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.

Essentially Derived Varieties and The Role of Leading Cases in Chinese Plant Variety Protection

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Editor’s Note: Plant Variety Protection (PVP) is a little-discussed topic in China’s IP regime. Indeed, this blog has only reported on PVP-specific issues
once before, and once in the context of the China-Swiss Free Trade Agreement (FTA). This guest blog post explores the relationship among plant variety protection, China’s treaty obligations, and determination of the scope of infringement based on essentially derived varieties (EDVs).   The author, Liz Freeman Rosenzweig, is a J.D. candidate at Berkeley Law. She obtained her Ph.D. in plant biology from Stanford University.

As with other intellectual property (IP) rights, China receives more applications for intellectual property protection of new plant varieties (PVP) than any other country. China grants these rights pursuant to its “Regulations on the Protection of New Varieties of Plants” (“Regulations”) (2014) (中华人民共和国植物新品种保护条例). However, China’s PVP legislative regime lags behind many other countries, largely because of China’s failure to date to accede to the most recent international treaty for protection of plant varieties, the 1991 Act of the International Convention for the Protection of New Varieties of Plants (UPOV ’91). Conversely, Chinese jurisprudence on the topic is significantly more developed than that in, for example, the United States. 

China is now considering amending its Regulations to include the concept of essentially derived varieties (EDVs) (实质性派生品种) and molecular markers (分子检测). Broadly speaking, these proposed amendments are also examples of two broader aspects of Chinese IP legal development: (1) China enacting legislation in anticipation or in excess of current international demands, and (2) Chinese legislation riding momentum generated in advance by judicial decision making. If China adopts the proposed amendments to its Regulations, the level of plant IP protection available in China could become among the strongest in the world. Moreover, the legislative changes would be based on the concrete experience and guidance afforded by previous guiding cases from the Chinese Supreme People’s Court (SPC), which suggest how the new provisions might concretely be applied.

 Plant Variety Protection and UPOV

The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) requires WTO member economies, such as China, to provide IP protection for new plant varieties. Members may do so through a patent system, a sui generis system, or both. The United States takes the combined approach, offering plant IP via utility patents and plant patents under U.S. Code Title 35, and also via Plant Variety Protection (PVP) certificates under the Plant Variety Protection Act (PVPA). China does not provide patents for plants. Instead, plant protection in China is under an entirely sui generis approach.

Internationally, the most commonly adopted sui generis mechanism is the system of plant breeders’ rights (PBRs) promulgated by the International Union for the Protection of New Varieties of Plants (UPOV). The UPOV Convention was first finalized in 1961 and was revised in 1972, 1978, and 1991. As of February, 2020, 76 countries are UPOV members, 59 of which are members of the ’91 Act.

One key change between the ’78 and ’91 Acts is the extension of the scope of the breeder’s right to include EDVs. Per UPOV ’91, a new variety is considered “essentially derived” from an initial variety when it is both “clearly distinguishable from” and “predominantly derived from the initial variety, . . . while retaining the expression of the essential characteristics . . . of the initial variety.” A breeder may obtain a PBR for an EDV “in the same way as for any variety,” but if they wish to commercialize the EDV, they must obtain authorization from the initial variety’s titleholder. This is similar to the manner in which practicing a patent that improves upon a previously valid patent may require permission from the dominant patent’s owner. In contrast, under the ’78 scheme, rights to the initial variety are more limited, and no authorization from the initial variety’s titleholder is required to commercialize a variety that the ’91 Act would consider an EDV.

