State Council Clears Patent Law Amendments, Forwards to NPC, Patent Linkage Is Not Referenced ….

According to the official central Chinese government website, on December 5, 2018, Premier Li Keqiang chaired a State Council meeting which cleared the long awaited proposed draft of the patent law amendments.  The description of the draft is set forth below:

为进一步加强专利权人合法权益保护、完善激励发明创造的机制制度、把实践中有效保护专利的成熟做法上升为法律,会议通过《中华人民共和国专利法修正案(草案)》。草案着眼加大对侵犯知识产权的打击力度,借鉴国际做法,大幅提高故意侵犯、假冒专利的赔偿和罚款额,显著增加侵权成本,震慑违法行为;明确了侵权人配合提供相关资料的举证责任,提出网络服务提供者未及时阻止侵权行为须承担连带责任。草案还明确了发明人或设计人合理分享职务发明创造收益的激励机制,并完善了专利授权制度。会议决定将草案提请全国人大常委会审议。

A rough translation is as follows:

In order to further strengthen the protection of the legitimate rights and interests of the patent rights holder, improve the mechanism system for stimulating creation of inventions, and raise those mature practices for effectively protecting patents into law, the meeting passed the “(Draft) Amendments of the Patent Law of the People’s Republic of China.” The Draft aims to increase the severity of penalties for intellectual property infringement, draws on international practices, significantly increase the amount of compensation and fines for willful infringement and counterfeiting of patents, and significantly increase the cost of infringement to deter illegal acts;  it clarifies the burden of proof for the infringer to cooperate in providing relevant information, and sets forth that the network service provider should bear joint liability for not stopping infringement in a timely manner. The Draft also clarifies the incentive mechanism for inventors or designers to equitably share the proceeds from the creation of service inventions, and improves the patent authorization system. The meeting decided to bring the Draft to the NPC Standing Committee for its review.

In a possibly unrelated development, the National Development and Reform Commission released a Chinese interagency Cooperation Memorandum of Understanding on December 4, 2018  to deal with entities that have lost trust due to IP (patent) infringement. 关于对知识产权(专利)领域严重失信主体 开展联合惩戒的合作备忘录.  Compared to the proposed patent law amendments, this lengthy document focuses even further on public law aspects of a patent law system, including recidivist infringers, “irregular” patent applications, providing false documents to the patent office, etc. and includes a range of 33 different punishments to be meted out from a wide number of agencies, including denial of subsidies, debarment for procurement purposes, denying access to range of government programs, prohibiting leisure travel, etc.

The two documents taken together may suggest a disheartening renewed emphasis on administrative measures to deal with patent infringement and innovation incentives.  Such measures may be intended to address US trade concerns about IP infringement and “IP theft”.  They may also represent a return to China’s increasingly administrative enforcement-oriented approach to patent issues.  However, this renewed focus on administrative measures is also occurring the same time as China is moving to quickly establish a new national appellate IP court attached to the SPC by as early as the beginning of 2019.  This new court will be a national appellate circuit court with jurisdiction over administrative appeals and technical IP matters and will likely include seasoned judges from Beijing and the SPC itself.  Much work needs to be done to get this court off the group quickly.

What, however, is missing from both these documents is any reference to a patent linkage system for pharmaceutical products, which has been much talked about in this blog.  As previously reported, former CFDA Commissioner BI had been dismissed from his post as party secretary to SAMR this past summer in response to China’s tainted vaccine scandal. A State Council notice (no. 83) of August 20, 2018 on deepening reform in China’s medical sector thereafter also ominously omitted any reference to patent linkage.

As the original deadline for passage of the patent law amendments was the end of this year, my guess is that this draft may be referred on to the NPC by the end of this year, and passage may occur as early as the first half of next year.  I assume that a draft for public comment will be released by the NPC sometime early next year.  Generic and innovative pharmaceutical companies that believe a linkage system would help accelerate innovation in the pharmaceutical sector and support early introduction of high quality generics, may consider commenting on these issues once a public comment draft is made available.

