Hong Kong: Case Update - SNE Engineering Co Ltd v Hsin Chong Construction Co Ltd

Last Updated: 31 December 2015
Article by Xiaoyan Zhang
Most Read Contributor in Hong Kong, October 2018

Keywords: intellectual property, patent, SNE Engineering Co Ltd v Hsin Chong Construction Co Ltd.,

By Xiaoyan Zhang, Counsel (New York, USA), Mayer Brown JSM, Hong Kong
Maggie Lee, Legal Assistant, Mayer Brown JSM, Hong Kong

On 6 August 2015, the Hong Kong Court of Appeal affirmed a patent decision issued by the Court of First Instance in SNE Engineering Co Ltd v Hsin Chong Construction Co Ltd1. This case is significant in two material aspects. First, it confirmed the principles applicable to construction of short-term patents and determination of sufficiency and novelty. Second, it clarifies how a short-term patentee can discharge his burden of establishing patent's validity under section 129 of the Patents Ordinance (Cap. 514) (the "Ordinance").

Background – Short -Term Patent

In Hong Kong, there are two types of patents: standard patents and short-term patents, which enjoy a term of protection of 20 years and eight years, respectively. The application for short-term patents is straightforward. Only a request, a specification, an abstract and a search report in relation to the invention are required under section 113 of the Ordinance. Unlike a standard patent, a short-term patent application will not be subject to substantive examination although a short-term patent owner has to establish the validity of his patent before he can enforce his patent rights in court proceedings under section 129 of the Ordinance2.

Facts of the Case

Plaintiff SNE Engineering Co Ltd ("SNE") was engaged by the 1st Defendant, Hsin Chong Construction Co Ltd ("Hsin Chong"), to remove piles at a site for the high speed railway between Hong Kong and Shenzhen. Hsin Chong awarded the contracts to SNE relying on the understanding that the method for removal of piles ("Method") had not been used in Hong Kong. SNE then engaged the 2nd Defendant, Chim Kee Machinery Co Ltd ("Chim Kee"), to supply machinery and operators for the pile removal works. The works commenced in September 2010.

On 4 August 2011, SNE applied for a short-term patent ("Patent") for the Method in Hong Kong. The claims in the Patent were drafted in Chinese and the application was supported by a search report prepared by the State Intellectual Property Office of the People's Republic of China ("Search Report"). SNE obtained registration of the Patent on 23 December 2011.

As the pile removal works did not progress at the rate anticipated by the parties, Hsin Chong took over the site in July 2012 and eventually terminated the contracts with SNE. SNE commenced proceedings against Hsin Chong and Chim Kee, contending that Hsin Chong infringed the Patent by using the Method to continue with the works at the site without SNE's permission, and that Chim Kee participated in such infringement by supplying the machinery and operators.

The First Instance Decision

On 26 March 2014, the Court of First Instance rejected SNE's claims and held that the Patent was invalid on two grounds:

  1. The specification of the Patent did not disclose the invention in a manner sufficiently clear and complete for it to be performed by a person skilled in the art; and
  2. Alternatively, the Method lacked novelty because it had been made available to the public.

In determining whether the Patent should be invalidated on the ground of insufficiency, the Court of First Instance adopted the purposive approach illustrated in Catnic Components Ltd v Hill & Smith [1982] RPC 18311 by examining "whether persons with practical knowledge and experience of the kind of work in which the invention was intended to be used, would understand that strict compliance with a particular descriptive word or phrase in a claim was intended by the patentee to be an essential requirement of the invention so that any variant would fall outside the monopoly claimed".3 Having considered the legal principles and the evidence of the expert witnesses, the Court of First Instance identified a combination of six deficiencies which rendered the patent specification insufficiently clear. For example, the diagrams in the Patent did not correspond with the description of the method in the text and there were technical flaws in the description of the process.

The Court of First Instance then considered how a patentee could discharge the burden of proving the validity of a short-term patent under section 129 of the Ordinance, and held that if the alleged infringer had not put forward evidence to challenge the validity of a short-term patent, then the patent was prima facie valid. However, once the alleged infringer had adduced sufficient evidence to challenge the validity of the patent, the burden of proof fell back on the patentee.

