Three New Reports Proposing Policies for China Engagement

Three reports were recently released on Chinese law, Chinese science cooperation and US-Chinese relations with recommendations for the incoming administration. Here is a summary:

The Brookings Institution’s report “The Future of US Policy Toward China – Recommendations for the Biden administration” has a chapter on “Revitalizing Law and Governance Collaboration with China”  written by Jamie Horsley. 

Ms. Horsley urges the renewal of legal engagement with China.   She draws heavily on IP engagement for her suggestions.  She notes that “the U.S. Patent and Trademark Office hosted its first Chinese delegation [in 1979] and explained the American patent system to officials working on China’s first laws governing intellectual property (IP). U.S.-China IP law exchanges helped promote the establishment of specialized IP courts, introduced the practice of amicus briefs in IP proceedings, and supported China’s development of a form of case precedent to enhance uniformity of court judgments. All of these developments were informed by U.S. law and practice and are contributing to a procedurally and substantively fairer system of IP law in China.”  This cooperation, she further notes, has “promoted more professional and accessible courts and specialized intellectual property tribunals in which foreign plaintiffs are winning a majority of their patent infringement cases.”

As a further example of successful cooperation, Ms. Horsley points out that “the U.S. Department of Justice joined with Commerce in 2016 to hold the first high-level U.S.-China Judicial Dialogue, which brought officials and judges from both countries to discuss case management, alternative dispute resolution, precedent, and evidence in civil and commercial cases.” In fact, a principal focus of this program was also, IP. In preparation for those meetings the USPTO reached out to several prominent Chinese IP judges, including Justice Tao Kaiyuan of the SPC, the former President of the Beijing IP Court (Su Chi), Chief Judge He Zhonglin of the International Cooperation Division at the SPC and formerly of the SPC IP Tribunal, and former Deputy Chief Judge Wang Chuang of the SPC IP Tribunal (now with the SPC’s national appellate IP court).  These four judges are in the picture above, taken at the 2016 meetings. 

The second report, “Meeting the China Challenge: A new American Strategy for Technology Competition” was prepared by  the Working Group on Science and Technology in US-China Relations under the leadership of University of California San Diego Prof. Peter Cowhey. I was part of that Working Group.

IP issues play a role in many of the recommendations of the report.  The report criticizes a prior ban on US participation in standards setting activities with Huawei as counterproductive.  It also views NIST support for IP rights in standards setting processes as helpful to new market entrants in standards setting.  It expresses concern over Chinese efforts to dominate standards essential patents (SEPs) in 5G.  However it is agnostic over the quality of Chinese SEPs, noting that “the purpose of this Working Group is not to settle debates about the significance of the total number of patents in 5G standards versus an emphasis on the technological significance of specific patents. This group agrees that China has set a policy goal of being the overall leader in setting global 5G standards. The question for us is how to respond.”

The report also urges oversight of China’s pharmaceutical-related IP reforms in implementing the Phase 1 Trade Agreement. It also urges greater strengthening of IP protection in the pharma sector in the United States through “reform[ing] [US] interpretation of the intellectual property (IP) laws to allow important new forms of biotechnology eligible for patenting by aligning its practices with those of the European Union and China.”

Regarding “IP Theft”, the report states that “[t]e U.S. government and private and public research laboratories should cooperate in criminal investigations and support active monitoring of patent filings, ‘shadow labs,’ and research publications to alert U.S. entities of patent fraud and IP theft….”  “Patent fraud” refers to  instances where patents may have been filed in China in violation of the rightsholder. The patents may be filed with requests for anonymity when published to avoid revealing the theft.

The third report, “The Elements of the China Challenge” was prepared by the Policy Planning Staff of the State Department.  Despite the limited focus on IP, this report shares many similar recommendations to the other reports.

One of the common recommendations involves training.  The State Department report argues that the US needs to train and develop  “a new generation of public servants — in diplomacy, military affairs, finance, economics, science and technology, and other fields — and public policy thinkers who not only attain fluency in Chinese and acquire extensive knowledge of China’s culture and history.”   Horsley’s report is more specific on consequences of untrained officials: “better understanding [of Chinese law is needed to] facilitate more effective resolution of bilateral disagreements and help ensure that bilateral agreements are enforceable under Chinese law.” She also points to “misunderstanding concerning the binding force of various Chinese documents.” This is a phenomenon I have also observed.    

