China Amended Its Technology Transfer Regulations Amidst Trade Disputes
China Amended Its Technology Transfer Regulations Amidst Trade Disputes
On March 18, 2019, China announced amendments of its joint venture law and the Regulations on Administration of Technology Import and Export (TIER) with immediate effect. The changes in nature took away some of the restrictions around cross border technology transfers, delivering more freedom of contract for future transactions. The announcement has attracted lots of attention from around the world as the rules are directly related to some of the claims in the US China trade disputes. The changes may turn out to be beneficial to both Chinese and foreign companies in the long run. We highlight the background and key changes below.
Background
China regulated cross border technology transfers from the beginning of 1980s, with a view of protecting domestic companies who were not sophisticated in such transactions. At the heart of the regulations, China uses a classified system to categorize technologies into freely-tradable, restricted and prohibited. If a technology (patented or non-patented) subject to technology licensing or assignments, falls into the catalogues of restricted technologies, import or export bound, must require approvals. After the US China trade dispute escalated in recent years, China also passed a special law to add national security and industry impact reviews for the technologies intended to be licensed or assigned to overseas entities.
In its joint venture law, China stipulated that in a joint venture involving foreign parties, the Chinese parties should have rights to continue using the licensed technology after the initial 10-year term expires.
What has long been controversial are the restrictions imposed by TIER in the technology import contracts, which cover all sorts of patent licenses, assignment and licenses of know-how or technical secret.
First, TIER makes it compulsory that a foreign licensor has the obligation to indemnify Chinese licensees for any loss arising from the use of the licensed technology under the contract. (Art. 24) What was often criticized is that such compulsory rules prevail over the Contract Law of the PRC under which two Chinese parties are allowed to freely negotiate the indemnification terms.
Second, TIER requires that any improvements made by the Chinese licensee to the imported technology shall per se belong to the licensee. (Art. 27) Similarly, the Contract Law does not contain such rules. Parties are free to use contracts to allocate the ownership of improvements made by the licensee. However, the judicial interpretations issued by the top court authority further clarify that there must be a reasonable consideration for any grant-back of the improvement by the licensee.
Further, TIER also requires that anti-competitive restrictions imposed by a foreign licensor shall be invalid. Such anti-competitive restrictions include (a) bundled sales of unnecessary technology, raw materials, products, equipment or services; (b) pay for expired or invalid patents; (c) restraining licensees from improving the technology; (d) restraining licensees from obtaining
China IP, Antitrust and Policy 1 China Amended Its Technology Transfer Regulations Amidst Trade Disputes licenses from competing sources; (e) imposing restrictions on sourcing of the raw materials, parts, products or equipment; (f) imposing restrictions on quantity, types, sales price of products; and (g) restricting export channels. Notably, similar anti-competitive restrictions are prohibited under the PRC Contract Law and relevant judicial interpretations for any and all licensors.
The adoption of these rules in the TIER as well as the joint venture law are widely believed to be based on the consideration back to the 1980s when China just started cross border transactions at large scales. The protections were enacted to ensure the interest of unsophisticated Chinese enterprises. However, since China entered WTO, the necessity and utility of such rules had encountered continuous questioning. Criticism often focused on the inconsistency between the TIER and those in the Contract Law, as well as the unnecessary complexities or even failures caused to cross border technology transactions by TIER.
Implication of Amendments
The amendments, as enacted, seems to eliminate all the controversial rules that are accused to violate the national treatment obligations stipulated in the TRIPS Agreement.
The direct impact of the changes is the broadened freedom of contract in the technology transactions.
Parties may independently agree on indemnity provisions and the ownership of improvements made by the licensees. Cross license, royalty free license or joint ownership should be allowed. Parties may leverage on their business interest to decide on these terms. But licensors need to keep in mind that China has some general requirements on fairness of contract terms. Gross unfairness might be cited as grounds to void licensing contracts.
What might be more interesting are those anti-competitive terms that have been taken away in the new amendments. The old TIER stipulated several anti-competitive or restrictive clauses shall not be allowed. Most of these provisions are actually in Article 329 of the Contract Law and the relevant judicial interpretations. The Anti-monopoly Law can always be invoked to question some of the licensing arrangements under analysis, in addition to the general provisions dealing with IP abuse. One notable item is tie-in sales or bundling. The current Contract Law and the judicial interpretation do not include prohibitions against bundling. Thus, the net effect of the changes to TIER means that bundling is no longer a per se violation in the technology licensing contracts.
To conclude, the amendments of the TIER and the joint venture law are significant changes to the technology transfer regime in China. Hopefully, the legislative changes will lead to significant increase of transactions and, more importantly, the confidence among licensors and licensees.
Authors: He Jing, Jerry Xia
2 China IP, Antitrust and Policy A Step Forward in China‘s Drug Patentability Cases?
A Step Forward in China’s Drug Patentability Cases?
On June 1st, 2018, the Supreme People‘s Court of China (―SPC‖) issued the draft judicial interpretation on patent validity and examination cases for public comments. Article 13 deals with data supplementation issue for chemical invention patents, has drawn wide attention from the industry.
The SPC seems to have adopted a double standard in Article 13, depending on the purposes of data supplementation – for enablement purpose (Art. 26.3 of the Chinese Patent Law) or for the question of inventive step (Art. 22.3 of the Chinese Patent Law). In particular, it appears that the SPC even applies a tougher standard on submitting data to support inventiveness purpose.
In the first paragraph of Article 13, it states that the court shall examine the supplemented data, when such data is used to demonstrate the technical effects have been sufficiently disclosed (enablement issue), and the technical effects can be confirmed (que ren) by the person having ordinary skill in the art according to the specification, drawings and common knowledge on the application date.
In the second paragraph of Article 13, it states that the court shall examine the supplemented data when it is used to demonstrate the claimed invention has different technical effects over prior art (inventiveness) and the technical effects can be confirmed (que ren), directly and unambiguously, by the person having ordinary skill in the art from the specification.
The draft Article 13 is somewhat baffling as the SPC appears to have adopted different standard depending on the purpose of the data supplementation. The SPC uses the word ―confirm (que ren)‖ in both paragraphs in Art. 13, but when it comes to inventiveness, the SPC requires that the confirmation must be done ―directly and unambiguously‖ from the specification. The emphasis on ―directly and unambiguously‖ does not exist in the first paragraph with respect to the issue of enablement.
It makes us wonder if the SPC allows a less strict test for the use of supplemented data to prove the enablement issue. In other words, does it mean that the court allows an applicant to use the supplemented data to prove that certain technical results have been sufficiently disclosed, as long as such technical results can be ―indirectly derived or confirmed by the person having ordinary skill in the art‖?
The different standard is somewhat confusing about the true intention of the SPC. The cases regarding data supplementation, which were adjudicated by the SPC in recent years, indicated that SPC‘s standard for data supplementation has undergone a change.
In Takeda Pharmaceutical Company Limited v. PRB (2012) Zhi Xing Ti Zi No. 41, the SPC was of the opinion that, if the patent applicant or patentee submitted experimental data to prove inventiveness, the technical effects must be explicitly described in the original application. The standard for accepting the data is quite high, which means the technical effects shall be both described and confirmed in the specification.
In Warner-Lambert Company LLC, v. PRB (2014) Xing Ti Zi No. 8, the SPC‘s attitude towards
China IP, Antitrust and Policy 3 A Step Forward in China‘s Drug Patentability Cases? data supplementation appeared to have softened to some extent. In this judgement, the SPC was of the opinion that, with respect to the experimental data for proving enablement, if there was evidence showing that the person having ordinary skill in the art, based on the knowledge level and cognitive capability by the application date, could carry out the invention from the contents disclosed by the specification, such data should be considered. The SPC did not require that the disclosure must be explicitly made in the specification.
Notably, the SPC‘s positions with respect to data supplementation have not reconciled with those of Beijing Higher People‘s Court, which often renders the final decision over patent validity matters. In China, Beijing Higher People‘s Court, as the appellate court, reviews the decision of Beijing IP Court over any appeals from PRB decision, while the SPC has to grant petition for retrials on selected cases.
The Beijing Higher People‘s Court has been insisting on standard of explicit teaching or disclosure. In its own local guidelines issued in 2017, it clearly stated that, the technical effects proved by the supplemented experimental data should be explicitly described in the original patent application.
Such local guidelines were underlying several cases in front of the Beijing Higher People‘s Court, e.g., Celgene v. PRB (2017) Jing Administrative Final No. 1642, and Gilead v. PRB (2017) Jing Administrative Final No. 1806, the standards for the Beijing Higher People‘s Court to accept data supplementation are that, first, the supplemented experimental data are obtained by using the experimental method available prior to the application date; second, the technical effects proved by the supplemented experimental data are explicitly described in the original patent application.
If the draft JI is issued as it stands, Art. 13 would be quite close to what the Beijing Higher People‘s Court has been doing, at least with respect to the inventiveness issues, offering no clear progress with respect to data supplementation issue.
It is hopeful that the SPC will continue reviewing the data supplementation rule and provide something encouraging.
Authors: He Jing, Nick Liu
4 China IP, Antitrust and Policy More Changes Possible in China‘s Patent Law Amendment?
More Changes Possible in China’s Patent Law Amendment?
On January 4, 2019, the Standing Committee of the National People‘s Congress of China published a new version of the proposed Draft Amendments to the Patent Law (―the Draft‖) for public comments. The commenting period ends on February 3. This new draft is the result of the first reading at the end of December by the standing committee. The 2nd reading of the Draft is expected to be in April 2019. The final version may be approved in June or October this year.
Compared to the earlier version, the Draft has eliminated some provisions that generated intense discussions, e.g., rules related to administrative enforcement on repeated infringement matters, some special rules on service invention, secondary infringement. The Draft has introduced a new provision on patent term extension for innovative pharmaceutical drugs, among other notable points. The Draft seems to be driven by strong motivation to demonstrate pro-IP attitudes. The following is highlights:
1) Article 6 of the Draft relates to service invention and inventor remuneration. The new rules seem to intend to give more freedom to state-owned companies to handle service inventions. The controversial part in the earlier version, which could be interpreted to give default rights to inventors, was all deleted.
2) Article 20 of the Draft adds a new broad rule against patent abuse, which stipulates that ―The applying of a patent and exercising of patent rights shall abide by the principle of good faith. Abuse of patents shall not be allowed to harm public interests and others‘ lawful rights and interests or to exclude or restrict competition.‖ The new provision arguably touches on the competition law and overlaps some of the rules in the antimonopoly law in China. The concept of the patent abuse is not defined in the Draft, nor is the term of ―public interest‖ clarified. This provision is likely to generate lots of discussions.
3) Article 42 extends the patent term of design patent to 15 years. The Article also stipulates patent term extension for pharmaceutical inventions. The proposed rule states that ―The State Council may make a decision to extend the duration of the innovative pharmaceutical patents that are synchronously applied for market launch in China and abroad, to make up the time used for drug approval‖. The draft language seems to require lots of clarifications, but in general it should be beneficial to innovative pharmaceutical companies. What is really required as priority is to add additional rules in the Draft to enable the patent linkage system, which has been expressly stated to be in exploration by the highest level policy documents back in 2017.
4) Article 50-51 stipulates a system of ―open license‖ for patents. Under this system, a patent owner may publish the licensing royalty rates and a potential licensee can take on the license based on such terms by written notice. Some commentators believe such a system is no longer necessary.
5) Article 70 of the Draft provides the patent enforcement powers by the CNIPA and its local patent offices. CNIPA is proposed to have powers to handle patent infringement disputes
China IP, Antitrust and Policy 5 More Changes Possible in China‘s Patent Law Amendment?
that are of nationwide significance. While this might be interesting routes for enforcing standard essential patents, the question remains if the powers of administrative enforcement will somehow make the current patent enforcement system overly complicated.
6) Article 72 of the Draft provides one to five times punitive damages for willful infringement. But the issue of wilful infringement is not addressed. The Draft proposes to increase the statutory damages to 5 million RMB with a minimum of RMB 100,000 and clarify a shifting of the burden of proof to the defendant under a duty to cooperate in providing relevant information in order to determine the amount for compensation. Similar rules are already in the trademark law.
The proposed Draft Amendments to the Patent Law reflects the Chinese legislature‘s determination of protection of intellectual property. China‘s current patent law was implemented in 1985, and was revised three times in 1992, 2000 and 2008. While China tries to speed up the process of the patent law amendments, the current set of changes might still be short of what is possible.
Some academics and practitioners really hope that this round of amendment may clearly define the issues of secondary infringement, clarify the exhaustion issue of method claims, add in the protection of partial designs. More importantly, many people are calling for restructuring the invalidation proceeding as a quasi-judiciary proceeding such that only one judiciary review is sufficient. Right now, the judiciary review of the invalidation result at the Patent Review Board is considered as administrative litigation. Two levels of judiciary review are required and most of the time the decisions are simply remanded for additional consideration, resulting in significant waste of time.
The months followed this year are critical to the finalization of the amendments. Hopefully, the opinion from the international community might make a difference.
Authors: He Jing, Wu Li
6 China IP, Antitrust and Policy Will China new E-commerce Law Make Difference to Online Patent Protection?
Will China new E-commerce Law Make Difference to Online Patent Protection?
China just passed the long-awaited ―E-commerce Law‖, which will be effective as of January 1, 2019. While a main focus of the E-commerce law is about consumer protection, the new law represents some latest movement of IP protection in China.
With the rapid growth in online commerce, IP owners increasingly consider asserting patent claims against online vendors and the online platforms, in addition to the usual claims of trademark or copyright infringement. Will the new E-commerce Law make any difference to that situation?
―Notice-Deletion‖ has been adopted by most platforms for years. According to the previous judicial interpretation, online platforms shall take down the infringing products or services when they believe there is relatively high possibility of infringement based on the preliminary evidence provided by the right holders.
In practice, the platforms will evaluate the possibility of the existence of infringement and only take action on the claim with high possibility of infringement. Compared to trademark and copyright, which are relatively easier to be evaluated by the platforms, the patent issues are much more complicated. The platforms normally would act negatively on the take-down notices for patent infringement on the excuse that the patent issues have beyond their capability and ask the parties to submit the disputes to courts. With the new law, this situation probably would be improved. The wording of the new law seems to require that the platforms shall take necessary measures upon receipt of notice from the right holders with the preliminary evidence of infringement. Any failure to act promptly will subject the platforms to penalties of up to US$30 million. And the online platforms shall be jointly liable with the vendors for extra loss suffered by the IP owners if they fail to take the remedial actions.
But it is clear that the new law hints on potential abuse of the complaint system by IP owners. The law imposes quite significant liability on the right holders about the notice. It requires that right holders shall undertake civil liability if they send wrong notices causing harms to the operators on the platforms. If the wrong notices were sent out on bad faith, the right holders shall pay twice damages. This provision could have chilling effects and increase the concerns of patent right holders in front of potential online patent infringement.
On the notice sides, the law requires the online platforms to transfer the notices from the claimed infringers, which should contain preliminary evidence of non-infringement, and if the platforms do not receive the notice of filed lawsuit or complaint within 15 days, they shall cease the measures against the claimed infringers. This may limit the effect of ―Notice-Deletion‖, impose higher burden on the right holders, and increase the amount of infringement lawsuits filed to the courts.
The new law indeed imposes joint liability on online platforms. Online platforms shall undertake the joint liability with infringers when they have the knowledge about the existence of infringement without taking any necessary measure. Though many courts believed that platforms shall also undertake the joint liability when they ―should have known‖ the existence of infringement, it was not clarified by the laws or regulations. The new law clearly imposes joint
China IP, Antitrust and Policy 7 Will China new E-commerce Law Make Difference to Online Patent Protection? liability on platforms when they ―should have known‖ the existence of infringement but did not take necessary measure. This should lower the evidence requirements for the right holders to some degree, as they only need to prove the possibility of knowing. But what counts as ―should have known‖ may still be subject to future judicial interpretations.
The law requires ecommerce operators to distinguish its self-run product/service from those by other sellers, and shall be liable for product/service marked ―sold by the platform‖. In a precedent in 2016, a customer sued JD.com for fraud because of the quality issue of a product marked ―sold by JD‖. However, the court rejected the plaintiff‘s claim because the invoice showed the product was sold by another company. According to the contract between the provider and JD.com, JD.com did not provide the products, but only provided service as online platform and was not involved in the trade of products. Therefore, even though the product was marked ―sold by JD‖, JD was not the actual provider of the product and therefore was not the eligible party of that case. With the new law, that case probably would have a different decision.
Notably, social media like WeChat and TikTok are now implicated under this new law. Social media providers will be under the same scrutiny as the traditional B2C platforms like Alibaba and JD.com. The requirement of official business registration for individual sellers probably would provide an effective access for the rights holders to target the individual sellers‘ identity.
The E-commerce Law also covers many other aspects, like privacy protection, security of online payment, data trade and public data sharing. It not only has significant impact on the online enforcement effects, but also impose legal requirements on the right holders. The interpretations of some clauses are controversial, and shall still wait for clarification by regulations, judicial interpretations and case precedents. The patent owners shall definitely pay attention to the interpretation and execution of the new law to explore better effect of online patent protection and ensure they stay on the right side of the rules.
Authors: He Jing, Lily Dong
8 China IP, Antitrust and Policy First-in-history Partial Judgment Issued by Shanghai IP Court
First-in-history Partial Judgment Issued by Shanghai IP Court
Recently, the Shanghai Intellectual Property Court (SIPC) rendered a so-called partial or interlocutory judgment during a patent infringement lawsuit filed by the French automotive parts manufacturer Valeo against three Chinese defendants including Xiamen Lucas Automotive Parts Co., Ltd., Xiamen Fuke Automotive Parts Co., Ltd. and an individual Mr. Chen (hereinafter collectively referred to ―the defendants‖). In this case, Valeo alleged that the wipers for cars being manufactured and sold by the defendants have infringed its Chinese invention patent named "Connectors for wiper of motor vehicles and corresponding connecting devices" and on that basis, they requested RMB 6M for damages. After careful investigation with support of technical experts, the SIPC found that the defendants‘ products have indeed fallen into the scope of claims 1-3 and 6-10 of Valeo‘s patent in question and hence should immediately stop the infringement first while the damages can be determined later.
It‘s said that this is the first time the SIPC has made such a partial judgment for an IP case. The legal basis is Article 153 of the PRC Civil Procedure Law: ―If some of the facts in a case being tried by the people's court are already evident, the court may pass judgment on that part of the case first.‖
Usually patent lawsuits can take long given their technical complexity including the difficulty to calculate the damages. In a case like this one where the SIPC believed the infringement can adequately be established based on all the ascertained facts, they considered it an innovative and efficient way to apply Article 153 to issue a partial judgment first so as to cease the infringement in a timely manner. Then if the parties would quickly settle on the damages or enter into a licensing arrangement, further judicial proceedings will be saved with effective deterrents already served.
Partial judgments are still not commonly seen probably mainly because the underlying facts of most cases can hardly be ascertained until a full judgment is made. Our research revealed another patent case Sougou v. Baidu in 2018 where the Beijing IP Court issued a similar partial judgment. In addition, there was a copyright dispute case before the Jiangsu Provincial Higher Court where determining the ownership of the software copyright was a pre-condition for infringement conclusion. In light of the huge burden to do infringement analysis for over 30 software programs, the court took its discretion to render an interlocutory judgment on the software copyright ownership first in order to give the parties an opportunity to negotiate a settlement.
Some people might find a partial judgment somewhat similar to a preliminary injunction in terms of stopping the infringement before a final full judgment is made. However, what is different is that a partial judgment issued by the first instance court can still be appealed and hence is not immediately effective. In comparison, a preliminary injunction once granted cannot be appealed and must be executed right away despite the final judgment.
For the above Valeo case, it‘s said that the defendants have filed an appeal which is currently being handled by the newly established IP appellate tribunal of the PRC Supreme Court. The final result remains to be seen. If the first instance infringement conclusion will be maintained, the part becomes final and then the SIPC can continue to issue a damages award, unless the parties will settle in advance. If the infringement conclusion will be revoked, the case is
China IP, Antitrust and Policy 9 First-in-history Partial Judgment Issued by Shanghai IP Court dismissed and apparently there is no need to determine the damages at all so the judicial resources can be saved in a way as well.
Overall a partial judgment can be a good thing to try for applicable cases where IP ownership or infringement may be easily concluded based on the available facts and evidence, particularly if the plaintiff seeks quick deterrents as well as the leverage to negotiate a satisfactory settlement. It can be a viable approach to save time, efforts and costs for both the parties and the courts. The SIPC has set a good example for similar cases in the future.
Authors: Jerry Xia , Anbi Xu
10 China IP, Antitrust and Policy SPC adopts dual standard for supplementary data
SPC adopts dual standard for supplementary data
On June 1 2018, the Supreme People‘s Court of China (SPC) issued the draft judicial interpretation on patent validity and examination cases for public comments. Article 13 deals with data supplementation for chemical invention patents and has drawn widespread attention from the industry.
The SPC seems to have adopted a double standard in Article 13 according to the purpose of the data supplementation – whether for enablement purposes (Article 26.3 of the Chinese Patent Law) or for the question of inventive step (Article 22.3 of the Chinese Patent Law). It appears that the SPC applies an even tougher standard for submitting data in the context of inventiveness.
The first paragraph of Article 13 states that the court shall examine supplementary data when such data is used to demonstrate technical effects that have been sufficiently disclosed (enablement issue), and the technical effects can be confirmed (que ren) by a person having ordinary skill in the art according to the specification, drawings and common knowledge on the application date.
In the second paragraph of Article 13, it states that the court shall examine the supplementary data when it is used to demonstrate that the claimed invention has different technical effects from prior art (inventiveness) and the technical effects can be confirmed (que ren), directly and unambiguously, by a person having ordinary skill in the art from the specification.
The draft Article 13 is slightly confusing as the SPC appears to have adopted different standards depending on the purpose of the data supplementation. The SPC uses the word ―confirm (que ren)‖ in both paragraphs in Article 13, but when it comes to inventiveness, the SPC requires that the confirmation must be done ―directly and unambiguously‖ from the specification. The emphasis on ―directly and unambiguously‖ does not exist in the first paragraph which deals with the issue of enablement.
