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August 2, 2012 11:37 pm

China mulls state funds to help companies fight patent lawsuits, increase IP capability

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This article is provided to readers by PaRR (Policy and Regulatory Report)— a newly launched product of The Mergermarket Group providing proprietary intelligence and research on competition law and sector-specific regulatory changes around the world.


China is considering setting up one or more state funds to help Chinese companies fight patent lawsuits and boost intellectual property (IP) rights management, a Chinese government source told PaRR.

There is not yet a timetable on when the IP fund will be launched and details such as fund composition and area of coverage have yet to be finalized, the source said. But there has been intense research among various government agencies on the subject and several models of how the fund would work are being considered, he said.

“Some local governments are running trial funds, but the central government so far doesn’t have a unified program,” the source said. “We learned about this after several field trips and think this is a good idea. We have conducted in-depth studies and also communicated with foreign counterparts.”

Fund may have several different sources

The source said the state IP fund may have different sources, varying depending on industries and geographic regions.

“Maybe it’s not just one fund but multiple ones and the content of each is different. Maybe part of the money is from the central government as a seed fund, with other funds raised among local governments. It is also possible that funds [will be] raised from businesses in the industry. Specifically, there may be more than one standard or methods.”

The IP fund, or funds, will put emphasis on helping certain industries as a whole, instead of meeting the demands of one or a few companies, the source said.

“We want to focus on the needs of the industry and have an industry-wide defense fund,” he said. “The money will be mostly used in helping companies enhance their IP management capability, counter international IP disputes, and provide guidance to companies about international IP law and norms and precedence or measures”.

One of the key functions of the fund could be providing money to companies facing patent lawsuits overseas to hire attorneys, the source said.

“But it’s not just about lawsuits,” he said. “We want the fund to have a wider scope with a bigger impact. For example, when the industry has the need to establish patent pools or alliances and needs monetary support, we would like to have this fund provide that support.”

Such patent pools are typically organized by industry alliances or associations, with the government providing a supporting role, he said.

State Council circular eluded to Chinese government support

A circular issued by the State Council on 2 May – “the Several Opinions of the State Intellectual Property Office and Other Departments on Strengthening the Intellectual Property Work in Strategic Emerging Industries” – alluded to China’s intention to increase state support for Chinese companies facing patent lawsuits.

In the document, the government said China plans to “help industry or an IP rights alliance establish united defense funds to increase companies’ ability to counter international IP disputes”.

It is not the first time that China has entertained the idea of a state IP fund.

The government has been discussing IP funds with industry representatives and lawyers for six or seven years, with the Ministry of Commerce (MOFCOM) and the Ministry of Industry and Information Technology (MIIT) both considering initiating such funds, said a Chinese IP attorney who attended a preparatory meeting at MIIT in 2009.

One of the IP fund models discussed in the past was for local governments and industry associations to provide money to Chinese companies that initiate and win patent lawsuits overseas against foreign companies infringing their patents.

“The plan was not implemented, maybe because the government didn’t really understand the patent world,” the attorney said.

Launching a lawsuit on one single patent can easily cost USD 2m and often a lawsuit can involve two to three or even 20 patents, the attorney said.

“Very very few Chinese companies have initiated patent lawsuits overseas,” the attorney noted.

Chinese companies are still primarily defending patent infringement claims, with large Chinese companies like Huawei Technologies (Shenzhen Stock Exchange: 000063; HKSE: 0763) , ZTE (Shanghai Stock Exchange: 600690) or Haier facing dozens of such cases a year, the attorney said.

Jin Shanming, a researcher at the Institute of Law at the Chinese Academy of Social Sciences, said a state IP defense fund could ultimately help Chinese companies increase their research and invention capabilities and their overall competitiveness and allow China to have more say in the domain of international IP rights.


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