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!

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)

April 24 – May 7, 2018 Summary

1.NPC Standing Committee Releases 2018 Legislative Plan. The NPC Standing Committee (NPCSC) on Friday released its annual legislative plan for 2018. As usual, the plan is divided into two sections—the first listing specific legislative projects slated for discussion at the NPCSC’s remaining five sessions in 2018, and second setting forth general guiding principles for its legislative work this year. The plan divides the legislative projects into three categories: (1) those for continued deliberation (that is, those carried over from 2017); (2) those for initial deliberation (that is, bills first submitted in 2018); and (3) preparatory projects.

Below is a list of laws and amendments that implicate IP matters:

E-commerce Law 电子商务法: passed under initial deliberation and is set for continued deliberation. December 2016 draft, October 2017 draft. 

Patent Law (Revision) 专利法(修订): set for initial deliberation in June. Draft released for public comments by the State Council in December 2015.  There have been several blogs previously on the drafting process and controversial issues.

Foreign Investment Law 外商投资法: set for initial deliberation in December. Draft released by the State Council for public comments in January 2015

The 2018 legislative plan also includes a list of preparatory projects, most of which won’t be submitted for deliberation this year. That list includes an Atomic Energy Law and Export Control Law and revision/amendments to Copyright Law.

2. New initiatives released by SIPO on World Intellectual Property Day. During a press conference for the World Intellectual Property Day, Shen Changyu, head of SIPO, made remarks of new initiatives planned by SIPO. According Shen, China is revising its Patent Law and establishing a punitive damages system for intellectual property infringement to increase the cost of illegal behavior and create a deterrent effect. In addition, China pledged to establish more intellectual property protection centers, in addition to the 19 intellectual property protection centers established nationwide. Meanwhile, SIPO planned to release a working guide for Anti-Monopoly law in the field of intellectual property. Should SIPO move ahead with this project, it may be an indication of an increased role for it in the newly reorganized government structure which it shares with China’s antitrust agencies.

As reported before, SIPO and other IP agencies are under reorganization. According to Shen, after the reorganization, SIPO will become the world’s biggest IP office. The new office will have 16000 staff, with 11000 patent examiners and more than 1500 trademark examiners.

3. China’s top court rules in favor of Dior in trademark case. In a judgement on World Intellectual Property day, China’s Supreme Court ruled in favor of Dior in a suit against the Trademark Review and Adjudication Board after a multi-year court battle. The board wrongly rejected a 2015 application by Dior to register a trademark of its tear drop shaped J’adore perfume bottle, the top court said in a statement on its website. Alert blog readers may remember that the Michael Jordan trademark case was similarly held on World IP Day in 2016.

4. Shanghai seizes U.S.-made microchip equipment over IPR. At the start of 2018, Chinese company Advanced Micro-Fabrication Equipment Inc (AMEC) learned that U.S. equipment suspected of infringing the company’s patents would arrive at Shanghai Pudong International Airport. Shanghai customs authorities then seized the suspected products, Jiefang Daily reported on Friday, citing customs officers. Customs suspended the clearance of the products worth 34 million yuan ($5.36 million). With Customs’ involvement, the U.S. company, whose name was not revealed, negotiated with AMEC. The two sides agreed to settle the dispute by offering cross licenses to each other. Chinese media reported that the case is a rare but important example of using Chinese Customs remedies to address imports of products infringing a Chinese patent to effect a cross-license.  The case appears to be a settlement of a long running dispute between Veeco Instruments of Plainview, NY and AMEC, which was reported in the western press, including the trade press, and also involved invalidity challenges, US court cases and an infringement law suit in Fujian province.   According to the western press on December 7, 2017 the Fujian High Court had granted AMEC’s motion for an injunction prohibiting Veeco Shanghai from importing, manufacturing, selling or offering for sale to any third party infringing an AMEC patent in China (revised June 4, 2018).

Other:

A summary of SPC’s IPR Report 2017 was released, but the whole report will be released in hard copy soon. Here’s the link to the summary.

