China's Revised Its Patent Law Aiming to Improve Patentability Thresholds, Strengthening Patent Protection

On December 27, 2008, the Chinas highest legislative authority the Standing Committee of the National Peoples Congress (Standing Committee) revised the current Patent Law of the Peoples Republic of China (Patent Law). The revised Chinese Patent Law (Revised Patent Law), which will take into effect on October 1, 2009, has dramatically perfected the current Chinese patent regime by improving its former thresholds on patentability for invention, utility model and industrial design, strengthening protection to granted patent, promoting technology spreading and development and further granting applicants more discretionary options to proceed with their patent applications and enforcement. Apart from seeking for balance between patent protection and abuse by developing the patent compulsory license system, the Revised Patent Law has also tried to match up with the stipulations of the relevant international treaties on intellectual property protection. This is a great development and reform of the Chinese patent regime. Foreign enterprises and individuals intending to obtain and enforce patents for their invention, utility model and industrial design shall keep close eye on and acquaint themselves with these new developments.
Background
The Patent Law was enacted on March 12, 1984 and took into effect on April 1, 1985. After the promulgation, the Patent Law has already undergone two revisions . This is the third revision. Interesting enough, the Patent Law had been revised by the Standing Committee every eight years since its issuance. The Patent Law and the Chinese patent regime as well as their developments are the results and achievements of the Chinas reform and opening to the outside world since 1978. The purpose of the first revision was to perform the promises China had made in the memorandum of understanding on protection of intellectual property rights entered into between China and U.S. on January 17, 1992. The Chinas access into the World Trade Organization (WTO) further pushed China to revise the Patent Law for the second time in 2000 so as to match with the requirements of WTO. These two revisions were dedicated to absorb advanced technology from abroad, strength protection to intellectual property rights of the enterprises funded by foreign capitals and perform its promises China had made to the international communities. Though these two revisions had played important roles in encouraging creation and invention as well as protection of patent rights, however, the Patent Law has still inherited many problems and challenges still exist in the application of the Patent Law. For instance, the amount of Chinese patents for invention is quite limited (less than 20%), while 80% of the Chinese patents are for utility models and industrial designs. 86.6% of the Chinese patent applications for invention are filed by foreign enterprises, while the same filed by Chinese enterprises are less than 20%. The applications for patents filed by Chinese enterprises in foreign countries are also extremely limited, only taking 0.2% of the applications filed in the U.S. and 0.1% in the European Union. Further more, Chinese enterprises seldom own any patents. 99% of the Chinese enterprises do not own patents. The quality of the Chinese patents is bad too. Among all Chinese patents, most of them are in the fields of traditional Chinese medicine (98%), beverages (96%) and foods (90%). While only 7-10% of the patents are in high-tech fields, such as wireless transmission, mobile telecommunication and semiconductor .
Obviously, China has lagged far behind the development of the western countries in terms of the patent regime. In June, 2008, the State Council issued an Outline of the National Intellectual Property Strategy (Strategic Outline) which put forth a strategic aim that China shall, by 2020, have a high level in creating, utilizing, managing and protecting intellectual property rights . Under such strategic development background, in order to improve its self-creation ability and strength protection to intellectual property rights, Chinas legislative authority has revised the Patent Law for the third time. This article tries to address the changes the Patent Law has undergone in this revision.
