Highlights from the SPC's 2018 Annual Report on Intellectual Property Cases

Figure 1. Number of IP cases docketed by the SPC each year

As shown in the Fig. 1, the number of intellectual property cases docketed by the SPC has increased more than five folds since the inception of the annual report in 2008, with last year experiencing the greatest jump in terms of both absolute number and percentage. Among different type of intellectual property cases, the number of patent cases accepted by the SPC in 2018 increased by 103.6% compared with 2017, and the number of trademark cases by 80%. It is expected that the number of cases will continue to grow in 2019.

In the 2018 Annual Report, the SPC identified 37 distinct legal issues from 28 decisions. For patent cases, the SPC provided further clarifications on the legal standards for claim interpretation, which is critical for ascertaining the protection scope of the patent. It also acknowledged that more cases involving telecommunication SEPs were filed, an area that has attracted significant interests particularly against the background of broader trade disputes. The selection of cases for the 2018 annual report also signifies considerable efforts from the SPC on the development of damages laws.

The trademark cases continue to occupy the largest share of the SPC's IP docket. In its commentary, the SPC highlighted issues including standing, counterfeiting products and punitive damages. The evaluation of the similarity between trademarks and between different goods or services is still the focus in many trademark administrative cases. It is hopeful that the 2018 Annual report can bring greater clarity to this area.

Figure 2: IP cases by category docketed by the SPC each year

In the following section, we will discuss several cases from the 2018 Annual Report to illustrate how the SPC addresses specific issues.

1 . "Functional Features" in Patent Claims

Interpretation of technical features defined by function/effect has always been a contentious issue in relevant patent cases. According to Article 4 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), the scope of a "functional feature" covers only specific embodiments described in the specification and drawings for exploiting the function and its equivalent. Due to this legal standard, methods for exploiting the same function may fall outside the scope of the patent claim if such methods or their equivalents are not addressed in the specification and drawings.

Whether a technical feature is a "functional feature" can also be another contentious issue. For example, for a simple feature like "heating oven", it may be understood as a machine (oven) with the word "heating" as an adjective to distinguish it from other types of ovens (such as a drying oven). Alternatively, the word "heating" can be interpreted as a functional limitation, describing the function of the oven (i.e. heating instead of cooling). While these two interpretations may seem the same from a layman's perspective, they can in fact lead to different claim interpretations as the latter may qualify to be a "functional feature" so that the claim scope would be limited by the embodiments disclosed in the specification and drawings and their equivalents.

Due to this uncertainty, the SPC in the 2018 Annual Report referenced two cases, which have the effect of limiting the circumstances in which a technical feature becomes a "functional feature". In the retrial case Shenzhen Huaze Xingye Technology Co., Ltd. v. Guangzhou Tongming Solar Technology Co., Ltd., (2018) Zui Gao Fa Min Shen No.1018, the SPC clarified that, if a technical feature is to be defined by function, the implementation of the function must be directly and clearly determined from the claim by a skilled person in the art, and such technical feature is not a "functional feature", meaning that the protection scope of the claim may not be limited by the embodiments and their equivalents.

Some claims have technical features defined by both functional and structural limitations. In the retrial case involving a utility model patent "Vegetable and Fruit Sorting Device", Linhai Agricultural Machinery Factory v. the individual Lu Jie, (2017) Zui Gao Fa Min Shen No. 1804, the SPC held that such a technical feature is not a functional feature if a skilled person in the art can directly and clearly ascertain the structure of the feature from the claim language. The functional part thus would simply be a limitation on the claim scope, but not as a definition for the technical feature which would trigger the "functional feature" rules.

These two decisions show that a technical feature may not be a "functional feature" even if it is defined by function, when the method of implementation for the function or the structure of the technical feature is directly and clearly provided. It is important that in both cases the claim languages contained information that take the technical feature out of the "functional feature" category, which was also noted by the SPC. It remains to be seen if similar disclosure in the specification or drawings on the method of implementation or the structure of the technical feature would have the same effect of disqualifying the technical feature as a "functional feature". In any event, the patentee does need to be mindful of the claim interpretation rules for "functional features" at the time of drafting the patent claims so as avoid unintentionally limiting the scope of the claims.

