IMPACT OF RECENT AML LEGISLATION ON THE IPR/ANTITRUST INTERFACE

This blog provides an update on recent legislative developments involving the interface between IP and China’s Anti-Monopoly law. On November 28, 2019, SAMR published the Anti-Monopoly Compliance Guidelines for Undertakings (Draft for Public Comment) (“Draft Compliance Guidelines”) 经营者反垄断合规指南(公开征求意见稿), which according to SAMR is specifically intended to “encourage undertakings’ compliance with China’s Anti-Monopoly Law” 鼓励经营者合规经营. Comments were due on February 12, 2019.  On January 2, 2020, SAMR issued the Draft Amendments to China’s AML (Draft for Public Comment)反垄断法”修订草案 (公开征求意见稿) (“Draft AML Amendments”). Comments were due on January 31, 2020. These documents, along with the changes from the government reorganization coming China’s three antitrust agencies into one, may suggest new approaches to antitrust regulation and enforcement in the future in China. 

The ABA’s Antitrust Law and International Law Sections submitted comments to SAMR on the Draft Compliance Guidelines as well as the Draft AML Amendments. We welcome receiving comments that other organizations submitted on these proposed laws to publish or link on this blog.

According to the NPC Observer, the Draft AML Amendments are on the State Council’s calendar for the 13th NPC Standing Committee Legislative Plan. It is a priority Class II Project. According to the recent government reorganization, it would otherwise be expected that Ministry of Justice would prepare a draft of the AML revisions for consideration by the State Council which would then forward on to the NPC for three readings. This Draft AML Amendments appear to be an effort to ‘test the water’ or perhaps ‘jump start’ the revision process, as it is drafted at an earlier stage than the NPC calendar might otherwise require. China’s National Copyright Administration undertook a similar effort with the long-stalled copyright law amendments, by publishing its own draft for public comment, which eventually became a State Council draft for public comment in June of 2014.

From an IP perspective, there are several items that are worth noting: 

The first one is that Article 55 of AML (Article 62 of the Draft) stayed unchanged and there is no new IP-related content added to this draft amendment. This article provides:

“This Law does not govern the conduct of undertakings to exercise their intellectual property rights under laws and relevant administrative regulations on intellectual property rights; however, undertakings’ conduct to eliminate or restrict market competition by abusing (or misusing) their intellectual property rights are governed by this Law.”

Article 55 has been the subject of considerable discussion among academics and practitioners and is ambiguous in its scope, including the relationship between the legitimate exercise of an IP right and an anticompetitive act, the relationship with Contract Law and proposed Civil Code provisions on monopolization of technology, the difference between “IP abuse” and “misuse”, the impact of administrative rules 行政法规 and AML guidelines on Article 55, and ultimately whether the AML creates some kind of safe harbor against charges of monopolization.   

An example of the unsure relationship between the legitimate exercise of IP rights and competition law might be price-based claims for securing a license to a patent, which arguably restricts certain competition in the market but would otherwise constrain a patentee’s rights to license or charge prices as it sees fit (see, e.g., Art. 28 of the TRIPS Agreement, Arts. 65, 68 of Chinese Patent Law). Most high pricing cases to date in China have involved standards essential patents, where a FRAND commitment may be involved that arguably mitigates against letting market prices fully determine patent values. However, these cases may not take into account the lawful rights authorized by Chinese IP law including the right to charge market prices and to seek an injunction when a right is infringed, which is also arguably within the scope of AML Article 55/revision Article 62.

In a similar vein, the notion of essential facilities is not mentioned in both drafts, which means China may not be ready to fully support an essential facility doctrine in national legislation at this time. However, companies that manage IP assets, particularly in the standardization context, may still need to pay attention to this issue to minimize their IP risk related essential facilities claims/abuse of market dominance, particularly as the essential facilities doctrine continues to have an active influence in administrative enforcement and policy making, as well as in policy decisions involving SEP’s.

