Australian companies increasingly elect to have their products manufactured in China, often to offset the costs associated with domestic manufacture.
As a consequence, many companies look to pursue patent protection in China to safeguard their position, and provide greater enforcement options against third parties.
While there is often considerable interest in obtaining Chinese patent rights, few are aware of the intricacies of enforcement of those rights. Chinese patent litigation has many differences compared to similar actions in Australia and elsewhere.
There are important implications not readily apparent to those better acquainted with the principles and features of patent litigation in Australia, and more broadly civil litigation in Australia and in other common law countries.
Administrative enforcement problematic for patent owners
Administrative enforcement of rights is a notable feature of the intellectual property landscape in China. Pragmatically, it is difficult to succeed with administrative enforcement of patent rights, at least in isolation of a related civil procedure. The relevant administrative authorities are simply not well suited to considering issues that invariably arise in patent infringement cases. Accordingly, the only realistic option for patent enforcement involves use of civil litigation in the People’s Courts.
Patent litigation in the Chinese court system
Patent litigation necessarily originates in one of the Intermediate People’s Courts. Not all Intermediate People’s Courts are qualified to hear patent matters; however, those in larger cities usually are qualified. Matters are typically heard by a panel of three judges, consisting of a senior chief judge and two junior associate judges. They may be assisted by a technical advisor fluent in the relevant technical issues (akin to the court Appointed Expert in some other jurisdictions). Foreign patent litigants will typically select Intermediate People’s Courts in Beijing or Shanghai, but can face lengthy delays before their case is scheduled. Other Intermediate People’s Courts may be selected to avoid delay, though should be researched to ensure that they have a favourable reputation in competently dealing with patent cases.
Evidentiary challenges in Chinese patent litigation
Unlike Australia, there is no process of ‘discovery’ in China. This has a range of important implications for litigation strategy, which are discussed below in further detail. While the lack of discovery does serve to bypass this expensive and time-consuming exercise, and it can also significantly frustrate the objectives of a litigant in a number of circumstances. As a simple example, a litigant must provide evidence that shows sales volume by the infringer. Unless an infringer publishes earnings reports as a publicly traded company, the plaintiff may have considerable difficulties in proving reliable sales volumes. The courts may in certain circumstances be willing to order evidence production by the infringer, but this is far from assured. As can be imagined, proving infringement of process claims can face significant challenges.
Primacy of documentary evidence in Chinese patent litigation
While a range of evidence may be presented in China, when compared to Australian courts, documentary and physical evidence tends to be given considerably more weight than witness testimony. Furthermore, Chinese courts have particularly stringent requirements for authenticating documentary and physical evidence. Pains must be taken to ensure that any document or physical evidence presented to the court is duly notarized to demonstrate authenticity. This applies to items as self-evident as purchase receipts for an infringing product. Documents originating outside of China are subject to yet further requirements, and must be translated into Chinese, notarized, and also legalized before being presented to the court.
Expert evidence often accorded little probative value
Expert evidence, which often assumes prime importance in patent litigation in Australia, is often considered to be of little probative value in China, and evidence which may be compelling in other jurisdictions may prove to be of little help to a litigant in China. Expert evidence may be accorded greater weight if originating from a government agency, or an expert agreed upon by both parties and approved by the court beforehand.
Pre-trial preparation of case when discovery is not available
As there is no discovery in China, prospective patent litigants are advised to collect as much evidence as possible before seeking enforcement. For every piece of evidence collected, one is advised to strictly observe the locally applicable evidentiary rules, referred to above, including any necessary notarization, legalization, and translation requirements. Experienced private investigation agencies can be invaluable to collect relevant evidence, depending on circumstances.
Exchange of evidence is conducted rather than discovery
Before pre-trial hearings take place, an evidence exchange hearing is scheduled, at which time the parties present evidence intended to be used at trial. The evidence exchange is also an opportunity for parties to challenge each other’s evidence. In the absence of discovery, the People’s Courts are empowered to order production of evidence as required, which marks a significant procedural milestone.
Private ex-parte communication with the Court
A striking difference with judicial process in Australia is the freedom to conduct ex parte communications with the People’s Court. Chinese courts will often in fact initiate ex parte communications in a bid to resolve a case through mediation or settlement between the parties. While it may be an advantage to have a direct line of communications with the court, the ultimate implications of such communications (and those of the other party’s communications) can be difficult to assess due to lack of transparency, when compared with a common law jurisdiction.
Available defences to patent infringement
The primary defence to patent infringement in China is non-infringement, or practice of prior art. Unlike Australia, patent invalidity per se is strictly speaking not a defence. Notably, invalidity issues are not concurrently explored in a parallel cross-claim before the court. Instead, in China, validity of patents must be separately challenged through re-examination before the Chinese Patent Office.
Although the People’s Courts will hear appeals of any adverse decisions by the Chinese Patent Office, the People’s Courts will not adjudicate issues of validity in the first instance. Moreover, People’s Courts are unlikely to stay litigation proceedings until the asserted patent is declared invalid by the Chinese Patent Office. On a related point, part of the pre-trial investigation should also include an assessment of the strength of the alleged party’s patent portfolio in China, as retaliatory counteroffensive patent litigation is a possibility.
Remedies to infringement
A finding of patent infringement will generally entitle a patentee to injunctive relief and perhaps monetary damages. Although preliminary injunctive relief is available upon a showing of irreparable harm, such relief is normally not granted absent a showing of clear acts of infringement. Also, it can be difficult to hold an infringer to an order of injunction, as there is no contempt of court proceedings to hold parties to account.
Although a patentee may be entitled to monetary relief, the lack of discovery can make it difficult for a patentee to collect the evidence necessary to suggest a suitable figure. A patentee may ask the court to award statutory damages, but the maximum amount available may fall considerably short of that which might be awarded in other jurisdictions.
Civil litigation in China will be unfamiliar territory for those more familiar with the operation of Australian courts and other common law jurisdictions. Accordingly, Australian owners of Chinese patent rights are advised to carefully weigh the risks and benefits of proceeding with Chinese patent litigation, and seek professional advice on IP enforcement strategies and commercial options.