SPC’s 2020 IP-Related Judicial Interpretation Agenda

On March 19, 2020, the Supreme People’s Court’s Judicial Interpretation Agenda for 2020 (“2020 Judicial Interpretation Agenda”) 最高人民法院2020年度司法解释立项计划 was discussed and adopted by the SPC Trial Committee at its 1795th meeting on March 9, 2020. In 2020, there are 49 judicial interpretation (JI) projects, divided into two categories: 38 in the Class I Projects, which are required to be completed by the end of 2020; 11 in the Class II Projects, which are required to be completed in the first half of 2021. Generally speaking, the complete catalogue covers various fields such as the enforcement, security, pre-litigation property preservation, civil code, criminal cases, administrative cases and judicial appraisal. There are a number of  IP-related projects, all of which involve the recently established national Intellectual Property Court as a drafting and research partner with other SPC divisions or tribunals, and suggest an increasingly important role for this specialized court in IP policy making:   

Class I Projects (to be completed before the end of 2020) 

  1. Several Provisions on Evidence in Civil Procedures of Intellectual Property 关于知识产权民事诉讼证据的若干规定 [ As previously noted, 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. ]

 Organizers: Civil Adjudication Tribunal No.3, Civil Adjudication Tribunal No.1, Research Office, Intellectual Property Court 

  1. Interpretation of Several Issues concerning the Application of Law in the Trial of Administrative Cases for Patent Validity 关于审理专利授权确权行政案件适用法律若干问题的解释 [Note: A draft was issued for public comment in the summer of 2018; see the earlier blog].

 Organizers: Civil Adjudication Tribunal No.3, Intellectual Property Court 

  1. Interpretations of Several Issues concerning the Application of Law in the Trial of Trade Secret Secret Infringement Cases 关于审理侵犯商业秘密纠纷案件适用法律若干问题的解释 [Note: Regarding the Interpretations of Several Issues concerning the Application of Law in the Trial of Trade Secret Infringement Cases, it was also on SPC’s 2019 JI Agenda. As mentioned in Susan Finder’s November 26, 2019, blogpost, this judicial interpretation is flagged in the Party/State Council document (November, 2019) on improving intellectual property rights protection with a goal to “explore and strengthen effective protection of trade secrets, confidential business information and its source code etc. Strengthen criminal justice protection and promote the revision and the amendment and improvement of criminal law and judicial interpretations 探索加强对商业秘密、保密商务信息及其源代码等的有效保护。加强刑事司法保护,推进刑事法律和司法解释的修订完善.”]

Organizers: Civil Adjudication Tribunal No.3, Criminal Adjudication Tribunal No.1, Intellectual Property Court [Note the involvement of the Criminal Adjudication Tribunal is a positive sign for seeking an integrated civil/criminal/administrative enforcement approach] 

  1. Provisions on Several Issues concerning the Application of Law in the Trial of Pharmaceutical Patent Linkage Dispute Cases 关于审理药品专利链接纠纷案件适用法律若干问题的规定 [Note: this appears consistent with the requirement for adopting a patent linkage system in the Phase 1 IP AgreementAs we have discussed in a previous blog, the Pharmaceutical-Related Intellectual Property section of the Phase 1 IP Agreement requires China to adopt a patent linkage system, much as was originally contemplated in the CFDA Bulletin 55, but subsequently did not appear in the proposed patent law revisions of late 2018]

(New Project)

Organizers: Civil Adjudication Tribunal No.3, Case Filing Tribunal, Intellectual Property Court  

  1. Provisions on Several Issues concerning the Application of Law in the Trial of Civil Dispute Cases Arising from Monopolistic Conduct () 关于审理因垄断行为引发的民事纠纷案件应用法律若干问题的规定() (New Project)

 Organizers: Intellectual Property Court, Civil Adjudication Tribunal No.3

 Class II Projects (to be completed in the first half of 2021)

  1. Provisions on Several Issues concerning the Specific Application of Law in the Trial of National Defense Patent Disputes 关于审理国防专利纠纷案件具体应用法律若干问题的规定 (New Project)

Organizers: Civil Adjudication Tribunal No.3, Intellectual Property Court 

  1. Interpretation of Several Issues concerning the Application of Punitive Compensation 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