Article 20(6) of the Draft AML Amendments lists several types of abusive acts, including “discriminating among transacting parties on transaction conditions without justified reasons” (没有正当理由,对交易相对人在交易价格等交易条件上实行差别待遇).  The current AML additionally required that the discrimination arise from “identical circumstances” (or “an equal footing” in the MofCOM translation) as a condition to a claim of discriminatory pricing (Art. 17(6)). This may create additional uncertainty in IP licensing due to potential AML risks, because the reasons for removal of “identical circumstances” are unclear, the scope of what is a “justified reason” in a licensing transaction is also unclear, and IP licenses are typically not commodity or mass produced agreements but are custom-negotiated based on a range of factors including the role of any actual or threatened litigation, markets and market penetration, tax planning, any cross-licensing, etc. 

Article 14 of the Draft AML Amendments prohibits both horizontal and vertical agreements that “exclude or restrict competition” offers another possible distinction from the current AML.  Article 13 of the current AML requires a finding of “excluding or restricting competition” only with respect to horizontal monopoly agreements. While the courts have generally adopted a fact-based, rule of reason type approach to this issue, administrative agencies were more inclined to find such agreements vertical agreements illegal per se, subject to a few exceptions. This Draft AML Amendments clarify this issue, which could have an important impact on licensing transactions by requiring an analysis of competitive impact and would be more consistent with TRIPS Article 40, which regulates “licensing practices or conditions that … constitute an abuse of intellectual property rights having an adverse effect on competition in the relevant market.” (emphasis supplied).

Two other provisions worth noting are Articles 18 and 21 of the AML Draft Amendments. Article 18 would tighten the requirements for receiving an exemption from an otherwise offending monopolistic agreement by requiring that it gives rise to efficiencies such as improving technology or improving research and development, that are “necessary” for the claimed efficiencies to be realized. The ABA has suggested that this language would require a “hindsight” type of analysis and that Article 18 be revised to soften this condition by requiring only that the agreement be “reasonably necessary” to achieve the claimed efficiencies.  

Article 21 lists factors that may be used to determine whether an undertaking has a dominant market position, and adds new additional factors for the Internet sector including network effects, economies of scale, lock-in effects, and data control and handling capabilities. The ABA has suggested that it is inappropriate to have industry specific legislation for the Internet sector, that these factors may equally apply to other industrial sectors, and that requirements of this type are best reserved for “implementing regulations or guidelines.” 

The Draft Compliance Guidelines, like other administrative rule makings are not mandatory and have no binding legal force. The Guidelines provide general guidance on anti-monopoly compliance of business operators. Most of its contents have already been stipulated in the previous Anti-Monopoly Law and related guidelines.   

Neither the AML Draft or Draft Compliance guidelines offer any specific guidance regarding management of patent pools, obtaining clearance from SAMR for a pool, or operation of a licensing regime.

The absence of more detailed consideration of IP issues in these two documents is rather surprising considering discussion in other venues. Although the US government complained about antitrust enforcement in China in the Section 301 investigation, noting that “several submissions asserted that Chinese AML authorities use the AML as a tool to advance industrial policy rather than to protect competition”, there were also no references to the AML in the Phase 1 Trade Agreement. Chinese courts have also been addressing issues regarding abuse of dominance and standardization through documents such as the Trial Adjudication Guidance for Standard Essential Patent Dispute Cases promulgated by Guangdong High People’s Court, and the Beijing High Court’s Guidance for Patent Infringement Determination. In addition, IAM has also recently reported that there is a significant increase in SEP-related litigation in China, including foreign vs. foreign and foreign vs. Chinese cases. China has also recently become an important venue for resolution of international SEP licensing disputes. Perhaps the wiser approach is to let these contentious cases be resolved one by one, rather than risk over-legislating in an evolving area where there has been considerable political attention.

