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.

Book Review on Report on Development of Intellectual Property Development in China (2015)

The Report on Development of Intellectual Property Development in China 2015 中国知识产权发展报告 (IP Teaching and Research Center of Renmin University of China / IP Academy of Renmin University) (Tsinghua University Press, 2016) (320 pp., 98 RMB) (http://tup.com.cn/booksCenter/book_06886601.html) (the “Report”), is a bilingual Chinese-English report prepared by Renmin University and commissioned by the Ministry of Education.   The book presents a comprehensive summary of developments and challenges in IP protection and enforcement in China, with a particularly strong focus on legislative developments, the role of national plans, the history of IP in China, government funded R&D, education and training-related issues, and the pressing needs of market and legal reforms.

After a general overview (Part I), where the authors discuss various national plans, and general legislation, such as the Civil Law and the Law to Counter Unfair Competition, the authors discuss patents and innovation (Part II).  The Report notes that quality needs to be improved in life science patents, most of which come from small inventors (such as in TCM).  The report also candidly references critiques of SIPO’s performance (p. 150), as well as the low quality of university patent applications and suggests that there should be additional attention paid to university IP commercialization, including the many restrictions that apply to state-owned assets, a matter that was litigated in the Infineon case here in the United States many years ago.  The report also criticizes unrestricted subsidies and other incentives for patent applications, which has led to “the amount of patent applications to be falsely huge” and has given rise the problem of “rubbish patents.” (p. 163).  Regarding China’s extraordinary growth in patent filings, the authors conclude, as I have often in this blog, that “the motivational role of the market should be strengthened” in lieu of such incentives.

Regarding the proposed Patent Law amendments, the authors also argue that judicial decisions on patent validity should be final and not be subject to a final decision by an administrative agency, and that there should be appropriate limitations on administrative enforcement involving patent infringements (pp. 166-167).  The authors also seek to limit the abusive assertion of unexamined utility models and designs, including by authorizing the courts to consider the abusive assertion of patent rights a matter of unfair competition (p. 173).

In discussing trademarks, the authors similarly note that despite the huge numbers of trademark filings, Chinese companies play an undersized role in lists of global brands.  The authors identify problems in “rush registration of trademarks” involving grabbing a trademark previously used by others, particularly where a mark has international popularity, where there are fictional figures and titles of movies and television hits, and in the case of celebrity names (p. 183).   The authors suggest that where a trademark is not being used, there should be no compensation given to the infringer, as one step to address rush registrations – a practice that apparently is already being used in Shanghai and perhaps other courts.  The authors also suggest that in the case of foreign rights owners, the courts should take into account the popularity of the brand enjoyed outside of China and the subjective malice on the person conducting the registration.   As with low quality patents, the author see a useful role for courts in adjudicating these rush registrations as acts of unfair competition (pp. 186-187).

These themes of addressing proposed legislation, adopting new legislation to new circumstances, more effectively insuring that markets rather than government fiat direct IP commercialization and protection,  and using unfair competition law to address abuse of IP rights play an important role in other chapters of the book, including the chapters on Copyright Law (Part IV), Competition law (Part V), IP protection by the Judiciary (Part VI), IP Education (Part VII), developments in Shenzhen City and Jiangsu Province (Part VIII), and other issues, such as free trade agreements (Part IX).

Overall the authors support the role of the courts as the principle vehicle for adjudicating IP disputes in a market-oriented economy, and that the IP laws should be revised to “attach importance to enhancing the leading and final role of the judicial protection of the intellectual property rights, limit and regulate intellectual property-related administrative enforcement …” (p. 240).  The authors also support the tendency to increase damages on IP disputes (P. 282), the role of specialized IP courts and the case law system, and deficiencies in administrative enforcement reform including problems of coordination among agencies.

In their summary, the authors note that “the sound operation of the IP system is not merely an issue of the IP law; it relies on an improved legal system and environment of the rule of law.  Only with innovation based on the market economy and driven by market interest is it possible to be the lasting, stable fore to drive the socio-economic development.” (pp. 315-316).  The book is a very useful summary of some of the hot issues now facing the Chinese IP system, with a focus on rule of law and market orientation.

I look forward to the 2016 edition.

SEP Litigation and Licensing in China: Are There New Voices in the Room?

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A string of recent events suggest that there is increasing confidence by the foreign community in China’s antitrust and licensing regime and that some of the aggressive posturing in the past by the Chinese government on the ”hegemony” of foreign ownership of SEP’s  countries, or (more recently) the abuse of dominance of foreign SEP owners (in cases like Huawei vs Interdigital and NDRC v Qualcomm), is shifting to a more balanced view.  Hopefully, policy developments in this new phase will also facilitate China’s efforts to become a global innovator and technology exporter.

One of the more hopeful signs of faith in the Chinese legal system was Qualcomm’s filings against Meizu, Since its initial court filings in China, Qualcomm has filed 17 complaints against Meizu.  In addition, Qualcomm announced in October 2016 that it launched a 337 action against Meizu in the United States, and is pursuing litigation in Germany and France.