The Defendants' challenge against the novelty of the patent based on a product brochure published in Japan failed because the judge found that the method featured in the brochure was not the same as the Method, and even if the methods had been the same, the Method would not be obvious to a person skilled in the art.

The Court of First Instance, however, agreed with Defendants that the Method lacked novelty by reason of disclosure to the public. For example, the Method had entered into the public domain when it was communicated to Defendants by SNE under no duty of confidentiality. The Method has also been disclosed to the public at the site through execution of the works by Chim Kee's operators as a person skilled in the art could derive the Method by reference to what was observable at the site.

Issues at Appeal

SNE appealed, inter alia, the following broad issues:

  1. Whether the Patent had been construed properly and whether the Patent was invalid on the ground of insufficient disclosure;
  2. Whether the Court of First Instance had interpreted section 129 of the Ordinance correctly; and
  3. Whether the Patent was invalid on the ground of lack of novelty due to disclosure before the date of application.

Court of Appeal Decision

The Court of Appeal considered the Plaintiff 's claim on each of the broad issues and dismissed the appeal.

Construction of Patent and Insufficiency

The Court of Appeal held that there was no error of law on the construction of the Patent. The Court of Appeal furthermore found no basis to interfere with the Court of First Instance's ruling of disclosure insufficiency which was a question of fact and degree and an appellate court should be reluctant to interfere with the assessment of evidence by the lower court.

Interpretation of Section 129 of the Ordinance

The Court of Appeal analysed the burden of proof imposed by section129 of the Ordinance in detail, explaining that section 129(a) imposes a legal burden on the patentee to establish the validity of the patent in enforcement proceedings and section 129 (b) imposes an evidential burden to provide prima facie evidence of the validity of the patent. It held that the mere fact that the patent had been granted or the mere existence of a search report filed at the time of application would not be sufficient to discharge the evidential burden under section 129(b). Rather, the key question here was "whether the content of the search report is sufficient to support the prima facie validity of the patent".4 If the patentee was able to provide prima facie evidence of validity, then in the absence of evidence to the contrary from the defendant, he would meet the burden of proof required by section 129(b).

The lower court found the Search Report insufficient to support the prima facie validity of the patent as the description of the Method in the Search Report was inconsistent with the description in the specification of the Patent. The Court of Appeal agreed, noting that the lower court did not adjudicate the invalidity simply because SNE had failed to discharge the burden of proof.

Lack of Novelty

The Court of Appeal endorsed the Court of First Instance's holding that the Method had been made available to the public through disclosures made by Chim Kee's operators at the site prior to the application of the Patent. However, the Court of Appeal disagreed with the lower court's analysis on the question of confidentiality concerning the disclosures made by SNE to Defendants. The Court of Appeal was of the view that the representation by SNE that the method was widely used in Japan was not sufficiently specific to suggest to a reasonable recipient that the Method was already in the public domain in Japan. There was also evidence that the parties viewed their relationship as one of confidence. In light of the conclusions on the other points, the Court of Appeal had left this issue open.

Conclusion

In order to discharge the burden of proving a short-term patent's validity under section 129 of the Ordinance in legal proceedings, a patentee will need to show that the content of the search report is sufficient to support the prima facie validity of the patent. Extra care should be given to ensure that the contents of the search report match the description of the specification.

Additionally, to avoid challenges based on lack of novelty, patentees should ensure that adequate confidentiality measures are in place during any commercial dealings prior to the filing of a patent application.

Footnotes

1 [2015] 4 HKLRD 517

2 Section 129 of the Ordinance provides that "In any proceedings before a court for the enforcement of rights conferred under this Ordinance in relation to a short-term patent- (a) it is for the proprietor of the patent to establish the validity of the patent, and the fact that the patent has been granted under this Part shall be of no account in that regard; (b) evidence by the proprietor which is sufficient to establish prima facie the validity of the patent shall in the absence of evidence to the contrary be sufficient proof of such validity."

3 Paragraph [109] of the First Instance judgement.

4 Paragraph [104] of the Court of Appeal judgement.

Originally published 18 December 2015

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