New CPC and State Council Opinions on Improving IP Protection

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On November 24,  2019, the General Office of Communist Party of China and the State Council jointly released the Opinions Concerning Enhancing Intellectual Property Rights Protection (关于强化知识产权保护的意见).

It is often too easy to dismiss documents like these, that have typically delivered an ephemeral higher state of vigilance by the Chinese government.  Nonetheless, there are some useful statements in this document that may be an indicator of future durable improvements, including:

  1. It is jointly published by the CPC and the State Council and thus has high level political and executive branch support.
  2. It does address some long-standing concerns raised by industry, such as development of a patent linkage system, patent term extension and copyright protection for sports broadcasts.
  3. There continues to be a focus on punitive damages in litigation. However, this document does appropriately point out the need to increase actual damages.
  4. Improving criminal enforcement, including revising criminal judicial interpretations – is also addressed.  Along with revising the criminal code, revising criminal JI’s and their high criminal thresholds was a goal of the WTO case that the US filed against China over 10 years ago (DS362).  This task is long overdue.
  5. Improving coordination between administrative and criminal enforcement is once again highlighted. This is also a long-standing issue.  In light of numerous prior efforts and experiments, a more concrete explanation of how this might be accomplished to better enable prosecution of major criminal actors would be helpful in the future.
  6. Case guidance and public trial systems are highlighted. Hopefully, the case guidance system will add further momentum to successful case law experiments in IP at the Beijing IP Court.
  7. The introduction of technical assessors into administrative enforcement could suggest a continued enhanced role for patent administrative enforcement, which has been increasing even as trademark administrative enforcement has been declining. If so, it may not augur well for foreigners who have traditionally been heavy “consumers” of the administrative trademark system, but not the administrative patent system.
  8. Improvements in the “examination” of utility models and designs are noted as a goal. However, these rights are generally not examined for substance except in the case of “abnormal” applications.
  9. Continuing attention is paid to challenging markets, such as e-commerce platforms and trade fairs, as well as establishing faster protection mechanisms.
  10. There is a continuing focus on supporting Chinese rightsholders overseas.

This document arguably goes part-way in establishing an outline for addressing US concerns about IP theft.  However, it offers little to address such concerns as ensuring greater transparency in the courts, publishing foreign-related cases, or addressing certain trade-sensitive topics outlined in USTR’s Section 301 report, such as cyber intrusions or criminal trade secret misappropriation.

The word cloud, above, is drawn from a machine translation of this document.  The original Chinese language and my redlining of a machine translation are found here.

Addendum of November 26, 2019:

Susan Finder in her Supreme People’s Court Monitor blog, reported on Judicial Interpretation drafting by the SPC for next year, some of which are referenced in the recently released Opinions.  According to that blog, on 29 April 2019, the SPC’s General Office issued a document setting out a list of 47 judicial interpretation projects, 36  with an end of 2019 deadline.  Several of these involve IP-related issues, including issues addressed in the joint CPC and State Council Opinions, including:

  1. Interpretation Concerning the Application of Law in Cases of Disputes over the Infringement of Trade Secrets (关于审理侵犯商业秘密纠纷案件应用法律若干问题的解释). Responsibility of the #3 Civil (IP) Division.
  2. Interpretation on Several Issues Concerning Punitive Damages for Intellectual Property Infringement (关于知识产权侵权惩罚性赔偿适用法律若干问题的解释). Responsibility of the #3 Civil (IP) Division.
  3. Provisions on Issues Concerning the Application of the Foreign Investment Law of the People’s Republic of China (I) (关于适用《中华人民共和国外商投资法》若干问题的规定(一)). Responsibility of the #4 Civil Division. The Foreign Investment Law and the recently released draft implementing regulations contain provisions protecting the intellectual property of foreign investors, including prohibiting forced technology transfers and enhancing the availability of punitive damages.

These draft JI’s have a due date of the first half of 2020.  Susan Finder notes in her blog that given the worldwide attention on the issues set forth in these three judicial interpretations, she expects that they will be released for public comment.  I hasten to add that the IP Division of the Court has generally taken a positive attitude towards soliciting public comment on its draft judicial interpretations, and I hope that they maintain this tradition.