It makes us wonder if the SPC allows a more lenient test for the use of supplementary data to prove the enablement issue. In other words, does it mean that the court allows an applicant to use the supplementary data to prove that certain technical results have been sufficiently disclosed, as long as such technical results can be ―indirectly derived or confirmed by the person having ordinary skill in the art‖?
The different standard is somewhat confusing. It is difficult to ascertain the true intention of the SPC. The cases regarding data supplementation, which have been adjudicated by the SPC in recent years, indicated that the SPC‘s standard for data supplementation has undergone a change.
In Takeda Pharmaceutical Company Limited v PRB ((2012) Zhi Xing Ti Zi No. 41), the SPC was of the opinion that, if the patent applicant or patentee submitted experimental data to prove inventiveness, the technical effects must be explicitly described in the original application. The standard for accepting the data is quite high, which means the technical effects shall be both described and confirmed in the specification.
China IP, Antitrust and Policy 11 SPC adopts dual standard for supplementary data
In Warner-Lambert Company LLC v PRB ((2014) Xing Ti Zi No. 8), the SPC‘s attitude towards data supplementation appeared to have softened to some extent. In this judgment, the SPC was of the opinion that, with respect to the experimental data for proving enablement, if there was evidence showing that the person having ordinary skill in the art, based on knowledge level and cognitive capability at the application date, could carry out the invention from the contents disclosed by the specification, such data should be considered. The SPC did not require that the disclosure must be explicitly made in the specification.
Notably, the SPC‘s positions with respect to data supplementation have not been in-keeping with those of Beijing Higher People‘s Court, which often renders the final decision on patent validity matters. In China, Beijing Higher People‘s Court, as the appellate court, reviews the decisions of the Beijing IP Court regarding any appeals concerning the Patent Re-examination Board‘s decision, while the SPC has to grant petition for retrials on selected cases.
The Beijing Higher People‘s Court has been insisting on a standard of explicit teaching or disclosure. In its own local guidelines issued in 2017, it clearly stated that, the technical effects proved by the supplementary experimental data should be explicitly described in the original patent application.
Such local guidelines were underlying several cases that came before the Beijing Higher People‘s Court, for example, Celgene v PRB ((2017) Jing Administrative Final No. 1642), and Gilead v PRB ((2017) Jing Administrative Final No. 1806). The standards for the Beijing Higher People‘s Court to accept data supplementation are that, firstly, the supplementary experimental data is obtained by using the experimental method available prior to the application date and secondly, the technical effects proved by the supplemented experimental data are explicitly described in the original patent application.
If the draft JI is issued as it stands, Article 13 would be quite close to what the Beijing Higher People‘s Court has been doing, at least with respect to the inventiveness issue, offering no clear progress with respect to the data supplementation issue.
It is hoped that the SPC will continue reviewing the data supplementation rule.
Authors: He Jing, Liu Qinghui
Published on ―Managing Intellectual Property‖, September 201
12 China IP, Antitrust and Policy SPC issues draft provisions on patent examination and validity
SPC issues draft provisions on patent examination and validity
On June 1 2018, the Supreme People‘s Court of China (SPC) issued Provisions on Several Issues in Adjudicating Patent Granting and Affirming Administrative Cases I (the Draft Provisions). The general public can submit its opinions and comments by July 1 2018.
In the last couple of years, the SPC has issued two sets of judicial interpretations on patent infringement disputes. This is the first time that the SPC has issued a judicial interpretation concerning patent examination and patent validity. In China, the decisions of the patent office or the patent review board (PRB) on examination and validity are subject to review by the judiciary. These are known as administrative legal proceedings and take place at the Beijing Intellectual Property Court and Beijing Higher People‘s Court. The SPC has at times granted a petition for retrials of such reviews by the judiciary. The Draft Provisions are intended to consolidate the rulings and consensus among Chinese judges on the way patents should be examined and validity should be reviewed.
The Draft Provisions have 40 articles in total and cover several issues including scope of adjudication, claim construction, data supplementation for drug patents, and rules of evidence. We highlight some of the important provisions for your reference.
Claim construction
To increase the value and quality of published patents, Article 3(1) of the Draft Provisions states that for patent examinations, the claims should be constructed according to the common understanding of a person skilled in the art, and where the claims use self-defined terms and the specification and drawings have clear definitions or explanations for such terms, the special definitions and explanations should be used in claim construction.
For claim construction in patent validity cases, the Draft Provisions provide two options to be decided upon, in Article 3(2): (1) in a similar way to claim construction rules in patent infringement disputes, the court can use the claims, specification, and drawings when construing claims, and where the specification and drawings have special definitions for terms in the claims, such definitions should be used. File wrapper can be used to construe the claims. Technical dictionaries, technical manuals, reference books, textbooks and national or industrial technical standards etc. can be used in claim construction where none of the above method works; (2) the same rules as those in patent examination cases. It seems that the SPC might prefer the first rule.
It should be noted that Article 4 of the Draft Provisions provides that, when construing the claims in patent validity cases, the court can refer to statements made by a patentee in patent infringement proceedings. This is the first time that the Chinese courts have stated that the doctrine of estoppel works both ways.
Data supplementation
For chemical and drug patents, one of the much debated issues is whether supplementary experimental data submitted by applicants or patentees during patent prosecution or validity
China IP, Antitrust and Policy 13 SPC issues draft provisions on patent examination and validity proceedings should be accepted, and whether such data can be used to explain and prove enablement and/or inventive step.
The SPC tries to solve the issues around supplementary experimental data in the Draft Provisions and provides two options: (1) where such data is to prove sufficient disclosure and the technical effect can be confirmed by a person skilled in the art based on the description, drawings and common knowledge on the application date, the court should examine such data; (2) where such data is to prove the claimed invention has a different technical effect from the prior art, and such technical effect directly derives from and can unambiguously be confirmed by a skilled person in the art from the specification, the court should examine such data.
The Draft Provisions further provide that where a party submits experimental data, the court can ask the party to submit evidence and prove the source and forming procedures of the experimental data which can prove the authenticity of the data, including the raw materials and source of the raw materials, the steps of the experiment, conditions or parameters, people conducting the experiment and experiment facility etc. If the parties have a dispute over the authenticity of the data, the court may appoint qualified judicial appraisal centres to conduct an appraisal.
It seems that the SPC is still debating the appropriate requirements for data supplementation. The proposed rules, which follow the recent decision involving Novartis, are arguably overly stringent for originators. The SPC probably still believes that more flexibility will allow applicants/patentees to introduce new matter, undermining the first to file principle.
Amendments to the description and claims
According to Articles 15 and 16, where amendments to the description and drawings by the patent applicant are clearly recorded in the original specification, drawings and claims, or can be directly and unambiguously confirmed by a person skilled in the art, the court should consider such amendments to have met the written description requirements under the Patent Law.
The significant changes relate to claim amendments. The SPC proposes that as long as the claim amendments have met the requirements of written description, such amendments to the claim are regarded as acceptable under Article 33 of the Patent Law, which sets out general requirements for patent amendments. The intention seems to be to change rigid practice in the patent office with respect to claim amendments. If the rules are applied in the future, applicants will have more opportunity to amend claims, and generalise certain elements based on the description.
Determination of inventive step
Determination of non-obviousness or inventiveness is one of the most challenging issues in patent law. The Draft Provisions only include two provisions to deal with this matter without elaboration. To determine the technical effect of distinguishing features and the technical problem actually solved by the invention, the SPC emphasises that a holistic approach should be adopted. In other words, the distinguishing features should be put into the context of the claimed invention, and the effects of the distinguishing features should be determined based on the knowledge and skill of a person skilled in the art. Based on this, the court will be able to realise the true technical problem to be resolved by the claimed invention. After all this is done, the court will then determine whether there is technical motivation in the prior art as a whole.
14 China IP, Antitrust and Policy SPC issues draft provisions on patent examination and validity
Design patents
There are eight articles in the Draft Provisions dealing with design patents and these articles are mainly about design space and functional features in the design patent.
According to the Draft Provisions, the determination of identity or similarity of design patents should be based on the knowledge and cognitive capability of a normal consumer of the design patent. The knowledge and cognitive capability of a normal consumer of the design patent partly depend on the design space of the product incorporating the design patent.
Factors to be considered in determining design space include: product function and use, density of current designs, usual designs, compulsory rules under law and regulations, and national and industrial standards.
The Draft Provisions also provide that functional design normally does not influence the overall visual effect of the design patent except the positional relationship of such design feature with other design features. Functional design includes the only or the necessary feature for achieving a certain technical function. Where the design feature is not the only or necessary choice for achieving a certain technical function, the choice or change of the design features should not be based on visual effect.
Putting an end to abuse of administrative patent trials
China has a bifurcated patent system in which the PRB determines validity of a patent. The court can only decide whether or not the PRB decision is correct but cannot replace the PRB decision and directly determine the validity of the patent. Therefore, if the court considers a PRB decision to be wrong, the court can only decide to annul the decision and remand the case to the PRB. The party can still file an administrative suit against the reissued PRB decision and normally the court will accept it.
However, such an endless loop of patent trials is inefficient in terms of time and money and causes severe delay in patent infringement suits. To solve this problem, the Draft Provisions provide that where the court has made a decision on the relevant facts and application of law and the PRB reissues its decision based on the court decision, the court will not accept administrative suits filed by the parties against the reissued PRB decision.
Authors: Liu Qinghui, Cao Hui
Published on ―Managing Intellectual Property‖, Midyear 2018
China IP, Antitrust and Policy 15 How will China‘s government reform affect IP in the country?
How will China’s government reform affect IP in the country?
China announced a huge government reshuffle programme. The sweeping government restructuring programme was said to be the largest reform since the end of the Mao Zedong era in the 1970s. The number of ministerial-level bodies was reduced significantly. The entire structure reflects the aim of streamlining governance, in key areas such as environmental protection, taxation, financial regulations and the legislature system on the administrative side.
In the intellectual property world, the most relevant change is the establishment of a super State Market Regulatory Administration (SMRA). This combines the State Administration for Industry and Commerce (SAIC), the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) and the China Food and Drug Administration (CFDA). The antitrust divisions of the National Development and Reform Commission (NDRC) and Ministry of Commerce (MOFCOM) will also be merged into this super ministry. The patent and trade mark offices will be combined and housed under one roof - the SMRA. The responsibilities of the State Intellectual Property Office (SIPO), the State Administration for Industry and Commerce (SAIC) and the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) – for patents, trade marks and geographical indications respectively – will all be governed under the SMRA.
Placing the patent and trade mark offices under the new mega ministry SMRA is something that has been discussed before, but the extent of this new authority‘s powers comes as a surprise. With regard to how it will affect the capabilities of the patent and trade mark functions, it seems the change might be more administrative in nature and cause no major disruptions. It is not necessary that the reorganisation will impact either office negatively, as it will still be the same group of people working at both offices. Each office should function in the same way as they have done previously.
The restructuring also raises bigger picture questions such as who will now guide the overall direction of IP policy in China and whether there will be a redistribution of resources. Traditionally, the SIPO has been deeply involved in nurturing IP innovation policy and shaping the law, and it reports directly to the State Council, the highest level of authority in the country. SIPO plays an instrumental role in the new patent law amendments and inventor remuneration regulations. Now, any policies to be initiated by SIPO will be checked first by the new SMRA and, if approved, forwarded to the new Ministry of Justice, which is reinvigorated by including the former State Council Legislative Affairs Office. It is believed that before long the SMRA will dictate patent-related policies.
Regarding the SMRA, what is mostly notable is its new leader. Bi Jingquan, former head of the CFDA was just appointed to lead the new regulatory body as party secretary general, together with Mr Zhang Mao, former head of the SAIC, as minister of the SMRA. Bi Jingquan is widely regarded as a hands-on pro-reform and pro-innovation leader who has, for example, been playing a critical role in introducing the pharmaceutical patent linkage system in China. The reform he led in the pharmaceutical area is unprecedented and is clearly part of the foundation for his promotion. He might continue instigating reforms at this new ministry. The progress he will initiate in the area of patent linkage, regulatory data protection and patent term extension will be signals of future reforms in the IP field.
16 China IP, Antitrust and Policy How will China‘s government reform affect IP in the country?
The impact of the consolidation at the central government level remains to be seen at the local level. In fact, in recent years local SMRAs have been established in many cities, starting from Shenzhen. Patent administrative enforcement has already been tried out at some of the local SMRAs. The consolidation of the enforcement powers in both the trade mark and patent area might arguably increase effectiveness and deterrence. What is also notable is the consolidation of the antitrust departments in the SMRA, as it may have some impact on IP-related antitrust regulations. The NDRC and SAIC arguably both have jurisdiction over IP-related antitrust issues. The consolidation, which aims to achieve uniform antitrust law enforcement will probably put an end to this dual jurisdiction.
Authors: He Jing
Published on ―Managing Intellectual Property‖, May 2018
China IP, Antitrust and Policy 17 Examination Guidelines amendments good news for patentees
Examination Guidelines amendments good news for patentees
On March 2 2017, the State Intellectual Property Office (SIPO) of China announced its decision to amend the Patent Examination Guidelines, effective as of April 1 2017. The new Guidelines provide significant changes to software patents, data supplementation for pharmaceutical patents and claim amendments in the invalidation procedures.
Exciting news for e-commerce and internet plus
Previously, once an applicant filed an application involving business innovations in e-commerce or internet plus, the patent eligibility issue has been a challenge. Examiners always reject such applications as being directed to rules and methods for mental acts or not constituting a technical solution.
According to the new Guidelines, if a claim includes business methods and technical features, it will not be excluded as lacking patentability per se, which opens a new door for business method patents. However, this does not mean that having a technical feature is a guarantee of patentability. The technical elements test remains: for such an application, technical means is adopted to solve a technical problem and achieve a technical effect. Furthermore, the current examination policy puts more stress on inventiveness over prior art. This means that applicants and the practitioner must be able to find good ways to prove or at least argue for technical contribution.
Less headache to draft software patents
In the past, China‘s requirements for drafting computer program related claims are much stricter than its major peers, such as the US, Europe, Japan and Korea. The new Guidelines moved a step forward towards international standards.
According to the new Guidelines, a computer program-related invention should be distinguished from a computer program per se, and the former could be patentable. Although a computer program per se is still deemed as rules and methods for mental acts and thus unpatentable, it is clear now that claims can be drafted in terms of storage medium and program flow. Moreover, the new Guidelines provide that a computer program may, like hardware, act as an element of an apparatus claim, and the functional module previously defined in Chapter 9, Part II of the Guidelines is revised to be a program module so as to avoid confusion with the commonly known means plus function set forth in Chapter 2, Part II of the Guidelines.
Under the new Guidelines, claims may take the following forms which are familiar to US and EP applicants: 1) A computer readable medium comprising instructions executable by a processor for performing steps of:…; 2) A device comprising a processor, a storage medium and a computer program…; and 3) A device, comprising a program module for ...
18 China IP, Antitrust and Policy Examination Guidelines amendments good news for patentees
Although computer program-related claims can be drafted in a more flexible way, further observations are needed as to whether such claims can be enforced smoothly and effectively, especially after the Nokia v Huaqin case was withdrawn from the Supreme Court last year, where the lower court gave a controversial decision holding a software claim as unenforceable for lacking clarity. It still remains uncertain how the courts will interpret the claims drafted under the new Guidelines.
Post-filing supplementation of experimental data
During prosecution of biotech and chemical patents, applicants may wish to supplement experimental data after the filing date, to testify the technical effect so as to strengthen the inventiveness or sufficient disclosure. However, supplementation of experimental data after the filing date to overcome insufficient disclosure is unacceptable under the old versions of the Patent Examination Guidelines (announced in 2001, 2006, and 2010), although the SIPO provided some flexibilities through informal guides.
According to the new Guidelines, postfiling supplementation of experimental data is allowed. The examiners shall examine experimental data supplemented after the filing date, and the technical effect to be testified by the supplemented experimental data shall be derivable by persons having ordinary skill in the art from the disclosure of the patent application.
The above seems an echo of Warner-Lambert v PRB (Case No 2014-8, April 16 2015) and looks more favourable than the Supreme Court‘s opinion in Takeda v PRB (Case No 2012-41, September 17 2012), holding that the precondition for accepting experimental data is that the technical effect to be testified by the supplemented experimental data is expressly recited in the original patent file. Under current judicial practice, another circumstance to consider accepting experimental data supplemented after the filing date is that the original patent file contains some relevant experimental data.
Patent amendment during invalidation procedure
Under the old Guidelines, patent amendments during the invalidation procedure were limited to deletion of a claim, deletion of a claimed solution, and consolidation of claims. Under the new Guidelines, consolidation of claims is cancelled, while further defining a claim and correcting an obvious error are introduced.
Here, further defining a claim means the claim is narrowed by incorporating one or more technical features set forth in other claims. The new Guidelines are silent regarding what kind of error is obvious and can be corrected in the invalidation procedure. We believe that an obvious error should be one easily identifiable by persons having ordinary skill in the art and its correct answer can be determined directly.
Overall, the amended patent examination guidelines offer encouraging news for the patentees as they can have more freedom to amend claims during the invalidation procedure, which may save some of the patent enforcement efforts.
Authors: Song Steve, He Jing
Published on ―Managing Intellectual Property‖, April 2017
China IP, Antitrust and Policy 19 China Proposes Reforms for Its IP Adjudication System
China Proposes Reforms for Its IP Adjudication System
On February 27 2018, the top policy-making bodies in China (the General Office of the Party and the General Office of the Council) published an unprecedented policy roadmap for reforming the IP adjudication system (opinions). The opinions reveal much clearer thinking and critical measures for reforms and innovation in the IP adjudication system.
The opinions again emphasise the important role of judicial protection of IP. It will be interesting to see if these opinions have a direct impact on patent administrative enforcement. In the recent draft amendment to Patent Law, several provisions proposed granting administrative authority more power in patent enforcement matters, which caused considerable controversy. In light of the opinions, such provisions in the draft amendment to Patent Law might be modified significantly before being passed by Congress.
The opinions propose establishing a national IP appellate hearing mechanism in order to solve the potential issue of inconsistency among different IP courts across the country. From the wording, it is hard to ascertain the nature of the appellate mechanism. One possibility is having one appellate court review all decisions from all first instance IP courts. Another possibility is having one appellate court with several divisions review the decisions from their respective first instance courts.
As of today, there are three IP courts in Beijing, Shanghai and Guangzhou, as well as specialised IP tribunals in some major cities. Following on from Shenzhen and Xi‘an, cities such as Tianjin, Zhengzhou and Changsha are reportedly to acquire IP tribunals soon. It is predicted that the provinces with strong economies will have one or two IP tribunals in order to achieve cross-region jurisdiction. Beijing IP Court will soon have jurisdiction over some IP cases in the neighbouring provinces. Such centralised jurisdiction is the trend, especially for patent cases.
The opinions propose picking IP judges from legislative staff, lawyers and legal scholars and at the same time seconding judges to government roles in different cities for more experience. Unlike the US, China does not have a tradition of selecting judges from lawyers. In the past five years, some limited experiments were done. With the release of the opinions, we might see more lawyers in private practice becoming judges.
The opinions propose several measures to reduce the burden of proof carried by IP owners and also propose determining damages. In addition, the IP case guidance system will be improved, and an expeditious procedure will be introduced for IP cases to reduce caseloads. All these measures, if adopted, will continue to change the landscape of IP litigation in China.
Notably, the opinions call for strengthening the capacity building of technology investigation officers and creating rules for the admission of technology investigation comments. This issue has increasingly been a concern for litigants wanting fairness in the procedures.
In China, technology investigation officers help judges with technical fact finding, a practice which is believed to come from Japan. A technology investigation officer serves as an assistant to the panel and may attend the litigation proceedings, including hearing the oral debates and sitting in the panel deliberation. Most of these technology investigators are chosen from patent offices.
20 China IP, Antitrust and Policy China Proposes Reforms for Its IP Adjudication System
Relevant laws are to be amended to accommodate the reform proposals and measures mentioned above. Therefore, it is expected that the National People‘s Congress will speed up the review of the amendments to Patent Law and Copyright Law, as well as the relevant laws on the court organisation structure.
In conjunction with the proposed merge of the China Patent Office and Trademark Office, the upcoming changes in IP trials inspire hope of some real improvements.
Authors: He Jing, Chen Zhixing
Published on ―Managing Intellectual Property‖, April 2018
China IP, Antitrust and Policy 21 IP Courts under Review
IP Courts under Review
At the end of August 2017, the Supreme People‘s Court of China released a special report about the intellectual property courts that was launched three years ago. Back in 2014, the legislature called for a review of the newly established IP courts three years before deciding what is next to do. The three IP courts were widely considered a big experiment of China‘s judiciary reforms.
The SPC report has a positive conclusion about the value and contribution of the three IP courts. According to the report, the three IP courts have in total accepted 46,071 IP cases and decided 33,135 cases since 2014. Among the concluded civil IP cases, 21% are patent cases, 4% are trade mark infringement cases, and a majority of cases relate to copyright. In some IP infringement cases, the three IP courts granted high damages to the IP right owners, by Chinese standards. Probably more importantly, the Beijing IP court has taken on some new measures, such as the introduction of a technical investigator, experimenting with an amicus brief-type submission, and launching an IP guiding case research centre, all of which are considered as important reformative steps to increase consistency and transparency.
As to the next step of the judiciary reform, the SPC proposes having sole-judge benches deciding on simple civil and administrative IP cases, in order to reduce heavy burden on the judges and increase efficiency. Also, the SPC recommends establishing a specialized IP court at appellate level, which will be a significant success, once it becomes reality. But the details of such an appellate IP court are unknown yet.
With respect to accomplishments made by the Beijing IP Court, an online report made by a judge in the court is particularly interesting. The report, which was publicized on the Beijing IP Court‘s Wechat account, should reflect an official view.
The report is based on data from 668 concluded patent infringement cases by the Beijing IP Court from November 6 2014 to June 30 2017. Some key facts worth noting:
(1) High win rate for patentees
Out of the 668 cases, 142 were concluded by judgment while the rest were either settled or were dismissed because of an invalidity decision by the Patent Re-examination Board (PRB).
Among the cases with court judgments, the win rate for patentees is 81.7%. A very high percentage of these cases (82.2%) were filed by the mainland China patent owners. Among the cases filed by foreign patent owners, the win rate is 76.9%. Foreign patentees won 10 cases won out of 13 decided cases.
