The Intellectual Property Review: China
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 and trade dress.
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 four times, in 1993, 2001, 2013 and 2019). Approximately 200,000 trademark applications were filed in 2000, and about 7.837 million trademark applications were filed in 2019; by the end of 2019, the total remaining valid registrations were 25.22 million. In 2019, examination was made of 8.253 million trademark applications, with the average examination duration decreased to four and a half months; 144,000 trademark oppositions were accepted in 2019, which is double the figure for 2017. China is a member of both the Madrid Protocol and the Madrid Agreement, and the China-originated international applications totalled 6,491 as filed in 2019.
The Patent Law was adopted in 1985 and was modified in 1992, 2000 and 2009. The fourth amendment draft is under discussion at national level and there is currently no formal schedule on when to complete the amendment. The Law includes three categories of patents: a patent for invention, a patent for utility models and a patent for industrial design. A total of 4.381 million patent applications were filed in 2019, of which 1.401 million were inventions, 2.268 million were utility models and 0.712 million were designs. By the end of 2019, the total valid invention patents were 2.671 million, the total valid utility models 5.262 million and the total valid designs 1.79 million, and still the retention rate of foreign-owned Chinese patents is higher. In 2019, 453,000 invention patents were granted. China is a member of the Patent Cooperation Treaty (PCT) and had 61,000 PCT applications filed in 2019, of which about 57,000 were domestic and about 4,000 foreign. About half of the PCT applications (around 24,700) were from Guangdong Province, while Beijing had about 7,200 and Jiangsu about 6,600 filed in 2019. Examinations of 1.023 million invention patent applications, 1.981 million utility model applications and 0.744 million design applications have been carried out. The granting rate for invention patents was 44.3 per cent in 2019. Re-examination requests were 55,000, with 37,000 closed, and invalidity requests were 6,000, with 5,000 closed, in 2019. The average duration of the examination is around 16½ months.
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 copyright disputes. In 2019, copyright registrations totalled 4.18 million, an increase of 21 per cent with respect to 2018. The Protection of Integrated Circuit Layout-Design Regulations were adopted in 2001, and since then, a total 31,513 applications were filed and 27,142 certificates issued, of which 8,319 applications were filed and 6,614 certificates were issued in 2019. The first infringement case regarding Integrated Circuit Layout-Design was decided in 2018, and in 2019 two infringement cases regarding IC Layout-Design were handled. The Protection of Geographic Indications was adopted in 2005. Until 2019, a total of 2,385 geographic indications were approved, and a total of 5,324 geographic indication trademarks were registered. In 2019, five geographic indication products were approved and 462 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.
The Electronic Commerce Law (effective 1 January 2019) handles issues regarding, for example, the obligations of internet platforms, measures to combat unfair competition and the environmental obligations of e-commerce business entities. 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.
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 aperiodically 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; Measures for Administrative Appeal Cases of Determination of Registrability of Trademarks (2016); and Updated Regulations for Evidence in Civil Litigation (2019). 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. In 2019, the total amount of patent and trademark pledging totalled US$21.64 billion.
IP transactions are still developing, especially for patent or non-patent technologies and trademarks, which may be because of inadequate platforms or evaluation systems. The 2018 China IP Transaction and Licensing Annual Report issued by the China National Intellectual Property Administration (CNIPA) states that the number of patents in transactions or licensing was 235,811 in 2018, a steady increase of 3.1 per cent with respect to 2017; and the number of trademarks in transactions was 393,373, with the number of trademarks in licensing 19,011. 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 2019, the total export-import volume of the IP licensing fee was over US$37 billion. However, 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.
The amended Trademark Law came into effect on 1 November 2019, with the purpose of suppressing bad-faith trademark registration and strengthening trademark protection. Generally, bad-faith registration includes bad-faith filings for a 'free ride' and large-volume filings merely for sale for profit rather than use. There are newly added provisions to suppress bad-faith registration from three perspectives. The first provides that those bad-faith trademark applications without a 'use' purpose should be rejected. This is also the reason for oppositions and invalidations. The second provides that trademark agents should not handle such bad-faith registration when they know or ought to know there are intentions on the part of the applicant for bad-faith registration. The third provides for administrative punishments for bad-faith registration conducts of applicants and trademark agents. The strengthening of trademark protection means that damages for intentional trademark infringement can be one to five times, and the statutory damages are increased from 3 million yuan to 5 million yuan.
