SEA CHANGE TO OCCUR IN CHINESE PATENT LITIGATION
By Benjamin Bai and Helen Cheng
Benjamin Bai, who received his JD from the University of Texas at and his MA and PhD
in chemistry from Rice University, is the head of law firm Allen & Overy LLP’s
Intellectual Property practice in China. Helen Cheng is counsel with Allen & Overy.
Resident in the firm’s office in Shanghai, the authors can be reached at
benjamin.bai@allenovery.com and helen.cheng@shanghai.allenovery.com, respectively.
Without much fanfare, the Chinese Supreme People’s Court (SPC) in December of 2011
issued judicial guidelines for intellectual property (IP) infringement adjudication entitled
“Opinion on Several Issues Relating to Sufficient Utilization of IP Adjudication to Foster
Development and Prosperity of Socialist Culture and to Promote Autonomous and
Coordinated Economic Development” (hereafter “the Opinion”). As evident from the
title, the Opinion is permeated by political rhetoric about strengthening China’s IP
enforcement to promote self-reliant innovations. Politics aside, the SPC set forth new
goals for the Chinese judiciary that include procedural transparency and safeguards,
judicial predictability and consistency, and lower costs of IP enforcement. Significantly,
the SPC stressed the importance of ensuring correct rulings by first-instance courts to
provide prompt judicial relief. First-instance courts are therefore expected to achieve a
high rate of acceptance of their rulings by the parties and thus reduce the rate of appeal.
Besides aspirational goals, the Opinion prescribed important substantive principles for
the adjudication of patent, trademark, and copyright infringement disputes, as well as
unfair competition claims (including trade-secret misappropriation). The Opinion not
only reiterated the continued vitality of certain existing rules, but also, it enunciated new
rules for IP adjudication. Some of the new principles represent significant changes in the
law.
In the patent litigation arena, the SPC for the first time introduced the concept of patent
abuse and created a private cause of action for malicious assertion of invalid patents. In
an effort to facilitate enforcement of method patents, the SPC broadened the applicability
of burden shifting in infringement proof. The Opinion further elucidated applicable
principles for claim interpretation and infringement determination, such as the dedication
rule, the all-elements rule, the estoppel principle, and the doctrine of equivalents. The
Opinion is one of the most important judicial guidelines for patent practitioners in China.
This article analyzes the important aspects of the Opinion with respect to patent litigation
in China.
OVERVIEW OF THE CHINESE PATENT LITIGATION SYSTEM
1
The Court System
China’s judicial system consists of four levels of courts:
1.
2.
3.
4.
The Basic People’s Courts
The Intermediate People’s Courts
The Higher People’s Courts
The Supreme People’s Court
The SPC is the highest court in China. Along with handling appeals from Higher
People’s Courts, it also serves an administrative role, in which it issues judicial
interpretations and opinions that are legally binding upon lower courts. China has a “twoinstance” judicial system: The decisions of the court of first instance can be appealed to
the court at the next-higher level, which makes what essentially is a final decision.
Because of the complexity of patent cases, the SPC has designated about 70 courts
(mostly Intermediate People’s Courts) around the country to be first-instance courts for
patent infringement claims.
Bifurcated Proceedings
China is a civil-law nation and has adopted many aspects of the German patent law
system. For example, like Germany, China has a split system, with infringement
determined by the courts and invalidity challenges heard by the Patent Reexamination
Board (PRB) of the State Intellectual Property Office of China (SIPO). Some
infringement actions can be stayed in favor of SIPO invalidation proceedings—generally,
those involving design patents or utility model patents (which are not substantively
examined by SIPO prior to the issuance of a grant)—but courts are less likely to stay
infringement actions involving invention patents (which are substantively examined
before the issuance of a grant). Therefore, invention patentees should expect parallel
infringement and invalidity actions in the courts and SIPO, respectively. An infringement
action will last between 6 and 18 months in the court of first instance if it is not stayed,
and it is not anomalous to find judgments of infringement on patents that subsequently
are invalidated by the slower SIPO invalidation proceedings.
Patent Invalidation
The PRB has sole jurisdiction over patent validity issues, regardless of whether there is a
parallel patent infringement proceeding. Under the Chinese Patent Law, any entity or
individual who considers the grant of a patent to be contrary to relevant provisions of the
law may request the PRB to declare the patent invalid. This can be done in the name of a
strawman The grounds for filing a petition for invalidation of a patent include
unprotectable subject matter, double patenting, unpatentability, insufficient disclosure,
lack of support, indefiniteness, lack of essential technical features, and amendment going
beyond the original scope of disclosure. The PRB generally holds an oral hearing for both
2
sides to present their arguments. The decision of the PRB is subject to two levels of
judicial review. An appeal of a PRB decision can be made to the first Intermediate
People’s Court of Beijing, which has jurisdiction over lawsuits against the PRB and is
entitled to review the decision of the PRB de novo. Further appeal to the Beijing Higher
People’s Court is available. The appeals can add at least one year, and sometimes two to
three years, to the process.