Arguably, this data reflects a tendency favouring patentees, either domestic or foreign, in general, although the overall number of decisions is relatively small.
A majority of cases were withdrawn upon settlement. This is probably not surprising. The other cases were dismissed due to invalidity decision by PRB. Notably, in China, where patentees choose to appeal an invalidity decision to the courts, the court handling infringement trials may dismiss the case without prejudice and patentees can sue again once validity is confirmed.
22 China IP, Antitrust and Policy IP Courts under Review
(2) Increased damages
The damages awarded to patentees increased greatly, by Chinese standards. The average damages per case rises each year, from $54,000 in 2015, to $158,000 in 2016 and then to $170,000 in the first half of 2017.
In a recent USB key patent infringement case decided by the end of 2016, the Beijing IP Court awarded the patentee $7.54 million as damages and an additional $154,000 to compensate the reasonable expenses incurred to the patentee. As China does not have discovery in trials, it was hard for patentees to prove damages. This case is the beginning of legal reform aiming at reducing burden of proof on patentees to prove damages.
(3) Injunctions Almost Always Available if patent owner prevails
In Chinese patent practice, patentees can almost always obtain injunctions if they prevail, except in exceptional circumstances such as national security or public interest. The statistics of the Beijing IP Court show the court did not order a permanent injunction only in nine cases, mostly because of procedural reasons. None of them are because of national security or public interest. Among the nine cases, the patentee‘s patent expired before end of trial in three cases and so the injunction issue was moot. In three other cases, the defendants were resellers, who did not directly engage in infringement activities. For the remaining three cases, there was no injunction either because the plaintiffs did not claim injunction and/or the defendant had stopped the infringing conduct.
What is interesting is what the Beijing IP Court will do in SEP cases. In the case between IWNCOMM and SONY, the court granted a permanent injunction in the SEP case. With the increase of SEP cases, it is noteworthy whether the court would break the current record on permanent injunction in the future.
The judge‘s report sends out a strong pro-IP signal. Anecdotal evidence shows that more patentees are now filing cases in Beijing. It is hoped that the judiciary reform will continue or even expedite, so the judges will have enough resources to handle the bigger docket.
What is encouraging is that this year witnessed the establishment of 10 new specialized IP tribunals in seven provinces with cross-regional jurisdiction over patent cases etc. These IP tribunals function very similarly to the IP courts. All this gives more choices for IP owners, and also provides a great foundation for the specialized IP court at appellate level.
Authors: He Jing, Cao Hui
Published on ―Managing Intellectual Property‖, October 2017
China IP, Antitrust and Policy 23 Patent Linkage System Is Becoming Real in China
Patent Linkage System Is Becoming Real in China
In early October, the top policy making body in China issued a special opinion proposing to explore the patent linkage system, to extend patent terms for pharmaceuticals and to improve regulatory data protection, all of which are intended to encourage innovation in pharmaceutical and medical device fields. While the exact details of such new policy initiatives are not yet known, it has excited the industry.
In the past, despite some early useful efforts in attempting to associate the drug approval process with patent protection, CFDA took the view that its task was to verify the safety, effectiveness and quality of a medical product, and it had no power or responsibility to consider the patent related issues. Under the current practice, only a simple non-infringement statement is required for the granting of drug approval. The applicant can hardly be held liable for the authenticity and accuracy of the statement.
Meanwhile, while the current China patent law absorbed a Bolar exemption type rule, manufacturing, using and importing patented drugs for the purpose of providing information necessary for going through the drug approval process is not deemed an infringement, nor is any patent term extension is available.
In recent years, rapid investment in new drug development within China has drawn more attention to the lack of strong IP protection of pharmaceutical products. It is very encouraging that China has shifted focus to this area and now apparently is going to adopt a US style patent linkage system.
The patent linkage system, as proposed in an earlier CFDA document (Circular No. 55) issued in May 2017, appears to mirror the US system in some ways. According to the circular, a drug applicant should disclose relevant patent information when filing an application for drug registration, and shall notify the patentee within 20 days if the applicant is willing to challenge the originator‘s patent rights. If the patentee believes that its patent is infringed, it shall file a patent infringement lawsuit within 20 days from receiving the notice, the CFDA may set a stay period up to 24 months to stay the drug approval. Once a settlement is reached or an effective decision is made by a court/IPO within the stay period, CFDA may approve or disapprove the drug registration. Otherwise, CFDA may approve the drug registration once the stay period expires.
The exact details of the China patent linkage system are still work in progress. The October policy document endorses immediate a pilot programme of a patent linkage system, but did not substantiate what was disclosed in the CFDA circular. This shows some possible variations, such as the 24-month stay period and what incentives to give to successful generic challengers.
Previously, CFDA protected regulatory data for drugs containing a new chemical composition for six years. The October policy document makes clear that protection of regulatory data applies to innovative drugs, orphan drugs, pediatric drugs, and innovative bio products for use of treatment. According to the CFDA Circular, the regulatory data protection periods are arguably extended based on the types of drugs – six years for innovative drugs; 10 years for orphan drugs and pediatric drugs in innovative drugs; three years for orphan drugs and pediatric drugs in
24 China IP, Antitrust and Policy Patent Linkage System Is Becoming Real in China modified new drugs; 10 years for innovative bio products for use of treatment. Also, the data protection periods apply to new drugs approved in EP, US and JP if the application is filed to CFDA within one year of their approval.
China now also proposes patent term extensions for some new drugs in view of the time waiting for clinical test and CFDA approval, but has provided no details yet. Also, it remains unclear as to whether the extensions can be applied to method patents for preparing new drugs. The change will require legislative changes to the Patent Law and Patent Examination Guidelines. Innovators should keep a close watch on what kind of new drugs can get benefits from the patent term extensions and be well prepared to apply for extensions.
All these proposed changes, if executed properly, are arguably the most exciting reforms in decades when it comes to the legal protection of pharmaceutical innovations in China. As there are many uncertainties ahead and more specific rules are expected, both originators and generic companies should keep updated of further developments in policy and rules, and be prepared for the upcoming patent linkage system in China.
Authors: Wu Li, Song Steve
Published on ―Managing Intellectual Property‖, Year End 2017
China IP, Antitrust and Policy 25 Beijing IP Court Decided First GUI Infringement Case
Beijing IP Court Decided First GUI Infringement Case
At the end of Dec. 2017, Beijing IP Court decided the first GUI (Graphical User Interface) patent infringement case in China. This case is a legal battle between the old generation and young generation anti-virus software giants. The plaintiff Qihoo 360 currently is the largest cyber security company in China, and the defendant Jiangmin is a pioneer anti-virus software provider in the PC era. Beijing IP Court rendered a decision in favor of Jiangmin.
Case introduction
Qihoo 360 holds a design patent entitled “computer with GUI”. The usage of the corresponding product incorporating the GUI is described as running a program, the key point of the design is described as GUI displayed on a computer, and the GUI for the product is described as a software GUI for computer security optimization.
Qihoo 360 claimed that the software “Jiangmin Optimization Expert” exhibits the same design as its patent and thus constitutes direct infringement. Even if the GUI patent scope is restricted to computer products, contributory infringement is constituted.
With respect to direct infringement, Beijing IP Court followed the traditional approach by holding that the title “computer with GUI” makes clear that the patent scope is limited to computer products. Although the accused infringing software is provided to users by the defendant, it is not a product in a same or similar category as computer. Therefore, the accused infringing software doesn’t fall within the patent scope.
With respect to contributory infringement, the court held that contributory infringement is premised on the fact that a user committed an act of directly implementing the patent in suit. But in this case, users only downloaded the accused infringing software to their own computers, and no one committed acts of making, selling, or offering for sale computers with the accused infringing software preinstalled. In view of this, no one committed an act of directly implementing the patent in suit, and therefore no contributory infringement can be found merely on basis of the fact that the accused infringing software is provided by the defendant.
The dilemma faced by GUI patentees
This case created a big stir in China’s IT and IP sectors. Many GUI patentees feel deeply disappointed, and they are even worried that their GUI patent assets turn out to be useless following the court decision.
In China, a design patent cannot be independent of a product, which is clear from the patent laws, rules and regulations as well as the judicial practice. Before May 2014, GUI had long been unpatentable because the Patent Examination Guidelines announced by the SIPO provided that any photo or picture of a design patent is not allowed to contain an interface which is displayed when power on. On 1 May 2014, the Patent Examination Guidelines were amended to accommodate products incorporating GUI, which is recognized as a landmark event for GUI patent protection.
26 China IP, Antitrust and Policy Beijing IP Court Decided First GUI Infringement Case
Since then, lots of GUI design patent applications have been filed and issued. But examiners commonly believe that goods incorporating design patents can only be physical products, instead of software. Because of this, applicants had to associate their designs with hardware products, for example, a computer with GUI, a mobile device with GUI, an apparatus with GUI, etc. Otherwise, examiners would issue notifications asking for correction or even rejections. Therefore, applicants were placed in a dilemma: to get allowance, they had to specify that the product carrying the GUI is a hardware; once the product is specified as a hardware, they will face the risks of limiting the patent scope such that a software developer may escape from infringement even if it copies the GUI because it makes no hardware.
This case reflects the awkward situation of GUI design patent protection in China: although the SIPO gave a green light to GUI, there are too many restrictions in patent examination and enforcement.
What is the way out for GUI protection?
Now, people are pondering: what is the way out for GUI protection?
Some are counting on the partial design system as proposed in the draft amendment of the Patent Law. But the problem is still there for GUI if the product carrying GUI cannot be understood to cover software.
Some may come up with the big idea of detaching GUI from any product. But this idea seems too crazy for the time being because great importance is attached to the product indication requirement in both the Patent Law and its interpretations made by the Supreme Court. It still has too long a way to go before being widely accepted by the IP authorities in China.
A practical approach is to interpret the products incorporating GUI in a broad sense. In fact, a computer with GUI is essentially directed to the software embodying the GUI, and the hardware can be in various forms. Nowadays, a computer is nothing without software, and any computer is a combination of hardware and software. It seems not difficult to transform from software to hardware, and vice versa. In view of this, it seems too rigid to say that the accused infringing software is not in a same or similar category as the computer product. This is supported by the newest version of Locarno Classification (designs), in which graphical user interfaces [computer screen layout] and icons [for computers] are classified under Class 14-04 (screen displays and icons) as goods which may incorporate GUI. Furthermore, the title of a design patent is not necessarily limiting the GUI protection scope just as a preamble is not necessarily limiting the patent scope of a utility patent. These issues are hopefully to be debated hotly in the appeal proceedings.
The contributory infringement issue in this case is also very intriguing. In the patent law, a technology patent (utility model or invention) adopts the all elements rule which is closely related to the single entity rule, and most contributory infringements aim at overcoming the rigid application of the all elements rule by a single entity. Although the design patent system is provided in Chinese patent law, what is applicable to a design patent is not the all elements rule, but overall observation and comprehensive judgement, which is unlike technology patents. This puts design patent infringement closer to the confusion theory in trademark law, which is also
China IP, Antitrust and Policy 27 Beijing IP Court Decided First GUI Infringement Case evidenced by the limitation of product class to the protection scope as reflected in this case. In all, this case will help the contributory infringement theory and framework for design patents in China to become more mature and solid.
Outlook
In view of the patent laws, rules, and regulations as well as the patent documents, it is not surprising that the judges made a conservative decision in the first GUI infringement case.
As analyzed above, currently the most practical solution might be to interpret software as a design product which may carry GUI. To provide full protection for GUI, the SIPO needs adjustments to the current patent examination policy and examination criteria, during the process of which corporate counsels and outside attorneys should be the driving force. The courts can also do more work to enhance GUI patent protection and avoid frustrating the GUI innovators.
Authors: Song Steve, Zou Eleanor
Published on ―Managing Intellectual Property‖, February 2018
28 China IP, Antitrust and Policy Data Supplementation for Chemical and Biotech Patents in China
Data Supplementation for Chemical and Biotech Patents in China
In the chemical and biotech sector, China’s State Intellectual Property Office (SIPO) and courts have been extremely strict when it comes to accepting supplementation of post-filing data during prosecution, invalidation or administrative litigation proceedings. The amended Patent Examination Guideline, which took effect on April 1 2017 seemed to provide some principles for the data supplementation issue. According to this, experimental data submitted after the filing date shall be analysed by the examiners. The technical effects to be testified by the supplemented experimental data should be such that a person skilled in the art can derive from the disclosure of the patent application. However, from such wording, it is still unclear to the applicant or patentee what the technical effect derivable from the disclosure of the patent application means exactly.
Recently, an AstraZeneca CN patent related to the drug product Ticagrelor and a Novartis CN patent related to the drug product Entresto were invalidated for lack of inventive step. The decision made by the Patent Reexamination Board (PRB) of SIPO gives a clear explanation to the data supplementation issue where inventive step is involved.
Facts of AstraZeneca invalidation case (related to Ticagrelor)
The PRB issued the invalidation decision regarding the AstraZeneca patent (99815926.3) on October 10 2017 for lack of inventive step. During the invalidation proceeding, AstraZeneca submitted as evidence a statement made by the expert witness Robert J Riley who also attended the hearing. The evidence showed that the compound of claim 1 manifested significant higher metabolic stability than the compound with a chemical structure close to that of claim 1.
In the PRB decision, the panel stated the following: i) The effect of higher metabolic stability was merely mentioned in the background part of the patent and no data was provided in the embodiments showing the compounds of claim 1 have any metabolic stability effect. ii) One skilled in the art could not predict the compounds of the patent will have higher metabolic stability either. Therefore, the supplementary data filed by AstraZeneca after the filing date to prove the unconfirmed technical effect in the patent document was not considered acceptable.
In this case, the PRB’s stance of not allowing the patentee to submit data to prove the asserted technical effect echoes several preceding court decisions, such as Boehringer Ingelheim v. PRB (2017-JingXingZhong-2470) decided by the Beijing High People’s Court.
Facts of Novartis invalidation case (related to Entresto)
The PRB issued an invalidation decision regarding the Novartis patent (201110029600.7) on December 27 2017 for lack of inventive step. During the invalidation proceeding, two pieces of evidence submitted by the patentee were supplementary data to manifest the synergy effect of lowering blood pressure when using the pharmaceutical composition of claim 1. Such pieces of evidence have previously been filed during US patent prosecutions.
China IP, Antitrust and Policy 29 Data Supplementation for Chemical and Biotech Patents in China
In the PRB decision, the panel asserted the following: i) In order to show that a compound or composition has a certain technical effect, the patent document should provide experimental method, experimental data and result and experimental conclusion. The patent only provided experimental method and conclusion regarding the synergy effect of the pharmaceutical composition of claim 1. ii) One skilled in the art would be unable to rely on the experimental conclusion without the data and result to ascertain the synergy effect of the pharmaceutical composition. iii) The experimental data and result submitted by the patentee during the invalidation proceeding did not belong to the original disclosure. According to the first to file principle, the premise of accepting post filing data is that the technical effect to be proved is available from the original disclosure. Therefore, the two pieces of evidence of supplementary data could not be used to manifest the technical effect of the present invention.
From this case, we can see that the PRB sets a high standard for accepting supplementary data regarding inventive step. The PRB takes the position that the technical effect which the supplementary data intends to prove should not only be mentioned, but also be fully proved in the original disclosure with corresponding experimental method, experimental data and result and experimental conclusion.
Implications
The PRB and courts have expressed the opinion in many decisions that if the post-filing data testifying the asserted technical effects is permitted, it is detrimental to the first to file principle because it might inappropriately encourage the applicant to merely mention technical effects and file the patent application as early as possible, but hide the detailed and revealing data until later, when any dispute arises. This would destroy the founding principle of the patent system: to exchange protection with disclosure.
We believe that the PRB/courts’ attitude towards data supplementation is too rigid. Post-filing data could be used to overcome lack of inventive step or insufficient disclosure objections. Sufficient disclosure is related to enablement, thus it is reasonable to adopt a strict standard for accepting the post-filing data under the first to file principle. However, the standard cannot be higher than the enablement standard. For inventive step, if the examiner or invalidation petitioner cites a prior art about which the applicant or patentee is unaware, it would be necessary to submit the supplementary data in order to rebut the claim. If the PRB or the courts adopt a stricter rule for post-filing data regarding lack of inventive step than insufficient disclosure, a chemical or biotech patent might face a higher risk of being invalidated. This means that in order ensure a stable patent right, the applicant would have to conduct enough experimental work regarding each potential technical effect and include all the related methods, data and results when drafting the application.
In the past three years, SIPO has been prone to adopting the lack of novelty or inventive step objection for chemical or biotech patent applications, instead of resorting to the previous insufficient disclosure objection. However, from the latest cases, especially the Novartis case, it seems very hard for the applicant or patentee to meet the SIPO or PRB’s standard for supplementary data. Regarding the two cases mentioned above, AstraZeneca and Novartis still
30 China IP, Antitrust and Policy Data Supplementation for Chemical and Biotech Patents in China have chances to appeal to the Beijing IP court. We await the court’s opinion on this issue.
Authors: Wu Li, Wang Ying
Published on ―Managing Intellectual Property‖, March 2018
China IP, Antitrust and Policy 31 Supreme Court Frustrates Forum-shopping Tactics
Supreme Court Frustrates Forum-shopping Tactics
Currently, online shopping is very popular in China for great variety and cheap or even free product delivery. As a tactical choice, some IP owners begin to purchase infringing products online and have the process of product delivery notarized. In this way, the plaintiffs attempt to bring lawsuits in a venue having jurisdiction over the place where the delivered product is received or the place where they reside, so as to gain home court advantage or win a favorable edge over the defendants. However, this could cause unfairness and inconvenience to the defendants.
No clear Jurisdiction rules
The current relevant laws and regulations are unclear as to whether such forum shopping is proper. According to the Civil Procedure Law (effective as of 2015), a lawsuit arising from acts of infringement may be brought in a court having jurisdiction over a place where an act of infringement is committed or where the defendant resides. There are three relevant articles in the Judicial Interpretations of the Civil Procedure Law released by the Supreme Court (SPC), but they seemingly have some overlap. Article 24 provides that places where acts of infringement are committed include a place where an act of infringement is performed and a place where the result of infringement occurs. While common understanding can be reached for the meaning of the place where an act of infringement is performed, disagreement has arisen about places where the result of infringement occurs.
As to the question whether a place where the delivered product is received can be understood as a place where the result of infringement occurs, there are a lot of controversies. Articles 20 and 25 make things more complicated: according to Article 20, for a sales contract concluded via information networks, the place where the contract is performed may be one where the purchaser resides or one where the purchased product is received; according to Article 25, a place where an act of information network infringement is performed includes a place where the computer performing the accused act of infringement is located, and a place where the result of infringement occurs may be one where the right holder resides.
Some plaintiffs rely on Article 20 or 25 to argue that they are entitled to bring a civil action in a court having jurisdiction over a place where the delivered product is received or where they reside. Several such IP cases emerged across the country during the past two years; different courts have different decisions. For example, such forum shopping tactics were supported by courts in Shanghai, Jiangsu, and Zhejiang, but were rejected by courts in Beijing and Guangdong.
SPC's position
In two recent cases, SPC said no to such forum shopping tactics and held that patent or trademark infringement cases are not governed under Article 20 or 25.
In a design patent infringement case No. 2016-MinShen-731, SPC held that the acts of patent infringement alleged by the plaintiff are essentially inconsistent with the acts of infringing online dissemination rights and thus the plaintiff’s residence cannot be used as a link for venue choice. Although no detailed explanation is given in the court decision, SPC believes that an act
32 China IP, Antitrust and Policy Supreme Court Frustrates Forum-shopping Tactics of IP infringement is not an act of information network infringement and thus Article 25 is not applicable for venue purposes in patent infringement cases.
In a more recent trademark infringement case No. 2016-MinXiaZhong-107, SPC made more clarifications. SPC reasoned that the rationale behind Article 20, which sets a further provision regarding the place where the contract is performed, is that for a sales contract concluded via the information network, it’s difficult to determine the place where the defendant resides or the place where the contract is performed. SPC implied that IP infringement cases should not be subject to Article 20 since it’s easy to determine the place where the defendant resides or the place where the contract is performed. In SPC’s view, a case arising from breach of contract largely differs from an IP infringement or unfair competition case: the former merely concerns particular acts and particular parties, while the latter is not directed to the particular product, but to all products embodying a particular IP right, and for the latter, the allegations of the plaintiff are not directed to the other party of a contract, but to all parties suspicious of infringement relating to the product of concern under relevant laws. In consideration of these differences, SPC concluded that IP infringement or unfair competition cases shall be subject to their respective particular provisions, and it’s improper to apply Article 20 even if the accused infringing product is purchased via online shopping.
Implications
First, when it comes to forum shopping, the nature of patent and trademark infringements remains unchanged in spite of Internet plus. For such cases, the place where an act of infringement is performed or the place where the defendant resides can be determined without much difficulty. Therefore, IP owners are not allowed to establish venue as in cases involving contracts concluded via information networks and infringements occurring via information networks.
Second, for IP cases, random forum shopping is not advocated and "centralized control" is the future trend. During the past three years, China launched a pilot program to set up three specialized IP courts in Beijing, Shanghai and Guangzhou, and to further include four new IP tribunals in Nanjing, Suzhou, Wuhan and Chengdu. All these measures are taken to avoid dispersing IP cases (especially patent cases) across the country, so as to avoid inconsistent decisions for similar cases to be reached at different courts. This is also supported by the case guidance system developed by SPC and embraced by Beijing IP Court. With these in mind, it would be easy to understand why SPC is unwilling to empower jurisdiction of IP cases to all courts whose judicial districts can be reached via delivery or shipment.
Authors: Song Steve, Qi Christina
Published on ―Managing Intellectual Property‖, September 2017
China IP, Antitrust and Policy 33 New Balance Wins Chinese Trademark Infringement Case
New Balance Wins Chinese Trademark Infringement Case
New Balance awarded Rmb10 million damages for trademark infringement and unfair competition
Court found defendants’ use of similar marks in commercial activities constituted trademark infringement
Court also applied trade dress protection in favour of New Balance, finding unfair competition
The Suzhou Intermediate People‘s Court has recently issued a decision ordering three Chinese defendants to pay Rmb10 million jointly (approximately $1.53 million) in damages and legal costs to Xin Bai Lun Trade (China) Ltd, the general agent for New Balance sports products in China, for trademark infringement and unfair competition. The award is allegedly among the highest amount granted to a foreign rights holder in a trademark infringement case.
