What Will the New Chinese Patent Law Bring Forth?

(IPRinfo 2/2009)

Liguo Zhang
LL.M., Researcher, University of Helsinki, INNOCENT graduate school

The latest amendment of the Chinese patent law focuses on four points: improving the quality of patents; providing stringent measures against infringements; more flexibility in granting compulsory licenses; and protecting genetic resources.

The law will come into effect on October 1, 2009. I will give an overview and some brief comments on its impact on patent practice in China.

On December 27, 2008, China amended its patent law for the third time. Since enacted in 1984, the patent law was first amended in 1992 to implement the Sino-American Memorandum of Understanding on the Protection of Intellectual Property and to comply with Paris Convention.

The second amendment in 2000 mainly was to comply with TRIPS Agreement since China would join WTO (the World Trade Organization) in the following year. This third amendment, which was initiated in 2005, made 36 changes aiming to promote national innovation ability, to enhance patent protection, and to balance the public interests.

Absolute novelty requirement improves patent quality
The current patent law employs relative novelty, under which an invention is considered to be new if it has not been published in the world, and has not been used or been available to the public through other ways in China.

The new law, instead, uses absolute novelty, in which prior art comprises everything that has been available to the public both in China and abroad. This standard applies to utility model patents and design patents.

Since the absolute novelty has been adopted in the European Patent Convention (EPC), this will not cause problems for international stakeholders. However, it helps improve the patent quality in China.

No double patents for an invention and a utility model
The Chinese patent law grants patents both for inventions and utility models. The utility model patent, which is granted for 10 years, covers a new technical solution relating to a product’s shape or structure or their combination.

Since utility model patents are not substantively examined, they are granted faster than invention patents. Therefore, it has been advantageous to have early issuance of a utility model patent against infringement, and later to have an invention patent.

To avoid double patenting, the amendment stipulates that one and the same invention can only be granted one patent. If an application for both an invention patent and a utility model is filed on the same day, the invention patent can be granted only when the applicant declares to abandon the previously granted utility model patent if it has not expired.

Restrictions for foreigners and patenting abroad loosened
According to the current patent law, the applicants who have completed an invention in China have to file a patent application with China patent authority (SIPO) before filing abroad. The amendment eliminates this and only requires filing an application for a confidential review with SIPO in advance if the owner of an invention which has been completed in China wants to file a patent application abroad.

For filing their patents at SIPO, foreign applicants have had to authorize patent agents that have been specially designated by SIPO. The amendment abolishes this limitation. Accordingly, foreign applicants can authorize any patent agent legally established in China to file application with SIPO. Thus the costs for foreigners could be reduced.

Stronger protection for design patents
China also provides protection for designs by patent law. The amendment will improve the protection of design patents by raising the criteria of patentability and extending the scope of protection.

The change of the criterion of novelty into absolute novelty also applies to design patents. Furthermore, the amendment enhances the criteria of inventive step for design patents as well. At present, a design is considered to involve an inventive step if it is not as same as, and not similar to, any design that has been published in China and abroad, or those that have been openly used in China.

The amendment stipulates that the design has to be obviously different from prior art, which comprises any design that has been available either in China or abroad. Neither should the design be in conflict with others’ legitimate rights that have been attained before the filing date. In addition, the amendment excludes a design that comprises graphics or colors of flat printing or their combination, which mainly serves as a logo, from patentability.

Unlike the current patent law, the amendment prohibits offering for sale products covered by a design patent without an authorization from the patentee.

Compensation for patent infringement raised
According to the current patent law, damage for patent infringement is determined on the basis of three elements: (1) the actual loss suffered by the patentee; (2) the profit made by the infringer; and (3) a multiple of the reasonable royalty from the infringed patent.

In addition, the amendment stipulates that if there is no evidence to prove the three elements, a court may order stationary compensation between 10 000-1 000 000 RMB. Moreover, the amendment provides to the patentee an award of reasonable expenses incurred by the patentee to stop infringement.

The maximum fine imposed by the patent administrative authority on a counterfeited patent will be raised from 3 to 4 times of illegal gains from the counterfeit. Without any illegal gains, the fine is up to 200 000 RMB. Moreover, in a case of criminal offence, a crime liability will be prosecuted.

Evidence preservation measure
The new patent law provides that the patentee may apply to a competent court to preserve evidence before the commencement of proceedings where there is a risk of evidence being destroyed or being difficult to attain later. The court shall make its decision in 48 hours after accepting the application.

If the applicant does not file a legal suit in 15 days, the court will cancel the measure. Applicants shall compensate losses if an application has been made in error.

The amendment also clarifies the implementation of a joint patent. Unless otherwise agreed, each joint owner or applicant of a patent will be entitled to exercise the patent or to grant a non-exclusive license to exercise the patent. However, the royalties shall be allocated among all joint owners. In other cases, the exercise of a joint patent shall be agreed by all joint patent owners.

Compulsory license
To implement the Doha Declaration on the TRIPS Agreement and public health, and Decision on amendment of the TRIPS Agreement about compulsory license, the amendment enumerates three situations under which SIPO may grant compulsory license to applicants that have preconditions for exercising the patent:
– A patentee has not exercised its patent at all or sufficiently during the 3 years after the patent was granted and within 4 years after the patent filing date, without any justified reason;
– To eliminate or reduce a negative impact on competition by monopoly activity where the enforcement of patents as such is affirmed a monopoly activity;
– For the purpose of public health, SIPO may grant a compulsory license for manufacturing and exporting a patented drug in accordance with international treaties that China has joined.

This change may not be a good indication for patentees. In 2008, China enacted its first Anti-monopoly Law. To ensure the compatibility of laws, the compulsory license was added to the patent law. It is expected that in the near future compulsory licenses of patents, especially in the field of pharmaceuticals and chemistry, will draw more attention in China.

Pursuant to the amendment, a semiconductor patent, though, can only be granted a compulsory license for public interests or for an anti-monopoly purpose.

New provisions on exhaustion and genetic resources
According to the law amendment, while an invention relies on genetic resources, the patent applicants have to either indicate the origin of the genetic resources in their application or give a reason why this is not mentioned. A patent is denied if the attainment or utilization of the genetic resource the invention relies on is against law or administrative regulations.

The requirement of disclosure of genetic resource for the relevant patents may make it easier for examiners to find prior art.
The current Article 63 provides for domestic patent exhaustion whereas the amendment employs international exhaustion. It will not constitute an infringement to use, to offer for sale or to import a patented product or a product directly obtained from a patented process which has been sold by the patentee or by others authorized by him.

Some infringement defenses and exceptions
The amendment introduces a few situations in which exploiting a patent dose will not constitute an infringement or bear compensation liability.

No infringement:
– if the alleged infringer can prove that the invention or design should have been in prior art;
– if the patented product or a product directly obtained from a patented process has been sold under the consent of the patentee, anyone using, offering for sale, selling or importing the product does not infringe;
– for the purpose of getting administrative approval to manufacture, use, import patented drug or patented medical devices.

No compensation liability:
– In case the infringer is ignorant about the production and sale of the products in its business not being authorized by the patent holder or
– if it can indicate that the products come from a legitimate source.
To enhance the patent protection, the enforcement in China always draws special attention. This concern is reflected in the amendment, in which preliminary measures against infringement, stringent compensation and punishment for infringement are stipulated.

Also, the patent administrative authority is granted stronger power to attack patent infringement activities. Thus, patentees will see stronger tools to attack patent infringement.