Prepared by Mark Cohen and Xu Xiaofan

 

New CPC and State Council Opinions on Improving IP Protection

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On November 24,  2019, the General Office of Communist Party of China and the State Council jointly released the Opinions Concerning Enhancing Intellectual Property Rights Protection (关于强化知识产权保护的意见).

It is often too easy to dismiss documents like these, that have typically delivered an ephemeral higher state of vigilance by the Chinese government.  Nonetheless, there are some useful statements in this document that may be an indicator of future durable improvements, including:

  1. It is jointly published by the CPC and the State Council and thus has high level political and executive branch support.
  2. It does address some long-standing concerns raised by industry, such as development of a patent linkage system, patent term extension and copyright protection for sports broadcasts.
  3. There continues to be a focus on punitive damages in litigation. However, this document does appropriately point out the need to increase actual damages.
  4. Improving criminal enforcement, including revising criminal judicial interpretations – is also addressed.  Along with revising the criminal code, revising criminal JI’s and their high criminal thresholds was a goal of the WTO case that the US filed against China over 10 years ago (DS362).  This task is long overdue.
  5. Improving coordination between administrative and criminal enforcement is once again highlighted. This is also a long-standing issue.  In light of numerous prior efforts and experiments, a more concrete explanation of how this might be accomplished to better enable prosecution of major criminal actors would be helpful in the future.
  6. Case guidance and public trial systems are highlighted. Hopefully, the case guidance system will add further momentum to successful case law experiments in IP at the Beijing IP Court.
  7. The introduction of technical assessors into administrative enforcement could suggest a continued enhanced role for patent administrative enforcement, which has been increasing even as trademark administrative enforcement has been declining. If so, it may not augur well for foreigners who have traditionally been heavy “consumers” of the administrative trademark system, but not the administrative patent system.
  8. Improvements in the “examination” of utility models and designs are noted as a goal. However, these rights are generally not examined for substance except in the case of “abnormal” applications.
  9. Continuing attention is paid to challenging markets, such as e-commerce platforms and trade fairs, as well as establishing faster protection mechanisms.
  10. There is a continuing focus on supporting Chinese rightsholders overseas.

This document arguably goes part-way in establishing an outline for addressing US concerns about IP theft.  However, it offers little to address such concerns as ensuring greater transparency in the courts, publishing foreign-related cases, or addressing certain trade-sensitive topics outlined in USTR’s Section 301 report, such as cyber intrusions or criminal trade secret misappropriation.

The word cloud, above, is drawn from a machine translation of this document.  The original Chinese language and my redlining of a machine translation are found here.

Addendum of November 26, 2019:

Susan Finder in her Supreme People’s Court Monitor blog, reported on Judicial Interpretation drafting by the SPC for next year, some of which are referenced in the recently released Opinions.  According to that blog, on 29 April 2019, the SPC’s General Office issued a document setting out a list of 47 judicial interpretation projects, 36  with an end of 2019 deadline.  Several of these involve IP-related issues, including issues addressed in the joint CPC and State Council Opinions, including:

  1. Interpretation Concerning the Application of Law in Cases of Disputes over the Infringement of Trade Secrets (关于审理侵犯商业秘密纠纷案件应用法律若干问题的解释). Responsibility of the #3 Civil (IP) Division.
  2. Interpretation on Several Issues Concerning Punitive Damages for Intellectual Property Infringement (关于知识产权侵权惩罚性赔偿适用法律若干问题的解释). Responsibility of the #3 Civil (IP) Division.
  3. Provisions on Issues Concerning the Application of the Foreign Investment Law of the People’s Republic of China (I) (关于适用《中华人民共和国外商投资法》若干问题的规定(一)). Responsibility of the #4 Civil Division. The Foreign Investment Law and the recently released draft implementing regulations contain provisions protecting the intellectual property of foreign investors, including prohibiting forced technology transfers and enhancing the availability of punitive damages.