2 . Similarity Between Goods and Services

In trademark administrative or infringement cases, courts are often asked to decide whether two types of goods or services are sufficiently similar so as to create conflict between two similar marks. On this issue, courts typically refer to the Classification of Similar Goods and Services, which is based on the Nice Classification under the Nice Agreement. While the Nice Classification system provides extensive listings of goods and services, it can be inadequate at the times in light of rapid economic and social development, as the arrival of new goods and services far outpaces any effort to amend the classification system.

In Patriot Digital Technology Co., Ltd. et. al. v. Shenzhen Feixiang Future Technology Co., Ltd. and Beijing Longtong Technology Co., Ltd., (2018) Zui Gao Fa Min Zai No.3270, both Patriot and Feixiang obtained the registration of the trademark "爱国者" with slightly different designs since 1997. Specifically, Feixiang's trademark is registered under class 9, subclass 0922 for goods such as battery chargers, batteries, solar cells, batteries for pocket lamp, and lighting batteries, whereas Patriot's trademark is registered under class 9, subclass 0901 for goods such as computer, computer keyboards, computer peripherals, and computer printers. After Feixiang used its registered mark on mobile powers, Patriot sued for trademark infringement.

Because the two trademarks contain the same characters, the key issue in this case is whether mobile powers fall under the scope of goods and services registered for Patriot's trademark. In its decision, the SPC pointed out that, when a new type of goods or service arises, a court can compare it with existing goods and services. Such comparison should take into consideration not only the function and details of the goods and service, but also the market environment in which the goods or service is offered and used. Based on such comparison, a court can then designate the new goods or service to the closest category of goods or services in the classification system. In this case, although the registration of neither trademark covers mobile powers, the SPC held that mobile powers is closer to the registered goods of Feixiang's trademark when all factors were considered. Therefore, the SPC rejected Patriot's infringement claim.

3 . Jurisdiction Challenges

While the Civil Procedure Law (民事诉讼法) provides that an infringement case can be filed at the defendant's domicile or the place of alleged infringement, detailed rules relating to territorial jurisdiction are largely the result of judicial decisions. In one important decision cited in the 2018 Annual Report, the SPC put limits on the IP owners' effort to select the most favorable court for filing of cases.

In Ningbo Aux Air Conditioning Co., Ltd. v. the appellee Zhuhai Gree Electric Co., Ltd., (2018) Zui Gao Fa Min Xia Zhong No.93, the SPC addressed two important issues. The first one was whether the target place of delivery for online sales can be considered the place of infringement, and the SPC answered in the negative. In this day and age when online sales take up a significant share of overall commercial activities, a plaintiff preparing for an infringement case can choose to purchase the alleged infringement product over the Internet and request the product be delivered to essentially any location of its choice. In earlier decisions, many lower courts recognized the target place of delivery as the place of infringement, so that the plaintiff can effectively file the case at any court with jurisdiction over the subject matter. Many observers and litigants have long complained that the plaintiff's strategy, if allowed to stand, would eliminate any territorial barriers for jurisdiction and force an alleged infringer to defend cases all over the country regardless of how small and local the defendant's business is.

In the Ningbo Aux Air Conditioning decision, the SPC put a break on such practice, and held that an alleged infringer can be sued at a place within the reach of its regular businesses before the order by the plaintiff is made, such as the place of the seller or the location of storage and dispatch of the alleged infringing products. But the plaintiff cannot sue at the location of the delivery if the only connection between such location and the defendant's business is the plaintiff's order.

The second one concerns jurisdiction limitation in cases involving multiple defendants. In practice, to establish jurisdiction, the plaintiff often sues a local defendant (such as a reseller) with residence within the jurisdiction of the court along with the intended target (often the manufacturer) by alleging that the local defendant and the other target committed joint infringement. In the same case, the SPC held that the plaintiff needs to provide preliminary evidence to prove that there are joint actions or joint intent among co-defendants to satisfy the jurisdiction requirement for all defendants. In the case of manufacturer and reseller, they can be sued in the same case if their respectively alleged infringing actions involve the same infringing products. The SPC reasoned that these parties should be joined in the same case to avoid conflicts in separate judgments.

In summary, these issues encapsulate the ambitious goal of the SPC to unify judicial practice and at the same time tackle difficult legal issues. The SPC is expected to continue this practice and also encourage other influential provincial high courts around the country to take similar actions. Due to these efforts led by the SPC, it is certain that judicial decisions will play an increasingly important role in shaping the legal framework in China.