A Federal Circuit with Chinese Characteristics? – The Launch of China’s New National Appellate IP Court 中国特色的联邦巡回上诉法院?

wangchuang

On December 27, 2018, the Supreme People’s Court released the Provisions on Certain Issues of the IP Court  (the “Provisions”), and the Standing Committee of the NPC  announced a first round name list of judges of the new IP court. These decisions follow an earlier announcement by the NPC Standing Committee  on October 26, 2018 authorizing the establishing of this new division of the SPC (officially translated as IP  Court of the Supreme Court of SPCIP, with the Chinese name 最高人民法院知识产权法庭). There were also indications that such a court was in the works that were previously reported in this blog in 2017.  The newly established IP Court is intended to function very similarly to the US Court of Appeals for the Federal Circuit, with a national jurisdiction over technical civil IP cases as well as appeals of patent validity decisions. Trademark validity appeals are not currently specifically enumerated as being within the court’s jurisdiction (see photo below).

This is a much awaited, historic and potentially disruptive breakthrough in the China IP litigation system, that has been a focus of much discussion between US and Chinese experts over 20 or more years, notably between the SPC and former CAFC Chief Judge Rader, former USPTO Director Kappos, and others (including the author/owner of this blog).  The historic 2012 conference between the SPC and the CAFC at Renmin University was one such milestone event in these efforts.   China’s successful experiments in specialized IP courts in Beijing, Shanghai and Guangzhou was another such milestone, as well as the language in the third plenum that facilitated their establishment. However, the engagement preceded this decade.  For example, an important conference on specialized IP courts was held with former Chief Judge Jiang Zhipei, and other Chinese IP judges in Washington, DC on Specialized IP courts in 2002, which involved over 130 judicial experts.   SIPO also exerted an important leadership role as well, through the National IP Strategy and various studies and conferences over the years.

The Provisions came into effect January 1, and the new Court held a kick-off ceremony on that same day.   Almost like clockwork, Judge Wang Chuang, the new deputy chief judge of this new tribunal was at the second US-China IP Summit in Shenzhen on January 3, 2019 (the “Summit”) presenting a bilingual PowerPoint (picture above) explaining the role of the Court, along with several other current and former judges, including Judges Jin Kesheng, former Beijing IP Court President Su Chi, former Guangdong IP Tribunal judge Ou Xiuping, former Beijing High Court Judge Cheng Yongshun, and others.  Considering the high-stakes trade dispute and interaction between China and the US right now, it is fair to say that the setup of the SPC’s IP Court is part of the bona fide effort to enhance IP protection in China which in fact predates the trade dispute.

What will be the impact of this court on foreign-related litigation? We believe that the impact is likely to be positive.  US academics have suggested that the CAFC has had a modest effect of correcting any anti-foreign bias  and the elevation of patent appeals to the SPC level is certain to similarly help direct national attention to important cases and defuse local pressure.  Moreover, the jurisdictional mandate of this court includes appeals from the Beijing IP Court of administrative patent cases, where foreigners constitute a significant cohort, partiuclarly if trademark cases are included (which appears unlikely). The Court also includes at least one judge from the foreign civil (no. 4) division of the SPC.   The recent decision by the SPC to rehear the Huawei v Interdigital case, where Zhu Li was a judge, may also be another signal.  Judge Zhu has since transferred to this new IP Tribunal, and the court has also sent a clear signal that it will be seeking a consistent and fair determinations of cases independent of local influence.   Many of the judges on the roster are well known to the foreign IP and antitrust communities, have met with foreign visitors or traveled overseas, and enjoy the respect of the foreign and Chinese bar.

Here are some of the most significant things that we know about this new Court.

Status of the SPC’s IP Court: It is part of the SPC, which generates some confusion. Given that the judgments, rulings, mediations and decisions made by the SPC’s IP Court are in the name of the Supreme Court, it enjoys a similar status to that of CAFC, whose job is to function as a national appellate court and whose decisions. are typically final.  But there has been and still will be an IP Tribunal (also known as 3rd Civil Tribunal) of the SPC, and a decision made by the SPC’s IP Court, which in normal practice should be final, is capable of been filed for retrial before the said IP Tribunal of the SPC.  In addition, non-technical IP cases will still be appealed according to pre-existing procedures ultimately to the 3d Civil Tribunal.