Some first instance judgments in high-profile trademark infringement cases were given in 2019. China Redbull filed a trademark infringement lawsuit against Thailand TC Pharmaceutical to claim damages of 3.7 billion yuan. However, the Beijing High Court rejected China Redbull's claims and China Redbull has appealed to the Supreme Court. The famous herbal tea factories JiaDuoBao and WangLaoJi were in dispute throughout 2018, with the result of WangLaoJi being awarded damages of 1.4 billion yuan from JiaDuoBao. In 2019, the Supreme Court reviewed the appeal, finding that some of the evidence on damages had significant flaws in its form and content; it therefore revoked the 1.4 billion yuan decision and remanded the case to Guangdong High Court for a new trial.
On the patent side, there has been an increasing number of patent infringement cases involving high damages. For example, Jiangsu TOLLEA sued Bull Electric for patent infringement regarding power strips to claim damages of 1 billion yuan; Shenzhen Genvict sued Beijing Juli for patent infringement regarding electronic toll collection (ETC) to claim damages of 0.1 billion yuan; and Shenzhen Techaser sued Shenzhen Longli Technology based on 11 patents for backlight products to claim damages totalling 50 million yuan. However, all of the above patents in those cases have been invalidated completely. Therefore, the quality of the patent is the essential element in patent infringement cases. In the case Shenzhen Appotronics v. Delta Group for patent infringement, two core patents of Shenzhen Appotronics remained valid for 19 rounds of invalidity challenges. Another trend is patent infringement lawsuits being filed by competitors at the time of an initial public offering (IPO) as a barrier, since by regulation the company in the IPO process must not be involved in litigations in China. For example, a lawsuit is brought by Shenzhen Techaser when Shenzhen Longli is in the IPO process; or the IPO application from Shanghai Bright Power Semiconductor is rejected since a patent infringement lawsuit is initiated by Silergy Semiconductor.
In 2019, two sets of high-profile patent-infringement group cases were closed. One is the SEP patent infringement group cases between Samsung and Huawei. On 11 January 2018, Huawei won the first instance judgments based on two standard-essential patents (SEP), and Samsung filed an appeal to Guangdong High Court. During the appeal, the Court hosted a couple of rounds of mediations between these two companies and on 14 May 2019 they agreed the patent licensing framework on SEP patents and the group cases were settled. The other is patent infringement group cases between Qualcomm and Apple. Qualcomm filed over 20 patent infringement lawsuits in China against Apple in 2018. With a strongly valid basis in the patents, Qualcomm obtained preliminary injunctions on Apple's IPhones at the end of 2018. In April 2019, the two companies reached a settlement favourable to Qualcomm worldwide.
The fourth amendment on the Patent Law has been under discussion in 2019. Its main purpose is to strengthen patent protection. The highlights include:
- the increase of statutory damages from 1 million yuan to 5 million yuan and quintuple damages in cases of willful infringement;
- the additional joint liabilities of internet service provider; the newly established open licensing system to facilitate patent monetarisation;
- the extended protection period for design patents from 10 to 15 years;
- the high-level rule on the abuse of patent right and bad faith in the application of the patent;
- the burden of proof regarding damages shifted from patentee to the accused infringer in the case of solid preliminary evidence from the patentee; and
- improved patent administrative enforcement proceedings.
