After significant debate and multiple drafts circulated over a three-year period, the legislative body of the People’s Republic of China (PRC) recently adopted an amendment to the PRC’s Patent Law. First enacted in 1984, the Patent Law was previously amended in 1992 and 2001. This "Third Amendment" will become effective on October 1, 2009. It is another step taken by the PRC to further harmonize its patent laws with the Agreement on the Trade-Related Aspects of Intellectual Property Rights and the patent laws of other jurisdictions, as well as strengthening patent protection in the PRC. Foreign companies doing business in the PRC should be aware of the various changes brought into effect by the Third Amendment, including a change to the novelty standard, restrictions on inventions based on genetic resources, and a streamlining of enforcement.

Absolute Novelty Standard

The Third Amendment switches the PRC to a true absolute novelty jurisdiction. Previously, the PRC had a mixed novelty standard because qualifying prior art had consisted of publication in China and abroad and inventions practised or publicly made known within the PRC, but not abroad. The Third Amendment provides for equivalent treatment of inventions made publicly available within the PRC and abroad by introducing the concept of "existing technology" as the standard for determining novelty. This is now defined to be the technology known to the public anywhere in the world before filing of the application. To satisfy the new novelty standard, the invention must be different from the so-called "existing technology."

Genetic Resources

Another major change introduced by the Third Amendment relates to inventions involving genetic resources, and the Convention of Biological Diversity has been cited by the PRC as the basis for introducing this requirement. The Third Amendment explicitly prohibits the granting of a patent for any invention relying on unlawful use or acquisition of genetic resources. Where the invention involves any genetic resources, the applicant has to disclose the direct source and original source of the genetic resources in the patent application. If the applicant cannot provide information on the source of the genetic resource, the applicant must give an explanation in the application as to why the information is not available. Since this is a completely new requirement under the Patent Law, it is unclear how the State Intellectual Property Office (SIPO) will apply this requirement when reviewing patent applications.

Patent Application Clearance Requirement

Any foreign parties carrying on research and development in the PRC should be aware of a new clearance requirement for patent applications in the Third Amendment. The current Patent Law requires that patent applications for inventions developed in the PRC first be filed in the PRC. The Third Amendment replaces this first-filing requirement with a new clearance procedure. The clearance process requires any entity or individual interested in filing a foreign patent application for inventions "completed" in the PRC to apply to SIPO for clearance on a confidential basis prior to any foreign filing. Failure to comply with this new clearance requirement will cause the loss of patent rights for the invention in the PRC.

Assignment of Patent Rights

The Third Amendment also clarifies the law surrounding the assignment of patent rights in the PRC. Under the current law, assignment of patent rights to foreign parties requires administrative approval, which is inconsistent with the PRC’s technology import/export laws where approval is only required for certain types of technology. The Third Amendment clarifies this situation by stating that the assignment of patent rights to foreign parties shall occur in accordance with the existing import/export requirements.

Relationship between Utility Model Patents and Invention Patents

The Patent Law also encompasses the concept of utility models. The Third Amendment clarifies the interaction between utility model applications and patent applications that relate to the same invention. An applicant is now allowed to file applications for a patent and a utility model patent as long as the applications are made on the same day. Because prosecution of utility model applications is less stringent, utility model patents are issued more quickly than are invention patents. An applicant will therefore be able to benefit from the utility model registration while the patent application is in prosecution. However, under the Third Amendment, the utility model registration will become abandoned upon issuance of the invention patent.

Patent Enforcement

The Third Amendment also attempts to strengthen patent enforcement in the PRC. Unlike Canada, the PRC has a dual-track system for litigating patent infringement; one is administrative, the other judicial. The Third Amendment prescribes new limits on statutory damages for patent infringement in both administrative and judicial proceedings. Upon a finding of infringement in an administrative proceeding, a maximum fine equal to four times (previously three times) the profits made as a result of the infringement may be imposed against the infringer. Where the infringer did not profit from the infringement, the maximum fine has increased from RMB 50,000 to RMB 200,000 (about $36,000 Cdn). The maximum statutory damages that may be granted by a court is RMB 1,000,000 (about $180,000 Cdn).

The Third Amendment further provides for pre-action injunctions where there is suspected patent infringement. Where a patentee or interested party has evidence of infringement or imminent infringement by a third party and it is able to establish that it will suffer irreparable harm if an injunction is not granted, the patentee or interested party may apply to a court for a pre-action injunction before an action for infringement is started. The patentee or interested party can also request a court order to preserve evidence of the alleged infringement. For both pre-action injunction and preservation order applications, the court will generally render a decision on the applications within 48 hours of the request.

Defences to patent infringement are also clarified under the Third Amendment, namely that there is no infringement if the patented invention is proven to be part of the "existing technology." Furthermore, the Third Amendment incorporates the Bolar Exception, named after the Federal Circuit Court of Appeal decision of Roche Products Inc. v. Bolar Pharmaceutical Co. (which led to the enactment of the safe harbour provision under US patent law, 35 USC 271(e)(1)), into the Patent Law by stating that the use or importation of patented pharmaceuticals or medical devices for the purpose of seeking regulatory approval is not an act of patent infringement. The Third Amendment also implements the principle of patent exhaustion, meaning that importing, using, selling, or offering to sell patented products or products produced directly by a patented process does not constitute infringement in the PRC where such products were first sold by the patentee or its licensee outside of the PRC.

Other Changes

The Third Amendment also affects the law concerning patent co-ownership, compulsory licensing, and design patents. It is interesting to note that a number of concepts found in the draft amendments were not implemented in the Third Amendment, such as the US patent law concepts of the doctrine of equivalents and file wrapper estoppel. Finally, regulations are currently being drafted and circulated to address the administration and implementation of the Third Amendment.

McCarthy Tétrault Notes:

While concerns remain regarding the usefulness and enforceability of PRC patents and other forms of intellectual property in the PRC, the enactment of the Third Amendment demonstrates the PRC’s interest in improving its patent regime. The Third Amendment attempts to improve enforcement of patent rights by increasing damages, allowing pre-action injunctive relief and granting greater power to the administrative body handling patent infringement matters.

However, other aspects of the Third Amendment may adversely affect foreign parties conducting research and development in the PRC, such as the new clearance requirement for any invention "completed" in the PRC prior to any foreign filing and the new requirement to indicate lawful acquisition of genetic resources and disclosure of the origin of those resources. The alteration of novelty standards also increases the amount of prior art faced by applicants filing in the PRC, but this is in keeping with the patent laws of other countries.

The Third Amendment’s clarification of the relationship between utility model and invention patents is useful for companies involved in mechanical and electrical innovations. Parties may wish to take advantage of the parallel applications framework and file both a utility model application and an invention patent application on the same day in order to maximize the period of statutory protection for an invention.