Special Feature: New and Improved Patent Law

The Amendments can essentially be classified into five categories based on the intended purpose(s) and projected goals of each of them. These categories aim to:

(a) clearly set forth patent legislation to promote technological improvements and innovative services, to expand government and economic reforms and create better conditions for patentees;

(b) expand the dynamics of patent protection and improve the enforcement of patents on both the judicial and the administrative levels;

(c) simplify and perfect the examination and protection procedures and to protect the legal rights and interests of the parties involved;

(d) establish a diligent, hardworking, trustworthy, practical and efficient team to conduct patent examination and general tasks relating to patents; and

(e) open China's doors in preparation for China's entry into the WTO.

Advancing Technology ¨C A Priority

As part of its efforts to continue the rapid pace of development in China, the Chinese government has made the advancement of technology a top priority. The newly revised Patent Law reflects this mission to achieve the objectives of emphasizing the importance of technological improvements and innovations, encouraging and providing incentives for creativity and staying abreast of the social and economic changes in China. These objectives clearly reflect the requirements of the times and are intended to take full advantage of the influence that a patenting system has on the development of technological improvements and innovations.

The importance of technological improvements and innovations, as reflected by the official position2 and emphasized in the language of the amended law3, also paves the way for other amendments that provide incentives for inventors to come up with inventive and innovative creations. For example, the law has been revised to clarify the definition of a "service invention" and to provide explicit guidelines as to the rights and ownership interests of the relevant parties4.

Rights to service inventions may be determined contractually under the revised Patent Law, a drastic change from the old default rule which stipulated that service inventions ¨C defined as any invention developed in the course of employment or by using the employer's resources ¨C would belong to the employer.

The revised Patent Law also sanctions the use of contractual agreements to allow inventors to assert ownership rights by remunerating the employer for use of its resources to create inventions not within the scope of the employee's work responsibilities. In addition, the system of rewarding an employee for a service invention has been replaced with the obligation to provide reasonable compensation. Presumably, this would be commensurate with the contributions made by the employee in creating the service invention5. These amendments, which clearly protect the rights of inventors, will encourage employed inventors to take initiative in developing innovative concepts and inventions in the course of their employment, once they are secure in the knowledge that they will be suitably rewarded for their efforts.

In keeping up with China's economic reforms, the revised Patent Law abandons the outdated practice of having a State-owned enterprise "hold", but not "own" the rights to a patent. State-owned enterprises are no longer required to seek permission from their supervisory government authority prior to an assignment of patent-related rights. In essence, this allows a State-owned enterprise to enjoy the same rights of patent ownership as a private enterprise as opposed to merely "holding" on to those rights. Consequently, the distinction between "holding" and "owning" a patent has been removed6. This change is undoubtedly in line with the government's efforts to implement the reform of government organizations and enterprises in a socialist market economy.

The revised Patent Law makes several changes to the compulsory patent licensing system, which brings it in compliance with Article 31 of GATT TRIPs. This has resulted in improvements that better protect the rights of a patentee, and to an extent, those of a licensee as well.

In relation to patents that improve upon existing patents, the patent administrative authority may grant a compulsory licence for the predecessor of the patent in response to a petition by the successor patentee. This will only occur if the patented improvement is an important technical advance of considerable economic significance7.

The revised Patent Law provides that when a patent administrative authority decides to grant a compulsory patent licence, the patentee must be provided with timely notice of the decision. The notice should stipulate the scope and duration of the licence, and the patentee may petition the patent administrative authority to issue a decision to terminate such licence once the reason for granting the compulsory patent licence ceases to exist8. The revised Patent Law clearly stipulates that a decision may be subject to judicial review if either the patentee or licensee is dissatisfied with the licence fee stipulated under the compulsory licence. This differs from the original law that stipulated the right to judicial review only in the event that a patentee is dissatisfied with the authorization of the compulsory licence9.

The revised Patent Law raises the bar for government authorities to allow designated entities to exploit patents10 owned by PRC State-owned enterprises, entities under collective ownership, or individuals. The amended law stipulates that the patent at issue cannot be deemed merely as "important", but must be of "great significance" to the national or public interest, and also provides that exploitation of the patent will require prior approval from the State Council. Furthermore, the exception made for such exploitation regarding the requirement to obtain a written license contract has been removed. This means that exploitation of a patent in accordance with Article 14 of the Patent Law must, like other means of exploiting a patent, be concluded by a written contract between the relevant parties11.