Global Antitrust Institute Releases Its Comments on NDRC IP Abuse Rules

Attached are the English and Chinese comments of George Mason’s University Global Antitrust Institute (GAI) on the draft NDRC Guideline on Abuse of Intellectual Property Rights.  The comments were prepared by Koren W. Wong-Ervin, Professor Joshua Wright, Judge Douglas Ginsburg, and Professor Bruce Kobayashi.

I previously distributed on this blog the GAI’s response to the NDRC questionnaire here. Overall, these additional comments of GAI urge the NDRC to recognize throughout its Draft Guideline an IPR holder’s core right to exclude as a “legitimate” or “legal” use of IPRs, and to incorporate the “but-for” approach taken by the U.S. antitrust agencies of comparing the competitive impact of the IPR use against what would have happened in the “but for” world in the absence of a license.

The GAI’s comments also focused on the issues of applying “unfairly high price” prohibitions on IPR royalties. The GAI asked the NDRC to 1) explicitly recognize that “reasonable” compensation should reflect the risk-adjusted break-even price; and (2) state that, in determining whether a particular royalty is “unfairly high,” the NDRC will calculate a reasonable royalty as a minimum floor baseline using the hypothetical negotiation framework from U.S. patent damages law. The patentee should have the opportunity to prove, in addition, its lost-profits as part of its damages, which would seem to be equal to the profits denied by the “unfairly high” pricing provision.  GAI emphasized that the goal of a reasonable royalty calculation is to replicate the market reward for the invention in the absence of infringement, and explained that comparable licenses are often the best available evidence of the market value of the patent. The comments also discuss use of the “Georgia-Pacific” methodology to help determine minimum rates for what a willing licensee and a willing licensor would otherwise have negotiated if an unfair pricing calculation is to be applied.

The comments also consider complex portfolio licensing by urging NDRC not to unduly take into account whether some expired patents are included in a portfolio. The commenters suggest that it would be impractical, if not impossible, for portfolio owners to constantly renegotiate licenses (or provide updated patent lists) every time an IPR in a licensed portfolio expires or, conversely, every time new IPR is added to the portfolio, both of which occur commonly.  As GAI notes, portfolios include patents with a variety of expiration dates and the parties to the license take the variety of expiration dates into account when negotiating a price.   Moreover, patent claims may change due to reexaminations, court and administrative proceedings, which can affect how they read on a particular technology over time.   In my own experience, most licensees are seeking freedom to operate from parties asserting patents, rather than a technical solution found in the patent itself.  Indeed, former Chief Judge Rader at a recent conference hosted by SIPO noted that one of the biggest differences he saw between being a judge and a private practitioner is that judges (and enforcement agencies) may look at litigation as patent-based or even claim-based, while the real commercial world is concerned with portfolios and freedom to operate considerations  I would add one other factor that the comments don’t mention involving licensing expired patents – the patents may still have some litigation value and considerable commercial value post expiration if relevant statute of limitations have not expired. In many cases, such as pharma patents, the principal value is to be found towards the end of the patent term. Moreover, if global licenses are entered into, longer statute of limitations in countries like the United States, (six years versus two years in China, and ten years in many other countries) should necessitate that Chinese licensees actively consider taking licenses on expired patents up until the relevant statute of limitations’ expiration.

The drafters also suggest rejecting that a refusal to license constitute an abuse of IP, noting that a patent exhaustion doctrine could also make refusals to license difficult to apply since licensors may choose to license its patents to a manufacturer, user or distributor.

The comments also suggest a cautious approach, using an effects analysis, in looking at discriminatory analysis. My own personal perspective is that China’s regulatory regime insures that non-discriminatory licensing is almost impossible to universally achieve. More specifically, there will likely be a certain amount of discriminatory licensing, as foreign licensors to Chinese licensees have to provide indemnities, non-mandatory grantbacks and access to markets under Chinese law which they will not need to provide elsewhere, or which Chinese licensors do not need to provide in their own domestic market or to foreign licensees.

