On Avoiding “Rounding Up the Usual Suspects” In the Patent Law Amendments …

 

Although many of the proposed changes in China’s patent law amendments are welcome, the draft amendments also present a difficult  choice in two key areas: (a) patent administrative enforcement and (b) punitive civil damages.

(A)The draft, if enacted, would enhance patent administrative enforcement through national coordination of large cases (Art. 70), expanding authority of administrative enforcement for infringement (Art. 69), and enhanced fines of five times illegal earnings or up to 250,000 RMB (Art. 68).  These efforts should be seen against the background of a huge ramp up in administrative enforcement in patents,  that has now eclipsed administrative enforcement of trademarks (77,000 to 31,000 cases).    Moreover, there appears to be a continuing interest of the Chinese government in special campaigns to deal with patent infringement, such as in a recently announced MOU with NDRC, and in a proposed campaign to deal with infringement issues faced by foreigners at the beginning of the current 301 investigation.

How much will these efforts help foriegn business people? The record on special campaigns is that most improvements are short-lived and perhaps focus too much on “rounding up the usual suspects” by local enforcement agencies (Casablanca).  Enhancements in administrative patent enforcement are also an about-face from the prior dominant role that trademarks played in administrative IP enforcement and the relatively minor role that patent administrative enforcement traditionally played in China.  Also of concern is that administrative trademark enforcement had uniquely been frequently utilized by foreign entities as complainants/victims.  For example, there were 17,022 administrative trademark enforcement actions taken by SAIC on behalf of foreigners in 2011.  This was nearly 14 times the number of all foreign-related civil litigation involving all types of IP rights that were disposed of by the China courts in that year (1,321).    In addition, as the Apple design patent case demonstrated in Beijing, foreigners may easily end up on the defensive side in these administrative patent cases that are typically brought by local government officials.    It is therefore uncertain how much, if at all, enhanced administrative patent enforcement will benefit foreigners.

(B)  The proposed draft would also provide for punitive damages upon a judicial finding of  willful patent infringement (Art. 72), with a maximum of 5x damages.  To many this may appear to be a welcome improvement. Punishing willful IP infringement is currently a policy that both the US and Chinese leaders share.  On the US side, the term IP “theft” appears 119 times in the Section 301 Report, while civil damages and compensation appear hardly at all.  On April 9, 2018, President Trump tweeted that he is “Defiant” and that he “Will End …Massive I.P. Theft” by China. Premier Li Keqiang apparently shares some of this enthusiasm.  He had noted in his annual report on the work of the government, that China needs to “improve IP protection, and implement a system for punitive damages against infringement “加强知识产权保护,实行侵权惩罚性赔偿制度” .

While punishment is an important tool, the more pervasive problem is that basic civil remedies are too weak.  Actual damages are in fact rarely imposed by Chinese courts and, have been the outlier.  Courts impose statutory damages in over 90% of all patent cases as well as in other IP areas.  In the Beijing IP Court median damages awarded for patent infringement in 2016 were only 112,500 RMB, or less than 20,000 USD. Rather than unduly emphasizing punishment, a better structural place to start is in improving the civil system to achieve maximum compensatory deterrence.

Intellectual property is fundamentally a private right (TRIPS Agreement, preface), and adequate civil remedies should therefore be the priority.  Using remedies that are not at the core of a healthy IP system based on private rights (administrative remedies/punitive damages)  are not a substitute for predictable, compensatory private remedies. In fact, the administrative system affords no private compensation to victims.  Punitive and administrative remedies are also often left to the discretion of the enforcement agencies, which can result in unpredictable enforcement.  In 2017 for example, despite the pressure on China to address trade secret theft, criminal cases declined by 35%.

By focusing on deterrent civil remedies that are fairly administered, the US will find common cause with many Chinese officials.  The issue was addressed  by Justice Tao Kaiyuan of the Supreme People’s Court  who similarly believes that the civil patent system is the primary enforcement mechanism for private patent rightsJustice Luo Dongchuan, who is now in charge of China’s new appellate IP circuit court, also underscored the importance of the IP courts in advancing rule of law in a visit to the US.  In an article I wrote,  with former PTO Director David Kappos and Chief Judge  Rader (ret), we also underscored that China’s administrative system is fundamentally unlike the judicial mechanisms of the USITC, and that better recourse to improved patent enforcement can be had with the courts.

Moreover, these punitive and quasi-legal remedies could easily be turned against the foreign community.  Consider, for example, that due process for foreigners has been a long-standing concern  in Chinese IP matters, well before the current concerns over retaliation over the proposed extradition of Huawei’s CFO.  Moreover, several cases have demonstrated that   foreigners are often the test cases for “improved” enforcement mechanisms in IP, such as in Chint v. Schneider (high patent damages), Iwncomm v Sony (injunctive relief in a SEP case), AMEC v Veeco (preliminary injunctions in patent infringement matters), antitrust cases involving licensing  and even the first publicized criminal copyright case, in which the principal defendants were two Americans (Guthrie and Cody).

