I FORMS OF INTELLECTUAL PROPERTY PROTECTION

Almost all kinds of intellectual property rights are available in China except some minor aspects that may not be fully recognised and protected, such as data exclusivity.

China joined the World Intellectual Property Organization (WIPO) in 1980 and the Paris Convention in 1985, and is now a member of TRIPS and all other major IP conventions and treaties.

The current Trademark Law entered into effect on 1 May 2014 (i.e., the third amendment of the 1982 Trademark Law, which replaced the early 1950 trademark regulations and was modified twice in 1993 and 2001). Approximately 200,000 trademark applications were filed in 2000, and about 7.371 million trademark applications were filed in 2018, and by the end of 2018, the total remaining valid registrations were 18.05 million. China is a member of both the Madrid Protocol and the Madrid Agreement, and the China-originated international applications totalled 6,594 as filed in 2018, an increase of 37.1 per cent from 2017, being ranked the third of the Madrid Protocol. About 30,000 trademark cases were handled by AIC (i.e., the Administration of Industries and Commerce), in 2017, of which about 27,000 were trademark counterfeiting cases, a reduction of 4.3 per cent from 2016.

The Patent Law was adopted in 1985 and was modified in 1992, 2000 and 2009. The fourth amendment is open for public comment and will come into effect in 2019. The Law includes three categories of patents: a patent for invention, a patent for utility model and a patent for industrial design. Total 4.323 million patent applications were filed in 2018, of which 1.542 million were inventions, 2.072 million were utility models and 0.709 million designs. By the end of 2018, total valid invention patents were 2.366 million, total valid utility models 4.404 million and total valid designs 1.611 million, and still the retention rate of foreign-owned Chinese patents is higher. China is a member of the Patent Cooperation Treaty (PCT) and had 55,000 PCT applications filed in 2018, of which about 52,000 were domestic and about 3,000 foreign. About half of the PCT applications (about 25,300) were from Guangdong Province, while Beijing had about 6,500, Jiangsu had about 5,500, respectively, filed in 2018.

The Copyright Law was adopted in 1990 and modified in 2000. Copyright registration is optional under the Berne Convention but good evidence is needed to prove authorship and ownership, which is now especially useful in challenging some trademark disputes. The Protection of Integrated Circuit Layout-Design Regulations were adopted in 2001, and since then, a total 23,194 applications were filed and 20,528 certificates issued, of which 4,431 applications were filed and 3,815 certificates were issued in 2018. The first infringement case regarding Intergrated Circuit Layout-Design was decided in 2018. The Protection of Geographic Indications was adopted in 2005. Until 2018, a total of 2,380 geographic indications are approved, and a total of 4,867 geographic indication trademarks are registered. In 2018, 67 geographic indications products were approved and 961 geographic indication trademarks were registered.

The Law Against Unfair Competition was adopted in 1993 and includes a provision for trade secrets, and a provision for restriction of using registered or well-known marks (e.g., in corporate names). The Law Against Unfair Competition was amended and promulgated on 4 November 2017, and came into force on 1 January 2018. The Regulation of Customs Protection of Intellectual Property was adopted in 2003, after China joined the World Trade Organization in 2002 and was modified in 2010; it offers protection of IP rights at the border.

The Anti-monopoly Law was adopted in 2007, providing regulatory means for a better environment of commerce and trade, under which a few cases were concluded preventing some transactions from going through, and there were various antitrust cases, some involving foreign parties, in areas of beverages, auto parts, telecommunications, in which the imposed administrative fines may be as high as US$800 million. The Technology Import and Export Regulations (2001) specify requirements for prohibited, restricted and normal technology in cross-border technology transactions, which require the local recordation of normal technology transfers (which should mean both of assignment and licence), even if they are not prohibited or restricted (as seen in a list being updated from time to time). At the least, Chinese licensees may need approvals of the recordation of technology transfers as one of the documents for sending out the royalty payments in foreign currency from Chinese banks.

The Law Against Unfair Competition (effective 1 January 2018), as amended, defines more clearly what constitutes the respective unfair means or activities. Article 6 defines 'acts causing confusion' as using the influential marks, names, or domains of others, without permission, so as to mislead people to think of the others' goods, or think that the user of the influential mark, name or domain had a particular relationship with the owner of the mark, name or domain. Article 7 sets out anti-bribery provisions. Articles 8 and 11 specify acts of misrepresentation and misleading or fraudulent statements or libel damaging the reputations of competitors. Article 9 defines 'trade secret violation' in more detail. Article 10 provides that sales promotions with prizes should be clear without any deception and limited to 50,000 yuan. Article 12 sets out detailed guidance for online sales and operations restricting any unfair competition.

Hong Kong standard patents may be based on the corresponding Chinese patents, as well as UK patents and European patents designating the UK, through two-step processing. Hong Kong short-term patents and design patents are also available and can be filed directly there. Macau patents may be based on the corresponding Chinese patents, which need to be requested for registration after grant of the Chinese patent.

Further, the Supreme Court has occasionally issued judicial interpretations of various laws, for example, provisions regarding Several Issues of Application of Laws in Handling Patent Dispute Cases (2001), which was amended in 2013 and 2015; Measures for Civil Disputes of Registered Trademarks, Trade Names with Prior Lawful Rights (2008): Interpretations of Several Issues of Application of Laws in Handling Infringement of Patent Right Cases (2009, effective 2010) and its updated version Interpretations II (effective 2016), which handle complicated legal issues regarding patent infringement; and Measures for Administrative Appeal Cases of Determination of Registrability of Trademarks (2016). These provisions, measures or interpretations provide more guidance for resolving disputes that are not clearly provided for in the laws.

Intellectual property is recognised as an asset or commodity. Regulations of Patent Pledge Registration were adopted in 2010, replacing the previous Measures for Registration of Patent Pledge Contracts of 1996. Likewise, trademarks may also be pledged as collateral for security interests as specified in the Regulations of Registration Procedures of Registered Trademarks of 2009.

IP transactions are still developing, especially for patent or non-patent technologies and trademarks, which may be because of inadequate 'platforms' or 'evaluation systems'. For instance, some reports say generally that the number of trademark transactions or assignments may be assessed at about 342,506 in 2017 with a steady increase of 13 per cent annually in the past decade; and there were about 2,000 or more entities involved in patent pleading in 2017 as reflective of the security interests of IP assets. Copyright transactions or licensing should be better, especially in photograph, literature, arts, video, and software because there are some formal copyright transaction agencies or centres. Still, copyright piracy is severe. In any event, copyright registrations and software registrations were about 2.14 million in 2016, about 2.8 million in 2017 and about 3.46 million in 2018. In 2018, the total export-import volume of the IP licensing fee is over US$35 billion. However, bear in mind that many of the 'transactions' regarding Chinese IP assets may need to be officially recorded to be effective for some benefits, although any private agreements should be effective between the contracting parties.

ii RECENT DEVELOPMENTS

There were significant structural changes in the government in 2018. The Patent Re-examination Board, which was independent from the Chinese Patent Office before 2018, was incorporated into the Chinese Patent Office under the State Intellectual Property Office (SIPO) to be its internal department at the end of 2018. However, the functions of the Patent Re-examination Department did not change, and it still performs patent re-examination and invalidation review. Furthermore, the Chinese Trademark Office under the State Administration of Industry and Commerce, the Trademark Adjudication and Review Board and the Trademark Examination Assistance Centres were integrated to form the Chinese Trademark Office under SIPO. Since SIPO is now managing more IP rights (patents, trademarks, geographical indications, layout designs of integrated circuits) than before in a centralised manner, it was renamed as the China National Intellectual Property Administration (CNIPA) in 2018. CNIPA is established to centralise the management of patent, trademark and other IP rights. CNIPA is supervised by the newly integrated State Administration for Market Regulation (SAMR). The administrative enforcement of patent and trademark law is within the remit of the market supervision and comprehensive law enforcement team. CNIPA issued the 'Internet Plus IP Protection Work Plan' in July 2018, planning to make the most of IT technology to fight against IP infringement on the internet by creating technological counterfeit trace detection network.

