|October 26, 2012|
Previously published on October 24, 2012
In early August 2012, the State Intellectual Property Office (SIPO) published the “Draft Revisions to the Patent Law of the People’s Republic of China” to solicit public opinion on the planned amendments. The draft improves the provisions of the Patent Law of 2009 by stepping up law enforcement against patent infringers.
Paolo Beconcini and Mani Chu of CBM International Lawyers review the major changes which have been proposed and consider their possible impact on patent litigation, especially on the enforceability of patent rights in China by foreign rights holders.
Introduction of Punitive Damages
To effectively curb deliberate infringements, the draft proposes the adoption of punitive damages. This will complement the current principle of “compensatory damages” under Article 65 of the Patent Law.
At present, the amount of compensation is determined by the actual losses suffered by the patentees, the illegal profit of the infringer, or most commonly on predetermined statutory damages. The maximum cap for damages is 1,000,000 RMB (approximately 160,000 USD).
Article 65 of the new draft will allow for higher damages if the defendant has committed a deliberate patent infringement. A Department of Administration of Patent-related Work or a competent People’s Court may raise the amount of compensation by a maximum of three times. The amount of the increase depends on factors such as the circumstances and extent of the infringement and the resulting damage.
This provision is new and the legislator hopes that it will deter infringers from pursuing their illegal plans, by increasing their risk exposure if the patentee sues. It remains to be seen how this rule will be utilized in practice. The draft provides parameters in determining the type of case suitable for punitive damages that seem rather subjective and refer to the specifics of each case. This may result in inconsistent case law among different jurisdictions within China.
A double enforcement system characterizes Chinese enforcement. Intellectual property right patentees can choose to enforce their patents before a civil court or the so-called “patent bureaus”, which are an administrative agent of the patent office with territorial responsibilities. A major difference between the two types of enforcement is that patentees can claim and obtain damage compensation before a civil court, but not before a patent bureau.
The draft appears to eliminate this difference. In fact, Article 60 of the draft includes a provision that is not present in the same article in the actual version of the Patent Law. It establishes the legal base for a patentee to sue an infringer before either the civil courts or the patent bureaus. The revised version of Article 60 adds the provision by which the administrative body or agent establishing the patent infringement may order the infringer to immediately cease the infringement, “and compensate the losses suffered by the patentee.”
Article 65 of the draft also states that the relevant Department of Administration of Patent-related Work (patent bureau) may also order the infringer to pay statutory damages.
If this is approved, it will constitute a major change in the patent enforcement landscape in China. Administrative enforcement procedures are less expensive and faster than civil lawsuits and civil courts can enforce compensation decisions. Foreign and Chinese patentees will therefore have even more incentive to use such enforcement means, rather than traditional civil litigation. Those patentees with smaller pockets than multinational corporations would therefore benefit by gaining access to patent enforcement. At the same time an increase in the number of patent disputes can be expected.
In China, the defendant cannot file a defense of patent invalidity before the civil court or administrative body in charge of deciding on the infringement claim.
The defendant has to file a request to invalidate the enforced patent right before a functionally competent administrative body, the Patent Reexamination Board (PRB). He also has to apply to the court or administrative body for a suspension of the patent right for the whole duration of the invalidation procedure, and until complete exhaustion of all available administrative recourses. This includes one administrative procedure, two judicial instances and the possibility of appeal to the Supreme People’s Court.
It is no wonder that filing a patent invalidation lawsuit before the Patent Reexamination Board in China, and dragging it through administrative lawsuits for a long time, is one of the major defenses used by any defendant accused of infringing a patent. In many cases, the defendant simply takes this approach as a tactical defense without much substantial foundation. This is especially the case where the dispute is over the infringement and validity of an invention patent.
The revised draft aims to clarify the effective date of a review decision on a request for invalidation declaration and to clarify relevant follow-up procedures. The draft proposes that the Patent Reexamination Board shall register and announce the decision to declare a patent right invalid or to affirm a patent right in a timely manner. The decision shall become immediately effective on the date of announcement. Currently such a decision only becomes effective if no administrative revision procedure is filed within three months from its announcement. In practice, the fact that an appeal may be filed against the PRB decision, will not suspend its effectiveness. In theory this could allow the patent administrative department and Peoples’ Courts to hear and handle the related patent infringement dispute relying on the PRB decision.
This should provide a disincentive to investing money on filing fictitious invalidation proceedings in order to suspend the parallel infringement proceedings. It is to be expected that civil courts and patent bureaus will carefully consider whether to proceed with their case based on the PRB decision and without waiting for the whole administrative process to unfold on a caseby-case basis.
In order to resolve the current situation characterized by insufficient protection of patent rights, the State Intellectual Property office has aimed to step up law enforcement operations in patent infringement disputes. Patent infringers may face warning or public security administration punishments if they refuse or obstruct investigations by the patent administrative department.
In a patent infringement lawsuit, if the accused infringer refuses to provide the required evidence or transfers, falsifies or destroys the evidence, the People’s Court shall take enforcement measures to stop them. The infringer may also face criminal liabilities if his obstruction constitutes a criminal crime.
There is no doubt that the “Draft Revisions to the Patent Law” provide a patentee with more powerful enforcement tools than those currently available. It remains to be seen how these new provisions will be applied in practice. In some cases, the provisions could also have a detrimental effect. They may favor enforcement by bad faith holders of utility models and patents based on dated technology never patented in China (junk patents). This could cause undue disruption of business, especially for foreign right holders.