Chinese Patent Law System - Sutherland

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Dec 1, 2012 (4 years and 6 months ago)

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2005 Sutherland Asbill & Brennan LLP. All Rights Reserved.

This article is for informational purp
oses and is not intended to constitute legal advice.

1




Chinese Patent System and Its Enforcement


Lei Fang


TABLE OF CONTENTS


Introduction

................................
................................
................................
................................
...

2


An Overview of Chinese Patent Law Incorporating
the Amendments

................................
...

3


Patentable Subject Matter:

................................
................................
................................
..........

3

Patentability:

................................
................................
................................
...............................

3

Inventorship and Ownership:

................................
................................
................................
......

4

First
-
to
-
File and Priority:

................................
................................
................................
............

5

Patent Application:
................................
................................
................................
......................

5

Examination Process:

................................
................................
................................
..................

6

Appeal Process: Reexamination and/or Reconsideration:

................................
..........................

7

Patent Terms, Patent Rights and

Obligations:

................................
................................
............

7

Compulsory License and Measures:

................................
................................
...........................

8

Infringement and Remedies:

................................
................................
................................
.......

8


Comparison of the Chinese and U.S. Patent Law:

................................
................................
...

10


Patentability:

................................
................................
................................
.............................

10

First
-
to
-
file” system and Absolute Novelty
:

................................
................................
.............

10

Compulsory License:

................................
................................
................................
................

11

Patent rights:

................................
................................
................................
.............................

11

Other significant
differences in Patent Prosecution:

................................
................................
.

11

Patent Litigation:

................................
................................
................................
.......................

12


Social and Cultural Problems for Enforcing and Implementing Patent
Protections in
China:

................................
................................
................................
................................
...........

12


Improvements for Chinese Patent and Other IP Protections:
................................
................

13


Conclusion:

................................
................................
................................
................................
..

15


References:
................................
................................
................................
................................
...

16






2005 Sutherland Asbill & Brennan LLP. All Rights Reserved.

This article is for informational purp
oses and is not intended to constitute legal advice.

2





Introduction


Since China “opened its door” in 1979, the Chinese government has realized the
importance of protecting IP rights by actively participating in internation
al cooperation programs
for IP protection. For instance, China joined the World Intellectual Property Organization
(WIPO) in 1980, and became a member of the Paris Convention for the Protection of Industrial
Property Rights in 1985. Since 1994, China is
a member of Patent Cooperation Treaty (PCT),
and since 2001, China has ratified the agreement on Trade Related of Intellectual Property
Rights (TRIPS).

In 1984, China enacted its first patent law granting patents for inventions, utility models
and design
s in order to promote modern science and technology development. However, the
1984 Patent Law provides little protection to pharmaceutical and chemical inventions. In 1992,
China amended the 1984 Patent Law in compliance with an agreement between China a
nd the
United States, i.e., the Memorandum of Understanding (MOU), as well as with an effort to join
the WTO. The 1992 Amended Patent Law extends the duration of patent protection and includes
the protection of pharmaceutical and/or chemical inventions, a
nd microbiological products and
processes. The 1992 Amended Patent Law promotes and encourages investment in
biotechnology research and development, and increases the importation of
chemical/pharmaceutical products
1
.

In 2000, the Chinese Patent Law was am
ended again to include the Implementation Rules
for Patent Law, which took effective on July 1, 2001. The amendments provide patent owners
new substantive rights, such as rights of “offer for sale”. The 2001 Amendments of the Patent
Law also simplify pat
ent application procedures and improve administrative and judicial
enforcement procedures
2
.

This paper first provides an overview of the Chinese patent law incorporating its
Amendments. The paper also compares the Chinese patent prosecutions and litigatio
ns with the



1

The major changes in the 1992 Amendment include (1) food, beverages and flavorings, p
harmaceutical products
and substances obtained by means of a chemical process are patentable subject matter; (2) the patent terms are
expanded from 17 years to 20 years from date of filing; (3) patent rights are granted for preventing others from
importing

the patented product, or products directly produced from the patented process, for use or sale for
production or business purposes; (4) the conditions for granting compulsory licenses are more consistent with the
requirement of MOU; (5) a domestic priorit
y right is recognized; and (6) new remedies are added for persons who
pass off unpatented products or processes as patented products and processes. Based on this amendment, new
pharmaceutical products, new uses for known pharmaceutical products, pharmaceu
tical compositions and
agricultural products were eligible for patent protection beginning in 1993. Moreover, the Chinese government has
agreed to provide retroactive administrative protection to certain U.S. pharmaceutical and agricultural chemical
produ
cts that meet certain substantive requirements, and were denied protection under the 1984 Patent Law.

