China's patent litigation landscape shifts

Intellectual Property and Technology News


China bested the United States to become the No. 1 patent filing country in the world in 2011 by obtaining 526,412 invention patent applications, compared to 503,582 utility patent applications in the US. Of these, 79 percent went to domestic Chinese entities, as compared to 49.2 percent to domestic entities in the US.

With China heading to the fore in the patent race, the question emerges: what will Chinese patentees do with such a huge portfolio? One trend will be much more patent litigation in China. The number of patent lawsuits filed in China in recent years appears to confirm this trend, as shown in the chart on this page.

Patent Lawsuits in China, 2004 – 2011

Source: PRC State Intellectual Property Office White Papers, 2004 – 2011

Government incentives

In hand with the 2008 enactment of the National Intellectual Property Strategy, the Chinese government has rolled out various incentive programs while providing generous funding to encourage domestic companies, research institutes, universities and individuals to seek patent protection for their innovations. These incentives have gone far to boost the number of patent filings by PRC domestic companies.

Now the Chinese government, with more incentive to honor home-grown innovation, is slowly switching its focus to encouraging commercialization of the accumulated patent portfolio. Some domestic patentees regard this shift as implicit approval for them to seek monetization of their patents via litigation and licensing.

Increased damages awards

In recent years China has been criticized for the low damages typically awarded to patentees who are victors in patent infringement lawsuits. Statistically, such an outcome is probably still likely. One often-overlooked factor is that due to the lack of discovery proceedings in China, it is rather difficult to prove the sales volume of alleged infringing products, so patentees simply seek statutory damages. The symbolic doubling of the maximum statutory damages from RMB 500,000 to RMB 1 million in 2008 sent a clear message that the Chinese government is keen to support innovations more appropriately.

It certainly is the trend that Chinese courts are willing to award higher damages if claims are well supported. For example, in the widely reported Chint v. Schneider case,1 the First Instance Court in Zhejiang province issued the highest damages award in China to date (RMB 334 million), and the two parties settled at the Appellate Court in the amount of RMB 157 million (about US$ 23 million). In the Neoplan Bus GmbH case, Neoplan was awarded damages in the millions of US dollars by the First Instance Court for infringement of design patents by three Chinese automakers.

“Educated” domestic companies

For quite a long time, most Chinese companies have been on the defensive side in patent disputes. But these days, many Chinese companies have become quite sophisticated regarding patent enforcement.

A good example is Aigo Digital, a PRC domestic consumer electronics company and the largest USB drive provider in the world. In a highly publicized case in the early 2000s, Aigo was sued by Dongjin, another domestic company, for infringement of Dongjin’s USB drive patents. Since then, Aigo has accumulated a fairly large number of patents and has become IP savvy. It is now recognized in China as a pioneer in aggressively seeking to monetize its innovations.

Established patent system

Through efforts over the past 37 years, including three amendments to its patent law, China has established a patent system meeting the international standard and has developed a team of competent patent judges who have handled a fairly large volume of patent lawsuits. Unlike in the US, a majority of patent infringement lawsuits in China go to trial. This should comfort patentees wishing to enforce their rights in China, especially overseas patentees, who may be further encouraged by the consistently high success rate for foreigners filing patent infringement lawsuits in China: about 80 percent in popular jurisdictions such as Beijing and Shanghai.

There is no doubt that China, the second largest economy in the world, will increasingly become a battlefield for patent disputes. As its large domestic patent portfolio keeps growing and Chinese patentees and practitioners become increasingly sophisticated in using patents (and other IP) as commercial leverage, more Chinese patentees will aggressively assert their patent rights against foreign entities. This may require foreign companies to conduct more in-depth due diligence work before entering the Chinese market.

For more information about the patent system in China, please contact Yan Zhao.

1 ZheMinSanZhongzi, No. 276, Zhejiang High People’s Court (2007) (China).