Trademark Law and AUCL Revisions Passed Into Law

Jill Ge of Clifford Chance has brought to my attention that the changes proposed  to the Trademark Law and Anti-Unfair Competition Law that I reported on April 21, have now been passed at the 10th session of the Standing Committee of the 13th National People’s Congress on April 23, 2019. There does not appear to have been the usual process for public comment on these changes.  This was fast!

Here is a link to the iprdaily.cn reporting of this news, a pdf of the article as it appeared on that website, as well as a machine (google)  translation of the article.  I wanted to distribute these to readers quickly in the interest of time.  If any readers have more polished translations that I can use, please send them to me.

No doubt, these changes are intended to help address US concerns over “forced technology transfer”, “IP theft” and related issues.  A significant concern I have about these positive legislative changes is whether they will be accompanied by the requisite transparency of the implementing and enforcing agencies.  Because trade secret cases in particular often include confidential technical or business information, they are often not reported by the courts in public databases.  In recent months, there has also been a reported slowdown in the adjudication of foreign-related cases in the courts, which may also affect reporting on IP litigation by the courts.  Unless there is comprehensive reporting of this information, it will be difficult to assess the problems they had sought to address, their impact, and their compliance with expectations of the NPC, rightsholders or foreign governments.

These legislative changes are also timed with events around IP Week in China, which typically includes releases of statistical data on patent and trademark prosecution, significant cases, policy initiatives, etc.  In light of other pending legislative changes (such as the patent law, the drug administration law, etc.), the government reorganization, the new IP court, a reported “surge” in IP litigation in China in 2018, and US-China trade relations, we can expect that there will be other useful information released in the days ahead.

Update of April 25, 2019:  Here are the NPC Observer’s comments on the revised laws as well as Jim Pooley’s observations on the new AUCL amendments in the context of international developments.

The Good Faith Elephant in the IP Trade War

elephant-in-the-room

It is impossible to talk about structural issues in China’s IP regime and its impact upon foreigners without addressing the lack of a comprehensive approach to “bad faith” activities in all its forms in China.  This issue has likely undermined more of  the credibility of the Chinese government than any other in IP, and it has affected the greatest number of US companies.  Chinese officials may not realize it, but every medium to large sized company I have met in the US has been affected by it.

Any lawyer who has counseled a US company on doing business in China knows the drill: before you enter the market there are likely to be trademark squatters, bad faith patent registrants, difficulties in protecting trade secrets used by trusted employees, amongst others.  Even the President has been a victim with squatting on the Trump mark.

China has generated its own vocabulary around bad faith activity.   “IP theft”, a term that has been promoted by the Trump administration, reflects an overarching concern about Chinese tolerance of state-sponsored or willful infringement.  Another similar concept is “forced technology transfer.”  The history of these terms goes back decades.   “Patent hijacking” refers to behavior before 2008 of misappropriating designs and other inventions based on China not requiring absolutely novelty as a condition for patent grants.   A “Naked Bolar” regime refers to a regime which grants an exemption from certain forms of patent infringement without providing a counterpart benefit to an innovator for the erosion of its patent rights (this may be corrected in the proposed patent law revisions).  “Ambush marketing” and “trademark squatting” may  not be new to China, but China remains a focus of these concerns.  China also has some vocabulary of its own which often do not make it into English, such as  “旁名牌” (saddling along famous brands) and patent “cockroaches” (instead of patent trolls).

China has also created global precedent over willful (bad faith) behavior in DS/362, the WTO case involving China’s criminal IP enforcement regime.  As the WTO panel indicated in that case:

“[T]he word “wilful” … precedes the words “trademark counterfeiting or copyright piracy”. This word functions as a qualifier indicating that trademark counterfeiting or copyright piracy is not subject to the obligation in the first sentence of Article 61 unless it is “wilful”. This word, focussing on the infringer’s intent, reflects the criminal nature of the enforcement procedures at issue.”

Good faith may be an underperforming concept in China, but it is also a low-hanging fruit for trade negotiators. It is in Article 4 of the General Principles of the Civil Code as well as Article 6 of the Contract Law.  It was incorporated into Article 7 of the revised Chinese Trademark law.  The Supreme People’s Court recently found that warehousing trademarks without intent to use is a basis for invalidating marks, albeit not under Article 7.  It is part of the Guangdong High Court Rules on SEP disputes in telecommunications (good faith in negotiations).  It is also part of the guidance from the Beijing High Court for handling of patent validity matters.

