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

Intellectual Property Owners will be hosting a 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 will occur on December 2 at 12:00 noon. The fee is $130.00. Click here to register.

Two Upcoming Conferences

MIIT’s IP Center is hosting its annual program on Intellectual Property Standards and Anti-Monopoly Law December 10-11 in Beijing. Information is available here.  For information on the IP Center see http://www.miitip.com/, or http://www.miitip.com/.  This is a particularly timely conference in light of ongoing developments in these three areas in China.

Another upcoming conference is the IP Key-Chinese Academy of Sciences Institute of Policy Management conference on December 4th 2014 at CAS IPM in Beijing on the Economic impacts of IP-Centered Government Incentives in Europe and China, which promises to look at tax and other government incentives to patenting and innovation. The agenda is found here.

Indie Music and Copyright in China

The Dong Dong 东 动 Music Festival takes place in Beijing Nov. 26 – 29.  On Nov. 27 and 28 there are programs on the business side of the music industry, including a panel on the 27th from 11:30 to 12:30 on developments in copyright in English and Chinese including IFPI’s chief china representative, as well as a representative from CAVCA, a Chinese collecting society  (http://www.dongdong-event.com/program-convention/).

 

IP in the Xi-Obama Meeting – Following the Data Stream

There wasn’t much IP in the recent meeting of the Chinese and US heads of State at APEC in Beijing, nor should one expect more than a brief mentioning amongst all the other issues that the U.S. and Chinese leadership have to discuss. However there were two points of reference.  One was in the Chinese tabulation of the list of agreed outcomes which stated:

七、双方同意于2015年初举行中国公安部和美国国土安全部部级会晤。双方将利用这一契机深入探讨加强反恐、执法等相关领域合作。双方同意继续在追逃追赃、遣返非法移民、禁毒、打击网络犯罪、加强知识产权执法等领域开展对话与合作。

Essentially this commits the Ministry of Public Security and the Department of Homeland Security to their first Ministerial-level meetings in 2015 to discuss deepening cooperation in enforcement related actions. In addition they agree to dialogue and cooperation in addressing including online crimes and strengthening intellectual property enforcement.

President Obama also noted in the joint press conference that he “stressed the importance of protecting intellectual property as well as trade secrets, especially against cyber-threats [with Xi Jinping].”

This is one instance where the statistical back story supports the respective statements of the leadership.

In China, there has been a big increase in domestic criminal IP cases in China during 2014. In the first half of 2014, the number of all the intellectual property-related criminal cases of the first instance was 5,429,r ising 29.35% over the same period of last year.

In 2013, intellectual property-related criminal cases. of first instance handled by local courts, were reduced by 28.79% to 9,331 cases, including 5,021 infringement cases (3,473 involved infringement of registered trademarks, such as use of counterfeit marks, and 1,484 cases involved copyright infringement).  This drop of 35.96% from the prior year was probably due to the end of a special campaign.

The multi-year trend clearly shows continuing increases in criminal enforcement. Wang Yu(王瑜),an IP lawyer, tabulated the number of IP cases in a recent blog (Oct. 29, 2014), translated here.

From the above chart, the IP-related criminal cases appear to be rising again.  Copyright cases are also rising fast, from 0.6% of 2010 to 39% of 2013.  Trade secret cases, however, are a small percentage and hover around 50 total.

USDOJ data shows that there were about 168 and 178  federal cases filed in 2011 and 2012 respectively. As the data shows, the US federal government has a much smaller litigated criminal IP docket than China.

The data suggests that: (a) China has a comparatively large, and rising docket of criminal IP cases, and (b) the numbers and proportion of Chinese criminal trade secret cases are rather few. The above data, of course, does now reveal qualitative differences, plea bargaining, or how many cases were international in nature, amongst other important differences between the US and Chinese systems..

In sum, after looking at the data, if I were Mr. Obama, I might ask Mr. Xi about improving trade secret enforcement. If I were the Chinese leader, I might ask Mr. Obama about cooperation on criminal IP cases.

And that’s what they appeared to do.

Making the List: China Law Blogs

Carla Spina at Harvard Law School has compiled the following list of China Law Listserves, Blogs and Forums.  We are honored to be on this list, with some great company:

Chinese legal study.

See: http://guides.library.harvard.edu/content.php?pid=189933&sid=3922661.

Thanks to the Chinalaw Blog for pointing this out!

A Deeper Dive Into the Jurisdiction and Role of Specialized IP Courts

deeperdive

As we previously reported the NPC’s Standing Committee established three Specialized IP Courts in Beijing, Shanghai, and Guangzhou.  The Supreme People’s Court and the cities’ High Courts are now in the process of implementing the NPC’s decision.

On November 3, 2014, the Supreme Court issued a decision and held a news conference outlining the jurisdiction of the Specialized IP Courts of Shanghai, Beijing, and Guangzhou. The court detailed the Specialized IP Courts’ jurisdiction over cases of first instance, over different types of IP cases, and over IP right authorization and verification.

