The Trial Committee of the Supreme People’s Court on January 23rd, 2016, approved the “Interpretations (ii) of the SPC on Several Issues concerning the Application of Law in the Trial of Patent Infringement Dispute Cases”(hereinafter “Interpretation (ii)”). Comprised of totally thirty-one (31) articles, the Interpretations (ii) have been in effect since April 1st of 2016. The Supreme Court’s first Interpretation was released in December 2009. Among all perspectives, the Interpretations (ii) are focused on several issues including but not limited to contributory and induced infringement, shift of the burden of proof, new design of court proceedings when invalidation of patent right is involved, a good-faith user’s safe harbor defense, compulsory license replacing injunction orders, etc. Details of each focus are laid out as follows:
Article 21 of the Interpretation (ii) prescribes the constitutive requirements of contributory and induced infringement. An infringer who knowingly provides the raw materials, semi-finished products, parts and fitting components, or equipment specifically designed for practicing the patent and for commercial purpose, shall be liable for damages. Also, an infringer who,driven by commercial purpose, exercises the patent right without the patentee’s consent or actively induces another to commit infringement, shall be liable jointly and severely for damages.
Note that in the Draft of the 4th Amendment to the Chinese Patent Law, similar provisions of secondary infringement have also been sent for State Council’s review. Such legislation will essentially bring harmonization to China’s system with some major jurisdictions, such as the U.S. While we may expect the same liability being enforced by a higher hierarchy of the laws in a foreseeable future, some yet hope to see that more clear criterions for indirect infringement will be addressed via the implementing regulations of the Amended Patent Law.
Shift of Burden of Proof
Generally the patentee initiating the action has the burden to prove the facts of infringement before the court. Article 27 of the Interpretations (ii) partially adjusts the burden of proof to resolve the long-term issue of “hard to prove, low damages award.” Specifically, when the patentee has provided the prima facie evidence regarding infringer’s gained profits, the court may order the infringer to further present relevant ledgers and data in his possession. In failure to comply, the court has discretion to determine the monetary damages based on patentee’s evidence and claimed amount. The shift of burden of proof is so formulated in reference to the rules for obstructing accessibility to evidence as stipulated in the Trademark Law. The principles for calculation of damages remain as is in the Patent Law.
Shortened Civil Proceedings
The adjudication pendency for a patent infringement case might be long than tolerable. Frequent use of the invalidity defense significantly contributes to the lengthy process due to the bifurcated system between administrative and civil proceedings. Upon an invalidation action being raised, the civil case will commonly be suspended until the final outcome of the invalidation decision firstly made by the Patent Review Board of SIPO (the “PRB”) and then confirmed by the administrative courts Tiered level of administrative litigation procedures implies that tremendous time and effort must be invested before the infringement case can be resumed.
To improve procedural efficiency and shorten the trial pendency, Article 2 of Interpretations (ii) provides a procedural economy by moderately unwinding the two proceedings. It allows the court of civil proceedings to dismiss the case upon the decision of patent invalidity made by the PRB, without awaiting a final judgment from an administrative court. However, if the decision of patent invalidity is later revoked by the appellate administrative decision, the patent owner is entitled to initiate the same litigation again free from the concern of res judicata.
Safe Harbor Defense for Good-Faith User
According to Article 70 of the Patent Law, a good-faith user or seller may be exempted from infringement liabilities by demonstrating the source of infringing products being legitimate. The question lies in whether the patentee is able to further enjoin continued use of infringing products and even may be entitled to royalties from the user, who has not only proven the legitimate source of products, but also exchanged the patented product with a reasonable consideration. It is deemed an ambiguous expansion from the literal scope of patents because the good-faith user may have already reasonably compensated a third party from whom he or she obtained the patented products. For the balance of interest, Interpretations (ii) limits the exercise of patent rights against good-faith users or sellers who can prove their products are from a legitimate source. By the request of the patent right holder, continued use can be enjoined even when the good-faith user proves their good-faith intent and the legitimacy of the origin of products. But if the user proves not only the legitimacy of the source of products and that they obtained the products by a reasonable consideration, continued use may be allowed by the court.
Compulsory license in replace of Injunction Order
Injunction against an infringing activity is the common purpose for most patentees.. An exception is stipulated in Article 26 of the Interpretation (ii), which empowers the court to rule differently considering the balanced interest between the public and the rights holder. In case of compromises of the public or national interest, the court may rule a compulsory license ordering the accused to pay reasonable royalties, instead of granting an injunction enjoining infringement acts.
More requirements and provisions including definition of functional features, exercise of standard-essential patents, types of file-wrapper estoppel, pre-granting a right of an invention patent application, agreed amount for damages, etc. are all stipulated in Interpretation (ii). By supplementing the legal system, Interpretation (ii) is hoped to fortify the role of judiciary power in order to effectively deter infringement activities and spur innovation and technical advancement.