A Quick Report on the MIIT Conference Including SAIC’s IP Abuse Rules, Patent Law Amendments, MIIT Standardization Policies, Standards and IP Abuse…

MIIT’s Conference on Intellectual Property Standards and Anti-Monopoly Law convened on December 10 and 11 in Beijing.  The conference brought together about 150 international and Chinese experts, including lawyers, judges, academics, diplomats, and other professionals to the Wanshou Hotel in the Haidian District, Beijing.  There were over over 30 speakers. The initial speakers set the tone for the conference by concentrating on one theme:  China’s anti-monopoly regime had entered a new phase from theory to enforcement.  Further, this transition period is characterized by the need to balance anti-monopoly law and IP rights, regulation and innovation.

One example of the struggle for balance is the debate over the prevalence and importance of holdouts, or the practice of standards implementers engaging in conduct intended to drive royalties down royalties for Standards Essential Patent (SEP) holders down to lower than F/RAND levels.  Dina Kallay, Director of Intellectual Property and Competition at Ericsson Ltd.  argued the problem of hold outs was real.  David Wang, Director of Standards and IPR Strategy, Intellectual Property Rights Department of Huawei Technologies Co., argued that that there is no evidence of real life hold outs.  His opinion comes in light of Huawei’s recent litigation with IDC, in which a court ruled that IDC should compensate Huawei for excessive pricing and tying practices.

Many speakers addressed current and future reforms.  Yang Jie, Director of the Anti-Monopoly and Anti-Unfair Competition Enforcement Bureau at SAIC, explained new revisions to its forthcoming rules on abuse of dominance and exclusionary relief (presumably, SAIC’s IP Abuse guidelines or rules). Since August, SAIC has modified seven articles. First, Yang Jie said that SAIC has maintained the “essential facilities” doctrine in the new version, however with some modifications. The doctrine will apply when an intellectual property right cannot be easily substituted in the relevant market, other players want to be part of the market, a refusal to deal would restrict competition or innovation in the relevant market, it harms the public interest, and the licensing of the patent would not negatively or unreasonably harm the interests of the patentee.

Yang Jie also explained that SAIC has adopted a narrow interpretation of refusal to deal for players in a dominant position.  It will only apply when the intellectual property right constitutes an essential element for production.  Moreover, a violation only occurs when the behavior limits competition. Additionally, in abuse of dominance, “abuse” must be considered parallel to other elements and the behavior must harm the public interest or consumer behavior.

Concerning guidelines for the standard setting process, Yang Jie explained that the rules do not include a special provision for horizontal agreements in the standard setting process, because this is covered under the provision for anti-monopoly agreements.  Furthermore, Yang Jie divided monopolistic behavior in the standard setting into standard setting procedures – for instance if a firm fails to say something in a patent application – and standard implementation, which would include violations of F/RAND commitments.  Yang Jie said that the standards clarify the “what should have been known” standard for the standard setting process.  For standard implementation, the guidelines add the requirement of restricting or limiting competition.  Additionally, the new guidelines will treat intellectual property rights the same as other property rights. In other words, SEP holders are not automatically deemed to have market dominant positions. Instead, a case specific analysis must show that a firm is “dominant” within the meaning of relevant provisions of the Anitmonopoly Law.

Lastly, the guidelines no longer include a specific provision targeting copyright collecting societies for abuse of dominance or restricting competition. Yang Jie explained that the provision was cut because there was no real evidence of copyright organizations abusing their position. That being said, enforcement agencies can still pursue copyright organizations as they are not otherwise exempt from the law.

Yang Jie also said that the official version has not yet been promulgated. The regulations have been submitted to relevant bodies within the State Council for review (note from Mark Cohen: it is unclear to me if this is registration with the State Council, or review by the Antimonpoly Enforcement Agencies, or other process.  If this document is an SAIC rule, then review by the State Council should be limited).

Zhang Yonghua, Deputy Director of No. 1 Division of the Legal Affairs Department of the State Intellectual Property Office of China (SIPO), provided details regarding the latest draft of the proposed patent law amendments.  The new draft empowers judicial and administrative bodies with the right of investigation and evidence collection. It also allows administrative agencies to effectively settle infringement issues by compensation.  Furthermore, the draft provides for punitive damages for severe infringements, a concept already employed in China’s trademark law. Additionally, protection for industrial design is extended to 15 years. The new draft also introduces a burden of proof shifting scheme in which the burden of proof shifts once the patentee has satisfied certain of its evidentiary burdens.

