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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Across the Fault Lines: Chinese Judicial Approaches to Injunctions and SEP’s

As has been noted in the media, on April 26, 2018, the Guangdong High People’s Court (GHC) promulgated the Trial Adjudication Guidance for Standard Essential Patent Dispute Cases (the “Guangdong Guidance”). The Guangdong Guidance adhered to the basic framework of Beijing Higher Court’s (BHC) Guidance for Patent Infringement Determination 2017 (the “Beijing Guidance”) which itself appears quite similar with the basic framework set forth by Court of Justice of the European Union (CJEU) in its decision for Huawei v. ZTE, as well as in the recent decisions of Iwncomm v. Sony (see abridged English translation from the Comparative Patent Remedies blog here) in Beijing and Huawei v. Samsung in Shenzhen.  Taken together, these approaches depart from prior Supreme People’s Court (SPC) practices, and embody a “fault-based” conduct-evaluation framework. The Guangdong Guidance further suggests that courts which apply the fault-based conduct-evaluation framework may rely on a comparable license approach than other approaches to determine FRAND royalties.

At First the FRAND Licensor Is Barred from Seeking an Injunction

The earliest Chinese court’s attitude about determining injunctive relieves and royalties for standard-related patent infringement case can be found in the reply letter issued by the SPC on July 8, 2008 to the Liaoning High People’s Court (LHC).  The SPC instructed the LHC that once a patent holder participated in the standard setting process and agreed to have its patents adopted in the standard, the court shall deem the patent holder as having consented to license its patents to anyone who implements the standard.  The patent holder can charge the standard implementer for royalties, which, however, shall be less than the usual amount of royalty if a standard were not involved. The court would also implement the promise of a patentee to license on a royalty-free basis.

Subsequently, on October 16, 2013, the GHC upheld the Shenzhen Intermediate Court decision of Huawei v. InterDigital. In this case, the Chinese court held that once an implementer had indicated its willingness to conclude a license, a FRAND encumbered SEP owner shall have the obligation to make a FRAND offer to the implementer. The key to determining whether the offer was FRAND is the evaluation of the royalty rate. Their opinion may also be read to suggest that the courts might reject a FRAND-encumbered SEP owner’s petition for an injunction when an implementer expressed it willingness to conclude an agreement. However, the court did not address how to determine whether an implementer is willing to negotiate.

The SPC Picks up the Fault Factors First

On March 21, 2016, the Supreme People’s Court of China promulgated the Judicial Interpretation on Several Issues Regarding Legal Application in the Adjudication of Patent Infringement Cases II (the “Patent JI II). Article 24 of the interpretation stipulated that the Court shall not support the SEP owners’ petition for a permanent injunction if the SEP owner intentionally acted against its FRAND commitment made in the standardization process during the negotiation of licensing conditions with the accused infringer, and the infringer was not at “obvious fault” during the licensing negotiation. Paragraph 2 of this Article also provides that in determining licensing conditions, a court shall, in accordance with FRAND principles, comprehensively consider the contribution of the innovation and its role in the standard, the situation in the technical field of the standard, the nature of the standard, the scope of exploitation of the standard, the related licensing conditions and other factors. This Interpretation thus introduced the fault-based idea into Chinese courts’ consideration of whether to issue an injunction in a SEP related case. The types of standards referred by Article 24, according to its language, are limited to non-mandatory national, industrial and local standards. The promulgation of Patent JI II opened the gate for the Chinese courts to view FRAND obligations as imposing certain conduct behavior on both the SEP owner as well as the standard implementer.

One year later, with the promulgation of the Beijing Guidance, the BHC extended the fault-based test for determining an injunction from the SEP owner to the standard implementer. In the Beijing Guidance, BHC attempted to structure a more complete and balanced framework for SEP injunctions. Article 150 of the Guidelines stipulated that both parties shall negotiate in good faith during the SEP licensing negotiation. Article 152 of Beijing Guidance targets the situation in which both parties were not at obvious fault. It provides that if the infringer duly submitted the amount of royalty it offered or a deposit no less than that amount to the court, then the court shall not generally support the SEP owner’s petition for a permanent injunction. Article 152 also detailed the situations where the court can determine the SEP owner disobeyed its FRAND obligation. These principles were also articulated in Article 13 of the Guangdong Guidance with some difference in detail. Article 153 of the Beijing Guidance targets the situation in which the SEP owner disobeyed its FRAND obligation and simultaneously the accused infringer was also found acted at obvious fault during the negotiation. It provides that the decision to grant an injunction shall be based on which party is more blameworthy for the break-down of the negotiation. Article 153 also enumerated the situations by which a court can determine that the accused infringer acted at obvious fault, which is also articulated by Article 14 of the Guangdong Guidance with some difference in details.