Expanding Protection Improving Enforcement

The revised Patent Law reflects the reform of government organizations and the expansion of the powers and responsibilities of the State Intellectual Property Organization (SIPO) (the former PRC Patent Bureau). SIPO is responsible for all work relating to intellectual property in China, and tasks specifically relating to patents are delegated to its subordinate patent administrative authority12. The revised Patent Law defines the roles of patent administrative authorities on the provincial level by giving these local authorities the responsibilities of taking charge of patent administration work in their respective administrative regions.

The chief advantage of obtaining a patent is the grant of exclusive rights such as the right to practice the patented invention or the manufacture, use, sale or import of the patented product. The scope of patent protection as embodied in the grant of these rights has been amended to include the act of "offering to sell" among other rights exclusive to the patentee. The revised Patent Law is now in compliance with Article 28 of GATT TRIPs and will undoubtedly be instrumental in preventing patent infringement at an early stage13.

Under the revised Patent Law, it is no longer a defence against an infringement charge to maintain that you did not know that the patentee had not permitted the sale or use of such products. However, where patented products, or products produced through patented methods, are used or sold for production or operational purposes, the infringing party will not be held liable for damages if it can prove that the products at issue were obtained legitimately14. This revised provision retains the "safe harbour" provided to innocent parties under the original provision while protecting patentees against unscrupulous parties that conduct infringing acts under the guise of ignorance.

A major deficiency in the original Patent Law is the failure to include provisions that expressly state the punitive consequences of infringement. The revised Patent Law attempts to correct this shortcoming by providing specific methods of calculating damages, setting down the details of pecuniary penalties and sanctioning the use of provisional measures to prevent irreparable harm to the patentee. These recent amendments to the Patent Law include specific guidelines for imposing administrative penalties for patent infringement15 and provide a maximum threshold of Rmb50,000 as a penalty for deceptively misrepresenting goods as products that are patented or manufactured by patented methods16.

The revised Patent Law provides that damages for patent infringement may be awarded to the patentee based on actual damages, illegal gains, or a multiple of anticipated licence fees in the event of difficulty in determining actual damages or illegal gains17. Furthermore, the use of provisional measures such as preliminary injunctions to enjoin the alleged defendant/infringer from continuing its infringing activities, so as to protect the lawful interest of relevant parties, is expressly provided for under the revised Patent Law18. This brings it in line with Articles 44 and 50 of GATT TRIPs. In order to accommodate these changes, the Supreme People's Court of the PRC has issued regulations providing guidelines for granting injunctive relief19.

To better protect the rights of all parties, the revised Patent Law attempts to refine the patent enforcement mechanisms. The law has been revised to clarify the division of labour between the judicial and administrative authorities and to spell out the specific tasks and responsibilities of each authority to achieve greater efficiency and to minimize redundancies. Parties in a patent infringement dispute are expressly encouraged, but not compelled, to attempt to resolve their differences through negotiation. If such negotiations are unsuccessful, they can resort to administrative or judicial actions.

Upon realizing that the patent has been infringed, the patent administrative authority may only order the alleged infringer to immediately cease its infringing behaviour and is no longer permitted to order the alleged infringer to pay damages. However, at the request of the parties, the patent administrative authority may still play a mediating role in determining the amount of damages for patent infringement. If mediation is unsuccessful, the parties may file an action in the People's Courts in accordance with the PRC Civil Procedure Law (中华人民共和国民事诉讼法) within 15 days of the issuance of the administrative notice20.

From a practical perspective, these changes will be beneficial to the patent system. Restricting the patent administrative authority to a mediating role will exclude the patent administrative authority from any subsequent court case in relation to the patent dispute between the two parties, and the shortened time period for filing the case will effectively prevent a culpable infringer from trying to defer punishment.

Another objective is to uphold the public interest and prevent the abuse of patent rights by a patentee. This particularly holds true with respect to applications for utility models, which do not undergo substantive examination. Because of this, utility models are subject to exploitation by unscrupulous "inventors" who may file patents for utility models with the express purpose of hindering the manufacturing and operational activities of innocent parties. To avert such abuse, the revised Patent Law allows courts and patent administrative authorities to require parties that wish to enforce a patent for a utility model, to provide an official search report issued by the patent administrative authority.

