Dr. Thomas Pattloch, LL.M.Eur. Patent case law in China and its impact on protection of innovation...

Dr. Thomas Pattloch, LL.M.Eur.

Patent case law in China and its impact on protection of innovation

EPIP Maastricht, 10 Dec 2010Thomas Pattloch

Intellectual Property OfficerDelegation of the European Union to China

2Dr. Thomas Pattloch, LL.M.Eur.

Civil IP court case numbers (per year)

T8. Statistics of IP Civil Cases in China 2004-2009

8,332

13,393 14,056

17,395

23,518

30,509

151 268 353 668 1,139 1,361

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2004 2005 2006 2007 2008 2009Year

Number

IP-related case concludedin first-instance.

Foreign-related IP caseconcluded in first-instance.


Patent court enforcement (per year)

T4. Statistics of Judicial Enforcement of Patent in China 2004-2008

377 335458

599 578

2,549

2,9473,196

4,041 4,074

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2004 2005 2006 2007 2008 Year

Number

Administrative casesaccepted in first-instance

Civil cases accepted in first-instance


Systemic problems in legal system

• High formality requirements for foreign litigants (“Notarization and Legalization”)

• Difficulty to obtain evidence

• Difficulty to secure experts and review expert opinions in court

• Low accountability of officials neglecting their duties (misuse of “Li An” system)

• No mandatory black-listing of companies caught on trade fairs

• Few withdrawal of business licenses

• No deterrent sanctions (fines, prison terms)

• Negligible sanctions in case of non-compliance with judicial and administrative orders


Patents


Revised Patent Law

• In effect since 1st October 2009, revised Implementing Rules and Patent Examination Guidelines in effect since February 1, 2010

• Main changes:– Introduction of absolute novelty standard (patent quality)– Stronger protection of genetic resources– Enhanced rules on compulsory licensing– Chinese “foreign filing license” system established: Confidentiality examination– Introduction of Bolar exemption– Introduction of international exhaustion doctrine– Introduction of prior art defence– Strengthening of evidence preservation and interim injunctions– Slightly enhanced legal basis for administrative enforcement of patents – Higher statutory damages– New requirements on employee’s inventions


Patent enforcement in China

• Success rate of plaintiffs in litigation: estimated to be around 70%• Conflicting data on availability of interim injunctions• High risk of invalidation for foreign owned patents in key sectors,

strict application of standards under the revised Patent Law• Communication by courts and outside influence: Rule of law and the

role of the Chinese Communist Party• Damage awards low (around 15,000 € on average), usually based

on statutory damages (estimated more than 95% of all cases)


Judicial Interpretation

• Interpretation of the Supreme People’s Court on Several Issues Concerning Adjudication of Patent Infringement Dispute Cases, Dec. 21, 2009– File history estoppel adopted

– Application serves as a dictionary for claims

– Acknowledgement of doctrine of equivalence

– All elements doctrine adopted

– Normal consumer standard to determine design infringement

– Prior art defence broadly defined

– Prior use defence not applicable if technology obtained illegally

– Standards for damage calculation

– Warning letter and non-infringement declaratory action


Patent invalidation and enforcement

• Two track system (“German model”)• No mandatory suspension of enforcement procedure during

invalidation• Exemptions and defences:

– Prior art defence introduced, Article 62 Patent Law. Uncertainty about its scope (likely to apply also to literal infringement)

– Bolar exemption Article 69(5) Patent Law: To be interpreted broadly, but too early filing for approval of generic medicaments may not be covered by exemption (e.g. 10 years before expiry of patent)

– Prior use defence Article 69(2) Patent Law: Unclear scope, but likely to include sale, offer for sale and importation, may also apply to distributers, not only manufacturers

– Legitimate source defence Article 70 Patent Law: To be narrowly construed, not too many infringing products/large proportion of infringing elements in a product


Patent invalidation

• Decision by PRB can be challenged in two instances before the Beijing court (Intermediate No. 1 and Beijing High People’s Court)– Problem scope of decision and applicable procedure law Article 54

Administrative Procedure Law: (ii) Judgement shall be withdrawn or partially withdrawn and a ruling may be made for the defendant to reconsider the particular administrative action if one of the following instances is judged to exist:

• 1. insufficiency of essential evidence;• 2. incorrect application of laws or regulations;• 3. violation of legal procedure;• 4. exceeding of authority;• 5. abuse of power.

– PRB is not required to make a comprehensive finding on all factors that invalidate a patent, cases can be remanded and reappear in front of the administrative court (“circular suits” – Viagra case)


Circular actions

• Criticism on the effects of the two track system: Delays in infringement procedure, PRB or defendants entering into circular lawsuits can de facto invalidate value of a patent through delays (malicious use of abuse of the invalidation system without risk for the defendant?) – Waggonbau Elze KG and Shanghai Zhongji Refrigerating Container Co.

