The amended Chinese Patent Law, which brings PRC patent law closer to World Trade Organization (WTO) requirements, took effect on July 1, 2001. The National People's Congress (NPC) passed the original Patent Law in 1984 and amended it in 1992. The State Intellectual Property Office (SIPO), formerly known as the China Patent Office, began drafting the latest amendments in 1998. The NPC passed the second amended Patent Law on August 25, 2000. The major changes in the amended law can be grouped into three categories: new judicial and administrative protections, improved application procedures, and simplified enforcement procedures.

 

Better judicial and administrative protections

 

The new judicial and administrative protections provided in the amended Patent Law eliminate several major differences between the old law and the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs). 

 

Offering for sale

 

Article 11 of the amended Patent Law gives patent owners the right to prohibit unauthorized "offering for sale," meaning that no one may offer the patented products for sale, advertise the products, or display the products in a store or trade fair without the express authorization of the patent holder.

 

Requiring such authorization enables the patent holder to prevent infringing products from reaching the market. This remedy is especially important for patent holders in cases where the product is for private use and the manufacturer of the infringing product is not easy to identify. Under the previous Patent Law, the right of the patent holder to prohibit unauthorized
third parties' offering for sale was not protected. The amendment eliminates the most significant difference between the previous Patent Law and TRIPs requirements.

 

Statutory damages

 

Under Article 60 of the amended Patent Law, patent infringement damages shall be determined according to the loss incurred by the patent owner, or the profit received by the infringer, as a result of the infringement. When the loss or profit is difficult to determine, the damages shall be a multiple of the patent royalties.

 

The previous Patent Law did not set a standard for determining infringement damages. In practice, courts usually use the general tort standard of infringement remedies of the PRC General Principles of Civil Law. According to the Supreme People's Court's 1992 Circular on Answers to Several Questions in the Trial of Patent Disputes Cases (Supreme Court Patent Circular), the court may calculate infringement damages based on the patent holder's loss, the infringer's profit, or a reasonable royalty. Previously under the royalty method, the damages were a reasonable amount not lower than the royalty. Whether or to what extent the compensation levels rise will depend on the amendment's implementation.

 

Use or sale of patent-infringing products without knowledge

 

According to Article 63 of the amended Patent Law, an entity that uses or sells a patented product or a product obtained from a patented process without knowing that it was made and sold without the patent holder's authorization is not liable for damages-if the entity can prove that the product comes from a legitimate source. Under the previous Patent Law, ignorance was sufficient to exempt a seller or user from prosecution for an infringement, severely crippling the enforcement of patent rights. The amended provision now puts the onus on the user or seller of an infringing product to prove that the product is not
infringing or face prosecution. This allows the patent owner to control the market better and stop infringing sales.

 

Preliminary injunction available

 

Under Article 61 of the amended Patent Law, if the patent rights owner and the interested party can prove that someone is infringing or will infringe on their rights and that without prompt action they will suffer losses, they may seek an order of injunction from the court and take measures to preserve the property.

 

To comply with the "expeditious remedy" requirement of TRIPs, the amendment provides a remedy similar to preliminary injunction found in other jurisdictions. The PRC Civil Procedure Law lays out procedures for the preliminary securing of proof and for property preservation, which cannot be used to stop the infringement before a judgement is made. The old Patent Law has no provision on preliminary injunction. This is the first time that a Chinese patent law provides a procedure similar to preliminary injunction.

 

Stricter standard for compulsory license

 

The amended Patent Law provides a stricter standard for compulsory license than the previous Patent Law. Under Articles 50, 52, and 55, when an invention or utility model that is granted patent rights involves an important technical advance of considerable economic significance compared to the prior granted patent, and the exploitation of the later invention or utility model depends on the exploitation of the earlier patent, SIPO may, upon the request of the later patent holder, grant a compulsory license to exploit the earlier patent (emphasis added).

 

The patent administration department of the State Council (currently SIPO) shall notify the patent holder of its decision to grant a compulsory license and shall register and announce the decision (emphasis added). The compulsory-licensing decision shall specify the scope and duration of the license, based on reasons for granting it. When these reasons cease to exist,
the patent holder may petition the patent administration department of the State Council to terminate the compulsory-license decision.

