The China IP Blog Series: The Latest Amendments to the Chinese Patent Law

Author: Dr. Paolo Beconcini

THE LATEST AMENDMENTS TO THE CHINESE PATENT LAW

October 17, 2020, the 22nd Meeting of the Standing Committee of the Thirteenth National People’s Congress issued a Decision (hereafter and in the Footnotes “The Decision”), adopting the fourth set of amendments to the Patent Law of the People’s Republic of China[1] since its original enactment in 2009. These amendments come at a time when China is introducing significant legislative, administrative, and judicial changes to other key IP rights and procedures: such as new criteria for the determination of infringement in administrative proceedings, new regulations on adduction and admissibility of evidence in IP enforcement proceedings, protection of trade secrets, increase of criminal penalty for IP crimes, etc. Furthermore, this fourth amendment of the Patent Law of the People’s Republic of China comes in the aftermath of the U.S.-China Economic and Trade Agreement (hereafter the “Trade Agreement”) signed by both countries on January 15, 2020.[2] The first chapter of the Trade Agreement is dedicated to China’s commitment to enhance the protection of IP rights. Chapter I, Section C for pharmaceutical patents, and Section D of the Agreement expressly lists a number of provisions concerning the protection of foreign patents and patentees in China.[3] It will be important to see whether the fourth amendment to the Chinese Patent law has incorporated all or some of these agreed improvements.

In this post, we will review some of the major changes to the Patent Law and assess their likely impact on foreign businesses in China.

I.   DESIGN PATENTS

a) Design Patent Validity and Exclusivity Term Extends from 10 to 15 Years

Designs are registered patents that protect the aesthetic forms (shape, patterns, colors, or their combinations) of an industrial product, whereby the design is original and not solely dictated by functional features. Classic examples of design patents are those awarded for the shape of cars, shoes, pieces of furniture, household products, and even machinery and industrial equipment. Design patents in China substantially reward the original aesthetic features of a product that add commercial value to the same and make it more desirable to the buyers than similar products with more standardized and common features.[4]

Successful designs are the result of talent and the substantial investment. Therefore, the duration of a design patent, which secures to the right holder an exclusive right of economic exploitation, is critical for the recovery of investment. In China, unlike other jurisdictions like the US[5] and the EU[6], design patents were protected only for ten years from the date of filing. This period is obviously too short for a right holder to fully enjoy its exclusive rights. For one thing, the application process can take up to an entire year, and sometimes longer. Then it takes a substantial amount of time for the right holder to market the design products and establish its market share. For these reasons, it is not uncommon for design patents to be infringed during the final years of the patent term. The ten-year duration period is particularly insufficient and unfair to those designs that have acquired a certain reputation in China; a reputation that will be lost along with its economic benefit once the ten years expire. 

Article 12.1 of the Decision, amending article 42 of the Patent Law, finally recognizes these legitimate needs and extends a design patent’s term to 15 years from its application date. This provision allows right holders to enjoy exclusivity for a longer period, thus increasing the right’s value and reducing the cost and risk of having to file for surrogate IP, such as copyright and 3D marks, to try prolonging its legal life span. Such surrogates have proven to be only partially successful in replacing design patents, especially when enforced in place of a design. It is indeed a welcomed change, especially for those who make large investments in design, like automakers, fashion brands, and designers of household and daily use products. This increment of the life span further recognizes the fundamental role that design patents play in industrial products’ commercial value and success. The downside is that the protection is granted from the date of the filing of the application. This means that the right holder will have to subtract about 6-8 months from the fifteen-year term when calculating the duration.[7]

It is also important to remark that designs enjoy protection only if registered in China. Therefore, right holders must carefully plan design registrations in China to enjoy the fruits of this newly extended term of exclusivity. When doing that, they will also need to be careful in coordinating filings in China with their product launches and registrations in other jurisdictions, given the stricter rules in China for grace periods exempting voluntary disclosures.

