In a showing of its desire to transform from a world's factory into an innovation-oriented country, China recently announced the enactment of the third amendment to the Chinese Patent Law. Since adopting its original Patent Law in 1984, China has enacted two amendments, the first in 1992 and the second in 2000. The first amendment inaugurated China's membership in the Patent Cooperation Treaty (PCT). The second amendment brought China's Patent Law into compliance with the Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement.
Contrary to past experience, this third amendment was initiated from inside China. Recognizing the country's weak technological competitiveness, in early 2005, the State Council announced its plan to formulate the National Intellectual Property Strategy ("Strategy"), aiming to boost China's IP creation, utilization, protection and administration by 2020. The Strategy became major ammunition for the initiation of the third amendment. Outlines of the Strategy were issued by the State Council on June 5, 2008. Within three months, the draft of the third amendment was submitted to the top legislative agency for consideration. Four months later, the third amendment was enacted into law.
In passing the third amendment, China seeks to enhance patent protection, improve patent quality, and streamline the patent application process. The major changes in the amendment can be grouped into four categories: higher bar for obtaining and enforcing a patent, improved procedural requirements, enhanced patent protection, and new limitations to patent rights.
Higher Bar for Obtaining and Enforcing a Patent
Absolute novelty requirement
The amendment changes the novelty requirement for obtaining a patent from the relative novelty standard to an absolute novelty standard. Articles 22 and 23 define the novelty requirement as an invention, utility model, or design that is not an existing technology or design. The amendment further clarifies that "existing technology or design" refers to a technology or design that is publicly known, inside or outside China, before the application date.
The amendment brings China's novelty requirement into accord with the international standard. Before the amendment, public use or knowledge outside China was not considered prior art. Combined with China's "first-to-file" system, the relative novelty standard allowed a Chinese manufacturer to obtain patent protection on a product that was marketed in another country, but not disclosed in a publication, and then block others from marketing the product in China, a practice known as "patent hijacking." The new absolute novelty standard puts an end to such practice. The amendment is expected to make the country friendlier to foreign business and, therefore, more attractive to foreign investment.
Disclosure of genetic resource
The amendment adds disclosure requirements for inventions derived from genetic resources. Article 26 requires an applicant to disclose the direct and original sources for the genetic resources used to develop the invention, or provide reasons for nondisclosure, if the applicant cannot provide the required information. Article 5 denies patent protection to inventions based on illegally obtained genetic resources.
China has vast and relatively unexploited genetic resources. In recent years, foreigners are increasingly drawn to China's genetic resources for biological and agricultural inventions. In many occasions, such exploitations were not accompanied by adequate compensation to the sources. The amendment aims to keep track of the country's genetic resources and to enforce disclosure of the origin of the resources, so that benefit sharing, as prescribed under the Convention on Biological Diversity, can be achieved.
Additional limitations in obtaining design patents
The amendment limits the scope of patentable subject matter for design patents. Article 25 stipulates that two-dimensional printed matter, including graphic figures, colors, or the combination of both, which serves mainly as a mark or sign, is no longer patentable.
Under this amendment, a two-dimensional trademark most likely is not patentable. In addition, the amendment raises patentability requirements for obtaining a design patent. Article 23 of the amended Patent Law imposes an inventive step-like requirement for a design patent. Specifically, Article 23 requires that a patentable design should possess "obvious distinction" from an existing design or a combination of the characters from existing designs. Article 27 mandates a brief description of the design in the application, which was not necessary before, and requires that the figures or photos "clearly show" the design sought to be protected.
An application for a design patent in China is only subjected to the formality examination, not the substantive examination. The requirements under Article 27 appear to raise the bar for the formality examination. However, the new "obvious distinction" requirement required by Article 23 relates to the evaluation of the claimed design in view of prior art, which is only addressed during the substantive examination. Therefore, the effect of these new requirements on the quality of China's design patents remains to be seen.
Stricter double-patenting rule
Article 9 requires that, if an applicant pursues both the utility model patent and the invention patent for the same invention, the two applications must be filed on the same day. In addition, Article 9 mandates the abandonment of the utility model patent before the issuance of the invention patent.
It is common practice for applicants in China to apply for both invention and utility model patents, because the latter tend to grant more quickly. Typically, the utility model patent is abandoned once the invention patent is granted to comply with the one patent for one invention rule. The amendment simply codifies such practice.
Prior art defense
The amendment allows a prior art defense in a patent infringement lawsuit. Article 62 states that the accused infringer commits no infringement if she can prove with evidence that "the technology or design is an existing technology or design." The sweeping language of Article 62 seems to address both literal infringement and infringement under the Doctrine of Equivalents.
The amendment brings Chinese patent law practice closer to international practice standards. For example, U.S. patent law has long allowed an accused infringer to challenge the validity of a patent by claiming that the patent lacks novelty or is obvious in view of prior art. Similarly, because the term "existing technology or design" is used to define the novelty and inventiveness requirements in Articles 22 and 23, Article 62 seems to allow an accused infringer to challenge the validity of a patent by proving that the patented technology or design lacks novelty or inventive step in view of the "existing technology or design." The amendment balances the interest between a patent owner and an accused infringer, and will likely increase the cost of enforcing a patent. It will be interesting to see whether the amendment will have any effect on the quality of Chinese patents and the behavior of Chinese applicants.