But defining precisely what constitutes an EDV is notoriously difficult. The ’91 Act provides examples of how an EDV may be created, such as by finding or creating a mutation in an initial variety. However, the list is not exhaustive. Furthermore, the text of the Act seems to contradict itself, leaving significant ambiguity as to the required level of physical resemblance between an EDV and its initial variety. That is, Art. 14(5)(b)(i) of the ’91 Act states that EDVs must “retain[] the expression of the essential characteristics that result from the genotype or combination of genotypes of the initial variety.” But then subsection (b)(iii) excepts “differences which result from the act of derivation” from the required level of conformity. It is not clear precisely how those two instructions are meant to be integrated. For example, a slide deck from UPOV itself presents a hypothetical derived variety that is closely genetically related to its initial variety, but in which “more than one or a few characteristics were affected,” and labels it, ambiguously, “EDV yes/no??” Thus, the ’91 Act does not provide a clear boundary line for when a variety is or is not essentially derived.

Many UPOV member countries prefer the definition of EDV to be broad in order to leave the determination of whether a variety is an EDV up to the rights holders. Conversely, UPOV’s guidance, though nonbinding, is narrower. UPOV is, however, currently revising its guidance on the topic to address these current ambiguities.

One method for defining an EDV is through genetic and biochemical techniques such as molecular markers (“markers”). UPOV does not require the use of markers, but it does provide guidance on their use. That guidance cautions against overreliance on molecular techniques, noting that their usefulness is subject to significant variability, and expressing concern that markers could be abused to make closely-related varieties seem more different than they actually are.

The US ratified UPOV ’91 in 1999. But China has only acceded to ’78. According to Dan Prud’homme and Taolue Zhang, one reason that China has not acceded to the ’91 Act is UPOV’s “lack of clarity in the definition of [EDVs] . . . , which makes it difficult to institutionalize in China.” However, China’s Ministry of Agriculture and Rural Affairs (MoARA) and State Administration of Forestry and Grasslands (SAFG), which govern the granting of plant variety rights in China, recently “expressed an intention to formulate a long-term plan to gradually satisfy key requirements of UPOV ’91,” including “adopting UPOV ’78 plus-style provisions/piloting important aspects of UPOV ’91 (e.g., instituting EDV for certain types of plant varieties) in order to see how the system works in practice.” China’s recently-released draft amendments to its Regulations do just that. Moreover, China’s Supreme People’s Court has also announced on March 19, 2020, its own plans to draft a new Judicial Interpretation regarding plant variety infringement determinations which will likely implement China’s emerging practices in this area.

Comparing Plant Variety Protection Definitions in China and the U.S.

China’s Regulations were promulgated and implemented by the State Council in 1997, two years before China acceded to UPOV ’78. China then revised its Regulations in 2013 and 2014. PBRs under the Regulations are issued in parallel by SAFG (for vines, forest trees, fruit trees, and ornamentals, with rights lasting 20 years) and MoARA (for all other plants, with rights lasting 15 years). China has faced both internal and external pressure to update the Regulations: National entities have pushed for a clearer and more streamlined application process, and many countries—members of the European Union in particular—have been pressuring China to adopt UPOV ’91-style provisions such as by providing for EDVs.

To that end, China began the process of revising its Regulations in 2016—a year before ChemChina, a state-owned entity, purchased Syngenta, a major beneficiary and user of the UPOV system, with hundreds of plant registrations internationally. The proposed draft amendments to the Regulations were released for comment in February 2019. These proposed amendments would essentially move China towards UPOV ’91. This is not an unusual move for China; the country has often enacted legislation in anticipation of meeting—or even in excess of—international requirements. For example, China provided copyright protection for the “right of making available” (right of communication to the public) in the 2002 amendments to China’s Copyright Law, well in advance of China acceding to the WIPO Internet Treaties in 2007. As another example, China also recently amended its Anti-Unfair Competition Law to be the most progressive trade secret law (at least on paper) by reversing the burden of proof, which is in excess of international requirements.

These draft amendments to the plant IP Regulations make several important changes. Crucially among those, the proposed amendments introduce the concepts of EDVs and molecular markers into the Regulations for the first time.

The proposed amendments define EDV as “a variety that is distinct from the original variety, but retains the basic characteristics or characteristics of the original variety, except for the differences caused by the derivation.” This proposed definition of EDV appears to be broader than the UPOV definition. Significantly, it also lacks contradictory language, discussed above, embedded in the UPOV definition and copied nearly verbatim into the U.S. definition.

