Is It In There – CNIPA’s “Phase 1” IP Action Plan?

CNIPA released on April 20, 2020, its  2020-2021 Implementation of the “Opinions on Strengthening the Protection of Intellectual Property” Promotion Plan” (2020—2021年贯彻落实《关于强化知识产权保护的意见》推进计划) (the “Promotion Plan”).  Attached are a copy of the Promotion Plan from the CNIPA website and a machine translation, as well as a bilingual translation provided by the USPTO. All translations are provided for readers’ convenience only, are unofficial and do not carry any representations as to accuracy.  Please review them carefully before committing to any course of action based on the translation, and please bring any errors to our attention.  We greatly appreciate USPTO,  China Law Translate, and the numerous trade associations and law firms that have made translations publicly available over the years.

The Promotion Plan specifically references and appears to be a further implementation of the CPC/State Council  Opinion on Strengthening the Protection of Intellectual Property, released in November 2019 (关于强化知识产权保护的意见) (CPC/State Council Opinion), which I blogged about here. In November I described this CPC/State Council Opinion as going “part way” in addressing US concerns about IP theft that were being raised by the Trump Administration. This Promotion Plan issued by CNIPA is more comprehensive and more directly reflects the Phase 1 Trade Agreement between the US and China that the CPC/State Council Opinion, including setting specific timetables and interagency responsibilities. However, it is being promulgated at a considerably lower level of governmental authority than the CPC/SC Opinion. CNIPA is a division within a ministry-level agency (SAMR) and is arguably weaker and less independent today than when SIPO was a separate agency. In this respect, the Promotion Plan is also weaker than previous action plans promulgated under MofCOM’s leadership. MofCOM and its predecessor agencies were ministries. In a sense, it harkens back to action plans from the 1990s.  The IPR Leading Group was chaired in the 1990s often by a Vice Minister, including Wu Yi, who later became Vice Premier. One may wonder: is this “déjà vu all over again”?.

Some caution also needs to be maintained in approaching this document. First and foremost, are all the Phase 1 commitments, in the words of a once famous  commercial for spaghetti sauce – “in there”? Please write to me with your observations.  A second issue involves CNIPA’s authority. Although this document sets out plans for the courts, procuracy, and legislative branches, Chinese state council government agencies do not have the authority to bind these other branches of government.  Nonetheless, these agencies often coordinate their activities together, including through national and local leading groups and coordinating bodies. The puzzle deepens further, however, as the Promotion Plan itself does not indicate the authority by which it has been enacted. Rumor had been that the Promotion Plan was delayed because NPC approval was needed.

To an experienced reader, this Promotion Plan also has the “look” and “feel” of the National IP Strategy Implementation Plan (NIPS Implementation Plan) with its extensive, specific commitments. I  blogged about the NIPS Implementation Plan here.  The NIPS Implementation Plan has a statutory basis in the China Science and Technology Promotion Law (2007). Moreover, the NIPS Implementation Plan similarly has a focus on China becoming a “strong” IP country.

One difference between a NIPS Implementation Plan and an implementation plan from MofCOM in the past is that a NIPS Implementation Plan would have likely needed more local coordinating entities to be implemented nationwide. MofCOM had such authority through its coordination of the former State Council leading groups on IP.  While serving in the Embassy (2004-2008), I visited many of the local IP coordination offices to discuss local IP coordination and enforcement issues. This plan, if it is to be rolled out locally through new mechanisms, will need the support of the CPC and State Council, or local CNIPA offices, or through other local structures.

Several friends have been asking me this morning if this is the Chinese IPR “Action Plan” as required by the Phase 1 Agreement.  The Phase 1 Agreement provided that “Within 30 working days after the date of entry into force of this Agreement, China will promulgate an Action Plan to strengthen intellectual property protection aimed at promoting its high-quality growth. This Action Plan shall include, but not be limited to, measures that China will take to implement its obligations under this Chapter and the date by which each measure will go into effect.”

On the first review,  this Promotion Plan appears to directly reflect the commitments made by China in the Phase 1 Agreement. What the US has called “high-quality growth” might be its misapprehension of China’s recent mantra of building a “strong IP economy.” There are many action items in the Promotion Plan that are focused on strengthening China’s IP resources. Considering the current pandemic, the timing for the release of the Promotion Plan is also about right. Moreover, it makes sense for China to release this document as part of the flurry of announcements surrounding April 26 (World IP Day). CNIPA releasing this document also does not contradict any explicit commitment in the Phase 1 Agreement. The negotiators of the Phase 1 Agreement did not apparently agree to nominate which Chinese agency would issue the Action Plan.

