IP report: Another year wiser

a) Patent infringement cases

The SPC made seven comments on patent infringement cases and addressed the following four issues: the claim constructions, doctrine of estoppel, doctrine of equivalence, and the extended protection scope of the method patent. As per the comments of the Annual Report, the first three issues primarily emphasised the prior pertinent judicial interpretations.

However, the comments made on the extended protection scope of method patents is worth noting as it further clarifies the definition of “the product directly obtained from the performance of the patented method” as defined in Article 13 of the Interpretation on Several Issues Concerning the Application of the Law in Trials of Patent Infringement Disputes (关于审理侵犯专利权纠纷案件应用法律若干问题的解释) (2009 Interpretation).

In the comment on the Zhang Xitian vs. Ouyi Company case (item no.7), the SPC further clarifies that the product directly obtained from the performance of the patented method refers to the “original product” by performing the patented method, and any “subsequent product” obtained from the further process of said original product shall be excluded.

The difference between the “original product” and the “subsequent product” is very important when taking the monopoly right of the patent into consideration. If a product is determined to be an “original product”, it means that the manufacture, use of, sale of, offer to sell, and import of the product is prohibited. However, if a product is a “subsequent product”, only using the “original product” to process the “subsequent product” is prohibited. The other acts, for instance, the use of, sale of, offer to sell, or import of the subsequent product will not be prohibited.

The remaining issues are how to understand “further process” in the SPC's comment. Without a precise definition of “further processing”, it is difficult to determine whether the assembly, furbishing, or even packaging of the original product will constitute the “further process” as described in the comment. In the Zhang Xitian vs. Ouyi Company case, as the accused product is a compound synthesised from the original product, the SPC rejected the plaintiff's claim that the accused product is the product directly obtained from the performance of the patented method. Based upon the judgment of the SPC and widely-accepted doctrine, it isunderstandood that, to determine the existence of “further processing”, certain chemical or physical changes must be introduced on the original product. For example, the subsequent product should possess a substantial chemical or physical difference from the original one.

It is believed that a point of dispute will remain as to how to determine the existence of “further processing” until the SPC issues an explicit interpretation in this regard.

b) Patent administrative cases

The SPC made three comments on patent administrative cases and addressed two issues: how to examine the support of the specification to the claim and how to evaluate the similarity of the prior art to the design patent.

When addressing the similarity criteria in a design patent, the SPC pointed out that the common designs of the associated products shall cast less visual impact on the comparison of design between the patent and the variation of other features. The latter may attract the attention of ordinary customers and more attention shall be paid to this. (see the Honda Corporation vs. Patent Reexamination Board case (item no.9)

As per the logic and methodology of the SPC's comment, it will be advisable for the patentee to produce evidence regarding common designs of the same type of product so as to disprove the similarity of the patented design and the design in the prior art.

Although this comment is introduced by the SPC on an administrative case, the same logic and methodology shall also apply in civil patent disputes. It is believed that it may also be a valuable defence for defendants to argue that the similarity of its design to the patented design is determined by the common design of this type of product. Therefore, the difference existing in alleged infringing products are more attractive to the consumers and should be taken into consideration by the court in its infringement findings.

2. Copyright cases

In this section, five comments are made on various issues, among which, the comment made referring to the Zhongkai Ltd. vs. Shuimu Nihua Internet Cafe case is particularly valuable for foreign copyright owners. In the above-noted case, the SPC explains that the copyright of a foreign right owner will not be limited by the administrative approval of the disputed works. As such, the lack of administrative approval for the importation of foreign films or TV programs shall not be a barrier for foreign copyright owners trying to protect their copyright in China.

The above-noted SPC's comment can be viewed as an echo to the latest revision of the PRC Copyright Law (中华人民共和国著作权法 (第二次修正) (Copyright Law). The newly-revised Copyright Law has deleted the clause which excluded the protection of the copyright to works that are prohibited from publication or distribution by law. Considering the serious pirating situation in China, in particular, those popular foreign movies and TV series, it is deemed encouraging for foreign copyright owners to enforce their rights nation-wide.

3. Trademark cases

Similar to the section on patent cases, this section is further divided into two categories, for example, trademark infringement cases and trademark administrative cases.

a) Trademark infringement cases

In this part, when commenting on the criteria of determination of similarity between the registered trademark and the infringing trademark, the SPC emphasised the importance of “confusion” in the determination. As per the comment, it is likely that the SPC has established that the sufficiency to cause confusion in the market is the crucial and final factor to determining similarity between the marks.

In addition to the trademark similarity issue, SPC also addressed what is the proper liability to be found against the trade name infringing on the registered trademark. SPC further pointed out that prohibiting the defendant from using the infringing trade name and ordering the defendant to use the trade name properly are actually two different types of liabilities. These two different types of liabilities shall be applied to different case situations (see the Li Huiting vs. Da Lian King Company case). As the full text of the case is not yet available, how the SPC draws the line between the two situations has yet to be further confirmed by reference to the above-noted case.

b) Trademark administrative cases

I. The prior registration of similar trademarks is a crucial element to determine whether a trademark is a copy of another party's famous trademark

In the comment on the “苹果男人” trademark administrative case (item no. 20), the SPC states that, if the opposed trademark is more like the opposed party's prior registered trademarks in the same category compared with the referenced famous trademark, it should not be recognised as a copy of the referenced famous trademark.

