Webinars, Comments and An Encomium

The Webinars: There several useful webinars that are scheduled for this month.  On July 23, 2020 the USPTO will be hosting a webinar on using overlapping rights to protect your products (10:30 AM-12:30 EST).  China has many efficient and low cost means for protecting design and other rights, including design patents, 3D trademarks,  applied art (copyright), as well as relevant anti-unfair competition law and civil law provisions.  This is an important and useful topic.  On July 28, the World Intellectual Property Review and Wanhuida law firm are co-hosting a webinar on how to deal with bad faith trademark registrations on (4 PM British Summer Time),  a topic that is also dear to my heart.  Both webinars are free.

Berkeley’s China IP series is over for 2020 and we are now planning on 2021.  Recordings of all sessions will be made available to the public in 90 days.  If you have any suggestions on how to further develop this successful program, please write to me.

The Comments: The post-Phase 1/post-pandemic lockdown flurry in China of legislation has elicited comments from the public.  The copyright law comments in China alone elicited  51,165 comments and 167,196 legislative suggestions.  Prof. Andy Sun’s comments on the copyright law are found through this link (Chinese only).  The ABA has also commented to the USPTO on the judicial interpretations recently released for public comment, which may be found through this link.  Please send us any comments that you have prepared!

The Encomium:  July 1 was the 90th birthday of Prof. Jerome A. Cohen.  Jerry’s fans are legion, and I am also grateful for his support of my own efforts in academia.  Here is a recording of the opening webinar we did on April 22, 2020 at Berkeley on developments in Chinese law with Jerry Cohen,  Susan Finder and Sean Randolph.  I join Jerry’s many admirers in wishing him many more years of health, happiness and helping to make the world a better place.  Here is one encomium that was written by Jim McGregor.

New Draft JI on Enforcement on Criminal IP Laws, Especially Trade Secrets

China’s judicial organs (the Supreme People’s Court [“SPC”] and Supreme People’s Procuratorate [“SPP”]) continue to work on trade secret related judicial developments, with the release on June 17, 2020 of the “Interpretation on Several Issues Concerning the Specific Application of Law in Handling Criminal Cases of Infringement of Intellectual Property (3) (Draft for Comment)《关于办理侵犯知识产权刑事案件具体应用法律若干问题的解释(三)(征求意见稿)》.

This JI covers trademark, copyright, and trade secret-related crimes. Comments are due by August 2 2020 at the SPC (Third Civil or IP Division) and SPP. The focus on trade secrets is self-evident from this document.  The Chinese characters for “secret” 机密appear 36 times, trademarks 商标18 times, and a copyrighted “work”著作 8 times.

Among the major provisions that implicate trade secrets are: (a) clarification of how to satisfy criminal thresholds for trade secret enforcement, including use of illegal losses, gains and causing bankruptcy or major operational difficulties (Art. 4); how to calculate losses, including lost profits, lost sales, revenue and other benefits from the misappropriated trade secret (Art. 5); calculating the proportional value of a trade secret in combination with another  product or technology (Art. 6); use of research and development costs if the secret is lost to satisfy criminal thresholds (Art. 7); other compensatory remedial expenses (Art. 8); sanctions for violating protective orders (Art. 9); increases in penalties for entities that are mainly engaged in IP infringement or in the case of “infringement of commercial secrets for foreign institutions, organizations and personnel” (Art. 10, see my earlier blog); a reduction of penalty when the trade secret is disclosed to obtain an IP right, such as a patent, and the right is vested in the trade secret owner (Art. 11); and prohibition against engaging in certain occupations may be imposed for a period of time as a condition of a sentence (Art. 12).

Comment: trade secrets have often proven to be the subject of intense trade pressure.  However, the pressure is often not persistent, and the issues may therefore also receive inconsistent attention over long periods of time.  Recent trade pressure has contributed to such laudable developments as the revised trade secret law (AUCL), the Phase 1 Trade Agreement, the recent increase in legislative and policy work from the courts on trade secrets including work on JI’s and recent plans by SAMR to revise trade secret related rules.

If you are interested in learning more about how inconsistent trade pressure may have prolonged consideration of trade secret issues such as the definition of a “business operator”, limitations of protection to Chinese “citizens”, the availability of preliminary injunctions, and concerns over requiring “practical applicability” for trade secret protection for as long as 25 years, here is a pdf of a presentation that I gave last week at a Berkeley webinar.

July 4 update: Here is a translation of the draft JI.