No new changes were made on trademark law or interpretations. However, the trademark sector is not silent. Some first instance judgments in high-profile trademark infringement cases were given in 2018. Two popular cake factories respectively from Beijing and Suzhou had disputes on the trademark 'DaoXiangCun'. Each factory won the trademark infringement case in its hometown to obtain an injunction against the other side. This dispute was on appeal. The famous herbal tea factories JiaDuoBao and WangLaoJi have been in disute throughout 2018, with the result of WangLaoJi being awarded damages of 1.4 billion yuan from JiaDuoBao.

The Supreme Court judicial interpretations regarding intellectual property cases have continuously and effectively guided the courts in handling IP cases, especially the Second Interpretations of Several Issues of Application of Laws in Handling Infringement of Patent Right Dispute Cases 2016, which made the guidance clearer on claim construction (Articles 4–13 thereof); the concept of contributory and inducement infringement (Article 21); and the calculation of damages and evidence associated therewith (Articles 18, 19, 27, 28). The 50 million yuan damages award for patent infringement of Chinese Patent No. ZL200510105502.1 was on appeal, which considers damage calculation and attorney fees. However, this case was dismissed by the second instance court since the patent was invalidated by the Patent Reexamination Board. The other judgment, for patent infringement of Chinese Patent No. ZL02139508.X, was on appeal and affirmed by the second instance court, the Beijing High Court, in 2018, which reflected damage calculation based on reasonable royalties and the indirect infringement. In fact, this case and other cases relate to standard essential patents, and this issue became a hot topic, along with other topics, such as trade secrets. In 2018, some cases were awarded with high damages of over 10 million yuan, such as the infringement of Chinese Patents No. ZL201520103318.2 and ZL201520847953.1.

Standard essential patent infringement cases and 'fair, reasonable and non-discriminatory' rules attacted attention from the public because of some high-profile patent infringement cases between international telecommunication giants in China. Guangdong High Court and Beijing High Court respectively issued guidelines on how to evaluate SEP-related disputes, including injunctions, royalty rates, negotiation rules and so on.

The fourth amendment on the Patent Law is open for public comments at the end of 2018. Its main purpose is to strengthen patent protection. The highlights include:

  1. the increase of statutory damages from 1 million yuan to 5 million yuan and quintuple damages in cases of willful infringement;
  2. the additional joint liabilities of internet service provider; the newly established open licensing system to facilitate patent monetarisation;
  3. the extended protection period for design patents from 10 to 15 years;
  4. the high-level rule on the abuse of patent right and bad faith in the application of the patent;
  5. the burden of proof regarding damages shifted from patentee to the accused infringer in the case of solid preliminary evidence from the patentee; and
  6. improved patent administrative enforcement proceedings.

The fourth amendment is expected to come into effect in 2019.

The Supreme Court issued Interpretations of Several Issues of Application of Laws in Handling Requests for Preliminary Injunctions in IP Dispute Cases in 2018 to take effect on 1 January 2019. 'Preliminary Injunction' indicates the injunctive relief before the judgment, court ruling or arbitration ruling become effective, such as before the case is formally tried or during the process that the court is reviewing the case. This Interpretation summarised the precedent two Interpretations in 2001 and 2002 and some detailed regulations in the amended Civil Law 2013 to provide clear and strict guidance for the courts on whether to issue preliminary injunctions. Articles 2 to 6 specify the procedural rules such as the parties qualified to apply for the injunction, the competent court, the formalities required and the detailed procedures of the courts. Articles 7 to 10 set out detailed considerations for the court to evaluate. Article 11 specifies the bond necessarily provided as security depending on potential financial lost suffered by the other side. Articles 16 and 17 specify the compensation when the injunction is wrongfully made to balance the interests between the two parties. The purpose of this Interpretation is to strictly control preliminary injunctions since this generally has great influence on the other side, and this is consistent with international treaties. In the patent infringement cases of Chinese Patents No. ZL201520103318.2 and ZL201520847953.1, preliminary injunctions were issued based on the bond of 2 million yuan.

Ever since the establishment of three special intellectual property courts in Beijing, Shanghai and Guangzhou on 6 November 2014, about 105 more special intellectual property tribunals had been established in the intermediate courts in major cities or regions, such as Nanjing City and Suzhou City, owing to the increase of intellectual property cases. From 2017 to 2018, 18 IP specialised tribunals out of these 105 tribunals were selected to broaden their territorial jurisdiction to cover IP cases in the province in which the city belongs or to its neighbouring cities. These 18 IP specialised tribunals include Nanjing, Suzhou, Wuhan, Chengdu, Hangzhou, Ningbo, Hefei, Fuzhou, Jinan, Qingdao, Shenzhen, Tianjin, Zhengzhou, Changsha, Xi'an, Nanchang, Changchun and Lanzhou.

At the end of 2018, an IP Tribunal in the Supreme Court was established to have the jurisdiction over first instance judgments or rulings in IP infringement and administrative lawsuits involving relatively strong technical backgrounds, including disputes on patents, new varieties of plants, layout design of integrated circuits, technical secrets, computer software and anti-trust. The main purpose of this new mechanism is to unify the criteria of IP trials, strengthen judicial protection of IP rights, and enhance the quality and efficiency of IP trials. This IP tribunal started to operate from 1 January 2019.

Administrative enforcement of patent rights was also active in 2018, about 77,000 cases, including 35,000 patent disputes and infringements, an increase of 22.8 per cent from the previous year; and 43,000 patent passing-off cases, an increase of 15.9 per cent. This may reflect the tendency for the local office of the SIPO to function as a quasi court system. In the pending fourth amendment version of the Patent Law, significant patent infringement cases with nation-wide influence may even be handled by CNIPA..

The Anti-monopoly Law has been implemented for 10 years, during which the courts have accumulated extensive experience on reviewing administrative enforcement cases and monopoly civil cases. Guidance on vertical agreements and collaborative monopoly acts are becoming clearer. In 2018, 25 monopoly agreement cases, 36 abuse of market dominance cases and five anti-monopoly administrative cases were concluded.

The Electronic Commerce Law was approved in 2018 and came into effect on 1 January 2019. This laws handles issues regarding the obligations of internet platforms, anti-unfair competition, the environmental obligations of e-commerce business entities, etc. The 'red flag test' and the 'safe harbour principle' are specified in this law. The e-commerce platform operator is required to take necessary measures to protect IP rights by deleting, blocking, disconnecting, and terminating the online transaction and service in the case of infringement or after receiving the infringement notice. Otherwise, operators shall be jointly and severally liable with infringers.

III OBTAINING PROTECTION

This section focuses on major issues related to obtaining patent protection in China, namely patent preparation and prosecution, and also briefly touches on trademark applications and prosecution.

i Patentable subject matter limitations

Article 25 of the Patent Law specifies non-patentable subject matters in China, which include scientific discovery; rules and methods of mental activities; methods of diagnosis or treatment of diseases; animal and plant varieties; and substances obtained by means of nuclear transformation.