The commenters also suggest that that “the NDRC not impose an AML sanction for merely seeking injunction relief” when a standards essential patent is involved, or at worst only deny injunctive relief when the licensor seeks “supra-competitive” royalties, i.e., is engaged in patent hold-up by seeking royalties that are not consistent with prior commitments by the SEP holder. Finally, the commentators direct NDRC to consider as a last alternative adopting a rule similar to the European Court of Justice decision in Huawei vs. ZTE. That case would provide a safe harbor for an SEP holder seeking an injunction that (1) prior to initiating an infringement action, alerts the alleged infringer of the claimed infringement and specifies the way in which the patent has been infringed; and (2) after the alleged infringer has expressed its willingness to conclude a license agreement on FRAND terms, and presents to the alleged infringer a specific, written offer for a license, specifying the royalty and calculation methodology.  The ECJ would then put the burden on the alleged infringer to “diligently respond” to that offer, “in accordance with recognized commercial practices in the field and in good faith,” by promptly providing a specific written counter-offer that corresponds to FRAND terms, and by providing appropriate security (e.g., a bond or funds in escrow) from the time at which the counter-offer is rejected and prior to using the teachings of the SEP.  This approach is necessary to take into account the conduct of both the patentee and the accused infringer when considering whether to impose an AML sanction and is especially useful in the Chinese context where the data suggests there is a high degree of under-licensing.

The GAI also provided comments on numerous other provisions, such as refusals to license, the essential facilities doctrine, bundling, cross-licensing, grant backs, and no-challenge clauses.

Thanks to GAI for making these comments publicly available. Distributing comments such as these, when affected parties may be unaware of the opportunity to comment, and in order to encourage more informed public discourse.

NDRC IP Abuse Guideline Out For Public Comment

IPabuseguidelines

NDRC has released a draft for public comment of its Antitrust Guidelines for Abuse o IP知识产权滥用的反垄断指南(征求意见稿)(English language wordcloud above).   As with the NDRC questionnaire this appears to have been selectively released although some versions have also been made available on line by bloggers and the like.  Several organizations are commenting on it, and some bloggers have made its content publicly available.  The release of the guidelines has also been reported by the media based on NDRC presentations at public conferences.

Below is what I believe is the Chinese text regarding on abuse of dominance involving intellectual property rights.  Unfortunately I do not have an English text I can release.  I have added English captions so that non-Chinese readers can see some of the key areas discussed.

I did notice that the provisions on the availability of injunctive relief for infringement of standards essential patents thankfully address “whether the two negotiating parties in the process of negotiations have shown real willingness to negotiate”, which I believe is a significant problem in the Chinese environment.  Interestingly, in addressing the problem, the draft incorrectly identifies requests for injunctive relief as “the request of the patentee of a judicial body to issue an order to enjoin use of relevant patents.”  In fact, I believe the injunctive relief that is sought is typically to enjoin infringement, as there has been no authorized use of the patents in the absence of a license.

I am also wondering whether other agencies, notably MofCOM and SAIC are also preparing drafts of the abuse IP guidelines, particularly as SAIC only recently released its rules in this area.

———–

三、涉及知识产权的滥用市场支配地位行为

 (一)不公平的高价许可费 [unreasonably high royalties]

权利人有权就其知识产权获得合理的经济补偿,这是弥补其研发投入和激励创新的基本动力,权利人收取许可费的行为,通常不会受到《反垄断法》的规制。但是,如果权利人滥用其具有的市场支配地位,向被许可人收取不公平的高价许可费,会排除、限制竞争,损害消费者利益。

分析和认定知识产权权利人是否收取不公平的高价许可费,可考虑以下因素:

