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Kong Xiangjun Leaves Supreme People’s Court and Enters Academia

 

Chinese and Western media have reported that former Supreme People’s Court IPR Tribunal Chief Judge Kong Xiangjun and former Deputy Chief Judge of the SPC’s first Circuit Court has been dismissed from his work at the SPC.  Shanghai Jiaotong University, Koguan Law School also announced on September 7 that he would be joining their faculty.  

Kong served nine months on the circuit court, when he was dismissed from that position by the NPC in 2015.   He was dismissed from his SPC positions as both a trial judge and a member of the adjudication committee on September 3, 2016 by at the 23rd meeting of the Standing Committee of the 12th NPC.  There had previously been rumors that Kong was going to leave the court when he served on the SPC’s circuit court, which he denied.

Kong pursued his Ph.D. under Jiang Ping 江平 at the Chinese University of Political Science and Law.  He also served as Deputy Chief Judge under the Administrative Tribunal of the SPC, deputy chief judge of the civil tribunal, and as Deputy Party Secretary in Sichuan in 2014.  Among his many honors, Managing IP nominated him to the 50 Most Influential People in IP in 2010 and 2011.

Owing to his work in the fair trade division of SAIC prior to entering the court, Kong also had an interest in unfair competition and antitrust matters, and was an example of the many of officials in China who worked on unfair competition and IP issues at different stages of their career.  Kong has also authored several books including on contract law, antiunfair competition law, trade secret law, the TRIPS Agreement, and trademark law.

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Counterfeits in Microchannel Marketing … and Case Law

Amidst the escalating focus on online counterfeiting, piracy and patent infringement, online social media, such as WeChat are also becoming a source of infringing products, as documented in a Wall Street Journal article and other journals.  

James Luo (罗正红), a prominent IP lawyer in China, has been following these developments in his blog, where he recently reported on a Supreme People’s Court promoting of  ten model cases that promote “core socialist values” (最高人民法院关于弘扬社会主义核心价值观典型案例). One model case involved a couple that sold counterfeit goods through WeChat Moments, which was held to  constitute the crime of selling commodities bearing counterfeit registered trademarks （微信朋友圈销售假冒注册商标的商品案）。

The reason for the insertion of the case according to the court, was to promote “honesty in business.” As the court noted:

“The case was a typical case of selling via microchannel marketing circle of friends, goods bearing counterfeit trademarks. …Compared with the traditional IPR criminal cases, the perpetrators of such crimes use relatively covert means, but the scope of their promotion and sale of counterfeit goods is broad with an adverse social impact.  …Currently, the “Consumer Protection Law” and the “Rules for Network Transaction Management” do not have specific provisions addressing microchannel shopping, and microchannel marketers do not have to register their business with the State Administration for Industry and Commerce.  The relevant laws and regulations need further improvement in this area. “

本案是一起通过微信朋友圈销售假冒注册商标的商品的典型案例。…，利用微信朋友圈等新平台售假者也越来越多。与传统侵犯知识产权犯罪案件相比，这类犯罪作案手段相对隐蔽，但传播面广及推广速度快，销售假冒注册商标的商品涉及面广，社会影响恶劣。目前，消费者权益保护法和《网络交易管理办法》在微信购物方面还没有明文规定，而且微商没有经过工商注册登记，相关法律法规还需要进一步完善。

As the accused had intentionally sold a relatively large amount of counterfeit goods, the defendants were found guilty of the crime of selling commodities bearing counterfeit registered trademarks by the Shaoguan Zhengjiang District People’s Court of Guangdong Province.  Sentences were imposed of  6 – 7 months and a fine of RMB 15,000.

In my opinion, this case appears to be headed in the right direction in terms of addressing the use of social media to commit IP crimes.  The court suggests that the case was important to fill in the gaps in the current legislative regime based on technological changes – the way in which criminals do business online.  This is a typical evolution for IP-related case law in the United States, where courts have a record of using existing statutory provisions to address emerging technologies or ways of doing business.

