Patent incentives and IP Risks: What companies manufacturing in China should know

A recent judgment by the Rechtbank Den Haag highlights how patent systems, commercial incentives and international manufacturing strategies can intersect in unexpected ways.

The case concerned two patent applications filed in the Netherlands by a Chinese company. The applications were effectively copies of earlier Chinese patent applications that had already been published. Because those earlier filings formed part of the prior art, the Dutch applications were clearly not new.

The Dutch patent office, Octrooicentrum Nederland, refused to process the applications and relied on the doctrine of misuse of rights under Dutch law. The court confirmed that decision. According to the court, the right to file a patent application cannot be exercised in a way that undermines the purpose of the patent system.

How the Dutch patent system works 

The Netherlands operates a registration-based patent system. Unlike the European patent system, national Dutch patents are granted without a full substantive examination of novelty or inventiveness before grant. A novelty search is carried out, but the result does not determine whether the patent is granted. The system is designed to provide relatively fast and affordable patent protection, particularly for smaller companies and early-stage innovations.

This accessibility, however, also makes the system vulnerable to strategic use that was never intended by the legislature. Patents are meant to encourage innovation by granting inventors a temporary exclusive right in exchange for publicly disclosing new technology. When patent filings are used for purposes unrelated to protecting new inventions, the balance underlying the patent system can be disrupted.

Chinese patent subsidies and the surge in filings

Against this background, the court observed that the sudden increase in Dutch patent filings appeared to be linked to subsidy programmes in China that reward companies for obtaining patents abroad. Because Dutch patents are comparatively inexpensive and can be granted quickly, the Netherlands became an attractive route for companies seeking to qualify for these incentives.

As a result, the Dutch patent office began receiving large numbers of applications that were essentially copies of previously published Chinese patent filings. At certain points these “reused” applications represented more than half of all national filings.

The court concluded that these filings were not aimed at protecting genuine technological innovation but were primarily intended to obtain subsidies. In those circumstances, the court held that submitting such applications amounted to misuse of the right to file a patent application, and the patent office was entitled to refuse to process them. 

Why this matters for companies manufacturing in China

For companies that rely on Chinese manufacturers or development partners, this case illustrates a risk that is often underestimated in international supply chains.

Manufacturing rarely consists only of producing a finished design. Once production begins, manufacturers are often involved in refining products and improving manufacturing methods. Adjustments to materials, component design, tooling, or production processes can lead to technical improvements that may themselves qualify as patentable inventions.

If ownership of such developments is not clearly addressed, disputes about intellectual property can arise. The party performing the manufacturing or development work may consider itself entitled to claim these improvements, particularly if they played a role in developing them.

In some cases, manufacturers may even file patent applications covering these improvements themselves. Because such filings can take place in other jurisdictions, they may occur without the knowledge of the company that originally developed the product.

The commercial consequences can be serious. A manufacturer that holds patents relating to the product or its production process may gain leverage in negotiations, restrict production arrangements, or create obstacles if the company wishes to change suppliers or move manufacturing elsewhere.

For companies manufacturing in China, intellectual property protection therefore needs to go beyond securing patents for the original invention. Companies should ensure that ownership of technology and improvements developed during manufacturing or collaborative development is clearly defined in writing. Without such arrangements, companies risk losing control over innovations that are critical to their products and competitive position.

The importance of proactive IP protection

Managing this risk requires a proactive approach to intellectual property and contractual arrangements with manufacturing partners.

Companies should ensure that:

• core technologies are protected through appropriate IP rights where possible
• ownership of intellectual property created during manufacturing or development is clearly agreed in written contracts
• improvements, modifications and process innovations are contractually allocated to the company
• suppliers and development partners are restricted from filing patent applications relating to the company’s technology

Clear agreements on these issues significantly reduce the risk that third parties will obtain rights over technology that is essential to the company’s business.

Aligning patent strategy with commercial reality

The decision of the Dutch court illustrates how patent systems, government incentives and international supply chains can interact in unexpected ways. For companies operating globally, intellectual property protection should therefore be treated as a central part of commercial strategy rather than a purely legal formality.

Companies that actively protect their technology and structure their manufacturing agreements carefully are far better positioned to maintain control over their innovations, avoid disputes and preserve long-term value. For businesses working with Chinese manufacturers, this is not merely a legal issue - it is a strategic one.