The complete general principles of deciding whether to issue permanent injunctions in SEP involved infringement cases was firstly laid out in the decision for Iwncomm v. Sony by BHC on March 28, 2018. The court reiterated that in a SEP licensing negotiation, both parties should negotiate in good faith. The decision to enter a permanent injunction should be based on which party is to blame for the break-down in negotiations by considering the performance of both parties during the process of negotiation as well as the substantial terms offered to conclude the agreement. The court enumerated four general situations:

  1. If the SEP owner intentionally acted against its FRAND commitment which led to the break-down of the negotiation, and the infringer was not at “obvious fault”, the court shall not support the SEP owner’s petition for permanent injunction;
  2. If the SEP owner was not at “obvious fault” during the negotiation, and instead, it was the infringer that at “obvious fault”, the SEP owner’s petition for permanent injunction shall be supported by a court;
  3. If evidence indicates that both parties were not at “obvious fault”,and the infringer duly submitted the amount of royalty he offered or a deposit no less than that amount to the court, the court shall not sustain the SEP owner’s petition for permanent injunction;
  4. If both parties are found acted at fault, the decision of whether to grant an injunction depends on an assessment of the faults of both parties.

Comparing these principles with the language in the Beijing Guidance, where the SEP owner acted at obvious fault while the accused infringer did not, it appears that submitting a deposit to a court is no longer the premise for the court to deny an injunction request. The deposit is only specifically required in the situation where both parties were not at “obvious fault.” In Iwncomm v. Sony, Sony, the accused infringer, was found to be intentionally engaging in delaying tactics and was therefore at obvious fault.  The BHC upheld the Beijing Intellectual Property Court’s decision of granting a permanent injunction. This case was also discussed in the Comparative Patent Remedies blog,

Huawei v Samsung And the Shenzhen Court Flexes its Muscles…

On January 4th, 2018, about two months before BHPC came to its conclusion on Iwncomm v. Sony, the Intellectual Property Division of the Shenzhen Intermediate People’s Court granted injunctions against Samsung in two separate decisions in Huawei v. Samsung. After detailed examination of the performance of both parties in the past licensing negotiation process and the court mediation process, the court then found Samsung was at “obvious fault” and that it acted against FRAND principles. Thus, a permanent injunction was granted. The court also ruled that in the light of the different nature of SEP and non-SEP cases, the two parties are allowed to continue negotiating licensing terms after the judgment, and the injunction will not be enforced on the condition that the parties reach an agreement later or Huawei consents not to enforce it.

The court’s injunction absent licensing-decisive negotiations or the probability of Huawei’s decision not to enforce the injunction was the basis for Judge Orrick’s Anti-Suit Injunction in the US counterpart case that enjoins Huawei from enforcing the Shenzhen Court’s injunction.

In Judge Orrick’s view, his court was the first to hear the case even if it were not the first to decide it, upon the petition of the same party (Huawei), and any decision to enjoin activity in Guangdong would undercut the possibility of a global settlement, which is the basis of Huawei’s claim before his court. Unlike the Chinese courts to date, Judge Orrick does undertake a lengthy comity analysis to justify his decision. Judge Orrick’s decision stands in stark contrast to another, earlier Shenzhen decision, Huawei v InterDigital (2013) which determined that InterDigital’s seeking an injunction (exclusion order) at the USITC was an abuse of its rights as a SEP holder, and arguably showed no deference to a previously initiated US litigation. Judge Orrick may have been taking prophylactic measures to ensure that US courts retain jurisdiction over disputes, and to deny a Chinese party “two bites” of the apple by undercutting a case that the Chinese plaintiff initiated at essentially the same time as a Chinese litigation.

The Guangdong Guidance was promulgated with all of the foregoing Chinese cases and judicial practices in mind. Article 10 of the Guidance explicitly reiterated that whether a permanent injunction is granted shall depend on whether the SEP owner or the implementer was at fault. Article 11 provides that when deciding whether the parties were at fault comparing with ordinary business practices, the factors that a court shall consider include: (1) the entire history of the negotiation; (2) the timing, tactic and content of negotiation of the parties; (3) the cause of deadlock, and; (4) other facts. Article 12 generally restates the principles of whether granting a permanent injunction set forth by the BHC in Iwncomm v. Sony. Article 13 and 14 followed the basic idea and structure of Article 152 and 153 of the Beijing Guidance for conduct-evaluation for both parties with some differences in detail.

