China’s new Patent Law introduces open licence scheme

By Qi Yongqiang, Corner Stone & Partners

A patent right is an exclusive right that no one may exploit without consent from the patentee. However, most patentees do not just want to monopolise their patented technologies, but hope to license their patents for profit from exploitation by others. The open patent licence means that the patentee announces that anyone who wishes to exploit his/her patent can obtain the licence for exploitation of the patent by paying the specified licence fees through the patent grant department under the China National Intellectual Property Administration (CNIPA).

Qi Yongqiang, Partner and patent attorney, Corner Stone & Partners
Qi Yongqiang
Partner and patent attorney
Corner Stone & Partners

China’s new Patent Law will come into force on 1 June. To meet the market demand, reduce the cost of transactions effectively, and improve the efficiency in patent licensing, chapter 6 of the original law was amended from “Compulsory Licence for Exploitation of a Patent” to “Special Licence for Exploitation of a Patent”, where not only the original compulsory licence system is retained, but a new article of open licence is introduced by reference to foreign legislation.

Specifically, article 50 stipulates statement and withdrawal of open licence, where a patentee voluntarily makes a written statement to the CNIPA that he/she is willing to license any entity or individual to exploit his/her patent, and specifies the standard of licence fees and methods of payment. Subsequently, the CNIPA makes a public announcement for the licence, and an open licence is granted.

Article 51 specifies obtainment of the patent licence, reduction or exemption of patent annuities during the open licence period, and licence fees. Article 52 specifies the settlement of disputes concerning open patent licence, thus enriching the types and methods of licence for patent exploitation in China. If a dispute arises concerning an open licence for exploitation of a patent, the parties may settle through negotiation. In the event of reluctance to negotiate, or failure of negotiation, the parties may request mediation by the CNIPA, or bring the case to the court.

It can be seen from these articles that the changes cope with the actual demands on patent exploitation and promote the high-quality development of application of patents, along with IP policies, regulations and implementation measures. This amendment also opens up an effective channel for patent licensing. Therefore, the system introduced this time has important implications as follows:

(1) The open patent licence system can improve the efficiency in licensing by reducing the cost of transactions. As China has built a patent information publication system, the patent authorities may, after a patentee makes a statement that he/she is willing to grant an open patent licence, immediately publish the information about the licence to provide full information for potential licensees. This system serves as a national patent transaction and a market-oriented publication platform. In this way, the system reduces the cost of search of patent information, thus improving efficiency in licensing.

(2) With the help of the CNIPA’s patent publication platform, the open patent licence system ensures that transactions between the two parties are closed. In practice, a licensee wishing to exploit the patent of others can obtain the licence by simply paying licence fees specified in the publication. Therefore, not only lengthy negotiations can be dispensed with, but transaction charges and terms are clearly specified in the statement. This solves the problem of difficult valuations in patent matters to some extent, as well as preventing patentees’ changing transaction terms at will.

(3) The open patent licence system enhances the enthusiasm of individuals, small and medium-sized enterprises, and large companies with many patents, for granting an open patent licence as early as possible. With patent numbers increasing, patent annuities are a big expense. After the new Patent Law takes effect, those who are willing to grant an open patent licence can save a lot of annuities.

(4) The open patent licence system helps to ensure the security of patent licence transactions. Transaction security is an effective guarantee for high efficiency and low cost. The new patent law ensures the security of the transactions by validating the statement on an open patent licence, and the statement on acceptance and controlling patentees.

In summary, the open patent licence system helps to facilitate the smooth flow of patent licence information, reduce market transaction costs, improve the efficiency in patent licensing, and further enhance the quality of patent exploitation and efficiency in application of patents.

Qi Yongqiang is a partner and patent attorney at Corner Stone & Partners

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