Why this case was categorized as promoting core socialist values?  Perhaps it promotes socialist core values because it addresses problems in the market of unscrupulous unlicensed individuals who transact business without basic principles of good faith and fair dealing and is thus intended to send a policy signal to other courts and the legislative agencies.

How do these cases compare to other types of cases that the court is promoting?  In my opinion, China is paying more attention to cases to guide judicial decisions and create a more predictable legal environment, with 20,000,000 court cases available on line and new regulations on publishing cases in effect.  China is seeking  to develop a Chinese style system of precedent, and has elicited  much government and academic involvement, including scholarship in journals.  These cases need to be compared to the efforts to become more transparent, promote “model cases”, the system of guiding cases,  judicial interpretations, etc., which are all part of an evolving system intended to insure greater consistency of judicial decision making and address emerging issues.

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Some Good and Bad News in Recent Reports on China’s IP Environment

“The good news is China interested in IP, and the bad news is that China is interested in IP.” This proposition is proved by some of the recent reports on China’s IP environment  particularly the 2016 China Business Environment Member Survey by  the US-China Business Council, European Business in China Position Paper 2016/2017  prepared by the European Union Chamber of Commerce in China and the Global Innovation Index 2016, (GII) which was prepared by Cornell University, INSEAD and WIPO.   

The Good News

As for the goods news: for US China Business Council Members, intellectual property enforcement has slipped overall to the eight-ranked slot for USCBC members doing business in China. The top challenge is competition with Chinese companies in China.  IP enforcement has, in fact, slid from the number two slot (2014), the number four slot (2015) to number eight.  Still, IP concerns remain highly important for the tech sector, which lists IP in the number four slot, but also includes many “quasi-IP” issues in its top 10: innovation policies (number 2), government procurement ( 5 ), antitrust (7 ), standards (8) and cybersecurity (9).

The GII also singles out China’s improvements in IP.  For the first time this year, China became a “top 25” innovative economy in the GII. It is the first middle income country to do so.  China’s rise is attributable to a number of factors, several of them IP related: the country has a particularly high number of R&D-intensive firms among the top  global corporate R&D spenders.  China has had top scores in indicators such as patent applications by origin, utility model patents, high-tech exports, global R&D companies and  research talent in business enterprise (see chart, below).  While some of these indicators are of questionable value (such as numbers of utility model patents), the GII report recognizes many of the steps China has taken towards improving its innovation and IP environment. 

The Bad News

There are several important issues that the EU Chamber suggests China needs to address: procedural reform in the courts and improvements in administrative enforcement; addressing the problems of counterfeiting for OEM production in China and what constitutes infringement domestically; improving trade secret protections when workers leave an employee;  insuring the availability of provisional measures addressing higher barriers to obtaining High and new Technology Entity Status through removal of a global exclusive licensing approval option; and greater coordination and clarification of standards in IP-related antitrust investigations (amongst others).

One area of bad news shared by both the Chamber and the GII:  The GII scored intellectual property payments according to a formula as a percentage of total trade.  China came out below its overall rank at 72nd place, while it ranked number 1 in high tech exports (p. 199).  While the GII did not draw any specific correlation between the two, this is further support to me that China is a “remarkably underlicensed economy.”   

One reason for this disproportionality between licensing payments and high tech exports is the discriminatory provisions in China’s Technology Import/Export Regulations.  These regulations require that a foreigner indemnify a Chinese licensee against third party infringements and that the licensee own all improvements to the technology, while a Chinese domestic licensor can freely negotiate other terms.  As the EU Chamber notes, these regulations they “not only interfere with the needs of Chinese and foreign companies for effective technology trade mechanisms but also contradict the provisions of the Contract Law on technology transfer contract.” 