It was also noted by Susan Finder that certain JI’s were due by year-end 2019, including:

  1. Intellectual Property Rights Evidence Rules (关于知识产权民事诉讼证据的若干规定).  Responsibility of the #3 Civil (IPR) Division. This draft was discussed at a conference hosted by the SPC in Hangzhou in 2018.  As Chinese courts experiment with more expanded discovery, evidence preservation and burden of proof reversals, clearer rules regarding the obligations of parties to produce evidence are becoming more critical.  A particular notable example of such a reversal is found in the recent amendments to the trade secret law (Article 32), whereby  a rights holder that has preliminarily proven that it  has taken reasonable confidentiality measures on the claimed trade secrets and has preliminary evidence reasonably demonstrating that its trade secrets have been infringed upon, can shift the burden of proof (BOP) to the infringer to prove that the trade secrets claimed by the right holder do not belong to those as prescribed in this law.
  2. Judicial interpretation on administrative cases involving patent authorization and confirmation (关于审理专利授权确权行政案件若干问题的解释). Responsibility of the #3 Civil IPR) Division. Another interpretation that previously had a 2018 year-end deadline.  A draft was issued for public comment in the summer of 2018; see my earlier blog.

Addendum of November 27, 2019:

Another China law blog, the NPC Observer also expects that some of the IP legislation flagged in the Opinions for revision may be considered as early as late December of 2019t.  According to the NPC Observer:

We expect the session to review a … draft amendment to the Patent Law [专利法] …The session may additionally consider the following bills: …

I have previously blogged about proposed revisions to the Patent and Copyright Law.

 

Second Annual Berkeley-Tsinghua Transnational IP Litigation Conference Is Fast Approaching

Transnational-Conference-new-ver-823x1024

Berkeley Law and Tsinghua law will be co-hosting their Second Annual Conference on Transnational IP Litigation, at the campus of UC Berkeley on October 22, 2019.  Details, including registration information, are available here.

The program will look at strategic concerns in many of the hot issues in cross-border US-China IP litigation, including trade secret cases, standards-essential patents, whether foreigners “win” in each other’s jurisdictions, Section 337, criminal cases, on-line enforcement, civil litigation and the role of China’s new IP courts, administrative challenges to validity, forum non conveniens claims, enforcement at trade fairs, and other issues.  Please register soon if you are interested in attending.

We have great speakers and we look forward to having a great audience!

A Statistical Snapshot of IP Prosecution, Admin. Enforcement and Monetization for 2018

As reported by zhichanli, CNIPA (the new agency formed from SIPO, SAIC and AQSIQ’s – IP authorities within the State Administration for Market Regulation) held a news conference on January 10 to report on statistical developments for 2018.  Here are some of the highlights:

Explosive Patent Growth Continues: 1,542,5000 invention patent applications were received by CNIPA, an increase from 2017 when it was 1,381,594.  432,000 patents were granted.  Of these 346,000 were domestic patent applications (2017: 326,970).  This leaves 86,000 foreign applications for 2018 (2017: 93,174).  There was therefore an increase of  5.8% to 19,030 in Chinese domestic patent grants in 2018, while foreign grants appear to have dropped by 7.7% to 7,174.  Any drop in a growing economy and IP system can be indicative of a problem of some type.

In total 93.3% of the domestic invention patents were service inventions, which is one indicator of possibly increasing quality.    Huawei remained the lead domestic filer with 3,369 invention patent applications.

CNIPA had a busy year examining 808,000 invention patents, 1,874,000 utility model patents (an increase from 1,687,593), and 667,000 design patents (an increase from 420,144).  The PRB heard 38,000 cases, resolved 28,000 and invalidated 5,000 patents.

Comparative data on 2017 is drawn from this report.

Trademarks Too, on Overdrive: CNIPA received 7,337,1000 trademark applications (2017: 5,748,00) and registered 5,000,7000.  Of these, 4,797,000 were domestic applicants.  In aggregate, there were 18,049,000 trademarks registered in China (2017: 14,920,000).  The good news is that the rapid growth in TM applications is slowing.  In 2017, there had been a year-on-year increase of 55.7% in trademark applications. In 2018, the increase was “only” 31.8%.