Article 13 provides that if the SEP owner’s conduct met any one of the following situations, a court may determine the SEP owner disobeyed its FRAND obligation. The situations include: a SEP owner who (1) did not notify the implementer, or notified the implementer but didn’t list the scope of the patent in dispute according to the ordinary business practice; (2) did not provide the implementer with explanatory claim charts, patent lists and other patent information according to the ordinary business practice after the implementer had clearly expressed its willingness to negotiate the license; (3) did not provide the implementer with licensing conditions and the method of calculating the royalty, or provided obviously unreasonable licensing conditions, which result in failure to reach an agreement; (4) did not reply to the counter party within reasonable time; (5) impeded or interrupt the negotiation without justifiable reasons, and; (6) practiced other conduct at obvious fault.

Article 14 enumerates the situations that the court may determine an implementer disobeyed its FRAND obligation accordingly. The situations include an implementer who (1) refused to receive the negotiation notice from the SEP owner, or did not respond to the SEP owner within a reasonable time after it had received the negotiation notice; (2) refused to sign a confidentiality agreement, and thus led to a deadlock in negotiation; (3) did not make a material response to the SEP owner within a reasonable time after the SEP owner had provided explanatory claim charts and patent lists; (4) did not make a material response to the SEP owner within a reasonable time after the SEP owner offered its licensing conditions; (5) provided obviously unreasonable licensing conditions, which resulted in failure to reach an agreement; (6) delayed to or refused to negotiation without justifiable reasons, and; (7) practiced other conduct at obvious fault.

While the Chinese fault-based conduct-evaluation frameworks borrowed ideas from the CJEU’s decision for Huawei v. ZTE, the starting point of the Chinese framework is in different from the CJEU framework. The direct objective of CJEU framework was to answer the question whether a SEP owner’s action for seeking injunction breaks EU competition laws, specifically the Article 102 of TFEU. Logically speaking, courts that follow the CJEU’s framework do not need to answer whether an injunction should be granted. On the other hand, the Chinese framework directly addresses whether an injunction should be granted without reference to antitrust principles.

A Break With Tradition and A Rush to Change?

After these various developments, it can be said that Chinese courts now view the FRAND commitments as a universal principle binding both the SEP owner and the implementer. This approach leaves open where the implementors’ obligations of negotiating in good faith come from and when and how such obligations are triggered. Historically, Chinese courts also do not consider the infringer’s state of mind when deciding whether to issue a permanent injunction, nor are such standards part of the Patent Law (Art. 118, 134) or the General Principles of the Civil Law of the People’s Republic of China (Art. 179 ) or the more recent General Rules of the Civil Law of the People’s Republic of China. The framework introduces new judicial doctrines to determine a permanent injunction into Chinese patent law practice, which is also atypical for Chinese legal practice.  However, as China is currently considering introducing punitive damages in next revision of the patent law, fault-based factors may become more important and, indeed, fault factors involving punitive damages and an implementer’s state of mind in SEP negotiations could conceivably overlap.

It also worth noting that the judicial evaluation of royalties still plays an important role in this fault-based conduct-evaluation framework.  In determining whether an offer or a counter offer are FRAND, the court may rely much more on the comparable license approach. Article 18 of the Guangdong Guidance provides that in determining SEP royalties, the methods a court may refer to include: (1) comparing the comparable licenses; (2) measuring the market value of the SEP in dispute; (3) comparing the licensing information of comparable patent pools, and; (4) other methods. Last but not least, Article 16 of the Guangdong Guidance also confers the courts with the jurisdiction of setting royalties beyond its jurisdictional territory under one party’s petition as long as the counter -party does not file an objection or the objection is found to be unjustified.

Chinese courts’ approach appears to reflect the increasing global experience in adjudicating FRAND-encumbered patent infringement matters.  The fault-based approach also helps address the problem of Chinese implementers delaying in taking licenses and using the FRAND obligation as a sword to deny a patentee access to judicial relief, at possible risk of a licensor being on the receiving end of an antimonopoly action.  The approach also appears to reflect Chinese, and especially Guangdong-based companies, rapidly growing role as both a patent implementer and a contributor to important emerging standards, such as 5G. Nonetheless it is concerning that the pioneering cases noted here ruling in favor of a licensor acting in good faith and being entitled to obtain injunctive relief have all occurred where the licensor was Chinese (Iwncomm v Sony, Huawei v Samsung).    This is a scenario not that different from what some observers thought was the problem behind the President taking the unusual step of denying relief to Samsung in the Apple vs Samsung 337 litigation in the US – the binary observation is that it seems to be easier to make precedent eroding/strengthening IP rights when the party adversely affected/benefitted is foreign/domestic. For previous information about the Obama administration’s refusal on USITC’s order, please see here, here, here, here and here.