b) Partial Designs are Now Entitled to Patent Protection

Before this recent amendment, the Patent Law of China did not allow protection for portions of a design (partial design). For example, the sole of a shoe could not be protected without claiming protection for the whole shoe design, and the handle of a blender could not be claimed separately from the blender, and so on. The only exception admitted for partial designs were those parts of a product that can be used and sold separately from the main product. This means that only spare and replacement parts can theoretically be protected as design patents. In all other cases, the law only allows the applicant to include portions of its design with a particular aesthetic value by explaining them in the descriptive portion of the application. In particular, the Patent Law before the latest amendment prohibited the patentability of portions of complete products using dotted lines in the application.

The recent amendments have eliminated these hindrances, allowing now for partial designs to be patented.[8] This is great news for designers. They will be able to enjoy protection on smaller developments, and right holders may improve the quality of their design patent portfolios in China. The downside of this, especially considering the typical Chinese landscape and the fact that there is no substantive examination of design patent applications, will likely be the unchecked proliferation of junk designs. This will force legitimate rights’ holders to increase their budget for house cleaning to reduce the risk of theft and trolling litigation.

II.   PATENT LINKAGE

Pharmaceutical patents have recently been the object of a series of proposed and newly implemented regulations in China,[9] including now the recent amendments to the patent law. Of particular importance is the introduction of Patent Linkage. Patent Linkage is a dispute resolution mechanism that concerns the relationship between a generic drug’s market approval and the enforcement of a patent covering its branded equivalent. Patent Linkage starts from the assumption that the marketing of generic medicines while the patent of its corresponding originator medicine is still in place, will reduce or eliminate the patent value, thus nullifying the effect of exclusivity granted to the right holder for the duration of its registered right. With the introduction of Patent Linkage, marketing approval of follow-on generic medicines is linked to the expiration of the reference product patent’s exclusivity. Thus, a “link” is created among government agencies: the sanitary or health regulatory agency and the patent office.[10]

Patent Linkage did not exist in China prior to this latest amendment to the patent law. The continued absence of a patent linkage system could indeed result in disincentivizing innovation in a key industrial sector and a dilution of the value of its patents overall.[11] China’s signing of the Trade Agreement with the US on January 15, 2020 demonstrates its commitment to introducing Patent Linkage.[12]

The Patent Linkage rules of the amended Patent Law[13] provides that a patentee or interested party can initiate infringement proceedings (judicial or administrative) against a party who is seeking marketing authorization for a drug that falls within the scope of a patent recorded in the “Chinese Marketed Drug Patent Information Record Platform.” To utilize the proposed patent linkage provision, the patentee or the interested party will have to file civil or administrative proceedings before a People’s Court or the China National Intellectual Property Administration (“CNIPA”) within 30 days of the marketing authorization application being published by the competent drug administration. However, if the deadline passes without the patentee or interested party having filed a lawsuit, the party seeking the marketing authorization can file a legal action with a People’s Court or with the CNIPA to obtain a declaration of non-infringement.

The provision leaves a lot of critical points unclear and uncertain. First of all, it is not clear what the “Chinese Marketed Drug Patent Information Record Platform” is. Is it an already existing official database, like the Orange Book of the National Medical Products Administration, or is it a completely new repository or database? This will surely affect the type of patents registered therein, as well as inhibit the ability for a patentee to qualify for patent linkage. Additionally, the jurisdiction of the courts is uncertain. The draft does not provide any indication of which court will have jurisdiction over the lawsuit and/or the declaratory action. Is it going to be that of the domicile of the patentee? That would contravene the general principles of the locus commissi delicti normally applied to patents. Also, it does not clarify whether the court jurisdiction is exclusive of administrative recourses.[14] It is also unclear whether the patentee’s pending proceedings will stay the market authorization process.

Last but not least, there is no definition of “interested party,” although, by analogy, we could safely surmise that this only includes the exclusive licensee.