Accordingly, computer software or business method-related inventions are limited to the extent that they may not be viewed as 'mental activities' as so claimed. Generally, it requires the '3T test' for determination, to see if a claimed subject can be defined as a technical solution, resolving a technical problem and achieving some technical effects. Pure computer software or a recorded medium per se is still not patentable subject matter, but a claim may pass if a claimed method (based on flow charts) meets the 3T test, or a claimed system (based on functional modules, not necessarily hardware) meets the 3T test. This is similar to European practice, but much stricter. With the modified Examination Guidelines (effective as of 1 April 2017), a claim may contain computer software or program, or business method, features, and will not be rejected right away as non-patentable subject matter (it would have been rejected in the past), and the claimed subject matter will be examined as a whole to see if any of the inventive features as identified over the prior art are technical features or directed to resolve a technical problem, or both, with technical effects under the current practice. A medium only with a recorded or embedded computer program per se will still be non-patentable subject matter, but any other technical feature may render it a patentable subject matter (e.g., a computer-readable medium plus computer program flowchart).

A method of diagnosis or treatment of diseases claim is not acceptable, but a Swiss-style claim may be.

Animal or plant varieties are not patentable subject matter, but a separate Regulation for Protection of New Plant Varieties (1997) offers protection for plant varieties, which are registered at an office under the Ministry of Agriculture.

Generally, biological material (meaning any material containing genetic information and being capable of reproducing itself or reproduced in a biologic system) is a patentable subject matter. A microorganism may be patentable only if it is isolated into pure culture and has an industrial use, while a natural microorganism without any artificially induced treatment is not patentable.

A gene or DNA fragment and a process for obtaining the same may be patentable subject matter if it is isolated or extracted for the first time from nature, and its base sequence is unknown in the prior art and can be definitely characterised. Further, a gene (or DNA fragment), vector, recombinant vector, transformant, polypeptide or protein, fused cell, monoclonal antibody, inter alia, may be patentable if it involves technology for manipulating genes artificially through, for example, the recombination of genes or cell fusion.

In any event, both an embryonic stem cell from human beings and the preparation thereof are not patentable subjects. The following are also not patentable: the human body at various stages of formation and development, including germ cell, oosperm, embryo and the entire human body.

Deposition of genetic material must be made before filing the first patent application anywhere in the world and the resulting certificate should be submitted in the Chinese patent application.

ii Sufficient disclosure and support (enabling requirement)

Sufficient disclosure or support objections often appear in Chinese patent prosecution. Such objections are not easy to overcome because no substantial amendment can be made, nor can any embodiment or example or experimental data be added once the application has been filed, even if it was first filed in a foreign county. Therefore, it has drawn the attention of patent practitioners around the world to find some strategy to overcome this when preparing the first or home-country filing.

One aspect is formal support as some examiners may require the same language of claims to be used in the description or specification, which may be known as literal support. Another aspect is sufficient disclosed embodiments or examples, not just one, in order to support any broader term used in the claims, which may be known as substantive support. This means a person skilled in the art may foresee any extension of the embodiments as so disclosed, which may not be the same as the enabling requirement in the United States though it is similar. It is the foreseeability that matters, namely any broader term or terms or descriptions in the claims may be directly or unambiguously derived from the disclosed embodiments or contents. The other aspect is the experimental data for chemical and pharmaceutical-related inventions, that is, qualitative and quantitative data are both required, in addition to any statement of properties of compounds or composition. If any experimental data is left out, it may result in a final rejection. The claimed invention may be limited to whatever has been disclosed, narrowing down to the disclosed embodiments only, if experimental data or examples are not sufficiently presented to prove any technical effects so stated. Affidavit (or inventors' or experts' declaration) may now be accepted for consideration of any foreseeable effects. Under the Examination Guidelines 2017, it is required that the examiner shall examine the supplemental experiment data submitted after the filing date (i.e., post-filing data), but the technical effect or effects the supplemental experiment data tend to prove shall be obtainable or derivable by the persons skilled in the art from the disclosed contents of the patent application. Again, it should still be foreseeable.

In practice, there may be more complicated situations. Some predictive statement may be used in the specification as a normal way of stretching the scope of the patent clams. However, such stated features may not be claimed if there are no corresponding examples to be at least indicative of being foreseeable for persons skilled in the art. Nonetheless, such statement would still be disclosure, even if not being claimed, and could be 'prior art' for any subsequent development or inventions that completed such predicted features.

iii Absolute novelty and limited grace period (lost novelty exception)

China adopted the 'absolute novelty' standard on 1 October 2009 (the effective date of the third amended Patent Law), and the Law has a definition of 'prior art', taken from the previous Implementing Regulations, as such the 'double or dual filing' of a Chinese invention and utility model patent applications by the same applicant must be filed on the same day, otherwise, one would be 'prior art'. It means that any public disclosure, as well as publication anywhere in the world, will constitute 'novelty bar' for late-filed applications. In consideration of the absolute novelty standard, applicants should be careful about making any initial disclosure or release of information in trade shows or websites or even sending blueprints for casting modes or for samples or further development. We recommend that firms keep any possible records, which may be relied upon later, and do not release information regarding the invention without restrictions.

There is no unrestricted grace period for claiming the lost novelty exception as there is in some countries, such as the 12-month grace period in the United States, or a relatively unrestricted grace period of six months, such as in Japan and Korea. For disclosure in exhibitions or conferences to qualify for the lost novelty exception, such exhibition or conference must be sponsored or recognised by the Chinese government, which requires proof of a high-level government official document, certificate of the organiser of the exhibition or conference, and supporting documents. The third possibility is unauthorised disclosure, which requires proof that a party learning of the invention confidentially should have kept it in confidence, but instead disclosed the invention without authorisation of the applicant (the owner). The period for lost novelty exception (grace period) is six months.

iv Utility model patents

China is known for its large number of utility model patents, which make up more than one-third of its total new filings (2.072 million utility models, 47.93 per cent of the total of 4.323 million in 2018); and the total of valid utility models was 4.404 million by the end of 2018. The proportion of utility model patent applications from non-Chinese entities applicants is still low at 0.46 per cent of the total, but the number still increased, mainly because of the increasing level of interest from foreign-owned entities in China. The uses of utility model patents may vary, but technically they protect any 'tangible' subject for its structural improvement, and the requirement for inventive step is lower than that of invention patents. Registration may be completed, without actual substantive examination, in about six months, thereby offering quick patent protection. Nonetheless, some kind of novelty check may be carried out to avoid certain apparent copying and so on, at least as so proposed. Also, utility models may serve as preliminary patent protection for an invention if there is a dual filing (on the same day) of both, up until the grant of the invention patent, at which time the utility model patent is required to be expressly withdrawn as a condition for granting the invention patent. Therefore, there should be some value for utility models. The patent term for utility models is 10 years from filing as opposed to 20 years for invention patents. A Chinese utility model patent can be based on a regular foreign patent (such as a utility patent in the United States), and it can be filed, on the same day, together with an invention application from the same foreign patent application within the 12-month conventional priority term so long as the subject matter is suitable for both. A PCT application can be chosen to file as a utility model patent application in China rather than a regular invention patent application so that it may be granted quickly without substantive examination, especially if the International Search Report has cited some pertinent prior art references (i.e., the inventive-step may not be so great). However, the Chinese invention patent and utility model patent cannot be converted from one to the other. Nonetheless, a first-filed Chinese invention or utility model patent application can be replaced by a later-filed Chinese invention or utility model application, claiming 'domestic priority' within 12 months of the 'first filing date' and before the publication of the first-filed utility model application because a utility model patent may be granted within approximately six to nine months. It still leaves certain possibilities to have both a utility model patent and invention patent from the same application, as long as the filing procedure is complied with, and the claimed subject matters of the two applications are different although the two applications originate from the same application document (either from China as a domestic filing or from the same foreign application), such as apparatus claims versus process or method claims, or apparatus claims defining different inventive aspects of the disclosed invention.

