IPO’s Comments on Recent Patent Legislation: Untangling a Complex Web

IPO has graciously made available two recent comments on recent legislative proposals.  On December 10, 2020 IPO  submitted comments to the China National Intellectual Property Administration on Draft Amendments to the Patent Examination Guidelines (Second Batch of Draft for Solicitation of Comments) (“Draft Amendment”) published on 10 November 2020.   The examination guidelines comments are attached here.

IPO’s comments on the examination guidelines are primarily addressed to the patentability of computer programs in those revised guidelines.   IPO has reservations about the Patent Examination Guidelines making substantive changes in the requirements for determining whether applications contain appropriate subject matter for patent protection absent higher-order changes to the laws or regulations, such as the draft Implementation Regulations of the Patent Law of China (“Draft Implementing Regulations”) which were published for comment on November 27, 2020.  The criticism is a fair one, and is one that I also drew attention to in terms of CNIPA/SAMR’s draft rules regarding patent linkage.  It is also an almost inevitable outcome of the current flood of draft IPR-related legislation released for public comment or implementation, including a year-end rush to complete key laws such as the patent and copyright laws. 

Among its other comments, IP also discusses the comments on potential risks  of functional claiming in software patents, and on the need for a stated time period for delayed examination when an invention patent and utility model patent are filed simultaneously.

There are several other changes proposed in the examination guidelines, not discussed in the IPO comments but which may be inherent in its critique regarding changes in the examination practice without higher level guidance in the law. These changes also show a pattern of continuing reform in this area, including an increasingly flexible approach by China’s examiners in examining software-enabled inventions.  Among the changes, a computer program should be interpreted as a software product that realizes its solution mainly by a computer program.  In addition, technical means has assumed a higher priority among the three technical factors (technical problems, technical means, technical effect) in technical solution assessment.  A solution utilizing a technical means implemented by a computer necessarily solves a technical problem and thereby has a technical effect. If an algorithm in the claims improves the internal performance of the computer system, the algorithm features and the technical features can be considered to functionally support each other and be interactive.  The contributions made by the algorithm features to the technical solution shall thereby be considered in examining inventiveness. 

The IPO comments note that some case examples in prior guidelines have been removed in this Draft Amendment. IPO believes that illustrative examples serve an important purpose in providing clarity to patent examiners and guiding applicants to enable higher quality application (and claim) drafting.   I agree. By contrast to the lack of exemplars noted by IPO, there was inclusion of examples in the first batch of draft related examination guidelines, which included significant pharma-related changes.  The PTO translation of the draft is attached.  The amended guidelines were announced December 14, 2020 and are described in greater detail by Aaron Wininger.

IPO also submitted comments to China’s Supreme People’s Court on the Draft Provisions on Several Issues Concerning the Application of Law in the Trial of Patent Civil Cases Involving Drug Marketing Review and Approval (Oct. 29, 2020) The comments are attached here.  My blog on the draft is available here.  My blog also includes links to the previous IPO comments on  NMPA/CNIPA rules on linkage.    IPO flags such issues as: the lack of clarity regarding “abuse of patent rights”; the tight time constraints to prepare for litigation especially in the absence of mandatory notification to the patentee; and the removal in the final patent law of a linkage limitation to those patents listed in China’s “orange book,” which is not reflected in the draft.  

The generalized, persistent and pervasive Chinese concern around “abuse of rights” is troubling.  As I had mentioned in testimony before the House Committee on the Judiciary in 2016, there are  “concerns whether China is overly focused on IP abuse, and not sufficiently directed to improving IP use.“  While there are no doubt individuals and companies “gaming” the system, it is unclear to me if any special rules on IP abuse in patent linkage is necessary particularly at this time and in light of long-standing difficulties in commercializing patented innovative pharmaceuticals in China and other measures that address IP abuse.

The revised Patent Law was passed by China’s National People’s congress on October 17, 2020.  The various patent-related regulations, rules, judicial interpretations and other documents will no doubt be revised to conform to any significant differences made in higher level laws.

