Supreme Court officially issued Interpretation II Regarding Issues of Application of Law in Patent Infringement Cases (referred to as Interpretation II in the following context). The Interpretation II came into effect on April 1, 2016. Supreme Court had issued Interpretation I Regarding Issues of Application of Law in Patent Infringement Cases (referred to as Interpretation I in the following context) in December 2009. The Interpretation II is not issued to replace the Interpretation I but to perfect the Interpretation I based on constantly increasing patent cases. The Interpretation II is closely adjusted to the current innovative times, deeply touches patent basic framework and principle, and obtains win‐win result between patentee and the public. The Interpretation II is holding the following three principles: (I) Problem‐solving on “long trial period, difficult collection of evidence and low damages” concerns as much as possible, thereby improving the protection of patent right; (II) Emphasizing the construction of claims by clarifying the interpretation of the protection scope of the claims; (III) Compromise between the patent right and the public domain to prevent the patent right scope from unreasonable enlarging. 2 The above three principles embody values of the Interpretation II: improvement of patent protection, strengthening the publication and interpretation of claims and balance between the patentees and the public. The Interpretation II contains 31 articles, mainly focusing on establishment of patent indirect infringement mechanism, optimization of evidence collection on damages, interaction of patent invalidation and infringement parallel proceedings, clarification of protection scope of claims, perfection of design infringement determination, and defense of non‐infringement. The Interpretation II improves protection of patent right in China and limit exercise of patent right within reasonable scope. In general, the Interpretation II will uplift patent infringement lawsuit to a much more efficient level. I. Establishment of Patent Indirect Infringement Mechanism “All‐element rule” has been applied all along in determining patent infringement. Therefore, products or methods, which do not contain all elements of a patent claim, will not be determined to be infringing. This plot sometimes is utilized by infringing manufactures to circumvent patent protection, which causes concerns to patentee. For example, the infringing manufacturers intentionally leave the last step to the end users to implement a method patent, therefore the technical solution of the infringers does not contain all the features defined in the method claim, thus non‐infringement. To solve this problem, in the Interpretation II, Article 21 establishes patent indirect infringement mechanism to expressly designate the above indirect infringing activities as “contributory” and “inducing” infringement to be covered by Article 9 of Torts Law. Essential elements for patent indirect infringement are listed as follows: (1) contributory infringement: knowingly; providing materials, devices, parts or 3 intermediates specially for implementing a patent to others; without authorization; for production and business purpose; direct infringement as basis. (2) inducing infringement: knowingly, actively inducing others to implement granted products or methods; without authorization; for production and business purpose; direct infringement as basis. In consideration of an immature phase of the patent indirect infringement mechanism in China legal practice, there would be different criteria in different courts judgments. Therefore, close attention should be paid to typical cases on patent indirect infringement in the future to check whether this would be a really powerful weapon in battles against infringers in China. II. Optimization of collection of evidence for damages There is no US‐style “Discovery” mechanism in Chinese legal framework. The patentee is hard to collect evidence to prove lost caused by infringing activities, such as sales contract, accounting documents and sales statistics, which are generally under control of the infringers. The current legal framework does not provide tools to force the infringers to provide such evidence. Even if “evidence preservation” procedure theoretically has such function, the “evidence preservation” procedure generally does not take effects in most cases due to various reasons. To break the dilemma of difficult evidence collection and low damages, Article 27 of the Interpretation II shifts the burden of proof in part to infringers in the following situation: (1) preliminary evidence to prove profits gained by infringers has been provided by the patentee; (2) accounting documents and relevant materials are controlled by infringers. When the above two conditions are met simultaneously, the court has the authority to order the infringers to submit accounting documents and relevant materials. In the situation that the infringers refuse to submit those documents and materials without reasonable causes or provide fake ones, the court has the authority to determine the profits gained by the infringers based on patentee’s claims and evidence. 4 This is a breakthrough to traditional burden of proof in China, taking appropriate consideration to characteristic of patent infringement lawsuits. The burden of proof of the patentees is reduced to some degree by shifting the burden of proof to the infringers. This mechanism promotes Chinese legal concept to new advances and is advantageous for patent attorneys to handle patent infringement cases in China. III. Interaction of patent invalidation and infringement parallel proceedings Since bifurcated mechanism is running is China for patent invalidation and patent infringement, when the patentees bring patent infringement lawsuit before the courts, the accused infringers will always challenge validity of the patent by requesting patent invalidation before the Patent Reexamination Board. At this time, the courts to handle patent infringement cases can not determine whether the patent right would be valid or not and have to wait for the invalidation decision of the Patent Reexamination Board. Even if the Patent Reexamination Board issued the invalidation decision, such decision is still appeallable before Beijing IP Court and Beijing High Court before being effective. This will generally last 2‐3 years, which is disadvantageous for the exercise of patent right by the patentees. To shorten the trial period of patent infringement lawsuit and strengthen the protection of patent right, Articles 2, 3, 29 and 30 of the Interpretation II further prescribe strategies to expedite such bifurcated mechanism. 