These concerns are not only directed to foreigners extracting IP ‘rents’ from China.  The ability to negotiate contractual terms is critical to developing flexible international networks for innovation through negotiated sharing of risks and benefits.  The GII recognizes the increasing importance of such international collaboration to China and  that “the Chinese innovation system is now densely connected to sources of expertise everywhere.” (p. 93).  The report also notes that Chinese companies had “the 7th largest foreign footprint of all countries with 178 R&D centers set up or acquired outside China by year end 2015.” (p. 125).    These unbalanced provisions can also affect bilateral science and technology cooperation by requiring that a Chinese party owns any improvements to technology that is licensed to it, or is indemnified against infringements by reason of use of this technology.  A recent report by the Government Accountability Office regarding clean energy cooperation between the US and China noted that “The U.S. Patent and Trademark Office has identified a potential discrepancy between Chinese law and the bilateral U.S.-China Science and Technology Agreement upon which the IP Annex to the CERC Protocol is based, according to U.S. Patent and Trademark Office officials. These officials stated that the potential discrepancy is related to ownership of any improvements made to IP licensed between U.S. and Chinese entities….” ( p. 2).

It is time for China to create a more level playing field in technological collaboration for foreigners licensing to China by removing these discriminatory provisions that treat foreign and domestic licensors differently. 

graphchinainnovationSource: GII.

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Qualcomm’s Litigation Strategies and Recent IP Developments in China

反者道之動。弱者道之用。 (道德經, Chap. 40) (Return is the movement of the Dao. Yielding is the way of the Dao.  Daodejing, Chap. 40.)

To the uninitiated, Qualcomm’s licensing practices in China must appear confusing.  Since paying a fine of 975 million USD to NDRC – about 50,000 times average patent damages according to the CIELA database for its Standards Essential Patent licensing practices, Qualcomm has entered into approximately 100  licensing settlements with Chinese companies.  How can the weak become so successful, so soon?

According to press accounts, Qualcomm has settled with the major cell phone manufacturers in China,  most recently with Chinese cell phone companies Vivo and Oppo.  Both deals came after Qualcomm decided to bring law suits against cell phone manufacturer Meizu in the Beijing and Shanghai intellectual property courts for damages that reportedly total about 520 million RMB.  The first law suit was filed by Qualcomm around June 23 at the Beijing Intellectual Property Court.   The complaint essentially sought to enforce an NDRC rectification plan imposed on Qualcomm against other infringers/potential licensees.  The original complaint, according to Qualcomm’s press release “requests rulings that the terms of a patent license offered by Qualcomm to Meizu comply with China’s Anti-Monopoly Law, and Qualcomm’s fair, reasonable and non-discriminatory licensing obligations.  The complaint also seeks a ruling that the offered patent license terms should form the basis for a patent license with Meizu for Qualcomm’s fundamental technologies patented in China for use in mobile devices, including those relating to 3G (WCDMA and CDMA2000) and 4G (LTE) wireless communications standards.”  Since that filing, Qualcomm filed 17 new complaints were filed in Beijing and Shanghai.

Given the risks to Qualcomm posed by seeking injunctive relief for standards essential patents, Qualcomm appears to have initially launched its litigation campaign against Meizu by enforcing the NDRC approved licensing terms against one hold out company who might thereafter be left with an unfair competitive advantage.   Qualcomm appears to be reducing its antitrust risks by first getting “immunized” by NDRC, and then enforcing the terms of the NDRC “rectification plan” and couching its patent infringement litigation in terms of promoting fair competition.  This in effect has turned the tables on recalcitrant licensees who have previously relied on Qualcomm’s FRAND commitments to reduce the risk of being sued by Qualcomm by threatening an antitrust counterclaim.  What remains to be seen, however, is the legal status the court affords the rectification plan given the often unclear relationships between judicial and administrative decision making.

Qualcomm’s GC, Don Rosenberg said Qualcomm is taking legal action out of a sense of fairness to other companies that are paying what they owe.  In addition, the case represents a vote of confidence by Qualcomm in the court system.  As Don Rosenberg noted “”We’re putting our faith in the court system there and we wouldn’t do that if we didn’t think we were in capable hands.”  Qualcomm may no doubt have been inspired by the success of its licensing program as well as the perfect or near perfect win rate in the sixty five infringement cases filed by foreigners in 2015 in the Beijing IP court.  As I have noted repeatedly on this blog, foreigners do win IP cases in China.

