Category Archives: Patent

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Semiconductor Patent Litigation Part 2: Nationalism, Transparency and Rule of Law

spindel

“The 60-year-old Yin Zhiyi (Gerald Yin) resolutely gave up the US’s annual salary of one million dollars, broke through the layers of US government review, … He led a team of more than 30 people back to China. … At the age of 60, he returned with his brain and founded China AMEC.

He said: We have done a lot of things for foreigners. It is time to make contributions to the people of our own country. He not only returned alone, but also led a team of outstanding Chinese of more than 30 people. It can be said that everyone has their own high-end technology weapons. And this move by him immediately caused the U.S. security department(s) to block him…  All the process and design drawings were completely confiscated.”

In my last blog I noted how semiconductor chip 芯片-related patent cases have a relatively low level of success in China, and that there appear to be wide regional variations in success rates.  Today, I will look at some of the legal issues raised by the emergence of Fujian as a venue for litigating these cases.  We begin by looking at the saga of Advanced Micro-fabrication Equipment, Inc. (AMEC), a semiconductor equipment manufacturer based in Shanghai, of which Gerald Yin, the subject of the above article, is both chairman and CEO.

AMEC has been described by the U.S. government as China’s leading semiconductor equipment manufacturer.    It has also been involved in three high profile IP disputes with US companies since its establishment.  Gerald Yin was a long-timer in Silicon Valley, previously served as a Vice President of Applied materials before joining AMEC, and prior to Applied he was with Lam Research and Intel – a scenario not unlike other Silicon Valley tech employees.  According to an on-line bio, he holds a doctorate in Physical Chemistry from UCLA and is the inventor of 86 US patents and more than 250 foreign patents.  AMEC’s case against Veeco earlier this year appears bears many similarities to the facts noted in the media report of a preliminary injunction decision issued on July 3, 2018 in favor of UMC and Fujian Jinhua’s case against Micron, another American company, also in Fujian province.

AMEC’s Batting Average

The records regarding AMEC’s prior legal challenges are complex and scattered across multiple jurisdictions.  They include court cases, patent filings, patent oppositions and Customs actions. It is frankly beyond the scope of this blog to fully analyze the validity of each claim and counterclaim.  Overall AMEC appears to be enjoying a high win rate.

The reported legal saga begins when Applied Materials sued AMEC in California (2009) for misappropriation of trade secrets that related in part to confidential information he obtained while at that company which were also the subject of patent applications by him.  The case was dismissed in favor of AMEC on the basis that the contract regarding the inventions violated California law against enforceability of non-compete agreements, depriving Applied of any rights to inventions whether or not there had been a misappropriation of confidential information.  Also of note, in 2009, AMEC brought suit against Applied in Shanghai, under the anti-unfair competition law (AUCL), presumably for trade secrets, which was withdrawn on January 1, 2010.  Withdrawn cases permit the parties to refile later as no decision has been reached on the merits and may not be included in official case law databases.

Another case involved AMEC and Lam Research, another Silicon Valley company which was also Gerald Yin’s former employer.  This matter involved patent infringements and was litigated in Taiwan.  By 2012 Lam Research had exhausted its appeals and lost.

AMEC v Veeco

AMEC’s most recent dispute with Veeco, a New York-based competitor with a subsidiary in Shanghai, involved preliminary injunctions for patent infringement in the US against a supplier to AMEC and a preliminary injunction in China against Veeco, as well as Chinese Customs seizure of imported goods of Veeco that infringe Amec’s Chinese patent. Preliminary injunctions in patent cases have historically been quite rare in China.  For example, in 2013, Chinese courts granted 11 preliminary injunction requests out of 90,000 IP cases. According to press reports, the dispute between Veeco and AMEC ended with a global settlement.

The US action was commenced on April 12, 2017 in the Eastern District of New York against one of AMEC’s suppliers, SGL.  Limited discovery was conducted in July and October 2017.  The 76 page opinion of Judge Chen, dated November 2, 2017 and amended November 16, 2017, reviews the challenges to patent validity, the scope of infringement, extraterritorial issues and the balance of equities in issuing a preliminary injunction against SGL (the drawing above is excerpted from her opinion).  Chinese commentary suggests that Judge Chen did not have the benefit of the Chinese validity challenges based on on novelty or non-obviousness.  However, the issues, including an alleged pre-existing “hockey puck” design are discussed at length in Judge Chen’s opinion, and there appears to have been discovery, expert opinion and due process provided (see text at fn. 64 and references to “hockey puck”).