The huge number of legislative changes in China’s IP regime in 2020 is likely more extensive than a prior wave of similar reforms made when China joined the WTO.  This “tangled web” of legislation reflects: China’s increasingly sophisticated and complex IP regime; China’s efforts to better implement legislative aspects of the Phase 1 Trade Agreement; and China’s own desire to make necessary reforms in its quest to become an innovative economy.  There is nothing in the Phase 1 Agreement, for example, requiring China to make changes to its computer software patent regime, an area which many view as critical to China’s innovation and industrial competitiveness goals.   

On a related note, Berkeley Law is hoping to host a webinar early next year to review all of these legislative changes and discuss what additional changes in China’s IP regime may be occurring in 2021.

Thank you, IPO, for sharing your comments!

RCEP And Phase 1: Strange Bedfellows in IP

Misery acquaints a man with strange bedfellows.”  William Shakespeare, “The Tempest”.

I have just read through the recently concluded Regional Comprehensive Economic Partnership Agreement (RCEP)  among  Brunei Darussalam, Indonesia, Malaysia, Thailand, Singapore, the Philippines, Cambodia, Myanmar, Laos, Viet Nam, Japan, China, South Korea, Australia, and New Zealand.  RCEP creates the world’s largest trading bloc, with about 30% of global GDP. 

RCEP was originally perceived to be China’s answer to the Trans-Pacific Partnership (TPP), which the US abandoned and would have been the world’s largest Free Trade Agreement (FTA).  In the absence of US leadership, the RCEP sets new standards in intellectual property.  It may also be a foretaste of what a more heavily China-influenced global IP environment would look like, particularly if the United States does not soon re-enter large-scale plurilateral trade agreements in IP.

It would be wrong, however, to argue that all the provisions in RCEP were proposed by China.  Indeed, its numerous negotiators’ participation in the discussion had undoubtedly resulted in compromises over a range of issues.  Still, it is hard to search for the imprints of those economies that signed onto the TPP’s successor agreement, the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership (CPTPP), or have signed bilateral FTA’s with the United States which might have advanced more protective IP regimes in this FTA. Among the countries that have signed either or both such agreements are: Brunei, New Zealand, Singapore, Australia, Japan, Malaysia, Vietnam, and the Republic of Korea.   

It is important to note that numerous IP-related provisions in IP were suspended in the CPTPP.  Scaled-down aspects of some those suspended provisions in the CPTPP are found in the RCEP, such as with respect to technological protection measures  and rights management information in the online environment (11.14 and 11.15).  In addition there were reportedly efforts by some developed countries, such as Korea and Japan, to include various TPP or bilateral pro-IP provisions, including on pharma-related IP rights, permitting IP in investor-state dispute settlement and requiring accession to the 1991 treaty for the International Union for the Protection of Plant Varieties (UPOV).  Although China was making bilateral commitments to the US on pharma-related IP in the Phase 1 Trade Agreement, those efforts are also not reflected in RCEP, owing perhaps to the participation of those economies that have less interest in robust IP protections for more advanced biotechnology. 

To further complicate the analysis, China has expressed an interested in joining CPTPP.  However,  the CPTPP contains many provisions that would make it difficult for China to join, including disciplines on subsidies and state-owned enterprises.  Although TPP was hardly perfect in addressing statist approaches to IP, the chapter on IP issues did include restrictions that may have been drawn from US experience with China, including limitations on administrative IP enforcement (TPP, Sec. 18.74(16)), enhanced transparency (Sec. 18.4, et seq.), availability of statistical data on a country’s IP regime (Sec. 18.73), and availability of remedies against state-owned enterprises (fn. 102).  The competition law chapter similarly has important procedural due process provisions as well as support for economic analysis in competition law determinations (Secs. 16.2, 16.6, 16.7).  These disciplines are largely missing from RCEP.

