Licensing: A Forthcoming Program and Some Historical Perspective

With recent antitrust investigations in China, as well as China’s design to have more market-oriented targets for IP, export growth in IP rights from China is slated to grow from 1.36 billion USD in 2013 to 8 billion USD in 2020, according to the Action Plan for the National IP Strategy.  Commercialization-related goals were also found in the Third Plenum, to increase IP utilization generally.

In this light, attached is the agenda for a forthcoming USPTO-SIPO program on licensing of intellectual property, which will take place April 15 in Beijing.  There is no fee for the program.  Seats are currenlty only available on a wait-list basis.   U.S. companies and their counsel can wait -ist for the program by contacting Ms. Liu Jia at the USPTO office in Beijing: jia.liu@trade.gov.

I also recently recovered from my own files an unpublished case on technology transfer from China to the United States, from over 10 years ago in the Eastern District of Texas.  The case involved a Chinese university professor that licensed his technology to a US company to collect revenue and litigate, as necessary.   I was an expert witness in that case, involving Infineon Technologies.  Although China’s tech transfer regime has since changed considerably, as I recall the case dealt with using US choice of law for the licensing of a Chinese-owned Chinese patent and US patent, including whether defects in Chinese ownership or regulatory approval for the license could be cured after the case was filed.

In a previous blog post, I noted that “choice of law in IP and technology transfer contracts is a “sleeper” issue – i.e., one that is too infrequently considered for all its strategic implications.  There may be situations where foreign law is preferred for a Chinese contract, or when Chinese law is preferred for a contract to be implemented overseas, or where choice of Chinese law brings some unhappy surprises.”  Although the choice of US law was ultimately sustained by the court, this decision demonstrated that there could be “unhappy surprises” in China’s then-existing over-regulation of technology contracts, including choosing United States law as a means to avoid these controls.

Since this case, China’s antitrust regime has interjected another level of uncertainty into licensing contracts for standards setting including by substituting Chinese law for a previously agreed choice of law.  .

Here’s a link to recent testimony I gave in an official capacity on licensing challenges in China. 

As always, this blog reflects my non-official, personal views.

Civil, Criminal and Administrative IP Litigation Continued in Climb in 2014

China’s Supreme People’s Court and Supreme People’s Procuratorate released a summary of their IP-related activities as part of their annual work report to the National People’s Congress.

As reported by the Beijing Intellectual Property Institute (www.bipi.org), here’s a quick summary of the numbers:

The total numbers of cases adjudicated by the SPC in 2014 was 9,882,000, an increase of 1.7% over 2013.  Amongst those cases there were 5,228,000 civil cases, with an overall increase of 5.7% from 2013.  There were also 131,000 administrative cases, with an increase of 8.3%.  The total number of IP cases of all types adjudicated by the SPC was about 110,000, an increase of 10 percent.

In a separate 2014 annual report, the SPC noted that there were 94,501 civil IP cases adjudicated in 2014 (about 1.8% of the civil case docket).  In addition, there were 10,303 IP adjudicated criminal cases (about .2% of the criminal docket), and 4,887 administrative cases (3.7% of the administrative docket).

The relatively low numbers of IP cases compared to China’s overall dockets and the changes that the IP system has brought to China’s judicial system in areas such as specialized IP courts and preliminary injunctions, demonstrates the out-sized influence on China’s judicial system.

The SPP’s report indicated that total prosecutions for trademark, patent, copyright, and trade secrets involved 9,427 people, an increase of 7.1% over last year.

More details should be available by the end of April, when numerous Chinese agencies release reports on their IP work for the year.

WIPO, SIPO and USPTO: US-China Patent Filing Trends

Chinese Activity at WIPO

A WIPO report released on March 19 noted that Huawei, with 3,442 published PCT applications, overtook Panasonic as the largest applicant in 2014. Qualcomm was the second largest applicant in 2014, with 2,409 published applications. ZTE Corp. took third place with 2,179 PCT applications.

These top three applicants have similar patent filing profiles, with digital communication accounting for the bulk of their total filings.

The report highlights some weakness amongst Chinese academic institutions: among the top 25 educational institution filers, there were only two Chinese academic institutions – Peking University (no. 19) and Tsinghua (no. 23).