Note that on January 23, 2018, SIPO declared the counterpart patent(s) to those asserted in New York to be invalid.   Of particular concern in the NY litigation was the ‘769 patent, formerly owned by Emcore.  AMEC reportedly launched an invalidity challenge at the USPTO on December 8, 2017 against this patent.  A Chinese author’s description of the global patent challenges is found here.

The second significant decision involved a case initiated by AMEC against Veeco in July 2017. and the Fujian High Court granting an injunction on or about December 7, 2017 (see media reports). This case has not been released to the public.  I have therefore had to rely on various secondary sources of information in order to understand the circumstances of this case.

A Veeco press release states that “On December 7, 2017, without providing notice to Veeco and without hearing Veeco’s position on alleged infringement, the Fujian High Court issued a ruling, applicable in China, that requires Veeco Shanghai to stop importing, making, selling and  offering to sell Veeco EPIK 700 model MOCVD systems which contain the accused infringing synchronous movement engagement mechanism covered by AMEC utility model patent ZL 201220056049.5 and wafer carriers used as supplies for the EPIK 700 MOCVD system.” The circumstantial circumstances seem to support this position.  According to AMEC’s press release, the patent in suit was the subject of two invalidity challenges and was held valid by the Patent Reexamination Board on November 24, 2017.  This was the Friday of the US Thanksgiving holiday.   The patent in suit was a utility model patent, ZL201220056049.5.  Assuming that AMEC moved for a preliminary injunction on the following Monday, November 27, 2017, the injunction would have been issued approximately nine business days later, hardly time for a thorough consideration of infringement issues or the weighing of factors in a preliminary injunction.  The Chinese preliminary injunction case was different from the US case in many respects: notably the US decision was published, involved months of hearings and exchange of documents, and the decision was not issued on an ex parte basis.  I assume it would also be difficult for the Fujian High Court to issue as lengthy a decision as EDNY in light of the limited time it had before it rendered its decision, but we lack the benefit of a published decision in this matter.

AMEC v Veeco also shares other concerns with Chinese countersuits against overseas litigation.   Although this case was filed after Veeco filed its case in the United States, the court seemed intent on accelerating its decision making in order to undercut the effect of a US judgment.  As I have noted, this is typically done without any consideration of comity, and it is a common litigation tactic for a Chinese defendant to seek a quick decision from a court where it has a close relationship to undermine the effectiveness of an overseas litigation or 337 investigation.  It is hard to deny that the Fujian High Court is paying attention to timing when the Fujian High Court apparently drafted its non-public decision in less than two weeks.

There are some other similarities with Chinese anti-foreign suit litigation, including that often these cases also end up getting recognized as a “top 10” /guiding/leading cases  by local or national authorities and the authorities extol how they can help guide Chinese companies to break open foreign markets, thereby adding fuel to a techno-nationalist fire.

Another strategic point is that AMEC’s principle weapon was a Utility Model Patent (UMP), which lasts only 10 years.  The use of utility model patents or design patents to countersue in China is a well-established practice (Chint v Schneider; Chery v General Motors).  One reason may be that UMP’s do entail a lower threshold of inventiveness than an invention patent and for that reason may be harder to invalidate.  In a sense, AMEC’s “high tech” weapon was the lowest tech patent weapon in the toolbox.   For a utility model, the invention must possess “a substantive feature and indicates an advancement”.  An invention patent requires “a prominent substantive feature and indicates remarkable advancements” (Patent Law, Art. 22).  Nonetheless, as has been evident for 10 or more years, UMP’s can have remarkable litigation value and should be considered a part of every foreign company’s patent portfolio for both defensive and offensive purposes.

The Customs proceeding is also a bit of an outlier, and also lacks any publicly available record.  While Chinese Customs has the authority to seize goods on import, and to seize goods that infringe patents, such seizures are rare.   The seizure by AMEC was also listed as one of Shanghai’s “top 10” IP cases for 2017, and the listing made it clear that the case should serve as an example for other innovative Chinese companies.

There are other unusual aspects to this case.  For example, why would a Shanghainese company (AMEC) file a case in Fujian against another company (Veeco) that is also locally headquartered in Shanghai?  Furthermore, why did they choose a jurisdiction which hasn’t seen one reported patent case with the word “chip” (芯片) in it?

