Introduction To The Fourth Amendment To The China Patent Law – Intellectual Property – China – Mondaq News Alerts

On October 17, 2020, the Standing Committee of the NationalPeople's Congress ("SCNPC") promulgated the FourthAmendment to the China Patent Law ("CPL"), which willcome into effect on June 1, 2021.

It has been 12 years since the last amendment made in 2008 whenChina also formulated the Outline of the National IntellectualProperty Strategy ("Outline"). With the implementation ofthe Outline, China has gradually grown into a big intellectualproperty ("IP") country characterized by the number ofvalid invention patents increased from 84000 in 2007 to 1.86million in 2019, the total number of valid registered trademarksincreased from 2.35 million in 2007 to 25.22 million in 2019, andthe number of first instance IP civil cases (new cases received)increased from 22000 in 2007 to 390000 in 2019. The ever-growing IPactivities of the innovative entities urgently expect thelegislative department to refine the related legal system forguidance.

According to an inspection conducted in 2014 of the enforcementeffects of the CPL, there are many new issues in the patentprosecution, enforcement and exploitation. The number of patentapplications is growing dramatically, though there are relativelyfew high value patents. IP protection mechanism for new categoriesof invention-creations is desired. Patentees are confronted withdifficulties in proving infringement and damages, long cycle ofpatent litigation, high cost of enforcement and low damage awarded.The patent commercialization rate is quite low.

To resolve these issues, multiple draft amendments have beenmade in the legislative process since 2014 that absorbed millionsof public opinions to form the finally approved version. Below is abrief 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 accusedinfringer

According to the current CPL, the means of determining thedamages caused by infringement are with priorities. Actual lossesof the patentee come first, followed by the benefits gained by theinfringer, then multiples of reasonable patent royalties andfinally the statutory damages. However, due to the stringentevidentiary standard to prove losses or benefits, in a majority ofpatent infringement cases, statutory damages are awarded, which areusually low.

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

Different from some other jurisdictions, there is no evidencediscovery process in China. Considering the difficulties for thepatentee to acquire the damage-related financial records that areusually hold by the accused infringer, Article 71 further providesa shift of the burden of proving damages to the accused infringer.The court can order the accused infringer to submit damage-relatedevidences such as financial books and materials. If the accusedinfringer refuses to submit or submit false evidences, the courtcould use the discretion to determine the damages based on theclaims or requests of the patentee.

In fact, a similar provision was first stipulated in theInterpretation II of the Supreme People's Court on SeveralIssues Concerning the Application of Law in the Trial of PatentInfringement Disputes ("Interpretation II") released in2016 and is now formally included in the 2020 amended CPL withminor wording adjustment to serve as measures against obstructionof proof of infringement damages.

1.2 Increasing statutory damages and introducing punitivedamages

Article 71 of the 2020 amended CPL further increases the amountof statutory damages, in case the losses, benefits or multiples ofreasonable royalties are difficult to be proved, from currentlybetween 10,000 Yuan RMB and 1 million Yuan RMB to between 30,000Yuan RMB and 5 million Yuan RMB. As mentioned above, since thestatutory damages are widely granted in the patent litigationpractice in China, this new rule would be of great practicalvalue.

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

1.3 Enlarging the authorities of patent administration

In China, administrative protection coexists with judicialprotection for IP rights, with the former being advantageous in itsfaster adjudication than typical court proceedings. Article 69 ofthe 2020 amended CPL stipulates that when handling the patentinfringement cases, the patent administration may make inquiries ofthe relevant persons, investigate into the matters, conduct on-spotinspection, and inspect the alleged infringing products, which areonly possible when handling patent passing-off under the currentCPL.

