How the Chinese Supreme Court has changed patent litigation

The judicial system

China's judicial system consists of four levels of courts: the Basic People's Court; the Intermediate People's Court; the Higher People's Court; and 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 two instance judicial system – the decisions of the court of first instance can be appealed to the court at the higher level, essentially making a final decision. Due to 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.

China is a civil law country and has adopted aspects of the German patent system. For example, China has a split system, with infringement claims heard solely by the courts and invalidity claims solely by the Patent Reexamination Board.

In China, infringement generally is determined in the following way: construing the scope of the patent in suit; analysing the relevant technical characteristics of an accused product or process; and comparing all technical features of the patent claims with those of the accused product or process.

Interpreting claims

Under the PRC Patent Law (中华人民共和国专利法), the scope of an invention or utility model patent is determined by the terms of the claims. The descriptions and drawings may be used to interpret the claims.

In the Opinion, the SPC emphasised a balanced approach to claim interpretation – the claim language must be balanced against the object of the invention. The object of the invention limits the scope of a patent; inferior inventions, such as inventions that do not fulfil 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 have less protection.

The SPC reiterated the principle for claim interpretation: disclosed but unclaimed technical features are dedicated to the public and are not within the scope of a patent. Moreover, the estoppel principle is alive and well. A patentee is estopped from 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 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.

Determining infringement

Courts must follow the all elements rule: each technical feature such as an element in a patent claim must be met by an accused 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 substantially performs the same function in the same way and achieves 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 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 where it should not be applied. For example, the doctrine of equivalents cannot be applied to cover prior art. Additionally, subject matter surrendered during prosecution or invalidation cannot be recaptured by the doctrine of equivalents.

Prior art defence

The third amendment to the Patent Law in 2009 codified prior art defence. But it was not clear from the amendment whether an accused infringer must practice exactly what is in the prior art. The Opinion confirmed that practising prior art is a defence to claims of both literal infringement and equivalent infringement. According to the Opinion, the prior art defence can be established by showing that an accused 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, like an application filed earlier but published later, also constitutes prior art for prior art defence purposes.

The Opinion is silent on whether two or more prior art references can be used to raise the prior art defence. In a previous decision issued in December 2009, the SPC ruled that two prior art references could be combined to establish prior art defence. 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, without inventive labour.

The Opinion does not seem to conflict with the prior SPC decision. The Opinion and the SPC decision delineate the means to establish prior art defence: 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; but using such references may indicate the weakness of the defence.

Dealing with patent abuse

The concept of patent abuse was proposed but not adopted in the third amendment to the Chinese Patent Law in 2009. The SPC did introduce such a concept in the Opinion though, reining 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 sending of warning letters or filing of infringement suits on patents that the patent owner knows to belong to prior art. In such a case, the patent owner is liable for damages suffered by the victims due to such assertion.

The Opinion is silent on what constitutes knowledge and belonging to prior art. Presumably, it should suffice if evidence proves that the patent owner knows or is in possession of a novelty-destroying prior art reference.

The introduction of patent abuse is a healthy step toward a strong patent system. 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 known to be invalid. As such, numerous utility model patents were filed on what is already in prior art. Utility model patents are not substantively examined but can be enforced almost like 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, patent owners should be reluctant to assert patents that are clearly invalid. On the other hand, the Opinion enables an accused infringer to file countersuits based on patent abuse. Therefore, it may have opened the floodgate for retaliatory litigation for patent enforcement in China. Patent owners should evaluate the validity of their patents before launching attacks on infringers.

Preliminary injunctions

The Patent Law authorises 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 been met. Once issued, the injunction is immediately enforceable. The patentee, if it has not done so already, must initiate an infringement action in the courts within 15 days or the injunction automatically will be lifted.

Chinese courts consider the following factors in determining whether to issue preliminary injunctions:

• whether there is infringement;

• 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;

• whether the patent owner has provided an adequate bond; and

• 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 repeatedly against granting preliminary injunctions in cases involving non-literal infringement or complicated technologies.

In the Opinion, the SPC once again urged restraint in issuing a pre-suit injunction, a common form of preliminary injunction in China. It emphasised that the conditions for granting pre-suit injunctions are clear and infringement is readily ascertainable. Cases involving complex technologies are not amenable to pre-suit injunction. Pre-suit injunctions should not issue where there is an invalidation decision on the patent in suit (even if the decision is under appeal). If practicable, courts should hear arguments from both sides in determining infringement.

Pre-suit injunctions have been a rarity in recent years for patent infringement cases in China. The Opinion spells the death knell of such injunctions in complex patent cases. This is a disappointing development. A strong patent system makes preliminary relief readily available, but China is going in the opposite direction.

Shifting the burden of proof

China's legal system subscribes to the notion that those who assert a claim must prove it. As such, the burden of proof generally resides with the claimant. The Patent Law provides for 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 infringer's product is the same as the product made by the patented method and the product is new. Then the accused infringer must prove that they use a different method.

The Opinion affirmed such shifting of the burden of proof. According to the Opinion, where a patented method makes a new product and the patent owner proves that the product and the method are not known to the public before the priority date of the patent and the defendant's product is identical to the patent owner's new product, the burden of proving non-infringement shifts to the defendant, who must prove that they use a different method.

Importantly, 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 patent owner proves that the products are identical;

• the patent owner has made reasonable efforts but is unable to prove infringement; and

• the court concludes that there is a high likelihood that the accused 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 the patent owner's rights against the accused infringer's legitimate interests in protecting their trade secrets. Courts should grant evidence preservation such as a seizure order when there are difficulties in collecting infringing evidence for method patents. At the same time, courts must prevent abuse of such procedures to safeguard the defendant's trade secrets.

A new era

By judicial authorisation, the SPC has created a sea change in how Chinese courts will adjudicate patent infringement disputes. Creating a private cause of action for malicious assertion of invalid patents is likely to discourage junk patent filing and enforcement. Allowing discretion for judges to shift the burden of proof for method patents that do not produce a new product will undoubtedly benefit method patent owners. The balanced approach to claim interpretation seems to strike an appropriate balance between the patentee's interests and public interests. Rigorous application of the dedication rule, the all elements rule, the estoppel principle, the prior art defence, 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, SPC's rigorous restriction on the grant of pre-suit injunctions in patent cases unnecessarily dilutes patent owners' rights and is counterproductive.

Benjamin Bai and Helen Cheng, Allen & Overy, Shanghai