Other common recommendations are to “use diplomacy to coordinate with other allies and like-minded countries” (UCSD report), and to “strengthen…at home” (Brookings).    The UCSD report particularly underscores the need for a range of technological self-strengthening steps. Importantly, the reports all recognize that the United States “must promote American interests by looking for opportunities to cooperate with Beijing subject to norms of fairness and reciprocity” (State Department).  I agree that confrontation or collaboration  is a false dichotomy in our complex engagements with China.

The Biden agency review teams would be well served by reviewing these reports to implement pragmatic approaches to better manage U.S. interests in our IP and other relations with China.  

Translations of Civil Trade Secret and Criminal IP JI’s Available

The Gen Law Firm (己任律师事务所) has graciously provided us with translations of two recently released judicial interpretations with red-lining to compare with the prior public comment drafts. 

The civil trade secret judicial interpretation was released on September 11, 2020.  I blogged about it here.  

On September 13, a criminal IP judicial interpretation, which also includes criminal trade secrets, was released by the Supreme People’s Court and Supreme People’s Procuratorate (最高人民法院  最高人民检察院 关于办理侵犯知识产权刑事案件具体应用法律若干问题的解释 [3]).

These translations are very timely in light of the recent USPTO conference on trade secret developments in China.

Please send me any comments that you may have prepared on these or other laws, regulations, rules, judicial interpretations released for public comment with a note regarding whether the comments can be shared on this blog.

An Update on Data-Driven Reports on China’s IP Enforcement Environment

Several useful empirical reports on China’s IP environment have been released in the past few weeks.  I summarize four of them:

Trademark Litigation

Jerry Xia and his colleagues at the Anjie firm have written ”Trademark litigation Forum Shopping in China – What the Data Tells Us” (the “Trademark Report”) (July 8, 2020).

The Report looks at over 11,000 court judgments from 2019.  Only two of the top ten cities for hearing trademark matters were “Tier 1” jurisdictions, namely Shanghai and Shenzhen.  The authors argue that the experience of less well-known courts, including basic courts, is underestimated by many lawyers.  In some jurisdictions, such as in Zhejiang and Jiangsu, win rates for plaintiffs are as high as 100%.  These courts were also among the most efficient courts in adjudicating trademark disputes.   By comparison, the Beijing IP Court awarded fewer favorable decisions to plaintiffs and was slower, but it also awarded higher damages.

The Trademark Report argues that concerns about local protectionism in IP cases for foreign plaintiffs may be exaggerated.  The authors note that the probability of winning based on the available data is generally higher for foreign parties than domestic parties.  A similar argument is advanced in the Software Copyright Litigation Report (discussed below), as well as in other empirical studies.

The Trademark Report is available to subscribers of the World Trademark Review (issue 84).  It is behind a paywall for the next two months.  Registered non-subscribers may view two articles free per month.

SEP Litigation

LexField Law offices released a report by Zhao Qishan and Lu Zhen “Statistics of Chinese SEP Cases in 2011-2019” (the “SEP Report”).  The report is available here.

The SEP Report notes that from 2011 to December 2019, Chinese courts accepted 160 cases related to SEPs.  Not surprisingly, most of the cases involve foreign entities and relate to the telecommunication industry (96.25%).  Most of the cases were filed with the courts in Beijing, Guangdong, Shanghai, and Jiangsu.  Both practicing and non-practicing entities were plaintiffs.  Ten companies were responsible for 125 of the 160 cases reported, with practicing entities as the primary defendants.   Foreigners are the principal plaintiffs, but only by a slight margin.  The cases largely involved patent infringement disputes.  Cases asking the court to determine FRAND terms during license negotiations are also on the rise.  About 72% of the cases were withdrawn before final judgment.  The Huawei/Samsung settlement alone was responsible for the withdrawal of 28 cases.

The SEP Report provides a useful overview of the amount of litigation occurring over the past 9 years on SEPs, including understanding the role of foreign plaintiffs including NPE’s and China’s increasing importance in global SEP litigation.  As many SEP cases are not published, a major contribution of this article is in the description of various cases, as well as a collection of the docket numbers and case summaries.   A useful counterpart article on the foreign experience of SEP litigation in China is Gaetan de Rasenfosse’s article from 2017 on “Discrimination against foreigners in the patent system: Evidence from standard-essential patents on patent validity.”

 Software Copyright Litigation

Rouse published a China Software Litigation Report  (the “Software Report”) on July 7, 2020. The Software Report is based upon its proprietary CIELA database in conjunction with its network firm Lusheng and is available for free upon completion of this request form.  The Software Report aims to demonstrate how foreign litigants have fared in civil software piracy litigation in China and helps to delineate useful strategies in light of evolving judicial practices, the Phase 1 Trade Agreement commitments on software piracy as well as anticipated changes in the Copyright Law.

