Qualcomm Subject of AML Investigation – Other Developments on the Way

China’s use of the Antimonopoly Law to deal with pricing for royalties may have taken another turn with recent launch of an Antimonopoly Law investigation by the National Development and Reform Commission against Qualcomm. Although the exact basis for the investigation is unknown, the press reports speculate that the investigation is related to the forthcoming launch of TD-LTE by China Mobile in early 2014 as well as negotiations on chip and licensing pricing between Qualcomm and China-based companies.

Qualcomm announced the case on Monday November 25. The investigation has been covered in several articles in Reuters as well as other press sources, including the Chinese press. An NDRC spokesperson was quoted in China’s official press on Sunday November 24 that China’s AML authorities would focus on six areas of technology and pharmaceuticals. Some observers have also tied the case to the impactful recent Huawei-Interdigital case(http://chinaipr.com/2013/10/29/huaweiinterdigital-appeal-affirms-shenzhen-lower-court-on-standards-essential-patent) adjudicated in Guangdong, which also involved standards and royalties.

In separate developments, at a conference sponsored by China’s Ministry of Industry and Information Technology that I attended in Beijing on November 13, it was announced that the State Administration for Industry and Commerce will be revising its rules on AML and Intellectual Property. Last August a draft revision to its IPR enforcement guidelines was floated selectively for public comment(http://chinaipr.com/2012/08/26/a-quick-read-of-the-aml-ipr-enforcement-guidelines-fifth-draft/). Additionally, at this November 13 conference, the Supreme People’s Court noted that it would be looking into revising its judicial interpretation on patent infringement regarding availability of injunctions, presumably to make injunctions less automatic (or presumably, denied) in the case of standards-essential patents.

There are some areas where there appear to be less momentum, at least for now. I am unaware of any public initiative to deny orders stopping infringement in the case of standards-essential patents and administrative patent enforcement. In addition, I am unaware of any public request to date for an administrative compulsory license of patents through the State Intellectual Property Office for an antitrust violation or a refusal to license. To judge by the recent MIIT conference, there is also no active discussion on patent “hold-out” for refusal of a licensee to take a license under a standards-essential patent, and what that would mean in the Chinese context, where damages are low in litigation, injunctions are almost always granted, the state plays an active role in standardization, the statute of limitations is short and China’s equities as a patent holder and manufacturer are in flux. Also, noticeably absent from the November 13 program was Ms. Dai Hong from the Standards Administration of China, who had been active on these issues for SAC – an agency which had been relatively active on these issues some years ago. Please send in your comments if you know of other developments.

Overall, China’s ramp-up on AML is not unlike its ramp up for other disruptive economic laws, such as the bankruptcy law. Frequently these laws are enacted for “trial implementation” or alternatively they are not actively enforced until after regulators and the public have had time to become familiar with the laws and their implications and/or the political timing is “ripe.” It will be very interesting to observe future developments.

SIPO’s 2012 “Report on the Situation Regarding National Patent Strength”

SIPO’s recently released its  “Report on the Situation Regarding National Patent Strength”, (Chinese: “2012年全国专利实力状况报告”)This report provides a glimpse into the various measures that SIPO uses to quantify how local patent offices are being rated by SIPO.  Knowing these data can be very useful in understanding what the incentives are for evaluating innovation and patent protection in China’s various localities and, accordingly, can help in how a foreign company approaches a local IP office to better enlist their support.  In theory, it should also help in identifying the regions that are affording better patent protection in China to foreigners. 

 The report  is intended to be based on certain objective, common, sustainable, and easy to obtain data.  Some of the data that is used are:

(a)    Number of invention patents in effect held per capita.  This is the first item listed by SIPO and it does not include utility model and design patents, which are not substantively examined. 

(b)   Other patent data: including Patent Cooperation Treaty patent filings; patent maintenance rates; patent abandonment rates (as a negative factor).

(c)    Type of patent applicant data: service invention patent rates; patents filed by large and medium sized enterprises.

