Despite the economic downturn, China still outperforms most countries in the way it is expanding its manufacture of the world’s goods. At the same time, though, some opine that it is behind in enforcing patent rights.
However, two recent regulatory changes have brought China closer to the global norm. By creating more certainty around patentability and enforceability, these changes were designed to encourage innovation while growing China’s attractiveness and its competitiveness in the global marketplace.
Because China employs a civil law system, these legislative changes are of particular significance.
Third Amendment to China’s Patent Law
The first of these changes is the Third Amendment to the Patent Law. Originally adopted in 1985, the Patent Law has only been amended three times (1992, 2000 and 2009). The Third Amendment, which overhauls the Patent Law in many ways, went into effect on October 1, 2009. Significant changes include:
Increased statutory damages
One of the most significant changes is the doubling of “statutory” damages. Under the Patent Law, a plaintiff may establish (and be paid as damages) actual loss, profits obtained by the infringer or a reasonable royalty. However, when those methods of damages are difficult to ascertain, as often occurs under China’s limited discovery obligations, the default position is that the People’s Court may fix the amount of damages by reference to available statutory damages. The Third Amendment increases the amount of statutory damages the People’s Court may affix from RMB10,000-RMB500,000 to RMB10,000-RMB1 million (at this writing, RMB10,000 is about US$1,500). While the increase still leaves most patent awards low by international standards, it is clearly a step in the right direction to encourage the filing of patent applications and enforcement of patents in China.
New novelty standard of patentability
Under previous Chinese patent law, prior public uses (sales, offers for sale, manufacturing) outside China would have no impact on the patentability of an invention that was the subject of a Chinese patent application. While this rule favored domestic patent applications, it was shortsighted in light of the global economy and rules of patentability used in other countries. Recognizing this flaw, the Third Amendment adopts an “absolute novelty” standard that recognizes prior public disclosure and use anywhere in the world as citable prior art against the novelty and inventiveness of patent applications.
In another dramatic move, China now applies international exhaustion. While this issue still is being debated in the United States, entities may now import and sell into China articles that have been authorized to be sold into an overseas market. While China may have felt comfortable that goods are generally more expensive overseas, this is unlikely always to remain the case. This move will also likely increase price competition for imported goods.
In the United States, corporations must deal with non-practicing entities (patent trolls) that do not practice patents but seek to monetize them at an inflated price. The Third Amendment deals with this issue by requiring “compulsory licenses” in these circumstances:
If the patentee has not sufficiently exercised the patent, without proper reason, within three years of the date of grant and four years from the filing date, or
If the patentee’s licensing of the patent is determined to be anti-competitive
Again, because China follows a civil law system, there is still a significant amount of ambiguity in these statutes that will require People’s Court interpretation.
Supreme People ’s Court interpretation – Effective January 1, 2010
The Judicial Committee of the Supreme People’s Court issued its interpretation (adopted December 21, 2009) on Several Issues Concerning Applicable Laws to the Trial of Patent Infringement Controversies (Judicial Interpretation) that interpret and expand upon the Third Amendment. The Judicial Interpretation became effective January 1, 2010. Key elements include:
Cease-and-desist letters/waiting period to file non-infringement declaration
To combat the issue of forum shopping by alleged infringers who receive cease-and-desist letters from patent holders, the Interpretation clarifies that the People’s Court will only entertain a declaratory judgment claim of non-infringement if, after receiving the cease-and-desist letter, the party being warned sends notification to the patent holder to exercise its litigation right and the patent holder neither withdraws the cease-and-desist letter nor files suit within one month. This should not only reduce the number of non-infringement declaration suits being filed, but also will favor the patent holder in terms of forum selection.
Read an expanded version of this article.