Thanks to the Anjie Law Firm, attached please find an unofficial line-by-line translation of the draft patent law amendments, which were briefly discussed here. Comments are due February 3, China time.
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.
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 remedies.
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!
1.NPC Standing Committee Releases 2018 Legislative Plan. The NPC Standing Committee (NPCSC) on Friday released its annual legislative plan for 2018. As usual, the plan is divided into two sections—the first listing specific legislative projects slated for discussion at the NPCSC’s remaining five sessions in 2018, and second setting forth general guiding principles for its legislative work this year. The plan divides the legislative projects into three categories: (1) those for continued deliberation (that is, those carried over from 2017); (2) those for initial deliberation (that is, bills first submitted in 2018); and (3) preparatory projects.
Below is a list of laws and amendments that implicate IP matters:
Patent Law (Revision) 专利法(修订): set for initial deliberation in June. Draft released for public comments by the State Council in December 2015. There have been several blogs previously on the drafting process and controversial issues.
Foreign Investment Law 外商投资法: set for initial deliberation in December. Draft released by the State Council for public comments in January 2015
The 2018 legislative plan also includes a list of preparatory projects, most of which won’t be submitted for deliberation this year. That list includes an Atomic Energy Law and Export Control Law and revision/amendments to Copyright Law.
2. New initiatives released by SIPO on World Intellectual Property Day. During a press conference for the World Intellectual Property Day, Shen Changyu, head of SIPO, made remarks of new initiatives planned by SIPO. According Shen, China is revising its Patent Law and establishing a punitive damages system for intellectual property infringement to increase the cost of illegal behavior and create a deterrent effect. In addition, China pledged to establish more intellectual property protection centers, in addition to the 19 intellectual property protection centers established nationwide. Meanwhile, SIPO planned to release a working guide for Anti-Monopoly law in the field of intellectual property. Should SIPO move ahead with this project, it may be an indication of an increased role for it in the newly reorganized government structure which it shares with China’s antitrust agencies.
As reported before, SIPO and other IP agencies are under reorganization. According to Shen, after the reorganization, SIPO will become the world’s biggest IP office. The new office will have 16000 staff, with 11000 patent examiners and more than 1500 trademark examiners.
3. China’s top court rules in favor of Dior in trademark case. In a judgement on World Intellectual Property day, China’s Supreme Court ruled in favor of Dior in a suit against the Trademark Review and Adjudication Board after a multi-year court battle. The board wrongly rejected a 2015 application by Dior to register a trademark of its tear drop shaped J’adore perfume bottle, the top court said in a statement on its website. Alert blog readers may remember that the Michael Jordan trademark case was similarly held on World IP Day in 2016.
4. Shanghai seizes U.S.-made microchip equipment over IPR. At the start of 2018, Chinese company Advanced Micro-Fabrication Equipment Inc (AMEC) learned that U.S. equipment suspected of infringing the company’s patents would arrive at Shanghai Pudong International Airport. Shanghai customs authorities then seized the suspected products, Jiefang Daily reported on Friday, citing customs officers. Customs suspended the clearance of the products worth 34 million yuan ($5.36 million). With Customs’ involvement, the U.S. company, whose name was not revealed, negotiated with AMEC. The two sides agreed to settle the dispute by offering cross licenses to each other. Chinese media reported that the case is a rare but important example of using Chinese Customs remedies to address imports of products infringing a Chinese patent to effect a cross-license. The case appears to be a settlement of a long running dispute between Veeco Instruments of Plainview, NY and AMEC, which was reported in the western press, including the trade press, and also involved invalidity challenges, US court cases and an infringement law suit in Fujian province. According to the western press on December 7, 2017 the Fujian High Court had granted AMEC’s motion for an injunction prohibiting Veeco Shanghai from importing, manufacturing, selling or offering for sale to any third party infringing an AMEC patent in China (revised June 4, 2018).
A summary of SPC’s IPR Report 2017 was released, but the whole report will be released in hard copy soon. Here’s the link to the summary.
CFDA just released on April 25, 2018 its Public Comment Draft of Pharmaceutical Data Exclusivity Implementing Rules (provisional) 药品试验数据保护实施办法（暂行）征求意见稿 , available here (the web version is here) . Comments are due by May 31, 2018 at firstname.lastname@example.org.