United States Activity at SIPO

SIPO’s 2014 Statistical Report (no. 164), analyzes filing trends from foreign countries, including the United States that further underscores the competition amongst Qualcomm, Huawei and ZTE and in the ICT sectors.

United States China invention patent applications with SIPO amounted to 135,138 pieces over the previous five year period analyzed.   The annual growth rate during this period was 8.3%. In 2013 United States patent applications were 29,992, about 1.4 times 2009.

According to SIPO, the following companies from the United States filed more than 3,000 patents from 2009-2013: Qualcomm (6,029); GE (5,875); General Motors (5,697); Microsoft (3,957) and IBM (3,293). Also of note during this period, Apple’s patent filings have increased rapidly, while Microsoft’s decreased after 2011 to 327 in 2013, falling to 11th place among US applicants.

SIPO’s description of Qualcomm’s role in communication technologies underscores highly competitive relationships in China:

Over the five year period of this survey, Qualcomm’s 5-year filings have ranked amongst the top three United States applicants. Chinese enterprises have also substantially increased their communication invention patents, and this substantial growth has a number of advantages. However, in key areas such as mobile phone chips, Qualcomm still owns core IP. It provides licenses to patented technology to Chinese communications equipment and consumer electronics equipment enterprises, and uses this technology to charge exorbitant license fees.

What about Chinese activity in the US?

USPTO’S Fiscal Year Report (ending September 30, 2014), provides partial data on Chinese filing trends in the United States. In 2013, there were 15,496 patent applications from China, having nearly doubled from 8,358 in 2010. Patent grants to Chinese residents more than doubled from 2010-2014 from 3,059 to 7,717.

Additional data is necessary to compare Huawei and ZTE’s filing trends in the United States and whether they reflect similar competitive trends in PCT filings and in China.

ABA Releases Comments on Draft JI on Preservation Measures for IP and Competition Matters

Here are the comments submitted by the sections on Antitrust Law and International Law of the American Bar Association on the draft Judicial Preservation on Action Preservation in IP and Competition Matters that was released by the Supreme People’s Court, about which I previously blogged.

The ABA is to be applauded for its transparency in making these comments widely available, and I personally thank them.  Interestingly, the Intellectual Property Section did not join in these comments.

The Sections’ comments focus on Articles 7 and 8, regarding irreparable damage related to granting a preservation measure (preliminary injunction).  The Sections recommend that Section 8 of the JI should only apply in the context of intellectual property rights disputes and not in context of competition disputes.  Section 8(1) in particular states that irreparable damage is believed to have been caused when the occurrence or continuation of the act of applied-for-preservation will seize market shares of the applicant or force the applicant to operate by using an irreversible low price.  This test, if applied in competition law matters, could be used to serve the interest of individual competitors rather than competition generally.

However, not to be forgotten is that China, and especially foreign litigants in China, need more robust preliminary relief in IP cases.  Infringement of IP rights can cause irreparable harm to patent, trademark, copyright and trade secret owners.  China currently has an overall very low incidence of preliminary injunctions in IP cases (about 1/8000 in 2013).

As Benjamin Bai has noted, it appears that the SPC had taken an interest in making PI’s more readily available even more the promulgation of this draft JI.  However, PI’s still seem to be made sparingly available.  As I noted in an earlier blog:

“The courts accepted 11 cases involving application for preliminary injunctions relating to intellectual property disputes; 77.78% were granted approvals.  One hundred and seventy three applications for pre-trial preservation of evidence were accepted, and 97.63% were granted approval, and 47 applications for pre-trial preservation of property were accepted, and 96.97% approved. 

Of course, one might ask if approval rates for provisional measures are so high, why then are applications for preliminary injunctions only about .01% of the total of disposed cases? The answer seems to be that cases are being rejected in the Case Filing Division of the courts…”

With the courts having recently proposed reforms to the Case Filing Division, it is to be hoped that preliminary injunctions will be made more readily available.

Now why might preliminary injunctions be more necessary for foreigners? Since foreign-related cases are not subject to the statutory time limit of six months for final adjudication of a IP case in China, there is a greater likelihood that relief would be necessary to address irreparable harm that may occur to protracted delays in granting relief.