The US recently also overhauled its PVP system, extending PVP eligibility to asexually propagated plants for the first time. The PVPA has included EDVs since 1994, the definition of which was taken almost verbatim from UPOV ’91—meaning it includes the apparently contradictory language that China’s draft avoids. Also unlike China’s draft amendments, the PVPA makes no mention of molecular markers or other genetic techniques. But the Plant Variety Protection Office, which oversees the PVPA, is moving towards incorporating such methods in the future.

China Leads the World in PBRs by Volume

One reason that China may wish to have an advanced PBR regime could be the growth of its own domestic research capacity in this important area. In 2018, China was “the top destination for plant variety applications,” receiving over a quarter of filings worldwide. Not only did China receive the most applications, but Chinese nationals also filed the most applications worldwide. A record high of >20,000 plant variety applications were filed worldwide that year, driven primarily by China. Applications in China grew by an astounding 29% in 2018, driven almost exclusively by domestic filings (this mirrors the Chinese patent system, which is also primarily used by domestic applicants). In contrast, applications in the US and EU grew by only ~3-4% in 2018, and the worldwide growth rate was ~9%. That being said, this surge is fairly recent, and the US and EU still outrank China in terms of number of active titles. But note that this source includes both PVPs and plant patents in the U.S. tallies. It is unclear why the US numbers do not include utility patents on plants (though it may be due to difficulty in data collection; unlike PVPs and plant patents, not all utility patents are directed to plants), but the US total would be even higher if it did. Considering just PVP rights, in 2018 there were 7,521 active titles in the US.

If China adopts its proposed amendments, then filings in China may also increase due to increased foreign applications, as well as stimulating foreign investment in China in this sector. Thus, activity in the Chinese plant variety protection offices will likely continue to dwarf that in the US. 

More Thorough Plant Variety Protection Guidance from Chinese Litigation than U.S. Litigation

There is significantly more PBR litigation in China than in the US. As of November, 2019, there have been at least 338 Chinese cases referencing the Regulations (华人民共和国植物新品种保护条例). At least 18 of these cases discuss molecular markers (分子检测). Although China is a civil law system where cases do not create binding precedent, for the past decade the Chinese Supreme People’s Court (SPC) has issued “guiding cases” that are “intended to be de facto binding decisions” to guide lower courts’ decisions in similar cases. The SPC has issued several guiding cases on PBRs. Stanford University Law School has also initiated a “China Guiding Cases Project” which provides a platform for research on these judicial developments.

Two guiding cases have discussed molecular markers specifically. These cases, discussed below, reveal that the SPC embraces the use of molecular markers—but is wary of overreliance thereon, and is careful to balance genetic results with observations from field trials.

In Guiding Case No. 2633, the SPC denied retrial after a lower court found non-infringement when there were no genetic differences between the varieties at issue, but there were phenotypic differences during field trials. In reaching this decision, the SPC noted that the genetic testing only assessed 40 locations in the genome, which does “not necessarily correspond to the traits” observed in phenotypic field tests.

Guiding Case No. 92 was essentially the reverse situation: the SPC found infringement when markers revealed a single genetic difference but field tests showed no phenotypic differences. In doing so, the SPC formulated a technical balancing test for reconciling field and genetic tests that tempers over-reliance on molecular markers.

By late 2019 there were no reported Chinese cases that specifically referenced EDVs. But the molecular marker cases likely hint at how courts will address them. Intriguingly, the facts of Guiding Case No. 92 seem remarkably similar to an EDV situation, in that the accused variety retained the characteristics of the first variety while displaying minor genetic differences. If Chinese PBR agencies or the Courts formally adopt EDVs, they may determine essential derivation with a test much like the one set out in Guiding Case No. 92, as the Chinese concept of EDV would likely cover most types of genetic changes.

