The Chinese patent litigation market is currently booming, with one key driver behind this boom being that many foreign entities and multinational companies are now pursuing enforcement of their patents in China because of a perception that the Chinese government has created an increasingly attractive environment for patent enforcement, as symbolized by, among others steps taken, the recent establishment of specialized IP Courts in Beijing, Shanghai and Guangzhou. These entities/companies, though increasingly enthusiastic and optimistic about patent enforcement in China, are generally not familiar with the Chinese legal system and may have concerns about local protectionism and uneven application of the law. In this article I would like to share a list of those questions most frequently asked by our clients in relation to patent litigation in China, and provide some basic and preliminary answers thereto.
Q1: What documents are required to file a patent infringement action in China?A1: The plaintiff will have to submit the following:(a) a bill of complaint listing the Claims, facts, and reasoning;
(b) a list of preliminary evidence, including a record from the patent register showing the current status of the patent asserted, the patent’s Specification, evidence about the accused infringement of the defendant, and evidence about damages; and
(c) a set of procedural documents including:
- Certificate of Incorporation/Good Standing or Business License of the plaintiff;
- Certificate of Identity of Legal/Authorized Representative of the plaintiff; and
- Power of Attorney to authorize PRC-licensed attorneys to represent the plaintiff in the action.
Q2: How long does the infringement trial last?
A2: China has a two-Instance system of adjudicating civil litigation cases, such as patent infringement disputes, where a Second Instance Appeal is provided for under the law (but said Appeal must be duly applied for by one of the Parties). The First Instance proceedings are before a trial court, which usually is a local Intermediate People’s Court or IP court, or, under certain conditions, a local High People’s Court. Any Second Instance proceedings are before the Appellate Court, which usually is the local High People’s Court or the Supreme People’s Court in Appellate cases where the First Instance trial was held before a High People’s Court. Both the trial court and the Appellate Court are entitled to find facts and to try the case on its merits. The First Instance proceedings in patent litigations usually take, in total, approximately 6-12 months or even longer when the defendant files an Objection to Jurisdiction and/or the Court arranges for a judicial appraisal. Second Instance proceedings usually last approximately 6-9 months. The losing party of the Second Instance proceeding can file a retrial petition before the Supreme People’s Court, and the Supreme People’s Court has the discretion to decide as to whether to grant certiorari to retry the case.
Q3: Can the defendant challenge the validity of the patent asserted in an infringement trial?
A3: No, the defendant cannot challenge the validity of the patent in an infringement trial. China has a bifurcated system supporting patent enforcements, consisting of adjudication of infringement claims at trial and, also, suits challenging patent validity, where this system is similar to the German system. The competent local courts have jurisdiction over the First Instance trial of infringement cases, and the Patent Reexamination Board (“PRB”) of the State Intellectual Property Office (“SIPO”) has exclusive jurisdiction over validity trials, which is a bit similar to the IPR Proceedings at PTAB. However, the defendant can choose to raise a defense of practicing prior art in the infringement trial by arguing that the accused infringing solution is nothing but a piece of prior art or a combination of a piece of prior art and common knowledge in reference to the patent at issue.
Q4: What is the outcome if the patent asserted is found invalid by the PRB?
A4: The infringement trial court would dismiss the claims of the plaintiff after the PRB declares the patent asserted invalid. The patentee could, however, seek judicial review of the PRB decision, where such is done exclusively before the Beijing IP Court (“BIPC”) and the judgment of the BIPC could be subject to an appeal to the Beijing High People’s Court. The patentee is entitled to filing a new action if the PRB decision is revoked by an effective judgment.
Q5: Would an infringement trial be suspended pending invalidation proceedings?
A5: Generally speaking, an infringement trial will not be suspended pending the outcome of invalidation proceedings, unless the defendant files an invalidation request against an asserted utility model or design patent within the period of response of the infringement case and the defendant should provide evidence showing that the utility model or design patent is very likely to be invalidated. In practice, as invalidation trials are usually concluded within 4-9 months and infringement trials are generally concluded within 6-12 months or even longer, the infringement trial court usually issues its judgment after the PRB rules.
Q1: Is there any equivalent to a Markman hearing in China?A1: No, there is no equivalent to a Markman hearing in China. However, the plaintiff is also required to explain and construe the claims asserted before the Court and compare the claims with the accused infringing solution.Q2: What are the rules for claim construction in China?
