New Draft JI on Enforcement on Criminal IP Laws, Especially Trade Secrets

China’s judicial organs (the Supreme People’s Court [“SPC”] and Supreme People’s Procuratorate [“SPP”]) continue to work on trade secret related judicial developments, with the release on June 17, 2020 of the “Interpretation on Several Issues Concerning the Specific Application of Law in Handling Criminal Cases of Infringement of Intellectual Property (3) (Draft for Comment)《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(三)(征求意见稿)》.

This JI covers trademark, copyright, and trade secret-related crimes. Comments are due by August 2 2020 at the SPC (Third Civil or IP Division) and SPP. The focus on trade secrets is self-evident from this document.  The Chinese characters for “secret” 机密appear 36 times, trademarks 商标18 times, and a copyrighted “work”著作 8 times.

Among the major provisions that implicate trade secrets are: (a) clarification of how to satisfy criminal thresholds for trade secret enforcement, including use of illegal losses, gains and causing bankruptcy or major operational difficulties (Art. 4); how to calculate losses, including lost profits, lost sales, revenue and other benefits from the misappropriated trade secret (Art. 5); calculating the proportional value of a trade secret in combination with another  product or technology (Art. 6); use of research and development costs if the secret is lost to satisfy criminal thresholds (Art. 7); other compensatory remedial expenses (Art. 8); sanctions for violating protective orders (Art. 9); increases in penalties for entities that are mainly engaged in IP infringement or in the case of “infringement of commercial secrets for foreign institutions, organizations and personnel” (Art. 10, see my earlier blog); a reduction of penalty when the trade secret is disclosed to obtain an IP right, such as a patent, and the right is vested in the trade secret owner (Art. 11); and prohibition against engaging in certain occupations may be imposed for a period of time as a condition of a sentence (Art. 12).

Comment: trade secrets have often proven to be the subject of intense trade pressure.  However, the pressure is often not persistent, and the issues may therefore also receive inconsistent attention over long periods of time.  Recent trade pressure has contributed to such laudable developments as the revised trade secret law (AUCL), the Phase 1 Trade Agreement, the recent increase in legislative and policy work from the courts on trade secrets including work on JI’s and recent plans by SAMR to revise trade secret related rules.

If you are interested in learning more about how inconsistent trade pressure may have prolonged consideration of trade secret issues such as the definition of a “business operator”, limitations of protection to Chinese “citizens”, the availability of preliminary injunctions, and concerns over requiring “practical applicability” for trade secret protection for as long as 25 years, here is a pdf of a presentation that I gave last week at a Berkeley webinar.

July 4 update: Here is a translation of the draft JI.

Updated: June 30, 2020, July 4, 2020.

 

More Encouraging News of Trade Secret Reform… But Is It Always Good for the Foreign Community?

James Pooley posted a great blog on IPwatchdog on the recently released draft judicial interpretation on trade secrets (the “Trade Secrets JI”).  In his blog, “Has China Finally Embraced Trade Secret Protection ”,  Mr. Pooley discusses aspects of the draft JI that embrace or expand upon US practices including: “combination secrets”, “reasonable efforts”, “indirect misappropriation”, “head start injunction” and apportionment of damages based on fault.   Mr. Pooley also notes that “this most recent pronouncement seems in some respects to go beyond what was required [from the Phase 1 Trade Agreement], and in those respects also seems to reflect an imprint of U.S. practices.“  I agree.

Individuals who expect all of China’s recent IP reforms to be in response to US pressure are, for the most part, likely to be pleasantly disappointed — for the most part.   As an example, the Trade Secrets JI also reflect China’s own evolving practices in trade secrets and other areas, including the availability of punitive damages, the emergence of a limited discovery regime, and implied obligations of confidentiality notwithstanding the non-existence of an NDA (see Contract law, Art. 43, now amended by the Civil Code).  Moreover, the evolving system in China for trade secrets will likely also benefit by the increasing competence of the IP tribunals and courts, including the “three in one” courts which combine civil, criminal and administrative IP jurisdiction.  As noted in another recent blog, China is also seeking to improve its criminal IP enforcement regime through more further development of the three-in-one system, and further development of evidentiary standards in criminal cases, as well as more active roles for prosecutors and police, among other measures.

