The Amendments of Chinese Patent Law in Favor of Patentee

September 19, 2003

The Amendments of Chinese Patent Law in Favor of Patentee

Kan Zu, Unitalen

Chinese Patent Law was amended and the revised Chinese Patent Law (Revised Law) went into effect as of July 1, 2001. The Revised Law features the following amendments:

1. The Revised Law adds the right to prohibit unauthorized offering for sale of products incorporating patents or products obtained through using patented processes.

Article 11 of the Revised Law entitles additionally patentee the right to prohibit unauthorized third parties from “offering for sale”. Before the revision, patentee could only prohibit the actual sale of the infringing product. Offering for sale includes the intent to sell certain products, such as advertisement, display in the show windows, or exhibition on the fair, etc.. According to the Revised Law, offering for sale by a third party, without patentee’s consent, is considered to be patent infringement. Patentee would be entitled to seek various remedies including litigation to stop the infringement and obtain damages. However, this extension only applies to patents. Offering for sale the product that infringes the industrial design patent remains to be considered noninfringemnet.

2. The Revised Law adds the right of patentees to seek Preliminary Injunction and Temporary Restraining Order

Article 61 of the revised law entitles patentees and interested parties to seek a preliminary injunction and/or temporary restraining order with the People’s Courts ex parte.

Although temporary restraining orders are available as one of provisional remedies under the Civil Procedure, they have never been appeared in Chinese Patent Law. The People’s Courts, however, have almost never issued either a preliminary injunction or a temporary restraining order in favor of patentees before the Chinese Patent Law was revised. Chinese Patent Law is a combination law with both procedure and substance. In the past, it was difficult for patentees to receive sufficient compensation from infringers. The first reason is that a court did not have methods to accurately calculate the patentee’s damages and in practice a court was reluctant to grant large amount of damages to a patentee. Therefore, the damages recognized in previous judgments generally were nominal. Second, since patent litigation usually takes a long time, it was easy for infringers to conceal or transfer evidence, products and other assets during the tribunal proceedings. On the verdict, even though the patentee could be entitled to damages, it was often the case that the defendants have no capacity to compensate the patentee. Hopefully, the Revised Law would be effectively enforced to protect patentees’ rights by allowing patentees to apply for the issuance of preliminary injunction or temporary restraining order from courts.

3. The Revised Law provides that the users, retailers or wholesalers are liable for infringement regardless of negligence.

Section 2 of Article 62 of the previous Chinese Patent Law provides that users, retailers or wholesalers are not liable for using or selling the patented products on condition that the users, retailers or wholesalers do not have knowledge that the products were manufactured and sold without authorization of patentee. This article had been utilized to provide a strong defense for millions of infringers in order for them to avoid the liability of infringement.

Section 2 of Article 63 of the Revised Law provides that using or selling the patented products or products obtained through patented process in commerce without knowing that the products were manufactured or sold without authorization of patentee would not be liable for infringement, only if the users or sellers could disclose the legal source of the products.

This amendment changes the nature of liability of infringement from negligence to strict liability. Obviously, the revised article would work in favor of patentees. First, using or selling the patent products or products obtained through a patented process would constitute infringement regardless of whether or not the user or seller having knowledge that the products were manufactured or sold without authorization of the patentee. Second, if the users or sellers can provide the legal source of products, they would be exempted from liability of infringement. By giving users and sellers an incentive to disclose the source of the products, the revision would assist patentees, courts and administrative agencies to discover the counterfeiters, and confiscate and seizure the counterfeit products.

Unfortunately, however, it is not clear as to whether the parallel importer could be held liable for patent infringement once the importer provides the legal source of the products. It gives importer sufficient arguments to negate the patent infringement. We will be waiting for judgments of such kind of parallel importing cases.

4. The Revised Law clarifies the standard of calculation of damages in patent infringement cases

The newly added article 60 of Revised Law provides that the amount of damage should be figured out based on lost of profits of patentee or infringer’s profits, or reasonable multiple times of license fee.

The Revised Law still does not clearly stipulate the correspondent conditions for courts or administrative agencies to choose these three measures of calculation in particular cases. Thus, there is a sufficient room for plaintiffs or defendants to argue that the court or administrative agency should adopt one of the three methods which favors them most. Furthermore, the Revised Law does not stipulate the punitive measures that can be imposed upon bad faith infringers, such as treble damages or treble infringers’ profits. The compromise should be a result of balancing among the interests in the current Chinese society. Because China is still mostly a developing country and its national industries are still very weak. Chinese society cannot allow to have their law devastatingly punished the infringers that may result in their elimination from the market. Therefore, judges are given broad discretion to decide the appropriate damages both to be awarded for plaintiffs and punitive against defendants on case by case basis, allowing to take into consideration the foregoing concerns in the Chinese society.

5. The Revised Law does not have provisions concerning patent misuse

In China, there is no antitrust law, and there is no restriction of patent misuse in the Chinese Patent Law or in other related laws and regulations.

Obviously, patentees do not want to be restricted when they exploit or enforce their patent rights. In China, the protection of intellectual property rights and establishing a social atmosphere to respect to intellectual property are not very established. The critical issue is that the public does not have strong consciousness in respecting others’ intellectual property rights and that intellectual property infringement is very serious offense. It does not mean, however, that prohibition of patent misuse could be ignored. The courts or administrative agencies would have discretion, in certain cases, to prohibit the patent misuse by patentees in protection of competition against the unreasonable monopolization. So far, there is no precedent in China that discussed the patent misuse. Therefore, it is difficult to predict to what extent do the courts or administrative agencies would have or exercise power in such case. Clearly, prohibition of patent misuse is likely to be one of the items to be added onto Chinese Patent Law in the future.