2

The major changes in the 2001 Amendment provide 1) new judicial and administrative protections; 2) improved
application procedures; and 3) simplified e
nforcement procedures.






2005 Sutherland Asbill & Brennan LLP. All Rights Reserved.

This article is for informational purp
oses and is not intended to constitute legal advice.

3




U.S. patent practice. Moreover, this paper discusses some social and cultural problems for
enforcing and implementing patent or other IP protection in China, and arduous improvements
and efforts that the Chinese government has taken to strengt
hen the patent and other IP
protections in China. The paper concludes that China has achieved a noticeable great
improvement in patent and IP protections particularly over the past few years. However,
practically speaking and with a population of 1.3 mil
lion, China still has a substantial long way
to go to match and/or resemble the patent and/or IP enforcement mechanisms of the U.S. or other
advanced western countries.

An Overview of Chinese Patent Law Incorporating the Amendments


Patentable Subject Mat
ter:

In 1984, China promulgates the first Patent Law of the People’s Republic of China (“the
1984 Patent Law”). The 1984 Patent Law protects three forms of inventions
-
creations:
inventions, utility models (e.g., improvement relating to shape or structure)

and design. It,
however, explicitly excludes from patent protection (1) scientific discoveries; (2) rules and
methods for mental activities; (3) business methods; (4) methods for the diagnosis or treatment
of diseases; (5) animal and plant varieties (pro
duct only); (6) substances obtained by means of
nuclear transformation; and (7) food, beverages and flavorings, pharmaceutical products, and
substances obtained by means of a chemical process
3
.

Moreover, any invention
-
creation that is
contrary to State or

social morality or detrimental to public interest is also excluded from patent
protection.

Patentability
:

The invention
-
creation that can be protected under the Chinese Patent Law must be
novel, inventive, and must have practical applicability. The term

“novelty” refers to something
previously non
-
existent,
i.e
., absolute novelty, meaning that before the Chinese filing date or an
appropriate priority date, no identical invention or utility model has been publicly disclosed in
publications in China or abr
oad or has been publicly used or made known to the public by any
other means in China. The term “publicly disclosed” refers to a disclosure that may be made by
word of mouth; in a document; by making an example of the invention or utility model freely
ava
ilable; and as a result of someone else doing the same thing. Novelty is defeated if a patent
for an identical invention or utility model was previously granted elsewhere, or published after
the date of filing. However, novelty is not defeated if within
six months before the filing date,
the disclosure was first made public at Chinese government sponsored or recognized
international or prescribed academic or technological meetings, or without the applicant’s
consent.




3

Can be protected under the 1992 Amended Patent Law.






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oses and is not intended to constitute legal advice.

4




Inventiveness requires that the inve
ntion has prominent substantive features and
represents a notable progress. “Substantive features” means the essential differences of the
invention or utility model from the existing technology that is available before the filing date and
publicly publish
ed or nationally known, and all necessary features constituting the invention or
utility model must not be directly deducible from the existing technology. That means the
invention must show “substantive differences” which are beyond the thoughts of a per
son skilled
in the art, and must have “better technical results” than the prior art. Moreover, the “substantive
features” of the invention or utility model must be prominent and the progress of the invention
must be notable.

Practical applicability req
uires that the invention or utility model can be made or used in
some industries, and can be reproduced many times, providing good social, economic and
technical results. The practical applicability requirement reflects the goal of the Chinese Patent
Law
to encourage inventive activities for developing the national economy, and has a broader
meaning than the term “industrial applicability” adopted in other counties.

Inventorship and Ownership:

Any Chinese “inventor or creator” can apply for a Chinese pate
nt. For service invention
-
creation, the right to apply for a patent belongs to the entity which the inventor works for. The
term “service invention
-
creation” refers to invention
-
creation made by the inventor in the course
of performing his duty; in the e
xecution of any task, which was entrusted to him by the entity to
which he belongs; or within one year from his resignation, retirement or change of work, where
the invention
-
creation relates to his own duty or tasks entrusted to him by the entity to which

he
previously belonged. Foreign applications must be made through registered patent agents
designed by the State Council of the Chinese government. In addition, the foreign countries that
the foreign applicants reside must have an agreement or be a trea
ty with China, or have
reciprocal rights with China.

The ownership of a patent depends on the nature of the applicant in question. If an
application is filed by an state
-
owned entity, the patent right is held by the entity but owned by
the State. If th
e applicant is an entity under collective ownership or with foreign investment, the
patent right is owned by the entity. The ownership of a patent belongs to individual
inventors/creators or designers if the inventions, utility models, or designs are non
-
service
intention
-
creation. The Chinese Patent Law also provides that if there is a contract between the
employer and employee that stimulates the ownership of the patent rights, the contract will
prevail.