Improved Procedural Requirements
Removal of the "first filing" requirement
The most significant procedural change is the removal of the "first filing" requirement. Before the amendment, the Patent Law required all Chinese entities or individuals to first file applications in China for inventions made in China. After the amendment, filing in China first is no longer required. Article 20 allows an entity or individual to file invention or utility model applications in any country. However, before the foreign filing, applicants must submit their applications to the patent authorities of the State Council for secrecy clearance. If applicants fail to obtain secrecy clearance before filing the foreign application, the invention will not be allowed a Chinese patent.
The amendment brings China's foreign filing practice in line with the standard practice in many countries. Similar to the foreign filing license practice in the United States, the secrecy clearance requirement serves to protect the interest of the state by keeping sensitive technologies out of the public eye.
The amendment makes the filing process easier for foreign companies, especially those with significant R&D activities in China. The "first filing" requirement has been proven burdensome to international companies doing business in China. Before the amendment, to bypass the "first filing" requirements, some companies would assign the rights to an invention made in China to a foreign entity, which would then file the application in a foreign country. The amendment removes one more obstacle for foreign companies to develop and market new products in China. Coupled with China's inexpensive and bountiful skilled workforce, the amendment may increase China's attraction as a R&D outsourcing country.
Opening of patent legal market
Article 19 allows all Chinese patent law firms to handle foreign patent matters. Before the amendment, only patent firms authorized by the State Intellectual Property Office could represent foreign entities in patent matters. The amendment opens up the patent legal market to all firms in China. The amendment may increase the competition among Chinese patent law firms vying for business from foreign entities. Additionally, the amendment may increase collaborations between Chinese firms having large domestic client bases and foreign firms with the intention of expanding into the Chinese IP legal market.
Multiple similar designs in one patent
Article 31 of the amended Patent Law allows an application to claim multiple similar designs for a product. Before the amendment, for a single application to claim multiple similar designs, the designs had to be in the same classification and the products based on the designs must be sold as a set and used together. The amendment lowers the requirements for an application claiming multiple similar designs and may lower costs for obtaining protections for similar designs of a product.
Enhanced Patent Protection
Expanded protection to design patents
The amendment expands the protection given to design patents. Before the amendment, the patent law prohibited unauthorized making, use, sale, and importation of products that would infringe a design patent. The amended Article 11 extends to design patent owners the right to prohibit unauthorized offering for sale of a patented product. The amendment means that no one may offer the patented products for sale, advertise the products, or display the products in a store or trade show without authorization. The amendment brings Chinese patent law into further compliance with TRIPs requirements.
Higher penalties for infringement and counterfeiting
The amendment raises liabilities for patent infringement. Before the amendment, the patent law provided that patent infringement damages are determined according to the loss incurred by the patent owner, or the profit received by the infringer as a result of the infringement; and when the loss or profit is difficult to determine, the damages may be a reasonable multiple amount of the patent royalties. Article 66 adds to the recoverable amount the reasonable expense incurred by a patent owner in trying to stop the infringement. In addition, when the loss, profit, and reasonable expense are difficult to determine, Article 66 allows a statutory damage amount from over RMB 10,000 up to RMB 1 million, based on the type of patent and the nature of the infringement action.
The amendment also seeks to address patent counterfeiting practices. Article 63 increased fines for patent counterfeiting from 3 times the illegal income (or up to RMB 50,000) to 4 times the illegal income (or up to RMB 200,000). Newly added Article 64 allows patent enforcement authorities to investigate individuals involved in patent counterfeiting and the facilities used in patent counterfeiting, collect relevant materials such as contracts, receipts, and accounting books, examine the suspected counterfeits, and confiscate the counterfeits.
These amendments demonstrate China's willingness to control the country's patent infringement activities and counterfeiting industries. How the court system applies these provisions may be a good indicator on how determined the Chinese government is to improve the country's IP protection environment and international image.
Evidence preservation before an infringement action
Article 67 provides that patent owners may make a motion to a People's Court for evidence preservation before instituting a patent infringement action. The court is required to make a decision within 48 hours from the time of the motion and to take action immediately upon granting of the motion. To protect the interest of an accused infringer, Article 67 requires a warranty bond from the patent owner and further requires the patent owner to institute the infringement action within 15 days from the date of the evidence preservation action; otherwise, the evidence preservation measures will be withdrawn.
Preliminary injunction
The amendment clarifies preliminary injunction procedures. Before the amendment, a preliminary injunction may be granted if the patent owner can prove irreparable damage.
The amended Article 66 requires a court to make a decision within 48 hours from the time of a preliminary injunction request and to impose an injunction as soon as the request is granted. As a balancing measure, the amendment allows the accused infringer to request reconsideration of the preliminary injunction decision by the court.1
New Limitations to Patent Rights
Parallel importation practice legalized
The amendment legalizes the parallel importation practice. Article 69, Item 1, states that it is not an infringing act to use, offer for sale, sell, and/or import a patented product, or a product obtained by a patented method, after the same product is first sold by the patent owner or with the patent owner's authorization. The amended provision moves Chinese patent law closer to the first-sale doctrine in U.S. patent law.