Article 5 proposes six-year data protection (which was China’s WTO commitment) for “innovative new drugs”. “Innovative therapeutic biologics” are eligible for 12-year data protection (the previous May 2017 CFDA circular said 10 years). The draft clearly encourages MNCs to include China in international multicenter clinical trials and to concurrently apply for market introduction in China (which can include other countries). Full-term protection (6/12 years) is only available in this scenario. Reduced Chinese data protection terms of one to five years may occur due to delays in introduction in China. As a policy matter, this draft appears intended to help encourage conducting clinical trials in China as well as new product introduction into the Chinese market
Thanks to my friend and former student Jill (Yijun) Ge at Clifford Chance for bringing this to my attention and providing an initial review. I welcome readers to submit English translations of this draft for me to post.
This is one of several exciting new developments in the pharma IP sector in China. To help better understand the business implications of these changes, the Berkeley Center for Law and Technology is planning on hosting a half day roundtable discussion on pharmaceutical IP developments in China on May 30, one day before the comment period closes. Seats are limited. Please contact email@example.com or firstname.lastname@example.org for further information.
Three IP-related laws and policies have been released for public comment in the past week, at two different stages in the legislative process.
The first and perhaps most significant is the revisions to the Law Against Unfair Competition (AUCL), now at its second reading in the National People’s Congress. The announcement is found here, and this is a Weixin posting from Lexis of the actual changes, while the full explanation is on the NPC website. As translations or comments become available, please send them to me for posting.
The AUCL is an important law for a variety of IP-related areas, including trade secret protection, but also trade dress. Comments are due by September 24. The draft adds statutory damages to the list of remedies for violation of the law, but at the same time removes a provision from the earlier draft clarifying that employees are subjects of the law, notwithstanding that the focus of the law is on undertakings (经营者). However, the NPC reports that at the same time it clarifies the circumstances where an enterprise benefits from misappropriated information. “删除修订草案第十条的规定；同时，在第九条中进一步明确：第三人明知或者应知商业秘密是权利人的员工、前员工或者其他单位、个人通过非法手段取得，仍获取、披露、使用或者允许他人使用的，视为侵犯商业秘密。(修订草案二次审议稿第九条第二款) . Here is a link to information regarding the earlier public draft.
The second important law is the Standardization Law, also in its second reading at the NPC. The announcement is found here, and the text is found here. Comments are also due by September 24. One potentially problematic provision involves providing support for standardization to indigenous innovated technologies for important national industries, strategic and emerging industries, and key public interest technologies.( 增加一条规定：国家支持在重要行业、战略性新兴产业、关键共性技术等领域利用自主创新技术制定团体标准、企业标准.)
Finally, the China Food and Drug Administration has released its proposed draft “Orange Book” (《中国上市药品目录集》（征求意见稿） which may implement a patent linkage scheme (see excerpt above which requires reporting of relevant patents and regulatory data). A proposed linkage system was announced by CFDA on May 12, 2017 in Notice 55, about which I previously blogged. The draft is available through this link. Comments are due by September 15.
A much awaited, proposed public draft revision to the Antiunfair Competition Law was released by the State Council Legislative Affairs Office on February 25, 2016. Comments are due by March 25, 2016. An open source translation is available here.
This is not an easy law to comment on, as the law combines a range of various issues to varying degrees: competition and fair trade law, trade secrets law, trade dress law, cybersquatting and enterprise name infringements, advertising regulation, bidding law, compliance/anti-bribery, network management and other areas. Strictly speaking it is not an IP law which focuses on giving individuals private rights. Rather, it is geared towards ensuring that there is fair competition in the market, as its title suggests.
A key focus for me has been on the trade secret provisions of the draft. Pertinent provisions are discussed and copied below:
“Article 9: A business operator must not carry out the following acts infringing on trade secrets:
(1) Obtaining rights holders’ trade secrets by theft, enticement, intimidation, fraud, or other improper tactics;
(2) Disclosing, using, or allowing others to use a rights holders’ trade secrets acquired by tactics provided for in the previous item;
(3) Disclosing, using, or allow others to use trade secrets in their possession, in violation of agreements or the rights holders’ demands for preserving trade secrets.
Where a third party clearly knows or should know of unlawful acts listed in the preceding paragraph, but obtains, discloses, uses or allows others to use a rights holders trade secrets, it is viewed as infringements of trade secrets.
“Trade secrets” as used in this Law refers to technological information and business information that are not publicly known, have commercial value, and are subject to corresponding secrecy measures taken by the rights holder.”