Patent Administrative Enforcement Continues to Be the Focus:  CNIPA reported 77,000 administrative patent cases, with an increase of 15.9% over the previous year.  35,000 cases involved patents disputes, of which 34,000 involved infringement (an increase of 22.8%).  43,000 cases involved counterfeit patents, with an increase of 10.9%.  There were also 31,000 cases involving illegal trademark activities.  This was an increase from approximately 30,000 the year before, which was itself a decrease of 5.1% from the prior year.  The apparent administrative enforcement realignment to patents thus continues, despite recent moves to improve the civil patent system, including the establishment of a specialized IP court at the SPC level, and the relatively high historic utilization of the administrative trademark system by foreigners.

Another odd development: 2018 marked the launch of the first administrative case involving infringement of a registered semiconductor layout design.

TM’s Remain Number 1 in Geographical Indications: There were 67 sui generis GI registrations approved, presumably under the former AQSIQ system, and 961 GI trademarks registered.   The trademark-based GI system thus appears to be occupying a dominant role.

Cross-border Trade In IP – is it Growing:  CNIPA also reported that “usage fees” for IP rights in cross border trade increased to 35 billion USD.  Comparative data to prior years and breakout data with individual countries would be especially useful, in order to do year-on-year comparisons and to also compare with US data on licensing revenue.  As reported in an earlier blog, according to official Chinese statistics for 2013, technology import contracts into China were reported at 41 billion dollars, with patent licensing contracts constituting 15.4% of that total.  I don’t have comprehensive data to make even preliminary comparisons at this time – and such data would be highly useful.

Summary: Altogether, the report shows a rapidly growing huge IP system, with active government involvement, encouragement and planning.  The report also suggests that there may be a diminishing foreign role, relative and/or absolute, in certain areas.  Finally, this report is the first hint of how the combined CNIPA may report on its joint activities in patents, trademarks, semiconductor layout designs, GI’s and administrative enforcement.  Additional data is usually released around IP Week of each year (April 26).

Summarizing the SPC’s 2015 White Paper

 

WP_20160420_005China releases much of its IP data in April, on the margins of World IP Day (April 26).  This year there have been important conferences summarizing these reports in advance of their release, including reports from the Supreme People’s Court on IP litigation, as well as white paper reports on specialized IP courts in Beijing, Shanghai and Guangdong.  In addition, there are SPC reports on fifty model cases and 10 big IP casesThe Western media has also reported on some of these reports, as have state run media in Chinese and in English.   This blog has reported on SPC whitepapers and model cases for some time.  As in prior years many provincial courts, such as Hubei, are also reporting out white papers of various kinds, as have IP and administrative agencies, such as Beijing municipality.

As in prior years, interpretation of the data, particularly for the foreign business community, can be challenging.  Here is my digest of the SPC’s important 2015 White Paper:

Foreign Cases Are a Shrinking Share

Perhaps the most dramatic national news from the official national data involving foreigners is that in 2015 foreign related IP cases dropped 22% in absolute numbers from last year, despite an overall increase of 7.2% of total decided IP cases. The total number of civil cases involving foreigners was 1,327.   As a consequence, foreign related IP civil cases as a share of total cases dropped from 1.9% (2013), to 1.8% (2014), to 1.2% (2015).   By contrast, total administrative cases in 2015 were 10,926, of which 4,928 were foreign or about 45%, continuing the trend of an outsized foreign administrative presence, with an undersized infringement role.

Data from other sources also casts some doubt on the “foreign-related” data in the SPC’s report.  The Shanghai IP courts reported that approximately one in six lawsuits received involved an overseas party, with most pursuing trademark or patent infringement claims.  A newly set up database company, IP House, also reported that over 20% of the IP litigation in Beijing involved foreigners.  Former SIPO Commissioner Tian Lipu also cast doubt on data suggesting that the amount of foreign-related IP litigation is under 5%, in a letter to then USPTO Director Kappos.  Conflicting data on foreign-related cases is likely due to the manner of reporting.  Although there is no official explanation I know of, I believe that foreign-related cases are likely those cases reported as foreign related for purposes of suspension of mandatory time frames for adjudication under China’s civil procedure law.  However, litigation commenced by a foreign invested entity in China may be characterized by the SPC as a domestic case.

Another explanation may be that the high level of foreign-related administrative cases may be due to the centralization of IP prosecution in the headquarters of many foreign companies which file these cases in the name of the parent company.  After China’s patent office or trademark office grants the right, the foreign company might then transfer the rights to the subsidiary.  This transfer is validated by the high percentage of related party IP licensing activity which US census also reports. I have not, however, seen any studies that seek to correlate foreign licensing activity, foreign investment and foreign-related litigation, which might support this hypothesis.