The Software Report reveals that out of 1,303 first instance cases reported in CIELA from 2006-2019, first instance cases brought by foreign plaintiffs numbered 285. In the authors’ view the key to success in software copyright infringement cases is proof of infringement.  In particular,  plaintiffs who secured evidence preservation orders were more likely to be successful.  The authors also suggest on-line usage tracking data as proof of copyright infringement.

One long-standing issue in software copyright enforcement has been concerns that governmental entities may have de facto immunity from successful lawsuits.  The data also does not support the assumption that State-Owned Enterprises may be immune to a successful lawsuit.  While the sample size of cases brought against SOEs is small, the win rate by foreign plaintiffs against different SOE’s is high as 85.7% (14 cases).  No data is presented on success rates in suing the government itself.   This issue also arose in a recent Berkeley Law webinar on copyright reform in China in response.  The panel observed that while there were successful cases against SOE’s in China for software copyright infringement, foreign companies are generally reluctant to sue foreign governments anywhere in the world.

Guangdong and Shanghai are the top venues for foreign and domestic litigants of software copyright disputes.  Forum shopping does not appear to be a useful strategy as software piracy choices are limited to suing where the infringing act is occurring. Unless the defendant has more than one location where piracy is taking place, action will need to be taken in the defendant’s home jurisdiction

The writers also note a high win rate for foreign plaintiffs in their sector (85.3%).  This average for foreigners is brought down by two of the most prolific plaintiffs in the dataset, who filed “bulk lawsuits” and received a markedly lower win rate.  Microsoft had an exemplary win rate according to the CIELA data – 63 cases filed and 63 wins.  The authors make out convincing arguments for greater use of civil remedies in the foreign software owners’ toolbox to address claims of rampant piracy.

Note that IAM did a short analysis of the Software Report, as did AsiaIP.

Trade Secret Cases         

Jerry Xia and Yulu Wang’s ”Analysis of Guiding Trade Secret Cases in China Published during the World IP Day in 2020” (the “Trade Secret Report”)  is available here in Chinese and machine translation.

Jerry Xia presented The Trade Secret Report at a recent Berkeley webinar on trade secret developments in China. According to the authors, of the more than 600 typical cases published in 2020, there were only 47 trade secret cases, accounting for less than 7.8% of the total.  By comparison, according to a Beijing Higher People’s Court study, from 2013 to 2017, a total of 338 cases of unfair competition involving trade secrets were concluded by judgment in the courts.  The typical case numbers may seem small; however, trade secret cases are a small cohort of China’s IP litigation docket. Earlier data, reported by CIELA also showed a low volume of trade secret litigation. I have also noted elsewhere on this blog that trade secrets are a small part of the criminal IP docket and of the AUCL docket.  The Trade Secret Report does not compare the data on typical trade secret cases with prior years’ reporting on typical cases, which could be a further indication of the interest of China’s courts in establishing clear rules regarding adjudication of trade secret disputes.

The Trade Secret Report notes that the number of cases in which trade secrets where plaintiffs won was 113, or about 35 percent of all cases.  Relatively low win rates have also been reported previously on this blog.  The cases equally involved both business information or technical information.  Zhejiang Province (10), Guangdong Province (9) and Shandong Province (7) announced the most cases. Of the 47 typical cases, there were no cases involving foreign parties and only one case involving Taiwan.

The authors additionally searched the public database for cases involving trade secrets from 2016 to the present.  The number of reported cases involving foreign parties was rare.  Only nine cases were retrieved, involving parties such as the United States, Japan, Germany and Australia, four of which were foreign vs. local, three cases were local vs. foreign, and two were foreign vs. foreign.  The relatively high percentage of local vs foreign cases in a limited cohort may nonetheless be concerning, particularly in light of proposed judicial interpretations regarding enhanced punishment when trade secrets are misappropriated on behalf of foreign actors.   Of the six cases in which foreign entities were plaintiffs, two were dismissed, two were voluntarily withdrawn and the results of the remaining two were not made public. Of the five cases in which foreign entities were defendants, the plaintiffs’ claims were rejected in four cases, and the outcome of the other case was not made public.

