This article is written by Triveni Singal, who is pursuing a Diploma in Intellectual Property, Media and Entertainment Laws from LawSikho.
Better late than never, the fourth amendment to the Chinese Patent Law was passed by the Standing Committee of the Thirteenth National People’s Congress on October 17, 2020, 12 years after the third amendment took place in 2008. The amendments to the law will be effective from June 1, 2021. China has conquered new levels of development, and technology over the last decade and it was high time that their patent laws were molded to strengthen IP protection further, cater to the new market needs, and encourage investors and designers in China. This article analyses some of the major amendments to the Chinese patent law.
CNIPA administered patent open license system (Articles 50-52)
From among the several different kinds of licensing that can take place concerning intellectual property, open licenses are one. Here, some conditions are set forth by the IP holder regarding the original work that grants permission for anyone to utilize that work as long as they follow the conditions of the license. In other words, these licenses permit any third party to use the work of the IP holder without any cost and can also allow modifications with minimal restrictions. Open licensing has been very prominent in the field of copyrights.
The Chinese amendment has created a system for a patent open license to promote the practice and utilization of granted patents. Any patentee can provide a patent license to a third party to use the said patent by filing a written declaration with the CNIPA (China National Intellectual Property Administration). The declaration must state the payment methods and standards for patent license fees. The declaration is then published by the CNIPA for the execution of the open license. Further, if the subject matter of the open license is a patent for utility model/design, then an evaluation report of the patent has to be furnished along with the declaration. Such an open license cannot be granted exclusively to any one entity.
After the publication of the declaration, any third party willing to utilize the open license may obtain it by filing a written notification to the patentee and furnishing the license fees as per the conditions set out. During the execution period of the open license, the annuity fee payable to CNIPA shall be reduced or exempted.
The patentee also has the option of withdrawing his open license declaration by filing a written request to the same effect, which is subsequently announced by the CNIPA. However, such a withdrawal does not affect the validity of any open license in force.
Any dispute regarding the open license shall be resolved through negotiation between the parties. If the negotiation fails or a party is not willing to negotiate, then a request can be forwarded to CNIPA for mediating or instituting legal proceedings in the court for dispute resolution.
How beneficial is the patent open license system?
There is currently no patent office in the world with such a system in force and so only time will tell whether this proves to be beneficial or not.
- However, certain possible benefits could accrue from this system, such as the pooling of open licenses to facilitate an online exchange which will eliminate costly bilateral licensing transactions and replace it with a more accessible market-based trading platform.
- Supplemented by the blockchain and China’s national digital currency (DCEP), such exchanges could be enhanced profusely, which would lead to rapid broadcast and dissemination of new technology and lower barriers to access technologies for small firms and start-ups.
- Additionally, there would be better transactional visibility, transparency, and traceability concerning IP valuation and reporting because online transaction recording combined with the inherent immutability of the blockchain ledger obviates problems of fraud, the need for auditing, and manual bookkeeping (which is error and fraud-prone).
- In turn, more accurate and timely reporting of IP value paints a truer picture of a company’s worth in Initial Public Offering (IPO), annual, or other reports
- Currently, patents are valued using cost-based/income-based methods or using any other indicators like citations. But with the open license system an actual market pricing data would be provided eliminating the guesswork inherent in these traditional valuation methods.
- Lastly, the failed initiative of the Intellectual Property Exchange International, Inc. (IPXI) to standardise and commoditise patent licenses to facilitate their trading on an open market with a standard, the non-exclusive contract called a Unit License Right could get a fresh face and beginning owing to this system.
Patent linkage system for pharmaceutical patents (Article 76)
Article 76 provides for an early resolution process for disputes concerning drug patents. According to it, in case of dispute (between an applicant for a drug marketing authorisation and a patentee of a patent right concerning the drug) during the process of marketing review and approval, either of them can institute legal proceedings in the court seeking a judicial determination as to whether the technical solution related to the drug falls within the patent protection scope. Such a decision must be reached within the prescribed time frame based on which the NMPA (National Medical Products Administration) then may/may not suspend the approval for marketing of the drug. Furthermore, the parties can also request CNIPA for an administrative adjudication on the matter.
The amendment also mandates NMPA and CNIPA to collaborate and jointly declare specific measures for the patent linkage and the dispute resolutions relating to such patents. Thus, statutory recognition has been given to the patent linkage system in China via this amendment, which also aims to resolve potential patent disputes before relevant drugs are marketed. Detailed rules regarding the same are still awaited.
