Is your China-related IP agreement considered abusive under Chinese law? Foreign companies entered into or planning to reach IP related agreements with a Chinese party should be aware that new rules may affect the validity and enforceability of those agreements. The Chinese State Administration for Industry and Commerce (SAIC) on April 7, 2015 issued “Rules on the prohibition of the abuse of intellectual property rights to eliminate or restrict competition” (SAIC IP Rules, see http://www.saic.gov.cn/zwgk/zyfb/zjl/fld/201504/t20150413_155103.html). The SAIC IP Rules provide certain safe harbors for IP agreements related to China, and specify requirements for an operator with a dominant market position to comply with Chinese anti-monopoly laws in entering and enforcing IP Agreements related to China. A multi-factor, rule of reason analysis is generally adopted. The SAIC IP Rules will take effect on August 1, 2015.

An IP agreement related to China is presumptively considered in compliance with Chinese anti-monopoly law under the following two situations:
(a) An operator’s market share does not exceed 20 percent of the relevant market, or there are at least four (4) alternative and independent technologies on the relevant market;
(b) An operator’s market share does not exceed 30 percent of the relevant market, or there are at least two (2) alternative and independent technologies on the relevant market.
An operator with a dominant market position is prohibited from entering into and enforcing the following IP agreements related to China that may eliminate or restrict competition:
(1) refusal to license intellectual property rights;
(2) requiring another party of the agreement to trade only with the operator or its designated party;
(3) tying or bundling sale of additional products regardless of consumption habit or product functionality,;
(4) the practice of differential treatment to parties of similar conditions;
(5) exclusive grant-back for improvement to the relevant IP; and
(6) prohibiting challenge of the validity of the IP by the party of the agreement.

The SAIC IP Rules also restricts the use of IP pooling to affect the ability of a third party not a part of the IP pooling organization to challenge IP validity or license relevant IP or enter into R&D agreements. The Rules further prohibits abusive agreements related to IP standard setting.

The penalties for violation of the SAIC IP Rules are injunctions and confistication of 1%-10% of annual sales with an abusive agreement or a fine of no more than RMB500,000 without an agreement.

Any further inquiry may be directed to Jiwen Chen, Esq. at [email protected].

This post summarizes proposed amendment to Chinese Patent Law that may affect foreign patent owners in China

The Chinese State Intellectual Property Office (SIPO) proposed a draft amendment to Chinese Patent Law on April 1, 2015. No joke. This is the first step in the legislative process. The draft will be submitted to the State Council, then to the National People’s Congress. The deadline for comments is April 28, 2015. (see http://www.sipo.gov.cn/tz/gz/201504/t20150401_1095939.html)

Enhanced Administrative Enforcement by Local IP Offices

Unlike U.S. PTO, Chinese SIPO and its local IP offices have power to enforce patent rights. Under the new proposal, SIPO and local IP offices will have powers to determine infringement, issue injunctions, determine damages, confisticate accounting records, infringing tools and products, impose fines to repeated offenders up to RMB250,000 (about US$40,670). In other words, SIPO and local IP offices will have more teeth in patent enforcement.

The perceived benefit of the enhanced administrative power is quick enforcement. However, the concern is that such administrative action can be appealed to the courts. Thus, they may not actually reduce time in comparison to a civil patent infringement action initially raised at the courts. Some critics viewed this proposal as a power grab by the SIPO and local offices from the courts. Another concern is that because the local IP offices are funded by local governments, not by SIPO, local protectionism and various local practices may make the enforcement process burdensome or unpredictable. But this enforcement route can also be advantageous to obtain evidence for a later civil action or the foreign patent owners enjoying a good relationship with the local IP offices.

Service Inventions

New proposal clarifies that (1) patent rights to inventions made in performing a task for an employer belong to the employer and (2) patent right made with an employer’s material belongs to the inventor if there is no contract stipulating to the contrary.

Thus, from an employer’s point of view, it is recommended to have a clear contract assigning all inventions, whether made with or without employer’s materials, to the employer.

A separate Service Invention Regulation will be issued by the China State Council soon. A draft is published for comments on April 2, 2015. We will explain the details in a separate memo.

Relaxed Requirement for Hiring Chinese Patent Agents in Certain Submissions to SIPO

Under the new proposal, certain submission to SIPO can be made directly by foreign applicants, without hiring a Chinese patent agent as the current law requires. These submissions may be related to payment of fees, submission of priority document and other formality requirements.

Burden of Evidence Production in Civil Patent Infringement Actions

Under the new proposal, when a plaintiff has made due efforts in providing evidence showing damages and the defendant controls evidence of infringement material and accounting information, the burden of production will be shifted to the defendant. If the defendant refuses to provide or falsifies the required evidence, a court may determine damages based on plaintiff’s claims and evidence.

In addition, the punitive damages for intentional infringement may be 2 or 3 times of the compensatory damages.

Online Patent Infringement Measures

The SIPO and local IP Offices will have the power to issue an order to an internet service provider (ISP) to delete certain infringing information or website upon requests by a patent owner and after investigation.

Other Important Proposals

Diagnostic and Treatment Methods for Animals will be patent eligible.

The protection period for a design will be extended from 10 years to 15 years.

A patent owner may choose to publish its offer to license the patent to the public on a fair basis.

If a patent owner fails to disclose standard essential patents during the establishment of a national or international industry standard, then these standard essential patents will be implicitly licensed to the public without the right to sue for infringement.

The Patent Reexamination and Appeal Board will have the power to determine patentability issues sui sponte in additional to the issues raised by an appellant.

Any further inquiry may be directed to Jiwen Chen, Esq. at [email protected].