2005 Sutherland Asbill & Brennan LLP. All Rights Reserved.

This article is for informational purp
oses and is not intended to constitute legal advice.

5




First
-
to
-
File and Priority:

The Chinese Patent La
w adopts a “first
-
to
-
file” rule, that means, where two or more
applicants file applications for a patent for an identical invention
-
creation, the patent right is
granted to the applicant whose application was filed first. Where two or more applicants subm
it
an application on the same day, the Chinese practice first allow the applicants to work out among
themselves as to who should be the applicant. If the dispute can not be resolved, the parties may
also request the patent administrative body or the relev
ant department of the State Council, or
seek help from the People’s Court to determine who should be the applicant. No patent will be
granted during the dispute, and either party may request the Patent Office to suspend the
application until the dispute i
s resolved.

The Chinese patent practice also recognizes the right of priority for an application filed in
a Paris Convention foreign country within 12 months (six months for design patents) before
filing in China. The prerequisite for the right of priori
ty is application in a foreign country. An
applicant for the right of priority is required to provide the following: a) a written declaration
when the application is filed, and b) a copy of the priority document within three months from
the Chinese filing
. The right of priority is assumed to be abandoned if the applicant failed to
provide the required documents without valid reason. Moreover, the scope of the right of
priority only applies to the first application.

Patent Application:

Chinese patent appl
ications, like those in U.S. and other countries, are complicated and
require substantial documentation. A Chinese patent application must be written in Chinese, and
an application for an invention or utility model must include a request, a description an
d claims
4
.
The request should state the title of the invention or utility model; the name of the
inventor(s)/creator(s); the name and address of the applicant(s); the patent agency name, if
applicable; requested priority, if any; and lists of documents co
nstituting and appending the
application.

The description provides a detailed description of the invention or utility model so as to
enable the Patent Office to determine whether or not the application should be granted as a
patent. The description should

include a) the title of the invention or utility model as appearing
in the request; b) the technical field to which the invention or utility model relates; c) the prior art
and other related documents known to the applicant that can help the Patent Office

to understand,
search, and exam the invention or utility model; d) the purpose of the invention or utility model;



4

For a design patent application, a request, drawings or photographs of the design must be submitted, and the
product incorporating the design and the class (designated by the P
atent Office’s classification of products for
design) to which that product belongs must be indicated.






2005 Sutherland Asbill & Brennan LLP. All Rights Reserved.

This article is for informational purp
oses and is not intended to constitute legal advice.

6




e) enablement, meaning that, the applicant must describe the invention or utility model in a
manner (best mode) sufficiently clear and comple
te so as to enable a person skilled in the
relevant field of technology to carry it out; f) the merits or effective results of the invention or
utility model as compared with the prior art; g) the description of the figures in the drawings; and
h) a detail
ed description of the best model contemplated by the applicant for carrying out the
invention or utility model.

The claims define the invention or utility models, and determine the extent of patent
protection for the inventions and utility models. The c
laims must be supported by the
description. In addition, one application can only contain one invention, utility model or a single
inventive concept.

Examination Process:

All Chinese patent applications are submitted to the State Intellectual Property O
ffice
(SIPO) in Beijing for examination. Other provincial and municipal intellectual property offices
are only responsible for the administrative enforcement, and play no role in the examination
process. China has adopted a delayed examination system for

inventions and a registration
system for utility models and designs
5
. The delay examination system includes four steps: (1)
preliminary examination; (2) publication of application; (3) request for substantive examination;
and (4) substantive examination.

The preliminary examination is to ensure that the application meets the statutory filing
requirements. The applications for invention patents that pass the preliminary examination will
face a substantive examination upon filing a request. The Chinese ap
plication is usually
published within 18 months from the Chinese filing or priority filing, unless the applicant
requests an earlier publication or withdraws the application. The preliminary examination and
publication of the application makes the inventi
on public as prior art to preclude other similar
claims, enable the applicant to charge fees for the use of the invention; and provide time for the
applicant to seriously consider the substantive examination process.

In general, applicants for invention pa
tents have up to three years from the first Chinese
filing date to request a substantive examination. The main purpose for a substantive examination
is to ascertain the novelty, inventiveness and the practical applicability of the invention, and the
statu
tory conformity of the application. Applicants must submit relevant prior art to assist the
examination process. During the examination period, applicants may have opportunities to
amend the application to further conform to the Patent Law. After subs
tantive examination, the
Patent Office will grant a patent, issue a patent certificate, and register and announce the patent if



5

Registration system means that if the application for utility models or designs meets the statutory filing
requirements, and there is no cause for reje
ction, patent for utility models or designs will issue.