The problem isn’t that good faith doesn’t exist in China’s IP regime, but that it is selectively applied.  In addition to the examples already cited, it is under consideration in the proposed Patent Law revisions in terms but only for good faith litigation, and it is an underlying concept in punitive damage provisions in the Trademark Law and the proposed Patent Law Revision. The concept has not yet appeared in substantive copyright or trade secret law.  Companies like Taobao are using a determination of “good faith” in facilitating take-downs

Selective application of “good faith” concepts is evident from its inconsistent application across various IP laws.  Why must trademarks be prosecuted in good faith, but not patents? Why is bad faith patent litigation a concern in the proposed patent law revisions, but why not trademark, trade secret, copyright or other IP-related litigation? The concept needs to be utilized to address such difficult issues as the epidemic of low quality patents and bad faith trademarks.  It should not be used to resolve other, easier challenges such as extracting more rents from foreigners in patent litigation as in the Guangdong rules on SEP disputes.  In fact China back-slid in applying good faith concepts while this trade war was brewing.  The removal of “employee” as a covered party (经营者) in China’s revised trade secret law (Anti Unfair Competition Law) facilitates bad-faith employee behavior.

Adjudicating what constitutes good faith need not involve inquiries into subjective attitudes.  Courts and agencies can rely on objective indicia from China’s data-rich environment: companies that file multiple trademarks that they don’t use  them; trademark registrations than use others’ prior rights; on-line merchants  that routinely infringe IP rights; serial violators of injunctions; patents that are routinely invalidated and/or filed based on others’ designs; comprehensive data that shows foreigners that are being treated fairly drawn from China’s new judicial databases;  willful violators of non-compete agreements, and others.

Bringing good faith into full play would be a triple win: good for China’s IP system, good for US rights holders, and good to help re-establish trust between China and other countries.  Trade negotiators may wish to consider it being a part of any “structural” commitment from China in the current trade dispute  It can be implemented by China’s National People’s Congress as a legislative interpretation or as an amendment to China’s civil law, and in specific laws now under consideration (patent law, copyright law).  The SPC at an appropriate time might prepare a judicial interpretation articulating its application in specific circumstances.  It also has the added advantage of being easily monitored, as data analytics can be harnessed to determined if real progress is being made in a wide range of areas.

It is time to bring good faith more directly into China’s IP system.

 

“Dying to Survive” and Pharmaceutical IP Reform in China

Last week while in Beijing, I finally had the opportunity to see “Dying to Survive” (Chinese title: “我不是药神”[translation: I am not the god of medicines]), the hit Chinese movie which concerns the problem of high priced cancer medicines that were not available through insurance on the Chinese market and had also been subject to patent validity and infringement disputes.  The screening I saw was filmed in Mandarin and subtitled in English.  When it opened in China, the movie was the second highest grossing movie in the world, and it is now on track to gross over 3 billion RMB.

The cancer medicine that is the focus of the movie is Imatinib Mesylate (Gleevec/Glivec), which was marketed by Novartis and is used to treat Leukemia.  The protagonist, Cheng Yong 程勇, was approached by a leukemia patient to travel to India and supply this person and others with a generic form of Novartis’ Gleevec.  Cheng Yong buys Gleevec for 500 RMB a box, and resells it at a 2,000 RMB, but which is still cheaper than Novartis’ offering (40,000 RMB).

Cheng Yong evolves over time from an unsympathetic trafficker in black market drugs  and possibly substandard medication for local patients to the lifeline of leukemia patients of an effective generic throughout China.  The evolution begins after nearly being arrested for selling counterfeit medicines when he briefly renounces his business in favor of a competitor.  However, he is soon approached by leukemia patients who desperately need his product at a reasonable price. He ultimately subsidizes the sale of Gleevec in China with his own money by distributing the product at cost.  Cheng Yong is thereafter arrested and sentenced.  He is released from jail early after petitioning by patients he has helped.  By contrast, the Novartis anti-counterfeiting investigator’s role remains a one-dimensional villain throughout the movie. The movie closes by noting that Imatinib Mesylate was ultimately made available legally and placed on insurance reimbursement lists and that new laws and regulations have been introduced since the incident described in the film.

The movie is based on an actual incident involving an individual named Lu Yong 陆勇.  The movie also bears some similarity to Dallas Buyers Club, which involved distribution of AIDS medication in the United States.  In real life, generic forms of Gleevec were approved by Chinese regulatory authorities in 2013. The product was also placed into the Chinese insurance reimbursement list in 2017.

The official and public reactions to the film suggest that China is indeed dedicated to both pharmaceutical IP and regulatory reform.  Premier Li Keqiang cited the movie in encouraging accelerated new product introduction and lower drug prices.  A translation by the Anjie law firm of an article by IPHouse on a screening of the film with leading judges, academics and lawyers is attached.   Based on this article and meetings I held in China, I believe that most people thought that the movie’s message was that China needs to continue to engage in a range of legal reforms, including:  accelerating approval of new drugs by China’s National Drug Administration; improving IP protection to encourage innovative drug development; and providing insurance to cover treatments.

