The fourth amendment to China’s Patent Law established the open patent licensing system, with the new implementing regulations taking effect on January 20, 2024. These regulations provide specific provisions for open patent licensing.
Why Have Open Patent Licensing?
After obtaining patent rights, patent holders can typically realize the economic value of their patents through various means such as self-implementation, licensing others, transferring or pledging the patent, or litigation for compensation. However, achieving patent licensing in practice is not easy due to three main challenges:
1. Information Asymmetry
Demanders often cannot find out which patents are available for licensing, the price of the license, any licensing restrictions, or even how to contact the patent holders.
2. High Negotiation Costs and Complex Processes
Patents, unlike ordinary tangible goods, are unique and do not have a uniform, clear value. This results in complicated technical, legal, and commercial knowledge being involved in patent licensing. Licensees must invest substantial economic resources and time and bear the risk of transaction failure. The high negotiation costs and complex processes deter many from pursuing patent licenses.
3. Low Public Awareness of Patents
Currently, the awareness of patents among the Chinese public is weak, and most patent licenses are achieved through litigation. People often question, “Why should I pay a licensing fee? What service are you providing?” In such a scenario, it’s almost impossible to encourage voluntary payment of patent licensing fees, which contradicts human nature.
To promote the commercialization and application of patents, the open patent licensing system has been introduced. Although it cannot solve the issue of low public awareness, it can at least facilitate the connection of patent licensing information, improve the efficiency of licensing negotiations, and reduce the risks of patent licensing transactions.
What is Open Patent Licensing?
According to statistics, among the 150 countries or regions with established patent systems, more than 20, including the UK, France, Germany, Russia, Spain, Italy, and Singapore, have established open licensing systems. However, the United States, Japan, and South Korea have not.
The core logic of open patent licensing in various countries is generally consistent:
Patent holders first specify the licensing fee and standards and make an offer to unspecified patent demanders through an announcement by the patent administrative department. The demanders can quickly obtain the patent usage rights by notifying the patent holders in writing and agreeing to the specified conditions.
In simple terms:
Patent holders set the licensing fee standards and leave contact information. The China National Intellectual Property Administration (CNIPA) announces this to the public. If someone wants to use the patent, they just need to notify the patent holder in writing. There’s no need for face-to-face meetings, negotiations, or contract signing. The CNIPA provides credibility assurance, reducing transaction risks.
Benefits for Patent Holders
To encourage patent holders to participate in open licensing, China offers a reduction in annual fees for patents that have been registered for open licensing. For many enterprises, patents are a dormant asset but also a heavy burden, with some companies spending billions annually on maintenance fees. If these fees are reduced, significant savings can be achieved.
Although the implementing regulations of the Patent Law state that “patent holders must not make open licensing statements or obtain annual fee reductions through false materials or concealing facts,” there are potential loopholes. For example, a company could transfer intellectual property to another company and then license it back to itself, saving on fees.
Theoretically, such operations should be legal, and there are even more debatable maneuvers, such as two companies agreeing to license patents to each other to save on annual fees. While no specific preventive or regulatory measures have been provided, the “good faith” principle is stipulated in the Patent Law, so it is advisable not to test the law.
How to Conduct Open Patent Licensing
1. Having Patents Eligible for Open Licensing
The subjects of open licensing statements should be authorized and announced invention patents, utility model patents, or design patents. Utility models or designs require a patent evaluation report indicating that they meet the patent granting conditions. Certain patents are ineligible for open licensing, such as those under exclusive or sole licenses, those not having paid annual fees, expired patents, pledged patents without the pledgee’s consent, or those involved in ownership disputes or under judicial measures.
2. Submitting an Open Patent Licensing Statement
The open licensing statement should include the patent number, the name of the patent holder, the payment method and standards for the licensing fee, the licensing period, the contact details of the patent holder, the patent holder’s commitments, and any other necessary information. A brief explanation of the basis and method for calculating the licensing fee, generally not exceeding 2000 characters, should also be provided. The licensing fee should be based on this explanation, with fixed fees generally not exceeding 20 million yuan. Royalty payments based on net sales should not exceed 20%, and those based on profits should not exceed 40%.
3. Examination, Notification, Registration, and Announcement
If the open licensing statement passes the examination, the CNIPA will announce it and issue an approval notice. If it fails, a rejection notice will be issued. Relevant matters of the open licensing statement will be registered in the patent registry and announced in
the patent gazette, including the main classification number, patent number, open licensing statement number, patent holder, invention title, application date, authorization announcement date, payment method and standards for the licensing fee, licensing period, patent holder contact details, and the effective date of the open licensing statement.
4. Effectiveness of the Open Licensing Contract
Any entity or individual can notify the patent holder in writing that they are willing to implement the open licensed patent and pay the licensing fee as announced. The open licensing contract takes effect upon such notification, unless otherwise provided by laws and regulations.
Foreign entities or individuals, including those from Hong Kong, Macau, and Taiwan, wishing to implement open licensing in China must comply with the relevant provisions of the “Regulations on the Administration of Technology Import and Export” and the “Measures for the Administration of Technology Import and Export Contracts.”
5. Filing of the Open Licensing Contract
The patent holder or licensee must file the open licensing contract with the CNIPA upon its effectiveness, providing written evidence of the contract. The filing procedures refer to those outlined in the “Measures for the Registration of Patent License Contracts.”
It’s important to note that the effectiveness of the open licensing contract is not affected by whether it is filed. However, filing is necessary to benefit from the reduction in annual fees during the open licensing period.
6. Handling Annual Fee Reductions during the Open Licensing Period
The open licensing period refers to the duration from the effective date of the open licensing contract to the expiration of the licensing period. If the patent holder requests the filing of the open licensing contract, it is deemed that they simultaneously request a reduction in annual fees. Many patent holders opt for open licensing primarily to benefit from this fee reduction, leading to an expected increase in the number of filings.
If a patent holder disagrees with the CNIPA’s decision on annual fee reduction during the open licensing period, they can present their case, seek advice, or apply for administrative reconsideration.
7. Withdrawing the Open Licensing Statement
Patent holders can withdraw their open licensing statement by submitting a request to the CNIPA. The withdrawal must be unconditional. If the request meets the requirements, the CNIPA will announce the withdrawal; if not, they will issue a notice explaining the reasons for rejection. The withdrawal of the open licensing statement becomes effective upon announcement.
Conclusion
As an imported system, the open patent licensing regime’s integration into China’s existing patent system remains to be seen. However, the system allows patent holders to offer their patents at set prices to anyone interested, potentially boosting the commercialization and application of patents. This should have a positive impact on the practical use and economic value of patents.