Importantly, the draft drops the earlier statutory requirement that trade secrets had to have practical applicability, a “TRIPS-minus” provision which may have had the effect of denying trade secret protection to experimental failures. The distinction between technical information and business information in this draft may also reflect other laws and government agencies some of which, like the Ministry of Science and Technology and SIPO have expressed interest in “technical trade secrets” or “service invention” compensation for trade secrets. Chinas IP courts similarly have jurisdiction over technical trade secrets, but not business confidential information.
The law also expands the scope of a covered business operator, to include natural persons, which is a positive step:
“‘Business operators’ as used in this Law refers to natural persons, legal persons or other organizations engaged in the production or trade of goods, or the provision of services. (“goods” hereinafter includes services). “(Art. 2)
The draft offers very little in the way of improving procedures for trade secret litigation. There are improvements to trade secret administrative enforcement.
“Chapter III: Supervision and Inspection
Article 15: When supervision and inspection departments investigate acts of unfair competition, they have the right to exercise the following powers of office:
(1) Enter business premises or other venues related to the conduct under investigation to conduct inspections;
(2) Question business operators under investigation, interested parties, or other entities or individuals, and request supporting materials, data, technical support or other materials relating to the acts of unfair competition;
(3) Make inquiries about, or reproduce, agreements, account books, invoices, documents, records, business correspondence, audio-visual materials or other materials relating to the acts of unfair competition;
(4) Order business operators under investigation to suspend suspected unlawful acts, to explain the source and quantity of property related to the conduct under investigation, and to not transfer, conceal or destroy that property;
(5) Carry out the sealing or seizing of property suspected to be involved with acts of unfair competition;
(6) Make inquiries into the bank accounts of business operators suspected of acts of unfair competition as well as accounting vouchers, books, statements and so forth relating to deposits;
(7) Where there is evidence of the transfer or concealment of unlawful funds, an application may be made to the judicial organs to have them frozen.
Article 16: When supervision and inspection departments are investigating acts of unfair competition, business operators under inspection, interested parties or other relevant units or individuals shall truthfully provide relevant materials or circumstances, shall cooperate with supervision and inspection departments performing duties according to law, and must not refuse or obstruct supervision and inspection.”
Although I believe most right holders seek improvements in trade secret enforcement, including more deterrent remedies, I am uncertain how much those desires extend to administrative enforcement. Transferring of relevant confidential material to an SAIC official tasked with trade secret enforcement will raise concerns of further trade secret leakage, which are probably not of equal concern in the case of administrative enforcement of, for example, trade dress infringements covered under this draft law. Moreover, the State Council has elsewhere stated that all administrative cases should be conducted ex-officio. To me administrative ex-officio enforcement of trade secrets, with authority to enter business premises to inspect and conduct investigations, is problematic.
The draft law also seeks to increase administrative fines for trade secret theft, and improve burden of proof issues:
“Article 22: Where business operators violate the provisions of Article 9 of this law, the supervision and inspection departments shall order them to cease the unlawful acts, and shall impose a fine between 100,000 and 3,000,000 RMB depending on the circumstances; where the act constitutes a crime, criminal responsibility is pursued in accordance with law.
Where the rights holders of trade secrets can prove that information used by others is substantially the same as their trade secrets and that those others had the capacity to obtain their trade secrets, those others shall bear the burden of proof to show that the information they used came from lawful sources.”
It is unclear to me from Article 22, that this “burden of proof” reversal in the second paragraph above applies to administrative enforcement or civil enforcement, or even criminal process. Moreover, the requirement of substantial similarity of the technology for the shifting to take effect, is probably too high a threshold, having been an impediment for plaintiffs in trade secret litigation in China to date.
Does this law go far enough in addressing trade secret issues in China?
Although SAIC has historically conducted many administrative trademark cases on behalf of foreigners, historically trade secret administrative enforcement has not significantly benefitted foreign companies or small enterprises. As I previously blogged:
That there were 174 trade secret cases [for 2008-2010] out of 110,896 cases involving the Law to Counter Unfair Competition, or about 0.2% of the total. In addition, the data shows that average fines were 11,624 Yuan, and only 7 cases or about 4 % of the trade secret case were referred to criminal enforcement. Like the civil system, the administrative system also appears to be frequently used to address employee theft of confidential information. Precisely one third, or 58 of these 174 cases involved individual respondents; 24 involved private companies (14%) and 23 cases involved individual businesses (13%). There were no cases where a state owned enterprise or publicly held company was named as a defendant in an administrative action.
