On Avoiding “Rounding Up the Usual Suspects” In the Patent Law Amendments …

 

Although many of the proposed changes in China’s patent law amendments are welcome, the draft amendments also present a difficult  choice in two key areas: (a) patent administrative enforcement and (b) punitive civil damages.

(A)The draft, if enacted, would enhance patent administrative enforcement through national coordination of large cases (Art. 70), expanding authority of administrative enforcement for infringement (Art. 69), and enhanced fines of five times illegal earnings or up to 250,000 RMB (Art. 68).  These efforts should be seen against the background of a huge ramp up in administrative enforcement in patents,  that has now eclipsed administrative enforcement of trademarks (77,000 to 31,000 cases).    Moreover, there appears to be a continuing interest of the Chinese government in special campaigns to deal with patent infringement, such as in a recently announced MOU with NDRC, and in a proposed campaign to deal with infringement issues faced by foreigners at the beginning of the current 301 investigation.

How much will these efforts help foriegn business people? The record on special campaigns is that most improvements are short-lived and perhaps focus too much on “rounding up the usual suspects” by local enforcement agencies (Casablanca).  Enhancements in administrative patent enforcement are also an about-face from the prior dominant role that trademarks played in administrative IP enforcement and the relatively minor role that patent administrative enforcement traditionally played in China.  Also of concern is that administrative trademark enforcement had uniquely been frequently utilized by foreign entities as complainants/victims.  For example, there were 17,022 administrative trademark enforcement actions taken by SAIC on behalf of foreigners in 2011.  This was nearly 14 times the number of all foreign-related civil litigation involving all types of IP rights that were disposed of by the China courts in that year (1,321).    In addition, as the Apple design patent case demonstrated in Beijing, foreigners may easily end up on the defensive side in these administrative patent cases that are typically brought by local government officials.    It is therefore uncertain how much, if at all, enhanced administrative patent enforcement will benefit foreigners.

(B)  The proposed draft would also provide for punitive damages upon a judicial finding of  willful patent infringement (Art. 72), with a maximum of 5x damages.  To many this may appear to be a welcome improvement. Punishing willful IP infringement is currently a policy that both the US and Chinese leaders share.  On the US side, the term IP “theft” appears 119 times in the Section 301 Report, while civil damages and compensation appear hardly at all.  On April 9, 2018, President Trump tweeted that he is “Defiant” and that he “Will End …Massive I.P. Theft” by China. Premier Li Keqiang apparently shares some of this enthusiasm.  He had noted in his annual report on the work of the government, that China needs to “improve IP protection, and implement a system for punitive damages against infringement “加强知识产权保护,实行侵权惩罚性赔偿制度” .

While punishment is an important tool, the more pervasive problem is that basic civil remedies are too weak.  Actual damages are in fact rarely imposed by Chinese courts and, have been the outlier.  Courts impose statutory damages in over 90% of all patent cases as well as in other IP areas.  In the Beijing IP Court median damages awarded for patent infringement in 2016 were only 112,500 RMB, or less than 20,000 USD. Rather than unduly emphasizing punishment, a better structural place to start is in improving the civil system to achieve maximum compensatory deterrence.

Intellectual property is fundamentally a private right (TRIPS Agreement, preface), and adequate civil remedies should therefore be the priority.  Using remedies that are not at the core of a healthy IP system based on private rights (administrative remedies/punitive damages)  are not a substitute for predictable, compensatory private remedies. In fact, the administrative system affords no private compensation to victims.  Punitive and administrative remedies are also often left to the discretion of the enforcement agencies, which can result in unpredictable enforcement.  In 2017 for example, despite the pressure on China to address trade secret theft, criminal cases declined by 35%.

By focusing on deterrent civil remedies that are fairly administered, the US will find common cause with many Chinese officials.  The issue was addressed  by Justice Tao Kaiyuan of the Supreme People’s Court  who similarly believes that the civil patent system is the primary enforcement mechanism for private patent rightsJustice Luo Dongchuan, who is now in charge of China’s new appellate IP circuit court, also underscored the importance of the IP courts in advancing rule of law in a visit to the US.  In an article I wrote,  with former PTO Director David Kappos and Chief Judge  Rader (ret), we also underscored that China’s administrative system is fundamentally unlike the judicial mechanisms of the USITC, and that better recourse to improved patent enforcement can be had with the courts.