In disputes involving a patented method for manufacturing a new product, the alleged infringer is no longer required to disclose evidence of the infringing method and will only be obligated to provide evidence of how the infringing method differs from the patented method at issue21. This amendment is intended to protect any confidential information embodied in the method of a party that is wrongly accused, while ensuring that the lawful rights of the patentee continue to be protected.

Improving administration of patents

The revised Patent Law removes the requirement to obtain official approval to proceed with foreign filings and inserts an additional condition that foreign filings must comply with Article 4. This deals with inventions and creations that involve national security as well as other important interests that must be kept confidential. This change is in line with current government and economic reforms that advocate the exercise of civil rights without government interference while protecting national security and other important interests. Removing the approval requirement simplifies the foreign filing process, which will encourage more patentees to file abroad. This broadens the scope of protection afforded to inventions of domestic patentees and strengthens the international competitiveness of domestic enterprises. The revised Patent Law also deals with the submission and handling by the patent administrative authority of patent applications under the Patent Cooperation Treaty that China joined in 199422.

The revocation process, by which parties seek to revoke a patent within six months of its issuance, was originally devised to replace the earlier "objection" procedure where third parties were allowed to raise objections to patent applications after official publication but prior to issuance. It was incorporated in the first round of amendments made to the Patent Law in 1992. Although this change facilitated the process of issuing patents, the revocation process overlaps and, to a certain extent, conflicts with the invalidation process, a procedure by which parties seek to invalidate a patent that has been issued for more than six months. This poses a number of problems in the course of implementation. For example, Article 66 of the PRC Patent Law Implementing Regulations stipulates that the patent administrative authority will not handle an invalidation case while the patent at issue is still going through the revocation process. In order to simplify the workflow of the patent administrative authority, the revised Patent Law removes the revocation system and requires that all attempts to nullify patents be accomplished through the invalidation process, which is now applicable to all issued patents, and no longer limited only to patents that have been issued for more than six months23.

A judicial review will be available for any decision to revoke or forfeit any patent, regardless of whether the patent at issue is an invention patent, a utility model or a design patent. This brings the Patent Law in line with Article 32 of GATT TRIPs. The stipulation in the original Patent Law that an appeals decision by the patent administrative authority involving a utility model or design patent is final has been abolished24, which essentially provides all patents with equivalent rights and legal effect.

The revisions include adjustments to the patent examination and administration procedures and guidelines. For example, to avoid any potential conflict among the different types of intellectual property rights, the revised Patent Law stipulates that a design that conflicts with any other lawful rights obtained earlier by another party will not be patentable25.

Submission of foreign search reports or examination results is no longer an automatic requirement for patent applications that had previously been filed abroad, but is now left to the discretion of the patent administrative authority26.

The revised Patent Law clarifies the ambiguities in the original Patent Law as to when patent rights take effect by stating that an assignment of patent rights is effective on the date the assignment is registered27. It also stipulates that a newly issued patent will take effect on the date the patent certificate is issued28, as earlier provided for in Article 54 of the PRC Patent Law Implementing Regulations.

To protect the rights of all interested parties, the revised Patent Law requires that in the event that an administrative decision in a patent invalidation proceeding is appealed to the People's Court, the court should notify the relevant opposing party and join this party as a third party in the court proceedings29. Furthermore, an exception is provided for non-payment of patent license fees after publication of the patent application and before the granting of patent rights. This stipulates that the two year statute of limitations for the patentee will toll until the patent rights were granted30 and will not start running from the time when the patentee knew or should have known of the unlicensed use of his invention, since this would preclude a patentee from seeking reparation for use of his invention if the time between publication of the patent application and the grant of patent rights exceeded the two year period31.

Teamwork

The Amendments clearly demonstrate that the government recognizes the need to establish a diligent, trustworthy and efficient team to take overall charge of patent work nationwide, particularly with respect to the examination of patents.

The revised Patent Law includes general guidelines that call for the patent administrative authority to act objectively, fairly, accurately and in a timely manner when handling patent applications32. The law also requires that the Re-examination Committee re-examine invalidated patents in a timely manner33. These amendments appear to address the problem of the heavy backlog of patent applications, appeals and invalidation applications in the Patent Administrative Authority under the supervision of the State Intellectual Property Office (SIPO).