Written by Yabing Cui, LLM of Berkeley Law 2018 and Ph.D. Candidate of Peking University Law with the the assistance of Mark Cohen.  Yabing can be contacted at cuiyabing@berkeley.edu.

January 30-February 12, 2018 Updates

Here are some updates on IP developments in China from prior two weeks.

  1. China’s tough cyber rules raise risk of infiltration US business group says In a report released on Monday, the US-China Business Council urged Beijing to loosen limits on data flow and storage that raise the risk of security breaches for foreign companies. The council said China should follow best international practice by opening access to cloud computing services, levelling the playing field in technology procurement and allowing foreign firms to send copies of data abroad for analysis and processing. The Council’s report also recommended that foreign partners in joint ventures be allowed to own and control software and other technology licensed to the joint ventures.
  2. MIIT Chief says China does not force foreign enterprises to transfer technology, says MIIT chief China did not and cannot force foreign enterprises to transfer technology to the country, and any cases of technology transfers are enterprises’ own choices driven by the market, Miao Wei, head of the Ministry of Industry and Information Technology (MIIT), said at a press conference on Tuesday, adding that China has been taking steps to better protect intellectual property rights.
  3. .The Supreme Court of China Issued Seven Typical Cases on Property Rights Protection最高法发布7起保护产权典型案例 on “property rights protection” last Tuesday. Among those seven cases, two focused on intellectual property rights, with one on trademark infringement and unfair competition, and the other on criminal trade secret protection in an employment context. Details of those typical cases are available here.
  4. FTC, Justice Department Officials Meet in China On Antitrust Enforcement The head of the Federal Trade Commission (FTC) and a representative from the Justice Department met with Chinese officials from NDRC, MOFCOM and SAIC in Beijing this week to discuss efforts to ensure effective antitrust enforcement and increased interagency cooperation. This is the U.S. delegation’s fourth meeting in China since the between the countries signed an antitrust memorandum of understanding on July 27, 2011.
  5. Baidu Accused of Not Playing Fair by Popular News Aggregator Beijing ByteDance Technology, which runs the Jinri Toutiao app that had 232 million monthly active users as of December last year, said on Tuesday that it filed the lawsuit against Baidu at the Haidian District People’s Court in the Chinese capital. In a post on its official WeChat account, ByteDance said Baidu used its “monopoly advantage” to mislead users and damage Toutiao’s reputation, the details of which it has filed in court. Ahead of the ByteDance filing on Tuesday, Baidu issued a statement that described ByteDance’s lawsuit, like its public relations efforts, as reflecting “anxiety over its own challenges in development”.
  6. China sees robust growth in technology transactions More than 367,000 technical contracts were signed in China in 2017, up 14.7 percent from the previous year, according to the Ministry of Science and Technology. The transaction value of the contracts totaled 1.34 trillion yuan (213 billion U.S. dollars), with a year-on-year increase of 17.7 percent. Electronic information, urban construction and social development, and transportation are the top three fields that gained the most value.  Among four types of technical contracts, technical service contracts (技术服务合同) and technological development contracts (技术开发合同) had strong growth. However, technology licensing contracts (技术转让合同) and technical consulting contracts (技术咨询合同) in fact had a decline.  Over 40 percent of transactions were contracts involving intellectual property rights. Biotechnology and pharmaceutical contracts had a strong growth of 62.94%, with a total overall transaction value of 1.19 billion yuan. The transaction volume of invention patents grew by 19.2 percent in overall transaction value year on year.    IP utilization has been a focus of China’s IP efforts since the third plenum of the Communist Party in 2014. However, foreigners continue to view China as very challenging licensing environment. In the US Chamber’s recently released IP Index, it was noted that IP commercialization in China was hampered by “[s]ubstantial barriers to market access and commercialization of IP, particularly for foreign companies.” China received zero points for “Regulatory and administrative barriers to the commercialization of IP assets”  Here is a link to the discussion of Chinese licensing practices. The US Chamber’s conclusion is not unlike that of the Global Innovation Index (2016) which, as we previously reported, scored intellectual property payments according to a formula as a percentage of total trade. China came out at 72nd place, while it ranked number 1 in high tech exports.
  7. The rise of Chinese groups applying for US patents The breakdown of patents granted in the U.S. per country changed little in 2017 from previous years, with China the glaring exception, according the analysis by patent service and analytics company IFI CLAIMS.  China’s overall slice of the pie remains relatively small. Just 11,240, or 3.5%, of the 320,003 utility patents granted in the U.S. last year went to Chinese companies, compared with 31% to other Asian businesses. But it is the pace at which certain Chinese tech companies have risen in the rankings that will have rivals from the U.S. and elsewhere taking note. For instance, BOE Technology Group (京东方科技集团股份有限公司), whose core business centers on display sensor technology and the Internet of Things, was granted 1,414 patents during the year, compared with 19 in 2013.  
  8. Guangdong’s accumulated invention patents top China Guangdong Province topped the country in the number of valid invention patents granted over the past eight years, according to local authorities. By the end of 2017, the accumulated number of valid invention patents in the province reached 208,500, said He Jufeng, deputy director of the Guangdong Intellectual Property Office. Note that although Guangdong has the most accumulated patent grants, in recent years Guangdong has met some competition.  Jiangsu Province, for example, was the No.1 for invention patent application in 2015, while Guangdong was No. 2, based on data from SIPO for 2015. Meanwhile, in 2014, Jiangsu was the No.1 for invention patent application and Guangdong was No.3. Guangdong has also been a source of many of China’s PCT filings, from companies like Huawei and ZTE.   
  9. Conference proposes int’l e-commerce cooperation An e-commerce conference held in Beijing called for coordinated regional cooperation on areas including supervision and standard setting to promote sustainable development of the emerging sector. The first global regulatory framework for e-commerce was put forward during the conference. Proposed by Chinese customs, the document listed eight core principles in e-commerce management including clearance procedures and the role of online retailers.
  10. New Intellectual Property initiative extends Berkeley Law’s reach in Asia China’s push to create a dynamic economy with innovative companies is creating opportunities for new academic, commercial, and government partnerships. Eager to maximize those opportunities—and to deepen its foothold overseas—Berkeley Law has launched the Asia IP Project.  Led by Professor Mark Cohen, and powered by the school’s Berkeley Center for Law & Technology (BCLT), the initiative seeks to enhance existing collaborations and develop new ones with academic institutions and other partners in Asia. Center leaders will bring together Chinese and U.S. academics, government officials, and practicing lawyers to better understand Asia’s intellectual property law issues through research, workshops, conferences, and other eventst. The program had its first US meeting on February 9, 2018.

