Patent Issues Required Attention for Doing Business in China with the Improvement of the COVID-19 Pandemic Situation – Review on the fourth amendment…

Background

The COVID-19 pandemic has been sweeping the world since the end of 2019, exerting a far-reaching impact on global economic and technological development. With the concerted efforts of countries around the world and the promotion of vaccines, the COVID-19 pandemic has been effectively controlled in most countries. China undoubtedly is outstanding in the fight against the pandemic. Despite having the world's largest population, China not only efficiently controlled the epidemic in a short time but also actively promoted technical and economic cooperation at home and abroad. The fourth amendment to the PRC Patent Law ("New Patent Law") in effect from 1 June 2021 demonstrates the determination of the Chinese government to improve the protection and enforcement of patent rights as well as promote the implementation and application of patented technologies, which is certainly a very good opportunity for domestic and foreign entities and individuals doing business in China.

1. Appropriate burden of proof required for claiming high damages for patent infringement

In patent infringement disputes, it would be very advantageous for patentees as a whole to fulfil the burden of proof. First, pursuant to the New Patent Law, the damages can be calculated based on the patentee's actual loss OR the infringer's profit from infringement, not IN SEQUENCE. Although the profit from infringement is mostly applied in practice, this change reflects the relaxation of legal requirements on the burden of proof on patentees. Moreover, the New Patent Law provides a substantial increase in the amount of statutory damages and the punitive damages up to five times the amount calculated according to the aforesaid method. However, in our opinion, the problem about calculating the profit from infringement, among others, are still there due to the practical difficulty in proof by patentees, especially in preservation of evidence related to the infringing B2B goods. Therefore, the actual effect of the amended provisions on infringement damages will depend on the subsequent implementation rules of the Patent Law as well as the specific provisions of other relevant judicial interpretations. The entities and individuals doing business in China now still need to bear a greater burden of proof in patent infringement disputes in order to prove the existence of infringement and the amount of profit from infringement.

2. More comprehensive and lasting patent protection conducive to maintaining a dominant position in the Chinese market

Design protection has always been favoured by leading companies, especially electronic instrument manufacturers, automobile manufacturers, and in the artificial intelligence field. The New Patent Law is a really good news for the manufacturers whose products rely on shape design. Take auto manufacturers as example. Automotive enthusiasts or consumers can tell an auto brand by observing only a partial structure of a car, such as the design of the front or rear bumper of a car or the car body, with no need to look at other parts. For automobile and the like, the shape design of some components itself constitutes the independent design that significantly contributes to the appearance of the whole product. Under the earlier patent law, the GUI patent applicant is required to combine the GUI design with a specific physical product for application as a whole. However, it is the GUI idea design, not the physical product, that really reflects the intellectual achievements of the applicant and is what the applicant originally intends to protect, especially in the field of artificial intelligence and communication devices. After the New Patent Law becomes effective, in China the companies involved can file the GUI patents applications for product appearance in which the local GUI design to be protected can be indicated with solid line and the physical product is indicated with dotted line. At the same time, a description is given in the abstract of design application that only the GUI design is under protection, so as to weaken the impact and limitation of the physical product on the GUI design and ultimately provide the real protection to the GUI design.

Invention patents and design patents granted in China will likely receive a longer term of protection. As for design patents, the New Patent Law extends the term of protection to 15 years, same as the Hague Agreement Concerning the International Deposit of Industrial Designs. As for invention patents, the New Patent Law provides the supplemental protection period for compensating the patent right duration due to unreasonable delay in the patent examination procedure, and also to the patents related to innovator drugs that have the marketing approval in China. Entities and individuals doing business in China can have the exclusive protective rights and interests, which are more comprehensive and lasting, by applying for invention patents and design patents. Even so, the "unreasonable delay" applicable to invention patents will be further specified in the subsequent implementation rules of the Patent Law and examination guidelines.