Moreover, these punitive and quasi-legal remedies could easily be turned against the foreign community.  Consider, for example, that due process for foreigners has been a long-standing concern  in Chinese IP matters, well before the current concerns over retaliation over the proposed extradition of Huawei’s CFO.  Moreover, several cases have demonstrated that   foreigners are often the test cases for “improved” enforcement mechanisms in IP, such as in Chint v. Schneider (high patent damages), Iwncomm v Sony (injunctive relief in a SEP case), AMEC v Veeco (preliminary injunctions in patent infringement matters), antitrust cases involving licensing  and even the first publicized criminal copyright case, in which the principal defendants were two Americans (Guthrie and Cody).

I believe that China needs to focus its patent enforcement resources on the courts, and especially to give the new national appellate IP court a try in providing balanced and fair enforcement of IP rights, both foreign and domestic.  Both the US and China might try to focus more on much delayed and long overdue improvements in the civil system, some of whic are contemplated by the patent law amendments.  A rhetoric based too much around punishment may in the end prove to be self-defeating in the absence of necessary legal guarantees such as improvements in awarding compensatory damages, greater procedural due process, and improved transparency in the courts and administrative agencies.

shenzhenstrictlyprotectip

Bottom photo of the author in front of a Nanshan District Shenzhen IP Office sign “Create the Most Strict IP Protection Pioneering District” (Jan. 2019).  The opinions expressed in this blog are the author’s own.  Please address any corrections or improvements to: chinaipr@yahoo.com

 

 

A Data Download on Semiconductor Patent Litigation in China

Because of its strategic importance to both the United States and China, the IC sector is a useful example of how Chinese policies and plans may – or may not – be influencing the Chinese government in the protection of foreign-owned IP.

A useful starting point for evaluating the challenges in IC IP protection in China is the data collected from China’s court cases.  IP House has conducted a heretofore unpublished and useful study of all semiconductor-related patent disputes in its database, attached here (in Chinese).  The data shows that there have been 166 first instance civil patent infringements IP judgments with the word “chip” (芯片), and 86 second instance cases.    There have also been 142 first instance administrative decisions, typically involving validity matters, and ninety second instance decisions. 52.91% of the first instance cases involved invention patents, 10.31% involved utility model patents and 36.77% involved design patents.

Regarding civil cases, 39 were heard in Zhejiang, 35 in Guangdong, 27 in Beijing, 21 in Jiangsu and 11 in Shanghai.  Every other jurisdiction had fewer than five cases, and no cases were reported for Fujian Province.

The data suggest a comparatively low “success” rate for plaintiffs in semiconductor patent disputes.   Amongst the 183 reported judgments, only 51 cases were fully or partially successful — a 38.34% success rate.  This compared to an overall success rate of about 80% for litigants in patent cases in 2014 in China, as reported by Bian Renjun at Berkeley. Cases were not reversed to a significant degree on appeal; 60 out of 70 cases supported the original decision of the first instance court.  Amongst the “top 10 “ courts in terms of litigation volume, the success rate for semiconductor patent plaintiffs varied dramatically.   Guangdong had the highest success rate (60%), followed by Beijing (43.75%), Zhejiang (23.08%) and Jiangsu (19.05%).  76 of 77 successful litigants obtained an injunction to stop infringement; one litigant did not request an injunction.

Regarding administrative reviews, 117 out of 140 cases involved affirming the original administrative decision, an “affirmance rate” of 83.57 percent.  Eighty one out of ninety cases were affirmed on appeal.

The United States was the principal foreign civil litigant, with seven cases, followed by the British Virgin Islands and the Netherlands, each with two cases.  The United States was the principal first instance administrative plaintiff challenging SIPO’s decisions, with 30 cases, followed by Japan (5), Netherlands (3) and several countries with only one civil case (France, Germany, Cayman Islands, Korea,   Singapore and Israel).

I draw the following tentative conclusions from this data:

  1. Success rates for semiconductor cases vary dramatically by jurisdiction in China. My guess is that the Guangdong courts, which have the highest success rates, have greater expertise in both semiconductor patent litigation and patent litigation overall, which may make them more “expert” on these matters. Due to variations in success rates amongst jurisdictions, the semiconductor sector is a useful example of why China needs a national appellate IP court.
  2. No matter what major court one looks to, success rates for these cases are lower than the average for other types of patent litigation. This may suggest either a lack of familiarity with the technology or an unduly skeptical view of the courts regarding semiconductor patent assertions at this time. Considering that the vast majority of the cases do not involve foreigners, the low success rate primarily affects Chinese litigants.
  3. Foreigners, and especially Americans, use the courts primarily to litigate patent validity matters. There were 4.5 times more administrative semiconductor patent cases brought by Americans compared to infringement cases. Overall foreigners brought four times more validity cases compared to infringement cases in this area.  This means that the Beijing IP Court, which hears all validity disputes, plays a key role for foreigners on semiconductor patent matters.  Semiconductor patent cases also follow the general pattern where foreigners are disproportionately willing to challenge SIPO in court, but are less willing to bring infringement cases to final adjudication.
  4. Utility model and design patents are frequently asserted in patent disputes in China and may have value to foreign companies needing to protect their IP in this important market.
  5. The Fujian courts do not appear in this IP House report. However, Fujian has already heard one high profile case (AMEC v Veeco), which was settled and does not appear to be publicly available at this time. The second high profile case, involves Micron Technologies, and is currently on-going.

