On October 17, 2020, the Standing Committee of the National People's Congress ("SCNPC") promulgated the Fourth Amendment to the China Patent Law ("CPL"), which will come into effect on June 1, 2021.

It has been 12 years since the last amendment made in 2008 when China also formulated the Outline of the National Intellectual Property Strategy ("Outline"). With the implementation of the Outline, China has gradually grown into a big intellectual property ("IP") country characterized by the number of valid invention patents increased from 84000 in 2007 to 1.86 million in 2019, the total number of valid registered trademarks increased from 2.35 million in 2007 to 25.22 million in 2019, and the number of first instance IP civil cases (new cases received) increased from 22000 in 2007 to 390000 in 2019. The ever-growing IP activities of the innovative entities urgently expect the legislative department to refine the related legal system for guidance.

According to an inspection conducted in 2014 of the enforcement effects of the CPL, there are many new issues in the patent prosecution, enforcement and exploitation. The number of patent applications is growing dramatically, though there are relatively few high value patents. IP protection mechanism for new categories of invention-creations is desired. Patentees are confronted with difficulties in proving infringement and damages, long cycle of patent litigation, high cost of enforcement and low damage awarded. The patent commercialization rate is quite low.

To resolve these issues, multiple draft amendments have been made in the legislative process since 2014 that absorbed millions of public opinions to form the finally approved version. Below is a brief summary of the highlights of the 2020 amended CPL.

1. Strengthening the patent protection against infringement

1.1 Shifting the burden of proving damages to the accused infringer

According to the current CPL, the means of determining the damages caused by infringement are with priorities. Actual losses of the patentee come first, followed by the benefits gained by the infringer, then multiples of reasonable patent royalties and finally the statutory damages. However, due to the stringent evidentiary standard to prove losses or benefits, in a majority of patent infringement cases, statutory damages are awarded, which are usually low.

In order to encourage the patentee to prove the damages caused by the infringement as much as possible, instead of relying on the statutory damages, Article 71 of the 2020 amended CPL removes the priorities between the actual losses of the patentee and the benefits gained by the infringer. The patentee can claim the damages determined based on either the losses or the benefits.

Different from some other jurisdictions, there is no evidence discovery process in China. Considering the difficulties for the patentee to acquire the damage-related financial records that are usually hold by the accused infringer, Article 71 further provides a shift of the burden of proving damages to the accused infringer. The court can order the accused infringer to submit damage-related evidences such as financial books and materials. If the accused infringer refuses to submit or submit false evidences, the court could use the discretion to determine the damages based on the claims or requests of the patentee.

In fact, a similar provision was first stipulated in the Interpretation II of the Supreme People's Court on Several Issues Concerning the Application of Law in the Trial of Patent Infringement Disputes ("Interpretation II") released in 2016 and is now formally included in the 2020 amended CPL with minor wording adjustment to serve as measures against obstruction of proof of infringement damages.

1.2 Increasing statutory damages and introducing punitive damages

Article 71 of the 2020 amended CPL further increases the amount of statutory damages, in case the losses, benefits or multiples of reasonable royalties are difficult to be proved, from currently between 10,000 Yuan RMB and 1 million Yuan RMB to between 30,000 Yuan RMB and 5 million Yuan RMB. As mentioned above, since the statutory damages are widely granted in the patent litigation practice in China, this new rule would be of great practical value.

In line with the recent amendments to the China Trademark Law and the China Anti-Monopoly Law, as well as the China Civil Code, Article 71 of the 2020 amended CPL also introduces punitive damages up to 5 times the normal damages for serious willful patent infringement.

1.3 Enlarging the authorities of patent administration

In China, administrative protection coexists with judicial protection for IP rights, with the former being advantageous in its faster adjudication than typical court proceedings. Article 69 of the 2020 amended CPL stipulates that when handling the patent infringement cases, the patent administration may make inquiries of the relevant persons, investigate into the matters, conduct on-spot inspection, and inspect the alleged infringing products, which are only possible when handling patent passing-off under the current CPL.

In addition, Article 70 of the 2020 amended CPL empowers the China National Intellectual Property Administration ("CNIPA") to handle patent infringement cases that have significant nation-wide impacts.

2. Adding restrictions to the patentee in patent application and enforcement

Article 20 of the 2020 amended CPL codifies the principles of good faith and prohibiting abuse of rights in patent related legal activities. The application for patent and exercise of the patent right shall follow the principle of good faith, not harming the public interest. Abusing patent rights to exclude or restrict competition may trigger treatment under the Anti-monopoly Law. These rules provide legal basis for disciplining the irregular patent applications of low qualities, e.g. those drafted based on fake information or by plagiarizing prior art technologizes, or the abuse of patent rights in the application of "Notification - Removal" rules in online transactions.

