Infringement Aspects of the New Chinese Patent Law

Prior to the introduction of the new law, the standard process by which an enforcement action was pursued favoured the defendants in the case of an obvious infringement and, in addition, could favour the patentee in enforcing patents of dubious validity.

The major points of frustration centred on counterclaims of invalidity. The moment any enforcement action was pursued in China, a clever defendant filed for revocation of the Chinese patent through the Chinese Patent Office. The Re-Examination Board that considered such matters was distinct from the enforcement agencies themselves. On that basis, there was not the same urgency in the actions of the Re-Examination Board, as the entire case was not their responsibility. The only item within their own jurisdiction was the need to carefully consider the validity issues. In the interim, most enforcement actions taken through the courts or via an administrative route would be stayed pending the results of that re-examination.

The new law that has been introduced has not significantly changed this system; the patent office still has the exclusive jurisdiction in the first instance to consider validity issues. However, the introduction of the equivalent of interim injunctions and also the introduction of specific conditions under which the court can refuse to stay proceedings have the potential to significantly strengthen the position of both patentees and defendants that can demonstrate a strong case for prior use against a hopelessly invalid patent.

A further change in the new law is the introduction of the specific inclusion of an "offer for sale" as an active infringement. Such an inclusion both simplifies the work of a patentee in seeking enforcement by allowing the introduction of advertising materials as an infringement itself as well as reducing a patentee's costs in seeking enforcement. Whereas previously it was always necessary to provide an actual act of infringement, such acts were generally only obtainable through a concerted effort by private investigators, which increased the initial costs of commencing an infringement action. Although the use of private investigators is still important in obtaining as much background as possible on the defendant and details of their activities, work on the infringement action itself can commence without awaiting the final proof of an infringing act through actual sale of a product.

The scope of Chinese patents has now been formally introduced in the new law, with a doctrine of equivalents introduced. The courts have applied a form of doctrine of equivalents in the past and this is now formalized in the new law to add clarity.

Penalties in the new law provide up to three times the profit of an infringement as an award to a successful patentee. Additionally, patent infringement has been further strengthened by the deletion of the requirement of knowledge in the act of infringement.

To show how some of these changes to the law may significantly affect infringement proceedings, we now discuss two hypothetical cases under the new law and comment on how they contrast with prior procedures.

The Clear Infringement

Firstly, we consider a case of enforcement against the product that quite clearly infringes on an existing Chinese patent.

As in the past, it is possible to take infringement actions either through the people's court or seek action by the administrative authorities.

Previously, the administrative authorities could be approached on patent enforcement. Generally, once the administration visited a factory to enforce a patent, a defendant would raise issues of validity. The administrative authority involved would be most hesitant to seize products or enforce matters to the extent they were entitled once validity issues were raised. The authorities themselves were not deemed suitable to consider such validity issues, and the defendant could rapidly seek an application for re-examination or revocation from the Chinese Patent Office. As soon as such an action commenced, further action by the administrative authorities was unlikely.

A similar situation existed in seeking a remedy through the people's court. Although the people's court's powers in providing remedies and awarding damages were stronger than the administrative authorities, they maintained only an appeal position on validity issues. The people's court was not a forum for validity issues to be considered in the first instance.

Upon commencement of a suit at the people's court, a defendant would similarly seek revocation of the Chinese patent based on the closest prior art that they were capable of finding. There was no need for the prior art to be close enough to provide them with a genuinely arguable case, as such matters were not considered at that time. Instead, as soon as such an application for revocation was filed with the Chinese Patent Office, the people's court would stay proceedings awaiting conclusion of the challenge to validity.

The typical time limit for consideration and decision on such challenges to the validity of a Chinese patent through the Chinese Patent Office was usually two years. Throughout this case, a defendant was able to continue their activities to the considerable frustration of a patentee. Although there was the potential for seeking damages through the people's court, and the defendant risked incurring a significant award of damages for their activities during the intervening period, the two year timeframe still provided a clear defendant ample time in which to modify or redesign products or terminate production lines that had continued their infringing activities for a considerable period despite the best efforts of the patentee. If the infringer stopped by the time the validity issues were settled, a patentee would likely only be interested in a case where a significant award of damages was likely. Even then, the patentee always faced the risk of the defendant dispersing assets to leave little for the patentee to attack at the end of the time period.

Under the revised patent law, the patentee has the opportunity to commence proceedings in the people's court and seek a pre-suit injunction and preservation of property similar to the interim injunctions and Anton Pillar orders that may be obtained in other jurisdictions. With this power now available to the patentee, a subsequent stay in proceedings while validity issues
are determined will no longer be of such concern to a confident patentee.

It should be noted that such injunctions require the provision of an undertaking as to damages should the patent ultimately be found invalid or not infringed. However, a patentee confident of defending challenges to validity or of being able to settle the matter before the conclusion of proceedings can now take the upper hand with such an injunction. With the validity issues likely to remain undecided for some time, the patentee is in a much stronger position than previously and would have every chance of obtaining the result they seek.

The Clear Anticipation

With the inclusion of such injunctions passing more power into the hands of a patentee, it is important that the law also attempt to limit the abuse to which such injunctions may be put.

It is not unknown for clearly invalid patents to obtain grant if the majority of the state of the art is contained in the industry rather than the patent literature. China is no different from most other jurisdictions in this regard. However, with the patentee now able to obtain a pre-suit injunction, the prospects for a defendant to sit out the two or more years necessary to get a finding of invalidity from the Re-Examination Board are not so appealing. With production halted for that period, the defendant would need to either redesign or seek to settle. Invalidity issues are not considered in obtaining the pre-suit injunction. Nor is the defendant likely to be satisfied with a claim on the undertaking, should they ultimately succeed, if they are precluded from the market for all of that period.

To balance this, the revised law also allows the court to refuse to stay proceedings in certain circumstances. One of these circumstances is in the case of a prior use of the invention.

The term "prior use" may be considered to cover more than use itself. Although no case has been issued on this point yet, it may suffice that the defendant can show a direct anticipation rather than be restricted to simply use. However, inventiveness arguments would not be considered in this case.

If there is such a clear anticipation, the defendant can seek to continue proceedings and ask the court to consider that matter in determining infringement. It should be noted that the Re-Examination Board still appears to be the only jurisdiction to make a finding of invalidity in the first instance even though the people's court maintains the jurisdiction for appeals. However, the path appears open for the court to make a finding of non-infringement where the defence is based on the prior use rather than specifically declaring the patent invalid. The result will be the same to the defendant in the short term, in that it will conclude the infringement proceedings without having to await a result from the Re-Examination Board first.

Summary

The revised Chinese patent law introduces pre-suit injunctions to significantly enhance the enforcement prospects of a patentee and avoid the unnecessary delays for action resulting from frivolous invalidity attacks.

However, the law also balances this by allowing the court to refuse to stay proceedings and make a finding of non-infringement in the face of a clear prior use. This may assist defendants faced with injunctions based on clearly anticipated inventions.

Overall, the changes appear to strengthen China's stance in favour of a patentee while introducing some necessary safeguards.