While the ink is hardly dry on this Trade Secrets JI, China has since announced two other draft JI’s for public comment:  “Some Provisions on Evidence in Intellectual Property Litigation (Consultation Draft)” (the “Evidence JI”)  and the “Opinions on Increasing the Level of Sanctions for Intellectual Property Infringement (Consultation Draft)”(the “Sanctions JI”)《关于知识产权民事诉讼证据的若干规定(征求意见稿)》《关于加大知识产权侵权行为制裁力度的意见(征求意见稿)》(June 15, 2020)。 Comments are due by July 31, 2020.

Here is a quick summary of the trade-secret related provisions in the Evidence  JI:

Article 19 addresses granting protective order for evidence preservation purposes and provides that if a party is a subject of an evidence protection order and claims that a trade secret is involved, the party that requests the evidence protection order cannot participate in on-site evidence preservation procedures,but can engage an attorney, patent agent or another person with specialized IP knowledge (collectively “authorized representatives”) to sign the protective order.

Article 23 authorizes the appointment of expert appraisers to determine if a claimed trade secret consists of information in the public domain, or to determine the differences between the claimed trade secret and the alleged infringing technological information.

The third chapter of this JI regulates the exchange of evidence and includes several provisions regarding protective orders.  Article 31 grants the court authority to structure a protective order to limit access to authorized representatives.  Disclosure of information subject to protective orders shall be limited to the proceeding where the protective order was issued.  Sanctions may be imposed for unauthorized disclosure (Art. 32).  Consent to a protective order once given cannot be withdrawn.  The parties are also free not to engage in an exchange of information  (Art. 34).  Procedures are also established for challenging the secrecy of evidence, including providing rebuttal evidence and cross-examination of witnesses.  If a party succeeds in having the information considered as non-secret, it shall be considered as such during the proceeding (Art. 35).

Here are some provisions in the Sanctions JI:

Expedited proceedings are provided for serial infringers.  In addition, punitive damages should be imposed on serial infringers (Arts. 9, 20, 21). If actual damages are proven, they should be provided to the rights-holder (Art. 10).  Punitive damages should be imposed for their deterrent effect (Art. 13). Reasonable attorneys’ fees may be provided if there is a willful infringement and in a complex case (Art. 17). Attorneys’ fees and other expenses shall be compensated for in the case of malicious litigation where the right is unjustly obtained or there is not a substantial basis for its exercise (Art. 19).

Of particular note is Article 20: Serial infringers of IP rights, as well as those  who steal commercial secrets for foreign agencies, organizations or individuals, shall be subject to severe penalties according to law and generally no probation shall be applied 境外的机构、组织、人员侵犯商业秘密的情形,依法从重处罚,一般不得适用缓刑.

One may ask: why is theft of trade secrets for foreigners being singled out? Article 20 may be China’s response to cases brought against foreigners under the US Economic Espionage Act or similar foreign laws.   However, the EEA requires action “benefit[ing] a foreign government, instrumentality or agent” in 18 USC Sec. 1831.  Article 20 does not, however, single out these security concerns arising from state-drive trade secret misappropriation.

Fairness suggests that those engaged in IP theft on behalf of foreigners should also be afforded the opportunity to avail themselves of defenses otherwise available if a Chinese party were the beneficiary of the trade secret misappropriation. This is also consistent with the requirement under the TRIPS Agreement that punishment is proportionate to crimes “of a corresponding gravity” (Art. 61), and that judicial procedures are “fair and equitable” (Arts. 41 and 42).  The TRIPS obligations to afford national treatment (Art. 1) should also equally apply to a defendant in a proceeding – that he or she should not be singled out because of having worked for a foreigner.  A similar logic applies to the cases brought against the United States involving national treatment under our Section 337 remedy; a heavier defense burden had been placed on foreign entities compared to domestic entities. The provision could also lead to a de facto denial of national treatment for a foreign investor in China who finds that police or prosecutors may be less likely to initiate a case unless there is a trade secret theft that benefits an overseas entity where a heavier sentence could be imposed.  Moreover, this provisions flips US concerns on their head: it does nothing to address the concerns that the United States has expressed regarding trade secret theft in China of US-origin trade secrets, since this law addresses  thefts that were undertaken on behalf of a US entity, not from the overseas entity.

