China: Draft Fourth Amendment To The Chinese Patent Law For The State Council's Review

On December 2, 2015, the Legal Affairs Office of the State Council of China published a new draft of the fourth amendment to the Chinese patent law which was sent to the State Council to review, for solicitation of public comments. The solicitation period ends on January 1, 2016. Compared with the last draft which was published on April 1, 2015, this version includes some additional contents.

Design Patent

The new draft includes significant changes related to the prosecution of design patent applications. According to the proposed new Article 2 of the Chinese patent law, "design" means any new design of the shape or pattern, or their combination or the combination of the color with shape or pattern, of a product as a whole or a portion thereof, which design creates an aesthetic feeling and is fit for industrial application. This change allows partial design, i.e. design for a portion of a product which has not been possible so far. Currently, applicants must limit the scope of protection of a design patent to a specific complete product. For example, even if a design is only for a handle of a cup and the handle could be used for cup bodies of any shape, an applicant has to incorporate the design of the handle into a specific cup body or a limited number of cup bodies in a design application or design patent, as a design patent in China only protects a complete product but not a portion of a product that cannot be sold or used independently. The allowance of partial design is definitely a step forward to curb the acts of copying the design of a portion of a product or combining designs of portions of various products and getting away with infringement on any design patent of the complete product(s).

In addition, China is preparing to join the Hague Agreement, and hence in Article 42, the term of design patent is proposed to extend to 15 years in order to meet the relevant requirements in the Hague Agreement. Moreover, domestic priority is also provided for design patent applications in the proposed new Article 29, which means a design application may claim priority from a previously first filed Chinese design application within 6 months from the priority date. This has been absent in the Chinese patent law. For design applications, the current Chinese patent law allows only foreign priority, which means claim of priority from a previously first filed foreign application, whereas both foreign priority and domestic priority are allowed for invention or utility model applications.

Patent Enforcement

The new draft includes many changes to the enforcement of patent rights, in favor of the right holders. The new draft keeps the concept of willful infringement which was introduced in the previous drafts. According to the proposed new Article 60, repeated infringement or group infringement, i.e. infringement conducted by a multiple parties, is regarded as willful infringement which disrupts market order. The administrative authorities, i.e. local IP offices have the power to handle such cases. For such willful infringement acts, in addition to order the infringer to stop its infringing act, local IP offices have the power to confiscate the infringing products and parts, tools, molds or equipment specially used for making such products or performing infringing methods. In addition, for repeated infringement acts, local IP offices have the power to impose a fine up to five times the illegal amount of sales, if the illegal amount of sales is no less than RMB50,000. If there is no illegal amount of sales or if the illegal amount of sales is less than RMB50,000, a fine of no more than RMB250,000 may be imposed.

It is to be noted that the previous version of draft amendment proposed to give local IP office the power of confiscation in all infringement cases. However, in the new draft, their power is limited to willful infringement cases only. In the previous draft, local IP offices were proposed to have the power to destroy the infringing products or parts, tools, molds or equipments specially used for making such products or performing infringing methods. However, in the new draft, this proposal was removed. Moreover, in the previous draft, local IP offices were proposed to have the power to impose a fine in any willful infringement cases. However, in the new draft, their power is limited to repeated infringement cases only.

Currently, local IP offices only have relatively powerful measures against patent passing-off. Specifically, when investigating suspected acts of passing off a patent, the local IP offices may, based on the evidence obtained, query the parties concerned, and investigate the relevant circumstances of the suspected illegal act; carry out an onsite inspection of the site where the party's suspected illegal acts take place; review and reproduce the contracts, invoices, account books and other relevant materials related to the suspected illegal act; examine the products relevant to the suspected illegal act and may seal up or withhold the product proved to be passing off the patented product. Like the previous draft, the proposed new Article 67 (corresponding to current Article 64) gives the same power to local IP offices in handling patent infringement cases.

