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].

1. Do not require free grant-back of IP from the Chinese licensee;
2. Do not condition the IP licensing agreement on the licensee not challenging unreasonable terms in the license agreement;
3. Showing a co-operative attitude, while signaling your strong cards in government relation, technology innovation, and willingness to challenge an agency;
4. Divide and conquer.

Shanghai IP Court was established on December 28, 2014. It currently have ten (10) IP judges. It is located at No. 988 Zhanghen Road, Pudong New Area, Shanghai. It will start operation from January 1, 2015.

Guangzhou IP Court will start accepting cases from December 21, 2014 (Sunday).  Currently, 10 judges are appointed to the court and more judges will be appointed later. The address of the court is No. 2662 Kaichuang Avenue, Guangzhou, Guangdong Province, China.

According to the Chief Judge Chi SU of Bejing IP Court, during the first month of the operation of the court, 221 cases were accepted, among which there are 138 patent administrative cases, 86 trademark administrative cases, 45 patent infringement cases, 4 software infringement cases, 1 trade secret infringement case, and 1 trademark infringement case.

Beijing IP Court started its official duty on November 6, 2014. The court is located at No. 18 Zhanghua Road, Haidian District, Bejing, China. The Court has 22 judges, 15 administrative staff, and 51 assistants. The average age of the judges is 40.2 years old. 90% of them have graduate degrees. The court reportedly received 30 cases on its first day.

The following organizations are involved in the nomination and appointment of an IP judge in China, according to the China Supreme People’s Court Notice (Fa[2014]No.267):

Judges Selection Committee (法官遴选委员会)

Supreme People’s Court (最高人民法院)

Party Organization and Human Resource Departments (组织人事部门)

Party Discipline, Monitoring and Inspection Department (纪检监察部门)

Party Committee of relevant locations (当地党委)

Party Political and Law Committee of relevant locations (当地政法委员会)

The Municipal People’s Congress Standing Committee (市人民代表大会常务委员会)

Note: The members of the Judge Selection Committee at provincial level should broadly represent judges, lawyers and academics according to the judicial reform guideline of June 6, 2014 (《关于司法体制改革试点若干问题的框架意见》).

China Supreme People’s Court Judicial Interpretation on the Jurisdiction of Beijing, Shanghai and Guangzhou IP Courts (Fashi (2014) No. 12, Effective November 3, 2014) (Summary)

General First Instance Jurisdiction:  The jurisdiction of all three IP Courts of first instance in the case of intellectual property includes three categories:

(1) patents, new plant varieties, integrated circuit design, trade secrets, computer software and other technology classes in civil and administrative cases;

(2) the State Council department or involving copyright, trademark, unfair competition and other administrative acts of administrative litigation cases by local people’s governments above the county level;

(3) a civil case involving the well-known trademarks.

Exclusive First Instance Jurisdiction: The Beijing IP Court has exclusive first instance jurisdiction over administrative cases on appeals of decision of IP agencies including patents, trademarks, new plant varieties, integrated circuit designs and related mandatory licenses.

General Appellate Jurisdiction: All three IP Courts hear appeals from the basic level court in their respective municipality over civil and administrative cases related to copyrights, trademarks, technology contracts, unfair competition.

The decisions of the IP Courts can be appealed to Beijing, Shanghai and Guangzhou Highest People’s Courts.

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