China: Understanding The SPC's Stance On Patent Disputes

Last Updated: 18 February 2016
Article by Yan Wang and Eric Zhao

The Supreme People's Court's new judicial interpretations replace previous ones to bring provisions in line with the Patent Law. Updates include clarified court jurisdictions, simplified procedures and increased damages, but guidelines for standard essential patents are still needed

2015 marks the 30th year of the PRC Patent Law (Patent Law) and the year in which the Supreme People's Court (SPC) plans to overhaul the judicial interpretations of the law. These interpretations are essentially SPC-made rules and regulations directed to address both procedural and substantive patent law issues. An amendment of one of the two major judicial interpretations came into effect in February this year, and the other, which supplements the other existing major interpretation, is expected to be released in April.

The two judicial interpretations codified many pro-patentee judicial practices, which were consistent with the general policy favouring innovation. They also clarified issues related to the interaction between the Patent Law and the PRC Anti-monopoly Law, in particular attempting to mark the boundary for enforcing standard essential patents (SEPs) regarding non-mandatory standards. Together, they send a message to patent owners that the courts welcome patentees to enforce their patents as long as they do not use patents to restrain competition. Unfortunately, the amendments do not address the issues related to SEPS where the standard is mandatory, most likely because the law surrounding this area remains fragmented.

Tackling patent infringement

The SPC has released many judicial interpretations in the past regarding patent infringement cases to reflect the experience courts have accumulated with the law. Among them, two are particularly significant. The first, from 2001, is the Several Provisions on Issues Concerning the Application of the Law on Trials of Patent Disputes (2001 Interpretation), and the other, released on January 1 2010, is the Interpretation on Several Issues Concerning the Application of the Law in Trials of Patent Infringement Disputes (2010 Interpretation).

The 2001 Interpretation was first passed on June 19 2001 and came into effect on July 1 2001. It mainly concerns the scope of patent infringement actions, the courts' jurisdiction over patent disputes and other procedural issues. It also dealt with the issue of compensatory damages in patent infringement cases. The 2001 Interpretation was further amended in 2013 to authorise some district courts as forums for such cases.

With respect to the 2001 Interpretation, the SPC released a draft amendment for public comments last year that was put into effect on February 1 2015. The 10 amendments to the articles in the 2001 Interpretation were mainly in response to the 2008 PRC Patent Law (3rd Revision). While some changes are directed at addressing formality issues such as the wording of certain provisions, more importantly, others provide the patent holder with clearer guidelines in enforcing their patents. For example, the SPC clarified the framework of the doctrine of equivalence (DOE), lowered the barriers to initiate a patent infringement lawsuit and raised the maximum compensatory damages amount for patent cases.

With respect to the 2010 Interpretation, the SPC also released in 2014 a draft Interpretation on Several Issues Concerning the Application of the Law in Trials of Patent Infringement Disputes (II) (Patent Infringement Dispute Interpretation (II)) to the public. The Patent Infringement Dispute Interpretation (II) supplements the 2010 Interpretation mentioned above and is reported to be finalised and promulgated this April. It aims to provide both patent owners and patent law practitioners with detailed guidelines in enforcing patents. Updates include more detailed rules regarding the applicability of prior art defences, more consistent tests for deciding act preservation (preliminary injunction) issues and clarification of many important issues regarding SEPs.

Changes to the 2001 Interpretation

While many of the changes were in response to the 2008 Patent Law, others are aimed at tackling important substantive patent law issues. Most amendments appear to be pro-patentee.

Courts' jurisdiction clarified

The amendment regarding the jurisdiction of design patent cases is a good example of changes in response to the Patent Law. Specifically, Article 11 in the 2008 Patent Law prohibited the offer for sale of products infringing design patents, which had previously been legal. As a result, a corresponding article is provided in the current amendments implementing Article 11. Specifically, it proscribes that, for wherever an infringing product is offered for sale, the court in that location has jurisdiction over the design patent infringement action.

The policy behind the 2008 change in the Patent Law is to enable design patent holders to bring infringement actions as soon as an infringer puts the accused products into business shows. This brings the patent infringement actions for design in line with those for inventions. It is natural for courts located where the accused products are offered for sale to hear such cases. The more controversial question is, when these products are offered for sale on the internet, can the patent owner go to court where the computer server is located? According to the Beijing Higher People Court's Guidelines for Patent Infringement Actions, the answer is yes.

Time scope for infringement narrowed

There has been much debate about where the scope of patent claims can expand to cover later developed technology, assuming the function-way-result test is satisfied. People against this idea say that a patentee should not be able to broaden the scope of his patents to exclude people from using technology that did not exist at the time of his invention. People for the idea argue that technology is constantly developing. As long as the function-way-result test is satisfied, it does not matter if the technology implemented by the accused products is later developed or not. For example, if a patent claim has a limitation of a computer system, one should not have a non-infringing argument solely because he practices the patent on a better computer that did not exist when the patent application was filed.