One may question, therefore, whether this draft revision of the AUCL addresses the full range of substantive and procedural improvements that need to be made to improve trade secret enforcement in China, much of which may be more uniquely linked to trade secret protection compared to other IP rights. Moreover, many of the problems are amplified by comparison with trade dress or other provisions of this draft law.
Much of the problem with trade secret protection has been in the lack of discovery in the civil system. One significant advantage of improved trade secret administrative enforcement however could be in facilitating the transfer of information obtained in administrative investigations to civil courts or law enforcement authorities, consistent with State Council guidance on facilitating case transfers. Improving civil procedures for trade secret cases could also greatly help in civil prosecution of trade secret cases, including by making necessary changes in evidence collection, burden of proof reversals, and other areas.
The current draft appears unduly oriented to instances where trade secret theft has actually occurred. One critical area concerns the availability of relief for threatened misappropriation of trade secrets including preliminary injunctions, adoption of “inevitable disclosure” type doctrines, and evidence or asset preservation measures. Such measures can be especially important as the harm that may be caused by a misappropriation may be incapable of being compensated for by the misappropriator or beneficiary of the theft. Although revisions to China’s Civil Procedure Law now permit preliminary injunctions for trade secret theft (Eli Lilly vs. Huang Mengwei), China may wish to consider specific provisions in this law to facilitate more liberal dispensation of provisional remedies. China had specifically provided for preliminary injunctive relief in other IP laws, before the most recent Civil Procedure law amendments, and may want to consider appropriate provisions for trade secrets.
Regarding threat of trade secret law, the current law also only addresses “disclosing, using, or allowing others” to use the secret information. This deficiency could easily be remedies by including language on threat or imminent trade secret theft. The Uniform Trade Secrets Act in the United States, by comparison, specifically addresses “actual or threatened misappropriation” which may be enjoined, and also provides a remedy for trade secret inducement. The TRIPS Agreement itself clarifies that a key focus of WTO member trade secret obligations is “preventing information lawfully within their control from being disclosed to, acquired by, or used by others without their consent in a manner contrary to honest commercial practices.” (emphasis added). The need for preventative measures is also reflected in TRIPS Article 41, which requires WTO members to have “expeditious remedies to prevent infringements.” In addition, inducement liability is being considered in other China IP laws (patent/copyright) and does not appear to be part of this draft. A clear definition of inducement liability may be helpful in limiting losses due to third party misappropriation of trade secrets.
China’s trade secret regime also has several other challenges, including difficult criminal thresholds; unclear relationships with labor law, labor mobility regulations, and employee non-competes; difficulties in gathering evidence; unclear divisions among the appropriate role of civil, criminal and administrative remedies; and even an emphasis on trade secret protection as an aspect of market regulation, rather than as a civil IP right, as is under consideration. Some of these deficiencies may be cured by judicial interpretation and guidance, as was previously addressed by the Supreme Peoples Court in an earlier Judicial Interpretation.
The focus on market regulation denies trade secret holders in China the ability to address infringement based on where a product that benefits from a trade secret misappropriation is sold, but instead may require litigation where the misappropriation occurred. See Siwei v. Avery Dennison (Min San Zhong Zi No. 10/2007) (Sup. People’s Ct. 2009) (China). This may also encourage foreign litigants, concerned about local protectionism or undue influence of local companies on local courts, to seek remedies elsewhere (such as through Section 337 remedies in the United States). In addition, the lack of discovery can also lead to the “exporting” of such litigation. Making these necessary procedural improvements, including improving “success rates” for domestic trade secret cases and improving procedures for gathering evidence, may also enhance China’s position that Chinese judgements in trade secret cases are entitled to res judicata effect in other jurisdictions.
Former SPC Vice President, now Chief Procurator Cao Jianming 曹建明, noted in 2005, trade secret enforcement was the area with the “greatest difficulties” for the courts . Industry has also raised concerns about many of these deficiencies. While many of the changes in the AUCL on trade secret protection are positive, a more comprehensive approach could require reforms in other areas, including the practices of law enforcement and the courts, administrative law reform, civil law reform, and/or a stand-alone trade secret law.
My personal estimation: the AUCL draft is a beginning and not an end in the trade secret reform process.