Like the previous draft amendment, the proposed new Article 66 (corresponding to current Article 63) gives the local IP offices the similar power to impose a fine for patent passing-off cases. Specifically, local IP offices have the power to impose a fine up to five times the illegal amount of sales, if the illegal amount of sales is no less than RMB50,000. If there is no illegal amount of sales or if the illegal amount of sales is less than RMB50,000, a fine of no more than RMB250,000 may be imposed.

According to the proposed new Article 68 (corresponding to current Article 65), for willful infringement acts, a court may increase the damages up to three times of the damages calculated using one of prescribed methods, i.e. the actual loss of the patentee, the illegal gain of the infringer or making reference to multiples of the royalties of the patent. Furthermore, the upper limit of statutory damage which is currently any amount from RMB10,000 to RMB1,000,000, is proposed to be increased to RMB100,000 to RMB5,000,000. Of course, if damages can be calculated using one of the above three methods, it may be much higher.

It is to be noted that the calculation of damages for willful infringement and the range of statutory damage are different from the previous version.  In the previous version, both calculated damages and statutory damage may be doubled or tripled for willful infringement which means the statutory damage may be as high as 3 million RMB. However, as a court may have taken into the circumstances of willfulness in determining statutory damage, the previous proposal did not make sense. In the new draft, this is corrected and the upper limit of statutory damage is further increased to create high deterrence.

Moreover, to reduce the difficulty of providing evidence for calculating damages, the proposed new Article 68 prescribes that if infringement is found by the court but the relevant account books or materials are mainly in the possession of the infringer, the court can request the infringer to produce the relevant account books or materials. If the infringer is not cooperative, damages may be determined with reference to the plaintiff's claim and evidence. This proposal was included in Article 61 in the previous draft amendment.

The new draft also introduces the concept of joint infringement, which was not clearly defined in the previous draft. Specifically, the newly added Article 62 in the new draft prescribes that if a party knows relevant products are raw materials, intermediate materials, parts or equipments specially used to exploit a patent but still, without the authorization of the patentee and for production or business purposes, provides such a product to another party who conducts the patent infringing acts, the party and the infringer shall be held jointly liable. Article 62 further prescribes that if a party knows relevant products or methods are patented products or methods but still, without the authorization of the patentee and for production or business purposes, induces another party to conduct patent infringing acts, the party and the infringer shall be held jointly liable.

In addition to the newly added Article 62, the new proposed Article 63 specifically deals with e-commerce related infringement, which proposals were mostly included in the previous draft. The new Article 63 proposed that if an internet service provider (ISP) knows or should have known that its user infringes or passes off a patent right using its internet service, but the ISP does not take necessary measures to curb it such as deleting, blocking or breaking the links of the infringing products, the ISP and the user shall be held jointly liable. A patentee or interested party may notify the ISP if it has evidence to prove its user infringes or passes off its patent. If the ISP does not take necessary measures after receiving valid notification from the patentee or interested party, the ISP and the user shall be held jointly liable for the enlarged damages.  Local IP offices may also ask the ISP to take necessary measures if they find a user of the ISP infringes or passes off a patent. If the ISP does not do so, the ISP and the user shall also be held jointly liable for the enlarged damages.

License of Right

The concept of license of right was introduced in the previous draft and kept in the new draft, which draws on the German and UK practice. This system of license of right aims to create a platform to improve technology transfer and commercialization. Article 82 of the new draft allows patentees to express in writing to SIPO their willingness to license their patents to anyone and specify relevant royalties. In such cases, SIPO will announce the patentees' statements. Patentees of utility model patents or design patents should provide patent right evaluation reports when they offer license of right. Patentees may also withdraw their statements in writing which will also be announced by SIPO. Where the statement of license of right is withdrawn, the effect of the previously granted license of right shall not be affected.

Accordingly to Article 83 of the new draft, the licensee of the license of right should inform the patentee in writing and pay associated royalties. The licensee of the license of right may register the license of right with SIPO, as proof of obtaining the license of right. Over the term of the license of right, a patentee is not allowed to grant any sole license or exclusive license or request for preliminary injunction.

