China Amends Its Patent Law

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12 JAN 2009

China Amends Its Patent Law

by Justin Davidson and Stan Abrams

China’s People’s Congress has approved the Third Amendments to China’s Patent Law. The changes, approved in late December 2008, will come into force in October 2009. The State Council initiated the process of amending the Patent Law in 2006, motivated by China’s economic development goals—its transition from a manufacturing-export-based economy to a hightechnology, innovation-based economy. Before a new law is formally promulgated in China, it must go through three readings. The Draft Amendment to the Patent Law (2009 Amendment) was submitted to the National People's Congress Standing Committee for the first of these readings on August 27, 2008. The latest set of changes represents the third major change to China's Patent Law, which was first issued in 1985 and then amended in 1992 and 2000. Those first two amendments focused on compliance with specific international laws. In 1992, the main goals included bringing pharmaceutical compositions within the scope of the law and making necessary adjustments following China's signing of the Patent Cooperation Treaty. In 2000, as China was entering the World Trade Organization (WTO), the Patent Law was overhauled again to comply with the Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement. The 2009 Amendment, unlike the first two amendments, is motivated by China's economic development goals--especially its transition from a manufacturing-export-based economy to a high-technology, innovation-based economy. Over the past few years, China has modified the amendment language in a relatively transparent legislative process, highlighting the government's attempts to balance the rights of


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inventors with the broader public goals of information sharing and access to technology. One sign of the delicacy and care China gave to navigating this course: initially, Beijing projected that the revision process would take 18 months, but it has in fact lasted nearly three years. 2009 Amendment Requires Absolute Novelty China's Patent Law now includes a modified novelty requirement, which specifies certain types of public use of the invention-creation worldwide and others within China only. The 2009 Amendment, however, will require absolute novelty: if the invention-creation has been sold, offered for sale or manufactured anywhere in the world, novelty would be destroyed. This change will harmonize China's Patent Law with international standards. First Filing Requirement Is Relaxed – But There Are Caveats Under current law, an invention-creation by a Chinese entity or individual that is made in China must be filed first in China. This requirement was maintained throughout several drafts of the 2009 Amendment, but has been relaxed in the most recent version so that a foreign first filing licence can be officially obtained. This provision in the Patent Law has historically, and may still, create some uncertainties for foreign enterprises, particularly those involved with significant research and development activities in China. Without the blanket first filing restriction, however multinationals with R&D operations in China should be able to retain flexibility and control over their international patent filing strategy. There remain two concerns, however. First, it is unclear how the State Intellectual Property Office (SIPO) will treat foreign patents that were filed abroad in contravention of the current rules. Second, although the 2009 Amendment does allow for first filing abroad, it also contains a mandatory licensing process on grounds of State security. The interests of the State are not listed or otherwise defined in the 2009 Amendment, so future application of this procedure is unclear. Prior Art Defense The 2009 Amendment may simplify infringement proceedings by confirming the prior art defense, whereby civil courts or the Patent Re-examination Board may make a finding of non-infringement if the technology or design at issue is determined to be prior art. Because it is common for separate invalidation proceedings to be initiated in response to a civil action for infringement, current dispute practice may include parallel civil and administrative actions. Enforcement Since utility models and design patents do not undergo substantive review during the examination process, infringement actions may be filed when the underlying patent lacks novelty. The 2009 Amendment requires that, before a patent infringement action can be initiated, an official search report must be produced by the utility model/design patent owner. This puts current judicial practice onto a statutory footing and avoids stays, pending separate validity challenges. It will not only speed up infringement actions, but should also do away with frivolous filing or threats of filing of infringement suits on so-called junk patents whose novelty status is questionable. Statutory damages, for cases in which it is difficult to determine direct damages (which is often the case


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with no automatic discovery), will be increased in the 2009 Amendment from a maximum of RMB 500,000 to RMB 1 million. Scope of Patentable Matter Does Not Include Software Given the high rates of software piracy in China and the difficulties in using copyright in enforcement proceedings, many companies would like to use patent rights to fight infringement. However, despite numerous calls from software enterprises, industry associations and the legal community, the 2009 Amendment does not broaden the scope of patentable subject matter to include computer programs. Compulsory Licenses There is some concern over the uncertainties in the Patent Law and the Anti-Monopoly Law with respect to compulsory licensing. The 2009 Amendment states that SIPO may grant a compulsory license to exploit a patent for an invention or utility model if the patent holder has not done so within three years from the grant of the patent. Additionally, if a patent holder is determined, through a legal or administrative procedure, to have used a patent in an anti-competitive manner, then a compulsory license may be granted. Future clarification will be needed from implementing regulations as well as enforcement practices. The 2009 Amendment also includes provisions that allow for compulsory licensing during public health emergencies, maintaining the government's ability to respond to outbreaks of disease per the Doha Declaration on the TRIPs Agreement and Public Health and subsequent WTO pronouncements. Amendment Portends Legal Reforms in Other IP Areas This latest amendment of China's Patent Law was not initiated solely as a response to the needs of harmonization with international law. The changes are part of an overall effort, as set forth in detail in the 2008 National Intellectual Property Strategy, to spur domestic innovation and propel China's economic development forward. Because Beijing believes that such innovation requires a robust system of IP protection, we can also expect to see positive legal reforms to China’s trademark, copyright and unfair competition laws.


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