Review Of The 4th Amendment Of China’s Patent Law – Intellectual Property – China – Mondaq News Alerts

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Twelve years from the third amendment of China's patent law,the fourth amendment was approved by the Standing Committee of theNational People's Congress on October 17, 2020. The newamendment will take effect on June 1, 2021. This article provides adetailed review of the changes from the current patent law.

The first aspect of changes relates to enhanced protection ofpatent rights. Specifically, it includes punitive damages,increased statutory damage, reversed burden of proof, increasedfine for passingoff, and extended time limit for initiatinglitigation.

(1) Punitive Damages and Increased StatutoryDamage

Under the current patent law, the concepts of willfulinfringement and associated punitive damages are not available.These are included in Article 71 of the fourth amendment of thepatent law. Specifically, for willful infringement on a patentright, if the circumstance is serious, the amount of damages may beincreased up to five times of the calculated damages. The amount ofdamages for patent right infringement shall be determined by tryingthe following methods in the following order. First, the amount ofdamages may be determined according to the patentee's actuallosses caused by the infringement or the benefits acquired by theinfringer through the infringement. Where it is difficult todetermine the losses of the patentee or the benefits acquired bythe infringer, the amount of damages may be determined according tothe reasonably multiples of the royalties of that patent. It is tobe noted that compared with the current provisions, Article 71slightly revised the order of the methods for calculating damagesthat should be used. Either the patentee's actual losses or thebenefits acquired by the infringer can be used first, whereas thecurrent law requires that the actual losses must be triedfirst.

If it is difficult to determine the losses of the patentee,benefits of the infringer, or royalties of the patent, thepeople's court may, on the basis of the factors such as thetype of patent right, nature of the infringement, and seriousnessof the case, determine the amount of compensation within the rangefrom RMB30,000 to RMB5,000,000 (US$4,500 to US$750,000). Thisis referred to as statutory damage and it's lower and upperlimits are respectively raised to 3 times and 5 times of thecurrent ones.

(2) Reversed Burden of Proof

One of the biggest difficulties faced by a patent right holderin a patent infringement law suit in China is the lack ofdiscovery. It is often the case that infringement is found butthere is no good evidence to calculate damages as the evidence isin the possession of the defendant. To deal with this problem,Article 71 of the fourth amendment of the patent law provides wherethe right holder has tried his best to provide evidence but theaccount book and materials related to the infringement are mainlyin the possession of the infringer, in order to determine theamount of damages, the people's court may order the infringerto provide the account book and materials related to theinfringement acts.

Where the infringer fails to provide the account book ormaterials or provide fake account book or materials, thepeople's court may determine the amount of damages based on theclaim made and the evidence provided by the right holder. Itfollows that the plaintiff may want to claim high when launching aninfringement law suit. However, one factor that needs to beconsidered is that the court fees are related to the amount atstake. Even if China does not have a loserpay system, i.e.the losing party does not need to cover the cost of the winningparty in a law suit, overclaiming increases the risk ofhaving to pay higher court fees if the plaintiff does not win thecase.

The punitive damages and the increased statutory damages,together with the reversed burden of proof for calculating damagesare likely to significantly increase the amount of damages awardedin future patent infringement cases in China, which will creategreater deterrence to potential infringers.

(3) Increased Fine for PassingOff

Patent passingoff can be generally understood as fraud,such as false patent marking. Article 68 of the fourth amendmentprovides that when handling a patent passingoff case, apatent enforcement authority can confiscate the illegal gains ofthe party who passes off a patent and, in addition, impose a fineof not more than five times the illegal gain, which is increasedfrom the current limit of four times of the illegal gain. In casethere is no illegal gain or the illegal gain is less than RMB50,000(US$7,500), a patent enforcement authority may impose a fine of upto RMB250,000 (US$37,500). It is to be noted that the fine is atype of punishment on the party who passes off a patent but thepatent right holder will not gain any financial benefit from thefine. Of course, in addition to confiscation and fine, the partywho passes off a patent also has to bear civil liability, e.g.compensation to the patent right holder.