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)

Draft of Data Exclusivity Rules Released by CFDA

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 yhzcszhc@cfda.gov.cn.

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 chinaipr@yahoo.com or mark.cohen@law.berkeley.edu for further information.

April 10 – 16, 2018 Updates

1.New Policies for  Innovative Drugs in China.  Premier Li Keqiang held an executive meeting of the State Council on April 12, 2018 to adopt a series measures to encourage the importation of innovative medicines into the Chinese market, to enhance intellectual property protection, and to lower the price of medications. The measures involve the exemption of cancer drugs from customs duty, reduction of drug prices, expedition and optimization of the process for authorization on the commercialization of imported innovative medicines, enhancement in intellectual property protection and quality monitoring.

The measures on enhancement in intellectual property protection includes the 6-year maximum data exclusivity period for innovative chemical medicines.  Further, a maximum of 5 years’ compensation of patent term will be offered for innovative new medicines which are applied for commercialization on domestic and overseas markets simultaneously (which appears to be a patent term extension system). See more discussion of the original CFDA proposals which these these appear to draw on here.  It’s still unclear how such policies will be implemented, The specific policies announced by the official in English is available here.

2.China to introduce punitive damages for IP infringements. According to an interview with Shen Changyu on April 12, China will soon introduce punitive damages for IP infringements. Shen said a fourth revision of the Patent Law will come faster than expected. “We are introducing a punitive damages system for IPR infringement to ensure that offenders pay a big price.” Shen also called on foreign governments to improve protection of Chinese IPR.

3.Commerce Blocks China’s ZTE from Exporting Tech from U.S.  The U.S. blocked Chinese telecommunications-gear maker ZTE Corp. from exporting sensitive technology from America.  According to a statement by the Commerce Department, ZTE made false statements to the Bureau of Industry and Security in 2016 and 2017 related to “senior employee disciplinary actions the company said it was taking or had already taken.”. ZTE did not disclose the factthat it paid full bonuses to employees who engaged in illegal conduct, and failed to issue letters of reprimand, the Department said.  Alleged export control violations had also been implicated in the NDA dispute between Vringo and ZTE involving settlement of patent claims, which were previously discussed here.

4.Judge Orrick Issues Anti-suit Injunction Against Huawei.  In the continuing transpacific saga of Huawei v Samsung, Judge Orrick of the N.D. of California issued an anti-suit injunction against Huawei’s implementing a Shenzhen intermediate court’s injunction against Samsung for the same patents in suit.  A good summary from the essentialpatentblog is found here.  The redacted decision is here.   One possible explanation for Huawei’s strategy might be that Huawei was trying to get a quick decision from Shenzhen, its home court, on a matter also involving an overseas litigation, such as Huawei obtained in the Interdigital dispute, and is also a common enough Chinese litigation tactic.  Such a decision might have tied Judge Orrick’s hand on at least the Chinese patents in suit, as well as on licensing behavior.  Judge Orrick in fact noted that “Chinese injunctions would likely force [Samsung] to accept Huawei’s licensing terms, before any count has an opportunity to adjudicate the parties’ breach of contract claims.”  (p. 17). 

Although anti-suit injunctions may be more common in common law jurisdictions,  it is wrong to assume that Chinese courts take a strictly “hands-off” attitude towards foreign proceedings.  One aggressive Chinese response might be to borrow a page from a Chinese (Wuhan) maritime court decision of last year, where the Chinese court issued an anti-anti-suit injunction, ordering a foreign ship owner to withdraw an anti-suit injunction in Hong Kong.  Commentators have also suggested that generally Chinese courts more commonly ignore these injunctions entirely.  Another approach was taken by the Shenzhen court in Huawei v Interdigital,  where the court imposed imposed damages on a US party seeking injunctive relief (an exclusion order) in a US Section 337 proceeding involving FRAND-encumbered SEP’s.   This did not constitute an anti-suit injunction, but rather “anti-suit damages.”  These actions may be based more on notions of judicial sovereignty than comity.  Judge Orrick for his part, did undertaken a comity analysis in rendering his decision, which is part of the non-confidential order he signed.

Probably the best approach however is for the parties to amicably resolve their disputes through arbitration or mediation. After all, even Huawei and Interdigital were ultimately able to settle their differences.

April 3 – 9, 2018 Updates

1.China pushes generics over brands with another round of new pharma policies. The General Office of the State Council on April 3rd, 2018 issued “The Opinion on Reforming and Improving Supply and Use of Generic Drugs” (国务院办公厅关于改革完善仿制药供应保障及使用政策的意见 国办发〔2018〕20号), to promote China’s generic pharmaceutical industry. The State Council said it would draw up new incentives aimed at encouraging the development and production of generic drugs, a move it said would help safeguard public health, reduce medical bills and spur innovation.