1. Article 2: Dismissal rulings until a new lawsuit Article 2 set up the mechanism to dismiss the lawsuit when the patent at issue is invalidated by the Patent Reexamination Board and leave the opportunity for the patentee to institute new legal proceedings if necessary. In this situation, the court does not need to wait for the administrative appeal judgment for the invalidation decision. The patent is still entitled to file new lawsuits if the invalidation decision is finally reversed by administrative appeal judgment. This mechanism is framed 5 considering that the reversal rate is rather low in recent years in patent administrative appeal proceedings. Furthermore, injunction and preservation orders should also be suspended at the invalidation decision. 2. Articles 29 and 30: Retroactive application of court enforcement on invalidation of patent Article 29 and 30 respectively prescribe that when the patent at issue is invalidated, the court enforcement should be retroactively applied. In the meantime, the patentee and infringer are both allowed to post a bond as leverage for the court enforcement. The combination of Articles 2, 29 and 30 shall be effective to make the trial proceedings efficient and shorten the trial period. 3. Article 3: how to deal with apparent invalidation grounds regarding description disclosure and supporting of claims Article 3 prescribe that in the situation that the description is apparently insufficiently disclosed or claims are apparently not supported by the description and such defects result into ambiguous understanding, the court should generally issues the ruling of staying the proceedings when the court’s review indicates that the protection scope of the claim is unclear or there is a certain possibility that the patent would be invalidated. The so‐called “generally” staying of the proceedings covers two following situations. If the court believes that the possibility of constituting the patent infringement is rather high, the court would stay the proceedings to wait for the result of examining the validity of the patent by the Patent Reexamination Board. If the court believes there should be non‐infringement, the court would possibly continue the legal proceedings to make non‐infringement judgment. Such operation takes both efficiency and justice into consideration at the same time. Article 3 also prescribes that if the accused infringer does not file the invalidation request before the Patent Reexamination Board, the court will consider the meaning 6 of the claims as the protection scope. Here the meaning covers the literal texts of the claims and the scope understood by those skilled in the art. However, even if the court continues the legal proceedings based on the protection scope defined by the claims, it is not certain that this would be disadvantageous to the accused infringers. Since the description is already considered to be apparently insufficient disclosed or the claims are apparently not supported by the description, it can be imagined that the claims is highly likely not drafted to have an appropriate protection scope and even unclear itself. Based on such claims, the court probably is also not able to understand the claims, finally resulting into a non‐infringement judgment. This article will force the patentee to pay much more attention to quality of claims drafting, otherwise the claims will not be reliable for patent enforcement. VI. Clarification of protection scope of claims Claims are the core concept of Patent Law. The protection scope of a patent right is defined by the claims. However, the patent claims are defined with literal texts, which are ambiguous to some degree. The public needs to have access to the border of the patents to understand the space for innovation or design around the patents. In legal practice, claim construction is always in the spotlight. The Articles 1, 3‐13 in the Interpretation II clarify some criteria on interpreting the claims construction. These articles limit the patent right and protect the public interests. 1. Article 1: the patentee should clearly indicate the patent claims to be relied on as basis for patent infringement lawsuit, otherwise the court has the authority to dismiss the case. This article provides more opportunities for the accused infringers to prepare for answering the lawsuit. 2. Article 3: the court will hear the case simply based on the protection scope defined by the claims in the situation that there are apparent defects in description 7 disclosure or supporting of the claims and the accused infringers do not request invalidation before the Patent Reexamination Board. 3. Article 4: the patentee has the right to interpret the technical solutions in the patent based on the systematic combination of claims, description and drawings when there are ambiguous points in the patent. However, such interpretation should result in one and only understanding by those skilled in the art. This is advantageous to the patentee. Moreover, the court does not need to wait for the invalidation decision result and has the authority to hear the case based on such one and only understanding, which balances the efficiency and justice. The background of this article is because of poor drafting quality of patents from domestic companies in China. If a strict criterion is held to interpret the claims, it is highly likely that the patent with real innovative points would not be protected appropriately. By explaining the patent systematically from the combination of the description, claims and drawings, some ambiguous points in the patent description still are provided with chances to be understood by the court. Moreover, the article also considers that those skilled in the art has the capability to correct mistakes and understand the ambiguous points in good logic by reading the description in combination with the drawings. In this situation, this article complies with the basic values of the patent law to protect patent right and promote creation in techniques. 