Neither of those two guiding cases have been cited by name, however, in published subsequent cases according to a March 23, 2020 search on Caipanwenshu 裁判文书 (the official SPC database). This is not unusual, as most guiding cases are not widely cited by lower courts, who, along with practicing lawyers, still remain unfamiliar with citing and distinguishing cases in rendering decisions. Rather than being “precedential,” guiding cases such as these may also be issued primarily to illustrate examples of good reasoning for judges, or to provide political coverage for consistent decision making.

Ironically, although China is a civil law country, its case law fills the statutory gaps for plant variety protection far more comprehensively that in the U.S. In contrast to the robust Chinese case law, there have been only 19 reported (and 28 unreported) U.S. cases referencing 7 USCS § 2541 (PVP infringement) as of March, 2020. These include 4 Supreme Court cases and 5 at the Federal Circuit. The Supreme Court cases either reference the PVPA only in passing or are outdated.

A handful of U.S. cases reference genetic testing, but do not address the concept in much detail (See Ark. Seed Co., Inc. v. Williams, No. 10-1231, 2011 U.S. Dist. LEXIS 100224, at *3 (C.D. Ill. Sep. 6, 2011)). Despite the presence of EDVs in the PVPA, there has not been reported EDV litigation in the U.S. as of March, 2020. The closest case was the denial of a motion to stay litigation pending the PVPO’s assessment of an application for an allegedly infringing variety of lettuce, but the court did not decide whether the variety was an EDV, and the case has no subsequent appellate history. (See Genecorp, Inc. v. Progeny Advanced Genetics, Inc., No. C 97-20706 RMW, 1998 U.S. Dist. LEXIS 21910, at *7 (N.D. Cal. Apr. 9, 1998)).

Conclusion

If China adopts its current proposed amendments, it would offer protection to plant breeders in line with “or even above” UPOV ’91. Given that Chinese PBRs represent the lion’s share of all such rights worldwide, this would be a significant change. It seems likely that legislators will approve a version of these Regulations in the next few years, though it is unclear when. Notably, the “Opinions on Strengthening the Protection of Intellectual Property Rights” recently released by the Chinese Communist Party and State Council (November 27, 2019), also explicitly calls for encouraging Chinese innovation by improving the protection, examination, and international sharing of examination results for new plant varieties. If China does adopt the proposed amendments, China would likely become a de facto member of at least part of UPOV ’91, as Chinese officials reportedly “want legislation in line with the 1991 UPOV convention but do not want to actually accede to the 1991 UPOV convention.” This pattern of gradual and partial adherence to international treaties has also manifested itself elsewhere in China’s legal regime, including in the gradual piloting of civil or economic legal reforms before wider introduction into the Chinese legal system or economy.

The nuanced treatment of molecular markers in the proposed amendments and in Chinese guiding cases is ahead of that in the US, and the US may very well follow China’s lead in adopting a more systematic use of molecular markers in the application process. The proposed amendments’ concept of EDV strengthens the incentive for innovation by expanding the scope of the breeder’s right.

Moreover, the definition of EDV put forth in the proposed amendments is arguably broader and clearer than that under UPOV ‘91 and in the US, which may give holders of Chinese rights a competitive advantage and increase the incentive to protect new plant varieties in China. But the extent of foreign investment these amendments would engender is unclear, given that China requires that Chinese parties be controlling shareholders for “selection and cultivation of new varieties of crops.” 

ACKNOWLEDGEMENTS: Many thanks to Mark Cohen, Elaine Wu, David Kappos, Edgar Krieger, Cynthia Mathiesen, Alanna Rennie, Xiaofan Xu, and Alexandra Draggeim for valuable discussion, comments, feedback, editorial help, and research and translation assistance.  Photos (c) by Mark Cohen of Huntington Gardens and US Plant Patent.

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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.

Updates of July 4 and 18, 2020: Here are the February 3, 2019 comments of the AIPLA on this draft of the patent law revisions, and the February 5, 2019 comments of the American Bar Association’s Sections on Antitrust Law and International Law.

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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