On the positive side, RCEP is far more extensive on IP than prior China FTA’s, such as the Swiss FTA (2013).  China’s traditional FTA practice had been to focus on a limited range of issues, many of which have been advocated by other countries in the developing world, such as geographical indications, traditional knowledge, folklore and the provision of mechanisms for technical negotiations and technical assistance.  In many respects, RCEP is a also deeply statist instrument in both dispute resolution and intellectual property.  It shares a statist approach with the vastly different US-China Phase 1 Trade Agreement.  While both agreements expand on certain substantive rights and criminal penalties, they do little to support civil enforcement, reaffirm the centrality of IP as a private right, restrain state intervention in IP, limit the role of SOE’s, or promote transparent civil legal process. 

RCEP may contribute to efforts by many countries to distance global IP trade policy from US FTA IP policy or even TRIPS standards.   Although RCEP provides that the TRIPS Agreement prevails in the event of any inconsistency between RCEP and TRIPS (Art 11.3), there are certain aspects of RCEP that are below TRIPS minima.   This would not be consequential if the WTO had a functioning Appellate Body (AB) to resolve IP disputes, as TRIPS provisions could be resolved through the AB mechanism.  The absence of a functioning AB means that RCEP’s own dispute resolution mechanisms may be more important for resolution of these TRIPS provisions which are incorporated by reference.  RCEPS may facilitate easier enforcement around lower standards,  and thereby enable RCEP to develop its own interpretation of often unclear TRIPS IP provisions.

One of the TRIPS-minus provisions is found in IP-related competition law.   In both the IP and competition law chapters there is no reference is made to TRIPS Art. 40.2 which restricts the exercise of competition law authority in IP issues to where there is “an abuse of intellectual property rights causing an adverse effect on competition.” This language had been a matter of some controversy in TRIPS negotiations as it required that competition authorities demonstrate not only an abuse of rights but a causal impact from that abuse on competition.  The language is also significant as it is distinguishes itself from other, hortatory TRIPS language which states that the TRIPS agreement is intended to address licensing practices that inhibit technological development of WTO members (Preamble, Arts 5, 40.1).   To be fair, the TPP also shares this perspective of focusing on technology dissemination (Sec. 18.3).  The competition chapter of RCEP however does not require a causation analysis  and defines anti-competitive activity only by providing examples: anti-competitive agreements, abuses of a dominant position, and anti-competitive mergers and acquisitions (fn.2).    The IP chapter, by contrast,  speaks to the need to balance IP rights with other public interests, and to promote the “dissemination of technology” (11.1, 11.4).  As there has been no WTO case to date under TRIPS Art. 40.2, there are few guardrails to limit an RCEP-governed dispute in its interpretation of competition law obligations under RCEP and TRIPS.

RCEP predictably embraces Doha on access to medicines and generally strikes a balance between IP rights owners and users/consumers.  As with the discussion of licensing, this is frequently code for diluting rights. In addition, RCEP does not commit its members to provide for any pharma-related IP incentives, such as patent linkage, patent term extension, or regulatory data provision. RCEP does authorize members to determine the extent of an “experimental purposes” exemption from infringement (fn. 34).  This is also arguably a TRIPS-minus provision as it could be used to craft Bolar-type exemptions from research done in advance of marketing approval of a pharmaceutical.  China has long had such a “naked” Bolar exemption, which does not compensate the rightsholder for erosion of its patent protections due to pre-market approval experimental use.  Overly-broad Bolar type exemptions were also the subject of a WTO dispute, and are subject to WTO disciplines.

Importantly, the IP provisions in RCEP provide no new gloss on murky but important WTO/TRIPS concepts such as an a “independent judiciary”, “independent counsel”, or “transparency”.  With regard to transparency, RCEPS maintains the vague, decades-old and largely unexamined obligations requiring that “final judicial decisions and administrative rulings of general application” shall be published, leaving China with the possibility of not publishing court cases because of its “civil law” orientation, and of never publishing preliminary injunctions, court documents involving settled cases, or trial court decisions that had been appealed because they are not “final.” China – along with many civil law countries – has developed a  quasi-precedential judicial system. These economies should not be relieved from the obligation to publish cases on the basis of a theoretical civil law orientation.  The IP chapter also lacks an Article 63 of TRIPS that would compel a country to produce cases of interest to another member country.  This is no surprise since China did not comply with a prior US Art. 63 request at the WTO to produce IP cases.  I am, however surprised that other countries acquiesced to the absence of such a provision.    