The Supreme Court issued new Evidence Rules for civil litigation procedure at the end of 2019, coming into force on 1 May 2020, which are favourable to evidence collection in patent infringement litigations. Articles 12, 14, 15, 90, 93, 94 and 99 deal with electronic data evidence, specifically the issue of confirming the legitimacy and legality of collecting evidence via third-party online platforms in patent lawsuits, and more importantly that of clarifying the criteria for authenticity and legality of the electronic data evidence. In particular, a video recording of the infringing product is allowed to be submitted as substitute for the real infringing product so as to show its structure, which will certainly facilitate submission of evidence, especially regarding infringing products that are bulky, heavy, difficult to move or unmovable. Article 16 provides that documentary evidence originating outside China only needs to be notarised, not legalised as before. This reduces the difficulties of collecting evidence outside China. However, evidence related to identity still needs to be both notarised and legalised, including powers of attorney, identity certification documents and the like, which are usually used to procedurally establish a case. Articles 20–29 specify the detailed rules for the application to request the court to investigate and collect evidence as the supplemental to lack of a discovery system. These rules cover the deadline, formalities, details of the documents of the request and attendant documents, and the bond required. Articles 30 and 31 stipulate that when the court believes that a technical appraisal is needed, the court must notify the parties and explain its reasons. Articles 83 and 84 provide regulations on technical experts, and clarify that the role of the experts is strictly limited to presenting opinions on technical issues and that they are not witnesses or appraisal experts. Furthermore, the 'good faith' principle is incorporated in multiple articles to provide that guarantees should be signed before the parties, technical experts, appraisal experts and witnesses present their opinions, so that the opinions, witness statements and appraisal reports are authenticated, objective, honest and reliable. The incorporation of the good faith principle can also prevent the parties from bad-faith conduct, such as hiding evidence, deliberately delaying the submission of evidence and making an evidence ambush.
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 2019, 21 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 21 IP specialised tribunals include Nanjing, Suzhou, Wuhan, Chengdu, Hangzhou, Ningbo, Hefei, Fuzhou, Jinan, Qingdao, Shenzhen, Tianjin, Zhengzhou, Changsha, Xi'an, Nanchang, Changchun, Lanzhou, Urumqi, Haikou and Xia'men.
After its establishment on 1 January 2019, the Supreme Court IP Tribunal worked diligently and issued some influential judgments during the rest of the year. On 27 March 2019, the Tribunal pronounced its first decision in court regarding the appeal of a patent infringement case related to a car window brush. This first decision broadens the scope of protection in 'means plus function' claims to cover more than the embodiments in a patent specification. Moreover, this decision reviews and adjudicates the infringement part of the whole case first and the damages of the case had not been decided by the first instance court, which shows the increasing speed of courts in handling IP cases and the strengthening of patent protection in China. In December, the Tribunal issued four second instance judgments regarding patent disputes. One important case is related to a network telecommunications system patent involving multiple parties, which, it was decided, was infringed even though only part of the whole process was implemented in the infringing product. Another case attracting attention involves an innovative court approach to synchronising the appeal for both the invalidity request and the infringement complaint in the same court in front of the same panel of judges, which has never happened before. In this way, the arguments made by the patentee can be heard directly by the same panel of judges that will decide the infringement case, which increases the efficiency of resolving patent disputes. These cases are sure to provide guidelines for future similar cases, since the Chinese IP legal system is establishing the 'precedent case guiding' mechanism.
Administrative enforcement of patent rights was also active in 2019, with a total of 38,618 patent infringement cases being handled by local patent offices nationwide, an increase of 13.7 per cent on the previous year. This may reflect the tendency for the local office of the CNIPA to function as a quasi-court system. In the pending fourth amendment version of the Patent Law, it is stipulated that patent infringement cases with significant nationwide influence may be handled by CNIPA.
The copyright sector was not silent in 2019. Tencent, a popular internet company, sued Chuiniu for using social media app WeChat special emojis without authorisation so that the information network propagating right of Tencent was infringed. Since the WeChat app is a very popular chatting software in mobile phones, this case attracted public attention. The court decided that WeChat special emojis are yellow facial expressions originally designed by Tencent, thus infringement was established. Another high-profile case concluded with 0.26 billion yuan as the administrative fine decided by Shenzhen State Administration for Market Regulation (SAMR) payable by QVod, a video broadcasting website, for infringement of network video copyright. This case was affirmed by Guangdong High Court at the second instance. Further, although the protection of works of applied art is a subject of ongoing dispute, the Supreme Court issued a retrial final decision in 2019 deciding that Chinese Tang-style furniture is both aesthetical and functional, and that it should be protected as works of applied art. This provides a new approach to, especially, the furniture, toy and ornament industries on how to protect their IP rights in an alternative way than via the design patent. Disputes regarding copyright for sports events gradually became a big issue from 2017 to 2019 and the number of sports events copyright cases is on the rise. The cases accepted by Beijing Haidian Basic Court in the first quarter of 2019 numbered 816, significantly higher than the 729 accepted in 2018. The parties involved included social media live broadcast apps, photo gallery companies and TV sports stations.