CATR’s Report on Copyright Enforcement in the On Line Enviroment

The China Academy of Telecommunication Research (CATR), at the request of the National Copyright Administration,  released a report on April 26, 2016 on Copyright Protection in the Online Environment.

The report noted that  there were 2,118 on line civil copyright cases in total, an increase of 28.3% from last year (this total number seems smaller than I would have guessed).  The SPC White Paper reported that overall there were 66,690 civil cases, an increase of 12.1% from 2014.  Regarding civil on line copyright enforcement, 44% of the online cases involved music and 18% involved audiovisual infringement.  Amongst the IP courts, Guangdong had the highest percentage of cases (39.5%), followed by Shanghai (33.5%) and Beijing (16.5).  However, the province with the most cases was Hubei (476), followed by Beijing, Guangdong, Zhejiang, Shanghai and Jiangsu) (see chart below).

graphofcivilcases

The report also notes several important legal and policy initiatives, including directives from the National Copyright Administration on online liability, and a revision to the Criminal Code, making it clear that on line technology providers can be held criminally liable for copyright infringement.  The report also singles out the release of a draft of  proposed rule on Copyright Administrative Enforcement. (著作权行政处罚实施办法 (修订征求意见稿)as well as new rules Concerning Specifications of the Copyright Order In Online Transmissions (关于规范网络转载版权秩序的 通知),  Stopping Online Music Service Providers Transmitting Unauthorized Content(关于责令网络音乐服 务商停止未经授权传播音乐作品 的通知)and the Rule Concerning Specifications of the Order of Cloud Driver Service Provider Copyright (关于规范网盘服务 版权秩序的通知).

Data on copyright administrative and criminal enforcement in the online environment was not made available in this report.   According to the SPC White Paper, there were 523 criminal copyright cases, involved 547 people.  Moreover, news reports accompanying its release reported the following data: during the Sword Network Campaign in 2015, there were 383 administrative enforcement actions, with fines of 4.5 million RMB, 59 cases transferred to criminal prosecution, and 113 websites closed.

Summarizing the SPC’s 2015 White Paper

 

WP_20160420_005China releases much of its IP data in April, on the margins of World IP Day (April 26).  This year there have been important conferences summarizing these reports in advance of their release, including reports from the Supreme People’s Court on IP litigation, as well as white paper reports on specialized IP courts in Beijing, Shanghai and Guangdong.  In addition, there are SPC reports on fifty model cases and 10 big IP casesThe Western media has also reported on some of these reports, as have state run media in Chinese and in English.   This blog has reported on SPC whitepapers and model cases for some time.  As in prior years many provincial courts, such as Hubei, are also reporting out white papers of various kinds, as have IP and administrative agencies, such as Beijing municipality.

As in prior years, interpretation of the data, particularly for the foreign business community, can be challenging.  Here is my digest of the SPC’s important 2015 White Paper:

Foreign Cases Are a Shrinking Share

Perhaps the most dramatic national news from the official national data involving foreigners is that in 2015 foreign related IP cases dropped 22% in absolute numbers from last year, despite an overall increase of 7.2% of total decided IP cases. The total number of civil cases involving foreigners was 1,327.   As a consequence, foreign related IP civil cases as a share of total cases dropped from 1.9% (2013), to 1.8% (2014), to 1.2% (2015).   By contrast, total administrative cases in 2015 were 10,926, of which 4,928 were foreign or about 45%, continuing the trend of an outsized foreign administrative presence, with an undersized infringement role.

Data from other sources also casts some doubt on the “foreign-related” data in the SPC’s report.  The Shanghai IP courts reported that approximately one in six lawsuits received involved an overseas party, with most pursuing trademark or patent infringement claims.  A newly set up database company, IP House, also reported that over 20% of the IP litigation in Beijing involved foreigners.  Former SIPO Commissioner Tian Lipu also cast doubt on data suggesting that the amount of foreign-related IP litigation is under 5%, in a letter to then USPTO Director Kappos.  Conflicting data on foreign-related cases is likely due to the manner of reporting.  Although there is no official explanation I know of, I believe that foreign-related cases are likely those cases reported as foreign related for purposes of suspension of mandatory time frames for adjudication under China’s civil procedure law.  However, litigation commenced by a foreign invested entity in China may be characterized by the SPC as a domestic case.

