Third Amendment to PRC Patent Law

26 February 2009 Publication

Legal News Alert: China

On December 27, 2008, the Standing Committee of the National People's Congress (NPC) of the People's Republic of China (PRC) adopted the third amendment to the current Patent Laws (http://www.lawinfochina.com/law/display.asp?db=1&id=7289), which already had been revised in 1992 and again in 2000. The amended PRC Patent Law (New Patent Law) will go into effect on October 1, 2009. The corresponding Implementing Regulations, which primarily address procedural specificities, also are currently under revision, and we expect that the amended regulations will be published and implemented concurrently.

Previously in Legal News Alert: China, (September 25, 2008) (http://www.foley.com/publications/pub_detail.aspx?pubid=5279), we reported the submission of a draft amendment (August 2008 Version) to the Standing Committee of the NPC, and discussed certain important issues. As compared to the August 2008 Version, the New Patent Law mainly differs on two issues: the first filing requirement and patent infringement exemptions.  

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. On the contrary, the New Patent Law 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 reference against the novelty or inventiveness of a Chinese utility patent application or the novelty of a design patent application. The New Patent Law 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 Replaced by National Security Review
The current Patent Law requires that an invention-creation made in China by a Chinese individual or entity 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 New Patent Law has now replaced the first filing requirement with a national security review by the State Intellectual Property Office (SIPO) prior to the filing in any foreign country; failure to do so will result in a refusal to grant the corresponding patent in China, if ever filed. Since the review requirement is based on the place of invention, irrespective of the nationality or residency of the applicant, the possible circumvention of the current first filing requirement would not be applicable after the implementation of the New Patent Law.

The proposed amendments to the Implementing Regulations of the Patent Law (Draft Implementing Regulations), which are currently being reviewed by the SIPO and are expected to become effective together with the New Patent Law, have set forth details about this national security review requirement.

Specifically, under the Draft Implementing Regulations, the applicant seeking first filing in a foreign country shall provide a detailed description of the invention together with the filing of a request for national security review. The SIPO is required (1) to inform the applicant within two months upon the filing of the request if it believes that a national security review is necessary and (2) to decide within four months whether the invention relates to national security such that it shall be kept confidential. If within two- or four-month statutory period the SIPO has not responded, the favorable decisions are assumed, and the applicant is free to file a patent application in a foreign country first.

Furthermore, under the Draft Implementing Regulations, the filing of a PRC patent application is tantamount to filing a request for a national security review in respect of possible subsequent filings in foreign countries, which is similar to the practice in many foreign jurisdictions. This appears to imply that the applicant will have to wait two to four months to clear the national security review process before any subsequent foreign filings.

3. Protections for Design Patents Broadened
The New Patent Law extends the protections for 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 New Patent Law explicitly states that the damages for patent infringement shall include the reasonable expense incurred by the patent owner for stopping the infringement. It also has increased the maximum statutory damages from RMB 500,000 to RMB 1,000,000 with the intent of strengthening 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 New Patent Law explicitly provides that, given a lack of 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 are shared with the other co-owner(s).

Under the New Patent Law, 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. Therefore, under the New Patent Law, it would be prudent to avoid joint ownership if at all possible.

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 court proceeding, which may not be beneficial to the alleged infringer, especially if the accused infringing product or method actually falls within a piece of prior art. The New Patent Law seeks to simplify certain infringement proceedings by codifying the doctrine of prior art defense, which has already been 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 covered by or performed in accordance with a piece of prior art or prior art design. It is not clear whether the defendant also may rely upon a combination of prior art (or designs). We expect to see further clarification by the judicial bodies.

7. Patent Infringement Exemptions Expanded
The New Patent Law has expanded patent infringement exemptions to cover parallel importation and to introduce an exemption, similar to the Bolar exemption available in the United States, to allow production, use, and importation of patented pharmaceutical products or medical equipment for administrative approval purpose.

Readers may recall that the August 2008 Version only explicitly exempted from patent infringement the manufacturing of drugs or medical equipment for administrative approval purpose, but noticeably not the use or importation of the drugs or medical equipment, as the PRC government had been quite indecisive in this issue.

With a rather “complete” Bolar exemption now introduced in the New Patent Law, more clarifications are provided in respect of the legitimacy of clinical trials in which the drugs or medical equipment would have to be used and tested.

8. Other Amendments in Accordance With Certain Recently Joined International Treaties
Firstly, the New Patent Law proposes to preserve in the current Patent Law certain provisions of the Doha Declaration on the Trade-Related Aspects of Intellectual Property Rights (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 New Patent Law, the 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 New Patent Law 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 competition, the SIPO may grant a compulsory license upon request.

In addition, in light of the Convention on Biological Diversity, the New Patent Law 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 theft of China's genetic resources.

Conclusion
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 legislative purposes are mainly to encourage innovation and improve China's international competitiveness. Therefore, the New Patent Law appears to have drawn carefully a balance between the interests of the patent holders and the public by providing greater certainty in terms of patentability and enforcement. With the implementation of the New Patent Law, we expect to see improved 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 currently 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 R. Barner
Chicago, Illinois
312.832.4569
sbarner@foley.com

Catherine Sun
Shanghai, China
csun@foley.com

Yan Zhao
Shanghai, China
yzhao@foley.com


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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