In another sign of confidence Canadian NPE, Wireless Future Technologies Inc, a subsidiary of Canadian PIPCO WiLAN, filed a patent infringement lawsuit against Sony in the Intermediate People’s Court of Nanjing.  The choice of the Nanjing court, rather than one of the specialized IP courts has been a source of some speculation, with the media suggesting any of three factors: faster litigation times, local contacts and even, perhaps, anti-Japanese sentiment.   Two other reasons: Jiangsu’s efforts to use actual or implied royalties to assess damages, rather than the low statutory damages that applied in the vast majority of cases in China. Damages in a “model case”  for patent infringement in 2014 using a royalty based calculation that was first adjudicated by the Nanjing Intermediate Court, were 3,000,000 RMB, relatively high by Chinese standards.   See 江苏固丰管桩集团有限公司 vs宿迁华顺建筑预制构件有限公司, 南京中院(2014)宁知民初字第00108号 , 江苏高院(2015)苏知民终字第00038号.  Finally, and perhaps, most importantly, Sony’s phones are made by Arima in Wujiang, Jiangsu Province.

The Financial Times has written on the Arima case, noting that “A new corporate era beckons in which a Chinese judge could conceivably cut off the lifeblood of some of the world’s most valuable companies. It was not so long ago that China’s legal system just did not factor into the risk calculus of most global companies.” 

Chinese companies are also showing confidence overseas by bringing cases brought against foreign competition. Earlier this year, Huawei brought SEP-related litigation in the United States against Samsung in both the United States and China, and against T-Mobile in the Eastern District of Texas.

China’s growing SEP portfolio may be contributing to this change in perspective.  As Dina Kallay of Ericcson noted at the recent Fordham Antitrust conference: “Of the ten largest contributors of technology to cellular standards — and we like to measure it by accepted technical contributions, so it’s not just measured by the number of patents, which arguably you can play with — but by how many of your technical contributions were accepted into the standard, …Three … are Chinese — Huawei, ZTE, and CATT (Datang).  No other nation has as many companies in the Top Ten list.”  Considering China’s increasing investments in the United States and its rapidly improving patent portfolios, might a Chinese company soon be a complainant in a Section 337 litigation?

By the way, Huawei’s website impressively identifies their contributions to IP in standards as follows;

  Huawei has filed over 57,800 patent applications in China, U.S., Japan, European Union, South Korea, and Brazil, as well as other countries and districts, of which approximately 15000 are in the area of wireless communications.

  Huawei has 2,137 essential patents in the area of wireless communications…

In the area of wireless communications, Huawei has submitted approximately 20,009 proposals to international standard organizations … 40% of which have been adopted.

Huawei’s extensive experience in standards setting and its own investments in IP have likely contributed to its  opposition to some of the mandatory disclosure / mandatory licensing  standards-related aspects of  the proposed revisions to China’s patent law (eg., Article 85). Interestingly, Huawei objected to this provision due to the the complexity of international regulation of standards setting organizations, and because it alleged that foreigners do not participate in the development of Chinese domestic standards; therefore this provision might primarily be applied by Chinese against Chinese.  Nonetheless, its rejection would be a positive step by avoiding an unfortunate precedent for SIPO and reducing overregulation of standards setting bodies.

One can also point to other recent factors, such as government to government engagement, and the pressure of overseas litigation in Huawei vs ZTE (ECJ), Sisvel vs Haier (Germany), Unwired Patent vs Huawei and Samsung (United Kingdom) and Vringo vs ZTE (SDNY and other jurisdictions) as other informative experience and perhaps sources of pressure for greater international conformity.

These changes in IP ownership, standards participation, litigation experience and maturity due to increased engagement are likely having their effect on domestic policy. Within China, early this year draft IP abuse guidelines of NDRC recognized that ownership of an SEP does not automatically confer market dominance.  In July of 2015, the State Council announced its plans for China turning into a “strong IP economy”, and identified several projects involving standards.  One of the projects identified by the State Council calls for the development of rules on standard essential patents that are based on FRAND licensing and “stopping infringement”, with the involvement of AQSIQ, SIPO, MIIT, and the Supreme People’s Court (Art. 38).  As the focus of this task is on stopping infringement, rather than “abuse of dominance”, this suggests to me that a more rights-holder friendly approach.

Another hopeful sign which I have been following are suggestions that China’s Technology Import/Export Regulations  (“TIER”) may now be under revision, as was noted in the European Business in China Position Paper (2016/2017) .   Some aspects such as ownership of improvements have been the subject of the TIER  and also appear to factor into AML enforcement policy such as in the Qualcomm case. (see also QBPC’s paper on the TIER at “应允许当事人对后续改进的技术成果的权利归属进行自由约定”, attached here.[Chinese Language]).

What do you think? Please feel free to comment  with your own experiences or examples (in favor or against) in this area!

Rev. Nov. 19, 2016