The amendment adopts the second view. This can effectively prevent some cheap design-arounds replacing components in accused products with later developed parts.

Less documents required

The 2001 and 2013 judicial interpretations both stipulate that for utility model patents or design patents, one must produce a Patent Evaluation Form or Research Report to initiate an infringement action. The current amendment makes this optional, which lowers the barrier to file a lawsuit, significantly benefiting utility model patent holders or design patent holders in their efforts to protect their patent rights.

Compensatory damages increased

The amendments related to compensation of infringement change three important aspects of damages which benefit the patent holder to obtain greater damage claims. First, the upper limit of compensation under statutory damages is raised from Rmb500,000 to Rmb1 million, confirming stipulations in the post-2008 version of the Patent Law. Second, a "reasonable multiple" based on the licensing fees is used to determine the compensation amount when the actual loss of the patent owner and the infringing profit are not available, whereas before only a multiple of 1-3 could be used. Third, payment of legal fees and costs are to be added to the compensatory damages.

Although these amendments try to provide the patent holder with potential for greater compensation, given the importance of technology and innovation in the world economy, some consider a ceiling of Rmb1 million as too low and insufficient to compensate for real economic damages. This is particularly true where there is no US-style discovery available in Chinese litigation, often leaving patentees with no option but to rely on the statutory damages' low cap.

Supplements to the 2010 Interpretation

The Patent Infringement Dispute Interpretation (II) is expected to be promulgated in April this year. It is worth noting that this interpretation will begin to provide guidelines for SEPs and incorporate a working legal framework for handling "fair, reasonable and non-discriminatory" (FRAND) principles.

Defences for SEP infringement claims

According to Article 27 of the draft Patent Infringement Dispute Interpretation (II), for patents which are not explicitly incorporated into a state, industry or local standard, courts usually will not recognise the defence based on the implementation of a standard, as such patents are not really SEPs. But if the patent holder violates FRAND principles or carries out its negotiations in bad faith, the court will then generally deny the patent owner's request for injunction relief.

There are two folds of issues here. First, the language of the interpretation fails to answer the question whether this defence is available if the standard is a state or other mandatory standard. Second, it can be seen that the SPC is not averse to entrusting the SEP holder with market dominance, but if the patent holder abuses their dominance the courts will take action. It is worth pointing out that this issue is a leftover from the 2010 Interpretation. It is not clear if the SPC can do a better job this time.

Courts empowered to set royalty rate for SEPs

patent licensing disputes involving standards, potential licensees have the right to seek relief from courts. Paragraph 2 of Article 27 stipulates that courts can set a reasonable royalty rate for an SEP if the parties are unable to reach an agreement through negotiations. When considering what is fair, reasonable and non-discriminatory, the patent's importance, the technical field of the standard, the nature of the standard, the implementation scope of the standard and the normal licensing terms must be included.

Lack of regulation for SEPs involving mandatory standards

The lower people's courts, the State Administration for Industry and Commerce (SAIC) or the National Development and Reform Commission (NDRC) have already or will carry out their own adjudication or rule-making activities and attempt to clarify SEP issues from their own perspectives.

The Guangdong Higher People's Court in Huawei v Interdigital – a dispute involving both SEP licensing fees and abuse of market dominance – found that the owner of an SEP may not directly refuse an implementer who is willing to pay a reasonable royalty rate. The SEP patent holder should license the technology on the basis of FRAND principles.

The SAIC ruled in its Provisions for the Prohibition of the Abuse of Intellectual Property to Eliminate or Restrict Competition by Administrations for Industry and Commerce (Draft for Comments) that, after a patent is declared to be part of the standard, the holder of that patent possesses market dominance. There can be no justifiable grounds to violate the fair, reasonable and non-discriminatory principles by refusing others the right to implement the patent or by refusing others to license the patent on fair terms.

The NDRC held, in its determination against Qualcomm following its inquiry into the company's alleged conduct, that wireless terminal manufacturers are entitled to obtain the SEPs on FRAND terms, although it did not say so explicitly in its decision that imposed a hefty fine on Qualcomm.

In contrast, the Patent Infringement Dispute Interpretation (II) only explicitly addresses situations where patents involve non-mandatory standards, but fails to provide any concrete regulations for patents involving mandatory standards. It is regrettable that silence persists on this key issue. As a result, the public still awaits a concrete definition for SEPs and clear guidelines for the complicated issues related to SEPs involving mandatory standards.

Understanding The SPC's Stance On Patent Disputes

Originally published by China Law Practice

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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