Changes to the Patent Law

On December 2 2015, the Legislative Affairs Office (LAO) of the State Council released for public comment a draft Patent Law Amendment proposed by the State Intellectual Property Office (SIPO). This reveals that another important phase of the legislative process has been launched. It is also noticeable that that, in the Legislative Programme 2015 of the State Council, this latest round of patent law amendments has been described as a "preparatory project" instead of a "research project" as in the previous year. All the above signs indicate that the State Council may review and submit the amendment bill to the Standing Committee of the National People's Congress (NPC) soon, and the final approval of the bill can be expected within two or three years, which matches the eight-year update cycle of the patent law.

This draft amendment reflects the concerns of the Chinese government to build an innovative economy. Over recent years, the State Council has promulgated several Opinions designed to achieve this goal, which include, among others, Opinions Concerning Deepening Structural and Mechanism Reform and Accelerating the Implementation of the Innovation-Driving Development Strategy (March 2015 –中共中央 国务院关于深化体制机制改革加快实施创新驱动发展战略的若干意见, 中发〔2015〕8号), and Opinion of the State Council on Accelerating the Building of a Strong Intellectual Property Nation under New Conditions (December 2015 – 国务院关于新形势下加快知识产权强国建设的若干意见, 国发〔2015〕71号).

In June 2014, the Standing Committee of the NPC heard the Report on the Implementation of the Patent Law and emphasised that the Patent Law amendments should focus on enhancing the protection of patent rights and on coordination and convergence between laws. To that end, SIPO is introducing many provisions aiming at strengthening patent enforcement, enhancing protection of design patents, perfecting the service invention system, promoting exploitation and utilisation of patents, preventing abuse of patent rights and enlarging the power of the Patent Reexamination Board.

There are several problems in the current system that make it difficult to enforce patent rights. For example, it's often difficult to collect evidence to prove infringement and damages. Moreover, damages awarded in infringement suits are usually too low to compensate for the loss of the IP owners.

To remedy the above, the latest draft proposes many specific measures on evidence collecting and raises statutory damages or fines for patent infringement, in both court and administrative proceedings.

For example, the court may, after finding patent infringement, order the defendant to submit account books and other financial information, which are not accessible to the owners, to assess damages. If the infringers refuse to submit, or deliver up forged account books, the court may determine the amount of damages by reference to the owners' claim.

"This draft amendment reflects the concerns of the Chinese government to build an innovative economy"

In addition, double or triple damages are brought into the draft amendment for wilful infringement, depending on factors including circumstances, scale and the consequences of infringement. The proposals increase the maximum statutory damages from Rmb1 million (US$153,000) to Rmb5 million (US$766,000). This bodes well for patent owners, as most of the court decisions in infringement cases award statutory damages under the current system.

On the administrative side, the Patent Administration Departments (PAD) may be given more measures to investigate and collect evidence, including, for example, inquiring into the parties concerned and investigating the circumstances related to the alleged infringement, conducting on-the-spot inspection, examining and duplicating contracts, invoices and account books related to the alleged infringement and other related materials, investigating the accused products, as well as sealing and detaining the products of wilful infringement that are disrupting market order.

The PAD may also have more power to stop infringement. For example, if the PAD finds that wilful infringement is taking place and is disrupting market order, it can order the infringer to stop infringement activity, confiscate illegal earnings, seize infringing products or special equipment used for the infringement and impose a fine. For repeated infringement of patent rights, the fine could be one to five times greater than the illegal business turnover when the latter is more than Rmb50,000 (US$7,700), or less than Rmb250,000 (US$38,300), if the illegal business turnover is zero or less than Rmb50,000.

Moreover, to improve operational efficiencies and shorten the timeframe, SIPO has proposed in the latest draft that an agreement made through mediation by the administrative branch can be affirmed and enforced by the court. Of course, the administrative mediation agreement cannot be enforced directly; it must be affirmed by the judiciary first, according to the Mediation Law. If enacted, these measures would make the administrative route into an effective alternative to court proceedings.

Another remarkable change made after the previous public consultation in April 2015 is the newly proposed Article 62, which for the first time attempts to define contributory infringement and induced infringement in the Patent Law. Neither kind of infringement is provided for in the current Patent Law or relevant judicial interpretations. Although joint infringements have for a long time been found in some court decisions, plaintiffs have had to rely more on Article 9 of Tort Liability Law or Article 130 of the General Principles of the Civil Law.

SIPO is also planning to take measures to curb online patent infringement. According to the draft amendment, an internet service provider (ISP) should be obliged to takedown links to infringing products, when the ISP knows or should have known that an internet user was infringing a patent right by utilising the internet services it provides. Otherwise, the ISP shall bear joint and several liability together with the internet user. This proposed provision is designed to work with Article 36 of the Tort Liability Law.