  1. 相关知识产权许可历史或者可比照的许可费标准;
  2. 权利人是否超过知识产权覆盖的范围收取许可费;
  3. 权利人是否迫使被许可人接受不合理的许可方式或者许可期限;
  4. 权利人进行一揽子许可时是否迫使被许可人接受过期或者无效的知识产权。拒绝许可是权利人行使知识产权的一种表现形式,一般情况下,权利人不承担与竞争对手或者交易相对人进行交易的义务。但是,具有市场支配地位的知识产权权利人无正当理由拒绝许可,同时符合下列条件的,可能排除、限制竞争:
  5. (二)拒绝许可 [refusals to license]
  1. 拒绝许可可能导致相关市场上的竞争或者创新受到不利影响,损害消费者利益或者公共利益;
  2. 许可该知识产权不会对权利人造成损害。(三)搭售 [tying]搭售可能对相关市场的竞争产生不利影响,主要表现为排除了被搭售品市场中其他供应商的交易机会,并损害了消费者的选择权。同时,搭售也可能对相关市场的竞争产生有利影响,主要表现为可以降低交易成本,促进产品功能的完善等。搭售的正当理由,需要在个案中进行具体分析。如果搭售是基于技术兼容、产品安全、产品性能、交易成本等方面的考虑而实施的,可能被认为具有正当理由。具有市场支配地位的权利人在交易中附加下列限制条件,可能排除、限制竞争:
  3. (四)附加不合理的交易条件 [Attaching unreasonable conditions of trade]
  4. 具有市场支配地位的经营者没有正当理由,违背交易惯例、消费习惯等或者无视不同知识产权或商品的性质及相互关系,将不同知识产权,或者知识产权与商品强制捆绑销售或者组合销售,并且使该经营者将其在搭售品市场的支配地位延伸到被搭售品市场,可能排除、限制竞争。
  5. 搭售是指权利人就一项知识产权以许可、转让等方式行使时,违背交易相对人的意愿要求其接受另一项知识产权的许可或转让,或者从权利人处或者权利人所指定的第三人处购买某种商品。
  6. 拒绝许可的正当理由,需要在个案中根据具体情况进行分析,通常考虑的因素包括:被拒绝的潜在被许可人缺乏必要的质量、技术保障或支付许可费的能力,能够确保技术的正当使用或者产品的安全和性能;被拒绝的潜在被许可人使用知识产权行为可能会对节约能源、保护环境等社会公共利益产生不利影响等。
  1. 要求交易相对人将其改进的技术进行独占性回授;
  2. 禁止交易相对人对其知识产权的有效性提出质疑,或者针对其提起知识产权侵权诉讼;
  3. 限制交易相对人利用竞争性的商品或者技术;
  4. 对过期或者无效的知识产权主张权利;
  5. 禁止交易相对人与第三方进行交易,或者对交易相对人与第三方的交易行为在对象选择、交易地域等交易条件方面进行限制。一般来说,知识产权权利人对不同的被许可人实施不同的许可条件,是权利人的自由。但是,具有市场支配地位的知识产权权利人对被许可人实施差别待遇,同时符合下列条件的,可能排除、限制竞争:
  6. (五)差别待遇 [Differential treatment/discriminatory treatment]
  1. 拒绝被许可人提出与其他被许可人实质相同的交易条件;[the party refused a license offers substantially similar conditions of trade of a prior licensee]
  2. 差别待遇对被许可人参与相关市场的公平竞争产生了显著不利影响。四、涉及标准必要专利的知识产权行使行为 [Concerning Implementation of Standards Essential Intellectual Property] 具有市场支配地位的标准必要专利权利人下列行使权利的行为,可能排除、限制竞争:标准必要专利权利人有权就其专利获得合理的激励性回报。但是,标准必要专利权利人所要求的许可费应当合理体现相关标准必要专利的经济价值。如果拥有市场支配地位的标准必要专利权利人向被许可人索取不公平的高价许可费,可能排除、限制竞争,损害消费者利益。
  3. 分析和认定标准必要专利权利人是否收取不公平的高价许可费,可以考虑以下因素:
  4. (一)收取不公平的高价许可费 [Receiving unfairly high license fees]
  5. 专利权人持有标准必要专利并不必然导致其具有市场支配地位。分析和认定标准必要专利权利人是否具有市场支配地位,可考虑以下因素: [the following may be considered](1)相关标准的市场价值与应用程度;[the value and use of the standard in the market](2)是否存在替代性标准;[are the substitutable standards](3)行业对相关标准的依赖程度及使用替代性标准的转换成本;…(4)不同代际相关标准的演进情况与兼容性;(5)标准必要专利许可双方的相互制衡能力等。
  6. 分析和认定是否构成差别待遇,在考虑被许可人的交易条件是否与其他交易对象实质相同时,[in analyzing and determining whether there is differential treatment, and considering whether the conditions of trade of a licensee are difference in substance, the primarily consideration should be from the the rightsholder perspectives regarding whether the intellectual property transaction costs are the same.]  主要从权利人的角度考量不同许可行为的交易成本是否相同。同时,还会综合考虑该知识产权的用途和使用该知识产权生产产品的属性、销售范围、销售量、销售额与利润率等因素。
  1. 被许可的标准必要专利的技术价值;
  2. 相关产业的技术特点;
  3. 符合相关标准的产品所承担的整体许可费情况;
  4. 相关标准必要专利所负担的许可承诺;
  5. 相关标准必要专利许可历史或者可比照的许可费标准;
  6. 相关产品市场上下游合理的利润空间。在标准必要专利许可中,下列交易条件可能排除、限制竞争:
  7. (二)附加不合理的交易条件 [Attaching unreasonable conditions of trade]
  1. 捆绑非标准必要专利;
  2. 强制要求免费交叉许可和回授;
  3. 强制要求被许可人给予许可人所指定的第三方免费专利许可;
  4. 就过期或者无效专利继续收费;
  5. 禁止被许可人质疑专利有效性或者针对许可人提起专利侵权诉讼。禁令救济是专利法赋予专利权人的救济手段,标准必要专利权利人有权依法申请禁令救济以维护其合法权益。但是,如果标准必要专利权利人利用禁令救济申请迫使被许可人接受其提出的不合理许可条件,可能排除、限制竞争。
  6. 分析和认定标准必要专利权利人申请禁令救济是否排除、限制竞争,可考虑以下因素:
  7. (三)滥用禁令救济 [abuse of injunctive relief]
  1. 谈判双方在谈判过程中所表现出来的真实谈判意愿;
  2. 相关标准必要专利所负担的有关禁令救济的承诺;
  3. 谈判双方在谈判过程中所提出的许可条件及许可条件的合理性;
  4. 申请禁令救济对双方谈判地位、相关市场及下游市场竞争和消费者福利的影响。