Once any country advocates for more deterrent penalties, it should consider that such penalties may also be applied to non-Chinese defendants, including one’s own nationals, which this provision could easily encompass through its focus on actions on behalf of foreign entities.  To the extent this provision is used to target foreign actors as well as actors for foreign entities, the TRIPS Agreement provides little in the way of guard rails to ensure equality of treatment in IP enforcement proceedings.  Many foreigners are already concerned, as they fear being denied authorization to leave China arising from allegations of civil violations.  In addition, there have also been several precedential IP cases over the years where foreign parties may have served as “guinea pigs” for more deterrent sanctions,  including such cases as Chint v. Schneider Electric [utility model patent damages award]; Qualcomm AML investigation [high antitrust penalty]  Veeco and Micron [preliminary injunctions involving semiconductor patents and unpublished judicial opinions as well as unpublished Customs seizure decision], and PRC v. Guthrie [criminal copyright cases brought against foreigners].

I believe that this draft of Article 20 may be sending the wrong signal.  Actions undertaken for foreigners and Chinese should be treated equally, with equivalent penalties and opportunities for probation.  Moreover, the concept of equality generally applies equally to any right.  If there are concerns regarding national security or difficulties in apprehending a party engaged in trade secret theft on behalf of a foreigners, those can be addressed through other measures such as through bilateral criminal justice cooperation, including mutual extradition arrangements and cooperation in gathering evidence. Such measures would also help restore trust between participating countries.  By providing harsher penalties for trade secret infringement benefiting foreigners, a potential precedent might also be established for any other case benefiting an overseas actor, notwithstanding that the principal concerns appear to be infringement occuring within China.

Note: this post was revised June 30, 2020 to address a reader’s concerns that Article 20 is directed to actions on behalf of foreigners and not simply by foreigners.

Three New Draft JI’s

On June 10 (Beijing time), the Supreme People’s Court published three new draft judicial interpretations (JI’s) for public comment.   Comments are due by July 27, 2020.

The three draft judicial interpretations are: “Interpretation on Several Issues Concerning the Application of Law in the Trial of Civil Cases Infringing on Trade Secret Infringements (Draft for Comment)” (关于审理侵犯商业秘密纠纷民事案件应用法律若干问题的解释(征求意见稿), “Reply on Issues Concerning the Application of Laws Related to Infringement Disputes Concerning Internet Intellectual Property (Draft for Comment)” (关于涉网络知识产权侵权纠纷有关法律适用问题的批复(征求意见稿), and Guiding Opinions on Adjudication of IPR Disputes in Cases Involving E-Commerce Platforms  (Draft for Comment)” (关于审理涉电子商务平台知识产权纠纷案件的指导意见(征求意见稿)).

 This draft trade secret JI has been released in perfect time to be discussed at the webinar on June 10 (Pacific Standard Time)  hosted by Berkeley Law on trade secret protection in China.  I will be speaking along with James Pooley, Jack Chang (QBPC), and Jerry Xia (Anjie Law Firm).  Registration for this single event in the series is here.   Thanks to Jack Chang for pointing out these new draft JI’s to me!        

Here is a machine translation of the trade secret JI.

Update of July 6, 2020: here is an unofficial translation prepared by USPTO of the .trade secret JI.

SAMR Releases Legislative Work Plan for 2020

On 26 March 2020, SAMR released its Legislative Work Plan for 2020 (“2020 Legislative Plan”) 国家市场监督管理总局2020 年立法工作计划. In 2020, 7 draft laws and administrative regulations行政法规, including the Amendment to the Detailed Rules for the Implementation of the Patent Law and the Amendment to the Anti-Monopoly Law, will be proposed for deliberation to the Ministry of Justice. Additionally, 48 administrative rules部门规章 will be formulated or amended.

