In testimony at today’s House Subcommittee on Intellectual Property hearing on international intellectual property enforcement, Victoria Espinel, the US Intellectual Property Enforcement Coordinator, made reference to “unexamined utility model patents” as a problem in the Chinese patent system.

Chairman Bob Goodlatte also raised the issue in his opening statement, noting that it is “problematic” when “a country grants many low-quality or “junk” patents to local companies, so that they can sue American companies and get rich quick. Many of these are utility model patents that go through minimal review and lack real inventiveness.”

It is good news that the Administration and the Congress are focusing on this. A recent Washington Post story highlights the problem.  It looks as if China is about to recreate the patent troll problem we are struggling with here in the United States.  The Post story puts the problem this way: “ Small companies that take on bigger firms in questionable patent cases have become known here as “patent cockroaches,” a play off the U.S. term “patent trolls,” used to describe companies that make money primarily by hoarding flimsy patents and suing others.”

A recent report from Thompson Reuters describes how this lesser-known part of China’s patent system works. It is intended to apply to incremental improvements that change the shape or structure of an object.  It is typically used for electronic or communication devices but software implemented inventions have also been issued as utility model patents.

The problem is that it is too easy, cheap and quick to get these patents.  As a result, they are often of low quality.  Despite this they carry with them the same arsenal of remedies as higher quality invention patents do, including substantial fines and even injunctions.

The threshold of inventiveness is lower for utility model patents.  As compared to prior art, an invention patent has “prominent substantive features and represents a notable progress;” while a utility model patent merely has “substantive features and represents progress.” As a result it is more difficult to invalidate a questionable utility model patent. And there is no mandatory examination upon filing an infringement action.

The utility models are issued without substantive examination typically in under 6 months (3 months is the target) Utility models are 20% cheaper than invention patents to obtain.

Because of these attractive features utility model patents are growing quickly.  Most of these are owned by Chinese individuals.

A few problematic cases have already surfaced. Several years ago, the French company Schneider lost a utility model suit in China, costing them a $23 million settlement. A patent infringement case was filed on July 30, 2012 involving a utility model against Apple by Mr. Lee of Taipei in Zhenjiang Immediate People’s Court.  The case involves Facetime.

The situation is ripe for abuse.  Since 2008, well-known non-practicing entities have begun to establish a presence in China. It is only a matter of time before the patent troll problem burst out there and by then it will be too late to prevent the damage these.

We know the extent of the problem here.  A recent study by Boston University faculty members James Besen and Michael Meurer suggest that the economic loss from patent trolls reached $29 billion in 2011. We don’t need to recreate this problem in the world’s second largest economy. The time is now to begin consultations with industry and other governments to investigate remedies to this potential problem.

Mark MacCarthy, Vice President, Public Policy at SIIA, directs SIIA’s public policy initiatives in the areas of intellectual property enforcement, information privacy, cybersecurity, cloud computing and the promotion of educational technology. Follow the SIIA Public Policy team on Twitter at @SIIAPolicy