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 technology licensed at a price significantly lower than normal royalties. The draft would also have empowered government authorities to grant a compulsory license if the authorities and patent holders were unable to reach agreement on licensing terms. These provisions and others raised significant concerns from several countries, including in the United States, as reported in depth in previous editions of this Report and in USTR's 2012 Report on Technical Barriers to Trade (TBT Report). In late 2012, China issued new draft interim rule for public comment. The United States welcomes the deletion from the new draft rule of provisions on below-normal royalties and compulsory licenses. The United States hopes that SAC will also revise other provisions in the draft about which the United States raised concerns.

IPR Protection for Pharmaceutical Products

The United States is very concerned about barriers in China to IPR protection for pharmaceutical products. In the patent area, China's revised implementation of Article 26.3 of its patent law has led the State Intellectual Property Office (SIPO) to refuse to consider post-filing supplementary test data supporting previously filed patent applications, contrary to the practice of the major patent offices around the world. This has led Chinese authorities not only to reject pending patent applications but also retroactively to revoke previously granted patents. These revisions make obtaining protection of patents of a reasonable scope very difficult in China when compared to other major markets. In addition, the United States continues to encourage China to provide an effective system for expeditiously addressing patent issues in connection with applications to market pharmaceutical products.

In addition, the United States continues to have concerns about the extent to which China provides effective protection against unfair commercial use, as well as unauthorized disclosure, of undisclosed test or other data generated to obtain marketing approval for pharmaceutical products. China's law and its WTO accession commitments require China to ensure that no subsequent applicant may rely on the undisclosed test or other data submitted in support of an application for marketing approval of new pharmaceutical products for a period of at least six years from the date of marketing approval in China. However, there is evidence that generic manufacturers have, in fact, been granted marketing approvals by the State Food and Drug Administration (SFDA) prior to the expiration of this period, and in some cases, even before the originator's product has been approved. The United States was encouraged by China's 2012 JCCT commitment to define "new chemical entity," a term that is central to the marketing approval process, in a manner consistent with international research and development practice. The United States looks forward to China's implementation of this commitment without undue delay.

Utility Model/Design Patents

U.S. rights holders have become increasingly concerned about China's utility model and design patent system. Through a combination of subsidies and other benchmarks to incentivize the filing of utility model and design patents, Chinese applicants have been filing large numbers of utility model and design patent applications (507,538 design patent applications and 581,303 utility model applications in 2011, according to SIPO). SIPO does not provide substantive examination for utility model and design patents. This, combined with the large numbers of utility model/design patents granted by SIPO, has led to a flood of low quality patents that fuels 37