Zheng Wen, Deputy Director General of the Anti-Monopoly Bureau, focused on the need for improvement in the merger review process of MofCOM.  Zheng Wen said that MOFCOM had received over 1000 cases since August 2008 and had finished over 900, imposing sanctions in only 3% of the cases.  Zheng suggested that there was a need to impose more sanctions and to crack down on parties that illegally skipped merger review.  Since November, MOFCOM has been publishing notices of sanctions on parties that did not report their proposed merger but should have.  Zheng Wen also expressed the desire to set up a long term cooperation mechanism with the E.U. and U.S., especially for large scale transnational mergers.

Yuan Jie, Director General of the Department of Administrative Law, Legislative Affairs Commission under the NPC Standing Committee argued that there should be an administrative right of parties to challenge an administrative monopoly. Huang Yong, Vice Chair of the Expert Advisory Committee under the State Council Anti-Monopoly Commission, agreed that allowing agencies the rights of investigation and suggestion would be a step in the right direction.

Concerning the new Specialized IP Courts, Jin Kesheng, Deputy Chief Judge of the IPR Tribunal and senior Judge of the Supreme Court said that we could look forward to a judicial interpretation regarding the role of the court’s “technology investigator” position.  Additionally, Zhang Xiaojin, Chief Judge of the Second Tribunal in the Beijing Intellectual Property Court, expressed serious concern over the new court’s ability to handle their large caseload. For instance, the Beijing specialized IP court has 100 staff in total, only 22 of whom are judges and the court is expected to receive 15,000 cases annually.  He expressed further concern over their ability to carry out judicial reform while so severely understaffed.

Finally, Shi Shaohua of MIIT spoke about feedback to MIIT’s own Template for IP Policies in Industry Standards Organizations, which I previously wrote about here. Two criticisms were that the structure was too complicated and that courts do not have sufficient expertise to adjudicate F/RAND issues; injunctions and unwilling licensors;  and reference factors for unreasonable licensing, including factors such as the smallest component or device, the total aggregate royalties of all potential SEPs, the influence of standards on patents, and the extra value that standards bring to a patent.  MIIT also received comments concerning reciprocity requirements, for instance what standard should be employed and whether adding restrictions to SEP licensing will influence cross-licensing, market access, and reciprocity.

The conference also included presentations on Legal Issues of Competition in Internet Industry” and “Internet Based Information Security and Intellectual Property Protection” which unfortunately we were not able to cover.

Prepared by Marc Epstein of Fordham Law School with edits by Mark Cohen.   A special thanks to MIIT and Shi Shaohua for allowing a Fordham student to attend this important conference!  Please provide us with any corrections, additions or comments!  As always, these comment are the authors’ own.

China’s Patent Domination?

Thomson Reuters just released a new report on China’s Innovation Quotient  (Trends in Patenting and China’s Trends in Global Innovation).  This is the fourth in a very useful multi-year series on Chinese patenting trends.

The report looks at Chinese domestic patent data to conclude that China has “risen in patent dominance” and, hence, innovation.  The report also notes that pharma is driving the patent boom.  China has nearly 80 percent of world share in patents for alkaloid/plant extracts, and around 60 percent of global share of pharmaceutical activity, general patents. However, the plant extract filings are held by thousands of individual inventors with a handful of patents each, rather than portfolios maintained by universities or corporate entities that would be seen stateside.

The report also notes increasing numbers of citations to Chinese data processing patents (1.17 times each).  This is far behind the United States (6.72 times forward looking citations), but exceeds South Korea and is close to Japan and Europe (p. 9).  To me the data suggests that the United States remains the source of pioneering innovations and corroborates Chinese notions that it has yet to achieve any breakthroughs in IT technology, despite it having become a manufacturing powerhouse.

The key weakness with this report is that it equates increases in patenting activity with “surge[s] in innovation.” (p. 6).  That assumption may apply in other countries, but it is less clear in China due to a number of factors including: low patent maintenance rates, patent subsidies and other distortions, lower quality associated with the large number of non-service invention patents, lack of correlation with commercialization data, and the apparent disparity between low quality domestic patents and high quality overseas filings, amongst other factors.

The report also analyzes patent litigation data from the Ciela database (www.ciela.cn).   It properly notes that “Foreign plaintiffs in patent litigation win materially more often against domestic defendants than domestic plaintiffs do: a 75 percent win rate against a 63 percent win rate since 2006.”