Of course, both Chinese and domestic litigants, would need preliminary relief to address irreparable harm for newly released content or products under copyright or trademark law, such as in a recent case adjudicated in Guangzhou, involving a new videogame.  Preliminary injunctions can also be critical in addressing imminent  certain deficiencies in China’s IP regime.  For example, a preliminary injunction can help address the harm likely to be caused to a pharmaceutical innovator when an infringing generic infringes an innovator’s pharmaceutical patent, due to the absence of a patent linkage system in China and likely long term harm due to an infringing product having obtained regulatory approval for distribution.

Guo Shoukang, Eminent Scholar of IP Law, Passes Away

GuoShoukang

I am sorry to report that Prof. Guo Shoukang 郭寿康, the UNESCO Professor of Copyright Law, emeritus, at Renmin University, died Monday March 22 at 12:35 PM.  Prof. Guo was in his late 80’s.

Prof. Guo taught and inspired generations of Chinese law students and officials.

I would like to share a few moments from the many years of interaction and friendship I had with him:

I was privileged to attend the 65th anniversary of his teaching law in the fall of 2013.  At that time, I was told of how he advocated for a patent law for China in the early 1980’s at the National People’s Congress, when many members were opposed.  I was also told that many officials, such as former SIPO Commissioner Tian Lipu, considered him their teacher.  Moreover, his record of teaching law streteched back to the late 1940’s, when he was a young teacher at Peking University.

I was honored to join him in an interview on CCTV on globalization in IP.   If you go to 5:20 on this video, you will find Prof. Guo continuing his role as a passionate advocate for intellectual property, and countering the arguments advanced by CCTV that intellectual property is a barrier to the development of science and technology.

Even in his mid and late 80’s he was always active and contributing.  I have a copy of his translation of Mihaly FIcsor’s book on Law of Copyright and the Internet which he prepared in 2009 (1125 pp.).  He also continued to advise graduate students even in his later years.

On a personal level, I enjoyed the pleasure of Prof. Guo at a Passover seder at my house in 2007 when I was a diplomat based in Beijing.  I can’t imagine anyone more intellectually curious.

Guo Shoukang – scholar, gentleman, mentor and friend.  Rest in peace.

Dueling Software Data in the Spring and A Changing Tech Environment

夜来风雨声, 花落知多少? (At night the sound of wind and rain; Who knows how many flowers have fallen?; Poet Meng Haoran, 689-740, “Spring Dawn”)

cherryblossoms

It is almost April, which means it is not only time for cherry blossoms in Washington, but, as we approaching IP Week in China (April 26),  — dueling software data.

Here’s a digest of how China’s recently released data compares to BSA data.

According an article published in SIPO’s newspaper, which reported on a press conference on March 20,  New Progress in China’s  Promotion of Software Legalization, in 2014,  83% of Central and State organs promote their institutions have completed software legalization;   826,700 were procured, operating systems, Office, antivirus software, with a purchase amount of 461 million RMB. A total of 4,112 firms included in the annual software legalization work; 3,715 enterprises completed software legalization through inspection and acceptance.   The most critical datapoint: at the end of December 2014, new computer pre-installed genuine operating system software pre-installed rates continue to move up for 8 consecutive years, to a rate in 2013 at 98.42%.

The data from the Busines Software Alliance, released in the June 2014 BSA Global Software Survey, tells a different story. According to BSA, China has an unlinced PC software rate of 74%, with an unlicensed value of $8.767 billion. This reflected a decline from 82 percent in 2007.  The commercial value of unlicensed software dropped from 8.702 to 8.767 billion from 2011 to 2013.

The good news is that both sides appear to degree that software piracy is declining. The bad news is that the Chinese view the glass as nearly full.  BSA views the glass as more than 2/3 empty.

There may be any number of reasons for the differences in data, including sampling and analytical differences, but also including the type of software under consideration (package/embedded/cloud-based, commercial/non-commercial, etc.), and the impact of technological changes on these differences.   The migration to smart phone, tablet and cloud platforms and increasing competition may also be affecting package software sales.

In an apparently unrelated development, Microsoft announced March 18, 2015, that it is offering Windows 10 upgrades to both licensed and unlicensed users in China.   Microsoft said that its plan is to  “re-engage” with the hundreds of millions of users of Windows in China.  Microsoft is also working with Lenovo Group, to help roll out Windows 10 in China to current Windows users, and it also is offering Windows 10 through security company Qihoo 360 Technology Co and Tencent Holdings Ltd, China’s biggest social networking company.