A2: There are several rules to construe a claim in China, including:
- All Limitation Rule: all the elements of a claim shall be incorporated by the accused infringing solution, subject to exceptions for indirect infringement;
- Priority of intrinsic evidence over extrinsic evidence: intrinsic evidence includes patent claims, patent description, prosecution history (encompassing the arguments of the patentee in examination – Office Actions, reexamination, and invalidation) and effective judgments out of judicial review on reexamination and invalidation decisions for the patent asserted or its Chinese family patents, where extrinsic evidence refers to the evidence outside the scope of intrinsic evidence, e.g., textbooks, dictionaries, expert witnesses, and so forth;
- Prosecution History Estoppel: the arguments of the patentee in the file wrapper will have a bar on claim construction in the infringement case; and
- Doctrine of Equivalents: the court will find infringement not only when the accused solution literally reads on the claim, but also when the accused solution is equivalent to the claim language subject to the function-way-result test at the time of infringement and is obvious to those skilled in the art.
Q3: Is there discovery in China? If not, is there any comparable relief to the plaintiff in terms of evidence collection?
A3: There is no discovery in China and the burden of proof is largely on the plaintiff. However, there are certain alternative court measures plaintiffs can resort to for production of evidence. Firstly, a plaintiff could apply with the Court for preservation of evidence against the defendant, provided that the plaintiff has substantial difficulty in collecting the evidence which is in the possession of the defendant. Such evidence could refer to an accused infringing large-scale product or process, or accounting data regarding the accused infringing product or process. Secondly, the plaintiff could also apply with the Court for an investigation order when a third party holds information about the accused infringing product or process. For example, in a patent infringement case involving telecommunications network infrastructure, the patentee may apply for an investigation order against a Chinese telecommunications carrier, which is usually not a party to the pending action, so as to obtain pertinent information about the accused infrastructure.
Q4: Is it difficult to have a preliminary injunction ordered? What conditions have to be met for a preliminary injunction to be ordered?
A4: Generally speaking, it is quite difficult to have a preliminary injunction ordered in a patent infringement dispute. In order for the Court to issue a preliminary injunction order, the plaintiff has to prove that:
- there is obvious infringement by the accused infringing product or process;
- the patent asserted is valid, e.g., already subject to an invalidation request;
- there would be irreparable damages, e.g., market loss, in case no preliminary injunction was ordered; and
- the public interest will not be impaired by ordering the preliminary injunction.
Meanwhile, the plaintiff will have to deposit a bond with the Court, so as to prevent possible losses of the defendant should the court judgment ultimately be in favor of the defendant.
Q5: How the damages are calculated in China? What is the latest trend for calculation of damages?
A5: Damages for patent infringement are compensatory in nature. The damages are calculated in the following order – losses of the plaintiff, illegal profits of the defendant resulting from accused infringement, reasonable multiples of payments of royalties for implementation of the patent asserted, and statutory damages of RMB 10k to 1 million. In most of the cases, the Court will exercise its discretion to determine an amount based on the theory of compensatory damages. Thanks to the rule for shifting of burden of proof from the plaintiff to the defendant as defined in Article 63 of the P.R.C. Trademark Law, courts trying patent infringement disputes are also often shifting the burden of proof to the defendant, particularly when the plaintiff has exhausted its efforts to collect damages evidence and the defendant is in possession of the accounting books and materials related to the accused infringement. Additionally, Chinese courts are more and more aggressive in awarding damages in large amounts, such as the RMB 50 million award issued by the BIPC in a patent infringement case involving a smart token device, and a RMB 80 million award issued by a Fuzhou Court in a UI-patent infringement case between Huawei and Samsung. Most courts are more willing to issue damages higher than the maximum threshold of statutory damages, i.e., RMB 1 million, when the evidence submitted by the plaintiff can prove its losses or the defendant’s illegal profits are obviously higher than the maximum statutory threshold.
Q6: Is permanent injunctive relief always available to the plaintiff?
A6: Permanent injunctions are a standard means of providing relief to the plaintiff in a patent infringement dispute, unless the Court finds such an injunction will be prejudicial to public interests or is obviously not viable. A permanent injunction is specific to the defendant(s) listed in the action.
Q7: Are there juries in China? If no, how do the courts decide patent infringement cases?
A7: No, there are no juries in China. In most cases, the Court will assign three-judge panels to try the case in the First Instance proceedings and in the Second Instance proceedings, respectively. Among the three judges of the panel, the decision will be reached on a majority basis.Q8: Is there local protectionism in Chinese courts? If so, what measures can be taken to avoid local protectionism?A8: The reality is that, to varying degrees, local protectionism exists in courts throughout in the world, and such is not limited to China. That said, in Chinese courts, generally, there is no clear and consistent prejudice against foreign companies, however, there may in some cases exist a certain degree of local protectionism, particularly when one of the parties has made significant economic contributions to the local economy. In order to avoid such possible local protectionism, the plaintiff should try, where jurisdictional rules and circumstances allow, to have the case moved out of the domicile of the defendant, e.g., by suing not only the defendant/manufacturer of the accused infringing product, but also a co-defendant/distributor or co-defendant/user located in a more favorable jurisdiction.