As I have noted elsewhere, comprehensive data must, however, await publication of the relevant source cases or data by the SPC and other courts.

IP Cases Continue to Grow Overall

The shrinking reported foreign share contrasts with the rapid growth of IP cases in China.  The SPC reported that newly reported first instance IP cases increased to 130,200, up 11.73% from 2014.  Total cases adjudicated were 123, 059, an increase of 11.68%, of which 101,324  were civil cases, an increase of 7.22%.  Administrative cases adjudicated constituted 10, 926, an increase of 123.57%, most likely due to changes in China’s trademark law which establish a more direct role for the courts.   Criminal cases adjudicated were 10,809, maintaining their slightly decreased level since 2013 (the SPC report notes that the cases are “stable” 同比基本持平)。

Patent Cases Continue to Grow

The SPC reported that patent and licensing cases continued grow, and that they increasingly involved complex areas of technology, with an increase of 22.1% to 13,087 cases.   However, I have not yet seen a breakdown of cases by type of patent or technology type which fully documents this observation.  The data appears too general at this point, considering that perhaps 2/3 of China’s patent cases involve unexamined utility models and designs of varying technological complexity, the relatively small share of licensing disputes, and the reality that many software and unfair competition cases may in fact involve high technology cases (but may not otherwise be reported as such).

Unfair Competition Cases on the Rise

The SPC report shows that unfair competition cases have increased, including those involving the internet and software technologies. Civil cases increased to 2,181, with antitrust cases increasing to 156. The total increase was 53.38%. Trade secret cases have not yet been separately reported out. They are generally a significant share of this relatively small portion of the IP docket. In 2009, for example, there were 1,282 cases under the Law to Counter Unfair Competition in the courts, of which 253 involved trade secrets.

What the Data Suggests on Courts Foreigners May Want to Pay Attention To

A foreigner traveling to China who is considering where to bring a case, or risks of being sued in a particular venue, should not consider all court as equally well situation.  The Beijing courts, for example, clearly play a key role in foreign related IP adjudication. As administrative cases are overwhelmingly located in Beijing, the Beijing IP court hears perhaps 80% of the combined civil/administrative foreign docket.

In addition, the SPC reports that Beijing, Shanghai, Jiangsu, Zhejiang and Guangdong accounted for 70 percent of the first instance IP litigation of all types. Shanghai is also a good place to engage, as it has the SPC has established an international exchanges base there. Indeed, the Shanghai white paper also reported out on its exchange activities, including singling out a significant conference last year with the US Court of Appeals for the Federal Circuit. Still, several courts are assuming increasing importance, and some may pose defensive risks and opportunities for foreigners.   Jiangsu’s docket increased by 38.71%; the docket in Tianjin increased by 50.41%. Anhui saw an increase of 101.26%, while courts in Shandong, Shaanxi, Hunan and Helilongjiang all saw increases of over 30%.

Just as the specialized IP courts were releasing their white papers, the SPC reported that NPC delegates from a number of provinces had been asking to establish their own IP courts in their region, and that the SPC would report out in August on these proposals.  In my opinion, these requests reveal the problem of this otherwise noble experiment in specialized IP courts: if multiple regions have specialized IP courts at the intermediate level, then efforts to insure national unity in reduce local protectionism in IP litigation through a national appellate court may be compromised. However, it is also important to note that these specialized IP courts would replace specialized IP tribunals – a significant difference from US trial court litigation, which  involves courts of general jurisdiction.

At the same time as these papers were being released, a judicial delegation from China was engaging with US federal and state judiciary to discuss the role of IP courts and possibility of future cooperation (see picture above by me from the Wisconsin Supreme Court).  I also believe that we can expect more discussion on these important issue in the months and years ahead.

Patent Litigation, Local Protectionism and Empiricism: Data Sources and Data Critiques

Professors Brian Love, Christine Helmers and Markus Eberhardt have recently co-authored an article Patent Litigation in China: Protecting Rights or the Local Economy?.  The article has been excerpted in the IAM,  discussed on Prof. Don Clarke’s Chinalaw listserve and is also set to be published in 18 Vanderbilt J. Ent. & Tech. L. (2016).  It has created a bit of a stir.

