12 February, 2019
Spruson

China Update: where will the patent law reform go?

China Update: where will the patent law reform go?

A new draft for the 4th amendment of the patent law was published by the National People's Congress on 4 January, 2019. This draft shows the focus points of the upcoming patent law reform, and was shared with the general public for comments.

The main goal of the amendment is to improve the patent enforcement system to ensure closure of loopholes for infringers. The reform seeks to involve new extra-judicial government authorities in infringement actions (e.g., an administrative enforcement arm), shift part of the burden of proof to the accused infringer, and increase the chances of receiving greater compensation from an infringer. In addition, the amendment seeks to create joint liability for internet service providers (ISP) in matters involving infringement by online offers. Other parts of the amendment’s reform focuses on improving the China IP system by addressing inventor remuneration, services for the public for information gathering, and introduction of voluntary licensing offers. While the proposed changes are more relevant for local filers in China, the increase of patent term for design patents to 15 years and the announcement of the potential availability of patent term extensions for pharmaceutical inventions will also be of interest to foreign applicants.

To assist with understanding the proposed amendments, we present below two points of view: the originator’s (patentee’s) perspective and the view of a business operator with major China activities.

The originator’s view

The proposed increase from 10 to 15 years for the patent term of design patents is needed to allow China to accede to the Hague Agreement. It is certainly beneficial for users of the patent system to utilise design patent protection more. It should be noted that design patents can, in some instances, offer additional protection as part of an intellectual property portfolio protecting a product line. They can be enforced in courts without evaluating complex technical issues and are relatively easy to obtain after a formality examination at CNIPA.

The pharmaceutical industry will also appreciate the proposed authorisation for the State Council to establish a patent term extension for innovative pharmaceutical inventions. The maximum additional term has been defined as not exceeding 5 years with a maximum limit of net patent protection set at 14 years. There will, however, be conditions attached to obtain the patent term extension which will likely be further clarified in the law reform taking place over the next few months (please refer to the following for more information). It is noted that the draft mentions “synchronous application for market launch in China” compared to launches abroad for the innovative pharmaceutical that would be covered by the term extension. This may require pharmaceutical companies to align regulatory approval requests globally, as delays to enter China with their innovative drugs may exclude them from obtaining this highly valuable additional patent term. We will report further developments on patent term extension from the overall reform once available.

The intended enforcement improvements will hopefully prevent the use of evasive strategies used by some infringers. Higher compensation awards for willful infringement as discussed in the draft may deter repeat infringers. Furthermore, the use of administrative enforcement units rather than the courts may provide benefits such as greater and quicker enforcement. Compensation will potentially be higher, as infringers that do not provide access to their accounts or materials related to infringing activities may have to pay compensation on infringement volumes that have been made credible by statements of the plaintiff. In addition, maximum statutory compensation amounts (where no other compensation calculation method is feasible with the lack of detailed proof on the infringement scale) will increase to 5 million RMB (around USD 750,000). This follows the general trend towards higher damage awards (as reported previously). Compensation and damage awards will be an additional benefit in litigation cases thus alleviating this limitation in the current Chinese system.

As a result, Chinese patents will overall become more valuable.

The business operator’s view

Whilst strengthening enforcement favours originators, there is always the risk of misuse of IP disputes for unfair competition. Companies with operations in China should be aware of what the proposed changes might mean for them.

The shift to local governments being able to take stronger enforcement actions may expose companies to actions of competitors with bad intentions. A lack of experience of the new enforcement bodies may also lead to fast and harsh enforcement rulings, even where the accused infringer has complex patent invalidity arguments or other defenses such as a defense to work in the scope of prior art or having prior user rights. In this regard, it may be of particular concern that the draft provides enforcement authorities with many options to investigate the accused infringer. While extensive investigation measures may be fully justified in simple cases where an accused party committed actions infringing patent rights of others, a complex infringement situation with various defenses available may not. The recent preliminary injunctions obtained by Qualcomm against Apple in China to ban the sale of several iPhone models indicates that infringement decisions are often highly complex and require a profound understanding of the underlying facts, as well as the skills to issue a decision with a clearly defined scope.

Business operators in China will need to spend more effort on freedom-to-operate analysis, and developing defense strategies. The new enforcement options will need to be considered in any risk exposure analysis.

If you need additional information or assistance with your IP portfolio in China please contact Oliver Lutze: oliver.lutze@spruson.com


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