China: The Patentee Cannot Prohibit Follow-Up Use, Offer For Sale And Sale Of Products Manufactured, Sold Or Imported Exploiting The Patent During The Temporary Protection Period

Last Updated: 7 May 2014
Article by Zhang Shuhua and Wu Haiyan

The Supreme Court of the PRC holds that, since the Patent Law does not prohibit the manufacturing, selling and importing of products exploiting the patent during the temporary protection period, continued use, offer for sale and sale of such products produced, sold or imported before the patent is granted shall also be allowed. The patentee may only claim reasonable fees according to Article 13 of the Patent Law.

On January 19, 2006, Shenzhen SIRUIMAN Fine Chemicals Co., Ltd. (hereinafter "SIRUIMAN") filed with SIPO an invention patent application named "equipment for generating high purity chlorine dioxide". Said application was published on July 19, 2006 and granted on January 21, 2009.

On October 20, 2008, Shenzhen KENGZI Tap Water Co., Ltd. (hereinafter "KENGZI") entered into a contract with Shenzhen KANGTAILAN Water Treatment Equipment Co., Ltd., (hereinafter "KANGTAILAN"). KANGTAILAN sold to KENGZI a set of equipment for generating chlorine dioxide, and continued to provide technology support and after-sale service to KENGZI.

On March 16, 2009, SIRUIMAN filed a civil lawsuit with Shenzhen Intermediate Court, requesting the court to order that KENGZI and KANGTAILAN stop infringement immediately, pay RMB300,000 as monetary compensation jointly, and bear the litigation fee.

In January of 2010, Shenzhen Intermediate Court held that the two defendants' continued exploitation of said patent after it was granted constituted patent infringement. In light of public interest (KENGZI used the sued product to sterilize and purify tap water), the court would not order the defendants to stop use of the sued equipment, but the defendants shall jointly pay RMB80,000 as compensation to SIRUIMAN.

The two defendants appealed to Guangdong Provincial Higher Court. In November of 2010, the Higher Court maintained the decision of the first instance. KENGZI then applied to the Supreme Court of the PRC for re-trial. The Supreme Court made the decision in December of 2011, which revoked the decisions of the former two instances, and rejected all the claims of SIRUIMAN. In November 2013 the Supreme Court published this case again as a precedent ("No. 20 guidance case").

Comments:

The mechanism of temporary protection period is provided in Article 13 of the Patent Law, which aims at protecting the interest of the applicant during the period in which the patent is published but not granted. During said period, exploitation of the patented technology does not constitute infringement, but the patentee may claim reasonable fees against the exploiter(s). Such claim can be supported only after the patent is granted.

In this case, the defendants exploited the patented technology during the temporary protection period. Particularly, KANGTAILAN manufactured and then sold the infringement product to KENGZI. SIRUIMAN could have claimed reasonable fees against the defendants, but it waived this right and insisted damages for "continued infringement" after granting of the patent. So the key issue of the dispute is: after the patent is granted, does KENGZI's continued use of the sued product, and KANGTAILAN's continued after-sale service constitute patent infringement?

If one only takes into consideration of Article 11 of the Patent Law, which provides that "after the grant of an invention patent, without authorization, any entity or individual shall not exploit the granted patent", then KENGZI and KANGTAILAN shall be regarded as joint infringers, and accordingly they shall pay monetary compensation jointly, and stop the infringement. The decisions of the two instances followed this logic, only that out of public interest consideration the courts allowed KENGZI to continue use of the equipment.

However, in the re-trial the Supreme Court reasoned that although Article 13 of the Patent Law provides that the applicant of an invention patent is entitled to reasonable fees for the third party's exploitation of the patented technology during the temporary protection period, the applicant does not have the right to stop others from such exploitation. Since the exploitation of a patent during the temporary protection period is not prohibited, continued use, offer for sale and sale of the products already produced during the temporary protection period shall also be permitted. In other words, the patentee cannot prohibit others from follow-up use, offer for sale or sale of products which were manufactured, sold or imported during the temporary protection period.

In this reasoning, the Supreme Court tried to balance the interests of both parties. Since the patent applicant can resort to temporary protection as provided by the law, it would result in imbalance if the court regards the continued use, offer for sale and sale of products produced, sold or imported before the granting of the patent as infringement, and orders the defendants to stop such acts. The Supreme Court virtually regards the temporary protection mechanism as a kind of exemption from patent infringement, despite the fact that Article 69 of Patent Law does not list this situation as an exemption or exception.

In November 2013, the Supreme Court announced this case as one of the guidance cases. This precedent may change the expectation of all parties in the game. With this precedent, any third party may organize mass production of goods by exploiting the patented technology during the temporary protection period, and continue sale of such products freely. In practice, the "reasonable fee" is lower than reasonable royalty. Unless this precedent is negated by amendment of the Patent Law or by new judicial interpretation or precedent, a patentee should adjust its patent protection strategy accordingly. Firstly, the patentee should make full use of the temporary protection mechanism, collecting evidence to prove the defendant's exploiting of the technology during such period, and claiming reasonable fees timely based on Article 13 of the Patent Law. Secondly, whenever possible, the patentee should also collect evidence to prove that, after the patent is granted, the defendant is continuing production of infringement goods, and seek remedies according to Article 11 of the Patent Law. Thirdly, the patentee may apply for both invention patent and utility model for the same invention during the same day. Since the utility model will be granted within one year without substantial examination, the patentee may cite the utility model against the third party pending the invention patent application, and waive the utility model when the invention patent is granted.

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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