Chinese leaders long have sought to protect their own discoveries while absorbing others' creative work. Prized Chinese technologies from ancient times were kept secret from outsiders for extraordinarily long periods. Techniques used to produce writing paper and silk, for example, were not discovered by Europeans for 1,000 and 2,000 years, respectively, after their introduction in China. Yet China also distrusts foreigners' efforts to protect their own inventions and eagerly appropriates Western technological advances, from automobiles to entertainment to software. Astronomical rates of piracy co-exist with sharply increasing success at innovation.
Those conflicting attitudes and their potential to create a very uneven playing field for domestic and foreign creators in China are on display in the Third Amendment to China's patent law approved in late December. This amendment, which goes into effect in October, began in 2005 as an effort of the State Intellectual Property Office to clarify aspects of the law, promote invention and eliminate some conflicts with international rules. The effect of many of the changes will not be clear until the administering authority and courts speak. How the balance between protecting innovation and commandeering innovations is struck has powerful implications for China's and the world's prosperity, which have been powered by the twin engines of innovation and trade.
China's patent law evolved over the past 25 years largely from efforts to quiet Western nations' complaints about rampant theft of intellectual property. Less developed economies often seek to advantage themselves by protecting national champions while taking the fruits of others' inventiveness. The United States was a latecomer to international intellectual property accords and was accused by Europeans of disrespect for their rights. China's ambivalence about ownership of any property, much less intellectual property, magnifies the reluctance of most growing economies to protect rights of foreign patent holders.
The Third Amendment will enact a complex set of changes. Some are designed to encourage innovation in China and protect genuine inventiveness, such as increased protections for innovations created by cross-border research efforts. While not perfect, these changes seem generally positive. Adoption of an “absolute novelty” standard is another step in the right direction and should stop patent grants to Chinese applicants who were effectively “hijacking” inventions from abroad. Under this standard, an invention must be new to the world, not just to China, precluding patent grants to a Chinese filer for an invention already disclosed elsewhere. Closing that loophole is an important step.
In other ways, however, the Third Amendment takes a wrong turn. One of the worst offences comes in provisions for compulsory licenses. These support expansive authority for the state to issue licenses, without the approval of the patent holder, to anyone who is able to produce the product once given access to the patented technology. The amendment allows compulsory licensing if, after three years from the grant of a patent or four from the filing of a patent application, the patent holder, "without proper justification," is found not to have "exploited" the patent "sufficiently," or if the patent use is found to restrict competition. Some of the problems in this are technical – like the fact that the timing in the provisions violates the Paris Convention for the Protection of Industrial Products, an international agreement to which China is a party. But the bigger issue is the casual attitude toward protecting investment in innovation that is at the heart of these provisions.
Compulsory licensing threatens the fundamental property right that patents confer – the right to control the use of an invention for a set period of time, to decide who will use it and on what terms. For that reason, historically it has been restricted to preventing clear abuses of the patent system. The most obvious example is the failure of a patent holder to allow the sale of a patented product. The exclusive right to make a patented product was part of an eminently sensible exchange – the inventor got patent protection and the public got acc