Further Trade-Responsive IP Legislative Developments May Be In the Works…

“When a stranger lives with you in your land, do not mistreat him. The stranger living with you must be treated as one of your native-born. Love him as yourself, for you were strangers in Egypt.” (Leviticus, Vayikra וַיִּקְרָא) .

He Jing of the Anjie law firm brought to my attention today an article in the April 21 Legal Daily which identifies proposed amendments to the Trademark Law, Anti-Unfair Competition Law and Administrative Licensing law that appear to be responsive to United States concerns over unfair treatment of Americans, “forced technology transfer” and IP protection in the current trade war.   Here is a copy of the Legal Daily article.

While we wait for the actual draft, I will place these proposed changes in context.

In my posting on good faith in IP-related trade issues,  I identified several issues which this legislation attempts to address, including warehousing of bad faith trademark registrations without intent to use; and  the removal of “employee” as a covered party (经营者) in China’s revised trade secret law (Anti Unfair Competition Law) which facilitates bad-faith employee behavior.   Actually, I am relieved that China may now be understanding how tolerance of bad faith behavior has had a wide spread impact on foreign perceptions of China’s willingness to protect IP.  These are important new steps.

Other provisions this legislation attempts to address also appear to address long-standing US concerns, such as requiring the destruction of counterfeit goods or materials and tools used for their manufacture.  The destruction of semi-finished counterfeit goods and materials and tools was a subject of DS-362, the China IP enforcement case, particularly regarding Customs’ disposal of goods outside the channels of commerce and the role of semi-finished goods in calculating criminal thresholds.

Other concerns raised in the legislation have been raised bilaterally.  Bad faith trademark registrations had long been discussed bilaterallyProtecting confidential information submitted by foreigners in administrative licensing has also been a long-standing concern of the United States and has been the subject of several JCCT discussions.

Although these changes are positive, I am reluctant to enthusiastically endorse them in the absence of corresponding measures ensuring their implementation.  As previously noted, newly amended provisions in the new Foreign Investment Law prohibiting forced technology transfer are likely to have little impact absent effective complaint and legal challenge procedures, such as the creation of a foreign investment ombudsman and/or appeals to the newly established IP court.  The inclusion of a non-discrimination position in administrative licensing procedures is also welcome news, although it may be similarly difficult to monitor and enforce.

China’s existing trademark law shows the limitations of forcing changes in behavior through legislation.  The trademark law and civil law have had provisions requiring “good faith” behavior, yet there has been little demonstrable impact on the flood of bad faith applications, which had increased to 7.3 million applications in 2018.  Chinese-origin bad faith and fraudulent applications are also causing USPTO to revise its own rules regarding pro se trademark applications from overseas.

As other examples, providing for treble or quintuple damages in patent or trademark proceedings is only useful in those still rare proceedings where statutory damages are not being used to calculate damages.  Similarly, the burden of proof reversals in IP cases, such as trade secrets can be useful but only if they are appropriately and effectively utilized and if motion practice in the courts is observable through online publication. Increasing penalties in administrative trade secret cases sound good on paper, but foreigners little use administrative trade secret enforcement proceedings.  Such proceedings have traditionally been an IP enforcement backwater.  According to the 2011 SAIC Yearbook (p. 855), there were only 57 reported administrative trade secret cases in that year, with an average 77,543 RMB average value and only 1,430,000 RMB (less than five thousand dollars) in fines.  The greatest focus of these cases were individuals, as 26 cases involved natural persons.  The data suggests to me that these cases largely involve employer/employee disputes over trade secret misappropriation, which should be resolvable in the courts.  Perhaps even more striking was the 35% decline in criminal trade secret prosecutions in 2017 to only 26 cases, which was also accompanied by a significant decline in criminal IP cases generally since 2012.   To address tolerance of trade secret theft (and IP infringement) by Chinese society, the most effective approach will be a commitment to criminal trade secret enforcement and an even greater commitment to civil remedies.  The proposed legislation only addresses part of this need.

Substantive changes can only be as effective as they can be monitored.  With respect to changes in substantive trademark and trade secret law, it would be especially useful if the full court dockets and more final cases were published.  If the data cannot be observed, it cannot be monitored for compliance.

While these legislative developments are underway, there is also word that the State Council continues to solicit opinions from the foreign business community on how IP issues are handled on their behalf.  This may also lead to welcome news.

There have also been two separate, non-IPR developments, which may have some bearing on the negotiations over the resolution of the trade war.  According to Bloomberg, the European Union is said to have won a dispute brought by China at the WTO seeking recognition of China’s market economy status (“MES”).    A similar case is pending involving the United States.  The lessons from these cases for IP should be that both the US and the EU should encourage more comprehensive and systemic treatment by China of IP as a private right if China is ever to achieve full MES.

In another development, a WTO panel ruled in favor of Russia in a dispute brought by Ukraine that the “national security” exception afforded by the WTO was not completely self-judging. The case could be read as a warning that the United States does not have unbridled discretion in deciding what constitutes a threat to its national security.  Taken together both cases affirm the WTO’s desire to remain relevant to changing circumstances in China and a changed perspective on international trade of the United States.

I wish everyone a happy Passover, Easter or spring holiday.

Buddha

 

More on Guiding Cases, Precedents and Databases…

stanfordcase

Judge Liu Yijun from Beijing IP Court spoke on the application of China’s IP Case Guidance System in Beijing IP Court.