..consider the following factors:

  1. whether the two negotiating parties in the process of negotiations have shown real willingness to negotiate;
  2. whether the relevant standardsessentialpatentsare burdened by commitmentsrelating to injunctiverelief;
  3. the proposed licensing conditions and the reasonableness of the licensing conditions brought forth by the two negotiating parties during the negotiation process;
  4. the role of applications for injunctive relief in negotiations of the parties, competition in the relevantmarketand the downstream market, and the effectson consumer welfare.

本指南所称禁令救济,是指专利权人请求司法机构或者准司法机构颁发的限制使用相关专利的命令。

Injunctive relief as referred to in this guide, refers to the request of the patentee of a judicial body to issue an order to enjoin use of relevant patents.

ABA Section of International Law Comments on NDRC Questionnaire on IP Abuse Guidelines

The American Bar Association has once again made publicly available its response to the NDRC questionnaire on drafting IP abuse guidelines, attached here.  This is a useful and large bilingual download which contains useful background materials.

Some of my prior recent blogs on this questionnaire include a posting of George Mason University’s comments, and my comments on the questionnaire itself.

Thanks again to the ABA for the transparency of its efforts!

Comments of George Mason University on Antitrust Questionnaire

Attached are the comments in Chinese and English of George Mason University’s Global Antitrust Institute on the Questionnaire on Intellectual Property Misuse Antitrust Guidelines distributed by NDRC.

The Director of the GAI is Joshua D. Wright, a former U.S. Federal Trade Commissioner. The GAI’s International Board of Advisors is chaired by Douglas H. Ginsburg, a Senior Judge on the United States Court of Appeals for the District of Columbia, and a Professor of Law. Koren W. Wong-Ervin is a former Attorney Advisor to then-Federal Trade Commissioner Joshua D. Wright and is also an author of this comment.