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

2. Adding restrictions to the patentee in patent application andenforcement

Article 20 of the 2020 amended CPL codifies the principles ofgood faith and prohibiting abuse of rights in patent related legalactivities. The application for patent and exercise of the patentright shall follow the principle of good faith, not harming thepublic interest. Abusing patent rights to exclude or restrictcompetition may trigger treatment under the Anti-monopoly Law.These rules provide legal basis for disciplining the irregularpatent applications of low qualities, e.g. those drafted based onfake information or by plagiarizing prior art technologizes, or theabuse 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 subjectmatters of a design patent to include part of a product. There weresuggestions to allow partial designs ever before the thirdamendment to the CPL was made. Concerns at that time were that suchan expansion of subject matters might result in a large quantity ofdesigns with low quality. After evaluating the running designsystems of other countries or regions like USA, Europe, and Japan,China decides to accept partial designs so that distinctivefeatures of a product can be protected without the insignificantother features of the product.

3.2 Patent term extension for design patents

Article 42 of the 2020 amended CPL extends the patent term fordesign patents from 10 years to 15 years, which may be consideredas 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 fordesign applications. Domestic priority was introduced for the firsttime for invention and utility model patent applications in theamendment to the CPL in 1992 to be in line with the PCTregulations, Domestic priority is quite useful to add new subjectmatters, change the type of the applications or revoke applicationsdeemed as being withdrawn. With this new rule, the priority of anearlier domestic design application can also be claimed to by alater design application within six months from the initialfiling.

4. Strengthening the protection of pharmaceutical-relatedpatents

4.1 Patent term compensation

Article 42 of the 2020 amended CPL provides compensation of thepatent term of pharmaceutical patents for the delays due to thetime-consuming approval process of new drugs for marketing. Thecompensated duration shall not exceed 5 years, and the totaleffective patent term shall not exceed 14 years from the approvalfor marketing of the new drugs.

4.2 Patent linkage system

Newly added Article 76 of the 2020 amended CPL introduces apatent linkage system for early resolution of disputes between apharmaceutical patentee and an applicant for drug marketinglicense. The patentee can file a lawsuit before a court or arequest for administrative ruling before the CNIPA if he believesthat a generic drug applying for administrative approval fallswithin the scope of his patent. The generic drug applicant is alsoable to file for declaratory judgment of non-infringement. TheChina National Medical Products Administration ("CNMPA")can decide whether the approval of the relevant drug for marketingis suspended, according to an effective judgement of the court.

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

5 Patent term compensation

According to Article 42 of the 2020 amended CPL, at the requestof the patentee, the CNIPA shall adjust the patent term of aninvention patent to compensate for the unreasonable delay caused bythe CNIPA in the prosecution process, if the invention patent isgranted after 4 years from the filing date and 3 years from therequest for examination. Unreasonable delay caused by the applicantin the prosecution will not be compensated.

6 Promoting patent exploitation

6.1 Employment invention-creation

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

6.2 Open licensing

Articles 50-52 of the 2020 amended CPL establish a framework ofan open licensing system. Patentees can voluntarily file a writtendeclaration to the CNIPA to state their willingness to provide anopen license and the method and standard for licensing fees. TheCNIPA will publish the open license related information. Patentannuities during the open license period will be reduced orexempted. The open license can be withdrawn via a writtendeclaration to the CNIPA. Open license can be switched into acommon license, but cannot be coexistent with a sole or exclusivelicense unless it has been withdrawn. Disputes over an open licensemay be resolved by negotiation between the related parties, or byadministrative mediation from the CNIPA or a judgement by thecourt.

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

In addition to this latest amendment to the CPL, China has takenintensive actions in refining other IP laws and regulations basedon efforts of its legislature, judicial and administrativeauthorities in the recent two years, showing a strong will toprotect IP and promote innovations. How the 2020 amended CPL willbe put into practice remains to be seen after the ImplementingRules and the Guidelines for Patent Examination are amendedaccordingly, but it can be clearly expected that China will becomea more favored place for patent application and patent rightexercise.

The content of this article is intended to provide a generalguide to the subject matter. Specialist advice should be soughtabout your specific circumstances.

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Introduction To The Fourth Amendment To The China Patent Law - Intellectual Property - China - Mondaq News Alerts