Among the published cases in 2020, there were two cases of punitive damages involving trade secrets.   These two typical cases do not give any clear criteria for the determination of “malice”. However, in determining the base and multiples of punitive damages, one typical case provides some guidance:  In a criminal case, a lost licensing fee was used as a calculation for assessing the severity of the punishment.  This is consistent with the proposed judicial interpretation of Criminal Cases Involving Trade Secrets, noted above.  The Trade Report also notes that although a shifting of the burden of proof is contemplated by the revised AUCL, there was no typical case on point.  However, there are two cases on point that came into effect after the new AUCL came into force

These typical cases help the public to understand how the courts are handling trade secret matters.  The relatively large cohort of trade secret typical cases so soon after legislation has been revised may also be seen as a political statement regarding judicial determination to handle these trade secret cases in accordance with the law.   As Susan Finder has noted in her article China’s Evolving Case Law System in Practice, these cases along with SPC guiding cases and other published instructional cases, may be important guides to the courts in determining how to rule on newly emerging issues.  In addition, at least in the case of IP issues, they may also provide assurances to foreign partners of the willingness of Chinese courts to comprehensively implement legislative reforms.

Improving Approaches to Using the Right Data

These reports all offer strategic guidance for companies and rightsholders and are part of a growing trend to use empirical tools in evaluating China’s IP environment.  The reports also effectively leverage recent or proposed changes in Chinese IP laws and judicial interpretations to provide a useful window into developing judicial practices.  While their utility for business strategic and policy purposes is easily recognized, concerns over case publication practices by the Chinese courts do limit their comprehensiveness.  The Software Report notes that most major jurisdictions are now publishing all their cases and it also notes that “the sample size of CIELA data is sufficient to be able to draw statistically valid conclusions.”  However, a consistent issue in looking at Chinese IP empirical studies is in determining how many cases are not being published throughout the country, particularly in less frequently utilized jurisdictions.

When cases are not published, some instructive messages can also be derived from the types of cases that are being published or actively promoted, such as the cases discussed in the Trade Secret Report.   Data on what is missing can be highly valuable data unto itself. One approach that is used in these reports is to rely upon a plurality of data sources to ensure that key judicial databases are comprehensive.  The SEP Report, for example, is based on “official announcements by the involved parties, information disclosed by the courts, and relevant news reports.”  Using a plurality of data sources may be necessary in analyzing trends in SEP cases as these cases are often not publicly available due to confidentiality concerns.  A pluralistic approach is also taken in the Trade Secret Report, which compares data and cases other than these typical cases in order to better help the reader to understand the nature of trade secret litigation in China as well as the role of the small cohort of typical cases in analyzing China’s developing IP jurisprudence.

A useful benchmark on the adequacy of a database of published cases is the SPC annual report on IP litigation, which generally reports on overall numbers of cases accepted or decided, rather than numbers of published cases.   In recent years, however, data on foreign-related cases has sometimes been missing or less comprehensively reported on in recent years. This may have been due to the trade war.  In the criminal IP context, comparisons among administrative referrals to police prosecution, police investigation data, procuratorate prosecution data, SPC case and conviction data and case publications (when they are available) can provide useful comparisons to evaluate trends.  For  examples of  typical SPC/published case discrepancies, the CIELA database includes 54,000 infringement cases of all types over a relatively longer period of time than the SPC database and the Trademark Report relies upon 11,056 judgments in 2019.  By comparison, the Supreme People’s Court reported that there were 65,209 trademark cases alone in 2019.   These discrepancies may be attributable in some part to delays between case publication, case decisions and case acceptance, lack of finality about the nature of reported cases (infringement/ownership/royalty or other disputes), the impact of settlement or preliminary relief in case publication, the confidentiality of decisions that may block publication, collection methodology used in supporting the analyses, and other factors.  These discrepancies and factors often make a selection of earlier years for analysis more attractive to scholars in reaching fully-informed decisions about judicial behavior, even if they may have less value for immediate strategic business purposes.

While I agree that the IP litigation environment for foreigners has been improving, foreigners nonetheless continue to underutilize China’s litigation system.  The Reports help underscore the importance of carefully crafted strategies which might help improve overall utilization and success rate.  In the future, I hope that reports will include such factors as the quality of the underlying right and the quality of the law firm representing the rightsholder. The relatively low level of foreign utilization of the Chinese judicial IP systems suggests that foreigners may also be selecting their strongest cases to litigate, which makes it difficult to compare with the more active docket of Chinese domestic rightsholders.  My guess is that assessing the impact of the law firm upon success rates will also show that the authors of these reports have contributed to a higher success rate for their clients.  In any event, legal analytics are becoming increasingly important tools for law firm and client success.

Interested in hearing more about Chinese legal analytics? Join us on Wednesday, July 15 4:30 Pacific Time for the final Berkeley China IP webinar, where we bring together David Kappos, Don Rosenberg, Mark Wu, Alex Capri, and Dan Prud’homme to discuss the future development of  China’s IP regime and its interactions with the United States.  The topic is certain to come up!