The plaintiff, Xin Bai Lun China, was authorised by New Balance Athletics Inc to use the trademarks NEW
BALANCE and in China. It was also authorised to file a lawsuit independently or jointly against trademark infringers. The defendants, Zheng Chaozhong, Xin Ping Heng Sporting Goods Limited Company and Bo Si Da Ke Trading Limited, had been manufacturing, selling and promoting shoes under the brand NEW BOOM since late 2014. The three defendants used ‗New Balance‘ on their promotion websites and the mark on their shoe label, tongue and heel. Further, they used bold italic letters and on both sides of their shoes, making them very similar to those produced by New Balance.
The court found the defendants‘ use of the two marks in commercial activities constituted trademark infringement.
In addition to the trademark infringement claim, the court applied trade dress protection in favour of New Balance. The court acknowledged the high degree of market awareness of New Balance sports shoes and held that they qualified as famous merchandise according to the Unfair Competition law. The capitalised bold letter ‗N‘ on both sides of New Balance shoes constituted ―unique decoration of famous merchandise‖. The court held that the defendants were guilty of unfair competition for using decorations which were identical or confusingly similar to the unique decoration of New Balance merchandise.
The most notable issue in this case was how the court determined damages. First, the court calculated on the basis of actual losses by multiplying the sales volume of the infringing products and the profit of genuine New Balance shoes. The court believed that the actual loss would exceed the $1.5 million claimed by Xin Bai Lun China. It seems that the court would have been willing to award even higher damages if the plaintiff had so claimed.
34 China IP, Antitrust and Policy New Balance Wins Chinese Trademark Infringement Case
Further, the court noted the wilfulness of defendants based on their persistence even after several administrative penalties and an injunction were imposed for prior infringements. This reflects the court‘s willingness to award ‗punitive damages‘, which is now available under the new Trademark Law.
Finally, the plaintiff submitted useful evidence that the court used to support its findings. For example, the plaintiff presented market survey evidence that proved the market awareness of the trade dress of New Balance shoes. It also submitted financial reports of several Chinese shoe brands – Anta, Tebu and Pike – in order to calculate annual average profit rates of comparable products. This evidence was adopted by the court. The court inferred that the plaintiff‘s profits conformed to the industry average
This case showed the laudable efforts by New Balance to protect its brand. It is also a positive decision for other foreign brand owners as it demonstrates that the Chinese courts are willing to award high damages against bad faith infringers, especially where a plaintiff presents clear evidence of harm to its brand.
Authors: He Jing, Zhao Yao and Lyu Pei
Published on ―World Trademark Review‖, September 2017
China IP, Antitrust and Policy 35 China IP Courts Differ on Online Infringement Jurisdiction Rules
China Steps up the Fight against Malicious Trademark Registrations
CTMO deputy director gave a speech on the future for administrative protection and facilitation
Declared four major initiatives aimed at stepping up the fight against malicious trademark registrations
Also restated that the CTMO may consider abandoning administrative awards for famous trademarks
The China International Trademark Festival, hosted annually by the China Trademark Office (CTMO), is the highest-profile gala in the industry. This year the festival was held in Guilin in southwest China. As an important part of the festival agenda, the Local Administration of Industry and Commerce (AIC) Director Generals‘ Forum on Trademark and Brand Protection was held on September 3 2017. CTMO deputy director Cui Shoudong gave a speech on CTMO observations and initiatives, which shed new light on the future for administrative protection and facilitation.
There have been many commendable efforts and results made by the CTMO in the past year. For example, the CTMO has been promoting the online application system and has opened several cooperation centres as well as branch offices nationwide to keep up with the increased need for trademark registration and related matters.
However, huge challenges remain, including:
excessive trademark filings with low usage rate caused by large-scale malicious trademarks and defensive trademarks filed by rights owners; weak administrative supervision before granting the registration, especially in cases involving malicious trademarks; and pre-mature trademark agency and public services.
To some extent, malicious trademarks are the main cause of the above challenges. Frequent trademark hijacking encourages brand owners to file defensive and unlikely-to-be-used trademarks on a regular basis which creates a vicious circle in the market and an overwhelming caseload for trademark examiners. In the absence of a strict administrative review at an early stage of registration, malicious trademarks could easily be registered and used in counterfeit businesses, causing brand owners to file invalidations and bring enforcement actions. In April 2017 the official fee for filing a trademark registration was halved, which arguably contributed further to the growth in filings.
Mr Cui declared four major initiatives aimed at stepping up the fight against malicious trademark registrations:
36 China IP, Antitrust and Policy China Steps up the Fight against Malicious Trademark Registrations
Promote a prompt, strict and centralised review at the early stage of trademark registration and opposition. Cases involving the same applicant and similar fact patterns should be assigned to the same examiner to ensure consistent standards of review and outcome. Study and establish the white list of prominent trademarks, and the corresponding scope of protection and application of laws. Conduct special inquiries to target the six most successful forms of malicious trademarks. Build a database of suspected malicious trademark hijackers.
These initiatives are significant and meaningful but they are not totally new. In fact, the CTMO and the local AIC have been issuing annual catalogues of prominent trademarks since the 1990s, but the standards of appraisal and level of protection for these prominent trademarks have remained unclear. Exposure and public recognition of those selected trademarks are on various levels but the catalogue gave no meaningful guidance.
The CTMO has considered building a list of suspect trademark hijackers for some time but never carried it through. The reason might be that it is difficult to ascertain an applicant‘s intent at the time of filing under the existing first-to-file trademark registration system. An applicant is not required to submit affidavits of intent or additional materials to show that the applied-for trademark comes from an original design rather than a copy of a prior trademark. Trademark examiners therefore had to make a decision based on the prevailing circumstances. One concern is that the suspect list might create a bias as one trademark filing made in bad faith does not necessarily mean that the next filing will also be malicious. Trademark examiners must therefore be cautious not to let the suspect list cause injustice.
Mr Cui did not go into details on implementing the initiatives, but he did make other noteworthy remarks. He restated that the CTMO may consider abandoning the administrative awards of famous trademarks. Traditionally, municipal and provincial AICs are entitled to appraise and award famous trademarks within their jurisdiction. The famous trademark award is essentially a regional and administrative recognition and considered to be more arbitrary than the well-known trademark status recognised by the CTMO and the courts. CTMO officials have stated on various occasions during the year that this mechanism was flawed and should gradually be abandoned. The market and consumers are the most entitled to recognise the famous brands and trademarks, not the administrative authority.
Mr Cui also mentioned that the CTMO is working on the draft Opinions on Various Issues regarding Trademark Administrative Enforcement, but did not say when the draft would be released for public comment.
Although the CTMO‘s resolution in bringing changes is to be applauded, how the initiatives will be implemented is the real challenge and one that would make a real difference to the industry. However, the CTMO is ambitious and willing to learn from the perspectives and practices in other jurisdictions. On August 21 the CTMO hosted the China – US Seminar on Bad Faith Filings with the US Patent and Trademark Office. It would valuable for foreign brand owners to communicate and compare notes with the CTMO so that best practice can be adopted.
Authors: Zhao Steve and Lyu Pei
Published on ―World Trademark Review‖, December 2017
China IP, Antitrust and Policy 37 China IP Courts Differ on Online Infringement Jurisdiction Rules
China IP Courts Differ on Online Infringement Jurisdiction Rules
Which courts have jurisdiction over online sales or offering to sale of infringing goods is becoming a perplexing issue in today‘s China IP practice. According to some of the latest decisions, different courts take different positions with some valid reasons, especially among the three specialized IP courts in Beijing, Shanghai and Guangzhou. Supreme Court has made some efforts, but no binding decisions have come out yet on this particular issue. It is important to monitor the development in this area closely and adapt to the ongoing changes in the patent enforcement strategy.
As background, generally speaking, China‘s jurisdiction in patent or other IP cases is quite flexible. Patent owners may file the lawsuits at the court where the defendant is based or at the court where the allegedly infringing goods are manufactured, sold, offered to sell or imported. The complexity relates to online sale, as there is a dispute as to whether the place of delivery could be counted as location of sales. Obviously, patent owners who wish to do more flexible with forum shopping want to sue at the place of delivery, but the defendants prefer to deal with the lawsuits at their home courts.
Courts in China now have taken very different views about this, probably due to the fast growing e-commerce business. In the past, Chinese IP judges normally allow copyright owners to sue where infringing online content is found. But when it comes to trademark and patent cases, judges start thinking differently. Among the courts, Beijing Court, Guangzhou IP Court, and Beijing Higher People‘s Court take one position, rejecting the use of delivery place as the basis of jurisdiction. On the contrary, Shanghai IP Court, Shanghai Higher People‘s Court, Guangdong Higher People‘s Court, Jiangsu Higher People‘s Court, and Zhejiang Higher People‘s Court seem to accept so. In a decision related to online sales of design infringement goods issued by the Supreme People‘s Court in April 2016, the panel seemed to agree with Beijing courts.
The reasoning behind the two ―schools‖ of jurisdiction rule is interesting. In several cases related to online trademark or patent infringement cases, Beijing IP court refused to adopt the jurisdiction rules under the Civil Procedure Law Judicial Interpretation, which deals with the ―information network infringement‖. The judges hold that those rules in the Civil Procedure simply apply to where the stipulated right to dissemination of content over information network (similar to right to distribute under the US laws or the right to make available under EU laws) is infringed. The judges pointed out that not all the online infringement act relates to distribution of content. When someone sells online a product that infringes trademark or patent, this scenario is not covered by the current law. And, the judges want certainty and predictability in such online cases. They believe that, as for patent litigation, the courts at the place of actual sale or the place of defendant‘s domicile will be in a better position to investigate the facts, make the determination and enforce the decision. If the delivery place could be the basis of jurisdiction, the defendants would always have to litigate in the home court of the plaintiffs, which is not considered by these courts as appropriate.
Guangzhou IP court shared the same view and stressed that in IP infringement cases, the delivery place shall not be construed as ―the place of infringement act‖ nor ―the place where the consequence of infringement occurs‖, both of which are the basis of jurisdiction in tort cases.
38 China IP, Antitrust and Policy China IP Courts Differ on Online Infringement Jurisdiction Rules
By contrast, Shanghai IP Court and the courts in neighboring provinces such as Jiangsu and Zhejiang take a different view. In a few cases involving online sales of trademark infringement items, the Shanghai IP Court held that the place of delivery may be considered as the place where the consequence of infringement occurs. The Shanghai IP Court seems to be concerned that a plaintiff would end up with two options only - defendant‘s home court or where the infringing goods are shipped, if the delivery place is rejected as the basis of jurisdiction. An overly narrowing rule, according to the Shanghai IP Court, would violate the current law which specifically grants jurisdiction to ―the place where the consequence of infringement occurs‖.
Guangdong Higher People‘s Court apparently agreed so. Its reasoning is more straightforward. It said that a plaintiff is entitled to choose the forum if more than one court has the jurisdiction over an IP case under the current law.
Similarly, Jiangsu Higher People‘s Court took the same view in a design patent case that delivery place is the place of infringement act as the place where consequence of infringement occurs, thus establishing the jurisdiction.
The Higher People‘s Court of Zhejiang, where Alibaba.com is based, adopted the same result. It did not analyze what counts as the place where consequence of infringement occurs. In a recent decision issued in 2016 related to invention patent, the court simply said that selling products online is an ―act occurring in the Internet environment‖ and therefore constitutes the act of the information network infringement, as defined in the jurisdiction rules under the Civil Procedure Law Judicial Interpretation. Therefore, the court at the place of plaintiff‘s domicile has jurisdiction over the case.
Supreme Court has touched on this issue in a design patent decision in 2016. Supreme People‘s Court seemed to agree with the approach used by Beijing IP Court, rejecting the jurisdiction over defendants. One of the reasons, as pointed out by the Court, is that patent infringement arising from online sales is not counted as ―information network infringement act‖.
At present, Supreme Court has not indicated through other binding sources what should be the jurisdiction rules. There are signs that the Court may have to clarify this very soon, especially due to the differing practice among the local courts. Parties who seek to assert patent claims with more flexibilities need to analyze the current situation closely and make right moves, quickly.
Authors: He Jing, Liu Liangyong
China IP, Antitrust and Policy 39 Merchandising Rights in China: Judicial Protection for Commercial Interests
Merchandising Rights in China:
Judicial Protection for Commercial Interests
Precis: Ground-breaking decisions have made merchandising rights a useful tool in the battle against bad-faith trademarks
Many rights holders have had frustrating experiences when it comes to fighting bad-faith trademark squatters in China. However, several recent cases have made use of a highly effective new weapon: the merchandising right.
In a trademark opposition case involving the famous film *Kung Fu Panda* (*Gao Xing (Zhi) Zhong* No 1969 (2015) 高行 (知) 终字第 1969 号), the Beijing High People‘s Court confirmed in its final judgment that DreamWorks Animation SKG, Inc. (―DreamWorks‖) enjoyed prior merchandising rights over KUNG FU PANDA and rejected an attempt by a third party to register this mark.
The case sparked extensive debate because merchandising rights are not explicitly set out in Chinese law. A number of people have expressed serious concerns that the judges in these cases are making laws rather than interpreting them.
However, despite this controversy, the judgment has been hailed as an innovative attempt to secure more comprehensive protection for rights holders. In a broader context, innovation has been heavily promoted in China at all levels as a driver for economic, political and cultural development. The judicial support for merchandising rights seems to echo this policy. Given this, a discussion on merchandising rights is timely not only because they are so relevant to the ongoing battle against bad-faith trademarks, but also because they offer a cutting-edge perspective on ongoing legal reforms in China.
Merchandising rights – what are they?
Theoretically, a merchandising right – also known as an image right – is a collective concept referring to the right to use and exploit the commercial value of people, characters and works in which the rights holders have invested significant money and labour. The objects of a merchandising right can be the name, image and any other identifiable characteristics relating to celebrities or famous imaginary figures and works.
Under Article 32 of the Trademark Law, a trademark registration will be refused if it infringes another party‘s prior rights. (The Trademark Law was amended in 2013. Before the amendment, prior rights were set out in Article 31, but the content is identical to the amended law; to avoid confusion, throughout this article the provision regarding prior rights is cited as Article 32 of the amended law.) Although apparently straightforward, the concept of prior rights has become a quagmire, with rights holders constantly trying to introduce new interests – merchandising rights are just the latest example of this.
40 China IP, Antitrust and Policy Merchandising Rights in China: Judicial Protection for Commercial Interests
It might appear obvious that it is unjustifiable for anyone to take advantage of the popularity and commercial value of well-known indications without authorisation. However, protection for merchandising rights is not straightforward in China, because they are not specified in any law and there is no consensus among the judiciary as to whether they are protectable under Article 32.
This article examines the current legal situation with regard to merchandising rights, the historical judicial perspectives and several representative cases. It also explores concerns with regard to merchandising rights and future implications for rights holders.
Legislative framework
The commercial exploitation of rights and interests connected to celebrities, characters and works can take various forms. Besides registering names or images as trademarks, a celebrity‘s name or image may also be used in a marketing context, while other identifiable characteristics may be used to suggest a relationship between the marketer and the celebrity. For instance, it is well known that basketball player Yao Ming wore the No 11 shirt when he played for National Basketball Association team the Houston Rockets. Basketball fans may thus make a link between basketball products bearing a No 11 trademark and Yao Ming, even if one does not exist.
In cases where the rights holders has no prior trademark rights, the first issue to address is whether merchandising rights are a prior right as stipulated in Article 32 of the Trademark Law. Because merchandising rights are not specifically recognised in any regulation or statute, rights holders must scour the existing legislative framework to find the most relevant provisions to support their claims and to prevent others from unauthorised commercial exploitation. Depending on the facts, the General Principles of Civil Law, the Copyright Law and the Anti-unfair Competition Law can provide remedies in most cases.
General Principles of Civil law
Protecting a celebrity‘s full name is relatively simple. Articles 99 and 100 of the General Principles of Civil Law establish rights in personal names and images, respectively. If a celebrity‘s name or image is used commercially or registered as a trademark without authorisation, the celebrity may assert that his or her rights have been infringed and seek redress.
Far trickier are cases where opponents use or register only a partial name – for instance, the trademark dispute between Michael Jordan and Qiaodan Sports Company (‗Qiaodan‘ is the Chinese transliteration of ‗Jordan‘). Back in the 1990s, Qiaodan Sports registered both ‗Qiaodan‘ and ‗乔丹‘ (the Chinese characters for ‗Jordan‘) in various classes, and used these marks – along with the image – extensively on sports products, such as basketballs, basketball shoes and sports clothes. Jordan filed multiple civil and administrative lawsuits against Qiaodan Sports, asserting that his rights over his personal name and image were being infringed. However, his claims were rejected. The courts held that ‗Jordan‘ was merely a surname and that, as transliterations of this, ‗Qiaodan‘ and ‗乔丹‘ did not specifically correlate to the basketball player Michael Jordan. Therefore, Jordan could not assert his right to his personal name over the surname Qiaodan. Similarly, there was a lack of correlation between the image and Michael Jordan.
China IP, Antitrust and Policy 41 Merchandising Rights in China: Judicial Protection for Commercial Interests
Copyright Law
Protection under the Copyright Law applies only where the object of protection meets the standards for copyrighted works, which is not easy.
The most straightforward case for applying the Copyright Law is where opponents directly duplicate or copy the image of a character on their products. However, where opponents use the name alone, it becomes much more difficult to assert copyright, because the names of works and characters seldom possess sufficient originality and creativity to qualify for copyright protection.
In 1995 there was a copyright dispute between famous Chinese painter Guanzhong Wu and an auctioneer who sold a counterfeit piece purportedly by him (*Hu Gao Min Zhong (Zhi)* No 48 (沪高民终(知)字第 48 号)). In this case, Wu claimed that his copyright – more specifically, his right of authorship – had been infringed. The court supported this claim, which led to a broad discussion as to whether the artists could enjoy any copyright rights in a work not created by them. Further, if Wu did not enjoy copyright in this counterfeit piece, what rights had been infringed by his forged signature? It could be argued that by signing Wu‘s name on a counterfeit piece, the auctioneer exploited the significant commercial value attached to the artist‘s name and thus infringed his merchandising rights.
Anti-unfair Competition Law
In cases where rights over personal names or images or copyright do not apply, rights holders can turn to the Anti-unfair Competition Law. Article 5(3) prohibits business operators from using another party‘s name or a company name without authorisation, while Article 2 stipulates that business operators should conduct their businesses in good faith. Theoretically, Article 2 may be cited as a ground in lawsuits, but in practice few cases have succeeded in this way. Judges tend to hold that Article 2 serves as a general principle and are reluctant to rely solely on violation of good faith in such cases.
Trademark Law
The Trademark Law is a powerful tool for rights holders to prevent the use of infringing trademarks. The prior rights set out in Article 32 include rights over personal names and images, and copyright. Before applying Article 32, the courts first determine whether the rights holder enjoys such rights and whether the trademarks in question infringe these rights. In some difficult cases, rights holders have cited Article 32 among other provisions in the Trademark Law.
While all of these laws may provide some protection for rights holders in certain cases, there are obvious gaps and limitations, particularly when it comes to protecting the great investment and commercial value attached to certain names and images.
Historical Perspectives on Merchandising Rights
Applying to register trademarks which feature the names of famous people or characters is a common way of infringing merchandising rights. In practice, the China Trademark Office (CTMO), the Trademark Review and Adjudication Board (TRAB) and the courts are quite conservative when it comes to merchandising rights. However, when the opponent‘s bad faith is
42 China IP, Antitrust and Policy Merchandising Rights in China: Judicial Protection for Commercial Interests apparent, there is a great deal of precedent for protection being applied using other provisions. In recent years, there have been several high-profile cases involving trademarks that feature character and movie names. These have set invaluable precedents and also prompted heated discussion on what constitutes a merchandising right.
One landmark case involved the HARRY POTTER mark (*Yi Zhong Zhi Xing Chu* No 2483 (2009) 中知行初字第 2483 号). The Beijing No 1 Intermediate Court ruled in favour of Warner Bros Entertainment, Inc, finding that the registered HARRY POTTER mark would cause social damage and thus violate Article 10(1)(8) of the Trademark Law. However, in subsequent cases, this reasoning has been rejected. It appears that the courts have narrowed the scope of application of Article 10(1)(8) to cases in which the public interest is harmed.
However, in 2011 an opposing view was taken by the court in a case involving ‗邦德‘ (Appeal 3121466), in which the producer of the 007 movie series, DANJAQ, LLC claimed copyright, prior trademark rights and merchandising rights in the marks 007 and JAMES BOND and that the opposed mark should not be registered.
The pirated mark featured 007, the English name BOND and its Chinese counterpart. The mark was applied to contraceptive products and condoms in Class 10 on March 22 2002. Before this, DANJAQ had registered several and trademarks in Class 27 (toys and video games) and Class 41 (education and entertainment).
This case is significant because DANJAQ asserted almost all possible grounds in the Trademark Law and the court analysed each in detail. First, DANJAQ argued that the opposed mark was similar to and marks and also constituted an imitation of the well-known 007 and JAMES BOND marks. Both arguments failed because the cited trademarks were not registered for similar goods to those covered by the opposed mark; therefore, Article 30 could not apply. Further, it was found that the cited marks were not well known in Class 27 or Class 41 due to lack of evidence; therefore, they were insufficient grounds for prohibiting registration of the opposed mark for dissimilar goods according to Article 13(3) of the Trademark Law.
Second, while Article 44(1) was another possible ground - it provides that trademarks registered as a result of cheating or other underhand means should be invalidated - there was some disagreement over whether it is applicable in cases such as this, where the opposed mark had not yet been registered. However, the CTMO, TRAB and the court found that in this case Article 44(1) could apply.