We hope to be providing more updates in the year ahead from the Berkeley Center for Law and Technology. As usual the information contained herein does not necessarily represent the opinion of any government agency, company, individual or the University of California.

 

By Berkeley staff.

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.

Justice Tao Kaiyuan and the Role of the Judiciary

MadameTaoMichelleLee

Justice Tao Kaiyuan of the Supreme People’s Court, who had been to the United States in 2015 delivering important speeches on rule of law, has recently published an article on “Giving Full Play to the Leading Role of Judicial Protection of IP Rights“ 充分发挥司法保护知识产权的主导作用”(Dec. 31, 2015).  The article is receiving considerable attention in China, as it was published by Qiu Shi, 求是(“Seeking Truth”), a bimonthly political theory published by the Central Party School and the Central Committee of the Communist Party of China.  The publication of the article appears to be timed with the release of the recent draft of the Patent Law Amendments, comments for which were due the day after publication (January 1).  The proposed patent amendments would strengthen the role of administrative agencies in IP enforcement, to the possible detriment of the judiciary.

The author of the article is no less important than its contents.  Madame Tao knows patents.  She was the former Director General of the Guangdong Patent Office and therefor once had “vertical” reporting responsibility to SIPO (see picture above taken by me of Madame Tao [on the right] with USPTO Director Michelle Lee taken in 2015).  Although the article was authored in her name, many in China were speculating that the article was approved by higher authorities – perhaps Zhou Qiang, the President of the Supreme People’s Court, with Madame Tao serving as an appropriate messenger.

The concerns about this draft on patent law enforcement are not that different from those in the earlier (2012) draft when I blogged in “Why the Proposed Amendments to the Patent Law Really Matter … and Maybe Not Just For Patents” that “the changes strike me as a rather sudden about face in China’s march towards better civil protection of IP.” Madame Tao takes this several steps further.