Jurisdiction of Infringement Courts
Patent infringement cases must be filed where the infringer is domiciled or where the
infringement has taken place. Places of infringement include not only places where
infringing acts actually have taken place, but also, places where the consequences of
infringement have reached. To avoid litigation in a defendant’s home court, a plaintiff
may wish to join distributors of the infringing product that are located in jurisdictions
more favorable to the plaintiff as additional defendants.
Limitations Period
China has a two-year statute of limitations for patent infringement, which runs from the
date by which a patentee knew or should have known about the infringement. For
continuing infringement, the patentee generally still can obtain an injunction against the
infringement even if the patentee failed to investigate within the two-year limitation
period, so long as the patent rights still are in force; however, damages will be limited to
those suffered in the last two years.
Evidence
There is no US-style of discovery in China. Plaintiffs must collect and submit their own
evidence to meet their burden of proof regarding, inter alia, patent infringement and
damages. Chinese courts generally accept evidence only in its original form. Such
evidence can come from private investigations, raid actions, overseas litigation, or
defendants’ employees. A notary public is often used to authenticate evidence. Evidence
obtained from previous administrative proceedings or preliminary injunction proceedings
sometimes can be used in subsequent infringement litigation. Evidence obtained in
violation of the law, however, is not admissible, and, if it is admitted, it may constitute
reversible error on appeal. To initiate an infringement suit, a plaintiff must purchase the
alleged infringing product in the presence of a notary public.
Overseas Evidence
Evidence obtained in foreign countries is admissible in Chinese courts but must be
notarized by a local notary public in the foreign country and then legalized by the
3
applicable Chinese embassy or consulate. Any documentary evidence in a foreign
language must be translated into Chinese by a court-authorized translation company in
China.
Evidence Preservation
When there is likelihood that evidence may be destroyed, lost, or difficult to obtain later,
a party may seek ex parte a court order to preserve such evidence. This is similar to the
French seizure order known as saisie-contrefaçon. The court may demand that the
requesting part post a bond. The judges themselves typically enforce an evidence
preservation order. Such orders can be very effective, as the respondent generally will not
be notified in advance and may be required to comply by providing the relevant
documentation and evidence on the spot. In the execution of the order, the court may
question the respondent, order the documents to be produced, take samples of the
infringing product, conduct an inspection of premises, and so on. Any evidence obtained
from evidence-preservation efforts is admissible in the subsequent court proceeding.
Therefore, evidence preservation has become a powerful tool in patent litigation in
Chinese courts. To prevent its abuse, however, most courts will require that the movant
present some preliminary evidence showing ongoing or imminent infringement before
issuing such an order.
SUBSTANTIVE PRINCIPLES ENUNCIATED BY THE SPC
Claim Interpretation
In China, infringement generally is determined by the courts in the following ways: (a)
construing the scope of the patent at issue; (b) analyzing the relevant technical
characteristics of an alleged infringing product or process; and (c) comparing all technical
features of the patent claims with those of the alleged infringing product or process.
Under the Chinese Patent Law, the scope of an invention or utility-model patent is
determined by the terms of the claims. Descriptions and drawings may be used by the
courts to interpret the claims.
In the Opinion, the SPC emphasized a balanced approach to claim interpretation: Claim
language must be balanced against the object of an invention. The object of an invention
limits the scope of a patent; inferior inventions, that is, inventions that do not fulfill the
object of the invention, are not within the scope of the patent. Pioneer inventions are
entitled to broader protection, including a broader scope of equivalents; conversely,
incremental inventions are entitled to lesser protection.
The SPC reiterated the principle for claim interpretation: Disclosed but unclaimed
technical features are dedicated to the public and hence are not within the scope of a
patent. Moreover, the estoppel principle is alive and well. A patentee is estopped from
4
asserting a claim interpretation that covers any subject matter surrendered during
prosecution or invalidation. Prior cases suggest that an estoppel can arise with a
narrowing amendment, regardless of the reason for such an amendment. An argument can
also give rise to an estoppel. As such, estoppel, coupled with the dedication principle,
operates to limit the scope of a patent in China. This is consistent with most Western
approaches.
Infringement Determination
In determining infringement, courts must follow the all-elements rule: Each technical
feature (i.e., an element) in a patent claim must be met by an alleged infringing process or
product, either literally or equivalently. There can be no infringement if one technical
feature and its equivalent are absent.