Another explanation may be that the high level of foreign-related administrative cases may be due to the centralization of IP prosecution in the headquarters of many foreign companies which file these cases in the name of the parent company.  After China’s patent office or trademark office grants the right, the foreign company might then transfer the rights to the subsidiary.  This transfer is validated by the high percentage of related party IP licensing activity which US census also reports. I have not, however, seen any studies that seek to correlate foreign licensing activity, foreign investment and foreign-related litigation, which might support this hypothesis.

As I have noted elsewhere, comprehensive data must, however, await publication of the relevant source cases or data by the SPC and other courts.

IP Cases Continue to Grow Overall

The shrinking reported foreign share contrasts with the rapid growth of IP cases in China.  The SPC reported that newly reported first instance IP cases increased to 130,200, up 11.73% from 2014.  Total cases adjudicated were 123, 059, an increase of 11.68%, of which 101,324  were civil cases, an increase of 7.22%.  Administrative cases adjudicated constituted 10, 926, an increase of 123.57%, most likely due to changes in China’s trademark law which establish a more direct role for the courts.   Criminal cases adjudicated were 10,809, maintaining their slightly decreased level since 2013 (the SPC report notes that the cases are “stable” 同比基本持平)。

Patent Cases Continue to Grow

The SPC reported that patent and licensing cases continued grow, and that they increasingly involved complex areas of technology, with an increase of 22.1% to 13,087 cases.   However, I have not yet seen a breakdown of cases by type of patent or technology type which fully documents this observation.  The data appears too general at this point, considering that perhaps 2/3 of China’s patent cases involve unexamined utility models and designs of varying technological complexity, the relatively small share of licensing disputes, and the reality that many software and unfair competition cases may in fact involve high technology cases (but may not otherwise be reported as such).

Unfair Competition Cases on the Rise

The SPC report shows that unfair competition cases have increased, including those involving the internet and software technologies. Civil cases increased to 2,181, with antitrust cases increasing to 156. The total increase was 53.38%. Trade secret cases have not yet been separately reported out. They are generally a significant share of this relatively small portion of the IP docket. In 2009, for example, there were 1,282 cases under the Law to Counter Unfair Competition in the courts, of which 253 involved trade secrets.

What the Data Suggests on Courts Foreigners May Want to Pay Attention To

A foreigner traveling to China who is considering where to bring a case, or risks of being sued in a particular venue, should not consider all court as equally well situation.  The Beijing courts, for example, clearly play a key role in foreign related IP adjudication. As administrative cases are overwhelmingly located in Beijing, the Beijing IP court hears perhaps 80% of the combined civil/administrative foreign docket.

In addition, the SPC reports that Beijing, Shanghai, Jiangsu, Zhejiang and Guangdong accounted for 70 percent of the first instance IP litigation of all types. Shanghai is also a good place to engage, as it has the SPC has established an international exchanges base there. Indeed, the Shanghai white paper also reported out on its exchange activities, including singling out a significant conference last year with the US Court of Appeals for the Federal Circuit. Still, several courts are assuming increasing importance, and some may pose defensive risks and opportunities for foreigners.   Jiangsu’s docket increased by 38.71%; the docket in Tianjin increased by 50.41%. Anhui saw an increase of 101.26%, while courts in Shandong, Shaanxi, Hunan and Helilongjiang all saw increases of over 30%.

Just as the specialized IP courts were releasing their white papers, the SPC reported that NPC delegates from a number of provinces had been asking to establish their own IP courts in their region, and that the SPC would report out in August on these proposals.  In my opinion, these requests reveal the problem of this otherwise noble experiment in specialized IP courts: if multiple regions have specialized IP courts at the intermediate level, then efforts to insure national unity in reduce local protectionism in IP litigation through a national appellate court may be compromised. However, it is also important to note that these specialized IP courts would replace specialized IP tribunals – a significant difference from US trial court litigation, which  involves courts of general jurisdiction.

