Accused Infringer's Strategies in Patent Infringement Litigation
To be accused of patent infringement is a situation no one wishes to face. However, once in such a situation, an accused actually has many options and an arsenal of weapons to use to avoid or reduce the potential negative effects, or even put the accuser in a defensive or risky position. This article summarizes the accused infringer's potential defense tools and strategies, and focuses on three areas of consideration: (1) warning letter and declaratory judgment, (2) defense strategies once a complaint is filed, and (3) the invalidation request.
Warning Letter and Declaratory Judgment of Non-Infringement
The receipt of a warning letter, or so-called cease and desist letter, is sometimes the first knowledge a person or company has regarding a patent infringement dispute. Although, under Chinese law and practice, the accused infringer has no legal obligation to respond to the letter, it is almost always a good idea to make a response, the content and manner of which may vary according to the specific situation.
After receiving the warning letter, the accused should immediately start the following three areas of work: (1) gather as much information as possible regarding the accuser, especially information related to potential business considerations and any prior legal involvement by the accuser; (2) a thorough infringement analysis; and (3) prior art search and validity analysis regarding the patent involved.
Depending upon the results of the above three areas of work, different response strategies can be formed. For example, if the accused could determine that the alleged infringement clearly could not be established, or that the patent would most likely be invalidated, he could make a more forceful response with specific supports, which may help resolve the matter quickly. Under other situations, the accused may adopt a more conciliatory or tactical strategy, in an effort to diffuse the situation or buy more time to fully evaluate available options. For example, the accused may ask the accuser to provide more information, evidence or analysis regarding the accusation, request more time, or express interest in obtaining license from, or establishing commercial relations with, the accuser.
In any event, it is important to respond and have communications with the accuser, rather than ignoring the letter. It is also very important for the accused to always work under the assumption that the accuser may file formal legal proceeding anytime, despite any communications from the accuser indicating otherwise.
The declaratory judgment of non-infringement is a relatively new type of patent actions in China. Since 2002, the courts have handled a number of such cases. In 2009, this type of action was confirmed in a formal Judicial Interpretation issued by the Supreme Court. According to the Judicial Interpretation, after receiving a warning letter from the patent owner, the accused may request, in writing, that the patent owner initiate formal legal action. If, one month after the patent owner received the written request or two months after the request was sent, the patent owner neither file for formal legal proceeding nor withdraw the warning, the accused may file for a declaratory judgment of non-infringement with the court. Advantageously, the accused may choose the court, for example where he resides, for such a declaratory judgment action. In such situations, even if the patent owner files an infringement litigation lawsuit with another court later on, both actions would usually be joined with the court that first accepted the declaratory judgment case.
Declaratory judgment of non-infringement was the focal point in Taiyangshi (Tangshan) Pharmaceutical Ltd. (Taiyangshi) v. Huaihua Zhenghao Pharmaceutical Ltd. (Zhenghao) (see Written Order (2010) Ji-Min-San-Zhong-Zi No.28 by Hebei High Court). In the case, Zhenghao had sent a formal letter to the State Food and Drug Administration (SFDA), alleging that a new drug of Taiyangshi being examined for approval by the SFDA infringed Zhenghao's patent. The SFDA ceased the approval process and forwarded the letter to Taiyangshi. Taiyangshi replied directly to Zhenghao, rejecting the allegation. About three months later, without further communications between the two parties, Taiyangshi filed a declaratory judgment of non-infringement action with Shijiazhuang Intermediate Court, in the capital of Hebei Province. Hebei High Court confirmed the jurisdiction of the case, reasoning that Zhenghao's letter to the SFDA should be deemed as a warning letter since it had the same function of a formal warning letter. In this case, Zhenghao is located in Hunan Province, while Taiyangshi is located in Hebei Province, where the legal action would take place. Taiyangshi's use of available procedures, or Zhenghao's lack of attention to such procedures, placed Zhenghao in a legal procedure far away from home, and probably as an unprepared defendant.
As a Defendant in the Infringement Litigation
In most patent litigations in China, the first knowledge the accused has regarding the dispute comes by way of a court summons and a copy of the complaint. As sending a warning letter is not a requirement for filing formal suit with the court, patent owners choose to file the complaint directly in most cases. When receiving the complaint and summons, it is very important for the defendant to first confirm and record the date of receipt, which in most cases is when the receipt acknowledgement of the mail is signed by a relevant person within the company. The date will be used to calculate the time limit (15 days for domestic entities and 30 days for foreign entities) for the defendant to prepare and file the answer and other documents.
After receiving the complaint, the defendant should immediately start work in the same three areas as in the warning letter situation, i.e., investigating the accuser, analyzing the infringement issues, and preparing for an invalidation request, but under a much tighter time constraint. Relevant strategies should be developed fast based on the above work and analysis.
The defendant should also consider filing a request to dispute the court's jurisdiction over the case. Even though such requests are often rejected, the defendant is fully within his right to make such a request based on reasonable grounds. Also, the court's decision can be appealed to the higher court. In such a situation, the defendant at least has a chance to have the case moved to another, presumably more friendly or convenient, venue, or has bought more time for himself to prepare for the case.
It is usually not necessary for the defendant to make a detailed analysis regarding the infringement issues in his answer, as he will have opportunities to do so in later procedures. Therefore, within the 15 days of responding period, the most important task for the defendant is usually the invalidation request, which first involves a thorough prior art search. This needs to be done as fast and detailed as possible. In many situations, the defendant can file an invalidation request with the available grounds and evidences by the end of the 15 or 30 day limit, and supplement the request with new grounds and/or evidences within one month, as permitted by Chinese law and practice.