Ltd v. Shanghai Shengshi Congelating Containers Co. Ltd. with a delay of five years and four decisions on the validity of the patent in two instances before settling in 2008


Patents case law

• Assignment of a patented product before the date of filing without confidentiality agreement leads to loss of novelty: Jiangxi Boccaro-Ware Technology Co. Ltd. v. PRB and Xiong Lusheng, Beijing High Court 2008

• Novelty should be assessed according to being identical or substantially similar in terms of technical field, technical problem to be solved, technical solution and expected effect. Novelty should not be denied merely by generally holding that the technical features of the invention patent are “equivalent to” technical features of the prior art, IROPA Co. Ltd. v. PRB and Cixi City Taiyang Textile Equipment and Materials Co. Ltd., Beijing High Court 2008

• If an invention with some essential features of the existing technology can achieve the same or even better technical effect, it may be determined to possess inventiveness. But if the deletion of some essential features of the existing technology results in a loss of the corresponding effect, there is no inventiveness, Sichuan Guangyou Industrial Group Co. Ltd. v. PRB and Sichuan Baijia Foodstuff Co. Ltd., Beijing High Court 2008


“New product” and shift of burden of proof

• Shift of burden of proof to the defendant for process patents: BASF v. Nantong Shizhuang Chemical Engineering Co. Ltd., Beijing High Court, 9 Oct 2008: – “New product” refers to one manufactured for the first time in China (at

the date of filing for the patent), as opposed to a first “appearance” on the market. That requires that the product should be obviously different from the products of the same class already made available before the date of filing of the patent concerning its components, structure, quality, performance and function. Previous registrations with other ministries, such as Farm Pesticide Testing Institute of the Ministry of Agriculture, are regarded as making available to the public.

– In this case, BASF could not shift the burden of proof on the defendant as the product was not regarded as “new” product.


Evidence and burden of proof: The Schneider case

• Zhengtai Group Co. Ltd. v. Ningbo Schneider Electric Co. Ltd Leqing Branch, Schneider Electric (Tianjin) Co. Ltd.

• Utility model infringement for a circuit breaker: First instance court decision by Wenzhou Intermediate Court on 26 September 2007, mediation settlement on 15 April 2009, resulting in payment of more than € 16 million from Schneider to Chint– Role of national champions?

– Public perception of foreign right holders and non-discriminatory treatment?


Schneider: The invalidation

• Schneider’s request for invalidation of the utility model ZL 97248479.5:– Prior patent application 97125489.3, filed 1996 in France, destroying

claims 1 and 3 for lack of novelty

– Schneider’s poster of the circuit breaker made and published in France

– Contracts, receipts of Schneider’s C60 sales from Schneider subsidiary in Hong Kong to China Machinery Cooperation and Citron JV in Wuhan China (proving prior use in China, in the absence of absolute novelty standard applicable to the case)


Schneider: The invalidation

• The decision of the Beijing No. 1 Intermediate People’s Court:– On the poster the evidence submitted (configuration picture/poster draft,

testimony of the date of public display of inner structure of C60 model, confirmed bill of 7500 posters for the price of 31750 Francs) was rejected on the following grounds:

• No correlation between the three pieces of evidence: The draft contained a date and time printed on it, but in a different font from the other parts of the draft. The testimony on the publication of the draft on November 26, 1996 was not seen as necessarily relating to the draft – the model number used in the testimony was not referring to the precise model number (“C60” instead of “C60N”), and the font of the distributed brochures/posters were different from the draft.

• “According to common sense, the letters “26/11/96 16:54”on the advertising brochure of Evidence 11 [the draft] should be the time of production or fax transmission of the draft of said advertising brochure, but not the publishing time [of evidence 12 the posters].”


Cont’d

– Testimony of “being exhibited on November 26, 1996” of the “circuit breaker C60” was rejected, it could not prove that the draft was the same as in the posters mentioned in the bill. The court demanded more evidence that the bill concerned indeed the draft sample and denied a link between the bill for 7500 published posters and the draft.


Cont’d

• Regarding the import of C60N models into China, proving prior use:– The court demanded to see the customs declaration and authorized

representation contract for the customs contract to prove that the models had really entered into Chinese territory and could be considered

– The court doubted the authenticity of the evidence provided: A notarized witness statement of an importer named Zhou Bingzhi was seen as irrelevant, criticizing “lack of seals” on all but one invoice, inconsistencies in model numbers

– Evidence such as accounting vouchers, telegraphic money transfer, special invoices, list of incoming accounts, transaction itemized accounts etc. with China National Machine Tool Corp and Shen Long Car Co. was seen as insufficient: The model numbers only appeared in attachments which in the view of the court did not completely match the content of the contract, “incongruous evidence”


Cont’d

– Notarized pictures taken of the models C60N, L when being dismantled could only prove the configuration of the models, not the time when the pictures were taken

– Evidence from Shenlong Car Co. Ltd. featuring amplified pictures of circuit breaker models which was notarized by a Haidian notary office in Wuhan was alleged to have violated the Notarization Law and thus not admissible, with the lack of notarization the evidence was found to be not admissible

• Admission of novelty destroying evidence was denied almost in full.• Extremely high burden of proof, demanding official irrefutable proof

of identicalness and a link between a sample draft, a brochure printed the related invoice to prove novelty destroying prior publishing.