The authors seek to counter certain generalizations regarding the nature of China’s IP (utility patent) enforcement environment.   They bring to an English language reader many useful observations regarding the patents that are being litigated, favored locations for litigations of different technologies, and that local protectionism is not apparent in the litigated cases that were studied.  What has most attracted attention, however, is something that really should not have:  foreigners win cases.  This is not new news and probably oversimplifies what the data suggests.  The conclusion itself reflects mostly on the lack of knowledge of the West on China’s IP system.  Indeed, I personally believe that a review of all available data would likely lead to a different conclusion on how foreigners win cases and the nature of Chinese “local protectionism.” Unfortunately, by relying primarily on English language secondary sources, an incomplete database and data that is over five years old, the article doesn’t address why foreigners bring so few cases when they are winning and what are the factors that contribute to success or failure.

I have divided my observations on this article into three parts: (a) why foreigners winning cases is “old news”; (b) what litigant behavior and the databases likely say about “win” rates; and (c) manifestations and data on local protectionism.

  1. Win Rates as Old News

The authors suggest that they are the “first large-scale empirical study of patent litigation in China” and that “empirical study of Chinese patent enforcement is virtually non-existent.”

In fact, there are a wealth of surveys on foreign “win rates”胜诉率 in the Chinese IP courts, most of which draw upon a larger sample than the 471 patents cases used by the authors, which included only 49 cases with foreign plaintiffs and 29 cases as defendants — a rather small sample.

Here’s a random survey of prior studies on foreign win rates that I found in preparing this review of the article.

 

1.According to a press report of a Shanghai news conference, the success rate for foreigners in first instance IP trials was 84.6% for the 447 cases filed in Shanghai from 2009-2013.

2. Of the 2,691 cases adjudicated in the Beijing Number 1  Intermediate court for the period 2006-2010, foreigners had a full or partial win rate of 55.2%.

3.A newspaper report on success rates for foreigners on IP cases in Zhejiang  reported success rates of 95% for 2013 out of 85 foreign cases adjudicated that year, with rates as high as 99% in 2010.

4.  A sample of 350 foreign-related cases conducted by the Guangdong High Court in 2010 to the first half of 2013 of 1272 cases filed (not including Taiwan, Hong Kong and Macau), revealed success rates of 70-80%, with relatively low settlement rates of 10-20%.  Foreign cases constituted about 2.25% of all IP cases.

5.  A study of the leading cases discussed in the gazette of the Supreme People’s Court for the 30 year period from 1985 to 2014 reported a success rate in the 33 foreign cases (out of 157 cases filed) of 73%, with foreigners playing the role of plaintiff in two-thirds of the cases.

6.  A study reported by the renowned Judge Sun Hailong in Chongqing in 2015 noted that for the period of 2003 -2007 the success rate for Chinese litigants was 5.78%.   This report also challenges the notion, that “inland provinces”, such as Sichuan, are somehow hotbeds of local protectionism, which the authors of the Love study noted has “little empirical evidence… to support or refute.”

7.  The Shanghai Number 2 Intermediate Peoples Court reported for the period 2006-2010, that the success rate for foreigners on IP cases was 86.3% of the 80 cases heard.  Foreigners were plaintiffs in 94.5% of the cases filed.

8.  In an English language September 27, 2012 letter of SIPO Commissioner Tian Lipu to USPTO Director Kappos, SIPO also points to analyses it conducted of foreign win rates, noting that in the 800 foreign cases surveyed from a number of different provinces (including inland provinces), foreign companies on average stood a better chance of winning their cases than Chinese parties, with foreigners winning all design patent cases in Guangdong.  The study notes that in Shanghai foreigners were more likely to appear as defendants and their win rate was 59% compared to 52% for domestic defendants   When foreigners acted as plaintiffs in Shanghai, their win rate in first instance cases was 77.8% versus 59.3% for domestic parties.