These draft JI’s have a due date of the first half of 2020.  Susan Finder notes in her blog that given the worldwide attention on the issues set forth in these three judicial interpretations, she expects that they will be released for public comment.  I hasten to add that the IP Division of the Court has generally taken a positive attitude towards soliciting public comment on its draft judicial interpretations, and I hope that they maintain this tradition.

It was also noted by Susan Finder that certain JI’s were due by year-end 2019, including:

  1. Intellectual Property Rights Evidence Rules (关于知识产权民事诉讼证据的若干规定).  Responsibility of the #3 Civil (IPR) Division. This draft was discussed at a conference hosted by the SPC in Hangzhou in 2018.  As Chinese courts experiment with more expanded discovery, evidence preservation and burden of proof reversals, clearer rules regarding the obligations of parties to produce evidence are becoming more critical.  A particular notable example of such a reversal is found in the recent amendments to the trade secret law (Article 32), whereby  a rights holder that has preliminarily proven that it  has taken reasonable confidentiality measures on the claimed trade secrets and has preliminary evidence reasonably demonstrating that its trade secrets have been infringed upon, can shift the burden of proof (BOP) to the infringer to prove that the trade secrets claimed by the right holder do not belong to those as prescribed in this law.
  2. Judicial interpretation on administrative cases involving patent authorization and confirmation (关于审理专利授权确权行政案件若干问题的解释). Responsibility of the #3 Civil IPR) Division. Another interpretation that previously had a 2018 year-end deadline.  A draft was issued for public comment in the summer of 2018; see my earlier blog.

Addendum of November 27, 2019:

Another China law blog, the NPC Observer also expects that some of the IP legislation flagged in the Opinions for revision may be considered as early as late December of 2019t.  According to the NPC Observer:

We expect the session to review a … draft amendment to the Patent Law [专利法] …The session may additionally consider the following bills: …

I have previously blogged about proposed revisions to the Patent and Copyright Law.

Addendum of January 9, 2020: Here is a translation of the Opinions from China Law translate.

Unpacking the Role of IP Legislation in the Trade War

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Here is my attempt to unpack recent legislation and their relevance to the on-going trade dispute.

In recent months, China has amended its Foreign Investment Law, the Technology Import/Export Regulations (“TIER”), the Anti-Unfair Competition Law regarding trade secrets, and the Trademark Law, with new provisions on bad faith filings and damages. A summary of the Trademark Law revisions provided by SIPS is found here. China also amended the Joint Venture Regulations provisions removing provisions that which limited a foreign licensor’s freedom to license technology beyond years or to restrict use of licensed technology after the 10 year period had elapsed.

With the revisions to the TIER and the JV regulations, much of the basis for the US and EU complaints against China at the WTO regarding de jure forced technology transfer may have evaporated (WTO Disputes DS542, and DS549). However, the public dockets do not indicate that the cases have been withdrawn.

China seems to have determined that it has crossed a line in how much it can accommodate US demands. Bloomberg reported on a commentary published after the imposition of escalated sanctions in the influential “China Voice” column of the People’s Daily which accused the US of fabricating forced technology transfer claims. The commentary is entitled “If you want to condemn somebody, don’t worry about the pretext”, with the sub-title, written in classical Chinese: “‘Forced Technology Transfer’ Should Stop!”. (欲加之罪,何患无辞 – “中国强制转让技术论”可以休矣). The title is a quotation from the Zuo Zhuan, a classic of Chinese history written around 400 B.C. that realistically describes the palace intrigues, military tactics, assassinations, etc. from the chaotic “Spring and Autumn” period from 771-476 B.C. The People’s Daily view is also shared by a number of scholars and observers who view the problem as exaggerated or mischaracterized (apart from the TIER and JV regulations). However, this view has been rejected by USTR Lighthizer, as was reported in a recent NPR interview (March 25, 2019):

“CHANG: Though a number of scholars believe the Trump administration is overstating how often forced technology transfers are happening.

