Amendments to the Patent Law of the People's Republic of China

China's top legislative body, the Standing Committee of the National People's Congress, approved a series of major amendments to the Patent Law of the People's Republic of China (the 2008 Patent Law Amendments) on December 27, 2008. It is the third set of major revisions to China's patent law, which was originally enacted in 1985. The legislature first revised the patent law in 1992, following China's signing of the international Patent Cooperation Treaty. The law was revised a second time in 2000, as China was joining the World Trade Organization, primarily to comply with the WTO's Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).

The 2008 Patent Law Amendments differ from those previous revisions, however, in that while they are partly designed to align Chinese law with international standards (most notably, by shifting to an "absolute novelty" standard for granting patents), the impetus for change came internally, as Chinese leaders believe that by strengthening the country's patent protection system they will strengthen the nation's economy over the long term. The changes contained in the amendments likewise reflect China's 20-plus years of experience with patents, for example in the rules pertaining to gene-based patents. In addition, the goals of the 2008 Patent Law Amendments are both aligned with and reinforce a series of legislative policy moves by the Chinese government in the past several years. Together, those changes are designed to shift the nation's economy away from its decades-long reliance on manufacturing and exports and towards technology and innovation—and higher-paying jobs.

Background

As we noted in the October 2008 issue of China Law Update, when we summarized the 2008 Patent Law Amendments in draft form, over the past few years the Chinese government has made a concerted effort to reshape the Chinese economy, supporting industries that provide higher-paying jobs and foster technological innovation. The need for change is captured by Chinese government statistics, which suggest that relatively few patent filings in China (about 20 percent) cover inventions. And of those invention patents, more than half—53 percent, according to the State Intellectual Property Office (SIPO)—are actually owned by foreigners. Thus, while some of the changes embodied in the 2008 Patent Law Amendments are intended to bring Chinese patent law into conformance with international standards, their overarching purpose is to encourage creativity and improve the innovative capacity of Chinese industry.

That broad goal was stated clearly in the Compendium of China's National Intellectual Property Strategy, which was issued by the State Council in June 2008: Develop China into "a nation with an internationally top level of creating, using, protecting and managing [Intellectual Property Rights] by 2020." China Law Update has tracked the Chinese government's administrative and legislative efforts to transform the nation's economy, summarizing documents and laws such as the Catalogue for the Guidance of Foreign Investment Industries (China Law Update, January 2008), which sought to steer investment towards industries that promote energy conservation, environmental protection and technological innovation; the PRC Enterprise Income Tax Law (May 2007), which provided incentives for high-tech enterprises; the Measures on Administration of the Recognition of High-Tech Enterprises, the Catalogue of High-Tech Sectors Supported by the State on a Priority Basis, and the Circular on Issuance of the Working Guideline for Recognition and Administration of High-Tech Enterprises (all in the July 2008 issue).

The 2008 Patent Law Amendments, which were passed after more than two years of drafting and debate, continue those efforts. The changes are designed to foster technological innovation by making it easier—and more profitable—to register, own and enforce patents in China. While some important questions remain unanswered—implementing regulations are sure to follow—the key changes are summarized below.

Restatement of Definition of Creations

The 2008 Patent Law Amendments provide that creations—inventions, utility models and designs—are eligible to be patented. The amendments restate the legal definition of "creations," making the definition clearer and more straightforward:

• "Invention" refers to any new technical solution relating to a product, a process or an improvement thereof.
• "Utility model" refers to a new technical solution relating to a product's shape or structure, or a combination thereof, which is adapted for practical use.
• "Design" refers to any new design of a product's shape or pattern, or a combination thereof, as well as the combination of the color, shape or pattern of a product, which creates an aesthetic feeling and is adapted for industrial application.

"Absolute Novelty" Standard

China's patent laws require invention patents and utility model patents to possess novelty, creativity and practical app1icability. The 2008 Patent Law Amendments raise the standard of novelty required to grant a Chinese patent, adopting the "absolute novelty" standard that is used internationally. Existing Chinese law requires that inventions and utility models not be attributable to any existing technology published either inside or outside China, or that was used openly or known to the public inside China. The amended "absolute novelty" standard will require that the invention not be known publicly either inside or outside China prior to the date of application for a patent, thus bringing Chinese law into conformance with international practice.

