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Tuesday, January 9, 2007

Be a local or foreigner to apply patent in China?

In China, there are many ways to classify patents, one of the way is the nationality of patent applicant (owner). The first difference is the application fee. A local Chinese citizen or company enjoy a much lower application fee, while a foreign resident or company have to pay a higher fee for the patent application, both governmental fee and handling fee charged by patent attorney. There are two sides of a coin. For example, a customer had companies registered in Hong Kong and China, we recommend the customer to use the Hong Kong entity (regarded as a non-domestic under Patent system) as the applicant. Why pay more for a foreign status?

In the Chinese socity, government is like the grand parents, and the local government officials are the parents, so we have the old saying of "father-and-mother-officials", these officials are the fathers and mothers of the countrymen. The central government actually represent the heaven. So much so for the history, nowadays goverment officials still want to protect their people like parents taking care of children, in particular against some bad-faith foreign business man.

Now, a Chinese inventor, after all the hard work and went though the patent application process, eventually got something valuable, decided to sell the patent rights to an investor in Europe, say for USD200,000. The parent(s) may step in and say, look, the international market value of such piece of work should be USD500,000. The inventor may say "my price is the best I can bargain for." Well, in the transfer of patent right process, the government have the right to look at such transfer and make requistion, and in the end, the tax man will charge tax based on the USD500,000 value estamted.

However, a Hong Kong inventor may sell the patent to a US company and such transfer of right only calls for a simple registration. No question asked.

So pay more for the foreign status and less trouble when such transfer is required in the future.

There are tax implication even before such transfer, so talk to your accountant as well as the patent attorney.


Anonymous said...

Could the article writer or any patent attorney in the Mainland China please elaborate ASAP on the significant advantages given to a foreign corporate patent owner (in comparison to a local Chinese corporate patent owner)? Thank you.

Anonymous said...

Anonymous: Thank you for your comment. We would appreciate if you can tell us what specific issues you have on hand and may be we can provide some general comment on the issue.

Anonymous said...

The article is more than 3 years old and hence, I wish to check if it still reflects the current position.
I'm going to apply for a patent in the Mainland China and once granted, I intend to assign and/or license the patent rights outside the Mainland China. The issue is whether or not it is more advantageous to set up a foreign company to apply for and own the patent, instead of setting up a local Chinese company to apply and own the patent. This view is taken on the assumption that the PRC tax and corporate regulatory laws do NOT apply extra-territorially to Chinese patent assignment/ licensing between foreign legal entities outside the Mainland China.
I would appreciate a confirmation of the above understanding.Thank you.

Anonymous said...

Anonymous: The short answer is, the point described in the 3-years old blog is basically true as of now.

The long answer: If you concern is tax related, on future assignment, license or transfer of the right of the patent, then it is much better to have a company incorporated outside China. But you need to consider this, you establish a company today, apply for patent, and then for the first few years, you may be maintaining a company without too much business, but still you have to pay government fees, etc. So it is better for you fully understand the annual running cost for maintaining the company before you can actually sell the right of the patent.

In addition, if you apply patent in multiple countries, and if you want to save cost by having the same company to be the applicant of different patent applications, then definitely you should select a company outside China to be the applicant.

Just to remind you, when I said company incorporate outside China, it can be incorporated in Hong Kong.

Anonymous said...

Thank you for your comments which are very helpful.