v Other prosecution tips

Other prosecution tips are as follows:

  1. Divisional application may be filed voluntarily or required by the examiner, and voluntary filing of any divisional application is limited by the termination (either granted or rejected) of the first parent application. A further divisional application may be filed only if the examiner raises a unity objection to the already filed divisional application. Therefore, it may limit the possible use of the divisional application as a 'continuation' practice as in the United States, once the first parent application is terminated.
  2. Information disclosure is not required in China as it is in the United States, but the examiner may require any material that is not readily available or the translation of any foreign language prior art reference.
  3. A translation error cannot be corrected after filing a Chinese application, unless it is an obvious clerical error that the persons skilled in the art may recognise and know the correct alternative, nor may any missing elements be submitted late, such as sequence listing.
  4. Late filing of formal documents is permitted, such as power of attorney, certified copy of priority document and any assignment for claiming priority (applications of US origin), the term for which is roughly within three months of filing or within the term specified in the official notification of missing parts. At present, an electronic copy (rather than original) may be acceptable if the application is filed electronically, but the original one should be kept on file for any possible verification. Actually, almost all patent applications are filed electronically at least by professional firms.

vi Secrecy examination

Under the Patent Law, any invention (or utility model) should be subject to secrecy examination before filing a patent application in foreign countries, if substantive contents of the invention or utility model are made or completed in China regardless of the nationality of the inventors. It can be an absolute ground of invalidation of any Chinese patent granted from such an invention, if so challenged. At present, no retroactive secrecy examination is formally or officially recognised in order to make up ignorance (i.e., unintentional filing of a foreign application without a secrecy examination). Therefore, it is advisable to request secrecy examination before any foreign filings. In case of a joint invention, it is also advisable to do so even if an inventor outside China contributes to any content of the invention to be claimed, or even if it is hard to determine the percentage of contributions to the claimed subject or subjects from inventors in China or outside China. This is similar to 'foreign filing licence' practice in the United States. Such secrecy examination request should be supported by a relatively detailed description of the subject invention, more than just an abstract, but not necessarily the full specification of a patent application, and the inventors' names should be furnished as well. Now, it may take less than a week, but it may be up to two to four weeks to get approval, depending on the workload.

vii Trademark practice – short period to reply or to act

Chinese trademark examination involves a lot of work with respect to the description of goods or services in accordance with the Chinese version of the International Classification Table that lists goods or services as translated, with some additions of Chinese goods or services. It uses subclass headings and has indications of similar subclasses among certain subclasses that may be used to determine the 'similarity' of goods or services, and it does not require too much detailed description of goods or services or allow too much derivation from the standard terms unless they can be proved as very specific unambiguous terms of goods or services. Subclass headings cannot be used as a description of goods or services as they are viewed as overly broad. Electronic filing of trademark applications for registration was available after 1 May 2014, and the descriptions of goods or services are limited strictly to the listed goods or services on the Classification Table for electronic filings. An application for multiple classes may make the formality examination of descriptions of goods or services even stricter. It is now limited to just one official action dealing with the description of goods or services or formalities, while there could be several official actions of formality examination in the past (i.e., objecting to the goods or services, with a non-extendable one-month term to reply), because the Trademark Law requires the various office procedures to be finished in nine or 12 months and the application will be rejected if the amended goods or services are still unacceptable. This means less chance to modify any 'non-standard' or 'overbroad' terms or descriptions. Therefore, the practice (as of March 2016) indicates that an official action for modification of the terms of goods or services may contain an explanation of what the examiner wants or even suggestions as to how to modify the terms. Moreover, the examiner may issue an official action before refusal or rejection as set forth in the new Trademark Examination Standards, which may be the case for some applications, and through which the examiner may communicate with the applicant any explanation or reasoning, etc. We will see how this practice will develop from now on.

Some restrictions are introduced for using names or logos of countries or international organisations as trademarks or parts of trademarks, unless there is some permission or authorisation, and restrictions on using names or logos of well-known foreign geographic places, or geographic symbols that may be misleading. Sound marks have been open to registration in China from 1 May 2014, along with 3D and colour marks, where the colour marks are at least two colours in combination rather than a single colour or blended or mixed colours. The new sound mark requires it to be distinctive in the relevant fields as specified in the new Examination Standards of 2016.

Once a trademark application is rejected outright or partially, there are only 15 days to submit a review request to the Trademark Review and Adjudication Board instead of submitting a response with arguments to the Trademark Office for reconsideration. For refusal of an international application, the time is 15 days from receipt (proof required), or 30 days from the mailing date on the WIPO notification, whichever is longer. A division of a multi-class application is only available when it gets partial refusal for one or more classes in such a multi-class application so that a registration may be made for those non-refused classes, and those refused classes may be appealed or requested for review as a divisional application with the Trademark Review and Adjudication Board with a new application number. It should be noted that there will be just one registration certificate for all classes of a granted multi-class application, and a new registration certificate may be issued in case one or more classes of such a registration are declared invalid. Registration of multiple classes may be inconvenient in case of assignment if only some of the classes are subject for assignment, but not all of them. This is because of the specific requirement to assign all similar marks together in China.

The current Trademark Law of 2014 has improved the efficiency of the Trademark Office expediting office procedures to less than nine months, while the official fees are reduced and online applications are acceptable. 'Measures of Oral Hearing of Trademark Review and Adjudication Cases' was adopted on 4 May 2017, and the very first two oral hearings were conducted, respectively, on 21 and 25 August 2017. Moreover, the decisions of the Trademark Adjudication and Review Board (TRAB) will be published or made publicly available online in about 20 working days after the decisions are made, which is said to be more transparent to the general public. Decisions of the TRAB may be appealed to the Beijing IP Court, which has jurisdiction over the TRAB; and it may be troublesome to obtain formal documents notarised and legalised for foreign parties in the non-extendible short period for appeal. All appeal cases will require oral hearings before the court; and can be further appealed to the Beijing High Court. Every year, 15 March is 'consumers' day' in China, and an internet platform and smartphone app are provided for any complaints from consumers. In 2018, five examination assistance centres were established, respectively, in Guangzhou, Shanghai, Chongqing, Shandong and Henan; 105 receiving offices were opened; and 49 offices for recording pledged trademarks were established throughout China. Following the structural changes in the government, all of these have been consolidated into the Chinese Trademark Office under CNIPA.