A third important issue was whether registration of the opposed mark would lead to harmful social effects in violation of Article 10(1)(8) - often called the Trademark Law‘s ‗fallback provision‘. While rights holders cite this article frequently, the CTMO, the TRAB and the courts generally agree that it is intended to apply only in specific cases where the public interest, rather than certain private rights or interests, would be harmed. In the present case, the first-instance court initially found that the opposed mark had been applied for in bad faith, contrary to Article 10(1)(8). However, the Beijing High People‘s Court overruled this conclusion, saying that the case involved no public interest and thus Article 10(1)(8) could not apply.
The fourth argument raised by DANJAQ was that the opposed mark infringed its copyright in the 007 and JAMES BOND marks. This argument also failed. Under the Copyright Law, it is
China IP, Antitrust and Policy 43 Merchandising Rights in China: Judicial Protection for Commercial Interests difficult, if not impossible, for the names of certain works or characters to meet the standards of originality and creativity necessary to be protected by copyright.
As all these claims failed, the claim based on merchandising rights was DANJAQ‘s last resort. Initially the CTMO, the TRAB and the first-instance court all denied that merchandising rights are protectable under the Trademark Law. However, the Beijing High People‘s Court overruled this conclusion and recognised that the name of a well-known film character is a prior right which should be protected under Article 32 of the Trademark Law. The court explained that the fame of the 007 film series and James Bond was the result of DANJAQ‘s creative labour and investment. Therefore, the commercial value and opportunities associated with the 007 and the JAMES BOND marks should belong exclusively to DANJAQ. Essentially, the Beijing High People‘s Court did not recognise the merchandising right, but only that the names of famous works and characters are protectable as prior rights under Article 32.
The case vividly demonstrates the difficulties that rights holders can face. Rights holders generally register their most distinctive marks in core classes, including character or work names. Where infringing marks are applied to similar goods or services, rights holders can argue that the new mark is similar to their prior marks for similar goods or services. However, things become more challenging where the infringing mark is applied to dissimilar goods or services. Under these circumstances, the rights holder may no longer argue similarity to prior trademarks; a claim of infringing a well-known trademark will require recognition that the mark is well known, which is not easy to obtain. Fallback provisions such as Article 10(1)(8) and Article 44(1) both have limited scopes of application and are generally of little assistance unless the matter involves a bad-faith trademark application with foreseeable damage to the public interest. Article 7 - which provides that trademark registration and use should abide by the principle of good faith - is another declaration provision that is deemed non-citable in specific cases.
Given this, even if an opponent‘s bad faith is apparent, a rights holder will still face great difficulty when seeking protection under the Trademark Law. This goes some way towards explaining why rights holder are so keen for merchandising rights to be included among the prior rights.
New development: landmark cases and other judiciary initiatives
DreamWorks’ success with film names
The *KUNG FU PANDA* case has been viewed as a milestone in the battle against bad-faith trademarks. The facts were pretty simple and similar to the previous *How to Train Your Dragon* case adjudicated in January 2015, where the Chinese name ‗驯龙高手‘ of another famous DreamWorks film, *How to Train Your Dragon*, was applied for as a trademark in Class 41 (*Yi Zhong Xing (Zhi) Chu* No 8924 (2014) – 中行 (知) 初字第 8924 号). In the ‗驯 龙高手‘ case, the Beijing No 1 Intermediate People‘s Court supported DreamWorks‘ opposition against the infringing mark. What was most interesting and controversial was that the court went to great lengths to discuss why rights holders should enjoy merchandising rights over the names of well-known films and defined the scope of protection as well. The court explained that DreamWorks invested significant money and labour in producing the film, and had established a close correlation between itself and ‗驯龙高手‘. This increased the popularity and commercial value of ‗驯龙高手‘ and suggested that DreamWorks should enjoy civil interests in its film name.
44 China IP, Antitrust and Policy Merchandising Rights in China: Judicial Protection for Commercial Interests
The Beijing No 1 Intermediate Court went on to argue that the scope of protection should be defined to avoid abuse or misunderstanding, and proposed two factors that should be considered:
the film‘s popularity and social impact; and the likelihood of confusion among the public if the film‘s name were used as a trademark.
Considering this, the court found that a registration for ‗驯龙高手‘ would dilute the commercial market and value of *How to Train Your Dragon* and jeopardise the merchandising rights that DreamWorks enjoyed in the film.
It was then a bold move for the court to support DreamWorks‘ claims. Its decision was validated by a higher court, which explicitly recognised merchandising rights in the subsequent *KUNG FU PANDA* case. In this subsequent case, a Chinese individual applied to register several KUNG FU PANDA marks in Classes 9, 12 and 27. DreamWorks filed oppositions based on the key ground that the marks infringed its prior merchandising rights.
As in the ‗驯龙高手‘ case, the Beijing High People‘s Court overruled the conclusions in previous administrative proceeding. It held that rights holders enjoy merchandising rights over the names and characters of well-known films, provided that the following tests are met:
The relevant public can identify the film name or character with a business entity; and The business entity can derive extra commercial value or business opportunities from such identification.
Interestingly, different judges in the Beijing No. 1 Intermediate People‘s Court have made opposite findings on merchandising rights in the previous ‗驯龙高手‘ case and the *KUNG FU PANDA* case. In the latter case, judges decided that merchandising rights are not legitimate rights pursuant to Chinese law and are not protected as prior rights, while in the former case the judges actually recognized the merchandising rights. The different decisions, made by the same court, indicate that there is still disagreement over exactly what merchandising rights entail, even within the same court.
There is no doubt that the judgment is a significant achievement in the battle against infringing trademarks. It arms rights holders with a useful weapon for cracking down on trademarks, which copy or imitate famous films names, images of characters, celebrities‘ names and song names. However, uncertainty in this area remains, as the judiciary has not yet reached consensus on this point.
A recent guiding document issued by Beijing High People‘s Court may be viewed as an attempt to unify the adjudication standards. In early May 2016, the court released the Notable Issues in the Current Intellectual Property Adjudication, in which it reiterated that merchandising rights are very controversial; the scope of protection should be studied and defined carefully, and should not go beyond the scope of unregistered well-known trademarks. The court further demanded that all courts planning to cite merchandising rights in specific cases, should report to the Third Civil Tribunal of the Beijing High People‘s Court for approval.
Generally speaking, the Beijing High People‘s Court remained cautiously optimistic about merchandising rights, but it seemed to be concerned that some courts or judges may interpret the
China IP, Antitrust and Policy 45 Merchandising Rights in China: Judicial Protection for Commercial Interests merchandising rights overly broad and introduced the reporting mechanism to avoid exactly that. Technically, this guiding document was not a judicial interpretation and would not apply nationwide. However, Beijing courts would be reluctant to go against this standing point in practice.
The implications of this guiding document remains to be seen. Possibly, all Beijing courts would adopt more consistent adjudication standards and rights holders could expect more certainty in future cases.
Supreme People’s Court’s Draft Regulations
Before the two DreamWorks‘ trademark cases, there was already a tendency to recognise merchandising rights. Article 17 of the draft Regulations on Various Issues in Trials of Cases Involving Trademark Right Granting and Confirmation, issued by the Supreme People‘s Court for public opinion on October 14, 2014, stipulates that in cases where the names of copyrighted works or characters do not constitute works, but are well known in China, and use of such names as trademarks would cause confusion among the relevant public, the courts shall support the rights holder‘s claim of infringement of its prior right, according to Article 32 of the Trademark Law.
While these draft regulations have not yet been officially adopted, they reflect the Supreme People‘s Court‘s intention and attempt to interpret merchandising rights as one strand of the prior rights established by Article 32 of the Trademark Law.
Concerns and future implications
Despite recent victories for merchandising rights, this remains a controversial and uncertain issue. Many people still question whether judges are best placed to decide whether merchandising rights should be adopted and protected under the existing legislative framework. China is not a case law country and it might be dangerous for judges to interpret merchandising rights as protectable civil rights and interests.
Nonetheless, more bold moves from the judiciary are expected, especially when it comes to IP cases. When viewed together with other recent reforms and developments in China, the judiciary‘s pro-IP tendency and initiatives in institutional construction are quite apparent.
Three specialised IP courts were established in Beijing, Shanghai and Guangzhou at the end of 2014 in an attempt to ensure efficient and consistent judicial protection. In December 2015 the vice president of the Beijing IP Court, Jinchuan Chen, delivered his one-year anniversary report (see www.zhichanli.com/article/22199), in which he stated that the Beijing IP Court would initiate a guiding case system. Under this system, judges may reference and cite prior judgments with similar fact patterns when adjudicating IP cases. It is hoped that this may prompt judges to issue more reasonable and professional judgments, so that rights holders can expect more consistency and certainty in IP cases.
The new developments with regard to merchandising rights and judicial protection for intellectual property are the tip of the iceberg compared to other ongoing legal reforms in China. According to the Report of the Fifth Plenary Session of the Eighteenth Central Committee of the Communist Party of China (www.caixin.com/2015-10-29/100867990.html), innovation will be
46 China IP, Antitrust and Policy Merchandising Rights in China: Judicial Protection for Commercial Interests the top priority in the national development blueprint, with innovation in theoretical development and system construction also being given a higher profile. In this context, it is highly likely that the judiciary will be encouraged to initiate systemic solutions and mechanisms for the purpose of better IP protection. Vice President of the Supreme People‘s Court Tao Kaiyuan argued in a recent article (www.chinaiprlaw.cn/index.php?id=3376) that the judiciary should take a leading role in IP protection, because judicial protection has more stability and certainty than administrative protection.
These opinions and statements echo one another and all call for innovation and leadership in the judiciary. With this in mind, it is illuminating to comb through the historical perspectives and recent developments on merchandising rights. The judges who issued the controversial judgment in *KUNG FU PANDA* and other such cases are still pioneers when it comes to promoting better judicial protection. Despite the temporary uncertainty and lack of consensus within the judiciary, it is to be hoped that this will lead to further innovative solutions in favour of rights holders in the near future.
Authors: He Jing, Lyu Pei
China IP, Antitrust and Policy 47 Steering the Future of Your IP Programs: Mastering China IP Policy
Steering the Future of Your IP Programs:
Mastering China IP Policy
KEY MESSAGES
Leading in-house counsels and practitioners have very special interest in IP policy changes. The reason is very simple. IP law and practices, including those in China, are facing unprecedented changes at faster paces. While an effective IP system should have its priority in protecting property interests, fostering innovation and entrepreneurship as far as economic development is concerned, the reality is that decisions on how the IP system is to change has often been clouded by other policy issues, be it employment, healthcare, industrial policy, antitrust and fair competition, or foreign trade. This is why conversations within the IP community are much less about the problems of ―weak enforcement‖ in China, and instead, people have shown much greater interest in understanding what is underneath the current law and practice and what comes next. Without mastering the policy aspects of the IP practice it would be harder and take longer to come up forward-looking and effective IP solutions.
Our recent work in China IP policy and litigations has allowed us to examine those cutting edge China IP issues, together with some very insightful experts and practitioners. We take this opportunity to highlight the key policy issues in various important areas. The discussions are not meant to be exhaustive and we simply hope that the policy analysis will increase the depth of strategization and effectiveness of day to day practice.
1. Reform of Judiciary System
China has announced that the Fourth Plenum in October 2014 will focus on the review of the development of the socialist rule of law. It is widely expected that the judiciary reform will be well under way, creating significant impact on civil enforcement of IP rights. A focal point may be on the independence of the court judges in adjudicating process free from external influence, which has been listed on higher priority in the Third Plenum resolution. What is stated in the 4th Plenum resolution is very ambitious, focusing on developing a "rule of law" system. What is quite unique is the final outcome of the 4th plenum not only makes macro-level big picture demands, but to a larger extent, is also embedded with several micro-level reformative measures, such as demanding all the courts to accept cases. This has raised a lot of hope for better IPR enforcement and more transparent and fair regulatory actions. At the same time, we must be fully aware of the inherent complexities with the word "rule of law". Most people in China find it very hard and confusing to distinguish "rule of law" from "rule by law". The resolution of the 4th Plenum introduces the new term of Socialist Rule of Law system, the meaning of which may be distinctive from what people in the west generally understand about the rule of law. Government officials in China already start using the word "rule of law" whenever they try to expand government powers to regulate private rights. This is an area of particular concerns when the government tries to enact more security related laws and regulations under the name of national interest. A summary of some of the reforms that may be of specific values to IPR owners:
48 China IP, Antitrust and Policy Steering the Future of Your IP Programs: Mastering China IP Policy
„ An overall support to the value of the laws, making it harder for officials to make arbitrary decisions „ Promise to be transparent and to engage in a deeper level with outside experts in the legislative process „ Lifelong accountability imposed on the administrative agencies for making major decisions „ Setting up circuit courts and cross-regional courts to deal with major local cases „ Effectively deterring local officials from interfering court cases „ Recruitment of more qualified judges and prosecutors „ Implementing a registration-based filing system for new court cases „ Encouraging enterprises to reject unreasonable requests from governments
However, many of the reforms as stated in the resolution require clarification and the real effect depends on implementation. Examples include:
„ Whether the government will force up new laws under the name of "rule of law" even though what they are actually doing is to regulate the industries under misdirected industry policy or under the name of national interest; „ Whether the call for fair market order and alert against monopolistic activities will lead to excessive antimonopoly enforcement; „ Whether allocating the powers of executing judgment to a separate government body will impede effective enforcement.
There will be plenty of doubts and debate about how the Fourth Plenum will make a real difference to the way IPR is protected. We expect plenty of new measures and reforms will emerge in coming years. It will provide both an exciting and potentially challenging opportunity for GIPC members.
Shanghai government has started a pilot judiciary reform program, part of which is to change the budgeting arrangements and shuffle the head count of judges and court clerks to ensure the court are well supported and funded. Currently, China has about 2,000 IP judges handling with a docket of over 100,000 civil IP cases. The staffing and budgeting changes will make visible differences as soon as soon the national and local governments start making the moves.
Another key area to the judiciary reform is transparency. As of January 1, 2014, all judicial judgments made by Chinese courts (intermediate level or above) must be published online. The Supreme Court is directly in charge of the online system and apparently special funding and technical supports were mandated by the government. A few high stake trials, including one antitrust case involving two big local firms, were telecasted live online. The State Council also issued an order to require all enforcement authorities to publish valid administrative enforcement opinions related to IP infringements. The greatly-improved access to the case data will help the industries and practitioners have a clear understanding of the trends and identify potential problems.
China IP, Antitrust and Policy 49 Steering the Future of Your IP Programs: Mastering China IP Policy
2. Specialized IP Court
The possibility of establishing specialized IP courts in China has been a hottest topic ever since the idea was officially announced in the Third Plenum resolution in October 2013. It is hoped that the specialized IP courts may improve the consistency and predictability in dealing with those highly complicated technical issues as seen in patent or trade secret cases. Various proposals have been made, including setting up a CAFC type court in Beijing or setting various IP courts in major cities across the country. Policy makers, scholars and industries have been debating the different options vigorously. Many professionals and experts have deep doubts whether specialized IP courts at intermediate court levels would make any real difference. It is now expected that the NPC standing committee may make a decision very soon, at the quarterly session in August at the soonest.
3. Criminal Enforcement
Over the last few years China has launched impressive enforcement campaigns, especially those by police, against counterfeit drugs and in other sectors where consumer interests are endangered most. At the same time, many of the same old issues with criminal law enforcement remain unresolved, especially when smaller companies or firms with less resources try to figure out solutions to protect against counterfeits and pirates.
The Criminal Code, however, frames IP crime as threats to the socialist market order. This formulation inevitably requires ―for profit‖ motivation as the basis for criminal liability. The police have to resort to complex formula and numerical thresholds to decide if a case is worth pursuing. This lets many offenders off the hook for the wrong reasons. The true nature of IP crime is a crime against property. IPR must be recognized as more than just some form of bonus or incentives granted by the government for industry policy reasons. Honoring IP as legally protected property, e.g., by the Criminal Code, will set out a cornerstone to promote the national policy to protect and encourage innovation.
For years there have been strong concerns among Chinese policy makers that aggressive criminal prosecution against IP violations may impose draconian consequences on people who commit IPR infringement simply for making a living. Chinese criminal sanctions originated from penalty against the ―class enemies‖. Convicted people have almost zero chances of any legitimate jobs after leaving prison. Such concerns have to be resolved. Police, prosecutors and court judges may be trained up to fully exploit what is already available in the criminal system to go after IP violations without causing unintended consequences.
At the same time, China must vigorously prosecute serious IP crimes against repeated offenders, masterminds of large scale counterfeiting groups, and cross border crimes. This must be placed at one of top priorities. Without the use of the state powers in investigation and prosecution, IPR owners do not even have a chance to win against those sophisticated IP crimes. To make this work, a specialized, dedicated criminal IP enforcement team, plus professional involvement of prosecutors at early stages of the criminal case, are critical. China has already set up special police teams in response to drug safety and food safety. Prosecutors specialized in IP matters are already stationed at district prosecutor offices in Beijing and Shanghai. These are good examples to follow.
50 China IP, Antitrust and Policy Steering the Future of Your IP Programs: Mastering China IP Policy
4. Online Counterfeiting
Online sales of counterfeited goods are growing at an unparalleled pace while the phenomenal success of the online commerce indeed generates jobs and economy growth. Policy makers in China must know the real picture and realize the grave consequences that can result. The widespread availability of counterfeited products in China online marketplace ultimately hurts domestic manufacturers and resellers. Counterfeiters distort the marketplace by offering infringing goods at cut price, and threaten the survival of legitimate businesses.
One hindrance to more aggressive enforcement actions against online counterfeiting is the ongoing worry over the loss of employment opportunities for some local economy. This should call for a shift in mentality as far as economic development is concerned. Over-emphasis on short term gains is to take away the eagerness to exploit opportunities for sustainable growth through branding and innovation.
State Administration for Industry and Commerce (―SAIC‖) has issued various updated rules in 2010 and 2014 to provide a general framework in handling online counterfeiting issues. But it does require more. The local administrative authorities such as administration for industry and commerce (AIC) often lack technical means to fight online counterfeiting, nor are these officials able to handle repeated offenders and cases in other remote locations. SAIC has been planning to develop nationwide electronic database to follow real identities of online vendors and to find ways to secure electronic evidence for enforcement purposes. Whether this system will succeed is a significant test of the online enforcement. China has established a national-level Internet office to coordinate a variety of ministries in regulating activities on the Internet. If this office can direct SAIC and other agencies to effectively tackle counterfeiting problems, it may tremendously improve the situation.
A longer term solution may be holding online trading platforms fully accountable for implementing effective self-policing mechanism. Taobao.com or Alibaba have been trying hard to prove their big efforts in fighting the counterfeits. But it simply has not solved the problems. Online trading platforms must take on more responsibility to police unlawful activities committed by the online vendors. The failure of exercising duty of care by the platform should result in penalty and legal liabilities.
At the same time, right holders must be allowed to use evidence preservation and property preservation measures to seek remedies against online vendors. Online payment providers such as Alipay, which is becoming the fastest growing financial force in China, must be held to fully comply with court orders in freezing funds in infringers‘ account. Right holders need to be fully compensated for their loss and expense to go after infringers.
The immediate focus, nonetheless, should be to tackle counterfeiting operations by organized criminal rings. There is no justification to tolerate counterfeiting rings, which bring harm to the community.
5. Online Piracy
Content business (e.g. film-making) is growing rapidly in China. As more and more domestic firms are increasingly entering the field to offer contents online, whether in sports, movie, music
China IP, Antitrust and Policy 51 Steering the Future of Your IP Programs: Mastering China IP Policy or some other creation, they have inevitably seen their energy and profitability eaten away by piracy acts. National Copyright Administration of China (NCAC) and its local authorities have made very timely actions by issuing public warnings and even fines against large Internet firms including Baidu. Another example is that the infamous pirate company Qvod was imposed with a heavy fine up to 260 million RMB by the Shenzhen authority in 2014 and the founder is now arrested for criminal prosecution.
In the longer term, the ultimate fights may be seen in the courts, as more tech firms are inventing ―new business models‖ through the mobile Internet apps to exploit others‘ copyrighted content to develop ―new business models‖. The Supreme People‘s Court issued very detailed direct and secondary liability standard for handling online copyright litigations back in 2012. The true and effective implementation of the liability standards depends on the way Chinese courts reform the way they handle the evidence and trials. Courts must acquire more independence and take more assertive approach to grant preliminary injunctions, conduct evidence preservation and property preservation to discover evidence and increase chances of enforcement of decisions.
The recent amendment of the Civil Procedure Law would expressly give judges power to send parties who fail to comply with evidence preservation orders to jail for contempt. The question then is whether judges will shed their reluctance and begin issuing preservation orders. The reluctance may have reflected some deeper issues in relation to the roles of judges and the way judges are evaluated internally. This is an area of judicial policy that the higher level of the judiciary ought to take the lead. A positive sign happens in a very recent copyright infringement case between PPTV and Funshion in 2014. Beijing Haidian People‘s Court issued the temporary injunction against Funshion, ordering Funshion to immediately stop playing the accused infringing program. If the courts continue doing this, it will give more confidence to the content owners.
6. Patent Enforcement
Today the issue of patent enforcement at least has three layers of complexities in China. First, companies, especially those having solid patent portfolio and having strong business reasons to enforce the patents, are complaining that the damages are low and thus the court actions are not fully justified. This applies to both international and domestic companies. Second, industries still remember vividly the misery that Schneider suffered bitterly from losing the utility model patent litigation to its China competitor Chint and paid 15 million RMB. Although there is no prevailing evidence, people are worried if they will be stuck in numerous frivolous lawsuits in China. Third, the interference of the anti-monopoly law with IP licensing activities, e.g., the investigation into Qualcomm licensing practice and the extremely low award of royalty fees in Huawei v. InterDigital case, caused dismay to people who have any business interest in profiting from patent licensing activities.
It is just hard to imagine any easy solutions to resolve all the above problems. It is generally agreed that the enforcement regime as a whole must not be one where legitimate companies can be easily brought to costly patent infringement proceedings, stifling rather than encouraging innovation. For foreign firms, the risks of exposing to costly groundless litigations, especially those asserted through utility model patents, as well as the burden of clearing patent infringement risks through freedom to operate analysis, are critical to decisions of R&D investment. One direction may be to add extra costs for utility model patent owners to file lawsuits.