SAMR’s practice is to designate one or two SAMR bureaus/departments with primary drafting responsibility for these projects. This is likely the second time that a yearly legislative work plan was publicly released since SMAR was organized in 2018. The prior legislative work plan is here.

The Class I Projects of administrative rules shall be submitted for legal review by June 30, 2020,  and completed by the end of the year. The 2020 Legislative Plan does not give a specific deadline for the 7 laws and administrative regulations, as well as the Class II Projects of administrative rules. It simply states that these categories shall be submitted for review on time, ensuring high-quality and efficiency (“部门规章第二类项目以及法律、行政法规,要确保高质高效推进,按期送审”).

IP-related projects, drafting departments, and some brief comments follow below:

Laws and Administrative Regulations:

1.Anti-Monopoly Law 中华人民共和国反垄断法. 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”). The ABA’s Antitrust Law and International Law Sections submitted comments to SAMR on the Draft AML Amendments. 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 the 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.  As mentioned in a previous blog, Article 55 of current AML (Article 62 of the Draft AML Amendments) stayed unchanged in the most recent draft and there are otherwise very little IP-related amendments contemplated at this time. 

Drafting Department: Anti-Monopoly Bureau

6.Regulations for the Implementation of the Drug Administration Law 中华人民共和国药品管理法实施条例  On August 26, 2019, China’s National People’s Congress adopted the new Drug Administration Law (“DAL”), which took effect on December 1, 2019. The legislative history is set forth in the NPC Observer. As noted in the previous blog, the new law addresses some important issues involving counterfeit and substandard medicines. However, it does little to improve the IP regime for innovative medicines.

In order to coordinate the implementation of the DAL, the revision of other supporting regulations and administrative rules will be further implemented this year.

The Regulations for the Implementation of the DAL had been amended and published on March 2, 2019. It has now been put into the Legislative Plan again. These revisions may be intended to implement changes in the newly revised DAL. On the other hand, it is also hoped that a linkage system would emerge as part of a package of legal reforms as contemplated by the US-China Phase 1 Agreement and to implement an earlier CFDA policy decision.

In addition, this 2020 Legislative Plan includes more than ten Drug/Medical Devices-related administrative rules, including: Measures for the Administration of Drug Registration药品注册管理办法, Measures for the Supervision and Administration of Drug Production药品生产监督管理办法, Measures for the Supervision and Administration of Drug Operations药品经营监督管理办法, Measures for the Supervision and Administration of Drug Online Sales药品网络销售监督管理办法, Measures for the Administration of Registration of Medical Devices医疗器械注册管理办法, Measures for the Supervision and Administration of Medical Devices医疗器械生产监督管理办法, and the Measures for the Supervision and Administration of Medical Devices医疗器械经营监督管理办法

Drafting Department: National Medical Products Administration (NMPA)

7.Rules for the Implementation of the Patent Law 中华人民共和国专利法实施细则. The Rules for the Implementation of the Patent Law, were last amended in 2010. It is likely that these amendments will also be in the form of amendment to the previous Rules,  and perhaps may anticipate some of the changes expected in a revised patent law

On January 4, 2019, the National People’s Congress released a public comment draft of the long-awaited revised patent law. The NPC Observer’s summary of the legislative history to date is here. As we noted previously, a major disappointment remains the absence of a patent linkage regime, including a notion of “artificial infringement.” If the new Patent Law fails to address patent linkage, then the Rules for the Implementation of the Patent Law are also very likely to omit a patent linkage regime.

Drafting Department: China National Intellectual Property Administration (CNIPA)

Administrative Rules:

 Class I Projects

10.Provisions on Prohibiting Infringements upon Trade Secrets禁止侵犯商业秘密若干规定.  SAIC, as a predecessor agency to CNIPA, promulgated the Provisions on Prohibiting Infringements upon Trade Secrets in 1995 and amended it in 1998. These Provisions were formulated in accordance with the relevant provisions of the Unfair Competition Law then in effect.  These early rules were especially important for administrative enforcement of trade secrets and do need to be amended in light of recent revisions to the Anti-Unfair Competition law.  One overdue change is to correct language that specifically enumerated rights in trade secrets to Chinese citizens, legal persons or other organizations, and not to all natural persons such as foreign natural persons, which is a legacy that unnecessarily violates national treatment obligations (Art. 2): “The term ‘rights holder’ in these regulations refers to citizens, legal persons or other organizations that have ownership or use rights over trade secrets according to law. ” 本规定所称权利人,是指依法对商业秘密享有所有权或者使用权的公 民、法人或者其他组织。

