According to PRC law, in addition to court proceedings, a patent owner is entitled to request the local intellectual property offices (“IPOs”) to take administrative actions against patent infringers. The local IPOs have the power to order the patent infringers to stop patent infringement and impose a fine to these infringers. Compared with court proceedings, administrative actions are faster and more cost-efficient. In recent years, more and more companies choose to take administrative actions to fight against patent infringement in the PRC. The PRC State Intellectual Property Office, as the highest-level patent authority in the PRC, recently issued Guidelines for the Determination of Patent Infringements (for Trial Implementation) (“Guidelines”), which clarify some issues which often occur during the patent infringement administrative proceedings. The Guidelines took effect on 5 May 2016. Their major content is as follows:
1. Clarification of “production activities” under the PRC Patent Law The OEM business model (i.e. a commissioning party entrusts a manufacturer to process and/or manufacture products carrying the brand of such commissioning party and then to export all finished products abroad) is quite common in China. Many Chinese companies use such OEM business model to produce infringing products in the PRC and then export them to foreign countries. In the past, it was a controversial issue as to whether the OEM manufacturer commits a patent infringement. Different IPOs have issued inconsistent decisions in cases with similar circumstances:
- Some IPOs held that the manufacturer does not infringe the patent right of the patent owner in the PRC since all goods are exported abroad and are not sold in China. Therefore, no patent infringement is committed in China.
- However, some IPOs took a strict attitude towards this issue and held that the OEM manufacturer commits a patent infringement.
Uncertainty also existed as to whether the commissioning party committed a patent infringement.
The Gulidlines confirm that the OEM manufacturer, who produces the infringing products, infringes the patent right of the patent owner regardless of whether these infringing products are exported abroad or sold in China. Also, the Guidelines make it clear that although the commissioning party does not directly produce infringing products, its act of entrusting the OEM manufacturer to produce such products also constitutes a “production activity” under the PRC Patent Law. Therefore, the commissioning party and the OEM manufacturer shall be jointly liable for patent infringement.
The above stipulation aims at strengthening the protection of patent rights in the PRC since it can prevent Chinese infringers from making use of the OEM model to avoid their liabilities for patent infringement.
2. Clarification of “sales activities” under the PRC Patent Law According to the PRC Patent Law, no one is allowed to sell patented products without the prior consent of the patent owner. According to the Guidelines, the following activities fall within the scope of the “sales activities” under thePRC Patent Law:
- The conclusion of a valid sales contract between the infringer and a third-party buyer constitutes a “sales activity” under the PRC Patent Law no matter whether the contract has been actually performed or whether the infringer has delivered the infringing products to the buyer. A similar stipulation has been set forth under Article 19 of the Judicial Interpretations on Several Issues Concerning the Application of Law in the Trial of Patent Infringement Dispute Cases (II) (“2016 Patent Infringement Interpretations”) issued by the PRC Supreme People’s Court, which took effect on 1 April 2016.
Based on the above stipulation, the patent owner is entitled to order the infringer to stop delivering infringing products to the third-party buyer and, thus, can prevent the infringing products from entering the market.
- The use of an infringing product as a component of a finished product and then sale of the finished product constitutes a “sales” of the infringing product under the PRC Patent Law. According to the Guidelines, the infringer shall stop selling such finished product and shall pay damages to the patent owner. However, if the infringer can present evidence proving that the infringing product (as a component of the finished product) was obtained through a legitimate channel, it can be exempted from paying damages to the patent owner.
- The tied sale of an infringing product together with non-infringing products is also a “sales act” under the PRC Patent Law. The infringer shall stop selling the tied-sale infringing product but it can still sell the non-infringing products separately.
3. Clarification of “sales activities” under the PRC Patent Law
a) According to the Guidelines, if a patent owner concludes a patent license agreement with a third party, i.e. the licensee, this indicates that the patent owner has given an express consent to the licensee and allows the latter to use its patent within the licensed scope under the license agreement. Therefore, the use of the patent within the licensed scope by the licensee does not infringe the patent right of the patent owner. However, if the licensee uses the patent beyond the scope of the licensed scope, it commits a patent infringement.
The Guidelines also define the following three types of patent license:
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Further, according to Guidelines, if the license type is not provided under the license agreement, the license type shall be deemed as a “non-exclusive” license.
The above principles were already previously used in practice. Now they are reconfirmed by statutory law. Therefore, in order to avoid any potential dispute, it is advisable to clearly provide for the license scope for use of the patent right (e.g. licensed territory, license type, etc.) under a patent license agreement.
b) If the patent owner does not conclude a written license agreement with a third party but actually allows a third party to use its patent by some acts (e.g. provides relevant patent drawings and other technical details of the patent to the third party, etc.), the patent owner shall be deemed to have given an implied consent to the third party to use its patent. Therefore, such third party does not commit a patent infringement.
The Guidelines address some important issues which in the current practice are controversial or have uncertainties. We noticed that the Guidelines were issued very soon after the promulgation of the 2016 Patent Infringement Interpretations. This signals that the Chinese government intends to strengthen its efforts to protect patent owners’ patent rights. The Guidelines together with the 2016 Patent Infringement Interpretations are a step forward which can help to ensure that patent owners can effectively enforce and protect their patent rights in China.