By the end of 2019, the Anti-monopoly Law had been implemented for over 11 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 2019, the State Administration for Market Regulation (SAMR) worked on the amendments to the Anti-monopoly Law and the draft was published for public consultation on 2 January 2020. It includes, for example, a fair competition examination system and privacy protection articles, plus provisions optimising and strengthening anti-monopoly administrative actions and amending the notification mechanism of the concentration of undertakings. In 2019, six monopoly agreement dispute cases, 15 abuse of market dominance dispute cases and 38 anti-monopoly administrative cases were concluded. The success rate of the plaintiff in anti-monopoly civil cases is relatively low. For example, Hytera sued Motorola in the Beijing IP Court for abuse of market dominance and claimed damages of over 50 million yuan, which had not been supported by the court at first instance. Anti-monopoly cases in China cover a diverse range of industries, including telecommunications networks, pharmaceuticals, catering, retail, internet film services and publishing. Most anti-monopoly cases have involved giant companies such as the e-business platform Taobao and JD, Starbucks and the Didi app (Chinese version of Uber), attracting huge attention from the public.
In 2019, the Anti-unfair Competition Law became a new focus because of a newly issued anti-unfair competition case between Jaguar Landrover and a Chinese car manufacturer, JMC Landwind. No valid design patents were available for JMC. In this situation, Jaguar launched an anti-unfair competition lawsuit against JMC and won the first instance decision with an injunction and damages awarded of US$200,000 by Beijing Chaoyang Basic Court. The legal basis for this unfair competition case is Article 6 of the Unfair Competition Law that protects the decoration of products as it relates to certain associations. The court found that, based on long-time commercial publicity and use, the public can associate the shape and structure of Winning Aurora with Jaguar Landrover as the source of Winning Aurora. Therefore, the court decided that Landwind X7 from JMC adopted the same shape decoration as Jaguar Landrover's Winning Aurora to allow public confusion and misidentification of these two models of car, meaning JMC was behaving in a way that caused unfair competition.
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). In the Examination Guidelines modified on 31 December 2019 (effective as of 1 February 2020), the subject matter issue of the invention applications relating to AI, internet+, big data and block chain is discussed and the general spirit is consistent with the 2017 modification. It is emphasised that all of the features in the claim should be examined as a whole, and the features related to algorithm or business rules should be integrated with other features using natural laws for the examination.
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 (2.268 million utility models, 51.77 per cent of the total of 4.381 million in 2019); and the total of valid utility models was 5.262 million by the end of 2019. 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 Design patents
The design application is not subject to substantive examination but only preliminary examination on formalities. The design should be completely embodied by physical products that can be manufactured industrially in large numbers. Artefacts, agricultural produce, animal by-products and natural beings cannot be the basis for a design patent. 'Aesthetic' is one of the elements required by design patents. 'Aesthetic' means the design provides visual experiences to users and does not focus on functionality or technical effects. The concept of 'aesthetic' is substantially the same as 'ornamentality'. More than one design is permitted in a single design application, provided that the designs are related to each other. There is no partial design in the current Patent Law. It is under discussion whether to incorporate partial design into the patent system in the fourth amendment. The protection of graphic user interfaces (GUIs) has been incorporated into the design patent system since 2014. A GUI patent must be integrated with a physical display device, such as a mobile phone body or computer. The GUI alone cannot be the object of a design patent. On 1 November 2019, an amended Examination Guideline became effective, specifying that pictures of GUIs should not be strictly associated with the products. It is permissible to submit only one view of the overall GUI. Moreover, the products this GUI applies to should be exhaustively listed in the brief description – for example computers, MP3/MP4, mobile phones, PAD, GPS and vehicle dashboard displays. No protection will be provided to products not listed in the brief description. This is actually a makeshift solution given the lack of partial design protection for GUIs in China.
vi Other prosecution tips
Other prosecution tips are as follows:
- 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.
- 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.
- 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.
- 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.
- No paper patent certificate shall be issued for patents filed via electronic systems after 3 March 2020. It is permissible for the patentee to obtain the printed paper certificate upon request.
vii 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.
viii 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. 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, and the office procedure for the past three years is intended to be shortened to four 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. There is a pre-register procedure to provide an extra three months for foreign parties to submit the original notarised and legalised documents in certain conditions. 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. Up to and including 2019, five examination assistance centres had been established, respectively in Guangzhou, Shanghai, Chongqing, Shandong and Henan; 105 receiving offices had been opened; and 49 offices for recording pledged trademarks had been established throughout China. Following the structural changes in the government, all of these have been consolidated into the Chinese Trademark Office under CNIPA.