I hope to blog further about the AMEC cases in the United States and China in a subsequent posting.

 

Reviewing the 2017 SPC Report on IPR Judicial Protection: The Generalities and the Exceptions

There have been a number of empirical reports in recent weeks on China’s IP system. In this blog, I look at the annual Supreme People’s Court 2017 Report on the Situation Regarding Judicial Enforcement of IPR in China  (中国法院知识产权司法保护状况) which was released during IP week (the “Report”).

According to the Report, 2017 saw a major increase in IP litigation in China.  There were a total of 237,242 cases filed and 225,678 cases concluded, with an increase of 33.50% and 31.43%, respectively, compared to 2016.

First instance cases increased by 47.24% to 201,039.  Patent cases increased 29.56% to 16,010.  Other increases were in trademarks (37,946 cases/39.58%); copyright (137,267/57.80%); competition-related cases (including civil antitrust cases of 114) (2,543/11.24%).  Two counter-cyclical numbers stand out:  technology contract cases dropped by 12.62% to 2,098, and second instance cases increased by only 4.92% or 21,818 cases. Note that disaggregated numbers for civil trade secret cases are not disclosed in the Report, but are presumably included under “competition” cases.

Comparing dockets with the United States, in 2017 United States courts heard 4,057 cases patent cases, 3,781 trademark cases, and 1,019 copyright cases, according to Lex Machina.  The biggest margin of difference between the US and China was clearly in copyright cases.  Chinese courts heard 134.7 times more cases than the United States. However, Chinese copyright cases are less likely to be consolidated amongst different titles, claims or causes of actions, which can inflate the statistics  — although I doubt to a 100 or more fold level.

Administrative cases, the majority of which are constituted by appeals from the patent and trademark offices, showed an overall increase while patent validity cases decreased.  Administrative patent appeals dropped 22.35% to 872 cases, while administrative trademark cases increased to 7,931 cases, or by about 32.40%.  The drop in administrative patent cases is particularly notable in light of the increased activity in patent prosecution and patent licensing.  By comparison the numbers of Inter Partes Reviews undertaken by the USPTO during 2017, according to Lex Machina, were 1,723, in addition to 9 cases involving covered business method patents.

The SPC did not offer disaggregated reversal rates of the PRB and TRAB in its data; combined patent and trademark cases included 964 cases involved  affirming the administrative agency decisions; 150 involving a change in the administrative decision; 5 cases involved a remand for further review; and 24 cases were withdrawn.

Criminal IP cases have also continued to decline.  There were 3,621 first instance criminal IP cases in 2017, a decline of 4.69%.  Among those 3,425 involved trademarks (-3.93%) and 169 involved copyrights (-13.33%).  There was also a decline of 35% in adjudication of criminal trade secret cases to only 26 cases.  The decline in criminal cases since 2012 (when cases totaled over 13,000) especially in copyrights and trade secrets is odd as Chinese leadership has in fact recognized the need for deterrent civil damages, including punitive damages and criminal trade secret remedies.

The five provinces that receive the most IP cases continued to grow in influence. Beijing, Shanghai, Jiangsu, Zhejiang and Guangdong saw an aggregate increase of 56.63% in IP cases, to 167,613 and now constitute 70.65% of all IP cases filed in China (p. 6).  Guangdong alone saw an increase of 84.7% to 58,000 cases and Beijing trailed behind at 25,932 cases with an increase of 49.2 percent.  Other less popular destinations also saw dramatic increases.  Jilin province had an increase of 210 percent, while Hunan and Fujian each saw increases of 73.8% and 73.14%.

Settlement and case withdrawal rates also changed in 2017.  Shanghai had the highest reported rate of the big five at 76.31%, while the inland province of Ningxia had an overall rate of 88.46%, including a 100 percent rate where litigants accepted judgments without appealing  服判息诉 (!).