The Specialized IP Courts have jurisdiction over three types of cases:

1.  Civil and administrative cases involving patents, new plant varieties, layout designs of integrated circuits, technical secrets, computer software and other technology case; 2.  Administrative cases involving copyright, trademark, and unfair competition against the administrative action of the State Council department or above the county level departments; and 3. Civil cases involving the affirmation of famous trademarks.

The Specialized IP Courts will review civil and administrative IP cases challenging the judgment of lower courts. Additionally, the Higher People’s Courts, where the Specialized IP Courts are located, will review appeals against the judgment of the Specialized IP Courts.   Probably the two most important impacts of the jurisdiction of the courts in terms of its impact upon foreigners aspect of the jurisdiction are the jurisdiction of the Beijing Specialized IP Court over appeals over patent and trademark office final decisions and jurisdiction over well-known marks

Foreigner-related cases constitute a large percentage of these appeals from the patent and trademark office while the infringement cases brought by foreigners are about 2% of the docket.  According to various press reports, the overall share of administrative cases brought by foreigners in Beijing hovers near 50%.  Interestingly, in January of 2014, Beijing had already divided its intermediate IP court into two divisions one of which would hear patent appeals and the other would hear trademark appeals.  This experiment, which likely was intended to anticipate one national IP court like the Federal Circuit in the United States,  has necessarily become short-lived.  Nonetheless, in its jurisdiction over patent and trademark appeals, the Beijing Specialized IP Court does retain jurisdiction that is in many ways similar to the Federal Circuit’s  “administrative” jurisdiction over the USPTO.

I do not have precise current data on foreign-related well known mark cases.  However, well known mark status has been of concern to foreign brand owners for some time.  Former China Trademark Office Director-General An Qinghu 安青虎published an extensive analysis in English in 2005 on recognition of well-known marks in China, including the various circumstances by which foreign well known marks have been recognized, which as I recall from prior personal review of that article, was intended in part to address the concern of foreigners over how well-known marks were being protected in China  As DG An noted at that time “Among the 153 well-known trademarks affirmed by SAIC or Trademark Review and Adjudication Board, 132 are registered by Chinese registrants …, 21 by foreign registrants …” (fn. 7), and “SAIC had affirmed some well-known trademarks  in objection decisions in the 1990s, most of which were registered by foreign registrants.” (final endnote).  I do not have current data on well known mark ownership by foreigners.

The Beijing, Shanghai, and Guangzhou Specialized IP Courts have different focuses and differing impact upon foreigners.  As noted, the Beijing court is distinguished by its largely administrative docket.  The Shanghai and Guangzhou courts will deal with hear comparatively more civil IP cases and will hear relatively fewer administrative cases, mostly involving administrative enforcement decisions.  Guangdong has the largest IP docket in China although not the largest foreign-related docket.  Guangdong’s handling of intra-provincial IP disputes could become a model for a national appellate IP court.  Interestingly, an important and rapidly rising part of the overall IP docket in Guangdong involves online infringement owing to the large Internet business community in Guangdong.  However online copyright is not part of the Guangdong Specialized IP Court’s jurisdiction, despite many of those cases involving different regions of China and their rapid rise and complexity.  For example, from 2010-2013, the online infringement docket in the Pearl River Delta of Guangdong increased from 4058 to 9449, increasing from 21% to 38% of the overall IP docket.

Beijing’s High Court also issued guidance regarding the selection of judges for the Specialized Court.  The judges can be selected either from those judges engaged in IP or related trials, or the judges can be selected if they have the same qualifications and conditions and are engaged in law practice, legal research or are law teaching professionals.

  1. A judge should also have the following qualifications: more than 6 years of relevant trial work experience; a bachelors or higher degree in law; a strong capacity for leading trials and drafting judgments; and Senior judge qualifications.
  2. The standards for other legal professionals as judges of the Specialized IP Court are referenced in further comments.

The candidates for the president of the Specialized Court are appointed by the city’s People’s Congress Standing Committee. The new President of the Beijing IP Court, Su Chi 宿迟, and his deputies, Chen Jinchuan 陈锦川 and Song Yushui 宋鱼水 appears to have such credentials.  Indeed, as if to underscore my analysis on the importance of Beijing to foreigners, the press reports  also underscore their experience in adjudicating foreign-related disputes.

Beijing’s Specialized IP Court will also include “Technology Experts,” (技术调查官)  who will help resolve technology issues that come up in the cases.  The High Court pointed to Taiwanese and Japanese courts that make use of such officials, noting that in those courts the Technology Experts are senior officials.  However, the SPC has also cautioned that the courts should not rely on such experts exclusively.

Here are three charts that demonstrate the jurisdiction of the Specialized IP Court in Beijing, Shanghai, and Guangzhou. See also the Chinese version.

Written by Mark Cohen with the support of Marc Epstein and Yao Yao from Fordham Law School.