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, 76 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 2019, there are 21 special IP tribunals established and this figure is sure to be on the rise in 2020. 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 5 billion yuan, 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 September 2019, the Beijing IP Court has accepted a total of 70,924 IP cases, with patent cases representing 13 per cent, copyright cases 25 per cent, and trademark and anti-competition cases 62 per cent; Guangzhou IP Court has accepted a total of 41,598 IP cases, with patent cases representing 41 per cent, copyright cases 48 per cent and trademark and anti-competition cases 11 per cent. 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 except Shenzhen city, 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 invalidation 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. As of September 2019, the total number of such granting or invalidation of rights of patents and trademarks is 44,924, with patent cases representing 13 per cent and trademark cases 87 per cent.
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 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; (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. Pursuant to a new judgment issued by the Supreme Court, it is not permitted to establish the jurisdiction only considering the place where the infringing products are picked up.
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.
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, if 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 led 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.
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, terms such as '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.
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:
- 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;
- 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
- 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.
Trends and outlook
China has the resolution to provide strengthened IP protection since it is believed that innovation is the critical driving factor of the future economy. The spirit of 'strong, broad, quick and equal' protection on IP rights has been implemented in the professional '1 Supreme Court + 3 IP Courts + 21 IP Tribunal' system, in which 'strong' means the default injunctions except for national and security issues, and increase of damages and gradual incorporation of punitive damages; 'broad' means the integration of administrative, legal and arbitrative routes plus technical appraisal institutes and unified court criteria at Supreme Court level; 'quick means fast legal proceedings and quick responses from the administrative organs, including the Patent Re-examination Board, Customs and the local SAMR; and 'equal' means equal protection for both domestic and international companies. Moreover, considering that China has a huge market, international companies are choosing China as one of most favourable jurisdictions to solve their IP disputes. In 2020, the Supreme Court will step into its second year and more significant judgments will be issued to resolve complicated IP issues.
The number of invention patent filings decreased a little in 2019 and domestic companies are attaching much more importance to the quality of patent filings. In 2020, the number of invention patent filings may still be steady. The criteria for examination of utility model patent filings will be stricter than before since the granting rate of the utility model decreased from 90 per cent to 75 per cent in 2019. On the infringement side, given the situation that most patents are invalidated for those patent infringement cases claiming extremely high damages, damages will possibly be returning to a reasonable range to avoid potential strong invalidity challenges. Moreover, the effectively operating evidence sanction system is sure to facilitate the patentee in collecting solid evidence on damages. IPOs will present a good chance for competitors to utilise patent infringement as a weapon, therefore the patent strength of hi-tech enterprises will be a key factor for survival in the market. The fourth amendment to the Patent Law is still on the way and hopefully will come into force in 2020.
In the trademark sector, with the amendments to the Trademark Law, the bad-faith registration issue becomes the focus of the CNIPA and the legal system. New guidelines from the courts will be formed to illustrate the detailed scenarios of bad-faith registration in order to tackle this issue in practice. The punitive one to five times' damages for trademark infringement will also be helpful in increasing the damages for patent infringement and in the potential incorporation of wilful infringement into the Patent Law. More trademark infringement cases with claims for high damages are expected.
In the copyright sector, the protections on social media articles, performances in TV shows, TV series and sports events will be the main focus, since they are the most active players in the entertainment market accessible by the public. In the anti-monopoly sector, the first round of amendments to the Anti-Monopoly Law will be under public discussion and are sure to bring great changes to the economy.
Along with developments in society, many new types of IP issues and many complicated IP issues will emerge in China in 2020. Enterprises are learning to construct all-dimensional IP protection from the perspectives of patents, trademarks, copyrights, anti-unfair competition and anti-monopoly and combining the judicial and administrative routes as an integrated weapon. Based on the spirit of 'strong, broad, quick and equal protection' in IP rights, China is showing respect for valued IP rights and building stable, fair, transparent and predictable business environments to boost the innovation-driven economy in effective competition order.
1 Guanyang Yao and Michelle Ma are attorneys at Liu, Shen & Associates.