2005 Sutherland Asbill & Brennan LLP. All Rights Reserved.

This article is for informational purp
oses and is not intended to constitute legal advice.

7




the application is found to be satisfied with all the legal requirements provided by the Patent
Law.

Appeal Process: Reexaminati
on and/or Reconsideration:

There are two appeal procedures in China: the re
-
examination procedure and
reconsideration procedure. The reexamination procedure provides a mechanism for appealing
decisions on patentability and/or validity, and is conducted by

the Patent Reexamination Board
(PRB). When an applicant or any party is not satisfied with the Patent Office’s decision
rejecting the application for lack of novelty, inventiveness, or practical applicability, or revoking
or upholding the patent right
6
,
such applicant or party may request the PRB to review the
decision. The PRB decision is final for the utility model and design patents, but is subject to
civil lawsuit before the People’s Courts if the lawsuit is filed within 3 months from the date of
rec
eiving the PRB’s decision.

On the other hand, the reconsideration procedure provides a mechanism for appealing
only administrative acts or decisions of the Patent Office, and reconsideration cases are handled
by the Administrative Re
-
consideration Sectio
n (ARS). An applicant may, within 15 days from
the date of notification, request the ARS to make a re
-
consideration for any specific
administrative act committed by the Patent Office. The ARS must decide whether or not to
accept the case within 10 days f
rom the receipt of the application, and if accepted, must render a
decision in writing within 2 months. A reconsideration procedure is not available for any case
that is pending before the People’s Court. The applicant also cannot institute court proceed
ings
during the statutory period of the reconsideration procedure. The reconsideration decisions are
also subject to court proceedings in the Beijing Municipal Intermediate People’s Court within 15
days from the date of receipt of the written notification
. Since the scope for reexamination and
reconsideration procedures are so different, reconsideration procedures should not apply to
reexamination cases.

Patent Terms, Patent Rights and Obligations:

The term for invention patents is 20 years and the term
for utility models and designs is
10 years. An Extension of patent term may be available for invention patents. For applications
filed on or before December 31, 1992, and effective through December 11, 2001, the patent term
may be extended 20 years from

the filing date upon payment of the necessary annuity. A patent
right ceases before expiration for failure to pay the annual fees, or when patentee abandons such
right by a written declaration.




6

The revocation procedure is overlapped with the invalidation procedure.






2005 Sutherland Asbill & Brennan LLP. All Rights Reserved.

This article is for informational purp
oses and is not intended to constitute legal advice.

8




A patentee of a Chinese patent has the right to (1) make, of
fer for sale or sell, use, and
commercially exploit the patented products and processes; or to (2) exclude others from making,
using, offering for sale or selling the patented products and processes. The patentee also has the
right to prevent any other pe
rson from importing the patented product or the product directly
obtained by the patented process, if the importation is for production or business purpose. The
patent right can also licensed or assigned for fees, provided that the license agreement and/
or
assignment is in writing and submitted to the Patent Office within 3 months from its entry into
force.

The Chinese patent practice also imposes several obligations to a patentee. First, a
patentee must pay an annual fee beginning from the year in whi
ch the patent is granted. Second,
a patentee is required to exercise or exploit the patent to foster the application and dissemination
of the patented subjects so as to boost the national economy. If a patentee has not actively
worked on his/her inventio
n for three consecutive years, (s)he will face the risk of a compulsory
license.

Compulsory License and Measures:

A compulsory license may be granted by the Patent Office where (1) the patentee has not
actively exploited the patented invention for at leas
t three consecutive years; (2) a qualified
entity makes a reasonable but unsuccessful request for authorization within a reasonable period
of time; (3) the exploitation of a later invention depends on the exploitation of an earlier
invention; and (4) in th
e event of a national emergency, extraordinary state of affairs, or public
non
-
commercial use for public interest. The compulsory license is nonexclusive and
nontransferable, and the licensee of the compulsory license must pay the patentee reasonable
comp
ensation.

The Chinese Patent Law also provides compulsory measures for state owned entities and
Chinese persons and entities under collective ownership. It provides that state owned entities or
Chinese individuals or entities under collective ownership, w
ho possess a patent to an important
invention
-
creation of great significance to the interests of the State or to the public interest, and
who are in need of spreading the application, may be required to allow other designated entities
to exploit the patent
, subject to the payment of a fee.

Infringement and Remedies:

An exploitation of a subject matter protected under a patent without authorization of the
patentee constitutes an infringement. Patent infringement activities may include manufacturing,
offe
ring to sell or selling patented products; using patented processes or products directly
acquired by the patent processes for production or business purposes; and importing or exporting
patented products or products directly acquired through patented proc
esses. A patentee or any





2005 Sutherland Asbill & Brennan LLP. All Rights Reserved.

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oses and is not intended to constitute legal advice.