Patentability Thresholds Improved from Relative Novelty to Absolute Novelty
1. Patentability Thresholds under Patent Law
Under the current patent regime, those inventions and utility models of which the technology or methods therein, before the date of filing, have not been publicly disclosed in publications in China or abroad or publicly used or made known to the public by any other means in China, are patentable . For the same, those industrial designs which are not identical with or similar to any designs which, before the date of filing, have been publicly disclosed in publications in China or abroad or publicly used in China, are patentable too . In other words, the Patent Law adopts a relative novelty standard for determining patentability for inventions, utility models and industrial designs. Under such patent regime, those technologies which have not yet been publicly disclosed in publications can be patentable as long as such technologies have not yet been publicly used or no respective products incorporating such technologies have been sold in China even though such technologies have already been publicly used abroad or respective products incorporating such technologies have already been sold in overseas markets. This regime has resulted in low quality of the Chinese patents. In the words of the president of the State Intellectual Property Office (SIPO), this is not good for encouraging self-innovation and further hinders the application of the current technologies of foreign countries in China. Therefore, the Revised Patent Law has improved the patentability thresholds from relative novelty to absolute novelty standard of which the details will be addressed below. In other words, those inventions, utility models or industrial designs are not patentable unless they, before the date of filing, have not been publicly known both in China and abroad. In terms of knowingness of the inventions, utility models and industrial designs for patent, the Revised Patent Law has expanded the scope of geography from China to the whole world.
2. Patentability Thresholds under Revised Patent Law
Under the Revised Patent Law, only those inventions and utility models which are not current technology, i.e. those technology publicly known in China and abroad before the date of filing, and for which no entities or individuals have previously filed applications with SIPO describing the identical invention or utility model and was recorded in the application documents or patent documents published after the said date of filing, are patentable . For the same, those industrial designs are patentable if (1) they are not the current designs, i.e. those designs publicly known in China and abroad before the date of filing; (2) no entities or individuals have previously filed applications with SIPO for the identical industrial designs, and was recorded in the patent documents published after the said date of filing; (3) the applied industrial designs, compared with the current designs or the combination of the characteristics of the current designs, shall have obvious difference; and (4) the applied industrial designs do not conflict with the prior lawful rights of anyone else obtained before the date of filing . Furthermore, in order to improve the design patent quality, the Revised Patent Law provides that those designs which function only as logo for the patterns, colors or their combination of the plane print products are not patentable either .
From the above, we can see the Revised Patent Law has greatly improved the former patentability thresholds, particularly, the threshold for obtaining industrial design patents.
Patent Protection Strengthened
The Revised Patent Law has strengthened patent protection by increasing infringement costs, granting rights on promise for sale to the patentee of industrial design, empowering patent administrative authorities certain rights to investigate and raid patent infringement and establishing an evidence preservation system.
1. Patent Infringement Cost Increased
The Patent Law provides for a parallel option for determining the amount of compensation in case patent infringement is established, i.e. based either on the losses of the patentee or the proceeds gained by the infringer. In other words, no order exists in terms of compensation between the losses of the patentee and the proceeds of the infringer. Only when the losses of the patentee or the proceeds of the infringer are difficult to calculate, may the compensation be determined in a reasonable way by referring to the multiple of the royalties for the disputed patent . Sometimes, the patentees actual losses will be much heavier than the proceeds of the infringer. Therefore, the Revised Patent Law has taken the patentees actual losses as a priority method than the proceeds of the infringer to determine the compensation. Only when these two amounts are difficult to locate, can the reasonable multiple of the royalties of the disputed patent be referred. Considering the patentee will incur costs to protect its patent, the Revised Patent Law further provides that infringement compensation shall also include the reasonable costs of the patentee to deter the infringement . Though not expressively clarified by the law, normally, such reasonable cost shall include the costs and fees of the lawyers engaged by the patentee to deter the infringement. This is a great improvement which is more beneficial to the patentee.
In order to severely raid patent counterfeit and infringement, the Revised Patent Law has also increased the amount of fine on the counterfeiter or infringer from three times the illegal proceeds to four times and from RMB 50,000 to RMB 200,000 in case of no illegal proceeds . When it is difficult to locate the losses of the patentee or the proceeds of the infringer or no royalties of the disputed patent can be referred, the Supreme Peoples Court has, in its Several Provisions on Application of Law for Trial of Patent-related Disputes (Juridical Interpretation) , set a statutory compensation cap of RMB 500,000. Under such statutory compensation cap, the infringement cost is too low which is quite unfair to the patentee. So the Revised Patent Law has also increased this cap from RMB 500,000 to RMB 1,000,000 . All these revisions are dedicated to strengthen patent protection and effectively raid counterfeit and infringement.
