Changes in Chinese Patent Law Adopted

    By Kevin E. Noonan --

One of our foreign associates in China, Vivien Chan & Co., informs us of a number of important changes in Chinese patent law adopted by the People's Congress on December 27th.  The following new rules for patent practice will come into force in China on October 1, 2009:

•  China will now accept first foreign filings by Chinese companies or individual inventors who "complete" an invention in China.  This will permit Chinese applicants to file in the U.S., for example, as a "first filing" and thus take advantage of the patent term advantages in China of having a priority date one year earlier than the filing date for patent term determining purposes.

However, should an applicant (Chinese or not) wish to take advantage of this new option for an invention completed in China, the applicant will need to apply for "confidential examination" with the Chinese Patent Office (SIPO) prior to foreign filing.  Like with foreign filing licenses in the U.S., non-compliance with this provision can result in severe penalties for the corresponding Chinese application (rejection in China, unenforceability in the U.S.).

SIPO will need to develop rules of practice for implementing this change, including rules related to inventions that implicate national security concerns.

•  The scope of novelty-destroying activity has been expanded.  Previously, an invention needed to be publicly known or used in China (or to be disclosed in a patent or printed publication abroad or in China) to be prior art (similar in effect to 35 U.S.C. § 102(a)).  With this change, public activities in other countries can be the source of novelty-destroying prior art for Chinese applications.

•  Chinese patent law provides both utility applications (termed "patents for invention") and utility model patents.  It is common practice for applicants in China to apply for both invention and utility model patents, because the latter tend to grant more quickly.  Typically, the utility model patent is abandoned once the invention patent is granted.  The change in Chinese law merely acknowledges this practice.

•  "Genetic resources" must be identified in a patent specification if "completing" an invention requires acquisition and use of genetic resources.  Both the immediate ("direct") and original source must be identified, or an explanation provided why the genetic resource is not identified.  Patents can be rejected if either the acquisition or use of the genetic resource violates any law or regulation.  Unfortunately, the scope of this requirement is not yet apparent, since neither the term "genetic resource" or what would be considered illegal acquisition or use has been defined.

•  Compulsory licensing has been a contentious topic worldwide, with developing countries like Brasil, India, and Thailand taking aggressive steps to impose compulsory licenses particularly on Western pharmaceutical companies (see, e.g., "Thailand Continues Its Compulsory Licensing Practices").  While the opportunity exists under current law for a company in China that has the capability to "exploit" an invention to petition SIPO for a compulsory license, the current changes specify with more particularity the circumstances under which SIPO will grant compulsory licenses.  These include:  1) that the patentee has failed to exploit or "sufficiently" exploit the invention within 3 years of the patent grant or 4 years after filing, without "reasonable" grounds; or 2) exploitation of the patent by the patentee would violate Chinese antitrust laws and SIPO makes a determination that the compulsory license is "essential" to counter the patent's anticompetitive effects.

Further, Chinese law permits SIPO to grant compulsory licenses for reasons of public health, or for export to countries that are "members of international treaties to which China is also a member" (once again illustrating the unexpected consequences of TRIPS and the WTO).  The new rules also make provisions for payment of an "exploitation fee" to the patentee, again under provisions of international treaties.  Compulsory licenses are to be granted on semiconductor patents only in the public interest or to counter anticompetitive effects.  Finally, except for public health or interest licenses, the effects of these licenses are meant to be limited to the Chinese domestic market.

•  The "cap" on fines for infringement has been raised, from three times the "illegal income" made from the infringement or RMB 50,000 (US $7,311.33) -- where there was no illegal income made from the infringement -- to four times the illegal income or RMB 250,000 (US $36,556.66) for income-less infringement.  Statutory damages can be as high as RMB 500,000 (US $73,113.31) at the court's discretion, and the changes in Chinese law now provide methods for calculating damages, in the following order of preference:

•  Actual losses to the patentee;
•  Profits made by the infringer;
•  "Reasonable" multiple of royalties paid (presumably, by licensees); or
•  In the absence of these, up to RMB 1,000,000 (US $146,226.63)

Also included are damages incurred by a patentee as "reasonable costs" incurred in protecting its rights.

The new law also imposes the requirement for a bond for preliminary injunctions or other "pre-action" relief, including seizures to preserve evidence.

Finally, the new Chinese law has provisions (for the first time), similar to the Hatch-Waxman Act, that define as non-infringing conduct, acts taken to provide information to administrative agencies for obtaining approval to make, use, or import a patented medicine or medical devices.  There are no provisions extending patent term for delays in obtaining approval.