Other amendments in this category reveal the government's expectations concerning employees engaged in tasks relating to the administration of patents (patent officials). For example, the law has been revised to include a requirement that the patent agent organizations must abide by the laws and administrative regulations, and to impose the ethical confidentiality requirement on patent officials regarding the contents of the patent application34. The revised Patent Law imposes further ethical requirements on patent officials by prohibiting them from taking part in activities wherein patented products are recommended to the public35, and raises the possibility of imposing administrative or criminal penalties - depending on the severity of the offence - for failure to act responsibly or in the event of an abuse of powers by the patent officials36.

Confidence in Protection

This most recent round of amendments to the Patent Law clearly spell out the level of protection provided to patented inventions and patentees under PRC law and brings a measure of stability and certainty to China's patent regime. Successful implementation of this amended law, particularly with respect to patent enforcement, will give foreign companies and inventors confidence in the protection that can be provided by China's patent system and will enable them to see the value and importance of patenting their inventions in China. In view of China's impending entry into the WTO and its emerging position as a global power, it is only a matter of time until China becomes a major international jurisdiction, where the assertion of intellectual property rights is crucial and where inventions intended for the global market are patented as a matter of course.

Endnotes

1 This revision involves the addition of four new articles, deletion of four articles, and the amendment of 27 articles. This excludes the 16 articles where slight revisions were made for the sake of consistency in language.

2 The Decision on Strengthening Technological Innovations, Developing Advanced Science and Technology and Realizing Industrialization Circular by the Central Committee of the Communist Party and the State Council of the People¡¯s Republic of China.

3 Article 1 of the revised Patent Law.

4 Article 6 of the revised Patent Law.

5 Article 16 of the revised Patent Law.

6 Articles 6, 86, 10, 14 and 16 have been revised accordingly. Another minor, but not insignificant, change made in Article 8 corrects the discrepancy in the old law that only addressed joint inventions as being created by two or more entities, and did not provide for the possibility of a joint invention made in cooperation among two or more individuals.

7 Article 50 of the revised Patent Law, which corresponds to Article 31(l) of GATT TRIPS.

8 Article 52 of the revised Patent Law, which incorporates portions of Article 68 of the Implementing Regulations of the Patent Law.

9 Article 55 of the revised Patent Law.

10 Article 14 of the revised Patent Law

11 Article 12 of the revised Patent Law.

12 Article 3 of the revised Patent Law. To reflect this change, all references to the "Patent Bureau" have been amended to read "Patent Administrative Department under the State Council".

13 Article 11 of the revised Patent Law.

14 Article 63 of the revised Patent Law. Article 63 has also been amended to correct earlier inconsistencies in the statute; the revision provision includes imports and offers to sell among activities that would not constitute infringement if conducted with the consent of the patentee.

15 Article 58 of the revised Patent Law, which calls for the imposition of a administrative penalty of three times the illegal gains,
and in the event that there are no illegal gains, a penalty of up to
Rmb50,000.

16 Article 59 of the revised Patent Law.

17 Article 60 of the revised Patent Law.

18 Article 61 of the revised Patent Law.

19 , issued on June 5 2001 and slated to take effect on July 1 2001.

20 Article 57 of the revised Patent Law.

21 Article 57 of the revised Patent Law.

22 Article 20 of the revised Patent Law

23 Articles 41, 42 and 44 of the original Patent Law have been deleted, and Articles 41, 45 and 47 of the revised Patent Law have been amended accordingly.

24 Article 41 of the revised Patent Law.

25 Article 23 of the revised Patent Law.

26 Article 36 of the revised Patent Law.

27 Article 10 of the revised Patent Law.

28 Articles 39, 40 of the revised Patent Law.

29 Article 46 of the revised Patent Law.

30 Article 62 of the revised Patent Law.

31 This exception is only applicable to patent applications for inventions, which undergo substantive examinations and therefore generally remain pending for longer periods of time.

32 Article 21 of the revised Patent Law.

33 Article 46 of the revised Patent Law.

34 Article 19 of the revised Patent Law.

35 Article 66 of the revised Patent Law.

36 Article 67 of the revised Patent Law.