3. Pharmaceutical patent linkage system to promote innovation and development

The latest amendments to the Patent Law have a significant influence on pharmaceutical manufacturers. The establishment of pharmaceutical patent linkage, a.k.a., early settlement mechanism for drug patent disputes, greatly facilitated innovation and development of innovator drug manufacturers. Under the New Patent Law, an innovator drug manufacturer can have a patent infringement dispute resolved with court judgements, or administrative rulings from the National Intellectual Property Administration (CNIPA), before a generic drug is marketed, so that the marketing approval for such generic drug is negatively affected. The Patent Law is a superior legislation in absence of specific provisions. More details are yet to be separately set out by the National Medical Products Administration and the CNIPA together. As we all know, the research and development of a new medicine require a huge investment in money and time. In China where generic drugs are dominant, with the supplemental protection period mechanism and the pharmaceutical patent linkage system under the New Patent Law, innovator drug manufacturers may be more motivated to devote themselves to development and innovation, strengthen their patent portfolio, and promptly take relevant measures to defend their legitimate rights and interests to the greatest extent by means of drug patent registration and regular monitoring of the declaration information from generic drug manufacturers.

4. Further promotion to the exploitation of patented technologies

To promote the exploitation of patents, the New Patent Law introduces the open licensing system, grants employers the right to dispose of at their discretion the employee invention related patent rights and the right of patent applications, and encourages the employer to share profits with inventors in the form of stocks, options and dividends. In this way, patentees are encouraged to license their patents, so that the asymmetry of information related to patent licensing can be reduced or eliminated. The state-owned enterprises, colleges and universities, and scientific research institution are allowed to dispose of their own patents with more freedom. The various rewards and remunerations for employee inventions can also relieve monetary stress of enterprises and raise the enthusiasm of inventors. Foreign companies need to be careful about the compliance issues with respect to payment of the rewards and remunerations for employee inventions, such as, whether the remuneration should be paid to inventors and who should make payment to inventors when intellectual property rights are managed in a centralized manner within a group company.

With regard to the cross-border technology transfer concerned about by many foreign companies, the New Patent Law has no specific provision. The Chinese policies on mandatory technology transfer as deemed by some foreign companies were adjusted in the Regulations of the People's Republic of China on the Administration of Import and Export of Technologies amended in 2019. For example, the regulations deleted the infringement liability provisions and the mandatory provisions relating to the ownership of technological improvements. These changes increase the autonomy of contract parties and also adapt to the development of international technology transfer. The problem concerned about by transferors of technology that technical secrets may be disclosed during the process of transnational technology transfer is up to the parties to reach agreement in accordance with the Civil Code and relevant judicial interpretations, based on the natures of the fields involved. When doing business with Chinese companies, for example, in the form of technical cooperation or joint venture, foreign companies still need to design the strict contractual clauses in order to protect their legitimate rights and interests.

Outlook

At the time when the COVID-19 pandemic begins to improve and the global economy recovers as a whole, the New Patent Law comes into effect, like a powerful driving force for the current rapid technological and economic development of China. Generally speaking, the New Patent Law is favourable to patentees. In the situation of a full economic recovery, the introduction of punitive damages, patent term extension, and pharmaceutical patent linkage system may prompt more patentees to protect their legitimate rights and interests by means of litigation, and improve China's judicial environment for intellectual property protection.

The negative side is that an increase in the number of lawsuits may prolong the time period of adjudication of patent disputes, especially the foreign-related litigations for which the civil procedure law has no provision on the time limit of adjudication. In addition, the lengthy judicial appraisal procedures are usually required to resolve patent disputes. Therefore, foreign patentees doing business in China should be prepared for the long-term litigation proceedings for patent infringement and at the same time avoid submitting the disputes to the courts that have accepted many cases. This certainly needs comprehensive consideration and specific analysis case by case.

In addition, the implementation rules of the Patent Law as well as other relevant judicial interpretations and measures have not yet been promulgated. Some provisions of the New Patent Law need to be specified with reference to the subsequent regulations. Nonetheless, it is obviously worthwhile to safeguard your business by making the most of intellectual property.

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Patent Issues Required Attention for Doing Business in China with the Improvement of the COVID-19 Pandemic Situation - Review on the fourth amendment...