IV ENFORCEMENT OF RIGHTS

The Chinese court system has four levels, the Supreme People's Court, the High People's Courts (one in each province), the intermediate people's courts (for regions or districts) and the basic people's courts. There are some special regulations for the second instance appeal for patent cases after the establishment of the IP Tribunal in the Supreme Court. For patent infringement cases based on invention patents and utility model patents, the second instance court shall be the IP Tribunal in the Supreme Court, while for those based on design patents, the second instance court shall still be local high courts. For patent administrative cases against invalidation decisions on all these three patents, the second instance court shall only be the IP Tribunal in the Supreme Court. Out of approximately 400 intermediate courts, about 80 or more are designated as trial courts for patent cases (including invention, utility model and design patents), and a few basic courts are designated as trial courts for design patent cases. Increasingly there are special IP tribunals within the courts for civil cases. As of 2018, there are 18 special IP tribunals established and this figure is sure to be on the rise in 2019. These specialised IP tribunals are still part of the local intermediate courts, but are separate from normal civil cases. A case can be tried at a higher-level court if the damage claim reaches a higher amount depending on the nature of the case and local rules.

Since 6 November 2014, three special IP courts have started working, respectively, in Beijing, Shanghai and Guangzhou. As of the end of 2018, these three IP courts has accepted a total of 90,578 cases and concluded 74,007 cases. The IP cases of the first instance for the new IP courts include: (1) patent, new plant variety, integrated circuit layout, technical know-how, and computer software, either civil or administrative cases, (2) administrative cases (i.e., appealed from the administrative decisions of the departments or agencies of the State Council or local government authorities above county level regarding copyright, trademark, unfair competition, etc.), and (3) civil cases relating to recognition of well-known trademarks. The intermediate courts in Beijing and Shanghai no longer accept new IP cases (i.e., serving trial court), and all IP cases there should be filed directly with the new IP courts. Guangzhou IP court now has jurisdiction over Guangdong Province, but for the subject matter of IP cases in points (1) and (3), while other intermediate courts therein will no longer accept new IP cases of these types, those intermediate courts (or basic courts for some cases) should have almost finished cases that were accepted earlier. The Beijing IP court has the special subject matter jurisdiction over the administrative decisions made by the agencies of the State Council (i.e., the Patent Office and the Trademark Office and its internal functional departments such as the Patent Re-examination Board and the TRAB), regarding the granting or determination of rights of patents, trademarks, new plant varieties, integrated circuit layout, decisions about compulsory licences or royalties thereof, and any other administrative decisions relating to the determination of IP rights.

A patent trial is a bench trial in China, consisting mostly of a panel of three judges, and maybe five judges if it is an important case. The trial will be conducted, according to the Civil Procedure Law, briefly in an order of opening statement, examination of any evidence for truthfulness and relevance, case presentation and argument and a closing statement. The chief judge of the panel guides the progress of the trial. The panel will not normally deliver the judgment at the end of the trial, but have parties review and verify the trial records by signing the record papers at the end of trial, and it may take one or more months for the court to either mail the judgment, or to have another court session for delivery of the judgment.

The alternative to the aforesaid judicial route, the local administrative authorities for patent affairs (AAPAs), may have the power to receive and try various patent cases, not only infringement cases, but also disputes of patent ownership, via quasi-legal proceedings, similar to the above judicial trial procedures. AAPAs are local governmental agencies. AAPAs will not decide any compensatory or monetary damage at present (but possible monetary damage may be awarded by such authority as specifically set forth in the proposed amendment of the Patent Law), but AAPAs will issue injunctive orders. However, if compulsory execution of the administrative orders is required, the party or AAPA should submit a petition to the local court for enforcement of the administrative order (but the proposed amendment of the Law may give the authorities more powerful means to enforce their administrative order). The documentation and formalities of AAPAs are similar to trial courts and proceedings may be a little quicker.

The modified Patent Administrative Enforcement Regulations came into force on 1 July 2015 in order to strengthen the administrative enforcement. Basically, they target patent infringement acts at trade shows or exhibitions and at the e-commerce platforms, as well as 'passing-off' patent acts. They require the administrative authority to conclude a case within three months of the case being accepted for processing and arranging a mediation session promptly (i.e., within five working days of receipt of a written statement from the party expressing willingness of settling the case). And at the trade show, the enforcement officer may order the exhibitor to remove the infringing products on display; destroy or seal any promotional material; and exchange or cover up the corresponding display board or panel at the show, and as to the e-commerce platform, the enforcement officer shall order the e-commerce platform provider to take necessary measures to cancel the relevant website or block or remove the relevant links. In the case of a 'passing-off patent', the administrative enforcement authority may impose a fine on the infringer once the infringement is confirmed in addition to the aforesaid measures at the trade show or on the e-commerce platform.

i Possible venues for enforcement

A patent case should be brought to a court where one or more defendants reside or are located, and where any infringing act occurs, which means making, using, selling, offering to sell, or importing a patented product; or using a patented process; or using, selling, offering to sell, or importing a product that is directly obtained from a patented process, for business purposes, without authorisation of the patentee (Article 11 of the Patent Law). Likewise, the requirements of venues for AAPAs are the same. The same rules of jurisdiction or venue apply to other IP cases. The modified Supreme Court Interpretation regarding patent infringement of 2015 specifies (Article 5, Paragraph 2) that the places of infringement include: (1) the places of manufacture, use, offer for sale, sale, importation of the infringing products (for invention and utility model patents; (2) the place the patented process or method is used, offer for sale, sale, importation of the products directly made from the patented process or method; (3) the place of manufacture, offer for sale, sale, importation of design patent products; and (4) the place of the infringing act of passing-off another's patent, as well as the infringement results of the aforesaid infringing acts. It also defines that the offer for sale means advertising, display in store windows, or display or demonstration at any exhibitions or trade shows with any indication that the products or goods are for sale.

ii Requirements for jurisdiction and venue

A declaratory judgment case can be brought to a court where the alleged infringer resides, or where any alleged infringing act occurs. Article 18 of the Judicial Interpretation of the Supreme Court of 2009 for patent infringement cases (see Section I) requires that a party being warned of a potential infringing lawsuit or an interested party send a written demand of non-infringement in reply to the patentee (or other holder of rights) who sent the warning or cease-and-desist letter. The party being warned or an interested party may start a declaratory judgment case at the court, if the patentee or other holder of rights does not withdraw the warning or bring a lawsuit within one month of receipt of the demand.

A more practical issue is to determine what act constitutes an 'infringement' that would qualify for proper jurisdiction away from the residence or location of an alleged infringer. Such an act should be at the place of the direct infringement. The act of making the patented products is direct infringement, and the place of making is where the alleged infringer is, and thus it is not a desired venue. Moreover, the act of making and providing parts for use by others in a patented process or to make the patented products is likely to be indirect infringement, and the place of making the parts may not be a proper venue. The place of using the parts is a proper venue, but not a convenient one because it would bring an end user into a lawsuit that did not necessarily aim to sue a potential end user. An 'offer to sell' is direct infringement, and it may be on a website or on paper or simply over the telephone and may, therefore, not be readily affixed in tangible form to qualify as admissible evidence, and, thus, it may not secure a proper venue.

The act of 'selling' or 'importing' may not be just a single act but several acts and the several acts may not always occur at the same place. For instance, placing an order or signing a purchase agreement and acts of remitting and receiving a payment would constitute the complete act of selling or importing. Therefore, it would be at the judges' discretion to determine whether or not all the acts need to be present at the same place to qualify for proper jurisdiction. Most courts may require that the payment element should be present. In any event, this was not always clear, and each of provincial-level high courts may have their own guidance for local courts with respect to the jurisdiction and venue issues.