Transparency Woes

The AMEC case now joins a short list of not-so-distinguished cases involving foreigners, where the court has yet to publish or significantly delayed publishing the final decision, including Huawei v Interdigital (Shenzhen first instance decision) and Chint v Schneider (Wenzhou).   This lack of transparency is striking considering the great strides generally being made in publishing court decisions.   Publishing decisions and other forms of transparency (such as amicus briefs) help ensure fairness, improve the quality of decisions, prevent corruption, develop appropriate legal strategies, and insure consistency with other legal opinions, amongst other benefits (as also noted elsewhere on this blog).

There may also be other explanations for this lack of transparency. The case was settled and, as noted, often decisions are not published after a case is withdrawn.  In addition, the case involved a preliminary injunction and such cases are just rarely published.  In the not too distant past requests for a preliminary injunction were handled exclusively by the “case filing division” of the courts and thus were never formally docketed. However, courts throughout China have been moving to limit the case filing division’s lack of transparency, and applied less discretionary “case recordal” acceptance procedures.  Fujian is no exception.  Non-publication leaves one guessing as to motives.

Added Motives to Be Non-Transparent?

Semiconductor companies are entitled to know more about Chinese and Fujian judicial practices in semiconductor patent matters, and what factors weigh in granting the rare preliminary injunction.  The news of July 3, 2018 that  the Fuzhou Intermediate Court reached a decision involving Micron’s alleged infringement of semiconductor patents, and that this case has apparently been released to the plaintiffs but has not yet been provided to the defendant, underscores the need for transparency (See press reports of Jinhua, UMC and Micron).   Also of concern is that the decision, which reportedly has immediate (立即 ) effect, was released the day before a US national holiday, July 4.  Generally preliminary injunctions are not effective until served, but time is likely of the essence in responsing to this order.  See also TRIPS Agreement Art. 41.3 (“3.  Decisions on the merits of a case shall preferably be in writing and reasoned. They shall be made available at least to the parties to the proceeding without undue delay.”)

Another concern amongst the foreign business community, given the current trade climate, is whether China has begun using legal tools to retaliate against US companies in sectors targeted by “Made in China 2025”, including retaliation against efforts to use overseas litigation.   The Micron decision comes less than two weeks after a promise that Beijing would not seek retaliation against foreign companies operating in China.  China’s increasing involvement in the semiconductor sector was described by former U.S. Commerce Secretary Pritzker in September 2016 as “unprecedented” state-driven interference that “distorts the market” and “undermine[s] the innovation ecosystem.”

One hopes that industrial policy is not affecting the legal system, as right now we need less, not more, fuel on the trade war fires.   Appropriately containing disputes to fair and expert legal systems can be one effective way of reducing trade tensions.

I welcome any commentary, corrections and updates.

The opinions expressed herein are mine alone.  In my capacity as an academic at Berkeley and as a lawyer or consultant, I do receive support from and advise semiconductor companies as well as service providers from time to time.  These comments were drafted solely in my academic capacity and without clearance or review by any company or association.

Revised 7/7/2018

 

 

 

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A Data Download on Semiconductor Patent Litigation in China

Because of its strategic importance to both the United States and China, the IC sector is a useful example of how Chinese policies and plans may – or may not – be influencing the Chinese government in the protection of foreign-owned IP.

A useful starting point for evaluating the challenges in IC IP protection in China is the data collected from China’s court cases.  IP House has conducted a heretofore unpublished and useful study of all semiconductor-related patent disputes in its database, attached here (in Chinese).  The data shows that there have been 166 first instance civil patent infringements IP judgments with the word “chip” (芯片), and 86 second instance cases.    There have also been 142 first instance administrative decisions, typically involving validity matters, and ninety second instance decisions. 52.91% of the first instance cases involved invention patents, 10.31% involved utility model patents and 36.77% involved design patents.

Regarding civil cases, 39 were heard in Zhejiang, 35 in Guangdong, 27 in Beijing, 21 in Jiangsu and 11 in Shanghai.  Every other jurisdiction had fewer than five cases, and no cases were reported for Fujian Province.