However, this data – like the patenting data – has to be treated critically. Foreigners are a disproportionately small percentage of that docket.  Indeed, foreigners may only be filing a small share of cases out of concern for other risks of litigation, including government relations costs, difficulties of enforcing judgments, and difficulties in sustaining judgments on appeal.  This information might also be compared with data from the United States on foreign “win” rates .  In fact, the initial data that I collected showed that foreigners due worse on appeals in China than they do in the United States, and then they also do worse on appeal then they do in trials of first instance in China.

In an important but unrelated event, IPkey posted the presentations from its recent conference on IP and innovation.  The conference addressed many of the topics I outlined above, including the role of subsidies in China’s innovation strategies.

 

China’s Explosion in Administrative IP Appeals and Its Impact on the New Beijing Specialized IP Court

 As I have previously blogged here, China’s specialized IP courts are in fact a kind of misnomer: their jurisdictional bases are directed more towards technology-related IP (patents, technical secrets, plant varieties, semiconductor layout designs, software copyright).  “Softer” IP (trademarks, copyright) is not their focus.  In addition, they will provide a more professional appeals court from China’s patent and trademark office.

Surprisingly, one of the most active areas of this court will be trademark administrative appeals, and not in the technology-related matters that is their raison d’etre.

On October 30, 2014, the Beijing Higher People’s Court published a report on patent and trademark administrative appeals for the first nine months of 2014, which underscores the kind of docket that this new court will face.  Trademark administrative cases increased drastically, from 2139 for all of 2013, to 7749 for the first nine months of 2014.  If these 7749 cases were annualized, the total would be 10332 — a five-fold increase for 2014.  Moreover, in 2013, about 50% of this docket involved foreigners.  This court will be of key interest for foreigners.

Patent administrative cases by comparison have been relatively stable and fewer.  The data for 2013 also shows that about 35% of the cases involved foreigners.  Chen Jinchuan (陈锦川) of Beijing Higher People’s Court also noted in a conference, that most foreign patentees are from the United States, Japan, and Germany, and that most of these cases involve invention patents.

The two charts below are drawn from a 2014 article and a 2013 article .  Data in the charts for 2014 is not annualized and may therefore understate the growth in the docket.

Chart one: Trademark Cases From 2013-2014

Chart two: Patent Cases From 2013-2014

According to the Beijing Intellectual Property Office, cases of review of refused trademark administrative cases, involve two parties (the Trademark Review and Adjudication Board of SAIC and the applicant), are relatively stable and thus easy for the court to handle.  But other administrative cases involve three parties (SAIC, and the two parties contesting the right) and are more difficult for the court to handle.   SAIC also reported that there was a big increase in TRAB activity in early 2014 in anticipation of trademark law reforms that went into effect this year.   In fact, the cases filed in the courts in the first quarter in 2014 (2160) exceeded all cases for 2013.

Is it worth foreigners’ filing cases to challenge the TRAB in the courts?  The TRAB reported that its first instance success rate in the court was 82.8%.  In other words, there is about a one-in-five chance of winning on appeal in the courts.

The initial data shows that this new specialized IP court will continue to be highly important to foreigners.  The court will be quite busy with trademark administrative matters, in addition to the smaller quantity of patent cases.  Both of these cases will be very important to the foreign business community
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Benjamin Liu – Losing a Dear Colleague

I received  today the very sad news that Benjamin Liu, a Professor at John Marshall Law School, who was especially strong in biotech issues, passed away yesterday, Dec. 1, 2014.

Benjamin was a young scholar at JMLS who showed much promise. He participated in several programs where I spoke or that I helped organize.  He was always a welcome and strong addition.  He maintained broad interests in IP, Chinese law and rule of law.  And yes, I have blogged about him here.

There is a relatively small community of American academics and lawyers who closely follow Chinese IP law, and he will be deeply missed by us all.

JMLS sent around the following announcement about Benjamin:  “Ben was a remarkable scholar, a much beloved teacher, and a kind and thoughtful colleague.  The school is struggling to come to terms with this deep loss.  Ben will be missed by his John Marshall family, as well as by his wife Chelsea, and two young sons Avery and Derek, upon whom he doted.”

JMLS also notes that It will advise when it has more information about a memorial and for a donation fund for his children.  In the meantime, it is collecting stories and memories of Ben for a scrapbook for his family.  JMLS also advises that if you would like to contribute a few sentences or more, please email them to 7collins@jmls.edu.

For a young scholar with such promise, the Hebrew  words of condolence seem most appropriateז״ל — May his memory be a blessing.