With effective preparation, the defendant should be able to file one or more of the following within the prescribed time limit: (1) an answer, (2) an invalidation request with the SIPO against the patent, and (3) a request for suspending the infringement case, based on the filed invalidation request.
The defendant should of course consider all possible defenses at his disposal. For example, the plaintiff's standing and the statute of limitation (2 years) may be challenged. Other defenses such as exhaustion, prior use, scientific or not for profit use, and Bolar exception in pharmaceutical or medical device cases should all be considered. In certain situations, the defendant may also consider requesting a Judicial Appraisal regarding specific technical or evidentiary issues.
Regarding the asserted damage amount by the plaintiff, the defendant should submit contrary evidence whenever possible and dispute the asserted amount. For business reasons, the plaintiff often does not want to submit evidence that would reveal its own financial information. The defendant could often use this as a counter argument for the amount asserted by the plaintiff. While the defendant should be careful not to reveal any of its own sensitive information, he should try to obtain available public or third party data or information in supporting his defense.
One of the most commonly used defenses in Chinese patent litigation is "Practicing Prior Art" (PPR). Although the PPR defense had been practiced and recognized by courts for some years, it was first formally codified in the Third Amendment to the Chinese Patent Law, effective October 1, 2009. It is also specifically explained in a formal Judicial Interpretation issued by the Supreme Court in late 2009. One of the reasons that the PPR defense has been widely used is that, according to the current Chinese law and practice, invalidity cannot be used as a defense by the accused in a patent infringement litigation. Therefore, the defendant, having what he believes to be a novelty-defeating prior art, would often try to use it as evidence for a PPR defense. For example, in Zhongyu Electronics (Shanghai) Ltd. v. Shanghai Jiuying Electronic Tech Ltd. (see Judgment (2010) Hu-Gao-Min-San-(Zhi)-Zhong-Zi No.53 by Shanghai High Court), the PPR defense raised by the defendant was supported by the court. Based on an analysis of the accused product, the patent and the prior art, the court concluded that the accused product is substantially the same as features disclosed in the prior art.
According the Supreme People's Court's 2009 Judicial Interpretation, the requirement for raising the PPR defense is that all technical features accused to fall within the scope of the patent should have been disclosed in a single prior art. Therefore, there are two essential elements for the defense:
- All technical features accused to fall within the scope of the patent. It is not necessary to compare all features of the defendant's technique with the prior art. Instead, all features accused to fall within the scope of the patent are enough. That is, the accused product or method should be compared with the asserted claims of the patent to find "all features accused to fall within the scope of the patent," which are then used to compare with the prior art.
- One prior art. It is essential that all features accused to fall within the scope of the patent are disclosed in a single prior art. This requirement is essentially similar to the novelty-defeating requirement for prior arts. In Dongsheng Wang v. Anshan Beirun Intelligence Lubricating Device Ltd. (see Judgment (2010) Chuan-Min-Zhong-Zi No.416 by Sichuan High Court), although the defendant asserted the PPR defense, the court did not support the assertion because the comparison was made between the accused product and one prior art plus a technical feature that allegedly could be obviously obtained.
One of the most important tools available to the defendant in a patent infringement litigation is the invalidation request, which can be used both substantively and procedurally as an essential part of the defense.
An effective invalidation request depends upon both an exhaustive search of the prior art and a thorough analysis of the patent. The Chinese patent law and practice provide many options for the petitioner in an invalidation proceeding. Not only anyone can file an invalidation request against any pending patent during the patent's lifetime, the petitioner can also use many grounds, not just novelty and inventiveness grounds, in the invalidation request. For example, amendments going beyond the scope of the original disclosure, no technical solution, lack of support from the Description, unclear protection scope, lack of essential technical feature could all be used as grounds for invalidation.
As mentioned herein, the defendant may request the court to suspend the infringement litigation based the invalidation request filed within the responding period (15 or 30 days from the date of receipt of the complaint). The court may hold a hearing specifically for the issue of suspension. An effective invalidation request with strong prior art references may result in suspension, thus putting the plaintiff on the defense, for the time being. Even if the court decides not to suspend the infringement litigation, the invalidation proceeding will continue in parallel with the court case. In practice, the court may actually keep an eye on the invalidation proceeding before issuing its decision in the infringement case. Also, the defendant can file additional invalidation request, based on new grounds or evidence, after the 15 or 30 day response period. In such situations, even though the court may not formally suspend the infringement case based on the later filed invalidation request, it would usually still take the request into consideration in making the final decision.
Although in most cases where an invention patent is involved, the courts do not suspend the infringement litigation, as an invention patent has gone through substantive examination and is presumed valid, an effective invalidation request may still result in a suspension. In Ming Li v. Toshiba PC & Network (Shanghai) Ltd., Toshiba filed both an invalidation request with the SIPO and a suspension request with the Beijing No.1 Intermediate Court. After hearing the invalidation matter, the court decided to suspend the litigation, primarily based on the strength of Toshiba's invalidation request. The disputed patent was later completely invalidated by SIPO, whose decision was also upheld by the court in an appeal filed by Ming Li (see Judgment (2010)-Yi-Zhong-Zhi-Xing-Chu-Zi No.356).
An accused infringer in a patent dispute in China has many options and an arsenal of weapons at his disposal, whether facing a pre-litigation warning letter or a court summons of a formal complaint. Notably, a declaratory judgment of non-infringement action, an invalidation request, and practicing prior art defense are commonly used tools in the overall defense strategy. Effective use of these and other options may not only reduce or void potential risks for the accused, but also put the accused on the offense and the accuser in a defensive or passive position.