9




interested party alleging infringement of a patent must prove (1) an illegal act, directly or
indirectly, infringing a valid patent right; (2) damages to the patentee or any interested party; (3)
causation between the illegal act
and damages; and (4) fault by the accused infringer. In China,
each party is responsible for presenting evidence to support its claims, and all evidence must be
presented in court and is subject to cross
-
examination.

The Chinese Patent Law also recognizes

certain acts as non
-
infringement acts. For
instance, the “prior use” exception states that a person, other than the patentee, who had worked
on, or made serious preparation for working on, the invention before the priority date, may
continue to work on t
he invention within the original scope, independently of the patentee and
despite the patent. In addition, the Chinese Patent Law excludes from infringement for
“scientific research or experimental use” and “innocent use” if a person uses or sells the pat
ented
invention, not knowing that it was unauthorized. Moreover, a foreign entity’s temporary and
authorized exportation of the patented invention is excluded from infringement.

When infringement disputes arise, the Chinese Patent Law encourages the parti
es to first
resolve the infringement disputes through negotiation, mediation or arbitration. If a settlement
agreement can not be reached, the parties may then seek help through administrative adjudication
and/or civil litigation. Serious cases may be su
bject for criminal prosecution.

Administrative adjudications are preferred for the majority of patent infringement cases
in China because the investigations may occur soon after filing the complaint, the patentee may
be able to participate in the investiga
tion, and the time required for rendering a decision can be
shorter than any civil litigation. However, administrative adjudications have the disadvantages
because of a lack of compensation and deterrence for further infringement. Local protectionism,
c
orruption, or a lack of resources may make the possibility that an investigation may not be
instigated. Further, a lack of coordination between administrative offices may make uniform
protection of patent rights difficult. Besides its responsibility for
granting patents, SIPO is also a
proper venue for initiating administrative enforcement. In serious cases, SIPO may refer a
matter for criminal prosecution. The administrative remedies may include injunctions and/or
fines of up to about $6000. Any admin
istrative remedies may be appealed to the People’s
Intermediate Courts. In addition, Customs Measures
7

may also provide relief for companies that
are victims of patent infringement.

Civil litigation is the second mechanism to enforce patent and/or other I
P rights. To
initiate a civil litigation for patent infringement, a written complaint must be filed in an



7

Customs measures refer to the Regulation of the People’s Republic of China on the Customs Protection of
Intellectual Proper
ty Rights and the Implementing Measures of Customs for the Protection of Intellectual Property
Rights. A patentee must record its Intellectual Property with the Customs Service and file an allegation that
somebody is going to import or export a product in

violation of its rights in order for China Customs to begin
investigating and possible to detain suspected goods.






2005 Sutherland Asbill & Brennan LLP. All Rights Reserved.

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oses and is not intended to constitute legal advice.

10




Intermediate People’s Court in the relevant municipality, province, or special economic zone,
which together with the appellate Higher People’s Court
s, have maintained special IP Tribunals
since 1993. A statute of limitation for a patent infringement case is 2 years from the date the
patentee become aware or should have become aware of infringing activity. Preliminary
injunction may be available base
d on reasonable evidence of actual and/or imminent
infringement and a likelihood of causing irreparable harm resulting from the infringement.
Damages are determined based on lost
-
profit of the patentee, gain
-
profit of the infringer, or an
appropriate mult
iple of a reasonable royalty for the patent. Remedies available for civil litigation
may also include an issuance of a public apology, confiscation of unlawful gain or infringing
products and assets used in furtherance of the infringement. Although civil

litigation is quite
costly and time consuming and the damage awards are low, as Chinese legal personnel become
more educated in the importance of patent regulations, civil litigation in China begins to play a
larger role in preventing infringements and pr
operly enforcing patent and other IP rights.

For certain serious infringement acts, criminal liability may be imposed. Criminal
investigations start with the Public Security Bureau, and the matter may be transferred to the
Supreme People’s Procuratorate f
or prosecution. Criminal liability for patent infringement may
include up to seven years’ imprisonment, fines, and damages.

Comparison of the Chinese and U.S. Patent Law:


Although Chinese Patent Law was enacted on the basis of the U.S. and European pate
nt
law systems, major notable distinctions between patent practice in China and the U.S. are
discussed below:

Patentability:

Chinese Patent Law recognizes utility model patents providing limited protection for
improvements relating to shape or structure,
while U.S. Patent Law considers the equivalent as
part of the design patent. Until 1992
-
1993, chemical or pharmaceutical inventions are not
considered as patentable subject matter. Up to date, Software, business methods, methods of
diagnosing or treating

diseases, and many plant varieties are still unpatentable in China.