Here’s Benjamin’s faculty bio:

http://www.jmls.edu/directory/profile.php?lastfirstname=Liu_Benjamin

Here’s a tribute by another blogger:

http://lawprofessors.typepad.com/international_law/2014/12/benjamin-liu.html

 

 

Developments in Foreign-Related Cases, IP and Otherwise

Here’s an excellent posting from a “sister blog”, Susan Finder’s Supreme People’s Court Monitor, on developments in foreign-related cases in China.   The blog points to legal reforms in process that could result in a more activist role of China’s judiciary in international affairs, including by participating in international norms setting, strengthening judicial cooperation with Hong Kong, Macau and Taiwan, and perfecting judicial assistance.  The court also noted that it would also “vigorously” assert jurisdiction in international matters, (this was briefly discussed on this blog in the Huawei vs Interdigital case).

Judge Luo Dongchuan,  chief judge of the number four civil tribunal, and a respected former IP judge, is cited by Susan Finder, as suggesting four areas of additional engagement by the courts:

  • “Establishing an electronic platform for service of legal process outside of the jurisdiction (intended to mean Hong Kong, Macau, Taiwan, as well as foreign countries);
  • Investigating and obtaining evidence …
  • Determining foreign law, through establishing a database of experts (Chinese and foreign).
  • Restricting parties to litigation from leaving China”

Clearly, international engagement by the courts is on the increase.  Transnational IP could be greatly influenced by these developments.

Some Comments on MIIT’s Template for IP Policies in Industry Standards Organizations

Late last month, MIIT’s IP Center had released a Template for Intellectual Property Rights Policies of Industry Standardization Organizations for public comment. According to MIIT’s IP Center, this is not a government policy or regulation or standard, nor is it mandatory. However, it may offer useful and authoritative guidance for Chinese standards setting organizations in this complex area, particularly in the IT sector.

Comments are due by November 30, 2014, and can be sent to shishaohua@infoip.org. The short time frame in providing comments is due to my only recently having become aware of this document. However, my experience of MIIT’s IP Center is that they have always been open to useful exchanges of information to improve their policies and practices. Moreover, they may have released this draft in advance of their Dec. 10 – 11 conference (http://chinaipr.com/2014/11/25/two-upcoming-conferences/), where I am sure this will be discussed.

Here are some general and personal observations that I have on this policy in four areas: Foreign-Related Issues; Licensing and Standards Development Organization (SDO) Conduct; Patent Type and Quality; and Copyright.

Foreign-Related Issues:

Article II: “Membership” is broadly defined. However, I am concerned about membership management rules that may not fully admit patent owners of all countries/nationalities, or require them to participate only as observers. This should be clarified, as FRAND obligations should be imposed only upon those who can fully participate in standards setting practices, otherwise patentees may unknowingly forfeit their rights to exclude.

As licensing agreements are also often global in nature, it would be helpful if this guidance also confirmed that foreign law could apply to license agreements, notwithstanding that the Template is explicitly governed by Chinese law.

Regarding cross-licensing (Article XII), it would be helpful if the Template recognized that due to restrictions imposed by local laws, it may occasionally be difficult to cross license on exactly comparable terms even when the patents are equal in value. For example, Chinese law requires indemnities against non-infringement for foreign licensors licensing to China. No similar specific provision applies to Chinese domestic licenses or Chinese outbound licenses. This additional cost to a foreign licensor (or benefit to the Chinese licensee) can legitimately result in additional demands imposed by the foreign licensor on the Chinese licensee in a cross-license arrangement that might otherwise be construed as a violation of any FRAND commitment (Ar. XI).

Licensing and SDO Conduct:

Some greater clarification might be helpful on what constitutes “failure to participate” in licensing negotiations, such as that FRAND licensing benefits may be forfeited (Art. X). “Participate” might be interpreted to merely suggest that showing up to licensing negotiations is enough, when good faith and non-prejudicial negotiations are what should be most critical. Clarification might consist of stating, that the prospective licensee “fails to conclude a licensing negotiation in a timely or good faith manner” or in a manner “that doesn’t prejudice the licensor”. Considering that China has a two year statute of limitations on patent infringement, if the parties do not conclude a license or agree to a suspension of the statute of limitations after two years, and the prospective licensor in fact risks loss of revenue or negotiating position due to the relevant statute of limitations, such conduct might be considered dilatory.

Another question is what is an “affiliate” (Article IV and definitional section) when the licensor/patentee is an SOE? Since “affiliate” includes “direct or indirect beneficial ownership” of stock, would an SOE be licensing on behalf of the Chinese government and other SOE’s, or perhaps on behalf of the State Assets Administration? I believe this may not have been what was intended.

