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.

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

 

More Encouraging News of Trade Secret Reform… But Is It Always Good for the Foreign Community?

James Pooley posted a great blog on IPwatchdog on the recently released draft judicial interpretation on trade secrets (the “Trade Secrets JI”).  In his blog, “Has China Finally Embraced Trade Secret Protection ”,  Mr. Pooley discusses aspects of the draft JI that embrace or expand upon US practices including: “combination secrets”, “reasonable efforts”, “indirect misappropriation”, “head start injunction” and apportionment of damages based on fault.   Mr. Pooley also notes that “this most recent pronouncement seems in some respects to go beyond what was required [from the Phase 1 Trade Agreement], and in those respects also seems to reflect an imprint of U.S. practices.“  I agree.

Individuals who expect all of China’s recent IP reforms to be in response to US pressure are, for the most part, likely to be pleasantly disappointed — for the most part.   As an example, the Trade Secrets JI also reflect China’s own evolving practices in trade secrets and other areas, including the availability of punitive damages, the emergence of a limited discovery regime, and implied obligations of confidentiality notwithstanding the non-existence of an NDA (see Contract law, Art. 43, now amended by the Civil Code).  Moreover, the evolving system in China for trade secrets will likely also benefit by the increasing competence of the IP tribunals and courts, including the “three in one” courts which combine civil, criminal and administrative IP jurisdiction.  As noted in another recent blog, China is also seeking to improve its criminal IP enforcement regime through more further development of the three-in-one system, and further development of evidentiary standards in criminal cases, as well as more active roles for prosecutors and police, among other measures.

While the ink is hardly dry on this Trade Secrets JI, China has since announced two other draft JI’s for public comment:  “Some Provisions on Evidence in Intellectual Property Litigation (Consultation Draft)” (the “Evidence JI”)  and the “Opinions on Increasing the Level of Sanctions for Intellectual Property Infringement (Consultation Draft)”(the “Sanctions JI”)《关于知识产权民事诉讼证据的若干规定(征求意见稿)》《关于加大知识产权侵权行为制裁力度的意见(征求意见稿)》(June 15, 2020)。 Comments are due by July 31, 2020.

Here is a quick summary of the trade-secret related provisions in the Evidence  JI:

Article 19 addresses granting protective order for evidence preservation purposes and provides that if a party is a subject of an evidence protection order and claims that a trade secret is involved, the party that requests the evidence protection order cannot participate in on-site evidence preservation procedures,but can engage an attorney, patent agent or another person with specialized IP knowledge (collectively “authorized representatives”) to sign the protective order.

Article 23 authorizes the appointment of expert appraisers to determine if a claimed trade secret consists of information in the public domain, or to determine the differences between the claimed trade secret and the alleged infringing technological information.

The third chapter of this JI regulates the exchange of evidence and includes several provisions regarding protective orders.  Article 31 grants the court authority to structure a protective order to limit access to authorized representatives.  Disclosure of information subject to protective orders shall be limited to the proceeding where the protective order was issued.  Sanctions may be imposed for unauthorized disclosure (Art. 32).  Consent to a protective order once given cannot be withdrawn.  The parties are also free not to engage in an exchange of information  (Art. 34).  Procedures are also established for challenging the secrecy of evidence, including providing rebuttal evidence and cross-examination of witnesses.  If a party succeeds in having the information considered as non-secret, it shall be considered as such during the proceeding (Art. 35).

Here are some provisions in the Sanctions JI:

Expedited proceedings are provided for serial infringers.  In addition, punitive damages should be imposed on serial infringers (Arts. 9, 20, 21). If actual damages are proven, they should be provided to the rights-holder (Art. 10).  Punitive damages should be imposed for their deterrent effect (Art. 13). Reasonable attorneys’ fees may be provided if there is a willful infringement and in a complex case (Art. 17). Attorneys’ fees and other expenses shall be compensated for in the case of malicious litigation where the right is unjustly obtained or there is not a substantial basis for its exercise (Art. 19).

