China: Proposed Revisions To China's Patent Law: The Fourth Time Around

Name the patent system that doesn't have at least one of these problems: enforcement takes too long, damages are too difficult to prove, litigation costs too much and compensation is too low. The 'terrible too's' affect the perceived strength of a patent system which in turn impacts investment in innovation. But building a better patent system is difficult work. Legislators in the U.S. are right now trying to do something about their own terrible too's even after a major overhaul of the U.S. law not that long ago.

And so it is in China. With a stated goal of transforming itself from a manufacturing economy into an innovation economy, China needs to do more to protect innovation efficiently and effectively. Changes to the current system are needed.

On April 1st, 2015, the State Intellectual Property Office released the "Proposed Revisions to the The People's Republic of China's Patent Law" (hereafter referred to as "proposed revisions"), for public comment which closed on April 30. This is the fourth round of proposed revisions for China's patent law.

If enacted, the proposed revisions would produce many worthy results. For this article, we focus on the two areas most likely to deal with China's own version of the terrible too's.

EMPOWERING THE ADMINISTRATIVE ENFORCEMENT AUTHORITIES – THE COST PROBLEM

The Patent Administration Department (the Department) would be empowered in the following ways.

Article 60 – Gives the Department the authority to disrupt infringing activities upon the request of a patent rights holder. Additionally, it can actively investigate and deal with all "widespread infringement, repeated infringement, or any actions that disrupt the market order in an effort to intentionally infringe patent rights".

Article 3, Article 64 and Article 76 - Explicitly state the Department's duties - at the central, provincial and municpal levels as well as the legal responsibilities of the Department's local branches, in cases where an infringer refuses to comply or obstructs official efforts or both.

In an effort to mitigate the "heavy costs" and improve the "lackluster results" of today's system, the proposed revisions emphasize strengthening the Department's authority and law enforcement capabilities. The upside is that greater official involvement will no doubt deter potential infringers, restrict infringing activities and aid the effective enforcement of administrative decisions. The cost of enforcement for rights holders should decrease. The downside is we have no way of knowning how this would actually work in practice. Some logical concerns present themselves.

Technical Proficiency

First, patents are very technical. Understanding patent rights, much less enforcing them, requires a high degree of specialization. Courts require the assistance of experts or specialized organizations to compare and debate the similarity of infringing products. The current level of competence, even in the courts, still varies greatly. Is the Department at all levels capable or qualified to handle all the new work the proposed revisions would provide it: such as interpreting claim rights, judging technical comparisons, etc? This is a matter worth further consideration.

Protectionism

Second, the proposed revisions entrust the Department to investigate "widespread infringement, repeated infringement, or any actions that disrupt the market order in an effort to intentionally infringe patent rights." Will the Department also protect the private rights of patent holders to exploit their property? The international exchange of intellectual property rights becomes more and more important to the world economy every day. Enhancing the Department's investigative authority could lead China to endure a great deal of pressure from its trading partners if protectionism, real or merely perceived, becomes a pattern. Such has been the case when ramped up enforcement of anti-trust legislation and anti-corruption campaigns ensnared foreign businesses.

The Public Security Bureau

Finally, the proposed revisions still stipulate that when parties refuse to comply with lawful orders or obstruct the Department's efforts that referrals should be made to the Public Security Bureau. Having the Public Security Bureau directly intervene would only increase that agency's authority in China. Given the technical complexity of patent disputes, the legitimacy of this organization in patent matters remains open to question.

That being stated, the proposed changes are rational given the current situation. Administrative enforcement of the patent laws, whether in China or elsewhere, will always have limits. With regard to the proposed regulations, explicitly defining exactly what is meant by "group infringement", "repeated infringement", "disruption of market order", and "intentional infringement of patent law" needs to be explained. As at all times, the Department must be regulated in accordance with the "Patent Law Implementation Regulations" and the Administrative Law regulations. Cases of individual political profit-seeking must be prevented.

