In March of 2021, China’s most important annual political meetings took place as thousands of delegates to the National People’s Congress (NPC), the national legislature, and the Chinese People’s Political Consultative Conference (CPPCC), the top political advisory body, convened for a week at the Great Hall of the People in Beijing. Commonly known as thelianghui – or “Two Sessions” – this year’s elite gatherings in Beijing were particularly significant. The Chinese leadership not only set the national socio-economic and political priorities for 2021, but also approved China’s 14th Five-Year Plan (FYP) (2021-2025), the grand strategic blueprint for the next half decade, as well as longer-term goals for 2035. What’s more, 2021 marks the centenary of the founding of the Chinese Communist Party (CCP), with the 100th anniversary officially commemorated in July.
For the business world, the lianghui provided a critical bellwether for taking stock of how Beijing intends to steer the Chinese economy in the year ahead, through 2025, and beyond. Major themes included:
- Prioritizing the quality of growth rather than the quantity of growth
- Building China into a self-reliant technological and manufacturing powerhouse
- Accelerating the drive towards a low-carbon economy to help achieve the 2030/2060 climate goals
- Achieving “common prosperity” through new rural revitalization and urbanization strategies
- Moving ahead with gradual liberalization of the business environment
- Elevating China’s leadership role in regional and global economic governance
- Managing great-power rivalry with the United States
This article will focus on how the lianghui will impact intellectual property (IP).
As China aims to become a leading innovative country by 2035, the work report laid out an ambitious national technological blueprint for the next five years, emphasizing that “innovation remains at the heart of China’s modernization drive.” The government vowed to focus on achieving “major breakthroughs in core technologies,” including next-generation artificial intelligence, semiconductors, cloud computing, and other key areas, as well as establish more national laboratories and innovation centers. Beijing will also aim to get 56% of the country on 5G networks. By 2025, the government aims to have the digital economy account for about 10% of China’s newly added economic output.
Eight projects were identified as impacting the digital economy, namely cloud computing, big data, Internet of things, industrial networks, block chain, artificial intelligence, virtual reality, and augmented reality according to the China National Intellectual Property Administration (CNIPA).
From 2021-2025, research and development (R&D) spending will be ramped up by more than 7% every year, with expenditures “expected to account for a higher percentage of GDP” than that during the 13th FYP period. This year, China will increase its spending on basic research by 10.6%. The work report also said that the government will continue the policy of “granting an extra tax deduction of 75% on enterprises’ R&D costs” and “raise this to 100% for manufacturing enterprises.”
As can be seen, this continues a strong trend in increasing R&D funding that started in 1995 and indicates a commitment to R&D as well as providing tax incentives for R&D projects being in China.
In particular, the 14th FYP featured a renewed focus on accelerating the Fourth Industrial Revolution and transforming China into an advanced manufacturing superpower, outlining plans to strengthen China’s global competitiveness in areas such as robotics, new energy vehicles, aircraft development, and agricultural machinery, among others. Speaking on the sidelines of the Two Sessions, Xiao Yaqing, Minister of Industry and Information Technology, said, “The manufacturing industry is the lifeblood of the country’s economy, and the real economy should be further strengthened and improved.”
Miao Wei, a government advisor and member of the CPPCC, predicted that it will take at least three decades to achieve China’s goal of becoming a “manufacturing powerhouse,” saying that China is still a “third-tier” manufacturing power and citing Germany and the U.S. as examples of “first-tier” manufacturing nations. China’s manufacturing output as a share of its economy has declined in recent years, slipping to just over a quarter of GDP in 2020, and Miao warned that this has been occurring “too early and too quickly.”
The significant commitments for elevated R&D spending and plans for a reinvigorated manufacturing drive underscored Beijing’s determination to continue expanding the role of innovation as a major growth engine for the Chinese economy. Coming amid growing rivalries with the United States and other major economies around technology, the goals also reflected a rising urgency to reduce China’s technological dependency on external markets and mitigate the vulnerabilities of its supply chains to geopolitical tensions. Going forward, this will be a top official priority under DCS. This reliance on external markets has caused issues with R&D in China.