First
-
to
-
file” system and Absolute Novelty:

The Chinese Patent Law, like other European Patent Laws, adopts a “first
-
to
-
file” system,
contrary to the U.S. “first
-
to
-
invent” system, requi
ring absolute novelty as a prerequisite to
patentability. There is no grace period under Chinese patent practice comparable to the one
-
year
period under U.S. patent practice. Any invention that has been publicly known or used in China,
or disclosed in a
publication anywhere in the world is excluded from patent protection. This
means that inventors must file Chinese patents for their inventions before they publish their





2005 Sutherland Asbill & Brennan LLP. All Rights Reserved.

This article is for informational purp
oses and is not intended to constitute legal advice.

11




inventions anywhere in the world or publicly disclose their inventions in China. Ne
vertheless,
there is a six
-
month grace period for inventions where such invention (1) was first exhibited at a
Chinese Government sponsored or recognized international exhibition; (2) was first made public
at a prescribed academic or technological meeting;

and (3) was disclosed by any person without
the applicant’s consent (“innocent infringer defense”).

Compulsory License:

In contrast to U.S. Patent Law, the Chinese Patent Law and its Implementation provides
that a compulsory license for invention or utili
ty model patents can be obtained under certain
conditions as discussed above, and after the expiration of three years from the grant of the patent
right. It has been emphasized that such compulsory licenses are non
-
exclusive and
nontransferable, and shoul
d be authorized predominantly for the supply of China’s domestic
market. The licensee has to pay “adequate remuneration, taking into account the economic value
of the license. The license fee is generally negotiated by the parties, and if no agreement ca
n be
reached, the SIPO will adjudicate and make a final decision. In accordance with the MOU, the
Chinese government has placed strict standards on granting compulsory licenses for the
protection of valuable patents, and would decide each case on its indi
vidual merit. In contrast,
no compulsory license is available under U.S. patent law practice.

Patent rights:

Under U.S. patent practice, a patentee or assignee of a valid patent has only a “negative”
exclusive right to prevent others from making, selling
or using the invention protected by a
patent. However, a patent right does not give a patentee the right to make, sell or use his/her
own invention. In contrast, under Chinese patent practice, a patent right includes both “positive”
and “negative” rights
. That means, a patentee not only has a right to prevent others from
making, using or selling the invention protected by a valid patent, but (s)he also has a right to
make, use or sell his/her own invention. In fact, the patentee has to exercise his/her
positive right
to exploit the invention protected under a patent in order to avoid a risk of compulsory license.

Other significant differences in Patent Prosecution:

For example, foreign applicants must appoint a Chinese agent designed by Chinese
authoriti
es to represent them before the SIPO. Chinese patents do not extend to Hong Kong or
Macao, where they remain separate and independent patent systems. Moreover, China and U.S.
have different extension fee procedures, maintenance fee schedules, reexaminati
on procedures
and some patent terms.






2005 Sutherland Asbill & Brennan LLP. All Rights Reserved.

This article is for informational purp
oses and is not intended to constitute legal advice.

12




Patent Litigation:

Unlike U.S. legal system, Chinese legal system is a civil law system, that does not
support case laws, and renders any decisions on legal opinions with laws, statutes, and
regulations. With respect

to patent litigation, Chinese patentee prefer mediation and/or
arbitration through administrative adjudication. Because there is no Chinese counterpart to the
U.S. concept of discovery, Chinese judges conduct discovery and collect evidence. Each party i
s
responsible for representing evidence to support their claims, and all evidence must be presented
in court and subject to cross
-
examination. While U.S. plaintiffs must prove infringement,
Chinese defendants must prove non
-
infringement in certain cases.

In determining invention
scope, unlike U.S. practice, Chinese practice does not recognize a doctrine of equivalents and file
wrapper estoppel. Chinese patent litigation also limits litigants to one binding appeal, recognizes
innocent infringer defense, a
nd forces patentees to issue compulsory licenses if they refuse
reasonable license terms. Because of local favoritism and protectionism, the decisions for patent
protection and/or validity often depend on where suits are brought.

Social and Cultural Probl
ems for Enforcing and Implementing Patent Protections in
China:


Chinese cultures and legal systems are very different from those in the U.S. The rule of
law has never been the dominant philosophy in China; instead, the Chinese relies mostly on
mediation
or other sources outside of the court system to resolve their disputes. Although the
Chinese government has engaged in significant efforts to enact IP protection, the lack of
effective enforcement of these laws in China has been a long
-
standing problem.

