Prepare Now for the Third Amendment to PRC Patent Law

25 September 2008 Publication

Legal News Alert: China

The People’s Republic of China (PRC) has revised its Patent Law twice since the law’s inception in 1984 — once in 1992 and again in 2000. The State Intellectual Property Office of the People’s Republic of China (SIPO) is currently proposing a third round of revisions to the Patent Law (Third Amendment) and has promulgated several versions of the Draft of Amendments to the Patent Law (Draft Amendment) for public discussions and comments.

In August 2008, the State Council submitted the Draft Amendment to the Standing Committee of the National People’s Congress of the People's Republic of China (August 2008 Version) for first reading. The August 2008 Version of the Draft Amendment proposes several significant changes to the current Chinese Patent Law. In this alert, we discuss some of the most important proposed amendments. As further revisions to the Draft Amendment could be introduced during the review of the Draft Amendment by the Standing Committee of the National People’s Congress, we will continue to provide updated alerts when new revisions become available.

It is expected that the Third Amendment will be adopted later this year or early next year. Although it is still premature to predict the impact of the Third Amendment on industries and the Chinese patent system in general, it is advisable to make certain preparations in light of the proposed amendments.

1. Patentability Standard Raised
The current Patent Law employs a “modified” novelty standard in the determination of the prior art for assessing the novelty and inventiveness of a utility patent and the novelty of a design patent — that is, prior public use such as sales, offer for sales, and manufacturing outside China would have no impact on the assessment of a Chinese patent. To the contrary, the Draft Amendment has adopted an absolute novelty standard such that any prior public disclosure anywhere in the world, including public use, can be cited as a prior art against the novelty or inventiveness of a Chinese utility patent application or the novelty of a design patent application. The Draft Amendment also has raised the novelty requirement for design patents by requiring that the design be substantially different from existing designs and from the combinations of existing design characteristics.

2. First Filing Requirement Waived
The current Patent Law requires an invention-creation made in China by a Chinese individual or entity to be filed first in China. In practice, this first filing requirement is often circumvented by transferring the invention to a foreign entity, especially a foreign affiliate company, which is not obliged to obey the first filing requirement.

The August 2008 Version of the Draft Amendment has waived the first filing requirement, stating, “Any entity or individual may file a patent application in a foreign country for its/his invention-creation made in China.” However, the August 2008 Version also requires a national security review by the SIPO prior to the filing in any foreign country; the review requirement is based on the place of invention, irrespective of the nationality or residency of the applicant. As such, the possible circumvention of the current first filing requirement would not be applicable after the implementation of the new Patent Law.

Details about the security review are not yet available, and great uncertainties exist with such a requirement. For example, should this review process take an unreasonably long period of time, it would become an undesirable hurdle for the patent filings in foreign countries. Furthermore, it is not clear whether the security review requirement will be automatically waived if a patent application has been firstly filed with the SIPO. Thus, foreign entities, especially those having operations in China, shall closely monitor the possible revisions to the Implementation Regulations of the Patent Law of the People’s Republic of China (Implementation Regulations), which can be expected after the enactment of the new Patent Law.

3. Protections to Design Patents Broadened
The Draft Amendment extends the protections to design patents to cover the activities of offering for sales so that such offer-for-sale activities are prohibited without the design patentee’s authorization.

4. Possible Damages for Patent Infringement Increased
The August 2008 Version of the Draft Amendment explicitly states that the damages for patent infringement shall include the reasonable expense incurred by the patent owner for stopping the infringement. The August 2008 Version also proposes to increase the maximum statutory damages from RMB 500,000 to RMB 1,000,000 with a view to strengthen the patent protections.

5. Patent Co-Owners’ Rights Better Defined
The current Patent Law fails to stipulate whether and how a patent co-owner can individually exploit co-owned patent(s). The August 2008 Version of the Draft Amendment explicitly provides that, lacking a mutual agreement between the co-owners, each co-owner can implement the co-owned patent(s) by himself. Each co-owner also can grant a non-exclusive license to a third party to use such patent(s) on the condition that the license fees be shared with the other co-owner(s).

Under the Draft Amendment, however, consensus among the co-owners is required to exploit the co-owned patent(s) in circumstances other than the aforementioned; the requirement appears to apply to the patent enforcement as well. If that is the case, such a requirement may adversely impact the effectiveness of enforcing a co-owned patent. Close monitoring of further developments is suggested.