The data suggest a comparatively low “success” rate for plaintiffs in semiconductor patent disputes.   Amongst the 183 reported judgments, only 51 cases were fully or partially successful — a 38.34% success rate.  This compared to an overall success rate of about 80% for litigants in patent cases in 2014 in China, as reported by Bian Renjun at Berkeley. Cases were not reversed to a significant degree on appeal; 60 out of 70 cases supported the original decision of the first instance court.  Amongst the “top 10 “ courts in terms of litigation volume, the success rate for semiconductor patent plaintiffs varied dramatically.   Guangdong had the highest success rate (60%), followed by Beijing (43.75%), Zhejiang (23.08%) and Jiangsu (19.05%).  76 of 77 successful litigants obtained an injunction to stop infringement; one litigant did not request an injunction.

Regarding administrative reviews, 117 out of 140 cases involved affirming the original administrative decision, an “affirmance rate” of 83.57 percent.  Eighty one out of ninety cases were affirmed on appeal.

The United States was the principal foreign civil litigant, with seven cases, followed by the British Virgin Islands and the Netherlands, each with two cases.  The United States was the principal first instance administrative plaintiff challenging SIPO’s decisions, with 30 cases, followed by Japan (5), Netherlands (3) and several countries with only one civil case (France, Germany, Cayman Islands, Korea,   Singapore and Israel).

I draw the following tentative conclusions from this data:

  1. Success rates for semiconductor cases vary dramatically by jurisdiction in China. My guess is that the Guangdong courts, which have the highest success rates, have greater expertise in both semiconductor patent litigation and patent litigation overall, which may make them more “expert” on these matters. Due to variations in success rates amongst jurisdictions, the semiconductor sector is a useful example of why China needs a national appellate IP court.
  2. No matter what major court one looks to, success rates for these cases are lower than the average for other types of patent litigation. This may suggest either a lack of familiarity with the technology or an unduly skeptical view of the courts regarding semiconductor patent assertions at this time. Considering that the vast majority of the cases do not involve foreigners, the low success rate primarily affects Chinese litigants.
  3. Foreigners, and especially Americans, use the courts primarily to litigate patent validity matters. There were 4.5 times more administrative semiconductor patent cases brought by Americans compared to infringement cases. Overall foreigners brought four times more validity cases compared to infringement cases in this area.  This means that the Beijing IP Court, which hears all validity disputes, plays a key role for foreigners on semiconductor patent matters.  Semiconductor patent cases also follow the general pattern where foreigners are disproportionately willing to challenge SIPO in court, but are less willing to bring infringement cases to final adjudication.
  4. Utility model and design patents are frequently asserted in patent disputes in China and may have value to foreign companies needing to protect their IP in this important market.
  5. The Fujian courts do not appear in this IP House report. However, Fujian has already heard one high profile case (AMEC v Veeco), which was settled and does not appear to be publicly available at this time. The second high profile case, involves Micron Technologies, and is currently on-going.

I hope to blog further about the AMEC cases in the United States and China in a subsequent posting.

 

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

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

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

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

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

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

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

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

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Updates for March 27 – April 2, 2018 – China steps up control over technology exports

China steps up scrutiny of IP transfers to foreign firms on national security grounds Under new regulations issued by the State Council on Thursday, technology transfers include IP transfers that are part of acquisitions made by foreign firms involving patents, integrated circuit layout design, computer software copyright and plant varieties. Such transfers will be assessed in terms of their impact on national security and the country’s “key technology innovation capability in key areas,” said the document.

This move is not intended to “upset foreign investors” but rather to formulate “concrete measures to secure a better business environment,” said Zhang Zhicheng, director of the Protection and Coordination Department at SIPO. Zhang also noted the importance for China to strictly review core IP transfers.
Our preliminary observations: Some observers believe the measures are drafted in retaliation to the Section 301 report of the US government which addresses Chinese investment in the United States as well as the US request of China for consultations of China over the Technology Import / Export Regulations, which are also referred to in these regulations. We are also unclear at this point if these regulations were previously “in the works” or otherwise accelerated in response to the Section 301 investigation.
Companies should consider consulting counsel on the impact of these regulations. First, it appears likely that a foreign-invested company’s acquisition of Chinese technology is an IP ‘transfer’ for purposes of these regulations. Under US law, these might be considered a “deemed export“ if a foreign national obtains technology while in the United States These regulations do not use this terminology. The regulations may impact foreign companies based on their source of capital rather than the presence of foreign nationals. For example, the regulation’s scope appears to include transfers that occur wholly within China, as they refer to transfers “to foreigners” of Chinese IP, and earlier regulations, by contrast, focused on transfers to enterprises overseas. .(本办法所述知识产权对外转让，是指中国单位或者个人将其境内知识产权转让给外国企业、个人或者其他组织.)    Compare with the Provisional Regulations on the Administration of Technology Exports 技术出口管理·暂行办法 (对外经贸部/国家科委) (June 26， 1990) (本办法所称的技术出口是中国境内的 公司， 企业， 研究机构以及其·他组织或者个人（不包括外商投资企业， 外国在中国公司。。。。）向境外的公司。。。。).  Further clarification on this important issue would be helpful.