There is considerable text around geographical indications (Section D) including grandfathering of previous agreements (11.34), probably to ensure no disruption to commitments made with European or other countries about mutual recognition of GI’s.

RCEP also updates TRIPS with post-TRIPS treaties being incorporated, including the WIPO Internet Treaties, and the Marrakesh Treaty as well as the Madrid Protocol and the Patent Cooperation Treaty (11.9). As mentioned, RCEP does not require accession to UPOV ’91.  RCEP does update the TRIPS agreement with various commitments to on-line IP protection, including domain name disputes (11.55).  RCEP also requires criminal remedies in the digital environment, which is another needed modernization of TRIPS (11.75).

RCEP has relatively extensive provisions on traditional knowledge, genetic resources and folklore, which have also been actively promoted by the developing world (Section 3). The Agreement authorizes but does not require disclosure of the source of genetic resources in patent applications (11.53). 

There is nothing new on RCEP regarding trade secrets. In this sense, RCEP deviates from US FTA practice, the Phase 1 Trade Agreement, the TPP and current thinking about the inadequacy of the general commitment to protect trade secrets in TRIPS Art. 39.

RCEP’s provisions regarding proof of copyright ownership (11.58(5)) appears consistent with the Phase 1 Agreement  (18.27, Art. 1.29).  RCEP also obliges signatories to address government software piracy, as does the Phase 1 Trade Agreement  (11.17, Sec. 1.23 respectively).  Camcording of motion pictures in theatres is also a prohibited act under RCEP; however  RCEP only mandates a criminal remedy for illegal camcording (11.74).  This is also similar to US law (18 U.S.C. § 2319B). 

One of the oddities of RCEP is that criminal remedies were expanded to include the importation of commercial-scale counterfeit or pirated goods (11.74). If RCEP signatories had intended to address trade in counterfeit and pirated goods, the more potent remedy would have been to require Customs remedies for exports and/or to criminalize the export of infringing products.  This would have complemented existing WTO obligations to control the import of infringing products using Customs procedures.  The TPP provisions are far more significant.  The TPP requires criminal remedies for import or export of infringing goods (Sec. 18.77). Controls over the exports of infringing goods could prove highly valuable to RCEP states seeking to further integrate their supply chains within the RCEP region through enhanced deterrence at the source country.

In what looks like a rebuke to the US, the IP chapter also lets the parties determine the magnitude of commercial-scale infringing piracy and counterfeiting that they need to criminalize and their use of criminal procedures to address them (Art. 11.74).  RCEP provides that the Parties may “determ[ine] the scope of application of criminal procedures and penalties in case of wilful copyright or related rights piracy on a commercial scale, in accordance with its laws and regulations.”  This issue was litigated by the United States at the WTO in the DS362 dispute against China regarding TRIPS Art. 61.  The US did not succeed in that case due to a lack of evidence and an unwillingness of the WTO panel to compel China to produce relevant cases via Article 63 of the TRIPS Agreement.  The WTO panel did not, however, determine, as the RCEP language might suggest, that the scope of “commercial scale” was to be “determined” by WTO members by their “laws and regulations.”  In fact, the panel specifically rejected that argument when it noted that the panel had no power to “add to or diminish the rights and obligations provided in the covered agreements”.  It also rejected China’s concern over “sovereign jurisdiction over police powers” in seeking to achieve flexibility over the definition of “commercial scale.”  

Coincidentally, RCEP’s text which undermines TRIPS Article 61 is found at RCEP’s footnote 61.  One wonders if this was intended as a direct criticism of the United States understanding of TRIPS Art. 61, or to poison the waters for any US consideration of joining RCEP.  The United States, by the way, included its own poison pill in the US-Mexico-Canada Free Trade Agreement, restricting FTA negotiations with non-market economy countries.

