Editor's note: China was only a manufacturing base for low-tech consumer products 20 years ago. But since the end of the 1990s, a growing number of multinational companies have established their research and development (R&D) centers in China. It's a core strategy of their localization in China as they try to better accommodate the demand of the market by using local technology talents.

But a problem for these companies is how to transfer their technological breakthroughs achieved in China abroad. They are challenged by how to implement their patent strategies to better protect their R&D achievements in China.

Tian Junfeng, an attorney with Unitalen Attorneys at Law, analyzed China's Patent Law and Foreign Trade Law and gives some suggestions in this article. China Business Weekly will run the article in several issues. Below is the first part of it. The views expressed here are the author's.

In recent years, with the sustained rapid growth of the Chinese economy and the reform and opening-up of the country, the Chinese market has witnessed a rapid expansion, and its outstanding status in the global marketplace has become ever prominent.

Numerous multinational companies, such as Microsoft, IBM, Lucent, Hewlett-Packard, Samsung, Philips, Motorola, Nokia, have established their R&D centers in China, respectively. Up to now, the number of foreign companies that have set up R & D centers in China has exceeded 1,000.

Most of these companies are ranked in the world top 500. They established their R&D centers in China in order to meet demands for localization of products, technologies and services, and to promote their enterprise image. They also want to sharpen their competitive edge in the local market by exploiting the rich human resources of technical professionals and taking advantage of the low capital costs. This has become an important part of their localization strategy.

Although these R&D centers are playing an ever-important role in technological innovation and making great achievements, they have encountered all sorts of problems in implementing their patent strategies so as to better protect their R&D achievements. One of the outstanding problems is how to transfer their technological breakthroughs abroad.

Regarding this issue, there are relevant provisions in China's Patent Law, the Foreign Trade Law and others.

Article 20 of the Chinese Patent Law stipulates that where a Chinese entity or individual intends to file an application in a foreign country for a patent for its or his invention-creation made in China, it or he shall file first an application for patent with the patent administrative organ under the State Council and, shall appoint a patent agency designated by the said organ to act as its or his agent, and shall abide by the prescriptions of Article 4 in this law. A Chinese entity or individual may, according to the international treaties concerned to which China is a party, file an international application for patent for its or his invention-creation. The applicant for the international application should abide by the provisions of the preceding paragraph.

According to the above-mentioned provision, a patent application for the R&D achievements made in China should be filed first in China, or filed first as a PCT (patent cooperation treaty) application, in which at least China should be designated, before the Chinese Patent Office as the receiving offices, prior to the filing of a patent application in a foreign country in the name of the Chinese entity or individual who has made the invention.

A foreign R&D center in China is an enterprise established in the Chinese territory according to the relevant Chinese laws, and therefore is a Chinese entity as stated in the patent law and should be regulated by the above-mentioned provision.

Article 10 of the Chinese Patent Law stipulates that the patent application right and the patent right can be assigned. An assignment, by a Chinese entity or individual, of the patent application right, or of the patent right, to a foreigner must be approved by the competent authorities designated by the State Council.

The above-mentioned provision covers only the patent application right and the patent right, which are bestowed upon only after the filing of a patent application.

Article 8 of the Chinese Patent Law stipulates that for an invention-creation jointly made by two or more entities or individuals, or made by an entity or individual in execution of a commission for another entity or individual, the right to apply for a patent belongs, unless otherwise agreed upon, to the entity or individual which made, or to the entities or individual which jointly made, the invention-creation. After the application is granted, the entity or individual that applied for it shall be the patentee.

The right to apply for a patent mentioned in Article 8 means the right to apply for a patent for the R & D achievements. According to the above-mentioned provision, if a R&D contract is signed between the entity or individual which is assigned to carry out the R&D research projects and its entrusting party, and the contract indicate that the right to apply for a patent belongs to the entrusting party, then the right to apply for a patent shall belong to the entrusting party.

Therefore, prior to the R&D activities, i.e. before the technological achievements take shape, if a R&D contract is signed between the foreign R&D center in China and its parent company, indicating that the parent company is entitled to the right to apply for a patent for the invention made by the R&D center in China, then the R&D achievements can be transferred to its parent company, because such a contract is not related to the patent application right and the patent right, thus staying clear of the binding force of the present Chinese Patent Law. In practice, it is just in this way that many foreign companies have already transferred the R&D achievements made by the R&D centers in China to their parent companies.

(China Daily 01/12/2009 page9)