T
he first essential issue for the lack of enforcement of IP laws is the education and
cultural issue. For centuries, Chinese believe that inventions and creative works belong to
society, and should be freely shared or owned by the Chinese Government. Ther
efore, as
traditional Chinese culture does not consider IP rights as private rights, the entire concept of IP
protection is quite new. Many Chinese and business entities are not aware of their IP rights and
the need to seek protection; and many infringers

do not know that their activities infringe other’s
private rights.

Second, since IP rights and protections are a new concept in the Chinese legal system,
most Chinese lawyers and judges have no experience in this field. Currently, China is short of
lawye
rs specialized in patent and other IP law, and the judges who are dealing with patent and
other IP disputes are mostly inexperienced law school graduates. There are no clear judicial tests
to determine infringement, and disparate treatment and inconsisten
t results would be obtained
from different courts.






2005 Sutherland Asbill & Brennan LLP. All Rights Reserved.

This article is for informational purp
oses and is not intended to constitute legal advice.

13




Third, the Chinese local government’s lack incentives to enforce the patent and other IP
laws in China. Since China is engaged in a decentralizing economic reform, the local
governments have been provided

wide power and great discretion in dealing with problems in
their own territories. They do not have to be consistent with the central government on all
issues. Although the central government has expended great efforts to protect IP rights and sees
thei
r benefits for the future, local governments do not want to enforce IP law because it provides
little imminent benefit to the local economy. Instead, it often imposes a harsh consequence,
causing local state
-
owned enterprises to go bankruptcy or experienc
e financial trouble, thus,
diminishing the local governments’ revenue.

Furthermore, China is experiencing widespread corruption. Such corruption causes an
inconsistent interpretation of the regulations and rules between government agencies. As a
result,
many Chinese laws and regulations, including patent and other IP laws are futile.

Moreover, as discussed above, there are two enforcement mechanisms in protecting
patent and other IP rights: administrative adjudication and judicial civil litigation or crim
inal
prosecution. Under administrative adjudication, a government agency may mediate the disputes
between parties in relation to the unauthorized use. The outcomes of the dispute may totally rely
on government officials’ subjective understanding of the d
ispute and interpretation of the rules
and regulations. If the mediation fails, the injured party may seek judicial relief. However, no
Regulation indicates or specifies what kind of relief that the injured party can seek in the
People’s Court.

Improveme
nts for Chinese Patent and Other IP Protections:


Despite establish and keep improve a relative complete system of patent laws and
regulations that covers a wide range of subjects and is in line with generally accepted
international rules, the Chinese gove
rnment realizes the importance and difficulties for the
effective enforcement of patent and IP protections in China. Major progress has been made on
IP protection in China over the past years.

China has developed a fairly comprehensive system for patent

work, and its patent work
has been dramatically improved. The SIPO in Beijing is the China Patent Office that handles
domestic and foreign patent applications. From 1985 to the end of 2004, the SIPO handled over
2 million patent applications with an ave
rage annual increase of 18.9%, of these, over 1.5 million
(about 82% of the total applications) were domestic applications. It took China about 15 years
for applications to reach one million, but only four years for the number to double. By the end of
20
04, the SIPO had approved about one million patents (about 87% of the total approved
patents), of these, about 14.8% approval for invention patents, 51.9% approval for utility model
patents, and 33.3% approval for design patents. China now has more than 5
000 people working





2005 Sutherland Asbill & Brennan LLP. All Rights Reserved.

This article is for informational purp
oses and is not intended to constitute legal advice.

14




in patent agencies, and a service system mainly providing patent commissioning, patent
information, patent technology transfer and evaluation has taken initial shape.

In order to boost foreign patent and other IP applications in China,
the Chinese
government has also devoted great efforts to adjusting and improving international rules
regarding IP protection. China has held talks, set up high
-
profile visits, and engaged in
exchanges and cooperation with U.S. or other European counties,

international organizations and
foreign
-
invested enterprises in the field of IP protection. As suggested by the U.S., China and
the U.S. have held a round
-
table conference on IP rights and protection every year since 2003,
and reached agreement on many I
P right and protection related issues. In 2004, China and
European Union held their first round of talks on IP protection in Beijing, and an initial
agreement was reached on matters of cooperation.

Foreign applications filed in China, or through PCT to
enter into China have dramatically
increased. From 19985 to the end of 2004, the SIPO handled about 410,567 patents from other
countries, accounting for 18% of overall 2 million patents that the SIPO handled during that
time. Of these, 74,864 patents wer
e handled in 2004, accounting for 21.2% of the total and an
increase of 30.8% over the previous year, i.e., 57,249 patents in 2003. International patent
applications that entered China via PCT totaled 157,770, of these, 32,438 applications were
submitted
in 2004. By the end of 2004, the SIPO had approved 162,231 patents from other
countries, accounting for 12.9% of the total number of approved patents, of these, 38,910 patents
had been approved in 2004, accounting for an increase of 19.2% over the previou
s year, i.e.
32,638 patents in 2003.

