This article provides an overview of the recently proposed fourth amendment to the patent laws of China that will dramatically increase the effectiveness of enforcing patents in China and, correspondingly, increase the value of obtaining patent protection in China.
Since the release and enactment of the Notice of the State Council on Issuing the Outline of the National Intellectual Property Strategy, China has made rapid progress in various aspects of intellectual property, including the creation, application, and protection of intellectual property. The number of filings of applications for all kinds of intellectual property to the State Intellectual Property Office of China ("SIPO"), including patents, trademarks and design patents, are now all ranked number one in the world.
The four most important bodies of legislation in the development of China's intellectual property laws are Patent Law, Trademark Law, Copyright Law and Anti-Unfair Competition Law. As the most important legislation regarding protection of technological innovation, the Patent Law was released in 1984 and has been amended three times, with a fourth amendment to come in the near future. To promote the development of medicines, chemical substances and the food industry in China, and to integrate Chinese intellectual property law into the global community, the first amendment in 1992 lifted restrictions on awarding patents for medicines, chemical substances and food items. The second amendment in 2000 amended parts of the original Patent Law that were inconsistent with WTO rules. The third amendment in 2008 made adjustments to accommodate the needs of the present development stage in China.
From Proposal to Amendment
The fourth amendment was first put forward by director general Changyu SHEN of the National Intellectual Property Administration during the National People's Congress and the Chinese People's Political Consultative Conference in 2018. In April 2018, the Standing Committee of the National People's Congress made the amendment of the Patent Law explicit in the 2018 legislative work plan. On 4 December 2018, 38 departments, including the National Development and Reform Commission and the People's Bank of China, issued a notice of the Memorandum of Cooperation on Joint Punishment of Dishonest Entities in the Field of Intellectual Property (Patent). On 5 December 2018, the standing committee of the State Council passed the draft of the fourth amendment and submitted it to the standing committee of the NPC for review. The official passage of the amendment is expected in 2019.
Changes proposed to the Patent law
The proposed fourth amendment makes several important changes that will significantly enhance the protection and enforcement of patents in China. The parts relevant to damages, which are the key provisions of the amendment, have received the widest attention. Most of the existing Chinese legislation regarding patent damages is based on the principle of compensation, not punishment. In addition, the existing legislation sets a cap of one million RMB on the maximum compensation, and courts, considering factors such as the scale of infringement and patent contribution rate, tend to award only a small amount of damages. This makes the cost of infringement low and encourages repetitive infringement or wilful infringement of patent rights.
In order to promote the protection of intellectual property in China, the proposed amendment makes punitive damages available to combat intentional infringement and raises the amount of damages and fines available in cases of intentional infringement of patent rights, thereby increasing the cost of infringing intellectual property. The amendment is also a positive response to President XI Jinping's proposal in his speech at the China International Import Expo opening ceremony that China should protect the legitimate interests of foreign-owned enterprises and punish intellectual property infringement.
In accordance with these principles, the draft of the fourth amendment makes it clear that the People's Court can set the amount of damages by no less than one time but no more than three times a certain amount, based on factors such as the content, scale and circumstances of the infringing act. The People's Court can also assess damages above 100,000 RMB and below 5 million RMB, depending on factors such as the type of patent right, the nature of the infringing act, and the circumstances of the infringement. These provisions will greatly enhance right holders' confidence in China's intellectual property protection, reduce wilful infringement and repetitive infringement, more effectively compensate the losses of right holders, and promote the prosperity of new innovations in the market.
2. Burden of proof
Provisions that shift the burden of proof to the infringer under certain circumstances have also received wide attention. The principle of burden of proof in Chinese Civil Litigation Law - "the burden of proof always lies with him who alleges" - has caused difficulties for right holders and even resulted in situations where the cost of protection of intellectual property rights is greater than the cost of infringement.
According to the current burden of proof principle, the rights holder often finds it difficult to prove that it is the infringing act that has caused a decline in market share, lowered retail prices, increased costs, and reduced revenues. It is often extremely difficult for the rights holder to obtain direct proof of infringement, and the losses resulting from the infringement, based solely on public information such as the name, address, registered capital, employee number, and scope of business of the infringer.
According to the new provision on the burden of proof in the Patent Law, an entity or individual manufacturing an identical product must provide proof of the differences between the process used in the manufacture of its product and the patented process. In other words, the burden of proof is reversed in disputes over patent infringement involving a patent covering a manufacturing process for a new product. The draft contains additional provisions relating to the burden of proof. For example, where the rights holder has made an effort to provide proof of damages but the information about the extent of the infringement is in the possession of the infringer, the People's Court can order the infringer to provide the relevant accounting books and materials in order to ascertain the amount of damages. If the infringer fails to provide, or provides fake, accounting books or materials, the People's Court can decide the amount of damages according to the right holder's claim and evidence provided.
3. Liability of network service providers in cases of infringement over the Internet
In addition, the draft of the fourth amendment clarifies the joint and several liability of network service providers in cases of infringement using the Internet. The draft provides that the patentee or interested party may, based on an effective judgment, ruling or mediation document of the People's Court, or a decision made by the relevant patent administrative department, order the cessation of the infringement, and require the network service provider to take necessary measures such as deletion, blocking and disconnecting links to infringing products. If the network service provider fails to take necessary measures in a timely manner after receiving the notice, it then becomes jointly and severally liable for the infringement. The draft clarifies that the burden of proof is on the infringer to provide relevant materials relating to the infringement, but emphasizes that the network service provider is jointly and severally liable if it fails to prevent the infringement.
Thus, the fourth amendment, as proposed, makes important changes in the patent law that will significantly strengthen enforcement of patents and, in doing so, increase the value of obtaining patents in China.
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