6. Prior Art Defense Codified
Under the current Patent Law, in a patent infringement case, the defendant needs to file an invalidation petition with the Patent Re-Examination Board in order to challenge the patent at issue, and the patent infringement and invalidation proceedings run parallel to each other. Very often, such a parallel system inevitably prolongs the infringement proceeding, which may not be beneficial to the alleged infringer, especially if the claimed infringement actually falls into a prior art. The Draft Amendment seeks to simplify certain infringement proceedings by codifying the doctrine of prior art defense, which has been already adopted by the People’s Courts in practice. Under this doctrine, the People’s Court may find no infringement if the defendant has evidence to prove that his technology or design is a prior art or design. It is not clear whether the defendant also may rely upon a combination of prior arts (or designs). We expect to see further clarification by the judicial bodies.

7. Patent Infringement Exemptions Expanded, Though Uncertainties Exist
The Draft Amendment has been seeking to introduce an exemption similar to the Bolar exemption available in the United States. However, the August 2008 Version only explicitly exempts from patent infringement the manufacturing of drugs or medical equipment for administrative approval purpose. Noticeably, the use and importation of the drugs or medical equipment for administrative approval purpose, which were listed in the relevant patent infringement exemptions in the previous versions of the Draft Amendment, are not addressed in the August 2008 Version. Such a revision arouses concerns about the legitimacy of clinical trials in which the drugs or medical equipment would have to be used and tested. It is noticed that in recent case law development, certain PRC Courts held that the use of drugs in clinical trials is not for “production and business purpose” and therefore found no infringement. As further revisions could be introduced during the legislation stage, it remains uncertain whether the clinical trial issue will be addressed in the new Patent Law or be left with the judicial bodies.

In addition, the Draft Amendment has expanded patent infringement exemptions to cover parallel importation.

8. Other Amendments in Accordance With Certain Recently Joined International Treaties
Firstly, the Draft Amendment proposes to preserve in the Patent Law certain provisions of the Doha Declaration on the TRIPS Agreement and Public Health of 2001 and the World Trade Organization (WTO) Decision of 2003 on the Doha Declaration with respect to compulsory licensing. Specifically, under the Draft Amendment, SIPO may, for public health purposes, grant compulsory license(s) to third parties to manufacture patented drugs and to export the drugs to (1) a least developed country or (2) a WTO member that has no or insufficient capacity to produce the patented drugs and that has fulfilled the relevant procedures in accordance with the relevant WTO treaties.

Secondly, in light of the relevant TRIPs provisions, the Draft Amendment provides that, where it is determined through a judicial or administrative procedure that a patentee’s exercise of his patent right is an act intended to eliminate or restrict competitions, the SIPO may grant a compulsory license upon request.

In addition, in light of the Convention on Biological Diversity, the Draft Amendment requires that for an invention-creation, the completion of which depends upon certain genetic resources, the applicant shall disclose the direct source and the original source of such genetic resources, aiming to prevent illegal stealing of China’s genetic resources.

Unlike the first two rounds of revisions to the Patent Law, China voluntarily initiated the Third Amendment as part of the implementation of the National Intellectual Property Strategy. The Third Amendment appears to have carefully drawn a balance between the interests of the patent holders and the public by providing greater certainty in terms of patentability and enforcement. With the Third Amendment being implemented, we expect to see the enhancement in the patent protections in China.

Legal News Alert is part of our ongoing commitment to providing up-to-the-minute information about pressing concerns or industry issues affecting our clients and our colleagues preparing to do or doing business in China. If you have any questions about this alert or would like to discuss this topic further, please contact your Foley attorney or any of the following individuals:

Sharon Barner
Chicago, Illinois

Catherine Sun
Shanghai, China

Yan Zhao
Shanghai, China

Foley & Lardner LLP is licensed to operate in China as a foreign law firm. Under Ministry of Justice regulations, foreign law firms in China are permitted to advise clients on certain aspects of international transactions and to provide consultation concerning the impact of the Chinese legal and regulatory environment; foreign law firms in China are not permitted to practice Chinese law. The content of this communication does not constitute an opinion on Chinese law nor does it constitute legal advice, but is based on our research and our experience advising clients on international business transactions in China.

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