Likewise, design patents must not be attributable to any existing design that is known publicly, either inside or outside China, prior to the date of the filing of the patent application, and must have distinctive features.

Patent Rights for Inventions that Use Genetic Resources

In addition to banning patents on creations that violate laws or social morality, or that are against the public interest, the 2008 Patent Law Amendments forbid the granting of patents on certain genetic creations. In order to receive a patent for an invention that utilizes genetic resources or material, an applicant must document the source of the genetic material, or otherwise explain the inability to document the source. If the manner of acquisition or use of the genetic material is in violation of any law or administrative regulation, no patent will be granted. This provision is designed to protect national and ethnic interests, and is a reaction to at least one high profile example of a foreign multinational using native Chinese plants to isolate genetic material and acquire patents around the world.

Concurrent Applications for One Creation

Generally, only one patent may be granted for any one creation. However, because an invention itself also qualifies as a utility model, the 2008 Patent Law Amendments allow an applicant to apply simultaneously for both a utility model patent and an invention patent. This change will benefit patent holders in two ways. First, because the standards for receiving a utility model patent are easier to satisfy, the inventor can obtain a patent more quickly, thus protecting the creation before an invention patent is granted. Then, once the conditions for granting an invention patent have been satisfied, the 2008 Patent Law Amendments allow the applicant to waive the right to a utility model patent and obtain the invention patent. The inventor can then benefit from the longer protection period (20 years) awarded to invention patents than utility model patents (10 years).

Exploiting Jointly Owned Patents

The 2008 Patent Law Amendments also provide rules for how patents that are jointly owned by two or more individuals or entities may be exploited. If there is an agreement regarding the exploitation of a jointly owned patent between or among co-owners, such agreement shall be followed. If there is no such agreement, any of the co-owners may exploit the patent independently or license the patent to another by means of an ordinary (non-exclusive) license. In the case of a license being granted, royalties shall be distributed among the co-owners. Exploiting the patent in other ways (i.e., granting an exclusive license) requires the consensus of all co-owners.

Confidentiality Review for Overseas Filing

China's existing patent law requires all Chinese individuals and entities to file patent applications for domestically made creations in China before filing overseas. There has been considerable debate about the meaning of that phrase—i.e., who qualifies as a Chinese individual or entity. The 2008 Patent Law Amendments to some extent obviate this debate by eliminating the mandatory domestic filing requirement. Instead, the amendments require any entity or individual intending to file a foreign patent application for an invention or utility model that was "completed in China" to report in advance to SIPO for a confidential review.

According to the 2008 Patent Law Amendments, violations of this prior-review provision will result in serious consequences:

• any subsequent application for a Chinese patent will be rejected if the invention or utility model was not reviewed by SIPO before the overseas filing; and
• administrative and possibly criminal penalties may be imposed if Chinese national secrets were disclosed due to the overseas filing.

Among foreign companies with research and development centers in China, this prior-review provision has provoked the most discussion—and raised the most concern. Some have expressed concern, for example, that technology or business secrets might unlawfully or accidentally be disclosed by the China government or government officials (though government officials have an obligation to maintain confidentiality under the 2008 Patent Law Amendments). Others are worried that SIPO might use this prior-review clause to stall applications for foreign patents, thus in effect eliminating, in practice, the very change the 2008 Patent Law Amendments claimed to effect.

Compulsory Licensing

Among all intellectual property rights, patents are the most powerful. Once a patent is granted, others are prohibited from freely using the new technology, unless otherwise permitted to do so by the owner of the patent. This exclusive right, however, does not always advance—and sometimes hinders—technological innovation and scientific progress. The 2008 Patent Law Amendments contain a compulsory licensing provision intended to prevent patent holders from abusing their right to control their inventions.