Based on a quick read, this Promotion Plan also appears to share the same weaknesses of the Phase 1 Agreement, with its selective focus, under-emphasis on the courts, lack of clarity around “patent linkage” (including “artificial infringement” determinations by the courts), continuing emphasis on ministry action plans and administrative enforcement, lack of historical context or data to ensure that the Promotion Plan actually delivers results, “old wine in a new bottle” commitments in Customs, criminal thresholds and other areas, and lack of any commitment to increasing administrative and judicial transparency.  The lack of strong commitments to increasing judicial and administrative transparency remains the most troubling of all and makes the agreement difficult for governments and rightsholders to adequately apprehend, including making sure that concrete improvements are not only “in there” but being fully implemented.  If the Phase 1 commitments implemented in the 133 action items of the Promotion Plan are the “Action Plan” it is a further indication that any forthcoming changes in China’s IP regime that arose from the trade war are likely to be significant, but not necessarily the kind of  “structural change” that would dramatically mandate more market reform through less government intervention in China’s IP regime.

Qualcomm’s Litigation Strategies and Recent IP Developments in China

反者道之動。弱者道之用。 (, Chap. 40) (Return is the movement of the Dao. Yielding is the way of the Dao.  Daodejing, Chap. 40.)

To the uninitiated, Qualcomm’s licensing practices in China must appear confusing.  Since paying a fine of 975 million USD to NDRC – about 50,000 times average patent damages according to the CIELA database for its Standards Essential Patent licensing practices, Qualcomm has entered into approximately 100  licensing settlements with Chinese companies.  How can the weak become so successful, so soon?

According to press accounts, Qualcomm has settled with the major cell phone manufacturers in China,  most recently with Chinese cell phone companies Vivo and Oppo.  Both deals came after Qualcomm decided to bring law suits against cell phone manufacturer Meizu in the Beijing and Shanghai intellectual property courts for damages that reportedly total about 520 million RMB.  The first law suit was filed by Qualcomm around June 23 at the Beijing Intellectual Property Court.   The complaint essentially sought to enforce an NDRC rectification plan imposed on Qualcomm against other infringers/potential licensees.  The original complaint, according to Qualcomm’s press release “requests rulings that the terms of a patent license offered by Qualcomm to Meizu comply with China’s Anti-Monopoly Law, and Qualcomm’s fair, reasonable and non-discriminatory licensing obligations.  The complaint also seeks a ruling that the offered patent license terms should form the basis for a patent license with Meizu for Qualcomm’s fundamental technologies patented in China for use in mobile devices, including those relating to 3G (WCDMA and CDMA2000) and 4G (LTE) wireless communications standards.”  Since that filing, Qualcomm filed 17 new complaints were filed in Beijing and Shanghai.

Given the risks to Qualcomm posed by seeking injunctive relief for standards essential patents, Qualcomm appears to have initially launched its litigation campaign against Meizu by enforcing the NDRC approved licensing terms against one hold out company who might thereafter be left with an unfair competitive advantage.   Qualcomm appears to be reducing its antitrust risks by first getting “immunized” by NDRC, and then enforcing the terms of the NDRC “rectification plan” and couching its patent infringement litigation in terms of promoting fair competition.  This in effect has turned the tables on recalcitrant licensees who have previously relied on Qualcomm’s FRAND commitments to reduce the risk of being sued by Qualcomm by threatening an antitrust counterclaim.  What remains to be seen, however, is the legal status the court affords the rectification plan given the often unclear relationships between judicial and administrative decision making.

Qualcomm’s GC, Don Rosenberg said Qualcomm is taking legal action out of a sense of fairness to other companies that are paying what they owe.  In addition, the case represents a vote of confidence by Qualcomm in the court system.  As Don Rosenberg noted “”We’re putting our faith in the court system there and we wouldn’t do that if we didn’t think we were in capable hands.”  Qualcomm may no doubt have been inspired by the success of its licensing program as well as the perfect or near perfect win rate in the sixty five infringement cases filed by foreigners in 2015 in the Beijing IP court.  As I have noted repeatedly on this blog, foreigners do win IP cases in China.

In China’s current legal environment,  where licensing is burdened by seemingly contradictory norms – e.g., where the Chinese government sets prices for license transactions in antitrust cases, restricts the freedom to negotiate of foreigners, provides tax incentives for licensing in to China for high tech enterprises, sets national goals for licensing transactions, and where the courts seem to have difficulty imposing damages based on actual or implied royalties, Qualcomm appears to be turning the 975 million dollars of “lemons” of the  NDRC fine, into a vat of lemonade.

Qualcomm’s vote of confidence in the courts in a high stakes case may also help set an important model for other foreign and Chinese rightsholders, potentially by highlighting such important issues as: Yes, foreigners win cases in China, the importance of actual or explicit license agreements for determining damages (already being tried in some jurisdictions, see: 江苏固丰管桩集团有限公司 vs 宿迁华顺建筑预制构件有限公司 (Jiangsu, 2015), and the respective roles of patent law,  antitrust law, the courts and administrative agencies, in obtaining SEP licenses in China.

