Patent Law improves again

Before filing a patent application, foreign-invested companies often assign all rights in inventions to their parent companies overseas, by methods including technology transfer agreements. They may even simply ignore the first-filing requirement; the existing Patent Law does not impose any penalty for failure to comply.

Under the amendments, the first-filing requirement is to be waived; in return the Revised Patent Law stipulates that an invention “completed in China” by any entity or individual, irrespective of their nationalities, may file a patent application abroad, or file Patent Co-operation Treaty applications through other receiving offices (a so-called Foreign Application), provided that such an application is first submitted to the Patent Administration Department under the State Council (PAD) for a “confidentiality examination”. Failure to comply with Article 20 will result in a refusal of grant of the corresponding patent in China.

Similar foreign filing restrictions are imposed by countries such as the US and UK. US patent law requires that a “foreign filing licence” be obtained for an invention made in the US in advance of any foreign patent filing. In the UK, a similar restriction only applies if the application contains information which relates to military technology or if, for any other reason, publication of the information might be prejudicial to national security or public safety. A brief summary of the relevant provisions is shown in the Comparison table of foreign filing requirements.

Whether or not an invention is “completed in China” determines the applicability of Article 20. However, no definition of this phrase is given in the Revised Patent Law or the Draft Regulations. In the US, an invention “made in the US” means the relevant research was conducted and “reduced to practice” in the US (Sealectro Corp. v. L.V.C. Industries, Inc., 271F. Supp. 835 (E.D.N.Y. 1967)). With no definition provided in the revised legislation, it is highly possible that the Patent Office and the People's Courts will have different interpretations.

It is still uncertain how the confidentiality examinations are to be conducted. The Revised Patent Law only stipulates that the procedures shall be in accordance with regulations of the State Council⁶. Specific details have not yet been made available.

Absolute Novelty

Under the existing Patent Law, an invention or utility model is novel “if it has not been published in China or elsewhere, or not been used, or made known by other means, in China prior to the date of filing, nor has any other person previously filed with the PAD an application describing the identical invention or utility model, nor has it been recorded in any patent application document published after the said date of filing.” In practice, this is only a relative novelty test as “use” (including sales, offer for sales and manufacturing) outside China generally does not destroy the so-called novelty. Domestic companies have, in the past, attempted to take advantage of this loophole to claim patent rights for inventions or utility models which have been used in foreign countries but not in China.

Under the Revised Patent Law, the concept of “state of the art” (the Chinese expression 现有技术 is used) has been adopted so that any technical solution known to the public in China or abroad before the date of filing will no longer meet the novelty requirement. Any use or publication of relevant prior art outside China can now be used as evidence to invalidate a patent in China on the grounds of lack of novelty.

This amendment will bring the standard of patent applications in China in line with international practice.

Administrative power of SIPO

SIPO, being an administrative arm under the State Council, oversees the administration procedure relating to patent application and registration. It is also empowered by the existing Patent Law to enforce registered rights in China.

The Revised Patent Law specifically provides that SIPO has the power to conduct administrative action against anyone who passes himself off as the owner of a registered patent which is owned by another. In an administrative action, SIPO may inspect documents including books of account, conduct on-the-spot investigations, seize infringing products and forfeit illegal profits obtained.

SIPO also has the power to impose a fine of not more than four-times the illegal earnings or, in a case where no illegal earnings can be determined, a statutory fine up to Rmb200,000 (US$29,250).

In practice, SIPO seldom takes administrative action against infringement of patent rights under the existing law. This is because, unlike trademark infringement, there are practical difficulties in determining whether there is infringement without a careful examination of the patent claims and the infringing goods, and relevant technical knowledge is also required. Given that a claim of passing-off case regarding the ownership of a patent should be relatively easier to determine, SIPO may be more willing to use the powers given by the law.

Statutory damages

According to the Regulations of the Supreme People's Court on Laws Applicable to Trial of Patent Dispute Cases, the maximum statutory damages that can be awarded for patent infringement is Rmb500,000. The Revised Patent Law provides the Court with the discretion to order statutory damages in the range of Rmb10,000 to Rmb1 million.

The Revised Patent Law also expressly stipulates that the damages for patent infringement shall include “reasonable expenses” incurred by the patent owner in enforcing its rights. At the moment, no definition is given as to what constitutes “reasonable expenses”⁷, but the general view is that legal fees should be included. Hopefully a defined scope of reasonable expenses will be set out in the eventual Implementing Regulations.

Employee inventor reward and remuneration

Articles 6 and 16 of the existing Patent Law impose an obligation on an employer to reward and remunerate an employee inventor at a reasonable rate. However, the present Implementing Regulations set out certain reference criteria to reward and remunerate an employee inventor for State-owned entities only, whereas other legal entities in China may adopt the same. There has been speculation as to whether such an obligation is extended to non-State-owned entities.

The reference to “State-owned entities” in the Implementing Regulations has been removed and the Draft Regulations propose to replace the term with “Chinese entity”, which should include all foreign-invested wholly-owned foreign entities, equity joint ventures or co-operative joint ventures.

The Draft Regulations also expressly provide that a Chinese entity can agree with an employee inventor on the reward and remuneration by way of contract, failing which the reference criteria set out in the Regulations shall apply. To minimise the risk of uncertainty, employers are strongly recommended to make specific provision in employment contracts for a scheme of reward and remuneration and to set out procedures for resolving any disputes.

Conclusion

The amendments are intended to bring the PRC Patent Law in line with international treaties such as the Trips (Trade-related Aspects of Intellectual Property Rights) agreement. The wording has been changed to attempt harmonisation with international practice. The amendments bring greater certainty to the system as a whole which, it is hoped, will bring benefits to users of the Law.

Endnotes

1. A foreign-invested company is also considered as a “Chinese entity”.

2. Joint Submission of the American Bar Association's Section of Intellectual Property Law, Section of International Law, and Section of Science & Technology Law on Draft Amendments to the Patent Law of the People's Republic of China (2006).

3. Where any entity or individual files an application in a foreign country for patent for an invention or utility model completed in China, the party shall first report to the patent administration department under the State Council to conduct a confidentiality examination. The procedure and time limit of the confidentiality examination shall be conducted in accordance with regulations of the State Council.

Any application for inventions or utility models filed in a foreign country in violation of the first paragraph of this Article, the application for the corresponding invention or utility model in China will not be granted.

4. Except when authorised by a licence obtained from the Commissioner of Patents, a person shall not file or cause or authorise to be filed in any foreign country before six months after filing in the United States an application for patent or for the registration of a utility model, industrial design, or model in respect of an invention made in this country.

5. There are certain exceptions to this general rule including an earlier application filed in the UK not less than six months.

6. The Draft Implementing Regulations of the PRC Patent Law propose that an entity or individual shall submit a request and provide details of the technical solution to PAD before any foreign filing. If PAD believes that the invention or utility model may have implications on national security, it shall notify the applicant promptly. PAD shall decide as to whether such patent application needs to be kept secret and inform the applicant within four months from acceptance of the request.

7. According to the Supreme People's Court, Several Provisions on Issues Concerning the Application of the Law in Trials of Patent Disputes (最高人民法院关于审理专利纠纷案件适用法律问题的若干规定), the People's Court has the discretion to include investigation costs and the costs incurred for stopping patent infringing activities into the damages.