In addition, in the Phase 1 IP Agreement, the trade secret provisions generally memorialize amendments already made to China’s Anti-Unfair Competition Law, including an expanded scope in defining “operator” (Art. 1.3), acts that constitute trade secret infringement (Art. 1.4), as well as a shifting of the burden of proof in civil proceedings where there is a reasonable basis to conclude that a trade secret infringement has occurred (Art. 1.5). The Agreement also requires China to change its trade secret thresholds for “initiating criminal enforcement.” (Art. 1.7).  It is hoped that some of these provisions will be incorporated into China’s administrative trade secret enforcement mechanisms.

Drafting Department: Price Supervision and Inspection and Anti-Unfair Competition Bureau

36.Measures for the Administration of Trademark Agency 商标代理管理办法

Drafting Department: CNIPA

37. Provisions on Protecting Geographical Indication Products地理标志产品保护规定. Prior rules in this area had been adopted by one of the precursor agencies to SAMR, the State Administration for Quality Supervision, Inspection and Quarantine in furtherance of China’s sui generis GI system. On April 3, 2020, CNIPA promulgated the Administrative Measures for the Use of Geographical Indications (Trial) 地理标志专用标志使用管理办法(试行). These measures will hopefully also be harmonized with China’s trademark-based GI system, which is also undergoing reform (see item 55, below). 

Drafting Department: CNIPA

38. Official Logo Protection Measures官方标志保护办法. On March 24, CNIPA released Official Logo Protection Measures (Draft for Public Comment). Comments will be due on April 23, 2020.  

 Drafting Department: CNIPA

 Class II Projects

54. Provisions on the Determination and Protection of Well-Known Trademarks驰名商标认定和保护规定.

Drafting Department: CNIPA

55Administrative Measures Concerning the Registration of Collective Marks and Certification Marks集体商标、证明商标注册和管理办法.

Drafting Department: CNIPA

Class I Projects Administrative Rules Nos. 36 and 37 and Class II Projects Nos. 54 and 55 all have prior effective versions that were issued in 2014 or earlier.  It is likely that these projects will be in the form of amendments to the previous Administrative Rules.

Prepared by Dr. Xu Xiaofan and Mark Cohen

SPC’s 2020 IP-Related Judicial Interpretation Agenda

On March 19, 2020, the Supreme People’s Court’s Judicial Interpretation Agenda for 2020 (“2020 Judicial Interpretation Agenda”) 最高人民法院2020年度司法解释立项计划 was discussed and adopted by the SPC Trial Committee at its 1795th meeting on March 9, 2020. In 2020, there are 49 judicial interpretation (JI) projects, divided into two categories: 38 in the Class I Projects, which are required to be completed by the end of 2020; 11 in the Class II Projects, which are required to be completed in the first half of 2021. Generally speaking, the complete catalogue covers various fields such as the enforcement, security, pre-litigation property preservation, civil code, criminal cases, administrative cases and judicial appraisal. There are a number of  IP-related projects, all of which involve the recently established national Intellectual Property Court as a drafting and research partner with other SPC divisions or tribunals, and suggest an increasingly important role for this specialized court in IP policy making:   

Class I Projects (to be completed before the end of 2020) 

  1. Several Provisions on Evidence in Civil Procedures of Intellectual Property 关于知识产权民事诉讼证据的若干规定 [ As previously noted, 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. ]

 Organizers: Civil Adjudication Tribunal No.3, Civil Adjudication Tribunal No.1, Research Office, Intellectual Property Court 

  1. Interpretation of Several Issues concerning the Application of Law in the Trial of Administrative Cases for Patent Validity 关于审理专利授权确权行政案件适用法律若干问题的解释 [Note: A draft was issued for public comment in the summer of 2018; see the earlier blog].