Based on the press release one additional positive outcome of the plan may be that this free upgrade (or, indeed, legalization) is intended to help with adoption of Microsoft’s Windows Mobile platform,  which reportedly will provide a universal app platform across a range of devices including Microsoft’s mobile platform.

Service Inventions A Focus Point Once Again…

Although there is nothing under a year old when I looked today on SIPO’s s special service invention webpage, the topic of how much freedom employers have in determining how to reward their employee/inventors, has once again become a hot issue. Much of the discussion on this topic is being raised by the Ministry of Science and Technology, although SIPO reportedly is focusing on this issue as well.

Here’s an update on where we are:

At the US-China Innovation Dialogue in July 2014, the US and China agreed to the following language:

The United States and China resolved to protect the legal rights of inventors in accordance with their respective domestic laws and regulations, and in line with their domestic laws committed to respect the rules and policies developed by employers and/or legitimate contracts between employers and inventors concerning the awards and/or remuneration of inventors.

This language was essentially reaffirmed at the subsequent JCCT in December 2014:

The United States and China commit to protect the legal rights of inventors in respect of their inventions and creations, in accordance with their respective domestic laws and regulations, and in line with their domestic laws, commit to respect the legitimate rules and regulations developed by employers and legitimate contracts between employers and inventors concerning inventor remuneration and awards.

On March 2, 2015 the National People’s Congress also released a draft for public comment of The Law for Promoting Science and Technology Achievements (促进科技成果转化法修正案(草案)).  Here’s an unofficial translation of the changes that this draft makes to the old law.  This draft contains the following specific provisions on inventor compensation:

One article is added as Article 43: “After the commercialization of a service STA [Science and Technology Achievement], the STA completing entity shall give reward and remuneration to those who have made important contributions to the completion and commercialization of the STA.

The STA completing entity may prescribe or agree with its scientific and technological personnel on the form and amount of the reward and remuneration. When formulating the relevant regulations, the entity shall fully listen to the opinions of its scientific and technological personnel and make public the relevant regulations within the entity. ”

A revised Article 44 provides for default provisions for compensation, presumably if provisions are not established with technological personnel: “If the STA completing entity has not formulated such regulations or agreed on the form and amount of the reward and remuneration, the reward and remuneration shall be given to those who have made important contributions to the commercialization of the service STA according to the following criteria:

(1) If the service STA is transferred or licensed to others for implementation, no less than 20% shall be drawn out of the income from the STA so transferred or licensed;

(2) If the service STA is evaluated for investment, no less than 20% shall be drawn out of the shares or the proportion of contribution formed by the STA;

(3) If the entity implements the service STA by itself or in cooperation with others, no less than 5% shall be drawn out of the operating profits obtained from 3~5 consecutive years of implementation of the STA after its commercialization and successful start of production.

The criteria provided in the preceding paragraphs for the reward and remuneration given those who have made important contributions to the completion and commercialization of service STAs include the remuneration given to the inventors and designers of service inventions and creations that have received patent right in accordance with the Patent Law of the People’s Republic of China and the detailed rules for implementation thereof. …”

Although more general than the Service Invention Regulations that are under consideration by SIPO, this is a law that is more authoritative than a regulation. This law, along with agreed statements by the Minister of Science and Technology Wan Gang and OSTP Director Dr. John Holdren at the Innovation Dialogue could be read to show an inclination to favor contractual arrangements or corporate policies in establishing appropriate compensation for employee/inventors, although greater clarity concerning when such arrangements would be superseded by default provisions would be helpful.   Also of concern is that if more restrictive regulations are adopted in the Service Invention Regulations proposed by SIPO, they will be entitled to considerable deference as a subsequently adopted regulation which narrowly focuses on inventor compensation.  Moreover the regulations will be particularly important to SIPO itself in any enforcement or policy making it undertakes.

Another boost to regulating service inventions appears to have come from Premier Li Keqiang at  his March 5 speech at the recent 2015 “lianghui” – the meeting of the National People’s Congress and Chinese People’s Consultative Congress, where he stated that China should “enable innovative talents to share in achievements and profit, complete the transformation of science and technology achievements, and the service invention legal system” (使创新人才分享成果收益, 完善科技成果转化、职务发明法律制度).

Comments on the draft law are due by April 1.

As always, these are my personal opinions.