The SPC also reported supporting 11 cross-district IP tribunals in Nanjing, Suzhou, Wuhan, Chengdu, Hangzhou, Ningbo, Hefei, Fuzhou, Jinan, Qingdao and Shenzhen.  In addition, 10 provinces or autonomous cities established a system of combining civil, criminal and administrative jurisdiction over IP cases in their IP tribunals in the first half of 2017.  As noted however, despite this change in judicial structure, there was a decline in criminal enforcement and in some administrative appeals in 2017 overall (p.11).

The Report also notes that the SPC is actively supporting research on establishing a national specialized appellate IP Court (p. 10).   The SPC also actively participated in the providing comments on other draft laws, and devoted some effort to the revisions of the Anti-Unfair Competition law, including meeting three times with the legal affairs committee of the NPC, as well as numerous phone calls   According to the Report, the “majority of the opinions proposed were adopted into law” which leaves the question of what was not adopted.  One possibility may be the removal of a specific provision treating employees as “undertakings” under the revised AUCL.  In fact, I have heard that some NPC legislators are continuing to push for a stand-alone trade secret to further improve upon the revised AUCL.

The Report also points to several research projects undertaken by provincial courts.  Amongst those of interest are: a research project on disclosure of trade secret information in litigation in Jiangsu; a report on using market guidance for damages compensation of Guangdong Province; a report on standards essential patents in Hubei; and a research project of the Beijing IP Court on judicial protection of IP in international competition.

Regarding transparency, the Report notes that the SPC has published all of its cases on the Internet, however similar data is not provided for other sub-SPC courts (p. 16).

In international affairs, the Report notes that the SPC has participated in the discussions on the proposed treaty on recognition and enforcement of foreign civil judgments (p. 17), in the China-European IP dialogue, and has sent people to the annual meeting of INTA, amongst other activities.  No mention is made of US government engagements (p. 17).  This omission may be due to current political sensitivities.  Nonetheless, due to the increasing number of cross-border disputes and the need for better understanding of both our judicial systems, I believe judicial engagement with Chinese courts would continue to be a fruitful enterprise.  Indeed, Berkeley hopes to host a program on cross-border IP litigation with Tsinghua University Law School later this year.

Finally, while we are on the subject of the courts, I commend Susan Finder’s recent blog on how to translate court terminology.   I hope I have not departed too far here from her excellent suggestions!

Supreme People’s Court Releases New Patent JI For Public Comment

On June 1, the SPC released a new draft judicial interpretation on patent validity litigation for public comment (最高人民法院关于审理专利授权确权行政案件若干问题的规定(一)[公开征求意见稿]).  Comments are due within a month.  The Chinese draft is found here.  Here is a translation provided by the Anjie law firm.

The draft should be of interest to foreign companies, who frequently challenge final decisions of the Patent Review Board at the Beijing IP Court. According to data published by the Beijing IP court, in 2013, nearly 35% of the administrative patent cases involved foreigners.   According to the SPC’s report on IP litigation for last year (to be further discussed in a future blog) there were 872 such adminsitrative patent cases in 2017,a decline fo 22.35% from the prior year.

One provision directly addresses post-filing supplementation of data in chemical patents.  The draft seems to suggest that post filing experimental data will be accepted when there is an different technical effect for review that is  “directly and unambiguously” disclosed in the application.  On first read, this seems to be a narrower view than the revised patent examination guidelines which look to whether the data can be obtained from the original application (补交实验数据所证明的技术效果应当是所属技术领域的技术人员能够从专利申请公开的内容中得到的).   Western pharmaceutial companies reportedly still are having difficulties having post-filing data accepted by SIPO and the courts, despite several years of engagement on this issue.  Here is the relevant paragraph fromt the proposed JI:

datasupplementation If Please send me any comments on this provision or – even better – if any organizations or companies want to share your formal comments on the JI, I would be happy to post them here.  (rev. 6/21/2018 to include link to translation)

The Widening Impact of China’s Publication of IP Cases

I recently had the opportunity at the Fordham IP Conference to discuss the potential impact of the continuing publication of court decisions by China’s courts since 2014, including their wide-ranging impact on legal research, China IP strategies, and trade.  China’s publication of court cases has had a dramatic impact on political science, legal research and IP strategy.  Here is an extended version of my presentation:

A good starting point for understanding these developments is the important paper of Profs. Benjamin Liebman, Margaret Roberts, Rachel Stern, and Alice Wang on the China Judgements Online Database (CJO) entitled Mass Digitization of Chinese Court Decisions: How to Use Text as Data in the Field of Chinese Law (June 13, 2017) (21st Century China Center Research Paper No. 2017-01; Columbia Public Law Research Paper No. 14-55).  This team looked at 20,321 land use administrative court judgments in Henan Province. The authors critical approach to CJO is summarized below:

First, it is critical to take missing cases into account, rather than succumbing to the temptation to treat even a very large sample as an accurate reflection of reality. … Second, viewing millions of court decisions provides an unparalleled wide-angle perspective on courts’ daily activity, and exposes underlying patterns… Scholars must remember that court judgments provide only one, often limited, view of actual practice. Third, a migration toward treating text as data in the field of Chinese law will require a multi-method approach that combines expertise and insights from law, the social sciences, and computer science.