At the same time as these papers were being released, a judicial delegation from China was engaging with US federal and state judiciary to discuss the role of IP courts and possibility of future cooperation (see picture above by me from the Wisconsin Supreme Court).  I also believe that we can expect more discussion on these important issue in the months and years ahead.

2014 Judicial IPR White Paper Shows Huge Growth in Trademark Appeals

It is IP week and for IP data geeks like me, China is publishing huge amounts of data in a short period of time.  The biggest challenge isn’t collecting the data, but in understanding what the data says and doesn’t say.

I have reported for several years now on judicial data that is released by the Supreme People’s Court (SPC) around this time.  The Beijing Intellectual Property Institute and other media released data from the SPC Court 2014 White Paper.  Here is a summary:

1.  IPR Cases Continue to Climb, Foreigners Continue to Play a Small Role.

The courts throughout China received 133,863 cases in 2014, and adjudicated 127,129 cases, increases of 19.52% and 10.82%, respectively.  Much of the increases were due to increases in civil copyright cases and administrative trademark cases.

Patent infringement litigation filings increased to 9,648  or 4.93%;trademarks decreased to  21,362 for a decrease of  8.21% and copyright increased to 59,493 cases, or an increase of 15.86%.  Technology contracts increased to 1,071 or an increase of 12.86%;anti-unfair competition cases (which include trade secrets) increased to 1,422 (of which there were 86 civil antitrust cases) with an increase of 9.22%.     Filings of second instance appeals increased to 13,760 cases, or by 15.08%.

Foreign related civil cases increased by a meagerly 0.11% to 1716 cases, or are now a 1.8% of the civil IPR docket, down from last year’s 1.9%.   Hong Kong/Macau/Taiwan cases dropped to 426 cases, or by 11.8%.

2.  Administrative Cases Continue to Climb, Affecting the Beijing IP Courts Docket and Being a Focus of Foreign Rightsholders

Foreign-related administrative cases, which principally consist of appeals of patent and trademark office decisions to grant or deny patent or trademarks, showed a dramatic increase, to 9,918 cases filed and 4,887 adjudicated, with a jump of 243.66% and 68.46% respectively.  Patent cases declined 11.67%  to  539.  However, new trademark cases increased by 330.59% to 9,305, an increase of 330.59%.  There were also 12 copyright administrative cases filed, and 62 administrative cases of other types.

There was overall an increase of 70.5% in foreign related administrative cases (including Hong Kong, Taiwan and Macau) to 2247 cases.  Foreigners represented 45.77% of the total administrative docket.

3.  Criminal Cases Continue to Grow

New criminal IP cases filed in 2013 totaled 11,088, an increase of 18.83%. Appeals numbered 573 cases, a decrease of 13.44%.

Conclusion –

As I noted back in December, the Beijing IP Court continues to be the most important court for foreigners.  In addition the court was facing an “explosion” in trademark civil litigation, which is re-directing the courts resources.

In the past declines in patent administrative litigation, such as occurred in 2014, have been associated with the busy dockets of the court which has resulted in low “reversal rates” by the courts due to the amount of time needed to properly reverse SIPO.  This may indeed be the current situation. I recently heard Chief Judge Su of the Beijing IP Court talk about the busy docket his court is facing.  I suspect that the rapidly increasing trademark docket has resulted in the Beijing IP court focusing on disposing of its trademark docket, as SIPO reversals are more time consuming.  This may have resulted in a decline in patent administrative litigation.  In any event, the decline in administrative appeals to the courts in 2014 is not attributable to any decline in patent filings, which increased by 12.5% in 2014 to 928,000, or any decline in civil patent litigation, which as I noted, increased as well.

I am waiting for more specific data on civil or criminal trade secret cases, as the summaries I have read do not break out trade secret cases from other anti-unfair competition law cases.

As in past years, foreigners continue to play an important role in administrative IP litigation while their role in civil IP litigation continues to be a small percentage of a large docket.  The growth in criminal IP cases, however, also suggests greater opportunities for rightsholders and foreign governments to cooperate on IP cases, including transborder IP cases.

Here’s a link to the 2014 White Paper on the WIPO website (中国法院知识产权司法保护状况 [2014]).