According to the current patent law, when a patent enforcementauthority investigates and handles the suspected passingoffof a patent, it may, based on evidence obtained, (1) inquire theparties concerned and investigate the circumstances related to thesuspected illegal act; (2) conduct onsite inspection of theplaces where the suspected illegal act is committed; (3) review andduplicate the relevant contracts, invoices, account books and otherrelated materials; (4) inspect the products related to thesuspected illegal act; and (5) seal or confiscate the productswhich pass off the patent.

In China, a patent right holder can enforce a patent rightthrough judicial route, i.e. people's court or administrativeroute, e.g. local IP offices. However, local IP offices' powerto review and duplicate the relevant contracts, invoices, accountbooks and other related materials and to seal or confiscate theproducts which pass off the patent, as mentioned above, is limitedto patent passingoff cases only. The fourth amendment of thepatent law still does not give local IP offices such power inhandling patent infringement cases.

(4) Extended Time limit for InitiatingLitigation

According to Article 74 of the fourth amendment of the patentlaw, the time limit for taking legal action against patent rightinfringement was extended from two years to three years, commencingfrom the date when the patentee or interested party knows or shouldhave known of the infringing activity and the infringer. Similarly,if a patentee wants to sue another party for compensation duringthe period from the publication of the invention patent applicationto the grant of the patent right, the time limit for taking legalaction is also extended from two years to three years, commencingfrom the date when the patentee knows or should have known of theuse of the patent by that other party. However, the time limitshall commence from the date when the patent right is granted, ifthe patentee knows or should have known of the use before thepatent right is granted.

In the fourth amendment, the second aspect of changes from thecurrent patent law relates to design patent practice. Specifically,it includes extended patent term for design, allowance of partialdesign and possibility of claiming domestic priority for designapplications.

According to Article 42 of the fourth amendment of the patentlaw, the term of a design patent shall be 15 years, extended from10 years as prescribed in the current patent law. It is believedthat this change is part of China's effort to join the HagueAgreement.

Article 2 of the fourth amendment redefines design as any newdesign of the shape, the pattern or their combination, or thecombination of the color with shape or pattern, of the whole or apart of a product, which creates an aesthetic feeling and is fitfor industrial application. This makes it possible to protect aportion of a product, often referred to as "partialdesign". Under the current law, a design patent can onlyprotects a complete product but not a portion of a product whichcannot be separated or cannot be sold and used independently.Allowance of partial design makes design practice in China moresimilar to that in many other jurisdictions and offers broaderprotection of design patents. Without having to limit their designpatent to specific complete products even though the design pointsare only related to certain part of such products, design patentright holders will be in a better position to protect themselvesfrom infringers who may be able to avoid the risk of infringementby only copying their design points and using them in a differentshaped product.

The allowance of partial design also renders design patentprotection for graphic user interface (GUI) more useful. Applicantsdo not have to protect the product, i.e. the display screen panel,with the GUI, in their design patents, as under the currentpractice. Instead, a design patent may be used to protect thedesign of the GUI itself, with the other parts of the productdisclaimed and presented by dotted lines. Even in the GUI itself,some parts may be disclaimed through the use of dotted lines. Itwill be interesting to see what standard will be used in theexamination of partial design application.

Article 29 of the fourth amendment of the patent law includesdomestic priority for design applications, which is not availableunder the current patent law. Specifically, if within 6 months fromthe date an applicant first files an application for a designpatent in China, he files another design application in China forthe same subject matter, the applicant may enjoy the right ofpriority. Under the current domestic priority practice forinvention and utility model applications, when domestic priority isclaimed, the first filed Chinese application will be deemed to bewithdrawn. Therefore, it is not possible to keep both applications.It is reasonable to believe that this also applies to designapplications.