Qualcomm and China both have a lot at stake in the handling of SEP issues.   A recent report by Thomson Reuters (The Evolving Landscape of Standard Essential Patents: Keeping What is Essential, Sawant and Oak), showed that Qualcomm owns 17% of the patent declarations before the European Telecommunications Standards Institute, followed by Nokia, Huawei, and InterDigital.   Decisions in Europe such as Huawei vs. ZTE may also have underscored the importance of looking at whether a putative licensee/infringer is in fact negotiating in good faith with a FRAND encumbered licensor.

Judges such as  Zhu Li of the SPC have noted some of these changes publicly.  As Zhu Li said in a recent blog:

…标准必要专利权作出FRAND承诺即自愿放弃了在任何情况下寻求禁令救济的选择,更不意味着其寻求禁令救济一定产生反竞争的效果。因此,作出FRAND承诺的标准必要专利权利人寻求禁令救济的反竞争效果仍然需要具体分析判断。

[T]he owner of standard essential patent FRAND commitment that is made voluntarily does not give up under all circumstances the choice of seeking injunctive relief.  Furthermore, it does not mean seeking injunctive relief must produce anti-competitive effects. Therefore, when a holder of a FRAND encumbered SEP seeks injunctive relief, the anti-competitive effects still need specific analysis and judgment。

The evolving practice appears to be that the evidentiary burden to demonstrate that the infringers have refused to pay a license fee is on the licensor and, as Zhu Li noted,  a monopoly is not necessarily constituted when an injunction is requested by SEP owners.

The State Council’s recent opinion on how China should become a “strong” IP country, also highlighted how China needs to draft rules on standard essential patents that are based on FRAND licensing and “stopping infringement” (Art. 38) (with the involvement of AQSIQ, SIPO, MIIT, and the Supreme People’s Court) and that encouraging standardization of Chinese patents also remains a priority (Arts. 61, 71).

As I indicated elsewhere, a key question for China is “What circumstances exist to suggest that a prospective licensee is engaged in patent hold-out, i.e., refusing to license in good faith which might suspend the licensor’s F/RAND obligation…”  Hopefully China is beginning to ask the better questions that are suitable for its licensing environment and its efforts to become a “strong” IP economy.

What are you observing in this hot area? Please post your comments and corrections!

The preceding is the author’s personal opinion only.

lemonade

China’s Patent Maintenance Crisis

He conquers, who endures. – Persius

Does the growth of China’s patent office mean that China is “out-innovating” the West, as some commentators would suggest?

Patent applications, patent grants, and analyses of patent quality in commercially significant fields are certainly indicators of innovative activity.  However, since the Chinese government typically subsidizes patent applications, patent applications in particular may be a distorted metric for benchmarking innovation.  Because subsidies may be less available to maintain an invention patent throughout its 20 year useful life, maintenance rates are also useful indicia of whether commercial meaningful inventions are being patented.

The IP-5, consisting of the US, European, Japanese, Korean and Chinese patent offices publish a useful compendium of statistical data regarding their offices’ operations (http://www.fiveipoffices.org/statistics/statisticsreports/statisticsreport2012edition/chapter4.pdf -as of July 22, 2014) .  The chart below which reflects 2012 data shows that over 50% of Japanese patents are maintained through their 17th year, 50% of US patents are maintained through their 16th year, and only 50% of Chinese patents are maintained through their sixth year.  Differences in maintenance rates may be attributable to requirements to maintain annual maintenance fees, or the date of collection of maintenance fees.  The US collects a maintenance fee at 11.5 years after date of grant, and does not collect  a fee thereafter.

maintenancechart

SIPO’s  Report on Patent Strength (2012), which I have previously blogged about reports on patent maintenance rates.  This repot documents that maintenance rates have dropped for Chinese patents – from about 55% in 2011 to 52% in 2012.  Only Beijing showed an increase in patent maintenance rates during this period.

SIPO has broadly identified the problem of low quality patent applications by linking them to numerical goals of local governments, which have tended to focus on quantitative measurement of patent applications, rather than qualitative goals, and  with recent policy changes it is expected that future metrics on patent strength will include efforts to deal with “abnormal” patents, including abuses from patent financial subsidies and patent awards, which SIPO has said will not support long term growth.  (Note as of July 9, 2020, the links to these reports were not live).

The data reveals that the rapid increase in patent applications over the past few years is also accompanied by declining maintenance rates – in effect demonstrating a soft underbelly of China’s evolving patent “strength.”  I believe the solution to the patent maintenance problem is in strengthening patent enforcement and improving market opportunities for commercializing patents, not in subsidies, awards or other “top-down” regulatory efforts.

Photo below taken at New Oriental Plaza in Beijing 2013, advertising sporting goods accompanied by a larger than life reproduction of an expired US patent.

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