The above data, in general, supports all of the conclusions of the authors, except for the notion that their study is path breaking.  The notion that foreigners win patent cases in China is not new news. However, I differ with the implicit conclusion that local protectionism or other challenges hardly exist…

(2) What the Databases Say About Win Rates and Empirical IP Research in China

The authors reliance on some rather old cases in the CIELA database (www.ciela.cn) actually may be said to undercut their conclusions.  CIELA catalogues approximately 30,000 IP cases for the period 2006-2014.   This is a fraction of the total cases filed during this period.    In 2014 alone, there were 133,863 IP cases accepted by the courts, of which patent cases constituted 9,648 and administrative patent cases were 539.  CIELA especially lacks in settled cases and cases litigated after 2011 (article, fn. 23).  Indeed, the small sample of invention patent cases selected by the authors in a multiple year period was about 1/20 of the numbers of patent cases in 2014 alone

Because China’s IP policies change quickly compared to the United States, recent samples can be very important.  In using data prior to 2012, the authors chose to ignore many recent developments, which could have affected their conclusions  These include the expiration of the National IP Strategy and a new plan for 2014-2020, a lack of data on the IP Courts, and the lack of reference to administrative patent litigation.   The growth of administrative patent enforcement litigation may be the most disruptive of this study as SIPO, heard 35,884 patent administrative enforcement cases in 2015, up 46.4% from 2014, of which 14,202 were patent infringement cases, and 21,237 were patent passing off cases.   The Love study sample pales in comparison to these numbers. Unfortunately, we know very little about the disposition of these cases.  Moreover enhancing administrative patent enforcement appears to be a current priority of SIPO, including in proposed amendments to the patent law.

The authors’ data however might also be compared with other, more recent and comprehensive sources.  A competing commercial database, Darts IP, offers considerably more cases, especially recent cases. Here is what I understand that Darts collects on Chinese civil patent litigation compared to CIELA:

Ciela Total Civil Patent cases Darts IP Total Civil Patent Cases
2007 699
2008 531
2009 566
2010 631 1516
2011 852 1719
2012 736 2067
2013 271 1755
2014 0 2490
2010-2014 Total 2490 9547

 

The DARTS IP decisions also include data on provisional relief and settlements, as indicated above, which CIELA does not as fully report.

Nonetheless, I believe the honor of the largest judicial database likely belongs to the courts themselves.   Chinese judicial databases have become increasingly more comprehensive.  As Susan Finder has noted on her Supreme Peoples Court Monitor Blog, the SPC has recently upgraded its case database, to include over 14,000,000 separate documents and has become a “a rich source of understanding how the Chinese court system is operating, through (for example) a focused search of a  specific type of case…”.  Chinese judges have told me that the largest collection of cases involving patent infringement at this time likely belongs to another judicial database, the IPR court decision database.  Whatever their respective holdings, I believe that judicially-maintained databases will be increasingly useful in undertaking the kinds of empirical analyses that are needed, including analyses of the fairness and independence of the Chinese judiciary.  One early effort in using these databases was Xin He and Su Yang’s important article on the handling of civil law suits in Shanghai.   “Do the ‘Haves’ Come Out Ahead in Shanghai Courts?, Journal of Empirical Legal Studies, Vol. 10, Issue 1, pp. 120-145, 2013 ), which analyzed 2,724 adjudication decisions in Shanghai to reach their conclusions that “stronger parties not only win more often, but also do so by a large margin.” This article did not focus on “local protectionism”, but its conclusions suggest that bias persists in less visible forms than simple discrimination against outsiders.  I do not believe that IP is an exception to other forms of civil litigation in terms of political pressure.

Finally, there is the problem of database selectivity, which was also discussed on Don Clarke’s list serve, and is acknowledged by the authors.  The reasons for the high win rates are likely to be buried in other data, including the very low percentage of cases in China that are foreign related, which has resulted in a high degree of self-selecting of cases that foreigners bring.  Moreover, many important cases in China have simply not been published, among them the landmark first instance case of Chint v. Schneider, which resulted in the largest patent damages (for a utility model) in China’s history, and the important first instance antitrust case of Huawei vs. Interdigital, both of which involved foreigners who lost.  Finally, the CIELA database has its own weaknesses in terms of focusing on China’s key courts.  For example, CIELA records only two patent infringement law suits from the Supreme People’s Court (with a 50% “win” rate), which is hardly the situation for China’s most important court.

(C) Local Protectionism

Local protectionism, as the authors point out, has long been a concern to foreign rights holders in China.  However, what constitutes local protectionism, other than a fear of the foreign and unknown, has rarely been defined.  The authors define local protectionism in value-terms, such as “bias”, “corruption” and “lack of impartiality” especially in China’s inland provinces.   It is equally clear that local protectionism is not merely a foreign concern.  Chinese officials have also repeatedly complained about local protectionist barriers of various kinds, including in IP enforcement.