2. Exclusive Rights on Promise for Sale Granted to Design Patentees
The promise for sale refers to the promise to sell commodities by advertisement, shop windows or display in exhibitions. Such rights of promise for sale shall be exclusively enjoyed by the patentee in case the commodities to be sold incorporating any patents. Though the Patent Law provides such rights to the invention and utility model patentee, however, it fails in specifying the same to the design patentee. In order to strengthen protection to design patent, the Revised Patent Law has newly granted such rights of promise for sale to the industrial design patentee . After this revision, the industrial design patentee may deter any unauthorized people from promising for sale of its patented commodities by advertisement, shop windows or display in exhibitions. Again, this is a new development which is welcomed by industrial design patentees.
3. Certain Enforcement Rights Empowered to Patent Administrative Authorities
Under the Chinese legal regime, two parallel remedies, i.e. administrative remedy and juridical remedy are available for the patentee in the event of patent infringement. The administrative remedy has played an important role for patentee. Sometimes, the patentee can not directly collect relevant infringement evidence and enforce their patent rights but resorting to filing complaints with the competent patent administrative authorities. In order to enable the patent administrative authorities to effectively collect infringement evidence upon receipt of complaints, the Revised Patent Law has newly delegated various powers to the patent administrative authorities for such purpose. For instance, the patent administrative authorities may, based on preliminarily obtained evidence, inquire the concerning parties and investigate the situation of infringement, conduct on-site examination to suspected infringement scene, check and copy various contracts, invoices, books and records and other relevant documents relevant to the suspected patent infringement, check the suspected products and even seize or detain the counterfeited products which are evidenced. When the patent administrative authorities are exercising these enforcement measures, the concerning parties shall also provide coordination and assistance, but can not refuse or try to thwart these investigation and enforcement . The purpose of all these enforcement rights was to promptly raid patent infringement and protect the legal rights of the patentees.
4. Evidence Preservation System Established
The Patent Law provides preliminary injunction and property preservation systems which are very important for protecting the legal rights of the patentees . Unfortunately, the Revised Patent Law has mysteriously abolished the property preservation system. However, if the patentee could prove that its legal rights will be seriously damaged because of the infringement or other urgencies, the patentee could, upon provision of respective securities, still request the peoples court hearing the case to preserve the infringers properties before initiating the litigation or during the litigation according to the stipulations by the PRC Civil Procedural Law .
Once the infringement having been detected, the infringer will try to conceal or destroy evidence. Since these evidence is very important to get the suspected infringement established, the Revised Patent Law has newly established an evidence preservation system. Under such system, the patentee or the relevant interesting parties may, upon provision of respective securities, request with the qualified peoples court to preserve the infringement evidence before initiating the litigation in such situation where the evidence may be possibly lost or it will be difficult to collect the evidence in the future. The peoples court shall make decisions within 48 hours upon receipt of the request. If the peoples court decides to preserve the infringement evidence, it shall preserve it immediately after its decision. The peoples court will release the preserved evidence if the patentee or the relevant interesting party fails in initiating litigation within 15 days after the evidence being preserved . This newly added system will effectively protect the legal rights of the patentees.
Promoting Technology Spreading and Development
The Revised Patent Law tries to promote technology spreading and development by effectively resolving the conflict between invention patent application and utility model patent application, the exertion of co-owned patents, the status of current technology in patent infringement as well as the addition of non-infringement situation.
1. Conflict between Invention Patent Application and Utility Model Patent Application
For the same technology or creation, the applicant may choose to apply either for invention patent or utility model patent. However, if the applicant has filed applications for both invention patent and utility model patent for the same technology or creation on the same day, normally, the utility model patent will be granted early because utility model will not subject to substantive examination. When the utility model patent has been granted and its patent term has not expired, this will destroy the novelty of the same technology for invention patent. Under such occasion, invention patent can not be granted to the same technology or creation. To resolve this conflict and encourage invention, the Revised Patent Law provides for a flexible option for the applicant. If the applicant declares to give up the utility model patent s/he has already obtained, the novelty for the same technology will not be destroyed and the applicant can still obtain invention patent to the said technology or creation . This is dedicated to promote technology spreading and development.