I believe that China needs to focus its patent enforcement resources on the courts, and especially to give the new national appellate IP court a try in providing balanced and fair enforcement of IP rights, both foreign and domestic.  Both the US and China might try to focus more on much delayed and long overdue improvements in the civil system, some of whic are contemplated by the patent law amendments.  A rhetoric based too much around punishment may in the end prove to be self-defeating in the absence of necessary legal guarantees such as improvements in awarding compensatory damages, greater procedural due process, and improved transparency in the courts and administrative agencies.

shenzhenstrictlyprotectip

Bottom photo of the author in front of a Nanshan District Shenzhen IP Office sign “Create the Most Strict IP Protection Pioneering District” (Jan. 2019).  The opinions expressed in this blog are the author’s own.  Please address any corrections or improvements to: chinaipr@yahoo.com

 

 

State Council Clears Patent Law Amendments, Forwards to NPC, Patent Linkage Is Not Referenced ….

According to the official central Chinese government website, on December 5, 2018, Premier Li Keqiang chaired a State Council meeting which cleared the long awaited proposed draft of the patent law amendments.  The description of the draft is set forth below:

为进一步加强专利权人合法权益保护、完善激励发明创造的机制制度、把实践中有效保护专利的成熟做法上升为法律,会议通过《中华人民共和国专利法修正案(草案)》。草案着眼加大对侵犯知识产权的打击力度,借鉴国际做法,大幅提高故意侵犯、假冒专利的赔偿和罚款额,显著增加侵权成本,震慑违法行为;明确了侵权人配合提供相关资料的举证责任,提出网络服务提供者未及时阻止侵权行为须承担连带责任。草案还明确了发明人或设计人合理分享职务发明创造收益的激励机制,并完善了专利授权制度。会议决定将草案提请全国人大常委会审议。

A rough translation is as follows:

In order to further strengthen the protection of the legitimate rights and interests of the patent rights holder, improve the mechanism system for stimulating creation of inventions, and raise those mature practices for effectively protecting patents into law, the meeting passed the “(Draft) Amendments of the Patent Law of the People’s Republic of China.” The Draft aims to increase the severity of penalties for intellectual property infringement, draws on international practices, significantly increase the amount of compensation and fines for willful infringement and counterfeiting of patents, and significantly increase the cost of infringement to deter illegal acts;  it clarifies the burden of proof for the infringer to cooperate in providing relevant information, and sets forth that the network service provider should bear joint liability for not stopping infringement in a timely manner. The Draft also clarifies the incentive mechanism for inventors or designers to equitably share the proceeds from the creation of service inventions, and improves the patent authorization system. The meeting decided to bring the Draft to the NPC Standing Committee for its review.

In a possibly unrelated development, the National Development and Reform Commission released a Chinese interagency Cooperation Memorandum of Understanding on December 4, 2018  to deal with entities that have lost trust due to IP (patent) infringement. 关于对知识产权(专利)领域严重失信主体 开展联合惩戒的合作备忘录.  Compared to the proposed patent law amendments, this lengthy document focuses even further on public law aspects of a patent law system, including recidivist infringers, “irregular” patent applications, providing false documents to the patent office, etc. and includes a range of 33 different punishments to be meted out from a wide number of agencies, including denial of subsidies, debarment for procurement purposes, denying access to range of government programs, prohibiting leisure travel, etc.

The two documents taken together may suggest a disheartening renewed emphasis on administrative measures to deal with patent infringement and innovation incentives.  Such measures may be intended to address US trade concerns about IP infringement and “IP theft”.  They may also represent a return to China’s increasingly administrative enforcement-oriented approach to patent issues.  However, this renewed focus on administrative measures is also occurring the same time as China is moving to quickly establish a new national appellate IP court attached to the SPC by as early as the beginning of 2019.  This new court will be a national appellate circuit court with jurisdiction over administrative appeals and technical IP matters and will likely include seasoned judges from Beijing and the SPC itself.  Much work needs to be done to get this court off the group quickly.

What, however, is missing from both these documents is any reference to a patent linkage system for pharmaceutical products, which has been much talked about in this blog.  As previously reported, former CFDA Commissioner BI had been dismissed from his post as party secretary to SAMR this past summer in response to China’s tainted vaccine scandal. A State Council notice (no. 83) of August 20, 2018 on deepening reform in China’s medical sector thereafter also ominously omitted any reference to patent linkage.

As the original deadline for passage of the patent law amendments was the end of this year, my guess is that this draft may be referred on to the NPC by the end of this year, and passage may occur as early as the first half of next year.  I assume that a draft for public comment will be released by the NPC sometime early next year.  Generic and innovative pharmaceutical companies that believe a linkage system would help accelerate innovation in the pharmaceutical sector and support early introduction of high quality generics, may consider commenting on these issues once a public comment draft is made available.