The head of the new SPC’s IP Court, Mr. Luo Dongchuan, will at the same time continue to serve as Deputy Chief Justice of the Supreme Court of the SPC, a rank higher than the head of the 3rd Civil Tribunal, which previously heard all IP cases.  Justice Luo effectively oversees IP litigation in China with Justice Tao Kaiyuan, which is a further elevation of the importance of IP to China’s judicial system.

Staffing the Court:  IP tribunal judges are typically amongst the best educated judges in China’s court system.  Many young judges made their name in IP related trials. The judicial personnel list of the court suggests that the court has been viewed as career enhancing for SPC judges, judges from regional courts, and former patent office examiners who have been selected as judges (see the list below).  However, due to the rapid establishment and staffing of this new Court, many of the judges are likely on detail from their prior jobs to the new Court, pending permanent transfer

Staffing of the Court

Name Position Former position
Luo Dongchuan 罗东川  Vice-president of SPC, Head of the Intellectual Property Court of SPC Vice-president of SPC, member of the Adjudication Committee of SPC,
Wang Chuang王闯 Deputy Chief Judge Deputy Chief Judge of the Civil Division No.3 (IP Division) of SPC
Zhou Xiang 周翔 Deputy Chief Judge Deputy Director General of the Enforcement Bureau of SPC
Li Jian 李剑 Deputy Chief Judge Presiding Judge of the Civil Division No. 3 (IP Division) of SPC
Zhu Li 朱理 Judge Senior Judge of the Civil Division No.3 (IP Division) of SPC
Shen Hongyu 沈红雨 Judge Judge of the Civil Division No.4 of SPC (for foreign-related cases)
Luo Xia 罗霞 Judge Judge of the Administrative Division of SPC
Fu Lei 傅蕾 Judge Judge of the Civil Division No.3 (IP Division) of SPC
Wei Lei 魏磊 Judge Assistant Judge of the Civil Division No.3 (IP Division) of SPC
He Peng 何鹏 Judge Judge of the Civil Division No.3 (IP Division) of SPC
Jiao Yan 焦彦 Judge Deputy Chief Judge of the Civil Division No.3 (IP Division) of Beijing High People’s Court
Cen Hongyu 岑宏宇 Judge Assistant Judge and the Judge of the Civil Division No. 3 (IP Division) of BHPC
Liu Xiaojun 刘晓军 Judge Judge of the Civil Division No. 3 (IP Division) of Beijing High People’s Court
Cui Ning 崔 宁 Judge Judge of Beijing Intellectual Property Court
Deng Zhuo  邓 卓 Judge Judge of Beijing Intellectual Property Court
Ren Xiaolan 任晓兰 Judge Director of the No.1 Chemical Appeal Division of the Patent Reexamination Board of CNIPA
Gao Xue 高 雪 Judge Deputy Director of the Mobile Communicating Technology Appeal Department of the Patent Reexamination Board of CNIPA
Zhan Jingkang 詹靖康 Judge  Deputy Director of the Examination Guide Department of the Examination Management Division of the CNIPA
Xu Yanru 徐燕如 Judge Deputy Chief Judge of the Civil Division No.3 (IP Division) of ZHPC
Xu Zhuobin 徐卓斌 Judge Judge of the Civil Division No.3 (IP Division) of Shanghai High People’s Court
Ling Zongliang 凌宗亮 Judge Judge of the Intellectual Property Division No. 2 of Shanghai Intellectual Property Court
Zhang Xiaoyang 张晓阳 Judge Judge of the Civil Division No. 3 (IP Division) of Jiangsu High People’s Court
Zhang Hongwei 张宏伟 Judge  Judge of the Civil Division No. 3 (IP Division) of Fujian High People’s court
Liu Xiaomei 刘晓梅 Judge  Judge of the Civil Division No. 3 (IP Division) of Shandong High People’s Court
Tong Haichao 童海超 Judge Deputy Chief Judge of the Civil Division No.3 (IP Division) of Hubei High People’s Court
Tang Xiaomei 唐小妹 Judge Judge of the Civil Division No.3 (IP Division) of HHPC
She Zhaoyang 佘朝阳 Judge Judge of Guangzhou Intellectual Property Court

