New Chinese patent law offers fresh reassurance to Western enterprisers

One look at the Chinese patent system should convince reasonable people that the government is serious about protecting intellectual property. At least so say China's patent officials and some Western legal experts law who have followed the six-year evolution of China's patent system.

The Chinese patent law, which takes effect April 1, is ``an undertaking essential to its drive to encourage the importation of foreign technology,'' writes Chinese legal specialist Ellen R. Eliasoph in the current issue of the China Business Review.

Western businessmen and lawyers have applauded China's adoption of a world-standard patent system -- along with the training of patent agents and the setting up of a network of patent agency offices across the country and in Hong Kong. But these same people have said it is too early to know how reliable the Chinese patent code will be as a protection for the valuable commercial technologies China wants foreign businesses to bring into the country.

``Whether the patent law makes any difference in the way we do business here depends on what the experience will be with China's legal system,'' said one visiting corporate attorney for a Fortune 500 company with extensive ties in China. The attorney asked not to be identified.

Until now, foreign businesses have depended on confidentiality clauses in their contracts to protect the technologies they transfer to Chinese partners from being publicly disclosed. Chinese officials have said they will continue to accept these clauses after the patent law takes effect.

Besides uncertainties in the rapidly growing new system of Chinese commercial law, there have been complaints about gaps in patent protection under the new code. These include lack of protection for chemical substances and pharmaceuticals, microorganisms, and computer software.

After congratulating top Chinese investment officials a few months ago on setting up a patent system where none existed before, Robert H. Malott, chairman of the board of FMC Corporation, said the Chinese law was ``seriously flawed in at least one regard; namely, it does not allow for protection of composition of matter or compound invention.''

``I can assure you that the process industries -- the chemical industry, the petrochemical industry, the pesticide industry, and the pharmaceutical industry -- absolutely depend on composition matter protection if intellectual property rights are to be at all meaningful,'' Mr. Malott said.

But a Western legal expert, who asked not to be named, says corporate executives have overstated their case on the protection of chemical substances: ``Businesses have faced these problems around the world for years. They've been fighting them in Japan for 40 years.''

Nevertheless, Chinese patent officials have been sensitive to such concerns since the law was published a year ago. Indeed, one impetus for developing the patent law in the first place was to meet the requirements of foreign businessmen. Another was to stimulate Chinese creativity by offering protection, credit, and financial reward for new inventions.

Patent officials have recently given assurances, according to Ms. Eliasoph, that in addition to the protection granted to industrial processes, the methods with which particular substances are used will be patentable as well as chemical formulas. This means that not only can the process for making a substance be patented, but that it would be possible to patent the substance itself for a particular end use, say, pesticide for rice plants.

``Patent lawyers have been very happy with this development, they consider it a major clarification of the law,'' Ms. Eliasoph said in an interview. One reason there is no explicit protection of chemical substances in the Chinese law is to give domestic industries free rein in discovering substitutes for foreign products.

Computer software is not patentable in many countries, including Britain. But Chinese officials have recently given assurances that computer software will be covered either in a forthcoming copyright law or in a special computer software protection law. Pirated software is already sold in at least one Peking computer store, though it is widely available in Hong Kong, which already has laws protecting property rights on software (those laws are not effectively enforced, however).

Since last Oct. 1, patent agency offices have been accepting preliminary applications from foreign companies, giving them a six-month lead over Chinese applicants.

``I can't tell you the numbers, but they are increasing,'' said Wang Zhen Xia at the China Council for the Promotion of International Trade, which operates the first patent agency authorized to handle foreign patents.

Mr. Wang said there were applications from companies of all sizes, mainly American, Japanese, and West German. He estimated it would take 2 to 21/2 years for applications to be processed.

But a Peking-based Western legal consultant said the companies he works with have a wait-and-see attitude: ``The companies I know which have numerous patents pending in the United States are holding back before deciding which technologies they will subject to the new Chinese patent system.''