The Second Interpretations of 2016 (Article 19) says, however, that the court should confirm that a lawfully formed purchasing and sales contract should qualify as an act of 'sales' under Article 21 of the Patent Law. It may mean that the place of formation of such a sales contract may be a proper venue, and it may indicate that the complete or series acts of contract formation and remittance or payments may be no longer required to be present for determination of proper venue.

iii Obtaining relevant evidence of infringement and discovery

There is no US-style discovery procedure in China, and, thus, it is always advisable to obtain some admissible evidence that may secure a chance of winning an infringement case before starting the lawsuit or even before sending a cease-and-desist letter to the alleged infringer as alleged infringers may hide their infringing acts once they learn that a potential lawsuit is imminent. The prospect of a case may become relatively clear through investigation in advance and secured evidence that may be obtained as witnessed by notaries public who should not be identified as such.

For any evidence that may be difficult to obtain or may be lost, one can petition the court to conduct a preservation of evidence action before filing a complaint. The court should decide whether or not to issue such an order within 48 hours of receipt of the petition. Within 15 days thereafter, the plaintiff must start the case, and if not, the order will be void (Article 67 of the Patent Law).

Some of the evidence may need technical tests or an appraisal report from a competent authority if the actual substance or contents of the products of the evidence cannot be determined directly. The court may decide or designate an authority if the credibility of a test or appraisal report submitted by a party is challenged.

In view of the difficulty of collecting evidence, the proposed amendment of the Law has added certain power to courts (and perhaps also to the administrative authorities) to order the alleged infringer or infringers to provide or furnish bookkeeping or accounting records and any relevant material, and may impose sanctions for hiding, transferring or destroying evidence. Recent developments show that the Chinese judicial authority and legislators are indeed taking such issues seriously and trying to institute rules to impose more severe sanctions against anyone who commits perjury or otherwise creates obstacles or resists the process of collecting evidence, or any other act that would be disruptive or destructive towards the evidence.

iv Trial decision-maker

Trial is by a panel of judges without a jury, and normally there are three specially trained IP judges in a panel. It would be much better now for the cases before the new special IP courts in Beijing, Shanghai, and Guangzhou since the judges there are all experienced IP judges. Usually the court will not accept party-appointed technical experts. When the court has technical questions, the court may ask each party to explain, or some courts may ask independent experts for their opinion. If the parties so request, the court may introduce a technical appraisal agency to give reports for specific technical questions. In any event, the judges will decide for themselves after considering all the facts and experts' opinions.

v Structure of the trial

Most trials last just one day or less as the chief judge controls the progress of the trial, and usually the trial may be held within six months, or at the latest a year, of the filing of the complaint, unless there are complications. Sometimes there may be a pretrial hearing for examination of evidence if there is too much to check during a one-day trial.

The exhibiting of evidence may be by various means, such as a projector for slides or movies, or a display of real articles, but most of the time the judges will consider documentary evidence, rarely relying on expert witnesses. The burden of proof is on the party making the claim. There is no clear rule as to what evidence may not be admitted. Both parties may raise an objection to any evidence as to the truthfulness and relevancy of the evidence for the judges to consider. The evidence may not be admitted if truthfulness or relevance are missing or doubtful, but usually the judges may not give their opinion clearly about the admissibility of any particular evidence during the trial, or any analysis of a presumption the parties may present in the arguments.

The aforesaid procedural matters and issues or similar things should apply to other IP cases, and basic people's courts may have jurisdiction over trademark and copyright cases, if the amount of damages claimed is low. Similar to patents, administrative routes for enforcement are available, respectively, for trademarks and copyrights. However, the trend is that the Supreme Court may designate more courts to be first instance or trial courts for patent infringement cases, and it means some basic courts may be designated as patent trial courts too.

Trademark infringement cases or any dispute relating to trademarks can be handled by local offices of the Administration of Industry and Commerce (AIC), where all local business should obtain registration, and thus local AICs are quite powerful with respect to trademark cases. AIC procedures are very quick and AICs have the power to investigate infringing acts, seize infringing goods and, most importantly, impose fines on infringers. An AIC injunctive order is very effective because the local AIC may suspend the business registration if the infringer does not obey the order. In practice, the new Trademark Law that came into force on 1 May 2014 may have changed some aspects of trademark enforcement.

vi Infringement

Almost all principles of claim construction are available in China, or at least may be considered by Chinese judges if they have received suitable training. To determine the scope of a claim or claims, the first approach must always be that of literal construction. The language in Chinese claims is often vague in various aspects, for example the words for singular or plural are not always present. Also, some technical terms are new or not customarily used or not standard. In these cases, the judges may look at whether there is a definition or description in the specification, or whether there is any description implying some meaning. This means the description may be used to construe any ambiguous claim language, and thus may also be used to limit further expansion of the claim scope. The Supreme Court Second Interpretations of 2016 make it even more clear regarding the construction of the claim or claims that the preamble and characteristic portions of independent claims and dependant claims should all read together as limitations (Article 5); and, in case of any ambiguity in the claims, description or drawings, the only possible understanding an ordinary person skilled in the art may get through reading should be adopted by the court (Article 4).

Further, the disclosed embodiments may also be used to limit the expansion of any claim construction if there is a question as to the sufficient support of a broad term used in the claims, while there is only a limited number of examples or embodiments, namely the insufficient disclosure or support issues the examiner may have missed during the prosecution. If the alleged infringing technical solution has additional features as compared with those defined in a close-end composition claim, the court should confirm it does not fall within the scope of the claim, unless the additional features are such unavoidable or inevitable normal impurity (Article 7 of the Second Interpretations).

File wrapper (prosecution history) estoppels are also known in China and so is the doctrine of equivalents. File wrapper estoppels may be more likely to be considered by judges than the doctrine of equivalents, regarding which there were differing opinions among the judges and members of the IP community in China. The 2015 amended Supreme Court Provisions for patent infringement cases states that the scope of patent protection should be determined on what the claim or claims state as a whole (i.e., including all technical features thereof) and may also include any equivalents of those technical features, and the equivalent features means substantially the same technical means, realising substantially the same functions, and achieving substantially the same effects, which may be conceived by ordinary persons skilled in the art without any inventive work or effort, at the time the infringement occurred. The judges are likely to use the doctrine of equivalence from now on.

Now, the Supreme Court Second Interpretations of 2016 makes both doctrines more specific, that is, the court may consider any records of patent examination files of any divisional applications, the effective judgment confirming the grant of the patent to construe the claims and the patent examination files include any written documents submitted by the applicant or patentee during patent examination, re-examination, invalidation proceedings, etc. (Article 6); while any functional features should be those technical features that have functions or effects on the claimed invention in connection with structures, ingredients, steps, conditions, and the relationships thereof, except those that cannot be directly derived or understood through reading, in view of the ordinary skilled person in the art at the time of the alleged infringement (Article 8). Further, in case any restrictive amendment made by the applicant or patentee to the claims, specification and drawings was denied or refused during the prosecution, as a rightful owner may prove so, the court should confirm that such restrictive amendment has not lead to an abandonment of the technical solution (Article 13).

The Second Interpretations of 2016 also specify the construction of the scope of design patent in view of ordinary consumers in consideration of 'design space' (Article 14), meaning how much further design may be done in a particular area, and the court should confirm that the alleged infringing design falls within the patent scope if it is considered similar to: one of the patent designs of a set of products (Article 15); the patent design of the only possible assembled product (Article 16); and the dynamic state of the patent design (Article 17).