There is also nothing in RCEP which specifically incorporates or builds upon TRIPS Art. 49.  Article 49 requires that administrative enforcement procedures should conform to civil procedures.  The removal of this provision from RCEP may be part of the flexibilities articulated in RCEP footnote 61 for member states to determine how to criminally enforce IP.   In the DS362 criminal enforcement WTO case, China had specifically urged the WTO to consider that its extensive administrative mechanisms addressed all types of infringement of “commercial scale”.  China may now be better able satisfy any RCEP member inquiries regarding the availability of criminal remedies by pointing to its administrative enforcement mechanisms, unencumbered by Art. 49.  For those concerned about human rights, administrative enforcement can also result in harsh penalties, such as reeducation through labor.  The TRIPS Agreement required at least a minimum of judicial supervision in the form “criminal process” to support criminal penalties.   RCEPs now condones these administrative penal procedures.

RCEP also lacks a provision similar to the TRIPS Preamble requiring that IP is treated as a  “private right.”  RCEP also does not address the general role of markets in: monetizing IP;  infringement by state-owned enterprises or the State; or other state interventions in a member country’s evolving IP ecosystem. 

Many observers have noted that RCEP is a broad but not deep FTA.  Perhaps the reason for the hodge-podge set of IP commitments in RCEP lies elsewhere than in IP.  RCEP may  be a potent weapon in China’s efforts to address supply chain disruptions brought on by Trump Administration sanctions, Covid19 and other developments. RCEP has extensive provisions regarding a common country of origin certificate and mechanisms to facilitate greater flow of goods within the RCEP community. 

China has already responded to the commercial opportunity afforded by RCEP by turning Hainan Island into the world’s largest free trade port (FTP)  In addition, China’s National People’s Congress has recently decided to establish China’s fourth specialized IP court in the Hainan FTP.  Considering the small size of the IP docket in Hainan courts, and the very low number of foreign related IP cases, the decision to establish an IP court in Hainan likely anticipates the anticipated impact of RCEP on the Hainan economy and the desire of China to further project its IP influence in the region.

Sadly, RCEP looks like the model of an IP agreement in a world where the US has disengaged from plurilateral trade-related IP negotiations. For President-elect Biden it may serve as an incentive to re-engage allies on IP and innovation.

The two agreements are strange historical bedfellows, joined by a common moment in time and common approaches to IP which diminish its role as a private right. Both agreements speak to nationalist and trade needs of the United States and China. The differences between the two agreements are also significant.  The Phase 1 Agreement explicitly contemplated a Phase 2 Trade Agreement. It also only involved only two countries.   RCEP intends to be comprehensive and regional, if not global. It is an alternative to the TPP.  It fills a vacuum in the region and will help China establish global IP norms.

Please send me your comments and corrections.

Minor corrections made to this text on January 13, 2021.

Upcoming China Pharma IP Program

The Berkeley Center for Law and Technology will be launching a five-part webinar series on “Innovation, Regulation in the Life Sciences” on November 17 from 4:30-6:00 PM.   The launch program is devoted to “China’s Emerging Regime for IP In the Life Sciences”. 

Joining me for the program will be He Jing from the Gen Law firm, Dr. Karen Guo from Novo Nordisk, Xuejiao Hu from Beigene, Prof. Guobin Cui from Tsinghua Law School and Dr. Can Cui from Morrison & Foerster.  CLE credit will be provided. 

Students and media are free of charge, BCLT sponsors are half-price. We expect to cover the full range of issues in this first session: patent linkage, regulatory data protection, patent prosecution, the recent SAMR rule and SPC judicial interpretation, etc.  A package of English language reading materials is also available for attendees. The programs costs $75.00 for the session and $300.00 for the series. 

Other sessions in the series include: FDA Innovation, Food Innovation, Drug Pricing and Sharing Data for Research and Development.