Their article also discusses motivations for transparency (including reducing corruption), and motivations for individual courts to disclose cases. They note as well that an “incentive bias” now exists which includes making judicial decisions available at the end of the calendar quarter before court evaluations (p. 16).

Moving from the use of the CJO to look at legal issues generally to IP, an important recent study on foreign participation in China’s IP system has also recently been-published by Berkeley JSD Candidate Bian Renjun. Her provocatively-entitled articleMany Things You Know About Patent Infringement in China are Wrong  is scheduled to appear in the Berkeley Technology Law Journal. Ms. Bian uses CJO to analyze 1,663 patent infringement judgments decided by local courts in 2014. Her research provides a much-need supplement to the scholarship of Brian Love, Xuan Thao Nguyen, as well as this blog, about foreign “win” rates in the Chinese courts.

Ms. Bian observes that foreigners asserting invention patents are not underrepresented in the courts. The proportion of invention patents granted by SIPO to foreigners was roughly equivalent to the proportion of foreign invention patent cases decided to overall invention patent cases in court (7.16%/6.92%). The gross number of decisions however was only 115 cases. During that year foreign win rates were higher compared to domestic litigants (84.35%/79.84%), as were injunction rates (92.78%/90.05%) and damages (201,620.45 RMB/66,217.93 RMB).  In sum, Ms. Bian provides a more compelling narrative of the probability that foreigners win in patent litigation in China than predecessors such as Brian Love. However, she does not address how to consider issues involving validity in overall success rates, as has been attempted by such databases as Darts IP, nor does she include metrics to assess any differences in the quality of the patents being asserted, for which additional research would be required.

The third article to look at judicial practices in IP, including the IP databases is Max Goldberg’s promising paper Enclave of Ingenuity: The Plan and Promise of the Beijing Intellectual Property Court (May 2017). Mr. Goldberg is a 2017 graduate of Yale College. His paper won an award as the best student paper in East Asian Studies during the year he graduated.

Mr. Goldberg draws from the work of Martin Dimitrov in suggesting that China’s administrative enforcement system is more politically reactive and less independent. He shares the view of this author and others that the Guiding Cases System of the Supreme People’s Court has had limited uptake by the courts, while the precedent system of the Beijing IP court (BJIPC) appears to have been more widely adopted by judges and practitioners of that court in part due to the releative ease of introducing this system into one highly trained court in an affluent city. Mr. Goldberg offers a reply to the concerns of Benjamin Liebman et al. over the large number of “missingness’” in court cases, by noting that while “the phenomenon of sensitive cases’ omission from government databases in China is well documented, lapses of this size are “much more likely the result of a lack of attention and resources than deliberate censorship.” He bases this part on the more comprehensive reporting rate of IP House at 94.25% based on the docketed numbers of cases at the BJIPC, while CJO had only about 50% of the cases from the same period in 2015.

Mr. Goldberg also focuses on specific judicial policy developments, many of which have been little noticed in the West. For example, he notes that “BJIPC opinions are 40-50% shorter than the decisions of more traditional IP tribunals, despite the fact that the BJIPC jurisdiction specifically includes the most technical cases.” He also notes that the court is also interested in soliciting the opinions of third parties, in a manner akin to an amicus brief. Amicus briefs have been advocated for some time by the US-China IP Cooperation Dialogue, with some important experiments, of which this author is a member. Mr. Goldberg also notes that the Beijing IP Court permits dissenting opinions and that the courts have held open “adjudication committee” meetings, which is an important new innovation. Finally, he notes, that the courts are more actively engaged in use of precedent. The court also had an administrative decision revocation rate of administrative decisions of 17% and a withdrawal rate (where complainant withdraws a case before final decision) of only 7%, which suggests the court is acting to reverse administrative decisions and that litigants have enough confidence in the court that they are willing to pursue cases to their final determination.   Many of these innovations were described in an IP House report previously discussed on this blog, but Mr. Goldberg adds a useful gloss to these developments.

Mr. Goldberg’s article is another important indicator of how China is “crossing the rule of law river by feeling the IP stones.”  Importantly, Mr. Goldberg focuses less on whether foreigners’ win and more on whether procedures compatible with an advanced legal system are being put in place.

