China: Chinese Legal Developments: Counting the Cash

Last Updated: 7 November 2016
Article by Guoxu Yang

The Chinese government has realised the importance of the patent system in promoting the innovation of technologies and has taken certain measures and steps to enhance the protection of patent rights. The following are some trends and developments on patent protection in China in 2015.

Chinese entities and individuals are actively enforcing patent rights

According to the "White Paper on Judicial Protection of Intellectual Property Rights in 2015" released by the Supreme People's Court, the number of patent infringement civil cases of first instance reached 11,607, with a 20% increase over the number in 2014. Among those cases, 'foreign-related' disputes remain remarkably few since the number of all foreign-related civil IP cases decided at first instance in 2015 is just 1,327, a decrease of 22.6% compared with the 2014 number.

In contrast, most of the patent infringement cases are between Chinese individuals and entities. The Chinese companies mentioned in the white paper include companies invested in by foreigners, such as the Chinese subsidiary of a foreign company. In 2015, we did see more and more native Chinese companies start to enforce their patent rights. For example, Chinese internet company Sogou sued Baidu for patent infringement based on 17 patents and claimed damages of up to $40 million in total.

Some standard-essential patent (SEP) owners enforce their patents in Shanghai, Beijing, and Guangzhou. These include a Chinese company based in Xi'an, Shanxi Province, which holds SEP patents on WAPI technology. It sued Sony Mobile (China) and other companies. In addition, a Chinese company named Qihu sued competitors based upon three design patents.

Chinese patent law and protection mechanisms are improving

From a legislative aspect, China is amending its Patent Law for the fourth time. In the proposed amendments, the protection of patent rights is enhanced. For example, punitive damages will be available if the infringement is found to be wilful and the statutory damages will be increased to RMB 5 million ($752,000), according to the draft. In addition, the administrative protection of patent rights is also to be enhanced by increasing the power of local IP offices.

The Supreme Court issued new interpretations on judgments on patent infringement following the interpretations issued in 2009, which have been effective from April 1, 2016. In the new interpretations, issues such as claim construction, functional limitation, indirect infringement, SEP enforcement and determining royalties for fair, reasonable and non-discriminatory licensing, injunctions and calculation of damages, effect of an invalidation decision on infringement proceedings and judgments on design infringement are regulated.

As the Supreme Court interpretations are binding on all Chinese courts, they provide rules for rights owners and the courts in litigating patent infringement, and also help patent applicants to draft and prosecute patent applications to ensure safety and predictability of patent enforcement.

From a judicial aspect, IP courts were established in Beijing, Shanghai and Guangzhou by the end of 2014. The IP courts have exclusive jurisdiction over patent cases within the relevant areas. Until now, the goal for setting up the IP courts has been reached. Since the IP courts attracted a large number of patent cases and the judges were limited, they produced a certain backlog of cases.

But the situation is changing for the better: new judges are joining in and the way to try a case is also improving. The introduction of judge assistants, who are technical investigation officers helping the judges try patent cases, especially complicated patent cases, increase efficiency.

China is a statutory law country. The courts try cases merely according to the laws, regulations and Supreme Court interpretations. However, Chinese courts are trying to take advantage of the case law system. For example, the Supreme Court established the Typical Case Guidance Research (Beijing) Center in April 2015 trying to setup a case guiding system by prior cases having directive significance. The test has been first started from Beijing IP Court and may expand to the whole country in the future.

Each year, the Supreme Court publishes ten IP cases that have had an impact in the country and 50 typical IP cases with a certain guidance value. Local courts at the provincial level also publish typical IP cases that have a certain impact within that area. For example, in 2015, 140 typical IP cases were published by the high courts in some provinces and municipalities.

Higher damages could be expected

In patent infringement cases tried in the past, the damages awarded by the courts were not very high. According to the statistics made by sample survey of certain number of court cases in China two years ago, the average amount of damages awards by Chinese courts was only about RMB 80,000 for patent infringement cases. The damages awarded by the courts are too low to cover the expenses for stopping the infringement, let alone the economic loss of the rights owner. The situation frustrates the enthusiasm of patent owners for enforcing their patent rights, and has to be changed.

The Chinese legislative body is amending the Patent Law and the Supreme Court has issued interpretations on the determination of damages and allocation of burden of proof. According to the interpretations, if the rights owner has provided initial evidence regarding the benefit obtained by the infringer, but the accounting books and the materials relating to the infringing acts are mainly under the control of the infringers, the court may order the infringer to surrender the accounting books and materials.

Where the infringer refuses to surrender without cogent reason or delivers up forged accounting books or materials, the court may determine the benefit obtained by the infringer as a result of the infringement by reference to the rights owner's claim and the evidence as submitted. In addition, if the rights owner and the infringer had reached an agreement on the amount of damages due to patent infringement or the manner of calculating the damages based on the laws, the court should support it if the rights owner claims to determine the amount of damages based on the agreement in a patent infringement litigation.

With the enhancement of the laws, regulations and interpretations on the damages and also with the effort of patent owners to collect evidence of damages positively, higher damage compensations in patent infringement cases could be expected in the future.

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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