On October 29, 2020, the Supreme People’s Court issued a Patent Linkage draft Interpretation to clarify some of the jurisdictional issues left open by the amendment to the Patent Law. In particular, that the Beijing IP court will have exclusive first instance jurisdiction over Patent Linkage cases. This jurisdiction will also attract cases already pending before the administrative authorities. Other administrative challenges, such as the creation of a patent linkage dedicated platform, still remain open and will require further regulatory efforts by the competent Chinese administrations.

III.   PATENT TERM EXTENSIONS FOR UNDULY DELAYED APPLICATIONS

By signing the US-China Trade Agreement of January 15, 2020, China committed to providing patent term extensions to compensate for unreasonable delays in the patent registration process or pharmaceutical product market approval process.[15] Article 42.2 of the amended Patent Law provides that, if an invention patent has been granted after four years from the filing date or three years from the request for substantive examination, the patent owner may request compensation for the unreasonable delay in granting the invention patent, except for the unreasonable delay caused by the applicant. This provision seems to implement the corresponding commitment of Section D, article 1.12.2(a) of the Trade Agreement. In practice, and in order to fully comply with the agreement, China will have to implement regulations that arrange for a process to determine the exact period of extension for an unduly delayed patent term.

As for pharmaceutical patents, article 42.3 of the amendment to the Patent Law provides that the duration of patents of innovative pharmaceuticals for which patent terms were lost during the regulatory approval period when a drug cannot yet be marketed, will be extended as well. However, the compensation time cannot exceed five years, and the total effective patent term after the new drug is authorised to be on market shall not exceed 14 years. This norm seems to comply with the stipulation of article 1.12.2(b) of Trade Agreement. However, the real scope of such regulation remains uncertain due to the unclear definition of “new drug” and whether it should be limited to one that is simultaneously undergoing authorization in China and other jurisdictions. Further normative clarification is needed to understand the effective application and scope of this provision, and whether it indeed complies with the spirit of the Trade Agreement’s corresponding norm.

IV.   COVID-19 EXEMPTIONS TO NOVELTY-DESTROYING DISCLOSURES

China’s Patent Law is stringent when providing exceptions to novelty-destroying disclosures (grace period disclosures). Traditionally, a disclosure of the invention without the consent of the right holder is exempted only if it occurred within six months from the date of filing. Any voluntary disclosure is always novelty-destroying unless related to exhibitions sponsored or recognized by the Chinese government, or published for the first time at a specified academic or technological conference. The amended Patent Law adds a third case in which a voluntary disclosure of the invention will not be novelty-destroying when occurring within six months prior to the date of filing. This is the case of an invention that is initially disclosed for the sake of the public interest during a time of national emergency or exceptional circumstances. It seems to be custom made for inventions related to the current emergency caused by the worldwide spread of the COVID-19 virus. Aside from the evident pandemic, it remains to be seen what other situations could be considered as emergency and exceptional circumstances. Would an economic, political, or trade crisis unrelated to a public health situation or a war count as such an emergency?

V.   ENFORCEMENT AND DAMAGES

First of all, Art. 26 of the Decision amended art. 68 of the Patent Law by extending the statute of limitations for patent infringement cases from two to three years from the date when the patentee knew or should have discovered the infringing conduct. This is an absolutely welcomed amendment.

Damage compensation is an area of concern in patent enforcement in China. It is often difficult in China to provide evidence to support a specific claim for damage compensation in a patent enforcement action. The absence of discovery, the difficulty of convincing a judge to conduct further investigations on accounting records and other relevant documents of the defendant, and the illicit bookkeeping practices of many Chinese firms make it very difficult to obtain evidence that meets the strict probatory standards required for successful damage compensation claims. For this reason, and as a palliative in most cases, the law left it to the judges’ discretion to determine the amount of reasonable damages. These are the so-called statutory damages set forth by the Patent Law.