An equivalent feature refers to a technical feature that performs substantially the same
function in substantially the same way and achieves substantially the same result as the
feature recited in a patent claim. Moreover, an equivalent feature must be one that can
easily be conceived by a person skilled in the art but without inventive skills.
While acknowledging the continued vitality of the doctrine of equivalents, the SPC
cautioned against mechanical application of the doctrine, especially to situations to which
it should not be applied. For example, the doctrine of equivalents cannot be applied to
prior art. Additionally, subject matter surrendered during prosecution or invalidation
cannot be recaptured by the doctrine of equivalents.
As discussed above, Chinese infringement analysis is similar to the US approach, except
that in the US, an equivalent feature need not be obvious.
Prior Art Defense
The Third Amendment to the Chinese Patent Law, effective in 2009, codified the prior art
defense. It was not clear from the amendment, however, whether an alleged infringer
must practice exactly what is in the prior art. The Opinion confirmed that practicing prior
art is a defense to claims of both literal infringement and equivalent infringement.
According to the Opinion, the prior art defense can be established by showing that an
alleged infringing product or process is identical to prior art or constitutes an obvious
variation of prior art. A single prior art reference can be combined with common
knowledge to prove an obvious variation. The combination, however, must be obvious.
As to the scope of prior art, the Opinion clarified that a conflict application (i.e., an
application filed earlier but published later) also constitutes prior art for the purposes of
the prior art defense.
The Opinion is silent on whether two or more prior art references can be used to raise the
prior art defense. In a prior decision issued in December of 2009, the SPC ruled that two
5
prior art references could be combined to establish the prior art defense. Generally, there
should be a primary reference. A secondary reference can be combined with the primary
reference. The combination must be obvious to a person of ordinary skill in the art. In
other words, the missing technical features from the primary reference can be obtained by
a person of ordinary skill in the art but without inventive labor.
The Opinion does not seem to conflict with the prior SPC decision. The Opinion and the
SPC decision delineate the means to establish the prior art defense: Identity to prior art
must be shown by a single prior art reference. An obvious variation to prior art can be
proven by a primary reference, combined with a secondary reference or common
knowledge, so long as the combination is obvious. The SPC did not prohibit the use of
multiple references; however, the use of multiple references, by its nature, may indicate
the weakness of the defense.
Patent Abuse
The concept of “patent abuse” was proposed but not adopted in the Third Amendment to
the Chinese Patent Law in 2009. Nevertheless, the SPC introduced such a concept in the
Opinion to rein in abusive patent enforcement. While the SPC did not define “patent
abuse,” it singled out malicious assertion of invalid patents as a form of patent abuse that
is actionable as unfair competition. “Malicious assertion of invalid patents” is defined as
the sending of warning letters or the filing of infringement suits on patents that a patent
owner knows to belong to prior art. In such a case, the patent owner is liable for damages
suffered by the victims resulting from such an assertion.
The Opinion is silent on what constitutes “knowledge” that a patent “belongs to prior
art.” Presumably, evidence proving that a patent owner knows or is in possession of a
novelty-destroying prior art reference should suffice
The introduction of “patent abuse” in the Opinion is a healthy step toward a strong patent
system in China. With the potential liability for asserting invalid patents, the value of
seeking “junk patents” has been severely limited. Previously, there was no penalty for
asserting patents that were known to be invalid. Thus, numerous utility model patents
were filed on what was already in use in prior art. Utility model patents are not
substantively examined but can be enforced in almost the same way as are invention
patents (which are substantively examined). Sometimes, these utility model patents were
used as harassment tools. Even some invention patents were used for that purpose. From
now on, however, patent owners should be reluctant to assert patents that are clearly
invalid. On the other hand, the Opinion enables alleged infringers to file countersuits
based on patent abuse and thereby may have opened the floodgates for retaliatory
litigation for patent enforcement in China. Thus, patent owners are well advised to
evaluate the validity of their patents before launching attacks on alleged infringers.
6
Preliminary Injunction
The Chinese Patent Law authorizes courts to issue injunctions before or during
infringement actions. Upon receiving a request for a preliminary injunction, a court must
make a ruling within 48 hours if it finds that all procedural requirements have properly
been met. Once issued, an injunction immediately is enforceable. The patentee, if it has
not done so already, then must initiate an infringement action in the courts within 15 days
of issuance of the injunction, or else the injunction automatically will be lifted.
Chinese courts consider the following factors in determining whether to issue preliminary
injunctions:
1. Whether there is infringement
2. Whether the patent owner will be irreparably harmed in a manner for which
monetary damages are inadequate compensation if the infringing act is not
enjoined
3. Whether the patent owner has provided an adequate bond
4. Whether issuance of a preliminary injunction would prejudice the public interest
In reality, obtaining a preliminary injunction in most patent infringement cases has
always been and is becoming increasingly more difficult. Both infringement and
irreparable harm must be clearly proven—a burden that is not easy to meet in China,
given the stringent evidentiary requirements and lack of discovery procedures. Moreover,
the SPC has cautioned courts repeatedly against granting preliminary injunctions in cases
involving nonliteral infringement or complicated technologies.
