Draft Amendments to China's Patent Law


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On April 1, 2015 the State Intellectual Property Office (SIPO) released a revised draft amendment to China’s Patent Law (the “Draft”) for public comment. This is a comprehensive revision in response to the concerns voiced by the National People Congress (NPC) of patent quality and enforcement matters, and to overall address matters such as reducing the time frame for patent administrative litigation, refining procedures, and improving enforcement in the online environments.

The Draft has been significantly amended and revised from the draft released in 2013, where it attracted criticism on a number of matters, including sparking concerns of potential misuse in relation to the granting of sweeping, discretionary enforcement powers to the Patent Review Board (PRB), given China’s frequent battles with corruption issues, and PRB’s deficiencies in terms of legal
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and technical expertise.

The amendments to the Patent Law focus specifically on enforcement, and seek to alleviate situations in patent enforcement where high costs are incurred with resulting poor effects by providing administrative authorities the power to investigate and resolve patent disputes outside of courts, and to resolve evidence collection challenges and issues with low damage awards by instituting a punitive damage for wilful infringements. The high level of concentration in the enforcement area is due to mainly four factors:

(a) the supervision of administrative patent enforcement in eight provinces and regions by the NPC Standing Committee, launched in 2014;
(b) the ongoing campaign to address counterfeit and substandard products;
(c) the renewed commitment to amend the Patent Law; and
(d) SIPO’s desire to ensure its administrative enforcement system is not sidelined by recent efforts to improve the judicial adjudication of high technology intellectual property cases, such as the establishment of specialised intellectual property courts.
Therefore, the objective of the Draft is to further enhance the enforcement procedures and regulations in China in relation to patents, and improve the legal environment over such matters.

Expanding patentable subjects and extending the patent term

The duration of a patent design has increased from 10 years to 15 years under Article 42, which finally brings it in line with the requirement of at least 15 years under the relevant Hague Agreements, therefore attracting potential international applicants. Furthermore, Article 2 has been amended to include partial designs, as opposed to an overall design under the current Patent Law, to encourage a healthy development of China’s innovation industry. In expanding and extending the rights surrounding a patent design, there is more scope for increased protection and interest domestically and abroad, therefore improving China’s position in regulating over and protecting patent designs to facilitate innovation.

Judicial and administrative authorities powers of investigation and evidence collection

In order to provide for effective investigation and evidence collection procedures, the Draft introduces a two-pronged approach:
(a) under Article 61, once the People’s Court has concluded the infringing conduct has been established, it may, in order to determine the amount for compensation and under the circumstances in which the right holder has used its best efforts to present evidence, order the accused infringer to provide account books and materials relating to the infringing conduct; and
(b) under Article 64, the patent administrative authority is granted more power to investigate a patent infringement and to punish non-cooperation, including an on-site inspection, the power to consult and copy the contracts, invoices, account books and other materials relating to the suspected violation, check products, and seal up or detain products that wilfully infringed patent rights and disturb the market order.
Therefore, through such enforcement protection powers and the further provision of the power to impose a security administration penalty or criminal liability under Article 64, the Draft’s main objective is to increase its enforcement powers to ensure compliance with the Patent Law.

Compensation

The existing Patent Law allows the patent administrative authority to mediate disputes in relation to patent matters, and provides for legal action before the People’s Court if the mediation fails. However, in practice, administrative mediation in regards to compensation matters are unenforceable, therefore resulting in further burdens on the patentee and a waste on administrative and judicial resources.

The Draft, under Article 60, seek to address this issue as well as speed up the process of awarding compensation, by giving both the patent administrative authority and the People’s Court the discretion to determine the amount of compensation, and to further apply to the People’s Court to enforce the mediation judgment.

Delegation of duty to investigate and punitive damages

In many cases, repeated infringement and infringement by multiple parties occur frequently, therefore patentees must pursue legal actions against each infringer on an individual basis. However, this is unrewarding because of low grants of compensation and many patentees are unwilling to incur high costs in both time and money.

Under Article 60, the Draft introduces a punitive damage system for wilful infringements of patent rights, which allegedly disrupt the market order, such as group infringements and repetitive infringements. The patent administrative authority may investigate and penalise, and where it finds the wilful infringement established and the conduct has disrupted the market order, it may order the infringer to immediately cease infringing, confiscate or destroy the infringing products, the parts, tools, modules or equipment used to manufacture the infringing products or implement the infringing methods. Furthermore, if there is an illegal business turnover of more than ¥50,000, the patent administrative authority shall impose a fine of more than 1x but less than 5x of the amount of the illegal business turnover, and in relation to ¥0 - ¥50,000 illegal business turnovers or where the illegal business turnover is difficult to calculate, the authority may impose a fine of an amount up to ¥250,000.

The Draft has provided the patent administrative authority the power to investigate, and orders of high penalties in order to address the issue of inadequate compensation that is current in the existing Patent Law, therefore increasing wariness and maintaining a strict duty to comply with the law.

Conclusion

Overall, the effect of the Draft seems to be positive, as it will expedite patent litigation, facilitate the obtainment of evidence, increase compensation in favour of the patentee, and deter infringement.

However, there are issues regarding the lack of legal expertise and human resources in the administrative authorities in relation to complex patent infringement cases, and the scope of authorities’ powers are extensive and far-reaching powers, bringing in the potential for abuse or misuse of their administrative power. It is therefore vital that SIPO further provide additional definitions and guidelines to clarify and prevent the abuse of power to ensure the fairness and transparency of law enforcement.

China has been active in considering concrete ways to promote and improve the civil judicial enforcement system for patent matters by providing more resources and seeking to improve the legal environment, therefore fostering growth especially in the innovation industry. A comprehensive patent system is fundamental in this area; therefore the Draft is an example of China’s initiative to strengthen patent protection and intensify law enforcement by giving administrative departments more powers and increasing potential compensation orders. This is done in the hopes of improving the enforceability of patents in China, thereby reducing patent infringements and helping to stimulate innovation.

Matthew Murphy would like to thank Joyce Chng for her contribution to this article.

ABOUT THE AUTHOR: Matthew Murphy
Matthew Murphy is a Partner in the MMLC Group.

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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.

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