The problem, aside from the incalculable discretion of the judge, is that these damages are capped in a range from a minimum of RMB10,000 (US$1,450) to RMB 1,000,000 (about US$145,000). These caps are far from adequate, especially when we consider that litigation involving foreign patentees in China is rare compared to litigation among local parties.

The Patent Law amendment has now heightened the ceiling of statutory damages to RMB5,000,000 (US$756,137).[16] However, the statutory damage received is effectively reduced by any reasonable expense that the patentee has incurred in order to stop the infringing act, which will have to be accounted as part of the compensation rather than an additional cost.[17] This is definitely a serious problem, especially when the patentee/plaintiff cannot collect evidence on its own to eliminate his reliance on statutory damages.

In this respect, the amended Patent Law helps right holders reach the required evidence threshold by introducing some key presumptions regarding evidence of the defendant’s illicit profit. The amendment provides that in order to determine the amount of compensation, where the right holder has the burden to present evidence, and the related account books or materials are mainly in control by the accused infringer, the People’s Court may order the defendant to provide those books and materials relating to the infringing conduct. If the defendant does not provide or provides false account books or materials, the People’s Court may refer to the right holder’s claims and evidence to rule on the amount of compensation.[18] This norm may seem revolutionary, but a similar one was already introduced in the China Trademark law back in 2014. The courts are also generally willing to grant evidence preservation requests, even when litigation is ongoing, to preserve such books as evidence. Considering again how often the Chinese counterpart will try to provide only part of the required books or even disclose forged ones, we can see that the introduction of this provision in the draft amendment will not be a game-changer.

For these reasons, when a foreign patentee decides to litigate in China, it has to invest substantial resources in the pre-lawsuit investigations and evidence collection. This will be the most critical phase to ensure a successful outcome of a patent lawsuit.

VI.   CONCLUSION

The introduction of the above-discussed amendments further modernize the Chinese patent system, bringing it closer to the best international standards. Patent linkage, patent validity term extensions, longer statutes of limitation, and greater statutory damages will surely benefit right holders and improve the management and protection of patent rights in China. Still, some of the major changes’ real impact remains to be seen, given the often existing hiatus between rules and their effective implementation. However, the improvement of the judicial and even administrative systems, now at the center of massive reforms, leave room for hope in an overall more effective and consistent application of the law.

What is also remarkable is that the amendment of the Patent law comes together amid a frenzy of regulatory activities aiming at improving the overall IP protection system in China. As to those wondering whether all these changes were prompted by the pressure exercised by the US on China through the trade war, the answer is likely a clear no. Although such pressure may have accelerated such changes, they mostly lie in the path of reform and modernization set forth by the Chinese Communist Party. The changes have been in the making and dictated by China’s policy of modernization and development to achieve China’s dream of rejuvenating Chinese society by 2049.[19] It is critical for the experts and those helping foreign businesses protecting their IP in China to correctly contextualize such changes and derive expectations on their potential efficacy based on such knowledge and experiences. In sum, the changes are welcomed. Whether and to what extent they will be effective will require more time to tell.

[1] Decision of the Standing Committee of the National People’s Congress on Amending the “Patent Law of the People’s Republic of China” (Oct. 17, 2020, effective date June 1, 2021), http://www.gov.cn/xinwen/2020-10/18/content_5552102.htm [hereinafter “The Decision”]. The preceding citation is translated from: 全国人民代表大会常务委员会关于修改《中华人民共和国专利法》的决定 (2020年10月17日第十三届全国人民代表大会常务委员会第二十二次会议通过).

[2] Office of the US Trade Representative & US Department of the Treasury, Econimic and Trade Agreement Between the United States of America and the People’s Republic of China, Phase One (Jan. 15, 2020), https://chinaipr2.files.wordpress.com/2020/01/china-deal.pdf.

[3] Id. Chapter I, Section C deals in particular with the issue of Patent Linkage dealt with sub Section II of this article. Chapter I, Section D concerns China’s commitment to increase validity terms in case of patent examination delays as treated by this blog in Section III.