2. Exertion of Rights of Co-Owned Patents
In order to protect the legal rights of the co-owners to the co-owned patent rights and also promote implementation of the co-owned patent as well as the spreading of the patented technology, the Revised Patent Law has newly added an article to address the excretion of the rights of co-owned patents. Under the Revised Patent Law, the rights to apply for patent or the patent rights may be co-owned by more than two entities or individuals. Where the co-owners have reached agreement on excreting the rights to apply for patent or the patent rights, such agreement shall be observed. Where no such agreement has been reached, the co-owners may separately implement or permit others to implement such patents by non-exclusive license. If the patent has been licensed to others for implementation, the royalties shall be distributed among the co-owners. However, the Revised Patent Law fails in specifying on how to distribute the royalties among the co-owners. Except for the aforesaid situation, content from all co-owners shall be obtained when one of the co-owners intends to exercise the rights to apply for patent or the patent rights which are co-owned. Obviously, the purpose of the stipulation on exertion of the rights of co-owned patent is to promote technology spreading and development too.
3. Status of Current Technology in Patent Infringement
Under the current patent regime, in a patent infringement dispute, if the defendant claims invalidity of the disputed patent, s/he must request with the Patent Reexamination Board for reexamining the disputed patent. The peoples court hearing the case will not make judgment that the defendant does not infringe the disputed patent until the Patent Reexamination Board has declared the invalidity of the disputed patent. In order to prevent concerning party from applying for patent for those publicly known technology so as to hinder the implementation of the current technology and also in order to help these people who are implementing the current technology to get out of trouble, the Revised Patent Law provides that the accused infringer does not infringe the disputed patent if s/he has evidence that the disputed technology or design s/he is implementing is the current technology or design . Therefore, the peoples court may directly make judgment that the people who has implemented the disputed technology or design does not infringe the disputed patent without waiting for the reexamination decisions of the Patent Reexamination Board once the people who has implemented the disputed technology or design has evidence to prove the disputed technology or design is a current technology or design. This provision is again to promote technology implementation, spreading and development.
4. Addition of Non-infringement Situation
By referring to foreign patent practice and also in order to promote spreading and development of patented technology, the Revised Patent Law has further newly added a situation which shall not be deemed as an infringement to the patent rights. This situation includes (1) provision of information required for administrative examination and approval; (2) manufacture, use or import of patented medicine or medical equipments; and (3) special manufacture or import of patented medicine or medical equipments .
More Discretionary Options for Applicants to Proceed With Patent Applications and Enforcement
The Revised Patent Law has granted applicants more discretionary options to proceed with patent applications and enforcement by abolishing the requirements that (1) those inventions and utility models achieved within China shall be first filed for patent in China before proceeding with foreign application; and (2) foreign entities or individuals must engage the SIPO designated intellectual property firms to handle their patent matters before SIPO.
1. First Chinese Filing Requirement for Inventions and Utility Models Achieved within China Abolished
Under the current patent regime, the applicant shall first file an application with SIPO for patent for those inventions achieved within China before applying for patents in foreign countries . The same requirement is not imposed for utility models and designs achieved within China. However, this is not good for Chinese entities or individuals to apply for overseas patents. The Revised Patent Law has finally abolished the first Chinese filing requirement in exchange of confidentiality scrutiny. Under the Revised Patent Law, any entities or individuals shall file with SIPO for confidentiality scrutiny for those inventions or utility models achieved within China before proceeding with applications for patent in foreign countries. Violation of this requirement will result that no Chinese patent will be granted to the same inventions or utility models when filed later with SIPO for patent . Unfortunately, the Revised Patent Law fails in specifying the procedures and time limit for the said confidentiality scrutiny. Though scrutiny requirement imposed, this exchange is still an improvement in that the applicants are not required to first apply for Chinese patents before overseas applications. This will be specially welcomed by foreign invested enterprises in China which get many inventions achieved in China, but only interesting in obtaining patents overseas rather than Chinese patents.