Internet Courts, Circuit Courts, Specialized IP Courts: The types of courts in China has expanded and is potentially confusing to those unfamiliar with the new experiments.  The SPC had already established Circuit Courts, which are arms of the Supreme Court itself, except that they are in cities other than Beijing.  An example of such a court is the Shenzhen Circuit court which hears retrial cases from Guangdong, Guangxi, Hunan, and Hainan as well as cases relating to Hong Kong, Macau and Taiwan.  The Specialized IP Courts, which will remain the same as before, are intermediate courts in Beijing, Shanghai and Jurisdiction, vested with jurisdiction over certain IP lawsuits. They will function all the same as before, but their decision will now be appealable to the SPC’s IP Court, rather than to High Court of the province where the Specialized Courts reside.  These IP Courts are in addition to other local IP tribunals and courts which localities have set up with the support of the SPC and have been experimenting in cross-district jurisdiction, and in combining civil, criminal and administrative adjudication.

The three Internet Courts, located in Beijing, Guangzhou and Hangzhou, will function as before.  Their decisions are not likely to be appealed to the SPC’s IP Court given that the latter only hear patent, mask works, variety of plants, computer software and anti-trust cases.

Standardization of Trial Rules: A mission of the SPC’s IP Court is to formulate judicial standards and trial rules based on their investigation and research of relevant practices, and such standards and rules shall be followed by the lower courts. This may suggest that the SPC’s IP Court will take over the responsibility of formulating certain judicial interpretations and selecting guiding cases. Wang Chuang noted at the Summit that the Court is considering judicial interpretations on such topics as technology assessors and trade secret protection.  Thus, we could expect a more consistent guidance, both procedural and substantive, from the Supreme Court over IP cases, especially when involving technical matters.  Judge Su Chi (retired) of the Beijing IP Court, also noted at the Summit that he expected that some of his work on development of a case law system would likely be taken over by this Court as well.

Extended Jurisdictional Scope of the Court:  The SPC’s IP Court is empowered to hear major and complicated cases of first instance on a national scale. This implies that some plaintiffs may bring high-profile lawsuits to the Supreme Court directly. This kind of arrangement is very rare in China’s judicial system. The only case we are aware of before this time is the trial of the Gang of Four in 1980. This could be good news for patentees facing difficult issues of local protectionism. It may also have profound impacts on society, and thereby raise the IP awareness of the public.  The Federal Circuit had a similar impact on US society when it decided major cases such as Polaroid v Kodak early in its tenure, which in the US signaled “a new period in which patents regained their importance as intellectual property protection for technology companies.”  The SPC’s IP Court will likely have discretion to determine whether a case belongs to a major and complicated one. There are various factors to be taken into consideration, such as the damages claimed, the nature of the subject matter, the parties concerned, the relevant technicality, the social impacts, and so on.  In addition to this area, the court will also retrial cases arising from application by any party of interest and protest by the Supreme Procuratorate as mentioned (Article 2(5) and Article 11 of the Provisions).

For Chinese IP practitioners and regional IP judges this is also a major game changer.  Chinese patent firms that were once focusing on establishing offices throughout China may now need to think about reinforcing their staff in Beijing.  Chinese judges from various localities may also wonder why certain appellate jurisdiction was removed from their courts.  The answer to that last issue likely lies in the desire of the SPC to establish greater uniformity and predictability throughout China in important technology-related IP cases, as was explained at the Summit.