Another issue requiring clarification is the difference between technology transfer from an assignment or licensing of a patent. This has been a subject of confusion under Chinese law for some time, and these regulations appear to carry that forward. The earlier 1990 regulations also regulated the transfer of patents, as well as registered trademarks (!) as a form of “technology transfer” (Art. 2).  However, in most cases, any “leakage” of technology arising from a patent application occurred at the time of the publication of the patent application or grant. An added complication is that China already has procedures in place for regulating foreign filings of patents for national security purposes. Article 20.1 of the Chinese Patent Law provides for confidentiality examination of these applications. These measures be redundant with these procedures, particularly in regulating the transfer of patent applications to foreigners.
Until further clarity is established by implementing rules, these regulations could therefor have an impact of disrupting existing foreign invested R&D or cooperation across national borders. Two questions come immediately to mind: if, for example, a Chinese national is under contract to conduct R&D for a foreign invested company, or is an employee of that company, is the transfer in ownership of the patent application, from the employee to employer a “transfer of technology” for purposes of these regulations? Another question is what is the standard that applies to determine whether an invention created by individuals in China and overseas was “created in China” and is transfer is subject to these regulations? It is also worth noting that the 1990 regulations specifically exempted bilateral scientific cooperation (Article 2). These do not.
In a separate development, the State Council  released measures this week to strengthen security management of scientific data. The measures, which prioritize data security and focus on data sharing, order strengthening supervision of the use and sharing of scientific data with both domestic and foreign parties.

Finally, this blog, and its preliminary observations, is not a substitute for legal counsel and serious research that is necessary on these and other issues arising under China’s texport control regime.

Please advise of any necessary corrections.

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March 19 – 26, 2018 Updates

1. China Now Number 2 PCT Filer.  China has overtaken Japan to claim second place as a source of Patent Cooperation Treaty (PCT) applications  in 2017. In 2017, U.S.-based applicants numbered 56,624 PCT, followed by China (48,882) and Japan (48,208). Huawei Technologies (4,024 published PCT applications) and ZTE Corporation (2,965) – occupied the top two spots for PCT applications. They were followed by Intel (2,637), Mitsubishi Electric (2,521) and Qualcomm  (2,163).   Historically Chinese PCT applications have been concentrated in a few companies.

Chinese academic institutions are still minor users of the PCT.   Among the top 25 educational institution filers, there were only three Chinese academic institutions – Shenzhen University (no. 11), China University of Mining and Technology (no. 15) and Tsinghua (no. 19).

Computer technology (8.6% of the total) overtook digital communication (8.2%) to become the field of technology with the largest share of published PCT applications. These two fields were followed by electrical machinery (6.8%) and medical technology (6.7%)

2. China’s premier pledges market opening in bid to avert trade war On the heels of the Section 301 Report, Chinese Premier Li Keqiang reiterated pledges to ease access for American businesses, at the news conference following the closing session of the National People’s Congress (NPC). Li also said at a conference that included global chief executives that China would treat foreign and domestic firms equally, would not force foreign firms to transfer technology and would strengthen intellectual property rights. Another Vice Premier, Han Zheng,  made similar remarks at the China Development Forum.  Han said that China needs to “open even wider to the outside world,” and would do so via its Belt and Road Initiative.

According to Wall Street Journal citing unidentified source, U.S. Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer listed steps they want China to take in a letter to Liu He, a newly appointed vice premier who oversees China’s economy. The United States asked China to cut a tariff on U.S. autos, buy more U.S.-made semiconductors and give U.S. firms greater access to the Chinese financial sector. The article also reported that China and the U.S. have quietly started negotiating to improve U.S. access to Chinese markets.

 

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IP House’s Snapshot of Medical and Health Industry

IP House  has recently published a  Statistical Report on IP Cases in the Medical and Health Industry (December 2017) (Chinese language) covering 391 medical and health industry cases closed from January 1, 2016 to June 30, 2016. Among those cases, 158 were civil cases (67 patent and 91 trademark) and 233 were administrative cases (40 patent and 193 trademark).