July 20 update: Here are the comments of the American Bar Association’s Section on Intellectual Property Law and International Law on the six recent JI’s involving IP, including this JI, and others previously blogged about: Judicial Interpretation on Certain Issues Concerning the Application of Law in the Trial of Civil Cases Involving the Misappropriation of Trade Secrets (comments due July 27); Official SPC Reply on the Application of Law in Network-Related Intellectual Property Infringement Disputes (comments due July 27); Guiding Opinions on Hearing Intellectual Property Disputes; Involving E-Commerce Platforms (comments due July 27); Certain Provisions on Evidence in Civil IP Litigation (comments due July 31); Opinions on Increasing Punishment for Intellectual Property Infringement (comments due July 31); Judicial Interpretation Concerning Some Issues on the Specific Application of Law for Handling Criminal Cases of Infringement upon Intellectual Property Rights (comments due August 2).

Updated: June 30, 2020, July 4, 2020, July 20, 2020.

 

Comments on Draft Guidelines on Disgorgement and Fines in AML Matters

Attached are comments of the ABA Sections of Antitrust and International Law  (ABA) and the George Mason University Global Antitrust Institute (GAI) on the draft guidelines of the National Development and Reform Commission on Disgorgement and Fines in Antimonopoly Law matters. The ABA comments are bilingual and have the complete text of the draft guidelines included in the package that is being made available here.  The guidelines were published for public consultation on June 17, 2016.

The two sets of comments offer two slightly nuanced approaches in their understanding of the final drafting responsibilities for these guidelines.  The ABA comments are nominally  directed to the Antimonopoly Commission of the State Council, while the GAI’s Comments are more directed to the National Development and Reform Commission which released this draft for eventual adoption by the Antimonopoly Commission.  The relationship between these drafts and an official adoption by the AMC is not clear to me, as the NDRC announcement of the draft states that the drafting of the guidelines are in the work plan of the Antimonopoly Commission, and that NDRC undertook the research and drafting (根据国务院反垄断委员会的工作计划,我们研究起草了《关于认定经营者垄断行为违法所得和确定罚款的指南》(征求意见稿),现面向社会公开征求意见.). It does not explicitly say that this research and  drafting was undertaken on behalf of the AMC.  Moreover, comments are to be delivered to the Pricing Bureau of NDRC, not the NDRC itself, which may suggest that this is indeed a research project (发送到国家发展改革委(价监局).  It is my view that considering the continuing battle of drafting responsibility by Antimonopoly enforcement agencies + SIPO,  in the IP Abuse guidelines, which the State Council has recently said is the responsibility of these four agencies and the State Council Legislative Affairs Office, final drafting  responsibility for an interagency antimonopoly law guideline may not be easily assumed at this time.  If others in the antitrust community have more specific information, I welcome them posting it here.

Regardless of which agency is the lead, the sharing of drafts with this website and others helps to increase our understanding of the overall process through sharing of different commenters’ positions, for which I am grateful.  I hope that over time Chinese agencies will also make all non-confidential comments publicly available.

GAI’s recommendations include that the Draft Guidelines be revised to limit the application of disgorgement (or the confiscating of illegal gain) and punitive fines to matters in which: (1) the antitrust violation is clear (i.e., if measured at the time the conduct is undertaken, and based on existing laws, rules, and regulations, a reasonable party should expect that the conduct at issue would likely be found to be illegal) and without any plausible efficiency justifications; (2) it is feasible to articulate and calculate the harm caused by the violation; (3) the measure of harm calculated is the basis for any fines or penalties imposed; and (4) there are no alternative remedies that would adequately deter future violations of the law.  In the alternative, and at the very least, the NDRC should expand the circumstances under which the Anti-Monopoly Enforcement Agencies (AMEAs) will not seek punitive sanctions such as disgorgement or fines to include two conduct categories that are widely recognized as having efficiency justifications: unilateral conduct such as refusals to deal and discriminatory dealing and vertical restraints such as exclusive dealing, tying and bundling, and resale price maintenance.

GAI also urges the NDRC to clarify how the total penalty, including disgorgement and fines, relate to the specific harm at issue and the theoretical optimal penalty.  According to GAI, economic analysis should determine the total optimal penalties, which includes any disgorgement and fines.  When fines are calculated consistent with the optimal penalty framework, disgorgement should be a component of the total fine as opposed to an additional penalty on top of an optimal fine.  If disgorgement is an additional penalty, then any fines should be reduced relative to the optimal penalty.

Finally, GAI recommends that the Anti-Monopoly Enforcement Agencies (AMEAs) rely on economic analysis to determine the harm caused by any violation.  When using proxies for the harm caused by the violation, such as using the illegal gains from the violations as the basis for fines or disgorgement, such calculations should be limited to those costs and revenues that are directly attributable to a clear violation.  This should be done in order to ensure that the resulting fines or disgorgement track the harms caused by the violation.  To that end, GAI recommends that the Draft Guidelines explicitly state that the AMEAs will use economic analysis to determine the but-for world, and will rely wherever possible on relevant market data.  When the calculation of illegal gain is unclear due to lack of relevant information, GAI strongly recommends that the AMEAs refrain from seeking disgorgement.