EMPOWERING THE COURTS – THE TIME, PROOF AND COMPENSATION PROBLEMS

Giving the Department more to do will help reduce some of the costs involved in protecting patent rights. Increasing the power of the courts is meant to address the "too long" , "too difficult", and "too low" problems.

Time

Article 60 – By harmonizing the system, this provision deals with the implementation and effectiveness of administrative reconciliation agreements after confirmation by the courts. This should save judicial resources and shorten the patent infringement dispute resolution period. It would also do away with a particular bugbear of current practice: the infringer who requests an invalidation decision review, waits forever, refuses to comply and then files an administrative lawsuit thereby delaying resolution of the dispute. Defining what constitutes a "long period of time", and requiring resolution within a set period, will bring many benefits.

Proof

Article 61 - Evidence of damages is the "too difficult to prove" part of the current system. All too often rights holders have done all they can to offer up evidence. But the accused infringers are holding onto ledgers and other materials related to the infringement that should have been produced. This article allows the People's Court to order the infringer to provide infringement-related account books and materials. Refusing to do so, or providing fake ledgers, can then be taken into consideration when determining the amount of compensation. What isn't present is an exception for justifiable refusal – such as when business or government secrets would be divulged . Justifiable refusal, as determined by the court, should be added in any final version of this article.

Compensation

Article 65 – Allows the award of punitive damages in the case of intentional infringement in order to deal with the "too low" problem. This is by far the most controversial of the proposed revisions.

Three main complaints have arisen in the debate over using punitive damages as a means to protect patent rights. First, some question whether in a civil law system private parties should be allowed to assume a public role: seeking the punishment of patent infringers. The second common complaint is that the court's discretion is too broad and will inevitably lead to unequal and thereby unjust results. Finally, the introduction of a punitive damages system doesn't effectively resolve the compensation problem.

Public Duty/Private Parties

The introduction of a punitive damages system into patent law, as described in these proposed revisions, cannot be said to be conflict with existing laws and regulations. The choice of allowing punitive damages to be awarded is a policy decision. The policy was modeled after the successful legislative experiences of other developed countries and is meant to aid China's determination to deter intentional infringement. Additionally, using punitive damages as a determining criterion for public and private law doesn't make much sense.

The possibility of a punitive damages award is not the same as administrative responsibility or criminal responsibility. It does not give rights holders the power to punish others. It is meant to encourage rights holders to actively protect their property. In the end, it may encourage them to do so or it may not.

Judicial Discretion

How much discretion should the courts have in awarding punitive damages? The current revisions are silent on this point. So implementation of the important issues that come up in awarding punitive damages – defining what is intentional infringement, clarifying how to actually arrive at the punitive compensation number - will undoubtedly be carried out through supporting regulations, civil law interpretations, case studies or all three. This process will provide some restraint on judicial discretion. The introduction of punitive damages doesn't definitively resolve the "low compensation" problem, however.

The Compensation Problem

The amount of compensation awarded in an infringement case still relies on defining loss. A rights holder's loss is very difficult to determine in practice. So it is difficult for the court to support the entirety of a rights holder's proposed amount. For this reason, the amount of compensation in patent infringement litigation continues to be low.

The loss amount that can acutally be proved cannot be changed. But by allowing the court some discretion when awarding punitive damages, the amount of compensation actually awarded can be increased by a multiple of 2 or 3. The punitive damages system can thereby serve as a deterrent to patent infringers while also providing rights holders a financial incentive to be proactive when they encounter patent infringement.

Of course, to be effective, the punitive damages system must be properly introduced in order to help solve the compensation problem. At the practice level, it will require counsel to fully elaborate her client's position when presenting punitive damages application documents. The law will also need to be further refined with regard to the deciding factors for the amount of punitive damages. And, above all, the judiciary must act carefully and with restraint.

CONCLUSION

Revision of the patent law still has a long way to go. China's system not only requires looking to the experience of other countries but more importantly requires improving judicial practices. Controversy exists around these revisions, as it does around Senator Grassely's proposed revisions of the U.S. patent law. But once the dust settles, we look forward to reasonable patent legislation.

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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Authors
Samuel Speed
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