Madame Tao’s article is divided into three parts: (1) The important meaning of giving full play to the leading role of the judicial protection of IP rights; (2) The key factors that constrain the leading use role of judicial protection of IP; and (3) Key measures in giving full play to the leading role of judicial protection of IP rights.   Here are some of the points she makes:

Madame Tao refers back to the National IP Strategy and related documents, such as the Third Plenum, the NPC’s decision to establish IP courts, and the Action Plan for the National IP Strategy to underscore the well-established, leading role of the courts in enforcing IP.

Her article compares certain key elements of judicial protection versus administrative protection.  In her view, judicial enforcement can curtail abuses of administrative enforcement.  It also has other advantages.  It has clear rules.  It is transparent.  It can help establish guidance for businesses by establishing clear standards for similar disputes (a possible nod to efforts at developing case law/guiding cases).  Moreover, civil enforcement comports with notions of private ownership and the development of markets and creation of a fair competitive environment in China.  Madame Tao especially underscores the role of the courts in supervising administrative agencies.  As I have noted, this is also an important part of the foreign IP docket in China.  Madame Tao states that the judiciary should also actively guide administrative law enforcement in investigation and review of evidence, and determination of infringements.

Madame Tao also calls for greater coordination in administrative and judicial roles in IP protection, noting that administrative enforcement played an important leading role in the beginning of China’s IP enforcement environment.  Administrative enforcement has “in a short time met the need for building effective IP protection.”  However, the “growing maturity” of the judicial system has caused increasing problems in the coordination process.

Madame Tao also calls for specific policy initiatives, many of which are already underway.  She calls for greater deterrent civil damages, including by revising patent, copyright and unfair competition laws based on experience of the trademark law revisions.   She also suggests that a discovery system should be considered.  Civil and criminal divisions in IP should be unified.  She suggests that a specialized national IP court should be researched and promoted, and she calls for the unification of technical appellate cases, perhaps like the CAFC.  She also notes that the division between infringement and validity determinations in the courts in patents and trademarks should be addressed, and calls for improvements in the availability of provisional measures.

She calls for greater improvements in judicial protective measures, including in obtaining evidence and the convenience and effectiveness of remedies.  Among other specific judicial reforms, she also suggests exploring intellectual property case law, improving judicial accountability and developing judicial professionalism.  Finally, Madame Tao also calls for expanding international awareness by IP judges to better protect national interests and to increase China’s IP influence.

Altogether, a tour de force.

Here’s what her speech looks like in a machine-translated wordcloud:taowordcloud

 

 

 

A Deeper Dive Into the Jurisdiction and Role of Specialized IP Courts

deeperdive

As we previously reported the NPC’s Standing Committee established three Specialized IP Courts in Beijing, Shanghai, and Guangzhou.  The Supreme People’s Court and the cities’ High Courts are now in the process of implementing the NPC’s decision.

On November 3, 2014, the Supreme Court issued a decision and held a news conference outlining the jurisdiction of the Specialized IP Courts of Shanghai, Beijing, and Guangzhou. The court detailed the Specialized IP Courts’ jurisdiction over cases of first instance, over different types of IP cases, and over IP right authorization and verification.

The Specialized IP Courts have jurisdiction over three types of cases:

1.  Civil and administrative cases involving patents, new plant varieties, layout designs of integrated circuits, technical secrets, computer software and other technology cases; 2.  Administrative cases involving copyright, trademark, and unfair competition against the administrative action of the State Council department or above the county level departments; and 3. Civil cases involving the affirmation of well known trademarks.

The Specialized IP Courts will review civil and administrative IP cases challenging the judgment of lower courts. Additionally, the Higher People’s Courts, where the Specialized IP Courts are located, will review appeals against the judgment of the Specialized IP Courts.   Probably the two most important impacts of the jurisdiction of the courts in terms of its impact upon foreigners aspect of the jurisdiction are the jurisdiction of the Beijing Specialized IP Court over appeals over patent and trademark office final decisions and jurisdiction over well-known marks

Foreigner-related cases constitute a large percentage of these appeals from the patent and trademark office while the infringement cases brought by foreigners are about 2% of the docket.  According to various press reports, the overall share of administrative cases brought by foreigners in Beijing hovers near 50%.  Interestingly, in January of 2014, Beijing had already divided its intermediate IP court into two divisions one of which would hear patent appeals and the other would hear trademark appeals.  This experiment, which likely was intended to anticipate one national IP court like the Federal Circuit in the United States,  has necessarily become short-lived.  Nonetheless, in its jurisdiction over patent and trademark appeals, the Beijing Specialized IP Court does retain jurisdiction that is in many ways similar to the Federal Circuit’s  “administrative” jurisdiction over the USPTO.