Moreover, Article 21 of the Second Interpretations of 2016 specifies that the court should confirm the act of assisting another to infringe, under Article 9 of the Law of Infringement Liability, if a supplier provides, knowingly without authorisation of the patentee, any material, equipment, parts, intermediate components, etc., to the other to carry out the infringement for the purpose of production and business; and likewise, the court should confirm the act of instigating others to infringe, under Article 9 of the Law of Infringement Liability, if someone knows the patented product or process and still induces, without authorisation of the patentee, the other to carry out infringement for the purpose of production and business. The indirect infringement acts are now more specified as contributory and inducement, but it is not clearly specified as to whether such an indirect infringing act may be actionable alone (i.e., without bringing proceedings against the direct infringer with the indirect infringer as a joint defendant). In the infringement case of Chinese Patent No. ZL02139508.X, the court found that the indirect infringer was liable regardless of the user or users, that is, the direct infringer should be liable so long as the direct infringement existed. However, on appeal, the second instance court denied this finding and held that the direct infringement should be proved by solid evidence especially for a system involving the co-operation of three entities.

As to any act during the provisional protection period from the publication of the application to the grant of the patent, the court shall confirm that the subject invention has been exploited (i.e., infringed), so long as the alleged infringing technical solution falls within both scopes of the claim as published and granted, even if the two scopes may not be consistent; otherwise it should be considered that the subject invention has not been exploited, provided the alleged infringing act falls only in one of the aforesaid claim scopes (Article 18, paragraphs 1 and 2 of the Second Interpretations of 2016), especially only falling in the published claims, but outside of the granted claims.

vii Defences

The available defences in patent infringement cases are: (1) non-infringement (not within the scope of claims as construed and using a process different from the patented process (Article 61 of the Patent Law)); (2) using prior art technology (Article 62); (3) exceptions to infringing acts listed in Article 69; and (4) innocent user or seller with proof of obtaining products legitimately and not knowing about the unauthorised manufacture of the patented products (Article 70).

The Supreme Court Second Interpretations of 2016 set forth the following situations under which an alleged infringing technical solution may not fall within the scope of the claims: (1) if it is not suitable for use in the environments as defined as environmental limitations in the claims (Article 9 thereof); (2) the process for making the alleged infringing products is not the same as, nor equivalent to, the process as defined in the product by process claims (Article 10); and (3) any method steps are different in sequence or order from the sequence or order of the method steps that can be directly derived and clearly confirmed from the description, etc., that set forth the limitations to the claimed process, even if the claim itself is not so clear about such order (Article 11). Still further, such terms of 'at least' or 'no more than' should be construed as the ordinary person skilled in the art may understand them through reading of the application, and any contradicting explanation offered by any patentee should not be accepted (Article 12 of the Supreme Court Second Interpretations).

Invalidity of a patent is not a defence in China, as patent invalidation is handled by the Patent Re-examination Board, not by any courts, and the Board decision of validity or invalidity should be appealed to the Beijing IP court because the SIPO is located within its jurisdiction and can be further appealed to the Beijing High People's Court.

Accordingly, no prior art references may be considered by other courts for validity of a patent, but may be considered by the courts for the prior art defence to determine if the alleged infringing product or process is closer to the prior art references. In the case of invention patents, the prior art will most likely be a combination of one or more new prior art references since the patent is granted after full examination, and in case of utility models or design patents, the alleged infringing product may be completely based on a single piece of prior art, and in this case, the utility model or design patent is apparently not novel, or at most two pieces of prior art references for inventive attack against a utility model patent as specified in the Examination Guideline, and the court will likely stay the court proceeding, waiting for the invalidation decision of the Board, in most infringement cases of utility model and design patents if either the patent is clearly invalid or there is a likelihood of non-infringement.

The Supreme Court Second Interpretations of 2016 states that the prior art defence should refer to the prior technology or design at the time of filing the patent application (Article 22 thereof), and it should not be a non-infringement defence by claiming own later obtained patent rights so long as the alleged infringing technical solution or design, even patented, falls within the scope of the prior patent at issue (Article 23).

As to the innocent user or seller defence, the Second Interpretations of 2016 states that the court may still order to stop a party from using, offering to sell or selling the infringing products, if the patentee demands so, if the party uses, offers to sell or sells the infringing products for the purpose of production or business, actually not knowing the products were made and sold without the authorisation of the patentee and may prove a legitimate source of products, unless it can be proved that reasonable fees have been paid (Article 25).

viii Time to first-level decision

Patent litigation in China moves relatively quickly since the trial will usually be held about six months after the filing of a complaint as mentioned above. The trial normally lasts just one day and only some complicated cases (such as chemical or pharmaceutical cases) may have several days of trial, either consecutively or separately. In terms of the trial decision, however, it may take a few months for most cases and potentially much longer for some important cases, on which the three judges of the panel may need to consult with other judges or even a committee formed specifically for such cases.

ix Remedies

Pretrial or pre-lawsuit injunctions are available as preliminary measures to prevent the alleged infringer from continuing the infringing acts. A petition may be filed before filing a complaint and the court needs to decide whether to issue a preliminary injunction within 48 hours and whether a bond should be paid, which could be a rather large amount – probably 1 million yuan, mostly in cash, with no bank guarantee note or any kind of collateral. The complaint must be filed within 15 days, if the preliminary injunction is issued, otherwise the injunction will be released (Article 66 of the Chinese Patent Law). The third amendment of the Trademark Law has introduced a similar procedure for trademark cases. Detailed regulations are updated in the newly issued Interpretations on Preliminary Injunction in 2018 with the purpose of limiting such pretrial or pre-lawsuit injunctions.

Reasonable compensatory or monetary damages may be awarded if the plaintiff wins, including reasonable 'litigation cost' and certainly some of the attorneys' fees. The compensation will be calculated or determined on the basis of: (1) actual loss of the plaintiff, if proved; (2) the illegal gain or profits of the infringer, if quantifiable; (3) a multiple (perhaps three times) of the 'reasonable' royalty (consideration may be given for applicable royalties in the relevant fields in China), if any; or (4) statutory damages from 10,000 to 1 million yuan, as provided in Article 65 of the Patent Law. The third amendment of the Trademark Law has introduced a similar way to calculate damages. The principle for damages is compensatory and thus there are no punitive damages for patent cases in China at present. However, punitive damages (of up to three times) have been mentioned in the proposed amendment to the Patent Law, and the triple damage has been written in the new Trademark Law, as mentioned above.

Moreover, Article 62 provides for the confiscation of goods passing-off as patented products, and imposes fines of up to four times the illegal profits, or if there are no goods to be confiscated, imposes fines of up to 200,000 yuan, as well as possible criminal sanctions, if the infringing acts are serious and subject to criminal law. A similar provision is introduced in the third amendment of the Trademark Law.

The 2015 amended Supreme Court Provisions regarding several issues of handling patent dispute cases states clearly the way damages are calculated:

  1. the actual loss of the patentee may be based on the total of reduced sales of the patentee times reasonable profit of each patented product or the total of sales of the infringing products times the reasonable profit of each patented product, if the reduced sale of the patentee cannot be easily determined;
  2. the illegal gain or infringing profit may be based on the total of sales of the infringing products times reasonable profit of each infringing product, and the profit obtained by the infringer from the infringement is normally calculated according to the business operation profit of the infringer, or may be the sales profit, if the infringement is the only business; and
  3. if both the actual loss or illegal profit can be hard to determine, the damage may be based on multiple times the patent royalty, if there is a royalty to be used as a reference, in consideration of factors such as, the type of the patent, nature and situation of the infringement, kind of patent licence, scope and time thereof, and may also be determined based on the factors, such as, type of the patent, the nature and situation of the infringement, if there is no patent royalty as reference or there is a royalty, but unreasonable. In the aforesaid case of patent infringement of Chinese Patent No. ZL02139508.X in March of 2017, the Beijing IP Court granted a damage award of 9.1 million yuan, as calculated on the basis of three times reasonable royalties, which was affirmed by the Beijing High Court at second instance.