LIGHTHIZER: Well, I guess I don’t know who those scholars are. We did an eight-month study on it, and I think it’s the very strong view of the people that we talked to that it’s a very serious problem and has been for a number of years.”

(Update of May 21, 2019: A recent EU Chamber survey in fact showed an increase in businesses reporting that FTT is a concern, from 10% two years ago to 20%.)

There have also been several IP legislative developments that may not be as directly linked to US government trade pressure. Perhaps the most important is the launch of China’s new national appellate IP Court effective January 1, 2019. The NPC has released a draft of the civil code provisions on personality rights (See this translation). Personality rights can be important tools in addressing trademark squatting, such as in the Michael Jordan case with Qiaodan. CNIPA also released Draft Provisions for Regulating Applications for Trademark Registration (关于规范商标申请注册行为的若干规定(征求意见稿) which addresses bad faith registrations. CNIPA released a draft rule for public comment on Protection of Foreign GI’s (国外地理标志产品保护办法 (修订征求意见稿)on February 28, 2019. The comments focus on generic terms and a GI expert committee for examination of foreign GI’s. Here are INTA’s comments on the trademark registration and GI proposed rules. CNIPA also proposed changes to patent examination guidelines on such issues as proof of inventive step and what constitutes “common knowledge.” Here are AIPLA’s comments from April 4, 2019.

Still pending are proposed amendments to the Drug Administration Law, with comments due by May 25, 2019. This is a second public comment draft released by the NPC. Ropes & Gray has provided a useful analysis. The proposed changes to the DAL also include increased punitive damages for counterfeit medicines, in line with increased penalties in the IP laws (Trademark, AUCL, etc.). There are also proposed changes to the patent law which was released for comment earlier this year. Of particular interest to the pharma sector in the proposed changes were provisions calling for patent term restoration. However, a hoped for inclusion of patent linkage through an “artificial infringement” provision to trigger an infringement challenge by reason of a pharmaceutical regulatory approval has not yet materialized. There were also rumors that China and USTR has scaled back regulatory data protection for biologics from the 12 years that had originally been proposed by China in 2018 to the 10 year period provided by the US Mexico Canada Free Trade Agreement.

What is the relationship between all these legislative changes and the trade war? Larry Kudlow, the Director of the National Economic Council, described the legislative snafu that caused the administration to reinstitute tariffs as follows:

“For many years, China trade, it was unfair, nonreciprocal, unbalanced, in many cases, unlawful. And so, we have to correct those and one of the sticking points right now as we would like to see these corrections in an agreement which is codified by law in China, not just the state council announcement. We need to see something much clearer. And until we do, we have to keep our tariffs on, that’s part of the enforcement process as far as we are concerned.”

So what are the unenacted “laws” and what is the State Council “announcement” that Mr. Kudlow is referring to and which in his view launched this new trade war escalation? I doubt that Mr. Kudlow has read China’s Law on Legislation and understands the difference between a Law passed by the NPC and a State Council Regulation, particularly as US and European practice in recent months appears to be oblivious of legislative nomenclature and its role in determining what constitutes a legally binding document.

Perhaps Mr. Kudlow is talking about the NDRC 38 agency MOU published in late 2018 regarding punishments for serious patent infringement, including use of social credit system. The NDRC document is clearly inferior to a Law or State Council Regulation, but it was a directly promulgated document of a State Council agency. As the patent law amendments have not been enacted yet, he may be referring to this delay in enactment and the failure to increase damages for infringement as has been provided by other statutes. In my own view, the focus on punitive or even statutory damages is misguided as is increased administrative enforcement, as the primary reason that damages are low is the failure of most Chinese courts to impose fully compensatory damages and abide by priorities in law for establishing damages. But I hope to have more on that in another blog…