Of particular note is Article 20: Serial infringers of IP rights, as well as those  who steal commercial secrets for foreign agencies, organizations or individuals, shall be subject to severe penalties according to law and generally no probation shall be applied 境外的机构、组织、人员侵犯商业秘密的情形,依法从重处罚,一般不得适用缓刑.

One may ask: why is theft of trade secrets for foreigners being singled out? Article 20 may be China’s response to cases brought against foreigners under the US Economic Espionage Act or similar foreign laws.   However, the EEA requires action “benefit[ing] a foreign government, instrumentality or agent” in 18 USC Sec. 1831.  Article 20 does not, however, single out these security concerns arising from state-drive trade secret misappropriation.

Fairness suggests that those engaged in IP theft on behalf of foreigners should also be afforded the opportunity to avail themselves of defenses otherwise available if a Chinese party were the beneficiary of the trade secret misappropriation. This is also consistent with the requirement under the TRIPS Agreement that punishment is proportionate to crimes “of a corresponding gravity” (Art. 61), and that judicial procedures are “fair and equitable” (Arts. 41 and 42).  The TRIPS obligations to afford national treatment (Art. 1) should also equally apply to a defendant in a proceeding – that he or she should not be singled out because of having worked for a foreigner.  A similar logic applies to the cases brought against the United States involving national treatment under our Section 337 remedy; a heavier defense burden had been placed on foreign entities compared to domestic entities. The provision could also lead to a de facto denial of national treatment for a foreign investor in China who finds that police or prosecutors may be less likely to initiate a case unless there is a trade secret theft that benefits an overseas entity where a heavier sentence could be imposed.  Moreover, this provisions flips US concerns on their head: it does nothing to address the concerns that the United States has expressed regarding trade secret theft in China of US-origin trade secrets, since this law addresses  thefts that were undertaken on behalf of a US entity, not from the overseas entity.

Once any country advocates for more deterrent penalties, it should consider that such penalties may also be applied to non-Chinese defendants, including one’s own nationals, which this provision could easily encompass through its focus on actions on behalf of foreign entities.  To the extent this provision is used to target foreign actors as well as actors for foreign entities, the TRIPS Agreement provides little in the way of guard rails to ensure equality of treatment in IP enforcement proceedings.  Many foreigners are already concerned, as they fear being denied authorization to leave China arising from allegations of civil violations.  In addition, there have also been several precedential IP cases over the years where foreign parties may have served as “guinea pigs” for more deterrent sanctions,  including such cases as Chint v. Schneider Electric [utility model patent damages award]; Qualcomm AML investigation [high antitrust penalty]  Veeco and Micron [preliminary injunctions involving semiconductor patents and unpublished judicial opinions as well as unpublished Customs seizure decision], and PRC v. Guthrie [criminal copyright cases brought against foreigners].

I believe that this draft of Article 20 may be sending the wrong signal.  Actions undertaken for foreigners and Chinese should be treated equally, with equivalent penalties and opportunities for probation.  Moreover, the concept of equality generally applies equally to any right.  If there are concerns regarding national security or difficulties in apprehending a party engaged in trade secret theft on behalf of a foreigners, those can be addressed through other measures such as through bilateral criminal justice cooperation, including mutual extradition arrangements and cooperation in gathering evidence. Such measures would also help restore trust between participating countries.  By providing harsher penalties for trade secret infringement benefiting foreigners, a potential precedent might also be established for any other case benefiting an overseas actor, notwithstanding that the principal concerns appear to be infringement occuring within China.

Note: this post was revised June 30, 2020 to address a reader’s concerns that Article 20 is directed to actions on behalf of foreigners and not simply by foreigners.

China IP Position at the Department of Commerce

The International Trade Administration (ITA) at the US Department of Commerce is seeking to recruit a Senior International Trade Specialist to serve as its intellectual property (IP) policy Team Lead. The announcement, at the GS-14 level, and is now posted to USAJOBS.gov.  It is open now through June 23.  Here are the links: https://lnkd.in/dpxQseD (open to the public)  and https://lnkd.in/d6qcRgW
(open to federal employees).