The 2008 Patent Law Amendments allow SIPO to grant a compulsory license to exploit an invention patent or utility model patent under certain circumstances:

• the patent holder fails to exploit or has not fully exploited his or its patent within three years from the date the patent was granted and four years from the filing of the patent application, without a proper reason; or
• the patentee's exploitation of his or its patent is determined by law to be a monopolistic act, and licensing will eliminate or reduce the adverse effects of such acts on economic competition.

The 2008 Patent Law Amendments also contain exceptions to the above provisions and circumstances under which SIPO may grant a compulsory license:

• Notwithstanding the above restrictions, SIPO may grant a compulsory license for public health purposes to manufacture or export patented drugs to certain countries or regions in accordance with relevant international treaties to which China is a signatory.
• For an invention involving a semi-conductor technology, a compulsory license shall be granted only for the purpose of advancing public interests and eliminating restrictions on competition, as described under the second circumstance above.
• A compulsory license shall be used only to satisfy the needs of the Chinese domestic market, except for the purpose of licensing patented drugs and eliminating restrictions on competition as described above.

Strengthened Protective Measures

The 2008 Patent Law Amendments also provide greater protection to patent owners in China. The amendments increase the amounts both of civil damages and administrative penalties in cases of patent infringement.

Civil Compensation

The 2008 Patent Law Amendments detail the method for calculating civil compensation for patent infringement. In addition, they add a provision allowing for statutory damages (compensation defined by law) to be awarded when the damages to the patent holder cannot be determined.

According to the 2008 Patent Law Amendments, the amount of compensation for infringement shall be determined on the basis of actual losses incurred to the patentee as a result of infringement. If the actual losses to the patent owner cannot be determined, compensation may be determined on the basis of the illegal gains obtained by the infringer as a result of the infringement. If illegal gains cannot be calculated, the compensation shall be determined by reference to a reasonable multiple of the license fees of the patent that has been infringed upon.

If actual losses, illegal gains and license fees cannot be determined, courts are authorized to award statutory damages to the patent owner ranging from RMB 10,000 to RMB 1,000,000, depending on the type of patent as well as the nature and extent of the infringement.

The amount of compensation shall include reasonable costs and expenses incurred by the patent holder to stop such infringement.

Increased Administrative Penalties

In addition to being liable for civil damagers, individuals and entities that infringe upon a patent are subject to orders of correction, public disclosure of the infringement activities, confiscation of illegal gains, fines of up to four times the amount of the illegal gain, and possibly criminal liability. When illegal gains are not applicable, the infringer may be fined up to RMB 200,000. Those figures represent a significant increase above the existing limits of three times the amount of illegal gains or as much as RMB 50,000 when the amount of illegal gain is not applicable or cannot be determined.

Relief Measures Before Litigation

The 2008 Patent Law Amendments specify the relief measures available to a patent owner before the commencement of litigation.

• Injunctions: Where a patent owner has evidence to prove that someone is committing or is likely to commit an infringement upon the owner's patent rights; that the infringement, if not halted promptly, will damage the owner's legal rights; and that such rights will be difficult to protect if infringement begins or continues; then the patent holder is entitled to apply to the court for an injunction prior to initiating a lawsuit.
• Preservation of Evidence: Where evidence of infringement is likely to be destroyed and will be difficult to obtain again, the patent holder is entitled to apply to the court for preservation of such evidence before initiating a lawsuit.

Courts are required to make their rulings within 48 hours after receiving an application for an injunction or for the preservation of evidence; or when necessary, to extend that time limit up to an additional 48 hours. Once a court issues a ruling, it will be executed immediately.

When filing an application for an injunction or the preservation of evidence, the patent owner shall provide a bond, and must file lawsuit within 15 days after relief measures have been executed, or else the owner's application will be rejected or terminated.

Conclusion

The 2008 Patent Law Amendments strengthen the legal protection afforded to inventors and inventions in China. As such, the amendments reinforce the goals and policies of a series of actions taken by the Chinese government within the last few years. Together, those changes are designed to shift the nation's economy away from manufacturing and exports and towards technology and innovation. The full impact of China's newly revised patent law, however, will in large part be shaped by the rules, regulations and legal interpretations that are sure to follow. Enforcement will, of course, also be a key ingredient in determining the law's impact.