4. Article 5: the protection scope of a claim is defined by both preamble portion and characterizing portion of a claim. This article is consistent with the Interpretation I (Article 7). This article is framed to emphasize that the subject matter of a claim also has the function of defining the protection scope to correct the wrong practice of ignoring the definition of the subject matter. 5. Article 6: this article clarifies that the examination history files including 8 observations, office actions, interview record and even above documents regarding divisional applications during prosecution and responses, oral hearing record, effective reexamination decisions and invalidation decisions during reexamination and invalidation proceedings can be used to interpret the claims of a patent. This article enlarges the range of examination documents which can be used to interpret claims. It should be noted that all the documents during prosecution and reexamination can be possibly used to construct claims. On the one hand, these documents are helpful for the patentee to interpret the claims, on the other hand, cautious attention should be paid to any responses literally recorded during prosecution and invalidation, including oral hearing record, interview record which will be kept in the Patent Office after signed. The opinions in those documents will be utilized in patent infringement lawsuit for estoppels, preventing doctrine of equivalences from being applied. This means that the quality of responses during prosecution, reexamination and invalidation by the patentees should be carefully and strictly checked. 6. Article 7: this article prescribes that the protection scope of closed components can not be extended further except for those unavoidable impurities. Furthermore, such closed components do not include Chinese medicine. This is consistent with majority opinions in Chinese legal practice, which emphasizes the publication function of the claims. 7. Article 8: this article deals with controversial disputes long existing for functional limitations. This article indicates that the principle of judging functional limitations is based on substantially identical means with identical functions and identical effects. Moreover, the time for judging functional limitations is from the time that infringing activities happened, which is advantageous for the patentee to enlarge the protection scope to advancing technologies. 8. Article 9: this article prescribes that context features about the implementing of 9 the patent should be considered to limit the protection scope as essential features. The patent protection scope should not be extended to the circumstances without the context features. 9. Article 10: this article prescribes that the accused products are non‐infringing, which do not contain method features neither identical with nor equivalent to those method features defined in the device claims. The Supreme Court believes that if those method features provide substantial effects for granting during prosecution, those method features must be essential features themselves. In the situation that the device claims are defined by method features, technical comparison should also be made based on those method features but not structural features. 10. Article 11: regarding sequences not expressly defined in the method claims, if those skilled in the art can expressly understand that the method should be implemented by certain sequences based on claims, description and drawings, the method sequences has the function of limiting the protection scope of the patent. 11. Article 12: this article prescribes that when the term such as “at least”, “not more than” is used to limit numeric values, the patentee may be prevented from applying DOE. These two terms are not exhaustive but only illustrative. Since the patentee has emphasized the numerical ranges to be “at least” or “not more than” certain numeric value, such limitation should be considered to be contribution to the patent. If the patentee asserted that other ranges or numeric values are still within the protection scope, this will be in conflicting to patent publication principle. However, this article does not mean that only if there are such words as “at least”, “not more than” and so on that the ranges will be limited strictly within the ranges of the literal meaning of such words because a precondition is set up in this article that “those skilled in the art are able to understand the definition of such words special for the patent”. That is to say, if those skilled in the art can not understand such words are specially defined for the patent, such words as “at least”, “not more than” 10 and so on shall not be considered as limit the ranges. 12. Article 13: this article prescribes that if the patentee’s restrictive amendments or opinions are expressly not accepted during prosecution, invalidation and its appeals, such restrictive amendments or opinions should be not considered as “cancelled” or “given up”. Therefore, the patentee still may claim doctrine of equivalence based on such features. This also needs cooperation by the examiner or Patent Reexamination Board or court to expressly record their opinions that do not agree with the applicant or patentee because this article prescribes that the patentee should provide evidence to prove such negative opinions. All the above articles do not intend to uplift the construction of the claims to a much more strict level, but to emphasize importance of patent claim publication. Mistakes handled by those articles only ranked as low level in patent drafting. V. Perfection of design infringement The main legal basis for design patent infringement is Article 9‐11 of the Interpretation I, i.e. systematic infringement determination based on whole appearance. However, such