Organizers: Civil Adjudication Tribunal No.3, Intellectual Property Court  

  1. Interpretation of Several Issues concerning the Application of Law in the Trial of Civil Cases Involving Unfair Competition 关于审理不正当竞争民事案件适用法律若干问题的解释 (New Project)

Organizers: Civil Adjudication Tribunal No.3, Intellectual Property Court 

  1. Provisions on Legal Issues concerning the Specific Application of Law in the Trial of New Plant Variety Right Infringement Cases 关于审理植物新品种权纠纷案件具体适用法律问题的规定 (New Project)

Organizers: Intellectual Property Court, Civil Adjudication Tribunal No.3

 Judicial interpretations that are not marked as the “New Projects” have already been on the SPC’s Judicial Interpretation Agenda for 2019 or 2018. Several of them, including Several Provisions on Evidence in Civil Procedures of Intellectual Property (2019) and Interpretation of Several Issues concerning the Application of Law in the Trial of Administrative Cases for Patent Authorization and Confirmation (2018 and 2019), were to have been completed by the end of 2019 or 2018. 

Class I Projects JI No. 37 and Class II Projects  Nos. 3 and 11 all have prior effective versions that were issued in 2012 or earlier.  It is likely that these “New Projects” will be in the form of amendments, perhaps significant, to the previous JI’s.

 

IMPACT OF RECENT AML LEGISLATION ON THE IPR/ANTITRUST INTERFACE

This blog provides an update on recent legislative developments involving the interface between IP and China’s Anti-Monopoly law. On November 28, 2019, SAMR published the Anti-Monopoly Compliance Guidelines for Undertakings (Draft for Public Comment) (“Draft Compliance Guidelines”) 经营者反垄断合规指南(公开征求意见稿), which according to SAMR is specifically intended to “encourage undertakings’ compliance with China’s Anti-Monopoly Law” 鼓励经营者合规经营. Comments were due on February 12, 2019.  On January 2, 2020, SAMR issued the Draft Amendments to China’s AML (Draft for Public Comment)反垄断法”修订草案 (公开征求意见稿) (“Draft AML Amendments”). Comments were due on January 31, 2020. These documents, along with the changes from the government reorganization coming China’s three antitrust agencies into one, may suggest new approaches to antitrust regulation and enforcement in the future in China. 

The ABA’s Antitrust Law and International Law Sections submitted comments to SAMR on the Draft Compliance Guidelines as well as the Draft AML Amendments. We welcome receiving comments that other organizations submitted on these proposed laws to publish or link on this blog.

According to the NPC Observer, the Draft AML Amendments are on the State Council’s calendar for the 13th NPC Standing Committee Legislative Plan. It is a priority Class II Project. According to the recent government reorganization, it would otherwise be expected that Ministry of Justice would prepare a draft of the AML revisions for consideration by the State Council which would then forward on to the NPC for three readings. This Draft AML Amendments appear to be an effort to ‘test the water’ or perhaps ‘jump start’ the revision process, as it is drafted at an earlier stage than the NPC calendar might otherwise require. China’s National Copyright Administration undertook a similar effort with the long-stalled copyright law amendments, by publishing its own draft for public comment, which eventually became a State Council draft for public comment in June of 2014.

From an IP perspective, there are several items that are worth noting: 

The first one is that Article 55 of AML (Article 62 of the Draft) stayed unchanged and there is no new IP-related content added to this draft amendment. This article provides:

“This Law does not govern the conduct of undertakings to exercise their intellectual property rights under laws and relevant administrative regulations on intellectual property rights; however, undertakings’ conduct to eliminate or restrict market competition by abusing (or misusing) their intellectual property rights are governed by this Law.”

Article 55 has been the subject of considerable discussion among academics and practitioners and is ambiguous in its scope, including the relationship between the legitimate exercise of an IP right and an anticompetitive act, the relationship with Contract Law and proposed Civil Code provisions on monopolization of technology, the difference between “IP abuse” and “misuse”, the impact of administrative rules 行政法规 and AML guidelines on Article 55, and ultimately whether the AML creates some kind of safe harbor against charges of monopolization.   