At the Summit, Judge Wang Chuang noted that four goals of this new court are: boosting technological innovation; testing fields of judicial reform; being a bellwether for patent trials and becoming a preferred court for international patent litigation.  These goals are laudable, not surprising, consistent with the current directions of judicial reform and can help inspire confidence of the foreign business community.  In view of the goal of increasing China’s role as a center for international IP litigation, it is not surprising that so many judges attended the Summit.

In all, the establishment of the SPC’s IP Court is exciting news in Chinese IP community.

Written by Mark Cohen, Harry Fang 方春晖, Steve Song 宋献涛 and Jerry Liu 刘良勇attorneys with the Deheng law firm北京德和衡律师事务所.

Mark Cohen excercised final editorial control and is responsible for any errors. Photograph of Judge Wang Chuang  by Mark Cohen from the Summit.  All rights reserved.

Please write in with your observations on this important development!

flowchartofnewcourt
Updated January 8, 2019 to clarify uncertainty over jurisdiction over trademark administrative appeals, and on January 9 to add a photo of the flow chart for litigation from the Summit which does not include trademarks  (above).

Towards a Better Understanding of “Forced Technology Transfer” Policies in China and Their Strategic Implications

In August 2017, President Trump issued an executive order setting in motion an investigation of China’s trade policies including IP, technology transfer, and investment policies. The “Section 301” report on this investigation came out earlier this year. The Report itself uses the word “force” or “forced” 47 times and identifies a range of practices that result in “forced technology transfer.” However, there is a significant amount we still do not know regarding how these controversial Chinese policies actually work and the degree to which a technology owner’s behavior has in fact been compelled by state actors. A new paper by Dan Prud’homme, Max von Zedtwitz, Joachim Jan Thraen, and Martin Bader published in Technological Forecasting & Social Change explores this important issue.

The authors evaluate the ability of “forced technology transfer” (FTT) policies – which they define as policies meant to increase foreign-domestic technology transfer that simultaneously weaken appropriability of foreign innovations – to contribute to technology transfer. They draw on a survey of foreign firms, interviews with foreign firms, and case studies of Chinese firms.

The authors identify three categories of FTT policies that have significantly impacted foreign-Sino technology transfer in recent years:

(1) Policies which risk market loss (including market access preconditioned on meeting technology transfer requirements),

(2)  Policies that offer no choice regarding compliance (including unfair court rulings in IP civil litigation), and

(3) Policies that are based on legal obligations (including provisions in the technology import-export regulations; and certain policies related to the intersection of anti-trust and IP, and IP and technical standards).

Several other controversial policies were also identified, including disclosure of confidential business information through regulatory approvals, pharma patent issues, and certain tax schemes and subsidies.

The authors find that, with the exception of no-choice policies, foreign firms are allowed some flexibility to decide whether or not they want to comply with China’s FTT policies. Therefore, even though non-compliance with the policies is always met with consequences, the technology is not actually “forced” against a party’s will. After noting this limitation of the term, the authors explain that they retain the term “FTT policies” in their research for readability and because it is part of well-established lingo, but only use it to the extent that it meets their aforementioned definition.

Much of the research focuses on foreign-Sino transfer of frontier technology, i.e. the most advanced technology emerging from research and development which is generally not at the point of mass commercial adoption. According to the authors, not only the design of FTT policies per se helps determine if they exert substantial leverage over (i.e., force) frontier technology transfer, but the environment in which they are deployed is equally important. The authors find that FTT policies appear to exert the most leverage over frontier technology transfer when accompanied by seven conditions: (1) strong state support for industrial growth; (2) oligopoly competition; (3) other policies closely complementing FTT policies; (4) high technological uncertainty; (5) policy mode of operation offering basic appropriability and tailored to industrial  structure; (6) reform avoidance by the state, and (7) stringent policy compliance mechanisms.

Based on each of these conditions, the authors developed an FTT Strategy & Risk Forecasting Matrix with corresponding strategies the state may adopt to fully exploit, i.e. maximize the leverage of, FTT policies.