2. More Options for Foreign Applicants to Engage Chinese Patent Firm
Under the current patent regime, foreign applicants, when applying for Chinese patents, must engage an SIPO designated Chinese intellectual property firm to represent them to deal with their patent matters before SIPO . SIPO has only designated very limited amounts of Chinese intellectual property firms to be qualified to represent foreign applicants to handle their patent applications and other patent matters before SIPO depending on certain factors of the firm, such as amounts of patent attorneys, registered capital, etc. However, many other Chinese intellectual property firms, though legally established, duly existing and also hiring certain patent attorneys, are not designated by SIPO as qualified to represent foreign applicants to handle their patent matters before SIPO. This has narrowed down the choice scope of foreign applicants for representing them to handle patent matters in China. In order to get foreign applicants to have more discretionary options, the Revised Patent Law has finally abolished this compulsory designation system. After the Revised Patent Law taking into effect, foreign applicants can engage any legally established Chinese intellectual property firms to represent them to handle any patent matters before SIPO . Again, this is a great improvement which will be welcomed by foreign applicants.
Balance between Patent Protection and Abuse or Monopoly
Intellectual property rights are the exclusive rights of their owners. Without expressive authorization, no entities shall make use of such rights. On the one hand, the law shall protect the exclusive rights of the owners to intellectual property rights, on the other hand, the extensive protection can easily result in abuse or monopoly of the intellectual property rights. Therefore, in order to seek for a balance, the law establishes a compulsory license system.
1. Compulsory License under Patent Law
Under the Patent Law, an invention or utility model patent can be compulsorily licensed in three situations (1) where a license has not, within reason time limit, been granted to those entities who are qualified to exploit the applied patents upon request and reasonable conditions and terms; (2) in a national emergency or any extraordinary status and for public interest; and (3) a subsequently granted patent has material technical progress of prominent economic significance over a previously granted patent, when the exploitation of the later patent depends on the early patent, the owner of the later patent may request compulsory license to the early patent and vice versa . These provisions are too general and principle. The Revised Patent Law has further clarified and developed this system.
2. Compulsory License under Revised Patent Law
The Revised Patent Law has kept the above-mentioned last two situations, but particularly clarified and developed the first situation. Under the Revised Patent Law, the compulsory license to an applied invention or utility model patent to those entities who are qualified to exploit are subject to either of the following two conditions :
(1) the patentee fails in exploiting or fully exploiting his patent without reasonable cause (i) within three years after the patent has been granted and (ii) four years has already expired from the date of filing; or
(2) the patentees exertion of his patent rights has been legally recognized as a monopoly and the purpose of the compulsory license is to eliminate or lessen its adverse impact on fair competition.
In addition, the Revised Patent Law has also expanded the compulsory license to patented medicine and semiconductor technology. For purpose of public health, SIPO may grant compulsory license to manufacture patented medicine and export to the countries or regions specified by the relevant international treaties to which China is a signatory. The main purpose of the compulsory license to patented medicine and monopolized patent shall be limited for domestic market provision, while the same for patented semiconductor technology shall be limited only for public interests and elimination of monopoly . This new development on compulsory license to patented medicine dedicates to match up with the stipulations by the relevant international treaties which will be addressed below. Obviously, the purpose of this new development is to seek for a balance between patent protection and prevention of patent abuse or monopoly.
Compliance with Relevant International Treaties
Another import characteristic of the revision to the Patent Law is that the law has tried to get in line with stipulations and requirements of the relevant international treaties on protection of intellectual property rights. The compliance includes granting compulsory license to patented medicine and monopolized patents as well as protection to genetic resources.
