China: Infringement Under the New Chinese Patent Law

A new Patent Law came into force in the People’s Republic of China on 1 July 2001. The new law modernizes and revises many aspects of the previous patent law, notably the provisions relating to infringement of patents.

Enforcement of patents in China has historically been difficult and uncertain. Although remedies have been available through both the courts and administrative bodies, procedural difficulties have arisen because separate organizations may be involved in what would otherwise be a straightforward infringement action.

In many countries, enforcement of patents by means of legal action will frequently involve a counterclaim for revocation. This has previously been the case in China as well.

Before the new law was introduced, the enforcement regime could lead to injustice, due to the fact that the infringer could effectively stall the legal process by challenging the validity of the underlying patent. Conversely, if no such challenge was made, the patentee could pursue a legal action based on a patent of questionable validity.

Under the former system, the standard defence was to file for revocation of the patent. The Re-examination Board which considered questions of invalidity was separate from the enforcement agencies. Unfortunately, the system was categorized by a lack of co-ordination between the enforcement agencies and the Re-examination Board, which effectively meant that the decision in an enforcement action could be delayed for months or years pending the results of the re-examination.

Under the new law, the Patent Office still has the exclusive jurisdiction at first instance to consider issues of validity. However, provision is now made for the issuing of court orders which are equivalent to interim injunctions. The courts have also been given the right to refuse to stay proceedings in cases where the counterclaim for revocation is obviously spurious or where defendants can produce prima facie evidence of prior use.

The new law also specifically provides that an "offer for sale" is an act of infringement. This amendment reduces both costs and the evidentiary burden on the patentee by enabling the production of advertising materials as evidence. This means that it is not necessary to delay the filing of proceedings until an actual trap purchase can be made.

Further amendments which have been made include provision for a penalty of up to three times the illegal profit made through the infringement, the removal of the requirement for knowledge of the infringement on the part of the infringer and the introduction of a doctrine of equivalents.

The following two hypothetical situations demonstrate how the new law changes the practice with regard to infringements.

In cases where a product obviously infringes a patent it remains possible to choose either administrative or Court action to restrain the infringement.

Under the old law, the administrative authorities would typically hesitate to seize products or impose penalties on a defendant if issues of invalidity had been raised. Since the administrative authorities were not competent to consider issues of validity, they would effectively withdraw from the proceedings as soon as an application for re-examination or revocation was filed by the defendant with the Chinese Patent Office. The delay in obtaining a decision from the Patent Office effectively put an end to the enforcement action.

Although the People’s Courts traditionally had greater powers at their disposal in enforcement actions, they were only empowered to hear appeals on validity issues and could not consider questions of validity at first instance. Provided that the defendant could locate an example of potential prior art the proceedings at the People’s Court would be stayed until the revocation or re-examination action was determined by the Patent Office without making any enquiry into whether the prior art was sufficiently close as to raise a genuinely arguable case.

The typical time frame for the Patent Office to issue a decision on a question of validity was in the order of two years. During this period, defendants would be able to continue the infringing activity. Although the patentee could attempt to seek damages for this continued use, the delay would effectively grant the defendant ample time to re-design its products, phase out production or move its premises. This in turn would discourage or defeat any continued claim for damages for past infringement.

Under the new law, patentees have the opportunity to seek an interim injunction at the outset of any proceedings before the People’s Court and even seek orders for preservation of evidence and infringing articles. Although the issue of such orders will require the provision of a financial bond or undertaking as to damages from the patentee should the patent ultimately be found invalid or not to be infringed, this should not deter patentees in obvious cases of infringement. Although the validity issues would still remain undecided for some time, the patentee is now in a much stronger position.

The additional rights of patentees under the new law are counterbalanced by provisions which allow a court to refuse to stay the proceedings and issue injunctions under certain circumstances. These circumstances include a situation where the alleged infringer is able to produce evidence of prior use of the invention before the patentee.

Due to the examination process itself, patents can often be granted if prior art materials are known only within the industry and are not available through patent literature. China is no different from other jurisdictions in this regard. The new provisions mean that the holder of a clearly anticipated patent may be refused an injunction against an alleged infringer who is able to produce clear evidence of anticipation. In this situation, it appears that the People’s Court will be able to make a finding that the patent has not been infringed even though it does not apparently have the power to declare that the patent itself is invalid. It appears that the Re-examination Board remains the only body which is empowered to make a finding of invalidity in the first instance.

The new Chinese Patent Law introduces injunctions to patent cases and will reduce the historical problem of unjustified strategic revocation actions by infringers. This is counterbalanced by the introduction of provisions which will allow a court to refuse to issue an injunction in cases where there is clear prior use. Thus the new law strengthens enforcement rights while ensuring that safeguards are maintained against unjustified infringement actions.