I do not have precise current data on foreign-related well known mark cases.  However, well known mark status has been of concern to foreign brand owners for some time.  Former China Trademark Office Director-General An Qinghu 安青虎published an extensive analysis in English in 2005 on recognition of well-known marks in China, including the various circumstances by which foreign well known marks have been recognized, which as I recall from prior personal review of that article, was intended in part to address the concern of foreigners over how well-known marks were being protected in China  As DG An noted at that time “Among the 153 well-known trademarks affirmed by SAIC or Trademark Review and Adjudication Board, 132 are registered by Chinese registrants …, 21 by foreign registrants …” (fn. 7), and “SAIC had affirmed some well-known trademarks  in objection decisions in the 1990s, most of which were registered by foreign registrants.” (final endnote).  I do not have current data on well known mark ownership by foreigners.

The Beijing, Shanghai, and Guangzhou Specialized IP Courts have different focuses and differing impact upon foreigners.  As noted, the Beijing court is distinguished by its largely administrative docket.  The Shanghai and Guangzhou courts will deal with hear comparatively more civil IP cases and will hear relatively fewer administrative cases, mostly involving administrative enforcement decisions.  Guangdong has the largest IP docket in China although not the largest foreign-related docket.  Guangdong’s handling of intra-provincial IP disputes could become a model for a national appellate IP court.  Interestingly, an important and rapidly rising part of the overall IP docket in Guangdong involves online infringement owing to the large Internet business community in Guangdong.  However online copyright is not part of the Guangdong Specialized IP Court’s jurisdiction, despite many of those cases involving different regions of China and their rapid rise and complexity.  For example, from 2010-2013, the online infringement docket in the Pearl River Delta of Guangdong increased from 4058 to 9449, increasing from 21% to 38% of the overall IP docket.

The Supreme People’s Court also issued guidance regarding the selection of judges for the Specialized Court.  The judges can be selected either from those judges engaged in IP or related trials, or the judges can be selected if they have the same qualifications and conditions and are engaged in law practice, legal research or are law teaching professionals.

  1. A judge should also have the following qualifications: more than 6 years of relevant trial work experience; a bachelors or higher degree in law; a strong capacity for leading trials and drafting judgments; and Senior judge qualifications.
  2. The standards for other legal professionals as judges of the Specialized IP Court are referenced in further comments.

The candidates for the president of the Specialized Court are appointed by the city’s People’s Congress Standing Committee. The new President of the Beijing IP Court, Su Chi 宿迟, and his deputies, Chen Jinchuan 陈锦川 and Song Yushui 宋鱼水 appear to have such credentials.  Indeed, as if to underscore my analysis on the importance of Beijing to foreigners, the press reports  also underscore their experience in adjudicating foreign-related disputes.

Beijing’s Specialized IP Court will also include “Technology Experts,” (技术调查官)  who will help resolve technology issues that come up in the cases.  The High Court pointed to Taiwanese and Japanese courts that make use of such officials, noting that in those courts the Technology Experts are senior officials.  However, the SPC has also cautioned that the courts should not rely on such experts exclusively.

Here are three charts that demonstrate the jurisdiction of the Specialized IP Court in Beijing, Shanghai, and Guangzhou. See also the Chinese version.

Written by Mark Cohen with the support of Marc Epstein and Yao Yao from Fordham Law School.

Update on Specialized IP Courts

 

Tongji

There are a number of developments in China’s efforts to roll out China’s three new specialized IP courts by the end of the year.  Information is being shared at conferences, via weibo (microblog) postings, emails and other media – along with lots of friendly speculation. Here’s our current summation:

Background: On August 31, 2014, the NPC’s Standing Committee enacted a decision to establishing specialized IP courts in Beijing, Shanghai and Guanghou.  These courts are intended to be a three year experiment in adjudicating technologically complex cases.  I have previously blogged about this issue on two separate occasions, while other commentators such as He Jing have also offered their analysis.

The roll out of the courts have now entered into a less theoretical stage of implementation.  In addition, other developments, such as the recently concluded Fourth Plenum also influences our understanding of what is going on in this important area, and the potential impact of this experiment on other legal reforms.

