Summary

On 2 December 2015, China's State Intellectual Property Office (SIPO) released another draft version of the Chinese Patent Law for public comment. Comments on the Draft have been submitted widely by January 2016, and are currently being reviewed by SIPO. The Draft contains an important overhaul of the current Law, focusing in particular on enhanced patent enforcement, ISP liability and increased patent utilization. This newsflash summarizes the key changes proposed in the new Draft. 

Sharpening the teeth of judicial and administrative enforcement procedures

The Draft presents two major improvements for civil patent infringement proceedings. First, under the Draft, wilful patent infringement becomes punishable with punitive damages of up to three times the standard damages. Moreover, the statutory damages (i.e. damages that the court can grant in case the claimant cannot adduce direct evidence of its losses) are significantly increased from the current RMB10,000 - 1 million to RMB100,000 - 5 million. Secondly, once patent infringement is established, the Court can shift the burden of proof regarding the amount of damages to the infringer, by ordering him to deliver up its financial records and all other materials relating to the infringement. If such documentation isn’t submitted, the Courts can shift the burden of proof and base themselves solely on the claimant's demands and evidence to determine the amount of damages. This change will be welcomed by many patentees, given the notorious rigidity of the Chinese rules on direct evidence of damages. This also seems in line with the amended Trade Mark Law.

The Draft also expands the role of the patent administrative departments (including the local county offices) in patent enforcement cases. Under the Draft, the administrative authorities would get the power to investigate, assess and punish patent passing-off cases as well as wilful and repeated infringement cases. It should be noted that these powers of the administrative departments have been - justly - reduced compared to the former Draft (April 2015), under which they would even get the power to act in ordinary, less-clear cut infringement cases. The change is welcomed by the profession.

Under the current Draft, such more complex cases would fall within the exclusive jurisdiction of the (IP) courts. The fines that could be imposed by the administrative departments are increased to maximum five times the illegal turnover of the infringer. They can however no longer confiscate tools, parts, etc. At the same time, the Draft also provides that individuals who obstruct or refuse to cooperate with administrative investigations may face public security or even criminal sanctions.

Internet infringement and safe harbour rules for ISPs

The Draft also contains new provisions on patent infringement via the internet. This was not in the previous drafts. At present, patentees need to rely on the more onerous principles from the Tort Law to claim ISP liability. According to the Draft, which adopts a regime similar to that in copyright and trademark law, ISPs (which in China includes e-commerce platforms) would be jointly liable with the infringer if they have actual or constructive knowledge of patent infringement through their services, and don't prevent it. Under the Draft, such knowledge can come from take-down notices by either the patentee or the patent administrative department. If the ISPs don't respond timely and adequately, e.g. by deleting, blocking or disconnecting links to infringing products, they will be held jointly liable. Conversely, the ISPs would not have a general monitoring obligation ('safe harbour').

This would add a large burden on ISPs. The provisions do not differentiate between different types of patents and for ISPs to decide on infringement of patents and detect abuse would be difficult.
 
Good faith patent enforcement and application

The original section of the Draft focused on the adoption of a good faith principle in the enforcement stage. The new provision extends this good faith principle to patent applications.
 
Design patents


The Draft confirms the extension (inserted in earlier drafts) of the term of protection for design patents from 10 to 15 years. This is consistent with China's planned accession to the Hague Agreement concerning the international registration of industrial designs. The Draft moreover extends the protectable subject matter to parts of products, as opposed to the current rule which only allows whole products to be protected by a design patent.
 
Indirect infringement codified

A welcome addition is that the Draft also codifies the existing judicial practices regarding indirect infringement, by inserting a new provision on contributory and induced infringement into the Patent Law. 

Incentivising exploitation and operation of patents

Although China has the highest number of annual patent applications, the percentage of patents that is actually exploited and/or operated remains comparatively low. The Draft proposes three concrete measures that aim at reversing this trend: activating state-owned service patents, adopting commitments to license and regulating patent pledges.

As to the activation of dormant state-owned service patents, the Draft identifies these as services inventions owned by state-owned R&D centres or universities that haven’t been exploited, assigned or licensed to third parties within a reasonable time from the date of grant. Under the Draft, the inventors or designers of these patents may take matters into their own hands by either exploiting these patents themselves or by licensing them to third parties, after entering into an agreement with the state-owned entity.

A commitment to license on the other hand would be a declaration by the patentee, published by SIPO, which publicly states the terms under which a patent would be licensed to any third party that is willing to accept them. Any interested party could then obtain a licence under the patent by giving notice to the patentee and paying the royalties.

The third measure is the introduction into the Draft of the patent pledge as a security. According to the Draft, a patent could be pledged by joint request of the pledger and the pledgee, filed with SIPO, indicating the value of the pledged patent. If the value of the pledged patent would decrease substantially, the pledgee could ask for additional securities or guarantees. The pledge would become effective on the date of registration.
 
Conclusion

Comments on the draft have been submitted widely and the Draft may either be amended further, or be submitted to the State Counsel and the National People's Congress for approval.

The Draft reinforces the position of patentees, the courts and the administrative authorities in combatting patent infringements, deals with "junk" patents somewhat, and brings the Law more in line with the day-to-day reality of online commercialisation of patented products.