1. Reason for Compulsorily Licensing Patented Medicine and Monopolized Patent
As above discussed, the Revised Patent Law has granted compulsory license to patented medicine and monopolized patent. After the Patent Law was revised for the second time in August, 2001, the Doha Ministerial Conference of WTO was held in November, 2001. In this conference, a Declaration on the Agreement on Trade-Related Intellectual Property Rights (TRIPS) and Public Health (Doha Declaration) was passed. In order to implement the Doha Declaration, the General Council of WTO has further passed a Protocol on Revising TRIPS (Protocol) on December 6, 2005. The Standing Committee approved China to accede to the Protocol on October 28, 2007. Considering protection to patented medicine will possibly result in too high price for certain medicine, particularly the medicine for curing infectious and epidemic diseases, so that people could not offer to buy, the Doha Declaration and the Protocol have broken through the restrictions imposed by TRIPS to grant compulsory license to patented medicine. TRIPS has also granted compulsory license to those monopolized patents which eliminate or restrict competition. The PRC Anti-monopoly Law has a similar provision too . In order to match up with these international treaties and the PRC Anti-monopoly Law, the Revised Patent Law has finally granted compulsory license to patented medicine and monopolized patents.
2. Special Protection to Genetic Resources
China acceded to the Convention on Biological Diversity (Convention) on November 7, 1992. According to this Convention, the patent regime shall dedicate to protect genetic resources. Many countries has protected genetic resources through their patent laws. China is a large country with abundant genetic resources. In order to prevent people from illegally stealing genetic resources for further technical development and then applying for patents, the Revised Patent Law has added two articles to address genetic resources. Under the Revised Patent Law, those inventions achieved depending on genetic resources of which the acquisition or utilization is in violation of laws and administrative regulations are not patentable. In order to effectively protect genetic resources, the Revised Patent Law further provides that an applicant shall, for those inventions achieved depending on genetic resources, explain the direct and original sources of the genetic resources in the patent applicant documents. The applicant shall state the reason if s/he can not explain the original source of the genetic resources . It seems difficult or impossible to obtain patent if the applicant can neither explain the original source of the genetic resources nor give out a believable reason. The special protection to genetic resources is a new addition and development to the Patent Law. Obviously, the purpose of this addition is to comply with the international convention and practice.
Conclusion
Under the special domestic and international situations which both strengthen patent protection, the Standing Committee has just revised the Patent Law. In order to improve Chinese patent quality, the Revised Patent Law has greatly improved the patentability thresholds, particularly, the thresholds for obtaining industrial design patent. To encourage technical innovation and build up a harmonious society in which intellectual property rights is highly respected, the Revised Patent Law has especially strengthened protection to granted patent. On the one hand, the law strengthens protection to granted patent, on the other hand, it tries to prevent patent abuse and monopoly by developing the compulsory license system. The law has granted compulsory license to patented medicine and monopolized patents. This new development is purported to match up with international practice. Moreover, the Revised Patent Law has granted applicants more discretionary options to prosecute and enforce their patents.
All these new developments are beneficial to and welcomed by applicants and patent owners. However, some languages in the Revised Patent Law are still vague. Further clarifications are essentially expected. Further more, to reflect and address these new developments, the current Implementation Rules of the Patent Law will expect to be revised respectively soon. We will closely track its development.
ABOUT THE AUTHOR: Bill H. Zhang
Bill H. Zhang is the managing partner of China Sunbow & Associates with rich experience in cross-border transactions involving China, particularly on corporate and commercial matters, such as mergers and acquisitions, direct investment, corporate governance and compliance, restructuring and reorganization, labor and employment, and dispute resolutions, as well as on intellectual property transactions such as patent and trademark prosecution, enforcement, dispute resolution, infringement analysis, due diligence, license and transfer. He has advised many multi-national companies on merging and acquiring Chinese enterprises, making investment, resolving commercial disputes in China and represented them to register, prosecute and enforce various trademarks, patents and copyrights in China.