China: Highlights Of The Draft Amendment Of China's Patent Law

Last Updated: 18 February 2016
Article by Steve Song

The State Council of China released a new draft amendment to the Patent Law submitted by the State Intellectual Property Office of China (SIPO) on December 2, 2015 for public comments. The amended clauses that catch particular attentions are those concerning the expansion of administrative enforcement power, striking down willful infringement, increase in the upper and lower limits of statutory damages, adoption of ex officio examination in patent reexamination and invalidation procedures, and establishment of licensing of rights system and implied license system for standard essential patents (SEP).

1. Expanded administrative enforcement power

The most significant revisions in the draft amendment pertain to the expansion of administrative enforcement power in patent protection. For example, the patent administrative department of the State Councilmay investigate and deal with significant patent infringement and counterfeit cases and the scope of patent administrative departments of local people's government is extended to the city level (cities divided into districts) and county level (counties authorized by laws and rules)under Article 3; the decision of invalidating a patent does not apply retroactively to any previous decision on patent infringement penalties under Article 47; the patent administrative departments have the power to investigate and impose penalty against intentional infringement acts that disrupt market order, such as group infringement and repeated infringement under Article 60; the patent administrative departments may investigate and deal with cases involving patent infringement and counterfeit on the Internet under Article 63; andthe patent administrative departments may make inquiry, access and duplicate related information, conduct onsite inspection, conduct inspection of goods and items, and seize relevant materials, and impose the legal consequences of interfering with infringement investigation under Article 67.

With respect to these clauses, the main concerns of the industry are: The expansion of administrative enforcement power in patent infringement disputes runs counter to the private right nature of patent system and the international practice that emphasizes judicial protection of patent rights. When the administrative enforcement power is extended to the patent administrative agencies at city level (cities divided into districts) or even county level, the law overlooks the dual attributes in which the technical complexity is mingled with the application of patent laws,thereby creating conflicts between the criteria and guidelines for the courts and the administrative departments. Moreover, there are no common ground on what constitute a group infringement and a repeated infringement. The intervention of public power in those issues could end up with harming the innocent.

2. Ex officio examination

Article 41 of the draft amendment gives the patent reexamination board the power to conduct ex officio examination on patent cases; Article 46 gives the patent reexamination board the power to conduct ex officio examinationon invalidation cases.

With respect to these clauses, the concerns of the industry are: By vesting the patent reexamination board with the power to conduct ex officio examination in both reexamination and invalidation proceedings, it fails to differentiate the different natures of the two proceedings.Reexamination involves only one party, in which the patent reexamination board conducts reexamination of patent applications on behalf of the state; and invalidation involves two parties, in which the patent reexamination board acts as an arbiter. Giving the board authority toconduct ex officio examinationin both proceedings could deviate from the remedy nature of reexamination and the role of the board as an impartial judge in an invalidation action.

3. Indirect patent infringement

Article 62 of the draft amendment stipulates the joint and several liability of indirect infringer.

With respect to this clause, the concerns of the industry are: The issue of whether to add "indirect patent infringement" to the Patent Law has stirred up considerable arguments in the past amendments of the law. In addition, since the Tort Law has stipulated the liability of abetting and assisting parties as joint tortfeasors, it is meaningless to stipulate further the liability of such act in the Patent Law. Moreover, the clause may be abused by some patentees.

4. The liability of Internet service providers (ISPs)

Article 63 of the draft amendment stipulates the obligations of ISPs to determine whether their services are being used in patent infringement or counterfeit acts.

With respect to this clause, the concerns of the industry are: The "notice & remove" rule in the field of copyright should not be transplanted to the field of patent. Different from copyright and trademark, the determination of patent infringement requires more technical knowledge, patent claim construction is more complicated, and the rules of comparing the patent scope with the accused infringing acts are more professional. It will be hard pressed for ISPs to determine on their own whether the act of their service users constitutes patent infringement, and imposing such obligation on them will put them in an awkward position in the market and may seriously impede the development of ISP industry.

5. Increase in limits of statutory damages

Paragraph 2, Article 68 of the draft amendment stipulates the lower limit of statutory damage is RMB100,000 and the upper limit is RMB5,000,000.

With respect to this clause, the concerns of the industry are: The root cause of low damage awards in China's patent infringement cases does not lie in the lower limit of statutory damages, but in the lack of evidence to support the claimed damages. Thus, even if the limits of statutory damages increase, the low damage award problem still remains. Some people also voice their concern that raising the limits of statutory damages may encourage the plaintiff to be tardy in providing evidence to show his damage or the gain profited by the defendant, but to wait passively for the court to grant an award according to the prescribed statutory damages. It may even lead to the emergence of "patent trolls."

6. Licensing of right

Articles 82 to 84 of the draft amendment stipulate the licensing of rights system.

With respect to these clauses, the concerns of the industry are: Patent licensing is a matter freely determined by and negotiated between private entities. The matter should be regulated through market mechanism and it is not necessary for state power to step in. The intent of the licensing of rights system is to enhance patent implementation and utilization. But the basis for the licensing of rights system to work smoothly is built on the availability of high-quality patents, whereas the overall quality of Chinese patents is rather low at the present time.

7. Implied license for standard essential patents (SEPs)

Article 85 of the draft amendment sets the implied license system for SEPs that when a patentee participates in the formulation of a national standard without disclosing the SEP he owns, it shall be deemed that the SEP patentee permits the patent implementer to use his patented technology. The clause further stipulates that if the patentee and the implementer fail to reach an agreement on the licensing royalty, they can request the decision of the patent administrative department of the State Council.

With respect to this clause, the concerns of the industry are: On one hand, there is no similar stipulation in the patent law of developed countries, and the legislation seems overly hasty in the absence of in-depth study and consensus on SEPs. On the other hand, it is inappropriate for the State to unduly intervene how patentees exercise their rights. In addition, licensing royalty disputes are typical civil disputes that do not require a preliminary proceeding of administrative intervention. Huawei, in its opinion voiced on behalf of many other Chinese enterprises, thinks that this clause is not consistent with common international practice or the actual conditions in China, but will only end up with tying down Chinese enterprises.

Originally published 28th January 2016

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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