China: Highlights Of The Draft 4th Amendment To The Patent Law Published On January 4, 2019

Last Updated: 13 February 2019
Article by Stephen Yang

The amendment of the Chinese patent law has been ongoing for several years with at least four different versions published, respectively on August 9, 2012, January 29, 2013, December 2, 2015 and January 4, 2019. The latest draft published by the National People's Congress on January 4, 2019 includes several interesting changes when compared with the previous version of the draft amendment.

Service Invention

In the latest draft, the definition of "service invention" was kept unchanged. In other words, a service invention includes an invention made by a person executing the tasks of the entity to which he or she belongs or made by a person using the material and technical means of the entity. In the previous draft of December 2, 2015, it was proposed that a service invention will not include an invention made by a person using the material and technical means of the entity. For a service invention, the right to apply for a patent and the ownership of the patent belong to the entity. It can be seen that the previous draft aimed to encourage inventions. However, for some reasons, the latest draft changed the definition back to that in the current patent law.

However, the latest draft included a newly added paragraph. Specifically, the entity may use property right incentives, e.g. shares, stock options, dividends, to share the earnings of innovations with the inventors or designers and improve the exploitation of the invention.

Design Patent

In this latest draft amendment, it is proposed that the term of a design patent shall be 15 years, as in the previous draft. It is believed that this change is part of China's effort to join the Hague Agreement. A key difference concerns partial design. In the previous draft, partial design is allowed but it disappeared in this latest draft. Specifically, under the current law, a design patent can only protects a complete product but not a portion of a product which cannot be sold or used independently. In the previous draft, it was proposed that a portion of a product shall be protected by design patents, which is more similar to design practice in many other jurisdictions and offers broader protection. However, partial design was taken out of the latest draft practice.

Another proposed change concerning design is domestic priority which is not available for design application under the current patent law. Specifically, it is proposed that if within 6 months from the date an applicant first files an application for a design patent, he files an application for a patent for the same subject matter, the applicant may enjoy the right of priority. Under the current domestic priority practice for invention and utility model applications, when domestic priority is claimed, the first filed application will be deemed to be withdrawn. It is not possible to keep both applications. It is reasonable to believe that this also applies to design applications.

Patent Term Extension

The newly added Article 43.1 of the latest draft amendment provides that in order to compensate for the time for review and approval of innovative drugs, the State Council may decide to extend the term of invention patent rights for innovative drugs that are simultaneously applied for approval in China and abroad. The extension period shall not exceed 5 years, and the total duration of the patent rights after the approval of the innovative drugs shall not exceed 14 years.

It is interesting to note that "Bolar exemption" is available under the current patent law, i.e. application for drug approval is not considering a patent infringing activity, but extension of patent term is not yet available. This proposed change is a step forward to give strong protection for drug companies. There are no detailed provisions available yet regarding how the extension will be calculated and how to meet the criteria for "simultaneous" application for approval in China and abroad. The goal of this proposed change is to encourage foreign drug originators to bring their new drugs to the Chinese market as early as possible and hence make new drugs accessible to the Chinese people as early as possible. To this end, detailed rules regarding application for drug approval, the establishment of patent linkage system, the protection of clinical trial data, and the establishment of the Catalog of Approved Drugs (equivalent to the "Orange Book" in the US), have to be made available in the near future.

Punitive Damages and Increased Statutory Damage

Under the current patent law, there are no punitive damages available. According to the latest draft amendment, for willful infringement on a patent right, if the circumstance is serious, the amount of damages may be increased up to five times of the calculated damages.  According the Chinese patent law, the amount of damages for patent right infringement shall be determined by trying the following methods in the following order. First, the amount of damages may be determined according to the patentee's actual losses caused by the infringement. Where it is difficult to determine the actual losses, the amount of damages may be determined according to the benefits acquired by the infringer through the infringement.  Where it is difficult to determine the losses of the patentee or the benefits acquired by the infringer, the amount of damages may be determined according to the reasonably multiples of the royalties of that patent.

If the losses of the patentee, benefits of the infringer, or royalties of the patent are all hard to determine, the people's court may, on the basis of the factors such as the type of patent right, nature of the infringement, and seriousness of the case, determine the amount of compensation within the range from RMB100,000 to RMB5,000,000 (US$150,000 to US$750,000). This is referred to as statutory damage and it's upper limit is being proposed to be raised to 5 times of the current limit.

Reversed Burden of Proof

One of the biggest difficulties faced by a patent right holder in a patent infringement law suit is the lack of discovery. It is often the case that infringement is found but there is no good evidence to calculate damages as the evidence is in the possession of the defendant. To deal with this problem, the newly added Article 72.3 of the latest draft amendment provides where the right holder does his best to provide evidence but the account book and materials related to the infringement acts are mainly in the possession of the infringer, in order to determine damages, the People's court may order the infringer to provide the account book and materials related to the infringement acts.

Where the infringer fails to provide the account book or materials or provide fake account book or materials, the People's court may determine the damages by making reference to the claim made by and the evidence provided by the right holder. It follows that the plaintiff may want to claim high when launching the law suit. However, one factor that needs to be considered is that the court fees are related to the amount at stake. There is indeed a risk of higher cost in cases the plaintiff does not win the case, even if China does not have a loser pay system, i.e. the losing party does not need to cover the cost of the winning party in a law suit.

Stronger Power of Administrative Authorities

According to the current patent law, when the administration and enforcement department for patent-related work investigates and handles the suspected passing-off of a patent, it may, based on evidence obtained, inquire the parties concerned, and investigate the circumstances related to the suspected illegal act; it may conduct on-site inspection of the places where the suspected illegal act is committed; consult and duplicate the relevant contracts, invoices, account books and other related materials; and check the products related to the suspected illegal act and seal or withhold the products that are proved to be produced by the counterfeited patent.