An example of the unsure relationship between the legitimate exercise of IP rights and competition law might be price-based claims for securing a license to a patent, which arguably restricts certain competition in the market but would otherwise constrain a patentee’s rights to license or charge prices as it sees fit (see, e.g., Art. 28 of the TRIPS Agreement, Arts. 65, 68 of Chinese Patent Law). Most high pricing cases to date in China have involved standards essential patents, where a FRAND commitment may be involved that arguably mitigates against letting market prices fully determine patent values. However, these cases may not take into account the lawful rights authorized by Chinese IP law including the right to charge market prices and to seek an injunction when a right is infringed, which is also arguably within the scope of AML Article 55/revision Article 62.

In a similar vein, the notion of essential facilities is not mentioned in both drafts, which means China may not be ready to fully support an essential facility doctrine in national legislation at this time. However, companies that manage IP assets, particularly in the standardization context, may still need to pay attention to this issue to minimize their IP risk related essential facilities claims/abuse of market dominance, particularly as the essential facilities doctrine continues to have an active influence in administrative enforcement and policy making, as well as in policy decisions involving SEP’s.

Article 20(6) of the Draft AML Amendments lists several types of abusive acts, including “discriminating among transacting parties on transaction conditions without justified reasons” (没有正当理由,对交易相对人在交易价格等交易条件上实行差别待遇).  The current AML additionally required that the discrimination arise from “identical circumstances” (or “an equal footing” in the MofCOM translation) as a condition to a claim of discriminatory pricing (Art. 17(6)). This may create additional uncertainty in IP licensing due to potential AML risks, because the reasons for removal of “identical circumstances” are unclear, the scope of what is a “justified reason” in a licensing transaction is also unclear, and IP licenses are typically not commodity or mass produced agreements but are custom-negotiated based on a range of factors including the role of any actual or threatened litigation, markets and market penetration, tax planning, any cross-licensing, etc. 

Article 14 of the Draft AML Amendments prohibits both horizontal and vertical agreements that “exclude or restrict competition” offers another possible distinction from the current AML.  Article 13 of the current AML requires a finding of “excluding or restricting competition” only with respect to horizontal monopoly agreements. While the courts have generally adopted a fact-based, rule of reason type approach to this issue, administrative agencies were more inclined to find such agreements vertical agreements illegal per se, subject to a few exceptions. This Draft AML Amendments clarify this issue, which could have an important impact on licensing transactions by requiring an analysis of competitive impact and would be more consistent with TRIPS Article 40, which regulates “licensing practices or conditions that … constitute an abuse of intellectual property rights having an adverse effect on competition in the relevant market.” (emphasis supplied).

Two other provisions worth noting are Articles 18 and 21 of the AML Draft Amendments. Article 18 would tighten the requirements for receiving an exemption from an otherwise offending monopolistic agreement by requiring that it gives rise to efficiencies such as improving technology or improving research and development, that are “necessary” for the claimed efficiencies to be realized. The ABA has suggested that this language would require a “hindsight” type of analysis and that Article 18 be revised to soften this condition by requiring only that the agreement be “reasonably necessary” to achieve the claimed efficiencies.  

Article 21 lists factors that may be used to determine whether an undertaking has a dominant market position, and adds new additional factors for the Internet sector including network effects, economies of scale, lock-in effects, and data control and handling capabilities. The ABA has suggested that it is inappropriate to have industry specific legislation for the Internet sector, that these factors may equally apply to other industrial sectors, and that requirements of this type are best reserved for “implementing regulations or guidelines.” 

The Draft Compliance Guidelines, like other administrative rule makings are not mandatory and have no binding legal force. The Guidelines provide general guidance on anti-monopoly compliance of business operators. Most of its contents have already been stipulated in the previous Anti-Monopoly Law and related guidelines.   

Neither the AML Draft or Draft Compliance guidelines offer any specific guidance regarding management of patent pools, obtaining clearance from SAMR for a pool, or operation of a licensing regime.