In China’s current legal environment,  where licensing is burdened by seemingly contradictory norms – e.g., where the Chinese government sets prices for license transactions in antitrust cases, restricts the freedom to negotiate of foreigners, provides tax incentives for licensing in to China for high tech enterprises, sets national goals for licensing transactions, and where the courts seem to have difficulty imposing damages based on actual or implied royalties, Qualcomm appears to be turning the 975 million dollars of “lemons” of the  NDRC fine, into a vat of lemonade.

Qualcomm’s vote of confidence in the courts in a high stakes case may also help set an important model for other foreign and Chinese rightsholders, potentially by highlighting such important issues as: Yes, foreigners win cases in China, the importance of actual or explicit license agreements for determining damages (already being tried in some jurisdictions, see: 江苏固丰管桩集团有限公司 vs 宿迁华顺建筑预制构件有限公司 (Jiangsu, 2015), and the respective roles of patent law,  antitrust law, the courts and administrative agencies, in obtaining SEP licenses in China.

Qualcomm and China both have a lot at stake in the handling of SEP issues.   A recent report by Thomson Reuters (The Evolving Landscape of Standard Essential Patents: Keeping What is Essential, Sawant and Oak), showed that Qualcomm owns 17% of the patent declarations before the European Telecommunications Standards Institute, followed by Nokia, Huawei, and InterDigital.   Decisions in Europe such as Huawei vs. ZTE may also have underscored the importance of looking at whether a putative licensee/infringer is in fact negotiating in good faith with a FRAND encumbered licensor.

Judges such as  Zhu Li of the SPC have noted some of these changes publicly.  As Zhu Li said in a recent blog:

…标准必要专利权作出FRAND承诺即自愿放弃了在任何情况下寻求禁令救济的选择，更不意味着其寻求禁令救济一定产生反竞争的效果。因此，作出FRAND承诺的标准必要专利权利人寻求禁令救济的反竞争效果仍然需要具体分析判断。

[T]he owner of standard essential patent FRAND commitment that is made voluntarily does not give up under all circumstances the choice of seeking injunctive relief.  Furthermore, it does not mean seeking injunctive relief must produce anti-competitive effects. Therefore, when a holder of a FRAND encumbered SEP seeks injunctive relief, the anti-competitive effects still need specific analysis and judgment。

The evolving practice appears to be that the evidentiary burden to demonstrate that the infringers have refused to pay a license fee is on the licensor and, as Zhu Li noted,  a monopoly is not necessarily constituted when an injunction is requested by SEP owners.

The State Council’s recent opinion on how China should become a “strong” IP country, also highlighted how China needs to draft rules on standard essential patents that are based on FRAND licensing and “stopping infringement” (Art. 38) (with the involvement of AQSIQ, SIPO, MIIT, and the Supreme People’s Court) and that encouraging standardization of Chinese patents also remains a priority (Arts. 61, 71).

As I indicated elsewhere, a key question for China is “What circumstances exist to suggest that a prospective licensee is engaged in patent hold-out, i.e., refusing to license in good faith which might suspend the licensor’s F/RAND obligation…”  Hopefully China is beginning to ask the better questions that are suitable for its licensing environment and its efforts to become a “strong” IP economy.

What are you observing in this hot area? Please post your comments and corrections!

The preceding is the author’s personal opinion only.

lemonade

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Forthcoming Loyola/USPTO Conference on Chinese Entertainment Law

Loyola University Law School of Los Angeles and the USPTO are jointly sponsoring the first US-China Entertainment Law Conference on November 2, 2016.  Registration information and other information are found here.  The program will cover (1) Year in Review: Recent Developments in the US-China Entertainment Industry; (2) Commercialization of Content; (3) IP Issues Related to the US-China Entertainment Industry; and (4) Opportunities and Legal Challenges in the US-China collaboration of Movies, TV Productions, Music and Gaming etc.