In addition to international IP expertise across relevant disciplines, candidates should have experience in team management and engagement with senior-level public and private sector leadership. Although the position does not indicate that it is China-oriented, I understand that the new hire could serve as the Department of Commerce lead on China-related IP issues.

China Patent and Licensing Discussions – Week of June 14th

On Wednesday, June 17th at 4:30 PM PST,  former Chief Judge Paul Michel (ret.) will be moderating a star-studded panel hosted by Berkeley Law on one aspect of one of the great ironies of this current moment in US-China IP relations: the weakening of the US IP system with respect to patent eligibility and China’s concurrent strengthening in those areas.  Judge Michel will be joined by former PTO Director David Kappos, Berkeley Law Professor Robert Merges, Beijing East IP Partner Liaoteng Wang, and Tsinghua Professor Guobin Cui.  Liaoteng Wang has recently written an article in anticipation of this event.  Information and registration information is available here and here.

The United States-China Intellectual Property Exchange and Development Foundation, of which I am a board member, will be hosting two webinars on pharmaceutical-related IP.  The first session focuses on the Phase 1 Trade Agreement including post-filing supplementation of data and patent term extension (June 16, 7 AM PST).    The second session focuses on patent linkage (June 17, 7 AM PST).   Former Chief Judge Randall Rader and several notable practitioners will be joining the discussions.

On June 16th at 9 AM  PST, I will also be speaking along with Jim Harlan of InterDigital on the US Department of Commerce’s Bureau of Industry and Security’s (BIS) ban on Huawei and its effect on global Standards Developing Organizations (SDOs). This program is sponsored by the American Intellectual Property Law Association’s Standards and Open Source Committee.  Non-AIPLA members may join this open event without charge.  Call: +1 (347) 991-7204, passcode 251151532, or join the Skype Meeting.

100 Priority IP Projects for 2020

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What does the recently released CNIPA document listing “100  Projects in 2020  to Deeply implement the National Intellectual Property Strategy to Accelerate the Construction of the Intellectual Property Powerful Country Promotion Plan” (2020年加快建设知识产权强国推进计划提出 100项具体措施) (the “100 Project List”) (May 28, 2020) add to the discussion around where China is headed on IP?

The projects reveal much more than its lengthy, bureaucratic-sounding title might indicate. There are several  themes worth noting:

  1. It is ambitious. It includes doing many things over a short period of time, including reducing patent examination time for “high value” patents to 16 months and trademark examinations to 4 months (Projects 55-56).
  2. China is paying attention to its IP quality vs quantity dilemma. This document calls for ending local subsidies for utility model and design patents, as well as trademark (task 59).  It also discusses problems with incentives that are intended to encourage high quality patenting in universities and research institutions, SOE’s, and major government projects (Projects 3, 4, 5, 12, 55, 60 -61, 66, 77-79, 93, 96-97).
  3. There is increased attention to defense patenting. The word “defense” appears 17 times.  Defense patenting also occupies a greater role than in prior plans of type (Projects 6-10, 25, 80).
  4. Trade secrets as well as improving the criminal IP process play important roles (Projects 24, 44, 49, 51-54).
  5. We can expect some important developments in plant variety protection (Projects 26, 47, 57, 92).
  6. There is no attention to innovative pharma IP challenges. There are tasks related to generic medicines and traditional Chinese medicine (Projects 38, 73).  Patent linkage does not appear in this list of tasks.  These omissions could suggest a lack of CNIPA commitment to Phase 1 pharmaceutical IP reforms.
  7. There is a big focus on improving IP-related services (Projects 1, 2, 62, 72, 74, 77, 86).
  8. China reiterates its commitment to plurilateral IP policy (Projects 82, 87).
  9. The drafters are committed to the  Phase 1 Agreement.  China is also doing a lot more on IP than what the Phase 1 Agreement requires (Projects 24, 49, 51, 83, 87, and others).

The word cloud above is drawn from a machine translation of the 100 Project List.

Further background: I have been blogging about China’s national IP plans for years now, including in  2014,  2015 , 2016 as well as in my discussions on the National IP Strategy.  Readers may wish to compare this document with some of the prior strategy documents.