As explained in further detail below, this time-limited snapshot of medical and health industry cases shows a relatively low utilization by foreigners of civil infringement remedies in both patent and trademark matters.  Foreigners, including Americans, did actively use judicial review procedures of patent and trademark office decisions.  The cases also show low damage awards for pharma infringement cases despite a high win rate.

Patent

  1. Civil Cases

There was a total of 67 civil patent cases in medical and health industry. Guangdong and Jiangsu were the top 2 provinces with close to 42% of the patent litigation. Among all the civil patent cases, around 74.6% were infringement cases, with the balance involving ownership and contract disputes. Infringement of utility model patents and invention patents were the top two claims of action at 24 and 19 cases respectively.   Amongst invention patents, 14 involved medical devices and 5 involved compound patent claims.

Foreigners were minority plaintiffs in these cases, accounting for only 6 out of 67 civil patent cases.  Only one case involved a US party.   Other countries included Japan (2), Norway (2) and Germany (1).   The foreign plaintiff win rate was 83.3% with average damage of 162,001 RMB, slightly higher than the overall winning rate of   82.1%. This “win rate” is approximately similar to win rates being generally report for patent infringement cases in China as reported in a recent article by Bian Renjun.   First instance (一审) infringement trials on average took took 226 days; second instance infringement actions  (二审) on average took 120 days.

Average damages in these actions was 439,896.2 RMB.   Of these, more than 95% of cases used statutory damage to calculate damages.  Two cases that awarded more than 1 million RMB in damages, which were calculated as lost profits.

The principle reason that plaintiffs lost was that the accused product was deemed “not within the scope of protection.” Invalidity was another reason.

  1. Administrative Cases

There was a total of 40 patent administrative cases in the medical and health industry, involving appeals of decisions of patent office decisions.   US entities were a party in seven of the fourteen foreign administrative cases.  This relatively high proportion of foreign administrative cases follows a pattern in judicial IP actions in China where foreign companies generally enjoy a  higher proportion of cases involving validity than in infringement matters.  Amongst all of these cases, the administrative judgment was vacated by court for 6 cases.

As for review period, action of first instance on average took 446 days, and actions of second instance took on average 248 days. Administrative cases took much longer than civil cases to review.  Amongst the administrative cases 72.5% (29 cases) involved drugs, and 27.5%, (11 cases) involved medical devices.  Furthermore, 33 cases involved invention patents and 7 utility model patents

Trademark

  1. Civil Cases

There was a total of 91 trademark cases, where Jiangxi and Guangxi were the top 2 provinces with most cases.  A majority of these cases involved trademark infringement (88). Plaintiff won 78 cases with a win rate of 85.7%. Trademark civil cases on average took 185 days until the first instance judgment and 106 days for second instance judgment.  Drug and health products constituted 81.8% of these cases, with average damages of 61,412.9 RMB.  All these cases used statutory damages, and only one case involved a foreign party (USA).

The relatively low level of trademark infringement cases may be due in part to the active roles played by SAIC in administrative trademark matters, including their handling of foreign related cases as well as administrative enforcement matters undertaken by CFDA and takedown activities by online etailers.  However, the concentration of cases in Jiangxi and Guangxi is difficult to explain, except perhaps due to inexact reporting procedures.

  1. Administrative Cases

There was a total of 193 trademark administrative cases. Among those cases, 62.2% or 120 cases were brought for review on refusal (驳回复审). Administrative judgements were vacated by court for 49 cases. On average, trademark administrative cases took 266 days for actions of first instance, and 113 days for action for second instance.  Foreign cases accounted for 75 of these administrative trademark cases with the US being the party for the most cases (22 cases), following by Japan and Germany.

In administrative trademark cases, when the applicant had been refused grant of the trademark, the courts primarily ruled on the basis that the same similar trademark was used in the same or similar type of product (87 cases).   Another frequent basis was that a trademark was deceptive, and led to consumer confusion regarding quality and origin.