In the fourth amendment, the third aspect of changes from thecurrent patent law relates to drug patents. Specifically, itincludes patent term extension and patent linkage system.

(1) Patent Term Extension

Article 42 of the fourth amendment provides that in order tocompensate for the time spent in the review and marketing approvalof new drugs, at the request of the patentee, CNIPA (China NationalIntellectual Property Administration) may grant compensation forthe term of the invention patent related to the new drug which hasbeen approved for marketing in China. The compensation period shallnot exceed five years, and the total effective period of patentright after the new drug is approved for marketing shall not exceed14 years.

It is to be noted that "Bolar exemption" is availableunder the current patent law, i.e. use of a drug patent for thepurpose of application for drug approval is not considered a patentinfringing activity, but extension of patent term is not available.The inclusion of patent term extension in the fourth amendment ofthe patent law better balances the interest of innovative drugcompanies and the generic companies. There are no detailedprovisions available yet regarding how the extension will becalculated. However, it can be expected that this new provisionencourages innovative drug companies, especially foreign drugoriginators to bring their new drugs to the Chinese market as earlyas possible and hence make new drugs more accessible to the Chinesepeople.

(2) Patent Linkage System

Article 76 of the fourth amendment of the patent law providesthat in the process of review and marketing approval of a drug, ifa dispute arises between the applicant for the marketing approvalof the drug and the relevant patentee or interested party due tothe patent right related to the drug applying for registration, therelevant party may bring a suit in the people's court andrequest a judgment be made on whether the related technicalsolution of the drug applying for registration falls within thescope of protection of other's drug patent. The drug regulatorydepartment of the State Council may, within the prescribed timelimit, make a decision on whether to suspend the marketing approvalof the relevant drug based on the effective judgment of thepeople's court.

The applicant for marketing approval of a drug and the relevantpatentee or interested party may also request an administrativeruling from CNIPA for the dispute over the patent right related tothe drug applying for registration.

Article 76 further provides that the drug regulatory departmentof the State Council, in conjunction with CNIPA, shall formulatespecific measures for the connection between the marketing approvalof drugs and the resolution of patent disputes in the stage ofapplication for marketing approval of drugs, which shall beimplemented after the approval of the State Council.

The newly added article introduces the socalled"patent linkage system" into the patent law, whichprovides an early resolution mechanism for drug patent disputes,aiming to resolve potential patent disputes before relevant drugsare marketed. However, by the completion of this article, detailedrules in this area still need to be formulated, such asavailability of experimental data protection period for drugs, andthe establishment of China's Patent Information RegistrationPlatform for Approved Drugs, equivalent to the correspondingcontent in "Approved Drug Products with TherapeuticEquivalence Evaluations" in the US, commonly known as the"Orange Book". Other drug related measures may also needto be updated to reflect the changes in this regard, such as anupdated application process for drug approval, or a revised Catalogof Approved Drugs.

As a matter of fact, on September 11, 2020, the National MedicalProducts Administration and CNIPA jointly issued"Implementation Measures for the Early Resolution Mechanismfor Drug Patent Disputes (Trial Version) (Draft for Comment)"for public comments. On April 25, 2018, the National MedicalProducts Administration issued "Implementation Measures forthe Protection of Drug Experimental Data (Trial Version)" forpublic comments. Neither one has been finalized and implementedyet. However, it is reasonable to expect that a full system similarto that established by HatchWaxman Act in the US will beavailable in China soon.

Articles 50 to 52 of the fourth amendment of the patent lawprovide an "Open License" system. Specifically, apatentee may express in writing to CNIPA its willingness to licensetheir patents to anyone and specify relevant royalties and methodof payment. CNIPA will announce the patentee's statement andoffer the open license. Patent right evaluation report should beprovided with the offer of an open license for utility model ordesign patent. If a patentee withdraws its offer of open license,it must do so in writing and CNIPA will announce the withdrawalstatement. In this case, any previously granted open license shallnot be affected.