These comments recognize the pro-competitive effects of IP, and are a very useful summary of US practice in this area. The authors’ summarize their approach as follows:

“While the U.S. antitrust agencies apply the same general antitrust analysis to matters involving IPRs as to any form of tangible or intangible property, that is not to say that they do not recognize the important distinguishing characteristics of IPRs.  For example, the inventions and works protected by IPRs are non-rivalrous.  Thus, one firm using a specific IPR does not diminish the ability of another firm to use the same IPR.  Also, the cost of having another firm use an existing IPR is effectively zero.  As a consequence, from a static welfare perspective, it is desirable to disseminate IPRs to every firm (or consumer) that has a positive valuation for the IPR.  Of course, doing so would create a strong disincentive to innovate in the first place, to the great detriment of dynamic efficiency, which refers to the gains that result from entirely new ways of doing business.  While static efficiency may increase consumer welfare in the short run, economics teaches us that dynamic efficiency, including societal gains from innovation, are an even greater driver of consumer welfare.”

I hope that these comments by leading experts in the field are  helpful to Chinese colleagues, and I appreciate the transparency of the commentators in providing them to this blog.

SAIC Releases IP Abuse Rule

saicwordcloudblackwhite

The State Administration of Industry and Commerce has issued final Rules on Stopping the Abuse of Intellectual Property to Eliminate or Restrict Competitive Conduct on April 7 (Order No. 74)  (关于禁止滥用知识产权排除、限制竞争行为的规)with an effective date of August 1, 2015.

Above is a wordcloud drawn from a machine translating (Bing) of the new SAIC IP abuse rules.

NDRC and Qualcomm Reach Resolution of Antimonopoly Law Complaint

Qualcomm announced yesterday, February 9, that it has reached a resolution with China’s National Development and Reform Commission (NDRC) regarding the NDRC’s investigation of Qualcomm under China’s Antimonopoly Law (AML). The NDRC has issued an Administrative Sanction Decision finding that Qualcomm has violated the AML. Qualcomm has stated that it will not pursue further legal proceedings contesting the NDRC’s findings and that it will implement a “rectification plan” that modifies certain of its business practices in China.  Qualcomm has also noted that while it is “pleased” with NDRC’s review and approval of this rectification plan, it is “disappointed” with the results of the investigation.  Key aspects of the rectification plan are:

Qualcomm will offer licenses to its current 3G and 4G essential Chinese patents separately from licenses to its other patents and it will provide patent lists during the negotiation process. If Qualcomm seeks a cross license from a Chinese licensee as part of such offer, it will provide fair consideration for such rights.

For licenses of Qualcomm’s 3G and 4G essential Chinese patents for branded devices sold for use in China, Qualcomm will charge royalties of 5% for 3G devices (including multimode 3G/4G devices) and 3.5% for 4G devices (including 3-mode LTE-TDD devices) that do not implement CDMA or WCDMA, in each case using a royalty base of 65% of the net selling price of the device.

• Qualcomm will give its existing licensees an opportunity to elect to take the new terms for sales of branded devices for use in China as of January 1, 2015.

Qualcomm will not condition the sale of baseband chips on the chip customer signing a license agreement with terms that the NDRC found to be unreasonable or on the chip customer not challenging unreasonable terms in its license agreement. However, this does not require Qualcomm to sell chips to any entity that is not a Qualcomm licensee, and does not apply to a chip customer that refuses to report its sales of licensed devices as required by its patent license agreement.

The NDRC imposed a fine on the Company of 6.088 billion RMB (approximately USD 975 million), which Qualcomm will not contest. Qualcomm will pay the fine on a timely basis as required by the NDRC.

The settlement appears to identify certain issues which likely were actively negotiated, including, the smallest “unit” based upon which royalties may be collected, compensation and negotiation for cross-licenses from Chinese licensees, dates of  application of newly imposed licensing terms, royalties and licensing practices for  essential and non-essential 3G and 4G patents, calculation of any different Chinese domestic market royalties,  sales of chips in conjunction with royalties and calculation of a fine.   It is unclear from this announcement how significant a difference the prospective licensing terms are from Qualcomm’s current licensing regime, and the impact, if any, on this new licensing scheme on Qualcomm’s global licensing practices.  It is also unclear  at this time how proportional this penalty and rectification program is compared to other NDRC investigations.