The SPC's comment on this case confirmed that the prior registration of trademark is a due reason for the trademark owner to register similar trademarks in the same category. As such, once the party acquires a trademark registration in a category, it will be a major obstacle for others to oppose its further registration of other similar trademarks in the same category. Therefore, if a party intends to oppose another's trademark on the basis of a famous trademark, it should try to cancel the prior registered trademark of the opposed party before filing any opposition to the latter trademark applications.

II. The initiative and actual use of the disputed marks or name by the right claimer is the necessary basis for any claim of legal protection thereof

In the comment on the “索爱” trademark administrative case (item no. 22), the SPC declares that the actual use of the unregistered trademark, company name, or product name is the necessary basis for Sony-Ericsson to claim any legal protection thereof. As Sony-Ericsson did not have any intention or action to use the trademark “索爱” before it filed the trademark cancellation, the news reports by the media will not be sufficient to establish its lawful civil rights on the mark.

This case reflects the SPC's continuous opinion regarding the establishment of the unregistered right by active use, and that one may not claim the right incurred from passive use. To avoid any unfavourable result caused by squatting, it is advisable to initiatively register those marks widely used by the public to obtain the full protection of the same.

4) Anti-unfair competition

In this section, the SPC confirms that the trade name right can be inherited (see Weixiong vs. Shunde Zhengye), and further clarifies the criteria of the application of Article 2, the principal article of anti-unfair competition law. The SPC also addressed the trade dress issue which will be discussed in detail in the following part.

a) The criteria of the principal article of anti-unfair competition law is further clarified

In the comment on the “Seaweed Ration” unfair competition case (items no. 25, 26 and 27), the SPC established the criteria for application of article 2 to evaluate the infringement. To establish infringement under Article 2, the following three elements are to be met:

i) Not belonging to the specific infringement acts stipulated under other articles in anti-unfair competition law;

ii) Actual losses are suffered by the infringement; and

iii) The act is improper and consistent with publicly-accepted commercial ethics.

Through this case, the SPC emphasised the prudence in the application of article 2 and indicates its inclination of provision of protection to the employee. In this case, the SPC commented that absent of non-compete obligations, the employee's act of planning to establish a competing company before resignation is not necessarily an improper act that should be blamed under anti-unfair competition. In addition, competing with the prior employer for dealing opportunities is also allowable unless illegal acts are contemplated. The SPC further commented that the employee has the freedom to use his/her knowledge, experience, and techniques obtained from his/her previous works.

It is advisable that employees and employers should reach non-compete agreements if the employer desires to prevent its former employee from serving competing entities. Absent of such agreement, it will be extremely difficult for the employer to prohibit its employees from participating in competing activities.

b) The expiration of a design patent right will not affect the protection of the product on the basis of the specific package and decoration of the famous product

In the comment on the “Chenguang Specific Decoration” unfair competition case (items no. 28 and 29), the SPC opines that the specific package or decoration of a famous product can be protected by the PRC Anti-unfair Competition Law (中华人民共和国反不正当竞争法) after the expiration of the design patent right on the product.

The SPC's comment on this case has resolved the long-standing debate on the impact of design patent right expiration. The expiration of the patent right does not necessarily mean the design of the product enters the public domain. The design owner can still protect its right to the specific package or decoration of a famous product under the Anti-unfair Competition Law.

It is also worth noting that for the same case, the SPC further confirms that the shape of a famous product can be protected if it has features different from a common design and has gained secondary meaning. Such definition is very similar to the trade dress protection in other countries and further clarifies the criteria for the shape of a product protectable under anti-competition law.

5) IP-related Contract Cases

In the comments on the Guangxi High People's Court Consulting case (items no. 30 and 31), the SPC clarified that the mandatory rules of the administrative regulations can be categorised into two sorts, for example, the mandatory rules for administration and the mandatory rules for effectiveness. The violation of the mandatory rules for administration will not necessarily jeopardise the effectiveness of the IP contract. However, the violation of the mandatory rules for effectiveness will directly cause the invalidation of the IP contract.

The mandatory rules for administration are generally those rules for the administration of business operations stipulated in the administrative regulations. Additionally, the mandatory rules for effectiveness are usually those rules related to the eligibility of parties.

Said categorisation by the SPC will make the enforceability of a contract more foreseeable, therefore, it is advantageous for the contracting party to estimate associated legal risks.

6) Infringement liabilities

In this section, the SPC clarifies some issues relating to the damages claimed in the IP-related cases. Comments made in this section reflect that the SPC deems that the damages awarded shall be consistent with the infringement committed. Therefore, when multiple infringers are sued, their respective infringement liabilities, in particular, the damages, shall be evaluated and determined corresponding to the acts they committed.

7) Evidence and other procedural issues

In the evidence part, the case pertaining to copyright infringement is worth noting. In the Getty Image vs. Chongqing Foreign Transportation Ltd case (item no.39), the SPC deems that, without any substantial counter-evidence, photographs downloaded from the internet can be used as evidence to prove the release of the photographic works. Also, the signer of the signature on these downloaded photographs shall be recognised as the author of the works.

The SPC's opinion in this case will greatly alleviate the plaintiff's burden of proof in the claim of copyright infringement dispute. As the internet is a very convenient and fast channel to obtain all kinds information, the SPC's recognition of the evidence obtained from the internet will provide the plaintiff more alternatives in proving its right basis when claiming infringement.

Final thoughts

The Annual Report from the SPC has reflected the development of China's IP laws in 2010. The comments in this report have provided the participant of the IP practices with a more vivid image of PRC IP laws and judicial practices. Those questions raised by the report have yet to be discussed and answered by the SPC.

Xu Jing, King & Wood, Beijing