3. Strengthening the protection of design patents

3.1 Partial design allowed

Article 2 of the 2020 amended CPL expands the eligible subject matters of a design patent to include part of a product. There were suggestions to allow partial designs ever before the third amendment to the CPL was made. Concerns at that time were that such an expansion of subject matters might result in a large quantity of designs with low quality. After evaluating the running design systems of other countries or regions like USA, Europe, and Japan, China decides to accept partial designs so that distinctive features of a product can be protected without the insignificant other features of the product.

3.2 Patent term extension for design patents

Article 42 of the 2020 amended CPL extends the patent term for design patents from 10 years to 15 years, which may be considered as an effort to join the Hague Agreement.

3.3 Admitting domestic priority for design applications

Article 29 of the 2020 amended CPL admits domestic priority for design applications. Domestic priority was introduced for the first time for invention and utility model patent applications in the amendment to the CPL in 1992 to be in line with the PCT regulations, Domestic priority is quite useful to add new subject matters, change the type of the applications or revoke applications deemed as being withdrawn. With this new rule, the priority of an earlier domestic design application can also be claimed to by a later design application within six months from the initial filing.

4. Strengthening the protection of pharmaceutical-related patents

4.1 Patent term compensation

Article 42 of the 2020 amended CPL provides compensation of the patent term of pharmaceutical patents for the delays due to the time-consuming approval process of new drugs for marketing. The compensated duration shall not exceed 5 years, and the total effective patent term shall not exceed 14 years from the approval for marketing of the new drugs.

4.2 Patent linkage system

Newly added Article 76 of the 2020 amended CPL introduces a patent linkage system for early resolution of disputes between a pharmaceutical patentee and an applicant for drug marketing license. The patentee can file a lawsuit before a court or a request for administrative ruling before the CNIPA if he believes that a generic drug applying for administrative approval falls within the scope of his patent. The generic drug applicant is also able to file for declaratory judgment of non-infringement. The China National Medical Products Administration ("CNMPA") can decide whether the approval of the relevant drug for marketing is suspended, according to an effective judgement of the court.

The Implementation Measures of the Early Resolution Mechanism for Drug Patent Disputes (Trial, for public opinion) ("Implementation Measures (trial)") recently released by the CNMPA and the CNIPA sets forth more details of the patent linkage system. In line with the Implementation Measures (trial), the patentee must first register his patent(s) on the China Marketed Drug Patent Information Registration Platform before he can sue any potential infringers during the administrative approval of generic drugs. The court or the CNIPA must make a decision within 9 months. The CNMPA can decide to suspend the administrative approval for marketing based on the judgement by the court or the administrative ruling by the CNIPA even if the judgement or the administrative ruling is still appealable.

5 Patent term compensation

According to Article 42 of the 2020 amended CPL, at the request of the patentee, the CNIPA shall adjust the patent term of an invention patent to compensate for the unreasonable delay caused by the CNIPA in the prosecution process, if the invention patent is granted after 4 years from the filing date and 3 years from the request for examination. Unreasonable delay caused by the applicant in the prosecution will not be compensated.

6 Promoting patent exploitation

6.1 Employment invention-creation

The right to file a patent application for an employment invention-creation belongs to the employer. Article 6 of the 2020 amended CPL further stipulates that the employer may dispose the right to apply for a patent and the patent right to promote the utilization of the invention-creations. Article 15 of the 2020 amended CPL encourages the employer to reasonably share the profits brought by the exploitation of the patent with the inventors.

6.2 Open licensing

Articles 50-52 of the 2020 amended CPL establish a framework of an open licensing system. Patentees can voluntarily file a written declaration to the CNIPA to state their willingness to provide an open license and the method and standard for licensing fees. The CNIPA will publish the open license related information. Patent annuities during the open license period will be reduced or exempted. The open license can be withdrawn via a written declaration to the CNIPA. Open license can be switched into a common license, but cannot be coexistent with a sole or exclusive license unless it has been withdrawn. Disputes over an open license may be resolved by negotiation between the related parties, or by administrative mediation from the CNIPA or a judgement by the court.

Other notable changes in the 2020 amended CPL include: enriching the pre-suit injunction measures against the accused infringer to include property preservation, ordering to take certain actions or prohibiting from taking certain actions (Article 72); extension of the statute of limitation on an action against patent infringement from 2 years to 3 years (Article 74); allowing the accused infringer to proactively submit the evaluation report for utility model or design patents (Article 66); allowing disclosure for public interest without loss of novelty when an emergency or extraordinary situation occurs (Article 24); and up to 16 months for filing priority documents for invention and utility models (Article 30).

In addition to this latest amendment to the CPL, China has taken intensive actions in refining other IP laws and regulations based on efforts of its legislature, judicial and administrative authorities in the recent two years, showing a strong will to protect IP and promote innovations. How the 2020 amended CPL will be put into practice remains to be seen after the Implementing Rules and the Guidelines for Patent Examination are amended accordingly, but it can be clearly expected that China will become a more favored place for patent application and patent right exercise.

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