I do not believe that local protectionism is only question of where a party is located, but rather, consistent with Xin He and Su Yang’s view, the political power and influence that a local company may have on the local judiciary or other enforcement officials.  Local protection also is not necessarily an issue of whether one is forced to litigate in a remote inland province, as the authors suggest, and which the articles I cite at the beginning of this review (which include data from inland provinces) refute.  At its base local protectionism derives its influence from a locally employed and appointed judiciary.  In fact, a well-connected foreign company which has many employees may have significant local influence in a given Chinese locality, which is also dependent on the employment and taxes provided by that foreign entity.   Thus, foreign companies may also benefit from local protectionism – or at least to a degree.

I believe that most foreign rights holders, facing the uncertainties of a legal culture that bears the opprobrium of being “local protectionist” would actually file their cases in jurisdictions where they are likely to benefit from the most local protectionism possible.  The article appears to corroborate this when it notes, that “foreign entities appear in the data more often as patentees than accused infringers.”  However, further studies would be useful to corroborate linkages between industrial interests, R&D, and patent litigation in China.

Local protectionism may be influenced by local interests.  However, as the authors note, IP litigation in China tends to be clustered.  However, such clustering can be a double-edged sword.  Local judges who are more familiar with a particular technology or industry, may also be more sympathetic and knowledgeable about a given technology, as much as they may be inclined to favor a domestic litigant.

One place the authors might have looked at to validate if local protectionism is the basis for plaintiff’s filing of cases would be to compare cases involving the same parties or same set of facts.  For example, one might look at appellate reversal rates of judgments rendered in favor of foreigners.    Earlier (unpublished)  studies I conducted on the CIELA data shows a dramatic shift away from foreigners’ favor when they appeal their favorable first instance decisions, with about a 30% foreign win overturn rate on appeal, compared to 17% for domestic plaintiffs.  The data below needs to be updated but nonetheless gives a sense of general trends.

The data might be compared with data on the Court of Appeals for the Federal Circuit.  For example,  Janicke and Ren found no statistically significant evidence of bias against foreign parties in Fed Circuit, in which 26 percent involved foreign defendants accused of patent infringement. See: See Paul M. Janicke & LiLan Ren, Who Wins Patent Infringement Cases? 34 AIPLA Q.J. 1, 9 (2006).  Other cases of this nature include: Kimberly A. Moore, Xenophobia in American Courts, 97 NW. U. L. REV. 1497,1499 (2003); Trimble, Foreigners in U.S. Patent Litigation: An Empirical Study of Patent Cases Filed in Nine U.S. Federal District Courts in 2004, 2009, and 2012 (17 Vand. J. Ent. & Tech L . ).  Still another fruitful area of comparison is in reviewing decisions by different courts on counterpart foreign patents, or on technology that is the subject of trade secret litigations in different jurisdictions, to determine if there is a bias towards one country or another.

Another way of approaching local protectionism is to be less empirical and instead look at national policies and anecdotes that suggest there may be unchecked bias.  For example, the appointment of judges by local people’s congresses for a term could suggest local favoritism. Recent national judicial policies which favor courts “vigorously” asserting jurisdiction in international matters, and “restricting foreign parties to litigation from leaving China” can create significant risks for foreign litigants.  Many academics and officials have expressed growing concerns over due process rights for foreigners in Chinese IP litigation.  In addition, there have been several high profile cases in the United States which have which have suggested that the Chinese government may be actively intervening in cases.  In at least one case (Huawei vs Interdigital) a Chinese judge has urged Chinese companies to aggressively use Chinese  antitrust law to address “technology roadblocks in China and overseas” (华为公司善于运用反垄断法律武器进行反制,值得其他中国企业学习。…国内企业,在突破技术壁垒为自己赢得发展空间上,要大胆运用反垄断诉讼的手段. ). There are also telling cases such as the matter of Hu Zhicheng, an engineer, who was involved in a patent dispute with his former business partner turned competitor.   Investigators allegedly tried to force him to sign rights to his US patents to the former business partner, and subsequently jailed him for 17 months for alleged commercial theft.  Prosecutors later withdrew the commercial theft case.  He was not released until June 2013.