Moreover, administrative and judicial law enforcements have also been strengthened in
IP protection through the combination of routine management and supervision with special
crackdown campaigns. Many other alternative

dispute resolutions, such as conciliation,
mediation, arbitration or settlement through the Administrative Authorities for Patent Affairs
have been offered. A coordinated and effective work system and a law enforcement mechanism
have been established and

improved. Several departments with the duty to IP protection have
been assigned.

For instance, besides the SIPO, the Chinese government has created the United IP
Protection Center, a “national intellectual property rights watchdog”, to conduct investig
ation,
gather evidence and file lawsuits on national and regional levels for the purpose of monitoring
the enforcement of IP rights. To further strengthen IP right protection, in 2004 China established
the State IPR Protection Work Team headed by a vice
-
p
remier of the State Council, responsible
for planning and coordinating the work regarding IPR protection throughout the country. A
work mechanism involving the coordination of administrative law enforcement and criminal law
enforcement has been establishe
d, creating a joint power to deal with IP infringements, and
ensuring that suspected criminal cases enter the judicial process promptly. Identical procedures





2005 Sutherland Asbill & Brennan LLP. All Rights Reserved.

This article is for informational purp
oses and is not intended to constitute legal advice.

15




in dealing with IP lawsuits have been established and implemented for all the courts in different

provinces, municipalities and economic zones.

In recent years, a large increased number of IP infringement cases have been adjudicated
through judicial processes, and the infringed parties have received timely compensation and
relatively large and fair
damages for their losses. Several IP
-
related crime cases have been
effectively combated. From 1998 to 2004, courts throughout the country concluded 38,228 civil
cases and 2057 criminal cases involving IP infringement, handing down sentences to 2,375
crim
inals. Of these, 8,332 civil cases and 385 criminal cases were handled in 2004, and 528
criminals were published in 2004.

China has also tried to improve the quality of judges by promulgating a new state test
system for all qualified judges, and to crea
te a new contingent of judges, instead of recruiting
from the old cadres, especially, in the patent infringement and other IP courts. China has
established a special trial division for IP cases, such division has exclusive jurisdiction over all
IP cases i
n several High People’s Courts and Intermediate People’s courts. The Chinese
Supreme People’s Court has also established an IP Office in dealing with IP related cases.

Furthermore, the Chinese government also realizes that in order to effectively enforce
its
patent and other IP laws, people must be educated to understand these laws. Although it will be
a long process, a nationwide campaign to publicize the system of patent and other IP protections
and to educate and train professions in these fields has b
een initiated. For instance, in 2004, the
Chinese government launched a special one
-
year campaign to protect IPR across the country.
Many Chinese Universities have instituted intellectual property courses, and offered a second
bachelor degree in IP law.

New schools of IP have also been established.

In addition, the business community in China has increased support for enforcement of
patent and other IP laws. For instance, most medium and large
-
sized business enterprises in
China have full or part
-
time
patent specialists. Different organizations in dealing with patent and
IP protections, such as the Enterprise Patent Specialist Association, the Intellectual Property
Protection Services, and the Intellectual Property Rights Exchange Market have also been

created in China. China now also has private law firms and public organizations that specialize
in tracking down infringers. Overall, the central Chinese government has adopted an honest
approach to solving the problems and is making great efforts to im
prove its patent and other IP
systems.

Conclusion:


China has modernized its patent law “at a speed unmatched in the history of intellectual
property protection” and has made remarkable progress in patent protection. Chinese Patent Law
is very close to Eu
ropean and U.S. patent law with a few exceptions. The only problem that





2005 Sutherland Asbill & Brennan LLP. All Rights Reserved.

This article is for informational purp
oses and is not intended to constitute legal advice.

16




China is facing now is effective enforcement of its Patent Law and Implementations. Due to
enormous bureaucracy and traditional Chinese culture, it will be unrealistic to expect Chin
a to
train hundreds of patent examiners, patent litigants and judges, create an efficient national filing
system and litigation system, and educate the public in a short period time. It is a long and
arduous process and it will be a long time before the
Chinese patent system resembles the one in
the U.S.

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David Hill & Judith Evans,
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2005 Sutherland Asbill & Brennan LLP. All Rights Reserved.

This article is for informational purp
oses and is not intended to constitute legal advice.

17




12.

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