Known as the "world's factory", China is not only valued by multinationals for its efficiency and low cost, plentiful labor but also been criticized for its comparatively weak protection of intellectual property rights (IPR).

However, a report recently released by the New Delhi-based global business-research company Evalueserve, shows that the awareness on IPR protection in China has risen during the past two to three decades.

If the current growth rate for filing 20-year patent applications with the United States Patent and Trademark Office (USPTO) continues at its current rate of 8.7 percent, China will overtake the US by 2012 in patent application filings, the report says.

The estimate is based on statistics from the State Intellectual Property Office (SIPO): in 2007, SIPO received a total of 694,153 patent applications, which represents a growth rate of 21.1 percent over the previous year. The growth rate of 20-year patent applications filed with the SIPO between 2000 and 2006 averaged more than 20 percent.

"This also means that the patent protection system in China will be tested more rigorously. Therefore, for the Chinese government developing an efficient patent-protection system is no longer 'good to have' but 'must have'," says Ram Deshpande, senior manager with Evalueserve China in Shanghai.

The immediate impact will be felt by the SIPO which will have to process a much larger amount of applications, Deshpande says. The SIPO will have to train more patent examiners quickly in order to maintain the current clearance rate of applications.

This may also result a higher number of patent lawsuits. Given the growing size of the Chinese markets for all products and services, these lawsuits will involve fairly large amounts of money.

More filings would also require tighter regulations relating to the way applications are drafted, Deshpande says. Faced with a similar situation, the US patent and trademark office had to bring out specific regulations regarding the size of patent applications.

"China did not have a proper legal system for patent protection until the National People's Congress introduced the Patent Law of the People's Republic of China in the early 1980s," Deshpande says.

The total number of patent applications filed in China from the beginning of 1985 to December 2007 exceeded 4 million. Although the first million applications took 15 years to be filed, the second million took 4 years and 2 months, the third million 2 years and 3 months, and the fourth million only took one year and six months.

"The Chinese government has established a world class patent protection system in much less time than other countries," Deshpande says.

He says the administrative and judicial tracks have been functioning efficiently; more than half a million patent applications are being processed by the SIPO every year and the number is growing; the patent database is also available online with the option of advanced searches.

However the government still faces long term challenges, Deshpande says.

He says the first challenge is "getting rid of the perception that China is a haven for IPR thieves and counterfeiters - the Chinese government has already started various initiatives to eradicate IPR infringement. However, the job is not done yet and all the government initiatives need to be supported so that China's success story does not carry the blot of a few thieves and counterfeiters."

The challenges also include controlling the 10-year patents and developing healthy business competition that avoids cut-throat IPR practices.

The improved IPR protection also pushes foreign players to adjust their strategies as Chinese nationals have filed the majority of the patent applications, according to SIPO statistics.

Foreign businesses haven't taken a kind view of the Chinese patent protection system so far, Deshpande adds.

According to him, many European and US companies do not know there is a well functioning patent protection system already in place in China.

"This has been largely due to lack of knowledge," he explains. "This ignorance and the resulting misconceptions arise probably because of the language barrier."

Some foreign businesses have started taking a positive view of the Chinese patent protection system. Gradually, foreign businesses have realized that if they want to tap the Chinese markets they need to have patents in China. Evalueserve' s report also said it is important for the foreign companies to take help from Chinese patent professionals before entering the market.

(China Daily 06/16/2008 page9)