 

If the patent holder or grantee (the party that applied for and obtained the compulsory license) is dissatisfied with the patent administrative authority's decision to grant a compulsory license or with the adjudication regarding the royalty payable for the exploitation, either one may, within three months of receiving the notification, appeal to the People's Court (emphasis added).

 

A provision of the Paris Convention for the Protection of Industrial Property allows member countries to include compulsory licenses in their patent laws. Nevertheless, Article 31 of TRIPs limits the use of compulsory licenses, as developed countries were concerned that developing countries could harm the interests of developed-- country companies by granting too many compulsory licenses. The amended Patent Law now conforms to TRIPs requirements.

 

Clearer definition of employment invention

 

Under Article 6 of the amended Patent Law, an employment invention is an invention made while performing the tasks of the employer or made by the employee using the employer's material and technological resources (emphasis added). In such cases, the right to apply for a patent belongs to the employer. However, if an agreement between the employer and employee provides otherwise, that agreement applies.

 

Before the amendment, only the use of the employer's materials could qualify the employee's invention as an employment invention. Therefore, the amendment is favorable to employers, especially joint-venture research institutions established by multinational corporations in China. This is different from US patent law, which provides "shopping rights," or the employer's right to use the employee's patent royalty free. The amended law will likely encourage technicians and engineers to innovate.

 

Improvement in patent prosecution procedures

 

Foreign patent applicants had problems with the time-consuming and complicated filing requirements for procuring patents in China. The new Patent Law addresses these concerns by relaxing the filing requirements for foreign and international applicants, requiring the patent authorities to examine the application within a reasonable timeframe, and removing the limitations on international applications by domestic applicants.

 

Prior foreign research no longer required

 

Under Article 36 of the amended Patent Law, SIPO may require an applicant who has filed an application in a foreign country for the same invention to furnish documents concerning any search made for prior art or the reports of such foreign examination (emphasis added). Since SIPO now has adequate searching capacity, the applicant must only submit search reports when required by SIPO.

 

Search report required for utility model

 

Under the previous Patent Law, the patent office did not conduct a substantive examination for a patent application for a utility model, which is any new technical solution relating to the shape and/or structure of a product that is fit for practical use. To prevent someone from filing an identical application in bad faith, Article 57 of the amended Patent Law provides that
while the patent holder advocates his rights, the courts or the patent administrative authorities may require the utility-model patent holder to show the search report issued by SIPO. Since such research reports are issued after substantive examination, the new requirement can prevent the abuse of patent rights by taking advantage of the nonsubstantive examination. A substantive examination deals with the novelty, inventiveness, and usefulness of an item for which a patent has been applied, while the nonsubstantive examination deals with procedural, format, and timing issues.

 

International application by Chinese entities or individuals

 

According to Article 20 of the amended Patent Law, any Chinese entities or individuals intending to file a patent application in a foreign country for an invention made in China shall first file an application with SIPO, which will then appoint them a patent agent. Any Chinese entity or individual may file an international patent application.

 

The old law required a Chinese entity or individual to gain the approval of the relevant administrative authorities before filing foreign or international patent applications but did not define "relevant administrative authorities." This amendment conforms with Paris Convention and TRIPs procedure requirements and may improve opportunities for foreign-invested enterprises, especially the Chinese research and development centers of multinational corporations, to secure more patents both in China and abroad.

 

Agent liability

 

Article 19 of the amended Patent Law requires patent agents to act according to the power of attorney authorized by the patent applicant during the patent prosecution. A patent agent must keep confidential all of the information it obtains during the course of its agency until the application is published or granted. This article may provide a remedy for patent holders if the agent breaches confidentiality.

 

Simplified enforcement procedures

 

The new Patent Law simplifies enforcement procedures in a number of ways:

 

Revocation and invalidation procedures streamlined

 

The amended Patent Law removes revocation procedures to avoid overlap and conflict with the invalidation procedures. Under the old Patent Law, within six months of the granting of the patent, anyone could challenge its validity under the revocation procedure. Now, interested parties can only challenge a patent's validity through the invalidation procedure.

