China Passed the Fourth Amendment to Patent Law
The Standing Committee of the National People’s Congress promulgated a new revision Patent Law on October 17, 2020. After more than a decade since previous revision in 2008, the Amendment marks the fourth instance in which the Patent Law has been revised. Several new provisions are deemed quite unique in comparison to other IP systems in the world. The Amendment will not become effective immediately but will instead be scheduled until June 1, 2021. During the time gap between now and the date of becoming effectiveness, it is believed that more subsidiary or auxiliary regulations will be put into place in support of the Amendment’s legal framework. A summary of the major changes formulated in the Amendment are elaborated on below.
Design Patent (§§2, 29, and 42)
First and foremost, the revision adds language to Article 2 of the Patent Law which makes partial designs patentable. The amendment redefined a patent-protectable exterior design as, either a whole “or in partial,” the shape, graphic, or the combination thereof that is colored or not on a product appealing to visual effect and adapted to industrial applicability.
The patent term for design patents extends to 15 years from the date of filing, as opposed to 10 years currently. The 15-year term aims to meet conditions set forth in the Hague Agreement which CNIPA vows to concede to.
The Amendment permitted a domestic design application as a valid priority basis for another design application. Specifically, a design patent applicant can claim priority to another earlier Chinese design application filed within six (6) months. The earlier application is deemed withdrawn on the filing date of the later application.
Term Extension and Adjustment (§42)
A patent-term compensation mechanism has also been introduced by the Amendment. For an invention patent granted after four (4) years from filing or three (3) years from examination, the patentee may request a term extension to make up for the unreasonable delay attributable to the examiner during examination.
Furthermore, the Amendment provides a mechanism to compensate for the time of unenforceability of a drug patent due to a market approval examination by the National Medical Products Administration (NMPA, f.k.a. the CFDA). The patentee may request a term adjustment to compensate for the unenforceable period for a maximum of 5 years and the remaining patent term in total caps at 14 years after the launch of a new drug.
However, a calculation formula regarding the extension or adjustment of a patent term has yet to appear.
Remuneration (§15)
The employer is encouraged to reward its inventor/designer employees by bestowing financial assets such as company’s shares, options or dividends, so that the inventor/designer employees may reasonably profit from the revenue generated by their invention or design. However, the option of bestowing financial assets is merely a recommendation and is expected to be more likely adopted by smaller startup companies which have slow cash flows. As it does not authoritatively grant an inventor/designer employee a right to choose, the employee cannot demand for shares over the cash which when the employer so decides.
Damages (§71)
The Amendment also significantly increases punitive damages for infringements. For willful infringement with grave malicious intention, the infringing party may be subject to punitive damages amounting to up to five (5) times of the found injury. The five-fold ceiling is considered revolutionary as it is probably one of the highest available punitive multiples among major IP countries.
Also included in the new Amendment is an increase in the statutory damages which have been increased from RMB 30,000 to 5,000,000 (about USD 4,500 to 760,000) awardable at the court’s discretion depending on numerous factors apart from the standard calculation basis for damages, such as the type of patent or the severity of the infringement.
Rule of Evidence (§71)
To calculate damages, the default rule of evidence requires the patentee/plaintiff to demonstrate documentary materials to support its own findings in damage amount. Subject to certain conditions, the Amendment allows a patentee’s burden of proof to be shifted to an accused infringer/defendant. When the patentee/ plaintiff has exhausted all means in an effort to demonstrate the amount of damages, the court may order the defendant to present hitherto undisclosed information such as ledgers, books or other financial records to the court. If the infringer/defendant fails to do so, the court may support the patentee’s preliminary evidence of damages calculation.
Statutory Time Limit (§74)
The patentee will have more time in which to initiate an infringement action under the Amendment. A lawsuit against an infringer may be filed within three (3) years, as opposed to the current two (2) years, from the time when the patentee or a person of interest knows or is supposed to know both the relevant facts of infringement and of the infringer.
Similarly, in order to enforce the invention application’s provisional right after publication but before grant, the patentee may now claim for reasonable royalty within three (3) years, as opposed to the current two (2) years from the time the patentee knows or is supposed to know the third party’s activities of employing the invented technology. However, the three-year time limit will only be calculated from the date in which the patentee or interested parties knew or should have known the third party’s activities of use.
Grace Period (§24)
Under the current law, to enjoy a grace period of six (6) months to exempt the loss of novelty, the applicant must meet one of the three statutory events: (I) display for the first time in a State endorsed international exhibition, (II) publication for the first time in an academic seminar, and (III) disclosure by another without the applicant’s consent. The Amendment did not make grace period exemption available to all facts of prior disclosure, different from what some legal experts once expected. Instead, the Amendment only added a fourth fact: publication for the first time as per public interests in response to the national emergency or extraordinary situations.
Open License (§§48-52)
The patentee may grant a license to anyone after paying a pre-determined license fee. The China National IP Administration (CNIPA) will approve and make public the patent’s statement of open license intent so that anyone interested in it can join and be bound by the agreement. If the patent opened for license is a utility model or a design patent, a patent evaluation report is additionally required. An open license statement can later be withdrawn. A withdrawal, however, will not revoke any ongoing and effective license(s).
Passing off (§§68-69)
Fraudulent use of others’ patent(s) is an offense and subject to civil, administrative, and/or criminal liabilities. The Amendment elevates the ceiling for administrative fines from four to five times the offender’s illegal gains. For a case in which the illegal gains range from RMB 0 – 50,000, the fine is capped at RMB 250,000. In investigating a case, the local IP enforcement agency may exercise the power to (1) enquire relevant parties of the facts regarding an infraction; (2) conduct an on-site inspection of the suspected offender’s premises; (3) review and duplicate evidential materials such as contracts, invoices and ledgers.; (4) examine products relevant to the infraction; and (5) seize or detain a product provable of counterfeiting a patent. Importantly, in instances in which the enforcement agency approaches a suspect in response to a patentee or interested party’s report, the agency may only engage in inquiry, on-site inspection, and suspected product examination, or the measures listed in items (1), (2), and (4).
Patent Linkage (§76)
The Amendment paved the way for a patent and pharmaceutical linkage system. In September the State Council released a specific document to signal the regulatory introduction of the patent linkage system. As the governing statute, the Patent Law needs to construct a superior framework to accommodate the system.
According to the Amendment, during the review for market approval of a new drug, the approval applicant and the patentee having any legal disputes over the new drug-related patent(s) may file a lawsuit to the court. The court will then rule whether the new drug pending for approval infringes the patent(s) in dispute. The agency responsible for the regulation of drugs under the State Council (National Medical Products Administration), may order to suspend an approval review process in reference to the court’s binding decision. Rather than a court of law, the approval applicant and the patentee may opt to seek an administrative resolution in the CNIPA for the drug-related patent disputes.
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