According to the document, CFDA and the National Health Commission will compile and actively update a drug list that encourages companies to produce generic versions. That list will include medications for rare diseases, major infectious diseases and pediatric treatments, as well as important drugs that are short in supply. Certain qualified generics makers are allowed to be designated as High and New Technology Enterprises (HNTE) with commensurate income tax reductions (see more about China’s practice of providing tax incentives to high tech enterprises here).

The State Council also said that with regard to IP protections, China will “strike a balance between the interests of patent holders and the public,” and would strengthen anti-monopoly enforcement. (Note that the recent combination of agencies involved with antitrust enforcement, IP with CFDA may offer increased opportunities for such antitrust enforcement). An “early warning” mechanism to prevent generic drug producers from infringing patents will be established. The policy also restates that China considers compulsory patent licensing (CPL) a bona fide option during public health emergencies or shortages of key drugs; however China has not explicitly implemented a CPL to date.

China is a major branded generics market and innovative pharma companies are heavily dependent on this market in the absence of a robust market and incentives for innovative pharmaceuticals. The Opinion also states that when there is a bioequivalence determination, the generic drug should be marked as a substitute for the innovative drug and release such information to the public. In the absence of special circumstances, no brand name could be written on the prescription.

With regard to intellectual property, the Opinion further states:

“…In accordance with the principle of encouraging the creation of new drugs and the development of generic drugs, research and enhance a system of pharmaceutical intellectual property protection that is compatible with China’s economic and social development level and industrial development stage, and fully balance the interests of drug patent holder and the public. Implement the patent quality improvement project and cultivate more core, original and high-value intellectual property. Strengthen the enforcement of anti-monopoly law in the field of intellectual property rights, prevent the abuse of intellectual property rights and promote the listing of generic drugs while fully protecting innovations in the pharmaceutical field. Establish and improve the patent early-warning mechanism in the pharmaceutical field to reduce the risks of patent infringement of generic pharmaceutical companies.”

按照鼓励新药创制和鼓励仿制药研发并重的原则,研究完善与我国经济社会发展水平和产业发展阶段相适应的药品知识产权保护制度,充分平衡药品专利权人与社会公众的利益。实施专利质量提升工程,培育更多的药品核心知识产权、原始知识产权、高价值知识产权。加强知识产权领域反垄断执法,在充分保护药品创新的同时,防止知识产权滥用,促进仿制药上市。建立完善药品领域专利预警机制,降低仿制药企业专利侵权风险.”

2. SIPO releases the 2017 China Patent Survey Report.  The State Intellectual Property Office (SIPO) recently released the 2017 China Patent Survey Report, which is the third time that the national patent-related survey results are publicized.

In 2017, the patent survey covered 23 provinces nationwide and was carried out concerning the valid patents and the patent holders who owned such valid patents at the end of 2016. The survey was launched in March 2017 and was completed at the end of 2017. 15,000 questionnaires about patent holders and 43,000 questionnaires about patent information were released. Over 85% of the questionnaires were returned.

According to the report, China’s overall environment of patent protection has been significantly enhanced, but still not to a level that is satisfied. More than 88% of patent holders believe that patent protection needs to be further improved in China. The report also notes that the emerging industries with strategic significance rely more on patents to gain their competitive edge and have better utilization of patents. Chinese universities have strong innovation capabilities, but their utilization rate of patents in 2016 (12.7%) was much lower than enterprises (59%). The lack of professional technology transfer team was considered to be the biggest obstacle for Chinese universities. The continuing focus on Chinese universities is odd, since universities should have a primary goal of information dissemination, not patent acquisition, but this is not necessarily a bad thing.

3. Chinese national convicted in US for stealing a valuable U.S. trade secret: Kansas rice seeds.  A scientist from China has been sentenced to 10 years in prison in the United States for stealing seeds of genetically modified American rice, the Department of Justice announced Wednesday.  The Chinese scientist Weiqiang Zhang is a U.S. legal permanent resident residing in Manhattan, Kansas. Zhang was convicted on Feb. 15, 2017 of one count of conspiracy to steal trade secrets, one count of conspiracy to commit interstate transportation of stolen property and one count of interstate transportation of stolen property. Zhang was working as a rice breeder at Ventria Bioscience, a biopharmaceutical company that creates genetically modified rice. According to trial evidence, Zhang stole hundreds of rice seeds from the company that had cost millions of dollars and taken years of research to develop and kept at home. In the summer of 2013, personnel from a crop research institute in China visited Zhang at his home in Manhattan.  On Aug. 7, 2013, U.S. Customs and Border Protection officers found seeds belonging to Ventria in the luggage of Zhang’s visitors as they prepared to leave the United States for China.