Clifford Chance

Introduction

On 21 December 2023, the PRC State Council published the amended Implementing Regulations of the Patent Law ("2023 Rules") and Patent Examination Guidelines ("2023 Guidelines"). They come into force on 20 January 2024, more than three years after the PRC Patent Law was amended in October 2020 ("2020 Patent Law").

Our PRC patent law update will be divided in two parts. In this first article, we discuss how the long-awaited 2023 Rules and 2023 Guidelines clarify and establish procedural requirements on several issues. These include state compensation for unreasonable delay in patent examination, patent term extension in relation to pharmaceutical drugs, and partial design patents, all of which were originally introduced by the 2020 Patent Law. We also discuss the new provisions introduced for enhancing rewards and remuneration for inventions created in the course of employment. These developments could significantly impact the overall patent strategy of companies in Mainland China.

In the second part of the PRC patent law update, we will delve into issues relating to exempted disclosure and maintenance of novelty, bad faith patent applications, expansion of entities eligible for patent evaluation reports and other procedural developments. We will also discuss the updated guidance for examining patents related to AI and big data.

Extension of patent term of pharmaceutical drugs

The 2020 PRC Patent Law introduced the concept of patent term extension for "new" pharmaceutical drugs as a way to offset the time spent waiting for marketing approval from the National Medical Products Administration. This extension can be up to 5 years, as long as the total patent term does not exceed 14 years from the date of marketing approval. However, the 2020 Patent Law did not specify what constitutes "new" drugs that qualify for this extension. The 2023 Guidelines have now clarified this, stating that for a drug to be eligible, it must be "new in the world", and not just new in Mainland China at the time the application for drug marketing approval is submitted.

The term "new" drug can refer to the following by way of example:

• Drugs with new active ingredients that have not received approval for market entry anywhere in the world.
• Drugs with new indications or uses for existing active ingredients that have not received approved for market entry anywhere in the world.
• Chemical drugs containing a substantially innovative ethel or salt form of an existing chemical active ingredient that has not received approval for market entry anywhere in the world.

The requirement that a drug must be "new in the world" means that multinational healthcare companies creating innovative drugs should consider including Mainland China as one of the initial markets for which to seek regulatory approval of their new drug. This is relevant if they wish to extend the patent term to preserve exclusivity in Mainland China, to compensate for lengthy drug development and regulatory approval processes. In the Mainland Chinese drug market, the ability to extend the patent term of a core compound or active ingredient or biological substance can be especially beneficial to prolong the patent term for an innovative drug, thereby safeguarding its market share and profits. If a drug is protected by multiple patents, the option to extend the patent term of a core compound or active ingredient can be significant. This is because "derivative" patents, such as those for alternative physical forms (polymorphs), pharmaceutical compositions, or production processes, are often more susceptible to validity challenges in Mainland China.

State compensation for unreasonably delayed patent examination and efforts to accelerate examination

The 2020 Patent Law established a mechanism for compensation from the Patent Administration Department under the State Council for unreasonable delay in patent examination and grant, excluding any delay caused by the applicant. The 2023 Rules clarify that this compensation is to be calculated based on the actual number of days of delay. The period of delay is taken to start from the later of the four-year anniversary of the patent filing or the three-year anniversary of the request for substantial examination and ends on the patent grant date. The total period of delay eligible for compensation excludes the number of days of reasonable delay and delay caused by the applicant. The 2023 Rules further clarifies that reasonable delay (for which there is no entitlement to compensation) encompasses delay resulting from the re-examination process if a patent is granted following amendment to the patent application documents made in the re-examination process. It also includes delay caused by the suspension of patent examination due to a patent ownership dispute that results in mediation or court action, or patent right preservation measures in a civil action.

This development is coupled with ongoing endeavours by the China Intellectual Property Administration (“CNIPA”) to expedite patent examination and clear the backlog of patent applications that have accumulated since 2019. On 26 December 2023, the PRC State Council revealed in a press conference that the average period for invention patent examination has been reduced to 16 months. These efforts to speed up patent examination shows that action is being taken to extend the effective life of patents in Mainland China.

Enhancement of minimum statutory reward and remuneration for service patents

To provide some context, in Mainland China, when an employer is granted a patent and exploits it, the employee who invented or developed it is entitled to a statutory one-off reward or bonus upon the patent's grant. The employee is also entitled to minimum statutory remuneration based on the sharing of the economic benefits of exploitation of the patent. This is the case unless there is a compensation scheme otherwise agreed upon between the employer and the employee.

The 2023 Rules have marginally raised the minimum statutory one-off reward for service patents from RMB3,000 to RMB4,000 for each granted invention patent, and from RMB1,000 to RMB1,500 for each granted utility model or design patent.

A more substantial change has been made regarding the remuneration for service patents. The previous straightforward statutory minimum rates, which were based on a percentage of operating profits from the use of the patent or royalties from patent licensing, have been scrapped. These have been substituted with formulas for determining the minimum statutory remuneration as outlined in the existing Law on Promoting the Transformation of Scientific and Technological Achievements (“Technological Achievements Law”). The applicable formulas for calculation of the minimum statutory remuneration are as follows:

It is important to highlight that the remuneration formulas in the Technological Achievements Law apply not just to patents, but also to other scientific and technological accomplishments of practical value completed during job tasks or primarily using the employer's resources. Unlike the scrapped remuneration rates, which were only applicable to employee patent inventors or developers, the revised minimum formulas also apply to those who otherwise contribute to the commercialisation of technical achievements.

Partial design patents

The 2020 Patent Law introduced a new option to designate a part of a product (that is itself not an independent component product) as the subject of a design patent for design protection. The 2023 Rules provide clarity specifying that the scope of a partial design patent can be defined either in the brief description or through the use of solid lines, contrasting with dotted lines used to define the remainder of the product that is not included in the scope of the partial design patent. Once the 2023 Rules are implemented, CNIPA will begin to examine and issue partial design patents under these rules. This means that design patent applicants will now have an alternative to seek design protection against potential infringers of parts of their products.

The 2023 Rules also incorporate operational provisions on the examination of design patent applications filed through the Hague Agreement Concerning the International Registration of Industrial Designs to which the PRC became a contracting party in 2022. The Hague registration system will be more convenient and save costs for applicants in other Hague member states to patent their designs in Mainland China, and vice versa.

Conclusion

The 2023 Rules and 2023 Guidelines demonstrate Mainland China's commitment to fostering scientific and technological innovation. The regulations for state compensation for unreasonable delay in patent examination and the extension of patent term for pharmaceutical drugs show that action is being taken to stimulate invention by efforts to extend the effective patent life. Employers are expected to remunerate their employee inventors and developers appropriately for their creations. The process of seeking design protection has been simplified with the introduction of partial design options and international registration of design patents by way of the Hague registration system, which also covers Mainland China