52 China IP, Antitrust and Policy Steering the Future of Your IP Programs: Mastering China IP Policy
Perhaps the real hope lies with the appellate court level specialized IP court. Courts should play a central role in adjudicating patent cases. In fact, a bigger priority is to concentrate the powers of the national courts to ensure the consistency and uniformity in handling patent trials around the country. The number of patent courts has nearly doubled to over 80 in China. The scattered jurisdiction is actually opposite to the trend of international practice.
The nature of patent infringement proceeding requires higher level of expertise from legal and technical sides. Injunctive relief, damages, evidence discovery, outside expert appraisal of technical issues specific issues related to patent enforcement are often what concern the patent owners. The very lower rate of injunctive relief as reported in the official statistics shows strong reservation by the judiciary bodies, although there are a few surprising victories accomplished by Eli Lilly and Novartis in early 2014.
Again, courts must reform the ways of handing the cases in order to develop high credibility and confidence among patent owners and professionals. The undue delays in expert appraisal and fewer access to obtain evidence regarding infringement of manufacturing process or method claims have made patent owners, especially those in high tech sectors, very hesitant in litigating in front of the Chinese courts.
Damages awarded by Chinese courts are lower than what should have been. While the business communities are mindful about the risks of frivolous lawsuits, there is a consensus that the Chinese courts should truly apply the existing legal criteria to award damages. Infringers who act in bad faith and refuse to turn over sales evidence should be held for being liable for higher level of damages based on the plaintiff‘s evidence.
While the new amendment to the Patent Law is pending, the new Trademark Law increases the amount of statutory damages to RMB 3 million – almost six times the previous limit. Such changes will certainly impact on the attitude of Chinese courts. More interestingly, over the past few years, some cases show that the IP judges are becoming much more sophisticated in calculating damages and increasing damages to a level that is approaching the statutory cap, and in some cases are even finding ways to exceed it. In a leading example case for trademark damages published by the Supreme Court (Foshan Haitian Seasoning Food Co, Ltd v. Foshan Gaoming Weiji Seasoning Food Co, Ltd, 2013, Guangdong Court), the court relied upon audit report of the right holder among other relevant evidence, and awarded the damages of RMB 3.5 million, which was believed to approach the actual loss suffered by the right holder due to the infringement. Similarly, in an end user liability case (Microsoft v. Dazhong Insurance Co., 2009, Shanghai Court), Microsoft was awarded for damages of RMB 2.1 million; in Siemens PLM Software v. Jiangsu Kunshan Changteng Communication Technology Co., Ltd (2014, Suzhou Court), Siemens was awarded for RMB 800,000 for software copyright infringement. There is no reason that the patent judges will not follow the suit.
7. Trade Secrets
Trade secret misappropriation, perhaps more so than any other form of IP infringement, harms business value and destroys trusts and relationships, which may never be recoverable. The handling of trade secret cases can have a big impact, especially if parties in high-risk and high-stake technology areas are involved. During the sixth round of Sino-US Strategic and Economic Dialogue in July 2014, China and U.S. mutually agree on protecting business secret through criminal and other enforcement and will publish the relevant cases. China confirms that
China IP, Antitrust and Policy 53 Steering the Future of Your IP Programs: Mastering China IP Policy trade secret protection will continuously be a focus in the government‘s work.
Some top Chinese legal experts continue to believe the current legal system affords effective protection, but this is clearly not the experience of most foreign companies. China recently published a leading case as proof of trade secret protection (China v. Jiangxi Yibo Electronic Technology Co., Ltd, Yu Zhihong, Luo Shihe, Xiao Wenjuan and Li Yinghong, 2013, Guangdong Court). The individuals involved in stealing trade secret were sentenced into imprisonment up to 6 years. The total amount of the fine in this case is RMB 37 million.
The true problem is perhaps about the law. Again, it is the way how the court runs and does its job in dealing with complicated issues. The typical challenges that IPR owners have experienced in handling copyright and patent cases, such as difficulties in evidence discovery, damage determination, use of experts, execution of injunction, are present to the trade secret cases, probably in a worse form. The situation will not change until the government sees the real impact.
There is a debate whether China should be encouraged to use criminal prosecution to go after trade secret violations. Some are deeply concerned that criminal prosecution may be vulnerable to abuse, leading to serious damages to legitimate businesses. This may be part of the reason why the number of criminal prosecution is so low. Law enforcement authorities must make very clear signals that theft of trade secret, e.g., stealing of encryption codes, engineering documentation, and other know-hows, whether the victims are foreign or domestic entities, is not tolerable.
8. Bad Faith Trademark
Trademark application in bad faith is a serious problem for brand owners in China. Foreign brand owners often find it very frustrating to lose to those pirated marks that obviously were registered out of bad faith.
The biggest controversy in the field is the doctrine of ―mutually tolerated development‖ that was openly endorsed by the courts. This doctrine allows the legitimate brand to co-exist with those controversial marks that are allegedly registered by pirates. Although the Supreme People‘s Court repeatedly stresses the doctrine must be narrowed applied to some very extreme exceptional factual scenarios. In practice, it is often seen that some judges misuse their judgment by concluding some of the pirated marks are ―distinctive‖ enough through the use and will not mislead the public.
Another frustration is how foreign brands can prove they were famous in China before the filing date of the pirated mark, which is often required to block the earlier filed pirated mark. The strict application of first to file system will inevitably yield injustice in a world of globalization and in a system where bad faith trademark applications are not penalized.
What is somewhat comforting is that the authority seems to be clearly against bad faith trademark applications. SAIC indicated recently it will set up a black list for the repeated bad faith applicants, who would receive severer punishment. It is reported that during the first nine months of 2013, SAIC denied, disapproved or revoked more than 800 bad faith applications (or registrations).
54 China IP, Antitrust and Policy Steering the Future of Your IP Programs: Mastering China IP Policy
A very recent high profile case relates to TESLA. Tesla Motors (Tesla) ended up settling with the individual who sued Telsa for 200 million RMB, for unknown consideration in July 2014, which did not leave us with any positive signs. Probably the real test will come from the case between Michael Jordan and Qiaodan Sports Co Ltd (Qiaodan Sports) for the infringement of Jordan‘s right of personal name. The Qiaodan Sports, pending for IPO in Shanghai, registered the trademark of ―Qiaodan‖ (a transliteration of Jordan‖) and has tried to fight off Micharl Jordan‘s challenges. The case has been gone on for two years and the court is finally close to making a decision. Whether the court supports Jordan or ―Qiaodan‖ will have important impact on the bad faith cases.
9. Inventor Remuneration
The issue of service invention relates to the fundamental property rights of companies and individuals. The arrangement of service invention significantly impacts on the ownership and the way the companies manage their IP rights. However, the relevant rules are very limited and also vague in the Patent Law and its implementing regulations.
In December 2013, the State Intellectual Property Office (SIPO) issued the third draft of the Regulations on Service Inventions (Draft Regulation) for public commenting. However, the Draft Regulation has caused significant resistance among domestic and international business committees. A major reason is that it interferes with the contractual freedom of the companies. Article 18 dictates that any of such contractual terms that ―cancel‖ or imposes ―unreasonable conditions‖ on employees are invalid, opening a door of a flood of litigations and legal disputes as to any agreements that employers and employees are going to sign.
It is unclear whether SIPO will be pushing for this legislation as many local firms have voiced objections. Perhaps the best approach is for SIPO to work out a way with other agencies to see if the service invention rules can really benefit those professors or researches in universities. The applicability of the service invention rules seems to be misplaced.
10. IP Misuse and FRAND
IP-related anti-monopoly is a hot topic recently. China anti-monopoly authorities are becoming very active in investigating the IP misuse in the context of anti-monopoly laws. Qualcomm, Microsoft, and InterDigital are all implicated.
SAIC issued its draft IP Abuse Rules in June 2014 for public comments. The IP Abuse Rules was initially drafted as Antitrust IP Guidelines by SAIC. The authority is now trying to issue the administrative rules, under which SAIC has powers to impose fines against any violations.
The latest version has arguably improved over the previous version in some relatively minor ways. However, several key issues remain to be controversial. The current version still retains the concept of essential facility, which may be used to hold liable those companies owning a strong patent portfolio. The IP Abuse Rules also presents some particular challenges to standard essential patent holders. Article13 provides that business operators that have dominant market position are prohibited from deliberately refusing to disclose the information of their rights to the standard setting organization if they have the knowledge that their patents are likely to be adopted in the standards. This dramatically increases the burden over patent owners whether or
China IP, Antitrust and Policy 55 Steering the Future of Your IP Programs: Mastering China IP Policy not they participate in the standards-setting activities or not.
One related area in anti-monopoly related IP issue the SEP licensing. Whether SEP patent licensing royalty rate will be considered as ―excessive pricing‖ under the Chinese anti-monopoly law is a big issue. In the case of Huawei v. IDC, a local court calculated the excessive pricing by comparing both the license fee rate and the lump sum payment imposed on Huawei with IDC‘s license with Apple. The court concluded that the license fee rate imposed on Huawei is 100 times of that on Apple and the lump sum payment is 35 times. However, there are many controversies among the legal community whether such licenses are really comparable.
Chinese courts and regulators are expected to handle more cases related to FRAND royalty rate and examine foreign patent owners‘ licensing activities under the grounds of ―excessive pricing‖. What approaches will be adopted by Chinese courts or regulators are concerning the licensing community.
Author: He Jing
Published on ―Managing Intellectual Property‖ in 2014
56 China IP, Antitrust and Policy Legal Risks of Cease and Desist Letters
Legal Risks of Cease and Desist Letters
A warning letter is a tool normally first used by an IP owner to enforce its IP rights before a complaint is filed. However, some recent development in China probably would increase an IP owner‘s caution of sending out a warning letter.
To regulate an IP owner‘s exploitation of its rights, in 2009, the Supreme People‘s Court (SPC) set a rule on patent non-infringement litigation. Briefly, the mechanism for triggering a non-infringement lawsuit is that an alleged infringer is allowed to file a non-infringement lawsuit after he urges the patentee who sends a warning letter to sue but the patentee does nothing. Further, in Digital Heaven v. Starry Sky ((2011) Minti No 48), the SPC extended the rule of non-infringement lawsuit in a patent dispute to disputes involving other types of IP rights. Thus, a lesson is that an IP owner shall be ready to file a lawsuit within quite a short period after sending out a warning letter.
Recently, courts and other government authorities have started a discussion about using Anti-Unfair Competition Law to deter abuse of IP rights. Under PRC Anti-Unfair competition law, a business operator shall not fabricate or spread false information to harm its competitors‘ commercial credit or the reputation of its competitors‘ products (Article 14). In a draft of the State Administration for Industry and Commerce‘s (SAIC) rules on prohibiting the abuse of intellectual property rights, the SAIC tried to prohibit a dominant market player from issuing a warning letter where its IP right has expired or has been invalidated, or there is sufficient evidence on non-infringement. Although the rule did not survive in the final version, it sends a clear signal that SAIC closely monitors IP abuse through warning letters.
In a recent SPC decision (Mindray v. EDAN), the court addressed the application of anti-Unfair competition law on a warning letter. First, the court affirmed that, in general, sending a warning letter is a lawful way for an IP owner to exercise its rights of enforcement. However, to certain extent, such action could be treated as a way of fabricating or spreading false information under PRC Anti-Unfair Competition Law. To distinguish whether sending a warning letter is an action of IP enforcement or of IP abuse, the SPC sets objective and subjective standards via this case. From the subjective aspect, a warning letter shall be used for the purpose of claiming and enforcing an IP right, rather than merely for the purpose of maliciously seeking dominance or damaging a competitor‘s dominance in the market. In order to set a feasible test and identify the subjective motivation of an IP owner, the court further lays out several objective criteria. Factors to be considered include the status of IP rights, the content of a warning letter, the approach of delivering the warning letter and the recipients of the warning letter. Whether a patent at issue is invalidated afterwards does not necessarily indicate that an IP owner fabricates or spreads false information through its warning letter. The court emphasizes that an IP owner shall disclose sufficient information on the infringement, so as to fulfill its duty of care and to achieve the warning effects on recipients. Another case Sun v. Zheng ((2014) Minshen No 1036) ruled by the SPC is a good reference on this issue. In order to achieve the notice effects of a warning letter on alleged infringing users or sellers, the SPC asks the IP owner to disclose in its warning letter information about the alleged infringing product, patents at issue, comparison to prove infringement and IP owner‘s contact. Regarding recipients of a warning letter, the court illustrates that if the IP owner knows there is unlikely to be an infringement but still sends warning letters to a competitor‘s customers, such act would likely be treated as an unfair competition behavior.
China IP, Antitrust and Policy 57 Legal Risks of Cease and Desist Letters
Regarding the timing of sending a warning letter, the SPC particularly points out that an IP owner has the right to choose a favorable timing to send its warning letter, which shall not trigger the unfair competition alarm. Thus, lessons from this case are whether there is an IP infringement would be a key to determine whether an IP owner fabricates false information, and to whom and how a warning letter is delivered would be a key to determine whether the IP owner spreads such false information.
However, we consider that the disclosure of sufficient information on the infringement in some cases may become a difficult issue. For example, for a process patent, a patentee probably needs to discover further evidence on infringement through tools provided during the litigation such as evidence preservation. Does it mean that the information disclosure requirement would be relatively low for an owner of a process patent or such a patentee shall not send a warning letter until it gets affirmative information on infringement? Another issue is the scope and delivery of a warning letter. It remains uncertain whether it is legitimate to deliver a warning letter to non-specific targets such as all users or sellers of an infringing product via public channels such as social media.
Nevertheless, an IP owner should make a strategic plan to properly use a warning letter and avoid abusing its IP rights.
Authors: Li Binxin, Wu Li
Published on ―Managing Intellectual Property,‖ September 2015
58 China IP, Antitrust and Policy Beijing Court Ruled on Enablement Issues in Apple Siri case
Case Report: Beijing Court Ruled on Enablement Issues in Apple Siri case
The Beijing Higher People‘s Court (BHPC) recently issued a decision in favor of Apple Inc, leading to the invalidation of a local Chinese technology company‘s invention patent which was asserted against Apple‘s Siri service in China. The Supreme People‘s Court has recently accepted a petition for retrial filed by the patent owner Shanghai Zhizhen Internet Tech Co, Ltd, which may have sufficient merit to give the patent owner another shot.
The BHPC‘s decision is notable for several reasons. China highlighted this case as one of the high profile cases in its 2015 IP Report. The BHPC, as the court of second instance, reversed the decision made by the Patent Review Board (PRB) of the State Intellectual Property Office (SIPO) and affirmed by Beijing No 1 Intermediate People‘s Court on the patent. This is no small move as the reversal rate in the judicial review of PRB decisions is only around 10% based on past data. The lower court reportedly issued a 30,000- word judgment detailing why the patent should be maintained. But apparently the BHPC disagreed. On the substance side, this is one of very few high profile cases that focus on a software patent‘s enablement issue under the Chinese Patent Law. The detailed analysis in the court judgment offers a rare opportunity to understand how the Chinese judges approach such issues.
The BHPC addressed three critical issues in the decision:
1) Enablement: the written description fails to provide sufficient disclosure of the claimed features. China‘s patent law requires that the specification should provide a clear and comprehensive description of the claimed invention such that a person of ordinary skill in the art is able to carry out the invention.
In this matter, the BHPC provided a two-fold analysis. First, the Court addressed the definition of the invention of the patent at issue. It noted that the purpose of the invention was to provide a chat robot system, where a user may chat with the robot and may also command the robot to conduct search and engage in gaming function with the user. After reviewing independent claim and the file history of the patent at issue, the BHPC found that the gaming function was said by the applicant to be a distinguishing feature to overcome SIPO‘s inventiveness rejection during the substantive examination.
Therefore, the court disagreed with the lower court‘s ruling that the gaming function was an additional feature rather than a necessary one, and concluded that the gaming function was a necessary feature of the claimed invention.
Second, the court noted that the specification merely described a gaming server and the idea of interactive gaming. However, the specification does not teach at all how the gaming server is connected to the other modules of the chat robot. In particular, the specification does not teach how the content input by the user is transmitted to the gaming server, nor how to transmit user commands to the gaming server. (The specification only described how to transmit user commands to other servers like artificial intelligence server and searching server.) Therefore, the BHPC concluded that the description of the patent failed to provide sufficient disclosure on how to achieve the gaming function of the invention. The court emphasized that the standard of enablement is whether the description itself discloses
China IP, Antitrust and Policy 59 Beijing Court Ruled on Enablement Issues in Apple Siri case
sufficient information or provides sufficient guidance for a skilled person in the art to use the prior art to achieve the invention.
2) The claims lack clarity: China‘s patent law requires that a claim shall specify technical features of the invention and define clearly and concisely the scope of protection thereof.
The BHPC noted that the independent claim of the patent at issue specifies that a filter will distinguish the type of a user‘s wording input (format sentence or normal sentence) and send the wording input to corresponding servers, including artificial intelligence server, searching server and gaming server. However, the description of the patent only discloses that the filter sends a user input after distinguishing it to the artificial intelligence server or searching server. BHPC considered that there was no way for the filter to send a user input to the gaming service, as the input should be sent to either the artificial intelligence server or the searching server.
Therefore, the BHPC concluded that claim 1 did not specify what type of user input should be sent to the gaming server and it the working mechanism between the filter and the three servers was not clear.
The BHPC pointed out that the lower court erred in reasoning that one skilled in that art would know that a user input would be analyzed and game-related input would be sent to the gaming server, as the description of the patent did not disclose a module or device performing such an analyzing function.
3) The claims are not supported by the written description: China‘s Patent Law requires that a claim shall be supported by the description of a patent. The BHPC reasoned that, as discussed above, the description did not disclose how to perform the gaming function and the description did not disclose the component of the gaming server and the performance mechanism of the gaming server (that is, how a user input would be sent to the gaming server, and how the gaming server should respond to such input). Thus, the BHPC concluded that the gaming server of claim 1 lacks support from the description.
Based on these reasons, the BHPC overturned the PRB‘s and lower court‘s decisions upholding the patent.
Patent practitioners and law professors in China have been commenting on the decisions, especially on the enablement issue. It remains an interesting question what is the criteria of enablement in software patent field, specifically what level of disclosure would be considered sufficient and what kind of guidance the description shall provide to enable a skilled person in the art to find prior art to achieve the invention. Further, the approach to making such a judgment is also needed for SIPO and the courts to follow. As the Supreme Court accepted the retrial petition, this case will certainly be worth close attention from legal practitioners and software companies.
Authors: He Jing, Li Bin
Published on ―Managing Intellectual Property,‖ July 16, 2014
60 China IP, Antitrust and Policy How the Chinese Press May Hurt or Help Your Trademark Brand Cases
How the Chinese Press May Hurt or Help
Your Trademark Brand Cases
‗Qiao Dan‘ is the Chinese translation of the last name of legendary basketball player Michael Jordan. Since the National Basketball Association (NBA) became extremely popular in China in the 1980s, the name Qiaodan has been widely known in the country. However, this name has also caused a storm in the Chinese legal world in recent years with Michael Jordan suing a Chinese company called Qiaodan Sports Co Ltd for infringement of his right of name. This case has gone on for two years and the court is finally close to making a decision
The lawsuit has attracted great attention in China with regard to several aspects. Local company Qiaodan Sports Co Ltd was founded in JinJiang, Fujian, a town known for the manufacture of knock-off sports shoes in the 1980s. The company was renamed Fujian Qiaodan Sports Equipment Ltd and began using the OIAODAN trademark both in Chinese characters and as the pinyin ‗Qiaodan‘ with the logo of a basketball player in 2000. Then in 2009 the company was reorganised and adopted the name Qiaodan Sports Co Ltd. In 2012 just as Qiaodan Sports was about to apply to become listed in the Shanghai Stock Exchange, Michael Jordan sued the company for infringing his right of name. Qiaodan Sports' initial public offering plan was delayed partly due to the tight regulatory controls
The case has caught the attention of many media and legal experts and most of them have been able to present the situation to the public in an impartial way. However, as the date of the final court judgment draws near other voices have emerged
In June, a major financial newspaper published an article entitled "The TRAB and legal experts firmly support Qiaodan Sports", which aimed to convince readers that Qiaodan sports should easily win the case. In the opening paragraph the author sets the tone of the entire article: ‗the case… has been in progress for two years and Qiaodan Sports which has always operated honestly within the regulations has been hurt greatly". In the second paragraph the author explains that the company chose the name Qiaodan "without too much thought" put in huge efforts to build its own unique brand, had "never used" the name Michael Jordan and had even "purposefully emphasized the fact that it had no relation with the NBA player".
The author then went on to cite two authorities. The first was the Trademark Review and Adjudication Board of the State Administration of Industry and Commerce that has already ruled several times against Nike and determined the legitimacy of the trademark of Qiaodan Sports. The second was the "unanimous" support of a dozen legal experts for Qiaodan Sports. To show the weight of this support, the author quoted the names of several famous Chinese legal experts, including two big names - Ping Jiang and Handong Wu.
According to the newspaper, the two authorities had the same opinion: the name Jordan is a common last name in western countries and cannot create an association with Michael Jordan. In addition, ‗Qiaodan‘ could be seen as substantially different from the name Michael Jordan and its Chinese translation ‗Maikeer Qiaodan‘; there was no indication that the relation of Michael Jordan to the name Qiaodan was stronger than that of Qiaodan Sports to the same name. Further
China IP, Antitrust and Policy 61 How the Chinese Press May Hurt or Help Your Trademark Brand Cases
Michael Jordan could not back up his claim that "Qiaodan Sports misled consumers" with sufficient evidence. The author concluded that based on this reasoning, Qiaodan Sports should be able to win the case easily
The author also stated in the article that "experts have called for the court to rule that Qiaodan Sports does not infringe the right of name of Michael Jordan and that the plaintiff‘s lawsuit should therefore be rejected". This sentence is repeated and paraphrased many times throughout the article
This article appears to be extremely one-sided. It presents only the evidence that supports the author's position and ignores all other. Interestingly, when typing the keywords "Qiaodan Sports winning the case" in many popular Chinese search engines, almost all the results either provide a link to the article mentioned above or cite parts of it, such as the sentence "unanimous agreement among legal experts" (obviously seen by many as an authoritative opinion).