 Organizers: Civil Adjudication Tribunal No.3, Intellectual Property Court 

  1. Interpretations of Several Issues concerning the Application of Law in the Trial of Trade Secret Secret Infringement Cases 关于审理侵犯商业秘密纠纷案件适用法律若干问题的解释 [Note: Regarding the Interpretations of Several Issues concerning the Application of Law in the Trial of Trade Secret Infringement Cases, it was also on SPC’s 2019 JI Agenda. As mentioned in Susan Finder’s November 26, 2019, blogpost, this judicial interpretation is flagged in the Party/State Council document (November, 2019) on improving intellectual property rights protection with a goal to “explore and strengthen effective protection of trade secrets, confidential business information and its source code etc. Strengthen criminal justice protection and promote the revision and the amendment and improvement of criminal law and judicial interpretations 探索加强对商业秘密、保密商务信息及其源代码等的有效保护。加强刑事司法保护,推进刑事法律和司法解释的修订完善.”]

Organizers: Civil Adjudication Tribunal No.3, Criminal Adjudication Tribunal No.1, Intellectual Property Court [Note the involvement of the Criminal Adjudication Tribunal is a positive sign for seeking an integrated civil/criminal/administrative enforcement approach] 

  1. Provisions on Several Issues concerning the Application of Law in the Trial of Pharmaceutical Patent Linkage Dispute Cases 关于审理药品专利链接纠纷案件适用法律若干问题的规定 [Note: this appears consistent with the requirement for adopting a patent linkage system in the Phase 1 IP AgreementAs we have discussed in a previous blog, the Pharmaceutical-Related Intellectual Property section of the Phase 1 IP Agreement requires China to adopt a patent linkage system, much as was originally contemplated in the CFDA Bulletin 55, but subsequently did not appear in the proposed patent law revisions of late 2018]

(New Project)

Organizers: Civil Adjudication Tribunal No.3, Case Filing Tribunal, Intellectual Property Court  

  1. Provisions on Several Issues concerning the Application of Law in the Trial of Civil Dispute Cases Arising from Monopolistic Conduct () 关于审理因垄断行为引发的民事纠纷案件应用法律若干问题的规定() (New Project)

 Organizers: Intellectual Property Court, Civil Adjudication Tribunal No.3

 Class II Projects (to be completed in the first half of 2021)

  1. Provisions on Several Issues concerning the Specific Application of Law in the Trial of National Defense Patent Disputes 关于审理国防专利纠纷案件具体应用法律若干问题的规定 (New Project)

Organizers: Civil Adjudication Tribunal No.3, Intellectual Property Court 

  1. Interpretation of Several Issues concerning the Application of Punitive Compensation 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

Organizers: Civil Adjudication Tribunal No.3, Intellectual Property Court  

  1. Interpretation of Several Issues concerning the Application of Law in the Trial of Civil Cases Involving Unfair Competition 关于审理不正当竞争民事案件适用法律若干问题的解释 (New Project)

Organizers: Civil Adjudication Tribunal No.3, Intellectual Property Court 

  1. Provisions on Legal Issues concerning the Specific Application of Law in the Trial of New Plant Variety Right Infringement Cases 关于审理植物新品种权纠纷案件具体适用法律问题的规定 (New Project)

Organizers: Intellectual Property Court, Civil Adjudication Tribunal No.3

 Judicial interpretations that are not marked as the “New Projects” have already been on the SPC’s Judicial Interpretation Agenda for 2019 or 2018. Several of them, including Several Provisions on Evidence in Civil Procedures of Intellectual Property (2019) and Interpretation of Several Issues concerning the Application of Law in the Trial of Administrative Cases for Patent Authorization and Confirmation (2018 and 2019), were to have been completed by the end of 2019 or 2018. 

Class I Projects JI No. 37 and Class II Projects  Nos. 3 and 11 all have prior effective versions that were issued in 2012 or earlier.  It is likely that these “New Projects” will be in the form of amendments, perhaps significant, to the previous JI’s.