(d)   Commercialization data: ratio of R&D to patents filed; hypothecation of patents; licensing contracts for patents; patents that are being used in commercial production (based on a ratio of new products from high tech industries and patent applications from high tech industries); and awards for high quality patents.

(e)   Litigation and enforcement data: First instance patent cases in the courts; settlement rates for patent litigation; data on patent “passing off”; data on cross-boundary cooperation on administrative patent disputes; data on human resources in administrative patent enforcement, use of administrative complaint lines, and expenses for special enforcement campaigns.

(f)     Legal and administrative structure: SIPO is trying to encourage local patent offices to be active and independent of other agencies, such as Science and Technology Bureaus, in which some local patent offices are located.  In addition, SIPO is encouraging promulgation of local legislation on patents, including incorporation of the national IP strategy and economic plans into local level policy and actions.

(g)     Cooperation with SIPO on national projects: including recognition as a model locality for IP protection, or the presence of model enterprises for IP protection.

(h)   Services and civil society: presence of in-house IP departments in companies; presence and availability of Patent Agents; use of electronic filing mechanisms for patents and electronic information services; presence of public service organizations for patents (typically government-organized non-governmental organizations); participation in SIPO training programs (including distance learning programs).

The overall leaders in this statistically-intensive report: Guangdong, Beijing, Jiangsu, Zhejiang and Shanghai (in that order).   Comparative data to last year and to individual benchmarks are also provided.  These five leaders are not necessarily the leaders in other areas, including those that may be of concern to foreigners.  For example, in IP protection, the leaders were: Guangdong, Shandong, Hunan, Sichuan and Jiangsu.  Beijing and Shanghai were a more distant 11th and 16th place, respectively.  Beijing, Guangdong and Shanghai were also the top three jurisdictions for IP services.

The report should be used cautiously by foreign investors and rigthsholders as there is much  of concern to foreigners that is not utilized in the report, for example: numbers of foreign-related civil or administrative cases, availability of provisional measures, receptivity and accessibility of local complaint centers (including trade fairs) to  foreign complainants, availability of expert foreign language lawyers and service providers,  presence and engagement  of foreign-related civil society (INTA, QBPC, RDPAC, AmCham’s, etc.),  existence of policies that on their face discriminate or support foreign rights holders ,  availability of criminal remedies for IP infringement,  existence of “notorious markets” for IP infringing products, and evaluation of the locality by other reports on IP protection (e.g, annual Chamber reports, Section 301 reports).  In addition, as indicated above, the priorities that SIPO assigns to different factors would be different for foreigners.  Nonetheless, this is a useful report that can help foreigners in determining how “patent-friendly” different jurisdictions in China are, and can also assist in compiling a more narrowly focused report that highlights issues of concern to foreigners regarding IP protection in different regions of China.  

I also personally commend SIPO for its transparency in making this available on line.

Innovation: China’s Top 50 Brands

Innovation continues to be an important topic and a key element in the Chinese market. WSJ China blog reported the results of agency Millward Brown and media company WPP’s annual research on the top 50 most valuable Chinese brands. So, just how have Chinese brands fared in the government’s priority to innovate?

The study analyzed the financial information of listed companies, ratio of attribution to corporate earnings from the brand(s), and paired it with data from a survey of consumers. A major factor in brand value comes from consumer perception of the brand’s progress in the area of innovation. While many brands have seen dramatic increases in brand value, others have seen declines or stagnation as a result of “a failure to innovate”. Not surprisingly, consumers in China value innovation as do their counterparts in other part of the world. Chinese brands who have had notable progress in this area include Tencent, maker of the Wechat app; Baidu, the internet giant; Hainan Airlines; and Septwolves, an apparel company selling upscale goods to China’s smaller cities.

For more discussion on China’s innovation, please see this article written by one of my students, Jae Zhou and a former colleague, Benjamin Bai.

China’s Overlooked National Reading Survey Report

One of the useful, but neglected, empirical sources on copyright issues in China is China’s National Reading Survey Report.  The most recent volume that I have is from 2009.  It was published April 2011. Continue reading