At a conference on October 25 that I attended at Tongji University (photo above),  IPR Tribunal Deputy Chief Judge Jin Kesheng 金克胜 updated a large crowd of academics, officials, lawyers and students on how the court was going to develop. . Judge Jin had a long experience as a legal academic, and has often commented on the relationship between IP and other legal developments.

He noted that the SPC is actively drafting a judicial interpretation on the jurisdiction of the courts.   He stated that the three specialized IP courts will adjudicate both first and second instance cases.  They will also adjudicate both civil and administrative matters. Current “three in one” adjudication experiments (combining civil, criminal and administrative jurisdiction) will be largely unaffected.   He referred to the Foruth Plenum several times, and pointed out that the pilot in cross-region jurisdiction in specialized IPR court is a pilot for the future court’s reform in cross-region jurisdiction on other subject matters.

In terms of subject matter jurisdiction, he specifically mentioned that antimonopoly law cases and well-known trademark cases will also be under the jurisdiction of the specialized IPR courts.

Regarding court administration, Judge Jin noted that judges in the specialized IP courts will be higher paid, which is attracting interest from other judges.  He also expected that the courts would have an impact on the professionalism and expertise of the judiciary in IP cases, which is already relatively high.

In the past the courts have used experts, such as examiners from SIPO to assist in technologically complex matters.  In the future, technology experts (技术调查官) will serve as the assistant to the judge. In fact these technology experts are set to be included in the Beijing Specialized IP Court launch, which will take place in the first half of November.   Jin cautioned, however, that judges should avoid replying on the technology experts exclusively.

Jin acknowledged the disappointment many observers had that the NPC had not authorized establishment of a national appellate IP court, such as the CAFC, but had instead decided to establish a pilot project involving intermediate level courts.  The views of several prominent academics were conveyed at a meeting of the Legal Affairs Committee of the NPC on August 7.   Some academics urged a specialized IP court like the CAFC to break the problem of territoriality in IP adjudication while others urged that this court should set the standard for a national appellate court. Judge Jin nonetheless believed that the specialized IP courts are a milestone in China’s IP and legal reforms.

What will be the impact of this self-described experiment? In terms of size of their docket, Guangdong has by far the largest docket. Beijing is second and Shanghai is last. Guangdong is about twice the size of Beijing, and Beijing is a bit more than twice the size of Shanghai.  Beijing, however, has the oversized docket of foreign-related cases and administrative cases. Guangdong has the biggest size and population and its experiment in setting up a provincial level intermediate court could be an important precedent for IP and non-IP related jurisdictional experiments.  The loss of jurisdiction of Shenzhen and other important cities in Guangdong over patent, trade secret and AML matters is likely a significant concern to tech companies there.

Beijing’s continuing role in administrative litigation means that Beijing would be a natural venue for a national appellate IP court, such as the CAFC. Shanghai, with the smallest docket and a relatively modest foreign related docket compared to Beijing may appear to have the least “experimental value.”  However, Shanghai brings several important developments to the table. First it is the home to a large and active foreign business community and an active R&D community, especially in the life sciences. Second, it is home to the important foreign trade zone pilot project, with its own IP tribunal. Third and not least, Shanghai is the home to the Chinese Courts International Exchanges Base for Judicial Protection of Intellectual Property Rights (中国法院知识产权司法保护国际交流(上海)基地) which was opened on September 25, and promises to support a wide range of IPR judicial exchanges and educational efforts.   Since foreigners file more cases in Beijing, the Shanghai IP court will need to work hard to attract IP litigation from Beijing, particularly since the Beijing IP court is likely to continue to have a large foreign-related docket with its jurisdiction over the patent and trademark offices.

The Beijing court has already been sighted by one microblogger, and a picture is available on line: http://www.weibo.com/136766637#_rnd1414651625018.   There have also been numerous postings, emails and rumors about assignments of judges – which I will decline to repeat here. In any event, it is only a matter of weeks before those appointments are officially disclosed.

Prof. Don Clarke in his recent blog on the recently concluded Fourth Plenum noted that there is a proposal to establish courts “that will cross jurisdictional boundaries, again to try cases that are in some sense cross-jurisdictional. Such a proposal would require legislative and possibly constitutional amendments.” The IP courts are part of that initial experiment.    Judge Jin referred to other specialized IP courts and cross boundary proposals, such as in labor and childrens courts. In another related development, Judge Jin also noted that the specialized IP courts will have higher paid, more professional judges – a development consistent with the Fourth Plenum.   –

In sum, these new courts are are a part of the continuing effort to “cross the rule of law river by feeling the IP stones.”