Article 84 of the new draft further mandates that where the relevant parties have a dispute over the license of right, SIPO has the authority to make a decision. If any of the relevant parties is not satisfied with the decision of SIPO, it may institute legal proceedings within 15 days from receiving the decision.

Standard Essential Patents

Article 85 of the new draft mandates that if a patentee that is involved in the making of national standards fails to disclose the 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. In other words, the patentee has no rights to sue the user of the national standards for infringing its relevant patents. Article 85 further prescribes that the amount of royalties the user of the national standards has to pay to the patentee can be decided through negotiation. If the relevant parties cannot reach an agreement on the royalties, they may request SIPO (in the previous version, local IP offices) to make a decision. If any of the relevant parties is not satisfied with the decision of SIPO, it may institute legal proceedings within 15 days (in the previous version, 3 months) from receiving the decision.

Service Invention

According to the current Article 6 of the Chinese patent law, service invention-creation includes an invention-creation made by a person in execution of the tasks of the entity to which he belongs or made by him mainly by using the material and technical means of the entity. For a service invention-creation, the right to apply for a patent belongs to the entity and after the application is approved, the entity is the patentee. Article 6 of the new draft, as in the previous version, redefined "service invention-creation" by limiting it to those made by a person in execution of the tasks of the entity to which he belongs.

The new draft further proposed that in respect of an invention-creation made by a person using the material and technical means of an entity to which he belongs, where the entity and the inventor or creator have a contract in which the right to apply for and own a patent is provided for, such provisions shall apply and in absence of such a contract, the right to apply for a patent belongs to the inventor or creator. Moreover, Article 16 of the new draft further proposed that under this circumstance, if the contract provides that the right to apply for a patent belongs to the entity, the entity must award the inventor or creator a reward after patent right is granted, and in addition pay the inventor or creator remuneration upon exploitation of the patent.

Article 81 of the new draft proposed that after a research institution or schools of higher education established by the state obtained a patent right for an service invention, the inventor or creator may, without changing the ownership of the patent and through negotiation with his or her entity, exploit the patent or license others to exploit the patent and enjoy benefits as specified in the agreement with the entity. This proposal aims to improve the commercialization of patents.

Other Changes

Article 64 of the new draft proposed that in a patent infringement dispute, relevant parties of both sides are allowed to voluntarily furnish a patent right evaluation report to the courts or local IP offices. Currently, only patentees or interested parties that have rights to launch legal actions are allowed to provide patent right evaluation report.

Article 74 of the new draft proposed that local IP offices should set up a patent right protection credit archive and incorporate it into the national credit information system. If this is fully implemented, a party's infringing activity may have impact on its credit evaluation and thus its financial activities.

Article 41 and Article 46 of the new draft respectively proposed that the Patent Re-examination Board (PRB) may conduct examination ex officio, in re-examination or invalidation proceedings.

There are also a few things that were included in the previous draft but were removed in this new draft. In the previous draft amendment, it was proposed, in the hope to speed up the infringement proceedings, that if an infringement case is suspended for the defendant requests invalidation of the relevant patents, the courts or local IP offices should resume the relevant proceedings once the PRB makes a decision in invalidation procedure and the decision is announced. However, this may lead to contradictory results in infringement proceedings and the validity proceedings as the PRB's decision is appealable to court and may be overturned.

The last version of draft proposed to allow methods for the diagnosis or for the treatment of disease for farmed animals as patentable subject matter. However, in this version, this proposal was deleted. In other words, there is no change compared with the current patent law, with respect to methods for the diagnosis or for the treatment of disease. The draft amendment also clarifies that neither methods of nuclear transformation nor substances obtained by methods of nuclear transformation are patentable subject matter. But this practice has been in place and the proposed amendment is for clarification only.

The above summaries most of the proposed changed in the draft Chinese patent law which was sent to the State Council to review.

Stephen Yang is a partner at Peksung Intellectual Property. He can be contacted at: yyong@peksung.com

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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