(Jon Han) 

Patently Ambiguous

China’s booming biotech industry excites many American and European pharmaceutical companies. But along with that excitement comes fear. China has long had a reputation for little or no respect for intellectual property (IP), and that remains scary for companies entering China.

Anyone with insider knowledge about China’s biotechnology IP can attest that it’s still a work in progress. China’s first patent law went into effect in 1985, and has been amended three times, in 1992, 2000 and 2008. Since then, several regulations regarding implementation of the law have also been passed. At first, these efforts to regulate the industry had little effect. “In the first 20 years, the emphasis of IP was very poor,” says Jonathan Yuan, a former microbiologist in the U.S. who is now an IP lawyer with Shangcheng & Partners in Beijing. “People didn’t respect IP and there were a lot of infringements and copies. It was a big problem.” But he adds that copyright and patent infringement are now taken seriously.

Some of that seriousness arises from scientists moving back and forth between the U.S. and China. As Xiaochuan Wang, CEO of Sundia, a contract research organization in Shanghai, says, “The overseas returnees play an important role in biotech industry and tech industry. One reason is they have the mindset for IP protection.”

Innovation’s Impact

China’s focus on innovation in biotechnology forces the country to protect even its own discoveries and inventions. Indeed, the support for innovation is translating into an increase in patent filing in China and abroad by Chinese companies. While there is no specific data on the biotechnology sector, a Thomson Reuters report from 2010 indicated that China’s international and domestic patents increased by an annual average of 26.1 percent from 2003 to 2009. If this trend continues, the number of patents coming from China will soon surpass the number of those from the U.S.

Filing patents, however, does not ensure innovation or fair play. “Some people take [the] opportunity to make money off of garbage patents,” Yuan says. “They are not decent inventions. They were just drafted to get subsidized from the government or to make up the numbers.”

On the up side, Wang already sees a change in the level of innovation in China’s biotechnology. “Just looking at our client database and the projects we’re working on, we can see the philosophy change in the Chinese companies. Before, with over 100 clients, less than a few percent were Chinese. But now 10 to 15 percent are Chinese clients.” Wang adds, “They’re looking for innovative ideas and technology to help them speed up new drug development.”

But Robert Walsh, managing partner of Samsara Biopharma Consulting in Bellingham, Washington, cautions, “The number-one problem with Chinese biotech companies for protection of IP is turnover in personnel. Within China itself, in the case of phytase manufacture in pichia yeast, I know of about a half-dozen companies started by former employees of bigger companies, who walked out and took what they learned with them.”

International Interactions

Cooperation between local and foreign companies is important, say several IP lawyers based in China. Still, companies outside of China have a lot to learn. Tony Chen, an intellectual property lawyer with Jones Day in Shanghai, says a leading IP problem for many foreign clients is that they neglect to file their patents in China. “U.S. universities are the worst,” Chen says. “Their not obtaining Chinese patents is the equivalent of giving everyone in China a royalty-free license to inventions made with U.S. taxpayer dollars.”

Lawyers also emphasize that firms should be proactive about IP protection and not wait until it’s too late to pursue it. Dan Harris, a Seattle-based lawyer for Harris & Moure and a blogger on the China Law Blog, says that often companies are under the impression that U.S. patent law protects companies in China and that China doesn’t have IP protection at all. “You’re not in Kansas anymore,” Harris says. “Don’t think China’s like the U.S. It’s not. But don’t think China is completely different from the U.S. It’s not either. They have rules and laws there.”

As the number of patent filings rises in China, so has the number of patent litigations. Between 2008 and 2009, IP cases rose 25 percent, although only 4,422 of the more than 30,000 cases were patent related. The majority of cases remain between Chinese companies, but China-based lawyers make it clear that U.S. businesses should not be shy about going after patent infringement in the Chinese court system.

Gordon Gao of Fangda Partners in Beijing points out that, contrary to popular belief, foreign companies stand a very good chance of winning patent infringement cases. In 2007, he researched the final verdicts in IP courts in Beijing and Shanghai, and was surprised to find that foreign companies had a two-to-one chance of winning. According to several lawyers, the willingness of many foreign firms to spend more money on litigation than Chinese companies generally works in their favor.

Expect Ambiguity

Patent cases tried in different regions of China may yield different results, and there is no system of precedent that can help lawyers successfully fight their case. Still, Weishi Li of Bird & Bird in Shanghai says, “Patent law is there; it needs to be used more. The problem is that enforcement is still less predictable as compared to in the U.S. and judges are not as sophisticated with technical areas.”

If it sounds unclear how well IP is enforced in China, that’s because it is. But that shouldn’t scare companies away, according to Harris. “Figure out what your risks are, figure out what you can do and what it will cost to reduce your risk,” he says. “Then make your decisions based on that.”

China’s IP environment is like a multi-faceted prism—appearing different from every angle. On the street level, where fake drugs proliferate, it looks like China continues its copycat past. IP laws, on the other hand, suggest that China is working hard to bring its IP system in line with international systems. For biotechnology experts outside of China, the country’s patent laws and enforcement surely generate frustration, but insiders encourage patience. One executive leading a major pharmaceutical company’s Asia R&D effort says, “I think there should be a healthy tolerance of ambiguity and uncertainty [in China]. IP law and policy are constantly changing and improving.”