An interesting and significant improvement covering design patents is partial design. According to the draft amendment, the scope of a design patent is expanded to a design for part of a product. Under the current patent law, only the design of a whole product is protectable by a design patent. In practice, the courts generally apply the overall comparison and comprehensive consideration test in a design patent infringement suit. This sometimes causes problems during litigation, because infringers can easily evade design patent infringement simply by mixing the creative elements of a patented design with prior design elements. This proposal could effectively enhance the protection of a design patent, especially when the improvements lie in only certain elements of the design.

Also, in an effort to meet the requirement of the Hague Agreement Concerning International Registration of Industrial Designs, SIPO is proposing extending the protection term of a design patent from 10 to 15 years. This will add to the effectiveness of a design patent as a deterrent to infringement.

The draft amendment additionally adds a six-month domestic priority period for design patent applications, while only foreign priority is recognised in the current patent law for such applications.

Under the current patent law, inventions that are made mainly by using the material and technical conditions of an employer are in default deemed as an employer invention. In contrast, in the draft amendment, statutory ownership for these kinds of inventions is changed to the inventors, unless otherwise agreed between the inventors and the employer.

The employer has an obligation to reward the inventors and give remuneration to the inventors for the employment invention, regardless of whether or not the invention has been transferred to others before or after the filing of the patent application.

Taking inspiration from the German Patent Act, SIPO is introducing the concept of licence of right (LOR) into the draft amendment. The patent owners may ask SIPO to publish a written statement to offer a licence to anyone at a defined royalty rate. Before withdrawal of the offers of LOR, the patentee should not grant exclusive or sole licence to others, or ask for a preliminary injunction.

"If enacted, these measures would make the administrative route into an effective alternative to court proceedings"

With respect to standard essential patents (SEP), SIPO's new draft adds an implied licence for an undisclosed SEP. That is, if the patentee fails to disclose their essential patents during the process of standards formulation, it shall be deemed that the user of the standards has been licensed to use the patented technology. The license fee shall be negotiated between the parties, and in case no agreement is concluded by the parties, SIPO can make a decision.

Also, to encourage utilisation of patents held by state-owned R&D institutions and universities, an inventor or designer may consult with the employer about exploiting a patent by themselves or licensing to others and sharing the corresponding rights and interests according to the agreement after the service invention has obtained the patent right, on the condition that no change is made to the ownership of the patent.

In the draft amendment, SIPO has added a new article to prevent abuse by patent owners, in addition to the existing provisions concerning infringement exceptions and compulsory licensing. The enforcement of patent rights should follow good faith, not be detrimental to the public interest or unreasonably eliminate or restrain fair competition, according to officials. The officials also explained that misuse of patents should be as far as possible governed by patent policy. Only when it goes beyond the scope of patent law should antitrust policy be applied.

In the draft amendment, the Patent Reexamination Board (PRB) is empowered to bring new grounds, for example other obvious substantive defects, into reexamination or invalidation proceedings on its own initiative, without being limited to the scope of the request for reexamination or the invalidation request. SIPO hopes that these measures may help levelling up the quality of granted patents as well as improving the efficiency of reexamination and invalidation proceedings. However, fearing loss of instance (meaning that the applicant should be given the right to have an objection examined by two instances) or PRB losing neutrality during invalidation proceedings, many companies and patent agencies expressed unease over these proposals during the previous public consultation. But they remain in the current draft.

The draft amendment, if finally ratified by the NPC, would be positive for patent owners, as it would lower the burden of proof and make it easier to obtain higher damages for wilful infringement. It would also significantly strengthen the value of design patents by protecting partial design and extending patent terms on design. Most of these amendments will directly or indirectly enhance protection of patent rights in China through a more friendly legal system.

Liu Ji
		Liu Ji is the deputy director of the Chemical Division at CCPIT Patent and Trademark Law Office and has worked as a patent attorney for fourteen years. Liu graduated from Beijing University of Chemical Technology with a Masters Degree of polymer science and studied IP laws in the Cardozo School of Law. Liu was also trained in US and German law firms in patent laws and practises in US and European countries. Liu’s practice focuses mainly on patent prosecution. He has successfully represented many renowned corporations, especially in the chemical field, in patent prosecution. He has handled more than a thousand patent filings and has prosecuted cases covering various technical areas, particularly the fields of polymers and chemical engineering. Liu has also represented clients in many patent reexamination cases and patent invalidation cases. In addition, Liu has drafted many patent applications for clients and filed them both in China and abroad, including in the US and in European countries.