The authors’ analysis has several possible implications for technology transfer policymaking. In the authors’ view, Chinese FTT policies may enable domestic acquisition of frontier foreign technology if all seven conditions determining policy leverage are fully exploited by the state. However, if the state does not fully exploit all seven conditions, the FTT policies have less leverage. Moreover, if the state exploits none or only a few of the conditions, the FTT policies may result in a lose-lose game where foreign firms are discouraged from transferring valuable technology and domestic firms’ acquisition of new technology is made more difficult.

With this analysis, the authors provide evidence that can be used to appeal to the Chinese authorities to change some of their FTT policies: some of the policies are actually counterproductive in meeting their aims. The risks of loss of technology acquisition posed by Chinese policies is an important phenomenon which this blog has also identified, particularly as an unintended consequence of China’s Technology Import/Export Regulations (especially for start-ups and litigation-prone technologies, but also for technological collaboration) and which has been mentioned by the US Chamber of Commerce in its IP Index and its report on licensing.

The authors argue that in order to increase the chance that FTT policies will spur sustained transfer of frontier technology, Chinese regulators should not deprive foreign firms of  minimum level of appropriability. The policies should also allow foreign firms to benefit in at least minor ways from technology transfer arrangements.

The research also has important implications for technology strategy formulation and risk management. The authors’ FTT Strategy & Risk Forecasting Matrix can guide foreign firms to anticipate risks associated with FTT policies and serve as a starting point for understanding how to further quantify or mitigate these risks. The risks are of course compounded by potential trade secret theft, cyber intrusions, and less formal pressure points on foreign licensors to assign or transfer their technology in China. And these risks must be considered alongside major rising challenges to doing business in China, which Prud’homme and Zedtwitz have also discussed (in MIT Sloan Management Review), including: problematic areas of regulation in China and rising competition from Chinese rivals in terms of their recruiting and retaining top talent, more large-scale and strategic use of intellectual property, and ever faster time-to-market of products and services. Mitigating these many risks requires carefully integrated intellectual property, innovation, non-market, and human capital strategies, alongside yet other responses.

Edit of June 23, 2018:  An interview with Prof. Liu Chuntian of Renmin U. Law School on this same topic of forced technology transfer is found on page 2 of the People’s Daily (June 22, 2018, 2nd edition) (reporter Wang Yu)   A machine translation by Google is found here.  Liu focuses primarily on market access as a separate discipline from intellectual property under the WTO and as being essentially voluntary; he does not support formal and informal incentives in place (including the Technology Import/Export Regulations as noted in the article by Dan Prud’homme).

Edit of July 15, 2018: Here’s a link to Prof Prud’homme’s article outside of a paywall.  It may only be available for a short period of time.

Edit of December 18, 2019: Here’s a link to a presentation by Prof. Prud’homme at the OECD on the impact of FTT policies in China (Dec. 12, 2019).

Two Upcoming Events: Innovation and Technology Licensing

ITIF, the Information Technology & Innovation Foundation,  is holding a seminar in How the Trump Administration Can Stop China’s Innovation Mercantilism on March 16, 2017.   Here’s the link to the program.  Speakers include: Robert D. Atkinson (ITIF) , Stephen Ezell (ITIF), Scott Kennedy (CSIS), Claire Reade (Arnold & Porter), and John Veroneau (Covington) for what I am sure will be a lively 90 minute event in Washington, DC.

In an unrelated event, USPTO and the Ministry of Commerce are  jointly sponsoring a program on cross border technology licensing on March 28 in Beijing at Renmin University’s law school (specific room still TBD).  Here is a draft agenda.

 The USPTO/MofCOM program is intended to provide an opportunity to discuss cross-border IP licensing.  In particular, including China’s Technology Import Export Regulation (“TIER”) 技术进出口管理条例and its impact on US technology collaboration and licensing.  The program builds upon prior programs with SIPO that explored similar topics.  RSVP’s for this program are requested by Wednesday, March 22.   Please email Ms. Liu Jia – jia.liu@trade.gov – to RSVP.