While the authors do not judge the merits of the case itself, the way the Chinese press has supported a party here makes one wonder how media relationships should be handled in highly contentious cases in China. Experienced litigants would agree that dealing with the Chinese press presents a tough challenge especially when one party turns to the press for 'help'. This happens to both domestic and foreign parties. Sometimes parties simply seek fame or media attention regardless of the final outcome; however, many companies believe that the golden rule is to remain silent. This might be true because the public tends to have a short memory and more importantly because the press may give a party more attention after it gives a response. How the court will rule in the Jordan case remains to be seen.
Authors: He Jing, Zhang Zhixing Published on ―Word Trademark Review Daily,‖ July 14, 2014
62 China IP, Antitrust and Policy New Rules Proposed for Patent Infringement
Update: New Rules Proposed for Patent Infringement
On July 16, China Supreme People‘s Court (SPC) released its amendment proposal for public comments, titled ―Amendment of the Judiciary Interpretation - Certain Provisions on Issues Concerning Application of Law in Trying Cases Involving Patent Disputes‖. The current Judiciary Interpretation is one of the key authorities for Chinese courts to handle patent infringement cases. It has been in effect since 2001 and has had some minor changes over the years. The proposed changes, which are likely to be in the final version, are the most significant in the last decade and are worth special attention by practitioners and industry. The clarification of application of the doctrine of equivalents and the increase of statutory damages are among the mostly notable points. Below are the highlights:
Doctrine of Equivalents
In the proposal (Article 17), the SPC sets the time for determining the scope of equivalents to the time an alleged infringing act occurred.
The SPC adopted the Beijing Higher People‘s Court‘s practice regarding the doctrine of equivalents. It means that the SPC recognizes the development of technology and intends to give a relatively broader protection to patent owners, because the scope of protection of a granted claim would become broader along with the development of new technologies under the doctrine of equivalents. One downside of the amendment is that it would bring fair amount of uncertainty to the scope of a claim. The public may find it harder to tell if a new technology would be considered as a new/improved invention or is merely an equivalent feature of a granted patent.
It will probably become critical for both parties to collect evidence to prove the occurrence time of an alleged infringing act and the state of art at that time point. For example, an alleged infringer may push such time point forwards to distinguish the new technology as an invention from the granted patent.
Calculation of Damages
In the proposal (Article 21), the SPC removed the limits to statutory damages. The damage can be multiple times the royalty fee, where the losses of the patentee or the benefit acquired by the infringer cannot be determined. In the current rules, if a court refers to the royalty fee as a basis for statutory damages, it is limited to one to three times.
Further, reasonable expenses of a right holder for the enforcement would be calculated and rewarded separately, rather than being taken into account for the total amount of rewarded damage. This is a point that has long been asked by copyright and trade mark owners in enforcement actions. The change in this area may likely benefit other IP owners.
China IP, Antitrust and Policy 63 New Rules Proposed for Patent Infringement
Role of a Patent Evaluation Report
In the proposal (Article 8), for an infringement lawsuit related to a utility model or design patent, the patentee is no longer required to submit a patent search report/evaluation report (different names for patents filed before/after October 1 2009) when filing the case with a court. But the court may require such a report and, if the plaintiff refuses to submit it, the court may make a decision on whether to stay the case.
The proposed amendment appears to encourage the owner of a utility model/design patent to enforce the patent right. It is unclear why the SPC changes direction at this point, as the patent quality issue and potential abuse of utility model patents have been heavily debated. We note that the proposed change allows the court to stay the action if the patent owner fails to submit the patent search/evaluation report. But the mechanism of staying action is essentially subject to the discretion of the judges. A defendant, for example a foreign company, would still have to respond to the lawsuit.
Determination of Scope of Claims
In the proposal (Article 17), the SPC clarified that all technical features of a claim should be considered to determine the scope of a claim. The current rules require the judges to examine if all ―necessary technical features‖ (bi yao ji shu te zheng) are infringed. What constitutes ―necessary technical features‖ is often a contentious issue in patent litigation. The clarification should be generally welcomed by the patent professional.
The deadline of the commenting period was August 15. We expect that the final version will be published in a few months. In the meantime, patent litigators may start to ask the local courts to adopt the practice proposed in the document.
Published on ―Managing Intellectual Property,‖ July, 2014
64 China IP, Antitrust and Policy SPC Proposes Rules on Patent Litigation and SEPs
News Analysis: SPC Proposes Rules on Patent Litigation and SEPs
China Supreme People‘s Court (SPC) recently released its proposal for public comments titled Interpretations of the Supreme People‘s Court on Certain Issues Concerning the Application of Law in the Trial of Patent Infringement Cases II. It is a further development of the SPC‘s judicial interpretation on the trial of patent infringement cases. The first part of the interpretation has been implemented since January 1 2010, and has been an important source of authority for lower courts to deal with patent infringement cases. This second part covers more aspects of patent litigation and could have a significant impact on patent litigation practice.
In this Part II proposal, the SPC proposes 37 rules covering procedural issues, claim construction, determination of infringement and tests for defense, which may be applicable to all invention, utility model and design patents. Some of the rules were drawn from the judicial practice of guiding cases in recent years; some have been heavily debated since the amendment of the current Patent Law; and some others are new rules, for example those dealing with standard essential patents, which may cause some controversies.
Secondary Liability (Article 25)
Secondary liability has been heavily debated in the past decade. The Tort Law enacted in 2010 builds a legal basis of joint liability for courts to hear patent infringement cases involving secondary liabilities. In the draft judiciary interpretation, the SPC specifies criteria for finding contributory and inducement liabilities, that is, knowingly providing materials or technical supports without a patentee‘s authorisation to assist or induce patent infringement acts. However, the SPC leaves two major issues unanswered: whether the occurrence of direct infringement is the precondition of finding secondary liability and how courts will determine damages caused by secondary liabilities.
Permanent Injunction (Article 30)
The SPC lists two circumstances for not issuing a permanent injunction: a permanent injunction would damage the social public interest or would cause a serious imbalance of interests between the parties. Not surprisingly, the issues of ―serious imbalance of interests‖ or ―public interest‖ are unanswered in the draft rules. In a recent case adjudicated by the SPC, Wuhan Jingyuan v Kubota Kasui ((2008) Min San Zhong Zi Number 8), the judges ordered monetary compensation instead of issuing a permanent injunction based on the consideration of public interest. The judges stated that the shutting down of the power plant where the patented desulphurization process and devices are used would have a serious impact on the interest of the local residents. Now the industries may be concerned if the same kinds of tests will be introduced to cases involving standards essential patents.
Standard Essential Patents (Article 27)
One of the most notable provisions relates to standard essential patents. The SPC allows the courts not to issue injunctions against a patent infringer, if the patentee violates the FRAND principle and negotiates in bad faith. However, the rules are not clear enough, which arguably
China IP, Antitrust and Policy 65 SPC Proposes Rules on Patent Litigation and SEPs may expose legitimate patent owners to the risks of reverse patent hold-up. The SPC also allows the standard implementers to ask the courts to determine the patent royalty if the patentees and the licensees fail to reach agreements. Businesses are concerned whether this will open the door for the potential licensees to convert any licensing negotiations into lawsuits.
Design Patents (Article 17-21)
The SPC gives significant attention to design patents. The rules clarify that a design infringement needs to be determined based on the perspectives of an ordinary consumer. The ordinary consumer is defined as a direct purchaser of the accused infringing product. The rules also introduce the concept of ―design space‖ when comparing designs for determining infringements. The SPC further sets out standards for determining infringement regarding a ―set‖ of products, an assembled product and a product having variable states.
Companies that rely on design patents for IP protection in China need to pay close attention to this area.
Prosecution History Estoppel (Article 8 and 16)
The SPC makes efforts to refine the application of the doctrine of prosecution history estoppel. It proposes that the prosecution histories of two directly related patents (like parent and divisional patents) could be used to interpret claims of each other. On the other hand, the SPC clarifies that prosecution history estoppel does not apply where the patentee proves that the amendment or statement was not accepted by an examiner or had no causality with the grounds under which the patent was granted or maintained. If such rules are accepted, we expect that litigants may fight over the file history much more rigorously.
The SPC may issue the final version of the Part II by the end of 2014, unless the Court believes the current version has generated excessive amount of controversy. There have been policy messages that China intends to step up protection of IP. Local courts have been issuing more preliminary injunctions in patent cases than before. It is an interesting moment to see how these new rules will make the patent trials fair and consistent.
Authors: He Jing, Li Binxin
Published on ―Managing Intellectual Property,‖ November 2014
66 China IP, Antitrust and Policy What In-House Counsels Should Know About China‘s Anti-Monopoly Law in the Intellectual Property Sector
What In-House Counsels Should Know about
China’s Anti-Monopoly Law in the Intellectual Property Sector
Introduction
The IP related antitrust enforcement in China has been a focal point among the industries and the international antitrust legal community for last couple of years. The Qualcomm investigation by National Development and Reform Commission (NDRC) is symbolic of what a large licensing company may encounter in China.
This brief will highlight the key events and the most relevant legal basis in the IP related antitrust fields in China. Some of our readers may be surprised to realize the breadth and depth of the legal and business issues that have been addressed by the Chinese courts. Standards related IP policies, FRAND royalty rates, refusal to license, patent pools, injunction relief for standard essential patents, etc, have been heatedly debated among policy makers, judges, practitioners and industries. Some Chinese court cases are arguably among the very early decisions worldwide. The future enforcement activities and outcome of private antitrust lawsuits in China may likely continue impacting the trends.
Early History
China does not have its Anti-monopoly Law (AML) until 2008. Prior to that, courts and government authorities relied on the Anti-unfair Competition Law, which includes rules dealing with bundling, to address anti-competitive activities.
Back in 2004, a Chinese generic battery company TSUM sued SONY Corp. for illegal bundling of its infoLITHIUM batteries. This case was widely held as the first IP anti-competitive court case as the plaintiff argued Sony misused its encryption technology to bundle the batteries. The court dismissed the plaintiff‘s claim and ruled there was no tie-ins.
IP related antitrust issues were given much deeper thoughts when China started experimenting patent pooling efforts for home grown standards in 2004. The widely known video codecs group AVS took an unusual move in setting out IPR policy for standardization setting activities. Issues such as FRAND and Standard Essential Patents were seriously considered and eventually addressed in the carefully drafted IPR policy. Multinational companies‘ standard experts and IP counsels contribute significantly to this effort, although the commercialization of the AVS standards was not that successful.
Between 2004 and 2014, lots of IP related antitrust discussions focus on IP policy for standard-setting activities. The draft measures on national standards related patent rules, which were driven by Standard Administration Commission, consistently attract the interest of the industries until the rules were finally issued in 2014.
China IP, Antitrust and Policy 67 What In-House Counsels Should Know About China‘s Anti-Monopoly Law in the Intellectual Property Sector
Anti-monopoly Law
What shifted the legal landscape is the PRC Anti-monopoly Law, which went in effect as of August 1, 2008. Its Article 55 directly addresses intellectual property rights. Although Art. 55 seems to acknowledge that IPR owners are entitled to exercise IP rights, it essentially subjects any alleged IP misuse to the jurisdictions of the antimonopoly law. The very provision lays out the statutory basis for subsequent legislative efforts in IP misuse fields. Another significance is that the PRC AML provides the legal basis for private anti-trust lawsuits for civil remedies. Everyone has been watching how the courts and the antitrust regulators in China are going to handle the IP misuses cases.
After the passage of the AML, legislative efforts in IP related field mostly relate to the IP Misuse Guidelines that were being drafted the State Administration for Industry and Commerce (SAIC). The guidelines were eventually converted into IP Misuse Measures, which we will describe with more details in the briefing.
Notably, the Supreme People‘s Court (SPC) issued advisory opinions on determination of royalty rates for those standard essential patents in the same period of time. While the opinions were not binding, it is clear that SPC has deep interest in setting out clear precedents in this area. A more active SPC is expected to have a much bigger impact in this field in the years to come.
MOFCOM’s 2012 Merger Review of Google and Motorola
The first China case where PRC anti-monopoly law authorities made clear position and analysis on standard essential patents is probably the MOFCOM merger review in Google acquisition of Motorola business. In May 2012, MOFCOM announced its conditional approval of Google Inc.‘s proposed $12.5 billion USD acquisition of Motorola Mobility Holdings Inc. contrast to the unconditional approval granted by the EU and US antitrust authorities, MOFCOM imposed the conditions on Google out of antitrust concerns. Such conditions include: (1) Google shall treat all OEMs in a non-discriminatory manner with regard to the Android platform; and (2) Google shall honour Motorola's pre-existing commitment to license its SEPs on FRAND terms.
Huawei Technologies v. InterDigital Corporation
The Huawei cases are probably among one of the most controversial decisions. The decisions related to the determination of relevant market and FRAND royalty rates have generated lots of debates, which may even hurt Huawei‘s own licensing activities in the future.
In April 2014, the Guangdong High Court of China published its October 2013 judgments in two Huawei Technologies v. InterDigital Corporation cases. Huawei, the world‘s largest telecommunications manufacturer, prevailed in its two claims that US-based InterDigital Corporation (―IDC‖) (1) abused its dominant market position and (2) failed to license its SEPs on FRAND terms.
Regarding the first claim, the court supported Huawei‘s claim that IDC had abused its dominant market position by mandating a tying arrangement in the license agreements, requiring grant-backs, and requesting a discriminatory and unreasonably high royalty rate for its Chinese SEPs and non-SEPs. In particular, the court made a finding that each of the SEP licensing market constitutes a relevant market.
68 China IP, Antitrust and Policy What In-House Counsels Should Know About China‘s Anti-Monopoly Law in the Intellectual Property Sector
Regarding the second claim, the Guangdong High Court affirmed the Shenzhen Intermediate Court‘s ruling that IDC imposed excessively high royalty rates for its SEPs related to 2G, 3G, and 4G wireless communications standards. Specifically, the court found that IDC‘s royalty rates were noticeably higher when compared to IDC‘s licensing agreements with Apple and Samsung. However, many people believe that the royalty rate lacks sufficient grounds, as the alleged royalty rate IDC charged Apple is not really comparable. The case is currently pending at the Supreme People‘s Court for a final review.
The NDRC’s 2013 Investigation of Qualcomm
In February 2015, the NDRC concluded its investigation of Qualcomm Corporation and imposed a 6.088 billion RMB fine on Qualcomm, the largest penalty to date under China‘s Anti-Monopoly Law. The NDRC identified three types of anticompetitive conduct that Qualcomm engaged in during its licensing arrangements with Chinese licensees:
(1) Charging excessive licensing rates; (2) Bundling the licensing of SEPs with non-SEPs without justification; and (3) Imposing unreasonable terms and conditions in licensing agreements without justification.
Notably, in this decision, the NDRC seemed to have followed some of the legal analysis under the Huawei cases when it comes to the abuse of dominant market position in licensing activities. The most significant outcome of this case, from antitrust perspectives, is that Qualcomm has escaped the worst nightmare – application of smallest salable items doctrine in this case. In other words, the PRC antitrust authority does not object to Qualcomm continuing to charge royalty based on the handset price.
MOFCOM’s 2014 Merger Review of Microsoft and Nokia
This merger review decision deserves a lot more attention than what it has. The decision deals with some of the most challenging issues related to de facto essential patents.
In April 2014, just two years after its conditional approval of the Google merger discussed above, MOFCOM approved Microsoft‘s acquisition of Nokia‘s mobile handset business on the condition that both Microsoft and Nokia continued their business dealings with licensees on FRAND terms. MOFCOM expressed concerns that Microsoft - after obtaining control of a sizable mobile devices manufacturer - might take advantage of its ―important patents‖, e.g., those covering Android operating system, in order to gain a competitive advantage over other competitors in the mobile handset market - particularly other Android phones. This raises a very interesting issue about whether PRC authority believes that FRAND should apply to de facto essential patents.
SAIC IP Abuse Rules
SAIC released the long-awaited Rules on the Prohibition of Abuse of Intellectual Property Rights for the Purpose of Eliminating or Restricting Competition (―SAIC IPR Abuse Rules‖) on April 7, 2015, which will become effective as of August 1, 2015. The IPR Abuse Rules deal with manifold issues such as the determination of patent holder‘s market dominance, compulsory
China IP, Antitrust and Policy 69 What In-House Counsels Should Know About China‘s Anti-Monopoly Law in the Intellectual Property Sector licensing, standard essential patents (―SEP‖), safe harbor in horizontal and vertical agreements settings, etc.
The SAIC IPR Abuse Rules were initially drafted as guidelines to deal with IP related anti-competitive practices, a project which was commenced as early as 2009. The earlier drafts of the guidelines were commented for multiple times by local and foreign legal professionals, regulatory agencies, courts and other stake-holders. At the end of 2012, the SAIC made a dramatic move to convert the draft guidelines into the SAIC IPR Abuse Rules, which can act as the legal basis for the SAIC imposing penalties on violators.
However, the fate of the SAIC IPR Abuse Rules was cast into doubts when the State Council Anti-monopoly Commission announced in early June 2015 that NDRC has been delegated to draft IP misuse guidelines. It is perplexing how the two sets of IP misuse rules will be applied in practice. While the industries and the practitioners are now waiting to see the first draft of the new IPR misuse guideline, it may be useful to review some of the key provisions in the SAIC IPR Abuse Rules, as the Rules arguably has presented a most comprehensive legal framework to handle IP related antitrust issues.
(1) A Rule of Reason Approach
The wording of the SAIC IPR Abuse Rules seems to suggest the authority has endorsed a rule of reason approach, which provides much greater flexibility as opposed to a per se approach.
(2) Relevant (Technology) Market
In addition to defining the antitrust concept of the ―relevant market‖ as both the ―product market‖ and ―geographic market,‖ Article 3 of the IP Abuse Rules stipulates that the relevant market may also refer to a ―technology market‖ - or a product market involving certain IPRs. Specifically, the ―relevant technology market‖ refers to the market that is developed out of competition between the technology involved in exercising IPRs and any available substitutable technology of similar capacity to produce similar goods.
(3) Exceptions to Antitrust Liability Regarding Certain Agreements
Article 5 of the IPR Abuse Rules stipulates legal exceptions to antitrust liability in the context of IP with regards to certain vertical and horizontal agreements. Specifically, the provision states that SAIC shall not find antitrust liability in the following circumstances:
(i) Horizontal agreements: (a) the combined market share of the competing business operators in the relevant market does not exceed 20 percent; or, (b) there exist at least four independently controlled substitutable technologies that are available at reasonable cost in the relevant market. (ii) Vertical agreements: (a) the respective market share of each of the business operators and their transaction counterparties in the relevant market does not exceed 30 percent; or, (b) there exist at least two independently controlled substitutable technologies that are available at reasonable cost in the relevant market.
70 China IP, Antitrust and Policy What In-House Counsels Should Know About China‘s Anti-Monopoly Law in the Intellectual Property Sector
(4) Presuming a Dominant Market Position as a Result of Holding IPRs?
In-house counsels should take solace in the fact that Article 6 of the IP Abuse Rules clearly stipulates that SAIC shall not presume that IP holders have a dominant market position by merely holding IPRs. This provision also carries over into the discussion of standard essential patents (―SEPs‖). In effect, it should provide a layer of protection for IP holders and make it harder for the SAIC to prove that the holder has a dominant market position.
(5) The Essential Facilities Doctrine
The SAIC adopts the controversial ―essential facilities doctrine,‖ despite repeated suggestions from the United States‘ American Bar Association and other foreign legal entities to exclude the doctrine. In essence, Article 7—the essential facilities provision—stipulates that a business operator in a dominant market position must license its patent to other competitors when the patent at issue is deemed an ―essential facility,‖ regardless of an IPR of unilateral exclusion. In determining whether a patent is an essential facility, there is a three-prong test:
(1) The IP at issue cannot be reasonably substituted in the relevant market, and it is essential for other business operators to compete in the relevant market; (2) A refusal to license will adversely affect competition or innovation in the relevant market, thereby harming consumers or the public interest; and (3) Compulsory licensing of the IP at issue will not cause unreasonable harm to the IP holder.
The SAIC clearly realizes the controversies here. One of its senior officials has repeatedly assured the industries that the authority will be very much cautious in using this provision.
(6) SEPs and FRAND
Article 13 expressly prohibits holders of essential patents from taking advantage of standard-setting organizations (―SSOs‖) and failing to disclose their IPRs to SSOs when they choose to adopt a standard involving their IPR. Furthermore, the provision states that SEP holders must license the SEP on FRAND grounds.
Conclusion
It is clear China is rapidly developing rules on IP related antitrust issues. The competition between the antitrust authorities such as NDRC and SAIC might cause significant challenges for companies to figure out what to follow. Another big factor is the attitude of the courts. As more private antitrust lawsuits are being filed, the Supreme People‘s Court may be willing to use its powers to issue specific rules or otherwise using leading precedents to set the tone. The Supreme Court published a draft for public comments of the judicial interpretation on patent lawsuits. Several provisions directly address injunctions related to SEP. Would the PRC courts follow something close to competition-neutrality or show more interest in protecting local firms? This is a big question to watch.