Article XI picks up on the hot issue of what is a “smallest component” as a subject of licensing. However, I am sometimes personally bewildered by what might be a “smallest” unit and why this is a necessary concept. First, why “small”? Perhaps the intent is the least expensive and this is a euphemism? Why not the largest or most expensive, with perhaps a smaller royalty base – which might more fairly reflect the contribution of the patent? Moreover, why does it have to be a component, if for example, the R&D can easily be quantified to exact a royalty and it is a technology that is pervasively used in a given product? Also, what if the claims read on services or methods of operation, etc. and are not sold as a physical “component”?

Article XV: Licensors should not transfer Patents containing essential claims for “the purpose of” evading licensing obligations. I am unclear why willfulness (“for the purpose of”) is apparently required here. If a licensor participates or intends to participate in a standards setting organization, it probably should not transfer patents to licensing obligations which arise as part of its participation in the standards setting body. Perhaps a “should know” requirement can ameliorate this problem.

Article XXXVI: While the SDO can interpret the policy, it is unclear to me whether, under Chinese law, this type of policy is contractual in nature, a matter of corporate governance, a matter of governmental policy, and the legal mechanisms that may be available to challenge SDO policy.

Patent Type and Quality:

Although Utility Model Patents are subject to these rules, it would be useful to have some additional guidance. In view of the explosion in low quality, unexamined UMP’s, and the lack of adequate deterrence against their assertion, UMP holders might be required to first submit their UMP’s to examination prior to offering them to the SDO for licensing. Also, consideration should be given to situations where UMP’s are withdrawn in favor of an invention patent which describes a similar set of claims, such as be requiring that the counterpart invention patent be subject to the FRAND commitment. Consideration might also be given to different valuations for UMP’s in light of their more limited scope, limited duration, and lack of substantive examination.

The template should also further clarify its coverage over foreign patents and patent applications, which appear to be covered by these practices in the appendix on licensing terms.

Copyright:

Article VIII and others: I was glad to see copyright-related issues in standardization being addressed. The non-exclusive license of copyright for purposes of making a draft standard granted by the licensor, – that is, the licensor’s retention of copyright interests – may be in conflict with Article XIX which requires that “no Member shall publish or distribute a Draft Standard” and additionally is conflict with the provision that grants the SDO the copyright in the standard itself. Put simply, what rights does the licensor retain?

Past experience in piracy of standards also suggests that the SDO should have clear obligations regarding publishing the standard and protecting the copyright in the standards against piracy.

I am also unclear what rights a Member that is a “reference implementer” software developer retains under the terms of the provisions which grant royalty free rights to an implementer to use the software. (Art. XXI). Might the draftors have better intended an open-source type arrangement, where subsequent improvements may be made available at least to the licensor? Art. 16 of the Computer Software Regulations already grants software licensees the rights to make alterations to the software. This might make a grant back of any improvements by the licensee an equitable adjunct to this provision. If software is being made available, I presume it is being made available in object code format, although this is also unclear. In sum, these terms should be coordinated with the already robust research exemptions available under China’s Software Copyright Protection Regulations (esp. Arts 16, 17), to insure that incentives to developing relevant software remain in place. 第十七条 为了学习和研究软件内含的设计思想和原理,通过安装、显示、传输或者存储软件等方式使用软件的,可以不经软件著作权人许可,不向其支付报酬.

These are my personal observations. I welcome comments/corrections from others who may be more familiar with some of these practices, especially in China!

IPO Webinar on Specialized IP Courts and A Blog Too from Nottingham

Intellectual Property Owners hosted a great webinar on “China’s New IP Courts: What U.S. Companies Need to Know.” Speakers include Benjamin Bai from Allen & Overy, Gang Hu from CCPIT Patent and Trademark Office, and me (Mark Cohen).   The program occurred on December 2 at 12:00 noon. The fee was  $130.00. The content is available on line.

Here’s a recent blog I did for the University of Nottingham on the same topic.

As I noted in the webinar and the blog, the IP Courts are a bit of a misnomer.  The lion’s share of iP litigation (trademark. copyright) will not be handled by them.  The new courts are, however, closely related to judicial reform efforts.   Moreover, the courts are closely related to what China understands to be “innovation” – including utility models, and design patents, and excluding most copyright claims.  The fact that only technical trade secrets are protected and not business secrets such as marketing plans or client lists, underscores that these courts are not comprehensive IP courts but are targeted at China’s innovative sectors — as China understands them.

 

Mark