way of infringement determination is especially not quite suitable for designs whose innovative points are on partial appearance, even making the innovative part difficult to be reviewed. To this end, Article 14 of the Interpretation II incorporates the concept of design space, which mainly means the freedom to create the design of products, excluding common knowledge, common changes, functional design and non‐decorative designs. Further, Articles 15‐17 of the Interpretation II prescribes the basis to determine patent infringement on products in sets, assembled products and products with changing status. The basis for products in sets is one design out of the set of the products. For assembled products, two situations should be considered: as to the 11 products having only one assembling pattern, the basis is the design of the assembled products, while as to the products having various assembling possibilities, the basis is the design of an individual part of the assembled products. The basis for status changing products is all the changing status. VI. Defense of non‐infringement Patent right should be limited in certain circumstances to protect the public interests. Articles 20, 22‐26 of the Interpretation II clarify the following situation to be non‐infringement. 1. Article 20: in the Interpretation I it is prescribed that products directly obtained by using patent method should be ascertained as “products directly obtained based on the patent method”. And then the successive products further processed from the above products should be ascertained as “using the products directly obtained based on the patent method”. In the Interpretation II, it is further prescribed in the Article 20 that the further processing on the above successive products should not be considered as “using the products directly obtained based on the patent method”. This is because the second time processing on the successive products will not be directly related to patent method. 2. Article 22: this article clarifies that as to those patent who is filed before the 2008 third amendments to China Patent Law, prior use in foreign countries should not be considered as prior art in the patent infringement lawsuit because prior use outside mainland China is just incorporated as prior art at the 2008 third amendments to China Patent Law. This article makes the prior art criterion to be consistent among patent prosecution, invalidation and enforcement phases. 3. Article 23: this article clarifies that the infringer’s defense for non‐infringement shall not be supported by the court even if the infringer is implementing his/her own patent. The reason is that patent right is an exclusive right. Two situations should be considered, first, the patent originates from a prior patent, second, due to 12 non‐substantive examination utility model framework in China, it is possible that two or more than two technical solutions with identical or similar protection scope are granted as utility model. Therefore, even if a patentee is implementing his/her own patent, it is possible that patent right of others would be infringed. 4. Article 24: this article prescribes that as to recommending national, industrial or local standards, in the situation that patents are incorporated in such standards and disclosed expressly, the implementing of such standards by infringers should be considered as patent infringement even if such standards are implemented without authorization of the patentee. This article mainly considers the subjective intention of infringers to be in fault. However, this article does not cover all kinds of standards. Two elements must be satisfied as recommending and national, industrial or local standards. Other kinds of standards such as compulsory standards, international standards and so on will be left to further legal practice. As to royalty, the patentee needs to follow FRAND principle, i.e. fair，reasonable，and non‐discriminatory terms, which limits the patent right. 5. Article 25: this article prescribes that bonafide users who have paid reasonably for the infringing products are allowed to use the infringing products in the future. This article protects the interests of the bonafide end users in the market and maintains the business stability. Generally, “unreasonable payment” will be considered as apparently lower than market price or terms, for example half the market price. If so, it would be presumed that the end users to some degree know that there might be patent infringement risks in the purchased products. Although the patent right is an exclusive right, such exclusive right should also be constrained when in conflict with other legitimate interests, for example business safety of bonafide uses, otherwise the values of interests balance will be violated. 6. Article 26: this article prescribes that when injunction collides with national and public interests, the court has the authority not to issue the injunction but to order the infringers to pay reasonable fees. The application of this article should be 13 extremely strictly examined otherwise it is highly likely that the concept “national and public interests” would be abused as unlimited. However, this article does not specify what conditions fall within the scope of national interests or public interests. Furthermore, the reasonable fee here is not ordered as compulsory licensing fee because it will not be applied to the whole related industry but only for individual case consideration. 7. Article 18: this article prescribes that a person who implements the patent before the patent is granted should pay reasonable fee to the patentee after the granting of the patent, otherwise the injunction should be issued to the person. This reasonable fee should be determined based on licensing fee. This article further clarifies the non‐infringement defense for the person who implements the patent before the patent is granted. If the technical solution falls within both the granted scope and the publication scope, the patent infringement will be determined. If the technical solution only falls within one of the granted and publication scopes, the patent infringement will not be determined.