The absence of more detailed consideration of IP issues in these two documents is rather surprising considering discussion in other venues. Although the US government complained about antitrust enforcement in China in the Section 301 investigation, noting that “several submissions asserted that Chinese AML authorities use the AML as a tool to advance industrial policy rather than to protect competition”, there were also no references to the AML in the Phase 1 Trade Agreement. Chinese courts have also been addressing issues regarding abuse of dominance and standardization through documents such as the Trial Adjudication Guidance for Standard Essential Patent Dispute Cases promulgated by Guangdong High People’s Court, and the Beijing High Court’s Guidance for Patent Infringement Determination. In addition, IAM has also recently reported that there is a significant increase in SEP-related litigation in China, including foreign vs. foreign and foreign vs. Chinese cases. China has also recently become an important venue for resolution of international SEP licensing disputes. Perhaps the wiser approach is to let these contentious cases be resolved one by one, rather than risk over-legislating in an evolving area where there has been considerable political attention.

Prepared by Mark Cohen and Xu Xiaofan

 

New CPC and State Council Opinions on Improving IP Protection

wordcloud

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.

Addendum of January 9, 2020: Here is a translation of the Opinions from China Law translate.

A Potpourri of AIPLA Legislative Comments — And Other Developments

potpourri

The American Intellectual Property Law Association has once again made its comments on proposed changes to Chinese IP legislation (laws, regulations, rules, examination guidelines,  judicial interpretations, etc. ) available to this blog.

Attached are the AIPLA’s response to the request for comments to revision of the trademark law in China (商标法修改公开征集意见) first published by SAIC.  SAIC is now a part of SAMR – the State Administration for Market Regulation. It had published a public solicitation of ideas for revising the trademark law on April 2, 2018, with a due date for comments of July 31, 2018.  AIPLA’s comments primarily focus on providing clarifying and strengthening legislation regarding bad faith trademark applications and registrations.

AIPLA has also commented on the proposed patent validity rules  of the SPC on administrative patent litigation (最高人民法院关于审理专利授权 确权行政案件若干问题的规定(公开征求意见稿)).  This judicial interpretation was previously discussed in this blog, with a translation by the Anjie law firm.  Additionally, here  is the Chinese version of these comments.

Finally, AIPLA has commented on the special approval procedure for innovative medica devices (创新医疗设备特别批准程序(修订稿)) which was first published for public comment on May 7, with a closing date of June 15.   Here is a text of the draft approval procedures in Chinese.

In a related legislative development, the recent dismissal of party secretary Bi Jinquan of the SAMR due the tainted vaccine scandal may also impact reforms that BI had spearheaded, which included pharma-related IP reforms (patent linkage, regulatory data protection, etc).   Commissioner Bi formerly served as the leader of China’s Food and Drug Administration.  An August 20, 2018 notice of the State Council  (no. 83) on deepening reform in China’s medical sector ominously omits any mention of patents or IP reform.  国务院办公厅关于印发深化医药卫生体制改革2018年下半年重点工作任务的通知, (国办发〔2018〕83号.  The next place where we might see the continued life in these reforms is in the proposed revisions to China’s patent law, which the National People’s Congress had tabled for completion by the end of 2018 as noted in its 2018 workplan  (全国人大常委会2018年工作要点).  A first draft of the revised patent law is needed as early as late August/early September 2018 in order to meet the NPC’s deadline.  One much anticipated pharma-related concern in the new draft, which would also support China’s efforts to develop both an innovative and high quality pharma sector, is incorporation of “artificial infringement” by which a request for regulatory approval would be deemed an infringing act in order to support a patent linkage regime.

 

Note: The above photo by Unknown Author is licensed under CC BY-NC-ND

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 relief 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. The 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 its 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 a 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 a 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 were likely 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 a 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 differs 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 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 assistance of Mark Cohen.  Yabing can be contacted at cuiyabing@berkeley.edu.

Supreme People’s Court Releases New Patent JI For Public Comment

On June 1, the SPC released a new draft judicial interpretation on patent validity litigation for public comment (最高人民法院关于审理专利授权确权行政案件若干问题的规定(一)[公开征求意见稿]).  Comments are due within a month.  The Chinese draft is found here.  Here is a translation provided by the Anjie law firm.