The amendment is based on the previous Article 63, item 1, which states that it is not an infringing act to use, offer for sale, or sell a patented product or a product obtained by the patented method if the product is first sold, or and the product is made and imported, by the patent owner or with the patent owner's authorization. The location change of the term "import" from the patent owner's side to the accused infringer's sides signifies legislature's intent to legalize the parallel importation practice. The amendment allows importation of patented products, often referred to as "grey product," from another country without the permission from the patent owner.
"Safe harbor" provision
The amendment provides a "safe harbor" provision for activities conducted for the purpose of obtaining China State Food and Drug Administration (SFDA) approval. The newly added Article 69, Item 5, is a close translation of 35 U.S.C. § 271(e)(1), the "safe harbor" provision of the Hatch-Waxman Act.2 Article 69, Item 5, states that it is not an act of infringement to make, use, or import patented pharmaceutical products or medical devices for the purpose of providing information in order to obtain administrative approval.
Before the amendment, the Chinese judicial system experimented with the idea of "safe harbor" uses. For example, Article 2 of the Administrative Regulations on Registration of Pharmaceuticals allows an applicant to submit an application for SFDA approval using a patented technology within two years before the expiration of the patent. However, this regulation has no binding effect on courts. In addition, the Supreme People's Court suggested that "making, using a patented product, or using the patented process and using2 the product directly obtained by the patented process during the SFDA approval for the purposes of clinical tests shall not constitute patent infringement."3 The same position was endorsed by several lower Chinese courts. However, because China is not a common law country, the fate of the safe harbor clause in a court remained unclear until the amendment. Coupled with China's loose regulation on tests involving human subjects, the amendment may encourage the activities of generic pharmaceutical industries in the country.
Expanded scope of compulsory license
The amendment expands the scope of compulsory license practices. Article 48, Item 1, allows a compulsory license if a patent owner, without justification, fails to sufficiently exploit the patent within three years from the date of the patent and four years from the application date. Article 48, Item 2, allows a compulsory license if the use of a patent is judicially and administratively determined as anti-competitive for eliminating or restricting competition. The amendment provides further clarifications on granting a compulsory license in the fields of medicine and semiconductor technology.
For patented medicines, newly added Article 50 allows granting of compulsory licenses for maintaining the public health benefit to enterprises, which manufacture and export the patented medicines to countries and regions according to the treaties participated in by the PRC. The countries and regions are limited to the least developed countries in the world and WTO members that lack, or have insufficient, capacity of producing such medicines. Article 50 is based on the Declaration on the TRIPs Agreement and Public Health3 adopted by the WTO Doha Ministerial Meeting, and the Protocol Amending the TRIPs Agreement adopted by the WTO General Council to implement the Declaration. The Declaration and the Protocol allow WTO members to break through the limitation of the TRIPs Agreement and grant compulsory licenses of medicine patents under specific conditions.
For patented semiconductor technology, newly added Article 52 allows a compulsory license only for the purpose of benefiting the general public and when the use of a patent has been judicially and administratively determined as anti-competitive. The amendment exempts semiconductor technology from the broad compulsory license practice under Article 48, Item 1.
To limit the scope of the compulsory license practice, newly added Article 53 requires that the purpose of a compulsory license is for serving the Chinese market. However, there are two exceptions under which a compulsory license may be granted for a broader purpose. One is when the patent owner involves in anti-competitive practices, as described in Article 48, Item 2; and the other is for the purpose of maintaining public health as described in Article 50.
Rights of co-ownership of patent
The amendment clarifies a patent co-owner's rights. Article 15 allows a co-owner to use or license the patent without obtaining consent from other co-owners. However, the article requires sharing of royalties. This is the first time that the Chinese Patent Law addresses the rights of co-owners of a patent. The amendment suggests a change of attitude in recognizing intellectual property rights by the legislative body and the legislature's intention to encourage such attitude in individuals.
In general, the amendment brings the Chinese Patent Law further into compliance with the WTO's TRIPS agreement. The amendment brings certainty to patent practices in China by clarifying the patent application process, enhancing a patent owner's rights, and balancing rights between an accused infringer and a patent owner. The State Intellectual Property Office is expected to soon modify the implementing regulations and examination guidelines to be consistent with the amendment. The rules are expected to further clarify and solidify the amendment.
In enacting the third amendment, the drafters hope to improve patent quality in China, promote domestic IP creation and protection, and further increase the country's attractiveness to foreign business. Noticeably, numerous national and local incentive policies, such as governmentally subsidized patent filing costs and tax incentives, are being put into place to motivate patent filing from domestic industries. Whether the amendment and related policies would in fact accomplish what the drafters have set out to accomplish remains to be seen.
Thanks for reading!
Connie
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1 Article 66, Chinese Patent Law.
2 35 U.S.C. § 271(e)(1).
3 See, Article 48 (2) of the Interpretation Draft of the Supreme People's Court on Several Issues Related to the Trial of Patent Infringement Disputes.