These comments are broader than IP-related antitrust.  One common theme they share with IP damage issues is the low utilization of economic calculations to determine damages, and unclear sensibility of when damages are adequate, deterrent or punitive.

The comments also do not address the relationship, if any, between low IP damages and high antitrust damages for IP abuse, except in the broadest sense that excessive damages may create over deterrence.  The Chinese government and academics are also increasingly focused on the problem of low IP damages, including possibilities of providing for punitive damages and higher compensatory damages,  the availability of discovery for damage calculations, such as in the trademark law and with experiments in increasing statutory damages or relying on alternative calculations such as actual or implied royalties such as occurred last year in Jiangsu (See 江苏固丰管桩集团有限公司诉宿迁华顺建筑预制构件有限公司侵害发明)专利权纠纷一案[(2015)苏知民终字第00038]), where an implied royalty was used for perhaps the first time in a patent case. The issue is also actively being discussed by academics. See, e.g., 刘自钦 , 著作权惩罚性赔偿制度在中国大陆的具体运用, Macau Law Review, No. 10, at p. 123 (Liu Zichen, Substantial Application of the Punitive Compensation System for Copyright in Chinese Mainland – Based on American Experience and the Chinese Reality).

­The current reality is that IP damages remain too low and non-deterrent.  To me this suggests a possible issue of disproportionality between IP protection and antitrust enforcement for IP abuse, or as I have often said one cannot have IP ‘abuse’ without having IP ‘use.’   On June 7, 2016 I had the pleasure in my official capacity of testifying before the House Judiciary Committee, where I discussed the issue of the large disparity between high antitrust damages and low patent infringement damages.   My testimony is also on the PTO website.  I recently calculated that the current ratio of average patent damages as determined on the www.ciela.cn database and the Qualcomm damage imposed by NDRC is about 50,000 to 1 (18,000 USD to 975 million USD); it is only somewhat lower if other databases are used.  As I noted in my testimony, antitrust damages and patent damages address different issues and thus may not always be directly comparable.  However, if the ratio is wildly disproportionate the ecosystem for innovation and technology transfer could erode.  Many companies already do not want to transfer technology to China, for fear that their IP will not be adequately protected.  As I have noted, the data already suggests that China is an under-licensed market.  Some companies may also now be avoiding China because damages are too low and/or antitrust risks are too high.  If antitrust damages become be too high in relationship to the actual value of a patent, incentives to disclose patentable inventions may erode – which itself may erode competition in the long run.  Moreover, China will suffer as it may not be able to obtain leading-edge technology.  I personally believe that antitrust and IP damages should not be wildly disproportionate, which should be another factor in antitrust damages, IP damages and in China’s efforts to become an IP “strong country.”

This blog remains my academic, personal and non-official observations and should not be construed as the opinion of the US government, or any former client or third party or even any academic institution with which I am affiliated.  Corrects and comments in English or Chinese are most welcome!

 

 

 

 

GAI and ABA Publish Their AUCL Comments

Attached are the comments of the American Bar Association Sections on International Law and Antitrust Law  on the proposed draft revisions of the Anti-Unfair Competition Law (AUCL)  as well as comments of the Global Antitrust Institute of George Mason University.

The ABA’s comments are comprehensive – addressing IP issues (including trade secret and trade dress), advertising law, competition law issues and commercial bribery.  GAI’s  comments are focused on the interface between the AUCL and the Antimonopoly Law.

Regarding the overlap with the AML, the GAI advocates that “any provisions in the AUCL that relate to conduct covered by traditional antitrust laws, or conduct covered by China’s Anti-Monopoly Law, be either omitted entirely or revised to limit liability to situations when there is substantial evidence of harm to competition.  … The AUCL should be implemented in a manner consistent with these objectives of competition policy.”  The same argument might be applied to other laws in China, such as Section 329 of the contract law, which deals with monopolization of technology.   In fact, China has a long history of industrial policy regulation of competition, much of which was enacted prior to China’s antimonopoly law.

Neither set of comments fully addresses a core concern of the proponents of this draft,  “that the administrative law enforcement is dispersed, that law enforcement standard is not unified, that the legal responsibility system is not perfect, and that the punishment is too lenient.”  Prior experience of administrative trade secret enforcement of the AUCL has shown that foreigners have not been a significant beneficiary, despite high level political attention paid to increased trade secret protection.   In the trademark context, SAIC’s foreign-related docket is several multiples of all foreign-related civil IP cases.  Increased administrative enforcement authorities raise several complicated concerns:  will these authorities be used fairly on behalf of Chinese and foreigners alike,  will trade secrets be protected by administrative agencies, are the courts better situated to adjudicate the various divergent issues,  what priority will AUCL enforcement assume in SAIC’s vast bureaucracy,  how will these expanded authorities be coordinated with criminal law enforcement and the courts, etc.

Update of March 16, 2017:  Attached are the  Comments of the American Intellectual Property Law Association.