In the Opinion, the SPC once again urged restraint by the courts in issuing presuit
injunctions, commonly used as a form of preliminary injunctions in China. The SPC
emphasized that the conditions for granting presuit injunctions are that (a) the facts are
clear and (b) infringement is readily ascertainable. Cases involving complex technologies
are not amenable to presuit injunctions. Moreover, presuit injunctions should not be
issued when there is an invalidation decision on the patent in the suit (even if the decision
is under appeal). If practicable, courts should hear arguments from both sides in
determining infringement.
Presuit injunctions have been a rarity in recent years for patent infringement cases in
China. The Opinion sounded the death knell of such injunctions in complex patent cases.
This is a disappointing development. A strong patent system makes preliminary relief
readily available, as in most Western jurisdictions. China, however, is going in the
opposite direction.
Method Patents and Burden of Proof
China’s legal system subscribes to the notion that those who assert a claim must prove it.
Thus, the burden of proof generally resides with the claimant. The Chinese Patent Law
7
provides for the shifting of the burden of proof for proving infringement of a method
patent if the patented method makes a new product. In such a case, the patent owner
needs to prove that an alleged infringer’s product is the same as the product made by the
patented method and that the product is new. Then the alleged infringer must prove that it
uses a different method.
The Opinion affirmed such shifting of the burden of proof. According to the Opinion,
when a patented method makes a new product and the patent owner proves both that (a)
the product and the method are not known to the public before the priority date of the
patent and (b) the defendant’s product is identical to the patent owner’s new product, then
the burden of proving noninfringement shifts to the defendant, who must prove that it
uses a different method.
Significantly, the SPC stated that courts may also shift the burden of proof even if a
patented method does not make a new product, if the following conditions are met:
1. The patent owner proves that the products are identical.
2. The patent owner has made reasonable efforts but is unable to prove infringement.
3. The court concludes that there is a high likelihood that the alleged infringer uses
the patented method based on common sense and facts of the case.
The SPC stressed that, in adjudicating method patent cases, courts must balance a patent
owner’s rights against an alleged infringer’s legitimate interests in protecting its trade
secrets. Courts should grant evidence preservation when there are difficulties in
collecting infringing evidence for method patents. At the same time, courts must prevent
the abuse of such procedures to safeguard defendants’ trade secrets.
CONCLUDING THOUGHTS
With about 7,800 patents suits having been filed in 2011, China is the most litigious
nation in terms of patent disputes. This dwarfs the number of patent suits filed in the
United States, which hovers around 3,000 per year. On average, patent infringement
damages in China are rather low—generally less than $50,000; however, the outliers are
significantly higher—there have been several multimillion-dollar damages awards in
China. What is more significant is that the rate of permanent injunctions exceeds 90
percent in a number of key jurisdictions in China. This compares favorably to that of the
United States—after the Supreme Court decision in eBay Inc. v. MercExchange, LLC
[547 U.S. 388 (2006)], the rate of permanent injunctions in the United States has been
about 75 percent. As the second-largest economy in the world, China is emerging as a
battleground for technology disputes.
By judicial fiat, the SPC has effected a dramatic shift in how Chinese courts will
adjudicate patent infringement disputes. The creation of a private cause of action for
malicious assertion of invalid patents is likely to discourage junk patent filing and
enforcement. ["junk patents" is becoming a term.] Allowing discretion for judges to shift
8
the burden of proof for method patents that do not produce new products will
undoubtedly benefit method patent owners. The balanced approach to claim
interpretation seems to strike an appropriate balance between a patentee’s interests and
the public interests. Rigorous application of the dedication rule, the all-elements rule, the
estoppel principle, the prior art defense, and the doctrine of equivalents further advances
the objective of the balanced approach.
These changes are likely to make the Chinese patent enforcement system more robust.
They may even bring some transparency, predictability, and consistency in patent
litigation in China. In some sense, China is slowly adopting some Western legal rules and
rationales while retaining unique Chinese characteristics. Regrettably, however, the
SPC’s rigorous restriction on the grant of presuit injunctions in patent cases unnecessarily
dilutes patent owners’ rights and thus will be counterproductive.
For the most part, China’s patent litigation system is rapidly evolving for the better.
While it still has problems, it is a system that most should be able to work with. Those
who embrace it and utilize it will benefit. Conversely, those who do not understand it or
resist it may pay the price.
9