It is to be noted that the administrative office's such power is limited to passing-off cases only. Passing-off can be generally understood as fraud, such as false patent marking. In the latest draft amendment, it is prosed to give the administrative office such power when they are handling infringement cases. If this change becomes law, it can be expected that more patent right holders will resort to administrative offices for patent infringement disputes as the administrative office can help to secure the evidence which can be used in a subsequent law suit at court.

Increased Fine for Passing-Off

The latest draft amendment also proposed that when handling a patent passing-off case, the administrative office can confiscate the unlawful gains of the party who passes off a patent and, in addition, impose a fine of not more than five times the unlawful gain, which is increased from the current four times the unlawful gain. It is to be noted that the fine is a type of punishment on the party who passes off a patent but the patent right holder will not gain any financial benefit from the fine. It is also noted that in the previous version of draft amendment, the administrative offices were given the power to impose fine when they found repeated patent infringement of up to 5 time of the illegal amount of sales. However, in this latest version of draft amendment, such proposal was absent.

Online Infringement

The latest draft amendment has provisions that specifically deal with online patent infringement. It provides that patentees or parties of interest may, on the basis of the verdict, adjudication, mediation made by the People's court, or the order to stop infringement made by the administrative offices, notify the internet service provider to delete, block or break the link of infringing products. The internet service provider which does not take necessary measure after receiving the notice, should be held jointly liable together with the internet user who infringes the patent right, for the expanded damage. However, comparing with the previous version of draft amendment, a patent right holder has more obligations to fulfill in order to make online platforms to take actions, i.e. it must have already obtained a verdict or order before it goes to online platforms. In addition, the online platform's liability is limited compared with the previous version of draft. They will only be held liable for the expanded damages caused by their failure to take actions, whereas in the previous version there was no such limitation.

It is also interesting that the previously proposed concept of joint infringement was removed and absent in this latest version of draft amendment. Specifically, in the previous version it was proposed that if a party knowingly provides to infringer, raw materials, intermediate materials, parts or equipment specially used to exploit a patent or induces another party to conduct patent infringing acts, it will be held jointly liable. For some reasons, this provision was not included this time. It needs to be noted that the concept of joint infringement, contributory infringement, or indirect infringement has never been present in any versions of the Chinese patent law.

Time limit for Litigation

In the latest draft amendment, the time limit for taking legal action against patent right infringement was extended from 2 years to 3 years, commencing from the date when the patentee or interested party knows or should have known of the infringement. Similarly, if a patentee or interested party want to sue another party for compensation during the period from the publication of the invention patent application to the grant of the patent right, the time limit for taking legal action is also extended from 2 years to 3 years, commencing from the date when the patentee knows or should have known of the use of that patent by another person. However, the period of limitation for action shall commence from the date when the patent right is granted, if the patentee knows or should have known of the use before the patent right is granted.

Patent Right Evaluation Report

Under the current patent law, if a dispute over patent infringement involves a utility model patent or a design patent, the people's court or the administration office may require the patentee or the interested parties to present a patent right evaluation report prepared by the CNIPA (China National Intellectual Property Administration, formerly called SIPO) through searching, analyzing, and assessing the relevant utility model or design, which shall serve as evidence for trying or handling the patent infringement dispute. In the latest draft amendment, it is newly added that relevant parties from both sides of the law suit may voluntarily provide the patent right evaluation report. This means that not only the patentee can request the CNIPA to produce the patent right evaluation report but the defendant is also able to do so. Under the current CNIPA practice, it is not possible for the defendant to request for such a report.

Open License

In the latest draft amendment, the previous proposed "License of Right" is renamed as "Open License". Specifically, a patentee may express in writing to CNIPA its willingness to license their patents to anyone and specify relevant royalties and method of payment. CNIPA will announce the patentee's statement and offer the open license. Patent right evaluation report should be provided with the offer of an open license for utility model or design patent. If a patentee withdraws its statement, the previously granted open license shall not be affected.

It is further provided that anyone willing to exploit the patent which is open licensed gets the license to exploit the patent after it informs the patentee in writing, and pay the license fee according to the announced license fee and the method of payment. In the previous version of draft amendment, the licensee is suggested to register the open license with CNIPA as a proof of obtaining the open license. But this was removed in the version. Therefore, it is considered that the licensee automatically obtains the open license when it informs the patentee and makes payments according to the terms.

It is further provided that during the term of the open license, the patentee should not grant any sole license or exclusive license. In the previous version of draft amendment, the patentee is not allowed to request for preliminary injunction but this was removed in this latest version.

Anti-Monopoly

This latest draft amendment includes a new article 20 which is very broad anti-monopoly provision. Specifically, it provides that application for and the use of patent rights should follow the principle of good faith. Patent right should not be abused to damage public interest and other's legitimate rights or to exclude or limit competition.

It is interesting to note that the previously proposed provision regarding standard essential patents was removed. In the previous version, it was proposed that if a patentee that is involved in the making of national standards fails to disclose any patents it owns that are essential to the national standards in the course of making the national standards, it is deemed that the patentee permits the user of the national standards to use the relevant patented technology. For some reasons, this provision was absent in this version of draft amendment.

Non-Patentable Subject Matter

In Article 26.1 of the latest draft, no patent rights shall be granted to means of nuclear transformation. Under the current patent law, the substances obtained by means of nuclear transformation are not patentable but the means of nuclear transformation was not included as non-patentable.

Deadline to Submit Priority Documents

According to Article 31 of the latest draft amendment, an applicant who requests the right of priority shall submit a written declaration at the time of application and submit duplicates of the patent application documents filed for the first time, within 16 months from the date on which the application for invention or utility model patent was filed for the first time, or within 3 months from filing an application for design patent.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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