One thing is certain: China has been timing legislative developments with trade diplomacy. This may lead one to believe that China’s approach to the new laws was purely transactional, and/or there were other laws that the US was also expecting but that China has since declined to deliver. The previously mentioned NDRC 38 Agency MOU was enacted before the G-20 meeting but made publicly available shortly thereafter. The “Working Measures [sic] for Outbound Transfer of Intellectual Property Rights (For Trial Implementation), (State Council, Guo Ban Fa [2018] No. 19)” (知识产权对外转让有关工作办法(试行)) which was previously discussed here, appear to have been timed with the 301 announcement in March 2018. In addition, the revocation of TIER provisions, JV implementing regulations, and amendments to the Trademark Law and AUCL revisions all were enacted with incredible efficiency, often denying any opportunity for meaningful public comment in violation of prior procedural practices. A reasonable guess may be that there were some additional laws or regulations that the US was expecting but that China had determined it could not deliver, or deliver in the time frame provided. Nonetheless, the legislative track record thus far is quite impressive.

China’s improved environment for technology transfer and technology collaboration is coming at a time when the United States has tightened up its controls with China. The most notable legislation in this area is the John S. McCain Defense Authorization Act for 2018 (the “Act”), including the enactment of the Foreign Investment Risk Reduction Modernization Act and the Export Controls Act of 2018. These laws extended export control and foreign investment control authorities to foundational and emerging technologies, as well as to non-passive, non-controlling investments. Much of the technologies of concern overlap with Made in China 2025 and other Chinese industrial policy documents. Although the Act did not specifically create “black” and “white” countries as subjects of controls, the Congressional history did point to special concerns about China:

“Congress declares that long-term strategic competition with China is a principal priority for the United States that requires the integration of multiple elements of national power, including diplomatic, economic, intelligence, law enforcement, and military elements, to protect and strengthen national [t]security, [including] … the use of economic tools, including market access and investment to gain access to sensitive United States industries.”

The most recent report which analyzes the impact of US and Chinese regulations on Chinese investment in the United States by Rhodium Group is found here (May 8, 2019). The report notes an “over 80% decline in Chinese FDI in the US to just $5 billion from $29 billion in 2017 and $46 billion in 2016. Accounting for asset divestitures, net 2018 Chinese FDI in the US was -$8 billion. Meanwhile, American FDI in China dropped only slightly to $13 billion in 2018 from $14 billion in 2017.” The Rhodium report also notes that “the chilling impact of politics on US FDI in China was mostly visible in the ICT space where new investment declined significantly last year.” Other countries have also been enacting similar restrictions on FDI in sensitive areas, as pointed out in a recent article by my Berkeley colleague Vinod K. Aggarawal. Note: I will be speaking at a forthcoming AIPLA webinar on export controls and IP strategies on May 23, 2019 as well as at forthcoming events in China (to be announced).

In addition to these legislative efforts, the US has undertaken steps to restrict H1B visas for talented scientists and engineers and the FBI has created a new working group to address economic espionage from China. The Committee of 100 released an important paper in 2017 showing that Asian Americans were more likely to be prosecuted for economic espionage than any other ethnic group, are also subject to higher sentences and were twice as likely as other groups to have cases against them dismissed. Some observers fear that overly broad regulation and enforcement by the United States may now be encouraging exactly what China has sought to do for decades: repatriate to China the vast talent pool of Chinese scientists, engineers, and entrepreneurs to contribute to the technological development of the motherland.

Although there have been few legislative efforts directed to making US science and technology more competitive in response to these perceived threats from China, there have been several general reports and proposals. The National Institute of Science and Technology recently released a green paper, “Return on Investment Initiative for Unleashing American Innovation” (April 2019) to improve federal technology transfer and entrepreneurship. There are increasing calls for Congress to fund the long defunct Office of Technology Assessment, which once played an active role in analyzing US-China technology trade.