Cont’d

• Prior patent publication in France by Schneider:– Novelty was confirmed as the utility model tried to overcome the defect

that inconsistencies in manual operation speed causes negative influence on the movable contact; the invention would thus increase the lifetime of the circuit breaker, whereas the prior Schneider patent made sure that all the ionization gas from the aperture of the front plate can be expelled through the vent of the rear plate of the shell: These would be different technical fields, different technical solutions and different expected effects, excluding novelty destroying effects.

– The court determined that “written description cannot be found on some of the drawings of D1 [prior patent application] and it is impossible for those skilled in the art to directly and unambiguously determine the above mentioned technical features from the drawings”


Schneider: The infringement procedure

• Court-ordered investigation into evidence to determine amount of damages – Obtaining (valid) evidence as the main difficulty in China in legal

procedures

• Local subsidiary of Schneider refused to provide information on costs – Differing penalties and standards on accounting books and

disadvantages for foreign right holders

• Wenzhou court on notarized evidence on the posters (prior art defence): “Notarization cannot prove the authenticity of original documents, so it cannot absolve the possibility that the original documents are forged or some related content is added.”– Role of notarization in Chinese lawsuits and impact on foreign right

holders!


Court decision on standard-related patent

• In July of 2008 Third Civil Division (IPR Division) of the Supreme People’s Court issued an Instruction Letter to the High Court of Liaoning Province on “Patents Used for Standards Setting Constitutes Infringement “:

• “Regarding the current reality that China's standard setting organizations not yet have established patent information public disclosure and use systems for standards, where the patent right holder participates in the standard setting or following his consent, where the patent is included in the national, industry or local standard, it is deemed that the patent holder licenses others to implement the standard and concurrently use the patent, relevant behaviour of others using the standard is not regarded as a patent infringement behaviour as stipulated in Article 11 Patent Law. The patent holder can request the implementing person to pay a certain usage fee, but the paid amount must be significantly lower than a normal licensing fee; where the patent holder has promised to waive the patent usage fee, it shall be proceeded according to his promise.”

– Supreme People’s Court of the Republic of China Letter to Liaoning Higher People’s Court on whether it constitutes patent infringement that Chaoyang Xingnuo Corporation exploits patent in standard in doing design and construction according to “Ram-Compaction Piles with Composite Bearing Base,” an industrial standard issued by Ministry of Construction (July 8, 2008), Min San [No. 3 Civil Division or IPR Division] Ta Zi No. 4.


Patents – case law

• Guangzhou Jinpeng Industrial Co. Ltd. v. Ma Yi’an “Self-connecting Light Steel Keel” Yichang Intermediate People’s Court 2007– Retailers are not obliged to conduct patent searches on products they

market. If they lack subjective knowledge on the infringement and purchased the infringing goods through customary channels, a patent infringement is denied.

• Jingyuan vs. Fushihua and Huayang 2008/2009 (Fujian High Court/SPC)– Denial of automatic injunction in case of infringement, and granting of a

compulsory license in effect by the court: “In this case, if Huayang company stopped to use the desulphurization equipment, it would produce a negative impact on the local economy and livelihood of citizens. In order to balance the interests of the right holder and the public interests of society, this court cannot sustain the claim against Huayang Co. to cease and desist further use. But Huayang Co. also must pay a use fee to Jingyuan Co. as of machinery sets No. 1 and 2 are commercially employed meaning used as patent infringement of the pure sea water desulphurization method and apparatus, until the related invention patent ceases to be in force.”


Patents – case law

• Difficult cases – Schneider case: National champions and junk patents

– OBE case: Industry-wide significance of patented technology and court-driven patent law interpretation

– Philips patent pool invalidation: Politically motivated actions by universities

– Jingyuan v. Fushihua power plant related technology: Adoption of public policy considerations to exclude right to claim injunctive relief

– Pfizer Viagra case: Health-market related patenting

Dr. Thomas Pattloch, LL.M.Eur.

Thank you!

Dr. Thomas Pattloch, LL.M.Eur.Intellectual Property Officer

4th Floor Qian Kun Mansion, Sanlitun Xi Liu Jie 6, Beijing 100027, PRCTel. +86-10-8454 8131Fax. +86-10-8454 8011

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Dr. Thomas Pattloch, LL.M.Eur. Patent case law in China and its impact on protection of innovation...

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