I am scheduled to speak at the conference along with other colleagues from USPTO and a number of leading entertainment lawyers, business people, academics and officials.

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USPTO and Renmin University Copyright Protection Program Highlights Importance of Copyright Reform for China

revenuestreams

Last July 20, 2016，USPTO and Renimin University jointly hosted a program at Renmin University on Copyright Developments in China and the United States.  The program was covered by some of the specialty media.  Here’s a brief summary regarding some of the four key developments in China that I abstracted from the speakers at the conference:

  1. Building upon some of the path breaking work of Eric Priest and others, there appeared to be near unanimity amongst the speakers and audience of the importance of revenue diversity for China’s creative industries to thrive.  Amongst the areas highlighted, were the importance of public performance rights, of licensing for digitalization of content, of small claims procedures for copyright owners, the utility of collective management in certain contexts, and the importance of providing copyright protection for sports broadcasting (as opposed to using neighboring rights or antiunfair competition law).  The current copyright licensing environment in China uniquely supports one exclusive license, but even that revenue source is vulnerable to non-renewal if piracy erodes the value of buying legitimate content and may therefor not be sustainable in the face of “piratical” or free competition.  Musicians, as an example, are heavily dependent on public performances and secondary sources of revenue, such as DVD/CD/ streaming sales are thin.  Revenue diversity can also included non-copyright revenue streams, such as trademark rights, and perhaps merchandising rights.  Efforts have also been underway to increase pledging of copyrighted content, which can help with financing of copyrighted content.
  2. Many of the Chinese speakers spoke about increasingly creative enforcement approaches, such as the Sword Network Campaign,  enhanced administrative supervision over platforms (16 video sites/20 music sites/20 literary sites) and punitive damages.  Although they are still a minority of criminal IP cases, there is an increasing number of  criminal referrals from administrative cases (from 2005 to 2015, more than 450 cases were referred to criminal prosecution).  Article 287 of the newly amended Criminal Law, which provides for criminal liability by reason of providing computer services was noted as a potential area for expanded criminal copyright liability.
  3. Technology and globalization were making enforcement increasingly more difficult, while at the same opening up possibilities for more efficient enforcement techniques.  Audiovisual use of the internet was one of the most popular reasons in China to be online (73.2% of netizens view AV products in China). Music is a close second (72.8%), while literature was only 43.1%.     Copyright protections which did not extend to interactive (online) environments, were increasingly undercutting revenue streams.  China’s reservation under article 15(1) of the WIPO Performance and Phonograms Treaty was noted (“(1) Performers and producers of phonograms shall enjoy the right to a single equitable remuneration for the direct or indirect use of phonograms published for commercial purposes for broadcasting or for any communication to the public.”).  The increasing complexity of the copyright environment, including the environment for licensing was highlighted as a theme in both the United States and China.   Media box piracy was identified as a problem (see 湖南快乐阳光vs 清华同方).  A case involving use of parasitic software to modify the original code was noted, under the Antiunfair competition law ( 鹏讯 [深圳] v 上海虹连网络)
  4. Regarding enforcement, the efforts of the courts to develop precedential or guiding cases to resolve complicated emerging issues was also underscored, particularly due to the extensive delays in passing copyright law reform, which has now been ongoing for several years.  There were over 70 research topics underway as part of the copyright law reform.  There needs to be increased scope of protection of copyright and improved mechanisms for enforcement.  Some of the difficulties in providing copyright protection to certain areas were traced back to the original training program in 1985 in Nanjing on copyright law, which was provided by European experts, and introduced European concepts and models, such as neighboring rights.    Changes in substantive law and judicial practice, such as providing for treble damages,  sampling of allegedly infringing content, establishing a requisite standard for “originality” vs a non-original product (see 北京乐东 vs 北京昆仑 concerning copyright in entertainment software characters) idea vs. expression in variety shows (See Beijing High Court’s: 关于审理涉及综艺节目著作权纠纷案件若干问题的解答), harmonization with other laws (such as the Antiunfair Compeittion Law),  how much copying constituted infringement, discovery of source code to verify infringement of software products, and specialized IP courts/three-in-one (administrative/civil/criminal) tribunals were all noted.  In addition, an expanded scope for audiovisual works, or lowering of the creativity required for cinematographic works were noted as possible approaches to providing protection for sports broadcasts.   Rights holders were also selecting overseas venues for litigation where rights were sometimes better protected.