[4] Christopher Carani Jr. & Paolo Beconcini et al., Design Rights: Functionality and Scope of Protection (Wolters Kluwer 2017).  

[5] For example, in the US since 2015, 35 U.S.C. § 173 provides that patents issued from design applications shall be granted for the term of fifteen years from the date of grant.

[6] Council Regulation (EC) No 6/2002 of Dec. 2001 on Community Designs, art. 12, 2002 O.J. (L 3) 1 (EC) as amended by Council Regulation (EC) No 1891/2006 of 18 Dec. 2006, amending Regulations (EC) No 6/2002 and (EC) No 40/94 to give effect to the accession of the European Community to the Geneva Act of the Hague Agreement concerning the international registration of industrial designs, 2006 O.J. (L 386) 14. A European design patent is initially valid for 5 years from the date of filing and can be renewed in periods of five years up to a maximum of 25 years.

[7] See 35 U.S.C. § 173 (stating that the patent term for design patents shall law for a term of 15 years from the date of issuance); see also 35 U.S.C. § 154(a)(2) (stating that, in the US. the patent term begins on the date the patent issues and ends 20 years from the date on which the application for the patent was filed in the US).

[8] The Decision, supra note 1, art. 1.

[9] Paolo Beconcini, The Chinese Supreme People’s Court Intervenes on Patent Issues, with Focus on Pharmaceutical Experiments, Squire Patton Boggs (May 21, 2020), https://www.iptechblog.com/2020/05/the-chinese-supreme-peoples-court-intervenes-on-patent-issues-with-focus-on-pharmaceutical-experiments/. This article discusses the  “Provisions on Several Issues Concerning the Trial of Administrative Cases Concerning Patent Authorization and Confirmation of Power (I)” issued by the Supreme People’s Court in April 2020 dealing with the submission and admissibility of experimental data in patent prosecution matters.

[10] GIPC, Providing Certainty and Predictability: How Patent Linkage Mechanisms Help Innovators, Follow-On Manufacturers, and Patients (2019), https://www.theglobalipcenter.com/wp-content/uploads/2019/09/GIPC-Linkage-Zoom-In-Report.pdf [hereinafter GIPC].  

[11] Jack Ellis, The Promise of Patent Linkage, Geneva network (Feb. 28, 2019), https://geneva-network.com/research/patent-linkage-system-crucial-for-knowledge-economy/. GIPC, supra note 10, at 17-20.

[12] Econmic and Trade Agreement Between the Government of the United States of America and the Government of the People’s Republic of China, Ch. 1, Sec. C, art. 1.11, (Jan. 15, 2020), https://ustr.gov/sites/default/files/files/agreements/phase%20one%20agreement/Economic_And_Trade_Agreement_Between_The_United_States_And_China_Text.pdf. Article 1.11 is entitled “Effective Mechanism for Early Resolution of Patent Disputes.

[13] The Decision, supra note 1, art. 27.  

[14] On September 11, 2020, the China’s National Medical Products Administration (NMPA) and the National IP Administration (CNIPA) published the “Implementation Measures for the Early Resolution Procedures for Drug Patent Disputes (Trial) (Draft for Comment)” ( 国家药监局综合司 国家知识产权局办公室公开征求《药品专利纠纷早期解决机制实施办法（试行）(征求意见稿）》意见) (the “Rule”) which aims at regulating proceedings for administrative litigation of patent linkage cases, thus creating a possible conflict of competence with the People’s Court.

[15] The Decision, supra note 1, art. 12.  

[16] The Decision, supra note 1, art. 23.  

[17] Id.

[18] Id.

[19] Xi Jingping, The Governance of China (Vol. I, Foreign languages Press First Edition 2014); see also Xi Jingping, The Governance of China (Vol. III, Foreign languages Press First Edition 2020).