Schneider Electric, a provider of power and control solutions headquartered in France, just settled a three-year patent litigation suit with Chint, one of the largest manufacturers of low- voltage devices in China. The settlement amount of CNY 157.5 million (about USD 23 million) paid by Schneider is believed to be the largest for a patent litigation settlement in China. The settlement highlights the changing patent landscape in China.

The Chinese patent office grants three types of patents:

  1. invention patents or 20-year patents, which are similar to utility patents in the US and cover new technical solutions that relate to a product, a process or an improvement thereof;
  2. design patents;
  3. utility models or 10-year patents. The utility models are granted for ‘new technical solutions that relate to a product’s shape or structure, or a combination of the two, and are also fit for practical use’ and do not undergo a substantive examination and are granted rather quickly, typically within a year from the filing date. Evidently, utility models or 10-year patents are a cheaper and quicker way of obtaining patent protection.

Chint originally paid CNY 500 (about USD 70) in 1997 in filing fees for the utility model application at the State Intellectual Property Office (SIPO) of China. The utility model was granted in a little over 15 months without undergoing any substantive examination.

In 2007, the Wenzhou Intermediate People’s Court ordered Schneider to pay over CNY 330 million (about USD 45 million) and to stop the manufacture and sale of five of its products that allegedly infringe Chint’s utility model.

Schneider Electric tried to get the Chinese Patent Re-examination Board to invalidate the utility model by providing evidence to prove that the technology covered in Chint’s utility model was not novel and hence not legally enforceable. The Board disagreed and the Beijing Higher People’s Court upheld the validity of Chint’s utility model in March 2009.

The settlement is noteworthy in China but should not be taken that the courts will rule only pro- Chinese, as a number of non-Chinese companies have been successful in defending their intellectual property rights within the country. For example, Philips Electron Corp., Ltd., was able to invalidate utility models granted to a Chinese patentee, Yang Weijiang, relating to its shaver technology. In 2007, Yamaha Corporation of Japan was awarded over USD one million for trademark infringement by three Chinese companies: Zhejiang Huatian Industrial Co. Ltd., Taizhou Jiaji Motorcycle Distribution Co. Ltd. and Taizhou Huatian Motorcycle Distribution Co. Ltd.

Currently, more than 99% of utility models are filed by Chinese domestic companies indicating a general lack of use by companies in other countries. This decision means that companies should take utility models seriously and should track utility models filed by their competitors, include these in their prior art studies and licensing analysis, and consider leveraging this form of intellectual property (IP) protection for their own Chinese patent portfolio.

The above is from the article, “Patently Speaking: Failure to Heed IP in China Can be Costly,” and is used by permission.  The article is authored by Ram Deshpande, Assistant Vice President with the Intellectual Property division of Evalueserve China, and Dr. Alok Aggarwal, the Co-founder and Chairman of Evalueserve.

Evalueserve provides knowledge services to a global client base of Fortune 5000 companies, including Investment, Commercial and Retail Banks; Insurance Companies; Private Equity Firms; Corporates; Consulting and Research Firms; Law Firms and Intellectual Property Firms. Evalueserve’s expertise covers areas such as Financial and Investment Research, Business Research, Market Research, Intellectual Property, Data Analytics and Knowledge Technology Services.  The sole owner of copyright is Evalueserve and use of the protected material is by permission only.

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