 

As we have previously reported, one of the latest development in China’s IP law is to build an IP cases system, which is being implemented in part as a case experiment at the Beijing Intellectual Property Court. Thanks to the continuing efforts of the Stanford Guiding Cases Project (SGCP) under the leadership of Dr. Mei Gechlik, a number of experts including Judge Liu Yijun from Beijing IP Court, recently spoke at a seminar at Stanford University to discuss current status and application of the IP cases system.

The IP Cases System is one of several efforts to achieve more uniform application of law, encompassing such initiatives as national level “guiding cases” and other cases used for instructional or other purposes by national and local courts. Susan Finder’s blog had several posts about overall use of cases in China, including how Supreme People’s Court (SPC) uses case law to guide lower courts and the China’s evolving case law system in practice.

According to Judge Liu at the Seminar, the Beijing IP Court is set to establish a principle that “subsequent cases should be adjudicated in accordance with effective judgements and rulings of prior similar cases.” At the current stage, judges of the Beijing IP Court are required to abide by effective judgements and rulings of the Court as well as upper-level courts that are applicable to the pending case. Meanwhile, judgements and rulings of prior similar cases from other courts at the same level should be referenced by judges adjudicating the pending case.

Judge Liu noted that parties are encouraged to submit prior effective judgments and rulings and lawyers in response, are actively submitting more and more cases. At the end of 2016, the Beijing IP Court used prior effective judgements or rulings in 763 cases. Cases were submitted 657 times by parties, and voluntarily invoked by judges in 106 instances. Of those 763 cases, over 200 followed prior judgements, about 80 were distinguished on the basis of different facts, and the rest, around 480, were treated as completely irrelevant or not submitted via appropriate procedures. When this data is compared to the 8,111 cases concluded by the Beijing IP Court in calendar year 2016, the case citation rate was 9.4% of all cases, which was a big increase compared to the citation rate of 2.1% that we calculated in this blog for the first ten months of  2016.

This IP Cases System can be accessed through an IP cases and judgments database (IP Case Database). In its trial version, we found 186 typical cases (典型案例), over 240,000 judicial judgments (裁判文书), laws and regulations (法律法规), intellectual property/legal index codes (知产码) (see www.faxin.cn) , opinions (观点), books (图书), journals (期刊), and review documents and decisions from Patent Reexamination Board of SIPO and SAIC Trademark Review and Application Board (两委文书). Many of judicial judgments included in the IP Case Database are a subset of judgments on China Judgements Online, which has over 35 million of judgments in total and over 260,000 judgments in the IP area. IPHouse (知产宝), another IP cases and judgments database, has recently told us that it has increased the total number of IP judgements on its database – their website lists around 350,000 cases, but we have heard that it is as high as 400,00. This is well in excess of the official China Judgments Online or the IP Case Database. The additional cases have reportedly been made available through direct outreach to various local courts.

These 186 typical cases in the IP Cases System are currently all trademark related cases, decided between 2000 and 2016. A majority of those cases (112 cases) are actually SPC’s guiding cases, and only a small part are cases from High Court or Intermediate Court (11 cases from High Court in different provinces and 23 Cases from Intermediate Court). Among cases from Intermediate Courts, cases from the Beijing IP Court dominate.

 

Panelists at the seminar at Stanford University suggested that all typical cases will go through a review process before posted to the database, which consists of review by experts, editing, and final review and release. But panelists at that seminar also noted that judges made the decision of which cases to be included in this database. It is unclear what criteria are used by judges and what judges’ role is through the case review process. To the extent that cases go through a curatorial process, they may also run the risk of being altered to serve particular doctrinal purposes – an issue that may have arisen with respect to other cases that have been considered model or guiding cases.

As for the quality of those cases and judicial judgments, key words search of some well-known doctrines in IP law returns very limited number of results on the IP Case Database.  For instance, a search of the doctrine of equivalents (等同原则) returns zero typical cases, which might be because no patent typical cases are included yet, and search of principle of good faith (诚信原则) gives nine typical cases (primarily for trademarks). A search for cases adjudicated by well-known judges returns similar results, with only one typical case adjudicated by Song Yushui (宋鱼水), who currently sits on the Beijing IP Court as its Vice President and was recently confirmed as an alternative delegate to the Central Committee of the CPC. Similarly, same key word search of the judicial judgments in the IP Case Database yields more results, but still relatively small compared to total number of judgments included. A search of doctrine of equivalents gives 81 judgments, search of principle of good faith returns 312 judgments (around one-third on trademarks, one-third on anti-unfair competition, and the rest on everything else) and 74 judgments are adjudicated by judge Song Yushui. Compared to another legal database pkulaw.cn (北大法宝), which combines cases and judgements, the same key word search returns significant higher number of cases and judgments (337 for doctrine of equivalents, 455 for principle of good faith and 255 adjudicated by Judge Song Yushui). Such discrepancy raises questions of whether the IP Case Database is currently comprehensive or easily searchable.

One distinct feature to be noted of the IP Case Database is that each typical case has been given an indicator of whether the case should be followed or just referenced.

My overall impression: cases are cited more frequently in Beijing IP Court and the case experiment will continue. It seems that the Beijing IP Court intends to attract attention and application of the IP Cases Database and make it a national tool in the near future. However, at the current stage, it is not clear whether their database has the ability to gain significant usage among the IP law community. Of particular importance is whether more cases, particularly patent and copyright cases, will be included, and when that will happen remains unknown.

This blog has been prepared by Fan (Emily) Yang, JD Candidate, University of California Berkeley, 2019, with editorial assistance from Prof. Mark Cohen.  The views expressed are the author’s own.