China's CNIPA Proposes Point-Based Penalties to Combat Abnormal Patent Filings

The China National Intellectual Property Administration (CNIPA) unveiled a draft regulatory framework on October 8, 2022, targeting Chinese patent agencies that facilitate abnormal or fraudulent patent applications. The draft expands on a pilot program initiated in January 2022 across four provinces and introduces a points-based grading system to evaluate patent agencies’ compliance and integrity.

Under the proposed system, patent agencies would begin with 100 points, with deductions applied for involvement in “abnormal patent applications” both within China and abroad. The grading scale ranges from A to D, with the lowest grade reflecting significant violations. Agencies may regain points or exceed the initial 100 through government awards or recognized social contributions.

A key feature of the draft is its emphasis on international impact. Incidents causing a “significant international adverse impact” would trigger maximum point deductions. Moreover, abnormal filings overseas would incur harsher penalties than domestic cases, reflecting CNIPA’s intent to mitigate reputational risks on the global stage.

The draft’s scope is limited to patent agencies and patent attorneys, excluding trademark agencies. It also outlines similar point deductions for patent attorneys, reinforcing accountability across the patent filing ecosystem. Public comments on the draft are open until October 24, 2022.

China’s rapid growth in patent filings has drawn global attention. According to a 2020 World Intellectual Property Organization report, China has led worldwide patent filings since 2011, accounting for 43.4% of global filings in 2018 and 2019. This surge is partly driven by government subsidies encouraging domestic and foreign patent applications.

However, the increase in filings has raised concerns about patent quality and market value. A 2021 United States Patent and Trademark Office (USPTO) report highlighted that Chinese applicants may receive up to $3 million annually in foreign patent subsidies, motivating strategic behaviors such as splitting applications to meet innovation metrics. The USPTO also noted that the commercial value of Chinese-issued patents tends to be lower than those granted in the United States.

Fraud and irregularities have been persistent issues. Chinese trademark applications have frequently been implicated in high-profile fraud cases, with the USPTO imposing numerous sanctions on Chinese entities in 2022 for trademark violations. In response, China has intensified anti-corruption efforts within its IP system. For instance, in late 2020, an individual received a six-year and eight-month prison sentence for defrauding the government of over $100,000 through 231 fraudulent patent applications.

CNIPA’s draft aligns with China’s 2021 “Guidelines for Building a Powerful Intellectual Property Nation,” which advocate for a credit-based regulatory mechanism to enhance compliance and reduce fraud. The draft explicitly encourages patent agencies and attorneys to “practice in accordance with the law and in good faith,” echoing amendments made to China’s Patent Law in 2020.

These regulatory developments occur amid escalating tensions between China and the United States over technology, trade, and intellectual property rights. Despite efforts to address IP concerns, China’s patent filings continue to grow. CNIPA’s annual report indicates a 5.9% increase in invention applications, a 2.8% decrease in utility model patents, and a 4.6% rise in design applications.

The proposed measures reflect China’s commitment to strengthening its patent system’s credibility and international standing. By penalizing agencies involved in abnormal filings and promoting good-faith practices, CNIPA aims to foster a healthier intellectual property environment domestically and abroad.