Several trade organizations and think tanks have called for increased US funding in science and technology, among them is the recent report of the Task Force of American Innovation, “Second Place America – Increasing Challenges to America’s Scientific Leadership” (May 7, 2019). The R&D graph at the head of this blog showing China’s rapid growth in R&D is from that report. The report notes:

“America’s competitive edge is now at stake, as China and other countries are rapidly increasing investments in research and workforce development in order to assume positions of global leadership. Our nation risks falling perilously behind in the basic scientific research that drives innovation, as our global competitors increase support for cutting-edge research and push to the forefront in fields such as artificial intelligence (AI), robotics, aerospace, advanced manufacturing, and the next generation of telecommunications networks.”

To round out this summary of legislative developments, there have been developments at the USPTO that impact US relations with China on IP. The USPTO published a proposed regulation which will regulate legal services for the rapidly increasing number of Chinese pro se trademark filers in the US (2/15/2019). This proposed regulation would require these applications to use a US licensed attorney. The purported purpose of this change in current practice is “instill greater confidence in the public that U.S. registrations that issue to foreign applicants are not subject to invalidation for reasons such as improper signatures and use claims and enable the USPTO to more effectively use available mechanisms to enforce foreign applicant compliance with statutory and regulatory requirements in trademark matters.” The rule also seems generally consistent with TRIPS Art. 3, which permits WTO members to require “the appointment of an agent within the jurisdiction of a Member … to secure compliance with laws and regulations which are not inconsistent with the provisions of [the TRIPS] Agreement”.

Another important development involves USPTO efforts to clarify subject matter eligibility under Sec. 101 of the patent act, and functional claim limitations for computer-enabled inventions under Section 112. The United States had been weakening and destabilizing protections in these important areas affecting artificial intelligence, fintech and biotech inventions at the precise time when China had been strengthening its protections. These are important steps towards strengthening predictability in our domestic IP system, which may be further strengthened by proposed legislative changes.

Ironically, China’s improvements in its investment and tech transfer environment are coming at a time of heightened concern over a Chinese technological threat and increased US and international regulatory scrutiny. It may be difficult, therefore, to perceive any immediate positive impact from changes in China’s investment environment. Indeed, the media has recently been reporting on decisions of different companies or entrepreneurs to close down R&D operations in each other’s markets. Hopefully, both countries may ultimately create the right mix of IP enforcement and protection, regulatory controls over collaboration and industrial policy to enable bilateral scientific collaboration to once again flourish and contribute to the global economy.

Public Comment Draft of Patent Law Revisions Released by NPC

The National People’s Congress has released a public comment draft of the long-awaited revised patent law on its website .  Here is the draft itself, and here are the official explanations on the draft , along with other laws released by the NPC.  The comments are due by February 3, 2019.

The NPC Observer’s summary of the legislative history to date is here.   Based on a quick read, the biggest disappointment remains the absence of a patent linkage regime, as was noted of the State Council draft.  The inclusion of patent term restoration (five years) for pharmaceuticals is however, a plus.  There are also provisions on 5x punitive damages, extension of term for design patents (15 years), on-line infringement, expanding administrative enforcement, dealing with “counterfeit” patents, reversals of burden of proof for information on damages caused by the infringer, and an extension of the statute of limitations to three years, amongst other positive aspects.  There is also a good faith requirement to deter abusive patent litigation, but not one for prosecution of patents (e.g., a duty of candor).

In addition to filing comments electronically, commentors can use snail mail, by writing to NPCSC Legislative Affairs Commission 全国人大常委会法制工作委员会.  Instructions may be found at the NPC Observer website.

The draft may have been expedited in order to show a package of reforms that adddress US concerns in light of imminent trade discussions between the US and China, and as such appears to be part of larger package – perhaps even including the establishment of the new SPC IP Court.

I welcome readers to submit any translations of the proposed law and any comments they file to this blog for further publication.