The draft should be of interest to foreign companies, who frequently challenge final decisions of the Patent Review Board at the Beijing IP Court. According to data published by the Beijing IP court, in 2013, nearly 35% of the administrative patent cases involved foreigners.   According to the SPC’s report on IP litigation for last year (to be further discussed in a future blog) there were 872 such adminsitrative patent cases in 2017,a decline fo 22.35% from the prior year.

One provision directly addresses post-filing supplementation of data in chemical patents.  The draft seems to suggest that post filing experimental data will be accepted when there is an different technical effect for review that is  “directly and unambiguously” disclosed in the application.  On first read, this seems to be a narrower view than the revised patent examination guidelines which look to whether the data can be obtained from the original application (补交实验数据所证明的技术效果应当是所属技术领域的技术人员能够从专利申请公开的内容中得到的).   Western pharmaceutial companies reportedly still are having difficulties having post-filing data accepted by SIPO and the courts, despite several years of engagement on this issue.  Here is the relevant paragraph fromt the proposed JI:

datasupplementation If Please send me any comments on this provision or – even better – if any organizations or companies want to share your formal comments on the JI, I would be happy to post them here.  (rev. 6/21/2018 to include link to translation)

Should the NPC also consider Criminal Copyright Reform when it considers Copyright Reform?

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At this month’s National People’s Congress, an NPC spokesman noted that this year the NPC intends to address reform of the copyright law, which has been long delayed. However, reform of the substantive copyright law will not typically address the need to reform the criminal copyright law and to address the relationship between civil and criminal copyright law. This point was raised in the Weixin platform Zhichanli (知产力), which addressed the key issues of criminal copyright law reform in a lively “cartoon” format (see above):

The four issues from the perspectives of the author of that blog are:

1.       Article 217 of the criminal code, mandates having a “profit motivation” in order for criminality to attach.Should the “profit motivation” requirement be removed from the criminal code?

2.       Whether to criminalize the Internet related right of “communication over information networks”?

3.       How to address secondary and principal liability of internet platforms?

4.       Three separate specific issues, including:

a)       How to criminalize destruction of technological protection measures?

b)      How to criminalize commercial scale use of piratical software?

c)       What are the thresholds to deal with online criminal enforcement?

In my view, these are all important issues, which should be considered in the context of copyright reform.    Many of these  issues were raised in DS/362, the WTO enforcement case which the United States brought against China.    Of particular note was that the United States raised the history of  amending US laws to address willful copyright infringement that caused large scale harm without necessarily causing commercial gain (the LaMacchia case, in the cartoon above).  In addition, the United States also recognized that thresholds based on the numbers of copies would not capture the harm caused by technological changes which permitted large digital quantities to be distributed on line or in compressed formats.   One of the current thresholds involves 500 “flat articles”  ( 500 ) (typically used for CD’s or flat pieces of paper), which the WTO panel called “copies, for the sake of simplicity” and is an awkward determinant for infringement in rapidly moving technologies.

Also of note is that criminal IP enforcement has become more important in China. This was brought to my attention by a Chinese judge who mentioned that while China opposed the WTO case, it was now widely recognized that criminal IP is an important part of an IP enforcement system. In a sense, the US may have lost the 2007 battle over criminal IP at the WTO, but clearly won the war. The data bears this out. When the WTO was filed against China, there were only about 904 criminal IP  infringement cases in China (2007).   In 2013, by comparison there were 7,804 infringement cases – an increase of about 8 times, not including increases in other provisions of the criminal code that also can address IP infringement, such as crimes involving illegal business operations or fake and shoddy goods.

While China recognizes that criminal IP is enforcement it an important part of its enforcement system,  an equally important question concerns the role of the relatively small criminal IP enforcement system in light of China’s civil, administrative and customs enforcement (see chart below).  In addition to the increasing number of criminal IP prosecutions,  the increasing numbers of referrals from China’s administrative copyright enforcement to criminal copyright enforcement is an encouraging trend in this regard.  An even more encouraging sign would be consideration by the NPC of criminal copyright law reform at the same time as it considers substantive copyright law reform.  As criminal law reform goes through different procedures at the NPC, working on both issues simultaneously may entail some coordination, but would help ensure that any changes to China’s copyright regime is comprehensive and would set a good precedent for other IP legislative reforms coming up, such as in reform of the trade secret regime in the Antiunfair Competition Law.

 

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