According to Article 51, anyone that is willing to exploit thepatent which is open licensed gets the license to exploit thepatent after it informs the patentee in writing, and pay thelicense fee according to the open license announcement. In otherwords, anyone that complies with the above provision automaticallygets a license. In addition, the same article specifies that thepatentee that offers the open license and potential licensees canstill negotiate on license fees. However, the patentee that offersthe open license may only grant ordinary licenses and shall notgrant a sole or exclusive license for the patent concerned.Moreover, if any dispute arises with respect to the open license,the relevant parties may either request mediation from CNIPA orlaunch a law suit in people's court.

Interestingly, in order to encourage patentees to offer openlicenses, the fourth amendment of the patent law provides thatduring the implementation period of the open license, the annuitiespaid by the patentee shall be reduced or exempted.

(1) Patent Term Adjustment

Patent term adjustment is made available in Article 42 of thefourth amendment of the patent law. It is believed that this changewas made in line with the ChinaUS phase 1 trade agreement.Specifically, where an invention patent right was granted afterfour years from the filing date of the invention patent applicationand after three years from the date of the substantive examinationrequest, CNIPA shall, at the request of the patentee, providecompensation for the term of the patent with respect to theunreasonable delay in the examination stage of the inventionpatent. Not detailed calculation method is available yet.

(2) A New Grace Period Provision

Article 24 of the fourth amendment includes a new provision thatrelates to grace period. Specifically, disclosure of an inventionfor public interest in case of national emergency can enjoy thegrace period of 6 month.

(3) Patent Right Evaluation Report

Under the current patent law, if a dispute over patentinfringement involves a utility model patent or a design patent,the people's court or the administration office may require thepatentee or the interested parties to present a patent rightevaluation report prepared by the CNIPA through searching,analyzing, and assessing the relevant utility model or design,which shall serve as evidence for trying or handling the patentinfringement dispute. Currently only patentees or the licenseesthat have the right to launch law suits have the right to requestpatent right evaluation reports. In the fourth amendment of thepatent law, it is provided that relevant parties from both sides ofthe law suit may request the patent right evaluation reportproduced by CNIPA. This means that not only the patentee canrequest the CNIPA to produce the patent right evaluation report butthe defendant is also able to do so. It provides a new vehicle foralleged infringers to defend themselves.

However, for a party that is not involved in an infringement lawsuit but is concerned with potentially infringement on a utilitymodel or a design patent, it is still not possible to request apatent right evaluation report from CNIPA.

(4) Extended Deadline to Submit PriorityDocuments

According to Article 30 of the fourth amendment, an applicantwho claims priority from an invention or a utility model patentapplication shall submit a written declaration at the time offiling an application and submit copies of the patent applicationdocuments filed for the first time, within 16 months from the dateon which the invention or utility model patent application wasfiled for the first time. In other words, for invention or utilitymodel applications, the deadline for submitting priority documentsis extended from 3 months from claiming priority to 16 months fromthe priority date.

Copies of priority documents for claiming priority from a designapplication should be submitted within 3 months from filing anapplication for design patent.

(5) AntiMonopoly Provision

The fourth amendment of the patent law includes a new Article 20which is a very broad antimonopoly provision. Specifically,it provides that the application for and the use of patent rightsshould follow the principle of good faith. Patent right should notbe abused to damage public interest and other's legitimaterights. Abuse of patent rights to exclude or restrict competition,which constitutes monopolistic behavior, shall be dealt with inaccordance with the AntiMonopoly Law of China. Currently,there are several laws, regulations or judicial interpretations inplace to address the abuse of intellectual property right. However,it will be interesting to see how this provision is applied inlitigation in the future.

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Review Of The 4th Amendment Of China's Patent Law - Intellectual Property - China - Mondaq News Alerts