 

Articles 45 and 46 of the amended Patent Law lay out the invalidation proceedings. From the date that SIPO grants patent rights, if any entity considers that the granting of the said patent rights does not conform with the relevant provisions of the law, it may request SIPO's Patent Examination Board to declare the patent rights invalid. The board shall examine the request for
invalidation of the patent right in a timely manner, make a decision, and notify the person who made the request and the patent holder. SIPO must register and announce any decision declaring the patent rights invalid. Any party unsatisfied with the board's decisions may appeal to the People's Court within three months of the receipt of the board's decision. The People's Court shall notify the counter party of the invalidation proceeding so that it may join the litigation as the third party.

 

Defendants in patent litigation commonly challenge the validity of the plaintiff's patent rights. Since most infringement and invalidation cases are litigated in different courts, whether to delay the infringement proceedings until the validity of the patent is resolved becomes a critical issue. According to the Supreme Court Circular, if the defendants in utility-model and design
patent infringement cases petition for invalidity within 15 days, the infringement proceeding will be postponed until the validity issue is resolved. However, in invention patent cases, the court may decide. These different procedures exist because the Board has the final say on the validity of utility-model and design patents, while the Board's decision on invention patents can be appealed. Since all invalidation procedures, including decisions on utility-model and design patents, are subject to judicial review under the amended law, the circular may no longer apply. Observers are also concerned that litigation on utility-model and design patents may take more time, as judicial review is available for these cases.

 

Burden of proof

 

Under Article 57 of the amended Patent Law, where the process invention patent for the manufacture of a new product is involved, any entity or individual manufacturing the identical product must prove that its process is different from the patented process (emphasis added).

 

Although the shift of burden of proof for a process patent for new product litigation is the norm, the amended law imposes another burden on the defendant-to disprove that the infringement occurred. This provision is similar to the US Code, which provides a burden-shifting mechanism if it is likely that the product was made by the patented process and if the plaintiff has made a reasonable effort to determine, but was unable to determine, the process actually used to make the product. Chinese courts seem to impose a heavier burden of proof on the defendant by requiring the defendant to provide such evidence. In contrast, US courts may use their discretion to decide whether the  process is different.

 

Statute of limitation

 

Article 62 of the amended Patent Law provides a statute of limitation of two years for actions concerning reasonable royalties for the use of the technology covered by the pending patent application after publication and before the grant of the patent rights.

 

Jurisdiction of local authorities

 

According to Articles 3 and 57, provincial-- level patent authorities that have jurisdiction can handle any patent infringement dispute. If the authorities find that infringement occurred, they can order the violator to stop infringing. If the alleged infringers disagree with the administrative decision, they can appeal to the court. If the alleged infringers neither appeal nor stop infringing, the authorities may request the court to enforce the administrative decision. However, for infringement damages, the local authorities can only mediate a settlement between the parties, provided that the parties agree to such mediation. If mediation fails, the parties may file suit at the People's Court.

 

Local patent authorities may still investigate and handle the passing off of unpatented products and processes as patented, as stipulated in Articles 58 and 59 of the amended Patent Law. The administrative authorities may impose a fine of between 1,000 ($121) and 50,000 ($6,040) or one to three times the illegal income, confiscate the passed-off products, and order the violators to stop the infringing acts. The punishment decisions imposed by the local patent authorities may be appealed to the People's Court within three months of the decision, according to the Administrative Procedure Law and the Provisions for
Investigation and Handling of Acts of Passing-off Patent.

 

During the legislative process, opinions were divided with respect to keeping or abolishing these local authorities. The amended law keeps these local authorities and grants clear powers to them. As administrative protection is still an important remedy for combating patent infringement and passing off, close contact with the local patent authorities remains an important strategy in patent enforcement.

 

Implementing rules expected soon

 

Before the amended Patent Law took effect on July 1, 2001, the implementing regulations and examination guidelines were expected to be amended as well. Investors hope these rules will clarify outstanding uncertainties about the degree to which the promising provisions of the amended Patent Law will actually protect patent holders' rights. Similarly, as the amended Patent Law does not have transition clauses, SIPO will likely make the necessary transition arrangements in the near future.