April 10 – 16, 2018 Updates

1.New Policies for  Innovative Drugs in China.  Premier Li Keqiang held an executive meeting of the State Council on April 12, 2018 to adopt a series measures to encourage the importation of innovative medicines into the Chinese market, to enhance intellectual property protection, and to lower the price of medications. The measures involve the exemption of cancer drugs from customs duty, reduction of drug prices, expedition and optimization of the process for authorization on the commercialization of imported innovative medicines, enhancement in intellectual property protection and quality monitoring.

The measures on enhancement in intellectual property protection includes the 6-year maximum data exclusivity period for innovative chemical medicines.  Further, a maximum of 5 years’ compensation of patent term will be offered for innovative new medicines which are applied for commercialization on domestic and overseas markets simultaneously (which appears to be a patent term extension system). See more discussion of the original CFDA proposals which these these appear to draw on here.  It’s still unclear how such policies will be implemented, The specific policies announced by the official in English is available here.

2.China to introduce punitive damages for IP infringements. According to an interview with Shen Changyu on April 12, China will soon introduce punitive damages for IP infringements. Shen said a fourth revision of the Patent Law will come faster than expected. “We are introducing a punitive damages system for IPR infringement to ensure that offenders pay a big price.” Shen also called on foreign governments to improve protection of Chinese IPR.

3.Commerce Blocks China’s ZTE from Exporting Tech from U.S.  The U.S. blocked Chinese telecommunications-gear maker ZTE Corp. from exporting sensitive technology from America.  According to a statement by the Commerce Department, ZTE made false statements to the Bureau of Industry and Security in 2016 and 2017 related to “senior employee disciplinary actions the company said it was taking or had already taken.”. ZTE did not disclose the factthat it paid full bonuses to employees who engaged in illegal conduct, and failed to issue letters of reprimand, the Department said.  Alleged export control violations had also been implicated in the NDA dispute between Vringo and ZTE involving settlement of patent claims, which were previously discussed here.

4.Judge Orrick Issues Anti-suit Injunction Against Huawei.  In the continuing transpacific saga of Huawei v Samsung, Judge Orrick of the N.D. of California issued an anti-suit injunction against Huawei’s implementing a Shenzhen intermediate court’s injunction against Samsung for the same patents in suit.  A good summary from the essentialpatentblog is found here.  The redacted decision is here.   One possible explanation for Huawei’s strategy might be that Huawei was trying to get a quick decision from Shenzhen, its home court, on a matter also involving an overseas litigation, such as Huawei obtained in the Interdigital dispute, and is also a common enough Chinese litigation tactic.  Such a decision might have tied Judge Orrick’s hand on at least the Chinese patents in suit, as well as on licensing behavior.  Judge Orrick in fact noted that “Chinese injunctions would likely force [Samsung] to accept Huawei’s licensing terms, before any count has an opportunity to adjudicate the parties’ breach of contract claims.”  (p. 17). 

Although anti-suit injunctions may be more common in common law jurisdictions,  it is wrong to assume that Chinese courts take a strictly “hands-off” attitude towards foreign proceedings.  One aggressive Chinese response might be to borrow a page from a Chinese (Wuhan) maritime court decision of last year, where the Chinese court issued an anti-anti-suit injunction, ordering a foreign ship owner to withdraw an anti-suit injunction in Hong Kong.  Commentators have also suggested that generally Chinese courts more commonly ignore these injunctions entirely.  Another approach was taken by the Shenzhen court in Huawei v Interdigital,  where the court imposed imposed damages on a US party seeking injunctive relief (an exclusion order) in a US Section 337 proceeding involving FRAND-encumbered SEP’s.   This did not constitute an anti-suit injunction, but rather “anti-suit damages.”  These actions may be based more on notions of judicial sovereignty than comity.  Judge Orrick for his part, did undertaken a comity analysis in rendering his decision, which is part of the non-confidential order he signed.

Probably the best approach however is for the parties to amicably resolve their disputes through arbitration or mediation. After all, even Huawei and Interdigital were ultimately able to settle their differences.