The Supreme Court Second Interpretations of 2016 states that the court may first ask the patentee to prove the illegal profit of the infringement, and then ask the alleged infringer to provide the relevant bookkeeping records or material since those are under the control of the alleged infringer, if the patentee has provided initial evidence of the illegal profits of the infringement, and the court may rely on the evidence submitted by the patentee to decide the monetary damage or compensation if the alleged infringer refuses to provide the bookkeeping records or material (Article 27). In the recent case of patent infringement of Chinese Patents No. ZL201520103318.2 and ZL201520847953.1 mentioned above, the Guangzhou IP Court assessed 30 million yuan damages based on the way of calculation offered by the patentee since the evidence from the patentee was more reliable than that submitted by the defendant. This case also raised a new way of calculating damages: 'if the accurate calculation is feasible, then make the accurate calculation; if only an estimation is feasible, then take the estimation'.

Nonetheless, the court shall not support the patentee's claim for infringement after the grant of patent, if a party used, offered to sell or sold, during the provisional protection period after publication, for the purpose of production and business, without authorisation of the patentee, the products that were made, sold, or imported by the other, and the other already paid or promised to pay, in writing, any reasonable fees to the patentee (Article 18, paragraph 3 of the Second Interpretations), that is, exhaustion of the patent rights.

The statutory damage may be used if none of the actual loss, illegal profit or reasonable royalty can be determined. Besides, it is stated clearly in the 2015 amended Supreme Court Provisions that the reasonable expenses the patentee incurred in litigation may be calculated separately, in addition to the damage calculation. This has been applied in the patent infringement case of Chinese Patent No. ZL02823458.8, awarding 1.5 million yuan attorney fees based on the hourly rate work.

When finding the infringement, the court may enjoin any infringing acts of the infringer. There may, rarely, be judgments where the court considered public interests and did not issue a permanent injunction. However, the Supreme Court Second Interpretations of 2016 make it clear that the court may order for monetary compensation in lieu of permanent injunction in consideration of national or public interests (Article 26).

x Appellate review

The judgment of the trial court can be appealed within one month to a court one level higher and the appellate court will review not only the legal issues, but also the facts with a procedure similar to the trial. The appellate court's decision should be final. However, a petition for reconsideration or retrial may be submitted to the Supreme Court, which will review the case and will make a decision as to whether a retrial is necessary with a hearing or without a hearing, and if necessary, remanding the case back to the original court for retrial. Owing to the establishment of the three new IP courts, a judgment of the IP court for the first instance may be appealed to the High Court where the IP court is located or the IP Tribunal in the Supreme Court; and the IP court shall serve as appellate court (i.e., the second instance) for any of copyright, trademark, technology contract, unfair competition cases handled and tried by basic courts at the city where the IP court is located.

xi Alternatives to litigation

The Chinese legal system lays emphasis on mediation and thus the judges or AAPA officials may first ask the parties whether they are willing to settle and, if they are, the judges or officials may let the parties talk or help the parties to talk to see if they can reach an agreement. This means there may be a private settlement outside the courtroom or a court-monitored and issued mediation, which is recommended because the court mediation may have an effect of judgment, and can be readily enforced.

Arbitration is available if so chosen by the parties. It is advisable for foreigners not to choose local arbitration bodies for lack of language capacity or experience in dealing with foreign parties, but to choose some reputable arbitration bodies, such as the Hong Kong International Arbitration Center (HKIAC) or the China International Economic and Trade Arbitration Commission (CIETAC).

Customs IP protection is another effective route to protect IP rights. Customs authorities can prevent the infringing products from being exported or imported. For example, in 2018, Qingdao Customs found 192 IP infringement cases, freezing 1 million infringing goods worth over 21.8 million yuan. IP right holders are permitted to record their rights in the customs record system, which is valid for 10 years and extensible. When IP rights are recorded, customs authorities should actively make routine inspections on goods to check infringement. When potential infringement is found, the IP right holder should be notified. IP right holders are also permitted to initiate customs checks for potential infringement if the IP right is not recorded. Easily identifiable IT rights such as design patents and trademarks gain advantages in customs IP protection.

V TRENDS AND OUTLOOK

In 2019, the protection of IP rights will be further strengthened. The establishment of the IP Tribunal of the Supreme Court optimises the legal environment to stimulate and protect technological innovation. China is the first country worldwide to establish an IP tribunal as a standing judicial organ in the Supreme Court, showing the resolution of the government on strong IP protections. The current IP protection system already has advantages over other systems in the world: fast legal proceedings within one year at first instance level; the issuance of injunctions as a general practice; increasing the level of damages; equal protection for both domestic and international companies; a high win rate for patentees, especially foreign patentees; and specialised courts and judges. Moreover, considering that China has a huge market, more and more international companies are choosing China as one of most favourable jurisdictions to solve their IP disputes, for example the patent disputes of Samsung v. Huawei and Qualcomm v. Apple. The main characteristics of such patent disputes in China are the involvement of at least 10 patents and, in general, the damages claimed are over 100 million yuan. With growing confidence in the IP protection system, more and more companies are expected to have an interest in launching patent claims in China. From the perspective of administrative enforcement, the supervision of the State Administration for Market Regulation will strengthen the intensity and effectiveness of patent and trademark law enforcement. Moreover, owing to an innovation-driven development policy, there will be more patent filings in 2019 than before, since more and more hi-tech companies are investing capital on scientific research.

The process of collecting public comments on the proposed fourth amendment of the Chinese Patent Law was completed at the beginning of 2019. It is expected that fourth amendment will be approved by the legislative committee before the end of 2019. Hopefully, punitive damages awards (likely increasing damages by up to five times) will be available as under the Trademark Law. The enhanced power of the administrative authority to enforce patents is still key, such as the power to conduct investigations and collect evidence as well as the power to issue damages awards as courts do. The proposed amendment may also give more power to courts, inter alia, to order alleged infringers to provide records of sales and relevant materials as evidence; to impose sanctions if the alleged infringers hide, destroy or transfer any evidence or assets; to impose punitive damages of up to five times in cases of serious and wilfull infringement, to synchronise the trials on validity and infringement by the IP Tribunal of the Supreme Court so as to speed up litigation and administrative enforcement cases; and to establish an open licensing system to promote IP transactions. These measures are sure to strengthen IP enforcement in China.

Further improvements to the Chinese IP systems are likely to result from the influence of certain industries (such as those in the e-commerce and pharmaceutical sectors, or artificial intelligence or robotics) and for the benefit of capital investment with regard to intellectual property assets. IP transactions will be more active than before.

In the anti-monopoly sector, some influential cases may have first instance decisions in 2019. The anti-monopoly dispute between Apple and Qualcomm will be a landmark case for standard essential patent cases. Some disputes on the abuse of market dominance related to copyright concern the Chinese internet companies Netease and CNKI database. All these influential cases in patent, trademark, copyright and anti-monopoly will probably bring lots of changes of practice in relation to intellectual property laws in China in 2019.


Footnotes

1 Guanyang Yao and Michelle Ma are attorneys at Liu, Shen & Associates.