For the first time in a work report, the government also pledged to expand efforts against business monopolies as part of efforts to ensure fair market competition. Coming after the recent launch of an anti-trust crackdown targeting domestic tech giants, the announcement signaled that the tougher approach to governing China’s booming technology sectors can be expected to intensify further. Companies should be prepared for the likelihood that authorities will take a more active and interventionist role in the Chinese private sector. Similar trends are developing in the United States. See our recent article on "Promoting Competition in the American Economy Executive Order: Antitrust Is Back?"
Intellectual property (IP) owners are advised to have a working knowledge of the recent draft published in April of this year to see what is planned for the coming years. Knowledge of the FYP will help to set the check points for one’s own IP strategy and plans.
Intellectual property has taken a key role in the development of technological progress in China’s big economy. China’s IP system is gradually changing, with each plan having various focus points. In the FYP, two major focus points are evident:
- An emphasis on strengthening enforcement to maximize the benefits of IP, as they are not currently fully utilized.
- An emphasis to protect IP targeted to key high-technology fields.
These two focus areas are further detailed below.
Enforcement
The enforcement system of the patent law has been strengthened with the recent fourth amendment. This includes valuable rights for the pharmaceutical sector. The implementation of the FYP will further emphasize the use of the newly-created, punitive compensation system for infringement of patents and will increase the damage compensation. Exposure to multiples of up to five times the otherwise calculated damages are likely to become a more common. In addition, the criminal enforcement of IP rights has been proposed.
Improvements to the judicial and administrative branches of the law enforcement system of intellectual property rights were announced, together with work on the effectiveness of the arbitration and mediation system. Notarization requirements were also mentioned as being within the scope of the reform.
It can be expected that the next five years will bring a more detailed and standardized IP protection regime of the administrative departments and the judiciary. Besides the abovementioned tools to act against infringers, it will be crucial to check in detail what else will be designed to improve IP enforcement. The details may determine the balance between plaintiff and accused infringers in the infringement proceedings and hopefully will provide a less complex and more predictable proceedings according to accepted guidelines.
Handling of overseas IP disputes will be guided with support from the Chinese government, through new platforms such as the National Guidance Center for Handling Overseas Intellectual Property Disputes with ten local sub-centers. There is also an intention to provide intensive training.
This demonstrates that knowledge on the IP system will be crucial for IP creation and enforcement strategies for IP owners entering the Chinese system as well as for Chinese looking abroad.
IP used to support targeted high-technology areas
The FYP has a clear focus on high-technology fields, of which the following are specifically mentioned: quantum information, photonics and micro-nanoelectronics, network communications, artificial intelligence, biomedicine and modern energy systems. While there is a focus on becoming a leader, or at least becoming fully self-reliant in these technology sectors, the IP related to these technologies will likely see the most benefits in the future investment via national laboratories. In addition, it can be assumed that patentability exclusions and patentability hurdles (e.g. for business methods or software per se) will be further softened or lowered to allow the drafting of claims that cover these fields.
All applicants in the high-tech sector will benefit from these improvements. Therefore, patent applications that face examination challenges may become acceptable in the next five years. It could be worthwhile to pursue inventions in those areas. It will be important to watch for practice changes to see which claim formats are supported by the CNIPA patent office. According to a media interview with Shen Changyu, CNIPA Director, there is currently ongoing research on how to deal with the question of whether works and inventions completed by AI can generate new IP rights. Interesting questions may be posed and answered.
Quality of IP
While these high-tech fields will be supported, there is another important initiative that focuses on the quality of IP. This initiative is implemented through the promotion of “ownership of high-value invention patents per 10,000 population” in the FYP, which replaces the old targets of “ownership of invention patents per 10,000 population” in previous plans. It is worth noting that the number of high-value invention patents owned by per 10,000 people reach 12 this year and was a record. As part of the quality initiative, we have seen the drafting of a completely new legislation to prevent irregular patent applications, including revisions of the “Measures on Regulating Patent Application Behaviors.”
The recent discussion has raised concerns on whether the new measures could also be overreaching and may negatively affect IP strategies which have been commonly used to pursue legitimate goals of the innovator (e.g., filing multiple divisional applications to obtain the optimal protection for all the best inventive features). This should be carefully watched to not stumble into the scope of these regulations that should – according to its original purpose – prevent misuse of the IP system.
Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.
[View source.]