Implications for the future:

This data, although limited, is suggestive of what a further landscape for pharma patent litigation will be if China institutes a patent linkage system.  To speculate: the data does not suggest that foreigners will rush in to assert infringement of their patents, but rather that foreigners currently play a limited role in infringement litigation.   The high foreign and domestic win rate on infringement matters also suggests that a linkage regime could therefore be very helpful in securing cost effective and timely protection of patent rights, even if this right may not be asserted with great frequency.  Finally, the data also suggests that foreigners appear relatively comfortable in pursuing challenges to administrative action in pharma IP matters, and therefor may ultimately be willing to avail themselves of a patent linkage regime administered by CFDA and the courts. I believe a greater factor in determining how much a linkage system may be utilized may be the development of new, innovative drugs that are patent protected by foreign or domestic entities.

Perhaps the readers of this blog have a different opinion –  we look forward to receiving them.

Written by Mark Cohen with the assistance of Emily Yang.

 

 

 

 

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Update on Research on Technology Protectionism and the Chinese Patent System

Prof. Gaétan de Rassenfosse and Dr. Emilio Raiteri (both at EPFL, the Swiss Federal Institute of Technology in Lausanne, Switzerland) have recently offered interesting statistical evidence for preferential treatment of domestic applicants and a potential issue with national treatment in patent applications in China. Their work shows that inventions by foreign firms were less likely to be granted patent protection, after adjusting for a range of other factors. However, their study of more than half a million patent applications reveals that only applications in “strategic” technology areas faced negative discrimination. More precisely, the probability that strategic patent applications by foreign firms will be granted is 5 to 15 percentage points lower than expected in the absence of discrimination.

Strategic technologies were identified using the ‘‘National Medium and Long-Term Program for Science and Technology Development 2006–2020’’ (citation to plan or to my blog) (“MLP”). The MLP, issued by the State Council, seeks to make China an innovation-driven nation by fostering indigenous innovation in selected technologies, including telecommunications, biotechnology and energy. Regarding telecommunications, the authors (with the co-authorship of Rudi Bekker of the Netherlands) find in another article that discrimination against foreigners was particularly strong among standard essential patents, an issue that was recently discussed by Professor de Rassenfosse in a recent webinar.

For background, one useful comparison of the MLP with other macro innovation/industrial policies has been prepared by Prof. Scott Kennedy.

There has been many complaints related to unfair treatment of foreign rights holders in the judicial system, and there has been some recent scholarship and support in analyses of newly launched databases, that suggests that China made significant progress in the area. Some of the sociological studies suggest that larger companies in China (as elsewhere), however, generally fare better in court.

The current paper focuses on consideration of disparate treatment and its causes in the patent system. However, the reason(s) for the effect are unclear and the authors are cautious not to infer that discrimination is intentional. They have ruled out a large number of possible explanations (such as differences in patent quality or in the quality of the translation into Chinese), but they suggest more work is needed to fully understand the source of anti-foreign outcomes for applicants.

The authors are not alone in looking at differential treatment by national patent offices.  Using data on about 50,000 patent applications granted by the USPTO and filed in the years 1990–1995 at the EPO and the JPO, Prof. Elizabeth Webster and colleagues (then at the University of Melbourne, Australia) had found that domestic applicants were more likely than foreign applicants to be granted patent protection, after certain normalizing adjustments. The authors in another paper noted that despite the efforts then subsisting of the trilateral offices (and other supporting efforts under the umbrella of patent harmonization), there is significant disharmony in the patent application outcomes across the trilateral patent offices. For instance, the overall rejection rate for patent applications which have been granted by the USPTO was 25 per cent for the JPO and 5 per cent for the EPO.  Webster and her co-authors note that there are numerous reasons why patent application outcome may vary with priority country status.  In light of recent changes in US practice due to Supreme Court decisions, one may also wonder whether differences in examination in certain areas, such as software-enabled inventions and biotechnology can also skew results in favor or local companies who have more up to the date information, are focused on the domestic market and may even have attracted capital upon the expectation of a local patent grant.

The papers on Chinese patent applications however are notable in that they (a) utilized a larger cohort of patent applications, (b) made comparisons in treatment by one office (SIPO) and (c) analyzed such treatment in light of articulated national industrial policies, and in comparison to treatment where no such national industrial policy is implicated.   The papers may suggest that political pressure, when it exists in China, may be more likely where there are clear national interests at stake rather in any matter in which a foreigner is involved.  Indeed, litigation data suggests that foreigners do well in Chinese courts; there is limited research on litigation outcomes when the subject is a matter of an articulated national industrial policy, such as these studies might suggest.

Written by Gaetan de Rasenfosse, edited by Mark Cohen.

The views expressed herein are the author’s own.