Adela Hurtado, one of my former students at Fordham law School has also recently written a useful note in the Fordham Intellectual Property Law Journal that, like Mr. Goldberg’s article, looks at the use of judicial and administrative remedies, including criminal procedures, in addressing rampant infringement. Ms. Hurtado believes that reactive, politically motivated administrative enforcement brings few sustainable results. In her view, foreign companies should consider using the civil system, with its relatively high win rates (as reflected in the new databases) and look to models of successful law enforcement campaigns in the United States which provide for more interagency coordination and sustained efforts to address specific problems. She uses data drawn from Walt Disney’s use of civil and administrative campaigns, comparing Disney’s actions in China with its use of civil remedies in the United States to suggest that Chinese IP enforcement campaigns by Disney should similarly return to greater reliance on civil remedies. Ms. Hurtado may be the first author to look at company specific behavior in different markets by using both Chinese and US databases and thereby highlights another future area of inquiry.

There have been several other efforts that look to China’s legal databases as analytical and research tools. Among other recent scholarship, Susan Finder has also recently written an excellent article on the evolving system of precedent in China in the Tsinghua China Law Review. For those individuals and scholars craving analytics, IP House has also begun publishing important analytic studies on trends in the courts. Topics covered include patent and health, motion picture and television industry and analyses of the decisions of the Beijing IP Court.  Another important application of China’s new databases is in development of course materials on China’s IP system.  In this respect, Profs. Merges and Seagull Song’s forthcoming book on Transnational Intellectual Property Law Text and Cases  (April 2018), comparing US, Chinese and European cases in the full range of IP law with a view towards their importance in developing global strategies, is also a promising step towards incorporating Chinese jurisprudence into the global discussions of IP issues.

China’s decisions to make cases more widely available  also has important consequences for trade-related discussions on IP. Approximately 13 years ago, a TRIPS “Article 63.3” transparency request was made by the United States, Japan and Switzerland at the WTO of China. This request demanded “clarifications regarding specific cases of IPR enforcement that China has identified for years 2001 through 2004, and other relevant cases.” The US delegation, of which I was a part, requested the cases to better analyze developments in China’s IP environment since WTO accession and to prepare for a forthcoming dispute. China refused to produce these cases either in the response to the request or during the dispute.  During the ensuring IP enforcement dispute (DS/362), the WTO itself refused to demand that China produce cases relevant to the outcomes of two claims – one involving copyright, and the other involving criminal thresholds. Indeed, rather than make an adverse inference from China’s unwillingness to produce cases, the WTO panel found that the United States failed to make out a prima facie case with respect to a claim that Chinese criminal thresholds failed to satisfy WTO requirements.

With the benefit of hindsight, one could argue that the WTO established a lower standard in DS/362 for analytical research on Chinese case law than China has since established. Additionally, DS/362 may also stand for the proposition that certain cases may be ahead of their time, particularly in light of China’s own commitments to innovation and development of its IP system.  But that is a topic for another blog….

 

Beijing IP Court Rules on Copyright Protection for Sports Broadcasts

jordan

According to a recent posting on the Weixin account of IPHouse (结案信息 ┃ 北京知识产权法院审结涉及体育赛事节目的两起著作权侵权纠纷案, March 30, 2018), the Beijing IP Court has now decided the second instance appeals of two cases involving online piracy of sports broadcasts, an issue that is important to the development of China’s professional sports, as well as Olympic broadcasters and foreign leagues with large Chinese audiences, such as the National Basketball Association.

Most Chinese academics have been in agreement that live broadcasts (including webcasts) of professional sports broadcasts need to have some form of IP-related protection, whether under the Anti-unfair Competition Law, as a subject of the Copyright Law, or as a form of “neighboring rights” under China’s Europe-inspired copyright system.   During the 2008 Beijing Olympics, the broadcasts of the Olympic games also enjoyed a form of sui generis protection against piracy – an issue that I had been involved with along with rightsholders at that time.  The controversies surrounding the consequences of each form of possible protection were detailed in an article in 2010 by Prof. Seagull Song,  as well as a more article by Wei Liu and  Jiarui Liu (“Copyright Protection of Sports Programs in China,” 63 Journal of the Copyright Society of the USA (2017)).  It has also been the subject of meetings and conferences hosted by the United States and others, experts dialogues and numerous blogs posted here, including a blog on the lower court case posted on here.

