Chinese patent law reform: Sharpening the Dragon's Teeth

02 Jul Chinese patent law reform: Sharpening the Dragon's Teeth

As China has continued to grow as a major contender in the world economy, the Chinese have become more aware of the need to strengthen their system for intellectual property rights (IPR). Chinese patent law was first promulgated in 1984 and soon thereafter China became a signatory member of the Paris Convention. Despite revisions to its patent law in 1992 and 2000, China still struggles to provide an environment that encourages the filing of patents. The lack of patent filings is primarily due to a patent holder’s inability to effectively enforce a patent in China. Those parties attempting to enforce a Chinese patent have found it to be a very difficult and unreliable process. This, in turn, has helped to establish China as a haven for infringers.
As more multinational companies become established in China, the government has been faced with increased pressure to put forth patent reform that can effectively curb patent infringement. In an effort to improve the patent system, as well as to provide greater consistency with other countries, China’s legislature passed its third revision of the patent law, which is scheduled to go into effect on October 1, 2009. Numerous amendments are included in the new laws that will modify the current law to more closely resemble the laws found in Europe, Japan, and the United States. Many of the amendments are specifically tailored to move Chinese patent law in a direction that promotes the filing of patent applications in China by making the enforcement of issued patents more viable, consistent and profitable. Among these amendments are: increased power to the People’s Courts and patent administrative authorities, codification of preliminary injunctions and evidence preservation orders, and increased damages.
Under current Chinese patent law, patent disputes may be adjudicated by petitioning either a People’s Court or a patent administration authority. Often, an accused infringer will wish to plead invalidity of a patent as a defense. Under the current law, an invalidity ruling can only be provided by the Patent Reexamination Board of the State Intellectual Property Office (SIPO), which is located in Beijing. This forces a defendant to seek invalidity in a forum outside of court, thus creating a split jurisdiction. This split jurisdiction disrupts the continuity and consistency of an infringement suit. Further, although the People’s Court has the discretion to provide a stay of infringement proceedings prior to a ruling from SIPO, it is rarely provided when an invention patent is in dispute, and therefore infringement may be adjudicated long before invalidity (Intellectual Asset Management January/February 2009).
The People’s Court
To expand the capabilities of the People’s Court to fully adjudicate an infringement dispute, new Article 62 provides an accused infringer the specific right to present prior art to show anticipation or obviousness of the patent in question. This allows adjudication on the question of invalidity before infringement is decided by the court, thereby avoiding inconsistent rulings. This new law can be beneficial for both a plaintiff and a defendant. The burden on a defendant is reduced by obviating the need to initiate a separate proceeding in a specific jurisdiction to mount a defense. With respect to the plaintiff, if the patent survives scrutiny, the validity of the patent could be strengthened without undergoing a reexamination process. In addition, discussion of any prior art references related to the patent in question may serve to further educate the court in regards to the particular technology being litigated.
Further, by removing the split jurisdiction, this new law provides greater consistency within a single infringement suit. In addition, consistency in all patent cases should improve as courts become more familiar with the interpretation of claims and the invalidity process. Also, as numerous People’s Courts are situated throughout China, a large selection of venues is provided to allow an infringement suit to be fully adjudicated without involving SIPO in Beijing. Although a large selection of courts is available, it may be wise to consider filing in a court located in one of the more developed cities, such as Shanghai or Beijing.
To provide more structure in the infringement suit process, the new law further includes Article 66, which delineates specific rules for preliminary injunctions. To minimize frivolous or fraudulent requests, the petitioner will now be held responsible for any loss suffered by the respondent due to a motion for a preliminary injunction that was filed in error. To effectively enforce this provision, the new law requires the petitioner to post a bond (i.e., a guarantee). In addition, to avoid unnecessary delays, the People’s Court is required to make a ruling on the injunction within 48 hours. Further, if the petitioner does not file a lawsuit within 15 days of the date on which the court issued an order to stop the relevant act, the court shall lift the injunction. These provisions are expected to substantially prevent undue harm to the respondent.
Another provision that has been codified in Article 67 of the new law is “evidence preservation.” Where evidence may be destroyed, lost or otherwise be difficult to obtain by a petitioner later, the petitioner may seek an ex parte court order to seize such evidence before an infringement suit is filed. This order serves to limit the possibility for unscrupulous actions by an alleged infringer. Although an evidence preservation provision is currently provided in Chinese civil procedure law, the new law provides specific delineation with regard to its application in patent infringement suits. Therefore, the courts in patent infringement suits are provided with a clear guide for issuing such evidence preservation orders.
In addition to improving the adjudication process of the infringement suits, the new laws seek to discourage infringement by increasing the allowable damages. Currently, when a judgment of infringement has been issued, the court seeks to compensate the plaintiff with the amount of damages suffered or the profits earned by the infringer. When the amounts cannot be quantified, compensation is based on royalties that could have been earned under contractual license. In the event that none of these amounts can be fairly ascertained, the court has the discretion to award compensation in the range of RMB 5,000 ($735) to RMB 500,000 (about $73,500). Under Article 65 of the new law, these amounts have been doubled to a range of RMB 10,000 to RMB 1,000,000. In addition, to further compensate the patentee, Article 65 provides the court explicit discretion to award reasonable expenses incurred by the patentee to stop the infringement.
Patent Administration Authorities
Along with the new power afforded to the People’s Court, the patent administration authorities have also been given increased power. Under Article 64 of the new law, a patent administration authority is provided with substantial authority to discover evidence of infringement. This authority includes numerous discovery acts such as: querying a relevant party regarding circumstances related to any suspected illegal acts; inspecting a site where suspected illegal acts may have taken place; consulting and reproducing contracts, invoices, account books, and other materials relevant to the suspected illegal acts; examining the products relevant to suspected illegal acts; and sealing up or impounding the products which prove the patented product to be counterfeit. This authority provides the patent administration authorities the necessary power to discover and secure substantial evidence for prosecution.
Although the damages available to a plaintiff should provide a substantially improved deterrent to infringement, the new law, under Article 63, has gone even further and provided for increased government fines, particularly when “passing off” (i.e., counterfeiting) occurs. The passing off of a patent of another person as one’s own will be subject to a fine of not more than four times his/her illegal earnings, and if there are no illegal earnings, a fine of not more than RMB 200,000 ($29,500). This amount was previously set at three times the illegal earnings and RMB 50,000.
Conclusion
With this latest revision to China’s patent law, a viable attempt has been made to provide the framework for curtailing infringement and improving a patentee’s ability to enforce its patents. Although these changes appear to provide a significant upgrade to Chinese patent law, it will remain to be seen how the laws will ultimately be applied by the courts and patent administration authorities.
For more information, please contact James Joyce at (608) 234-6117 or jjoyce@whdlaw.com, or another member of the Intellectual Property Practice Group.