Author: He Jing
Published on ―ASIAN-MENA COUNSEL,‖ Volume 13 Issue 2, 2015
China IP, Antitrust and Policy 71 专属于公司法务的知识产权反垄断法交叉领域介绍
专属于公司法务的知识产权与反垄断法交叉领域介绍
引言
近年来，与知识产权相关的反垄断执法一直是企业、相关行业组织和国际反垄断机构 关注的焦点之一。不少专利许可公司在中国可能面临着与高通相同的境遇，接受国家发展 和改革委员会（―发改委‖）的反垄断调查。
本文主要介绍了中国知识产权反垄断领域的主要事件以及相关的法律依据。部分读者 可能会对中国法院在这方面已经处理的问题的广度和深度感到惊讶。政策制定者、法官、 律师和行业组织争论不休的问题包括标准相关的知识产权政策、符合公平合理非歧视原则 的专利许可费率、拒绝许可行为的性质、专利池和标准必要专利涉及的禁令问题。中国法 院处理的一些反垄断案件可以说在世界范围内都属先例。中国未来的反垄断执法活动和反 垄断民事诉讼可能会继续延续这一趋势。
早期历史
直至 2008 年，《中华人民共和国反垄断法》（以下简称―《反垄断法》‖）在国内施行。 在此之前，法院和政府机构处理不正当竞争的依据为《中华人民共和国反不正当竞争法》， 其中包括处理捆绑销售的规则。
早在 2004 年，一家中国电池公司德先起诉索尼公司捆绑销售旗下 infoLITHIUM 电池 产品。因原告起诉索尼公司滥用加密技术捆绑销售电池产品，其被广泛认为是中国第一起 知识产权反不正当竞争案例。该案中法院驳回了原告的诉讼请求，认定所称捆绑销售不属 实。
中国于 2004 年开始尝试就本土标准建立专利池，与知识产权相关的反垄断问题因之得 到更深入的研究。著名的数字音视频编解码技术标准工作组（AVS 工作组）制定了具有突 破性意义的知识产权政策。虽然 AVS 标准的产业化仍然任重道远，但在该标准知识产权政 策制定过程中认真考量了公平合理非歧视原则和标准必要专利等问题，并做出了规定。这 其中包含了跨国公司的标准专家和知识产权和反垄断律师的贡献。
2004 年至 2014 年间，绝大多数与知识产权相关的反垄断讨论侧重适用于标准制定活 动中的知识产权政策。国家标准化管理委员会起草的《国家标准涉及专利的管理规定》草 案在业内颇受关注，并 2014 年得以颁布实施。
《反垄断法》
自 2008 年 8 月 1 日起生效的《反垄断法》是一个里程碑。该法第五十五条专门针对知 识产权反垄断问题。尽管第五十五条的规定在字面上认可知识产权人有权行使知识产权， 但实质上它将所有的―知识产权滥用行为‖都划至《反垄断法》的管辖范围内。该条规定为 后续规制知识产权滥用的立法提供了法律依据，《反垄断法》还为反垄断民事诉讼提供了法 律依据。从此，市场主体开始见证了中国法院和反垄断监管机构处理知识产权滥用案件的 一系列实践。
《反垄断法》通过后，知识产权反垄断相关规则制定工作主要由国家工商行政管理总
72 China IP, Antitrust and Policy 专属于公司法务的知识产权反垄断法交叉领域介绍
局（以下简称―工商总局‖）起草的《滥用知识产权反垄断规制指南》延续。该指南最终演 变成《关于禁止滥用知识产权排除、限制竞争行为的规定》（―《工商总局禁止滥用知识产 权规定》‖）。
值得注意的是，最高人民法院（―最高院‖）于同一时期就如何确定标准必要专利的费 率提出了相关批复意见。尽管该批复并不具备强制约束力，但显然最高院有意图在该领域 设置明确的先例。预计未来几年，最高院将会在这个领域发挥更大的影响。
商务部核准谷歌收购摩托罗拉案
2012 年 5 月，商务部宣布有条件批准谷歌以 125 亿美元收购摩托罗拉移动控股公司， 这是首桩中国反垄断机构提供标准必要专利分析的案例。与欧盟和美国反垄断机构授予的 无条件批准相比较，商务部出于反垄断的考虑对谷歌授予有条件批准。这些条件包括：(1) 谷歌应就安卓平台对所有原始设备制造商实施非歧视待遇；以及(2)谷歌应按公平合理非歧 视原则履行摩托罗拉先前做出的标准必要专利许可承诺。
华为技术有限公司诉美国交互数字公司
华为案是近年来最具争议的案例之一。涉及确定相关市场以及公平合理非歧视专利权 许可费率的裁决引发大规模讨论，这一裁决被认为甚至可能会对华为本身未来的专利许可 活动带来影响。
2014 年 4 月，广东高院公布了其于 2013 年 10 月做出的华为技术有限公司诉美国交互 数字公司案的判决。华为（全球最大的电信设备制造商）对美国交互数字公司（―交互数字 公司‖）提出的下列两项主张均得到法院支持：(1) 交互数字公司滥用其市场支配地位；以 及(2) 交互数字公司未能按照公平合理非歧视原则进行标准必要专利许可。
就第一项主张而言，法院认定美国交互数字公司滥用其市场支配地位，强制将搭售协 议附于专利许可协议中，规定反向许可，并针对中国的标准必要专利和非标准必要专利收 取歧视性及不合理的高额专利许可费。特别地，法院认定各项标准必要专利许可市场均构 成相关市场。
就第二项主张而言，广东高院维持深圳中院的判决，即美国交互数字公司针对 2G、3G 及 4G 无线通信标准相关标准必要专利收取的专利权许可费过高。具体而言，广东高院认 定，美国交互数字公司对华为采用的专利权许可费费率明显高于对苹果、三星的专利许可 协议中约定的费率。然而，许多人认为这一认定的依据不够充分，因为美国交互数字公司 对苹果公司所采取的专利权许可费费率不具备可比性。目前此案正在等待最高院的再审。
发改委对高通进行的反垄断调查
2015 年 2 月，发改委完成对高通公司的反垄断调查，对高通公司处以 60.88 亿元人民 币的罚款，这是迄今为止根据《反垄断法》做出的最高罚款。发改委认定高通公司在履行 与中国被许可方签订的许可协议过程中，参与了三种类型的反竞争行为：
(1)收取过高的许可费；
(2)将标准必要专利与非标准必要专利的许可进行不正当的捆绑；以及
China IP, Antitrust and Policy 73 专属于公司法务的知识产权反垄断法交叉领域介绍
(3)在许可协议中设置不正当、不合理的条件。
值得注意的是，在此项裁决中，由于案件涉及许可活动中对市场支配地位的滥用，因 此发改委似乎沿用了华为案件中的部分法律分析。从反垄断角度而言，本案最重要的结果 是高通公司避免了最严重的惩罚——遵照最小可售单元原则计算许可费。换句话说，中国 反垄断机构并未否定高通继续按手机整机价格收取专利许可费。
2014 年商务部核准微软收购诺基亚案
此次并购案裁决核准本应获得比现在更高的关注度。该裁决就一些最棘手的有关事实 标准必要专利的问题给出了意见。
2014 年 4 月，继上文讨论的商务部有条件批准谷歌收购摩托罗拉后两年，商务部批准 微软收购诺基亚的手机业务，条件是微软和诺基亚与被许可方继续按照公平合理非歧视原 则进行许可。商务部担心微软在获得大规模移动设备制造商的控制权后，可能会利用其―重 要专利‖实施垄断，如涉及安卓操作系统的专利，以便在与移动手机市场的对手——尤其是 使用安卓系统的手机制造商——角逐时获得竞争优势。这个决定引起了一个让人不得不注 意的问题：中国反垄断机关是否认为公平合理非歧视原则是否适用于事实上的标准必要专 利?
工商总局禁止滥用知识产权规定
国家工商行政管理总局于 2015 年 4 月 7 日发布了备受期待的《关于禁止滥用知识产权 排除、限制竞争行为的规定》（ ―《工商总局禁止滥用知识产权规定》‖）， 并于 2015 年 8 月 1 日起生效。《工商总局禁止滥用知识产权规定》涉及了多方面的问题，例如专利权人市 场支配地位的确定、强制许可、标准必要专利、横向和纵向垄断协议中的安全港原则等。
《工商总局禁止滥用知识产权规定》最初起草时的目标是作为处理知识产权相关反竞 争行为的指南（始于 2009 年）。国内外法律界、监管机构、法院和其他利益相关者曾多次 就该指南早期的草案发表评论。2012 年底，工商总局迈出重要一步，将指南草案正式上升 为《国家工商行政管理总局禁止滥用知识产权规定》，将其作为惩罚违法者的法律依据。
然而，2015 年 6 月初，国务院反垄断委员会宣布委托国家发改委起草《禁止滥用知识 产权指南》草案，给《工商总局禁止滥用知识产权规定》的适用带来一些不确定因素：如 何在实践中适用两套禁止滥用知识产权的规则？在我们等待新版禁止滥用知识产权指南初 稿的发布的同时，业界将不可避免的参考《工商总局禁止滥用知识产权规定》中的部分关 键条款。毕竟《工商总局禁止滥用知识产权规定》提出了一套较为全面的处理与知识产权 相关的反垄断问题的法律框架，例如：
(1)合理原则
《工商总局禁止滥用知识产权规定》的措辞似乎表明反垄断机关已经同意采用合理原 则认定垄断行为是否成立，该原则相较本身违法原则具备更高的灵活性。
(2)相关（技术）市场
除了定义反垄断概念中的―相关市场‖包括―产品市场‖和―地理市场‖以外，《工商总局禁 止滥用知识产权规定》第三条规定明确了相关市场也可能指―技术市场‖或者涉及特定知识
74 China IP, Antitrust and Policy 专属于公司法务的知识产权反垄断法交叉领域介绍
产权的产品市场。具体而言，―相关技术市场‖是指由行使知识产权所涉及的技术和可以相 互替代的、生产类似产品的类似技术之间相互竞争所构成的市场。
(3) 若干例外情形
《工商总局禁止滥用知识产权规定》第五条规定明确了就特定横向和纵向反垄断协议 而言，知识产权领域的反垄断责任的法定例外情形。具体地说，《工商总局禁止滥用知识产 权规定》明确有以下情形之一的，工商总局不得认定垄断责任：
(1)纵向垄断协议：(a) 具有竞争关系的经营者在受其行为影响的相关市场上的市场份 额合计不超过百分之二十，或者(b) 在相关市场上存在至少四个可以以合理成本得到的其 他独立控制的替代性技术；
(2)横向垄断协议：(a) 经营者与交易相对人在相关市场上的市场份额均不超过百分之 三十，或者(b) 在相关市场上存在至少两个可以以合理成本得到的其他独立控制的替代性 技术。
(4) 可否根据经营者拥有知识产权推定其在相关市场上具有市场支配地位？
企业应该感到欣慰的是，《工商总局禁止滥用知识产权规定》第六条明确工商总局不得 仅根据经营者拥有知识产权推定其在相关市场上具有市场支配地位。该条规定亦引申出对 标准必要专利的探讨。事实上，该条规定为知识产权人提供保护，并使得工商总局更难证 明专利权人具有市场支配地位。
(5)必要设施原则
尽管美国律师协会和其他外国法律机构一再建议不采用有争议的―必要设施原则‖，工 商总局还是在最终规定采纳了该表述。从本质上说，第七条―必要设施‖规定，虽然知识产 权具有排他性，但是具有市场支配地位的经营者必须在其知识产权构成生产经营活动必要 设施的情况下，许可其他经营者使用该知识产权。在确定专利是否构成生产经营活动必要 设施时，需要同时考虑下列因素：
(1) 该项具有争议性的知识产权在相关市场上不能被合理替代，为其他经营者参与相 关市场的竞争所必需；
(2) 拒绝许可该知识产权将会导致相关市场上的竞争或者创新受到不利影响，损害消 费者利益或者公共利益；及
(3) 许可该知识产权对该知识产权人不会造成不合理的损害。
工商总局显然意识到上述条款的争议性，有报道提到总局的一位高级官员向行业组织 说明工商总局将会非常谨慎使用这一条款。
(6)标准必要专利和公平合理非歧视
第十三条规定明确禁止关键专利持有者在选择采纳涉及其知识产权标准的过程中利用 标准制定组织（SSO）以及不向该组织披露其知识产权。此外，该条规定阐明标准必要专 利权人必须按公平合理非歧视原则进行标准必要专利许可。
China IP, Antitrust and Policy 75 专属于公司法务的知识产权反垄断法交叉领域介绍
结论
在中国，有关知识产权相关反垄断的法规正处于快速制定过程中。发改委和工商总局 等反垄断机构之间的管辖权的重叠在一定领域可能会导致公司在遵照相关规则的时候需要 考虑多重因素。另一重要领域就是法院的态度，随着反垄断私人诉讼的数量越来越多，最 高院可能倾向于通过制定特定规则或使用司法先例决定审判标准。最高院制定的专利诉讼 司法解释草案已公开征求意见，其中若干规定直接涉及标准必要专利相关禁令的问题。中 国法院是否应保持竞争中立的立场或者更注重保护特定产业，这仍是有待解决的一个重大 问题。
作者：何菁
76 China IP, Antitrust and Policy Excessive Pricing and Standard Essential Patents
Excessive Pricing and Standard Essential Patents
On 22 May 2014, China‘s National Development and Reform Commission (NDRC) announced the suspension of the investigation against Inter Digital Communications (IDC), a US wireless technology developer, as the company had submitted detailed measures to address the regulator‘s concerns. What is interesting is the differences in the IDC measures between the press release of NDRC and that of IDC. NDRC states that:
(1) IDC will not charge Chinese enterprises discriminatory and excessive patent licensing fees. (2) IDC will not bundle standard-essential patents (SEPs) with non-SEPs in the patent license. (3) IDC will not require a Chinese manufacturer to agree to a royalty-free, reciprocal cross-license. (4) IDC will not force Chinese enterprises to accept unreasonable license conditions through direct legal action.
On the same day, IDC released its detailed commitments to NDRC. Comparing the two versions, one thing that is missing from the IDC version is the lack of the commitment of non-excessive pricing as listed in the NDRC version. While there is no official way to verify this, the disparity of the press release again highlights the issue of the excessive pricing under the Chinese antimonopoly law and the possible dilemma faced by the SEP license holders.
One of the potential issues for SEP license holders under the Chinese anti-monopoly law is whether its licensing rates will be considered as ―excessive pricing‖. The Chinese anti-monopoly law lists excessive pricing as one of the violations for abusing dominant market position under its Article 17, which is widely believed to be influenced by the European anti-monopoly law tradition. There is a prevailing view in China that each SEP patent holder has a dominant market position in the license market for that SEP. So the next question is to what extent the FRAND rate offered by a SEP patent owner will be considered as ―excessive‖?
Not surprisingly, few rules have been given as to the calculation of excessive pricing in FRAND royalty rate. Article 11 of the Regulation of Anti-Pricing Monopoly issued by NDRC stipulates the calculation approaches for excessive pricing, including comparing the price in the transactions with/between other business operators, reviewing the increase range of the price with the stable cost, and comparing the increase ranges of the sales price with that of the cost. Unfortunately, it is very hard to apply these rules to the FRAND rate. For example, in the telecommunication industry, cross-licensing is very common in practice, which makes the comparison between different licenses more complicated. An SEP license is unique as each SEP has only one exclusive owner.
While the legislation does not provide clear guidance, local courts have tried to explore the possible calculation approaches in lawsuits. In a recent case decided in 2013 involving Huawei and IDC, a local court calculated the excessive pricing by comparing both the license fee rate and the lump sum payment imposed on Huawei with IDC‘s license with Apple. The court concluded
China IP, Antitrust and Policy 77 Excessive Pricing and Standard Essential Patents that the license fee rate imposed on Huawei is 100 times of that on Apple and the lump sum payment is 35 times. However, there are many controversies among the legal community whether such licenses are really comparable.
Now, it appears that Chinese courts and regulators are getting increasingly familiar with the so-called top-down approach in comparing what should be the appropriate rate in FRAND licensing context. Very often the court or the regulator would start the calculation with the smallest salable unit, say a Wi- Fi chip. The second step is to use a suitable economic model to figure out the maximum royalty burden for the entire set of SEPs covering the Wi-Fi chip. Finally, the court or regulator figures out the suitable royalty rates for the patents by apportioning the total royalty between that and the rest of SEPs.
This approach is appealing to the courts or regulators probably because the method is relatively easy to implement. The alternatives that may be favored by patent licensors require a lot more convincing data and a model to support the final outcome.
Chinese courts and regulators are expected to handle more cases related to FRAND royalty rate and examine foreign patent owners‘ licensing activities under the grounds of ―excessive pricing‖. It will be interesting to see more published reports by Chinese courts or regulators in using this or other approaches.
Authors: He Jing, Dong Xue
Published on ―Managing Intellectual Property,‖ July/August 2014
78 China IP, Antitrust and Policy China Steps up the Fight against Malicious Trademark Registrations
News Analysis:
China Makes Detailed Liability Rules Available for Social Media
Background and Summary
On October 9, 2014, China's Supreme People's Court (SPC) issued a new judicial interpretation (JI) regarding online infringement of personal rights. The core subject matters under them are the liabilities arising from online publication and the disclosure of personal information (including facts, stories, images, video etc.).
This new JI has direct relevance to social media websites and other online platforms. The JI clarifies the online infringement liability rules under the Tort Liability Law and focuses on the increasing online defamation and unfair competition activities in China. The wide use of social media such as microblogs and Wechat dramatically increases the risk of defamatory statements and illegal disclosure of privacy.
Reportedly the SPC seems to be trying to strike a balance among online platforms, the freedom of speech of online users and the government regulatory needs. A closer review of the JI seems to show that the SPC is trying hard to regulate the way in which online users or Internet service providers (ISPs) operate in the online environment. Some Chinese press has taken a note of the potential effects on self-publishing activities by hundreds of millions of on line users in China. Social media and other Internet companies must closely examine how the new JIs will affect their business models.
Scope of Application
The personal rights as referred to in the JI include individual names, a legal person's right of name, right of reputation, right of honor, right of portrait and right of privacy. The online services as covered by the JI are not defined. It seems that any online services that may be used to infringe on those personal rights may be subject to the new JI. Besides social media, search engine or cloud services that store personal information may be well covered by the JI.
Fundamentals of the Liability Rules
As background, the key legal basis of the JI comes from A.36 of the Tort Liability Law, which provides general legal liability of online infringement activities. It is not surprising that many of the rules of the JI (e.g. safe harbor rules) are similar to the Internet Copyright Infringement JI issued in December 2012, which also originates from the article of the Tort Liability Law.
Under the Tort Liability Law, any liabilities arising from online infringement come from one of three levels.
Firstly, ISPs and Internet users who infringe upon other's civil rights through the Internet shall assume tort liabilities. Generally, infringers must have some kind of fault to be liable - an
China IP, Antitrust and Policy 79 China Steps up the Fight against Malicious Trademark Registrations international act or negligence.
Secondly, take-down notice (or safe harbor rule). Where Internet users commit online infringement, the victim is entitled to send a take-down notice to ISPs. ISPs who fail to promptly take necessary measures shall be jointly and severally liable with respect to any expanded damages.
Finally, ISPs who know the infringement of on1ine users and fail to take necessary measures shall be held jointly and severally liable with the online users. The knowledge requirement here is generally understood to include ‗actual knowledge or ‗constructive knowledge‘.
The JI essentially provides detailed rules for each of the three levels of liabilities in the context of online infringement of personal rights – reputation, portraits, names and privacy.
Safe Harbor for Social Media
The JI clarifies what counts as a valid take-down notice. A valid notice may simply include the URL or other information that is sufficient to locate the infringing posts and the reasons for deleting the posts. The JI does not specify what counts as timelines of ISP take-down actions. It provides a combination of tests for judges‘ consideration such as the nature of online services, the accuracy of notice and the type of infringement.
ISPs are exempted from liability for take-down actions as long as they can prove that the actions result from third parties‘ notices. Any wrongful take-down actions will cause liability to the party that provides notices to ISPs giving huge incentive to ISPs to actively respond to take-down notices.
Knowledge of ISPs
The SPC provides a combination of tests to determine if an ISP knowingly infringes someone‘s personal rights. The factors include:
a) Whether ISPs manually or automatically process the infringing information (ranking, cataloging, recommendation etc.) b) Whether ISPs have the technical capability, the nature of the technical service and the likelihood of inducing infringement c) The extent to which the published online information infringes on personal rights d) The social impact of the infringement or how many times the information is viewed by other users e) The possibility of implementing preventative technology and whether ISPs adopt reasonable measures f) Whether the ISPs have carried out actions against the same or repeated infringement
The tests allow the judges to use their discretion to make the determination. For cloud service providers, it appears that at least tests (b) and (e) should be highly relevant. A company may argue that it does not actually know of the online infringement because of limitations of the
80 China IP, Antitrust and Policy China Steps up the Fight against Malicious Trademark Registrations technical capability and the reasonable efforts that have been taken to guard against illegal or unauthorized access to personal information stored on their cloud.
There is a risk that test (a) might be interpreted unfavorably to search engines if the search engine service actively ranks, categorizes, selects or alters the information in any other way. To defend against this search engine service, providers might argue that the common technology they use in search services cannot entirely eliminate the infringing information, any alternatives to which would be prohibitively expensive.
Protection of Privacy
The JI itself is not a complete privacy law. It provides that illegal online disclosure of private information is actionable. Privacy includes but is not limited to: individuals' genetic information, medical records, health check materials, criminal records, home addresses and private activities. Exceptions include: consent, public interests academic research subject to consent/anonymity self-disclosure and lawful channel. Notably, the SPC imposes some restrictions over the exceptions - even if the information comes from public sources, ISPs may still be liable if the publication of the information violates the social morality or otherwise infringes some significant interests of the victims.
Other Types of Infringement
The JI further imposes liability on various types of infringement that may be done by online users or ISPs. The net effect of such liability rules may cause ISPs to dramatically eliminate the opportunities for their uses to freely publish comments or opinions through their services. The liability includes:
a) Any inaccurate misleading or defamatory reproduction/republication of information on the Internet even if the original source of information comes from the government (e.g. judgment or government decisions) (Art. 13) b) Defamatory statements against business entities (Art. 11) c) Republication or forwarding of others' posts by online users or ISPs. This rule is widely noted by the Chinese press because it may impose serious liability against those highly popular online users who often have large groups of online followers (Art. 10) d) Contributory infringement for those hiring, organizing, soliciting or aiding and abetting the release or reproduction of infringing information (Art. 15)
Remedies
The SPC imposes a 500000 RMB cap for statutory damages if the plaintiff fails to prove the exact amount of loss. This arguably shields ISPs from a significant amount of compensatory damages. The SPC probably hopes this will balance some interests here while ISPs and other online users have to bear more liabilities.
Conclusion
The JI is a significant step in expanding liability rules to the online world. If any of the online
China IP, Antitrust and Policy 81 China Steps up the Fight against Malicious Trademark Registrations services offered by Internet companies store personal information or allow others to publish information, the JI may well apply. While the JI tries to limit the potential exposure of monetary damages, online service providers need to watch out for potential traps.
Authors: He Jing, Cai Hang, Zhu Hao
Published on ―ASIAN-MENA COUNSEL,‖ Volume 12 Issue6, 2014
82 China IP, Antitrust and Policy