Copyright protection would afford address interactive streaming over the internet, while neighboring rights protection affords rights to broadcasters.  Many believed that unfair competition was too vague and could create difficulties in licensing internationally.  These issues were raised in the context of the long-overdue, proposed amendments to China’s Copyright Law.  For these reasons, the 2013 US-China Experts Dialogue, in particular, made the following recommendation:

“4.3 Live Sports Programming and Non-interactive Streaming

The experts unanimously agreed that when the production of live sports programming involves creativity and originality, it shall be protected under current China Copyright Law.  The experts supported the provisions of the latest available amendment of the Copyright Law which provides a bifurcated approach – the adoption of “broadcast rights” to give protection to non-interactive streaming media and the right of communication through information networks to protect interactive streaming media. This approach should provide greater flexibility and depth to the protection of the copyright.”

Delays in resolving these two cases were understandable in light of the uncertainty around the proposed amendments to the copyright law, the significance of these issues to numerous rightsholders and sporting events, the increasing importance of licensing revenue in the China market using international copyright standards,  the impact on Chinese rightsholders that may be pursuing cases overseas where copyright protection is more secure, and the role of copyright protection in providing a foundation for a diversity of revenue streams in order to provide greater stability to the beneficiaries of the system (see the “Jordan” store that has recently opened up in Beijing, above).

In the Sina case, which was the subject of my previous blog, the lower court had determined after some exhaustive analysis that the live broadcast of a sporting event constituted a cinematographic “work” under China’s copyright law.  The Beijing High Court reversed noting that cinematographic works have to be fixed/stable and creative.  In the case in suit, the production had not been stable and fixed in a material form and therefore did not constitute a cinematographic work.  Moreover, as Sina did not pursue the anti-unfair competition claim on appeal, the Court had no basis to adjudicate that claim to provide an alternative avenue of relief for it.

In the companion case involving CCTV and its recorded broadcasts of the Brazilian World Cup (2014), CCTV had advocated that the broadcast constituted either a cinematographic work or an audiovisual recording (entitled to neighboring rights protection).  The lower court had determined that it was entitled to be considered an AV recording and had awarded 670,000 RMB in damages.  The Beijing IP Court confirmed that it was also entitled to protection as an AV recording which is protected over information networks in part because it was stable and fixed on a physical medium and, as with the prior case, it was not sufficiently creative to be a cinematographic work.  The court however increased the damage award to 4,000,000 RMB.

Based on this summary, the cases seem to leave open the question of whether AV recording protection afforded as a “neighboring right” to a broadcaster, also permits the broadcast to claim infringement for a live/interactive retransmission of the broadcast over the internet, which was not a fact at issue in this case.  Broadcasting organizations do enjoy neighboring rights protection under Article 44 of the Copyright Law.   However, this neighboring rights protection most directly addresses wired and wireless retransmission of the signal, rather than interactive communication over the Internet (See article by Seagull Song, and quote above).  Moreover, this was exactly the problem that was faced by the Beijing Copyright Administration in the 2008 Olympics when it enacted short-term, sui generis rules to address this problem.  I hope that the full case will explain this further.

Article 41 of the PRC Copyright Law grants the owner of video recordings the right to distribute the recordings over an information network.  The court could have resolved the issue of the stability/fixation of the broadcasts in both cases by acknowledging any momentary delay in broadcasting and consequent fixation in real time broadcasting as a “recording” (see video of editing at an NFL game, below).  Moreover, the level of creativity being required of a cinematographic work seems unduly high, particularly when compared to comparably lower levels of creativity required of photographic works, as well as the professional editing, narration and script line that goes into any professional broadcast, along with the copyright attributable to various elements of the broadcast, such as the narration, mid-game performances, etc.  Thus, these cases do not fully address protection for the less controversial creative aspects of professional sports broadcasts.  Due to the temporal value of a live sports broadcast, it is also important that rights are clearly defined in advance, a task for which local case law developments are ill-suited under China’s system, and that must apparently wait until legislative reform.  The Beijing IP Court did use the tool of enhancing damages to help address the need for greater deterrence, however it appears on the substance of copyrightability, its hands were tied by current legislation.

I welcome any further analyses, and postings of the Chinese and/or English texts of the case that may help further clarify these decisions and their impact.

 

IP House’s Snapshot of Medical and Health Industry

IP House  has recently published a  Statistical Report on IP Cases in the Medical and Health Industry (December 2017) (Chinese language) covering 391 medical and health industry cases closed from January 1, 2016 to June 30, 2016. Among those cases, 158 were civil cases (67 patent and 91 trademark) and 233 were administrative cases (40 patent and 193 trademark).

As explained in further detail below, this time-limited snapshot of medical and health industry cases shows a relatively low utilization by foreigners of civil infringement remedies in both patent and trademark matters.  Foreigners, including Americans, did actively use judicial review procedures of patent and trademark office decisions.  The cases also show low damage awards for pharma infringement cases despite a high win rate.