One of the oddities of practicing Chinese IP in Washington, DC is that it exists at the intersection of both IP law and Chinese legal studies.  Both of these areas have benefitted enormously from empirical research to support sounds academic analysis, business strategies and government policies.  China’s legacy of state planning has also made much of the debate in China about IP policies highly data-oriented.  However, much of the discussion in the West on Chinese IP has been less empirically-dependent.  This study of Profs. Love et al, is one important step in deepening domestic awareness of how many of our assumptions need empirical support and further research.  The need for such empirical research was one of the reasons that the USPTO set up a China Resource Center, which is an important part of USPTO’s international plans.   I believe we have just started on a long journey of accessing and analyzing the increasingly rich area of empirical analysis of China’s IP environment.

Please send any corrections or edits to this blog to me at chinaipr@yahoo.com.

Update (July 12, 2016):  Jacob Schindler at IAM reported on July 4, 2016 that, according to a Chinese judge, foreign litigants in the Beijing IP Court had a 100% win rate in civil IP cases in 2015.  The win rate for all plaintiffs was 72.3%.

Of course, the issue remains: if the win rate is so high, why is the percentage of foreign related cases so low? As pointed out in this blog, one reason may be that foreigners self-select cases which they believe they have a very high chance of success.

SPC’s Annual Report Gives A Passing Nod to IP

SPC President Zhou Qiang issued his 2015 Report on the Work of the the Supreme People’s Court to the National People’s Congress recently, and IP didn’t get much of coverage. However the IP cases continued to climb – by about 10%.  More data is usually released around April 26 – World IP Day.

The principle paragraph devoted to IP, which curiously links IP to antimonopoly law is:

加大知识产权司法保护力度。  依法制裁侵犯知识产权和制售假冒伪劣商品行为,维护公平竞争的市场秩序,保护知识产权,促进创新驱动发展。  各级法院审结一审知识产权案件11万件,同比上升10%。  审结奇虎与腾讯公司涉不正当竞争案和垄断案,促进规范互联网领域竞争秩序。 

”Increase judicial protection of intellectual property rights. Sanction IPR infringement and selling counterfeit and shoddy goods according to law, and maintain fair and competitive market order and protect intellectual property rights, and promote innovation-driven development. Each level of IPR courts of first instance concluded a total of 110,000 cases last year, which was an increase of 10% over the prior year. We concluded the case involving Qihoo and Tencent involving unfair competition and monopoly, and promoted order in the area of Internet competition.”

In addition, President Zhou noted amongst the year’s accomplishments:

设立知识产权法院。  根据全国人大常委会的决定,在北京、上海、广州设立知识产权法院,审理知识产权民事和行政案件,落实国家知识产权战略,发挥司法保护知识产权的重要作用.

“Establishment of IP courts. According to the decision of the NPC Standing Committee, we set up intellectual property courts in Beijing, Shanghai and Guangzhou to hear civil and administrative cases of intellectual property rights, to implement the national intellectual property strategy, and play an important role in the judicial protection of intellectual property.”

Another interesting element: China handled 2,872,000 commercial cases last year, of which only 5,804 involved foreigners. In addition, the Chinese courts handled 6,014 cases of international judicial assistance. It appears that foreigners in all areas continue to play a relatively small role in China’s commercial litigation.

Susan Finder did an excellent blog on the report: “Supreme People’s Court president says court reforms in “deep water area.”

Developments in Foreign-Related Cases, IP and Otherwise

Here’s an excellent posting from a “sister blog”, Susan Finder’s Supreme People’s Court Monitor, on developments in foreign-related cases in China.   The blog points to legal reforms in process that could result in a more activist role of China’s judiciary in international affairs, including by participating in international norms setting, strengthening judicial cooperation with Hong Kong, Macau and Taiwan, and perfecting judicial assistance.  The court also noted that it would also “vigorously” assert jurisdiction in international matters, (this was briefly discussed on this blog in the Huawei vs Interdigital case).

Judge Luo Dongchuan,  chief judge of the number four civil tribunal, and a respected former IP judge, is cited by Susan Finder, as suggesting four areas of additional engagement by the courts:

  • “Establishing an electronic platform for service of legal process outside of the jurisdiction (intended to mean Hong Kong, Macau, Taiwan, as well as foreign countries);
  • Investigating and obtaining evidence …
  • Determining foreign law, through establishing a database of experts (Chinese and foreign).
  • Restricting parties to litigation from leaving China”

Clearly, international engagement by the courts is on the increase.  Transnational IP could be greatly influenced by these developments.