Increasing patent infringement damages to further deter patent infringement (Article 71)
- The punitive damages, almost five times higher, have been introduced for serious circumstances involving willful infringement.
- Statutory damages have been increased up to five times
- The burden of producing evidence related to damages arising due to infringement can be shifted to the accused infringer.. Thus, the court can order the infringer to furnish their books of accounts and other materials to accurately calculate the damages. In the event the infringer refuses to furnish such evidence or submits fake evidence, then the court can evaluate the compensation amount based on the claims and evidence offered by the patentee. For calculating the damages, either the patentee’s actual losses or the benefits accrued by the infringer can be used first.
These amendments clearly show China’s intent at strengthening the protection granted to patents for the interests of legitimate patent owners.
Extension in patent term (Article 42)
The Fourth Amendment has provided a system to extend the patent term as compensation for unreasonable delay in patent prosecution process at the patent office or the time taken for the marketing approval and review of new drugs at the NMPA, where the former corresponds to the Patent Term Adjustment (PTA) system followed by the US Patent Office and the latter corresponds with the Patent Term Extension (PTE) system of the US. It is believed that this change was made in line with the China‐US phase 1 trade agreement called the “Economic and Trade Agreement Between the United States of America and the People’s Republic of China: Phase One.”
Where a patent was granted after four years from the filing date of the application and after three years from the date of the substantive examination request, CNIPA shall, at the request of the patentee, provide compensation for the term of the patent due to the unreasonable delay in the examination stage of the invention patent. In the case of drug patents, the CNIPA can grant an extension of a maximum of 5 years, and the total remaining patent term after a new drug is approved to be marketed cannot exceed 14 years. This amendment balances the interests of generic companies as well as innovative drug companies very well.
Amendments relating to design patents (Articles 2, 29, and 42)
The definition of designs has been amended and broadened to include partial design in the ambit of protection (Article 2). In other words, it is now possible to protect the design of a portion of the product also as opposed to the previous law wherein protection could only be granted to a complete product.
This move will specifically strengthen the design protection relating to graphic user interface (GUI), as now applicants won’t have to protect the product (that is the display screen panel) but instead the GUI design can be protected itself wholly or partly.
Beijing Qihu Tech. Co. and Qizhi Software Co. v Beijing Jiangmin New Sci, Tech. Co. This was China’s first GUI design infringement case and it also brought into light the problem with GUI design protection. At that time, partial claiming of designs was not permitted and so both the GUI and the hardware were included as subject matter for a patent. Since Jiangmin only produced software and not the underlying hardware, the Beijing IP Court held that Jiangmin’s software did not infringe the plaintiffs’ design patent both because the subject matter of the design patent included a computer, and because the software was neither an identical nor a similar product.
Further, the amendment has provided for domestic priority claims to be made within 6 months from the date on which the applicant first applied in China (Article 29). Article 42 as amended extends the term of the design patent to 15 years. This amendment is believed to be an attempt by China to join the Hague Agreement.
Other notable amendments made by China in their patent law
- Employers are being encouraged to establish methods for rewarding inventors and designers for service inventions so that they can reasonably share the revenue generated using the inventions (Article 6 and 15)
- Promotion of utilisation of patents by mandating CNIPA to improve the patent information public system service and dissemination of patent information (Article 21 and 48)
- CNIPA has been empowered to handle patent infringement disputes which have a nationwide impact as a step towards improving patent administrative enforcement (Article 70)
- An additional requirement of “good faith” has been inserted to be furnished with the patent application and enforcement (Article 20)
- A new exception has been added wherein the novelty of the invention would not be destroyed, that is, in case the invention was made public for the public interest, due to a national emergency/other extraordinary circumstance (Article 24)
By introducing greater protection, improved administration, improvement in patent-related public services, promotion of the use of patents, mechanisms to reduce abuse in its fourth amendment, China has definitely strengthened its patent law many folds which will eventually boost its economy. Some of the changes even exceed the patent law of most other jurisdictions in the world. With new avenues such as open licensing, there is a greater possibility of dissemination of technology across the country.
It is also particularly interesting to note that the amendments have been released around the same time as China’s latest five-year plan, which emphasises technological independence and supplement earlier announcements to achieve leadership in key technologies, notably 5G, the Internet of Things, biotech, AI, etc. However, the actual effects of these will only be known in the coming years.
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