Patent

  1. Civil Cases

There was a total of 67 civil patent cases in medical and health industry. Guangdong and Jiangsu were the top 2 provinces with close to 42% of the patent litigation. Among all the civil patent cases, around 74.6% were infringement cases, with the balance involving ownership and contract disputes. Infringement of utility model patents and invention patents were the top two claims of action at 24 and 19 cases respectively.   Amongst invention patents, 14 involved medical devices and 5 involved compound patent claims.

Foreigners were minority plaintiffs in these cases, accounting for only 6 out of 67 civil patent cases.  Only one case involved a US party.   Other countries included Japan (2), Norway (2) and Germany (1).   The foreign plaintiff win rate was 83.3% with average damage of 162,001 RMB, slightly higher than the overall winning rate of   82.1%. This “win rate” is approximately similar to win rates being generally report for patent infringement cases in China as reported in a recent article by Bian Renjun.   First instance (一审) infringement trials on average took took 226 days; second instance infringement actions  (二审) on average took 120 days.

Average damages in these actions was 439,896.2 RMB.   Of these, more than 95% of cases used statutory damage to calculate damages.  Two cases that awarded more than 1 million RMB in damages, which were calculated as lost profits.

The principle reason that plaintiffs lost was that the accused product was deemed “not within the scope of protection.” Invalidity was another reason.

  1. Administrative Cases

There was a total of 40 patent administrative cases in the medical and health industry, involving appeals of decisions of patent office decisions.   US entities were a party in seven of the fourteen foreign administrative cases.  This relatively high proportion of foreign administrative cases follows a pattern in judicial IP actions in China where foreign companies generally enjoy a  higher proportion of cases involving validity than in infringement matters.  Amongst all of these cases, the administrative judgment was vacated by court for 6 cases.

As for review period, action of first instance on average took 446 days, and actions of second instance took on average 248 days. Administrative cases took much longer than civil cases to review.  Amongst the administrative cases 72.5% (29 cases) involved drugs, and 27.5%, (11 cases) involved medical devices.  Furthermore, 33 cases involved invention patents and 7 utility model patents

Trademark

  1. Civil Cases

There was a total of 91 trademark cases, where Jiangxi and Guangxi were the top 2 provinces with most cases.  A majority of these cases involved trademark infringement (88). Plaintiff won 78 cases with a win rate of 85.7%. Trademark civil cases on average took 185 days until the first instance judgment and 106 days for second instance judgment.  Drug and health products constituted 81.8% of these cases, with average damages of 61,412.9 RMB.  All these cases used statutory damages, and only one case involved a foreign party (USA).

The relatively low level of trademark infringement cases may be due in part to the active roles played by SAIC in administrative trademark matters, including their handling of foreign related cases as well as administrative enforcement matters undertaken by CFDA and takedown activities by online etailers.  However, the concentration of cases in Jiangxi and Guangxi is difficult to explain, except perhaps due to inexact reporting procedures.

  1. Administrative Cases

There was a total of 193 trademark administrative cases. Among those cases, 62.2% or 120 cases were brought for review on refusal (驳回复审). Administrative judgements were vacated by court for 49 cases. On average, trademark administrative cases took 266 days for actions of first instance, and 113 days for action for second instance.  Foreign cases accounted for 75 of these administrative trademark cases with the US being the party for the most cases (22 cases), following by Japan and Germany.

In administrative trademark cases, when the applicant had been refused grant of the trademark, the courts primarily ruled on the basis that the same similar trademark was used in the same or similar type of product (87 cases).   Another frequent basis was that a trademark was deceptive, and led to consumer confusion regarding quality and origin.

Implications for the future:

This data, although limited, is suggestive of what a further landscape for pharma patent litigation will be if China institutes a patent linkage system.  To speculate: the data does not suggest that foreigners will rush in to assert infringement of their patents, but rather that foreigners currently play a limited role in infringement litigation.   The high foreign and domestic win rate on infringement matters also suggests that a linkage regime could therefore be very helpful in securing cost effective and timely protection of patent rights, even if this right may not be asserted with great frequency.  Finally, the data also suggests that foreigners appear relatively comfortable in pursuing challenges to administrative action in pharma IP matters, and therefor may ultimately be willing to avail themselves of a patent linkage regime administered by CFDA and the courts. I believe a greater factor in determining how much a linkage system may be utilized may be the development of new, innovative drugs that are patent protected by foreign or domestic entities.

Perhaps the readers of this blog have a different opinion –  we look forward to receiving them.

Written by Mark Cohen with the assistance of Emily Yang.