note 16, at 803-04.
 Hong Liu & Jun Wei, Technology Transfer to China: The Patent System, 5 Santa Clara Computer & High Tech. L J. 363, 373 (1989). The authors looked at an earlier draft of China’s Patent Law that says: “‘Working a patent’ means the manufacture of the invention, utility model or design, or use of the patented process.” Gradually, it becomes general knowledge that people in China call all three kinds of inventions patents. The current draft of the 2009 Patent Law in China still states that “inventions-creations” means inventions, utility models and designs” in Article 2.
 Zhuanli Fa(专利法)[Law on Patent](promulgated by the Standing Comm. Nat’l People’s Cong., Dec. 27, 2008, effective Oct. 1, 2009) P.R.C. Laws, Dec. 27, 2008, art. 2 (China).
 Xiaoqing Feng, The Interaction Between Enhancing the Capability for Independent Innovation and Patent Protection: A Perspective on the Third Amendment to the Patent Law of the P.R. China, 9 Pitt. J. Tech. L. & Pol’y 1, 24 (2009).
 Mark Shiqian Zhai, The Chinese Utility Model Patent is Destroying Innovation in China, 39 Aipla Q. J. 413, 415 (2011).
 Zhuanli Shencha Zhinan (专利审查指南)[The Guide of Patent Examination, “the Guide”](promulgated by SIPO., Jan. 21, 2010, effective Feb. 1, 2010) §1 ch. 2 art. 6.1 (China).
 Id. at art. 6.3; see also Zhuanli Fa(专利法)[Law on Patent](promulgated by the Standing Comm. Nat’l People’s Cong., Dec. 27, 2008, effective Oct. 1, 2009) P.R.C. Laws, Dec. 27, 2008, art. 2 (China).
 Zhuanli Fa(专利法)[Law on Patent](promulgated by the Standing Comm. Nat’l People’s Cong., Dec. 27, 2008, effective Oct. 1, 2009) P.R.C. Laws, Dec. 27, 2008, art. 42 (China).
 Id. at art 22. Inventiveness is equivalent to the non-obviousness requirement of USPTO (U.S. Patent and Trademark Office) because of the difference of translation.
 Liu & Wei, supra note 38, at 367; see also Zhuanli Shencha Zhinan (专利审查指南) [The Guide of Patent Examination] (promulgated by SIPO., Jan. 21, 2010, effective Feb. 1, 2010) §1 ch. 2 art. 7.4 (China).
 Zhuanli Fa (专利法)[Law on Patent] (promulgated by the Standing Comm. Nat’l People’s Cong., Dec. 27, 2008, effective Oct. 1, 2009) P.R.C. Laws, Dec. 27, 2008, art. 40 (China).
 Id. at art. 61; see also Zhuanli Fa Shishi Xize (专利法实施细则) [The Rules for the Implementation of the Patent Law (“the Rules”)] (promulgated by St. Council, 2010) P.R.C. Laws, Jan. 22, 2010, art. 56 (China); see also, Zhuanli Shencha Zhinan (专利审查指南) [The Guide of Patent Examination] (promulgated by SIPO., Jan. 21, 2010, effective Feb. 1, 2010) § 5 ch. 5 art. 2.3 (China).
 Zhuanli Fa Shishi Xize (专利法实施细则) [The Rules for the Implementation of the Patent Law, “the Rules”] (promulgated by St. Council, 2010) P.R.C. Laws, art. 24, 51 (China); see also Zhuanli Shencha Zhinan (专利审查指南) [The Guide of Patent Examination] (promulgated by SIPO., Jan. 21, 2010, effective Feb. 1, 2010) §1 ch. 2 art. 7.3 (China).
 Feng, supra note 40, at 55.
 Zhuanli Fa (专利法) [Law on Patent] (promulgated by the Standing Comm. Nat’l People’s Cong., Dec. 27, 2008, effective Oct. 1, 2009) P.R.C. Laws, Dec. 27, 2008, art. 22 (China).
 Edward W. Tracy, et al., A Practical Patent Strategy for U.S. Companies Doing Business in China, 3 Landslide 14, 15 (2010-2011).
 Id. See also Fa, supra note 54, at art. 9.
 Hui Lian (廉惠), Shiyong Xinxing Bohui Anjian Shizheng Fenxi (实用新型驳回案件实证分析) [An Empirical Study of Rejected Applications of Utility Models], 8 Intell Prop. 77, 78-79 (2011).
 “The Guide” includes the search of both local and international prior arts in the process of preliminary examination for utility models, but excludes the process of testing non-obviousness, which is required only in the pending of an application of a utility patent. “The Guide” shows the three types of preliminary examination for the three types of patent filing separately in Part I, and mentions less about the search for novelty in the same part. However, even though it expresses the details of examination of novelty of utility models in Part II, “The Substantive Examination,” the Patent Law of China only requires this procedure in Article 35. Therefore, because the test of utility is a forward step of testing novelty, which is defined in Part 2.3, Article 3 of “the Guide,” we learn that the nature of the substantive examination is to test non-obviousness of an invention.
 Id. at 13. The formalities include correct documentation, name, and address of applicant and agent.
 See Hart, supra note 34, at 50-52.
 See Janis, supra note 24, at 191.
 Id. at 161. Janis shows the pattern for the PTO and judicial system to emphasize the inventive step requirement for patents since the mid-twentieth century in the U.S.
 Ruifang Chen, The Utility Model System and Its Benefits for China—Some Deliberations Based on German and Japanese Legislation, 14 IIC: Int’l Rev. Intell. & Competition L. 493, 505 (1983).
 Janis, supra note 24, at 168.
 Rudolf Krasser, Developments in Utility Model Law, 26 IIC: Int’l Rev. Intell. & Competition L. 950, 951 (1995).

References: art 19
sui generis
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 art 22
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 art. 40
 art. 61
 art. 56
 § 5
 art. 2
 art. 24
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 art. 9