In general, the speakers agreed that China needs copyright reform for its own needs, and that this reform was not due to outside pressure. In addition, there are increasing opportunities for collaboration between the United States and China on the creation and distribution of copyrighted content, which appear to be mirroring increased collaboration in science and technology.  Ultimately, China needs improved copyright protection and enforcement in light of its own desires to increase its soft power, and support its creative industries.

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US & China Conclude High Level Exchange on Judicial Reform and Commercial Rule of Law

WP_20160802_005 (1)（photo by Mark Cohen）

Last week, top U.S. and Chinese judges and legal experts came together to implement the agreement between Presidents Obama and Xi to hold a high level exchange on judicial reform and commercial rule of law, which stated:

China and the United States commit to conduct high-level and expert discussions commencing in early 2016 to provide a forum to support and exchange views on judicial reform and identify and evaluate the challenges and strategies in implementing the rule of law. U.S. participants are to include leading members of the U.S. judiciary, U.S. government legal policy experts, and officials from the Departments of Commerce and Justice and the Office of the United States Trade Representative. Chinese participants are to include officials from the Central Leading Group on Judicial Reform, leading members of the Chinese judiciary, and Chinese government legal policy experts. This dialogue is to result in an improvement in the transparency and predictability of the business environment. This dialogue does not replace, duplicate or weaken existing regular bilateral legal and human rights dialogues between China and the United States.

According to Amb. Baucus’ view of the dialogue: “companies – American and Chinese – need predictability.  An independent judiciary that can resolve civil and administrative disputes fairly, transparently, and according to the law, is critical.  If we can deepen cooperation between the United States and China on judicial matters, it will help improve the investment climate, to the benefit of companies and workers in both of our countries.”

Chinese media reported that there were over 30 experts, officials and judges attending the program, which included several important IP judges such as SPC Justice Tao Kaiyuan,  and Deputy Chief   IP Judge Wang Chuang, as well as Beijing IP Court President Su Chi, as well as He Zhonglin, head of the SPC’s Office of International Cooperation and a former IP judge himself (see picture above).  According to the media, members of the delegation also met with Meng Jianzhu, head of the Party Political Legal Committee.

The US Department of Justice released the opening speech of Bill Baer, Assistant Attorney General, who noted that the Dialogue included many topics germane to IP such as: “How can parties obtain the evidence they need to prepare for trial?  What evidence should be admissible in court?  How do courts and parties use expert witnesses?  What can courts do to handle a large number of cases fairly, transparently, and efficiently, when resources are finite?  What sort of personnel do we need to implement the rule of law, and how do we ensure that they are properly trained and feel they are part of a justice-focused mission? Finally, what is the role of precedents in providing guidance to business as to what behavior violates the law?”

This is not the first such judicial exchange, nor the first exchange with a common law country.   The Federal Circuit has been engaged in two major programs on IP adjudication with the Chinese courts, including one that involved over 1200 people including 200 Chinese judges  in 2012, and a second large sale  program in Shanghai in 2015.  This year, the focus on the UK judicial exchanges this year is also on commercial law.  Individual US judges, such as Denny Chin and Randall Rader have also traveled to China and engaged the Chinese judiciary on IP and commercial legal matters, including by attending important programs in the United States.  In the UK, Mr Justice Birss was very supportive of these exchanges in comments he delivered at the Fordham IP Conference this year. The  SPC has reportedly established friendly relationships with judicial institutions of more than 130 countries and 20 international or regional organizations.

Chinese media noted that the next meeting of the dialogue of scheduled for Washington, DC.